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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, 1993
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 84133
SALT LAKE CITY, UTAH (Zip Code)
(Address of principal executive offices)
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
28, 1994 . . . . . . . . . . . . . . $434,871,000
Number of Common Shares Outstanding at February 28, 1994 . . . . . . . . . .
. . . . . . . . . . . . . . . 14,202,699 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 1993 ON FORM 10-K
TABLE OF CONTENTS
PAGE
PART I
Item 1. Business 1
Item 2. Properties 11
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 12
Executive Officers of the Registrant 12
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 13
Item 6. Selected Consolidated Financial Data 14
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 15
Item 8. Financial Statements and Supplementary Data 39
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 sixth largest bank in Nevada and
Zions First National Bank of Arizona 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 and consumer banking businesses, 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 contained development of the Company's
present lines of business.
At December 31, 1993, the Company had assets of $4.3 billion, loans of $2.2
billion, deposits of $3.0 billion, and shareholders' equity of $.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.
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 sharings 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.
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 federal agencies. Zions First
National Bank also provides correspondent banking services such as cash letter
processing, wire services, federal funds facilities, and loan participations.
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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 $59,932,000
in 1993, a 29.0% increase over the $46,474,000 produced in 1992 and $31,672,000
in 1991. A continuing decline in interest rate levels during 1993, combined
with a strong regional economy and the introduction of new credit products,
produced a strong loan demand in the Company's commercial banking operations
during the year. While average net loans and leases on the commercial banks'
balance sheet increased a modest 2.5% to $1,995,728,000 an additional
$589,000,000 in consumer and small business loans (excluding long-term
residential mortgage loans) were securitized during 1993, in addition to
$159,000,000 in loans securitized in December 1992. A significant increase in
lending activity was fueled by the introduction of the Home Refinance Loan - a
fully amortizing seven or ten-year mortgage - in March 1993. The product,
which was highly successful and imitated by a number of competitors, produced
nearly $400 million in loan originations in Utah, Nevada, Arizona, and Idaho.
The Company's commitment to small business lending was also evident in 1993 as
Zions First National Bank was recognized as "Participating Bank of the Year" by
the Utah Technology Finance Corporation for making more quality loans than any
other financial institution to high-technology companies. Zions First National
Bank was also recognized as the largest originator of loans under the U.S.
Small Business Administration's 7A and 504 programs in Utah during 1993.
Cash generated from the securitization of loans and growth in the banks'
deposit base was primarily invested in liquid securities during 1993. Taxable
investment securities increased 24.3% to $893,453,000, while tax-exempt
securities averaged $120,631,000, a 14.8% increase over the prior year's level.
Federal funds sold and securities purchased under agreements to resell
increased 168.2% to $645,218,000 in 1993, while interest-bearing deposits held
at other institutions decreased 43.5% to $103,867,000. Average assets in
trading accounts increased 178.6% to $102,840,000.
Total average core deposits increased 8.0% in 1993 to $2,720,828,000.
Noninterest bearing demand deposits increased 25.9% to $610,292,000; savings
and money market deposits increased 12.7% to $1,595,446,000; and certificates
of deposit under $100,000 decreased 16.9% to $515,090,000. Activity in federal
funds purchased and securities sold under agreements to repurchase increased
92.1% in 1993 to $775,386,000, primarily as a result of the purchase of
Discount Corporation of New York. Borrowings from the Federal Home Loan Bank
system also increased 39.8% to support a higher volume of real estate lending
during the year.
Aggressive installation of ATM's continued during the year, particularly in
nonbranch locations. At year end, the number of ATM's in service totaled 175,
which included installations at branch offices, stores, shopping centers,
airports, university campuses, and U.S. Postal Service facilities in rural Utah
communities.
Utah
Zions First National Bank, founded in 1873, has 84 offices located throughout
the state of Utah, plus one foreign office, for a total of 85 banking offices.
Zions First National Bank's net income in 1993 was $52,867,000, a 28.2%
increase over the $41,241,000 earned in the previous year. This increase was
the result of a $32,702,000 growth in revenues, a $25,176,000 increase in
expenses, and a $7,474,000 decrease in the provision for loan and lease losses.
Zions First National Bank's income tax provision increased $4,809,000. The
implementation during 1993 of Statement of Financial Accounting Standards
(SFAS) No. 106 and SFAS No. 109, relating to accounting for post-retirement
benefits and income taxes, respectively, generated a combined cumulative
benefit of $1,435,000.
In August 1993, Zions First National Bank completed the acquisition of Discount
Corporation of New York, a primary dealer in U.S. government securities.
Discount Corporation operates as a division of Zions First National Bank, and
has retained its sales and trading office at 58 Pine Street in New York City.
The acquisition significantly augments Zions Bank's existing institutional
investment sales business, and increases its institutional securities sales
capabilities, becoming one of 39 primary dealers of U.S. government
securities, and a member of the selling groups of four agencies of the U.S.
government. The transaction establishes Zions Bank as a leader in
institutional sales and trading in the Intermountain West, and one of only two
primary dealers in government securities headquartered in the western United
States.
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During the third quarter, Zions First National Bank also acquired a 25%
interest in Bennington Capital Management, an investment advisory firm located
in Seattle, Washington, which sponsors the AccessorTM family of mutual funds.
The acquisition should enable the Company to more fully participate in
capturing the value generated through the sale of mutual funds to its'
customers.
In October, the merger transaction of Zions Bancorporation and Wasatch Bancorp
strengthened Zions Bank's presence in the northern half of fast-growing Utah
County, Utah, by adding $75 million in assets and the addition of banking
offices operated by Wasatch Bancorp's banking subsidiary, Wasatch Bank. Zions
Bank additionally added a new full-service branch in Draper, Utah, a grocery
store banking center in South Jordan, Utah, and completed construction of a new
25,000 square foot regional financial center in St. George, Utah, during 1993.
Nevada
Nevada State Bank, a state-chartered Federal Deposit Insurance Corporation
("FDIC")-insured institution, with its main office in downtown Las Vegas,
opened a new grocery store banking center in Henderson, Nevada, during the
year, expanding its retail banking offices to 19 in Nevada. Nevada State Bank
achieved net income, after the amortization of purchased premium, of $4,691,000
in 1993-an increase of 16.1% over the $4,042,000 earned in 1992. The bank's
revenues increased $2,055,000 while operating expenses rose $1,586,000. The
provision for loan losses decreased $305,000 and the provision for income taxes
increased $478,000. The net effect of the implementation of SFAS No. 106 and
SFAS No. 109 was a benefit of $353,000.
Arizona
Zions First National Bank of Arizona at December 31, 1993 had three offices in
the metropolitan Phoenix, Arizona, area. Zions First National Bank of Arizona
experienced a strong increase in net income, net of the amortization of
purchase premium, as earnings rose 99.3% to $2,374,000 from $1,191,000 in 1992.
Revenues increased $547,000 while operating expenses decreased $32,000. The
provision for loan losses decreased $175,000 and the provision for income taxes
increased $65,000. The net effect of the implementation of SFAS No. 106 and
SFAS No. 109 was a benefit in the amount of $494,000.
In August, Zions announced an agreement to acquire National Bancorp of Arizona,
a $435 million organization headquartered in Tucson; and in October, an
agreement was reached to acquire Rio Salado Bancorp, a $107 million banking
company in Tempe, Arizona. These organizations bring talented employees and
well-established reputations to our business in Arizona. The National Bancorp
of Arizona transaction was consummated shortly after year-end 1993, and it is
anticipated that the Rio Salado Bancorp acquisition will be completed in the
second quarter of 1994. When combined with existing Arizona operations, the
resulting organization, which will operate under the National Bank of Arizona
name and with that bank's existing management, will have total assets of nearly
$630 million, with offices in metropolitan Phoenix, Tucson, and Flagstaff,
making it approximately the sixth largest commercial banking organization in
Arizona.
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.
In October 1993, Zions Mortgage Company became a subsidiary of Zions First
National Bank as ownership was transferred to the Bank from the parent company.
Zions Mortgage Company conducts a mortgage banking operation in Utah, Nevada,
and Arizona. In 1993, total loans serviced by Zions Mortgage Company increased
23.7% and $844 million in traditional residential mortgages were closed and
sold in the secondary market. 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.
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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 obtain
prior approval of the Federal Reserve Board to engage in any 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.
Various proposals are currently pending in the U.S. Congress to ease or
eliminate these limitations. It is not possible to predict at the present time
whether any of these proposals will become law. In the meantime, most states
have specifically authorized the acquisition of banks located in those states
by out-of-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 shares of a bank.
The Federal Reserve Board is authorized to adopt regulations affecting various
aspects of bank holding companies. Pursuant to the general supervisory
authority of the Bank Holding Company Act and directives set forth in the
International Lending Supervision Act of 1983, the Federal Reserve Board has
adopted capital adequacy guidelines prescribing both risk-based capital and
leverage ratios.
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.
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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, 1993, the Company's
Tier I and Total Capital ratios were 11.01% and 14.34%, 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; and (vii) management's overall ability to monitor
and control other financial and operating risks. 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, 1993, the Company's Tier I leverage ratio was
5.47%.
On December 21, 1993, the OCC, Federal Reserve Board and the FDIC (together,
the "Agencies") announced that they are or will be requesting public comment on
proposed amendments to the regulatory capital rules to explicitly include in
Tier I Capital net unrealized holding gains and losses on available-for-sale
securities. Such unrealized gains and losses are currently reported as a
component of stockholders' equity following a bank's adoption of SFAS No. 115.
As of January 1, 1994, or the beginning of their first fiscal year thereafter,
if later, all banks must have adopted SFAS No. 115 for purposes of preparing
their Reports of Condition and Income (Call Reports). During the comment
receipt and evaluation process, Tier I capital will be calculated as currently
defined.
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, 1993, the risk-based and leverage ratios of each
of Zions Bancorporation's banking subsidiaries exceeded the minimum
requirements.
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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. On September 4, 1993, the federal banking agencies 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 measured interest rate risk exposure and
qualitative factors. However, the proposal is still under consideration. The
federal banking agencies have also proposed revisions to their risk-based
capital rules to ensure that risks arising from concentrations of credit and
nontraditional activities are taken into account when assessing an
institution's capital adequacy. The proposal calls on institutions to take
account of such risks in assessing their capital adequacy rather than imposing
explicit capital requirements with respect to them. 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 these risk
factors in the risk-based capital rules of the federal banking agencies will
have upon its capital requirements or those of its 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.
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Failure to meet capital guidelines could subject a bank to a variety of
restrictions and enforcement remedies. Under FDICIA, all insured banks are
generally prohibited from making any capital distributions and from paying
management fees to persons having control of the bank where such payments would
cause the bank to be undercapitalized. Holding companies of significantly
undercapitalized, critically undercapitalized and certain undercapitalized
banks may be required to obtain the approval of the Federal Reserve Board
before paying capital distributions to their shareholders. Moreover, a bank
that is not well-capitalized is generally subject to various restrictions on
"pass through" insurance coverage for certain of its accounts and is generally
prohibited from accepting brokered deposits and offering interest rates on any
deposits significantly higher than the prevailing rate in its normal market
area or nationally (depending upon where the deposits are solicited). Such
banks and their holding companies are also required to obtain regulatory
approval prior to their retention of senior executive officers. Banks which
are classified undercapitalized, significantly undercapitalized or critically
undercapitalized are required to submit capital restoration plans satisfactory
to their federal banking regulator and guaranteed within stated limits by
companies having control of such banks (i.e., to the extent of the lesser of
five percent of the institution's total assets at the time it became
undercapitalized or the amount necessary to bring the institution into
compliance with all applicable capital standards as of the time the institution
fails to comply with its capital restoration plan, until the institution is
adequately capitalized on average during each of four consecutive calendar
quarters), and are subject to regulatory monitoring and various restrictions on
their operations and activities, including those upon asset growth,
acquisitions, branching and entry into new lines of business and may be
required to divest themselves of or liquidate subsidiaries under certain
circumstances. Holding companies of such institutions may be required to
divest themselves of such institutions or divest themselves of or liquidate
nondepository affiliates under certain circumstances. Critically
undercapitalized institutions are also prohibited from making payments of
principal and interest on debt subordinated to the claims of general creditors
and are generally subject to the mandatory appointment of a conservator or
receiver.
Other Regulations
FDICIA requires the federal banking agencies to adopt, by August 1, 1993,
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. On November 18, 1993, the federal banking
agencies issued a notice of proposed rule-making setting forth general safety
and soundness in areas prescribed in FDICIA and solicited comments regarding
the proposed safety and soundness standards. In the view of the federal
banking agencies, the proposed standards do not represent a change in existing
policies but, instead, formalize fundamental standards already applied by the
agencies. In general, the proposed standards establish objectives of proper
operations and management while leaving the specific methods for achieving
those objectives to each institution. However, the proposal establishes a
maximum permissible ratio of classified assets to capital for institutions.
The proposal also implements the requirements of FDICIA regarding the
submission and review of safety and soundness plans by institutions failing to
meet the prescribed standards and the issuance of orders where institutions
have failed to submit acceptable compliance plans or implement an accepted plan
in any material respect. Because the final terms of the regulators'
implementation of this requirement of FDICIA are not yet known, Zions
Bancorporation cannot predict the effect of its application to its operations
or the operations 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 once every
twelve (12) months.
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10
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 themselves.
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.
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 is currently assessing the consequences to its operations,
earnings and capital position, and that of its subsidiaries of the enactment of
this legislation. In addition, a number of legislative and regulatory measures
have been proposed to strengthen the federal deposit insurance system and to
improve the overall financial stability of the U.S. banking system, including
those to authorize interstate banking for national banks, reduce regulatory
burdens on financial institutions and regulate the sale of securities and
insurance by banks as well as bank involvement in derivative activities. It is
impossible to predict whether or in what form these proposals may be adopted in
the future and, if adopted, what their effect will be on Zions Bancorporation
and 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. A recent amendment to the Real Estate Settlement Procedures, which
becomes effective August 9, 1994, covers most loans secured by 1-4 family
dwellings, whether secured by first or junior liens, and appears to add
significant new disclosure requirements for banks. Additionally, a recent
proposal, out for comment, to amend Community Reinvestment Act compliance
rules, if adopted as proposed, would have an impact on allocation of credit to
low income areas and could have an overall effect on interest rate margins. 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 by January 1, 1994, by regulation, 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.
8
11
On October 1, 1992, the FDIC published revisions to its deposit insurance
regulation to establish a transitional risk-based assessment system pending
establishment of a permanent risk-based assessment system by January 1, 1994.
Effective January 1, 1993, 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 regulations: "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 staff has
stated that insured banks will pay an average ratio of approximately .254%. At
a meeting on June 17, 1993, the FDIC's board of directors approved revisions to
its regulation establishing the transitional risk-based assessment system with
respect to the making of supervisory subgroup assignments and review of such
assignments by the FDIC, the making of capital group assignments for new
institutions by the FDIC, the payment of disputed assessments by institutions
and other matters. In addition, on May 25, 1993, the FDIC board of directors
voted to amend the current recapitalization schedule for the BIF to reflect the
projected achievement by the BIF of a reserve ratio of 1.25% of insured
deposits by 2002 (rather than 2006 under the current schedule) and retain the
current deposit insurance assessment rates for BIF-member institutions for
semi-annual periods beginning July 1, 1993. Zions Bancorporation does not
presently expect that implementation of the transitional risk-based deposit
insurance assessment system, as so revised, will have a material adverse impact
on its overall financial condition or results of operations or those of its
bank subsidiaries.
It is possible that the FDIC insurance assessments will be increased further in
the future. In addition, the FDIC has authority to impose special assessments
from time to time.
