<PAGE>   1
 
================================================================================
 
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
 
                                   FORM 10-K
 
              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
 
                  FOR THE FISCAL YEAR ENDED: DECEMBER 31, 1996
 
                          COMMISSION FILE NO. 0-23622
 
                           VECTRA BANKING CORPORATION
             (Exact name of registrant as specified in its charter)
 
<TABLE>
<C>                                            <C>
                   COLORADO                                      84-1087703
       (State or other jurisdiction of              (I.R.S. Employer Identification No.)
        incorporation or organization)
 
  SUITE 320, 1650 SOUTH COLORADO BOULEVARD,
               DENVER, COLORADO                                    80222
   (Address of principal executive offices)                      (Zip code)
</TABLE>
 
                                 (303) 782-7440
              (Registrant's telephone number, including area code)
 
   SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE EXCHANGE ACT: None.
 
      SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE EXCHANGE ACT:
 
                               (TITLE OF CLASSES)
 
                          Common Stock, $.01 Par Value
              Series A Cumulative Preferred Stock, $.10 Par Value
 
     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [X]     No [ ]
 
     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  Yes [X]
 
     The aggregate market value of the Common Stock (the registrant's only class
of voting stock) held by non-affiliates of the registrant on March 7, 1997, was
approximately $45,660,000 based upon the reported closing sale price of such
shares on the NASDAQ National Market System for that date. As of March 7, 1997,
there were 3,202,412 shares of Common Stock outstanding.
 
                      DOCUMENTS INCORPORATED BY REFERENCE:
 
     Part III incorporates by reference certain portions of the Registrant's
Definitive Proxy Statement in respect of its 1997 Annual Meeting of
Shareholders.
 
================================================================================
<PAGE>   2
 
                                     PART I
 
ITEM 1. BUSINESS.
 
GENERAL
 
     Vectra Banking Corporation ("Vectra" or "the Company") was founded in 1988
with the objective of acquiring several community banks in the Denver/Boulder
area and transforming them into a single community banking system which would
deliver a competitive broad based package of products and services to both
individuals and businesses. Eight of Vectra's current 12 locations were acquired
in 1989 through a series of acquisitions. One more acquisition was completed in
1991, a de novo location was opened in 1992 and the last two were added in
transactions completed in November 1995 and in June 1996.
 
     The table below sets forth information concerning Vectra's acquisitions to
date.
 
<TABLE>
<CAPTION>
                                                            ASSETS AT
                                             DATE OF         DATE OF
             BANK ACQUIRED                 ACQUISITION     ACQUISITION
             -------------                 -----------     ------------
                                                           (DOLLARS IN
                                                            THOUSANDS)
<S>                                       <C>              <C>
Bank of Lakewood, N.A...................     April 1989      $  8,500
International Bank......................    August 1989        49,900
International Bank -- Englewood.........    August 1989        20,600
International Bank -- North.............    August 1989        12,000
International Bank of Wheat Ridge.......    August 1989        12,700
National Bank of the Rockies, Boulder...  December 1989        24,000
National Bank of the Rockies, Denver....  December 1989        18,100
Citywide Bank of Thornton...............  December 1989        10,000
Columbine Valley Bank and Trust Co......     April 1991         6,500
First National Bank of Denver...........  November 1995        44,000
Southwest State Bank....................      June 1996       111,000
                                                             --------
          Total.........................                     $317,300
                                                             ========
</TABLE>
 
     In November 1995, Vectra completed a transaction in which First Denver
Corporation ("FDC"), the owner of First National Bank of Denver, was merged into
Vectra. This transaction added $44 million in deposits and $18 million in loans,
and was accounted for as a pooling of interests. Accordingly, all financial
statements included herein reflect combined Vectra and FDC for all periods
presented. In June 1996, Vectra completed the acquisition of Bank Land Company
and its subsidiary, Southwest State Bank ("Southwest"), in a transaction
accounted for using purchase accounting. Accordingly, Southwest's balances and
results of operations have been included in Vectra's financial statements from
the date of acquisition forward. This acquisition added approximately $96
million in deposits and $74 million in loans. These two transactions have
allowed Vectra to expand with locations convenient to a significant number of
additional households within its marketplace and also to achieve a larger
critical mass, which has allowed for improved economies of scale within its
operations. With the Southwest acquisition, Vectra surpassed $500 million in
total assets.
 
     To support its growth and to provide desired liquidity for shareholders,
Vectra completed an initial public offering of its Common Stock and of its $.95
Series A Cumulative Preferred Stock in early 1994. Net proceeds to Vectra were
approximately $11.6 million. Vectra operates through one bank, Vectra Bank,
which has 12 branches.
 
MARKET AREA SERVED
 
     Vectra's market area is the Denver/Boulder area, which is the most densely
populated area in the Rocky Mountain region. Total population exceeds 2.5
million, and the area has received an influx of over 30,000 persons per year
since 1990. Employment in the area has become increasingly diversified across
the manufacturing, financial services, tourism, transportation, technology,
cable television, retail trade, services
 
                                        2
<PAGE>   3
 
and government sectors. In 1996, Colorado achieved the eighth straight year of
employment growth, with employment increasing approximately 3.1% to
approximately 1.9 million.
 
GROWTH STRATEGY
 
     Vectra's goal is to maintain a well-capitalized, customer-focused financial
institution while expanding both in size and profitability. Management believes
that its existing capital structure, access to capital markets, executive
management team, distribution network and operational systems are sufficient to
allow Vectra to achieve further growth in both size and revenues without a
proportionate growth in expenses. There can be no assurance, however, that
Vectra will achieve its growth objectives.
 
     Vectra expects to continue its growth strategy during the next few years
through a combination of internal growth and acquisitions. The Colorado banking
market is dominated by three large regional financial institutions. Norwest
Corporation, First Bank Systems, Inc., and Banc One Corporation. This dominance
was achieved through the purchase of Colorado-based holding companies, which
resulted in a significant consolidation of the Colorado banking industry.
Management believes that this consolidation has created gaps in the ability of
the large banks to serve certain customers. See "Business of
Vectra -- Competition." Management believes that small and medium size
businesses often are not of sufficient size to be of interest to these large
banks and that individuals frequently have difficulty in finding banking
services which meet their needs. Many of these customers have sought, and
management believes will continue to seek, a banking relationship with a smaller
and more service-oriented community banking organization. Through its emphasis
on customer service, management's experience in business and consumer banking
and Vectra's broad product line, Vectra will continue to focus on attracting
these customers in order to achieve internal growth. Management also believes
that the economic expansion in Vectra's market area contributes to internal
growth.
 
     In addition to internal growth, there may be opportunities to grow through
additional acquisitions of financial institutions or their branches. Management
believes that the consolidation in the banking industry, coupled with branch
banking in Colorado and increased regulatory burdens, is likely to lead owners
of community banks to explore the possibility of sale or combination with a
broader-based bank holding company such as Vectra.
 
     Vectra may also consider expanding its operations through de novo
branching, although this alternative has not been the preferred method of
expansion. In some cases, multiple acquisitions by other institutions have
resulted in significant overlap in the market areas served by different banks
owned by the same holding company. In order to eliminate this internal
competition and redundancy of sites, multiple banking locations may be
consolidated, creating market opportunities for other institutions such as
Vectra to establish new locations.
 
     Management has considered and intends to consider a variety of criteria
when evaluating potential acquisition candidates or branching opportunities.
These include (i) the geographic location, (ii) the financial soundness of a
potential acquisition target, (iii) opportunities to improve the efficiency
and/or asset quality of an acquisition target, (iv) the effect of the
acquisition on earnings per share, (v) whether Vectra has sufficient management
and other resources to integrate or add the operations of the target or branch
and (vi) the investment required for, and opportunity costs of, the acquisition
or branch.
 
OPERATING STRATEGY
 
     Vectra's objective is to continue to build a growing, profitable community
banking network. The principal elements of Vectra's operating strategy are:
 
          Focus on the financial service needs of both consumers and community
     businesses. Vectra strives to combine the elements of service traditionally
     found in community banks with product lines typically found only in large
     banks. Its banking products have been designed to be responsive to the
     needs of community businesses and individual customers. Vectra's
     operational systems have been designed to support fully its products, which
     are varied enough to meet diverse needs of customers, yet simple to
     understand.
 
                                        3
<PAGE>   4
 
          Emphasize-high quality customer service. Management believes that
     service is a critical competitive factor in the Vectra market area.
     Customer service is emphasized in all aspects of operations and is an
     integral component of all employee training programs. Management believes
     the Vectra banking locations are small enough to facilitate personalized
     services and decision-making, yet of sufficient size to meet most
     customers' needs.
 
          Maintain high asset quality. Vectra seeks to maintain high asset
     quality through a program which includes regular reviews of loans by senior
     credit policy officers, professional independent loan reviews, training and
     supervision of lending officers and prompt and strict adherence to
     established credit policies.
 
          Achieve efficiencies through centralized administrative and support
     functions. Vectra seeks to maximize operational and support efficiencies
     consistent with maintaining high quality customer service. Various
     management and administrative functions are consolidated, including
     consumer credit administration and lending, investment management and
     accounting, enabling branch personnel to better focus on customer service
     and sales. Management believes these strategies will simplify the
     integration of any financial institutions that may be acquired into the
     Vectra operating systems and management structure.
 
MARKETING
 
     In establishing its banking network, Vectra has focused on identifying and
developing a family of products and services that satisfy customer needs while
simultaneously increasing community knowledge, acceptance and use of Vectra
banking products. Vectra invested significantly in its initial years in
developing and introducing its products and achieving name recognition in its
market.
 
     Today, Vectra's marketing programs utilize direct mail, print and radio
advertising, as well as promotional materials in each location. During the last
four years, Vectra has also focused on selling multiple products to new
customers and additional products to existing customers, a practice known as
"cross selling."
 
CONSUMER PRODUCTS
 
     Vectra offers a wide range of consumer deposit products including regular
checking, checking with interest, budget checking, money market accounts,
regular savings, savings club, and IRAs. Vectra's primary deposit product,
Vectra One, is a relationship account that provides significant benefits,
including waiver of service charges, and reduced fees for all accounts of each
Vectra One customer and preferential rates on loans, as well as a single monthly
statement that summarizes activity and balances for all accounts of each Vectra
One customer each month. To become a Vectra One customer, an individual needs to
open a checking account and either a savings account, money market account, IRA
or CD and maintain one combined minimum balance. Vectra's Peak Interest Savings
product provides a combination of higher yields and immediate liquidity for
depositors. This program has provided a stable source of deposits for Vectra
since its introduction in 1991. Vectra's consumer loan products include a
complete menu of home equity loans with a variety of terms and structures
ranging from revolving lines of credit to fully amortizing, fixed-rate second
mortgages. Vectra also offers auto, recreational vehicle and other secured and
unsecured loans sourced directly by its branches and from indirect sources.
These products have enabled Vectra to substantially increase its consumer loan
balances over the last few years.
 
     Vectra introduced check imaging in 1995. Check imaging produces all
customer statements using electronic images of checks, deposits and any other
item normally included in statements. Also, Vectra believes it was the first
bank to introduce a three dimensional home page on the Internet in 1996. Since
its introduction, Vectra has added loan application functions to its web site.
Vectra is in the process of substantially upgrading the telephone accessed
customer inquiry service, which was first introduced six years ago.
 
COMMERCIAL PRODUCTS
 
     Vectra is dedicated to meeting the varied banking needs of
small-to-medium-size businesses in the Denver/Boulder area. See "Loans." To
provide convenience, expedited cash flow and workplace efficiency to
 
                                        4
<PAGE>   5
 
its business customers, Vectra offers products under Vectra Business Solutions,
Helping Your Business Grow(TM). Products include: Bonded Courier Service, which
allows for non-cash deposits to be picked up at a customer's location; Direct
Deposit Payroll, a time-saving convenient payroll processing system; Express
Check Deposit, a lockbox payment processing service that facilitates and
expedites account receivable collections for customers; and Desk Top Banking,
which allows customers to access their account information and transact certain
banking business using a personal computer. In addition, Vectra offers
businesses Vectra Advantage, a package of benefits which entitles customer's
employees to group discounts on consumer deposit and loan products. In 1996,
Vectra was first in the Denver/Boulder market place to introduce a new CD-ROM
product. This product provides customers with their bank statements, including
images of all check and other items, on CD-ROM.
 
LOANS
 
     General. Vectra provides a broad range of commercial and retail lending
services, including commercial business loans, residential and commercial real
estate construction loans, consumer loans, revolving lines of credit and letters
of credit. Vectra follows a uniform credit policy which sets forth underwriting
and loan administration criteria, including levels of loan commitment, loan
types, credit criteria, concentration limits, loan administration, loan review
and grading and related matters. In addition, Vectra provides ongoing loan
officer training and review, obtains outside independent loan reviews, operates
a centralized processing, underwriting and servicing center for consumer loans
and manages problem assets centrally and independently from the originating loan
officers. At December 31, 1996, substantially all loans outstanding were to
customers within Vectra's market area.
 
     Vectra maintains a no-loan-committee approach to commercial lending, which
it believes yields positive results in both responsiveness to customer needs and
asset quality. Rather than using loan committees, which management believes do
not always achieve adequate accountability, Vectra requires the individual
review and approval of multiple lending officers for each loan. With this
approach, loan officers have ready access to individuals with credit approval
authority and do not experience delays in waiting for loan committee meetings.
 
     Interest rates charged on loans vary with the degree of risk, maturity,
underwriting and servicing costs, loan amount, and extent of other banking
relationships maintained with customers, and are further subject to competitive
pressures, money market rates, availability of funds and government regulations.
Approximately 57% of the loans in Vectra's portfolio at December 31, 1996, had
interest rates that float with Vectra's base rate or some other reference rate.
 
     In the ordinary course of business, Vectra issues commitments to extend
credit. See Note 14 of Notes to Consolidated Financial Statements. Vectra
applies the same credit standards to these commitments as it uses in all its
lending activities and has included these commitments in its lending risk
evaluations. Vectra's exposure to credit loss under commitments to extend credit
is represented by the amount of these commitments. Under applicable federal and
state law, permissible loans to one borrower was limited to an aggregate of $6.6
million for Vectra at December 31, 1996.
 
     An important component of Vectra's lending is U.S. Small Business
Administration ("SBA") guaranteed loans. Vectra emphasizes this program because
it is particularly attractive to many of the small-to-medium-size businesses
that it serves. The Vectra commitment to SBA lending was recognized by the SBA's
designation in 1994 of Vectra as a preferred lender, the highest of the SBA's
three lender categories. Vectra is Colorado's only locally headquartered bank
serving the Denver/Boulder market to be named a preferred SBA lender.
Designation as an SBA preferred lender allows Vectra to provide better, faster
service to its business customers.
 
     Vectra also originates first mortgage loans through its Vectra Mortgage
Group, which was expanded during the second half of 1995 with the purchase of
the assets of MacWest Mortgage. The mortgage operations are an added source of
fee income from the origination and sale of mortgage loans into the secondary
market. Total mortgage originations increased from $27.9 million in 1995 to
$38.5 million in 1996.
 
                                        5
<PAGE>   6
 
     All loan schedules have been restated for all periods presented to reflect
the FDC transaction in November 1995 by Vectra, in a pooling of interests. The
acquisition of Southwest State Bank in June 1996 was accounted for as a purchase
transaction. Accordingly, Southwest balances have been included from the date of
acquisition forward. Southwest contributed $74 million to the 1996 growth in
loans.
 
     Loan Portfolio Composition. The following table sets forth the composition
of the Vectra loan portfolio by type of loan at the dates indicated.
 
<TABLE>
<CAPTION>
                                                                            DECEMBER 31,
                                    --------------------------------------------------------------------------------------------
                                          1996               1995               1994               1993               1992
                                    ----------------   ----------------   ----------------   ----------------   ----------------
                                     AMOUNT      %      AMOUNT      %      AMOUNT      %      AMOUNT      %      AMOUNT      %
                                    --------   -----   --------   -----   --------   -----   --------   -----   --------   -----
                                                                       (DOLLARS IN THOUSANDS)
<S>                                 <C>        <C>     <C>        <C>     <C>        <C>     <C>        <C>     <C>        <C>
Commercial........................  $ 81,668    25.9   $ 58,272    28.5   $ 47,652    26.5   $ 43,815    31.1   $ 40,052    32.0
Real estate -- mortgage...........   175,428    55.5    101,598    49.8     94,759    52.7     64,112    45.6     54,462    43.4
Real estate -- construction.......    23,257     7.4     21,818    10.7     17,309     9.6     13,478     9.6     10,370     8.3
Installment and revolving lines of
  credit..........................    37,061    11.7     21,452    10.5     19,875    11.1     19,422    13.8     21,256    17.0
Loans held for sale...............     2,864      .9      3,916     1.9      2,705     1.5      2,821     2.0      1,812     1.4
Deferred loan fees, discounts, and
  costs, net......................      (373)    (.1)      (392)    (.2)      (535)    (.3)      (574)    (.4)      (561)    (.4)
                                    --------   -----   --------   -----   --------   -----   --------   -----   --------   -----
Loans.............................   319,905   101.3    206,664   101.2    181,765   101.1    143,074   101.7    127,391   101.7
Less allowance for loan losses....    (4,238)   (1.3)    (2,493)   (1.2)    (1,999)   (1.1)    (2,324)   (1.7)    (2,075)   (1.7)
                                    --------   -----   --------   -----   --------   -----   --------   -----   --------   -----
Net loans.........................  $315,667   100.0   $204,171   100.0   $179,766   100.0   $140,750   100.0   $125,316   100.0
                                    ========   =====   ========   =====   ========   =====   ========   =====   ========   =====
</TABLE>
 
     At December 31, 1996, loans totaled approximately 73% of total deposits and
approximately 57% of total assets.
 
     Commercial Loans. Commercial loans consist primarily of loans to businesses
for various purposes, including revolving lines of credit, equipment financing
loans and letters of credit. These loans generally mature within one year, have
adjustable interest rates and are secured by inventory, accounts receivable and
other commercial assets. The primary repayment risk is the failure of the
borrower's business due to economic or financial factors. Southwest contributed
approximately $17 million to commercial loan growth in 1996.
 
     Real Estate Mortgage Loans. These loans include various types of loans for
which Vectra holds real property as collateral. Of the $175 million of real
estate mortgage loans at December 31, 1996, approximately $110 million were
loans made to commercial customers where the collateral for the loan is, among
other things, the real estate owned by the business or its owners. It is
Vectra's practice in making commercial loans to receive real estate as
collateral in addition to other appropriate collateral. Therefore, many loans
categorized as real estate mortgage loans can be characterized as commercial
loans which are secured by real estate. The remaining $65 million of real estate
mortgage loans consist of $21 million of outstanding balances under consumer
home equity lines of credit and $44 million of consumer second and first
mortgage loans. Commercial loans (other than SBA loans) secured by real estate
typically mature annually and have adjustable interest rates. SBA loans used to
finance real estate typically have terms of 15 to 20 years and adjustable
interest rates. Most home equity lines of credit have terms of 10 to 15 years,
adjustable interest rates and require minimum monthly payments. Mortgages are
generally fixed rate installment loans with terms up to 15 years. First
mortgages are generally fixed rate and mature in three to five years. The
primary risks of real estate mortgage loans include the borrower's inability to
pay and deterioration in value of real estate that is held as collateral.
 
     Southwest contributed approximately $41 million to the 1996 growth in real
estate loans. Substantially all of these loans were written with a three to five
year term and have a floating rate from the prime rate plus 1 to 3% and are
adjustable immediately upon a change in prime. When fixed rate loans were made,
the terms were generally for a maximum of three years. Southwest was not
actively engaged in the origination of first mortgage loans for single-family
homes.
 
     Real Estate Construction Loans. Construction loans are principally made to
builders to construct single family residences. These loans typically have
maturities of six to 12 months and adjustable interest rates. Fees
 
                                        6
<PAGE>   7
 
on such loans are usually charged on the total loan commitment. Terms vary
somewhat depending on Vectra's experience with the individual builders; however,
a ratio of two or three presold homes to every home not presold is generally
required for all builders. The builders are also required to invest a minimum of
10% of construction costs. To ensure adequate quality control over construction
lending, monthly inspections of all construction sites by independent inspectors
are required and disbursements of draws against loan commitments are made
directly to subcontractors. A variety of risks are present in construction
loans, including the failure of the contractor to complete the work and the
borrower's inability to pay.
 
     Installment Loans and Revolving Lines of Credit. Installment loans to
individuals which are not secured by real estate generally have terms of two to
five years and bear interest at fixed rates. Revolving lines of credit to
individuals generally are for business purposes, mature annually and have
adjustable interest rates. These loans usually are secured by motor vehicles,
equipment, receivables, inventory, investment securities or other personal
assets, but in some instances are unsecured. The primary risk of consumer
lending relates to the personal circumstances of the borrower. Southwest
contributed approximately $16 million in installment loans and revolving lines
of credit in 1996.
 
     Loans Held for Sale. Loans held for sale consist of mortgage loans and
guaranteed portions of Small Business Administration ("SBA") guaranteed loans
which are generally sold within 30 days. Market value equals or exceeds carrying
value for these loans.
 
NONPERFORMING ASSETS
 
     The following table sets forth information concerning the nonperforming
assets of Vectra at the dates indicated:
 
<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                ----------------------------------------------
                                                 1996      1995      1994      1993      1992
                                                ------    ------    ------    ------    ------
                                                            (DOLLARS IN THOUSANDS)
<S>                                             <C>       <C>       <C>       <C>       <C>
Nonperforming loans:
  Loans 90 days or more delinquent and still
     accruing interest........................  $1,292    $   83    $  302    $  159    $  558
  Nonaccrual loans............................   1,247     1,292       829     1,580     1,836
  Restructured loans..........................      --        --        --       175       814
                                                ------    ------    ------    ------    ------
          Total nonperforming loans...........   2,539     1,375     1,131     1,914     3,208
Real estate acquired by foreclosure...........     955       919     1,265     1,153     2,048
Other assets acquired by foreclosure..........      56        75        81        10        67
                                                ------    ------    ------    ------    ------
          Total nonperforming assets..........  $3,550    $2,369    $2,477    $3,077    $5,323
                                                ======    ======    ======    ======    ======
Allowance for loan losses.....................  $4,238    $2,493    $1,999    $2,324    $2,075
                                                ======    ======    ======    ======    ======
Ratio of total nonperforming assets to total
  assets......................................     0.6%      0.6%      0.5%      1.1%      2.0%
Ratio of total nonperforming loans to total
  loans.......................................     0.8       0.7       0.6       1.3       2.5
Ratio of allowance for loan losses to total
  loans.......................................     1.3       1.2       1.1       1.6       1.6
Ratio of allowance for loan losses to total
  nonperforming loans.........................   166.9     181.3     176.7     121.4      64.7
</TABLE>
 
     Nonperforming Loans. The nonperforming loans consist of loans 90 days or
more delinquent and still accruing interest, nonaccrual loans and restructured
loans. At December 31, 1996, Vectra's nonperforming loans with balances in
excess of $10,000 consisted of 26 loans, six of which had balances in excess of
$100,000. The largest two nonperforming loans had principal balances of $618,000
and $423,000. The $618,000 loan is for a gas station/convenience store, which
has filed a plan of reorganization under Chapter 11 of the Federal Bankruptcy
Laws. Vectra believes it is adequately collateralized on both loans and no
losses are anticipated.
 
     When, in the opinion of management, a reasonable doubt exists as to the
collectibility of interest, regardless of the delinquency status of a loan, the
accrual of interest income is discontinued and interest accrued during the
current year is reversed through a charge to current year's earnings. Prior
years' accrued
 
                                        7
<PAGE>   8
 
interest is charged to the allowance for loan losses. While the loan is on
nonaccrual status, interest income is recognized only upon receipt and then only
if, in the judgment of management, there is no reasonable doubt as to the
collectibility of the principal balance. Loans 90 days or more delinquent are
changed to nonaccrual status unless the loan is in the process of collection and
management determines that full collection of principal and accrued interest is
probable.
 
     Restructured loans are those for which concessions, including the reduction
of interest rates below a rate otherwise available to the borrower or the
deferral of interest or principal, have been granted due to the borrower's
weakened financial condition. Interest on restructured loans is accrued at the
restructured rates when it is anticipated that no loss of original principal
will occur.
 
     As of December 31, 1996, there was no significant balance of loans excluded
from nonperforming loans set forth above, where known information about possible
credit problems of borrowers causes management to have serious doubts as to the
ability of such borrowers to comply with the present loan repayment terms and
which may result in such loans becoming nonperforming.
 
     Real Estate Acquired by Foreclosure. Real estate acquired by foreclosure
includes property acquired in foreclosure proceedings or under agreements with
delinquent borrowers. At December 31, 1996, Vectra's real estate acquired by
foreclosure consisted of three parcels of land zoned for commercial use, one of
which was zoned for multi-use.
 
     Real estate acquired by foreclosure is appraised annually and is carried at
the lower of fair market value less anticipated selling costs or the balance of
the related loan. At December 31, 1996, Vectra's interest in appraised fair
values of these properties was approximately $1.5 million.
 
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES
 
     The allowance for loan losses represents management's recognition of the
risks of extending credit and its evaluation of the quality of the loan
portfolio. The allowance is maintained at a level considered adequate to provide
for anticipated loan losses based on management's assessment of various factors
affecting the loan portfolio, including a review of problem loans, business
conditions, historical loss experience, evaluation of the quality of the
underlying collateral and holding and disposal costs. The allowance is increased
by additional charges to operating income and reduced by loans charged off, net
of recoveries.
 
                                        8
<PAGE>   9
 
     The following table sets forth information regarding changes in the
allowance for loan losses of Vectra for the periods indicated.
 
<TABLE>
<CAPTION>
                                                      YEAR ENDED DECEMBER 31,
                                      --------------------------------------------------------
                                        1996        1995        1994        1993        1992
                                      --------    --------    --------    --------    --------
                                                       (DOLLARS IN THOUSANDS)
<S>                                   <C>         <C>         <C>         <C>         <C>
Balance of allowance for loan losses
  at beginning of period............  $  2,493    $  1,999    $  2,324    $  2,075    $  2,064
                                      --------    --------    --------    --------    --------
Charge-offs:
  Commercial........................      (421)        (98)     (1,148)       (233)       (413)
  Real estate -- mortgage...........       (15)       (311)         --          (2)         --
  Real estate -- construction.......        (2)         (2)         --          --         (38)
  Installment and revolving lines of
     credit.........................      (221)       (149)       (133)       (102)       (117)
  Other.............................        --          --         (11)        (38)        (29)
                                      --------    --------    --------    --------    --------
          Total charge-offs.........      (659)       (560)     (1,292)       (375)       (597)
                                      --------    --------    --------    --------    --------
Recoveries:
  Commercial........................        93         215         146         297         173
  Real estate -- mortgage...........        25          16           3          --          --
  Real estate -- construction.......        --          --          --          --           5
  Installment and revolving lines of
     credit.........................        24          28          20          22          39
  Other.............................        --          --           4          22          29
                                      --------    --------    --------    --------    --------
          Total recoveries..........       142         259         173         341         246
                                      --------    --------    --------    --------    --------
Net charge-offs.....................      (517)       (301)     (1,119)        (34)       (351)
Provisions for loan losses charged
  to operations.....................       916         795         794         283         362
Acquired by acquisition.............     1,346          --          --          --          --
                                      --------    --------    --------    --------    --------
Balance of allowance for loan losses
  at end of period..................  $  4,238    $  2,493    $  1,999    $  2,324    $  2,075
                                      ========    ========    ========    ========    ========
Ratio of net charge-offs to average
  loans.............................       .20%        .16%        .70%        .02%        .29%
                                      ========    ========    ========    ========    ========
Average loans outstanding during the
  period............................  $255,761    $187,637    $160,944    $136,836    $122,992
                                      ========    ========    ========    ========    ========
</TABLE>
 
     The Vectra lending personnel are responsible for continuous monitoring of
the quality of loan portfolios. The loan portfolios are also monitored and
examined by Vectra loan review personnel and by independent loan reviewers.
These reviews assist in the identification of potential and probable losses, and
also in the determination of the level of the allowance for loan losses. The
allowance for loan losses is based primarily on management's estimates of
possible loan losses from the foregoing processes and historical experience.
These estimates involve ongoing judgments and may be adjusted over time
depending on economic conditions and changing historical experience. At December
31, 1996, the allowance for loan losses equaled 1.32% of total loans and 166.9%
of non-performing loans. Southwest contributed $1.3 million to allowance for
loan losses. The increase in the allowance for loan losses is directly related
to the increase in the total loan portfolio.
 
