-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, OEcH6Aq1sw/U+eqi4xbIOg8zIcQsTqlw6dcQiHryjGtZVBRhApXkqAz/JtpYTCf7 Be5Q9nZib1BtyZzJf4gvCw== 0000950149-95-000149.txt : 199507120000950149-95-000149.hdr.sgml : 19950711 ACCESSION NUMBER: 0000950149-95-000149 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950328 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ZIONS BANCORPORATION /UT/ CENTRAL INDEX KEY: 0000109380 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 870227400 STATE OF INCORPORATION: UT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-02610 FILM NUMBER: 95523890 BUSINESS ADDRESS: STREET 1: 1380 KENNECOTT BLDG CITY: SALT LAKE CITY STATE: UT ZIP: 84133 BUSINESS PHONE: 8015244787 MAIL ADDRESS: STREET 1: 1380 KENNECOTT BUILDING CITY: SALT LAKE CITY STATE: UT ZIP: 84133 FORMER COMPANY: FORMER CONFORMED NAME: ZIONS UTAH BANCORPORATION DATE OF NAME CHANGE: 19870615 FORMER COMPANY: FORMER CONFORMED NAME: ZIONS FIRST NATIONAL INVESTMENT CO DATE OF NAME CHANGE: 19660921 10-K 1 FORM 10-K FOR THE FISCAL YEAR ENDED 12-31-94 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20459 FORM 10-K X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1994 OR __ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ----------- ----------- COMMISSION FILE NUMBER 0-2610 ZIONS BANCORPORATION (Exact name of Registrant as specified in its charter) UTAH 87-0227400 (State of other jurisdiction of (Internal Revenue Service Employer incorporation or organization) Identification Number) 1380 Kennecott Building Salt Lake City, Utah 84133 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (801) 524-4787 Securities registered pursuant to Section 12(b) of the act: None Securities registered pursuant to Section 12(g) of the act: Common Stock - without par value - ------------------------------------------------------------------------------- (Title of Class) 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. ---- Aggregate Market Value of Common Stock Held by Nonaffiliates at February 27, 1995 ..................................................$446,847,000 Number of Common Shares Outstanding at February 27, 1995.......14,562,970 Shares Documents Incorporated by Reference: Definitive Proxy Statement (See Part III, Item 10, Item 11, Item 12, and Item 13). 2 ZIONS BANCORPORATION ANNUAL REPORT FOR 1994 ON FORM 10-K TABLE OF CONTENTS
PAGE PART I Item 1. Business 1 Item 2. Properties 13 Item 3. Legal Proceedings 14 Item 4. Submission of Matters to a Vote of Security Holders 14 Executive Officers of the Registrant 14 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 15 Item 6. Selected Consolidated Financial Data 16 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 17 Item 8. Financial Statements and Supplementary Data 41 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 68 PART III Item 10. Directors and Executive Officers of the Registrant 68 Item 11. Executive Compensation 68 Item 12. Security Ownership of Certain Beneficial Owners and Management 68 Item 13. Certain Relationships and Related Transactions 68 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 68
3 PART I ITEM 1. BUSINESS Zions Bancorporation (the Parent) is a multibank holding company organized under the laws of Utah in 1955, registered under the Bank Holding Company Act of 1956, as amended. Zions Bancorporation and its subsidiaries (the Company), is the second largest bank holding company headquartered in Utah and provides a full range of banking and related services primarily in Utah, Nevada, and Arizona. Its principal subsidiaries are banking subsidiaries which include Zions First National Bank, the second largest commercial banking organization in the state of Utah, Nevada State Bank, the fifth largest commercial bank in Nevada, and National Bank of Arizona the fifth largest commercial bank in Arizona. The Company's business and the businesses of many of its larger borrowers are primarily concentrated in the state of Utah. Consequently, the Company's results of operations and financial condition are dependent upon general trends in the Utah economy and real estate markets. The Company has focused in recent years on maintaining strong liquidity, risk-based capital and cash flow positions and on developing strong internal controls. An increasing focus is currently being placed on strengthening the Company's retail banking business, as well as its small- and medium-sized business lending, residential mortgage and investment activities, and increasing the proportion of fee income in its total revenue mix. The Company's general operating objectives include enhancing the Company's market position in Utah, Nevada, and Arizona through in-market acquisitions of smaller depository institutions, and through the continued development of the Company's present lines of business. The Company is committed to improving the communities it serves now and in the years to come. Employees, as active concerned citizens, perform acts of service and goodwill to heighten a standard of living and boost community pride and morale. The Company engages in a variety of loan programs which benefit low to moderate income individuals; ranging from housing and business loans to automobile loans. At December 31, 1994, the Company had assets of $4.9 billion, loans of $2.4 billion, deposits of $3.7 billion, and shareholders' equity of more than $.3 billion. A more detailed discussion concerning the Company's financial condition is contained in Part II of this report. The Banking Subsidiaries The banks provide a wide variety of commercial and retail banking and mortgage-lending financial services. Commercial loans, lease financing, cash management, lockbox, customized draft processing, and other special financial services are provided for business and other commercial banking customers. A wide range of personal banking services are provided to individuals, including bankcard, student and other installment loans and home equity credit line loans, checking accounts, savings accounts, time certificates of various types and maturities, trust services and safe deposit facilities. In addition, direct deposit of payroll, social security and various other government checks is offered. Automated teller machines provide 24-hour access and availability to customers' accounts and to many consumer banking services through statewide, regional, and nationwide ATM networks. Zions First National Bank in Utah has developed special packages of financial services designed to meet the financial needs of particular market niches, including the Premier Account for those 50 years and older and the Student Account. The Bank has also established a Private Banking group to service the financial needs of wealthy individuals; an Executive Banking program to service the needs of corporate executives of commercial clients, and an Affinity program which offers discounted financial services to employees of commercial accounts on a group basis. Zions Bank has also developed a series of products geared to the lower-income customer, including the Flex Loan (a low-income personal loan), several low-income housing programs, and the Reddi-Savings account-- a savings account with unlimited ATM access for those not qualifying for or desiring a checking account. Both Zions First National Bank and Nevada State Bank have established trust divisions which offer clients a variety of fiduciary services ranging from the administration of estates and trusts to the management of funds held under pension and profit sharing plans. They also offer custodian, portfolio, and management services. The Trust Division of Zions First National Bank also acts as fiscal and payment agent, transfer agent, registrar, and trustee under corporate and trust indentures for corporations, governmental bodies, and public authorities. 1 4 Zions First National Bank is a registered dealer in, and underwriter of, general obligations of state and municipal governments, and a primary dealer in obligations of the United States government and several federal agencies. Zions First National Bank also provides correspondent banking services such as cash letter processing, wire services, federal funds facilities, and loan participations. Zions First National Bank's International Banking Department issues letters of credit and handles foreign exchange transactions for customers, but it does not take a trading position in foreign exchange. Zions First National Bank's Grand Cayman branch accepts Eurodollar deposits from qualified customers, and places deposits with foreign banks and foreign branches of other U.S. banks. Zions' banking subsidiaries, however, do not engage in any foreign lending. The Company's commercial banking operations generated net income of $65,661,000 in 1994, a .6% increase over the $65,263,000 earned in 1993. Results for 1993 have been restated to reflect the pooling-of-interests accounting treatment afforded the acquisition of National Bancorp of Arizona during the first quarter of 1994. Income from commercial banking operations was negatively affected in 1994 by rising interest rates and narrowing margins, particularly in the indirect installment contract business. Rising interest rates adversely affected the sale of fixed income securities, reducing revenues at the recently acquired Discount Corporation of New York. Rising rates were also manifest in the cost of deposits, as competitors' balance sheets became more fully loaned-up, creating pressure to generate greater deposit growth. Competitive conditions were also intense in the indirect automobile receivables business. Although the volume of such receivables originated increased, margins were greatly reduced from levels previously experienced. During the year a major effort was initiated to reduce the cost structure in the Company's banking operations. A major focus of this initiative is to eliminate redundant operations in the three subsidiary banks, and to centralize functions which are transparent to customers while at the same time maintaining a great deal of decision-making capability at the local management level. At year-end 1994, staffing in the lead bank, excluding the mortgage operations, had been reduced by 57 full-time equivalent employees, or 3.4% below staffing levels a year earlier. An early retirement program was made available to certain employees subsequent to year-end 1994, with approximately 40 employees participating. Further cost-reduction projects are underway in 1995. Average federal funds sold and securities purchased under agreements to resell increased 31.4% or $208,136,000 in 1994, and average securities held-to-maturity, available-for-sale and in trading accounts increased 27.9% or $336,701,000. Average interest-bearing deposits held at other banks and other money market investments decreased $108,185,000 or 81.7% during the year. Total average loans and lease receivables, net of unearned discount, increased 16.0% or $354,310,000, despite the fact that the Company securitized receivables in the gross amount of $703,013,000 during 1994. Core deposits continued to experience strong growth, as the total volume of such accounts rose $339,049,000 or 11.1%. The components of this growth included an increase of $111,723,000 or 15.3% in average demand deposits, an increase of $92,161,000 or 14.2% in savings deposits, an increase of $167,103,000 or 14.9% in average money market account balances, and a decrease of $31,938,000 in time deposits under $100,000. Total average deposits increased 12.5% or $398,935,000 to $3,595,409,000 in 1994. Average federal funds purchased and securities sold under agreements to repurchase increased 40.0% or $309,817,000 in 1994, while securities sold short increased 165.6% or $114,963,000. Advances from the Federal Home Loan Bank of Seattle and other borrowings decreased 20.0% or $36,016,000. Total shareholders' equity allocated to commercial banking operations increased 18.5% or $54,467,000 in 1994. The ATM network was further expanded in 1994, with 40 additional machines being deployed. The total number of ATM's in service at year-end 1994 was 215, a 23% increase over the prior year-end totals. The ATM network includes installations at branch offices, stores, shopping centers, resort areas, hotels, airports, and university campuses. Utah Zions First National Bank, founded in 1873, has 86 offices located throughout the state of Utah, plus one foreign office, for a total of 87 banking offices. Zions First National Bank's net income was $48,203,000, a decline of 8.8% from the $52,867,000 earned in 1993. The decline was a result of a $321,000 decline in net revenue, a $6,437,000 increase in noninterest expenses and a $1,435,000 reduction in benefit from 1993 accounting changes, offset by a $926,000 decline in provision for loan losses and a $2,603,000 reduction in the income tax provision. 2 5 Several initiatives were launched in 1994 to increase the convenience of banking for consumers and businesses. Zions First National Bank was the first Utah bank to aggressively promote point-of-sale debit card services throughout Utah. The bank also expanded its telephone service center to provide access to a wide variety of banking services via telephone. The Company's Reddi-Response system now handles approximately 10,000 phone calls per day. Zions Bank also became the first Utah-based institution to introduce Electronic Data Interchange, a package of data transmission services for corporate customers which facilitates the electronic processing of purchase orders, invoices, and payment information. Zions First National Bank successfully completed the first phase of a pilot program in conjunction with the National Association of Certified Development Companies to underwrite SBA 504 loans through selected local CDC's throughout the United States. An initial $43.7 million pool of commercial first mortgage loans originated under the program was securitized in 1994, and it is anticipated that the program will be significantly expanded in 1995. During 1994, Zions First National Bank organized a Small Business Investment Corporation to provide early-stage capital, primarily for technology companies located in the Intermountain West. The fund, operating as Wasatch Venture Fund, completed ten investments during its first year of operation. In 1994, two new branches were opened in Layton and Eden, Utah, and during the fourth quarter, the pending merger transaction of Zions Bancorporation and First Western Bancorporation was announced. The transaction is expected to be consummated during the second quarter of 1995, and will mark the Company's initial entry into the southeastern area of the state. The acquisition will provide $37 million in assets and the addition of three banking offices operated by First Western Bancorporation's banking subsidiary, First Western National Bank, in Moab, Monticello and Blanding, Utah. Nevada Nevada State Bank, a state-chartered Federal Deposit Insurance Corporation ("FDIC")-insured institution, with its main office in downtown Las Vegas, opened two new grocery store banking centers in Summerlin and Pahrump, Nevada, during 1994, expanding its banking offices to 21 in Nevada. Net income at Nevada State Bank, after the amortization of purchase premium, increased 30.9% to $6,140,000 in 1994 as compared to $4,691,000 in 1993. Nevada State Bank's earnings increase was attributable to a $3,890,000 increase in net revenue, offset by a $646,000 increase in noninterest expenses, a $410,000 increase in the loan loss provision, a $1,032,000 increase in income taxes and a $353,000 reduction in the net benefit produced by accounting changes in 1993. Arizona During 1994, the Company substantially increased its presence in the Arizona market. The acquisition of National Bancorp of Arizona was completed during the first quarter, and Rio Salado Bancorp was acquired during the second quarter. The banking operations of these two companies were merged with Zions First National Bank of Arizona, and the resulting bank, with 10 offices, is operating under the National Bank of Arizona name. At year-end, the bank had over $700 million in assets, and over $36 million in net revenue, making it the fifth largest commercial bank in Arizona. Despite the disruptions caused by the merger of these three organizations, National Bank of Arizona achieved a 46.9% increase in net income, with 1994 earnings of $11,318,000 as compared with 1993 net income of $7,705,000. The increase resulted from a net revenue increase of $11,163,000, a reduction in loan loss provision of $301,000, offset by increases in noninterest expenses and taxes of $4,758,000 and $2,599,000, respectively, and a reduction in income from 1993 accounting changes of $494,000. The 1994 net income of National Bank of Arizona produced a strong return on average shareholders' equity of 24.3%. National Bank of Arizona's results have been restated to reflect the pooling-of-interest acquisition of that operation in the first quarter of 1994 and the results also reflect the acquisition of Rio Salado Bancorp, using the purchase accounting method, during the second quarter of 1994. The two acquisitions also provide a foundation for increased activity on the part of Zions Bancorporation's nonbank subsidiaries in the Arizona market. 3 6 Other Subsidiaries The Company conducts various other bank-related business activities through subsidiaries owned by the Parent and wholly-owned subsidiaries of Zions First National Bank. Zions Credit Corporation engages in lease origination and servicing operations in Utah, Nevada, and Arizona. Zions Life Insurance Company underwrites as reinsurer credit-related life and disability insurance. Zions Insurance Agency, Inc., operates an insurance brokerage business which administers various credit-related insurance programs in the Company's subsidiaries and sells general lines of insurance. The Company's insurance subsidiaries offer customers a full range of insurance products through licensed agents. The products include credit life products, collateral protection products, life policies, homeowners policies, property and casualty policies, and commercial business owner type policies. Zions Data Service Company provides data processing services to all subsidiaries of the Company. Zions Mortgage Company, a subsidiary of Zions First National Bank, conducts a mortgage banking operation in Utah, Nevada, and Arizona. Zions Investment Securities, Inc., also a subsidiary of the Bank, provides discount investment brokerage services on a nonadvisory basis to both commercial and consumer customers. Personal investment officers employed by the discount brokerage subsidiary in many larger offices provide customers with a wide range of investment products, including municipal bonds, mutual funds and tax-deferred annuities. Zions Credit Corporation generated $63,140,000 in new lease volume in 1994, a 17.1% increase over the 1993 volume. An additional $15,722,000 in leases was brokered to third parties. Average gross lease receivable and conditional sales contracts serviced by Zions Credit Corporation decreased 3.7% to $129,134,000 in 1994 from $134,029,000 in 1993. Zions Insurance Agency, Inc. and Zions Life Insurance Company produced combined net income of $1,070,000, a 92.4% increase over the $556,000 generated in 1993. The increased income was largely attributable to increased volume in personal lines of insurance and improved performance in the sale of mortgage life and other credit life products. Zions Data Service Company engaged in a variety of significant projects in 1994. Most notable was the installation of a new deposit and account analysis system which will simplify the development of new products and provide greater flexibility in meeting customer requirements. A new trust system was also installed, providing state-of-the-art operational capabilities. A loan management system was developed using relational database technology. The new system will provide managers with a much greater capability to view the full range of a customer's account relationships and to easily develop customized management reports. Zions Data Service Company also began the installation of a wide area network to support improved data and voice communications between the Company's various branches and departments. The new network will improve response times and allow the Company to significantly leverage its substantial investment in personal computer equipment and software. Zions Mortgage Company experienced a sharp reduction in mortgage originations as a result of an adverse interest rate environment in 1994. Total retail mortgage origination volume decreased 47.4% to $382,800,000 in 1994 from $727,500,000 in 1993. In reaction to the decline in activity, staffing was reduced 27% between March and December, 1994. Higher interest rates resulted in a loss on loan sales of $3,445,000, including a downward mark-to-market adjustment of $1,700,000 in a portfolio of adjustable rate mortgages, as compared to a gain on loan sales of $2,035,000 in 1993. The loss on loan sales was partially offset by a gain in the amount of $2,516,000 from the sale of mortgage servicing rights. Zions Mortgage Company experienced a net loss of $319,000 in 1994, as compared to net income of $530,000 in 1993. Inasmuch as Zions Mortgage Company is a direct subsidiary of Zions First National Bank, its results of operations are included in the banking operations results. In a very difficult year for securities sales, Zions Investment Securities, Inc. nevertheless contributed $730,000 in pretax income, rent income and revenue sharing to the Company's banking operations. Net income, which is included in the banking operations results, was $193,000, a 37.5% reduction from the $309,000 earned in 1993. 1994 Economic Trends The Intermountain region continued to exhibit a healthy economy during 1994, though the pace of economic growth slowed somewhat in the Company's primary market area of Utah. Employment growth in Utah totaled 6.2% in 1994, down from 6.9% in 1993, while residential construction slowed 13% between the first and fourth quarters of 1994. Commercial construction remains strong, driven by low vacancy rates. Although it appears that Utah may lose approximately 2,000 defense jobs over the next few years as a result of downsizing at Defense Depot Ogden and Dugway Proving Grounds, the future of the state's largest employer, Hill Air Force Base, currently appears secure, inasmuch as the Department of Defense has not recommended the facility's closure to the Base Closure and Realignment Commission. 4 7 Nevada's employment growth slowed to 4.2% in 1994 from 7.2% in 1993 as a result of the completion of several major hotel construction projects. The state's net gaming revenues - an indicator of tourist activity - rose 16% in the fourth quarter of 1994 as compared to the year-earlier period. Employment grew 4.9% in Arizona in 1994 compared to 4.1% in 1993. There has been a substantial reduction in office vacancy rates in Phoenix and Tucson in recent months, with the result that suburban office vacancy rates are now well below national averages. The Federal Reserve System moved aggressively during 1994 to slow the rate of growth in the nation's economy. The result was a two- and-a-half percentage point increase in the prime rate, and commensurate increases in intermediate and long-term rates, producing the most difficult fixed-income market in several decades. The increase in rates significantly affected mortgage lending activity, as retail mortgage originations declined. The rise in interest rates also slowed retail and institutional investment sales. Supervision and Regulation Bank holding companies and banks are extensively regulated under both federal and state law. The information contained in this section summarizes portions of the applicable laws and regulations relating to the supervision and regulation of Zions Bancorporation and its subsidiaries. These summaries do not purport to be complete, and they are qualified in their entirety by reference to the particular statutes and regulations described. Any change in applicable law or regulation may have a material effect on the business and prospects of Zions Bancorporation and its subsidiaries. Bank Holding Company Regulation Zions Bancorporation is a bank holding company within the meaning of the Bank Holding Company Act and is registered as such with the Federal Reserve Board. Under the current terms of that Act, activities of Zions Bancorporation, and those of companies which it controls or in which it holds more than 5% of the voting stock, are limited to banking or managing or controlling banks or furnishing services to or performing services for its subsidiaries, or any other activity which the Federal Reserve Board determines to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. In making such determinations, the Federal Reserve Board is required to consider whether the performance of such activities by a bank holding company or its subsidiaries can reasonably be expected to produce benefits to the public such as greater convenience, increased competition or gains in efficiency that outweigh the possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interest or unsound banking practices. Bank holding companies, such as Zions Bancorporation, are required to file with the Federal Reserve Board certain reports and information and are required to obtain prior approval of the Board to engage in an new activity or to acquire more than 5% of any class of voting stock of any company. Generally, no application to acquire shares of a bank located outside that state in which the operations of the applicant's banking subsidiaries were principally conducted on the date it became subject to the Act may be approved by the Federal Reserve Board unless such acquisition is specifically authorized by the laws of the state in which the bank whose shares are to be acquired is located. In the meantime, most state have specifically authorized the acquisition of banks located in those states by out-out-state companies, in many cases subject to various restrictions. The Federal Reserve Board has authorized the acquisition and control by bank holding companies of savings and loan associations and certain other savings institutions without regard to geographic restrictions applicable to acquisition of shares of a bank. The Riegle-Neal Interstate Branching and Efficiency Act of 1994 ("Riegle-Neal Act") permits, beginning one year after enactment and subject to approval by the Federal Reserve Board, bank holding companies to acquire either control of, or substantial assets of, a bank located outside the bank holding company's home state. These acquisitions are subject to limitations which are mentioned in the discussion on "Interstate Banking". The Riegle-Neal Act reaffirms the right of states to segregate and tax separately incorporated subsidiaries of a bank or bank holding company. The Riegle-Neal Act also affects interstate branching and merger. The Federal Reserve Board is authorized to adopt regulations affecting various aspects of bank holding companies. Pursuant to the general supervisory authority of the Bank Holding Company Act and directives set forth in the International Lending Supervision Act of 1983, the Federal Reserve Board has adopted capital adequacy guidelines prescribing both risk-based capital and leverage ratios. 5 8 Regulatory Capital Requirements Risk-Based Capital Guidelines The Federal Reserve Board established risk-based capital guidelines for bank holding companies effective March 15, 1989. The guidelines define Tier I Capital and Total Capital. Tier I Capital consists of common and qualifying preferred shareholders' equity and minority interests in equity accounts of consolidated subsidiaries, less goodwill and 50% (and in some cases up to 100%) of investment in unconsolidated subsidiaries. Total Capital consists of Tier I Capital plus qualifying mandatory convertible debt, perpetual debt, certain hybrid capital instruments, certain preferred stock not qualifying as Tier I Capital, subordinated and other qualifying term debt up to specified limits, and a portion of the allowance for credit losses, less investments in unconsolidated subsidiaries and in other designated subsidiaries or other associated companies at the discretion of the Federal Reserve Board, certain intangible assets, a portion of limited-life capital instruments approaching maturity and reciprocal holdings of banking organizations' capital instruments. The Tier I component must constitute at least 50% of qualifying Total Capital. Risk-based capital ratios are calculated with reference to risk-weighted assets, which include both on-balance sheet and off-balance sheet exposures. The risk-based capital framework contains four risk-weighted categories for bank holding company assets -- 0%, 20%, 50%, and 100%. Zero percent risk-weighted assets include, inter alia, cash and balances due from Federal Reserve Banks, and obligations unconditionally guaranteed by the U.S. government or its agencies. Twenty percent risk-weighted assets include, inter alia, claims on U.S. Banks and obligations guaranteed by U.S. government sponsored agencies as well as general obligations of states or other political subdivisions of the United States. Fifty percent risk-weighted assets include, inter alia, loans fully secured by first liens on one to-four-family residential properties, subject to certain conditions. All assets not included in the foregoing categories are assigned to the 100% risk-weighted category, including loans to commercial and other borrowers. As of year-end 1992, the minimum required ratio for qualifying Total Capital became 8%, of which at least 4% must consist of Tier I Capital. At December 31, 1994, the Company's Tier I and Total Capital ratios were 11.81% and 14.96%, respectively. The current risk-based capital ratio analysis establishes minimum supervisory guidelines and standards. It does not evaluate all factors affecting an organization's financial condition. Factors which are not evaluated include (i) overall interest rate exposure; (ii) liquidity, funding, and market risks; (iii) quality and level of earnings; (iv) investment or loan portfolio concentrations; (v) quality of loans and investments; (vi) the effectiveness of loan and investment policies; (vii) certain risks arising from nontraditional activities; and (viii) management's overall ability to monitor and control other financial and operating risks, including the risks presented by concentrations of credit and nontraditional activities. The capital adequacy assessment of federal bank regulators will, however, continue to include analyses of the foregoing considerations and in particular, the level and severity of problem and classified assets. Minimum Leverage Ratio On June 20, 1990, the Federal Reserve Board adopted new capital standards and leverage capital guidelines that include a minimum leverage ratio of 3% Tier I Capital to total assets (the "leverage ratio"). The leverage ratio is used in tandem with the final risk-based ratio of 8% that took effect at the end of 1992. The Federal Reserve Board has emphasized that the leverage ratio constitutes a minimum requirement for well-run banking organizations having well-diversified risk, including no undue interest rate exposure, excellent asset quality, high liquidity, good earnings, and a composite rating of 1 under the Interagency Bank Rating System. Banking organizations experiencing or anticipating significant growth, as well as those organizations which do not exhibit the characteristics of a strong, well-run banking organization described above, will be required to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. Furthermore, the Federal Reserve Board has indicated that it will consider a "tangible Tier I Capital Leverage Ratio" (deducting all intangibles) and other indices of capital strength in evaluating proposals for expansion or new activities. At December 31, 1994, the Company's Tier I leverage ratio was 6.24%. 6 9 The Federal Reserve Board has adopted amendments to its capital guidelines, effective as of December 31, 1994, under which bank holding companies and state member banks must deduct from Tier I Capital in calculating risk-based capital and leverage ratios net unrealized holding losses on available-for-sale equity securities (i.e., those securities a bank does not have the positive interest and ability to hold to maturity, but which it has no intent to trade as a part of a trading account). Implementation of this amendment to the Federal Reserve Board's capital guidelines has not resulted in a material increase in the capital requirement applicable to it. The Federal Reserve Board has also adopted a final rule amending its capital guidelines effective April 1, 1995, limiting the amount of certain deferred tax assets that may be included by bank holding companies and member banks in Tier I Capital for calculation of risk-based capital and leverage ratios. Zions Bancorporation does not anticipate that implementation of this amendment to the Federal Reserve Board's capital guidelines will result in a material increase in the capital requirements applicable to it. The Federal Reserve Board has also recently published proposed amendments to its risk-based capital guidelines which, if adopted in their current form, would generally increase the amount of capital required to be carried against certain long-term derivative contracts; the proposal also recognizes the effect of certain bilateral netting arrangements in reducing potential future exposure under these contracts. Until the proposed amendments are adopted in final form by the Federal Reserve Board, Zions Bancorporation cannot predict their effect upon the capital requirements applicable to it. Other Issues and Developments Relating to Regulatory Capital Pursuant to such authority and directives set forth in the International Lending Supervision Act of 1983, the Comptroller, the FDIC, and the Federal Reserve Board have issued regulations establishing the capital requirements for banks under federal law. The regulations, which apply to Zions Bancorporation's banking subsidiaries, establish minimum risk-based and leverage ratios which are substantially similar to those applicable to the Company. As of December 31, 1994, the risk-based and leverage ratios of each of Zions Bancorporation's banking subsidiaries exceeded the minimum requirements. On December 19, 1991, the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") was signed into law. FDICIA subjects banks to significantly increased regulation and supervision. Among other things, FDICIA requires federal bank regulatory authorities to revise, prior to June 19, 1993, their risk-based capital guidelines to ensure that those standards take account of interest rate risk, concentrations of credit, and the risk of nontraditional activities, as well as reflect the actual performance and risk of multifamily mortgages. Pursuant to the Riegle Community Development and Regulatory Improvement Act of 1994 (the "Riegle-Neal Act"), signed into law on September 23, 1994, such revisions by the federal banking agencies to their risk-based capital guidelines must also take account of the size and activities of insured institutions and not cause undue reporting burdens to them. The manner of implementation by the FDIC of this requirement mandated by FDICIA, as modified by the Riegle Act, is described below: (i) In 1993 and 1994, the Federal Reserve Board, the Comptroller and the FDIC adopted rules which assigned a 50% risk weight for loans that are fully secured by multifamily residential property and do not exceed 80% of the property's value. To be eligible for the 50% risk weight, the property's annual net operating income must be 120% of the amount to the annual debt service and the loan must be amortized within 30 years. The principal and interest payments must be made on a timely basis for one year before the 50% risk weight may be applied and the loan must provide for principal repayment beginning within seven years of the date of the loan. Implementation of these rules have not had a material adverse effect upon the capital requirements applicable to Zions Bancorporation or upon those applicable to its bank subsidiaries. (ii) The federal banking agencies have adopted rules, effective January 17, 1995, under which they will take account of risks from concentrations of credit (in specific countries, region, industries and loan types) and from nontraditional activities in their analyses of capital adequacy of state nonmember banks. Pursuant to the rule, in such institutions are required to identify, monitor and control, significant exposures from concentrations of credit and from nontraditional activities, and hold additional capital above the regulatory minimums to reflect such risks. The level of such risks, as well as an institution's ability to identify, monitor and control them, will be considered by the federal banking agencies in determining the capital adequacy of the institution. Zions Bancorporation does not anticipate the implementation of this rule will result in an increase in the capital requirements applicable to it or upon those applicable to its bank subsidiaries. 7 10 (iii) On September 14, 1993, the Federal Reserve Board, the Comptroller and the FDIC published in the Federal Register a proposed measure of interest rate risk exposure which measures such exposure as the effect that a specified change in market interest rates would have on the net economic value of banks. Under this proposal, banks (excluding certain "low risk" institutions as defined therein) would calculate and report estimated changes in their net economic value resulting from the effect of specified changes in market interest rates on their assets, liabilities and off-balance sheet positions, utilizing either a supervisory model or approved internal models. The proposal sets forth two alternative methods for utilizing such results in assessing institutions' capital adequacy for interest rate risk exposure. One method would require institutions to hold capital equal to the dollar decline in their net economic value exceeding a supervisory threshold of one percent of total assets; the other method provides for an agency assessment of institutions' capital needs for interest rate risk in light of both the level of measured interest rate risk exposure and qualitative factors. However, the proposal is still under consideration. Because the final terms of the regulators' implementation of this requirement of FDICIA are not yet known, Zions Bancorporation cannot predict the effect the inclusion of interest rate risk factors in the risk-based capital rules of the federal banking agencies will have upon capital requirements applicable to it or its bank subsidiaries. FDICIA amended Section 38 of the Federal Deposit Insurance Act to require the federal banking regulators to take "prompt corrective action" in respect of banks that do not meet minimum capital requirements and imposes certain restrictions upon banks which meet minimum capital requirements but are not "well-capitalized" for purposes of FDICIA. FDICIA establishes five capital tiers: "well- capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized," and "critically undercapitalized." Implementing regulations adopted by the federal banking agencies in September 1992 and effective on December 19, 1992 define the capital categories for banks which will determine the necessity for prompt corrective actions by the federal banking agencies. A bank may be placed in a capitalization category that is lower than is indicated by its capital position if it receives an unsatisfactory examination rating with respect to certain matters. Under the regulations, a "well-capitalized" institution has a minimum total capital to total risk-weighted assets ratio of at least 10 percent, a minimum Tier I capital to total risk-weighted assets ratio of at least 6 percent, a minimum leverage ratio of at least 5 percent, and is not subject to any written order, agreement, or directive; an "adequately capitalized" institution has a total capital to total risk-weighted assets ratio of at least 8 percent, a Tier I capital to total risk-weighted assets ratio of at least 4 percent, and a leverage ratio of at least 4 percent (3 percent if given the highest regulatory rating and not experiencing significant growth), but does not qualify as "well-capitalized. An "undercapitalized" institution fails to meet any one of the three minimum capital requirements. A "significantly undercapitalized" institution has a total capital to total risk-weighted assets ratio of less than 6 percent, a Tier I capital to total risk-weighted assets ratio of less than 3 percent or a Tier I leverage ratio of less than 3 percent. A "critically undercapitalized" institution has a Tier I leverage ratio of 2 percent or less. Under certain circumstances, a "well-capitalized," "adequately capitalized," or "undercapitalized" institution may be required to comply with supervisory actions as if the institution was in the next lowest capital category. Failure to meet capital guidelines could subject a bank to a variety of restrictions and enforcement remedies. Under FDICIA, all insured banks are generally prohibited from making any capital distributions and from paying management fees to persons having control of the bank where such payments would cause the bank to be undercapitalized. Holding companies of significantly undercapitalized, critically undercapitalized and certain undercapitalized banks may be required to obtain the approval of the Federal Reserve Board before paying capital distributions to their shareholders. Moreover, a bank that is not well-capitalized is generally subject to various restrictions on "pass through" insurance coverage for certain of its accounts and is generally prohibited from accepting brokered deposits and offering interest rates on any deposits significantly higher than the prevailing rate in its normal market area or nationally (depending upon where the deposits are solicited). Such banks and their holding companies are also required to obtain regulatory approval prior to their retention of senior executive officers. Banks which are classified undercapitalized, significantly undercapitalized or critically undercapitalized are required to submit capital restoration plans satisfactory to their federal banking regulator and guaranteed within stated limits by companies having control of such banks (i.e., to the extent of the lesser of five percent of the institution's total assets at the time it became undercapitalized or the amount necessary to bring the institution into compliance with all applicable capital standards as of the time the institution fails to comply with its capital restoration plan, until the institution is adequately capitalized on average during each of four consecutive calendar quarters), and are subject to regulatory monitoring and various restrictions on their operations and activities, including those upon asset growth, acquisitions, branching and entry into new lines of business and may be required to divest themselves of or liquidate subsidiaries under certain circumstances. Holding companies of such institutions may be required to divest themselves of such institutions or divest themselves of or liquidate nondepository affiliates under certain circumstances. Critically undercapitalized institutions are also prohibited from making payments of principal and interest on debt subordinated to the claims of general creditors and are generally subject to the mandatory appointment of a conservator or receiver. 8 11 Other Regulations FDICIA requires the federal banking agencies to adopt regulations prescribing standards for safety and soundness of insured banks and their holding companies, including standards relating to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees and benefits, asset quality, earnings and stock valuation, as well as other operational and managerial standards deemed appropriate by the agencies. Upon a determination by a federal banking agency that an insured bank has failed to satisfy any such standard, the bank will be required to file an acceptable plan to correct the deficiency. If the bank fails to submit or implement an acceptable plan, the federal banking agency may, and in some instances must, issue an order requiring the institution to correct the deficiency, restrict its asset growth, increase its ratio of tangible equity to assets, or impose other operating restrictions. The Riegle Act modified this provision of FDICIA to authorize the federal banking agencies to prescribe safety and soundness standards by regulation or by guidelines for all insured depository institutions, afford the federal banking agencies flexibility to establish asset quality, earnings and stock valuation standards that they determine to be appropriate and eliminate the requirement that such standards apply to depository institution holding companies. On February 2, 1995, the Federal Reserve Board agreed to seek (and Zions Bancorporation believes the other federal banking agencies will soon seek) public comment on proposed guidelines applicable to state member banks setting forth asset quality, earnings and stock valuation standards, final guidelines with respect to all other standards required under FDICIA and a final rule establishing deadlines and procedures for submission and review of safety and soundness compliance plans and issuance of compliance orders. In the view of the Federal Reserve Board, the proposed and final standards, respectively, do not represent a change in existing policies but, instead, formalize fundamental standards already applied by the agencies. In general, the standards establish objectives of proper operations and management while leaving the specific methods for achieving those objectives to each institution. The final rule implements the requirements of FDICIA regarding the submission and review of safety and soundness plans by institutions failing to meet the prescribed standards and the issuance of orders where institutions have failed to submit acceptable compliance plans or implement and accepted plan in any material respect. Zions Bancorporation does not believe that implementation of the final guidelines and rule will have a material adverse effect upon the operations or earnings of its bank subsidiaries. Until final guidelines prescribing asset quality, earnings and stock valuation standards are adopted by the federal banking agencies, Zions Bancorporation cannot predict the effect of their application to its operations or earnings or the operations or earnings of its subsidiaries. FDICIA also contains provisions which, among other things, restrict investments and activities as principal by state nonmember banks to those eligible for national banks, impose limitations on deposit account balance determinations for the purpose of the calculation of interest, and require the federal banking regulators to prescribe, implement, or modify standards, respectively, for extensions of credit secured by liens on interests in real estate or made for the purpose of financing construction of a building or other improvements to real estate, loans to bank insiders, regulatory accounting and reports, internal control reports, independent audits, exposure on interbank liabilities, contractual arrangements under which institutions receive goods, products or services, deposit account-related disclosures and advertising, as well as to impose restrictions on Federal Reserve discount window advances for certain institutions and to require that insured depository institutions generally be examined on-site by federal or state personnel at least every 12 months. In connection with an institutional failure or FDIC rescue of a financial institution, the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") grants to the FDIC the right, in many situations, to charge its actual or anticipated losses against commonly controlled depository institution affiliates of the failed or rescued institution (although not against a bank holding company itself). FIRREA also explicitly allows bank holding companies to acquire healthy as well as troubled savings associations (including savings and loan associations and federal savings banks) under Section 4 of the Bank Holding Company Act. In connection with this authorization, the Federal Reserve Board has been instructed not to impose so-called "tandem operating restrictions" which might otherwise limit the joint marketing or joint operations of affiliated banks and thrifts beyond those restrictions otherwise embodied in law. FIRREA also relieves bank holding companies that own savings associations of certain duplicative or intrusive savings and loan holding company regulations and, in some instances, allows savings associations that have been acquired by bank holding companies to merge into affiliated banks or become banks. On October 28, 1992, the Housing and Community Development Act of 1992 was enacted which, inter alia, modified prior law regarding the establishment of compensation standards by the federal banking agencies, deposit account disclosures, loans to bank insiders and real estate appraisal requirements; made certain technical corrections to FDICIA; imposed new sanctions upon banks convicted of money laundering or cash transaction reporting offenses; and restricted the methods banks may employ to calculate and refund prepaid interest on mortgage refinancing and consumer loans. In addition, on October 23, 1992, the Depository Institutions Disaster Relief Act of 1992 was enacted, affording the federal banking agencies limited discretion to provide relief from certain regulatory requirements to depository institutions doing business or seeking to do business in an emergency or major disaster area. Zions Bancorporation does not currently expect that the implication of these laws will have a material adverse effect upon its operations and business or upon the operations and business of its subsidiaries. 9 12 On August 10, 1993, the President signed into law the Omnibus Budget Reconciliation Act of 1993 which contains provisions that, inter alia, affect the amortization of intangible assets by banks, require securities dealers (including banks) to adopt mark-to-market accounting to calculate income taxes, transfer surplus funds from the Federal Reserve System to the Department of the Treasury, authorize the United States government to originate student loans and establish a preference for depositors in liquidations of FDIC-insured banks. Zions Bancorporation does not currently expect that the implementation of these laws will have a material adverse effect upon its earnings or capital position or the earnings or capital position of its subsidiaries. The Riegle Act, in addition to enacting measures intended to increase credit available to businesses in distressed communities (by providing incentives to lenders to provide credit in those communities), remove impediments to the securitization of small business loans, improve the National Flood Insurance Program and strengthen enforcement against money laundering, mandates modifications to federal laws and regulations affecting banks and bank holding companies in an attempt to reduce regulatory and administrative burdens on these entities (including the modifications to requirements mandated by FDICIA noted previously). These changes include, inter alia, requirements that federal banking agencies consider the burden and benefits which may affect insured depository institutions and their customers when establishing the effective dates of certain new regulations or imposing certain new administrative compliance requirements, that certain new federal regulations affecting depository institutions and amendments to existing regulations take effect on the first day of a calendar quarter and that federal banking agencies streamline regulatory requirements and eliminate duplicative filings and coordinate examinations of financial institutions. The Riegle Act also provides for simplified bank holding company formation and bank and bank holding company merger application procedures, modified insider lending rules and capital rules applicable to assets transferred with recourse. Because all provisions of the Riegle Act have not been implemented, Zions Bancorporation cannot predict the effect of these changes upon its operations or upon those of its subsidiaries. The Community Reinvestment Act (CRA) requires banks to help serve the credit needs in their communities, including credit to low and moderate income individuals and geographies. Should the Company or its subsidiaries fail to adequately serve the community, there are penalties which might be given. Corporate applications to expand branches, relocate, add subsidiaries and affiliates, and merge with or purchase other financial institutions could be denied. Community groups are encouraged through the regulation to protest applications for any bank subject to this regulation if they feel that the bank is not serving the credit needs of the community in which it serves. The Company and its subsidiaries have been deemed by regulators in the past to be adequately serving its communities. A proposed revision to CRA is now being considered by the regulators. Zions Bancorporation cannot predict the effect that proposed changes, if adopted, would have on its operations and upon those of its subsidiaries. The nature of the banking and financial services industry, as well as banking regulation, may be further affected by various legislative and regulatory measures currently under consideration. Such measures include, inter alia, legislation designed to permit increased affiliations between commercial and financial firms (including securities firms) and federally-insured banks, reduce regulatory burdens on financial institutions, impose a moratorium on the application of federal regulations and establish standards for federal supervision of derivative activities of insured institutions. It is impossible to predict whether or in what form these proposals may be adopted in the future and, if adopted, what the effect of their adoption will be on Zions Bancorporation or its subsidiaries. There are many other regulations requiring detailed compliance procedures which increase costs and require additional time commitments of employees. Regulators and the Congress continue to put in place rules and laws to protect consumers, which have a cumulative additional impact on the cost of doing business. At this point, management cannot completely assess how much earnings might be reduced from these consumer laws. Deposit Insurance Assessments The insured bank subsidiaries of Zions Bancorporation are required to pay semi-annual deposit insurance assessments to the Bank Insurance Fund ("BIF"). FDICIA requires the FDIC to establish a schedule to increase the reserve ratio of the BIF to 1.25% of insured deposits (or such higher ratio as the FDIC determines to be justified for any year by circumstances raising a significant risk of substantial future losses) over a 15-year period, and to increase the assessment rate on banks, if necessary, to achieve that ratio. FDICIA also requires the FDIC to establish a risk-based assessment system for deposit insurance which will take into account the probability that the deposit insurance fund will incur a loss with respect to an institution, the likely amount of such loss and the revenue needs of the deposit insurance fund. 10 13 The FDIC revised, effective October 1, 1993, its deposit insurance regulation to establish a permanent risk-based assessment system. Each insured bank's insurance assessment rate is determined by the risk assessment classification into which it has been placed by the FDIC. The FDIC places each insured bank in one of nine risk assessment classifications based upon its level of capital and supervisory evaluations by its regulators: "well-capitalized" banks, "adequately capitalized" banks or "less-than-adequately capitalized" banks, with each category of banks divided into subcategories of banks which are either "healthy," of "supervisory concern" or of "substantial supervisory concern." An eight-basis point spread exists between the assessment rate established for the highest and lowest risk classification, so that banks classified as strongest by the FDIC are subject to a rate of .23% (the same rate as under the previous flat-rate assessment system) while those classified as weakest by the FDIC are subject to a rate of .31% (with intermediate rates of .26,%, .29%, and .30%). The FDIC is authorized to increase assessment rates beyond those currently in effect if, in the judgment of its Board of Directors, the condition of the BIF so requires. The FDIC also possesses authority to impose special assessments from time to time. Implementation of the permanent risk-based deposit insurance assessment system has not had a material adverse impact on the financial condition or results of operations of Zions Bancorporation or upon those of its bank subsidiaries. Premiums paid to the FDIC have been an increasing burden on bank earnings. In recognition of this trend, the FDIC may, when the BIF reaches a target ratio of 1.25% of insured deposits, reduce insurance premiums. The Board of Directors of the FDIC is currently considering a proposal under which the assessment rate payable by the healthiest banks would be reduced from .23% to .04% as such time as the target ratio is achieved; other assessment rates, depending on an institution's supervisory risk group, would be .07%, .14%, .21%, .28% and .31%. The proposal would also establish a procedure for adjusting assessment rates semiannually within a range of up to five basis points without seeking public comment. The FDIC is also considering whether the deposit assessment base, against which the applicable assessment rate is multiplied in determining the deposit insurance assessment to be paid by each insured institution, should be redefined in light of the adoption of the risk-based assessment system and certain statutory and other developments effecting insured depository institutions. Currently, the assessment base is defined to include the total domestic deposits of each insured institution as adjusted for certain elements. Depending upon the nature of the changes, if any, made by the FDIC to the definition of the assessment base, the aggregate liabilities of each insured institution subject to assessment could increase or could be reduced, or an assessment base consisting of other than bank liabilities could be adopted, thereby potentially affecting the earning of each institution. Until the nature of the changes to be adopted by the FDIC to the assessment base definition are known, Zions Bancorporation cannot predict their effect upon its overall financial condition or results of operations or upon those of its bank subsidiaries. Interstate Banking Existing laws and various regulatory developments have allowed financial institutions to conduct significant activities on an interstate basis for a number of years. During recent years, a number of financial institutions have expanded their out-of-state activities and various states have enacted legislation intended to allow certain interstate banking combinations which otherwise would be prohibited by federal law. Under the laws of Utah, Nevada, an Arizona, respectively, any out-of-state bank or bank holding company may acquire a Utah, Nevada, or Arizona bank or bank holding company upon the approval of the bank supervisor of the state. There is no requirement that the laws of the state in which the out-of-state bank or bank holding company's operations are principally conducted afford reciprocal privileges to Utah-, Nevada - or Arizona-based acquirers. The Riegle-Neal Act dramatically affects interstate banking activities. As discussed previously, the Riegle-Neal Act allows the Federal Reserve Board to approve the acquisition by a bank holding company of control or substantial assets of a bank located outside the bank holding company's home state as of September 29, 1995. Beginning on June 1, 1997, and earlier if permitted by applicable state law, an insured bank may apply to the appropriate federal agency for permission to merge with an out-of-state bank and convert its offices into branches of the resulting bank. States retain the option to prohibit out-of-state mergers if they enact a statute specifically barring such mergers before June 1, 1997 and such law applies equally to all out-of-state banks. Interstate mergers authorized by the Riegle-Neal Act are subject to conditions and requirements, including, inter alia, adequate capitalization and management of the acquiring bank or bank holding company, existence of the acquired bank for up to five years before purchase where required under state law, and limitations on control by the acquiring bank holding company of not more than 10% of the total amount of deposits in insured depository institutions in the United States or not more than 30% of the deposits in insured depository institutions within that state. States may impose lower deposit concentration limits, so long as those limits apply to all bank holding companies equally. Additional requirements placed on mergers include conformity with state law branching requirements and compliance with "host state" merger filing requirements to the extent that those requirements do not discriminate against out-of-state banks or out-of-state bank holding companies. 11 14 The Riegle-Neal Act also permits banks to establish and operate a "de novo branch" in any state that expressly permits all out-of-state banks to establish de novo branches in such state, if the law applies equally to all banks. (A "de novo branch" is a branch office of a national bank or state bank that is originally established as a branch and does not become a branch as a result of an acquisition, conversion, merger, or consolidation.) Utilization of this authority is conditioned upon satisfaction of most of the conditions applicable to interstate mergers under the Riegle-Neal Act, including, inter alia, adequate capitalization and management of the branching institution, satisfaction with certain filing and notice requirements imposed under state law and receipt of federal regulatory approvals. Because important components of the Riegle-Neal Act have not yet become effective, Zions Bancorporation cannot predict the effects of the Act's implementation upon its operations or earnings or upon those of its subsidiaries. The commercial banking subsidiaries are supervised and regularly examined by various federal and state regulatory agencies. Deposits, reserves, investments, loans, consumer law compliance, issuance of securities, payment of dividends, mergers and consolidations, electronic funds transfers, management practices, and other aspects of operations are subject to regulation. In addition, numerous federal, state, and local regulations set forth specific restrictions and procedural requirements with respect to the extension of credit, credit practices, the disclosure of credit terms, and discrimination in credit transactions. The various regulatory agencies, as an integral part of their examination process, periodically review the banking subsidiaries' allowances for loan losses. Such agencies may require the banking subsidiaries to recognize additions to such allowances based on their judgments using information available to them at the time of their examinations. As a consequence of the extensive regulation of the commercial banking business, the Company cannot yet assess the impact of these legislative and regulatory mandates on the commercial banking industry which may increase the cost of doing business that are not required of the industry's nonbank competitors. Federal and state legislation affecting the banking industry have played, and will continue to play, a significant role in shaping the nature of the financial service industry. Various legislation, including proposals to overhaul the banking regulatory system and to limit the investments that a depository institution may make with insured funds, is from time to time introduced. The Company cannot determine the ultimate effect that FDICIA and the implementing regulations to be adopted thereunder, or any other potential legislation, if enacted, would have upon its financial condition or operations. In addition, there are cases pending before federal and state courts that seek to expand or restrict interpretations of existing laws and their accompanying regulations affecting bank holding companies and their subsidiaries. It is not possible to predict the extent to which Zions Bancorporation and its subsidiaries may be affected by any of these initiatives. Government Monetary Policies and Economic Controls The earnings and business of the Company are affected by general economic conditions. In addition, fiscal or other policies that are adopted by various regulatory authorities of the United States and by agencies can have important consequences on the financial performance of the Company. The Company is particularly affected by the policies of the Federal Reserve Board which regulate the national supply of bank credit. The instruments of monetary policy available to the Federal Reserve Board include open-market operations in United States government securities; changing the discount rates of member bank borrowings; imposing or changing reserve requirements against member bank deposits; and imposing or changing reserve requirements against certain borrowings by banks and their affiliates. These methods are used in varying combinations to influence the overall growth of bank loans, investments and deposits, and the interest rates charged on loans or paid for deposits. However, in view of changing conditions in the economy and the effect of the credit policies of monetary authorities, it is difficult to predict future changes in loan demand, deposit levels and interest rates, or their effect on the business and earnings of Zions Bancorporation and its subsidiaries. Federal Reserve Board monetary policies have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future. 12 15 Competition Zions Bancorporation and its subsidiaries operate in a highly competitive environment. The banking subsidiaries compete with other banks, thrift institutions, credit unions and money market, and other mutual funds for deposits and other sources of funds. In addition, Zions Bancorporation and its bank and nonbank subsidiaries face increased competition with respect to the diverse financial services and products they offer. Competitors include not only other banks, thrift institutions, and mutual funds, but also leasing companies, finance companies, brokerage firms, investment banking companies, and a variety of other financial services and advisory companies. Many of these competitors are not subject to the same regulatory restrictions as are bank holding companies and banks such as Zions Bancorporation and its banking subsidiaries. The Company expects that competitive conditions will continue to intensify as a result of technological advances. Technological advances have, for example, made it possible for nondepository institutions to offer customers automatic transfer systems and other automated-payment systems services that have been traditional banking products. Employees The Company employs approximately 2,754 full- and part-time people with approximately 2,573 being employed by the banking subsidiaries. The Company had 2,695 full-time equivalent employees at December 31, 1994, compared to 2,761 at December 31, 1993. Banking subsidiaries had 2,506 full-time equivalent employees at the end of 1994, compared to 2,573 a year earlier. The Company believes that it enjoys good employee relations. In addition to competitive salaries and wages, Zions Bancorporation and its subsidiaries contribute to group medical plans, group insurance plans, pension, stock ownership and profit sharing plans. Supplementary Information The following supplementary information, which is required under Guide 3 (Statistical Disclosure by Bank Holding Companies), is found in this report on the pages indicated below, and should be read in conjunction with the related financial statements and notes thereto.
