-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J9JpHCb29ChuYGCWbk+no/bURLdlaivdcjHMDl1zwJI4mXiAjeKixj8UJooTb/Pq 52CnxgRLI0nv90c7UJ4iYg== 0000950149-97-000649.txt : 19970327 0000950149-97-000649.hdr.sgml : 19970327 ACCESSION NUMBER: 0000950149-97-000649 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970326 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ZIONS BANCORPORATION /UT/ CENTRAL INDEX KEY: 0000109380 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 870227400 STATE OF INCORPORATION: UT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-02610 FILM NUMBER: 97564050 BUSINESS ADDRESS: STREET 1: ONE SOUTH MAIN STREET STREET 2: SUITE 1380 CITY: SALT LAKE CITY STATE: UT ZIP: 84111 BUSINESS PHONE: 8015244787 MAIL ADDRESS: STREET 1: ONE SOUTH MAIN STREETNG STREET 2: SUITE 1380 CITY: SALT LAKE CITY STATE: UT ZIP: 84111 FORMER COMPANY: FORMER CONFORMED NAME: ZIONS UTAH BANCORPORATION DATE OF NAME CHANGE: 19870615 FORMER COMPANY: FORMER CONFORMED NAME: ZIONS FIRST NATIONAL INVESTMENT CO DATE OF NAME CHANGE: 19660921 10-K 1 ZIONS BANCORPORATION FORM 10-K 1 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). 2
ZIONS BANCORPORATION ANNUAL REPORT FOR 1996 ON FORM 10-K TABLE OF CONTENTS PAGE ------ 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
3 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. 1 4 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. 2 5 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. 3 6 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. 4 7 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. 5 8 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. 6 9 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. 7 10 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. 8 11 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 17 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. 19 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 EX-10.16 2 SENIOR MANAGEMENT VALUE SHARING PLAN 1 EXHIBIT 10.16 Zions Bancorporation Senior Management Value Sharing Plan Award Period: 1996-1999 Objective: To provide an ongoing multi-year incentive for the senior managers of Zions Bancorporation and its subsidiaries which: A. Focuses managers' attention on the creation of long-term shareholder value; B. Creates an incentive that promotes teamwork across departments and subsidiaries, and which encourages managers to balance profit center accountability with Company-wide goals; and, C. Complements the short-range annual bonuses which reflect the achievement of annual objectives and the Company's short-term profitability. Eligibility: Participants in the Plan shall consist of the senior management group (and certain other key managers) of the Company and its major subsidiaries. Participants for each Award Period shall be specifically identified by the Company's Board of Directors (the "Board") or its Executive Compensation Committee (the "Committee"). Allocation of Awards: It is anticipated that during the first quarter of each year in which the Plan operates, the Board of Directors shall approve the establishment of a pool of Award Funds to be generated during the Award Period, according to the general formula outlined below. Participants shall be designated by the Board or the Committee. Claims against the pool of Award Funds for each Award Period shall be represented by Participation Units ("PU's"), and each participant shall be allocated a specific number of PU's by the Committee. The PU's shall represent a pro-rata claim, in proportion to the total PU's designated for that Award Period, on any Award Funds generated by the Plan during the Award Period. Term: Each Award Period shall consist of a continuous four-calendar-year period. The Plan is intended to constitute a "moving four-year-average" incentive plan, with the anticipation that a new Award Period would be designated each year, with multiple Award Periods overlapping one another. Nevertheless, the establishment of a new Award Period each year is subject to the Board's discretion. 2 Determination of Award Funds: The amount of Award Funds in the pool for each Award Period shall be a function of the mathematical average return on shareholders' equity ("AROE") for each of the four years in the Award Period, together with the aggregate earnings per share ("AEPS") during the Award Period. Each year, the Committee shall establish minimum targets for AROE and AEPS for the Award Period. These minimum targets would both be required to be reached in order for any Award Funds to be earned. Additionally, the Committee may designate Award Fund allocation amounts based upon the achievement of higher levels of AROE, with upward adjustments possible if higher levels of AEPS are achieved. The Committee may also designate other conditions and adjustment factors to ensure the Plan's integrity and consistency with shareholder and depositor interests. The 1996-1999 Award Period formula for the determination of total Award Funds is as follows: * Minimum AROE: 14.00% * Minimum AEPS: $25.01 Funding of 1996-1999 Unadjusted Award Fund Pool:
Cumulative AROE Award Funds -------- ------------ 14% $ 0 15% 359,000 16% 884,000 17% 1,404,000 18% 2,127,000 19% 2,995,000 20% 3,546,000 21% 4,483,000 22% 5,036,000
Interim amounts shall be calculated by interpolation. The basic Award Fund amount would be further modified by multiplying the cumulative Award Funds by 1+[(AEPS - $25.01)/17], with a maximum AEPS figure of $30.62 (resulting in a 33% maximum upward adjustment in the Award Funds). 3 For the 1996-1999 Award Period, the following parameters shall be established, and adjustments made to the Company's earnings calculations, for purposes of determining Award Funds available under the Plan: 1). The Plan is intended to create an incentive for increasing shareholder value. However, this is not to be accomplished by reducing capital levels or assuming extraordinary or unwarranted risks. Accordingly, it is expected that total risk-based capital levels shall be maintained at a level at least 125% of regulatory requirements. 2). The Company's reserve levels are to be conservatively maintained. To the extent that the consolidated Allowance for Loan and Lease Losses is less than 110% of the peer group level, as expressed in terms of reserves/non-current loans as reported in the most current Uniform Bank Performance Report available at January 31, 2000, an appropriate adjustment shall be made to after-tax earnings (for purposes of calculating Award Funds only) to compensate for any deficit relative to the 110% minimum target level. Actual reserve levels are, of course, subject to Board and/or regulatory decisions. No upward adjustments shall be made in "pro forma" earnings in the event actual reserve levels exceed 110% of the peer group target. 3). Unless determined otherwise by the Board, in the event of any merger involving an acquisition by Zions for the exchange of Zions' shares in a pooling-of-interests transaction, earnings per share prior to the acquisition date shall, for the purpose of calculating AEPS during the Award Period, be determined using Zions' un-restated numbers. Other Terms and Conditions: The Plan is to be governed and interpreted by the Committee, whose decisions shall be final. The terms of the Plan are subject to change or termination at their sole discretion. The Company shall retain the right to withhold payment of Award Funds to participants in the event of a significant deterioration in the Company's financial condition, or if so required by regulatory authorities, or for any other reason considered valid by the Board in its sole discretion. Participants shall not vest in any benefits available under the Plan until the conclusion of each Award Period. Nevertheless, upon death, permanent disability, or normal or early retirement (unless upon early retirement the participant becomes employed by an entity which competes with Zions Bancorporation), participants (or their estates) shall be eligible to receive a proportionate share of Award Funds based upon the number of PU's granted, and the number of full calendar quarters the participant was engaged as an officer of the Company or its subsidiaries prior to death, disability, or retirement. The PU's shall not be transferable without the express approval of the Committee. 