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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20459
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1994
OR
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
----------- -----------
COMMISSION FILE NUMBER 0-2610
ZIONS BANCORPORATION
(Exact name of Registrant as specified in its charter)
UTAH 87-0227400
(State of other jurisdiction of (Internal Revenue Service Employer
incorporation or organization) Identification Number)
1380 Kennecott Building
Salt Lake City, Utah 84133
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (801) 524-4787
Securities registered pursuant to Section 12(b) of the act: None
Securities registered pursuant to Section 12(g) of the act:
Common Stock - without par value
- -------------------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
------- ------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
----
Aggregate Market Value of Common Stock Held by Nonaffiliates at
February 27, 1995 ..................................................$446,847,000
Number of Common Shares Outstanding at February 27, 1995.......14,562,970 Shares
Documents Incorporated by Reference:
Definitive Proxy Statement (See Part III, Item 10, Item 11, Item 12, and
Item 13).
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ZIONS BANCORPORATION
ANNUAL REPORT FOR 1994 ON FORM 10-K
TABLE OF CONTENTS
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PAGE
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PART I
Item 1. Business 1
Item 2. Properties 13
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Executive Officers of the Registrant 14
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 15
Item 6. Selected Consolidated Financial Data 16
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 17
Item 8. Financial Statements and Supplementary Data 41
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 68
PART III
Item 10. Directors and Executive Officers of the Registrant 68
Item 11. Executive Compensation 68
Item 12. Security Ownership of Certain Beneficial Owners and Management 68
Item 13. Certain Relationships and Related Transactions 68
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 68
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PART I
ITEM 1. BUSINESS
Zions Bancorporation (the Parent) is a multibank holding company organized
under the laws of Utah in 1955, registered under the Bank Holding Company Act
of 1956, as amended. Zions Bancorporation and its subsidiaries (the Company),
is the second largest bank holding company headquartered in Utah and provides a
full range of banking and related services primarily in Utah, Nevada, and
Arizona. Its principal subsidiaries are banking subsidiaries which include
Zions First National Bank, the second largest commercial banking organization
in the state of Utah, Nevada State Bank, the fifth largest commercial bank in
Nevada, and National Bank of Arizona the fifth largest commercial bank in
Arizona.
The Company's business and the businesses of many of its larger borrowers are
primarily concentrated in the state of Utah. Consequently, the Company's
results of operations and financial condition are dependent upon general trends
in the Utah economy and real estate markets.
The Company has focused in recent years on maintaining strong liquidity,
risk-based capital and cash flow positions and on developing strong internal
controls. An increasing focus is currently being placed on strengthening the
Company's retail banking business, as well as its small- and medium-sized
business lending, residential mortgage and investment activities, and
increasing the proportion of fee income in its total revenue mix. The
Company's general operating objectives include enhancing the Company's market
position in Utah, Nevada, and Arizona through in-market acquisitions of smaller
depository institutions, and through the continued development of the Company's
present lines of business.
The Company is committed to improving the communities it serves now and in the
years to come. Employees, as active concerned citizens, perform acts of service
and goodwill to heighten a standard of living and boost community pride and
morale. The Company engages in a variety of loan programs which benefit low to
moderate income individuals; ranging from housing and business loans to
automobile loans.
At December 31, 1994, the Company had assets of $4.9 billion, loans of $2.4
billion, deposits of $3.7 billion, and shareholders' equity of more than $.3
billion. A more detailed discussion concerning the Company's financial
condition is contained in Part II of this report.
The Banking Subsidiaries
The banks provide a wide variety of commercial and retail banking and
mortgage-lending financial services. Commercial loans, lease financing, cash
management, lockbox, customized draft processing, and other special financial
services are provided for business and other commercial banking customers. A
wide range of personal banking services are provided to individuals, including
bankcard, student and other installment loans and home equity credit line
loans, checking accounts, savings accounts, time certificates of various types
and maturities, trust services and safe deposit facilities. In addition,
direct deposit of payroll, social security and various other government checks
is offered. Automated teller machines provide 24-hour access and availability
to customers' accounts and to many consumer banking services through statewide,
regional, and nationwide ATM networks.
Zions First National Bank in Utah has developed special packages of financial
services designed to meet the financial needs of particular market niches,
including the Premier Account for those 50 years and older and the Student
Account. The Bank has also established a Private Banking group to service the
financial needs of wealthy individuals; an Executive Banking program to service
the needs of corporate executives of commercial clients, and an Affinity
program which offers discounted financial services to employees of commercial
accounts on a group basis. Zions Bank has also developed a series of products
geared to the lower-income customer, including the Flex Loan (a low-income
personal loan), several low-income housing programs, and the Reddi-Savings
account-- a savings account with unlimited ATM access for those not qualifying
for or desiring a checking account.
Both Zions First National Bank and Nevada State Bank have established trust
divisions which offer clients a variety of fiduciary services ranging from the
administration of estates and trusts to the management of funds held under
pension and profit sharing plans. They also offer custodian, portfolio, and
management services. The Trust Division of Zions First National Bank also acts
as fiscal and payment agent, transfer agent, registrar, and trustee under
corporate and trust indentures for corporations, governmental bodies, and
public authorities.
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Zions First National Bank is a registered dealer in, and underwriter of, general
obligations of state and municipal governments, and a primary dealer in
obligations of the United States government and several federal agencies.
Zions First National Bank also provides correspondent banking services such as
cash letter processing, wire services, federal funds facilities, and loan
participations.
Zions First National Bank's International Banking Department issues letters of
credit and handles foreign exchange transactions for customers, but it does not
take a trading position in foreign exchange. Zions First National Bank's Grand
Cayman branch accepts Eurodollar deposits from qualified customers, and places
deposits with foreign banks and foreign branches of other U.S. banks. Zions'
banking subsidiaries, however, do not engage in any foreign lending.
The Company's commercial banking operations generated net income of $65,661,000
in 1994, a .6% increase over the $65,263,000 earned in 1993. Results for 1993
have been restated to reflect the pooling-of-interests accounting treatment
afforded the acquisition of National Bancorp of Arizona during the first quarter
of 1994. Income from commercial banking operations was negatively affected in
1994 by rising interest rates and narrowing margins, particularly in the
indirect installment contract business. Rising interest rates adversely
affected the sale of fixed income securities, reducing revenues at the recently
acquired Discount Corporation of New York. Rising rates were also manifest in
the cost of deposits, as competitors' balance sheets became more fully
loaned-up, creating pressure to generate greater deposit growth. Competitive
conditions were also intense in the indirect automobile receivables business.
Although the volume of such receivables originated increased, margins were
greatly reduced from levels previously experienced.
During the year a major effort was initiated to reduce the cost structure in the
Company's banking operations. A major focus of this initiative is to eliminate
redundant operations in the three subsidiary banks, and to centralize functions
which are transparent to customers while at the same time maintaining a great
deal of decision-making capability at the local management level. At year-end
1994, staffing in the lead bank, excluding the mortgage operations, had been
reduced by 57 full-time equivalent employees, or 3.4% below staffing levels a
year earlier. An early retirement program was made available to certain
employees subsequent to year-end 1994, with approximately 40 employees
participating. Further cost-reduction projects are underway in 1995.
Average federal funds sold and securities purchased under agreements to resell
increased 31.4% or $208,136,000 in 1994, and average securities
held-to-maturity, available-for-sale and in trading accounts increased 27.9% or
$336,701,000. Average interest-bearing deposits held at other banks and other
money market investments decreased $108,185,000 or 81.7% during the year. Total
average loans and lease receivables, net of unearned discount, increased 16.0%
or $354,310,000, despite the fact that the Company securitized receivables in
the gross amount of $703,013,000 during 1994.
Core deposits continued to experience strong growth, as the total volume of such
accounts rose $339,049,000 or 11.1%. The components of this growth included an
increase of $111,723,000 or 15.3% in average demand deposits, an increase of
$92,161,000 or 14.2% in savings deposits, an increase of $167,103,000 or 14.9%
in average money market account balances, and a decrease of $31,938,000 in time
deposits under $100,000. Total average deposits increased 12.5% or $398,935,000
to $3,595,409,000 in 1994.
Average federal funds purchased and securities sold under agreements to
repurchase increased 40.0% or $309,817,000 in 1994, while securities sold short
increased 165.6% or $114,963,000. Advances from the Federal Home Loan Bank of
Seattle and other borrowings decreased 20.0% or $36,016,000. Total
shareholders' equity allocated to commercial banking operations increased 18.5%
or $54,467,000 in 1994.
The ATM network was further expanded in 1994, with 40 additional machines being
deployed. The total number of ATM's in service at year-end 1994 was 215, a 23%
increase over the prior year-end totals. The ATM network includes installations
at branch offices, stores, shopping centers, resort areas, hotels, airports,
and university campuses.
Utah
Zions First National Bank, founded in 1873, has 86 offices located throughout
the state of Utah, plus one foreign office, for a total of 87 banking offices.
Zions First National Bank's net income was $48,203,000, a decline of 8.8% from
the $52,867,000 earned in 1993. The decline was a result of a $321,000 decline
in net revenue, a $6,437,000 increase in noninterest expenses and a $1,435,000
reduction in benefit from 1993 accounting changes, offset by a $926,000 decline
in provision for loan losses and a $2,603,000 reduction in the income tax
provision.
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Several initiatives were launched in 1994 to increase the convenience of banking
for consumers and businesses. Zions First National Bank was the first Utah bank
to aggressively promote point-of-sale debit card services throughout Utah. The
bank also expanded its telephone service center to provide access to a wide
variety of banking services via telephone. The Company's Reddi-Response system
now handles approximately 10,000 phone calls per day. Zions Bank also became
the first Utah-based institution to introduce Electronic Data Interchange, a
package of data transmission services for corporate customers which facilitates
the electronic processing of purchase orders, invoices, and payment information.
Zions First National Bank successfully completed the first phase of a pilot
program in conjunction with the National Association of Certified Development
Companies to underwrite SBA 504 loans through selected local CDC's throughout
the United States. An initial $43.7 million pool of commercial first mortgage
loans originated under the program was securitized in 1994, and it is
anticipated that the program will be significantly expanded in 1995.
During 1994, Zions First National Bank organized a Small Business Investment
Corporation to provide early-stage capital, primarily for technology companies
located in the Intermountain West. The fund, operating as Wasatch Venture Fund,
completed ten investments during its first year of operation.
In 1994, two new branches were opened in Layton and Eden, Utah, and during the
fourth quarter, the pending merger transaction of Zions Bancorporation and First
Western Bancorporation was announced. The transaction is expected to be
consummated during the second quarter of 1995, and will mark the Company's
initial entry into the southeastern area of the state. The acquisition will
provide $37 million in assets and the addition of three banking offices operated
by First Western Bancorporation's banking subsidiary, First Western National
Bank, in Moab, Monticello and Blanding, Utah.
Nevada
Nevada State Bank, a state-chartered Federal Deposit Insurance Corporation
("FDIC")-insured institution, with its main office in downtown Las Vegas, opened
two new grocery store banking centers in Summerlin and Pahrump, Nevada, during
1994, expanding its banking offices to 21 in Nevada. Net income at Nevada State
Bank, after the amortization of purchase premium, increased 30.9% to $6,140,000
in 1994 as compared to $4,691,000 in 1993. Nevada State Bank's earnings
increase was attributable to a $3,890,000 increase in net revenue, offset by a
$646,000 increase in noninterest expenses, a $410,000 increase in the loan loss
provision, a $1,032,000 increase in income taxes and a $353,000 reduction in the
net benefit produced by accounting changes in 1993.
Arizona
During 1994, the Company substantially increased its presence in the Arizona
market. The acquisition of National Bancorp of Arizona was completed during the
first quarter, and Rio Salado Bancorp was acquired during the second quarter.
The banking operations of these two companies were merged with Zions First
National Bank of Arizona, and the resulting bank, with 10 offices, is operating
under the National Bank of Arizona name. At year-end, the bank had over $700
million in assets, and over $36 million in net revenue, making it the fifth
largest commercial bank in Arizona. Despite the disruptions caused by the
merger of these three organizations, National Bank of Arizona achieved a 46.9%
increase in net income, with 1994 earnings of $11,318,000 as compared with 1993
net income of $7,705,000. The increase resulted from a net revenue increase of
$11,163,000, a reduction in loan loss provision of $301,000, offset by increases
in noninterest expenses and taxes of $4,758,000 and $2,599,000, respectively,
and a reduction in income from 1993 accounting changes of $494,000. The 1994
net income of National Bank of Arizona produced a strong return on average
shareholders' equity of 24.3%. National Bank of Arizona's results have been
restated to reflect the pooling-of-interest acquisition of that operation in the
first quarter of 1994 and the results also reflect the acquisition of Rio Salado
Bancorp, using the purchase accounting method, during the second quarter of
1994. The two acquisitions also provide a foundation for increased activity on
the part of Zions Bancorporation's nonbank subsidiaries in the Arizona market.
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Other Subsidiaries
The Company conducts various other bank-related business activities through
subsidiaries owned by the Parent and wholly-owned subsidiaries of Zions First
National Bank. Zions Credit Corporation engages in lease origination and
servicing operations in Utah, Nevada, and Arizona. Zions Life Insurance Company
underwrites as reinsurer credit-related life and disability insurance. Zions
Insurance Agency, Inc., operates an insurance brokerage business which
administers various credit-related insurance programs in the Company's
subsidiaries and sells general lines of insurance. The Company's insurance
subsidiaries offer customers a full range of insurance products through licensed
agents. The products include credit life products, collateral protection
products, life policies, homeowners policies, property and casualty policies,
and commercial business owner type policies. Zions Data Service Company
provides data processing services to all subsidiaries of the Company. Zions
Mortgage Company, a subsidiary of Zions First National Bank, conducts a mortgage
banking operation in Utah, Nevada, and Arizona. Zions Investment Securities,
Inc., also a subsidiary of the Bank, provides discount investment brokerage
services on a nonadvisory basis to both commercial and consumer customers.
Personal investment officers employed by the discount brokerage subsidiary in
many larger offices provide customers with a wide range of investment products,
including municipal bonds, mutual funds and tax-deferred annuities.
Zions Credit Corporation generated $63,140,000 in new lease volume in 1994, a
17.1% increase over the 1993 volume. An additional $15,722,000 in leases was
brokered to third parties. Average gross lease receivable and conditional sales
contracts serviced by Zions Credit Corporation decreased 3.7% to $129,134,000 in
1994 from $134,029,000 in 1993.
Zions Insurance Agency, Inc. and Zions Life Insurance Company produced combined
net income of $1,070,000, a 92.4% increase over the $556,000 generated in 1993.
The increased income was largely attributable to increased volume in personal
lines of insurance and improved performance in the sale of mortgage life and
other credit life products.
Zions Data Service Company engaged in a variety of significant projects in 1994.
Most notable was the installation of a new deposit and account analysis system
which will simplify the development of new products and provide greater
flexibility in meeting customer requirements. A new trust system was also
installed, providing state-of-the-art operational capabilities. A loan
management system was developed using relational database technology. The new
system will provide managers with a much greater capability to view the full
range of a customer's account relationships and to easily develop customized
management reports. Zions Data Service Company also began the installation of a
wide area network to support improved data and voice communications between the
Company's various branches and departments. The new network will improve
response times and allow the Company to significantly leverage its substantial
investment in personal computer equipment and software.
Zions Mortgage Company experienced a sharp reduction in mortgage originations as
a result of an adverse interest rate environment in 1994. Total retail mortgage
origination volume decreased 47.4% to $382,800,000 in 1994 from $727,500,000 in
1993. In reaction to the decline in activity, staffing was reduced 27% between
March and December, 1994. Higher interest rates resulted in a loss on loan
sales of $3,445,000, including a downward mark-to-market adjustment of
$1,700,000 in a portfolio of adjustable rate mortgages, as compared to a gain on
loan sales of $2,035,000 in 1993. The loss on loan sales was partially offset
by a gain in the amount of $2,516,000 from the sale of mortgage servicing
rights. Zions Mortgage Company experienced a net loss of $319,000 in 1994, as
compared to net income of $530,000 in 1993. Inasmuch as Zions Mortgage Company
is a direct subsidiary of Zions First National Bank, its results of operations
are included in the banking operations results.
In a very difficult year for securities sales, Zions Investment Securities, Inc.
nevertheless contributed $730,000 in pretax income, rent income and revenue
sharing to the Company's banking operations. Net income, which is included in
the banking operations results, was $193,000, a 37.5% reduction from the
$309,000 earned in 1993.
1994 Economic Trends
The Intermountain region continued to exhibit a healthy economy during 1994,
though the pace of economic growth slowed somewhat in the Company's primary
market area of Utah. Employment growth in Utah totaled 6.2% in 1994, down from
6.9% in 1993, while residential construction slowed 13% between the first and
fourth quarters of 1994. Commercial construction remains strong, driven by low
vacancy rates. Although it appears that Utah may lose approximately 2,000
defense jobs over the next few years as a result of downsizing at Defense Depot
Ogden and Dugway Proving Grounds, the future of the state's largest employer,
Hill Air Force Base, currently appears secure, inasmuch as the Department of
Defense has not recommended the facility's closure to the Base Closure and
Realignment Commission.
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Nevada's employment growth slowed to 4.2% in 1994 from 7.2% in 1993 as a result
of the completion of several major hotel construction projects. The state's
net gaming revenues - an indicator of tourist activity - rose 16% in the fourth
quarter of 1994 as compared to the year-earlier period.
Employment grew 4.9% in Arizona in 1994 compared to 4.1% in 1993. There has
been a substantial reduction in office vacancy rates in Phoenix and Tucson in
recent months, with the result that suburban office vacancy rates are now well
below national averages.
The Federal Reserve System moved aggressively during 1994 to slow the rate of
growth in the nation's economy. The result was a two- and-a-half percentage
point increase in the prime rate, and commensurate increases in intermediate and
long-term rates, producing the most difficult fixed-income market in several
decades. The increase in rates significantly affected mortgage lending
activity, as retail mortgage originations declined. The rise in interest rates
also slowed retail and institutional investment sales.
Supervision and Regulation
Bank holding companies and banks are extensively regulated under both federal
and state law. The information contained in this section summarizes portions of
the applicable laws and regulations relating to the supervision and regulation
of Zions Bancorporation and its subsidiaries. These summaries do not purport to
be complete, and they are qualified in their entirety by reference to the
particular statutes and regulations described. Any change in applicable law or
regulation may have a material effect on the business and prospects of Zions
Bancorporation and its subsidiaries.
Bank Holding Company Regulation
Zions Bancorporation is a bank holding company within the meaning of the Bank
Holding Company Act and is registered as such with the Federal Reserve Board.
Under the current terms of that Act, activities of Zions Bancorporation, and
those of companies which it controls or in which it holds more than 5% of the
voting stock, are limited to banking or managing or controlling banks or
furnishing services to or performing services for its subsidiaries, or any other
activity which the Federal Reserve Board determines to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto. In
making such determinations, the Federal Reserve Board is required to consider
whether the performance of such activities by a bank holding company or its
subsidiaries can reasonably be expected to produce benefits to the public such
as greater convenience, increased competition or gains in efficiency that
outweigh the possible adverse effects, such as undue concentration of resources,
decreased or unfair competition, conflicts of interest or unsound banking
practices.
Bank holding companies, such as Zions Bancorporation, are required to file with
the Federal Reserve Board certain reports and information and are required to
obtain prior approval of the Board to engage in an new activity or to acquire
more than 5% of any class of voting stock of any company. Generally, no
application to acquire shares of a bank located outside that state in which the
operations of the applicant's banking subsidiaries were principally conducted on
the date it became subject to the Act may be approved by the Federal Reserve
Board unless such acquisition is specifically authorized by the laws of the
state in which the bank whose shares are to be acquired is located. In the
meantime, most state have specifically authorized the acquisition of banks
located in those states by out-out-state companies, in many cases subject to
various restrictions.
The Federal Reserve Board has authorized the acquisition and control by bank
holding companies of savings and loan associations and certain other savings
institutions without regard to geographic restrictions applicable to acquisition
of shares of a bank.
The Riegle-Neal Interstate Branching and Efficiency Act of 1994 ("Riegle-Neal
Act") permits, beginning one year after enactment and subject to approval by the
Federal Reserve Board, bank holding companies to acquire either control of, or
substantial assets of, a bank located outside the bank holding company's home
state. These acquisitions are subject to limitations which are mentioned in the
discussion on "Interstate Banking". The Riegle-Neal Act reaffirms the right of
states to segregate and tax separately incorporated subsidiaries of a bank or
bank holding company. The Riegle-Neal Act also affects interstate branching and
merger.
The Federal Reserve Board is authorized to adopt regulations affecting various
aspects of bank holding companies. Pursuant to the general supervisory
authority of the Bank Holding Company Act and directives set forth in the
International Lending Supervision Act of 1983, the Federal Reserve Board has
adopted capital adequacy guidelines prescribing both risk-based capital and
leverage ratios.
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Regulatory Capital Requirements
Risk-Based Capital Guidelines
The Federal Reserve Board established risk-based capital guidelines for bank
holding companies effective March 15, 1989. The guidelines define Tier I
Capital and Total Capital. Tier I Capital consists of common and qualifying
preferred shareholders' equity and minority interests in equity accounts of
consolidated subsidiaries, less goodwill and 50% (and in some cases up to 100%)
of investment in unconsolidated subsidiaries. Total Capital consists of Tier I
Capital plus qualifying mandatory convertible debt, perpetual debt, certain
hybrid capital instruments, certain preferred stock not qualifying as Tier I
Capital, subordinated and other qualifying term debt up to specified limits, and
a portion of the allowance for credit losses, less investments in unconsolidated
subsidiaries and in other designated subsidiaries or other associated companies
at the discretion of the Federal Reserve Board, certain intangible assets, a
portion of limited-life capital instruments approaching maturity and reciprocal
holdings of banking organizations' capital instruments. The Tier I component
must constitute at least 50% of qualifying Total Capital.
Risk-based capital ratios are calculated with reference to risk-weighted assets,
which include both on-balance sheet and off-balance sheet exposures. The
risk-based capital framework contains four risk-weighted categories for bank
holding company assets -- 0%, 20%, 50%, and 100%. Zero percent risk-weighted
assets include, inter alia, cash and balances due from Federal Reserve Banks,
and obligations unconditionally guaranteed by the U.S. government or its
agencies. Twenty percent risk-weighted assets include, inter alia, claims on
U.S. Banks and obligations guaranteed by U.S. government sponsored agencies as
well as general obligations of states or other political subdivisions of the
United States. Fifty percent risk-weighted assets include, inter alia, loans
fully secured by first liens on one to-four-family residential properties,
subject to certain conditions. All assets not included in the foregoing
categories are assigned to the 100% risk-weighted category, including loans to
commercial and other borrowers. As of year-end 1992, the minimum required ratio
for qualifying Total Capital became 8%, of which at least 4% must consist of
Tier I Capital. At December 31, 1994, the Company's Tier I and Total Capital
ratios were 11.81% and 14.96%, respectively.
The current risk-based capital ratio analysis establishes minimum supervisory
guidelines and standards. It does not evaluate all factors affecting an
organization's financial condition. Factors which are not evaluated include (i)
overall interest rate exposure; (ii) liquidity, funding, and market risks; (iii)
quality and level of earnings; (iv) investment or loan portfolio concentrations;
(v) quality of loans and investments; (vi) the effectiveness of loan and
investment policies; (vii) certain risks arising from nontraditional activities;
and (viii) management's overall ability to monitor and control other financial
and operating risks, including the risks presented by concentrations of credit
and nontraditional activities. The capital adequacy assessment of federal bank
regulators will, however, continue to include analyses of the foregoing
considerations and in particular, the level and severity of problem and
classified assets.
Minimum Leverage Ratio
On June 20, 1990, the Federal Reserve Board adopted new capital standards and
leverage capital guidelines that include a minimum leverage ratio of 3% Tier I
Capital to total assets (the "leverage ratio"). The leverage ratio is used in
tandem with the final risk-based ratio of 8% that took effect at the end of
1992.
The Federal Reserve Board has emphasized that the leverage ratio constitutes a
minimum requirement for well-run banking organizations having well-diversified
risk, including no undue interest rate exposure, excellent asset quality, high
liquidity, good earnings, and a composite rating of 1 under the Interagency Bank
Rating System. Banking organizations experiencing or anticipating significant
growth, as well as those organizations which do not exhibit the characteristics
of a strong, well-run banking organization described above, will be required to
maintain strong capital positions substantially above the minimum supervisory
levels without significant reliance on intangible assets. Furthermore, the
Federal Reserve Board has indicated that it will consider a "tangible Tier I
Capital Leverage Ratio" (deducting all intangibles) and other indices of capital
strength in evaluating proposals for expansion or new activities. At December
31, 1994, the Company's Tier I leverage ratio was 6.24%.
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The Federal Reserve Board has adopted amendments to its capital guidelines,
effective as of December 31, 1994, under which bank holding companies and state
member banks must deduct from Tier I Capital in calculating risk-based capital
and leverage ratios net unrealized holding losses on available-for-sale equity
securities (i.e., those securities a bank does not have the positive interest
and ability to hold to maturity, but which it has no intent to trade as a part
of a trading account). Implementation of this amendment to the Federal Reserve
Board's capital guidelines has not resulted in a material increase in the
capital requirement applicable to it. The Federal Reserve Board has also
adopted a final rule amending its capital guidelines effective April 1, 1995,
limiting the amount of certain deferred tax assets that may be included by bank
holding companies and member banks in Tier I Capital for calculation of
risk-based capital and leverage ratios. Zions Bancorporation does not
anticipate that implementation of this amendment to the Federal Reserve Board's
capital guidelines will result in a material increase in the capital
requirements applicable to it. The Federal Reserve Board has also recently
published proposed amendments to its risk-based capital guidelines which, if
adopted in their current form, would generally increase the amount of capital
required to be carried against certain long-term derivative contracts; the
proposal also recognizes the effect of certain bilateral netting arrangements in
reducing potential future exposure under these contracts. Until the proposed
amendments are adopted in final form by the Federal Reserve Board, Zions
Bancorporation cannot predict their effect upon the capital requirements
applicable to it.
Other Issues and Developments Relating to Regulatory Capital
Pursuant to such authority and directives set forth in the International Lending
Supervision Act of 1983, the Comptroller, the FDIC, and the Federal Reserve
Board have issued regulations establishing the capital requirements for banks
under federal law. The regulations, which apply to Zions Bancorporation's
banking subsidiaries, establish minimum risk-based and leverage ratios which are
substantially similar to those applicable to the Company. As of December 31,
1994, the risk-based and leverage ratios of each of Zions Bancorporation's
banking subsidiaries exceeded the minimum requirements.
On December 19, 1991, the Federal Deposit Insurance Corporation Improvement Act
of 1991 ("FDICIA") was signed into law. FDICIA subjects banks to significantly
increased regulation and supervision. Among other things, FDICIA requires
federal bank regulatory authorities to revise, prior to June 19, 1993, their
risk-based capital guidelines to ensure that those standards take account of
interest rate risk, concentrations of credit, and the risk of nontraditional
activities, as well as reflect the actual performance and risk of multifamily
mortgages.
Pursuant to the Riegle Community Development and Regulatory Improvement Act of
1994 (the "Riegle-Neal Act"), signed into law on September 23, 1994, such
revisions by the federal banking agencies to their risk-based capital guidelines
must also take account of the size and activities of insured institutions and
not cause undue reporting burdens to them. The manner of implementation by the
FDIC of this requirement mandated by FDICIA, as modified by the Riegle Act, is
described below:
(i) In 1993 and 1994, the Federal Reserve Board, the Comptroller and the
FDIC adopted rules which assigned a 50% risk weight for loans that
are fully secured by multifamily residential property and do not
exceed 80% of the property's value. To be eligible for the 50% risk
weight, the property's annual net operating income must be 120% of
the amount to the annual debt service and the loan must be amortized
within 30 years. The principal and interest payments must be made on
a timely basis for one year before the 50% risk weight may be applied
and the loan must provide for principal repayment beginning within
seven years of the date of the loan. Implementation of these rules
have not had a material adverse effect upon the capital requirements
applicable to Zions Bancorporation or upon those applicable to its
bank subsidiaries.
(ii) The federal banking agencies have adopted rules, effective January
17, 1995, under which they will take account of risks from
concentrations of credit (in specific countries, region, industries
and loan types) and from nontraditional activities in their analyses
of capital adequacy of state nonmember banks. Pursuant to the rule,
in such institutions are required to identify, monitor and control,
significant exposures from concentrations of credit and from
nontraditional activities, and hold additional capital above the
regulatory minimums to reflect such risks. The level of such risks,
as well as an institution's ability to identify, monitor and control
them, will be considered by the federal banking agencies in
determining the capital adequacy of the institution. Zions
Bancorporation does not anticipate the implementation of this rule
will result in an increase in the capital requirements applicable to
it or upon those applicable to its bank subsidiaries.
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<PAGE> 10
(iii) On September 14, 1993, the Federal Reserve Board, the Comptroller and
the FDIC published in the Federal Register a proposed measure of
interest rate risk exposure which measures such exposure as the
effect that a specified change in market interest rates would have on
the net economic value of banks. Under this proposal, banks
(excluding certain "low risk" institutions as defined therein) would
calculate and report estimated changes in their net economic value
resulting from the effect of specified changes in market interest
rates on their assets, liabilities and off-balance sheet positions,
utilizing either a supervisory model or approved internal models. The
proposal sets forth two alternative methods for utilizing such
results in assessing institutions' capital adequacy for interest rate
risk exposure. One method would require institutions to hold capital
equal to the dollar decline in their net economic value exceeding a
supervisory threshold of one percent of total assets; the other
method provides for an agency assessment of institutions' capital
needs for interest rate risk in light of both the level of measured
interest rate risk exposure and qualitative factors. However, the
proposal is still under consideration. Because the final terms of
the regulators' implementation of this requirement of FDICIA are not
yet known, Zions Bancorporation cannot predict the effect the
inclusion of interest rate risk factors in the risk-based capital
rules of the federal banking agencies will have upon capital
requirements applicable to it or its bank subsidiaries.
FDICIA amended Section 38 of the Federal Deposit Insurance Act to require the
federal banking regulators to take "prompt corrective action" in respect of
banks that do not meet minimum capital requirements and imposes certain
restrictions upon banks which meet minimum capital requirements but are not
"well-capitalized" for purposes of FDICIA. FDICIA establishes five capital
tiers: "well- capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized," and "critically undercapitalized."
Implementing regulations adopted by the federal banking agencies in September
1992 and effective on December 19, 1992 define the capital categories for banks
which will determine the necessity for prompt corrective actions by the federal
banking agencies. A bank may be placed in a capitalization category that is
lower than is indicated by its capital position if it receives an unsatisfactory
examination rating with respect to certain matters.
Under the regulations, a "well-capitalized" institution has a minimum total
capital to total risk-weighted assets ratio of at least 10 percent, a minimum
Tier I capital to total risk-weighted assets ratio of at least 6 percent, a
minimum leverage ratio of at least 5 percent, and is not subject to any written
order, agreement, or directive; an "adequately capitalized" institution has a
total capital to total risk-weighted assets ratio of at least 8 percent, a Tier
I capital to total risk-weighted assets ratio of at least 4 percent, and a
leverage ratio of at least 4 percent (3 percent if given the highest regulatory
rating and not experiencing significant growth), but does not qualify as
"well-capitalized. An "undercapitalized" institution fails to meet any one of
the three minimum capital requirements. A "significantly undercapitalized"
institution has a total capital to total risk-weighted assets ratio of less than
6 percent, a Tier I capital to total risk-weighted assets ratio of less than 3
percent or a Tier I leverage ratio of less than 3 percent. A "critically
undercapitalized" institution has a Tier I leverage ratio of 2 percent or less.
Under certain circumstances, a "well-capitalized," "adequately capitalized," or
"undercapitalized" institution may be required to comply with supervisory
actions as if the institution was in the next lowest capital category.
Failure to meet capital guidelines could subject a bank to a variety of
restrictions and enforcement remedies. Under FDICIA, all insured banks are
generally prohibited from making any capital distributions and from paying
management fees to persons having control of the bank where such payments would
cause the bank to be undercapitalized. Holding companies of significantly
undercapitalized, critically undercapitalized and certain undercapitalized banks
may be required to obtain the approval of the Federal Reserve Board before
paying capital distributions to their shareholders. Moreover, a bank that is
not well-capitalized is generally subject to various restrictions on "pass
through" insurance coverage for certain of its accounts and is generally
prohibited from accepting brokered deposits and offering interest rates on any
deposits significantly higher than the prevailing rate in its normal market area
or nationally (depending upon where the deposits are solicited). Such banks and
their holding companies are also required to obtain regulatory approval prior to
their retention of senior executive officers. Banks which are classified
undercapitalized, significantly undercapitalized or critically undercapitalized
are required to submit capital restoration plans satisfactory to their federal
banking regulator and guaranteed within stated limits by companies having
control of such banks (i.e., to the extent of the lesser of five percent of the
institution's total assets at the time it became undercapitalized or the amount
necessary to bring the institution into compliance with all applicable capital
standards as of the time the institution fails to comply with its capital
restoration plan, until the institution is adequately capitalized on average
during each of four consecutive calendar quarters), and are subject to
regulatory monitoring and various restrictions on their operations and
activities, including those upon asset growth, acquisitions, branching and entry
into new lines of business and may be required to divest themselves of or
liquidate subsidiaries under certain circumstances. Holding companies of such
institutions may be required to divest themselves of such institutions or divest
themselves of or liquidate nondepository affiliates under certain circumstances.
Critically undercapitalized institutions are also prohibited from making
payments of principal and interest on debt subordinated to the claims of general
creditors and are generally subject to the mandatory appointment of a
conservator or receiver.
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<PAGE> 11
Other Regulations
FDICIA requires the federal banking agencies to adopt regulations prescribing
standards for safety and soundness of insured banks and their holding companies,
including standards relating to internal controls, information systems, internal
audit systems, loan documentation, credit underwriting, interest rate exposure,
asset growth, compensation, fees and benefits, asset quality, earnings and stock
valuation, as well as other operational and managerial standards deemed
appropriate by the agencies. Upon a determination by a federal banking agency
that an insured bank has failed to satisfy any such standard, the bank will be
required to file an acceptable plan to correct the deficiency. If the bank
fails to submit or implement an acceptable plan, the federal banking agency may,
and in some instances must, issue an order requiring the institution to correct
the deficiency, restrict its asset growth, increase its ratio of tangible equity
to assets, or impose other operating restrictions. The Riegle Act modified this
provision of FDICIA to authorize the federal banking agencies to prescribe
safety and soundness standards by regulation or by guidelines for all insured
depository institutions, afford the federal banking agencies flexibility to
establish asset quality, earnings and stock valuation standards that they
determine to be appropriate and eliminate the requirement that such standards
apply to depository institution holding companies. On February 2, 1995, the
Federal Reserve Board agreed to seek (and Zions Bancorporation believes the
other federal banking agencies will soon seek) public comment on proposed
guidelines applicable to state member banks setting forth asset quality,
earnings and stock valuation standards, final guidelines with respect to all
other standards required under FDICIA and a final rule establishing deadlines
and procedures for submission and review of safety and soundness compliance
plans and issuance of compliance orders. In the view of the Federal Reserve
Board, the proposed and final standards, respectively, do not represent a change
in existing policies but, instead, formalize fundamental standards already
applied by the agencies. In general, the standards establish objectives of
proper operations and management while leaving the specific methods for
achieving those objectives to each institution. The final rule implements the
requirements of FDICIA regarding the submission and review of safety and
soundness plans by institutions failing to meet the prescribed standards and the
issuance of orders where institutions have failed to submit acceptable
compliance plans or implement and accepted plan in any material respect. Zions
Bancorporation does not believe that implementation of the final guidelines and
rule will have a material adverse effect upon the operations or earnings of its
bank subsidiaries. Until final guidelines prescribing asset quality, earnings
and stock valuation standards are adopted by the federal banking agencies, Zions
Bancorporation cannot predict the effect of their application to its operations
or earnings or the operations or earnings of its subsidiaries.
FDICIA also contains provisions which, among other things, restrict investments
and activities as principal by state nonmember banks to those eligible for
national banks, impose limitations on deposit account balance determinations for
the purpose of the calculation of interest, and require the federal banking
regulators to prescribe, implement, or modify standards, respectively, for
extensions of credit secured by liens on interests in real estate or made for
the purpose of financing construction of a building or other improvements to
real estate, loans to bank insiders, regulatory accounting and reports, internal
control reports, independent audits, exposure on interbank liabilities,
contractual arrangements under which institutions receive goods, products or
services, deposit account-related disclosures and advertising, as well as to
impose restrictions on Federal Reserve discount window advances for certain
institutions and to require that insured depository institutions generally be
examined on-site by federal or state personnel at least every 12 months.
In connection with an institutional failure or FDIC rescue of a financial
institution, the Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA") grants to the FDIC the right, in many situations, to charge its
actual or anticipated losses against commonly controlled depository institution
affiliates of the failed or rescued institution (although not against a bank
holding company itself). FIRREA also explicitly allows bank holding companies
to acquire healthy as well as troubled savings associations (including savings
and loan associations and federal savings banks) under Section 4 of the Bank
Holding Company Act. In connection with this authorization, the Federal Reserve
Board has been instructed not to impose so-called "tandem operating
restrictions" which might otherwise limit the joint marketing or joint
operations of affiliated banks and thrifts beyond those restrictions otherwise
embodied in law. FIRREA also relieves bank holding companies that own savings
associations of certain duplicative or intrusive savings and loan holding
company regulations and, in some instances, allows savings associations that
have been acquired by bank holding companies to merge into affiliated banks or
become banks.
On October 28, 1992, the Housing and Community Development Act of 1992 was
enacted which, inter alia, modified prior law regarding the establishment of
compensation standards by the federal banking agencies, deposit account
disclosures, loans to bank insiders and real estate appraisal requirements; made
certain technical corrections to FDICIA; imposed new sanctions upon banks
convicted of money laundering or cash transaction reporting offenses; and
restricted the methods banks may employ to calculate and refund prepaid interest
on mortgage refinancing and consumer loans. In addition, on October 23, 1992,
the Depository Institutions Disaster Relief Act of 1992 was enacted, affording
the federal banking agencies limited discretion to provide relief from certain
regulatory requirements to depository institutions doing business or seeking to
do business in an emergency or major disaster area. Zions Bancorporation does
not currently expect that the implication of these laws will have a material
adverse effect upon its operations and business or upon the operations and
business of its subsidiaries.
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<PAGE> 12
On August 10, 1993, the President signed into law the Omnibus Budget
Reconciliation Act of 1993 which contains provisions that, inter alia, affect
the amortization of intangible assets by banks, require securities dealers
(including banks) to adopt mark-to-market accounting to calculate income taxes,
transfer surplus funds from the Federal Reserve System to the Department of the
Treasury, authorize the United States government to originate student loans and
establish a preference for depositors in liquidations of FDIC-insured banks.
Zions Bancorporation does not currently expect that the implementation of these
laws will have a material adverse effect upon its earnings or capital position
or the earnings or capital position of its subsidiaries.
The Riegle Act, in addition to enacting measures intended to increase credit
available to businesses in distressed communities (by providing incentives to
lenders to provide credit in those communities), remove impediments to the
securitization of small business loans, improve the National Flood Insurance
Program and strengthen enforcement against money laundering, mandates
modifications to federal laws and regulations affecting banks and bank holding
companies in an attempt to reduce regulatory and administrative burdens on these
entities (including the modifications to requirements mandated by FDICIA noted
previously). These changes include, inter alia, requirements that federal
banking agencies consider the burden and benefits which may affect insured
depository institutions and their customers when establishing the effective
dates of certain new regulations or imposing certain new administrative
compliance requirements, that certain new federal regulations affecting
depository institutions and amendments to existing regulations take effect on
the first day of a calendar quarter and that federal banking agencies streamline
regulatory requirements and eliminate duplicative filings and coordinate
examinations of financial institutions. The Riegle Act also provides for
simplified bank holding company formation and bank and bank holding company
merger application procedures, modified insider lending rules and capital rules
applicable to assets transferred with recourse. Because all provisions of the
Riegle Act have not been implemented, Zions Bancorporation cannot predict the
effect of these changes upon its operations or upon those of its subsidiaries.
The Community Reinvestment Act (CRA) requires banks to help serve the credit
needs in their communities, including credit to low and moderate income
individuals and geographies. Should the Company or its subsidiaries fail to
adequately serve the community, there are penalties which might be given.
Corporate applications to expand branches, relocate, add subsidiaries and
affiliates, and merge with or purchase other financial institutions could be
denied. Community groups are encouraged through the regulation to protest
applications for any bank subject to this regulation if they feel that the bank
is not serving the credit needs of the community in which it serves. The
Company and its subsidiaries have been deemed by regulators in the past to be
adequately serving its communities. A proposed revision to CRA is now being
considered by the regulators. Zions Bancorporation cannot predict the effect
that proposed changes, if adopted, would have on its operations and upon those
of its subsidiaries.
The nature of the banking and financial services industry, as well as banking
regulation, may be further affected by various legislative and regulatory
measures currently under consideration. Such measures include, inter alia,
legislation designed to permit increased affiliations between commercial and
financial firms (including securities firms) and federally-insured banks, reduce
regulatory burdens on financial institutions, impose a moratorium on the
application of federal regulations and establish standards for federal
supervision of derivative activities of insured institutions. It is impossible
to predict whether or in what form these proposals may be adopted in the future
and, if adopted, what the effect of their adoption will be on Zions
Bancorporation or its subsidiaries.
There are many other regulations requiring detailed compliance procedures which
increase costs and require additional time commitments of employees. Regulators
and the Congress continue to put in place rules and laws to protect consumers,
which have a cumulative additional impact on the cost of doing business. At
this point, management cannot completely assess how much earnings might be
reduced from these consumer laws.
Deposit Insurance Assessments
The insured bank subsidiaries of Zions Bancorporation are required to pay
semi-annual deposit insurance assessments to the Bank Insurance Fund ("BIF").
