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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20459
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ___________ to ___________
COMMISSION FILE NUMBER 0-2610
ZIONS BANCORPORATION
(Exact name of Registrant as specified in its charter)
UTAH 87-0227400
(State of other jurisdiction of (Internal Revenue Service Employer
incorporation or organization) Identification Number)
One South Main, Suite 1380
Salt Lake City, Utah 84111
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (801) 524-4787
Securities registered pursuant to Section 12(b) of the act: None
Securities registered pursuant to Section 12(g) of the act:
Common Stock - without par value
- --------------------------------------------------------------------------------
(Title of Class)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ____
Aggregate Market Value of Common Stock Held by Nonaffiliates
at February 24, 1997 .............................................$1,492,613,000
Number of Common Shares Outstanding at February 24, 1997 ......14,576,026 Shares
Documents Incorporated by Reference:
Definitive Proxy Statement (See Part III, Item 10, Item 11, Item 12, and Item
13).
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ZIONS BANCORPORATION
ANNUAL REPORT FOR 1996 ON FORM 10-K
TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business 1
Item 2. Properties 11
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Executive Officers of the Registrant 12
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 13
Item 6. Selected Consolidated Financial Data 14
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 15
Item 8. Financial Statements and Supplementary Data 49
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 88
PART III
Item 10. Directors and Executive Officers of the Registrant 88
Item 11. Executive Compensation 88
Item 12. Security Ownership of Certain Beneficial Owners and Management 88
Item 13. Certain Relationships and Related Transactions 88
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 88
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PART I
ITEM 1. BUSINESS
Zions Bancorporation (the Parent) is a multibank holding company organized under
the laws of Utah in 1955, registered under the Bank Holding Company Act of 1956,
as amended. Zions Bancorporation and its subsidiaries (the Company), is the
second largest bank holding company headquartered in Utah and provides a full
range of banking and related services primarily in Utah, Nevada, and Arizona.
Its principal subsidiaries are banking subsidiaries which include Zions First
National Bank, the second largest commercial banking organization in the state
of Utah; National Bank of Arizona, the fifth largest commercial bank in Arizona;
and Nevada State Bank, the fifth largest commercial bank in Nevada.
The Company's business and the businesses of many of its larger borrowers are
primarily concentrated in the state of Utah. Consequently, the Company's results
of operations and financial condition are dependent upon general trends in the
Utah economy and real estate markets.
The Company has focused in recent years on maintaining strong liquidity,
risk-based capital and cash flow positions and on developing strong internal
controls. An increasing focus is currently being placed on strengthening the
Company's core businesses of retail banking, small- and medium-sized business
lending, residential mortgage and investment activities by maintaining a
competitive cost structure. In addition to these core businesses, the Company
has built specialized lines of business in institutional investments, public
finance, and provides financing to small businesses and Farmer Mac agricultural
loans to improve revenue growth and profitability while attempting to minimize
risk. The Company's general operating objectives include enhancing the Company's
market position in Utah, Arizona, Nevada and surrounding states through
acquisitions of smaller depository institutions, and through the continued
development of the Company's present lines of business by use of new technology
to reduce cost and provide new and innovative ways to reach and serve customers.
The Company is committed to improving the communities it serves now and in the
years to come. The Company engages in a variety of loan programs which benefit
low to moderate income individuals; ranging from housing and business loans to
automobile loans and credit card programs.
At December 31, 1996, the Company had assets of $6.4 billion, loans of $3.4
billion, deposits of $4.5 billion, and shareholders' equity of more than $.5
billion. A more detailed discussion concerning the Company's financial condition
is contained in Part II of this report.
The Banking Subsidiaries
The banks provide a wide variety of commercial and retail banking and
mortgage-lending financial services. Commercial loans, lease financing, cash
management, lockbox, customized draft processing, and other special financial
services are provided for business and other commercial banking customers. A
wide range of personal banking services are provided to individuals, including
bankcard, student and other installment loans and home equity lines of credit,
checking accounts, savings accounts, time certificates of various types and
maturities, trust services and safe deposit facilities. In addition, direct
deposit of payroll, social security and various other government checks are
offered. Automated teller machines provide 24-hour access and availability to
customers' accounts and to many consumer banking services through statewide,
regional, and nationwide ATM networks. Customer transactions are processed
through the Company's ATMs, point-of-sale terminals, and ATMs operated by other
financial institutions.
Zions First National Bank in Utah has developed special packages of financial
services designed to meet the financial needs of particular market niches. The
Bank has also established a Private Banking group to service the financial needs
of wealthy individuals; an Executive Banking program to service the needs of
corporate executives of commercial clients, and an Affinity program which offers
discounted financial services to employees of commercial accounts on a group
basis. Zions Bank has also developed a series of products geared to the
lower-income customer, including the Flex Loan (a low-income personal loan), and
several low-income housing programs.
Zions First National Bank offers an electronic bill paying service activated
through a touch tone telephone, and a VISA(R) home banking product, under the
name "PC Banker" which allows a retail customer to use a home computer to access
and transfer account balances, pay bills, and maintain and reconcile accounts.
Zions Bank also delivers electronically, State of Utah benefits through the use
of an electronic card system "Utah Horizon EBT" at statewide merchant locations.
"Reddi-Banker," an interactive video banking platform, allows customers to
obtain product information, open deposit accounts, obtain loans, buy insurance,
and purchase investment products.
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Zions First National Bank is a primary dealer in obligations of the United
States government and several federal agencies, and is a major underwriter and
distributor of municipal securities, and specialized securities such as the
government-guaranteed portions of U.S. Small Business Administration (SBA)
loans. Zions' Capital Markets group provides executable quotes on odd-lot
government and agency securities via DTN's electronic network and provides
financial advisory services to municipalities and other public entities.
Through Zions Small Business Finance division, Zions Bank provides SBA 7(a)
loans to small businesses throughout the United States. Zions Bank's SBA 504
department works with Certified Development Companies and correspondent banks
throughout the country, providing the nation's largest source of secondary
market financing for this loan program. Zions Agricultural Finance, a new
division, specializes in originating, underwriting, and servicing long-term farm
and ranch loans. Zions First National Bank's Small Business Investment
Corporation provides early-stage capital, primarily for technology companies
located in the Intermountain West.
Zions First National Bank provides correspondent banking services such as cash
letter processing, wire services, federal funds facilities, and loan
participations. Zions Bank's International Banking Department issues letters of
credit and handles foreign exchange transactions for customers, but it does not
take a trading position in foreign exchange. Zions Bank's Grand Cayman branch
accepts Eurodollar deposits from qualified customers, and places deposits with
foreign banks and foreign branches of other U.S. banks. Zions' banking
subsidiaries, however, do not engage in any foreign lending.
Both Zions First National Bank and Nevada State Bank have established trust
divisions which offer clients a variety of fiduciary services ranging from the
administration of estates and trusts to the management of funds held under
pension and profit sharing plans. They also offer custodian, portfolio, and
management services. The Trust Division of Zions First National Bank also acts
as fiscal and payment agent, transfer agent, registrar, and trustee under
corporate and trust indentures for corporations, governmental bodies, and public
authorities.
Other Subsidiaries
The Company conducts various other bank-related business activities through
subsidiaries owned by the Parent and wholly-owned subsidiaries of Zions First
National Bank. Zions Credit Corporation engages in lease origination and
servicing operations in Utah, Nevada, and Arizona. Zions Life Insurance Company
underwrites, as reinsurer, credit-related life and disability insurance. Zions
Insurance Agency, Inc., operates an insurance brokerage business which
administers various credit-related insurance programs in the Company's
subsidiaries and sells general lines of insurance. The Company's insurance
subsidiaries offer customers a full range of insurance products through licensed
agents. The products include credit life products, collateral protection
products, life policies, homeowners policies, property and casualty policies,
and commercial business owner type policies. Cash Access, Inc. provides an ATM
network for cash dispensing ATMs to be installed in convenience stores, services
stations, hotels and other businesses. Zions Data Service Company provides data
processing services to all subsidiaries of the Company.
Zions Mortgage Company, a subsidiary of Zions First National Bank, conducts a
mortgage banking operation in Utah, Nevada, and Arizona. Zions Investment
Securities, Inc., also a subsidiary of the Bank, provides discount investment
brokerage services on a nonadvisory basis to both commercial and consumer
customers. Personal investment officers employed by the discount brokerage
subsidiary in many larger offices provide customers with a wide range of
investment products, including municipal bonds, mutual funds and tax-deferred
annuities.
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Supervision and Regulation
Bank holding companies and banks are extensively regulated under both federal
and state law. The information contained in this section summarizes portions of
the applicable laws and regulations relating to the supervision and regulation
of Zions Bancorporation and its subsidiaries. These summaries do not purport to
be complete, and they are qualified in their entirety by reference to the
particular statutes and regulations described. Any change in applicable law or
regulation may have a material effect on the business and prospects of Zions
Bancorporation and its subsidiaries.
Bank Holding Company Regulation
Zions Bancorporation is a bank holding company within the meaning of the Bank
Holding Company Act and is registered as such with the Federal Reserve Board.
Under the current terms of that Act, activities of Zions Bancorporation, and
those of companies which it controls or in which it holds more than 5% of the
voting stock, are limited to banking or managing or controlling banks or
furnishing services to or performing services for its subsidiaries, or any other
activity which the Federal Reserve Board determines to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto. In
making such determinations, the Federal Reserve Board is required to consider
whether the performance of such activities by a bank holding company or its
subsidiaries can reasonably be expected to produce benefits to the public such
as greater convenience, increased competition or gains in efficiency that
outweigh the possible adverse effects, such as undue concentration of resources,
decreased or unfair competition, conflicts of interest or unsound banking
practices.
Bank holding companies, such as Zions Bancorporation, are required to file with
the Federal Reserve Board certain reports and information and are required to
obtain prior approval of the Board to engage in a new activity or to acquire
more than 5% of any class of voting stock of any company. Pursuant to the
Riegle-Neal Interstate Branching and Efficiency Act of 1994 ("Riegle-Neal Act"),
subject to approval by the Federal Reserve Board, bank holding companies are
authorized to acquire either control of, or substantial assets of, a bank
located outside the bank holding company's home state. These acquisitions are
subject to limitations which are mentioned in the discussion on "Interstate
Banking" which follows. The Riegle-Neal Act reaffirms the right of states to
segregate and tax separately incorporated subsidiaries of a bank or bank holding
company. The Riegle-Neal Act also affects interstate branching and mergers.
The Federal Reserve Board has authorized the acquisition and control by bank
holding companies of savings and loan associations and certain other savings
institutions without regard to geographic restrictions applicable to acquisition
of shares of a bank.
The Federal Reserve Board is authorized to adopt regulations affecting various
aspects of bank holding companies. Pursuant to the general supervisory authority
of the Bank Holding Company Act and directives set forth in the International
Lending Supervision Act of 1983, the Federal Reserve Board has adopted capital
adequacy guidelines prescribing both risk-based capital and leverage ratios.
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Regulatory Capital Requirements
Risk-Based Capital Guidelines
The Federal Reserve Board established risk-based capital guidelines for bank
holding companies effective March 15, 1989. The guidelines define Tier I Capital
and Total Capital. Tier I Capital consists of common and qualifying preferred
shareholders' equity and minority interests in equity accounts of consolidated
subsidiaries, less goodwill and 50% (and in some cases up to 100%) of investment
in unconsolidated subsidiaries. Total Capital consists of Tier I Capital plus
qualifying mandatory convertible debt, perpetual debt, certain hybrid capital
instruments, certain preferred stock not qualifying as Tier I Capital,
subordinated and other qualifying term debt up to specified limits, and a
portion of the allowance for credit losses, less investments in unconsolidated
subsidiaries and in other designated subsidiaries or other associated companies
at the discretion of the Federal Reserve Board, certain intangible assets, a
portion of limited-life capital instruments approaching maturity and reciprocal
holdings of banking organizations' capital instruments. The Tier I component
must constitute at least 50% of qualifying Total Capital.
Risk-based capital ratios are calculated with reference to risk-weighted assets,
which include both on-balance sheet and off-balance sheet exposures. The
risk-based capital framework contains four risk-weighted categories for bank
holding company assets -- 0%, 20%, 50%, and 100%. Zero percent risk-weighted
assets include, generally, cash and balances due from Federal Reserve Banks, and
obligations unconditionally guaranteed by the U.S. government or its agencies.
Twenty percent risk-weighted assets include, generally, claims on U.S. Banks and
obligations guaranteed by U.S. government sponsored agencies as well as general
obligations of states or other political subdivisions of the United States.
Fifty percent risk-weighted assets include, generally, loans fully secured by
first liens on one-to-four family residential properties, subject to certain
conditions. All assets not included in the foregoing categories are assigned to
the 100% risk-weighted category, including loans to commercial and other
borrowers. As of year-end 1992, the minimum required ratio for qualifying Total
Capital became 8%, of which at least 4% must consist of Tier I Capital. At
December 31, 1996, the Company's Tier I and Total Capital ratios were 14.38% and
18.31%, respectively.
The current risk-based capital ratio analysis establishes minimum supervisory
guidelines and standards. It does not evaluate all factors affecting an
organization's financial condition. Factors which are not evaluated include (i)
overall interest rate exposure; (ii) quality and level of earnings; (iii)
investment or loan portfolio concentrations; (iv) quality of loans and
investments; (v) the effectiveness of loan and investment policies; (vi) certain
risks arising from nontraditional activities; and (vii) management's overall
ability to monitor and control other financial and operating risks, including
the risks presented by concentrations of credit and nontraditional activities.
The capital adequacy assessment of federal bank regulators will, however,
continue to include analyses of the foregoing considerations and in particular,
the level and severity of problem and classified assets. Market risk of a
banking organization -- risk of loss stemming from movements in market prices --
is not evaluated under the current risk-based capital ratio analysis (and is
therefore analyzed by the bank regulators through a general assessment of an
organization's capital adequacy) unless trading activities constitute 10 percent
or $1 billion or more of the assets of such organization. Such an organization
(unless exempted by the banking regulators) and certain other banking
organizations designated by the banking regulators must, beginning on or before
January 1, 1998, include in its risk-based capital ratio analysis charges for,
and hold capital against, general market risk of all positions held in its
trading accounting and of foreign exchange and commodity positions wherever
located, as well as against specific risk of debt and equity positions located
in its trading account. Currently, Zions Bancorporation and its bank
subsidiaries do not calculate a risk-based capital charge for its market risk.
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Minimum Leverage Ratio
The Federal Reserve Board has adopted capital standards and leverage capital
guidelines that include a minimum leverage ratio of 3% Tier 1 Capital to total
assets (the "leverage ratio"). The leverage ratio is used in tandem with a
risk-based ratio of 8% that took effect at the end of 1992.
The Federal Reserve Board has emphasized that the leverage ratio constitutes a
minimum requirement for well-run banking organizations having well-diversified
risk, including no undue interest rate exposure, excellent asset quality, high
liquidity, good earnings, and a composite rating of 1 under the Interagency Bank
Rating System. Banking organizations experiencing or anticipating significant
growth, as well as those organizations which do not exhibit the characteristics
of a strong, well-run banking organization described above, will be required to
maintain strong capital positions substantially above the minimum supervisory
levels without significant reliance on intangible assets. Furthermore, the
Federal Reserve Board has indicated that it will consider a "tangible Tier I
Capital Leverage Ratio" (deducting all intangibles) and other indices of capital
strength in evaluating proposals for expansion or new activities. At December
31, 1996, the Company's Tier I leverage ratio was 8.77%.
Other Issues and Developments Relating to Regulatory Capital
Pursuant to such authority and directives set forth in the International Lending
Supervision Act of 1983, the Comptroller of the Currency, the FDIC, and the
Federal Reserve Board have issued regulations establishing the capital
requirements for banks under federal law. The regulations, which apply to Zions
Bancorporation's banking subsidiaries, establish minimum risk-based and leverage
ratios which are substantially similar to those applicable to the Company. As of
December 31, 1996, the risk-based and leverage ratios of each of Zions
Bancorporation's banking subsidiaries exceeded the minimum requirements.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
requires the federal banking regulators to take "prompt corrective action" in
respect of banks that do not meet minimum capital requirements and imposes
certain restrictions upon banks which meet minimum capital requirements but are
not "well capitalized" for purposes of FDICIA. FDICIA established five capital
tiers: "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized," and "critically undercapitalized."
Implementing regulations adopted by the federal banking agencies define the
corrective action by the federal banking agencies. A bank may be placed in a
capitalization category that is lower than is indicated by its capital position
if it receives an unsatisfactory examination rating with respect to certain
matters.
Failure to meet capital guidelines could subject a bank to a variety of
restrictions and enforcement remedies. All insured banks are generally
prohibited from making any capital distributions and from paying management fees
to persons having control of the bank where such payments would cause the bank
to be undercapitalized. Holding companies of significantly undercapitalized,
critically undercapitalized and certain undercapitalized banks may be required
to obtain the approval of the Federal Reserve Board before paying capital
distributions to their shareholders. Moreover, a bank that is not well
capitalized is generally subject to various restrictions on "pass through"
insurance coverage for certain of its accounts and is generally prohibited from
accepting brokered deposits and offering interest rates on any deposits
significantly higher than the prevailing rate in its normal market area or
nationally (depending upon where the deposits are solicited). Such banks and
their holding companies are also required to obtain regulatory approval prior to
their retention of senior executive officers.
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Banks which are classified undercapitalized, significantly undercapitalized or
critically undercapitalized are required to submit capital restoration plans
satisfactory to their federal banking regulator and guaranteed within stated
limits by companies having control of such banks (i.e., to the extent of the
lesser of five percent of the institution's total assets at the time it became
undercapitalized or the amount necessary to bring the institution into
compliance with all applicable capital standards as of the time the institution
fails to comply with its capital restoration plan, until the institution is
adequately capitalized on average during each of four consecutive calendar
quarters), and are subject to regulatory monitoring and various restrictions on
their operations and activities, including those upon asset growth,
acquisitions, branching and entry into new lines of business and may be required
to divest themselves of or liquidate subsidiaries under certain circumstances.
Holding companies of such institutions may be required to divest themselves of
such institutions or divest themselves of or liquidate nondepository affiliates
under certain circumstances. Critically undercapitalized institutions are also
prohibited from making payments of principal and interest on debt subordinated
to the claims of general creditors as well as to the mandatory appointment of a
conservator or receiver within 90 days of becoming critically undercapitalized
unless periodic determinations are made by the appropriate federal banking
agency, with the concurrence of the FDIC, that forbearance from such action
would better protect the affected deposit insurance fund. Unless appropriate
findings and certifications are made by the appropriate federal banking agency
with the concurrence of the FDIC, a critically undercapitalized institution must
be placed in receivership if it remains critically undercapitalized on average
during the calendar quarter beginning 270 days after the date it became
critically undercapitalized.
Other Regulatory and Supervisory Issues
Pursuant to FDICIA, the federal banking agencies have adopted regulations or
guidelines prescribing standards for safety and soundness of insured banks and
in some instances their holding companies, including standards relating to
internal controls, information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth,
compensation, fees and benefits, asset quality, earnings and stock valuation, as
well as other operational and managerial standards deemed appropriate by the
agencies. Upon a determination by a federal banking agency that an insured bank
has failed to satisfy any such standard, the bank will be required to file an
acceptable plan to correct the deficiency. If the bank fails to submit or
implement an acceptable plan, the federal banking agency may, and in some
instances must, issue an order requiring the institution to correct the
deficiency, restrict its asset growth or increase its ratio of tangible equity
to assets, or imposing other operating restrictions.
FDICIA also contains provisions which, among other things, restrict investments
and activities as principal by state nonmember banks to those eligible for
national banks, impose limitations on deposit account balance determinations for
the purpose of the calculation of interest, and require the federal banking
regulators to prescribe, implement or modify standards for extensions of credit
secured by liens on interests in real estate or made for the purpose of
financing construction of a building or other improvements to real estate, loans
to bank insiders, regulatory accounting and reports, internal control reports,
independent audits, exposure on interbank liabilities, contractual arrangements
under which institutions receive goods, products or services, deposit
account-related disclosures and advertising as well as to impose restrictions on
federal reserve discount window advances for certain institutions and to require
that insured depository institutions generally be examined on-site by federal or
state personnel at least once every 12 months.
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In connection with an institutional failure or FDIC rescue of a financial
institution, the Financial Institutions Reform, Recovery, and Enforcement Act of
1989 ("FIRREA") grants to the FDIC the right, in many situations, to charge its
actual or anticipated losses against commonly controlled depository institution
affiliates of the failed or rescued institution (although not against a bank
holding company itself).
The Community Reinvestment Act (CRA) requires banks to help serve the credit
needs in their communities, including credit to low and moderate income
individuals and geographies. Should the Company or its subsidiaries fail to
adequately serve the community, there are penalties which might be imposed.
Corporate applications to expand branches, relocate, add subsidiaries and
affiliates, and merge with or purchase other financial institutions could be
denied. Community groups are encouraged through the regulation to protest
applications for any bank subject to this regulation if they feel that the bank
is not serving the credit needs of the community in which it serves. The Company
and its subsidiaries have been deemed by regulators in the past to be adequately
serving its communities.
The nature of the banking and financial services industry, as well as banking
regulation, may be further affected by various legislative and regulatory
measures currently under consideration. The most important of such measures
include legislation designed to permit increased affiliations between commercial
and financial firms (including securities firms) and federally-insured banks,
reduce regulatory burdens on financial institutions, and eliminate or revise the
features of the specialized savings association charter. It is impossible to
predict whether or in what form these proposals may be adopted in the future
and, if adopted, what the effect of their adoption will be on Zions
Bancorporation or its subsidiaries.
There are many other regulations requiring detailed compliance procedures which
increase costs and require additional time commitments of employees. Regulators
and the Congress continue to put in place rules and laws to protect consumers,
which have a cumulative additional impact on the cost of doing business. At this
point, management cannot completely assess how much earnings might be affected
from these consumer laws.
Deposit Insurance Assessments
The insured bank subsidiaries of Zions Bancorporation are required to make
quarterly deposit insurance assessment payments to the Bank Insurance Fund
("BIF"), and most savings associations to the Savings Associations Insurance
Fund ("SAIF"), under a risk-based assessment system established by the FDIC. (In
addition, certain banks must also pay deposit insurance assessments to the SAIF
and certain savings associations, to the BIF alone or to both funds.) Under this
system, each institution's insurance assessment rate is determined by the risk
assessment classification into which it has been placed by the FDIC. The FDIC
places each insured institution in one of nine risk assessment classifications
based upon its level of capital and supervisory evaluations by its regulators:
"well capitalized," "adequately capitalized" or "less than adequately
capitalized" institutions, with each category of institution divided into
subcategories of institutions which are either "healthy," of "supervisory
concern" or of "substantial supervisory concern." Those institutions deemed
weakest by the FDIC are subject to the highest assessment rates; those deemed
strongest are subject to the lowest assessment rates. The FDIC establishes
semi-annual assessment rates with the objective of enabling the affected
insurance fund to achieve or maintain a statutorily-mandated target reserve
ratio of 1.25% of insured deposits. In establishing assessment rates, the FDIC
Board of Directors is required to consider (i) expected operating expenses, case
resolution expenditures and income of the FDIC; (ii) the effect of assessments
upon members' earnings and capital; and (iii) any other factors deemed
appropriate by it.
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Until June 30, 1997, both BIF - and SAIF - assessable deposits will be subject
to an assessment schedule providing for an assessment range of 0% to .27% (with
intermediate rates of .03%, .10%, .17%, and .24%, depending upon an
institution's supervisory risk group). Both BIF and SAIF assessment rates are
subject to semi-annual adjustment by the FDIC Board of Directors within a range
of up to five basis points without public comment. The FDIC Board of Directors
also possesses authority to impose special assessments from time to time.
In addition to the payment of deposit insurance assessments, depository
institutions are required to make quarterly assessment payments to the FDIC on
both their BIF and SAIF assessable deposits which will be paid to the Financing
Corporation to enable it to pay interest and certain other expenses on bonds
which it issued pursuant to FIRREA to facilitate the resolution of failed
savings associations. Pursuant to the Federal Home Loan Bank Act, the Financing
Corporation, with the approval of the FDIC Board of Directors, establishes
assessment rates based upon estimates of (i) expected operating expenses, case
resolution expenditures and income of the Financing Corporation; (ii) the effect
of assessments upon members' earnings and capital; and (iii) any other factors
deemed appropriate by it. Additionally, the Financing Corporation is required to
assess BIF-assessable deposits at a rate one-fifth the rate applicable to
SAIF-assessable deposits until the first to occur of the merger of the BIF and
SAIF funds or January 1, 2000. Assessment rates for the first semi-annual period
of 1997 have been set at 1.30 basis points annually for BIF-assessable deposits
and 6.48 basis points annually for SAIF-assessable deposits.
Interstate Banking
Existing laws and various regulatory developments have allowed financial
institutions to conduct significant activities on an interstate basis for a
number of years. During recent years, a number of financial institutions have
expanded their out-of-state activities and various states and the Congress have
enacted legislation intended to allow certain interstate banking combinations.
The Riegle-Neal Act dramatically affects interstate banking activities. As
discussed previously, the Riegle-Neal Act allows the Federal Reserve Board to
approve the acquisition by a bank holding company of control or substantial
assets of a bank located outside the bank holding company's home state.
Beginning on June 1, 1997, and earlier if permitted by applicable state law, an
insured bank may apply to the appropriate federal agency for permission to merge
with an out-of-state bank and convert its offices into branches of the resulting
bank. States retain the option to prohibit out-of-state mergers if they enact a
statute specifically barring such mergers before June 1, 1997, and such law
applies equally to all out-of-state banks.
