-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PA41t9vZziLm9GxgRLpMXtdXuix2RjzVo9kTQxNtn6u7ONm7/hEtwTYsnOjl+p3b FDh9fHZyFz7GOeTbdrInOQ== 0000950149-96-000262.txt : 19960325 0000950149-96-000262.hdr.sgml : 19960325 ACCESSION NUMBER: 0000950149-96-000262 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960322 SROS: NONE 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: 96537741 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 ZIONS BANCORPORATION 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, 1995 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, 1996 .............................................. $814,435,000 Number of Common Shares Outstanding at February 27, 1996 .......... 14,500,299 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 1995 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 70 PART III Item 10. Directors and Executive Officers of the Registrant 70 Item 11. Executive Compensation 70 Item 12. Security Ownership of Certain Beneficial Owners and Management 70 Item 13. Certain Relationships and Related Transactions 70 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 70
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 core businesses of retail banking, small- and medium-sized business lending, residential mortgage and investment activities by maintaining a competitive cost structure. In addition to these core businesses, the Company has built specialized lines of business in institutional investments, public finance, and provides financing to small businesses to improve revenue growth and profitability while attempting to minimize risk. 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 by use of new technology to reduce cost and provide new and innovative ways to reach and serve customers. The Company is committed to improving the communities it serves now and in the years to come. 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 and credit card programs. At December 31, 1995, the Company had assets of $5.6 billion, loans of $2.8 billion, deposits of $4.1 billion, and shareholders' equity of more than $.4 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 lines of credit, 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 are 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. Customer transactions are processed through the Company's ATMs, point-of-sale terminals, and ATMs operated by other financial institutions. 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), and several low-income housing programs. Zions First National Bank offers "Electronic Bill Pay Service," an electronic bill paying service activated through a touch tone telephone, and a home banking product, under the name "PC Banker" which allows a retail customer to use a home computer to access and transfer account balances, pay bills, and maintain and reconcile accounts. Zions Bank also delivers electronically, as the contractor for the State of Utah, a variety of state benefit payments to the state's clients. 1 4 Zions First National Bank is a primary dealer in obligations of the United States government and several federal agencies, and is a major underwriter and distributor of municipal securities, and specialized securities such as the government-guaranteed portions of U. S. Small Business Administration (SBA) loans. Through its new Zions Small Business Finance division, Zions Bank provides SBA 7(a) loans to small businesses throughout the United States. And Zions Bank's SBA 504 department works with Certified Development Companies and correspondent banks throughout the country, providing the nation's largest source of secondary market financing for this loan program. Zions First National Bank's Small Business Investment Corporation provides early-stage capital, primarily for technology companies located in the Intermountain West. Zions First National Bank provides correspondent banking services such as cash letter processing, wire services, federal funds facilities, and loan participations. Zions 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 Bank's Grand Cayman branch accepts Euordollar 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. 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. The Company's commercial banking operations generated net income of $83.6 million in 1995, a 27.4% increase from the net income of $65.7 million in 1994. Income from commercial banking operations was favorably affected in 1995 by increased net interest income resulting from higher average earning assets and a larger spread between the prime lending rate and U.S. Treasury rates. The prime lending rate is the primary basis used for pricing the Company's loans whereas U.S. Treasury rates are the primary index used for pricing many of the Company's interest-bearing deposit obligations. Operations were also favorably affected through increased income resulting from loan sales and servicing in 1995, as first mortgage loan originations and securitized loan servicing fees increased by $9.7 million. Income was adversely affected in the first quarter of 1995 through a trading loss of approximately $3.1 million occurring in Discount Corporation of New York division of Zions Bank. Operations of the division's New York City office were terminated and selected operations were transferred to Salt lake City under the name Zions Bank Capital Markets which resulted in a restructuring charge of $1.3 million. Zions First National Bank remains a primary reporting dealer in U.S. Treasury securities and a member of the underwriting groups of selected U.S. agencies. The Company has continued its efforts to reduce its cost structure and improve efficiency in 1995 through the implementation of various programs and systems and the establishment of benchmarks throughout its various departments to assist in monitoring its progress. New technologies were employed during the year to deliver banking services to our customers and to facilitate improved employee productivity. The Company's efficiency ratio, influenced primarily by its commercial banking subsidiaries, improved to 59.1% in 1995 as compared to 63.3% in 1994. The Company also continued to expand its ATM network, as total ATMs in service at year end reached 255, a 18.6% increase from the 215 in operation at the end of 1994. With the growth in its branch system through acquisitions and the expansion of its grocery store locations, the Company has achieved significant geographical coverage in each of the three states in which it conducts its commercial banking operations. Average interest bearing deposits, federal funds sold and securities purchased under agreements to resell increased 6.6% or $59.5 million. Average securities held to maturity, available for sale and in the trading account increased 5.6% or $85.9 million. Total average loans and lease receivables, net of unearned discount, increased 1.0% or $25.0 million. Total average securitized loans increased 65.9% or $312.8 million. Average core deposits continued to experience growth of 6.4% or $216.4 million in 1995. The components of this growth included an increase of $120.5 million or 5.9% in average savings and money market deposits and an increase of $98.0 million or 19.0% in average time deposits under $100,000. Average demand deposits were essentially level in 1995 as compared to 1994. Total average deposits increased $278.3 million or 7.7% to $3,873.7 million in 1995 as compared to $3,595.4 million in 1994. Average federal funds purchased and securities sold under agreements to repurchase decreased $28.4 million or 2.6% to $1,056.8 million in 1995 while average securities sold short declined $94.2 million or 51.1% to $90.2 million in 1995. Federal Home Loan Bank advances and other borrowings declined $33.4 million or 23.2% to $110.7 million in 1995. Total average shareholder's equity allocated to commercial banking operations increased $63.0 million or 18.1% to $411.3 million in 1995. 2 5 Utah Zions First National Bank, founded in 1873, has 94 offices located throughout the state of Utah, plus one foreign office, for a total of 95 banking offices. Zions First National bank experienced strong growth in 1995 as net income increased 36.3% to $65.7 million as compared to $48.2 million in 1994. The increase was a result of a $20.6 million increase in net interest income and a $10.9 million increase in noninterest income, partially offset by a $6.2 million increase in noninterest expenses and a $7.8 million increase in income taxes. Zions First National Bank's "efficiency ratio," or operating expenses as a percentage of taxable-equivalent net revenues, improved to 57.8% in 1995 as compared to 63.7% in 1994. Staffing levels at Zions First National Bank increased 3% in 1995 while revenues increased 15.4% and branches were expanded by 8 locations in its retail operations, including 3 branches in southeastern Utah through the acquisition of First Western National Bank in June 1995. Zions Bank also organized a new division, Zions Small Business Finance, to focus on the origination of U.S. Small Business Administration (SBA) guaranteed loans in major markets throughout the country. This new division, which is headquartered in St. Louis, Missouri, was established with experienced management, and currently has representatives in eight states. Several new initiatives were introduced in the Company's commercial banks, with an emphasis on increasing customer convenience and access while reducing redundancies in operations and functions which are transparent to the customer. For example, Zions First National Bank expanded its "Reddi-Access" customer-calling service and introduced customer service representatives on extended hours to assist customers even at times when the branches are closed. Zions First National Bank introduced "Zions Bank Electronic Bill Pay Service" in March 1995, allowing customers to conveniently pay their monthly bills by telephone. Zions First National Bank also introduced "PC Banker" in November 1995, a Visa(R) home banking product, which allows a retail customer to use a home computer to access and conduct much of their banking business. Zions First National Bank also contracted with the State of Utah to process its welfare benefits payments electronically under a program known as "Utah Horizon." The pilot program commenced in October 1995, with full introduction scheduled for March 1996. This service allows recipients to access their benefits through the use of an electronic card system. Nevada Nevada State Bank, a state-chartered Federal Deposit Insurance Corporation ("FDIC")-insured institution, with its main office in downtown Las Vegas, opened three new grocery store banking centers and one new branch during 1995, expanding its banking offices to 25 in Nevada. Nevada State Bank achieved a net income of $5.9 million in 1995 as compared to $6.1 million in 1994, after amortization of purchase premium. The decline was a result of a $2.9 million increase in net revenues and a $.4 million decrease in the provision for loan losses offset by a $3.5 million increase in noninterest expenses. Nevada State Bank plans to open 5 additional banking locations in 1996. Nevada State Bank has expanded its corporate lending department with a focus on servicing the mid-range small business customer and is consolidating its "back-office" operations and expanding its use of affiliate resources, such as its cash management programs and its customer call centers to better service its customers. Arizona National Bank of Arizona, with its main office in Tucson, opened a new branch office in downtown Phoenix during 1995 expanding its banking offices to 11 in Arizona. A loan production office was also opened in Prescott, Arizona, during the year. Net income at National Bank of Arizona was $12.0 million in 1995 as compared to $11.3 million in 1994. The increase resulted from a net revenues increase of $8.5 million offset by a $1.0 million increase in the provision for loan losses, a $4.4 million increase in noninterest expenses and a $2.4 million increase in income taxes. In January 1996, Zions Bancorporation announced an agreement to acquire Southern Arizona Bancorp, Inc., and its banking subsidiary, Southern Arizona Bank with 5 branches located in the greater Yuma, Arizona, area. When this acquisition is completed, National Bank of Arizona will be located in all of Arizona's major market areas. 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 $81.8 million in new volume in 1995, a 29.6% increase over the 1994 volume. An additional $5.6 million in leases was brokered to third parties. Average lease receivables and conditional sales contracts serviced by Zions Credit Corporation decreased 1.8% to $124.4 million during 1995. Zions Insurance Agency, Inc. and Zions Life Insurance Company produced combined net income of $.8 million in 1995, a 24.9% decease compared to 1994. The decrease in net income was largely attributable to a decrease related to credit life insurance and an increase in expenses relative to expansion. Zions Data Service Company engaged in a variety of significant projects in 1995, including assistance in implementing the PC Banker and electronic benefits products in Zions First National Bank. The Company also established a World Wide Web site (http://www.zionsbank.com) which will provide a new means of communicating with customers as the Internet becomes an increasingly important channel for distributing banking services. The Company made significant acquisitions of software to improve the commercial banks' customer delivery and information systems, including new software relating to consumer lending, deposit account reconciliation, cash management, construction lending and ATM systems. These systems will be installed throughout 1996. Zions Mortgage Company achieved a net income of $1.0 million as compared to a loss of $.3 million in 1994. Inasmuch as Zions Mortgage Company is a direct subsidiary of Zions First National Bank, its results of operations are included in the commercial banking operations results. Zions Mortgage Company experienced a reduction in mortgage originations as a result of an adverse interest rate environment and competitive pressures in 1995. Total retail mortgage origination volume decreased 24.8% to $287.7 million in 1995. In anticipation of the reduction in volume, Zions Mortgage Company reduced its staffing 16.7% in 1995. Through staff reductions and increased automation, the Company reduced salaries and benefits expenses by 6.1% and other noninterest expenses by 13.2% in 1995. During the first quarter of 1996, Zions Mortgage Company will introduce the "Home Express" loan program which will allow mortgage applicants to receive loan decisions at the time of application. This product will reduce closing time on a mortgage loan from 30 days to just 5-10 days. During 1995, Zions Investment Securities, Inc. contributed $.8 million in pretax income, rent income and revenue sharing to the Company's banking operations. Net income, which is included in the commercial banking operations results, was $.3 million, a 47.2% increase from 1994. Zions Investment Securities, Inc. has 30 registered investment advisors who offer a full range of brokerage services and products. 1995 ECONOMIC TRENDS Zions Bancorporation is fortunate in that its primary market area -- the states of Utah, Nevada and Arizona -- constitutes the fastest growing region in the country. Nevada and Utah continued to lead the nation in nonfarm job growth for the twelve months ended October, 1995, with job growth rates of 5.8% and 5.3%, respectively. Arizona's employment growth rate, while more modest at 3.4%, was still nearly double the national average growth rate of 1.8%. Personal income growth in the Intermountain area has also been very strong over the past five years, with an average growth rate of 7.3% as compared to a national growth rate of 5.3%. 4 7 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 a new activity or to acquire more than 5% of any class of voting stock of any company. Pursuant to the Riegle-Neal Interstate Branching and Efficiency Act of 1994 ("Riegle-Neal Act"), subject to approval by the Federal Reserve Board, bank holding companies are authorized 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" which follows. 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 mergers. 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 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, generally, 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, generally, 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, generally, 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, 1995, the Company's Tier I and Total Capital ratios were 11.38% and 14.23%, 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, 1995, the Company's Tier I leverage ratio was 6.28%. 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. 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 published amendments to its risk-based capital guidelines which would generally increase the amount of capital required to be carried against certain long-term derivative contracts; the amendments also recognized the effect of certain bilateral netting arrangements in reducing potential future exposure under these contracts. Zions Bancorporation does not anticipate that these amendments to the Federal Reserve Board's capital guidelines will result in a material increase in 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, 1995, the risk-based and leverage ratios of each of Zions Bancorporation's banking subsidiaries exceeded the minimum requirements. By Federal Register notice dated August 2, 1995, the Federal Reserve Board, the Comptroller and the FDIC sought public comment on a proposed policy statement pursuant to which a bank's interest risk exposure would be measured utilizing a supervisory model or approved internal bank model, but would also take into account such factors as the quality of an institution's interest rate risk management, internal controls and overall financial condition, including earnings capacity, capital base and the level of other risks which may impair future earnings or capital. Unless specifically exempted, banks would be required to submit additional information to their primary federal regulator regarding the maturity, repricing or price sensitivity of their various on- and off-balance sheet instruments. The agencies expect that they will incorporate an explicit minimum capital charge for interest rate risk (based in part on their experience in applying the proposed policy statement) into their risk-based capital standards. Zions Bancorporation does not anticipate that the adoption of the proposed policy statement in its current form will result in a material increase in the capital requirements applicable to it. However, until the final terms of the proposed policy statement are known, Zions Bancorporation cannot predict the effect of its implementation on the capital requirements applicable to it. On December 19, 1991, the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") was signed into law. Among other changes to federal banking law effected by the legislation, 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. 7 10 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. 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 Community Development and Regulatory Improvement Act of 1994, signed into law on September 23, 1994 (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. 8 11 On July 10, 1995, the federal banking agencies published proposed guidelines setting forth standards for asset quality and earnings, final guidelines with respect to other safety and soundness 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 banking agencies, neither the proposed nor the final standards represents a change in existing policies but, instead, formalizes 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 also 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 an 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 and earnings 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. 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 imposed. 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. Revisions by the regulators to CRA continue; therefore, Zions Bancorporation cannot predict the effect that changes will have on its operations and upon those of its subsidiaries. 9 12 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. The most important of such measures include legislation designed to permit increased affiliations between commercial and financial firms (including securities firms) and federally-insured banks, reduce regulatory burdens on financial institutions, limit the prerogative of federal banking regulators to expand the range of permissible activities for banks (particularly in the field of insurance), eliminate or revise the features of the specialized savings association charter, 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 affected from these consumer laws. Deposit Insurance Assessments The insured bank subsidiaries of Zions Bancorporation are required to pay quarterly deposit insurance assessments to the Bank Insurance Fund ("BIF"). Pursuant to a directive in FDICIA, the FDIC revised its deposit insurance regulation, effective October 1, 1993, to establish a permanent risk-based assessment system. Under this 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." Until May 31, 1995, the FDIC federal deposit insurance regulation established an eight basis point spread between the assessment rate established for the highest and lowest risk classification, so that banks classified as strongest by the FDIC were subject to a rate of .23% of insured deposits (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%). On August 8, 1995, in recognition of the achievement by the BIF of its target ratio of 1.25% of insured deposits, the FDIC adopted a new assessment schedule, applied retroactively as of June 1, 1995, providing for an assessment rate range of up to .31% (with intermediate rates of .07%, .14%, .21%, and .28%, depending upon an institution's supervisory risk group). (The revised regulation also established a procedure for adjusting assessment rates semiannually within a range up to five basis points without seeking public comment.) The FDIC acted on November 14, 1995 to further reduce BIF assessment rates, effective for the semiannual period commencing on January 1, 1996 and ending on June 30, 1996. The rate schedule adopted establishes an assessment rate range of 0% to .27% (with intermediate rates of .03%, .10%, .17%, and .24%, depending upon an institution's supervisory risk group) subject to a minimum assessment of $1,000 per semiannual period. 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. 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 earnings 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. 10 13 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 and the Congress have enacted legislation intended to allow certain interstate banking combinations. 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. 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, the most significant of which include 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. 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 any potential legislation, if enacted, would have upon its financial condition or operations. 11 14 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. 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. 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 3,075 full- and part-time people with approximately 2,865 being employed by the banking subsidiaries. The Company had 2,855 full-time equivalent employees at December 31, 1995, compared to 2,695 at December 31, 1994. Banking subsidiaries had 2,650 full-time equivalent employees at the end of 1995, compared to 2,506 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. 12 15 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-eight (58) of Zions First National Bank's ninety-four (94) 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-five (25) offices are located in buildings owned and the other twenty-one (21) are on leased premises, and in Arizona, National Bank of Arizona owns three (3) offices and leases eight (8) 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. Zions Bancorporation is lessee under a 25-year lease, of which 24 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 10 of Notes to Consolidated Financial Statements, which appears in Part II, Item 8, on page 59 of this report. 13 16 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. A motion to certify the class was filed in March 1994 and opposition to this motion was filed in April 1994. The Bank continues to vigorously 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 earnings or 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 1995. EXECUTIVE OFFICERS OF THE REGISTRANT The names, ages, positions, and backgrounds of the Company's executive officers as of February 27, 1996, are set forth as follows:
Positions and Offices Held With Zions Officer Name Age Bancorporation and Principal Subsidiaries since - ---- --- ----------------------------------------- ----- Roy W. Simmons 80 Chairman of the Company, and Chairman of the Board of 1961 Directors of Zions First National Bank Harris H. Simmons 41 President & Chief Executive Officer of the Company; President, 1981 Chief Executive Officer, and Member of the Board of Directors of Zions First National Bank Gary L. Anderson 53 Senior Vice President, Chief Financial Officer and Secretary of 1988 the Company; Executive Vice President and Secretary of the Board of Directors of Zions First National Bank Danne L. Buchanan 38 Senior Vice President of the Company, and President of Zions 1995 Data Service Company. Prior to March 1995, Senior Vice President and General Manager of Zions Data Service Company Gerald J. Dent 54 Senior Vice President of the Company, and Executive Vice 1987 President of Zions First National Bank John J. Gisi 50 Senior Vice President of the Company, and Chairman and Chief 1994 Executive Officer of National Bank of Arizona since 1987 Clark B. Hinckley 48 Senior Vice President of the Company. Prior to March 1994, 1994 President of a Company subsidiary, Zions First National Bank of Arizona.
