<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
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
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 and (2) has been subject to such filing requirement for
the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, without par value, outstanding at August 4, 1997 59,773,268 shares
1
<PAGE> 2
ZIONS BANCORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (unaudited)
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Consolidated Statements of Retained Earnings 6
Notes to Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis 8
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Shareholders 25
ITEM 6. Exhibits and Reports on Form 8-K 26
SIGNATURES 26
</TABLE>
2
<PAGE> 3
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31, June 30,
(In thousands, except share amounts) 1997 1996 1996
----------- ------------ -----------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 416,875 $ 404,331 $ 338,616
Money market investments:
Interest-bearing deposits 51,264 47,746 40,996
Federal funds sold 212,799 260,023 10,967
Security resell agreements 567,113 305,660 334,419
Investment Securities:
Held to maturity at cost (approximate market value
$1,668,754, $1,331,081 and $1,340,467):
Taxable 1,466,627 1,096,921 1,121,745
Nontaxable 190,198 225,240 214,104
Available for sale at market:
Taxable 414,586 412,686 390,500
Nontaxable 40,310 40,765 40,694
Trading account at market 437,994 34,076 175,259
----------- ----------- -----------
2,549,715 1,809,688 1,942,302
Loans:
Loans held for sale at cost, which approximates market 156,708 150,467 166,967
Loans, leases and other receivables 3,804,385 3,340,557 3,080,511
----------- ----------- -----------
3,961,093 3,491,024 3,247,478
Less:
Unearned income and fees, net of related costs 37,203 38,481 35,287
Allowance for loan losses 71,538 69,954 69,272
----------- ----------- -----------
3,852,352 3,382,589 3,142,919
Premises and equipment, at cost, less accumulated depreciation 109,844 92,874 88,312
Goodwill and core deposit intangibles 101,963 37,300 37,984
Other real estate owned 920 138 259
Other assets 187,107 144,615 151,140
----------- ----------- -----------
Total assets $ 8,049,952 $ 6,484,964 $ 6,087,914
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand $ 1,258,904 $ 1,159,791 $ 1,000,183
Interest-bearing:
Savings and money market 2,742,357 2,474,821 2,394,220
Time under $100,000 758,785 635,568 672,720
Time over $100,000 250,929 167,545 182,037
Foreign 148,942 114,292 91,156
----------- ----------- -----------
5,159,917 4,552,017 4,340,316
Securities sold, not yet purchased 161,316 76,831 111,010
Federal funds purchased 449,720 155,407 124,686
Security repurchase agreements 1,192,154 771,361 817,070
Accrued liabilities 96,562 83,082 68,983
Federal Home Loan Bank advances and other borrowings:
Less than one year 39,786 13,533 17,925
Over one year 110,132 73,661 78,410
Long-term debt 251,171 251,620 55,992
----------- ----------- -----------
Total liabilities 7,460,758 5,977,512 5,614,392
----------- ----------- -----------
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, 60,025,863,
58,918,880 and 59,090,660 shares 117,770 79,791 84,604
Net unrealized holding gains and losses on securities
available for sale 780 (1,835) (959)
Retained earnings 470,644 429,496 389,877
----------- ----------- -----------
Total shareholders' equity 589,194 507,452 473,522
----------- ----------- -----------
Total liabilities and shareholders' equity $ 8,049,952 $ 6,484,964 $ 6,087,914
=========== =========== ===========
</TABLE>
3
<PAGE> 4
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
(In thousands, except per share amounts) 1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 87,033 $ 69,715 $ 164,926 $ 134,956
Interest on loans held for sale 3,106 3,040 5,951 5,780
Interest on money market investments 23,080 11,792 44,112 27,172
Interest on securities:
Held to maturity:
Taxable 23,731 16,878 42,485 32,565
Nontaxable 2,454 3,123 5,226 6,313
Available for sale:
Taxable 7,102 6,081 13,800 11,743
Nontaxable 562 565 1,123 1,127
Trading account 4,790 2,033 8,135 4,437
Lease financing 3,707 2,851 6,720 5,493
--------- --------- --------- ---------
Total interest income 155,565 116,078 292,478 229,586
--------- --------- --------- ---------
Interest expense:
Interest on savings and money market deposits 24,729 21,251 47,854 41,128
Interest on time deposits under $100,000 9,206 8,714 17,135 17,611
Interest on time deposits over $100,000 3,084 2,443 5,348 5,023
Interest on foreign deposits 1,450 1,334 3,031 2,491
Interest on securities sold, not yet purchased 1,414 1,290 2,658 2,280
Interest on borrowed funds 39,646 17,556 72,802 37,614
--------- --------- --------- ---------
Total interest expense 79,529 52,588 148,828 106,147
--------- --------- --------- ---------
Net interest income 76,036 63,490 143,650 123,439
Provision for loan losses 820 760 1,810 1,360
--------- --------- --------- ---------
Net interest income after provision for loan losses 75,216 62,730 141,840 122,079
--------- --------- --------- ---------
Noninterest income:
Service charges on deposit accounts 9,561 8,042 18,492 15,749
Other service charges, commissions and fees 7,618 6,346 16,910 13,187
Trust income 1,233 1,329 2,795 2,611
Investment securities gains, net 432 68 492 70
Trading account income 1,377 752 2,168 1,625
Loan sales and servicing income 10,402 8,320 19,493 15,430
Other income 1,547 1,669 3,608 3,931
--------- --------- --------- ---------
Total noninterest income 32,170 26,526 63,958 52,603
--------- --------- --------- ---------
Noninterest expense:
Salaries and employee benefits 34,494 28,425 66,182 55,420
Occupancy, net 3,197 2,638 6,222 5,422
Furniture and equipment 5,050 3,738 9,505 7,344
Other real estate expense (income) 1 53 177 (230)
Legal and professional services 1,550 1,384 3,007 2,123
Supplies 1,789 1,599 3,364 3,121
Postage 1,431 1,285 2,940 2,641
Advertising 1,855 1,487 3,481 2,969
FDIC premiums 172 1 299 6
Amortization of goodwill and core deposit intangibles 977 593 1,679 1,047
Amortizaiton of other intangibles 399 385 769 695
Other expenses 13,131 9,852 24,094 20,634
--------- --------- --------- ---------
Total noninterest expense 64,046 51,440 121,719 101,192
--------- --------- --------- ---------
Income before income taxes 43,340 37,816 84,079 73,490
Income taxes 15,303 12,752 29,340 24,755
--------- --------- --------- ---------
Net income $ 28,037 $ 25,064 $ 54,739 $ 48,735
========= ========= ========= =========
Weighted average common and common-equivalent shares outstanding 59,765 58,984 59,473 58,844
Net income per common share $ 0.47 $ 0.43 $ 0.92 $ 0.83
</TABLE>
4
<PAGE> 5
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
(In thousands) 1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 28,037 $ 25,064 $ 54,739 $ 48,735
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for loan losses 820 760 1,810 1,360
Write-downs of other real estate owned 33 -- 130 --
Depreciation of premises and equipment 3,878 3,052 7,397 6,037
Amortization of premium on core deposits
and other intangibles 1,376 978 2,448 1,742
Amortization of net premium/discount on
investment securities 1,427 1,659 2,668 3,235
Accretion of unearned income and fees, net of
related costs (26) 1,635 (987) 3,768