Interstate mergers authorized by the Riegle-Neal Act are subject to conditions
and requirements, the most significant of which include adequate capitalization
and management of the acquiring bank or bank holding company, existence of the
acquired bank for up to five years before purchase where required under state
law, existence of state laws that condition acquisitions on institutions making
assets available to a "state-sponsored housing entity," and limitations on
control by the acquiring bank holding company of not more than 10% of the total
amount of deposits in insured depository institutions in the United States or
not more than 30% of the deposits in insured depository institutions within that
state. States may impose lower deposit concentration limits, so long as those
limits apply to all bank holding companies equally. Additional requirements
placed on mergers include conformity with state law branching requirements and
compliance with "host state" merger filing requirements to the extent that those
requirements do not discriminate against out-of-state banks or out-of-state bank
holding companies.
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The Riegle-Neal Act also permits banks to establish and operate a "de novo
branch" in any state that expressly permits all out-of-state banks to establish
de novo branches in such state, if the law applies equally to all banks. (A "de
novo branch" is a branch office of a national bank or state bank that is
originally established as a branch and does not become a branch as a result of
an acquisition, conversion, merger, or consolidation.) Utilization of this
authority is conditioned upon satisfaction of most of the conditions applicable
to interstate mergers under the Riegle-Neal Act, including adequate
capitalization and management of the branching institution, satisfaction with
certain filing and notice requirements imposed under state law and receipt of
federal regulatory approvals.
Pursuant to FIRREA, bank holding companies may acquire savings associations
(including savings and loan associations and federal savings banks) without
geographic restriction under the Bank Holding Company Act.
Under the laws of Utah, Nevada, and Arizona, respectively, any out-of-state bank
or bank holding company may acquire a Utah, Nevada, or Arizona bank or bank
holding company upon the approval of the bank supervisor of the state. There is
no requirement that the laws of the state in which the out-of-state bank or bank
holding company's operations are principally conducted afford reciprocal
privileges to Utah-, Nevada- or Arizona-based acquirers. Banking holding
companies whose home state is Utah are authorized to acquire control of
depository institutions and depository institution holding companies located in
other states.
The commercial banking subsidiaries are supervised and regularly examined by
various federal and state regulatory agencies. Deposits, reserves, investments,
loans, consumer law compliance, issuance of securities, payment of dividends,
mergers and consolidations, electronic funds transfers, management practices,
and other aspects of operations are subject to regulation. In addition, numerous
federal, state, and local regulations set forth specific restrictions and
procedural requirements with respect to the extension of credit, credit
practices, the disclosure of credit terms, and discrimination in credit
transactions. The various regulatory agencies, as an integral part of their
examination process, periodically review the banking subsidiaries' allowances
for loan losses. Such agencies may require the banking subsidiaries to recognize
additions to such allowances based on their judgments using information
available to them at the time of their examinations.
As a consequence of the extensive regulation of the commercial banking business,
the Company cannot yet assess the impact of these legislative and regulatory
mandates on the commercial banking industry which may increase the cost of doing
business that are not required of the industry's nonbank competitors.
Federal and state legislation affecting the banking industry have played, and
will continue to play, a significant role in shaping the nature of the financial
service industry. Various legislation, including proposals to overhaul the
banking regulatory system and to limit the investments that a depository
institution may make with insured funds, is from time to time introduced. The
Company cannot determine the ultimate effect that any potential legislation, if
enacted, would have upon its financial condition or operations.
In addition, there are cases pending before federal and state courts that seek
to expand or restrict interpretations of existing laws and their accompanying
regulations affecting bank holding companies and their subsidiaries. It is not
possible to predict the extent to which Zions Bancorporation and its
subsidiaries may be affected by any of these initiatives.
9
12
Government Monetary Policies and Economic Controls
The earnings and business of the Company are affected by general economic
conditions. In addition, fiscal or other policies that are adopted by various
regulatory authorities of the United States and by agencies can have important
consequences on the financial performance of the Company. The Company is
particularly affected by the policies of the Federal Reserve Board which
regulate the national supply of bank credit. The instruments of monetary policy
available to the Federal Reserve Board include open-market operations in United
States government securities; changing the discount rates of member bank
borrowings; imposing or changing reserve requirements against member bank
deposits; and imposing or changing reserve requirements against certain
borrowings by banks and their affiliates. These methods are used in varying
combinations to influence the overall growth of bank loans, investments and
deposits, and the interest rates charged on loans or paid for deposits.
In view of changing conditions in the economy and the effect of the credit
policies of monetary authorities, it is difficult to predict future changes in
loan demand, deposit levels and interest rates, or their effect on the business
and earnings of Zions Bancorporation and its subsidiaries. Federal Reserve Board
monetary policies have had a significant effect on the operating results of
commercial banks in the past and are expected to continue to do so in the
future.
Competition
Zions Bancorporation and its subsidiaries operate in a highly competitive
environment. The banking subsidiaries compete with other banks, thrift
institutions, credit unions and money market, and other mutual funds for
deposits and other sources of funds. In addition, Zions Bancorporation and its
bank and nonbank subsidiaries face increased competition with respect to the
diverse financial services and products they offer. Competitors include not only
other banks, thrift institutions, and mutual funds, but also leasing companies,
finance companies, brokerage firms, investment banking companies, and a variety
of other financial services and advisory companies. Many of these competitors
are not subject to the same regulatory restrictions as are bank holding
companies and banks such as Zions Bancorporation and its banking subsidiaries.
The Company expects that competitive conditions will continue to intensify as a
result of technological advances. Technological advances have, for example, made
it possible for nondepository institutions to offer customers automatic transfer
systems and other automated-payment systems services that have been traditional
banking products.
Employees
The Company employs approximately 3,372 full- and part-time people with
approximately 3,154 being employed by the banking subsidiaries. The Company had
3,077 full-time equivalent employees at December 31, 1996, compared to 2,855 at
December 31, 1995. Banking subsidiaries had 2,864 full-time equivalent employees
at the end of 1996, compared to 2,650 a year earlier. The Company believes that
it enjoys good employee relations. In addition to competitive salaries and
wages, Zions Bancorporation and its subsidiaries contribute to group medical
plans, group insurance plans, pension, stock ownership and profit sharing plans.
10
13
Supplementary Information
The following supplementary information, which is required under Guide 3
(Statistical Disclosure by Bank Holding Companies), is found in this report on
the pages indicated below, and should be read in conjunction with the related
financial statements and notes thereto.
Statistical Information
I. Distribution of Assets, Liabilities and Shareholders' Equity,
Average Balance Sheets, Yields and Rates 20-22
Analysis of Interest Changes Due to Volume and Rates 23
II. Investment Securities Portfolio 29
Maturities and Average Yields of Investment Securities 30
III. Loan Portfolio 31
Loan Maturities and Sensitivity to Changes in Interest Rates 32
Loan Risk Elements 35-37
IV. Summary of Loan Loss Experience 39
V. Deposits 41
VI. Return on Equity and Assets 43
VII. Short-term Borrowings 42
VIII. Foreign Operations 45
ITEM 2. PROPERTIES
In Utah, fifty-eight (58) of Zions First National Bank's ninety-nine (99)
offices are located in buildings owned by the Company and the other forty-one
(41) are on leased premises. In Nevada, four (4) of Nevada State Bank's
twenty-five (25) offices are located in buildings owned and the other twenty-one
(21) are on leased premises, and in Arizona, National Bank of Arizona owns six
(6) offices and leases eleven (11) offices. The annual rentals under long-term
leases for such banking premises are determined under various formulas and
include as various factors, operating costs, maintenance and taxes.
The Company's subsidiaries conducting lease financing, insurance, mortgage
servicing, and discount brokerage activities operate from leased premises.
For information regarding rental payments, see note 12 of Notes to Consolidated
Financial Statements, which appears in Part II, Item 8, on page 74 of this
report.
11
14
ITEM 3. LEGAL PROCEEDINGS
The Company is the defendant in various legal proceedings arising in the normal
course of business. The Company does not believe that the outcome of any of such
proceedings will have a material adverse effect on its consolidated financial
position, operations, or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1996.
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages, positions, and backgrounds of the Company's executive officers
as of February 24, 1997, are set forth as follows:
Positions and Offices Held With Zions Officer
Name Age Bancorporation and Principal Subsidiaries since
- ---- --- ----------------------------------------- -------
Roy W. Simmons 81 Chairman of the Company, and Chairman of the Board of Directors of Zions 1961
First National Bank
Harris H. Simmons 42 President & Chief Executive Officer of the Company; President, Chief 1981
Executive Officer, and Member of the Board of Directors of Zions First
National Bank
Danne L. Buchanan 39 Senior Vice President of the Company, and President of Zions Data Service 1995
Company. Prior to March 1995, Senior Vice President and General Manager of
Zions Data Service Company
Gerald J. Dent 55 Senior Vice President of the Company, and Executive Vice President of Zions 1987
First National Bank
Dale M. Gibbons 36 Senior Vice President, Chief Financial Officer and Secretary of the 1996
Company; Executive Vice President and Secretary of the Board of Directors
of Zions First National Bank. Prior to August 1996, Senior Vice President
of First Interstate Bancorp.
John J. Gisi 51 Senior Vice President of the Company, and Chairman and Chief Executive 1994
Officer of National Bank of Arizona since 1987
Clark B. Hinckley 49 Senior Vice President of the Company, Prior to March 1994, President of a 1994
Company subsidiary, Zions First National Bank of Arizona.
George B. Hofmann III 47 Senior Vice President of the Company, and President and Chief Executive 1995
Officer of Nevada State Bank. Prior to April 1995, Senior Vice President
of Zions First National Bank.
Walter E. Kelly 64 Controller of the Company 1980
Ronald L. Johnson 41 Vice President of the Company 1989
12
15
Positions and Offices Held With Zions Officer
Name Age Bancorporation and Principal Subsidiaries since
- ---- --- ----------------------------------------- -------
A. Scott Anderson 50 Executive Vice President of Zions First National Bank 1990
John B. D'Arcy 54 Executive Vice President of Zions First National Bank 1989
Peter K. Ellison 54 Executive Vice President of Zions First National Bank 1968
W. David Hemingway 49 Executive Vice President of Zions First National Bank 1976
Nolan X. Bellon 48 Controller of Zions First National Bank 1987
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Principal market where common stock is traded:
Nasdaq National Market Symbol "ZION"
High and low bid quotations on a quarterly basis for the past three years:
1996 1995 1994
----------------- ----------------- -----------------
HIGH LOW HIGH LOW HIGH LOW
------ ------ ------- ------ ------- ------
1st Quarter $ 79.25 $ 66.75 $ 40.50 $ 35.50 $ 39.75 $ 36.50
2nd Quarter $ 79.00 $ 68.00 $ 50.00 $ 38.13 $ 42.00 $ 37.00
3rd Quarter $ 89.75 $ 72.00 $ 61.50 $ 49.50 $ 40.63 $ 38.50
4th Quarter $ 104.00 $ 87.75 $ 81.13 $ 60.88 $ 39.25 $ 33.50
Number of common shareholders of record as of latest practicable date:
4,312 common shareholders as of February 24, 1997
Frequency and amount of dividends paid during three years:
1ST 2ND 3RD 4TH
QTR QTR QTR QTR
--- --- --- ---
1996 $ .41 $ .41 $ .44 $ .44
1995 $ .30 $ .35 $ .35 $ .41
1994 $ .28 $ .28 $ .30 $ .30
Description of any restrictions on the issuer's present or future ability to pay
dividends:
Funds for the payment of dividends by Zions Bancorporation have been obtained
primarily from dividends paid by the commercial banking and other subsidiaries.
In addition to certain statutory limitations on the payment of dividends,
approval of federal and/or state banking regulators may be required in some
instances for any dividend to Zions Bancorporation by its banking subsidiaries.
The payment of future dividends therefore is dependent upon earnings and the
financial condition of the Company and its subsidiaries as well as other
factors.
13
16
1
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data is derived from the audited
consolidated financial statements of the Company. It should be read in
conjunction with the Company's consolidated financial statements and the related
notes and with management's discussion and analysis of financial condition and
results of operations and other detailed information included elsewhere herein.
Years ended December 31,
-----------------------------------------------------------------
(Amounts in thousands, except per share and ratio 1996 1995 1994 1993 1992
data) ---------- ---------- ----------- ---------- ----------
RESULTS OF OPERATIONS
Interest income $ 478,958 $ 430,483 $ 353,989 $ 293,616 $ 278,225
Interest expense 218,485 203,389 155,383 118,959 120,943
---------- ---------- ----------- ---------- ----------
Net interest income 260,473 227,094 198,606 174,657 157,282
Provision for loan losses 3,540 2,800 2,181 2,993 10,929
---------- ---------- ----------- ---------- ----------
Net interest income after provision for loan losses 256,933 224,294 196,425 171,664 146,353
Noninterest income 110,891 88,014 73,202 79,880 62,849
Noninterest expense 214,332 190,030 174,900 167,750 139,069
---------- ---------- ----------- ---------- ----------
Income before income taxes and cumulative
effect of changes in accounting principles 153,492 122,278 94,727 83,794 70,133
Income taxes 52,142 40,950 30,900 27,248 22,924
---------- ---------- ----------- ---------- ----------
Income before cumulative effect of changes in
accounting principles 101,350 81,328 63,827 56,546 47,209
Cumulative effect of changes in accounting - - - 1,659 -
principles ---------- ---------- ----------- ---------- ----------
Net income $ 101,350 $ 81,328 $ 63,827 $ 58,205 $ 47,209
========== ========== =========== ========== ==========
COMMON SHARE DATA
Income before cumulative effect of changes in
accounting principles $ 6.84 $ 5.53 $ 4.37 $ 3.96 $ 3.42
Net income 6.84 5.53 4.37 4.08 3.42
Dividends 1.70 1.41 1.16 .98 .75
Book value - year end 34.45 29.44 25.12 22.01 18.95
Market price - year end 104.00 80.25 35.88 37.00 38.00
YEAR END BALANCES
Assets $ 6,484,964 $ 5,620,646 $ 4,934,095 $ 4,801,054 $ 4,107,924
Loans and leases 3,344,108 2,806,956 2,391,278 2,486,346 2,107,433
Deposits 4,552,017 4,097,114 3,705,976 3,432,289 3,075,110
Shareholders' equity 507,452 428,506 365,770 312,592 260,070
RATIOS
Return on average assets 1.59% 1.44% 1.17% 1.25% 1.24%
Return on average common equity 21.63% 20.47% 18.82% 20.33% 19.64%
Average equity to average assets 7.35% 7.02% 6.22% 6.17% 6.31%
Tier I leverage - year end 8.77% 6.28% 6.24% 5.44% 6.21%
Tier I risk-based capital - year end 14.38% 11.38% 11.81% 10.85% 10.23%
Total risk-based capital - year end 18.31% 14.23% 14.96% 14.12% 15.13%
Net interest margin 4.56% 4.50% 4.07% 4.23% 4.59%
Nonperforming assets to total assets - year end .19% .17% .38% .64% .77%
Nonperforming assets to net loans and leases,
other real estate owned and other nonperforming
assets at year end .36% .33% .79% 1.23% 1.49%
Net charge-offs (recoveries) to average loans
and leases .12% .10% .19% (.23)% .44%
Allowance for loan losses to net loans and
leases outstanding at year end 2.03% 2.41% 2.80% 2.75% 2.84%
Allowance for loan losses to nonperforming
loans at year end 564.92% 878.82% 471.89% 250.13% 234.00%
14
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following analysis of the Company's financial condition and results of
operations as of and for the years ended December 31, 1996, 1995, and 1994
should be read in conjunction with the consolidated financial statements of the
Company and detailed information presented elsewhere herein.
PERFORMANCE SUMMARY
Zions Bancorporation achieved record net income of $101.4 million in 1996, an
increase of 24.6% over earnings of $81.3 million in 1995, which were up 27.4%
over the $63.8 million in 1994. Net income per common share was $6.84 in 1996,
compared with $5.53 in 1995 and $4.37 in 1994, an increase of 23.7% and 26.5%,
respectively. Dividends per share were $1.70 in 1996, an increase of 20.6% over
$1.41 in 1995, which were up 21.6% over $1.16 in 1994.
The return on average shareholders' equity was 21.63% and the return on average
assets was 1.59% for 1996, compared with 20.47% and 1.44%, respectively, in
1995, and 18.82% and 1.17%, respectively, in 1994.
The record performance for the Company was driven by a 20.3% growth in average
loans and leases that led to a 15.1% increase in taxable-equivalent net interest
income to $267.6 million in 1996. Noninterest income increased 26.0% to $110.9
million in 1996, with strong growth in service charges, trust revenue, and loan
sales and servicing income. Noninterest expense increased 12.8% to $214.3
million in 1996, reflecting higher personnel costs due to an increase in staff
for branch expansion and increased expenditures related to technology
initiatives, partially offset by reduced deposit insurance expense. Revenue
growth again outpaced expense growth in 1996, bringing the efficiency ratio to
56.63%, a 267 basis-point improvement over 59.30% in 1995. The provision for
loan losses totaled $3.5 million in 1996 compared to $2.8 million in 1995. Net
charge-offs remained low in 1996, totaling $3.7 million, or .12% of average
loans and leases, versus $2.5 million, or .10% in 1995. Nonperforming assets
increased slightly to $12.5 million, or .36% of loans and other real estate
owned on December 31, 1996 from $9.3 million or .33% on December 31, 1995.
15
18
REVIEW OF OPERATIONS
Commercial Banking
With the growth in its branch system through acquisitions and the expansion of
its grocery store locations, the Company has achieved significant geographical
coverage in each of the three states in which it conducts its commercial banking
operations.
The Company's banking subsidiaries have continued their efforts to reduce their
cost structures and improve efficiency through the implementation of various
programs and systems, and the establishment of benchmarks in various departments
to assist in monitoring progress. New technologies have been employed to improve
delivery of banking services to our customers and facilitate improved employee
productivity.
Utah
Zions First National Bank experienced strong growth in 1996 as net income
increased 26.5% to $83.1 million as compared to $65.7 million in 1995. The
increase was a result of a $23.3 million increase in net interest income and a
$20.5 million increase in noninterest income partially offset by a $16.7 million
increase in noninterest expense and a $9.7 million increase in income taxes.
Zions First National Bank's "efficiency ratio," or noninterest expense as a
percentage of taxable-equivalent net revenues, improved to 54.67% in 1996 as
compared to 58.02% in 1995.
Zions First National Bank opened five new grocery store banking centers in 1996,
bringing the total number of banking centers in Utah to 26 and total offices in
Utah to 99. Three of the five new centers are highly automated with no live
tellers, and staffed by one sales person who opens accounts and takes loan
applications. These new centers are outfitted with ATMs, video-banking
platforms, and customer service telephones to handle banking transactions.
Arizona
Net income at National Bank of Arizona was $14.7 million in 1996 as compared to
$12.0 million in 1995, a 22.4% increase. The increase resulted from a net
revenues increase of $9.2 million partially offset by a $.5 million increase in
the provision for loan losses, a $3.9 million increase in noninterest expense
and a $2.1 million increase in income taxes. National Bank of Arizona's
efficiency ratio improved to 49.97% in 1996 as compared to 51.47% in 1995.
In 1996, National Bank of Arizona reached $1 billion in assets. The number of
its branches increased by 6 for a total of 17 offices. Five of the additional
offices resulted from the completion of the acquisition of Southern Arizona Bank
in Yuma on May 31, 1996. During 1996, a full-service office was opened in
Prescott, Arizona, and a loan production office was also opened in Payson,
Arizona.
Nevada
Nevada State Bank achieved net income of $7.2 million in 1996 as compared to
$5.9 million in 1995, a 21.9% increase. The increase resulted from a net
revenues increase of $3.7 million, partially offset by a $.2 million increase in
the provision for loan losses and a $2.2 million increase in noninterest
expense. Nevada State Bank's efficiency ratio improved to 64.96% in 1996 as
compared to 66.30% in 1995.
16
19
During 1996, Nevada State Bank with 25 banking offices, of which 18 are grocery
store banking centers, evolved from a community-based business bank to a
full-service bank offering all services and products a customer would expect to
find at much larger regional banks. Included in the changes were the addition of
a Corporate Lending Department focusing on mid-sized lending, the addition of a
Private Banking Department, Real Estate Department and Cash Management Group.
Consumer loan approvals were consolidated, trust operations expanded, and credit
administration expanded to ensure better asset quality.
Other Subsidiaries
Zions Credit Corporation generated $78.6 million in new lease volume and
brokered to third parties an additional $3.1 million in leases in 1996. Average
lease receivables and conditional sales contracts serviced by Zions Credit
Corporation increased 16.6% to $145.1 million in 1996.
Zions Insurance Agency, Inc. and Zions Life Insurance Company produced combined
net income of $1.1 million in 1996, a 41.4% increase compared to $.8 million in
1995. The increase in net income was largely attributable to increases in
commissions earned on all insurance products, resulting primarily from increased
marketing efforts.
Zions Data Service Company engaged in a number of significant projects in 1996,
including assistance in implementing a variety of new electronic products in
Zions First National Bank. The company installed improvements to the commercial
bank's customer information systems, including new software relating to
construction lending and deposit account reconciliation systems. The company
also implemented a new Human Resource system which is based upon client server
technology and added 30 more locations to Zions' wide area network to improve
communication, administration, security and responsiveness. The installation of
a new cash management system is anticipated in the first quarter of 1997, and
new consumer lending and ATM systems are expected to be fully implemented in the
second quarter of 1997.
In 1996, Cash Access, Inc. was created as a new subsidiary of Zions
Bancorporation to provide an ATM network for cash dispensing ATMs to be
installed in convenience stores, service stations, hotels and other businesses.
On December 31, 1996, this subsidiary had 40 ATMs installed and operational. An
additional 100 ATMs are expected to be installed and operational during the
first quarter of 1997.
Zions Mortgage Company achieved a net income of $1.4 million in 1996, a 48.5%
increase compared to $1.0 million in 1995. Zions Mortgage Company is a direct
subsidiary of Zions First National Bank; therefore, its results of operations
are included in the commercial banking operations results. In 1996, Zions
Mortgage Company experienced an increase in retail mortgage origination volume
of 29.1% to $371.5 million. During the fourth quarter of 1996, Zions Mortgage
Company introduced the "Home Express" loan program, which provides a credit
decision within four business hours of application.
During 1996, Zions Investment Securities, Inc. contributed $.9 million in pretax
income and revenue sharing to the Company's banking operations. Net income,
which is included in the commercial banking operations results, was $.4 million,
a 26.1% increase from 1995. Zions Investment Securities, Inc. has 32 registered
investment advisors who offer a full range of brokerage services and products.
17
20
Acquisitions
On May 31, 1996, the Company acquired Southern Arizona Bancorp, Inc. and its
banking subsidiary, Southern Arizona Bank, in Yuma, Arizona, for 363,698 shares
of common stock. Southern Arizona Bank was merged into Zions Bancorporation's
wholly-owned subsidiary, National Bank of Arizona. This acquisition was not
material to the Company's consolidated financial position and was accounted for
as purchase.
On November 19, 1996, the Company entered into an agreement to acquire Aspen
Bancshares, Inc. and its banking subsidiaries Pitkin County Bank and Trust,
Centennial Savings Bank, F.S.B., and Valley National Bank of Cortez. Aspen
Bancshares has assets of approximately $450 million. The Company currently
expects consummation of this acquisition in the second quarter of 1997, subject
to regulatory approvals and other conditions of closing. This acquisition is
expected to be accounted for as a purchase.
On March 7, 1997, the Company announced an agreement to purchase the deposits
and branch facilities of 32 Wells Fargo Bank offices in Arizona, Idaho, Nevada
and Utah. The offices have deposits of approximately $550 million. The Company
expects this transaction to close in July 1997, subject to regulatory approvals
and other conditions of closing.
18
21
INCOME STATEMENT ANALYSIS
Net Interest Income, Margin and Interest Rate Spreads
Net interest income on a tax-equivalent basis is the difference between interest
earned on assets and interest paid on liabilities, with adjustments made to
present yields on assets exempt from income taxes comparable to other taxable
income. Changes in the mix and volume of earning assets and interest-bearing
liabilities, their related yields, and overall interest rates have a major
impact on earnings. In 1996, taxable-equivalent net interest income provided
70.7% of the Company's net revenues, compared with 72.5% in 1995 and 73.5% in
1994.
The Company's taxable-equivalent net interest income increased by 15.1% to
$267.6 million in 1996 as compared to $232.4 million in 1995. The increased
level of taxable-equivalent net interest income was driven by growth in average
earning assets, principally loans and leases. The 1995 increase in
taxable-equivalent net interest income of 14.3% over the $203.3 million reported
in 1994, resulted primarily from the increase in average earning assets and an
increased spread between the prime lending rate and the short-term U.S. Treasury
rate. The prime lending rate is the primary index used for pricing the Company's
loans and the short-term treasury rate is the basis for pricing many of the
Company's deposits. The Company manages its earnings sensitivity to interest
rate movements, in part, by matching the repricing characteristics of its assets
and liabilities and, to a lesser extent, through the use of off-balance sheet
arrangements such as caps, floors and interest rate exchange contracts. Net
interest income from the use of such off-balance sheet arrangements for 1996 was
$2.0 million compared to $.7 million in 1995 and $1.0 million in 1994.
The increase in net interest income was partially offset by the continued
securitization and sale of loans. Securitized loan sales convert net interest
income from loans to gains on loan sales and servicing revenue reported in
noninterest income. Loan sales improve the Company's liquidity, limit its
exposure to credit losses, and may reduce its capital requirements.
The net interest margin, the ratio of taxable-equivalent net interest income to
average earning assets, was 4.56% in 1996, 4.50% in 1995 and 4.07% in 1994. The
increase in the margin in 1995 was due primarily to the expansion of the spread
between the prime lending rate and short-term U.S. Treasury rates.
Consolidated average balances, the amount of interest earned or paid, the
applicable interest rate for the various categories of earning assets and
interest-bearing funds which represent the components of net interest income for
the year 1996 and the previous four years, and interest differentials on a
taxable-equivalent basis and the effect on net interest income of changes due to
volume and rates for the years 1996 and 1995 are shown in tables on pages which
follow.
In the tables, the principle amounts of nonaccrual and renegotiated loans have
been included in the average loan balances used to determine the rate earned on
loans. Interest income on nonaccrual loans is included in income only to the
extent that cash payments have been received and not applied to principal
reductions. Interest on restructured loans is generally accrued at reduced
rates.