FDICIA requires the FDIC to establish a schedule to increase the reserve ratio
of the BIF to 1.25% of insured deposits (or such higher ratio as the FDIC
determines to be justified for any year by circumstances raising a significant
risk of substantial future losses) over a 15-year period, and to increase the
assessment rate on banks, if necessary, to achieve that ratio. FDICIA also
requires the FDIC to establish a risk-based assessment system for deposit
insurance which will take into account the probability that the deposit
insurance fund will incur a loss with respect to an institution, the likely
amount of such loss and the revenue needs of the deposit insurance fund.
10
<PAGE> 13
The FDIC revised, effective October 1, 1993, its deposit insurance regulation to
establish a permanent risk-based assessment system. Each insured bank's
insurance assessment rate is determined by the risk assessment classification
into which it has been placed by the FDIC. The FDIC places each insured bank in
one of nine risk assessment classifications based upon its level of capital and
supervisory evaluations by its regulators: "well-capitalized" banks, "adequately
capitalized" banks or "less-than-adequately capitalized" banks, with each
category of banks divided into subcategories of banks which are either
"healthy," of "supervisory concern" or of "substantial supervisory concern." An
eight-basis point spread exists between the assessment rate established for the
highest and lowest risk classification, so that banks classified as strongest by
the FDIC are subject to a rate of .23% (the same rate as under the previous
flat-rate assessment system) while those classified as weakest by the FDIC are
subject to a rate of .31% (with intermediate rates of .26,%, .29%, and .30%).
The FDIC is authorized to increase assessment rates beyond those currently in
effect if, in the judgment of its Board of Directors, the condition of the BIF
so requires. The FDIC also possesses authority to impose special assessments
from time to time. Implementation of the permanent risk-based deposit insurance
assessment system has not had a material adverse impact on the financial
condition or results of operations of Zions Bancorporation or upon those of its
bank subsidiaries.
Premiums paid to the FDIC have been an increasing burden on bank earnings. In
recognition of this trend, the FDIC may, when the BIF reaches a target ratio of
1.25% of insured deposits, reduce insurance premiums. The Board of Directors of
the FDIC is currently considering a proposal under which the assessment rate
payable by the healthiest banks would be reduced from .23% to .04% as such time
as the target ratio is achieved; other assessment rates, depending on an
institution's supervisory risk group, would be .07%, .14%, .21%, .28% and .31%.
The proposal would also establish a procedure for adjusting assessment rates
semiannually within a range of up to five basis points without seeking public
comment. The FDIC is also considering whether the deposit assessment base,
against which the applicable assessment rate is multiplied in determining the
deposit insurance assessment to be paid by each insured institution, should be
redefined in light of the adoption of the risk-based assessment system and
certain statutory and other developments effecting insured depository
institutions. Currently, the assessment base is defined to include the total
domestic deposits of each insured institution as adjusted for certain elements.
Depending upon the nature of the changes, if any, made by the FDIC to the
definition of the assessment base, the aggregate liabilities of each insured
institution subject to assessment could increase or could be reduced, or an
assessment base consisting of other than bank liabilities could be adopted,
thereby potentially affecting the earning of each institution. Until the nature
of the changes to be adopted by the FDIC to the assessment base definition are
known, Zions Bancorporation cannot predict their effect upon its overall
financial condition or results of operations or upon those of its bank
subsidiaries.
Interstate Banking
Existing laws and various regulatory developments have allowed financial
institutions to conduct significant activities on an interstate basis for a
number of years. During recent years, a number of financial institutions have
expanded their out-of-state activities and various states have enacted
legislation intended to allow certain interstate banking combinations which
otherwise would be prohibited by federal law.
Under the laws of Utah, Nevada, an Arizona, respectively, any out-of-state bank
or bank holding company may acquire a Utah, Nevada, or Arizona bank or bank
holding company upon the approval of the bank supervisor of the state. There is
no requirement that the laws of the state in which the out-of-state bank or bank
holding company's operations are principally conducted afford reciprocal
privileges to Utah-, Nevada - or Arizona-based acquirers.
The Riegle-Neal Act dramatically affects interstate banking activities. As
discussed previously, the Riegle-Neal Act allows the Federal Reserve Board to
approve the acquisition by a bank holding company of control or substantial
assets of a bank located outside the bank holding company's home state as of
September 29, 1995. Beginning on June 1, 1997, and earlier if permitted by
applicable state law, an insured bank may apply to the appropriate federal
agency for permission to merge with an out-of-state bank and convert its offices
into branches of the resulting bank. States retain the option to prohibit
out-of-state mergers if they enact a statute specifically barring such mergers
before June 1, 1997 and such law applies equally to all out-of-state banks.
Interstate mergers authorized by the Riegle-Neal Act are subject to conditions
and requirements, including, inter alia, adequate capitalization and management
of the acquiring bank or bank holding company, existence of the acquired bank
for up to five years before purchase where required under state law, and
limitations on control by the acquiring bank holding company of not more than
10% of the total amount of deposits in insured depository institutions in the
United States or not more than 30% of the deposits in insured depository
institutions within that state. States may impose lower deposit concentration
limits, so long as those limits apply to all bank holding companies equally.
Additional requirements placed on mergers include conformity with state law
branching requirements and compliance with "host state" merger filing
requirements to the extent that those requirements do not discriminate against
out-of-state banks or out-of-state bank holding companies.
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<PAGE> 14
The Riegle-Neal Act also permits banks to establish and operate a "de novo
branch" in any state that expressly permits all out-of-state banks to establish
de novo branches in such state, if the law applies equally to all banks. (A "de
novo branch" is a branch office of a national bank or state bank that is
originally established as a branch and does not become a branch as a result of
an acquisition, conversion, merger, or consolidation.) Utilization of this
authority is conditioned upon satisfaction of most of the conditions applicable
to interstate mergers under the Riegle-Neal Act, including, inter alia, adequate
capitalization and management of the branching institution, satisfaction with
certain filing and notice requirements imposed under state law and receipt of
federal regulatory approvals.
Because important components of the Riegle-Neal Act have not yet become
effective, Zions Bancorporation cannot predict the effects of the Act's
implementation upon its operations or earnings or upon those of its
subsidiaries.
The commercial banking subsidiaries are supervised and regularly examined by
various federal and state regulatory agencies. Deposits, reserves, investments,
loans, consumer law compliance, issuance of securities, payment of dividends,
mergers and consolidations, electronic funds transfers, management practices,
and other aspects of operations are subject to regulation. In addition,
numerous federal, state, and local regulations set forth specific restrictions
and procedural requirements with respect to the extension of credit, credit
practices, the disclosure of credit terms, and discrimination in credit
transactions. The various regulatory agencies, as an integral part of their
examination process, periodically review the banking subsidiaries' allowances
for loan losses. Such agencies may require the banking subsidiaries to
recognize additions to such allowances based on their judgments using
information available to them at the time of their examinations.
As a consequence of the extensive regulation of the commercial banking business,
the Company cannot yet assess the impact of these legislative and regulatory
mandates on the commercial banking industry which may increase the cost of doing
business that are not required of the industry's nonbank competitors.
Federal and state legislation affecting the banking industry have played, and
will continue to play, a significant role in shaping the nature of the financial
service industry. Various legislation, including proposals to overhaul the
banking regulatory system and to limit the investments that a depository
institution may make with insured funds, is from time to time introduced. The
Company cannot determine the ultimate effect that FDICIA and the implementing
regulations to be adopted thereunder, or any other potential legislation, if
enacted, would have upon its financial condition or operations.
In addition, there are cases pending before federal and state courts that seek
to expand or restrict interpretations of existing laws and their accompanying
regulations affecting bank holding companies and their subsidiaries. It is not
possible to predict the extent to which Zions Bancorporation and its
subsidiaries may be affected by any of these initiatives.
Government Monetary Policies and Economic Controls
The earnings and business of the Company are affected by general economic
conditions. In addition, fiscal or other policies that are adopted by various
regulatory authorities of the United States and by agencies can have important
consequences on the financial performance of the Company. The Company is
particularly affected by the policies of the Federal Reserve Board which
regulate the national supply of bank credit. The instruments of monetary policy
available to the Federal Reserve Board include open-market operations in United
States government securities; changing the discount rates of member bank
borrowings; imposing or changing reserve requirements against member bank
deposits; and imposing or changing reserve requirements against certain
borrowings by banks and their affiliates. These methods are used in varying
combinations to influence the overall growth of bank loans, investments and
deposits, and the interest rates charged on loans or paid for deposits.
However, in view of changing conditions in the economy and the effect of the
credit policies of monetary authorities, it is difficult to predict future
changes in loan demand, deposit levels and interest rates, or their effect on
the business and earnings of Zions Bancorporation and its subsidiaries.
Federal Reserve Board monetary policies have had a significant effect on the
operating results of commercial banks in the past and are expected to continue
to do so in the future.
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<PAGE> 15
Competition
Zions Bancorporation and its subsidiaries operate in a highly competitive
environment. The banking subsidiaries compete with other banks, thrift
institutions, credit unions and money market, and other mutual funds for
deposits and other sources of funds. In addition, Zions Bancorporation and its
bank and nonbank subsidiaries face increased competition with respect to the
diverse financial services and products they offer. Competitors include not
only other banks, thrift institutions, and mutual funds, but also leasing
companies, finance companies, brokerage firms, investment banking companies, and
a variety of other financial services and advisory companies. Many of these
competitors are not subject to the same regulatory restrictions as are bank
holding companies and banks such as Zions Bancorporation and its banking
subsidiaries.
The Company expects that competitive conditions will continue to intensify as a
result of technological advances. Technological advances have, for example,
made it possible for nondepository institutions to offer customers automatic
transfer systems and other automated-payment systems services that have been
traditional banking products.
Employees
The Company employs approximately 2,754 full- and part-time people with
approximately 2,573 being employed by the banking subsidiaries. The Company had
2,695 full-time equivalent employees at December 31, 1994, compared to 2,761 at
December 31, 1993. Banking subsidiaries had 2,506 full-time equivalent
employees at the end of 1994, compared to 2,573 a year earlier. The Company
believes that it enjoys good employee relations. In addition to competitive
salaries and wages, Zions Bancorporation and its subsidiaries contribute to
group medical plans, group insurance plans, pension, stock ownership and profit
sharing plans.
Supplementary Information
The following supplementary information, which is required under Guide 3
(Statistical Disclosure by Bank Holding Companies), is found in this report on
the pages indicated below, and should be read in conjunction with the related
financial statements and notes thereto.
<TABLE>
<CAPTION>
Statistical Information Page
<S> <C> <C>
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
</TABLE>
ITEM 2. PROPERTIES
In Utah, fifty (50) of Zions First National Bank's eighty-six (86) offices are
located in buildings owned by the Company and the other thirty-six (36) are on
leased premises. In Nevada, four (4) of Nevada State Bank's twenty-one (21)
offices are located in buildings owned and the other seventeen (17) are on
leased premises, and in Arizona, National Bank of Arizona owns three (3) offices
and leases seven (7) offices. The annual rentals under long-term leases for
such banking premises are determined under various formulas and include as
various factors, operating costs, maintenance and taxes.
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<PAGE> 16
Zions Bancorporation is lessee under a 25-year lease, of which 23 years have
expired, of a 14-story building in downtown Salt Lake City, Utah. The Company's
subsidiaries have leased the ground floor and two other floors. The J.C.
Penney Company, Inc., has subleased nine floors for offices. The remaining two
floors are sublet to various tenants.
The Company's subsidiaries conducting lease financing, insurance, mortgage
servicing, and discount brokerage activities operate from leased premises.
For information regarding rental payments, see note 9 of Notes to Consolidated
Financial Statements, which appears in Part II, Item 8, on page 57 of this
report.
ITEM 3. LEGAL PROCEEDINGS
During 1988, a lawsuit was brought in the United States District Court, Utah
District, against Zions First National Bank in connection with its performance
of duties as an indenture trustee for certain investors in real estate and other
syndication projects. In September 1992, a motion was granted allowing an
amended complaint containing allegations that plaintiffs intend to proceed as a
class action to recover approximately $23 million, prejudgment interest,
attorneys' fees, and additional amounts under certain statutory provisions and
common law. No motion to certify the classes has been filed, and the Bank
intends to vigorously oppose such motion and to defend the entire action.
Although no assurances can be given as to the outcome, the Company continues to
believe that it has meritorious defenses to such lawsuit, and that there is
insurance coverage for a substantial portion of the amount claimed.
The Company is also the defendant in various other legal proceedings arising in
the normal course of business. The Company does not believe that the outcome of
any of such proceedings, including the lawsuit discussed in the preceding
paragraph, will have a material adverse effect on its consolidated financial
position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1994.
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages, positions, and backgrounds of the Company's executive officers
as of February 27, 1995, are set forth as follows:
<TABLE>
<CAPTION>
Positions and Offices Held With Zions Officer
Name Age Bancorporation and Principal Subsidiaries since
---- --- ----------------------------------------- -------
<S> <C> <C> <C>
Roy W. Simmons 79 Chairman of the Company, and Chairman of the Board of Directors of Zions 1961
First National Bank
Harris H. Simmons 40 President & Chief Executive Officer of the Company; President, Chief 1981
Executive Officer, and Member of the Board of Directors of Zions First
National Bank
Gary L. Anderson 52 Senior Vice President, Chief Financial Officer and Secretary of the Company; 1988
Executive Vice President and Secretary of the Board of Directors of Zions
First National Bank. Prior to May 1988, a Partner in the firm of KPMG Peat
Marwick, Salt Lake City, Utah
Gerald J. Dent 53 Senior Vice President of the Company, and Executive Vice President of Zions 1987
First National Bank
Clark B. Hinckley 47 Senior Vice President of the Company. Prior to March 1994, President of a 1994
Company subsidiary, Zions First National Bank of Arizona.
John J. Gisi 49 Senior Vice President of the Company, and Chairman and Chief Executive 1994
Officer of National Bank of Arizona since 1987
Richard A. Carlson 61 Senior Vice President of the Company, and President and Chief Executive 1994
Officer of Nevada State Bank since 1985 (Retired 2/28/95)
James W. Rail 60 Senior Vice President of the Company, and President of Zions Data Service 1976
Company (Retired 2/28/95)
</TABLE>
14
<PAGE> 17
<TABLE>
<CAPTION>
Positions and Offices Held With Zions Officer
Name Age Bancorporation and Principal Subsidiaries since
---- --- ----------------------------------------- -----
<S> <C> <C> <C>
Danne L. Buchanan 37 Senior Vice President of the Company (Effective March 3, 1995); Senior Vice 1995
President and General Manager of Zions Data Service Company
Walter E. Kelly 62 Controller of the Company 1980
Ronald L. Johnson 39 Vice President of the Company. Prior to December 1989, Vice President of 1989
Zions First National Bank
A. Scott Anderson 48 Executive Vice President of Zions First National Bank. Prior to December 1990
1990, Vice President of Bank of America
John B. D'Arcy 52 Executive Vice President of Zions First National Bank. Prior to March 1989, 1989
Vice President of The First National Bank of Chicago
Peter K. Ellison 52 Executive Vice President of Zions First National Bank 1968
W. David Hemingway 47 Executive Vice President of Zions First National Bank 1976
Nolan X. Bellon 46 Controller of Zions First National Bank 1987
</TABLE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Principal market where common stock is traded:
Nasdaq National Market Symbol "ZION"
High and low bid quotations on quarterly basis for past three years:
<TABLE>
<CAPTION>
1994 1993 1992
------------------ ------------------- ------------------
HIGH LOW HIGH LOW HIGH LOW
------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
1st Quarter $ 39.75 $ 36.50 $ 49.00 $ 41.50 $ 24.50 $ 19.75
2nd Quarter $ 42.00 $ 37.00 $ 48.75 $ 38.50 $ 28.38 $ 23.75
3rd Quarter $ 40.63 $ 38.50 $ 44.25 $ 38.50 $ 30.00 $ 26.88
4th Quarter $ 39.25 $ 33.50 $ 45.50 $ 36.00 $ 39.00 $ 28.88
</TABLE>
Number of common shareholders of record as of latest practicable date:
3,926 common shareholders as of February 27, 1995
Frequency and amount of dividends paid during three years:
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QTR QTR QTR QTR
----- ----- ----- -----
<S> <C> <C> <C> <C>
1994 $ .28 $ .28 $ .30 $ .30
1993 $ .21 $ .21 $ .28 $ .28
1992 $ .18 $ .18 $ .18 $ .21
</TABLE>
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
<PAGE> 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)
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------------------------------------
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Interest income $ 353,989 $ 293,616 $ 278,225 $ 301,443 $ 302,013
Interest expense 155,383 118,959 120,943 161,572 173,892
---------- ---------- ---------- ---------- ----------
Net interest income 198,606 174,657 157,282 139,871 128,121
Provision for loan losses 2,181 2,993 10,929 25,561 20,083
---------- ---------- ---------- ---------- ----------
Net interest income after provision for loan losses 196,425 171,664 146,353 114,310 108,038
Noninterest income 73,202 79,880 62,849 52,456 47,919
Noninterest expense 174,900 167,750 139,069 122,999 116,289
---------- ---------- ---------- ---------- ----------
Income before income taxes and cumulative
effect of changes in accounting principles 97,727 83,794 70,133 43,767 39,668
Income taxes 30,900 27,248 22,924 13,318 11,903
---------- ---------- ---------- ---------- ----------
Income before cumulative effect of changes in
accounting principles 63,827 56,546 47,209 30,449 27,765
Cumulative effect of changes in accounting principles - 1,659 - - -
---------- ---------- ---------- ---------- ----------
Net income $ 63,827 $ 58,205 $ 47,209 $ 30,449 $ 27,765
========== ========== ========== ========== ==========
COMMON SHARE DATA
Income before cumulative effect of changes in
accounting principles $ 4.37 $ 3.96 $ 3.42 $ 2.23 $ 2.07
Net income 4.37 4.08 3.42 2.23 2.07
Dividends 1.16 .98 .75 .72 .72
Book value - year end 25.12 22.01 18.95 16.23 14.63
YEAR END BALANCES
Total assets $4,934,095 $4,801,054 $4,107,924 $3,883,938 $ 3,720,227
Money market investments 403,446 597,680 616,180 714,238 831,086
Securities 1,663,433 1,258,939 981,695 852,861 630,800
Net loans and leases 2,391,278 2,486,346 2,107,433 1,979,726 1,868,199
Allowance for loan losses 67,018 68,461 59,807 58,238 60,948
Total deposits 3,705,976 3,432,289 3,075,110 2,877,860 2,684,826
Shareholders' equity 365,770 312,592 260,070 220,753 196,706
RATIOS
Return on average assets 1.17% 1.25% 1.24% .86% .87%
Return on average common equity 18.82% 20.33% 19.64% 14.59% 14.87%
Average equity to average assets 6.22% 6.17% 6.31% 5.90% 5.82%
Tier I risk-based capital - year end 11.81% 10.85% 10.23% 8.40% 8.11%
Total risk-based capital - year end 14.96% 14.12% 15.13% 12.09% 12.49%
Tier I leverage - year end 6.24% 5.44% 6.21% 5.86% 5.72%
Net interest margin 4.07% 4.23% 4.59% 4.39% 4.54%
Nonperforming assets to total assets - year end .38% .64% .77% 1.20% 1.70%
Nonperforming assets to net loans and leases,
other real estate owned and other nonperforming
assets at year end .79% 1.23% 1.49% 2.35% 3.36%
Net charge-offs (recoveries) to average loans and leases .19% (.23)% 44% 1.51% 1.10%
Allowance for loan losses to net loans and
leases outstanding at year end 2.80% 2.75% 2.84% 2.94% 3.26%
Allowance for loan losses to nonperforming loans at
year end 471.89% 250.13% 234.00% 158.59% 132.54%
</TABLE>
16
<PAGE> 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following analysis of the Company's financial condition and results of
operations as of and for the years ended December 31, 1994, 1993, and 1992
should be read in conjunction with the consolidated financial statements of the
Company and detailed information presented elsewhere herein.
OPERATING RESULTS
Zions Bancorporation's consolidated net income rose to $63.8 million in 1994 as
compared to net income of $58.2 million in 1993 and $47.2 million in 1992. Net
income per common share in 1994 was $4.37 as compared to $4.08 in 1993 and $3.42
in 1992. Financial results have been restated for prior periods to reflect the
pooling-of-interests acquisition of National Bancorp of Arizona during the first
quarter of 1994. Earnings results for 1993 were positively affected in the net
amount of $1,659,000 or $.12 per share due to the cumulative effect of changes
in accounting principles implemented during the first quarter of the year. The
Company's earnings for the year ended December 31, 1993 were also negatively
affected by a one-time expense of $6,022,000 included in noninterest expenses
related to early extinguishment of certain long-term debt.
The earnings results for 1994 represent a historic high for income before income
taxes and net income. Some of the factors affecting the increase in earnings
(excluding the aforementioned net benefit resulting from the cumulative effect
of changes in accounting principles and the expense relating to the early
extinguishment of debt) were a $23.9 million (13.7%) increase in net interest
income, a $.8 million (27.1%) decrease in the provision for loan losses, a $1.2
million (5.2%) increase in service charges on deposit accounts and a $.6 million
(2.9%) increase in service charges, commissions and fees. These increased
contributions to income were partially offset by a $1.5 million (63.4%) decrease
in trading account income, a $6.9 million (32.0%) decrease in loan sales and
servicing income, a $7.8 million (9.1%) increase in salaries and benefits, a
$3.2 million (34.8%) increase in furniture and equipment expense, a $2.2 million
(3.2%) increase in all remaining noninterest expenses, and a $1.3 million (4.6%)
increase in income taxes.
EARNINGS PERFORMANCE
Net Interest Income, Margin, and Interest Rate Spreads
Net interest income is the difference between the total interest income
generated by earning assets and the total interest cost of the funds used to
finance assets. Net interest income is the largest component of the Company's
revenue. The Company's taxable-equivalent net interest income increased by 13.8%
to $203.3 million in 1994 as compared to $178.6 million in 1993. The increased
level of taxable-equivalent net interest income was influenced primarily by the
increase in average earning assets. The Company attempts to minimize interest
rate movement sensitivity through the management of interest rate maturities,
and to a lesser extent, the use of off-balance sheet arrangements such as
interest rate caps, floors, and interest rate exchange contract agreements.
During 1994, the Company had income, net of expense, of $967,000 from the use of
such off-balance sheet arrangements compared to $291,000 in 1993 and $9,000 in
1992. The Company intends to continue to use such off-balance sheet arrangements
to the extent necessary to minimize its exposure to changes in prevailing
interest rates.
Net interest margin is a measure of the Company's ability to generate net
interest income and is computed by expressing net interest income (stated on a
fully taxable-equivalent basis) as a percentage of earning assets. The Company's
net interest margin was 4.07% for 1994 as compared to 4.23% in 1993. The
decrease in the margin was due primarily to securitized sales of loans and the
expansion of investments in security resell agreements. Securitized sales of
loans convert net interest income from loans to noninterest income. The security
resell agreements are primarily in U.S. government and U.S. government agency
securities which offer low yields but represent low risk to the Company and
requires lower consolidated "risk-based" capital. The Company decreased its
activity in security resell arrangements during the fourth quarter of 1994.
The spread on average interest-bearing funds is the difference between the yield
on earning assets and the cost of interest-bearing funds. The Company's spread
on average interest-bearing funds was 3.49% for 1994 as compared to 3.71% in
1993. The spread on average interest-bearing funds has also been reduced by
securitized sales of loans and investment in security resell arrangements.
Consolidated average balances, the amount of interest earned or paid, the
applicable interest rate for the various categories of earning assets and
interest-bearing funds which represent the components of net interest income for
the year 1994 and the previous four years; and interest differentials on a
taxable-equivalent basis and the effect on net interest income of changes due to
volume and rates for the years 1994 and 1993, are shown in tables on pages which
follow. Income computed on a taxable-equivalent basis is income adjusted to make
income and earning yields on assets exempt from income taxes comparable to other
taxable income. The incremental tax rate used for calculating the
taxable-equivalent adjustment was 30% in 1994 and 32% in 1993 and each of the
years prior.
17
<PAGE> 20
Distribution of Assets, Liabilities, and Shareholders' Equity,
Average Balance Sheets, Yields and Rates
<TABLE>
<CAPTION>
1994 1993
----------------------------------- ---------------------------------
Amount Amount
Average of Average Average of Average
(Amounts in thousands) balance interest(1) rate(1) balance interest(1) rate(1)
---------- ----------- ------- ---------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Money market investments:
Interest-bearing deposits $ 24,389 $ 814 3.34% $ 103,982 $ 3,682 3.55%
Federal funds sold and security resell agreements 845,320 34,231 4.05% 656,204 22,918 3.49%
Other money market investments - - -% 28,508 827 2.90%
---------- -------- ---------- --------
Total money market investments 869,709 35,045 4.03% 788,694 27,427 3.48%
---------- -------- ---------- --------
Securities:
Held to maturity:
Taxable 726,925 41,269 5.68% 958,776 56,347 5.88%
Nontaxable 193,810 15,689 8.10% 147,549 12,434 8.43%
Available for sale 334,044 19,916 5.96% - - -%
Trading account 290,925 16,516 5.68% 102,840 7,555 7.35%
---------- -------- ---------- --------
Total securities 1,545,704 93,390 6.04% 1,209,165 76,336 6.31%
---------- -------- ---------- --------
Loans:
Loans held for sale 187,506 12,303 6.56% 185,899 11,273 6.06%
Net loans and leases(2) 2,387,489 217,958 9.13% 2,036,283 182,559 8.97%
---------- -------- ---------- --------
Total loans 2,574,995 230,261 8.94% 2,222,182 193,832 8.72%
---------- -------- ---------- --------
Total interest-earning assets $4,990,408 $358,696 7.19% $4,220,041 $297,595 7.05%
Cash and due from banks 333,290 -------- 315,577 --------
Allowance for loan losses (68,248) (64,911)
Other assets 201,163 173,211
---------- ----------
Total assets $5,456,613 $4,643,918
========== ==========
Liabilities:
Interest-bearing deposits:
Savings deposits $ 740,339 $ 22,262 3.01% $ 648,178 $ 19,222 2.97%
Money market deposits 1,284,697 39,938 3.11% 1,117,016 31,109 2.79%
Time deposits under $100,000 516,877 20,469 3.96% 548,816 23,501 4.28%
Time deposits $100,000 or more 94,680 3,845 4.06% 79,442 3,010 3.79%
Foreign deposits 108,383 4,444 4.10% 55,823 1,484 2.66%
---------- -------- ---------- --------
Total interest-bearing deposits 2,744,976 90,958 3.31% 2,449,275 78,326 3.20%
---------- -------- ---------- --------
Borrowed funds:
Securities sold, not yet purchased 184,405 10,976 5.95% 69,442 3,039 4.38%
Federal funds purchased and security repurchase
agreements 1,057,827 41,089 3.88% 767,309 22,376 2.92%
FHLB advances and other borrowings:
Less than one year 32,557 1,770 5.44% 83,123 3,196 3.84%
Over one year 118,607 5,831 4.92% 111,974 4,599 4.11%
Long-term debt 59,493 4,759 8.00% 75,623 7,423 9.82%
---------- -------- ---------- --------
Total borrowed funds 1,452,889 64,425 4.43% 1,107,471 40,633 3.67%
---------- -------- ---------- --------
Total interest-bearing liabilities $4,197,865 $155,383 3.70% $3,556,746 $118,959 3.34%
Noninterest-bearing deposits 838,118 -------- 729,651 --------
Other liabilities 81,449 71,190
---------- ----------
Total liabilities 5,117,432 4,357,587
Total shareholders' equity 339,181 286,331
---------- ----------
Total liabilities and shareholders' equity $5,456,613 $4,643,918
========== ==========
Spread on average interest-bearing funds 3.49% 3.71%
==== ====
Net interest income and net yield on interest-earning
assets
$203,313 4.07% $178,636 4.23%
======== ==== ======== ====
--------------------------------------------
</TABLE>
(1) Taxable-equivalent rates used where applicable.
(2) Net of unearned income and fees, net of related costs. Loans include
nonaccrual and restructured loans.
18
<PAGE> 21
Distribution of Assets, Liabilities, and Shareholders' Equity,
Average Balance Sheets, Yields And Rates
<TABLE>
<CAPTION>
1992 1991
---------------------------------- ----------------------------------
Amount Amount
Average of Average Average of Average
(Amounts in thousands) balance interest(1) rate(1) balance interest(1) rate(1)
---------- ----------- ------- ---------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Money market investments:
Interest-bearing deposits $ 184,142 $ 10,529 5.72% $ 234,936 $ 15,210 6.47%
Federal funds sold and security resell agreements 245,866 9,730 3.96% 355,666 23,290 6.55%
Other money market investments 39,054 1,410 3.61% 79,982 4,910 6.14%
---------- -------- ---------- --------
Total money market investments 469,062 21,669 4.62% 670,584 43,410 6.47%
---------- -------- ---------- --------
Securities:
Held to maturity:
Taxable 766,002 48,854 6.38% 604,557 49,171 8.13%
Nontaxable 125,062 11,163 8.93% 74,709 8,571 11.47%
Available for sale - - -% - - -%
Trading account 36,912 5,537 15.00% 22,761 3,122 13.72%
---------- -------- ---------- --------
Total securities 927,976 65,554 7.06% 702,027 60,864 8.67%
---------- -------- ---------- --------
Loans:
Loans held for sale 186,953 13,804 7.38% 106,028 8,970 8.46%
Net loans and leases(2) 1,917,726 180,770 9.43% 1,769,900 190,942 10.79%
---------- -------- ---------- --------
Total loans 2,104,679 194,574 9.24% 1,875,928 199,912 10.66%
---------- -------- ---------- --------
Total interest-earning assets $3,501,717 $281,797 8.05% $3,248,539 $304,186 9.36%
Cash and due from banks 236,116 -------- 214,238 --------
Allowance for loan losses (60,116) (61,650)
Other assets 130,115 135,682
---------- ----------
Total assets $3,807,832 $3,536,809
========== ==========
Liabilities:
Interest-bearing deposits:
Savings deposits $ 494,113 $ 17,396 3.52% $ 535,634 $ 26,154 4.88%
Money market deposits 1,029,499 34,705 3.37% 717,124 36,642 5.11%
Time deposits under $100,000 651,226 33,555 5.15% 771,491 51,692 6.70%
Time deposits $100,000 or more 95,067 4,419 4.65% 132,363 8,317 6.28%
Foreign deposits 86,479 3,635 4.20% 62,729 3,245 5.17%
---------- -------- ---------- --------
Total interest-bearing deposits 2,356,384 93,710 3.98% 2,219,341 126,050 5.68%
---------- -------- ---------- --------
Borrowed funds:
Securities sold, not yet purchased - - -% - - -%
Federal funds purchased and security repurchase
agreements 394,620 12,681 3.21% 331,367 17,031 5.14%
FHLB advances and other borrowings:
less than one year 78,406 3,218 4.10% 119,222 8,213 6.89%
over one year 50,450 1,826 3.62% 35,342 1,943 5.50%
Long-term debt 82,219 9,508 11.56% 86,967 8,335 9.58%
---------- -------- ---------- --------
Total borrowed funds 605,695 27,233 4.50% 572,898 35,522 6.20%
---------- -------- ---------- --------
Total interest-bearing liabilities $2,962,079 $120,943 4.08% $2,792,239 $161,572 5.79%
-------- --------
Noninterest-bearing deposits 556,476 481,790
Other liabilities 48,866 54,051
---------- ----------
Total liabilities 3,567,421 3,328,080
Total shareholders' equity 240,411 208,729
---------- ----------
Total liabilities and shareholders' equity $3,807,832 $3,536,809
========== ==========
Spread on average interest-bearing funds 3.97% 3.57%
==== ====
Net interest income and net yield on
interest-earning assets $160,854 4.59% $142,614 4.39%
-------------------------------------------- ======== ==== ======== ====
</TABLE>
(1) Taxable-equivalent rates used where applicable.
(2) Net of unearned income and fees, net of related costs. Loans include
nonaccrual and restructured loans.
19
<PAGE> 22
Distribution of Assets, Liabilities, and Shareholders' Equity,
Average Balance Sheets, Yields And Rates
<TABLE>
<CAPTION>
1990
-------------------------------------
Amount
Average of Average
(Amounts in thousands) balance interest(1) rate(1)
---------- ----------- -------
<S> <C> <C> <C>
Assets:
Money market investments:
Interest-bearing deposits $ 104,211 $ 8,912 8.55%
Federal funds sold and security resell agreements 443,981 37,394 8.42%
Other money market investments 2,000 170 8.50%
---------- --------
Total money market investments 550,192 46,476 8.45%
---------- --------
Securities:
Held to maturity:
Taxable 444,848 39,267 8.83%
Nontaxable 70,287 9,237 13.14%
Available for sale - - -%
Trading account 14,602 2,882 19.74%
---------- --------
Total securities 529,737 51,386 9.70%
---------- --------
Loans:
Loans held for sale 114,394 10,785 9.43%
Net loans and leases(2) 1,691,794 196,322 11.60%
---------- --------
Total loans 1,806,188 207,107 11.47%
---------- --------
Total interest-earning assets $2,886,117 $304,969 10.57%
Cash and due from banks 221,739 --------
Allowance for loan losses (60,943)
Other assets 162,050
----------
Total assets $3,208,963
==========
Liabilities:
Interest-bearing deposits:
Savings deposits $ 447,412 $ 22,820 5.10%
Money market deposits 671,740 43,385 6.46%
Time deposits under $100,000 762,749 59,861 7.85%
Time deposits $100,000 or more 132,605 9,780 7.38%
Foreign deposits 54,433 3,619 6.65%
---------- --------
Total interest-bearing deposits 2,068,939 139,465 6.74%
---------- --------
Borrowed funds:
Securities sold, not yet purchased - - -%
Federal funds purchased and security repurchase
agreements 297,442 22,132 7.44%
FHLB advances and other borrowings:
less than one year 36,935 2,978 8.06%
over one year - - -%
Long-term debt 94,923 9,317 9.82%
---------- --------
Total borrowed funds 429,300 34,427 8.02%
---------- --------
Total interest-bearing liabilities $2,498,239 $173,892 6.96%
Noninterest-bearing deposits 462,672 --------
Other liabilities 61,337
----------
Total liabilities 3,022,248
Total shareholders' equity 186,715
----------
Total liabilities and shareholders' equity $3,208,963
==========
Spread on average interest-bearing funds 3.61%
====
Net interest income and net yield on $131,077 4.54%
interest-earning assets ======== ====
--------------------------------------------
</TABLE>
(1) Taxable-equivalent rates used where applicable.
(2) Net of unearned income and fees, net of related costs. Loans include
nonaccrual and restructured loans.
20
<PAGE> 23
Analysis of Interest Changes Due to Volume and Rates
<TABLE>
<CAPTION>
1994 over 1993 1993 over 1992
------------------------------- --------------------------------
Changes due to Changes due to
-------------------- Total -------------------- Total
(Amounts in thousands) Volume Rate(1) Changes Volume Rate(1) Changes
-------- -------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Money market investments:
Interest-bearing deposits $(2,659) $ (209) $(2,868) $ (2,855) $ (3,992) $ (6,847)
Federal funds sold and security
resell agreements 7,272 4,041 11,313 14,337 (1,149) 13,188
Other money market investments (827) - (827) (306) (277) (583)
------- ------- ------- ------- -------- --------
Total money market investments 3,786 3,832 7,618 11,176 (5,418) 5,758
------- ------- ------- ------- -------- --------
Securities:
Held to maturity:
Taxable (759) 7,976 7,217 11,306 (3,813) 7,493
Nontaxable 3,738 (483) 3,255 1,891 (620) 1,271
Available for sale 7,122 (9,501) (2,379) - - -
Trading account 10,675 (1,714) 8,961 4,842 (2,824) 2,018
------- ------- ------- ------- -------- --------
Total securities 20,776 (3,722) 17,054 18,039 (7,257) 10,782
------- ------- ------- ------- -------- --------
Loans:
Loans held for sale 92 938 1,030 (56) (2,475) (2,531)
Net loans and leases(2) 32,002 3,397 35,399 10,539 (8,750) 1,789
------- ------- ------- ------- -------- --------
Total loans 32,094 4,335 36,429 10,483 (11,225) (742)
------- ------- ------- ------- -------- --------
Total interest-earning assets $56,656 $ 4,445 $61,101 $39,698 $(23,900) $ 15,798
------- ------- ------- ------- -------- --------
Interest-bearing liabilities:
Deposits:
Savings deposits $ 2,753 $ 287 $ 3,040 $ 4,547 $ (2,721) $ 1,826
Money market deposits 4,997 3,832 8,829 2,386 (5,982) (3,596)
Time deposits under $100,000 (1,264) (1,768) (3,032) (4,371) (5,683) (10,054)
Time deposits $100,000 or more 609 226 835 (593) (816) (1,409)
Foreign deposits 1,879 1,081 2,960 (816) (1,335) (2,151)
------- ------- ------- ------- -------- --------
Total interest-bearing deposits 8,974 3,658 12,632 1,153 (16,537) (15,384)
------- ------- ------- ------- -------- --------
Borrowed funds:
Securities sold, not yet purchased 6,522 1,415 7,937 3,039 - 3,039
Federal funds purchased and security
repurchase agreements 10,013 8,700 18,713 10,853 (1,158) 9,695
FHLB advances and other borrowings:
less than one year (1,946) 520 (1,426) 185 (207) (22)
over one year 287 945 1,232 2,496 277 2,773
Long-term debt (1,291) (1,373) (2,664) (651) (1,434) (2,085)
------- ------- ------- ------- -------- --------
Total borrowed funds 13,585 10,207 23,792 15,922 (2,522) 13,400
------- ------- ------- ------- -------- --------
Total interest-bearing liabilities $22,559 $13,865 $36,424 $17,075 $(19,059) $ (1,984)
------- ------- ------- ------- -------- --------
Change in net interest income $34,097 $(9,420) $24,677 $22,623 $ (4,841) $ 17,782
======= ======= ======= ======= ======== ========
--------------------------------------------
</TABLE>
(1) Taxable-equivalent rates used where applicable.
(2) Net of unearned income and fees, net of related costs. Loans include
nonaccrual and restructured loans.
In the tables on the preceeding pages, the principal amounts of nonaccrual and
renegotiated loans have been included in the average loan balances used to
determine the rate earned on loans. Interest income on nonaccrual loans is
included in income only to the extent that cash payments have been received and
not applied to principal and is accrued on restructured loans at the reduced
rates. Certain restructured loan agreements call for additional interest to be
paid on a deferred or contingent basis. Such interest is taken into income only
as collected.
In the analysis of interest changes due to volume and rates, the changes due to
the volume/rate variance have been allocated to volume. When volume and rate
have both increased, the variance has been allocated proportionately to both
volume and rate, and when the rate has increased and volume has decreased, the
variance has been allocated to rate.
21
<PAGE> 24
Provision For Loan Losses
The provision for loan losses in 1994 decreased by 27.1% to $2,181,000 in 1994
as compared to $2,993,000 in 1993, and $10,929,000 in 1992. The decrease in loan
loss provisions resulted from improved credit risk management and an improved
economy which have produced decreases in nonperforming assets.
Noninterest Income
The Company's noninterest income decreased by 8.4% to $73.2 million in 1994 as
compared to $79.9 million in 1993 and $62.8 million in 1992. Service charges on
deposits increased by 5.2% in 1994 to $24.1 million, primarily as a result of
price increases and higher volumes in 1994. Other service charges, commissions,
and fees increased by 2.9% in 1994 to $22.0 million primarily as a result of
increased fees relating to commercial loan originations. Such increased fees
were partially offset by a decline in fees generated through sales of investment
products through the Company's discount brokerage operations and personal
investment officers, as well as fees from mortgage loan originations during
1994. Trading account income decreased by 63.4% to $.9 million in 1994 as
compared to $2.4 million in 1993. Loan sales and servicing income decreased
32.0% to $14.6 million in 1994 primarily as a result of decreased income on real
estate loans sold in 1994 and lower excess servicing fees during 1994 on
securitized loans sold resulting from competitive pressures, particularly in the
indirect consumer loan market. The Company does not recognize an initial gain on
the sale of loans but recognizes the income over the servicing life of the sale.
Other income increased by 6.4% in 1994 to $7.6 million primarily as a result of
gains on the sale of mortgage-servicing rights.
The following table presents the components of noninterest income for the years
indicated and a year-to-year comparison expressed in terms of percent changes.
Noninterest Income
<TABLE>
<CAPTION>
Percent Percent Percent Percent
(Thousands of dollars) 1994 change 1993 change 1992 change 1991 change 1990
------- --------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Service charges on deposit
accounts $24,058 5.2% $22,875 17.4% $19,484 9.9% $17,736 12.8% $15,723
Other service charges,
commissions, and fees 22,008 2.9 21,392 13.4 18,871 35.7 13,907 (5.1) 14,648
Trust income 4,334 (6.2) 4,622 .2 4,614 10.7 4,169 1.9 4,092
Investment securities gains
(losses), net (299) (1,658.8) (17) (105.2) 327 (54.3) 715 182.4 (868)
Trading account income 860 (63.4) 2,350 (47.0) 4,437 226.5 1,359 (10.7) 1,521
Loan sales and servicing
income 14,596 (32.0) 21,471 226.7 6,573 (16.5) 7,875 (.7) 7,932
Other income 7,645 6.4 7,187 (15.9) 8,543 27.6 6,695 37.4 4,871
------- ------- ------- ------- -------
Total $73,202 (8.4)% $79,880 27.1% $62,849 19.8% $52,456 9.5% $47,919
======= ======== ======= ====== ======= ===== ======= ===== =======
</TABLE>
Noninterest Expenses
Noninterest expenses increased by 4.3% in 1994 to $174.9 million as compared to
$167.8 million in 1993, and $139.1 million in 1992. Salaries and employee
benefits increased by 9.1% in 1994 to $93.3 million, primarily as a result of
additional salaries and benefits from an acquisition accounted for as a
purchase; increased staffing in investment activities; general salary increases;
and bonuses, commissions, and profit sharing costs related to increased
profitability. Furniture and equipment expenses increased 34.8% in 1994 to $12.5
million, primarily as a result of the expansion of the ATM network and the
installation of personal computers and local area networks.