14 17
Positions and Offices Held With Zions Officer Name Age Bancorporation and Principal Subsidiaries since - ---- --- ----------------------------------------- ----- George B. Hofmann III 46 Senior Vice President of the Company, and President and Chief 1995 Executive Officer of Nevada State Bank. Prior to April 1995, Senior Vice President of Zions First National Bank Walter E. Kelly 63 Controller of the Company 1980 Ronald L. Johnson 40 Vice President of the Company 1989 A. Scott Anderson 49 Executive Vice President of Zions First National Bank. Prior to 1990 December 1990, Vice President of Bank of America John B. D'Arcy 53 Executive Vice President of Zions First National Bank 1989 Peter K. Ellison 53 Executive Vice President of Zions First National Bank 1968 W. David Hemingway 48 Executive Vice President of Zions First National Bank 1976 Nolan X. Bellon 47 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 a quarterly basis for the past three years:
1995 1994 1993 ---------------------- ---------------------- ---------------------- HIGH LOW HIGH LOW HIGH LOW --------- --------- --------- --------- --------- --------- 1st Quarter $ 40.50 $ 35.50 $ 39.75 $ 36.50 $ 49.00 $ 41.50 2nd Quarter $ 50.00 $ 38.13 $ 42.00 $ 37.00 $ 48.75 $ 38.50 3rd Quarter $ 61.50 $ 49.50 $ 40.63 $ 38.50 $ 44.25 $ 38.50 4th Quarter $ 81.13 $ 60.88 $ 39.25 $ 33.50 $ 45.50 $ 36.00
Number of common shareholders of record as of latest practicable date: 3,889 common shareholders as of February 27, 1996 Frequency and amount of dividends paid during three years:
1ST 2ND 3RD 4TH QTR QTR QTR QTR ------- ------- ------- ------- 1995 $ .30 $ .35 $ .35 $ .41 1994 $ .28 $ .28 $ .30 $ .30 1993 $ .21 $ .21 $ .28 $ .28
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, ------------------------------------------------------------------------ 1995 1994 1993 1992 1991 ----------- ----------- ----------- ----------- ----------- RESULTS OF OPERATIONS Interest income $ 430,483 $ 353,989 $ 293,616 $ 278,225 $ 301,443 Interest expense 203,389 155,383 118,959 120,943 161,572 ----------- ----------- ----------- ----------- ----------- Net interest income 227,094 198,606 174,657 157,282 139,871 Provision for loan losses 2,800 2,181 2,993 10,929 25,561 ----------- ----------- ----------- ----------- ----------- Net interest income after provision for loan losses 224,294 196,425 171,664 146,353 114,310 Noninterest income 86,714 73,202 79,880 62,849 52,456 Noninterest expense 188,730 174,900 167,750 139,069 122,999 ----------- ----------- ----------- ----------- ----------- Income before income taxes and cumulative effect of changes in accounting principles 122,278 97,727 83,794 70,133 43,767 Income taxes 40,950 30,900 27,248 22,924 13,318 ----------- ----------- ----------- ----------- ----------- Income before cumulative effect of changes in accounting principles 81,328 63,827 56,546 47,209 30,449 Cumulative effect of changes in accounting principles -- -- 1,659 -- -- ----------- ----------- ----------- ----------- ----------- Net income $ 81,328 $ 63,827 $ 58,205 $ 47,209 $ 30,449 =========== =========== =========== =========== =========== COMMON SHARE DATA Income before cumulative effect of changes in accounting principles $ 5.53 $ 4.37 $ 3.96 $ 3.42 $ 2.23 Net income 5.53 4.37 4.08 3.42 2.23 Dividends 1.41 1.16 .98 .75 .72 Book value - year end 29.44 25.12 22.01 18.95 16.23 YEAR END BALANCES Total assets $ 5,620,646 $ 4,934,095 $ 4,801,054 $ 4,107,924 $ 3,883,938 Money market investments 687,251 403,446 597,680 616,180 714,238 Securities 1,540,489 1,663,433 1,258,939 981,695 852,861 Net loans and leases 2,806,956 2,391,278 2,486,346 2,107,433 1,979,726 Allowance for loan losses 67,555 67,018 68,461 59,807 58,238 Total deposits 4,097,114 3,705,976 3,432,289 3,075,110 2,877,860 Shareholders' equity 428,506 365,770 312,592 260,070 220,753 RATIOS Return on average assets 1.44% 1.17% 1.25% 1.24% .86% Return on average common equity 20.47% 18.82% 20.33% 19.64% 14.59% Average equity to average assets 7.02% 6.22% 6.17% 6.31% 5.90% Tier I risk-based capital - year end 11.38% 11.81% 10.85% 10.23% 8.40% Total risk-based capital - year end 14.23% 14.96% 14.12% 15.13% 12.09% Tier I leverage - year end 6.28% 6.24% 5.44% 6.21% 5.86% Net interest margin 4.50% 4.07% 4.23% 4.59% 4.39% Nonperforming assets to total assets - year end .17% .38% .64% .77% 1.20% Nonperforming assets to net loans and leases, other real estate owned and other nonperforming assets at year end .33% .79% 1.23% 1.49% 2.35% Net charge-offs (recoveries) to average loans and leases .10% .19% (.23)% .44% 1.51% Allowance for loan losses to net loans and leases outstanding at year end 2.41% 2.80% 2.75% 2.84% 2.94% Allowance for loan losses to nonperforming loans at year end 878.82% 471.89% 250.13% 234.00% 158.59%
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, 1995, 1994, and 1993 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 $81.3 million in 1995 as compared to net income of $63.8 million in 1994 and $58.2 million in 1993. Net income per common share in 1995 was $5.53 as compared to $4.37 in 1994 and $4.08 in 1993. 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 1995 represent a historic high for income before income taxes and net income. Some of the factors affecting the increase in earnings were a $28.5 million (14.3%) increase in net interest income, a $4.3 million (17.8%) increase in service charges on deposit accounts, a $2.2 million (9.8%) increase in other service charges, commissions and fees, a $9.7 million (66.2%) increase in loan sales and servicing income and a $3.5 million (45.9%) decrease in FDIC premiums expense. These increased contributions to income were partially offset by a $2.1 million (245.0%) decrease in trading account income, a $.6 million (28.4%) increase in the provision for loan losses, a $9.6 million (10.3%) increase in salaries and employee benefits, a $1.9 million (16.8%) increase in furniture and equipment expense, a $3.2 million (10.2%) increase in all remaining noninterest expenses, and a $10.1 million (32.5%) 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 14.3% to $232.4 million in 1995 compared to $203.3 million in 1994. The increased level of taxable-equivalent net interest income was influenced primarily by the increase in average earning assets and an increased spread between the prime lending rate and the short-term U.S. Treasury rate. The prime lending rate is the primary basis used for pricing the Company's loans and the short-term Treasury rate is the index used for pricing many of the Company's deposits. The Company 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 1995, the Company had income net of expense of $741,000 from the use of such off-balance sheet arrangements compared to $967,000 in 1994 and $291,000 in 1993. 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 earnings assets. The Company's net interest margin was 4.50% for 1995 as compared to 4.07% in 1994. The increase in the margin was due primarily to the prime lending rate/short-term U.S. Treasury spread. The prime/90 day T-bill spread was 3.31% at December 1995 as compared to 2.88% at December 1994. The Company is unable to effectively and economically hedge this basis point risk through the use of off-balance financial instruments. The increase in net interest margin was partially offset by the continued securitized sales of loans. Securitized sales of loans convert net interest income from loans to other operating 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 require no consolidated "risk-based" capital. The spread on average interest-bearing funds is the difference between the yield on earning assets and on the cost of interest-bearing funds. The Company's spread on average interest-bearing funds was 3.72% for 1995 as compared to 3.49% in 1994. The spread on average interest-bearing funds was positively affected by the same factors that increased the net interest margin. 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 1995 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 1995 and 1994, 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 1995 and 1994; 32% in 1993 and each of the years prior. 17 20 DISTRIBUTION OF ASSETS, LIABILITIES, AND SHAREHOLDERS' EQUITY, AVERAGE BALANCE SHEETS, YIELDS AND RATES
1995 1994 ------------------------------------ -------------------------------------- Amount Amount (Amounts in thousands) Average of Average Average of Average balance interest(1) rate(1) balance interest(1) rate(1) ----------- ----------- ------- ----------- ----------- ------- Assets: Money market investments: Interest-bearing deposits $ 26,539 $ 1,288 4.85% $ 24,389 $ 814 3.34% Federal funds sold and security resell agreements 910,307 54,344 5.97% 845,320 34,231 4.05% Other money market investments -- -- - % -- -- - % ----------- ----------- ----------- ----------- Total money market investments 936,846 55,632 5.94% 869,709 35,045 4.03% ----------- ----------- ----------- ----------- Securities: Held to maturity: Taxable 911,237 64,914 7.12% 726,925 41,269 5.68% Nontaxable 210,758 17,714 8.40% 193,810 15,689 8.10% Available for sale: Taxable 362,953 23,966 6.60% 334,044 19,916 5.96% Nontaxable 460 30 6.52% -- -- - % Trading account 146,845 9,248 6.30% 290,925 16,516 5.68% ----------- ----------- ----------- ----------- Total securities 1,632,253 115,872 7.10% 1,545,704 93,390 6.04% ----------- ----------- ----------- ----------- Loans: Loans held for sale 115,939 9,259 7.99% 187,506 12,303 6.56% Net loans and leases(2) 2,483,132 255,043 10.27% 2,387,489 217,958 9.13% ----------- ----------- ----------- ----------- Total loans 2,599,071 264,302 10.17% 2,574,995 230,261 8.94% ----------- ----------- ----------- ----------- Total interest-earning assets $ 5,168,170 $ 435,806 8.43% $ 4,990,408 $ 358,696 7.19% ----------- ----------- Cash and due from banks 321,526 333,290 Allowance for loan losses (67,803) (68,248) Other assets 236,797 201,163 ----------- ----------- Total assets $ 5,658,690 $ 5,456,613 =========== =========== Liabilities: Interest-bearing deposits: Savings deposits $ 719,590 $ 22,492 3.13% $ 740,339 $ 22,262 3.01% Money market deposits 1,425,537 59,465 4.17% 1,284,697 39,938 3.11% Time deposits under $100,000 614,858 32,016 5.21% 516,877 20,469 3.96% Time deposits $100,000 or more 121,863 7,358 6.04% 94,680 3,845 4.06% Foreign deposits 139,212 7,179 5.16% 108,383 4,444 4.10% ----------- ----------- ----------- ----------- Total interest-bearing deposits 3,021,060 128,510 4.25% 2,744,976 90,958 3.31% ----------- ----------- ----------- ----------- Borrowed funds: Securities sold, not yet purchased 90,196 5,619 6.23% 184,405 10,976 5.95% Federal funds purchased and security repurchase agreements 1,037,197 56,645 5.46% 1,057,827 41,089 3.88% FHLB advances and other borrowings: Less than one year 20,441 1,406 6.88% 32,557 1,770 5.44% Over one year 93,829 6,088 6.49% 118,607 5,831 4.92% Long-term debt 57,506 5,121 8.91% 59,493 4,759 8.00% ----------- ----------- ----------- ----------- Total borrowed funds 1,299,169 74,879 5.76% 1,452,889 64,425 4.43% ----------- ----------- ----------- ----------- Total interest-bearing liabilities $ 4,320,229 $ 203,389 4.71% $ 4,197,865 $ 155,383 3.70% ----------- ----------- Noninterest-bearing deposits 837,211 838,118 Other liabilities 103,982 81,449 ----------- ----------- Total liabilities 5,261,422 5,117,432 Total shareholders' equity 397,268 339,181 ----------- ----------- Total liabilities and shareholders' equity $ 5,658,690 $ 5,456,613 =========== =========== Spread on average interest-bearing funds 3.72% 3.49% ==== ==== Net interest income and net yield on interest-earning assets $ 232,417 4.50% $ 203,313 4.07% =========== ==== =========== ====
- -------------------------------------------- 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
1993 1992 --------------------------------- ----------------------------------- Amount Amount (Amounts in thousands) Average of Average Average of Average balance interest(1) rate(1) balance interest(1) rate(1) ---------- ---------- ------- ----------- ---------- ------- Assets: Money market investments: Interest-bearing deposits $ 103,982 $ 3,682 3.55% $ 184,142 $ 10,529 5.72% Federal funds sold and security resell agreements 656,204 22,918 3.49% 245,866 9,730 3.96% Other money market investments 28,508 827 2.90% 39,054 1,410 3.61% ---------- ---------- ----------- --------- Total money market investments 788,694 27,427 3.48% 469,062 21,669 4.62% ---------- ---------- ----------- --------- Securities: Held to maturity: Taxable 958,776 56,347 5.88% 766,002 48,854 6.38% Nontaxable 147,549 12,434 8.43% 125,062 11,163 8.93% Available for sale: Taxable - - - % - - - % Nontaxable - - - % - - - % Trading account 102,840 7,555 7.35% 36,912 5,537 15.00% ---------- ---------- ----------- --------- Total securities 1,209,165 76,336 6.31% 927,976 65,554 7.06% ---------- ---------- ----------- --------- Loans: Loans held for sale 185,899 11,273 6.06% 186,953 13,804 7.38% Net loans and leases(2) 2,036,283 182,559 8.97% 1,917,726 180,770 9.43% ---------- ---------- ----------- --------- Total loans 2,222,182 193,832 8.72% 2,104,679 194,574 9.24% ---------- ---------- ----------- --------- Total interest-earning assets $4,220,041 $ 297,595 7.05% $ 3,501,717 $ 281,797 8.05% ---------- --------- Cash and due from banks 315,577 236,116 Allowance for loan losses (64,911) (60,116) Other assets 173,211 130,115 ---------- ----------- Total assets $4,643,918 $ 3,807,832 ========== =========== Liabilities: Interest-bearing deposits: Savings deposits $ 648,178 $ 19,222 2.97% $ 494,113 $ 17,396 3.52% Money market deposits 1,117,016 31,109 2.79% 1,029,499 34,705 3.37% Time deposits under $100,000 548,816 23,501 4.28% 651,226 33,555 5.15% Time deposits $100,000 or more 79,442 3,010 3.79% 95,067 4,419 4.65% Foreign deposits 55,823 1,484 2.66% 86,479 3,635 4.20% ---------- ---------- ----------- --------- Total interest-bearing deposits 2,449,275 78,326 3.20% 2,356,384 93,710 3.98% ---------- ---------- ----------- --------- Borrowed funds: Securities sold, not yet purchased 69,442 3,039 4.38% - - - % Federal funds purchased and security repurchase agreements 767,309 22,376 2.92% 394,620 12,681 3.21% FHLB advances and other borrowings: Less than one year 83,123 3,196 3.84% 78,406 3,218 4.10% Over one year 111,974 4,599 4.11% 50,450 1,826 3.62% Long-term debt 75,623 7,423 9.82% 82,219 9,508 11.56% ---------- ---------- ----------- --------- Total borrowed funds 1,107,471 40,633 3.67% 605,695 27,233 4.50% ---------- ---------- ----------- --------- Total interest-bearing liabilities $3,556,746 $ 118,959 3.34% $ 2,962,079 $ 120,943 4.08% ---------- --------- Noninterest-bearing deposits 729,651 556,476 Other liabilities 71,190 48,866 ---------- ----------- Total liabilities 4,357,587 3,567,421 Total shareholders' equity 286,331 240,411 ---------- ----------- Total liabilities and shareholders' equity $4,643,918 $ 3,807,832 ========== =========== Spread on average interest-bearing funds 3.71% 3.97% ==== ==== Net interest income and net yield on interest-earning assets $ 178,636 4.23% $ 160,854 4.59% ========== ==== ========= ====
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
1991 -------------------------------------- Amount (Amounts in thousands) Average of Average balance interest(1) rate(1) ---------- ----------- --------- Assets: Money market investments: Interest-bearing deposits $ 234,936 $ 15,210 6.47% Federal funds sold and security resell agreements 355,666 23,290 6.55% Other money market investments 79,982 4,910 6.14% ---------- ---------- Total money market investments 670,584 43,410 6.47% ---------- ---------- Securities: Held to maturity: Taxable 604,557 49,171 8.13% Nontaxable 74,709 8,571 11.47% Available for sale: Taxable - - - % Nontaxable - - - % Trading account 22,761 3,122 13.72% ---------- ---------- Total securities 702,027 60,864 8.67% ---------- ---------- Loans: Loans held for sale 106,028 8,970 8.46% Net loans and leases(2) 1,769,900 190,942 10.79% ---------- ---------- Total loans 1,875,928 199,912 10.66% ---------- ---------- Total interest-earning assets $3,248,539 $ 304,186 9.36% ---------- Cash and due from banks 214,238 Allowance for loan losses (61,650) Other assets 135,682 ---------- Total assets $3,536,809 ========== Liabilities: Interest-bearing deposits: Savings deposits $ 535,634 $ 26,154 4.88% Money market deposits 717,124 36,642 5.11% Time deposits under $100,000 771,491 51,692 6.70% Time deposits $100,000 or more 132,363 8,317 6.28% Foreign deposits 62,729 3,245 5.17% ---------- ---------- Total interest-bearing deposits 2,219,341 126,050 5.68% ---------- ---------- Borrowed funds: Securities sold, not yet purchased - - - % Federal funds purchased and security repurchase agreements 331,367 17,031 5.14% FHLB advances and other borrowings: Less than one year 119,222 8,213 6.89% Over one year 35,342 1,943 5.50% Long-term debt 86,967 8,335 9.58% ---------- ---------- Total borrowed funds 572,898 35,522 6.20% ---------- ---------- Total interest-bearing liabilities $2,792,239 $ 161,572 5.79% ---------- Noninterest-bearing deposits 481,790 Other liabilities 54,051 ---------- Total liabilities 3,328,080 Total shareholders' equity 208,729 ---------- Total liabilities and shareholders' equity $3,536,809 ========== Spread on average interest-bearing funds 3.57% ==== Net interest income and net yield on interest-earning assets $ 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. 20 23 Analysis of Interest Changes Due to Volume and Rates
1995 over 1994 1994 over 1993 ------------------------------- -------------------------------- (In thousands) Changes due to Total Changes due to Total -------------------- -------------------- Volume Rate(1) Changes Volume Rate(1) Changes -------- -------- -------- -------- -------- -------- Interest-earning assets: Money market investments: Interest-bearing deposits $ 77 $ 397 $ 474 $ (2,659) $ (209) $ (2,868) Federal funds sold and security resell agreements 2,809 17,304 20,113 7,272 4,041 11,313 Other money market investments -- -- -- (827) -- (827) -------- -------- -------- -------- -------- -------- Total money market investments 2,886 17,701 20,587 3,786 3,832 7,618 -------- -------- -------- -------- -------- -------- Securities: Held to maturity: Taxable 11,823 11,822 23,645 (759) 7,976 7,217 Nontaxable 1,418 607 2,025 3,738 (483) 3,255 Available for sale: Taxable 1,807 2,243 4,050 7,122 (9,501) (2,379) Nontaxable 30 -- 30 -- -- -- Trading account (8,175) 907 (7,268) 10,675 (1,714) 8,961 -------- -------- -------- -------- -------- -------- Total securities 6,903 15,579 22,482 20,776 (3,722) 17,054 -------- -------- -------- -------- -------- -------- Loans: Loans held for sale (4,697) 1,653 (3,044) 92 938 1,030 Net loans and leases(2) 9,019 28,066 37,085 32,002 3,397 35,399 -------- -------- -------- -------- -------- -------- Total loans 4,322 29,719 34,041 32,094 4,335 36,429 -------- -------- -------- -------- -------- -------- Total interest-earning assets $ 14,111 $ 62,999 $ 77,110 $ 56,656 $ 4,445 $ 61,101 -------- -------- -------- -------- -------- -------- Interest-bearing liabilities: Deposits: Savings deposits $ (602) $ 832 $ 230 $ 2,753 $ 287 $ 3,040 Money market deposits 4,761 14,766 19,527 4,997 3,832 8,829 Time deposits under $100,000 4,332 7,215 11,547 (1,264) (1,768) (3,032) Time deposits $100,000 or more 1,302 2,211 3,513 609 226 835 Foreign deposits 973 1,762 2,735 1,879 1,081 2,960 -------- -------- -------- -------- -------- -------- Total interest-bearing deposits 10,766 26,786 37,552 8,974 3,658 12,632 -------- -------- -------- -------- -------- -------- Borrowed funds: Securities sold, not yet purchased (5,609) 252 (5,357) 6,522 1,415 7,937 Federal funds purchased and security repurchase agreements (846) 16,402 15,556 10,013 8,700 18,713 FHLB advances and other borrowings: Less than one year (658) 294 (364) (1,946) 520 (1,426) Over one year (1,215) 1,472 257 287 945 1,232 Long-term debt (159) 521 362 (1,291) (1,373) (2,664) -------- -------- -------- -------- -------- -------- Total borrowed funds (8,487) 18,941 10,454 13,585 10,207 23,792 -------- -------- -------- -------- -------- -------- Total interest-bearing liabilities $ 2,279 $ 45,727 $ 48,006 $ 22,559 $ 13,865 $ 36,424 -------- -------- -------- -------- -------- -------- Change in net interest income $ 11,832 $ 17,272 $ 29,104 $ 34,097 $ (9,420) $ 24,677 ======== ======== ======== ======== ======== ========
-------------------------------------------- (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 proceeding 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 with the following exceptions: when volume and rate have both increased, the variance has been allocated proportionately to both volume and rate; 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 1995 increased by 28.4% to $2,800,000 as compared to $2,181,000 in 1994 and $2,993,000 in 1993. The increase in the loan loss provision resulted from net larger provisions in the Company's banking subsidiaries in Arizona and Nevada. While the increase in the provision is large as a percentage increase, the total provision remains at a low level, reflecting continued improvement in credit risk management and a continuing healthy economy which have produced decreases in nonperforming assets. NONINTEREST INCOME The Company's noninterest income increased by 18.5% to $86.7 million as compared to $73.2 million in 1994 and $79.9 million in 1993. Service charges on deposits increased by 17.8% in 1995 to $28.3 million, primarily as a result of price increases and higher volumes in 1995. Other service charges, commissions and fees increased by 9.8% in 1995 to $24.2 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 from sales of investment products through the Company's discount brokerage operations and personal investment officers, as well as fees from mortgage loan originations during 1995. Trading account income decreased by 245.0% to $(1.2) million in 1995 as compared to $.9 million in 1994, due primarily to a $3.1 million trading loss during the first quarter of 1995, which resulted in the transfer of Zions First National Bank's capital markets operation in New York City to the bank's headquarters in Salt Lake City. Loan sales and servicing income increased 66.2% to $24.3 million primarily as a result of increased income on real estate loans sold in 1995 and higher servicing fees during 1995 on securitized loans sold. 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 decreased by 8.6% in 1995 to $7.0 million, primarily as a result of a smaller gain on the sale of mortgage-servicing rights reported in 1995. The smaller gain was partially offset by interest income received on a state income tax refund. 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 (Amounts in thousands) 1995 change 1994 change 1993 change 1992 change 1991 ---- ------ ---- ------ ---- ------ ---- ------ ---- Service charges on deposit accounts $ 28,347 17.8% $ 24,058 5.2% $22,875 17.4% $ 19,484 9.9% $17,736 Other service charges, commissions, and fees 24,169 9.8 22,008 2.9 21,392 13.4 18,871 35.7 13,907 Trust income 4,355 .5 4,334 (6.2) 4,622 .2 4,614 10.7 4,169 Investment securities gains (losses), net (148) 50.5 (299) (1,658.8) (17) (105.2) 327 (54.3) 715 Trading account income (loss) (1,247) (245.0) 860 (63.4) 2,350 (47.0) 4,437 226.5 1,359 Loan sales and servicing income 24,254 66.2 14,596 (32.0) 21,471 226.7 6,573 (16.5) 7,875 Other income 6,984 (8.6) 7,645 6.4 7,187 (15.9) 8,543 27.6 6,695 --------- -------- ------- -------- ------- Total $ 86,714 18.5% $ 73,202 (8.4)% $79,880 27.1% $ 62,849 19.8% $52,456 ========= ==== ======== ==== ======= ==== ======== ==== =======