The incremental tax rate used for calculating the taxable-equivalent adjustment
was 30% in 1996, 1995 and 1994, and 32% in 1993 and 1992.
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22
Distribution of Assets, Liabilities, and Shareholders' Equity,
Average Balance Sheets, Yields and Rates
1996 1995
-------------------------------- -----------------------------
Amount Amount
(Amounts in thousands) Average of Average Average of Average
balance interest1 rate1 balance interest1 rate1
---------- --------- --------- ---------- -------- --------
Assets:
Money market investments:
Interest-bearing deposits $ 41,175 $ 1,954 4.75 % $ 26,539 $ 1,288 4.85 %
Federal funds sold and security resell
agreements 868,295 49,021 5.65 % 910,307 54,344 5.97 %
Other money market investments - - - % - - - %
---------- --------- ---------- --------
Total money market investments 909,470 50,975 5.60 % 936,846 55,632 5.94 %
---------- --------- ---------- --------
Securities:
Held to maturity:
Taxable 1,043,498 69,556 6.67 % 911,237 64,914 7.12 %
Nontaxable 210,339 20,471 9.73 % 210,758 17,714 8.40 %
Available for sale:
Taxable 376,304 24,478 6.50 % 362,953 23,966 6.60 %
Nontaxable 40,794 3,229 7.92 % 460 30 6.52 %
Trading account 156,365 9,172 5.87 % 146,845 9,248 6.30 %
---------- --------- ---------- --------
Total securities 1,827,300 126,906 6.95 % 1,632,253 115,872 7.10 %
---------- --------- ---------- --------
Loans:
Loans held for sale 150,990 11,509 7.62 % 115,939 9,259 7.99 %
Net loans and leases2 2,975,909 296,678 9.97 % 2,483,132 255,043 10.27 %
---------- --------- ---------- --------
Total loans 3,126,899 308,187 9.86 % 2,599,071 264,302 10.17 %
---------- --------- ---------- --------
Total interest-earning assets $5,863,669 $486,068 8.29 % $5,168,170 $435,806 8.43 %
--------- --------
Cash and due from banks 318,120 321,526
Allowance for loan losses (68,637) (67,803)
Other assets 264,543 236,797
---------- ----------
Total assets $6,377,695 $5,658,690
========== ==========
Liabilities:
Interest-bearing deposits:
Savings and NOW deposits $ 610,385 $ 19,182 3.14 % $ 719,590 $ 22,492 3.13 %
Money market and super NOW deposits 1,767,506 67,865 3.84 % 1,425,537 59,465 4.17 %
Time deposits under $100,000 664,484 34,807 5.24 % 614,858 32,016 5.21 %
Time deposits $100,000 or more 161,379 9,530 5.91 % 121,863 7,358 6.04 %
Foreign deposits 120,782 5,391 4.46 % 139,212 7,179 5.16 %
---------- --------- ---------- --------
Total interest-bearing deposits 3,324,536 136,775 4.11 % 3,021,060 128,510 4.25 %
---------- --------- ---------- --------
Borrowed funds:
Securities sold, not yet purchased 76,518 4,475 5.85 % 90,196 5,619 6.23 %
Federal funds purchased and security
repurchase agreements 1,316,054 66,026 5.02 % 1,037,197 56,645 5.46 %
FHLB advances and other borrowings:
Less than one year 17,725 1,153 6.50 % 20,441 1,406 6.88 %
Over one year 78,771 4,817 6.12 % 93,829 6,088 6.49 %
Long-term debt 58,466 5,239 8.96 % 57,506 5,121 8.91 %
---------- --------- ---------- --------
Total borrowed funds 1,547,534 81,710 5.28 % 1,299,169 74,879 5.76 %
---------- --------- ---------- --------
Total interest-bearing liabilities $4,872,070 $218,485 4.48 % $4,320,229 $203,389 4.71 %
--------- --------
Noninterest-bearing deposits 933,734 837,211
Other liabilities 103,318 103,982
---------- ----------
Total liabilities 5,909,122 5,261,422
Total shareholders' equity 468,573 397,268
---------- ----------
Total liabilities and shareholders' equity $6,377,695 $5,658,690
========== ==========
Spread on average interest-bearing funds 3.81 % 3.72 %
========= ========
Net interest income and net yield on
interest-earning assets $267,583 4.56 % $232,417 4.50 %
========= ========= ======== ========
- ----------
1 Taxable-equivalent rates used where applicable.
2 Net of unearned income and fees, net of related costs. Loans include
nonaccrual and restructured loans.
20
23
Distribution of Assets, Liabilities, and Shareholders' Equity,
Average Balance Sheets, Yields And Rates
1994 1993
---------------------------------- ---------------------------------
Amount Amount
(Amounts in thousands) Average of Average Average of Average
balance interest(1) rate(1) balance interest(1) rate(1)
---------- --------- --------- ---------- --------- ---------
Assets:
Money market investments:
Interest-bearing deposits $ 24,389 $ 814 3.34 % $ 103,982 $ 3,682 3.55 %
Federal funds sold and security resell 845,320 34,231 4.05 % 656,204 22,918 3.49 %
agreements
Other money market investments - - - % 28,508 827 2.90 %
---------- --------- ---------- ---------
Total money market investments 869,709 35,045 4.03 % 788,694 27,427 3.48 %
---------- --------- ---------- ---------
Securities:
Held to maturity:
Taxable 726,925 41,269 5.68 % 958,776 56,347 5.88 %
Nontaxable 193,810 15,689 8.10 % 147,549 12,434 8.43 %
Available for sale:
Taxable 334,044 19,916 5.96 % - - - %
Nontaxable - - - % - - - %
Trading account 290,925 16,516 5.68 % 102,840 7,555 7.35 %
---------- --------- ---------- ---------
Total securities 1,545,704 93,390 6.04 % 1,209,165 76,336 6.31 %
---------- --------- ---------- ---------
Loans:
Loans held for sale 187,506 12,303 6.56 % 185,899 11,273 6.06 %
Net loans and leases(2) 2,387,489 217,958 9.13 % 2,036,283 182,559 8.97 %
---------- --------- ---------- ---------
Total loans 2,574,995 230,261 8.94 % 2,222,182 193,832 8.72 %
---------- --------- ---------- ---------
Total interest-earning assets $4,990,408 $ 358,696 7.19 % $4,220,041 $ 297,595 7.05 %
--------- ---------
Cash and due from banks 333,290 315,577
Allowance for loan losses (68,248) (64,911)
Other assets 201,163 173,211
---------- ----------
Total assets $5,456,613 $4,643,918
========== ==========
Liabilities:
Interest-bearing deposits:
Savings and NOW deposits $ 740,339 $ 22,262 3.01 % $ 648,178 $ 19,222 2.97 %
Money market and super NOW deposits 1,284,697 39,938 3.11 % 1,117,016 31,109 2.79 %
Time deposits under $100,000 516,877 20,469 3.96 % 548,816 23,501 4.28 %
Time deposits $100,000 or more 94,680 3,845 4.06 % 79,442 3,010 3.79 %
Foreign deposits 108,383 4,444 4.10 % 55,823 1,484 2.66 %
---------- --------- ---------- ---------
Total interest-bearing deposits 2,744,976 90,958 3.31 % 2,449,275 78,326 3.20 %
---------- --------- ---------- ---------
Borrowed funds:
Securities sold, not yet purchased 184,405 10,976 5.95 % 69,442 3,039 4.38 %
Federal funds purchased and security
repurchase agreements 1,057,827 41,089 3.88 % 767,309 22,376 2.92 %
FHLB advances and other borrowings:
Less than one year 32,557 1,770 5.44 % 83,123 3,196 3.84 %
Over one year 118,607 5,831 4.92 % 111,974 4,599 4.11 %
Long-term debt 59,493 4,759 8.00 % 75,623 7,423 9.82 %
---------- --------- ---------- ---------
Total borrowed funds 1,452,889 64,425 4.43 % 1,107,471 40,633 3.67 %
---------- --------- ---------- ---------
Total interest-bearing liabilities $4,197,865 $ 155,383 3.70 % $3,556,746 $ 118,959 3.34 %
--------- ---------
Noninterest-bearing deposits 838,118 729,651
Other liabilities 81,449 71,190
---------- ----------
Total liabilities 5,117,432 4,357,587
Total shareholders' equity 339,181 286,331
---------- ----------
Total liabilities and shareholders' equity $5,456,613 $4,643,918
========== ==========
Spread on average interest-bearing funds 3.49 % 3.71 %
========= =========
Net interest income and net yield on
interest-earning assets $ 203,313 4.07 % $ 178,636 4.23 %
========= ========= ========= =========
- -----------------
1 Taxable-equivalent rates used where applicable.
2 Net of unearned income and fees, net of related costs. Loans include
nonaccrual and restructured loans.
21
24
Distribution of Assets, Liabilities, and Shareholders' Equity,
Average Balance Sheets, Yields And Rates
1992
--------------------------------
Amount
(Amounts in thousands) Average of Average
balance interest(1) rate(1)
---------- --------- ---------
Assets:
Money market investments:
Interest-bearing deposits $ 184,142 $ 10,529 5.72 %
Federal funds sold and security resell 245,866 9,730 3.96 %
agreements
Other money market investments 39,054 1,410 3.61 %
---------- ---------
Total money market investments 469,062 21,669 4.62 %
---------- ---------
Securities:
Held to maturity:
Taxable 766,002 48,854 6.38 %
Nontaxable 125,062 11,163 8.93 %
Available for sale:
Taxable - - - %
Nontaxable - - - %
Trading account 36,912 5,537 15.00 %
---------- ---------
Total securities 927,976 65,554 7.06 %
---------- ---------
Loans:
Loans held for sale 186,953 13,804 7.38 %
Net loans and leases(2) 1,917,726 180,770 9.43 %
---------- ---------
Total loans 2,104,679 194,574 9.24 %
---------- ---------
Total interest-earning assets $3,501,717 $ 281,797 8.05 %
---------
Cash and due from banks 236,116
Allowance for loan losses (60,116)
Other assets 130,115
----------
Total assets $3,807,832
==========
Liabilities:
Interest-bearing deposits:
Savings and NOW deposits $ 494,113 $ 17,396 3.52 %
Money market and super NOW deposits 1,029,499 34,705 3.37 %
Time deposits under $100,000 651,226 33,555 5.15 %
Time deposits $100,000 or more 95,067 4,419 4.65 %
Foreign deposits 86,479 3,635 4.20 %
---------- ---------
Total interest-bearing deposits 2,356,384 93,710 3.98 %
---------- ---------
Borrowed funds:
Securities sold, not yet purchased - - - %
Federal funds purchased and
security repurchase agreements 394,620 12,681 3.21 %
FHLB advances and other borrowings:
Less than one year 78,406 3,218 4.10 %
Over one year 50,450 1,826 3.62 %
Long-term debt 82,219 9,508 11.56 %
---------- ---------
Total borrowed funds 605,695 27,233 4.50 %
---------- ---------
Total interest-bearing liabilities $2,962,079 $ 120,943 4.08 %
---------
Noninterest-bearing deposits 556,476
Other liabilities 48,866
----------
Total liabilities 3,567,421
Total shareholders' equity 240,411
----------
Total liabilities and shareholders' equity $3,807,832
==========
Spread on average interest-bearing funds 3.97 %
=========
Net interest income and net yield on $ 160,854 4.59 %
interest-earning assets ========= =========
- ----------
1 Taxable-equivalent rates used where applicable.
2 Net of unearned income and fees, net of related costs. Loans include
nonaccrual and restructured loans.
22
25
Analysis of Interest Changes Due to Volume and Rate
1996 over 1995 1995 over 1994
-------------- --------------
Changes due to Total Changes due to Total
Volume Rate(1) Changes Volume Rate(1) Changes
------ ------ ------- ------ ------ -------
Interest-earning assets:
Money market investments:
Interest-bearing deposits $ 693 (27) $ 666 $ 77 $ 397 $ 474
Federal funds sold and security resell agreements (2,411) (2,912) (5,323) 2,809 17,304 20,113
Other money market investments
- - - - - -
------- ------- ------- ------ ------ ------
Total money market investments (1,718) (2,939) (4,657) 2,886 17,701 20,587
------- ------- ------- ------ ------ ------
Securities:
Held to maturity:
Taxable 8,776 (4,134) 4,642 11,823 11,822 23,645
Nontaxable (46) 2,803 2,757 1,418 607 2,025
Available for sale:
Taxable 886 (374) 512 1,807 2,243 4,050
Nontaxable 3,192 7 3,199 30 - 30
Trading account 552 (628) (76) (8,175) 907 ( 7,268)
------- ------- ------- ------ ------ ------
Total securities 13,360 (2,326) 11,034 6,903 15,579 22,482
------- ------- ------- ------ ------ ------
Loans:
Loans held for sale 2,674 (424) 2,250 (4,697) 1,653 (3,044)
Net loans and leases(2) 49,110 (7,475) 41,635 9,019 28,066 37,085
------- ------- ------- ------ ------ ------
Total loans 51,784 (7,899) 43,885 4,322 29,719 34,041
------- ------- ------- ------ ------ ------
Total interest-earning assets $63,426 $(13,164) $50,262 $14,111 $62,999 $77,110
------- ------- ------- ------ ------ ------
Interest-bearing liabilities:
Deposits:
Savings and NOW deposits $ (3,387) $ 77 $(3,310) $ (602) $ 832 $ 230
Money market and super NOW deposits 13,124 (4,724) 8,400 4,761 14,766 19,527
Time deposits under $100,000 2,589 202 2,791 4,332 7,215 11,547
Time deposits $100,000 or more 2,328 (156) 2,172 1,302 2,211 3,513
Foreign deposits (818) (970) (1,788) 973 1,762 2,735
------- ------- ------- ------ ------ ------
Total interest-bearing deposits 13,836 5,571) 8,265 10,766 26,786 37,552
------- ------- ------- ------ ------ ------
Borrowed funds:
Securities sold, not yet purchased (801) (343) (1,144) (5,609) 252 (5,357)
Federal funds purchased and
security repurchase agreements 13,959 (4,578) 9,381 (846) 16,402 15,556
FHLB advances and other borrowings:
Less than one year (176) (77) (253) (658) 294 (364)
Over one year (925) (346) (1,271) (1,215) 1,472 257
Long-term debt 87 31 118 (159) 521 362
------- ------- ------- ------ ------ ------
Total borrowed funds 12,144 (5,313) 6,831 (8,487) 18,941 10,454
------- ------- ------- ------ ------ ------
Total interest-bearing liabilities $25,980 $(10,884) $15,096 $ 2,279 $45,727 $48,006
------- ------- ------- ------ ------ ------
Change in net interest income $37,446 $ (2,280) $35,166 $11,832 $17,272 $29,104
======= ======= ======= ====== ====== ======
- ----------
1 Taxable-equivalent rates used where applicable.
2 Net of unearned income and fees, net of related costs. Loans include
nonaccrual and restructured loans.
In the analysis of interest changes due to volume and rates, the changes due to
the volume/rate variance have been allocated to volume with the following
exceptions: when volume and rate have both increased, the variance has been
allocated proportionately to both volume and rate; when the rate has increased
and volume has decreased, the variance has been allocated to rate.
23
26
Provision for Loan Losses
The provision for loan losses reflects management's judgment of the expense to
be recognized in order to maintain an adequate allowance for loan losses. The
provision for loan losses was $3.5 million in 1996 and was incurred in the
Company's Arizona and Nevada bank subsidiaries. No provision was recognized by
the Company's Utah bank in 1996. The total loan loss provision was $2.8 million
in 1995 and $2.2 million in 1994. Although the provision has increased in recent
years, for 1996 it comprised only .12% of average loans.
Noninterest Income
Noninterest income is a growing portion of the Company's net revenue comprising
29.3% of revenue in 1996 compared to 27.5% in 1995 and 26.5% in 1994.
Noninterest income was $110.9 million in 1996, an increase of 26.0% over $88.0
million in 1995, which was up 20.2% over $73.2 million in 1994. Primary
contributors to the increase in noninterest income in 1996 and 1995 were service
charges on deposit accounts; other services charges, commissions and fees; and
loan sales and servicing income.
Deposit service charges increased 15.8% to $32.8 million in 1996 and 17.8% in
1995 reflecting continued expansion of the Company's deposit base as well as
price adjustments. Other service charges, commissions and fees were $27.9
million in 1996, an increase of 15.5% over 1995 which was 9.8% above 1994. Loan
sales and servicing income rose 44.7% in 1996 to $35.1 million over $24.3
million in 1995 and was more than double the amount earned in 1994. Loans
serviced for others amounted to $2.4 billion in 1996.
Trust income increased to $5.2 million in 1996, up 19.3% over 1995. Trading
account income improved in 1996 to $2.7 million from a net loss of $1.2 million
in 1995. The Company consolidated its capital markets operations in Salt Lake
City from New York after a $3.1 million trading loss was incurred in the first
quarter of 1995. The investment securities gains and losses in the years 1994
through 1996 largely resulted from the sale of securities from the
available-for-sale portfolio and have been immaterial. Other income, which
includes certain fees; income from unconsolidated subsidiaries and associated
companies; net gains on sales of fixed assets, mortgage servicing and other
assets; and other items has been relatively stable from 1994 through 1996,
except in 1995 when $1.3 million in interest on a state income tax refund was
received.
The following table presents the components of noninterest income for the years
indicated and a year-to-year comparison expressed in terms of percent changes.
Noninterest Income
Percent Percent Percent Percent
(Amounts in thousands) 1996 Change 1995 Change 1994 Change 1993 Change 1992
---- ------ ---- ------ ---- ------ ---- ------ ----
Service charges on deposit accounts $ 32,825 15.8% $28,347 17.8% $24,058 5.2% $22,875 17.4% $19,484
Other service charges,
commissions and fees 27,908 15.5 24,169 9.8 22,008 2.9 21,392 13.4 18,871
Trust income 5,195 19.3 4,355 .5 4,334 (6.2) 4,622 .2 4,614
Investment securities gains (losses), 123 183.1 (148) 50.5 (299)(1,658.8) (17) (105.2) 327
net
Trading account income (loss) 2,721 318.2 (1,247)(245.0) 860 (63.4) 2,350 (47.0) 4,437
Loan sales and servicing income 35,098 44.7 24,254 66.2 14,596 (32.0) 21,471 226.7 6,573
Other income 7,021 (18.0) 8,284 8.4 7,645 6.4 7,187 (15.9) 8,543
----- ----- ----- ------- -------
Total $110,891 26.0% $88,014 20.2% $73,202 (8.4)% $79,880 27.1% $62,849
======= ====== ====== ====== ====== ========= ======= ====== =======
24
27
Noninterest Expense
The Company's noninterest expense was $214.3 million in 1996, an increase of
12.8% over $190.0 million in 1995, which was up 8.7% over the $174.9 million in
1994. Comparing significant noninterest expense categories in 1996 to 1995,
salaries and employee benefits increased 14.7% to $118.1 million, occupancy
expense increased 8.9% to $11.3 million, furniture and equipment expense
increased 19.7% to $15.8 million, FDIC premiums decreased 99.8% to $9 thousand
and the total of all other expenses increased 16.4% to $69.1 million. Comparing
significant noninterest expense categories in 1995 to 1994, salaries and
employee benefits increased 10.3% to $103.0 million, occupancy expense increased
7.8% to $10.4 million, furniture and equipment expense increased 16.8% to $13.2
million, FDIC premiums decreased 45.9% to $4.1 million and the total of all
other expenses increased 11.9% to $59.4 million.
In 1996 and 1995, salaries and employee benefits increased primarily as a result
of increased staffing, resulting from the acquisition and opening of new offices
and additional investment in personnel in selected areas, as well as general
salary increases and bonuses, commissions and profit-sharing costs which are
based on increased profitability. The occupancy, furniture and equipment expense
increase resulted primarily from the addition of office facilities, the
expansion of ATM networks, installation of personal computers and local area
networks and expenses related to technology initiatives. The increase in all
other expenses resulted primarily from increases in supplies and
telecommunication expenses related to acquisitions and expansion and increased
expenditures in selected areas to enhance revenue growth.
On December 31, 1996, the Company had 3,077 full-time equivalent employees, 142
offices and 327 ATMs for increases of 7.8%, 8.4% and 28.2%, respectively,
compared to year-end 1995. On December 31, 1995, the Company had 2,855 full-time
equivalent employees, 131 offices and 255 ATMs for increases of 5.7%, 11.0% and
18.6%, respectively, compared to year-end 1994.
The Company's "efficiency ratio," or noninterest expenses as a percentage of
total taxable-equivalent net revenues, improved to 56.63% in 1996 compared to
59.30% in 1995 and 63.25% in 1994.
25
28
The following table presents the components of noninterest expense for the years
indicated and a year-to-year comparison expressed in terms of percent changes.
Noninterest Expense
Percent Percent Percent Percent
(Amounts in thousands) 1996 Change 1995 Change 1994 Change 1993 Change 1992
---- ------ ---- ------ ---- ------ ---- ------ ----
Salaries and employee
benefits $118,095 14.7% $102,951 10.3% $ 93,331 9.1% $ 85,549 21.8% $ 70,242
Occupancy, net 11,321 8.9 10,398 7.8 9,647 18.1 8,168 12.7 7,248
Furniture and equipment 15,765 19.7 13,174 16.8 11,276 21.3 9,294 21.0 7,681
Other real estate expense (240)(396.3) 81 192.0 (88) (119.6) 450 (82.4) 2,559
Legal and professional
services 4,653 8.6 4,285 (16.7) 5,142 .1 5,136 42.0 3,616
Supplies 6,253 19.5 5,231 8.5 4,819 6.2 4,537 17.5 3,860
Postage 5,334 4.1 5,125 8.5 4,723 9.0 4,334 20.0 3,611
Advertising 5,296 1.4 5,221 51.5 3,447 (1.9) 3,515 8.6 3,236
F.D.I.C. premiums 9 (99.8) 4,084 (45.9) 7,547 4.0 7,257 16.4 6,235
Amortization of
intangible assets 3,599 (.6) 3,621 1.9 3,692 (16.7) 4,432 (2.2) 4,530
Loss on early
extinguishment
of debt - - - - - (100.0) 6,022 - -
Other expenses 44,247 23.4 35,859 14.3 31,364 7.9 29,056 10.7 26,251
-------- -------- -------- -------- --------
Total $214,332 12.8% $190,030 8.7% $174,900 4.3% $167,750 20.6% $139,069
======== ====== ======== ===== ======== ======= ======== ====== ========
Full-Time Equivalent Employees
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Commercial banking
Utah 2,091 1,975 1,911 2,044 1,590
Arizona 414 324 309 243 217
Nevada 359 351 286 286 291
----- ----- ----- ----- -----
2,864 2,650 2,506 2,573 2,098
Other 213 205 189 188 395
----- ----- ----- ----- -----
Total 3,077 2,855 2,695 2,761 2,493
Commercial Banking Offices and ATM's
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Domestic offices
Traditional branches 97 91 84 84 78
Banking centers
in grocery stores 44 39 33 29 27
Foreign office 1 1 1 1 1
--- --- --- --- ---
Total 142 131 118 114 106
ATM's 327 255 215 175 120
Income Taxes
The Company's income tax expense for the year 1996 was $52.1 million compared to
$41.0 million in 1995 and $30.9 million in 1994. The increases in income taxes
were primarily due to the increases in taxable income. The Company's effective
income tax rate was 34.0% in 1996, up slightly from 33.5% in 1995, which was up
from 32.6% in 1994.
26
29
Quarterly Summary
The following table presents a summary of earnings and end-of-period balances by
quarter for the years ended December 31, 1996, 1995 and 1994:
Quarterly Financial Information (Unaudited)
Income
Gross Net Non- Provision Non- before
(Amounts in interest interest interest for loan interest income
thousands) income income income losses expenses taxes Net income
- --------------------------------------------------------------------------------------------------------------------
Quarter
1996:
First $113,508 $ 59,949 $ 26,077 $ 600 $ 49,752 $ 35,674 $ 23,671
Second 116,078 63,490 26,526 840 51,440 37,816 25,064
Third 122,081 65,768 28,993 760 54,386 39,535 25,760
Fourth 127,291 71,266 29,295 1,340 58,754 40,467 26,855
-------- -------- -------- ------ -------- -------- --------
Total $478,958 $260,473 $110,891 $3,540 $214,332 $153,492 $101,350
======== ======== ========= ====== ======== ======== ========
1995:
First $ 97,779 $ 53,201 $ 17,341 $ 600 $ 46,118 $ 23,824 $ 16,001
Second 105,436 55,897 22,105 850 45,882 31,270 20,521
Third 113,579 57,923 23,936 800 47,015 34,044 22,291
Fourth 113,689 60,073 24,632 550 51,015 33,140 22,515
-------- -------- -------- ------ -------- -------- --------
Total $430,483 $227,094 $ 88,014 $2,800 $190,030 $122,278 $ 81,328
======== ======== ========= ====== ======== ======== ========
1994:
First $ 77,213 $ 44,801 $ 16,396 $ 290 $ 42,491 $ 18,416 $ 12,438
Second 86,772 48,741 18,465 467 41,996 24,743 16,418
Third 94,939 51,859 20,109 440 44,739 26,789 17,665
Fourth 95,065 53,205 18,232 984 45,674 24,779 17,306
-------- -------- -------- ------ -------- -------- --------
Total $353,989 $198,606 $ 73,202 $2,181 $174,900 $ 94,727 $ 63,827
======== ======== ========= ====== ======== ======== ========
Allowance Share-
(Amounts in Total Money market Net loans for loan Total holders'
thousands) assets investments Securities and leases losses deposits equity
- ------------------- ------------- ------------ ------------- ------------- ------------- ------------- -----------
End of Quarter
1996:
First $6,202,683 $1,037,825 $1,620,921 $2,971,033 $67,625 $4,170,996 $438,622
Second 6,087,914 386,382 1,942,302 3,212,191 69,272 4,340,316 473,522
Third 6,783,341 992,846 1,886,533 3,313,932 69,337 4,572,555 490,485
Fourth 6,484,964 613,429 1,809,688 3,452,543 69,954 4,552,017 507,452
1995:
First $5,105,608 $ 639,101 $1,555,577 $2,474,801 $67,372 $3,786,428 $380,975
Second 5,664,339 927,646 1,594,203 2,651,732 67,753 3,890,180 392,285
Third 5,667,670 759,498 1,716,350 2,679,485 68,309 4,095,014 409,966
Fourth 5,620,646 687,251 1,540,489 2,806,956 67,555 4,097,114 428,506
1994:
First $5,232,172 $ 677,125 $1,626,260 $2,531,806 $67,984 $3,493,502 $318,708
Second 5,452,447 830,288 1,552,256 2,665,104 68,981 3,599,176 341,818
Third 5,228,382 667,013 1,532,726 2,574,644 66,847 3,628,273 354,330
Fourth 4,934,095 403,446 1,663,433 2,391,278 67,018 3,705,976 365,770
27
30
BALANCE SHEET ANALYSIS
Earning Assets
Earning assets consist of money market investments, securities and loans. A
comparative average balance sheet report, including earnings assets, is
presented in pages 20 through 22.
