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 September 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. Common Stock, without par value, outstanding at November 1, 1996 14,762,947 shares 1
2 ZIONS BANCORPORATION AND SUBSIDIARIES INDEX <TABLE> <CAPTION> Page ---- <S> <C> <C> PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements (unaudited) Consolidated Balance Sheets 3 Consolidated Statements of Income 4 Consolidated Statements of Cash Flows 5 Consolidated Statements of Retained Earnings 6 Notes to Consolidated Financial Statements 7 ITEM 2. Management's Discussion and Analysis 8 PART II. OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K 21 SIGNATURES 21 </TABLE> 2
3 ZIONS BANCORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) <TABLE> <CAPTION> September 30, December 31, September 30, 1996 1995 1995 --------- --------- --------- <S> <C> <C> <C> (In thousands except share amounts) ASSETS Cash and due from banks $ 379,865 $ 418,067 $ 342,567 Money market investments: Interest-bearing deposits 44,488 34,580 29,866 Federal funds sold 172,683 50,467 227,764 Security resell agreements 775,675 602,204 501,868 Securities: Held to maturity at cost (approximate market value $1,309,159, $1,093,934 and $1,164,937): Taxable 1,086,715 881,172 931,406 Nontaxable 218,968 197,411 224,322 Available for sale at market: Taxable 389,897 356,116 404,862 Nontaxable 40,753 42,084 - Trading account at market 150,200 63,706 155,760 --------- ---------- --------- 1,886,533 1,540,489 1,716,350 Loans: Loans held for sale at cost, which approximates market 151,404 126,124 128,859 Loans, leases and other receivables 3,199,954 2,711,784 2,579,617 --------- --------- --------- 3,351,358 2,837,908 2,708,476 Less: Unearned income and fees, net of related costs 37,426 30,952 28,991 Allowance for loan losses 69,337 67,555 68,309 ---------- ---------- ---------- 3,244,595 2,739,401 2,611,176 Premises and equipment, at cost, less accumulated depreciation 90,276 81,613 81,196 Amounts paid in excess of net assets of acquired businesses 37,143 21,738 22,143 Other real estate owned 256 1,092 854 Other assets 151,827 130,995 133,886 --------- --------- --------- Total assets $6,783,341 $ 5,620,646 $ 5,667,670 ========= ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Noninterest-bearing demand $1,089,388 $ 998,560 $ 916,942 Interest-bearing: Savings and money market 2,460,138 2,164,344 2,242,923 Time under $100,000 671,265 669,196 660,850 Time over $100,000 162,626 158,924 137,677 Foreign 189,138 106,090 136,622 --------- --------- --------- 4,572,555 4,097,114 4,095,014 Securities sold, not yet purchased 86,437 117,005 132,303 Federal funds purchased 126,214 134,048 479,931 Security repurchase agreements 1,281,222 614,284 310,440 Accrued liabilities 79,729 72,376 76,931 Federal Home Loan Bank advances and other borrowings: Less than one year 15,743 14,910 15,469 Over one year 75,254 86,174 90,334 Long-term debt 55,702 56,229 57,282 ---------- ---------- ---------- Total liabilities 6,292,856 5,192,140 5,257,704 --------- --------- --------- 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, 14,767,215, 14,555,920 and 14,538,587 shares 83,788 73,477 73,474 Net unrealized holding gains and losses on securities available for sale (2,434) 1,850 (149) Retained earnings 409,131 353,179 336,641 --------- --------- --------- Total shareholders' equity 490,485 428,506 409,966 --------- --------- --------- Total liabilities and shareholders' equity $6,783,341 $5,620,646 $5,667,670 ========= ========= ========= </TABLE> 3
4 ZIONS BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) <TABLE> <CAPTION> Three Months Ended Nine Months Ended September 30, September 30, 1996 1995 1996 1995 ---- ---- ---- ---- <S> <C> <C> <C> <C> (In thousands, except per share amounts) Interest income: Interest and fees on loans $ 73,324 $ 63,928 $208,280 $179,915 Interest on loans held for sale 2,949 2,422 8,729 6,730 Interest on money market investments 11,601 16,796 38,773 40,863 Interest on securities: Held to maturity: Taxable 18,470 16,468 51,035 48,309 Nontaxable 3,366 3,181 9,679 9,276 Available for sale: Taxable 6,226 5,927 17,969 17,313 Nontaxable 568 - 1,695 - Trading account 2,707 2,301 7,144 6,977 Lease financing 2,870 2,556 8,363 7,411 ------- ------- -------- ------- Total interest income 122,081 113,579 351,667 316,794 ------- ------- ------- ------- Interest expense: Interest on savings and money market deposits 22,978 20,968 64,106 61,130 Interest on time deposits under $100,000 8,543 9,200 26,154 23,023 Interest on time deposits over $100,000 2,522 2,043 7,545 4,803 Interest on foreign deposits 1,440 1,878 3,931 5,699 Interest on securities sold, not yet purchased 1,324 1,537 3,604 4,278 Interest on borrowed funds 19,506 20,030 57,120 50,840 ------- ------- ------- ------- Total interest expense 56,313 55,656 162,460 149,773 ------- ------- ------- ------- Net interest income 65,768 57,923 189,207 167,021 Provision for loan losses 840 800 2,200 2,250 -------- -------- -------- -------- Net interest income after provision for loan losses 64,928 57,123 187,007 164,771 -------- ------- ------- ------- Noninterest income: Service charges on deposit accounts 8,486 7,239 24,235 21,204 Other service charges, commissions and fees 7,400 6,426 20,587 17,866 Trust income 1,335 1,006 3,946 3,238 Investment securities gains, net - 486 70 433 Trading account income (loss) 685 774 2,310 (2,052) Loan sales and servicing income 9,918 5,709 25,348 17,278 Other income 1,169 2,296 5,100 5,415 ------- ------- ------- ------- Total noninterest income 28,993 23,936 81,596 63,382 ------- ------- ------- ------- Noninterest expense: Salaries and employee benefits 30,497 26,566 85,917 74,929 Occupancy, net 2,756 2,668 8,178 7,728 Furniture and equipment 4,128 3,339 11,472 9,597 Other real estate expense (2) 6 (232) 63 Legal and professional services 1,175 876 3,298 2,977 Supplies 1,593 1,374 4,714 3,769 Postage 1,351 1,271 3,992 3,779 Advertising 1,072 1,459 4,041 3,760 FDIC premiums 1 (194) 7 3,723 Amortization of intangible assets 810 988 2,552 2,659 Other expenses 11,005 8,662 31,639 26,031 ------- ------- ------- ------- Total noninterest expense 54,386 47,015 155,578 139,015 ------- ------- ------- ------- Income before income taxes 39,535 34,044 113,025 89,138 Income taxes 13,775 11,753 38,530 30,325 ------- ------- ------- ------- Net income $ 25,760 $ 22,291 $ 74,495 $ 58,813 ======= ======= ======= ======= Weighted average common and common-equivalent shares outstanding 14,924 14,702 14,768 14,717 Net income per common share $1.73 $1.52 $5.04 $4.00 </TABLE> 4
5 ZIONS BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) <TABLE> <CAPTION> Three Months Ended Nine Months Ended September 30, September 30, 1996 1995 1996 1995 ---- ---- ---- ---- <S> <C> <C> <C> <C> (In thousands) Cash flows from operating activities: Net income $ 25,760 $ 22,291 $ 74,495 $ 58,813 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Provision for loan losses 840 800 2,200 2,250 Write-downs of other real estate owned -- 33 -- 41 Depreciation of premises and equipment 3,335 2,747 9,372 7,785 Amortization of premium on core deposits and other intangibles 810 988 2,552 2,659 Amortization of net premium/discount on investment securities 1,420 803 4,655 2,917 Accretion of unearned income and fees, net of related costs 2,139 2,655 5,907 4,123 Proceeds from sales of trading account securities 26,705,292 30,788,257 56,050,696 82,360,491 Increase in trading account securities (26,680,233) (30,870,700) (56,137,189) (82,316,925) Net (gain) loss on sales of investment securities -- (486) (70) (433) Proceeds from loans held for sale 168,410 112,309 494,627 272,704 Increase in loans held for sale (150,498) (129,806) (504,897) (291,135) Net gain on sales of loans, leases and other assets (7,515) (3,989) (19,435) (11,222) Net (gain) loss on sales of other real estate owned (3) (11) (261) (89) Change in accrued income taxes 4,199 1,375 7,302 1,291 Change in accrued interest receivable (1,844) (2,814) (9,320) (5,466) Change in other assets 3,006 (1,812) (3,714) (956) Change in accrued interest payable 743 3,747 448 3,772 Change in accrued liabilities 5,901 1,636 (876) 1,382 ------------ ------------ ------------ ------------ Net cash provided by (used in) operating activities 81,762 (71,977) (23,508) 92,002 ------------ ------------ ------------ ------------ Cash flows from investing activities: Net (increase) decrease in money market investments (606,464) 168,148 (281,520) (353,575) Proceeds from sales of investment Securities held to maturity -- 6,950 -- 6,950 Proceeds from maturities of investment securities held to maturity 117,696 90,577 225,720 141,049 Purchases of investment securities held to maturity (89,190) (115,033) (453,465) (193,230) Proceeds from sales of investment securities available for sale 51,343 74,929 97,894 182,692 Proceeds from maturities of investment securities available for sale 12,072 21,143 90,490 193,370 Purchases of investment securities available for sale (65,260) (117,366) (226,632) (408,163) Proceeds from sales of loans and leases 185,064 235,916 566,342 470,402 Net increase in loans and leases (301,354) (246,099) (961,989) (717,286) Purchases of assets to be leased -- -- (8,514) -- Principal collections on leveraged leases -- -- -- 38 Proceeds from sales of premises and equipment 31 11 622 410 Purchases of premises and equipment (5,357) (4,394) (14,424) (13,851) Proceeds from sales of other real estate owned 6 108 1,444 1,453 Proceeds from sales of mortgage servicing rights 250 494 1,164 992 Purchases of mortgage servicing rights (51) (312) (1,543) (373) Proceeds from sales of other assets 163 133 611 492 Cash paid for acquisitions, net of cash received (10) (26) 3,540 1,566 ------------ ------------ ------------ ------------ Net cash provided by (used in) investing activities (701,061) 115,179 (960,260) (687,064) ------------ ------------ ------------ ------------ </TABLE> 5
6 ZIONS BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (UNAUDITED) <TABLE> <CAPTION> Three Months Ended Nine Months Ended September 30, September 30, 1996 1995 1996 1995 ---- ---- ---- ---- <S> <C> <C> <C> <C> (In thousands) Cash flows from financing activities: Net increase in deposits 232,239 204,834 361,447 357,900 Net change in short-term funds borrowed 439,174 (220,423) 630,824 307,864 Proceeds from FHLB advances over one year 1,300 -- 1,650 -- Payments on FHLB advances over one year (4,456) (4,160) (12,570) (12,344) Payments on long-term debt (290) (244) (887) (900) Proceeds from issuance of common stock 112 119 1,103 989 Payments to redeem common stock (1,025) (1,083) (17,458) (18,208) Dividends paid (6,506) (5,125) (18,543) (14,615) --------- --------- --------- --------- Net cash provided by (used in) financing activities 660,548 (26,082) 945,566 620,686 --------- --------- --------- --------- Net increase (decrease) in cash and due from banks 41,249 17,120 (38,202) 25,624 Cash and due from banks at beginning of period 338,616 325,447 418,067 316,943 --------- --------- --------- --------- Cash