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, 1996 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to COMMISSION FILE NUMBER 0-2610 ZIONS BANCORPORATION (Exact name of Registrant as specified in its charter) UTAH 87-0227400 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 1380 KENNECOTT BUILDING SALT LAKE CITY, UTAH 84133 (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. <TABLE> <S> <C> Common Stock, without par value, outstanding at August 5, 1996 14,773,841 shares </TABLE> 1
2 ZIONS BANCORPORATION AND SUBSIDIARIES INDEX <TABLE> <CAPTION> Page ---- <S> <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 21 ITEM 6. Exhibits and Reports on Form 8-K 22 SIGNATURES 22 </TABLE> 2
3 ZIONS BANCORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) <TABLE> <CAPTION> June 30, December 31, June 30, (In thousands) 1996 1995 1995 ----------- ------------ ----------- <S> <C> <C> <C> ASSETS Cash and due from banks $ 338,616 $ 418,067 $ 325,447 Money market investments: Interest-bearing deposits 40,996 34,580 26,457 Federal funds sold 10,967 50,467 75,766 Security resell agreements 334,419 602,204 825,423 Securities: Held to maturity at cost (approximate market value $1,340,467, $1,093,934 and $1,145,573): Taxable 1,121,745 881,172 926,927 Nontaxable 214,104 197,411 212,910 Available for sale at market: Taxable 390,500 356,116 381,049 Nontaxable 40,694 42,084 -- Trading account at market 175,259 63,706 73,317 ----------- ----------- ----------- 1,942,302 1,540,489 1,594,203 Loans: Loans held for sale at cost, which approximates market 166,967 126,124 110,768 Loans, leases and other receivables 3,080,511 2,711,784 2,567,300 ----------- ----------- ----------- 3,247,478 2,837,908 2,678,068 Less: Unearned income and fees, net of related costs 35,287 30,952 26,336 Allowance for loan losses 69,272 67,555 67,753 ----------- ----------- ----------- 3,142,919 2,739,401 2,583,979 Premises and equipment, at cost, less accumulated depreciation 88,312 81,613 79,514 Amounts paid in excess of net assets of acquired businesses 37,673 21,738 22,524 Other real estate owned 259 1,092 641 Other assets 151,451 130,995 130,385 ----------- ----------- ----------- Total assets $ 6,087,914 $ 5,620,646 $ 5,664,339 =========== =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Noninterest-bearing demand $ 1,000,183 $ 998,560 $ 890,805 Interest-bearing: Savings and money market 2,394,220 2,164,344 2,122,646 Time under $100,000 672,720 669,196 646,994 Time over $100,000 182,037 158,924 105,251 Foreign 91,156 106,090 124,484 ----------- ----------- ----------- 4,340,316 4,097,114 3,890,180 Securities sold, not yet purchased 111,010 117,005 86,827 Federal funds purchased 124,686 134,048 177,469 Security repurchase agreements 817,070 614,284 867,497 Accrued liabilities 68,983 72,376 70,275 Federal Home Loan Bank advances and other borrowings: Less than one year 17,925 14,910 27,786 Over one year 78,410 86,174 94,494 Long-term debt 55,992 56,229 57,526 ----------- ----------- ----------- Total liabilities 5,614,392 5,192,140 5,272,054 ----------- ----------- ----------- Shareholders' equity: Capital stock: Preferred stock, without par value; authorized 3,000,000 shares; issued and outstanding, none -- -- -- Common stock, without par value; authorized 30,000,000 shares; issued and outstanding, 14,772,665, 14,555,920 and 14,543,162 shares 84,604 73,477 74,336 Net unrealized holding gains and losses on securities available for sale (959) 1,850 (1,526) Retained earnings 389,877 353,179 319,475 ----------- ----------- ----------- Total shareholders' equity 473,522 428,506 392,285 ----------- ----------- ----------- Total liabilities and shareholders' equity $ 6,087,914 $ 5,620,646 $ 5,664,339 =========== =========== =========== </TABLE> 3
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 share amounts) 1996 1995 1996 1995 ---- ---- ---- ---- <S> <C> <C> <C> <C> Interest income: Interest and fees on loans $ 69,715 $ 60,503 $ 134,956 $ 115,987 Interest on loans held for sale 3,040 2,180 5,780 4,308 Interest on money market investments 11,792 14,072 27,172 24,067 Interest on securities: Held to maturity: Taxable 16,878 16,337 32,565 31,841 Nontaxable 3,123 3,089 6,313 6,095 Available for sale: Taxable 6,081 5,743 11,743 11,386 Nontaxable 565 -- 1,127 -- Trading account 2,033 1,051 4,437 4,676 Lease financing 2,851 2,461 5,493 4,855 --------- --------- --------- --------- Total interest income 116,078 105,436 229,586 203,215 --------- --------- --------- --------- Interest expense: Interest on savings and money market deposits 21,251 20,657 41,128 40,162 Interest on time deposits under $100,000 8,714 7,738 17,611 13,823 Interest on time deposits over $100,000 2,443 1,482 5,023 2,760 Interest on foreign deposits 1,334 1,820 2,491 3,821 Interest on securities sold, not yet purchased 1,290 465 2,280 2,741 Interest on borrowed funds 17,556 17,377 37,614 30,810 --------- --------- --------- --------- Total interest expense 52,588 49,539 106,147 94,117 --------- --------- --------- --------- Net interest income 63,490 55,897 123,439 109,098 Provision for loan losses 760 850 1,360 1,450 --------- --------- --------- --------- Net interest income after provision for loan losses 62,730 55,047 122,079 107,648 --------- --------- --------- --------- Noninterest income: Service charges on deposit accounts 8,042 7,033 15,749 13,965 Other service charges, commissions and fees 6,346 6,040 13,187 11,440 Trust income 1,329 1,152 2,611 2,232 Investment securities gains (losses), net 68 52 70 (53) Trading account income (loss) 752 111 1,625 (2,826) Loan sales and servicing income 8,320 6,210 15,430 11,569 Other income 1,669 1,507 3,931 3,119 --------- --------- --------- --------- Total noninterest income 26,526 22,105 52,603 39,446 --------- --------- --------- --------- Noninterest expenses: Salaries and employee benefits 28,425 24,856 55,420 48,363 Occupancy, net 2,638 2,904 5,422 5,060 Furniture and equipment 3,738 2,773 7,344 6,258 Other real estate expense 53 (23) (230) 57 Legal and professional services 1,384 766 2,123 2,101 Supplies 1,599 1,144 3,121 2,395 Postage 1,285 1,261 2,641 2,508 Advertising 1,487 1,241 2,969 2,301 FDIC premiums 1 1,963 6 3,917 Amortization of intangible assets 978 858 1,742 1,671 Other expenses 9,852 8,139 20,634 17,369 --------- --------- --------- --------- Total noninterest expenses 51,440 45,882 101,192 92,000 --------- --------- --------- --------- Income before income taxes 37,816 31,270 73,490 55,094 Income taxes 12,752 10,749 24,755 18,572 --------- --------- --------- --------- Net income $ 25,064 $ 20,521 $ 48,735 $ 36,522 ========= ========= ========= ========= Weighted average common and common-equivalent shares outstanding 14,746 14,786 14,711 14,732 Net income per common share $ 1.70 $ 1.39 $ 3.31 $ 2.48 </TABLE> 4