The Company benefited by a decrease of 119.6% in other real estate expense to
$(.1) million in 1994 as holding costs declined through the continued sales of
other real estate owned properties during 1994. Also, values received in the
sales of other real estate owned continued to improve in 1994. F.D.I.C. premiums
increased by 4.0% in 1994 to $7.5 million as compared to $7.3 million in 1993
due to higher deposit levels. Telecommunication costs increased 25.4% to $3.8
million as a result of acquisitions and the expansion of ATM and other networks.
All other expenses increased 5.9% to $27.6 million in 1994 as compared to $26.1
million in 1993 primarily due to increased ATM network service costs,
amortization of investments in community development companies and investment
activity expenses. The Company recognized a loss on early extinguishment of debt
in the amount of $6.0 million during 1993. This expense consisted of marking to
market an interest rate exchange agreement entered into several years ago in
conjunction with the issuance of long term floating rate notes, and writing off
deferred costs associated with the notes and industrial revenue bonds redeemed.
22
<PAGE> 25
The following table presents the components of noninterest expenses for the
years indicated and a year-to-year comparison expressed in terms of percent
changes.
Noninterest Expenses
<TABLE>
<CAPTION>
Percent Percent Percent Percent
(Thousands of dollars) 1994 change 1993 change 1992 change 1991 change 1990
-------- ------- -------- ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Salaries and employee
benefits $ 93,331 9.1% $ 85,549 21.8% $ 70,242 14.7% $ 61,220 5.3% $ 58,126
Occupancy, net 8,397 2.8 8,168 12.7 7,248 (4.3) 7,570 6.3 7,119
Furniture and equipment 12,526 34.8 9,294 21.0 7,681 13.4 6,773 2.1 6,636
Other real estate expense (88) (119.6) 450 (82.4) 2,559 (22.9) 3,318 (15.2) 3,913
Legal and professional services
5,142 .1 5,136 42.0 3,616 (8.0) 3,931 (22.7) 5,087
Supplies 4,819 6.2 4,537 17.5 3,860 1.1 3,817 4.0 3,669
Postage 4,723 9.0 4,334 20.0 3,611 (2.4) 3,700 15.6 3,201
F.D.I.C. premiums 7,547 4.0 7,257 16.4 6,235 15.9 5,381 92.4 2,797
Amortization of intangible
assets 3,692 (16.7) 4,432 (2.2) 4,530 16.7 3,882 4.2 3,726
Loss on early extinguishment of
debt - (100.0) 6,022 100.0 - - - - -
Other expenses:
Telecommunications 3,767 25.4 3,005 26.6 2,373 19.4 1,987 8.2 1,837
Advertising 3,447 (1.9) 3,515 8.6 3,236 43.3 2,258 55.7 1,450
All other expenses 27,597 5.9 26,051 9.1 23,878 24.6 19,162 2.3 18,728
-------- -------- -------- -------- --------
Total other expenses 34,811 6.9 32,571 10.5 29,487 26.0 23,407 6.3 22,015
-------- -------- -------- -------- --------
Total $174,900 4.3% $167,750 20.6% $139,069 13.1% $122,999 5.8% $116,289
======== ====== ======== ===== ======== ===== ======== ===== ========
</TABLE>
The following table presents full-time equivalent employees and banking offices
at December 31, for the years indicated:
Full-Time Equivalent Employees
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Commercial banking 2,506 2,573 2,098 2,008 1,863
Other 189 188 395 341 322
----- ----- ----- ----- -----
Total 2,695 2,761 2,493 2,349 2,185
===== ===== ===== ===== =====
Commercial banking offices 118 114 106 103 97
</TABLE>
Income Taxes
The Company's income taxes increased 13.4% to $30.9 million in 1994 compared to
$27.2 million in 1993 and $22.9 million in 1992 primarily due to the increase in
income before income taxes. The Company's effective tax rate was 32.6% during
1994 as compared to 32.5% in 1993.
23
<PAGE> 26
Quarterly Summary
The following table presents a summary of earnings and end-of-period balances by
quarter for the years ended December 31, 1994, 1993, and 1992:
Summary of Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
Provi- Income
Gross Net Non- sion for Non- before
interest interest interest loan interest income Net
(Thousands of dollars) income income income losses expenses taxes income
-------- -------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Quarter:
1994:
First $ 77,213 $ 44,801 $16,396 $ 290 $ 42,491 $18,416 $12,438
Second 86,772 48,741 18,465 467 41,996 24,743 16,418
Third 94,939 51,859 20,109 440 44,739 26,789 17,665
Fourth 95,065 53,205 18,232 984 45,674 24,779 17,306
-------- -------- ------- ------- -------- ------- -------
Total $353,989 $198,606 $73,202 $ 2,181 $174,900 $94,727 $63,827
======== ======== ======= ======= ======== ======= =======
1993:
First $ 67,591 $ 41,092 $15,766 $ 1,365 $ 42,065 $13,428 $10,746
Second 71,091 44,813 19,371 408 39,047 24,729 16,636
Third 76,033 43,795 22,689 482 43,318 22,684 15,397
Fourth 78,901 44,957 22,054 738 43,320 22,953 15,426
-------- -------- ------- ------- -------- ------- -------
Total $293,616 $174,657 $79,880 $ 2,993 $167,750 $83,794 $58,205
======== ======== ======= ======= ======== ======= =======
1992:
First $ 68,117 $ 35,486 $15,344 $ 4,135 $ 35,402 $11,293 $ 8,331
Second 69,952 38,105 13,802 3,181 32,749 15,977 10,282
Third 69,171 40,664 15,280 2,003 34,033 19,908 13,131
Fourth 70,985 43,027 18,423 1,610 36,885 22,955 15,465
-------- -------- ------- ------- -------- ------- -------
Total $278,225 $157,282 $62,849 $10,929 $139,069 $70,133 $47,209
======== ======== ======= ======= ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
Money Net Allow-
market loans ances for Share-
Total invest- and loan Total holders'
assets ments Securities leases losses deposits equity
---------- -------- ---------- ---------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
End of Quarter:
1994:
First $5,232,172 $677,125 $1,626,260 $2,531,806 $67,984 $3,493,502 $318,708
Second 5,452,447 830,288 1,552,256 2,665,104 68,981 3,599,176 341,818
Third 5,228,382 667,013 1,532,726 2,574,644 66,847 3,628,273 354,330
Fourth 4,934,095 403,446 1,663,433 2,391,278 67,018 3,705,976 365,770
1993:
First $4,334,905 $733,496 $1,148,227 $2,112,865 $61,042 $3,152,960 $273,736
Second 4,420,841 599,091 1,187,784 2,197,102 67,602 3,347,915 287,985
Third 4,467,194 463,552 1,225,784 2,395,834 68,334 3,370,553 300,298
Fourth 4,801,054 597,680 1,258,939 2,486,346 68,461 3,432,289 312,592
1992:
First $3,743,022 $532,789 $ 875,856 $2,029,465 $57,489 $2,906,767 $227,255
Second 3,893,657 540,755 919,497 2,126,102 60,768 2,921,975 235,843
Third 3,879,310 445,095 930,605 2,186,914 61,615 2,976,492 246,916
Fourth 4,107,924 616,180 981,695 2,107,433 59,807 3,075,110 260,070
</TABLE>
24
<PAGE> 27
ANALYSIS OF FINANCIAL CONDITION
Liquidity
Liquidity represents the Company's ability to provide adequate funds to meet its
financial obligations, including withdrawals by depositors, debt service
requirements and operating needs. Liquidity is primarily provided by the
regularly scheduled maturities of the Company's investment and loan portfolios.
In addition, the Company's liquidity is enhanced by the fact that cash, money
market securities, and liquid investments, net of short-term or "purchased"
liabilities and wholesale deposits, totaled $1,423.6 million or 41.3% of core
deposits at December 31, 1994.
The Company's core deposits, consisting of demand, savings, and money market
deposits, and small certificates of deposit, constituted 93.0% of total deposits
at December 31, 1994, as compared to 95.6% at December 31, 1993.
Maturing balances in loan portfolios provide flexibility in managing cash flows.
Maturity management of those funds is an important source of medium- to
long-term liquidity. The Company's ability to raise funds in the capital markets
through the "securitization" process and by debt issuances allows the Company to
take advantage of market opportunities to meet funding needs at reasonable cost.
The Company manages its liquidity position in order to assure its ability to
meet maturing obligations. Through an ongoing review of the Company's levels of
interest-sensitive assets and liabilities, efforts are made to structure
portfolios in such a way as to minimize the effects of fluctuating interest rate
levels on net interest income.
The parent company's cash requirements consist primarily of principal and
interest payments on its borrowings, dividend payments to shareholders, and cash
operating expenses. The parent company's cash needs are routinely satisfied
through payments by subsidiaries of dividends, proportionate shares of current
income taxes, management and other fees, and principal and interest payments on
subsidiary borrowings from the parent company.
Interest Rate Sensitivity
Interest rate sensitivity measures the Company's financial exposure to changes
in interest rates. Interest rate sensitivity is, like liquidity, affected by
maturities of assets and liabilities. Interest rate sensitivity is measured in
terms of "gaps," defined as the difference between volumes of assets and
liabilities whose interest rates are subject to reset within specified periods
of time, and "duration," a measure of the weighted average expected lives of the
cash flows from assets and liabilities.
The Company, through the management of interest rate "maturities" and the use of
off-balance sheet arrangements such as interest rate caps, floors, futures,
options, and interest rate exchange agreements, attempts to be reasonably close
to neutral. The Company's management exercises its best judgment in making
assumptions with respect to prepayments, early withdrawals and other
noncontrollable events in managing the Company's exposure to changes in interest
rates.
Information as to the Company's sensitivity is presented in a table that
follows. The interest rate gaps reported in the table arise when assets are
funded with liabilities having different repricing intervals, after considering
the effect of off-balance sheet hedging financial instruments. Since these gaps
are actively managed and change daily as the interest rate environment changes,
positions at the end of any period may not be reflective of the Company's
interest rate position in subsequent periods.
25
<PAGE> 28
The following table presents information as to the Company's interest rate
sensitivity at December 31, 1994:
Maturities and Interest Rate Sensitivity
at December 31, 1994
<TABLE>
<CAPTION>
Rate sensitive
------------------------------------------
After After
three one
months year
but but
Within within within After
three year five five Not rate
(Millions of dollars) months one years years sensitive Total
-------- ------ ------ ------ --------- --------
<S> <C> <C> <C> <C> <C> <C>
Uses of Funds
Earning assets:
Interest-bearing deposits $ 19.5 $ .2 $ 19.7
Federal funds sold and security resell agreements 383.8 383.8
Securities:
Held to maturity 572.6 $145.5 227.2 $ 85.6 1,030.9
Available for sale 79.9 40.2 131.9 63.6 315.6
Trading account 316.9 316.9
Loans and leases 1,590.9 298.1 390.6 111.7 2,391.3
Nonearning assets $ 475.9 475.9
-------- ------ ------ ------ ------- --------
Total uses of funds $2,963.6 $483.8 $749.9 $260.9 $ 475.9 $4,934.1
======== ====== ====== ====== ======= ========
Sources of Funds
Interest-bearing deposits and liabilities:
Savings deposits $ 92.9 $267.5 $349.8 $ 46.0 $ 756.2
Money market deposits 1,026.6 265.9 1,292.5
Time deposits under $100,000 129.6 232.8 151.5 513.9
Time deposits over $100,000 47.3 46.4 29.8 123.5
Foreign 119.0 .1 15.0 134.1
Securities sold, not yet purchased 81.4 81.4
Federal funds purchased and security
repurchase agreements 524.5 524.5
FHLB advances and other borrowings:
Less than one year 25.7 25.7
Over one year 79.3 1.6 7.9 12.8 101.6
Long-term debt .3 1.5 5.6 50.8 58.2
Noninterest-bearing deposits 367.1 61.2 37.1 103.5 $ 316.9 885.8
Other liabilities 70.9 70.9
Shareholders' equity 365.8 365.8
-------- ------ ------ ------ ------- --------
Total sources of funds $2,493.7 $611.1 $862.6 $213.1 $ 753.6 $4,934.1
======== ====== ====== ====== ======= ========
Off-balance sheet items affecting interest
rate sensitivity $ (200.0) $120.0 $ 80.0
Interest rate sensitivity gap $ 269.9 $ (7.3) $(32.7) $ 47.8 $(277.7)
Percent of total assets 5.5% (.2)% (.7)% 1.0% (5.6)%
Cumulative interest rate sensitivity gap $ 269.9 $262.6 $229.9 $277.7
Cumulative as a % of total assets 5.5% 5.3% 4.6% 5.6%
</TABLE>
26
<PAGE> 29
Earning Assets
Average earning assets increased 18.3% to $4,990.4 million in 1994 as compared
to the 1993 level of $4,220.1 million and the 1992 level of $3,501.7 million.
Earning assets comprised 91.5% of total average assets in 1994 compared with
90.9% in 1993, with average loans representing 51.6% of earning assets in 1994
compared to 52.7% in 1993.
The volume of liquid money market investments increased 10.3% to $869.7 million
in 1994 from $788.7 million in 1993. Average securities increased 27.8% to
$1,545.7 million in 1994 from $1,209.2 million in 1993. Average loan volume
increased 15.9% to $2,575.0 million in 1994 as compared to $2,222.2 million in
1993.
The following table sets forth the composition of average earning assets for the
years indicated:
Average Earning Assets
<TABLE>
<CAPTION>
(Millions of dollars) 1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Money market investments:
Interest-bearing deposits $ 24.4 $ 104.0 $ 184.1 $ 234.9 $ 104.2
Federal funds sold and security resell agreements 845.3 656.2 245.9 355.7 444.0
Other money market investments - 28.5 39.0 80.0 2.0
-------- -------- -------- -------- --------
Total money market investments 869.7 788.7 469.0 670.6 550.2
-------- -------- -------- -------- --------
Securities:
Held to maturity:
Taxable 726.9 958.8 766.0 604.5 444.8
Nontaxable 193.8 147.6 125.1 74.7 70.3
Available for sale 334.1 - - - -
Trading account 290.9 102.8 36.9 22.8 14.6
-------- -------- -------- -------- --------
Total securities 1,545.7 1,209.2 928.0 702.0 529.7
-------- -------- -------- -------- --------
Loans:
Loans held for sale 187.5 185.9 187.0 106.0 114.4
Net loans and leases 2,387.5 2,036.3 1,917.7 1,769.9 1,691.8
-------- -------- -------- -------- --------
Total loans 2,575.0 2,222.2 2,104.7 1,875.9 1,806.2
-------- -------- -------- -------- --------
Total earning assets $4,990.4 $4,220.1 $3,501.7 $3,248.5 $2,886.1
======== ======== ======== ======== ========
</TABLE>
27
<PAGE> 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
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------
1994 1993 1992
------------------------ ------------------------- ---------
(In thousands) Amortized Market Amortized Market Amortized
cost value cost Value Cost
---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Held to maturity
- ----------------
U.S. Treasury securities $ - $ - $ - $ - $ 57,380
U.S. government agencies and corporations:
Small Business Administration
loan-backed securities 460,163 459,313 399,603 411,846 366,867
Other agency securities 271,440 262,144 157,098 157,544 101,949
States and political subdivisions 243,225 242,754 196,241 198,664 148,363
Other debt securities - - - - 10,000
---------- ---------- ---------- ---------- --------
974,828 964,211 752,942 768,054 684,559
Mortgage-backed securities 56,079 54,587 60,318 62,033 162,428
Equity securities:
Federal Home Loan Bank stock - - - - 62,536
Other stock - - - - 33,472
---------- ---------- ---------- ---------- --------
1,030,907 1,018,798 813,260 830,087 $942,995
---------- ---------- ---------- ---------- ========
Available for sale
- ------------------
U.S. Treasury securities 48,269 47,177 70,263 70,512
U.S. government agencies 33,304 33,304 61,107 61,077
---------- ---------- ---------- ----------
81,573 80,481 131,370 131,589
---------- ---------- ---------- ----------
Mortgage-backed securities 55,560 54,334 49,493 49,363
---------- ---------- ---------- ----------
Equity securities:
Mutual funds:
Accessor Funds, Inc. 118,983 111,529 90,736 91,245
Other 534 534 515 515
Stock:
Federal Home Loan Bank 65,861 65,861 72,376 72,376
Other 2,785 2,839 2,194 2,258
---------- ---------- ---------- ----------
187,983 180,763 165,821 166,394
---------- ---------- ---------- ----------
325,116 315,578 346,684 347,346
---------- ---------- ---------- ----------
Total $1,356,023 $1,334,376 $1,159,944 $1,177,433
========== ========== ========== ==========
</TABLE>
28
<PAGE> 31
Maturities and Average Yields of Investment Securities
The following table presents by maturity range and type of security, the average
yield of the investment portfolio at December 31, 1994. The average yield is
based on effective rates on amortized cost at the end of the year.
Maturities and Average Yields of Investment Securities
at December 31, 1994
<TABLE>
<CAPTION>
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
------------------- -------- ------ ------ ------ ------ ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Held to maturity
- ----------------
U.S. government agencies and corporations:
Small Business Administration
loan-backed securities $ 460.2 6.6% $ 42.8 6.6% $140.7 6.6% $122.7 6.6% $153.9 6.7%
Other agency securities 271.4 5.3% 19.8 4.5% 249.3 5.4% 1.0 5.2% 1.3 6.6%
States and political subdivisions 243.2 7.9% 36.0 6.9% 114.7 8.0% 77.8 8.4% 14.8 7.4%
-------- ------ ------ ------ ------
974.8 6.6% 98.6 6.3% 504.7 6.3% 201.5 7.3% 170.0 6.8%
Mortgage-backed securities 56.1 6.2% 9.3 6.4% 27.5 6.2% 12.3 6.3% 7.0 6.3%
-------- ------ ------ ------ ------
1,030.9 6.6% 107.9 6.3% 532.2 6.3% 213.8 7.2% 177.0 6.8%
-------- ------ ------ ------ ------
Available for sale
- ------------------
U.S. Treasury securities 48.3 4.5% 32.9 4.5% 15.2 4.5% - -% .2 7.8%
U.S. government agencies 33.3 16.9% 33.3 16.9% - -% - -% - -%
-------- ------ ------ ------ ------
81.6 9.5% 66.2 10.7% 15.2 4.5% - -% .2 7.8%
-------- ------ ------ ------ ------
Mortgage-backed securities 55.5 6.1% 3.9 7.1% 14.7 6.8% 16.5 6.4% 20.4 5.0%
-------- ------ ------ ------ ------
Equity securities:
Mutual funds:
Accessor Funds, Inc. 188.8 6.1% 118.8 6.1%
Other .5 5.3% .5 5.3%
Stock:
Federal Home Loan Bank 65.9 6.3% 65.9 6.3%
Other 2.8 5.5% 2.8 5.5%
-------- ------
188.0 6.2% 188.0 6.2%
-------- ------ ----- ------ ------
325.1 7.0% 70.1 10.5% 29.9 5.7% 16.5 6.4% 208.6 6.1%
-------- ------ ------ ------ ------
Total $1,356.0 6.7% $178.0 8.0% $562.1 6.3% $230.3 7.1% $385.6 6.4%
======== ==== ====== ==== ====== ==== ====== ==== ====== ====
</TABLE>
* An effective tax rate of 30% was used to adjust tax-exempt securities yields
to rates comparable to those on fully taxable securities.
At December 31, 1994, the value of the Accessor Funds Inc. and the Federal Home
Loan Bank of Seattle stock each exceeded ten percent of shareholders' equity.
29
<PAGE> 32
Loan Portfolio
During 1994, the Company consummated securitized loan sales of SBA loans, home
equity loans, credit card receivables and automobile loans totaling
approximately $703.0 million leading to a $322.4 million net increase in
securitized receivables outstanding, excluding long-term residential mortgages.
After these sales, loans and leases at December 31, 1994 totaled $2,416.1
million, a slight decrease of 3.7% compared to $2,508.2 million at December 31,
1993. Loans held for sale, commercial, financial and agriculture loans, and
lease financing declined 54.4%, 3.2%, and .7%, respectively, while real estate
and consumer loans increased 3.6% and 3.3%, respectively.
The table below sets forth the amount of loans outstanding by type at December
31 for the years indicated:
Loan Portfolio
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------
(In thousands) 1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Loans held for sale $ 108,649 $ 238,206 $ 229,465 $ 153,782 $ 117,606
---------- ---------- ---------- ---------- ----------
Commercial, financial and agricultural 495,647 511,982 593,248 495,883 492,250
---------- ---------- ---------- ---------- ----------
Real estate:
Construction 218,244 213,114 118,185 100,922 78,355
Other:
Home equity credit line 40,007 159,998 148,245 96,059 65,193
1-4 family residential 452,131 367,001 155,831 164,606 122,382
Other real estate-secured 570,285 495,889 299,769 332,967 311,749
---------- ---------- ---------- ---------- ----------
1,280,667 1,236,002 722,030 694,554 577,679
---------- ---------- ---------- ---------- ----------
Consumer:
Bankcard 41,035 27,522 24,293 73,789 70,089
Other 349,998 351,157 430,123 458,712 507,536
---------- ---------- ---------- ---------- ----------
391,033 378,679 454,416 532,501 577,625
---------- ---------- ---------- ---------- ----------
Lease financing 129,547 130,450 124,480 122,620 115,974
---------- ---------- ---------- ---------- ----------
Other receivables 10,509 12,857 8,574 9,222 15,502
---------- ---------- ---------- ---------- ----------
Total loans $2,416,052 $2,508,176 $2,132,213 $2,008,562 $1,896,636
========== ========== ========== ========== ==========
</TABLE>
The Company has no foreign loans in its loan portfolio.
Loans Serviced
In recent years, many banks and other financial institutions have had an
increasing tendency to "securitize" loans by pooling and selling them to
investors, with the servicing responsibilities and residual income in excess of
financing costs, servicing expenses, and loan losses accruing to the originating
institution. The securitization of receivables can assist an institution in
effectively utilizing its capital and enhancing its liquidity while at the same
time limiting its exposure to loss. The Company's participation in the
securitization process, as well as its participation in originating and selling
mortgage loans and student loans, has increased in recent years. During 1994,
the Company securitized and sold SBA 504 first mortgage loans totaling $43.7
million, home equity credit line receivables totaling $192.4 million, credit
card receivables totaling $163.1 million, and automobile loans totaling $303.8
million. At December 31, 1994, real estate loans serviced for others amounted to
$1,760.1 million compared to $1,650.4 million at December 31, 1993, and $1,252.8
million at December 31, 1992. Securitized loans serviced for investors at
December 31, 1994 totaled $786.6 million compared to $464.2 million at December
31, 1993 and $267.9 million at December 31, 1992.
30
<PAGE> 33
Loan Maturities and Sensitivity to Changes in Interest Rates
The following table shows maturity distribution and sensitivity to changes in
interest rates of the loan portfolio at December 31, 1994:
Loan Maturities and Sensitivity to Changes in Interest Rates
<TABLE>
<CAPTION>
Maturities
-------------------------------------------------
One One year Over
year or through five
less five years years Total
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Loans held for sale $108,649 $ - $ - $ 108,649
-------- -------- -------- ----------
Commercial, financial and agricultural 280,717 153,468 61,462 495,647
-------- -------- -------- ----------
Real estate:
Construction 186,703 31,541 - 218,244
Other:
Home equity credit line 4,639 16,226 19,142 40,007
1-4 family residential 13,751 29,789 408,591 452,131
Other real estate-secured 55,633 166,265 348,387 570,285
-------- -------- -------- ----------
260,726 243,821 776,120 1,280,667
-------- -------- -------- ----------
Consumer:
Bankcard - 41,035 - 41,035
Other 87,696 207,941 54,361 349,998
-------- -------- -------- ----------
87,696 248,976 54,361 391,033
-------- -------- -------- ----------
Lease financing 19,338 99,474 10,735 129,547
-------- -------- -------- ----------
Other receivables 9,929 399 181 10,509
-------- -------- -------- ----------
Total $767,055 $746,138 $902,859 $2,416,052
======== ======== ======== ==========
Loans maturing in more than one year:
With fixed interest rates $350,076 $486,711 $ 836,787
With variable interest rates 396,062 416,148 812,210
-------- -------- ----------
Total $746,138 $902,859 $1,648,997
======== ======== ==========
</TABLE>
Credit Risk Management
Management of credit risk is a primary objective in maintaining a safe and sound
institution. To accomplish this task, the Company has written and placed in
effect loan policies to govern each of its loan portfolios. Loan policies assist
the Company in providing a framework for consistency in the acceptance of credit
and a basis for sound credit decisions. Generally, the Company makes its credit
decisions based upon debtor cash flow and available collateral. The Company has
structured its organization to separate the lending function from the credit
administration function to strengthen the control and independent evaluation of
credit activities. In addition, the Company has well-defined standards for
grading its loan portfolio, and maintains an internal Credit Examination
Department which periodically conducts examinations of the quality,
documentation, and administration of the Company's lending departments, and
submits reports thereon to a committee of the Board of Directors. Emphasis is
placed on early detection of potential problem credits so that action plans can
be developed on a timely basis to mitigate losses.
31
<PAGE> 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:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------
(In thousands) 1994 1993 1992 1991 1990
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $13,635 $23,364 $21,556 $33,497 $35,802
Loans contractually past due 90 days or more (not included in nonaccrual
loans above) 3,041 10,821 6,409 5,315 10,273
Restructured loans (not included in nonaccrual loans or loans
contractually past due 90 days or more) 567 4,006 4,003 3,225 10,181
Potential problem loans (loans presently current by their terms, but about
which management has serious doubt as to the future ability of the
borrower to comply with present repayment terms) - 1,114 6,263 5,042 5,194
</TABLE>
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:
<TABLE>
<CAPTION>
1994 1993 1992
------------------------- ------------------------ ------------------------
Re- Re- Re-
Non- struc- Non- struc Non- struc
(In thousands) accrual tured Total accrual tured Total accrual tured Total
------- ----- ------ ------- ----- ------ ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross amount of interest that would have been
recorded at original rate $1,713 $53 $1,766 $2,858 $193 $3,051 $2,082 $302 $2,384
Interest that was included
in income 371 45 416 668 152 820 793 247 1,040
------ --- ------ ------ ---- ------ ------ ---- ------
Net impact on interest income $1,342 $ 8 $1,350 $2,190 $ 41 $2,231 $1,289 $ 55 $1,344
====== === ====== ====== ==== ====== ====== ==== ======
</TABLE>
Potential problem loans consist primarily of commercial loans and commercial
real estate loans of $1 million. Management reviews loans graded "special
mention" and monitors the status of such loans for becoming potential problem
loans and their likelihood of becoming nonperforming loans. At December 31,
1994, management considered no loans as potential problem loans compared to two
loans totaling $1,114,000, at December 31, 1993 and three loans totaling
$6,263,000 at December 31, 1992. Management believes that for the near future,
potential problem loans should remain at a relatively low level.
Another aspect of the Company's credit risk management strategy is the
diversification of the loan portfolio. At year-end, the Company had 4% of its
portfolio in loans held for sale, 21% in commercial loans, 53% in real estate
loans, 16% in consumer loans, and 6% in lease financing and other. The Company's
real estate portfolio is also diversified. Of the total portfolio, 9% is in real
estate construction loans, 2% is in home equity credit lines, 19% is in 1-4
family residential loans and 23% is in commercial loans secured by real estate.
In addition, the Company attempts to avoid the risk of an undue concentration of
credits in a particular industry or trade group, as indicated by the commercial
loan and lease portfolio being allocated over more than 17 major industry
classifications. At year-end, the largest concentration in the commercial loan
and leasing portfolios was in the manufacturing group which comprised
approximately 17% of the portfolio. The manufacturing group was also well
diversified over several subcategories. Agricultural and mining loans comprise
less than 7% of total commercial loans. The Company has no significant exposure
to highly leveraged transactions and has no foreign credits in its loan
portfolio.
32
<PAGE> 35
Nonperforming Assets
Nonperforming assets include nonaccrual loans, restructured loans, and other
real estate owned. Loans are generally placed on nonaccrual status when the loan
is 90 days or more past due as to principal or interest, unless the loan is in
the process of collection and well-secured. Consumer loans are not placed on a
nonaccrual status inasmuch as they are generally charged off when they become
120 days past due. Loans are restructured to provide a reduction or deferral of
interest or principal payments when the financial condition of the borrower
deteriorates and requires that the borrower be given temporary or permanent
relief from the contractual terms of the credit. Other real estate owned is
acquired through or in lieu of foreclosure on credits that are secured by real
estate.
Nonperforming assets totaled $18.9 million as of December 31, 1994, a decrease
of 38.2% from $30.6 million as of December 31, 1993. Nonperforming assets
totaled $31.5 million at December 31, 1992. Nonperforming assets represented
.79% of net loans and leases, other real estate owned and other nonperforming
assets at December 31, 1994, as compared to 1.23% and 1.49% at December 31, 1993
and 1992, respectively. Nonperforming assets as a percentage of net loans and
leases, other real estate owned, and other nonperforming assets at December 31,
1994 are at their lowest levels since at least 1985, the period during which
records have been maintained using the present definitions.
Accruing loans past due 90 days or more totaled $3.0 million as of December 31,
1994, as compared to $10.8 million at December 31, 1993. These loans equal .13%
of net loans and leases at December 31, 1994, as compared to .44% at December
31, 1993.
Continuous efforts have been made to reduce nonperforming loans and to liquidate
real estate owned properties in such a manner as to recover the greatest value
possible. Significant steps have been taken during the last few years to
strengthen the Company's credit culture by implementing a number of initiatives
designed to increase internal controls and improve early detection and
resolution of problem loans.
The following table sets forth the composition of nonperforming assets at
December 31 for the years indicated:
Nonperforming Assets
<TABLE>
<CAPTION>
(Thousands of dollars) 1994 1993 1992 1991 1990
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans:
Commercial, financial and agricultural $ 5,736 $ 6,969 $ 2,981 $13,983 $14,978
Real estate 5,290 12,277 13,973 12,343 16,740
Consumer 862 607 1,377 2,198 2,646
Lease financing 1,747 3,511 3,225 4,973 1,438
------- ------- ------- ------- -------
Total 13,635 23,364 21,556 33,497 35,802
------- ------- ------- ------- -------
Restructured loans:
Commercial, financial and agricultural - 8 1,204 480 740
Real estate 567 3,998 2,799 2,745 9,441
------- ------- ------- ------- -------
Total 567 4,006 4,003 3,225 10,181
------- ------- ------- ------- -------
Other real estate owned:
Commercial, financial and agricultural:
Improved 415 844 3,099 4,200 4,422
Unimproved 1,018 904 1,844 3,053 6,286
Residential:
1-4 family 63 1,182 681 874 2,938
Multi-family - - - 96 483
Lots 6 163 45 540 1,455
Recreation property 42 110 238 445 774
Other 18 64 64 730 1,076
------- ------- ------- ------- -------
Total 1,562 3,267 5,971 9,938 17,434
Other nonperforming assets 3,179 - - - -
------- ------- ------- ------- -------
Total 4,741 3,267 5,971 9,938 17,434
------- ------- ------- ------- -------
Total $18,943 $30,637 $31,530 $46,660 $63,417
======= ======= ======= ======= =======
% of net loans* and leases, other real estate owned and
other nonperforming assets .79% 1.23% 1.49% 2.35% 3.36%
</TABLE>
33
<PAGE> 36
Nonperforming Assets (continued)
<TABLE>
<CAPTION>
(Thousands of dollars) 1994 1993 1992 1991 1990
------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C>
Accruing loans past due 90 days or more:
Commercial, financial and agricultural $ 431 $ 1,612 $2,893 $1,886 $ 3,256
Real estate 1,975 8,881 3,044 2,259 4,274
Consumer 631 327 451 1,123 2,717
Lease financing 4 1 21 47 26
------ ------- ------ ------ -------
Total $3,041 $10,821 $6,409 $5,315 $10,273
====== ======= ====== ====== =======
% of net loans* and leases .13% .44% .30% .27% .55%
</TABLE>
*Includes loans held for sale.
Allowance For Loan Losses
The Company's allowance for loan losses was 2.80% of net loans and leases at
December 31, 1994, as compared to 2.75% as of December 31, 1993 and 2.84% as of
December 31, 1992. Loan charge-offs increased 32.5% and recoveries decreased
51.7% in 1994 as compared to 1993, which resulted in a ratio of net charge-offs
to average loans and leases of .19% in 1994, compared to (.23)% in 1993, and
.44% in 1992. The allowance for loan and lease losses relative to problem loans
continued to strengthen in 1994. The allowance, as a percentage of noncurrent
loans, was 401.9% in 1994 as compared to 200.3% in 1993, and 213.9% in 1992.
Noncurrent loans are defined as loans on which interest is not accrued, plus
loans ninety days or more past due on which interest continues to accrue.
In analyzing the adequacy of the allowance for loan and lease losses, management
utilizes a comprehensive loan grading system to determine risk potential in the
portfolio, and considers the results of independent internal and external credit
reviews, historical charge-off experience, and changes in the composition and
volume of the portfolio. Other factors, such as general economic conditions and
collateral values, are also considered. Larger problem credits are individually
evaluated to determine appropriate reserve allocations. Additions to the
allowance are based upon the resulting risk profile of the portfolio developed
through the evaluation of the above factors.
34
<PAGE> 37
Summary Of Loan Loss Experience
The following table shows the changes in the allowance for losses for each year
indicated.
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Loans* and leases outstanding at December 31 (net of
unearned income) $2,391,278 $2,486,346 $2,107,433 $1,979,726 $1,868,199
========== ========== ========== ========== ==========
Average loans* and leases outstanding (net of
unearned income) $2,574,995 $2,222,182 $2,104,679 $1,875,928 $1,806,188
========== ========== ========== ========== ==========
Allowance for possible losses:
Balance at beginning of year $ 68,461 $ 59,807 $ 58,238 $ 60,948 $ 62,001
Allowance of companies (sold) or acquired 1,308 546 - - (1,224)
Loans and leases charged-off:
Loans held for sale - - - - -
Commercial, financial, and agricultural (5,158) (1,804) (6,224) (17,298) (11,841)
Real estate (573) (1,179) (2,544) (4,363) (2,281)
Consumer (4,756) (5,461) (9,559) (14,073) (12,918)
Lease financing (1,174) (360) (604) (847) (473)
Other receivables - - - - -
---------- ---------- ---------- ---------- ----------
Total (11,661) (8,804) (18,931) (36,581) (27,513)
---------- ---------- ---------- ---------- ----------
Recoveries:
Loans held for sale - - - - -
Commercial, financial, and agricultural 2,180 10,117 5,197 3,456 4,177
Real estate 676 611 477 829 516
Consumer 3,732 3,043 3,794 3,704 2,701
Lease financing 141 148 103 321 207
Other receivables - - - - -
---------- ---------- ---------- ---------- ----------
Total 6,729 13,919 9,571 8,310 7,601
---------- ---------- ---------- ---------- ----------
Net loan and lease (charge-offs) recoveries (4,932) 5,115 (9,360) (28,271) (19,912)
Provision charged against earnings 2,181 2,993 10,929 25,561 20,083
---------- ---------- ---------- ---------- ----------
Balance at end of year $ 67,018 $ 68,461 $ 59,807 $ 58,238 $ 60,948
========== ========== ========== ========== ==========
Ratio of net charge-offs (recoveries) to average loans
and leases .19% (.23)% .44% 1.51% 1.10%
Ratio of allowance for possible losses to loans and
leases outstanding at December 31 2.80% 2.75% 2.84% 2.94% 3.26%
Ratio of allowance for possible losses to
nonperforming loans at December 31 471.89% 250.13% 234.00% 158.59% 132.54%
Ratio of allowance for possible losses to nonaccrual
loans and accruing loans past due 90 days or more at
December 31
401.88% 200.27% 213.86% 150.05% 132.28%
</TABLE>
*Includes loans held for sale.
35
<PAGE> 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:
<TABLE>
<CAPTION>
1994 1993
----------------- ------------------
Alloca- Alloca-
% of tion of % of tion of
(In thousands) total allow- total allow-
loans ance loans ance
----- ------- ----- -------
<S> <C> <C> <C> <C>
Type of loan
- ------------
Loans held for sale 4.5% $ - 9.5% $ -
Commercial, financial and agricultural 20.5 2,920 20.4 3,094
Real estate 53.0 1,594 49.3 4,032
Consumer 16.2 946 15.1 2,366
Lease financing 5.4 981 5.2 1,043
Other receivables .4 - .5 -
----- -----
Total loans 100.0% 100.0%
===== =====
Off-balance sheet unused commitments
and standby letters of credit 3,674 1,972
------- -------
Allocated 10,115 12,507
Unallocated 56,903 55,954
------- -------
Total allowance for loan losses $67,018 $68,461
======= =======
</TABLE>
<TABLE>
<CAPTION>
1992 1991 1990
------------------ ----------------- ------------------
Alloca- Alloca- Alloca-
% of tion of % of tion of % of tion of
(In thousands) total allow- total allow- total allow-
loans ance loans ance loans ance
------ ------- ----- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Type of loan
- ------------
Loans held for sale 10.8% $ - 7.6% $ - 6.2% $ -
Commercial, financial and agricultural 27.8 4,619 24.7 8,419 26.0 11,103
Real estate 33.9 4,240 34.6 6,884 30.5 1,722
Consumer 21.3 2,711 26.5 3,684 30.4 1,814
Lease financing 5.8 1,818 6.1 2,279 6.1 200
Other receivables .4 - .5 - .8 -
----- ----- -----
Total loans 100.0% 100.0% 100.0%
===== ===== =====
Off-balance sheet unused commitments and
standby letters of credit 3,710 5,567 5,374
------- ------- -------
Allocated 17,098 26,833 20,213
Unallocated 42,709 31,405 40,735
------- ------- -------
Total allowance for loan losses $59,807 $58,238 $60,948
======= ======= =======
</TABLE>
36
<PAGE> 39
Deposits
Total average deposits increased 12.7% to $3,583.1 million in 1994 from $3,178.9
million in 1993. Total deposits increased 8.0% to $3,706.0 million at December
31, 1994 compared to $3,432.3 million at December 31, 1993. The Company's demand
deposits increased .7% and savings and money market accounts, increased 9.7%
comparing December 31, 1994 to December 31, 1993, while certificates of deposit
under $100,000 decreased 4.0%. Domestic deposits over $100,000 increased 52.6%
to $123.5 million and foreign deposits increased 95.6% to $134.1 million at
December 31, 1994.
The following table presents the average amount and the average rate paid on
each of the following categories for each year indicated:
Average Deposit Amounts and Average Rates
<TABLE>
<CAPTION>
(In millions) 1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Average amounts:
Noninterest-bearing demand deposits $ 838.1 $ 729.7 $ 556.5
Savings deposits 740.3 648.2 494.1
Money market deposits 1,284.7 1,117.0 1,029.5
Time deposits of less than $100,000 516.9 548.8 651.2
Time deposits $100,000 or more 94.7 79.4 95.1
Foreign deposits 108.4 55.8 86.5
-------- -------- --------
Total average amounts $3,583.1 $3,178.9 $2,912.9
======== ======== ========
Average rates:
Noninterest-bearing demand deposits -% -% -%
Savings deposits 3.01% 2.97% 3.52%
Money market deposits 3.11% 2.79% 3.37%
Time deposits under $100,000 3.96% 4.28% 5.15%
Time deposits $100,000 or more 4.06% 3.79% 4.65%
Foreign deposits 4.10% 2.66% 4.20%
Total 3.31% 3.20% 3.98%
Maturities of time deposits $100,000 or more at December 31, 1994 (In millions):
Under three months $ 47.3
Over three months and less than six months 22.0
Over six months and less than twelve months 24.4
Over twelve months 29.8
-------
Total time deposits $100,000 or more $ 123.5
=======
</TABLE>
Most foreign deposits are in denominations of $100,000 or more.
37
<PAGE> 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,
<TABLE>
<CAPTION>
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
- --------------------- -------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Securities sold, not yet purchased
1994 $ 81,437 5.33% $ 464,133 $ 184,405 5.95%
1993 $ 46,640 4.96% $ 278,351 $ 69,442 4.38%
1992 - -% - - -%
Federal funds purchased and security repurchase
agreements (a)
1994 $524,538 5.51% $1,165,880 $1,057,827 3.88%
1993 $595,200 2.86% $ 595,200 $ 767,309 2.92%
1992 $422,897 3.12% $ 490,774 $ 394,620 3.21%
Federal Home Loan Bank advances and other borrowings
less than one year(b)
1994 $ 25,748 7.70% $ 73,461 $ 32,557 5.44%
1993 $136,140 3.36% $ 136,140 $ 83,123 3.85%
1992 $153,533 3.43% $ 153,533 $ 78,406 4.10%
</TABLE>
(a) Federal funds purchased and security repurchase agreements are primarily
on an overnight or demand basis. Rates on overnight funds reflect current
market rates. Rates on fixed-maturity borrowings are set at the time of
the borrowings.
(b) Federal Home Loan Bank advances less than one year are overnight and
reflect current market rates or reprice monthly based on a one-month LIBOR
as set by the Federal Home Loan Bank of Seattle. Other borrowings are
primarily variable rate and reprice based on changes in the prime rate
which reflect current market.