and due from banks at end of period $ 379,865 $ 342,567 $ 379,865 $ 342,567 ========= ========= ========= ========= </TABLE> SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION (Unaudited) <TABLE> <CAPTION> Three Months Ended Nine Months Ended September 30, September 30, 1996 1995 1996 1995 ---- ---- ---- ---- <S> <C> <C> <C> <C> (In thousands) Cash paid for: Interest $ 55,549 $ 51,972 $161,532 $146,420 Income taxes 8,936 12,494 29,765 30,033 Loans transferred to other real estate owned -- 343 347 576 </TABLE> ZIONS BANCORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED) <TABLE> <CAPTION> Nine Months Ended Twelve Months Ended September 30, December 31, 1996 1995 1995 ---- ---- ---- <S> <C> <C> <C> (In thousands) Balance at beginning of period $ 353,179 $ 292,443 $ 292,443 Add: Net income 74,495 58,813 81,328 --------- --------- --------- 427,674 351,256 373,771 Deduct cash dividends: Preferred, paid by subsidiary to minority shareholder (27) (29) (38) Common, per share $ 1.26 in 1996 and and $ 1.00 and $1.41 in 1995 (18,516) (14,586) (20,554) --------- --------- --------- Balance at end of period $ 409,131 $ 336,641 $ 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 nine months ended September 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 Nine Months Ended September 30, September 30, 1996 1995 % Change 1996 1995 % Change ---- ---- -------- ---- ---- -------- <S> <C> <C> <C> <C> <C> <C> (In thousands, except per share and ratio data) EARNINGS Net income $ 25,760 $ 22,291 15.56% $ 74,495 $ 58,813 26.66% PER COMMON SHARE Net income 1.73 1.52 13.82% 5.04 4.00 26.00% Dividends .44 .35 25.71% 1.26 1.00 26.00% Book value at September 30 33.21 28.20 17.77% Market value at September 30 88.50 61.25 44.49% Weighted average common and common- equivalent shares outstanding 14,924,000 14,702,000 14,768,000 14,717,000 Common shares outstanding at September 30 14,767,215 14,538,587 BALANCES AT PERIOD END Total assets $6,783,341 $5,667,670 19.68% Money market investments 992,846 759,498 30.72% Securities 1,886,533 1,716,350 9.92% Net loans and leases 3,313,932 2,679,485 23.68% Allowance for loan losses 69,337 68,309 1.50% Total deposits 4,572,555 4,095,014 11.66% Shareholders' equity 490,485 409,966 19.64% Nonperforming assets 10,599 11,763 - 9.90% Loans past due 90 days or more 8,740 13,724 - 36.32% PERFORMANCE RATIOS Net interest margin 4.50% 4.30% 4.48% 4.50% Return on average assets 1.58% 1.48% 1.58% 1.41% Return on average common equity 21.21% 21.87% 21.85% 20.21% Common dividend payout 25.22% 22.95% 24.86% 24.80% Nonperforming assets to net loans and leases, other real estate owned and other nonperforming assets at September 30 .32% .44% CAPITAL RATIOS Average equity to average assets 7.46% 6.79% 7.23% 6.99% Leverage ratio at September 30 6.47% 5.97% Tier I risk-based capital at September 30 11.05% 11.31% Total risk-based capital at September 30 13.67% 14.24% </TABLE> 8
9 ZIONS BANCORPORATION AND SUBSIDIARIES OPERATING RESULTS Zions Bancorporation achieved record earnings for the third quarter and nine months ended September 30, 1996. Consolidated net income for the third quarter of 1996 was $25,760,000 or $1.73 per share, an increase of 15.6% and 13.8%, respectively, over the $22,291,000 or $1.52 earned in the third quarter of 1995 and an increase of 2.8% and 1.8%, respectively, over the $25,064,000 or $1.70 per share for the second quarter of 1996. Consolidated net income for the first nine months of 1996 was $74,495,000 or $5.04 per share, and increase of 26.7% and 26.0%, respectively, over the $58,813,000 or $4.00 per share earned in the same period in 1995. The nine months earnings 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 nine months of 1996 was 20.6% and 20.0%, respectively. The Company's third-quarter $3,469,000 (15.6%) increase in earnings relative to the same period in 1995 reflects a $7,845,000 (13.5%) increase in net interest income, a $5,057,000 (21.1%) increase in noninterest income, partially offset by a $40,000 (5.0%) increase in the provision for loan losses, a $7,371,000 (15.7%) increase in noninterest expense and a $2,022,000 (17.2%) increase in income tax expense. The $12,734,000 (20.6%) increase in net income for the nine-month period ended September 30, 1996, compared to the similar period in 1995, excluding the effect of the trading loss and restructuring charge, reflect a $22,186,000 (13.3%) increase in net interest income, a $15,124,000 (22.8%) increase in noninterest income, a $50,000 (2.2%) decrease in the provision for loan losses, partially offset by a $17,863,000 (13.0%) increase in noninterest expense and a $6,763,000 (21.3%) increase in income tax expense. The annualized return on average assets for the third quarter and for the first nine months of 1996 was 1.58% and 1.58% compared to 1.48% and 1.41%, respectively, in 1995, resulting in an annualized return on average common shareholders' equity of 21.21% and 21.85% for the third quarter and for the first nine months of 1996, compared to 21.87% and 20.21% for the same periods of 1995. 9