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) 1996 1995 1996 1995 ---- ---- ---- ---- <S> <C> <C> <C> <C> Cash flows from operating activities: Net income $ 25,064 $ 20,521 $ 48,735 $ 36,522 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Provision for loan losses 760 850 1,360 1,450 Write-downs of other real estate owned -- -- -- 8 Depreciation of premises and equipment 3,052 2,573 6,037 5,038 Amortization of premium on core deposits and other intangibles 978 858 1,742 1,671 Amortization of net premium/discount on investment securities 1,659 1,136 3,235 2,114 Accretion of unearned income and fees, net of related costs 1,635 1,655 3,768 1,468 Proceeds from sales of trading account securities 14,585,455 12,123,667 29,345,404 51,572,234 Increase in trading account securities (14,678,826) (12,113,616) (29,456,956) (51,446,225) Net (gain) loss on sales of investment securities (68) (52) (70) 53 Proceeds from loans held for sale 173,434 78,697 326,217 160,395 Increase in loans held for sale (175,127) (84,147) (354,399) (161,329) Net gain on sales of loans, leases and other assets (6,540) (3,968) (11,920) (7,233) Net (gain) loss on sales of other real estate owned 23 (8) (258) (78) Change in accrued income taxes (8,948) (5,311) 3,103 (84) Change in accrued interest receivable (5,941) (1,947) (7,476) (2,652) Change in other assets (942) 311 (6,720) 856 Change in accrued interest payable (1,963) (55) (295) 25 Change in accrued liabilities (681) 5,160 (6,777) (254) ------------ ------------ ------------ ------------ Net cash provided by (used in) operating activities (86,976) 26,324 (105,270) 163,979 ------------ ------------ ------------ ------------ Cash flows from investing activities: Net (increase) decrease in money market investments 675,518 (286,068) 324,944 (521,723) Proceeds from maturities of investment securities held to maturity 45,812 33,284 108,024 50,472 Purchases of investment securities held to maturity (233,801) (39,188) (364,275) (78,197) Proceeds from sales of investment securities available for sale 45,092 79,976 46,551 107,763 Proceeds from maturities of investment securities available for sale 9,136 166,210 78,418 172,227 Purchases of investment securities available for sale (92,086) (273,869) (161,372) (290,797) Proceeds from sales of loans and leases 240,017 123,394 381,278 234,486 Net increase in loans and leases (391,219) (274,816) (660,635) (471,187) Purchases of assets to be leased -- -- (8,514) -- Principal collections on leveraged leases -- -- -- 38 Proceeds from sales of premises and equipment 531 273 591 399 Purchases of premises and equipment (4,845) (5,738) (9,067) (9,457) Proceeds from sales of other real estate owned 562 745 1,438 1,345 Proceeds from sales of mortgage servicing rights 291 288 914 498 Purchases of mortgage servicing rights (51) (37) (1,492) (61) Proceeds from sales of other assets 253 175 448 359 Cash paid for acquisitions, net of cash received 3,550 1,592 3,550 1,592 ------------ ------------ ------------ ------------ Net cash provided by (used in) investing activities 298,760 (473,779) (259,199) (802,243) ------------ ------------ ------------ ------------ </TABLE> 5
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) 1996 1995 1996 1995 ---- ---- ---- ---- <S> <C> <C> <C> <C> Cash flows from financing activities: Net increase in deposits 55,326 72,614 129,208 153,066 Net change in short-term funds borrowed (303,446) 447,221 191,650 528,287 Proceeds from FHLB advances over one year 350 -- 350 -- Payments on FHLB advances over one year (4,253) (4,093) (8,114) (8,184) Payments on long-term debt (376) (289) (597) (656) Proceeds from issuance of common stock 137 410 991 870 Payments to redeem common stock (9,334) (17,125) (16,433) (17,125) Dividends paid (6,067) (5,100) (12,037) (9,490) --------- --------- --------- --------- Net cash provided by (used in) financing activities (267,663) 493,638 285,018 646,768 --------- --------- --------- --------- Net increase (decrease) in cash and due from banks (55,879) 46,183 (79,451) 8,504 Cash and due from banks at beginning of period 394,495 279,264 418,067 316,943 --------- --------- --------- --------- Cash and due from banks at end of period $ 338,616 $ 325,447 $ 338,616 $ 325,447 ========= ========= ========= ========= <CAPTION> SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION (Unaudited) Three Months Ended Six Months Ended June 30, June 30, ----------------------- ----------------------- (In thousands) 1996 1995 1996 1995 ---- ---- ---- ---- <S> <C> <C> <C> <C> Cash paid (received) for: Interest $ 54,113 $ 65,933 $105,983 $110,663 Income taxes 21,198 16,043 20,829 17,539 Loans transferred to other real estate owned 56 233 347 233 <CAPTION> ZIONS BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (Unaudited) Six Months Ended Twelve Months Ended June 30, December 31, -------------------------- ------------------- (In thousands) 1996 1995 1995 ---- ---- ---- <S> <C> <C> <C> Balance at beginning of period $ 353,179 $ 292,443 $ 292,443 Add: Net income 48,735 36,522 81,328 --------- --------- --------- 401,914 328,965 373,771 Deduct cash dividends: Preferred, paid by subsidiary to minority shareholder (18) (20) (38) Common, per share $ .82 in 1996 and and $ .65 and $1.41 in 1995 (12,019) (9,470) (20,554) --------- --------- --------- Balance at end of period $ 389,877 $ 319,475 $ 353,179 ========= ========= ========= </TABLE> 6