Statistical Information Page I. Distribution of Assets, Liabilities and Shareholders' Equity, Average Balance Sheets, Yields and Rates 18-20 Analysis of Interest Changes Due to Volume and Rates 21 II. Investment Securities Portfolio 28 Maturities and Average Yields of Investment Securities 29 III. Loan Portfolio 30 Loan Maturities and Sensitivity to Changes in Interest Rates 31 Loan Risk Elements 32-34 IV. Summary of Loan Loss Experience 35 V. Deposits 37 VI. Return on Equity and Assets 38 VII. Short-term Borrowings 38 VIII. Foreign Operations 40
ITEM 2. PROPERTIES In Utah, fifty (50) of Zions First National Bank's eighty-six (86) offices are located in buildings owned by the Company and the other thirty-six (36) are on leased premises. In Nevada, four (4) of Nevada State Bank's twenty-one (21) offices are located in buildings owned and the other seventeen (17) are on leased premises, and in Arizona, National Bank of Arizona owns three (3) offices and leases seven (7) offices. The annual rentals under long-term leases for such banking premises are determined under various formulas and include as various factors, operating costs, maintenance and taxes. 13 16 Zions Bancorporation is lessee under a 25-year lease, of which 23 years have expired, of a 14-story building in downtown Salt Lake City, Utah. The Company's subsidiaries have leased the ground floor and two other floors. The J.C. Penney Company, Inc., has subleased nine floors for offices. The remaining two floors are sublet to various tenants. The Company's subsidiaries conducting lease financing, insurance, mortgage servicing, and discount brokerage activities operate from leased premises. For information regarding rental payments, see note 9 of Notes to Consolidated Financial Statements, which appears in Part II, Item 8, on page 57 of this report. ITEM 3. LEGAL PROCEEDINGS During 1988, a lawsuit was brought in the United States District Court, Utah District, against Zions First National Bank in connection with its performance of duties as an indenture trustee for certain investors in real estate and other syndication projects. In September 1992, a motion was granted allowing an amended complaint containing allegations that plaintiffs intend to proceed as a class action to recover approximately $23 million, prejudgment interest, attorneys' fees, and additional amounts under certain statutory provisions and common law. No motion to certify the classes has been filed, and the Bank intends to vigorously oppose such motion and to defend the entire action. Although no assurances can be given as to the outcome, the Company continues to believe that it has meritorious defenses to such lawsuit, and that there is insurance coverage for a substantial portion of the amount claimed. The Company is also the defendant in various other legal proceedings arising in the normal course of business. The Company does not believe that the outcome of any of such proceedings, including the lawsuit discussed in the preceding paragraph, will have a material adverse effect on its consolidated financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of 1994. EXECUTIVE OFFICERS OF THE REGISTRANT The names, ages, positions, and backgrounds of the Company's executive officers as of February 27, 1995, are set forth as follows:
Positions and Offices Held With Zions Officer Name Age Bancorporation and Principal Subsidiaries since ---- --- ----------------------------------------- ------- Roy W. Simmons 79 Chairman of the Company, and Chairman of the Board of Directors of Zions 1961 First National Bank Harris H. Simmons 40 President & Chief Executive Officer of the Company; President, Chief 1981 Executive Officer, and Member of the Board of Directors of Zions First National Bank Gary L. Anderson 52 Senior Vice President, Chief Financial Officer and Secretary of the Company; 1988 Executive Vice President and Secretary of the Board of Directors of Zions First National Bank. Prior to May 1988, a Partner in the firm of KPMG Peat Marwick, Salt Lake City, Utah Gerald J. Dent 53 Senior Vice President of the Company, and Executive Vice President of Zions 1987 First National Bank Clark B. Hinckley 47 Senior Vice President of the Company. Prior to March 1994, President of a 1994 Company subsidiary, Zions First National Bank of Arizona. John J. Gisi 49 Senior Vice President of the Company, and Chairman and Chief Executive 1994 Officer of National Bank of Arizona since 1987 Richard A. Carlson 61 Senior Vice President of the Company, and President and Chief Executive 1994 Officer of Nevada State Bank since 1985 (Retired 2/28/95) James W. Rail 60 Senior Vice President of the Company, and President of Zions Data Service 1976 Company (Retired 2/28/95)
14 17
Positions and Offices Held With Zions Officer Name Age Bancorporation and Principal Subsidiaries since ---- --- ----------------------------------------- ----- Danne L. Buchanan 37 Senior Vice President of the Company (Effective March 3, 1995); Senior Vice 1995 President and General Manager of Zions Data Service Company Walter E. Kelly 62 Controller of the Company 1980 Ronald L. Johnson 39 Vice President of the Company. Prior to December 1989, Vice President of 1989 Zions First National Bank A. Scott Anderson 48 Executive Vice President of Zions First National Bank. Prior to December 1990 1990, Vice President of Bank of America John B. D'Arcy 52 Executive Vice President of Zions First National Bank. Prior to March 1989, 1989 Vice President of The First National Bank of Chicago Peter K. Ellison 52 Executive Vice President of Zions First National Bank 1968 W. David Hemingway 47 Executive Vice President of Zions First National Bank 1976 Nolan X. Bellon 46 Controller of Zions First National Bank 1987
PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Principal market where common stock is traded: Nasdaq National Market Symbol "ZION" High and low bid quotations on quarterly basis for past three years:
1994 1993 1992 ------------------ ------------------- ------------------ HIGH LOW HIGH LOW HIGH LOW ------- -------- -------- ------- ------- ------- 1st Quarter $ 39.75 $ 36.50 $ 49.00 $ 41.50 $ 24.50 $ 19.75 2nd Quarter $ 42.00 $ 37.00 $ 48.75 $ 38.50 $ 28.38 $ 23.75 3rd Quarter $ 40.63 $ 38.50 $ 44.25 $ 38.50 $ 30.00 $ 26.88 4th Quarter $ 39.25 $ 33.50 $ 45.50 $ 36.00 $ 39.00 $ 28.88
Number of common shareholders of record as of latest practicable date: 3,926 common shareholders as of February 27, 1995 Frequency and amount of dividends paid during three years:
1ST 2ND 3RD 4TH QTR QTR QTR QTR ----- ----- ----- ----- 1994 $ .28 $ .28 $ .30 $ .30 1993 $ .21 $ .21 $ .28 $ .28 1992 $ .18 $ .18 $ .18 $ .21
Description of any restrictions on the issuer's present or future ability to pay dividends: Funds for the payment of dividends by Zions Bancorporation have been obtained primarily from dividends paid by the commercial banking and other subsidiaries. In addition to certain statutory limitations on the payment of dividends, approval of federal and/or state banking regulators may be required in some instances for any dividend to Zions Bancorporation by its banking subsidiaries. The payment of future dividends therefore is dependent upon earnings and the financial condition of the Company and its subsidiaries as well as other factors. 15 18 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data is derived from the audited consolidated financial statements of the Company. It should be read in conjunction with the Company's consolidated financial statements and the related notes and with management's discussion and analysis of financial condition and results of operations and other detailed information included elsewhere herein. (Dollars in thousands, except per share and ratio data)
Years ended December 31, ------------------------------------------------------------------- 1994 1993 1992 1991 1990 ---------- ---------- ---------- ---------- ---------- RESULTS OF OPERATIONS Interest income $ 353,989 $ 293,616 $ 278,225 $ 301,443 $ 302,013 Interest expense 155,383 118,959 120,943 161,572 173,892 ---------- ---------- ---------- ---------- ---------- Net interest income 198,606 174,657 157,282 139,871 128,121 Provision for loan losses 2,181 2,993 10,929 25,561 20,083 ---------- ---------- ---------- ---------- ---------- Net interest income after provision for loan losses 196,425 171,664 146,353 114,310 108,038 Noninterest income 73,202 79,880 62,849 52,456 47,919 Noninterest expense 174,900 167,750 139,069 122,999 116,289 ---------- ---------- ---------- ---------- ---------- Income before income taxes and cumulative effect of changes in accounting principles 97,727 83,794 70,133 43,767 39,668 Income taxes 30,900 27,248 22,924 13,318 11,903 ---------- ---------- ---------- ---------- ---------- Income before cumulative effect of changes in accounting principles 63,827 56,546 47,209 30,449 27,765 Cumulative effect of changes in accounting principles - 1,659 - - - ---------- ---------- ---------- ---------- ---------- Net income $ 63,827 $ 58,205 $ 47,209 $ 30,449 $ 27,765 ========== ========== ========== ========== ========== COMMON SHARE DATA Income before cumulative effect of changes in accounting principles $ 4.37 $ 3.96 $ 3.42 $ 2.23 $ 2.07 Net income 4.37 4.08 3.42 2.23 2.07 Dividends 1.16 .98 .75 .72 .72 Book value - year end 25.12 22.01 18.95 16.23 14.63 YEAR END BALANCES Total assets $4,934,095 $4,801,054 $4,107,924 $3,883,938 $ 3,720,227 Money market investments 403,446 597,680 616,180 714,238 831,086 Securities 1,663,433 1,258,939 981,695 852,861 630,800 Net loans and leases 2,391,278 2,486,346 2,107,433 1,979,726 1,868,199 Allowance for loan losses 67,018 68,461 59,807 58,238 60,948 Total deposits 3,705,976 3,432,289 3,075,110 2,877,860 2,684,826 Shareholders' equity 365,770 312,592 260,070 220,753 196,706 RATIOS Return on average assets 1.17% 1.25% 1.24% .86% .87% Return on average common equity 18.82% 20.33% 19.64% 14.59% 14.87% Average equity to average assets 6.22% 6.17% 6.31% 5.90% 5.82% Tier I risk-based capital - year end 11.81% 10.85% 10.23% 8.40% 8.11% Total risk-based capital - year end 14.96% 14.12% 15.13% 12.09% 12.49% Tier I leverage - year end 6.24% 5.44% 6.21% 5.86% 5.72% Net interest margin 4.07% 4.23% 4.59% 4.39% 4.54% Nonperforming assets to total assets - year end .38% .64% .77% 1.20% 1.70% Nonperforming assets to net loans and leases, other real estate owned and other nonperforming assets at year end .79% 1.23% 1.49% 2.35% 3.36% Net charge-offs (recoveries) to average loans and leases .19% (.23)% 44% 1.51% 1.10% Allowance for loan losses to net loans and leases outstanding at year end 2.80% 2.75% 2.84% 2.94% 3.26% Allowance for loan losses to nonperforming loans at year end 471.89% 250.13% 234.00% 158.59% 132.54%
16 19 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following analysis of the Company's financial condition and results of operations as of and for the years ended December 31, 1994, 1993, and 1992 should be read in conjunction with the consolidated financial statements of the Company and detailed information presented elsewhere herein. OPERATING RESULTS Zions Bancorporation's consolidated net income rose to $63.8 million in 1994 as compared to net income of $58.2 million in 1993 and $47.2 million in 1992. Net income per common share in 1994 was $4.37 as compared to $4.08 in 1993 and $3.42 in 1992. Financial results have been restated for prior periods to reflect the pooling-of-interests acquisition of National Bancorp of Arizona during the first quarter of 1994. Earnings results for 1993 were positively affected in the net amount of $1,659,000 or $.12 per share due to the cumulative effect of changes in accounting principles implemented during the first quarter of the year. The Company's earnings for the year ended December 31, 1993 were also negatively affected by a one-time expense of $6,022,000 included in noninterest expenses related to early extinguishment of certain long-term debt. The earnings results for 1994 represent a historic high for income before income taxes and net income. Some of the factors affecting the increase in earnings (excluding the aforementioned net benefit resulting from the cumulative effect of changes in accounting principles and the expense relating to the early extinguishment of debt) were a $23.9 million (13.7%) increase in net interest income, a $.8 million (27.1%) decrease in the provision for loan losses, a $1.2 million (5.2%) increase in service charges on deposit accounts and a $.6 million (2.9%) increase in service charges, commissions and fees. These increased contributions to income were partially offset by a $1.5 million (63.4%) decrease in trading account income, a $6.9 million (32.0%) decrease in loan sales and servicing income, a $7.8 million (9.1%) increase in salaries and benefits, a $3.2 million (34.8%) increase in furniture and equipment expense, a $2.2 million (3.2%) increase in all remaining noninterest expenses, and a $1.3 million (4.6%) increase in income taxes. EARNINGS PERFORMANCE Net Interest Income, Margin, and Interest Rate Spreads Net interest income is the difference between the total interest income generated by earning assets and the total interest cost of the funds used to finance assets. Net interest income is the largest component of the Company's revenue. The Company's taxable-equivalent net interest income increased by 13.8% to $203.3 million in 1994 as compared to $178.6 million in 1993. The increased level of taxable-equivalent net interest income was influenced primarily by the increase in average earning assets. The Company attempts to minimize interest rate movement sensitivity through the management of interest rate maturities, and to a lesser extent, the use of off-balance sheet arrangements such as interest rate caps, floors, and interest rate exchange contract agreements. During 1994, the Company had income, net of expense, of $967,000 from the use of such off-balance sheet arrangements compared to $291,000 in 1993 and $9,000 in 1992. The Company intends to continue to use such off-balance sheet arrangements to the extent necessary to minimize its exposure to changes in prevailing interest rates. Net interest margin is a measure of the Company's ability to generate net interest income and is computed by expressing net interest income (stated on a fully taxable-equivalent basis) as a percentage of earning assets. The Company's net interest margin was 4.07% for 1994 as compared to 4.23% in 1993. The decrease in the margin was due primarily to securitized sales of loans and the expansion of investments in security resell agreements. Securitized sales of loans convert net interest income from loans to noninterest income. The security resell agreements are primarily in U.S. government and U.S. government agency securities which offer low yields but represent low risk to the Company and requires lower consolidated "risk-based" capital. The Company decreased its activity in security resell arrangements during the fourth quarter of 1994. The spread on average interest-bearing funds is the difference between the yield on earning assets and the cost of interest-bearing funds. The Company's spread on average interest-bearing funds was 3.49% for 1994 as compared to 3.71% in 1993. The spread on average interest-bearing funds has also been reduced by securitized sales of loans and investment in security resell arrangements. Consolidated average balances, the amount of interest earned or paid, the applicable interest rate for the various categories of earning assets and interest-bearing funds which represent the components of net interest income for the year 1994 and the previous four years; and interest differentials on a taxable-equivalent basis and the effect on net interest income of changes due to volume and rates for the years 1994 and 1993, are shown in tables on pages which follow. Income computed on a taxable-equivalent basis is income adjusted to make income and earning yields on assets exempt from income taxes comparable to other taxable income. The incremental tax rate used for calculating the taxable-equivalent adjustment was 30% in 1994 and 32% in 1993 and each of the years prior. 17 20 Distribution of Assets, Liabilities, and Shareholders' Equity, Average Balance Sheets, Yields and Rates
1994 1993 ----------------------------------- --------------------------------- Amount Amount Average of Average Average of Average (Amounts in thousands) balance interest(1) rate(1) balance interest(1) rate(1) ---------- ----------- ------- ---------- ----------- ------- Assets: Money market investments: Interest-bearing deposits $ 24,389 $ 814 3.34% $ 103,982 $ 3,682 3.55% Federal funds sold and security resell agreements 845,320 34,231 4.05% 656,204 22,918 3.49% Other money market investments - - -% 28,508 827 2.90% ---------- -------- ---------- -------- Total money market investments 869,709 35,045 4.03% 788,694 27,427 3.48% ---------- -------- ---------- -------- Securities: Held to maturity: Taxable 726,925 41,269 5.68% 958,776 56,347 5.88% Nontaxable 193,810 15,689 8.10% 147,549 12,434 8.43% Available for sale 334,044 19,916 5.96% - - -% Trading account 290,925 16,516 5.68% 102,840 7,555 7.35% ---------- -------- ---------- -------- Total securities 1,545,704 93,390 6.04% 1,209,165 76,336 6.31% ---------- -------- ---------- -------- Loans: Loans held for sale 187,506 12,303 6.56% 185,899 11,273 6.06% Net loans and leases(2) 2,387,489 217,958 9.13% 2,036,283 182,559 8.97% ---------- -------- ---------- -------- Total loans 2,574,995 230,261 8.94% 2,222,182 193,832 8.72% ---------- -------- ---------- -------- Total interest-earning assets $4,990,408 $358,696 7.19% $4,220,041 $297,595 7.05% Cash and due from banks 333,290 -------- 315,577 -------- Allowance for loan losses (68,248) (64,911) Other assets 201,163 173,211 ---------- ---------- Total assets $5,456,613 $4,643,918 ========== ========== Liabilities: Interest-bearing deposits: Savings deposits $ 740,339 $ 22,262 3.01% $ 648,178 $ 19,222 2.97% Money market deposits 1,284,697 39,938 3.11% 1,117,016 31,109 2.79% Time deposits under $100,000 516,877 20,469 3.96% 548,816 23,501 4.28% Time deposits $100,000 or more 94,680 3,845 4.06% 79,442 3,010 3.79% Foreign deposits 108,383 4,444 4.10% 55,823 1,484 2.66% ---------- -------- ---------- -------- Total interest-bearing deposits 2,744,976 90,958 3.31% 2,449,275 78,326 3.20% ---------- -------- ---------- -------- Borrowed funds: Securities sold, not yet purchased 184,405 10,976 5.95% 69,442 3,039 4.38% Federal funds purchased and security repurchase agreements 1,057,827 41,089 3.88% 767,309 22,376 2.92% FHLB advances and other borrowings: Less than one year 32,557 1,770 5.44% 83,123 3,196 3.84% Over one year 118,607 5,831 4.92% 111,974 4,599 4.11% Long-term debt 59,493 4,759 8.00% 75,623 7,423 9.82% ---------- -------- ---------- -------- Total borrowed funds 1,452,889 64,425 4.43% 1,107,471 40,633 3.67% ---------- -------- ---------- -------- Total interest-bearing liabilities $4,197,865 $155,383 3.70% $3,556,746 $118,959 3.34% Noninterest-bearing deposits 838,118 -------- 729,651 -------- Other liabilities 81,449 71,190 ---------- ---------- Total liabilities 5,117,432 4,357,587 Total shareholders' equity 339,181 286,331 ---------- ---------- Total liabilities and shareholders' equity $5,456,613 $4,643,918 ========== ========== Spread on average interest-bearing funds 3.49% 3.71% ==== ==== Net interest income and net yield on interest-earning assets $203,313 4.07% $178,636 4.23% ======== ==== ======== ==== --------------------------------------------
(1) Taxable-equivalent rates used where applicable. (2) Net of unearned income and fees, net of related costs. Loans include nonaccrual and restructured loans. 18 21 Distribution of Assets, Liabilities, and Shareholders' Equity, Average Balance Sheets, Yields And Rates
1992 1991 ---------------------------------- ---------------------------------- Amount Amount Average of Average Average of Average (Amounts in thousands) balance interest(1) rate(1) balance interest(1) rate(1) ---------- ----------- ------- ---------- ----------- ------- Assets: Money market investments: Interest-bearing deposits $ 184,142 $ 10,529 5.72% $ 234,936 $ 15,210 6.47% Federal funds sold and security resell agreements 245,866 9,730 3.96% 355,666 23,290 6.55% Other money market investments 39,054 1,410 3.61% 79,982 4,910 6.14% ---------- -------- ---------- -------- Total money market investments 469,062 21,669 4.62% 670,584 43,410 6.47% ---------- -------- ---------- -------- Securities: Held to maturity: Taxable 766,002 48,854 6.38% 604,557 49,171 8.13% Nontaxable 125,062 11,163 8.93% 74,709 8,571 11.47% Available for sale - - -% - - -% Trading account 36,912 5,537 15.00% 22,761 3,122 13.72% ---------- -------- ---------- -------- Total securities 927,976 65,554 7.06% 702,027 60,864 8.67% ---------- -------- ---------- -------- Loans: Loans held for sale 186,953 13,804 7.38% 106,028 8,970 8.46% Net loans and leases(2) 1,917,726 180,770 9.43% 1,769,900 190,942 10.79% ---------- -------- ---------- -------- Total loans 2,104,679 194,574 9.24% 1,875,928 199,912 10.66% ---------- -------- ---------- -------- Total interest-earning assets $3,501,717 $281,797 8.05% $3,248,539 $304,186 9.36% Cash and due from banks 236,116 -------- 214,238 -------- Allowance for loan losses (60,116) (61,650) Other assets 130,115 135,682 ---------- ---------- Total assets $3,807,832 $3,536,809 ========== ========== Liabilities: Interest-bearing deposits: Savings deposits $ 494,113 $ 17,396 3.52% $ 535,634 $ 26,154 4.88% Money market deposits 1,029,499 34,705 3.37% 717,124 36,642 5.11% Time deposits under $100,000 651,226 33,555 5.15% 771,491 51,692 6.70% Time deposits $100,000 or more 95,067 4,419 4.65% 132,363 8,317 6.28% Foreign deposits 86,479 3,635 4.20% 62,729 3,245 5.17% ---------- -------- ---------- -------- Total interest-bearing deposits 2,356,384 93,710 3.98% 2,219,341 126,050 5.68% ---------- -------- ---------- -------- Borrowed funds: Securities sold, not yet purchased - - -% - - -% Federal funds purchased and security repurchase agreements 394,620 12,681 3.21% 331,367 17,031 5.14% FHLB advances and other borrowings: less than one year 78,406 3,218 4.10% 119,222 8,213 6.89% over one year 50,450 1,826 3.62% 35,342 1,943 5.50% Long-term debt 82,219 9,508 11.56% 86,967 8,335 9.58% ---------- -------- ---------- -------- Total borrowed funds 605,695 27,233 4.50% 572,898 35,522 6.20% ---------- -------- ---------- -------- Total interest-bearing liabilities $2,962,079 $120,943 4.08% $2,792,239 $161,572 5.79% -------- -------- Noninterest-bearing deposits 556,476 481,790 Other liabilities 48,866 54,051 ---------- ---------- Total liabilities 3,567,421 3,328,080 Total shareholders' equity 240,411 208,729 ---------- ---------- Total liabilities and shareholders' equity $3,807,832 $3,536,809 ========== ========== Spread on average interest-bearing funds 3.97% 3.57% ==== ==== Net interest income and net yield on interest-earning assets $160,854 4.59% $142,614 4.39% -------------------------------------------- ======== ==== ======== ====
(1) Taxable-equivalent rates used where applicable. (2) Net of unearned income and fees, net of related costs. Loans include nonaccrual and restructured loans. 19 22 Distribution of Assets, Liabilities, and Shareholders' Equity, Average Balance Sheets, Yields And Rates
1990 ------------------------------------- Amount Average of Average (Amounts in thousands) balance interest(1) rate(1) ---------- ----------- ------- Assets: Money market investments: Interest-bearing deposits $ 104,211 $ 8,912 8.55% Federal funds sold and security resell agreements 443,981 37,394 8.42% Other money market investments 2,000 170 8.50% ---------- -------- Total money market investments 550,192 46,476 8.45% ---------- -------- Securities: Held to maturity: Taxable 444,848 39,267 8.83% Nontaxable 70,287 9,237 13.14% Available for sale - - -% Trading account 14,602 2,882 19.74% ---------- -------- Total securities 529,737 51,386 9.70% ---------- -------- Loans: Loans held for sale 114,394 10,785 9.43% Net loans and leases(2) 1,691,794 196,322 11.60% ---------- -------- Total loans 1,806,188 207,107 11.47% ---------- -------- Total interest-earning assets $2,886,117 $304,969 10.57% Cash and due from banks 221,739 -------- Allowance for loan losses (60,943) Other assets 162,050 ---------- Total assets $3,208,963 ========== Liabilities: Interest-bearing deposits: Savings deposits $ 447,412 $ 22,820 5.10% Money market deposits 671,740 43,385 6.46% Time deposits under $100,000 762,749 59,861 7.85% Time deposits $100,000 or more 132,605 9,780 7.38% Foreign deposits 54,433 3,619 6.65% ---------- -------- Total interest-bearing deposits 2,068,939 139,465 6.74% ---------- -------- Borrowed funds: Securities sold, not yet purchased - - -% Federal funds purchased and security repurchase agreements 297,442 22,132 7.44% FHLB advances and other borrowings: less than one year 36,935 2,978 8.06% over one year - - -% Long-term debt 94,923 9,317 9.82% ---------- -------- Total borrowed funds 429,300 34,427 8.02% ---------- -------- Total interest-bearing liabilities $2,498,239 $173,892 6.96% Noninterest-bearing deposits 462,672 -------- Other liabilities 61,337 ---------- Total liabilities 3,022,248 Total shareholders' equity 186,715 ---------- Total liabilities and shareholders' equity $3,208,963 ========== Spread on average interest-bearing funds 3.61% ==== Net interest income and net yield on $131,077 4.54% interest-earning assets ======== ==== --------------------------------------------
(1) Taxable-equivalent rates used where applicable. (2) Net of unearned income and fees, net of related costs. Loans include nonaccrual and restructured loans. 20 23 Analysis of Interest Changes Due to Volume and Rates
1994 over 1993 1993 over 1992 ------------------------------- -------------------------------- Changes due to Changes due to -------------------- Total -------------------- Total (Amounts in thousands) Volume Rate(1) Changes Volume Rate(1) Changes -------- -------- -------- --------- --------- -------- Interest-earning assets: Money market investments: Interest-bearing deposits $(2,659) $ (209) $(2,868) $ (2,855) $ (3,992) $ (6,847) Federal funds sold and security resell agreements 7,272 4,041 11,313 14,337 (1,149) 13,188 Other money market investments (827) - (827) (306) (277) (583) ------- ------- ------- ------- -------- -------- Total money market investments 3,786 3,832 7,618 11,176 (5,418) 5,758 ------- ------- ------- ------- -------- -------- Securities: Held to maturity: Taxable (759) 7,976 7,217 11,306 (3,813) 7,493 Nontaxable 3,738 (483) 3,255 1,891 (620) 1,271 Available for sale 7,122 (9,501) (2,379) - - - Trading account 10,675 (1,714) 8,961 4,842 (2,824) 2,018 ------- ------- ------- ------- -------- -------- Total securities 20,776 (3,722) 17,054 18,039 (7,257) 10,782 ------- ------- ------- ------- -------- -------- Loans: Loans held for sale 92 938 1,030 (56) (2,475) (2,531) Net loans and leases(2) 32,002 3,397 35,399 10,539 (8,750) 1,789 ------- ------- ------- ------- -------- -------- Total loans 32,094 4,335 36,429 10,483 (11,225) (742) ------- ------- ------- ------- -------- -------- Total interest-earning assets $56,656 $ 4,445 $61,101 $39,698 $(23,900) $ 15,798 ------- ------- ------- ------- -------- -------- Interest-bearing liabilities: Deposits: Savings deposits $ 2,753 $ 287 $ 3,040 $ 4,547 $ (2,721) $ 1,826 Money market deposits 4,997 3,832 8,829 2,386 (5,982) (3,596) Time deposits under $100,000 (1,264) (1,768) (3,032) (4,371) (5,683) (10,054) Time deposits $100,000 or more 609 226 835 (593) (816) (1,409) Foreign deposits 1,879 1,081 2,960 (816) (1,335) (2,151) ------- ------- ------- ------- -------- -------- Total interest-bearing deposits 8,974 3,658 12,632 1,153 (16,537) (15,384) ------- ------- ------- ------- -------- -------- Borrowed funds: Securities sold, not yet purchased 6,522 1,415 7,937 3,039 - 3,039 Federal funds purchased and security repurchase agreements 10,013 8,700 18,713 10,853 (1,158) 9,695 FHLB advances and other borrowings: less than one year (1,946) 520 (1,426) 185 (207) (22) over one year 287 945 1,232 2,496 277 2,773 Long-term debt (1,291) (1,373) (2,664) (651) (1,434) (2,085) ------- ------- ------- ------- -------- -------- Total borrowed funds 13,585 10,207 23,792 15,922 (2,522) 13,400 ------- ------- ------- ------- -------- -------- Total interest-bearing liabilities $22,559 $13,865 $36,424 $17,075 $(19,059) $ (1,984) ------- ------- ------- ------- -------- -------- Change in net interest income $34,097 $(9,420) $24,677 $22,623 $ (4,841) $ 17,782 ======= ======= ======= ======= ======== ======== --------------------------------------------
(1) Taxable-equivalent rates used where applicable. (2) Net of unearned income and fees, net of related costs. Loans include nonaccrual and restructured loans. In the tables on the preceeding pages, the principal amounts of nonaccrual and renegotiated loans have been included in the average loan balances used to determine the rate earned on loans. Interest income on nonaccrual loans is included in income only to the extent that cash payments have been received and not applied to principal and is accrued on restructured loans at the reduced rates. Certain restructured loan agreements call for additional interest to be paid on a deferred or contingent basis. Such interest is taken into income only as collected. In the analysis of interest changes due to volume and rates, the changes due to the volume/rate variance have been allocated to volume. When volume and rate have both increased, the variance has been allocated proportionately to both volume and rate, and when the rate has increased and volume has decreased, the variance has been allocated to rate. 21 24 Provision For Loan Losses The provision for loan losses in 1994 decreased by 27.1% to $2,181,000 in 1994 as compared to $2,993,000 in 1993, and $10,929,000 in 1992. The decrease in loan loss provisions resulted from improved credit risk management and an improved economy which have produced decreases in nonperforming assets. Noninterest Income The Company's noninterest income decreased by 8.4% to $73.2 million in 1994 as compared to $79.9 million in 1993 and $62.8 million in 1992. Service charges on deposits increased by 5.2% in 1994 to $24.1 million, primarily as a result of price increases and higher volumes in 1994. Other service charges, commissions, and fees increased by 2.9% in 1994 to $22.0 million primarily as a result of increased fees relating to commercial loan originations. Such increased fees were partially offset by a decline in fees generated through sales of investment products through the Company's discount brokerage operations and personal investment officers, as well as fees from mortgage loan originations during 1994. Trading account income decreased by 63.4% to $.9 million in 1994 as compared to $2.4 million in 1993. Loan sales and servicing income decreased 32.0% to $14.6 million in 1994 primarily as a result of decreased income on real estate loans sold in 1994 and lower excess servicing fees during 1994 on securitized loans sold resulting from competitive pressures, particularly in the indirect consumer loan market. The Company does not recognize an initial gain on the sale of loans but recognizes the income over the servicing life of the sale. Other income increased by 6.4% in 1994 to $7.6 million primarily as a result of gains on the sale of mortgage-servicing rights. The following table presents the components of noninterest income for the years indicated and a year-to-year comparison expressed in terms of percent changes. Noninterest Income
Percent Percent Percent Percent (Thousands of dollars) 1994 change 1993 change 1992 change 1991 change 1990 ------- --------- ------- ------- ------- ------- ------- ------- ------- Service charges on deposit accounts $24,058 5.2% $22,875 17.4% $19,484 9.9% $17,736 12.8% $15,723 Other service charges, commissions, and fees 22,008 2.9 21,392 13.4 18,871 35.7 13,907 (5.1) 14,648 Trust income 4,334 (6.2) 4,622 .2 4,614 10.7 4,169 1.9 4,092 Investment securities gains (losses), net (299) (1,658.8) (17) (105.2) 327 (54.3) 715 182.4 (868) Trading account income 860 (63.4) 2,350 (47.0) 4,437 226.5 1,359 (10.7) 1,521 Loan sales and servicing income 14,596 (32.0) 21,471 226.7 6,573 (16.5) 7,875 (.7) 7,932 Other income 7,645 6.4 7,187 (15.9) 8,543 27.6 6,695 37.4 4,871 ------- ------- ------- ------- ------- Total $73,202 (8.4)% $79,880 27.1% $62,849 19.8% $52,456 9.5% $47,919 ======= ======== ======= ====== ======= ===== ======= ===== =======
Noninterest Expenses Noninterest expenses increased by 4.3% in 1994 to $174.9 million as compared to $167.8 million in 1993, and $139.1 million in 1992. Salaries and employee benefits increased by 9.1% in 1994 to $93.3 million, primarily as a result of additional salaries and benefits from an acquisition accounted for as a purchase; increased staffing in investment activities; general salary increases; and bonuses, commissions, and profit sharing costs related to increased profitability. Furniture and equipment expenses increased 34.8% in 1994 to $12.5 million, primarily as a result of the expansion of the ATM network and the installation of personal computers and local area networks. The Company benefited by a decrease of 119.6% in other real estate expense to $(.1) million in 1994 as holding costs declined through the continued sales of other real estate owned properties during 1994. Also, values received in the sales of other real estate owned continued to improve in 1994. F.D.I.C. premiums increased by 4.0% in 1994 to $7.5 million as compared to $7.3 million in 1993 due to higher deposit levels. Telecommunication costs increased 25.4% to $3.8 million as a result of acquisitions and the expansion of ATM and other networks. All other expenses increased 5.9% to $27.6 million in 1994 as compared to $26.1 million in 1993 primarily due to increased ATM network service costs, amortization of investments in community development companies and investment activity expenses. The Company recognized a loss on early extinguishment of debt in the amount of $6.0 million during 1993. This expense consisted of marking to market an interest rate exchange agreement entered into several years ago in conjunction with the issuance of long term floating rate notes, and writing off deferred costs associated with the notes and industrial revenue bonds redeemed. 22 25 The following table presents the components of noninterest expenses for the years indicated and a year-to-year comparison expressed in terms of percent changes. Noninterest Expenses
