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 September 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 November 6, 1997
59,599,119 shares
1
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
INDEX
Page
----
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 6. Exhibits and Reports on Form 8-K 25
SIGNATURES 25
- ----------
2
<PAGE>
<TABLE>
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
September 30, December 31, September 30,
(In thousands, except share amounts) 1997 1996 1996
-----------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks ............................................ $ 509,905 $ 404,331 $ 379,865
Money market investments:
Interest-bearing deposits ..................................... 59,554 47,746 44,488
Federal funds sold ............................................ 197,095 260,023 172,683
Security resell agreements .................................... 1,150,551 305,660 775,675
Investment Securities:
Held to maturity at cost (approximate market value $1,975,643, $1,331,081
and $1,309,159):
Taxable .................................................. 1,759,977 1,096,921 1,086,715
Nontaxable ............................................... 197,455 225,240 218,968
Available for sale at market:
Taxable .................................................. 371,333 412,686 389,897
Nontaxable ............................................... 31,763 40,765 40,753
Trading account securities at market .......................... 223,561 34,076 150,200
----------- ----------- -----------
2,584,089 1,809,688 1,886,533
Loans:
Loans held for sale at cost, which approximates market ........ 176,747 150,467 151,404
Loans, leases and other receivables ........................... 4,052,469 3,340,557 3,199,954
----------- ----------- -----------
4,229,216 3,491,024 3,351,358
Less:
Unearned income and fees, net of related costs ............ 38,552 38,481 37,426
Allowance for loan losses ................................. 70,290 69,954 69,337
----------- ----------- -----------
4,120,374 3,382,589 3,244,595
Premises and equipment, at cost, less accumulated depreciation ..... 116,416 92,874 90,276
Goodwill and core deposit intangibles .............................. 128,360 37,300 37,377
Other real estate owned ............................................ 4,734 138 256
Other assets ....................................................... 188,643 144,615 151,593
----------- ----------- -----------
Total assets ............................................. $ 9,059,721 $ 6,484,964 $ 6,783,341
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing demand .................................... $ 1,364,565 $ 1,159,791 $ 1,089,388
Interest-bearing:
Savings and money market ................................. 2,997,919 2,474,821 2,460,138
Time under $100,000 ...................................... 905,757 635,568 671,265
Time over $100,000 ....................................... 263,255 167,545 162,626
Foreign .................................................. 134,840 114,292 189,138
----------- ----------- -----------
5,666,336 4,552,017 4,572,555
Securities sold, not yet purchased ................................. 212,617 76,831 86,437
Federal funds purchased ............................................ 239,991 155,407 126,214
Security repurchase agreements ..................................... 1,734,368 771,361 1,281,222
Accrued liabilities ................................................ 107,396 83,082 79,729
Federal Home Loan Bank advances and other borrowings:
Less than one year ............................................ 68,846 13,533 15,743
Over one year ................................................. 197,904 73,661 75,254
Long-term debt ..................................................... 251,134 251,620 55,702
----------- ----------- -----------
Total liabilities ........................................ 8,478,592 5,977,512 6,292,856
----------- ----------- -----------
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,
59,426,300, 58,918,880 and 59,068,860 shares ........ 88,558 79,791 83,788
Net unrealized holding gains and losses on securities
available for sale ....................................... (303) (1,835) (2,434)
Retained earnings ............................................. 492,874 429,496 409,131
----------- ----------- -----------
Total shareholders' equity ............................... 581,129 507,452 490,485
----------- ----------- -----------
Total liabilities and shareholders' equity ............... $ 9,059,721 $ 6,484,964 $ 6,783,341
=========== =========== ===========
</TABLE>
3
<PAGE>
<TABLE>
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------------------------
(In thousands, except per share amounts) 1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans ................................ $ 93,106 $ 73,324 $ 258,032 $ 208,280
Interest on loans held for sale ........................... 3,019 2,949 8,970 8,729
Interest on money market investments ...................... 20,920 11,601 65,032 38,773
Interest on securities:
Held to maturity:
Taxable ......................................... 28,587 18,470 71,072 51,035
Nontaxable ...................................... 2,993 3,366 8,219 9,679
Available for sale:
Taxable ......................................... 6,490 6,226 20,290 17,969
Nontaxable ...................................... 540 568 1,663 1,695
Trading account ...................................... 4,396 2,707 12,531 7,144
Lease financing ........................................... 3,276 2,870 9,996 8,363
--------- --------- --------- ---------
Total interest income ................................ 163,327 122,081 455,805 351,667
--------- --------- --------- ---------
Interest expense:
Interest on savings and money market deposits ............. 27,514 22,978 75,368 64,106
Interest on time deposits under $100,000 .................. 11,503 8,543 28,638 26,154
Interest on time deposits over $100,000 ................... 3,912 2,522 9,260 7,545
Interest on foreign deposits .............................. 1,616 1,440 4,647 3,931
Interest on securities sold, not yet purchased ............ 1,371 1,324 4,029 3,604
Interest on borrowed funds ................................ 35,657 19,506 108,459 57,120
--------- --------- --------- ---------
Total interest expense ............................... 81,573 56,313 230,401 162,460
--------- --------- --------- ---------
Net interest income .................................. 81,754 65,768 225,404 189,207
Provision for loan losses ...................................... 1,095 840 2,905 2,200
--------- --------- --------- ---------
Net interest income after provision for loan losses .. 80,659 64,928 222,499 187,007
--------- --------- --------- ---------
Noninterest income:
Service charges on deposit accounts ....................... 10,670 8,486 29,162 24,235
Other service charges, commissions and fees ............... 10,459 7,400 27,369 20,587
Trust income .............................................. 1,582 1,335 4,377 3,946
Investment securities gains, net .......................... 160 -- 652 70
Trading account income .................................... 2,033 685 4,201 2,310
Loan sales and servicing income ........................... 9,310 9,918 28,803 25,348
Other income .............................................. 2,137 1,169 5,745 5,100
--------- --------- --------- ---------
Total noninterest income ............................. 36,351 28,993 100,309 81,596
--------- --------- --------- ---------
Noninterest expense:
Salaries and employee benefits ............................ 38,538 30,497 104,720 85,917
Occupancy, net ............................................ 3,888 2,756 10,110 8,178
Furniture and equipment ................................... 5,993 4,128 15,498 11,472
Other real estate expense (income) ........................ 120 (2) 297 (232)
Legal and professional services ........................... 1,781 1,175 4,788 3,298
Supplies .................................................. 2,055 1,593 5,419 4,714
Postage ................................................... 1,662 1,351 4,602 3,992
Advertising ............................................... 1,813 1,072 5,294 4,041
