-----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, F4w3jKlTaftwY6GqSOQ9motzh67rHhLO3frkqH9t44kT88T1NRL6b3Jp4VEhAFQM 031zZJojhtQmT8xtON/V+A== 0000950149-98-000522.txt : 19980330 0000950149-98-000522.hdr.sgml : 19980330 ACCESSION NUMBER: 0000950149-98-000522 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980327 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: SEC FILE NUMBER: 000-02610 FILM NUMBER: 98575965 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 STREET 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 FORM 10-K FOR ZIONS BANCORPORATION 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, 1997 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 27, 1998..............................................................$2,447,725,000 Number of Common Shares Outstanding at February 27, 1998 ......69,053,648 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 1997 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 14 Item 6. Selected Consolidated Financial Data 15 Item 7. Management's Discussion and Analysis of Financial Condition and Results of 16 Operations Item 8. Financial Statements and Supplementary Data 55 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial 93 Disclosure PART III Item 10. Directors and Executive Officers of the Registrant 93 Item 11. Executive Compensation 93 Item 12. Security Ownership of Certain Beneficial Owners and Management 93 Item 13. Certain Relationships and Related Transactions 93 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 93
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. In 1997, the Company achieved a significant expansion of commercial banking operations in Utah, Nevada, and Arizona, and expanded its franchise by adding banking operations in Colorado, New Mexico, Idaho and California. Its principal subsidiaries are banking subsidiaries which include Zions First National Bank, the second largest commercial banking organization in the state of Utah; Nevada State Bank, the fifth largest commercial bank in Nevada; and National Bank of Arizona, the fifth largest commercial bank in Arizona. Acquisitions consisted of Aspen Bancshares and its affiliate banks with branches in Colorado and New Mexico; Tri-State Bank in Idaho, which was merged into Zions First National Bank; 31 Wells Fargo branches in Utah, Idaho, Arizona and Nevada; Sun State Bank in Nevada merged into Nevada State Bank; Grossmont Bank in San Diego, California; and the public finance firms of Howarth & Associates in Nevada and Kelling, Northcross and Nobriga, Inc. in California. The Company has focused in recent years on maintaining strong liquidity, strong risk-based capital 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 and 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 its broadened seven western state primary market area through acquisitions and through the continued development of the Company's present lines of business by providing new products and services through the 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, 1997, the Company had assets of $9.5 billion, loans of $4.9 billion, deposits of $6.9 billion, and shareholders' equity of approximately $.7 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 1 4 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. Home banking products are available on the VISA(R) platform, using Quicken(R), Microsoft Money(R) and Macintosh(R) personal financial management software programs, and over the internet 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. Zions First National Bank is a primary dealer in United States Treasury Securities. Zions is a major underwriter and distributor of municipal securities, federal agency 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 Bloomberg and the internet. Zions also 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 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. Zions' banking subsidiaries, however, do not engage in any foreign lending. Zions First National Bank, Nevada State Bank and National Bank of Arizona have established trust divisions. Clients in Utah, Nevada, Arizona and Colorado are offered 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 Zions First National Bank and subsidiaries of the Parent. Zions Mortgage Company, a subsidiary of Zions First National Bank, conducts a mortgage banking operation in Utah, Nevada and Arizona. Zions Credit Corporation, a subsidiary of Zions First National Bank, engages in lease origination and servicing operations primarily 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 branch offices provide customers with a wide range of investment products, including municipal bond, mutual funds and tax-deferred annuities. Zions First National Bank's Small Business Investment Corporation, Wasatch Venture Corporation, provides early-stage capital, primarily for technology companies located in the West. 2 5 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, service stations, hotels and other businesses. Zions Data Service Company provides data processing services to all subsidiaries of the Company. 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 the operation 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 has established risk-based capital guidelines for bank holding companies. 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, 1997, the Company's Tier I and Total Capital ratios were 11.74% and 13.75%, 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 are not required to include 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, 1997, the Company's Tier I leverage ratio was 6.75%. 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, 1997, 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 The depository institution 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 depository institution subsidiaries to recognize additions to such allowances based on their judgments using information available to them at the time of their examinations. 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. 6 9 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. 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. 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. 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. In addition, cases are pending before federal and state courts that seek to expand or restrict interpretations of existing law and regulation 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. 7 10 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. Until June 30, 1998, 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 1998 have been set at 1.256 basis points annually for Quarter 1 and 1.244 for Quarter 2 for BIF-assessable deposits, and 6.28 and 6.22 basis points annually, respectively, for SAIF-assessable deposits. 8 11 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. Since June 1, 1997, and earlier if permitted by applicable state law, an insured bank has been authorized to 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 unless its home state or the home state of the out-of-state bank had adopted qualifying legislation barring this form of interstate expansion by June 1, 1997. 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. 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. Bank holding companies whose home state is Utah are authorized under Utah law to acquire control of depository institutions located in other states. The laws of Arizona, California and in certain instances Nevada permit the acquisition of banks headquartered in those states by out-of-state bank holding companies irrespective of the age of the institution to be acquired, upon receipt of state regulatory approval, and the laws of Colorado, Idaho and in certain instances Nevada permit the acquisition of banks located in those states by bank holding companies only if the institution to be acquired has been in continuous operation as a bank for at least five years prior to the acquisition, upon receipt of state regulatory approval. These jurisdictions also authorize certain banks headquartered within their borders to engage in interstate merger transactions either as resulting or disappearing institution. 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 governmental authorities 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; manipulation of 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 insurance companies, 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 and regulation- or supervision-derived costs 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 4,908 full- and part-time people with approximately 4,681 being employed by the banking subsidiaries. The Company had 4,347 full-time equivalent employees at December 31, 1997, compared to 3,343 at December 31, 1996. Banking subsidiaries had 4,136 full-time equivalent employees at the end of 1997, compared to 3,130 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
Page I. Distribution of Assets, Liabilities and Shareholders' Equity, Average Balance Sheets, Yields and Rates 25-27 Analysis of Interest Changes Due to Volume and Rates 28 II. Investment Securities 34 Maturities and Average Yields of Investment Securities 35 III. Loan Portfolio 36 Loan Maturities and Sensitivity to Changes in Interest Rates 37 Loan Risk Elements 44-47 IV. Summary of Loan Loss Experience 49 V. Deposits 39 VI. Return on Equity and Assets 41 VII. Short-term Borrowings 40 VIII. Foreign Operations 43
ITEM 2. PROPERTIES In Utah and Idaho, seventy (70) of Zions First National Bank's one hundred and twenty-nine (129) offices are located in buildings owned by the Company and the other fifty-nine (59) are on leased premises. In Nevada, twelve (12) of Nevada State Bank's forty (40) offices are located in buildings owned and the other twenty-eight (28) are on leased premises. In Arizona, National Bank of Arizona owns thirteen (13) offices and leases seventeen (17) offices. In Colorado, ten (10) of the Company's fourteen (14) offices are located in buildings owned and the other four (4) are on leased premises. In California, Grossmont Bank owns two (2) offices and leases thirteen (13) 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, and discount brokerage activities operate from leased premises. Zions Mortgage Company, a mortgage banking subsidiary of Zions First National Bank, operates its principal office in a building owned by the bank. For information regarding rental payments, see note 13 of Notes to Consolidated Financial Statements, which appears in Part II, Item 8, on page 78 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 1997. EXECUTIVE OFFICERS OF THE REGISTRANT The names, ages, positions, and backgrounds of the Company's executive officers as of February 27, 1998, are set forth as follows:
Positions and Offices Held With Zions Officer Name Age Bancorporation and Principal Subsidiaries since - ---- --- ----------------------------------------- ------- Roy W. Simmons 82 Chairman of the Company, and Member of the Board of 1961 Directors of Zions First National Bank. Harris H. Simmons 43 President & Chief Executive Officer of the Company; 1981 Chairman of the Board of Directors of Zions First National Bank. A. Scott Anderson 51 Executive Vice President of the Company, President 1997(1) and Chief Executive Officer of Zions First National Bank. Prior to January 1998, Executive Vice President of Zions First National Bank. Danne L. Buchanan 40 Executive Vice President of the Company, and 1995 President of Zions Data Service Company. Prior to March 1995, Senior Vice President and General Manager of Zions Data Service Company. Prior to January 1998, Senior Vice President of the Company. Gerald J. Dent 56 Executive Vice President of the Company, and 1987 Executive Vice President of Zions First National Bank. Prior to January 1998, Senior Vice President of the Company. Dale M. Gibbons 37 Executive Vice President, Chief Financial Officer 1996 and Secretary of the Company; Executive Vice President and Secretary of Zions First National Bank. Prior to August 1996, Senior Vice President of First Interstate Bancorp. Prior to January 1998, Senior Vice President of the Company. W. David Hemingway 50 Executive Vice President of the Company; Executive 1997(2) Vice President of Zions First National Bank.
12 15 John J. Gisi 52 Senior Vice President of the Company, and Chairman 1994 and Chief Executive Officer of National Bank of Arizona since 1987. Clark B. Hinckley 50 Senior Vice President of the Company. Prior to 1994 March 1994, President of a Company subsidiary, Zions First National Bank of Arizona. George B. Hofmann III 48 Senior Vice President of the Company, and President 1995 and Chief Executive Officer of Nevada State Bank. Prior to April 1995, Senior Vice President of Zions First National Bank. Gary Judd 57 Senior Vice President of the Company; President and 1998 Chief Executive Officer of Vectra Bank. Walter E. Kelly 65 Controller of the Company 1980 Ronald L. Johnson 42 Vice President of the Company 1989 John B. D'Arcy 55 Executive Vice President of Zions First National 1989 Bank Peter K. Ellison 55 Executive Vice President of Zions First National Bank 1968 Nolan X. Bellon 49 Controller of Zions First National Bank 1987
(1) Officer of Zions First National Bank since 1990. (2) Officer of Zions First National Bank since 1977. 13 16 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:
1997 1996 1995 ---------------------- ---------------------- ---------------------- HIGH LOW HIGH LOW HIGH LOW --------- --------- --------- --------- --------- --------- 1st Quarter $ 33.25 $ 25.69 $ 19.81 $ 16.69 $ 10.13 $ 8.88 2nd Quarter 37.63 28.38 19.75 17.00 12.50 9.53 3rd Quarter 41.13 34.69 22.44 18.00 15.38 12.38 4th Quarter 46.00 37.63 26.00 21.94 20.28 15.22
Number of common shareholders of record as of latest practicable date: 5,523 common shareholders as of February 27, 1998 Frequency and amount of dividends paid during three years:
1ST 2ND 3RD 4TH QTR QTR QTR QTR ----------- ----------- ----------- ----------- 1997 $ .1100 $ .1200 $ .1200 $ .1200 1996 .1025 .1025 .1100 .1100 1995 .0750 .0875 .0875 .1025
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. 14 17 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 data) 1997 1996 1995 1994 1993 ------------ ------------ ------------ ------------ ------------ RESULTS OF OPERATIONS Interest income $ 682,296 $ 518,991 $ 439,495 $ 353,989 $ 293,616 Interest expense 330,497 229,825 205,948 155,383 118,959 ------------ ------------ ------------ ------------ ------------ Net interest income 351,799 289,166 233,547 198,606 174,657 Provision for loan losses 6,175 4,640 3,000 2,181 2,993 ------------ ------------ ------------ ------------ ------------ Net interest income after provision for loan 345,624 284,526 230,547 196,425 171,664 losses Noninterest income 143,167 114,270 88,811 73,202 79,880 Noninterest expense 301,218 235,272 195,186 174,900 167,750 ------------ ------------ ------------ ------------ ------------ Income before income taxes and cumulative effect of changes in accounting principles 187,573 163,524 124,172 94,727 83,794 Income taxes 65,211 56,101 41,787 30,900 27,248 ------------ ------------ ------------ ------------ ------------ Income before cumulative effect of changes in accounting principles 122,362 107,423 82,385 63,827 56,546 Cumulative effect of changes in accounting principles -- -- -- -- 1,659 ------------ ------------ ------------ ------------ ------------ Net income $ 122,362 $ 107,423 $ 82,385 $ 63,827 $ 58,205 ============ ============ ============ ============ ============ COMMON SHARE DATA Income before cumulative effect of changes in accounting principles (diluted) $ 1.89 $ 1.68 $ 1.37 $ 1.09 $ .99 Net income (basic) 1.92 1.70 1.39 1.11 1.03 Net income (diluted) 1.89 1.68 1.37 1.09 1.02 Operating cash earnings (diluted) 2.01 1.72 1.41 1.12 1.04 Dividends declared .4700 .4250 .3525 .2900 .2450 Book value - year end 10.25 8.72 7.46 6.28 5.50 Market price - year end 45.38 26.00 20.06 8.97 9.25 YEAR END BALANCES Assets $ 9,521,770 $ 7,116,413 $ 6,095,515 $ 4,934,095 $ 4,801,054 Loans and leases 4,871,650 3,837,149 3,068,057 2,391,278 2,486,346 Deposits 6,854,462 5,119,692 4,511,184 3,705,976 3,432,289 Shareholders' equity 655,460 554,610 469,678 365,770 312,592 RATIOS Return on average assets 1.33% 1.55% 1.43% 1.17% 1.25% Return on average assets operating cash basis 1.43% 1.60% 1.47% 1.20% 1.29% Return on average common equity 19.88% 20.95% 20.22% 18.82% 20.33% Return on average common equity operating cash basis 25.34% 23.26% 22.08% 20.54% 21.94% Average equity to average assets 6.68% 7.42% 7.05% 6.22% 6.17% Tier I leverage - year end 6.75% 8.70% 6.33% 6.24% 5.44% Tier I risk-based capital - year end 11.74% 14.16% 11.33% 11.81% 10.85% Total risk-based capital - year end 13.75% 17.52% 14.03% 14.96% 14.12% Net interest margin 4.27% 4.68% 4.53% 4.07% 4.23% Nonperforming assets to total assets - year end .17% .19% .21% .38% .64% Nonperforming assets to net loans and leases, other real estate owned and other nonperforming assets at year end .33% .36% .41% .79% 1.23% Net charge-offs (recoveries) to average loans and leases .19% .11% .10% .19% (.23)% Allowance for loan losses to net loans and leases outstanding at year end 1.65% 2.00% 2.39% 2.80% 2.75% Allowance for loan losses to nonperforming loans at year end 638.84% 566.35% 660.17% 471.89% 250.13%
15 18 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, 1997, 1996, and 1995 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 earnings of $122.4 million or $1.89 per share in 1997. Net income and earnings per share increased 13.9% and 12.5%, respectively over the $107.4 million or $1.68 per share for 1996 which were up 30.4% and 22.6%, respectively over the $82.4 million or $1.37 per share earned in 1995. Dividends per share were $.47 per share in 1997, an increase of 10.6% over $.425 in 1996, which were up 20.6% over $.3525 in 1995. Financial results have been restated for prior periods to reflect the acquisition of GB Bancorporation during the last quarter of 1997, which was accounted for as a pooling of interests, and a four-for-one split of the Company's common stock during the second quarter of 1997. The return on average shareholders' equity was 19.88% and the return on average assets was 1.33% for 1997, compared with 20.95% and 1.55%, respectively, in 1996, and 20.22% and 1.43%, respectively, in 1995. The Company is also providing its earnings performance on an operating cash basis since it believes that its cash operating performance is a better reflection of its financial position and shareholder value creation as well as its ability to support growth, pay dividends, and repurchase stock than reported net income. Operating cash earnings are earnings before the amortization of goodwill and core deposit intangible assets and merger expense. Operating cash earnings for 1997 were $130.0 million or $2.01 per share for 1997, an increase of 18.0% and 16.9%, respectively, over the $110.2 or $1.72 per share for 1996 which was up 30.1% and 22.0% over the $84.7 million or $1.41 per share in 1995. The return on average shareholders' equity and the return on average assets on an operating cash basis were 25.34% and 1.43%, respectively, for 1997 compared to 23.26% and 1.60% for 1996 and 22.08% and 1.47% for 1995. The record performance of the Company was driven by a 26.5% growth in average loans and leases and a 32.7% growth in total earning assets that led to a 21.0% increase in taxable-equivalent net interest income to $358.7 million in 1997. Noninterest income increased 25.3% to $143.2 million in 1997, with strong growth in service charges, trust income, trading account income, and loan sales and servicing income. Noninterest expense increased 28.0% to $301.2 million in 1997. The increase in noninterest expense is mainly attributable to the record growth of the Company during 1997 through acquisitions and expansion, and increased expenditures related to technology initiatives. The number of full-time equivalent employees increased to 4,347 at year end 1997 from 3,343 at the end of 1996, banking offices increased to 229 from 154 and ATMs increased to 485 from 339. The increased expenses related primarily to expansion and technology initiatives resulted in an increase in the Company's efficiency ratio, or noninterest expenses as a percentage of total taxable-equivalent net revenues to 60.02% for 1997 compared to 57.29% for 1996 and 59.56% for 1995. The operating cash performance efficiency ratio was 58.32% for 1997 compared to 56.60% for 1996 and 58.77% for 1995. The Company's provision for loan losses totaled $6.2 million for 1997 compared to $4.6 million for 1996. Net charge-offs were $8.0 million, or .19% of average loans and leases in 1997 compared to $3.8 million or .11% in 1996. Nonperforming assets increased slightly to $16.0 million or .33% of loans and other real estate owned on December 31, 1997 from $13.7 million or .36% on December 31, 1996. 16 19 REVIEW OF OPERATIONS Commercial Banking The year 1997 has been a year of unparalleled growth, and a year in which a foundation has been established for a great deal of future growth. The Company has achieved a significant expansion of its branch system of commercial banking operations in Utah, Nevada and Arizona and has expanded its franchise by adding banking operations in Colorado, New Mexico, Idaho and California. Acquisitions consisted of Aspen Bancshares and its affiliate banks with branches in Colorado and New Mexico; Tri-State Bank in Montpelier, Idaho; 31 Wells Fargo branches in Utah, Idaho, Arizona and Nevada; Sun State Bank in Las Vegas, Nevada; Grossmont Bank in San Diego, California; and the public finance firms of Howarth & Associates in Nevada and Kelling, Northcross & Nobriga, Inc. in California. Zions First National Bank and Subsidiaries Zions First National Bank and subsidiaries experienced growth in 1997 as operating cash earnings increased 7.0% to $89.5 million as compared to $83.6 million in 1996 and net income increased 6.5% to $88.6 million compared to $83.1 million in 1996. The increase was a result of a $18.1 million increase in net interest income and a $20.0 million increase in noninterest income partially offset by a $28.2 million increase in noninterest expense, a $4.1 million increase in income taxes and a $.4 million increase in net after tax expense for amortization of goodwill and core deposit intangibles. Zions First National Bank and subsidiaries operating cash efficiency ratio was 56.85% in 1997 as compared to 54.50% in 1996. Zions First National Bank opened twelve new grocery store banking centers in Utah and acquired three traditional branches, bringing the total number of banking centers in Utah to 38 and total offices in Utah to 114. During 1997, Zions First National Bank also acquired twelve traditional branches, and opened two new grocery store banking centers and one new traditional branch for a total of 15 offices in Idaho. Zions Mortgage Company, a subsidiary of Zions First National Bank, contributed net income of $.8 million in 1997 compared to $1.4 million in 1996. Zions Mortgage Company experienced mortgage origination volume of $396.1 million in 1997, approximately the same as in 1996. On December 31, 1997, Zions Mortgage Company serviced for others long-term first mortgage real estate loans in the amount of $1,896.8 million compared to $1,542.0 million on December 31, 1996. Zions Credit Corporation, also a subsidiary of Zions First National Bank, contributed net income of $46 thousand in 1997. Zions Credit Corporation generated $63.1 million in new lease volume and brokered to third parties an additional $8.5 million in leases in 1997 compared to $78.6 million and $3.1 million, respectively, in 1996. Average lease receivables and conditional sales contracts serviced by Zions Credit Corporation increased 10.2% to $187.3 million in 1997 compared to $170.0 million in 1996. Zions Investment Securities, Inc. contributed $1.2 million in pretax income and revenue sharing to the Company's banking operations in 1997 compared to $.9 million in 1996. Net income, which is included as a subsidiary of Zions First National Bank, was $506 thousand in 1997, a 41.6% increase from $358 thousand in 1996. Zions Investment Securities, Inc. has 42 registered investment advisors who offer a full range of brokerage services and products. Wasatch Venture Corporation, a small business investment company which is a subsidiary of Zions First National Bank and an affiliated company of National Bank of Arizona, contributed net income of $1.2 million in 1997 as compared to $.4 million in 1996. On December 31, 1997 Wasatch had equity investments in 28 entities for which it has provided venture capital. 17 20 Nevada State Bank Nevada State Bank achieved operating cash earnings of $11.0 million in 1997, an increase of 50.8% over $7.3 million in 1996 and net income increased 47.4% to $10.7 million as compared to $7.3 million in 1996. The increase resulted from a net revenue increase of $14.4 million, partially offset by a $.3 million increase in the provision for loan losses, a $8.6 million increase in noninterest expense, a $1.8 million increase in income taxes and a $.3 million increase in net after tax expense for amortization of goodwill and core deposit intangibles. Nevada State Bank's operating cash performance efficiency ratio improved to 63.10% in 1997 as compared to 64.67% in 1996. During 1997, Nevada State Bank opened one new grocery store banking center and four traditional branches and added ten traditional branches from acquisitions, bringing the total number of banking centers in Nevada to 19 and total offices in Nevada to 40. National Bank Of Arizona Operating cash earnings at National Bank of Arizona increased 21.9% to $19.2 million in 1997 as compared to $15.8 million in 1996 and net income was $17.8 million in 1997 as compared to $14.7 million in 1996, a 21.5% increase. The increase resulted from a net revenue increase of $13.8 million partially offset by a $.1 million increase in the provision for loan losses, a $7.9 million increase in noninterest expense, a $2.4 million increase in income taxes and a $.3 million increase in net after tax expense for amortization of goodwill and core deposit intangibles. National Bank of Arizona's operating cash performance efficiency ratio was 49.86% in 1997 as compared to 47.97% in 1996. In 1997, National Bank of Arizona opened two new branches and added eleven by acquisition, bringing the total offices in Arizona to 30. Colorado Banks Colorado banks are the banking entities acquired on May 16, 1997 in the merger with Aspen Bancshares, Inc., namely, Pitkin County Bank and Trust, Centennial Savings Bank, F.S.B., and Valley National Bank of Cortez. Colorado combined operating cash earnings were $3.7 million and net income was $2.2 million after deducting $1.5 million of expense for amortization of goodwill for the period May 17 through December 1997. The Colorado combined operating cash performance efficiency ratio in 1997 since acquisition was 60.62%. The combined branches include one banking center office and twelve traditional branches in Colorado and one traditional branch in New Mexico. Grossmont Bank Grossmont Bank experienced strong growth in 1997 as operating cash earnings increased 69.5% to $11.9 million as compared to $7.0 million in 1996 and net income increased 74.7% to $11.4 million as compared to $6.6 million in 1996. The increase resulted from a net revenue increase of $13.2 million partially offset by a $1.4 million increase in the provision for loan losses, a $3.9 million increase in noninterest expense and a $3.0 million increase in income taxes. Grossmont Bank's operating cash performance efficiency ratio improved to 52.76% in 1997 as compared to 60.73% in 1996. During 1997, the number of Grossmont Bank's branches increased by three for a total of 15 offices. The following table presents operating segments information for each of the Company's major operating segments on December 31, 1997 and 1996 and for the years then ended. 18 21 Operating Segments Information