4 In the event of the merger or acquisition of the Company, the Plan shall be terminated as of the end of the fiscal quarter preceding the first full quarter before the transaction is consummated. The Board may make any reasonable estimates or adjustments necessary in calculating Award Funds for any Award Period. The Board may also, at its sole discretion, alter the terms of the Plan at any time during an Award Period. This document is intended to provide a guideline for the creation and distribution of incentive compensation. Nothing herein creates a contractual obligation binding on the Board, and no Participant shall have any legal rights with respect to an Award until such Award is distributed. Earnings per share calculations shall be adjusted to reflect any stock splits, stock dividends, or other such changes in capitalization, at the discretion of the Committee. The award of PU's to any participant shall not confer any right with respect to continuance of employment by the Company or its subsidiaries, nor limit in any way the right of the Company to terminate his or her employment at any time, with or without cause. 5 APPENDIX ZIONS BANCORPORATION VALUE-SHARING PLAN: 1996-99 Calculation of Participation Unit Value Average Annual ROE ("AROE") If the AROE is:
Over - But not over - The basic value of a Participation Unit is - - ---------------- --------------------- ----------------------------------------------------------------- 14.00% 14.99% $0 + $.0266 per basis point of the amount over 14.00%. 15.00% 15.99% $2.66 + $.0389 per basis point of the amount over 15.00%. 16.00% 16.99% $6.55 + $.0385 per basis point of the amount over 16.00%. 17.00% 17.99% $10.40 + $.0536 per basis point of the amount over 17.00%. 18.00% 18.99% $15.76 +$.0643 per basis point of the amount over 18.00%. 19.00% 19.99% $22.19 + $.0408 per basis point of the amount over 19.00%. 20.00% 20.99% $26.27 + $.0695 per basis point of the amount over 20.00%. 21.00% 21.99% $33.22 + $.0410 per basis point of the amount over 21.00%. 22.00% + $37.32
Aggregate E. P. S. ("AEPS") Modifier: The basic Participation Unit value determined above shall be adjusted as follows: If AEPS for 1996-99 is equal to or less than $25.01, the Participation Units shall have no value. If AEPS is greater than $25.01, the basic amount determined based on AROE shall be multiplied by a factor of: 1+[(AEPS-$25.01)/17] (with a maximum factor of 1.33) to arrive at a final total value of each Participation Unit. * * * * * * * Example: If AROE is 18.16% and AEPS is $27.02, each Participation Unit would be worth $18.77. EX-21 3 ZIONS BANCORPORATION AND SUBSIDIARIES 1 EXHIBIT 21 ZIONS BANCORPORATION AND SUBSIDIARIES AT DECEMBER 31, 1996
SUBSIDIARY STATE ---------- ----- Zions First National Bank Federally chartered doing business in Utah Nevada State Bank Nevada National Bank of Arizona Federally chartered doing business in Arizona Cash Access, Inc. Utah Lockhart Realty Company Utah Great Western Financial Corporation Utah Zions Credit Corporation Utah Zions Data Service Company Utah Zions Insurance Agency, Inc. Utah Zions Life Insurance Company Arizona
EX-23 4 CONSENT OF INDEPENDENT AUDITORS 1 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS Zions Bancorporation: We consent to the incorporation by reference in Zions Bancorporation's (i) Registration Statement (Form S-3 No. 33-58801) and related Prospectus pertaining to the Zions Bancorporation Dividend Reinvestment and Common Stock Purchase Plan, (ii) Registration Statement (Form S-8 No. 33-58845) and related Prospectus pertaining to Zions Bancorporation Employee Stock Savings Plan, and (iii) Registration Statement (Form S-8 No. 33-58855) and related Prospectus pertaining to Zions Bancorporation Employee Investment Savings Plan, of our report dated January 16, 1997, relating to the 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, which report appears in this annual report on Form 10-K for the year ended December 31, 1996. Our report refers to changes in accounting principles relating to the adoption of the Financial Accounting Standards Board's Statements of Financial Accounting Standards 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," and No. 122, "Accounting for Mortgage Servicing Rights." The audit referred to in the above-mentioned report also included the related financial schedule entitled Short-term Borrowings, for each of the years in the three-year period ended December 31, 1996, included in Part II, Item 7 on page 42. In our opinion, such financial schedule presents fairly the information required to be set forth therein for each of the years in the three-year period ended December 31, 1996. We also consent to the incorporation by reference in Zions Bancorporation's Registration Statement (Form S-8 No. 33-58845) of Zions Bancorporation Employee Stock Savings Plan of our report dated March 7, 1997, relating to the statements of net assets available for benefits of Zions Bancorporation Employee Stock Savings Plan as of December 31, 1996 and 1995, and the related statements of changes in net assets available for benefits for each of the years in the three-year period ended December 31, 1996, which report appears in this annual report on Form 11-K for the year ended December 31, 1996. We also consent to the incorporation by reference in Zions Bancorporation's Registration Statement (Form S-8 No. 33-58855) of Zions Bancorporation Employee Investment Savings Plan of our report dated March 7, 1997, relating to the statements of net assets available for benefits of Zions Bancorporation Employee Investment Savings Plan as of December 31, 1996 and 1995, and the related statements of changes in net assets available for benefits for each of the years in the three-year period ended December 31, 1996, which report appears in this annual report on Form 11-K for the year ended December 31, 1996. /s/ KPMG Peat Marwick LLP Salt Lake City, Utah March 21, 1997 EX-27 5 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1996 AND THE RELATED CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1996 INCLUDED IN THE COMPANY'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1996 DEC-31-1996 404,331 47,746 565,683 34,076 453,451 1,322,161 1,331,081 3,452,543 69,954 6,484,964 4,552,017 1,017,132 83,082 325,281 0 0 79,791 427,661 6,484,964 308,187 170,771 0 478,958 136,775 218,485 260,473 3,540 123 214,332 153,492 101,350 0 0 101,350 6.84 6.84 4.44 11,526 3,553 857 0 67,555 9,432 5,725 69,954 14,132 0 55,822