FDIC premiums ............................................. 164 1 463 7
Amortization of goodwill and core deposit intangibles ..... 1,637 591 3,316 1,638
Amortizaiton of mortgage servicing assets ................. 611 219 1,380 914
Other expenses ............................................ 13,880 11,005 37,974 31,639
--------- --------- --------- ---------
Total noninterest expense ............................ 72,142 54,386 193,861 155,578
--------- --------- --------- ---------
Income before income taxes ..................................... 44,868 39,535 128,947 113,025
Income taxes ................................................... 15,486 13,775 44,826 38,530
--------- --------- --------- ---------
Net income ..................................................... $ 29,382 $ 25,760 $ 84,121 $ 74,495
========= ========= ========= =========
Weighted average common and common-equivalent shares outstanding 60,506 59,696 59,792 59,072
Net income per share ........................................... $ 0.49 $ 0.43 $ 1.41 $ 1.26
</TABLE>
4
<PAGE>
<TABLE>
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
(In thousands) 1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income ............................................. $ 29,382 $ 25,760 $ 84,121 $ 74,495
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for loan losses ......................... 1,095 840 2,905 2,200
Write-downs of other real estate owned ............ 183 -- 313 --
Depreciation of premises and equipment ............ 4,279 3,335 11,676 9,372
Amortization of premium on core deposits
and other intangibles ........................ 2,248 810 4,696 2,552
Amortization of net premium/discount on
investment securities ........................ 1,426 1,420 4,094 4,655
Accretion of unearned income and fees, net of
related costs ................................ 1,349 2,139 362 5,907
Proceeds from sales of trading account securities . 28,676,658 26,705,292 82,771,230 56,050,696
Increase in trading account securities ............ (28,462,225) (26,680,233) (82,960,715) (56,137,189)
Net gain on sales of investment securities ........ (160) -- (652) (70)
Proceeds from loans held for sale ................. 177,284 168,410 497,476 494,627
Increase in loans held for sale ................... (195,412) (150,498) (518,278) (504,897)
Net gain on sales of loans, leases and other assets (6,532) (7,515) (21,022) (19,435)
Net gain on sales of other real estate owned ...... (72) (3) (97) (261)
Change in accrued income taxes .................... (1,891) 4,199 994 7,302
Change in accrued interest receivable ............. (7,582) (1,844) (18,109) (9,320)
Change in other assets ............................ 9,111 3,006 (19,496) (3,714)
Change in accrued interest payable ................ 2,256 743 4,145 448
Change in accrued liabilities ..................... 10,694 5,901 18,224 (876)
------------ ------------ ------------ ------------
Net cash provided by (used in) operating
activities .............................. 242,091 81,762 (138,133) (23,508)
------------ ------------ ------------ ------------
Cash flows from investing activities:
Net increase in money market investments ............... (569,819) (606,464) (779,646) (281,520)
Proceeds from maturities of investment securities
held to maturity .................................. 279,677 117,696 479,379 225,720
Purchases of investment securities held to maturity .... (579,759) (89,190) (1,089,379) (453,465)
Proceeds from sales of investment securities
available for sale ................................ 138,346 51,343 246,124 97,894
Proceeds from maturities of investment securities
available for sale ................................ 15,131 12,072 94,363 90,490
Purchases of investment securities available for sale .. (99,606) (65,260) (229,205) (226,632)
Proceeds from sales of loans and leases ................ 142,091 185,064 689,365 566,342
Net increase in loans and leases ....................... (380,964) (301,354) (1,072,688) (961,989)
Purchases of assets to be leased ....................... -- -- -- (8,514)
Principal collections on leveraged leases .............. 8,085 -- 8,085 --
Proceeds from sales of premises and equipment .......... 950 31 1,639 622
Purchases of premises and equipment .................... (11,560) (5,357) (25,655) (14,424)
Proceeds from sales of other real estate owned ......... 482 6 946 1,444
Proceeds from sales of mortgage servicing rights ....... 216 250 590 1,164
Purchases of mortgage servicing rights ................. (2,330) (51) (2,503) (1,543)
Proceeds from sales of other assets .................... 12 163 282 611
Cash paid for acquisitions, net of cash received ....... (27,440) (10) (26,765) 3,540
------------ ------------ ------------ ------------
Net cash (used in) investing
activities .............................. (1,086,488) (701,061) (1,705,068) (960,260)
------------ ------------ ------------ ------------
</TABLE>
5
<PAGE>
<TABLE>
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
(In thousands) 1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash flows from financing activities:
Net increase in deposits .................... 483,770 232,239 711,949 361,447
Net change in short-term funds borrowed ..... 413,419 439,174 1,233,538 630,824
Proceeds from FHLB advances over one year ... 90,000 1,300 130,000 1,650
Payments on FHLB advances over one year ..... (2,228) (4,456) (10,757) (12,570)
Payments on leveraged leases ................ (8,085) -- (8,085) --
Payments on long-term debt .................. (37) (290) (486) (887)
Proceeds from issuance of common stock ...... 942 112 1,672 1,103
Payments to redeem common stock ............. (33,202) (1,025) (88,313) (17,458)
Dividends paid .............................. (7,152) (6,506) (20,743) (18,543)
----------- ----------- ----------- -----------
Net cash provided by
financing activities ........ 937,427 660,548 1,948,775 945,566
----------- ----------- ----------- -----------
Net increase (decrease) in cash and due from banks 93,030 41,249 105,574 (38,202)
Cash and due from banks at beginning of period ... 416,875 338,616 404,331 418,067
----------- ----------- ----------- -----------
Cash and due from banks at end of period ......... $ 509,905 $ 379,865 $ 509,905 $ 379,865
=========== =========== =========== ===========
</TABLE>
<TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
(In thousands) 1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash paid for:
Interest .............................. $ 79,208 $ 55,549 $224,839 $161,532
Income taxes .......................... 15,866 8,936 42,498 29,765
Loans transferred to other real estate owned 4,407 -- 5,653 347
</TABLE>
<TABLE>
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(Unaudited)
<CAPTION>
Nine Months Ended Twelve Months Ended
September 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 .......................................... 84,121 74,495 101,350
--------- --------- ---------
513,617 427,674 454,529
Deduct cash dividends:
Preferred, paid by subsidiary to minority shareholder (27) (27) (36)
Common, per share $.35 in 1997
and $.315 and $.425 in 1996 .................... (20,716) (18,516) (24,997)
--------- --------- ---------
Balance at end of period ................................. $ 492,874 $ 409,131 $ 429,496
========= ========= =========
</TABLE>
6
<PAGE>
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 nine
months ended September 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.
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128 (FAS 128), Earnings per
Share. This Statement establishes standards for computing and presenting
earnings per share (EPS). It replaces the presentation of primary EPS (net
income applicable to common stock divided by average common shares outstanding
and, if dilution is 3% or more, common stock equivalents) with a presentation of
basic EPS (net income applicable to common stock divided by average common
shares outstanding), which the Company currently presents. It also requires dual
presentation of basic and diluted EPS on the face of the income statement and a
reconciliation of the numerator and the denominator of both EPS computations.