Proceeds from sales of trading account securities 28,383,292 14,585,455 54,094,572 29,345,404
Increase in trading account securities (28,663,329) (14,678,826) (54,498,490) (29,456,956)
Net gain on sales of investment securities (432) (68) (492) (70)
Proceeds from loans held for sale 165,837 173,434 320,192 326,217
Increase in loans held for sale (150,135) (175,127) (322,866) (354,399)
Net gain on sales of loans, leases and other assets (6,350) (6,540) (14,490) (11,920)
Net (gain) loss on sales of other real estate owned (31) 23 (25) (258)
Change in accrued income taxes (10,649) (8,948) 2,885 3,103
Change in accrued interest receivable (5,383) (5,941) (10,527) (7,476)
Change in other assets (15,995) (942) (28,607) (6,720)
Change in accrued interest payable (3,962) (1,963) 1,889 (295)
Change in accrued liabilities 16,265 (681) 7,530 (6,777)
------------ ------------ ------------ ------------
Net cash (used in) operating activities (255,327) (86,976) (380,224) (105,270)
------------ ------------ ------------ ------------
Cash flows from investing activities:
Net (increase) decrease in money market investments 194,463 675,518 (209,827) 324,944
Proceeds from maturities of investment securities
held to maturity 100,078 45,092 199,702 108,024
Purchases of investment securities held to maturity (377,528) (233,801) (509,620) (364,275)
Proceeds from sales of investment securities
available for sale 107,517 45,812 107,778 46,551
Proceeds from maturities of investment securities
available for sale 10,081 9,136 79,232 78,418
Purchases of investment securities available for sale (95,539) (92,086) (129,599) (161,372)
Proceeds from sales of loans and leases 365,820 240,017 547,274 381,278
Net increase in loans and leases (283,691) (391,219) (691,724) (660,635)
Purchases of assets to be leased -- -- -- (8,514)
Proceeds from sales of premises and equipment 552 531 689 591
Purchases of premises and equipment (6,690) (4,845) (14,095) (9,067)
Proceeds from sales of other real estate owned 360 562 464 1,438
Proceeds from sales of mortgage servicing rights 151 291 374 914
Purchases of mortgage servicing rights (115) (51) (173) (1,492)
Proceeds from sales of other assets 120 253 270 448
Purchases of other assets -- -- -- --
Cash paid for acquisitions, net of cash received 725 3,550 675 3,550
------------ ------------ ------------ ------------
Net cash provided by (used in) investing
activities 16,304 298,760 (618,580) (259,199)
------------ ------------ ------------ ------------
</TABLE>
5
<PAGE> 6
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
(In thousands) 1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash flows from financing activities:
Net increase in deposits 108,498 55,326 228,179 129,208
Net change in short-term funds borrowed 186,055 (303,446) 820,119 191,650
Proceeds from FHLB advances over one year 40,000 350 40,000 350
Payments on FHLB advances over one year (4,398) (4,253) (8,529) (8,114)
Payments on long-term debt (33) (376) (449) (597)
Proceeds from issuance of common stock 374 137 730 991
Payments to redeem common stock (28,986) (9,334) (55,111) (16,433)
Dividends paid (7,192) (6,067) (13,591) (12,037)
----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities 294,318 (267,663) 1,011,348 285,018
----------- ----------- ----------- -----------
Net increase (decrease) in cash and due from banks 55,295 (55,879) 12,544 (79,451)
Cash and due from banks at beginning of period 361,580 394,495 404,331 418,067
----------- ----------- ----------- -----------
Cash and due from banks at end of period $ 416,875 $ 338,616 $ 416,875 $ 338,616
=========== =========== =========== ===========
</TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
(In thousands) 1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash paid for:
Interest $ 82,227 $ 54,113 $145,631 $105,983
Income taxes 26,552 21,198 26,632 20,829
Loans transferred to other real estate owned 138 56 1,246 347
</TABLE>
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Twelve Months Ended
June 30, December 31,
------------------------- -------------------
(In thousands) 1997 1996 1996
--------- --------- ---------
<S> <C> <C> <C>
Balance at beginning of period $ 429,496 $ 353,179 $ 353,179
Add:
Net income 54,739 48,735 101,350
--------- --------- ---------
484,235 401,914 454,529
Deduct cash dividends:
Preferred, paid by subsidiary to minority shareholder (18) (18) (36)
Common, per share $.23 in 1997
and $.205 and $.425 in 1996 (13,573) (12,019) (24,997)
--------- --------- ---------
Balance at end of period $ 470,644 $ 389,877 $ 429,496
========= ========= =========
</TABLE>
6
<PAGE> 7
ZIONS BANCORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Basis of Presentation
The unaudited consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Certain amounts in the 1996 consolidated financial statements have been
reclassified to conform to the 1997 presentation. Operating results for the six
months ended June 30, 1997 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1997. For further information,
refer to the consolidated financial statements and footnotes thereto included in
Zions Bancorporation's Annual Report to Shareholders on Form 10-K for the year
ended December 31, 1996.
7
<PAGE> 8
ZIONS BANCORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL HIGHLIGHTS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
(In thousands, except per share ----------------------------------- ----------------------------------
and ratio data) 1997 1996 % Change 1997 1996 % Change
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Taxable-equivalent net interest income $ 77,666 $ 65,071 19.36% $146,939 $126,628 16.04%
Net interest income 76,036 63,490 19.76% 143,650 123,439 16.37%
Noninterest income 32,170 26,526 21.28% 63,958 52,603 21.59%
Provision for loan losses 820 760 7.89% 1,810 1,360 33.09%
Noninterest expense 64,046 51,440 24.51% 121,719 101,192 20.29%
Income before income taxes 43,340 37,816 14.61% 84,079 73,490 14.41%
Income taxes 15,303 12,752 20.00% 29,340 24,755 18.52%
Net income 28,037 25,064 11.86% 54,739 48,735 12.32%
PER COMMON SHARE
Net income .47 .43 9.30% .92 .83 10.84%
Dividends .12 .1025 17.07% .23 .2050 12.20%
Book value 9.82 8.01 22.60%
SELECTED RATIOS
Return on average assets 1.34% 1.62% 1.38% 1.58%
Return on average common equity 20.61% 22.41% 21.05% 22.19%
Efficiency ratio 58.31% 56.16% 57.71% 56.46%
Net interest margin 4.00% 4.57% 3.99% 4.47%
CASH EARNINGS*
Taxable-equivalent net interest income $ 77,666 $ 65,071 19.36% $146,939 $126,628 16.04%
Net interest income 76,036 63,490 19.76% 143,650 123,439 16.37%
Noninterest income 32,170 26,526 21.28% 63,958 52,603 21.59%
Provision for loan losses 820 760 7.89% 1,810 1,360 33.09%
Noninterest expense 63,069 50,847 24.04% 120,040 100,145 19.81%
Income before income taxes 44,317 38,409 15.38% 85,758 74,537 15.05%
Income taxes 15,313 12,769 19.92% 29,361 24,789 18.44%
Net income 29,004 25,640 13.12% 56,397 49,748 13.37%
PER COMMON SHARE
Net income .49 .44 11.36% .95 .85 11.76%
Dividends .12 .1025 17.07% .23 .2050 12.20%
Book value 8.12 7.37 10.18%
SELECTED RATIOS
Return on average assets 1.39% 1.66% 1.43% 1.62%
Return on average common equity 4.74% 24.39% 24.34% 23.98%
Efficiency ratio 7.42% 55.51% 56.92% 55.87%
Net interest margin 4.00% 4.57% 3.99% 4.47%
</TABLE>
* Before amortization of goodwill and core deposit intangible assets.