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 1995 consolidated financial statements have been reclassified to conform to the 1996 presentation. Operating results for the six months ended June 30, 1996 are not necessarily indicative of the results that may be expected for the year ended December 31, 1996. 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, 1995. The Company elected not to adopt the fair value based method of accounting for its employee stock based Compensation plans established by Statement of Financial Accounting Standards (Statement) No. 123, "Accounting for Stock-Based Compensation." Accordingly, the Company will continue its current accounting for employee stock-based compensation plans in accordance with Accounting Principles Board Opinion No. 25, as permitted under Statement No. 123, and, if material, will disclose the pro forma effect of the fair value accounting method in the notes to its December 31, 1996 consolidated financial statements. 7
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) 1996 1995 % Change 1996 1995 % Change ---- ---- -------- ---- ---- -------- <S> <C> <C> <C> <C> <C> <C> EARNINGS Net income $ 25,064 $ 20,521 22.1% $ 48,735 $ 36,522 33.4% PER COMMON SHARE Net income 1.70 1.39 22.3% 3.31 2.48 33.5% Dividends .41 .35 17.1% .82 .65 26.2% Book value at June 30 32.05 26.97 18.8% Market value at June 30 72.75 50.00 45.5% Weighted average common and common- equivalent shares outstanding 14,746,000 14,786,000 14,711,000 14,732,000 Common shares outstanding at June 30 14,772,665 14,543,162 BALANCES AT PERIOD END Total assets $ 6,087,914 $ 5,664,339 7.5% Money market investments 386,382 927,646 (58.3)% Securities 1,942,302 1,594,203 21.8% Net loans and leases 3,212,191 2,651,732 21.1% Allowance for loan losses 69,272 67,753 2.2% Total deposits 4,340,316 3,890,180 11.6% Shareholders' equity 473,522 392,285 20.7% Nonperforming assets 8,966 14,527 (38.3)% Loans past due 90 days or more 5,494 2,688 104.4% PERFORMANCE RATIOS Net interest margin 4.57% 4.56% 4.47% 4.61% Return on average assets 1.62% 1.49% 1.58% 1.37% Return on average common equity 22.41% 21.13% 22.19% 19.31% Common dividend payout 24.17% 24.80% 24.66% 25.93% Nonperforming assets to net loans and leases, other real estate owned and other nonperforming assets at June 30 .28% .55% CAPITAL RATIOS Average equity to average assets 7.21% 7.05% 7.11% 7.10% Leverage ratio at June 30 6.45% 6.22% Tier I risk-based capital at June 30 11.13% 11.40% Total risk-based capital at June 30 13.82% 14.42% </TABLE> 8
9 ZIONS BANCORPORATION AND SUBSIDIARIES OPERATING RESULTS Zions Bancorporation achieved record earnings for the quarter and half-year ended June 30, 1996. Consolidated net income for the second quarter of 1996 was $25,064,000 or $1.70 per share, an increase of 22.1% and 22.3%, respectively, over the $20,521,000 or $1.39 earned in the second quarter of 1995 and an increase of 5.9% and 5.6%, respectively, over the $23,671,000 or $1.61 per share for the first quarter of 1996. Consolidated net income was $48,735,000 or $3.31 per share for the first six months of 1996, compared to $36,522,000 or $2.48 per share for the first six months of 1995, which constituted increases of 33.4% and 33.5%, respectively. Earnings during the first six months of 1995 were adversely affected by a trading loss and restructuring charge totaling $4,390,000 or approximately $2,948,000 ($.20 per share) after tax. When adjusted for those charges, the increase in net income and earnings per share for the first six months of 1996 was 23.5%. The Company's second-quarter $4,543,000 (22.1%) increase in earnings relative to the same period a year ago reflects a $7,593,000 (13.6%) increase in net interest income, a $4,421,000 (20.0%) increase in noninterest income, a $90,000 (10.6%) decrease in the provision for loan losses, partially offset by a $5,558,000 (12.1%) increase in noninterest expenses and a $2,003,000 (18.6%) increase in income tax expense. The Company's $9,265,000 (23.5%) increase in net income for the six-month period ended June 30, 1996 compared to the similar period in 1995, excluding the effect of the trading loss and restructuring charge, reflect a $14,341,000 (13.1%) increase in net interest income, a $10,067,000 (23.7%) increase in noninterest income, a $90,000 (6.2%) decrease in the provision for loan losses, partially offset by a $10,492,000 (11.6%) increase in noninterest expenses and a $4,741,000 (23.7%) increase in income tax expense. The annualized return on average assets for the second quarter and for the first six months of 1996 was 1.62% and 1.58% compared to 1.49% and 1.37%, respectively, in 1995, resulting in an annualized return on average common shareholders' equity of 22.41% and 22.19% for the second quarter and for the first six months of 1996, compared to 21.13% and 19.31% for the same periods of 1995. 9
10 ZIONS BANCORPORATION AND SUBSIDIARIES NET INTEREST INCOME AND INTEREST RATE SPREADS Net interest income for the second quarter of 1996, adjusted to a fully taxable-equivalent basis, increased 13.7% to $65,071,000 compared to $57,222,000 for the second quarter of 1995, and increased 5.7% from $61,557,000 for the first quarter of 1996. Net interest margin was 4.57%, compared to 4.56% for the second quarter of 1995 and 4.36% for the first quarter of 1996. Six-month net interest income, on a fully taxable-equivalent basis, was $126,628,000 in 1996, an increase of 13.4% compared to $111,710,000 for the first six months of 1995. Net interest margin for the first six months of 1996 was 4.47%, compared to 4.61% for the first six months of 1995. The yield on average earning assets decreased 24 basis points during the second quarter of 1996 as compared to the second quarter of 1995, and increased 12 basis points from the first quarter of 1996. The average rate paid this quarter on interest-bearing funds decreased 26 basis points from the second quarter of 1995, and decreased 7 basis points from the first quarter of 1996. Comparing the first six months of 1996 with 1995, the yield on average earning assets decreased 28 basis points, while the cost of interest-bearing funds decreased by 15 basis points. The spread on average interest-bearing funds