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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20459
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 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
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(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).
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ZIONS BANCORPORATION
ANNUAL REPORT FOR 1997 ON FORM 10-K
TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business 1
Item 2. Properties 11
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Executive Officers of the Registrant 12
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 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
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PART I
ITEM 1. BUSINESS
Zions Bancorporation (the Parent) is a multibank holding company organized under
the laws of Utah in 1955, registered under the Bank Holding Company Act of 1956,
as amended. Zions Bancorporation and its subsidiaries (the Company), is the
second largest bank holding company headquartered in Utah. 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
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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.
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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.
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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.
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Minimum Leverage Ratio
The Federal Reserve Board has adopted capital standards and leverage capital
guidelines that include a minimum leverage ratio of 3% Tier 1 Capital to total
assets (the "leverage ratio"). The leverage ratio is used in tandem with a
risk-based ratio of 8% that took effect at the end of 1992.
The Federal Reserve Board has emphasized that the leverage ratio constitutes a
minimum requirement for well-run banking organizations having well-diversified
risk, including no undue interest rate exposure, excellent asset quality, high
liquidity, good earnings, and a composite rating of 1 under the Interagency Bank
Rating System. Banking organizations experiencing or anticipating significant
growth, as well as those organizations which do not exhibit the characteristics
of a strong, well-run banking organization described above, will be required to
maintain strong capital positions substantially above the minimum supervisory
levels without significant reliance on intangible assets. Furthermore, the
Federal Reserve Board has indicated that it will consider a "tangible Tier I
Capital Leverage Ratio" (deducting all intangibles) and other indices of capital
strength in evaluating proposals for expansion or new activities. At December
31, 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.
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Banks which are classified undercapitalized, significantly undercapitalized or
critically undercapitalized are required to submit capital restoration plans
satisfactory to their federal banking regulator and guaranteed within stated
limits by companies having control of such banks (i.e., to the extent of the
lesser of five percent of the institution's total assets at the time it became
undercapitalized or the amount necessary to bring the institution into
compliance with all applicable capital standards as of the time the institution
fails to comply with its capital restoration plan, until the institution is
adequately capitalized on average during each of four consecutive calendar
quarters), and are subject to regulatory monitoring and various restrictions on
their operations and activities, including those upon asset growth,
acquisitions, branching and entry into new lines of business and may be required
to divest themselves of or liquidate subsidiaries under certain circumstances.
Holding companies of such institutions may be required to divest themselves of
such institutions or divest themselves of or liquidate nondepository affiliates
under certain circumstances. Critically undercapitalized institutions are also
prohibited from making payments of principal and interest on debt subordinated
to the claims of general creditors as well as to the mandatory appointment of a
conservator or receiver within 90 days of becoming critically undercapitalized
unless periodic determinations are made by the appropriate federal banking
agency, with the concurrence of the FDIC, that forbearance from such action
would better protect the affected deposit insurance fund. Unless appropriate
findings and certifications are made by the appropriate federal banking agency
with the concurrence of the FDIC, a critically undercapitalized institution must
be placed in receivership if it remains critically undercapitalized on average
during the calendar quarter beginning 270 days after the date it became
critically undercapitalized.
Other Regulatory and Supervisory Issues
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.
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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.
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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.
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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.
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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
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following analysis of the Company's financial condition and results of
operations as of and for the years ended December 31, 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.
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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.
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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
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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
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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.