This Statement is effective with the year-end 1997 financial statements. Earlier
application is not permitted, however, the Statement requires restatement of all
prior period EPS data presented, including interim periods. The basic and
diluted EPS under FAS 128 for the Company's quarter and six-month period ended
June 30, 1997 would not differ materially from the existing primary and fully
diluted EPS under APB 15.
In June 1997, the FASB issued FAS 130, Reporting Comprehensive Income. This
Statement establishes standards for reporting and displaying comprehensive
income and its components in the financial statements. It requires that a
company classify items of other comprehensive income, as defined by accounting
standards, by their nature (e.g. unrealized gains or losses on securities) in a
financial statement, but does not require a specific format for that statement.
The accumulated balance of other comprehensive income is to be displayed
separately from retained earnings and additional paid-in capital in the equity
section of the balance sheet.
This Statement is effective with the year-end 1998 financial statements;
however, a total for comprehensive income is required in the financial
statements of interim periods beginning with the first quarter of 1998.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required.
7
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
<TABLE>
FINANCIAL HIGHLIGHTS
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-----------------------------------------------------------
1997 1996 % Change 1997 1996 % Change
------ ------ ----- ------ ------ -----
(In thousands, except per share and ratio data)
<S> <C> <C> <C> <C> <C> <C>
EARNINGS
Taxable-equivalent net interest income $ 83,467 $ 67,453 23.74%$230,406 $194,081 18.72%
Net interest income .................. 81,754 65,768 24.31% 225,404 189,207 19.13%
Noninterest income ................... 36,351 28,993 25.38% 100,309 81,596 22.93%
Provision for loan losses ............ 1,095 840 30.36% 2,905 2,200 32.05%
Noninterest expense .................. 72,142 54,386 32.65% 193,861 155,578 24.61%
Income before income taxes ........... 44,868 39,535 13.49% 128,947 113,025 14.09%
Income taxes ......................... 15,486 13,775 12.42% 44,826 38,530 16.34%
Net income ........................... 29,382 25,760 14.06% 84,121 74,495 12.92%
PER COMMON SHARE
Net income ........................... .49 .43 13.95% 1.41 1.26 11.90%
Dividends ............................ .12 .11 9.09% .35 .315 11.11%
Book value ........................... 9.78 8.30 17.83%
SELECTED RATIOS
Return on average assets ............. 1.33% 1.58% 1.36% 1.58%
Return on average common equity ...... 20.03% 21.21% 20.69% 21.85%
Efficiency ratio ..................... 60.21% 56.39% 58.62% 56.43%
Net interest margin .................. 4.16% 4.50% 4.05% 4.48%
CASH EARNINGS*
Taxable-equivalent net interest income $ 83,467 $ 67,453 23.74%$230,406 $194,081 18.72%
Net interest income .................. 81,754 65,768 24.31% 225,404 189,207 19.13%
Noninterest income ................... 36,351 28,993 25.38% 100,309 81,596 22.93%
Provision for loan losses ............ 1,095 840 30.36% 2,905 2,200 32.05%
Noninterest expense .................. 70,505 53,795 31.06% 190,545 153,940 23.78%
Income before income taxes ........... 46,505 40,126 15.90% 132,263 114,663 15.35%
Income taxes ......................... 15,717 13,792 13.96% 45,078 38,581 16.84%
Net income ........................... 30,788 26,334 16.91% 87,185 76,082 14.59%
PER COMMON SHARE
Net income ........................... .51 .44 15.91% 1.46 1.28 14.06%
Dividends ............................ .12 .11 9.09% .35 .315 11.11%
Book value ........................... 7.84 7.22 8.59%
SELECTED RATIOS
Return on average assets ............. 1.41% 1.63% 1.42% 1.62%
Return on average common equity ...... 26.29% 23.53% 25.00% 23.82%
Efficiency ratio ..................... 58.84% 55.78% 57.62% 55.84%
Net interest margin .................. 4.16% 4.50% 4.05% 4.48%
* Before amortization of goodwill and core deposit intangible assets.
</TABLE>
8
<PAGE>
<TABLE>
ZIONS BANCORPORATION AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS (Continued)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------- ----------------------------------
1997 1996 % Change 1997 1996 % Change
---------- ---------- ---- ---------- ---------- ----
(In thousands, except per share and ratio data)
<S> <C> <C> <C> <C> <C> <C>
AVERAGE BALANCES
Total assets ......................... $8,754,707 $6,475,707 35.19%$ 8,259,593 $ 6,297,615 31.15%
Investment securities ................ 2,562,260 1,937,346 32.26% 2,282,914 1,807,806 26.28%
Net loans and leases ................. 3,980,403 3,213,816 23.85% 3,773,847 3,055,062 23.53%
Goodwill and core deposit intangibles 117,410 37,769 210.86% 77,286 28,923 167.21%
Total deposits ....................... 5,416,591 4,337,517 24.88% 4,899,591 4,203,711 16.55%
Shareholders' equity ................. 582,012 483,058 20.48% 543,606 455,492 19.34%
Weighted average common and common-
equivalent shares outstanding ... 60,506,000 59,696,000 1.36% 59,792,000 59,072,000 1.22%
AT PERIOD END
Total assets ......................... $ 9,059,721 $ 6,783,341 33.56%
Investment securities ................ 2,584,089 1,886,533 36.98%
Net loans and leases ................. 4,190,664 3,313,932 26.46%
Allowance for loan losses ............ 70,290 69,337 1.37%
Goodwill and core deposit intangibles 128,360 37,377 323.68%
Total deposits ....................... 5,666,336 4,572,555 23.92%
Shareholders' equity ................. 581,129 490,485 18.48%
Common shares outstanding ............ 59,426,300 59,068,860 .61%
Common dividend payout ............... 24.30% 25.22% 24.63% 24.86%
Average equity to average assets ..... 6.65% 7.46% 6.58% 7.23%
Leverage Ratio ....................... 6.96% 6.47%
Tier I risk-based capital ............ 12.45% 11.05%
Total risk-based capital ............. 15.13% 13.67%
Nonperforming assets ................. 16,044 10,599 51.37%
Loans past due 90 days or more ....... 7,997 8,740 -8.50%
Nonperforming assets to net loans and leases,
other real estate owned and other
nonperforming assets at September 30 .38% .32%
</TABLE>
9
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
OPERATING RESULTS
Zions Bancorporation achieved record earnings for the quarter and nine months
ended September 30, 1997. Consolidated net income for the third quarter of 1997
was $29.4 million or $0.49 per share, an increase of 14.1% and 14.0%,
respectively, over the $25.8 million or $0.43 earned in the third quarter of
1996 and an increase of 4.8% and 4.3%, respectively, over the $28.0 million or
$0.47 per share for the second quarter of 1997. The quarterly dividend per share
increased 9.1% to $0.12 from $0.11 in the third quarter of 1996.