ZIONS FIRST NATIONAL BANK NEVADA STATE AND SUBSIDIARIES BANK ---------------------------------------------- ---------------------------------------------- (Amounts in thousands) 1997 1996 % Change 1997 1996 % Change ---------- ---------- ---------- ---------- ---------- ---------- CONDENSED INCOME STATEMENT Net interest income $ 206,009 $ 187,900 9.6 % $ 37,076 $ 25,694 44.3% Noninterest income 113,756 93,737 21.4 % 11,884 8,807 34.9% ---------------------------- ---------------------------- Total revenue 319,765 281,637 13.5 % 48,960 34,501 41.9% Provision for loan losses -- -- -- 1,560 1,240 25.8% Noninterest expense 184,758 156,535 18.0 % 31,400 22,813 37.6% ---------------------------- ---------------------------- Pretax cash earnings 135,007 125,102 7.9 % 16,000 10,448 53.1% Income tax expense (benefit) 45,549 41,499 9.8 % 4,954 3,123 58.6% ---------------------------- ---------------------------- Operating cash earnings 89,458 83,603 7.0 % 11,046 7,325 50.8% Merger expense -- -- -- -- -- -- Amortization of goodwill and core 1,132 502 125.5 % 450 103 336.9% deposits Income tax (benefit) (254) (39) 551.3 % (91) (29) 213.8% ---------------------------- ---------------------------- Net income (loss) $ 88,580 $ 83,140 6.5 % $ 10,687 $ 7,251 47.4% ============================ ============================ AVERAGE BALANCE SHEET DATA Total assets $6,341,489 $4,944,651 28.2 % $ 715,596 $ 526,138 36.0% Money market investments 1,460,605 892,847 63.6 % 26,393 23,680 11.5% Securities 1,848,069 1,441,321 28.2 % 257,437 210,580 22.3% Net loans and leases 2,604,027 2,276,461 14.4 % 351,874 230,403 52.7% Loans sold being serviced(2) 957,813 855,574 21.0 % -- -- -- Allowance for loan losses 49,374 53,537 (7.8)% 4,698 3,117 50.7% Goodwill and core deposit 12,166 3,857 215.4 % 7,283 51 14,180.4% intangibles Total deposits 3,280,531 3,010,965 9.0 % 629,294 466,129 35.0% Common equity 418,274 355,402 17.7 % 46,330 44,179 4.9% PERFORMANCE RATIOS Return on average assets 1.40% 1.68% 1.49% 1.38% Return on average common equity 21.18% 23.39% 23.07% 16.41% Efficiency ratio 57.20% 54.67% 64.01% 64.96% OPERATING CASH PERFORMANCE RATIOS(1) Return on average assets 1.41% 1.69% 1.56% 1.39% Return on average common equity 22.03% 23.78% 28.29% 16.60% Efficiency ratio 56.85% 54.50% 63.10% 64.67% REGULATORY CAPITAL RATIOS Tier I leverage ratio 5.66% 6.61% 6.39% 7.86% Tier I risk-based capital ratio 10.94% 11.36% 9.15% 12.58% Total risk-based capital ratio 18.22% 19.47% 10.19% 13.62% OTHER INFORMATION Full-time equivalent employees 2,538 2,091 570 359 Domestic offices Traditional branches 89 73 21 7 Banking centers in grocery 40 26 19 18 stores Foreign office 1 1 -- -- ---------------------------- ---------------------------- Total offices 130 100 40 25 ATMs 224 203 69 70
- ------------ (1) Before amortization of goodwill and core deposit intangible assets and merger expense. (2) Amount represents outstanding balance of loans and receivables sold and being serviced by the Company, excluding long-term first mortgage residential real estate loans. 19 22 Operating Segments Information (continued)
NATIONAL BANK OF ARIZONA COLORADO BANKS ---------------------------------------------- ---------------------------------------------- (Amounts in thousands) 1997 1996 % Change 1997 1996 % Change ---------- ---------- ---------- ---------- ---------- ---------- CONDENSED INCOME STATEMENT Net interest income $ 61,577 $ 50,485 22.0 % $ 12,980 -- -- Noninterest income 6,272 3,575 75.4 % 1,668 -- -- ---------------------------- ---------------------------- Total revenue 67,849 54,060 25.5 % 14,648 -- -- Provision for loan losses 2,400 2,300 4.3 % (70) -- -- Noninterest expense 34,168 26,284 30.0 % 8,928 -- -- ---------------------------- ---------------------------- Pretax cash earnings 31,281 25,476 22.8 % 5,790 -- -- Income tax expense (benefit) 12,069 9,715 24.2 % 2,046 -- -- ---------------------------- ---------------------------- Operating cash earnings 19,212 15,761 21.9 % 3,744 -- -- Merger expense -- -- -- -- -- -- Amortization of goodwill and core deposits 1,568 1,096 43.1 % 1,556 -- -- Income tax (benefit) (173) -- -- -- -- -- ---------------------------- ---------------------------- Net income (loss) $ 17,817 $ 14,665 21.5 % $ 2,188 -- -- ============================ ============================ AVERAGE BALANCE SHEET DATA Total assets $1,122,243 $ 907,706 23.6 % $ 310,162 -- -- Money market investments 16,032 21,081 (24.0)% 9,918 -- -- Securities 229,211 170,743 34.2 % 52,497 -- -- Net loans and leases 747,209 616,178 21.3 % 194,533 -- -- Loans sold being serviced(2) -- -- -- -- -- -- Allowance for loan losses 13,688 10,677 28.2 % 2,052 -- -- Goodwill and core deposit 24,754 14,496 70.8 % 38,852 -- -- intangibles Total deposits 989,468 800,231 23.6 % 243,167 -- -- Common equity 99,094 93,099 6.4 % 60,177 -- -- PERFORMANCE RATIOS Return on average assets 1.59% 1.62% 0.71% -- Return on average common equity 17.98% 15.75% 3.64% -- Efficiency ratio 52.15% 49.97% 71.19% -- OPERATING CASH PERFORMANCE RATIOS(1) Return on average assets 1.75% 1.76% 1.38% -- Return on average common equity 25.84% 20.05% 17.56% -- Efficiency ratio 49.86% 47.97% 60.62% -- REGULATORY CAPITAL RATIOS Tier I leverage ratio 6.07% 8.85% 8.32% -- Tier I risk-based capital ratio 9.04% 12.39% 12.35% -- Total risk-based capital ratio 10.30% 13.65% 13.50% -- OTHER INFORMATION Full-time equivalent employees 519 414 190 -- Domestic offices Traditional branches 30 17 13 -- Banking centers in grocery -- -- 1 -- stores Foreign office -- -- -- -- ---------------------------- ---------------------------- Total offices 30 17 14 -- ATMs 21 14 12 --
- --------------- (1) Before amortization of goodwill and core deposit intangible assets and merger expense. (2) Amount represents outstanding balance of loans and receivables sold and being serviced by the Company, excluding long-term first mortgage residential real estate loans. 20 23 Operating Segments Information (continued)
GROSSMONT BANK OTHER ---------------------------------------------- ---------------------------------------------- (Amounts in thousands) 1997 1996 % Change 1997 1996 % Change ---------- ---------- ---------- ---------- ---------- ---------- CONDENSED INCOME STATEMENT Net interest income $ 40,447 $ 29,428 37.4% $ (6,290) $ (4,341) (44.9)% Noninterest income 5,522 3,359 64.4 % 4,065 4,792 (15.2)% ---------------------------- ---------------------------- Total revenue 45,969 32,787 40.2 % (2,225) 451 (593.3)% Provision for loan losses 2,460 1,100 123.6 % (175) -- -- Noninterest expense 24,306 20,368 19.3 % 9,091 6,421 41.6 % ---------------------------- ---------------------------- Pretax cash earnings 19,203 11,319 69.7 % (11,141) (5,970) (86.6)% Income tax expense (benefit) 7,316 4,307 69.9 % (5,784) (2,475) (133.7)% ---------------------------- ---------------------------- Operating cash earnings 11,887 7,012 69.5 % (5,357) (3,495) (53.3)% Merger expense -- -- -- 2,707 -- -- Amortization of goodwill and core deposits 440 458 (3.9)% 714 692 3.2 % Income tax (benefit) -- -- -- (421) -- -- ---------------------------- ---------------------------- Net income $ 11,447 $ 6,554 74.7 % $ (8,357) $ (4,187) (99.6)% ============================ ============================ AVERAGE BALANCE SHEET DATA Total assets $ 721,039 $ 534,441 34.9 % $ 3,626 $ 1,277 183.9 % Money market investments 16,139 14,200 13.7 % (38,315) (28,138) (36.2)% Securities 181,282 150,185 20.7 % 6,799 5,046 34.7 % Net loans and leases 440,697 305,448 44.3 % 3,334 3,857 (13.6)% Loans sold being serviced(2) -- -- -- -- -- -- Allowance for loan losses 8,062 6,311 27.7 % 1,132 1,306 (13.3)% Goodwill and core deposit 7,325 7,861 (6.8)% 12,104 12,598 (3.9)% intangibles Total deposits 652,437 473,619 37.8 % (11,527) (19,055) (39.5)% Common equity 59,791 49,370 21.1 % (68,131) (29,311) (132.4)% PERFORMANCE RATIOS Return on average assets 1.59% 1.23% -- -- Return on average common equity 19.15% 13.28% -- -- Efficiency ratio 53.72% 62.12% -- -- OPERATING CASH PERFORMANCE RATIOS(1) Return on average assets 1.67% 1.33% -- -- Return on average common equity 22.66% 16.89% -- -- Efficiency ratio 52.76% 60.73% -- -- REGULATORY CAPITAL RATIOS Tier I leverage ratio 7.23% 7.60% -- -- Tier I risk-based capital ratio 10.11% 10.53% -- -- Total risk-based capital ratio 11.36% 11.78% -- -- OTHER INFORMATION Full-time equivalent employees 319 266 211 213 Domestic offices Traditional branches 15 12 -- -- Banking centers in grocery -- -- -- -- stores Foreign office -- -- -- -- ---------------------------- ---------------------------- Total offices 15 12 -- -- ATMs 14 12 145 40
- --------------- (1) Before amortization of goodwill and core deposit intangible assets and merger expense. (2) Amount represents outstanding balance of loans and receivables sold and being serviced by the Company, excluding long-term first mortgage residential real estate loans. 21 24 Operating Segments Information (continued)
CONSOLIDATED COMPANY ----------------------------------------------------- (Amounts in thousands) 1997 1996 % Change ----------- ----------- ----------- CONDENSED INCOME STATEMENT Net interest income $ 351,799 $ 289,166 21.7% Noninterest income 143,167 114,270 25.3% -------------------------------- Total revenue 494,966 403,436 22.7% Provision for loan losses 6,175 4,640 33.1% Noninterest expense 292,651 232,421 25.9% -------------------------------- Pretax cash earnings 196,140 166,375 17.9% Income tax expense (benefit) 66,150 56,169 17.8% -------------------------------- Operating cash earnings 129,990 110,206 18.0% Merger expense 2,707 -- -- Amortization of goodwill and core deposits 5,860 2,851 105.5% Income tax (benefit) (939) (68) 1280.9% -------------------------------- Net income $ 122,362 $ 107,423 13.9% ================================ AVERAGE BALANCE SHEET DATA Total assets $ 9,214,155 $ 6,914,213 33.3% Money market investments 1,490,772 923,670 61.4% Securities 2,575,295 1,977,875 30.2% Net loans and leases 4,341,674 3,432,347 26.5% Loans sold being serviced(2) 957,813 855,574 21.0% Allowance for loan losses 79,006 74,948 5.4% Goodwill and core deposit 102,484 38,863 163.7% intangibles Total deposits 5,783,370 4,731,889 22.2% Common equity 615,535 512,739 20.0% PERFORMANCE RATIOS Return on average assets 1.33% 1.55% Return on average common equity 19.88% 20.95% Efficiency ratio 60.02% 57.29% OPERATING CASH PERFORMANCE RATIOS(1) Return on average assets 1.43% 1.60% Return on average common equity 25.34% 23.26% Efficiency ratio 58.32% 56.60% REGULATORY CAPITAL RATIOS Tier I leverage ratio 6.75% 8.70% Tier I risk-based capital ratio 11.74% 14.16% Total risk-based capital ratio 13.75% 17.52% OTHER INFORMATION Full-time equivalent employees 4,347 3,343 Domestic offices Traditional branches 168 109 Banking centers in grocery 60 44 stores Foreign office 1 1 -------------------------------- Total offices 229 154 ATMs 485 339
- --------------- (1) Before amortization of goodwill and core deposit intangible assets and merger expense. (2) Amount represents outstanding balance of loans and receivables sold and being serviced by the Company, excluding long-term first mortgage residential real estate loans. 22 25 Other Subsidiaries Zions Insurance Agency, Inc. and Zions Life Insurance Company produced net income of $1.0 million in 1997 as compared to $1.4 million in 1996. Zions Data Service Company engaged in a number of significant projects in 1997, including the installation of a new general ledger system based upon client server technology. The data company also installed a new cash management system and new consumer lending and ATM systems in 1997. Cash Access, Inc., a new subsidiary of Zions Bancorporation created in 1996 to provide an ATM network for cash dispensing ATMs to be installed in convenience stores, service stations, hotels and other businesses, installed an additional 105 ATMs in 1997 for a total of 145 ATMs. Subsequent Acquisitions On January 6, 1998, the Company acquired Vectra Banking Corporation and its banking subsidiary, Vectra Bank, located in Denver, Colorado for 4,021,303 shares of common stock. This transaction will be accounted for as a pooling of interests. Vectra Banking Corporation total assets were approximately $728 million on the acquisition date. On January 23, 1998, the Company acquired Sky Valley Bank Corp. in Alamosa, Colorado, and its banking subsidiary, The First National Bank in Alamosa, for 572,817 shares of common stock. The acquisition will be accounted for as a pooling of interests. Sky Valley Bank Corp. total assets were approximately $122 million on the acquisition date. On February 27, 1998 the Company acquired Tri-State Finance Corporation and its banking subsidiary, Tri-State Bank, in Denver, for 709,963 shares of common stock. On December 31, 1997, Tri-State Finance Corporation had total assets of approximately $128 million. The transaction will be accounted for as a pooling of interests. On December 22, 1997 the Company announced a definitive agreement had been reached to acquire SBT Bankshares, Inc. in Colorado Springs, Colorado, and its banking subsidiary, State Bank and Trust of Colorado Springs, in exchange for Zions Bancorporation common stock. On December 31, 1997 SBT Bankshares, Inc. had total assets of approximately $86 million. The transaction is intended to be accounted for as a pooling of interests and is expected to close in the second quarter of 1998. On December 29, 1997 the Company announced a definitive agreement had been reached to acquire FP Bancorp, Inc. in Escondido, California, and its banking subsidiary, First Pacific National Bank, in exchange for Zions Bancorporation common stock. Total assets of FP Bancorp, Inc. were approximately $353 million on December 31, 1997. The transaction is intended to be accounted for as a pooling of interests and is expected to close in the second quarter of 1998. On January 22, 1998 the Company announced a definitive agreement to acquire Routt County National Bank Corporation in Steamboat Springs, Colorado, and its banking subsidiary, First National Bank of Colorado, in exchange for Zions Bancorporation common stock. On December 31, 1997 Routt County National Bank Corporation had total assets of approximately $93 million. The transaction is intended to be accounted for as a pooling of interests and is expected to close in the second quarter of 1998. 23 26 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 1997, taxable-equivalent net interest income provided 71.5% of the Company's net revenues, compared with 72.2% in 1996 and 72.9% in 1995. The Company's taxable-equivalent net interest income increased by 21.0% to $358.7 million in 1997 as compared to $296.4 million in 1996 and $238.9 million in 1995. The increased level of taxable-equivalent net interest income was driven by growth in average earning assets for both 1997 and 1996. 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 1997 was $2.5 million compared to $2.0 million in 1996 and $.7 million in 1995. 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 4.27% in 1997, 4.68% in 1996 and 4.53% in 1995. The decrease in the margin in 1997 was due primarily to interest expense on the $200 million in trust preferred securities issued in December 1996, and increased arbitrage activity in money market investments and short-term borrowings to mitigate the reduction in net interest income from the preferred securities. 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 1997 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 1997 and 1996 are shown in tables on pages which follow. In the tables, the principal 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 tax rate used for calculating the taxable-equivalent adjustment was 30% in years 1994 through 1997 and 32% in 1993. 24 27 Distribution of Assets, Liabilities, and Shareholders' Equity, Average Balance Sheets, Yields and Rates
1997 1996 -------------------------------------------------------------------------------- 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 $ 56,015 $ 3,032 5.41% $ 41,175 $ 1,954 4.75% Federal funds sold and security resell agreements 1,434,757 81,575 5.69% 882,495 49,758 5.64% Other money market investments -- -- -- -- -- -- ----------- ----------- ----------- ----------- Total money market investments 1,490,772 84,607 5.68% 923,670 51,712 5.60% ----------- ----------- ----------- ----------- Securities: Held to maturity: Taxable 1,643,187 112,930 6.87% 1,155,133 76,631 6.63% Nontaxable 199,381 16,160 8.11% 215,540 20,791 9.65% Available for sale: Taxable 419,523 28,798 6.86% 410,043 26,573 6.48% Nontaxable 37,570 2,986 7.95% 40,794 3,229 7.92% Trading account 275,634 16,211 5.88% 156,365 9,172 5.87% ----------- ----------- ----------- ----------- Total securities 2,575,295 177,085 6.88% 1,977,875 136,396 6.90% ----------- ----------- ----------- ----------- Loans: Loans held for sale 163,303 11,874 7.27% 150,990 11,509 7.62% Net loans and leases(2) 4,178,371 415,607 9.95% 3,281,357 326,580 9.95% ----------- ----------- ----------- ----------- Total loans 4,341,674 427,481 9.85% 3,432,347 338,089 9.85% ----------- ----------- ----------- ----------- Total interest-earning assets $ 8,407,741 $ 689,173 8.20% $ 6,333,892 $ 526,197 8.31% ----------- ----------- Cash and due from banks 450,223 361,020 Allowance for loan losses (79,006) (74,948) Goodwill and core deposit intangibles 102,484 38,863 Other assets 332,713 255,386 ----------- ----------- Total assets $ 9,214,155 $ 6,914,213 =========== =========== LIABILITIES: Interest-bearing deposits: Savings and NOW deposits $ 729,503 $ 21,492 2.95% $ 646,375 $ 19,924 3.08% Money market and super NOW deposits 2,353,577 89,390 3.80% 1,945,683 71,941 3.70% Time deposits under $100,000 871,650 45,070 5.17% 725,039 37,838 5.22% Time deposits $100,000 or more 314,250 18,065 5.75% 215,541 12,212 5.67% Foreign deposits 141,511 6,354 4.49% 120,782 5,391 4.46% ----------- ----------- ----------- ----------- Total interest-bearing deposits 4,410,491 180,371 4.09% 3,653,420 147,306 4.03% ----------- ----------- ----------- ----------- Borrowed funds: Securities sold, not yet purchased 91,963 5,350 5.82% 76,518 4,475 5.85% Federal funds purchased and security repurchase agreements 2,136,547 111,293 5.21% 1,316,786 66,068 5.02% FHLB advances and other borrowings: Less than one year 34,163 2,295 6.72% 18,707 1,180 6.31% Over one year 136,381 8,206 6.02% 87,700 5,557 6.34% Long-term debt 257,779 22,982 8.92% 55,187 5,239 9.49% ----------- ----------- ----------- ----------- Total borrowed funds 2,656,833 150,126 5.65% 1,554,898 82,519 5.31% ----------- ----------- ----------- ----------- Total interest-bearing liabilities $ 7,067,324 $ 330,497 4.68% $ 5,208,318 $ 229,825 4.41% ----------- ----------- Noninterest-bearing deposits 1,372,879 1,078,469 Other liabilities 158,417 114,687 ----------- ----------- Total liabilities 8,598,620 6,401,474 Total shareholders' equity 615,535 512,739 ----------- ----------- Total liabilities and shareholders' equity $ 9,214,155 $ 6,914,213 =========== =========== Spread on average interest-bearing funds 3.52% 3.90% ==== ==== Net interest income and net yield on Interest-earning assets $ 358,676 4.27% $ 296,372 4.68% =========== ==== =========== ====
- --------------- (1) Taxable-equivalent rates used where applicable. (2) Net of unearned income and fees, net of related costs. Loans include nonaccrual and restructured loans. 25 28 Distribution of Assets, Liabilities, and Shareholders' Equity, Average Balance Sheets, Yields And Rates
1995 1994 ---------------------------------------------------------------------------------------- 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 $ 26,539 $ 1,288 4.85% $ 24,389 $ 814 3.34% Federal funds sold and security resell agreements 919,303 54,852 5.97% 845,320 34,231 4.05% Other money market investments -- -- --% -- -- -% ----------- ----------- ----------- ----------- Total money market investments 945,842 56,140 5.94% 869,709 35,045 4.03% ----------- ----------- ----------- ----------- Securities: Held to maturity: Taxable 939,834 66,165 7.04% 726,925 41,269 5.68% Nontaxable 211,218 17,748 8.40% 193,810 15,689 8.10% Available for sale: Taxable 367,143 24,726 6.73% 334,044 19,916 5.96% Nontaxable 460 30 6.52% -- -- -% Trading account 146,845 9,248 6.30% 290,925 16,516 5.68% ----------- ----------- ----------- ----------- Total securities 1,665,500 117,917 7.08% 1,545,704 93,390 6.04% ----------- ----------- ----------- ----------- Loans: Loans held for sale 115,939 9,259 7.99% 187,506 12,303 6.56% Net loans and leases(2) 2,546,814 261,512 10.27% 2,387,489 217,958 9.13% ----------- ----------- ----------- ----------- Total loans 2,662,753 270,771 10.17% 2,574,995 230,261 8.94% ----------- ----------- ----------- ----------- Total interest-earning assets $ 5,274,095 $ 444,828 8.43% $ 4,990,408 $ 358,696 7.19% ----------- ----------- Cash and due from banks 330,477 333,290 Allowance for loan losses (69,247) (68,248) Goodwill and core deposit intangibles 24,012 20,303 Other assets 219,688 180,860 ----------- ----------- Total assets $ 5,779,025 $ 5,456,613 =========== =========== LIABILITIES: Interest-bearing deposits: Savings and NOW deposits $ 729,098 $ 22,705 3.11% $ 740,339 $ 22,262 3.01% Money market and super NOW deposits 1,467,068 60,375 4.12% 1,284,697 39,938 3.11% Time deposits under $100,000 627,182 32,653 5.21% 516,877 20,469 3.96% Time deposits $100,000 or more 133,154 7,930 5.96% 94,680 3,845 4.06% Foreign deposits 139,212 7,179 5.16% 108,383 4,444 4.10% ----------- ----------- ----------- ----------- Total interest-bearing deposits 3,095,714 130,842 4.23% 2,744,976 90,958 3.31% ----------- ----------- ----------- ----------- Borrowed funds: Securities sold, not yet purchased 90,206 5,619 6.23% 184,405 10,976 5.95% Federal funds purchased and security repurchase agreements 1,037,197 56,645 5.46% 1,057,827 41,089 3.88% FHLB advances and other borrowings: Less than one year 20,654 1,414 6.85% 32,557 1,770 5.44% Over one year 96,305 6,307 6.55% 118,607 5,831 4.92% Long-term debt 57,506 5,121 8.91% 59,493 4,759 8.00% ----------- ----------- ----------- ----------- Total borrowed funds 1,301,868 75,106 5.77% 1,452,889 64,425 4.43% ----------- ----------- ----------- ----------- Total interest-bearing liabilities $ 4,397,582 $ 205,948 4.68% $ 4,197,865 $ 155,383 3.70% ----------- ----------- Noninterest-bearing deposits 867,988 838,118 Other liabilities 105,957 81,449 ----------- ----------- Total liabilities 5,371,527 5,117,432 Total shareholders' equity 407,498 339,181 ----------- ----------- Total liabilities and shareholders' equity $ 5,779,025 $ 5,456,613 =========== =========== Spread on average interest-bearing funds 3.75% 3.49% ==== ==== Net interest income and net yield on Interest-earning assets $ 238,880 4.53% $ 203,313 4.07% =========== ==== =========== ====
- --------------- (1) Taxable-equivalent rates used where applicable. (2) Net of unearned income and fees, net of related costs. Loans include nonaccrual and restructured loans. 26 29 Distribution of Assets, Liabilities, and Shareholders' Equity, Average Balance Sheets, Yields And Rates
1993 -------------------------------------------------------------- Amount (Amounts in thousands) Average of Average balance interest(1) rate(1) ----------- ----------- -------- ASSETS: Money Market Investments Interest-bearing deposits $ 103,982 $ 3,682 3.55% Federal funds sold and security resell agreements 656,204 22,918 3.49% Other money market investments 28,508 827 2.90% ----------- ----------- Total money market investments 788,694 27,427 3.48% ----------- ----------- Securities: Held to maturity: Taxable 958,776 56,347 5.88% Nontaxable 147,549 12,434 8.43% Available for sale: Taxable -- -- -% Nontaxable -- -- -% Trading account 102,840 7,555 7.35% ----------- ----------- Total securities 1,209,165 76,336 6.31% ----------- ----------- Loans: Loans held for sale 185,899 11,273 6.06% Net loans and leases(2) 2,036,283 182,559 8.97% ----------- ----------- Total loans 2,222,182 193,832 8.72% ----------- ----------- Total interest-earning assets $ 4,220,041 $ 297,595 7.05% ----------- Cash and due from banks 315,577 Allowance for loan losses (64,911) Goodwill and core deposit intangibles 14,793 Other assets 158,418 ----------- Total assets $ 4,643,918 =========== LIABILITIES: Interest-bearing deposits: Savings and NOW deposits $ 648,178 $ 19,222 2.97% Money market and super NOW deposits 1,117,016 31,109 2.79% Time deposits under $100,000 548,816 23,501 4.28% Time deposits $100,000 or more 79,442 3,010 3.79% Foreign deposits 55,823 1,484 2.66% ----------- ----------- Total interest-bearing deposits 2,449,275 78,326 3.20% ----------- ----------- Borrowed funds: Securities sold, not yet purchased 69,442 3,039 4.38% Federal funds purchased and security repurchase agreements 767,309 22,376 2.92% FHLB advances and other borrowings: Less than one year 83,123 3,196 3.84% Over one year 111,974 4,599 4.11% Long-term debt 75,623 7,423 9.82% ----------- ----------- Total borrowed funds 1,107,471 40,633 3.67% ----------- ----------- Total interest-bearing liabilities $ 3,556,746 $ 118,959 3.34% =========== Noninterest-bearing deposits 729,651 Other liabilities 71,190 ----------- Total liabilities 4,357,587 Total shareholders' equity 286,331 ----------- Total liabilities and shareholders' equity $ 4,643,918 =========== Spread on average interest-bearing funds 3.71% ==== Net interest income and net yield on Interest-earning assets $ 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. 27 30 Analysis of Interest Changes Due to Volume and Rate
1997 over 1996 1996 over 1995 Changes due to Changes due to ----------------------- Total ----------------------- Total (Amounts in Thousands) Volume Rate(1) Changes Volume Rate(1) Changes --------- --------- --------- --------- --------- --------- Interest-earning assets: Money market investments: Interest-bearing deposits $ 777 $ 301 $ 1,078 $ 693 $ (27) $ 666 Federal funds sold and security resell agreements 31,358 459 31,817 (2,091) (3,003) (5,094) Other money market investments -- -- -- -- -- -- --------- --------- --------- --------- --------- --------- Total money market investments 32,135 760 32,895 (1,398) (3,030) (4,428) --------- --------- --------- --------- --------- --------- Securities: Held to maturity: Taxable 33,474 2,825 36,299 14,320 (3,854) 10,466 Nontaxable (1,320) (3,311) (4,631) 363 2,680 3,043 Available for sale: Taxable 628 1,597 2,225 2,782 (935) 1,847 Nontaxable (253) 10 (243) 3,191 8 3,199 Trading account 7,017 22 7,039 552 (628) (76) --------- --------- --------- --------- --------- --------- Total securities 39,546 1,143 40,689 21,208 (2,729) 18,479 --------- --------- --------- --------- --------- --------- Loans: Loans held for sale 897 (532) 365 2,674 (424) 2,250 Net loans and leases (2) 89,112 (85) 89,027 73,172 (8,104) 65,068 --------- --------- --------- --------- --------- --------- Total loans 90,009 (617) 89,392 75,846 (8,528) 67,318 --------- --------- --------- --------- --------- --------- Total interest-earning assets $ 161,690 $ 1,286 $ 162,976 $ 95,656 $ (14,287) $ 81,369 --------- --------- --------- --------- --------- --------- Interest-bearing liabilities: Deposits: Savings and NOW deposits $ 2,424 $ (856) $ 1,568 $ (2,532) $ (249) $ (2,781) Money market and super NOW deposits 15,418 2,031 17,449 17,659 (6,093) 11,566 Time deposits under $100,000 7,585 (353) 7,232 5,099 86 5,185 Time deposits $100,000 or more 5,669 184 5,853 4,662 (380) 4,282 Foreign deposits 931 32 963 (818) (970) (1,788) --------- --------- --------- --------- --------- --------- Total interest-bearing deposits 32,027 1,038 33,065 24,070 (7,606) 16,464 --------- --------- --------- --------- --------- --------- Borrowed funds: Securities sold, not yet purchased 897 (22) 875 (802) (342) (1,144) Federal funds purchased and security repurchase agreements 42,601 2,624 45,225 14,001 (4,578) 9,423 FHLB advances and other borrowings: Less than one year 1,033 82 1,115 (123) (111) (234) Over one year 2,926 (277) 2,649 (549) (201) (750) Long-term debt 18,059 (316) 17,743 (204) 322 118 --------- --------- --------- --------- --------- --------- Total borrowed funds 65,516 2,091 67,607 12,323 (4,910) 7,413 --------- --------- --------- --------- --------- --------- Total interest-bearing liabilities $ 97,543 $ 3,129 $ 100,672 $ 36,393 $ (12,516) $ 23,877 --------- --------- --------- --------- --------- --------- Change in net interest income $ 64,147 $ (1,843) $ 62,304 $ 59,263 $ (1,771) $ 57,492 ========= ========= ========= ========= ========= =========