     State and federal regulatory agencies, as an integral part of their
examination process, review Vectra's loans and its allowance for loan losses.
Management believes that Vectra's allowance for loan losses is adequate to cover
anticipated losses. There can be no assurance, however, that management will not
determine a need to increase the allowance for loan losses or that regulators,
when reviewing Vectra's loan portfolios in the future, will not request Vectra
to increase such allowance, either of which could adversely affect Vectra's
earnings. Further, there can be no assurance that Vectra's actual loan losses
will not exceed its allowance for loan losses.
 
                                        9
<PAGE>   10
 
     The following table sets forth an allocation of the allowance for loan
losses by loan category as of the dates indicated. Management believes that any
allocation of the allowance into categories lends an appearance of precision
which does not exist. Portions of the allowance have been allocated to
categories based on analysis of the status of particular loans; however, the
majority of the allowance is utilized as a single unallocated allowance
available for all loans. The allocation table should not be interpreted as an
indication of the specific amounts, by loan classification, to be charged to the
allowance. Management believes that the table is a useful device for assessing
the adequacy of the allowance as a whole. The table has been derived in part by
applying historical loan loss ratios to both internally classified loans and the
portfolio as a whole in determining the allocation of the loan losses
attributable to each category of loans.
<TABLE>
<CAPTION>
                                                           DECEMBER 31,
                       ------------------------------------------------------------------------------------
                                1996                     1995                     1994              1993
                       ----------------------   ----------------------   ----------------------   ---------
                                    LOANS IN                 LOANS IN                 LOANS IN
                                    CATEGORY                 CATEGORY                 CATEGORY
                                      AS A                     AS A                     AS A
                                   PERCENTAGE               PERCENTAGE               PERCENTAGE
                        AMOUNT      OF TOTAL     AMOUNT      OF TOTAL     AMOUNT      OF TOTAL     AMOUNT
                          OF         GROSS         OF         GROSS         OF         GROSS         OF
                       ALLOWANCE     LOANS      ALLOWANCE     LOANS      ALLOWANCE     LOANS      ALLOWANCE
                       ---------   ----------   ---------   ----------   ---------   ----------   ---------
                                                      (DOLLARS IN THOUSANDS)
<S>                    <C>         <C>          <C>         <C>          <C>         <C>          <C>
Commercial...........   $2,721        25.3%      $1,563        27.9%      $1,379        25.8%      $1,755
Real estate --
  mortgage...........      751        54.9%         419        49.2%         264        52.3%         214
Real estate --
  construction.......      294         7.3%         250        10.6%         154         9.5%         136
Installment and
  revolving lines of
  credit.............      472        11.6%         261        10.4%         202        10.9%         219
Loans held for sale..       --          .9%          --         1.9%          --         1.5%          --
                        ------       -----       ------       -----       ------       -----       ------
        Total........   $4,238       100.0%      $2,493       100.0%      $1,999       100.0%      $2,324
                        ======       =====       ======       =====       ======       =====       ======
 
<CAPTION>
                                  DECEMBER 31,
                       -----------------------------------
                          1993               1992
                       ----------   ----------------------
                        LOANS IN                 LOANS IN
                        CATEGORY                 CATEGORY
                          AS A                     AS A
                       PERCENTAGE               PERCENTAGE
                        OF TOTAL     AMOUNT      OF TOTAL
                         GROSS         OF         GROSS
                         LOANS      ALLOWANCE     LOANS
                       ----------   ---------   ----------
                             (DOLLARS IN THOUSANDS)
<S>                    <C>          <C>         <C>
Commercial...........     30.1%      $1,462        31.0%
Real estate --
  mortgage...........     44.9%         210        42.8%
Real estate --
  construction.......      9.4%         121         8.1%
Installment and
  revolving lines of
  credit.............     13.6%         282        16.7%
Loans held for sale..      2.0%          --         1.4%
                         -----       ------       -----
        Total........    100.0%      $2,075       100.0%
                         =====       ======       =====
</TABLE>
 
INVESTMENTS
 
     Vectra's investment policy is designed to enhance net income and return on
equity through prudent management of risk; to ensure liquidity for cash-flow
requirements; to help manage interest rate risk; to ensure collateral is
available for public deposits, FHLB advances and repurchase agreements; and to
manage asset quality diversification. Investments are managed centrally to
maximize compliance and effectiveness of overall investing activities.
 
     Vectra's Investment Committee, which consists of the Chief Financial
Officer, the Chief Executive Officer, an Executive Vice President and an outside
Director is responsible for implementing investment strategy. The Investment
Committee meets at least monthly to review the performance of the investment
portfolio, market values, market conditions, current economic conditions,
profitability, capital ratios, liquidity needs, collateral position with the
FHLB and other matters related to investing activities. Based on its review of
this information, the Investment Committee considers the need to alter
investment strategies.
 
                                       10
<PAGE>   11
 
     The following table sets forth the book value of the securities in Vectra's
investment portfolio by type at the dates indicated.
 
<TABLE>
<CAPTION>
                                                                       DECEMBER 31,
                                                             --------------------------------
                                                               1996        1995        1994
                                                             --------    --------    --------
                                                                  (DOLLARS IN THOUSANDS)
<S>                                                          <C>         <C>         <C>
U.S. Treasury securities...................................  $  4,967    $  5,032    $ 22,673
Municipal securities.......................................     2,449          --          --
U.S. government sponsored entities and SBA Loan Pools......    37,785      16,667      13,500
Collateralized mortgage obligations........................   131,533     147,508     164,720
Mortgage backed securities.................................     8,812       6,183      39,687
Other......................................................     1,733       1,639       6,792
Unrealized loss on securities available for sale, before
  tax effect...............................................    (6,021)     (5,831)    (12,286)
                                                             --------    --------    --------
          Total............................................  $181,258    $171,198    $235,086
                                                             ========    ========    ========
</TABLE>
 
     The following table sets forth the book value and approximate yield of the
securities in the investment portfolio by type and maturity at December 31, 1996
and 1995.
 
<TABLE>
<CAPTION>
                                                         DECEMBER 31, 1996    DECEMBER 31, 1995
                                                         -----------------    -----------------
                   TYPE AND MATURITY                      AMOUNT     YIELD     AMOUNT     YIELD
                   -----------------                     --------    -----    --------    -----
                                                                 (DOLLARS IN THOUSANDS)
<S>                                                      <C>         <C>      <C>         <C>
U.S. Treasury securities:
  One year or less.....................................  $  2,989    5.17%    $  1,526    4.51%
  Over one through five years..........................     1,978    5.79%       3,506    5.27%
  Over five through 10 years...........................        --    0.00%          --    0.00%
                                                         --------             --------
          Total........................................  $  4,967    5.42%    $  5,032    5.04%
                                                         ========             ========
Municipal securities:
  One year or less.....................................  $  1,469    5.05%    $     --    0.00%
  Over one through five years..........................       909    5.86%          --    0.00%
  Over five through 10 years...........................        71    6.95%          --    0.00%
                                                         --------             --------
          Total........................................  $  2,449    5.41%    $     --    0.00%
                                                         ========             ========
U.S. Government sponsored entities and SBA Loan Pools:
  One year or less.....................................  $  2,746    6.23%    $  1,732    7.15%
  Over one through five years..........................    28,938    6.49%       8,345    4.87%
  Over five through 10 years...........................     6,101    5.50%       6,590    5.28%
                                                         --------             --------
          Total........................................  $ 37,785    6.31%    $ 16,667    5.27%
                                                         ========             ========
Collateralized mortgage obligations:
  One year or less.....................................  $  1,747    6.18%    $ 20,876    5.99%
  Over one through five years..........................    12,281    6.00%      23,427    5.64%
  Over five through 10 years...........................    21,450    6.10%      21,895    5.59%
  Over 10 years........................................    96,055    6.10%      81,310    5.64%
                                                         --------             --------
          Total........................................  $131,533    6.09%    $147,508    5.68%
                                                         ========             ========
Mortgage backed securities:
  One year or less.....................................  $  2,236    6.50%    $    993    7.02%
  Over one through five years..........................     4,004    6.43%       2,418    6.92%
  Over five through 10 years...........................     1,631    6.44%       1,025    6.71%
  Over 10 years........................................       941    6.61%       1,747    6.78%
                                                         --------             --------
     Total.............................................  $  8,812    6.47%    $  6,183    6.86%
                                                         ========             ========
</TABLE>
 
                                       11
<PAGE>   12
<TABLE>
<CAPTION>
                                                         DECEMBER 31, 1996    DECEMBER 31, 1995
                                                         -----------------    -----------------
                   TYPE AND MATURITY                      AMOUNT     YIELD     AMOUNT     YIELD
                   -----------------                     --------    -----    --------    -----
                                                                 (DOLLARS IN THOUSANDS)
<S>                                                      <C>         <C>      <C>         <C>
Other:
  One year or less.....................................  $    263    5.91%    $    560    6.83%
  Over one through five years..........................        --    0.00%          54    7.00%
  Over five through 10 years...........................        20    6.67%          --    0.00%
  Over 10 years........................................     1,450    6.41%       1,025    6.26%
                                                         --------             --------
     Total.............................................  $  1,733    6.34%    $  1,639    6.48%
                                                         ========             ========
Total investment in securities:
  One year or less.....................................  $ 11,450    5.84%    $ 25,687    6.03%
  Over one through five years..........................    48,110    6.32%      37,750    5.52%
  Over five through 10 years...........................    29,273    6.00%      29,510    5.56%
  Over 10 years........................................    98,446    6.11%      84,082    5.68%
  Unrealized loss on securities available for sale.....    (6,021)              (5,831)
                                                         --------             --------
          Total........................................  $181,258    6.41%    $171,198    5.87%
                                                         ========             ========
</TABLE>
 
     The preceding schedules includes $263,000 and $814,000 of securities in the
"Other" category which are classified as held-to-maturity at December 31, 1996
and 1995, respectively.
 
     In connection with the pooling of interests with First Denver Corporation
("FDC") (see Note 2 of Notes to Consolidated Financial Statements), Vectra
transferred all securities classified by FDC as held to maturity to available
for sale in 1995, consistent with Vectra's existing policies. The amortized cost
and unrealized gain on these securities at the date of the merger of FDC into
Vectra totaled approximately $22,258,000 and $210,000, respectively. The
majority of Southwest's investment securities were sold within a month after the
date of acquisition. The remainder were reclassified to available for sale from
held to maturity.
 
     A substantial portion of Vectra's investments are collateralized mortgage
obligations and mortgage backed securities. These investments are usually
purchased at a premium or discount to their stated or par value. The yield on
these investments may be impacted by changes in the prepayment rates of the
mortgages underlying the securities.
 
                                       12
<PAGE>   13
 
     The following table summarizes certain information regarding Vectra's
available for sale investment portfolio:
<TABLE>
<CAPTION>
                                                                              DECEMBER 31, 1996
                                                             ---------------------------------------------------
                                                                         UNREALIZED     EXCESS OF
                                                                           MARKET     INTEREST RATE     ESTI-
                                           INDEX TO WHICH                  VALUE        CAPS OVER       MATED
                                             COUPON ON       AMORTIZED    ADJUST-        CURRENT       AVERAGE
              DESCRIPTION                 SECURITY IS TIED     COST        MENTS         COUPONS        LIVES
              -----------                 ----------------   ---------   ----------   -------------   ----------
                                                                     (DOLLARS IN MILLIONS)            (IN YEARS)
<S>                                       <C>                <C>         <C>          <C>             <C>
CMO-Floating rate.......................      COFI            $ 37.6        (1.7)          3.5%          14.3
CMO-Floating rate.......................    10 yr CMT           75.5        (3.6)          3.9%          14.8
CMO-Floating rate.......................    7 yr CMT             9.6        (0.1)          4.3%           5.4
CMO-Floating rate.......................   1 mo LIBOR            1.4          --           2.3%           2.8
CMO-Fixed rate..........................      N.A.               7.4        (0.3)         N.A.            2.3
MBS-Adjustable rate.....................   6 mo LIBOR            4.9         0.1           3.3%           5.0
MBS-Adjustable rate.....................    1 yr CMT             3.9          --           2.6%           3.7
FHLB Dual Indexed Notes.................       (1)               5.8        (0.4)         N.M.            6.5
FHLB Inverse floating Note..............   3 mo LIBOR            5.0        (0.1)         N.M.            1.8
U.S. Treasuries.........................      N.A.               5.0          --          N.A.            1.5
SBA Guaranteed..........................      Prime              3.0          --          N.A.            2.0
Govt. Sponsored Agencies................      N.A.              23.9         0.1          N.A.            3.0
Municipal Securities....................      N.A.               2.5          --          N.A.            4.2
Other...................................                         1.5          --          N.A.           N.A.
                                                              ------         ---
        Total portfolio.................                      $187.0        (6.0)
                                                              ======         ===
 
<CAPTION>
                                                           DECEMBER 31, 1995
                                          ---------------------------------------------------
                                                      UNREALIZED     EXCESS OF
                                                        MARKET     INTEREST RATE     ESTI-
                                                        VALUE        CAPS OVER       MATED
                                          AMORTIZED    ADJUST-        CURRENT       AVERAGE
              DESCRIPTION                   COST        MENTS         COUPONS        LIVES
              -----------                 ---------   ----------   -------------   ----------
                                                  (DOLLARS IN MILLIONS)            (IN YEARS)
<S>                                       <C>         <C>          <C>             <C>
CMO-Floating rate.......................   $ 44.3        (1.1)          3.2%          10.6
CMO-Floating rate.......................     76.5        (3.5)          4.3%          13.5
CMO-Floating rate.......................      8.9        (0.1)          4.8%           5.7
CMO-Floating rate.......................      4.7        (0.1)          3.0%           2.8
CMO-Fixed rate..........................     13.1        (0.3)         N.A.            1.7
MBS-Adjustable rate.....................
MBS-Adjustable rate.....................      2.4         0.1           4.0%           5.0
FHLB Dual Indexed Notes.................      5.8        (0.7)         N.M.            7.5
FHLB Inverse floating Note..............      5.0        (0.3)         N.M.            2.8
U.S. Treasuries.........................      5.0          --          N.A.            1.5
SBA Guaranteed..........................      4.3         0.1          N.A.            3.4
Govt. Sponsored Agencies................
Municipal Securities....................
Other...................................      6.2         0.1          N.A.           N.A.
                                           ------         ---
        Total portfolio.................   $176.2        (5.8)
                                           ======         ===
</TABLE>
 
     The adjustable rate portion of Vectra's investment portfolio at December
31, 1996 is distributed as follows:
 
<TABLE>
<CAPTION>
                          BY ADJUSTMENT
     BY INDEX               FREQUENCY                             LEGEND OF TERMS
     --------             -------------                           ---------------
<S>            <C>     <C>             <C>     <C>
10 year CMT     51%    Monthly          83%    CMO -- Collateralized Mortgage Obligation
COFI            26%    Quarterly         6%    COFI -- FHLB 11th District cost-of-funds index
7 year CMT       7%    Semi-annually     9%    CMT -- Index of constant maturing U.S. Treasury
                                                      securities
Dual Index       4%    Annually          2%    MBS -- Mortgage Backed Securities
                                       ----
1 month LIBOR    1%                            LIBOR -- London Interbank Offered Rate index
                       Total           100%
                                       ====
3 month LIBOR    3%                            N.M. -- Not meaningful
 
Prime            2%                            N.A. -- Not applicable
1 year CMT       3%
Other            3%
               ----
        Total  100%
               ====
</TABLE>
 
---------------
 
(1) The coupon on these securities is set at the 10 year CMT less the 6 month
    LIBOR plus 4.75%.
 
     The average lives or maturities of most of Vectra's mortgage related
securities are impacted by mortgage prepayment rates which are significantly
affected by changes in interest rates. The increases in interest rates during
1994 substantially reduced mortgage prepayment rates which resulted in
significant extensions of in the expected average lives of most of the CMOs. The
extension of average CMO lives combined with other factors contributed to
declines in the market values of the CMOs. There can be no assurance that market
values will not decline further.
 
     See the "Investing Activities" section of "Management's Discussion and
Analysis of Financial Condition and Results of Operation" for further discussion
about the structure and performance of individual segments of Vectra's
investment portfolio. Also see Note 5 of Notes to Consolidated Financial
Statements for disclosures regarding two securities which are considered
derivative financial instruments and have a combined face value of $10.75
million.
 
     Substantially all of Vectra's investment portfolio is held in the
available-for-sale classification. As a result, Vectra reflects a mark-to-market
adjustment on its entire portfolio (net of taxes) in shareholders' equity.
Because of the series of interest rate increases in 1994, the bond market
suffered its most volatile year
 
                                       13
<PAGE>   14
 
in decades. This contributed to a substantial decline in the market values of
Vectra's investments during 1994. Market values improved since then and the
unrealized losses on securities available for sale decreased from 5.8% of the
portfolio or a $7.7 million adjustment against equity at December 31, 1994 to
3.1% of the portfolio or a $3.8 million adjustment against equity at December
31, 1996. Management believes that Vectra's capital and liquidity are more than
adequate to allow it to continue to hold its investment portfolio. It also
expects that the passage of time and further restructuring of the portfolio will
reduce its exposure to market value and basis risk.
 
     Market value estimates for all securities are obtained from multiple
dealers monthly, including the dealers from whom securities have been purchased,
but independent valuation estimates are always obtained from other dealers as
well.
 
DEPOSITS
 
     Vectra's primary source of funds has historically been customer deposits.
Vectra focuses on maintaining a high percentage of noninterest-bearing deposits,
which provide low cost funds and result in higher interest margins. At December
31, 1996, noninterest-bearing deposits comprised 27.9% of total deposits. Vectra
has not sought brokered deposits.
 
     The following table presents the average balances for each major category
of deposits and the weighted average interest rates paid for interest-bearing
deposits for the period indicated.
 
<TABLE>
<CAPTION>
                                                                          YEAR ENDED DECEMBER 31,
                                                    --------------------------------------------------------------------
                                                            1996                    1995                    1994
                                                    --------------------    --------------------    --------------------
                                                                AVERAGE                 AVERAGE                 AVERAGE
                                                    AVERAGE     INTEREST    AVERAGE     INTEREST    AVERAGE     INTEREST
                                                    BALANCE       COST      BALANCE       COST      BALANCE       COST
                                                    --------    --------    --------    --------    --------    --------
                                                                           (DOLLARS IN THOUSANDS)
<S>                                                 <C>         <C>         <C>         <C>         <C>         <C>
NOW and money market accounts.....................  $ 78,227      2.52%     $ 65,715      2.62%     $ 70,884      2.19%
Savings...........................................   117,270      4.20%       87,072      4.42%       83,521      3.57%
Time certificates of deposit under $100,000.......    56,242      5.49%       41,445      5.56%       19,996      3.48%
Time certificates of deposit $100,000 and over....    20,462      5.53%       11,345      5.62%        7,669      3.77%
                                                    --------                --------                --------
        Total interest-bearing demand deposits....   272,201      4.09%      205,577      4.14%      182,070      3.03%
Noninterest-bearing demand deposits...............    95,555                  76,072                  77,733
                                                    --------                --------                --------
        Total Deposits............................  $367,756      3.02%     $281,649      3.02%     $259,803      2.12%
                                                    ========                ========                ========
</TABLE>
 
     The following table sets forth the amount and maturity of CDs that had
balances of more than $100,000 at December 31, 1996.
 
<TABLE>
<CAPTION>
                     REMAINING MATURITY                       (DOLLARS IN
                     ------------------                       THOUSANDS)
<S>                                                           <C>
Less than three months......................................    $ 6,319
Three months up to six months...............................     10,381
Six months up to one year...................................     15,115
One year and over...........................................      2,594
                                                                -------
          Total.............................................    $34,409
                                                                =======
</TABLE>
 
FHLB BORROWINGS
 
     Vectra is a member of the FHLB of Topeka, which is one of 12 regional
Federal Home Loan Banks. The FHLB system functions as a central bank providing
credit for members. As a member of the FHLB, Vectra is entitled to borrow funds
from the FHLB and is required to own FHLB stock in an amount determined by
formula based upon Vectra's holdings of mortgage related assets and its FHLB
borrowings. Vectra uses FHLB borrowings to supplement deposits as a source of
funds. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Asset/Liability Management." At December 31, 1996
Vectra's total available and unused borrowing capacity with the FHLB was $88.1
million, which was available
 
                                       14
<PAGE>   15
 
through a line of credit and term advances. FHLB borrowings are collateralized
by Vectra's FHLB stock, other investment securities and certain loans.
 
     Vectra can choose from a variety of terms and maturities when it borrows
from the FHLB. Maturities available range generally from one day to 10 years.
Interest rates can be either fixed or variable and prepayment options are
available if desired. The FHLB offers both amortizing and nonamortizing
advances. To date, FHLB stock has been redeemable at the preset price of $100
per share, but there can be no assurance that this will continue to be the case.
 
     The table below sets forth information relating to Vectra's FHLB
borrowings.
 
<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                                              -------------------------------
                                                               1996        1995        1994
                                                              -------    --------    --------
                                                                  (DOLLARS IN THOUSANDS)
<S>                                                           <C>        <C>         <C>
Due within one year of December 31
  Due in 60 days or less....................................  $35,000    $ 58,000    $136,000
  Overnight borrowings......................................   23,700      11,345      26,190
                                                              -------    --------    --------
          Total borrowings at December 31...................  $58,700    $ 69,345    $162,190
                                                              =======    ========    ========
Weighted average rate at end of period......................     6.08%       6.00%       6.24%
                                                              =======    ========    ========
Average borrowings outstanding for the period...............  $64,743    $123,083    $114,986
                                                              =======    ========    ========
Weighted average interest rate for the period...............     5.48%       6.08%       4.71%
                                                              =======    ========    ========
Maximum borrowings outstanding at any month-end during the
  period....................................................  $78,700    $167,500    $175,250
                                                              =======    ========    ========
</TABLE>
 
COMPETITION
 
     Vectra faces a high degree of competition. In its marketplace, there are
numerous small banks and a few larger banking groups with assets in excess of
$1.0 billion, including Norwest Bank, Colorado National Bank (a subsidiary of
First Bank Systems of Minneapolis), Banc One, Wells Fargo, Key Bank FirstBank
Holding Company of Colorado and First Federal Bank of Colorado. Also, World
Savings and Commercial Federal Savings, both owned by large out-of-state holding
companies, operate numerous branches in the Denver/ Boulder area. Vectra also
competes with insurance companies, savings and loan associations, credit unions,
leasing companies, mortgage companies, and other financial service providers.
Many of the banks and other financial institutions with which Vectra competes
have capital resources and legal lending limits substantially in excess of the
capital resources and legal lending limits of Vectra.
 
     Vectra competes for loans and deposits principally based on the range and
quality of services provided, interest rates, loan fees and office locations.
Vectra actively solicits deposit customers and competes by offering them
attractive products and personal and professional service. Over the past few
years, competition has increased as a result of changes in Colorado banking laws
that permit statewide branching and allow out-of-state holding companies to
acquire Colorado-based financial institutions. Vectra believes its customer
service, broad product line and banking network enable it to compete in its
market area.
 
GOVERNMENT REGULATION
 
     Vectra and Vectra Bank are extensively regulated under federal and Colorado
law. These laws and regulations are primarily intended to protect depositors and
the deposit insurance fund of the Federal Deposit Insurance Corporation
("FDIC"), not shareholders of Vectra. The following information is qualified in
its entirety by reference to the particular statutory and regulatory provisions.
Any change in applicable laws, regulations or regulatory policies may have a
material effect on the business, operations and prospects of Vectra and Vectra
Bank. Vectra is unable to predict the nature or extent of the effects that
fiscal or monetary policies, economic controls or new federal or state
legislation may have on its business and earnings in the future.
 
                                       15
<PAGE>   16
 
VECTRA
 
     General. Vectra is a bank holding company registered under the Bank Holding
Company Act of 1956, as amended, and is subject to regulation, supervision and
examination by the Board of Governors of the Federal Reserve ("Board of
Governors"). Vectra is required to file an annual report and such other reports
as the Board of Governors now requires or may require.
 
     Acquisitions. As a bank holding company, Vectra is required to obtain the
prior approval of the Board of Governors before acquiring direct or indirect
ownership or control of more than 5% of the voting shares of a bank or bank
holding company. The Board of Governors will not approve any acquisition, merger
or consolidation that would have a substantial anti-competitive result, unless
the anti-competitive effects of the proposed transaction are outweighed by a
greater public interest in meeting the needs and convenience of the public. The
Board of Governors also considers managerial, capital and other financial
factors in acting on acquisition or merger applications.
 
     Permissible Activities. A bank holding company may not engage in, or
acquire direct or indirect control of more than 5% of the voting shares of any
company engaged in a non-banking activity, unless such activity has been
determined by the Board of Governors to be closely related to banking or
managing banks. The Board of Governors has identified specific non-banking
activities in which a bank holding company may engage with notice to, or prior
approval by, the Board of Governors.
 
     Capital Adequacy. The Board of Governors monitors the capital adequacy of
bank holding companies. As discussed below, Vectra Bank is also subject to the
capital adequacy requirements of the Board of Governors and the Division of
Banking for the State of Colorado. The Board of Governors uses a combination of
risk-based guidelines and leverage ratios to evaluate capital adequacy.
 
     The Board of Governors has adopted a system using risk-based capital
adequacy guidelines to evaluate the capital adequacy of bank holding companies
on a consolidated basis. Under the risk-based capital guidelines, different
categories of assets are assigned different risk weights, based generally on the
perceived credit risk of the asset. These risk weights are multiplied by
corresponding asset balances to determine a "risk-weighted" asset base. Certain
off balance sheet items, such as loan commitments in excess of one year,
mortgage loans sold with recourse and letters of credit, are added to the
risk-weighted asset base by converting them to a balance sheet equivalent and
assigning to them the appropriate risk weight. For purposes of the risk-based
capital guidelines, total capital is defined as the sum of "Tier 1" and "Tier 2"
capital elements, with Tier 2 being limited to 100% of Tier 1. For bank holding
companies, Tier 1 capital includes, with certain restrictions, common
shareholders' equity, perpetual preferred stock (no more than 25% of Tier 1
capital being comprised of cumulative preferred stock) and minority interests in
consolidated subsidiaries. Tier 2 capital includes, with certain limitations,
certain forms of perpetual preferred stock, as well as maturing capital
instruments and the allowance for loan losses (limited to 1.25% of risk-weighted
assets). The regulatory guidelines require a minimum ratio of total capital to
risk-weighted assets of 8% (of which at least 4% should be in the form of Tier 1
capital).
 
     The Vectra $.95 Series A Preferred Stock (the "1994 Preferred Stock") is
perpetual preferred stock (i.e. stock that Vectra is never required to redeem)
in order to comply with the requirements for Tier 1 capital. However, because
the 1994 Preferred Stock contains provisions for cumulative dividends, it cannot
be used to make up more than 25% of Vectra's total Tier 1 capital. At December
31, 1996, Vectra's Tier 1 capital was $41.2 million. This results in all of the
1994 Preferred Stock being classified as Tier 1 capital at December 31, 1996.
 
     In addition to the risk-based capital guidelines, the Board of Governors
and the FDIC use a leverage ratio as an additional tool to evaluate the capital
adequacy of banks and bank holding companies. The leverage ratio is defined to
be a company's Tier 1 capital divided by its tangible assets. Based upon the
current capital status of Vectra, the applicable minimum required leverage ratio
is estimated to be 5%.
 
                                       16
<PAGE>   17
 
     The table below sets forth ratios of (i) total capital risk-weighted
assets, (ii) Tier 1 capital to risk-weighted assets and (iii) Tier 1 capital to
tangible assets, at December 31, 1996.
 