8
<PAGE> 9
ZIONS BANCORPORATION AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS (Continued)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------------ ------------------------------------
(In thousands, except per share and ratio data) 1997 1996 % Change 1997 1996 % Change
----------- ----------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
AVERAGE BALANCES
Total assets $ 8,419,180 $ 6,238,822 34.95% $ 8,012,034 $ 6,208,569 29.05%
Investment securities 2,324,531 1,785,045 30.22% 2,143,241 1,743,036 22.96%
Net loans and leases 3,816,388 3,076,112 24.07% 3,670,569 2,975,685 23.35%
Goodwill and core deposit intangibles 75,413 27,075 178.53% 57,224 24,500 133.57%
Total deposits 4,811,408 4,235,182 13.61% 4,641,091 4,136,808 12.19%
Shareholders' equity 545,618 449,854 21.29% 524,403 441,709 18.72%
Weighted average common and common-
equivalent shares outstanding 59,765,000 58,984,000 59,473,000 58,844,000
AT PERIOD END
Total assets $ 8,049,952 $ 6,087,914 32.23%
Investment securities 2,549,715 1,942,302 31.27%
Net loans and leases 3,923,890 3,212,191 22.16%
Allowance for loan losses 71,538 69,272 3.27%
Goodwill and core deposit intangibles 101,963 37,984 168.44%
Total deposits 5,159,917 4,340,316 18.88%
Shareholders' equity 589,194 473,522 24.42%
Common shares outstanding 60,025,863 59,090,660
Common dividend payout 25.62% 24.17% 24.86% 24.66%
Average equity to average assets 6.48% 7.21% 6.55% 7.11%
Leverage ratio 7.70% 6.45%
Tier I risk-based capital 14.16% 11.13%
Total risk-based capital 16.86% 13.82%
Nonperforming assets 13,658 8,966 52.33%
Loans past due 90 days or more 7,070 5,494 28.69%
Nonperforming assets to net loans and leases,
other real estate owned and other
nonperforming assets .35% .28%
</TABLE>
9
<PAGE> 10
ZIONS BANCORPORATION AND SUBSIDIARIES
OPERATING RESULTS
Zions Bancorporation achieved record earnings for the quarter and half-year
ended June 30, 1997. Consolidated net income for the second quarter of 1997 was
$28.0 million or $0.47 per share, an increase of 11.9% and 9.3%, respectively,
over the $25.1 million or $0.43 earned in the second quarter of 1996 and an
increase of 5.0% and 4.4%, respectively, over the $26.7 million or $0.45 per
share for the first quarter of 1997. The quarterly dividend per share increased
17.1% to $0.12 from $0.1025 in the second quarter of 1996 and increased 9.1%
over the $0.11 in the first quarter of 1997.
Consolidated net income was $54.7 million or $0.92 per share for the first six
months of 1997, compared to $48.7 million or $0.83 per share for the first six
months of 1996, which constituted increases of 12.3% and 10.8% respectively. Per
share information for prior periods has been retroactively adjusted to reflect a
four-for-one split of its common stock effective on May 14, 1997.
The annualized return on average assets for the second quarter and for the first
six months of 1997 was 1.34% and 1.38% compared to 1.62% and 1.58%,
respectively, in 1996, resulting in an annualized return on average common
shareholders' equity of 20.61% and 21.05% for the second quarter and for the
first six months of 1997, compared to 22.41% and 22.19% for the same periods of
1996. The Company's "efficiency ratio," or noninterest expenses as a percentage
of total taxable-equivalent net revenues for the second quarter and for the
first six months of 1997 was 58.31% and 57.71%, respectively, compared to 56.16%
and 56.46% for the same periods of 1996.
Commencing with this quarter, the Company is also providing its earnings
performance on a cash basis since it believes that its cash 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. The Company has increased its use of purchase
accounting to account for business combinations so it can better manage its
capital for the benefit of shareholders through stock repurchases. However, the
expanded use of purchase accounting will result in increased levels of goodwill
and core deposit intangible assets that will be recognized and amortized.
Consequently, the difference between the Company's reported net income and its
cash earnings performance is expected to continue to increase in the near
future. Cash earnings are earnings before the amortization of goodwill and core
deposit intangible assets. Cash performance ratios are determined as if goodwill
and core deposit intangible assets and their associated amortization have not
been recognized on the balance sheet.
Cash earnings for the quarter were $29.0 million or $0.49 per share, and
increase of 13.1% and 11.4%, respectively, over the $25.6 million or $0.44 per
share earned in the second quarter of 1996. For the first quarter of 1997, cash
earnings were $0.46 per share. Year-to-date cash earnings were $56.4 million or
$0.95 per share, an increase of 13.4% and 11.8%, respectively, over the $49.7
million or $0.85 per share earned in the first half of 1996.
The cash annualized return on average assets for the second quarter and for the
first six months of 1997 was 1.39% and 1.43% compared to 1.66% and 1.62%,
respectively, in 1996, resulting in a cash annualized return on average common
shareholders' equity of 24.74% and 24.34% for the second quarter and for the
first six months of 1997, compared to 24.39% and 23.98% for the same periods of
1996. The Company's cash efficiency ratio for the second quarter and for the
first six months of 1997 was 57.42% and 56.92%, respectively, compared to 55.51%
and 55.87% for the same periods of 1996.
10
<PAGE> 11
ZIONS BANCORPORATION AND SUBSIDIARIES
The Company's second-quarter $3.0 million (11.9%) increase in earnings relative
to the same period a year ago reflects a $12.6 million (19.8%) increase in net
interest income, a $5.6 million (21.3%) increase in noninterest income,
partially offset by a $.1 million (7.9%) increase in the provision for loan
losses, a $12.6 million (24.5%) increase in noninterest expenses and a $2.5
million (20.0%) increase in income tax expense.
The Company's $6.0 million (12.3%) increase in net income for the six-month
period ended June 30, 1997 compared to the similar period in 1996, reflect a
$20.2 million (16.4%) increase in net interest income, an $11.4 million (21.6%)
increase in noninterest income, partially offset by a $.5 million (33.1%)
increase in the provision for loan losses, a $20.5 million (20.3%) increase in
noninterest expenses and a $4.6 million (18.5%) increase in income tax expense.
These figures include $2.6 million in net interest income, $0.4 million in
noninterest income, $2.0 million in noninterest expense and $.5 million in
income tax expense, for operations of the acquired Aspen Bancshares, Inc. from
May 16 through June 30, 1997.
NET INTEREST INCOME AND INTEREST RATE SPREADS
Net interest income for the second quarter of 1997, adjusted to a fully
taxable-equivalent basis, increased 19.4% to $77.7 million compared to $65.1
million for the second quarter of 1996 and increased 12.1% from $69.3 million
for the first quarter of 1997. Net interest margin was 4.00%, compared to 4.57%
for the second quarter of 1996 and 3.98% for the first quarter of 1997.
Six-month net interest income, on a fully taxable-equivalent basis, was $146.9
million in 1997, an increase of 16.0% compared to $126.6 million for the first
six months of 1996. Net interest margin for the first six months of 1997 was
3.99%, compared to 4.47% for the first six months of 1996.
The yield on average earning assets decreased 18 basis points during the second
quarter of 1997 as compared to the second quarter of 1996, and increased 13
basis points from the first quarter of 1997. The average rate paid this quarter
on interest-bearing funds increased 34 basis points from the second quarter of
1996 and increased 10 basis points from the first quarter of 1997. Comparing the
first six months of 1997 with 1996, the yield on average earning assets
decreased 18 basis points, while the cost of interest-bearing funds increased by
26 basis points.
The spread on average interest-bearing funds for the second quarter of 1997 was
3.30%, down from the 3.82% for the second quarter of 1996 and up from the 3.27%
for the first quarter of 1997. The spread on average interest-bearing funds for
the first six months of 1997 was 3.28% compared with 3.72% for the same period
in 1996.