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.
The Banking Holding Company Act generally does not permit the Federal Reserve
Board to approve an acquisition by a bank holding company of voting shares or
assets of a bank located outside the state in which the operations of its
banking subsidiaries are principally conducted unless the acquisition is
specifically authorized by the statutes of the state in which such bank is
located. Under the laws of Utah, Nevada, and 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 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.
9
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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.
The Company has economic, credit, legal and other specialists who monitor
economic conditions, government policies and economic controls. 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.
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 2,846 full- and part-time people with
approximately 2,651 being employed by the banking subsidiaries. The Company
had 2,574 full-time equivalent employees at December 31, 1993, compared to
2,345 at December 31, 1992. Banking subsidiaries had 2,386 full-time
equivalent employees at the end of 1993, compared to 1,950 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.
10
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SUPPLEMENTARY INFORMATION
The following supplementary information, which is required under Guide 3
(Statistical Disclosure by Bank Holding Companies), is found in this report on
the pages indicated below, and should be read in conjunction with the related
financial statements and notes thereto.
Statistical Information Page
I. Distribution of Assets, Liabilities and Shareholders' Equity,
Interest Rates and Interest Differential, and Changes Due to Volume and Rates 17-19
II. Investment Securities Portfolio 26
Maturities and Average Yields of Investment Securities 27
III. Loan Portfolio 28
Loan Maturities and Sensitivity to Changes in Interest Rates 29
Loan Risk Elements 30-32
IV. Summary of Loan Loss Experience 33-34
V. Deposits 35
VI. Return on Equity and Assets 36
VII. Short-term Borrowings 36
VIII. Foreign Operations 38
ITEM 2. PROPERTIES
In Utah, fifty (50) of Zions First National Bank's eighty-four (84) offices are
located in buildings owned by the Company and the other thirty-four (34) are on
leased premises. In Nevada, four (4) of Nevada State Bank's nineteen (19)
offices are located in buildings owned and the other fifteen (15) are on leased
premises, and in Arizona, Zions First National Bank of Arizona owns two (2)
offices and leases one (1) office. The annual rentals under long-term leases
for such banking premises are determined under various formulas and include as
various factors, operating costs, maintenance and taxes.
Zions Bancorporation is lessee under a 25-year lease, of which 22 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.
11
14
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 1993.
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages, positions, and backgrounds of the Company's executive officers
as of February 28, 1994, are set forth as follows:
Positions and Offices Held With Zions Officer
Name Age Bancorporation and Principal Subsidiaries since
---- --- ----------------------------------------- -----
Roy W. Simmons 78 Chairman of the Company, and Chairman of the Board of 1961
Directors of Zions First National Bank
Harris H. Simmons 39 President & Chief Executive Officer of the Company; 1981
President, Chief Executive Officer, and Member of the Board
of Directors of Zions First National Bank
Gary L. Anderson 51 Senior Vice President, Chief Financial Officer and Secretary 1988
of the Company; 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 52 Senior Vice President of the Company, and Executive Vice 1987
President of Zions First National Bank
Clark B. Hinckley 46 Senior Vice President of the Company. Prior to March 1994, 1994
President of a Company subsidiary, Zions First National Bank
of Arizona.
James W. Rail 59 Senior Vice President of the Company, and President of Zions 1976
Data Service Company
Walter E. Kelly 61 Controller of the Company 1980
Ronald L. Johnson 38 Vice President of the Company. Prior to December 1989, Vice 1989
President of Zions First National Bank
A. Scott Anderson 47 Executive Vice President of Zions First National Bank. Prior 1990
to December 1990, Vice President of Bank of America
John B. D'Arcy 51 Executive Vice President of Zions First National Bank. Prior 1989
to March 1989, Vice President of The First National Bank of
Chicago
Peter K. Ellison 51 Executive Vice President of Zions First National Bank 1968
W. David Hemingway 46 Executive Vice President of Zions First National Bank 1976
Nolan X. Bellon 45 Controller of Zions First National Bank 1987
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Positions and Offices Held With Zions Officer
Name Age Bancorporation and Principal Subsidiaries since
---- --- ----------------------------------------- -----
Richard A. Carlson 60 President and Chief Executive Officer of Nevada State Bank 1994
since 1985
John J. Gisi 48 Chairman of the Board and Chief Executive Officer of National 1994
Bank of Arizona since 1987
Robert G. Sarver 32 President of National Bank of Arizona since 1992, Vice 1994
Chairman of National Bank of Arizona, 1990-1992; Senior Vice
President of National Bank of Arizona, 1986-1990
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Principal market where common stock is traded:
Nasdaq Over the Counter Symbol "ZION"
High and low bid quotations on quarterly basis for past three years:
1993 1992 1991
------------- ------------- -------------
HIGH LOW HIGH LOW HIGH LOW
---- --- ---- --- ---- ---
1st Quarter $ 49.00 $ 41.30 $ 24.50 $ 19.75 $ 18.50 $ 14.38
2nd Quarter $ 48.75 $ 38.50 $ 28.38 $ 23.75 $ 21.88 $ 18.13
3rd Quarter $ 44.25 $ 38.50 $ 30.00 $ 26.88 $ 24.88 $ 20.00
4th Quarter $ 45.50 $ 36.00 $ 39.00 $ 28.88 $ 23.75 $ 19.13
Number of common shareholders of record as of latest practicable date:
3,740 common shareholders as of February 28, 1994
Frequency and amount of dividends paid during three years:
1ST 2ND 3RD 4TH
QTR QTR QTR QTR
--- --- --- ---
1993 $ .21 $ .21 $ .28 $ .28
1992 $ .18 $ .18 $ .18 $ .21
1991 $ .18 $ .18 $ .18 $ .18
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.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data is derived from the audited
consolidated financial statements of the Company. It should be read in
conjunction with the Company's consolidated financial statements and the
related notes and with management's discussion and analysis of financial
condition and results of operations and other detailed information included
elsewhere herein.
(Dollars in thousands, except per share and ratio data)
Years ended December 31,
---------------------------------------------------------------
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
RESULTS OF OPERATIONS
Interest income $ 267,723 $ 258,217 $ 285,547 $ 287,298 $ 277,503
Interest expense 110,906 114,185 154,080 166,114 161,850
---------- ---------- ---------- ---------- ----------
Net interest income 156,817 144,032 131,467 121,184 115,653
Provision for loan losses 2,298 10,251 23,549 18,089 28,797
---------- ---------- ---------- ---------- ----------
Net interest income after provision for loan losses 154,519 133,781 107,918 103,095 86,856
Other operating income 78,127 61,861 51,488 47,539 38,647
Other operating expenses 156,548 131,040 117,307 112,394 106,465
---------- ---------- ---------- ---------- ----------
Income before income taxes and cumulative
effect of changes in accounting principles
and extraordinary item 76,098 64,602 42,099 38,240 19,038
Income taxes 24,718 21,200 12,975 11,600 5,105
---------- ---------- ---------- ---------- ----------
Income before cumulative effect of changes in accounting
principles and extraordinary item 51,380 43,402 29,124 26,640 13,933
Cumulative effect of changes in accounting principles 1,659 - - - -
Extraordinary item-income tax benefit from net operating
loss carryforwards - - - - 3,750
---------- ---------- ---------- ---------- ----------
Net income $ 53,039 $ 43,402 $ 29,124 $ 26,640 $ 17,683
========== ========== ========== ========== ==========
COMMON SHARE DATA
Income before cumulative effect of changes in accounting
principles and extraordinary item $ 4.02 $ 3.52 $ 2.39 $ 2.23 $ 1.17
Net income 4.15 3.52 2.39 2.23 1.49
Dividends .98 .75 .72 .72 .72
Book value 22.78 19.76 17.01 15.31 13.81
END-OF-PERIOD BALANCES
Total assets $4,365,556 $3,779,267 $3,645,835 $3,559,070 $2,975,358
Money market investments 578,771 614,184 688,264 819,126 393,175
Securities 1,145,034 906,006 788,198 595,202 466,949
Net loans and leases 2,230,670 1,921,496 1,861,562 1,767,825 1,641,631
Allowance for loan losses 65,267 57,086 56,263 59,015 60,271
Total deposits 3,024,111 2,764,824 2,658,514 2,537,337 2,326,219
Shareholders' equity 290,391 242,547 206,633 183,507 164,328
RATIOS
Return on average assets 1.24% 1.22% .87% .87% .62%
Return on average common equity 19.9% 19.3% 14.9% 15.3% 11.1%
Average equity to average assets 6.25% 6.34% 5.82% 5.69% 5.54%
Tier I risk-based capital 11.01% 10.31% 8.30% 7.93% 7.40%
Total risk-based capital 14.34% 15.53% 12.13% 12.48% 12.21%
Tier I leverage 5.47% 6.24% 5.80% 5.70% 5.24%
Net interest margin 4.11% 4.49% 4.35% 4.51% 4.71%
Nonperforming assets to total assets .67% .77% 1.20% 1.70% 2.87%
Nonperforming assets to net loans and leases
and other real estate owned 1.32% 1.50% 2.34% 3.39% 5.09%
Net charge-offs (recoveries) to average loans
and leases (.27)% .48% 1.49% 1.06% 1.39%
Allowance for loan losses to net loans and
leases outstanding at period end 2.93% 2.97% 3.02% 3.34% 3.67%
Allowance for loan losses to nonperforming loans 247.19% 236.37% 159.88% 132.39% 115.26%
14
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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, 1993, 1992, and 1991
should be read in conjunction with the consolidated financial statements of the
Company and detailed information presented elsewhere herein.
OPERATING RESULTS
Consolidated net income in 1993 increased 22.2% to $53,039,000 from $43,402,000
in 1992 and $29,124,000 in 1991, while net income per share in 1993 increased
17.9% to $4.15 from $3.52 in 1992 and $2.39 in 1991. Earnings results for 1993
were positively affected in the net amount of $1,659,000 or $.13 per share due
to the cumulative effect of changes in accounting principles implemented during
the first quarter of the year. The earnings results for 1993 represent a
historic high for income before income taxes and net income. Some of the
factors affecting the favorable level of earnings were a $12,785,000 (8.9%)
increase in net interest income, a $3,222,000 (17.0%) increase in service
charges on deposit accounts, a $1,966,000 (10.6%) increase in service charges,
commissions and fees, a $14,898,000 (226.7%) increase in loan sales and
servicing income, and a $7,953,000 (77.6%) decrease in the provisions for loan
losses. These increased contributions to income were partially offset by a
$13,223,000 (20.0%) increase in salaries and benefits, a $6,263,000 (9.6%)
increase in all other operating expenses, excluding a one-time expense of
$6,022,000, and a $3,518,000 (16.6%) increase in income taxes.
The Company's earnings for the year ended December 31, 1993 were negatively
affected by a one-time expense of $6,022,000 in the first quarter related to
the early extinguishment of debt consisting of floating rate notes and
industrial revenue bonds. The expense is included in other operating expenses.
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 bonds.
The Financial Accounting Standards Board (FASB) issued SFAS No. 109,
"Accounting for Income Taxes," which establishes financial accounting
requirements for the effects of income taxes. The statement requires a change
from the deferred method of accounting for income taxes to the asset and
liability method of accounting for income taxes. Under the asset and liability
method, deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Under SFAS 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.
Effective January 1, 1993, the Company adopted SFAS No. 109 and reported the
cumulative effect of the change in the method of accounting for income taxes in
the 1993 consolidated statement of income. The cumulative effect of such
change in accounting method increased net income for the year ended December
31, 1993 by $7,419,000.
The FASB issued SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other than Pensions," in December 1990. Under SFAS No. 106, the cost
of postretirement benefits other than pensions must be recognized on an accrual
basis as employees perform services to earn the benefits. Many of the
provisions and concepts of SFAS No. 106 are similar to current standards on
accounting for pensions. The provisions of SFAS No. 106 are effective for
fiscal years beginning after December 15, 1992. The Company has made it a
practice to provide certain health care benefits for retired employees. The
level of benefits to be paid to employees retiring in the future was also
modified in 1992 to require greater contributions from the employee at
retirement and a cap on the amount of retiree premiums that will be paid by the
Company. Employees hired after December 31, 1992 are not entitled to retiree
health benefits.
Effective January 1, 1993, the Company adopted SFAS No. 106 and reported the
cumulative effect of the change in the method of accounting for postretirement
benefits other than pensions in the 1993 consolidated statement of income. The
cumulative effect (transition obligation) of such change in accounting method
decreased pretax and after-tax net income by $5,760,000 and $3,631,000,
respectively.
The FASB issued SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," in May 1993. Under SFAS No. 115, certain debt securities,
depending on the intention of the holder, and equity securities are designated
as trading securities and are marked to market through income, certain debt
and equity securities are designated as available for sale and are marked to
market through the equity accounts, and certain debt securities are designated
as held to maturity and carried at amortized cost.
15
18
Effective December 31, 1993, the Company adopted SFAS No. 115 and classified
its securities according to the pronouncement. The change in the method of
accounting for securities had no effect on income for 1993 and resulted in an
increase of $432,000 in equity as of December 31, 1993.
EARNINGS PERFORMANCE
NET INTEREST INCOME, MARGIN, AND INTEREST RATE SPREADS
Net interest income is the difference between the total interest income
generated by earnings 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
8.9% to $160,129,000 in 1993 as compared to $147,060,000 in 1992 and
$133,813,000 in 1991. The Company attempts to minimize interest rate movement
sensitivity through the management of interest rate maturities and to a much
lessor extent the use of off-balance sheet arrangements such as interest rate
caps, floors, and interest rate exchange contract agreements. During 1993, the
Company had income of $291,000 from the use of such off-balance sheet
arrangements compared to income to the Company of $9,000 in 1992 and a cost to
the Company of $875,000 in 1991. 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 4.11% for 1993 as compared to 4.49% in 1992
and 4.35% in 1991. The decrease in the margin for 1993 was due primarily to
securitization sales of loans and the expansion of investments in security
resell agreements during the second half of 1993. Securitization sales of
loans converts high margin income from loans to other operating income. The
security resell agreements are primarily in U.S. government and U.S. government
agency securities which offer low yields but represent virtually no risk to the
Company and require low or no consolidated "risk-based" capital. The Company
has been entering into the security resell arrangements through the new
division in its lead banking subsidiary, Discount Corporation of New York. The
Company has chosen this method of investing in very short-term arrangements to
increase its net interest income while maintaining its liquidity.
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 3.62% for 1993 as compared to
3.89% in 1992 and 3.56% in 1991. The spread on average interest-bearing funds
for 1993 has also been affected by securitization sales of loans and
investments 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
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 1993, 1992,
and 1991 are shown in tables on pages 17 through 19. Income computed on a
taxable-equivalent basis is income as reported in the consolidated statements
of income adjusted to make income and earning yields on assets exempt from
income taxes comparable to other taxable income. Applied to yields on the
obligations of states and political subdivisions thereof and on industrial
revenue bonds, this adjustment facilitates analysis. The incremental tax rate
used for calculating the taxable-equivalent adjustment was approximately 32% in
each of 1993, 1992, and 1991.
In the tables for the three years, 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.
The analysis in the tables of the effect on net interest income of volume and
rate changes, the change due to the volume/rate variance in this analysis has
been allocated to volume, except when volume and rate have both increased then
this variance has been allocated proportionately to both volume and rate and
when rate has increased and volume has decreased then this variance has been
allocated to rate.