(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. 28 31 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 $6.2 million in 1997 compared to $4.6 million in 1996 and $3.0 million in 1995. No provision was recognized by the Company's Utah bank in 1997, 1996 and 1995. Although the provision has increased in recent years, it comprised only .14% of average loans for 1997 and 1996 and .11% for 1995. Noninterest Income Noninterest income is a growing portion of the Company's net revenue comprising 28.5% of revenue in 1997 compared to 27.8% in 1996 and 27.1% in 1995. Noninterest income was $143.2 million in 1997, an increase of 25.3% over $114.3 million in 1996, which was up 28.7% over $88.8 million in 1995. Primary contributors to the increase in noninterest income in 1997 and 1996 were service charges on deposit accounts; other services charges, commissions and fees, loan sales and servicing income and trading account income. Deposit service charges increased 24.3% to $43.7 million in 1997 and 21.8% in 1996 reflecting continued expansion of the Company's deposit base as well as price adjustments. Other service charges, commissions and fees were $38.3 million in 1997, an increase of 33.4% over 1996 which was 17.8% above 1995. Loan sales and servicing income rose 10.4% in 1997 to $38.8 million over $35.1 million in 1996 which was 44.8% above 1995. Trading account income increased 110.1% to $5.7 million in 1997 from $2.7 million in 1996. A net loss of $1.2 million was incurred in 1995. Trust income increased to $6.8 million in 1997, up 30.1% from 1996 which was up 19.3% from 1995. 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 was $9.1 million in 1997 an increase of 26.4% from 1996. 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 (Amounts in thousands) 1997 Change 1996 Change 1995 -------- -------- -------- -------- -------- Service charges on deposit accounts $ 43,732 24.3% $ 35,195 21.8% $ 28,884 Other service charges, commissions and fees 38,274 33.4 28,701 17.8 24,370 Trust income 6,757 30.1 5,195 19.3 4,355 Investment securities gains (losses), net 797 593.0 115 177.7 (148) Trading account income (loss) 5,716 110.1 2,721 318.2 (1,247) Loan sales and servicing income 38,768 10.4 35,128 44.8 24,254 Other income 9,123 26.4 7,215 (13.5) 8,343 -------- -------- -------- Total $143,167 25.3% $114,270 28.7% $ 88,811 ======== ======== ======== ======== ========
Percent Percent (Amounts in thousands) Change 1994 Change 1993 -------- -------- -------- -------- Service charges on deposit accounts 20.1% $ 24,058 5.2% $ 22,875 Other service charges, commissions and fees 10.7 22,008 2.9 21,392 Trust income .5 4,334 (6.2) 4,622 Investment securities gains (losses), net 50.5 (299) (1,658.8) (17) Trading account income (loss) (245.0) 860 (63.4) 2,350 Loan sales and servicing income 66.2 14,596 (32.0) 21,471 Other income 9.1 7,645 6.4 7,187 -------- -------- Total 21.3% $ 73,202 (8.4)% $ 79,880 ======== ======== ======== ========
29 32 Noninterest Expense The Company's noninterest expense was $301.2 million in 1997, an increase of 28.0% over $235.3 million in 1996, which was up 20.5% over the $195.2 million in 1995. Comparing significant noninterest expense categories in 1997 to 1996, salaries and employee benefits increased 23.3% to $160.0 million, occupancy expense increased 23.7% to $16.9 million, furniture and equipment expense increased 38.3% to $23.7 million, and the total of all other expenses increased 34.6% to $100.6 million. The increase in other expenses included significant increases in legal and professional services, supplies, postage, advertising, merger expense, amortization of intangible assets and other expenses. Comparing significant noninterest expense categories in 1996 to 1995, salaries and employee benefits increased 22.9% to $129.7 million, occupancy expense increased 24.6% to $13.7 million, furniture and equipment expense increased 27.0% to $17.1 million, FDIC premiums decreased 99.7% to $11 thousand and the total of all other expenses increased 22.4% to $74.8 million. In 1997 and 1996, 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, postage, merger expense, amortization of goodwill and core deposit intangibles, and other expenses related to acquisitions and expansion and increased expenditures in selected areas to enhance revenue growth. On December 31, 1997, the Company had 4,347 full-time equivalent employees, 229 offices and 485 ATMs for increases of 30.0%, 48.7% and 43.5%, respectively, compared to year-end 1996. On December 31, 1996, the Company had 3,343 full-time equivalent employees, 154 offices and 338 ATMs for increases of 8.2%, 8.5% and 27.5%, respectively, compared to year-end 1995. The Company's operating cash "efficiency ratio," or noninterest expenses, excluding amortization of goodwill and core deposit intangibles and merger expenses, as a percentage of total taxable-equivalent net revenues, increased to 58.32% in 1997 compared to 56.60% in 1996 and 58.77% in 1995. 30 33 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 (Amounts in thousands) 1997 Change 1996 Change 1995 --------- --------- --------- --------- --------- Salaries and employee benefits $ 159,973 23.3% $ 129,708 22.9% $ 105,527 Occupancy, net 16,911 23.7 13,668 24.6 10,972 Furniture and equipment 23,695 38.3 17,133 27.0 13,486 Other real estate expense 251 184.2 (298) (467.9) 81 Legal and professional services 7,789 48.0 5,263 19.7 4,395 Supplies 8,108 23.2 6,582 24.1 5,305 Postage 6,823 20.6 5,658 9.0 5,190 Advertising 7,380 27.5 5,789 9.7 5,276 F.D.I.C. premiums 737 6,600.0 11 (99.7) 4,123 Merger expense 2,707 -- -- -- -- Amortization of goodwill and core deposit intangibles 5,860 105.5 2,851 9.2 2,612 Amortization of mortgage servicing assets 2,152 65.7 1,299 13.2 1,148 Loss on early extinguishment of debt -- -- -- -- -- Other expenses 58,832 23.6 47,608 28.4 37,071 --------- --------- --------- Total $ 301,218 28.0% $ 235,272 20.5% $ 195,186 ========= ======= ========= ===== =========
Percent Percent (Amounts in thousands) Change 1994 Change 1993 --------- --------- --------- --------- Salaries and employee benefits 13.1% $ 93,331 9.1% $ 85,549 Occupancy, net 13.7 9,647 18.1 8,168 Furniture and equipment 19.6 11,276 21.3 9,294 Other real estate expense 192.0 (88) (119.6) 450 Legal and professional services (14.5) 5,142 .1 5,136 Supplies 10.1 4,819 6.2 4,537 Postage 9.9 4,723 9.0 4,334 Advertising 53.1 3,447 (1.9) 3,515 F.D.I.C. premiums (45.4) 7,547 4.0 7,257 Merger expense -- -- -- -- Amortization of goodwill and core deposit intangibles 30.4 2,003 10.7 1,810 Amortization of mortgage servicing assets (32.0) 1,689 (35.6) 2,622 Loss on early extinguishment of debt -- -- (100.0) 6,022 Other expenses 18.2 31,364 7.9 29,056 --------- --------- Total 11.6% $ 174,900 4.3% $ 167,750 ===== ========= ====== =========
Full-Time Equivalent Employees
1997 1996 1995 1994 1993 ----- ----- ----- ----- ----- Commercial banking Utah and Idaho 2,538 2,091 1,975 1,911 2,044 Nevada 570 359 351 286 286 Arizona 519 414 324 309 243 Colorado and New Mexico 190 -- -- -- -- California 319 266 234 -- -- ----- ----- ----- ----- ----- 4,136 3,130 2,884 2,506 2,573 Other 211 213 205 189 188 ----- ----- ----- ----- ----- Total 4,347 3,343 3,089 2,695 2,761
Commercial Banking Offices and ATM's
1997 1996 1995 1994 1993 ----- ----- ----- ----- ----- Domestic offices Traditional branches 168 109 102 84 84 Banking centers in grocery stores 60 44 39 33 29 Foreign office 1 1 1 1 1 ----- ----- ----- ----- ----- Total 229 154 142 118 114 ATMs 485 339 266 215 175
Income Taxes The Company's income tax expense for the year 1997 was $65.2 million compared to $56.1 million in 1996 and $41.8 million in 1995. The increases in income taxes were primarily due to the increases in taxable income. The Company's effective income tax rate was 34.8% in 1997, up slightly from 34.3% in 1996, which was up from 33.7% in 1995. 31 34 Quarterly Summary The following table presents a summary of earnings and end-of-period balances by quarter for the years ended December 31, 1997, 1996 and 1995: Quarterly Financial Information (Unaudited)
Income Gross Net Non- Provision Non- before (Amounts in interest interest interest for loan interest income Net thousands) income income income losses expenses taxes income -------- -------- -------- -------- -------- -------- -------- Quarter 1997: First $149,159 $ 76,343 $ 33,015 $ 1,605 $ 63,397 $ 44,356 $ 28,913 Second 169,225 85,751 33,394 1,435 70,242 47,468 30,561 Third 177,844 92,053 37,647 1,710 79,642 48,348 31,533 Fourth 186,068 97,652 39,111 1,425 87,937 47,401 31.355 -------- -------- -------- -------- -------- -------- -------- Total $682,296 $351,799 $143,167 $ 6,175 $301,218 $187,573 $122,362 ======== ======== ======== ======== ======== ======== ======== 1996: First $122,194 $ 66,140 $ 26,894 $ 700 $ 54,445 $ 37,889 $ 24,940 Second 125,520 70,271 27,287 960 56,573 40,025 26,376 Third 132,480 73,283 29,829 1,330 59,723 42,059 27,333 Fourth 138,797 79,472 30,260 1,650 64,531 43,551 28,774 -------- -------- -------- -------- -------- -------- -------- Total $518,991 $289,166 $114,270 $ 4,640 $235,272 $163,524 $107,423 ======== ======== ======== ======== ======== ======== ======== 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 122,701 66,526 25,429 750 56,171 35,034 23,572 -------- -------- -------- -------- -------- -------- -------- Total $439,495 $233,547 $ 88,811 $ 3,000 $195,186 $124,172 $ 82,385 ======== ======== ======== ======== ======== ======== ========
Money Gross market Allowance Share- (Amounts in Total invest- Net loans for loan Total holders' thousands) assets ments Securities and leases losses deposits equity ---------- ---------- ---------- ---------- ---------- ---------- ---------- End of Quarter 1997: First $7,926,419 $1,046,465 $2,088,754 $4,117,389 $ 76,802 $5,288,584 $ 553,260 Second 8,766,162 831,176 2,728,092 4,378,203 79,645 5,799,304 641,468 Third 9,823,149 1,428,021 2,766,927 4,656,606 79,062 6,359,112 635,586 Fourth 9,521,770 814,088 2,712,094 4,871,650 80,481 6,854,462 655,460 1996: First $6,691,883 $1,054,431 $1,763,217 $3,239,994 $ 73,718 $4,598,760 $ 480,947 Second 6,615,567 386,382 2,090,253 3,516,903 75,547 4,806,223 517,092 Third 7,356,130 992,846 2,039,080 3,663,767 75,953 5,081,249 535,690 Fourth 7,116,413 613,429 1,983,643 3,837,149 76,803 5,119,692 554,610 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 6,149,763 799,498 1,841,186 2,932,688 74,262 4,516,763 449,966 Fourth 6,095,515 687,251 1,694,669 3,068,057 73,437 4,511,184 469,678
32 35 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 Schedule 2. Average earning assets increased 32.7% to $8,407.7 million in 1997 compared to $6,333.9 million in 1996. Earning assets comprised 91.2% of total average assets in 1997 compared with 91.6% in 1996. Average money market investments, consisting of interest-bearing deposits, federal funds sold and security resell agreements increased 61.4% to $1,490.8 million in 1997 compared to $923.7 million in 1996. Average securities increased 30.2% to $2,575.3 million in 1997, compared to $1,977.9 million in 1996. Average held to maturity securities increased 34.4% to $1,842.6 million, available for sale securities increased 1.4% to $457.1 million and trading account securities increased 76.3% to $275.6 million. Zions First National Bank is one of 37 U.S. Government Securities dealers designated as a primary dealer by the Federal Reserve Bank of New York. Average net loans and leases increased 26.5% to $4,341.7 million in 1997 compared to $3,432.3 million in 1996, representing 51.6% of earning assets in 1997 compared to 54.2% in 1996. Average net loans and leases were 75.1% of average total deposits in 1997, as compared to 72.5% in 1996. 33 36 Investment Securities The tables that follow present the Company's year-end investment securities for the years indicated and maturities and average yields on held to maturity and available for sale investment securities on December 31, 1997. Investment Securities
December 31, --------------------------------------------------------------------------- 1997 1996 1995 ----------------------- ----------------------- ----------------------- Amortized Market Amortized Market Amortized Market (Amounts in thousands) Cost Value Cost Value Cost Value ---------- ---------- ---------- ---------- ---------- ---------- Held to maturity: U.S. Treasury securities $ -- $ -- $ 29,573 $ 29,779 $ 44,151 $ 44,701 U.S. government agencies and corporations: Small Business Administration loan- backed securities 440,615 448,867 487,748 491,785 529,376 541,014 Other agency securities 1,409,835 1,415,600 629,271 629,154 325,115 323,261 States and political subdivisions 210,675 215,251 260,963 265,161 230,442 235,302 Mortgage-backed securities 81,602 82,870 67,854 68,875 58,546 59,249 ---------- ---------- ---------- ---------- ---------- ---------- 2,142,727 2,162,588 1,475,409 1,484,754 1,187,630 1,203,527 ---------- ---------- ---------- ---------- ---------- ---------- Available for sale: U.S. Treasury securities 31,387 31,706 19,580 19,626 27,743 27,853 U.S. government agencies 169,767 166,609 135,530 131,463 105,903 105,935 States and political subdivisions 25,858 26,932 39,118 40,766 40,153 42,084 Mortgage and other asset-backed securities 27,815 28,248 86,007 84,865 69,469 69,333 ---------- ---------- ---------- ---------- ---------- ---------- 254,827 253,495 280,235 276,720 243,268 245,205 ---------- ---------- ---------- ---------- ---------- ---------- Equity securities: Mutual funds: Accessor Funds, Inc. 109,530 110,958 109,071 109,100 118,899 119,971 Other -- -- -- -- 564 564 Stock: Federal Home Loan Bank 90,537 90,537 79,593 79,593 71,988 71,988 Other 26,459 30,696 8,168 8,745 5,386 5,580 ---------- ---------- ---------- ---------- ---------- ---------- 226,526 232,191 196,832 197,438 196,837 198,103 ---------- ---------- ---------- ---------- ---------- ---------- 481,353 485,686 477,067 474,158 440,105 443,308 ---------- ---------- ---------- ---------- ---------- ---------- Trading: U.S. Treasury Securities 346 346 21,959 21,959 22,353 22,353 U.S. government agencies and corporations: Small Business Administration loan- backed securities 14 14 10 10 1,007 1,007 Other agency securities 44,493 44,493 9,478 9,478 38,290 38,290 States and political subdivisions 8,498 8,498 2,607 2,607 2,056 2,056 Mortgage-backed securities 630 630 22 22 -- -- Certificates of Deposit 29,700 29,700 -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- 83,681 83,681 34,076 34,076 63,706 63,706 ---------- ---------- ---------- ---------- ---------- ---------- Total $2,707,761 $2,731,955 $1,986,552 $1,992,988 $1,691,441 $1,710,541 ========== ========== ========== ========== ========== ==========
34 37 Maturities and Average Yields on Securities on December 31, 1997
After one Total Within but within securities one year five years ------------------- --------------------- --------------------- (Amounts in Millions) Amount Yield* Amount Yield* Amount Yield* -------- -------- -------- -------- -------- -------- HELD TO MATURITY: U. S. government agencies and corporations: Small Business Administration loan- backed securities $ 440.6 7.2% $ 54.0 7.2% $ 161.5 7.2% Other agency securities 1,409.8 6.8% 34.9 5.5% 518.6 6.7% States and political Subdivisions 210.7 8.0% 36.0 7.6% 84.0 8.0% Mortgage-backed securities 81.6 7.0% 23.4 6.5% 39.1 7.1% -------- -------- -------- 2,142.7 7.0% 148.3 6.7% 803.2 7.0% -------- -------- -------- AVAILABLE FOR SALE: U.S. Treasury securities 31.4 6.1% 3.5 6.3% 27,4 6.0% U.S. government agencies 169.8 7.1% 62.1 6.1% 59.4 7.4% States and political subdivisions 25.9 8.1% 4.0 6.8% 11.7 8.3% Mortgage- and other asset-backed securities 27.8 7.6% 3.5 6.8% 18.8 7.9% -------- -------- -------- 254.9 7.2% 73.1 6.2% 117.3 7.2% ======== ======== ======== Equity securities: Mutual funds: Accessor Funds Inc. 109.5 5.7% Stock: Federal Home Loan Bank 90.5 8.0% Other 26.5 11.6% -------- 226.5 7.3% -------- -------- -------- 481.4 7.2% 73.1 6.2% 117.3 7.2% -------- -------- -------- Total $2,624.1 7.0% $ 221.4 6.6% $ 920.5 7.0% -------- -------- --------
After five but within After ten years ten years ----------------------- --------------------- (Amounts in Millions) Amount Yield* Amount Yield* -------- -------- -------- -------- HELD TO MATURITY: U. S. government agencies and corporations: Small Business Administration loan- backed securities $ 117.3 7.2% $ 107.8 7.2% Other agency securities 836.4 6.9% 19.9 7.8% States and political Subdivisions 57.2 8.2% 33.5 8.0% Mortgage-backed securities 14.7 7.3% 4.4 7.0% -------- -------- 1,025.6 7.0% 165.6 7.5% -------- -------- AVAILABLE FOR SALE: U.S. Treasury securities .1 8.3% .4 8.3% U.S. government agencies 31.2 8.0% 17.1 8.3% States and political subdivisions 10.2 8.4% -- -% Mortgage- and other asset-backed securities 3.0 7.4% 2.5 7.4% -------- -------- 44.5 8.1% 20.0 8.2% -------- -------- Equity securities: Mutual funds: Accessor Funds Inc. 109.5 5.7% Stock: Federal Home Loan Bank 90.5 8.0% Other 26.5 11.6% -------- 226.5 7.3% -------- -------- 44.5 8.1% 246.5 7.4% -------- -------- Total $1,070.1 7.0% $ 412.1 7.4% ======== ========
* Taxable equivalent rates used where applicable. At December 31, 1997, the value of the Accessor Funds Inc. and the Federal Home Loan Bank stock each exceeded ten percent of shareholders' equity. 35 38 Loan Portfolio During 1997, the Company consummated securitized loan sales of automobile loans, credit card receivables, home equity credit lines, Small Business Administration and Federal Agricultural Mortgage Corporation (Farmer Mac) loans totaling $951.0 million. The Company also sold $733.2 million of long-term residential mortgage loans, SBA loans, Farmer Mac loans and student loans classified as held for sale. After these sales, loans and leases on December 31, 1997 totaled $4,914.4 million, an increase of 26.7% compared to $3,877.7 million on December 31, 1996. Included in this increase are loans from acquisitions totaling $465.3 million. Loans held for sale on December 31, 1997 increased 18.7% from year-end 1996. Comparing year-end 1997 with year-end 1996, commercial loans, real estate loans, consumer loans and lease financing increased 34.6%, 22.0%, 34.5% and 10.4%, respectively. 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, 1997. Loan Portfolio by Type
December 31, ------------------------------------------------------------------ (Amounts in thousands) 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- Loans held for sale $ 178,642 $ 150,467 $ 126,124 $ 108,649 $ 238,206 ---------- ---------- ---------- ---------- ---------- Commercial, financial and agricultural 1,216,591 904,076 780,021 495,647 511,982 ---------- ---------- ---------- ---------- ---------- Real estate: Construction 482,907 346,796 285,497 218,244 213,114 Other: Home equity credit line 139,755 183,300 108,040 40,007 159,998 1-4 family residential 711,993 579,894 451,341 452,131 367,001 Other real estate-secured 1,490,702 1,206,401 848,202 570,285 495,889 ---------- ---------- ---------- ---------- ---------- 2,825,357 2,316,391 1,693,080 1,280,667 1,236,002 ---------- ---------- ---------- ---------- ---------- Consumer: Bankcard 59,506 42,313 56,189 41,035 27,522 Other 390,916 292,451 301,521 349,998 351,157 ---------- ---------- ---------- ---------- ---------- 450,422 334,764 357,710 391,033 378,679 ---------- ---------- ---------- ---------- ---------- Lease financing 176,419 159,825 132,520 129,547 130,450 ---------- ---------- ---------- ---------- ---------- Other receivables 66,994 12,167 10,944 10,509 12,857 ---------- ---------- ---------- ---------- ---------- Total loans $4,914,425 $3,877,690 $3,100,399 $2,416,052 $2,508,176 ========== ========== ========== ========== ==========
The Company has no foreign loans in its loan portfolio. 36 39 Loan Maturities On December 31, 1997
Maturities -------------------------------------------------------- One One year Over year or through five (Amounts in millions) less five years years Total -------- ---------- -------- -------- Loans held for sale $ 178.6 $ -- $ -- $ 178.6 -------- -------- -------- -------- Commercial, financial, and agricultural 732.8 314.5 169.3 1,216,6 -------- -------- -------- -------- Real estate: Construction 422.4 60.5 -- 482.9 Other: Home equity credit line 44.6 2.3 92.9 139.8 1-4 family residential 91.9 148.0 472.1 712.0 Other real estate-secured 270.5 298.0 922.2 1,490.7 -------- -------- -------- -------- 829.4 508.8 1,487.2 2,825.4 -------- -------- -------- -------- Consumer: Bankcard -- 59.5 -- 59.5 Other 106.6 181.5 102.8 390.9 -------- -------- -------- -------- 106.6 241.0 102.8 450.4 -------- -------- -------- -------- Lease financing 12.3 128.8 35.3 176.4 -------- -------- -------- -------- Other receivables 42.6 10.7 13.7 67.0 -------- -------- -------- -------- Total $1,902.3 $1,203.8 $1,808.3 $4,914.4 ======== ======== ======== ======== Loans maturing in more than one year: With fixed interest rates $ 651.9 $ 818.4 $1,470.3 With variable interest rates 551.9 989.9 1,541.8 -------- -------- -------- Total $1,203.8 $1,808.3 $3,012.1 ======== ======== ========
37 40 Sold Loans Being Serviced On December 31, 1997, long-term first mortgage real estate loans serviced for others amounted to $1,896.8 million compared to $1,542.0 million on December 31, 1996, and $1,447.9 million on December 31, 1995. Consumer and other loan securitizations serviced, which relate primarily to loans sold under revolving securitization structures, totaled $1,050.3 million on December 31, 1997, $867.9 million on December 31, 1996, and $831.5 million on December 31, 1995. The Company's activity in its sold loans being serviced portfolio (excluding long-term first mortgage real estate loans) is summarized as follows: Sold Loans Being Serviced
1997 1996 1995 ---------------------------- ---------------------------- ---------------------------- Outstanding Outstanding Outstanding (Amounts in thousands) Sales at year end Sales at year end Sales at year end ---------- ----------- ---------- ----------- ---------- ----------- Auto loans $ 201,249 $ 389,199 $ 283,542 $ 433,831 $ 263,997 $ 419,158 Home equity credit lines 341,433 327,245 180,173 220,501 195,569 219,750 Bankcard receivables 232,189 79,156 238,287 85,442 155,574 55,000 Home refinance loans -- 44,887 -- 67,582 -- 99,008 SBA 504 loans 115,271 131,153 -- 30,635 -- 38,573 SBA 7(a) loans 37,640 55,806 41,095 29,896 -- -- Farmer MAC 23,235 22,847 -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- Total $ 951,017 $1,050,293 $ 743,097 $ 867,887 $ 615,140 $ 831,489 ========== ========== ========== ========== ========== ==========
Other Assets Included in other assets are the Company's investments in affiliated companies. The Company or its subsidiaries owns stock of the Federal Agricultural Mortgage Corporation (Farmer Mac) and MACC Private Equities Inc. (MACC) that it accounts for using the equity method. On December 31, 1997, the book and market value of the Farmer MAC stock was $15.0 million and $36.3 million, respectively. The book and market value of the MACC stock was $1.7 million and $1.6 million, respectively, on December 31, 1997. For 1997 the Company recognized income of $459 thousand from its Farmer Mac investment and a loss of $273 thousand from its investment in MACC. 38 41 Deposits Total average deposits increased 22.2% to $5,783.4 million in 1997 from $4,731.9 million in 1996. Average noninterest-bearing deposits increased 27.3%, average savings and NOW deposits increased 12.9%, average money market and super NOW deposits increased 21.0%, and average time deposits under $100,000 increased 20.2%. Average time deposits over $100,000 increased 45.8% over 1996 average balances and average foreign deposits increased 17.2% during 1997, as compared with 1996. Total deposits increased 33.9% to $6,854.5 million on December 31, 1997 as compared to $5,119.7 million on December 31, 1996. Included in this increase are deposits from acquisitions totaling $980.9 million. Comparing December 31, 1997 to December 31, 1996, demand deposits increased 32.5%, savings and money market deposits increased 28.3%, time deposits under $100,000 increased 41.5%, while time deposits over $100,000 increased 69.4% and foreign deposits increased 60.2%. Average Deposit Amounts and Average Rates
(Amounts in millions) 1997 1996 1995 --------- --------- --------- Average amounts: Noninterest-bearing demand deposits $ 1,372.9 $ 1,078.5 $ 868.0 Savings and NOW deposits 729.5 646.4 729.1 Money market and super NOW deposits 2,353.6 1,945.7 1,467.1 Time deposits of less than $100,000 871.7 725.0 627.2 Time deposits $100,000 or more 314.2 215.5 133.1 Foreign deposits 141.5 120.8 139.2 --------- --------- --------- Total average amounts $ 5,783.4 $ 4,731.9 $ 3,963.7 ========= ========= ========= Average rates: Noninterest-bearing demand deposits -% -% -% Savings and NOW deposits 2.95% 3.08% 3.11% Money market and super NOW deposits 3.80% 3.70% 4.12% Time deposits under $100,000 5.17% 5.22% 5.21% Time deposits $100,000 or more 5.75% 5.67% 5.96% Foreign deposits 4.49% 4.46% 5.16% Total 4.09% 4.03% 4.23% Maturities of time deposits $100,000 or more at December 31, 1997 (Amounts in millions): Under three months $ 147.4 Over three months and less than six months 82.5 Over six months and less than twelve months 103.4 Over twelve months 75.4 --------- Total time deposits $100,000 or more $ 408.7 =========
Most foreign deposits are in denominations of $100,000 or more. 39 42 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 1997 $ 45,067 5.47% $ 212,617 $ 91,963 5.82% 1996 $ 76,831 5.52% $ 197,848 $ 76,518 5.85% 1995 $117,005 6.58% $ 241,219 $ 90,206 6.23% Federal funds purchased(a) 1997 $294,109 6.54% $ 487,098 $ 298,752 5.46% 1996 $155,407 6.68% $ 454,857 $ 206,061 5.44% 1995 $134,048 5.38% $ 354,565 $ 134,683 5.90% Security repurchase agreements(b) 1997 $976,766 5.24% $2,219,006 $1,837,795 5.18% 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% Federal Home Loan Bank advances and other borrowings less than one year(c) 1997 $ 59,883 6.05% $ 69,387 $ 34,163 6.72% 1996 $ 14,349 5.82% $ 19,009 $ 18,707 6.31% 1995 $ 16,059 5.95% $ 25,972 $ 20,654 6.85%