Consolidated net income was $84.1 million or $1.41 per share for the first nine
months of 1997, compared to $74.5 million or $1.26 per share for the first nine
months of 1996, which constituted increases of 12.9% and 11.9% respectively. Per
share information for 1996 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 third quarter and for the first
nine months of 1997 was 1.33% and 1.36% compared to 1.58% for each of the same
periods in 1996, resulting in an annualized return on average common
shareholders' equity of 20.03% and 20.69% for the third quarter and for the
first nine months of 1997, compared to 21.21% and 21.85% 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 third quarter and for the first
nine months of 1997 was 60.21% and 58.62%, respectively, compared to 56.39% and
56.43% for the same periods of 1996.
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 use of
purchase accounting results in increased levels of goodwill and core deposit
intangible assets recognized and amortized. 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
financial statements.
Cash earnings for the quarter were $30.8 million or $0.51 per share, an increase
of 16.9% and 15.9%, respectively, over the $26.3 million or $0.44 per share
earned in the third quarter of 1996 and an increase of 6.2% and 4.1%,
respectively, over the $29.0 million or $0.49 per share cash earnings for the
second quarter of 1997. Year-to-date cash earnings were $87.2 million or $1.46
per share, an increase of 14.6% and 14.1%, respectively, over the $76.1 million
or $1.28 per share earned in the first nine months of 1996.
The cash annualized return on average assets for the third quarter and for the
first nine months of 1997 was 1.41% and 1.42% compared to 1.63% and 1.62%,
respectively, in 1996, resulting in a cash annualized return on average common
shareholders' equity of 26.29% and 25.00% for the third quarter and for the
first nine months of 1997, compared to 23.53% and 23.82% for the same periods of
1996. The Company's cash efficiency ratio for the third quarter and for the
first nine months of 1997 was 58.84% and 57.62%, respectively, compared to
55.78% and 55.84% for the same periods of 1996.
10
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
The Company's third-quarter $3.6 million (14.1%) increase in earnings relative
to the same period a year ago reflects a $16.0 million (24.3%) increase in net
interest income, a $7.4 million (25.4%) increase in noninterest income,
partially offset by a $.3 million (30.4%) increase in the provision for loan
losses, a $17.8 million (32.6%) increase in noninterest expenses and a $1.7
million (12.4%) increase in income tax expense.
The Company's $9.6 million (12.9%) increase in net income for the nine-month
period ended September 30, 1997 compared to the similar period in 1996, reflects
a $36.2 million (19.1%) increase in net interest income, an $18.7 million
(22.9%) increase in noninterest income, partially offset by a $.7 million
(32.0%) increase in the provision for loan losses, a $38.3 million (24.6%)
increase in noninterest expenses and a $6.3 million (16.3%) increase in income
tax expense.
These figures include $7.7 million in net interest income, $1.0 million in
noninterest income, $.1 million in the provision for loan losses, $5.9 million
in noninterest expense and $1.3 million in income tax expense, for operations of
the acquired Aspen Bancshares, Inc. from May 16 through September 30, 1997.
NET INTEREST INCOME AND INTEREST RATE SPREADS
Net interest income for the third quarter of 1997, adjusted to a fully
taxable-equivalent basis, increased 23.7% to $83.5 million compared to $67.5
million for the third quarter of 1996 and increased 7.5% from $77.7 million for
the second quarter of 1997. Net interest margin was 4.16%, compared to 4.50% for
the third quarter of 1996 and 4.00% for the second quarter of 1997. Nine-month
net interest income, on a fully taxable-equivalent basis, was $230.4 million in
1997, an increase of 18.7% compared to $194.1 million for the first nine months
of 1996. Net interest margin for the first nine months of 1997 was 4.05%,
compared to 4.48% for the first nine months of 1996.
The yield on average earning assets decreased 2 basis points during the third
quarter of 1997 as compared to the third quarter of 1996, and increased 14 basis
points from the second quarter of 1997. The average rate paid this quarter on
interest-bearing funds increased 24 basis points from the third quarter of 1996
and decreased 2 basis points from the second quarter of 1997. Comparing the
first nine months of 1997 with 1996, the yield on average earning assets
decreased 13 basis points, while the cost of interest-bearing funds increased by
26 basis points.
The spread on average interest-bearing funds for the third quarter of 1997 was
3.46%, down from the 3.72% for the third quarter of 1996 and up from the 3.30%
for the second quarter of 1997. The spread on average interest-bearing funds for
the first nine months of 1997 was 3.34% compared with 3.73% for the same period
in 1996.
11
<PAGE>
<TABLE>
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED AVERAGE BALANCE SHEETS, YIELDS AND RATES
(Unaudited)
<CAPTION>
Three Months Ended Three Months Ended
September 30, 1997 September 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 ....... $ 59,504 $ 959 6.39%$ 42,793 $ 500 4.65%
Federal funds sold and security
resell agreements .......... 1,355,562 19,961 5.84% 772,414 11,101 5.72%
---------- ------- --------- -------
Total money market investments 1,415,066 20,920 5.87% 815,207 11,601 5.66%
---------- ------- --------- -------
Investment securities:
Held to maturity:
Taxable .................... 1,652,721 28,587 6.86% 1,112,334 18,470 6.61%
Nontaxable ................. 187,369 4,275 9.05% 216,709 4,808 8.83%
Available for sale:
Taxable .................... 385,626 6,490 6.68% 390,441 6,226 6.34%
Nontaxable ................. 39,055 772 7.84% 40,668 811 7.93%
Trading account ................. 297,489 4,396 5.86% 177,194 2,707 6.08%
---------- ------- --------- -------
Total securities ........... 2,562,260 44,520 6.89% 1,937,346 33,022 6.78%
---------- ------- --------- -------
Loans:
Loans held for sale ............. 159,698 3,019 7.50% 149,858 2,949 7.83%
Net loans and leases 2 .......... 3,820,705 96,581 10.03% 3,063,958 76,194 9.89%
---------- ------- --------- -------
Total loans ................ 3,980,403 99,600 9.93% 3,213,816 79,143 9.80%
---------- ------- --------- -------
Total interest-earning assets ........ $7,957,729 $ 165,040 8.23%$5,966,369 $ 123,766 8.25%
------- -------
Cash and due from banks .............. 422,964 307,428
Allowance for loan losses ............ (70,856) (69,523)
Goodwill and core deposit intangibles 117,410 37,769
Other assets ......................... 327,460 233,664
---------- ----------
Total assets ......................... $8,754,707 $6,475,707
========== ==========
LIABILITIES
Interest-bearing deposits:
Savings and NOW deposits ........ $ 690,978 $ 5,513 3.17%$ 589,355 $ 6,657 4.49%
Money market super NOW deposits . 2,234,867 22,001 3.91% 1,849,325 16,321 3.51%
Time deposits under $100,000 .... 863,771 11,503 5.28% 669,838 8,543 5.07%
Time deposits $100,000 or more .. 249,084 3,912 6.23% 161,271 2,522 6.22%
Foreign deposits ................ 144,710 1,616 4.43% 124,289 1,440 4.61%
---------- ------- --------- -------
Total interest-bearing deposits 4,183,410 44,545 4.22% 3,394,078 35,483 4.16%
---------- ------- --------- -------
Borrowed funds:
Securities sold, not yet purchased 93,864 1,371 5.79% 83,515 1,324 6.31%
Federal funds purchased and security
repurchase agreements ...... 2,024,944 26,863 5.26% 1,327,425 16,821 5.04%
FHLB advances and other borrowings:
Less than one year ......... 58,001 848 5.80% 12,333 243 7.84%
Over one year .............. 169,087 2,522 5.92% 77,040 1,188 6.13%
Long-term debt .................. 251,161 5,424 8.57% 55,812 1,254 8.94%
---------- ------- --------- -------
Total borrowed funds ....... 2,597,057 37,028 5.66% 1,556,125 20,830 5.33%
---------- ------- --------- -------
Total interest-bearing liabilities ... $6,780,467 $ 81,573 4.77%$4,950,203 $ 56,313 4.53%