NONINTEREST EXPENSES Noninterest expenses increased by 7.9% in 1995 to $188.7 million as compared to $174.9 million in 1994 and $167.8 million in 1993. Salaries and employee benefits increased by 10.3% in 1995 to $103.0 million, primarily as a result of increased staffing of branch offices opened and acquired and SBA loan origination activities, as well as general salary increases, bonuses, commissions and profit-sharing costs related to increased profitability. Furniture and equipment expense increased 16.8% in 1995 to $13.2 million, resulting primarily from the addition of branch facilities, the further expansion of the ATM network, and the installation of personal computers and local area networks. 22 25 The Company benefited by a decrease in F.D.I.C. premiums of 45.9% in 1995 to $4.1 million as compared to $7.5 million in 1994 due to lower assessment rates. Telecommunication costs increased 24.8% to $4.7 million as a result of acquisitions and the expansion of ATM and other networks. All other expenses increased 8.2% to $29.9 million in 1995 as compared to $27.6 million in 1994, 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. 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 (Amounts in thousands) 1995 change 1994 change 1993 change 1992 change 1991 ---- ------ ---- ------ ---- ------ ---- ------ ---- Salaries and employee benefits $ 102,951 10.3% $ 93,331 9.1% $ 85,549 21.8% $ 70,242 14.7% $ 61,220 Occupancy, net 10,398 7.8 9,647 18.1 8,168 12.7 7,248 (4.3) 7,570 Furniture and equipment 13,174 16.8 11,276 21.3 9,294 21.0 7,681 13.4 6,773 Other real estate expense 81 192.0 (88) (119.6) 450 (82.4) 2,559 (22.9) 3,318 Legal and professional services 4,285 (16.7) 5,142 .1 5,136 42.0 3,616 (8.0) 3,931 Supplies 5,231 8.5 4,819 6.2 4,537 17.5 3,860 1.1 3,817 Postage 5,125 8.5 4,723 9.0 4,334 20.0 3,611 (2.4) 3,700 Advertising 5,221 51.5 3,447 (1.9) 3,515 8.6 3,236 43.3 2,258 F.D.I.C. premiums 4,084 (49.5) 7,547 4.0 7,257 16.4 6,235 15.9 5,381 Amortization of intangible assets 3,621 (1.9) 3,692 (16.7) 4,432 (2.2) 4,530 16.7 3,882 Loss on early extinguishment of debt - - - (100.0) 6,022 100.0 - - - Other expenses: Telecommunications 4,701 24.8 3,767 25.4 3,005 26.6 2,373 19.4 1,987 All other expenses 29,858 8.2 27,597 5.9 26,051 9.1 23,878 24.6 19,162 --------- --------- --------- --------- --------- Total other expenses 34,559 10.2 31,364 7.9 29,056 10.7 26,251 24.1 21,149 --------- --------- --------- --------- --------- Total $ 188,730 7.9% $ 174,900 4.3% $ 167,750 20.6% $ 139,069 13.1% $ 122,999 ========= ===== ========= ====== ========= ===== ========= ===== =========
The following table presents full-time equivalent employees and banking offices at December 31, for the years indicated: FULL-TIME EQUIVALENT EMPLOYEES
1995 1994 1993 1992 1991 ----- ----- ----- ----- ----- Commercial banking 2,650 2,506 2,573 2,098 2,008 Other 205 189 188 395 341 ----- ----- ----- ----- ----- Total 2,855 2,695 2,761 2,493 2,349 ===== ===== ===== ===== ===== Commercial banking offices 131 118 114 106 103
INCOME TAXES The Company's income taxes increased 32.5% to $41.0 million in 1995 compared to $30.9 million in 1994 and $27.2 million in 1993 due to the increase in income before income taxes and an increase in the Company's effective tax rate to 33.5% in 1995 as compared to 32.6% in 1994. 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, 1995, 1994, and 1993: SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Provi- Income Gross Net Non- sion for Non- before (In thousands) interest interest interest loan interest income Net income income income losses expenses taxes income -------- -------- -------- -------- -------- -------- -------- Quarter: 1995: First $ 97,779 $ 53,201 $ 16,041 $ 600 $ 44,818 $ 23,824 $ 16,001 Second 105,436 55,897 22,105 850 45,882 31,270 20,521 Third 113,579 57,923 23,936 800 47,015 34,044 22,291 Fourth 113,689 60,073 24,632 550 51,015 33,140 22,515 -------- -------- -------- -------- -------- -------- -------- Total $430,483 $227,094 $ 86,714 $ 2,800 $188,730 $122,278 $ 81,328 ======== ======== ======== ======== ======== ======== ======== 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 ======== ======== ======== ======== ======== ======== ========
Money Net Allow- market loans ances for Share- Total invest- and loan Total holders' assets ments Securities leases losses deposits equity ---------- ---------- ---------- ---------- ---------- ---------- ---------- End of Quarter: 1995: First $5,105,608 $ 639,101 $1,555,577 $2,474,801 $ 67,372 $3,786,428 $ 380,975 Second 5,664,339 927,646 1,594,203 2,651,732 67,753 3,890,180 392,285 Third 5,667,670 759,498 1,716,350 2,679,485 68,309 4,095,014 409,966 Fourth 5,620,646 687,251 1,540,489 2,806,956 67,555 4,097,114 428,506 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
24 27 ANALYSIS OF FINANCIAL CONDITION LIQUIDITY The Company manages its liquidity to provide adequate funds to meet its financial obligations, including withdrawals by depositors, debt service requirements and operating needs. Liquidity is primarily provided by the regularly scheduled maturities of the Company's investment and loan portfolios. In addition, the Company's liquidity is enhanced by the fact that cash, money market securities, and liquid investments, net of short-term or "purchased" liabilities and wholesale deposits, totaled $1,428.2 million or 37.3% of core deposits at December 31, 1995. The Company's core deposits, consisting of demand, savings, and money market deposits, and small certificates of deposit, constituted 93.5% of total deposits at December 31, 1995, as compared to 93.0% at December 31, 1994. 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 a reasonable cost. The parent company's cash requirements consist primarily of principal and interest payments on its borrowings, dividend payments to shareholders, and cash operating expenses. 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 minimize the effect on net income of changes in interest rates. The Company's management exercises its best judgment in making assumptions with respect to prepayments, early withdrawals and other noncontrollable events in managing the Company's exposure to changes in interest rates. Information as to the Company's interest rate 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, 1995: MATURITIES AND INTEREST RATE SENSITIVITY AT DECEMBER 31, 1995
Rate sensitive ------------------------------------------------ After After three one months year but but Within within within After three one five five Not rate (In millions) months year years years sensitive Total ---------- -------- -------- -------- ---------- ---------- Uses of Funds - ------------- Earning assets: Interest-bearing deposits $ 34.1 $ .2 $ .3 $ 34.6 Federal funds sold 50.4 50.4 Security resell agreements 590.1 12.1 602.2 Securities: Held to maturity 641.4 122.5 213.4 $ 101.3 1,078.6 Available for sale 184.5 29.9 94.2 89.6 398.2 Trading account 63.7 63.7 Loans and leases 1,844.3 252.5 601.1 109.1 2,807.0 Nonearning assets $ 585.9 585.9 ---------- -------- -------- -------- ---------- ---------- Total uses of funds $ 3,408.5 $ 417.2 $ 909.0 $ 300.0 $ 585.9 $ 5,620.6 ---------- -------- -------- -------- ---------- ========== Sources of Funds - ---------------- Interest-bearing deposits and liabilities: Savings and money market deposits $ 1,273.5 $ 169.1 $ 648.5 $ 73.2 $ 2,164.3 Time deposits under $100,000 203.3 287.8 176.4 1.7 669.2 Time deposits over $100,000 36.7 83.9 38.1 .2 158.9 Foreign 106.1 106.1 Securities sold, not yet purchased 117.0 117.0 Federal funds purchased 134.0 134.0 Security repurchase agreements 612.2 2.1 614.3 FHLB advances and other borrowings: Less than one year 14.9 14.9 Over one year 65.0 1.7 8.0 11.5 86.2 Long-term debt .5 .5 4.5 50.7 56.2 Noninterest-bearing deposits 414.3 21.6 86.2 58.4 $ 418.1 998.6 Other liabilities 72.4 72.3 Shareholders' equity 428.5 428.5 ---------- -------- -------- -------- ---------- ---------- Total sources of funds $ 2,977.5 $ 566.7 $ 961.7 $ 195.7 $ 919.0 $ 5,620.6 ---------- -------- -------- -------- ---------- ========== Off-balance sheet items affecting interest rate sensitivity $ (230.0) $ 20.0 $ 210.0 Interest rate sensitivity gap $ 201.0 $ (129.5) $ 157.3 $ 104.3 $ (333.1) Percent of total assets 3.6% (2.3)% 2.8% 1.8% (5.9)% Cumulative interest rate sensitivity gap $ 201.0 $ 71.5 $ 228.8 $ 333.1 Cumulative as a % of total assets 3.6% 1.3% 4.1% 5.9%
26 29 EARNING ASSETS Average earning assets increased 3.6% to $5,168.2 million in 1995 as compared to the 1994 level of $4,990.4 million and the 1993 level of $4,220.1 million. Earning assets comprised 91.3% of total average assets in 1995 compared with 91.5% in 1994, with average loans representing 50.3% of earning assets in 1995 compared to 51.6% in 1994. The volume of liquid money market investments increased 7.7% to $936.8 million in 1995 from $869.7 million in 1994. Average securities increased 5.6% to $1,632.3 million in 1995 from $1,545.7 million in 1994. Average loan volume increased .9% to $2,599.1 million in 1995 as compared to $2,575.0 million in 1994. The following table sets forth the composition of average earning assets for the years indicated: AVERAGE EARNING ASSETS
(In millions) 1995 1994 1993 1992 1991 ---------- ---------- ---------- ---------- ---------- Money market investments: Interest-bearing deposits $ 26.5 $ 24.4 $ 104.0 $ 184.1 $ 234.9 Federal funds sold and security resell agreements 910.3 845.3 656.2 245.9 355.7 Other money market investments -- -- 28.5 39.0 80.0 ---------- ---------- ---------- ---------- ---------- Total money market investments 936.8 869.7 788.7 469.0 670.6 ---------- ---------- ---------- ---------- ---------- Securities: Held to maturity: Taxable 911.2 726.9 958.8 766.0 604.5 Nontaxable 210.8 193.8 147.6 125.1 74.7 Available for sale: Taxable 363.0 334.1 -- -- -- Nontaxable .5 -- -- -- -- Trading account 146.8 290.9 102.8 36.9 22.8 ---------- ---------- ---------- ---------- ---------- Total securities 1,632.3 1,545.7 1,209.2 928.0 702.0 ---------- ---------- ---------- ---------- ---------- Loans: Loans held for sale 116.0 187.5 185.9 187.0 106.0 Net loans and leases 2,483.1 2,387.5 2,036.3 1,917.7 1,769.9 ---------- ---------- ---------- ---------- ---------- Total loans 2,599.1 2,575.0 2,222.2 2,104.7 1,875.9 ---------- ---------- ---------- ---------- ---------- Total earning assets $ 5,168.2 $ 4,990.4 $ 4,220.1 $ 3,501.7 $ 3,248.5 ========== ========== ========== ========== ==========
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, -------------------------------------------------------------------------------- 1995 1994 1993 ------------------------- ------------------------- -------------------------- (In thousands) Amortized Market Amortized Market Amortized Market cost value cost Value Cost Value ---------- ---------- ---------- ---------- ---------- ---------- Held to maturity - ---------------- U.S. government agencies and corporations: Small Business Administration loan-backed securities $ 529,376 $ 541,014 $ 460,163 $ 459,313 $ 399,603 $ 411,846 Other agency securities 265,430 263,522 271,440 262,144 157,098 157,544 States and political subdivisions 225,231 230,149 243,225 242,754 196,241 198,664 ---------- ---------- ---------- ---------- ---------- ---------- 1,020,037 1,034,685 974,828 964,211 752,942 768,054 Mortgage-backed securities 58,546 59,249 56,079 54,587 60,318 62,033 ---------- ---------- ---------- ---------- ---------- ---------- 1,078,583 1,093,934 1,030,907 1,018,798 813,260 830,087 ---------- ---------- ---------- ---------- ---------- ---------- Available for sale - ------------------ U.S. Treasury securities 17,691 17,728 48,269 47,177 70,263 70,512 U.S. government agencies 71,038 70,952 33,304 33,304 61,107 61,077 States and political subdivisions 40,153 42,084 -- -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- 128,882 130,764 81,573 80,481 131,370 131,589 ---------- ---------- ---------- ---------- ---------- ---------- Mortgage-backed securities 69,469 69,333 55,560 54,334 49,493 49,363 ---------- ---------- ---------- ---------- ---------- ---------- Equity securities: Mutual funds: Accessor Funds, Inc. 118,899 119,971 118,983 111,529 90,736 91,245 Other 564 564 534 534 515 515 Stock: Federal Home Loan Bank 71,988 71,988 65,861 65,861 72,376 72,376 Other 5,386 5,580 2,785 2,839 2,194 2,258 ---------- ---------- ---------- ---------- ---------- ---------- 196,837 198,103 187,983 180,763 165,821 166,394 ---------- ---------- ---------- ---------- ---------- ---------- 395,188 398,200 325,116 315,578 346,684 347,346 ---------- ---------- ---------- ---------- ---------- ---------- Total $1,473,771 $1,492,134 $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, 1995. 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, 1995
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 $ 529.4 7.4% $ 48.5 7.4% $ 157.7 7.4% $ 137.2 7.4% $ 186.0 7.4% Other agency securities 265.4 5.7% 79.8 4.8% 147.1 5.9% 35.8 7.0% 2.7 8.1% States and political subdivisions 225.2 8.0% 32.3 7.9% 101.0 8.0% 76.7 8.3% 15.2 7.6% ---------- -------- -------- -------- -------- 1,020.0 7.1% 160.6 6.2% 405.8 7.0% 249.7 7.6% 203.9 7.4% Mortgage-backed securities 58.6 6.8% 8.2 6.8% 23.0 6.8% 15.0 6.8% 12.4 6.7% ---------- -------- -------- -------- -------- 1,078.6 7.1% 168.8 6.2% 428.8 7.0% 264.7 7.6% 216.3 7.4% ---------- -------- -------- -------- -------- Available for sale - ------------------ U.S. Treasury securities 17.7 4.7% 14.5 4.5% 3.0 5.6% .2 8.3% -- -% U.S. government agencies 71.0 10.4% 52.9 11.5% .7 8.0% 17.4 7.2% -- -% States and political subdivisions 40.2 8.0% 6.4 7.7% 13.9 8.1% 16.3 8.4% 3.6 6.8% ---------- -------- -------- -------- -------- 128.9 8.9% 73.8 9.8% 17.6 7.7% 33.9 7.8% 3.6 6.8% ---------- -------- -------- -------- -------- Mortgage-backed securities 69.5 6.6% 7.0 6.6% 22.2 6.6% 17.9 6.6% 22.4 6.5% ---------- -------- -------- -------- -------- Equity securities: Mutual funds: Accessor Funds, Inc. 118.9 11.7% 118.9 11.7% Other .5 5.5% .5 5.5% Stock: Federal Home Loan Bank 72.0 7.2% 72.0 7.2% Other 5.4 3.3% 5.4 3.3% ---------- -------- 196.8 9.8% 196.8 9.8% ---------- -------- -------- -------- -------- 395.2 8.9% 80.8 9.5% 39.8 7.1% 51.8 7.4% 222.8 9.4% ---------- -------- -------- -------- -------- Total $ 1,473.8 7.6% $ 249.6 7.3% $ 468.6 7.0% $ 316.5 7.6% $ 439.1 8.4% ========== === ======== === ======== === ======== === ======== ====
* 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, 1995, 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 1995, the Company consummated securitized loan sales of home equity loans, credit card receivables and automobile loans totaling approximately $615.1 million, leading to a $44.9 million net increase in securitized receivables outstanding, excluding long-term residential mortgages. After these sales, loans and leases at December 31, 1995 totaled $2,837.9 million, an increase of 17.5% compared to $2,416.1 million at December 31, 1994. Loans held for sale; commercial, financial and agriculture loans; real estate and lease financing increased 16.1%, 38.9%, 20.4%, and 2.3%, respectively, while consumer loans and other receivables declined 12.8% and 2.9%, 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) 1995 1994 1993 1992 1991 ---------- ---------- ---------- ---------- ---------- Loans held for sale $ 126,124 $ 108,649 $ 238,206 $ 229,465 $ 153,782 ---------- ---------- ---------- ---------- ---------- Commercial, financial and agricultural 688,466 495,647 511,982 593,248 495,883 ---------- ---------- ---------- ---------- ---------- Real estate: Construction 268,812 218,244 213,114 118,185 100,922 Other: Home equity credit line 90,730 40,007 159,998 148,245 96,059 1-4 family residential 420,523 452,131 367,001 155,831 164,606 Other real estate-secured 761,380 570,285 495,889 299,769 332,967 ---------- ---------- ---------- ---------- ---------- 1,541,445 1,280,667 1,236,002 722,030 694,554 ---------- ---------- ---------- ---------- ---------- Consumer: Bankcard 52,252 41,035 27,522 24,293 73,789 Other 288,898 349,998 351,157 430,123 458,712 ---------- ---------- ---------- ---------- ---------- 341,150 391,033 378,679 454,416 532,501 ---------- ---------- ---------- ---------- ---------- Lease financing 132,520 129,547 130,450 124,480 122,620 ---------- ---------- ---------- ---------- ---------- Other receivables 8,203 10,509 12,857 8,574 9,222 ---------- ---------- ---------- ---------- ---------- Total loans $2,837,908 $2,416,052 $2,508,176 $2,132,213 $2,008,562 ========== ========== ========== ========== ==========
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 a 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, SBA loans and student loans, has increased in recent years. During 1995 the Company securitized and sold home equity credit line receivables totaling $195.5 million, credit card receivables totaling $155.6 million, and automobile loans totaling $264.0 million. Securitized loans serviced for investors at December 31, 1995 totaled $831.5 million compared to $786.6 million at December 31, 1994, and $464.2 million at December 31, 1993. At December 31, 1995, real estate loans serviced for others amounted to $1,540.5 million compared to $1,760.1 million at December 31, 1994, and $1,650.4 million at December 31, 1993. 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, 1995: LOAN MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES
Maturities ------------------------------------------------------------------- One One year Over year or through five (In thousands) less five years years Total ---------- ---------- ---------- ---------- Loans held for sale $ 126,124 $ -- $ -- $ 126,124 ---------- ---------- ---------- ---------- Commercial, financial and agricultural 383,241 223,184 82,041 688,466 ---------- ---------- ---------- ---------- Real estate: Construction 211,617 57,195 -- 268,812 Other: Home equity credit line 2,715 5,670 82,345 90,730 1-4 family residential 27,522 99,858 293,143 420,523 Other real estate-secured 84,919 201,494 474,967 761,380 ---------- ---------- ---------- ---------- 326,773 364,217 850,455 1,541,445 ---------- ---------- ---------- ---------- Consumer: Bankcard -- 52,252 -- 52,252 Other 65,329 160,827 62,742 288,898 ---------- ---------- ---------- ---------- 65,329 213,079 62,742 341,150 ---------- ---------- ---------- ---------- Lease financing 13,603 102,158 16,759 132,520 ---------- ---------- ---------- ---------- Other receivables 8,203 -- -- 8,203 ---------- ---------- ---------- ---------- Total $ 923,273 $ 902,638 $1,011,997 $2,837,908 ========== ========== ========== ========== Loans maturing in more than one year: With fixed interest rates $ 424,015 $ 495,254 $ 919,269 With variable interest rates 478,623 516,743 995,366 ---------- ---------- ---------- Total $ 902,638 $1,011,997 $1,914,635 ========== ========== ==========
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. Another aspect of the Company's credit risk management strategy is the diversification of the loan portfolio. At year-end, the Company had 5% of its portfolio in loans held for sale, 24% in commercial loans, 54% in real estate loans, 12% in consumer loans, and 5% in lease financing and other receivables. The Company's real estate portfolio is also diversified. Of the total real estate portfolio, 17% is in real estate construction loans, 6% is in home equity credit lines, 27% is in 1-4 family residential loans and 50% 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 larger concentrations in the commercial loan and leasing portfolios were in the manufacturing, real estate, business service, and retail industry groupings, which each comprised approximately 15% of the portfolio. The manufacturing group was also well diversified over several subcategories. Agricultural and mining loans comprise less than 6% of total commercial loans. The Company has no significant exposure to highly leveraged transactions and has no foreign credits in its loan portfolio. 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) 1995 1994 1993 1992 1991 ------ -------- -------- -------- -------- Nonaccrual loans $7,438 $ 13,635 $ 23,364 $ 21,556 $ 33,497 Loans contractually past due 90 days or more (not included in nonaccrual loans above) 5,232 3,041 10,821 6,409 5,315 Restructured loans (not included in nonaccrual loans or loans contractually past due 90 days or more) 249 567 4,006 4,003 3,225 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
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:
1995 1994 1993 ------------------------ ----------------------- ------------------------- 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 $1,041 $ 27 $1,068 $1,713 $ 53 $1,766 $2,858 $ 193 $3,051 Interest that was included in income 449 25 474 371 45 416 668 152 820 ------ ------ ------ ------ ------ ------ ------ ------ ------ Net impact on interest income $ 592 $ 2 $ 594 $1,342 $ 8 $1,350 $2,190 $ 41 $2,231 ====== ====== ====== ====== ====== ====== ====== ====== ======
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. Management considered no loans as potential problem loans at December 31, 1995 and 1994, compared to two loans totaling $1,114,000, at December 31, 1993. Management believes that for the near future, potential problem loans should remain at a relatively low level. The Company's total recorded investment in impaired loans, in accordance with Financial Accounting Standard statements, amounted to $3,388,000 as of December 31, 1995. The Company considers a loan to be impaired when the accrual of interest has been discontinued and meets other criteria under the statements. The amount of the impairment is measured based on the present value of expected cash flows, the observable market price of the loan, or the fair value of the collateral. Impairment losses are included in the allowance for loan losses through a provision for loan losses. The required allowance for loan losses allocated to impaired loans as of December 31, 1995 amount to $22,000, which is related to $884,000 of the total recorded investment. 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 occasionally 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 primarily acquired through or in lieu of foreclosure on credits that are secured by real estate. Nonperforming assets totaled $9.3 million as of December 31, 1995, a decrease of 50.9% from 18.9 million as of December 31, 1994. Nonperforming assets totaled $30.6 million at December 31, 1993. Nonperforming assets represented .33% of net loans and leases, other real estate owned and other nonperforming assets as December 31, 1995, as compared to .79% and 1.23% at December 31, 1994 and 1993, respectively. Nonperforming assets as a percentage of net loans and leases, other real estate owned, and other nonperforming assets at December 31, 1995 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 $5.2 million as of December 31, 1995, as compared to $3.0 million at December 31, 1994 and $10.8 million at December 31, 1993. These loans equal .19% of net loans and leases at December 31, 1995, as compared to .13% and .44% at December 31, 1994 and 1993, respectively. 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
(In thousands) 1995 1994 1993 1992 1991 ------- ------- ------- ------- ------- Nonaccrual loans: Commercial, financial and agricultural $ 2,293 $ 5,736 $ 6,969 $ 2,981 $13,983 Real estate 2,754 5,290 12,277 13,973 12,343 Consumer 866 862 607 1,377 2,198 Lease financing 1,395 1,747 3,511 3,225 4,973 Other 130 -- -- -- -- ------- ------- ------- ------- ------- Total 7,438 13,635 23,364 21,556 33,497 ------- ------- ------- ------- ------- Restructured loans: Commercial, financial and agricultural -- -- 8 1,204 480 Real estate 249 567 3,998 2,799 2,745 ------- ------- ------- ------- ------- Total 249 567 4,006 4,003 3,225 ------- ------- ------- ------- ------- Other real estate owned: Commercial, financial and agricultural: Improved 425 415 844 3,099 4,200 Unimproved 200 1,018 904 1,844 3,053 Residential: 1-4 family 439 63 1,182 681 874 Multi-family -- -- -- -- 96 Lots 6 6 163 45 540 Recreation property 9 42 110 238 445 Other 13 18 64 64 730 ------- ------- ------- ------- ------- Total 1,092 1,562 3,267 5,971 9,938 Other nonperforming assets 517 3,179 -- -- -- ------- ------- ------- ------- ------- Total 1,609 4,741 3,267 5,971 9,938 ------- ------- ------- ------- ------- Total $ 9,296 $18,943 $30,637 $31,530 $46,660 ======= ======= ======= ======= ======= % of net loans* and leases, other real estate owned and other nonperforming assets .33% .79% 1.23% 1.49% 2.35%
33 36 NONPERFORMING ASSETS (continued)
(In thousands) 1995 1994 1993 1992 1991 ------- ------- ------- ------- ------- Accruing loans past due 90 days or more: Commercial, financial and agricultural $ 705 $ 431 $ 1,612 $ 2,893 $ 1,886 Real estate 3,480 1,975 8,881 3,044 2,259 Consumer 1,041 631 327 451 1,123 Lease financing 6 4 1 21 47 ------- ------- ------- ------- ------- Total $ 5,232 $ 3,041 $10,821 $ 6,409 $ 5,315 ======= ======= ======= ======= ======= % of net loans* and leases .19% .13% .44% .30% .27%