(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. 40 43 Long-Term Debt Long-term debt is primarily comprised of $200 million of 8.536% Guaranteed Preferred Beneficial Interests in Junior Subordinated Deferrable Interest Debentures issued by Zions Institutional Capital Trust A in December 1996, and $7.5 million of 10.25% debentures issued by GB Capital Trust in January 1997. With the approval of banking regulators, the Company has the right to redeem these issues beginning in 2006 and 2007, respectively. These debts mature on December 15, 2026 and January 27, 2027, respectively. Also included in long-term debt is $50 million of 8-5/8% unsecured subordinated notes that mature in 2002. The subordinated notes are not redeemable prior to maturity. The Company has plans to retire a portion of both the $50 million, 8-5/8% subordinated notes and the $7.5 million, 10.25% GB Capital Trust Junior Subordinated Debentures. It is anticipated that the Company will recognize a loss on the debt retirements. As of December 31, 1997, this loss is not determinate. Return on Equity and Assets
1997 1996 1995 ------- ------- ------- Return on average assets 1.33% 1.55% 1.43% Return on average common shareholders' equity 19.88% 20.95% 20.22% Common dividend payout ratio 23.20% 23.27% 24.95% Average equity to average assets ratio 6.68% 7.42% 7.05%
41 44 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 1997, 1996 and 1995, the Company repurchased and retired 3,572,603, 1,096,992 and 1,500,160 shares of its common stock at a cost of $119.7 million, $21.6 million and $18.5 million, respectively. Total shareholders' equity on December 31, 1997 was $655.5 million, an increase of 18.2% over the $554.6 million on December 31, 1996. The ratio of average equity to average assets for the year 1997 was 6.68%, compared to 7.42% for the year 1996. On December 31, 1997, the Company's Tier 1 leverage ratio was 6.75%, as compared to 8.70% on December 31, 1996. On December 31, 1997, the Company's Tier 1 risk-based capital ratio was 11.74%, as compared to 14.16% on December 31, 1996. On December 31, 1997 the Company's total risk-based capital ratio was 13.75%, as compared to 17.52% on December 31, 1996. The Company's regulatory capital ratios on December 31 for the years 1997, 1996 and 1995 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) 1997 1996 1995 Adequacy Capitalized" ---------- ---------- ---------- ---------- ------------- Tier 1 Capital $ 660,446 $ 628,261 $ 403,852 Total Capital $ 773,245 $ 777,430 $ 500,375 Risk-adjusted assets, net of goodwill and excess deferred tax assets $5,624,373 $4,436,681 $3,565,355 Average Assets, net of goodwill and excess deferred tax assets $9,784,570 $7,225,247 $6,378,015 Tier 1 Leverage Ratio 6.75% 8.70% 6.33% 3.00% 5.00% Tier 1 Risk-based Capital Ratio 11.74% 14.16% 11.33% 4.00% 6.00% Total Risk-based Capital Ratio 13.75% 17.52% 14.03% 8.00% 10.00%
42 45 Dividends Dividends per share were $.47 in 1997, an increase of 10.6% over $.425 in 1996, which were up 20.6% over $.3525 in 1995. The Company's quarterly dividend rate was $.075 per share for the first quarter of 1995, increasing to $.0875 per share for the second and third quarters of 1995, increasing to $.1025 per share for the fourth quarter of 1995 and the first and second quarters of 1996, increasing to $.11 per share for the third and fourth quarters of 1996 and the first quarter of 1997, and increasing to $.12 per share for the second, third and fourth quarters of 1997. Dividends Paid
(Amounts in thousands) 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- Net income $122,362 $107,423 $ 82,385 $ 63,827 $ 58,205 Common dividends paid 28,387 24,997 20,554 17,271 12,692 Payout/net income 23.20% 23.27% 24.95% 27.06% 21.81%
Shareholders' Rights Plan The Company has in place a 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 $90, 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 $183.0 million in 1997, $114.3 million in 1996, and $106.1 million in 1995; and averaged $141.5 million for 1997, $120.8 million for 1996, and $139.2 million for 1995. 43 46 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, 25% in commercial loans, 57% in real estate loans, 9% in consumer loans, 4% in lease financing and 1% in other loans. The Company's real estate portfolio is also diversified. Of the total portfolio, 10% is in real estate construction loans, 3% is in home equity credit lines, 14% 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 11 industry classification groupings. On December 31, 1997, the larger concentrations of risk in the commercial loan and leasing portfolio were represented by real estate and construction, business services and transportation, manufacturing, and retail industry groupings, which comprised approximately 29%, 19%, 9% and 7%, 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, Idaho, Nevada, Arizona, Colorado and California and it has no foreign credits in its loan portfolio. Also, the Company does not have significant exposure to any individual customer or counterparty. 44 47 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) 1997 1996 1995 1994 1993 ------- ------- ------- ------- ------- Nonaccrual loans $11,907 $12,704 $10,875 $13,635 $23,364 Loans contractually past due 90 days or more (not included in nonaccrual loans above) 9,944 3,563 5,309 3,041 10,821 Restructured loans (not included in nonaccrual loans or loans contractually past due 90 days or more) 691 857 249 567 4,006 Potential problem loans (loans presently 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) -- -- -- -- 1,114 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:
1997 1996 1995 -------------------------- -------------------------- -------------------------- Non- Restruc- Non- Restruc- Non- Restruc- (Amounts in thousands) accrual tured Total accrual tured Total accrual tured Total ------- ------- ------ ------- ------- ------ ------- ------- ------ Gross amount of interest that would have been recorded at original rate $1,180 $ 70 $1,250 $1,361 $ 92 $1,453 $1,073 $ 27 $1,100 Interest that was included in income 742 67 809 629 91 720 449 25 474 ------ ------ ------ ------ ------ ------ ------ ------ ------ Net impact on interest income $ 438 $ 3 $ 441 $ 732 $ 1 $ 733 $ 624 $ 2 $ 626 ====== ====== ====== ====== ====== ====== ====== ====== ======
45 48 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 $16.0 million on December 31, 1997, up from $13.7 million on December 31, 1996. Such nonperforming assets as a percentage of net loans and leases, other real estate owned and other nonperforming assets were .33% on December 31, 1997, as compared to .36% on December 31, 1996. Accruing loans past due 90 days or more totaled $9.9 million on December 31, 1997, up from $3.6 million on December 31, 1996. These loans equaled .20% of net loans and leases on December 31, 1997, as compared to .09% on December 31, 1996. No loans were considered potential problem loans on December 31, 1997 or 1996. Potential problem loans are defined as loans presently on accrual and not contractually past due 90 days or more and not restructured, 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 $7.1 million and $7.8 million on December 31, 1997 and 1996, 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, 1997 and 1996, is a required allowance of $46 thousand and $25 thousand respectively, on $.3 million and $1.0 million, respectively, of the recorded investment in impaired loans. 46 49 The following table sets forth the composition of nonperforming assets at December 31 for the years indicated. Nonperforming Assets
December 31, --------------------------------------------------------------- (Amounts in thousands) 1997 1996 1995 1994 1993 ------- ------- ------- ------- ------- Nonaccrual loans: Commercial, financial and agricultural $ 3,563 $ 4,999 $ 2,338 $ 5,736 $ 6,969 Real estate 7,073 6,160 6,129 5,290 12,277 Consumer 572 765 883 862 607 Lease financing 691 779 1,395 1,747 3,511 Other 8 1 130 -- -- ------- ------- ------- ------- ------- Total 11,907 12,704 10,875 13,635 23,364 ------- ------- ------- ------- ------- Restructured loans: Commercial, financial and agricultural -- 144 -- -- 8 Real estate 691 713 249 567 3,998 ------- ------- ------- ------- ------- Total 691 857 249 567 4,006 ------- ------- ------- ------- ------- Other real estate owned: Commercial, financial and agricultural: Improved 2,453 -- 425 415 844 Unimproved 405 30 200 1,018 904 Residential: 1-4 Family 500 84 439 63 1,182 Multi-family -- -- -- -- -- Lots 7 6 6 6 163 Recreation property 6 8 9 42 110 Other -- 10 13 18 64 ------- ------- ------- ------- ------- Total 3,371 138 1,092 1,562 3,267 Other nonperforming assets -- -- 517 3,179 -- ------- ------- ------- ------- ------- Total 3,371 138 1,609 4,741 3,267 ------- ------- ------- ------- ------- Total $15,969 $13,699 $12,733 $18,943 $30,637 ======= ======= ======= ======= ======= % of Net loans* and leases, other real estate owned and other nonperforming assets .33% .36% .41% .79% 1.23% Accruing loans past due 90 days or more: Commercial, financial and agricultural $ 1,456 $ 477 $ 730 $ 431 $ 1,612 Real estate 6,967 2,205 3,529 1,975 8,881 Consumer 1,357 881 1,044 631 327 Lease financing 164 -- 6 4 1 ------- ------- ------- ------- ------- Total $ 9,944 $ 3,563 $ 5,309 $ 3,041 $10,821 ======= ======= ======= ======= ======= % of Net loans* and leases .20% .09% .17% .13% .44%
* Includes loans held for sale. 47 50 Allowance for Loan Losses The Company's allowance for loan losses was 1.65% of net loans and leases on December 31, 1997 compared to 2.00% on December 31, 1996. Net charge-offs in 1997 were $8.0 million, or .19% of average loans and leases, compared to net charge-offs of $3.8 million, or .11% of average net loans and leases in 1996 and net charge-offs of $2.8 million, or .10% of average net loans and leases in 1995. The allowance, as a percentage of nonaccrual loans and restructured loans, was 638.84% on December 31, 1997, compared to 566.35% on December 31, 1996, and 660.17% on December 31, 1995. The allowance, as a percentage of nonaccrual loans and accruing loans past due 90 days or more was 368.32% on December 31, 1997, compared to 472.14% on December 31, 1996, and 453.76% on December 31, 1995. On December 31, 1997, 1996 and 1995, the allowance for loan losses includes an allocation of $8.9 million, $6.2 million and $8.0 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, 1997, 1996 and 1995, totaled $2,533.7 million, $2,075.8 million, and $1,722.9 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. 48 51 Summary of Loan Loss Experience The following table shows the change in the allowance for losses for each year indicated.
(Amounts in thousands) 1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- Loans* and leases outstanding on December 31 (net of unearned income) $ 4,871,650 $ 3,837,149 $ 3,068,057 $ 2,391,278 $ 2,486,346 =========== =========== =========== =========== =========== Average loans* and leases outstanding (net of unearned income) $ 4,341,674 $ 3,432,347 $ 2,662,753 $ 2,574,995 $ 2,222,182 =========== =========== =========== =========== =========== Allowance for possible losses: Balance at beginning of year $ 76,803 $ 73,437 $ 67,018 $ 68,461 $ 59,807 Allowance of companies acquired 5,544 2,566 6,202 1,308 546 Provision charged against earnings 6,175 4,640 3,000 2,181 2,993 Loans and leases charged off: Loans held for sale -- -- -- -- -- Commercial, financial and agricultural (5,472) (1,342) (1,208) (5,158) (1,804) Real estate (329) (539) (587) (573) (1,179) Consumer (8,277) (7,814) (6,847) (4,756) (5,461) Lease financing (279) (228) (41) (1,174) (360) Other receivables -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- Total (14,357) (9,923) (8,683) (11,661) (8,804) ----------- ----------- ----------- ----------- ----------- Recoveries: Loans held for sale -- -- -- -- -- Commercial, financial and agricultural 2,003 2,606 2,584 2,180 10,117 Real estate 1,854 537 491 676 611 Consumer 2,313 2,398 2,549 3,732 3,043 Lease financing 146 542 276 141 148 Other receivables -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- Total 6,316 6,083 5,900 6,729 13,919 ----------- ----------- ----------- ----------- ----------- Net loan and lease (charge-offs) recoveries (8,041) (3,840) (2,783) (4,932) 5,115 ----------- ----------- ----------- ----------- ----------- Balance at end of year $ 80,481 $ 76,803 $ 73,437 $ 67,018 $ 68,461 =========== =========== =========== =========== =========== Ratio of net charge-offs (recoveries) to average loans and leases .19% .11% .10% .19% (.23)% Ratio of allowance for possible losses to loans and leases outstanding on December 31 1.65% 2.00% 2.39% 2.80% 2.75% Ratio of allowance for possible losses to nonperforming loans on December 31 638.84% 566.35% 660.17% 471.89% 250.13% Ratio of allowance for possible losses to nonaccrual loans and accruing loans past due 90 days or more on December 31 368.32% 472.14% 453.76% 401.88% 200.27%
* Includes loans held for sale 49 52 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:
1997 1996 ---------------------------- ---------------------- % of Allocation % of Allocation total of total of (Amounts in thousands) loans allowance loans allowance --------- ---------- --------- ---------- Type of loan - ------------ Loans held for sale 3.6% $ - 3.9% $ - Commercial, financial and agricultural 24.7 2,028 23.3 3,455 Real estate 57.5 3,616 59.8 4,609 Consumer 9.2 910 8.6 80 Lease financing 3.6 115 4.1 204 Other receivables 1.4 - .3 - ----- ----- Total loans 100.0% 100.0% ===== ===== Off-balance sheet unused commitments and standby letters of credit 8,852 6,218 ------- ----- Allocated 15,521 14,566 Unallocated 64,960 62,237 ------ ------ Total allowance for loan losses $80,481 $76,803 ======= =======
1995 1994 1993 ---------------------------- ---------------------- ---------------------- % of Allocation % of Allocation % of Allocation total of total of total of (Amounts in thousands) loans allowance loans allowance loans allowance --------- ---------- --------- ---------- --------- ---------- (Amounts in thousands) Type of loan - ------------ Loans held for sale 4.1% $ -- 4.4% $ -- 9.5% $ -- Commercial, financial and agricultural 25.1 778 20.5 2,920 20.4 3,094 Real estate 54.6 2,397 53.0 1,594 49.3 4,032 Consumer 11.5 32 16.2 946 15.1 2,366 Lease financing 4.3 425 5.4 981 5.2 1,043 Other receivables .4 -- .4 -- .5 -- ----- ----- ----- Total loans 100.0% 100.0% 100.0% ===== ===== ===== Off-balance sheet unused commitments and standby letters of credit 7,954 3,674 1,972 ------- ------- ------- Allocated 11,586 10,115 12,507 Unallocated 61,851 56,903 55,954 ------- ------- ------- Total allowance for loan losses $73,437 $67,018 $68,461 ======= ======= =======
50 53 Liquidity Risk Management 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. Management of the maturities of these portfolios 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 allows it to meet funding needs at a reasonable cost. To meet the Company's short-term liquidity needs, on December 31, 1997 the Company had cash, money market investments, and liquid securities net of short-term or "purchased" liabilities and foreign deposits, of $2.0 billion or 32.2% of core deposits. The Company's core deposits, consisting of demand, savings, money market, and time deposits under $100,000, constituted 91.4% of total deposits at year-end. The Parent Company's cash requirements consist primarily of debt service, dividends to shareholders, operating expenses, income taxes and share repurchases. The Parent's cash needs are routinely met through dividends from subsidiaries, proportionate shares of current income taxes, management and other fees, unaffiliated bank lines and debt issuance. At January 1, 1998, $60.9 million of dividend capacity was available from subsidiaries to pay to the Parent without having to obtain regulatory approval. During 1997, dividends from subsidiaries were $98.7 million. In October, the Parent issued a $50 million senior note to a third party in a private transaction. The note matures in October 1999. At December 31, 1997 the Parent had revolving credit facilities with two banks totaling $50 million. On that date, the balance outstanding on these bank lines was $44 million. 51 54 Market Risk Management Market risk is the possibility that changes in interest rates or equity securities prices will impair the fair value of the Company's financial instruments. The Asset/Liability Committee (ALCOM) measures and reviews the market risk of the Company and establishes policies and procedures to limit its exposure to changes in interest rates. These policies are reviewed and approved by the Boards of Directors of the Company's subsidiary banks. Interest rate risk is the most significant market risk regularly undertaken by the Company. This risk is monitored through the use of three complementary measurement methods: equity duration, income simulation, and gap analysis. Equity duration is the residual average life of the Company's equity determined by subtracting the weighted average life of the discounted expected cash flows of its liabilities from its assets. Income simulation is an estimate of the net interest income which would be recognized under different rate environments. Gap analysis compares the amount of assets which mature or are subject to an interest rate reset during a specified period to the amount of liabilities with similar rate change characteristics. At year-end, the equity duration of the Company was estimated to be 1.3 years. A 200 basis point immediate increase in rates was estimated to increase the duration of equity to 5.2 years. Conversely, an immediate decrease in rates of similar magnitude was estimated to decrease the duration of equity to 0.2 years. Company policy requires that all three of these measures be between 0 and 7 years. For income simulation, Company policy requires that net interest income not be expected to decline by more than 10% during one year if rates rise or fall by 200 basis points during the period. At year-end, net interest income was expected to decline by 0.23% during 1998 in a rising rate environment relative to projected net interest income in a stable rate environment. If rates declined by 200 basis points during 1998, net interest income was forecasted to be 1.25% lower than if rates are stable. Net interest income was expected to be modestly lower in either a rising or declining rate scenario for a variety of factors, including management's assumptions regarding loan and deposit pricing, security and loan prepayments, and changes in relationships between market rates. Management exercises its best judgment in making assumptions regarding loan and security prepayments, early deposit withdrawals, and other non-controllable events in managing the Company's exposure to changes in interest rates. 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 position in any subsequent period. At year end, the one year gap for the Company was negative $312.6 million; i.e., the $6,023.6 million of assets that mature or reprice during 1998 was estimated to be less than the $5,749.9 million of liabilities and the $586.3 million net effect of off-balance sheet swaps that mature or reprice during the same period. This gap represented 3.3% of total assets. Details of the repricing characteristics of the balance sheet as of year-end are presented in the accompanying table. The Company does not have policy limits regarding its gap position. 52 55 Maturities and Interest Rate Sensitivity on December 31, 1997
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 $ 7.6 $ 19.2 $ 35.0 $ .1 $ 61.9 Federal funds sold 402.9 402.9 Security resell agreements 349.3 349.3 Securities: Held to maturity 843.6 433.3 507.2 358.6 2,142.7 Available for sale 194.2 50.7 121.2 119.6 485.7 Trading account 83.7 83.7 Loans and leases 3,033.5 605.6 987.6 245.0 4,871.7 Nonearning assets $1,123.9 1,123.9 -------- -------- -------- -------- -------- -------- Total uses of funds $4,914.8 $1,108.8 $1,651.0 $ 723.3 $1,123.9 $9,521.8 ======== ======== ======== ======== ======== ======== Sources of Funds Interest-bearing deposits and liabilities: Savings and money market deposits $2,100.5 $ 23.7 $ 65.9 $1,288.2 $3,478.3 Time deposits under $100,000 273.1 479.6 247.4 1.6 1,001.7 Time deposits over $100,000 148.8 199.2 60.8 408.8 Foreign 183.0 183.0 Securities sold, not yet purchased 45.1 45.1 Federal funds purchased 294.1 294.1 Security repurchase agreements 976.7 976.7 FHLB advances and other borrowings: Less than one year 59.9 59.9 Over one year 36.5 51.8 14.0 108.4 210.7 Long-term debt .1 50.4 208.0 258.5 Noninterest-bearing deposits 877.8 $ 904.9 1,782.7 Other liabilities 166.8 166.8 Shareholders' equity 655.5 655.5 -------- -------- -------- -------- -------- -------- Total sources of funds $4,995.5 $ 754.4 $ 38.5 $1,606.2 $1,727.2 $9,521.8 ======== ======== ======== ======== ======== ======== Off-balance sheet items affecting interest rate sensitivity $ (661.3) $ 75.0 $ 578.1 $ 8.2 Interest rate sensitivity gap $ (742.0) $ 429.4 $1,790.6 $ (874.7) $ (603.3) Percent of total assets (7.8)% 4.5% 18.8% (9.2)% (6.3)% Cumulative interest rate sensitivity gap $ (742.0) $ (312.6) $1,478.0 $ 603.3 Cumulative as a % of total assets (7.8)% (3.3)% 15.5% 6.3%
53 56 The Company, through the management of maturities and repricing of its assets and liabilities and the use of off-balance sheet arrangements, including interest rate caps, floors, futures, options, and exchange agreements, attempts to manage the effect on net interest income of changes in interest rates. The prime lending rate is the primary basis used for pricing the Company's loans and the 91-day Treasury bill rate is the index used for pricing many of the Company's deposits. The Company, however, is unable to economically hedge the prime/T-bill spread risk through the use of derivative financial instruments. Interest rate swap maturities and average rates are presented in the following table. For a further discussion and information regarding off-balance sheet financial contracts, refer to Notes 1, 13 and 19 to the Financial Statements. Interest Rate Swap Maturities and Average Rates
(Amounts in millions) 1998 1999 2000 2001 Thereafter Total -------- -------- -------- -------- ---------- -------- Receive fixed rate Notional amount $ 115.0 $ 300.0 $ 220.4 $ 1.2 $ 64.7 $ 701.3 Weighted-average rate received 5.84% 6.19% 6.28% 6.75% 6.53% 6.19% Weighted-average rate paid 5.92% 5.91% 5.92% 6.02% 5.89% 5.91%
Year 2000 A number of electronic systems utilize a two-digit field for year references, e.g., 98 instead of 1998. Such systems may determine the year 2000, if represented as 00, to be 98 years ago rather than two years hence. The Company is in the process of modifying or replacing certain computer software and hardware and other systems to ensure proper processing of transactions after 1999. The Company is also in contact with external service providers to ascertain that their systems, upon which the Company depends, will also be upgraded, if necessary. The Company anticipates that all of its major systems for which it conducts its own processing will be compliant with Year 2000 processing by the end of 1998. It expects to test each of its systems to confirm compliance late this year. The Company believes that all of its third-party service providers will also be compliant by the end of this year, except for its trust and mortgage processing systems, which it believes will be able to appropriately handle transactions after 1999 by the end of the first quarter of next year. A review is also being undertaken of the Company's other systems to confirm proper functionality after 1999; including security cameras, alarm systems, voice mail, and elevators, among others. Finally, the Company inquires about Year 2000 preparedness being undertaken by its customers to which it has significant credit exposure. The Company estimates that the cumulative incremental cost it will incur to address the Year 2000 issue to be approximately $3 million. The cost estimate excludes the expense outlays the Company is making to replace its processing systems in the ordinary course of business to improve its products and services. Many of these new systems also correct deficiencies that the Company's present software has in processing transactions after 1999. The preponderance of this expense will be recognized in 1998. Forward-Looking Statements Statements in Management's Discussion and Analysis that are not based on historical data may constitute forward looking information within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from the projections discussed in Management's Discussion and Analysis since such projections involve significant risks and uncertainties. Factors that might cause such differences include, but are not limited to: (1) timing of closing proposed acquisitions being delayed or such acquisitions being prohibited; (2) competitive pressures among financial institutions increasing significantly; (3) economic conditions, either nationally or locally in areas in which Zions conducts its operations, being less favorable than expected; (4) legislation or regulatory changes which adversely affect the ability of the Company to conduct, or the accounting for, business combinations. 54 57 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, 1997 and 1996, 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, 1997. 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, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1997, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Salt Lake City, Utah January 26, 1998 55 58 ZIONS BANCORPORATION AND SUBSIDIARIES Consolidated Balance Sheets December 31, 1997 and 1996 (In thousands, except share amounts)
1997 1996 ---------- ---------- ASSETS Cash and due from banks $ 626,814 453,990 Money market investments: Interest-bearing deposits 61,871 47,746 Federal funds sold 402,879 260,023 Security resell agreements 349,338 305,660 Investment securities: Held to maturity, at cost (approximate market value $2,162,588 and $1,484,754) 2,142,727 1,475,409 Available for sale, at market 485,686 474,158 Trading account 83,681 34,076 Loans: Loans held for sale at cost, which approximates market 178,642 150,467 Loans, leases, and other receivables 4,735,783 3,727,223 ---------- ---------- 4,914,425 3,877,690 Less: Unearned income and fees, net of related costs 42,775 40,541 Allowance for loan losses 80,481 76,803 ---------- ---------- Net loans 4,791,169 3,760,346 Premises and equipment 135,980 102,701 Goodwill and core deposit intangibles 158,836 44,885 Other real estate owned 3,371 138 Other assets 279,418 157,281 ---------- ---------- Total assets $9,521,770 7,116,413 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Noninterest-bearing $1,782,716 1,345,698 Interest-bearing: Savings and money market 3,478,275 2,710,312 Time: Under $100,000 1,001,710 708,077 Over $100,000 408,717 241,313 Foreign 183,044 114,292 ---------- ---------- 6,854,462 5,119,692 Securities sold, not yet purchased 45,067 76,831 Federal funds purchased 294,109 155,407 Security repurchase agreements 976,766 771,361 Accrued liabilities 166,776 90,668 Federal Home Loan Bank advances and other borrowings: Less than one year 59,883 14,349 Over one year 210,681 81,875 Long-term debt 258,566 251,620 ---------- ---------- Total liabilities 8,866,310 6,561,803 ---------- ---------- Shareholders' equity: Capital stock: Preferred stock, without par value; authorized 3,000,000 shares; issued and outstanding, none -- -- Common stock, without par value; authorized 100,000,000 shares; issued and outstanding, 63,962,100 shares and 63,468,480 shares 122,222 119,791 Net unrealized gain (loss) on securities available for sale 2,678 (1,807) Retained earnings 530,560 436,626 ---------- ---------- Total shareholders' equity 655,460 554,610 ---------- ---------- $9,521,770 7,116,413 ========== ==========