EX-99.1 6 ZIONS BANCORPORATION FORM 11-K 1 EXHIBIT 99.1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 11-K ------------------------ ANNUAL REPORT Pursuant to Section 15(d) Of The Securities Exchange Act of 1934 For the Year Ended December 31, 1996 ZIONS BANCORPORATION EMPLOYEE STOCK SAVINGS PLAN ZIONS BANCORPORATION One South Main, Suite 1380 Salt Lake City, Utah 84111 2 ITEM 1. CHANGES IN THE PLAN The Plan was completely amended and restated as of October 1, 1992, with certain provisions retroactively effective as of January 1, 1989. In 1994, the Plan was amended for the purpose of maintaining its qualification under the Internal Revenue Code pursuant to the Tax Reform Act of 1986 and, in order to conform the Plan to the requirements of the Unemployment Compensation Act of 1992 and the Omnibus Budget Reconciliation Act of 1993. No changes were made in the Plan during the year 1996. ITEM 2. CHANGES IN INVESTMENT POLICY No material changes were made during the fiscal year in the policy with respect to the kind of securities and other investments in which funds held under the plan may be invested. ITEM 3. CONTRIBUTIONS UNDER THE PLAN The Company's contributions are measured by reference to employee contributions and are not discretionary. ITEM 4. PARTICIPATING EMPLOYEES There were 1,930 participating employees in the Plan on December 31, 1996. ITEM 5. ADMINISTRATION OF THE PLAN (a) Zions Bancorporation is the Plan administrator. The Company's Board of Directors has appointed an Administrative Committee consisting of seven persons. The Committee has full power and authority to administer the Plan and to interpret its provisions. The present members of the Committee and their positions held are:
Member Position - Company ----------------------- ----------------------------------------------- Clark B. Hinckley, Senior Vice President of Zions Bancorporation Chairman Harris H. Simmons President and Chief Executive Officer of Zions Bancorporation Dale M. Gibbons Senior Vice President of Zions Bancorporation Peter K. Ellison Executive Vice President of Zions First National Bank W. David Hemingway Executive Vice President of Zions First National Bank Richard G. Crandall Vice President of Zions First National Bank Russell W. Miller President of Zions Insurance Agency, Inc.
The address of each fiduciary listed above is One South Main, Suite 1380, Salt Lake City, Utah 84111. (b) No compensation is paid to the Committee members by the Plan. All expenses of the Plan and its administration are paid by the Company. 3 ITEM 6. CUSTODIAN OF INVESTMENTS (a) Zions First National Bank, One South Main, Salt Lake City, Utah 84111 is the custodian and trustee. (b) The custodian and trustee receive no compensation from the Plan. ITEM 7. REPORTS TO PARTICIPATING EMPLOYEES Participating employees are furnished an annual statement reflecting the status of their accounts as of the end of the fiscal year. ITEM 8. INVESTMENT OF FUNDS Substantially all of the assets of the Plan are invested in securities of the Company. ITEM 9. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements Report of Independent Auditors Statements of Net Assets Available for Benefits - December 31, 1996 and 1995 Statements of Changes in Net Assets Available for Benefits - Years ended December 31, 1996, 1995, and 1994 Notes to Financial Statements Schedules - Schedules I, II, and III have been omitted for the reasons that they are not required or are not applicable, or the required information is shown in the financial statements or notes thereto. (b) Exhibits - None 4 Independent Auditors' Report The Trust Committee Zions Bancorporation Employee Stock Savings Plan: We have audited the accompanying statements of net assets available for benefits of Zions Bancorporation Employee Stock Savings Plan as of December 31, 1996 and 1995, and the related statements of changes in net assets available for benefits for each of the years in the three-year period ended December 31, 1996. These financial statements are the responsibility of the plan administrator. Our responsibility is to express an opinion on these 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 the plan administrator, 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 financial statements referred to above present fairly, in all material respects, the net assets available for benefits of Zions Bancorporation Employee Stock Savings Plan as of December 31, 1996 and 1995, and the changes in net assets available for benefits for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedules of Assets Held for Investment Purposes and Reportable Transactions for the year ended December 31, 1996, are presented for the purpose of additional analysis and are not a required part of the basic financial statements, but are supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplemental schedules have been subjected to the auditing procedures applied in the audit of the basic 1996 financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. KPMG Peat Marwick LLP Salt Lake City, Utah March 7, 1997 5 ZIONS BANCORPORATION EMPLOYEE STOCK SAVINGS PLAN Statements of Net Assets Available for Benefits December 31, 1996 and 1995
1996 1995 -------------- -------------- Assets: Cash $ -- 8,206 Investments, at market value: Zions Bancorporation common stock (approximate cost of $13,775,899 in 1996 and $10,229,000 in 1995) 34,433,048 24,271,693 Short-term investments 99,353 20,783 -------------- -------------- 34,532,401 24,292,476 Contributions receivable: Employees 19,840 79,972 Zions Bancorporation 12,542 39,986 Dividends receivable -- 124,005 Interest receivable 243 379 -------------- -------------- Total assets 34,565,026 24,545,024 -------------- -------------- Liabilities: Excess contribution refunds 50,622 68,272 -------------- -------------- Total liabilities 50,622 68,272 -------------- -------------- Net assets available for benefits $ 34,514,404 24,476,752 ============== ==============
See accompanying notes to financial statements. 6 ZIONS BANCORPORATION EMPLOYEE STOCK SAVINGS PLAN Statements of Changes in Net Assets Available for Benefits Years ended December 31, 1996, 1995, and 1994
1996 1995 1994 ------------- ------------- ------------- Additions to net assets attributed to: Net appreciation (depreciation) in market value of investment in Zions Bancorporation common stock $ 7,966,631 13,215,084 (410,576) Dividends 389,789 410,080 294,770 Interest 3,979 5,239 3,343 ------------- ------------- ------------- 8,360,399 13,630,403 (112,463) ------------- ------------- ------------- Contributions: Employees 2,674,067 2,191,527 1,964,913 Zions Bancorporation 1,295,816 1,062,640 982,463 ------------- ------------- ------------- 3,969,883 3,254,167 2,947,376 ------------- ------------- ------------- Total additions 12,330,282 16,884,570 2,834,913 Deductions from net assets attributed to: Benefits paid directly to participants 2,109,580 2,620,037 845,885 Rollover to affiliated plan 183,050 -- -- ------------- ------------- ------------- Net increase 10,037,652 14,264,533 1,989,028 Net assets available for benefits: Beginning of year 24,476,752 10,212,219 8,223,191 ============= ============= ============= End of year $ 34,514,404 24,476,752 10,212,219 ============= ============= =============