16
19
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY,
INTEREST RATES AND INTEREST DIFFERENTIAL AND CHANGES DUE TO VOLUME AND RATES
1993
-------------------------------------------------------------
Amount Changes Changes
(Average balances in millions: Other dollar Average of Average due to due to Total
amounts in thousands) balance interest1 rate1 volume rate changes
------- --------- ------- -------- --------- --------
Money market investments:
Interest-bearing deposits $ 104.0 $ 5,275 5.07% $ (4,059) $ (1,195) $ (5,254)
Federal funds sold and security resell agreements 637.7 20,779 3.26% 13,190 (1,688) 11,502
Other money market investments 28.5 827 2.90% (307) (276) (583)
------- --------- ------- -------- --------- --------
Total money market investments 770.2 26,881 3.49% 8,824 (3,159) 5,665
------- --------- ------- -------- --------- --------
Securities:
Investment securities-taxable 894.2 53,626 6.00% 10,456 (3,051) 7,405
Investment securities-nontaxable 121.0 10,350 8.55% 1,321 (434) 887
Trading securities 102.8 7,555 7.35% 4,843 (2,825) 2,018
------- --------- ------- -------- --------- --------
Total securities 1,118.0 71,531 6.40% 16,620 (6,310) 10,310
------- --------- ------- -------- --------- --------
Loans:
Loans held for sale 185.9 11,273 6.06% (53) (2,478) (2,531)
Net loans and leases2 1,817.7 161,350 8.88% 4,423 (8,077) (3,654)
------- --------- ------- -------- --------- --------
Total loans 2,003.6 172,623 8.62% 4,370 (10,555) (6,185)
------- --------- ------- -------- --------- --------
Total interest-earning assets $3,891.8 $ 271,035 6.96% $ 29,814 $ (20,024) $ 9,790
--------- ------- -------- --------- --------
Allowance for loan losses (61.9)
Cash and due from banks 272.9
Other assets 159.3
-------
Total assets $4,262.1
=======
Interest-bearing deposits:
Savings deposits $ 625.2 $ 18,558 2.97% $ 4,409 $ (2,627) $ 1,782
Money market deposits 968.3 26,457 2.73% 893 (5,781) (4,888)
Time deposits under $100,000 515.1 22,189 4.31% (4,559) (5,550) (10,109)
Time deposits $100,000 or more 47.1 1,805 3.83% (616) (477) (1,093)
Foreign deposits 55.8 1,484 2.66% (817) (1,334) (2,151)
------- --------- ------- -------- --------- --------
Total interest-bearing deposits 2,211.5 70,493 3.19% (690) (15,769) (16,459)
------- --------- ------- -------- --------- --------
Borrowed funds:
Securities sold, not yet purchased 69.4 3,039 4.38% 3,039 - 3,039
Federal funds purchased and security repurchase
agreements 767.3 22,376 2.92% 10,854 (1,159) 9,695
FHLB advances and other borrowings:
less than one year 83.1 3,196 3.85% 178 (200) (22)
over one year 112.0 4,599 4.11% 2,493 280 2,773
Long-term debt 73.2 7,203 9.84% (885) (1,420) (2,305)
------- --------- ------- -------- --------- --------
Total borrowed funds 1,105.0 40,413 3.66% 15,679 (2,499) 13,180
------- --------- ------- -------- --------- --------
Total interest-bearing liabilities $3,316.5 $ 110,906 3.34% $ 14,989 $ (18,268) $ (3,279)
--------- ------- -------- --------- --------
Noninterest-bearing deposits 609.3
Other liabilities 69.8
-------
Total liabilities 3,995.6
-------
Total shareholders' equity 266.5
-------
Total liabilities and shareholders' equity $4,262.1
=======
Spread on average interest-bearing funds 3.62%
=======
Net interest income and net yield on
interest-earning assets $ 160,129 4.11% $ 14,825 $ (1,756) $ 13,069
========= ======= ======== ========= ========
- --------------------
1 Taxable-equivalent rates used where applicable.
2 Net of unearned income and fees, net of related costs.
Loans include nonaccrual and restructured loans.
17
20
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY,
INTEREST RATES AND INTEREST DIFFERENTIAL AND CHANGES DUE TO VOLUME AND RATES
1992
-------------------------------------------------------------
Amount Changes Changes
(Average balances in millions: Other dollar Average of Average due to due to Total
amounts in thousands) balance interest1 rate1 volume rate changes
------- --------- ------- -------- --------- --------
Money market investments:
Interest-bearing deposits $ 184.1 $ 10,529 5.72% $ (2,907) $ (1,774) $ (4,681)
Federal funds sold and security resell agreements 232.8 9,277 3.98% (4,319) (8,969) (13,288)
Other money market investments 39.1 1,410 3.61% (1,478) (2,022) (3,500)
------- --------- ------- -------- -------- -------
Total money market investments 456.0 21,216 4.65% (8,704) (12,765) (21,469)
------- --------- ------- -------- -------- -------
Securities:
Investment securities-taxable 719.5 46,221 6.42% 9,544 (10,168) (624)
Investment securities-nontaxable 105.6 9,463 8.96% 3,953 (1,822) 2,131
Trading securities 36.9 5,537 15.01% 2,107 308 2,415
------- --------- ------- -------- -------- -------
Total securities 862.0 61,221 7.10% 15,604 (11,682) 3,922
------- --------- ------- -------- -------- -------
Loans:
Loans held for sale 186.9 13,804 7.39% 5,971 (1,137) 4,834
Net loans and leases2 1,767.2 165,004 9.34% 9,829 (23,764) (13,935)
------- --------- ------- -------- -------- -------
Total loans 1,954.1 178,808 9.15% 15,800 (24,901) (9,101)
------- --------- ------- -------- -------- -------
Total interest-earning assets $3,272.1 $ 261,245 7.98% $ 22,700 $ (49,348) $(26,648)
--------- ------- -------- -------- -------
Allowance for loan losses (57.7)
Cash and due from banks 211.4
Other assets 119.4
-------
Total assets $3,545.2
=======
Interest-bearing deposits:
Savings deposits $ 476.4 $ 16,776 3.52% $ (1,686) $ (7,098) $ (8,784)
Money market deposits 936.4 31,345 3.35% 8,746 (11,926) (3,180)
Time deposits under $100,000 620.6 32,298 5.20% (5,964) (11,328) (17,292)
Time deposits $100,000 or more 63.2 2,898 4.59% (1,238) (1,502) (2,740)
Foreign deposits 86.5 3,635 4.20% 997 (607) 390
------- --------- ------- -------- -------- -------
Total interest-bearing deposits 2,183.1 86,952 3.98% 855 (32,461) (31,606)
------- --------- ------- -------- -------- -------
Borrowed funds:
Securities sold, not yet purchased - - % - - -
Federal funds purchased and security repurchase
agreements 394.6 12,681 3.21% 2,043 (6,393) (4,350)
FHLB advances and other borrowings:
less than one year 78.4 3,218 4.10% (1,669) (3,326) (4,995)
over one year 50.5 1,826 3.62% 548 (665) (117)
Long-term debt 82.2 9,508 11.57% (460) 1,633 1,173
------- --------- ------- -------- -------- -------
Total borrowed funds 605.7 27,233 4.49% 462 (8,751) (8,289)
------- --------- ------- -------- -------- -------
Total interest-bearing liabilities $2,788.8 $ 114,185 4.09% $ 1,317 $ (41,212) $(39,895)
--------- ------- -------- -------- -------
Noninterest-bearing deposits 483.6
Other liabilities 48.2
-------
Total liabilities 3,320.6
-------
Total shareholders' equity 224.6
-------
Total liabilities and shareholders' equity $3,545.2
=======
Spread on average interest-bearing funds 3.89%
=======
Net interest income and net yield on
interest-earning assets $ 147,060 4.49% $ 21,383 $ (8,136) $ 13,247
========= ======= ======== ======== =======
- ---------------------
1 Taxable-equivalent rates used where applicable.
2 Net of unearned income and fees, net of related costs.
Loans include nonaccrual and restructured loans.
18
21
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY,
INTEREST RATES AND INTEREST DIFFERENTIAL AND CHANGES DUE TO VOLUME AND RATES
1991
-------------------------------------------------------------
Amount Changes Changes
(Average balances in millions: Other dollar Average of Average due to due to Total
amounts in thousands) balance interest1 rate1 volume rate changes
------- --------- ------- -------- --------- --------
Money market investments:
Interest-bearing deposits $ 234.9 $ 15,210 6.48% $ 8,458 $ (2,160) $ 6,298
Federal funds sold and security resell agreements 341.6 22,565 6.61% (5,594) (7,813) (13,407)
Other money market investments 80.0 4,910 6.14% 4,787 (47) 4,740
------- --------- ------- -------- -------- -------
Total money market investments 656.5 42,685 6.50% 7,651 (10,020) (2,369)
------- --------- ------- -------- -------- -------
Securities:
Investment securities-taxable 571.3 46,845 8.20% 12,249 (2,798) 9,451
Investment securities-nontaxable 61.5 7,332 11.92% 156 (1,106) (950)
Trading securities 22.7 3,122 13.75% 1,114 (874) 240
------- --------- ------- -------- -------- -------
Total securities 655.5 57,299 8.74% 13,519 (4,778) 8,741
------- --------- ------- -------- -------- -------
Loans:
Loans held for sale 106.0 8,970 8.46% (708) (1,107) (1,815)
Net loans and leases2 1,661.4 178,939 10.77% 6,317 (12,929) (6,612)
------- --------- ------- -------- -------- -------
Total loans 1,767.4 187,909 10.63% 5,609 (14,036) (8,427)
------- --------- ------- -------- -------- -------
Total interest-earning assets $3,079.4 $ 287,893 9.35% $ 26,779 $ (28,834) $ (2,055)
--------- ------- -------- -------- -------
Allowance for loan losses (59.5)
Cash and due from banks 202.4
Other assets 131.3
-------
Total assets $3,353.6
=======
Interest-bearing deposits:
Savings deposits $ 524.5 $ 25,560 4.87% $ 4,210 $ (965) $ 3,245
Money market deposits 674.6 34,525 5.12% 1,808 (8,917) (7,109)
Time deposits under $100,000 735.8 49,590 6.74% 71 (8,012) (7,941)
Time deposits $100,000 or more 90.1 5,638 6.26% 54 (1,004) (950)
Foreign deposits 62.8 3,245 5.17% 433 (807) (374)
------- --------- ------- -------- -------- -------
Total interest-bearing deposits 2,087.8 118,558 5.68% 6,576 (19,705) (13,129)
------- --------- ------- -------- -------- -------
Borrowed funds:
Securities sold, not yet purchased - - - % - - -
Federal funds purchased and security repurchase
agreements 331.4 17,031 5.14% 1,739 (6,840) (5,101)
FHLB advances and other borrowings:
less than one year 119.2 8,213 6.89% 5,671 (436) 5,235
over one year 35.3 1,943 5.50% 1,943 1,943
Long-term debt 87.0 8,335 9.58% (756) (226) (982)
------- --------- ------- -------- -------- -------
Total borrowed funds 572.9 35,522 6.20% 8,597 (7,502) 1,095
------- --------- ------- -------- -------- -------
Total interest-bearing liabilities $2,660.7 $ 154,080 5.79% $ 15,173 $ (27,207) $(12,034)
--------- ------- -------- -------- -------
Noninterest-bearing deposits 444.0
Other liabilities 53.8
-------
Total liabilities 3,158.5
-------
Total shareholders' equity 195.1
-------
Total liabilities and shareholders' equity $3,353.6
=======
Spread on average interest-bearing funds 3.56%
=======
Net interest income and net yield on
interest-earning assets $ 133,813 4.35% $ 11,606 $ (1,627) $ 9,979
========= ======= ======== ======== =======
- --------------------
1 Taxable-equivalent rates used where applicable.
2 Net of unearned income and fees, net of related costs.
Loans include nonaccrual and restructured loans.
19
22
PROVISION FOR LOAN LOSSES
The provision for loan losses in 1993 decreased 77.6% to $2,298,000 from
$10,251,000 in 1992, and $23,549,000 in 1991. The decrease in loan loss
provisions resulted from improved credit risk management and an improved
economy which have produced decreases in nonperforming assets and charge offs
and an increase in recoveries.
OTHER OPERATING INCOME
The Company's other operating income increased by 26.3% to $78,127,000 in 1993
as compared to $61,861,000 in 1992, and $51,488,000 in 1991. Service charges
on deposits increased by 17.0% in 1993 to $22,216,000, primarily as a result of
price increases and higher volumes in 1993. Other service charges,
commissions, and fees increased by 10.6% in 1993 to $20,450,000 primarily as a
result of increased fees relating to mortgage and other loan originations.
Trading account income decreased by 47.0% to $2,350,000 in 1993 as compared to
$4,437,000 in 1992 primarily as a result of a gain on the sale of SBA-IO strips
in 1992. Loan sales and servicing income increased 226.7% to $21,471,000 in
1993 primarily as a result of an increased volume of consumer and real estate
loans sold at the end of 1992 and during 1993. The Company has not recognized
an initial gain on the sale of loans but recognizes the income over the
servicing life of the sale. Other income decreased by 17.0% in 1993 to
$7,035,000 primarily as a result of interest received on federal income tax
refunds in 1992.
The following table presents the components of other operating income for the
years indicated and a year-to-year comparison expressed in terms of percent
changes.
OTHER OPERATING INCOME
Percent Percent Percent Percent
(Thousands of dollars) 1993 change 1992 change 1991 change 1990 change 1989
------- ------ ------- ------ ------- ------ ------- -------- -------
Service charges on deposit
accounts $22,216 17.0% $18,994 9.5% $17,354 12.1% $15,481 16.7% $13,267
Other service charges,
commissions, and fees 20,450 10.6 18,484 35.9 13,604 (7.1) 14,648 11.7 13,108
Trust income 4,622 .2 4,614 10.7 4,169 1.9 4,092 (2.8) 4,210
Investment securities gains
(losses), net (17) (106.0) 282 (34.7) 432 149.8 (868) (7,133.3) (12)
Trading account income 2,350 (47.0) 4,437 226.5 1,359 (10.7) 1,521 (18.2) 1,859
Loan sales and servicing
income 21,471 226.7 6,573 (16.5) 7,875 (.7) 7,932 222.7 2,458
Other income 7,035 (17.0) 8,477 26.6 6,695 41.5 4,733 26.0 3,757
------- ------- ------- ------- -------
Total $78,127 26.3% $61,861 20.1% $51,488 8.3% $47,539 23.0% $38,647
======= ====== ======= ===== ======= ===== ======= ======== =======
OTHER OPERATING EXPENSES
Operating expenses increased by 19.5% in 1993 to $156,548,000 as compared to
$131,040,000 in 1992, and $117,307,000 in 1991. Employee salary and benefits
costs increased by 20.0% in 1993 to $79,245,000, primarily as a result of
increased staffing in retail and investment activities, general salary increases
and bonuses, commissions, and profit sharing costs related to increased
profitability.
The Company benefited by a decrease of 85.5% in other real estate expense to
$366,000 in 1993 as holding costs declined through the continued sales of other
real estate owned properties during 1993. Also, values received in the sales of
other real estate owned continued to improve in 1993. F.D.I.C. premiums
increased by 13.7% in 1993 to $6,541,000 as compared to $5,752,000 in 1992 due
primarily to higher assessment rates. The Company recognized a loss on early
extinguishment of debt in the amount of $6,022,000 during 1993. All other
expenses increased 12.0% to $24,279,000 in 1993 as compared to $21,781,000 in
1992 primarily due to increases in travel expenses and other miscellaneous
expenses.
20
23
The following table presents the components of other operating expenses for the
years indicated and a year-to-year comparison expressed in terms of percent
changes.