See accompanying notes to consolidated financial statements. 56 59 ZIONS BANCORPORATION AND SUBSIDIARIES Consolidated Statements of Income Years ended December 31, 1997, 1996, and 1995 (In thousands, except per share amounts)
1997 1996 1995 -------- -------- -------- Interest income: Interest and fees on loans $401,284 314,695 251,521 Interest on loans held for sale 11,874 11,509 9,259 Interest on money market investments 84,607 51,712 56,140 Interest on securities: Held to maturity: Taxable 112,930 76,631 66,165 Nontaxable 11,312 14,554 12,424 Available for sale: Taxable 28,798 26,573 24,726 Nontaxable 2,090 2,260 21 Trading account 16,211 9,172 9,248 Lease financing 13,190 11,885 9,991 -------- -------- -------- Total interest income 682,296 518,991 439,495 -------- -------- -------- Interest expense: Interest on savings and money market deposits 110,882 91,865 83,080 Interest on time and foreign deposits 69,489 55,441 47,762 Interest on borrowed funds 150,126 82,519 75,106 -------- -------- -------- Total interest expense 330,497 229,825 205,948 -------- -------- -------- Net interest income 351,799 289,166 233,547 Provision for loan losses 6,175 4,640 3,000 -------- -------- -------- Net interest income after provision for loan losses 345,624 284,526 230,547 -------- -------- -------- Noninterest income: Service charges on deposit accounts 43,732 35,195 28,884 Other service charges, commissions, and fees 38,274 28,701 24,370 Trust income 6,757 5,195 4,355 Investment securities gain (loss), net 797 115 (148) Trading account income (loss) 5,716 2,721 (1,247) Loan sales and servicing income 38,768 35,128 24,254 Other 9,123 7,215 8,343 -------- -------- -------- Total noninterest income 143,167 114,270 88,811 -------- -------- -------- Noninterest expense: Salaries and employee benefits 159,973 129,708 105,527 Occupancy, net 16,911 13,668 10,972 Furniture and equipment 23,695 17,133 13,486 Other real estate expense (income) 251 (298) 81 Legal and professional services 7,789 5,263 4,395 Supplies 8,108 6,582 5,305 Postage 6,823 5,658 5,190 Advertising 7,380 5,789 5,276 FDIC premiums 737 11 4,123 Merger expense 2,707 -- -- Amortization of goodwill and core deposit intangibles 5,860 2,851 2,612 Amortization of mortgage servicing assets 2,152 1,299 1,148 Other 58,832 47,608 37,071 -------- -------- -------- Total noninterest expense 301,218 235,272 195,186 -------- -------- -------- Income before income taxes 187,573 163,524 124,172 Income taxes 65,211 56,101 41,787 -------- -------- -------- Net income $122,362 107,423 82,385 ======== ======== ======== Weighted-average common and common-equivalent shares outstanding during the year 64,629 63,787 60,013 ======== ======== ======== Net income per common share: Basic $ 1.92 1.70 1.39 ======== ======== ======== Diluted $ 1.89 1.68 1.37 ======== ======== ========
See accompanying notes to consolidated financial statements 57 60 ZIONS BANCORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended December 31, 1997, 1996, and 1995 (In thousands)
1997 1996 1995 ------------- ------------- ------------- Cash flows from operating activities: Net income $ 122,362 107,423 82,385 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 6,175 4,640 3,000 Write-downs of other real estate owned 324 -- 180 Depreciation of premises and equipment 18,027 14,315 10,998 Amortization of intangible assets 8,012 4,150 3,760 Amortization of net premium/discount on investment securities 5,498 5,421 3,821 Accretion of unearned income and fees, net of related costs 1,953 7,632 6,324 Proceeds from sales of trading account securities 119,209,754 80,374,843 112,293,128 Increase in trading account securities (119,259,359) (80,345,212) (112,157,509) Net loss (gain) on sales of investment securities (797) (115) 148 Proceeds from loans held for sale 742,244 664,327 440,245 Increase in loans held for sale (764,066) (671,343) (454,532) Net gain on sales of loans, leases, and other assets (27,948) (26,866) (16,195) Net gain on sales of other real estate owned (214) (265) (169) Change in accrued income taxes 677 4,677 (7,231) Change in accrued interest receivable (19,776) (6,938) (2,389) Change in other assets (94,960) 18,181 (3,410) Change in accrued interest payable 4,360 (661) 890 Change in accrued liabilities 70,398 5,067 7,279 ------------- ------------- ------------- Net cash provided by operating activities 22,664 159,276 210,723 ------------- ------------- ------------- Cash flows from investing activities: Net decrease (increase) in money market investments (186,534) 97,897 (241,328) Proceeds from sales of investment securities held to maturity -- -- 6,950 Proceeds from maturities of investment securities held to maturity 982,883 377,736 291,157 Purchases of investment securities held to maturity (1,626,404) (667,657) (342,874) Proceeds from sales of investment securities available for sale 282,383 133,590 192,071 Proceeds from maturities of investment securities available for sale 100,180 134,401 302,443 Purchases of investment securities available for sale (315,014) (303,745) (472,171) Proceeds from sales of loans and leases 968,717 765,341 627,855 Net increase in loans and leases (1,510,682) (1,422,625) (1,013,932) Purchases of assets to be leased -- (8,514) -- Principal collections on leveraged leases 5,748 -- 38 Proceeds from sales of premises and equipment 2,850 806 726 Purchases of premises and equipment (38,562) (22,303) (17,963) Proceeds from sales of other real estate owned 3,317 1,594 1,899 Proceeds from sales of mortgage-servicing rights 1,771 1,339 1,547 Purchases of mortgage-servicing rights (3,123) (1,625) (423) Proceeds from sales of other assets 415 773 479 Purchase of other assets -- (18,887) (218) Cash paid for acquisition, net of cash received (33,273) 3,540 1,568 ------------- ------------- ------------- Net cash used in investing activities (1,365,328) (928,339) (662,176) ------------- ------------- ------------- Cash flows from financing activities: Net increase in deposits 1,185,585 494,514 352,321 Net change in short-term funds borrowed 349,884 138,733 252,083 Proceeds from FHLB advances over one year 180,000 4,201 -- Payments on FHLB advances over one year (56,194) (18,143) (16,861) Payments on leveraged leases (5,748) -- -- Proceeds from issuance of long-term debt 7,500 200,000 -- Payments on long-term debt (554) (4,969) (1,953) Proceeds from issuance of common stock 3,168 1,178 1,291 Payments to redeem common stock (119,725) (21,635) (18,523) Dividends paid (28,428) (25,033) (20,592) ------------- ------------- ------------- Net cash provided by financing activities 1,515,488 768,846 547,766 ------------- ------------- ------------- Net increase (decrease) in cash and due from banks 172,824 (217) 96,313 Cash and due from banks at beginning of year 453,990 454,207 357,894 ------------- ------------- ------------- Cash and due from banks at end of year $ 626,814 453,990 454,207 ============= ============= =============
See accompanying notes to consolidated financial statements. 58 61 ZIONS BANCORPORATION AND SUBSIDIARIES Consolidated Statements of Retained Earnings Years ended December 31, 1997, 1996, and 1995 (In thousands)
1997 1996 1995 --------- --------- --------- Balance at beginning of year $ 436,626 354,236 292,443 Net income 122,362 107,423 82,385 Cash dividends: Preferred, paid by subsidiaries to minority shareholders (41) (36) (38) Common, per share of $.4700 in 1997, $.4250 in 1996, and $.3525 in 1995 (28,387) (24,997) (20,554) --------- --------- --------- Balance at end of year $ 530,560 436,626 354,236 ========= ========= =========
See accompanying notes to consolidated financial statements. 59 62 ZIONS BANCORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years ended December 31, 1997, 1996, and 1995 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 operating primarily in Utah, Idaho, Nevada, Arizona, Colorado, and California. 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 prior year amounts have been reclassified to conform to the 1997 presentation. Prior year amounts have also been restated for a significant acquisition accounted for under the pooling of interest method. (See Note 2) 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 $1,321,763,000 during 1997, and the maximum amount outstanding at any month-end during 1997 was $1,675,714,000. 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. 60 63 ZIONS BANCORPORATION Notes to Consolidated Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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. 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 - Mortgage servicing rights are accounted for under the provisions of Statement of Financial Accounting Standards (Statement) No. 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, which became effective January 1, 1997. Statement No. 125 superseded Statement No. 122, Accounting for Mortgage Servicing Rights, but did not significantly change the methodology used to account for servicing rights. The Company adopted Statement No. 122 as of January 1, 1996 and at that time began capitalizing originated servicing rights. The adoption did not have a material impact on financial position or results of operations. Prior to 1996, capitalization was limited to purchased servicing. The total cost of loans originated or purchased is allocated between loans and servicing rights based on the relative fair values of each. The servicing rights capitalized are amortized in proportion to and over the period of estimated servicing income. Management stratifies servicing rights based on origination period and interest rate and evaluates the recoverability in relation to the impact of actual and anticipated loan portfolio prepayment, foreclosure and delinquency experience. 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. 61 64 ZIONS BANCORPORATION Notes to Consolidated Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Impaired Loans - 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. 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. 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. Goodwill and Core Deposit Intangibles - The Company assesses the recoverability of these intangible assets by determining whether the amortization of the balance over its remaining life can be recovered through future operating cash flows of the acquired operation. The amount of goodwill impairment, if any, is measured based on projected future operating cash flows using a discount rate reflecting the Company's average cost of funds. Goodwill and core deposit intangibles are amortized using the straight-line method over 25 and 10 year periods, respectively. 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 such items. 62 65 ZIONS BANCORPORATION Notes to Consolidated Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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 recorded as income or expense at the termination of the contract. The net interest received or paid on these contracts is reflected on a current basis in the interest income or expense related to the hedged obligation or asset. Statement of Cash Flows- The Company paid interest of $332.5 million, $230.0 million, and $205.5 million, respectively, and income taxes of $61.6 million, $46.4 million, and $45.9 million, respectively, for the years ended December 31, 1997, 1996, and 1995. Loans transferred to other real estate owned totaled $6.6 million, $.4 million, and $1.2 million, respectively, for the years ended December 31, 1997, 1996, and 1995. 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. The exercise of stock options under the Company's nonqualified stock option plan, during 1997 and 1996, resulted in tax benefits reducing the Company's current income tax payable and increasing common stock in the amounts of $1.2 million and $.6 million in 1997 and 1996, respectively. 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 - The Company's stock-based compensation plans are accounted for under the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. Statement No. 123, Stock-Based Compensation, issued in 1995, allows a company to recognize stock-based compensation using a fair value based method of accounting if it so elects. The Company has elected not to adopt the recognition provisions of Statement No. 123. 63 66 ZIONS BANCORPORATION Notes to Consolidated Financial Statements 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Net Income Per Common Share - Diluted net income per common share is based on the weighted-average outstanding common shares during each year, including common stock equivalents. Net income per common share is based on the weighted-average outstanding common shares during each year. Stock Split - On April 25, 1997, the Company's Board of Directors approved a four-for-one split of the common stock. This action was effective on May 14, 1997 for shareholders of record as of May 9, 1997. A total of 43,347,903 shares of common stock were issued. All references to the number of common shares and per common share amounts have been restated to reflect the split. Accounting Standards Not Adopted - In June 1997, the Financial Accounting Standards Board issued Statement No. 130, Reporting Comprehensive Income. This statement establishes standards for reporting the components of comprehensive income and requires that all items that are required to be recognized under accounting standards as components of comprehensive income be included in a financial statement that is displayed with the same prominence as other financial statements. Comprehensive income includes net income as well as certain items that are reported directly within a separate component of stockholders' equity and bypass net income. The provisions of this statement are effective beginning with 1998 interim reporting. These disclosure requirements will have no impact on financial position or results of operations. In June 1997, the Financial Accounting Standards Board issued Statement No. 131, Disclosures about Segments of an Enterprise and Related Information. The provisions of this statement require disclosure of financial and descriptive information about an enterprise's operating segments in annual and interim financial reports issued to shareholders. The statement defines an operating segment as a component of an enterprise that engages in business activities that generate revenue and incur expense, whose operating results are reviewed by the chief operating decision maker in the determination of resource allocation and performance, and for which discrete financial information is available. It also establishes standards for related disclosures about products and services, geographic areas and major customers. This statement is effective for fiscal years beginning after December 15, 1997, however, it is not required to be applied for interim reporting in the initial year of application. 2. MERGERS AND ACQUISITIONS On May 16, 1997, the Company acquired Aspen Bancshares, Inc. in Colorado, and its banking subsidiaries, Pitkin County Bank and Trust, Centennial Savings Bank, F.S.B. and Valley National Bank of Cortez for 2,750,594 shares of common stock. This acquisition was not significant to the Company's consolidated financial statements and was accounted for as a purchase. On July 11, 1997, the Company acquired Tri-State Bank in Idaho for 253,955 shares of common stock. Tri-State was subsequently merged into Zions Bancorporation's wholly-owned subsidiary Zions First National Bank. The acquisition was not significant to the Company's consolidated financial statements and was accounted for as a pooling of interests. On July 18, 1997, the Company acquired 27 Wells Fargo Bank Offices in Arizona, Nevada, and Utah and on September 20, 1997, the Company acquired 4 additional Wells Fargo Branches in Utah. The acquisitions were not significant to the consolidated financial statements and were accounted for as purchases. 64 67 ZIONS BANCORPORATION Notes to Consolidated Financial Statements 2. MERGERS AND ACQUISITIONS (continued) On October 17, 1997, the Company acquired Sun State Capital Corporation in Nevada and merged its subsidiary, Sun State Bank, into the Company's wholly-owned subsidiary, Nevada State Bank. The Company issued 584,236 shares of common stock and paid $16.1 million in cash in the acquisition. The acquisition was not significant and was accounted for as a purchase. On November 14, 1997, the Company acquired GB Bancorporation and its banking subsidiary Grossmont Bank, in San Diego, California for 4,702,048 shares of common stock. The merger was accounted for as a pooling of interests. GB Bancorporation's total assets were approximately $814 million on the acquisition date. Total interest and noninterest income and net income of GB Bancorporation for the year ended December 31, 1996 were $43,412,000 and $6,073,000, respectively. The Company's total interest and noninterest income and net income, prior to restatement for the acquisition of GB Bancorporation, were $589,849,000 and $101,350,000, respectively, for the year ended December 31, 1996. Total GB Bancorporation interest and noninterest income and net income for the period January 1 through November 14, 1997 were $52,254,000 and $8,447,000, respectively. Total interest and noninterest income and net income of GB Bancorporation for the year ended December 31, 1997 were $61,608,000 and $10,530,000, respectively. The acquisition was considered significant and prior year amounts have been restated. On January 6, 1998, the Company acquired Vectra Banking Corporation and its banking subsidiary Vectra Bank located in Denver, Colorado for 4,021,303 shares of common stock. Vectra Banking Corporation had total assets of approximately $728 million (unaudited) at the date of acquisition. This transaction will be accounted for as a pooling of interests. On January 23, 1998, the Company acquired Sky Valley Bank Corp. in Alamosa, Colorado, and its banking subsidiary, The First National Bank in Alamosa for 572,817 shares of common stock. Sky Valley Bank Corp. had total assets of approximately $122 million (unaudited) at the date of acquisition. The acquisition will be accounted for as a pooling of interests. On September 4, 1997, the Company announced the definitive agreement to acquire Tri-State Finance Corporation and its banking subsidiary Tri-State Bank in Denver, Colorado in exchange for Zions Bancorporation common stock. As of December 31, 1997, Tri-State Finance Corporation had total assets of approximately $128 million (unaudited). The transaction is intended to be accounted for as a pooling of interests, and is expected to close in the first quarter of 1998. On December 22, 1997, the Company announced a definitive agreement had been reached to acquire SBT Bankshares, Inc. in Colorado Springs, Colorado, and its banking subsidiary State Bank and Trust of Colorado Springs in exchange for Zions Bancorporation common stock. At December 31, 1997, SBT Bankshares, Inc. had total assets of approximately $86 million (unaudited). The transaction is intended to be accounted for as a pooling of interests and is expected to close in the second quarter of 1998. On December 29, 1997, the Company announced a definitive agreement had been reached to acquire FP Bancorp, Inc. in Escondido, California, and its banking subsidiary First Pacific National Bank in exchange for Zions Bancorporation common stock. Total assets of FP Bancorp, Inc. were approximately $353 million (unaudited) as of December 31, 1997. This transaction is intended to be accounted for as a pooling of interests and is expected to close in the second quarter of 1998. 65 68 ZIONS BANCORPORATION Notes to Consolidated Financial Statements 2. MERGERS AND ACQUISITIONS (continued) On January 22, 1998, the Company announced a definitive agreement to acquire Routt County National Bank Corporation in Steamboat Springs, Colorado, and its banking subsidiary First National Bank of Colorado in exchange for Zions Bancorporation common stock. As of December 31, 1997, Routt County National Bank Corporation had total assets of approximately $93 million (unaudited). This transaction is intended to be accounted for as a pooling of interests and is expected to close in the second quarter of 1998. 3. INVESTMENT SECURITIES Investment securities as of December 31, 1997, 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 $ 440,615 8,728 476 448,867 Other agency securities 1,409,835 6,844 1,079 1,415,600 States and political subdivisions 210,675 5,384 808 215,251 Mortgage-backed securities 81,602 1,319 51 82,870 ---------- ---------- ---------- ---------- $2,142,727 22,275 2,414 2,162,588 ========== ========== ========== ==========
Available for sale ---------------------------------------------------- Gross Gross Estimated Amortized unrealized unrealized market cost gains losses value ---------- ---------- ---------- ---------- U.S. Treasury securities $ 31,387 319 -- 31,706 U.S. government agencies 169,767 171 3,329 166,609 State and political subdivisions 25,858 1,082 8 26,932 Mortgage- and other asset-backed securities 27,815 468 35 28,248 ---------- ---------- ---------- ---------- 254,827 2,040 3,372 253,495 Equity securities: Mutual funds: Accessor Funds, Inc. 109,530 1,456 28 110,958 Federal Home Loan Bank stock 90,537 -- -- 90,537 Other stock 26,459 4,273 36 30,696 ---------- ---------- ---------- ---------- $ 481,353 7,769 3,436 485,686 ========== ========== ========== ==========
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. Treasury securities $ 29,573 230 24 29,779 U.S. government agencies and corporations: Small Business Administration loan-backed securities 487,748 5,269 1,232 491,785 Other agency securities 629,271 2,292 2,409 629,154 States and political subdivisions 260,963 5,136 938 265,161 Mortgage-backed securities 67,854 1,143 122 68,875 ---------- ---------- ----------- ---------- $1,475,409 14,070 4,725 1,484,754 ========== ========== ========== ==========
66 69 ZIONS BANCORPORATION Notes to Consolidated Financial Statements 3. INVESTMENT SECURITIES (continued)
Available for sale ---------------------------------------------------- Gross Gross Estimated Amortized unrealized unrealized market cost gains losses value ---------- ---------- ---------- ---------- U.S. Treasury securities $ 19,580 54 8 19,626 U.S. government agencies 135,530 330 4,397 131,463 State and political subdivisions 39,118 1,652 4 40,766 Mortgage- and other asset-backed securities 86,007 722 1,864 84,865 ---------- ---------- ---------- ---------- 280,235 2,758 6,273 276,720 Equity securities: Mutual funds: Accessor Funds, Inc. 109,071 390 361 109,100 Federal Home Loan Bank stock 79,593 -- -- 79,593 Other stock 8,168 577 -- 8,745 ---------- ----------- ---------- ----------- $ 477,067 3,725 6,634 474,158 ========== ========== ========== ==========
The change in net unrealized holding gains (losses) on securities available for sale for the years ended December 31, 1997, 1996, and 1995, was $4,485,000, ($3,772,000), and $7,831,000, respectively, after related tax effect. These gains (losses) are collectively reported as a separate component of shareholders' equity with December 31, 1997 and 1996, balances of $2,678,000 and ($1,807,000), respectively, after related tax effect. The amortized cost and estimated market value of investment securities as of December 31, 1997, 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 -------------------------- --------------------------- Estimated Estimated Amortized market Amortized market cost value cost value ---------- ---------- ---------- ---------- Due in one year or less $ 148,359 149,776 73,111 72,824 Due after one year through five years 803,195 811,934 117,302 116,834 Due after five years through ten years 1,025,697 1,033,464 44,452 44,328 Due after ten years 165,476 167,414 19,962 19,509 ---------- ---------- ---------- ---------- $2,142,727 2,162,588 254,827 253,495 ========== ========== ========== ==========
Gross gains of $8,996,000, $372,000, and $1,129,000 and gross losses of $8,199,000, $257,000, and $1,277,000 were realized on sales and write downs of investment securities for the years ended December 31, 1997, 1996, and 1995, respectively. As of December 31, 1997 and 1996, securities with an amortized cost of $744,339,000 and $605,114,000, respectively, were pledged to secure public and trust deposits, advances, and for other purposes as required by law. 67 70 ZIONS BANCORPORATION Notes to Consolidated Financial Statements 4. LOANS AND ALLOWANCE FOR LOAN LOSSES Loans are summarized as follows (in thousands):
1997 1996 ---------- ---------- Loans held for sale $ 178,642 150,467 Commercial, financial, and agricultural 1,216,591 904,076 Real estate: Construction 482,907 346,796 Other 2,342,450 1,969,595 Consumer 450,422 334,764 Lease financing 176,419 159,825 Other receivables 66,994 12,167 ---------- ---------- $4,914,425 3,877,690 ========== ==========
As of December 31, 1997 and 1996, loans with a carrying value of $153,661,000 and $73,661,000, respectively, were pledged as security for Federal Home Loan Bank advances. During 1997, 1996, and 1995, sales of loans held for sale totaled $733 million, $654 million, and $437 million, respectively. Consumer and other loan securitizations totaled $951 million in 1997, $743 million in 1996, and $615 million in 1995, 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 $26.7 million in 1997, $24.4 million in 1996, and $14.0 million in 1995. 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):
1997 1996 1995 -------- -------- -------- Balance at beginning of year $ 76,803 73,437 67,018 Allowance for loan losses of companies acquired 5,544 2,566 6,202 Additions: Provision for loan losses 6,175 4,640 3,000 Recoveries 6,316 6,083 5,900 Deductions: Loan charge-offs (14,357) (9,923) (8,683) -------- -------- -------- Balance at end of year $ 80,481 76,803 73,437 ======== ======== ========
At December 31, 1997, 1996, and 1995, the allowance for loan losses includes an allocation of $8,852,000, $6,218,000, and $7,954,000, respectively, related to commitments to extend credit and standby letters of credit. 68 71 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):
1997 1996 1995 ------- ------- ------- Nonaccrual loans and leases $11,907 12,704 10,875 Restructured loans and leases 691 857 249 ------- ------- ------- Total $12,598 13,561 11,124 ======= ======= ======= Contractual interest due $ 1,250 1,453 1,100 Interest recognized 809 720 474 ------- ------- ------- Net interest foregone $ 441 733 626 ======= ======= =======