------- -------
Noninterest-bearing deposits ......... 1,233,181 943,439
Other liabilities .................... 159,047 99,007
---------- ----------
Total liabilities .................... 8,172,695 5,992,649
Total shareholders' equity ........... 582,012 483,058
---------- ----------
Total liabilities and shareholders' equity $8,754,707 $6,475,707
========== ==========
Spread on average interest-bearing funds 3.46% 3.72%
==== ====
Net interest income and net yield on
interest-earning assets ......... $ 83,467 4.16% $ 67,453 4.50%
========== ==== ========== ====
1 Taxable-equivalent rates used where applicable.
2 Net of unearned income and fees, net of related costs. Loans include nonaccrual and restructured loans.
</TABLE>
12
<PAGE>
<TABLE>
ZIONS BANCORPORATION AND SUBSIDIARIES
CONSOLIDATED AVERAGE BALANCE SHEETS, YIELDS AND RATES
(Unaudited)
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1997 September 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 ....... $ 53,778 $ 2,233 5.55%$ 39,431 $ 1,399 4.74%
Federal funds sold and security
resell agreements .......... 1,492,114 62,799 5.63% 886,604 37,374 5.63%
---------- ------- --------- -------
Total money market investments 1,545,892 65,032 5.62% 926,035 38,773 5.59%
---------- ------- --------- -------
Investment securities:
Held to maturity:
Taxable .................... 1,366,743 71,072 6.95% 1,027,190 51,035 6.64%
Nontaxable ................. 192,029 11,741 8.17% 206,075 13,827 8.96%
Available for sale:
Taxable .................... 401,016 20,290 6.76% 372,185 17,969 6.45%
Nontaxable ................. 39,867 2,376 7.97% 40,814 2,421 7.92%
Trading account ................. 283,259 12,531 5.91% 161,542 7,144 5.91%
---------- ------- --------- -------
Total securities ........... 2,282,914 118,010 6.91% 1,807,806 92,396 6.83%
---------- ------- --------- -------
Loans:
Loans held for sale ............. 159,434 8,970 7.52% 153,918 8,729 7.58%
Net loans and leases 2 .......... 3,614,413 268,795 9.94% 2,901,144 216,643 9.97%
---------- ------- --------- -------
Total loans ................ 3,773,847 277,765 9.84% 3,055,062 225,372 9.85%
---------- ------- --------- -------
Total interest-earning assets ........ $7,602,653 $ 460,807 8.10%$5,788,903 $ 356,541 8.23%
------- -------
Cash and due from banks .............. 364,308 320,872
Allowance for loan losses ............ (70,578) (68,367)
Goodwill and core deposit intangibles 77,286 28,923
Other assets ......................... 285,924 227,284
---------- ----------
Total assets ......................... $8,259,593 $6,297,615
========== ==========
LIABILITIES
Interest-bearing deposits:
Savings and NOW deposits ........ $ 644,270 $ 14,899 3.09%$ 615,863 $ 16,313 3.54%
Money market super NOW deposits . 2,062,837 60,469 3.92% 1,725,665 47,793 3.70%
Time deposits under $100,000 .... 744,059 28,638 5.15% 666,964 26,154 5.24%
Time deposits $100,000 or more .. 204,702 9,260 6.05% 163,091 7,545 6.18%
Foreign deposits ................ 139,326 4,647 4.46% 117,747 3,931 4.46%
---------- ------- --------- -------
Total interest-bearing deposits 3,795,194 117,913 4.15% 3,289,330 101,736 4.13%
---------- ------- --------- -------
Borrowed funds:
Securities sold, not yet purchased 91,626 4,029 5.88% 81,303 3,604 5.92%
Federal funds purchased and security
repurchase agreements ...... 2,202,606 85,927 5.22% 1,295,777 48,754 5.03%
FHLB advances and other borrowings:
Less than one year ......... 29,493 1,435 6.51% 18,249 915 6.70%
Over one year .............. 106,711 4,814 6.03% 80,532 3,686 6.11%
Long-term debt .................. 251,199 16,283 8.67% 55,938 3,765 8.99%
---------- ------- --------- -------
Total borrowed funds ....... 2,681,635 112,488 5.61% 1,531,799 60,724 5.30%
---------- ------- --------- -------
Total interest-bearing liabilities ... $6,476,829 $ 230,401 4.76%$4,821,129 $ 162,460 4.50%
------- -------
Noninterest-bearing deposits ......... 1,104,397 914,381
Other liabilities .................... 134,761 106,613
---------- ----------
Total liabilities .................... 7,715,987 5,842,123
Total shareholders' equity ........... 543,606 455,492
---------- ----------
Total liabilities and shareholders' equity $8,259,593 $6,297,615
========== ==========
Spread on average interest-bearing funds 3.34% 3.73%
==== ====
Net interest income and net yield on
interest-earning assets ......... $ 230,406 4.05% $ 194,081 4.48%
========== ==== ========== ====
1 Taxable-equivalent rates used where applicable.
2 Net of unearned income and fees, net of related costs. Loans include nonaccrual and restructured loans.
</TABLE>
13
<PAGE>
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 nine months of 1997
was $1.8 million compared to $1.5 million for the first nine months of 1996.
The increased level of taxable-equivalent net interest income in the third
quarter and the first nine 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 30.4% to $1.1 million for the third
quarter of 1997, as compared with $840 thousand for the third quarter of 1996,
and decreased 33.5% from the $820 thousand for the second quarter of 1997. The
provision for loan losses for the first nine months of 1997 totaled $2.9
million, 32.0% more than the $2.2 million provision for the first nine months of
1996. Although the provision has increased for the first nine months of 1997,
annualized it is only .11% of average loans.
NONINTEREST INCOME
Noninterest income for the third quarter of 1997 was $36.4 million, an increase
of 25.4% from the $29.0 million for the third quarter of 1996 and an increase of
13.0% over the $32.2 million for the second 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 third
quarter of 1997 and the third quarter of 1996 service charges on deposit
accounts; other service charges, commissions and fees; trust income; trading
account income; and other income increased 25.7%, 41.3%, 18.5%, 196.8% and
82.8%, respectively. Loan sales and servicing income decreased 6.1%, resulting
from reduced securitization of auto loans during the third quarter of 1997. Net
gains of $160 thousand on the sale of investment securities was realized during
the third quarter of 1997 compared to none during the third quarter of 1996.