See accompanying notes to financial statements. 7 ZIONS BANCORPORATION EMPLOYEE STOCK SAVINGS PLAN Notes to Financial Statements December 31, 1996, 1995, and 1994 (1) Description of the Plan Zions Bancorporation Employee Stock Savings Plan (the Plan) is a single employer contributory plan that is designed to provide retirement benefits for eligible employees under either a pre-tax or post-tax salary reduction arrangement by offering employees an opportunity to acquire stock ownership in Zions Bancorporation (the Company). The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). (2) Summary of Significant Accounting Policies The following is a summary of significant accounting policies followed by the Plan in the preparation of its financial statements: (a) Basis of Presentation The Plan's financial statements are presented on the accrual basis of accounting. In preparing the financial statements, the Company is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statement of net assets available for benefits and additions to and deductions from net assets for the period. Actual results could differ from those estimates. Certain amounts in prior years' financial statements have been reclassified to conform to the 1996 presentation. (b) Investments The investment in common stock of the Company is carried at market value in the accompanying financial statements. The investment in the short-term investment fund represents a cash equivalent. Purchases and sales of investments are recorded on a settlement-date basis which does not materially differ from using the trade-date basis required by generally accepted accounting principles. (c) Costs of Administration All costs of administration are absorbed by the Company. (3) Eligibility Participation in the Plan is voluntary. An employee is eligible to participate on January 1, or July 1, whichever coincides with, or immediately follows, the latter of the date on which the employee completes at least 1,000 hours of service during 12 continuous months and attains the age of 21. As of December 31, 1996 and 1995, there were 1,930 and 1,676 participants, respectively, in the Plan. 8 2 ZIONS BANCORPORATION EMPLOYEE STOCK SAVINGS PLAN Notes to Financial Statements (4) Employee and Company Contributions Each eligible employee who elects to participate makes contributions ranging from one to five percent of their total compensation. Company contributions are equal to 50 percent of the amount contributed by the employee. The maximum amount a participant may contribute to the Plan in a calendar year, in conjunction with the Employee Investment Savings Plan, is $9,500 for 1996. (5) Allocation of Income or Loss Net appreciation (depreciation) in market value of investments, dividends, and interest income are allocated to each participant's account in proportion to the investment shares held in that participant's account to the total of investment shares held in the Plan. (6) Vesting and Payment of Benefits Employee contributions and the employees' share of the Company contributions are 100 percent vested at all times. Benefits are paid upon death, disability, retirement, or earlier subject to certain restrictions. Benefits are paid in shares of stock. (7) Income Taxes The Plan obtained its latest determination letter on June 5, 1996, in which the Internal Revenue Service (IRS) stated that the Plan, as then designed, was in compliance with the applicable requirements of the Internal Revenue Code. The Plan has not been amended since receiving the determination letter. (8) Investment At December 31, 1996 and 1995, investment in common stock of the Company consisted of 331,087 and 302,451 shares, respectively. (9) Plan Amendments The Plan became effective on January 1, 1978, and has been amended and restated at various times thereafter. The Plan was completely amended and restated as of October 1, 1992. In addition, the Plan was amended in 1994 to include employees from recently acquired National Bank of Arizona and Rio Salado Bancorp. The following summarizes the Plan's amended areas: (a) Participant Contributions Participants can elect either a pre-tax or post-tax salary reduction of from one to a maximum of five percent of total compensation as a participant contribution. (b) Company Contributions Matching contributions are made by the Company on behalf of each participant in the amount of fifty percent of the participant's contributions. 9 3 ZIONS BANCORPORATION EMPLOYEE STOCK SAVINGS PLAN Line 27a - Schedule of Assets Held for Investment Purposes December 31, 1996
Shares/ Approxi- Market Units held Description mate cost value ---------- ----------- ------------- ----------- 331,087 Zions Bancorporation common stock $ 13,775,899 34,433,048 99,353 Short-term investments 99,353 99,353
10 4 ZIONS BANCORPORATION EMPLOYEE STOCK SAVINGS PLAN Line 27d - Schedule of Reportable Transactions Year ended December 31, 1996
Shares purchased Cost --------- ------------ Purchase of investments- Zions Bancorporation common stock 58,291 $4,619,020
Shares Market distributed Cost (1) value ----------- --------- --------- Distribution of investments- Zions Bancorporation common stock 25,609 $ 852,739 2,111,036
(1) Cost determined using the average-cost method applied on a participant-by-participant basis. EX-99.2 7 ZIONS BANCORPORATION FORM 11-K 1 EXHIBIT 99.2 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------------- FORM 11-K ----------------------- ANNUAL REPORT Pursuant to Section 15(d) Of The Securities Exchange Act of 1934 For the Year Ended December 31, 1996 ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN ZIONS BANCORPORATION One South Main, Suite 1380 Salt Lake City, Utah 84111 2 ITEM 1. CHANGES IN THE PLAN The Plan was completely amended and restated as of October 1, 1992, with certain provisions retroactively effective as of January 1, 1989. In 1994, the Plan was amended for the purpose of maintaining its qualification under Internal Revenue Code pursuant to the Tax Reform Act of 1986 and, in order to conform the Plan to the requirements of the Unemployment Compensation Act of 1992 and the Omnibus Budget Reconciliation Act of 1993 and to facilitate the merger of the National Bank of Arizona Savings and Retirement Plan and the Rio Salado Bancorp. Inc. Retirement Plan into the Plan. No changes were made in the Plan during the year 1996. ITEM 2. CHANGES IN INVESTMENT POLICY The Plan maintains four separate types of investment funds: (i) company securities, which consists of Company stock and short-term investments pending the acquisition of Company securities; (ii) Fidelity mutual fund, which invests primarily in a diversified portfolio of U.S. common stocks, which are invested to track closely with the Standard and Poors 500 index; (iii) money market fund, which consists of, but is not limited to, certificates of deposit, commercial paper, and U.S. Treasury bills; and (iv) fixed income fund, which invests primarily in government, mortgage, and corporate bonds. No material changes were made during the year 1996 in the policy with respect to the kind of securities and other investments in which funds held under the Plan may be invested. ITEM 3. CONTRIBUTIONS UNDER THE PLAN The Company's contributions are measured by reference to employee contributions and are not discretionary. ITEM 4. PARTICIPATING EMPLOYEES There were 1,647 participating employees in the Plan on December 31, 1996. ITEM 5. ADMINISTRATION OF THE PLAN (a) Zions Bancorporation is the Plan administrator. The Company's Board of Directors has appointed an Administrative Committee consisting of six persons. The Committee has full power and authority to administer the Plan and to interpret its provisions. The present members of the Committee and their positions held are:
Member Position - Company ------------------------ ------------------------------------------------ Clark B. Hinckley, Senior Vice President of Zions Bancorporation Chairman Harris H. Simmons President and Chief Executive Officer of Zions Bancorporation Dale M. Gibbons Senior Vice President of Zions Bancorporation Peter K. Ellison Executive Vice President of Zions First National Bank W. David Hemingway Executive Vice President of Zions First National Bank Richard G. Crandall Vice President of Zions First National Bank Russell W. Miller President of Zions Insurance Agency, Inc.