The Company's total recorded investment in impaired loans included in nonaccrual loans and leases above, amounted to $7,117,000 and $7,752,000 as of December 31, 1997 and 1996, respectively. Included in the allowance for loan losses as of December 31, 1997 and 1996, is a required allowance of $46,000 and $25,000, respectively, on $290,000 and $1,030,000, 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 $554,000 and $204,000, respectively, for the year ended December 31, 1997, and $846,000 and $372,000, respectively, for the year ended December 31, 1996. The average recorded investment in impaired loans amounted to $6,421,000 in 1997 and $5,450,000 in 1996. 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, Idaho, Nevada, Arizona, Colorado, and California. The commercial loan portfolio is well diversified, consisting of approximately 11 industry classification groupings. As of December 31, 1997, the larger concentrations of risk in the commercial loan and leasing portfolio are represented by the real estate and construction, business services and transportation, manufacturing, and retail industry groupings, which comprise approximately 29 percent, 19 percent, 9 percent, and 7 percent, respectively, of the portfolio. The Company has minimal credit exposure from lending transactions with highly leveraged entities and has no foreign loans. 69 72 ZIONS BANCORPORATION Notes to Consolidated Financial Statements 6. PREMISES AND EQUIPMENT The following table presents comparative data for premises and equipment (in thousands):
1997 1996 -------- -------- Land $ 27,651 21,065 Buildings 74,313 57,292 Furniture and Equipment 125,378 99,764 Leasehold Improvements 15,342 13,204 -------- -------- Total 242,684 191,325 Less accumulated depreciation and amortization 106,704 88,624 -------- -------- $135,980 102,701 ======== ========
Depreciation and amortization expense totaled $18.0 million, $14.3 million and $11.0 million in 1997, 1996 and 1995, respectively. 7. MORTGAGE SERVICING RIGHTS Mortgage servicing rights are summarized as follows (in thousands):
1997 1996 1995 -------- -------- -------- Balance at beginning of year $ 5,447 2,023 2,748 Additions 7,300 4,723 423 Amortization (2,152) (1,299) (1,148) -------- -------- -------- Balance at end of year $ 10,595 5,447 2,023 ======== ======== ========
At December 31, 1997 and 1996, the estimated fair value of mortgage servicing rights was $14.2 million and $8.9 million, respectively. 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. 8. DEPOSITS Deposits are summarized as follows (in thousands):
1997 1996 ---------- ---------- Noninterest-bearing $1,782,716 1,345,698 Interest-bearing: Savings and NOW 812,019 630,568 Money market and super NOW 2,666,256 2,079,744 Time under $100,000 1,001,710 708,077 Time over $100,000 408,717 241,313 Foreign 183,044 114,292 ---------- ---------- $6,854,462 5,119,692 ========== ==========
70 73 ZIONS BANCORPORATION Notes to Consolidated Financial Statements 8. DEPOSITS (continued) Interest expense on deposits is summarized as follows (in thousands):
1997 1996 1995 -------- -------- -------- Savings and money market deposits: Savings and NOW $ 21,492 19,924 22,705 Money market and super NOW 89,390 71,941 60,375 -------- -------- -------- $110,882 91,865 83,080 ======== ======== ======== Time deposits: Under $100,000 $ 45,070 37,838 32,653 Over $100,000 18,065 12,212 7,930 Foreign 6,354 5,391 7,179 -------- -------- -------- $ 69,489 55,441 47,762 ======== ======== ========
At December 31, 1997, the scheduled maturities of time deposits are as follows (in thousands): 1998 $1,089,353 1999 176,053 2000 91,076 2001 24,966 2002 and thereafter 28,979 ---------- $1,410,427 ==========
9. 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, 1997 were 5.8 percent for U.S. Treasuries, 4.9 percent for U.S. government agencies, and 5.2 percent for Small Business Administration pools. The average interest rates 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. Repurchase agreements as of December 31, 1997 are summarized as follows (in thousands):
Market value Carrying Accrued Total of underlying amount interest liability assets ----------- ----------- ----------- ------------- U.S. Treasuries: On demand $ 25,770 10 25,780 25,604 Up to 30 days 198,228 80 198,308 197,208 30 to 60 days 2,940 31 2,971 2,868 ----------- ----------- ----------- ----------- 226,938 121 227,059 225,680 U.S. government agencies - overnight 748,291 98 748,389 763,691 SBA pools - on demand 1,537 10 1,547 2,140 ----------- ----------- ----------- ----------- Total $ 976,766 229 976,995 991,511 =========== =========== =========== ===========
71 74 ZIONS BANCORPORATION Notes to Consolidated Financial Statements 9. SECURITY REPURCHASE AGREEMENTS (continued) Repurchase agreements as of December 31, 1996 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 $1,837,795,000 during 1997, and the maximum amount outstanding at any month-end during 1997 was approximately $2,219,006,000. 10. INCOME TAXES Income taxes are summarized as follows (in thousands):
1997 1996 1995 ------- ------- ------- Federal: Current $54,168 43,050 32,988 Deferred 2,939 4,695 2,856 State 8,104 8,356 5,943 ------- ------- ------- $65,211 56,101 41,787 ======= ======= =======
A reconciliation between income tax expense computed using the statutory federal income tax rate of 35 percent and actual income tax expense is as follows (in thousands):
1997 1996 1995 -------- -------- -------- Income tax expense at statutory federal rate $ 65,651 57,336 43,460 State income tax, net 5,268 5,430 3,863 Nondeductible expenses 2,832 1,611 1,159 Nontaxable interest (5,720) (5,881) (4,317) Tax credits (1,826) (1,597) (1,446) Deferred tax assets realized -- -- (766) Decrease in valuation allowance (761) (66) -- Other items (233) (732) (166) -------- -------- -------- Income tax expense $ 65,211 56,101 41,787 ======== ======== ========
72 75 ZIONS BANCORPORATION Notes to Consolidated Financial Statements 10. INCOME TAXES (continued) 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, 1997 and 1996, are presented below (in thousands):
1997 1996 -------- -------- Gross deferred tax assets: Book loan loss deduction in excess of tax $ 30,441 29,045 Postretirement benefits 2,517 3,641 Deferred compensation 6,148 3,931 Deferred loan sales 1,767 1,458 Deferred agreements 3,427 -- Capital leases 291 322 Acquired net operating losses 2,759 4,008 Other 8,586 7,997 -------- -------- Total deferred tax assets 55,936 50,402 Less valuation allowance -- (761) -------- -------- Total deferred tax assets net of valuation allowance 55,936 49,641 Gross deferred tax liabilities: Premises and equipment, due to differences in depreciation (5,226) (5,031) FHLB stock dividends (15,536) (12,655) Leasing operations (21,396) (15,116) Prepaid pension reserves (818) (1,119) Mortgage servicing (1,513) (959) Other (1,992) (452) -------- -------- Total deferred tax liabilities (46,481) (35,332) -------- -------- Statement No. 115 market equity adjustment (1,655) 1,102 -------- -------- Net deferred tax assets $ 7,800 15,411 ======== ========
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 $16,825,000 that expire in the years 2006 and 2007. 73 76 ZIONS BANCORPORATION Notes to Consolidated Financial Statements 11. FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS The following table presents comparative data for FHLB advances and other borrowings over one year:
1997 1996 -------- -------- Medium Term Note payable by parent, 6.03%, due in 1999 $ 50,000 -- FHLB advances payable by subsidiaries, 5.46%-7.30%, due 1998-2014 153,681 73,661 Notes payable, 7.84%-8.08%, due 2005-2006 7,000 8,214 -------- -------- $210,681 81,875 ======== ========
Federal Home Loan Bank advances as of December 31, 1997 and 1996, include $148,610,000 and $73,661,000, respectively, borrowed by Zions First National Bank (ZFNB), a wholly-owned subsidiary, 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 ZFNB 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. Federal Home Loan Bank advances, as of December 31, 1997 also include $5,000,000 borrowed by Centennial Savings Bank, F.S.B. (Centennial), a wholly-owned subsidiary, from the Federal Home Loan Bank of Topeka. The note is secured with a blanket pledge whereby Centennial maintains unencumbered security with par value equal to at least 100 percent of the note outstanding and Federal Home Loan Bank stock. There are no withdrawal and usage restrictions on advances from the Federal Home Loan Bank of either Seattle or Topeka. Maturities of Federal Home Loan Bank advances and other borrowings over one year are as follows (in thousands): 1998 $ 16,638 1999 71,657 2000 9,440 2001 2,427 2002 2,121 Thereafter 108,398 -------- $210,681 ========
12. LONG-TERM DEBT Long-term debt is summarized as follows (in thousands):
1997 1996 -------- -------- Guaranteed preferred beneficial interests in junior subordinated deferrable interest debentures $207,500 200,000 Subordinated notes 50,000 50,000 Capital leases and other notes payable 1,066 1,620 -------- -------- $258,566 251,620 ======== ========
The Guaranteed Preferred Beneficial Interests in Junior Subordinated Deferrable Interest Debentures include $200 million of 8.536 percent debentures issued by Zions Institutional Capital Trust A (ZICTA) and $7.5 million of 10.25 percent debentures issued by GB Capital Trust (GBCT). 74 77 ZIONS BANCORPORATION Notes to Consolidated Financial Statements 12. LONG-TERM DEBT (continued) The ZICTA debentures are direct and unsecured obligations of ZFNB and are subordinate to the claims of depositors and general creditors. The Company has irrevocably and unconditionally guaranteed all of ZFNB's obligations under the debentures. The GBCT debentures are direct and unsecured obligations of the Company through the acquisition of GB Bancorporation, and are subordinate to other indebtedness and general creditors of the Company. Both ZICTA and GBCT debentures have the right, with the approval of banking regulators, to early redemption in 2006 and 2007, respectively. ZICTA and GBCT debentures require semiannual interest payments and mature on December 15, 2026 and January 15, 2027, respectively. Subordinated notes consists of $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. The Company has plans to retire a portion of both the $50.0 million, 8-5/8 percent subordinated notes and the $7.5 million, 10.25 percent GBCT Junior Subordinated Debentures. It is anticipated that the Company will recognize a loss on these retirements. As of December 31, 1997, this loss is indeterminate. Maturities and sinking fund requirements on long-term debt at December 31, 1997 for each of the succeeding five years are as follows (in thousands):
Consoli-dated Parent only ------------- ------------- 1998 $ 152 - 1999 97 - 2000 107 - 2001 83 - 2002 50,091 50,000 Thereafter 208,036 7,732 ------------- ------------- $ 258,566 57,732 ============= =============
13. 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):
1997 1996 ---------- ---------- Commitments to extend credit $2,417,229 1,958,995 Standby letters of credit: Performance 79,216 80,281 Financial 27,903 31,261 Commercial letters of credit 9,336 5,252
75 78 ZIONS BANCORPORATION Notes to Consolidated Financial Statements 13. COMMITMENTS AND CONTINGENT LIABILITIES (continued) 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. Establishing commitments to extend credit gives rise to credit risk. As of December 31, 1997, a significant portion of the Company's commitments is expected to expire without being drawn upon; commitments totaling $1,974,106,000 expire in 1998. 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. 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 $102,752,000 expiring in 1998 and $4,367,000 expiring thereafter through 2006. 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):
1997 1996 ---------- ---------- Caps and floors - written $1,052,000 825,000 Swaps - fixed 701,331 285,000 Forwards 87,565 44,961 Options 3,000 --
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. 76 79 ZIONS BANCORPORATION Notes to Consolidated Financial Statements 13. 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. The interest rate caps and floors to which the Company is a party at December 31, 1997, have remaining terms of 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, 1997, have remaining terms ranging from 1 to 6 years. 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, 1997, 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, 1997 and 1996, the Company had outstanding commitments to purchase securities of $76,870,000 and $96,487,000, respectively, and outstanding commitments to sell securities of $75,717,000 and $68,772,000, respectively. These agreements at December 31, 1997, 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, 1997 and 1996, the regulatory risk-weighted values assigned to all off-balance sheet financial instruments described herein totaled $296,823,000 and $263,029,000, respectively. The Company has $50.0 million available in lines of credit from two separate institutions. At December 31, 1997, ZFNB had drawn $44.0 million on these lines, with interest rates ranging from 6.21 percent to 6.27 percent. There were no compensating balance arrangements on either of these lines of credit. 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 $26 million as of December 31, 1997. 77 80 ZIONS BANCORPORATION Notes to Consolidated Financial Statements 13. COMMITMENTS AND CONTINGENT LIABILITIES (continued) The Company has commitments for leasing premises and equipment under the terms of noncancelable operating leases expiring from 1997 to 2031. Future aggregate minimum rental payments under existing noncancelable leases at December 31, 1997 are as follows (in thousands):
Real Real property property, and capital- equipment, ized operating ---------- --------- 1998 $ 171 8,012 1999 171 6,579 2000 171 5,165 2001 173 4,119 2002 173 3,098 Thereafter 337 2,575 ---------- --------- $ 1,196 29,548 ========== =========
Future aggregate minimum rental payments have been reduced by noncancelable subleases as follows: 1998, $304,000; 1999, $216,000; 2000, $183,000; 2001, $162,000; 2002, $162,000; and thereafter $7,129,000. Aggregate rental expense on operating leases amounted to $9,970,000, $8,292,000, and 6,832,000 for the years ended December 31, 1997, 1996, and 1995, respectively. 14. STOCK OPTIONS The Company adopted a qualified stock option plan 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 qualified plan and nonqualified plan, respectively, 3,244,000 and 400,000 shares of common stock were reserved. In connection with the acquisition of Aspen in 1997, Aspen's outstanding qualified stock options were converted into 184,991 qualified stock options of the Company, effectively increasing the number of common stock shares 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 four years after the date of grant and expire six years after the date of grant. Under the nonqualified plan, options expire five to ten years from the date of grant. At December 31, 1997, there were 227,812 and 320,000 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 1997, 1996, and 1995 was $10.74, $5.06, and $2.34, respectively, on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:
1997 1996 1995 --------- --------- --------- Expected dividend yield 1.55% 2.24% 3.27% Risk-free interest rate 6.54% 6.00% 6.10% Expected volatility 22.18% 23.29% 27.04% Expected life 3.5 years 3.5 years 3.5 years
78 81 ZIONS BANCORPORATION Notes to Consolidated Financial Statements 14. STOCK OPTIONS (continued) 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:
1997 1996 1995 ----------- ----------- ----------- Net income (in thousands): As reported $ 122,362 107,423 82,386 Pro forma 120,396 106,868 82,315 Earnings per share: As reported: Basic $ 1.92 1.70 1.39 Dilutive 1.89 1.68 1.37 Pro forma: Basic 1.89 1.69 1.38 Dilutive 1.86 1.68 1.37
Pro forma net income reflects only options granted in 1997, 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. The following table is a summary of the Company's stock option activity and related information for the three years ended December 31, 1997:
Weighted- Number average of exercise shares price ---------- ---------- Balance at December 31, 1994 1,575,284 $ 6.22 Granted 280,900 10.66 Exercised (525,528) 4.64 Forfeited (33,260) 7.71 ---------- Balance at December 31, 1995 1,297,396 7.79 Granted 740,520 14.01 Exercised (395,920) 5.83 Forfeited (72,200) 3.53 Expired (10,000) 6.03 ---------- Balance at December 31, 1996 1,559,796 10.97 Acquired 184,991 12.54 Granted 528,304 29.86 Exercised (644,967) 9.40 Forfeited (46,032) 13.25 ---------- Balance at December 31, 1997 1,582,092 18.04 ========== Outstanding options exercisable as of: December 31, 1997 540,608 11.01 December 31, 1996 343,308 7.41 December 31, 1995 530,372 5.28
79 82 ZIONS BANCORPORATION Notes to Consolidated Financial Statements 14. STOCK OPTIONS (continued) Selected information on stock options as of December 31, 1997 follows:
Outstanding options Exercisable options -------------------------------------------------------------- ---------------------------------- Weighted- Weighted- average Weighted- Exercise price average remaining life Number of average exercise range Number of options exercise price (years) options price -------------- ----------------- -------------- -------------- --------- ---------------- $2.38 to $3.81 156,800 $ 2.55 4.60 106,400 $ 2.44 $6.50 to $14.73 545,716 10.56 3.32 319,904 10.70 $18.13 to $31.00 879,576 25.43 5.18 114,304 19.85 --------- ------- 1,582,092 $18.04 4.48 540,608 $11.01 ========= =======
15. COMMON STOCK Changes in common stock are summarized as follows (amounts in thousands, except share amounts):
Shares Amount ----------- ----------- Balance at December 31, 1994 58,238,208 $ 79,193 Stock redeemed and retired (1,500,160) (18,523) Stock options: Shares tendered and retired (86,340) -- Exercised 525,528 2,081 Acquisition 5,596,044 50,726 ----------- ----------- Balance at December 31, 1995 62,773,280 113,477 Stock redeemed and retired (1,096,992) (21,635) Stock options: Shares tendered and retired (58,520) -- Exercised 395,920 1,749 Acquisition 1,454,792 26,200 ----------- ----------- Balance at December 31, 1996 63,468,480 119,791 Stock redeemed and retired (3,572,603) (119,725) Stock options: Shares tendered and retired (28,553) -- Exercised 421,991 4,321 Acquisitions 3,672,785 117,835 ----------- ----------- Balance at December 31, 1997 63,962,100 $ 122,222 =========== ===========
80 83 ZIONS BANCORPORATION Notes to Consolidated Financial Statements 15. COMMON STOCK (continued) Basic and diluted earnings per common share, based on the weighted-average outstanding shares, are summarized as follows (in thousands):
(in thousands) 1997 1996 1995 -------- -------- -------- Basic: Net income $122,362 107,423 82,385 Less preferred dividends 41 36 38 -------- -------- -------- Net income applicable to common stock 122,321 107,387 82,347 ======== ======== ======== Average common shares outstanding 63,868 63,194 59,435 ======== ======== ======== Net income per common share - basic 1.92 1.70 1.39 ======== ======== ======== Diluted: Net income applicable to common stock 122,321 107,387 82,347 ======== ======== ======== Average common shares outstanding 63,868 63,194 59,435 Stock option adjustment 761 593 578 -------- -------- -------- Average common shares outstanding - diluted 64,629 63,787 60,013 ======== ======== ======== Net income per common share - diluted 1.89 1.68 1.37 ======== ======== ========
16. 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 $90, 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. 81 84 ZIONS BANCORPORATION Notes to Consolidated Financial Statements 17. 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, 1997, that the Company meets all capital adequacy requirements to which it is subject. As of December 31, 1997, 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. The Company's and its largest banking subsidiary, Zions First National Bank's, actual capital amounts and ratios are as follows (in thousands):
For capital adequacy Actual purposes To be well capitalized ---------------------- ---------------------- ---------------------- Amount Ratio Amount Ratio Amount Ratio -------- -------- -------- -------- -------- -------- As of December 31, 1997: Total capital (to risk-weighted assets) The Company $773,245 13.75% $449,950 8.00% $562,437 10.00% Largest subsidiary 604,475 18.22 265,430 8.00 331,788 10.00 Tier I capital (to risk-weighted assets) The Company 660,446 11.74 224,975 4.00 337,462 6.00 Largest subsidiary 362,951 10.94 132,715 4.00 199,073 6.00 Tier I capital (to average assets) The Company 660,446 6.75 293,537 3.00 489,229 5.00 Largest subsidiary 362,951 5.66 192,417 3.00 320,695 5.00
82 85 ZIONS BANCORPORATION Notes to Consolidated Financial Statements 17. REGULATORY MATTERS (continued)
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) The Company $777,430 17.52% $354,934 8.00% $443,668 10.00% Largest subsidiary 568,159 19.47 233,485 8.00 291,857 10.00 Tier I capital (to risk-weighted assets) The Company 628,261 14.16 177,467 4.00 266,201 6.00 Largest subsidiary 331,484 11.36 116,743 4.00 175,114 6.00 Tier I capital (to average assets) The Company 628,261 8.70 216,758 3.00 361,262 5.00 Largest subsidiary 331,484 6.61 150,456 3.00 250,759 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, 1997, the Company's subsidiaries had approximately $60.9 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 1997, cash reserve balances held with the Federal Reserve banks averaged approximately $34.2 million. 18. 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. The components of the net pension cost for the years ended December 31, 1997 and 1996, are as follows (in thousands):
1997 1996 -------- -------- Service cost - benefits earned during the period $ 3,316 3,575 Interest cost on projected benefit obligation 4,246 4,042 Actual return on assets (14,956) (8,282) Net amortization and deferrals 9,065 3,666 Income from curtailment (1,551) -- -------- -------- Net pension cost $ 120 3,001 ======== ========
83 86 ZIONS BANCORPORATION Notes to Consolidated Financial Statements 18. RETIREMENT PLANS (continued) Primary actuarial assumptions used in determining the net pension cost are as follows:
1997 1996 -------- -------- Assumed discount rate 7.50% 7.00% 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, 1997 and 1996, is as follows (in thousands):
1997 1996 -------- -------- Actuarial present value of benefit obligations: Vested benefit obligation $(56,713) (46,838) ======== ======== Accumulated benefit obligation $(59,903) (52,546) ======== ======== Projected benefit obligation $(65,083) (60,542) Plan assets at fair value 71,972 59,127 -------- -------- Overfunded (unfunded) projected benefit obligation 6,889 (1,415) Unrecognized net loss 1,555 6,782 Unrecognized prior service cost (3,804) (807) Unrecognized net transition asset (1,147) (1,782) -------- -------- Prepaid pension cost $ 3,493 2,778 ======== ======== Primary actuarial assumptions (future periods): Assumed discount rate 7.00% 7.50% Assumed rate of increase in compensation levels 5.00 5.00
Effective January 1, 1997, the plan was amended such that plan benefits are now defined as a lump-sum cash value rather than an annuity at age 65. The 1997 income from curtailment resulted from the merger of Grossmont Bank plan participants into the Company's plan at December 31, 1997. The Company also sponsors an unfunded, nonqualified executive management pension plan, which restores pension benefits limited by federal tax law. 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. 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. 84 87 ZIONS BANCORPORATION Notes to Consolidated Financial Statements 18. RETIREMENT PLANS (continued) The following table presents the plan's funded status reconciled with amounts recognized in the Company's consolidated balance sheets at December 31, 1997 and 1996, as follows (in thousands):
1997 1996 ------- ------- Accumulated postretirement benefit obligation: Retirees $(1,653) (2,181) Fully eligible active plan participants (1,052) (836) Other active plan participants (484) (535) ------- ------- (3,189) (3,552) Plan assets at fair value -- -- ------- ------- Accumulated postretirement benefit obligation in excess of plan assets (3,189) (3,552) Unrecognized net loss (gain) (2,575) (2,628) ------- ------- Accrued postretirement benefit cost included in other liabilities $(5,764) (6,180) ======= =======
Net periodic postretirement benefit cost for 1997 and 1996, includes the following components (in thousands):
1997 1996 ----- ----- Service cost $ 111 195 Interest cost 269 414 Net actuarial gain (486) -- ----- ----- Net periodic postretirement benefit cost $(106) 609 ===== =====
The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 7.5 percent at both December 31, 1997 and 1996. The actuarial assumed health care cost trend rate is 7.5 percent for 1998, decreasing to an ultimate level of 5 percent for the years 2003 and thereafter. The effect of a one-percentage point increase in the assumed health care cost trend rate at December 31, 1997 would be a $1,000 increase to the aggregate service and interest cost components of the net periodic postretirement health care benefit cost and a $22,000 increase to the accumulated postretirement benefit obligation for health care benefits. The Company has an Employee Stock Savings Plan and an Employee Investment Savings Plan (PAYSHELTER). Under PAYSHELTER, employees select from a nontax-deferred or tax-deferred plan and several investment alternatives. Employees can contribute from 1 to 15 percent of compensation, which is matched up to 50 percent by the Company for contributions up to 5 percent and 25 percent for contributions greater than 5 percent up to 10 percent. The Company's contributions to the plans amounted to $2,189,362, $1,726,000, and $1,404,000 for the years ended December 31, 1997, 1996, and 1995, 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 modified for certain effects related to business combinations (required minimum return of 14 percent). Accrued contributions to the plan amounted to $2,330,000, $1,835,000, and $1,592,000 for the years ended December 31, 1997, 1996, and 1995, respectively. 85 88 ZIONS BANCORPORATION Notes to Consolidated Financial Statements 19. FAIR VALUE OF FINANCIAL INSTRUMENTS Carrying value and estimated fair value of principal financial instruments are summarized as follows (in thousands):
December 31, 1997 December 31, 1996 ------------------------------- ------------------------------- Carrying Estimated Carrying Estimated value fair value value fair value ------------- ------------- ------------- ------------- Financial assets: Cash and due from banks $ 626,814 626,814 453,990 453,990 Money market investments 814,088 814,088 613,429 613,429 Investment securities 2,712,094 2,731,955 1,983,643 1,992,988 Loans, net 4,791,169 4,827,998 3,760,346 3,772,392 ------------- ------------- ------------- ------------- Total financial assets $ 8,944,165 9,000,855 6,811,408 6,832,799 ============= ============= ============= ============= Financial liabilities: Demand, savings, and money market deposits $ 5,260,991 5,260,991 4,056,010 4,056,010 Time deposits 1,410,427 1,407,243 949,390 950,751 Foreign deposits 183,044 183,156 114,292 114,406 Securities sold, not yet purchased 45,067 45,067 76,831 76,831 Federal funds purchased and security repurchase agreements 1,270,875 1,270,875 926,768 926,768 FHLB advances and other borrowings 270,564 278,375 96,224 96,224 Long-term debt 258,566 268,181 251,620 255,646 ------------- ------------- ------------- ------------- Total financial liabilities $ 8,699,534 8,713,888 6,471,135 6,476,636 ============= ============= ============= ============= Off-balance sheet instruments: Caps and floors: Written $ (1,099) (1,099) (4,372) (4,372) Purchased -- -- -- -- Swaps - fixed -- 4,642 -- 1,360 Forwards -- (442) -- 53 ------------- ------------- ------------- ------------- Total off-balance sheet instruments $ (1,099) 3,101 (4,372) (2,959) ============= ============= ============= =============