11
<PAGE> 12
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED AVERAGE BALANCE SHEETS, YIELDS AND RATES
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30, 1997 June 30, 1996
----------------------------------- -------------------------------------
Average Amount of Average Average Amount of Average
(In thousands) Balance Interest 1 Rate Balance Interest 1 Rate
----------- ---------- ------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Money market investments:
Interest-bearing deposits $ 51,942 $ 644 4.97% $ 39,574 $ 461 4.69%
Federal funds sold and security
resell agreements 1,599,882 22,436 5.62% 821,741 11,331 5.55%
----------- --------- ----------- ---------
Total money market investments 1,651,824 23,080 5.60% 861,315 11,792 5.51%
----------- --------- ----------- ---------
Investment securities:
Held to maturity:
Taxable 1,350,348 23,731 7.05% 1,033,540 16,878 6.57%
Nontaxable 194,546 3,506 7.23% 205,038 4,462 8.75%
Available for sale:
Taxable 419,887 7,102 6.78% 372,853 6,081 6.56%
Nontaxable 40,038 803 8.04% 40,544 807 8.01%
Trading account 319,712 4,790 6.01% 133,070 2,033 6.14%
----------- --------- ----------- ---------
Total securities 2,324,531 39,932 6.89% 1,785,045 30,261 6.82%
----------- --------- ----------- ---------
Loans:
Loans held for sale 164,121 3,106 7.59% 162,468 3,040 7.53%
Net loans and leases 2 3,652,267 91,077 10.00% 2,913,644 72,566 10.02%
----------- --------- ----------- ---------
Total loans 3,816,388 94,183 9.90% 3,076,112 75,606 9.89%
----------- --------- ----------- ---------
Total interest-earning assets $7,792,743 $157,195 8.09% $5,722,472 $117,659 8.27%
--------- ---------
Cash and due from banks 344,813 332,238
Allowance for loan losses (71,036) (68,127)
Goodwill and core deposit intangibles 75,413 27,075
Other assets 277,247 225,164
----------- -----------
Total assets $8,419,180 $6,238,822
=========== ===========
LIABILITIES
Interest-bearing deposits:
Savings and NOW deposits $ 641,584 $ 4,778 2.99% $ 621,181 $ 4,753 3.08%
Money market super NOW deposits 2,030,949 19,951 3.94% 1,732,231 16,498 3.83%
Time deposits under $100,000 723,022 9,206 5.11% 667,187 8,714 5.25%
Time deposits $100,000 or more 210,854 3,084 5.87% 164,519 2,443 5.97%
Foreign deposits 131,902 1,450 4.41% 122,418 1,334 4.38%
----------- --------- ----------- ---------
Total interest-bearing deposits 3,738,311 38,469 4.13% 3,307,536 33,742 4.10%
----------- --------- ----------- ---------
Borrowed funds:
Securities sold, not yet purchased 93,678 1,630 6.98% 88,399 1,290 5.87%
Federal funds purchased and security
repurchase agreements 2,474,712 32,404 5.25% 1,197,828 14,802 4.97%
FHLB advances and other borrowings:
Less than one year 17,749 378 8.54% 20,114 312 6.24%
Over one year 79,526 1,220 6.15% 80,224 1,189 5.96%
Long-term debt 251,162 5,428 8.67% 55,861 1,253 9.02%
----------- --------- ----------- ---------
Total borrowed funds 2,916,827 41,060 5.65% 1,442,426 18,846 5.25%
----------- --------- ----------- ---------
Total interest-bearing liabilities $6,655,138 $ 79,529 4.79% $4,749,962 $ 52,588 4.45%
--------- ---------
Noninterest-bearing deposits 1,073,097 927,646
Other liabilities 145,327 111,360
----------- -----------
Total liabilities 7,873,562 5,788,968
Total shareholders' equity 545,618 449,854
----------- -----------
Total liabilities and shareholders' equity ,419,180 $6,238,822
=========== ===========
Spread on average interest-bearing funds 3.30% 3.82%
==== ====
Net interest income and net yield on
interest-earning assets $ 77,666 4.00% $ 65,071 4.57%
========= ==== ========= ====
</TABLE>
1 Taxable-equivalent rates used where applicable.
2 Net of unearned income and fees, net of related costs. Loans include
nonaccrual and restructured loans.
12
<PAGE> 13
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED AVERAGE BALANCE SHEETS, YIELDS AND RATES
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1997 June 30, 1996
----------------------------------- -----------------------------------
Average Amount of Average Average Amount of Average
(In thousands) Balance Interest 1 Rate Balance Interest 1 Rate
----------- ---------- ------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Money market investments:
Interest-bearing deposits $ 50,915 $ 1,274 5.05% $ 37,750 $ 899 4.79%
Federal funds sold and security
resell agreements 1,560,390 42,838 5.54% 943,699 26,273 5.60%
--------- ------- --------- -------
Total money market investments 1,611,305 44,112 5.52% 981,449 27,172 5.57%
--------- ------- --------- -------
Investment securities:
Held to maturity:
Taxable 1,223,754 42,485 7.00% 984,618 32,565 6.65%
Nontaxable 194,359 7,466 7.75% 200,758 9,019 9.03%
Available for sale:
Taxable 408,711 13,800 6.81% 363,057 11,743 6.50%
Nontaxable 40,273 1,604 8.03% 40,887 1,610 7.92%
Trading account 276,144 8,135 5.94% 153,716 4,437 5.80%
--------- -------- --------- --------
Total securities 2,143,241 73,490 6.91% 1,743,036 59,374 6.85%
--------- ------- --------- -------
Loans:
Loans held for sale 159,302 5,951 7.53% 155,948 5,780 7.45%
Net loans and leases 2 3,511,267 172,214 9.89% 2,819,737 140,449 10.02%
--------- ------- --------- -------
Total loans 3,670,569 178,165 9.79% 2,975,685 146,229 9.88%
--------- ------- --------- -------
Total interest-earning assets $7,425,115 $295,767 8.03% $5,700,170 $232,775 8.21%
------- -------
Cash and due from banks 334,980 327,594
Allowance for loan losses (70,439) (67,789)
Goodwill and core deposit intangibles 57,224 24,500
Other assets 265,156 224,094
--------- ---------
Total assets $8,012,036 $6,208,569
========= =========
LIABILITIES
Interest-bearing deposits:
Savings and NOW deposits $ 620,916 $ 9,386 3.05% $ 629,117 $ 9,656 3.09%
Money market super NOW deposits 1,976,822 38,468 3.92% 1,663,835 31,472 3.80%
Time deposits under $100,000 684,203 17,135 5.05% 665,527 17,611 5.32%
Time deposits $100,000 or more 182,511 5,348 5.91% 164,001 5,023 6.16%
Foreign deposits 136,634 3,031 4.47% 114,476 2,491 4.38%
--------- -------- --------- --------
Total interest-bearing deposits 3,601,086 73,368 4.11% 3,236,956 66,253 4.12%
--------- ------- --------- -------
Borrowed funds:
Securities sold, not yet purchased 90,507 2,658 5.92% 80,197 2,280 5.72%
Federal funds purchased and security
repurchase agreements 2,291,437 59,064 5.20% 1,279,953 31,933 5.02%
FHLB advances and other borrowings:
Less than one year 15,239 587 7.77% 21,207 672 6.37%
Over one year 75,523 2,292 6.12% 82,278 2,498 6.11%
Long-term debt 251,218 10,859 8.72% 56,001 2,511 9.02%
--------- ------- ---------- --------
Total borrowed funds 2,723,924 75,460 5.59% 1,519,636 39,894 5.28%
--------- ------- --------- -------
Total interest-bearing liabilities $6,325,010 $148,828 4.75% $4,756,592 $106,147 4.49%
------- -------
Noninterest-bearing deposits 1,040,005 899,852
Other liabilities 122,618 110,416
--------- ---------
Total liabilities 7,487,633 5,766,860
Total shareholders' equity 524,403 441,709
--------- ---------
Total liabilities and shareholders' equity $8,012,036 $6,208,569
========= =========
Spread on average interest-bearing funds 3.28% 3.72%
==== ====
Net interest income and net yield on
interest-earning assets $146,939 3.99% $126,628 4.47%
======= ==== ======= ====
</TABLE>
1 Taxable-equivalent rates used where applicable.
2 Net of unearned income and fees, net of related costs. Loans include
nonaccrual and restructured loans.
13
<PAGE> 14
ZIONS BANCORPORATION AND SUBSIDIARIES
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 the first six months of 1997
was $.9 million compared to $1.0 million for the first six months of 1996.
The increased level of taxable-equivalent net interest income in the second
quarter and the first six months of 1997, compared to the same periods in 1996,
resulted primarily from the increase in average earning assets. The decrease in
net interest margin when comparing the same periods resulted primarily from
interest expense of the $200 million trust preferred securities issued in
December 1996 and the arbitrage activity in money market investments and short
term borrowings to mitigate the reduction of net interest income from the
securities.
PROVISION FOR LOAN LOSSES
The provision for loan losses increased 7.9% to $820 thousand for the second
quarter of 1997, as compared with $760 thousand for the second quarter of 1996,
and decreased 17.2% from the $990 thousand for the first quarter of 1997. The
provision for loan losses for the first six months of 1997 totaled $1.8 million,
33.1% more than the $1.4 million provision for the first six months of 1996.