*Includes loans held for sale. ALLOWANCE FOR LOAN LOSSES The Company's allowance for loan losses was 2.41% of net loans and leases at December 31, 1995, as compared to 2.80% as of December 31, 1994 and 2.75% as of December 31, 1993. Loan charge-offs decreased 28.2% and recoveries decreased 12.9% in 1995 as compared to 1994, which resulted in a ratio of net charge-offs to average loans and leases of .10% in 1995, compared to .19% in 1994, and (.23%) in 1993. The allowance for loan and lease losses relative to problem loans continued to strengthen in 1995. The allowance, as a percentage of noncurrent loans, was 533.2% in 1995 as compared to 401.9% in 1994, and 200.3% in 1993. 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) 1995 1994 1993 1992 1991 ----------- ----------- ----------- ----------- ----------- Loans* and leases outstanding at December 31 (net of unearned income) $ 2,806,956 $ 2,391,278 $ 2,486,346 $ 2,107,433 $ 1,979,726 =========== =========== =========== =========== =========== Average loans* and leases outstanding (net of unearned income) $ 2,599,071 $ 2,574,995 $ 2,222,182 $ 2,104,679 $ 1,875,928 =========== =========== =========== =========== =========== Allowance for possible losses: Balance at beginning of year $ 67,018 $ 68,461 $ 59,807 $ 58,238 $ 60,948 Allowance of companies acquired 249 1,308 546 -- -- Loans and leases charged-off: Loans held for sale -- -- -- -- -- Commercial, financial, and agricultural (997) (5,158) (1,804) (6,224) (17,298) Real estate (548) (573) (1,179) (2,544) (4,363) Consumer (6,786) (4,756) (5,461) (9,559) (14,073) Lease financing (41) (1,174) (360) (604) (847) Other receivables -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- Total (8,372) (11,661) (8,804) (18,931) (36,581) ----------- ----------- ----------- ----------- ----------- Recoveries: Loans held for sale -- -- -- -- -- Commercial, financial, and agricultural 2,580 2,180 10,117 5,197 3,456 Real estate 464 676 611 477 829 Consumer 2,540 3,732 3,043 3,794 3,704 Lease financing 276 141 148 103 321 Other receivables -- -- -- -- -- ----------- ----------- ----------- ----------- ----------- Total 5,860 6,729 13,919 9,571 8,310 ----------- ----------- ----------- ----------- ----------- Net loan and lease (charge-offs) recoveries (2,512) (4,932) 5,115 (9,360) (28,271) Provision charged against earnings 2,800 2,181 2,993 10,929 25,561 ----------- ----------- ----------- ----------- ----------- Balance at end of year $ 67,555 $ 67,018 $ 68,461 $ 59,807 $ 58,238 =========== =========== =========== =========== =========== Ratio of net charge-offs (recoveries) to average loans and leases .10% .19% (.23)% .44% 1.51% Ratio of allowance for possible losses to loans and leases outstanding at December 31 2.41% 2.80% 2.75% 2.84% 2.94% Ratio of allowance for possible losses to nonperforming loans at December 31 878.82% 471.89% 250.13% 234.00% 158.59% Ratio of allowance for possible losses to nonaccrual loans and accruing loans past due 90 days or more at December 31 533.19% 401.88% 200.27% 213.86% 150.05%
*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:
1995 1994 ------------------- ------------------- 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 4.4% $ - 4.5% $ - Commercial, financial and agricultural 24.3 711 20.5 2,920 Real estate 54.3 2,397 53.0 1,594 Consumer 12.0 32 16.2 946 Lease financing 4.7 425 5.4 981 Other receivables .3 - .4 - ----- ----- Total loans 100.0% 100.0% ===== ===== Off-balance sheet unused commitments and standby letters of credit 7,516 3,674 ------- ------- Allocated 11,081 10,115 Unallocated 56,474 56,903 ------- ------- Total allowance for loan losses $67,555 $67,018 ======= =======
1993 1992 1991 ------------------- ------------------- ------------------- 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 9.5% $ - 10.8% $ - 7.6% $ - Commercial, financial and agricultural 20.4 3,094 27.8 4,619 24.7 8,419 Real estate 49.3 4,032 33.9 4,240 34.6 6,884 Consumer 15.1 2,366 21.3 2,711 26.5 3,684 Lease financing 5.2 1,043 5.8 1,818 6.1 2,279 Other receivables .5 - .4 - .5 - ----- ----- ----- Total loans 100.0% 100.0% 100.0% ===== ===== ===== Off-balance sheet unused commitments and standby letters of credit 1,972 3,710 5,567 ------- ------- ------- Allocated 12,507 17,098 26,833 Unallocated 55,954 42,709 31,405 ------- ------- ------- Total allowance for loan losses $68,461 $59,807 $58,238 ======= ======= =======
36 39 DEPOSITS Total average deposits increased 7.7% to $3,858.3 million in 1995 from $3,583.1 million in 1994. Total deposits increased 10.6% to $4,097.1 million at December 31, 1995 compared to $3,706.0 million at December 31, 1994. The Company's demand deposits increased 12.7%, savings and money market accounts increased 5.6% and certificates of deposit under $100,000 increased 30.2%, comparing December 31, 1995 to December 31, 1994. Domestic deposits over $100,000 increased 28.7% to $158.9 million, while foreign deposits decreased 20.9% to $106.1 million at December 31, 1995. 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) 1995 1994 1993 -------- -------- -------- Average amounts: Noninterest-bearing demand deposits $ 837.2 $ 838.1 $ 729.7 Savings deposits 719.6 740.3 648.2 Money market deposits 1,425.5 1,284.7 1,117.0 Time deposits of less than $100,000 614.9 516.9 548.8 Time deposits $100,000 or more 121.9 94.7 79.4 Foreign deposits 139.2 108.4 55.8 -------- -------- -------- Total average amounts $3,858.3 $3,583.1 $3,178.9 ======== ======== ======== Average rates: Noninterest-bearing demand deposits -% -% -% Savings deposits 3.13% 3.01% 2.97% Money market deposits 4.17% 3.11% 2.79% Time deposits under $100,000 5.21% 3.96% 4.28% Time deposits $100,000 or more 6.04% 4.06% 3.79% Foreign deposits 5.16% 4.10% 2.66% Total 4.25% 3.31% 3.20% Maturities of time deposits $100,000 or more at December 31, 1995 (In millions): Under three months $ 36.7 Over three months and less than six months 40.2 Over six months and less than twelve months 43.7 Over twelve months 38.3 -------- Total time deposits $100,000 or more $ 158.9 ========
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 1995 $117,005 6.58% $ 241,219 $ 90,196 6.23% 1994 $ 81,437 5.33% $ 464,133 $ 184,405 5.95% 1993 $ 46,640 4.96% $ 278,351 $ 69,442 4.38% Federal funds purchased(a) 1995 $134,048 5.38% $ 354,565 $ 134,683 5.90% 1994 $ 56,087 5.09% $ 274,526 $ 158,937 4.42% 1993 $100,625 2.75% $ 100,625 $ 180,602 3.01% Security repurchase agreements(b) 1995 $614,284 5.07% $ 1,530,887 $ 902,514 5.40% 1994 $468,451 5.56% $ 1,024,095 $ 898,890 3.79% 1993 $494,575 2.88% $ 494,575 $ 586,707 2.89% Federal Home Loan Bank advances and other borrowings less than one year(c) 1995 $ 14,910 6.00% $ 25,972 $ 20,441 6.88% 1994 $ 25,748 7.70% $ 73,461 $ 32,557 5.44% 1993 $136,140 3.36% $ 136,140 $ 83,123 3.84%
(a) Federal funds purchased are on an overnight or demand basis. Rates on overnight and demand funds reflect current market rates. (b) Security repurchase agreements are primarily on an overnight or demand basis. Rates on overnight and demand funds reflect current market rates. Rates on fixed-maturity borrowings are set at the time of the borrowings. (c) Federal Home Loan Bank advances less than one year are overnight and reflect current market rates or reprice monthly based on 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
1995 1994 1993 ----- ----- ----- Return on average assets 1.44% 1.17% 1.25% Return on average common shareholders' equity 20.47% 18.82% 20.33% Common dividend payout ratio 25.27% 27.06% 21.81% Average equity to average assets ratio 7.02% 6.22% 6.17%
38 41 CAPITAL RESOURCES At 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 14.23% at December 31, 1995, 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 6.28% at December 31, 1995, 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
(In thousands) 1995 1994 1993 ----------- ----------- ----------- CAPITAL COMPONENTS: Qualifying shareholders' equity $ 396,177 $ 345,919 $ 300,175 Add: Minority interest in subsidiary 500 500 500 Deduct: Goodwill (21,738) (18,732) (11,920) Excess deferred tax assets (4,008) -- -- Nonqualifying amount of purchased mortgage servicing -- -- (280) ----------- ----------- ----------- Tier I capital: Core capital 370,931 327,687 288,475 ----------- ----------- ----------- Allowance for loan losses* 41,062 35,085 33,657 Qualifying unsecured long-term debt** 51,600 52,400 53,200 ----------- ----------- ----------- Tier II capital: Supplementary capital 92,662 87,485 86,857 ----------- ----------- ----------- Total risk-based capital $ 463,593 $ 415,172 $ 375,332 =========== =========== =========== RISK-WEIGHTED ASSETS: Balance sheet $ 3,092,340 $ 2,629,427 $ 2,558,260 Off-balance sheet 196,649 177,347 134,315 ----------- ----------- ----------- Gross risk-weighted assets 3,288,989 2,806,774 2,692,575 Deduct: Excess deferred tax assets (4,008) -- -- ----------- ----------- ----------- 3,284,981 2,806,774 2,692,575 Deduct: Excess allowance for loan losses (26,493) (31,933) (34,804) ----------- ----------- ----------- Total adjusted risk-weighted assets $ 3,258,488 $ 2,774,841 $ 2,657,771 =========== =========== =========== Capital ratios: Tier I capital: Core capital 11.38% 11.81% 10.85% Tier II capital: Supplementary capital 2.85% 3.15% 3.27% ----------- ----------- ----------- Total risk-based capital 14.23% 14.96% 14.12% =========== =========== ===========
* 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 $.41 per share for the fourth quarter of 1995, $.35 per share for the second and third quarters of 1995, $.30 per share for the first quarter of 1995, and 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, and $.21 for the first and second quarters of 1993. The annual dividend rate was $1.41 for 1995, $1.16 for 1994, and $.98 for 1993. During the years 1991 through 1995 there was no preferred stock outstanding. The following table sets forth dividends paid by the Company of each year indicated: DIVIDENDS PAID
(In thousands) 1995 1994 1993 1992 1991 ------- ------- ------- ------- -------- Net income $81,328 $63,827 $58,205 $47,209 $30,449 Common dividends paid 20,554 17,271 12,692 9,587 9,102 Payout/net income 25.3% 27.1% 21.8% 20.3% 29.9%
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 $106,090,000 in 1995, $134,132,000 in 1994, and $68,563,000 in 1993; and averaged $139,212,000 for 1995, $108,383,000 for 1994, and $55,823,000 for 1993. 40 43 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL 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, 1995 and 1994, 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, 1995. 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, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. As discussed in notes 1 and 4 to the consolidated financial statements, the Company changed its method of accounting for impairment of loans receivable to adopt the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards (Statement) No. 114, Accounting by Creditors for Impairment of a Loan, as amended by Statement No. 118, Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosures, on January 1, 1995. As discussed in notes 1 and 13, the Company changed its method of accounting for postretirement benefits other than pensions in 1993 to adopt the provisions of Statement No. 106, Employers' Accounting for Postretirement Benefits Other than Pensions. As discussed in notes 1 and 7, 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 22, 1996 41 44 ZIONS BANCORPORATION AND SUBSIDIARIES Consolidated Balance Sheets December 31, 1995 and 1994 (In thousands, except share amounts)
ASSETS 1995 1994 ---------- ---------- Cash and due from banks $ 418,067 316,943 Money market investments: Interest-bearing deposits 34,580 19,704 Federal funds sold 50,467 170,920 Security resell agreements 602,204 212,822 Investment securities: Held to maturity, at cost (approximate market value $1,093,934 and $1,018,798) 1,078,583 1,030,907 Available for sale, at market 398,200 315,578 Trading account 63,706 316,948 Loans: Loans held for sale at cost, which approximates market 126,124 108,649 Loans, leases, and other receivables 2,711,784 2,307,403 ---------- ---------- 2,837,908 2,416,052 Less: Unearned income and fees, net of related costs 30,952 24,774 Allowance for loan losses 67,555 67,018 ---------- ---------- 2,739,401 2,324,260 Premises and equipment 81,613 74,673 Amounts paid in excess of net assets of acquired businesses 21,738 18,732 Other real estate owned 1,092 1,562 Other assets 130,995 131,046 ---------- ---------- $5,620,646 4,934,095 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Noninterest-bearing $ 998,560 885,833 Interest-bearing: Savings and money market 2,164,344 2,048,715 Time: Under $100,000 669,196 513,841 Over $100,000 158,924 123,455 Foreign 106,090 134,132 ---------- ---------- 4,097,114 3,705,976 Securities sold, not yet purchased 117,005 81,437 Federal funds purchased 134,048 56,087 Security repurchase agreements 614,284 468,451 Accrued liabilities 72,376 70,873 Federal Home Loan Bank advances and other borrowings: Less than one year 14,910 25,748 Over one year 86,174 101,571 Long-term debt 56,229 58,182 ---------- ---------- Total liabilities 5,192,140 4,568,325 ---------- ---------- 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, 14,555,920 shares and 14,559,552 shares 73,477 79,193 Net unrealized holding gains and losses on securities available for sale 1,850 (5,866) Retained earnings 353,179 292,443 ---------- ---------- Total shareholders' equity 428,506 365,770 ---------- ---------- $5,620,646 4,934,095 ========== ==========
See accompanying notes to consolidated financial statements. 42 45 ZIONS BANCORPORATION AND SUBSIDIARIES Consolidated Statements of Income Years ended December 31, 1995, 1994, and 1993 (In thousands, except per share amounts)
1995 1994 1993 -------- -------- -------- Interest income: Interest and fees on loans $245,052 208,414 172,920 Interest on loans held for sale 9,259 12,303 11,273 Interest on money market investments 55,632 35,045 27,427 Interest on securities: Held to maturity: Taxable 64,914 41,269 56,347 Nontaxable 12,400 10,982 8,455 Available for sale: Taxable 23,966 19,916 - Nontaxable 21 - - Trading account 9,248 16,516 7,555 Lease financing 9,991 9,544 9,639 -------- -------- -------- Total interest income 430,483 353,989 293,616 -------- -------- -------- Interest expense: Interest on savings and money market deposits 81,957 62,200 50,331 Interest on time deposits 46,553 28,758 27,995 Interest on borrowed funds 74,879 64,425 40,633 -------- -------- -------- Total interest expense 203,389 155,383 118,959 -------- -------- -------- Net interest income 227,094 198,606 174,657 Provision for loan losses 2,800 2,181 2,993 -------- -------- -------- Net interest income after provision for loan losses 224,294 196,425 171,664 -------- -------- -------- Noninterest income: Service charges on deposit accounts 28,347 24,058 22,875 Other service charges, commissions, and fees 24,169 22,008 21,392 Trust income 4,355 4,334 4,622 Investment securities losses, net (148) (299) (17) Trading account income (loss) (1,247) 860 2,350 Loan sales and servicing income 24,254 14,596 21,471 Other 6,984 7,645 7,187 -------- -------- -------- 86,714 73,202 79,880 -------- -------- -------- Noninterest expenses: Salaries and employee benefits 102,951 93,331 85,549 Occupancy, net 10,398 9,647 8,168 Furniture and equipment 13,174 11,276 9,294 Other real estate expense 81 (88) 450 Legal and professional services 4,285 5,142 5,136 Supplies 5,231 4,819 4,537 Postage 5,125 4,723 4,334 Advertising 5,221 3,447 3,515 FDIC premiums 4,084 7,547 7,257 Amortization of intangible assets 3,621 3,692 4,432 Loss on early extinguishment of debt - - 6,022 Other 34,559 31,364 29,056 -------- -------- -------- 188,730 174,900 167,750 -------- -------- -------- Income before income taxes and cumulative effect of changes in accounting principles 122,278 94,727 83,794 Income taxes 40,950 30,900 27,248 -------- -------- -------- Income before cumulative effect of changes in accounting principles 81,328 63,827 56,546 Cumulative effect of changes in accounting principles - - 1,659 -------- -------- -------- Net income $ 81,328 63,827 58,205 ======== ======== ======== Weighted-average common and common-equivalent shares outstanding during the year 14,717 14,601 14,280 ======== ======== ======== Earnings per common share: Income before cumulative effect of changes in accounting principles $ 5.53 4.37 3.96 Cumulative effect of changes in accounting principles - - .12 -------- -------- -------- Net income per common share $ 5.53 4.37 4.08 ======== ======== ========
See accompanying notes to consolidated financial statements 43 46 ZIONS BANCORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended December 31, 1995, 1994, and 1993 (In thousands)
1995 1994 1993 ------------- ------------ ----------- Cash flows from operating activities: Net income $ 81,328 63,827 58,205 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Provision for loan losses 2,800 2,181 2,993 Write-downs of other real estate owned 71 179 704 Depreciation of premises and equipment 10,649 9,186 7,605 Amortization of premium on core deposits and other intangibles 3,621 3,692 4,432 Amortization of net premium/discount on investment securities 3,832 4,817 6,089 Accretion of unearned income and fees, net of related costs 6,085 2,770 (2,950) Proceeds from sales of trading account securities 112,293,128 160,090,330 36,468,421 Increase in trading account securities (112,157,509) (160,308,945) (36,383,168) Net loss (gain) on sales of investment securities 148 299 17 Proceeds from loans held for sale 440,245 769,284 1,088,996 Increase in loans held for sale (454,532) (663,379) (1,088,996) Net gain on sales of loans, leases, and other assets (16,164) (8,968) (16,810) Net gain on sales of other real estate owned (169) (328) (182) Change in accrued income taxes (7,187) 1,628 1,870 Change in accrued interest receivable (2,489) (8,669) 2,794 Change in accrued interest payable 798 1,368 (1,428) Change in other assets (2,797) (16,790) (20,738) Change in accrued liabilities 8,295 19 (4,074) ------------- ------------ ----------- Net cash provided by (used in) operating activities 210,153 (57,499) 123,780 ------------- ------------ ----------- Cash flows from investing activities: Net (increase) decrease in money market investments (281,328) 196,086 567,251 Proceeds from sales of investment securities held to maturity 6,950 - 74,587 Proceeds from maturities of investment securities held to maturity 285,572 242,478 258,463 Purchases of investment securities held to maturity (303,224) (441,397) (554,632) Proceeds from sales of investment securities available for sale 192,071 137,128 - Proceeds from maturities of investment securities available for sale 287,427 107,745 - Purchases of investment securities available for sale (462,079) (205,452) - Proceeds from sales of loans and leases 625,984 707,914 614,112 Net increase in loans and leases (1,003,653) (671,665) (923,884) Principal collections on leveraged leases 38 111 1,375 Proceeds from sales of premises and equipment 693 691 169 Purchases of premises and equipment (17,526) (12,389) (15,356) Proceeds from sales of other real estate owned 1,899 5,608 3,542 Proceeds from sales of mortgage-servicing rights 1,547 2,864 608 Purchases of mortgage-servicing rights (423) (590) (1,731) Proceeds from sales of other assets 479 830 1,486 Purchase of other assets (218) - - Cash paid for acquisition, net of cash received 1,568 9,851 (59,833) ------------- ------------ ----------- Net cash provided by (used in) investing activities (664,223) 79,813 (33,843) ------------- ------------ ----------- Cash flows from financing activities: Net increase in deposits 360,000 177,916 296,144 Net change in short-term funds borrowed 251,475 (153,285) (419,992) Proceeds from FHLB advances over one year - 15,340 204,567 Payments on FHLB advances over one year (16,504) (65,878) (104,147) Payments on leveraged leases - (42) - Proceeds from issuance of long-term debt - 332 4,000 Payments on long-term debt (1,953) (1,737) (43,659) Proceeds from issuance of common stock 1,291 317 893 Payments to redeem common stock (18,523) - - Dividends paid (20,592) (17,304) (12,705) ------------- ------------ ----------- Net cash provided by (used in) financing activities 555,194 (44,341) (74,899) ------------- ------------ ----------- Net increase (decrease) in cash and due from banks 101,124 (22,027) 15,038 Cash and due from banks at beginning of year 316,943 338,970 323,932 ------------- ------------ ----------- Cash and due from banks at end of year $ 418,067 316,943 338,970 ============= ============ ===========
See accompanying notes to consolidated financial statements 44 47 ZIONS BANCORPORATION AND SUBSIDIARIES Consolidated Statements of Retained Earnings Years ended December 31, 1995, 1994, and 1993 (In thousands)
1995 1994 1993 --------- -------- -------- Balance at beginning of year $292,443 245,920 197,992 Retained earnings of acquired company - - 2,428 Net income 81,328 63,827 58,205 Cash dividends: Preferred, paid by subsidiary to minority shareholder (38) (33) (13) Common, per share of $1.41 in 1995, $1.16 in 1994, and $.98 in 1993 (20,554) (16,786) (12,207) Dividends of NBA prior to merger - (485) (485) -------- -------- -------- Balance at end of year $353,179 292,443 245,920 ======== ======== ========
See accompanying notes to consolidated financial statements. 45 48 ZIONS BANCORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years ended December 31, 1995, 1994, and 1993 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 1995 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. SECURITY RESELL AGREEMENTS - Security resell agreements represent overnight and term agreements, the majority maturing within 30 days. Either the Company, or in some instances third parties on behalf of the Company take possession of underlying securities. The market value of such securities is monitored throughout the contract term to ensure that asset value remains sufficient to protect against counter party default. 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 to 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. 46 49 ZIONS BANCORPORATION Notes to Consolidated Financial Statements 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 are collected from mortgagors. 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. 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. IMPAIRED LOANS - The Company adopted the provisions of Statement of Financial Accounting Standards (Statement) No. 114, Accounting by Creditors for Impairment of a Loan, as amended by Statement No. 118, Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosure, on January 1, 1995. The Company considers a loan to be impaired when the accrual of interest has been discontinued. The amount of the impairment is measured based on the present value of expected cash flows, the observable market price of the loan, or the fair value of the collateral. Impairment losses are included in the allowance for loan losses through a provision for loan losses. The Company primarily uses a cost recovery accounting method to recognize interest income on impaired loans. 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, 1995 and 1994, accumulated depreciation and amortization totaled $77,400,000 and $70,520,000, 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. 47 50 ZIONS BANCORPORATION Notes to Consolidated Financial Statements 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. The Company paid interest of $203.0 million, $156.1 million, and $120.8 million, respectively, and income taxes of $44.4 million, $27.9 million, and $26.3 million, respectively, for the years ended December 31, 1995, 1994, and 1993. Loans transferred to other real estate owned totaled $.9 million, $3.3 million, and $1.2 million, respectively, for the years ended December 31, 1995, 1994, and 1993. The exercise of stock options under the Company's non-qualified stock option plan, during 1995 and 1994, resulted in tax benefits reducing the Company's current income tax payable and increasing common stock in the amounts of $.8 million and $.1 million in 1995 and 1994, respectively. 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 13). 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 13). 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. 48 51 ZIONS BANCORPORATION Notes to Consolidated Financial Statements 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. ACCOUNTING STANDARDS NOT ADOPTED - In May 1995, the Financial Accounting Standards Board issued Statement No. 122, Accounting for Mortgage Servicing Rights which amends Statement No. 65, Accounting for Certain Mortgage Banking Activities, to require that a company recognize as separate assets rights to service mortgage loans for others, however those servicing rights are acquired. When a company acquires mortgage servicing rights through either the purchase or origination of mortgage loans and sells or securitizes those loans with servicing rights retained, it is required to allocate the total cost of the mortgage loans to the mortgage servicing rights and the loans based on their relative fair values. This Statement further requires that a company assess its capitalized mortgage servicing rights for impairment based on the fair value of those rights, and requires that rights to service mortgage loans for others be recognized as a separate asset. Statement No. 122 is effective for fiscal years beginning after December 15, 1995. Management does not expect its adoption to have a significant impact on the Company's financial position or results of operations. In October 1995, the Financial Accounting Standards Board issued Statement No. 123, Accounting for Stock-Based Compensation. Statement No. 123 defines a fair value-based method of accounting for an employee stock option. Fair value of the stock option is determined considering factors such as the exercise price, the expected life of the option, the current price of the underlying stock and its volatility, expected dividends on the stock, and the risk-free interest rate for the expected term of the option. Under the fair value-based method, compensation cost is measured at the grant date based on the fair value of the award and is recognized over the service period. A company may elect to adopt Statement No. 123 or elect to continue accounting for its stock option or similar equity awards using the intrinsic method, where compensation cost is measured at the date of grant based on the excess of the market value of the underlying stock over the exercise price. If a company elects not to adopt Statement No. 123, it must provide pro forma disclosure of net income and earnings per share, as if the fair value-based method had been applied. Statement No. 123 is effective for transactions entered into for fiscal years that begin after December 15, 1995. Pro forma disclosures for entities that elect to continue to measure compensation cost under the old method must include the effects of all awards granted in fiscal years that begin after December 15, 1994. It is currently anticipated that the Company will continue to account for stock-based compensation plans under the intrinsic method and therefore, the adoption of Statement No. 123 will have no effect on the Company's consolidated financial statements. 2. MERGERS AND ACQUISITIONS On June 5, 1995, the Company acquired First Western Bancorporation (First Western) in Moab, Utah for 261,611 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 First Western of $4.4 million is included in goodwill. 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 are as follows (in thousands):