Average earning assets increased 13.5% to $5,863.7 million in 1996 compared to
$5,168.2 million in 1995. Earning assets comprised 91.9% of total average assets
in 1996 compared with 91.3% in 1995.
Average money market investments, consisting of interest-bearing deposits,
federal funds sold and security resell agreements decreased 2.9% to $909.5
million in 1996 compared to $936.8 million in 1995.
Average securities increased 11.9% to $1,827.3 million in 1996, compared to
$1,632.3 million in 1995. Average held to maturity securities increased 11.8% to
$1,253.8 million, available for sale securities increased 14.8% to $417.1
million and trading account securities increased 6.5% to $156.4 million.
Average net loans and leases increased 20.3% to $3,126.9 million in 1996
compared to $2,599.1 million in 1995, representing 53.3% of earning assets in
1996 compared to 50.3% in 1995. Average net loans and leases were 73.4% of
average total deposits in 1996, as compared to 67.4% in 1995.
28
31
Investment Securities Portfolio
The tables that follow present the Company's year-end investment securities
portfolio for the years indicated and maturities and average yields on
securities on December 31, 1996.
Investment Securities Portfolio
December 31,
-----------------------------------------------------------------------------
1996 1995 1994
------------------------ ------------------------- -----------------------
Amortized Market Amortized Market Amortized Market
(Amounts in thousands) Cost Value Cost Value Cost Value
----------- ---------- ---------- ---------- ---------- -----------
Held to maturity:
U.S. government agencies
and corporations:
Small Business
Administration loan-
backed securities $ 487,748 $ 491,785 $ 529,376 $ 541,014 $ 460,163 $ 459,313
Other agency securities 518,308 517,892 265,430 263,522 271,440 262,144
States and political subdivisions 255,321 259,560 225,231 230,149 243,225 242,754
Mortgage-backed securities 60,784 61,844 58,546 59,249 56,079 54,587
---------- ---------- ---------- ---------- ---------- -----------
1,322,161 1,331,081 1,078,583 1,093,934 1,030,907 1,018,798
---------- ---------- ---------- ---------- ---------- -----------
Available for sale:
U.S. Treasury securities 14,655 14,707 17,691 17,728 48,269 47,177
U.S. government agencies 120,620 116,500 71,038 70,952 33,304 33,304
States and political subdivisions 39,118 40,766 40,153 42,084 - -
Mortgage and other
asset-backed securities 86,007 84,865 69,469 69,333 55,560 54,334
---------- ---------- ---------- ---------- ---------- -----------
260,400 256,838 198,351 200,097 137,133 134,815
---------- ---------- ---------- ---------- ---------- ----------
Equity securities:
Mutual funds:
Accessor Funds, Inc. 109,071 109,100 118,899 119,971 118,803 111,529
Other - - 564 564 534 534
Stock:
Federal Home Loan
Bank 79,593 79,593 71,988 71,988 65,861 65,861
Other 7,343 7,920 5,386 5,580 2,785 2,839
---------- ---------- ---------- ---------- ---------- ----------
196,007 196,613 196,837 198,103 187,983 180,763
---------- ---------- ---------- ---------- ---------- ----------
456,407 453,451 395,188 398,200 325,116 315,578
---------- ---------- ---------- ---------- ---------- ----------
Total $1,778,568 $1,784,532 $1,473,771 $1,492,134 $1,356,023 $1,334,376
========== ========== ========== ========== ========== ==========
29
32
Maturities and Average Yields on Securities
on December 31, 1996
After one After five
Total Within but within but within After
securities one year five years ten years ten years
-------------- --------------- --------------- --------------- --------------
(Amounts in millions) Amount Yield* Amount Yield* Amount Yield* Amount Yield* Amount Yield*
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Held to maturity:
U. S. government
agencies and
corporations:
Small Business
Administration
loan-backed
securities $ 487.8 7.0% $ 58.3 7.0% $185.1 7.0% $130.9 7.0% $113.5 7.0%
Other agency
securities 518.3 6.6% 43.4 5.8% 289.8 6.5% 176.8 7.0% 8.3 7.3%
States and political
subdivisions 255.3 8.0% 31.6 6.9% 109.4 8.1% 80.9 8.3% 33.4 8.2%
Mortgage-backed
securities 60.8 6.5% 11.3 6.5% 27.7 6.5% 14.3 6.6% 7.5 6.5%
-------- ------ ------ ------ ------
1,322.2 7.1% 144.6 6.6% 612.0 7.0% 402.9 7.3% 162.7 7.3%
-------- ------ ------ ------ ------
Available for sale:
U.S. Treasury
securities 14.7 5.6% 9.5 5.2% 5.0 6.2% .2 9.9% - -%
U.S. government
agencies 120.6 7.0% 58.4 7.7% 47.2 6.2% 15.0 7.1% - -%
States and political
subdivisions 39.1 8.2% - -% 19.3 8.0% 19.8 8.3% - -%
Mortgage and other
asset-backed
securities 86.0 6.8% 10.7 7.0% 37.2 7.1% 17.8 6.5% 20.3 6.4%
-------- ------ ------ ------ ------
260.4 6.9% 78.6 7.3% 108.7 6.8% 52.8 7.4% 20.3 6.4%
-------- ------ ------ ------ ------
Equity securities:
Mutual funds:
Accessor Funds Inc. 109.1 5.6% 109.1 5.6%
Other - -% - -%
Stock:
Federal Home
Loan Bank 79.6 7.9% 79.6 7.9%
Other 7.3 3.6% 7.3 3.6%
-------- ------
196.0 6.5% 196.0 6.5%
-------- ------
456.4 6.8% 78.6 7.3% 108.7 6.8% 52.8 7.4% 216.3 6.5%
-------- ------ ------ ------ ------
Total $1,778.6 7.0% $223.2 6.8% $720.7 6.9% $455.7 7.3% $379.0 6.8%
======== ====== ====== ====== ======
*An effective tax rate of 30% was used to adjust tax-exempt securities yields to
rates comparable to those on fully taxable securities.
At December 31, 1996, the value of the Accessor Funds Inc. and the Federal Home
Loan Bank of Seattle stock each exceeded ten percent of shareholders' equity.
30
33
Loan Portfolio
During 1996, excluding long-term residential mortgages, the Company consummated
securitized loan sales of automobile loans, credit card receivables, home equity
credit lines and SBA loans totaling $743.1 million. After these sales, loans and
leases on December 31, 1996 totaled $3,452.5 million, an increase of 23.0%
compared to $2,807.0 million on December 31, 1995. Loans held for sale on
December 31, 1996 increased 19.3% from year-end 1995. Comparing year-end 1996
with year-end 1995, commercial loans, real estate loans, lease financing and
other receivables increased 13.8%, 35.0% 20.6% and 34.0%, respectively, as
consumer loans decreased 10.7%.
The tables that follow set forth the amount of loans outstanding by type on
December 31 for the years indicated and the maturity distribution and
sensitivity to changes in interest rates of the portfolio on December 31, 1996.
Loan Portfolio by Type
December 31,
-------------------------------------------------------------
(Amounts in thousands) 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
Loans held for sale $ 150,467 $ 126,124 $ 108,649 $ 238,206 $ 229,465
---------- ---------- ---------- ---------- ----------
Commercial, financial and agricultural 783,589 688,466 495,647 511,982 593,248
---------- ---------- ---------- ---------- ----------
Real estate:
Construction 323,668 268,812 218,244 213,114 118,185
Other:
Home equity credit line 165,134 90,730 40,007 159,998 148,245
1-4 family residential 534,845 420,523 452,131 367,001 155,831
Other real estate-secured 1,057,962 761,380 570,285 495,889 299,769
---------- ---------- ---------- ---------- ----------
2,081,609 1,541,445 1,280,667 1,236,002 722,030
---------- ---------- ---------- ---------- ----------
Consumer:
Bankcard 37,089 52,252 41,035 27,522 24,293
Other 267,456 288,898 349,998 351,157 430,123
---------- ---------- ---------- ---------- ----------
304,545 341,150 391,033 378,679 454,416
---------- ---------- ---------- ---------- ----------
Lease financing 159,825 132,520 129,547 130,450 124,480
---------- ---------- ---------- ---------- ----------
Other receivables 10,989 8,203 10,509 12,857 8,574
---------- ---------- ---------- ---------- ----------
Total loans $3,491,024 $2,837,908 $2,416,052 $2,508,176 $2,132,213
========== ========== ========== ========== ==========
The Company has no foreign loans in its loan portfolio.
31
34
Loan Maturities
On December 31, 1996
Maturities
-----------------------------------------------------
One One year Over
year or through five
(Amounts in millions) less five years years Total
-------- -------- --------- --------
Loans held for sale $ 150.5 $ - $ - $ 150.5
-------- -------- --------- --------
Commercial, financial, and agricultural 454.0 242.8 86.8 783.6
-------- -------- --------- --------
Real estate:
Construction 281.5 42.2 - 323.7
Other:
Home equity credit line 5.9 1.5 157.7 165.1
1-4 family residential 35.1 115.2 384.5 534.8
Other real estate-secured 145.9 232.8 679.3 1,058.0
-------- -------- --------- --------
468.4 391.7 1,221.5 2,081.6
-------- -------- --------- --------
Consumer:
Bankcard - 37.1 - 37.1
Other 63.4 140.0 64.0 267.4
-------- -------- --------- --------
63.4 177.1 64.0 304.5
-------- -------- --------- --------
Lease financing 11.2 112.5 36.1 159.8
-------- -------- --------- --------
Other receivables 11.0 - - 11.0
-------- -------- --------- --------
Total $1,158.5 $924.1 $1,408.4 $3,491.0
======== ======== ========= ========
Loans maturing in more than one year:
With fixed interest rates $440.2 $ 655.2 $1,095.4
With variable interest rates 483.9 753.2 1,237.1
-------- --------- --------
Total $924.1 $1,408.4 $2,332.5
======== ========= ========
32
35
Sold Loans Being Serviced
On December 31, 1996, long-term first mortgage real estate loans serviced for
others amounted to $1,542.0 million compared to $1,447.9 million on December 31,
1995, and $1,704.5 million on December 31, 1994.
Consumer and other loan securitizations, which relate primarily to loans sold
under revolving securitization structures, totaled $743.1 million in 1996,
$615.1 million in 1995, and $703.0 million in 1994.
The Company's activity in its sold loans being serviced portfolio (excluding
long-term first mortgage residential real estate loans) is summarized as
follows:
Sold Loans Being Serviced
1996 1995 1994
---------------------- ------------------------ ---------------------
Outstanding Outstanding Outstanding
(Amounts in thousands) Sales at year end Sales at year end Sales at year end
------- ----------- -------- ----------- -------- -----------
Auto loans $283,542 $433,831 $263,997 $419,158 $303,786 $380,337
Home equity credit lines 180,173 220,501 195,569 219,750 192,429 185,168
Bankcard receivables 238,287 85,442 155,574 55,000 163,104 55,000
Home refinance loans - 67,582 - 99,008 - 122,847
SBA 504 loans - 30,635 - 38,573 43,694 43,205
SBA 7(a) loans 41,095 29,896 - - - -
-------- -------- -------- -------- --------- --------
Total $743,097 $867,887 $615,140 $831,489 $703,013 $786,557
======== ======== ======== ======== ========= ========
33
36
RISK ELEMENTS
Credit Risk Management
Management of credit risk is essential in maintaining a safe and sound
institution. The Company has structured its organization to separate the lending
function from the credit administration function to strengthen the control and
independent evaluation of credit activities. Loan policies and procedures
provide the Company with a framework for consistent underwriting and a basis for
sound credit decisions. In addition, the Company has well-defined standards for
grading its loan portfolio, and management utilizes a comprehensive loan grading
system to determine risk potential in the portfolio. A separate internal credit
examination department periodically conducts examinations of the quality,
documentation and administration of the Company's lending departments, and
submits reports thereon to a committee of the board of directors. Emphasis is
placed on early detection of potential problem credits so that action plans can
be developed on a timely basis to mitigate losses.
Another aspect of the Company's credit risk management strategy is the
diversification of the loan portfolio. At year end, the Company had 4% of its
portfolio in loans held for sale, 23% in commercial loans, 60% in real estate
loans, 9% in consumer loans, and 4% in lease financing. The Company's real
estate portfolio is also diversified. Of the total portfolio, 9% is in real
estate construction loans, 5% is in home equity credit lines, 16% is in 1-4
family residential loans and 30% is in commercial loans secured by real estate.
In addition, the Company attempts to avoid the risk of an undue concentration of
credits in a particular industry or trade group. The commercial loan and lease
portfolio consists of approximately 17 industry classification groupings. On
December 31, 1996, the larger concentrations of risk in the commercial loan and
leasing portfolio were represented by the real estate, business service, retail,
and manufacturing industry groupings, which comprised approximately 18%, 14%,
14% and 13%, respectively, of the portfolio. The Company has a well-diversified
loan portfolio with no significant exposure to highly leveraged transactions.
Most of the Company's business activity is with customers located within the
states of Utah, Nevada and Arizona, and it has no foreign credits in its loan
portfolio. Also, the Company does not have significant exposure to any
individual customer or counterparty.
34
37
Loan Risk Elements
The following table shows the principal amounts of nonaccrual, past due 90 days
or more, restructured loans, and potential problem loans at December 31 for each
year indicated:
December 31,
----------------------------------------------------
(Amounts in thousands) 1996 1995 1994 1993 1992
-------- -------- -------- ------- --------
Nonaccrual loans $ 11,526 $ 7,438 $ 13,635 $ 23,364 $ 21,556
Loans contractually past due 90 days or more (not included
in nonaccrual loans above) 3,553 5,232 3,041 10,821 6,409
Restructured loans (not included in nonaccrual loans or
loans contractually past due 90 days or more) 857 249 567 4,006 4,003
Potential problem loans (loans presently current by their
terms, but about which mhanagement has serious doubt as
to the future ability of the borrower to comply with
present repayment terms) - - - 1,114 6,263
Includes loans held for sale.
Impact of Nonperforming Loans on Interest Income
The following table presents the gross interest income on nonaccrual and
restructured loans that would have been recorded if these loans had been current
in accordance with their original terms (interest at original rates), and the
amount of interest income on these loans that was included in income for each
year indicated:
1996 1995 1994
----------------------- ------------------------ ------------------------
Re- Re- Re-
Non- struc- Non- struc- Non- struc-
(Amounts in thousands) accrual tured Total accrual tured Total accrual tured Total
------- ------ ------ -------- ------ ------ -------- ------- ------
Gross amount of interest that
would have been recorded at $ 1,285 $ 92 $1,377 $ 1,041 $ 27 $1,068 $ 1,713 $ 53 $ 1,766
original rate
Interest that was included
in income 629 91 720 449 25 474 371 45 416
------- ------ ------ -------- ------ ------ -------- ------- ------
Net impact on interest income $ 656 $ 1 $ 657 $ 592 $ 2 $ 594 $ 1,342 $ 8 $ 1,350
======= ====== ====== ======== ====== ====== ======== ======= ======
35
38
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 in the
process of collection and well-secured. Consumer loans are not placed on a
nonaccrual status, inasmuch as they are generally charged off when they become
120 days past due. Loans are restructured to provide a reduction or deferral of
interest or principal payments when the financial condition of the borrower
deteriorates and requires that the borrower be given temporary or permanent
relief from the original contractual terms of the credit. Other real estate
owned is primarily acquired through or in lieu of foreclosure on credits secured
by real estate.
The Company's nonperforming assets were $12.5 million on December 31, 1996, up
from $9.3 million on December 31, 1995. Such nonperforming assets as a
percentage of net loans and leases, other real estate owned and other
nonperforming assets were .36% on December 31, 1996, as compared to .33% on
December 31, 1995.
Accruing loans past due 90 days or more totaled $3.6 million on December 31,
1996, down from $5.2 million on December 31, 1995. These loans equaled .10% of
net loans and leases on December 31, 1996, as compared to .19% on December 31,
1995.
No loans were considered potential problem loans on December 31, 1996 or 1995.
Potential problem loans are defined as loans presently on accrual and current by
their terms, but about which management has serious doubt as to the future
ability of the borrower to comply with present repayment terms and which may
result in the reporting of the loans as nonperforming assets.
The Company's total recorded investment in impaired loans, in accordance with
Financial Accounting Standard statements and included in nonaccrual loans and
leases, amounted to $7.8 million and $3.4 million on December 31, 1996 and 1995,
respectively. The Company considers a loan to be impaired when the accrual of
interest has been discontinued and meets other criteria under the statements.
The amount of the impairment is measured based on the present value of expected
cash flows, the observable market price of the loan, or the fair value of the
collateral. Impairment losses are included in the allowance for loan losses
through a provision for loan losses. Included in the allowance for loan losses
on December 31, 1996 and 1995, is a required allowance of $25 thousand and $22
thousand respectively, on $1.0 million and $.9 million, respectively, of the
recorded investment in impaired loans.
36
39
The following table sets forth the composition of nonperforming assets at
December 31 for the years indicated.
Nonperforming Assets
December 31,
------------------------------------------------
(Amounts in thousands) 1996 1995 1994 1993 1992
------- ------- ------- ------- -------
Nonaccrual loans:
Commercial, financial and agricultural $ 4,876 $ 2,293 $ 5,736 $ 6,969 $ 2,981
Real estate 5,154 2,754 5,290 12,277 13,973
Consumer 716 866 862 607 1,377
Lease financing 779 1,395 1,747 3,511 3,225
Other 1 130 -- -- --
------- ------- ------- ------- -------
Total 11,526 7,438 13,635 23,364 21,556
------- ------- ------- ------- -------
Restructured loans:
Commercial, financial and agricultural 144 -- -- 8 1,204
Real estate 713 249 567 3,998 2,799
------- ------- ------- ------- -------
Total 857 249 567 4,006 4,003
------- ------- ------- ------- -------
Other real estate owned:
Commercial, financial and agricultural:
Improved -- 425 415 844 3,099
Unimproved 30 200 1,018 904 1,844
Residential:
1-4 Family 84 439 63 1,182 681
Multi-family -- -- -- -- --
Lots 6 6 6 163 45
Recreation property 8 9 42 110 238
Other 10 13 18 64 64
------- ------- ------- ------- -------
Total 138 1,092 1,562 3,267 5,971
Other nonperforming assets -- 517 3,179 -- --
------- ------- ------- ------- -------
Total 138 1,609 4,741 3,267 5,971
------- ------- ------- ------- -------
Total $12,521 $ 9,296 $18,943 $30,637 $31,530
======= ======= ======= ======= =======
% of Net loans* and leases, other real estate
owned and other nonperforming assets .36% .33% .79% 1.23% 1.49%
Accruing loans past due 90 days or more:
Commercial, financial and agricultural $ 477 $ 705 $ 431 $ 1,612 $ 2,893
Real estate 2,205 3,480 1,975 8,881 3,044
Consumer 871 1,041 631 327 451
Lease financing - 6 4 1 21
------- ------- ------- ------- -------
Total $ 3,553 $5,232 $ 3,041 $10,821 $ 6,409
======= ======= ======= ======= =======
% of Net loans* and leases .10% .19% .13% .44% .30%
*Includes loans held for sale.
37
40
Allowance for Loan Losses
The Company's allowance for loan losses was 2.03% of net loans and leases on
December 31, 1996 compared to 2.41% on December 31, 1995. Net charge-offs
remained low in 1996, totaling $3.7 million, or .12% of average loans and
leases, compared to net charge-offs of $2.5 million, or .10% of average net
loans and leases in 1995 and net charge-offs of $4.9 million, or .19% of average
net loans and leases in 1994.
The allowance, as a percentage of nonaccrual loans and restructured loans, was
564.92% on December 31, 1996, compared to 878.82% on December 31, 1995, and
471.89% on December 31, 1994. The allowance, as a percentage of nonaccrual loans
and accruing loans past due 90 days or more was 463.93% on December 31, 1996,
compared to 533.19% on December 31, 1995, and 401.88% on December 31, 1994.
On December 31, 1996, 1995 and 1994, the allowance for loan losses includes an
allocation of $5.9 million, $7.5 million and $3.7 million respectively, related
to commitments to extend credit on loans and standby letters of credit.
Commitments to extend credit on loans and standby letters of credit on December
31, 1996, 1995 and 1994, totaled $1,906.9 million, $1,610.5 million, and
$1,231.2 million, respectively. The Company's actual future credit exposure is
much lower than the contractual amounts of the commitments because a significant
portion of the commitments is expected to expire without being drawn upon.
In analyzing the adequacy of the allowance for loan and lease losses, management
utilizes a comprehensive loan grading system to determine risk potential in the
portfolio, and considers the results of independent internal and external credit
review, historical charge-off experience, and changes in the composition and
volume of the portfolio. Other factors, such as general economic conditions and
collateral values, are also considered. Larger problem credits are individually
evaluated to determine appropriate reserve allocations. Additions to the
allowance are based upon the resulting risk profile of the portfolio developed
through the evaluation of the above factors.
38
41
Summary of Loan Loss Experience
The following table shows the change in the allowance for losses for each year
indicated.
(Amounts in thousands) 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Loans* and leases outstanding on December 31
(net of unearned income) $ 3,452,543 $ 2,806,956 $ 2,391,278 $ 2,486,346 $ 2,107,433
=========== =========== =========== =========== ===========
Average loans* and leases outstanding
(net of unearned income) $ 3,126,899 $ 2,599,071 $ 2,574,995 $ 2,222,182 $ 2,104,679
=========== =========== =========== =========== ===========
Allowance for possible losses:
Balance at beginning of year $ 67,555 $ 67,018 $ 68,461 $ 59,807 $ 58,238
Allowance of companies acquired 2,566 249 1,308 546 --
Provision charged against earnings 3,540 2,800 2,181 2,993 10,929
Loans and leases charged off:
Loans held for sale -- -- -- -- --
Commercial, financial and agricultural (1,274) (997) (5,158) (1,804) (6,224)
Real estate (427) (548) (573) (1,179) (2,544)
Consumer (7,503) (6,786) (4,756) (5,461) (9,559)
Lease financing (228) (41) (1,174) (360) (604)
Other receivables -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Total (9,432) (8,372) (11,661) (8,804) (18,931)
----------- ----------- ----------- ----------- -----------
Recoveries:
Loans held for sale -- -- -- -- --
Commercial, financial and agricultural 2,411 2,580 2,180 10,117 5,197
Real estate 428 464 676 611 477
Consumer 2,344 2,540 3,732 3,043 3,794
Lease financing 542 276 141 148 103
Other receivables -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Total 5,725 5,860 6,729 13,919 9,571
----------- ----------- ----------- ----------- -----------
Net loan and lease (charge-offs) recoveries (3,707) (2,512) (4,932) 5,115 (9,360)
----------- ----------- ----------- ----------- -----------
Balance at end of year $ 69,954 $ 67,555 $ 67,018 $ 68,461 $ 59,807
=========== =========== =========== =========== ===========
Ratio of net charge-offs (recoveries) to
average loans and leases .12% .10% .19% (.23)% .44%
Ratio of allowance for possible losses to
loans and leases outstanding on December 31 2.03% 2.41% 2.80% 2.75% 2.84%
Ratio of allowance for possible losses to
nonperforming loans on December 31 564.92% 878.82% 471.89% 250.13% 234.00%
Ratio of allowance for possible losses to
nonaccrual loans and accruing loans past
due 90 days or more on December 31 463.92% 533.19% 401.88% 200.27% 213.86%
*Includes loans held for sale
39
42
Review of nonperforming loans and evaluation of the quality of the loan
portfolio, as previously mentioned, results in the identification of certain
loans with risk characteristics which warrant specific reserve allocations in
the determination of the amount of the allowance for loan losses. The allowance
is not allocated among all loan categories, and amounts allocated to specific
categories are not necessarily indicative of future charge-offs. An amount in
the allowance not specifically allocated by loan category is necessary in view
of the fact that, while no loans were made with the expectation of loss, some
loan losses inevitably occur. The following is a categorization of the allowance
for loan losses for each year indicated:
1996 1995
------------------- --------------------
Alloca- Alloca-
% of tion of % of tion of
(Amounts in thousands) total allow- total allow-
loans ance loans ance
-------- -------- --------- --------
Type of loan
Loans held for sale 4.3% $ - 4.4% $ -
Commercial, financial and agricultural 22.4 3,455 24.3 711
Real estate 59.7 4,453 54.3 2,397
Consumer 8.7 80 12.0 32
Lease financing 4.6 204 4.7 425
Other receivables .3 - .3 -
------ ------
Total loans 100.0% 100.0%
====== ======
Off-balance sheet unused commitments
and standby letters of credit 5,940 7,516
------- --------
Allocated 14,132 11,081
Unallocated 55,822 56,474
------- -------
Total allowance for loan losses $69,954 $67,555
======= =======
1994 1993 1992
------------------- ------------------- -------------------
Alloca- Alloca- Alloca-
% of tion of % of tion of % of tion of
(Amounts in thousands) total allow- total allow- total allow-
loans ance loans ance loans ance
-------- -------- -------- ------- -------- --------
Type of loan
Loans held for sale 4.4% $ - 9.5% $ - 10.8% $ -
Commercial, financial and agricultural 20.5 2,920 20.4 3,094 27.8 4,619
Real estate 53.0 1,594 49.3 4,032 33.9 4,240
Consumer 16.2 946 15.1 2,366 21.3 2,711
Lease financing 5.4 981 5.2 1,043 5.8 1,818
Other receivables .4 - .5 - .4 -
------ ------ ------
Total loans 100.0% 100.0% 100.0%
====== ====== ======
Off-balance sheet unused commitments and
standby letters of credit 3,674 1,972 3,710
------- ------- -------
Allocated 10,115 12,507 17,098
Unallocated 56,903 55,954 42,709
------- ------- -------
Total allowance for loan losses $67,018 $68,461 $59,807
======= ======= =======
40
43
Deposits
Total average deposits increased 10.4% to $4,258.3 million in 1996 from $3,858.3
million in 1995. Average noninterest-bearing deposits increased 11.5%, average
money market and super NOW deposits increased 24.0%, average time deposits under
$100,000 increased 8.1% and average time deposits over $100,000 increased 32.4%
over 1995 average balances. Average savings and NOW deposits decreased 15.2% and
average foreign deposits decreased 13.2% during 1996, as compared with 1995.