OTHER OPERATING EXPENSES
Percent Percent Percent Percent
(Thousands of dollars) 1993 change 1992 change 1991 change 1990 change 1989
------- ------ -------- ------ -------- ------ ------- ------ --------
Salaries and employee
benefits $ 79,245 20.0% $ 66,022 12.8% $ 58,520 4.0% $ 56,278 14.4% $ 49,175
Occupancy, net 7,809 11.4 7,010 .2 6,997 6.3 6,585 (3.4) 6,819
Furniture and equipment 8,284 13.5 7,299 11.7 6,537 .4 6,511 5.4 6,177
Other real estate expense 366 (85.5) 2,523 (20.5) 3,173 (15.5) 3,757 (65.7) 10,963
Legal and professional
services 4,905 40.3 3,497 (9.2) 3,850 (23.3) 5,022 24.8 4,025
Supplies 4,281 16.1 3,687 .0 3,688 3.0 3,582 6.6 3,361
Postage 4,221 19.2 3,540 (2.7) 3,637 15.2 3,158 11.1 2,842
F.D.I.C. premiums 6,541 13.7 5,752 13.6 5,063 91.7 2,641 48.8 1,775
Amortization of intangible
assets 4,432 (2.2) 4,530 16.7 3,882 4.2 3,726 9.2 3,411
Loss on early
extinguishment of debt 6,022 100.0 - - - - - - -
Other expenses:
Telecommunications 2,874 26.5 2,272 18.0 1,925 6.9 1,800 (1.7) 1,831
Advertising 3,289 5.2 3,127 42.6 2,193 54.4 1,420 (2.7) 1,459
All other expenses 24,279 11.5 21,781 22.1 17,842 (.4) 17,914 22.5 14,627
Total other ------- -------- -------- ------- --------
expenses 30,442 12.0 27,180 23.8 21,960 3.9 21,134 18.0 17,917
------- -------- -------- ------- --------
Total $156,548 19.5% $131,040 11.7% $117,307 4.4% $112,394 5.6% $106,465
======= ===== ======== ===== ======== ===== ======= ===== ========
The following table presents full-time equivalent employees and banking offices
at December 31, for the years indicated:
FULL-TIME EQUIVALENT EMPLOYEES
1993 1992 1991 1990 1989
------ ------ ------ ------ ------
Commercial banking 2,386 1,950 1,900 1,793 1,682
Consumer finance - - 2 11 50
Other 188 395 339 311 314
------ ------ ------ ------ ------
Total 2,574 2,345 2,241 2,115 2,046
====== ====== ====== ====== ======
Offices:
Commercial banking 107 100 98 94 92
Consumer finance - - 1 1 8
INCOME TAXES
The Company's income taxes increased 17.0% to $24,718,000 compared to
$21,200,000 in 1992, and $12,975,000 in 1991, primarily due to the increase in
before tax income. The Company's effective tax rate decreased slightly to 32.5%
in 1993 from 32.8% in 1992 as the increase in tax-exempt income and other lesser
factors offset the 1993 increase in the statutory federal rate.
21
24
QUARTERLY SUMMARY
The following table presents a summary of earnings and end-of-period balances
by quarter for the years ended December 31, 1993, 1992, and 1991:
SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Other Provi- Income
Gross Net oper- sion for Oper- before
interest interest ating for ating income Net
(Thousands of dollars) income income income losses expenses taxes income
--------- -------- --------- --------- --------- -------- --------
Quarter:
1993:
First $ 61,923 $ 37,182 $ 15,424 $ 1,196 $ 39,716 $ 11,694 $ 9,567
Second 64,774 40,461 18,978 263 36,638 22,538 15,180
Third 69,192 39,104 22,322 382 40,683 20,361 13,849
Fourth 71,834 40,070 21,403 457 39,511 21,505 14,443
-------- --------- --------- -------- --------- --------- ---------
Total $267,723 $ 156,817 $ 78,127 $ 2,298 $ 156,548 $ 76,098 $ 53,039
======== ========= ========= ======== ========= ========= =========
1992:
First $ 63,617 $ 32,675 $ 15,158 $ 3,945 $ 33,557 $ 10,331 $ 7,646
Second 65,188 34,991 13,470 2,866 30,885 14,710 9,390
Third 63,980 37,180 15,053 1,933 32,076 18,224 12,009
Fourth 65,432 39,186 18,180 1,507 34,522 21,337 14,357
-------- --------- --------- -------- --------- --------- ---------
Total $258,217 $ 144,032 $ 61,861 $ 10,251 $ 131,040 $ 64,602 $ 43,402
======== ========= ========= ======== ========= ========= =========
1991:
First $ 74,542 $ 32,645 $ 11,669 $ 6,805 $ 27,082 $ 10,427 $ 6,792
Second 69,203 31,650 13,016 4,959 28,633 11,074 7,199
Third 71,455 33,379 12,400 6,427 28,393 10,959 7,139
Fourth 70,347 33,793 14,403 5,358 33,199 9,639 7,994
-------- --------- --------- -------- --------- --------- ---------
Total $285,547 $ 131,467 $ 51,488 $ 23,549 $ 117,307 $ 42,099 $ 29,124
======== ========= ========= ======== ========= ========= =========
Money Net
market loans Share-
Total invest- and Total holders'
assets ments Securities leases deposits equity
End of Quarter: ------------- ----------- ----------- ----------- ----------- ----------
1993:
First $ 3,964,784 $ 721,354 $ 1,074,233 $1,904,402 $2,801,945 $255,519
Second 4,008,356 562,205 1,095,277 1,976,680 2,959,920 268,298
Third 4,028,049 418,608 1,125,099 2,161,292 2,957,651 279,063
Fourth 4,365,556 578,771 1,145,034 2,230,670 3,024,111 290,391
1992:
First $ 3,493,012 $ 515,671 $ 808,432 $1,898,588 $2,671,776 $212,874
Second 3,633,192 527,113 859,299 1,977,904 2,677,224 220,550
Third 3,579,560 421,215 871,914 2,019,218 2,693,814 230,501
Fourth 3,779,267 614,184 906,006 1,921,496 2,764,824 242,547
1991:
First $ 3,273,535 $ 662,299 $ 611,030 $1,720,862 $2,461,748 $188,199
Second 3,273,413 603,721 608,468 1,760,896 2,510,646 194,021
Third 3,408,090 621,446 687,962 1,797,742 2,593,660 200,013
Fourth 3,645,835 688,264 788,198 1,861,562 2,658,514 206,633
22
25
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 purchased"
liabilities and wholesale deposits, totaled $1,605.8 million or 55.2% of core
deposits at December 31, 1993, as compared to $1,067.6 million or 40.1% of core
deposits at December 31, 1992.
The Company's core deposits, consisting of demand, savings, and money market
deposits, and small certificates of deposit, constituted 96.2% of total
deposits at December 31, 1993, as compared to 96.3% at December 31, 1992.
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, cash
operating expenses, and payments for income taxes. 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. Unlike liquidity, however, 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.
The Company, through the management of interest rate "maturities" and the use
of off-balance sheet arrangements such as "interest rate caps, floors, and
interest rate exchange contract agreements," attempts to be reasonably close to
neutral.
23
26
The following table presents information as to the Company's interest rate
sensitivity at December 31, 1993:
MATURITIES AND INTEREST RATE SENSITIVITY
AT DECEMBER 31, 1993
Rate sensitive
---------------------------------------
After After
three one
months year
but but
Within within within After Not
three one five five rate
(Millions of dollars) months year years years sensitive Total
------ ---- ----- ----- --------- -----
Uses of Funds
- -------------
Earning assets:
Interest-bearing deposits $ 14.8 $ 10.0 $ .2 $ - $ - $ 25.0
Federal funds sold and security resell
agreements 553.8 - - - - 553.8
Trading account securities 98.3 - - - - 98.3
Investment securities:
Held to maturity 442.1 79.7 196.5 66.8 - 785.1
Available for sale 40.2 18.6 184.7 18.1 - 261.6
Loans and leases 1,397.1 84.8 390.0 358.8 - 2,230.7
Nonearning assets - - - - 411.1 411.1
---------- -------- --------- -------- -------- ----------
Total uses of funds $ 2,546.3 $ 193.1 $ 771.4 $ 443.7 $ 411.1 $ 4,365.6
========== ======== ========= ======== ======== ==========
Sources of Funds
- ----------------
Interest-bearing deposits and liabilities:
Savings deposits $ 482.2 $ - $ - $ 206.6 $ - $ 688.8
Money market deposits 700.3 - 300.2 - - 1,000.5
Time deposits under $100,000 144.4 211.4 139.1 - - 494.9
Time deposits over $100,000 19.9 20.0 5.6 - - 45.5
Foreign 68.6 - - - - 68.6
Securities sold, not yet purchased 46.6 - - - - 46.6
Federal funds purchased and security repurchase
agreements 595.2 - - - - 595.2
FHLB advances and other borrowings:
Less than one year 136.1 - - - - 136.1
Over one year 93.3 50.8 3.7 4.4 - 152.2
Long-term debt .2 1.5 3.0 50.9 - 55.6
Noninterest-bearing deposits 129.1 - - - 596.7 725.8
Other liabilities - - - - 65.4 65.4
Shareholders' equity - - - - 290.4 290.4
---------- -------- --------- -------- -------- ----------
Total sources of funds $ 2,415.9 $ 283.7 $ 451.6 $ 261.9 $ 952.5 $ 4,365.6
========== ======== ========= ======== ======== ==========
Off-balance sheet items affecting interest rate
sensitivity $ 65.0 $ - $ (65.0) $ - $ _
Interest rate sensitivity gap $ 195.4 $ (90.6) $ 254.8 $ 181.8 $ (541.4)
Percent of total assets 4.5% (2.1)% 5.8% 4.2% (12.4)%
Cumulative interest rate sensitivity gap $ 195.4 $ 104.8 $ 359.6 $ 541.4
24
27
EARNING ASSETS
Average earning assets of $3,891.8 million in 1993 increased 18.9% from the
1992 level of $3,272.1 million and the 1991 level of $3,079.4 million. Earning
assets comprised 91.3% of total average assets in 1993 compared with 92.3% in
1992, with average loans representing 51.5% of earning assets in 1993 compared
to 59.7% in 1992.
The volume of liquid money market investments, consisting of interest-bearing
deposits, federal funds sold and security resell agreements and other money
market investments, increased 68.9% to $770.2 million in 1993 from $456.0
million in 1992. Investment and trading securities increased 29.7% to $1,118.0
million in 1993 from $862.0 million in 1992. The increase was reflected
primarily in the taxable securities category. Average loan volume increased
2.5% to $2,003.6 million in 1993 as compared to $1,954.1 million in 1992.
The following table sets forth the composition of average earning assets for
the years indicated:
AVERAGE EARNING ASSETS
(Thousands of dollars) 1993 1992 1991 1990 1989
------ ------ ------ ------ ------
Money market investments:
Interest-bearing deposits $ 104.0 $ 184.1 $ 234.9 $ 104.2 $ 115.0
Federal funds sold and security resell agreements 637.7 232.8 341.6 426.0 301.2
Other money market investments 28.5 39.1 80.0 2.0 -
-------- -------- -------- -------- --------
Total money market investments 770.2 456.0 656.5 532.2 416.2
Securities:
Taxable securities 894.2 719.5 571.3 421.9 373.5
Nontaxable securities 121.0 105.6 61.5 60.2 67.2
Trading securities 102.8 36.9 22.7 14.6 4.9
-------- -------- -------- -------- --------
Total securities 1,118.0 862.0 655.5 496.7 445.6
Loans:
Loans held for sale 185.9 186.9 106.0 114.4 91.6
Net loans and leases 1,817.7 1,767.2 1,661.4 1,602.8 1,564.6
-------- -------- -------- -------- --------
Total loans 2,003.6 1,954.1 1,767.4 1,717.2 1,656.2
-------- -------- -------- -------- --------
Total earning assets $3,891.8 $3,272.1 $3,079.4 $2,746.1 $2,518.0
======== ======== ======== ======== ========
25
28
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.
December 31,
----------------------------------------------------
1993 1993 1992 1991
(In thousands) Amortized Market Amortized Amortized
cost value cost cost
----------- ----------- ----------- -----------
Held to maturity
U.S. treasury securities $ - $ - $ 15,267 $ 34,649
U.S. government agencies and corporations:
Small business administration
loan-backed securities 399,603 411,846 366,867 300,398
Other agency securities 157,098 157,544 93,920 54,929
States and political subdivisions 168,090 168,873 123,048 112,916
Other debt securities - - 10,000 -
---------- ---------- ----------- -----------
724,791 738,263 609,102 502,892
Mortgage-backed securities 60,318 62,033 162,428 192,199
Equity securities:
Federal Home Loan Bank stock - - 62,536 55,526
Other stock - - 33,240 1,494
---------- ---------- ----------- -----------
785,109 800,296 $ 867,306 $ 752,111
---------- ---------- =========== ===========
Available for sale
U.S. treasury securities 15,058 15,058
U.S. government agencies 31,099 31,099
---------- ----------
46,157 46,157
---------- ----------
Mortgage-backed securities 49,363 49,363
---------- ----------
Equity securities:
Mutual funds:
Accessor Funds, Inc. 91,245 91,245
Other 515 515
Stock:
Federal Home Loan Bank stock 72,376 72,376
Other stock 1,936 1,936
---------- ----------
166,072 166,072
---------- ----------
261,592 261,592
---------- ----------
$1,046,701 $1,061,888
========== ==========
26
29
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, 1993. The average
yield is based on effective rates on book balances at the end of the year.
After one
Total Within one but within
securities year five years
-------------------- --------------- ----------------
(In millions) Amt. Yield Amt. Yield Amt. Yield
------- ------ ------- ----- ------- -----
Held to maturity at amortized cost
U.S. government agencies and
corporations:
Small business administration loan-
backed securities $ 399.6 5.1% $ 31.7 5.1% $ 109.4 5.1%
Other agency securities 157.1 5.2% 21.8 7.4% 129.7 4.8%
States and political subdivisions 168.1 7.4% 22.1 6.2% 72.4 7.5%
---------- ---- ------- ---- ------- ----
724.8 5.6% 75.6 6.1% 311.5 5.5%
Mortgage-backed securities 60.3 5.5% 11.9 5.5% 27.9 5.5%
---------- ---- ------- ---- ------- ----
785.1 5.6% 87.5 6.0% 339.4 5.5%
---------- ---- ------- ---- ------- ----
Available for sale at market
U.S. treasury securities 15.1 5.5% 10.8 5.7% 4.0 4.9%
U.S. government agencies 31.1 14.1% 31.1 14.1% - -
---------- ---- ------- ---- ------- ----
46.2 11.3% 41.9 11.9% 4.0 4.9%
---------- ---- ------- ---- ------- ----
Mortgage-backed securities 49.4 5.9% 5.1 6.1% 20.8 6.1%
---------- ---- ------- ---- ------- ----
Equity securities:
Mutual funds:
Accessor Funds, Inc. 91.2 4.9% - - - -
Other .5 3.1% - - - -
Stock:
Federal Home Loan Bank 72.4 14.0% - - - -
Other 1.9 5.1% - - - -
---------- ---- ------- ---- ------- ----
166.0 9.0%
---------- ---- ------- ---- ------- ----
261.6 8.8% 47.0 11.3% 24.8 6.0%
---------- ---- ------- ---- ------- ----
$ 1,046.7 6.4% $ 134.5 7.9% $ 364.2 5.5%
========== ==== ======= ==== ======= ====
After five
but within After ten
ten years years
-------------- -------------
(In millions) Amt. Yield Amt. Yield
---- ----- ---- -----
Held to maturity at amortized cost
U.S. government agencies and
corporations:
Small business administration loan-
backed securities $ 108.8 5.1% $ 149.7 5.1%
Other agency securities .3 6.9% 5.3 5.7%
States and political subdivisions 64.1 7.8% 9.5 7.1%
-------- --- -------- ----
173.2 6.1% 164.5 5.2%
Mortgage-backed securities 13.5 5.4% 7.0 5.4%
-------- --- -------- ----
186.7 6.1% 171.5 5.2%
-------- --- -------- ----
Available for sale at market
U.S. treasury securities - - .3 8.3%
U.S. government agencies - - - -
-------- --- -------- ----
- - .3 8.3%
-------- --- -------- ----
Mortgage-backed securities 13.9 6.1% 9.6 5.4%
-------- --- -------- ----
Equity securities:
Mutual funds:
Accessor Funds, Inc. - - 91.2 4.9%
Other - - .5 3.1%
Stock:
Federal Home Loan Bank - - 72.4 14.0%
Other - - 1.9 5.1%
-------- --- -------- ----
- - 166.0 9.0%
-------- --- -------- ----
13.9 6.1% 175.9 8.7%
-------- --- -------- ----
$ 200.6 6.1% $ 347.4 7.0%
======== === ======== ====
* 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, 1993, the value of the Accessor Funds Inc. and the Federal Home
Loan Bank of Seattle stock each exceeded ten percent of shareholders' equity.