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
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. 49 52 ZIONS BANCORPORATION Notes to Consolidated Financial Statements 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. On January 17, 1996, the Company entered into an agreement to acquire Southern Arizona Bancorp, Inc. (SAB) of Yuma, Arizona, which has assets of approximately $125 million. In return for 100 percent of SAB's outstanding common stock, the Company will issue approximately 360,000 shares of its common stock, subject to adjustment under certain conditions. This acquisition is expected to be accounted for as a purchase. The Company currently expects consummation of this acquisition in the first half of 1996, subject to regulatory approvals and other conditions of closing. 3. INVESTMENT SECURITIES Investment securities as of December 31, 1995, are summarized as follows (in thousands):
Held to maturity ---------------------------------------------- Gross Gross Esti- Amort- unreal- unreal- mated ized ized ized market cost gains losses value ---------- ------ --------- --------- U.S. government agencies and corporations: Small Business Administration loan-backed securities $ 529,376 11,741 103 541,014 Other agency securities 265,430 1,192 3,100 263,522 States and political subdivisions 225,231 5,082 164 230,149 ---------- ------ --------- --------- 1,020,037 18,015 3,367 1,034,685 Mortgage-backed securities 58,546 904 201 59,249 ---------- ------ --------- --------- $1,078,583 18,919 3,568 1,093,934 ========== ====== ========= =========
Available for sale -------------------------------------------- Gross Gross Esti- Amort- unreal- unreal- mated ized ized ized market cost gains losses value -------- ----- ------- ------- U.S. Treasury securities $ 17,691 54 17 17,728 U.S. government agencies 71,038 454 540 70,952 State and political subdivisions 40,153 1,951 20 42,084 -------- ----- ------- ------- 128,882 2,459 577 130,764 Mortgage-backed securities 69,469 542 678 69,333 Equity securities: Mutual funds: Accessor Funds, Inc. 118,899 1,072 - 119,971 Other 564 - - 564 Federal Home Loan Bank stock 71,988 - - 71,988 Other stock 5,386 223 29 5,580 -------- ----- ------- ------- $395,188 4,296 1,284 398,200 ======== ===== ======= =======
50 53 ZIONS BANCORPORATION Notes to Consolidated Financial Statements Investment securities as of December 31, 1994, are summarized as follows (in thousands):
Held to maturity --------------------------------------------- Gross Gross Esti Amort- unreal- unreal- -mated ized ized ized market 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 ========== ====== ========= =========
Available for sale ------------------------------------------- Gross Gross Esti- Amort- unreal- unreal- mated ized ized ized market cost gains losses value -------- ----- ------- ------- U.S. Treasury securities $ 48,269 51 1,143 47,177 U.S. government agencies 33,304 - - 33,304 State and political subdivisions - - - - -------- ----- ------- ------- 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 change in net unrealized holding gains (losses) on securities available for sale for the years ended December 31, 1995, 1994, and 1993 were $7,716,000, ($6,281,000), and $415,000, respectively, after related tax effect. These gains (losses) are collectively reported as a separate component of shareholders' equity with December 31, 1995 and 1994 balances of $1,850,000 and ($5,866,000), respectively, after related tax effect. During December 1995 the Company, in accordance with the provisions of "A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities" issued by the Financial Accounting Standards Board elected to make a one-time reassessment of its classification of investment securities. In connection therewith the Company transferred securities having an amortized cost of $40.2 million and a market value of $41.5 million from the held to maturity category to the available for sale category. The net unrealized holding gain of $1.3 million recognized with this transfer is included in the balance of net unrealized holding gains on securities available for sale reported as a separate component of shareholders' equity. In 1995, the Company sold securities from its held to maturity portfolio. This was in response to the deterioration of the issuer's credit worthiness and continued downgrading in the issuer's published credit rating. The amortized cost of the sold securities totaled $6,602,000 and the related realized gain amounted to $200,000. 51 54 ZIONS BANCORPORATION Notes to Consolidated Financial Statements The amortized cost and estimated market value of investment securities as of December 31, 1995, 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 $ 160,625 161,699 Due after one year through five years 405,800 409,512 Due after five years through ten years 249,704 255,351 Due after ten years 203,908 208,123 ---------- --------- $1,020,037 1,034,685 ========== =========
Available for sale ---------------------- Amort- Estimated ized market cost value -------- --------- Due in one year or less $ 80,829 80,455 Due after one year through five years 39,751 40,383 Due after five years through ten years 51,783 53,209 Due after ten years 25,988 26,050 -------- ------- $198,351 200,097 ======== =======
Gross gains of $1,129,000, $367,000, and $104,000 and gross losses of $1,277,000, $666,000, and $121,000 were realized on sales of investment securities for the years ended December 31, 1995, 1994, and 1993, respectively. Such amounts include gains of $14,000, $102,000, and $10,000, and losses of $61,000, $66,000, and $32,000, respectively, for sales of mortgage-backed securities. As of December 31, 1995 and 1994, securities with an amortized cost of $226,068,000 and $210,149,000, 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 8). 4. LOANS AND ALLOWANCE FOR LOAN LOSSES Loans are summarized as follows (in thousands):
1995 1994 ---------- --------- Loans held for sale $ 126,124 108,649 Commercial, financial, and agricultural 688,466 495,647 Real estate: Construction 268,812 218,244 Other 1,272,633 1,062,423 Consumer 341,150 391,033 Lease financing 132,520 129,547 Other receivables 8,203 10,509 ---------- --------- $2,837,908 2,416,052 ========== =========
As of December 31, 1995 and 1994, loans with a carrying value of $103,409,000 and $121,886,000, respectively, were pledged as security for Federal Home Loan Bank advances (note 8). 52 55 ZIONS BANCORPORATION Notes to Consolidated Financial Statements During 1995, 1994, and 1993, the Company purchased mortgage servicing rights totaling $.4 million, $.6 million, and $1.7 million, respectively. Amortization of purchased mortgage servicing rights totaled $1.2 million, $1.7 million, and $2.6 million for the years ended December 31, 1995, 1994, and 1993, respectively. During 1995, 1994, and 1993, consumer and other loan securitization sales totaled $615 million, $703 million, and $609 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 $18.4 million in 1995, $11.7 million in 1994, and $14.7 million in 1993. The allowance for loan losses is summarized as follows (in thousands):
1995 1994 1993 ------- ------- ------- Balance at beginning of year $67,018 68,461 59,807 Allowance for loan losses of companies acquired 249 1,308 546 Additions: Provision for loan losses 2,800 2,181 2,993 Recoveries 5,860 6,729 13,919 Deduction, loan charge-offs (8,372) (11,661) (8,804) ------- ------- ------- Balance at end of year $67,555 67,018 68,461 ======= ======= =======
Included in the allowance for loan losses is an allocation for unused commitments and letters of credit in the amounts of $7,516,000 and $3,674,000 at December 31, 1995 and 1994, respectively. Nonperforming loans, leases, and related interest foregone are summarized as follows (in thousands):
1995 1994 1993 ------ ------ ------ Nonaccrual loans and leases $7,438 13,635 23,364 Restructured loans and leases 249 567 4,006 ------ ------ ------ Total $7,687 14,202 27,370 ====== ====== ====== Contractual interest due $1,068 1,766 3,051 Interest recognized 474 416 820 ------ ------ ------ Net interest foregone $ 594 1,350 2,231 ====== ====== ======
The Company adopted Statement No. 114, Accounting by Creditors for Impairment of a Loan, as amended by Statement No. 118, Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosure, on January 1, 1995. The Company's total recorded investment in impaired loans, in accordance with these Statements, amounted to $3,388,000 as of December 31, 1995. The required allowance for loan losses allocated to impaired loans as of December 31, 1995 amounted to $22,000, which is related to $884,000 of the total recorded investment. 5. DEPOSITS Deposits are summarized as follows (in thousands):
1995 1994 ---------- --------- Noninterest-bearing $ 998,560 885,833 Interest-bearing: Savings 690,730 756,196 Money market 1,473,614 1,292,519 Time under $100,000 669,196 513,841 Time over $100,000 158,924 123,455 Foreign 106,090 134,132 ---------- --------- $4,097,114 3,705,976 ========== =========
53 56 ZIONS BANCORPORATION Notes to Consolidated Financial Statements Interest expense on deposits is summarized as follows (in thousands):
1995 1994 1993 ------- ------ ------ Savings and money market deposits: Savings $22,492 22,262 19,222 Money market 59,465 39,938 31,109 ------- ------ ------ $81,957 62,200 50,331 ======= ====== ====== Time deposits: Under $100,000 $32,016 20,469 23,501 Over $100,000 7,358 3,845 3,010 Foreign 7,179 4,444 1,484 ------- ------ ------ $46,553 28,758 27,995 ======= ====== ======
6. SECURITY REPURCHASE AGREEMENTS Security repurchase agreements represent funds borrowed on a short-term basis through the sale of securities to counterparties under agreements to repurchase the same securities. The Company participates in overnight and term repurchase agreements. Most of the overnight agreements are performed with sweep accounts in conjunction with a master repurchase agreement. In this case, securities are pledged for and interest is paid on the collected balance of the customers' accounts. The average interest rates pertaining to outstanding repurchase agreements at December 31, 1995 were 5.8 percent, 5.2 percent, and 4.9 percent for U.S. Treasuries, U.S. government agencies, and Small Business Administration pools, respectively. Repurchase agreements are summarized as follows (in thousands):
Market value of Carrying Accrued Total underlying amount interest liability assets -------- -------- --------- ------- U.S. Treasuries: Over night $ 72,200 35 72,235 73,126 On demand 36,000 17 36,017 35,569 Up to 30 days 11,710 9 11,719 11,677 -------- ------- ------- ------- 119,910 61 119,971 120,372 U.S. government agencies - on demand 1,982 134 2,116 2,830 SBA pools: Over night 483,562 172 483,734 486,624 On demand 2,312 141 2,453 2,975 Up to 30 days 4,385 3 4,388 4,518 Over 90 days 2,133 13 2,146 2,191 -------- ------- ------- ------- 492,392 329 492,721 496,308 -------- ------- ------- ------- Total $614,284 524 614,808 619,510 ======== ======= ======= =======
7. 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. 54 57 ZIONS BANCORPORATION Notes to Consolidated Financial Statements Income taxes are summarized as follows (in thousands):
1995 1994 1993 ------- ------ ------- Federal: Current $32,220 23,448 25,144 Deferred (benefit) 3,044 3,486 (1,832) State 5,686 3,966 3,936 ------- ------ ------- $40,950 30,900 27,248 ======= ====== =======
A reconciliation between income tax expense computed using the statutory federal income tax rate (35 percent in 1995, 1994, and 1993), and actual income tax expense is as follows (in thousands):
1995 1994 1993 -------- ------- -------- Income tax expense at statutory federal rate $42,624 33,154 29,328 State income tax, net 3,696 2,578 2,414 Nondeductible expenses 1,159 882 174 Nontaxable interest (4,317) (3,900) (2,741) Tax credits (1,446) (885) (586) Deferred tax assets realized (766) (972) (1,137) Other items - 43 (204) ------- ------- ------- Income tax expense $40,950 30,900 27,248 ======= ======= =======
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, 1995 and 1994, are presented below (in thousands):
1995 1994 -------- ------- Gross deferred tax assets: Book loan loss deduction in excess of tax $ 25,966 25,741 Postretirement benefits 2,295 2,377 Deferred compensation 2,754 3,619 Deferred loan sales 1,792 1,424 Present value of interest rate exchange contract - 226 Capital leases 538 700 Acquired net operating losses 5,258 7,977 Other 4,946 2,769 -------- ------- Total deferred tax assets 43,549 44,833 -------- ------- Gross deferred tax liabilities: Premises and equipment, due to differences in depreciation (4,719) (4,647) FHLB stock dividends (10,437) (8,713) Leasing operations (10,231) (10,614) Prepaid pension reserves (2,328) - Other (1,414) (1,957) -------- ------- Total deferred tax liabilities (29,129) (25,931) -------- ------- Statement No. 115 market equity adjustment (1,162) 3,672 -------- ------- Net deferred tax assets $ 13,258 22,574 ======== =======
55 58 ZIONS BANCORPORATION Notes to Consolidated Financial Statements Pursuant to Statement No. 109, the Company has determined that it is not required to establish a valuation reserve for the deferred tax asset since it is "more likely than not" that it will be principally realized through future taxable income and tax planning strategies. The Company's conclusion that it is "more likely than not" that the deferred tax asset will be realized is based on history of growth in earnings and the prospects for continued growth and profitability. The Company has net operating loss carryforwards totaling $23,965,000 that expire in the years 2006 and 2007. 8. FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS Federal Home Loan Bank advances and other borrowings as of December 31, 1995 and 1994, include $86,174,000 and $101,571,000, 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 16). Maturities of outstanding advances at December 31, 1995 in excess of one year are as follows (in thousands): 1996 $16,573 1997 16,335 1998 16,338 1999 16,342 2000 9,107 Thereafter 11,479 ------- $86,174 =======
9. LONG-TERM DEBT Long-term debt is summarized as follows (in thousands):
1995 1994 ------- ------ Subordinated notes $54,000 54,000 Industrial revenue bonds - 800 Capitalized real property leases, 9-1/2% to 21%, payable in aggregate monthly installments of approximately $95,000 1,906 2,682 Mortgage notes, 7-1/2% to 9%, due in varying amounts and periods 111 185 Other notes payable 212 515 ------- ------ $56,229 58,182 ======= ======
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. 56 59 ZIONS BANCORPORATION Notes to Consolidated Financial Statements Maturities and sinking fund requirements on long-term debt at December 31, 1995 for each of the succeeding five years are as follows (in thousands):
Consoli- Parent dated only ------- ------ 1996 $ 966 715 1997 216 5 1998 4,134 4,000 1999 94 - 2000 98 - Thereafter 50,721 50,000 ------- ------ $56,229 54,720 ======= ======
10. 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 ----------------------- 1995 1994 ---------- ---------- Financial instruments whose contract amounts represent credit risk (in thousands): Unused commitments to extend credit $1,552,507 1,152,351 Standby letters of credit written: Performance 39,868 55,951 Financial 11,056 19,621 Commercial letters of credit 7,079 3,233 Commitments to purchase securities 493,006 1,124,745 Commitments to sell securities 370,156 1,275,025
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 $1,219,700,000 expire in 1996. 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. 57 60 ZIONS BANCORPORATION 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 $49,684,000 expiring in 1996 and $1,240,000 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, 1995, have remaining terms of 1 to 19 years and 8 to 33 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):
1995 1994 -------- ------- Interest rate contracts: Swaps - fixed $230,000 330,000 Futures - 1,100 Options 1,000 145,000 Caps: Purchased 25,000 25,000 Written 825,000 785,000
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, 1995 and 1994, the regulatory risk-weighted values assigned to all off-balance sheet financial instruments described herein totaled $166,382,000 and $177,347,000, 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 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. A motion to certify the class was filed in March 1994 and opposition to this motion was filed in April 1994. The Company continues to vigorously 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 $50 million as of December 31, 1995. 58 61 ZIONS BANCORPORATION Notes to Consolidated Financial Statements The Company has commitments for leasing premises and equipment under the terms of noncancelable leases expiring from 1996 to 2005. Future aggregate minimum rental payments under existing noncancelable leases at December 31, 1995 are as follows (in thousands):
Real Real property property, and equip- capital- ment, ized operating --------- ---------- 1996 $ 518 4,181 1997 279 3,613 1998 217 3,094 1999 171 2,503 2000 171 1,946 Thereafter 1,164 7,241 ------ ------ $2,520 22,578 ====== ======
Future aggregate minimum rental payments have been reduced by noncancelable subleases as follows: 1996, $538,000; 1997, $8,000; and 1998, $-0-. Aggregate rental expense on operating leases amounted to $6,500,000, $4,841,000, and $3,946,000 for the years ended December 31, 1995, 1994, and 1993, respectively. 11. 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, 806,000 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 per shares share --------- ---------------- Options granted during: 1995 69,425 $42.63 1994 104,250 $38.50 to $39.75 1993 2,000 $47.25 Options exercised during: 1995 131,382 $9.47 to $39.75 1994 45,450 $15.00 to $24.13 1993 124,491 $10.00 to $24.13 Options canceled during: 1995 8,315 $24.13 to $39.75 1994 6,418 $18.33 to $39.75 1993 2,912 $10.00 to $24.13 Options expiring during: 1995 - - 1994 - - 1993 22,750 $12.50 to $14.75 Options outstanding at December 31: 1995 323,549 $9.47 to $47.25 1994 393,821 $9.47 to $47.25 1993 341,439 $9.47 to $47.25
59 62 ZIONS BANCORPORATION Notes to Consolidated Financial Statements As of December 31, 1995, there are 125,000 options exercisable at prices from $9.47 to $47.25 per share. For the year ended December 31, 1995, shares obtained through exercise of options had a cumulative average market value of $6,843,000 at the date of exercise. 12. COMMON STOCK Changes in common stock are summarized as follows (amount in thousands, except share amounts):
Common stock ---------------------- Shares Amount ---------- -------- 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 Stock redeemed and retired (375,040) (18,523) Stock options: Redeemed and retired (21,585) - Exercised 131,382 2,081 Acquisition 261,611 10,726 ---------- -------- Balance at December 31, 1995 14,555,920 $ 73,477 ========== ========
13. 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, 1995 and 1994, are as follows (in thousands):
1995 1994 ------- ------ Service cost - benefits earned during the period $ 2,151 2,385 Interest cost on projected benefit obligation 3,261 2,908 Actual return on assets (8,580) (794) Net amortization and deferrals 5,072 (2,640) ------- ------ Net pension cost $ 1,904 1,859 ======= ======
60 63 ZIONS BANCORPORATION Notes to Consolidated Financial Statements Primary actuarial assumptions used in determining the net pension cost are as follows:
1995 1994 ---- ---- Assumed discount rate 8.75% 7.50 Assumed rate of increase in compensation levels 5.00 5.00 Expected long-term rate of return on assets 9.00 9.50
The funded status of the plan as of December 31, 1995 and 1994, is as follows (in thousands):
1995 1994 -------- ------- Actuarial present value of benefit obligations: Vested benefit obligation $(42,054) (31,092) ======== ======= Accumulated benefit obligation $(47,821) (33,972) ======== ======= Projected benefit obligation $(53,606) (38,269) Plan assets at fair value 48,360 36,208 -------- ------- Unfunded projected benefit obligation (5,246) (2,061) Unrecognized net loss 15,032 8,391 Unrecognized prior service cost (1,175) (1,290) Unrecognized net transition asset (2,306) (2,931) -------- ------- Prepaid pension cost $ 6,305 2,109 ======== ======= Primary actuarial assumptions (future periods): Assumed discount rate 7.00% 8.75% 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. 61 64 ZIONS BANCORPORATION 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, 1995 and 1994, as follows (in thousands):
1995 1994 ------- ------ Accumulated postretirement benefit obligation: Retirees $(4,855) (2,693) Fully eligible active plan participants (523) (1,779) Other active plan participants (792) (705) ------- ------ (6,170) (5,177) Plan assets at fair value - - ------- ------ Accumulated postretirement benefit obligation in excess of plan assets (6,170) (5,177) Unrecognized net (gain) loss 116 (1,039) ------- ------ Accrued postretirement benefit cost included in other liabilities $(6,054) (6,216) ======= ======
Net periodic postretirement benefit cost for 1995 and 1994 includes the following components ( in thousands):
1995 1994 ----- ---- Service cost $ 93 164 Interest cost 380 372 Net amortization (351) (224) ------ ---- Net periodic postretirement benefit cost $ 122 312 ====== ====
For measurement purposes, an annual rate of increase in the per capita cost of covered benefits (i.e., health care cost trend rate) of 6.5 percent and 5.0 percent were assumed for the self-funded and HMOs options, respectively, for 1995. 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 7.0 and 8.75 percent, respectively, at December 31, 1995 and 1994. 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 $1,404,000, $1,319,000, and $1,176,000 for the years ended December 31, 1995, 1994, and 1993, respectively. The Company has 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). Accrued contributions to the plan amounted to $2,022,000, $1,096,000, and $948,000 for the years ended December 31, 1995, 1994, and 1993, respectively. 62 65 ZIONS BANCORPORATION Notes to Consolidated Financial Statements 14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Financial information by quarter for the three years ended December 31, 1995 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 -------- -------- ------- ------ ------ 1995: First quarter $ 53,201 600 23,824 16,001 1.09 Second quarter 55,897 850 31,270 20,521 1.39 Third quarter 57,923 800 34,044 22,291 1.52 Fourth quarter 60,073 550 33,140 22,515 1.53 -------- ----- ------- ------ ---- $227,094 2,800 122,278 81,328 5.53 ======== ===== ======= ====== ==== 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 ======== ===== ======= ====== ====