Total deposits increased 11.1% to $4,552.0 million on December 31, 1996 as
compared to $4,097.1 million on December 31, 1995. Comparing December 31, 1996
to December 31, 1995, demand deposits increased 16.1%, savings and money market
deposits increased 14.3%, time deposits under $100,000 decreased 5.0%, while
time deposits over $100,000 increased 5.4% and foreign deposits increased 7.7%.
Average Deposit Amounts and Average Rates
(Amounts in millions) 1996 1995 1994
--------- --------- ---------
Average amounts:
Noninterest-bearing demand deposits $ 933.7 $ 837.2 $ 838.1
Savings and NOW deposits 610.4 719.6 740.3
Money market and super NOW deposits 1,767.5 1,425.5 1,284.7
Time deposits of less than $100,000 664.5 614.9 516.9
Time deposits $100,000 or more 161.4 121.9 94.7
Foreign deposits 120.8 139.2 108.4
--------- --------- ---------
Total average amounts $ 4,258.3 $ 3,858.3 $ 3,583.1
========= ========= =========
Average rates:
Noninterest-bearing demand deposits -% -% -%
Savings and NOW deposits 3.14% 3.13% 3.01%
Money market and super NOW deposits 3.84% 4.17% 3.11%
Time deposits under $100,000 5.24% 5.21% 3.96%
Time deposits $100,000 or more 5.91% 6.04% 4.06%
Foreign deposits 4.46% 5.16% 4.10%
Total 4.11% 4.25% 3.31%
Maturities of time deposits $100,000 or more at December 31, 1996 (Amounts in
millions):
Under three months $ 58.3
Over three months and less than six months 43.0
Over six months and less than twelve months 38.4
Over twelve months 27.8
---------
Total time deposits $100,000 or more $ 167.5
=========
Most foreign deposits are in denominations of $100,000 or more.
41
44
Short-term Borrowings
The following table sets forth data pertaining to the Company's short-term
borrowings for each year indicated:
(Amounts in thousands, except rates)
At December 31, Weighted
Average average
Weighted Maximum balance rate
Category of aggregate average month-end during the during the
short-term borrowings Balance rate balance year year
--------- ----------- ------------ ----------- -----------
Securities sold, not yet purchased
1996 $ 76,831 5.52% $ 197,848 $ 76,518 5.85%
1995 $ 117,005 6.58% $ 241,219 $ 90,196 6.23%
1994 $ 81,437 5.33% $ 464,133 $ 184,405 5.95%
Federal funds purchased(a)
1996 $ 155,407 6.68% $ 454,857 $ 205,329 5.44%
1995 $ 134,048 5.38% $ 354,565 $ 134,683 5.90%
1994 $ 56,087 5.09% $ 274,526 $ 158,937 4.42%
Security repurchase
agreements(b)
1996 $ 771,361 5.28% $ 1,341,414 $ 1,110,725 4.94%
1995 $ 614,284 5.07% $ 1,530,887 $ 902,514 5.40%
1994 $ 468,451 5.56% $ 1,024,095 $ 898,890 3.79%
Federal Home Loan Bank advances and
other borrowings less than one
year(c)
1996 $ 13,533 5.85% $ 18,414 $ 17,725 6.50%
1995 $ 14,910 6.00% $ 25,972 $ 20,441 6.88%
1994 $ 25,748 7.70% $ 73,461 $ 32,557 5.44%
- ----------
(a) Federal funds purchased are on an overnight or demand basis. Rates on
overnight and demand funds reflect current market rates.
(b) Security repurchase agreements are primarily on an overnight or demand
basis. Rates on overnight and demand funds reflect current market rates.
Rates on fixed-maturity borrowings are set at the time of the borrowings.
(c) Federal Home Loan Bank advances less than one year are overnight and
reflect current market rates or reprice monthly based on one-month LIBOR
as set by the Federal Home Loan Bank of Seattle. Other borrowings are
primarily variable rate and reprice based on changes in the prime rate
which reflect current market.
42
45
Long-Term Debt
On November 1, 1996, the Company redeemed in full at par the $4 million
principal amount of its 9% subordinated notes. The notes had a maturity date of
November 1, 1998.
In December 1996, Zions Institutional Capital Trust A, a subsidiary of Zions
First National Bank, was created as a statutory business trust under Delaware
law for the exclusive purposes of issuing and selling Preferred Capital Trust
Securities and using the proceeds from the sale of the securities to acquire
Junior Subordinated Debentures of the Bank as the sole assets of the trust. On
December 26, 1996, Zions Institutional Capital Trust A issued $200 million of
8.536% Capital Securities, Series A. The Capital Securities represent preferred
undivided interests in the assets of Zions Institutional Capital Trust A and
have a preference under certain circumstances over the Common Securities with
respect to cash distributions. Zions Institutional Capital Trust A then invested
the proceeds from the offering in 8.536% debentures issued by the Bank. The
debentures are direct and unsecured obligations of Zions First National Bank (a
subsidiary of Zions Bancorporation) and are subordinate to the claims of
depositors and general creditors of the Bank. Zions Bancorporation has
irrevocably and unconditionally guaranteed all of Zions First National Bank's
obligations under the debentures. Zions First National Bank has the right to
redeem the debentures on or after December 15, 2006 at a price of 104.268
percent, decreasing to par on December 15, 2016. The Preferred Capital Trust
Securities are subject to mandatory redemption, in whole or in part, upon
repayment of the Junior Subordinated Debentures at stated maturity or their
earlier redemption. The 8.536% Guaranteed Preferred Beneficial Interests in
Junior Subordinated Deferrable Interest Debentures mature on December 15, 2026.
Return on Equity and Assets
1996 1995 1994
--------- --------- ---------
Return on average assets 1.59% 1.44% 1.17%
Return on average common shareholders' equity 21.63% 20.47% 18.82%
Common dividend payout ratio 24.66% 25.27% 27.06%
Average equity to average assets ratio 7.35% 7.02% 6.22%
43
46
Capital
The Company's basic financial objective is to consistently produce superior
risk-adjusted returns on its shareholders' capital. The Company believes that a
strong capital position is vital to continued profitability and to promote
depositor and investor confidence. The Company's consolidated capital levels are
a result of its capital policy, which establishes guidelines for its
subsidiaries based on industry standards, regulatory requirements and an attempt
at balancing perceived risks with expected returns for various activities. The
Company's goal is to steadily achieve a high return on shareholders' equity,
while at the same time maintaining "risk-based capital" of not less than the
"well-capitalized" threshold, as defined by federal banking regulators.
During 1996, the Company repurchased and retired 274,248 shares of its common
stock at a cost of $21.6 million, in addition to 375,040 of its common shares
repurchased and retired at a cost of $18.5 million during 1995. In December
1996, the Company's board of directors authorized an additional repurchase of
its common shares in the amount of $25 million.
Total shareholders' equity on December 31, 1996 was $507.5 million, an increase
of 18.4% over the $428.5 million on December 31, 1995. The ratio of average
equity to average assets for the year 1996 was 7.35%, compared to 7.02% for the
year 1995.
On December 31, 1996, the Company's Tier 1 leverage ratio was 8.77%, as compared
to 6.28% on December 31, 1995. On December 31, 1996, the Company's Tier 1
risk-based capital ratio was 14.38%, as compared to 11.38% on December 31, 1995.
On December 31, 1996 the Company's total risk-based capital ratio was 18.31%, as
compared to 14.23% on December 31, 1995. The Company's regulatory capital ratios
on December 31 for the years 1994, 1995 and 1996 are shown in the table that
follows.
Regulatory Risk-Based Capital on December 31
Ratios for Ratios to be
Minimum Considered
Capital "Well
(Amounts in thousands) 1996 1995 1994 Adequacy Capitalized"
---- ---- ---- -------- ------------
Tier 1 Capital $574,928 $370,931 $327,687
Total Capital $731,902 $463,593 $415,172
Risk-adjusted assets,
net of goodwill and excess
deferred tax assets $3,996,710 $3,258,488 $2,774,841
Average Assets, net of goodwill
and excess deferred tax assets $6,557,610 $5,908,733 $5,253,465
Tier 1 Leverage Ratio 8.77% 6.28% 6.24% 3.00% 5.00%
Tier 1 Risk-based Capital Ratio 14.38% 11.38% 11.81% 4.00% 6.00%
Total Risk-based Capital Ratio 18.31% 14.23% 14.96% 8.00% 10.00%
44
47
Dividends
Dividends per share were $1.70 in 1996, an increase of 20.6% over $1.41 in 1995,
which were up 21.6% over $1.16 in 1994. The Company's quarterly dividend rate
was $.28 per share for the first and second quarters of 1994, increasing to $.30
per share for the third and fourth quarters of 1994 and the first quarter of
1995, increasing to $.35 per share for the second and third quarters of 1995,
increasing to $.41 per share for the fourth quarter of 1995 and the first and
second quarters of 1996, and increasing to $.44 per share for the third and
fourth quarters of 1996.
Dividends Paid
(Amounts in thousands) 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Net income $101,350 $81,328 $63,827 $58,205 $47,209
Common dividends paid 24,997 20,554 17,271 12,692 9,587
Payout/net income 24.66% 25.27% 27.06% 21.81% 20.31%
Shareholders' Rights Plan
In 1996, the Company adopted the Shareholders' Protection Rights Plan. The Plan
contains provisions intended to protect shareholders in the event of unsolicited
offers or attempts to acquire the Company, including offers that do not treat
all shareholders equally, acquisitions in the open market of shares constituting
control without offering fair value to all shareholders and other coercive or
unfair takeover tactics that could impair the board of directors' ability to
represent the shareholders' interests fully. The Shareholders' Protection Rights
Plan provides that attached to each share of common stock is one right (a
"Right") to purchase one one-hundredth of a share of Participating Preferred
Stock for an exercise price of $360, subject to adjustment.
The Rights have certain anti-takeover effects. The Rights may cause substantial
dilution to a person that attempts to acquire the Company without the approval
of the board of directors. The Rights, however, should not affect offers for all
outstanding shares of common stock at a fair price and which are otherwise in
the best interests of the Company and its shareholders as determined by the
board of directors. The board of directors may, at its option, redeem all, but
not fewer than all, of the then outstanding Rights at any time until the tenth
business day following a public announcement that a person or a group has
acquired beneficial ownership of 10% or more of the Company's outstanding common
stock or total voting power.
Foreign Operations
Zions First National Bank opened a foreign office located in Grand Cayman, Grand
Cayman Islands, B.W.I. in 1980. This office has no foreign loans outstanding.
The office accepts Eurodollar deposits from qualified customers of the Bank and
places deposits with foreign banks and foreign branches of other U.S. banks.
Foreign deposits at December 31, totaled $114.3 million in 1996, $106.1 million
in 1995, and $134.1 million in 1994; and averaged $120.8 million for 1996,
$139.2 million for 1995, and $108.4 million for 1994.
45
48
Liquidity
The Company manages its liquidity to provide adequate funds to meet its
financial obligations, including withdrawals by depositors and debt service
requirements as well as to fund customers' demand for credit. Liquidity is
primarily provided by the regularly scheduled maturities of the Company's
investment and loan portfolios. In addition, on December 31, 1996 the Company
had cash and money market investments, net of short-term or "purchased"
liabilities and wholesale deposits, of $1.4 billion or 33.7% of core deposits.
The Company's core deposits, consisting of demand, savings, and money market
deposits, and time deposits under $100,000, constituted 93.8% of total deposits
on December 31, 1996, as compared to 93.5% on December 31, 1995.
Maturing balances in loan portfolios provide flexibility in managing cash flows.
Maturity management of those funds is an important source of medium- to
long-term liquidity. The Company's ability to raise funds in the capital markets
through the securitization process and debt issuance allows the Company to take
advantage of market opportunities to meet funding needs at a reasonable cost.
The parent company's cash requirements consist primarily of principal and
interest payments on its borrowings, dividend payments to shareholders,
operating expenses and income taxes. The parent company's cash needs are
routinely satisfied through payments by subsidiaries of dividends, management
and other fees, principal and interest payments on subsidiary borrowings from
the parent company and proportionate shares of current income taxes.
Interest Rate Sensitivity
Interest rate sensitivity measures the Company's financial exposure to changes
in interest rates. Interest rate sensitivity is, like liquidity, affected by
maturities of assets and liabilities. Interest rate sensitivity measures the
Company's financial exposure to changes in interest rates. The Company assesses
its interest rate sensitivity using duration, simulation, and gap analysis.
Duration is a measure of the weighted average expected lives of the discounted
cash flows from assets and liabilities. Simulation is used to estimate net
interest income over time using alternative interest rate scenarios. Gap
analysis compares the volumes of assets and liabilities whose interest rates are
subject to reset within specified periods.
The Company, through the management of maturities and repricing of its assets
and liabilities and the use of off-balance sheet arrangements such as interest
rate caps, floors, futures, options, and interest rate exchange agreements,
attempts to manage the effect on net interest income of changes in interest
rates. The Company's management exercises its best judgment in making
assumptions with respect to loan and security prepayments, early deposit
withdrawals and other noncontrollable events in managing the Company's exposure
to changes in interest rates.
Information as to the Company's interest rate sensitivity is presented in the
table which follows. The interest rate gaps reported in the schedule arise when
assets are funded with liabilities having different repricing intervals, after
considering the effect of off-balance sheet financial hedging instruments. The
interest rate risk position is actively managed and changes daily as the
interest rate environment changes; therefore, positions at the end of any period
may not be reflective of the Company's interest rate position in subsequent
periods. The prime lending rate is the primary basis used for pricing the
Company's loans and the short-term Treasury rate is the index used for pricing
many of the Company's deposits. The Company, however, is unable to economically
hedge the prime/91-day T-bill spread risk through the use of off-balance sheet
financial instruments.
46
49
Maturities and Interest Rate Sensitivity
on December 31, 1996
Rate Sensitive
---------------------------------------------------
After
three After one
Within months year but
three but within within After five Not rate
(Amounts in millions) months one year five years years sensitive Total
- --------------------- ------ -------- ---------- ----- --------- -----
Uses of Funds
Earning Assets:
Interest-bearing deposits $ 47.4 $ .4 $ 47.8
Federal funds sold 260.0 260.0
Security resell agreements 305.7 305.7
Securities:
Held to maturity 593.5 $ 83.3 377.5 $267.9 1,322.2
Available for sale 180.9 17.4 140.4 114.7 453.4
Trading account 34.1 34.1
Loans and leases 1,949.6 431.2 885.9 185.8 3,452.5
Nonearning assets -- -- -- -- $ 609.3 609.3
-------- ------- -------- ------ ------- --------
Total uses of funds $3,371.2 $ 531.9 $1,404.2 $568.4 $ 609.3 $6,485.0
======== ======= ======== ====== ======= ========
Sources of Funds
Interest-bearing deposits and
liabilities:
Savings and money market
deposits $1,490.0 $ 167.9 $ 662.2 $154.7 $2,474.8
Time deposits under $100,000 186.4 292.3 155.8 1.1 635.6
Time deposits over $100,000 58.3 81.4 27.1 .7 167.5
Foreign 114.3 114.3
Securities sold, not yet
purchased 76.8 76.8
Federal funds purchased 155.4 155.4
Security repurchase agreements 771.4 771.4
FHLB advances and other
borrowings:
Less than one year 13.5 13.5
Over one year 50.7 1.7 8.4 12.9 73.7
Long-term debt .1 .2 .7 250.6 251.6
Noninterest-bearing deposits 419.2 26.7 200.5 109.1 $ 404.3 1,159.8
Other liabilities 83.1 83.1
Shareholders' equity -- -- -- -- 507.5 507.5
-------- ------- -------- ------ ------- --------
Total sources of funds $3,336.1 $ 570.2 $1,054.7 $529.1 $ 994.9 $6,485.0
======== ======= ======== ====== ======= ========
Off-balance sheet items affecting
interest rate sensitivity $ (240.0) $ 125.0 $ 115.0
Interest rate sensitivity gap $ (204.9) $ 86.7 $ 464.5 $ 39.3 $(385.6)
Percent of total assets (3.1)% 1.3% 7.1% .6% (5.9)%
Cumulative interest rate
sensitivity gap $ (204.9) $(118.2) $ 346.3 $385.6
Cumulative as a % of total assets (3.1)% (1.8)% 5.3% 5.9%
47
50
THIS PAGE INTENTIONALLY LEFT BLANK
48
51
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Independent Auditors' Report
The Board of Directors and Shareholders
Zions Bancorporation:
We have audited the accompanying consolidated balance sheets of Zions
Bancorporation and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, retained earnings, and cash flows for
each of the years in the three-year period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Zions Bancorporation
and subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
As discussed in notes 1 and 4 to the consolidated financial statements, the
Company changed its method of accounting for impairment of loans receivable to
adopt the provisions of the Financial Accounting Standards Board's Statement of
Financial Accounting Standards (Statement) No. 114, Accounting by Creditors for
Impairment of a Loan, as amended by Statement No. 118, Accounting by Creditors
for Impairment of a Loan-Income Recognition and Disclosures, on January 1, 1995.
As discussed in notes 1 and 6, the Company changed its method of accounting for
mortgage servicing rights in 1996 to adopt the provisions of Statement No. 122,
Accounting for Mortgage Servicing Rights.
KPMG Peat Marwick LLP
Salt Lake City, Utah
January 16, 1997
49
52
ZIONS BANCORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
(In thousands, except share amounts)
ASSETS 1996 1995
---------- ----------
Cash and due from banks $ 404,331 418,067
Money market investments:
Interest-bearing deposits 47,746 34,580
Federal funds sold 260,023 50,467
Security resell agreements 305,660 602,204
Investment securities:
Held to maturity, at cost (approximate market value $1,331,081 and $1,093,934) 1,322,161 1,078,583
Available for sale, at market 453,451 398,200
Trading account 34,076 63,706
Loans:
Loans held for sale at cost, which approximates market 150,467 126,124
Loans, leases, and other receivables 3,340,557 2,711,784
---------- ---------
3,491,024 2,837,908
Less:
Unearned income and fees, net of related costs 38,481 30,952
Allowance for loan losses 69,954 67,555
---------- ---------
Net loans 3,382,589 2,739,401
Premises and equipment 92,874 81,613
Amounts paid in excess of net assets of acquired businesses 37,091 21,738
Other real estate owned 138 1,092
Other assets 144,824 130,995
---------- ---------
Total assets $6,484,964 5,620,646
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing $1,159,791 998,560
Interest-bearing:
Savings and money market 2,474,821 2,164,344
Time:
Under $100,000 635,568 669,196
Over $100,000 167,545 158,924
Foreign 114,292 106,090
---------- ---------
4,552,017 4,097,114
Securities sold, not yet purchased 76,831 117,005
Federal funds purchased 155,407 134,048
Security repurchase agreements 771,361 614,284
Accrued liabilities 83,082 72,376
Federal Home Loan Bank advances and other borrowings:
Less than one year 13,533 14,910
Over one year 73,661 86,174
Long-term debt 251,620 56,229
---------- ---------
Total liabilities 5,977,512 5,192,140
---------- ---------
Shareholders' equity:
Capital stock:
Preferred stock, without par value; authorized 3,000,000 shares;
issued and outstanding, none - -
Common stock, without par value; authorized 30,000,000 shares;
issued and outstanding, 14,729,720 shares and 14,555,920 shares 79,791 73,477
Net unrealized holding gains and losses on securities available for sale (1,835) 1,850
Retained earnings 429,496 353,179
---------- ---------
Total shareholders' equity 507,452 428,506
---------- ---------
$6,484,964 5,620,646
========== =========
See accompanying notes to consolidated financial statements.
50
53
ZIONS BANCORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 1996, 1995, and 1994
(In thousands, except per share amounts)
1996 1995 1994
-------- ------- -------
Interest income:
Interest and fees on loans $284,793 245,052 208,414
Interest on loans held for sale 11,509 9,259 12,303
Interest on money market investments 50,975 55,632 35,045
Interest on securities:
Held to maturity:
Taxable 69,556 64,914 41,269
Nontaxable 14,330 12,400 10,982
Available for sale:
Taxable 24,478 23,966 19,916
Nontaxable 2,260 21 -
Trading account 9,172 9,248 16,516
Lease financing 11,885 9,991 9,544
-------- ------- -------
Total interest income 478,958 430,483 353,989
-------- ------- -------
Interest expense:
Interest on savings and money market deposits 87,047 81,957 62,200
Interest on time deposits 49,728 46,553 28,758
Interest on borrowed funds 81,710 74,879 64,425
-------- ------- -------
Total interest expense 218,485 203,389 155,383
-------- ------- -------
Net interest income 260,473 227,094 198,606
Provision for loan losses 3,540 2,800 2,181
-------- ------- -------
Net interest income after provision for loan losses 256,933 224,294 196,425
-------- ------- -------
Noninterest income:
Service charges on deposit accounts 32,825 28,347 24,058
Other service charges, commissions, and fees 27,908 24,169 22,008
Trust income 5,195 4,355 4,334
Investment securities gain (loss), net 123 (148) (299)
Trading account income (loss) 2,721 (1,247) 860
Loan sales and servicing income 35,098 24,254 14,596
Other 7,021 8,284 7,645
-------- ------- -------
Total noninterest income 110,891 88,014 73,202
-------- ------- -------
Noninterest expense:
Salaries and employee benefits 118,095 102,951 93,331
Occupancy, net 11,321 10,398 9,647
Furniture and equipment 15,765 13,174 11,276
Other real estate expense (income) (240) 81 (88)
Legal and professional services 4,653 4,285 5,142
Supplies 6,253 5,231 4,819
Postage 5,334 5,125 4,723
Advertising 5,296 5,221 3,447
FDIC premiums 9 4,084 7,547
Amortization of intangible assets 3,599 3,621 3,692
Other 44,247 35,859 31,364
-------- ------- -------
Total noninterest expense 214,332 190,030 174,900
-------- ------- -------
Income before income taxes 153,492 122,278 94,727
Income taxes 52,142 40,950 30,900
-------- ------- -------
Net income $101,350 81,328 63,827
======== ======= =======
Weighted-average common and common-equivalent shares outstanding
during the year 14,807 14,717 14,601
======== ======= =======
Net income per common share $ 6.84 5.53 4.37
======== ======= =======
See accompanying notes to consolidated financial statements.
51
54
ZIONS BANCORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1995, and 1994
(In thousands)
1996 1995 1994
-------------- -------------- ---------------
Cash flows from operating activities:
Net income $ 101,350 81,328 63,827
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for loan losses 3,540 2,800 2,181
Write-downs of other real estate owned - 71 179
Depreciation of premises and equipment 12,829 10,649 9,186
Amortization of intangible assets 3,599 3,621 3,692
Amortization of net premium/discount on investment 5,471 3,832 4,817
securities
Accretion of unearned income and fees, net of related
costs 6,962 6,085 2,770
Proceeds from sales of trading account securities 80,374,843 112,293,128 160,090,330
Increase in trading account securities (80,345,212) (112,157,509) (160,308,945)
Net loss (gain) on sales of investment securities (123) 148 299
Proceeds from loans held for sale 664,327 440,245 769,284
Increase in loans held for sale (671,343) (454,532) (663,379)
Net gain on sales of loans, leases, and other
assets (26,803) (16,164) (8,968)
Net gain on sales of other real estate owned (265) (169) (328)
Change in accrued income taxes 5,077 (7,187) 1,628
Change in accrued interest receivable (6,226) (2,489) (8,669)
Change in accrued interest payable (752) 798 1,368
Change in other assets 18,545 (2,797) (16,790)
Change in accrued liabilities 6,007 8,295 19
-------------- -------------- ---------------
Net cash provided by (used in) operating
activities 151,826 210,153 (57,499)
-------------- -------------- ---------------
Cash flows from investing activities:
Net decrease (increase) in money market investments 97,897 (281,328) 196,086
Proceeds from sales of investment securities held to - 6,950 -
maturity
Proceeds from maturities of investment securities 339,335 285,572 242,478
held to maturity
Purchases of investment securities held to maturity (585,094) (303,224) (441,397)
Proceeds from sales of investment securities 133,590 192,071 137,128
available for sale
Proceeds from maturities of investment securities 104,374 287,427 107,745
available for sale
Purchases of investment securities available for sale (298,002) (462,079) (205,452)
Proceeds from sales of loans and leases 757,516 625,984 707,914
Net increase in loans and leases (1,290,522) (1,003,653) (671,665)
Purchases of assets to be leased (8,514) - -
Principal collections on leveraged leases - 38 111
Proceeds from sales of premises and equipment 746 693 691
Purchases of premises and equipment (20,625) (17,526) (12,389)
Proceeds from sales of other real estate owned 1,594 1,899 5,608
Proceeds from sales of mortgage-servicing rights 1,339 1,547 2,864
Purchases of mortgage-servicing rights (1,625) (423) (590)
Proceeds from sales of other assets 773 479 830
Purchase of other assets (18,887) (218) -
Cash paid for acquisition, net of cash received 3,540 1,568 9,851
-------------- -------------- ---------------
Net cash provided by (used in) investing
activities (782,565) (664,223) 79,813
-------------- -------------- ---------------
Cash flows from financing activities:
Net increase in deposits 340,909 360,000 177,916
Net change in short-term funds borrowed 139,066 251,475 (153,285)
Proceeds from FHLB advances over one year 4,201 - 15,340
Payments on FHLB advances over one year (16,714) (16,504) (65,878)
Payments on leveraged leases - - (42)
Proceeds from issuance of long-term debt 200,000 - 332
Payments on long-term debt (4,969) (1,953) (1,737)
Proceeds from issuance of common stock 1,178 1,291 317
Payments to redeem common stock (21,635) (18,523) -
Dividends paid (25,033) (20,592) (17,304)
-------------- -------------- ---------------
Net cash provided by (used in) financing
activities 617,003 555,194 (44,341)
-------------- -------------- ---------------
Net increase (decrease) in cash and due from banks (13,736) 101,124 (22,027)
Cash and due from banks at beginning of year 418,067 316,943 338,970
============== ============== ===============
Cash and due from banks at end of year $ 404,331 418,067 316,943
============== ============== ===============
See accompanying notes to consolidated financial statements.