<TABLE>
<CAPTION>
                                                                 AT DECEMBER 31, 1996
                                                              --------------------------
                           RATIO                              ACTUAL    MINIMUM REQUIRED
                           -----                              ------    ----------------
<S>                                                           <C>       <C>
Total capital to risk-weighted assets.......................   11.6%          8.0%
Tier 1 capital to risk-weighted assets......................   10.5%          4.0
Tier 1 capital to tangible assets...........................    7.0%          5.0
</TABLE>
 
     Failure to meet the capital guidelines may result in the initiation by the
Board of Governors of appropriate supervisory or enforcement actions.
 
VECTRA BANK
 
     General. Vectra Bank is a Colorado banking corporation, the deposits of
which are insured by the FDIC, and are subject to supervision and regulation by
the Board of Governors and the Colorado Division of Banking.
 
     Permissible Activities. No Colorado bank may engage in any activity not
permitted for national banks, unless the institution complies with applicable
capital requirements and the FDIC determines that the activity poses no
significant risk to the insurance fund. This limitation does not now affect
Vectra Bank, since it is not presently involved in the types of transactions
covered by this limitation.
 
     Branching. Colorado has no limitations on the number of branches a bank may
establish.
 
     Community Reinvestment Act. Enacted in 1977, the federal Community
Reinvestment Act ("CRA") has become increasingly important to financial
institutions, including their holding companies. The CRA currently allows
regulators to turn down an applicant seeking to make an acquisition or establish
a branch unless it has performed satisfactorily under the CRA. Satisfactory
performance means meeting adequately the credit needs of the communities the
applicant serves. The applicable federal regulators now regularly conduct CRA
examinations to assess the performance of financial institutions. During the
last examination, Vectra received an outstanding rating. As a result, management
believes that Vectra's performance under CRA will not impede regulatory
approvals of proposed acquisitions or branching opportunities.
 
     Cross-Guarantee. Under the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA"), a depository institution insured by the FDIC
can be held liable for any loss incurred by, or reasonably expected to be
incurred by, the FDIC in connection with (i) the default of a commonly
controlled FDIC-insured depository institution or (ii) any assistance provided
by the FDIC to a commonly controlled FDIC-controlled institution in danger of
default. "Default" is defined generally as the appointment of a conservator or
receiver and "in danger of default" is defined generally as the existence of
certain conditions indicating that a "default" is likely to occur in the absence
of regulatory assistance.
 
     Dividend Restrictions. Dividends paid by Vectra Bank provide substantially
all of the operating and investing cash flow of Vectra. Under Colorado law and
Board of Governors policies, the approval of the principal regulator is required
prior to the declaration of any dividend by a bank if the total of all dividends
declared in any calendar year exceed the total of its net profits of that year
combined with its retained net profits for the preceding two years. In addition,
a bank cannot pay a dividend if it will cause the bank to be "undercapitalized."
 
     Examinations. The Board of Governors periodically examines and evaluates
state-chartered banks that are members of the Federal Reserve System. Based upon
such an evaluation, the examining regulator may revalue the assets of an insured
institution and require that it establish specific reserves to compensate for
the difference between the value determined by the regulator and the book value
of such assets.
 
     The Colorado Division of Banking also conducts examinations of the
state-chartered banks. The Division may accept the results of a federal
examination in lieu of conducting an independent examination. The Colorado
Division of Banking also has the authority to revalue the assets of a
state-chartered institution and require it to establish reserves.
 
                                       17
<PAGE>   18
 
     Capital Adequacy. The Board of Governors has adopted regulations
establishing minimum requirements for the capital adequacy of insured
institutions. The requirements address both risk-based capital and leverage
capital, with risk-based assets and Tier 1 and Tier 2 capital being determined
in basically the same manner as described above for bank holding companies. The
Board of Governors may establish higher minimum requirements if, for example, a
bank has previously received special attention or has a high susceptibility to
interest rate risk.
 
     The Board of Governors risk-based capital guidelines require state banks to
have a ratio of Tier 1 or core capital to total risk-weighted assets of 4% and a
ratio of total capital to total risk-weighted assets of 8%.
 
     The Board of Governors leverage guidelines require that state banks
maintain Tier 1 capital of no less than 3% and up to 5% of total tangible
assets. Based on the current capital status of Vectra Bank, the applicable
guideline is estimated to be 5%. Banks with capital ratios below the required
minimum are subject to certain administrative actions, including the termination
of deposit insurance upon notice and hearing, or a temporary suspension of
insurance without a hearing in the event the institution has no tangible
capital.
 
     The table below sets forth Vectra Bank's capital ratios at December 31,
1996.
 
<TABLE>
<CAPTION>
                                                                AT DECEMBER 31, 1996
                                                             --------------------------
                           RATIO                             ACTUAL    MINIMUM REQUIRED
                           -----                             ------    ----------------
<S>                                                          <C>       <C>
Total capital to risk-weighted assets......................  12.2%            8.0%
Tier 1 capital to risk-weighted assets.....................  11.1%            4.0
Tier 1 capital to tangible assets..........................   7.4%            5.0
</TABLE>
 
     Banking regulators have adopted regulations that define five capital
levels: well capitalized, adequately capitalized, undercapitalized, severely
undercapitalized and critically undercapitalized. An institution is critically
undercapitalized if it has a tangible equity to total assets ratio that is equal
to or less than 2%. An institution is well capitalized if it has a total
risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of
6% or greater, and a Tier 1 leverage ratio of 5% or greater, and the institution
is not subject to an order, written agreement, capital directive, or prompt
corrective action directive to meet and maintain a specific capital level for
any capital measure. An institution is adequately capitalized if it has a total
risk-based capital ratio of less than 10% but not less than 8%, a Tier 1
risk-based capital ratio of less than 6% but not less than 4% and a leverage
ratio of less than 5% but not less than 4%. Under these regulations, as of
December 31, 1996, Vectra Bank was well capitalized.
 
     Federal Deposit Insurance Corporation Improvement Act ("FDICIA") requires
the federal banking regulators to take "prompt corrective action" with respect
to capital-deficient institutions. In addition to requiring the submission of a
capital restoration plan, FDICIA contains broad restrictions on certain
activities of undercapitalized institutions involving asset growth,
acquisitions, branch establishment, and expansion into new lines of business.
With certain exceptions, an insured depository institution is prohibited from
making capital distributions, including dividends, and is prohibited from paying
management fees to control persons if the institution would be undercapitalized
after any such distribution or payment.
 
     As an institution's capital decreases, the powers of the federal regulators
become greater. A significantly undercapitalized institution is subject to
mandated capital raising activities, restrictions on interest rates paid and
transactions with affiliates, removal of management, and other restrictions. The
regulators have very limited discretion in dealing with a critically
undercapitalized institution and are virtually required to appoint a receiver or
conservator if the capital deficiency is not corrected promptly.
 
     Real Estate Lending Evaluations. The federal regulators have adopted
uniform standards for evaluations of loans secured by real estate or made to
finance improvements to real estate. Banks are required to establish and
maintain written internal real estate lending policies consistent with safe and
sound banking practices and appropriate to the size of the institution and the
nature and scope of its operations. The regulations establish loan to value
ratio limitations on real estate loans, which are equal to or higher than the
loan to value limitations established by Vectra Bank.
 
                                       18
<PAGE>   19
 
     Deposit Insurance Premiums. Effective January 1, 1996, the assessment
schedule for banks will range from 0 to 27 cents per $100 of deposits subject to
Bank Insurance Fund ("BIF") assessments, based on each institution's risk
classification. Vectra Bank's insured deposits are subject to assessment payable
to BIF. An institution's risk classification is based on an assignment of the
institution by the FDIC to one of three capital groups and to one of three
supervisory subgroups. The capital groups are "well capitalized," "adequately
capitalized" and "undercapitalized." The three supervisory subgroups are Group
"A" (for financially solid institutions with only a few minor weaknesses), Group
"B" (for those institutions with weaknesses which, if uncorrected could cause
substantial deterioration of the institution and increase the risk to the
deposit insurance fund) and Group "C" (for those institutions with a substantial
probability of loss to the fund absent effective corrective action). Currently,
Vectra Bank is a well capitalized institution and a Group A supervisory
subgroup.
 
     Interstate Banking Legislation. On September 29, 1994, the Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Act")
was enacted into Federal Law. Under the Interstate Act, commencing on September
29, 1995, bank holding companies will be permitted to acquire banks located in
any state regardless of the state law in effect at the time. The Interstate Act
also provides for the nationwide interstate branching of banks. Under the
Interstate Act, both national and state chartered banks will be permitted to
merge across state lines (and to thereby create interstate branches) commencing
July 1, 1997. States are permitted to "opt-out" of the interstate branching
authority by taking action prior to the commencement date. States may also
"opt-in" early (i.e., prior to July 1, 1997) to the interstate branching
provisions. Colorado has neither "opted-in" nor "opted-out" of the interstate
branching provisions and therefore out of state banks may branch into Colorado
after June 30, 1997 in accordance with applicable laws. Vectra does not
currently have any plans generally to take any actions permitted by the
Interstate Act.
 
CHANGING REGULATORY STRUCTURE
 
     The laws and regulations affecting banks and bank holding companies are in
a state of flux. The rules and the regulatory agencies in this area have changed
significantly over recent years, and there is reason to expect that similar
changes will continue in the future. It is difficult to predict the outcome of
these changes.
 
     One of the major additional burdens imposed on the banking industry is the
increased authority of federal agencies to regulate the activities of federal
and state banks and their holding companies. The Board of Governors, the
Comptroller of the Currency and FDIC have extensive authority to police unsafe
or unsound practices and violations of applicable laws and regulations by
depository institutions and their holding companies. These agencies can assess
civil money penalties and other laws have expanded the agencies' authority in
recent years, and the agencies have not yet fully tested the limits of their
powers. In addition, the Colorado Division of Banking possesses certain
enforcement powers to address violations of the Colorado Banking Code by
Colorado state-chartered banks.
 
EFFECT ON ECONOMIC ENVIRONMENT
 
     The policies of regulatory authorities, including the monetary policy of
the Board of Governors, have a significant effect on the operating results of
bank holding companies and their subsidiaries. Among the means available to the
Board of Governors to affect the money supply are open market operations in U.S.
Government securities, changes in the discount rate on member bank borrowings,
and changes in reserve requirements against member bank deposits. These means
are used in varying combinations to influence overall growth and distribution of
bank loans, investments and deposits, and their use may affect interest rates
charged on loans or paid on deposits.
 
     The Board of Governors' monetary policies have materially affected the
operating results of commercial banks in the past and are expected to continue
to do so in the future. The nature of future monetary policies and the effect of
such policies on the business and earnings of Vectra and its subsidiaries cannot
be predicted.
 
                                       19
<PAGE>   20
 
EFFECT ON ECONOMIC ENVIRONMENT
 
     The policies of regulatory authorities, including the monetary policy of
the Board of Governors, have a significant effect on the operating results of
bank holding companies and their subsidiaries. Among the means available to the
Board of Governors to affect the money supply are open market operations in U.S.
Government securities, changes in the discount rate on member bank borrowings,
and changes in reserve requirements against member bank deposits. These means
are used in varying combinations to influence overall growth and distribution of
bank loans, investments and deposits, and their use may affect interest rates
charged on loans or paid on deposits.
 
     Board of Governors monetary policies have materially affected the operating
results of commercial banks in the past and are expected to continue to do so in
the future. The nature of future monetary policies and the effect of such
policies on the business and earnings of Vectra and its subsidiaries cannot be
predicted.
 
FORWARD-LOOKING STATEMENTS
 
     Information contained in this Form 10-K contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995,
which can be identified by the use of words such as "may," "will," "believes,"
"are finalizing," "goal," "objective(s)," "is (are)," "is scheduled for
completion," "plans to," "anticipates," "would likely," or variations thereon or
comparable terminology. In addition, all statements other than statements of
historical facts that address activities, events or developments that Vectra
expects, believes or anticipates, will or may occur in the future, and other
such matters, are forward-looking statements.
 
     Vectra's future results may vary materially from those anticipated by
management, and may be affected by various trends and factors which are beyond
Vectra's control. These risks include, among other factors disclosed elsewhere
herein, the competitive banking environment in which Vectra operates, risks
relating to Vectra's growth strategy, changes in general economic conditions and
interest rates, rapid or unexpected changes in technologies and other uncertain
business conditions that affect Vectra's business.
 
EMPLOYEES
 
     At December 31, 1996, Vectra had approximately 310 full-time equivalent
employees. Vectra places a high priority on staff development, including
customer service training. New employees are selected on the basis of both
technical skills and customer service capabilities. Staff development involves
training in customer service, marketing and regulatory compliance. None of the
employees of Vectra is covered by a collective bargaining agreement and
management believes that its relationship with its employees is good.
 
EXECUTIVE OFFICERS OF THE REGISTRANT
 
     The executive officers of Vectra are as follows:
 
<TABLE>
<CAPTION>
          NAME            AGE                          POSITION
          ----            ---                          --------
<S>                       <C>    <C>
Gary S. Judd              56     President, Chief Executive Officer and Director of
                                   Vectra and President of Vectra and Vectra Bank
Robert C. Barton          45     President of Vectra Mortgage Group
J. Patrick McDuff         48     Regional President of Vectra Bank
Michael Y. Meganck        45     Senior Credit Policy Officer
Gary A. Mosko             52     Executive Vice President and Director of Vectra and
                                   Regional President of Vectra Bank
Ray L. Nash               45     Chief Financial Officer
Robert A. Silverberg      61     Executive Vice President and Director
Joseph J. Wolf            41     Regional President of Vectra Bank
</TABLE>
 
     There are no family relationships among any of the directors and executive
officers of Vectra. All directors hold office until the next meeting of
shareholders or until their successors are elected and qualified.
 
                                       20
<PAGE>   21
 
     Gary S. Judd has been President, Chief Executive Officer and a director of
Vectra since he and James Tozer founded it in March 1988. Mr. Judd's previous
experience includes over 16 years of employment with Citicorp and Citibank, N.A.
in a broad range of senior managerial positions both internationally and in the
United States.
 
     Robert C. Barton has served as Vectra Mortgage Group President, Regional
President or Consumer Business Sector Head since June 1989. From 1974 through
May 1989, Mr. Barton was employed by Citicorp in various positions, ending his
tenure as Senior Vice President of the origination and industrial bank
operations for Citicorp Mortgage in the western United States.
 
     Ray L. Nash has been Chief Financial Officer since July 1989. From March
1984 through June 1989, Mr. Nash was employed by WestAmerica Mortgage Company as
Vice President and Controller.
 
     Michael Y. Meganck has been Senior Credit Policy Officer since May 1989. He
was self employed as a business consultant from 1986 until joining Vectra. Mr.
Meganck worked with Crocker National Bank and Wells Fargo in various capacities
from 1978 to 1986.
 
     Gary A. Mosko became Executive Vice President and Director of Vectra and
Regional President of Vectra's Southwest branch in June 1996. Prior to joining
Vectra Bank, Mr. Mosko was with Southwest State Bank for 23 years, serving as
President the last 15 years.
 
     J. Patrick McDuff has been President of Vectra Bank of Boulder or Regional
President of Vectra since July 1987. Mr. McDuff serves as a director of Black
Hawk Gaming & Development Company, Inc., a Nasdaq National Market listed
company.
 
     Joseph J. Wolf has served as Regional President of Vectra Bank since
December 1993. Mr. Wolf served as President of Vectra Bank of Denver from
December 1991 until it was merged into Vectra in November 1993, and as Vice
President of Vectra Bank from February 1990 through December 1991. From November
1981 through January 1990, he was employed by United Banks, Denver, Colorado,
ending his employment as Vice President and Manager of Commercial Lending.
 
     Robert A. Silverberg has been Executive Vice President and Director of
Vectra since November 1995. From 1981 until joining Vectra, he was Chairman of
the Board of First Denver Corporation and First National Bank of Denver. He is
also a director of Vanguard Cellular Systems, Inc., a corporation with a class
of equity securities registered under the Securities Exchange Act of 1934.
 
ITEM 2. PROPERTIES.
 
     Vectra owns seven of its banking facilities which aggregate approximately
94,000 square feet of building area, of which approximately 70,000 square feet
are used for banking services. Substantially all of the space not used by Vectra
was leased to third parties at December 31, 1996. Vectra leases its other five
banking facilities, which total approximately 18,800 square feet. Vectra also
leases a 4,150 square foot service facility for its back office support systems.
Vectra believes that its existing facilities are in good condition and are
adequate to meet its current and future needs at such locations.
 
ITEM 3. LEGAL PROCEEDINGS.
 
     Periodically and in the ordinary course of business, various claims and
lawsuits which are incidental to the business of Vectra are brought against or
by Vectra. In the opinion of management, the ultimate liability, if any,
resulting from such claims or lawsuits will not have a material adverse effect
on the financial position or results of operations of Vectra.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
 
     There were no matters submitted to a vote of Vectra's security holders
during the fourth quarter of 1996.
 
                                       21
<PAGE>   22
 
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
 
     The following table sets forth, for the calendar quarters indicated, the
high and low closing prices per share of Vectra common stock as reported on the
Nasdaq National Market. These quotations represent the prices between dealers
and do not include retail mark ups, mark downs or commissions and may not
represent actual transactions.
 
<TABLE>
<CAPTION>
                                                          1996
                                          ------------------------------------
                                          FOURTH    THIRD     SECOND    FIRST
                                          ------    ------    ------    ------
<S>                                       <C>       <C>       <C>       <C>
High....................................  $18.50    $15.25    $13.25    $13.25
Low.....................................   14.50     12.50     12.00     11.00
</TABLE>
 
<TABLE>
<CAPTION>
                                                          1995
                                          ------------------------------------
                                          FOURTH    THIRD     SECOND    FIRST
                                          ------    ------    ------    ------
<S>                                       <C>       <C>       <C>       <C>
High....................................  $12.25    $12.00    $10.50    $10.63
Low.....................................   10.13     10.25      9.50      9.00
</TABLE>
 
     At March 7, 1996 the Company had approximately 200 holders of record of its
common stock; management estimates that the number of beneficial owners is
significantly greater.
 
     Vectra's policy is to retain its earnings to support the growth of its
business. The board of directors of Vectra has never declared cash dividends on
the Vectra common stock and has no current plans to do so. Further, the ability
of Vectra to pay cash dividends largely depends on the amount of cash dividends
paid to it by Vectra Bank. Capital distributions, including dividends by Vectra
Bank are subject to federal and state regulatory restrictions tied to Vectra
Bank's earnings and capital. See "Supervision and Regulation -- Vectra
Bank -- Dividend Restrictions" in Item 1 above.
 
ITEM 6. SELECTED FINANCIAL DATA.
 
     The selected consolidated financial data presented below should be read in
conjunction with and are qualified by the more detailed Consolidated Financial
Statements and Notes thereto of Vectra included herein.
 
                                       22
<PAGE>   23
 
                            SELECTED FINANCIAL DATA
 
<TABLE>
<CAPTION>
                                                 AT OR FOR THE YEAR ENDED DECEMBER 31,
                                          ----------------------------------------------------
                                            1996       1995       1994       1993       1992
                                          --------   --------   --------   --------   --------
                                             (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                       <C>        <C>        <C>        <C>        <C>
STATEMENTS OF OPERATIONS:
  Interest income.......................  $ 37,957   $ 34,253   $ 28,543   $ 18,700   $ 17,385
  Interest expense......................    15,230     16,330     11,172      5,912      6,044
  Net interest income...................    22,727     17,923     17,371     12,788     11,341
  Provision for loan losses.............       916        795        794        283        363
  Other income..........................     4,492      3,820      3,507      4,001      3,988
  Other expenses........................    17,918     15,871     15,052     14,752     13,421
                                          --------   --------   --------   --------   --------
          Net earnings..................  $  5,445   $  3,303   $  2,675   $  2,410   $  1,518
                                          ========   ========   ========   ========   ========
BALANCE SHEET:
  Total assets..........................  $561,811   $417,806   $462,314   $293,700   $262,625
  Net loans.............................   315,667    204,171    179,766    140,750    125,316
  Nonperforming assets(1)...............     3,550      2,369      2,477      3,077      5,323
  Deposits..............................   439,351    307,085    268,184    250,111    205,097
  Shareholders' equity..................    45,435     30,185     23,593     17,353     15,048
AVERAGE BALANCE SHEET:
  Total assets..........................   483,092    440,189    406,201    274,690    232,784
  Net loans.............................   252,448    185,355    158,799    134,582    125,341
  Earning assets........................   438,062    405,357    373,048    241,124    198,610
  Deposits..............................   367,756    281,649    259,803    222,585    188,847
PER SHARE:
  Earnings per common share and common
     equivalent share...................      1.31       0.79       0.69       0.95       0.63
  Earnings per common share assuming
     full dilution......................      1.26       0.78       0.69       0.95       0.63
  Book value per pro forma fully
     converted common share(4)..........      9.28       6.93       4.86       5.91       4.69
  Tangible book value per pro forma
     fully converted common share(4)....      7.30       6.84       4.86       5.91       4.69
KEY RATIOS:
  Net interest margin...................      5.20%      4.42%      4.66%      5.30%      5.71%
  Net interest spread...................      4.29       3.57       3.95       4.68       5.04
  Return on average assets..............      1.13       0.75       0.66       0.88       0.65
  Return on average common equity.......     15.74      13.41      12.65      15.37      11.61
  Shareholders' equity to total
     assets.............................      8.09       7.22       5.10       5.91       5.73
  Nonperforming assets to total
     assets.............................      0.63       0.57       0.54       1.05       2.03
  Nonperforming loans to total loans....      0.79       0.67       0.62       1.34       2.52
  Allowance for loan losses to total
     loans..............................      1.32       1.21       1.10       1.62       1.63
  Allowance for loan losses to
     nonperforming loans................    166.92     181.31     176.75     121.42      64.68
</TABLE>
 
---------------
 
(1) Includes loans 90 days or more delinquent and still accruing interest,
    nonaccrual loans, restructured loans and real estate and other assets
    acquired by foreclosure.
 
(2) First Denver Corporation (FDC) merged with Vectra in November 1995, in a
    pooling of interests. Accordingly, all financial statements included herein
    reflect combined Vectra and FDC for all periods presented (see Note 2 in
    Notes to Consolidated Financial Statements).
 
(3) In June 1996, Vectra acquired Southwest State Bank and its parent Bank Land
    Company (Southwest) in a transaction accounted for using purchase
    accounting. Accordingly, Southwest's balances and results of operations have
    been included in Vectra's financial statements only from the date of
    acquisition forward (see Note 2 in Notes to Consolidated Financial
    Statements).
 
(4) Assumes the conversion of $10,970,000 of $100 Series A Convertible Preferred
    stock into 827,992 shares of common stock.
 
                                       23
<PAGE>   24
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS
 
BUSINESS ENVIRONMENT AND RISK FACTORS
 
     The following discussion should be read in conjunction with the
consolidated financial statements and related notes included elsewhere herein.
Vectra's future operating results may be affected by various trends and factors
which are beyond Vectra's control. These include, among other factors, the
competitive banking environment in which Vectra operates, dependence on key
personnel, changes in allowances for loan losses, risks relating to Vectra's
growth strategy, changes in general economic conditions and interest rates,
rapid or unexpected changes in technologies and other uncertain business
conditions that affect Vectra's business. Accordingly, past results and trends
may not be reliable indicators of future results or trends.
 
     With the exception of historical information, the matters discussed below
may include forward-looking statements that involve risks and uncertainties.
Vectra wishes to caution readers that a number of important factors discussed
herein, and in other reports filed with the Securities and Exchange Commission,
could affect Vectra's actual results and cause actual results to differ
materially from those in the forward-looking statements.
 
OVERVIEW
 
     Vectra's net income is derived primarily from net interest income. Net
interest income is the difference between interest income, principally from
loans and investment securities, and interest expense, principally on customer
deposits and borrowings. Changes in net interest income result from changes in
volume, net interest spread and net interest margin. Volume refers to the
average dollar levels of interest-earning assets and interest-bearing
liabilities. Net interest spread refers to the difference between the average
yield on interest-earning assets and the average cost of interest-bearing
liabilities. Net interest margin refers to net interest income divided by
average interest-earning assets and is influenced by the level and relative mix
of interest-earning assets and interest-bearing liabilities.
 
     One of Vectra's strategies has been to leverage its capital to maximize
earnings capacity. In executing this strategy, Vectra has borrowed from the
Federal Home Loan Bank ("FHLB"). These borrowings, which generally adjust
monthly, have been used in part to fund loan growth but to a larger extent to
fund the purchase of additional adjustable rate securities, which also generally
adjust monthly, semiannually or annually.
 
     Vectra's objectives are to increase loans as a percent of total assets and
to fund growth in its asset base with growth in deposits and equity to the
extent possible. However, the Company plans to maintain an appropriate level of
wholesale funding, including borrowings from the FHLB, as a means of enhancing
overall earnings and return on equity. In pursuing these objectives, Vectra
expects overall yields on assets to increase -- since loans produce higher
yields than investments -- and further expects to minimize potential volatility
in the performance and market value of its investment portfolio as investments
become a smaller percent of total assets. The combination of internal growth and
the pooling-of-interests merger with First Denver Corporation in 1995 and the
acquisition of Southwest State Bank in 1996 have allowed Vectra to achieve
progress towards these objectives. The ratio of loans to total assets has
increased to 56.9% at the end of 1996 compared to 49.5% at the end of 1995 and
39.3% at the end of 1994. Borrowings from the FHLB have decreased to 10.6% of
assets at the end of 1996 from 16.8% at the end of 1995 and 35.1% at the end of
1994. Net interest margin increased to 5.20% in 1996 compared to 4.42% in 1995
and 4.66% in 1994.
 
                                       24
<PAGE>   25
 
NET INTEREST INCOME
 
     The following tables set forth information for the periods indicated with
regard to average balances of assets and liabilities, as well as the total
dollar amounts of interest income from interest-earning assets and interest
expense on interest-bearing liabilities, resultant yields or costs, net interest
income, net interest spread, net interest margin and the ratio of average
interest-earning assets to average interest-bearing liabilities for Vectra.
These schedules have been adjusted to a fully taxable equivalent basis for 1996.
There were no adjustments for 1995 and 1994 related to tax-exempt interest as
such interest was not significant prior to 1996.
 