The address of each fiduciary listed above is One South Main, Suite 1380, Salt Lake City, Utah 84111. (b) No compensation is paid to the Committee members by the Plan. All expenses of the Plan and its administration are paid by the Company. 3 ITEM 6. CUSTODIAN OF INVESTMENTS (a) Zions First National Bank, One South Main, Suite 1380, Salt Lake City, Utah 84111 is the custodian and trustee. (b) The custodian and trustee receive no compensation from the Plan. ITEM 7. REPORTS TO PARTICIPATING EMPLOYEES Participating employees are furnished an annual statement reflecting the status of their accounts as of the end of the fiscal year. ITEM 8. INVESTMENT OF FUNDS As elected by participants, approximately seventy-seven percent of the assets of the Plan are invested in securities of the Company, approximately thirteen percent in the Fidelity mutual fund, approximately eight percent in the money market fund, and approximately two percent invested in the fixed income fund. ITEM 9. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements Report of Independent Auditors Statements of Net Assets Available for Benefits - December 31, 1996 and 1995 Statements of Changes in Net Assets Available for Benefits - Years ended December 31, 1996, 1995, and 1994 Notes to Financial Statements Schedules - Schedules I, II, and III have been omitted for the reasons that they are not required or are not applicable, or the required information is shown in the financial statements or notes thereto. (b) Exhibits - None 4 Independent Auditors' Report The Trust Committee Zions Bancorporation Employee Investment Savings Plan: We have audited the accompanying statements of net assets available for benefits of Zions Bancorporation Employee Investment Savings Plan as of December 31, 1996 and 1995, and the related statements of changes in net assets available for benefits for each of the years in the three-year period ended December 31, 1996. These financial statements are the responsibility of the plan administrator. Our responsibility is to express an opinion on these 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 the plan administrator, 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 financial statements referred to above present fairly, in all material respects, the net assets available for benefits of Zions Bancorporation Employee Investment Savings Plan as of December 31, 1996 and 1995, and the changes in net assets available for benefits for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedules of Assets Held For Investment Purposes and Reportable Transactions for the year ended December 31, 1996, are presented for the purpose of additional analysis and are not a required part of the basic financial statements but are supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplemental schedules have been subjected to the auditing procedures applied in the audit of the basic 1996 financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. KPMG Peat Marwick LLP Salt Lake City, Utah March 7, 1997 5 ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN Statements of Net Assets Available for Benefits December 31, 1996 and 1995
1996 1995 -------------- -------------- Assets: Cash $ 23,258 4,141 Investments, at market value: Zions Bancorporation common stock (approximate cost $12,542,694 in 1996 and $11,002,757 in 1995) 48,439,248 37,962,263 Fidelity mutual fund (approximate cost of $8,098,504 in 1996 and $6,069,309 in 1995) 8,316,142 6,699,731 Money market fund 4,682,245 4,348,941 Fixed income fund (approximate cost of $1,078,544 in 1996 and $1,092,604 in 1995) 1,067,450 1,099,843 Short-term investments 58,356 15,875 -------------- -------------- 62,563,441 50,126,653 Contributions receivable: Employees 18,581 57,845 Zions Bancorporation 3,883 12,172 Participant loans receivable 1,366,918 1,357,794 Dividends receivable 647,356 193,950 Interest receivable 20,340 18,357 Due from Zions Bancorporation -- 2,439 -------------- -------------- Total assets 64,643,777 51,773,351 Liabilities: Accounts payable -- 1,118 Excess contribution refunds 145,645 140,969 -------------- -------------- Total liabilities 145,645 142,087 -------------- -------------- Net assets available for benefits $ 64,498,132 51,631,264 ============== ==============
See accompanying notes to financial statements. 6 ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN Statements of Changes in Net Assets Available for Benefits Years ended December 31, 1996, 1995, and 1994
1996 1995 1994 ------------- ------------- ------------- Additions to net assets attributed to: Investment income: Net appreciation (depreciation) in market value of investments $ 11,544,479 22,676,536 (718,781) Dividends 732,045 826,171 692,270 Capital gain distributions 560,791 645,849 121,543 Interest 361,768 312,332 244,470 ------------- ------------- ------------- 13,199,083 24,460,888 339,502 ------------- ------------- ------------- Contributions: Employees 2,049,269 1,639,255 1,614,117 Zions Bancorporation 430,015 341,868 336,444 Plan rollovers: Nonaffiliated plans 342,799 1,050,327 368,721 Affiliated plan 183,050 -- -- ------------- ------------- ------------- 3,005,133 3,031,450 2,319,282 ------------- ------------- ------------- Total additions 16,204,216 27,492,338 2,658,784 Deductions from net assets attributed to benefits paid directly to participants 3,337,348 4,562,431 1,802,449 ------------- ------------- ------------- Net increase 12,866,868 22,929,907 856,335 Net assets available for benefits: Beginning of year 51,631,264 28,701,357 27,845,022 ------------- ------------- ------------- End of year $ 64,498,132 51,631,264 28,701,357 ============= ============= =============