52
55
ZIONS BANCORPORATION AND SUBSIDIARIES
Consolidated Statements of Retained Earnings
Years ended December 31, 1996, 1995, and 1994
(In thousands)
1996 1995 1994
--------- --------- --------
Balance at beginning of year $ 353,179 292,443 245,920
--------- --------- --------
Net income 101,350 81,328 63,827
Cash dividends:
Preferred, paid by subsidiary to minority shareholder (36) (38) (33)
Common, per share of $1.70 in 1996, $1.41 in 1995,
and $1.16 in 1994 (24,997) (20,554) (16,786)
Dividends of NBA prior to merger - - (485)
========= ========= ========
Balance at end of year $ 429,496 353,179 292,443
========= ========= ========
See accompanying notes to consolidated financial statements.
53
56
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years ended December 31, 1996, 1995, and 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business - Zions Bancorporation (the Parent) is a multibank holding company
organized under the laws of Utah in 1955, which provides a full range of banking
and related services through its subsidiaries located primarily in Utah, Nevada,
and Arizona.
Basis of Financial Statement Presentation - The consolidated financial
statements include the accounts of Zions Bancorporation and its subsidiaries
(the Company). All significant intercompany accounts and transactions have been
eliminated in consolidation. Certain amounts in prior years' consolidated
financial statements have been reclassified to conform to the 1996 presentation.
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of the
balance sheet and revenues and expenses for the period. Actual results could
differ from those estimates.
Security Resell Agreements - Security resell agreements represent overnight and
term agreements, the majority maturing within 30 days. Either the Company or, in
some instances, third parties on behalf of the Company take possession of
underlying securities. The market value of such securities is monitored
throughout the contract term to ensure that asset value remains sufficient to
protect against counterparty default. Security resell agreements averaged
approximately $809,029,000 during 1996, and the maximum amount outstanding at
any month-end during 1996 was $1,144,986,000.
Investment Securities - The Company classifies its investment securities in one
of three categories: trading, available for sale, or held to maturity. Trading
securities are bought and held principally for the purpose of selling them in
the near term. Held to maturity securities are those securities which the
Company has the ability and intent to hold until maturity. All other securities
not included in trading or held to maturity are classified as available for
sale.
Trading securities (including futures and options used to hedge trading
positions against interest rate risk) and available for sale securities are
recorded at fair value. Held to maturity securities are recorded at cost,
adjusted for the amortization or accretion of premiums or discounts. Unrealized
holding gains and losses on trading securities are included in earnings.
Unrealized holding gains and losses, net of related tax effect, on available for
sale securities are excluded from earnings and are reported as a separate
component of shareholders' equity until realized. Transfers of securities
between categories are recorded at fair value at the date of transfer.
Unrealized holding gains and losses are recognized in earnings for transfers
into trading securities. Unrealized holding gains or losses associated with
transfers of securities from held to maturity to available for sale are recorded
as a separate component of shareholders' equity. The unrealized holding gains or
losses included in the separate component of equity for securities transferred
from available for sale to held to maturity are maintained and amortized into
earnings over the remaining life of the security as an adjustment to yield in a
manner consistent with the amortization or accretion of premium or discount on
the associated security.
A decline in the market value of any available for sale or held to maturity
security below cost that is deemed other than temporary is charged to earnings
resulting in the establishment of a new cost basis for the security.
54
57
ZIONS BANCORPORATION
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Premiums and discounts are amortized or accreted over the life of the related
held to maturity security as an adjustment to yield using the effective-interest
method. Dividend and interest income are recognized when earned. Realized gains
and losses for securities classified as available for sale and held to maturity
are included in earnings and are derived using the specific-identification
method of determining the cost of securities sold.
Loan Fees - Nonrefundable fees and related direct costs associated with the
origination of loans are deferred. The net deferred fees and costs are
recognized in interest income over the loan term using methods that generally
produce a level yield on the unpaid loan balance. Other nonrefundable fees
related to lending activities other than direct loan origination are recognized
as other operating income over the period the related service is provided.
Bankcard discounts and fees charged to merchants for processing transactions
through the Company are shown net of interchange discounts and fees expense and
are included in other service charges, commissions, and fees.
Mortgage Servicing Rights and Amortization - In May 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
(Statement) No. 122, Accounting for Mortgage Servicing Rights, which the Company
adopted effective January 1, 1996. Statement No. 122 amended Statement No. 65,
Accounting for Certain Mortgage Banking Activities. The overall impact on the
Company's financial statements of adopting Statement No. 122 was an increase in
net income for the year ended December 31, 1996 of $1.8 million, or $0.13 per
share.
Statement No. 122 prospective requires the recognition of originated mortgage
servicing rights (OMSRs), as well as purchased mortgage servicing rights
(PMSRs), as assets by allocating total costs incurred between the loan and the
servicing rights based on their relative fair values. Under Statement No. 65,
the cost of OMSRs was not recognized as an asset and was charged to income when
the related loan was sold. The separate impact of recognizing OMSRs as assets in
the Company's financial statements in accordance with Statement No. 122 was an
increase in net income of $2.0 million, or $0.14 per share, for the year ended
December 31, 1996.
With respect to PMSRs, Statement No. 122 has a different cost allocation
methodology than Statement No. 65. In contrast to a cost allocation based on
relative market value as set forth in Statement No. 122, the prior requirement
was to allocate the costs incurred in excess of the market value of the loans
without the servicing rights to PMSRs. The separate impact of the application of
Statement No. 122 cost allocation method was to reduce net income by $.2
million, or $0.01 per share, for the year ended December 31, 1996.
Amortization of mortgage servicing rights is based on the ratio of net servicing
income received in the current period to total net servicing income projected to
be realized from the mortgage servicing rights. Projected net servicing income
is determined on the basis of the estimated future balance of the underlying
mortgage loan portfolio, which declines over time from prepayments and scheduled
loan amortization. The Company estimates future prepayment rates based on
current interest rate levels, other economic conditions and market forecasts, as
well as relevant characteristics of the servicing portfolio, such as loan types,
interest rate stratification and recent prepayment experience.
55
58
ZIONS BANCORPORATION
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Statement No. 122 also requires that all capitalized mortgage servicing rights
(MSRs) be evaluated for impairment based on the excess of the carrying amount of
MSRs over their fair value. For purposes of measuring impairment, MSRs are
stratified on the basis of interest rate, type of interest rate (fixed or
variable), and the type of loan (conventional or government).
Allowance for Loan Losses - The allowance for loan losses is based on
management's periodic evaluation of the loan portfolio and reflects an amount
that, in management's opinion, is adequate to absorb losses in the existing
portfolio. In evaluating the portfolio, management takes into consideration
numerous factors, including current economic conditions, prior loan loss
experience, the composition of the loan portfolio, and management's estimate of
anticipated credit losses. Management believes that the allowance for loan
losses is adequate. While management uses available information to recognize
losses on loans, future additions to the allowance may be necessary based on
changes in economic conditions. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the Company's
allowance for loan losses. Such agencies may require the Company to recognize
additions to the allowance based on their judgments using information available
to them at the time of their examination.
Impaired Loans - The Company adopted the provisions of Statement No. 114,
Accounting by Creditors for Impairment of a Loan, as amended by Statement No.
118, Accounting by Creditors for Impairment of a Loan-Income Recognition and
Disclosures, on January 1, 1995. The Company considers a loan to be impaired
when the accrual of interest has been discontinued and based upon other criteria
under the statements. The amount of the impairment is measured based on the
present value of expected cash flows, the observable market price of the loan,
or the fair value of the collateral. An allowance for impairment losses is
included in the allowance for loan losses through a provision for loan losses.
The Company primarily uses a cost recovery accounting method to recognize
interest income on impaired loans.
Premises and Equipment - Premises and equipment are stated at cost, net of
accumulated depreciation and amortization. Depreciation, computed on the
straight-line method, is charged to operations over the estimated useful lives
of the properties. Leasehold improvements are amortized over the terms of
respective leases or the estimated useful lives of the improvements, whichever
is shorter. As of December 31, 1996 and 1995, accumulated depreciation and
amortization totaled $80,648,000 and $77,400,000, respectively.
Nonperforming Assets - Nonperforming assets are comprised of loans for which the
accrual of interest has been discontinued, loans for which the terms have been
renegotiated to less than market rates due to a weakening of the borrower's
financial condition (restructured loans), and other real estate acquired
primarily through foreclosure that is awaiting disposition.
Loans are generally placed on a nonaccrual status when principal or interest is
past due 90 days or more unless the loan is both well secured and in the process
of collection, or when in the opinion of management, full collection of
principal or interest is unlikely. Generally, consumer loans are not placed on a
nonaccrual status, inasmuch as they are generally charged off when they become
120 days past due.
56
59
ZIONS BANCORPORATION
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Other real estate owned is carried at the lower of cost or net realizable value.
Real estate may be considered to be in-substance foreclosed and included herein
when specific criteria are met. When property is acquired through foreclosure,
or substantially foreclosed, any excess of the related loan balance over net
realizable value is charged to the allowance for loan losses. Subsequent write
downs or losses upon sale, if any, are charged to other real estate expense.
Amounts Paid in Excess of Net Assets of Acquired Businesses (Goodwill) - The
Company assesses the recoverability of this intangible asset by determining
whether the amortization of the goodwill balance over its remaining life can be
recovered through undiscounted future operating cash flows of the acquired
operation. The amount of goodwill impairment, if any, is measured based on
projected discounted future operating cash flows using a discount rate
reflecting the Company's average cost of funds.
Off-Balance Sheet Financial Instruments - In the ordinary course of business,
the Company has entered into off-balance sheet financial instruments consisting
of commitments to extend credit, commercial letters of credit, and standby
letters of credit. Such financial instruments are recorded in the consolidated
financial statements when they become payable.
The credit risk associated with these commitments is considered in management's
determination of the allowance for loan losses.
Interest Rate Exchange Contracts and Cap and Floor Agreements - The Company
enters into interest rate exchange contracts (swaps) and cap and floor
agreements as part of its overall asset and liability duration and interest rate
risk management strategy. The objective of these financial instruments is to
match estimated repricing periods of interest-sensitive assets and liabilities
in order to reduce interest rate exposure and or manage desired asset and
liability duration. With the exception of interest rate caps, these instruments
are used to hedge asset and liability portfolios and, therefore, are not marked
to market. Fees associated with these financial instruments are accreted into
interest income or amortized to interest expense on a straight-line basis over
the lives of the contracts and agreements. Gains or losses on early termination
of a swap are amortized on the remaining term of the contract when the
underlying assets or liabilities still exist. Otherwise, such gains or losses
are fully expensed or recorded as income at the termination of the contract. The
net interest received or paid on these contracts is reflected on a current basis
in the interest expense or income related to the hedged obligation or asset.
Statements of Cash Flows - For purposes of the statements of cash flows, the
Company considers due from banks to be cash equivalents.
57
60
ZIONS BANCORPORATION
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The Company paid interest of $218.7 million, $203.0 million, and $156.1 million,
respectively, and income taxes of $40.8 million, $44.4 million, and $27.9
million, respectively, for the years ended December 31, 1996, 1995, and 1994.
Loans transferred to other real estate owned totaled $.4 million, $.9 million,
and $3.3 million, respectively, for the years ended December 31, 1996, 1995, and
1994.
The exercise of stock options under the Company's nonqualified stock option
plan, during 1996 and 1995, resulted in tax benefits reducing the Company's
current income tax payable and increasing common stock in the amounts of $.6
million and $.8 million in 1996 and 1995, respectively.
Income Taxes - Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Pension and Other Postretirement Plans - The Company has a defined benefit
pension plan covering substantially all of its employees. The benefits are based
on years of service and employees' compensation levels. The cost of this program
is being funded currently. The Company sponsors a defined benefit health care
plan for substantially all retirees and employees. The Company has other trustee
retirement plans covering all qualified employees who have at least one year of
service.
Trust Assets - Assets held by the Company in a fiduciary or agency capacity for
customers are not included in the consolidated financial statements as such
items are not assets of the Company.
Stock Options - Prior to January 1, 1996, the Company accounted for its stock
option plan in accordance with the provisions of Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. As such, compensation expense would be recorded on the date of
grant only if the current market price of the underlying stock exceeded the
exercise price. On January 1, 1996, the Company adopted Statement No. 123,
Accounting for Stock-Based Compensation, which permits entities to recognize as
expense over the vesting period, the fair value of all stock-based awards on the
date of grant. Alternatively, Statement No. 123 also allows entities to continue
to apply the provisions of APB Opinion No. 25 and provide pro forma net income
and pro forma earnings per share disclosures for employee stock option grants
made in 1995 and future years as if the fair-value-based method defined in
Statement No. 123 had been applied. The Company has elected to continue to apply
the provisions of APB Opinion No. 25 and provide the pro forma disclosure
provisions of Statement No. 123.
Net Income Per Common Share - Net income per common share is based on the
weighted-average outstanding common shares during each year, including common
stock equivalents, if applicable.
58
61
ZIONS BANCORPORATION
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Accounting Standards Not Adopted - In June 1996, the Financial Accounting
Standards Board issued Statement No. 125, Accounting For Transfers and Servicing
of Financial Assets and Extinguishment of Financial Liabilities. This Statement
requires a company, after a transfer of assets, to recognize the financial and
servicing assets it controls and the liabilities it has incurred, derecognize
financial assets when control has been surrendered, and derecognize liabilities
when extinguished. When a company surrenders control over assets transferred, a
sale must be recorded to the extent that consideration other than beneficial
interests in the transferred assets is received in exchange. This Statement also
requires that liabilities and derivatives incurred or obtained by transferors as
part of a transfer of financial assets be initially measured at fair value and
that servicing assets and other retained interests in the transferred assets be
measured by allocating the previous carrying amount between the assets sold and
retained interests based on their relative fair values at the date of the
transfer.
This Statement supersedes Statements No. 76, Extinguishment of Debt, and No. 77,
Reporting by Transferors for Transfers of Receivables with Recourse. This
Statement amends Statement No. 115, Accounting for Certain Investments in Debt
and Equity Securities, to clarify that a debt security may not be classified as
held to maturity if it can be prepaid or otherwise settled in such a way that
the holder of the security would not recover substantially all of its recorded
investment. This Statement amends and extends to all servicing assets and
liabilities the accounting standards for mortgage servicing rights now in
Statement No. 65, and supersedes Statement No. 122.
Statement No. 125 is effective for transfers and servicing of financial assets
and extinguishments of liabilities occurring after December 31, 1996, and is to
be applied prospectively. Earlier or retroactive application is not permitted.
It is anticipated that the adoption of Statement No. 125 will not have a
significant impact on the Company's financial position or results of operations.
2. MERGERS AND ACQUISITIONS
On May 31, 1996, the Company acquired Southern Arizona Bancorp, Inc. and its
banking subsidiary, Southern Arizona Bank (SAB), in Yuma , Arizona for 363,698
shares of common stock. SAB was merged into Zions Bancorporation's wholly-owned
subsidiary, National Bank of Arizona. The acquisition was not material to the
Company's consolidated financial position and was accounted for as a purchase.
The difference between the purchase price and the net book value of SAB of $16.9
million is included in amounts paid in excess of net assets of acquired
businesses.
On June 5, 1995, the Company acquired First Western Bancorporation (First
Western) and its banking subsidiary, First Western National Bank (FWNB), in
Moab, Utah for 261,611 shares of common stock. FWNB was merged into Zions
Bancorporation's wholly-owned subsidiary, Zions First National Bank. This
acquisition was not material to the Company's consolidated financial position
and was accounted for as a purchase. The difference between the purchase price
and the net book value of First Western of $4.4 million is included in amounts
paid in excess of net assets of acquired businesses.
On January 14, 1994, the Company and National Bancorp of Arizona, Inc. (NBA)
consummated their agreement and plan of reorganization whereby the Company
issued 1,456,408 shares of its common stock for 100 percent of the outstanding
common stock of NBA. The merger was accounted for as a pooling of interests.
59
62
ZIONS BANCORPORATION
Notes to Consolidated Financial Statements
2. MERGERS AND ACQUISITIONS (continued)
Also during 1994, the Company acquired Rio Salado Bancorp (Rio) for 328,000
shares of common stock. This acquisition was not material to the Company's
consolidated financial position and was accounted for as a purchase. The
difference between the purchase price and the net book value of Rio of $7.6
million is included in amounts paid in excess of net assets of acquired
businesses.
On November 19, 1996, the Company entered into an agreement to acquire Aspen
Bancshares (Aspen), which has assets of approximately $450 million. The Company
currently expects consummation of this acquisition in the second quarter of
1997, subject to regulatory approvals and other conditions of closing. This
acquisition is expected to be accounted for as a purchase.
On March 7, 1997, the Company announced an agreement to purchase the deposits
and branch facilities of 32 Wells Fargo Bank offices in Arizona, Idaho, Nevada
and Utah. The offices have deposits of approximately $550 million. The Company
expects this transaction to close in July 1997, subject to regulatory approvals
and other conditions of closing. (unaudited)
3. INVESTMENT SECURITIES
Investment securities as of December 31, 1996, are summarized as follows (in
thousands):
Held to maturity
-----------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
----------- --------- ---------- ---------
U.S. government agencies and corporations:
Small Business Administration loan-backed securities $ 487,748 5,269 1,232 491,785
Other agency securities 518,308 1,601 2,017 517,892
States and political subdivisions 255,321 5,136 897 259,560
Mortgage-backed securities 60,784 1,143 83 61,844
---------- ------ ----- ---------
$1,322,161 13,149 4,229 1,331,081
========== ====== ===== =========
Available for sale
------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
----------- --------- ---------- -----------
U.S. Treasury securities $ 14,655 54 2 14,707
U.S. government agencies 120,620 277 4,397 116,500
State and political subdivisions 39,118 1,652 4 40,766
Mortgage- and other asset-backed securities 86,007 722 1,864 84,865
---------- ------ ----- -------
260,400 2,705 6,267 256,838
Equity securities:
Mutual funds:
Accessor Funds, Inc. 109,071 390 361 109,100
Federal Home Loan Bank stock 79,593 - - 79,593
Other stock 7,343 577 - 7,920
---------- ------ ----- ---------
$ 456,407 3,672 6,628 453,451
========== ====== ===== =========
60
63
ZIONS BANCORPORATION
Notes to Consolidated Financial Statements
3. INVESTMENT SECURITIES (continued)
Investment securities as of December 31, 1995, are summarized as follows (in
thousands):
Held to maturity
------------------------------------------
Gross Gross Esti-
Amort- ureal- unreal- mated
ized ized ized market
cost gains losses value
---------- -------- -------- ----------
U.S. government agencies and corporations:
Small Business Administration
loan-backed securities $ 529,376 11,741 103 541,014
Other agency securities 265,430 1,192 3,100 263,522
States and political subdivisions 225,231 5,082 164 230,149
Mortgage-backed securities 58,546 904 201 59,249
---------- ------ ----- ---------
$1,078,583 18,919 3,568 1,093,934
========== ====== ===== =========
Available for sale
------------------------------------------
Gross Gross Esti-
Amort- unreal- unreal- mated
ized ized ized market
cost gains losses value
---------- -------- -------- ----------
U.S. Treasury securities $ 17,691 54 17 17,728
U.S. government agencies 71,038 454 540 70,952
State and political subdivisions 40,153 1,951 20 42,084
Mortgage-backed securities 69,469 542 678 69,333
---------- ------ ----- ---------
198,351 3,001 1,255 200,097
Equity securities:
Mutual funds:
Accessor Funds, Inc. 118,899 1,072 - 119,971
Other 564 - - 564
Federal Home Loan Bank stock 71,988 - - 71,988
Other stock 5,386 223 29 5,580
---------- ------ ----- ---------
$ 395,188 4,296 1,284 398,200
========== ====== ===== =========
The change in net unrealized holding gains (losses) on securities available for
sale for the years ended December 31, 1996, 1995, and 1994 was ($3,685,000),
$7,716,000, and ($6,281,000), respectively, after related tax effect. These
gains (losses) are collectively reported as a separate component of
shareholders' equity with December 31, 1996 and 1995 balances of ($1,835,000)
and $1,850,000, respectively, after related tax effect.
61
64
ZIONS BANCORPORATION
Notes to Consolidated Financial Statements
3. INVESTMENT SECURITIES (continued)
During December 1995, the Company, in accordance with the provisions of "A Guide
to Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities" issued by the Financial Accounting Standards Board
elected to make a one-time reassessment of its classification of investment
securities. In connection therewith the Company transferred securities having an
amortized cost of $40.2 million and a market value of $41.5 million from the
held to maturity category to the available for sale category. The net unrealized
holding gain of $1.3 million recognized with this transfer is included in the
balance of net unrealized holding gains and losses on securities available for
sale, reported as a separate component of shareholders' equity.
In 1995, the Company sold securities from its held to maturity portfolio. This
was in response to the deterioration of the issuer's credit worthiness and
continued downgrading in the issuer's published credit rating. The amortized
cost of the sold securities totaled $6,602,000 and the related realized gain
amounted to $200,000.
The amortized cost and estimated market value of investment securities as of
December 31, 1996, by contractual maturity, excluding equity securities, are
shown below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties (in thousands):
Held to maturity Available for sale
------------------------- ----------------------------
Amort- Estimated Amort- Estimated
ized market ized market
cost value cost value
----------- ------------ ------------ --------------
Due in one year or less $ 144,639 145,691 78,628 74,415
Due after one year through five years 611,945 615,972 108,738 108,849
Due after five years through ten years 402,911 405,320 52,779 53,663
Due after ten years 162,666 164,098 20,255 19,911
---------- --------- ------- -------
$1,322,161 1,331,081 260,400 256,838
========== ========= ======= =======
Gross gains of $355,000, $1,129,000, and $367,000 and gross losses of $232,000,
$1,277,000, and $666,000 were realized on sales of investment securities for the
years ended December 31, 1996, 1995, and 1994, respectively. Such amounts
include gains of $21,000, $14,000, and $102,000, and losses of $37,000, $61,000,
and $66,000, respectively, for sales of mortgage-backed securities.
As of December 31, 1996 and 1995, securities with an amortized cost of
$512,356,000 and $226,068,000, respectively, were pledged to secure public and
trust deposits, advances, and for other purposes as required by law. In
addition, the Federal Home Loan Bank stock is pledged as security on the related
advances.
62
65
ZIONS BANCORPORATION
Notes to Consolidated Financial Statements
4. LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans are summarized as follows (in thousands):
1996 1995
----------- -----------
Loans held for sale $ 150,467 126,124
Commercial, financial, and agricultural 783,589 688,466
Real estate:
Construction 323,668 268,812
Other 1,757,941 1,272,633
Consumer 304,545 341,150
Lease financing 159,825 132,520
Other receivables 10,989 8,203
---------- ---------
$3,491,024 2,837,908
========== =========
As of December 31, 1996 and 1995, loans with a carrying value of $73,661,000 and
$103,409,000, respectively, were pledged as security for Federal Home Loan Bank
advances.
During 1996, 1995, and 1994, sales of loans held for sale totaled $654 million,
$437 million, and $769 million, respectively. Consumer and other loan
securitizations totaled $743 million in 1996, $615 million in 1995, and $703
million in 1994, and relate primarily to loans sold under revolving
securitization structures. Gain on the sales, excluding servicing, of both loans
held for sale and loan securitizations amounted to $24.4 million in 1996, $14.0
million in 1995, and $5.4 million in 1994. Income related to securitizations is
recognized on the basis of cash flows received from the securitized assets,
which does not differ materially from immediate gain recognition.
The allowance for loan losses is summarized as follows (in thousands):
1996 1995 1994
----------- ----------- ---------
Balance at beginning of year $67,555 67,018 68,461
Allowance for loan losses of companies acquired 2,566 249 1,308
Additions:
Provision for loan losses 3,540 2,800 2,181
Recoveries 5,725 5,860 6,729
Deductions:
Loan charge-offs (9,432) (8,372) (11,661)
------- ------ -------
Balance at end of year $69,954 67,555 67,018
======= ====== =======
At December 31, 1996, 1995, and 1994, the allowance for loan losses includes an
allocation of $4,636,000, $7,516,000, and $3,674,000, respectively, related to
commitments to extend credit and standby letters of credit.