<TABLE>
<CAPTION>
                                                              AS OF AND FOR THE YEAR ENDED DECEMBER 31,
                                    ---------------------------------------------------------------------------------------------
                                                1996                            1995                            1994
                                    -----------------------------   -----------------------------   -----------------------------
                                               INTEREST   AVERAGE              INTEREST   AVERAGE              INTEREST   AVERAGE
                                    AVERAGE     EARNED     YIELD    AVERAGE     EARNED     YIELD    AVERAGE     EARNED     YIELD
                                    BALANCE    OR PAID    OR COST   BALANCE    OR PAID    OR COST   BALANCE    OR PAID    OR COST
                                    --------   --------   -------   --------   --------   -------   --------   --------   -------
                                                                       (DOLLARS IN THOUSANDS)
<S>                                 <C>        <C>        <C>       <C>        <C>        <C>       <C>        <C>        <C>
ASSETS
Federal funds sold................  $    231   $    12      5.25%   $  1,846   $   113      6.12%   $  2,424   $    98     4.05%
Investments.......................   180,829    11,188      6.19     211,153    13,579      6.43     205,060    12,004     5.85
Investment in stock of the Federal
  Home Loan Bank..................     4,554       294      6.46       7,003       428      6.11       6,765       398     5.88
Loans(1)..........................   255,761    26,531     10.37     187,637    20,133     10.73     160,944    16,043     9.97
Allowance for loan losses.........    (3,313)                         (2,282)                         (2,145)
                                    --------   -------              --------   -------              --------   -------
        Total interest-earning
          assets..................   438,062    38,025      8.68     405,357    34,253      8.45     373,048    28,543     7.65
Noninterest-earning assets
  Cash and due from banks.........    21,229                          15,549                          16,268
  Other...........................    23,801                          19,283                          16,885
                                    --------                        --------                        --------
        Total assets..............  $483,092                        $440,189                        $406,201
                                    ========                        ========                        ========
LIABILITIES AND SHAREHOLDERS'
  EQUITY
Deposits:
  NOW and money market accounts...  $ 78,227   $ 1,972      2.52    $ 65,715   $ 1,721      2.62    $ 70,884   $ 1,553     2.19
  Savings.........................   117,270     4,930      4.20      87,072     3,846      4.42      83,521     2,979     3.57
  Certificates of deposit:
    Under $100,000................    56,243     3,089      5.49      41,445     2,305      5.56      19,996       695     3.48
    $100,000 and over.............    20,461     1,132      5.53      11,345       638      5.62       7,669       289     3.77
                                    --------   -------              --------   -------              --------   -------
        Total interest-bearing
          deposits................   272,201    11,123      4.09     205,577     8,510      4.14     182,070     5,516     3.03
Advances from the Federal Home
  Loan Bank and federal funds
  purchased.......................    64,743     3,547      5.48     123,083     7,483      6.08     114,989     5,420     4.71
Securities and loans sold under
  agreements to repurchase........     7,565       352      4.65       4,899       240      4.90       3,333       116     3.48
Notes payable.....................     2,573       208      8.08       1,076        97      9.01       1,357       120     8.84
                                    --------   -------              --------   -------              --------   -------
        Total interest-bearing
          liabilities.............   347,082    15,230      4.39     334,635    16,330      4.88     301,749    11,172     3.70
Noninterest-bearing demand
  accounts........................    95,555                          76,072                          77,733
        Total deposits and
          interest-bearing
          liabilities.............   442,637                         410,707                         379,482
Other noninterest-bearing
  liabilities.....................     2,672                           2,499                           2,099
                                    --------                        --------                        --------
        Total liabilities.........   445,309                         413,206                         381,581
Shareholders' equity..............    37,783                          26,983                          24,620
                                    --------                        --------                        --------
        Total liabilities and
          shareholders' equity....  $483,092                        $440,189                        $406,201
                                    ========                        ========                        ========
Net interest income...............             $22,795                         $17,923                         $17,371
                                               =======                         =======                         =======
Net interest spread...............                          4.29%                           3.57%                          3.95%
                                                           =====                           =====                           ====
Net interest margin...............                          5.20%                           4.42%                          4.66%
                                                           =====                           =====                           ====
Ratio of average interest-earning
  assets to average
  interest-bearing liabilities....       126%                            121%                            124%
                                    ========                        ========                        ========
</TABLE>
 
---------------
 
(1) Loans are net of unearned discount. Nonaccruals are included in average
    loans outstanding. Loan fees are included in interest income as follows:
    1996 -- $1,269,000; 1995 -- $1,225,000; 1994 -- $1,156,000.
 
(2) First Denver Corporation (FDC) merged with Vectra in November 1995, in a
    pooling of interests. Accordingly, all financial statements included herein
    reflect combined Vectra and FDC for all periods presented (see Note 2 in
    Notes to Consolidated Financial Statements).
 
                                       25
<PAGE>   26
 
(3) In June 1996, Vectra acquired Southwest State Bank and its parent Bank Land
    Company (Southwest) in a transaction accounted for using purchase
    accounting. Accordingly, Southwest's balances and results of operations have
    been included in Vectra's financial statements only from the date of
    acquisition forward.
 
     The following table illustrates, for the periods indicated, the changes in
Vectra's net interest income due to changes in volume and changes in interest
rates. Changes in net interest income due to both volume and rate have been
included in the changes due to rate.
 
<TABLE>
<CAPTION>
                                                          1996 COMPARED TO 1995:           1995 COMPARED TO 1994:
                                                        INCREASE (DECREASE) IN NET       INCREASE (DECREASE) IN NET
                                                           INTEREST INCOME DUE              INTEREST INCOME DUE
                                                              TO CHANGES IN                    TO CHANGES IN
                                                      ------------------------------   ------------------------------
                                                       VOLUME      RATE      TOTAL      VOLUME      RATE      TOTAL
                                                      --------   --------   --------   --------   --------   --------
                                                                          (DOLLARS IN THOUSANDS)
<S>                                                   <C>        <C>        <C>        <C>        <C>        <C>
Interest earning assets:
  Federal funds sold................................  $    (99)  $     (2)  $   (101)  $    (23)  $     38   $     15
  Investments.......................................    (1,950)      (441)    (2,391)       357      1,218      1,575
  Investment in stock of the Federal Home Loan
    Bank............................................      (150)        16       (134)        14         16         30
  Loans.............................................     7,310       (912)     6,398      2,661      1,429      4,090
                                                      --------   --------   --------   --------   --------   --------
        Total interest-earning assets...............     5,112     (1,340)     3,772      3,009      2,701      5,710
                                                      --------   --------   --------   --------   --------   --------
Interest-bearing liabilities:
  NOW and Money Market accounts.....................      (328)        77       (251)       113       (281)      (168)
  Savings...........................................    (1,334)       250     (1,084)      (127)      (740)      (867)
  Certificates of deposits:
    Under 100,000...................................      (823)        39       (784)      (746)      (864)    (1,610)
    100,000 and over................................      (513)        19       (494)      (139)      (210)      (349)
  Advances from the Federal Home Loan Bank and
    federal funds purchased.........................     3,547        389      3,936       (382)    (1,681)    (2,063)
  Securities and loans sold under agreements to
    repurchase......................................      (131)        19       (112)       (55)       (69)      (124)
  Notes payable.....................................      (135)        24       (111)        25         (2)        23
                                                      --------   --------   --------   --------   --------   --------
        Total interest-bearing liabilities..........       283        817      1,100     (1,311)    (3,847)    (5,158)
                                                      --------   --------   --------   --------   --------   --------
        Net increase (decrease) in net interest
          income....................................  $  5,395   $   (523)  $  4,872   $  1,698   $ (1,146)  $    552
                                                      ========   ========   ========   ========   ========   ========
</TABLE>
 
ASSET/LIABILITY MANAGEMENT
 
     Vectra's liquidity management objective is to ensure its ability to satisfy
cash flow requirements of depositors, borrowers and of Vectra's operations.
Vectra has two basic sources of liquidity. The first is its retail deposit base
served by its banking offices. Vectra has successfully increased core deposits
through its retail network by implementing deposit programs and promotions
directed at existing and potential customers and via the acquisition of other
banks. Average deposits increased by $86.1 million or 30.6% in 1996 compared to
1995. Approximately $51.4 million of the increase relates to the time weighted
average of deposits acquired with the acquisition of Southwest State Bank (see
Note 2 in Notes to Consolidated Financial Statements) with the remaining $34.7
million representing internally generated growth.
 
     The second source of liquidity is from borrowings, primarily from the FHLB.
This source is used regularly in the Company's cash management function both to
fund a portion of the investment portfolio and to manage the day-to-day
fluctuations in liquidity resulting from needs of depositors and borrowers. At
December 31, 1996, Vectra had available approximately $88 million of unused
borrowing capacity, principally from the FHLB. The borrowing line from the FHLB
is collateralized by investments and loans. Sources of borrowing other than the
FHLB include unsecured federal funds purchase lines from three banks. Regular
use of the FHLB as a liquidity management tool has enabled Vectra to hold
federal funds sold to a low level without impairing its ability to manage
liquidity adequately. Vectra anticipates that it will continue to rely primarily
upon customer deposits, FHLB borrowings, loan repayments, loan sales and
retained earnings to provide liquidity and will use funds so provided primarily
to make loans and to purchase investment securities.
 
     The mismatch between maturities and interest rate sensitivities of assets
and liabilities results in interest rate risk. Rising and falling interest rate
environments can have various impacts on net interest income, depending on the
difference between the repricing of interest-earning assets and interest-bearing
liabilities,
 
                                       26
<PAGE>   27
 
unscheduled repayments of loans and investments, early withdrawals of deposits
and other factors. The factor of most potential significance to overall interest
rate risk is basis risk which is the degree to which yields on assets and costs
of liabilities may adjust differently over time and in relation to other
interest rate changes.
 
     Vectra has focused on maintaining balance between interest rate sensitive
assets and liabilities and repricing frequencies. An important element of this
focus has been to emphasize variable rate loans and investments funded by
deposits and FHLB borrowings which also mature or reprice over short time
periods.
 
     The following tables set forth the estimated maturity or repricing, and the
resulting interest rate gap, of Vectra's interest-earning assets and
interest-bearing liabilities at December 31, 1996. All amounts in the tables are
based on contractual repricing schedules except for fixed rate mortgage-related
securities for which maturities are estimated based upon recent prepayment
experience and assumed future prepayment rates. Actual prepayment and withdrawal
experience may vary significantly from the assumptions reflected in the tables.
 
<TABLE>
<CAPTION>
                                              ESTIMATED MATURITY OR REPRICING AT DECEMBER 31, 1996
                                        -----------------------------------------------------------------
                                                       THREE MONTHS
                                         LESS THAN     TO LESS THAN   ONE TO FIVE   OVER FIVE
                                        THREE MONTHS     ONE YEAR        YEARS        YEARS       TOTAL
                                        ------------   ------------   -----------   ----------   --------
                                                             (DOLLARS IN THOUSANDS)
<S>                                     <C>            <C>            <C>           <C>          <C>
Interest-earning assets:
  Fixed-rate commercial loans.........    $  7,050       $ 10,500       $ 30,525     $ 10,082    $ 58,157
  Fixed-rate consumer loans...........       3,042         13,906         42,817       19,413      79,178
  Variable-rate commercial loans......     159,879             --             --           --     159,879
  Variable-rate consumer loans........      21,067            381          1,243           --      22,691
  Investment securities...............     125,266         29,734         35,418          471     190,889
  Federal funds sold..................          --             --             --           --          --
                                          --------       --------       --------     --------    --------
          Total interest-earning
            assets....................     316,304         54,521        110,003       29,966     510,794
Interest-bearing liabilities:
  NOW and MMA.........................      88,466             --             --           --      88,466
  Savings.............................     128,890             --             --           --     128,890
  Certificates of deposit under
     $100,000.........................       8,491         39,388         16,993           --      64,872
  Certificates of deposit $100,000 and
     over.............................       6,319         25,497          2,594           --      34,410
  Advances from the Federal Home Loan
     Bank and federal funds
     purchased........................      59,700             --             --           --      59,700
  Other interest-bearing
     liabilities......................      10,733             --             --        4,050      14,783
                                          --------       --------       --------     --------    --------
          Total interest-bearing
            liabilities...............     302,599         64,885         19,587        4,050     391,121
  Interest rate gap...................    $ 13,705       $(10,364)      $ 90,416     $ 25,916    $119,673
                                          ========       ========       ========     ========    ========
  Cumulative interest rate gap at
     December 31, 1996................    $ 13,705       $  3,341       $ 93,757     $119,673
                                          ========       ========       ========     ========
  Cumulative interest rate gap to
     total assets.....................         2.4%            .6%          16.7%        21.3%
</TABLE>
 
                                       27
<PAGE>   28
 
     The following table presents at December 31, 1996, loans by maturity in
each major category of Vectra's portfolio. Actual maturities may differ from the
contractual maturities shown below as a result of renewals and prepayments. Loan
renewals are evaluated in the same manner as new credit applications.
 
<TABLE>
<CAPTION>
                                                                    DECEMBER 31, 1996
                                                    --------------------------------------------------
                                                    LESS THAN    ONE TO FIVE    OVER FIVE
                                                    ONE YEAR        YEARS         YEARS        TOTAL
                                                    ---------    -----------    ----------    --------
                                                                  (DOLLARS IN THOUSANDS)
<S>                                                 <C>          <C>            <C>           <C>
Commercial........................................   $37,599       $ 31,841      $12,228      $ 81,668
Real estate -- mortgage...........................    32,881         76,675       65,872       175,428
Real estate -- construction.......................    21,110          1,677          470        23,257
Installment and revolving lines of credit.........     1,263         34,415        1,383        37,061
Loans held for sale...............................     2,864             --           --         2,864
                                                     -------       --------      -------      --------
          Total face amount of loans..............   $95,717       $144,608      $79,953       320,278
                                                     =======       ========      =======
Deferred loan fees, discounts, and costs, net.....                                                (373)
                                                                                              --------
          Total loans.............................                                            $319,905
                                                                                              ========
</TABLE>
 
     Of the $224.6 million of loans that mature after one year, a total of
$102.8 million are fixed rate loans and $121.8 million are variable rate loans.
 
     In addition to reviewing its gap position, Vectra uses an interest rate
risk model to evaluate the potential impact that changes in interest rates might
have on earnings and the estimated market value of the Company's equity. Vectra
has adopted profitability, liquidity and market valuation parameters and
objectives against which modeled results are measured. If projections, which are
updated at least quarterly, indicate unacceptable risk to achievement of
established parameters, management reviews the reasons and develops plans to
mitigate or minimize such risks.
 
     At December 31, 1996, Vectra had approximately $187.0 million of assets
(substantially all of its floating rate loans and $4.4 million of its
investments) and $74.5 million of liabilities (advances from FHLB and securities
and loans sold under agreements to repurchase) on which interest rates have
adjusted, generally within 30 days, in the direction of and by the approximate
magnitude of changes in the federal funds rate. Such assets and liabilities are
indexed to or closely tied to the prime rate or other short-term indices.
Management expects these assets and liabilities to continue to adjust in
reaction to future changes in the federal funds rate except that it is possible,
as has sometimes happened in previous cycles of changing interest rates, that
the prime rate may not change by the magnitude of all changes in the federal
funds rate. If the prime rate were to rise by a lesser degree than increases in
the federal funds rate or decline by more than the degree of declines in the
federal funds rate, Vectra's net interest income would likely be negatively
impacted, at least temporarily.
 
     Competitive pressures are significant in determining the rates paid on
interest-bearing deposits. In 1995 compared to 1994, the average cost of all
deposits increased by a larger percentage than the increase in average yield on
interest-earning assets. This was not the case, however, in 1996 when the
average cost of all deposits remained unchanged at 3.02% compared to 1995 while
the average yield on interest-earning assets increased 0.23%. The levels, mix
and cost of deposits are significant factors impacting overall net interest
income.
 
     Net interest income is also impacted significantly by the levels and
maturities of fixed rate securities and loans and the levels of
noninterest-bearing deposits, other noninterest-bearing liabilities and
shareholders' equity. Vectra's combined average of noninterest-bearing deposits,
other noninterest-bearing liabilities and shareholders' equity in 1996 totaled
$136.0 million, up from $105.6 million in 1995 and totaled $170.7 million at
December 31, 1996. At December 31, 1996, fixed rate loans and investments
totaled approximately $192 million. As these loans and investments mature, they
can either be replaced with variable rate loans or securities or with then
current market rate fixed rate loans or securities or the proceeds can be used
to reduce borrowings from the FHLB.
 
                                       28
<PAGE>   29
 
INVESTING ACTIVITIES
 
     During 1996, Vectra focused attention on selected restructuring of its
investment portfolio with the objective of reducing the potential volatility to
market value changes and basis risk that might be caused by changes in interest
rates. Securities sold included fixed and variable rate collateralized mortgage
obligations (CMOs) and certain other mortgage backed securities (MBS).
Securities purchased were generally fixed rate obligations of U. S. government
agencies with maturities of three years or less, most of which are callable.
Certain variable rate CMOs and MBS were also purchased during 1996.
 
     Vectra's strategy of leveraging its capital to maximize earnings capacity
has been accomplished with borrowings from the FHLB. These borrowings, which
generally adjust monthly, are used as a wholesale funding source for the
purchase of additional adjustable rate securities, which also generally adjust
monthly, semiannually or annually. Average FHLB advances in 1996 of $64.7
million were down 47.4% from the $123 million average balance in 1995. In 1995,
the level of these activities was reduced compared to 1994 consistent with the
Company's objective of replacing investments with higher yielding loans and
replacing borrowings with customer deposits. Although the 1995 average FHLB
borrowings were up $8 million from the 1994 average, the balance at December 31,
1995 was reduced to $70 million from $162 million one year earlier. The
profitability of these activities increased during 1996 compared to 1995.
Evidence of such increase is the 0.24% decline in the average yield on
investments in 1996 from 1995 versus a larger 0.49% decrease in the average cost
of all interest-bearing liabilities. The significant flattening of the interest
rate yield curve during 1995 reduced the profitability of these investing
activities compared to 1994. The 1995 yield on investments increased only 0.58%
over 1994 while the cost of interest-bearing liabilities increased by 1.18%.
 
     The following table summarizes certain information about Vectra's
investment portfolio:
<TABLE>
<CAPTION>
                                                                              DECEMBER 31, 1996
                                                             ---------------------------------------------------
                                                                         UNREALIZED     EXCESS OF
                                                                           MARKET     INTEREST RATE     ESTI-
                                           INDEX TO WHICH                  VALUE        CAPS OVER       MATED
                                             COUPON ON       AMORTIZED    ADJUST-        CURRENT       AVERAGE
              DESCRIPTION                 SECURITY IS TIED     COST        MENTS         COUPONS        LIVES
              -----------                 ----------------   ---------   ----------   -------------   ----------
                                                                         (IN MILLIONS)                (IN YEARS)
<S>                                       <C>                <C>         <C>          <C>             <C>
CMO-Floating rate.......................      COFI            $ 37.6        (1.7)          3.5%          14.3
CMO-Floating rate.......................    10 yr CMT           75.5        (3.6)          3.9           14.8
CMO-Floating rate.......................    7 yr CMT             9.6        (0.1)          4.3            5.4
CMO-Floating rate.......................  1 mo LIBOR...          1.4         0.0           2.3            2.8
CMO-Fixed rate..........................      N.A.               7.4        (0.3)         N.A.            2.3
MBS-Adjustable rate.....................   6 mo LIBOR            4.9         0.1           3.3            5.0
MBS-Adjustable rate.....................    1 yr CMT             3.9         0.0           2.6            3.7
FHLB Dual Indexed Notes.................       (1)               5.8        (0.4)         N.M.            6.5
FHLB Inverse Floating Note..............   3 mo LIBOR            5.0        (0.1)         N.M.            1.8
U.S. Treasuries.........................      N.A.               5.0         0.0          N.A.            1.5
SBA Guaranteed..........................      Prime              3.0         0.0          N.A.            2.0
Govt. Sponsored Agencies................      N.A.              23.9         0.1          N.A.            3.0
Municipal Securities....................      N.A.               2.5         0.0          N.A.            4.2
Other...................................                         1.5         0.0          N.A.           N.A.
                                                              ------         ---
        Total portfolio.................                      $187.0        (6.0)
                                                              ======         ===
 
<CAPTION>
                                                           DECEMBER 31, 1995
                                          ---------------------------------------------------
                                                      UNREALIZED     EXCESS OF
                                                        MARKET     INTEREST RATE     ESTI-
                                                        VALUE        CAPS OVER       MATED
                                          AMORTIZED    ADJUST-        CURRENT       AVERAGE
              DESCRIPTION                   COST        MENTS         COUPONS        LIVES
              -----------                 ---------   ----------   -------------   ----------
                                                      (IN MILLIONS)                (IN YEARS)
<S>                                       <C>         <C>          <C>             <C>
CMO-Floating rate.......................   $ 44.3        (1.1)          3.2%          10.6
CMO-Floating rate.......................     76.5        (3.5)          4.3           13.5
CMO-Floating rate.......................      8.9        (0.1)          4.8            5.7
CMO-Floating rate.......................      4.7        (0.1)          3.0            2.8
CMO-Fixed rate..........................     13.1        (0.3)         N.A.            1.7
MBS-Adjustable rate.....................       --          --            --             --
MBS-Adjustable rate.....................      2.4         0.1           4.0            5.0
FHLB Dual Indexed Notes.................      5.8        (0.7)         N.M.            7.5
FHLB Inverse Floating Note..............      5.0        (0.3)         N.M.            2.8
U.S. Treasuries.........................      5.0         0.0          N.A.            1.5
SBA Guaranteed..........................      4.3         0.1          N.A.            3.4
Govt. Sponsored Agencies................
Municipal Securities....................
Other...................................      6.2         0.1          N.A.           N.A.
                                           ------         ---
        Total portfolio.................   $176.2        (5.8)
                                           ======         ===
</TABLE>
 
                                       29
<PAGE>   30
 
     The adjustable rate portion of Vectra's investment portfolio at December
31, 1996 is distributed as follows:
 
<TABLE>
<CAPTION>
                        BY ADJUSTMENT
     BY INDEX             FREQUENCY                             LEGEND OF TERMS
     --------           -------------                           ---------------
<S>            <C>   <C>             <C>   <C>
10 yr CMT       51%  Monthly          83%  CMO -- Collateralized Mortgage Obligation
COFI            26   Quarterly         6   COFI -- FHLB 11th District cost-of-funds index
7 yr CMT         7   Semi-annually     9   CMT -- Index of constant maturing U.S. Treasury
Dual Index       4   Annually                     securities
1 mo LIBOR       1   Total             2   MBS -- Mortgage Backed Securities
3 mo LIBOR       3                   ---
Prime            2   Total           100%  LIBOR -- London Interbank Offered Rate index
1 yr CMT         3
Other            3
               ---
    Total      100%
               ===
</TABLE>
 
---------------
 
(1) The coupon on these securities is set at the 10 year CMT less the 6 month
    LIBOR plus 4.75%.
 
     Movements in COFI historically lag movements in other indices. For example,
the 10 year CMT and the 6 month LIBOR were at or near cyclical lows in October
of 1993 and reached cyclical highs in November or December of 1994. In contrast,
COFI reached its cyclical low in March of 1994 and its cyclical high in June of
1995. As a result of the lagging character of COFI, the CMOs indexed to it
produced lower yields when interest rates were rising in 1994 than did other
floating rate securities. It is likely that COFI will continue to lag other
indices and that during times of falling interest rates it may provide superior
yields to other floating rate CMOs. Despite its lagging nature, movements in
COFI correspond reasonably well with changes in Vectra's cost of deposits. The
market value of the COFI indexed CMOs is impacted by both their yield relative
to other securities and to their expected average lives. To reduce the potential
market value and yield volatility in its portfolio, Vectra sold approximately
$15 million of COFI indexed CMOs in 1995 and another $6 million in 1996.
 
     Yields on Vectra's CMOs indexed to the seven and ten year CMT indices
fluctuate directly as such indices fluctuate. The averages for the ten year CMT
index were 6.44%, 6.57% and 7.08% in 1996, 1995 and 1994, respectively. The
relative contribution of these securities to net interest income will generally
depend on the slope of the yield curve and their yields relative to the cost of
funds. Throughout 1995 there was relatively little change in the federal funds
rates but the seven and ten year CMT indices declined significantly. This
resulted in a very flat or inverted yield curve compared to historical norms and
resulted in decreases in the contributions to net interest income from these two
classes of CMOs compared to 1994. During 1996, these two indices increased from
their levels at the end of 1995 as the yield curve regained some steepness. More
information on the impact on net interest income of a flat yield curve is
included in the results of operations section. As a result of their lower yields
relative to other securities and their longer expected average lives, the market
values of the CMOs indexed to the seven and ten year CMT at December 31, 1996
remained at levels similar to those at December 31, 1995. Historically, periods
of flat or inverted yield curves have not persisted for prolonged periods. If
the yield curve were to steepen, management believes that net interest income
would be positively impacted and that the market values of these CMOs might
increase.
 
     All of Vectra's CMOs are collateralized by fixed rate mortgages and
mortgage backed securities. The average lives of the CMOs fluctuate based on the
prepayment rates of the underlying mortgages. The significant increase in
interest rates in 1994 substantially reduced mortgage prepayment rates which
resulted in significant extensions in the expected average lives of most of the
CMOs.
 
     Most of the current holdings of CMOs were purchased during 1993 and through
the first several months of 1994. The average yields earned on the major classes
of CMOs from then through December 31, 1996, have been approximately 6.2% for
those indexed to the 10 year CMT, 6.4% for those indexed to the seven year CMT,
approximately 5.7% for those indexed to COFI and approximately 5.5% for fixed
rate CMOs. Yields on
 
                                       30
<PAGE>   31
 
Treasury securities fluctuated during that time frame but, for comparison
purposes, using the average Treasury yields from June 30, 1993, through April
30, 1994, when the majority of the CMOs were purchased, investments in two, five
or ten year Treasury securities, if purchased at the average yields available
during such period, would have yielded approximately 4.3%, 5.25% or 5.9%
respectively. Treasury security yields at December 31, 1996, with two, five and
ten year maturities were 5.86%, 6.20% and 6.42% respectively.
 
     Vectra's investment portfolio includes $10.75 million face value of notes
issued by the FHLB which were purchased in 1993. Vectra purchased these notes
because at the time of purchase they offered excellent yields, and being United
States agency securities, they provided Vectra with needed qualifying collateral
to pledge for public deposits. With the increases in interest rates that started
in 1994, the market value of these securities declined significantly as did
their yields. The liquidity of these instruments also decreased. Management
concluded that the proceeds from the sale, at a loss, of these securities could
not have been reinvested in any other acceptable investment which would have
recouped the loss and provided the return to be realized from continuing to hold
these securities.
 
     Of these notes, $5.75 million represent floating rate dual-indexed notes.
The coupon on these notes resets every six months to a rate equal to the 10 year
CMT less the 6 month LIBOR plus 4.75%. The coupon rate was 7.50% when issued,
4.94% at December 31, 1995 and 5.38% at December 31, 1996. A U. S. Treasury
security of approximately the same maturity was priced to yield approximately
6.3% at December 31, 1996. The coupon rate on these bonds decreases when the
yield curve flattens or becomes inverted and increases when the yield curve
steepens. At December 31, 1996, the yield curve was flatter than average with
the difference between the 10 year CMT and the 6 month LIBOR being only 0.70%
compared to a 1.18% average difference for the last 10 years. If the yield curve
returned to its normal shape of the last 10 years, these bonds would have
approximately a 5.93% coupon. These bonds perform best in both yield and market
value when interest rates are low and the yield curve is steep.
 
     The other $5 million investment in FHLB notes was purchased in September
1993 and matures in September 1998. These notes yielded 5.375% during their
first year which ended in September 1994. Thereafter the coupon resets
quarterly. For the second and third years, the coupon rate was set at 9% minus
the 3 month LIBOR. In years four (which started in September 1996) and five the
coupon rate is set at 11% minus the 3 month LIBOR. These notes may be called by
FHLB at any quarterly interest payment date. As a result of the increase in
interest rates in 1994, the coupon rate and market value of these bonds declined
significantly. At December 31, 1994, the coupon rate was 2.64%. It increased to
3.31% at December 31, 1995, and was at 5.41% at December 31, 1996. With the
increase in the coupon on this security and the proximity of its maturity, its
market value increased to 98.9% of par value at December 31, 1996, compared to
94.5% one year earlier.
 
     As indicated in the preceding table, substantially all of Vectra's variable
rate investments are subject to interest rate caps. To the extent interest rates
on securities increased to or above the level of the caps, net interest income
would likely be negatively impacted depending on corresponding changes in the
cost of deposits and other liabilities.
 
     Basis risk in the structure of Vectra's assets and liabilities reduced net
interest margins during 1995 as a result of the significant flattening of the
yield curve. Vectra's focus in 1995 and 1996 has been to purchase investments
with shorter lives and, if variable rate, to purchase securities indexed to
shorter-term indices with less potential average life extension and to sell
certain investments that would reduce basis risk and market valuation risk. A
moderately steeper yield curve combined with the impacts of the portfolio
changes resulted in improved profitability of the investing activities in 1996.
Management believes its focus on holding a large proportion of its portfolio in
variable rate securities and on maintaining a balanced gap position is in
Vectra's best long-term interest.
 
     Substantially all of Vectra's investment portfolio is held in the
available-for-sale classification. As a result, Vectra reflects a mark-to-market
adjustment on its entire portfolio (net of taxes) in shareholders' equity.
Because of the series of interest rate increases in 1994, the bond market
suffered its most volatile year in decades. This contributed to a substantial
decline in the market values of Vectra's investments during 1994. Market values
improved since then and the unrealized losses on securities available for sale
decreased from
 
                                       31
<PAGE>   32
 
5.8% of the portfolio or a $7.7 million adjustment against equity at December
31, 1994, to 3.1% of the portfolio or a $3.8 million adjustment against equity
at December 31, 1996. Management believes that Vectra's capital and liquidity
are more than adequate to allow it to continue to hold its investment portfolio.
It also expects that the passage of time and further restructuring of the
portfolio will reduce its exposure to market value and basis risk.
 