10 ZIONS BANCORPORATION AND SUBSIDIARIES NET INTEREST INCOME AND INTEREST RATE SPREADS Net interest income for the third quarter of 1996, adjusted to a fully taxable-equivalent basis, increased 13.8% to $67,453,000 compared to $59,286,000 for the third quarter of 1995, and increased 3.7% from $65,071,000 for the second quarter of 1996. Net interest margin was 4.50%, compared to 4.30% for the third quarter of 1995, and 4.57% for the second quarter of 1996. Nine-month net interest income, on a fully taxable-equivalent basis, was $194,081,000 in 1996, an increase of 13.5% compared to $170,996,000 for the first nine months of 1995. Net interest margin for the first nine months of 1996 was 4.48%, compared to 4.50% for the first nine months of 1995. The yield on average earning assets decreased 8 basis points during the third quarter of 1996 as compared to the third quarter of 1995, and decreased 2 basis points from the second quarter of 1996. The average rate paid this quarter on interest-bearing funds decreased 28 basis points from the third quarter of 1995, but increased 8 basis points from the second quarter of 1996. Comparing the first nine months of 1996 with 1995, the yield on average earning assets decreased 21 basis points, while the cost on interest-bearing funds also decreased by 21 basis points. The spread on average interest-bearing funds for the third quarter of 1996 was 3.72%, up from the 3.52% for the third quarter of 1995 but down from the 3.82% for the second quarter of 1996. The spread on average interest-bearing funds for the first nine months of 1996 was 3.73% compared with 3.73% for the same period in 1995. The Company attempts to manage interest rate movement sensitivity through the management of maturities, and to a lesser extent, 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 1996 was $1,501,000 compared to $403,000 for the first nine months of 1995. The increased level of taxable-equivalent net interest income in the third quarter and in the first nine months of 1996, compared to the same periods in 1995 and the increase in net interest margin in the third quarter of 1996 compared to the third quarter of 1995, resulted primarily from the increase in average loans and leases. The decrease in net interest margin in the third quarter compared to the second quarter of 1996 and the first nine months of 1996 compared to the first nine month of 1995, resulted primarily from increased volume in security repurchase arrangements. 10
11 ZIONS BANCORPORATION AND SUBSIDIARIES CONSOLIDATED AVERAGE BALANCE SHEETS, YIELDS AND RATES (UNAUDITED) <TABLE> <CAPTION> Three Months Ended Three Months Ended September 30, 1996 September 30, 1995 ------------------- ------------------ Average Amount of Average Average Amount of Average Balance Interest(1) Rate Balance Interest(1) Rate -------- ----------- --------- --------- ------------ ------- <S> <C> <C> <C> <C> <C> <C> (In thousands) ASSETS Money market investments: Interest-bearing deposits $ 42,793 $ 500 4.65% $ 28,403 $ 347 4.85% Federal funds sold and security resell agreements 772,414 11,101 5.72% 1,096,434 16,449 5.95% -------- ------- --------- -------- Total money market investments 815,207 11,601 5.66% 1,124,837 16,796 5.92% -------- ------- --------- -------- Securities: Held to maturity: Taxable 1,112,334 18,470 6.61% 901,510 16,468 7.25% Nontaxable 216,709 4,808 8.83% 212,618 4,544 8.48% Available for sale: Taxable 390,441 6,226 6.34% 383,887 5,927 6.13% Nontaxable 40,668 811 7.93% - - -% Trading account 177,194 2,707 6.08% 157,405 2,301 5.80% --------- ------- --------- -------- Total securities 1,937,346 33,022 6.78% 1,655,420 29,240 7.01% --------- ------- --------- -------- Loans: Loans held for sale 149,858 2,949 7.83% 120,632 2,422 7.97% Net loans and leases(2) 3,063,958 76,194 9.89% 2,572,250 66,484 10.25% ---------- ------- --------- ------- Total loans 3,213,816 79,143 9.80% 2,692,882 68,906 10.15% --------- ------- --------- -------- Total interest-earning assets $5,966,369 $123,766 8.25% $5,473,139 $114,942 8.33% ------- ------- Cash and due from banks 307,428 321,175 Allowance for loan losses (69,523) (68,117) Other assets 271,433 229,385 --------- --------- Total assets $6,475,707 $5,955,582 ========= ========= LIABILITIES Interest-bearing deposits: Savings and NOW deposits $ 589,355 $ 6,657 4.49% $ 710,452 $ 5,618 3.14% Money market super NOW deposits 1,849,325 16,321 3.51% 1,464,506 15,350 4.16% Time deposits under $100,000 669,838 8,543 5.07% 652,169 9,200 5.60% Time deposits $100,000 or more 161,271 2,522 6.22% 129,709 2,043 6.25% Foreign deposits 124,289 1,440 4.61% 146,712 1,878 5.08% --------- ------- --------- ------- Total interest-bearing deposits 3,394,078 35,483 4.16% 3,103,548 34,089 4.36% --------- ------- --------- ------- Borrowed funds: Securities sold, not yet purchased 83,515 1,324 6.31% 97,723 1,537 6.24% Federal funds purchased and security repurchase agreements 1,327,425 16,821 5.04% 1,222,388 16,802 5.45% FHLB advances and other borrowings: Less than one year 12,333 243 7.84% 19,140 464 9.62% Over one year 77,040 1,188 6.13% 92,144 1,501 6.46% Long-term debt 55,812 1,254 8.94% 57,456 1,263 8.72% --------- ------- ---------- ------- Total borrowed funds 1,556,125 20,830 5.33% 1,488,851 21,567 5.75% --------- ------- --------- ------- Total interest-bearing liabilities $4,950,203 $ 56,313 4.53% $4,592,399 $ 55,656 4.81% ------- ------- Noninterest-bearing deposits 943,439 863,803 Other liabilities 99,007 95,026 --------- --------- Total liabilities 5,992,649 5,551,228 Total shareholders' equity 483,058 404,354 --------- -------- Total liabilities and shareholders' equity $6,475,707 $5,955,582 ========= ========= Spread on average interest-bearing funds 3.72% 3.52% ==== ==== Net interest income and net yield on interest-earning assets $ 67,453 4.50% $ 59,286 4.30% ======= ==== ======= ==== </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> Nine Months Ended Nine Months Ended September 30, 1996 September 30, 1995 ------------------- ------------------ Average Amount of Average Average Amount of Average Balance Interest(1) Rate Balance Interest(1) Rate --------- ----------- ---------- --------- ----------- -------- <S> <C> <C> <C> <C> <C> <C> (In thousands) ASSETS Money market investments: Interest-bearing deposits $ 39,431 $ 1,399 4.74% $ 24,531 $ 858 4.68% Federal funds sold and security resell agreements 886,604 37,374 5.63% 899,560 40,005 5.95% ---------- -------- -------- ------- Total money market investments 926,035 38,773 5.59% 924,091 40,863 5.91% --------- -------- -------- ------- Securities: Held to maturity: Taxable 1,027,190 51,035 6.64% 904,548 48,309 7.14% Nontaxable 206,075 13,827 8.96% 207,790 13,251 8.53% Available for sale: Taxable 372,185 17,969 6.45% 355,139 17,313 6.52% Nontaxable 40,814 2,421 7.92% - - - % Trading account 161,542 7,144 5.91% 142,665 6,977 6.54% --------- -------- -------- ------- Total securities 1,807,806 92,396 6.83% 1,610,142 85,850 7.13% --------- ------- --------- ------- Loans: Loans held for sale 153,918 8,729 7.58% 109,490 6,730 8.22% Net loans and leases(2) 2,901,144 216,643 9.97% 2,439,288 187,326 10.27% --------- ------- --------- ------- Total loans 3,055,062 225,372 9.85% 2,548,778 194,056 10.18% --------- ------- --------- ------- Total interest-earning assets $5,788,903 $356,541 8.23% $5,083,011 $320,769 8.44% ------- ------- Cash and due from banks 320,872 317,825 Allowance for loan losses (68,367) (67,671) Other assets 256,207 231,901 --------- --------- Total assets $6,297,615 $5,565,066 ========= ========= LIABILITIES Interest-bearing deposits: Savings and NOW deposits $ 615,863 $ 16,313 3.54% $ 726,870 $ 17,068 3.14% Money market and super NOW deposits 1,725,665 47,793 3.70% 1,402,094 44,062 4.20% Time deposits under $100,000 666,964 26,154 5.24% 599,889 23,023 5.13% Time deposits $100,000 or more 163,091 7,545 6.18% 111,229 4,803 5.77% Foreign deposits 117,747 3,931 4.46% 144,808 5,699 5.26% --------- -------- -------- ------- Total interest-bearing deposits 3,289,330 101,736 4.13% 2,984,890 94,655 4.24% --------- ------- --------- ------- Borrowed funds: Securities sold, not yet purchased 81,303 3,604 5.92% 90,505 4,278 6.32% Federal funds purchased and security repurchase agreements 1,295,777 48,754 5.03% 1,005,326 41,213 5.48% FHLB advances and other borrowings: Less than one year 18,249 915 6.70% 21,286 1,108 6.96% Over one year 80,532 3,686 6.11% 95,716 4,672 6.53% Long-term debt 55,938 3,765 8.99% 57,712 3,847 8.91% ---------- -------- ---------- ------- Total borrowed funds 1,531,799 60,724 5.30% 1,270,545 55,118 5.80% --------- ------- --------- ------- Total interest-bearing liabilities $4,821,129 $162,460 4.50% $4,255,435 $149,773 4.71% ------- ------- Noninterest-bearing deposits 914,381 821,053 Other liabilities 106,613 99,458 --------- ---------- Total liabilities 5,842,123 5,175,946 Total shareholders' equity 455,492 389,120 --------- --------- Total liabilities and shareholders' equity $6,297,615 $5,565,066 ========= ========= Spread on average interest-bearing funds 3.73% 3.73% ==== ==== Net interest income and net yield on interest-earning assets $194,081 4.48% $170,996 4.50% ======= ==== ======= ==== </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 increased 5.0% to $840,000 for the third quarter of 1996, as compared with $800,000 for the third quarter of 1995, and increased 10.5% from the $760,000 for the second quarter of 1996. Net charge-offs for the third quarter of 1996 were $775,000 or .10% of average net loans and leases, compared to net charge-offs of $244,000 or .04% of average net loans and leases for the third quarter of 1995, and net charge-offs of $1,679,000 or .22% of average loans and leases for the second quarter of 1996. The provision for loan losses for the first nine months of 1996 totaled $2,200,000, 2.2% less than the $2,250,000 provision for the first nine months of 1995. Net charge-offs for the first nine months of 1996 were $2,984,000 or .13% of average net loans and leases, compared to $1,208,000 or .06% of average net loans and leases of the first nine months of 1995. NONINTEREST INCOME Noninterest income for the third quarter of 1996 totaled $28,993,000, an increase of 21.1% from the $23,936,000 for the third quarter of 1995 and an increase of 9.3% over the $26,526,000 for the second quarter of 1996. Comparing the segments of noninterest income for the third quarter of 1996 and the third quarter of 1995, service charges on deposit accounts; other service charges, commissions and fees; trust income and loan sales and servicing income increased 17.2%, 15.2%, 32.7% and 73.7%, respectively, while other income decreased 49.1% resulting primarily from reduced income from servicing released premium and reduced income recognized from unconsolidated subsidiaries and associated companies. No net gains on the sale of investment securities were realized during the third quarter of 1996 compared to net gains of $486,000 during the third quarter of 1995, and trading account income during the third quarter 1996 decreased $89,000 to $685,000 from the trading account income reported in the third quarter of 1995. Noninterest income for the nine months ending September 30, 1996 totaled $81,596,000 compared to $66,472,000 for the first nine months of 1995, an increase of 22.8% 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 nine months of 1996 and the first nine months of 1995, service charges on deposit accounts; other service charges, commissions and fees; trust income and loan sales and servicing income increased 14.3%, 15.2%, 21.9% and 46.7% respectively, while other income decreased 5.8%. Net gains of $70,000 on the sale of investment securities was realized during the first nine months of 1996 compared to $433,000 of net gains in 1995, and trading account income during the first nine months of 1996 increased $1,272,000 to $2,310,000 over the adjusted trading account gain reported in the first nine months of 1995. 13