Although the provision has increased for the first six months of 1997,
annualized it is only .10% of average loans.
NONINTEREST INCOME
Noninterest income for the second quarter of 1997 was $32.2 million, an increase
of 21.3% from the $26.5 million for the second quarter of 1996 and an increase
of 1.2% over the $31.8 million for the first quarter of 1997. Primary
contributors to the increase in noninterest income were service charges on
deposit accounts; other service charges, commissions and fees; and loan sales
and servicing income. Comparing the segments of noninterest income for the
second quarter of 1997 and the second quarter of 1996 service charges on deposit
accounts; other service charges, commissions and fees; trading account income;
and loan sales and servicing income increased 18.9%, 20.0%, 83.1% and 25.0%,
respectively, while trust income decreased 7.2% and other income decreased 7.3%.
Net gains of $432 thousand on the sale of investment securities was realized
during the second quarter of 1997 compared to net gains of $68 thousand during
the second quarter of 1996.
Noninterest income for the six months ending June 30, 1997 was $64.0 million, an
increase of 21.6% over $52.6 million for the first six months of 1996. Comparing
the segments of noninterest income for the first six months of 1997 and the
first six months of 1996, service charges on deposit accounts; other service
charges, commissions and fees; trading account income; and loan sales and
servicing income increased 17.4%, 28.2%, 33.4% and 26.3%, respectively, while
trust income increased 7.0% and other income decreased 8.2%. Net gains of $492
thousand on the sale of investment securities was realized during the first six
months of 1997 compared to $70 thousand during the first six months of 1996.
14
<PAGE> 15
ZIONS BANCORPORATION AND SUBSIDIARIES
NONINTEREST EXPENSE
Noninterest expense for the second quarter of 1997 was $64.0 million, an
increase of 24.5% over $51.4 million for the second quarter of 1996, and
increased 11.0% from the $57.7 million for the first quarter of 1997. Comparing
significant noninterest expense segments for the second quarter of 1997 and the
second quarter of 1996, salaries and employee benefits increased 21.4%,
occupancy increased 21.2%, furniture and equipment expense increased 35.1% and
the total of all other expenses increased 28.0% which included significant
increases in advertising, FDIC premiums, amortization of intangible assets and
other expenses.
Noninterest expense for the six months ending June 30, 1997 was $121.7 million,
an increase of 20.3% over $101.2 million for the first six months of 1996.
Comparing significant noninterest expense segments for the first six months of
1997 and the first six months of 1996, salaries and employee benefits increased
19.4%, occupancy increased 14.8%, furniture and equipment expenses increased
29.4%, and the total of all other expenses increased 20.6% which included
significant increases for other real estate expense, legal and professional
services, advertising, FDIC premiums, amortization of intangible assets and
other expenses.
The increase in noninterest expense in 1997 resulted primarily from
acquisitions, expansion of business lines and investment in personnel in
selected areas to enhance future revenue growth. At June 30, 1997, the Company
had 3,463 full-time equivalent employees, 164 offices and 439 ATMs compared to
3,021 full time equivalent employees, 138 offices and 281 ATMs at June 30, 1996.
INCOME TAXES
The Company's income taxes increased 20.0% to $15.3 million for the second
quarter of 1997 compared to $12.8 million for the second quarter of 1996 and
9.0% from the $14.0 million for the first quarter of 1997. The Company's income
taxes were $29.3 million for the first six months of 1997 as compared to $24.7
million for the first six months of 1996. The increase in the Company's income
taxes was primarily due to the increase in taxable income. The Company's
effective income tax rate was 34.90% for the first six months of 1997, up from
33.68% for the first six months of 1996.
ANALYSIS OF FINANCIAL CONDITION
EARNING ASSETS
Average earning assets increased 30.3% to $7,425.1 million for the six months
ended June 30, 1997, compared to $5,700.2 million in the six months ended June
30, 1996. Earning assets comprised 92.7% of total average assets for the first
six months of 1997, compared with 91.8% for the first six months of 1996.
Average money market investments, consisting of interest-bearing deposits,
federal funds sold and security resell agreements increased 64.2% to $1,611.3
million in the first six months of 1997 as compared to $981.4 million in the
first six months of 1996.
15
<PAGE> 16
ZIONS BANCORPORATION AND SUBSIDIARIES
During the first six months of 1997, average securities increased 23.0% to
$2,143.2 million compared to $1,743.0 million in the first six months of 1996.
Average held to maturity securities increased 19.6%, available for sale
securities increased 11.2%, and trading account securities increased 79.6%
compared with the first six months of 1996.
Average net loans and leases increased 23.4% to $3,670.6 million for the first
six months of 1997 compared to $2,975.7 million in the first six months of 1996,
representing 49.4% of earning assets in the first six months of 1997 compared to
52.2% in the first six months of 1996. Average net loans and leases were 79.1%
of average total deposits for the six months ended June 30, 1997, as compared to
71.9% for the six months ended June 30, 1996.
INVESTMENT SECURITIES
The following table presents the Company's investment securities on June 30,
1997, December 31, 1996 and June 30, 1996.
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1997 1996 1996
----------------------- ------------------------ -----------------------
Amortized Market Amortized Market Amortized Market
(In thousands) cost value cost value cost value
----------- ---------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Held to maturity
U.S. government agencies and corporations:
Small Business Administration
loan-backed securities $ 468,106 $ 474,959 $ 487,748 $ 491,785 $ 507,269 $ 516,906
Other agency securities 915,018 916,039 518,308 517,892 527,268 520,269
States and political subdivisions 200,505 203,455 255,321 259,560 243,955 245,417
Mortgage-backed securities 73,196 74,301 60,784 61,844 57,357 57,875
----------- ---------- ----------- ----------- ----------- ----------
$1,656,825 $1,668,754 $1,322,161 $1,331,081 $1,335,849 $1,340,467
========== ========== ========== ========== ========== ==========
Available for sale
U.S. Treasury securities $ 19,132 $ 19,220 $ 14,655 $ 14,707 $ 16,669 $ 16,677
U.S. government agencies 132,815 131,688 120,620 116,500 118,726 117,903
States and political subdivisions 38,978 40,310 39,118 40,766 39,543 40,694
Mortgage-backed securities 59,847 60,480 86,007 84,865 66,741 65,886
----------- ---------- ----------- ----------- ----------- ----------
250,772 251,698 260,400 256,838 241,679 241,160
----------- ---------- ----------- ----------- ----------- ----------
Equity securities:
Mutual funds:
Accessor Funds, Inc. 108,989 108,903 109,071 109,100 108,979 107,597
Other - - - - 579 579
Stock:
Federal Home Loan Bank 86,999 86,999 79,593 79,593 75,009 75,009
Other 6,880 7,296 7,343 7,920 6,489 6,849
----------- ---------- ----------- ----------- ----------- ----------
202,868 203,198 196,007 196,613 191,056 190,034
----------- ---------- ----------- ----------- ----------- ----------
$ 453,640 $ 454,896 $ 456,407 $ 453,451 $ 432,735 $ 431,194
----------- ---------- ----------- ----------- ----------- ----------
Total $2,110,465 $2,123,650 $1,778,568 $1,784,532 $1,768,584 $1,771,661
========== ========== ========== ========== ========== ==========
</TABLE>
16
<PAGE> 17
ZIONS BANCORPORATION AND SUBSIDIARIES
LOANS
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 the comprehensive loan
grading system to determine risk potential in the portfolio. Another aspect of
the Company's credit risk management strategy is the diversification of the loan
portfolio. The Company has a well-diversified loan portfolio with no significant
exposure to highly leveraged transactions and has no foreign credits in its loan
portfolio.
The table below sets forth the amount of loans outstanding by type on June 30,
1997, December 31, 1996 and June 30, 1996.