RESULTS OF OPERATIONS
 
     The following table sets forth, for the periods indicated, selected
earnings and expense data and changes in such data.
 
<TABLE>
<CAPTION>
                                        YEAR ENDED    CHANGE:    YEAR ENDED    CHANGE:    YEAR ENDED
                                       DECEMBER 31,   BETTER    DECEMBER 31,   BETTER    DECEMBER 31,
                                           1996       (WORSE)       1995       (WORSE)       1994
                                       ------------   -------   ------------   -------   ------------
                                                               (IN THOUSANDS)
<S>                                    <C>            <C>       <C>            <C>       <C>
Interest income......................    $ 37,957     $ 3,704     $ 34,253     $ 5,710     $ 28,543
Interest expense.....................     (15,230)      1,100      (16,330)     (5,158)     (11,172)
                                         --------     -------     --------     -------     --------
Net interest income..................      22,727       4,804       17,923         552       17,371
Provision for loan losses............        (916)       (121)        (795)         (1)        (794)
                                         --------     -------     --------     -------     --------
Net interest income after provision
  for loan losses....................      21,811       4,683       17,128         551       16,577
Other income.........................       4,493         673        3,820         313        3,507
Other expenses.......................     (17,918)     (2,047)     (15,871)       (819)     (15,052)
                                         --------     -------     --------     -------     --------
Earnings before income taxes and
  cumulative effect of change in
  accounting.........................       8,386       3,309        5,077          45        5,032
Income tax expense...................      (2,941)     (1,167)      (1,774)       (954)        (820)
                                         --------     -------     --------     -------     --------
Earnings before cumulative effect of
  change in accounting...............       5,445       2,142        3,303        (909)       4,212
Cumulative effect of change in
  accounting for goodwill............          --          --           --       1,537       (1,537)
                                         --------     -------     --------     -------     --------
          Net earnings...............    $  5,445     $   628     $  3,303     $   628     $  2,675
                                         ========     =======     ========     =======     ========
</TABLE>
 
1996 COMPARED TO 1995
 
     On June 18, 1996, Vectra completed the acquisition of Southwest State Bank
which was accounted for using purchase accounting. As a result, Vectra's results
of operations and average balances included the Southwest balances only from the
date of acquisition through December 31, 1996.
 
     Interest Income. Interest income increased $3.7 million to $38.0 million in
1996 from $34.3 million in 1995. This increase resulted primarily from an
increase of $32.7 million in average interest-earning assets to $438.1 million
in 1996 from $405.4 million in 1995. A shift in the mix of assets toward larger
loan balances as a percent of total interest-earning assets also contributed to
the increase. Average loans increased $68.1 million to $255.8 million in 1996
from $187.6 million in 1995 while average investments decreased $32.8 million to
$185.4 million in 1996 from $218.2 million in 1995. Approximately $39 million of
the increase in average loans was a result of the Southwest acquisition. These
asset mix changes are consistent with management's desire to continue the
expansion of the loan portfolio while allowing investments to decline as a
percent of total assets. Lower average yields on both loans and investments
partially offset the increases resulting from higher balances. The yields on
investments and loans in 1996 decreased by 0.24% and 0.36%, respectively,
compared to 1995. The Denver/Boulder marketplace in which Vectra operates has
continued to offer good opportunities for expansion of Vectra's customer base
and loan portfolio.
 
     Interest Expense. Interest expense decreased $1.1 million to $15.2 million
in 1996 from $16.3 million in 1995. This decrease was the combined effect of a
decrease in the average cost of interest-bearing liabilities to
 
                                       32
<PAGE>   33
 
4.39% in 1996 from 4.88% in 1995, and a $12.4 million increase in average
interest-bearing liabilities to $347.1 million in 1996 from $334.6 million in
1995. Changes in the relative mix of average interest-bearing liabilities
included a $58.3 million decrease in average advances from the FHLB and an
increase in average interest-bearing deposits of $66.6 million. Approximately
$51 million of the average increase in total deposits resulted from the
Southwest acquisition. The cost of the Company's borrowings from the FHLB
generally moves in direct relationship to movements in the federal funds rate.
The 0.60% decrease in the 1996 average from 1995 compares to a 0.50% average
decrease in federal funds rates in 1996 from 1995. Expansion of the depositor
base provides added customer cross selling opportunities. The Company expects to
continue to supplement its deposit funding with borrowings to fund loan demand
and to finance its investment portfolio.
 
     Net Interest Income. Net interest income increased $4.8 million in 1996
compared to 1995. Net interest margin increased to 5.20% in 1996 from 4.42% in
1995. The increase in net interest income resulted from the increase in
interest-earning assets and in the net interest margin. The principal reason for
the increase in net interest margin was that loans continued to increase in
total and as a percent of total assets. The average yield on loans is
significantly higher than the yield on investments. The acquisition of Southwest
contributed to the improvements in both total net interest income and in the
increase in the net interest margin. Prior to its acquisition, Southwest's net
interest margin exceeded 6%.
 
     Some steepening of the interest rate yield curve in 1996 compared to 1995
has also contributed to the improvement in margins and total net interest
income. The yield curve refers to the difference between interest yields on
longer-term and shorter-term instruments. A flattening of the curve occurs when
the difference between such yields declines as it did from 1995 to 1996. At
December 31, 1995, the yield curve was very flat by historical norms with the
difference between the 10 year CMT index and the targeted overnight federal
funds rate being only 0.08% compared to 1.17% at December 31, 1996, to 2.32% at
December 31, 1994, and approximately 1.50% over the last 10 years. A flattening
of the yield curve would likely contribute to lower net interest income while a
steepening of the yield curve would likely increase net interest income. If the
Company can continue to increase deposits at a cost less than FHLB borrowings
and/or increase loan balances, which have a higher yield than investments, net
interest income would likely increase.
 
     Provision for Loan Losses. The $121,000 increase in 1996 over the 1995
provision reflects the general growth in the loan portfolio and management's
commitment to maintain an adequate allowance for loan losses.
 
     Other Income. Other income increased $673,000 to $4.5 million in 1996 from
$3.8 million in 1995, principally as a result of a $616,000 increase in service
fees on deposit accounts, a $437,000 increase in gain on sales of loans
partially offset by a $328,000 increase in the net losses on sales of
securities, including a $154,000 loss on the transfer of $2 million of
securities to trading from available for sale. The Company's purchase of MacWest
Mortgage Company on June 30, 1995, which substantially increased its mortgage
lending capacity, contributed to an increase in gain on sales of mortgage loans
by $369,000 to $897,000 in 1996 compared to $528,000 in 1995. A $67,000 increase
in gain on sales of SBA guaranteed loans to $544,000 in 1996 from $477,000 in
1995 accounted for substantially all the remaining increase in gain on sales of
loans. Both the mortgage and the SBA lending functions are important to Vectra
and to the customers it serves, and management expects to continue its emphasis
on expanding these operations.
 
     Other Expenses. Other expenses increased $2.0 million to $17.9 million in
1996 from $15.9 million in 1995. This increase consisted of increases of $1.8
million in salaries and employee benefits, $306,000 in occupancy, $202,000 in
amortization of intangible assets and $300,000 in other expenses partially
offset by decreases of $326,000 in professional fees and $317,000 in FDIC and
state bank assessments. The increase in salaries and employee benefits was
primarily due to the purchase of Southwest together with a full year's expense
for certain positions added to support the increased mortgage lending
activities, asset growth, pay increases and increased benefits expenses. The
decrease in professional fees was related to the First Denver acquisition and to
legal expenses it incurred prior to the merger in November 1995 related to
litigation which was decided in its favor. No such expenses were incurred in
1996. During 1995 Vectra completed the amortization of intangible assets
acquired in connection with acquisitions it made in 1989. In 1996, Vectra
 
                                       33
<PAGE>   34
 
began amortizing the intangible related to the Southwest acquisition. The
amortization is being recorded on a straight-line basis over 25 years with the
annual charge totaling approximately $320,000.
 
     Income Tax Expense. Income tax expense for 1996 of $2.9 million is
approximately $187,000 less than the amount expected based on the combined
federal and state tax rate of 37.3%. This difference is primarily due to
reversal of a valuation allowance against deferred tax assets and interest
income from certain loans and life insurance policies that is not subject to
income taxes.
 
     Asset and Liability Growth. Total assets at December 31, 1996, of $562
million were 34% or $144 million higher than at December 31, 1995. This was
primarily a result of the purchase of Southwest and of the internally generated
increase in loans of approximately $40 million. The increase in loans not only
reflects the strong local economy but also Vectra's success in adding to its
customer base. At December 31, 1996, deposits had increased 43% to $439 million
from $307 million one year earlier. A $4.3 million increase in retained earnings
plus the issuance of $11 million of new convertible preferred stock in
connection with the Southwest acquisition resulted in a $15.2 million increase
in total shareholders' equity to $45.4 million at December 31, 1996 from $30.2
million one year earlier.
 
1995 COMPARED TO 1994
 
     Interest Income. Interest income increased $5.7 million to $34.3 million in
1995 from $28.5 million in 1994. This increase resulted primarily from an
increase of $32.3 million in average interest-earning assets to $405.4 million
in 1995 from $373 million in 1994 combined with an overall increase in asset
yields resulting from interest rate increases. A shift in the mix of assets
toward larger loan balances as a percent of total interest-earning assets also
contributed to the increase. Average loans increased $26.2 million to $187.6
million in 1995 from $160.9 million in 1994 while average investments increased
$6.3 million to $218.2 million in 1995 from $211.8 million in 1994. In addition
to the volume changes, higher average interest rates in 1995 compared to 1994
also contributed to the increase in interest income.
 
     Most of the Company's investments were in floating rate securities tied to
a variety of indices. The yield on investments in 1995 increased only 0.58%
compared to 1994 versus a 0.76% increase in loan yields. This is because,
despite increases in short-term interest rates resulting from increases in the
federal funds rate, some of the longer-term interest indices declined. The
Company's investments include approximately $85 million of floating rate
mortgage backed securities indexed to the 7 and 10 year CMT indices. The rally
in the bond market during most of 1995 resulted in declines in Treasury yields
and in these two indices from 1994 levels. The average of the 10 year CMT index
declined to 6.57% in 1995 from 7.08% in the same period of 1994. The 7 year CMT
index declined by a similar amount. This resulted in a decline in the average
yield on these securities by .5% which partially offset increases in the yields
of other investments resulting in the aforementioned 0.58% overall yield
increase.
 
     Interest Expense. Interest expense increased $5.2 million to $16.3 million
in 1995 from $11.2 million in 1994. This increase was the combined effect of an
increase in the average cost of such liabilities to 4.88% in 1995 from 3.70% in
1994, and a $32.9 million increase in average interest-bearing liabilities to
$334.6 million in 1995 from $301.7 million in 1994. Changes in the relative mix
of average interest-bearing liabilities included an $8.1 million increase in
average advances from the FHLB and an increase in average interest-bearing
deposits of $23.5 million. The cost of the Company's borrowings from the FHLB
generally moves in direct relationship to movements in the federal funds rate.
The series of increases in the federal funds rate during 1994 through early 1995
resulted in an average national federal funds rate of 5.85% in 1995 compared to
4.24% in 1994. This 1.61% increase in the federal funds rate is the primary
reason for the 1.37% increase in the cost of FHLB borrowings between years.
During 1995, the Company focused on replacing FHLB borrowings with deposits
which have a lower average cost. At December 31, 1995, balances decreased to
$70.3 million from $162.2 million one year earlier. Expansion of the depositor
base not only adds deposits but also provides added customer cross selling
opportunities. The Company expects to continue to supplement its deposit funding
with borrowings to fund loan demand and to finance its investment portfolio.
 
     Net Interest Income. Net interest income increased $551,000 in 1995
compared to 1994. Net interest margin decreased to 4.42% in 1995 from 4.66% in
1994. The increase in net interest income resulted from the
 
                                       34
<PAGE>   35
 
increase in interest-earning assets largely offset by the decline in the net
interest margin. The principal reason for the decline in net interest margin was
that the cost of interest-bearing liabilities increased more than did the yield
on average interest-earning assets. Competition for deposits and higher general
interest rates drove up the cost of interest-bearing deposits in 1995. The
flattening of the interest rate yield curve in 1995 compared to 1994
significantly reduced net interest income from investing activities. The yield
curve refers to the difference between interest yields on longer-term and
shorter-term instruments. A flattening of the curve occurs when the difference
between such rates declines as it did from 1994 to 1995. At December 31, 1995,
the yield curve was very flat by historical norms with the difference between
the 10 year CMT index and the targeted federal funds rate being only 0.08%
compared to 2.32% at December 31, 1994 and approximately 1.50% over the last 10
years.
 
     Provision for Loan Losses. The 1995 provision for loan losses is intended
to reflect general growth in the loan portfolio and management's commitment to
maintain an adequate allowance for loan losses. There was no change from 1994 in
this provision.
 
     Other income. Other income increased $551,000 to $3.8 million in 1995 from
$3.5 million in 1994, principally as a result of a $422,000 increase in gain on
sales of loans. The Company's purchase of MacWest Mortgage Company on June 30,
1995, which substantially increased its mortgage lending capacity, resulted in
an increase in gain on sales of mortgage loans by $336,000 to $528,000 in 1995
compared to $192,000 in 1994. A $101,000 increase in gain on sales of SBA loans
to $477,000 in 1995 from $376,000 in 1994 accounted for substantially all the
remaining increase in gain on sales of loans.
 
     Other Expenses. Other expenses increased $819,000 to $15.9 million in 1995
from $15.1 million in 1994. This increase consisted of increases of $675,000 in
salaries and employee benefits, $353,000 in marketing and promotion, $178,000 in
professional fees and $282,000 of other net increases partially offset by
decreases of $319,000 in amortization of intangible assets and $282,000 in FDIC
premiums. The increase in salaries and employee benefits was primarily due to
certain positions added to support the increased mortgage lending activities,
asset growth, pay increases and increased benefits expenses. The increases in
marketing and promotion related largely to promotions aimed at increasing
deposit balances and also to promotions of loan products. Professional fees in
1995 include approximately $260,000 in legal expenses which First Denver
Corporation incurred related to litigation which was decided in its favor prior
to the acquisition. During 1994, Vectra completed the amortization of intangible
assets acquired in connection with acquisitions in 1989. The 1995 amortization
relates to intangible assets arising from the acquisition of MacWest Mortgage
Company.
 
     Income Tax Expense. Income tax expense for 1995 of $1.8 million was
approximately $121,000 less than the amount expected based on the combined
federal and state tax rate of 37.3%. This difference is primarily due to
reversal of a valuation allowance against deferred tax assets and to interest
income from certain loans and life insurance policies that is not subject to
income taxes partially offset by the accrual of income taxes from the surrender
and cancellation of certain life insurance policies. Compared to 1994, income
tax expense increased $950,000. The increase attributable to increased pre tax
earnings is only approximately $23,000. The majority of the increase is a result
of the reversal in 1994 of $1 million of valuation allowances held against
deferred tax assets.
 
     Asset and Liability Growth. Total assets at December 31, 1995, of $418
million were 9.6% or $44.5 million lower than at December 31, 1994. This was
primarily a result of a $67.6 million reduction in investments partially offset
by a $24.9 million increase in loans. The increase in loans not only reflects
the strong local economy but also Vectra's success in adding to its customer
base. At December 31, 1995, deposits increased 14.5% to $307 million from $268
million one year earlier. These changes allowed Vectra to reduce borrowings from
the FHLB to $70 million at December 31, 1995, from $162 million one year
earlier. A $2.5 million increase in retained earnings plus a $4 million
improvement in the unrealized loss on securities available for sale resulted in
a $6.6 million increase in total shareholders' equity to $30.2 million at
December 31, 1995 from $23.6 million one year earlier.
 
                                       35
<PAGE>   36
 
ALLOWANCE FOR LOAN LOSSES
 
     Vectra maintains its allowance for loan losses at a level considered by
management to be adequate to cover the risk of loss in the loan portfolio at a
particular point in time. Management's judgment as to whether additional amounts
should be added to the allowance in excess of the amount of loan losses takes
into consideration a number of factors, including losses experienced, the status
of problem loans and overall portfolio quality, regular examinations of loan
portfolios conducted by Vectra's staff and by state and federal supervisory
authorities, and economic conditions.
 
<TABLE>
<CAPTION>
                                                                 FOR THE YEARS ENDED
                                                                    DECEMBER 31,
                                                              -------------------------
                                                               1996     1995     1994
                                                              ------   ------   -------
<S>                                                           <C>      <C>      <C>
Allowance for losses:
Beginning balance...........................................  $2,493   $1,999   $ 2,324
Acquired through acquisition................................   1,346       --        --
Provisions for loan losses..................................     916      795       794
Recoveries..................................................     142      259       173
Charge-offs.................................................    (659)    (560)   (1,292)
                                                              ------   ------   -------
Ending Balance..............................................  $4,238   $2,493   $ 1,999
                                                              ======   ======   =======
</TABLE>
 
     Charge-offs during 1996 totaled $659,000 or .26% of average loans compared
to $560,000 or 0.30% of average loans in 1995 and $1.3 million or 0.80% of
average loans in 1994. Included in the 1994 charge-offs were two individual
loans totaling $669,000 or 52% of total charge-offs.
 
EFFECTS OF INFLATION AND CHANGING PRICES
 
     Unlike most industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates generally have a more significant impact on a financial
institution's performance than inflation. Although interest rates do not
necessarily move in the same direction or to the same extent as the prices of
goods and services, increases in inflation generally have resulted in increased
interest rates. Over short periods of time interest rates may not move in the
direction or magnitude as inflation.
 
NEW ACCOUNTING PRONOUNCEMENTS
 
     Vectra adopted Financial Accounting Standards (SFAS) No. 114, Accounting by
Creditors for Impairment of a Loan, and SFAS No. 118, Accounting by Creditors
for Impairment of a Loan -- Income Recognition and Disclosures (collectively
referred to as SFAS 114) effective January 1, 1995. SFAS 114 requires that
certain impaired loans be measured based on the present value of expected cash
flows discounted at the loan's original effective interest rate. The adoption of
this pronouncement did not have a material impact on the Company. See Notes 1
and 6 of Notes to Consolidated Financial Statements.
 
     In March 1995, the Financial Accounting Standards Board adopted SFAS No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of. This Statement established accounting standards for
the impairment of long-lived assets, certain identifiable intangibles, and
goodwill related to those assets to be held and used and for long-lived assets
and certain identifiable intangibles to be disposed of. This Statement requires
that long-lived assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company adopted this Statement on January 1, 1996, with no
material impact on its financial condition, results of operations or liquidity.
See Note 1 of Notes to Consolidated Financial Statements.
 
     In October 1995, the Financial Accounting Standards Board adopted SFAS No.
123, Accounting for Stock-Based Compensation.This Statement establishes
financial accounting and reporting standards for stock-based employee
compensation plans. This Statement defines a fair value based method of
accounting for an employee stock option or similar equity instrument and
encourages all entities to adopt that method of accounting for all of their
employee stock compensation plans. However, it also allows an entity to continue
to
 
                                       36
<PAGE>   37
 
measure compensation cost for those plans using the intrinsic value based method
of accounting prescribed by APB Opinion No. 25, Accounting for Stock Issued to
Employees. Statement No. 123 requires that an employer's financial statements
include certain disclosures about stock-based employee compensation arrangements
regardless of the method used to account for them. Vectra adopted this Statement
in 1996 and has elected to continue to follow the provisions of APB Opinion No.
25 in accounting for stock-based compensation. The required new disclosures are
included in Note 11 of Notes to Consolidated Financial Statements.
 
     In June 1996, the Financial Accounting Standards Board adopted SFAS No.
125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. This Statement provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishments of
liabilities. Those standards are based on consistent application of a
financial-components approach that focuses on control. Under that approach,
after a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred, derecognizes
financial assets when control has been surrendered, and derecognizes liabilities
when extinguished. This Statement provides consistent standards for
distinguishing transfers of financial assets that are sales from transfers that
are secured borrowings. It requires that servicing assets and other retained
interests in the transferred assets be measured by allocating the previous
carrying amount between the assets sold, if any, and retained interests, if any,
based on their relative fair values at the date of the transfer. The Statement
will be effective for certain transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996. The statement
will be effective for repurchase agreements, dollar-rolls, securities lending,
or similar transactions as of January 1, 1998. Management has not completed a
final determination of the expected impact of adopting this Statement but does
not believe its implementation will have a material impact on the Company.
 
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
 
     See "Financial Statements" beginning on page 40 hereof.
 
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
       DISCLOSURE.
 
     Not applicable.
 
                                    PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
 
     For information with respect to this Item, see the caption entitled
"Proposal No. 1 -- Election of Directors" in the Registrant's Definitive Proxy
Statement in respect of its 1997 Annual Meeting of Shareholders. Such portion of
the Proxy Statement is incorporated herein by reference.
 
ITEM 11. EXECUTIVE COMPENSATION.
 
     For information with respect to this Item, see the caption entitled
"Proposal No. 1 -- Election of Directors" in the Registrant's Definitive Proxy
Statement in respect of its 1997 Annual Meeting of Shareholders. Such portion of
the Proxy Statement is incorporated herein by reference.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
 
     For information with respect to this Item, see the caption entitled
"Proposal No. 1 -- Holding of Nominees and Other Principal Holders of Common
Stock" in the Registrant's Definitive Proxy Statement in respect of its 1997
Annual Meeting of Shareholders. Such portion of the Proxy Statement is
incorporated herein by reference.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
 
     For information with respect to this Item, see the caption entitled
"Proposal No. 1 -- Election of Directors" in the Registrant's Definitive Proxy
Statement in respect of its 1997 Annual Meeting of Shareholders. Such portion of
the Proxy Statement is incorporated herein by reference.
 
                                       37
<PAGE>   38
 
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K.
 
     a. Exhibits Filed Herewith or Incorporated by Reference to Previous Filings
        with the Securities and Exchange Commission:
 
<TABLE>
<CAPTION>
      EXHIBIT NO.                          DESCRIPTION OF EXHIBITS
      -----------                          -----------------------
<C>                      <S>
          2.1            -- Agreement and Plan of Merger Dated as of the 26th Day of
                            December, 1995 Among Vectra Banking Corporation, Vectra
                            Bank, Bank Land Co. and Southwest State Bank, filed as
                            Exhibit 2.1 to the Registrant's Form 10-K for the year
                            ended December 31, 1995, and incorporated herein by
                            reference
          3.1            -- Amended and Restated Articles of Incorporation of Vectra
                            Banking Corporation, filed as Exhibit 3.1 to the
                            Registrant's Registration Statement No. 33-74724 on Form
                            SB-2, Effective March 24, 1994 ("SB-2 Registration
                            Statement"), and incorporated herein by reference
          3.2            -- Bylaws of Vectra Banking Corporation, filed as Exhibit
                            3.2 to the Registrant's SB-2 Registration Statement, and
                            incorporated herein by reference
         10.1            -- Employees' Equity Incentive Plan, filed as Exhibit 10.1
                            to the Registrant's SB-2 Registration Statement, and
                            incorporated herein by reference
         10.2            -- Nonemployee Directors' Stock Option Plan, filed as
                            Exhibit 10.2 to the Registrant's SB-2 Registration
                            Statement, and incorporated herein by reference
         10.3            -- Non-Statutory Stock Option Plan, filed as Exhibit 10.3 to
                            the Registrant's SB-2 Registration Statement, and
                            incorporated herein by reference
         10.4            -- Incentive Stock Purchase Plan, filed as Exhibit 10.4 to
                            the Registrant's SB-2 Registration Statement, and
                            incorporated herein by reference
         10.6            -- Promissory Note dated October 18, 1985 between Wadsworth
                            Building Corporation and the City of Wheat Ridge, filed
                            as Exhibit 10.6 to the Registrant's SB-2 Registration
                            Statement, and incorporated herein by reference
         10.7            -- Advance, Pledge and Security Agreement dated April 9,
                            1991 between The Federal Home Loan Bank of Topeka and
                            Vectra Bank, filed as Exhibit 10.7 to the Registrant's
                            SB-2 Registration Statement, and incorporated herein by
                            reference
         10.9            -- Lease dated October 1, 1991 by and between First Energy
                            Properties, Inc. and Vectra Bank of Thornton for Mission
                            Trace Shopping Center, filed as Exhibit 10.9 to the
                            Registrant's SB-2 Registration Statement, and
                            incorporated herein by reference
         10.10           -- Colorado Building Lease dated September 5, 1995 by and
                            between Colorado Building Group, Vectra Banking
                            Corporation and Vectra Bank of Boulder, Suite 225, 1919
                            14th Street, Boulder, Colorado, filed herewith
         10.11           -- Colorado Building Lease dated June 1, 1982 by and between
                            Colorado Building Group and National Bank of the Rockies
                            in Boulder for 1919 14th Street, Suite 111, filed as
                            Exhibit 10.11 to the Registrant's SB-2 Registration
                            Statement, and incorporated herein by reference;
                            Amendment No. 1 filed herewith
         10.12           -- Ground Lease dated October 21, 1991 by and between
                            Community Plaza, L.P. and Vectra Bank of Boulder for
                            North Broadway Street, filed as Exhibit 10.12 to the
                            Registrant's SB-2 Registration Statement, and
                            incorporated herein by reference
         10.13           -- Office Building Lease dated April 14, 1988 by and between
                            Denver Place Associates Limited Partnership and National
                            Bank of the Rockies in Denver for 999 18th Street, filed
                            as Exhibit 10.13 to the Registrant's SB-2 Registration
                            Statement, and incorporated herein by reference
</TABLE>
 
                                       38
<PAGE>   39
<TABLE>
<CAPTION>
      EXHIBIT NO.                          DESCRIPTION OF EXHIBITS
      -----------                          -----------------------
<C>                      <S>
         10.14           -- Lease dated May 1, 1991 between Equity Management, Inc.
                            and Vectra Bank for 6901 South Pierce Street, Littleton,
                            Colorado, filed as Exhibit 10.14 to the Registrant's SB-2
                            Registration Statement, and incorporated herein by
                            reference; Amendment No. 1 filed herewith
         10.15           -- 401(k) Plan, filed as Exhibit 10.15 to the Registrant's
                            SB-2 Registration Statement, and incorporated herein by
                            reference
         10.17           -- Incentive Stock Purchase Agreement -- Restricted Stock
                            Program, filed as Exhibit 10.17 to the Registrant's SB-2
                            Registration Statement, and incorporated herein by
                            reference
         10.18           -- Data Processing Hardware and Software Lease Agreement,
                            filed as Exhibit 10.18 to the Registrant's SB-2
                            Registration Statement, and incorporated herein by
                            reference
         10.19           -- Loan Agreement -- Wheat Ridge Building, filed as Exhibit
                            10.19 to the Registrant's SB-2 Registration Statement,
                            and incorporated herein by reference
         10.20           -- Agreement and Plan of Merger Dated as of the 22nd day of
                            November, 1994 by and between Bank Land Co. and Vectra
                            Banking Corporation, filed with Registration Statement on
                            Form S-4, No. 33-88064
         10.21           -- Agreement Between Vectra Banking Corporation and Robert
                            A. Silverberg, filed with Registration Statement on Form
                            S-4, No. 33-88064
         10.22           -- Agency Agreement -- Bankers' Bank of the West and Policy
                            for Federal Funds Purchase, filed with Registration
                            Statement on Form S-4, No. 33-88064
         10.23           -- Employment and Noncompetition Agreement -- Gary A. Mosko,
                            as included as part of Exhibit 2.1 above
         10.24           -- Boatmen's First National Bank of Kansas City Loan
                            Commitment, filed herewith
         10.25           -- Lease -- 6000 Greenwood Plaza Boulevard, filed as Exhibit
                            10.9 to the Annual Report on Form 10-K for the Fiscal
                            Year Ended December 31, 1995 and incorporated herein by
                            reference
         11              -- Statements regarding computation of earnings, see
                            Consolidated Financial Statements
         21              -- Subsidiaries of the Registrant filed as Exhibit 2.1 to
                            the Registrant's Form 10-K for the Year Ended December
                            31, 1995, and incorporated herein by reference
         23              -- Consent of KPMG Peat Marwick, LLP regarding Registration
                            Statement on Form S-8, filed herewith
         25              -- Power of Attorney, filed herewith, see the Signature Page
</TABLE>
 
     b. Reports on Form 8-K Filed During the Registrant's Fourth Fiscal Quarter:
 
     None
 
                                       39
<PAGE>   40
 
                          INDEPENDENT AUDITOR'S REPORT
 
The Board of Directors
Vectra Banking Corporation:
 
     We have audited the accompanying consolidated balance sheets of Vectra
Banking Corporation and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
 
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Vectra
Banking Corporation and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.
 