14 ZIONS BANCORPORATION AND SUBSIDIARIES NONINTEREST EXPENSE Noninterest expense for the third quarter of 1996, totaling $54,386,000, increased 15.7% from the $47,015,000 for the third quarter of 1995, and increased 5.7% from the $51,440,000 for the second quarter of 1996. Comparing the noninterest expense segments for the third quarter of 1996 and the third quarter of 1995, salaries and employee benefits increased 14.8%, occupancy, furniture and equipment expenses increased 14.6%, and the total of all other expenses increased 17.7%. Noninterest expense for the nine months ending September 30, 1996 totaled $155,578,000 as compared to $137,715,000 for the first nine months of 1995, an increase of 13.0% after adjusting for the $1,300,000 restructuring charge recorded in the first quarter of 1995. Comparing the noninterest expense segments for the first nine months of 1996 and the first nine months of 1995, salaries and employee benefits increased 14.7%, occupancy, furniture and equipment expenses increased 13.4%, FDIC premiums decreased 99.8% and the total of all other expenses increased 19.8%. 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 and telecommunication expenses related to acquisition and expansion. At September 30, 1996, the Company had 3,081 full-time equivalent employees, 142 offices and 274 ATMs compared to 2,827 full-time equivalent employees, 126 offices and 256 ATMs at September 30, 1995. The Company's "efficiency ratio," or noninterest expenses as a percentage of total taxable-equivalent net revenues, improved to 56.4% for the first nine months of 1996 from 59.3% for the first nine months of 1995. INCOME TAXES The Company's income taxes increased 17.2% to $13,775,000 for the third quarter of 1996 compared to $11,753,000 for the third quarter of 1995, and $12,752,000 for the second quarter of 1996. The Company's income taxes were $38,530,000 for the first nine months of 1996 compared to $31,767,000 for the first nine months of 1995, an increase of 21.3% 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 primarily due to the increase in taxable income. ANALYSIS OF FINANCIAL CONDITION EARNING ASSETS Average earning assets increased 13.9% to $5,788.9 million in the nine months ended September 30, 1996 compared to $5,083.0 million in the nine months ended September 30, 1995. Earning assets comprised 91.9% of total average assets for the first nine months of 1996, compared with 91.3% for the first nine 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 slightly to $926.0 million in the first nine months of 1996 compared to $924.1 million in the first nine months of 1995. During the first nine months of 1996, average securities increased 12.3% to $1,807.8 million compared to $1,610.1 million in the first nine months of 1995. Average held to maturity securities increased 10.9%, available for sale securities increased 16.3% and trading account securities increased 13.2% compared with the first nine months of 1995. Average net loans and leases increased 19.9% to $3,055.1 million in the first nine months of 1996 compared to $2,548.8 million in the first nine months of 1995, representing 52.8% of earning assets in the first nine months of 1996 compared to 50.1% in the first nine months of 1995. Average net loans and leases were 72.7% of average total deposits for the nine months ended September 30, 1996, as compared to 67.0% for the nine months ended September 30, 1995. INVESTMENT SECURITIES The following table presents the Company's investment securities at September 30, 1996, December 31, 1995 and September 30, 1995. <TABLE> <CAPTION> September 30, December 31, September 30, 1996 1995 1995 Amortized Market Amortized Market Amortized Market cost value cost value cost value ------ ------ ------ ------- ------ ------ <S> <C> <C> <C> <C> <C> <C> (In thousands) Held to maturity U.S. government agencies and corporations: Small Business Administration loan-backed securities $ 492,327 $ 496,959 $ 529,376 $ 541,014 $ 504,687 $ 509,862 Other agency securities 504,665 500,772 265,430 263,522 322,600 320,604 States and political subdivisions 248,781 250,904 225,231 230,149 268,490 274,092 ----------- --------- ----------- ----------- ---------- ---------- 1,245,773 1,248,635 1,020,037 1,034,685 1,095,777 1,104,558 Mortgage-backed securities 59,910 60,524 58,546 59,249 59,951 60,379 ----------- --------- ----------- ----------- ---------- ---------- $ 1,305,683 $1,309,159 $ 1,078,583 $ 1,093,934 $1,155,728 $1,164,937 ----------- --------- ----------- ----------- ---------- ---------- Available for sale U.S. Treasury securities $ 16,657 $ 16,644 $ 17,691 $ 17,728 $ 31,226 $ 31,139 U.S. government agencies 121,049 117,363 71,038 70,952 110,362 110,421 States and political subdivisions 39,423 40,753 40,153 42,084 - - ----------- --------- ----------- ----------- ---------- ---------- 177,129 174,760 128,882 130,764 141,588 141,560 ----------- --------- ----------- ----------- ---------- ---------- Mortgage-backed securities 65,422 64,620 69,469 69,333 67,986 68,204 ----------- --------- ----------- ----------- ---------- ---------- Equity