Noninterest income for the nine months ending September 30, 1997 was $100.3
million, an increase of 22.9% over $81.6 million for the first nine months of
1996. Comparing the segments of noninterest income for the first nine months of
1997 and the first nine months of 1996, service charges on deposit accounts;
other service charges, commissions and fees; trust income; and trading account
income increased 20.3%, 32.9%, 10.9% and 81.9%, respectively, while loan sales
and servicing income increased 13.6% and other income increased 12.6%. Net gains
of $652 thousand on the sale of investment securities was realized during the
first nine months of 1997 compared to $70 thousand during the first nine months
of 1996.
14
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
NONINTEREST EXPENSE
Noninterest expense for the third quarter of 1997 was $72.1 million, an increase
of 32.6% over $54.4 million for the third quarter of 1996, and increased 12.6%
from the $64.0 million for the second quarter of 1997. Comparing significant
noninterest expense segments for the third quarter of 1997 and the third quarter
of 1996, salaries and employee benefits increased 26.4%, occupancy increased
41.1%, furniture and equipment expense increased 45.2% and the total of all
other expenses increased 39.5% which included significant increases in other
real estate expense, legal and professional services, supplies, postage,
advertising FDIC premiums, amortization of intangible assets and other expenses.
The increase in noninterest expense for the third quarter of 1997 resulted
primarily from acquisitions and expansion. During the quarter, full-time
equivalent employees increased 380, offices increased 33 and ATMs increased 30.
Noninterest expense for the nine months ending September 30, 1997 was $193.9
million, an increase of 24.6% over $155.6 million for the first nine months of
1996. Comparing significant noninterest expense segments for the first nine
months of 1997 and the first nine months of 1996, salaries and employee benefits
increased 21.9%, occupancy increased 23.6%, furniture and equipment expenses
increased 35.1%, and the total of all other expenses increased 27.0% 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 for the first nine months of 1997 resulted
primarily from acquisitions, expansion of business lines and investment in
personnel in selected areas to enhance future revenue growth. At September 30,
1997, the Company had 3,843 full-time equivalent employees, 197 offices and 469
ATMs compared to 3,081 full time equivalent employees, 142 offices and 274 ATMs
at September 30, 1996.
INCOME TAXES
The Company's income taxes increased 12.4% to $15.5 million for the third
quarter of 1997 compared to $13.8 million for the third quarter of 1996 and
increased 1.2% from the $15.3 million for the second quarter of 1997. The
Company's income taxes were $44.8 million for the first nine months of 1997 as
compared to $38.5 million for the first nine 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 34.76% for the first nine months of
1997, up from 34.09% for the first nine months of 1996.
ANALYSIS OF FINANCIAL CONDITION
EARNING ASSETS
Average earning assets increased 31.3% to $7,602.7 million for the nine months
ended September 30, 1997, compared to $5,788.9 million in the nine months ended
September 30, 1996. Earning assets comprised 92.0% of total average assets for
the first nine months of 1997, compared with 91.9% for the first nine months of
1996.
15
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
Average money market investments, consisting of interest-bearing deposits,
federal funds sold and security resell agreements increased 66.9% to $1,545.9
million in the first nine months of 1997 as compared to $926.0 million in the
first nine months of 1996.
During the first nine months of 1997, average securities increased 26.3% to
$2,282.9 million compared to $1,807.8 million in the first nine months of 1996.
Average held to maturity securities increased 26.4%, available for sale
securities increased 6.8%, and trading account securities increased 75.3%
compared with the first nine months of 1996.
Average net loans and leases increased 23.5% to $3,773.8 million for the first
nine months of 1997 compared to $3,055.1 million in the first nine months of
1996, representing 49.6% of earning assets in the first nine months of 1997
compared to 52.8% in the first nine months of 1996. Average net loans and leases
were 77.0% of average total deposits for the nine months ended September 30,
1997, as compared to 72.7% for the nine months ended September 30, 1996.
INVESTMENT SECURITIES
The following table presents the Company's investment securities on September
30, 1997, December 31, 1996 and September 30, 1996.
<TABLE>
<CAPTION>
September 30, December 31, September 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 ......... $ 454,084 $ 462,064 $ 487,748 $ 491,785 $ 492,327 $ 496,959
Other agency securities ............. 1,227,017 1,232,212 518,308 517,892 504,665 500,772
States and political subdivisions ........ 205,139 208,812 255,321 259,560 248,781 250,904
Mortgage-backed and other securities ..... 71,192 72,555 60,784 61,844 59,910 60,524
---------- ---------- ---------- ---------- ---------- ----------
$1,957,432 $1,975,643 $1,322,161 $1,331,081 $1,305,683 $1,309,159
---------- ---------- ---------- ---------- ---------- ----------
Available for sale
U.S. Treasury securities ................. $ 18,631 $ 18,776 $ 14,655 $ 14,707 $ 16,657 $ 16,644
U.S. government agencies ................. 117,726 113,186 120,620 116,500 121,049 117,363
States and political subdivisions ........ 30,652 31,763 39,118 40,766 39,423 40,753
Mortgage-backed and other securities ..... 26,827 27,108 86,007 84,865 65,422 64,620
---------- ---------- ---------- ---------- ---------- ----------
193,836 190,833 260,400 256,838 242,551 239,380
---------- ---------- ---------- ---------- ---------- ----------
Equity securities:
Mutual funds:
Accessor Funds, Inc. ........... 109,405 110,370 109,071 109,100 109,025 107,817
Stock:
Federal Home Loan Bank ......... 88,744 88,744 79,593 79,593 76,504 76,504
Other .......................... 11,630 13,149 7,343 7,920 6,490 6,949
---------- ---------- ---------- ---------- ---------- ----------
209,779 212,263 196,007 196,613 192,019 191,270
---------- ---------- ---------- ---------- ---------- ----------
$ 403,615 $ 403,096 $ 456,407 $ 453,451 $ 434,570 $ 430,650
---------- ---------- ---------- ---------- ---------- ----------
Total .................................... $2,361,047 $2,378,739 $1,778,568 $1,784,532 $1,740,253 $1,739,809
========== ========== ========== ========== ========== ==========
</TABLE>
16
<PAGE>
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 September
30, 1997, December 31, 1996 and September 30, 1996.