27
30
LOAN PORTFOLIO
During 1993, the Company consummated a revolving consumer loan securitization
totaling approximately $190 million and a home refinance loan securitization
totaling approximately $159 million. After these sales, loans and leases at
December 31, 1993 totaled $2,250,491,000, an increase of 15.7% compared to
$1,945,223,000 at December 31, 1992, and $1,890,058,000 at December 31,1991.
Loans held for sale, real estate loans, and lease financing increased 3.8%,
63.2%, and 4.8%, respectively, at December 31, 1993 compared to December 31,
1992, while commercial, financial, and agricultural loans decreased 11.3% and
consumer loans decreased 17.0%. In the real estate portfolio, construction
loans increased $66,649,000 or 74.7%, home equity credit line loans increased
$12,224,000 or 8.5%, and 1-4 family residential loans, which include home
refinance loans, increased $207,885,000 or 147.8%, and all other real estate
secured loans increased $129,894,000 or 45.6%.
The table below sets forth the amount of loans outstanding by type at December
31 for the years indicated:
LOAN PORTFOLIO
December 31,
----------------------------------------------------------------
(In thousands) 1993 1992 1991 1990 1989
Types ---- ---- ---- ---- ----
- -----
Loans held for sale $ 238,206 $ 229,465 $ 153,782 $ 117,606 $ 130,896
---------- ---------- ---------- ---------- ----------
Commercial, financial, and agricultural 418,600 472,115 413,478 424,175 437,186
---------- ---------- ---------- ---------- ----------
Real estate:
Construction 155,864 89,215 87,727 66,605 53,691
Other:
Home equity credit line 156,885 144,661 93,338 63,070 54,849
1-4 family residential 348,493 140,608 159,364 112,368 132,299
Other real estate-secured 414,995 285,101 320,903 305,990 243,846
---------- ---------- ---------- ---------- ----------
1,076,237 659,585 661,332 548,033 484,685
---------- ---------- ---------- ---------- ----------
Consumer:
Bankcard 25,218 23,144 72,805 68,825 65,391
Other 348,923 427,860 456,819 506,001 449,593
---------- ---------- ---------- ---------- ----------
374,141 451,004 529,624 574,826 514,984
---------- ---------- ---------- ---------- ----------
Lease financing 130,450 124,480 122,620 115,974 85,950
---------- ---------- ---------- ---------- ----------
Other receivables 12,857 8,574 9,222 15,502 8,008
---------- ---------- ---------- ---------- ----------
Total loans $2,250,491 $1,945,223 $1,890,058 $1,796,116 $1,661,709
========== ========== ========== ========== ==========
The Company has no foreign loans in its loan portfolio.
ASSETS MANAGED
In recent years, 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
maximizing its ability to originate loans without large increases in capital,
thereby enhancing the return on shareholders' equity. The Company's
participation in the "securitization" process, as well as its participation in
originating and selling mortgage loans, has increased in recent years. At
December 31, 1993, real estate loans serviced for others amounted to $1,466.5
million compared to $1,252.8 million at December 31, 1992, and $1,224.3 million
at December 31, 1991. Other loans serviced for investors at December 31, 1993
totaled $373.4 million, compared to $267.9 million at December 31, 1992, and
$158.2 million at December 31, 1991.
28
31
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, 1993.
Maturities
---------------------------------------------------
One One year Over
year or through five
(In thousands) less five years years Total
----------- ---------- -------- ----------
Loans held for sale $238,206 $ - $ - $ 238,206
-------- -------- -------- ----------
Commercial, financial, and agricultural 229,515 158,987 30,098 418,600
-------- -------- -------- ----------
Real estate:
Construction 135,763 20,101 - 155,864
Other:
Home equity credit line 3,535 15,042 138,308 156,885
1-4 family residential 9,403 24,061 315,029 348,493
Other real estate-secured 52,125 108,595 254,275 414,995
-------- -------- -------- ----------
200,826 167,799 707,612 1,076,237
-------- -------- -------- ----------
Consumer:
Bankcard - 25,218 - 25,218
Other 47,947 248,834 52,142 348,923
-------- -------- -------- ----------
47,947 274,052 52,142 374,141
-------- -------- -------- ----------
Lease financing 14,014 106,618 9,818 130,450
-------- -------- -------- ----------
Other receivables 12,857 - - 12,857
-------- -------- -------- ----------
Total $743,365 $707,456 $799,670 $2,250,491
======== ======== ======== ==========
Loans maturing in more than one year:
With fixed interest rates $237,754 $389,412 $359,946 $ 987,112
With variable interest rates 505,611 318,044 439,724 1,263,379
-------- -------- -------- ----------
Total $743,365 $707,456 $799,670 $2,250,491
======== ======== ======== ==========
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.
29
32
LOAN RISK ELEMENTS
The following table shows the principal amounts of nonaccrual, past due 90 days
or more, restructured loans, and potential problem loans at December 31 for
each year indicated.
December 31,
-------------------------------------------------
(In thousands) 1993 1992 1991 1990 1989
------ ------ ------ ------ ------
Nonaccrual loans $22,398 $20,148 $31,966 $34,396 $40,921
Loans contractually past due 90 days or more (not included in
nonaccrual loans above) 9,955 6,219 5,131 10,156 15,218
Restructured loans (not included in nonaccrual loans or loans
contractually past due 90 days or more) 4,006 4,003 3,225 10,181 11,370
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 6,093
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.
1993 1992 1991
------------------------ ------------------------- ----------------------
Re- Re- Re-
Non- struc Non- struc Non- struc
(In thousands) accrual tured Total accrual tured Total accrual tured Total
------- ----- ----- ------- ----- ----- ------- ----- -----
Gross amount of interest that would have
been recorded at original rate $ 2,858 $ 193 $ 3,051 $ 2,082 $ 302 $ 2,384 $ 3,771 $ 327 $ 4,098
Interest that was included
in income 668 152 820 793 247 1,040 1,745 312 2,057
------- ----- ------- ------- ----- ------- ------- ----- --------
Net impact on interest income $ 2,190 $ 41 $ 2,231 $ 1,289 $ 55 $ 1,344 $ 2,026 $ 15 $ 2,041
======= ===== ======= ======= ===== ======= ======= ===== ========
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,
1993, management identified as potential problem loans two loans totaling
$1,114,000 compared to three loans totaling $6,263,000, at December 31, 1992,
and three loans totaling $5,042,000 at December 31, 1991. Management believes
that for the near future, potential problem loans should remain at about the
current level.
Another aspect of the Company's credit risk management strategy is the
diversification of the loan portfolio. At year-end, the Company had 19% of its
portfolio in commercial loans, 48% in real estate loans, 16% in consumer loans,
11% in loans held for sale, and 6% in lease financing. 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 portfolio was in the retail industry group which comprised
approximately 17% of the portfolio. The retail group is also well diversified
in eight subcategories. Agricultural and mining loans comprise less than 7% of
total commercial loans. Segments of the real estate portfolio as a percentage
of total loans included 7% constructions loans, 7% home equity credit line
loans, 16% 1-4 family residential loans and 18% other real estate-secured
loans. The Company has no significant exposure to highly leveraged
transactions and has no foreign credits in its loan portfolio.
30
33
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 $29,425,000 as of December 31, 1993, an increase
of 1.6% from $28,975,000 as of December 31, 1992, but a decrease of 32.7% from
the $43,692,000 at December 31, 1991. Nonperforming assets represented 1.32%
of net loans and other real estate owned at December 31, 1993, as compared to
1.50% and 2.34% at December 31, 1992 and 1991, respectively. Nonperforming
assets as a percentage of net loans and other real estate owned at December 31,
1993 are at their lowest levels since at least 1985, the period where records
have been maintained using the present definitions.
Accruing loans past due 90 days or more totaled $9,955,000 as of December 31,
1993, as compared to $6,219,000 at December 31, 1992 and $5,131,000 of December
31, 1991. These loans equal .45% of net loans and leases at December 31, 1993,
as compared to .32% and .28% at December 31, 1992 and 1991, respectively.
Continuous efforts have been made to reduce nonperforming loans and to
liquidate real estate owned properties in such a manner as to recover the
greatest value possible. Significant steps have been taken during the last few
years to strengthen the Company's credit culture by implementing a number of
initiatives designed to increase internal controls and improve early detection
and resolution of problem loans.
The following table sets forth the composition of nonperforming assets at
December 31 for the years indicated:
NONPERFORMING ASSETS
(Thousands of dollars) 1993 1992 1991 1990 1989
------ ------ ------ ------ ------
Nonaccrual Loans:
Commercial, financial, and agricultural $ 6,566 $ 1,847 $ 12,771 $ 13,632 $ 14,457
Real estate 11,714 13,699 12,024 16,680 16,088
Consumer 607 1,377 2,198 2,646 7,503
Lease financing 3,511 3,225 4,973 1,438 2,873
-------- -------- -------- -------- --------
Total 22,398 20,148 31,966 34,396 40,921
-------- -------- -------- -------- --------
Restructured loans:
Commercial, financial, and agricultural 8 1,204 480 740 1,440
Real estate 3,998 2,799 2,745 9,441 9,930
-------- -------- -------- -------- --------
Total 4,006 4,003 3,225 10,181 11,370
-------- -------- -------- -------- --------
Other real estate owned:
Commercial, financial, and agricultural
Improved 598 1,952 2,763 2,935 14,555
Unimproved 904 1,844 3,053 6,286 9,231
Residential:
1-4 family 1,182 681 874 2,938 5,076
Multi-family - 96 483 1,487
Lots 163 45 540 1,455 5,203
Recreation property 110 238 445 774 1,532
Other 64 64 730 1,076 805
Less: reserve - - - - (4,857)
-------- -------- -------- -------- --------
Total 3,021 4,824 8,501 15,947 33,032
-------- -------- -------- -------- --------
Total $ 29,425 $ 28,975 $ 43,692 $ 60,524 $ 85,323
======== ======== ======== ======== ========
% of net loans,* leases, and other real estate owned 1.32% 1.50% 2.34% 3.39% 5.09%
31
34
NONPERFORMING ASSETS (continued)
(Thousands of dollars) 1993 1992 1991 1990 1989
------ ------ ------ ------ ------
Accruing loans past due 90 days or more:
Commercial, financial, and agricultural $ 851 $ 2,703 $ 1,704 $ 3,139 $ 6,774
Real estate 8,776 3,044 2,259 4,274 5,684
Consumer 327 451 1,121 2,717 2,568
Lease financing 1 21 47 26 192
------- ------- ------- -------- -------
Total $ 9,955 $ 6,219 $ 5,131 $ 10,156 $15,218
======= ======= ======= ======== =======
% of net loans* and leases .45% .32% .28% .57% .93%
*Includes loans held for sale.
ALLOWANCE FOR LOAN LOSSES
The Company's allowance for loan losses was 2.93% of net loans and leases at
December 31, 1993, as compared to 2.97% as of December 31, 1992 and 3.02% as of
December 31, 1991. Loan charge-offs decreased 53.7% and recoveries increased
57.2% in 1993 as compared to 1992, which resulted in a ratio of net charge-offs
to average loans and leases of (.27)% in 1993, compared to .48% in 1992 and
1.49% in 1991. The allowance for loan and lease losses relative to problem
loans continued to strengthen in 1993. The allowance, as a percentage of
nonperforming loans, at December 31, 1993 was 247.19%, as compared to 236.37%
and 159.88% at December 31, 1992 and 1991, respectively. Nonperforming loans
are defined as loans on which interest is not accrued and restructured loans.
The allowance, as a percentage of noncurrent loans, was 201.73% at December 31,
1993 as compared to 216.51% and 151.66% at December 31, 1992 and 1991,
respectively. Noncurrent loans are defined as loans on which interest is not
accrued, plus loans 90 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.
32
35
SUMMARY OF LOAN LOSS EXPERIENCE
The following table shows the changes in the allowance for losses for each year
indicated.
(In thousands) 1993 1992 1991 1990 1989
---------- ----------- ----------- ----------- -----------
Loans* and leases outstanding at December 31
(net of unearned income) $2,230,670 $1,921,496 $1,861,562 $1,767,825 $1,641,631
========== ========== ========== ========== ==========
Average loans* and leases outstanding (net of
unearned income) $2,003,548 $1,954,121 $1,767,401 $1,717,202 $1,656,159
========== ========== ========== ========== ==========
Allowance for possible losses:
Balance at beginning of year $ 57,086 $ 56,263 $ 59,015 $ 60,271 $ 54,553
Allowance of companies acquired or (sold) 546 - - (1,224) -
Loans and leases charged-off:
Loans held for sale - - - - -
Commercial, financial, and agricultural (1,428) (5,509) (15,114) (9,886) (13,340)
Real estate (1,179) (2,544) (4,363) (2,281) (5,416)
Consumer (5,461) (9,527) (13,982) (12,888) (10,287)
Lease financing (360) (604) (847) (473) (589)
Other receivables - - - - -
---------- ----------- ----------- ----------- -----------
Total (8,428) (18,184) (34,306) (25,528) (29,632)
---------- ----------- ----------- ----------- -----------
Recoveries:
Loans held for sale - - - - -
Commercial, financial, and agricultural 9,964 4,388 3,156 3,983 4,291
Real estate 611 477 829 516 540
Consumer 3,042 3,788 3,699 2,701 1,565
Lease financing 148 103 321 207 157
Other receivables - - - - -
---------- ----------- ----------- ----------- -----------
Total 13,765 8,756 8,005 7,407 6,553
---------- ----------- ----------- ----------- -----------
Net loan and lease (charge-offs) recoveries 5,337 (9,428) (26,301) (18,121) (23,079)
Provision charged against earnings 2,298 10,251 23,549 18,089 28,797
---------- ----------- ----------- ----------- -----------
Balance at end of year $ 65,267 $ 57,086 $ 56,263 $ 59,015 $ 60,271
========== =========== =========== =========== ===========
*Includes loans held for sale.
Ratio of net charge-offs (recoveries) to average
loans and leases (.27)% .48% 1.49% 1.06% 1.39%
Ratio of allowance for possible losses to loans and
leases outstanding at December 31 2.93% 2.97% 3.02% 3.34% 3.67%
Ratio of allowance for possible losses to
nonperforming loans at December 31 247.19% 236.37% 159.88% 132.39% 115.26%
Ratio of allowance for possible losses to
nonaccrual loans and accruing loans contractually
past due 90 days or more at December 31 201.73% 216.51% 151.66% 132.46% 107.36%
33
36
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.