     As discussed in Note 1 to the consolidated financial statements, a 1995
business combination accounted for as a pooling of interests included a company
which changed its method of accounting for goodwill during 1994 as a result of
the adoption of the provisions of Statement of Financial Accounting Standards
No. 72, Accounting for Certain Acquisitions of Banking or Thrift Institutions.
 
                                            /s/ KPMG Peat Marwick LLP
 
                                            KPMG Peat Marwick LLP
Denver, Colorado
January 31, 1997
 
                                       40
<PAGE>   41
 
                          CONSOLIDATED BALANCE SHEETS
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                              ----------------------
                                                                1996         1995
                                                              ---------    ---------
                                                              (IN THOUSANDS, EXCEPT
                                                                  SHARE AMOUNTS)
<S>                                                           <C>          <C>
Cash and due from banks (note 3)............................   $ 32,688     $ 17,320
Securities available for sale, at market value (notes 4, 5,
  8 and 9)..................................................    180,995      170,384
Securities held to maturity, at cost (market value of $263
  and $819 at December 31, 1996 and 1995, respectively)
  (notes 4 and 8)...........................................        263          814
Investment in Federal Home Loan Bank stock (note 8).........      3,610        5,173
Federal funds sold..........................................         --        2,000
Loans (notes 6, 8 and 9)....................................    319,905      206,664
  Less allowance for loan losses............................     (4,238)      (2,493)
                                                               --------     --------
          Net loans.........................................    315,667      204,171
Accrued interest receivable.................................      2,959        2,127
Real estate acquired by foreclosure, net....................        955          919
Premises and equipment, net (notes 7 and 10)................     11,949       10,575
Deferred income taxes, net (note 12)........................      3,036        2,422
Goodwill, net (note 2)......................................      7,975          284
Other assets................................................      1,714        1,617
                                                               --------     --------
          Total assets......................................   $561,811     $417,806
                                                               ========     ========
 
                        LIABILITIES AND SHAREHOLDERS' EQUITY
 
Deposits:
  Demand....................................................   $122,713     $ 80,058
  NOW and money market......................................     88,466       63,704
  Savings...................................................    126,146       99,254
  Time deposits under $100,000..............................     67,617       49,511
  Time deposits of $100,000 and over........................     34,409       14,558
                                                               --------     --------
          Total deposits....................................    439,351      307,085
                                                               --------     --------
Securities and loans sold under agreements to repurchase
  (note 9)..................................................     10,733        7,429
Advances from the Federal Home Loan
  Bank and federal funds purchased (note 8).................     59,700       70,345
Notes payable (note 10).....................................      4,050        1,051
Accounts payable and other liabilities......................      2,542        1,711
                                                               --------     --------
          Total liabilities.................................    516,376      387,621
                                                               --------     --------
Shareholders' equity (notes 2 and 11):
  Preferred stock, $.10 par value, 1,000,000 shares
     authorized:
     805,000 shares of Series A Cumulative Preferred issued
      and outstanding (liquidation preference of $8,050)....      8,050        8,050
     109,709 shares of $100 Series A Convertible Preferred
      issued and outstanding (liquidation preference of
      $10,971)..............................................     10,971           --
  Common stock, $.01 par value: 7,000,000 shares authorized;
     3,202,412 and 3,195,279 shares issued and outstanding
     at December 31, 1996 and 1995, respectively............         32           32
  Capital in excess of par value............................     25,716       25,572
  Retained earnings.........................................      4,441          170
  Unrealized loss on securities available for sale, net of
     income tax effect of $2,246 and $2,194 at December 31,
     1996 and 1995, respectively............................     (3,775)      (3,639)
                                                               --------     --------
          Total shareholders' equity........................     45,435       30,185
                                                               --------     --------
Commitments and contingencies (note 14)
          Total liabilities and shareholders' equity........   $561,811     $417,806
                                                               ========     ========
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                       41
<PAGE>   42
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 
<TABLE>
<CAPTION>
                                                                  YEARS ENDED DECEMBER 31,
                                                              --------------------------------
                                                                1996        1995        1994
                                                              --------    --------    --------
                                                              (IN THOUSANDS, EXCEPT SHARE AND
                                                                     PER SHARE AMOUNTS)
<S>                                                           <C>         <C>         <C>
Interest income:
  Interest and fees on loans................................   $26,497     $20,133     $16,042
  Interest on investments and federal funds sold............    11,460      14,120      12,501
                                                               -------     -------     -------
         Total interest income..............................    37,957      34,253      28,543
                                                               -------     -------     -------
Interest expense:
  Interest on deposits:
    NOW, money market and savings accounts..................     6,902       5,567       4,532
    Time deposits under $100,000............................     3,089       2,305         695
    Time deposits of $100,000 and over......................     1,132         638         289
  Securities and loans sold under agreements to
    repurchase..............................................       352         240         116
  Advances from the Federal Home Loan Bank and federal funds
    purchased...............................................     3,547       7,483       5,420
  Notes payable.............................................       208          97         120
                                                               -------     -------     -------
         Total interest expense.............................    15,230      16,330      11,172
                                                               -------     -------     -------
         Net interest income................................    22,727      17,923      17,371
Provision for loan losses (note 6)..........................       916         795         794
                                                               -------     -------     -------
         Net interest income after provision for loan
           losses...........................................    21,811      17,128      16,577
                                                               -------     -------     -------
Other income:
  Service fees on deposit accounts..........................     3,231       2,615       2,690
  Net gain on sales of loans................................     1,441       1,004         582
  Gain on sale of securities available for sale.............       118         467          44
  Loss on sale of securities available for sale.............      (312)       (487)        (38)
  Loss on transfer of securities to trading from available
    for sale................................................      (154)         --          --
  Other.....................................................       169         221         229
                                                               -------     -------     -------
         Total other income.................................     4,493       3,820       3,507
                                                               -------     -------     -------
Other expenses:
  Salaries and employee benefits............................   $10,228     $ 8,444     $ 7,769
  Occupancy, net............................................     2,655       2,349       2,220
  Marketing and promotion...................................     1,147       1,205         852
  Professional services.....................................       421         747         569
  Printing, supplies and postage............................       824         656         601
  Credit quality including write downs of real estate
    acquired by foreclosure.................................       404         533         494
  Data processing...........................................       507         492         488
  FDIC and state bank assessments...........................        66         383         665
  Telephone.................................................       428         326         271
  Amortization of intangible assets (note 2)................       231          29         348
  Other.....................................................     1,007         707         775
                                                               -------     -------     -------
         Total other expenses...............................    17,918      15,871      15,052
                                                               -------     -------     -------
         Earnings before income taxes and cumulative effect
           of change in accounting..........................     8,386       5,077       5,032
Income tax expense (note 12)................................     2,941       1,774         820
                                                               -------     -------     -------
         Earnings before cumulative effect of change in
           accounting.......................................     5,445       3,303       4,212
Cumulative effect of change in accounting for goodwill (note
  1)........................................................        --          --      (1,537)
                                                               -------     -------     -------
         Net earnings.......................................     5,445       3,303       2,675
Preferred stock dividends (note 11).........................     1,174         765         579
                                                               -------     -------     -------
         Net earnings available to common shareholders......   $ 4,271     $ 2,538     $ 2,096
                                                               =======     =======     =======
Earnings per share (note 17):
  Earnings before cumulative effect of change in
    accounting..............................................   $  1.31     $   .79     $  1.20
  Cumulative effect of change in accounting.................        --          --        (.51)
                                                               -------     -------     -------
         Earnings per common share and common equivalent
           share............................................   $  1.31     $   .79     $   .69
                                                               =======     =======     =======
         Earnings per common share assuming full dilution...   $  1.26     $   .78     $   .69
                                                               =======     =======     =======
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                       42
<PAGE>   43
 
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
 
                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
                                               PREFERRED STOCK
                                  ------------------------------------------
                                          NUMBER OF SHARES
                                  --------------------------------                COMMON STOCK      CAPITAL IN   RETAINED
                                                        SERIES A               ------------------   EXCESS OF    EARNINGS
                                   1989     SERIES A   CONVERTIBLE   AMOUNT     SHARES     AMOUNT   PAR VALUE    (DEFICIT)
                                  -------   --------   -----------   -------   ---------   ------   ----------   ---------
                                                            (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S>                               <C>       <C>        <C>           <C>       <C>         <C>      <C>          <C>
BALANCES AT JANUARY 1, 1994.....   26,465        --           --     $   477   2,538,479    $25       21,508       (4,464)
Redemption and cancellation of
  preferred stock for cash
  (note 11).....................  (25,080)       --           --        (477)         --     --           --           --
Common stock issued for cash in
  initial public offering, net
  of offering costs (note 11)...       --        --           --          --     923,770      9        6,412           --
Preferred stock issued for cash
  in initial public offering,
  net of offering costs (note
  11)...........................       --   805,000           --       8,050          --     --           --           --
Redemption and cancellation of
  common stock for cash
  (note 11).....................       --        --           --          --    (270,000)    (2)      (2,401)          --
Exercise of common stock
  options.......................       --        --           --          --       3,030     --           20           --
Amortization of restricted stock
  grants........................       --        --           --          --          --     --           25           --
Dividends on preferred stock....       --        --           --          --          --     --           --         (579)
Cancellation of treasury
  stock.........................   (1,385)       --           --          --          --     --          (18)          --
Change in unrealized loss on
  securities available for sale,
  net of income tax effect......       --        --           --          --          --     --           --           --
        Net earnings............       --        --           --          --          --     --           --        2,675
                                  -------   -------      -------     -------   ---------    ---       ------       ------
BALANCES AT DECEMBER 31, 1994...       --   805,000           --       8,050   3,195,279     32       25,546       (2,368)
Amortization of restricted stock
  grants........................       --        --           --          --          --     --           26           --
Dividends on preferred stock....       --        --           --          --          --     --           --         (765)
Change in unrealized loss on
  securities available for sale,
  net of income tax effect......       --        --           --          --          --     --           --           --
        Net earnings............       --        --           --          --          --     --           --        3,303
                                  -------   -------      -------     -------   ---------    ---       ------       ------
BALANCES AT DECEMBER 31, 1995...       --   805,000           --       8,050   3,195,269     32       25,572          170
Preferred stock issued in
  acquisition (notes 2 and
  11)...........................       --        --      109,709      10,971          --     --           --           --
Exercise of common stock
  options.......................       --        --           --          --       3,633     --           35           --
Amortization of restricted stock
  grants and issuance of
  shares........................       --        --           --          --       3,500     --           11           --
Dividends on preferred stock....       --        --           --          --          --     --           --       (1,174)
Change in unrealized loss on
  securities available for sale,
  net of income tax effect......       --        --           --          --          --     --           --           --
        Net earnings............       --        --           --          --          --     --           --        5,445
Tax benefit of restricted stock
  grants........................       --        --           --          --          --     --           98           --
                                  -------   -------      -------     -------   ---------    ---       ------       ------
BALANCES AT DECEMBER 31, 1996...       --   805,000      109,709     $19,021   3,202,412    $32       25,716        4,441
                                  =======   =======      =======     =======   =========    ===       ======       ======
 
<CAPTION>
                                  UNREALIZED
                                   LOSS ON
                                  SECURITIES
                                  AVAILABLE                   TOTAL
                                  FOR SALE,    TREASURY   SHAREHOLDERS'
                                     NET        STOCK        EQUITY
                                  ----------   --------   -------------
                                  (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S>                               <C>          <C>        <C>
BALANCES AT JANUARY 1, 1994.....      (176)      (17)        17,353
Redemption and cancellation of
  preferred stock for cash
  (note 11).....................        --        --           (477)
Common stock issued for cash in
  initial public offering, net
  of offering costs (note 11)...        --        --          6,421
Preferred stock issued for cash
  in initial public offering,
  net of offering costs (note
  11)...........................        --        --          8,050
Redemption and cancellation of
  common stock for cash
  (note 11).....................        --        --         (2,403)
Exercise of common stock
  options.......................        --        --             20
Amortization of restricted stock
  grants........................        --        --             25
Dividends on preferred stock....        --        (1)          (580)
Cancellation of treasury
  stock.........................        --        18             --
Change in unrealized loss on
  securities available for sale,
  net of income tax effect......    (7,491)       --         (7,491)
        Net earnings............        --        --          2,675
                                    ------       ---         ------
BALANCES AT DECEMBER 31, 1994...    (7,667)       --         23,593
Amortization of restricted stock
  grants........................        --        --             26
Dividends on preferred stock....        --        --           (765)
Change in unrealized loss on
  securities available for sale,
  net of income tax effect......     4,028        --          4,028
        Net earnings............        --        --          3,303
                                    ------       ---         ------
BALANCES AT DECEMBER 31, 1995...    (3,639)       --         30,185
Preferred stock issued in
  acquisition (notes 2 and
  11)...........................        --        --         10,971
Exercise of common stock
  options.......................        --        --             35
Amortization of restricted stock
  grants and issuance of
  shares........................        --        --             11
Dividends on preferred stock....        --        --         (1,174)
Change in unrealized loss on
  securities available for sale,
  net of income tax effect......      (136)       --           (136)
        Net earnings............        --        --          5,445
Tax benefit of restricted stock
  grants........................        --        --             98
                                    ------       ---         ------
BALANCES AT DECEMBER 31, 1996...    (3,775)       --         45,435
                                    ======       ===         ======
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                       43
<PAGE>   44
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                                   YEARS ENDED DECEMBER 31,
                                                              ----------------------------------
                                                                1996        1995         1994
                                                              --------    ---------    ---------
                                                                        (IN THOUSANDS)
<S>                                                           <C>         <C>          <C>
Cash flows from operating activities:
  Interest received.........................................  $ 37,875    $  34,898    $  27,311
  Interest paid.............................................   (15,344)     (16,088)     (11,109)
  Fees and other income received............................     4,845        2,836        2,899
  Proceeds from sale of loans held for sale.................    45,802       21,562       20,503
  Proceeds from sales of trading securities.................     1,989           --           --
  Originations of loans held for sale.......................   (44,758)     (21,769)     (19,805)
  Payments to employees and suppliers.......................   (17,031)     (15,320)     (13,967)
  Income taxes paid.........................................    (2,812)      (1,710)        (242)
                                                              --------    ---------    ---------
        Net cash provided by operating activities...........    10,566        4,349        5,590
                                                              --------    ---------    ---------
Cash flows from investing activities, net of effects of
  acquisitions:
  Net loan originations and collections.....................   (41,759)     (24,310)     (40,353)
  Net assets acquired in business combinations, net of cash
    acquired (note 2).......................................    (5,160)        (306)          --
  Decrease (increase) in federal funds sold.................    13,900       (1,190)       2,620
  Proceeds from sale of real estate acquired by
    foreclosure.............................................       504          749          246
  Purchase of premises and equipment........................      (906)        (977)        (577)
  Purchase of securities available for sale.................   (40,175)      (6,007)    (164,775)
  Purchase of securities held to maturity...................        --       (3,675)     (10,820)
  Purchase of Federal Home Loan Bank stock..................    (3,937)        (258)      (4,757)
  Proceeds from sale of Federal Home Loan Bank stock........     5,500        3,928           --
  Proceeds from maturities of securities available for
    sale....................................................    16,074        6,666       15,857
  Proceeds from maturities of securities held to maturity...       563        6,033        4,319
  Proceeds from sale of securities available for sale.......    29,804       65,425       20,560
  Other.....................................................        36        1,870           31
                                                              --------    ---------    ---------
        Net cash provided (used) by investing activities,
          net of effects of acquisitions....................   (25,556)      47,948     (177,649)
                                                              --------    ---------    ---------
Cash flows from financing activities:
  Net increase in deposits..................................    35,839       38,901       18,073
  FHLB advances having maturities greater than three
    months..................................................        --       90,000       85,000
  Repayment of FHLB advances having maturities greater than
    three months............................................   (23,000)    (117,000)     (13,000)
  Net increase (decrease) in other FHLB advances............    12,355      (64,845)      70,690
  Net increase in securities and loans sold under agreement
    to repurchase...........................................     3,304        1,541        2,835
  Proceeds from note payable................................     4,050           --           --
  Repayment of notes payable................................    (1,051)         (58)        (968)
  Proceeds from issuance of common and preferred stock,
    net.....................................................        35           --       14,491
  Common and preferred stock redemption.....................        --           --       (2,881)
  Preferred stock dividends.................................    (1,174)        (765)        (579)
                                                              --------    ---------    ---------
        Net cash provided (used) by financing activities....    30,358      (52,226)     173,661
                                                              --------    ---------    ---------
        Net increase in cash and due from banks.............    15,368           71        1,602
Cash and due from banks at beginning of year................    17,320       17,249       15,647
                                                              --------    ---------    ---------
Cash and due from banks at end of year......................  $ 32,688    $  17,320    $  17,249
                                                              ========    =========    =========
Reconciliation of net earnings to net cash provided by
  operating activities:
  Net earnings..............................................  $  5,445    $   3,303    $   2,675
  Cumulative effect of change in accounting for goodwill....        --           --        1,537
  Provision for loan losses.................................       916          795          794
  Net amortization of premiums and discounts on securities
    and loans...............................................       110           33           20
  Depreciation and amortization of premises and equipment...     1,074          923          892
  Amortization of intangible assets.........................       231           29          348
  Deferred income tax expense (benefit).....................      (464)         314          501
  Decrease (increase) in accrued interest receivable........      (193)         613       (1,276)
  Decrease (increase) in loans held for sale................     1,044       (1,211)         116
  Net change in other assets, accounts payable and other
    liabilities.............................................        66         (486)          37
  Net (gain) loss on sale or transfer of securities.........       348           20           (6)
  Securities transferred to trading from available for
    sale....................................................     1,989           --           --
  Other.....................................................        --           16          (48)
                                                              --------    ---------    ---------
        Net cash provided by operating activities...........  $ 10,566    $   4,349    $   5,590
                                                              ========    =========    =========
Supplemental schedule of noncash investing and financing
  activities and other information:
  Premises acquired in exchange for note payable and other
    liabilities.............................................  $     --    $     262    $      --
                                                              ========    =========    =========
  Real estate acquired by foreclosure.......................  $    330    $     321    $     711
                                                              ========    =========    =========
</TABLE>
 
          See accompanying notes to consolidated financial statements.
 
                                       44
<PAGE>   45
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                        DECEMBER 31, 1996, 1995 AND 1994
 
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
     Summarized below are the significant accounting policies followed by Vectra
Banking Corporation and subsidiaries (Vectra or the Company) in the
determination of financial position, results of operations or cash flows.
 
  Organization and Basis of Financial Statement Presentation
 
     Vectra was organized March 23, 1988, under the laws of the State of
Colorado and has been engaged in the management and operation of financial
institutions located in the Denver/Boulder market area. The Company offers a
full range of loan and deposit products to local consumers and commercial
businesses.
 
     The consolidated financial statements include the accounts of Vectra and
its subsidiaries. All significant intercompany accounts and transactions have
been eliminated in consolidation.
 
     The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those estimates.
 
  Securities
 
     The Company accounts for securities in accordance with Statement of
Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities (SFAS 115). SFAS 115 addresses the
accounting and reporting for all investments in debt securities and equity
securities that have readily determinable fair values. Under SFAS 115,
investments are classified into three categories and accounted for as follows:
 
          Held-to-Maturity -- This category includes debt securities that the
     Company has the positive intent and ability to hold to maturity. All
     securities in this category are recorded at amortized historical cost.
 
          Trading Securities -- These securities are purchased and sold for the
     purpose of generating profits on short-term differences in market prices
     and are recorded at fair value, with any unrealized gains and losses being
     reflected in earnings.
 
          Available-for-Sale -- These securities do not meet the classification
     criteria for Held-to-Maturity or Trading Securities and are recorded at
     fair value with any unrealized gains and losses, net of income tax effect,
     being reflected as a separate component of shareholders' equity.
 
     SFAS 115 does not affect the accounting for amortization of premiums and
accretion of discounts.
 
     Securities held to maturity are recorded at cost and are adjusted for
amortization of premiums and accretion of discounts.
 
     Amortization and accretion are computed using the estimated effective
interest method. Gains or losses on sales of securities are recognized upon
disposal. The adjusted cost of specific securities sold is used to compute
realized gains or losses.
 
     Securities available for sale are recorded at fair value based upon quotes
from brokers who actively participate in the relevant securities' markets or
from other pricing services.
 
     A substantial portion of Vectra's securities are collateralized mortgage
obligations and mortgage backed securities. These investments are usually
purchased at a premium or discount to their stated or par value. The yield on
these investments is impacted by changes in the prepayments of the mortgages
underlying the
 
                                       45
<PAGE>   46
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
securities. When prepayments accelerate, premiums or discounts must be amortized
against interest income at an accelerated rate thereby changing the yield on the
securities. A substantial portion of Vectra's securities are guaranteed as to
the payment of principal and interest (but not premiums) by U.S. government
sponsored entities.
 
  Loans and Interest Income
 
     Interest on loans is accrued daily on the principal balance outstanding.
Unearned income, net of direct origination costs on loans, is recognized in
interest income over the terms of the loans using a method that approximates the
effective interest method. Loans on which payments are past due 90 days or more
are placed on nonaccrual status, unless both interest and principal are
adequately secured or the loans are in the process of renewal.
 
     Loans held for sale are recorded at the lower of cost or market value.
Gains or losses on sales of loans are recognized based on the carrying amount or
allocated basis of the specific loans sold.
 
  Impairment of Loans and Allowance for Loan Losses
 
     Vectra's lending personnel are responsible for the continuous monitoring of
the quality of its loan portfolio. The loan portfolios are also monitored
monthly and examined by the Company's loan review personnel. These reviews
assist in the identification of potential and probable losses, and in the
determination of the level of the allowance for loan losses. The allowance for
loan losses is based primarily on management's estimates of possible loan losses
from these procedures and historical experience. These estimates involve
judgments and a certain level of subjectivity and may be adjusted in the future
depending on economic conditions.
 
     The Company adopted SFAS No. 114, Accounting by Creditors for Impairment of
a Loan, and SFAS No. 118, Accounting by Creditors for Impairment of a
Loan -- Income Recognition and Disclosures, (collectively, SFAS 114) effective
January 1, 1995. SFAS 114 requires that certain impaired loans be measured based
on the present value of expected cash flows discounted at the loan's original
effective interest rate. As a practical expedient, impairment may be measured
based on the loan's observable market price or the fair value of the collateral
if the loan is collateral dependent. When the measure of the impaired loan is
less than the recorded investment in the loan, the impairment is recorded
through a valuation allowance.
 
     The Company had previously measured the allowance for loan losses using
methods similar to those prescribed in SFAS 114. Accordingly, the adoption of
SFAS 114 did not result in any additional allowance for loan losses as of
January 1, 1995.
 
     State and federal regulatory agencies, as an integral part of their
examination process, periodically review Vectra's loans and allowance for loan
losses. Such agencies may require the Company to record additional provisions
for losses based upon their evaluation of information available at the time of
their examinations.
 
  Real Estate and Other Assets Acquired by Foreclosure including In-Substance
  Foreclosures
 
     Real estate and other assets acquired in satisfaction of indebtedness and
loans accounted for as in-substance foreclosures are recorded at the lower of
estimated fair value or the loan amount. Fair value is determined primarily
based on independent appraisals. Loan losses arising in connection with the
acquisition of such property are charged against the allowance for loan losses.
Subsequent declines in value are charged to operating expense.
 
     Costs incurred in connection with improvements to the properties are
capitalized until such costs result in an amount equal to fair value. In
accordance with SFAS 114, a loan is classified as an in-substance foreclosure
only when the Company has taken possession of the collateral regardless of
whether formal repossession has taken place. At December 31, 1996 and 1995,
loans accounted for as in-substance foreclosures were not significant.
 
                                       46
<PAGE>   47
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Expenses of holding foreclosed property, including operating and selling
expenses, net of rental income, are generally charged against operations as
incurred. Gains and losses on disposition of these properties are recognized in
the year in which the sales occur.
 
  Premises and Equipment
 
     Land, buildings, leasehold improvements, and furniture and equipment are
recorded at cost, less accumulated depreciation and amortization. The provision
for depreciation and amortization is computed using the straight-line method
over the estimated useful lives of the assets, or the lease term for leasehold
improvements. Lives generally range from 3 to 7 years for furniture and
equipment and 25 to 30 years for buildings and improvements.
 
  Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
 
     The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of
(SFAS 121), on January 1, 1996. SFAS 121 requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the assets. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell. Adoption of SFAS
121 did not have a significant impact on the Company's financial position,
results of operations, or liquidity.
 
  Change in Accounting
 
     In connection with the acquisition of First National Bank of Denver by
First Denver Corporation (FDC) (see note 2) in October 1981, goodwill in the
amount of $2,196,000 was recorded by FDC. The goodwill was primarily the result
of the fair value of liabilities assumed exceeding the fair value of
identifiable assets acquired, and was originally being amortized using the
straight-line method over 40 years. During 1994, FDC changed its method of
accounting for goodwill through the adoption of the provisions of SFAS No. 72,
Accounting for Certain Acquisitions of Banking or Thrift Institutions (SFAS 72),
as provided by Emerging Issues Task Force Issue No. 89-19, Accounting for a
Change in Goodwill Amortization for Business Combinations Initiated Prior to the
Effective Date of FASB Statement No. 72. SFAS 72 requires that goodwill
resulting from the fair value of liabilities assumed exceeding the fair value of
identifiable assets acquired be amortized using the interest method over a
period no longer than the discount on the long-term interest-bearing assets
acquired. Accordingly, under SFAS 72, the aforementioned goodwill would be
completely amortized prior to January 1, 1994.
 
     The cumulative effect of this change in accounting, which was applied as of
January 1, 1994, was a decrease in net earnings of $1,537,000. The cumulative
effect of the change in accounting was not tax-effected, as the amortization of
the goodwill was not deductible for tax purposes. The effect of the change in
1994 was not significant and pro forma net earnings for 1994, assuming the
change in accounting was applied retroactively, are not significantly different
from Vectra's historical net earnings.
 
  Income Taxes
 
     The Company accounts for income taxes under the provisions of SFAS No. 109,
Accounting for Income Taxes (SFAS 109), which prescribes the use of the asset
and liability method of accounting for deferred income taxes.
 
  Shareholders' Equity and Earnings Per Share
 
     Primary earnings per common share and common equivalent share is computed
by dividing net earnings available to common shareholders by the weighted
average number of common shares and common equivalent
 
                                       47
<PAGE>   48
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
shares outstanding during the period, adjusted for the shares issued in
connection with the business combination with FDC discussed in note 2. Earnings
per common share assuming full dilution is computed by dividing net earnings
less the dividends on the Series A Cumulative Preferred Stock by the sum of
weighted average common shares and common equivalent shares outstanding plus the
weighted average of other dilutive securities assumed to have been outstanding.
 
  Reclassifications
 
     Certain 1995 and 1994 amounts have been reclassified to conform to the 1996
presentation.
 
(2) BUSINESS COMBINATIONS
 
     Effective November 13, 1995, Vectra acquired all of the outstanding common
stock of FDC in exchange for 508,889 shares of Vectra common stock. The
combination has been accounted for as a pooling of interests and, accordingly,
the accompanying consolidated financial statements reflect the combined
financial condition, results of operations and cash flows of Vectra and FDC as
of and for all periods presented. In addition, shares issued in connection with
the combination have been included as issued and outstanding in 1995 and 1994.
 