15. 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, 1995, the larger concentrations of risk in the commercial loan and leasing portfolio are represented by the manufacturing, real estate, business service, and retail industry groupings, which each comprise approximately 15 percent of the portfolio. The Company has minimal credit exposure from lending transactions with highly leveraged entities and has no foreign loans. 63 66 ZIONS BANCORPORATION Notes to Consolidated Financial Statements 16. FAIR VALUE OF FINANCIAL INSTRUMENTS Carrying value and estimated fair value of principal financial instruments as of December 31, 1995 are summarized as follows (in thousands):
Carrying Estimated value fair value ---------- ---------- Financial assets: Cash and due from banks $ 418,067 418,067 Money market investments 687,251 687,251 Investment securities 1,540,489 1,555,347 Loans, net 2,739,401 2,758,244 ---------- --------- Total financial assets $5,385,208 5,418,909 ========== ========= Financial liabilities: Demand, savings, and money market deposits $3,162,904 3,162,904 Time deposits 828,120 834,460 Foreign deposits 106,090 106,090 Securities sold, not yet purchased 117,005 117,005 Federal funds purchased and security repurchase agreements 748,332 748,332 FHLB advances and other borrowings 101,084 101,084 Long-term debt 56,229 61,507 ---------- --------- Total financial liabilities $5,119,764 5,131,382 ========== =========
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 $67,555,000 is the present value of estimated net charge-offs. FINANCIAL LIABILITIES - The estimated fair value of demand and savings deposits, securities sold not yet purchased, 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. 64 67 ZIONS BANCORPORATION Notes to Consolidated Financial Statements 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, 1995 is as follows (in thousands):
Carrying value Fair value -------------- ---------- asset positive (liability) (negative) -------------- ---------- Swaps $ - 4,936 Caps: Purchased 174 3 Written (8,863) (4,691)
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. 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 10 to the consolidated financial statements. 17. 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, 1995, the Company's subsidiaries had approximately $130.1 million 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 1995, cash reserve balances held with the Federal Reserve banks averaged approximately $54.9 million. 65 68 Condensed financial information of Zions Bancorporation (parent only) follows: ZIONS BANCORPORATION Condensed Balance Sheets December 31, 1995 and 1994 (In thousands)
ASSETS 1995 1994 -------- ------- Cash and due from banks $ 2,955 1,574 Interest-bearing deposits 16,503 2,826 Investment securities 2,521 270 Loans, lease financing, and other receivables 1,108 2,373 Investments in subsidiaries: Commercial banks 458,647 386,853 Other 5,478 4,601 Receivables from subsidiaries: Commercial banks 100 27,094 Other 574 563 Real estate held for rental purposes, at cost, less accumulated depreciation 1,667 6,169 Premises and equipment, at cost, less accumulated depreciation 187 132 Other real estate owned 58 134 Other assets 10,024 7,618 -------- ------- $499,822 440,207 ======== ======= LIABILITIES AND SHAREHOLDERS' EQUITY Accrued liabilities $ 16,596 10,247 Short-term borrowings - 8,001 Long-term debt 54,720 56,189 -------- ------- Total liabilities 71,316 74,437 -------- ------- Shareholders' equity: Preferred stock - - Common stock 73,477 79,193 Net unrealized holding gains and losses on securities available for sale 1,850 (5,866) Retained earnings 353,179 292,443 -------- ------- Total shareholders' equity 428,506 365,770 -------- ------- $499,822 440,207 ======== =======
66 69 ZIONS BANCORPORATION Condensed Statements of Income Years ended December 31, 1995, 1994, and 1993 (In thousands)
1995 1994 1993 ------- ------ ------ Interest income - interest and fees on loans and securities $ 2,417 3,035 4,278 Interest expense - interest on borrowed funds 5,095 4,798 7,622 ------- ------ ------ Net interest loss (2,678) (1,763) (3,344) ------- ------ ------ Other income: Dividends from consolidated subsidiaries: Commercial banks 29,400 21,528 17,766 Other - - 3,224 Other income 3,131 2,985 2,542 ------- ------ ------ 32,531 24,513 23,532 ------- ------ ------ Expenses: Salaries and employee benefits 5,262 4,913 3,989 Loss on early extinguishment of debt - - 6,022 Operating expenses 463 1,165 933 ------- ------ ------ 5,725 6,078 10,944 ------- ------ ------ Income before income tax benefit and cumulative effect of changes in accounting principles 24,128 16,672 9,244 Income tax benefit (2,052) (1,939) (4,448) ------- ------ ------ Income before cumulative effect of changes in accounting principles 26,180 18,611 13,692 Cumulative effect of changes in accounting principles - - (378) ------- ------ ------ Income before equity in undistributed income of consolidated subsidiaries 26,180 18,611 13,314 ------- ------ ------ Equity in undistributed income (loss) of consolidated subsidiaries: Commercial banks 54,245 44,133 47,716 Other 903 1,083 (2,825) ------- ------ ------ 55,148 45,216 44,891 ------- ------ ------ Net income $81,328 63,827 58,205 ======= ====== ======
67 70 ZIONS BANCORPORATION Condensed Statements of Cash Flows Years ended December 31, 1995, 1994, and 1993 (In thousands)
1995 1994 1993 -------- ------- -------- Cash flows from operating activities: Net income $ 81,328 63,827 58,205 Adjustments to reconcile net income to net cash provided by operating activities: Undistributed net income of consolidated subsidiaries (55,148) (45,216) (44,891) Depreciation of premises and equipment 678 675 688 Amortization of excess costs of acquired businesses 588 492 349 Other 4,646 (3) 3,845 -------- ------- -------- Net cash provided by operating activities 32,092 19,775 18,196 -------- ------- -------- Cash flows from investing activities: Net decrease (increase) in interest-bearing deposits (13,677) (2,381) 9,735 Collection of advances to subsidiaries 34,548 4,939 154,272 Advances to subsidiaries (7,565) (3,575) (138,993) Decrease (increase) of investment in subsidiaries (386) 274 (2,625) Other 3,625 1,908 2,060 -------- ------- -------- Net cash provided by investing activities 16,545 1,165 24,449 -------- ------- -------- Cash flows from financing activities: Net change in short-term funds borrowed (8,001) (3,305) 9,000 Proceeds from issuance of long-term debt - - 4,000 Payments on long-term debt (1,469) (1,358) (43,224) Proceeds from issuance of common stock 1,291 317 893 Payments to redeem common stock (18,523) - - Dividends paid (20,554) (17,271) (12,692) -------- ------- -------- Net cash (used in) financing activities (47,256) (21,617) (42,023) -------- ------- -------- Net increase (decrease) in cash and due from banks 1,381 (677) 622 Cash and due from banks at beginning of year 1,574 2,251 1,629 -------- ------- -------- Cash and due from banks at end of year $ 2,955 1,574 2,251 ======== ======= ========
The parent company paid interest of $6,180,000, $7,245,000, and $8,577,000 for the years ended December 31, 1995, 1994, and 1993, respectively. 68 71 ZIONS BANCORPORATION Condensed Statements of Retained Earnings Years ended December 31, 1995, 1994, and 1993 (In thousands)
1995 1994 1993 -------- ------- ------- Balance at beginning of year $292,443 245,920 197,992 Retained earnings of acquired company - - 2,428 Net income 81,328 63,827 58,205 Cash dividends: Preferred, paid by subsidiary to minority shareholder (38) (33) (13) Common (20,554) (16,786) (12,207) Dividends of NBA prior to merger - (485) (485) -------- ------- ------- Balance at end of year $353,179 292,443 245,920 ======== ======= =======
69 72 The selected quarterly financial data information required by this item appears on pages 24 and 63 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 2 through 6 of the definitive Proxy Statement. Information relating to the directors and executive officers on pages 2 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 1996 Annual Meeting of Shareholders to be held April 26, 1996, is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information required by this item appearing on pages 8 through 19 of the definitive Proxy Statement relating to the 1996 Annual Meeting of Shareholders to be held April 26, 1996, 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 1996 Annual Meeting of Shareholders to be held April 26, 1996, is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item appearing on page 20 of the definitive Proxy Statement relating to the 1996 Annual Meeting of Shareholders to be held April 26, 1996, 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, 1995 and 1994 42 Consolidated Statements of Income - Years ended December 31, 1995, 1994, and 1993 43 Consolidated Statements of Cash Flows - Years ended December 31, 1995, 1994, and 1993 44 Consolidated Statements of Retained Earnings Years ended December 31, 1995, 1994, and 1993 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. 70 73 (3) Exhibits: The exhibits listed on the Exhibit Index on pages 73 and 74 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, 1995. 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. 33-58845 (filed on April 26, 1995) and 33-58855 (filed on April 26, 1995). 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. 71 74 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 8, 1996 ZIONS BANCORPORATION By /s/ Harris H. Simmons ------------------------------------- HARRIS H. SIMMONS, President and Chief Executive 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 8, 1996 /s/ Harris H. Simmons /s/ Gary L. Anderson - --------------------------------------------------------- ------------------------------------------------------- HARRIS H. SIMMONS, President, Chief Executive Officer and GARY L. ANDERSON, Secretary, Senior Vice President, and Director Chief Financial Officer /s/ Roy W. Simmons /s/ Walter E. Kelly - --------------------------------------------------------- ------------------------------------------------------- ROY W. SIMMONS, Chairman and Director WALTER E. KELLY, Controller /s/ Jerry C. Atkin /s/ Robert G. Sarver - --------------------------------------------------------- ------------------------------------------------------- JERRY C. ATKIN, Director ROBERT G. SARVER, Director /s/ Grant R. Caldwell /s/ L. E. Simmons - --------------------------------------------------------- ------------------------------------------------------- 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/ Richard H. Madsen /s/ Dale W. Westergard - --------------------------------------------------------- ------------------------------------------------------- RICHARD H. MADSEN, Director DALE W. WESTERGARD, Director /s/ Roger B. Porter - --------------------------------------------------------- ROGER B. PORTER, Director
72 75 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 Bancorporation Pension Plan (incorporated by reference to Exhibit 10.1 of Zions Bancorporation's Annual Report on Form 10-K for the year ended December 31, 1994) * 10.2 Amendment to Zions Bancorporation Pension Plan effective December 1, 1994 (incorporated by reference to Exhibit 10.2 of Zions Bancorporation's Annual Report on Form 10-K for the year ended December 31, 1994) * 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 Zions Utah Bancorporation Key Employee Incentive Stock Option Plan approved by the shareholders of the Company on April 28, 1982 (incorporated by reference to Exhibit 10.1 of Zions Bancorporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995) * 10.5 Amendment No. 1 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 10.2 of Zions Bancorporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995) * 10.6 Amendment No. 2 to Zions Bancorporation (formerly Zions Utah Bancorporation) Key Employee Incentive Stock Option Plan approved by the shareholders of the Company on April 28, 1995 (incorporated by reference to Exhibit 10.3 of Zions Bancorporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995) * 10.7 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) *
73 76 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 - ------------- -------------------------------------------------------------------------------------------- 10.8 Zions Bancorporation Senior Management Value Sharing Plan, Award Period 1991-1994 (incorporated by reference to Exhibit 19 of Zions Bancorporation's Annual Report on Form 10-K for the year end December 31, 1992) * 10.9 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 end December 31, 1992) 10.10 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) * 10.11 Zions Bancorporation Senior Management Value Sharing Plan, Award Period 1994-1997 (incorporated by reference to Exhibit 10.9 of Zions Bancorporation's Annual Report on Form 10-K for the year end December 31, 1994) * 10.12 Zions Bancorporation Executive Management Pension Plan (incorporated by reference to Exhibit 10.10 of Zions Bancorporation's Annual Report on Form 10-K for the year end December 31, 1994) * 10.13 Employment Agreement with Mr. John J. Gisi (filed) 10.14 Zions Bancorporation Senior Management Value Sharing Plan, Award Period 1995-1998 (filed) 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. 74 EX-10.13 2 EMPLOYMENT AGREEMENT 1 EXHIBIT 10.13 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT (the "Agreement"), made and entered into this 20th day of September, 1993, by and among JOHN J. GISI ("Gisi"), ZIONS BANCORPORATION, a Utah corporation, having its principal office in Salt Lake City, Utah ("Zions Bancorp"), and ZIONS FIRST NATIONAL BANK OF ARIZONA, a national banking association organized under the laws of the United States, having its principal office in Mesa, Arizona ("Zions Arizona"). WITNESSETH THAT: WHEREAS, the Agreement and Plan of Reorganization (the "Agreement and Plan of Reorganization") dated as of September 20, 1993, by and among Zions Bancorp, Zions Arizona, National Bancorp of Arizona Inc. (the "Company") and National Bank of Arizona (the "Bank") provides that the Company will be merged with and into ZMAZ, Inc. ("ZMAZ"), a wholly-owned subsidiary of Zions Bancorp, with ZMAZ to be the entity resulting therefrom, and that the Bank will be merged with and into Zions Arizona, with Zions Arizona to be the entity resulting therefrom; WHEREAS, Gisi is the Chairman of the Board of Directors and Chief Executive Officer of each of the Company and the Bank; WHEREAS, Zions Bancorp and Zions Arizona desire to secure the employment of Gisi upon consummation of the transactions contemplated in the Agreement and Plan of Reorganization; WHEREAS, Gisi is desirous of entering into the Agreement for such periods and upon the terms and conditions set forth herein; and WHEREAS, Section 4.10 of the Agreement and Plan of Reorganization contemplates that Gisi will enter into an employment and non-competition agreement as a condition to the consummation of the transactions described therein. NOW, THEREFORE, in consideration of the premises and mutual covenants and agreements hereinafter set forth, the parties agree as follows: 1. Employment; Responsibilities and Duties. (a) The Company hereby agrees to employ Gisi, and Gisi hereby agrees to serve, as a Senior Vice President of Zions Bancorp during the Term of Employment as defined in Section 2 hereof, with such duties, responsibilities and authority as shall be set forth in the Bylaws of Zions Bancorp or as may otherwise be determined by Zions Bancorp; (b) Zions Bancorp hereby agrees to cause the election of Gisi to each of the Board of Directors of Zions Arizona, the Board of Directors of Zions Mortgage Company and the Board of Directors of Zions Investment Securities, Inc. (each, a "Board" and collectively, the "Boards") at the first regular meeting of each Board during the Term of Employment and thereafter to cause his re-election to each Board throughout the Term of Employment, and Gisi hereby agrees to serve as a member of each Board upon his election and re-election thereto during the Term of Employment. (c) Zions Bancorp hereby agrees to appoint Gisi, and Gisi hereby agrees to serve, upon the Executive Management Committee of Zions Bancorp during the Term of Employment. (d) Zions Arizona hereby agrees to employ Gisi, and Gisi hereby agrees to serve, as Chairman of the Board of Directors and Chief Executive Officer of Zions Arizona during the Term of Employment, with such duties, responsibilities and authority as shall be set forth in the Bylaws of Zions Arizona or as may otherwise be determined by Zions Arizona. 2 (e) Gisi shall devote his full working time and best efforts to the performance of his responsibilities and duties hereunder. During the Term of Employment, Gisi shall not without the prior written consent of the respective Boards of Directors of Zions Bancorp and Zions Arizona, render services as an employee, independent contractor or otherwise, whether or not compensated, to any person or entity other than Zions Bancorp and Zions Arizona to which Gisi is not rendering such services as of the date hereof and which person or entity is not set forth in Schedule A hereof; provided, however, that Gisi may, where involvement in such activities do not individually or in the aggregate significantly interfere with the performance by Gisi of his duties or violate the provisions of Section 5 hereof, (i) render services to charitable organizations or manage his personal investments or, (ii) with the prior permission of the respective Boards of Directors of Zions Bancorp and Zions Arizona, hold other directorships or part-time academic appointments or have other business affiliations which would otherwise be prohibited under this Section 1. 2. Term of Employment. (a) The term of this Agreement ("Term of Employment") shall be the period commencing on and as of the date hereof (the "Commencement Date") and continuing until the Termination Date, which shall mean the earliest to occur of: (i) the third anniversary of the Commencement Date, unless the Term of Employment shall be extended by mutual written agreement of Gisi, Zions Bancorp and Zions Arizona in accordance with paragraph (b) below; (ii) the death of Gisi; (iii) Gisi's inability to perform his duties hereunder, as a result of physical or mental disability, for a period of at least 180 consecutive days or for at least 180 days during any period of 12 consecutive months during the Term of Employment; or (iv) the discharge of Gisi by either Zions Bancorp or Zions Arizona "for cause," which shall mean one or more of the following (it being understood that Gisi's employment with Zions Bancorp shall terminate immediately if his employment with Zions Arizona is terminated for cause and his employment with Zions Arizona shall terminate immediately if his employment with Zions Bancorp is terminated for cause): (A) any willful or gross misconduct by Gisi with respect to the business and affairs of Zions Bancorp or Zions Arizona; (B) the conviction of Gisi of a felony (after the earlier of the expiration of any applicable appeal period without perfection of an appeal by Gisi or the denial of any appeal as to which no further appeal or review is available to Gisi) whether or not committed in the course of his employment by Zions Bancorp or Zions Arizona; (C) Gisi's willful neglect, failure or refusal to carry out his duties hereunder; or (D) the breach by Gisi of any representation, warranty or agreement contained herein, which breach is material and adverse to Zions Bancorp or Zions Arizona; or (v) Gisi's resignation from his position as Chairman of the Board of Directors and Chief Executive Officer of Zions Arizona or as a member of the Board of Directors of Zions Arizona for any reason not set forth in Section 2(a)(vii) hereof; (vi) the termination of Gisi's employment by Zions Bancorp and Zions Arizona, acting jointly, for any reason other than those set forth in Subsections (i), (ii), (iii) or (iv) of this Section 2(a), at any time, upon the 30th day following notice to Gisi; 3 (vii) Gisi's resignation from his position as Chairman of the Board of Directors and Chief Executive Officer of Zions Arizona or as a member of the Board of Directors of Zions Arizona upon the occurrence of any of the following events: (A) any reduction in the salary payable to Gisi pursuant to Section 3(a)(i) hereof, or in any bonus to which Gisi is entitled pursuant to Section 3(a)(ii) hereof, to which Gisi has not agreed and which has not resulted from a termination pursuant to Section 2(a)(iv) hereof; (B) any material reduction in the level of responsibility, position (including status or title), authority or duties of Gisi as set forth in Section 2 hereof to which Gisi has not agreed and which has not resulted from a termination of employment pursuant to Section 2(a)(iv) hereof; (C) any relocation of Gisi's personal residence to a place more than 50 miles from his personal residence as of June 30, 1993 which is required by Zions Bancorp or Zions Arizona, to which Gisi has not agreed and which has not resulted from a termination of employment pursuant to Section 2(a)(iv) hereof; or (D) any receipt by Gisi of a direction or instruction by, or ratified by, the Board of Directors of Zions Arizona or the senior management or Board of Directors of Zions Bancorp, to take or omit to take any action which in the reasonable opinion of Gisi, would, if complied with, result in the commission by Gisi, Zions Arizona or Zions Bancorp of a violation of law, regulatory order or agreement or a breach of his fiduciary duties, followed by the (x) receipt by each of Zions Arizona and Zions Bancorp of written notice by Gisi setting forth Gisi's decision to resign from his position as Chairman of the Board of Directors and Chief Executive Officer of Zions Arizona or as a member of the Board of Directors of Zions Arizona and his grounds for such decision (the "Resignation Notice"), (y) expiration of a period of 30 days commencing on the date of receipt by Zions Arizona and Zions Bancorp of the Resignation Notice (the "Cure Period") during which period neither Zions Arizona nor Zions Bancorp has, in the reasonable opinion of Gisi, modified, rescinded or reversed the direction or instruction giving rise to Gisi's grounds for resignation, set forth in the Resignation Notice, and (z) receipt by Zions Arizona and Zions Bancorp from Gisi, within a period of 30 days commencing upon the date of termination of the Cure Period, of an opinion of legal counsel possessing requisite legal expertise in such matters which concurs in Gisi's opinion that the direction or instruction giving rise to Gisi's grounds for resignation set forth in the Resignation Notice, would, if implemented (or if already implemented, not modified, rescinded or reversed), result in the commission by Gisi, Zions Arizona or Zions Bancorp, of a violation of law, regulatory order or agreement or a breach of his fiduciary duties, and that any modification thereto, rescission or reversal thereof by Zions Arizona or Zions Bancorp made during the Cure Period would not be (or is not) sufficient to render such instruction or direction, upon its implementation, not a violation of law, regulatory order or agreement or a breach of his fiduciary duties. (b) During the 60-day period prior to each anniversary of the Commencement Date, Zions Bancorp and Zions Arizona and Gisi may, by mutual agreement, which shall be in writing, extend the Term of Employment for an additional one-year period. Any failure of Zions Bancorp and Zions Arizona and Gisi to so extend the Term of Employment shall not be deemed a termination of the Term of Employment under Section 2(d) of this Agreement. (c) In the event that the Term of Employment shall be terminated for any of the reasons set forth in Section 2(a)(i), (iv) or (v), Gisi (or his estate, as the case may be) shall be entitled to receive, upon the occurrence of any such event: (i) any salary (as hereinafter defined) as payable pursuant to Section 3(a)(i) hereof which shall have accrued as of the Termination Date; and 4 (ii) such rights as Gisi shall have accrued as of the Termination Date under the terms of any plans or arrangements in which he participates pursuant to Sections 3(b) or (c) hereof, any right to reimbursement for expenses accrued as of the Termination Date payable pursuant to Section 3(b) hereof, and the right to receive the cash equivalent of paid annual leave and sick leave accrued as of the Termination Date pursuant to Section 3(e) hereof. (d) In the event that the Term of Employment shall be terminated for any reason other than those set forth in Section 2(a)(i), (iv) or (v), Gisi shall be entitled to receive: (i) promptly following the Termination Date, a lump sum equal to all salary payable pursuant to Section 3(a)(i) hereof for the period of two years commencing on the Termination Date; and (ii) such rights as Gisi may have accrued as of the Termination Date under the terms of any plans or arrangements in which he participates pursuant to Sections 3(b) or (c) hereof, any right to reimbursement for expenses accrued as of the Termination Date payable pursuant to Section 3(b) hereof, and the right to receive the cash equivalent of paid annual leave and sick leave accrued as of the Termination Date pursuant to Section 3(e) hereof. (e) In the event that Gisi resigns his position as Chairman of the Board of Directors and Chief Executive Officers of Zions Arizona or as a member of the Board of Directors of Zions Arizona, he shall be deemed to have resigned from all positions set forth in Section 1 hereof. 