See accompanying notes to financial statements. 7 ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN Notes to Financial Statements December 31, 1996, 1995, and 1994 (1) Description of the Plan Zions Bancorporation Employee Investment Savings Plan (the Plan) is a single employer contributory plan that is designed to provide retirement benefits for eligible employees under a pretax salary reduction (deferral) arrangement and, if employees so elect, an opportunity to acquire stock ownership in Zions Bancorporation (the Company). The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). (2) Summary of Significant Accounting Policies The following is a summary of significant accounting policies followed by the Plan in the preparation of its financial statements: (a) Basis of Presentation The Plan's financial statements are presented on the accrual basis of accounting. In preparing the financial statements, the Company is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the statement of net assets available for benefits and additions to and deductions from net assets for the period. Actual results could differ from those estimates. Certain amounts in prior years financial statements have been reclassified to conform to the 1996 presentation. (b) Investments Investments in common stock of Zions Bancorporation, Fidelity mutual fund, and fixed income fund shares are carried at market value in the accompanying financial statements. The investments in the money market fund and short-term investments represent cash equivalents. Purchases and sales of investments are recorded on a settlement-date basis which does not materially differ from using the trade-date basis required by generally accepted accounting principles. (c) Cost of Administration All costs of administration are absorbed by the Company. (3) Eligibility Participation in the Plan is voluntary. An employee is eligible to become a participant on January 1 or July 1, whichever coincides with, or immediately follows, the latter of the date on which the employee completes at least 1,000 hours of service during 12 continuous months and attains the age of 21. At December 31, 1996 and 1995, there were 1,647 and 1,687 participants, respectively, in the Plan. 8 2 ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN Notes to Financial Statements (4) Employee and Company Contributions Participants may elect to contribute one to fifteen percent of their compensation to the Employee Investment Savings Plan, limited by participant contributions made to the Zions Bancorporation Employee Stock Savings Plan. The contributions are invested in one or more of the following investment options: (i) the Company's stock, (ii) the Fidelity mutual fund, (iii) a money market fund, and (iv) a fixed income fund. The Company contributes an amount equal to 25 percent of the contribution made by each participant up to ten percent of their compensation with no match made on contributions in excess thereof. The maximum amount a participant may contribute to the Plan in a calendar year is the lesser of fifteen percent of their compensation, or $9,500 for 1996. (5) Allocation of Income or Loss Net appreciation (depreciation) in market value of investments, dividends, interest income, and capital gains are allocated to each participant's account in proportion to the investment shares held in that participant's account to the total investment shares held in the Plan. (6) Vesting and Payment of Benefits Employee contributions and the employees' share of the Company contributions are 100 percent vested at all times. Benefits are paid upon death, disability, retirement, or earlier, subject to certain restrictions. Benefits are paid in shares of stock and/or cash pursuant to the nature of the investment vehicle selected by the participant. (7) Income Taxes The Plan obtained its latest determination letter on June 5, 1996, in which the Internal Revenue Service (IRS) stated that the Plan, as then designed, was in compliance with the applicable requirements of the Internal Revenue Code. The Plan has not been amended since receiving the determination letter. (8) Investments The investments in common stock of the Company and the Fidelity mutual fund, consist of 465,762 and 473,050 shares and 377,320 and 324,599 shares at December 31, 1996 and 1995, respectively. The investment in the fixed income fund consists of 50,855 and 50,942 shares at December 31, 1996 and 1995, respectively. The net appreciation (depreciation) in market value for each of the years in the three-year period ended December 31, 1996, in comparison to the market value at the beginning of each year is as follows:
Investment 1996 1995 1994 -------------- -------------- -------------- Zions Bancorporation common stock $ 11,090,943 21,983,923 (601,351) Fidelity mutual fund 478,254 625,633 (56,687) Fixed income fund (24,718) 66,980 (60,743) -------------- -------------- -------------- Net appreciation (depreciation) in market value $ 11,544,479 22,676,536 (718,781) ============== ============== ==============
9 3 ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN (9) Plan Amendments The Plan became effective on January 1, 1984, and has been amended and restated at various times thereafter. The Plan was completely amended and restated as of October 1, 1992. In addition, the Plan was amended in 1994 to include employees from recently acquired National Bank of Arizona and Rio Salado Bancorp. Amendment provisions include the following: (a) Participant Contributions Participants can elect a pretax reduction from one percent to a maximum of fifteen percent of total compensation as a participant contribution, depending in part on the extent to which the participant contributes to the Zions Bancorporation Employee Stock Savings Plan. (b) Company Contributions Matching contributions are made by the Company on behalf of each participant in the amount of 25 percent of participant contributions (note 4), but not in excess of ten percent of compensation. (c) Participant Elections Participants may change quarterly investment elections for funds already invested in their accounts. (d) Investment Options The Plan maintains four separate types of investment funds: (i) company securities, which consists of Company stock; (ii) Fidelity mutual fund, which invests primarily in a diversified portfolio of U.S. common stocks, which are invested to track closely with the Standard and Poors 500 index; (iii) money market fund, which consists of, but is not limited to, certificates of deposit, commercial paper, and U.S. treasury bills; and (iv) fixed income fund, which invests primarily in government, mortgage, and corporate bonds. (e) Participant Loans Beginning October 1, 1992, a participant who is an active employee may apply for and obtain a loan of up to 50 percent of the eligible amounts in their account. Loan terms may not exceed five years and must be secured by the participant's account. Loan repayment is made through payroll deduction. 10 4 ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN Notes to Financial Statements (10) Financial Information by Fund Type Financial information by fund type as of, December 31, 1996 and 1995, and for each of the years in the three-year period ended December 31, 1996 are as follows: Statement of Net Assets Available for Benefits by Fund Type December 31, 1996