for the second quarter of 1996 was 3.82%, up from the 3.80% for the second quarter of 1995 and the 3.63% for the first quarter of 1996. The spread on average interest-bearing funds for the first six months of 1996 was 3.72% compared with 3.85% for the same period in 1995. The Company attempts to minimize interest rate movement sensitivity through the management of interest rate maturities, and to a lesser extent, the use of off-balance sheet arrangements such as caps, floors and interest rate exchange contract agreements. Net interest income to the Company from the use of such off-balance sheet arrangements for the first six months of 1996 was $984,000 compared to $80,000 for the first six months of 1995. The increased level of taxable-equivalent net interest income and the increase in net interest margin in the second quarter of 1996, compared to the same period in 1995 and the first quarter of 1996, resulted primarily from the increase in average loans and leases and decreased activity in security resell arrangements. The increased level of taxable-equivalent net interest income in the first six months of 1996, compared to the same period in 1995, resulted primarily from the increase in average loans and leases. The decrease in net interest margin resulted primarily from the effect of a decrease in rates on earning assets; and an increase in rates paid on interest-bearing time deposits, and increased activity in security resell arrangements during the first four months of 1996. 10
11 ZIONS BANCORPORATION AND SUBSIDIARIES CONSOLIDATED AVERAGE BALANCE SHEETS, YIELDS AND RATES (UNAUDITED) <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, 1996 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 $ 39,574 $ 461 4.69% $ 37,750 $ 899 4.79% Federal funds sold and security resell agreements 821,741 11,331 5.55% 943,699 26,273 5.60% ---------- -------- ---------- -------- Total money market investments 861,315 11,792 5.51% 981,449 27,172 5.57% ---------- -------- ---------- -------- Securities: Held to maturity: Taxable 1,033,540 16,878 6.57% 984,618 32,565 6.65% Nontaxable 205,038 4,462 8.75% 200,758 9,019 9.03% Available for sale: Taxable 372,853 6,081 6.56% 363,057 11,743 6.50% Nontaxable 40,544 807 8.01% 40,887 1,610 7.92% Trading account 133,070 2,033 6.14% 153,716 4,437 5.80% ---------- -------- ---------- -------- Total securities 1,785,045 30,261 6.82% 1,743,036 59,374 6.85% ---------- -------- ---------- -------- Loans: Loans held for sale 162,468 3,040 7.53% 155,948 5,780 7.45% Net loans and leases(2) 2,913,644 72,566 10.02% 2,819,737 140,449 10.02% ---------- -------- ---------- -------- Total loans 3,076,112 75,606 9.89% 2,975,685 146,229 9.88% ---------- -------- ---------- -------- Total interest-earning assets $5,722,472 $117,659 8.27% $5,700,170 $232,775 8.21% -------- -------- Cash and due from banks 332,238 327,594 Allowance for loan losses (68,127) (67,789) Other assets 252,239 248,594 ---------- ---------- Total assets $6,238,822 $6,208,569 ---------- ========== LIABILITIES Interest-bearing deposits: Savings and NOW deposits $ 621,181 $ 4,753 3.08% $ 629,117 $ 9,656 3.09% Money market super NOW deposits 1,732,231 16,498 3.83% 1,663,835 31,472 3.80% Time deposits under $100,000 667,187 8,714 5.25% 665,527 17,611 5.32% Time deposits $100,000 or more 164,519 2,443 5.97% 164,001 5,023 6.16% Foreign deposits 122,418 1,334 4.38% 114,476 2,491 4.38% ---------- -------- ---------- -------- Total interest-bearing deposits 3,307,536 33,742 4.10% 3,236,956 66,253 4.12% ---------- -------- ---------- -------- Borrowed funds: Securities sold, not yet purchased 88,399 1,290 5.87% 80,197 2,280 5.72% Federal funds purchased and security repurchase agreements 1,197,828 14,802 4.97% 1,279,953 31,933 5.02% FHLB advances and other borrowings: Less than one year 20,114 312 6.24% 21,207 672 6.37% Over one year 80,224 1,189 5.96% 82,278 2,498 6.11% Long-term debt 55,861 1,253 9.02% 56,001 2,511 9.02% ---------- -------- ---------- -------- Total borrowed funds 1,442,426 18,846 5.25% 1,519,636 39,894 5.28% ---------- -------- ---------- -------- Total interest-bearing liabilities $4,749,962 $ 52,588 4.45% $4,756,592 $106,147 4.49% -------- -------- Noninterest-bearing deposits 927,646 899,852 Other liabilities 111,360 110,416 ---------- ---------- Total liabilities 5,788,968 5,766,860 Total shareholders' equity 449,854 441,709 ---------- ---------- Total liabilities and shareholders' equity $6,238,822 $6,208,569 ---------- ========== Spread on average interest-bearing funds 3.82% 3.72% ==== ==== Net interest income and net yield on interest-earning assets $ 65,071 4.57% $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. 11
12 ZIONS BANCORPORATION AND SUBSIDIARIES CONSOLIDATED AVERAGE BALANCE SHEETS, YIELDS AND RATES (UNAUDITED) <TABLE> <CAPTION> Three Months Ended Six Months Ended June 30, 1995 June 30, 1995 ---------------------------------- ----------------------------------- 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 $ 24,659 $ 283 4.60% $ 22,595 $ 511 4.56% Federal funds sold and security resell agreements 917,226 13,789 6.03% 801,123 23,556 5.93% ---------- -------- ---------- -------- Total money market investments 941,885 14,072 5.99% 823,718 24,067 5.89% ---------- -------- ---------- -------- Securities: Held to maturity: Taxable 926,031 16,337 7.08% 906,067 31,841 7.09% Nontaxable 207,875 4,413 8.51% 205,376 8,707 8.55% Available for sale: Taxable 345,392 5,743 6.67% 340,765 11,386 6.74% Nontaxable - - -% - - -% Trading account 74,452 1,051 5.66% 135,295 4,676 6.97% ---------- -------- ---------- -------- Total securities 1,553,750 27,544 7.11% 1,587,503 56,610 7.19% ---------- -------- ---------- -------- Loans: Loans held for sale 104,174 2,180 8.39% 103,919 4,308 8.36% Net loans and leases(2) 2,431,446 62,965 10.39% 2,372,807 120,842 10.27% ---------- -------- ---------- -------- Total loans 2,535,620 65,145 10.31% 2,476,726 125,150 10.19% ---------- -------- ---------- -------- Total interest-earning assets $5,031,255 $106,761 8.51% $4,887,947 $205,827 8.49% -------- -------- Cash and due from banks 321,933 316,150 Allowance for loan losses (67,662) (67,448) Other assets 242,899 233,159 ---------- ---------- Total assets $5,528,425 $5,369,808 ========== ========== LIABILITIES Interest-bearing deposits: Savings and NOW deposits $ 720,053 $ 5,681 3.16% $ 735,079 $ 11,450 3.14% Money market and super NOW deposits 1,401,160 14,976 4.29% 1,370,888 28,712 4.22% Time deposits under $100,000 607,372 7,738 5.11% 573,749 13,823 4.86% Time deposits $100,000 or more 101,752 1,482 5.84% 101,989 2,760 5.46% Foreign deposits 135,859 1,820 5.37% 143,856 3,821 5.36% ---------- -------- ---------- -------- Total interest-bearing deposits 2,966,196 31,697 4.29% 2,925,561 60,566 4.17% ---------- -------- ---------- -------- Borrowed funds: Securities sold, not yet purchased 40,077 465 4.65% 86,896 2,741 6.36% Federal funds purchased and security repurchase agreements 1,032,163 14,228 5.53% 896,795 24,411 5.49% FHLB advances and other borrowings: Less than one year 24,485 322 5.27% 22,359 644 5.81% Over one year 95,614 1,571 6.59% 97,502 3,171 6.56% Long-term debt 57,696 1,256 8.73% 57,840 2,584 9.01% ---------- -------- ---------- -------- Total borrowed funds 1,250,035 17,842 5.72% 1,161,392 33,551 5.83% ---------- -------- ---------- -------- Total interest-bearing liabilities $4,216,231 $ 49,539 4.71% $4,086,953 $ 94,117 4.64% -------- -------- Noninterest-bearing deposits 811,853 799,678 Other liabilities 110,707 101,674 ---------- ---------- Total liabilities 5,138,791 4,988,305 Total shareholders' equity 389,634 381,503 ---------- ---------- Total liabilities and shareholders' equity $5,528,425 $5,369,808 ========== ========== Spread on average interest-bearing funds 3.80% 3.85% ==== ==== Net interest income and net yield on interest-earning assets $ 57,222 4.56% $111,710 4.61% ======== ==== ======== ==== </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
13 ZIONS BANCORPORATION AND SUBSIDIARIES PROVISION FOR LOAN LOSSES The provision for loan losses decreased 10.6% to $760,000 for the second quarter of 1996, as compared with $850,000 for the second quarter of 1995, and increased 26.7% from the $600,000 for the first quarter of 1996. Net charge-offs for the second quarter of 1996 were $1,679,000 or .11% of average net loans and leases, compared to net charge-offs of $718,000 or .06% of average net loans and leases for the second quarter of 1995, and net charge-offs of $530,000, or .07% of average net loans and leases for the first quarter of 1996. The provision for loan losses for the first six months of 1996 totaled $1,360,000, 6.2% less than the $1,450,000 provision for the first six months of 1995. Net charge-offs for the first six months of 1996 were $2,209,000 or .15% of average net loans and leases, compared to $964,000 or .08% of average net loans and leases for the first six months of 1995. NONINTEREST INCOME Noninterest income for the second quarter of 1996 totaled $26,526,000, an increase of 20.0% from the $22,105,000 for the second quarter of 1995 and an increase of 1.7% over the $26,077,000 for the first quarter of 1996. Comparing the segments of noninterest income for the second quarter of 1996 and the second quarter of 1995, service charges on deposit accounts; other service charges, commissions and fees; and trust income increased 14.3%, 5.1% and 15.4%, respectively, while loan sales and servicing income increased 34.0% and other income increased 10.7%. Net gains of $68,000 on the sale of investment securities was realized during the second quarter of 1996 compared to net gains of $52,000 during the second quarter of 1995, and trading account income during the second quarter 1996 increased $641,000 over the trading account income reported in the second quarter of 1995. Noninterest income for the six months ending June 30, 1996 totaled $52,603,000 compared to $39,446,000 for the first six months of 1995, an increase of 23.7% after adjusting for the $3,090,000 trading loss recorded in the first quarter of 1995. Comparing the segments of noninterest income for the first six months of 1996 and the first six months of 1995, service charges on deposit accounts; other service charges, commissions and fees; and trust income increased 12.8%, 15.3% and 17.0%, respectively, while loan sales and servicing income increased 33.4% and other income increased 26.0%. The increase in other income was primarily an increase in income from mortgage servicing released premiums on the sale of first mortgage loans. Net gains of $70,000 on the sale of investment securities was realized during the first six months of 1996 compared to $53,000 of net losses during the first six months of 1995, and trading account income during the first six months of 1996 increase $1,361,000 over the adjusted trading account loss reported in the first six months of 1995. 13
14 ZIONS BANCORPORATION AND SUBSIDIARIES NONINTEREST EXPENSES Noninterest expenses for the second quarter of 1996, totaling $51,440,000, increased 12.1% from the $45,882,000 for the second quarter of 1995, and increased 3.4% from the $49,752,000 for the first quarter of 1996. Comparing the noninterest expense segments for the second quarter of 1996 and the second quarter of 1995, salaries and employee benefits increased 14.4%, occupancy, furniture and equipment expenses increased 12.3%, advertising increased 19.8%, FDIC premiums decreased 99.9% and the total of all other expenses increased 24.8%. Noninterest expenses for the six months ending June 30, 1996 totaled $101,192,000 as compared to $92,000,000 for the first six months of 1995, an increase of 11.6% after adjusting for the $1,300,000 restructuring charge recorded in the first quarter of 1995. Comparing the noninterest expense segments for the first six months of 1996 and the first six months of 1995, salaries and employee benefits increased 14.6%, occupancy, furniture and equipment expenses increased 12.8%, advertising increased 29.0%, FDIC premiums decreased 99.8% and the total of all other expenses increased 15.1%. Salaries and employee benefits increased primarily as a result of increased staffing of branch offices opened and acquired and SBA loan origination activities, as well as general salary increases, bonuses, commissions