1993 1992
------------------- ------------------
Alloca- Alloca-
% of tion of % of tion of
(In thousands) total allow- total allow-
loans ance loans ance
------- ------- ------ -------
Type of loan
------------
Loans held for sale 10.6% $ - 11.7% $ -
Commercial, financial, and agricultural 18.6 2,632 24.0 4,096
Real estate 47.8 3,398 33.3 3,966
Consumer 16.6 2,366 23.0 2,711
Lease financing 5.8 1,043 6.3 1,818
Other receivables .6 1.7
------ ------
Total loans 100.0% 100.0%
====== ======
Off-balance sheet unused commitments
and standby letters of credit 1,972 3,710
------- -------
Allocated 11,411 16,301
Unallocated 53,856 40,785
------- -------
Total allowance for loan losses $ 65,267 $ 57,086
======= =======
1991 1990 1989
------------------- ------------------- -------------------
Alloca Alloca Alloca
% of tion of % of tion of % of tion of
(In thousands) total allow- total allow- total allow-
loans ance loans ance loans ance
------- ------- ------- ------- ------- -------
Type of loan
------------
Loans held for sale 8.0% $ - 6.4% $ - 7.7% $ -
Commercial, financial, and agricultural 21.6 7,943 23.2 10,485 25.8 9,200
Real estate 34.3 6,565 29.8 1,722 28.6 987
Consumer 27.7 3,684 31.5 1,814 30.4 3,562
Lease financing 6.4 2,279 6.3 200 5.0 416
Other receivables 2.0 - 2.8 - 2.5 -
------ ------ ------
Total loans 100.0% 100.0% 100.0%
====== ====== ======
Off-balance sheet unused commitments and
standby letters of credit 5,567 5,374 4,836
-------- -------- -------
Allocated 26,038 19,595 19,001
Unallocated 30,225 39,420 41,270
-------- -------- --------
Total allowance for loan losses $ 56,263 $ 59,015 $ 60,271
======== ======== ========
34
37
DEPOSITS
Total average deposits increased 5.8% to $2,820.8 million in 1993 from $2,666.7
million in 1992 and $2,531.8 million in 1992. Total deposits increased 9.3% to
$3,024,111,000 at December 31, 1993 compared to $2,764,824,000 at December 31,
1992. The Company's base of core deposits, consisting of demand, savings and
money market accounts, increased 21.9% and 12.5%, respectively, comparing
December 31, 1993 to December 31, 1992, while certificates of deposit under
$100,000 decreased 12.6%. Domestic deposits over $100,000 decreased 6.8% and
foreign deposits increased 29.9% respectively, comparing December 31, 1993 to
December 31, 1992.
The following table presents the average amount and the average rate paid on
each of the following categories for each year indicated:
AVERAGE DEPOSIT AMOUNTS AND AVERAGE RATES
(In millions) 1993 1992 1991
--------- ---------- ---------
Average amounts:
Noninterest-bearing demand deposits $ 609.3 $ 483.6 $ 444.0
Savings deposits 625.2 476.4 524.5
Money market deposits 968.3 936.4 674.6
Time deposits of less than $100,000 515.1 620.6 735.8
Time deposits $100,000 or more 47.1 63.2 90.1
Foreign deposits 55.8 86.5 62.8
--------- ---------- ---------
Total average amounts $ 2,820.8 $ 2,666.7 $ 2,531.8
========= ========== =========
Average rates:
Noninterest-bearing demand deposits -% -% -%
Savings deposits 2.97% 3.52% 4.87%
Money market deposits 2.73% 3.35% 5.12%
Time deposits under $100,000 4.31% 5.20% 6.74%
Time deposits $100,000 or more 3.83% 4.59% 6.26%
Foreign deposits 2.66% 4.20% 5.17%
Total 3.19% 3.98% 5.68%
Maturities of time deposits $100,000 or more at December 31, 1993 (In millions):
Under three months $ 19.9
Over three months and less than six months 10.7
Over six months and less than twelve months 9.3
Over twelve months 5.6
---------
Total time deposits $100,000 or more $ 45.5
=========
Substantially all foreign deposits are in denominations of $100,000 or more.
35
38
SHORT-TERM BORROWINGS
The following table sets forth data pertaining to the Company's short-term
borrowings for each year indicated:
(In thousands, except rates)
At December 31,
- ---------------
Weighted
Maximum Average average
Weighted month- balance rate
Category of aggregate average end during during
short-term borrowings Balance rate balance the year the year
--------------------- ------- -------- ------- -------- ---------
Securities sold, not yet purchased
1993 $ 46,640 4.96% $ 278,351 $ 69,442 4.38%
1992 $ - -% $ - $ - -%
1991 $ - -% $ - $ - -%
Federal funds purchased and security repurchase
agreements (a)
1993 $ 595,200 2.86% $ 595,200 $ 767,309 2.92%
1992 $ 442,897 3.12% $ 490,774 $ 394,620 3.21%
1991 $ 442,610 4.24% $ 442,610 $ 331,367 5.14%
Federal Home Loan Bank advances and other
borrowings less than one year(b)
1993 $ 136,140 3.36% $ 136,140 $ 83,123 3.85%
1992 $ 153,533 3.43% $ 153,533 $ 78,406 4.10%
1991 $ 153,685 5.08% $ 295,145 $ 119,222 6.39%
(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
1993 1992 1991
------ ------ ------
Return on average assets 1.24% 1.22% .87%
Return on average common shareholders' equity 19.90% 19.30% 14.90%
Common dividend payout ratio 23.00% 21.20% 29.90%
Average equity to average assets ratio 6.25% 6.34% 5.82%
36
39
CAPITAL RESOURCES
In recent years, regulations with respect to capital and capital adequacy for
commercial banks and bank holding companies have been evolving. At year end,
there were two measures of capital adequacy in use 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 risk-based capital guidelines are in full effect
in 1993 and 1992. As reflected in the following table, the Company's total
risk-based capital ratio was 14.34% at December 31, 1993 and 15.53% at December
31, 1992. The minimum regulatory requirement is an 8% total risk-based capital
ratio for a bank to be considered "well-capitalized" under the regulatory
definition is 10%.
2. Tier I Leverage
Under the risk-based capital guidelines, a bank holding company could, in
theory, significantly leverage its capital through the investment 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 5.47% at
December 31, 1993 and 6.24% at December 31, 1992, compared to the minimum
regulatory requirement of 4% to be considered adequately capitalized.
The following table presents the regulatory risk-based capital at December 31
for the years indicated:
REGULATORY RISK-BASED CAPITAL AT DECEMBER 31
(Thousands of dollars) 1993 1992 1991
Under Guidelines Effective 1992 ------------- ------------ ------------
--------------------------------
CAPITAL COMPONENTS:
Common shareholders' equity $ 277,957 $ 240,543 $ 206,611
Add:
Minority interest in subsidiary 500 - -
Deduct:
Goodwill (11,920) (12,321) (12,722)
Nonqualifying amount of purchased mortgage servicing (280) - -
------------ ------------ ------------
Tier I capital: Core capital 266,257 228,222 193,889
------------ ------------ ------------
Allowance for loan losses* 30,672 28,027 29,540
Qualifying unsecured long-term debt** 50,000 87,450 59,910
------------ ------------ ------------
Tier II capital: Supplementary capital 80,672 115,477 89,450
------------ ------------ ------------
Total risk-based capital $ 346,929 $ 343,699 $ 283,339
============ ============ ============
RISK-WEIGHTED ASSETS:
Balance sheet $ 2,321,546 $ 2,085,990 $ 2,203,077
Off-balance sheet 132,228 156,188 160,133
------------ ------------ ------------
Gross risk-weighted assets 2,453,774 2,242,178 2,363,210
Deduct: Excess allowance for loan losses (34,595) (29,059) (26,723)
------------ ------------ ------------
Total adjusted risk-weighted assets $ 2,419,179 $ 2,213,119 $ 2,336,487
============ ============ ============
CAPITAL RATIOS:
Tier I capital: Core capital 11.01% 10.31% 8.30%
Tier II capital: Supplementary capital 3.33 5.22 3.83
------------ ------------ ------------
Total risk-based capital 14.34% 15.53% 12.13%
============ ============ ============
* Limited to 1.25% of risk-weighted assets.
** Limited to 50% of core capital and reduced by 20% per year during an
instrument's last five years before maturity.
37
40
DIVIDENDS
The Company's quarterly dividend rate was $.28 per share for the third and
fourth quarters of 1993, $.21 per share 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 and 1991. The annual dividend rate was $.98 for 1993, $.75
for 1992 and $.72 for 1991. During the years 1989 through 1993 there was no
preferred stock outstanding.
The following table sets forth dividends paid by the Company of each year
indicated:
DIVIDENDS PAID
(Thousands of dollars) 1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
Net income $ 53,039 $ 43,402 $ 29,124 $ 26,640 $ 17,683
Common dividends paid 12,207 9,183 8,698 8,616 8,544
Payout/net income 23.0% 21.2% 29.9% 32.3% 48.3%
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 $68,563,000 in 1993,
$52,777,000 in 1992 and $52,993,000 in 1991; and averaged $55,823,000 for 1993,
$86,479,000 for 1992 and $62,729,000 for 1991.
38
41
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, 1993 and 1992, 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, 1993. 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, 1993 and 1992, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1993, 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 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" on January 1, 1993.
As discussed in notes 1 and 6, the Company changed its method of accounting for
income taxes to adopt the provisions of Statement No. 109, "Accounting for
Income Taxes" on January 1, 1993. As discussed in notes 1 and 3, the Company
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
Salt Lake City, Utah
January 25, 1994
39
42
ZIONS BANCORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1993 and 1992
(In thousands, except share amounts)
ASSETS 1993 1992
------------- ---------
Cash and due from banks $ 303,751 270,023
Money market investments:
Interest-bearing deposits 24,967 205,848
Federal funds sold and security resell agreements 553,804 357,975
Other money market investments - 50,361
Investment securities:
Held-to-maturity, at cost (approximate market value $800,296 and $877,051) 785,109 867,306
Available-for-sale, at market 261,592 -
Trading account 98,333 38,700
Loans:
Loans held for sale at cost, which approximates market 238,206 229,465
Loans, leases, and other receivables 2,012,285 1,715,758
------------- ---------
2,250,491 1,945,223
Less:
Unearned income and fees, net of related costs 19,821 23,727
Allowance for loan losses 65,267 57,086
------------- ---------
2,165,403 1,864,410
Premises and equipment 62,127 54,352
Amounts paid in excess of net assets of acquired businesses 11,920 12,321
Other real estate owned 3,021 4,824
Other assets 95,529 53,147
------------- ---------
$ 4,365,556 3,779,267
============= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Noninterest-bearing $ 725,829 595,505
Interest-bearing:
Savings and money market 1,689,265 1,501,286
Time:
Under $100,000 494,922 566,403
Over $100,000 45,532 48,853
Foreign 68,563 52,777
------------- ---------
3,024,111 2,764,824
Securities sold, not yet purchased 46,640 -
Federal funds purchased and security repurchase agreements 595,200 422,897
Accrued liabilities 65,378 44,554
Federal Home Loan Bank advances and other borrowings:
Less than one year 136,140 153,533
Over one year 152,109 51,689
Long-term debt 55,587 99,223
------------- ---------
Total liabilities 4,075,165 3,536,720
------------- ---------
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, 12,744,959 shares and 12,272,576 shares 56,691 52,526
Net unrealized holding gains and losses on securities available-for-sale (note 3) 432 -
Retained earnings 233,268 190,021
------------- ---------
Total shareholders' equity 290,391 242,547
Commitments and contingent liabilities (notes 7, 8, 9, 10, 12, and 14)
------------- ---------
$ 4,365,556 3,779,267
============= =========
See accompanying notes to consolidated financial statements.
40
43
ZIONS BANCORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 1993, 1992, and 1991
(In thousands, except per share amounts)
1993 1992 1991
----------- ------- -------
Interest income:
Interest and fees on loans $ 151,711 155,027 169,031
Interest on loans held for sale 11,273 13,804 8,970
Interest on money market investments 26,881 21,216 42,685
Interest on securities:
Taxable 53,626 46,221 46,845
Nontaxable 7,038 6,435 4,986
Trading account 7,555 5,537 3,122
Lease financing 9,639 9,977 9,908
----------- ------- -------
Total interest income 267,723 258,217 258,547
----------- ------- -------
Interest expense:
Interest on savings and money market deposits 45,015 48,121 60,085
Interest on time deposits 25,478 38,831 58,473
Interest on borrowed funds 40,413 27,233 35,522
----------- ------- -------
Total interest expense 110,906 114,185 154,080
----------- ------- -------
Net interest income 156,817 144,032 131,467
Provision for loan losses 2,298 10,251 23,549
----------- ------- -------
Net interest income after provision for loan losses 154,519 133,781 107,918
----------- ------- -------
Other operating income:
Service charges on deposit accounts 22,216 18,994 17,354
Other service charges, commissions, and fees 20,450 18,484 13,604
Trust income 4,622 4,614 4,169
Investment securities gains (losses), net (17) 282 432
Trading account income 2,350 4,437 1,359
Loan sales and servicing income 21,471 6,573 7,875
Other 7,035 8,477 6,695
----------- ------- -------
78,127 61,861 51,488
----------- ------- -------
Other operating expenses:
Salaries and employee benefits 79,245 66,022 58,520
Occupancy, net 7,809 7,010 6,997
Furniture and equipment 8,284 7,299 6,537
Other real estate expense 366 2,523 3,173
Legal and professional services 4,905 3,497 3,850
Supplies 4,281 3,687 3,688
Postage 4,221 3,540 3,637
FDIC premiums 6,541 5,752 5,063
Amortization of intangible assets 4,432 4,530 3,882
Loss on early extinguishment of debt 6,022 - -
Other 30,442 27,180 21,960
----------- ------- -------
156,548 131,040 117,307
----------- ------- -------
Income before income taxes and cumulative effect of changes in accounting principles 76,098 64,602 42,099
Income taxes 24,718 21,200 12,975
----------- ------- -------
Income before cumulative effect of changes in accounting principles 51,380 43,402 29,124
Cumulative effect of changes in accounting principles 1,659 - -
----------- ------- -------
Net income $ 53,039 43,402 29,124
=========== ======= =======
Weighted average common and common equivalent shares outstanding during the year 12,795 12,330 12,174
=========== ======= =======
Earnings per common share:
Income before cumulative effect of changes in accounting principles $ 4.02 3.52 2.39
Cumulative effect of changes in accounting principles .13 - -
----------- ------- -------
Net income per common share $ 4.15 3.52 2.39
=========== ======= =======
See accompanying notes to consolidated financial statements.