Return on Equity and Assets
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Return on average assets 1.17% 1.25% 1.24%
Return on average common shareholders' equity 18.82% 20.33% 19.64%
Common dividend payout ratio 27.06% 21.81% 20.31%
Average equity to average assets ratio 6.22% 6.17% 6.31%
</TABLE>
38
<PAGE> 41
Capital Resources
IAt year end, there were two measures of capital adequacy in use for commercial
banks and bank holding companies, as follows:
1. Risk-based Capital
Risk-based capital guidelines require varying amounts of capital to be
maintained against different categories of assets, depending on the general
level of risk inherent in the assets. A capital allocation is also required for
off-balance sheet exposures such as letters of credit, loan commitment, and
interest rate contracts. The Company's total risk-based capital ratio was 14.96%
at December 31, 1994 and 14.12% at December 31, 1993. The minimum regulatory
requirement is an 8% total risk-based capital ratio of which 4% must be
comprised of core capital. The minimum risk-based capital ratio for a bank to be
considered "well-capitalized" under the regulatory definitions is 10%.
2. Tier I Leverage
Under the risk-based capital guidelines, a bank holding company could, in
theory, significantly leverage its capital by investing in assets with little or
no credit risk. The guidelines place a limit on such leverage through the
establishment of a minimum level of tangible equity as a percentage of average
total assets. The Company's Tier I leverage ratio was 6.24% at December 31, 1994
and 5.44% at December 31, 1993, compared to the minimum regulatory requirement
of 3%.
The following table presents the regulatory risk-based capital at December 31
for the years indicated:
Regulatory Risk-Based Capital at December 31
<TABLE>
<CAPTION>
(Thousands of dollars) 1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Under Guidelines Effective 1992 and Subsequent
- ----------------------------------------------
Capital components:
Common shareholders' equity $ 345,919 $ 300,175 $ 258,066
Add:
Minority interest in subsidiary 500 500 -
Deduct:
Goodwill (18,732) (11,920) (12,321)
Nonqualifying amount of purchased mortgage servicing - (280) -
---------- ---------- ----------
Tier I capital: Core capital 327,687 288,475 245,745
---------- ---------- ----------
Allowance for loan losses* 35,085 33,657 30,402
Qualifying unsecured long-term debt** 52,400 53,200 87,450
---------- ---------- ----------
Tier II capital: Supplementary capital 87,485 86,857 117,852
---------- ---------- ----------
Total risk-based capital $ 415,172 $ 375,332 $ 363,597
========== ========== ==========
Risk-weighted assets:
Balance sheet $2,629,427 $2,558,260 $2,273,763
Off-balance sheet 177,347 134,315 158,419
---------- ---------- ----------
Gross risk-weighted assets 2,806,774 2,692,575 2,432,182
Deduct: Excess allowance for loan losses (31,933) (34,804) (29,405)
---------- ---------- ----------
Total adjusted risk-weighted assets $2,774,841 $2,657,771 $2,402,777
========== ========== ==========
Capital ratios:
Tier I capital: Core capital 11.81% 10.85% 10.23%
Tier II capital: Supplementary capital 3.15% 3.27% 4.90%
---------- ---------- ----------
Total risk-based capital 14.96% 14.12% 15.13%
========== ========== ==========
</TABLE>
* 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
<PAGE> 42
Dividends
The Company's quarterly dividend rate was $.30 per share for the third and
fourth quarters of 1994, $.28 per share for the first and second quarters of
1994 and the third and fourth quarters of 1993, $.21 for the first and second
quarters of 1993 and the fourth quarter of 1992, and $.18 per share for all
other quarterly periods during 1992. The annual dividend rate was $1.16 for
1994, $.98 for 1993, and $.75 for 1992. During the years 1990 through 1994 there
was no preferred stock outstanding.
The following table sets forth dividends paid by the Company of each year
indicated:
Dividends Paid
<TABLE>
<CAPTION>
(Thousands of dollars) 1994 1993 1992 1991 1990
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net income $63,827 $58,205 $47,209 $30,449 $27,765
Common dividends paid 17,271 12,692 9,587 9,102 8,939
Payout/net income 27.1% 21.8% 20.3% 29.9% 32.2%
</TABLE>
Foreign Operations
Zions First National Bank opened a foreign office located in Grand Cayman, Grand
Cayman Islands, B.W.I. in 1980. This office has no foreign loans outstanding.
The office accepts Eurodollar deposits from qualified customers of the Bank and
places deposits with foreign banks and foreign branches of other U.S. banks.
Foreign deposits at December 31 totaled $134,132,000 in 1994, $68,563,000 in
1993, and $52,777,000 in 1992; and averaged $108,383,000 for 1994, $55,823,000
for 1993, and $86,479,000 for 1992.
40
<PAGE> 43
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Independent Auditors' Report
The Board of Directors and Shareholders
Zions Bancorporation:
We have audited the accompanying consolidated balance sheets of Zions
Bancorporation and subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of income, retained earnings, and cash flows for
each of the years in the three-year period ended December 31, 1994. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Zions Bancorporation
and subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1994, in conformity with generally accepted accounting
principles.
As discussed in notes 1 and 12 to the consolidated financial statements, the
Company changed its method of accounting for postretirement benefits other than
pensions in 1993 to adopt the provisions of the Financial Accounting Standards
Board's Statement of Financial Accounting Standards (Statement) No. 106,
Employers' Accounting for Postretirement Benefits Other than Pensions. As
discussed in notes 1 and 6, the Company also changed its method of accounting
for income taxes in 1993 to adopt the provisions of Statement No. 109,
Accounting for Income Taxes. As discussed in notes 1 and 3, the Company also
changed its method of accounting for investments to adopt the provisions of
Statement No. 115, Accounting for Certain Investments in Debt and Equity
Securities on December 31, 1993.
KPMG Peat Marwick LLP
Salt Lake City, Utah
January 24, 1995
41
<PAGE> 44
ZIONS BANCORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1994 and 1993
(In thousands, except share amounts)
<TABLE>
<CAPTION>
ASSETS 1994 1993
---------- ---------
<S> <C> <C>
Cash and due from banks $ 316,943 338,970
Money market investments:
Interest-bearing deposits 19,704 24,967
Federal funds sold and security resell agreements 383,742 572,713
Investment securities:
Held-to-maturity, at cost (approximate market value $1,018,798 and $830,087) 1,030,907 813,260
Available-for-sale, at market 315,578 347,346
Trading account 316,948 98,333
Loans:
Loans held for sale at cost, which approximates market 108,649 238,206
Loans, leases, and other receivables 2,307,403 2,269,970
---------- ---------
2,416,052 2,508,176
Less:
Unearned income and fees, net of related costs 24,774 21,830
Allowance for loan losses 67,018 68,461
---------- ---------
2,324,260 2,417,885
Premises and equipment 74,673 72,049
Amounts paid in excess of net assets of acquired businesses 18,732 11,920
Other real estate owned 1,562 3,267
Other assets 131,046 100,344
---------- ---------
$4,934,095 4,801,054
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 885,833 879,908
Interest-bearing:
Savings and money market 2,048,715 1,867,483
Time:
Under $100,000 513,841 535,456
Over $100,000 123,455 80,879
Foreign 134,132 68,563
---------- ---------
3,705,976 3,432,289
Securities sold, not yet purchased 81,437 46,640
Federal funds purchased and security repurchase agreements 524,538 595,200
Accrued liabilities 70,873 66,497
Federal Home Loan Bank advances and other borrowings:
Less than one year 25,748 136,140
Over one year 101,571 152,109
Long-term debt 58,182 59,587
---------- ---------
Total liabilities 4,568,325 4,488,462
---------- ---------
Shareholders' equity:
Capital stock:
Preferred stock, without par value; authorized 3,000,000 shares; issued and outstanding, none - -
Common stock, without par value; authorized 30,000,000 shares; issued and outstanding,
14,559,552 shares and 14,201,367 shares 79,193 66,257
Net unrealized holding gains and losses on securities available-for-sale (note 3) (5,866) 415
Retained earnings 292,443 245,920
---------- ---------
Total shareholders' equity 365,770 312,592
---------- ---------
Commitments and contingent liabilities (notes 7, 8, 9, 10, 12, and 14)
$4,934,095 4,801,054
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
42
<PAGE> 45
ZIONS BANCORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 1994, 1993, and 1992
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1994 1993 1992
-------- ------- -------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $208,414 172,920 170,793
Interest on loans held for sale 12,303 11,273 13,804
Interest on money market investments 35,045 27,427 21,669
Interest on securities:
Held-to-maturity:
Taxable 41,269 56,347 48,854
Nontaxable 10,982 8,455 7,591
Available-for-sale 19,916 - -
Trading account 16,516 7,555 5,537
Lease financing 9,544 9,639 9,977
-------- ------- -------
Total interest income 353,989 293,616 278,225
-------- ------- -------
Interest expense:
Interest on savings and money market deposits 62,200 50,331 52,101
Interest on time deposits 28,758 27,995 41,609
Interest on borrowed funds 64,425 40,633 27,233
-------- ------- -------
Total interest expense 155,383 118,959 120,943
-------- ------- -------
Net interest income 198,606 174,657 157,282
Provision for loan losses 2,181 2,993 10,929
-------- ------- -------
Net interest income after provision for loan losses 196,425 171,664 146,353
-------- ------- -------
Noninterest income:
Service charges on deposit accounts 24,058 22,875 19,484
Other service charges, commissions, and fees 22,008 21,392 18,871
Trust income 4,334 4,622 4,614
Investment securities gains (losses), net (299) (17) 327
Trading account income 860 2,350 4,437
Loan sales and servicing income 14,596 21,471 6,573
Other 7,645 7,187 8,543
-------- ------- -------
73,202 79,880 62,849
-------- ------- -------
Noninterest expenses:
Salaries and employee benefits 93,331 85,549 70,242
Occupancy, net 8,397 8,168 7,248
Furniture and equipment 12,526 9,294 7,681
Other real estate expense (88) 450 2,559
Legal and professional services 5,142 5,136 3,616
Supplies 4,819 4,537 3,860
Postage 4,723 4,334 3,611
FDIC premiums 7,547 7,257 6,235
Amortization of intangible assets 3,692 4,432 4,530
Loss on early extinguishment of debt - 6,022 -
Other 34,811 32,571 29,487
-------- ------- -------
174,900 167,750 139,069
-------- ------- -------
Income before income taxes and cumulative effect of changes in accounting
principles 94,727 83,794 70,133
Income taxes 30,900 27,248 22,924
-------- ------- -------
Income before cumulative effect of changes in accounting principles 63,827 56,546 47,209
Cumulative effect of changes in accounting principles - 1,659 -
Interest income: -------- ------- -------
Net income $ 63,827 58,205 47,209
======== ======= =======
Weighted average common and common-equivalent shares outstanding during the year 14,601 14,280 13,790
======== ======= =======
Earnings per common share:
Income before cumulative effect of changes in accounting principles $ 4.37 3.96 3.42
Cumulative effect of changes in accounting principles - .12 -
-------- ------- -------
Net income per common share $ 4.37 4.08 3.42
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
43
<PAGE> 46
ZIONS BANCORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1994, 1993, and 1992
(In thousands)
<TABLE>
<CAPTION>
1994 1993 1992
------------- ----------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 63,827 58,205 47,209
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Provision for loan losses 2,181 2,993 10,929
Write-downs of other real estate owned 179 704 1,723
Depreciation of premises and equipment 9,186 7,605 6,140
Amortization of premium on core deposits and other intangibles 3,692 4,432 4,530
Amortization of net premium/discount on investment securities 4,817 6,089 6,241
Accretion of unearned income and fees, net of related costs 2,770 (2,950) (4,056)
Proceeds from sales of trading account securities 160,090,330 36,468,421 3,112,879
Increase in trading account securities (160,308,945) (36,383,168) (3,115,492)
Net loss (gain) on sales of investment securities 299 17 (327)
Proceeds from loans held for sale 774,185 1,094,031 879,977
Increase in loans held for sale (663,379) (1,088,996) (953,930)
Net gain on sales of loans, leases, and other assets (8,968) (16,810) (3,998)
Net loss (gain) on sales of other real estate owned (328) (182) 278
Change in accrued income taxes 1,628 1,870 6,369
Change in accrued interest receivable (8,669) 2,794 4,855
Change in accrued interest payable 1,368 (1,428) (5,335)
Change in other assets (16,790) (20,738) (4,538)
Change in accrued liabilities 19 (4,074) (13,529)
------------- ----------- ----------
Net cash provided by (used in) operating activities (52,598) 128,815 (20,075)
------------- ----------- ----------
Cash flows from investing activities:
Net decrease in money market investments 196,086 567,251 98,058
Proceeds from sales of investment securities 137,128 74,587 33,446
Proceeds from maturities of investment securities 350,223 258,463 235,368
Purchases of investment securities (646,849) (554,632) (403,271)
Proceeds from sales of loans and leases 703,013 612,552 163,709
Net increase in loans and leases (671,665) (927,359) (228,830)
Principal collections on leveraged leases 111 1,375 1,215
Proceeds from sales of premises and equipment 691 169 88
Purchases of premises and equipment (12,389) (15,356) (18,569)
Proceeds from sales of other real estate owned 5,608 3,542 8,476
Proceeds from sales of mortgage servicing rights 2,864 608 1,435
Purchases of mortgage servicing rights (590) (1,731) (1,374)
Proceeds from sales of other assets 830 1,486 877
Cash paid for acquisition, net of cash received 9,851 (59,833) -
------------- ----------- ----------
Net cash provided by (used in) investing activities 74,912 (38,878) (109,372)
------------- ----------- ----------
Cash flows from financing activities:
Net increase in deposits 177,916 296,144 197,250
Net change in short-term funds borrowed (153,285) (419,992) (16,781)
Proceeds from FHLB advances over one year 15,340 204,567 1,745
Payments on FHLB advances over one year (65,878) (104,147) (56)
Payments on leveraged leases (42) - -
Proceeds from issuance of long-term debt 332 4,000 50,000
Payments on long-term debt (1,737) (43,659) (32,585)
Proceeds from issuance of common stock 317 893 1,695
Dividends paid (17,304) (12,705) (9,587)
------------- ----------- ----------
Net cash provided by (used in) financing activities (44,341) (74,899) 191,681
------------- ----------- ----------
Net increase (decrease) in cash and due from banks (22,027) 15,038 62,234
Cash and due from banks at beginning of year 338,970 323,932 261,698
------------- ----------- ----------
Cash and due from banks at end of year $ 316,943 338,970 323,932
============= =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
44
<PAGE> 47
ZIONS BANCORPORATION AND SUBSIDIARIES
Consolidated Statements of Retained Earnings
Years ended December 31, 1994, 1993, and 1992
(In thousands)
<TABLE>
<CAPTION>
1994 1993 1992
-------- ------- -------
<S> <C> <C> <C>
Balance at beginning of year $245,920 197,992 160,370
Retained earnings of acquired company - 2,428 -
Net income 63,827 58,205 47,209
Cash dividends:
Preferred, paid by subsidiary to minority shareholder (33) (13) -
Common, per share of $1.16 in 1994, $.98 in 1993, and $.75 in 1992 (16,786) (12,207) (9,183)
Dividends of NBA prior to merger (485) (485) (404)
-------- ------- -------
Balance at end of year $292,443 245,920 197,992
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
45
<PAGE> 48
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1994, 1993, and 1992
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business - Zions Bancorporation (the Parent) is a multibank holding company
organized under the laws of Utah in 1955, which provides a full range of banking
and related services through its subsidiaries located primarily in Utah, Nevada,
and Arizona.
Basis of Financial Statement Presentation - The consolidated financial
statements include the accounts of Zions Bancorporation and its subsidiaries
(the Company). All significant intercompany accounts and transactions have been
eliminated in consolidation. Certain amounts in prior years' consolidated
financial statements have been reclassified to conform to the 1994 presentation.
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of the
balance sheet and revenues and expenses for the period. Actual results could
differ from those estimates.
Investment Securities - The Company adopted the provisions of Statement of
Financial Accounting Standards (Statement) No. 115, Accounting for Certain
Investments in Debt and Equity Securities on December 31, 1993. Under Statement
No. 115, the Company classifies its investment securities in one of three
categories: trading, available-for-sale, or held-to-maturity. Trading securities
are bought and held principally for the purpose of selling them in the near
term. Held-to-maturity securities are those securities which the Company has the
ability and intent to hold until maturity. All other securities not included in
trading or held-to-maturity are classified as available-for-sale.
Trading securities (including futures and options used to hedge trading
positions against interest rate risk) and available-for-sale securities are
recorded at fair value. Held-to-maturity securities are recorded at amortized
cost, adjusted for the amortization or accretion of premiums or discounts.
Unrealized holding gains and losses on trading securities are included in
earnings. Unrealized holding gains and losses, net of related tax effect, on
available-for-sale securities are excluded from earnings and are reported as a
separate component of shareholders' equity until realized. Transfers of
securities between categories are recorded at fair value at the date of
transfer. Unrealized holding gains and losses are recognized in earnings for
transfers into trading securities. Unrealized holding gains or losses associated
with transfers of securities from held-to-maturity to available-for-sale are
recorded as a separate component of shareholders' equity. The unrealized holding
gains or losses included in the separate component of equity for securities
transferred from available-for-sale to held-for-maturity are maintained and
amortized into earnings over the remaining life of the security as an adjustment
to yield in a manner consistent with the amortization or accretion of premium or
discount on the associated security.
A decline in the market value of any available-for-sale or held-to-maturity
security below cost that is deemed other than temporary is charged to earnings
resulting in the establishment of a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the related
held-to-maturity security as an adjustment to yield using the effective-interest
method. Dividend and interest income are recognized when earned. Realized gains
and losses for securities classified as available-for-sale and held-to-maturity
are included in earnings and are derived using the specific-identification
method of determining the cost of securities sold.
Loan Fees - Nonrefundable fees and related direct costs associated with the
origination of loans are deferred. The net deferred fees and costs are
recognized in interest income over the loan term using methods that generally
produce a level yield on the unpaid loan balance. Other nonrefundable fees
related to lending activities other than direct loan origination are recognized
as other operating income over the period the related service is provided.
Bankcard discounts and fees charged to merchants for processing transactions
through the Company are shown net of interchange discounts and fees expense, and
are included in other service charges, commissions, and fees.
Mortgage Loan Servicing - Mortgage loan servicing fees are based on a stipulated
percentage of the outstanding loan principal balances being serviced and are
included in income as related loan payments from mortgagors are collected. Costs
associated with the acquisition of loan servicing rights through the purchase of
servicing contracts or bulk loan purchases are deferred and amortized over the
lives of loans being serviced in proportion to the estimated net loan servicing
income.
46
<PAGE> 49
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Allowance for Loan Losses - The allowance for loan losses is based on
management's periodic evaluation of the loan portfolio and reflects an amount
that, in management's opinion, is adequate to absorb losses in the existing
portfolio. In evaluating the portfolio, management takes into consideration
numerous factors, including current economic conditions, prior loan loss
experience, the composition of the loan portfolio, and management's estimate of
anticipated credit losses. Management believes that the allowance for loan
losses is adequate. While management uses available information to recognize
losses on loans, future additions to the allowance may be necessary based on
changes in economic conditions. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the Company's
allowance for loan losses. Such agencies may require the Company to recognize
additions to the allowance based on their judgments using information available
to them at the time of their examination.
Premises and Equipment - Premises and equipment are stated at cost, net of
accumulated depreciation and amortization. Depreciation, computed on the
straight-line method, is charged to operations over the estimated useful lives
of the properties. Leasehold improvements are amortized over the terms of
respective leases or the estimated useful lives of the improvements, whichever
is shorter. As of December 31, 1994 and 1993, accumulated depreciation and
amortization totaled $70,520,000 and $61,932,000, respectively.
Nonperforming Assets - Nonperforming assets are comprised of loans for which the
accrual of interest has been discontinued, loans for which the terms have been
renegotiated to less than market rates due to a weakening of the borrower's
financial condition (restructured loans), and other real estate acquired
primarily through foreclosure that is awaiting disposition.
Loans are generally placed on a nonaccrual status when principal or interest is
past due 90 days or more unless the loan is both well secured and in the process
of collection, or when in the opinion of management, full collection of
principal or interest is unlikely. Generally, consumer loans are not placed on a
nonaccrual status inasmuch as they are generally charged off when they become
120 days past due.
Other real estate owned is carried at the lower of cost or net realizable value.
Real estate may be considered to be in substance foreclosed and included herein
when specific criteria are met. When property is acquired through foreclosure,
or substantially foreclosed, any excess of the related loan balance over net
realizable value is charged to the allowance for loan losses. Subsequent write
downs or losses upon sale, if any, are charged to other real estate expense.
Amounts Paid in Excess of Net Assets of Acquired Businesses (Goodwill) - The
Company assesses the recoverability of this intangible asset by determining
whether the amortization of the goodwill balance over its remaining life can be
recovered through undiscounted future operating cash flows of the acquired
operation. The amount of goodwill impairment, if any, is measured based on
projected discounted future operating cash flows using a discount rate
reflecting the Company's average cost of funds.
Off-Balance Sheet Financial Instruments - In the ordinary course of business,
the Company has entered into off-balance sheet financial instruments consisting
of commitments to extend credit, commercial letters of credit, and standby
letters of credit. Such financial instruments are recorded in the consolidated
financial statements when they become payable.
The credit risk associated with these commitments is considered in management's
determination of the allowance for loan losses.
Interest Rate Exchange Contracts and Cap and Floor Agreements - The Company
enters into interest rate exchange contracts (swaps) and cap and floor
agreements in the management of interest rate risk. The objective of these
financial instruments is to match estimated repricing periods of
interest-sensitive assets and liabilities in order to reduce interest rate
exposure. These instruments are used only to hedge asset and liability
portfolios and are not used for speculative purposes. Therefore, these
instruments are not marked to market. Fees associated with these financial
instruments are accreted into interest income or amortized to interest expense
on a straight-line basis over the lives of the contracts and agreements. Gains
or losses on early termination of a swap are amortized on the remaining term of
the contract when the underlying assets or liabilities still exist. Otherwise,
such gains or losses are fully expensed or recorded as income at the termination
of the contract. The net interest received or paid on these contracts is
reflected on a current basis in the interest expense or income related to the
hedged obligation or asset.
Statements of Cash Flows - For purposes of the statements of cash flows, the
Company considers due from banks to be cash equivalents.
47
<PAGE> 50
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company paid interest of $156.1 million, $120.8 million, and $125.5 million,
respectively, and income taxes of $27.9 million, $26.3 million, and $16.9
million, respectively, for the years ended December 31, 1994, 1993, and 1992.
Loans transferred to other real estate owned totaled $3.3 million, $1.2 million,
and $4.9 million, respectively, for the years ended December 31, 1994, 1993, and
1992.
Income Taxes - Effective January 1, 1993, the Company adopted the provisions of
Statement No. 109, Accounting for Income Taxes, and has reported the cumulative
effect of that change in the method of accounting for income taxes in the 1993
consolidated statement of income. Under the asset and liability method of
Statement No. 109, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under Statement No. 109, the effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
Pension and Other Postretirement Plans - The Company has a defined benefit
pension plan covering substantially all of its employees. The benefits are based
on years of service and employees' compensation levels. The cost of this program
is being funded currently. The Company has other trustee retirement plans
covering all qualified employees who have at least one year of service (see note
12).
The Company sponsors a defined benefit health care plan for substantially all
retirees and employees. Effective January 1, 1993, the Company adopted Statement
No. 106, Employers' Accounting for Postretirement Benefits Other than Pensions,
which establishes a new accounting principle for the cost of retiree health care
and other postretirement benefits (see note 12). Prior to 1993, the Company
recognized these benefits on the pay-as-you-go method (i.e., cash basis). The
cumulative effect of the change in method of accounting for postretirement
benefits other than pensions is reported in the 1993 consolidated statement of
income.
Trust Assets - Assets held by the Company in a fiduciary or agency capacity for
customers are not included in the consolidated financial statements as such
items are not assets of the Company.
Stock Options - Proceeds from the sale of stock issued under options are
credited to common stock. The Company makes no charges against earnings with
respect to stock options issued under its qualified stock option plan. The
Company charges income for the difference between the option price and market
value on the date of grant with respect to stock options issued under its
nonqualified stock option plan.
Net Income Per Common Share - Net income per common share is based on the
weighted average outstanding common shares during each year, including common
stock equivalents, if applicable.
Stock Split - On December 18, 1992, the Company's Board of Directors approved a
two-for-one split of the common stock. This action was effective on January 26,
1993 for shareholders of record as of January 5, 1993. A total of 6,139,227
shares of common stock were issued and recorded in the form of a stock dividend.
All references to the number of common shares and per common share amounts have
been restated to reflect the split.
Accounting Standard Not Adopted - In May 1993, the Financial Accounting
Standards Board issued Statement No. 114, Accounting by Creditors for
Impairment of a Loan. Statement No. 114 requires that impaired loans be
measured based on the present value of expected future cash flows discounted at
the loan's effective interest rate or, as a practical expedient, at the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. Statement No. 114 is effective for fiscal years
beginning after December 15, 1994. Management does not expect Statement No. 114
to have a significant impact on the Company's financial position or results of
operations.
48
<PAGE> 51
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
2. MERGERS AND ACQUISITIONS
On January 14, 1994, the Company and National Bancorp of Arizona Inc. (NBA)
consummated their agreement and plan of reorganization whereby the Company
issued 1,456,408 shares of its common stock for 100 percent of the outstanding
common stock of NBA. The consolidated financial statements of the Company give
effect to the merger, which has been accounted for as a pooling of interests.
Accordingly, the accounts of NBA have been combined with those of the Company
for all periods presented. Separate results of operations of the combining
entities for 1993 and 1992 are as follows (in thousands):
<TABLE>
<CAPTION>
1993
-------------------------------
Historical
--------------------
Company NBA Combined
-------- ------ --------
<S> <C> <C> <C>
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
<CAPTION>
1992
-------------------------------
Historical
--------------------
Company NBA Combined
-------- ------ --------
<S> <C> <C> <C>
Net interest income $144,032 13,250 157,282
Net income 43,402 3,807 47,209
Net income per common share 3.52 1.17 3.42
</TABLE>
Also during 1994, the Company acquired Rio Salado Bancorp (Rio) for 328,000
shares of common stock. This acquisition was not material to the Company's
consolidated financial position and was accounted for as a purchase. The
difference between the purchase price and the net book value of Rio of $7.6
million is included in goodwill.
On August 11, 1993, the Company acquired all of the capital stock of Discount
Corporation of New York (Discount) for approximately $65.7 million in cash. The
acquisition has been accounted for as a purchase. The difference between the
purchase price and the net book value of Discount of $9.4 million ($8 million as
of December 31, 1994) is included in deferred tax assets (grouped with other
assets) in the accompanying consolidated balance sheets.
On October 29, 1993, Wasatch Bancorp (Wasatch) was merged into the Company. The
Company issued 373,335 shares of its common stock for 100 percent of the
outstanding common stock of Wasatch. The acquisition has been accounted for as a
pooling of interests. The consolidated financial statements of the Company for
1993 and 1992 have not been restated inasmuch as the historical operations of
Wasatch are not significant to the Company. Also, during 1993, the Company
acquired a 25 percent interest in Bennington Capital Management, Inc., a
Seattle-based investment advisor which manages the AccessorTM family of mutual
funds. This acquisition is accounted for on the equity method.
3. INVESTMENT SECURITIES
Investment securities as of December 31, 1994, are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
Held-to-maturity
------------------------------------------
Gross Gross Esti-
unreal- unreal- mated
Amort- ized ized market
ized cost gains losses value
--------- ------ ------- -------
<S> <C> <C> <C> <C>
U.S. government agencies and corporations:
Small Business Administration loan-backed securities $ 460,163 2,479 3,329 459,313
Other agency securities 271,440 73 9,369 262,144
States and political subdivisions 243,225 1,763 2,234 242,754
---------- ----- ------ ---------
974,828 4,315 14,932 964,211
Mortgage-backed securities 56,079 22 1,514 54,587
---------- ----- ------ ---------
$1,030,907 4,337 16,446 1,018,798
========== ===== ====== =========
49
</TABLE>
<PAGE> 52
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
Available-for-sale
--------------------------------------
Gross Gross Esti-
unreal- unreal- mated
Amort- ized ized market
ized cost gains losses value
--------- ------- ------ -------
<S> <C> <C> <C> <C>
U.S. Treasury securities $48,269 51 1,143 47,177
U.S. government agencies 33,304 - - 33,304
--------- ------- ------ -------
81,573 51 1,143 80,481
Mortgage-backed securities 55,560 9 1,235 54,334
Equity securities:
Mutual funds:
Accessor Funds, Inc. 118,803 - 7,274 111,529
Other 534 - - 534
Federal Home Loan Bank stock 65,861 - - 65,861
Other stock 2,785 76 22 2,839
--------- ------- ------ -------
$325,116 136 9,674 315,578
========= ======= ====== =======
</TABLE>
The Company adopted Statement No. 115, Accounting for Certain Investments in
Debt and Equity Securities on December 31, 1993. The Company recognized a net
unrealized holding loss on securities available-for-sale of $5,866,000, after
related tax effect, at December 31, 1994 and an unrealized holding gain on
securities available-for-sale of $415,000, after related tax effect, at December
31, 1993.
Investment securities as of December 31, 1993, are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
Held-to-maturity
---------------------------------------
Gross Gross Esti-
unreal- unreal- mated
Amort- ized ized market
ized cost gains losses value
---------- ------- ------ --------
<S> <C> <C> <C> <C>
U.S. government agencies and corporations:
Small Business Administration loan-backed securities $ 399,603 12,640 397 411,846
Other agency securities 157,098 709 263 157,544
States and political subdivisions 196,241 2,660 237 198,664
--------- ------- ------ --------
752,942 16,009 897 768,054
Mortgage-backed securities 60,318 1,715 - 62,033
--------- ------- ------ --------
$ 813,260 17,724 897 830,087
========= ======= ====== ========
<CAPTION>
Available-for-sale
----------------------------------------
Gross Gross Esti-
Amort- unreal- unreal- mated
ized ized ized market
cost gains losses value
--------- ------- ------ -------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 70,263 314 65 70,512
U.S. government agencies 61,107 25 55 61,077
--------- ------- ------ -------
131,370 339 120 131,589
Mortgage-backed securities 49,493 53 183 49,363
Equity securities:
Mutual funds:
Accessor Funds, Inc. 90,736 509 - 91,245
Other 515 - - 515
Federal Home Loan Bank stock 72,376 - - 72,376
Other stock 2,194 90 26 2,258
--------- ------- ------ -------
$ 346,684 991 329 347,346
========= ======= ====== =======
</TABLE>
50
<PAGE> 53
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The amortized cost and estimated market value of investment securities as of
December 31, 1994, by contractual maturity, excluding mortgage-backed and equity
securities, are shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or repay obligations
with or without call or prepayment penalties (in thousands):
<TABLE>
<CAPTION>
Held-to-maturity
---------------------
Amort- Estimated
ized market
cost value
---------- --------
<S> <C> <C>
Due in one year or less $ 98,563 98,405
Due after one year through five years 504,733 495,716
Due after five years through ten years 201,487 200,340
Due after ten years 170,045 169,750
---------- --------
$ 974,828 964,211
========== ========
<CAPTION> Available-for-sale
--------------------
Amort- Estimated
ized market
cost value
--------- ---------
<S> <C> <C>
Due in one year or less $ 66,160 65,677
Due after one year through five years 15,188 14,579
Due after five years through ten years - -
Due after ten years 225 225
--------- ---------
$ 81,573 80,481
========= =========
</TABLE>
Gross gains of $367,000, $104,000, and $468,000 and gross losses of $666,000,
$121,000, and $141,000 were realized on sales of investment securities for the
years ended December 31, 1994, 1993, and 1992, respectively. Such amounts
include gains of $102,000, $10,000, and $105,000, and losses of $66,000,
$32,000, and $17,000, respectively, for sales of mortgage-backed securities.
As of December 31, 1994 and 1993, securities with an amortized cost of
$210,149,000 and $110,262,000, respectively, were pledged to secure public and
trust deposits, advances, and for other purposes as required by law. In
addition, the Federal Home Loan Bank stock is pledged as security on the related
advances (note 7).
4. LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
---------- ---------
<S> <C> <C>
Loans held for sale $ 108,649 238,206
Commercial, financial, and agricultural 495,647 511,982
Real estate:
Construction 218,244 213,114
Other 1,062,423 1,022,888
Consumer 391,033 378,679
Lease financing 129,547 130,450
Other receivables 10,509 12,857
---------- ---------
$2,416,052 2,508,176
========== =========
</TABLE>
As of December 31, 1994 and 1993, loans with a carrying value of $121,886,000
and $302,530,000, respectively, were pledged as security for Federal Home Loan
Bank advances (note 7).
During 1994, 1993, and 1992, the Company purchased mortgage servicing rights
totaling $590 thousand, $1.7 million, and $1.4 million, respectively.
Amortization of purchased mortgage servicing rights totaled $1.7 million, $2.6
million, and $2.6 million for the years ended December 31, 1994, 1993, and 1992,
respectively.
51
<PAGE> 54
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
During 1994, 1993, and 1992, consumer and other loan securitizations totaled
$703 million, $609 million, and $159 million, respectively. Loan sales income
related thereto is recognized on the basis of cash flows received from the
securitized assets. Loan sales income, excluding servicing, amounted to $11.7
million in 1994, $14.7 million in 1993, and $1.7 million in 1992.
The allowance for loan losses is summarized as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------- ------ -------
<S> <C> <C> <C>
Balance at beginning of year $68,461 59,807 58,238
Allowance for loan losses of companies acquired 1,308 546 -
Additions:
Provision for loan losses 2,181 2,993 10,929
Recoveries 6,729 13,919 9,571
Deduction, loan charge-offs (11,661) (8,804) (18,931)
------- ------ -------
Balance at end of year $67,018 68,461 59,807
======= ====== =======
</TABLE>
Included in the allowance for loan losses is an allocation for unused
commitments and letters of credit (note 9) that as of December 31, 1994 and
1993, amounted to $3,674,000 and $1,972,000, respectively.
Nonperforming loans, leases, and related interest foregone are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------- ------ ------
<S> <C> <C> <C>
Nonaccrual loans and leases $13,635 23,364 21,556
Restructured loans and leases 567 4,006 4,003
------- ------ ------
Total $14,202 27,370 25,559
Contractual interest due ======= ====== ======
$ 1,766 3,051 2,384
Interest recognized 416 820 1,040
Net interest foregone ------- ------ ------
$ 1,350 2,231 1,344
======= ====== ======
</TABLE>
5. DEPOSITS
Deposits are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
---------- ---------
<S> <C> <C>
Noninterest-bearing $ 885,833 879,908
Interest-bearing:
Savings 756,196 711,806
Money market 1,292,519 1,155,677
Time under $100,000 513,841 535,456
Time over $100,000 123,455 80,879
Foreign 134,132 68,563
---------- ---------
$3,705,976 3,432,289
========== =========
</TABLE>
Interest expense on deposits is summarized as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------- ------ ------
<S> <C> <C> <C>
Savings and money market deposits:
Savings $22,262 19,222 17,396
Money market $39,938 31,109 34,705
------- ------ ------
$62,200 50,331 52,101
Time deposits: ======= ====== ======
Under $100,000 $20,469 23,501 33,555
Over $100,000 $ 3,845 3,010 4,419
Foreign $ 4,444 1,484 3,635
------- ------ ------
$28,758 27,995 41,609
======= ====== ======
</TABLE>
52
<PAGE> 55
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
6. INCOME TAXES
The Company adopted Statement No. 109, Accounting for Income Taxes, as of
January 1, 1993. The cumulative effect of this adoption was an increase in net
income of $7,419,000, as reported in 1993.
Income taxes are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
-------- ------ ------
<S> <C> <C> <C>
Federal:
Current $ 23,448 25,144 19,992
Deferred (benefit) 3,486 (1,832) (431)
State 3,966 3,936 3,363
-------- ------ ------
$ 30,900 27,248 22,924
======== ====== ======
</TABLE>
A reconciliation between income tax expense computed using the statutory federal
income tax rate (35 percent in 1994 and 1993, and 34 percent in 1992), and
actual income tax expense is as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
-------- ------ ------
<S> <C> <C> <C>
Income tax expense at statutory federal rate $ 33,154 29,328 23,840
State income tax, net 2,578 2,414 2,214
Nondeductible expenses 882 174 621
Nontaxable interest (3,900) (2,741) (2,606)
Tax credits (885) (586) -
Deferred tax assets realized (972) (1,137) (1,148)
Other items 43 (204) 3
-------- ------ ------
Income tax expense $ 30,900 27,248 22,924
======== ====== ======
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities as of December 31, 1994
and 1993, are presented below (in thousands):
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Gross deferred tax assets:
Book loan loss deduction in excess of tax $25,741 25,103
Postretirement benefits 2,377 2,399
Deferred compensation 3,619 1,626
Deferred loan sales 1,424 -
Present value of interest rate exchange contract 226 1,103
Capital leases 700 842
Net capital loss carryforwards - 972
Acquired net operating losses 7,977 9,367
Other 2,769 3,617
------ ------
44,833 45,029
Less valuation allowance - 972
------ ------
Total deferred tax assets 44,833 44,057
Gross deferred tax liabilities: ------ ------
Premises and equipment, due to differences in
depreciation (4,647) (4,033)
FHLB stock dividends (8,713) (8,372)
Leasing operations (10,614) (12,158)
Other (1,957) (134)
------- -------
Total deferred tax liabilities (25,931) (24,697)
------- -------
Statement No. 115 market equity adjustment 3,672 (247)
------- -------
Net deferred tax assets $22,574 19,113
======= =======
</TABLE>
53
<PAGE> 56
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax asset will not be realized. As of January 1, 1993,
the Company established a valuation allowance for the net capital loss
carryforwards as a result of some uncertainty of realizing offsetting capital
gains. Subsequently, the Company realized capital gains sufficient to reduce the
valuation allowance by $972,000 in 1994 and $1,137,000 in 1993.
The Company has net operating loss carryforwards totaling $27,535,000 that
expire in the years 2006 and 2007.
7. FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS
Federal Home Loan Bank advances and other borrowings as of December 31, 1994 and
1993, include $101,571,000 and $252,109,000, respectively, borrowed by Zions
First National Bank, a wholly owned subsidiary, (the Bank) under its line of
credit with the Federal Home Loan Bank of Seattle. The line of credit provides
for borrowing of amounts up to ten percent of total assets. The line of credit
is secured under a blanket pledge whereby the Bank maintains unencumbered
security with par value, which has been adjusted using a pledge requirement
percentage based upon the types of securities pledged, equal to at least 100
percent of outstanding advances, and, Federal Home Loan Bank stock. There are no
withdrawal and usage restrictions or compensating balance requirements.
Substantially all Federal Home Loan Bank advances reprice with changes in market
interest rates or have short terms to maturity. The carrying value of such
indebtedness is deemed to approximate market value (note 15).
Maturities of outstanding advances in excess of one year are as follows (in
thousands):
<TABLE>
<CAPTION>
Amount
-------
<S> <C>
1995 $ 16,373
1996 16,323
1997 16,255
1998 16,258
1999 16,262
Thereafter 20,100
--------
$101,571
========
</TABLE>
8. LONG-TERM DEBT
Long-term debt is summarized as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
------- ------
<S> <C> <C>
Subordinated notes $54,000 54,000
Industrial revenue bonds 800 1,550
Capitalized real property leases, 9-1/2% to 21%, payable in
aggregate monthly installments of approximately $89,000 2,682 3,378
Mortgage notes, 7-1/2% to 11-1/8%, due in varying amounts
and periods 185 265
Other notes payable 515 394
------- ------
$58,182 59,587
======= ======
</TABLE>
Subordinated notes includes $50,000,000 of 8-5/8 percent notes that mature in
2002. These notes are not redeemable prior to maturity. In addition, the Company
has $4,000,000 of 9 percent subordinated notes that mature in full on November
1, 1998 and may be called, at the option of the Company, on or after November 1,
1996 at par. The subordinated notes are unsecured and require semiannual
interest payments.
The industrial revenue bonds require mandatory sinking fund redemption in
various principal amounts through 1995. The bonds bear interest at a rate of
7.50 percent. The bonds are secured by an assignment of a lease on a banking
facility.
54
<PAGE> 57
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Maturities and sinking fund requirements on long-term debt for each of the
succeeding five years are as follows (in thousands):
<TABLE>
<CAPTION>
Consoli- Parent
dated only
------- ------
<S> <C> <C>
1995 $1,805 1,469
1996 1,111 715
1997 215 5
1998 4,133 4,000
1999 94 -
</TABLE>
9. COMMITMENTS AND CONTINGENT LIABILITIES
The Company is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers and
to reduce its own exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit, standby letters of credit,
interest rate caps and floors, interest rate exchange contracts, and commitments
to purchase and sell securities. Those instruments involve, to varying degrees,
elements of credit, market, and interest rate risk in excess of the amount
recognized in the balance sheets. The Company's exposure to credit loss in the
event of nonperformance by the other party to the financial instrument for
commitments to extend credit and standby letters of credit is represented by the
contractual notional amount of those instruments. The Company uses the same
credit policies in making commitments and conditional obligations as it does for
on-balance sheet instruments. For interest rate caps, floors, and exchange
contract transactions, the contract or notional amounts do not represent
exposure to credit loss. The Company controls the credit risk of these
transactions through credit approvals, limits, and monitoring procedures.
Unless noted otherwise, the Company does not require collateral or other
security to support financial instruments with credit risk.
Notional values of financial instruments are summarized as follows:
<TABLE>
<CAPTION>
Notional or
carrying amount
----------------------
1994 1993
---------- --------
<S> <C> <C>
Financial instruments whose contract amounts represent credit
risk (in thousands):
Unused commitments to extend credit $1,152,351 1,027,401
Standby letters of credit written:
Performance 55,951 50,598
Financial 19,621 23,582
Commercial letters of credit 3,233 4,436
Commitments to purchase securities 1,124,745 89,208
Commitments to sell securities 1,275,025 83,902
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee.
Commitments totaling $936,671,000 expire in 1995. Since many of the commitments
are expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. The Company evaluates each
customer's credit worthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Company upon extension of credit, is based
on management's credit evaluation of the counter party. Collateral held varies
but may include accounts receivable, inventory, property, plant and equipment,
and income-producing commercial properties.