and profit-sharing costs related to increased profitability. The occupancy, furniture and equipment expense increase resulted primarily from the addition of branch facilities, the further expansion of the ATM network, and the installation of personal computers and local area networks. The increase in all other expenses resulted primarily from increases in supplies, postage, and telecommunication expenses related to acquisition and expansion. At June 30, 1996, the Company had 3,021 full-time equivalent employees, 138 offices and 271 ATMs compared to 2,731 full-time equivalent employees, 123 offices and 242 ATMs at June 30, 1995. The Company's "efficiency ratio," or noninterest expenses as a percentage of total taxable-equivalent net revenues, improved to 56.5% for the first six months of 1996 from 60.9% for the first six months of 1995. INCOME TAXES The Company's income taxes increased 18.6% to $12,752,000 for the second quarter of 1996 compared to $10,749,000 for the second quarter of 1995, and $12,003,000 for the first quarter of 1996. The Company's income taxes were $24,755,000 for the first six months of 1996 as compared to $18,572,000 for the first six months of 1995, an increase of 23.7% after adjusting $1,442,000 for estimated income taxes related to the 1995 trading loss and restructuring charge. The increase in the Company's income taxes was due to the increase in income before income taxes. ANALYSIS OF FINANCIAL CONDITION EARNING ASSETS Average earning assets increased 16.6% to $5,700.2 million in the six months ended June 30, 1996 compared to $4,887.9 million in the six months ended June 30, 1995. Earning assets comprised 91.8% of total average assets for the first six months of 1996, compared with 91.0% for the first six months of 1995. 14
15 ZIONS BANCORPORATION AND SUBSIDIARIES Average money market investments, consisting of interest-bearing deposits, federal funds sold and security resell agreements increased 19.1% to $981.4 million in the first six months of 1996 compared to $823.7 million in the first six months of 1995. During the first six months of 1996, average securities increased 9.8% to $1,743.0 million compared to $1,587.5 million in the first six months of 1995. Average held to maturity securities increased 6.7%, available for sale securities increased 18.5% and trading account securities increased 13.6% compared with the first six months of 1995. Average net loans and leases increased 20.1% to $2,975.7 million in the first six months of 1996 compared to $2,476.7 million in the first six months of 1995, representing 52.2% of earning assets in the first six months of 1996 compared to 50.7% in the first six months of 1995. Average net loans and leases were 71.9% of average total deposits for the six months ended June 30, 1996, as compared to 66.5% for the six months ended June 30, 1995. INVESTMENT SECURITIES The following table presents the Company's investment securities at June 30, 1996, December 31, 1995 and June 30, 1995. <TABLE> <CAPTION> June 30, December 31, June 30, 1996 1995 1995 ------------------------ ------------------------ ------------------------ 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 $ 507,269 $ 516,906 $ 529,376 $ 541,014 $ 469,298 $ 472,406 Other agency securities 527,268 520,269 265,430 263,522 350,869 348,825 States and political subdivisions 243,955 245,417 225,231 230,149 264,329 268,569 ---------- ---------- ---------- ---------- ---------- ---------- 1,278,492 1,282,592 1,020,037 1,034,685 1,084,496 1,089,800 Mortgage-backed securities 57,357 57,875 58,546 59,249 55,341 55,773 ---------- ---------- ---------- ---------- ---------- ---------- $1,335,849 $1,340,467 $1,078,583 $1,093,934 $1,139,837 $1,145,573 ---------- ---------- ---------- ---------- ---------- ---------- Available for sale U.S. Treasury securities $ 16,669 $ 16,677 $ 17,691 $ 17,728 $ 41,881 $ 41,737 U.S. government agencies 118,726 117,903 71,038 70,952 99,764 98,713 States and political subdivisions 39,543 40,694 40,153 42,084 -- -- ---------- ---------- ---------- ---------- ---------- ---------- 174,938 175,274 128,882 130,764 141,645 140,450 ---------- ---------- ---------- ---------- ---------- ---------- Mortgage-backed securities 66,741 65,886 69,469 69,333 49,781 49,734 ---------- ---------- ---------- ---------- ---------- ---------- Equity securities: Mutual funds: Accessor Funds, Inc. 108,979 107,597 118,899 119,971 118,863 117,525 Other 579 579 564 564 548 548 Stock: Federal Home Loan Bank 75,009 75,009 71,988 71,988 69,511 69,511 Other 6,489 6,849 5,386 5,580 3,167 3,281 ---------- ---------- ---------- ---------- ---------- ---------- 191,056 190,034 196,837 198,103 192,089 190,865 ---------- ---------- ---------- ---------- ---------- ---------- $ 432,735 $ 431,194 $ 395,188 $ 398,200 $ 383,515 $ 381,049 ---------- ---------- ---------- ---------- ---------- ---------- Total $1,768,584 $1,771,661 $1,473,771 $1,492,134 $1,523,352 $1,526,622 ========== ========== ========== ========== ========== ========== </TABLE> 15
16 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 at June 30, 1996, December 31, 1995 and June 30, 1995. <TABLE> <CAPTION> June 30, December 31, June 30, (In thousands) 1996 1995 1995 ----- ---- ---- <S> <C> <C> <C> Types Loans held for sale $ 166,967 $ 126,124 $ 110,768 Commercial, financial, and agricultural 765,504 688,466 641,194 Real estate: Construction 335,532 268,812 210,428 Other 1,505,160 1,272,633 1,155,083 Consumer 322,357 341,150 426,343 Lease financing 144,969 132,520 125,820 Other receivables 6,989 8,203 8,432 ---------- ---------- ---------- Total loans $3,247,478 $2,837,908 $2,678,068 ========== ========== ========== </TABLE> Loans held for sale at June 30, 1996 increased 32.4% from year-end 1995. All other loans, net of unearned income and fees increased 13.6% to $3,045.2 million at June 30, 1996, compared to $2,680.8 million at December 31, 1995. Commercial loans, construction loans, other real estate-secured loans, and lease financing increased from year end 11.2%, 24.8%, 18.3% and 9.4%, respectively, as consumer loans decreased 5.5% and other receivables decreased 14.8%. Within the other real estate-secured loan portfolio, home equity credit line loans increased 11.6% to $101.2 million, 1-4 family residential loans increased 21.0% to $508.9 million and all other real estate loans increased 17.6% to $895.1 million at June 30, 1996. During the first six months of 1996, the Company securitized and sold home equity credit line receivables totaling $94.3 million, SBA 504 loans totaling $21.4 million, credit card receivables totaling $116.8 million, and automobile loans totaling $142.3 million. 16