41
44
ZIONS BANCORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1993, 1992, and 1991
(In thousands)
1993 1992 1991
------------- ---------- ----------
Cash flows from operating activities:
Net income $ 53,039 43,402 29,124
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Provision for loan losses 2,298 10,251 23,549
Write-downs of other real estate owned 704 1,723 1,952
Depreciation of premises and equipment 6,704 5,624 5,341
Amortization of premium on core deposits and other intangibles 4,432 4,530 3,882
Amortization of net premium/discount on investment securities 5,830 5,694 2,700
Accretion of unearned income and fees, net of related costs (3,906) (4,769) 205
Proceeds from sales of trading account securities 36,468,421 3,112,879 3,568,236
Increase in trading account securities (36,383,168) (3,115,492) (3,595,980)
Net loss (gain) on sales of investment securities 17 (282) (432)
Proceeds from loans held for sale 1,094,031 879,977 590,187
Increase in loans held for sale (1,088,996) (953,930) (623,667)
Net gain on sales of loans, leases, and other assets (16,810) (3,998) (4,444)
Net loss (gain) on sales of other real estate owned (182) 278 335
Change in accrued income taxes 1,870 6,369 (787)
Change in accrued interest receivable 3,261 5,102 6,263
Change in accrued interest payable (19,422) (5,267) (3,617)
Change in other assets (1,549) (4,271) 1,704
Change in accrued liabilities (4,224) (9,807) 7,659
------------- ---------- ----------
Net cash provided by (used in) operating activities 122,350 (21,987) 12,210
------------- ---------- ----------
Cash flows from investing activities:
Net decrease in money market investments 584,164 74,080 130,862
Proceeds from sales of investment securities 74,587 26,029 32,315
Proceeds from maturities of investment securities 206,908 204,481 106,167
Purchases of investment securities (464,861) (353,527) (305,735)
Proceeds from sales of loans and leases 353,034 163,709 -
Net increase in loans and leases (597,146) (160,344) (92,811)
Principal collections on leveraged leases 1,375 1,215 2,101
Proceeds from sales of premises and equipment 169 88 660
Purchases of premises and equipment (13,703) (9,715) (5,994)
Proceeds from sales of other real estate owned 2,641 8,186 12,637
Proceeds from sales of mortgage servicing rights 608 1,435 1,046
Purchases of mortgage servicing rights (1,731) (1,374) (797)
Proceeds from sales of other assets 1,486 877 857
Purchases of other assets - - (675)
Cash paid for acquisition, net of cash received (59,833) - -
------------- ---------- ----------
Net cash provided by (used in) investing activities 87,698 (44,860) (119,367)
------------- ---------- ----------
Cash flows from financing activities:
Net increase in deposits 198,252 106,310 121,177
Net change in short-term funds borrowed (419,992) (16,781) (99,513)
Proceeds from FHLB advances over one year 204,567 1,745 50,000
Payments on FHLB advances over one year (104,147) (56) -
Payments on leveraged leases - - (835)
Proceeds from issuance of long-term debt - 50,000 -
Payments on long-term debt (43,659) (32,585) (10,260)
Proceeds from issuance of common stock 879 1,695 2,700
Dividends paid (12,220) (9,183) (8,698)
------------- ---------- ----------
Net cash provided by (used in) financing activities (176,320) 101,145 54,571
------------- ---------- ----------
Net increase (decrease) in cash and due from banks 33,728 34,298 (52,586)
Cash and due from banks at beginning of year 270,023 235,725 288,311
------------- ---------- ----------
Cash and due from banks at end of year $ 303,751 270,023 235,725
============= ========== ==========
See accompanying notes to consolidated financial statements.
42
45
ZIONS BANCORPORATION AND SUBSIDIARIES
Consolidated Statements of Retained Earnings
Years ended December 31, 1993, 1992, and 1991
(In thousands)
1993 1992 1991
----------- ------- -------
Balance at beginning of year $ 190,021 155,802 135,376
Retained earnings of acquired company 2,428 - -
Net income 53,039 43,402 29,124
Cash dividends:
Preferred, paid by subsidiary to minority shareholder (13) - -
Common, per share of $.98 in 1993, $.75 in 1992, and $.72
in 1991 (12,207) (9,183) (8,698)
----------- ------- -------
Balance at end of year $ 233,268 190,021 155,802
=========== ======= =======
See accompanying notes to consolidated financial statements.
43
46
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years ended December 31, 1993, 1992, and 1991
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 1993
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 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.
44
47
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1993, 1992, and 1991
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, 1993 and 1992, accumulated depreciation and
amortization totaled $55,416,000 and $50,712,000, 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 writedowns 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 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. 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. The
net interest received or paid on these contracts is reflected in the interest
expense or income related to the hedged obligation or asset.
45
48
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1993, 1992, and 1991
Statements of Cash Flows - For purposes of the statements of cash flows, the
Company considers due from banks to be cash equivalents.
The Company paid interest of $112.6 million, $118.7 million, and $156.9
million, respectively, and income taxes of $23.3 million, $14.9 million, and
$13.8 million, respectively, for the years ended December 31, 1993, 1992, and
1991. Loans transferred to other real estate owned totaled $1.2 million, $4.9
million, and $3.6 million, respectively, for the years ended December 31, 1993,
1992, and 1991.
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.
46
49
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1993, 1992, and 1991
2. MERGERS AND ACQUISITIONS
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, and accordingly, the net
assets and results of operations are included in the consolidated financial
statements since the date of acquisition. The difference between the purchase
price and the net book value of Discount of $9.4 million is included in
deferred tax assets (grouped with other assets) in the accompanying
consolidated balance sheet as of December 31, 1993.
The following table presents unaudited pro forma results of operations as if
the acquisition had occurred on January 1, 1992. These pro forma results have
been prepared for comparative purposes only and do not purport to be indicative
of what would have occurred had the acquisition been made at the beginning of
1992 or of results which may occur in the future. Furthermore, no effect has
been given in the pro forma information for operating and synergistic benefits
that are expected to be realized through the combination of the entities
because precise estimates of such benefits cannot be quantified (in thousands,
except per share data).
1993 1992
--------- -------
Net interest income $ 161,814 151,809
Other operating income 73,162 82,784
Other operating expense 176,015 184,109
Net income 39,082 18,919
Net income per common share 3.05 1.53
On October 29, 1993, the Company and Wasatch Bancorp (Wasatch) consummated
their agreement and plan of reorganization whereby 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 1992 and 1991 have not
been restated and pro forma information giving effect to this acquisition is
not provided inasmuch as the historical operations of Wasatch are not
significant to the Company.
During 1993, the Company acquired a 25 percent interest in Bennington Capital
Management, Inc., a Seattle based investment advisor which manages the
Accessor(TM) family of mutual funds. This acquisition is accounted for on the
equity method.
During the two years ended December 31, 1992, the Company also acquired certain
assets and certain liabilities of two other financial institutions. These
acquisitions have been treated as purchases for accounting purposes and,
accordingly, the results of operations of these companies have been included in
the consolidated financial statements for periods subsequent to the effective
dates of purchase.
On January 14, 1994, National Bancorp of Arizona Inc. (NBA) was merged into the
Company. Each outstanding share of NBA common stock was converted into .45
shares of the Company's common stock. The Company expects to issue
approximately 1,456,400 shares of its common stock for 100 percent of the
outstanding common stock of NBA. The consolidated financial statements of the
Company do not give effect to this merger, which will be accounted for as a
pooling of interests. There are no material intercompany transactions and no
material differences in accounting policies and procedures. Pro forma combined
financial results that give affect to the merger for the years ended December
31, 1993, 1992, and 1991 are summarized as follows (in thousands, except per
share data):
1993
----------------------------------
Historical
--------------------- Pro forma
Company NBA combined
---------- ------ ---------
Net interest income $ 156,817 18,316 175,133
Net income 53,039 5,166 58,205
Net income per common share 4.15 1.57 4.08
47
50
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1993, 1992, and 1991
1992
------------------------------------
Historical
---------------------- Pro forma
Company NBA combined
----------- ------ ---------
Net interest income $ 144,032 13,246 157,278
Net income 43,402 3,807 47,209
Net income per common share 3.52 1.17 3.42
1991
---------------------------------
Historical
------------------- Pro forma
Company NBA combined
---------- ----- ---------
Net interest income $ 131,467 8,398 139,865
Net income 29,124 1,325 30,449
Net income per common share 2.39 .41 2.23
3. INVESTMENT SECURITIES
Investment securities as of December 31, 1993, are summarized as follows (in
thousands):
Held-to-maturity
----------------------------------------
Gross Gross Esti-
Amort- unreal- unreal- mated
ized ized ized market
cost gains losses value
---------- ------- ------- -------
U.S. government agencies and corporations:
Small business administration loan-backed $ 399,603 12,640 397 411,846
securities
Other agency securities 157,098 709 263 157,544
States and political subdivisions 168,090 1,019 236 168,873
---------- ------- ------- -------
724,791 14,368 896 738,263
Mortgage-backed securities 60,318 1,715 - 62,033
---------- ------- ------- -------
$ 785,109 16,083 896 800,296
========== ======= ======= =======
48
51
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1993, 1992, and 1991
Available-for-sale
------------------------------------------
Gross Gross Esti-
Amort- unreal- unreal- mated
ized ized ized market
cost gains losses value
---------- ------- ------- -------
U.S. treasury securities $ 14,810 250 2 15,058
U.S. government agencies 31,101 - 2 31,099
---------- ------- ------- -------
45,911 250 4 46,157
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 1,872 90 26 1,936
---------- ------- ------- -------
$ 260,903 902 213 261,592
========== ======= ======= =======
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 gain on securities available for sale of $432,000, after
related tax effect, at December 31, 1993.
Investment securities as of December 31, 1992, are summarized as follows (in
thousands):
Gross Gross Esti-
Amort- unreal- unreal- mated
ized ized ized market
cost gains losses value
--------- ------- ------- --------
U.S. treasury securities $ 15,267 413 6 15,674
U.S. government agencies and corporations:
Small business administration loan-backed 366,867 6,248 183 372,932
securities
Other agency securities 93,920 976 164 94,732
States and political subdivisions 123,048 180 241 122,987
Other debt securities 10,000 - 25 9,975
--------- ------- ------- --------
609,102 7,817 619 616,300
Mortgage-backed securities 162,428 2,626 357 164,697
Equity securities:
Federal Home Loan Bank stock 62,536 - - 62,536
Other stock 33,240 278 - 33,518
--------- ------- ------- --------
$ 867,306 10,721 976 877,051
========= ======= ======= ========
49
52
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1993, 1992, and 1991
The amortized cost and estimated market value of investment securities as of
December 31, 1993, by contractual maturity, excluding mortgage-backed and
equity securities, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or repay
obligations with or without call or prepayment penalties (in thousands):
Held-to-maturity
---------------------
Amort Estimated
ized market
cost value
--------- ---------
Due in one year or less $ 75,618 76,839
Due after one year through five years 311,483 315,378
Due after five years through ten years 173,184 176,917
Due after ten years 164,506 169,129
--------- ---------
$ 724,791 738,263
========= =========
Available-for-sale
-----------------------
Amort- Estimated
ized market
cost value
--------- --------
$
Due in one year or less 41,698 41,871
Due after one year through five years 3,988 4,029
Due after five years trough ten years - -
Due after ten years 225 257
--------- --------
$ 45,911 46,157
========= ========
Gross gains of $104,000, $423,000, and $760,000 and gross losses of $121,000,
$141,000, and $328,000 were realized on sales of investment securities for the
years ended December 31, 1993, 1992, and 1991, respectively. Such amounts
include gains of $10,000, $105,000, and $283,000, and losses of $32,000,
$17,000, and $290,000, respectively, for sales of mortgage-backed securities.
As of December 31, 1993 and 1992, securities with an amortized cost of
$90,915,000 and $56,239,000, 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):
1993 1992
----------- ---------
Loans held for sale $ 238,206 229,465
Commercial, financial, and agricultural 418,600 472,115
Real estate:
Construction 155,864 89,215
Other 920,373 570,370
Consumer 374,141 451,004
Lease financing 130,450 124,480
Other receivables 12,857 8,574
----------- ---------
$ 2,250,491 1,945,223
=========== =========
50
53
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1993, 1992, and 1991
As of December 31, 1993 and 1992, loans with a carrying value of $302,530,000
and $212,181,000, respectively, were pledged as security for Federal Home Loan
Bank advances (note 7).
During 1993, 1992, and 1991, the Company purchased mortgage servicing rights
totaling $1.7 million, $1.4 million, and $.8 million, respectively.
Amortization of purchased mortgage servicing rights totaled $2.6 million, $2.6
million, and $1.8 million for the years ended December 31, 1993, 1992, and
1991, respectively.
During 1993 and 1992, consumer and other loan securitizations totaled $349
million and $159 million, respectively (there were no securitizations in 1991).
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 $14.7 million in 1993, $1.7 million in 1992, and $3.1 million in
1991.
The allowance for loan losses is summarized as follows (in thousands):
1993 1992 1991
---------- ------- -------
Balance at beginning of year $ 57,086 56,263 59,015
Allowance for loan losses of companies acquired 546 - -
Additions:
Provision for loan losses 2,298 10,251 23,549
Recoveries 13,765 8,756 8,005
Deduction, loan charge-offs (8,428) (18,184) (34,306)
---------- ------- -------
Balance at end of year $ 65,267 57,086 56,263
========== ======= =======
Included in the allowance for loan losses is an allocation for unused
commitments and letters of credit (note 9) that as of December 31, 1993 and
1992, amounted to $1,972,000 and $3,708,000, respectively.
Nonperforming loans, leases, and related interest foregone are summarized as
follows (in thousands):
1993 1992 1991
---------- ------ ------
Nonaccrual loans and leases $ 22,398 20,148 31,966
Restructured loans and leases 4,006 4,003 3,225
---------- ------ ------
Total $ 26,404 24,151 35,191
========== ====== ======
Contractual interest due $ 3,051 2,384 4,098
Interest recognized 820 1,040 2,057
---------- ------ ------
Net interest foregone $ 2,231 1,344 2,041
========== ====== ======
5. DEPOSITS
Deposits are summarized as follows (in thousands):
1993 1992
----------- ---------
Noninterest-bearing $ 725,829 595,505
Interest-bearing:
Savings 688,812 518,051
Money market 1,000,453 983,235
Time under $100,000 494,922 566,403
Time over $100,000 45,532 48,853
Foreign 68,563 52,777
----------- ---------
$ 3,024,111 2,764,824
=========== =========
51
54
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1993, 1992, and 1991
Interest expense on deposits is summarized as follows (in thousands):
1993 1992 1991
---------- ------ ------
Savings and money market deposits:
Savings $ 18,558 16,776 25,560
Money market 26,457 31,345 34,525
---------- ------ ------
$ 45,015 48,121 60,085
Time deposits: ========== ====== ======
Under $100,000 $ 22,189 32,298 49,590
Over $100,000 1,805 2,898 5,638
Foreign 1,484 3,635 3,245
---------- ------ ------
$ 25,478 38,831 58,473
========== ====== ======
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.
Income taxes are summarized as follows (in thousands):
1993 1992 1991
-------- ------ ------
Federal:
Current $ 22,992 18,236 8,877
Deferred (benefit) (1,744) - 2,365
State 3,470 2,964 1,733
-------- ------ ------
$ 24,718 21,200 12,975
======== ====== ======
A reconciliation between income tax expense computed using the statutory
federal income tax rate (35 percent in 1993 and 34 percent in 1992 and 1991),
and actual income tax expense is as follows (in thousands):
1993 1992 1991
---------- ------- ------
Income tax expense at statutory federal rate $ 26,634 21,960 14,266
State income tax, net 2,119 2,018 1,272
Nondeductible expenses 174 621 541
Nontaxable interest (2,297) (2,250) (1,842)
Tax credits, rate differences (586) - -
Deferred tax assets recognized - (1,148) (1,291)
Change in tax rates (189) - -
Other items, net (1,137) (1) 29
---------- ------- ------
Income tax expense $ 24,718 21,200 12,975
========== ======= ======
52
55
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1993, 1992, and 1991
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,
1993, are presented below (in thousands):
Gross deferred tax assets:
Book loan loss deduction in excess of tax $ 24,965
Deferred compensation 1,130
Present value of interest rate exchange contract 1,103
Employee benefits 2,399
Other real estate expenses not allowed for tax purposes 507
Capital leases 842
Net capital loss carryforwards 972
Acquired net operating losses 9,367
Other 3,083
----------
44,368
Less valuation allowance (972)
----------
Total deferred tax assets 43,396
----------
Gross deferred tax liabilities:
Premises and equipment, due to differences in depreciation (4,013)
FHLB stock dividends (8,372)
Leasing operations (12,158)
Other (134)
----------
Total deferred tax liabilities (24,677)
----------
Statement No. 115 market equity adjustment (264)
----------
Net deferred tax assets $ 18,455
==========
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax asset will not be realized. The Company has
established a valuation allowance for the net capital loss carryforwards as a
result of the uncertainty of realizing offsetting capital gains. The net
change in the valuation allowance for 1993 amounted to a decrease of
$1,137,000.