<TABLE>
<CAPTION>
(In thousands)
June 30, December 31, June 30,
Types 1997 1996 1996
- ----- ---------- ---------- ----------
<S> <C> <C> <C>
Loans held for sale $ 156,708 $ 150,467 $ 166,967
Commercial, financial, and agricultural 964,953 783,589 765,504
Real estate:
Construction 405,057 323,668 335,532
Other:
Home equity credit line 107,036 165,134 101,221
1-4 family residential 701,705 534,845 508,857
Other real estate-secured 1,098,394 1,057,962 895,082
---------- ---------- ----------
1,907,135 1,757,941 1,505,160
---------- ---------- ----------
2,312,192 2,081,609 1,840,692
Consumer:
Bankcard 30,903 37,089 22,847
Other 295,105 267,456 299,510
---------- ---------- ----------
326,008 304,545 322,357
Lease financing 158,660 159,825 144,969
Other receivables 42,572 10,989 6,989
---------- ---------- ----------
Total loans $3,961,093 $3,491,024 $3,247,478
========== ========== ==========
</TABLE>
Loans held for sale on June 30, 1997 increased 4.1% from year-end 1996. All
other loans, net of unearned income and fees increased 14.1% to $3,767.2 million
on June 30, 1997, including $319 million from Aspen Bancshares, Inc.
acquisition, compared to $3,302.1 million on December 31, 1996. Commercial
loans, construction loans, other real estate-secured loans, and consumer loans
increased from year end 23.1%, 25.1%, 8.5% and 7.0%, respectively, as lease
financing decreased .7% and other receivables increased 287.4%. Within the other
real estate-secured loan portfolio, home equity credit line loans decreased
35.2%, 1-4 family residential loans increased 31.2% and all other real estate
loans increased 3.8% from year end.
17
<PAGE> 18
ZIONS BANCORPORATION AND SUBSIDIARIES
On June 30, 1997, long-term first mortgage real estate serviced for others
totaled $1,932.2 million and consumer and other loan securitizations, which
relate primarily to loans sold under revolving securitization structures,
totaled $1,021.7 million. During the first six months of 1997, the Company sold
$315.5 million of loans classified in held for sale, and securitized and sold
SBA 504 loans, home equity credit line loans, credit card receivables and
automobile loans totaling $538.1 million. During the first six months of 1997,
total loans sold were $853.5 million.
RISK ELEMENTS
The Company's nonperforming assets, which include nonaccruing loans,
restructured loans, other real estate owned and other nonperforming assets, were
$13.7 million on June 30, 1997, up from $12.5 million on December 31, 1996, and
up from $9.0 million on June 30, 1996. Such nonperforming assets as a percentage
of net loans and leases, other real estate owned and other nonperforming assets
were .35%, .36% and .28% on June 30, 1997, December 31, 1996, and June 30, 1996,
respectively.
Accruing loans past due 90 days or more totaled $7.1 million on June 30, 1997,
up from $3.6 million on December 31, 1996, and up from $5.5 million on June 30,
1996. These loans equaled .18% of net loans and leases on June 30, 1997, as
compared to .10% on December 31, 1996 and .17% on June 30, 1996.
Loans to one borrower totaling $2.5 million on June 30, 1997 were considered
potential problem loans compared to no loans at December 31, 1996 and loans to
one borrower totaling $1.3 million on June 30, 1996. Potential problem loans are
defined as loans presently on accrual, 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 $6.8 million on June 30, 1997, as compared to $7.8 million
on December 31, 1996, and $4.6 million on June 30, 1996. 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 June 30, 1997, December 31, 1996, and June
30, 1996, is a required allowance of $1,580 thousand, $25 thousand and $4
thousand, respectively, on $3.3 million, $1.0 million and $.2 million,
respectively, of the recorded investment in impaired loans.
18
<PAGE> 19
ZIONS BANCORPORATION AND SUBSIDIARIES
The following table sets forth the nonperforming assets on June 30, 1997,
December 31, 1996, and June 30, 1996.
<TABLE>
<CAPTION>
June 30, December 31, June 30,
(In thousands) 1997 1996 1996
------- ------------ -------
<S> <C> <C> <C>
Nonaccrual loans $11,908 $11,526 $ 8,501
Restructured loans 830 857 206
Other real estate owned and other
nonperforming assets 920 138 259
------- ------- -------
Total $13,658 $12,521 $ 8,966
======= ======= =======
% of net loans and leases*, other real estate
owned and other nonperforming assets .35% .36% .28%
Accruing loans past due 90 days or more $ 7,070 $ 3,553 $ 5,494
======= ======= =======
% of net loans and leases* .18% .10% .17%
*Includes loans held for sale
</TABLE>
ALLOWANCE FOR LOAN LOSSES
The Company's allowance for loan losses was 1.82% of net loans and leases on
June 30, 1997, compared to 2.03% on December 31, 1996, and 2.16% on June 30,
1996. Net charge-offs during the second quarter of 1997 were $1.8 million, or
.19% on average net loans and leases, compared to $1.6 million, or .21% of
average net loans and leases for the second quarter of 1996. Net charge-offs for
the first six months of 1997 were $3.4 million, or .19% of average net loans and
leases, compared to $2.2 million or .15% of average net loans and leases for the
first six months of 1996.
The allowance, as a percentage of nonaccrual loans and restructured loans, was
561.61% on June 30, 1997, compared to 564.92% on December 31, 1996, and 795.59%
on June 30, 1996. The allowance, as a percentage of nonaccrual loans and
accruing loans past due 90 days or more was 376.95% on June 30, 1997, compared
to 463.92% on December 31, 1996 and 494.98% on June 30, 1996.
On June 30, 1997, December 31, 1996, and June 30, 1996, the allowance for loan
losses includes an allocation of $8.0 million, $5.9 million and $5.8 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 June 30, 1997, December 31, 1996 and June 30, 1996, totaled $2,016.4
million, $1,906.9 million and $1,512.9 million, respectively.
19
<PAGE> 20
ZIONS BANCORPORATION AND SUBSIDIARIES
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.
The following table shows the changes in the allowance for loan losses and a
summary of loan loss experience.
<TABLE>
<CAPTION>
Twelve Months
Six Months Ended Ended
(In thousands) June 30, December 31,
----------------------------- -----------
1997 1996 1996
----------- ----------- -----------
<S> <C> <C> <C>
Average loans* and leases outstanding
(net of unearned income) $ 3,670,569 $ 2,975,685 $ 3,126,899
=========== =========== ===========
Allowance for possible losses:
Balance at beginning of the period $ 69,954 $ 67,555 $ 67,555
Allowance of companies acquired 3,223 2,566 2,566
Provision charged against earnings 1,810 1,360 3,540
Loans and leases charged-off:
Loans held for sale -- -- --
Commercial, financial and agricultural (2,000) (574) (1,274)
Real estate (78) (393) (427)
Consumer (3,408) (3,991) (7,503)
Lease financing (90) (172) (228)
Other receivables -- -- --
----------- ----------- -----------
Total (5,576) (5,130) (9,432)
----------- ----------- -----------
Recoveries:
Loans held for sale -- -- --
Commercial, financial and agricultural 780 1,029 2,411
Real estate 152 302 428
Consumer 1,192 1,212 2,344
Lease financing 3 378 542
Other receivables -- -- --
----------- ----------- -----------
Total 2,127 2,921 5,725
----------- ----------- -----------
Net loan and lease charge-offs (3,449) (2,209) (3,707)
----------- ----------- -----------
Balance at end of the period $ 71,538 $ 69,272 $ 69,954
=========== =========== ===========
*Includes loans held for sale
Ratio of net charge-offs to
average loans and leases .19% .15% .12%
</TABLE>
20
<PAGE> 21
ZIONS BANCORPORATION AND SUBSIDIARIES
DEPOSITS
Average total deposits of $4,641.1 million for the first six months of 1997
increased 12.2% over the $4,136.8 million for the first six months of 1996, with
average demand deposits increasing 15.6%. Average money market and super NOW
deposits, time deposits under $100,000, time deposits over $100,000 and foreign
deposits for the first six months of 1997 increased 18.8%, 2.8%, 11.3% and 19.4%
respectively, from the first six months of 1996. Average savings and NOW
deposits decreased 1.3% during the first six months of 1997, compared with the
same period one year earlier.