Percent Percent Percent Percent (Thousands of dollars) 1994 change 1993 change 1992 change 1991 change 1990 -------- ------- -------- ------- -------- ------- -------- ------- -------- Salaries and employee benefits $ 93,331 9.1% $ 85,549 21.8% $ 70,242 14.7% $ 61,220 5.3% $ 58,126 Occupancy, net 8,397 2.8 8,168 12.7 7,248 (4.3) 7,570 6.3 7,119 Furniture and equipment 12,526 34.8 9,294 21.0 7,681 13.4 6,773 2.1 6,636 Other real estate expense (88) (119.6) 450 (82.4) 2,559 (22.9) 3,318 (15.2) 3,913 Legal and professional services 5,142 .1 5,136 42.0 3,616 (8.0) 3,931 (22.7) 5,087 Supplies 4,819 6.2 4,537 17.5 3,860 1.1 3,817 4.0 3,669 Postage 4,723 9.0 4,334 20.0 3,611 (2.4) 3,700 15.6 3,201 F.D.I.C. premiums 7,547 4.0 7,257 16.4 6,235 15.9 5,381 92.4 2,797 Amortization of intangible assets 3,692 (16.7) 4,432 (2.2) 4,530 16.7 3,882 4.2 3,726 Loss on early extinguishment of debt - (100.0) 6,022 100.0 - - - - - Other expenses: Telecommunications 3,767 25.4 3,005 26.6 2,373 19.4 1,987 8.2 1,837 Advertising 3,447 (1.9) 3,515 8.6 3,236 43.3 2,258 55.7 1,450 All other expenses 27,597 5.9 26,051 9.1 23,878 24.6 19,162 2.3 18,728 -------- -------- -------- -------- -------- Total other expenses 34,811 6.9 32,571 10.5 29,487 26.0 23,407 6.3 22,015 -------- -------- -------- -------- -------- Total $174,900 4.3% $167,750 20.6% $139,069 13.1% $122,999 5.8% $116,289 ======== ====== ======== ===== ======== ===== ======== ===== ========
The following table presents full-time equivalent employees and banking offices at December 31, for the years indicated: Full-Time Equivalent Employees
1994 1993 1992 1991 1990 ----- ----- ----- ----- ----- Commercial banking 2,506 2,573 2,098 2,008 1,863 Other 189 188 395 341 322 ----- ----- ----- ----- ----- Total 2,695 2,761 2,493 2,349 2,185 ===== ===== ===== ===== ===== Commercial banking offices 118 114 106 103 97
Income Taxes The Company's income taxes increased 13.4% to $30.9 million in 1994 compared to $27.2 million in 1993 and $22.9 million in 1992 primarily due to the increase in income before income taxes. The Company's effective tax rate was 32.6% during 1994 as compared to 32.5% in 1993. 23 26 Quarterly Summary The following table presents a summary of earnings and end-of-period balances by quarter for the years ended December 31, 1994, 1993, and 1992: Summary of Quarterly Financial Information (Unaudited)
Provi- Income Gross Net Non- sion for Non- before interest interest interest loan interest income Net (Thousands of dollars) income income income losses expenses taxes income -------- -------- -------- -------- -------- ------- ------- Quarter: 1994: First $ 77,213 $ 44,801 $16,396 $ 290 $ 42,491 $18,416 $12,438 Second 86,772 48,741 18,465 467 41,996 24,743 16,418 Third 94,939 51,859 20,109 440 44,739 26,789 17,665 Fourth 95,065 53,205 18,232 984 45,674 24,779 17,306 -------- -------- ------- ------- -------- ------- ------- Total $353,989 $198,606 $73,202 $ 2,181 $174,900 $94,727 $63,827 ======== ======== ======= ======= ======== ======= ======= 1993: First $ 67,591 $ 41,092 $15,766 $ 1,365 $ 42,065 $13,428 $10,746 Second 71,091 44,813 19,371 408 39,047 24,729 16,636 Third 76,033 43,795 22,689 482 43,318 22,684 15,397 Fourth 78,901 44,957 22,054 738 43,320 22,953 15,426 -------- -------- ------- ------- -------- ------- ------- Total $293,616 $174,657 $79,880 $ 2,993 $167,750 $83,794 $58,205 ======== ======== ======= ======= ======== ======= ======= 1992: First $ 68,117 $ 35,486 $15,344 $ 4,135 $ 35,402 $11,293 $ 8,331 Second 69,952 38,105 13,802 3,181 32,749 15,977 10,282 Third 69,171 40,664 15,280 2,003 34,033 19,908 13,131 Fourth 70,985 43,027 18,423 1,610 36,885 22,955 15,465 -------- -------- ------- ------- -------- ------- ------- Total $278,225 $157,282 $62,849 $10,929 $139,069 $70,133 $47,209 ======== ======== ======= ======= ======== ======= =======
Money Net Allow- market loans ances for Share- Total invest- and loan Total holders' assets ments Securities leases losses deposits equity ---------- -------- ---------- ---------- --------- ---------- -------- End of Quarter: 1994: First $5,232,172 $677,125 $1,626,260 $2,531,806 $67,984 $3,493,502 $318,708 Second 5,452,447 830,288 1,552,256 2,665,104 68,981 3,599,176 341,818 Third 5,228,382 667,013 1,532,726 2,574,644 66,847 3,628,273 354,330 Fourth 4,934,095 403,446 1,663,433 2,391,278 67,018 3,705,976 365,770 1993: First $4,334,905 $733,496 $1,148,227 $2,112,865 $61,042 $3,152,960 $273,736 Second 4,420,841 599,091 1,187,784 2,197,102 67,602 3,347,915 287,985 Third 4,467,194 463,552 1,225,784 2,395,834 68,334 3,370,553 300,298 Fourth 4,801,054 597,680 1,258,939 2,486,346 68,461 3,432,289 312,592 1992: First $3,743,022 $532,789 $ 875,856 $2,029,465 $57,489 $2,906,767 $227,255 Second 3,893,657 540,755 919,497 2,126,102 60,768 2,921,975 235,843 Third 3,879,310 445,095 930,605 2,186,914 61,615 2,976,492 246,916 Fourth 4,107,924 616,180 981,695 2,107,433 59,807 3,075,110 260,070
24 27 ANALYSIS OF FINANCIAL CONDITION Liquidity Liquidity represents the Company's ability to provide adequate funds to meet its financial obligations, including withdrawals by depositors, debt service requirements and operating needs. Liquidity is primarily provided by the regularly scheduled maturities of the Company's investment and loan portfolios. In addition, the Company's liquidity is enhanced by the fact that cash, money market securities, and liquid investments, net of short-term or "purchased" liabilities and wholesale deposits, totaled $1,423.6 million or 41.3% of core deposits at December 31, 1994. The Company's core deposits, consisting of demand, savings, and money market deposits, and small certificates of deposit, constituted 93.0% of total deposits at December 31, 1994, as compared to 95.6% at December 31, 1993. Maturing balances in loan portfolios provide flexibility in managing cash flows. Maturity management of those funds is an important source of medium- to long-term liquidity. The Company's ability to raise funds in the capital markets through the "securitization" process and by debt issuances allows the Company to take advantage of market opportunities to meet funding needs at reasonable cost. The Company manages its liquidity position in order to assure its ability to meet maturing obligations. Through an ongoing review of the Company's levels of interest-sensitive assets and liabilities, efforts are made to structure portfolios in such a way as to minimize the effects of fluctuating interest rate levels on net interest income. The parent company's cash requirements consist primarily of principal and interest payments on its borrowings, dividend payments to shareholders, and cash operating expenses. The parent company's cash needs are routinely satisfied through payments by subsidiaries of dividends, proportionate shares of current income taxes, management and other fees, and principal and interest payments on subsidiary borrowings from the parent company. Interest Rate Sensitivity Interest rate sensitivity measures the Company's financial exposure to changes in interest rates. Interest rate sensitivity is, like liquidity, affected by maturities of assets and liabilities. Interest rate sensitivity is measured in terms of "gaps," defined as the difference between volumes of assets and liabilities whose interest rates are subject to reset within specified periods of time, and "duration," a measure of the weighted average expected lives of the cash flows from assets and liabilities. The Company, through the management of interest rate "maturities" and the use of off-balance sheet arrangements such as interest rate caps, floors, futures, options, and interest rate exchange agreements, attempts to be reasonably close to neutral. The Company's management exercises its best judgment in making assumptions with respect to prepayments, early withdrawals and other noncontrollable events in managing the Company's exposure to changes in interest rates. Information as to the Company's sensitivity is presented in a table that follows. The interest rate gaps reported in the table arise when assets are funded with liabilities having different repricing intervals, after considering the effect of off-balance sheet hedging financial instruments. Since these gaps are actively managed and change daily as the interest rate environment changes, positions at the end of any period may not be reflective of the Company's interest rate position in subsequent periods. 25 28 The following table presents information as to the Company's interest rate sensitivity at December 31, 1994: Maturities and Interest Rate Sensitivity at December 31, 1994
Rate sensitive ------------------------------------------ After After three one months year but but Within within within After three year five five Not rate (Millions of dollars) months one years years sensitive Total -------- ------ ------ ------ --------- -------- Uses of Funds Earning assets: Interest-bearing deposits $ 19.5 $ .2 $ 19.7 Federal funds sold and security resell agreements 383.8 383.8 Securities: Held to maturity 572.6 $145.5 227.2 $ 85.6 1,030.9 Available for sale 79.9 40.2 131.9 63.6 315.6 Trading account 316.9 316.9 Loans and leases 1,590.9 298.1 390.6 111.7 2,391.3 Nonearning assets $ 475.9 475.9 -------- ------ ------ ------ ------- -------- Total uses of funds $2,963.6 $483.8 $749.9 $260.9 $ 475.9 $4,934.1 ======== ====== ====== ====== ======= ======== Sources of Funds Interest-bearing deposits and liabilities: Savings deposits $ 92.9 $267.5 $349.8 $ 46.0 $ 756.2 Money market deposits 1,026.6 265.9 1,292.5 Time deposits under $100,000 129.6 232.8 151.5 513.9 Time deposits over $100,000 47.3 46.4 29.8 123.5 Foreign 119.0 .1 15.0 134.1 Securities sold, not yet purchased 81.4 81.4 Federal funds purchased and security repurchase agreements 524.5 524.5 FHLB advances and other borrowings: Less than one year 25.7 25.7 Over one year 79.3 1.6 7.9 12.8 101.6 Long-term debt .3 1.5 5.6 50.8 58.2 Noninterest-bearing deposits 367.1 61.2 37.1 103.5 $ 316.9 885.8 Other liabilities 70.9 70.9 Shareholders' equity 365.8 365.8 -------- ------ ------ ------ ------- -------- Total sources of funds $2,493.7 $611.1 $862.6 $213.1 $ 753.6 $4,934.1 ======== ====== ====== ====== ======= ======== Off-balance sheet items affecting interest rate sensitivity $ (200.0) $120.0 $ 80.0 Interest rate sensitivity gap $ 269.9 $ (7.3) $(32.7) $ 47.8 $(277.7) Percent of total assets 5.5% (.2)% (.7)% 1.0% (5.6)% Cumulative interest rate sensitivity gap $ 269.9 $262.6 $229.9 $277.7 Cumulative as a % of total assets 5.5% 5.3% 4.6% 5.6%
26 29 Earning Assets Average earning assets increased 18.3% to $4,990.4 million in 1994 as compared to the 1993 level of $4,220.1 million and the 1992 level of $3,501.7 million. Earning assets comprised 91.5% of total average assets in 1994 compared with 90.9% in 1993, with average loans representing 51.6% of earning assets in 1994 compared to 52.7% in 1993. The volume of liquid money market investments increased 10.3% to $869.7 million in 1994 from $788.7 million in 1993. Average securities increased 27.8% to $1,545.7 million in 1994 from $1,209.2 million in 1993. Average loan volume increased 15.9% to $2,575.0 million in 1994 as compared to $2,222.2 million in 1993. The following table sets forth the composition of average earning assets for the years indicated: Average Earning Assets
(Millions of dollars) 1994 1993 1992 1991 1990 -------- -------- -------- -------- -------- Money market investments: Interest-bearing deposits $ 24.4 $ 104.0 $ 184.1 $ 234.9 $ 104.2 Federal funds sold and security resell agreements 845.3 656.2 245.9 355.7 444.0 Other money market investments - 28.5 39.0 80.0 2.0 -------- -------- -------- -------- -------- Total money market investments 869.7 788.7 469.0 670.6 550.2 -------- -------- -------- -------- -------- Securities: Held to maturity: Taxable 726.9 958.8 766.0 604.5 444.8 Nontaxable 193.8 147.6 125.1 74.7 70.3 Available for sale 334.1 - - - - Trading account 290.9 102.8 36.9 22.8 14.6 -------- -------- -------- -------- -------- Total securities 1,545.7 1,209.2 928.0 702.0 529.7 -------- -------- -------- -------- -------- Loans: Loans held for sale 187.5 185.9 187.0 106.0 114.4 Net loans and leases 2,387.5 2,036.3 1,917.7 1,769.9 1,691.8 -------- -------- -------- -------- -------- Total loans 2,575.0 2,222.2 2,104.7 1,875.9 1,806.2 -------- -------- -------- -------- -------- Total earning assets $4,990.4 $4,220.1 $3,501.7 $3,248.5 $2,886.1 ======== ======== ======== ======== ========
27 30 Investment Securities Portfolio Investment securities prior to December 31, 1993 were held to maturity and carried at amortized cost. At December 31, 1993 the Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," and segregated the portfolio for securities held to maturity carried at amortized cost, and securities available for sale carried at market. The following table presents the Company's year-end investment securities portfolio. Investment Securities Portfolio
December 31, ------------------------------------------------------------------ 1994 1993 1992 ------------------------ ------------------------- --------- (In thousands) Amortized Market Amortized Market Amortized cost value cost Value Cost ---------- ---------- ---------- ---------- --------- Held to maturity - ---------------- U.S. Treasury securities $ - $ - $ - $ - $ 57,380 U.S. government agencies and corporations: Small Business Administration loan-backed securities 460,163 459,313 399,603 411,846 366,867 Other agency securities 271,440 262,144 157,098 157,544 101,949 States and political subdivisions 243,225 242,754 196,241 198,664 148,363 Other debt securities - - - - 10,000 ---------- ---------- ---------- ---------- -------- 974,828 964,211 752,942 768,054 684,559 Mortgage-backed securities 56,079 54,587 60,318 62,033 162,428 Equity securities: Federal Home Loan Bank stock - - - - 62,536 Other stock - - - - 33,472 ---------- ---------- ---------- ---------- -------- 1,030,907 1,018,798 813,260 830,087 $942,995 ---------- ---------- ---------- ---------- ======== Available for sale - ------------------ U.S. Treasury securities 48,269 47,177 70,263 70,512 U.S. government agencies 33,304 33,304 61,107 61,077 ---------- ---------- ---------- ---------- 81,573 80,481 131,370 131,589 ---------- ---------- ---------- ---------- Mortgage-backed securities 55,560 54,334 49,493 49,363 ---------- ---------- ---------- ---------- Equity securities: Mutual funds: Accessor Funds, Inc. 118,983 111,529 90,736 91,245 Other 534 534 515 515 Stock: Federal Home Loan Bank 65,861 65,861 72,376 72,376 Other 2,785 2,839 2,194 2,258 ---------- ---------- ---------- ---------- 187,983 180,763 165,821 166,394 ---------- ---------- ---------- ---------- 325,116 315,578 346,684 347,346 ---------- ---------- ---------- ---------- Total $1,356,023 $1,334,376 $1,159,944 $1,177,433 ========== ========== ========== ==========
28 31 Maturities and Average Yields of Investment Securities The following table presents by maturity range and type of security, the average yield of the investment portfolio at December 31, 1994. The average yield is based on effective rates on amortized cost at the end of the year. Maturities and Average Yields of Investment Securities at December 31, 1994
After one After five Total Within one but within but within After ten securities year five years ten years years ----------------- --------------- --------------- -------------- ------------- (Millions of Dollars) Amt. Yield* Amt. Yield* Amt. Yield* Amt. Yield* Amt. Yield ------------------- -------- ------ ------ ------ ------ ------ ------ ------ ------ ----- Held to maturity - ---------------- U.S. government agencies and corporations: Small Business Administration loan-backed securities $ 460.2 6.6% $ 42.8 6.6% $140.7 6.6% $122.7 6.6% $153.9 6.7% Other agency securities 271.4 5.3% 19.8 4.5% 249.3 5.4% 1.0 5.2% 1.3 6.6% States and political subdivisions 243.2 7.9% 36.0 6.9% 114.7 8.0% 77.8 8.4% 14.8 7.4% -------- ------ ------ ------ ------ 974.8 6.6% 98.6 6.3% 504.7 6.3% 201.5 7.3% 170.0 6.8% Mortgage-backed securities 56.1 6.2% 9.3 6.4% 27.5 6.2% 12.3 6.3% 7.0 6.3% -------- ------ ------ ------ ------ 1,030.9 6.6% 107.9 6.3% 532.2 6.3% 213.8 7.2% 177.0 6.8% -------- ------ ------ ------ ------ Available for sale - ------------------ U.S. Treasury securities 48.3 4.5% 32.9 4.5% 15.2 4.5% - -% .2 7.8% U.S. government agencies 33.3 16.9% 33.3 16.9% - -% - -% - -% -------- ------ ------ ------ ------ 81.6 9.5% 66.2 10.7% 15.2 4.5% - -% .2 7.8% -------- ------ ------ ------ ------ Mortgage-backed securities 55.5 6.1% 3.9 7.1% 14.7 6.8% 16.5 6.4% 20.4 5.0% -------- ------ ------ ------ ------ Equity securities: Mutual funds: Accessor Funds, Inc. 188.8 6.1% 118.8 6.1% Other .5 5.3% .5 5.3% Stock: Federal Home Loan Bank 65.9 6.3% 65.9 6.3% Other 2.8 5.5% 2.8 5.5% -------- ------ 188.0 6.2% 188.0 6.2% -------- ------ ----- ------ ------ 325.1 7.0% 70.1 10.5% 29.9 5.7% 16.5 6.4% 208.6 6.1% -------- ------ ------ ------ ------ Total $1,356.0 6.7% $178.0 8.0% $562.1 6.3% $230.3 7.1% $385.6 6.4% ======== ==== ====== ==== ====== ==== ====== ==== ====== ====
* An effective tax rate of 30% was used to adjust tax-exempt securities yields to rates comparable to those on fully taxable securities. At December 31, 1994, the value of the Accessor Funds Inc. and the Federal Home Loan Bank of Seattle stock each exceeded ten percent of shareholders' equity. 29 32 Loan Portfolio During 1994, the Company consummated securitized loan sales of SBA loans, home equity loans, credit card receivables and automobile loans totaling approximately $703.0 million leading to a $322.4 million net increase in securitized receivables outstanding, excluding long-term residential mortgages. After these sales, loans and leases at December 31, 1994 totaled $2,416.1 million, a slight decrease of 3.7% compared to $2,508.2 million at December 31, 1993. Loans held for sale, commercial, financial and agriculture loans, and lease financing declined 54.4%, 3.2%, and .7%, respectively, while real estate and consumer loans increased 3.6% and 3.3%, respectively. The table below sets forth the amount of loans outstanding by type at December 31 for the years indicated: Loan Portfolio
December 31, ----------------------------------------------------------------- (In thousands) 1994 1993 1992 1991 1990 ---------- ---------- ---------- ---------- ---------- Loans held for sale $ 108,649 $ 238,206 $ 229,465 $ 153,782 $ 117,606 ---------- ---------- ---------- ---------- ---------- Commercial, financial and agricultural 495,647 511,982 593,248 495,883 492,250 ---------- ---------- ---------- ---------- ---------- Real estate: Construction 218,244 213,114 118,185 100,922 78,355 Other: Home equity credit line 40,007 159,998 148,245 96,059 65,193 1-4 family residential 452,131 367,001 155,831 164,606 122,382 Other real estate-secured 570,285 495,889 299,769 332,967 311,749 ---------- ---------- ---------- ---------- ---------- 1,280,667 1,236,002 722,030 694,554 577,679 ---------- ---------- ---------- ---------- ---------- Consumer: Bankcard 41,035 27,522 24,293 73,789 70,089 Other 349,998 351,157 430,123 458,712 507,536 ---------- ---------- ---------- ---------- ---------- 391,033 378,679 454,416 532,501 577,625 ---------- ---------- ---------- ---------- ---------- Lease financing 129,547 130,450 124,480 122,620 115,974 ---------- ---------- ---------- ---------- ---------- Other receivables 10,509 12,857 8,574 9,222 15,502 ---------- ---------- ---------- ---------- ---------- Total loans $2,416,052 $2,508,176 $2,132,213 $2,008,562 $1,896,636 ========== ========== ========== ========== ==========
The Company has no foreign loans in its loan portfolio. Loans Serviced In recent years, many banks and other financial institutions have had an increasing tendency to "securitize" loans by pooling and selling them to investors, with the servicing responsibilities and residual income in excess of financing costs, servicing expenses, and loan losses accruing to the originating institution. The securitization of receivables can assist an institution in effectively utilizing its capital and enhancing its liquidity while at the same time limiting its exposure to loss. The Company's participation in the securitization process, as well as its participation in originating and selling mortgage loans and student loans, has increased in recent years. During 1994, the Company securitized and sold SBA 504 first mortgage loans totaling $43.7 million, home equity credit line receivables totaling $192.4 million, credit card receivables totaling $163.1 million, and automobile loans totaling $303.8 million. At December 31, 1994, real estate loans serviced for others amounted to $1,760.1 million compared to $1,650.4 million at December 31, 1993, and $1,252.8 million at December 31, 1992. Securitized loans serviced for investors at December 31, 1994 totaled $786.6 million compared to $464.2 million at December 31, 1993 and $267.9 million at December 31, 1992. 30 33 Loan Maturities and Sensitivity to Changes in Interest Rates The following table shows maturity distribution and sensitivity to changes in interest rates of the loan portfolio at December 31, 1994: Loan Maturities and Sensitivity to Changes in Interest Rates
Maturities ------------------------------------------------- One One year Over year or through five less five years years Total -------- ---------- -------- ---------- Loans held for sale $108,649 $ - $ - $ 108,649 -------- -------- -------- ---------- Commercial, financial and agricultural 280,717 153,468 61,462 495,647 -------- -------- -------- ---------- Real estate: Construction 186,703 31,541 - 218,244 Other: Home equity credit line 4,639 16,226 19,142 40,007 1-4 family residential 13,751 29,789 408,591 452,131 Other real estate-secured 55,633 166,265 348,387 570,285 -------- -------- -------- ---------- 260,726 243,821 776,120 1,280,667 -------- -------- -------- ---------- Consumer: Bankcard - 41,035 - 41,035 Other 87,696 207,941 54,361 349,998 -------- -------- -------- ---------- 87,696 248,976 54,361 391,033 -------- -------- -------- ---------- Lease financing 19,338 99,474 10,735 129,547 -------- -------- -------- ---------- Other receivables 9,929 399 181 10,509 -------- -------- -------- ---------- Total $767,055 $746,138 $902,859 $2,416,052 ======== ======== ======== ========== Loans maturing in more than one year: With fixed interest rates $350,076 $486,711 $ 836,787 With variable interest rates 396,062 416,148 812,210 -------- -------- ---------- Total $746,138 $902,859 $1,648,997 ======== ======== ==========
Credit Risk Management Management of credit risk is a primary objective in maintaining a safe and sound institution. To accomplish this task, the Company has written and placed in effect loan policies to govern each of its loan portfolios. Loan policies assist the Company in providing a framework for consistency in the acceptance of credit and a basis for sound credit decisions. Generally, the Company makes its credit decisions based upon debtor cash flow and available collateral. The Company has structured its organization to separate the lending function from the credit administration function to strengthen the control and independent evaluation of credit activities. In addition, the Company has well-defined standards for grading its loan portfolio, and maintains an internal Credit Examination Department which periodically conducts examinations of the quality, documentation, and administration of the Company's lending departments, and submits reports thereon to a committee of the Board of Directors. Emphasis is placed on early detection of potential problem credits so that action plans can be developed on a timely basis to mitigate losses. 31 34 Loan Risk Elements The following table shows the principal amounts of nonaccrual, past due 90 days or more, restructured loans, and potential problem loans at December 31 for each year indicated:
December 31, ----------------------------------------------- (In thousands) 1994 1993 1992 1991 1990 ------- ------- ------- ------- ------- Nonaccrual loans $13,635 $23,364 $21,556 $33,497 $35,802 Loans contractually past due 90 days or more (not included in nonaccrual loans above) 3,041 10,821 6,409 5,315 10,273 Restructured loans (not included in nonaccrual loans or loans contractually past due 90 days or more) 567 4,006 4,003 3,225 10,181 Potential problem loans (loans presently current by their terms, but about which management has serious doubt as to the future ability of the borrower to comply with present repayment terms) - 1,114 6,263 5,042 5,194
Includes loans held for sale. Impact of Nonperforming Loans on Interest Income The following table presents the gross interest income on nonaccrual and restructured loans that would have been recorded if these loans had been current in accordance with their original terms (interest at original rates), and the amount of interest income on these loans that was included in income for each year indicated:
1994 1993 1992 ------------------------- ------------------------ ------------------------ Re- Re- Re- Non- struc- Non- struc Non- struc (In thousands) accrual tured Total accrual tured Total accrual tured Total ------- ----- ------ ------- ----- ------ ------ ----- ------ Gross amount of interest that would have been recorded at original rate $1,713 $53 $1,766 $2,858 $193 $3,051 $2,082 $302 $2,384 Interest that was included in income 371 45 416 668 152 820 793 247 1,040 ------ --- ------ ------ ---- ------ ------ ---- ------ Net impact on interest income $1,342 $ 8 $1,350 $2,190 $ 41 $2,231 $1,289 $ 55 $1,344 ====== === ====== ====== ==== ====== ====== ==== ======
Potential problem loans consist primarily of commercial loans and commercial real estate loans of $1 million. Management reviews loans graded "special mention" and monitors the status of such loans for becoming potential problem loans and their likelihood of becoming nonperforming loans. At December 31, 1994, management considered no loans as potential problem loans compared to two loans totaling $1,114,000, at December 31, 1993 and three loans totaling $6,263,000 at December 31, 1992. Management believes that for the near future, potential problem loans should remain at a relatively low level. Another aspect of the Company's credit risk management strategy is the diversification of the loan portfolio. At year-end, the Company had 4% of its portfolio in loans held for sale, 21% in commercial loans, 53% in real estate loans, 16% in consumer loans, and 6% in lease financing and other. The Company's real estate portfolio is also diversified. Of the total portfolio, 9% is in real estate construction loans, 2% is in home equity credit lines, 19% is in 1-4 family residential loans and 23% is in commercial loans secured by real estate. In addition, the Company attempts to avoid the risk of an undue concentration of credits in a particular industry or trade group, as indicated by the commercial loan and lease portfolio being allocated over more than 17 major industry classifications. At year-end, the largest concentration in the commercial loan and leasing portfolios was in the manufacturing group which comprised approximately 17% of the portfolio. The manufacturing group was also well diversified over several subcategories. Agricultural and mining loans comprise less than 7% of total commercial loans. The Company has no significant exposure to highly leveraged transactions and has no foreign credits in its loan portfolio. 32 35 Nonperforming Assets Nonperforming assets include nonaccrual loans, restructured loans, and other real estate owned. Loans are generally placed on nonaccrual status when the loan is 90 days or more past due as to principal or interest, unless the loan is in the process of collection and well-secured. Consumer loans are not placed on a nonaccrual status inasmuch as they are generally charged off when they become 120 days past due. Loans are restructured to provide a reduction or deferral of interest or principal payments when the financial condition of the borrower deteriorates and requires that the borrower be given temporary or permanent relief from the contractual terms of the credit. Other real estate owned is acquired through or in lieu of foreclosure on credits that are secured by real estate. Nonperforming assets totaled $18.9 million as of December 31, 1994, a decrease of 38.2% from $30.6 million as of December 31, 1993. Nonperforming assets totaled $31.5 million at December 31, 1992. Nonperforming assets represented .79% of net loans and leases, other real estate owned and other nonperforming assets at December 31, 1994, as compared to 1.23% and 1.49% at December 31, 1993 and 1992, respectively. Nonperforming assets as a percentage of net loans and leases, other real estate owned, and other nonperforming assets at December 31, 1994 are at their lowest levels since at least 1985, the period during which records have been maintained using the present definitions. Accruing loans past due 90 days or more totaled $3.0 million as of December 31, 1994, as compared to $10.8 million at December 31, 1993. These loans equal .13% of net loans and leases at December 31, 1994, as compared to .44% at December 31, 1993. Continuous efforts have been made to reduce nonperforming loans and to liquidate real estate owned properties in such a manner as to recover the greatest value possible. Significant steps have been taken during the last few years to strengthen the Company's credit culture by implementing a number of initiatives designed to increase internal controls and improve early detection and resolution of problem loans. The following table sets forth the composition of nonperforming assets at December 31 for the years indicated: Nonperforming Assets
(Thousands of dollars) 1994 1993 1992 1991 1990 ------- ------- ------- ------- ------- Nonaccrual loans: Commercial, financial and agricultural $ 5,736 $ 6,969 $ 2,981 $13,983 $14,978 Real estate 5,290 12,277 13,973 12,343 16,740 Consumer 862 607 1,377 2,198 2,646 Lease financing 1,747 3,511 3,225 4,973 1,438 ------- ------- ------- ------- ------- Total 13,635 23,364 21,556 33,497 35,802 ------- ------- ------- ------- ------- Restructured loans: Commercial, financial and agricultural - 8 1,204 480 740 Real estate 567 3,998 2,799 2,745 9,441 ------- ------- ------- ------- ------- Total 567 4,006 4,003 3,225 10,181 ------- ------- ------- ------- ------- Other real estate owned: Commercial, financial and agricultural: Improved 415 844 3,099 4,200 4,422 Unimproved 1,018 904 1,844 3,053 6,286 Residential: 1-4 family 63 1,182 681 874 2,938 Multi-family - - - 96 483 Lots 6 163 45 540 1,455 Recreation property 42 110 238 445 774 Other 18 64 64 730 1,076 ------- ------- ------- ------- ------- Total 1,562 3,267 5,971 9,938 17,434 Other nonperforming assets 3,179 - - - - ------- ------- ------- ------- ------- Total 4,741 3,267 5,971 9,938 17,434 ------- ------- ------- ------- ------- Total $18,943 $30,637 $31,530 $46,660 $63,417 ======= ======= ======= ======= ======= % of net loans* and leases, other real estate owned and other nonperforming assets .79% 1.23% 1.49% 2.35% 3.36%
33 36 Nonperforming Assets (continued)
(Thousands of dollars) 1994 1993 1992 1991 1990 ------ ------- ------ ------ ------- Accruing loans past due 90 days or more: Commercial, financial and agricultural $ 431 $ 1,612 $2,893 $1,886 $ 3,256 Real estate 1,975 8,881 3,044 2,259 4,274 Consumer 631 327 451 1,123 2,717 Lease financing 4 1 21 47 26 ------ ------- ------ ------ ------- Total $3,041 $10,821 $6,409 $5,315 $10,273 ====== ======= ====== ====== ======= % of net loans* and leases .13% .44% .30% .27% .55%
*Includes loans held for sale. Allowance For Loan Losses The Company's allowance for loan losses was 2.80% of net loans and leases at December 31, 1994, as compared to 2.75% as of December 31, 1993 and 2.84% as of December 31, 1992. Loan charge-offs increased 32.5% and recoveries decreased 51.7% in 1994 as compared to 1993, which resulted in a ratio of net charge-offs to average loans and leases of .19% in 1994, compared to (.23)% in 1993, and .44% in 1992. The allowance for loan and lease losses relative to problem loans continued to strengthen in 1994. The allowance, as a percentage of noncurrent loans, was 401.9% in 1994 as compared to 200.3% in 1993, and 213.9% in 1992. Noncurrent loans are defined as loans on which interest is not accrued, plus loans ninety days or more past due on which interest continues to accrue. In analyzing the adequacy of the allowance for loan and lease losses, management utilizes a comprehensive loan grading system to determine risk potential in the portfolio, and considers the results of independent internal and external credit reviews, historical charge-off experience, and changes in the composition and volume of the portfolio. Other factors, such as general economic conditions and collateral values, are also considered. Larger problem credits are individually evaluated to determine appropriate reserve allocations. Additions to the allowance are based upon the resulting risk profile of the portfolio developed through the evaluation of the above factors. 34 37 Summary Of Loan Loss Experience The following table shows the changes in the allowance for losses for each year indicated.