     On June 18, 1996, the Company acquired Southwest State Bank (Southwest) and
its parent Bank Land Company for $22.23 million consisting of $10.97 million in
a new issue of $100 Series A Convertible Preferred Stock and $11.26 million
cash. Southwest was a commercial bank operating at a single location in Denver.
The acquisition has been accounted for by the purchase method and, accordingly,
the results of operations of Southwest have been included in Vectra's
consolidated financial statements from June 18, 1996. The excess of the purchase
price over the fair value of the identifiable assets acquired of $7.93 million
has been recorded as goodwill and is being amortized using the straight-line
method over 25 years.
 
     The following unaudited pro forma financial information presents the
combined results of operations of Vectra and Southwest as if the acquisition had
occurred as of January 1, 1996 and 1995, after giving effect to certain
adjustments, including amortization of goodwill. The pro forma financial
information does not necessarily reflect the results of operations that would
have occurred had Vectra and Southwest been combined during the periods.
 
<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                              ------------------------
                                                                1996           1995
                                                              ---------      ---------
                                                                (UNAUDITED, AMOUNTS
                                                                IN THOUSANDS, EXCEPT
                                                                 PER SHARE AMOUNTS)
<S>                                                           <C>            <C>
Net interest income.........................................    $25,256        $23,890
                                                                =======        =======
Provision for loan losses...................................    $ 1,413        $   930
                                                                =======        =======
Net earnings................................................    $ 5,663        $ 4,851
                                                                =======        =======
Earnings per common share and common equivalent share.......    $  1.26        $  1.03
                                                                =======        =======
Earnings per common share assuming full dilution............    $  1.20        $  1.01
                                                                =======        =======
</TABLE>
 
     During 1995, the Company acquired the net assets of MacWest Mortgage, a
mortgage origination operation, for total cash consideration of approximately
$300,000. The acquisition was accounted for using the purchase method.
 
(3) CASH AND DUE FROM BANKS
 
     The Federal Reserve Board requires banks to maintain reserve balances
composed of cash on hand and balances maintained at the Federal Reserve Bank.
These reserve balances are based primarily on deposit levels and totaled
approximately $6,732,000 and $3,345,000 at December 31, 1996 and 1995.
 
                                       48
<PAGE>   49
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(4) SECURITIES
 
     Securities classified as available for sale at December 31, 1996, are
summarized as follows:
 
<TABLE>
<CAPTION>
                                                AMORTIZED   UNREALIZED   UNREALIZED    MARKET
                                                  COST        GAINS        LOSSES      VALUE
                                                ---------   ----------   ----------   --------
                                                                (IN THOUSANDS)
<S>                                             <C>         <C>          <C>          <C>
U.S. Treasuries...............................  $  4,967       $  8       $    (3)    $  4,972
U.S. Government sponsored entities (note 5)...    35,621        123          (466)      35,278
Municipal securities..........................     2,449         14            (2)       2,461
Collateralized mortgage obligations...........   131,533          5        (5,810)     125,728
Mortgage backed securities....................     8,812         78            --        8,890
SBA loan pools................................     2,164         33            --        2,197
Other.........................................     1,469         --            --        1,469
                                                --------       ----       -------     --------
                                                $187,015..     $261       $(6,281)    $180,995
                                                ========       ====       =======     ========
</TABLE>
 
     Securities classified as held to maturity at December 31, 1996, which
primarily mature beyond ten years, are summarized as follows:
 
<TABLE>
<CAPTION>
                                                   AMORTIZED   UNREALIZED   UNREALIZED   MARKET
                                                     COST        GAINS        LOSSES     VALUE
                                                   ---------   ----------   ----------   ------
                                                                  (IN THOUSANDS)
<S>                                                <C>         <C>          <C>          <C>
Private placement bonds..........................    $200         $--          $--         200
Asset-backed receivables.........................      63          --           --          63
                                                     ----         ---          ---        ----
                                                     $263         $--          $--        $263
                                                     ====         ===          ===        ====
</TABLE>
 
     Securities classified as available for sale at December 31, 1995, are
summarized as follows:
 
<TABLE>
<CAPTION>
                                             AMORTIZED   UNREALIZED   UNREALIZED    MARKET
                                               COST        GAINS        LOSSES      VALUE
                                             ---------   ----------   ----------   --------
                                                             (IN THOUSANDS)
<S>                                          <C>         <C>          <C>          <C>
U.S. Treasuries............................  $  5,032       $  9       $    --     $  5,041
U.S. Government sponsored entities (note
  5).......................................    12,377          4          (969)      11,412
Collateralized mortgage obligations........   147,508        108        (5,174)     142,442
Mortgage-backed securities.................     6,183        126            (4)       6,305
SBA loan pools.............................     4,290         69            --        4,359
Other......................................       825         --            --          825
                                             --------       ----       -------     --------
                                             $176,215       $316       $(6,147)    $170,384
                                             ========       ====       =======     ========
</TABLE>
 
     Securities classified as held to maturity at December 31, 1995, are
summarized as follows:
 
<TABLE>
<CAPTION>
                                                AMORTIZED   UNREALIZED   UNREALIZED   MARKET
                                                  COST        GAINS        LOSSES     VALUE
                                                ---------   ----------   ----------   ------
                                                               (IN THOUSANDS)
<S>                                             <C>         <C>          <C>          <C>
Private placement bonds.......................    $415         $--          $--        $415
Asset-backed receivables......................     399           5           --         404
                                                  ----         ---          ---        ----
                                                  $814         $ 5          $--        $819
                                                  ====         ===          ===        ====
</TABLE>
 
     During 1996 the Company transferred $2.0 million of securities classified
as available for sale into trading classifications.
 
     Securities with a carrying value of approximately $35.2 million and $10.7
million at December 31, 1996 and 1995, respectively, were pledged to secure
public and trust deposits and securities sold under agreements
 
                                       49
<PAGE>   50
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
to repurchase. Securities with a carrying value of approximately $144.1 million
and $165.1 million at December 31, 1996 and 1995, respectively, were pledged to
secure FHLB advances.
 
     The following summary of securities available for sale at December 31, 1996
provides information on expected maturities as well as the amount of fixed and
variable rate securities:
 
<TABLE>
<CAPTION>
                                                      AMORTIZED COSTS
                                          ----------------------------------------
                                           FIXED    VARIABLE               MARKET
                                           RATE       RATE      TOTAL      VALUE
                                          -------   --------   --------   --------
                                                       (IN THOUSANDS)
<S>                                       <C>       <C>        <C>        <C>
Within one year.........................  $ 7,602   $  7,716   $ 15,318   $ 15,858
One to five years.......................   30,248     15,663     45,911     45,659
Five to ten years.......................      778     27,401     28,179     27,065
Over ten years..........................    1,393     96,214     97,607     92,413
                                          -------   --------   --------   --------
                                          $40,021.. $146,994   $187,015   $180,995
                                          =======   ========   ========   ========
</TABLE>
 
     The maturities of mortgage-related and other amortizing securities included
in the preceding schedule were estimated based on recent prepayment experience
and expected future prepayment rates. Most of the Company's securities are
variable rate securities, which have interest reset dates that range from
monthly to annually with monthly being the most prevalent.
 
     Substantially all of the Company's variable rate securities are subject to
interest rate ceilings. At December 31, 1996, the excess of the rate ceilings
over the current rates ranged from 2% to 5%, with the majority of the excesses
being in the 3% to 4.5% range over current rates. The market values of these
securities would likely decline if the current rates increased to the ceiling
levels or higher. Accordingly, the Company may be subject to market value risk
if interest rates increase significantly. Because substantially all of the
securities are issued or backed by U.S. government agencies, management believes
that the credit risk associated with the portfolio is minimal.
 
(5) DERIVATIVE FINANCIAL INSTRUMENTS
 
     Under SFAS 119, Disclosure about Derivative Financial Instruments and Fair
Value of Financial Instruments, a derivative is defined as a futures, forward,
interest rate swap, or option contract, or other financial instrument with
similar characteristics. Examples of other financial instruments with
characteristics similar to option contracts include interest rate caps or floors
and fixed-rate loan commitments. This definition excludes all on-balance sheet
receivables and payables, including those that derive their values or
contractually required cash flows from the price of some other security or
index, such as mortgage backed securities, interest-only and principal-only
obligations, and indexed debt instruments. Management has identified the
following securities held at December 31, 1996 and 1995 that it believes qualify
as derivatives, as defined in SFAS 119:
<TABLE>
<CAPTION>
                                                                                                    DECEMBER 31, 1996
                                                            INTEREST    FREQUENCY             ------------------------------
       ISSUER/         PURCHASE   MATURITY    UNDERLYING      RATE       OF RATE     FACE     CURRENT   MARKET    UNREALIZED
     DESCRIPTION         DATE       DATE         INDEX      CAP/FLOOR    CHANGES     VALUE    COUPON     VALUE       LOSS
     -----------       --------   --------   -------------  ---------   ---------   -------   -------   -------   ----------
<S>                    <C>        <C>        <C>            <C>         <C>         <C>       <C>       <C>       <C>
FHLB
 structured notes....    6/93       6/97     dual-indexed   24%/0%      6 months    $ 5,750    5.38%    $ 5,348      (403)
FHLB
 structured notes....    9/93       9/98     3 month-LIBOR  24%/0%      Quarterly     5,000    5.41%      4,948       (52)
                                                                                    -------             -------       ---
       Total.........                                                               $10,750             $10,296      (454)
 
<CAPTION>
                             DECEMBER 31, 1995
                       -----------------------------
       ISSUER/         CURRENT   MARKET   UNREALIZED
     DESCRIPTION       COUPON    VALUE       LOSS
     -----------       -------   ------   ----------
<S>                    <C>       <C>      <C>
FHLB
 structured notes....   4.94%    $5,060      (690)
FHLB
 structured notes....   3.31%     4,725      (275)
                                 ------       ---
       Total.........            $9,785      (965)
</TABLE>
 
     It is the Company's current intention to hold these notes to maturity,
unless market conditions change that would warrant sale. The Company classifies
these securities as available for sale which are reported at estimated market
value.
 
                                       50
<PAGE>   51
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(6) LOANS
 
     Loans at December 31, consist of the following :
 
<TABLE>
<CAPTION>
                                                                1996        1995
                                                              --------    --------
                                                                 (IN THOUSANDS)
<S>                                                           <C>         <C>
Commercial..................................................  $ 81,668    $ 58,272
Real estate -- mortgage:
  Commercial................................................   110,093      51,175
  Home equity loans.........................................    20,659      23,438
  Consumer second and first mortgage........................    44,676      26,985
Residential real estate -- construction.....................    23,257      21,818
Installment and revolving lines of credit...................    37,061      21,452
Loans held for sale.........................................     2,864       3,916
                                                              --------    --------
          Total face amount of loans........................   320,278     207,056
Deferred fees, discounts, and costs, net....................      (373)       (392)
                                                              --------    --------
  Carrying value of loans...................................   319,905     206,664
Less allowance for loan losses..............................    (4,238)     (2,493)
                                                              --------    --------
          Net loans.........................................  $315,667    $204,171
                                                              ========    ========
</TABLE>
 
     The principal balance of loans on which the accrual of interest had been
discontinued totaled $1,247,000, $1,292,000 and $829,000 at December 31, 1996,
1995 and 1994, respectively. If interest on these loans had been accrued, such
income would have amounted to approximately $62,000, $85,000 and $71,000 for the
years ended December 31, 1996, 1995 and 1994, respectively.
 
     Substantially all loans are to borrowers located in Vectra's Denver/Boulder
market area. Commercial loan borrowers are generally small to medium-sized
corporations, partnerships and sole proprietors in a wide variety of businesses.
Loans to individuals are both secured and unsecured. Real estate secured loans
are fixed or variable rate and include both amortizing and revolving line of
credit loans.
 
     Commercial real estate loans include loans made to commercial customers
where the collateral for the loan is, among other things, real estate owned by
the business or its owners. Accordingly, certain of these loans can be
characterized as loans for commercial purposes other than to finance real estate
which are secured by real estate.
 
     Loans held for sale consist of mortgage loans and guaranteed portions of
Small Business Administration guaranteed loans which are generally sold within
30 days. Market value equals or exceeds carrying value for these loans.
 
     Loans totaling $44,406,000 and $34,033,000 at December 31, 1996 and 1995,
respectively, were pledged to secure public and trust deposits, FHLB advances
and loans sold under agreements to repurchase.
 
     Transactions in the allowance for loan losses for the years ended December
31, 1996, 1995 and 1994 were as follows:
 
<TABLE>
<CAPTION>
                                                            1996      1995      1994
                                                           ------    ------    ------
                                                                 (IN THOUSANDS)
<S>                                                        <C>       <C>       <C>
Allowance for loan losses at beginning of year...........  $2,493    $1,999    $2,324
Acquired through acquisition.............................   1,346        --        --
Provision for losses.....................................     916       795       794
Loans charged off........................................    (659)     (560)   (1,292)
Recoveries...............................................     142       259       173
                                                           ------    ------    ------
Allowance for loan losses at end of year.................  $4,238    $2,493    $1,999
                                                           ======    ======    ======
</TABLE>
 
                                       51
<PAGE>   52
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     As of December 31, 1996 and 1995, the Company's recorded investment in
impaired loans was approximately $1,270,000 and $1,350,000, respectively. The
related valuation allowance calculated under SFAS 114 totaled approximately
$178,000 and $139,000, respectively and is included in the allowance for loan
losses above. The average recorded investment in impaired loans for the years
ended December 31, 1996 and 1995, was $1,440,000 and $985,000, respectively.
 
     Interest recorded on impaired loans for the years ended December 31, 1996
and 1995 was $110,000 and $29,000, respectively.
 
(7) PREMISES AND EQUIPMENT
 
     Premises and equipment at December 31, is summarized as follows:
 
<TABLE>
<CAPTION>
                                                               1996       1995
                                                              -------    -------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
Land........................................................  $ 3,280    $ 3,171
Buildings...................................................    6,917      5,715
Leasehold improvements......................................    2,146      2,046
Furniture and equipment.....................................    7,135      6,136
                                                              -------    -------
                                                               19,478     17,068
Less accumulated depreciation and amortization..............   (7,529)    (6,493)
                                                              -------    -------
  Premises and equipment, net...............................  $11,949    $10,575
                                                              =======    =======
</TABLE>
 
     Depreciation expense totaled $1,074,000, $923,000 and $892,000 for the
years ended December 31, 1996, 1995 and 1994, respectively.
 
(8) ADVANCES FROM THE FEDERAL HOME LOAN BANK AND FEDERAL FUNDS PURCHASED
 
     Vectra's subsidiary bank is a member of the Federal Home Loan Bank of
Topeka (FHLB). Membership in the FHLB offers several benefits to the Company
including the ability to obtain advances which can be used as part of the
overall mix of funding for Vectra's loan and investing activities. Advances are
available with maturities varying from one day to ten years. All advances are
secured by securities and loans which have been pledged under blanket pledges.
In addition, the Company has agreements with three other banks whereby the
Company may purchase up to $12,500,000 of federal funds. Balances, maturities
and interest rates of the advances at December 31, are as follows:
 
<TABLE>
<CAPTION>
                                                      1996                    1995
                                               -------------------    --------------------
                                                          INTEREST                INTEREST
                                               AMOUNT      RATES       AMOUNT      RATES
                                               -------    --------    --------    --------
                                                         (DOLLARS IN THOUSANDS)
<S>                                            <C>        <C>         <C>         <C>
Fixed rate:
  Overnight borrowings from FHLB.............  $23,700      7.15%     $ 11,345      6.15%
  Federal funds purchased....................    1,000      6.26         1,000      5.80
  Due in 60 days or less.....................   35,000      5.35            --        --
Variable rate due in less than one year,
  resets monthly at rates indexed to one
  month London Interbank Offered Rate........       --        --        58,000      5.98
                                               -------                --------
          Total at end of year...............  $59,700      6.08%     $ 70,345      6.00%
                                               =======      ====      ========      ====
Average borrowings outstanding for the
  year.......................................  $64,743                $123,083
                                               =======                ========
Weighted average interest rate for the
  year.......................................               5.48%                   6.08%
                                                            ====                    ====
Maximum borrowings outstanding at any
  month-end during the year..................  $78,700                $167,500
                                               =======                ========
</TABLE>
 
                                       52
<PAGE>   53
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The advance availability, usage, and related collateral for FHLB advances
at December 31, 1996, is summarized as follows (in thousands):
 
<TABLE>
<S>                                                           <C>
Total advances available....................................  $146,797
Balances outstanding........................................   (58,700)
                                                              --------
  Balances available and unused.............................  $ 88,097
                                                              ========
Book value of assets pledged as collateral:
  Securities................................................  $144,101
  Investment in FHLB stock..................................     3,610
  Loans.....................................................    44,406
                                                              --------
                                                              $192,117
                                                              ========
</TABLE>
 
     Vectra has the right to substitute other acceptable collateral for the
securities and loans pledged as collateral for the advances. The Company is
required to purchase and hold stock in the FHLB to maintain membership and to
obtain advances. The amount of stock required to be held is generally based upon
the portion of Vectra's mortgage related assets to total assets as well as the
amount of advances outstanding. The FHLB paid dividends quarterly during 1996 at
a rate of approximately 6.50%. FHLB stock has always been redeemable at the
preset price of $100 per share; however, there can be no assurance that this
redemption feature and value will continue.
 
(9) SECURITIES AND LOANS SOLD UNDER AGREEMENTS TO REPURCHASE
 
     Securities and loans sold under agreements to repurchase are used to fund
the purchase of securities and origination of loans and to provide collateral to
customers for funds placed with Vectra. The securities and loans which are
subject to the agreements with customers are under the control of the Company
and are segregated in safekeeping accounts at Vectra's correspondent banks.
Vectra has the right to substitute securities and loans at its discretion. The
interest rate paid to customers under these agreements is not related to the
coupon rate of the securities sold, but rather is a function of the rate earned
on Vectra's federal funds sold and the amount of each customer's balance with
Vectra. The balances outstanding under these agreements may fluctuate daily. The
average rate paid under these agreements was 4.65%, 4.87% and 3.48% during the
years ended December 31, 1996, 1995 and 1994, respectively. The carrying value
of loans and securities available for sale under these agreements was
$16,015,000, $7,462,000 and $6,329,000 at December 31, 1996, 1995 and 1994,
respectively. The highest month-end balances during 1996, 1995 and 1994 were
$10,733,000, $7,429,000 and $5,888,000, respectively, and the average balances
were $7,565,000, $4,899,000 and $3,333,000, respectively.
 
                                       53
<PAGE>   54
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(10) NOTES PAYABLE
 
     Notes payable at December 31 consist of the following:
 
<TABLE>
<CAPTION>
                                                               1996      1995
                                                              ------    ------
                                                               (IN THOUSANDS)
<S>                                                           <C>       <C>
Note payable to bank, collateralized by common stock of
  Vectra Bank, interest payable quarterly based on WSJ prime
  minus 0.5%. The entire unpaid balance matures on June 28,
  1997. The loan commitment from the lender indicates that
  the loan may be renewed annually for a total term of ten
  years based on the financial condition of the Company,
  with annual principal reductions of $450,000 starting at
  the end of the second year. ..............................  $4,050    $   --
Note payable to bank, collateralized by real property
  (occupied by a subsidiary bank) with a net carrying value
  of $987,000 at December 31, 1995. Paid in full in
  1996. ....................................................      --     1,051
                                                              ------    ------
                                                              $4,050    $1,051
                                                              ======    ======
</TABLE>
 
(11) SHAREHOLDERS' EQUITY
 
  (a)  Initial public offering
 
     During 1994, the Company issued 923,770 shares of common stock and 805,000
shares of Series A cumulative preferred stock for proceeds of approximately
$14,471,000, net of offering costs, in an initial public offering.
 
     In connection with the initial public offering, the Company purchased and
retired 270,000 shares of common stock from an existing shareholder for
$2,403,000, with a portion of the proceeds from the offering.
 
  (b)  Preferred stock
 
     The $100 Series A Convertible Preferred Stock (Convertible Preferred) is
entitled to receive quarterly dividends, if declared, at the annual rate of $7
per share. In the event of any liquidation of the Company, the holders of the
Convertible Preferred will be entitled to a preferential distribution out of the
assets of the Company of $100 per share plus an amount equal to all accumulated
and unpaid dividends thereon on a pari passu basis with the holders of the
Cumulative Preferred stock. Attached to the shares of Convertible Preferred are
Contingent Warrants which give the holders of the Cumulative Preferred the right
to receive Company common stock to compensate for dividends on the Cumulative
Preferred if they are not declared and paid.
 
     The Company may require the redemption of the Convertible Preferred shares
on or after June 19, 1999, at a redemption price starting at $103.50 for the
first year starting June 19, 1999, and declining over a seven year period to
$100 per share. Notwithstanding the Company's rights to require redemption, the
holders of the Convertible Preferred shall have 30 days after the receipt of a
notice of redemption in which they may elect to instead convert their shares of
Convertible Preferred into Company common stock in accordance with their
conversion rights. As a condition for the Company exercising its right to
require redemption during the two-year period starting June 19, 1999, the
Company's common stock must be trading at no less than $13.72 per share.
 
     Holders of the Convertible Preferred stock may, at their option, convert
all or any part of their Convertible Preferred stock into Company common stock
at a conversion price of $13.25 per common share, or approximately 7.55 shares
of common stock for each share of Convertible Preferred stock. Conversion of all
Convertible Preferred shares would result in the issuance of approximately
828,000 shares of common stock.
 
     The Series A Cumulative Preferred Stock (Cumulative Preferred) is entitled
to receive a cumulative quarterly dividend at the annual rate of $.95 per share.
In the event of any liquidation or change in control of
 
                                       54
<PAGE>   55
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
the Company, the holders of the Cumulative Preferred will be entitled to a
preferential distribution of $10.00 per share ($8,050,000), plus all accumulated
and unpaid dividends.
 
     The Cumulative Preferred will not be redeemable before March 31, 1997,
except upon change in control of the Company.
 
     On or after March 31, 1997, the Cumulative Preferred will be redeemable at
the option of the Company, subject to prior regulatory approval, for cash, in
whole or in part, at the following redemption prices per share, plus, in each
case an amount equal to accumulated and unpaid dividends, if redeemed during the
twelve-month period ending on and including March 30, in each of the following
years:
 
<TABLE>
<CAPTION>
                                                              REDEMPTION PRICE
                                                                 PER SHARE
                                                              ----------------
<S>                                                           <C>
1998........................................................       $10.30
1999........................................................        10.15
2000 and thereafter.........................................        10.00
</TABLE>
 
     The 1989 preferred stock was redeemed in 1994 for approximately $477,000
with a portion of the proceeds from the initial public offering.
 
  (c)  Employees equity incentive plan
 
     In March 1994, the Company adopted an employees equity incentive plan under
which options for the purchase of common stock are granted to its key employees
including officers and directors who are employees of Vectra. Stock option terms
under this plan may be adjusted at the discretion of the Board of Directors. The
plan has authorized 450,000 option shares of common stock. The options
outstanding under this plan expire ten years from the date of grant. One-third
of these options became exercisable at the date of grant with an additional
one-third becoming exercisable on each of the first two anniversaries of the
date granted. Upon any change in control of Vectra, options outstanding become
fully vested and exercisable.
 
     Activity under this plan is as follows:
 
<TABLE>
<CAPTION>
                                                               NUMBER     WEIGHTED-AVERAGE
                                                              OF SHARES    EXERCISE PRICE
                                                              ---------   ----------------
<S>                                                           <C>         <C>
Balance at December 31, 1993................................        --             --
  Granted...................................................    95,000         $ 8.50
Balance at December 31, 1994................................    95,000           8.50
  Granted...................................................    20,500          11.04
Balance at December 31, 1995................................   115,500           8.95
  Granted...................................................     2,000          12.00
  Exercised.................................................    (3,333)         10.00
  Forfeited.................................................    (1,667)         10.00
Balance at December 31, 1996................................   112,500           8.96
                                                               =======
</TABLE>
 
     At December 31, 1996, the range of exercise prices and the weighted-average
remaining contractual life of outstanding options was $8.50 -- $12.00 and 7.2
years, respectively.
 
     At December 31, 1996, 1995 and 1994, the number of options exercisable was
106,000, 70,167 and 31,667, respectively, and weighted-average exercise price of
those options was $8.80, $8.78 and $8.50, respectively.
 
                                       55
<PAGE>   56
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
  (d)  Outside directors' stock option plan
 
     In March 1994, the Company also implemented an outside directors stock
option plan that grants options for the purchase of common stock to the
Company's directors who are not employees of Vectra. All outside directors were
immediately granted options to purchase 3,000 shares at the current market price
with an additional 1,500 shares to be granted for each subsequent year of
service. Options issued under this plan become exercisable in the same manner as
those issued under the employees equity incentive plan and expire five years
from the date of grant.
 
     Activity under this plan is as follows:
 
<TABLE>
<CAPTION>
                                                               NUMBER     WEIGHTED-AVERAGE
                                                              OF SHARES    EXERCISE PRICE
                                                              ---------   ----------------
<S>                                                           <C>         <C>
Balance at December 31, 1993................................       --              --
  Granted...................................................   12,000          $ 8.50
                                                               ------
Balance at December 31, 1994................................   12,000            8.50
  Granted...................................................    6,000            9.63
                                                               ------
Balance at December 31, 1995................................   18,000            8.88
  Granted...................................................    7,500           13.13
                                                               ------
Balance at December 31, 1996................................   25,500           10.13
                                                               ======
</TABLE>
 
     At December 31, 1996, the range of exercise prices and the weighted-average
remaining contractual life of outstanding options was $8.50 -- $13.13 and 3.1
years, respectively.
 
     At December 31, 1996, 1995 and 1994, the number of options exercisable was
18,500, 10,000 and 4,000, respectively, and weighted-average exercise price of
those options was $9.59, $9.08 and $8.50, respectively.
 
  (e)  Nonqualified stock option plan
 
     The Company had a 1989 nonqualified stock option plan (the 1989 Plan) which
permitted Vectra to grant options for the purchase of common stock to selected
key employees at no less than estimated fair value on the date of grant.
 
     Options outstanding under this plan vested 20% on June 30, 1994 and an
additional 20% on each June 30 thereafter until the options are fully vested on
June 30, 1998. The options vest fully in the event of a change of control of the
Company. In 1994, the 1989 Plan was terminated.
 
     Activity under this plan is as follows:
 
<TABLE>
<CAPTION>
                                                               NUMBER     WEIGHTED-AVERAGE
                                                              OF SHARES    EXERCISE PRICE
                                                              ---------   ----------------
<S>                                                           <C>         <C>
Balance at December 31, 1993................................   50,530          $ 6.67
  Exercised.................................................   (3,030)           6.60
  Forfeited.................................................   (1,000)          10.00
                                                               ------
Balance at December 31, 1994................................   46,500            6.60
                                                               ------
Balance at December 31, 1995................................   46,500            6.60
  Exercised.................................................     (300)           6.60
  Forfeited.................................................     (200)           6.60
                                                               ------
Balance at December 31, 1996................................   46,000            6.60
                                                               ======
</TABLE>
 
     At December 31, 1996, the exercise price and the weighted-average remaining
contractual life of outstanding options was $6.60 and 2.5 years, respectively.
 
                                       56
<PAGE>   57
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     At December 31, 1996, 1995 and 1994, the number of options exercisable was
27,600, 18,600 and 9,300, respectively, and weighted-average exercise price of
those options was $6.60.
 
  (f)  Accounting for stock options
 
     During 1996, the Company adopted SFAS No. 123, Accounting for Stock-Based
Compensation (SFAS 123), which provides an alternative to APB Opinion No. 25,
Accounting for Stock Issued to Employees (Opinion No. 25), in accounting for
stock-based compensation issued to employees. The Statement allows for a fair
value based method of accounting for employee stock options and similar equity
instruments. However, for companies that continue to account for stock-based
compensation arrangements under Opinion No. 25, SFAS 123 requires disclosure of
the pro forma effect on net income and earnings per share, if presented, as if
the fair value based method of accounting defined in SFAS 123 had been applied.
The Company will continue to use the accounting prescribed by Opinion No. 25,
and provide the required disclosures of SFAS 123.
 