55
<PAGE> 58
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Standby letters of credit written are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private borrowing
arrangements, including commercial paper, bond financing, and similar
transactions. Standby letters of credit include commitments in the amount of
$73,980,000 expiring in 1995 and $1,592,000 expiring thereafter through 2005.
The credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. The Company generally
holds marketable securities and cash equivalents as collateral supporting those
commitments for which collateral is deemed necessary.
The Company enters into interest rate contracts, including interest rate caps,
floors, futures, options, and interest rate exchange contract agreements in
managing its interest rate exposure. Interest rate caps and floors obligate one
of the parties to the contract to make payments to the other if an interest rate
index exceeds a specified upper "capped" level or if the index falls below a
specified "floor" level. A futures contract is an agreement to buy or sell a
quantity of a financial instrument or commodity at a predetermined future date
and rate or price. An option contract is an agreement that conveys to the
purchaser the right, but not the obligation, to buy or sell a quantity of a
financial instrument or commodity at a predetermined rate or price at a time in
the future. Interest rate exchange contract agreements involve the exchange of
fixed and variable rate interest payments based upon a notional amount and
maturity. Interest rate caps and exchange contracts to which the Company is a
party at December 31, 1994, have remaining terms of 5 to 20 years and 2 to 68
months, respectively. The fair value of interest rate contracts are obtained
from deal quotes, or discounted cash flow analyses. The values represent the
estimated amount the Company would receive or pay for comparable contracts,
taking into account current interest rates. Notional values of interest rate
contracts are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
-------- -------
<S> <C> <C>
Interest rate contracts:
Swaps - fixed $330,000 40,000
Futures 1,100 -
Options 145,000 -
Caps:
Purchased 25,000 28,417
Written 785,000 261,617
</TABLE>
The contract or notional amount of financial instruments indicates a level of
activity associated with a particular class of financial instrument and is not a
reflection of the actual level of risk. As of December 31, 1994 and 1993, the
regulatory risk-weighted values assigned to all off-balance sheet financial
instruments described herein totaled $177,347,000 and $134,315,000,
respectively. See note 4 for consideration of financial instruments in
management's determination of the allowance for loan losses.
During 1988, a lawsuit was brought in the United States District Court, Utah
District, against the Bank in connection with its performance of duties as an
indenture trustee for certain investors in real estate and other syndication
projects. In September 1992, a motion was granted allowing an amended complaint
containing allegations that plaintiffs intend to proceed as a class action to
recover approximately $23 million, prejudgment interest, attorneys' fees, and
additional amounts under certain statutory provisions and common law. No motion
to certify the classes has been filed, and the Bank intends to vigorously oppose
such motion and to defend the entire action. Although no assurances can be given
as to the outcome, the Company continues to believe that it has meritorious
defenses to such lawsuit, and that there is insurance coverage for a substantial
portion of the amount claimed.
The Company is also the defendant in various other legal proceedings arising in
the normal course of business. The Company does not believe that the outcome of
any of such proceedings, including the lawsuit discussed in the preceding
paragraph, will have a material adverse effect on its consolidated financial
position.
In connection with loans sold to (or serviced for) others, the Company is
subject to recourse obligations on approximately $22.5 million as of December
31, 1994.
56
<PAGE> 59
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company has commitments for leasing premises and equipment under the terms
of noncancelable leases expiring from 1994 to 2005. Future aggregate minimum
rental payments under existing noncancelable leases at December 31, 1994 are as
follows (in thousands):
<TABLE>
<CAPTION>
Real Real property
property, and equip-
capital- ment,
ized operating
--------- -------------
<S> <C> <C>
1995 $ 383 4,178
1996 571 3,290
1997 278 2,741
1998 222 2,204
1999 171 1,652
Thereafter 1,164 6,367
--------- -------------
$2,789 20,432
========= =============
</TABLE>
Future aggregate minimum rental payments have been reduced by noncancelable
subleases as follows: 1995, $689,000; 1996, $485,000; and 1997, $4,000.
Aggregate rental expense on operating leases amounted to $4,841,000, $3,946,000,
and $3,335,000 for the years ended December 31, 1994, 1993, and 1992,
respectively.
10. STOCK OPTIONS
The Company has a qualified stock option plan adopted in 1981, under which stock
options are granted to key employees; and a nonqualified plan under which
options are granted to certain key employees. Under the nonqualified plan,
options expire five to ten years from the date of grant. Under the qualified
plan, 506,000 shares of common stock were reserved. Qualified options are
granted at a price not less than 100 percent of the fair market value of the
stock at the date of grant. Options granted are generally exercisable in
increments from one to six years after the date of grant and expire six years
after the date of grant.
Transactions and other information relating to stock options are summarized as
follows:
<TABLE>
<CAPTION>
Number of Option price
shares per share
--------- ----------------
<S> <C> <C>
Options granted during:
1994 104,250 $38.50 to $39.75
1993 2,000 $47.25
1992 216,000 $10.00 to $24.13
Options exercised during:
1994 45,450 $15.00 to $24.13
1993 124,491 $10.00 to $24.13
1992 116,328 $10.50 to $24.13
Options canceled during:
1994 6,418 $18.33 to $39.75
1993 2,912 $10.00 to $24.13
1992 6,000 $13.25
Options expiring during:
1994 - -
1993 22,750 $12.50 to $14.75
1992 34,724 $13.25
Options outstanding at December 31:
1994 393,821 $9.47 to $47.25
1993 341,439 $9.47 to $47.25
1992 489,592 $9.47 to $24.13
Options outstanding at December 31:
1994 393,821 $9.47 to $47.25
1993 341,439 $9.47 to $47.25
1992 489,592 $9.47 to $24.13
</TABLE>
57
<PAGE> 60
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of December 31, 1994, there are 176,000 options exercisable at prices from
$9.47 to $47.25 per share. For the year ended December 31, 1994, shares obtained
through exercise of options had a cumulative average market value of $1,739,000
at the date of exercise.
11. COMMON STOCK
Changes in common stock are summarized as follows (amount in thousands):
<TABLE>
<CAPTION>
Common stock
-----------------------
Shares Amount
---------- ---------
<S> <C> <C>
Balance at December 31, 1991 13,603,812 $60,383
Stock options:
Redeemed and retired (14,820) -
Exercised 116,328 1,221
Employee stock ownership plan 13,242 283
Dividend reinvestments 8,982 191
---------- -------
Balance at December 31, 1992 13,727,544 62,078
Stock options:
Redeemed and retired (24,003) -
Exercised 124,491 893
Acquisition 373,335 3,286
---------- -------
Balance at December 31, 1993 14,201,367 66,257
Stock options:
Redeemed and retired (15,265) -
Exercised 45,450 443
Acquisition 328,000 12,493
---------- -------
Balance at December 31, 1994 14,559,552 $79,193
========== =======
</TABLE>
12. RETIREMENT PLANS
The Company has a noncontributory defined benefit pension plan for eligible
employees. Plan benefits are based on years of service and employees'
compensation levels. Benefits vest under the plan upon completion of five years
of service. Plan assets consist principally of corporate equity and debt
securities, government fixed income securities, and cash investments.
The components of the net pension cost for the years ended December 31, 1994 and
1993, are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
Service cost - benefits earned during the period $2,385 1,763
Interest cost on projected benefit obligation 2,908 2,715
Actual return on assets (794) (2,293)
Net amortization and deferrals (2,640) (922)
------ ------
Net pension cost $1,859 1,263
====== ======
</TABLE>
58
<PAGE> 61
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Primary actuarial assumptions used in determining the net pension cost are as
follows:
<TABLE>
<CAPTION>
1993 1992
--------- --------
<S> <C> <C>
Assumed discount rate 7.50% 8.00
Assumed rate of increase in compensation levels 5.00 5.50
Expected long-term rate of return on assets 9.50 9.50
The funded status of the plan as of December 31, 1994 and 1993, is as follows
(in thousands):
1994 1993
--------- --------
Actuarial present value of benefit obligations:
Vested benefit obligation $(31,092) (31,225)
========= ========
Accumulated benefit obligation $(33,972) (35,703)
========= ========
Projected benefit obligation $(38,269) (39,676)
Plan assets at fair value 36,208 35,790
--------- --------
Unfunded projected benefit obligation (2,061) (3,886)
Unrecognized net loss 8,391 10,830
Unrecognized prior service cost (1,290) (1,120)
Unrecognized net transition asset (2,931) (3,556)
--------- --------
Prepaid pension cost 2,109 2,268
Primary actuarial assumptions (future periods): ========= ========
Assumed discount rate 8.75% 7.50
Assumed rate of increase in compensation levels 5.00 5.00
</TABLE>
In addition to the Company's defined benefit pension plan, the Company sponsors
a defined benefit health care plan that provides postretirement medical benefits
to full-time employees hired before January 1, 1993, who meet minimum age and
service requirements. The plan is contributory, with retiree contributions
adjusted annually, and contains other cost-sharing features such as deductibles
and coinsurance. Plan coverage is provided by self-funding or health maintenance
organizations (HMOs) options. The accounting for the plan anticipates future
cost-sharing changes to the written plan, including the Company's expressed
intent to increase the retiree contribution rate annually from 30 percent and 40
percent in 1993 for normal and early retirees, respectively, to 50 percent for
both in 1996. The Company's retiree premium contribution rate is frozen at 50
percent of 1996 dollar amounts. The Company's policy is to fund the cost of
medical benefits in amounts determined at the discretion of management.
The Company adopted Statement No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions, as of January 1, 1993. The cumulative effect of
this adoption was an after-tax decrease in net income of $5,760,000, as reported
in 1993.
59
<PAGE> 62
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table presents the plan's funded status reconciled with amounts
recognized in the Company's consolidated balance sheets at December 31, 1994 and
1993, as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
-------- -------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $(2,693) (2,773)
Fully eligible active plan participants (1,779) (1,693)
Other active plan participants (705) (682)
-------- -------
(5,177) (5,148)
Plan assets at fair value - -
-------- -------
Accumulated postretirement benefit obligation in excess of plan assets (5,177) (5,148)
Unrecognized net gain (1,039) (1,122)
-------- -------
Accrued postretirement benefit cost included in other liabilities
$(6,216) (6,270)
======== =======
Net periodic postretirement benefit cost for 1994 and 1993 includes the
following components ( in thousands):
1994 1993
-------- -------
Service cost $ 164 141
Interest cost 372 368
Net amortization (224) -
-------- -------
Net periodic postretirement benefit cost $ 312 509
======== =======
</TABLE>
For measurement purposes, an annual rate of increase in the per capita cost of
covered benefits (i.e., health care cost trend rate) of 11.55 percent and 9
percent were assumed for the self-funded and HMOs options, respectively, for
1994. The HMOs rate was assumed to decrease gradually to 5 percent by the year
2000 and remain at that level thereafter. The self-funded rate was assumed to
decrease gradually to 5.8 percent by the year 2001, and decline to 5.01 percent
over the remaining life expectancy of the participants. The health care cost
trend rate assumption does not have a significant effect on amounts reported
because the Company has capped its retiree premium contribution rates.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 8.75 and 7.50 percent, respectively, at
December 31, 1994 and 1993.
The Company has an Employee Stock Savings Plan and an Employee Investment
Savings Plan (formerly known as the Salary Reduction Arrangement Plan)
(PAYSHELTER). Under PAYSHELTER, employees select from a nontax-deferred or
tax-deferred plan and four investment alternatives. Employees can contribute
from 1 to 15 percent of compensation, which is matched 50 percent by the Company
for contributions up to 5 percent and 25 percent for contributions greater than
5 percent up to 10 percent. Contributions to the plans amounted to $1,319,000,
$1,176,000, and $793,000 for the years ended December 31, 1994, 1993, and 1992,
respectively.
During 1992, the Company formed an employee profit sharing plan. Contributions
to the plan are determined per a formula based on the Company's annual return on
equity (required minimum return of 14 percent). Contributions to the plan
amounted to $1,096,000, $948,000, and $914,000 for the years ended December 31,
1994, 1993, and 1992, respectively.
60
<PAGE> 63
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Financial information by quarter for the three years ended December 31, 1994 is
as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Net
Provi- Income income
Net sion for before per
interest loan income Net common
income losses taxes income share
--------- -------- -------- ------ ------
<S> <C> <C> <C> <C> <C>
1994:
First quarter $ 44,801 290 18,416 12,438 .87
Second quarter 48,741 467 24,743 16,418 1.12
Third quarter 51,859 440 26,789 17,665 1.20
Fourth quarter 53,205 984 24,779 17,306 1.18
-------- ------ ------- ------ -----
$198,606 2,181 94,727 63,827 4.37
======== ====== ======= ====== =====
1993:
First quarter $ 41,092 1,365 13,428 10,746 .75
Second quarter 44,813 408 24,729 16,636 1.17
Third quarter 43,795 482 22,684 15,397 1.08
Fourth quarter 44,957 738 22,953 15,426 1.08
-------- ------ -------- ------ -----
$174,657 2,993 83,794 58,205 4.08
======== ====== ======== ====== =====
1992:
First quarter $ 35,486 4,135 11,293 8,331 .61
Second quarter 38,105 3,181 15,977 10,282 .74
Third quarter 40,664 2,003 19,908 13,131 .95
Fourth quarter 43,027 1,610 22,955 15,465 1.12
-------- ------ ------- ------ -----
$157,282 10,929 70,133 47,209 3.42
======== ====== ======= ====== =====
</TABLE>
14. CONCENTRATIONS OF CREDIT RISK
Credit risk represents the accounting loss that would be recognized at the
reporting date if counterparties failed completely to perform as contracted.
Concentration of credit risk (whether on or off balance sheet) that arise from
financial instruments exists for groups of customers or counterparties when they
have similar economic characteristics that would cause their ability to meet
contractual obligations to be similarly affected by changes in economic or other
conditions. The Company does not have significant exposure to any individual
customer or counterparty.
Most of the Company's business activity is with customers located within the
states of Utah, Nevada, and Arizona. The commercial loan portfolio is well
diversified, consisting of more than 17 industry classifications groupings. As
of December 31, 1994, the largest concentration of risk in the commercial loan
and leasing portfolio is represented by the manufacturing industry grouping,
which comprises approximately 17 percent of the portfolio. The manufacturing
industry grouping is also well diversified over several subcategories. The
Company has minimal credit exposure from lending transactions with highly
leveraged entities and has no foreign loans.
61
<PAGE> 64
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying value and estimated fair value of principal financial instruments as of
December 31, 1994 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Carrying Estimated
value fair value
---------- ----------
<S> <C> <C>
Financial assets:
Cash and due from banks $ 316,943 316,943
Money market investments 403,446 403,446
Investment securities 1,663,433 1,651,212
Loans, net 2,324,260 2,315,516
---------- ---------
Total financial assets $4,708,082 4,687,117
========== =========
Financial liabilities:
Demand, savings, and money market deposits $2,934,548 2,934,548
Time and foreign deposits 771,428 756,176
Federal funds purchased and security repurchase
agreements 605,975 605,975
FHLB advances and other borrowings 127,319 127,319
Long-term debt 58,182 57,587
---------- ---------
Total financial liabilities $4,497,452 4,481,605
========== =========
</TABLE>
Financial assets and financial liabilities other than investment securities of
the Company are not traded in active markets. The above estimates of fair value
require subjective judgments, and are approximate. Changes in the following
methodologies and assumptions could significantly affect the estimates.
Financial Assets - The estimated fair value approximates the carrying value of
cash and due from banks and money market investments. For securities, the fair
value is based on quoted market prices where available. If quoted market prices
are not available, fair values are based on quoted market prices of comparable
instruments or using a discounted cash flow model based on established market
rates. The fair value of fixed rate loans is estimated by discounting future
cash flows using the London Interbank Offered Rate (LIBOR) yield curve adjusted
by a factor which reflects the credit and interest rate risk inherent in the
loan. Variable rate loans reprice with changes in market rates. As such their
carrying amounts are deemed to approximate fair value. The fair value of the
allowance for loan losses of $67,018,000 is the present value of estimated net
charge-offs.
Financial Liabilities - The estimated fair value of demand and savings deposits,
and federal funds purchased and security repurchase agreements approximates the
carrying value. The fair value of time and foreign deposits is estimated by
discounting future cash flows using the LIBOR yield curve. Substantially all
FHLB advances reprice with changes in market interest rates or have short terms
to maturity. The carrying value of such indebtedness is deemed to approximate
market value. Other borrowings are not significant. The estimated fair value of
the subordinated notes is based on a quoted market price. The remaining
long-term debt is not significant.
Off-Balance Sheet Financial Instruments - The carrying and fair values of
off-balance sheet financial instruments represented by interest rate exchange
contracts (swaps) and caps as of December 31, 1994 is as follows (in thousands):
<TABLE>
<CAPTION>
Carrying value Fair value
-------------- ----------
asset positive
(liability) (negative)
-------------- ----------
<S> <C> <C>
Swaps $ - (3,405)
Futures and options 1,158 1,158
Caps:
Purchased 367 643
Written (7,393) (10,085)
</TABLE>
The fair value of the swaps and caps reflects the estimated amounts that the
Company would receive or pay to terminate the contracts at the reporting date
based upon pricing or valuation models applied to current market information,
thereby taking into account the current unrealized gains or losses of open
contracts.
62
<PAGE> 65
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The fair value of commitments to extend credit and letters of credit, based on
fees currently charged for similar commitments, is not significant. See note 9
to the consolidated financial statements.
16. DIVIDEND RESTRICTION AND CONDENSED PARENT-ONLY FINANCIAL INFORMATION
Dividends declared by the Company's banking subsidiaries in any calendar year
may not, without the approval of the appropriate federal regulator, exceed their
net earnings for that year combined with their retained net earnings for the
preceding two years. At December 31, 1994, the Company's subsidiaries had
approximately $112,994,000 available for the payment of dividends under the
foregoing restrictions. In addition, the banking subsidiaries must meet various
requirements and restrictions under the laws of the United States and state
laws, including requirements to maintain cash reserves against deposits and
limitations on loans and investments with affiliated companies. During 1994,
cash reserve balances held with the Federal Reserve banks averaged approximately
$78.3 million.
63
<PAGE> 66
Condensed financial information of Zions
Bancorporation (parent only) follows:
ZIONS BANCORPORATION
Condensed Balance Sheets
December 31, 1994 and 1993
(In thousands)
<TABLE>
<CAPTION>
ASSETS 1994 1993
-------- -------
<S> <C> <C>
Cash and due from banks $ 1,574 2,251
Interest-bearing deposits 2,826 445
Investment securities 270 313
Loans, lease financing, and other receivables 2,373 3,787
Investments in subsidiaries:
Commercial banks 386,853 335,137
Other 4,601 3,531
Receivables from subsidiaries:
Commercial banks 27,094 28,971
Other 563 50
Real estate held for rental purposes, at cost, less accumulated depreciation 6,169 6,824
Premises and equipment, at cost, less accumulated depreciation 132 150
Other real estate owned 134 386
Other assets 7,618 11,144
-------- -------
$440,207 392,989
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued liabilities $ 10,247 13,850
Short-term borrowings 8,001 9,000
Long-term debt 56,189 57,547
-------- -------
Total liabilities 74,437 80,397
-------- -------
Shareholders' equity:
Preferred stock - -
Common stock 79,193 66,257
Net unrealized holding gains and losses on securities available-for-sale (5,866) 415
Retained earnings 292,443 245,920
-------- -------
Total shareholders' equity 365,770 312,592
-------- -------
$440,207 392,989
======== =======
</TABLE>
64
<PAGE> 67
ZIONS BANCORPORATION
Condensed Statements of Income
Years ended December 31, 1994, 1993, and 1992
(In thousands)
<TABLE>
<CAPTION>
1994 1993 1992
-------- ------- -------
<S> <C> <C> <C>
Interest income - interest and fees on loans and securities $ 3,035 4,278 2,905
Interest expense - interest on borrowed funds 4,798 7,622 9,014
-------- ------- -------
Net interest loss (1,763) (3,344) (6,109)
Other income: -------- ------- -------
Dividends from consolidated subsidiaries:
Commercial banks 21,528 17,766 13,982
Other - 3,224 250
Other income 2,985 2,542 2,767
-------- ------- -------
24,513 23,532 16,999
-------- ------- -------
Expenses:
Salaries and employee benefits 4,913 3,989 3,532
Loss on early extinguishment of debt - 6,022 -
Operating expenses 1,165 933 184
-------- ------- -------
6,078 10,944 3,716
-------- ------- -------
Income before income tax benefit and cumulative effect of changes in accounting principles 16,672 9,244 7,174
Income tax benefit (1,939) (4,448) (2,792)
-------- ------- -------
Income before cumulative effect of changes in accounting principles 18,611 13,692 9,966
Cumulative effect of changes in accounting principles - (378) -
-------- ------- -------
Income before equity in undistributed income (loss) of consolidated subsidiaries 18,611 13,314 9,966
-------- ------- -------
Equity in undistributed income (loss) of consolidated subsidiaries:
Commercial banks 44,133 47,716 36,266
Other 1,083 (2,825) 977
-------- ------- -------
45,216 44,891 37,243
-------- ------- -------
Net income $63,827 58,205 47,209
======== ======= =======
</TABLE>
65
<PAGE> 68
ZIONS BANCORPORATION
Condensed Statements of Cash Flows
Years ended December 31, 1994, 1993, and 1992
(In thousands)
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $ 63,827 58,205 47,209
Adjustments to reconcile net income to net cash provided by operating activities:
Undistributed net income of consolidated subsidiaries (45,216) (44,891) (37,243)
Depreciation of premises and equipment 675 688 692
Amortization of excess costs of acquired businesses 492 349 349
Other (3) 3,845 899
--------- --------- ---------
Net cash provided by operating activities 19,775 18,196 11,906
--------- --------- ---------
Cash flows from investing activities:
Net decrease (increase) in interest-bearing deposits (2,381) 9,735 (787)
Collection of advances to subsidiaries 4,939 154,272 148,466
Advances to subsidiaries (3,575) (138,993) (170,495)
Decrease (increase) of investment in subsidiaries 274 (2,625) (716)
Other 1,908 2,060 1,371
--------- --------- ---------
Net cash provided by (used in) investing activities 1,165 24,449 (22,161)
--------- --------- ---------
Cash flows from financing activities:
Net change in short-term funds borrowed (3,305) 9,000 -
Proceeds from issuance of long-term debt - 4,000 50,000
Payments on long-term debt (1,358) (43,224) (32,317)
Proceeds from issuance of common stock 317 893 1,695
Dividends paid (17,271) (12,692) (9,587)
--------- --------- ---------
Net cash provided by (used in) financing activities (21,617) (42,023) 9,791
--------- --------- ---------
Net increase (decrease) in cash and due from banks (677) 622 (464)
Cash and due from banks at beginning of year 2,251 1,629 2,093
--------- --------- ---------
Cash and due from banks at end of year $ 1,574 2,251 1,629
========= ========= =========
</TABLE>
The parent company paid interest of $7,245,000, $8,577,000, and $7,940,000 for
the years ended December 31, 1994, 1993, and 1992, respectively.
66
<PAGE> 69
ZIONS BANCORPORATION
Condensed Statements of Retained Earnings
Years ended December 31, 1994, 1993, and 1992
(In thousands)
<TABLE>
<CAPTION>
1994 1993 1992
--------- -------- ---------
<S> <C> <C> <C>
Balance at beginning of year $245,920 197,992 160,370
Retained earnings of acquired company - 2,428 -
Net income 63,827 58,205 47,209
Cash dividends:
Preferred, paid by subsidiary to minority shareholder (33) (13) -
Common (16,786) (12,207) (9,183)
Dividends of NBA prior to merger (485) (485) (404)
--------- -------- --------
Balance at end of year $292,443 245,920 197,992
========= ======== ========
</TABLE>
67
<PAGE> 70
The selected quarterly financial data information required by this item appears
on pages 24 and 61 under the caption "QUARTERLY FINANCIAL INFORMATION
(UNAUDITED)."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item, to the extent not included under the
caption "Executive officers of the registrant" in Part I of this report, will
appear on pages 1 through 6 of the definitive Proxy Statement. Information
relating to the directors and executive officers on pages 1 through 6, and
information required by Item 405 of Regulation S-K as set forth beginning in the
last paragraph on page 7 of the definitive Proxy Statement relating to the 1995
Annual Meeting of Shareholders to be held April 28, 1995, is incorporated herein
by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item appearing on pages 8 through 21 of the
definitive Proxy Statement relating to the 1995 Annual Meeting of Shareholders
to be held April 28, 1995, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item appearing on pages 6 and 7 of the
definitive Proxy Statement relating to the 1995 Annual Meeting of Shareholders
to be held April 28, 1995, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item appearing on page 21 of the definitive
Proxy Statement relating to the 1995 Annual Meeting of Shareholders to be held
April 28, 1995, is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are part of this report and appear on the pages
indicated:
<TABLE>
<CAPTION>
Page
<S> <C>
(1) Financial Statements:
Independent Auditors' Report 41
Consolidated Balance Sheets - December 31, 1994 and 1993 42
Consolidated Statements of Income - Years ended December 31, 1994, 1993, and 1992 43
Consolidated Statements of Cash Flows - Years ended December 31, 1994, 1993, and 1992 44
Consolidated Statements of Retained Earnings Years ended December 31, 1994, 1993, and 1992 45
Notes to Consolidated Financial Statements 46
</TABLE>
(2) Financial Statement Schedules:
Schedules are omitted because the information is either not required,
not applicable, or is included in Part II, Items 6-8 of this report.
68
<PAGE> 71
(3) Exhibits:
The exhibits listed on the Exhibit Index on page 71 of this
report are filed or are incorporated herein by reference.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended
December 31, 1994.
For the purposes of complying with the amendments to the rules governing Form
S-8 (effective July 13, 1990) under the Securities Act of 1993, the undersigned
Registrant hereby undertakes as follows, which undertaking shall be incorporated
by reference into Registrant's Registration Statements on Form S-8 Nos. 33-52878
(filed on October 2, 1992) and 33-52796 (filed on October 2, 1992).
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
69
<PAGE> 72
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
March 21, 1995 ZIONS BANCORPORATION
By /s/ Harris H. Simmons
-------------------------------
HARRIS H. SIMMONS, President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
<TABLE>
<CAPTION>
March 21, 1995
<S> <C>
/s/ Harris H. Simmons /s/ Gary L. Anderson
- ------------------------------------ -------------------------------------
HARRIS H. SIMMONS, President, Chief Executive GARY L. ANDERSON, Secretary, Senior Vice
Officer and Director President, and Chief Financial Officer
/s/ Roy W. Simmons /s/ Walter E. Kelly
- ------------------------------------ -------------------------------------
ROY W. SIMMONS, Chairman and Director WALTER E. KELLY, Controller
- ------------------------------------ -------------------------------------
JERRY C. ATKIN, Director ROBERT G. SARVER, Director
/s/ Grant R. Caldwell
- ------------------------------------ -------------------------------------
GRANT R. CALDWELL, Director L.E. SIMMONS, Director
/s/ R.D. Cash /s/ I. J. Wagner
- ------------------------------------ -------------------------------------
R. D. CASH, Director I. J. WAGNER, Director
/s/ Dale W. Westergard
- ------------------------------------ -------------------------------------
RICHARD H. MADSEN, Director DALE W. WESTERGARD, Director
- ------------------------------------
ROBERT B. PORTER, Director
</TABLE>
<PAGE> 73
EXHIBIT INDEX
FILED AS PART OF THIS REPORT ON FORM 10-K
(Pursuant to Item 601 of Regulations S-K)
<TABLE>
<CAPTION>
Exhibit
no. Description and method of filing
-------- --------------------------------
<S> <C> <C>
3.1 Restated Articles of Incorporation of Zions Bancorporation dated November 8, 1993, and
filed with the Department of Business Regulation, Division of Corporations of the state
of Utah on November 9, 1993 (incorporated by reference to Exhibit 3.1 to the *
Registrant's Form S-4 Registration Statement, File No. 33-51145, filed on November 22,
1993)
3.2 Restated Bylaws of Zions Bancorporation, dated November 8, 1993 (incorporated by
reference to Exhibit 3.2 to the Registrant's Form S-4 Registration Statement, File No. *
33-51145, filed November 22, 1993)
9 Voting Trust Agreement, dated December 31, 1991 (incorporated by reference to Exhibit 9
of Zions Bancorporation's Annual Report on Form 10-K for the year ended December 31, *
1991)
10.1 Amended and Restated Zions Utah Bancorporation Pension Plan (filed)
10.2 Amendment to Zions Bancorporation Pension Plan effective December 1, 1994 (filed)
10.3 Zions Utah Bancorporation Supplemental Retirement Plan Form (incorporated by reference
to Exhibit 19.4 of Zions Utah Bancorporation's Quarterly Report on Form 10-Q for the *
quarter ended September 30, 1985)
10.4 Amendment to Zions Bancorporation (formerly Zions Utah Bancorporation) Key Employee
Incentive Stock Option Plan approved by the shareholders of the Company on April 27,
1990 (incorporated by reference to Exhibit 19 of Zions Bancorporation's Quarterly Report *
on Form 10-Q for the quarter ended June 30, 1990)
10.5 Zions Bancorporation Deferred Compensation Plan for Directors, as amended May 1, 1991
(incorporated by reference to Exhibit 19 of Zions Bancorporation's Annual Report on Form *
10-K for the year ended December 31, 1991)
10.6 Zions Bancorporation Senior Management Value Sharing Plan, Award Period 1991-1994
(incorporated by reference to Exhibit 19 of Zion Bancorporation's Annual Report on Form *
10-K for the year ended December 31, 1992)
10.7 Zions Bancorporation Senior Management Value Sharing Plan, Award Period 1992-1995
(incorporated by reference to Exhibit 10.6 of Zions Bancorporation's Annual Report on *
Form 10-K for the year ended December 31, 1992)
10.8 Zions Bancorporation Senior Management Value Sharing Plan, Award Period 1993-1996
(incorporated by reference to Exhibit 10.8 of Zions Bancorporation's Annual Report on
Form 10-K for the year end December 31, 1993) *
10.9 Zions Bancorporation Senior Management Value Sharing Plan, Award Period 1994-1997 (filed)
10.10 Zions Bancorporation Executive Management Pension Plan (filed)
</TABLE>
71
<PAGE> 74
EXHIBIT INDEX
FILED AS PART OF THIS REPORT ON FORM 10-K (continued)
(Pursuant to Item 601 of Regulations S-K)
<TABLE>
<CAPTION>
Exhibit no. Description and method of filing
- ----------- --------------------------------
<S> <C> <C>
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)
</TABLE>
* incorporated by reference.
<PAGE> 1
EXHIBIT 10.1
ZIONS BANCORPORATION PENSION PLAN
Amended and Restated Effective January 1, 1994
December 6, 1994
<PAGE> 2
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
Introduction...................................................................................................1
Article 1 - Definitions........................................................................................1
1.1 Accrual Computation Period......................................................................2
1.2 Accrued Benefit.................................................................................2
1.3 Accrued Benefit Attributable to the Old Plan Account............................................2
1.4 Accrued Benefit Attributable to Company Contributions...........................................2
1.5 Actuarial Equivalent............................................................................2
1.6 Affiliate or Subsidiary.........................................................................2
1.7 Authorized Period of Absence....................................................................2
1.8 Beneficiary.....................................................................................3
1.9 Break in Service................................................................................3
1.10 Code............................................................................................3
1.11 Committee or Retirement Committee...............................................................3
1.12 Company.........................................................................................3
1.13 Controlled Group................................................................................3
1.14 Covered Compensation............................................................................3
1.15 Credited Service................................................................................4
1.16 Earnings........................................................................................5
1.17 Eligible Employee...............................................................................6
1.18 Eligible Spouse.................................................................................6
1.19 Eligibility Computation Period..................................................................6
1.20 Employee........................................................................................6
1.21 Employment Date.................................................................................6
1.22 ERISA...........................................................................................6
1.23 Final Average Earnings..........................................................................6
1.24 Hour of Service.................................................................................7
1.25 Investment Manager..............................................................................8
1.26 Military Service................................................................................9
1.27 Nonvested Former Participant....................................................................9
1.28 Old Plan Account................................................................................9
1.29 Participant.....................................................................................9
1.30 Participation Date.............................................................................10
1.31 Plan...........................................................................................10
1.32 Plan Administrator.............................................................................10
1.33 Plan Year......................................................................................10
1.34 Retirement Date................................................................................10
1.35 Social Security Taxable Wage Base..............................................................10
1.36 Termination of Employment......................................................................10
1.37 Trust Agreement................................................................................10
1.39 Trustee........................................................................................10
1.40 Vesting Computation Period.....................................................................10
1.41 Year of Service................................................................................10
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Article 2 - Participation.....................................................................................12
2.1 Participation Date.............................................................................12
2.2 Reinstatement of Active Participation..........................................................12
Article 3 - Retirement Date...................................................................................13
3.1 Normal Retirement Date.........................................................................13
3.2 Early Retirement Date..........................................................................13
3.3 Late Retirement Date...........................................................................13
3.4 Disability Retirement Date.....................................................................14
Article 4 - Amount of Accrued Benefit.........................................................................15
4.1 Accrued Benefit................................................................................15
4.2 Accrued Benefit Attributable to the Old Plan Account...........................................16
4.3 Accrued Benefit Attributable to Company Contributions..........................................16
4.4 Old Plan Account...............................................................................16
Article 5 - Amount of Retirement Income.......................................................................17
5.1 Monthly Retirement Income......................................................................17
5.2 Normal Retirement Income.......................................................................17
5.3 Early Retirement Income........................................................................17
5.4 Late Retirement Income.........................................................................17
5.5 Disability Retirement Income...................................................................18
5.6 Application for Retirement Income..............................................................18
5.7 Forms of Retirement Income.....................................................................19
5.8 Reemployment After Retirement..................................................................20
5.9 Commencement of Benefits.......................................................................20
Article 6 - Termination and Vesting...........................................................................23
6.1 Vesting........................................................................................23
6.2 Termination Benefit............................................................................23
6.3 Reemployment After Termination of Employment...................................................24
Article 7 - Disability Benefits...............................................................................25
7.1 Determination of Disability....................................................................25
7.2 Eligibility for Disability Benefits...........................................................25
7.3 Disability Retirement Date.....................................................................25
7.4 Disability Retirement Income...................................................................25
Article 8 - Death Benefits....................................................................................27
8.1 Pre - Retirement Death Benefit.................................................................27
8.2 Post - Retirement Death Benefit................................................................28
8.3 Return of Old Plan Account.....................................................................29
Article 9 - Financing The Plan................................................................................30
9.1 Company Contributions..........................................................................30
9.2 Return of Company Contributions................................................................30
9.3 Employee Contributions.........................................................................30
Article 10 - Termination of the Plan..........................................................................31
10.1 Termination of Plan............................................................................31
10.2 Procedures Upon Termination of Plan............................................................31
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
Article 11 - Top-Heavy Provisions.............................................................................32
11.1 Top Heavy Plan.................................................................................32
11.2 Definition of Terms............................................................................32
11.3 Modification of Vesting Schedule...............................................................34
11.4 Minimum Benefit................................................................................35
11.5 Modification of Maximum Benefit................................................................35
Article 12 - Administration of the Plan.......................................................................36
12.1 Administration.................................................................................36
12.2 Records........................................................................................37
12.3 Payment of Expenses............................................................................37
12.4 Delegation of Authority........................................................................37
12.5 Information Available..........................................................................37
12.6 Claims Procedure...............................................................................38
12.7 Fiduciary Capacity.............................................................................38
12.8 Committee Liability............................................................................38
Article 13 - General Provisions...............................................................................39
13.1 Amendment of Plan..............................................................................39
13.2 Employment Status..............................................................................39
13.3 Mergers or Consolidations......................................................................40
13.4 Provision Against Anticipation.................................................................40
13.5 Facility of Payment............................................................................40
13.6 Construction...................................................................................40
13.7 Legal Actions..................................................................................41
13.8 Payment of Small Benefits......................................................................41
13.9 Maximum Retirement Benefit.....................................................................42
13.10 Additional Benefit Limits for Highly Compensated Employees.....................................45
13.11 Eligible Rollover Distribution.................................................................48
13.12 Procedures with Respect to Domestic Relations
Orders.........................................................................................50
Appendix I ...............................................................................................52
Appendix II ..................................................................................................53
Appendix III .................................................................................................54
</TABLE>
iii
<PAGE> 5
Introduction
The Zions Bancorporation Pension Plan became effective on January 1, 1968. The
Plan has been amended and restated from time to time. This document amends and
restates the Plan, effective January 1, 1994, except where another effective
date is specifically provided.
Except as specifically provided in the Plan, the rights and benefits of any
Participant who terminates or retires prior to the effective date of this
restatement or any other amendment to the Plan will be determined pursuant to
the provisions of the Plan in effect on the earlier of his or her date of
retirement or termination.
The Plan and Trust thereunder are created and maintained for the primary purpose
of providing retirement benefits for eligible employees of Zions Bancorporation
and its affiliates. It is intended that the Plan and Trust qualify under
Sections 401(a) and 501(a) of the Internal Revenue Code of 1986, as amended,
and that they meet the requirements of the Employee Retirement Income Security
Act of 1974, as amended.
1
<PAGE> 6
Definitions
1.1 Accrual Computation Period means a Plan Year.
1.2 Accrued Benefit means the monthly amount of benefit credited to a
Participant in accordance with Article on the basis of an annuity
payable for life beginning at age 65.
1.3 Accrued Benefit Attributable to the Old Plan Account is defined in 4.2
and 5.3.
1.4 Accrued Benefit Attributable to Company Contributions is defined in
4.3.
1.5 Actuarial Equivalent means equality in value of the aggregate amounts
expected to be received under different forms of payment based on
Tables attached hereto as Appendices. Except as otherwise provided in
this Plan, the 1984 Unisex Pension Mortality Table and a 6% interest
assumption will be used for all other calculations of actuarial
equivalence.
1.6 Affiliate or Subsidiary means a member of a controlled group of
corporations (as defined in Code Section 1563(a), determined without
regard to Code Sections 1563(a)(4) and (e)(3)(C)), a group of trades or
businesses (whether incorporated or not) which are under common control
within the meaning of Code Section 414(c), or an affiliated service
group (as defined in Code Sections 414(m) or 414(o)) of which Zions
Bancorporation is a part. With respect to the Maximum Retirement
Benefit defined in 13.9, in determining whether a corporation is a
member of a controlled group of corporations the phrase "more than 50
percent" will be substituted for the phrase "at least 80 percent" each
place it appears in Code Section 1563(a)(1).
1.7 Authorized Period of Absence means an absence authorized by the Company
for one or more of the following reasons:
(a) Approved leave of absence.
(b) Pregnancy.
(c) Jury duty.
(d) Military Service as defined in 1.26.
(e) Illness or injury, including disability.
2
<PAGE> 7
Any discretion of the Company under the provisions of this definition
will be exercised without discrimination and in accordance with
definitely established rules uniformly applicable to Employees or
Participants whose approved periods of absence were occasioned by
similar circumstances.
1.8 Beneficiary means the person or persons designated by a Participant to
receive any benefit payable from the Plan under 8.3 upon the death of
the Participant.
If no Beneficiary designation is filed with the Committee or if the
designated Beneficiary does not survive the Participant, the
Participant will be deemed to have designated the following as
Beneficiaries with priority in the order named:
(a) Surviving spouse,
(b) The Participant's estate.
1.9 Break in Service means an interruption in service due to a person's
failure to complete at least 501 Hours of Service during a Vesting
Computation Period or during an Eligibility Computation Period. A Break
in Service will not occur during an Authorized Period of Absence unless
the Employee fails to return to work for at least 30 days with the
Company or any member of the Controlled Group after the expiration of
the Authorized Period of Absence.
1.10 Code means the Internal Revenue Code of 1986, as amended.
1.11 Committee or Retirement Committee means the Committee which will
administer the plan as described in Article 12.
1.12 Company means Zions Bancorporation and any Affiliate or Subsidiary
which adopts this Plan with the consent of the Board of Directors of
Zions Bancorporation.
1.13 Controlled Group means Zions Bancorporation and any Affiliate or
Subsidiary. All employees of the Controlled Group will be treated as
employed by a single employer for purposes of applying the provisions
of qualification of the Plan; of minimum participation standards of the
Plan; of minimum vesting standards of the Plan; and of limitation of
benefits under the Plan.
1.14 Covered Compensation for a Plan Year means the average of the Social
Security Taxable Wage Bases for each year in the 35-year period ending
with the last day of the year in which the Participant attains (or will
attain) Social Security Retirement Age as determined under the exact
tables provided by the Commissioner of Internal Revenue. Covered
Compensation for any Plan Year after 1991 will be equal to 1991 Covered
Compensation.
3
<PAGE> 8
For purposes of this, a Participant's Social Security Retirement Age
is determined based on the following table:
<TABLE>
<CAPTION>
Social Security
Year of Birth Retirement Age
------------- ---------------
<S> <C>
Before 1938 65
1938 to 1954 66
1955 and after 67
</TABLE>
1.15 Credited Service means service used to determine a Participant's
Accrued Benefit and is determined as follows:
(a) Credited Service shall be measured in calendar years and months.
Each month shall be equal to one-twelfth of a year of Credited
Service. Except as otherwise stated in this 1.15, Credited Service
for Plan Years beginning after December 31, 1988 means the sum of
an Employee's calendar years and months (or parts thereof) as an
Eligible Employee during the period beginning on his or her
Benefit Service Date. For purposes of this section, Benefit
Service Date means the later of:
(1) the Participant's Employment Date,
(2) the first day of the month following the Participant's 21st
birthday, or
(3) in the case of an Employee who is not credited with at
least 1,000 Hours of Service in his or her first Eligibility
Computation Period, the first day of the first Plan Year in
which the Employee is credited with at least 1,000 Hours of
Service.