(In thousands) 1994 1993 1992 1991 1990 ---------- ---------- ---------- ---------- ---------- Loans* and leases outstanding at December 31 (net of unearned income) $2,391,278 $2,486,346 $2,107,433 $1,979,726 $1,868,199 ========== ========== ========== ========== ========== Average loans* and leases outstanding (net of unearned income) $2,574,995 $2,222,182 $2,104,679 $1,875,928 $1,806,188 ========== ========== ========== ========== ========== Allowance for possible losses: Balance at beginning of year $ 68,461 $ 59,807 $ 58,238 $ 60,948 $ 62,001 Allowance of companies (sold) or acquired 1,308 546 - - (1,224) Loans and leases charged-off: Loans held for sale - - - - - Commercial, financial, and agricultural (5,158) (1,804) (6,224) (17,298) (11,841) Real estate (573) (1,179) (2,544) (4,363) (2,281) Consumer (4,756) (5,461) (9,559) (14,073) (12,918) Lease financing (1,174) (360) (604) (847) (473) Other receivables - - - - - ---------- ---------- ---------- ---------- ---------- Total (11,661) (8,804) (18,931) (36,581) (27,513) ---------- ---------- ---------- ---------- ---------- Recoveries: Loans held for sale - - - - - Commercial, financial, and agricultural 2,180 10,117 5,197 3,456 4,177 Real estate 676 611 477 829 516 Consumer 3,732 3,043 3,794 3,704 2,701 Lease financing 141 148 103 321 207 Other receivables - - - - - ---------- ---------- ---------- ---------- ---------- Total 6,729 13,919 9,571 8,310 7,601 ---------- ---------- ---------- ---------- ---------- Net loan and lease (charge-offs) recoveries (4,932) 5,115 (9,360) (28,271) (19,912) Provision charged against earnings 2,181 2,993 10,929 25,561 20,083 ---------- ---------- ---------- ---------- ---------- Balance at end of year $ 67,018 $ 68,461 $ 59,807 $ 58,238 $ 60,948 ========== ========== ========== ========== ========== Ratio of net charge-offs (recoveries) to average loans and leases .19% (.23)% .44% 1.51% 1.10% Ratio of allowance for possible losses to loans and leases outstanding at December 31 2.80% 2.75% 2.84% 2.94% 3.26% Ratio of allowance for possible losses to nonperforming loans at December 31 471.89% 250.13% 234.00% 158.59% 132.54% Ratio of allowance for possible losses to nonaccrual loans and accruing loans past due 90 days or more at December 31 401.88% 200.27% 213.86% 150.05% 132.28%
*Includes loans held for sale. 35 38 Review of nonperforming loans and evaluation of the quality of the loan portfolio, as previously mentioned, results in the identification of certain loans with risk characteristics which warrant specific reserve allocations in the determination of the amount of the allowance for loan losses. The allowance is not allocated among all loan categories, and amounts allocated to specific categories are not necessarily indicative of future charge-offs. An amount in the allowance not specifically allocated by loan category is necessary in view of the fact that, while no loans were made with the expectation of loss, some loan losses inevitably occur. The following is a categorization of the allowance for loan losses for each year indicated:
1994 1993 ----------------- ------------------ Alloca- Alloca- % of tion of % of tion of (In thousands) total allow- total allow- loans ance loans ance ----- ------- ----- ------- Type of loan - ------------ Loans held for sale 4.5% $ - 9.5% $ - Commercial, financial and agricultural 20.5 2,920 20.4 3,094 Real estate 53.0 1,594 49.3 4,032 Consumer 16.2 946 15.1 2,366 Lease financing 5.4 981 5.2 1,043 Other receivables .4 - .5 - ----- ----- Total loans 100.0% 100.0% ===== ===== Off-balance sheet unused commitments and standby letters of credit 3,674 1,972 ------- ------- Allocated 10,115 12,507 Unallocated 56,903 55,954 ------- ------- Total allowance for loan losses $67,018 $68,461 ======= =======
1992 1991 1990 ------------------ ----------------- ------------------ Alloca- Alloca- Alloca- % of tion of % of tion of % of tion of (In thousands) total allow- total allow- total allow- loans ance loans ance loans ance ------ ------- ----- ------- ------ ------- Type of loan - ------------ Loans held for sale 10.8% $ - 7.6% $ - 6.2% $ - Commercial, financial and agricultural 27.8 4,619 24.7 8,419 26.0 11,103 Real estate 33.9 4,240 34.6 6,884 30.5 1,722 Consumer 21.3 2,711 26.5 3,684 30.4 1,814 Lease financing 5.8 1,818 6.1 2,279 6.1 200 Other receivables .4 - .5 - .8 - ----- ----- ----- Total loans 100.0% 100.0% 100.0% ===== ===== ===== Off-balance sheet unused commitments and standby letters of credit 3,710 5,567 5,374 ------- ------- ------- Allocated 17,098 26,833 20,213 Unallocated 42,709 31,405 40,735 ------- ------- ------- Total allowance for loan losses $59,807 $58,238 $60,948 ======= ======= =======
36 39 Deposits Total average deposits increased 12.7% to $3,583.1 million in 1994 from $3,178.9 million in 1993. Total deposits increased 8.0% to $3,706.0 million at December 31, 1994 compared to $3,432.3 million at December 31, 1993. The Company's demand deposits increased .7% and savings and money market accounts, increased 9.7% comparing December 31, 1994 to December 31, 1993, while certificates of deposit under $100,000 decreased 4.0%. Domestic deposits over $100,000 increased 52.6% to $123.5 million and foreign deposits increased 95.6% to $134.1 million at December 31, 1994. The following table presents the average amount and the average rate paid on each of the following categories for each year indicated: Average Deposit Amounts and Average Rates
(In millions) 1994 1993 1992 -------- -------- -------- Average amounts: Noninterest-bearing demand deposits $ 838.1 $ 729.7 $ 556.5 Savings deposits 740.3 648.2 494.1 Money market deposits 1,284.7 1,117.0 1,029.5 Time deposits of less than $100,000 516.9 548.8 651.2 Time deposits $100,000 or more 94.7 79.4 95.1 Foreign deposits 108.4 55.8 86.5 -------- -------- -------- Total average amounts $3,583.1 $3,178.9 $2,912.9 ======== ======== ======== Average rates: Noninterest-bearing demand deposits -% -% -% Savings deposits 3.01% 2.97% 3.52% Money market deposits 3.11% 2.79% 3.37% Time deposits under $100,000 3.96% 4.28% 5.15% Time deposits $100,000 or more 4.06% 3.79% 4.65% Foreign deposits 4.10% 2.66% 4.20% Total 3.31% 3.20% 3.98% Maturities of time deposits $100,000 or more at December 31, 1994 (In millions): Under three months $ 47.3 Over three months and less than six months 22.0 Over six months and less than twelve months 24.4 Over twelve months 29.8 ------- Total time deposits $100,000 or more $ 123.5 =======
Most foreign deposits are in denominations of $100,000 or more. 37 40 Short-term Borrowings The following table sets forth data pertaining to the Company's short-term borrowings for each year indicated: (In thousands, except rates) At December 31,
Weighted Maximum Average average Weighted month- balance rate Category of aggregate average end during during short-term borrowings Balance rate balance the year the year - --------------------- -------- -------- ---------- ---------- -------- Securities sold, not yet purchased 1994 $ 81,437 5.33% $ 464,133 $ 184,405 5.95% 1993 $ 46,640 4.96% $ 278,351 $ 69,442 4.38% 1992 - -% - - -% Federal funds purchased and security repurchase agreements (a) 1994 $524,538 5.51% $1,165,880 $1,057,827 3.88% 1993 $595,200 2.86% $ 595,200 $ 767,309 2.92% 1992 $422,897 3.12% $ 490,774 $ 394,620 3.21% Federal Home Loan Bank advances and other borrowings less than one year(b) 1994 $ 25,748 7.70% $ 73,461 $ 32,557 5.44% 1993 $136,140 3.36% $ 136,140 $ 83,123 3.85% 1992 $153,533 3.43% $ 153,533 $ 78,406 4.10%
(a) Federal funds purchased and security repurchase agreements are primarily on an overnight or demand basis. Rates on overnight funds reflect current market rates. Rates on fixed-maturity borrowings are set at the time of the borrowings. (b) Federal Home Loan Bank advances less than one year are overnight and reflect current market rates or reprice monthly based on a one-month LIBOR as set by the Federal Home Loan Bank of Seattle. Other borrowings are primarily variable rate and reprice based on changes in the prime rate which reflect current market. Return on Equity and Assets
1994 1993 1992 ------ ------ ------ Return on average assets 1.17% 1.25% 1.24% Return on average common shareholders' equity 18.82% 20.33% 19.64% Common dividend payout ratio 27.06% 21.81% 20.31% Average equity to average assets ratio 6.22% 6.17% 6.31%
38 41 Capital Resources IAt year end, there were two measures of capital adequacy in use for commercial banks and bank holding companies, as follows: 1. Risk-based Capital Risk-based capital guidelines require varying amounts of capital to be maintained against different categories of assets, depending on the general level of risk inherent in the assets. A capital allocation is also required for off-balance sheet exposures such as letters of credit, loan commitment, and interest rate contracts. The Company's total risk-based capital ratio was 14.96% at December 31, 1994 and 14.12% at December 31, 1993. The minimum regulatory requirement is an 8% total risk-based capital ratio of which 4% must be comprised of core capital. The minimum risk-based capital ratio for a bank to be considered "well-capitalized" under the regulatory definitions is 10%. 2. Tier I Leverage Under the risk-based capital guidelines, a bank holding company could, in theory, significantly leverage its capital by investing in assets with little or no credit risk. The guidelines place a limit on such leverage through the establishment of a minimum level of tangible equity as a percentage of average total assets. The Company's Tier I leverage ratio was 6.24% at December 31, 1994 and 5.44% at December 31, 1993, compared to the minimum regulatory requirement of 3%. The following table presents the regulatory risk-based capital at December 31 for the years indicated: Regulatory Risk-Based Capital at December 31
(Thousands of dollars) 1994 1993 1992 ---------- ---------- ---------- Under Guidelines Effective 1992 and Subsequent - ---------------------------------------------- Capital components: Common shareholders' equity $ 345,919 $ 300,175 $ 258,066 Add: Minority interest in subsidiary 500 500 - Deduct: Goodwill (18,732) (11,920) (12,321) Nonqualifying amount of purchased mortgage servicing - (280) - ---------- ---------- ---------- Tier I capital: Core capital 327,687 288,475 245,745 ---------- ---------- ---------- Allowance for loan losses* 35,085 33,657 30,402 Qualifying unsecured long-term debt** 52,400 53,200 87,450 ---------- ---------- ---------- Tier II capital: Supplementary capital 87,485 86,857 117,852 ---------- ---------- ---------- Total risk-based capital $ 415,172 $ 375,332 $ 363,597 ========== ========== ========== Risk-weighted assets: Balance sheet $2,629,427 $2,558,260 $2,273,763 Off-balance sheet 177,347 134,315 158,419 ---------- ---------- ---------- Gross risk-weighted assets 2,806,774 2,692,575 2,432,182 Deduct: Excess allowance for loan losses (31,933) (34,804) (29,405) ---------- ---------- ---------- Total adjusted risk-weighted assets $2,774,841 $2,657,771 $2,402,777 ========== ========== ========== Capital ratios: Tier I capital: Core capital 11.81% 10.85% 10.23% Tier II capital: Supplementary capital 3.15% 3.27% 4.90% ---------- ---------- ---------- Total risk-based capital 14.96% 14.12% 15.13% ========== ========== ==========
* Limited to 1.25% of risk-weighted assets. ** Limited to 50% of core capital and reduced by 20% per year during an instrument's last five years before maturity. 39 42 Dividends The Company's quarterly dividend rate was $.30 per share for the third and fourth quarters of 1994, $.28 per share for the first and second quarters of 1994 and the third and fourth quarters of 1993, $.21 for the first and second quarters of 1993 and the fourth quarter of 1992, and $.18 per share for all other quarterly periods during 1992. The annual dividend rate was $1.16 for 1994, $.98 for 1993, and $.75 for 1992. During the years 1990 through 1994 there was no preferred stock outstanding. The following table sets forth dividends paid by the Company of each year indicated: Dividends Paid
(Thousands of dollars) 1994 1993 1992 1991 1990 ------ ------ ------ ------ ------ Net income $63,827 $58,205 $47,209 $30,449 $27,765 Common dividends paid 17,271 12,692 9,587 9,102 8,939 Payout/net income 27.1% 21.8% 20.3% 29.9% 32.2%
Foreign Operations Zions First National Bank opened a foreign office located in Grand Cayman, Grand Cayman Islands, B.W.I. in 1980. This office has no foreign loans outstanding. The office accepts Eurodollar deposits from qualified customers of the Bank and places deposits with foreign banks and foreign branches of other U.S. banks. Foreign deposits at December 31 totaled $134,132,000 in 1994, $68,563,000 in 1993, and $52,777,000 in 1992; and averaged $108,383,000 for 1994, $55,823,000 for 1993, and $86,479,000 for 1992. 40 43 ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Independent Auditors' Report The Board of Directors and Shareholders Zions Bancorporation: We have audited the accompanying consolidated balance sheets of Zions Bancorporation and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income, retained earnings, and cash flows for each of the years in the three-year period ended December 31, 1994. 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 Zions Bancorporation and subsidiaries as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1994, in conformity with generally accepted accounting principles. As discussed in notes 1 and 12 to the consolidated financial statements, the Company changed its method of accounting for postretirement benefits other than pensions in 1993 to adopt the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards (Statement) No. 106, Employers' Accounting for Postretirement Benefits Other than Pensions. As discussed in notes 1 and 6, the Company also changed its method of accounting for income taxes in 1993 to adopt the provisions of Statement No. 109, Accounting for Income Taxes. As discussed in notes 1 and 3, the Company also changed its method of accounting for investments to adopt the provisions of Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities on December 31, 1993. KPMG Peat Marwick LLP Salt Lake City, Utah January 24, 1995 41 44 ZIONS BANCORPORATION AND SUBSIDIARIES Consolidated Balance Sheets December 31, 1994 and 1993 (In thousands, except share amounts)
ASSETS 1994 1993 ---------- --------- Cash and due from banks $ 316,943 338,970 Money market investments: Interest-bearing deposits 19,704 24,967 Federal funds sold and security resell agreements 383,742 572,713 Investment securities: Held-to-maturity, at cost (approximate market value $1,018,798 and $830,087) 1,030,907 813,260 Available-for-sale, at market 315,578 347,346 Trading account 316,948 98,333 Loans: Loans held for sale at cost, which approximates market 108,649 238,206 Loans, leases, and other receivables 2,307,403 2,269,970 ---------- --------- 2,416,052 2,508,176 Less: Unearned income and fees, net of related costs 24,774 21,830 Allowance for loan losses 67,018 68,461 ---------- --------- 2,324,260 2,417,885 Premises and equipment 74,673 72,049 Amounts paid in excess of net assets of acquired businesses 18,732 11,920 Other real estate owned 1,562 3,267 Other assets 131,046 100,344 ---------- --------- $4,934,095 4,801,054 ========== ========= LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Noninterest-bearing $ 885,833 879,908 Interest-bearing: Savings and money market 2,048,715 1,867,483 Time: Under $100,000 513,841 535,456 Over $100,000 123,455 80,879 Foreign 134,132 68,563 ---------- --------- 3,705,976 3,432,289 Securities sold, not yet purchased 81,437 46,640 Federal funds purchased and security repurchase agreements 524,538 595,200 Accrued liabilities 70,873 66,497 Federal Home Loan Bank advances and other borrowings: Less than one year 25,748 136,140 Over one year 101,571 152,109 Long-term debt 58,182 59,587 ---------- --------- Total liabilities 4,568,325 4,488,462 ---------- --------- Shareholders' equity: Capital stock: Preferred stock, without par value; authorized 3,000,000 shares; issued and outstanding, none - - Common stock, without par value; authorized 30,000,000 shares; issued and outstanding, 14,559,552 shares and 14,201,367 shares 79,193 66,257 Net unrealized holding gains and losses on securities available-for-sale (note 3) (5,866) 415 Retained earnings 292,443 245,920 ---------- --------- Total shareholders' equity 365,770 312,592 ---------- --------- Commitments and contingent liabilities (notes 7, 8, 9, 10, 12, and 14) $4,934,095 4,801,054 ========== =========
See accompanying notes to consolidated financial statements. 42 45 ZIONS BANCORPORATION AND SUBSIDIARIES Consolidated Statements of Income Years ended December 31, 1994, 1993, and 1992 (In thousands, except per share amounts)
1994 1993 1992 -------- ------- ------- Interest income: Interest and fees on loans $208,414 172,920 170,793 Interest on loans held for sale 12,303 11,273 13,804 Interest on money market investments 35,045 27,427 21,669 Interest on securities: Held-to-maturity: Taxable 41,269 56,347 48,854 Nontaxable 10,982 8,455 7,591 Available-for-sale 19,916 - - Trading account 16,516 7,555 5,537 Lease financing 9,544 9,639 9,977 -------- ------- ------- Total interest income 353,989 293,616 278,225 -------- ------- ------- Interest expense: Interest on savings and money market deposits 62,200 50,331 52,101 Interest on time deposits 28,758 27,995 41,609 Interest on borrowed funds 64,425 40,633 27,233 -------- ------- ------- Total interest expense 155,383 118,959 120,943 -------- ------- ------- Net interest income 198,606 174,657 157,282 Provision for loan losses 2,181 2,993 10,929 -------- ------- ------- Net interest income after provision for loan losses 196,425 171,664 146,353 -------- ------- ------- Noninterest income: Service charges on deposit accounts 24,058 22,875 19,484 Other service charges, commissions, and fees 22,008 21,392 18,871 Trust income 4,334 4,622 4,614 Investment securities gains (losses), net (299) (17) 327 Trading account income 860 2,350 4,437 Loan sales and servicing income 14,596 21,471 6,573 Other 7,645 7,187 8,543 -------- ------- ------- 73,202 79,880 62,849 -------- ------- ------- Noninterest expenses: Salaries and employee benefits 93,331 85,549 70,242 Occupancy, net 8,397 8,168 7,248 Furniture and equipment 12,526 9,294 7,681 Other real estate expense (88) 450 2,559 Legal and professional services 5,142 5,136 3,616 Supplies 4,819 4,537 3,860 Postage 4,723 4,334 3,611 FDIC premiums 7,547 7,257 6,235 Amortization of intangible assets 3,692 4,432 4,530 Loss on early extinguishment of debt - 6,022 - Other 34,811 32,571 29,487 -------- ------- ------- 174,900 167,750 139,069 -------- ------- ------- Income before income taxes and cumulative effect of changes in accounting principles 94,727 83,794 70,133 Income taxes 30,900 27,248 22,924 -------- ------- ------- Income before cumulative effect of changes in accounting principles 63,827 56,546 47,209 Cumulative effect of changes in accounting principles - 1,659 - Interest income: -------- ------- ------- Net income $ 63,827 58,205 47,209 ======== ======= ======= Weighted average common and common-equivalent shares outstanding during the year 14,601 14,280 13,790 ======== ======= ======= Earnings per common share: Income before cumulative effect of changes in accounting principles $ 4.37 3.96 3.42 Cumulative effect of changes in accounting principles - .12 - -------- ------- ------- Net income per common share $ 4.37 4.08 3.42 ======== ======= =======
See accompanying notes to consolidated financial statements. 43 46 ZIONS BANCORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended December 31, 1994, 1993, and 1992 (In thousands)
1994 1993 1992 ------------- ----------- ---------- Cash flows from operating activities: Net income $ 63,827 58,205 47,209 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Provision for loan losses 2,181 2,993 10,929 Write-downs of other real estate owned 179 704 1,723 Depreciation of premises and equipment 9,186 7,605 6,140 Amortization of premium on core deposits and other intangibles 3,692 4,432 4,530 Amortization of net premium/discount on investment securities 4,817 6,089 6,241 Accretion of unearned income and fees, net of related costs 2,770 (2,950) (4,056) Proceeds from sales of trading account securities 160,090,330 36,468,421 3,112,879 Increase in trading account securities (160,308,945) (36,383,168) (3,115,492) Net loss (gain) on sales of investment securities 299 17 (327) Proceeds from loans held for sale 774,185 1,094,031 879,977 Increase in loans held for sale (663,379) (1,088,996) (953,930) Net gain on sales of loans, leases, and other assets (8,968) (16,810) (3,998) Net loss (gain) on sales of other real estate owned (328) (182) 278 Change in accrued income taxes 1,628 1,870 6,369 Change in accrued interest receivable (8,669) 2,794 4,855 Change in accrued interest payable 1,368 (1,428) (5,335) Change in other assets (16,790) (20,738) (4,538) Change in accrued liabilities 19 (4,074) (13,529) ------------- ----------- ---------- Net cash provided by (used in) operating activities (52,598) 128,815 (20,075) ------------- ----------- ---------- Cash flows from investing activities: Net decrease in money market investments 196,086 567,251 98,058 Proceeds from sales of investment securities 137,128 74,587 33,446 Proceeds from maturities of investment securities 350,223 258,463 235,368 Purchases of investment securities (646,849) (554,632) (403,271) Proceeds from sales of loans and leases 703,013 612,552 163,709 Net increase in loans and leases (671,665) (927,359) (228,830) Principal collections on leveraged leases 111 1,375 1,215 Proceeds from sales of premises and equipment 691 169 88 Purchases of premises and equipment (12,389) (15,356) (18,569) Proceeds from sales of other real estate owned 5,608 3,542 8,476 Proceeds from sales of mortgage servicing rights 2,864 608 1,435 Purchases of mortgage servicing rights (590) (1,731) (1,374) Proceeds from sales of other assets 830 1,486 877 Cash paid for acquisition, net of cash received 9,851 (59,833) - ------------- ----------- ---------- Net cash provided by (used in) investing activities 74,912 (38,878) (109,372) ------------- ----------- ---------- Cash flows from financing activities: Net increase in deposits 177,916 296,144 197,250 Net change in short-term funds borrowed (153,285) (419,992) (16,781) Proceeds from FHLB advances over one year 15,340 204,567 1,745 Payments on FHLB advances over one year (65,878) (104,147) (56) Payments on leveraged leases (42) - - Proceeds from issuance of long-term debt 332 4,000 50,000 Payments on long-term debt (1,737) (43,659) (32,585) Proceeds from issuance of common stock 317 893 1,695 Dividends paid (17,304) (12,705) (9,587) ------------- ----------- ---------- Net cash provided by (used in) financing activities (44,341) (74,899) 191,681 ------------- ----------- ---------- Net increase (decrease) in cash and due from banks (22,027) 15,038 62,234 Cash and due from banks at beginning of year 338,970 323,932 261,698 ------------- ----------- ---------- Cash and due from banks at end of year $ 316,943 338,970 323,932 ============= =========== ==========
See accompanying notes to consolidated financial statements. 44 47 ZIONS BANCORPORATION AND SUBSIDIARIES Consolidated Statements of Retained Earnings Years ended December 31, 1994, 1993, and 1992 (In thousands)
1994 1993 1992 -------- ------- ------- Balance at beginning of year $245,920 197,992 160,370 Retained earnings of acquired company - 2,428 - Net income 63,827 58,205 47,209 Cash dividends: Preferred, paid by subsidiary to minority shareholder (33) (13) - Common, per share of $1.16 in 1994, $.98 in 1993, and $.75 in 1992 (16,786) (12,207) (9,183) Dividends of NBA prior to merger (485) (485) (404) -------- ------- ------- Balance at end of year $292,443 245,920 197,992 ======== ======= =======
See accompanying notes to consolidated financial statements. 45 48 ZIONS BANCORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 1994, 1993, and 1992 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business - Zions Bancorporation (the Parent) is a multibank holding company organized under the laws of Utah in 1955, which provides a full range of banking and related services through its subsidiaries located primarily in Utah, Nevada, and Arizona. Basis of Financial Statement Presentation - The consolidated financial statements include the accounts of Zions Bancorporation and its subsidiaries (the Company). All significant intercompany accounts and transactions have been eliminated in consolidation. Certain amounts in prior years' consolidated financial statements have been reclassified to conform to the 1994 presentation. The consolidated financial statements have been prepared in conformity with generally accepted accounting principles. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ from those estimates. Investment Securities - The Company adopted the provisions of Statement of Financial Accounting Standards (Statement) No. 115, Accounting for Certain Investments in Debt and Equity Securities on December 31, 1993. Under Statement No. 115, the Company classifies its investment securities in one of three categories: trading, available-for-sale, or held-to-maturity. Trading securities are bought and held principally for the purpose of selling them in the near term. Held-to-maturity securities are those securities which the Company has the ability and intent to hold until maturity. All other securities not included in trading or held-to-maturity are classified as available-for-sale. Trading securities (including futures and options used to hedge trading positions against interest rate risk) and available-for-sale securities are recorded at fair value. Held-to-maturity securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums or discounts. Unrealized holding gains and losses on trading securities are included in earnings. Unrealized holding gains and losses, net of related tax effect, on available-for-sale securities are excluded from earnings and are reported as a separate component of shareholders' equity until realized. Transfers of securities between categories are recorded at fair value at the date of transfer. Unrealized holding gains and losses are recognized in earnings for transfers into trading securities. Unrealized holding gains or losses associated with transfers of securities from held-to-maturity to available-for-sale are recorded as a separate component of shareholders' equity. The unrealized holding gains or losses included in the separate component of equity for securities transferred from available-for-sale to held-for-maturity are maintained and amortized into earnings over the remaining life of the security as an adjustment to yield in a manner consistent with the amortization or accretion of premium or discount on the associated security. A decline in the market value of any available-for-sale or held-to-maturity security below cost that is deemed other than temporary is charged to earnings resulting in the establishment of a new cost basis for the security. Premiums and discounts are amortized or accreted over the life of the related held-to-maturity security as an adjustment to yield using the effective-interest method. Dividend and interest income are recognized when earned. Realized gains and losses for securities classified as available-for-sale and held-to-maturity are included in earnings and are derived using the specific-identification method of determining the cost of securities sold. Loan Fees - Nonrefundable fees and related direct costs associated with the origination of loans are deferred. The net deferred fees and costs are recognized in interest income over the loan term using methods that generally produce a level yield on the unpaid loan balance. Other nonrefundable fees related to lending activities other than direct loan origination are recognized as other operating income over the period the related service is provided. Bankcard discounts and fees charged to merchants for processing transactions through the Company are shown net of interchange discounts and fees expense, and are included in other service charges, commissions, and fees. Mortgage Loan Servicing - Mortgage loan servicing fees are based on a stipulated percentage of the outstanding loan principal balances being serviced and are included in income as related loan payments from mortgagors are collected. Costs associated with the acquisition of loan servicing rights through the purchase of servicing contracts or bulk loan purchases are deferred and amortized over the lives of loans being serviced in proportion to the estimated net loan servicing income. 46 49 ZIONS BANCORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Allowance for Loan Losses - The allowance for loan losses is based on management's periodic evaluation of the loan portfolio and reflects an amount that, in management's opinion, is adequate to absorb losses in the existing portfolio. In evaluating the portfolio, management takes into consideration numerous factors, including current economic conditions, prior loan loss experience, the composition of the loan portfolio, and management's estimate of anticipated credit losses. Management believes that the allowance for loan losses is adequate. While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance based on their judgments using information available to them at the time of their examination. Premises and Equipment - Premises and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation, computed on the straight-line method, is charged to operations over the estimated useful lives of the properties. Leasehold improvements are amortized over the terms of respective leases or the estimated useful lives of the improvements, whichever is shorter. As of December 31, 1994 and 1993, accumulated depreciation and amortization totaled $70,520,000 and $61,932,000, respectively. Nonperforming Assets - Nonperforming assets are comprised of loans for which the accrual of interest has been discontinued, loans for which the terms have been renegotiated to less than market rates due to a weakening of the borrower's financial condition (restructured loans), and other real estate acquired primarily through foreclosure that is awaiting disposition. Loans are generally placed on a nonaccrual status when principal or interest is past due 90 days or more unless the loan is both well secured and in the process of collection, or when in the opinion of management, full collection of principal or interest is unlikely. Generally, consumer loans are not placed on a nonaccrual status inasmuch as they are generally charged off when they become 120 days past due. Other real estate owned is carried at the lower of cost or net realizable value. Real estate may be considered to be in substance foreclosed and included herein when specific criteria are met. When property is acquired through foreclosure, or substantially foreclosed, any excess of the related loan balance over net realizable value is charged to the allowance for loan losses. Subsequent write downs or losses upon sale, if any, are charged to other real estate expense. Amounts Paid in Excess of Net Assets of Acquired Businesses (Goodwill) - The Company assesses the recoverability of this intangible asset by determining whether the amortization of the goodwill balance over its remaining life can be recovered through undiscounted future operating cash flows of the acquired operation. The amount of goodwill impairment, if any, is measured based on projected discounted future operating cash flows using a discount rate reflecting the Company's average cost of funds. Off-Balance Sheet Financial Instruments - In the ordinary course of business, the Company has entered into off-balance sheet financial instruments consisting of commitments to extend credit, commercial letters of credit, and standby letters of credit. Such financial instruments are recorded in the consolidated financial statements when they become payable. The credit risk associated with these commitments is considered in management's determination of the allowance for loan losses. Interest Rate Exchange Contracts and Cap and Floor Agreements - The Company enters into interest rate exchange contracts (swaps) and cap and floor agreements in the management of interest rate risk. The objective of these financial instruments is to match estimated repricing periods of interest-sensitive assets and liabilities in order to reduce interest rate exposure. These instruments are used only to hedge asset and liability portfolios and are not used for speculative purposes. Therefore, these instruments are not marked to market. Fees associated with these financial instruments are accreted into interest income or amortized to interest expense on a straight-line basis over the lives of the contracts and agreements. Gains or losses on early termination of a swap are amortized on the remaining term of the contract when the underlying assets or liabilities still exist. Otherwise, such gains or losses are fully expensed or recorded as income at the termination of the contract. The net interest received or paid on these contracts is reflected on a current basis in the interest expense or income related to the hedged obligation or asset. Statements of Cash Flows - For purposes of the statements of cash flows, the Company considers due from banks to be cash equivalents. 47 50 ZIONS BANCORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements The Company paid interest of $156.1 million, $120.8 million, and $125.5 million, respectively, and income taxes of $27.9 million, $26.3 million, and $16.9 million, respectively, for the years ended December 31, 1994, 1993, and 1992. Loans transferred to other real estate owned totaled $3.3 million, $1.2 million, and $4.9 million, respectively, for the years ended December 31, 1994, 1993, and 1992. Income Taxes - Effective January 1, 1993, the Company adopted the provisions of Statement No. 109, Accounting for Income Taxes, and has reported the cumulative effect of that change in the method of accounting for income taxes in the 1993 consolidated statement of income. Under the asset and liability method of Statement No. 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under Statement No. 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Pension and Other Postretirement Plans - The Company has a defined benefit pension plan covering substantially all of its employees. The benefits are based on years of service and employees' compensation levels. The cost of this program is being funded currently. The Company has other trustee retirement plans covering all qualified employees who have at least one year of service (see note 12). The Company sponsors a defined benefit health care plan for substantially all retirees and employees. Effective January 1, 1993, the Company adopted Statement No. 106, Employers' Accounting for Postretirement Benefits Other than Pensions, which establishes a new accounting principle for the cost of retiree health care and other postretirement benefits (see note 12). Prior to 1993, the Company recognized these benefits on the pay-as-you-go method (i.e., cash basis). The cumulative effect of the change in method of accounting for postretirement benefits other than pensions is reported in the 1993 consolidated statement of income. Trust Assets - Assets held by the Company in a fiduciary or agency capacity for customers are not included in the consolidated financial statements as such items are not assets of the Company. Stock Options - Proceeds from the sale of stock issued under options are credited to common stock. The Company makes no charges against earnings with respect to stock options issued under its qualified stock option plan. The Company charges income for the difference between the option price and market value on the date of grant with respect to stock options issued under its nonqualified stock option plan. Net Income Per Common Share - Net income per common share is based on the weighted average outstanding common shares during each year, including common stock equivalents, if applicable. Stock Split - On December 18, 1992, the Company's Board of Directors approved a two-for-one split of the common stock. This action was effective on January 26, 1993 for shareholders of record as of January 5, 1993. A total of 6,139,227 shares of common stock were issued and recorded in the form of a stock dividend. All references to the number of common shares and per common share amounts have been restated to reflect the split. Accounting Standard Not Adopted - In May 1993, the Financial Accounting Standards Board issued Statement No. 114, Accounting by Creditors for Impairment of a Loan. Statement No. 114 requires that impaired loans be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. Statement No. 114 is effective for fiscal years beginning after December 15, 1994. Management does not expect Statement No. 114 to have a significant impact on the Company's financial position or results of operations. 48 51 ZIONS BANCORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements 2. MERGERS AND ACQUISITIONS On January 14, 1994, the Company and National Bancorp of Arizona Inc. (NBA) consummated their agreement and plan of reorganization whereby the Company issued 1,456,408 shares of its common stock for 100 percent of the outstanding common stock of NBA. The consolidated financial statements of the Company give effect to the merger, which has been accounted for as a pooling of interests. Accordingly, the accounts of NBA have been combined with those of the Company for all periods presented. Separate results of operations of the combining entities for 1993 and 1992 are as follows (in thousands):
1993 ------------------------------- Historical -------------------- Company NBA Combined -------- ------ -------- Net interest income $156,817 17,840 174,657 Net income 53,039 5,166 58,205 Net income per common share 4.15 1.57 4.08 1992 ------------------------------- Historical -------------------- Company NBA Combined -------- ------ -------- Net interest income $144,032 13,250 157,282 Net income 43,402 3,807 47,209 Net income per common share 3.52 1.17 3.42
Also during 1994, the Company acquired Rio Salado Bancorp (Rio) for 328,000 shares of common stock. This acquisition was not material to the Company's consolidated financial position and was accounted for as a purchase. The difference between the purchase price and the net book value of Rio of $7.6 million is included in goodwill. On August 11, 1993, the Company acquired all of the capital stock of Discount Corporation of New York (Discount) for approximately $65.7 million in cash. The acquisition has been accounted for as a purchase. The difference between the purchase price and the net book value of Discount of $9.4 million ($8 million as of December 31, 1994) is included in deferred tax assets (grouped with other assets) in the accompanying consolidated balance sheets. On October 29, 1993, Wasatch Bancorp (Wasatch) was merged into the Company. The Company issued 373,335 shares of its common stock for 100 percent of the outstanding common stock of Wasatch. The acquisition has been accounted for as a pooling of interests. The consolidated financial statements of the Company for 1993 and 1992 have not been restated inasmuch as the historical operations of Wasatch are not significant to the Company. Also, during 1993, the Company acquired a 25 percent interest in Bennington Capital Management, Inc., a Seattle-based investment advisor which manages the AccessorTM family of mutual funds. This acquisition is accounted for on the equity method. 3. INVESTMENT SECURITIES Investment securities as of December 31, 1994, are summarized as follows (in thousands):
Held-to-maturity ------------------------------------------ Gross Gross Esti- unreal- unreal- mated Amort- ized ized market ized cost gains losses value --------- ------ ------- ------- U.S. government agencies and corporations: Small Business Administration loan-backed securities $ 460,163 2,479 3,329 459,313 Other agency securities 271,440 73 9,369 262,144 States and political subdivisions 243,225 1,763 2,234 242,754 ---------- ----- ------ --------- 974,828 4,315 14,932 964,211 Mortgage-backed securities 56,079 22 1,514 54,587 ---------- ----- ------ --------- $1,030,907 4,337 16,446 1,018,798 ========== ===== ====== ========= 49
52 ZIONS BANCORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements
Available-for-sale -------------------------------------- Gross Gross Esti- unreal- unreal- mated Amort- ized ized market ized cost gains losses value --------- ------- ------ ------- U.S. Treasury securities $48,269 51 1,143 47,177 U.S. government agencies 33,304 - - 33,304 --------- ------- ------ ------- 81,573 51 1,143 80,481 Mortgage-backed securities 55,560 9 1,235 54,334 Equity securities: Mutual funds: Accessor Funds, Inc. 118,803 - 7,274 111,529 Other 534 - - 534 Federal Home Loan Bank stock 65,861 - - 65,861 Other stock 2,785 76 22 2,839 --------- ------- ------ ------- $325,116 136 9,674 315,578 ========= ======= ====== =======
The Company adopted Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities on December 31, 1993. The Company recognized a net unrealized holding loss on securities available-for-sale of $5,866,000, after related tax effect, at December 31, 1994 and an unrealized holding gain on securities available-for-sale of $415,000, after related tax effect, at December 31, 1993. Investment securities as of December 31, 1993, are summarized as follows (in thousands):