<TABLE>
<CAPTION>
(In thousands)
September 30, December 31, September 30,
Types 1997 1996 1996
- ----- ---------- ---------- ----------
<S> <C> <C> <C>
Loans held for sale .................... $ 176,747 $ 150,467 $ 151,404
Commercial, financial, and agricultural 1,000,794 783,589 785,757
Real estate:
Construction .................... 432,131 323,668 318,221
Other:
Home equity credit line . 143,884 165,134 128,662
1-4 family residential .. 672,390 534,845 527,787
Other real estate-secured 1,143,868 1,057,962 972,416
---------- ---------- ----------
1,960,142 1,757,941 1,628,865
---------- ---------- ----------
2,392,273 2,081,609 1,947,086
Consumer:
Bankcard ........................ 32,909 37,089 31,482
Other ........................... 393,891 267,456 276,880
---------- ---------- ----------
426,800 304,545 308,362
Lease financing ........................ 165,501 159,825 149,514
Other receivables ...................... 67,101 10,989 9,235
---------- ---------- ----------
Total loans ..................... $4,229,216 $3,491,024 $3,351,358
========== ========== ==========
</TABLE>
Loans held for sale on September 30, 1997 increased 17.5% from year-end 1996.
All other loans, net of unearned income and fees increased 21.6% to $4,013.9
million on September 30, 1997, including $329 million from acquisitions,
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 27.7%, 33.5%, 11.5% and 40.1%, respectively, as lease
financing increased 3.6% and other receivables increased 510.6%. Within the
other real estate-secured loan portfolio, home equity credit line loans
decreased 12.9%, 1-4 family residential loans increased 25.7% and all other real
estate loans increased 8.1% from year end.
17
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
On September 30, 1997, long-term first mortgage real estate serviced for others
totaled $1,986.0 million and consumer and other loan securitizations, which
relate primarily to loans sold under revolving securitization structures,
totaled $966.2 million. During the first nine months of 1997, the Company sold
$490.7 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 $676.1 million. During the first nine months of 1997,
total loans sold were $1,166.8 million.
RISK ELEMENTS
The Company's nonperforming assets, which include nonaccruing loans,
restructured loans, other real estate owned and other nonperforming assets, were
$16.0 million on September 30, 1997, up from $12.5 million on December 31, 1996,
and up from $10.6 million on September 30, 1996. Such nonperforming assets as a
percentage of net loans and leases and other real estate owned were .38%, .36%
and .32% on September 30, 1997, December 31, 1996, and September 30, 1996,
respectively.
Accruing loans past due 90 days or more totaled $8.0 million on September 30,
1997, up from $3.6 million on December 31, 1996, but down from $8.7 million on
September 30, 1996. These loans equaled .19% of net loans and leases on
September 30, 1997, as compared to .10% on December 31, 1996 and .26% on
September 30, 1996.
No loans were considered potential problem loans at September 30, 1997, December
31, 1996 or September 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 $5.1 million on September 30, 1997, as compared to $7.8
million on December 31, 1996, and $6.7 million on September 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
September 30, 1997, December 31, 1996, and September 30, 1996, is a required
allowance of $187 thousand, $25 thousand and $147 thousand, respectively, on $.8
million, $1.0 million and $.4 million, respectively, of the recorded investment
in impaired loans.
18
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
The following table sets forth the nonperforming assets on September 30, 1997,
December 31, 1996, and September 30, 1996.
<TABLE>
<CAPTION>
September 30, December 31, September 30,
(In thousands) 1997 1996 1996
------- ------- -------
<S> <C> <C> <C>
Nonaccrual loans ............................ $10,617 $11,526 $10,139
Restructured loans .......................... 693 857 204
Other real estate owned and other
nonperforming assets ................... 4,734 138 256
------- ------- -------
Total .................................. $16,044 $12,521 $10,599
======= ======= =======
% of net loans and leases*, other real estate
owned and other nonperforming assets ... .38% .36% .32%
Accruing loans past due 90 days or more ..... $ 7,997 $ 3,553 $ 8,740
======= ======= =======
% of net loans and leases* .................. .19% .10% .26%
*Includes loans held for sale
</TABLE>
ALLOWANCE FOR LOAN LOSSES
The Company's allowance for loan losses was 1.68% of net loans and leases on
September 30, 1997, compared to 2.03% on December 31, 1996, and 2.09% on
September 30, 1996. Net charge-offs during the third quarter of 1997 were $2.8
million, or .28% on average net loans and leases, compared to $.8 million, or
.10% of average net loans and leases for the third quarter of 1996. Net
charge-offs for the first nine months of 1997 were $6.2 million, or .22% of
average net loans and leases, compared to $3.0 million or .13% of average net
loans and leases for the first nine months of 1996.
The allowance, as a percentage of nonaccrual loans and restructured loans, was
621.49% on September 30, 1997, compared to 564.92% on December 31, 1996, and
670.38% on September 30, 1996. The allowance, as a percentage of nonaccrual
loans and accruing loans past due 90 days or more was 377.62% on September 30,
1997, compared to 463.92% on December 31, 1996 and 367.27% on September 30,
1996.
On September 30, 1997, December 31, 1996, and September 30, 1996, the allowance
for loan losses includes an allocation of $9.0 million, $5.9 million and $6.1
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 September 30, 1997, December 31, 1996 and September 30,
1996, totaled $2,085.4 million, $1,906.9 million and $1,697.5 million,
respectively.
19
<PAGE>
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
Nine Months Ended Ended
(In thousands) September 30, December 31,
--------------------------- -----------
1997 1996 1996
----------- ----------- -----------
<S> <C> <C> <C>
Average loans* and leases outstanding
(net of unearned income) ............. $ 3,773,847 $ 3,055,062 $ 3,126,899
=========== =========== ===========
Allowance for possible losses:
Balance at beginning of the period ........ $ 69,954 $ 67,555 $ 67,555
Allowance of companies acquired ........... 3,668 2,566 2,566
Provision charged against earnings ........ 2,905 2,200 3,540
Loans and leases charged-off:
Loans held for sale .................. -- -- --
Commercial, financial and agricultural (4,282) (698) (1,274)
Real estate .......................... (95) (427) (427)
Consumer ............................. (5,074) (5,806) (7,503)
Lease financing ...................... (163) (225) (228)
Other receivables .................... -- -- --
----------- ----------- -----------
Total ........................... (9,614) (7,156) (9,432)
----------- ----------- -----------
Recoveries:
Loans held for sale .................. -- -- --
Commercial, financial and agricultural 1,404 1,573 2,411
Real estate .......................... 238 366 428
Consumer ............................. 1,713 1,694 2,344
Lease financing ...................... 22 539 542
Other receivables .................... -- -- --
----------- ----------- -----------
Total ........................... 3,377 4,172 5,725
----------- ----------- -----------
Net loan and lease charge-offs ............ (6,237) (2,984) (3,707)
----------- ----------- -----------
Balance at end of the period .............. $ 70,290 $ 69,337 $ 69,954
=========== =========== ===========
*Includes loans held for sale
Ratio of net charge-offs to
average loans and leases ............. .22% .13% .12%
</TABLE>
20
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
DEPOSITS
Average total deposits of $4,899.6 million for the first nine months of 1997
increased 16.6% over the $4,203.7 million for the first nine months of 1996,
with average demand deposits increasing 20.8%. Average savings and NOW deposits,
money market and super NOW deposits, and time deposits under $100,000 for the
first nine months of 1997 increased 4.6%, 19.5% and 11.6% respectively, from the
first nine months of 1996. Average time deposits over $100,000 increased 25.5%
and foreign deposits increased 18.3% during the first nine months of 1997,
compared with the same period one year earlier.