(b) No Credited Service will be earned during a Plan Year beginning
after December 31, 1988 unless the Employee completes at least
1,000 Hours of Service during that Plan Year except as follows. In
order to earn Credited Service during the Plan Year in which the
Employee has a Benefit Service Date or during the Plan Year in
which the Employee retires or dies, the Employee must complete
83.33 Hours of Service multiplied by the number of calendar months
during such Plan Year in which the Employee completes at least one
Hour of Service. Effective January 1, 1995, the foregoing sentence
shall also apply to a Plan Year in which the Employee incurs a
Termination of Employment.
(c) Except as otherwise stated in this 1.15, Credited Service for Plan
Years beginning before January 1, 1989 means benefit service as
defined under the terms of the Plan in effect on December 31,
1988.
4
<PAGE> 9
(d) Credited Service will not include service earned during a period
for which Years of Service are disregarded pursuant to 1.41(e).
(e) In the case of an Employee who is employed by an Affiliate or
Subsidiary which either adopts this Plan with the consent of the
Company or merges with the Company, Credited Service will not
include service prior to the date of merger or adoption unless an
earlier date is specifically designated for this purpose by the
Board of Directors of Zions Bancorporation.
1.16 Earnings means a Participant's wages from the Company within the
meaning of Code Section 3401(a), and all other payments of compensation
to the Participant by the Company (in the course of the Company's trade
or business), for which the Company is required to furnish a written
statement to the Participant under Code Sections 6041(d) and 6051(a)(3)
(IRS Form W-2 - wages, tips and other compensation). Earnings will also
include elective contributions made by the Company on behalf of its
Participants which are not includible in gross income under Code
Sections 125, 402(e)(3), 402(h) or 403(b). Earnings will be reduced by
reimbursements or other expense allowances, fringe benefits (cash and
non-cash), moving expenses, deferred compensation (other than elective
contributions described above), and welfare benefits. Earnings will
also be reduced by directors fees, if any, paid to Highly Compensated
Employees as defined in 13.10.
Except as provided in 4.1(c), earnings will not exceed $200,000 for
years prior to 1990. Each January 1 thereafter, this $200,000 limit
will automatically be adjusted to the new dollar limit prescribed by
the Secretary of the Treasury for that calendar year.
Except as provided in 4.1(a) and (b), effective January 1, 1994, annual
Earnings will not exceed $150,000 for 1994 or prior years. On January 1
of each calendar year in which the Secretary of the Treasury prescribes
a new dollar limit, this $150,000 limit will automatically be adjusted
to that new limit. If a period over which Earnings is determined under
the Plan (determination period) is less than 12 months, the $200,000
and the $150,000 limitations for that period will be multiplied by a
fraction, the numerator of which is the number of months in the
determination period, and the denominator of which is 12. For this
purpose, a determination period will not be considered to be less than
12 months merely because a Participant is an Active Participant for
less than a full Plan Year except that Earnings will be determined for
the full Plan Year.
In determining the compensation of a Participant for purposes of the
$200,000 and the $150,000 limitations, the rules
5
<PAGE> 10
of Code Section 414(q)(6) will apply, except that in applying such
rules, the term "family" will include only the spouse of the
Participant and any lineal descendants of the Participant who have not
attained age 19 before the close of the year.
1.17 Eligible Employee means any Employee of the Company except an Employee
represented by a collective bargaining agent unless the terms of the
collective bargaining agreement covering such Employee specifically
provide for coverage under the Plan. The term "Eligible Employee" does
not include a leased employee as defined in Code Section 414(n). This
section is effective January 1, 1988.
1.18 Eligible Spouse means the legal spouse of the Participant at the time
of the Participant's death except that a former spouse may be treated
as an Eligible Spouse to the extent provided in a qualified domestic
relations order as defined in Code Section 414(p).
1.19 Eligibility Computation Period means a 12-consecutive-month period
beginning on an Employee's Employment Date. However, if such Employee
fails to complete at least 1,000 Hours of Service during his or her
initial 12-consecutive-month period, the Eligibility Computation Period
becomes the Plan Year commencing with the Plan Year in which such
initial period ends.
1.20 Employee means any person who is employed by any member of the
Controlled Group.
1.21 Employment Date means the date on which an Employee first performs an
Hour of Service for any member of the Controlled Group.
1.22 ERISA means the Employee Retirement Income Security Act of 1974, as
amended.
1.23 Final Average Earnings means the average of the Participant's Earnings
as an Eligible Employee for the period of five consecutive calendar
years ending on or before December 31, 1991 which produces the highest
average. If the Participant has not been an Eligible Employee for five
years, Final Average Earnings means the average of the Participant's
Earnings over the Participant's full period of employment as an
Eligible Employee before December 31, 1991.
In determining Final Average Earnings, Plan Years after 1988 during
which the Participant earns fewer than 1,000 Hours of Service will be
disregarded and will not interrupt the consecutiveness of the prior and
subsequent Plan Years.
6
<PAGE> 11
In determining Final Average Earnings, Earnings will be annualized in
the Plan Year of hire if the employee earned 1,000 Hours of Service
during the one-year period beginning on the Employee's Employment Date.
Earnings are annualized by dividing actual earnings for the Plan Year
(excluding bonuses) by the number of months of actual earnings, then
multiplying the result by 12 then adding bonuses.
1.24 Hour of Service, effective January 1, 1989, means:
(a) each hour for which an Employee is paid, or entitled to payment,
for the performance of duties for the Company;
(b) each hour for which an Employee is paid, or entitled to payment,
by the Company on account of a period of time during which no
duties are performed (whether or not the employment relationship
has terminated) due to vacation, holiday, illness, incapacity
(including disability), layoff, jury duty, military duty or leave
of absence; provided, however, that an Employee will not be
credited with more than 501 Hours of Service under this sentence
for any continuous period during which he or she performs no
duties for the Company. Notwithstanding the preceding provisions
of this paragraph, no credit will be given:
(1) for an Hour of Service for which the individual is directly or
indirectly paid, or entitled to payment, on account of a
period during which no duties are performed if such payment is
made or due under a plan maintained solely for the purpose of
complying with applicable workers' compensation, unemployment
compensation or disability insurance laws; or
(2) for an Hour of Service for which a payment is made which
solely reimburses the individual for medical or medically
related expenses incurred;
(c) each hour not otherwise credited under the Plan for which back
pay, irrespective of mitigation of damages, is either awarded or
agreed to by the Company.
(d) Hours of Service will be credited for employment with other
members of an affiliated service group, a controlled group of
corporations, or a group of trades or businesses under common
control of which the Company is a member.
(e) Hours of Service will also be credited for any individual
considered an employee under Code Section 414(n).
7
<PAGE> 12
(f) Solely for purposes of determining whether a Break in Service has
occurred, an individual who is absent from work will receive
credit for the Hours of Service which would have been credited to
the individual but for such absence if the absence is (1) because
of the pregnancy of the individual, (2) because of the birth of a
child of the individual, (3) because of the placement of a child
with the individual in connection with the adoption of such child
by such individual, (4) for purposes of caring for such child for
a period beginning immediately following such birth or placement,
or (5) for family or medical leave required to be provided under
the Family and Medical Leave Act of 1993. Where such hours cannot
be determined, eight Hours of Service per day of such absence will
be used. The Hours of Service credited under this paragraph will
be credited in the computation period in which the absence begins
if the crediting is necessary to prevent a Break in Service in
that period. In all other cases, such hours will be credited in
the following computation period.
(g) The foregoing notwithstanding, Participants whose pay is solely on
a commission basis will be credited with Hours of Service as
follows:
(1) If the Participant's Earnings for a Plan Year are at least 750
multiplied by the lowest hourly rate of compensation payable
to employees in the same job classification as the
Participant, then the Participant will be credited with 1,000
Hours of Service for that Plan Year.
(2) If the Participant's Earnings for a Plan Year are less than
750 multiplied by the lowest hourly rate of compensation
payable to employees in the same job classification as the
Participant, then the Participant will not be credited with
any Hours of Service for that Plan Year.
(h) The crediting of Hours of Service under this Plan will be applied
under the rules of paragraphs (b) and (c) of the Department of
Labor Regulation 2530.200b-2 and clause (f)(3)(ii) of the
Department of Labor Regulation 2530.200b-3 which, by this
reference, are specifically incorporated in full within this Plan.
1.25 Investment Manager means any fiduciary (other than a trustee, the
Company or the Committee):
(a) which has the power to manage, acquire, or dispose of any assets
of the Plan; and
8
<PAGE> 13
(b) which (1) is registered as an investment adviser under the
Investment Advisers Act of 1940, or (2) is a bank, as defined in
that Act, or (3) is an insurance company qualified to perform
services described in item (a) above under the laws of more than
one state; and
(c) which has acknowledged in writing that it is a fiduciary with
respect to the Plan.
1.26 Military Service means the period of time during which a person is
absent from active work for the Company or any member of the Controlled
Group serving as a member of the Armed Forces of the United States in
time of war or other emergency or under the laws of conscription in
time of peace. Military Service includes time when such person has a
right to reemployment at his or her former position or a substantially
similar position upon separation from such Military Service, and such
period of time, not exceeding 90 days, immediately following such
Military Service as such person remains absent from active work for the
Company or any member of the Controlled Group.
1.27 Nonvested Former Participant means a prior Participant who has incurred
a Termination of Employment and who does not have a vested interest in
accordance with 6.1.
1.28 Old Plan Account is defined in 4.4.
1.29 Participant means an Active Participant, Inactive Participant,
Terminated Vested Participant, Disabled Participant, or Retired
Participant, as defined below:
(a) "Active Participant" means an Eligible Employee who has met the
requirements for participation described in Article 2.
(b) "Inactive Participant" means a prior Active Participant who is on
an Authorized Period of Absence, or who is employed by a member of
the Controlled Group other than the Company, or who is employed by
the Company but is not an Eligible Employee.
(c) "Terminated Vested Participant" means a prior Eligible Employee
who has incurred a Termination of Employment, who retains a vested
interest in accordance with 6.1, and who is not currently
receiving benefit payments under the Plan.
(d) "Disabled Participant" means a prior Active Participant who has a
total and permanent disability as determined under Article 7.
9
<PAGE> 14
(e) "Retired Participant" means a prior Eligible Employee who is
receiving benefit payments under the Plan.
1.30 Participation Date is defined in 2.1.
1.31 Plan means the Zions Bancorporation Pension Plan.
1.32 Plan Administrator means the Committee which will administer the plan
as described in Article 12.
1.33 Plan Year means a calendar year.
1.34 Retirement Date means the date a Participant's monthly retirement
benefits begin in accordance with Article 3.
1.35 Social Security Taxable Wage Base means the contribution and benefit
base in effect under Section 230 of the Social Security Act for the
specified calendar year.
1.36 Termination of Employment means cessation of employment with the
Company or any member of the Controlled Group due to:
(a) voluntary or involuntary termination or separation of employment,
or
(b) failure to return to work for at least 30 days upon the expiration
of any Authorized Period of Absence from the Company or any member
of the Controlled Group, in which event cessation of active work
will be deemed to have occurred at the time such Authorized Period
of Absence expired. Transfer of employment, without interruption,
between members of the Controlled Group will not be deemed a
Termination of Employment.
1.37 Trust Agreement means the agreement between the Company and the
Trustee.
1.38 Trust Fund means all money or property held by the Trustee pursuant
to the Trust Agreement.
1.39 Trustee means the trustee appointed by the Board of Directors of the
Company and named as such in the Trust Agreement.
1.40 Vesting Computation Period means a calendar year.
1.41 Year of Service means a Vesting Computation Period after December 31,
1988 during which an Employee completes 1,000 or more Hours of Service
except as follows:
10
<PAGE> 15
(a) For Plan Years beginning after December 31, 1994, an Employee
shall be credited with a partial Year of Service (measured in
calendar months) in a Plan Year in which the Employee completes
less than 1,000 Hours of Service but in which the Employee has a
Benefit Service Date or in which the Employee retires, dies, or
incurs a Termination of Employment if the Employee completes 83.33
Hours of Service multiplied by the number of calendar months
during such Plan Year in which the Employee completes at least one
Hour of Service. The Employee will be credited with months of
Service equal to the number of calendar months during the Plan
Year in which the Employee completes at least one Hour of Service.
Twelve months of Service shall equal a Year of Service.
(b) Years of Service also include years of vesting service earned
before January 1, 1989 under the terms of the Plan in effect as of
December 31, 1988.
(c) A Participant shall be credited in the 1989 Vesting Computation
Period with 190 Hours of Service for each month in which the
Participant earned at least one Hour of Service in his or her
partial year of vesting service (if any) ending on December 31,
1988.
(d) The foregoing notwithstanding, a Participant must be at least age
18 before he or she can earn a Year of Service.
(e) The foregoing notwithstanding, if a Participant who has no vested
interest in the Plan incurs a Break in Service, Years of Service
will not include:
(1) service prior to a Break in Service which is not followed by a
Year of Service, and
(2) service prior to five or more consecutive one year Breaks in
Service if the number of consecutive one year Breaks in
Service equals or exceeds the number of prior Years of
Service.
11
<PAGE> 16
Article 2
Participation
2.1 Participation Date
(a) An Eligible Employee who was an Active Participant in the Plan on
December 31, 1993 will continue to be an Active Participant on
January 1, 1994.
(b) Any other Eligible Employee will become an Active Participant in
the Plan on the first day of the month coinciding with or next
following the later of (1) the date on which the Employee
completes an Eligibility Computation Period during which he or she
completes at least 1,000 Hours of Service or (2) the Employee's
21st birthday.
Participation Date means the date a Participant first becomes an Active
Participant, provided that the Participation Date of a Nonvested Former
Participant who is reinstated under 2.2 after five or more consecutive
one year Breaks in Service shall be the date of reinstatement.
2.2 Reinstatement of Active Participation
A Terminated Vested Participant, a Retired Participant, an Inactive
Participant, or a Nonvested Former Participant who again becomes an
Eligible Employee or who returns from an Authorized Period of Absence
will be reinstated as an Active Participant on the day he or she is
reinstated as an Eligible Employee or returns from such Authorized
Period of Absence.
12
<PAGE> 17
Article 3
Retirement Date
3.1 Normal Retirement Date
A Participant's Normal Retirement Date will be the first day of the
month coincident with or next following his or her Normal Retirement
Age.
If the Participant's Participation Date is on or after July 1, 1994,
his or her Normal Retirement Age is the later of:
(a) his or her 65th birthday, or
(b) the earlier of:
(1) the date the Participant completes five Years of Service, or
(2) the fifth anniversary of his or her Participation Date
provided the Participant is an Employee on or after the later
of such date or his or her 65th birthday and earns at least
one Year of Service after any Break in Service.
If the Participant's Participation Date is before July 1, 1994, the
Participant's Normal Retirement Age is 65.
3.2 Early Retirement Date
A Participant may retire prior to his or her Normal Retirement Date on
an Early Retirement Date which, subject to his or her election, may be
the first day of any month coincident with or following the latest of:
(a) the Participant's 55th birthday,
(b) the date on which the Participant completes ten Years of Service,
or
(c) the date of the Participant's Termination of Employment.
3.3 Late Retirement Date
(a) If a Participant continues in the service of the Company or any
member of the Controlled Group beyond Normal Retirement Date, his
or her Late Retirement Date will be the first day of any month
coincident with or following the date of the Participant's
Termination of Employment.
13
<PAGE> 18
(b) A Participant's Late Retirement Date will not be later than the
required beginning date described in 5.9(c) even if his or her
employment continues after such date.
3.4 Disability Retirement Date
Disability Retirement Date is defined in 7.3.
14
<PAGE> 19
Article 4
Amount of Accrued Benefit
4.1 Accrued Benefit
A Participant's Accrued Benefit is equal to one twelfth of the greater
of:
(a) the sum of:
(1) the sum of the following determined without regard to the
$150,000 limitation under 1.14:
(A) 1.65% of Final Average Earnings determined as of December
31, 1991 multiplied by Credited Service earned as of
December 31, 1991, and
(B) 1.65% of Earnings for each Plan Year beginning after
December 31, 1991 and before January 1, 1994 in which
the Participant earns a full or partial year of
Credited Service.
(2) 1.65% of Earnings for each Plan Year after December 31, 1993
in which the Participant earns a full or partial year of
Credited Service.
(b) the sum of the following, determined as of December 31, 1991 and
without regard to the $150,000 limitation under 1.16:
(1) 1.15% of Final Average Earnings up to Covered Compensation
multiplied by Credited Service up to 35 years.
(2) 1.65% of Final Average Earnings in excess of Covered
Compensation multiplied by Credited Service up to 35 years.
(3) 1.0% of Final Average Earnings multiplied by Credited Service
in excess of 35 years.
(c) the annual accrued benefit on December 31, 1988 under the terms of
the Plan as then in effect determined without regard to the
$200,000 or $150,000 limitations under 1.16.
A Participant will receive an Accrued Benefit for Military Service to
the extent required by the Military Selective Service Act (or any prior
or subsequent corresponding law).
15
<PAGE> 20
4.2 Accrued Benefit Attributable to the Old Plan Account
Effective January 1, 1988, the Accrued Benefit Attributable to the Old
Plan Account as of the Participant's Normal Retirement Date will be
equal to the Participant's Old Plan Account expressed as a monthly
benefit under a life annuity commencing on his or her Normal Retirement
Date using the Actuarial Equivalent basis for lump sum payments.
4.3 Accrued Benefit Attributable to Company Contributions
The Accrued Benefit Attributable to Company Contributions will be equal
to the excess, if any, of the Accrued Benefit over the Accrued Benefit
Attributable to the Old Plan Account.
4.4 Old Plan Account
A Participant's Old Plan Account is his or her individual account
balance under this Plan which resulted from the transfer of funds from
a terminated plan formerly sponsored by the Employer. The Old Plan
Account shall include interest from the transfer date to the earlier of
the Participant's Retirement Date or the date on which the
Participant's Old Plan Account is otherwise payable pursuant to the
provisions of this Plan (the determination date) as follows: The rate
of interest shall be compounded annually. For Plan Years beginning
before January 1, 1988, the interest rate shall be 5%. For each Plan
Year beginning on or after January 1, 1988, the interest rate shall be
120% of the federal mid-term rate (as defined in Code Section 1274) in
effect on the first day of such Plan Year. For purposes of determining
the Accrued Benefit Attributable to the Old Plan Account, the Old Plan
Account shall also include interest, compounded annually, at the
Pension Benefit Guaranty Corporation's interest rate for valuing
benefits under plans terminating on the first day of each Plan Year
from the determination date to the Participant's Normal Retirement
Date. In no event can a Participant's Old Plan Account be withdrawn
prior to Termination of Employment, death or retirement. This section
is effective January 1, 1988.
Effective January 1, 1988, the Accrued Benefit Attributable to the Old
Plan Account as of the Participant's Early Retirement Date will be
equal to the monthly benefit determined under 4.2 and reduced as
provided in Appendix III according to the Participant's age.
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<PAGE> 21
Article 5
Amount of Retirement Income
5.1 Monthly Retirement Income
A Participant's Monthly Retirement Income commencing on his or her
Normal Retirement Date, Early Retirement Date, Late Retirement Date, or
Disability Retirement Date will be equal to his or her Accrued Benefit
as of such date adjusted to reflect the Form of Retirement Income
elected and, in the case of an Early Retirement Date, adjusted to
reflect the age of the Participant on the date benefit payments
commence. In the case of a Disability Retirement Date, the Accrued
Benefit will also be adjusted as provided under Article 7.
5.2 Normal Retirement Income
The monthly amount of Retirement Income payable to a Participant
retiring on his or her Normal Retirement Date will be equal to the
Accrued Benefit earned to his or her Normal Retirement Date. This
Retirement Income will be subject to adjustment depending on the Form
of Retirement Income elected in accordance with 5.7.
5.3 Early Retirement Income
The monthly amount of Retirement Income payable to a Participant
retiring on an Early Retirement Date will be equal to the Accrued
Benefit earned to his or her Early Retirement Date reduced by 1/3 of 1%
for each month by which the Early Retirement Date precedes his or her
Normal Retirement Date.
The Accrued Benefit Attributable to the Old Plan Account as of the
Participant's Early Retirement Date is determined under 4.4.
This Retirement Income will be subject to adjustment depending on the
Form of Payment elected in accordance with 5.7.
5.4 Late Retirement Income
(a) Effective January 1, 1988, the monthly amount of Retirement Income
payable to a Participant retiring on a Late Retirement Date will
be equal to his or her Accrued Benefit earned to the Late
Retirement Date. This Retirement Income will be subject to
adjustment depending on the Form of Retirement Income elected in
accordance with 5.7.
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<PAGE> 22
(b) If the Participant earns additional Accrued Benefits after his or
her Late Retirement Date, his or her Monthly Retirement Income
will be redetermined as of the earlier of the Participant's
required beginning date under 5.9(c) or the Participant's
subsequent Termination of Employment. This redetermined benefit
will be payable under the Form of Retirement Income elected on his
or her Late Retirement Date in accordance with 5.7.
5.5 Disability Retirement Income
Disability Retirement Income is described in 7.4.
5.6 Application for Retirement Income
Each Participant must notify the Committee in writing of his or her
intent to retire. Upon receipt of such notification, each married
Participant will receive a written explanation of the terms and
conditions of the various Forms of Retirement Income and the financial
effect (in terms of dollars per monthly payment to the Participant and
his or her surviving spouse) of electing a Form of Retirement Income
other than the 50% Spouse Option. A Participant will have the right to
elect or revise a previously elected Form of Retirement Income at any
time during his or her Election Period.
A Participant's Election Period is the 90 day period ending on the date
his or her Retirement Income is to begin. The Committee will make
Election Information available to a Participant within a reasonable
period of time prior to the date Retirement Income is to begin. In no
event will a Participant's Election Period end prior to the 30th day
next following the day on which Election Information and the
information provided in accordance with the first paragraph of this are
first made available to him. For purposes of the Plan, Election
Information means:
(a) a written explanation of the 50% Spouse Option and the relative
financial effect of the payment of Monthly Retirement Income in
that form and in the Life Annuity form; and
(b) a notification that Retirement Income payments will be made in the
50% Spouse Option form (or the Life Annuity Form if the
Participant is not married) unless he or she elects otherwise
during the Election Period and his or her spouse consents to such
election.
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<PAGE> 23
The Participant must elect a form of payment in writing. An election of
a form of payment other than a Spouse Option will not be valid without
the written consent of the Participant's spouse. The spouse's consent
must acknowledge the effect of the election and must be witnessed by a
plan representative or notary public. The Participant may change his or
her election at any time, and any number of times, during the 90 day
period ending on the date his or her Retirement Income is to begin. The
Participant may not change the form of payment without further spousal
consent unless the spouse expressly permits such changes. The
requirement for spouse's consent will be waived if the participant
establishes to the satisfaction of the Committee that such consent
cannot be obtained because there is no spouse, the spouse cannot be
located or because of such other circumstances as the Secretary of the
Treasury may by regulations prescribe.
The election by the Participant and the consent of the spouse must be
obtained no more than 90 days prior to the date benefit payments
commence. If the spouse of a Participant who has elected a Spouse
Option dies before Retirement Income payments begin, the Retirement
Income will be paid to the Participant in the form of the Life Annuity.
5.7 Forms of Retirement Income
A Participant retiring on his or her Normal, Early, Late, or Disability
Retirement Date may elect one of the following Forms of Retirement
Income payment:
(a) Spouse Option. A Spouse Option provides for a monthly payment
during the Participant's life. After the Participant's death a
percentage of the Participant's Retirement Income will be paid for
life to the Participant's spouse. The percentage to be paid to the
Participant's spouse will be 50%, 66 2/3% or 100% as elected by
the Participant. The monthly payment under the Spouse Option will
be equal to the Actuarial Equivalent of the amount payable under
the Life Annuity form.
(b) Life Annuity. The Life Annuity form provides for a monthly payment
during the Participant's life, with the last payment being made
for the month in which the Participant's death occurs.
(c) Lump Sum Payment of Old Plan Account Option. The Lump Sum Payment
of Old Plan Account Option provides for a lump sum payment of the
Participant's Old Plan Account as of the Participant's Retirement
Date. The Participant's Accrued Benefit Attributable to Company
Contributions is paid in a Life Annuity or Spouse
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<PAGE> 24
Option form as elected by the Participant. This form of payment is
available to a Participant only one time, at the earlier of his
or her retirement or Termination of Employment.
(d) For purposes of this article, "spouse" means the legal spouse of
the Participant on the date benefit payments commence.
5.8 Reemployment After Retirement
In order to retire, a Participant must have a Termination of
Employment. Effective January 1, 1992, if a Retired Participant is
rehired by the Company, his or her Retirement Income will not be
suspended. The Retired Participant may earn additional benefits as
provided in Article 4. Any benefit attributable to service during the
Participant's reemployment will be added to the Participant's
Retirement Income and will be payable upon the earlier of the
Participant's subsequent retirement or the Participant's required
beginning date described in 5.9 (c).
If the Participant dies during such period of reemployment, any death
benefits attributable to service during the Participant's reemployment
will be determined in accordance with Article 8. Any death benefit
attributable to service before the Retired Participant's reemployment
will be determined in accordance with the provisions of the applicable
Form of Retirement Income elected at his or her original retirement.
5.9 Commencement of Benefits
(a) Retirement Income payments will begin on the later of the
Retirement Date elected by the Participant or the first day of the
month following the date on which the Participant applies for a
retirement benefit.
(b) Unless a Participant elects otherwise, Retirement Income payments
will begin not later than the 60th day after the end of the Plan
Year in which:
(1) the Participant's Normal Retirement Age, or
(2) the Participant's Termination of Employment occurs, whichever
is later.
(c) The required beginning date described in this paragraph (c) will
apply regardless of any election made by the Participant.
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<PAGE> 25
(1) Except as provided by subparagraphs (2), (3) and (4) below,
Retirement Income payments will begin not later than April 1 of
the calendar year following the calendar year in which the
Participant attains age 70 1/2 whether or not such Participant's
employment has terminated.
(2) A Participant who attained age 70 1/2 in 1988, who is not a 5%
owner, and who has not retired by January 1, 1989, will be treated
as having retired on January 1, 1989. Retirement Income payments
will begin not later than April 1, 1990 for such Participants.
(3) Retirement Income payments for a Participant who attained age
70 1/2 before January 1, 1988, and who is not a 5% owner will
begin not later than April 1 of the calendar year following the
later of (A) the calendar year in which the Participant attained
age 70 1/2, or (B) the calendar year in which the Participant
retires.
(4) Retirement Income payments for a Participant who attained age
70 1/2 before January 1, 1988, and who is a 5% owner will begin
not later than April 1 of the calendar year following the later
of (A) the calendar year in which the Participant attained age
70 1/2, or (B) the earlier of (i) the calendar year within which
ends the Plan Year in which the Participant becomes a 5% owner,
or (ii) the calendar year in which the Participant retires.
(5) A Participant is treated as a 5% owner for purposes of this
paragraph (c), if such Participant is a 5% owner as defined in
Code Section 416(i) at any time during the Plan Year ending within
the calendar year in which such owner attains age 66 1/2 or any
subsequent Plan Year. Once a Participant is described in this
subparagraph, distributions will continue to such Participant even
if such Participant ceases to own more than 5% of the Company in a
subsequent year.
(6) If a Participant receives payments under this paragraph (c), such
payments will be determined as if the Participant's Late
Retirement Date were the date by which Retirement Income payments
must be made under this paragraph (c). If the Participant
continues to earn additional Accrued Benefits after this date, his
or her Monthly Retirement Income will be redetermined on each
January 1 following the date benefit payments commence. This
redetermined benefit will be payable under the
21
<PAGE> 26
Form of Retirement Income elected as of the Late Retirement
Date in accordance with 5.7.
22
<PAGE> 27
Article 6
Termination and Vesting
6.1 Vesting
A Participant's vested Accrued Benefit will be equal to the sum of (a)
and (b) below:
(a) The Participant's Accrued Benefit Attributable to the Old Plan
Account determined in accordance with 4.2.
(b) Effective January 1, 1989, the Participant's Accrued Benefit
Attributable to Company Contributions determined in accordance
with multiplied by the vested percentage shown in the following
table:
<TABLE>
<CAPTION>
Years of Service Vested Percentage
<S> <C>
Less than 5 0%
5 or more 100%
</TABLE>
In addition, an Employee's Accrued Benefit will be 100% vested on and
after his or her Normal Retirement Age. A Participant will receive
vesting credit for Military Service to the extent required by the
Military Selective Service Act (or any prior or subsequent
corresponding law).
6.2 Termination Benefit
(a) A Terminated Vested Participant will have the option of:
(1) withdrawing his or her Old Plan Account, in which event the
Participant would be entitled to his or her vested Accrued
Benefit Attributable to Company Contributions commencing on
Normal or Early Retirement Date, or
(2) leaving his or her Old Plan Account in the Plan, in which
event the Participant would be entitled to his or her vested
Accrued Benefit commencing on Normal or Early Retirement Date.
(b) The monthly amount of Retirement Income payable to a Terminated
Vested Participant who retires on his or her Normal Retirement
Date will be equal to the vested Accrued Benefit (or, if the Old
Plan Account has been withdrawn, the vested Accrued Benefit
Attributable to Company Contributions) earned to the date of
Termination of Employment. This Retirement Income will be subject
to adjustment depending on the Form of Retirement Income elected
in accordance with 5.7.
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<PAGE> 28
(c) The monthly amount of Retirement Income payable to a Terminated
Vested Participant who retires on an Early Retirement Date will be
equal to the Accrued Benefit (or, if the Old Plan Account has been
withdrawn, the vested Accrued Benefit Attributable to Company
Contributions) earned to the date of Termination of Employment
adjusted in accordance with 5.3 for the date benefit payments
commence and the Form of Payment elected.
(d) Except as provided in 13.8, the Old Plan Account of a Participant
will not be distributed pursuant to this 6.2 unless the
Participant elects such distribution and the spouse of the
Participant consents to the distribution not more than 90 days
prior to the date of such distribution. The spouse's consent must
acknowledge the effect of the election and must be witnessed by a
plan representative or notary public. The requirement for spouse's
consent will be waived if the Participant establishes to the
satisfaction of the Committee that such consent cannot be obtained
because there is no spouse, the spouse cannot be located or
because of such other circumstances as the Secretary of the
Treasury may by regulations prescribe.
6.3 Reemployment After Termination of Employment
(a) If a Terminated Vested Participant is subsequently reinstated as
an Active Participant, his or her Retirement Income will be based
on the Participant's Accrued Benefit under the provisions of the
Plan in effect as of his or her subsequent termination or
retirement except that it may not be less than the Participant's
Accrued Benefit as of the prior termination.
(b) If a Nonvested Former Participant is subsequently reinstated as an
Active Participant before the number of consecutive one year
Breaks in Service equals or exceeds five, the appropriate Years of
Service and Accrued Benefit will be reinstated. The Accrued
Benefit for service prior to such Termination of Employment will
be based on the provisions of the Plan in effect as of his or her
subsequent termination or retirement except that it may not be
less than the Participant's Accrued Benefit as of the prior
termination.
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<PAGE> 29
Article 7
Disability Benefits
7.1 Determination of Disability
A Participant has a total and permanent disability if:
(a) the Participant is no longer capable of performing the duties
assigned to him or her by the Company due to physical or mental
disability,
(b) the Participant is entitled to disability retirement income
payments under Title II of the Federal Social Security Act, and
(c) the Participant is eligible for disability benefits under the
Company's Long Term Disability Plan.
It will be the responsibility of the Participant to submit proof
of disability satisfactory to the Committee.
7.2 Eligibility for Disability Benefits
Effective January 1, 1989, a Disabled Participant or former Disabled
Participant may retire on a Disability Retirement Date if the
Participant has completed five Years of Service. A Disabled Participant
who has four or more Years of Service may be credited with one
additional Year of Service in the year he or she becomes disabled or in
the following year. For this purpose, one month of total and permanent
disability will be deemed to equal 190 Hours of Service.
7.3 Disability Retirement Date
If the Participant's total and permanent disability continues until the
Participant's Normal Retirement Date, the Participant's Disability
Retirement Date shall be the Normal Retirement Date. If a Disabled
Participant's total and permanent disability ends before the Normal
Retirement Date, the Participant may retire on an Early, Normal, or
Late Retirement Date, whichever applies, and such date will be his or
her Disability Retirement Date.
7.4 Disability Retirement Income
A Disabled Participant will be entitled to a monthly Disability
Retirement Income beginning on his or her Disability Retirement Date.
The amount will be equal to the Accrued Benefit earned to the
Disability Retirement Date adjusted under 5.3 to reflect the date
benefit payments commence. Disability Retirement Income will also be
subject
25
<PAGE> 30
to adjustment depending on the Form of Retirement Income elected in
accordance with 5.7. In calculating the Accrued Benefit for purposes of
this Article 7:
(a) Final Average Earnings will be the Final Average Earnings as of
the earlier of the date of total and permanent disability or
December 31, 1991.
(b) For Plan Years beginning on or after January 1, 1992, and before
the earlier of the Participant's Normal Retirement Date or the end
of the Participant's total and permanent disability, Earnings for
each Plan Year will be the (annualized) Earnings in the Plan Year
of the date of initial total and permanent disability. However, a
Disabled Participant who is credited with the additional Year of
Service under 7.2 will not be credited with Earnings for more than
one Plan Year as a Disabled Participant.
(c) A Disabled Participant will be deemed to earn Credited Service for
the months before January 1, 1992, during which he or she is a
Disabled Participant, provided that no Participant will be deemed
to earn more than one month of Credited Service during any month.
However, a Disabled Participant who is credited with the
additional Year of Service under 7.2 will not be credited with
more than one twelve month period of Credited Service as a
Disabled Participant.
(d) Effective January 1, 1989, a Disabled Participant will be deemed
to meet the 1,000 Hours of Service requirement in each Plan Year
in which he or she is a Disabled Participant to accrue a benefit
under 4.1. However, a Disabled Participant who is credited with
the additional Year of Service under 7.2 will not be credited with
more than one extra Year of Service as a Disabled Participant.
26
<PAGE> 31
Article 8
Death Benefits
8.1 Pre-Retirement Death Benefit
(a) Death After Eligibility for Retirement
If a Participant (other than a Retired Participant) dies on or
after the earliest date on which he or she could retire in accordance
with Article 3, his or her Eligible Spouse, if any, will receive a
monthly benefit equal to the amount the Eligible Spouse would have been
entitled to if the Participant had elected the 50% Spouse Option and
retired on the first day of the month coinciding with or following the
date of death. This benefit will be payable monthly to the Eligible
Spouse beginning on the first day of the month coinciding with or next
following the Participant's death and will continue until the death of
the Eligible Spouse.
(b) Death Before Eligibility for Retirement
If a Participant who has a vested interest in his or her Accrued
Benefit dies prior to the earliest date on which the Participant could
retire in accordance with Article 3, his or her Eligible Spouse, if
any, will receive a monthly benefit equal to the amount the Eligible
Spouse would have been entitled to if the Participant had:
(1) terminated employment on his or her date of death (if the
Participant was an Employee on the date of death),
(2) survived to the earliest date on which he or she could retire
in accordance with Article 3 (the "Earliest Retirement Date"),
(3) elected the 50% Spouse Option and retired on such Earliest
Retirement Date, and
(4) died immediately after retiring.
This benefit will be payable monthly to the Eligible Spouse beginning
on the Participant's Earliest Retirement Date and will continue until
the death of the Eligible Spouse.
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<PAGE> 32
(c) Alternate Death Benefit For Active Participants
In lieu of the benefit described in paragraph (a) or paragraph
(b), the Eligible Spouse of an Active Participant who has
completed ten Years of Service and who dies after attaining age 55
will receive the greater of:
(1) 25% of the Participant's Earnings on the date of death, where
the 25% factor is reduced by 1/2 of 1% for each year the
Participant's age exceeds the age of his or her spouse; or
(2) the benefit that would have been paid had the Participant
retired on the date of death and elected an immediate 100%
Spouse Option;
provided that this benefit will not be paid unless it is greater
than the Actuarial Equivalent of the benefit under (a) or (b),
whichever is applicable.
(d) Alternate Death Benefit For Old Plan Accounts
In lieu of the benefit described in (a) or (b), the Eligible
Spouse of a Participant who has an Old Plan Account may elect to
receive payment of the Old Plan Account as a lump sum payment as
soon a practicable after the Participant's death. The
Participant's Accrued Benefit Attributable to Company
Contributions will be paid in accordance with (a) or (b),
whichever applies.
(e) Benefits under this 8.1 will be paid as soon as practicable after
the Participant's death except that the Eligible Spouse may elect
to defer commencement of the benefit described in (a), (b), or (c)
until any date which is before the Participant's Normal Retirement
Date. An Eligible Spouse who makes an election under (d) may not
defer receipt of the Old Plan Account.
(f) The benefit under (a) or (b) will apply to Terminated Vested
Participants even if their Termination of Employment occurred
prior to the effective date of these paragraphs.
8.2 Post-Retirement Death Benefit
Death Benefits for a Retired Participant will be determined in
accordance with the provisions of the applicable Form of Retirement
Income elected.
28
<PAGE> 33
8.3 Return of Old Plan Account
Upon the death of the Participant or, if later, the death of the
Eligible Spouse entitled to payments under 8.1 or 8.2, the
Participant's remaining Old Plan Account, if any, will be paid to the
Participant's Beneficiary. For purposes of this 8.3, the Participant's
remaining Old Plan Account will be equal to the excess, if any, of:
(a) the Participant's Old Plan Account as of his or her date of death
or, if earlier, Retirement Date over
(b) the sum of all amounts previously paid from the Trust Fund on such
Participant's behalf.
29
<PAGE> 34
Article 9
Financing The Plan
9.1 Company Contributions
(a) The Company expects to make the contributions necessary to provide
the benefits of the Plan. Such contributions will not be less than
the amount necessary to meet the minimum funding standards of
ERISA.
(b) All contributions will be deposited in the Trust Fund and will be
disbursed in accordance with the provisions of the Plan and the
Trust Agreement. All benefit payments under the Plan will be paid
from the Trust Fund. No person will have any interest in, or right
to, any part of the assets of the Plan except as expressly
provided in the Plan.
(c) Gains arising from experience under the Plan will not serve to
increase the benefits otherwise due any Participant, but will be
used to reduce future Company contributions.
9.2 Return of Company Contributions
(a) Except as provided below and in 10.2, the assets of the Plan will never
inure to the benefit of the Company and will be held for the exclusive
purposes of providing benefits to Participants of the Plan and their
Beneficiaries and defraying reasonable expenses of administering the
Plan.
(b) If a contribution is made by the Company by a mistake of fact, such
contribution will be returned to the Company provided this is done
within one year after the payment of such contribution.
(c) Contributions are conditioned upon their current deductibility under
Code Section 404. If a contribution deduction is disallowed, to the
extent the deduction is disallowed, such contribution will be returned
to the Company within one year after the disallowance.
9.3 Employee Contributions
The Company pays the entire cost of the Plan. No employee contributions
or rollovers are required or permitted.
30
<PAGE> 35
Article 10
Financing The Plan
10.1 Termination of Plan
The Company expects to continue the Plan indefinitely but reserves the
right to terminate the Plan in whole or in part.
10.2 Procedures Upon Termination of Plan
Upon termination of the Plan, the following provisions will apply:
(a) Upon complete termination of the Plan, the Accrued Benefit of each
Active or Inactive Participant will become fully vested and
nonforfeitable (to the extent funded). No additional Employees
will become Participants.
Upon partial termination of Plan, the Accrued Benefit of each
Active or Inactive Participant who is affected by such partial
termination will become fully vested and nonforfeitable (to the
extent funded).
(b) The assets of the Plan available to provide benefits will be
allocated among Participants and their Beneficiaries in the manner
and order prescribed by ERISA Section 4044.
If any assets of the Plan remain after all liabilities of the Plan
to Participants and their Beneficiaries have been satisfied or
provided for, any residual assets will be paid to the Company,
provided such payment does not contravene any provision of law.
31
<PAGE> 36
Article 11
Top-Heavy Provisions
11.1 Top-Heavy Plan
Notwithstanding any other provision of this Plan to the contrary, this
article will apply if the Plan is a Top-Heavy Plan. The Plan will be a
Top-Heavy Plan if, as of the Determination Date, the present value of
the cumulative accrued benefits of Key Employees exceeds sixty percent
of the present value of the cumulative accrued benefits under the Plan
of all Participants and Beneficiaries (but excluding the value of the
accrued benefits of former Key Employees and individuals who have not
performed any services for the Company during the five year period
ending on the Determination Date). This percentage will be computed in
accordance with Code Section 416(g).
In determining whether this Plan is a Top-Heavy Plan, all employers
that are aggregated under Code Sections 414(b), (c) and (m) will be
treated as a single employer. In addition, all plans that are part of
the Aggregation Group will be treated as a single plan. In determining
present values, mortality will be based on the 1984 Unisex Pension
Mortality Table and the interest rate utilized will be five percent.
11.2 Definition of Terms
For purposes of this article only, the following terms will have the
following meanings:
(a) "Aggregation Group" means the Required Aggregation Group or, at
the election of the Company, the Permissive Aggregation Group.
(b) "Average Compensation" means the Participant's Compensation
averaged over the five consecutive Plan Years in which the
Participant earned a Year of Service (if such Year of Service is
not disregarded pursuant to 11.4) and in which the Participant's
aggregate Compensation was the greatest. If the Participant
received Compensation in fewer than five such Plan Years, his or
her Compensation will be averaged over such lesser number of Plan
Years.
(c) "Compensation" for purposes of this article and 13.9 only means a
Participant's wages from the Company within the meaning of Code
Section 3401(a), and all other payments of compensation to the
Participant by the Company (in the course of the Company's trade
or
32
<PAGE> 37
business), for which the Company is required to furnish a written
statement to the Participant under Code Sections 6041(d) and
6051(a)(3) (IRS Form W-2 - wages, tips and other compensation).