securities: Mutual funds: Accessor Funds, Inc. 109,025 107,817 118,899 119,971 119,059 118,505 Other - - 564 564 556 556 Stock: Federal Home Loan Bank 76,504 76,504 71,988 71,988 70,538 70,538 Other 6,490 6,949 5,386 5,580 5,368 5,499 ----------- --------- ----------- ----------- ---------- ---------- 192,019 191,270 196,837 198,103 195,521 195,098 ----------- --------- ----------- ----------- ---------- ---------- $ 434,570 $ 430,650 $ 395,188 $ 398,200 $ 405,095 $ 404,862 ----------- --------- ----------- ----------- ---------- ---------- Total $ 1,740,253 $1,739,809 $ 1,473,771 $ 1,492,134 $1,560,823 $1,569,799 =========== ========== =========== =========== ========== ========== </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 September 30, 1996, December 31, 1995 and September 30, 1995. <TABLE> <CAPTION> September 30, December 31, September 30, 1996 1995 1995 ----- ---- ---- <S> <C> <C> <C> (In thousands) Types Loans held for sale $ 151,404 $ 126,124 $ 128,859 Commercial, financial, and agricultural 785,757 688,466 651,453 Real estate: Construction 318,221 268,812 251,216 Other 1,628,865 1,272,633 1,194,098 Consumer 308,362 341,150 350,377 Lease financing 149,514 132,520 127,315 Other receivables 9,235 8,203 5,158 ---------- ---------- ---------- Total loans $3,351,358 $2,837,908 $2,708,476 ========= ========= ========= </TABLE> Loans held for sale at September 30, 1996 increased 20.0% from year-end 1995. All other loans, net of unearned income and fees increased 18.0% to $3,162.5 million at September 30, 1996, compared to $2,680.8 million at December 31, 1995. Commercial loans, construction loans, other real estate-secured loans, lease financing and other receivables increased from year end 14.1%, 18.4%, 28.0%, 12.8% and 12.6%, respectively, as consumer loans decreased 9.6%. Within the other real estate-secured loan portfolio, home equity credit line loans increased 41.8% to $128.7 million, 1-4 family residential loans increased 25.5% to $527.8 million and all other real estate loans, which includes commercial real estate, increased 27.7% to $972.4 million at September 30, 1996. Credit card receivables decreased 39.7% to $31.5 million and other consumer loans decreased 4.2% to $276.9 million at September 30, 1996 compared to year-end 1995. During the first nine months of 1996, the Company securitized and sold home equity credit line receivables totaling $128.8 million, SBA 7A loans totaling $29.8 million, credit card receivables totaling $177.2 million, and automobile loans totaling $220.1 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 $10,599,000 at September 30, 1996 up 14.0% from $9,296,000 at December 31, 1995, but down 9.9% from $11,763,000 at September 30, 1995. Such nonperforming assets as a percentage of net loans and leases, other real estate owned and other nonperforming assets were .32%, .33% and .44% at September 30, 1996, December 31, 1995, and September 30, 1995, respectively. Accruing loans past due 90 days or more totaled $8,740,000 at September 30, 1996, up from $5,232,000 at December 31, 1995, but down from $13,724,000 at September 30, 1995. These loans equaled .26% of net loans and leases at September 30, 1996, as compared to .19% at December 31, 1995 and .51% at September 30, 1995. No loans were considered potential problem loans at September 30, 1996, December 31, 1996 or September 30, 1995. Potential problem loans are defined as loans presently on accrual and 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 September 30, 1996, and December 31, 1995, and September 30, 1995. <TABLE> <CAPTION> September 30, December 31, September 30, 1996 1995 1995 ---- ---- ---- <S> <C> <C> <C> (In thousands) Nonaccrual loans $10,139 $7,438 $8,008 Restructured loans 204 249 252 Other real estate owned and other nonperforming assets 256 1,609 3,503 ------ ----- ------ Total $10,599 $9,296 $11,763 ====== ===== ====== % of net loans and leases*, other real estate owned and other nonperforming assets .32% .33% .44% Accruing loans past due 90 days or more $8,740 $5,232 $13,724 ===== ===== ====== % of net loans and leases* .26% .19% .51% *Includes loans held for sale. </TABLE> The Company's total recorded investment in impaired loans, in accordance with Financial Accounting Standard statements, amounted to $6,715,000 at September 30, 1996, as compared to $3,388,000 as of December 31, 1995, and $3,730,000 at September 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 September 30, 1996, December 1, 1995 and September 30, 1995 amounts to $147,000, $22,000 and $29,000, 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 Nine Months Ended Ended September 30, December 31, ------------------------- -------------- 1996 1995 1995 ---- ---- ---- <S> <C> <C> <C> (In thousands) Average loans* and leases outstanding (net of unearned income) $ 3,055,062 $ 2,548,778 $ 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 (698) (606) (997) Real estate (427) (272) (548) Consumer (5,806) (5,028) (6,786) Lease financing (225) (5) (41) Other receivables -- -- -- ----------- ----------- ----------- Total (7,156) (5,911) (8,372) ----------- ----------- ----------- Recoveries: Loans held for sale -- -- -- Commercial, financial and agricultural 1,573 2,114 2,580 Real estate 366 312 464 Consumer 1,694 2,003 2,540 Lease financing 539 274 276 Other receivables -- -- -- ----------- ----------- ----------- Total 4,172 4,703 5,860 ----------- ----------- ----------- Net loan and lease charge-offs (2,984) (1,208) (2,512) Provision charged against earnings 2,200 2,250 2,800 ----------- ----------- ----------- Balance at end of the period $ 69,337 $ 68,309 $ 67,555 =========== =========== =========== *Includes loans held for sale Ratio of net charge-offs to average loans and leases .13% .06% .10% </TABLE> 18