63
66
ZIONS BANCORPORATION
Notes to Consolidated Financial Statements
4. LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
Nonperforming loans, leases, and related interest foregone are summarized as
follows (in thousands):
1996 1995 1994
-------- -------- --------
Nonaccrual loans and leases $11,526 7,438 13,635
Restructured loans and leases 857 249 567
------- ----- ------
Total $12,383 7,687 14,202
======= ===== ======
Contractual interest due $ 1,377 1,068 1,766
Interest recognized 720 474 416
------- ----- ------
Net interest foregone $ 657 594 1,350
======= ===== ======
The Company adopted Statement No. 114, Accounting by Creditors for Impairment of
a Loan, as amended by Statement No. 118, Accounting by Creditors for Impairment
of a Loan-Income Recognition and Disclosures, on January 1, 1995. The Company's
total recorded investment in impaired loans, in accordance with these Statements
and included in nonaccrual loans and leases above, amounted to $7,752,000 and
$3,388,000 as of December 31, 1996 and 1995, respectively. Included in the
allowance for loan losses as of December 31, 1996 and 1995, is a required
allowance of $25,000 and $22,000, respectively, on $1,030,000 and $884,000,
respectively, of the recorded investment in impaired loans. Contractual interest
due and interest foregone on impaired loans, both included in the calculations
for nonperforming loans and leases above, totaled $846,000 and $349,000,
respectively, for the year ended December 31, 1996, and $372,000 and $214,000,
respectively, for the year ended December 31, 1995. The average recorded
investment in impaired loans amounted to $5,450,000 in 1996 and $5,944,000 in
1995.
5. CONCENTRATIONS OF CREDIT RISK
Credit risk represents the accounting loss that would be recognized at the
reporting date if counterparties failed completely to perform as contracted.
Concentrations of credit risk (whether on- or off-balance sheet) that arise from
financial instruments exist for groups of customers or counterparties when they
have similar economic characteristics that would cause their ability to meet
contractual obligations to be similarly affected by changes in economic or other
conditions. The Company does not have significant exposure to any individual
customer or counterparty.
Most of the Company's business activity is with customers located within the
states of Utah, Nevada, and Arizona. The commercial loan portfolio is well
diversified, consisting of approximately 17 industry classification groupings.
As of December 31, 1996, the larger concentrations of risk in the commercial
loan and leasing portfolio are represented by the real estate, business service,
retail, and manufacturing industry groupings, which comprise approximately 18
percent, 14 percent, 14 percent, and 13 percent, respectively, of the portfolio.
The Company has minimal credit exposure from lending transactions with highly
leveraged entities and has no foreign loans.
64
67
ZIONS BANCORPORATION
Notes to Consolidated Financial Statements
6. MORTGAGE SERVICING RIGHTS
Mortgage servicing rights are summarized as follows (in thousands):
1996 1995 1994
---------- ----------- ---------
Balance at beginning of year $ 2,023 2,748 3,846
Additions 4,723 423 590
Amortization (1,299) (1,148) (1,688)
------- ----- -----
Balance at end of year $ 5,447 2,023 2,748
======= ===== =====
At December 31, 1996, the estimated fair value of mortgage servicing rights was
$8.9 million. Fair value is determined by discounting net estimated cash flows
from mortgage servicing activities using discount rates, current market rates,
and estimated prepayment rates among other assumptions. The Company did not
incur any impairment of mortgage rights during the year ended December 31, 1996.
7. DEPOSITS
Deposits are summarized as follows (in thousands):
1996 1995
---------- -----------
Noninterest-bearing $1,159,791 998,560
Interest-bearing:
Savings and NOW 595,612 690,730
Money market and super NOW 1,879,209 1,473,614
Time under $100,000 635,568 669,196
Time over $100,000 167,545 158,924
Foreign 114,292 106,090
---------- ---------
$4,552,017 4,097,114
========== =========
Interest expense on deposits is summarized as follows (in thousands):
1996 1995 1994
--------- --------- ---------
Savings and money market deposits:
Savings and NOW $19,182 22,492 22,262
Money market and super NOW 67,865 59,465 39,938
------- ------ ------
$87,047 81,957 62,200
======= ====== ======
Time deposits:
Under $100,000 $34,807 32,016 20,469
Over $100,000 9,530 7,358 3,845
Foreign 5,391 7,179 4,444
------- ------ ------
$49,728 46,553 28,758
======= ====== ======
65
68
ZIONS BANCORPORATION
Notes to Consolidated Financial Statements
7. DEPOSITS (continued)
At December 31, 1996, the scheduled maturities of time deposits are as follows
(in thousands):
1997 $618,306
1998 103,279
1999 28,439
2000 38,637
2001 and thereafter 14,452
--------
$803,113
========
8. SECURITY REPURCHASE AGREEMENTS
Security repurchase agreements represent funds borrowed on a short-term basis
through the sale of securities to counterparties under agreements to repurchase
the same securities. The Company participates in overnight and term repurchase
agreements. Most of the overnight agreements are performed with sweep accounts
in conjunction with a master repurchase agreement. In this case, securities are
pledged for and interest is paid on the collected balance of the customers'
accounts. The average interest rates pertaining to outstanding repurchase
agreements at December 31, 1996 were 5.8 percent for U.S. Treasuries, and 5.1
percent for U.S. government agencies, Small Business Administration pools, and
mortgage- and other asset-backed securities.
66
69
ZION BANCORPORATION
Notes to Consolidated Financial Statements
8. SECURITY REPURCHASE AGREEMENTS (continued)
Repurchase agreements are summarized as follows (in thousands):
Market value
Carrying Accrued Total of underlying
amount interest liability assets
------------- ------------- ------------- ---------------
U.S. Treasuries:
Overnight $ 156,909 30 156,939 157,014
On demand 28,000 9 28,009 27,712
Up to 30 days 1,335 2 1,337 1,315
30 to 60 days 13,011 84 13,095 13,042
------------- ------------- ------------- ---------------
199,255 125 199,380 199,083
U.S. government agencies:
Overnight 375,672 45 375,717 375,914
On demand 2,263 117 2,380 2,060
30 to 60 days 1,903 33 1,936 1,956
------------- ------------- ------------- ---------------
379,838 195 380,033 379,930
SBA pools:
Overnight 177,352 21 177,373 177,824
On demand 14,056 583 14,639 14,253
------------- ------------- ------------- ---------------
191,408 604 192,012 192,077
Mortgage- and other asset-
backed securities - overnight 860 - 860 860
============= ============= ============= ===============
Total $ 771,361 924 772,285 771,950
============= ============= ============= ===============
The average amount of outstanding repurchase agreements was approximately
$1,110,725,000 during 1996, and the maximum amount outstanding at any month-end
during 1996 was approximately $1,341,414,000.
9. INCOME TAXES
Income taxes are summarized as follows (in thousands):
1996 1995 1994
------------- ------------- -------------
Federal:
Current $ 39,604 32,220 23,448
Deferred 5,391 3,044 3,486
State 7,147 5,686 3,966
------------- ------------- -------------
$ 52,142 40,950 30,900
============= ============= =============
67
70
ZIONS BANCORPORATION
Notes to Consolidated Financial Statements
9. INCOME TAXES (continued)
A reconciliation between income tax expense computed using the statutory federal
income tax rate (35 percent in 1996, 1995, and 1994) and actual income tax
expense is as follows (in thousands):
1996 1995 1994
--------- --------- ---------
Income tax expense at statutory federal rate $ 53,722 42,797 33,154
State income tax, net 4,645 3,696 2,578
Nondeductible expenses 1,611 1,159 882
Nontaxable interest (5,881) (4,317) (3,900)
Tax credits (1,597) (1,446) (885)
Deferred tax assets realized - (766) (972)
Other items (358) (173) 43
--------- --------- ---------
Income tax expense $ 52,142 40,950 30,900
========= ========= =========
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities as of December 31, 1996
and 1995, are presented below (in thousands):
1996 1995
--------- ----------
Gross deferred tax assets:
Book loan loss deduction in excess of tax $ 26,360 25,966
Postretirement benefits 2,355 2,295
Deferred compensation 3,529 2,754
Deferred loan sales 1,458 1,792
Capital leases 322 538
Acquired net operating losses 4,008 5,258
Other 5,987 4,946
--------- ----------
Total deferred tax assets 44,019 43,549
--------- ----------
Gross deferred tax liabilities:
Premises and equipment, due to differences in
depreciation (4,454) (4,719)
FHLB stock dividends (12,655) (10,437)
Leasing operations (15,116) (10,231)
Prepaid pension reserves (1,119) (2,328)
Mortgage servicing (959) -
Other (452) (1,414)
--------- ----------
Total deferred tax liabilities (34,755) (29,129)
--------- ----------
Statement No. 115 market equity adjustment 1,122 (1,162)
--------- ----------
Net deferred tax assets $ 10,386 13,258
========= ==========
68
71
ZIONS BANCORPORATION
Notes to Consolidated Financial Statements
9. INCOME TAXES (continued)
Pursuant to Statement No. 109, the Company has determined that it is not
required to establish a valuation reserve for the net deferred tax assets since
it is "more likely than not" that such net assets will be principally realized
through future taxable income and tax planning strategies. The Company's
conclusion that it is "more likely than not" that the net deferred tax assets
will be realized is based on history of growth in earnings and the prospects for
continued growth and profitability.
The Company has net operating loss carryforwards totaling $20,395,000 that
expire in the years 2006 and 2007.
10. FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS
Federal Home Loan Bank advances and other borrowings as of December 31, 1996 and
1995, include $73,661,000 and $86,174,000, respectively, borrowed by Zions First
National Bank, a wholly-owned subsidiary, (the Bank) under its line of credit
with the Federal Home Loan Bank of Seattle. The line of credit provides for
borrowing of amounts up to ten percent of total assets. The line of credit is
secured under a blanket pledge whereby the Bank maintains unencumbered security
with par value, which has been adjusted using a pledge requirement percentage
based upon the types of securities pledged, equal to at least 100 percent of
outstanding advances, and Federal Home Loan Bank stock. There are no withdrawal
and usage restrictions or compensating balance requirements.
Substantially all Federal Home Loan Bank advances reprice with changes in market
interest rates or have short terms to maturity. The carrying value of such
indebtedness is deemed to approximate market value.
Maturities of outstanding advances at December 31, 1996 in excess of one year
are as follows (in thousands):
1997 $ 16,509
1998 16,528
1999 16,547
2000 9,329
2001 1,876
Thereafter 12,872
--------
$ 73,661
========
69
72
ZIONS BANCORPORATION
Notes to Consolidated Financial Statements
11. LONG-TERM DEBT
Long-term debt is summarized as follows (in thousands):
1996 1995
--------- ---------
Guaranteed preferred beneficial interests in junior
subordinated deferrable interest debentures $200,000 -
Subordinated notes 50,000 54,000
Capitalized real property leases,
10% to 21%, payable in varying monthly installments 1,063 1,906
Mortgage notes, 7-1/2% to 9%, due in varying
amounts and periods 405 111
Other notes payable 152 212
--------- ---------
$251,620 56,229
========= =========
The 8.536 percent Guaranteed Preferred Beneficial Interests in Junior
Subordinated Deferrable Interest Debentures mature in 2026 and require
semiannual interest payments in June and December. During 1996, Zions
Institutional Capital Trust A (a subsidiary of Zions First National Bank) was
formed. On December 26, 1996, Zions Institutional Capital Trust A issued the
8.536 percent Capital Securities, Series A. The Capital Securities represent
preferred undivided interests in the assets of Zions Institutional Capital Trust
A and have a preference under certain circumstances over the Common Securities
with respect to cash distributions. Zions Institutional Capital Trust A then
invested the proceeds from the offering in the 8.536 percent debentures issued
by the Bank. The debentures are direct and unsecured obligations of Zions First
National Bank (a subsidiary of Zions Bancorporation) and are subordinate to the
claims of depositors and general creditors of the Bank. Zions Bancorporation has
irrevocably and unconditionally guaranteed all of Zions First National Bank's
obligations under the debentures. Zions First National Bank has the right to
redeem the debentures on or after December 15, 2006 at a price of 104.268
percent decreasing to par at December 15, 2016. The Capital Securities are
subject to mandatory redemption, in whole or in part, upon repayment of the
Junior Subordinated Debentures at stated maturity or their earlier redemption.
The debentures mature on December 15, 2026.
Subordinated notes include $50,000,000 of 8-5/8 percent notes that mature in
2002. These notes are not redeemable prior to maturity. The subordinated notes
are unsecured and require semiannual interest payments in April and October.
70
73
ZIONS BANCORPORATION
Notes to Consolidated Financial Statements
11. LONG-TERM DEBT (continued)
Maturities and sinking fund requirements on long-term debt at December 31, 1996
for each of the succeeding five years are as follows (in thousands):
Consoli- Parent
dated only
--------- -------
1997 $ 335 5
1998 254 -
1999 214 -
2000 103 -
2001 83 -
Thereafter 250,631 50,000
--------- -------
$ 251,620 50,005
========= =======
12. COMMITMENTS AND CONTINGENT LIABILITIES
The Company is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers, to
reduce its own exposure to fluctuations in interest rates, and to make a market
in U.S. government, agency, and municipal securities. These financial
instruments involve, to varying degrees, elements of credit, liquidity, and
interest rate risk in excess of the amount recognized in the balance sheets.
Contractual amounts of the off-balance sheet financial instruments used to meet
the financing needs of the Company's customers are as follows (in thousands):
1996 1995
---------- -----------
Commitments to extend credit $ 1,793,810 1,552,507
Standby letters of credit:
Performance 79,470 39,868
Financial 28,349 11,056
Commercial letters of credit 5,252 7,079
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require the payment of a fee. The amount of collateral obtained, if deemed
necessary by the Company upon extension of credit, is based on management's
credit evaluation of the counterparty. Collateral varies but may include
accounts receivable, inventory, property, plant and equipment, and
income-producing properties.
71
74
ZIONS BANCORPORATION
Notes to Consolidated Financial Statements
12. COMMITMENTS AND CONTINGENT LIABILITIES (continued)
Establishing commitments to extend credit gives rise to credit risk. A
significant portion of the Company's commitments is expected to expire without
being drawn upon; commitments totaling $1,423,286,000 expire in 1997. As a
result, the Company's actual future credit exposure or liquidity requirements
will be lower than the contractual amounts of the commitments. The Company uses
the same credit policies and procedures in making commitments to extend credit
and conditional obligations as it does for on-balance sheet instruments. These
policies and procedures include credit approvals, limits, and monitoring. The
related credit risk is provided for in the allowance for losses on off-balance
sheet financial instruments.
Standby and commercial letters of credit are conditional commitments issued by
the Company generally to guarantee the performance of a customer to a third
party. The guarantees are primarily issued to support public and private
borrowing arrangements, including commercial paper, bond financing, and similar
transactions. Standby letters of credit include commitments in the amount of
$101,059,000 expiring in 1997 and $6,760,000 expiring thereafter through 2005.
The credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. The Company generally
holds marketable securities and cash equivalents as collateral supporting those
commitments for which collateral is deemed necessary.
Notional values of interest rate contracts are summarized as follows (in
thousands):
1996 1995
--------- ---------
Caps and floors:
Written $ 825,000 825,000
Purchased - 25,000
Swaps - fixed 285,000 230,000
Forwards 44,961 -
Options - 1,000
The Company enters into interest rate caps, floors, exchanges contracts (swaps),
forwards, and options agreements as part of its overall asset and liability
duration and interest rate risk management strategy. These transactions enable
the Company to manage asset and liability durations, and transfer, modify, or
reduce its interest rate risk. With the exception of interest rate caps, these
instruments are used to hedge asset and liability portfolios and, therefore, are
not marked to market. The notional amounts of the contracts are used to express
volume, but the amounts potentially subject to credit risk are much smaller.
Exposure to credit risk arises from the possibility of nonperformance by
counterparties to the interest rate contracts. The Company controls this credit
risk (except futures contracts and interest rate cap and floor contracts
written, for which credit risk is de minimus) through credit approvals, limits,
and monitoring procedures. As the Company generally enters into transactions
only with high-quality counterparties, losses associated with counterparty
nonperformance on interest rate contracts have been immaterial. Nevertheless,
the related credit risk is considered and, if material, will be provided for in
an allowance for losses on off-balance sheet financial instruments and included
in other liabilities.
72
75
ZIONS BANCORPORATION
Notes to Consolidated Financial Statements
12. COMMITMENTS AND CONTINGENT LIABILITIES (continued)
Interest rate caps and floors obligate one of the parties to the contract to
make payments to the other if an interest rate index exceeds a specified upper
"capped" level or if the index falls below a specified "floor" level. Of the
interest rate caps and floors to which the Company is a party at December 31,
1996, only one with a notional value of $45 million has a remaining term of 18
years. The balance of the interest rate caps and floors have remaining terms of
one to four years.
Interest rate swaps generally involve the exchange of fixed and variable rate
interest payment obligations based on an underlying notional value, without the
exchange of the notional value. Entering into interest rate swap agreements
involves not only the risk of dealing with counterparties and their ability to
meet the terms of the contract but also the interest rate risk associated with
unmatched positions. Swaps to which the Company is a party at December 31, 1996,
have remaining terms ranging from 2 to 34 months.
Forwards are contracts for the delayed delivery of financial instruments in
which the seller agrees to deliver on a specified future date, a specified
instrument, at a specified price or yield. As of December 31, 1996, the
Company's forward contracts have remaining terms ranging from one to four
months. An option contract is an agreement that conveys to the purchaser the
right, but not the obligation, to buy or sell a quantity of a financial
instrument or commodity at a predetermined rate or price on a specified future
date.
As a market maker in U.S. government, agency, and municipal securities, the
Company enters into agreements to purchase and sell such securities. As of
December 31, 1996 and 1995, the Company had outstanding commitments to purchase
securities of $96,487 and $493,006, respectively, and outstanding commitments to
sell securities of $68,772 and $370,156, respectively. These agreements at
December 31, 1996, have remaining terms of one month or less.
The contract or notional amount of financial instruments indicates a level of
activity associated with a particular class of financial instrument and is not a
reflection of the actual level of risk. As of December 31, 1996 and 1995, the
regulatory risk-weighted values assigned to all off-balance sheet financial
instruments described herein totaled $250,800,000 and $196,649,000,
respectively.
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 adverse effect on its consolidated financial
position, operations, or liquidity.
In connection with loans sold to (or serviced for) others, the Company is
subject to recourse obligations on approximately $20.4 million as of December
31, 1996.
73
76
ZIONS BANCORPORATION
Notes to Consolidated Financial Statements
12. COMMITMENTS AND CONTINGENT LIABILITIES (continued)
The Company has commitments for leasing premises and equipment under the terms
of noncancelable leases expiring from 1996 to 2031. Future aggregate minimum
rental payments under existing noncancelable leases at December 31, 1996 are as
follows (in thousands):
Real property
Real and
property, equipment,
capitalized operating
----------- -------------
1997 $ 279 5,038
1998 217 4,505
1999 171 3,813
2000 171 3,097
2001 171 2,456
Thereafter 993 3,279
--------- -------------
$ 2,002 22,188
========= =============
Future aggregate minimum rental payments have been reduced by noncancelable
subleases as follows: 1997, $361,000; 1998, $277,000; 1999, $106,000; 2000,
$93,000; 2001, $84,000; and thereafter $5,107,000. Aggregate rental expense on
operating leases amounted to $7,237,000, $6,500,000, and $4,841,000 for the
years ended December 31, 1996, 1995, and 1994, respectively.
13. STOCK OPTIONS
The Company has a qualified stock option plan adopted in 1981, under which stock
options may be granted to key employees; and a nonqualified plan under which
options may be granted to nonemployee directors. Under the nonqualified plan,
options expire five to ten years from the date of grant. Under the qualified
plan, 806,000 shares of common stock were reserved. Qualified options are
granted at a price not less than 100 percent of the fair market value of the
stock at the date of grant. Options granted are generally exercisable in
increments from one to six years after the date of grant and expire six years
after the date of grant. At December 31, 1996, there were 159,590 and 90,000
additional shares available for grant under the qualified plan and nonqualified
plan, respectively.
The per share weighted-average fair value of stock options granted during 1996
and 1995 was $18.57 and $10.95 on the date of grant using the Black Scholes
option-pricing model with the following weighted-average assumptions:
1996 1995
--------- ----------
Expected dividend yield 2.24% 2.81%
Risk-free interest rate 6.03% 6.77%
Expected volatility 24.43% 24.56%
Expected life 3.5 years 3.5 years
74
77
ZIONS BANCORPORATION
Notes to Consolidated Financial Statements
13. STOCK OPTIONS (continued)
The Company applies APB Opinion No. 25 in accounting for its stock option plans
and, accordingly, no compensation cost has been recognized for its stock options
in the financial statements. Had the Company determined compensation cost based
on the fair value at the grant date for its stock options under Statement No.
123, the Company's net income and earnings per share would have been reduced to
the pro forma amounts indicated below:
1996 1995
--------- ---------
Net income (in thousands):
As reported $ 101,350 81,328
Pro forma 100,988 81,246
Earnings per share:
As reported $ 6.84 5.53
Pro forma 6.81 5.52
Pro forma net income reflects only options granted in 1996 and 1995. Therefore,
the full impact of calculating compensation cost for stock options under
Statement No. 123 is not reflected in the pro forma net income amounts presented
above because compensation cost is reflected over the options' vesting period
and compensation cost of options granted prior to January 1, 1995 is not
considered.
Stock option activity during the periods indicated is as follows:
Number of Weighted-average
shares exercise price
----------- --------------
Balance at December 31, 1993 341,439 $ 22.72
Granted 104,250 39.73
Exercised (45,450) 20.04
Forfeited (6,418) 24.39
Balance at December 31, 1994 393,821 24.88
Granted 70,225 42.65
Exercised (131,382) 18.54
Forfeited (8,315) 30.82
Balance at December 31, 1995 324,349 28.86
Granted 99,175 73.07
Exercised (98,980) 23.30
Forfeited (18,050) 14.14
Expired (2,500) 24.13
-----------
Balance at December 31, 1996 303,994 $ 46.01
===========
75
78
ZIONS BANCORPORATION
Notes to Consolidated Financial Statements
13. STOCK OPTIONS (continued)
Selected information on stock options as of December 31, 1996 follows:
Outstanding options Exercisable options
-------------------------------------------- ----------------------------
Weighted- Weighted-
average average Weighted-
Exercise price Number of exercise remaining life Number of average
range options price (years) options exercise price
- --------------------- ------------- ------------- -------------- ------------- -------------
$ 9.47 to $15.25 54,900 $ 10.48 3.10 34,200 $ 10.18
$38.50 to $47.25 149,919 41.13 3.66 49,127 40.87
$72.50 to $88.25 99,175 73.07 5.61 2,500 75.00
------------ -------------
303,994 $ 46.01 4.20 85,827 $ 29.63
============= =============
14. COMMON STOCK
Changes in common stock are summarized as follows (amounts in thousands, except
share amounts):
Shares Amount
------------ -----------
Balance at December 31, 1993 14,201,367 $ 66,257
Stock options:
Redeemed and retired (15,265) -
Exercised 45,450 443
Acquisition 328,000 12,493
------------ -----------
Balance at December 31, 1994 14,559,552 79,193
Stock redeemed and retired (375,040) (18,523)
Stock options:
Redeemed and retired (21,585) -
Exercised 131,382 2,081
Acquisition 261,611 10,726
------------ -----------
Balance at December 31, 1995 14,555,920 73,477
Stock redeemed and retired (274,248) (21,635)
Stock options:
Redeemed and retired (14,630) -
Exercised 98,980 1,749
Acquisition 363,698 26,200
------------ -----------
Balance at December 31, 1996 14,729,720 $ 79,791
============ ===========
76
79
ZIONS BANCORPORATION
Notes to Consolidated Financial Statements
15. SHAREHOLDERS' PROTECTION RIGHTS PLAN
The Company has in place a Shareholders' Protection Rights Plan. The
Shareholders' Protection Rights Plan contains provisions intended to protect
shareholders in the event of unsolicited offers or attempts to acquire the
Company, including offers that do not treat all shareholders equally,
acquisitions in the open market of shares constituting control without offering
fair value to all shareholders, and other coercive or unfair takeover tactics
that could impair the Board of Directors' ability to represent shareholders'
interests fully. The Shareholders' Protection Rights Plan provides that attached
to each share of common stock is one right (a "Right") to purchase one
one-hundredth of a share of Participating Preferred Stock for an exercise price
of $360, subject to adjustment.
The Rights have certain anti-takeover effects. The Rights may cause substantial
dilution to a person that attempts to acquire the Company without the approval
of the Board of Directors. The Rights, however, should not affect offers for all
outstanding shares of common stock at a fair price and, otherwise, in the best
interests of the Company and its shareholders as determined by the Board of
Directors. The Board of Directors may, at its option, redeem all, but not fewer
than all, of the then outstanding Rights at any time until the 10th business day
following a public announcement that a person or a group had acquired beneficial
ownership of 10 percent or more of the Company's outstanding common stock or
total voting power.
16. REGULATORY MATTERS
The Company is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory--and possibly additional discretionary--actions
by regulators that, if undertaken, could have a direct material effect on the
Company's consolidated financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, the Company must meet
specific capital guidelines that involve quantitative measures of the Company's
assets, liabilities, and certain off-balance sheet items as calculated under
regulatory accounting practices. The Company's capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1996, that the
Company meets all capital adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the Office of the
Comptroller of the Currency categorized the Company as well capitalized under
the regulatory framework for prompt corrective action. To be categorized as well
capitalized, the Company must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the table. There are no
conditions or events since that notification that management believes have
changed the Company's category.