Zions Bancorp- Partici- oration Fidelity Money Fixed pant common stock mutual fund market income loans Total ----------- ----------- ----------- ----------- ----------- ----------- Assets: Cash $ 20,157 -- -- -- 3,101 23,258 Investments, at market value: Zions Bancorporation common stock 48,439,248 -- -- -- -- 48,439,248 Fidelity mutual fund -- 8,316,142 -- -- -- 8,316,142 Money market fund -- -- 4,682,245 -- -- 4,682,245 Fixed income fund -- -- -- 1,067,450 -- 1,067,450 Short-term investments 33,112 23,166 -- 2,078 -- 58,356 ----------- ----------- ----------- ----------- ----------- ----------- 48,472,360 8,339,308 4,682,245 1,069,528 3,101 62,563,441 Contributions receivable: Employees 5,442 8,986 2,195 1,958 -- 18,581 Zions Bancorporation 1,112 1,911 508 352 -- 3,883 Participant loans receivable -- -- -- -- 1,366,918 1,366,918 Dividends receivable -- 647,356 -- -- -- 647,356 Interest receivable 86 127 20,098 29 -- 20,340 ----------- ----------- ----------- ----------- ----------- ----------- Total assets 48,499,157 8,997,688 4,705,046 1,071,867 1,370,019 64,643,777 Liabilities: Excess contribution refunds 54,658 59,471 24,887 6,629 -- 145,645 ----------- ----------- ----------- ----------- ----------- ----------- Total liabilities 54,658 59,471 24,887 6,629 -- 145,645 ----------- ----------- ----------- ----------- ----------- ----------- Net assets available for benefits $48,444,499 8,938,217 4,680,159 1,065,238 1,370,019 64,498,132 =========== =========== =========== =========== =========== ===========
11 5 ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN Notes to Financial Statements (10) Financial Information by Fund Type (continued) Statement of Net Assets Available for Benefits by Fund Type December 31, 1995
Zions Bancorp- ration Partici- common Fidelity Money Fixed pant stock mutual fund market income loans Total ------------ ------------- ------------- ----------- ----------- ------------ Assets: Cash $ 1,110 1,785 1,246 - - 4,141 Investments, at market value: Zions Bancorporation common stock 37,962,263 - - - - 37,962,263 Fidelity mutual fund - 6,699,731 - - - 6,699,731 Money market fund - - 4,348,941 - - 4,348,941 Fixed income fund - - - 1,099,843 - 1,099,843 Short-term investments 15,875 - - - - 15,875 ------------ ------------- ------------- ----------- ----------- ------------ 37,978,138 6,699,731 4,348,941 1,099,843 - 50,126,653 Contributions receivable: Employees 22,448 25,300 7,244 2,853 - 57,845 Zions Bancorporation 4,619 5,356 1,647 550 - 12,172 Participant loans receivable 16,960 2,634 4,451 1,238 1,332,511 1,357,794 Dividends receivable 193,950 - - - - 193,950 Interest receivable 126 45 18,164 22 - 18,357 Due from Zions Bancorporation - - - 2,439 - 2,439 ------------ ------------- ------------- ----------- ----------- ------------ Total assets 38,217,351 6,734,851 4,381,693 1,106,945 1,332,511 51,773,351 Liabilities: Accounts payable - - - 1,118 - 1,118 Excess contribution refunds 50,567 67,562 11,975 10,865 - 140,969 ------------ ------------- ------------- ----------- ----------- ------------ Total liabilities 50,567 67,562 11,975 11,983 - 142,087 ------------ ------------- ------------- ----------- ----------- ------------ Net assets available for benefits $ 38,166,784 6,667,289 4,369,718 1,094,962 1,332,511 51,631,264 ============ ============= ============= =========== =========== ============
12 6 ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN Notes to Financial Statements (10) Financial Information by Fund Type (continued) Statement of Changes in Net Assets Available for Benefits by Fund Type Year ended December 31, 1996
Zions Bancorp- oration Fidelity Partici- common mutual Money Fixed pant stock fund market income loans Total ------------- ------------ ------------ ----------- ----------- ------------- Additions to net assets attributed to: Investment income: Net appreciation in (depreciation) market value of investments $11,090,943 478,254 - (24,718) - 11,544,479 Dividends 581,303 75,331 - 75,411 - 732,045 Capital gain distributions - 560,791 - - - 560,791 Interest 1,972 1,695 222,032 456 135,613 361,768 ------------- ------------ ------------ ----------- ----------- ------------- 11,674,218 1,116,071 222,032 51,149 135,613 13,199,083 ------------- ------------ ------------ ----------- ----------- ------------- Contributions: Employees 829,922 898,971 220,000 100,376 - 2,049,269 Zions Bancorporation 172,015 188,689 51,176 18,135 - 430,015 Plan rollovers 250,017 80,839 15,152 179,841 - 525,849 ------------- ------------ ------------ ----------- ----------- ------------- 1,251,954 1,168,499 286,328 298,352 - 3,005,133 ------------- ------------ ------------ ----------- ----------- ------------- Principal loan payments 462,897 119,887 131,170 25,426 (739,380) - ------------- ------------ ------------ ----------- ----------- ------------- Total additions 13,389,069 2,404,457 639,530 374,927 (603,767) 16,204,216 Deductions from net assets attributed to: Benefits paid directly to participants 2,332,669 453,309 317,861 137,634 95,875 3,337,348 Loans disbursed 465,087 179,736 81,083 11,244 (737,150) - ------------- ------------ ------------ ----------- ----------- ------------- Total deductions 2,797,756 633,045 398,944 148,878 (641,275) 3,337,348 ------------- ------------ ------------ ----------- ----------- -------------
13 7 ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN Notes to Financial Statements (10) Financial Information by Fund Type (continued)
Zions Bancorp- oration Fidelity Partici- common mutual Money Fixed pant stock fund market income loans Total ------------- ------------ ------------ ----------- ----------- ------------- Interfund transfers $ (313,598) 499,516 69,855 (255,773) - - ------------- ------------ ------------ ----------- ----------- ------------- Net increase (decrease) 10,277,715 2,270,928 310,441 (29,724) 37,508 12,866,868 Net assets available for benefits: Beginning of year 38,166,784 6,667,289 4,369,718 1,094,962 1,332,511 51,631,264 ============= ============ ============ =========== =========== ============= End of year $48,444,499 8,938,217 4,680,159 1,065,238 1,370,019 64,498,132 ============= ============ ============ =========== =========== =============