17 ZIONS BANCORPORATION AND SUBSIDIARIES RISK ELEMENTS The Company's nonperforming assets, which include nonaccruing loans, restructured loans and other real estate owned and other nonperforming assets, were $8,966,000 at June 30, 1996 down 3.5% from $9,296,000 at December 31, 1995, and down 38.3% from $14,527,000 at June 30, 1995. Such nonperforming assets as a percentage of net loans and leases, other real estate owned and other nonperforming assets were .28%, .33% and .55% at June 30, 1996, December 31, 1995, and June 30, 1995, respectively. Accruing loans past due 90 days or more totaled $5,494,000 at June 30, 1996, up from $5,232,000 at December 31, 1995, and up from $2,688,000 at June 30, 1995. These loans equaled .17% of net loans and leases at June 30, 1996, as compared to .19% at December 31, 1995 and .10% at June 30, 1995. Loans to one borrower totaling $1,275,000 at June 30, 1996 were considered potential problem loans compared to no loans at December 31, 1996 and June 30, 1995. Potential problem loans are defined as loans presently current by their terms, but about which management has serious doubt as to the future ability of the borrower to comply with present repayment terms and which may result in the reporting of the loans as nonperforming assets. The following table sets forth the nonperforming assets at June 30, 1996, December 31, 1995, and June 30, 1995. <TABLE> <CAPTION> June 30, December 31, June 30, (In thousands) 1996 1995 1995 ---- ---- ---- <S> <C> <C> <C> Nonaccrual loans $ 8,501 $ 7,438 $10,981 Restructured loans 206 249 256 Other real estate owned and other nonperforming assets 259 1,609 3,290 ------- ------- ------- Total $ 8,966 $ 9,296 $14,527 ======= ======= ======= % of net loans and leases*, other real estate owned and other nonperforming assets .28% .33% .55% Accruing loans past due 90 days or more $ 5,494 $ 5,232 $ 2,688 ======= ======= ======= % of net loans and leases* .17% .19% .10% </TABLE> *Includes loans held for sale The Company's total recorded investment in impaired loans, in accordance with Financial Accounting Standard statements, amounted to $4,642,000 at June 30, 1996, as compared to $3,388,000 as of December 31, 1995, and $6,589,000 at June 30, 1995. 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. The required allowance for loan losses allocated to impaired loans as of June 30, 1996, December 31, 1995 and June 30, 1995 amounts to $34,000, $22,000 and $1,055,000, respectively. 17
18 ZIONS BANCORPORATION AND SUBSIDIARIES ALLOWANCE FOR LOAN LOSSES 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 June 30, December 31, ------------------------------- ------------- (In thousands) 1996 1995 1995 ---- ---- ---- <S> <C> <C> <C> Average loans* and leases outstanding (net of unearned income) $ 2,975,685 $ 2,476,726 $ 2,599,071 =========== =========== =========== Allowance for possible losses: Balance at beginning of the period $ 67,555 $ 67,018 $ 67,018 Allowance of companies acquired 2,566 249 249 Loans and leases charged-off: Loans held for sale -- -- -- Commercial, financial and agricultural (574) (422) (997) Real estate (393) (128) (548) Consumer (3,991) (3,411) (6,786) Lease financing (172) (5) (41) Other receivables -- -- -- ----------- ----------- ----------- Total (5,130) (3,966) (8,372) ----------- ----------- ----------- Recoveries: Loans held for sale -- -- -- Commercial, financial and agricultural 1,029 1,291 2,580 Real estate 302 190 464 Consumer 1,212 1,249 2,540 Lease financing 378 272 276 Other receivables -- -- -- ----------- ----------- ----------- Total 2,921 3,002 5,860 ----------- ----------- ----------- Net loan and lease charge-offs (2,209) (964) (2,512) Provision charged against earnings 1,360 1,450 2,800 ----------- ----------- ----------- Balance at end of the period $ 69,272 $ 67,753 $ 67,555 =========== =========== =========== *Includes loans held for sale Ratio of net charge-offs to average loans and leases .15% .08% .10% </TABLE> 18
19 ZIONS BANCORPORATION AND SUBSIDIARIES The allowance for loan losses as a percentage of net loans and leases was 2.16% at June 30, 1996, compared to 2.41% at December 31, 1995, and 2.56% at June 30, 1995. The allowance, as a percentage of nonaccrual loans and accruing loans past due 90 days or more was 495.0% at June 30, 1996, compared to 533.2% at December 31, 1995, and 495.7% at June 30, 1995. The allowance, as a percentage of nonaccrual loans and restructured loans was 795.6% at June 30, 1996, compared to 878.8% at December 31, 1995, and 602.9% at June 30, 1996. Included in the allowance for loan losses is an amount for unused loan commitments and standby letters of credit which at June 30, 1996, December 31, 1995, and June 30, 1995, amounted to $5,797,000, $7,516,000 and $5,332,000, respectively. Unused loan commitments and standby letters of credit at June 30, 1996, December 31, 1995, and June 30, 1995, amounted to $1,512.9 million, $1,610.5 million ad $1,374.7 million, respectively. DEPOSITS Average total deposits of $4,136.8 million of the first six months of 1996 increased 11.0% over the $3,725.2 million for the first six months of 1995, with average demand deposits increasing 12.5%. Average money market and super NOW deposits, time deposits under $100,000 and time deposits over $100,000 for the first six months of 1996 increased 21.4%, 16.0% and 60.8% respectively, from the first six months of 1995. Average savings and NOW deposits decreased 14.4% and foreign deposits decreased 20.4% during the first six months of 1996, as compared with the same period one year earlier. Total deposits increased 5.9% to $4,340.3 million at June 30, 1996 