Total deposits increased 13.4% to $5,159.9 million on June 30, 1997, including
$366 million from the Aspen Bancshares, Inc. acquisition, as compared to
$4,552.0 million on December 31, 1996. Comparing June 30, 1997 to December 31,
1996, demand deposits, savings and money market deposits, time deposits under
$100,000, and time deposits over $100,000 increased 8.5%, 10.8%, 19.4% and
49.8%, respectively, foreign deposits increased 30.3%.
LIQUIDITY AND INTEREST RATE SENSITIVITY
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. The Company's liquidity is enhanced by the fact
that cash, money market securities and liquid investments, net of short-term or
"purchased" liabilities and wholesale deposits, totaled $1,458.4 million or
30.6% of core deposits on June 30, 1997.
The Company's core deposits, consisting of demand, savings and money market
deposits and time deposits under $100,000, constituted 92.3% of total deposits
on June 30, 1997 as compared to 93.8% on December 31, 1996 and 93.7% on June 30,
1996.
Maturing balances in loan portfolios provide flexibility in managing cash flows.
Maturity management of those funds is an important source of medium- to
long-term liquidity. The Company's ability to raise funds in the capital markets
through the securitization process and by debt issuances allows the Company to
take advantage of market opportunities to meet funding needs at reasonable cost.
The parent company's cash requirements consist primarily of principal and
interest payments on its borrowings, dividend payments to shareholders,
operating expenses and income taxes. The parent company's cash needs are
routinely satisfied through payments by subsidiaries of dividends, management
and other fees, principal and interest payments on subsidiary borrowings from
the parent company and proportionate shares of current income.
21
<PAGE> 22
ZIONS BANCORPORATION AND SUBSIDIARIES
Interest rate sensitivity measures the Company's financial exposure to changes
in interest rates. Interest rate sensitivity is, like liquidity, affected by
maturities of assets and liabilities. Interest rate sensitivity measures the
Company's financial exposure to changes in interest rates. The Company assesses
its interest rate sensitivity using duration, simulation, and gap analysis.
Duration is a measure of the weighted average expected lives of the discounted
cash flows from assets and liabilities. Simulation is used to estimate net
interest income over time using alternative interest rate scenarios. Gap
analysis compares the volumes of assets and liabilities whose interest rates are
subject to reset within specified periods.
The Company, through the management of maturities and repricing of its assets
and liabilities and the use of off-balance sheet arrangements such as interest
rate caps, floors, futures, options, and interest rate exchange agreements,
attempts to minimize the effect on net income of changes in interest rates. The
Company's management exercises its best judgment in making assumptions with
respect to loan and security prepayments, early deposit withdrawals and other
noncontrollable events in managing the Company's exposure to changes in interest
rates. The interest rate risk position is actively managed and changes daily as
the interest rate environment changes; therefore, positions at the end of any
period may not be reflective of the Company's interest rate position in
subsequent periods. The prime lending rate is the primary basis used for pricing
the Company's loans and the short-term Treasury rate is the index used for
pricing many of the Company's deposits. The Company, however, is unable to
economically hedge the prime/91-day T-bill spread risk through the use of
off-balance sheet financial instruments.
CAPITAL RESOURCES AND DIVIDENDS
During the first six months of 1997, the Company repurchased and retired
1,863,734 shares of its common stock at a cost of $55.1 million. At June 30,
1997, the Company had authorization from its board of directors to repurchase
its common shares equal to the shares to be issued for acquisitions to be
accounted for as purchase transactions, which would total approximately
2,000,000 shares.
Total shareholders' equity on June 30, 1997 was $589.2 million, an increase of
16.1% over the $507.5 million on December 31, 1996, and an increase of 24.4%
over the $473.5 million on June 30, 1996. The ratio of average equity to average
assets for the first six months of 1997 was 6.55% as compared to 7.11% for the
same period in 1996. On June 30, 1997, the Company's Tier I risk-based capital
ratio was 14.16%, as compared to 14.38% on December 31, 1996 and 11.13% on June
30, 1996. On June 30, 1997 the Company's total risk-based capital ratio was
16.86%, as compared to 18.31% on December 31, 1996 and 13.82% on June 30, 1996.
The Company's leverage ratio on June 30, 1997 was 7.70%, as compared to 8.77% on
December 31, 1996 and 6.45% on June 30, 1996.
Dividends declared per common share for the second quarter of 1997 of $.12
increased 17.1%, as compared to $.1025 for the second quarter of 1996 and
increased 9.1% over $.11 for the first quarter of 1997. The common cash dividend
payout of net income for the first six months of 1997 was 24.86%, as compared to
24.66% for the first six months of 1996.
22
<PAGE> 23
ZIONS BANCORPORATION AND SUBSIDIARIES
MERGERS AND ACQUISITIONS
On May 16, 1997, the purchase transaction of Zions Bancorporation and Aspen
Bancshares, Inc. and its banking subsidiaries, was consummated and paid through
the exchange of 2,750,593 shares of Zions Bancorporation common stock for Aspen
Bancshares, Inc. stock. The acquisition extends Zions Bancorporation's banking
operations into Colorado and New Mexico. The banking entities, Pitkin County
Bank and Trust, Centennial Savings Bank, F.S.B., and Valley National Bank of
Cortez, operate 12 offices in western Colorado and one in New Mexico.
On July 11, 1997, the purchase transaction of Zions Bancorporation and Tri-State
Bank was consummated through the exchange of Zions Bancorporation common stock
for Tri-State Bank stock. The acquisition of Tri-State Bank, with assets of $24
million, operating offices in Montpelier and Paris, Idaho, extends Zions
Bancorporation's banking operations into Idaho. Upon acquisition the name of the
institution was changed to Zions Bank.
On July 18, 1997 the acquisition of 27 former branches of Wells Fargo Bank in
Arizona, Idaho, Nevada and Utah was completed. The purchase transaction included
$378 million in deposit accounts and the branch facilities. Branches were merged
into Zions' affiliated banks in each of the states in which the branches are
located. Branch networks have been strengthened and expanded by the addition of
11 offices in Arizona, 10 offices in Idaho, 5 offices in Nevada and 1 office in
Utah.
On May 22, 1997, the Company announced an agreement to acquire Sun State Capital
Corporation and its banking subsidiary, Sun State Bank. The transaction, valued
at approximately $37 million, is to be accounted for as a purchase, paid through
the exchange of Zions Bancorporation common stock for Sun State Capital
Corporation stock with Sun State Bank being merged into Zions Bancorporation's
wholly owned subsidiary, Nevada State Bank. With approximately $150 million in
assets, Sun State Bank operates four offices in Las Vegas and one in Reno,
Nevada. The transaction is subject to the approval of Sun State shareholders and
banking regulatory approvals and is expected to close late in the third quarter
of 1997.
On July 7, 1997, the Company and GB Bancorporation, the parent company of
Grossmont Bank, announced an agreement to merge GB Bancorporation with and into
Zions Bancorporation, with GB Bancorporation shareholders receiving 4.7 million
shares of Zions Bancorporation common stock for the remaining 95.5% of GB
Bancorporation common stock that it does not presently own. Grossmont Bank has
approximately $720 million in assets and 14 offices in San Diego County,
California. The merger is intended to be accounted for as a pooling-of-interests
and the transaction is valued at $173 million. The merger is subject to the
approval of GB Bancorporation shareholders and banking regulators and is
expected to close in the fourth quarter of 1997.
On July 25, 1997, the Company and Sky Valley Bank Corp, the parent company of
The First National Bank in Alamosa, Colorado announced an agreement to merge Sky
Valley Bank Corp. and its banking subsidiary with and into subsidiaries of Zions
Bancorporation, with Sky Valley Bank Corp., shareholders receiving 573,134
shares of Zions Bancorporation common stock for all of the equity interests of
Sky Valley Bank Corp. The First National Bank in Alamosa has approximately $120
million in assets in three offices in southern Colorado. The merger is intended
to be accounted for as a pooling-of-interests and the transaction is valued at
$20.3 million. The merger is subject to the approval of Sky Valley Bank Corp.
shareholders and banking regulators and is expected to close in the fourth
quarter of 1997.