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 $80,481,000 and $76,803,000 at December 31, 1997 and 1996, respectively, are the present value of estimated net charge-offs. 86 89 ZIONS BANCORPORATION Notes to Consolidated Financial Statements 19. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued) 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. 20. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Financial information by quarter for the three years ended December 31, 1997, is as follows (in thousands, except per share amounts):
Provision Income Diluted net Net for before income per interest loan income Net common share income losses taxes income share ------ ---------- ------- ------ ------------ 1997: First quarter $ 76,343 1,605 44,356 28,913 .45 Second quarter 85,751 1,435 47,468 30,561 .47 Third quarter 92,053 1,710 48,348 31,533 .48 Fourth quarter 97,652 1,425 47,401 31,355 .48 -------- ----- ------- ------- $351,799 6,175 187,573 122,362 1.89 ======== ===== ======= ======= 1996: First quarter $ 66,140 700 37,889 24,940 .39 Second quarter 70,271 960 40,025 26,376 .41 Third quarter 73,283 1,330 42,059 27,333 .43 Fourth quarter 79,472 1,650 43,551 28,774 .45 -------- ----- ------- ------- $289,166 4,640 163,524 107,423 1.68 ======== ===== ======= =======
87 90 ZIONS BANCORPORATION Notes to Consolidated Financial Statements 20. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (continued) 1995: First quarter $ 53,201 600 23,824 16,001 .27 Second quarter 55,897 850 31,270 20,521 .35 Third quarter 57,923 800 34,044 22,291 .38 Fourth quarter 66,526 750 35,034 23,572 .37 --------- ----- ------- ------ $ 233,547 3,000 124,172 82,385 1.37 ========= ===== ======= ======
21. PARENT COMPANY FINANCIAL INFORMATION Condensed financial information of Zions Bancorporation (parent only) follows: 88 91 ZIONS BANCORPORATION Condensed Balance Sheets December 31, 1997 and 1996 (In thousands)
1997 1996 -------- -------- ASSETS Cash and due from banks $ 938 1,932 Interest-bearing deposits 2,241 3,528 Investment securities 10,494 4,952 Loans, lease financing, and other receivables 1,420 55 Investments in subsidiaries: Commercial banks and bank holding company 787,359 597,932 Other 5,828 6,191 Receivables from subsidiaries: Commercial banks -- 176 Other 2,945 1,433 Real estate held for rental purposes, at cost, less accumulated depreciation 1,187 1,286 Premises and equipment, at cost, less accumulated depreciation 212 211 Other real estate owned 13 54 Other assets 17,758 16,254 -------- -------- Total assets $830,395 634,004 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Accrued liabilities $ 23,203 21,175 Borrowings less than one year 44,000 -- Borrowings over one year 50,000 8,214 Subordinated debt to subsidiary 7,732 -- Long-term debt 50,000 50,005 -------- -------- Total liabilities 174,935 79,394 -------- -------- Shareholders' equity: Common stock 122,222 119,791 Net unrealized holding gains and losses on securities available for sale 2,678 (1,807) Retained earnings 530,560 436,626 -------- -------- Total shareholders' equity 655,460 554,610 -------- -------- $830,395 634,004 ======== ========
89 92 ZIONS BANCORPORATION Condensed Statements of Income Years ended December 31, 1997, 1996, and 1995 (In thousands)
1997 1996 1995 --------- --------- --------- Interest income - interest and fees on loans and securities $ 940 895 2,419 Interest expense - interest on borrowed funds 7,238 5,509 5,314 --------- --------- --------- Net interest loss (6,298) (4,614) (2,895) --------- --------- --------- Other income: Dividends from consolidated subsidiaries: Commercial banks 98,234 48,438 30,095 Other 500 1,000 -- Other income 5,404 4,010 3,131 --------- --------- --------- 104,138 53,448 33,226 --------- --------- --------- Expenses: Salaries and employee benefits 7,768 6,472 5,262 Operating expenses 6,029 1,847 495 --------- --------- --------- 13,797 8,319 5,757 --------- --------- --------- Income before income tax benefit 84,043 40,515 24,574 Income tax benefit (6,185) (3,110) (2,157) --------- --------- --------- Income before equity in undistributed income of consolidated subsidiaries 90,228 43,625 26,731 --------- --------- --------- Equity in undistributed income of consolidated subsidiaries: Commercial banks and bank holding company 32,485 63,172 54,751 Other (351) 626 903 --------- --------- --------- 32,134 63,798 55,654 --------- --------- --------- Net income $ 122,362 107,423 82,385 ========= ========= =========
90 93 ZIONS BANCORPORATION Condensed Statements of Cash Flows Years ended December 31, 1997, 1996, and 1995 (In thousands)
1997 1996 1995 --------- --------- --------- Cash flows from operating activities: Net income $ 122,362 107,423 82,385 Adjustments to reconcile net income to net cash provided by operating activities: Undistributed net income of consolidated subsidiaries (32,134) (63,798) (55,654) Depreciation of premises and equipment 161 440 678 Amortization of intangibles 714 692 612 Other (5,811) 8,815 3,441 --------- --------- --------- Net cash provided by operating activities 85,292 53,572 31,462 --------- --------- --------- Cash flows from investing activities: Net decrease (increase) in interest-bearing deposits 1,287 12,975 (13,677) Collection of advances to subsidiaries 2,890 1,176 34,683 Advances to subsidiaries (4,226) (1,921) (7,755) Increase of investment in subsidiaries (31,430) (30) (386) Purchase of other assets -- (12,000) -- Other (3,376) (3,611) 3,625 --------- --------- --------- Net cash provided by (used in) investing activities (34,855) (3,411) 16,490 --------- --------- --------- Cash flows from financing activities: Net change in borrowings under one year 44,000 -- (8,001) Proceeds from borrowings over one year 50,000 -- -- Payments on borrowings over one year (8,214) (1,429) (357) Proceeds from issuance of long-term debt 7,732 -- -- Payments on long-term debt (5) (4,715) (1,469) Proceeds from issuance of common stock 3,168 1,178 1,291 Payments to redeem common stock (119,725) (21,635) (18,523) Dividends paid (28,387) (24,997) (20,554) --------- --------- --------- Net cash used in financing activities (51,431) (51,598) (47,613) --------- --------- --------- Net increase (decrease) in cash and due from banks (994) (1,437) 339 Cash and due from banks at beginning of year 1,932 3,369 3,030 --------- --------- --------- Cash and due from banks at end of year $ 938 1,932 3,369 ========= ========= =========
The parent company paid interest of $6,179,000, $5,282,000, and $5,797,000 for the years ended December 31, 1997, 1996, and 1995, respectively. 91 94 ZIONS BANCORPORATION Condensed Statements of Retained Earnings Years ended December 31, 1997, 1996, and 1995 (In thousands)
1997 1996 1995 --------- ------- ------- Balance at beginning of year $ 436,626 354,236 292,443 Net income 122,362 107,423 82,385 Cash dividends: Preferred, paid by subsidiaries to minority shareholders (41) (36) (38) Common, per share of $.4700 in 1997, $.4250 in 1996, and $.3525 in 1995 (28,387) (24,997) (20,554) --------- ------- ------- Balance at end of year $ 530,560 436,626 354,236 ========= ========= =========
95 The selected quarterly financial data information required by this item appears on pages 32 and 87 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 6 of the definitive Proxy Statement. Information relating to the directors and executive officers on pages 2 through 6, 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 1998 Annual Meeting of Shareholders to be held April 24, 1998, is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information required by this item appearing on pages 8 through 16 of the definitive Proxy Statement relating to the 1998 Annual Meeting of Shareholders to be held April 24, 1998, 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 24, 1998, is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item appearing on page 17 of the definitive Proxy Statement relating to the 1998 Annual Meeting of Shareholders to be held April 24, 1998, 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 55 Consolidated Balance Sheets - December 31, 1997 and 1996 56 Consolidated Statements of Income - Years ended December 31, 1997, 1996, and 1995 57 Consolidated Statements of Cash Flows - Years ended December 31, 1997, 1996, and 1995 58 Consolidated Statements of Retained Earnings Years ended December 31, 1997, 1996, and 1995 59 Notes to Consolidated Financial Statements 60
96 (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. (3) Exhibits: The exhibits listed on the Exhibit Index which follow this report are filed or are incorporated herein by reference. (b) Reports on Form 8-K Zions Bancorporation did not file any reports on Form 8-K during the quarter ended December 31, 1997 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. 97 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 20, 1998 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 20, 1998 /s/ Harris H. Simmons /s/ Dale M. Gibbons - -------------------------------------------- ------------------------------------------- HARRIS H. SIMMONS, President, Chief DALE M. GIBBONS, Secretary, Executive Executive Officer and Director Vice President, and Chief Financial Officer /s/ Roy W. Simmons /s/ Walter E. Kelly - -------------------------------------------- ------------------------------------------- ROY W. SIMMONS, Chairman and Director WALTER E. KELLY, Controller - -------------------------------------------- ------------------------------------------- JERRY C. ATKIN, Director ROBERT G. SARVER, Director /s/ Grant R. Caldwell - -------------------------------------------- ------------------------------------------- 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 - -------------------------------------------- ------------------------------------------- RICHARD H. MADSEN, Director ROGER B. PORTER, Director
98 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) * 3.3 Articles of Amendment to the Restated Articles of Incorporation of Zions Bancorporation dated April 30, 1997 and filed with the Department of Business Regulation, Division of Corporations of the State of Utah, on May 2, 1997 (incorporated by reference to Exhibit 3.1 of Zions Bancorporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, File No. 0-2610) * 4 Shareholder Protection Rights Agreement, dated as of September 27, 1996, between Zions Bancorporation and Zions First National Bank as Rights Agent (incorporated by reference to Exhibit 1 to the Registrant's Form 8-K, filed October 12, 1996) * 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) *
99 EXHIBIT INDEX FILED AS PART OF THIS REPORT ON FORM 10-K (continued)
Exhibit no. Description and method of filing - ------------ ----------------------------------------------------------------- 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) * 10.8 Zions Bancorporation Senior Management Value Sharing Plan, Award Period 1993-1996 (incorporated by reference to Exhibit 10.8 of Zions Bancorporation's Annual Report on Form 10-K for the year end December 31, 1993) * 10.9 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) * 10.10 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) * 10.11 Zions Bancorporation Senior Management Value Sharing Plan, Award Period 1996-1999 (incorporated by reference to Exhibit 10.16 of Zions Bancorporation's Annual Report on Form 10-K for the year ended December 31, 1996) * 10.12 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) * 10.13 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) * 10.14 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) * 10.15 Zions Bancorporation Pension Plan amended and restated effective April 1, 1997 (incorporated by reference to Exhibit 10 of Zions Bancorporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 1997, File No. 0-2610) *
100 EXHIBIT INDEX FILED AS PART OF THIS REPORT ON FORM 10-K (continued)
Exhibit no. Description and method of filing - ------------ ----------------------------------------------------------------- 10.16 Zions Bancorporation Senior Management Value Sharing Plan, Award Period 1997-2000 (filed) 21 List of subsidiaries of Zions Bancorporation (filed) 23 Consent of KPMG Peat Marwick, LLP independent certified public accountants (filed) 27.1 Article 9 Restated Financial Data Schedule for the year ended December 31, 1995 (filed) 27.2 Article 9 Restated Financial Data Schedule for the three months ended March 31, 1996 (filed) 27.3 Article 9 Restated Financial Data Schedule for the year ended six months ended June 30, 1996 (filed) 27.4 Article 9 Restated Financial Data Schedule for the nine months ended September 30, 1996 (filed) 27.5 Article 9 Restated Financial Data Schedule for the year ended December 31, 1996 (filed) 27.6 Article 9 Restated Financial Data Schedule for the three months ended March 31, 1997 (filed) 27.7 Article 9 Restated Financial Data Schedule for the six months ended June 30, 1997 (filed) 27.8 Article 9 Restated Financial Data Schedule for the nine months ended September 30, 1997 (filed) 27.9 Article 9 Financial Data Schedule for the year ended December 31, 1997 (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. EX-10.16 2 SENIOR MANAGEMENT VALUE SHARING PLAN 1 Exhibit 10.16 Zions Bancorporation Senior Management Value Sharing Plan Award Period: 1997-2000 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 Aggregate Cash Earnings Per Share ("ACEPS") during the Award Period, together with the mathematical Average Modified Cash Return on Shareholders' Equity ("AMCROE") for each of the four years in the Award Period, Aggregate Cash Earnings Per Share ("ACEPS") shall be defined as the aggregate, over the four year Award Period, of each year's earnings per share available to common shareholders, plus the current period after-tax-equivalent cost per share of amortization of goodwill and core deposit intangible assets for such goodwill and core deposit intangible assets created subsequent to December 31, 1996. Average Modified Cash Return on Equity ("AMCROE") shall be defined as the average, for each of the four years in the Award Period, of the Company's Net Cash Income divided by the average Modified Tangible Equity. Net Cash Income shall mean the net income available to common shareholders, plus the current period after-tax equivalent cost of the amortization of goodwill and core deposit intangible assets for such goodwill and core deposit intangible assets created subsequent to December 31, 1996. Modified Tangible Equity shall mean total common shareholders' equity, less goodwill and core deposit intangible assets created subsequent to December 31, 1996 with the exception of such goodwill or core deposit intangible assets as arise as a result of acquisitions of businesses, stock or deposits for cash. (In cases where businesses, stock or deposits are acquired for a combination of cash or Zions' stock, goodwill or core deposit intangible assets created shall be deducted from total common shareholders' equity only to the extent that such items exceed the total value of Zions' shares issued in the transaction). Each year, the Committee shall establish minimum targets for AMCROE and ACEPS 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 AMCROE, with upward adjustments possible if higher levels of ACEPS 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 1997-2000 Award Period formula for the determination of the value of PU's is as indicated in the Appendix. For the 1997-2000 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. 3 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 December 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 the 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 transferable without the express approval of the Committee. In the event of the merger or acquisition of the Company, the Plan may 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. 4 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: 1997-2000 Calculation of Participation Unit Value Aggregate Cash Earnings Per Share ("ACEPS") If the ACEPS is:
The basic value of a Over- But not over- Participation Unit is- - ----------------------------------------------------------------------- $7.74 $7.93 $.347 plus $.037 per each cent of the amount over $7.74 $7.93 $8.13 $1.053 plus $.054 per each cent of the amount over $7.93 $8.13 $8.33 $2.140 plus $.074 per each cent of the amount over $8.13 $8.33 $8.53 $3.607 plus $.094 per each cent of the amount over $8.33 $8.53 $8.74 $5.487 plus $.109 per each cent of the amount over $8.53 $8.74 $8.95 $7.780 plus $.130 per each cent of the amount over $8.74 $8.95 $9.16 $10.507 plus $.151 per each cent of the amount over $8.95 $9.16 $9.38 $13.680 plus $.165 per each cent of the amount over $9.16 $9.38 $9.60 $17.327 plus $.187 per each cent of the amount over $9.38 $9.60 $9.83 $21.447 plus $.201 per each cent of the amount over $9.60 $9.83 $10.06 $26.067 plus $.223 per each cent of the amount over $9.83 $10.06 $10.29 $31.207 plus $.246 per each cent of the amount over $10.06 $10.29 $10.53 $36.873 plus $.216 per each cent of the amount over $10.29 $10.53 $10.77 $42.067 plus $.201 per each cent of the amount over $10.53 $10.77 $11.02 $46.873 plus $.176 per each cent of the amount over $10.77 $11.02 $11.28 $51.287 plus $.154 per each cent of the amount over $11.02 $11.28 $11.53 $55.273 plus $.142 per each cent of the
6 amount over $11.28 $11.53 $11.79 $58.883 plus $.119 per each cent of the amount over $11.53 $11.79 $12.06 $61.933 plus $.098 per each cent of the amount over $11.79 $12.06 $12.33 $64.567 plus $.079 per each cent of the amount over $12.06 $12.33 $66.707
Average Modified Cash Return on Equity ("AMCROE") Modifier: The basic Participation Unit value determined above shall be adjusted as follows: o If AMCROE for 1997-2000 is less than 14.00%, the Participation Units shall have no value. o If AMCROE is equal to or greater than 14.00% but less than 17.00%, the basic value of a Participation Unit shall be multiplied by a factor of 1.00. o If AMCROE is equal to or greater than 17.00% but less than 22.00%, the basic value of a Participation Unit shall be multiplied by the following factor: 1+(AMCROE-.17)6.60. o If AMCROE is 22.00% or more, the basic value of a Participation Unit shall be multiplied by 1.33. Example: If ACEPS is $10.03 and AMCROE is 20.07, each Participation Unit would be worth $36.71. [$26.067+100($10.03-$9.83)$.223]X[1+(.2007-.17)6.6] = $36.71 EX-21 3 ZIONS BANCORPORATION AND SUBSIDIARIES 1 EXHIBIT 21 ZIONS BANCORPORATION AND SUBSIDIARIES AT DECEMBER 31, 1997
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 Pitkin County Bank and Trust Company Colorado Centennial Savings Bank, F.S.B. Federally chartered doing business in Colorado ValCor Bancorporation, Inc. Colorado Grossmont Bank California Cash Access, Inc. Utah GB Capital Trust Delaware Great Western Financial Corporation Utah Lockhart Realty Company Utah Zions Data Service Company Utah Zions Insurance Agency, Inc. Utah Zions Life Insurance Company Arizona
EX-23 4 CONSENT OF KPMG PEAT MARWICK LLP 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 26, 1998, relating to the consolidated balance sheets of Zions Bancorporation and subsidiaries as of December 31, 1997 and 1996, 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, 1997, which report appears in this annual report on Form 10-K for the year ended December 31, 1997. 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 13, 1998, relating to the statements of net assets available for benefits of Zions Bancorporation Employee Stock Savings Plan as of December 31, 1997 and 1996, 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, 1997, which report appears in the annual report on Form 11-K for the year ended December 31, 1997, which is included as an exhibit in this annual report on Form 10-K. 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 13, 1998, relating to the statements of net assets available for benefits of Zions Bancorporation Employee Investment Savings Plan as of December 31, 1997 and 1996, 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, 1997, which report appears in the annual report on Form 11-K for the year ended December 31, 1997, which is included as an exhibit in this annual report on Form 10-K. KPMG Peat Marwick LLP Salt Lake City, Utah March 20, 1998 EX-27.1 5 FINANCIAL DATA SCHEDULE - PERIOD ENDED 12/31/95
9 THIS RESTATED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1995 AND RELATED CONSOLIDATED STATEMENT OF INCOME FO THE YEAR ENDED DECEMBER 31, 1995 WHICH HAVE BEEN RESTATED AS A RESULT OF POOLING OF INTERESTS. 1,000 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 454,207 34,580 652,671 63,706 443,333 1,187,630 1,203,527 3,068,057 73,437 6,095,515 4,511,184 881,896 81,211 152,046 0 0 113,477 356,201 6,095,515 270,771 168,724 0 439,495 130,842 205,948 233,547 3,000 (148) 195,186 124,172 82,385 0 0 82,385 1.39 1.37 4.48 10,875 5,309 249 0 67,018 8,683 5,900 73,437 11,586 0 61,851
EX-27.2 6 FINANCIAL DATA SCHEDULE - PERIOD ENDED 3/31/96
9 THIS RESTATED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1996 AND RELATED CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1996 WHICH HAVE BEEN RESTATED AS A RESULT OF POOLING OF INTERESTS. 1,000 U.S. 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 1 432,046 37,002 1,017,429 81,888 429,668 1,251,661 1,264,773 3,239,994 73,718 6,691,883 4,598,760 1,375,677 88,892 147,607 0 0 107,569 373,378 6,691,883 76,936 45,258 0 122,194 34,793 56,054 66,140 700 (6) 54,445 37,889 24,940 0 0 24,940 .40 .39 4.37 12,207 6,689 245 0 73,437 2,546 2,127 73,718 12,016 0 61,702
EX-27.3 7 FINANCIAL DATA SCHEDULE - PERIOD ENDED 6/30/96
9 THIS RESTATED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1996 AND RELATED CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1996 WHICH HAVE BEEN RESTATED AS A RESULT OF POOLING OF INTERESTS. 1,000 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 390,201 40,996 345,386 175,259 466,011 1,448,983 1,452,127 3,516,903 75,547 6,615,567 4,806,223 1,071,249 77,672 143,331 0 0 124,604 392,488 6,615,567 159,616 88,098 0 247,714 70,981 111,303 136,411 1,660 62 111,018 77,914 51,316 0 0 51,316 .82 .81 4.48 9,258 6,154 206 1,275 73,437 5,308 3,187 75,547 12,254 0 63,293
EX-27.4 8 FINANCIAL DATA SCHEDULE - PERIOD ENDING 9/30/96
9 THIS RESTATED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1996 AND RELATED CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 WHICH HAVE BEEN RESTATED AS A RESULT OF POOLING OF INTERESTS. 1,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 426,916 44,488 948,358 150,200 460,543 1,428,337 1,431,268 3,663,767 75,953 7,356,130 5,081,249 1,511,481 88,183 139,527 0 0 123,788 411,902 7,356,130 246,653 133,541 0 380,194 109,156 170,500 209,694 2,990 62 170,741 119,973 78,649 0 0 78,649 1.24 1.23 4.49 11,419 8,856 204 0 73,437 7,517 4,477 75,953 14,143 0 61,810
EX-27.5 9 FINANCIAL DATA SCHEDULE - PERIOD ENDING 12/31/96
9 THIS RESTATED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1996 AND RELATED CONSOLIDATED STATEMENT OF INCOME FOR THE PERIOD ENDED DECEMBER 31, 1996 WHICH HAVE BEEN RESTATED AS A RESULT OF POOLING OF INTERESTS AND INCLUDED IN THE COMPANY'S 10-K FOR THE YEAR ENDED DECEMBER 31, 1997. 1,000 YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 453,990 47,746 565,683 34,076 474,158 1,475,409 1,484,754 3,837,149 76,803 7,116,413 5,119,692 1,017,948 90,668 333,495 0 0 119,791 434,819 7,116,413 338,089 180,902 0 518,991 147,306 229,825 289,166 4,640 115 235,272 163,524 107,423 0 0 107,423 1.70 1.68 4.57 12,704 3,563 857 0 73,437 9,923 6,083 76,803 14,566 0 62,237
EX-27.6 10 FINANCIAL DATA SCHEDULE - PERIOD ENDED 3/31/97
9 THIS RESTATED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATIN EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1997 AND RELATED CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1997 WHICH HAVE BEEN RESTATED AS A RESULT OF POOLING OF INTERESTS. 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 419,541 51,037 995,428 157,957 432,908 1,497,889 1,498,996 4,117,389 76,802 7,926,419 5,288,584 1,654,546 101,796 328,234 0 0 96,598 456,661 7,926,419 93,268 55,891 0 149,159 38,137 72,816 76,343 1,605 60 63,397 44,356 28,913 0 0 28,913 .46 .45 4.06 10,981 3,883 852 0 76,803 2,803 1,197 76,802 17,824 0 58,978
EX-27.7 11 FINANCIAL DATA SCHEDULE - PERIOD ENDED 6/30/97
9 THIS RESTATED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1997 AND RELATED CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1997 WHICH HAVE BEEN RESTATED AS A RESULT OF POOLING OF INTERESTS. 1,000 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 477,411 51,264 779,912 437,994 470,711 1,819,387 1,831,482 4,378,203 79,645 8,766,162 5,799,304 1,852,834 103,754 368,803 0 0 158,187 683,280 8,766,162 197,739 120,645 0 318,384 80,334 156,290 162,094 3,040 492 133,639 91,824 59,474 0 0 59,474 .94 .93 4.08 13,645 7,160 830 2,527 76,803 5,846 2,425 79,645 17,785 0 61,860
EX-27.8 12 FINANCIAL DATA SCHEDULE - PERIOD ENDED 9/30/97
9 THIS RESTATED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1997 AND RELATED CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 WHICH HAVE BEEN RESTATED AS A RESULT OF POOLIN OF INTERESTS. 1,000 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 581,778 59,554 1,368,467 223,561 418,961 2,124,385 2,144,069 4,656,606 79,062 9,823,149 6,359,112 2,256,364 115,550 456,538 0 0 128,976 506,607 9,823,149 308,489 187,739 0 496,228 128,867 242,081 254,147 4,750 652 213,281 140,172 91,007 0 0 91,007 1.43 1.41 4.14 10,992 8,021 693 0 76,803 9,964 3,805 79,062 17,181 0 61,881
EX-27.9 13 FINANCIAL DATA SCHEDULE - PERIOD ENDED 12/31/97
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997 AND RELATED CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBE 31, 1997 INCLUDED IN THE COMPANY'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1997 JAN-01-1997 DEC-31-1997 626,814 61,871 752,217 83,681 485,686 2,142,727 2,162,588 4,871,650 80,481 9,521,770 6,854,462 1,375,825 166,776 469,247 0 0 122,222 533,238 9,521,770 426,348 255,948 0 682,296 180,371 330,497 351,799 6,175 797 301,218 187,573 122,362 0 0 122,362 1.92 1.89 4.18 11,907 9,944 691 0 76,803 14,357 6,316 80,481 15,521 0 64,960
EX-99.1 14 ANNUAL REPORT OF EMPLOYEE STOCK SAVINGS PLAN 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, 1997 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 3,240 participating employees in the Plan on December 31, 1997. 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, Chairman Senior Vice President of Zions Bancorporation Harris H. Simmons President and Chief Executive Officer of Zions Bancorporation Dale M. Gibbons Executive Vice President of Zions Bancorporation Peter K. Ellison Executive Vice President of Zions First National Bank W. David Hemingway Executive Vice President of Zions Bancorporation 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 Independent Auditors' Report Statements of Net Assets Available for Benefits - December 31, 1997 and 1996 Statements of Changes in Net Assets Available for Benefits - Years ended December 31, 1997, 1996, and 1995 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, 1997 and 1996, 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, 1997. 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, 1997 and 1996, and the changes in net assets available for benefits for each of the years in the three-year period ended December 31, 1997, 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, 1997, are presented for 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 1997 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 March 13, 1998 5 ZIONS BANCORPORATION EMPLOYEE STOCK SAVINGS PLAN Statements of Net Assets Available for Benefits December 31, 1997 and 1996