Compensation will also be limited by the $200,000 and $150,000
limits as described in 1.14
(d) "Determination Date" means the last day of the preceding Plan
Year. This date will also be the valuation date for determining
present values.
(e) "Key Employee" means an Employee, a former Employee, or the
Beneficiary of a former Employee who, in the Plan Year containing
the Determination Date, or any of the four preceding Plan Years,
is:
(1) An officer of the Company having an annual compensation from
the Company greater than 50 percent of the amount in effect
under Code Section 415(b)(1)(A) for the calendar year in which
any such Plan Year ends. Not more than fifty Employees (or, if
fewer, the greater of three Employees or ten percent of the
Employees not excluded under Code Section 414(q)(8)),
including those Employees included under paragraphs (2), (3)
and (4) below, will be considered as officers for purposes of
this subparagraph.
(2) One of the ten Employees having an annual Compensation from
the Company greater than the amount in effect under Code
Section 415(c)(1)(A) for the calendar year in which any such
Plan Year ends and owning (or considered as owning within the
meaning of Code Section 318) both more than a one-half percent
interest and the largest interests in the Company.
(3) A five-percent owner of the Company.
(4) A one-percent owner of the Company having an annual
Compensation from the Company of more than $150,000 for a Plan
Year.
Whether an Employee is a five-percent owner or a one-percent owner
will be determined in accordance with Code Section 416(i).
Neither the aggregation rules nor the rules under Code Sections
414(b), (c) and (m) will apply in determining whether an Employee
is a five-percent owner or a one-percent owner.
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<PAGE> 38
(f) "Non-key Employee" means an Employee (and any Beneficiary of an
Employee) who is not a Key Employee.
(g) "Permissive Aggregation Group" means the Required Aggregation
Group of plans plus any other plan or plans of the Company which,
when considered as a group with the Required Aggregation Group,
would continue to satisfy the requirements of Code Sections
401(a)(4) and 410.
(h) "Required Aggregation Group" means:
(1) Each stock bonus, pension, or profit sharing plan of the
Company in which a Key Employee participates in the Plan Year
containing the Determination Date or any of the four preceding
Plan Years which is intended to qualify under Code Section
401(a); and
(2) Each other such stock bonus, pension or profit sharing plan of
an employer which enables any plan in which a Key Employee
participates to meet the requirements of Code Sections
401(a)(4) or 410.
(i) "Top-Heavy Group" means the Aggregation Group if the sum of (1)
and (2) below exceeds sixty percent of a similar sum determined
for all Employees (excluding former Key Employees and individuals
who have not performed any services for the Company during the
five year period ending on the Determination Date):
(1) The present value of the cumulative accrued benefit for Key
Employees under all defined benefit plans included in such
group.
(2) The aggregate of the accounts of Key Employees under all
defined contribution plans included in such group.
In a Top-Heavy Group, all plans in the Required Aggregation Group
are Top-Heavy regardless of whether or not the individual plans
are Top-Heavy.
11.3 Modification of Vesting Schedule
If the Plan is a Top-Heavy Plan in a Plan Year, a Participant who is
credited with an Hour of Service in such Plan Year will have his or her
Vested Percentage for Accrued Benefit Attributable to Company
Contributions determined in accordance with the following schedule if
it produces a higher Vested Percentage than the schedule in 6.1(b).
34
<PAGE> 39
<TABLE>
<CAPTION>
Years of Service Vested Percentage
---------------- -----------------
<S> <C>
Less than 2 0%
2 20%
3 40%
4 60%
5 80%
6 or more 100%
</TABLE>
A Participant's vested Accrued Benefit Attributable to Company
Contributions will not be less than that determined as of the last day
of the last Plan Year in which the Plan was a Top-Heavy Plan.
If the Plan ceases to be Top-Heavy, each Participant with three or more
Years of Service (determined as of the first day of the Plan Year in
which the Plan ceases to be Top-Heavy) will continue to have his or
her Vested Percentage for Accrued Benefit Attributable to Company
Contributions determined in accordance with this 11.3.
11.4 Minimum Benefit
If the Plan is Top-Heavy in a Plan Year, the Accrued Benefit as of the
last day of such Plan Year for any Participant who is not a Key
Employee, but who is employed or on an Authorized Period of Absence in
such Plan Year, will not be less than the Actuarial Equivalent of an
annual benefit payable in the form of a straight life annuity beginning
on the Participant's Normal Retirement Date equal to the lesser of (i)
two percent of the Participant's Average Compensation multiplied by
Years of Service or (ii) twenty percent of the Participant's Average
Compensation. For purposes of this 11.4, any Year of Service will be
disregarded if:
(1) the Plan was not a Top-Heavy Plan for any Plan Year ending
during such Year of Service, or
(2) such Year of Service ended in a Plan Year beginning before
January 1, 1984.
A Participant's Accrued Benefit as of any subsequent date will not be
less than that determined as of the last day of the Plan Year in which
the Plan was a Top-Heavy Plan.
11.5 Modification of Maximum Benefit
If the Plan is a Top-Heavy Plan in a Plan Year, 13.9(i)(1)(b) and
13.9(i)(2)(b) will be amended for such Plan Year by substitution of
"100%" for "125%" where such percentage appears therein.
35
<PAGE> 40
Article 12
Administration of the Plan
12.1 Administration
(a) The Retirement Committee ("Committee") will consist of three or
more individuals who will be appointed by the Board of Directors
of the Company. The Committee will serve as Plan Administrator and
as the named fiduciary pursuant to ERISA. The Committee will have
complete control of the administration of the Plan, subject to the
provisions hereof, with all powers necessary to enable it to carry
out its duties properly in that respect. Not in limitation, but in
amplification of the foregoing, it will have the power to
interpret the Plan and to determine all questions that may arise
hereunder, including all questions relating to the eligibility of
Employees to participate in the Plan and the amount of benefit to
which any Participant or Beneficiary may become entitled. Its
decisions upon all matters within the scope of its authority will
be final.
(b) The Committee will establish rules and procedures to be followed
by Participants and Beneficiaries in filing applications for
benefits, in furnishing and verifying proofs necessary to
determine age or marital status, and in any other matters required
to administer the Plan.
(c) The Committee will receive all applications for benefits and will
determine all facts necessary to establish the right of the
applicant to benefits under the provisions of the Plan and the
amount thereof.
(d) The Committee will maintain accounts showing the fiscal
transactions of the Plan, and will keep data required for the
valuation of the assets and liabilities of the Plan. The Committee
will also prepare an annual report showing in reasonable detail
the assets and liabilities of the Plan and giving a brief account
of the operation of the Plan for each year. The Committee will
make the annual report available to each Participant as required
by law.
(e) The Committee will appoint an enrolled actuary to make actuarial
valuations of the liabilities of the Plan, to recommend the amount
of contributions to be made by the Company and to perform such
other services as the Committee will deem necessary or desirable
in connection with the administration of the Plan. The Committee
may also appoint such accountants, counsel, consultants and other
persons the
36
<PAGE> 41
Committee deems necessary or desirable in connection with the
administration of the Plan.
(f) The Committee will have the power to appoint or remove any
Investment Manager or Managers and to manage (including the power
to acquire and dispose of) any assets of the Plan.
(g) The Committee will have the power to appoint or remove the
Trustee.
(h) The Committee will be entitled to rely upon all tables,
valuations, certificates and reports furnished by the accountant,
consultant, administrator or actuary appointed by the Committee
and upon all opinions given by any counsel selected or approved by
it.
12.2 Records
All acts and determinations of the Committee and the Company regarding
this Plan will be duly recorded and all such records, together with
such other documents as may be necessary for the administration of the
Plan, will be preserved in the custody of the Committee.
12.3 Payment of Expenses
All expenses that arise in connection with the administration of the
Plan, including, but not limited to, the compensation of any enrolled
actuary, accountant, legal counsel, consultant or other person who will
be employed by the Committee in connection with the administration
thereof, may be paid from the assets of the Plan.
12.4 Delegation of Authority
The administrative duties and responsibilities set forth in 12.1 may be
delegated by the Committee in whatever manner and extent it chooses to
such person or persons as it selects. It will notify the Company and
the Trustee of the authority conferred upon such person or persons.
12.5 Information Available
Any Participant in the Plan or any Beneficiary receiving benefits under
the Plan may examine copies of the Plan description, latest annual
report, any bargaining agreement, the Plan, the Trust Agreement or any
other instrument under which the Plan was established or is operated.
The Committee will maintain all of these items in its office, or in
such other place or places as it may designate from
37
<PAGE> 42
time to time for examination during reasonable business hours. Upon the
written request of a Participant or Beneficiary receiving benefits
under the Plan, the Committee will furnish a copy of any item listed in
this 12.5. The Committee may make a reasonable charge to the requesting
person for the copy furnished.
12.6 Claims Procedure
The Committee will adopt procedures for the presentation of claims for
benefits and for the review of the denial of such claims by the
Committee. Detailed information regarding such procedures may be
obtained by writing to the Retirement Committee. The decision of the
Committee upon such review will be final, subject to appeal rights
provided by law.
12.7 Fiduciary Capacity
Any person may serve in more than one fiduciary capacity with respect
to this Plan.
12.8 Committee Liability
The members of the Committee will use ordinary care and diligence in
the performance of their duties, but no member will be personally
liable by virtue of any contract, agreement, or other instrument made
or e xecuted as a member of the Committee, nor for any mistake of
judgment made by him or her or by any other member, nor for any loss
unless resulting from willful misconduct or failure to exercise good
faith. No member of the Committee will be liable for the neglect,
omission, or wrongdoing of any other member or of the agents or
counsel of the Committee. The Company will indemnify each member of the
Committee against, and hold him or her harmless from any and all
expenses and liabilities arising out of any act or omission to act as a
member of the Committee, except such liabilities and expenses as are
due to willful misconduct or failure to exercise good faith.
38
<PAGE> 43
Article 13
General Provisions
13.1 Amendment of Plan
(a) The Company may amend the Plan at any time. Such amendments may
include any remedial retroactive changes to comply with the
requirements of any law or regulation issued by any governmental
agency to which the Company is subject. No amendment will diminish
or adversely affect any accrued interest or benefit of
Participants or their Beneficiaries, except as may be required to
comply with the requirements of any law or regulation issued by
any governmental agency to which the Company is subject.
(b) If any amendment to the Plan changes the vesting schedule, each
Participant who is an Employee with at least three Years of
Service may elect to remain under the vesting schedule of the Plan
prior to such amendment. If the Participant does not make the
election within a reasonable time (as may be determined pursuant
to governmental regulations from time to time), such Participant
will be subject to the vesting schedule under the Plan as amended.
In no event will the vesting percentage of the Participant's
Accrued Benefit be reduced below the percentage attained by the
Participant prior to such amendment.
(c) In no event will a Participant who terminates or retires on or
after the date any amendment to the Plan is effective receive less
than his or her vested percentage multiplied by the Accrued
Benefit prior to such date. This amount will be adjusted for the
date of retirement and form of payment on the basis in effect
prior to such amendment.
(d) If any amendment to the Plan eliminates an optional form of
payment, a Participant may continue to elect such form of payment
with respect to any Accrued Benefit earned prior to the effective
date of such amendment.
13.2 Employment Status
Nothing contained in the Plan will be deemed to give any Employee the
right to be retained in the employ of the Company or to interfere with
the rights of the Company to discharge any Employee at any time.
39
<PAGE> 44
13.3 Mergers or Consolidations
If this Plan merges or consolidates with, or transfers its assets or
liabilities to any other qualified plan of deferred compensation, no
Participant will, as a result of such merger, consolidation or
transfer, be entitled to a benefit on the day following such event
which is less than the benefit to which he or she is entitled on the
day preceding such event. For purposes of this 13.3, the benefit to
which a Participant is entitled will be calculated based upon the
assumption that a Plan termination and distribution of assets occurred
on the day as of which the Participant's entitlement is being
determined.
13.4 Provision Against Anticipation
No benefit under the Plan will be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, charge or other legal process, and any attempt to do so
will be void. The preceding sentence will not apply to a qualified
domestic relations order pursuant to Code Section 414(p).
13.5 Facility of Payment
If any Participant or Beneficiary is physically or mentally incapable
of giving a valid receipt for any payment due him and no legal
representative has been appointed for such Participant or Beneficiary,
the Committee may direct the Trustee to make such payment to any person
or institution maintaining such Participant or Beneficiary and the
release of such person or institution will be a valid and complete
discharge for such payment. Any final payment or distribution to any
Participant, the legal representative of the Participant, or to any
Beneficiaries of such Participant in accordance with the provisions
herein will be in full satisfaction of all claims against the Plan, the
Committee, the Trustee and the Company arising under or by virtue of
the Plan.
13.6 Construction
The validity of the Plan or any of its provisions will be determined
under and will be construed according to federal law and, to the extent
permissible, according to the laws of the State of Washington. If any
provision of the Plan is held illegal or invalid for any reason, such
determination will not affect the remaining provisions of the Plan and
the Plan will be construed and enforced as if said illegal or invalid
provision had never been included.
40
<PAGE> 45
13.7 Legal Actions
The Committee will be the necessary party to any action or proceeding
involving the assets held with respect to the Plan or the
administration thereof. No Employee, Participant, former Participant or
their Beneficiaries, or any other person having or claiming to have an
interest in the Plan will be entitled to any notice or process. Any
final judgment that may be entered in any such action or proceeding
will be binding and conclusive on all persons having or claiming to
have any interest in the Plan.
13.8 Payment of Small Benefits
Effective January 1, 1989, if a Participant terminates employment,
dies, or retires and the Actuarial Equivalent value of any benefit
payable under the Plan to such Participant or his or her Beneficiary
does not exceed $3,500, the Committee will pay the Actuarial Equivalent
value of such benefit to the Participant or Beneficiary in a lump sum.
This payment must be made before the first day of the first period for
which an amount is payable as an annuity unless the Participant and the
Participant's spouse, if any, give written consent. If a lump sum
payment is made, no other benefit under the Plan will be due to the
Participant or Beneficiary unless the Participant repays such amount
with interest at the rate of five percent per year. Such repayment must
be made prior to the earlier of:
(1) the fifth anniversary of the Participant's reemployment date, or
(2) the date the Participant incurs five consecutive one year Breaks
in Service.
If the Participant's Vested Percentage is zero, the Participant will be
deemed to have received a distribution of the Vested Percentage of his
or her Accrued Benefit and to have forfeited the nonvested percentage
of his or her Accrued Benefit. The deemed distribution will be deemed
repaid if the former Participant is reemployed by the Company before
the date the former Participant incurs five consecutive one-year Breaks
in Service. If repayment is made, the Accrued Benefit which the
Participant had earned prior to the date he or she terminated
employment will be reinstated pursuant to 6.3.
If the Actuarial Equivalent value of the Participant's benefit at the
time of a distribution exceeds $3,500, then such value at any
subsequent time will be deemed to exceed $3,500.
41
<PAGE> 46
13.9 Maximum Retirement Benefit
(a) For purposes of this 13.9 only, the following definitions will
apply:
(1) "Annual Benefit" means a retirement benefit payable annually
in the form of a straight life annuity. A benefit payable in
a form other than a straight life annuity will be adjusted to
be the Actuarial Equivalent of a straight life annuity before
applying the limitations of this 13.9. However, no actuarial
adjustment will be made for the value of a qualified joint
and survivor annuity or the value of benefits that are not
directly related to retirement benefits.
(2) "Compensation" has the meaning defined in 11.2(c).
(3) "Limitation Year" means a Plan Year.
(4) "Social Security Retirement Age" means the age used as the
retirement age for a Participant under Section 216(l) of the
Social Security Act except that such section will be applied
without regard to the age increase factor, and as if the
early retirement age under Section 216(l)(2) of such Act were
62.
(b) The Annual Benefit of a Participant may not at any time within a
Limitation Year exceed the lesser of (1) or (2) below:
(1) $98,064 for 1989. Each January 1 this $98,064 limitation will
automatically be adjusted to the new dollar limitation
prescribed by the Secretary of the Treasury for that calendar
year. The new limitation will apply to Limitation Years
ending within the calendar year of the date of adjustment.
(2) 100% of the annual average of the Participant's Compensation
from the Company for the three consecutive Limitation Years
(or all Limitation Years, if fewer than three), which give
the highest average.
(c) If the Annual Benefit payable to a Participant under this Plan and
all other defined benefit plans of the Company does not exceed
$10,000 and the Company has not maintained a defined contribution
plan in which the Participant participated, the maximum otherwise
imposed by this 13.9 will not apply.
42
<PAGE> 47
(d) Service or participation less than ten years
(1) If a Participant has completed less than ten years of
participation in the Plan the limit otherwise imposed by
13.9(b)(1) will be multiplied by the ratio of the
Participant's years (or part thereof) of participation in the
Plan to ten. This ratio will not be less than one-tenth.
(2) If a Participant has completed less than ten Years of
Service, the limits otherwise imposed by 13.9(b)(2) and
13.9(c) will be multiplied by the ratio of the Participant's
Years of Service (or part thereof) to ten. This ratio will
not be less than one-tenth.
(3) To the extent provided by the Secretary of the Treasury, this
13.9(d) will be applied separately with respect to each
change in the benefit structure of the Plan.
(e) If a Participant's benefit payments are to commence before the
Participant's Social Security Retirement Age, the maximum benefit
amount will be reduced as follows:
(1) If the Participant's benefit payments are to commence at or
after age 62 and the Participant's Social Security Retirement
age is 65, the amount described in 13.9(b)(1) will be reduced
by five-ninths of one percent for each month by which
benefits commence before the month in which the Participant
attains age 65 or,
(2) If the Participant's benefit payments are to commence at or
after age 62 and the Participant's Social Security Retirement
age is greater than 65, the amount described in 13.9(b)(1)
will be reduced by five-ninths of one percent for each of the
first 36 months and five twelfths of one percent for each of
the additional months (up to 24) by which benefits commence
before the month in which the participant attains Social
Security Retirement Age.
(3) If the Participant's benefit payments are to commence prior
to the month in which the Participant attains age 62, the
maximum benefit amount described in 13.9(b)(1) will reduced
to the Actuarial Equivalent of the limit at age 62 determined
pursuant to 13.9(e)(1) or 13.9(e)(2). For purposes of this
13.9(e) and 13.9(f) only, actuarial
43
<PAGE> 48
equivalence will be computed using an interest rate of 5% and
the 1984 Unisex Pension Mortality Table.
(f) If a Participant's benefit payments are to commence after the
Participant's Social Security Retirement Age, the maximum benefit
amount described in 13.9(b)(1) will be actuarially increased.
(g) If the Accrued Benefit of any Participant as of the close of the
last Limitation Year beginning before January 1, 1987 exceeds the
benefit limitations under Code Section 415(b) then, for purposes
of Code Section 415(b) and (e) such Participant's defined benefit
dollar limitation under Code Section 415(b)(1) will be equal to
his or her Accrued Benefit, determined as of such date as if the
Participant had separated from service on that date. For purposes
of this paragraph, any changes in the terms and conditions of the
Plan or cost of living adjustments occurring after May 5, 1986
will be disregarded.
(h) All defined benefit plans of the Company, terminated or not, will
be considered as one plan for purposes of the limitations
specified under this 13.9, and all entities of a controlled group
of entities will be considered as one employer.
(i) In any case in which a person is a Participant in both a defined
benefit plan and a defined contribution plan maintained by the
Company or any Affiliate or Subsidiary of the Company, the sum of
(1) and (2) below for any Limitation Year may not exceed 1.0:
(1) The defined benefit plan fraction for such Limitation Year is
equal to the quotient of (A) divided by (B) below:
(A) The Annual Benefit of the Participant under the Plan and
all other defined benefit plans (determined as of the
close of such Limitation Year).
(B) The lesser of 125% of the amount described in 13.9(b)(1)
and 140% of the amount described in 13.9(b)(2).
If the Employee was a participant in one or more defined
benefit plans maintained by the Company, or any Affiliate or
Subsidiary of the Company, which were in existence on May 5,
1986, the amount calculated in (B) will not be less than 125%
of the Employee's accrued benefit under such
44
<PAGE> 49
defined benefit plans as of December 31, 1986, determined
without regard to any change in the terms or conditions of
the plan made after May 5, 1986, and without regard to any
cost of living adjustment occurring after May 5, 1986. The
preceding sentence only applies if the defined benefit plans
individually and in the aggregate satisfied the requirement
of Code Section 415 as in effect on December 31, 1986.
(2) The defined contribution plan fraction for such Limitation
Year is equal to the quotient of (A) divided by (B) below:
(A) The aggregate of the annual additions to the
Participant's account under said defined contribution
plan as of the close of such Limitation Year.
(B) The lesser of 125% of the maximum annual additions to
such account for all Years of Service with the Company,
or 1.4 multiplied by 25% of the Participant's
Compensation for all Years of Service with the Company.
If the Plan satisfied the applicable requirements of Code
Section 415 as in effect for the last Plan Year beginning
before January 1, 1987, an amount will be subtracted from the
amount calculated in (A) (but not reducing the amount in (A)
to less than zero) so that the sum of the defined benefit
fraction and defined contribution fraction computed under
Code Section 415(e)(1) does not exceed 1.0 for such Plan Year
(determined as if the changes to Code Section 415 made by the
Tax Reform Act of 1986 and any technical corrections to such
act were in effect for such Plan Year).
(3) If the sum of (1) and (2) exceeds 1.0, the Annual Benefit
under this Plan will be limited to such amount as will reduce
such sum to 1.0.
13.10 Additional Benefit Limits for Highly Compensated Employees
(a) For purposes of this 13.10 only, the following definitions will
apply:
(1) "Benefit" means benefits under the Plan and includes any
loans in excess of the amounts set forth in Code Section
72(p)(2)(A), any annual periodic income, any withdrawal
values payable to
45
<PAGE> 50
a living Employee and any death benefits not provided by
insurance on the Employee's life.
(2) "Current Liabilities" is defined in Code Section 412(l)(7)
provided that the Company may elect to use the value of
current liabilities as reported on Schedule B of the Plan's
most recent timely filed Form 5500 or Form 5500 C/R.
Alternatively, the Company may determine current liabilities
as of a later date.
(3) "Highly Compensated Employee" means:
(A) Any Employee who performs services for the Controlled
Group during the determination year and who, during the
look-back year:
(i) received Total Earnings in excess of $75,000 (as
adjusted by the Secretary of the Treasury for the
relevant year),
(ii) received Total Earnings in excess of $50,000 (as
adjusted by the Secretary of the Treasury for the
relevant year) and was a member of the top-paid
group for such year, or
(iii) was an officer (within the meaning of Code Section
416(i)) of the Controlled Group and received Total
Earnings during such year that were greater than
50% of the dollar limitation in effect under Code
Section 415(b)(1)(A).
(B) Any Employee who is both (i) described in 12.10(a)(3)(A)
if the term "determination year" is substituted for the
term "look-back year" and (ii) is one of the 100
Employees who received the most Total Earnings from the
Controlled Group during the determination year.
(C) Any Employee who is a 5% owner (as defined in Code
Section 416(i)(1)(A)(iii)) of the Company at any time
during the look-back year or the determination year.
(D) If no officer has satisfied the compensation requirement
of 12.10(a)(3)(A)(iii) during either a determination
year or look- back year, the highest paid officer for
such determination year will be treated as
46
<PAGE> 51
a Highly Compensated Eligible Employee if such officer
is an Eligible Employee. No more than 50 Employees (or
if less, the greater of three Employees or 10% of the
Employees) will be treated as officers.
(E) For purposes of this 13.10 the following definitions
apply. The determination year is the Plan Year. The
look-back year is the 12-month period immediately
preceding the determination year. The top-paid group is
the top 20% of Employees ranked on the basis of
compensation received during the year and will be
determined in accordance with Code Section 414(q)(8) and
the regulations thereunder.
(F) An Employee who is a 5% owner or one of the 10 highly
compensated employees in the Controlled Group paid the
greatest amount of Total Earnings during the Plan Year
and such Employee's spouse, lineal ascendants or
descendants and the spouses of such lineal ascendants or
descendants will be treated as a single Employee for
purposes of this 13.10.
(4) "Highly Compensated Former Employee" means any former
Employee who was a Highly Compensated Employee for a
separation year (as defined in Treasury Regulation section
1.414(q)-1T) or for any determination year ending on or
after the Employee attains age 55, as provided by Code
Section 414(q)(9) and the regulations thereunder.
(5) "Restricted Amount" is the excess of the accumulated amount
of distributions to a Restricted Employee over the
accumulated amount of the payments that would have been paid
under:
(A) a straight life annuity that is the actuarial equivalent
of the Restricted Employee's Benefit (other than a
social security supplement), plus
(B) the amount of the payments that the Restricted Employee
is entitled to receive under a social security
supplement.
For this purpose, an "accumulated amount" is the amount
of a payment increased by a reasonable amount of
interest from the date the payment was made (or would
have been made)
47
<PAGE> 52
until the date for the determination of the Restricted
Amount.
(6) "Restricted Employee" for any Plan Year means one of the 25
Highly Compensated Employees or Highly Compensated Former
Employees with the greatest compensation.
(b) In the event the Plan is terminated, the Benefit payable to any
Highly Compensated Employee and any Highly Compensated Former
Employee will be limited to a benefit which is nondiscriminatory
under Code Section 401(a)(4).
(c) Prior to Plan termination, the annual payment to a Restricted
Employee under the Plan will be limited to an amount equal to the
annual payment that would have been paid under a straight life
annuity that is the actuarial equivalent to the Restricted
Employee's Benefit (not including any social security supplement)
plus the amount of any social security supplement payments the
Restricted Employee is entitled to receive.
(d) 13.10(c) will not apply if:
(1) after payment of all Benefits to the Restricted Employee, the
value of Plan assets is 110% or more of the value of Current
Liabilities,
(2) the value of Benefits payable to the Restricted Employee is
less than one percent of the value of Current Liabilities, or
(3) the present value of the Benefits payable to the Restricted
Employee is $3,500 or less, or
(4) upon receipt of a distribution from the Plan, the Restricted
Employee deposits in escrow property having a fair market
value equal to at least 125% of the Restricted Amount or,
alternatively, posts a bond or letter of credit in an amount
equal to at least 100% of the Restricted Amount.
13.11 Eligible Rollover Distribution
(a) This 13.11 applies to distributions made on or after January 1,
1993. Notwithstanding any provision of the plan to the contrary
that would otherwise limit a distributee's election under this
13.11, a distributee may elect, at the time and in the manner
prescribed by the plan administrator, to have any portion of an
eligible rollover distribution paid directly to an
48
<PAGE> 53
eligible retirement plan specified by the distributee in a direct
rollover.
(b) Definitions.
(1) Eligible rollover distribution: An eligible rollover
distribution is any distribution of all or any portion of the
balance to the credit of the distributee, except that an
eligible rollover distribution does not include: any
distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made
for the life (or life expectancy) of the distributee or the
joint lives (or joint life expectancies) of the distributee
and the distributee's designated beneficiary, or for a
specified period of ten years or more; any distribution to
the extent such distribution is required under Code Section
401(a)(9); and the portion of any distribution that is not
includible in gross income (determined without regard to the
exclusion for net unrealized appreciation with respect to
employer securities).
(2) Eligible retirement plan: An eligible retirement plan is an
individual retirement account described in Code Section
408(a), an individual retirement annuity described in Code
Section 408(b), an annuity plan described in Code Section
403(a), or a qualified trust described in Code Section 401(a)
that accepts the distributee's eligible rollover
distribution. However, in the case of an eligible rollover
distribution to the surviving spouse, an eligible retirement
plan is an individual retirement account or individual
retirement annuity.
(3) Distributee: A distributee includes an employee or former
employee. In addition, the employee's or former employee's
surviving spouse and the employee's or former employee's
spouse or former spouse who is the alternate payee under a
qualified domestic relations order, as defined in Code
Section 414(p), are distributees with regard to the interest
of the spouse or former spouse.
(4) Direct rollover: A direct rollover is a payment by the plan
to the eligible retirement plan specified by the distributee.
49
<PAGE> 54
13.12 Procedures with Respect to Domestic Relations Orders
(a) In the event that a domestic relations order is received by the
Plan, the Committee shall promptly notify the affected Participant
and any alternate payee (or such payee's designated
representative) of the receipt of such order and the Plan's
procedures for determining the qualified status of such order
under Code Section 414(p). The Committee shall then, within a
reasonable period after receipt of such order, determine whether
such order is a qualified domestic relations order and notify the
Participant and each alternate payee (or such payee's designated
representative) of its determination. If a Participant or an
alternate payee is dissatisfied with the determination of the
Committee, the Participant may appeal the Committee's decision by
following the Plan procedure for appealing denied claims.
(b) The term "domestic relations order" as used herein means any
judgment, decree, or order (including approval of a property
settlement agreement) which relates to the provision of child
support, alimony payments, or marital property rights to a spouse,
former spouse, child, or other dependent of a Participant, and is
made pursuant to State law. The term "qualified domestic relations
order" means a domestic relations order which assigns to an
alternate payee the right to receive all or a portion of the
benefits payable with respect to a Participant under the Plan, and
meets the following requirements:
(1) A qualified domestic relations order must clearly specify:
(A) Then name and last known mailing address of the
Participant and of each alternate payee,
(B) The amount or percentage of the Participant's benefit to
be paid by the Plan to each alternate payee, or the
manner in which such percentage is to be determined,
(C) The number of payments or period to which such order
applies, and
(D) Each plan of the Company to which it applies.
(2) A qualified domestic relations order may not require the Plan
to provide:
50
<PAGE> 55
(A) Increased benefits (on the basis of actuarial value),
(B) Benefits to an alternate payee which are required to be
paid to another alternate payee under another order
previously determined to be a qualified domestic
relations order, or
(C) Any type or form of benefit, or any option, not
otherwise provided under the Plan except that benefits
(to the extent vested) may be paid to an alternate payee
on or after the date which is ten years before the
Participant's Normal Retirement Age without regard to
whether the Participant has terminated employment.
(c) During any period in which the qualified status of a domestic
relations order is being determined, the Committee shall direct
the Trustee to separately account for the amounts (referred to as
"segregated amounts") which would have been payable to the
alternate payee during such period if the order had been
determined to be qualified. If within 18 months the order (or
modification thereof) is determined to be a qualified domestic
relations order, the Committee shall allow payment of such
segregated amounts to the alternate payee. Otherwise, the
segregated amounts shall be paid without regard to the court
order.
Executed this 16th day of December, 1994 at Salt Lake City, Utah.
ZIONS BANCORPORATION
by /s/ Harris H. Simmons
--------------------------------------
President
ATTEST:
/s/ Gary L. Anderson
- --------------------------------------
Secretary
51
<PAGE> 56
Appendix I
ZIONS BANCORPORATION
PENSION PLAN
Joint and Survivor Option Factors
An Employee retiring at any age will have the following factors applied to his
or her Accrued Benefit.
<TABLE>
<CAPTION>
Joint & Survivor Option
50% 66 2/3% 100%
----------------------------------------------
<S> <C> <C> <C>
Spouse same age as Employee .880 .850 .790
For each year the Spouse is younger than
the Employee subtract -.005 -.006 -.008
For each year the Spouse is older than
the Employee add +.005 +.006 +.008
</TABLE>
The maximum adjustment for age differential is limited to 20 years.
52
<PAGE> 57
Appendix II
ZIONS BANCORPORATION
PENSION PLAN
Lump Sum Factors
For the purpose of calculating the lump sum equivalent of a
Participant's Accrued Benefit as of any date in a Plan Year commencing
after December 31, 1985, the 1984 Unisex Pension Mortality Table is
used together with the Pension Benefit Guaranty Corporation's interest
rate(s) for valuing benefits under plans terminating on the first day
of such Plan Year; provided that in no event shall such lump sum be
less than the present value as of December 31, 1985 of a Participant's
Accrued Benefit to December 31, 1985 on the basis of the following
actuarial factors.
Actuarial factors used prior to December 31, 1985 for valuing a
deferred annuity of $1 per year commencing at age 65 and payable in
monthly installments:
<TABLE>
<CAPTION>
Age Factor Age Factor
--- ------ --- ------
<S> <C> <C> <C>
32 0.6404 49 2.4180
33 0.6920 50 2.6182
34 0.7479 51 2.8357
35 0.8082 52 3.0721
36 0.8735 53 3.3292
37 0.9441 54 3.6090
38 1.0205 55 3.9138
39 1.1031 56 4.2458
40 1.1925 57 4.6080
41 1.2892 58 5.0034
42 1.3939 59 5.4356
43 1.5073 60 5.9088
44 1.6301 61 6.4279
45 1.7632 62 6.9983
46 1.9075 63 7.6261
47 2.0639 64 8.3184
48 2.2337 65 9.0836
</TABLE>
53
<PAGE> 58
Appendix III
ZIONS BANCORPORATION
PENSION PLAN
Early Retirement Old Plan Account Factors
<TABLE>
<CAPTION>
Age Factor
--- ------
<S> <C>
55 .500
56 .533
57 .567
58 .600
59 .633
60 .667
61 .733
62 .800
63 .867
64 .933
65 1.000
</TABLE>
54
<PAGE> 1
EXHIBIT 10.2
Amendment No. 1
to the
Zions Bancorporation Pension Plan
The Zions Bancorporation Pension Plan, as restated effective January 1, 1994, is
amended effective December 1, 1994 by adding a new Section 13.13 as follows:
13.13 Retirement Incentive Program
(a) A Participant is eligible for the retirement
incentive program under this section if:
(1) the Participant is age 58 or over on
December 1, 1994, and
(2) the Participant has five or more
Years of Service as of December 1,
1994, and
(3) the Participant makes an election to
retire, in accordance with
procedures established by the
Company, during the period beginning
on December 1, 1994 and ending on
February 28, 1995.
(b) A Participant who is eligible under (a) for
the retirement incentive program may elect
to retire on any day on and after December
1, 1994 and before but including March 1,
1995. Except as provided in (c) below, the
monthly amount of Retirement Income payable
to such Participant will be equal to the
Accrued Benefit earned to the date of his or
her retirement. The Accrued Benefit
Attributable to the Old Plan Account as of
such retirement date is determined under
4.4. This Retirement Income will be subject
to adjustment depending on the Form of
Payment elected in accordance with 5.7.
(c) A Participant who retires pursuant to the
provisions of this section on a day which is
not the first day of a calendar month shall
receive a partial payment of his or her
Monthly Retirement Income for the partial
month of retirement. The partial payment
will be equal to a pro rata portion of the
Participant's Monthly Retirement Income
based
<PAGE> 2
on the number of days of retirement in the
month compared to the total number of days
in the month.
Executed this 16th day of December ,
------------------------- --------------------------
1994 at Salt Lake City, Utah.
ZIONS BANCORPORATION
by /s/ Harris H. Simmons
------------------------
President
ATTEST:
/s/ Gary L. Anderson
- ------------------------
Secretary
12/8/94
<PAGE> 1
EXHIBIT 10.9
Zions Bancorporation
Senior Management Value Sharing Plan
Award Period: 1994-1997
Objective:
To provide an ongoing multi-year incentive for the senior managers of Zions
Bancorporation and its subsidiaries which:
A. Focuses managers attention on the creation of long-term shareholder value;
B. Creates an incentive that promotes teamwork across departments and
subsidiaries, and which encourages managers to balance profit center
accountability with Company-wide goals; and,
C. Complements the short-range annual bonuses which reflect the achievement of
annual objectives and the Company's short-term profitability.
Eligibility:
Participants in the Plan shall consist of the senior management group and
certain other key managers) of the Company and its major subsidiaries.
Participants for each Award Period shall be specifically identified by the
Company's Board of Directors (the "Board") or its Executive Compensation
Committee (the "Committee" ) .
Allocation of Awards:
It is anticipated that during the first quarter of each year in which the Plan
operates, the Board of Directors shall approve the establishment of a pool of
Award Funds to be generated during the Award Period, according to the general
formula outlined below. Participants shall be designated by the Board or the
Committee. Claims against the pool of Award Funds for each Award Period shall be
represented by Participation Units ("PU's"), and each participant shall be
allocated a specific number of PU's by the Committee. The PU's shall represent a
pro-rata claim, in proportion to the total PU's designated for that Award
Period, on any Award Funds generated by the Plan during the Award Period.
Term:
Each Award Period shall consist of a continuous four-calendar year period. The
Plan is intended to constitute a "moving four-year-average' incentive plan, with
the anticipation that a new Award Period would be designated each year, with
multiple Award Periods overlapping one another. Nevertheless, the establishment
of a new Award Period each year is subject to the Board's discretion.
<PAGE> 2
Determination of Award Funds:
The amount of Award Funds in the pool for each Award Period shall be a function
of the mathematical average return on shareholders' equity ("AROE") for each of
the four years in the Award Period, together with the aggregate earnings per
share ("AEPS") during the Award Period.
Each year, the Committee shall establish minimum targets for AROE and AEPS for
the Award Period. These minimum targets would both be required to be reached in
order for any Award Funds to be earned. Additionally, the Committee may
designate Award Fund allocation amounts based upon the achievement of higher
levels of AROE, with upward adjustment possible if higher levels of AEPS are
achieved. The Committee may also designate other conditions and to ensure the
Plan's integrity and consistency with shareholder and depositor interests.
The 1994-1997 Award Period formula for the determination of total Award Funds is
as follows:
* Minimum AROE: 14.00
* Minimum AEPS: $18.20
Funding of 1994-1997 Award Fund Pool:
<TABLE>
<CAPTION>
AROE Cumulative Award
Funds
---- ----------------
<S> <C>
14% $ 0
15% 287,000
16% 638,000
17% 1,151,000
18% 1,583,000
19% 2,174,000
20% 2,582,000
21% 3,277,000
22% 3,965,000
</TABLE>
Interim amounts shall be calculated by interpolation.
The basic Award Fund amount would be further modified by multiplying the
cumulative Award Funds by l+[(AEPS - $18.20)/21.7], with a maximum AEPS figure
of S25.35 (resulting in a 33% maximum upward adjustment in the Award Funds.
<PAGE> 3
For the 1994-97 Award Period, the following parameters shall be established, and
adjustments made to the Company's earnings calculations, for purposes of
determining Award Funds available under the Plan:
1). The Plan is intended to create an incentive for increasing shareholder
value. however, this is not to be accomplished by reducing capital levels
or assuming extraordinary or unwarranted risks. Accordingly, it is
expected that total risk-based capital levels shall be maintained at a
level at least 125% of regulatory requirements.
2). The Company's reserve levels are to be conservatively maintained. To the
extent that the consolidated Allowance for Loan and Lease Losses is less
than 110% of the peer group level, as expressed in terms of
reserves/non-current loans as reported in the most current uniform Bank
Performance Report available at January 31, 1997, an appropriate
adjustment shall be made to after-tax earnings (for purposes of
calculating Award Funds only) to compensate for any deficit relative to
the 110% minimum target level. Actual reserve levels are, of course,
subject to Board and/or regulatory decisions. No upward adjustments shall
be made in "pro forma earnings in the event actual reserve levels exceed
110% of the peer group target.
3). Unless determined otherwise by the Board, in the event of any merger
involving an acquisition by Zions for the exchange of Zions' shares in a
pooling-of-interests transaction, earnings per share prior to the
acquisition date shall, for the purpose of calculating AEPS during the
Award Period, be determined using Zions' un-restated numbers.
Other Terms and Conditions:
The Plan is to be governed and interpreted by the Committee, whose decisions
shall be final. The terms of the Plan are subject to change or termination at
their sole discretion.
The Company shall retain the right to withhold payment of Award Funds to
participants in the event of a significant deterioration in the Company's
'financial condition, or if so required by regulatory authorities, or for any
other reason considered valid by the Board in its sole discretion.
Participants shall not vest in any benefits available under the Plan until the
conclusion of each Award Period. Nevertheless, upon death, permanent disability,
or normal or early retirement, participants (or their estates) shall be eligible
to receive a proportionate share of Award Funds based upon the number of PU's
granted, and the number of full calendar quarters the participant was engaged as
an officer of the Company or its subsidiaries prior to death, disability, or
retirement.
<PAGE> 4
The PU's shall not be transferable without the express approval of the
Committee.
In the event of the merger or acquisition of the Company, the Plan shall be
terminated as of the end of the fiscal quarter preceding the first full quarter
before the transaction is consummated. The Board may make any reasonable
estimates or adjustments possible in calculating Award Funds for any Award
Period, and may, in its sole discretion, distribute benefits to the
participants.
Earnings per share calculations shall be adjusted to reflect any stock splits,
stock dividends, or other such changes in capitalization, at the discretion of
the Committee.
The award of PU's to any participant shall not confer any right with respect to
continuance of employment by the Company or its subsidiaries, nor limit in any
way the right of the Company to terminate his or her employment at any time,
with or without cause.
<PAGE> 5
APPENDIX
ZIONS BANCORPORATION VALUE-SHARING PLAN: 1994-97
Calculation of Participation Unit Value
Average Annual ROE ("AROE")
If the AROE is:
<TABLE>
<CAPTION>
Over But not over The basic value of a Participation Unit is
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
14.00% 14.99% $0.00 + $.0271 per basis point of the amount
over 14.00%
15.00% 15.99% $2.71 + $.0330 per basis point of the amount
over 15.00%
16.00% 16.99% $6.01 + $.0485 per basis point of the amount
over 16.00%
17.00% 17.99% $10.86 + $.0407 per basis point of the amount
over 17.00%
18.00% 18.99% $14.93 + $.0558 per basis point of the amount
over 18.00%
19.00% 19.99% $20.51 + $.0385 per basis point of the amount
over 19.00%
20.00% 20.99% $24.36 + $.0656 per basis point of the amount
over 20.00%
21.00% 21.99% $30.92 + $.0648 per basis point of the amount
over 21.00%
22.00% $37.40
</TABLE>
Aggregate E.P.S. ("AEPS") Modifier:
The basic Participation unit value determined above shall be - adjusted as
follows:
If AEPS for 1994-97 is less than $18.20, the Participation Units shall have no
value.
If AEPS is greater than $18.20, the basic amount determined based on AROE shall
be multiplied by a factor of:
l+[(AEPS-$18.20)/21.7] (with a maximum factor of 1.33) to arrive at a final
total, value of each Participation Unit.