as compared to $4,097.1 million at December 31, 1995. Comparing June 30, 1996 to December 31, 1995, demand deposits, savings and money market deposits, time deposits under $100,000, and time deposits over $100,000 increased .2%, 10.6%, .5% and 14.5%, respectively, while foreign deposits decreased 14.1%. LIQUIDITY AND INTEREST RATE SENSITIVITY The Company manages it liquidity to provide adequate funds to meet its financial obligations, including withdrawals by depositors, debt service requirements and operating needs. Liquidity is primarily provided by the regularly scheduled maturities of the Company's investment and loan portfolios. In addition, 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 $1,254.4 million or 30.8% of core deposits at June 30, 1996, as compared to $1,428.2 million or 37.3% of core deposits at December 31, 1995, and $1,387.7 million or 37.9% of core deposits at June 30, 1995. The Company's core deposits, consisting of demand, saving and money market deposits and time deposits under $100,000, constituted 93.7% of total deposits at June 30, 1996 as compared to 93.5% at December 31, 1995 and 94.1% at June 30, 1995. Maturing balances in loan portfolios provide flexibility in managing cash flows. Maturity management of those funds is an important source of medium-to long-term liquidity. The Company's ability to raise funds in the capital markets through the "securitization" process and by debt issuances allows the Company to take advantage of market opportunities to meet funding needs at reasonable cost. 19
20 ZIONS BANCORPORATION AND SUBSIDIARIES The parent company's cash requirements consist primarily of principal and interest payments on its borrowings, dividend payments to shareholders, and cash operating expenses and income taxes. The parent company's cash needs are routinely satisfied through payments by subsidiaries of dividends, management and other fees, principal and interest payments on subsidiary borrowings from the parent company and proportionate shares of current income taxes. Interest rate sensitivity 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 is measured in terms of "gaps," defined as the difference between volumes of assets and liabilities whose interest rates are subject to reset within specified periods of time, and "duration," a measure of the weighted average expected lives of the cash flows from assets and liabilities. The Company, through the management of interest rate "maturities" 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 prepayments, early withdrawals and other noncontrollable events in managing the Company's exposure to changes in interest rates. Gaps are actively managed and change 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 effectively and economically hedge the prime/90-day T-bill spread risk through the use of off-balance sheet financial instruments. CAPITAL RESOURCES AND DIVIDENDS During the first six months of 1996, the Company repurchased and retired 218,997 shares of its common stock at a cost of $16,433,000. Total shareholders' equity at June 30, 1996 was $473.5 million, an increase of 10.5% over the $428.5 million at December 31, 1995, and an increase of 20.7% over the $392.3 million at June 30, 1995. The ratio of average equity to average assets for the first six months of 1996 was 7.11%, compared to 7.10% for the same period in 1995. At June 30, 1996, the Company's Tier I risk-based capital ratio was 11.13%, as compared to 11.38% at December 31, 1995 and 11.40% at June 30, 1995. At June 30, 1996 the Company's total risk-based capital ratio was 13.82%, as compared to 14.23% at December 31, 1995 and 14.42% at June 30, 1995. The Company's leverage ratio as of June 30, 1996 was 6.45%, as compared to 6.28% at December 31, 1995 and 6.22% at June 30, 1995. Dividends declared per common share for the second quarter of 1996 of $.41 increased 17.1%, as compared to $.35 for the second quarter of 1995. Dividends declared per common share of $.82 for the first six months of 1996 increased 26.2% compared to $.65 for the first six months of 1995. The cash dividend payout to net income applicable to common shares of the first six months of 1996 was 24.7%, compared to 25.9% for the first six months of 1995. 20
21 ZIONS BANCORPORATION AND SUBSIDIARIES MERGERS AND ACQUISITIONS At the close of business May 31, 1996, the purchase transaction of Zions Bancorporation and Southern Arizona Bancorp, Inc. and it's banking subsidiary, Southern Arizona Bank, was consummated at a purchase price of $26.2 million, paid through the exchange of Zions Bancorporation common stock for Southern Arizona Bancorp, Inc. Stock. Southern Arizona Bank was merged into Zions Bancorporation's wholly owned subsidiary, National Bank of Arizona providing expanded banking services in Yuma, Arizona. 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 26, 1996. 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 of the voting were as follows: (1) Election of Directors <TABLE> <CAPTION> Withhold For Authority --- --------- <S> <C> <C> Jerry C. Atkin 11,928,946 30,183 Grant R. Caldwell 11,924,698 34,431 Roy W. Simmons 11,926,805 32,324 Dale W. Westergard 11,923,754 35,375 </TABLE> (2) Approve Zions Bancorporation Nonemployee directors Stock Option Plan Approval of 100,000 shares to be set aside for and be issuable under the Plan, and the approval of the term of the Plan to April 26, 2005. <TABLE> <CAPTION> For Against Abstain --- ------- ------- <S> <C> <C> 11,418,134 434,066 106,929 </TABLE> 21
22 ZIONS BANCORPORATION AND SUBSIDIARIES PART II. OTHER INFORMATION (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, 1996 was ratified. <TABLE> <CAPTION> For Against Abstain --- ------- ------- <S> <C> <C> <C> 11,912,742 10,202 36,185 </TABLE> ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits Exhibit 10 Zions Bancorporation Non-Employee Directors Stock Option Plan 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, 1996. 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/ Gary L. Anderson --------------------------------------- Gary L. Anderson, Senior Vice President and Chief Financial Officer Dated: August 6, 1996 22