23
<PAGE> 24
ZIONS BANCORPORATION AND SUBSIDIARIES
Forward-Looking Information
Statements in Management's Discussion and Analysis that are not based on
historical data are forward-looking, including, for example, the projected
performance of Zions and its operations. These statements 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 it 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 or share repurchases.
24
<PAGE> 25
ZIONS BANCORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
The following is a summary of matters submitted to vote at the Annual Meeting of
Shareholders of Zions Bancorporation:
a) The Annual Meeting of Shareholders was held on April 25, 1997. Total
number of shares eligible for voting was 14,576,026, which was prior
to the four-for-one stock split.
b) Election of Directors
Proxies were solicited by Zions Bancorporation's management pursuant to
Regulation 14A under the Securities Exchange Act of 1934. There was no
solicitation in opposition to management's nominees as listed in the
proxy statement, and all of such nominees were elected pursuant to the
vote of the shareholders as indicated in the proxy statement.
c) The matters voted upon and the results were as follows:
(1) Election of Directors
<TABLE>
<CAPTION>
Withhold
For Authority
--- ---------
<S> <C> <C>
R.D. Cash 10,908,894 600,764
Richard H. Madsen 10,911,315 598,343
Robert G. Sarver 10,913,608 596,050
Harris H. Simmons 10,912,241 597,417
</TABLE>
(2) Approve an increase in the number of authorized shares of Capital
Stock of Zions Bancorporation
Approval to increase the authorized shares of Common Stock,
without par value to 100,000,000 shares
For Against Abstain
--- ------- -------
9,648,785 1,673,761 187,112
(3) Appointment of Independent Accountants
The selection of KPMG Peat Marwick LLP as the firm of independent
certified public accountants to audit the books and accounts of
Zions Bancorporation and its subsidiaries for the year ending
December 31, 1997 was ratified.
For Against Abstain
--- ------- -------
11,466,392 16,094 27,172
25
<PAGE> 26
ZIONS BANCORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION (CONTINUED)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit 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.
Exhibit 27 Article 9 Financial Schedules for Form 10-Q
b) Reports on Form 8-K
There were no reports on form 8-K filed during the quarter
ending June 30, 1997.
S I G N A T U R E S
Pursuant to the requirements 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.
ZIONS BANCORPORATION
/s/ Harris H. Simmons
--------------------------------
Harris H. Simmons, President and
Chief Executive Officer
/s/ Dale M. Gibbons
----------------------------------------
Dale M. Gibbons, Senior Vice President
and Chief Financial Officer
Dated August 7, 1997
26
<PAGE> 1
Exhibit 3
ARTICLES OF AMENDMENT
TO THE
RESTATED ARTICLES OF INCORPORATION
OF
ZIONS BANCORPORATION
Pursuant to the provisions of Sections 16-10a-1001, et. seq, UTAH
CODE ANNOTATED (1953), as amended, ZIONS BANCORPORATION (the "Corporation")
hereby adopts these Articles of Amendment to its Restated Articles of
Incorporation:
1. The name of the Corporation is ZIONS BANCORPORATION.
2. By this amendment (the "Amendment"), Article VIII of the
Restated Articles of Incorporation of the Corporation is hereby amended to read
in its entirety as follows:
ARTICLE VIII
The aggregate number of shares of capital stock which this
corporation shall have authority to issue is 103,000,000, divided
into two classes as follows:
(A) 100,000,000 shares of Common Stock, without par
value, which shares shall be entitled to one vote
per share; and
(B) 3,000,000 shares of Preferred Stock, without par
value.
The Board of Directors of this corporation is expressly vested
with the authority to determine, with respect to any class of Preferred Stock,
the dividend rights (including rights as to cumulative, noncumulative or
partially cumulative dividends) and preferences, dividend rate, conversion
rights, voting rights, rights and terms of redemption (including sinking fund
provisions), redemption price or prices, and the liquidation preferences of any
such class of Preferred Stock. As to any series of Preferred Stock, the Board of
Directors is authorized to determine the number of shares constituting such
series, and to increase or decrease (but not below the number of shares of such
series then outstanding) the number of shares of that series.
The Board of Directors of this corporation is expressly vested
with the authority to divide the above-described class of Preferred Stock into
series and to fix and determine the variations in the relative rights and
preferences of the shares of Preferred Stock of any series so established,
including, without limitation, the following:
(i) the rate of dividend;
(ii) the price at and the terms and conditions on which
shares may be redeemed;
(iii) the amount payable upon shares in event of
involuntary liquidation;
<PAGE> 2
(iv) the amount payable upon shares in event of
voluntary liquidation;
(v) sinking fund provisions for the redemption or
purchase of shares;
(vi) the terms and conditions on which shares may be
converted, if the shares of any series are issued
with the privilege of conversion; and
(vii) such other variations in the relative rights and
preferences of such shares which at the time of
the establishment of such series are not
prohibited by law.
3. The date of the adoption of the Amendment by the shareholders
of the Corporation was April 25, 1997.
4. As of February 24, 1997, the record date of the meeting of
shareholders at which the Amendment was approved, there were outstanding
14,576,026 shares of the Corporation's Common Stock, without par value, the only
class of shares of the Corporation entitled to vote and to be counted with
respect to the adoption of the Amendment, each share of which was entitled to
one (1) vote on the adoption of the Amendment.
5. The number of votes indisputably represented at the meeting of
shareholders at which the Amendment was adopted was 11,507,658, and the number
of votes cast for the adoption of the Amendment was 9,646,785, the number of
votes cast against the adoption of the Amendment was 1,673,761, and the number
of votes abstaining from voting on the Amendment was 187,112. The number of
votes cast for the adoption of the Amendment was sufficient under the
Corporation's Restated Articles of Incorporation and applicable law for the
approval of the Amendment.
The undersigned does hereby acknowledge, under penalties of
perjury, that this document is the act and deed of the Corporation, and that the
facts herein stated are true.
DATED this 30th day of April 1997.
ZIONS BANCORPORATION
By: /s/ Harris H. Simmons
--------------------------------------
Harris H. Simmons, President
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1997 AND THE RELATED
UNAUDITED CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30,
1997 INCLUDED IN THE COMPANY'S FORM 10-Q FOR THE PERIOD ENDED JUNE 30, 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 416,875
<INT-BEARING-DEPOSITS> 51,264
<FED-FUNDS-SOLD> 779,912
<TRADING-ASSETS> 437,994
<INVESTMENTS-HELD-FOR-SALE> 454,896
<INVESTMENTS-CARRYING> 1,656,825
<INVESTMENTS-MARKET> 1,668,754
<LOANS> 3,923,890
<ALLOWANCE> 71,538
<TOTAL-ASSETS> 8,049,952
<DEPOSITS> 5,159,917
<SHORT-TERM> 1,842,976
<LIABILITIES-OTHER> 96,562
<LONG-TERM> 361,303
0
0
<COMMON> 117,770
<OTHER-SE> 471,424
<TOTAL-LIABILITIES-AND-EQUITY> 8,049,952
<INTEREST-LOAN> 177,597
<INTEREST-INVEST> 114,881
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 292,478
<INTEREST-DEPOSIT> 73,368
<INTEREST-EXPENSE> 148,828
<INTEREST-INCOME-NET> 143,650
<LOAN-LOSSES> 1,810
<SECURITIES-GAINS> 492
<EXPENSE-OTHER> 121,719
<INCOME-PRETAX> 84,079
<INCOME-PRE-EXTRAORDINARY> 54,739
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 54,739
<EPS-PRIMARY> .92
<EPS-DILUTED> .92
<YIELD-ACTUAL> 3.90
<LOANS-NON> 11,908
<LOANS-PAST> 7,070
<LOANS-TROUBLED> 830
<LOANS-PROBLEM> 2,527
<ALLOWANCE-OPEN> 69,954
<CHARGE-OFFS> 5,576
<RECOVERIES> 2,127
<ALLOWANCE-CLOSE> 71,538
<ALLOWANCE-DOMESTIC> 17,496
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 54,042
</TABLE>