3. Compensation. For the services to be performed by Gisi for Zions Bancorp and Zions Arizona under this Agreement, Gisi shall be compensated in the following manner: (a) Salary and Bonus. (i) Salary. During the Term of Employment, Zions Arizona shall pay Gisi an initial base salary of $200,000 per annum. The amount of the salary hereunder shall be reviewed at least annually by the Executive Compensation Committee of the Board of Directors of Zions Bancorp and changes thereto may be made in accordance with the compensation policies of Zions Bancorp. Salary shall be payable in accordance with Zions Arizona's normal payroll practices with respect to executive personnel as in effect from time to time. (ii) Bonus. During the Term of Employment and beginning with the calendar year ending as of December 31, 1994, for each calendar year in which the Operating Income (as defined below) of Zions Arizona is not less than the Operating Income of the Bank for the calendar year ended December 31, 1993, Gisi shall be entitled to a bonus payment by Zions Arizona in the amount of $53,000. Any bonus payable hereunder by Zions Arizona for any calendar year shall be paid during the first calendar quarter of the succeeding calendar year. For the purposes of this Section 3(a)(ii), Operating Income shall have the meaning ascribed to it under generally accepted accounting principles but shall not (x) with respect to the Bank and Zions Arizona during any calendar year include any non-recurring gain or loss or any non-recurring income or expense, (y) with respect to the Bank or Zions Arizona for any calendar year, be reduced by the amount of performance bonus payments to management of the Bank owed for services rendered in the calendar year ending as of December 31, 1993 as described in Section 7.4(i) of the Agreement and Plan of Reorganization, or (z) with respect to the Bank or Zions Arizona in any calendar year be reduced by extraordinary expenses incurred in connection with the transaction contemplated in the Agreement and Plan of Reorganization (including, without limitation, any additions to the loan loss reserves required by Zions Bancorp pursuant to Section 4.9 of the Agreement and Plan of Reorganization or any professional fees or expenses). The amount of bonus herewith shall be reviewed at least annually by the Executive Compensation Committee of the Board of Directors of Zions Bancorp and changes thereto may be made in accordance with the compensation policies of Zions Bancorp. 5 (b) Value-Sharing Plan and Executive Stock Option Plan. During the Term of Employment, Gisi shall be entitled to participate in the executive value-sharing plan and the executive stock option plan of Zions Bancorp as in effect as of the Commencement Date or as may be modified or added to by Zions Bancorp from time to time, under such terms as may be applicable to officers of Zions Bancorp or Zions Arizona of Gisi's rank. (c) Employee Benefit Plans or Arrangements. During the Term of Employment, Gisi shall be entitled to participate immediately in all employee benefit plans of Zions Bancorp or Zions Arizona, as presently in effect or as they may be modified or added to by Zions Bancorp or Zions Arizona from time to time under such terms as may be applicable to officers of Zions Bancorp or Zions Arizona of Gisi's rank, including, without limitation, plans providing retirement benefits, medical insurance, life insurance, disability insurance, and accidental death or dismemberment insurance. (d) Automobile. During the Term of Employment, Zions Arizona will pay directly, or reimburse Gisi, for lease payments and reasonable, documented expenses of insurance, maintenance, garage and other out-of-pocket expenses (collectively, the "Automobile Expenses"), related to Gisi's continued use of such automobile as is provided, or whose expenses are paid for, by the Company or the Bank as of June 30, 1993 and shall, at the expiration of any applicable lease of such automobile during the Term of Employment, provide for the balance of the Terms of Employment, at its expense (including all applicable Automobile Expenses), a similar automobile, through, in its discretion, lease or otherwise. (e) Vacation and Sick Leave. During the Term of Employment, Gisi shall be entitled to paid annual vacation periods and sick leave in accordance with the policies of Zions Bancorp or Zions Arizona as in effect as of the Commencement Date or as may be modified by Zions Bancorp or Zions Arizona from time to time as may be applicable to officers of Zions Bancorp or Zions Arizona of Gisi's rank. (f) Country Club. During the Term of Employment, Zions Arizona shall pay for Gisi's continued membership in such country clubs whose membership fees are paid by the Company or the Bank as of June 30, 1993. (g) Withholding. All compensation to be paid to Gisi hereunder shall be subject to required withholding and other taxes. (h) Expenses. During the Term of Employment, Gisi shall be reimbursed for reasonable travel and other expenses incurred or paid by Gisi in connection with the performance of his services under this Agreement, upon presentation of expense statements or vouchers or such other supporting information as may from time to time be requested, in accordance with such policies of Zions Bancorp or Zions Arizona as are in effect as of the Commencement Date and as may be modified by Zions Bancorp or Zions Arizona under such terms as may be applicable to officers of Zions Bancorp or Zions Arizona of Gisi's rank. 4. Continued Vesting of Certain Stock Option Rights. During the Term of Employment, any options to acquire Company Common Stock (as that term is defined in the Agreement and Plan of Reorganization) conferred upon Gisi by the Company which are set forth as Schedule B hereof (the "Company Stock Options") shall be deemed to continue to vest at the times and in the amounts, and be exercisable during the periods of time, set forth in Schedule B for the purpose of determining the convertibility of the Company Stock Options into Zions Bancorp Stock (as that term is defined in the Agreement and Plan of Reorganization) pursuant to Sections 1.8 of the Agreement and Plan of Reorganization); provided that: (a) in the event that the Term of Employment is terminated for any of the reasons set forth in Section 2(a) hereof, the vesting of the Company Stock Options shall cease as of the Termination Date and Gisi (or his estate, as the case may be) shall be entitled to exercise such Company Stock Options which, in accordance with Schedule B hereof, are exercisable (but are as yet unexercised) on or before the Termination Date, at any time on or prior to the date of expiration of such Common Stock Options, in the manner permitted under Section 1.8 of the Agreement and Plan of Reorganization; and 6 (b) in the event that a change of control (as defined below) occurs with respect to Zions Bancorp, Zions Bancorp will use its best efforts to obtain for Gisi treatment of the Company Stock Options by any acquirer of Zions Bancorp which is comparable to that received by other members of executive management of Zions Bancorp from such acquirer with respect to any options for Zions Bancorp Stock to which they would be entitled under any plan or agreement. For purposes of this Section 4, the term "change of control" with respect to Zions Bancorp shall mean the occurrence of any of the following events: (i) a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A as in effect on the date hereof pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"); provided that, without limitation, such a change in control shall be deemed to have occurred at such time as any person hereafter becomes a "beneficial owner" (as defined in Rule 13d-3 under Exchange Act), directly or indirectly, of 25 percent or more of the combined voting power of Zions Bancorp's securities ordinarily having the right to vote at elections of directors (the "Voting Securities"); (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of Zions Bancorp cease for any reason to constitute at least a majority thereof for any reason other than retirement or resignation based solely upon personal circumstances; (iii)there shall be consummated (x) any consolidation or merger of Zions Bancorp in which Zions Bancorp is not the continuing or surviving corporation or pursuant to which Voting Securities thereof would be converted into cash, securities, or other property, other than a merger of Zions Bancorp in which the holders of Voting Securities immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger, or (y) any sale, lease, exchange, or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of Zions Bancorp, provided that any such consolidation, merger, sale, lease, exchange or other transfer consummated at the insistence of an appropriate banking regulatory agency shall not constitute a change in control; or (iv) approval by the shareholders of Zions Bancorp of any plan or proposal for the liquidation or dissolution of Zions Bancorp. 5. Confidential Business Information; Non-Competition. (a) Gisi acknowledges that certain business methods of Zions Bancorp and Zions Arizona, their creative techniques, customer lists, vendors, consultants and other persons who render service or provide material to Zions Bancorp or Zions Arizona, as well as certain other materials including marketing plans and the like are deemed by Zions Bancorp and Zions Arizona to be and are in fact confidential business information either of Zions Bancorp or Zions Arizona or are entrusted to Zions Bancorp or Zions Arizona by third parties. Accordingly, Gisi agrees that he shall not disclose or divulge to any third party, except as may be required by his duties hereunder, by law, regulation or order of a court or government authority or as directed by Zions Bancorp or Zions Arizona, nor shall he use to the detriment of Zions Bancorp or Zions Arizona or use in any business or on behalf of any business competitive with or substantially similar to any business of Zions Bancorp or Zions Arizona, any confidential business information obtained during the course of his employment by Zions Bancorp or Zions Arizona. The foregoing shall not be construed as restricting Gisi from disclosing such information to the employees of Zions Bancorp or Zions Arizona. 7 Such confidential information includes but is not limited to procedures, methods, sales relationships developed while in Zions Bancorp's or Zions Arizona's service, customers and their requirements, marketing plans, and compositions, ideas, plans and methods belonging to or related to the affairs of Zions Bancorp or Zions Arizona. In this regard, Zions Bancorp and Zions Arizona assert proprietary rights in all of their business information except for such information as is clearly in the public domain. Notwithstanding the foregoing, the parties hereto agree that information which would be generally known or available to persons skilled in Zions Bancorp's and Zions Arizona's fields shall be considered to be "clearly in the public domain" for the purposes of the preceding sentence. (b) Gisi hereby agrees that during the Term of Employment and for a period of two years commencing on the Termination Date following the termination of Gisi's employment pursuant to Sections 2(a)(i), (iv) or (v) hereof, Gisi will not (i) engage in the banking business other than on behalf of Zions Bancorp or Zions Arizona, within the Market Area (as hereinafter defined), (ii) directly or indirectly own, manage, operate, control, be employed by or provide management or consulting services in any capacity to any firm, corporation, or other entity (other than Zions Bancorp and Zions Arizona) engaged in the banking business in the Market Area or (iii) directly or indirectly solicit or otherwise intentionally cause any employee, officer or member of the Board of Directors of Zions Bancorp or Zions Arizona to engage in any action prohibited under (i) or (ii) of this Section 5(b); provided, that the ownership by Gisi as an investor of not more than five percent of the outstanding shares of stock of any corporation whose stock is listed for trading on any securities exchange or is traded in the over-the-counter market (or the shares of any investment company as defined in Section 3 of the Investment Company Act of 1940, as amended), shall not in itself constitute a violation of Gisi's obligations under this Section 5(b). As used herein, "Market Area" shall mean Maricopa County and Pima County in Arizona and any county or metropolitan area in which Zions Arizona operates a branch or other facility for the transaction of business. The Market Area as of any date subsequent to the Term of Employment shall be determined as of the last day of the Term of Employment. (c) Gisi recognizes that irreparable injury shall result to Zions Bancorp and Zions Arizona in the event of a breach of any of the provisions of this Section 5 (the "Designated Provisions") and that Zions Bancorp and Zions Arizona will have no adequate remedy at law with respect thereto. Accordingly, in the event of a material breach of any Designated Provision, and in addition to any other legal or equitable remedy Zions Bancorp and Zions Arizona may have, Zions Bancorp and Zions Arizona shall be entitled to injunctive relief (including, without limitation, specific performance) to restrain the violation or breach thereof by Gisi or any affiliates, agents or any other persons acting for or with Gisi in any capacity whatsoever. (d) It is the desire and intent of the parties that the provisions of this Section 5 shall be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any particular provision of this Section 5 shall be adjudicated to be invalid or unenforceable, such provision shall be deemed amended to delete therefrom the portion thus adjudicated to be invalid or unenforceable, such deletion to apply only with respect to the operation of such provision in the particular jurisdiction in which such adjudication is made. In addition, should any court determine that the provisions of this Section 5 shall be unenforceable with respect to scope, duration or geographic area, such court shall be empowered to substitute, to the extent enforceable, provisions similar hereto or other provisions so as to provide to Zions Bancorp and Zions Arizona, the fullest extent permitted by applicable law, the benefits intended by this Section 5. 6. Life Insurance. Zions Bancorp or Zions Arizona in its discretion, may apply for and procure as owner and for its own benefit, insurance on the life of Gisi, in such amount and in such form as Zions Bancorp or Zions Arizona may choose. Gisi shall have no interest whatsoever in any such policy or policies but, at the request of Zions Bancorp or Zions Arizona, shall submit to medical examinations and supply such information and execute such documents as may reasonably be required by the insurance company or companies to which Zions Bancorp or Zions Arizona has applied for insurance. 8 7. Representation and Warranty. Gisi represents and warrants to Zions Bancorp and Zions Arizona that the execution, delivery and performance of this Agreement by Gisi will not result in or constitute a breach of or conflict with any term, covenant, condition or provision of any commitment, contract or other agreement or instrument, including, without limitation, any other employment agreement, to which Gisi is or has been a party. 8. Notices. All notices, consents, waivers, or other communications which are required or permitted hereunder shall be in writing and deemed to have been duly given if delivered personally or by messenger, transmitted by telex or telegram, by express courier, or sent by registered or certified mail, return receipt requested, postage prepaid. All communications shall be addressed to the appropriate address of each party as follows: If to Zions Bancorp or Zions Arizona: Zions Bancorporation 1380 Kennecott Building Salt Lake City, Utah 84133 Attention: Mr. Harris H. Simmons President and Chief Executive Officer With a required copy to: Brian D. Alprin, Esq. Metzger, Hollis, Gordon & Mortimer 1275 K Street, N.W., Suite 1000 Washington, D.C. 20005 If to Gisi: 7101 North Mercer Springs Tucson, Arizona 85718 All such notices shall be deemed to have been given on the date delivered, transmitted, or mailed in the manner provided above. 9. Assignment. No party may assign this Agreement or any rights or obligations hereunder without the consent of the other parties hereto. 10. Governing Law. This Agreement shall be construed and governed in all respects by the law applicable to contracts made and to be performed in the State of Arizona. 11. Entire Agreement. This Agreement constitutes the entire understanding between Zions Bancorp, Zions Arizona and Gisi relating to the subject matter hereof. Any previous agreements or understandings between the parties hereto regarding the subject matter hereof are merged into and superseded by this Agreement. Neither this Agreement nor any provisions hereof can be modified, changed, discharged or terminated except by an instrument in writing signed by the party against whom any waiver, change, discharge or termination is sought. 12. Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provision held to be invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and 9 (b) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any section of this Agreement containing any such provisions held to be invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. 13. Costs of Litigation. In the event litigation is commenced to enforce any of the provisions hereof, or to obtain declaratory relief in connection with any of the provisions hereof, the prevailing party shall be entitled to recover reasonable attorney's fees. In the event this Agreement is asserted in any litigation as a defense to any liability, claim, demand, action, cause of action or right asserted in such litigation, the party prevailing on the issue of that defense shall be entitled to recovery of reasonable attorney's fees. 14. Headings. All headings are for convenience only and shall not limit or define the text hereof. 10 IN WITNESS WHEREOF, the parties hereto executed or caused this Agreement to be executed as of the day and year first above written. [The remainder of this page is intentionally left blank.] 11 ZIONS BANCORPORATION Attest: /s/ Gary L. Anderson By: /s/ Harris H. Simmons - ----------------------------------- --------------------------------------- Gary L. Anderson Harris H. Simmons Secretary President and Chief Executive Officer ZIONS FIRST NATIONAL BANK OF ARIZONA By: /s/ Roy W. Simmons - ----------------------------------- --------------------------------------- [ ] Roy W. Simmons [ ] Chairman /s/ John J. Gisi - ----------------------------------- --------------------------------------- John J. Gisi 12 SCHEDULE A SCHEDULE OF AFFILIATIONS Person or Entity Capacity - ---------------- -------- American Southwest Mortgage Investment Corporation Director Tucson Country Club Director 13 SCHEDULE B SCHEDULE OF COMPANY STOCK OPTIONS
Number of Date First Date of Company Exercisable Expiration Shares Price - --------------------- ---------------------- ---------------------- ---------------------- 11-26-89 11-26-99 8,000 $ 4.26 11-26-90 11-26-99 8,000 4.26 11-26-91 11-26-99 8,000 4.26 11-26-92 11-26-99 8,000 4.26 11-26-93 11-26-99 8,000 4.26 11-26-94 11-26-99 8,000 4.26 11-26-95 11-26-99 8,000 4.26 11-26-96 11-26-99 8,000 4.26 11-26-97 11-26-99 8,000 4.26 11-26-98 11-26-99 8,000 4.26 ---------------------- 80,000 6-6-92 6-6-97 4,000 $ 4.50 6-6-93 6-6-97 4,000 4.50 6-6-94 6-6-97 4,000 4.50 6-6-95 6-6-97 4,000 4.50 6-6-96 6-6-97 4,000 4.50 ---------------------- 20,000 ---------------------- Total 100,000 ======================
EX-10.14 3 SENIOR MNGT. VALUE SHARING PLAN 1 EXHIBIT 10.14 Zions Bancorporation Senior Management Value Sharing Plan Award Period: 1995-1998 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. 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 adjustments possible if higher levels of AEPS are achieved. The Committee may also designate other conditions and adjustment factors to ensure the Plan's integrity and consistency with shareholder and depositor interests. 2 The 1995-1998 Award Period formula for the determination of total Award Funds is as follows: * Minimum AROE: 14.00% * Minimum AEPS: $20.76 Funding of 1995-1998 Award Fund Pool:
Cumulative AROE Award Funds - ----------- ---------------------- 14% $ 0 15% 325,000 16% 785,000 17% 1,289,000 18% 1,787,000 19% 2,515,000 20% 3,044,000 21% 3,759,000 22% 4,616,000
Interim amounts shall be calculated by interpolation. The basic Award Fund amount would be further modified by multiplying the cumulative Award Funds by 1+[(AEPS - $20.76)/17], with a maximum AEPS figure of $26.37 (resulting in a 33% maximum upward adjustment in the Award Funds. For the 1995-1998 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, 1998, 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. 3 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 (unless upon early retirement the participant becomes employed by an entity which competes with Zions Bancorporation), 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. 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 necessary in calculating Award Funds for any Award Period. The Board may also, at its sole discretion, alter the terms of the Plan at any time during an Award Period. This document is intended to provide a guideline for the creation and distribution of incentive compensation. Nothing herein creates a contractual obligation binding on the Board, and no Participant shall have any legal rights with respect to an Award until such Award is distributed. 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. 4 APPENDIX ZIONS BANCORPORATION VALUE-SHARING PLAN: 1995-98 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 + $.0271 per basis point of the amount over 14.00% 15.00% 15.99% $2.71 + $.0384 per basis point of the amount over 15.00% 16.00% 16.99% $6.54 + $.0419 per basis point of the amount over 16.00% 17.00% 17.99% $10.74 + $.0416 per basis point of the amount over 17.00% 18.00% 18.99% $14.89 +$.0607 per basis point of the amount over 18.00% 19.00% 19.99% $20.95 + $.0441 per basis point of the amount over 19.00% 20.00% 20.99% $25.37 + $.0596 per basis point of the amount over 20.00% 21.00% 21.99% $31.33 + $.0714 per basis point of the amount over 21.00% 22.00% $38.47
Aggregate E. P. S. ("AEPS") Modifier: The basic Participation Unit value determined above shall be adjusted as follows: If AEPS for 1995-98 is equal to or less than $20.76, the Participation Units shall have no value. If AEPS is greater than $20.76, the basic amount determined based on AROE shall be multiplied by a factor of: 1+[(AEPS-$20.76)/17] (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 $24.03, each Participation Unit would be worth $18.91. EX-21 4 ZIONS BANCORPORATION AND SUBSIDIARIES 1 EXHIBIT 21 ZIONS BANCORPORATION AND SUBSIDIARIES AT DECEMBER 31, 1995