Total deposits increased 24.5% to $5,666.3 million on September 30, 1997,
including $820 million from acquisitions, as compared to $4,552.0 million on
December 31, 1996. Comparing September 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 17.7%, 21.1%, 42.5% and 57.1%,
respectively, and foreign deposits increased 18.0%.
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 $1,739.9 million or
33.0% of core deposits on September 30, 1997.
The Company's core deposits, consisting of demand, savings and money market
deposits and time deposits under $100,000, constituted 92.9% of total deposits
on September 30, 1997 as compared to 93.8% on December 31, 1996 and 92.3% on
September 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>
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 third quarter of 1997, the Company repurchased and retired 923,931
shares of its common stock at a cost of $33.2 million to bring the total
repurchased and retired common stock shares during the first nine months of 1997
to 2,787,665 shares at a total cost of $88.3 million.
Total shareholders' equity on September 30, 1997 was $581.1 million, an increase
of 14.5% over the $507.5 million on December 31, 1996, and an increase of 18.5%
over the $490.5 million on September 30, 1996. The ratio of average equity to
average assets for the first nine months of 1997 was 6.58% as compared to 7.23%
for the same period in 1996. On September 30, 1997, the Company's Tier I
risk-based capital ratio was 12.45%, as compared to 14.38% on December 31, 1996
and 11.05% on September 30, 1996. On September 30, 1997 the Company's total
risk-based capital ratio was 15.13%, as compared to 18.31% on December 31, 1996
and 13.67% on September 30, 1996. The Company's leverage ratio on September 30,
1997 was 6.96%, as compared to 8.77% on December 31, 1996 and 6.47% on September
30, 1996.
Dividends declared per common share for the third quarter of 1997 of $.12
increased 9.1%, as compared to $.11 for the third quarter of 1996. Dividends
declared per common share of $.35 for the first nine months of 1997 increased
11.1% compared to $.315 for the first nine months of 1996. The common cash
dividend payout of net income for the first nine months of 1997 was 24.63%, as
compared to 24.86% for the first nine months of 1996.
22
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
MERGERS AND ACQUISITIONS
On July 11, 1997 Zions Bancorporation's acquisition of 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, extended Zions
Bancorporation's banking operations into Idaho. Upon acquisition the name of the
institution was changed to Zions Bank and on August 15, 1997 it was merged into
Zions First National 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
$364 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 were expanded by the addition of 11 offices in Arizona,
10 offices in Idaho, 5 offices in Nevada and 1 office in Utah. On September 19,
1997 the acquisition of four more former branches of Wells Fargo Bank in Utah
was completed. This purchase transaction included $54 million in deposit
accounts and the branch facilities. Three of the four offices were merged with
existing offices.
On October 17, 1997, the purchase of Sun State Capital Corporation and its
banking subsidiary, Sun State Bank, was consummated for a cost of approximately
$39 million, which included 528,174 shares of Zions Bancorporation common stock.
Sun State Bank was merged into Zions Bancorporation's wholly owned subsidiary,
Nevada State Bank. The transaction adds approximately $165 million in assets and
three offices in Las Vegas and one in Reno, Nevada to Nevada State Bank.
On July 7, 1997 Zions Bancorporation and GB Bancorporation announced a merger
agreement in which GB Bancorporation would merge with and into Zions
Bancorporation. The agreement is subject to the approval of GB Bancorporation
shareholders and is expected to close in the fourth quarter of 1997.
On July 25, 1997 Zions Bancorporation and Sky Valley Bank Corp. announced a
merger agreement in which Sky Valley Bank Corp. would merge with and into Zions
Bancorporation. The agreement is subject to the approval of Sky Valley Bank
Corp. shareholders and is expected to close in the fourth quarter of 1997.
On September 24, 1997 Zions Bancorporation and Vectra Banking Corporation
announced a merger agreement in which Vectra Banking Corporation would merge
with and into Zions Bancorporation. The agreement is subject to the approval of
Vectra Banking Corporation shareholders and is expected to close in the first
quarter of 1998.
Also, on September 24, 1997 Zions Bancorporation and Tri-State Finance
Corporation announced a merger agreement in which Tri-State Finance Corporation
would merge with and into Zions Bancorporation. The agreement is subject to the
approval of Tri-State Finance Corporation shareholders and is expected to close
in the first quarter of 1998.
23
<PAGE>
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 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.
24
<PAGE>
ZIONS BANCORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
b) Report on Form 8-K
Zions Bancorporation filed the following report on Form 8-K
during the quarter ended September 30, 1997
Form 8-K filed July 10, 1997 (Item 5) Announcement on July 7,
1997 of Zions Bancorporation and GB Bancorporation Agreement and
Plan of Merger
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 November 10, 1997
25
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1997 AND THE RELATED
UNAUDITED CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1997 INCLUDED IN THE COMPANY'S FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND> <MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 509,905
<INT-BEARING-DEPOSITS> 59,554
<FED-FUNDS-SOLD> 1,347,646
<TRADING-ASSETS> 223,561
<INVESTMENTS-HELD-FOR-SALE> 403,096
<INVESTMENTS-CARRYING> 1,957,432
<INVESTMENTS-MARKET> 1,975,643
<LOANS> 4,190,664
<ALLOWANCE> 70,290
<TOTAL-ASSETS> 9,059,721
<DEPOSITS> 5,666,336
<SHORT-TERM> 2,255,822
<LIABILITIES-OTHER> 107,396
<LONG-TERM> 449,038
0
0
<COMMON> 88,558
<OTHER-SE> 492,571
<TOTAL-LIABILITIES-AND-EQUITY> 9,059,721
<INTEREST-LOAN> 276,998
<INTEREST-INVEST> 178,807
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 455,805
<INTEREST-DEPOSIT> 117,913
<INTEREST-EXPENSE> 112,488
<INTEREST-INCOME-NET> 225,404
<LOAN-LOSSES> 2,905
<SECURITIES-GAINS> 652
<EXPENSE-OTHER> 193,861
<INCOME-PRETAX> 128,947
<INCOME-PRE-EXTRAORDINARY> 84,121
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 84,121
<EPS-PRIMARY> 1.41
<EPS-DILUTED> 1.41
<YIELD-ACTUAL> 3.96
<LOANS-NON> 10,617
<LOANS-PAST> 7,997
<LOANS-TROUBLED> 693
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 69,954
<CHARGE-OFFS> 9,614
<RECOVERIES> 3,377
<ALLOWANCE-CLOSE> 70,290
<ALLOWANCE-DOMESTIC> 16,902
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 53,388
</TABLE>