Held-to-maturity --------------------------------------- Gross Gross Esti- unreal- unreal- mated Amort- ized ized market ized cost gains losses value ---------- ------- ------ -------- U.S. government agencies and corporations: Small Business Administration loan-backed securities $ 399,603 12,640 397 411,846 Other agency securities 157,098 709 263 157,544 States and political subdivisions 196,241 2,660 237 198,664 --------- ------- ------ -------- 752,942 16,009 897 768,054 Mortgage-backed securities 60,318 1,715 - 62,033 --------- ------- ------ -------- $ 813,260 17,724 897 830,087 ========= ======= ====== ======== Available-for-sale ---------------------------------------- Gross Gross Esti- Amort- unreal- unreal- mated ized ized ized market cost gains losses value --------- ------- ------ ------- U.S. Treasury securities $ 70,263 314 65 70,512 U.S. government agencies 61,107 25 55 61,077 --------- ------- ------ ------- 131,370 339 120 131,589 Mortgage-backed securities 49,493 53 183 49,363 Equity securities: Mutual funds: Accessor Funds, Inc. 90,736 509 - 91,245 Other 515 - - 515 Federal Home Loan Bank stock 72,376 - - 72,376 Other stock 2,194 90 26 2,258 --------- ------- ------ ------- $ 346,684 991 329 347,346 ========= ======= ====== =======
50 53 ZIONS BANCORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements The amortized cost and estimated market value of investment securities as of December 31, 1994, by contractual maturity, excluding mortgage-backed and equity securities, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or repay obligations with or without call or prepayment penalties (in thousands):
Held-to-maturity --------------------- Amort- Estimated ized market cost value ---------- -------- Due in one year or less $ 98,563 98,405 Due after one year through five years 504,733 495,716 Due after five years through ten years 201,487 200,340 Due after ten years 170,045 169,750 ---------- -------- $ 974,828 964,211 ========== ======== Available-for-sale -------------------- Amort- Estimated ized market cost value --------- --------- Due in one year or less $ 66,160 65,677 Due after one year through five years 15,188 14,579 Due after five years through ten years - - Due after ten years 225 225 --------- --------- $ 81,573 80,481 ========= =========
Gross gains of $367,000, $104,000, and $468,000 and gross losses of $666,000, $121,000, and $141,000 were realized on sales of investment securities for the years ended December 31, 1994, 1993, and 1992, respectively. Such amounts include gains of $102,000, $10,000, and $105,000, and losses of $66,000, $32,000, and $17,000, respectively, for sales of mortgage-backed securities. As of December 31, 1994 and 1993, securities with an amortized cost of $210,149,000 and $110,262,000, respectively, were pledged to secure public and trust deposits, advances, and for other purposes as required by law. In addition, the Federal Home Loan Bank stock is pledged as security on the related advances (note 7). 4. LOANS AND ALLOWANCE FOR LOAN LOSSES Loans are summarized as follows (in thousands):
1994 1993 ---------- --------- Loans held for sale $ 108,649 238,206 Commercial, financial, and agricultural 495,647 511,982 Real estate: Construction 218,244 213,114 Other 1,062,423 1,022,888 Consumer 391,033 378,679 Lease financing 129,547 130,450 Other receivables 10,509 12,857 ---------- --------- $2,416,052 2,508,176 ========== =========
As of December 31, 1994 and 1993, loans with a carrying value of $121,886,000 and $302,530,000, respectively, were pledged as security for Federal Home Loan Bank advances (note 7). During 1994, 1993, and 1992, the Company purchased mortgage servicing rights totaling $590 thousand, $1.7 million, and $1.4 million, respectively. Amortization of purchased mortgage servicing rights totaled $1.7 million, $2.6 million, and $2.6 million for the years ended December 31, 1994, 1993, and 1992, respectively. 51 54 ZIONS BANCORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements During 1994, 1993, and 1992, consumer and other loan securitizations totaled $703 million, $609 million, and $159 million, respectively. Loan sales income related thereto is recognized on the basis of cash flows received from the securitized assets. Loan sales income, excluding servicing, amounted to $11.7 million in 1994, $14.7 million in 1993, and $1.7 million in 1992. The allowance for loan losses is summarized as follows (in thousands):
1994 1993 1992 ------- ------ ------- Balance at beginning of year $68,461 59,807 58,238 Allowance for loan losses of companies acquired 1,308 546 - Additions: Provision for loan losses 2,181 2,993 10,929 Recoveries 6,729 13,919 9,571 Deduction, loan charge-offs (11,661) (8,804) (18,931) ------- ------ ------- Balance at end of year $67,018 68,461 59,807 ======= ====== =======
Included in the allowance for loan losses is an allocation for unused commitments and letters of credit (note 9) that as of December 31, 1994 and 1993, amounted to $3,674,000 and $1,972,000, respectively. Nonperforming loans, leases, and related interest foregone are summarized as follows (in thousands):
1994 1993 1992 ------- ------ ------ Nonaccrual loans and leases $13,635 23,364 21,556 Restructured loans and leases 567 4,006 4,003 ------- ------ ------ Total $14,202 27,370 25,559 Contractual interest due ======= ====== ====== $ 1,766 3,051 2,384 Interest recognized 416 820 1,040 Net interest foregone ------- ------ ------ $ 1,350 2,231 1,344 ======= ====== ======
5. DEPOSITS Deposits are summarized as follows (in thousands):
1994 1993 ---------- --------- Noninterest-bearing $ 885,833 879,908 Interest-bearing: Savings 756,196 711,806 Money market 1,292,519 1,155,677 Time under $100,000 513,841 535,456 Time over $100,000 123,455 80,879 Foreign 134,132 68,563 ---------- --------- $3,705,976 3,432,289 ========== =========
Interest expense on deposits is summarized as follows (in thousands):
1994 1993 1992 ------- ------ ------ Savings and money market deposits: Savings $22,262 19,222 17,396 Money market $39,938 31,109 34,705 ------- ------ ------ $62,200 50,331 52,101 Time deposits: ======= ====== ====== Under $100,000 $20,469 23,501 33,555 Over $100,000 $ 3,845 3,010 4,419 Foreign $ 4,444 1,484 3,635 ------- ------ ------ $28,758 27,995 41,609 ======= ====== ======
52 55 ZIONS BANCORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements 6. INCOME TAXES The Company adopted Statement No. 109, Accounting for Income Taxes, as of January 1, 1993. The cumulative effect of this adoption was an increase in net income of $7,419,000, as reported in 1993. Income taxes are summarized as follows (in thousands):
1994 1993 1992 -------- ------ ------ Federal: Current $ 23,448 25,144 19,992 Deferred (benefit) 3,486 (1,832) (431) State 3,966 3,936 3,363 -------- ------ ------ $ 30,900 27,248 22,924 ======== ====== ======
A reconciliation between income tax expense computed using the statutory federal income tax rate (35 percent in 1994 and 1993, and 34 percent in 1992), and actual income tax expense is as follows (in thousands):
1994 1993 1992 -------- ------ ------ Income tax expense at statutory federal rate $ 33,154 29,328 23,840 State income tax, net 2,578 2,414 2,214 Nondeductible expenses 882 174 621 Nontaxable interest (3,900) (2,741) (2,606) Tax credits (885) (586) - Deferred tax assets realized (972) (1,137) (1,148) Other items 43 (204) 3 -------- ------ ------ Income tax expense $ 30,900 27,248 22,924 ======== ====== ======
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of December 31, 1994 and 1993, are presented below (in thousands):
1994 1993 ------- ------- Gross deferred tax assets: Book loan loss deduction in excess of tax $25,741 25,103 Postretirement benefits 2,377 2,399 Deferred compensation 3,619 1,626 Deferred loan sales 1,424 - Present value of interest rate exchange contract 226 1,103 Capital leases 700 842 Net capital loss carryforwards - 972 Acquired net operating losses 7,977 9,367 Other 2,769 3,617 ------ ------ 44,833 45,029 Less valuation allowance - 972 ------ ------ Total deferred tax assets 44,833 44,057 Gross deferred tax liabilities: ------ ------ Premises and equipment, due to differences in depreciation (4,647) (4,033) FHLB stock dividends (8,713) (8,372) Leasing operations (10,614) (12,158) Other (1,957) (134) ------- ------- Total deferred tax liabilities (25,931) (24,697) ------- ------- Statement No. 115 market equity adjustment 3,672 (247) ------- ------- Net deferred tax assets $22,574 19,113 ======= =======
53 56 ZIONS BANCORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized. As of January 1, 1993, the Company established a valuation allowance for the net capital loss carryforwards as a result of some uncertainty of realizing offsetting capital gains. Subsequently, the Company realized capital gains sufficient to reduce the valuation allowance by $972,000 in 1994 and $1,137,000 in 1993. The Company has net operating loss carryforwards totaling $27,535,000 that expire in the years 2006 and 2007. 7. FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS Federal Home Loan Bank advances and other borrowings as of December 31, 1994 and 1993, include $101,571,000 and $252,109,000, respectively, borrowed by Zions First National Bank, a wholly owned subsidiary, (the Bank) under its line of credit with the Federal Home Loan Bank of Seattle. The line of credit provides for borrowing of amounts up to ten percent of total assets. The line of credit is secured under a blanket pledge whereby the Bank maintains unencumbered security with par value, which has been adjusted using a pledge requirement percentage based upon the types of securities pledged, equal to at least 100 percent of outstanding advances, and, Federal Home Loan Bank stock. There are no withdrawal and usage restrictions or compensating balance requirements. Substantially all Federal Home Loan Bank advances reprice with changes in market interest rates or have short terms to maturity. The carrying value of such indebtedness is deemed to approximate market value (note 15). Maturities of outstanding advances in excess of one year are as follows (in thousands):
Amount ------- 1995 $ 16,373 1996 16,323 1997 16,255 1998 16,258 1999 16,262 Thereafter 20,100 -------- $101,571 ========
8. LONG-TERM DEBT Long-term debt is summarized as follows (in thousands):
1994 1993 ------- ------ Subordinated notes $54,000 54,000 Industrial revenue bonds 800 1,550 Capitalized real property leases, 9-1/2% to 21%, payable in aggregate monthly installments of approximately $89,000 2,682 3,378 Mortgage notes, 7-1/2% to 11-1/8%, due in varying amounts and periods 185 265 Other notes payable 515 394 ------- ------ $58,182 59,587 ======= ======
Subordinated notes includes $50,000,000 of 8-5/8 percent notes that mature in 2002. These notes are not redeemable prior to maturity. In addition, the Company has $4,000,000 of 9 percent subordinated notes that mature in full on November 1, 1998 and may be called, at the option of the Company, on or after November 1, 1996 at par. The subordinated notes are unsecured and require semiannual interest payments. The industrial revenue bonds require mandatory sinking fund redemption in various principal amounts through 1995. The bonds bear interest at a rate of 7.50 percent. The bonds are secured by an assignment of a lease on a banking facility. 54 57 ZIONS BANCORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Maturities and sinking fund requirements on long-term debt for each of the succeeding five years are as follows (in thousands):
Consoli- Parent dated only ------- ------ 1995 $1,805 1,469 1996 1,111 715 1997 215 5 1998 4,133 4,000 1999 94 -
9. COMMITMENTS AND CONTINGENT LIABILITIES The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit, standby letters of credit, interest rate caps and floors, interest rate exchange contracts, and commitments to purchase and sell securities. Those instruments involve, to varying degrees, elements of credit, market, and interest rate risk in excess of the amount recognized in the balance sheets. The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. For interest rate caps, floors, and exchange contract transactions, the contract or notional amounts do not represent exposure to credit loss. The Company controls the credit risk of these transactions through credit approvals, limits, and monitoring procedures. Unless noted otherwise, the Company does not require collateral or other security to support financial instruments with credit risk. Notional values of financial instruments are summarized as follows:
Notional or carrying amount ---------------------- 1994 1993 ---------- -------- Financial instruments whose contract amounts represent credit risk (in thousands): Unused commitments to extend credit $1,152,351 1,027,401 Standby letters of credit written: Performance 55,951 50,598 Financial 19,621 23,582 Commercial letters of credit 3,233 4,436 Commitments to purchase securities 1,124,745 89,208 Commitments to sell securities 1,275,025 83,902
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Commitments totaling $936,671,000 expire in 1995. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the counter party. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties. 55 58 ZIONS BANCORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Standby letters of credit written are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. Standby letters of credit include commitments in the amount of $73,980,000 expiring in 1995 and $1,592,000 expiring thereafter through 2005. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company generally holds marketable securities and cash equivalents as collateral supporting those commitments for which collateral is deemed necessary. The Company enters into interest rate contracts, including interest rate caps, floors, futures, options, and interest rate exchange contract agreements in managing its interest rate exposure. Interest rate caps and floors obligate one of the parties to the contract to make payments to the other if an interest rate index exceeds a specified upper "capped" level or if the index falls below a specified "floor" level. A futures contract is an agreement to buy or sell a quantity of a financial instrument or commodity at a predetermined future date and rate or price. An option contract is an agreement that conveys to the purchaser the right, but not the obligation, to buy or sell a quantity of a financial instrument or commodity at a predetermined rate or price at a time in the future. Interest rate exchange contract agreements involve the exchange of fixed and variable rate interest payments based upon a notional amount and maturity. Interest rate caps and exchange contracts to which the Company is a party at December 31, 1994, have remaining terms of 5 to 20 years and 2 to 68 months, respectively. The fair value of interest rate contracts are obtained from deal quotes, or discounted cash flow analyses. The values represent the estimated amount the Company would receive or pay for comparable contracts, taking into account current interest rates. Notional values of interest rate contracts are summarized as follows (in thousands):
1994 1993 -------- ------- Interest rate contracts: Swaps - fixed $330,000 40,000 Futures 1,100 - Options 145,000 - Caps: Purchased 25,000 28,417 Written 785,000 261,617
The contract or notional amount of financial instruments indicates a level of activity associated with a particular class of financial instrument and is not a reflection of the actual level of risk. As of December 31, 1994 and 1993, the regulatory risk-weighted values assigned to all off-balance sheet financial instruments described herein totaled $177,347,000 and $134,315,000, respectively. See note 4 for consideration of financial instruments in management's determination of the allowance for loan losses. During 1988, a lawsuit was brought in the United States District Court, Utah District, against the Bank in connection with its performance of duties as an indenture trustee for certain investors in real estate and other syndication projects. In September 1992, a motion was granted allowing an amended complaint containing allegations that plaintiffs intend to proceed as a class action to recover approximately $23 million, prejudgment interest, attorneys' fees, and additional amounts under certain statutory provisions and common law. No motion to certify the classes has been filed, and the Bank intends to vigorously oppose such motion and to defend the entire action. Although no assurances can be given as to the outcome, the Company continues to believe that it has meritorious defenses to such lawsuit, and that there is insurance coverage for a substantial portion of the amount claimed. The Company is also the defendant in various other legal proceedings arising in the normal course of business. The Company does not believe that the outcome of any of such proceedings, including the lawsuit discussed in the preceding paragraph, will have a material adverse effect on its consolidated financial position. In connection with loans sold to (or serviced for) others, the Company is subject to recourse obligations on approximately $22.5 million as of December 31, 1994. 56 59 ZIONS BANCORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements The Company has commitments for leasing premises and equipment under the terms of noncancelable leases expiring from 1994 to 2005. Future aggregate minimum rental payments under existing noncancelable leases at December 31, 1994 are as follows (in thousands):
Real Real property property, and equip- capital- ment, ized operating --------- ------------- 1995 $ 383 4,178 1996 571 3,290 1997 278 2,741 1998 222 2,204 1999 171 1,652 Thereafter 1,164 6,367 --------- ------------- $2,789 20,432 ========= =============
Future aggregate minimum rental payments have been reduced by noncancelable subleases as follows: 1995, $689,000; 1996, $485,000; and 1997, $4,000. Aggregate rental expense on operating leases amounted to $4,841,000, $3,946,000, and $3,335,000 for the years ended December 31, 1994, 1993, and 1992, respectively. 10. STOCK OPTIONS The Company has a qualified stock option plan adopted in 1981, under which stock options are granted to key employees; and a nonqualified plan under which options are granted to certain key employees. Under the nonqualified plan, options expire five to ten years from the date of grant. Under the qualified plan, 506,000 shares of common stock were reserved. Qualified options are granted at a price not less than 100 percent of the fair market value of the stock at the date of grant. Options granted are generally exercisable in increments from one to six years after the date of grant and expire six years after the date of grant. Transactions and other information relating to stock options are summarized as follows:
Number of Option price shares per share --------- ---------------- Options granted during: 1994 104,250 $38.50 to $39.75 1993 2,000 $47.25 1992 216,000 $10.00 to $24.13 Options exercised during: 1994 45,450 $15.00 to $24.13 1993 124,491 $10.00 to $24.13 1992 116,328 $10.50 to $24.13 Options canceled during: 1994 6,418 $18.33 to $39.75 1993 2,912 $10.00 to $24.13 1992 6,000 $13.25 Options expiring during: 1994 - - 1993 22,750 $12.50 to $14.75 1992 34,724 $13.25 Options outstanding at December 31: 1994 393,821 $9.47 to $47.25 1993 341,439 $9.47 to $47.25 1992 489,592 $9.47 to $24.13 Options outstanding at December 31: 1994 393,821 $9.47 to $47.25 1993 341,439 $9.47 to $47.25 1992 489,592 $9.47 to $24.13
57 60 ZIONS BANCORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements As of December 31, 1994, there are 176,000 options exercisable at prices from $9.47 to $47.25 per share. For the year ended December 31, 1994, shares obtained through exercise of options had a cumulative average market value of $1,739,000 at the date of exercise. 11. COMMON STOCK Changes in common stock are summarized as follows (amount in thousands):
Common stock ----------------------- Shares Amount ---------- --------- Balance at December 31, 1991 13,603,812 $60,383 Stock options: Redeemed and retired (14,820) - Exercised 116,328 1,221 Employee stock ownership plan 13,242 283 Dividend reinvestments 8,982 191 ---------- ------- Balance at December 31, 1992 13,727,544 62,078 Stock options: Redeemed and retired (24,003) - Exercised 124,491 893 Acquisition 373,335 3,286 ---------- ------- Balance at December 31, 1993 14,201,367 66,257 Stock options: Redeemed and retired (15,265) - Exercised 45,450 443 Acquisition 328,000 12,493 ---------- ------- Balance at December 31, 1994 14,559,552 $79,193 ========== =======
12. RETIREMENT PLANS The Company has a noncontributory defined benefit pension plan for eligible employees. Plan benefits are based on years of service and employees' compensation levels. Benefits vest under the plan upon completion of five years of service. Plan assets consist principally of corporate equity and debt securities, government fixed income securities, and cash investments. The components of the net pension cost for the years ended December 31, 1994 and 1993, are as follows (in thousands):
1994 1993 ------ ------ Service cost - benefits earned during the period $2,385 1,763 Interest cost on projected benefit obligation 2,908 2,715 Actual return on assets (794) (2,293) Net amortization and deferrals (2,640) (922) ------ ------ Net pension cost $1,859 1,263 ====== ======
58 61 ZIONS BANCORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Primary actuarial assumptions used in determining the net pension cost are as follows:
1993 1992 --------- -------- Assumed discount rate 7.50% 8.00 Assumed rate of increase in compensation levels 5.00 5.50 Expected long-term rate of return on assets 9.50 9.50 The funded status of the plan as of December 31, 1994 and 1993, is as follows (in thousands): 1994 1993 --------- -------- Actuarial present value of benefit obligations: Vested benefit obligation $(31,092) (31,225) ========= ======== Accumulated benefit obligation $(33,972) (35,703) ========= ======== Projected benefit obligation $(38,269) (39,676) Plan assets at fair value 36,208 35,790 --------- -------- Unfunded projected benefit obligation (2,061) (3,886) Unrecognized net loss 8,391 10,830 Unrecognized prior service cost (1,290) (1,120) Unrecognized net transition asset (2,931) (3,556) --------- -------- Prepaid pension cost 2,109 2,268 Primary actuarial assumptions (future periods): ========= ======== Assumed discount rate 8.75% 7.50 Assumed rate of increase in compensation levels 5.00 5.00
In addition to the Company's defined benefit pension plan, the Company sponsors a defined benefit health care plan that provides postretirement medical benefits to full-time employees hired before January 1, 1993, who meet minimum age and service requirements. The plan is contributory, with retiree contributions adjusted annually, and contains other cost-sharing features such as deductibles and coinsurance. Plan coverage is provided by self-funding or health maintenance organizations (HMOs) options. The accounting for the plan anticipates future cost-sharing changes to the written plan, including the Company's expressed intent to increase the retiree contribution rate annually from 30 percent and 40 percent in 1993 for normal and early retirees, respectively, to 50 percent for both in 1996. The Company's retiree premium contribution rate is frozen at 50 percent of 1996 dollar amounts. The Company's policy is to fund the cost of medical benefits in amounts determined at the discretion of management. The Company adopted Statement No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions, as of January 1, 1993. The cumulative effect of this adoption was an after-tax decrease in net income of $5,760,000, as reported in 1993. 59 62 ZIONS BANCORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements The following table presents the plan's funded status reconciled with amounts recognized in the Company's consolidated balance sheets at December 31, 1994 and 1993, as follows (in thousands):
1994 1993 -------- ------- Accumulated postretirement benefit obligation: Retirees $(2,693) (2,773) Fully eligible active plan participants (1,779) (1,693) Other active plan participants (705) (682) -------- ------- (5,177) (5,148) Plan assets at fair value - - -------- ------- Accumulated postretirement benefit obligation in excess of plan assets (5,177) (5,148) Unrecognized net gain (1,039) (1,122) -------- ------- Accrued postretirement benefit cost included in other liabilities $(6,216) (6,270) ======== ======= Net periodic postretirement benefit cost for 1994 and 1993 includes the following components ( in thousands): 1994 1993 -------- ------- Service cost $ 164 141 Interest cost 372 368 Net amortization (224) - -------- ------- Net periodic postretirement benefit cost $ 312 509 ======== =======
For measurement purposes, an annual rate of increase in the per capita cost of covered benefits (i.e., health care cost trend rate) of 11.55 percent and 9 percent were assumed for the self-funded and HMOs options, respectively, for 1994. The HMOs rate was assumed to decrease gradually to 5 percent by the year 2000 and remain at that level thereafter. The self-funded rate was assumed to decrease gradually to 5.8 percent by the year 2001, and decline to 5.01 percent over the remaining life expectancy of the participants. The health care cost trend rate assumption does not have a significant effect on amounts reported because the Company has capped its retiree premium contribution rates. The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 8.75 and 7.50 percent, respectively, at December 31, 1994 and 1993. The Company has an Employee Stock Savings Plan and an Employee Investment Savings Plan (formerly known as the Salary Reduction Arrangement Plan) (PAYSHELTER). Under PAYSHELTER, employees select from a nontax-deferred or tax-deferred plan and four investment alternatives. Employees can contribute from 1 to 15 percent of compensation, which is matched 50 percent by the Company for contributions up to 5 percent and 25 percent for contributions greater than 5 percent up to 10 percent. Contributions to the plans amounted to $1,319,000, $1,176,000, and $793,000 for the years ended December 31, 1994, 1993, and 1992, respectively. During 1992, the Company formed an employee profit sharing plan. Contributions to the plan are determined per a formula based on the Company's annual return on equity (required minimum return of 14 percent). Contributions to the plan amounted to $1,096,000, $948,000, and $914,000 for the years ended December 31, 1994, 1993, and 1992, respectively. 60 63 ZIONS BANCORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements 13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Financial information by quarter for the three years ended December 31, 1994 is as follows (in thousands, except per share amounts):
Net Provi- Income income Net sion for before per interest loan income Net common income losses taxes income share --------- -------- -------- ------ ------ 1994: First quarter $ 44,801 290 18,416 12,438 .87 Second quarter 48,741 467 24,743 16,418 1.12 Third quarter 51,859 440 26,789 17,665 1.20 Fourth quarter 53,205 984 24,779 17,306 1.18 -------- ------ ------- ------ ----- $198,606 2,181 94,727 63,827 4.37 ======== ====== ======= ====== ===== 1993: First quarter $ 41,092 1,365 13,428 10,746 .75 Second quarter 44,813 408 24,729 16,636 1.17 Third quarter 43,795 482 22,684 15,397 1.08 Fourth quarter 44,957 738 22,953 15,426 1.08 -------- ------ -------- ------ ----- $174,657 2,993 83,794 58,205 4.08 ======== ====== ======== ====== ===== 1992: First quarter $ 35,486 4,135 11,293 8,331 .61 Second quarter 38,105 3,181 15,977 10,282 .74 Third quarter 40,664 2,003 19,908 13,131 .95 Fourth quarter 43,027 1,610 22,955 15,465 1.12 -------- ------ ------- ------ ----- $157,282 10,929 70,133 47,209 3.42 ======== ====== ======= ====== =====
14. CONCENTRATIONS OF CREDIT RISK Credit risk represents the accounting loss that would be recognized at the reporting date if counterparties failed completely to perform as contracted. Concentration of credit risk (whether on or off balance sheet) that arise from financial instruments exists for groups of customers or counterparties when they have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. The Company does not have significant exposure to any individual customer or counterparty. Most of the Company's business activity is with customers located within the states of Utah, Nevada, and Arizona. The commercial loan portfolio is well diversified, consisting of more than 17 industry classifications groupings. As of December 31, 1994, the largest concentration of risk in the commercial loan and leasing portfolio is represented by the manufacturing industry grouping, which comprises approximately 17 percent of the portfolio. The manufacturing industry grouping is also well diversified over several subcategories. The Company has minimal credit exposure from lending transactions with highly leveraged entities and has no foreign loans. 61 64 ZIONS BANCORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements 15. FAIR VALUE OF FINANCIAL INSTRUMENTS Carrying value and estimated fair value of principal financial instruments as of December 31, 1994 are summarized as follows (in thousands):
Carrying Estimated value fair value ---------- ---------- Financial assets: Cash and due from banks $ 316,943 316,943 Money market investments 403,446 403,446 Investment securities 1,663,433 1,651,212 Loans, net 2,324,260 2,315,516 ---------- --------- Total financial assets $4,708,082 4,687,117 ========== ========= Financial liabilities: Demand, savings, and money market deposits $2,934,548 2,934,548 Time and foreign deposits 771,428 756,176 Federal funds purchased and security repurchase agreements 605,975 605,975 FHLB advances and other borrowings 127,319 127,319 Long-term debt 58,182 57,587 ---------- --------- Total financial liabilities $4,497,452 4,481,605 ========== =========
Financial assets and financial liabilities other than investment securities of the Company are not traded in active markets. The above estimates of fair value require subjective judgments, and are approximate. Changes in the following methodologies and assumptions could significantly affect the estimates. Financial Assets - The estimated fair value approximates the carrying value of cash and due from banks and money market investments. For securities, the fair value is based on quoted market prices where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments or using a discounted cash flow model based on established market rates. The fair value of fixed rate loans is estimated by discounting future cash flows using the London Interbank Offered Rate (LIBOR) yield curve adjusted by a factor which reflects the credit and interest rate risk inherent in the loan. Variable rate loans reprice with changes in market rates. As such their carrying amounts are deemed to approximate fair value. The fair value of the allowance for loan losses of $67,018,000 is the present value of estimated net charge-offs. Financial Liabilities - The estimated fair value of demand and savings deposits, and federal funds purchased and security repurchase agreements approximates the carrying value. The fair value of time and foreign deposits is estimated by discounting future cash flows using the LIBOR yield curve. Substantially all FHLB advances reprice with changes in market interest rates or have short terms to maturity. The carrying value of such indebtedness is deemed to approximate market value. Other borrowings are not significant. The estimated fair value of the subordinated notes is based on a quoted market price. The remaining long-term debt is not significant. Off-Balance Sheet Financial Instruments - The carrying and fair values of off-balance sheet financial instruments represented by interest rate exchange contracts (swaps) and caps as of December 31, 1994 is as follows (in thousands):
Carrying value Fair value -------------- ---------- asset positive (liability) (negative) -------------- ---------- Swaps $ - (3,405) Futures and options 1,158 1,158 Caps: Purchased 367 643 Written (7,393) (10,085)
The fair value of the swaps and caps reflects the estimated amounts that the Company would receive or pay to terminate the contracts at the reporting date based upon pricing or valuation models applied to current market information, thereby taking into account the current unrealized gains or losses of open contracts. 62 65 ZIONS BANCORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements The fair value of commitments to extend credit and letters of credit, based on fees currently charged for similar commitments, is not significant. See note 9 to the consolidated financial statements. 16. DIVIDEND RESTRICTION AND CONDENSED PARENT-ONLY FINANCIAL INFORMATION Dividends declared by the Company's banking subsidiaries in any calendar year may not, without the approval of the appropriate federal regulator, exceed their net earnings for that year combined with their retained net earnings for the preceding two years. At December 31, 1994, the Company's subsidiaries had approximately $112,994,000 available for the payment of dividends under the foregoing restrictions. In addition, the banking subsidiaries must meet various requirements and restrictions under the laws of the United States and state laws, including requirements to maintain cash reserves against deposits and limitations on loans and investments with affiliated companies. During 1994, cash reserve balances held with the Federal Reserve banks averaged approximately $78.3 million. 63 66 Condensed financial information of Zions Bancorporation (parent only) follows: ZIONS BANCORPORATION Condensed Balance Sheets December 31, 1994 and 1993 (In thousands)
ASSETS 1994 1993 -------- ------- Cash and due from banks $ 1,574 2,251 Interest-bearing deposits 2,826 445 Investment securities 270 313 Loans, lease financing, and other receivables 2,373 3,787 Investments in subsidiaries: Commercial banks 386,853 335,137 Other 4,601 3,531 Receivables from subsidiaries: Commercial banks 27,094 28,971 Other 563 50 Real estate held for rental purposes, at cost, less accumulated depreciation 6,169 6,824 Premises and equipment, at cost, less accumulated depreciation 132 150 Other real estate owned 134 386 Other assets 7,618 11,144 -------- ------- $440,207 392,989 ======== ======= LIABILITIES AND SHAREHOLDERS' EQUITY Accrued liabilities $ 10,247 13,850 Short-term borrowings 8,001 9,000 Long-term debt 56,189 57,547 -------- ------- Total liabilities 74,437 80,397 -------- ------- Shareholders' equity: Preferred stock - - Common stock 79,193 66,257 Net unrealized holding gains and losses on securities available-for-sale (5,866) 415 Retained earnings 292,443 245,920 -------- ------- Total shareholders' equity 365,770 312,592 -------- ------- $440,207 392,989 ======== =======
64 67 ZIONS BANCORPORATION Condensed Statements of Income Years ended December 31, 1994, 1993, and 1992 (In thousands)
1994 1993 1992 -------- ------- ------- Interest income - interest and fees on loans and securities $ 3,035 4,278 2,905 Interest expense - interest on borrowed funds 4,798 7,622 9,014 -------- ------- ------- Net interest loss (1,763) (3,344) (6,109) Other income: -------- ------- ------- Dividends from consolidated subsidiaries: Commercial banks 21,528 17,766 13,982 Other - 3,224 250 Other income 2,985 2,542 2,767 -------- ------- ------- 24,513 23,532 16,999 -------- ------- ------- Expenses: Salaries and employee benefits 4,913 3,989 3,532 Loss on early extinguishment of debt - 6,022 - Operating expenses 1,165 933 184 -------- ------- ------- 6,078 10,944 3,716 -------- ------- ------- Income before income tax benefit and cumulative effect of changes in accounting principles 16,672 9,244 7,174 Income tax benefit (1,939) (4,448) (2,792) -------- ------- ------- Income before cumulative effect of changes in accounting principles 18,611 13,692 9,966 Cumulative effect of changes in accounting principles - (378) - -------- ------- ------- Income before equity in undistributed income (loss) of consolidated subsidiaries 18,611 13,314 9,966 -------- ------- ------- Equity in undistributed income (loss) of consolidated subsidiaries: Commercial banks 44,133 47,716 36,266 Other 1,083 (2,825) 977 -------- ------- ------- 45,216 44,891 37,243 -------- ------- ------- Net income $63,827 58,205 47,209 ======== ======= =======
65 68 ZIONS BANCORPORATION Condensed Statements of Cash Flows Years ended December 31, 1994, 1993, and 1992 (In thousands)
1994 1993 1992 --------- --------- --------- Cash flows from operating activities: Net income $ 63,827 58,205 47,209 Adjustments to reconcile net income to net cash provided by operating activities: Undistributed net income of consolidated subsidiaries (45,216) (44,891) (37,243) Depreciation of premises and equipment 675 688 692 Amortization of excess costs of acquired businesses 492 349 349 Other (3) 3,845 899 --------- --------- --------- Net cash provided by operating activities 19,775 18,196 11,906 --------- --------- --------- Cash flows from investing activities: Net decrease (increase) in interest-bearing deposits (2,381) 9,735 (787) Collection of advances to subsidiaries 4,939 154,272 148,466 Advances to subsidiaries (3,575) (138,993) (170,495) Decrease (increase) of investment in subsidiaries 274 (2,625) (716) Other 1,908 2,060 1,371 --------- --------- --------- Net cash provided by (used in) investing activities 1,165 24,449 (22,161) --------- --------- --------- Cash flows from financing activities: Net change in short-term funds borrowed (3,305) 9,000 - Proceeds from issuance of long-term debt - 4,000 50,000 Payments on long-term debt (1,358) (43,224) (32,317) Proceeds from issuance of common stock 317 893 1,695 Dividends paid (17,271) (12,692) (9,587) --------- --------- --------- Net cash provided by (used in) financing activities (21,617) (42,023) 9,791 --------- --------- --------- Net increase (decrease) in cash and due from banks (677) 622 (464) Cash and due from banks at beginning of year 2,251 1,629 2,093 --------- --------- --------- Cash and due from banks at end of year $ 1,574 2,251 1,629 ========= ========= =========
The parent company paid interest of $7,245,000, $8,577,000, and $7,940,000 for the years ended December 31, 1994, 1993, and 1992, respectively. 66 69 ZIONS BANCORPORATION Condensed Statements of Retained Earnings Years ended December 31, 1994, 1993, and 1992 (In thousands)
1994 1993 1992 --------- -------- --------- Balance at beginning of year $245,920 197,992 160,370 Retained earnings of acquired company - 2,428 - Net income 63,827 58,205 47,209 Cash dividends: Preferred, paid by subsidiary to minority shareholder (33) (13) - Common (16,786) (12,207) (9,183) Dividends of NBA prior to merger (485) (485) (404) --------- -------- -------- Balance at end of year $292,443 245,920 197,992 ========= ======== ========
67 70 The selected quarterly financial data information required by this item appears on pages 24 and 61 under the caption "QUARTERLY FINANCIAL INFORMATION (UNAUDITED)." ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item, to the extent not included under the caption "Executive officers of the registrant" in Part I of this report, will appear on pages 1 through 6 of the definitive Proxy Statement. Information relating to the directors and executive officers on pages 1 through 6, and information required by Item 405 of Regulation S-K as set forth beginning in the last paragraph on page 7 of the definitive Proxy Statement relating to the 1995 Annual Meeting of Shareholders to be held April 28, 1995, is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information required by this item appearing on pages 8 through 21 of the definitive Proxy Statement relating to the 1995 Annual Meeting of Shareholders to be held April 28, 1995, is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item appearing on pages 6 and 7 of the definitive Proxy Statement relating to the 1995 Annual Meeting of Shareholders to be held April 28, 1995, is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item appearing on page 21 of the definitive Proxy Statement relating to the 1995 Annual Meeting of Shareholders to be held April 28, 1995, is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are part of this report and appear on the pages indicated:
Page (1) Financial Statements: Independent Auditors' Report 41 Consolidated Balance Sheets - December 31, 1994 and 1993 42 Consolidated Statements of Income - Years ended December 31, 1994, 1993, and 1992 43 Consolidated Statements of Cash Flows - Years ended December 31, 1994, 1993, and 1992 44 Consolidated Statements of Retained Earnings Years ended December 31, 1994, 1993, and 1992 45 Notes to Consolidated Financial Statements 46
(2) Financial Statement Schedules: Schedules are omitted because the information is either not required, not applicable, or is included in Part II, Items 6-8 of this report. 68 71 (3) Exhibits: The exhibits listed on the Exhibit Index on page 71 of this report are filed or are incorporated herein by reference. (b) Reports on Form 8-K There were no reports on Form 8-K filed during the quarter ended December 31, 1994. For the purposes of complying with the amendments to the rules governing Form S-8 (effective July 13, 1990) under the Securities Act of 1993, the undersigned Registrant hereby undertakes as follows, which undertaking shall be incorporated by reference into Registrant's Registration Statements on Form S-8 Nos. 33-52878 (filed on October 2, 1992) and 33-52796 (filed on October 2, 1992). Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit, or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. 69 72 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. March 21, 1995 ZIONS BANCORPORATION By /s/ Harris H. Simmons ------------------------------- HARRIS H. SIMMONS, President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.