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 5 CONSENT OF INDEPENDENT AUDITORS 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. 33-58801) and related Prospectus pertaining to the Zions Bancorporation Dividend Reinvestment and Common Stock Purchase Plan, (ii) Registration Statement (Form S-8 No. 33-58845) and related Prospectus pertaining to Zions Bancorporation Employee Stock Savings Plan, and (iii) Registration Statement (Form S-8 No. 33-58855) and related Prospectus pertaining to Zions Bancorporation Employee Investment Savings Plan, of our report dated January 22, 1996, relating to the consolidated balance sheets of Zions Bancorporation and subsidiaries as of December 31, 1995 and 1994, 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, 1995, which report appears in this annual report on Form 10-K for the year ended December 31, 1995. 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. 114, "Accounting by Creditors for Impairment of a Loan," as amended by Statement No. 118, "Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosures," 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, 1995, 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, 1995. We also consent to the incorporation by reference in Zions Bancorporation's Registration Statement (Form S-8 No. 33-58845) of Zions Bancorporation Employee Stock Savings Plan of our report dated March 8, 1996, relating to the statements of net assets available for benefits of Zions Bancorporation Employee Stock Savings Plan as of December 31, 1995 and 1994, 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, 1995, which report appears in this annual report on Form 11-K for the year ended December 31, 1995. We also consent to the incorporation by reference in Zions Bancorporation's Registration Statement (Form S-8 No. 33-58855) of Zions Bancorporation Employee Investment Savings Plan of our report dated March 8, 1996, relating to the statements of net assets available for benefits of Zions Bancorporation Employee Investment Savings Plan as of December 31, 1995 and 1994, 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, 1995, which report appears in this annual report on Form 11-K for the year ended December 31, 1995. KPMG Peat Marwick LLP Salt Lake City, Utah March 18, 1996 EX-27 6 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1995 AND RELATED CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1995 INCLUDED IN THE COMPANY'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 YEAR DEC-31-1995 DEC-31-1995 418067 34580 652671 63706 398200 1078583 1093934 2806956 67555 5620646 4097114 880247 72376 142403 0 0 73477 355029 5620646 264302 166181 0 430483 128510 203389 227094 2800 (148) 188730 122278 81328 0 0 81328 5.53 5.53 4.39 7438 5232 249 0 67018 8372 5860 67555 11081 0 56474
EX-99.1 7 FORM 11-K ZIONS EMPLOYEE STOCK SAVINGS PLAN 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, 1995 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. No changes were made in the Plan during the year 1995. 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 1,676 participating employees in the Plan on December 31, 1995. 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 seven 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 - --------------------------------- ---------------------------------------------------------------------- Clark B. Hinckley, Chairman Senior Vice President of Zions Bancorporation 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, 1995 and 1994 Statements of Changes in Net Assets Available for Benefits - Years ended December 31, 1995, 1994, and 1993 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, 1995 and 1994, 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, 1995. These financial statements are the responsibility of the plan 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 administrator, 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, 1995 and 1994, and the changes in net assets available for benefits for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedules of Assets Held for Investment Purposes and Reportable Transactions for the year ended December 31, 1995, are presented for the purpose of additional analysis and are not a required part of the basic financial statements but are supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplemental schedules have been subjected to the auditing procedures applied in the audit of the basic 1995 financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. KPMG Peat Marwick LLP March 8, 1996 5 ZIONS BANCORPORATION EMPLOYEE STOCK SAVINGS PLAN Statements of Net Assets Available for Benefits December 31, 1995 and 1994
1995 1994 ----------- ----------- Assets: Cash $ 8,206 -- Investments, at market value: Zions Bancorporation common stock (approximate cost of $10,229,000 in 1995 and $8,035,000 in 1994) 24,271,693 9,994,955 Short-term investments 20,783 17,032 ----------- ----------- 24,300,682 10,011,987 Contributions receivable: Employees 79,972 88,524 Zions Bancorporation 39,986 44,262 Dividends receivable 124,005 83,582 Interest receivable 379 349 ----------- ----------- Total assets 24,545,024 10,228,704 ----------- ----------- Liabilities: Accounts payable -- 669 Excess contribution refunds 68,272 15,816 ----------- ----------- Total liabilities 68,272 16,485 ----------- ----------- Net assets available for benefits $24,476,752 10,212,219 =========== ===========
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, 1995, 1994, and 1993
1995 1994 1993 ------------ ------------ ------------ Additions (deductions) to net assets attributed to: Net appreciation (depreciation) in market value of investment in Zions Bancorporation common stock $ 13,215,084 (410,576) (516,233) Dividends 410,080 294,770 200,330 Interest 5,239 3,343 1,543 ------------ ------------ ------------ 13,630,403 (112,463) (314,360) ------------ ------------ ------------ Contributions: Employees 2,191,527 1,964,913 1,806,956 Zions Bancorporation 1,062,640 982,463 903,477 ------------ ------------ ------------ 3,254,167 2,947,376 2,710,433 ------------ ------------ ------------ Total additions 16,884,570 2,834,913 2,396,073 Deductions from net assets attributed to benefits paid directly to participants 2,620,037 845,885 525,906 ------------ ------------ ------------ Net increase 14,264,533 1,989,028 1,870,167 Net assets available for benefits: Beginning of year 10,212,219 8,223,191 6,353,024 ------------ ------------ ------------ End of year $ 24,476,752 10,212,219 8,223,191 ============ ============ ============
See accompanying notes to financial statements. 7 ZIONS BANCORPORATION EMPLOYEE STOCK SAVINGS PLAN Notes to Financial Statements December 31, 1995, 1994, and 1993 (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, 1995 and 1994, there were 1,676 participants and 1,700 participants, respectively, in the Plan. (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. The maximum amount a participant may contribute to the Plan in a calendar year, in conjunction with the Employee Investment Savings Plan, is $9,240 for 1995. (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. 8 2 ZIONS BANCORPORATION EMPLOYEE STOCK SAVINGS PLAN Notes to Financial Statements (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 (IRS) 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 was filed with the IRS in March 1995. 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, 1995 and 1994, investment in common stock of the Company consisted of 302,451 and 278,605 shares, respectively. (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 Bancorp. The following summarizes the Plan's amended areas: (a) Participant Contributions Participants can elect either a pre-tax 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. 9 ZIONS BANCORPORATION EMPLOYEE STOCK SAVINGS PLAN Notes to Financial Statements Item 27a - Schedule of Assets Held for Investment Purposes December 31, 1995
Approxi- Market Units held Description mate cost value - ------------------ -------------------------------------------------------------------- ----------------- -------------- 302,451 Zions Bancorporation common stock $ 10,229,000 24,271,693 20,783 Short-term investments 20,783 20,783
Item 27d - Schedule of Reportable Transactions Year ended December 31, 1995
Shares purchased Cost --------------- --------------- Purchase of investments: Description: Zions Bancorporation 76,008 $ 3,684,087 Shares Market distributed value --------------- --------------- Distributions of investments: Description: Zions Bancorporation 51,880 $ 2,620,037
EX-99.2 8 FORM 11-K - ZION'S EMPLOYEE INVEST. 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, 1995 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. No changes were made in the Plan during the year 1995. 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 1995 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 1,687 participating employees in the Plan on December 31, 1995. 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 - --------------------------------- --------------------------------------------------------------- Clark B. Hinckley, Chairman Senior Vice President of Zions Bancorporation 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 As elected by participants, approximately seventy-six percent of the assets of the Plan are invested in securities of the Company, approximately thirteen percent in the Fidelity mutual fund, approximately nine 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, 1995 and 1994 Statements of Changes in Net Assets Available for Benefits - Years ended December 31, 1995, 1994, and 1993 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, 1995 and 1994, 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, 1995. These financial statements are the responsibility of the plan 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 administrator, 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, 1995 and 1994, and the changes in net assets available for benefits for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedules of Assets Held For Investment Purposes and Reportable Transactions for the year ended December 31, 1995, are presented for the purpose of additional analysis and are not a required part of the basic financial statements but are supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplemental schedules have been subjected to the auditing procedures applied in the audit of the basic 1995 financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. KPMG Peat Marwick LLP March 8, 1996 5 ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN Statements of Net Assets Available for Benefits December 31, 1995 and 1994
1995 1994 ----------- ----------- Assets: Cash $ 4,141 27,876 Investments, at market value: Zions Bancorporation common stock (approximate cost $11,002,757 in 1995 and $10,769,000 in 1994) 37,962,263 18,361,112 Fidelity mutual fund (approximate cost of $6,069,309 in 1995 and $4,192,000 in 1994) 6,699,731 4,374,929 Money market fund 4,348,941 3,605,624 Fixed income fund (approximate cost of $1,092,604 in 1995 and $689,000 in 1994) 1,099,843 611,682 Short-term investments 15,875 94,017 ----------- ----------- 50,130,794 27,075,240 Contributions receivable: Employees 57,845 73,114 Zions Bancorporation 12,172 14,954 Participant loans receivable 1,357,794 1,426,014 Dividends receivable 193,950 154,242 Interest receivable 18,357 16,902 Due from (to) Zions Bancorporation 2,439 (3,677) ----------- ----------- Total assets 51,773,351 28,756,789 Liabilities: Accounts payable 1,118 2,058 Excess contribution refunds 140,969 53,374 ----------- ----------- Total liabilities 142,087 55,432 ----------- ----------- Net assets available for benefits $51,631,264 28,701,357 =========== ===========
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, 1995, 1994, and 1993
1995 1994 1993 ----------- ----------- ----------- Additions to net assets attributed to: Investment income: Net appreciation (depreciation) in market value of investments $22,676,536 (718,781) (118,055) Dividends 826,171 692,270 564,557 Capital gain distributions 645,849 121,543 198,053 Interest 312,332 244,470 169,448 ----------- ----------- ----------- 24,460,888 339,502 814,003 ----------- ----------- ----------- Contributions: Employees 1,639,255 1,614,117 1,326,267 Zions Bancorporation 341,868 336,444 271,519 Plan rollovers 1,050,327 368,721 196,725 ----------- ----------- ----------- 3,031,450 2,319,282 1,794,511 ----------- ----------- ----------- Total additions 27,492,338 2,658,784 2,608,514 Deductions from net assets - benefits paid directly to participants 4,562,431 1,802,449 1,447,853 ----------- ----------- ----------- Net increase 22,929,907 856,335 1,160,661 Net assets available for benefits: Beginning of year 28,701,357 27,845,022 26,684,361 ----------- ----------- ----------- End of year $51,631,264 28,701,357 27,845,022 =========== =========== ===========
See accompanying notes to financial statements. 7 ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN Notes to Financial Statements December 31, 1995, 1994, and 1993 (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 investments 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, 1995 and 1994, there were 1,687 participants and 1,155 participants, respectively, in the Plan. 8 2 ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN Notes to Financial Statements (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 1995. (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 (IRS) 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 was filed with the IRS in March 1995. 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. 9 3 ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN Notes to Financial Statements (8) Investments The investments in common stock of the Company and the Fidelity mutual fund, consist of 473,050 and 511,808 shares, and 324,599 and 243,864 shares, respectively, at December 31, 1995 and 1994. The investment in the fixed income fund consists of 50,942 and 31,224 shares at December 31, 1995 and 1994, respectively. The net unrealized appreciation (depreciation) in market value for each of the years in the three-year period ended December 31, 1995, in comparison to the market value at the beginning of each year is as follows:
Investment 1995 1994 1993 ---------- ----------- ----------- ----------- Zions Bancorporation common stock $21,983,923 (601,351) (222,329) Fidelity mutual fund 625,633 (56,687) 122,428 Fixed income fund 66,980 (60,743) (18,154) ----------- ----------- ----------- Net appreciation (depreciation) in market value $22,676,536 (718,781) (118,055) =========== =========== ===========
(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 Bancorp. 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. 10 4 ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN Notes to Financial Statements (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. Loan terms may not exceed five years and must be secured by the participant's account. Loan repayment is made through payroll deduction. (10) Financial Information by Fund Type Financial information by fund type as of, and for the years ended December 31, 1995 and 1994, are as follows: Statement of Net Assets Available for Benefits by Fund Type December 31, 1995
Zions Bancorp- oration Fidelity Partici- common mutual Money Fixed pant stock fund market income loans Total ----------- ----------- ----------- ----------- ----------- ----------- Assets: Cash $ 1,110 1,785 1,246 -- -- 4,141 Investments, at market value: Zions Bancorporation common stock 37,962,263 -- -- -- -- 37,962,263 Fidelity mutual fund -- 6,699,731 -- -- -- 6,699,731 Money market fund -- -- 4,348,941 -- -- 4,348,941 Fixed income fund -- -- -- 1,099,843 -- 1,099,843 Short-term investments 15,875 -- -- -- -- 15,875 ----------- ----------- ----------- ----------- ----------- ----------- 37,979,248 6,701,516 4,350,187 1,099,843 -- 50,130,794
11 5 ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN Notes to Financial Statements (10) Financial Information by Fund Type (continued)
Zions Bancorp- oration Fidelity Partici- common mutual Money Fixed pant stock fund market income loans Total ----------- ----------- ----------- ----------- ----------- ----------- Contributions receivable: Employees $ 22,448 25,300 7,244 2,853 -- 57,845 Zions Bancorporation 4,619 5,356 1,647 550 -- 12,172 Participant loans receivable 16,960 2,634 4,451 1,238 1,332,511 1,357,794 Dividends receivable 193,950 -- -- -- -- 193,950 Interest receivable 126 45 18,164 22 -- 18,357 Due from Zions Bancorporation -- -- -- 2,439 -- 2,439 ----------- ----------- ----------- ----------- ----------- ----------- Total assets 38,217,351 6,734,851 4,381,693 1,106,945 1,332,511 51,773,351 Liabilities: Accounts payable -- -- -- 1,118 -- 1,118 Excess contribution refunds 50,567 67,562 11,975 10,865 -- 140,969 ----------- ----------- ----------- ----------- ----------- ----------- Total liabilities 50,567 67,562 11,975 11,983 -- 142,087 ----------- ----------- ----------- ----------- ----------- ----------- Net assets available for benefits $38,166,784 6,667,289 4,369,718 1,094,962 1,332,511 51,631,264 =========== =========== =========== =========== =========== ===========
12 6 ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN Notes to Financial Statements (10) Financial Information by Fund Type (continued) 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 investments 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 =========== =========== =========== =========== =========== ===========
13 7 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, 1995
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 in market value of investments $ 21,983,923 625,633 -- 66,980 -- 22,676,536 Dividends 690,743 83,833 -- 51,595 -- 826,171 Capital gain distributions -- 645,183 -- 666 -- 645,849 Interest 70,994 12,278 226,088 2,972 -- 312,332 ------------ ------------ ------------ ------------ ------------ ------------ 22,745,660 1,366,927 226,088 122,213 -- 24,460,888 ------------ ------------ ------------ ------------ ------------ ------------ Contributions: Employees 630,280 698,809 231,990 78,176 -- 1,639,255 Zions Bancorporation 126,185 148,775 54,166 12,742 -- 341,868 Plan rollovers 598,919 164,479 260,825 26,104 -- 1,050,327 ------------ ------------ ------------ ------------ ------------ ------------ 1,355,384 1,012,063 546,981 117,022 -- 3,031,450 ------------ ------------ ------------ ------------ ------------ ------------ Principal loan payments 527,843 60,499 96,658 10,522 (695,522) -- ------------ ------------ ------------ ------------ ------------ ------------ Total additions 24,628,887 2,439,489 869,727 249,757 (695,522) 27,492,338 Deductions from net assets attributed to: Benefits paid directly to participants (2,793,647) (787,468) (846,207) (135,107) -- (4,562,431) Loans disbursed (327,740) (135,212) (126,318) (12,750) 602,020 -- ------------ ------------ ------------ ------------ ------------ ------------ Total deductions $ (3,121,387) (922,680) (972,525) (147,857) 602,020 (4,562,431) ------------ ------------ ------------ ------------ ------------ ------------
14 8 ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN Notes to Financial Statements (10) Financial Information by Fund Type (continued)
Zions Bancorp- oration Fidelity Partici- common mutual Money Fixed pant stock fund market income loans Total ------------ ------------ ------------ ------------ ------------ ------------ Quarterly transfers $ (1,984,548) 762,242 839,181 383,125 -- -- ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) 19,522,952 2,279,051 736,383 485,025 (93,502) 22,929,907 Net assets available for benefits: Beginning of year 18,643,830 4,388,239 3,633,335 609,937 1,426,014 28,701,357 ------------ ------------ ------------ ------------ ------------ ------------ End of year $ 38,166,782 6,667,290 4,369,718 1,094,962 1,332,512 51,631,264 ============ ============ ============ ============ ============ ============
15 9 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 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) ----------- ----------- ----------- ----------- ----------- -----------
16 10 ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN Notes to Financial Statements (10) Financial Information by Fund Type (continued)
Zions Bancorp- oration Fidelity Partici- common mutual Money Fixed pant stock fund market income loans Total ------------ ------------ ------------ ------------ ------------ ------------ 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 ============ ============ ============ ============ ============ ============
17 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, 1993
Zions Bancorp- oration Fidelity common mutual Money Fixed stock fund market income Loans Total ----------- ----------- ----------- ----------- ----------- ----------- Additions to net assets attributed to: Investment income: Net appreciation (depreciation) in market value of investments $ (222,329) 122,428 -- (18,154) -- (118,055) Dividends 500,811 36,822 -- 26,924 -- 564,557 Capital gain distributions -- 184,807 -- 13,246 -- 198,053 Interest 62,156 8,654 98,475 163 -- 169,448 ----------- ----------- ----------- ----------- ----------- ----------- 340,638 352,711 98,475 22,179 -- 814,003 ----------- ----------- ----------- ----------- ----------- ----------- Contributions: Employees 444,853 535,485 303,659 42,270 -- 1,326,267 Zions Bancorporation 73,559 120,059 71,756 6,145 -- 271,519 Plan rollovers 97,314 23,002 61,671 14,738 -- 196,725 ----------- ----------- ----------- ----------- ----------- ----------- 615,726 678,546 437,086 63,153 -- 1,794,511 ----------- ----------- ----------- ----------- ----------- ----------- Principal loan payments 181,877 23,474 24,383 480 (230,214) -- ----------- ----------- ----------- ----------- ----------- ----------- Total additions 1,138,241 1,054,731 559,944 85,812 (230,214) 2,608,514 Deductions from net assets attributed to: Benefits paid directly to participants (954,245) (127,202) (351,331) (28) (15,047) (1,447,853) Loans disbursed (583,465) (81,030) (143,291) (3,460) 811,246 -- ----------- ----------- ----------- ----------- ----------- ----------- Total deductions $(1,537,710) (208,232) (494,622) (3,488) 796,199 (1,447,853) ----------- ----------- ----------- ----------- ----------- -----------
18 12 ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN Notes to Financial Statements (10) Financial Information by Fund Type (continued)
Zions Bancorp- oration Fidelity common mutual Money Fixed stock fund market income Loans Total ------------ ------------ ------------ ------------ ------------ ------------ Quarterly transfers $ (3,504,699) 1,251,016 1,810,813 442,870 -- -- ------------ ------------ ------------ ------------ ------------ ------------ Net increase (decrease) (3,904,168) 2,097,515 1,876,135 525,194 565,985 1,160,661 Net assets available for benefits: Beginning of year 22,872,740 1,428,078 1,608,305 -- 775,238 26,684,361 ------------ ------------ ------------ ------------ ------------ ------------ End of year $ 18,968,572 3,525,593 3,484,440 525,194 1,341,223 27,845,022 ============ ============ ============ ============ ============ ============
19 ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN Item 27a - Schedule of Assets Held for Investment Purposes December 31, 1995
Approx- Market Description imate cost value ------------------------------------------------ --------------- -------------- Units held - ----------------- 473,050 Zions Bancorporation Common Stock $ 11,002,757 37,962,263 324,599 Fidelity Mutual Fund 6,069,309 6,699,731 50,942 Fixed Income Fund 1,092,604 1,099,843 --------------- -------------- Total 18,164,670 45,761,837 --------------- --------------
Face value - ---------- 4,348,941 Money Market Fund 4,348,941 4,348,941 15,875 Short-term investments 15,875 15,875 --------------- -------------- 4,364,816 4,364,816 --------------- -------------- Total investments $ 22,529,486 50,126,653 =============== ==============
20 ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN Item 27d - Schedule of Reportable Transactions December 31, 1995
Shares/units purchased Cost ---------------- -------------- Purchase of investments: Description: Zions Bancorporation 56,507 $ 2,587,823
Shares Gain/ sold Cost (loss) -------------- -------------- -------------- Sale of investments: Description: Zions Bancorporation 40,507 $ 1,029,743 911,265
Shares Market distributed value -------------- -------------- Distributions of investments: Description: Zions Bancorporation 58,894 $ 2,619,171
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