1997 1996 ----------- ----------- Assets: Cash $ -- -- Investments, at market value: Zions Bancorporation common stock (approximate cost of $18,067,701 in 1997 and $13,775,899 in 1996) 63,033,316 34,433,048 Short-term investments 173,627 99,353 ----------- ----------- 63,206,943 34,532,401 Contributions receivable: Employees 50,449 19,840 Zions Bancorporation 25,224 12,542 Dividends receivable 166,700 -- Interest receivable 333 243 ----------- ----------- Total assets 63,449,649 34,565,026 ----------- ----------- Liabilities: Accounts payable 56,614 -- Excess contribution refunds 19,730 50,622 ----------- ----------- Total liabilities 76,344 50,622 ----------- ----------- Net assets available for benefits $63,373,305 34,514,404 =========== ===========
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, 1997, 1996, and 1995
1997 1996 1995 ----------- ----------- ----------- Additions to net assets attributed to: Investment income: Net appreciation in market value of investment in Zions Bancorporation common stock $26,586,307 7,966,631 13,215,084 Dividends 793,341 389,789 410,080 Interest 4,113 3,979 5,239 ----------- ----------- ----------- 27,383,761 8,360,399 13,630,403 ----------- ----------- ----------- Contributions: Employees 3,331,020 2,674,067 2,191,527 Zions Bancorporation 1,645,785 1,295,816 1,062,640 ----------- ----------- ----------- 4,976,805 3,969,883 3,254,167 ----------- ----------- ----------- Rollover from affiliated plan 89,279 -- -- ----------- ----------- ----------- Total additions 32,449,845 12,330,282 16,884,570 Deductions from net assets attributed to: Benefits paid directly to participants 3,590,944 2,109,580 2,620,037 Rollover to affiliated plan -- 183,050 -- ----------- ----------- ----------- Net increase 28,858,901 10,037,652 14,264,533 Net assets available for benefits: Beginning of year 34,514,404 24,476,752 10,212,219 ----------- ----------- ----------- End of year $63,373,305 34,514,404 24,476,752 =========== =========== ===========
See accompanying notes to financial statements. 7 ZIONS BANCORPORATION EMPLOYEE STOCK SAVINGS PLAN Notes to Financial Statements December 31, 1997, 1996, and 1995 (1) Description of the Plan (a) General 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 . (b) 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, 1997 and 1996, there were 3,240 and 1,930 participants, respectively, in the Plan. (c) 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 1997. (d) Allocation of Income or Loss Investment income is 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. (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. 8 2 ZIONS BANCORPORATION EMPLOYEE STOCK SAVINGS PLAN Notes to Financial Statements (2) Summary of Significant Accounting Policies (continued) (b) Use of Estimates 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. (c) Investments The investment in common stock of the Company is carried at its quoted market price 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. (d) Costs of Administration All costs of administration are absorbed by the Company. (e) 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. (3) Income Taxes The Plan obtained its latest determination letter on June 5, 1996, in which the Internal Revenue Service 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. (4) Investments At December 31, 1997 and 1996, investment in common stock of the Company consisted of 1,389,164 and 331,087 shares, respectively. 9 ZIONS BANCORPORATION EMPLOYEE STOCK SAVINGS PLAN Item 27a - Schedule of Assets Held for Investment Purposes December 31, 1997
Shares/ Approxi- Market Units held Description mate cost value ------------ ---------------------------------------------------- ------------ --------- * 1,389,164 Zions Bancorporation common stock, without par value $ 36,635,176 63,033,316 173,627 Short-term investments 173,627 173,627
* Party in interest 10 ZIONS BANCORPORATION EMPLOYEE STOCK SAVINGS PLAN Item 27d - Schedule of Reportable Transactions Year ended December 31, 1997
Shares purchased Cost --------- --------- Purchase of investments - Zions Bancorporation common stock 107,427 $5,600,231
Shares Market distributed Cost (1) value ----------- ----------- ---------- Distribution of investments - Zions Bancorporation common stock 79,556 $3,424,151 3,424,151
(1) Cost determined using the average-cost method applied on a participant-by-participant basis. EX-99.2 15 ANNUAL REPORT OF EMPLOYEE INVESTMENT SAVINGS PLAN 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, 1997 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 1997. ITEM 2. CHANGES IN INVESTMENT POLICY During 1997 the Plan increased the number of investment fund types it maintains from four to nine. The separate types of investment funds maintained by the Plan are as follows: (I) Company securities, which consists of Company common stock and short-term investments pending the acquisition of Company securities; (ii) Accessor Growth Portfolio, which seeks capital growth by investing primarily in companies and industries from the 500 U.S. issuers with the largest market capitalization and well-established records of growth in profits and earnings; (iii) Accessor Value and Income Portfolio, which seeks a high level of current income and capital growth by investing primarily in companies and industries from the 500 U.S. issuers with the largest market capitalization and attractive valuation levels; (iv) Accessor Small to Mid Cap Portfolio which seeks capital growth by investing primarily in equity securities of small-to-medium-sized companies with high growth potential; (v) Accessor International Equity Portfolio which seeks the growth of capital by investing primarily in equity securities of companies domiciled in countries other than the United States; (vi) Accessor Intermediate Fixed-Income Portfolio which seeks the generation of current income by investing in fixed-income securities; (vii) Accessor Short-Intermediate Fixed-Income Portfolio which seeks preservation of capital and generation of current income by investing primarily in fixed-income securities, including government bonds, corporate bonds and mortgage-backed securities; (viii) Accessor Mortgage Securities Portfolio which seeks a high level of current income by investing in mortgage-related securities; and (ix) U.S. Government Money Portfolio which seeks maximum current income consistent with the preservation of principal and liquidity, investing primarily in short-term obligations issued by or guaranteed by the U.S. Government, its agencies or instrumentalities. 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 3,240 participating employees in the Plan on December 31, 1997. 3 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, Chairman Senior Vice President of Zions Bancorporation Harris H. Simmons President and Chief Executive Officer of Zions Bancorporation Dale M. Gibbons Executive Vice President of Zions Bancorporation Peter K. Ellison Executive Vice President of Zions First National Bank W. David Hemingway Executive Vice President of Zions Bancorporation 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. 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-eight percent of the assets of the Plan are invested in securities of the Company, and approximately twenty percent in Accessor Funds. 4 ITEM 9. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements Independent Auditors' Report Statements of Net Assets Available for Benefits - December 31, 1997 and 1996 Statements of Changes in Net Assets Available for Benefits - Years ended December 31, 1997, 1996, and 1995 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 5 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, 1997 and 1996, 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, 1997. 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, 1997 and 1996, and the changes in net assets available for benefits for each of the years in the three-year period ended December 31, 1997, 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, 1997, 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 1997 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 March 13, 1998 6 ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN Statements of Net Assets Available for Benefits December 31, 1997 and 1996
1997 1996 ------------ ------------ Assets: Cash $ 101,589 23,258 Investments, at market value: Zions Bancorporation common stock (approximate cost $17,287,725 in 1997 and $12,542,694 in 1996) 83,746,551 48,439,248 Fidelity mutual fund (approximate cost of $-0- in 1997 and $8,098,504 in 1996) -- 8,316,142 Money market fund -- 4,682,245 Fixed income fund (approximate cost of $-0- in 1997 and $1,078,544 in 1996) -- 1,067,450 Accessor funds (approximate cost of $21,575,897 in 1997 and $-0- in 1996) 21,787,158 -- Short-term investments 34,522 58,356 ------------ ------------ 105,669,820 62,586,699 Contributions receivable: Employees 35,855 18,581 Zions Bancorporation 6,737 3,883 Participant loans receivable 1,581,233 1,366,918 Dividends receivable 221,478 647,356 Interest receivable 3,227 20,340 Wires receivable 10,679 -- ------------ ------------ Total assets 107,529,029 64,643,777 Liabilities: Accounts payable 40,483 -- Excess contribution refunds -- 145,645 ------------ ------------ Total liabilities 40,483 145,645 ------------ ------------ Net assets available for benefits $107,488,546 64,498,132 ============ ============
See accompanying notes to financial statements. 7 ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN Statements of Changes in Net Assets Available for Benefits Years ended December 31, 1997, 1996, and 1995
1997 1996 1995 ------------ ------------ ------------ Additions to net assets attributed to: Investment income: Net appreciation in market value of investments $ 36,818,202 11,544,479 22,676,536 Dividends 3,053,076 732,045 826,171 Capital gain distributions -- 560,791 645,849 Interest 279,067 361,768 312,332 ------------ ------------ ------------ 40,150,345 13,199,083 24,460,888 ------------ ------------ ------------ Contributions: Employees 2,715,037 2,049,269 1,639,255 Zions Bancorporation 543,577 430,015 341,868 Plan rollovers: Nonaffiliated plans 4,132,145 342,799 1,050,327 Affiliated plan -- 183,050 -- ------------ ------------ ------------ 7,390,759 3,005,133 3,031,450 ------------ ------------ ------------ Total additions 47,541,104 16,204,216 27,492,338 Deductions from net assets attributed to benefits paid directly to participants 4,550,690 3,337,348 4,562,431 ------------ ------------ ------------ Net increase 42,990,414 12,866,868 22,929,907 Net assets available for benefits: Beginning of year 64,498,132 51,631,264 28,701,357 ------------ ------------ ------------ End of year $107,488,546 64,498,132 51,631,264 ============ ============ ============
See accompanying notes to financial statements. 8 ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN Notes to Financial Statements December 31, 1997, 1996, and 1995 (1) Description of the Plan (a) General 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. (b) 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, 1997 and 1996, there were 3,240 and 1,647 participants, respectively, in the Plan. (c) 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 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 1997. (d) Allocation of Income or Loss Investment income is 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. (e) 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. 9 2 ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN Notes to Financial Statements (f) Investment Options As of December 31, 1997, the Plan maintains two separate types of investment funds: (i) Company securities, which consist of Company stock; and (ii) Accessor Funds, which invests primarily in a diversified portfolio of U.S. common stocks, government, mortgage, and corporate bonds, and other short-term investments. During 1997 Fidelity mutual fund, money market fund, and fixed income fund investment options were replaced with the Accessor Funds, which contain eight investment options. (g) 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. (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. (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. 10 3 ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN Notes to Financial Statements (3) Income Taxes The Plan obtained its latest determination letter on June 5, 1996, in which the Internal Revenue Service 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. (4) Investments The investments in common stock of the Company and the Fidelity mutual fund, consist of 1,845,654 and 1,863,048 shares and -0- and 377,320 shares at December 31, 1997 and 1996, respectively. The investment in the fixed income fund consists of -0- and 50,855 shares and the investment in the Accessor Funds consists of 3,460,159 and -0- shares at December 31, 1997 and 1996, respectively. The net appreciation in market value for each of the years in the three-year period ended December 31, 1997, in comparison to the market value at the beginning of each year is as follows:
Investment 1997 1996 1995 ------------ ------------ ------------ Zions Bancorporation common stock $ 35,955,118 11,090,943 21,983,923 Fidelity mutual fund 2,009,330 478,254 625,633 Fixed income fund 10,674 (24,718) 66,980 Accessor fund (1,156,920) -- -- ------------ ------------ ------------ Net appreciation in market value $ 36,818,202 11,544,479 22,676,536 ============ ============ ============
11 4 ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN Notes to Financial Statements (5) Financial Information by Fund Type Financial information by fund type as of December 31, 1997 and 1996, and for each of the years in the three-year period ended December 31, 1997, are as follows: Statement of Net Assets Available for Benefits by Fund Type December 31, 1997
Zions Bancorp- oration Partici- common pant Accessor stock loans funds Total ----------- ----------- ----------- ----------- Assets: Cash $ 39 47,005 54,545 101,589 Investments, at market value: Zions Bancorporation common stock 83,746,551 -- -- 83,746,551 Accessor fund -- 21,787,158 21,787,158 Short-term investments 34,522 -- -- 34,522 ----------- ----------- ----------- ----------- 83,781,112 47,005 21,841,703 105,669,820 Contributions receivable: Employees 15,626 -- 20,229 35,855 Zions Bancorporation 3,049 -- 3,688 6,737 Participant loans receivable -- 1,581,233 -- 1,581,233 Dividends receivable 221,478 -- -- 221,478 Interest receivable 818 2,409 -- 3,227 Wires receivable -- 10,679 10,679 ----------- --------- ---------- ----------- Total assets 84,022,083 1,630,647 21,876,299 107,529,029 Liabilities - accounts payable 21,847 1,810 16,826 40,483 ----------- --------- ---------- ----------- Net assets available for benefits $84,000,236 1,628,837 21,859,473 107,488,546 =========== =========== =========== ===========
12 5 ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN Notes to Financial Statements (5) Financial Information by Fund Type (continued) Statement of Net Assets Available for Benefits by Fund Type December 31, 1996
Zions Bancorp- oration Fidelity Partici- common mutual Money Fixed pant stock 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 -- 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 ----------- ----------- ----------- ----------- ----------- ----------- Net assets available for benefits $48,444,499 8,938,217 4,680,159 1,065,238 1,370,019 64,498,132 =========== =========== =========== =========== =========== ===========
13 6 ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN Notes to Financial Statements (5) Financial Information by Fund Type (continued) Statement of Changes in Net Assets Available for Benefits by Fund Type Year ended December 31, 1997
Zions Bancorp- oration Fidelity Partici- common mutual Money Fixed pant stock fund market income loans ------------ ------------ ------------ ------------ ------------ Additions to net assets attributed to: Investment income: Net appreciation (depreciation) in market value of investments $ 35,955,118 2,009,330 -- 10,674 -- Dividends 1,081,318 -- -- 39,451 -- Interest 6,377 665 137,608 721 132,316 ------------ ------------ ------------ ------------ ------------ 37,042,813 2,009,995 137,608 50,846 132,316 ------------ ------------ ------------ ------------ ------------ Contributions: Employees 1,209,640 597,263 137,829 65,191 -- Zions Bancorporation 256,049 129,112 12,726 11,954 -- Plan rollovers 1,559,859 102,668 38,611 39,018 -- ------------ ------------ ------------ ------------ ------------ 3,025,548 829,043 189,166 116,163 -- ------------ ------------ ------------ ------------ ------------ Principal loan payments 455,302 74,763 42,000 3,000 (716,095) ------------ ------------ ------------ ------------ ------------ Total additions 40,523,663 2,913,801 368,774 170,009 (583,779) Deductions from net assets attributed to: Benefits paid directly to participants 3,069,345 242,982 199,921 51,330 99,474 Loans disbursed 552,521 169,997 69,472 -- (942,071) ------------ ------------ ------------ ------------ ------------ Total deductions 3,621,866 412,979 269,393 51,330 (842,597) ------------ ------------ ------------ ------------ ------------ Interfund transfers (1,346,059) (11,439,039) (4,779,540) (1,183,917) -- ------------ ------------ ------------ ------------ ------------ Net increase (decrease) 35,555,738 (8,938,217) (4,680,159) (1,065,238) 258,818 Net assets available for benefits: Beginning of year 48,444,499 8,938,217 4,680,159 1,065,238 1,370,019 ------------ ------------ ------------ ------------ ------------ End of year $ 84,000,237 -- -- -- 1,628,837 ============ ============ ============ ============ ============
Accessor funds* Total ------------ ------------ Additions to net assets attributed to: Investment income: Net appreciation (depreciation) in market value of investments (1,156,920) 36,818,202 Dividends 1,932,307 3,053,076 Interest 1,380 279,067 ------------ ------------ 776,767 40,150,345 ------------ ------------ Contributions: Employees 705,114 2,715,037 Zions Bancorporation 133,736 543,577 Plan rollovers 2,391,989 4,132,145 ------------ ------------ 3,230,839 7,390,759 ------------ ------------ Principal loan payments 141,030 -- ------------ ------------ Total additions 4,148,636 47,541,104 Deductions from net assets attributed to: Benefits paid directly to participants 887,638 4,550,690 Loans disbursed 150,081 -- ------------ ------------ Total deductions 1,037,719 4,550,690 ------------ ------------ Interfund transfers 18,748,555 -- ------------ ------------ Net increase (decrease) 21,859,472 42,990,414 Net assets available for benefits: Beginning of year -- 64,498,132 ------------ ------------ End of year 21,859,472 107,488,546 ============ ============
* Accessor funds shown in detail at note 6. 14 7 ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN Notes to Financial Statements (5) 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 funds market income loans ------------ ------------ ------------ ------------ ------------ Additions to net assets attributed to: Investment income: Net appreciation (depreciation) in market value of investments $ 11,090,943 478,254 -- (24,718) -- Dividends 581,303 75,331 -- 75,411 -- Capital gain distributions -- 560,791 -- -- -- Interest 1,972 1,695 222,032 456 135,613 ------------ ------------ ------------ ------------ ------------ 11,674,218 1,116,071 222,032 51,149 135,613 ------------ ------------ ------------ ------------ ------------ Contributions: Employees 829,922 898,971 220,000 100,376 -- Zions Bancorporation 172,015 188,689 51,176 18,135 -- Plan rollovers 250,017 80,839 15,152 179,841 -- ------------ ------------ ------------ ------------ ------------ 1,251,954 1,168,499 286,328 298,352 -- ------------ ------------ ------------ ------------ ------------ 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) Deductions from net assets attributed to: Benefits paid directly to participants 2,332,669 453,309 317,861 137,634 95,875 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) ------------ ------------ ------------ ------------ ------------ 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 Net assets available for benefits: Beginning of year 38,166,784 6,667,289 4,369,718 1,094,962 1,332,511 ------------ ------------ ------------ ------------ ------------ End of year $ 48,444,499 8,938,217 4,680,159 1,065,238 1,370,019 ============ ============ ============ ============ ============
Total ------------ Additions to net assets attributed to: Investment income: Net appreciation (depreciation) in market value of investments 11,544,479 Dividends 732,045 Capital gain distributions 560,791 Interest 361,768 ------------ 13,199,083 ------------ Contributions: Employees 2,049,269 Zions Bancorporation 430,015 Plan rollovers 525,849 ------------ 3,005,133 ------------ Principal loan payments -- ------------ Total additions 16,204,216 Deductions from net assets attributed to: Benefits paid directly to participants 3,337,348 Loans disbursed -- ------------ Total deductions 3,337,348 ------------ Interfund transfers -- ------------ Net increase (decrease) 12,866,868 Net assets available for benefits: Beginning of year 51,631,264 ------------ End of year 64,498,132 ============
15 8 ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN Notes to Financial Statements (5) 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- oraton Fidelity common mutual Money Fixed Participant stock fund market income loans ------------ ------------ ------------ ------------ ------------ Additions to net assets attributed to: Investment income: Net appreciation in market value of investments $ 21,983,923 625,633 -- 66,980 -- Dividends 690,743 83,833 -- 51,595 -- Capital gain distributions -- 645,183 -- 666 -- Interest 70,994 12,278 226,088 2,972 -- ------------ ------------ ------------ ------------ ------------ 22,745,660 1,366,927 226,088 122,213 -- ------------ ------------ ------------ ------------ ------------ Contributions: Employees 630,280 698,809 231,990 78,176 -- Zions Bancorporation 126,185 148,775 54,166 12,742 -- Plan rollovers 598,919 164,479 260,825 26,104 -- ------------ ------------ ------------ ------------ ------------ 1,355,384 1,012,063 546,981 117,022 -- ------------ ------------ ------------ ------------ ------------ 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) Deductions from net assets attributed to: Benefits paid directly to participants 2,793,649 787,468 846,207 135,107 -- 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) ------------ ------------ ------------ ------------ ------------ 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) Net assets available for benefits: Beginning of year 18,643,832 4,388,239 3,633,335 609,937 1,426,014 ------------ ------------ ------------ ------------ ------------ End of year $ 38,166,784 6,667,289 4,369,718 1,094,962 1,332,511 ============ ============ ============ ============ ============
Total ------------ Additions to net assets attributed to: Investment income: Net appreciation in market value of investments 22,676,536 Dividends 826,171 Capital gain distributions 645,849 Interest 312,332 ------------ 24,460,888 ------------ Contributions: Employees 1,639,255 Zions Bancorporation 341,868 Plan rollovers 1,050,327 ------------ 3,031,450 ------------ Principal loan payments -- ------------ Total additions 27,492,338 Deductions from net assets attributed to: Benefits paid directly to participants 4,562,431 Loans disbursed -- ------------ Total deductions 4,562,431 ------------ Interfund transfers -- ------------ Net increase (decrease) 22,929,907 Net assets available for benefits: Beginning of year 28,701,357 ------------ End of year 51,631,264 ============
16 9 ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN Notes to Financial Statements (6) Financial Information by Accessor Funds Investment Option Statement of Changes in Accessor Funds Net Assets Available for Benefits by Investment Option Year ended December 31, 1997
Inter- Value Inter- mediate and Small to national fixed Mortgage Growth income mid-cap equity income securities ---------- ---------- ---------- ---------- ---------- ---------- Additions to net assets attributed to: Investment income $ 118,302 220,511 394,169 (157,230) 17,908 110,284 Contributions 652,443 465,441 575,766 454,634 175,634 421,771 Principal loan payments 36,217 16,821 26,259 22,879 3,549 11,886 ---------- ---------- ---------- ---------- ---------- ---------- Total additions 806,962 702,773 996,194 320,283 197,091 543,941 Deductions from net assets attributed to: Benefits paid directly to participants 108,867 31,295 47,247 44,652 13,516 33,046 Loans disbursed 38,541 17,901 27,944 24,347 3,777 12,649 ---------- ---------- ---------- ---------- ---------- ---------- Total deductions 147,408 49,196 75,191 68,999 17,293 45,695 ---------- ---------- ---------- ---------- ---------- ---------- Interfund transfers 3,620,877 2,732,600 3,192,599 2,477,724 1,047,455 2,572,749 ---------- ---------- ---------- ---------- ---------- ---------- Net increase 4,280,431 3,386,177 4,113,602 2,729,008 1,227,253 3,070,995 Net assets available for benefits: Beginning of year -- -- -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- End of year $4,280,431 3,386,177 4,113,602 2,729,008 1,227,253 3,070,995 ========== ========== ========== ========== ========== ==========
Short- term Fidelity inter- U.S. mediate govern- fixed ment income reserves Total ---------- ---------- ---------- Additions to net assets attributed to: Investment income 18,387 54,436 776,767 Contributions 91,294 393,856 3,230,839 Principal loan payments 2,411 21,008 141,030 ---------- ---------- ---------- Total additions 112,092 469,300 4,148,636 Deductions from net assets attributed to: Benefits paid directly to participants 730 608,285 887,638 Loans disbursed 2,566 22,356 150,081 ---------- ---------- ---------- Total deductions 3,296 630,641 1,037,719 ---------- ---------- ---------- Interfund transfers 532,988 2,571,563 18,748,555 ---------- ---------- ---------- Net increase 641,784 2,410,222 21,859,472 Net assets available for benefits: Beginning of year -- -- -- ---------- ---------- ---------- End of year 641,784 2,410,222 21,859,472 ========== ========== ==========
17 ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN Item 27a - Schedule of Assets Held for Investment Purposes December 31, 1997
Shares/ Approxi- Units held Description mate cost Market value ---------------- ---------------------------------------------------- ------------ ------------- * 1,845,654 Zions Bancorporation common stock, without par value $ 46,246,903 83,746,551 3,460,159 Accessor Funds 21,575,897 21,787,158 ----------- ------------ 67,822,800 105,533,709 Short-term investments 34,522 34,522 ------------ ------------ $ 67,857,322 105,568,231 ============ ===========
* Party in interest 18 ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN Item 27d - Schedule of Reportable Transactions Year ended December 31, 1997
Shares purchased Cost ---------- ---------- Purchase of investments - Zions Bancorporation common stock, without par value 155,848 $6,679,057 Short-term investment fund 7,811,654 7,811,654
Units Selling distributed Cost price Net gain ----------- ---- ----- -------- Distribution of investments - Zions Bancorporation common stock, without par value 96,477 $2,873,309 4,471,941 1,598,632 Fidelity Disciplined Equity Fund 467,032 9,493,266 12,394,759 2,901,493 Zions Bancorporation money market account 5,621,301 5,621,301 5,621,301 -- Short-term investment fund 7,810,244 7,810,244 7,810,244 --
-----END PRIVACY-ENHANCED MESSAGE-----