77
80
16. REGULATORY MATTERS (continued)
The Company's actual capital amounts and ratios are also presented in the table
as follows (in thousands):
For capital adequacy
Actual purposes To be well capitalized
---------------------- --------------------- ----------------------
Amount Ratio Amount Ratio Amount Ratio
---------- -------- ---------- ----- -------- --------
As of December 31, 1996:
Total capital (to
risk-weighted assets) $731,902 18.31% $319,737 8.00% $399,671 10.00%
Tier I capital (to
risk-weighted assets) 574,928 14.38 159,868 4.00 239,802 6.00
Tier I capital (to
average assets) 574,928 8.77 196,728 3.00 327,881 5.00
As of December 31, 1995:
Total capital (to
risk-weighted assets) $463,593 14.23% $260,679 8.00% $325,849 10.00%
Tier I capital (to
risk-weighted assets) 370,931 11.38 130,340 4.00 195,509 6.00
Tier I capital (to
average assets) 370,931 6.28 177,262 3.00 295,437 5.00
Dividends declared by the Company's national banking subsidiaries in any
calendar year may not, without the approval of the appropriate federal
regulator, exceed their net earnings for that year combined with their net
earnings less dividends paid for the preceding two years. At December 31, 1996,
the Company's subsidiaries had approximately $123.8 million available for the
payment of dividends under the foregoing restrictions. In addition, the banking
subsidiaries must meet various requirements and restrictions under the laws of
the United States and state laws, including requirements to maintain cash
reserves against deposits and limitations on loans and investments with
affiliated companies. During 1996, cash reserve balances held with the Federal
Reserve banks averaged approximately $34.2 million.
17. RETIREMENT PLANS
The Company has a noncontributory defined benefit pension plan for eligible
employees. Plan benefits are based on years of service and employees'
compensation levels. Benefits vest under the plan upon completion of five years
of service. Plan assets consist principally of corporate equity and debt
securities, government fixed income securities, and cash investments.
78
81
ZIONS BANCORPORATION
Notes to Consolidated Financial Statements
17. RETIREMENT PLANS (continued)
The components of the net pension cost for the years ended December 31, 1996 and
1995, are as follows (in thousands):
1996 1995
--------- ---------
Service cost - benefits earned during the period $ 3,184 2,151
Interest cost on projected benefit obligation 3,739 3,261
Actual return on assets (7,702) (8,580)
Net amortization and deferrals 3,598 5,072
--------- ---------
Net pension cost $ 2,819 1,904
========= =========
Primary actuarial assumptions used in determining the net pension cost are as
follows:
1996 1995
--------- ---------
Assumed discount rate 7.00% 8.75
Assumed rate of increase in compensation levels 5.00 5.00
Expected long-term rate of return on assets 9.00 9.00
The funded status of the plan as of December 31, 1996 and 1995, is as follows
(in thousands):
1996 1995
---------- ----------
Actuarial present value of benefit obligations:
Vested benefit obligation $ (42,512) (42,054)
========== ==========
Accumulated benefit obligation $ (47,949) (47,821)
========== ==========
Projected benefit obligation $ (54,823) (53,606)
Plan assets at fair value 53,462 48,360
---------- ----------
Unfunded projected benefit obligation (1,361) (5,246)
Unrecognized net loss 7,052 15,032
Unrecognized prior service cost (524) (1,175)
Unrecognized net transition asset (1,681) (2,306)
---------- ----------
Prepaid pension cost $ 3,486 6,305
========== ==========
Primary actuarial assumptions (future periods):
Assumed discount rate 7.50% 7.00
Assumed rate of increase in compensation levels 5.00 5.00
On December 20, 1996, the Board of Directors approved changes in the Company's
defined benefit plan. These changes will result in the plan benefit being
defined as a lump-sum cash value rather than an annuity at age 65.
79
82
ZIONS BANCORPORATION
Notes to Consolidated Financial Statements
17. RETIREMENT PLANS (continued)
In addition to the Company's defined benefit pension plan, the Company sponsors
a defined benefit health care plan that provides postretirement medical benefits
to full-time employees hired before January 1, 1993, who meet minimum age and
service requirements. The plan is contributory, with retiree contributions
adjusted annually, and contains other cost-sharing features such as deductibles
and coinsurance. Plan coverage is provided by self-funding or health maintenance
organizations (HMOs) options. The accounting for the plan anticipates future
cost-sharing changes to the written plan, including an increase in the normal
and early retiree contribution rate to 50 percent in 1996. Reductions in the
Company's obligations to provide benefits resulting from cost sharing changes
have been applied to reduce the plans unrecognized transition obligation. The
Company's retiree premium contribution rate is frozen at 50 percent of 1996
dollar amounts. The Company's policy is to fund the cost of medical benefits in
amounts determined at the discretion of management.
The following table presents the plan's funded status reconciled with amounts
recognized in the Company's consolidated balance sheets at December 31, 1996 and
1995, as follows (in thousands):
1996 1995
-------- --------
Accumulated postretirement benefit obligation:
Retirees $(2,181) (4,855)
Fully eligible active plan participants (836) (523)
Other active plan participants (535) (792)
-------- --------
(3,552) (6,170)
Plan assets at fair value - -
-------- --------
Accumulated postretirement benefit obligation in
excess of plan assets (3,552) (6,170)
Unrecognized net loss (gain) (2,628) 116
-------- --------
Accrued postretirement benefit cost included in other
liabilities $(6,180) (6,054)
======== ========
Net periodic postretirement benefit cost for 1996 and 1995, includes the
following components (in thousands):
1996 1995
-------- ------
Service cost $ 195 93
Interest cost 414 380
Net amortization - (351)
-------- ------
Net periodic postretirement benefit cost $ 609 122
======== ======
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5 and 7.0 percent, respectively, at
December 31, 1996 and 1995.
80
83
ZIONS BANCORPORATION
Notes to Consolidated Financial Statements
17. RETIREMENT PLANS (continued)
The Company has an Employee Stock Savings Plan and an Employee Investment
Savings Plan (formerly known as the Salary Reduction Arrangement Plan)
(PAYSHELTER). Under PAYSHELTER, employees select from a nontax-deferred or
tax-deferred plan and four investment alternatives. Employees can contribute
from 1 to 15 percent of compensation, which is matched 50 percent by the Company
for contributions up to 5 percent and 25 percent for contributions greater than
5 percent up to 10 percent. Contributions to the plans amounted to $1,726,000,
$1,404,000, and $1,319,000 for the years ended December 31, 1996, 1995, and
1994, respectively.
The Company has an employee profit-sharing plan. Contributions to the plan are
determined per a formula based on the Company's annual return on equity
(required minimum return of 14 percent). Accrued contributions to the plan
amounted to $1,835,000, $1,592,000, and $1,096,000 for the years ended December
31, 1996, 1995, and 1994, respectively.
18. FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying value and estimated fair value of principal financial instruments are
summarized as follows (in thousands):
December 31, 1996 December 31, 1995
-------------------------- --------------------------
Carrying Estimated Carrying Estimated
value fair value value fair value
------------ ------------ ------------ ------------
Financial assets:
Cash and due from banks $ 404,331 404,331 418,067 418,067
Money market investments 613,429 613,429 687,251 687,251
Investment securities 1,809,688 1,818,608 1,540,489 1,555,347
Loans, net 3,387,225 3,403,757 2,739,401 2,758,244
------------ ------------ ------------ ------------
Total financial assets $ 6,214,673 6,240,125 5,385,208 5,418,909
============ ============ ============ ============
Financial liabilities:
Demand, savings, and money market deposits $ 3,634,612 3,634,612 3,162,904 3,162,904
Time deposits 803,113 801,051 828,120 834,460
Foreign deposits 114,292 114,406 106,090 106,090
Securities sold, not yet purchased 76,831 76,831 117,005 117,005
Federal funds purchased and security
repurchase agreements 926,768 926,768 748,332 748,332
FHLB advances and other borrowings 87,194 87,194 101,084 101,084
Long-term debt 251,620 255,646 56,229 61,507
------------ ------------ ------------ ------------
Total financial liabilities $ 5,894,430 5,896,508 5,119,764 5,131,382
============ ============ ============ ============
Off-balance sheet instruments:
Caps and floors:
Written $ (4,372) (4,372) (4,691) (4,691)
Purchased - - 174 3
Swaps - fixed - 1,360 - 4,936
Forwards - 53 - -
------------ ------------ ------------ ------------
Total off-balance sheet instruments $ (4,372) (2,959) (4,517) 248
============ ============ ============ ============
81
84
ZIONS BANCORPORATION
Notes to Consolidated Financial Statements
18. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)
Financial assets and financial liabilities other than investment securities of
the Company are not traded in active markets. The above estimates of fair value
require subjective judgments and are approximate. Changes in the following
methodologies and assumptions could significantly affect the estimates.
Financial Assets - The estimated fair value approximates the carrying value of
cash and due from banks and money market investments. For securities, the fair
value is based on quoted market prices where available. If quoted market prices
are not available, fair values are based on quoted market prices of comparable
instruments or using a discounted cash flow model based on established market
rates. The fair value of fixed-rate loans is estimated by discounting future
cash flows using the London Interbank Offered Rate (LIBOR) yield curve adjusted
by a factor which reflects the credit and interest rate risk inherent in the
loan. Variable-rate loans reprice with changes in market rates. As such their
carrying amounts are deemed to approximate fair value. The fair value of the
allowance for loan losses of $65,318,000 and $67,555,000 at December 31, 1996
and 1995, respectively, are the present value of estimated net charge-offs.
Financial Liabilities - The estimated fair value of demand and savings deposits,
securities sold not yet purchased, and federal funds purchased and security
repurchase agreements approximates the carrying value. The fair value of time
and foreign deposits is estimated by discounting future cash flows using the
LIBOR yield curve. Substantially all FHLB advances reprice with changes in
market interest rates or have short terms to maturity. The carrying value of
such indebtedness is deemed to approximate market value. Other borrowings are
not significant. The estimated fair value of the subordinated notes is based on
a quoted market price. The remaining long-term debt is not significant.
Off-Balance Sheet Financial Instruments - The fair value of the caps, floors,
and swaps reflects the estimated amounts that the Company would receive or pay
to terminate the contracts at the reporting date based upon pricing or valuation
models applied to current market information, thereby taking into account the
current unrealized gains or losses of open contracts. The carrying amounts
include unamortized fees paid or received and deferred gains or losses.
The fair value of commitments to extend credit and letters of credit, based on
fees currently charged for similar commitments, is not significant.
82
85
ZIONS BANCORPORATION
Notes to Consolidated Financial Statements
19. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Financial information by quarter for the three years ended December 31, 1996, is
as follows (in thousands, except per share amounts):
Income
Net Provision before Net income
interest for loan income Net per common
income losses taxes income share
-------- --------- ------- -------- ----------
1996:
First quarter $ 59,949 600 35,674 23,671 1.61
Second quarter 63,490 760 37,816 25,064 1.70
Third quarter 65,768 840 39,535 25,760 1.73
Fourth quarter 71,266 1,340 40,467 26,855 1.80
-------- --------- ------- -------- ----------
$260,473 3,540 153,492 101,350 6.84
======== ========= ======= ======== ==========
1995:
First quarter $ 53,201 600 23,824 16,001 1.09
Second quarter 55,897 850 31,270 20,521 1.39
Third quarter 57,923 800 34,044 22,291 1.52
Fourth quarter 60,073 550 33,140 22,515 1.53
-------- --------- ------- -------- ----------
$227,094 2,800 122,278 81,328 5.53
======== ========= ======= ======== ==========
1994:
First quarter $ 44,801 290 18,416 12,438 .87
Second quarter 48,741 467 24,743 16,418 1.12
Third quarter 51,859 440 26,789 17,665 1.20
Fourth quarter 53,205 984 24,779 17,306 1.18
-------- --------- ------- -------- ----------
$198,606 2,181 94,727 63,827 4.37
======== ========= ======= ======== ==========
20. PARENT COMPANY FINANCIAL INFORMATION
Condensed financial information of Zions Bancorporation (parent only) follows:
83
86
ZIONS BANCORPORATION
Condensed Balance Sheets
December 31, 1996 and 1995
(In thousands)
ASSETS 1996 1995
----------- -----------
Cash and due from banks $ 1,855 2,955
Interest-bearing deposits 3,528 16,503
Investment securities 4,127 2,521
Loans, lease financing, and other receivables 55 1,108
Investments in subsidiaries:
Commercial banks 542,829 458,647
Other 6,191 5,478
Receivables from subsidiaries:
Commercial banks -- 100
Other 1,433 574
Real estate held for rental purposes, at cost, less accumulated depreciation 1,286 1,667
Premises and equipment, at cost, less accumulated depreciation 211 187
Other real estate owned 54 58
Other assets 16,254 10,024
----------- -----------
Total assets $ 577,823 499,822
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued liabilities $ 20,366 16,596
Short-term borrowings -- --
Long-term debt 50,005 54,720
----------- -----------
Total liabilities 70,371 71,316
----------- -----------
Shareholders' equity:
Common stock 79,791 73,477
Net unrealized holding gains and losses on securities available for sale (1,835) 1,850
Retained earnings 429,496 353,179
----------- -----------
Total shareholders' equity 507,452 428,506
----------- -----------
$ 577,823 499,822
=========== ===========
84
87
ZIONS BANCORPORATION
Condensed Statements of Income
Years ended December 31, 1996, 1995, and 1994
(In thousands)
1996 1995 1994
----------- ----------- -----------
Interest income - interest and fees on loans and securities $ 890 2,417 3,035
Interest expense - interest on borrowed funds 4,769 5,095 4,798
----------- ----------- -----------
Net interest loss (3,879) (2,678) (1,763)
----------- ----------- -----------
Other income:
Dividends from consolidated subsidiaries:
Commercial banks 44,970 29,400 21,528
Other 1,000 -- --
Other income 3,990 3,131 2,985
----------- ----------- -----------
49,960 32,531 24,513
----------- ----------- -----------
Expenses:
Salaries and employee benefits 6,472 5,262 4,913
Operating expenses 1,733 463 1,165
----------- ----------- -----------
8,205 5,725 6,078
----------- ----------- -----------
Income before income tax benefit 37,876 24,128 16,672
Income tax benefit (2,762) (2,052) (1,939)
----------- ----------- -----------
Income before equity in undistributed income of consolidated subsidiaries 40,638 26,180 18,611
----------- ----------- -----------
Equity in undistributed income of consolidated subsidiaries:
Commercial banks 60,086 54,245 44,133
Other 626 903 1,083
----------- ----------- -----------
60,712 55,148 45,216
----------- ----------- -----------
Net income $ 101,350 81,328 63,827
=========== =========== ===========
85
88
ZIONS BANCORPORATION
Condensed Statements of Cash Flows
Years ended December 31, 1996, 1995, and 1994
(In thousands)
1996 1995 1994
----------- ----------- -----------
Cash flows from operating activities:
Net income $ 101,350 81,328 63,827
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed net income of consolidated subsidiaries (60,712) (55,148) (45,216)
Depreciation of premises and equipment 440 678 675
Amortization of excess costs of acquired businesses 599 588 492
Other 9,992 4,646 (3)
----------- ----------- -----------
Net cash provided by operating activities 51,669 32,092 19,775
----------- ----------- -----------
Cash flows from investing activities:
Net decrease (increase) in interest-bearing deposits 12,975 (13,677) (2,381)
Collection of advances to subsidiaries 986 34,548 4,939
Advances to subsidiaries (1,745) (7,565) (3,575)
Decrease (increase) of investment in subsidiaries (30) (386) 274
Purchase of other assets (12,000) -- --
Other (2,786) 3,625 1,908
----------- ----------- -----------
Net cash provided by (used in) investing activities (2,600) 16,545 1,165
----------- ----------- -----------
Cash flows from financing activities:
Net change in short-term funds borrowed -- (8,001) (3,305)
Payments on long-term debt (4,715) (1,469) (1,358)
Proceeds from issuance of common stock 1,178 1,291 317
Payments to redeem common stock (21,635) (18,523) --
Dividends paid (24,997) (20,554) (17,271)
----------- ----------- -----------
Net cash used in financing activities (50,169) (47,256) (21,617)
----------- ----------- -----------
Net increase (decrease) in cash and due from banks (1,100) 1,381 (677)
Cash and due from banks at beginning of year 2,955 1,574 2,251
----------- ----------- -----------
Cash and due from banks at end of year $ 1,855 2,955 1,574
=========== =========== ===========
The parent company paid interest of $4,745,000, $6,180,000, and $7,245,000 for
the years ended December 31, 1996, 1995, and 1994, respectively.
86
89
ZIONS BANCORPORATION
Condensed Statements of Retained Earnings
Years ended December 31, 1996, 1995, and 1994
(In thousands)
1996 1995 1994
----------- ----------- -----------
Balance at beginning of year $ 353,179 292,443 245,920
Net income 101,350 81,328 63,827
Cash dividends:
Preferred, paid by subsidiary to minority shareholder (36) (38) (33)
Common (24,997) (20,554) (16,786)
Dividends of NBA prior to merger -- -- (485)
----------- ----------- -----------
Balance at end of year $ 429,496 353,179 292,443
=========== =========== ===========
87
90
The selected quarterly financial data information required by this item appears
on pages 27 and 83 under the caption "QUARTERLY FINANCIAL INFORMATION
(UNAUDITED)."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item, to the extent not included under the
caption "Executive officers of the registrant" in Part I of this report, will
appear on pages 2 through 5 of the definitive Proxy Statement. Information
relating to the directors and executive officers on pages 2 through 5, and
information required by Item 405 of Regulation S-K as set forth beginning in the
last paragraph on page 7 of the definitive Proxy Statement relating to the 1997
Annual Meeting of Shareholders to be held April 25, 1997, is incorporated herein
by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item appearing on pages 8 through 17 of the
definitive Proxy Statement relating to the 1997 Annual Meeting of Shareholders
to be held April 25, 1997, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item appearing on pages 6 and 7 of the
definitive Proxy Statement relating to the 1997 Annual Meeting of Shareholders
to be held April 25, 1997, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item appearing on page 18 of the definitive
Proxy Statement relating to the 1997 Annual Meeting of Shareholders to be held
April 25, 1997, is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are part of this report and appear on the pages
indicated:
Page
(1) Financial Statements:
Independent Auditors' Report 49
Consolidated Balance Sheets - December 31, 1996 and 1995 50
Consolidated Statements of Income - Years ended December 31, 1996, 1995, and 1994 51
Consolidated Statements of Cash Flows - Years ended December 31, 1996, 1995, and 1994 52
Consolidated Statements of Retained Earnings Years ended December 31, 1996, 1995, and 1994 53
Notes to Consolidated Financial Statements 54
(2) Financial Statement Schedules:
Schedules are omitted because the information is either not required,
not applicable, or is included in Part II, Items 6-8 of this report.
88
91
(3) Exhibits:
The exhibits listed on the Exhibit Index on pages 91 and 92 of this
report are filed or are incorporated herein by reference.
(b) Reports on Form 8-K
Zions Bancorporation filed the follwing reports on Form 8-K during
the quarter ended December 31, 1996
Form 8-K filed October 11, 1996 (Item5) Shareholder Protection Rights
Agreement
Form 8-K filed December 30, 1996 (Item 5) Announcement that Zions
Institutional Capital Trust A, a subsidiary of Zions First National
Bank created as a Delaware statutory business trust, issued $200
million of 8.356% trust preferred securities
For the purposes of complying with the amendments to the rules governing Form
S-8 (effective July 13, 1990) under the Securities Act of 1993, the undersigned
Registrant hereby undertakes as follows, which undertaking shall be incorporated
by reference into Registrant's Registration Statements on Form S-8 Nos. 33-58845
(filed on April 26, 1995) and 33-58855 (filed on April 26, 1995).
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
89
92
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
March 21, 1997 ZIONS BANCORPORATION
By /s/ Harris H. Simmons
-------------------------------------------
HARRIS H. SIMMONS, President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
March 21, 1997
/s/ Harris H. Simmons /s/ Dale M. Gibbons
- -------------------------------------------------------------- --------------------------------------------------------------
HARRIS H. SIMMONS, President, Chief Executive Officer and DALE M. GIBBONS, Secretary, Senior Vice President, and
Director Chief Financial Officer
/s/ Roy W. Simmons /s/ Walter E. Kelly
- -------------------------------------------------------------- --------------------------------------------------------------
ROY W. SIMMONS, Chairman and Director WALTER E. KELLY, Controller
/s/ Jerry C. Atkin /s/ Robert G. Sarver
- -------------------------------------------------------------- --------------------------------------------------------------
JERRY C. ATKIN, Director ROBERT G. SARVER, Director
/s/ Grant R. Caldwell /s/ L. E. Simmons
- -------------------------------------------------------------- --------------------------------------------------------------
GRANT R. CALDWELL, Director L.E. SIMMONS, Director
/s/ R. D. Cash /s/ I. J. Wagner
- -------------------------------------------------------------- --------------------------------------------------------------
R. D. CASH, Director I. J. WAGNER, Director
/s/ Richard H. Madsen /s/ Dale W. Westergard
- -------------------------------------------------------------- --------------------------------------------------------------
RICHARD H. MADSEN, Director DALE W. WESTERGARD, Director
/s/ Roger B. Porter
- --------------------------------------------------------------
ROGER B. PORTER, Director
90
93
EXHIBIT INDEX
FILED AS PART OF THIS REPORT ON FORM 10-K
(Pursuant to Item 601 of Regulations S-K)
Exhibit no. Description and method of filing
- ------------ ------------------------------------------------------------------------------------------
3.1 Restated Articles of Incorporation of Zions Bancorporation dated November 8, 1993, and
filed with the Department of Business Regulation, Division of Corporations of the State
of Utah on November 9, 1993 (incorporated by reference to Exhibit 3.1 to the
Registrant's Form S-4 Registration Statement, File No. 33-51145, filed on November 22,
1993) *
3.2 Restated Bylaws of Zions Bancorporation, dated November 8, 1993 (incorporated by
reference to Exhibit 3.2 to the Registrant's Form S-4 Registration Statement, File No.
33-51145, filed November 22, 1993) *
9 Voting Trust Agreement, dated December 31, 1991 (incorporated by reference to Exhibit 9
of Zions Bancorporation's Annual Report on Form 10-K for the year ended December 31,
1991) *
10.1 Amended and Restated Zions Bancorporation Pension Plan (incorporated by reference to
Exhibit 10.1 of Zions Bancorporation's Annual Report on Form 10-K for the year ended
December 31, 1994) *
10.2 Amendment to Zions Bancorporation Pension Plan effective December 1, 1994 (incorporated
by reference to Exhibit 10.2 of Zions Bancorporation's Annual Report on Form 10-K for
the year ended December 31, 1994) *
10.3 Zions Utah Bancorporation Supplemental Retirement Plan Form (incorporated by reference
to Exhibit 19.4 of Zions Utah Bancorporation's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1985) *
10.4 Zions Utah Bancorporation Key Employee Incentive Stock Option Plan approved by the
shareholders of the Company on April 28, 1982 (incorporated by reference to Exhibit 10.1
of Zions Bancorporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995) *
10.5 Amendment No. 1 to Zions Bancorporation (formerly Zions Utah Bancorporation) Key Employee
Incentive Stock Option Plan approved by the shareholders of the Company on April 27, 1990
(incorporated by reference to Exhibit 10.2 of Zions Bancorporation's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995) *
10.6 Amendment No. 2 to Zions Bancorporation (formerly Zions Utah Bancorporation) Key Employee
Incentive Stock Option Plan approved by the shareholders of the Company on April 28, 1995
(incorporated by reference to Exhibit 10.3 of Zions Bancorporation's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1995) *
10.7 Zions Bancorporation Deferred Compensation Plan for Directors, as amended May 1, 1991
(incorporated by reference to Exhibit 19 of Zions Bancorporation's Annual Report on Form
10-K for the year ended December 31, 1991) *
91
94
EXHIBIT INDEX
FILED AS PART OF THIS REPORT ON FORM 10-K (continued)
(Pursuant to Item 601 of Regulations S-K)
Exhibit no. Description and method of filing
- ------------ ------------------------------------------------------------------------------------------
10.8 Zions Bancorporation Senior Management Value Sharing Plan, Award Period 1991-1994
(incorporated by reference to Exhibit 19 of Zions Bancorporation's Annual Report on Form
10-K for the year end December 31, 1992) *
10.9 Zions Bancorporation Senior Management Value Sharing Plan, Award Period 1992-1995
(incorporated by reference to Exhibit 10.6 of Zions Bancorporation's Annual Report on
Form 10-K for the year end December 31, 1992) *
10.10 Zions Bancorporation Senior Management Value Sharing Plan, Award Period 1993-1997
(incorporated by reference to Exhibit 10.8 of Zions Bancorporation's Annual Report on
Form 10-K for the year end December 31, 1993) *
10.11 Zions Bancorporation Senior Management Value Sharing Plan, Award Period 1994-1997
(incorporated by reference to Exhibit 10.9 of Zions Bancorporation's Annual Report on
Form 10-K for the year end December 31, 1994) *
10.12 Zions Bancorporation Senior Management Value Sharing Plan, Award Period 1995-1998
(incorporated by reference to Exhibit 10.14 of Zions Bancorporation's Annual Report on
Form 10-K for the year ended December 31, 1995) *
10.13 Zions Bancorporation Executive Management Pension Plan (incorporated by reference to
Exhibit 10.10 of Zions Bancorporation's Annual Report on Form 10-K for the year ended
December 31, 1994) *
10.14 Employment Agreement between Zions Bancorporation and Mr. John Gisi (incorporated by
reference to Exhibit 10.13 of Zions Bancorporation's Annual Report on Form 10-K for the
year ended December 31, 1995) *
10.15 Zions Bancorporation Non-Employee Directors Stock Option Plan approved by the
shareholders of the Company on April 26, 1996 (incorporated by reference to Exhibit 10
of Zions Bancorporation's Quarterly Report on Form 10-Q for the quarter ended June 30,
1996) *
10.16 Zions Bancorporation Senior Management Value Sharing Plan, Award Period 1996-1999 (filed)
21 List of subsidiaries of Zions Bancorporation (filed)
23 Consent of KPMG Peat Marwick, LLP independent certified public accountants (filed)
27 Article 9 Financial Data Schedule for Form 10-K (filed)
99.1 Form 11-K Annual Report of Zions Bancorporation Employee Stock Savings Plan (filed)
99.2 Form 11-K Annual Report of Zions Bancorporation Employee Investment Savings Plan (filed)
* incorporated by reference.
92