     The per share weighted-average fair value of stock options granted during
1996 and 1995 was $4.05 and $4.01 on the dates of grant using the Black Scholes
option-pricing model with the following weighted-average assumptions:
1996 -- risk-free interest rate of 6.0% and an expected life of 3.4 years;
1995 -- risk-free interest rate of 6.1% and an expected life of 4.6 years, and
expected volatility of 32%. It was assumed in both years that no dividends will
be paid.
 
     As noted above, the Company applies the intrinsic value method in
accounting for its equity incentive plans and, accordingly, no compensation cost
has been recognized for such plans in the financial statements. Had the Company
determined compensation cost based on the fair value at the grant date for its
stock options, the Company's net earnings would have been reduced to the pro
forma amounts indicated below:
 
<TABLE>
<CAPTION>
                                                                1996         1995
                                                              ---------    ---------
                                                              (IN THOUSANDS, EXCEPT
                                                                PER SHARE AMOUNTS)
<S>                                                           <C>          <C>
Net earnings:
  As reported...............................................     $5,445       $3,303
  Pro forma.................................................      5,380        3,282
Earnings per common share assuming full dilution:
  As reported...............................................     $ 1.26       $ 0.78
  Pro forma.................................................       1.24         0.78
</TABLE>
 
     The effects of applying SFAS 123 for providing pro forma disclosures may
not be representative of the effects on reported net earnings for future years.
 
  (g) Restricted stock program
 
     During 1992, Vectra adopted a restricted stock program under which 30,000
shares of restricted common stock were sold to certain employees at a price of
$.01 per share. The shares vested over a four-year period which ended in 1996.
Vectra recorded compensation expense over the vesting period equal to the
difference between the fair value of shares at the time the program was adopted
and sales proceeds.
 
  (h) Underwriter's warrant
 
     In connection with its initial public offering, Vectra sold to its
underwriter a warrant to purchase 20,000 shares of common stock. The warrant is
exercisable at $10.20 per share of common stock and expires in March 1999.
 
                                       57
<PAGE>   58
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(12) INCOME TAXES
 
     Income tax expense (benefit) for the years ended December 31, consists of
the following:
 
<TABLE>
<CAPTION>
                                                              1996      1995     1994
                                                             ------    ------    ----
                                                                  (IN THOUSANDS)
<S>                                                          <C>       <C>       <C>
Current tax expense:
  Federal..................................................  $3,077    $1,245    $319
  State....................................................     328       215      --
                                                             ------    ------    ----
          Total current expense............................   3,405     1,460     319
                                                             ------    ------    ----
Deferred tax expense (benefit):
  Federal..................................................    (403)      272     403
  State....................................................     (61)       42      98
                                                             ------    ------    ----
          Total deferred expense (benefit).................    (464)      314     501
                                                             ------    ------    ----
          Total income tax expense.........................  $2,941    $1,774    $820
                                                             ======    ======    ====
</TABLE>
 
     Income tax expense differs from the amounts computed by applying the U.S.
federal statutory rate to earnings before income taxes and cumulative effect of
change in accounting for the years ended December 31, as a result of the
following:
 
<TABLE>
<CAPTION>
                                             1996             1995              1994
                                         -------------    -------------    ---------------
                                         AMOUNT    %      AMOUNT    %      AMOUNT      %
                                         ------   ----    ------   ----    -------   -----
                                                      (DOLLARS IN THOUSANDS)
<S>                                      <C>      <C>     <C>      <C>     <C>       <C>
Expected federal tax expense...........  $2,851   34.0%   $1,726   34.0%   $ 1,711    34.0%
State taxes, net of federal benefit....     277    3.3       169    3.3        161     3.2
Tax exempt interest....................    (104)  (1.3)       --     --         --      --
Goodwill amortization..................      64    0.8        --     --         --      --
Decrease in valuation allowance on
  deferred taxes.......................     (95)  (1.1)     (209)  (4.1)    (1,000)  (19.9)
Other..................................     (52)  (0.6)       88    1.7        (52)   (1.0)
                                         ------   ----    ------   ----    -------   -----
                                         $2,941   35.1%   $1,774   34.9%   $   820    16.3%
                                         ======   ====    ======   ====    =======   =====
</TABLE>
 
     Temporary differences between financial statement carrying amounts and tax
bases of assets and liabilities that result in significant portions of Vectra's
deferred tax asset at December 31, are as follows:
 
<TABLE>
<CAPTION>
                                                               1996      1995
                                                              ------    ------
                                                               (IN THOUSANDS)
<S>                                                           <C>       <C>
Deferred tax assets:
  Unrealized loss on securities available for sale..........  $2,246    $2,194
  Net operating loss carryforwards..........................     225       272
  Loans, primarily due to differences in accounting for loan
     losses.................................................     722       119
  Other.....................................................     211        73
                                                              ------    ------
     Deferred tax asset.....................................   3,404     2,658
  Less valuation allowance..................................    (141)     (236)
                                                              ------    ------
     Deferred tax asset, net of valuation allowance.........   3,263     2,422
Deferred tax liabilities:
  Premises and equipment, primarily due to differences in
     original cost basis and depreciation...................    (227)       --
                                                              ------    ------
          Net deferred tax asset............................  $3,036    $2,422
                                                              ======    ======
</TABLE>
 
                                       58
<PAGE>   59
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The valuation allowance recorded at December 31, 1996, was determined based
upon management's estimate of future taxable income and Vectra's ability to
utilize existing net operating loss carryforwards, certain of which are subject
to limitations as to their use to offset such taxable income and the recovery or
realization of unrealized losses on securities. In the opinion of management,
the Company is more likely than not to realize the net deferred tax asset.
 
     At December 31, 1996, Vectra has net operating loss carryforwards for
federal and state income tax purposes of approximately $520,000 which are
available to offset future taxable income through 2004. Vectra also has
approximately $960,000 of additional net operating loss carryforwards for state
income tax purposes which are available to offset future taxable income through
2009. These net operating loss carryforwards are subject to separate return
limitations and "ownership change" limitations, as that term is defined in
Section 382 of the Internal Revenue Code.
 
(13) RELATED PARTY TRANSACTIONS
 
     Vectra has entered into transactions with its shareholders, directors,
officers and other affiliates. In the opinion of management, such transactions
have been entered into under terms and rates substantially the same as those
offered by Vectra in the ordinary course of business.
 
(14) COMMITMENTS AND CONTINGENCIES
 
  (a) Lease Commitments
 
     Future minimum rental payments and lease income receipts under
noncancelable operating leases for premises and equipment, expiring at various
dates through 2067, are as follows:
 
<TABLE>
<CAPTION>
                                                               RENTAL      RENTAL
                                                              PAYMENTS    RECEIPTS
                                                              --------    --------
                                                                 (IN THOUSANDS)
<S>                                                           <C>         <C>
1997........................................................   $  530      $  191
1998........................................................      458          31
1999........................................................      271          47
2000........................................................      224          38
2001........................................................       91          42
Thereafter..................................................    1,943         660
                                                               ------      ------
          Total minimum.....................................   $3,517      $1,059
                                                               ======      ======
</TABLE>
 
     Total rent expense for all operating leases, including equipment leases,
was $605,000, $774,000 and $705,000 for the years ended December 31, 1996, 1995
and 1994, respectively.
 
  (b) Commitments to Extend Credit
 
     In the normal course of business, the subsidiary bank enters into
commitments to extend credit. The following outstanding commitments at December
31, 1996, which are generally secured and at market rates of interest, are not
reflected in the accompanying financial statements (in thousands):
 
<TABLE>
<S>                                                           <C>
Commitments on lines of credit..............................  $85,628
Outstanding letters of credit...............................    4,214
                                                              -------
                                                              $89,842
                                                              =======
</TABLE>
 
     Commitments to extend credit and outstanding letters of credit are
evaluated for losses by management in a similar manner to existing loans and
real estate acquired by foreclosure.
 
                                       59
<PAGE>   60
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
  (c) Litigation
 
     Vectra is involved in various litigation matters arising in the normal
course of business. In the opinion of management and Vectra's legal counsel, the
ultimate resolution of these matters will not have a significant adverse effect
on the financial condition or results of operations of the Company.
 
(15) DISCLOSURES OF FAIR VALUE OF FINANCIAL INSTRUMENTS
 
     SFAS No. 107, Disclosures About Fair Value of Financial Instruments, (SFAS
107) requires that Vectra disclose estimated fair values for its financial
instruments. Fair value estimates, methods, and assumptions for Vectra's
financial instruments are as set forth below, and a summary of the carrying
values and fair values of the Company's financial instruments at December 31,
are as follows:
 
<TABLE>
<CAPTION>
                                                     1996                    1995
                                             ---------------------   ---------------------
                                             CARRYING   ESTIMATED    CARRYING   ESTIMATED
                                              VALUE     FAIR VALUE    VALUE     FAIR VALUE
                                             --------   ----------   --------   ----------
                                                            (IN THOUSANDS)
<S>                                          <C>        <C>          <C>        <C>
Financial assets:
  Cash and due from banks..................  $ 32,688    $ 32,688    $ 17,320    $ 17,320
  Securities available for sale:
     Structured notes (see note 5).........    10,296      10,296       9,785       9,785
     Other.................................   170,699     170,699     160,599     160,599
  Securities held to maturity..............       263         263         814         819
  Investment in FHLB stock.................     3,610       3,610       5,173       5,173
  Federal funds sold.......................        --          --       2,000       2,000
  Loans....................................   315,667     322,861     204,171     209,198
Financial liabilities:
  Deposits.................................   439,351     439,351     307,085     307,085
  Other liabilities........................    77,025      77,025      80,612      80,612
</TABLE>
 
  (a) Cash and Due From Banks and Federal Funds Sold
 
     The carrying amounts of these instruments are reasonable estimates of fair
value, due to the relatively short period to maturity of these investments.
 
  (b) Securities
 
     The fair value of securities available for sale and securities held to
maturity is estimated based on market quotations received from securities
dealers from whom Vectra normally purchases and sells securities and from other
independent sources. Such estimates of market value are included in note 4.
 
  (c) Investment in Federal Home Loan Bank Stock
 
     The carrying amount of this investment represents a reasonable estimate of
fair value since the stock can only be purchased from or sold to the FHLB, as
discussed in note 8.
 
  (d) Loans
 
     Fair value of loans is estimated in accordance with SFAS 107 for portfolios
of loans with similar financial characteristics. Loans are segregated by type
such as commercial, consumer and mortgages. Each loan category is further
segmented into fixed and adjustable rate interest terms and by performing and
nonperforming categories. Fair value of fixed rate loans is calculated by
discounting cash flows through the estimated maturity based on the Company's
expected experience with repayments for each loan classification. The estimated
market discount rates used in the calculations represent loan rates offered by
the Company on similar types of loans. Adjustable rate loans are segmented into
the two categories of home equity and all other
 
                                       60
<PAGE>   61
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
adjustable rate loans. Home equity loans generate a higher premium in the loan
secondary market than other adjustable rate loans, which is reflected in the
calculation of the fair market value for these types of loans. All other
performing adjustable rate loans are valued at 1% over the carrying value based
on consideration of average lives and contributions to net earnings of such
loans. The fair market values of all consumer loans were verified with
independent loan brokers.
 
     A summary of carrying value and estimated fair value of loans at December
31 is as follows:
 
<TABLE>
<CAPTION>
                                                     1996                    1995
                                             ---------------------   ---------------------
                                             CARRYING   ESTIMATED    CARRYING   ESTIMATED
                                              VALUE     FAIR VALUE    VALUE     FAIR VALUE
                                             --------   ----------   --------   ----------
                                                            (IN THOUSANDS)
<S>                                          <C>        <C>          <C>        <C>
Loans......................................  $317,041     $319,824   $202,748     $205,231
Loans held for sale........................     2,864        3,037      3,916        3,967
Allowance for loan losses..................    (4,238)          --     (2,493)          --
                                             --------     --------   --------     --------
          Net loans........................  $315,667     $322,861   $204,171     $209,198
                                             ========     ========   ========     ========
</TABLE>
 
  (e) Deposits and Other Liabilities
 
     The fair values of deposits with no stated maturity, such as demand
deposits, NOW and money market accounts and savings are equal to the amounts
payable on demand as included in the accompanying consolidated balance sheets.
The fair value of certificates of deposit is also estimated to be equal to the
amounts included in the accompanying consolidated balance sheets because the
majority of such certificates are of short duration and are at rates
substantially the same as current market rates. The estimated fair values of
advances from the FHLB and of securities and loans sold under agreements to
repurchase are also equal to carrying values because of their short durations or
repricing frequencies. Notes payable carrying values are estimated to
approximate fair values because they are annually renewable and bear interest at
market rates adjustable whenever prime rate changes.
 
  (f) Off-Balance Sheet Financial Instruments
 
     Commitments to extend credit represent the principal category of
off-balance sheet financial instruments. The fair value of these commitments,
based on fees currently charged for similar commitments, is not significant.
 
     Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates are subjective in nature and involve matters of significant
judgment and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
 
(16) REGULATORY CAPITAL REQUIREMENTS
 
     Vectra is subject to regulations of certain state and federal agencies,
including periodic examinations by those regulatory agencies. Federal
regulations provide for supervisory action at institutions based on their
capital levels as measured by three capital ratios: Tier 1 leverage, Tier 1
risk-based, and total risk-based capital. Based on these capital measures, each
banking institution falls into one of five regulatory capital categories: well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized. At December 31, 1996,
Vectra's Tier 1 leverage, Tier 1 risk-based and total risk-based capital were
6.98%, 10.50% and 11.58%, respectively, which places Vectra in the well
capitalized category.
 
                                       61
<PAGE>   62
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(17) EARNINGS PER SHARE CALCULATIONS
 
     In addition to its common stock, Vectra's capital structure includes
several other components that impact the calculation of earnings per share.
Common stock equivalents consist of the number of common shares issuable upon
the exercise of the options and warrants when the market price of the common
stock exceeds the exercise prices, reduced by the number of common shares that
are assumed to have been purchased with the proceeds from the exercise of the
stock options and warrants. Those purchases were assumed to have been made at
the average price of the common stock during that part of the year when the
market price of the common stock exceeded the exercise prices.
 
     Other dilutive securities consist of the 828,000 shares of common stock
issuable upon conversion of the $100 Series A Convertible Preferred stock. The
weighted average outstanding shares of these securities is calculated assuming
the conversion occurred on June 18, 1996, when the shares of $100 Series A
Convertible Preferred stock were issued.
 
     The calculation of primary and fully diluted earnings per share is set
forth in the following table:
 
<TABLE>
<CAPTION>
                                                            1996      1995      1994
                                                           ------    ------    ------
                                                              (IN THOUSANDS EXCEPT
                                                               PER SHARE AMOUNTS)
<S>                                                        <C>       <C>       <C>
Net earnings.............................................  $5,445    $3,303    $2,675
Less dividends on Series A Cumulative Preferred stock....    (765)     (765)     (579)
                                                           ------    ------    ------
Earnings available for calculation of earnings per share
  assuming full dilution.................................   4,680     2,538     2,096
Less dividends on $100 Series A Convertible Preferred
  stock..................................................    (409)       --        --
                                                           ------    ------    ------
Earnings available to common shareholders................  $4,271    $2,538    $2,096
                                                           ======    ======    ======
Weighted average shares outstanding:
  Common shares..........................................   3,198     3,195     3,023
  Common equivalent shares...............................      73        39        36
                                                           ------    ------    ------
          Total common and common equivalent shares......   3,270     3,234     3,059
  Other dilutive securities..............................     443        --        --
                                                           ------    ------    ------
          Total assuming full dilution...................   3,714     3,234     3,059
                                                           ======    ======    ======
Earnings per common share and common share equivalent....  $ 1.31    $ 0.79    $ 0.69
                                                           ======    ======    ======
Earnings per common share assuming full dilution.........  $ 1.26    $ 0.78    $ 0.69
                                                           ======    ======    ======
</TABLE>
 
                                       62
<PAGE>   63
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
(18) CONDENSED FINANCIAL INFORMATION FOR PARENT COMPANY
 
     Condensed financial information for the parent company only, Vectra Banking
Corporation, is as follows:
 
                      CONDENSED BALANCE SHEET INFORMATION
 
<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              ------------------
                                                               1996       1995
                                                              -------    -------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
ASSETS
  Cash......................................................  $   199    $   304
  Investment in bank subsidiaries...........................   47,778     29,219
  Investment in other subsidiaries..........................      987        (58)
  Other assets..............................................       14        787
                                                              -------    -------
          Total assets......................................  $48,978    $30,252
                                                              =======    =======
LIABILITIES AND SHAREHOLDERS' EQUITY
  Other liabilities.........................................  $ 3,543    $    67
  Shareholders' equity......................................   45,435     30,185
                                                              -------    -------
          Total liabilities and shareholders' equity........  $48,978    $30,252
                                                              =======    =======
</TABLE>
 
                        CONDENSED OPERATIONS INFORMATION
 
<TABLE>
<CAPTION>
                                                           YEARS ENDED DECEMBER 31,
                                                          ---------------------------
                                                           1996      1995      1994
                                                          ------    ------    -------
                                                                (IN THOUSANDS)
<S>                                                       <C>       <C>       <C>
Operating income:
  Management fees.......................................  $   --    $  600    $   336
  Other.................................................      14        18         46
                                                          ------    ------    -------
          Total operating income........................      14       618        382
                                                          ------    ------    -------
Operating expenses:
  Salaries and employee benefits........................      11       328        340
  Occupancy expenses....................................      --        74         62
  Interest expense......................................     162        --         18
  Amortization of intangible asset......................      --        --        312
  Other.................................................     607       534        310
                                                          ------    ------    -------
          Total operating expenses......................     780       936      1,042
                                                          ------    ------    -------
  Loss before income taxes, equity in earnings of
     subsidiaries and cumulative effect of change in
     accounting.........................................    (766)     (318)      (660)
Income tax benefit......................................     196       156        470
                                                          ------    ------    -------
  Loss before equity in earnings of subsidiaries and
     cumulative effect of change in accounting..........    (570)     (162)      (190)
Equity in earnings of subsidiaries......................   6,015     3,465      4,402
Cumulative effect of change in accounting for
  goodwill..............................................      --        --     (1,537)
                                                          ------    ------    -------
          Net earnings..................................  $5,445    $3,303    $ 2,675
                                                          ======    ======    =======
</TABLE>
 
                                       63
<PAGE>   64
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
                        CONDENSED CASH FLOW INFORMATION
 
<TABLE>
<CAPTION>
                                                         YEARS ENDED DECEMBER 31,
                                                      -------------------------------
                                                        1996       1995        1994
                                                      --------    -------    --------
                                                              (IN THOUSANDS)
<S>                                                   <C>         <C>        <C>
Cash flows from operating activities:
  Net earnings......................................  $  5,445    $ 3,303    $  2,675
  Equity in earnings of subsidiaries................    (6,015)    (3,465)     (4,402)
  Cumulative effect of change in accounting.........        --         --       1,537
  Depreciation and amortization.....................        --         --         312
  Net decrease (increase) in other operating assets
     and liabilities................................       177       (210)        (90)
                                                      --------    -------    --------
          Net cash provided (used) by operating
            activities..............................      (393)      (372)         32
                                                      --------    -------    --------
Cash flows from investing activities:
  Dividends received from bank subsidiaries.........     1,400      1,052         353
  Capital contribution to subsidiaries..............   (15,021)        --     (10,000)
  Other.............................................        27         --        (165)
                                                      --------    -------    --------
Net cash provided (used) by investing activities....   (13,594)     1,052      (9,812)
                                                      --------    -------    --------
Net cash provided (used) by financing activities....    13,882       (764)     10,103
                                                      --------    -------    --------
          Net increase (decrease) in cash...........      (105)       (84)        323
Cash at beginning of year...........................       304        388          65
                                                      --------    -------    --------
Cash at end of year.................................  $    199    $   304    $    388
                                                      ========    =======    ========
</TABLE>
 
                                       64
<PAGE>   65
 
                                   SIGNATURES
 
     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Denver,
State of Colorado on March 21, 1997.
 
                                            VECTRA BANKING CORPORATION
 
                                            By:       /s/ GARY S. JUDD
                                              ----------------------------------
                                                   Gary S. Judd, President
 
                                                /s/ RAY L. NASH
                                              ----------------------------------
                                                         Ray L. Nash,
                                                   Chief Financial Officer
 
                               POWER OF ATTORNEY
 
     Each individual whose signature appears below hereby designates and
appoints Gary S. Judd and Ray L. Nash, and each of them, as such person's true
and lawful attorneys-in-fact and agents (the "Attorneys-in-Fact") with full
power of substitution and resubstitution, for each person and in such person's
name, place, and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Annual Report on Form
10-K, which amendments may make such changes in this Annual Report on Form 10-K
as either Attorney-in-Fact deems appropriate and to file each such amendment
with all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto such Attorneys-in-Fact and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that such Attorneys-in-Fact or either of them, or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities indicated on March 21, 1997.
 
<TABLE>
<CAPTION>
                      SIGNATURE                                             TITLE
                      ---------                                             -----
<C>                                                     <S>
 
                  /s/ GARY S. JUDD                      Director, President and
-----------------------------------------------------     Chief Executive Officer
                    Gary S. Judd
 
              /s/ MARY GITTINGS CRONIN                  Director
-----------------------------------------------------
                Mary Gittings Cronin
 
                /s/ ROBERT D. GREENE                    Director
-----------------------------------------------------
                  Robert D. Greene
 
                  /s/ GARY A. MOSKO                     Director
-----------------------------------------------------
                    Gary A. Mosko
 
                 /s/ JAMES L. RUMSEY                    Director
-----------------------------------------------------
                   James L. Rumsey
 
              /s/ ROBERT A. SILVERBERG                  Director
-----------------------------------------------------
                Robert A. Silverberg
 
               /s/ W. JAMES TOZER JR.                   Director
-----------------------------------------------------
                 W. James Tozer Jr.
 
                /s/ RICHARD B. TUCKER                   Director
-----------------------------------------------------
                  Richard B. Tucker
</TABLE>
 
                                       65
<PAGE>   66
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
          2.1            -- Agreement and Plan of Merger Dated as of the 26th Day of
                            December, 1995 Among Vectra Banking Corporation, Vectra
                            Bank, Bank Land Co. and Southwest State Bank, filed as
                            Exhibit 2.1 to the Registrant's Form 10-K for the year
                            ended December 31, 1995, and incorporated herein by
                            reference
          3.1            -- Amended and Restated Articles of Incorporation of Vectra
                            Banking Corporation, filed as Exhibit 3.1 to the
                            Registrant's Registration Statement No. 33-74724 on Form
                            SB-2, Effective March 24, 1994 ("SB-2 Registration
                            Statement"), and incorporated herein by reference
          3.2            -- Bylaws of Vectra Banking Corporation, filed as Exhibit
                            3.2 to the Registrant's SB-2 Registration Statement, and
                            incorporated herein by reference
         10.1            -- Employees' Equity Incentive Plan, filed as Exhibit 10.1
                            to the Registrant's SB-2 Registration Statement, and
                            incorporated herein by reference
         10.2            -- Nonemployee Directors' Stock Option Plan, filed as
                            Exhibit 10.2 to the Registrant's SB-2 Registration
                            Statement, and incorporated herein by reference
         10.3            -- Non-Statutory Stock Option Plan, filed as Exhibit 10.3 to
                            the Registrant's SB-2 Registration Statement, and
                            incorporated herein by reference
         10.4            -- Incentive Stock Purchase Plan, filed as Exhibit 10.4 to
                            the Registrant's SB-2 Registration Statement, and
                            incorporated herein by reference
         10.6            -- Promissory Note dated October 18, 1985 between Wadsworth
                            Building Corporation and the City of Wheat Ridge, filed
                            as Exhibit 10.6 to the Registrant's SB-2 Registration
                            Statement, and incorporated herein by reference
         10.7            -- Advance, Pledge and Security Agreement dated April 9,
                            1991 between The Federal Home Loan Bank of Topeka and
                            Vectra Bank, filed as Exhibit 10.7 to the Registrant's
                            SB-2 Registration Statement, and incorporated herein by
                            reference
         10.9            -- Lease dated October 1, 1991 by and between First Energy
                            Properties, Inc. and Vectra Bank of Thornton for Mission
                            Trace Shopping Center, filed as Exhibit 10.9 to the
                            Registrant's SB-2 Registration Statement, and
                            incorporated herein by reference
         10.10           -- Colorado Building Lease dated September 5, 1995 by and
                            between Colorado Building Group, Vectra Banking
                            Corporation and Vectra Bank of Boulder, Suite 225, 1919
                            14th Street, Boulder, Colorado, filed herewith
         10.11           -- Colorado Building Lease dated June 1, 1982 by and between
                            Colorado Building Group and National Bank of the Rockies
                            in Boulder for 1919 14th Street, Suite 111, filed as
                            Exhibit 10.11 to the Registrant's SB-2 Registration
                            Statement, and incorporated herein by reference;
                            Amendment No. 1 filed herewith
         10.12           -- Ground Lease dated October 21, 1991 by and between
                            Community Plaza, L.P. and Vectra Bank of Boulder for
                            North Broadway Street, filed as Exhibit 10.12 to the
                            Registrant's SB-2 Registration Statement, and
                            incorporated herein by reference
         10.13           -- Office Building Lease dated April 14, 1988 by and between
                            Denver Place Associates Limited Partnership and National
                            Bank of the Rockies in Denver for 999 18th Street, filed
                            as Exhibit 10.13 to the Registrant's SB-2 Registration
                            Statement, and incorporated herein by reference
</TABLE>
 
                                       66
<PAGE>   67
<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
         10.14           -- Lease dated May 1, 1991 between Equity Management, Inc.
                            and Vectra Bank for 6901 South Pierce Street, Littleton,
                            Colorado, filed as Exhibit 10.14 to the Registrant's SB-2
                            Registration Statement, and incorporated herein by
                            reference; Amendment No. 1 filed herewith
         10.15           -- 401(k) Plan, filed as Exhibit 10.15 to the Registrant's
                            SB-2 Registration Statement, and incorporated herein by
                            reference
         10.17           -- Incentive Stock Purchase Agreement -- Restricted Stock
                            Program, filed as Exhibit 10.17 to the Registrant's SB-2
                            Registration Statement, and incorporated herein by
                            reference
         10.18           -- Data Processing Hardware and Software Lease Agreement,
                            filed as Exhibit 10.18 to the Registrant's SB-2
                            Registration Statement, and incorporated herein by
                            reference
         10.19           -- Loan Agreement -- Wheat Ridge Building, filed as Exhibit
                            10.19 to the Registrant's SB-2 Registration Statement,
                            and incorporated herein by reference
         10.20           -- Agreement and Plan of Merger Dated as of the 22nd day of
                            November, 1994 by and between Bank Land Co. and Vectra
                            Banking Corporation, filed with Registration Statement on
                            Form S-4, No. 33-88064
         10.21           -- Agreement Between Vectra Banking Corporation and Robert
                            A. Silverberg, filed with Registration Statement on Form
                            S-4, No. 33-88064
         10.22           -- Agency Agreement -- Bankers' Bank of the West and Policy
                            for Federal Funds Purchase, filed with Registration
                            Statement on Form S-4, No. 33-88064
         10.23           -- Employment and Noncompetition Agreement -- Gary A. Mosko,
                            as included as part of Exhibit 2.1 above
         10.24           -- Boatmen's First National Bank of Kansas City Loan
                            Commitment, filed herewith
         10.25           -- Lease -- 6000 Greenwood Plaza Boulevard, filed as Exhibit
                            10.9 to the Annual Report on Form 10-K for the Fiscal
                            Year Ended December 31, 1995 and incorporated herein by
                            reference
         11              -- Statements regarding computation of earnings, see
                            Consolidated Financial Statements
         21              -- Subsidiaries of the Registrant filed as Exhibit 2.1 to
                            the Registrant's Form 10-K for the Year Ended December
                            31, 1995, and incorporated herein by reference
         23              -- Consent of KPMG Peat Marwick, LLP regarding Registration
                            Statement on Form S-8, filed herewith
         25              -- Power of Attorney, filed herewith, see the Signature Page
</TABLE>
 
                                       67