******************************
Example: If AROE is 18.16% and AEPS is $21.03, each Participation Unit would be
worth $17.89.
<PAGE> 1
EXHIBIT 10.10
ZIONS BANCORPORATION
EXECUTIVE MANAGEMENT PENSION PLAN
Effective January 1, 1994
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Introduction................................................................................................. 1
Article 1- Definitions................................................................................... 2
1.1 Accrued Benefit............................................................................... 2
1.2 Code.......................................................................................... 2
1.3 Committee..................................................................................... 2
1.4 Company....................................................................................... 2
1.5 Effective Date................................................................................ 2
1.6 ERISA......................................................................................... 2
1.7 Executive Management Plan Benefit............................................................. 2
1.8 Executive Management Retirement Income........................................................ 2
1.9 Participant................................................................................... 2
1.10 Pension Plan.................................................................................. 2
1.11 Pension Plan Benefit.......................................................................... 2
1.12 Plan.......................................................................................... 2
1.13 Retirement Date............................................................................... 2
1.14 Unrestricted Pension Plan Benefit............................................................. 2
Article 2- Participation................................................................................. 3
2.1 Participants.................................................................................. 3
Article 3- Executive Management Retirement Income........................................................ 4
3.1 Amount of Accrued Benefit..................................................................... 4
3.2 Executive Management Retirement Income........................................................ 4
3.3 Forms of Retirement Income.................................................................... 4
Article 4 Termination and Vesting....................................................................... 5
4.1 Vesting....................................................................................... 5
Article 5 Disability Benefits........................................................................... 6
5.1 Payment of Disability Benefit................................................................. 6
Article 6 Death Benefits................................................................................ 7
6.1 Preretirement Death Benefit................................................................... 7
6.2 Postretirement Death Benefit.................................................................. 7
Article 7 General Provisions............................................................................ 8
7.1 Unfunded Obligation........................................................................... 8
7.2 Administration................................................................................ 8
7.3 Employment Status............................................................................. 8
7.4 Amendment and Termination of Plan............................................................. 8
7.5 Provision Against Anticipation................................................................ 8
7.6 Facility of Payment........................................................................... 8
7.7 Withholding Taxes............................................................................. 9
7.8 Applicable Law................................................................................ 9
</TABLE>
<PAGE> 3
Introduction
Zions Bancorporation recognizes the value of services performed by its
executives and desires to provide them with full pension benefits even when
those benefits exceed the limits on benefits which can be provided by Zions
Bancorporation Pension Plan. This reflects Zions Bancorporation's recognition
that the value of services provided by its executives may not be adequately
reflected in the retirement benefits provided under its tax qualified retirement
plans.
Accordingly, this Executive Management Pension Plan is established supplement
benefits provided to executives under the tax qualified Zions Bancorporation
Pension Plan.
<PAGE> 4
Article 1
Definitions
1.1 Accrued Benefit means the monthly amount of benefit credited to a
Participant in accordance with Section 3.1.
1.2 Code means the Internal Revenue Code of 1986, as amended.
1.3 Committee means the Retirement Committee appointed to administer the
Pension Plan.
1.4 Company means Zions Bancorporation and any affiliate or subsidiary
which adopts this Plan with the consent of the Board of Directors of
Zions Bancorporation.
1.5 Effective Date means January 1, 1994.
1.6 ERISA means the Employee Retirement Income Security Act of 1974, as
amended.
1.7 Executive Management Plan Benefit means a Participant's monthly accrued
benefit under this Plan determined in accordance with Section 3.1.
1.8 Executive Management Retirement Income means a Participant's monthly
retirement income under this Plan determined in accordance with Article
3.
1.9 Participant means an employee or former employee of the Company who is
eligible for an Executive Management Plan Benefit in accordance with
Article 2.
1.10 Pension Plan means the Zions Bancorporation Pension Plan as it may be
amended from time to time.
1.11 Pension Plan Benefit means a Participant's monthly accrued benefit
under the Pension Plan.
1.12 Plan means the Zions Bancorporation Executive Management Pension Plan.
1.13 Retirement Date means a Participant's normal, early, late, or
disability retirement date determined under the Pension Plan.
1.14 Unrestricted Pension Plan Benefit means a Participant's monthly accrued
benefit under the Pension Plan, determined without regard to the
limitations on benefits imposed by Code Section 415 or the limitation
on compensation taken into account under the Pension Plan imposed under
Code Section 401(a)(17).
<PAGE> 5
Article 2
Participation
2.1 Participants
The Board of Directors shall determine the Participants in this Plan,
provided that each Participant shall be an employee of the Company who
is an active participant in the Pension Plan on or after the Effective
Date and who meets the following requirements:
(a) the employee is, or has been, a member of the Company's
Executive Management Committee on or after the Effective
Date, and
(b) the employee is (1) employed in a management position with the
Company having principal responsibility for the management,
direction and success of the Company as a whole or a
particular business unit thereof, or (2) a highly compensated
employee of the Company within the meaning of ERISA Section
401.
<PAGE> 6
Article 3
Executive Management Retirement Income
3.1 Amount of Accrued Benefit
A Participant's Executive Management Plan Benefit is equal to the
excess of the Participant's Unrestricted Pension Plan Benefit over the
Participant's Pension Plan Benefit.
3.2 Executive Management Retirement Income
A Participant's monthly Executive Management Retirement Income
commencing on his or her retirement Date will be equal to his or her
Executive Management Plan Benefit as of such date adjusted to reflect
the form of retirement income elected and, in the case of an early
retirement date, adjusted to reflect the age of the Participant on the
date benefit payments commence.
3.3 Forms of Retirement Income
The forms of retirement income available under this Plan are the same
as those described in the Pension Plan. A Participant's election of any
form of retirement income or benefit commencement date under the
Pension Plan will be deemed to apply to any Executive Management
Retirement Income under this Plan.
<PAGE> 7
Article 4
Termination and Vesting
4.1 Vesting
The Company will provide an Executive Management Plan Benefit to a
Participant who terminates employment with the Company equal to his or
her vested Accrued Benefit. A Participant's vested interest in his or
her Accrued Benefit will be equal to the Accrued Benefit multiplied by
the Participant's vested percentage under the Pension Plan.
All rights to any Executive Management Plan Benefit payable under this
Plan, including the payment of any unpaid benefit installments, will be
immediately forfeited if any of the following events occur:
(a) The Company terminates the Participant's employment for any act
of willful malfeasance or gross negligence in the performance of
his or her duties.
(b) The Participant enters into competition with the Company without
the prior written permission of Company's Board of Directors.
<PAGE> 8
Article 5
Disability Benefits
5.1 Payment of Disability Benefit
A Participant who is eligible for disability retirement income under
the Pension Plan shall be entitled to disability retirement income
under this Plan to the extent the Participant's Unrestricted Pension
Plan Benefit exceeds the Participant's Pension Plan Benefit. The
provisions of the Pension Plan shall apply for determining disability,
eligibility, and disability retirement income.
<PAGE> 9
Article 6
Death Benefits
6.1 Preretirement Death Benefit
A Participant's spouse or other beneficiary who qualifies for a
preretirement death benefit under the Pension Plan shall be entitled to
a preretirement death benefit under this Plan. The amount of such
benefit, if any, will be based on the Participant's vested interest in
his or her Accrued Benefit under this Plan and will be determined in
the same manner as set forth in the applicable section of the Pension
Plan. In addition, such benefit will be payable as provided under the
Pension Plan.
6.2 Postretirement Death Benefit
Death benefits payable after a Participant's retirement shall be
determined according to the form of retirement income elected by the
Participant upon retirement.
<PAGE> 10
Article 7
General Provisions
7.1 Unfunded Obligation
The benefits provided by this Plan shall be an unfunded obligation of
the Company. The Company is not required to segregate any monies from
its general funds, to create any trusts, or to make any special
deposits with respect to this obligation. Title to and beneficial
ownership of any investments which the Company may make to fulfill its
obligation shall at all times remain in the Company.
7.2 Administration
The Committee shall have complete control of the administration of the
Plan, subject to the provisions hereof, with all powers necessary to
enable it to carry out its duties properly in that respect. In
addition, it will have the power to construe the terms of the Plan and
to determine all questions that may arise hereunder, including all
questions relating to the eligibility of employees to participate in
the Plan and the amount of benefit to which any Participant or
beneficiary may become entitled. The Committee's decisions upon all
matters within the scope of its authority will be final.
7.3 Employment Status
Nothing contained in the Plan will be deemed to give any employee the
right to be retained in the employ of the Company or to interfere with
the rights of the Company to discharge any employee at any time.
7.4 Amendment and Termination of Plan
The Company may amend, suspend or terminate the Plan at any time. No
amendment, suspension or termination may impair the right of a
Participant or his or her beneficiary to receive benefits accrued under
the Plan as of the date the amendment, suspension or termination if
adopted.
7.5 Provision Against Anticipation
No benefit under the Plan shall be subject any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, charge or
other legal process, and any attempt to do so shall be void.
7.6 Facility of Payment
If any Participant or beneficiary is physically or mentally incapable
of giving a valid receipt for any payment due him or her and no legal
representative has been appointed for such Participant or beneficiary,
the Committee may make such payment to any person or institution
maintaining such Participant or beneficiary, and the release of such
person or institution will be a valid and
<PAGE> 11
complete discharge for such payment. Any final payment or distribution
to any Participant, the legal representative of the Participant, or to
any beneficiaries of such Participant in accordance with the provision
herein will be in full satisfaction of all claims against the Company
arising under or by virtue of the Plan.
7.7 Withholding Taxes
Appropriate tax withholding shall be made from payments to Participants
pursuant to this Plan or from other wages of Participants as required
under applicable law.
7.8 Applicable Law
This Plan shall be interpreted and enforced in accordance with the laws
of the State of Utah.
Executed this 16th day of December , 1994
------------------------- --------------------------
at Salt Lake City, Utah.
ZIONS BANCORPORATION
by /s/ Harris H. Simmons
-----------------------
President
ATTEST:
/s/ Gary L. Anderson
- -------------------------------
Secretary
<PAGE> 1
EXHIBIT 21
ZIONS BANCORPORATION AND SUBSIDIARIES
AT DECEMBER 31, 1994
<TABLE>
<CAPTION>
SUBSIDIARY STATE
----------- -----
<S> <C>
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
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
Zions Bancorporation:
We consent to the incorporation by reference in Zions Bancorporation's (i)
Registration Statement (Form S-3 No. 33-52586) and related Prospectus pertaining
to the Zions Bancorporation Dividend Reinvestment and Common Stock Purchase
Plan, (ii) Registration Statement (Form S-8 No. 33-52878) and related Prospectus
pertaining to Zions Bancorporation Employee Stock Savings Plan, and (iii)
Registration Statement (Form S-8 No. 33-52796) and related Prospectus pertaining
to Zions Bancorporation Employee Investment Savings Plan, of our report dated
January 24, 1995, relating to the consolidated balance sheets of Zions
Bancorporation and subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of income, retained earnings, and cash flows for
each of the years in the three-year period ended December 31, 1994, which report
appears in this annual report on Form 10-K for the year ended December 31, 1994.
Our report refers to changes in accounting principles relating to the adoption
of the Financial Accounting Standards Board's Statements of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other than
Pensions", No. 109, "Accounting for Income Taxes", and No. 115, "Accounting for
Certain Investments in Debt and Equity Securities".
The audit referred to in the above-mentioned report also included the related
financial schedule entitled Short-term Borrowings, for each of the years in the
three-year period ended December 31, 1994, included in Part II, Item 7 on page
38. In our opinion, such financial schedule presents fairly the information
required to be set forth therein for each of the years in the three-year period
ended December 31, 1994.
We also consent to the incorporation by reference in Zions Bancorporation's
Registration Statement (Form S-8 No. 33-52878) of Zions Bancorporation Employee
Stock Savings Plan of our report dated March 15, 1995, relating to the net
assets available for benefits of Zions Bancorporation Employee Stock Savings
Plan as of December 31, 1994 and 1993, and the related statements of changes in
net assets available for benefits for each of the years in the three-year period
ended December 31, 1994, which report appears in this annual report on Form 11-K
for the year ended December 31, 1994.
We also consent to the incorporation by reference in Zions Bancorporation's
Registration Statement (Form S-8 No. 33-52796) of Zions Bancorporation Employee
Investment Savings Plan of our report dated March 15, 1995, relating to the net
assets available for benefits of Zions Bancorporation Employee Investment
Savings Plan as of December 31, 1994 and 1993, and the related statements of
changes in net assets available for benefits for each of the years in the
three-year period ended December 31, 1994, which report appears in this annual
report on Form 11-K for the year ended December 31, 1994.
KPMG Peat Marwick LLP
Salt Lake City, Utah
March 28, 1995
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1994 AND RELATED CONSOLIDATED
STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1994 INCLUDED IN THE
COMPANY'S FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1994 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 316,943
<INT-BEARING-DEPOSITS> 19,704
<FED-FUNDS-SOLD> 383,742
<TRADING-ASSETS> 316,948
<INVESTMENTS-HELD-FOR-SALE> 315,578
<INVESTMENTS-CARRYING> 1,030,907
<INVESTMENTS-MARKET> 1,018,798
<LOANS> 2,931,278
<ALLOWANCE> 67,018
<TOTAL-ASSETS> 4,934,095
<DEPOSITS> 3,705,976
<SHORT-TERM> 631,723
<LIABILITIES-OTHER> 70,873
<LONG-TERM> 159,753
<COMMON> 79,193
0
0
<OTHER-SE> 286,577
<TOTAL-LIABILITIES-AND-EQUITY> 4,934,095
<INTEREST-LOAN> 230,261
<INTEREST-INVEST> 123,728
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 353,989
<INTEREST-DEPOSIT> 90,958
<INTEREST-EXPENSE> 155,383
<INTEREST-INCOME-NET> 198,606
<LOAN-LOSSES> 2,181
<SECURITIES-GAINS> (299)
<EXPENSE-OTHER> 174,900
<INCOME-PRETAX> 94,727
<INCOME-PRE-EXTRAORDINARY> 63,827
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 63,827
<EPS-PRIMARY> 4.37
<EPS-DILUTED> 4.37
<YIELD-ACTUAL> 3.98
<LOANS-NON> 13,635
<LOANS-PAST> 3,041
<LOANS-TROUBLED> 567
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 68,461
<CHARGE-OFFS> 11,661
<RECOVERIES> 6,729
<ALLOWANCE-CLOSE> 67,018
<ALLOWANCE-DOMESTIC> 10,115
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 56,903
</TABLE>
<PAGE> 1
EXHIBIT 99.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
FORM 11-K
-------------
ANNUAL REPORT
Pursuant to Section 15(d) Of The
Securities Exchange Act of 1934
For the Year Ended December 31, 1994
ZIONS BANCORPORATION
EMPLOYEE STOCK SAVINGS PLAN
ZIONS BANCORPORATION
1380 Kennecott Building
Salt Lake City, Utah 84133
<PAGE> 2
ITEM 1. CHANGES IN THE PLAN
The Plan was completely amended and restated as of October 1, 1992, with certain
provisions retroactively effective as of January 1, 1989. In 1994, the Plan was
amended for the purpose of maintaining its qualification under the Internal
Revenue Code pursuant to the Tax Reform Act of 1986 and, in order to conform the
Plan to the requirements of the Unemployment Compensation Act of 1992 and the
Omnibus Budget Reconciliation Act of 1993.
ITEM 2. CHANGES IN INVESTMENT POLICY
No material changes were made during the fiscal year in the policy with respect
to the kind of securities and other investments in which funds held under the
plan may be invested.
ITEM 3. CONTRIBUTIONS UNDER THE PLAN
The Company's contributions are measured by reference to employee contributions
and are not discretionary.
ITEM 4. PARTICIPATING EMPLOYEES
There were 1,700 participating employees in the Plan on December 31, 1994.
ITEM 5. ADMINISTRATION OF THE PLAN
(a) Zions Bancorporation is the Plan administrator. The Company's Board of
Directors has appointed an Administrative Committee consisting of six
persons. The Committee has full power and authority to administer the
Plan and to interpret its provisions. The present members of the
Committee and their positions held are:
<TABLE>
<CAPTION>
Member Position - Company
------------------ ---------------------------------------------------------------
<S> <C> <C>
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.
</TABLE>
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.
<PAGE> 3
ITEM 6. CUSTODIAN OF INVESTMENTS
(a) Zions First National Bank, One South Main Street, Salt Lake City, Utah
84133 is the custodian and trustee.
(b) The custodian and trustee receive no compensation from the Plan.
ITEM 7. REPORTS TO PARTICIPATING EMPLOYEES
Participating employees are furnished an annual statement reflecting the status
of their accounts as of the end of the fiscal year.
ITEM 8. INVESTMENT OF FUNDS
Substantially all of the assets of the Plan are invested in securities of the
Company.
ITEM 9. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
Report of Independent Auditors
Statements of Net Assets Available for Benefits - December 31, 1994
and 1993
Statements of Changes in Net Assets Available for Benefits - Years
ended December 31, 1994, 1993, and 1992
Notes to Financial Statements
Schedules - Schedules I, II, and III have been omitted for the reasons
that they are not required or are not applicable, or the required
information is shown in the financial statements or notes thereto.
(b) Exhibits - None
<PAGE> 4
Independent Auditors' Report
The Trust Committee
Zions Bancorporation
Employee Stock Savings Plan:
We have audited the accompanying statements of net assets available for benefits
of Zions Bancorporation Employee Stock Savings Plan as of December 31, 1994 and
1993, and the related statements of changes in net assets available for benefits
for each of the years in the three-year period ended December 31, 1994. These
financial statements are the responsibility of the plan's administrator. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
plan's administrators, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of Zions
Bancorporation Employee Stock Savings Plan as of December 31, 1994 and 1993, and
the changes in net assets available for benefits for each of the years in the
three-year period ended December 31, 1994, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Salt Lake City, Utah
March 15, 1995
<PAGE> 5
ZIONS BANCORPORATION
EMPLOYEE STOCK SAVINGS PLAN
Statements of Net Assets Available for Benefits
December 31, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
----------- ---------
<S> <C> <C>
Assets:
Zions Bancorporation common stock (approximate cost of $8,035,000 in 1994
and $5,366,000 in 1993) $ 9,994,955 7,943,160
Short-term investment fund 17,032 61,243
----------- ---------
10,011,987 8,004,403
Contributions receivable:
Employees 88,524 114,948
Zions Bancorporation 44,262 57,475
Dividends receivable 83,582 60,243
Interest receivable 349 -
----------- ---------
Total assets 10,228,704 8,237,069
----------- ---------
Liabilities:
Accounts payable 669 6,805
Excess contribution refunds 15,816 7,073
----------- ---------
Total liabilities 16,485 13,878
----------- ---------
Net assets available for benefits $10,212,219 8,223,191
=========== =========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 6
ZIONS BANCORPORATION
EMPLOYEE STOCK SAVINGS PLAN
Statements of Changes in Net Assets Available for Benefits
Years ended December 31, 1994, 1993, and 1992
<TABLE>
<CAPTION>
1994 1993 1992
----------- -------- ---------
<S> <C> <C> <C>
Additions (deductions) to net assets attributed to:
Net appreciation (depreciation) in market value of investment
in Zions Bancorporation common stock $ (410,576) (516,233) 2,333,081
Dividends 294,770 200,330 106,606
Interest 3,343 1,543 269
----------- -------- ---------
(112,463) (314,360) 2,439,956
----------- -------- ---------
Contributions:
Employees 1,964,913 1,806,956 400,265
Zions Bancorporation 982,463 903,477 200,133
----------- -------- ---------
2,947,376 2,710,433 600,398
----------- --------- ---------
Transfer of assets from Zions Bancorporation Employee
Investment Savings Plan - - 1,390,989
----------- --------- ---------
Total additions 2,834,913 2,396,073 4,431,343
Deductions from net assets attributed to benefits paid
directly to participants 845,885 525,906 706,422
----------- --------- ---------
Net increase 1,989,028 1,870,167 3,724,921
Net assets available for benefits:
Beginning of year 8,223,191 6,353,024 2,628,103
----------- --------- ---------
End of year $10,212,219 8,223,191 6,353,024
=========== ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 7
ZIONS BANCORPORATION
EMPLOYEE STOCK SAVINGS PLAN
Notes to Financial Statements
December 31, 1994, 1993, and 1992
(1) Description of the Plan
Zions Bancorporation Employee Stock Savings Plan (the Plan) is a single
employer contributory plan that is designed to provide retirement
benefits for eligible employees under an after tax salary reduction
arrangement by offering employees an opportunity to acquire stock
ownership in Zions Bancorporation (the Company). The Plan is subject to
the provisions of the Employee Retirement Income Security Act of 1974
(ERISA).
(2) Summary of Significant Accounting Policies
The following is a summary of significant accounting policies followed
by the Plan in the preparation of its financial statements.
(a) Basis of Presentation
The Plan's financial statements are presented on the accrual
basis of accounting.
(b) Investments
The investment in common stock of the Company is carried at
market value in the accompanying financial statements. The
investment in the short-term investment fund represents a cash
equivalent. Purchases and sales of investments are recorded on a
settlement-date basis which does not materially differ from
using the trade-date basis required by generally accepted
accounting principles.
(c) Costs of Administration
All costs of administration are absorbed by the Company.
(3) Eligibility
Participation in the Plan is voluntary. An employee is eligible to
participate on January 1, or July 1, whichever coincides with, or
immediately follows, the latter of the date on which the employee
completes at least 1,000 hours of service during 12 continuous months
and attains the age of 21. As of December 31, 1994 and 1993, there were
1,700 participants and 1,524 participants, respectively, in the Plan.
<PAGE> 8
ZIONS BANCORPORATION
EMPLOYEE STOCK SAVINGS PLAN
Notes to Financial Statements
(4) Employee and Company Contributions
Each eligible employee who elects to participate makes contributions
ranging from one to five percent of their total compensation. Company
contributions are equal to 50 percent of the amount contributed by the
employee.
(5) Allocation of Income or Loss
Net appreciation (depreciation) in market value of investments,
dividends, and interest income are allocated to each participant's
account in proportion to the investment shares held in that
participant's account to the total of investment shares held in the
Plan.
(6) Vesting and Payment of Benefits
Employee contributions and the employees' share of the Company
contributions are 100 percent vested at all times. Benefits are paid
upon death, disability, retirement, or earlier subject to certain
restrictions. Benefits are paid in shares of stock.
(7) Income Taxes
The Plan obtained its latest determination letter on November 5, 1985,
in which the Internal Revenue Service stated that the Plan, as then
designed, was in compliance with the applicable requirements of the
Internal Revenue Code. The Plan has been amended since receiving the
determination letter. The Company is in the process of obtaining a new
letter for the Plan. The application for approval of the amendments
will be filed with the IRS by the March 31, 1995 deadline. However, the
plan administrator and the Plan's tax counsel believe that the Plan is
currently designed and being operated in compliance with the applicable
requirements of the Internal Revenue Code. Therefore, they believe that
the Plan was qualified and the related trust was tax-exempt as of the
financial statement date.
(8) Investment
At December 31, 1994 and 1993, investment in common stock of the
Company consisted of 278,605 and 214,680 shares, respectively.
<PAGE> 9
ZIONS BANCORPORATION
EMPLOYEE STOCK SAVINGS PLAN
Notes to Financial Statements
(9) Plan Amendments
The Plan became effective on January 1, 1978, and has been amended and
restated at various times thereafter. The Plan was completely amended
and restated as of October 1, 1992. In addition, the Plan was amended
in 1994 to include employees from recently acquired National Bank of
Arizona and Rio Salado Bancorporation. The following summarizes the
Plan's amended areas:
(a) Participant Contributions
Participants can elect either a pretax or post-tax salary
reduction of from one to a maximum of five percent of total
compensation as a participant contribution.
(b) Company Contributions
Matching contributions are made by the Company on behalf of each
participant in the amount of fifty percent of the participant's
contributions.
<PAGE> 1
EXHIBIT 99.2
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 11-K
------------------
ANNUAL REPORT
Pursuant to Section 15(d) Of The
Securities Exchange Act of 1934
For the Year Ended December 31, 1994
ZIONS BANCORPORATION
EMPLOYEE INVESTMENT SAVINGS PLAN
ZIONS BANCORPORATION
1380 Kennecott Building
Salt Lake City, Utah 84133
<PAGE> 2
ITEM 1. CHANGES IN THE PLAN
The Plan was completely amended and restated as of October 1, 1992, with certain
provisions retroactively effective as of January 1, 1989. In 1994, the Plan was
amended for the purpose of maintaining its qualification under Internal Revenue
Code pursuant to the Tax Reform Act of 1986 and, in order to conform the Plan to
the requirements of the Unemployment Compensation Act of 1992 and the Omnibus
Budget Reconciliation Act of 1993 and to facilitate the merger of the National
Bank of Arizona Savings and Retirement Plan and the Rio Salado Bancorp. Inc.
Retirement Plan into the Plan.
ITEM 2. CHANGES IN INVESTMENT POLICY
The Plan maintains four separate types of investment funds: (i) company
securities, which consists of Company stock and short-term investments pending
the acquisition of Company securities; (ii) Fidelity mutual fund, which invests
primarily in a diversified portfolio of U.S. common stocks, which are invested
to track closely with the Standard and Poors 500 index; (iii) money market fund,
which consists of, but is not limited to, certificates of deposit, commercial
paper, and U.S. treasury bills; and (iv) fixed income fund, which invests
primarily in government, mortgage, and corporate bonds. No material changes were
made during the year 1994 in the policy with respect to the kind of securities
and other investments in which funds held under the Plan may be invested.
ITEM 3. CONTRIBUTIONS UNDER THE PLAN
The Company's contributions are measured by reference to employee contributions
and are not discretionary.
ITEM 4. PARTICIPATING EMPLOYEES
There were 1,155 participating employees in the Plan on December 31, 1994.
ITEM 5. ADMINISTRATION OF THE PLAN
(a) Zions Bancorporation is the Plan administrator. The Company's Board of
Directors has appointed an Administrative Committee consisting of six
persons. The Committee has full power and authority to administer the
Plan and to interpret its provisions. The present members of the
Committee and their positions held are:
<TABLE>
<CAPTION>
Member Position - Company
------------------- -------------------------------------------------------------
<S> <C>
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.
</TABLE>
The address of each fiduciary listed above is 1380 Kennecott
Building,Salt Lake City, Utah 84133.
<PAGE> 3
(b) No compensation is paid to the Committee members by the Plan. All
expenses of the Plan and its administration are paid by the Company.
ITEM 6. CUSTODIAN OF INVESTMENTS
(a) Zions First National Bank, One South Main Street, Salt Lake City, Utah
84133 is the custodian and trustee.
(b) The custodian and trustee receive no compensation from the Plan.
ITEM 7. REPORTS TO PARTICIPATING EMPLOYEES
Participating employees are furnished an annual statement reflecting the status
of their accounts as of the end of the fiscal year.
ITEM 8. INVESTMENT OF FUNDS
As elected by participants, approximately sixty-eight percent of the assets of
the Plan are invested in securities of the Company, approximately
sixteen percent in the Fidelity mutual fund, approximately thirteen percent in
the money market fund, approximately two percent invested in the fixed income
fund, and approximately one percent in the short-term investment fund.
ITEM 9. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
Report of Independent Auditors
Statements of Net Assets Available for Benefits - December 31, 1994
and 1993
Statements of Changes in Net Assets Available for Benefits - Years
ended December 31, 1994, 1993, and 1992
Notes to Financial Statements
Schedules - Schedules I, II, and III have been omitted for the reasons
that they are not required or are not applicable, or the required
information is shown in the financial statements or notes thereto.
(b) Exhibits - None
<PAGE> 4
Independent Auditors' Report
The Trust Committee
Zions Bancorporation Employee
Investment Savings Plan:
We have audited the accompanying statements of net assets available for benefits
of Zions Bancorporation Employee Investment Savings Plan as of December 31, 1994
and 1993, and the related statements of changes in net assets available for
benefits for each of the years in the three-year period ended December 31, 1994.
These financial statements are the responsibility of the plan's administrator.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
plan's administrators, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of Zions
Bancorporation Employee Investment Savings Plan as of December 31, 1994 and
1993, and the changes in net assets available for benefits for each of the years
in the three-year period ended December 31, 1994, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Salt Lake City, Utah
March 15, 1995
<PAGE> 5
ZIONS BANCORPORATION
EMPLOYEE INVESTMENT SAVINGS PLAN
Statements of Net Assets Available for Benefits
December 31, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
----------- ----------
<S> <C> <C>
Assets:
Cash $ 27,876 --
Investments, at market value:
Zions Bancorporation common stock (approximate cost of $10,769,000
in 1994 and $9,689,000 in 1993) 18,361,112 18,828,375
Fidelity mutual fund (approximate cost of $4,192,000 in 1994 and
$3,229,000 in 1993) 4,374,929 3,525,534
Money market fund 3,605,624 3,477,123
Fixed income fund (approximate cost of $689,000 in 1994 and $515,000 in 1993) 611,682 526,295
Short-term investment fund 94,017 3,207
----------- ----------
27,075,240 26,360,534
Contributions receivable:
Employees 73,114 69,556
Zions Bancorporation 14,954 15,782
Participant loans receivable 1,426,014 1,341,223
Dividends receivable 154,242 142,484
Interest receivable 16,902 5,187
Due from/(to) Zions Bancorporation (3,677) 4,095
----------- ----------
Total assets 28,756,789 27,938,861
Liabilities:
Accounts payable 2,058 3,656
Excess contribution refunds 53,374 90,183
----------- ----------
Total liabilities 55,432 93,839
----------- ----------
Net assets available for benefits $28,701,357 27,845,022
=========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 6
ZIONS BANCORPORATION
EMPLOYEE INVESTMENT SAVINGS PLAN
Statements of Changes in Net Assets Available for Benefits
Years ended December 31, 1994, 1993, and 1992
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Additions to net assets attributed to:
Investment income:
Net appreciation (depreciation) in market value of investments $ (718,781) (118,055) 10,477,861
Dividends 692,270 564,557 508,484
Capital gain distributions 121,543 198,053 83,830
Interest 244,470 169,448 58,427
----------- --------- ----------
339,502 814,003 11,128,602
----------- --------- ----------
Contributions:
Employees 1,614,117 1,326,267 1,683,313
Zions Bancorporation 336,444 271,519 592,491
Plan rollovers 368,721 196,725 --
----------- ---------- ----------
2,319,282 1,794,511 2,275,804
----------- ---------- ----------
Total additions 2,658,784 2,608,514 13,404,406
Deductions from net assets attributed to:
Benefits paid directly to participants 1,802,449 1,447,853 1,706,335
Transfer of assets to Zions Bancorporation Employee Stock
Savings Plan -- -- 1,390,989
----------- ---------- ----------
Total deductions 1,802,449 1,447,853 3,097,324
----------- ---------- ----------
Net increase 856,335 1,160,661 10,307,082
Net assets available for benefits:
Beginning of year 27,845,022 26,684,361 16,377,279
----------- ---------- ----------
End of year $28,701,357 27,845,022 26,684,361
=========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 7
ZIONS BANCORPORATION
EMPLOYEE INVESTMENT SAVINGS PLAN
Notes to Financial Statements
December 31, 1994, 1993, and 1992
(1) Description of the Plan
Zions Bancorporation Employee Investment Savings Plan (the Plan) is a
single employer contributory plan that is designed to provide
retirement benefits for eligible employees under a pretax salary
reduction (deferral) arrangement and, if employees so elect, an
opportunity to acquire stock ownership in Zions Bancorporation (the
Company). The Plan is subject to the provisions of the Employee
Retirement Income Security Act of 1974 (ERISA).
(2) Summary of Significant Accounting Policies
The following is a summary of significant accounting policies followed
by the Plan in the preparation of its financial statements.
(a) Basis of Presentation
The Plan's financial statements are presented on the accrual
basis of accounting.
(b) Investments
Investments in common stock of Zions Bancorporation, Fidelity
mutual fund, and fixed income fund shares are carried at market
value in the accompanying financial statements. The investments
in the money market fund and short-term investment fund
represent cash equivalents. Purchases and sales of investments
are recorded on a settlement-date basis which does not
materially differ from using the trade-date basis required by
generally accepted accounting principles.
(c) Cost of Administration
All costs of administration are absorbed by the Company.
(3) Eligibility
Participation in the Plan is voluntary. An employee is eligible to
become a participant on January 1 or July 1, whichever coincides with,
or immediately follows, the latter of the date on which the employee
completes at least 1,000 hours of service during 12 continuous months
and attains the age of 21. At December 31, 1994 and 1993, there were
1,155 participants and 1,405 participants, respectively, in the Plan.
(4) Employee and Company Contributions
Participants may elect to contribute one to fifteen percent of their
compensation to the Employee Investment Savings Plan, limited by
participant contributions made to Zions Bancorporation Employee Stock
Savings Plan. The contributions are invested in one or more of the
following investment options: (i) the Company's stock, (ii) the
Fidelity mutual fund, (iii) a money market fund, and (iv) a fixed
income fund. The Company contributes an amount equal to 25 percent of
the contribution made by each participant up to ten percent of their
compensation with no match made on contributions in excess thereof. The
maximum amount a participant may contribute to the Plan in a calendar
year is the lesser of fifteen percent of their compensation, or $9,240
for 1994.
<PAGE> 8
ZIONS BANCORPORATION
EMPLOYEE INVESTMENT SAVINGS PLAN
Notes to Financial Statements
(5) Allocation of Income or Loss
Net appreciation (depreciation) in market value of investments,
dividends, interest income, and capital gains are allocated to each
participant's account in proportion to the investment shares held in
that participant's account to the total investment shares held in the
Plan.
(6) Vesting and Payment of Benefits
Employee contributions and the employees' share of the Company
contributions are 100 percent vested at all times. Benefits are paid
upon death, disability, retirement, or earlier, subject to certain
restrictions. Benefits are paid in shares of stock and/or cash pursuant
to the nature of the investment vehicle selected by the participant.
(7) Income Taxes
The Plan obtained its latest determination letter on November 5, 1985,
in which the Internal Revenue Service stated that the Plan, as then
designed, was in compliance with the applicable requirements of the
Internal Revenue Code. The Plan has been amended since receiving the
determination letter. The Company is in the process of obtaining a new
letter for the Plan. The application for approval of the amendments
will be filed with the IRS by the March 31, 1995 deadline. However, the
plan administrator and the Plan's tax counsel believe that the Plan is
currently designed and being operated in compliance with the applicable
requirements of the Internal Revenue Code. Therefore, they believe that
the Plan was qualified and the related trust was tax-exempt as of the
financial statement date.
(8) Investments
The investments in common stock of the Company and the Fidelity mutual
fund, consists of 511,808 and 508,875 shares, and 243,864 and 193,923
shares, respectively, at December 31, 1994 and 1993. The investment in
the fixed income fund consists of 31,224 and 24,207 shares at December
31, 1994 and 1993, respectively.
The net unrealized appreciation (depreciation) in market value for each
of the years in the three-year period ended December 31, 1994, in
comparison to the market value at the beginning of each year is as
follows:
<TABLE>
<CAPTION>
Investment 1994 1993 1992
---------- --------- -------- ----------
<S> <C> <C> <C>
Zions Bancorporation common stock $(601,351) (222,329) 10,477,363
Fidelity mutual fund (56,687) 122,428 498
Fixed income fund (60,743) (18,154) --
--------- -------- ----------
Net appreciation (depreciation) in market value $(718,781) (118,055) 10,477,861
========= ======== ==========
</TABLE>
<PAGE> 9
ZIONS BANCORPORATION
EMPLOYEE INVESTMENT SAVINGS PLAN
Notes to Financial Statements
(9) Plan Amendments
The Plan became effective on January 1, 1984, and has been amended and
restated at various times thereafter. The Plan was completely amended
and restated as of October 1, 1992. In addition, the plan was amended
in 1994 to include employees from recently acquired National Bank of
Arizona and Rio Salado Bancorporation. Amendment provisions include the
following:
(a) Participant Contributions
Participants can elect a pretax reduction from one percent to a
maximum of fifteen percent of total compensation as a
participant contribution, depending in part on the extent to
which the participant contributes to the Zions Bancorporation
Employee Stock Savings Plan.
(b) Company Contributions
Matching contributions are made by the Company on behalf of each
participant in the amount of twenty-five percent of participant
contributions (note 4), but not in excess of ten percent of
compensation.
(c) Participant Elections
Participants may change quarterly investment elections for funds
already invested in their accounts.
(d) Investment Options
The Plan maintains four separate types of investment funds: (i)
company securities, which consists of Company stock and
short-term investments pending the acquisition of Company stock;
(ii) Fidelity mutual fund, which invests primarily in a
diversified portfolio of U.S. common stocks, which are invested
to track closely with the Standard and Poors 500 index; (iii)
money market fund, which consists of, but is not limited to,
certificates of deposit, commercial paper, and U.S. treasury
bills; and (iv) fixed income fund, which invests primarily in
government, mortgage, and corporate bonds.
(e) Participant Loans
Beginning October 1, 1992, a participant who is an active
employee may apply for and obtain a loan of up to fifty percent
of the eligible amounts in their account. Loans may not exceed
five years and must be secured by the participants account. Loan
repayment is made through payroll deduction.
<PAGE> 10
ZIONS BANCORPORATION
EMPLOYEE INVESTMENT SAVINGS PLAN
Notes to Financial Statements
(10) Financial Information by Fund Type
Financial information by fund type as of, and for the year ended
December 31, 1994, are as follows:
Statement of Net Assets Available for Benefits by Fund Type
December 31, 1994
<TABLE>
Zions
Bancorp-
oration Fidelity Partici-
common mutual Money Fixed pant
stock fund market income loans Total
----------- --------- --------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Cash $ 27,242 -- 634 -- -- 27,876
Investments, at market
value:
Zions Bancorporation
common stock 18,361,112 -- -- -- -- 18,361,112
Fidelity mutual fund -- 4,374,929 -- -- -- 4,374,929
Money market fund -- -- 3,605,624 -- -- 3,605,624
Fixed income fund -- -- -- 611,682 -- 611,682
Short-term
investment fund 88,082 5,641 -- 294 -- 94,017
----------- --------- --------- ------- --------- ----------
18,476,436 4,380,570 3,606,258 611,976 -- 27,075,240
Contributions receivable:
Employees 26,360 31,450 11,906 3,398 -- 73,114
Zions Bancorporation 5,039 6,609 2,601 705 -- 14,954
Participant loans
receivable -- -- -- -- 1,426,014 1,426,014
Dividends receivable 154,242 -- -- -- -- 154,242
Interest receivable 267 31 16,594 10 -- 16,902
Due from/(to) Zions
Bancorporation -- (5,070) -- 1,393 -- (3,677)
----------- --------- --------- ------- --------- ----------
Total assets 18,662,344 4,413,590 3,637,359 617,482 1,426,014 28,756,789
Liabilities:
Accounts payable 122 -- -- 1,936 -- 2,058
Excess contribution
refunds 18,390 25,351 4,024 5,609 -- 53,374
----------- --------- --------- ------- --------- ----------
Total liabilities 18,512 25,351 4,024 7,545 -- 55,432
----------- --------- --------- ------- --------- ----------
Net assets available for benefits
$18,643,832 4,388,239 3,633,335 609,937 1,426,014 28,701,357
=========== ========= ========= ======= ========= ==========
</TABLE>
<PAGE> 11
ZIONS BANCORPORATION
EMPLOYEE INVESTMENT SAVINGS PLAN
Notes to Financial Statements
(10) Financial Information by Fund Type (continued)
Statement of Changes in Net Assets Available for Benefits by Fund Type
Year ended December 31, 1994
<TABLE>
<CAPTION>
Zions
Bancorp-
oration Fidelity Partici-
common mutual Money Fixed pant
stock fund market income loans Total
----------- --------- --------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Additions to net assets
attributed to:
Investment income:
Net appreciation
(depreciation) in
market value of
investments $ (601,351) (56,643) -- (60,787) -- (718,781)
Dividends 593,018 57,136 -- 42,116 -- 692,270
Capital gain
distributions -- 120,212 -- 1,331 -- 121,543
Interest 68,982 9,197 164,795 1,496 -- 244,470
----------- --------- --------- ------- -------- ----------
60,649 129,902 164,795 (15,844) -- 339,502
----------- --------- --------- ------- -------- ----------
Contributions:
Employees 593,429 680,345 270,190 70,153 -- 1,614,117
Zions Bancorporation
115,064 147,082 62,914 11,384 -- 336,444
Plan rollovers 175,680 66,006 103,216 23,819 -- 368,721
----------- --------- --------- ------- -------- ----------
884,173 893,433 436,320 105,356 -- 2,319,282
----------- --------- --------- ------- -------- ----------
Principal loan payments 313,442 34,364 65,872 2,042 (415,720) --
----------- --------- --------- ------- -------- ----------
Total additions 1,258,264 1,057,699 666,987 91,554 (415,720) 2,658,784
Deductions from net assets
attributed to:
Benefits paid directly to
participants (1,139,005) (276,006) (341,951) (45,487) -- (1,802,449)
Loans disbursed (335,345) (20,480) (112,062) (32,624) 500,511 --
----------- --------- --------- ------- -------- ----------
Total deductions (1,474,350) (296,486) (454,013) (78,111) 500,511 (1,802,449)
----------- --------- --------- ------- -------- ----------
Quarterly transfers (108,654) 101,433 (64,079) 71,300 -- --
----------- --------- --------- ------- -------- ----------
Net increase
(decrease) (324,740) 862,646 148,895 84,743 84,791 856,335
Net assets available for
benefits:
Beginning of year 18,968,572 3,525,593 3,484,440 525,194 1,341,223 27,845,022
----------- --------- --------- ------- --------- ----------
End of year $18,643,832 4,388,239 3,633,335 609,937 1,426,014 28,701,357
=========== ========= ========= ======= ========= ==========
</TABLE>