14 8 ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN Notes to Financial Statements (10) Financial Information by Fund Type (continued) Statement of Changes in Net Assets Available for Benefits by Fund Type Year ended December 31, 1995
Zions Bancorp- oration Partici- common Fidelity Money Fixed pant stock mutual fund market income loans Total ------------- ------------ ------------ ---------- ------------ ------------ Additions to net assets attributed to: Investment income: Net appreciation in market value of investments $ 21,983,923 625,633 - 66,980 - 22,676,536 Dividends 690,743 83,833 - 51,595 - 826,171 Capital gain distributions - 645,183 - 666 - 645,849 Interest 70,994 12,278 226,088 2,972 - 312,332 ----------- ---------- ---------- -------- --------- ----------- 22,745,660 1,366,927 226,088 122,213 - 24,460,888 ----------- ---------- ---------- -------- --------- ----------- Contributions: Employees 630,280 698,809 231,990 78,176 - 1,639,255 Zions Bancorporation 126,185 148,775 54,166 12,742 - 341,868 Plan rollovers 598,919 164,479 260,825 26,104 - 1,050,327 ----------- ---------- ---------- -------- --------- ----------- 1,355,384 1,012,063 546,981 117,022 - 3,031,450 ----------- ---------- ---------- -------- --------- ----------- Principal loan payments 527,843 60,499 96,658 10,522 (695,522) - ----------- ---------- ---------- -------- --------- ----------- Total additions 24,628,887 2,439,489 869,727 249,757 (695,522) 27,492,338 Deductions from net assets attributed to: Benefits paid directly to 2,793,649 787,468 846,207 135,107 - 4,562,431 participants Loans disbursed 327,738 135,213 126,318 12,750 (602,019) - ----------- ---------- ---------- -------- --------- ----------- Total deductions 3,121,387 922,681 972,525 147,857 (602,019) 4,562,431 ----------- ---------- ---------- -------- --------- -----------
15 9 ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN Notes to Financial Statements (10) Financial Information by Fund Type (continued)
Zions Bancorp- oration Fidelity Partici- common mutual Money Fixed pant stock fund market income loans Total ------------ ---------- ---------- --------- --------- ----------- Interfund transfers $ 1,984,548 (762,242) (839,181) (383,125) - - ------------ --------- --------- --------- --------- ----------- Net increase (decrease) 19,522,952 2,279,050 736,383 485,025 (93,503) 22,929,907 Net assets available for benefits: Beginning of year 18,643,832 4,388,239 3,633,335 609,937 1,426,014 28,701,357 ============ ========= ========= ========= ========= =========== End of year $ 38,166,784 6,667,289 4,369,718 1,094,962 1,332,511 51,631,264 ============ ========= ========= ========= ========= ===========
16 10 ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN Notes to Financial Statements (10) Financial Information by Fund Type (continued) Statement of Changes in Net Assets Available for Benefits by Fund Type Year ended December 31, 1994
Zions Bancorp- oration Fidelity Partici- common mutual Money Fixed pant stock fund market income loans Total ------------- ------------ ------------ ---------- ----------- ------------- Additions to net assets attributed to: Investment income: Net depreciation in market value of investments $ (601,351) (56,643) - (60,787) - (718,781) Dividends 593,018 57,136 - 42,116 - 692,270 Capital gain distributions - 120,212 - 1,331 - 121,543 Interest 68,982 9,197 164,795 1,496 - 244,470 ---------- --------- ------- ------- -------- --------- 60,649 129,902 164,795 (15,844) - 339,502 ---------- --------- ------- ------- -------- --------- Contributions: Employees 593,429 680,345 270,190 70,153 - 1,614,117 Zions Bancorporation 115,064 147,082 62,914 11,384 - 336,444 Plan rollovers 175,680 66,006 103,216 23,819 - 368,721 ---------- --------- ------- ------- -------- --------- 884,173 893,433 436,320 105,356 - 2,319,282 ---------- --------- ------- ------- -------- --------- Principal loan payments 313,442 34,364 65,872 2,042 (415,720) - ---------- --------- ------- ------- -------- --------- Total additions 1,258,264 1,057,699 666,987 91,554 (415,720) 2,658,784 Deductions from net assets attributed to: Benefits paid directly to participants 1,139,005 276,006 341,951 45,487 - 1,802,449 Loans disbursed 335,345 20,480 112,062 32,624 (500,511) - ---------- ---------- ------- ------- -------- --------- Total deductions 1,474,350 296,486 454,013 78,111 (500,511) 1,802,449 ---------- ---------- ------- ------- -------- ---------
17 11 ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN Notes to Financial Statements (10) Financial Information by Fund Type (continued)
Zions Bancorp- oration Fidelity Partici- common mutual Money market Fixed pant stock fund income loans Total ------------- ------------ ------------ ---------- ----------- ------------- Interfund transfers $ 108,654 (101,433) 64,079 (71,300) - - ----------- -------- --------- -------- --------- ---------- Net increase (decrease) (324,740) 862,646 148,895 84,743 84,791 856,335 Net assets available for benefits: Beginning of year 18,968,572 3,525,593 3,484,440 525,194 1,341,223 27,845,022 =========== ========= ========= ======== ========= ========== End of year $18,643,832 4,388,239 3,633,335 609,937 1,426,014 28,701,357 =========== ========= ========= ======== ========= ==========
18 12 ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN Line 27a - Schedule of Assets Held for Investment Purposes December 31, 1996
Shares/ Approxi- Market Units held Description mate cost value - ------------- -------------------------------------------------------------- -------------- ----------- 465,762 Zions Bancorporation common stock $12,542,694 48,439,248 377,320 Fidelity mutual fund 8,098,504 8,316,142 50,855 Fixed income fund 1,078,544 1,067,450 ----------- ---------- 21,719,742 57,822,840 ----------- ---------- Money market fund 4,682,245 4,682,245 Short-term investments 58,356 58,356 ----------- ---------- 4,740,601 4,740,601 ----------- ----------
19 13 ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN Line 27d - Schedule of Reportable Transactions Year ended December 31, 1996
Shares purchased Cost -------------- ------------- Purchase of investments- Zions Bancorporation common stock 32,662 $ 2,609,794
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