19 ZIONS BANCORPORATION AND SUBSIDIARIES The allowance for loan losses as a percentage of net loans and leases was 2.09% at September 30, 1996, compared to 2.41% at December 31, 1995, and 2.55% at September 30, 1995. The allowance, as a percentage of nonaccrual loans and accruing loans past due 90 days or more was 367.3% at September 30, 1996, compared to 533.2% at December 31, 1995, and 314.3% at September 30, 1995. The allowance, as a percentage of nonaccrual loans and restructured loans was 670.4% at September 30, 1996, compared to 878.8% at December 31, 1995, and 827.0% at September 30, 1995. Included in the allowance for loan losses is an amount for unused loan commitments and standby letters of credit which at September 30, 1996, December 31, 1995, and September 30, 1995, amounted to $6,115,000, $7,516,000 and $5,962,000, respectively. Unused loan commitments and standby letters of credit at September 30, 1996, December 31, 1995, and September 30, 1995, amounted to $1,697.5 million, $1,610.5 million, and $1,517.1 million, respectively. DEPOSITS Average total deposits of $4,203.7 million for the first nine months of 1996 increased 10.5% over the $3,805.9 million for the first nine months of 1995, with average demand deposits increasing 11.4%. Average money market and super NOW deposits, and time deposits under $100,000 for the first nine months of 1996 increased 23.1% and 11.2%, respectively, from the first nine months of 1995, while time deposits over $100,000 increased 46.6% to $163.1 million. Average savings and NOW deposits decreased 15.3% to $615.9 million and foreign deposits decreased 18.7% to $117.7 million during the first nine months of 1996, as compared with the same period one year earlier. Total deposits increased 11.6% to $4,572.6 million at September 30, 1996 as compared to $4,097.1 million at December 31, 1995. Comparing September 30, 1996 to December 31, 1995, demand deposits, savings and money market deposits, and time deposits under $100,000 increased 9.1%, 13.7%, and .3%, respectively, while time deposits over $100,000 increased 2.3% and foreign deposits increased 78.3% to $189.1 million. 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 $1,318.1 million or 31.2% of core deposits at September 30, 1996, as compared to $1,428.2 million or 37.3% of core deposits at December 31, 1995, and $1,529.0 million or 40.0% of core deposits at September 30, 1995. The Company's core deposits, consisting of demand, savings and money market deposits and time deposits under $100,000, constituted 92.3% at September 30, 1996 as compared to 93.5% at December 31, 1995 and 93.3% at September 30, 1995. 19
20 ZIONS BANCORPORATION AND SUBSIDIARIES 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, 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, simulation of net interest income using alternative interest rate scenarios and "duration," a measure of the weighted average expected lives of the discounted cash flows from assets and liabilities. The Company, through the management of maturities and the use of off-balance sheet arrangements such as interest rate caps, floors, futures, options, and interest rate exchange agreements, attempts to manage 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. 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 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 third quarter of 1996, the Company repurchased and retired 12,455 shares of its common stock at a cost of $1,025,000 to bring the 1996 total repurchased and retired common stock shares to 231,452 at a total cost of $17,458,000. Total shareholders' equity at September 30, 1996 was $490.5 million, an increase of 14.5% over the $428.5 million at December 31, 1995, and an increase of 19.6% over the $410.0 million at September 30, 1995. The ratio of average equity to average assets for the first nine months of 1996 was 7.23%, compared to 6.99% for the same period in 1995. At September 30, 1996, the Company's Tier I risk- based capital ratio was 11.05%, as compared to 11.38% at December 31, 1995 and 11.31% at September 30, 1995. At September 30, 1996 the Company's total risk-based capital ratio was 13.67%, as compared to 14.23% at December 31, 1995 and 14.24% at September 30, 1995. The Company's leverage ratio as of September 30, 1996 was 6.47%, as compared to 6.28% at December 31, 1995 and 5.97% at September 30, 1995. 20
21 ZIONS BANCORPORATION AND SUBSIDIARIES Dividends declared per common share for the third quarter of 1996 of $.44 increased 25.7%, as compared to $.35 for the third quarter of 1995. Dividends declared per common share of $1.26 for the first nine months of 1996 increased 26.0% compared to $1.00 for the first nine months of 1995. The cash dividend payout to net income applicable to common shares for the first nine months of 1996 was 24.9%, compared to 24.8% for the first nine months of 1995. PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits Exhibit 27 Article 9 Financial Schedules for Form 10-Q b) Reports on Form 8-K Zions Bancorporation filed the following report on Form 8-K during the quarter ended September 30, 1996 Form 8-K Dated September 27, 1996 and filed October 11, 1996 (Item 5) Shareholder Protection Rights Agreement 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 6, 1996 21