March 21, 1995 /s/ Harris H. Simmons /s/ Gary L. Anderson - ------------------------------------ ------------------------------------- HARRIS H. SIMMONS, President, Chief Executive GARY L. ANDERSON, Secretary, Senior Vice Officer and Director President, and Chief Financial Officer /s/ Roy W. Simmons /s/ Walter E. Kelly - ------------------------------------ ------------------------------------- ROY W. SIMMONS, Chairman and Director WALTER E. KELLY, Controller - ------------------------------------ ------------------------------------- JERRY C. ATKIN, Director ROBERT G. SARVER, Director /s/ Grant R. Caldwell - ------------------------------------ ------------------------------------- GRANT R. CALDWELL, Director L.E. SIMMONS, Director /s/ R.D. Cash /s/ I. J. Wagner - ------------------------------------ ------------------------------------- R. D. CASH, Director I. J. WAGNER, Director /s/ Dale W. Westergard - ------------------------------------ ------------------------------------- RICHARD H. MADSEN, Director DALE W. WESTERGARD, Director - ------------------------------------ ROBERT B. PORTER, Director
73 EXHIBIT INDEX FILED AS PART OF THIS REPORT ON FORM 10-K (Pursuant to Item 601 of Regulations S-K)
Exhibit no. Description and method of filing -------- -------------------------------- 3.1 Restated Articles of Incorporation of Zions Bancorporation dated November 8, 1993, and filed with the Department of Business Regulation, Division of Corporations of the state of Utah on November 9, 1993 (incorporated by reference to Exhibit 3.1 to the * Registrant's Form S-4 Registration Statement, File No. 33-51145, filed on November 22, 1993) 3.2 Restated Bylaws of Zions Bancorporation, dated November 8, 1993 (incorporated by reference to Exhibit 3.2 to the Registrant's Form S-4 Registration Statement, File No. * 33-51145, filed November 22, 1993) 9 Voting Trust Agreement, dated December 31, 1991 (incorporated by reference to Exhibit 9 of Zions Bancorporation's Annual Report on Form 10-K for the year ended December 31, * 1991) 10.1 Amended and Restated Zions Utah Bancorporation Pension Plan (filed) 10.2 Amendment to Zions Bancorporation Pension Plan effective December 1, 1994 (filed) 10.3 Zions Utah Bancorporation Supplemental Retirement Plan Form (incorporated by reference to Exhibit 19.4 of Zions Utah Bancorporation's Quarterly Report on Form 10-Q for the * quarter ended September 30, 1985) 10.4 Amendment to Zions Bancorporation (formerly Zions Utah Bancorporation) Key Employee Incentive Stock Option Plan approved by the shareholders of the Company on April 27, 1990 (incorporated by reference to Exhibit 19 of Zions Bancorporation's Quarterly Report * on Form 10-Q for the quarter ended June 30, 1990) 10.5 Zions Bancorporation Deferred Compensation Plan for Directors, as amended May 1, 1991 (incorporated by reference to Exhibit 19 of Zions Bancorporation's Annual Report on Form * 10-K for the year ended December 31, 1991) 10.6 Zions Bancorporation Senior Management Value Sharing Plan, Award Period 1991-1994 (incorporated by reference to Exhibit 19 of Zion Bancorporation's Annual Report on Form * 10-K for the year ended December 31, 1992) 10.7 Zions Bancorporation Senior Management Value Sharing Plan, Award Period 1992-1995 (incorporated by reference to Exhibit 10.6 of Zions Bancorporation's Annual Report on * Form 10-K for the year ended December 31, 1992) 10.8 Zions Bancorporation Senior Management Value Sharing Plan, Award Period 1993-1996 (incorporated by reference to Exhibit 10.8 of Zions Bancorporation's Annual Report on Form 10-K for the year end December 31, 1993) * 10.9 Zions Bancorporation Senior Management Value Sharing Plan, Award Period 1994-1997 (filed) 10.10 Zions Bancorporation Executive Management Pension Plan (filed)
71 74 EXHIBIT INDEX FILED AS PART OF THIS REPORT ON FORM 10-K (continued) (Pursuant to Item 601 of Regulations S-K)
Exhibit no. Description and method of filing - ----------- -------------------------------- 21 List of subsidiaries of Zions Bancorporation (filed) 23 Consent of KPMG Peat Marwick, LLP independent certified public accountants (filed) 27 Article 9 Financial Data Schedule for Form 10-K (filed) 99.1 Form 11-K Annual Report of Zions Bancorporation Employee Stock Savings Plan (filed) 99.2 Form 11-K Annual Report of Zions Bancorporation Employee Investment Savings Plan (filed)
* incorporated by reference. EX-10.1 2 ZIONS PENSION PLAN, EFFECTIVE JAN. 1, 1994 1 EXHIBIT 10.1 ZIONS BANCORPORATION PENSION PLAN Amended and Restated Effective January 1, 1994 December 6, 1994 2 Table of Contents
Page Introduction...................................................................................................1 Article 1 - Definitions........................................................................................1 1.1 Accrual Computation Period......................................................................2 1.2 Accrued Benefit.................................................................................2 1.3 Accrued Benefit Attributable to the Old Plan Account............................................2 1.4 Accrued Benefit Attributable to Company Contributions...........................................2 1.5 Actuarial Equivalent............................................................................2 1.6 Affiliate or Subsidiary.........................................................................2 1.7 Authorized Period of Absence....................................................................2 1.8 Beneficiary.....................................................................................3 1.9 Break in Service................................................................................3 1.10 Code............................................................................................3 1.11 Committee or Retirement Committee...............................................................3 1.12 Company.........................................................................................3 1.13 Controlled Group................................................................................3 1.14 Covered Compensation............................................................................3 1.15 Credited Service................................................................................4 1.16 Earnings........................................................................................5 1.17 Eligible Employee...............................................................................6 1.18 Eligible Spouse.................................................................................6 1.19 Eligibility Computation Period..................................................................6 1.20 Employee........................................................................................6 1.21 Employment Date.................................................................................6 1.22 ERISA...........................................................................................6 1.23 Final Average Earnings..........................................................................6 1.24 Hour of Service.................................................................................7 1.25 Investment Manager..............................................................................8 1.26 Military Service................................................................................9 1.27 Nonvested Former Participant....................................................................9 1.28 Old Plan Account................................................................................9 1.29 Participant.....................................................................................9 1.30 Participation Date.............................................................................10 1.31 Plan...........................................................................................10 1.32 Plan Administrator.............................................................................10 1.33 Plan Year......................................................................................10 1.34 Retirement Date................................................................................10 1.35 Social Security Taxable Wage Base..............................................................10 1.36 Termination of Employment......................................................................10 1.37 Trust Agreement................................................................................10 1.39 Trustee........................................................................................10 1.40 Vesting Computation Period.....................................................................10 1.41 Year of Service................................................................................10
i 3 Article 2 - Participation.....................................................................................12 2.1 Participation Date.............................................................................12 2.2 Reinstatement of Active Participation..........................................................12 Article 3 - Retirement Date...................................................................................13 3.1 Normal Retirement Date.........................................................................13 3.2 Early Retirement Date..........................................................................13 3.3 Late Retirement Date...........................................................................13 3.4 Disability Retirement Date.....................................................................14 Article 4 - Amount of Accrued Benefit.........................................................................15 4.1 Accrued Benefit................................................................................15 4.2 Accrued Benefit Attributable to the Old Plan Account...........................................16 4.3 Accrued Benefit Attributable to Company Contributions..........................................16 4.4 Old Plan Account...............................................................................16 Article 5 - Amount of Retirement Income.......................................................................17 5.1 Monthly Retirement Income......................................................................17 5.2 Normal Retirement Income.......................................................................17 5.3 Early Retirement Income........................................................................17 5.4 Late Retirement Income.........................................................................17 5.5 Disability Retirement Income...................................................................18 5.6 Application for Retirement Income..............................................................18 5.7 Forms of Retirement Income.....................................................................19 5.8 Reemployment After Retirement..................................................................20 5.9 Commencement of Benefits.......................................................................20 Article 6 - Termination and Vesting...........................................................................23 6.1 Vesting........................................................................................23 6.2 Termination Benefit............................................................................23 6.3 Reemployment After Termination of Employment...................................................24 Article 7 - Disability Benefits...............................................................................25 7.1 Determination of Disability....................................................................25 7.2 Eligibility for Disability Benefits...........................................................25 7.3 Disability Retirement Date.....................................................................25 7.4 Disability Retirement Income...................................................................25 Article 8 - Death Benefits....................................................................................27 8.1 Pre - Retirement Death Benefit.................................................................27 8.2 Post - Retirement Death Benefit................................................................28 8.3 Return of Old Plan Account.....................................................................29 Article 9 - Financing The Plan................................................................................30 9.1 Company Contributions..........................................................................30 9.2 Return of Company Contributions................................................................30 9.3 Employee Contributions.........................................................................30 Article 10 - Termination of the Plan..........................................................................31 10.1 Termination of Plan............................................................................31 10.2 Procedures Upon Termination of Plan............................................................31
ii 4 Article 11 - Top-Heavy Provisions.............................................................................32 11.1 Top Heavy Plan.................................................................................32 11.2 Definition of Terms............................................................................32 11.3 Modification of Vesting Schedule...............................................................34 11.4 Minimum Benefit................................................................................35 11.5 Modification of Maximum Benefit................................................................35 Article 12 - Administration of the Plan.......................................................................36 12.1 Administration.................................................................................36 12.2 Records........................................................................................37 12.3 Payment of Expenses............................................................................37 12.4 Delegation of Authority........................................................................37 12.5 Information Available..........................................................................37 12.6 Claims Procedure...............................................................................38 12.7 Fiduciary Capacity.............................................................................38 12.8 Committee Liability............................................................................38 Article 13 - General Provisions...............................................................................39 13.1 Amendment of Plan..............................................................................39 13.2 Employment Status..............................................................................39 13.3 Mergers or Consolidations......................................................................40 13.4 Provision Against Anticipation.................................................................40 13.5 Facility of Payment............................................................................40 13.6 Construction...................................................................................40 13.7 Legal Actions..................................................................................41 13.8 Payment of Small Benefits......................................................................41 13.9 Maximum Retirement Benefit.....................................................................42 13.10 Additional Benefit Limits for Highly Compensated Employees.....................................45 13.11 Eligible Rollover Distribution.................................................................48 13.12 Procedures with Respect to Domestic Relations Orders.........................................................................................50 Appendix I ...............................................................................................52 Appendix II ..................................................................................................53 Appendix III .................................................................................................54
iii 5 Introduction The Zions Bancorporation Pension Plan became effective on January 1, 1968. The Plan has been amended and restated from time to time. This document amends and restates the Plan, effective January 1, 1994, except where another effective date is specifically provided. Except as specifically provided in the Plan, the rights and benefits of any Participant who terminates or retires prior to the effective date of this restatement or any other amendment to the Plan will be determined pursuant to the provisions of the Plan in effect on the earlier of his or her date of retirement or termination. The Plan and Trust thereunder are created and maintained for the primary purpose of providing retirement benefits for eligible employees of Zions Bancorporation and its affiliates. It is intended that the Plan and Trust qualify under Sections 401(a) and 501(a) of the Internal Revenue Code of 1986, as amended, and that they meet the requirements of the Employee Retirement Income Security Act of 1974, as amended. 1 6 Definitions 1.1 Accrual Computation Period means a Plan Year. 1.2 Accrued Benefit means the monthly amount of benefit credited to a Participant in accordance with Article on the basis of an annuity payable for life beginning at age 65. 1.3 Accrued Benefit Attributable to the Old Plan Account is defined in 4.2 and 5.3. 1.4 Accrued Benefit Attributable to Company Contributions is defined in 4.3. 1.5 Actuarial Equivalent means equality in value of the aggregate amounts expected to be received under different forms of payment based on Tables attached hereto as Appendices. Except as otherwise provided in this Plan, the 1984 Unisex Pension Mortality Table and a 6% interest assumption will be used for all other calculations of actuarial equivalence. 1.6 Affiliate or Subsidiary means a member of a controlled group of corporations (as defined in Code Section 1563(a), determined without regard to Code Sections 1563(a)(4) and (e)(3)(C)), a group of trades or businesses (whether incorporated or not) which are under common control within the meaning of Code Section 414(c), or an affiliated service group (as defined in Code Sections 414(m) or 414(o)) of which Zions Bancorporation is a part. With respect to the Maximum Retirement Benefit defined in 13.9, in determining whether a corporation is a member of a controlled group of corporations the phrase "more than 50 percent" will be substituted for the phrase "at least 80 percent" each place it appears in Code Section 1563(a)(1). 1.7 Authorized Period of Absence means an absence authorized by the Company for one or more of the following reasons: (a) Approved leave of absence. (b) Pregnancy. (c) Jury duty. (d) Military Service as defined in 1.26. (e) Illness or injury, including disability. 2 7 Any discretion of the Company under the provisions of this definition will be exercised without discrimination and in accordance with definitely established rules uniformly applicable to Employees or Participants whose approved periods of absence were occasioned by similar circumstances. 1.8 Beneficiary means the person or persons designated by a Participant to receive any benefit payable from the Plan under 8.3 upon the death of the Participant. If no Beneficiary designation is filed with the Committee or if the designated Beneficiary does not survive the Participant, the Participant will be deemed to have designated the following as Beneficiaries with priority in the order named: (a) Surviving spouse, (b) The Participant's estate. 1.9 Break in Service means an interruption in service due to a person's failure to complete at least 501 Hours of Service during a Vesting Computation Period or during an Eligibility Computation Period. A Break in Service will not occur during an Authorized Period of Absence unless the Employee fails to return to work for at least 30 days with the Company or any member of the Controlled Group after the expiration of the Authorized Period of Absence. 1.10 Code means the Internal Revenue Code of 1986, as amended. 1.11 Committee or Retirement Committee means the Committee which will administer the plan as described in Article 12. 1.12 Company means Zions Bancorporation and any Affiliate or Subsidiary which adopts this Plan with the consent of the Board of Directors of Zions Bancorporation. 1.13 Controlled Group means Zions Bancorporation and any Affiliate or Subsidiary. All employees of the Controlled Group will be treated as employed by a single employer for purposes of applying the provisions of qualification of the Plan; of minimum participation standards of the Plan; of minimum vesting standards of the Plan; and of limitation of benefits under the Plan. 1.14 Covered Compensation for a Plan Year means the average of the Social Security Taxable Wage Bases for each year in the 35-year period ending with the last day of the year in which the Participant attains (or will attain) Social Security Retirement Age as determined under the exact tables provided by the Commissioner of Internal Revenue. Covered Compensation for any Plan Year after 1991 will be equal to 1991 Covered Compensation. 3 8 For purposes of this, a Participant's Social Security Retirement Age is determined based on the following table:
Social Security Year of Birth Retirement Age ------------- --------------- Before 1938 65 1938 to 1954 66 1955 and after 67
1.15 Credited Service means service used to determine a Participant's Accrued Benefit and is determined as follows: (a) Credited Service shall be measured in calendar years and months. Each month shall be equal to one-twelfth of a year of Credited Service. Except as otherwise stated in this 1.15, Credited Service for Plan Years beginning after December 31, 1988 means the sum of an Employee's calendar years and months (or parts thereof) as an Eligible Employee during the period beginning on his or her Benefit Service Date. For purposes of this section, Benefit Service Date means the later of: (1) the Participant's Employment Date, (2) the first day of the month following the Participant's 21st birthday, or (3) in the case of an Employee who is not credited with at least 1,000 Hours of Service in his or her first Eligibility Computation Period, the first day of the first Plan Year in which the Employee is credited with at least 1,000 Hours of Service. (b) No Credited Service will be earned during a Plan Year beginning after December 31, 1988 unless the Employee completes at least 1,000 Hours of Service during that Plan Year except as follows. In order to earn Credited Service during the Plan Year in which the Employee has a Benefit Service Date or during the Plan Year in which the Employee retires or dies, the Employee must complete 83.33 Hours of Service multiplied by the number of calendar months during such Plan Year in which the Employee completes at least one Hour of Service. Effective January 1, 1995, the foregoing sentence shall also apply to a Plan Year in which the Employee incurs a Termination of Employment. (c) Except as otherwise stated in this 1.15, Credited Service for Plan Years beginning before January 1, 1989 means benefit service as defined under the terms of the Plan in effect on December 31, 1988. 4 9 (d) Credited Service will not include service earned during a period for which Years of Service are disregarded pursuant to 1.41(e). (e) In the case of an Employee who is employed by an Affiliate or Subsidiary which either adopts this Plan with the consent of the Company or merges with the Company, Credited Service will not include service prior to the date of merger or adoption unless an earlier date is specifically designated for this purpose by the Board of Directors of Zions Bancorporation. 1.16 Earnings means a Participant's wages from the Company within the meaning of Code Section 3401(a), and all other payments of compensation to the Participant by the Company (in the course of the Company's trade or business), for which the Company is required to furnish a written statement to the Participant under Code Sections 6041(d) and 6051(a)(3) (IRS Form W-2 - wages, tips and other compensation). Earnings will also include elective contributions made by the Company on behalf of its Participants which are not includible in gross income under Code Sections 125, 402(e)(3), 402(h) or 403(b). Earnings will be reduced by reimbursements or other expense allowances, fringe benefits (cash and non-cash), moving expenses, deferred compensation (other than elective contributions described above), and welfare benefits. Earnings will also be reduced by directors fees, if any, paid to Highly Compensated Employees as defined in 13.10. Except as provided in 4.1(c), earnings will not exceed $200,000 for years prior to 1990. Each January 1 thereafter, this $200,000 limit will automatically be adjusted to the new dollar limit prescribed by the Secretary of the Treasury for that calendar year. Except as provided in 4.1(a) and (b), effective January 1, 1994, annual Earnings will not exceed $150,000 for 1994 or prior years. On January 1 of each calendar year in which the Secretary of the Treasury prescribes a new dollar limit, this $150,000 limit will automatically be adjusted to that new limit. If a period over which Earnings is determined under the Plan (determination period) is less than 12 months, the $200,000 and the $150,000 limitations for that period will be multiplied by a fraction, the numerator of which is the number of months in the determination period, and the denominator of which is 12. For this purpose, a determination period will not be considered to be less than 12 months merely because a Participant is an Active Participant for less than a full Plan Year except that Earnings will be determined for the full Plan Year. In determining the compensation of a Participant for purposes of the $200,000 and the $150,000 limitations, the rules 5 10 of Code Section 414(q)(6) will apply, except that in applying such rules, the term "family" will include only the spouse of the Participant and any lineal descendants of the Participant who have not attained age 19 before the close of the year. 1.17 Eligible Employee means any Employee of the Company except an Employee represented by a collective bargaining agent unless the terms of the collective bargaining agreement covering such Employee specifically provide for coverage under the Plan. The term "Eligible Employee" does not include a leased employee as defined in Code Section 414(n). This section is effective January 1, 1988. 1.18 Eligible Spouse means the legal spouse of the Participant at the time of the Participant's death except that a former spouse may be treated as an Eligible Spouse to the extent provided in a qualified domestic relations order as defined in Code Section 414(p). 1.19 Eligibility Computation Period means a 12-consecutive-month period beginning on an Employee's Employment Date. However, if such Employee fails to complete at least 1,000 Hours of Service during his or her initial 12-consecutive-month period, the Eligibility Computation Period becomes the Plan Year commencing with the Plan Year in which such initial period ends. 1.20 Employee means any person who is employed by any member of the Controlled Group. 1.21 Employment Date means the date on which an Employee first performs an Hour of Service for any member of the Controlled Group. 1.22 ERISA means the Employee Retirement Income Security Act of 1974, as amended. 1.23 Final Average Earnings means the average of the Participant's Earnings as an Eligible Employee for the period of five consecutive calendar years ending on or before December 31, 1991 which produces the highest average. If the Participant has not been an Eligible Employee for five years, Final Average Earnings means the average of the Participant's Earnings over the Participant's full period of employment as an Eligible Employee before December 31, 1991. In determining Final Average Earnings, Plan Years after 1988 during which the Participant earns fewer than 1,000 Hours of Service will be disregarded and will not interrupt the consecutiveness of the prior and subsequent Plan Years. 6 11 In determining Final Average Earnings, Earnings will be annualized in the Plan Year of hire if the employee earned 1,000 Hours of Service during the one-year period beginning on the Employee's Employment Date. Earnings are annualized by dividing actual earnings for the Plan Year (excluding bonuses) by the number of months of actual earnings, then multiplying the result by 12 then adding bonuses. 1.24 Hour of Service, effective January 1, 1989, means: (a) each hour for which an Employee is paid, or entitled to payment, for the performance of duties for the Company; (b) each hour for which an Employee is paid, or entitled to payment, by the Company on account of a period of time during which no duties are performed (whether or not the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence; provided, however, that an Employee will not be credited with more than 501 Hours of Service under this sentence for any continuous period during which he or she performs no duties for the Company. Notwithstanding the preceding provisions of this paragraph, no credit will be given: (1) for an Hour of Service for which the individual is directly or indirectly paid, or entitled to payment, on account of a period during which no duties are performed if such payment is made or due under a plan maintained solely for the purpose of complying with applicable workers' compensation, unemployment compensation or disability insurance laws; or (2) for an Hour of Service for which a payment is made which solely reimburses the individual for medical or medically related expenses incurred; (c) each hour not otherwise credited under the Plan for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by the Company. (d) Hours of Service will be credited for employment with other members of an affiliated service group, a controlled group of corporations, or a group of trades or businesses under common control of which the Company is a member. (e) Hours of Service will also be credited for any individual considered an employee under Code Section 414(n). 7 12 (f) Solely for purposes of determining whether a Break in Service has occurred, an individual who is absent from work will receive credit for the Hours of Service which would have been credited to the individual but for such absence if the absence is (1) because of the pregnancy of the individual, (2) because of the birth of a child of the individual, (3) because of the placement of a child with the individual in connection with the adoption of such child by such individual, (4) for purposes of caring for such child for a period beginning immediately following such birth or placement, or (5) for family or medical leave required to be provided under the Family and Medical Leave Act of 1993. Where such hours cannot be determined, eight Hours of Service per day of such absence will be used. The Hours of Service credited under this paragraph will be credited in the computation period in which the absence begins if the crediting is necessary to prevent a Break in Service in that period. In all other cases, such hours will be credited in the following computation period. (g) The foregoing notwithstanding, Participants whose pay is solely on a commission basis will be credited with Hours of Service as follows: (1) If the Participant's Earnings for a Plan Year are at least 750 multiplied by the lowest hourly rate of compensation payable to employees in the same job classification as the Participant, then the Participant will be credited with 1,000 Hours of Service for that Plan Year. (2) If the Participant's Earnings for a Plan Year are less than 750 multiplied by the lowest hourly rate of compensation payable to employees in the same job classification as the Participant, then the Participant will not be credited with any Hours of Service for that Plan Year. (h) The crediting of Hours of Service under this Plan will be applied under the rules of paragraphs (b) and (c) of the Department of Labor Regulation 2530.200b-2 and clause (f)(3)(ii) of the Department of Labor Regulation 2530.200b-3 which, by this reference, are specifically incorporated in full within this Plan. 1.25 Investment Manager means any fiduciary (other than a trustee, the Company or the Committee): (a) which has the power to manage, acquire, or dispose of any assets of the Plan; and 8 13 (b) which (1) is registered as an investment adviser under the Investment Advisers Act of 1940, or (2) is a bank, as defined in that Act, or (3) is an insurance company qualified to perform services described in item (a) above under the laws of more than one state; and (c) which has acknowledged in writing that it is a fiduciary with respect to the Plan. 1.26 Military Service means the period of time during which a person is absent from active work for the Company or any member of the Controlled Group serving as a member of the Armed Forces of the United States in time of war or other emergency or under the laws of conscription in time of peace. Military Service includes time when such person has a right to reemployment at his or her former position or a substantially similar position upon separation from such Military Service, and such period of time, not exceeding 90 days, immediately following such Military Service as such person remains absent from active work for the Company or any member of the Controlled Group. 1.27 Nonvested Former Participant means a prior Participant who has incurred a Termination of Employment and who does not have a vested interest in accordance with 6.1. 1.28 Old Plan Account is defined in 4.4. 1.29 Participant means an Active Participant, Inactive Participant, Terminated Vested Participant, Disabled Participant, or Retired Participant, as defined below: (a) "Active Participant" means an Eligible Employee who has met the requirements for participation described in Article 2. (b) "Inactive Participant" means a prior Active Participant who is on an Authorized Period of Absence, or who is employed by a member of the Controlled Group other than the Company, or who is employed by the Company but is not an Eligible Employee. (c) "Terminated Vested Participant" means a prior Eligible Employee who has incurred a Termination of Employment, who retains a vested interest in accordance with 6.1, and who is not currently receiving benefit payments under the Plan. (d) "Disabled Participant" means a prior Active Participant who has a total and permanent disability as determined under Article 7. 9 14 (e) "Retired Participant" means a prior Eligible Employee who is receiving benefit payments under the Plan. 1.30 Participation Date is defined in 2.1. 1.31 Plan means the Zions Bancorporation Pension Plan. 1.32 Plan Administrator means the Committee which will administer the plan as described in Article 12. 1.33 Plan Year means a calendar year. 1.34 Retirement Date means the date a Participant's monthly retirement benefits begin in accordance with Article 3. 1.35 Social Security Taxable Wage Base means the contribution and benefit base in effect under Section 230 of the Social Security Act for the specified calendar year. 1.36 Termination of Employment means cessation of employment with the Company or any member of the Controlled Group due to: (a) voluntary or involuntary termination or separation of employment, or (b) failure to return to work for at least 30 days upon the expiration of any Authorized Period of Absence from the Company or any member of the Controlled Group, in which event cessation of active work will be deemed to have occurred at the time such Authorized Period of Absence expired. Transfer of employment, without interruption, between members of the Controlled Group will not be deemed a Termination of Employment. 1.37 Trust Agreement means the agreement between the Company and the Trustee. 1.38 Trust Fund means all money or property held by the Trustee pursuant to the Trust Agreement. 1.39 Trustee means the trustee appointed by the Board of Directors of the Company and named as such in the Trust Agreement. 1.40 Vesting Computation Period means a calendar year. 1.41 Year of Service means a Vesting Computation Period after December 31, 1988 during which an Employee completes 1,000 or more Hours of Service except as follows: 10 15 (a) For Plan Years beginning after December 31, 1994, an Employee shall be credited with a partial Year of Service (measured in calendar months) in a Plan Year in which the Employee completes less than 1,000 Hours of Service but in which the Employee has a Benefit Service Date or in which the Employee retires, dies, or incurs a Termination of Employment if the Employee completes 83.33 Hours of Service multiplied by the number of calendar months during such Plan Year in which the Employee completes at least one Hour of Service. The Employee will be credited with months of Service equal to the number of calendar months during the Plan Year in which the Employee completes at least one Hour of Service. Twelve months of Service shall equal a Year of Service. (b) Years of Service also include years of vesting service earned before January 1, 1989 under the terms of the Plan in effect as of December 31, 1988. (c) A Participant shall be credited in the 1989 Vesting Computation Period with 190 Hours of Service for each month in which the Participant earned at least one Hour of Service in his or her partial year of vesting service (if any) ending on December 31, 1988. (d) The foregoing notwithstanding, a Participant must be at least age 18 before he or she can earn a Year of Service. (e) The foregoing notwithstanding, if a Participant who has no vested interest in the Plan incurs a Break in Service, Years of Service will not include: (1) service prior to a Break in Service which is not followed by a Year of Service, and (2) service prior to five or more consecutive one year Breaks in Service if the number of consecutive one year Breaks in Service equals or exceeds the number of prior Years of Service. 11 16 Article 2 Participation 2.1 Participation Date (a) An Eligible Employee who was an Active Participant in the Plan on December 31, 1993 will continue to be an Active Participant on January 1, 1994. (b) Any other Eligible Employee will become an Active Participant in the Plan on the first day of the month coinciding with or next following the later of (1) the date on which the Employee completes an Eligibility Computation Period during which he or she completes at least 1,000 Hours of Service or (2) the Employee's 21st birthday. Participation Date means the date a Participant first becomes an Active Participant, provided that the Participation Date of a Nonvested Former Participant who is reinstated under 2.2 after five or more consecutive one year Breaks in Service shall be the date of reinstatement. 2.2 Reinstatement of Active Participation A Terminated Vested Participant, a Retired Participant, an Inactive Participant, or a Nonvested Former Participant who again becomes an Eligible Employee or who returns from an Authorized Period of Absence will be reinstated as an Active Participant on the day he or she is reinstated as an Eligible Employee or returns from such Authorized Period of Absence. 12 17 Article 3 Retirement Date 3.1 Normal Retirement Date A Participant's Normal Retirement Date will be the first day of the month coincident with or next following his or her Normal Retirement Age. If the Participant's Participation Date is on or after July 1, 1994, his or her Normal Retirement Age is the later of: (a) his or her 65th birthday, or (b) the earlier of: (1) the date the Participant completes five Years of Service, or (2) the fifth anniversary of his or her Participation Date provided the Participant is an Employee on or after the later of such date or his or her 65th birthday and earns at least one Year of Service after any Break in Service. If the Participant's Participation Date is before July 1, 1994, the Participant's Normal Retirement Age is 65. 3.2 Early Retirement Date A Participant may retire prior to his or her Normal Retirement Date on an Early Retirement Date which, subject to his or her election, may be the first day of any month coincident with or following the latest of: (a) the Participant's 55th birthday, (b) the date on which the Participant completes ten Years of Service, or (c) the date of the Participant's Termination of Employment. 3.3 Late Retirement Date (a) If a Participant continues in the service of the Company or any member of the Controlled Group beyond Normal Retirement Date, his or her Late Retirement Date will be the first day of any month coincident with or following the date of the Participant's Termination of Employment. 13 18 (b) A Participant's Late Retirement Date will not be later than the required beginning date described in 5.9(c) even if his or her employment continues after such date. 3.4 Disability Retirement Date Disability Retirement Date is defined in 7.3. 14 19 Article 4 Amount of Accrued Benefit 4.1 Accrued Benefit A Participant's Accrued Benefit is equal to one twelfth of the greater of: (a) the sum of: (1) the sum of the following determined without regard to the $150,000 limitation under 1.14: (A) 1.65% of Final Average Earnings determined as of December 31, 1991 multiplied by Credited Service earned as of December 31, 1991, and (B) 1.65% of Earnings for each Plan Year beginning after December 31, 1991 and before January 1, 1994 in which the Participant earns a full or partial year of Credited Service. (2) 1.65% of Earnings for each Plan Year after December 31, 1993 in which the Participant earns a full or partial year of Credited Service. (b) the sum of the following, determined as of December 31, 1991 and without regard to the $150,000 limitation under 1.16: (1) 1.15% of Final Average Earnings up to Covered Compensation multiplied by Credited Service up to 35 years. (2) 1.65% of Final Average Earnings in excess of Covered Compensation multiplied by Credited Service up to 35 years. (3) 1.0% of Final Average Earnings multiplied by Credited Service in excess of 35 years. (c) the annual accrued benefit on December 31, 1988 under the terms of the Plan as then in effect determined without regard to the $200,000 or $150,000 limitations under 1.16. A Participant will receive an Accrued Benefit for Military Service to the extent required by the Military Selective Service Act (or any prior or subsequent corresponding law). 15 20 4.2 Accrued Benefit Attributable to the Old Plan Account Effective January 1, 1988, the Accrued Benefit Attributable to the Old Plan Account as of the Participant's Normal Retirement Date will be equal to the Participant's Old Plan Account expressed as a monthly benefit under a life annuity commencing on his or her Normal Retirement Date using the Actuarial Equivalent basis for lump sum payments. 4.3 Accrued Benefit Attributable to Company Contributions The Accrued Benefit Attributable to Company Contributions will be equal to the excess, if any, of the Accrued Benefit over the Accrued Benefit Attributable to the Old Plan Account. 4.4 Old Plan Account A Participant's Old Plan Account is his or her individual account balance under this Plan which resulted from the transfer of funds from a terminated plan formerly sponsored by the Employer. The Old Plan Account shall include interest from the transfer date to the earlier of the Participant's Retirement Date or the date on which the Participant's Old Plan Account is otherwise payable pursuant to the provisions of this Plan (the determination date) as follows: The rate of interest shall be compounded annually. For Plan Years beginning before January 1, 1988, the interest rate shall be 5%. For each Plan Year beginning on or after January 1, 1988, the interest rate shall be 120% of the federal mid-term rate (as defined in Code Section 1274) in effect on the first day of such Plan Year. For purposes of determining the Accrued Benefit Attributable to the Old Plan Account, the Old Plan Account shall also include interest, compounded annually, at the Pension Benefit Guaranty Corporation's interest rate for valuing benefits under plans terminating on the first day of each Plan Year from the determination date to the Participant's Normal Retirement Date. In no event can a Participant's Old Plan Account be withdrawn prior to Termination of Employment, death or retirement. This section is effective January 1, 1988. Effective January 1, 1988, the Accrued Benefit Attributable to the Old Plan Account as of the Participant's Early Retirement Date will be equal to the monthly benefit determined under 4.2 and reduced as provided in Appendix III according to the Participant's age. 16 21 Article 5 Amount of Retirement Income 5.1 Monthly Retirement Income A Participant's Monthly Retirement Income commencing on his or her Normal Retirement Date, Early Retirement Date, Late Retirement Date, or Disability Retirement Date will be equal to his or her Accrued Benefit as of such date adjusted to reflect the Form of Retirement Income elected and, in the case of an Early Retirement Date, adjusted to reflect the age of the Participant on the date benefit payments commence. In the case of a Disability Retirement Date, the Accrued Benefit will also be adjusted as provided under Article 7. 5.2 Normal Retirement Income The monthly amount of Retirement Income payable to a Participant retiring on his or her Normal Retirement Date will be equal to the Accrued Benefit earned to his or her Normal Retirement Date. This Retirement Income will be subject to adjustment depending on the Form of Retirement Income elected in accordance with 5.7. 5.3 Early Retirement Income The monthly amount of Retirement Income payable to a Participant retiring on an Early Retirement Date will be equal to the Accrued Benefit earned to his or her Early Retirement Date reduced by 1/3 of 1% for each month by which the Early Retirement Date precedes his or her Normal Retirement Date. The Accrued Benefit Attributable to the Old Plan Account as of the Participant's Early Retirement Date is determined under 4.4. This Retirement Income will be subject to adjustment depending on the Form of Payment elected in accordance with 5.7. 5.4 Late Retirement Income (a) Effective January 1, 1988, the monthly amount of Retirement Income payable to a Participant retiring on a Late Retirement Date will be equal to his or her Accrued Benefit earned to the Late Retirement Date. This Retirement Income will be subject to adjustment depending on the Form of Retirement Income elected in accordance with 5.7. 17 22 (b) If the Participant earns additional Accrued Benefits after his or her Late Retirement Date, his or her Monthly Retirement Income will be redetermined as of the earlier of the Participant's required beginning date under 5.9(c) or the Participant's subsequent Termination of Employment. This redetermined benefit will be payable under the Form of Retirement Income elected on his or her Late Retirement Date in accordance with 5.7. 5.5 Disability Retirement Income Disability Retirement Income is described in 7.4. 5.6 Application for Retirement Income Each Participant must notify the Committee in writing of his or her intent to retire. Upon receipt of such notification, each married Participant will receive a written explanation of the terms and conditions of the various Forms of Retirement Income and the financial effect (in terms of dollars per monthly payment to the Participant and his or her surviving spouse) of electing a Form of Retirement Income other than the 50% Spouse Option. A Participant will have the right to elect or revise a previously elected Form of Retirement Income at any time during his or her Election Period. A Participant's Election Period is the 90 day period ending on the date his or her Retirement Income is to begin. The Committee will make Election Information available to a Participant within a reasonable period of time prior to the date Retirement Income is to begin. In no event will a Participant's Election Period end prior to the 30th day next following the day on which Election Information and the information provided in accordance with the first paragraph of this are first made available to him. For purposes of the Plan, Election Information means: (a) a written explanation of the 50% Spouse Option and the relative financial effect of the payment of Monthly Retirement Income in that form and in the Life Annuity form; and (b) a notification that Retirement Income payments will be made in the 50% Spouse Option form (or the Life Annuity Form if the Participant is not married) unless he or she elects otherwise during the Election Period and his or her spouse consents to such election. 18 23 The Participant must elect a form of payment in writing. An election of a form of payment other than a Spouse Option will not be valid without the written consent of the Participant's spouse. The spouse's consent must acknowledge the effect of the election and must be witnessed by a plan representative or notary public. The Participant may change his or her election at any time, and any number of times, during the 90 day period ending on the date his or her Retirement Income is to begin. The Participant may not change the form of payment without further spousal consent unless the spouse expressly permits such changes. The requirement for spouse's consent will be waived if the participant establishes to the satisfaction of the Committee that such consent cannot be obtained because there is no spouse, the spouse cannot be located or because of such other circumstances as the Secretary of the Treasury may by regulations prescribe. The election by the Participant and the consent of the spouse must be obtained no more than 90 days prior to the date benefit payments commence. If the spouse of a Participant who has elected a Spouse Option dies before Retirement Income payments begin, the Retirement Income will be paid to the Participant in the form of the Life Annuity. 5.7 Forms of Retirement Income A Participant retiring on his or her Normal, Early, Late, or Disability Retirement Date may elect one of the following Forms of Retirement Income payment: (a) Spouse Option. A Spouse Option provides for a monthly payment during the Participant's life. After the Participant's death a percentage of the Participant's Retirement Income will be paid for life to the Participant's spouse. The percentage to be paid to the Participant's spouse will be 50%, 66 2/3% or 100% as elected by the Participant. The monthly payment under the Spouse Option will be equal to the Actuarial Equivalent of the amount payable under the Life Annuity form. (b) Life Annuity. The Life Annuity form provides for a monthly payment during the Participant's life, with the last payment being made for the month in which the Participant's death occurs. (c) Lump Sum Payment of Old Plan Account Option. The Lump Sum Payment of Old Plan Account Option provides for a lump sum payment of the Participant's Old Plan Account as of the Participant's Retirement Date. The Participant's Accrued Benefit Attributable to Company Contributions is paid in a Life Annuity or Spouse 19 24 Option form as elected by the Participant. This form of payment is available to a Participant only one time, at the earlier of his or her retirement or Termination of Employment. (d) For purposes of this article, "spouse" means the legal spouse of the Participant on the date benefit payments commence. 5.8 Reemployment After Retirement In order to retire, a Participant must have a Termination of Employment. Effective January 1, 1992, if a Retired Participant is rehired by the Company, his or her Retirement Income will not be suspended. The Retired Participant may earn additional benefits as provided in Article 4. Any benefit attributable to service during the Participant's reemployment will be added to the Participant's Retirement Income and will be payable upon the earlier of the Participant's subsequent retirement or the Participant's required beginning date described in 5.9 (c). If the Participant dies during such period of reemployment, any death benefits attributable to service during the Participant's reemployment will be determined in accordance with Article 8. Any death benefit attributable to service before the Retired Participant's reemployment will be determined in accordance with the provisions of the applicable Form of Retirement Income elected at his or her original retirement. 5.9 Commencement of Benefits (a) Retirement Income payments will begin on the later of the Retirement Date elected by the Participant or the first day of the month following the date on which the Participant applies for a retirement benefit. (b) Unless a Participant elects otherwise, Retirement Income payments will begin not later than the 60th day after the end of the Plan Year in which: (1) the Participant's Normal Retirement Age, or (2) the Participant's Termination of Employment occurs, whichever is later. (c) The required beginning date described in this paragraph (c) will apply regardless of any election made by the Participant. 20 25 (1) Except as provided by subparagraphs (2), (3) and (4) below, Retirement Income payments will begin not later than April 1 of the calendar year following the calendar year in which the Participant attains age 70 1/2 whether or not such Participant's employment has terminated. (2) A Participant who attained age 70 1/2 in 1988, who is not a 5% owner, and who has not retired by January 1, 1989, will be treated as having retired on January 1, 1989. Retirement Income payments will begin not later than April 1, 1990 for such Participants. (3) Retirement Income payments for a Participant who attained age 70 1/2 before January 1, 1988, and who is not a 5% owner will begin not later than April 1 of the calendar year following the later of (A) the calendar year in which the Participant attained age 70 1/2, or (B) the calendar year in which the Participant retires. (4) Retirement Income payments for a Participant who attained age 70 1/2 before January 1, 1988, and who is a 5% owner will begin not later than April 1 of the calendar year following the later of (A) the calendar year in which the Participant attained age 70 1/2, or (B) the earlier of (i) the calendar year within which ends the Plan Year in which the Participant becomes a 5% owner, or (ii) the calendar year in which the Participant retires. (5) A Participant is treated as a 5% owner for purposes of this paragraph (c), if such Participant is a 5% owner as defined in Code Section 416(i) at any time during the Plan Year ending within the calendar year in which such owner attains age 66 1/2 or any subsequent Plan Year. Once a Participant is described in this subparagraph, distributions will continue to such Participant even if such Participant ceases to own more than 5% of the Company in a subsequent year. (6) If a Participant receives payments under this paragraph (c), such payments will be determined as if the Participant's Late Retirement Date were the date by which Retirement Income payments must be made under this paragraph (c). If the Participant continues to earn additional Accrued Benefits after this date, his or her Monthly Retirement Income will be redetermined on each January 1 following the date benefit payments commence. This redetermined benefit will be payable under the 21 26 Form of Retirement Income elected as of the Late Retirement Date in accordance with 5.7. 22 27 Article 6 Termination and Vesting 6.1 Vesting A Participant's vested Accrued Benefit will be equal to the sum of (a) and (b) below: (a) The Participant's Accrued Benefit Attributable to the Old Plan Account determined in accordance with 4.2. (b) Effective January 1, 1989, the Participant's Accrued Benefit Attributable to Company Contributions determined in accordance with multiplied by the vested percentage shown in the following table:
Years of Service Vested Percentage Less than 5 0% 5 or more 100%
In addition, an Employee's Accrued Benefit will be 100% vested on and after his or her Normal Retirement Age. A Participant will receive vesting credit for Military Service to the extent required by the Military Selective Service Act (or any prior or subsequent corresponding law). 6.2 Termination Benefit (a) A Terminated Vested Participant will have the option of: (1) withdrawing his or her Old Plan Account, in which event the Participant would be entitled to his or her vested Accrued Benefit Attributable to Company Contributions commencing on Normal or Early Retirement Date, or (2) leaving his or her Old Plan Account in the Plan, in which event the Participant would be entitled to his or her vested Accrued Benefit commencing on Normal or Early Retirement Date. (b) The monthly amount of Retirement Income payable to a Terminated Vested Participant who retires on his or her Normal Retirement Date will be equal to the vested Accrued Benefit (or, if the Old Plan Account has been withdrawn, the vested Accrued Benefit Attributable to Company Contributions) earned to the date of Termination of Employment. This Retirement Income will be subject to adjustment depending on the Form of Retirement Income elected in accordance with 5.7. 23 28 (c) The monthly amount of Retirement Income payable to a Terminated Vested Participant who retires on an Early Retirement Date will be equal to the Accrued Benefit (or, if the Old Plan Account has been withdrawn, the vested Accrued Benefit Attributable to Company Contributions) earned to the date of Termination of Employment adjusted in accordance with 5.3 for the date benefit payments commence and the Form of Payment elected. (d) Except as provided in 13.8, the Old Plan Account of a Participant will not be distributed pursuant to this 6.2 unless the Participant elects such distribution and the spouse of the Participant consents to the distribution not more than 90 days prior to the date of such distribution. The spouse's consent must acknowledge the effect of the election and must be witnessed by a plan representative or notary public. The requirement for spouse's consent will be waived if the Participant establishes to the satisfaction of the Committee that such consent cannot be obtained because there is no spouse, the spouse cannot be located or because of such other circumstances as the Secretary of the Treasury may by regulations prescribe. 6.3 Reemployment After Termination of Employment (a) If a Terminated Vested Participant is subsequently reinstated as an Active Participant, his or her Retirement Income will be based on the Participant's Accrued Benefit under the provisions of the Plan in effect as of his or her subsequent termination or retirement except that it may not be less than the Participant's Accrued Benefit as of the prior termination. (b) If a Nonvested Former Participant is subsequently reinstated as an Active Participant before the number of consecutive one year Breaks in Service equals or exceeds five, the appropriate Years of Service and Accrued Benefit will be reinstated. The Accrued Benefit for service prior to such Termination of Employment will be based on the provisions of the Plan in effect as of his or her subsequent termination or retirement except that it may not be less than the Participant's Accrued Benefit as of the prior termination. 24 29 Article 7 Disability Benefits 7.1 Determination of Disability A Participant has a total and permanent disability if: (a) the Participant is no longer capable of performing the duties assigned to him or her by the Company due to physical or mental disability, (b) the Participant is entitled to disability retirement income payments under Title II of the Federal Social Security Act, and (c) the Participant is eligible for disability benefits under the Company's Long Term Disability Plan. It will be the responsibility of the Participant to submit proof of disability satisfactory to the Committee. 7.2 Eligibility for Disability Benefits Effective January 1, 1989, a Disabled Participant or former Disabled Participant may retire on a Disability Retirement Date if the Participant has completed five Years of Service. A Disabled Participant who has four or more Years of Service may be credited with one additional Year of Service in the year he or she becomes disabled or in the following year. For this purpose, one month of total and permanent disability will be deemed to equal 190 Hours of Service. 7.3 Disability Retirement Date If the Participant's total and permanent disability continues until the Participant's Normal Retirement Date, the Participant's Disability Retirement Date shall be the Normal Retirement Date. If a Disabled Participant's total and permanent disability ends before the Normal Retirement Date, the Participant may retire on an Early, Normal, or Late Retirement Date, whichever applies, and such date will be his or her Disability Retirement Date. 7.4 Disability Retirement Income A Disabled Participant will be entitled to a monthly Disability Retirement Income beginning on his or her Disability Retirement Date. The amount will be equal to the Accrued Benefit earned to the Disability Retirement Date adjusted under 5.3 to reflect the date benefit payments commence. Disability Retirement Income will also be subject 25 30 to adjustment depending on the Form of Retirement Income elected in accordance with 5.7. In calculating the Accrued Benefit for purposes of this Article 7: (a) Final Average Earnings will be the Final Average Earnings as of the earlier of the date of total and permanent disability or December 31, 1991. (b) For Plan Years beginning on or after January 1, 1992, and before the earlier of the Participant's Normal Retirement Date or the end of the Participant's total and permanent disability, Earnings for each Plan Year will be the (annualized) Earnings in the Plan Year of the date of initial total and permanent disability. However, a Disabled Participant who is credited with the additional Year of Service under 7.2 will not be credited with Earnings for more than one Plan Year as a Disabled Participant. (c) A Disabled Participant will be deemed to earn Credited Service for the months before January 1, 1992, during which he or she is a Disabled Participant, provided that no Participant will be deemed to earn more than one month of Credited Service during any month. However, a Disabled Participant who is credited with the additional Year of Service under 7.2 will not be credited with more than one twelve month period of Credited Service as a Disabled Participant. (d) Effective January 1, 1989, a Disabled Participant will be deemed to meet the 1,000 Hours of Service requirement in each Plan Year in which he or she is a Disabled Participant to accrue a benefit under 4.1. However, a Disabled Participant who is credited with the additional Year of Service under 7.2 will not be credited with more than one extra Year of Service as a Disabled Participant. 26 31 Article 8 Death Benefits 8.1 Pre-Retirement Death Benefit (a) Death After Eligibility for Retirement If a Participant (other than a Retired Participant) dies on or after the earliest date on which he or she could retire in accordance with Article 3, his or her Eligible Spouse, if any, will receive a monthly benefit equal to the amount the Eligible Spouse would have been entitled to if the Participant had elected the 50% Spouse Option and retired on the first day of the month coinciding with or following the date of death. This benefit will be payable monthly to the Eligible Spouse beginning on the first day of the month coinciding with or next following the Participant's death and will continue until the death of the Eligible Spouse. (b) Death Before Eligibility for Retirement If a Participant who has a vested interest in his or her Accrued Benefit dies prior to the earliest date on which the Participant could retire in accordance with Article 3, his or her Eligible Spouse, if any, will receive a monthly benefit equal to the amount the Eligible Spouse would have been entitled to if the Participant had: (1) terminated employment on his or her date of death (if the Participant was an Employee on the date of death), (2) survived to the earliest date on which he or she could retire in accordance with Article 3 (the "Earliest Retirement Date"), (3) elected the 50% Spouse Option and retired on such Earliest Retirement Date, and (4) died immediately after retiring. This benefit will be payable monthly to the Eligible Spouse beginning on the Participant's Earliest Retirement Date and will continue until the death of the Eligible Spouse. 27 32 (c) Alternate Death Benefit For Active Participants In lieu of the benefit described in paragraph (a) or paragraph (b), the Eligible Spouse of an Active Participant who has completed ten Years of Service and who dies after attaining age 55 will receive the greater of: (1) 25% of the Participant's Earnings on the date of death, where the 25% factor is reduced by 1/2 of 1% for each year the Participant's age exceeds the age of his or her spouse; or (2) the benefit that would have been paid had the Participant retired on the date of death and elected an immediate 100% Spouse Option; provided that this benefit will not be paid unless it is greater than the Actuarial Equivalent of the benefit under (a) or (b), whichever is applicable. (d) Alternate Death Benefit For Old Plan Accounts In lieu of the benefit described in (a) or (b), the Eligible Spouse of a Participant who has an Old Plan Account may elect to receive payment of the Old Plan Account as a lump sum payment as soon a practicable after the Participant's death. The Participant's Accrued Benefit Attributable to Company Contributions will be paid in accordance with (a) or (b), whichever applies. (e) Benefits under this 8.1 will be paid as soon as practicable after the Participant's death except that the Eligible Spouse may elect to defer commencement of the benefit described in (a), (b), or (c) until any date which is before the Participant's Normal Retirement Date. An Eligible Spouse who makes an election under (d) may not defer receipt of the Old Plan Account. (f) The benefit under (a) or (b) will apply to Terminated Vested Participants even if their Termination of Employment occurred prior to the effective date of these paragraphs. 8.2 Post-Retirement Death Benefit Death Benefits for a Retired Participant will be determined in accordance with the provisions of the applicable Form of Retirement Income elected. 28 33 8.3 Return of Old Plan Account Upon the death of the Participant or, if later, the death of the Eligible Spouse entitled to payments under 8.1 or 8.2, the Participant's remaining Old Plan Account, if any, will be paid to the Participant's Beneficiary. For purposes of this 8.3, the Participant's remaining Old Plan Account will be equal to the excess, if any, of: (a) the Participant's Old Plan Account as of his or her date of death or, if earlier, Retirement Date over (b) the sum of all amounts previously paid from the Trust Fund on such Participant's behalf. 29 34 Article 9 Financing The Plan 9.1 Company Contributions (a) The Company expects to make the contributions necessary to provide the benefits of the Plan. Such contributions will not be less than the amount necessary to meet the minimum funding standards of ERISA. (b) All contributions will be deposited in the Trust Fund and will be disbursed in accordance with the provisions of the Plan and the Trust Agreement. All benefit payments under the Plan will be paid from the Trust Fund. No person will have any interest in, or right to, any part of the assets of the Plan except as expressly provided in the Plan. (c) Gains arising from experience under the Plan will not serve to increase the benefits otherwise due any Participant, but will be used to reduce future Company contributions. 9.2 Return of Company Contributions (a) Except as provided below and in 10.2, the assets of the Plan will never inure to the benefit of the Company and will be held for the exclusive purposes of providing benefits to Participants of the Plan and their Beneficiaries and defraying reasonable expenses of administering the Plan. (b) If a contribution is made by the Company by a mistake of fact, such contribution will be returned to the Company provided this is done within one year after the payment of such contribution. (c) Contributions are conditioned upon their current deductibility under Code Section 404. If a contribution deduction is disallowed, to the extent the deduction is disallowed, such contribution will be returned to the Company within one year after the disallowance. 9.3 Employee Contributions The Company pays the entire cost of the Plan. No employee contributions or rollovers are required or permitted. 30 35 Article 10 Financing The Plan 10.1 Termination of Plan The Company expects to continue the Plan indefinitely but reserves the right to terminate the Plan in whole or in part. 10.2 Procedures Upon Termination of Plan Upon termination of the Plan, the following provisions will apply: (a) Upon complete termination of the Plan, the Accrued Benefit of each Active or Inactive Participant will become fully vested and nonforfeitable (to the extent funded). No additional Employees will become Participants. Upon partial termination of Plan, the Accrued Benefit of each Active or Inactive Participant who is affected by such partial termination will become fully vested and nonforfeitable (to the extent funded). (b) The assets of the Plan available to provide benefits will be allocated among Participants and their Beneficiaries in the manner and order prescribed by ERISA Section 4044. If any assets of the Plan remain after all liabilities of the Plan to Participants and their Beneficiaries have been satisfied or provided for, any residual assets will be paid to the Company, provided such payment does not contravene any provision of law. 31 36 Article 11 Top-Heavy Provisions 11.1 Top-Heavy Plan Notwithstanding any other provision of this Plan to the contrary, this article will apply if the Plan is a Top-Heavy Plan. The Plan will be a Top-Heavy Plan if, as of the Determination Date, the present value of the cumulative accrued benefits of Key Employees exceeds sixty percent of the present value of the cumulative accrued benefits under the Plan of all Participants and Beneficiaries (but excluding the value of the accrued benefits of former Key Employees and individuals who have not performed any services for the Company during the five year period ending on the Determination Date). This percentage will be computed in accordance with Code Section 416(g). In determining whether this Plan is a Top-Heavy Plan, all employers that are aggregated under Code Sections 414(b), (c) and (m) will be treated as a single employer. In addition, all plans that are part of the Aggregation Group will be treated as a single plan. In determining present values, mortality will be based on the 1984 Unisex Pension Mortality Table and the interest rate utilized will be five percent. 11.2 Definition of Terms For purposes of this article only, the following terms will have the following meanings: (a) "Aggregation Group" means the Required Aggregation Group or, at the election of the Company, the Permissive Aggregation Group. (b) "Average Compensation" means the Participant's Compensation averaged over the five consecutive Plan Years in which the Participant earned a Year of Service (if such Year of Service is not disregarded pursuant to 11.4) and in which the Participant's aggregate Compensation was the greatest. If the Participant received Compensation in fewer than five such Plan Years, his or her Compensation will be averaged over such lesser number of Plan Years. (c) "Compensation" for purposes of this article and 13.9 only means a Participant's wages from the Company within the meaning of Code Section 3401(a), and all other payments of compensation to the Participant by the Company (in the course of the Company's trade or 32 37 business), for which the Company is required to furnish a written statement to the Participant under Code Sections 6041(d) and 6051(a)(3) (IRS Form W-2 - wages, tips and other compensation). Compensation will also be limited by the $200,000 and $150,000 limits as described in 1.14 (d) "Determination Date" means the last day of the preceding Plan Year. This date will also be the valuation date for determining present values. (e) "Key Employee" means an Employee, a former Employee, or the Beneficiary of a former Employee who, in the Plan Year containing the Determination Date, or any of the four preceding Plan Years, is: (1) An officer of the Company having an annual compensation from the Company greater than 50 percent of the amount in effect under Code Section 415(b)(1)(A) for the calendar year in which any such Plan Year ends. Not more than fifty Employees (or, if fewer, the greater of three Employees or ten percent of the Employees not excluded under Code Section 414(q)(8)), including those Employees included under paragraphs (2), (3) and (4) below, will be considered as officers for purposes of this subparagraph. (2) One of the ten Employees having an annual Compensation from the Company greater than the amount in effect under Code Section 415(c)(1)(A) for the calendar year in which any such Plan Year ends and owning (or considered as owning within the meaning of Code Section 318) both more than a one-half percent interest and the largest interests in the Company. (3) A five-percent owner of the Company. (4) A one-percent owner of the Company having an annual Compensation from the Company of more than $150,000 for a Plan Year. Whether an Employee is a five-percent owner or a one-percent owner will be determined in accordance with Code Section 416(i). Neither the aggregation rules nor the rules under Code Sections 414(b), (c) and (m) will apply in determining whether an Employee is a five-percent owner or a one-percent owner. 33 38 (f) "Non-key Employee" means an Employee (and any Beneficiary of an Employee) who is not a Key Employee. (g) "Permissive Aggregation Group" means the Required Aggregation Group of plans plus any other plan or plans of the Company which, when considered as a group with the Required Aggregation Group, would continue to satisfy the requirements of Code Sections 401(a)(4) and 410. (h) "Required Aggregation Group" means: (1) Each stock bonus, pension, or profit sharing plan of the Company in which a Key Employee participates in the Plan Year containing the Determination Date or any of the four preceding Plan Years which is intended to qualify under Code Section 401(a); and (2) Each other such stock bonus, pension or profit sharing plan of an employer which enables any plan in which a Key Employee participates to meet the requirements of Code Sections 401(a)(4) or 410. (i) "Top-Heavy Group" means the Aggregation Group if the sum of (1) and (2) below exceeds sixty percent of a similar sum determined for all Employees (excluding former Key Employees and individuals who have not performed any services for the Company during the five year period ending on the Determination Date): (1) The present value of the cumulative accrued benefit for Key Employees under all defined benefit plans included in such group. (2) The aggregate of the accounts of Key Employees under all defined contribution plans included in such group. In a Top-Heavy Group, all plans in the Required Aggregation Group are Top-Heavy regardless of whether or not the individual plans are Top-Heavy. 11.3 Modification of Vesting Schedule If the Plan is a Top-Heavy Plan in a Plan Year, a Participant who is credited with an Hour of Service in such Plan Year will have his or her Vested Percentage for Accrued Benefit Attributable to Company Contributions determined in accordance with the following schedule if it produces a higher Vested Percentage than the schedule in 6.1(b). 34 39
Years of Service Vested Percentage ---------------- ----------------- Less than 2 0% 2 20% 3 40% 4 60% 5 80% 6 or more 100%
A Participant's vested Accrued Benefit Attributable to Company Contributions will not be less than that determined as of the last day of the last Plan Year in which the Plan was a Top-Heavy Plan. If the Plan ceases to be Top-Heavy, each Participant with three or more Years of Service (determined as of the first day of the Plan Year in which the Plan ceases to be Top-Heavy) will continue to have his or her Vested Percentage for Accrued Benefit Attributable to Company Contributions determined in accordance with this 11.3. 11.4 Minimum Benefit If the Plan is Top-Heavy in a Plan Year, the Accrued Benefit as of the last day of such Plan Year for any Participant who is not a Key Employee, but who is employed or on an Authorized Period of Absence in such Plan Year, will not be less than the Actuarial Equivalent of an annual benefit payable in the form of a straight life annuity beginning on the Participant's Normal Retirement Date equal to the lesser of (i) two percent of the Participant's Average Compensation multiplied by Years of Service or (ii) twenty percent of the Participant's Average Compensation. For purposes of this 11.4, any Year of Service will be disregarded if: (1) the Plan was not a Top-Heavy Plan for any Plan Year ending during such Year of Service, or (2) such Year of Service ended in a Plan Year beginning before January 1, 1984. A Participant's Accrued Benefit as of any subsequent date will not be less than that determined as of the last day of the Plan Year in which the Plan was a Top-Heavy Plan. 11.5 Modification of Maximum Benefit If the Plan is a Top-Heavy Plan in a Plan Year, 13.9(i)(1)(b) and 13.9(i)(2)(b) will be amended for such Plan Year by substitution of "100%" for "125%" where such percentage appears therein. 35 40 Article 12 Administration of the Plan 12.1 Administration (a) The Retirement Committee ("Committee") will consist of three or more individuals who will be appointed by the Board of Directors of the Company. The Committee will serve as Plan Administrator and as the named fiduciary pursuant to ERISA. The Committee will have complete control of the administration of the Plan, subject to the provisions hereof, with all powers necessary to enable it to carry out its duties properly in that respect. Not in limitation, but in amplification of the foregoing, it will have the power to interpret the Plan and to determine all questions that may arise hereunder, including all questions relating to the eligibility of Employees to participate in the Plan and the amount of benefit to which any Participant or Beneficiary may become entitled. Its decisions upon all matters within the scope of its authority will be final. (b) The Committee will establish rules and procedures to be followed by Participants and Beneficiaries in filing applications for benefits, in furnishing and verifying proofs necessary to determine age or marital status, and in any other matters required to administer the Plan. (c) The Committee will receive all applications for benefits and will determine all facts necessary to establish the right of the applicant to benefits under the provisions of the Plan and the amount thereof. (d) The Committee will maintain accounts showing the fiscal transactions of the Plan, and will keep data required for the valuation of the assets and liabilities of the Plan. The Committee will also prepare an annual report showing in reasonable detail the assets and liabilities of the Plan and giving a brief account of the operation of the Plan for each year. The Committee will make the annual report available to each Participant as required by law. (e) The Committee will appoint an enrolled actuary to make actuarial valuations of the liabilities of the Plan, to recommend the amount of contributions to be made by the Company and to perform such other services as the Committee will deem necessary or desirable in connection with the administration of the Plan. The Committee may also appoint such accountants, counsel, consultants and other persons the 36 41 Committee deems necessary or desirable in connection with the administration of the Plan. (f) The Committee will have the power to appoint or remove any Investment Manager or Managers and to manage (including the power to acquire and dispose of) any assets of the Plan. (g) The Committee will have the power to appoint or remove the Trustee. (h) The Committee will be entitled to rely upon all tables, valuations, certificates and reports furnished by the accountant, consultant, administrator or actuary appointed by the Committee and upon all opinions given by any counsel selected or approved by it. 12.2 Records All acts and determinations of the Committee and the Company regarding this Plan will be duly recorded and all such records, together with such other documents as may be necessary for the administration of the Plan, will be preserved in the custody of the Committee. 12.3 Payment of Expenses All expenses that arise in connection with the administration of the Plan, including, but not limited to, the compensation of any enrolled actuary, accountant, legal counsel, consultant or other person who will be employed by the Committee in connection with the administration thereof, may be paid from the assets of the Plan. 12.4 Delegation of Authority The administrative duties and responsibilities set forth in 12.1 may be delegated by the Committee in whatever manner and extent it chooses to such person or persons as it selects. It will notify the Company and the Trustee of the authority conferred upon such person or persons. 12.5 Information Available Any Participant in the Plan or any Beneficiary receiving benefits under the Plan may examine copies of the Plan description, latest annual report, any bargaining agreement, the Plan, the Trust Agreement or any other instrument under which the Plan was established or is operated. The Committee will maintain all of these items in its office, or in such other place or places as it may designate from 37 42 time to time for examination during reasonable business hours. Upon the written request of a Participant or Beneficiary receiving benefits under the Plan, the Committee will furnish a copy of any item listed in this 12.5. The Committee may make a reasonable charge to the requesting person for the copy furnished. 12.6 Claims Procedure The Committee will adopt procedures for the presentation of claims for benefits and for the review of the denial of such claims by the Committee. Detailed information regarding such procedures may be obtained by writing to the Retirement Committee. The decision of the Committee upon such review will be final, subject to appeal rights provided by law. 12.7 Fiduciary Capacity Any person may serve in more than one fiduciary capacity with respect to this Plan. 12.8 Committee Liability The members of the Committee will use ordinary care and diligence in the performance of their duties, but no member will be personally liable by virtue of any contract, agreement, or other instrument made or e xecuted as a member of the Committee, nor for any mistake of judgment made by him or her or by any other member, nor for any loss unless resulting from willful misconduct or failure to exercise good faith. No member of the Committee will be liable for the neglect, omission, or wrongdoing of any other member or of the agents or counsel of the Committee. The Company will indemnify each member of the Committee against, and hold him or her harmless from any and all expenses and liabilities arising out of any act or omission to act as a member of the Committee, except such liabilities and expenses as are due to willful misconduct or failure to exercise good faith. 38 43 Article 13 General Provisions 13.1 Amendment of Plan (a) The Company may amend the Plan at any time. Such amendments may include any remedial retroactive changes to comply with the requirements of any law or regulation issued by any governmental agency to which the Company is subject. No amendment will diminish or adversely affect any accrued interest or benefit of Participants or their Beneficiaries, except as may be required to comply with the requirements of any law or regulation issued by any governmental agency to which the Company is subject. (b) If any amendment to the Plan changes the vesting schedule, each Participant who is an Employee with at least three Years of Service may elect to remain under the vesting schedule of the Plan prior to such amendment. If the Participant does not make the election within a reasonable time (as may be determined pursuant to governmental regulations from time to time), such Participant will be subject to the vesting schedule under the Plan as amended. In no event will the vesting percentage of the Participant's Accrued Benefit be reduced below the percentage attained by the Participant prior to such amendment. (c) In no event will a Participant who terminates or retires on or after the date any amendment to the Plan is effective receive less than his or her vested percentage multiplied by the Accrued Benefit prior to such date. This amount will be adjusted for the date of retirement and form of payment on the basis in effect prior to such amendment. (d) If any amendment to the Plan eliminates an optional form of payment, a Participant may continue to elect such form of payment with respect to any Accrued Benefit earned prior to the effective date of such amendment. 13.2 Employment Status Nothing contained in the Plan will be deemed to give any Employee the right to be retained in the employ of the Company or to interfere with the rights of the Company to discharge any Employee at any time. 39 44 13.3 Mergers or Consolidations If this Plan merges or consolidates with, or transfers its assets or liabilities to any other qualified plan of deferred compensation, no Participant will, as a result of such merger, consolidation or transfer, be entitled to a benefit on the day following such event which is less than the benefit to which he or she is entitled on the day preceding such event. For purposes of this 13.3, the benefit to which a Participant is entitled will be calculated based upon the assumption that a Plan termination and distribution of assets occurred on the day as of which the Participant's entitlement is being determined. 13.4 Provision Against Anticipation No benefit under the Plan will be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge or other legal process, and any attempt to do so will be void. The preceding sentence will not apply to a qualified domestic relations order pursuant to Code Section 414(p). 13.5 Facility of Payment If any Participant or Beneficiary is physically or mentally incapable of giving a valid receipt for any payment due him and no legal representative has been appointed for such Participant or Beneficiary, the Committee may direct the Trustee to make such payment to any person or institution maintaining such Participant or Beneficiary and the release of such person or institution will be a valid and complete discharge for such payment. Any final payment or distribution to any Participant, the legal representative of the Participant, or to any Beneficiaries of such Participant in accordance with the provisions herein will be in full satisfaction of all claims against the Plan, the Committee, the Trustee and the Company arising under or by virtue of the Plan. 13.6 Construction The validity of the Plan or any of its provisions will be determined under and will be construed according to federal law and, to the extent permissible, according to the laws of the State of Washington. If any provision of the Plan is held illegal or invalid for any reason, such determination will not affect the remaining provisions of the Plan and the Plan will be construed and enforced as if said illegal or invalid provision had never been included. 40 45 13.7 Legal Actions The Committee will be the necessary party to any action or proceeding involving the assets held with respect to the Plan or the administration thereof. No Employee, Participant, former Participant or their Beneficiaries, or any other person having or claiming to have an interest in the Plan will be entitled to any notice or process. Any final judgment that may be entered in any such action or proceeding will be binding and conclusive on all persons having or claiming to have any interest in the Plan. 13.8 Payment of Small Benefits Effective January 1, 1989, if a Participant terminates employment, dies, or retires and the Actuarial Equivalent value of any benefit payable under the Plan to such Participant or his or her Beneficiary does not exceed $3,500, the Committee will pay the Actuarial Equivalent value of such benefit to the Participant or Beneficiary in a lump sum. This payment must be made before the first day of the first period for which an amount is payable as an annuity unless the Participant and the Participant's spouse, if any, give written consent. If a lump sum payment is made, no other benefit under the Plan will be due to the Participant or Beneficiary unless the Participant repays such amount with interest at the rate of five percent per year. Such repayment must be made prior to the earlier of: (1) the fifth anniversary of the Participant's reemployment date, or (2) the date the Participant incurs five consecutive one year Breaks in Service. If the Participant's Vested Percentage is zero, the Participant will be deemed to have received a distribution of the Vested Percentage of his or her Accrued Benefit and to have forfeited the nonvested percentage of his or her Accrued Benefit. The deemed distribution will be deemed repaid if the former Participant is reemployed by the Company before the date the former Participant incurs five consecutive one-year Breaks in Service. If repayment is made, the Accrued Benefit which the Participant had earned prior to the date he or she terminated employment will be reinstated pursuant to 6.3. If the Actuarial Equivalent value of the Participant's benefit at the time of a distribution exceeds $3,500, then such value at any subsequent time will be deemed to exceed $3,500. 41 46 13.9 Maximum Retirement Benefit (a) For purposes of this 13.9 only, the following definitions will apply: (1) "Annual Benefit" means a retirement benefit payable annually in the form of a straight life annuity. A benefit payable in a form other than a straight life annuity will be adjusted to be the Actuarial Equivalent of a straight life annuity before applying the limitations of this 13.9. However, no actuarial adjustment will be made for the value of a qualified joint and survivor annuity or the value of benefits that are not directly related to retirement benefits. (2) "Compensation" has the meaning defined in 11.2(c). (3) "Limitation Year" means a Plan Year. (4) "Social Security Retirement Age" means the age used as the retirement age for a Participant under Section 216(l) of the Social Security Act except that such section will be applied without regard to the age increase factor, and as if the early retirement age under Section 216(l)(2) of such Act were 62. (b) The Annual Benefit of a Participant may not at any time within a Limitation Year exceed the lesser of (1) or (2) below: (1) $98,064 for 1989. Each January 1 this $98,064 limitation will automatically be adjusted to the new dollar limitation prescribed by the Secretary of the Treasury for that calendar year. The new limitation will apply to Limitation Years ending within the calendar year of the date of adjustment. (2) 100% of the annual average of the Participant's Compensation from the Company for the three consecutive Limitation Years (or all Limitation Years, if fewer than three), which give the highest average. (c) If the Annual Benefit payable to a Participant under this Plan and all other defined benefit plans of the Company does not exceed $10,000 and the Company has not maintained a defined contribution plan in which the Participant participated, the maximum otherwise imposed by this 13.9 will not apply. 42 47 (d) Service or participation less than ten years (1) If a Participant has completed less than ten years of participation in the Plan the limit otherwise imposed by 13.9(b)(1) will be multiplied by the ratio of the Participant's years (or part thereof) of participation in the Plan to ten. This ratio will not be less than one-tenth. (2) If a Participant has completed less than ten Years of Service, the limits otherwise imposed by 13.9(b)(2) and 13.9(c) will be multiplied by the ratio of the Participant's Years of Service (or part thereof) to ten. This ratio will not be less than one-tenth. (3) To the extent provided by the Secretary of the Treasury, this 13.9(d) will be applied separately with respect to each change in the benefit structure of the Plan. (e) If a Participant's benefit payments are to commence before the Participant's Social Security Retirement Age, the maximum benefit amount will be reduced as follows: (1) If the Participant's benefit payments are to commence at or after age 62 and the Participant's Social Security Retirement age is 65, the amount described in 13.9(b)(1) will be reduced by five-ninths of one percent for each month by which benefits commence before the month in which the Participant attains age 65 or, (2) If the Participant's benefit payments are to commence at or after age 62 and the Participant's Social Security Retirement age is greater than 65, the amount described in 13.9(b)(1) will be reduced by five-ninths of one percent for each of the first 36 months and five twelfths of one percent for each of the additional months (up to 24) by which benefits commence before the month in which the participant attains Social Security Retirement Age. (3) If the Participant's benefit payments are to commence prior to the month in which the Participant attains age 62, the maximum benefit amount described in 13.9(b)(1) will reduced to the Actuarial Equivalent of the limit at age 62 determined pursuant to 13.9(e)(1) or 13.9(e)(2). For purposes of this 13.9(e) and 13.9(f) only, actuarial 43 48 equivalence will be computed using an interest rate of 5% and the 1984 Unisex Pension Mortality Table. (f) If a Participant's benefit payments are to commence after the Participant's Social Security Retirement Age, the maximum benefit amount described in 13.9(b)(1) will be actuarially increased. (g) If the Accrued Benefit of any Participant as of the close of the last Limitation Year beginning before January 1, 1987 exceeds the benefit limitations under Code Section 415(b) then, for purposes of Code Section 415(b) and (e) such Participant's defined benefit dollar limitation under Code Section 415(b)(1) will be equal to his or her Accrued Benefit, determined as of such date as if the Participant had separated from service on that date. For purposes of this paragraph, any changes in the terms and conditions of the Plan or cost of living adjustments occurring after May 5, 1986 will be disregarded. (h) All defined benefit plans of the Company, terminated or not, will be considered as one plan for purposes of the limitations specified under this 13.9, and all entities of a controlled group of entities will be considered as one employer. (i) In any case in which a person is a Participant in both a defined benefit plan and a defined contribution plan maintained by the Company or any Affiliate or Subsidiary of the Company, the sum of (1) and (2) below for any Limitation Year may not exceed 1.0: (1) The defined benefit plan fraction for such Limitation Year is equal to the quotient of (A) divided by (B) below: (A) The Annual Benefit of the Participant under the Plan and all other defined benefit plans (determined as of the close of such Limitation Year). (B) The lesser of 125% of the amount described in 13.9(b)(1) and 140% of the amount described in 13.9(b)(2). If the Employee was a participant in one or more defined benefit plans maintained by the Company, or any Affiliate or Subsidiary of the Company, which were in existence on May 5, 1986, the amount calculated in (B) will not be less than 125% of the Employee's accrued benefit under such 44 49 defined benefit plans as of December 31, 1986, determined without regard to any change in the terms or conditions of the plan made after May 5, 1986, and without regard to any cost of living adjustment occurring after May 5, 1986. The preceding sentence only applies if the defined benefit plans individually and in the aggregate satisfied the requirement of Code Section 415 as in effect on December 31, 1986. (2) The defined contribution plan fraction for such Limitation Year is equal to the quotient of (A) divided by (B) below: (A) The aggregate of the annual additions to the Participant's account under said defined contribution plan as of the close of such Limitation Year. (B) The lesser of 125% of the maximum annual additions to such account for all Years of Service with the Company, or 1.4 multiplied by 25% of the Participant's Compensation for all Years of Service with the Company. If the Plan satisfied the applicable requirements of Code Section 415 as in effect for the last Plan Year beginning before January 1, 1987, an amount will be subtracted from the amount calculated in (A) (but not reducing the amount in (A) to less than zero) so that the sum of the defined benefit fraction and defined contribution fraction computed under Code Section 415(e)(1) does not exceed 1.0 for such Plan Year (determined as if the changes to Code Section 415 made by the Tax Reform Act of 1986 and any technical corrections to such act were in effect for such Plan Year). (3) If the sum of (1) and (2) exceeds 1.0, the Annual Benefit under this Plan will be limited to such amount as will reduce such sum to 1.0. 13.10 Additional Benefit Limits for Highly Compensated Employees (a) For purposes of this 13.10 only, the following definitions will apply: (1) "Benefit" means benefits under the Plan and includes any loans in excess of the amounts set forth in Code Section 72(p)(2)(A), any annual periodic income, any withdrawal values payable to 45 50 a living Employee and any death benefits not provided by insurance on the Employee's life. (2) "Current Liabilities" is defined in Code Section 412(l)(7) provided that the Company may elect to use the value of current liabilities as reported on Schedule B of the Plan's most recent timely filed Form 5500 or Form 5500 C/R. Alternatively, the Company may determine current liabilities as of a later date. (3) "Highly Compensated Employee" means: (A) Any Employee who performs services for the Controlled Group during the determination year and who, during the look-back year: (i) received Total Earnings in excess of $75,000 (as adjusted by the Secretary of the Treasury for the relevant year), (ii) received Total Earnings in excess of $50,000 (as adjusted by the Secretary of the Treasury for the relevant year) and was a member of the top-paid group for such year, or (iii) was an officer (within the meaning of Code Section 416(i)) of the Controlled Group and received Total Earnings during such year that were greater than 50% of the dollar limitation in effect under Code Section 415(b)(1)(A). (B) Any Employee who is both (i) described in 12.10(a)(3)(A) if the term "determination year" is substituted for the term "look-back year" and (ii) is one of the 100 Employees who received the most Total Earnings from the Controlled Group during the determination year. (C) Any Employee who is a 5% owner (as defined in Code Section 416(i)(1)(A)(iii)) of the Company at any time during the look-back year or the determination year. (D) If no officer has satisfied the compensation requirement of 12.10(a)(3)(A)(iii) during either a determination year or look- back year, the highest paid officer for such determination year will be treated as 46 51 a Highly Compensated Eligible Employee if such officer is an Eligible Employee. No more than 50 Employees (or if less, the greater of three Employees or 10% of the Employees) will be treated as officers. (E) For purposes of this 13.10 the following definitions apply. The determination year is the Plan Year. The look-back year is the 12-month period immediately preceding the determination year. The top-paid group is the top 20% of Employees ranked on the basis of compensation received during the year and will be determined in accordance with Code Section 414(q)(8) and the regulations thereunder. (F) An Employee who is a 5% owner or one of the 10 highly compensated employees in the Controlled Group paid the greatest amount of Total Earnings during the Plan Year and such Employee's spouse, lineal ascendants or descendants and the spouses of such lineal ascendants or descendants will be treated as a single Employee for purposes of this 13.10. (4) "Highly Compensated Former Employee" means any former Employee who was a Highly Compensated Employee for a separation year (as defined in Treasury Regulation section 1.414(q)-1T) or for any determination year ending on or after the Employee attains age 55, as provided by Code Section 414(q)(9) and the regulations thereunder. (5) "Restricted Amount" is the excess of the accumulated amount of distributions to a Restricted Employee over the accumulated amount of the payments that would have been paid under: (A) a straight life annuity that is the actuarial equivalent of the Restricted Employee's Benefit (other than a social security supplement), plus (B) the amount of the payments that the Restricted Employee is entitled to receive under a social security supplement. For this purpose, an "accumulated amount" is the amount of a payment increased by a reasonable amount of interest from the date the payment was made (or would have been made) 47 52 until the date for the determination of the Restricted Amount. (6) "Restricted Employee" for any Plan Year means one of the 25 Highly Compensated Employees or Highly Compensated Former Employees with the greatest compensation. (b) In the event the Plan is terminated, the Benefit payable to any Highly Compensated Employee and any Highly Compensated Former Employee will be limited to a benefit which is nondiscriminatory under Code Section 401(a)(4). (c) Prior to Plan termination, the annual payment to a Restricted Employee under the Plan will be limited to an amount equal to the annual payment that would have been paid under a straight life annuity that is the actuarial equivalent to the Restricted Employee's Benefit (not including any social security supplement) plus the amount of any social security supplement payments the Restricted Employee is entitled to receive. (d) 13.10(c) will not apply if: (1) after payment of all Benefits to the Restricted Employee, the value of Plan assets is 110% or more of the value of Current Liabilities, (2) the value of Benefits payable to the Restricted Employee is less than one percent of the value of Current Liabilities, or (3) the present value of the Benefits payable to the Restricted Employee is $3,500 or less, or (4) upon receipt of a distribution from the Plan, the Restricted Employee deposits in escrow property having a fair market value equal to at least 125% of the Restricted Amount or, alternatively, posts a bond or letter of credit in an amount equal to at least 100% of the Restricted Amount. 13.11 Eligible Rollover Distribution (a) This 13.11 applies to distributions made on or after January 1, 1993. Notwithstanding any provision of the plan to the contrary that would otherwise limit a distributee's election under this 13.11, a distributee may elect, at the time and in the manner prescribed by the plan administrator, to have any portion of an eligible rollover distribution paid directly to an 48 53 eligible retirement plan specified by the distributee in a direct rollover. (b) Definitions. (1) Eligible rollover distribution: An eligible rollover distribution is any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee's designated beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under Code Section 401(a)(9); and the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). (2) Eligible retirement plan: An eligible retirement plan is an individual retirement account described in Code Section 408(a), an individual retirement annuity described in Code Section 408(b), an annuity plan described in Code Section 403(a), or a qualified trust described in Code Section 401(a) that accepts the distributee's eligible rollover distribution. However, in the case of an eligible rollover distribution to the surviving spouse, an eligible retirement plan is an individual retirement account or individual retirement annuity. (3) Distributee: A distributee includes an employee or former employee. In addition, the employee's or former employee's surviving spouse and the employee's or former employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Code Section 414(p), are distributees with regard to the interest of the spouse or former spouse. (4) Direct rollover: A direct rollover is a payment by the plan to the eligible retirement plan specified by the distributee. 49 54 13.12 Procedures with Respect to Domestic Relations Orders (a) In the event that a domestic relations order is received by the Plan, the Committee shall promptly notify the affected Participant and any alternate payee (or such payee's designated representative) of the receipt of such order and the Plan's procedures for determining the qualified status of such order under Code Section 414(p). The Committee shall then, within a reasonable period after receipt of such order, determine whether such order is a qualified domestic relations order and notify the Participant and each alternate payee (or such payee's designated representative) of its determination. If a Participant or an alternate payee is dissatisfied with the determination of the Committee, the Participant may appeal the Committee's decision by following the Plan procedure for appealing denied claims. (b) The term "domestic relations order" as used herein means any judgment, decree, or order (including approval of a property settlement agreement) which relates to the provision of child support, alimony payments, or marital property rights to a spouse, former spouse, child, or other dependent of a Participant, and is made pursuant to State law. The term "qualified domestic relations order" means a domestic relations order which assigns to an alternate payee the right to receive all or a portion of the benefits payable with respect to a Participant under the Plan, and meets the following requirements: (1) A qualified domestic relations order must clearly specify: (A) Then name and last known mailing address of the Participant and of each alternate payee, (B) The amount or percentage of the Participant's benefit to be paid by the Plan to each alternate payee, or the manner in which such percentage is to be determined, (C) The number of payments or period to which such order applies, and (D) Each plan of the Company to which it applies. (2) A qualified domestic relations order may not require the Plan to provide: 50 55 (A) Increased benefits (on the basis of actuarial value), (B) Benefits to an alternate payee which are required to be paid to another alternate payee under another order previously determined to be a qualified domestic relations order, or (C) Any type or form of benefit, or any option, not otherwise provided under the Plan except that benefits (to the extent vested) may be paid to an alternate payee on or after the date which is ten years before the Participant's Normal Retirement Age without regard to whether the Participant has terminated employment. (c) During any period in which the qualified status of a domestic relations order is being determined, the Committee shall direct the Trustee to separately account for the amounts (referred to as "segregated amounts") which would have been payable to the alternate payee during such period if the order had been determined to be qualified. If within 18 months the order (or modification thereof) is determined to be a qualified domestic relations order, the Committee shall allow payment of such segregated amounts to the alternate payee. Otherwise, the segregated amounts shall be paid without regard to the court order. Executed this 16th day of December, 1994 at Salt Lake City, Utah. ZIONS BANCORPORATION by /s/ Harris H. Simmons -------------------------------------- President ATTEST: /s/ Gary L. Anderson - -------------------------------------- Secretary 51 56 Appendix I ZIONS BANCORPORATION PENSION PLAN Joint and Survivor Option Factors An Employee retiring at any age will have the following factors applied to his or her Accrued Benefit.
Joint & Survivor Option 50% 66 2/3% 100% ---------------------------------------------- Spouse same age as Employee .880 .850 .790 For each year the Spouse is younger than the Employee subtract -.005 -.006 -.008 For each year the Spouse is older than the Employee add +.005 +.006 +.008
The maximum adjustment for age differential is limited to 20 years. 52 57 Appendix II ZIONS BANCORPORATION PENSION PLAN Lump Sum Factors For the purpose of calculating the lump sum equivalent of a Participant's Accrued Benefit as of any date in a Plan Year commencing after December 31, 1985, the 1984 Unisex Pension Mortality Table is used together with the Pension Benefit Guaranty Corporation's interest rate(s) for valuing benefits under plans terminating on the first day of such Plan Year; provided that in no event shall such lump sum be less than the present value as of December 31, 1985 of a Participant's Accrued Benefit to December 31, 1985 on the basis of the following actuarial factors. Actuarial factors used prior to December 31, 1985 for valuing a deferred annuity of $1 per year commencing at age 65 and payable in monthly installments:
Age Factor Age Factor --- ------ --- ------ 32 0.6404 49 2.4180 33 0.6920 50 2.6182 34 0.7479 51 2.8357 35 0.8082 52 3.0721 36 0.8735 53 3.3292 37 0.9441 54 3.6090 38 1.0205 55 3.9138 39 1.1031 56 4.2458 40 1.1925 57 4.6080 41 1.2892 58 5.0034 42 1.3939 59 5.4356 43 1.5073 60 5.9088 44 1.6301 61 6.4279 45 1.7632 62 6.9983 46 1.9075 63 7.6261 47 2.0639 64 8.3184 48 2.2337 65 9.0836
53 58 Appendix III ZIONS BANCORPORATION PENSION PLAN Early Retirement Old Plan Account Factors
Age Factor --- ------ 55 .500 56 .533 57 .567 58 .600 59 .633 60 .667 61 .733 62 .800 63 .867 64 .933 65 1.000
54 EX-10.2 3 ZIONS PENSION PLAN; RETIREMENT INCENTIVE PROGRAM 1 EXHIBIT 10.2 Amendment No. 1 to the Zions Bancorporation Pension Plan The Zions Bancorporation Pension Plan, as restated effective January 1, 1994, is amended effective December 1, 1994 by adding a new Section 13.13 as follows: 13.13 Retirement Incentive Program (a) A Participant is eligible for the retirement incentive program under this section if: (1) the Participant is age 58 or over on December 1, 1994, and (2) the Participant has five or more Years of Service as of December 1, 1994, and (3) the Participant makes an election to retire, in accordance with procedures established by the Company, during the period beginning on December 1, 1994 and ending on February 28, 1995. (b) A Participant who is eligible under (a) for the retirement incentive program may elect to retire on any day on and after December 1, 1994 and before but including March 1, 1995. Except as provided in (c) below, the monthly amount of Retirement Income payable to such Participant will be equal to the Accrued Benefit earned to the date of his or her retirement. The Accrued Benefit Attributable to the Old Plan Account as of such retirement date is determined under 4.4. This Retirement Income will be subject to adjustment depending on the Form of Payment elected in accordance with 5.7. (c) A Participant who retires pursuant to the provisions of this section on a day which is not the first day of a calendar month shall receive a partial payment of his or her Monthly Retirement Income for the partial month of retirement. The partial payment will be equal to a pro rata portion of the Participant's Monthly Retirement Income based 2 on the number of days of retirement in the month compared to the total number of days in the month. Executed this 16th day of December , ------------------------- -------------------------- 1994 at Salt Lake City, Utah. ZIONS BANCORPORATION by /s/ Harris H. Simmons ------------------------ President ATTEST: /s/ Gary L. Anderson - ------------------------ Secretary 12/8/94 EX-10.9 4 ZIONS SR. MANAGEMENT VALUE SHARING PLAN 1994-1997 1 EXHIBIT 10.9 Zions Bancorporation Senior Management Value Sharing Plan Award Period: 1994-1997 Objective: To provide an ongoing multi-year incentive for the senior managers of Zions Bancorporation and its subsidiaries which: A. Focuses managers attention on the creation of long-term shareholder value; B. Creates an incentive that promotes teamwork across departments and subsidiaries, and which encourages managers to balance profit center accountability with Company-wide goals; and, C. Complements the short-range annual bonuses which reflect the achievement of annual objectives and the Company's short-term profitability. Eligibility: Participants in the Plan shall consist of the senior management group and certain other key managers) of the Company and its major subsidiaries. Participants for each Award Period shall be specifically identified by the Company's Board of Directors (the "Board") or its Executive Compensation Committee (the "Committee" ) . Allocation of Awards: It is anticipated that during the first quarter of each year in which the Plan operates, the Board of Directors shall approve the establishment of a pool of Award Funds to be generated during the Award Period, according to the general formula outlined below. Participants shall be designated by the Board or the Committee. Claims against the pool of Award Funds for each Award Period shall be represented by Participation Units ("PU's"), and each participant shall be allocated a specific number of PU's by the Committee. The PU's shall represent a pro-rata claim, in proportion to the total PU's designated for that Award Period, on any Award Funds generated by the Plan during the Award Period. Term: Each Award Period shall consist of a continuous four-calendar year period. The Plan is intended to constitute a "moving four-year-average' incentive plan, with the anticipation that a new Award Period would be designated each year, with multiple Award Periods overlapping one another. Nevertheless, the establishment of a new Award Period each year is subject to the Board's discretion. 2 Determination of Award Funds: The amount of Award Funds in the pool for each Award Period shall be a function of the mathematical average return on shareholders' equity ("AROE") for each of the four years in the Award Period, together with the aggregate earnings per share ("AEPS") during the Award Period. Each year, the Committee shall establish minimum targets for AROE and AEPS for the Award Period. These minimum targets would both be required to be reached in order for any Award Funds to be earned. Additionally, the Committee may designate Award Fund allocation amounts based upon the achievement of higher levels of AROE, with upward adjustment possible if higher levels of AEPS are achieved. The Committee may also designate other conditions and to ensure the Plan's integrity and consistency with shareholder and depositor interests. The 1994-1997 Award Period formula for the determination of total Award Funds is as follows: * Minimum AROE: 14.00 * Minimum AEPS: $18.20 Funding of 1994-1997 Award Fund Pool:
AROE Cumulative Award Funds ---- ---------------- 14% $ 0 15% 287,000 16% 638,000 17% 1,151,000 18% 1,583,000 19% 2,174,000 20% 2,582,000 21% 3,277,000 22% 3,965,000
Interim amounts shall be calculated by interpolation. The basic Award Fund amount would be further modified by multiplying the cumulative Award Funds by l+[(AEPS - $18.20)/21.7], with a maximum AEPS figure of S25.35 (resulting in a 33% maximum upward adjustment in the Award Funds. 3 For the 1994-97 Award Period, the following parameters shall be established, and adjustments made to the Company's earnings calculations, for purposes of determining Award Funds available under the Plan: 1). The Plan is intended to create an incentive for increasing shareholder value. however, this is not to be accomplished by reducing capital levels or assuming extraordinary or unwarranted risks. Accordingly, it is expected that total risk-based capital levels shall be maintained at a level at least 125% of regulatory requirements. 2). The Company's reserve levels are to be conservatively maintained. To the extent that the consolidated Allowance for Loan and Lease Losses is less than 110% of the peer group level, as expressed in terms of reserves/non-current loans as reported in the most current uniform Bank Performance Report available at January 31, 1997, an appropriate adjustment shall be made to after-tax earnings (for purposes of calculating Award Funds only) to compensate for any deficit relative to the 110% minimum target level. Actual reserve levels are, of course, subject to Board and/or regulatory decisions. No upward adjustments shall be made in "pro forma earnings in the event actual reserve levels exceed 110% of the peer group target. 3). Unless determined otherwise by the Board, in the event of any merger involving an acquisition by Zions for the exchange of Zions' shares in a pooling-of-interests transaction, earnings per share prior to the acquisition date shall, for the purpose of calculating AEPS during the Award Period, be determined using Zions' un-restated numbers. Other Terms and Conditions: The Plan is to be governed and interpreted by the Committee, whose decisions shall be final. The terms of the Plan are subject to change or termination at their sole discretion. The Company shall retain the right to withhold payment of Award Funds to participants in the event of a significant deterioration in the Company's 'financial condition, or if so required by regulatory authorities, or for any other reason considered valid by the Board in its sole discretion. Participants shall not vest in any benefits available under the Plan until the conclusion of each Award Period. Nevertheless, upon death, permanent disability, or normal or early retirement, participants (or their estates) shall be eligible to receive a proportionate share of Award Funds based upon the number of PU's granted, and the number of full calendar quarters the participant was engaged as an officer of the Company or its subsidiaries prior to death, disability, or retirement. 4 The PU's shall not be transferable without the express approval of the Committee. In the event of the merger or acquisition of the Company, the Plan shall be terminated as of the end of the fiscal quarter preceding the first full quarter before the transaction is consummated. The Board may make any reasonable estimates or adjustments possible in calculating Award Funds for any Award Period, and may, in its sole discretion, distribute benefits to the participants. Earnings per share calculations shall be adjusted to reflect any stock splits, stock dividends, or other such changes in capitalization, at the discretion of the Committee. The award of PU's to any participant shall not confer any right with respect to continuance of employment by the Company or its subsidiaries, nor limit in any way the right of the Company to terminate his or her employment at any time, with or without cause. 5 APPENDIX ZIONS BANCORPORATION VALUE-SHARING PLAN: 1994-97 Calculation of Participation Unit Value Average Annual ROE ("AROE") If the AROE is:
Over But not over The basic value of a Participation Unit is ----------------------------------------------------------------------------------------------------- 14.00% 14.99% $0.00 + $.0271 per basis point of the amount over 14.00% 15.00% 15.99% $2.71 + $.0330 per basis point of the amount over 15.00% 16.00% 16.99% $6.01 + $.0485 per basis point of the amount over 16.00% 17.00% 17.99% $10.86 + $.0407 per basis point of the amount over 17.00% 18.00% 18.99% $14.93 + $.0558 per basis point of the amount over 18.00% 19.00% 19.99% $20.51 + $.0385 per basis point of the amount over 19.00% 20.00% 20.99% $24.36 + $.0656 per basis point of the amount over 20.00% 21.00% 21.99% $30.92 + $.0648 per basis point of the amount over 21.00% 22.00% $37.40
Aggregate E.P.S. ("AEPS") Modifier: The basic Participation unit value determined above shall be - adjusted as follows: If AEPS for 1994-97 is less than $18.20, the Participation Units shall have no value. If AEPS is greater than $18.20, the basic amount determined based on AROE shall be multiplied by a factor of: l+[(AEPS-$18.20)/21.7] (with a maximum factor of 1.33) to arrive at a final total, value of each Participation Unit. ****************************** Example: If AROE is 18.16% and AEPS is $21.03, each Participation Unit would be worth $17.89. EX-10.10 5 ZIONS EXECUTIVE MANAGEMENT PENSION PLAN; JAN.1,'94 1 EXHIBIT 10.10 ZIONS BANCORPORATION EXECUTIVE MANAGEMENT PENSION PLAN Effective January 1, 1994 2 TABLE OF CONTENTS
Page Introduction................................................................................................. 1 Article 1- Definitions................................................................................... 2 1.1 Accrued Benefit............................................................................... 2 1.2 Code.......................................................................................... 2 1.3 Committee..................................................................................... 2 1.4 Company....................................................................................... 2 1.5 Effective Date................................................................................ 2 1.6 ERISA......................................................................................... 2 1.7 Executive Management Plan Benefit............................................................. 2 1.8 Executive Management Retirement Income........................................................ 2 1.9 Participant................................................................................... 2 1.10 Pension Plan.................................................................................. 2 1.11 Pension Plan Benefit.......................................................................... 2 1.12 Plan.......................................................................................... 2 1.13 Retirement Date............................................................................... 2 1.14 Unrestricted Pension Plan Benefit............................................................. 2 Article 2- Participation................................................................................. 3 2.1 Participants.................................................................................. 3 Article 3- Executive Management Retirement Income........................................................ 4 3.1 Amount of Accrued Benefit..................................................................... 4 3.2 Executive Management Retirement Income........................................................ 4 3.3 Forms of Retirement Income.................................................................... 4 Article 4 Termination and Vesting....................................................................... 5 4.1 Vesting....................................................................................... 5 Article 5 Disability Benefits........................................................................... 6 5.1 Payment of Disability Benefit................................................................. 6 Article 6 Death Benefits................................................................................ 7 6.1 Preretirement Death Benefit................................................................... 7 6.2 Postretirement Death Benefit.................................................................. 7 Article 7 General Provisions............................................................................ 8 7.1 Unfunded Obligation........................................................................... 8 7.2 Administration................................................................................ 8 7.3 Employment Status............................................................................. 8 7.4 Amendment and Termination of Plan............................................................. 8 7.5 Provision Against Anticipation................................................................ 8 7.6 Facility of Payment........................................................................... 8 7.7 Withholding Taxes............................................................................. 9 7.8 Applicable Law................................................................................ 9
3 Introduction Zions Bancorporation recognizes the value of services performed by its executives and desires to provide them with full pension benefits even when those benefits exceed the limits on benefits which can be provided by Zions Bancorporation Pension Plan. This reflects Zions Bancorporation's recognition that the value of services provided by its executives may not be adequately reflected in the retirement benefits provided under its tax qualified retirement plans. Accordingly, this Executive Management Pension Plan is established supplement benefits provided to executives under the tax qualified Zions Bancorporation Pension Plan. 4 Article 1 Definitions 1.1 Accrued Benefit means the monthly amount of benefit credited to a Participant in accordance with Section 3.1. 1.2 Code means the Internal Revenue Code of 1986, as amended. 1.3 Committee means the Retirement Committee appointed to administer the Pension Plan. 1.4 Company means Zions Bancorporation and any affiliate or subsidiary which adopts this Plan with the consent of the Board of Directors of Zions Bancorporation. 1.5 Effective Date means January 1, 1994. 1.6 ERISA means the Employee Retirement Income Security Act of 1974, as amended. 1.7 Executive Management Plan Benefit means a Participant's monthly accrued benefit under this Plan determined in accordance with Section 3.1. 1.8 Executive Management Retirement Income means a Participant's monthly retirement income under this Plan determined in accordance with Article 3. 1.9 Participant means an employee or former employee of the Company who is eligible for an Executive Management Plan Benefit in accordance with Article 2. 1.10 Pension Plan means the Zions Bancorporation Pension Plan as it may be amended from time to time. 1.11 Pension Plan Benefit means a Participant's monthly accrued benefit under the Pension Plan. 1.12 Plan means the Zions Bancorporation Executive Management Pension Plan. 1.13 Retirement Date means a Participant's normal, early, late, or disability retirement date determined under the Pension Plan. 1.14 Unrestricted Pension Plan Benefit means a Participant's monthly accrued benefit under the Pension Plan, determined without regard to the limitations on benefits imposed by Code Section 415 or the limitation on compensation taken into account under the Pension Plan imposed under Code Section 401(a)(17). 5 Article 2 Participation 2.1 Participants The Board of Directors shall determine the Participants in this Plan, provided that each Participant shall be an employee of the Company who is an active participant in the Pension Plan on or after the Effective Date and who meets the following requirements: (a) the employee is, or has been, a member of the Company's Executive Management Committee on or after the Effective Date, and (b) the employee is (1) employed in a management position with the Company having principal responsibility for the management, direction and success of the Company as a whole or a particular business unit thereof, or (2) a highly compensated employee of the Company within the meaning of ERISA Section 401. 6 Article 3 Executive Management Retirement Income 3.1 Amount of Accrued Benefit A Participant's Executive Management Plan Benefit is equal to the excess of the Participant's Unrestricted Pension Plan Benefit over the Participant's Pension Plan Benefit. 3.2 Executive Management Retirement Income A Participant's monthly Executive Management Retirement Income commencing on his or her retirement Date will be equal to his or her Executive Management Plan Benefit as of such date adjusted to reflect the form of retirement income elected and, in the case of an early retirement date, adjusted to reflect the age of the Participant on the date benefit payments commence. 3.3 Forms of Retirement Income The forms of retirement income available under this Plan are the same as those described in the Pension Plan. A Participant's election of any form of retirement income or benefit commencement date under the Pension Plan will be deemed to apply to any Executive Management Retirement Income under this Plan. 7 Article 4 Termination and Vesting 4.1 Vesting The Company will provide an Executive Management Plan Benefit to a Participant who terminates employment with the Company equal to his or her vested Accrued Benefit. A Participant's vested interest in his or her Accrued Benefit will be equal to the Accrued Benefit multiplied by the Participant's vested percentage under the Pension Plan. All rights to any Executive Management Plan Benefit payable under this Plan, including the payment of any unpaid benefit installments, will be immediately forfeited if any of the following events occur: (a) The Company terminates the Participant's employment for any act of willful malfeasance or gross negligence in the performance of his or her duties. (b) The Participant enters into competition with the Company without the prior written permission of Company's Board of Directors. 8 Article 5 Disability Benefits 5.1 Payment of Disability Benefit A Participant who is eligible for disability retirement income under the Pension Plan shall be entitled to disability retirement income under this Plan to the extent the Participant's Unrestricted Pension Plan Benefit exceeds the Participant's Pension Plan Benefit. The provisions of the Pension Plan shall apply for determining disability, eligibility, and disability retirement income. 9 Article 6 Death Benefits 6.1 Preretirement Death Benefit A Participant's spouse or other beneficiary who qualifies for a preretirement death benefit under the Pension Plan shall be entitled to a preretirement death benefit under this Plan. The amount of such benefit, if any, will be based on the Participant's vested interest in his or her Accrued Benefit under this Plan and will be determined in the same manner as set forth in the applicable section of the Pension Plan. In addition, such benefit will be payable as provided under the Pension Plan. 6.2 Postretirement Death Benefit Death benefits payable after a Participant's retirement shall be determined according to the form of retirement income elected by the Participant upon retirement. 10 Article 7 General Provisions 7.1 Unfunded Obligation The benefits provided by this Plan shall be an unfunded obligation of the Company. The Company is not required to segregate any monies from its general funds, to create any trusts, or to make any special deposits with respect to this obligation. Title to and beneficial ownership of any investments which the Company may make to fulfill its obligation shall at all times remain in the Company. 7.2 Administration The Committee shall have complete control of the administration of the Plan, subject to the provisions hereof, with all powers necessary to enable it to carry out its duties properly in that respect. In addition, it will have the power to construe the terms of the Plan and to determine all questions that may arise hereunder, including all questions relating to the eligibility of employees to participate in the Plan and the amount of benefit to which any Participant or beneficiary may become entitled. The Committee's decisions upon all matters within the scope of its authority will be final. 7.3 Employment Status Nothing contained in the Plan will be deemed to give any employee the right to be retained in the employ of the Company or to interfere with the rights of the Company to discharge any employee at any time. 7.4 Amendment and Termination of Plan The Company may amend, suspend or terminate the Plan at any time. No amendment, suspension or termination may impair the right of a Participant or his or her beneficiary to receive benefits accrued under the Plan as of the date the amendment, suspension or termination if adopted. 7.5 Provision Against Anticipation No benefit under the Plan shall be subject any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge or other legal process, and any attempt to do so shall be void. 7.6 Facility of Payment If any Participant or beneficiary is physically or mentally incapable of giving a valid receipt for any payment due him or her and no legal representative has been appointed for such Participant or beneficiary, the Committee may make such payment to any person or institution maintaining such Participant or beneficiary, and the release of such person or institution will be a valid and 11 complete discharge for such payment. Any final payment or distribution to any Participant, the legal representative of the Participant, or to any beneficiaries of such Participant in accordance with the provision herein will be in full satisfaction of all claims against the Company arising under or by virtue of the Plan. 7.7 Withholding Taxes Appropriate tax withholding shall be made from payments to Participants pursuant to this Plan or from other wages of Participants as required under applicable law. 7.8 Applicable Law This Plan shall be interpreted and enforced in accordance with the laws of the State of Utah. Executed this 16th day of December , 1994 ------------------------- -------------------------- at Salt Lake City, Utah. ZIONS BANCORPORATION by /s/ Harris H. Simmons ----------------------- President ATTEST: /s/ Gary L. Anderson - ------------------------------- Secretary EX-21 6 ZIONS' SUBSIDIARIES AT DEC. 31, 1994 1 EXHIBIT 21 ZIONS BANCORPORATION AND SUBSIDIARIES AT DECEMBER 31, 1994
SUBSIDIARY STATE ----------- ----- Zions First National Bank Federally chartered doing business in Utah Nevada State Bank Nevada National Bank of Arizona Federally chartered doing business in Arizona Lockhart Realty Company Utah Great Western Financial Corporation Utah Zions Credit Corporation Utah Zions Data Service Company Utah Zions Insurance Agency, Inc. Utah Zions Life Insurance Company Arizona
EX-23 7 KPMG PEAT MARWICK CONSENT 1 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS Zions Bancorporation: We consent to the incorporation by reference in Zions Bancorporation's (i) Registration Statement (Form S-3 No. 33-52586) and related Prospectus pertaining to the Zions Bancorporation Dividend Reinvestment and Common Stock Purchase Plan, (ii) Registration Statement (Form S-8 No. 33-52878) and related Prospectus pertaining to Zions Bancorporation Employee Stock Savings Plan, and (iii) Registration Statement (Form S-8 No. 33-52796) and related Prospectus pertaining to Zions Bancorporation Employee Investment Savings Plan, of our report dated January 24, 1995, relating to the consolidated balance sheets of Zions Bancorporation and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income, retained earnings, and cash flows for each of the years in the three-year period ended December 31, 1994, which report appears in this annual report on Form 10-K for the year ended December 31, 1994. Our report refers to changes in accounting principles relating to the adoption of the Financial Accounting Standards Board's Statements of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions", No. 109, "Accounting for Income Taxes", and No. 115, "Accounting for Certain Investments in Debt and Equity Securities". The audit referred to in the above-mentioned report also included the related financial schedule entitled Short-term Borrowings, for each of the years in the three-year period ended December 31, 1994, included in Part II, Item 7 on page 38. In our opinion, such financial schedule presents fairly the information required to be set forth therein for each of the years in the three-year period ended December 31, 1994. We also consent to the incorporation by reference in Zions Bancorporation's Registration Statement (Form S-8 No. 33-52878) of Zions Bancorporation Employee Stock Savings Plan of our report dated March 15, 1995, relating to the net assets available for benefits of Zions Bancorporation Employee Stock Savings Plan as of December 31, 1994 and 1993, and the related statements of changes in net assets available for benefits for each of the years in the three-year period ended December 31, 1994, which report appears in this annual report on Form 11-K for the year ended December 31, 1994. We also consent to the incorporation by reference in Zions Bancorporation's Registration Statement (Form S-8 No. 33-52796) of Zions Bancorporation Employee Investment Savings Plan of our report dated March 15, 1995, relating to the net assets available for benefits of Zions Bancorporation Employee Investment Savings Plan as of December 31, 1994 and 1993, and the related statements of changes in net assets available for benefits for each of the years in the three-year period ended December 31, 1994, which report appears in this annual report on Form 11-K for the year ended December 31, 1994. KPMG Peat Marwick LLP Salt Lake City, Utah March 28, 1995 EX-27 8 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1994 AND RELATED CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1994 INCLUDED IN THE COMPANY'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1994 DEC-31-1994 316,943 19,704 383,742 316,948 315,578 1,030,907 1,018,798 2,931,278 67,018 4,934,095 3,705,976 631,723 70,873 159,753 79,193 0 0 286,577 4,934,095 230,261 123,728 0 353,989 90,958 155,383 198,606 2,181 (299) 174,900 94,727 63,827 0 0 63,827 4.37 4.37 3.98 13,635 3,041 567 0 68,461 11,661 6,729 67,018 10,115 0 56,903
EX-99.1 9 11-K ANNUAL REPORT FOR YEAR ENDING DEC. 31, 1994 1 EXHIBIT 99.1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------- FORM 11-K ------------- ANNUAL REPORT Pursuant to Section 15(d) Of The Securities Exchange Act of 1934 For the Year Ended December 31, 1994 ZIONS BANCORPORATION EMPLOYEE STOCK SAVINGS PLAN ZIONS BANCORPORATION 1380 Kennecott Building Salt Lake City, Utah 84133 2 ITEM 1. CHANGES IN THE PLAN The Plan was completely amended and restated as of October 1, 1992, with certain provisions retroactively effective as of January 1, 1989. In 1994, the Plan was amended for the purpose of maintaining its qualification under the Internal Revenue Code pursuant to the Tax Reform Act of 1986 and, in order to conform the Plan to the requirements of the Unemployment Compensation Act of 1992 and the Omnibus Budget Reconciliation Act of 1993. ITEM 2. CHANGES IN INVESTMENT POLICY No material changes were made during the fiscal year in the policy with respect to the kind of securities and other investments in which funds held under the plan may be invested. ITEM 3. CONTRIBUTIONS UNDER THE PLAN The Company's contributions are measured by reference to employee contributions and are not discretionary. ITEM 4. PARTICIPATING EMPLOYEES There were 1,700 participating employees in the Plan on December 31, 1994. ITEM 5. ADMINISTRATION OF THE PLAN (a) Zions Bancorporation is the Plan administrator. The Company's Board of Directors has appointed an Administrative Committee consisting of six persons. The Committee has full power and authority to administer the Plan and to interpret its provisions. The present members of the Committee and their positions held are:
Member Position - Company ------------------ --------------------------------------------------------------- Harris H. Simmons President and Chief Executive Officer of Zions Bancorporation Gary L. Anderson Senior Vice President of Zions Bancorporation Peter K. Ellison Executive Vice President of Zions First National Bank W. David Hemingway Executive Vice President of Zions First National Bank Richard G. Crandall Vice President of Zions First National Bank Russell W. Miller President of Zions Insurance Agency, Inc.
The address of each fiduciary listed above is 1380 Kennecott Building, Salt Lake City, Utah 84133. (b) No compensation is paid to the Committee members by the Plan. All expenses of the Plan and its administration are paid by the Company. 3 ITEM 6. CUSTODIAN OF INVESTMENTS (a) Zions First National Bank, One South Main Street, Salt Lake City, Utah 84133 is the custodian and trustee. (b) The custodian and trustee receive no compensation from the Plan. ITEM 7. REPORTS TO PARTICIPATING EMPLOYEES Participating employees are furnished an annual statement reflecting the status of their accounts as of the end of the fiscal year. ITEM 8. INVESTMENT OF FUNDS Substantially all of the assets of the Plan are invested in securities of the Company. ITEM 9. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements Report of Independent Auditors Statements of Net Assets Available for Benefits - December 31, 1994 and 1993 Statements of Changes in Net Assets Available for Benefits - Years ended December 31, 1994, 1993, and 1992 Notes to Financial Statements Schedules - Schedules I, II, and III have been omitted for the reasons that they are not required or are not applicable, or the required information is shown in the financial statements or notes thereto. (b) Exhibits - None 4 Independent Auditors' Report The Trust Committee Zions Bancorporation Employee Stock Savings Plan: We have audited the accompanying statements of net assets available for benefits of Zions Bancorporation Employee Stock Savings Plan as of December 31, 1994 and 1993, and the related statements of changes in net assets available for benefits for each of the years in the three-year period ended December 31, 1994. These financial statements are the responsibility of the plan's administrator. Our responsibility is to express an opinion on these 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 the plan's administrators, 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 financial statements referred to above present fairly, in all material respects, the net assets available for benefits of Zions Bancorporation Employee Stock Savings Plan as of December 31, 1994 and 1993, and the changes in net assets available for benefits for each of the years in the three-year period ended December 31, 1994, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Salt Lake City, Utah March 15, 1995 5 ZIONS BANCORPORATION EMPLOYEE STOCK SAVINGS PLAN Statements of Net Assets Available for Benefits December 31, 1994 and 1993
1994 1993 ----------- --------- Assets: Zions Bancorporation common stock (approximate cost of $8,035,000 in 1994 and $5,366,000 in 1993) $ 9,994,955 7,943,160 Short-term investment fund 17,032 61,243 ----------- --------- 10,011,987 8,004,403 Contributions receivable: Employees 88,524 114,948 Zions Bancorporation 44,262 57,475 Dividends receivable 83,582 60,243 Interest receivable 349 - ----------- --------- Total assets 10,228,704 8,237,069 ----------- --------- Liabilities: Accounts payable 669 6,805 Excess contribution refunds 15,816 7,073 ----------- --------- Total liabilities 16,485 13,878 ----------- --------- Net assets available for benefits $10,212,219 8,223,191 =========== =========
See accompanying notes to financial statements. 6 ZIONS BANCORPORATION EMPLOYEE STOCK SAVINGS PLAN Statements of Changes in Net Assets Available for Benefits Years ended December 31, 1994, 1993, and 1992
1994 1993 1992 ----------- -------- --------- Additions (deductions) to net assets attributed to: Net appreciation (depreciation) in market value of investment in Zions Bancorporation common stock $ (410,576) (516,233) 2,333,081 Dividends 294,770 200,330 106,606 Interest 3,343 1,543 269 ----------- -------- --------- (112,463) (314,360) 2,439,956 ----------- -------- --------- Contributions: Employees 1,964,913 1,806,956 400,265 Zions Bancorporation 982,463 903,477 200,133 ----------- -------- --------- 2,947,376 2,710,433 600,398 ----------- --------- --------- Transfer of assets from Zions Bancorporation Employee Investment Savings Plan - - 1,390,989 ----------- --------- --------- Total additions 2,834,913 2,396,073 4,431,343 Deductions from net assets attributed to benefits paid directly to participants 845,885 525,906 706,422 ----------- --------- --------- Net increase 1,989,028 1,870,167 3,724,921 Net assets available for benefits: Beginning of year 8,223,191 6,353,024 2,628,103 ----------- --------- --------- End of year $10,212,219 8,223,191 6,353,024 =========== ========= =========
See accompanying notes to financial statements. 7 ZIONS BANCORPORATION EMPLOYEE STOCK SAVINGS PLAN Notes to Financial Statements December 31, 1994, 1993, and 1992 (1) Description of the Plan Zions Bancorporation Employee Stock Savings Plan (the Plan) is a single employer contributory plan that is designed to provide retirement benefits for eligible employees under an after tax salary reduction arrangement by offering employees an opportunity to acquire stock ownership in Zions Bancorporation (the Company). The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). (2) Summary of Significant Accounting Policies The following is a summary of significant accounting policies followed by the Plan in the preparation of its financial statements. (a) Basis of Presentation The Plan's financial statements are presented on the accrual basis of accounting. (b) Investments The investment in common stock of the Company is carried at market value in the accompanying financial statements. The investment in the short-term investment fund represents a cash equivalent. Purchases and sales of investments are recorded on a settlement-date basis which does not materially differ from using the trade-date basis required by generally accepted accounting principles. (c) Costs of Administration All costs of administration are absorbed by the Company. (3) Eligibility Participation in the Plan is voluntary. An employee is eligible to participate on January 1, or July 1, whichever coincides with, or immediately follows, the latter of the date on which the employee completes at least 1,000 hours of service during 12 continuous months and attains the age of 21. As of December 31, 1994 and 1993, there were 1,700 participants and 1,524 participants, respectively, in the Plan. 8 ZIONS BANCORPORATION EMPLOYEE STOCK SAVINGS PLAN Notes to Financial Statements (4) Employee and Company Contributions Each eligible employee who elects to participate makes contributions ranging from one to five percent of their total compensation. Company contributions are equal to 50 percent of the amount contributed by the employee. (5) Allocation of Income or Loss Net appreciation (depreciation) in market value of investments, dividends, and interest income are allocated to each participant's account in proportion to the investment shares held in that participant's account to the total of investment shares held in the Plan. (6) Vesting and Payment of Benefits Employee contributions and the employees' share of the Company contributions are 100 percent vested at all times. Benefits are paid upon death, disability, retirement, or earlier subject to certain restrictions. Benefits are paid in shares of stock. (7) Income Taxes The Plan obtained its latest determination letter on November 5, 1985, in which the Internal Revenue Service stated that the Plan, as then designed, was in compliance with the applicable requirements of the Internal Revenue Code. The Plan has been amended since receiving the determination letter. The Company is in the process of obtaining a new letter for the Plan. The application for approval of the amendments will be filed with the IRS by the March 31, 1995 deadline. However, the plan administrator and the Plan's tax counsel believe that the Plan is currently designed and being operated in compliance with the applicable requirements of the Internal Revenue Code. Therefore, they believe that the Plan was qualified and the related trust was tax-exempt as of the financial statement date. (8) Investment At December 31, 1994 and 1993, investment in common stock of the Company consisted of 278,605 and 214,680 shares, respectively. 9 ZIONS BANCORPORATION EMPLOYEE STOCK SAVINGS PLAN Notes to Financial Statements (9) Plan Amendments The Plan became effective on January 1, 1978, and has been amended and restated at various times thereafter. The Plan was completely amended and restated as of October 1, 1992. In addition, the Plan was amended in 1994 to include employees from recently acquired National Bank of Arizona and Rio Salado Bancorporation. The following summarizes the Plan's amended areas: (a) Participant Contributions Participants can elect either a pretax or post-tax salary reduction of from one to a maximum of five percent of total compensation as a participant contribution. (b) Company Contributions Matching contributions are made by the Company on behalf of each participant in the amount of fifty percent of the participant's contributions. EX-99.2 10 11-K ANNUAL REOPRT; EMPLOYEE INV. SAVINGS PLAN 1 EXHIBIT 99.2 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------ FORM 11-K ------------------ ANNUAL REPORT Pursuant to Section 15(d) Of The Securities Exchange Act of 1934 For the Year Ended December 31, 1994 ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN ZIONS BANCORPORATION 1380 Kennecott Building Salt Lake City, Utah 84133 2 ITEM 1. CHANGES IN THE PLAN The Plan was completely amended and restated as of October 1, 1992, with certain provisions retroactively effective as of January 1, 1989. In 1994, the Plan was amended for the purpose of maintaining its qualification under Internal Revenue Code pursuant to the Tax Reform Act of 1986 and, in order to conform the Plan to the requirements of the Unemployment Compensation Act of 1992 and the Omnibus Budget Reconciliation Act of 1993 and to facilitate the merger of the National Bank of Arizona Savings and Retirement Plan and the Rio Salado Bancorp. Inc. Retirement Plan into the Plan. ITEM 2. CHANGES IN INVESTMENT POLICY The Plan maintains four separate types of investment funds: (i) company securities, which consists of Company stock and short-term investments pending the acquisition of Company securities; (ii) Fidelity mutual fund, which invests primarily in a diversified portfolio of U.S. common stocks, which are invested to track closely with the Standard and Poors 500 index; (iii) money market fund, which consists of, but is not limited to, certificates of deposit, commercial paper, and U.S. treasury bills; and (iv) fixed income fund, which invests primarily in government, mortgage, and corporate bonds. No material changes were made during the year 1994 in the policy with respect to the kind of securities and other investments in which funds held under the Plan may be invested. ITEM 3. CONTRIBUTIONS UNDER THE PLAN The Company's contributions are measured by reference to employee contributions and are not discretionary. ITEM 4. PARTICIPATING EMPLOYEES There were 1,155 participating employees in the Plan on December 31, 1994. ITEM 5. ADMINISTRATION OF THE PLAN (a) Zions Bancorporation is the Plan administrator. The Company's Board of Directors has appointed an Administrative Committee consisting of six persons. The Committee has full power and authority to administer the Plan and to interpret its provisions. The present members of the Committee and their positions held are:
Member Position - Company ------------------- ------------------------------------------------------------- Harris H. Simmons President and Chief Executive Officer of Zions Bancorporation Gary L. Anderson Senior Vice President of Zions Bancorporation Peter K. Ellison Executive Vice President of Zions First National Bank W. David Hemingway Executive Vice President of Zions First National Bank Richard G. Crandall Vice President of Zions First National Bank Russell W. Miller President of Zions Insurance Agency, Inc.
The address of each fiduciary listed above is 1380 Kennecott Building,Salt Lake City, Utah 84133. 3 (b) No compensation is paid to the Committee members by the Plan. All expenses of the Plan and its administration are paid by the Company. ITEM 6. CUSTODIAN OF INVESTMENTS (a) Zions First National Bank, One South Main Street, Salt Lake City, Utah 84133 is the custodian and trustee. (b) The custodian and trustee receive no compensation from the Plan. ITEM 7. REPORTS TO PARTICIPATING EMPLOYEES Participating employees are furnished an annual statement reflecting the status of their accounts as of the end of the fiscal year. ITEM 8. INVESTMENT OF FUNDS As elected by participants, approximately sixty-eight percent of the assets of the Plan are invested in securities of the Company, approximately sixteen percent in the Fidelity mutual fund, approximately thirteen percent in the money market fund, approximately two percent invested in the fixed income fund, and approximately one percent in the short-term investment fund. ITEM 9. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements Report of Independent Auditors Statements of Net Assets Available for Benefits - December 31, 1994 and 1993 Statements of Changes in Net Assets Available for Benefits - Years ended December 31, 1994, 1993, and 1992 Notes to Financial Statements Schedules - Schedules I, II, and III have been omitted for the reasons that they are not required or are not applicable, or the required information is shown in the financial statements or notes thereto. (b) Exhibits - None 4 Independent Auditors' Report The Trust Committee Zions Bancorporation Employee Investment Savings Plan: We have audited the accompanying statements of net assets available for benefits of Zions Bancorporation Employee Investment Savings Plan as of December 31, 1994 and 1993, and the related statements of changes in net assets available for benefits for each of the years in the three-year period ended December 31, 1994. These financial statements are the responsibility of the plan's administrator. Our responsibility is to express an opinion on these 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 the plan's administrators, 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 financial statements referred to above present fairly, in all material respects, the net assets available for benefits of Zions Bancorporation Employee Investment Savings Plan as of December 31, 1994 and 1993, and the changes in net assets available for benefits for each of the years in the three-year period ended December 31, 1994, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Salt Lake City, Utah March 15, 1995 5 ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN Statements of Net Assets Available for Benefits December 31, 1994 and 1993
1994 1993 ----------- ---------- Assets: Cash $ 27,876 -- Investments, at market value: Zions Bancorporation common stock (approximate cost of $10,769,000 in 1994 and $9,689,000 in 1993) 18,361,112 18,828,375 Fidelity mutual fund (approximate cost of $4,192,000 in 1994 and $3,229,000 in 1993) 4,374,929 3,525,534 Money market fund 3,605,624 3,477,123 Fixed income fund (approximate cost of $689,000 in 1994 and $515,000 in 1993) 611,682 526,295 Short-term investment fund 94,017 3,207 ----------- ---------- 27,075,240 26,360,534 Contributions receivable: Employees 73,114 69,556 Zions Bancorporation 14,954 15,782 Participant loans receivable 1,426,014 1,341,223 Dividends receivable 154,242 142,484 Interest receivable 16,902 5,187 Due from/(to) Zions Bancorporation (3,677) 4,095 ----------- ---------- Total assets 28,756,789 27,938,861 Liabilities: Accounts payable 2,058 3,656 Excess contribution refunds 53,374 90,183 ----------- ---------- Total liabilities 55,432 93,839 ----------- ---------- Net assets available for benefits $28,701,357 27,845,022 =========== ==========
See accompanying notes to financial statements. 6 ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN Statements of Changes in Net Assets Available for Benefits Years ended December 31, 1994, 1993, and 1992
1994 1993 1992 ----------- ----------- ----------- Additions to net assets attributed to: Investment income: Net appreciation (depreciation) in market value of investments $ (718,781) (118,055) 10,477,861 Dividends 692,270 564,557 508,484 Capital gain distributions 121,543 198,053 83,830 Interest 244,470 169,448 58,427 ----------- --------- ---------- 339,502 814,003 11,128,602 ----------- --------- ---------- Contributions: Employees 1,614,117 1,326,267 1,683,313 Zions Bancorporation 336,444 271,519 592,491 Plan rollovers 368,721 196,725 -- ----------- ---------- ---------- 2,319,282 1,794,511 2,275,804 ----------- ---------- ---------- Total additions 2,658,784 2,608,514 13,404,406 Deductions from net assets attributed to: Benefits paid directly to participants 1,802,449 1,447,853 1,706,335 Transfer of assets to Zions Bancorporation Employee Stock Savings Plan -- -- 1,390,989 ----------- ---------- ---------- Total deductions 1,802,449 1,447,853 3,097,324 ----------- ---------- ---------- Net increase 856,335 1,160,661 10,307,082 Net assets available for benefits: Beginning of year 27,845,022 26,684,361 16,377,279 ----------- ---------- ---------- End of year $28,701,357 27,845,022 26,684,361 =========== ========== ==========
See accompanying notes to financial statements. 7 ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN Notes to Financial Statements December 31, 1994, 1993, and 1992 (1) Description of the Plan Zions Bancorporation Employee Investment Savings Plan (the Plan) is a single employer contributory plan that is designed to provide retirement benefits for eligible employees under a pretax salary reduction (deferral) arrangement and, if employees so elect, an opportunity to acquire stock ownership in Zions Bancorporation (the Company). The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). (2) Summary of Significant Accounting Policies The following is a summary of significant accounting policies followed by the Plan in the preparation of its financial statements. (a) Basis of Presentation The Plan's financial statements are presented on the accrual basis of accounting. (b) Investments Investments in common stock of Zions Bancorporation, Fidelity mutual fund, and fixed income fund shares are carried at market value in the accompanying financial statements. The investments in the money market fund and short-term investment fund represent cash equivalents. Purchases and sales of investments are recorded on a settlement-date basis which does not materially differ from using the trade-date basis required by generally accepted accounting principles. (c) Cost of Administration All costs of administration are absorbed by the Company. (3) Eligibility Participation in the Plan is voluntary. An employee is eligible to become a participant on January 1 or July 1, whichever coincides with, or immediately follows, the latter of the date on which the employee completes at least 1,000 hours of service during 12 continuous months and attains the age of 21. At December 31, 1994 and 1993, there were 1,155 participants and 1,405 participants, respectively, in the Plan. (4) Employee and Company Contributions Participants may elect to contribute one to fifteen percent of their compensation to the Employee Investment Savings Plan, limited by participant contributions made to Zions Bancorporation Employee Stock Savings Plan. The contributions are invested in one or more of the following investment options: (i) the Company's stock, (ii) the Fidelity mutual fund, (iii) a money market fund, and (iv) a fixed income fund. The Company contributes an amount equal to 25 percent of the contribution made by each participant up to ten percent of their compensation with no match made on contributions in excess thereof. The maximum amount a participant may contribute to the Plan in a calendar year is the lesser of fifteen percent of their compensation, or $9,240 for 1994. 8 ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN Notes to Financial Statements (5) Allocation of Income or Loss Net appreciation (depreciation) in market value of investments, dividends, interest income, and capital gains are allocated to each participant's account in proportion to the investment shares held in that participant's account to the total investment shares held in the Plan. (6) Vesting and Payment of Benefits Employee contributions and the employees' share of the Company contributions are 100 percent vested at all times. Benefits are paid upon death, disability, retirement, or earlier, subject to certain restrictions. Benefits are paid in shares of stock and/or cash pursuant to the nature of the investment vehicle selected by the participant. (7) Income Taxes The Plan obtained its latest determination letter on November 5, 1985, in which the Internal Revenue Service stated that the Plan, as then designed, was in compliance with the applicable requirements of the Internal Revenue Code. The Plan has been amended since receiving the determination letter. The Company is in the process of obtaining a new letter for the Plan. The application for approval of the amendments will be filed with the IRS by the March 31, 1995 deadline. However, the plan administrator and the Plan's tax counsel believe that the Plan is currently designed and being operated in compliance with the applicable requirements of the Internal Revenue Code. Therefore, they believe that the Plan was qualified and the related trust was tax-exempt as of the financial statement date. (8) Investments The investments in common stock of the Company and the Fidelity mutual fund, consists of 511,808 and 508,875 shares, and 243,864 and 193,923 shares, respectively, at December 31, 1994 and 1993. The investment in the fixed income fund consists of 31,224 and 24,207 shares at December 31, 1994 and 1993, respectively. The net unrealized appreciation (depreciation) in market value for each of the years in the three-year period ended December 31, 1994, in comparison to the market value at the beginning of each year is as follows:
Investment 1994 1993 1992 ---------- --------- -------- ---------- Zions Bancorporation common stock $(601,351) (222,329) 10,477,363 Fidelity mutual fund (56,687) 122,428 498 Fixed income fund (60,743) (18,154) -- --------- -------- ---------- Net appreciation (depreciation) in market value $(718,781) (118,055) 10,477,861 ========= ======== ==========
9 ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN Notes to Financial Statements (9) Plan Amendments The Plan became effective on January 1, 1984, and has been amended and restated at various times thereafter. The Plan was completely amended and restated as of October 1, 1992. In addition, the plan was amended in 1994 to include employees from recently acquired National Bank of Arizona and Rio Salado Bancorporation. Amendment provisions include the following: (a) Participant Contributions Participants can elect a pretax reduction from one percent to a maximum of fifteen percent of total compensation as a participant contribution, depending in part on the extent to which the participant contributes to the Zions Bancorporation Employee Stock Savings Plan. (b) Company Contributions Matching contributions are made by the Company on behalf of each participant in the amount of twenty-five percent of participant contributions (note 4), but not in excess of ten percent of compensation. (c) Participant Elections Participants may change quarterly investment elections for funds already invested in their accounts. (d) Investment Options The Plan maintains four separate types of investment funds: (i) company securities, which consists of Company stock and short-term investments pending the acquisition of Company stock; (ii) Fidelity mutual fund, which invests primarily in a diversified portfolio of U.S. common stocks, which are invested to track closely with the Standard and Poors 500 index; (iii) money market fund, which consists of, but is not limited to, certificates of deposit, commercial paper, and U.S. treasury bills; and (iv) fixed income fund, which invests primarily in government, mortgage, and corporate bonds. (e) Participant Loans Beginning October 1, 1992, a participant who is an active employee may apply for and obtain a loan of up to fifty percent of the eligible amounts in their account. Loans may not exceed five years and must be secured by the participants account. Loan repayment is made through payroll deduction. 10 ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN Notes to Financial Statements (10) Financial Information by Fund Type Financial information by fund type as of, and for the year ended December 31, 1994, are as follows: Statement of Net Assets Available for Benefits by Fund Type December 31, 1994 Zions Bancorp- oration Fidelity Partici- common mutual Money Fixed pant stock fund market income loans Total ----------- --------- --------- -------- ---------- ---------- Assets: Cash $ 27,242 -- 634 -- -- 27,876 Investments, at market value: Zions Bancorporation common stock 18,361,112 -- -- -- -- 18,361,112 Fidelity mutual fund -- 4,374,929 -- -- -- 4,374,929 Money market fund -- -- 3,605,624 -- -- 3,605,624 Fixed income fund -- -- -- 611,682 -- 611,682 Short-term investment fund 88,082 5,641 -- 294 -- 94,017 ----------- --------- --------- ------- --------- ---------- 18,476,436 4,380,570 3,606,258 611,976 -- 27,075,240 Contributions receivable: Employees 26,360 31,450 11,906 3,398 -- 73,114 Zions Bancorporation 5,039 6,609 2,601 705 -- 14,954 Participant loans receivable -- -- -- -- 1,426,014 1,426,014 Dividends receivable 154,242 -- -- -- -- 154,242 Interest receivable 267 31 16,594 10 -- 16,902 Due from/(to) Zions Bancorporation -- (5,070) -- 1,393 -- (3,677) ----------- --------- --------- ------- --------- ---------- Total assets 18,662,344 4,413,590 3,637,359 617,482 1,426,014 28,756,789 Liabilities: Accounts payable 122 -- -- 1,936 -- 2,058 Excess contribution refunds 18,390 25,351 4,024 5,609 -- 53,374 ----------- --------- --------- ------- --------- ---------- Total liabilities 18,512 25,351 4,024 7,545 -- 55,432 ----------- --------- --------- ------- --------- ---------- Net assets available for benefits $18,643,832 4,388,239 3,633,335 609,937 1,426,014 28,701,357 =========== ========= ========= ======= ========= ==========
11 ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN Notes to Financial Statements (10) Financial Information by Fund Type (continued) Statement of Changes in Net Assets Available for Benefits by Fund Type Year ended December 31, 1994
Zions Bancorp- oration Fidelity Partici- common mutual Money Fixed pant stock fund market income loans Total ----------- --------- --------- ------- -------- ---------- Additions to net assets attributed to: Investment income: Net appreciation (depreciation) in market value of investments $ (601,351) (56,643) -- (60,787) -- (718,781) Dividends 593,018 57,136 -- 42,116 -- 692,270 Capital gain distributions -- 120,212 -- 1,331 -- 121,543 Interest 68,982 9,197 164,795 1,496 -- 244,470 ----------- --------- --------- ------- -------- ---------- 60,649 129,902 164,795 (15,844) -- 339,502 ----------- --------- --------- ------- -------- ---------- Contributions: Employees 593,429 680,345 270,190 70,153 -- 1,614,117 Zions Bancorporation 115,064 147,082 62,914 11,384 -- 336,444 Plan rollovers 175,680 66,006 103,216 23,819 -- 368,721 ----------- --------- --------- ------- -------- ---------- 884,173 893,433 436,320 105,356 -- 2,319,282 ----------- --------- --------- ------- -------- ---------- Principal loan payments 313,442 34,364 65,872 2,042 (415,720) -- ----------- --------- --------- ------- -------- ---------- Total additions 1,258,264 1,057,699 666,987 91,554 (415,720) 2,658,784 Deductions from net assets attributed to: Benefits paid directly to participants (1,139,005) (276,006) (341,951) (45,487) -- (1,802,449) Loans disbursed (335,345) (20,480) (112,062) (32,624) 500,511 -- ----------- --------- --------- ------- -------- ---------- Total deductions (1,474,350) (296,486) (454,013) (78,111) 500,511 (1,802,449) ----------- --------- --------- ------- -------- ---------- Quarterly transfers (108,654) 101,433 (64,079) 71,300 -- -- ----------- --------- --------- ------- -------- ---------- Net increase (decrease) (324,740) 862,646 148,895 84,743 84,791 856,335 Net assets available for benefits: Beginning of year 18,968,572 3,525,593 3,484,440 525,194 1,341,223 27,845,022 ----------- --------- --------- ------- --------- ---------- End of year $18,643,832 4,388,239 3,633,335 609,937 1,426,014 28,701,357 =========== ========= ========= ======= ========= ==========
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