Deferred income taxes provided on timing differences for 1992 and 1991 are
summarized as follows (in thousands):
1992 1991
-------- -------
Prepaid employee benefits $ (103) (303)
Provision for loan losses (280) 918
Operating method of accounting and deferred investment
credits on leasing operations 440 (24)
Interest rate exchange contract (267) (267)
Loan fees (87) (86)
Depreciation 41 41
Other real estate owned write-down effects 507 1,590
FHLB stock dividends 2,383 1,763
Deferred tax assets recognized (1,148) (1,291)
Other, net (1,486) 24
-------- -------
$ - 2,365
======== =======
53
56
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1993, 1992, and 1991
7. FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS
Federal Home Loan Bank advances and other borrowings as of December 31, 1993
and 1992, include $252,109,000 and $176,816,000, 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.
Maturities of outstanding advances in excess of one year are as follows (in
thousands):
Amount
----------
1994 $ 65,289
1995 15,289
1996 15,236
1997 15,165
1998 15,165
Thereafter 25,965
----------
$ 152,109
==========
8. LONG-TERM DEBT
Long-term debt is summarized as follows (in thousands):
1993 1992
--------- ------
Subordinated notes, 8-5/8% $ 50,000 50,000
Floating rate notes - 37,450
Industrial revenue bonds 1,550 6,765
Capitalized real property leases,
9-1/2% to 21%, payable in aggregate monthly installments
of approximately $89,000 3,378 4,005
Mortgage notes, 7-1/2% to 11-1/8%, due in varying amounts and periods 265 411
Other notes payable 394 592
--------- ------
$ 55,587 99,223
========= ======
The 8-5/8 percent subordinated notes mature in 2002 with interest payable
semiannually. The notes are not redeemable prior to maturity.
The floating rate notes and $4.7 million of the industrial revenue bonds were
redeemed during 1993.
The industrial revenue bonds require mandatory sinking fund redemption in
various principal amounts through 1995. The bonds bear interest at rates from
7.40 percent to 7.50 percent. The bonds are secured by an assignment of leases
on banking facilities and a data processing center.
54
57
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1993, 1992, and 1991
Maturities and sinking fund requirements on long-term debt for each of the
succeeding five years are as follows (in thousands):
Consolidated Parent only
------------ -----------
1994 $ 1,721 1,358
1995 1,793 1,469
1996 983 715
1997 186 5
1998 104 -
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, and interest rate exchange contracts. Those
instruments involve, to varying degrees, elements of credit 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.
Unless noted otherwise, the Company does not require collateral or other
security to support financial instruments with credit risk.
Notional values of financial instruments are summarized as follows:
Notional or
carrying amount
1993 1992
-------- ---------
Financial instruments whose contract amounts represent credit risk (in
thousands):
Unused commitments to extend credit $ 919,303 756,821
Standby letters of credit written:
Performance 46,543 62,557
Financial 23,582 9,755
Commercial letters of credit 4,141 2,071
Commitments to purchase securities 89,208 2,900
Commitments to sell securities 83,902 -
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee.
Commitments totaling $751,035,000 expire in 1994. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
Company evaluates each customer's credit worthiness on a case-by-case basis.
The amount of collateral obtained, if deemed necessary by the Company upon
extension of credit, is based on management's credit evaluation of the counter
party. Collateral held varies but may include accounts receivable, inventory,
property, plant and equipment, and income-producing commercial properties.
55
58
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1993, 1992, and 1991
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
$63,767,000 expiring in 1994 and $6,358,000 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, 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. Interest rate exchange contract agreements involve the exchange of
fixed and variable rate interest payments based upon a notional amount and
maturity. 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):
1993 1992
Interest rate contracts: --------- --------
Purchased $ 28,417 115,113
Written 261,617 294,613
Exchanged:
Fixed 40,000 40,000
Variable - 25,000
The contract or notional amount of financial instruments indicates a level of
activity associated with a particular class of financial instrument and is not
a reflection of the actual level of risk. As of December 31, 1993 and 1992,
the regulatory risk weighted values assigned to all off-balance sheet financial
instruments described herein totaled $132,228,000 and $156,188,000,
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 not
subject to significant recourse obligations.
56
59
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1993, 1992, and 1991
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, 1993 are as
follows (in thousands):
Real
property
Real and
property, equipment,
capitalized operating
----------- ----------
1994 $ 392 2,482
1995 435 2,129
1996 615 1,067
1997 282 802
1998 222 703
Thereafter 1,583 2,547
-------- ------
$ 3,529 9,730
======== ======
Future aggregate minimum rental payments have been reduced by noncancelable
subleases as follows: 1994, $695,000; 1995, $636,000; and 1996, $442,000.
Aggregate rental expense on operating leases amounted to $3,431,000,
$3,017,000, and $2,409,000, for the years ended December 31, 1993, 1992, and
1991, 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, 1,012,000 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 four years after the date of grant and expire four years
after the date of grant.
57
60
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1993, 1992, and 1991
Transactions and other information relating to stock options are summarized as
follows:
Number
of Option price per
shares share
------- ----------------
Options granted during:
1993 2,000 $47.25
1992 180,000 $24.13
1991 4,000 $18.13
Options exercised during:
1993 123,051 $12.50 to $24.13
1992 116,328 $10.50 to $24.13
1991 101,006 $11.50 to $15.25
Options canceled during:
1993 752 $24.13
1992 6,000 $13.25
1991 - -
Options expiring during:
1993 22,750 $12.50 to $14.75
1992 34,724 $13.25
1991 - -
Options outstanding at December 31:
1993 205,539 $15.25 to $47.25
1992 350,092 $12.50 to $24.13
1991 327,144 $10.50 to $18.50
As of December 31, 1993, there are 104,000 options exercisable at prices from
$12.50 to $24.13 per share. For the year ended December 31, 1993, shares
obtained through exercise of options had a cumulative average market value of
$1,944,000 at the date of exercise.
58
61
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1993, 1992, and 1991
11. COMMON STOCK
Changes in common stock are summarized as follows (amount in thousands):
Common stock
----------------------
Shares Amount
--------- --------
Balance at December 31, 1990 11,987,072 $ 48,131
Stock options:
Redeemed and retired (41,810) -
Exercised 101,006 480
Employee stock ownership plan 74,262 1,602
Dividend reinvestments 28,314 618
---------- --------
Balance at December 31, 1991 12,148,844 50,831
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 12,272,576 52,526
Stock options:
Redeemed and retired (24,003) -
Exercised 123,051 879
Acquisition 373,335 3,286
---------- --------
Balance at December 31, 1993 12,744,959 $ 56,691
========== ========
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, 1993
and 1992, are as follows (in thousands):
1993 1992
--------- ------
Service cost - benefits earned during the period $ 1,763 1,474
Interest cost on projected benefit obligation 2,715 2,531
Actual return on assets (2,293) (1,890)
Net amortization and deferrals (922) (1,560)
--------- ------
Net pension cost $ 1,263 555
========= ======
Primary actuarial assumptions used in determining the net pension cost are as
follows:
1993 1992
------ -----
Assumed discount rate 8.00% 8.00
Assumed rate of increase in compensation levels 5.50 5.50
Expected long-term rate of return on assets 9.50 9.50
59
62
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1993, 1992, and 1991
The funded status of the plan as of December 31, 1993 and 1992, is as follows
(in thousands):
1993 1992
-------- -------
Actuarial present value of benefit obligations:
Vested benefit obligation $ 31,225 27,424
======== =======
Accumulated benefit obligation $ 35,703 30,721
======== =======
Projected benefit obligation $(39,676) (33,738)
Plan assets at fair value 35,790 31,676
-------- -------
Unfunded projected benefit obligation (3,886) (2,062)
Unrecognized net loss 10,830 7,285
Unrecognized prior service cost (1,120) (1,211)
Unrecognized net transition asset (3,556) (4,181)
-------- -------
Prepaid (accrued) pension cost $ 2,268 (169)
======== =======
Primary actuarial assumptions (future periods):
Assumed discount rate 7.50% 8.00
Assumed rate of increase in compensation levels 5.00 5.50
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
effect of adopting Statement No. 106 on income before cumulative effect of
changes in accounting principles and net income for the year ended December 31,
1993 amounted to a decrease of $5,760,000 and $3,631,000, respectively.
The following table presents the plan's funded status reconciled with amounts
recognized in the Company's consolidated balance sheet at December 31, 1993 (in
thousands):
Accumulated postretirement benefit obligation:
Retirees $ 2,773
Fully eligible active plan participants 1,693
Other active plan participants 682
---------
5,148
Plan assets at fair value -
---------
Accumulated postretirement benefit obligation in excess of plan assets 5,148
Unrecognized net gain 1,122
---------
Accrued postretirement benefit cost included in other liabilities $ 6,270
=========
Net period postretirement benefit cost for 1993 includes the following components ( in thousands):
Service cost $ 141
Interest cost 368
---------
Net periodic postretirement benefit cost $ 509
=========
60
63
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1993, 1992, and 1991
For measurement purposes, an annual rate of increase in the per capita cost of
covered benefits (i.e., health care cost trend rate) of 11.67 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 7.5 percent at December 31, 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 $1,175,000, $793,000, and $636,000 for the years ended December 31, 1993,
1992, and 1991, 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 15 percent). Contributions to the plan
amounted to $948,000 and $914,000 for the years ended December 31, 1993 and
1992, respectively.
13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Financial information by quarter for the three years ended December 31, 1993 is
as follows (in thousands, except per share amounts):
Per common share
------------------------
Income Income
before before
cumulative cumulative
Income effect of effect of
Net Provision before changes in changes in
interest for loan income accounting Net accounting Net
income losses taxes principles income principles income
-------- --------- ------- ------------ ------ ---------- ------
1993:
First quarter $ 37,182 1,196 11,694 7,908 9,567 .62 .75
Second quarter 40,461 263 22,538 15,180 15,180 1.18 1.18
Third quarter 39,104 382 20,361 13,849 13,849 1.08 1.08
Fourth quarter 40,070 457 21,505 14,443 14,443 1.13 1.13
--------- --------- ------ ------ ------
$ 156,817 2,298 76,098 51,380 53,039 4.02 4.15
========= ========= ====== ====== ======
1992:
First quarter $ 32,675 3,945 10,331 7,646 7,646 .62 .62
Second quarter 34,991 2,866 14,710 9,390 9,390 .76 .76
Third quarter 37,180 1,933 18,224 12,009 12,009 .97 .97
Fourth quarter 39,186 1,507 21,337 14,357 14,357 1.16 1.16
--------- --------- ------ ------ ------
$ 144,032 10,251 64,602 43,402 43,402 3.52 3.52
========= ========= ====== ====== ======
1991:
First quarter $ 32,645 6,805 10,427 6,792 6,792 .56 .56
Second quarter 31,650 4,959 11,074 7,199 7,199 .60 .60
Third quarter 33,379 6,427 10,959 7,139 7,139 .58 .58
Fourth quarter 33,793 5,358 9,639 7,994 7,994 .65 .65
--------- --------- ------ ------ ------
$ 131,467 23,549 42,099 29,124 29,124 2.39 2.39
========= ========= ====== ====== ======
61
64
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1993, 1992, and 1991
14. CONCENTRATIONS OF CREDIT RISK
Most of the Company's business activity is with customers located within the
states of Utah and Nevada. The commercial loan portfolio is well diversified,
consisting of more than 17 industry classifications groupings. As of December
31, 1993, the largest concentration of risk in the commercial loan and leasing
portfolio is represented by the real estate industry grouping, which comprises
approximately 17 percent of the portfolio. The real estate 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.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying value and estimated fair value of principal financial instruments as
of December 31, 1993 are summarized as follows (in thousands):
Carrying Estimated
value fair value
------------ ----------
Financial assets:
Cash and due from banks $ 303,751 303,751
Money market investments 578,771 578,771
Investment securities 1,145,034 1,160,221
Loans, net 2,165,403 2,161,755
------------ ---------
Total financial assets $ 4,192,959 4,204,498
============ =========
Financial liabilities:
Demand, savings, and money market deposits $ 2,415,094 2,415,094
Time and foreign deposits 609,017 606,566
Federal funds purchased and security repurchase agreements 595,200 595,200
FHLB advances and other borrowings 288,249 288,249
Long-term debt 55,587 62,207
------------ ---------
Total financial liabilities $ 3,963,147 3,967,316
============ =========
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 $65,267,000 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 - Commitments to extend credit and
letters of credit represent the principal categories of off-balance sheet
financial instruments. The fair value of these commitments, based on fees
currently charged for similar commitments, is not significant. See note 9 to
the consolidated financial statements.
62
65
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1993, 1992, and 1991
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, 1993, the Company's subsidiaries had
approximately $54.6 million available for the payment of dividends under the
foregoing restrictions. In addition, the banking subsidiaries must meet
various requirements and restrictions under the laws of the United States and
state laws, including requirements to maintain cash reserves against deposits
and limitations on loans and investments with affiliated companies. During
1993, cash reserve balances held with the Federal Reserve banks averaged
approximately $60.3 million.
63
66
Condensed financial information of Zions
Bancorporation (parent only) follows:
ZIONS BANCORPORATION
Condensed Balance Sheets
December 31, 1993 and 1992
(In thousands)
ASSETS 1993 1992
-------- -------
Cash and due from banks $ 1,309 1,138
Interest-bearing deposits 445 10,180
Investment securities 313 365
Loans, lease financing, and other receivables 3,787 5,551
Investments in subsidiaries:
Commercial banks 309,700 258,871
Other 3,531 9,500
Receivables from subsidiaries:
Commercial banks 28,971 29,190
Other 50 15,110
Real estate held for rental purposes, at cost, less accumulated depreciation 6,824 7,460
Premises and equipment, at cost, less accumulated depreciation 150 120
Other real estate owned 386 626
Other assets 11,144 8,161
----------- -------
$ 366,610 346,272
=========== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued liabilities $ 13,672 6,954
Short-term borrowings 9,000 -
Long-term debt 53,547 96,771
----------- -------
Total liabilities 76,219 103,725
----------- -------
Shareholders' equity:
Preferred stock - -
Common stock 56,691 52,526
Net unrealized holding gains and losses on securities available for sale 432 -
Retained earnings 233,268 190,021
----------- -------
Total shareholders' equity 290,391 242,547
----------- -------
$ 366,610 346,272
=========== =======
64
67
ZIONS BANCORPORATION
Condensed Statements of Income
Years ended December 31, 1993, 1992, and 1991
(In thousands)
1993 1992 1991
---------- ------ ------
Interest income - interest and fees on loans and securities $ 4,242 2,879 2,570
Interest expense - interest on borrowed funds 7,402 9,014 7,891
---------- ------ ------
Net interest loss (3,160) (6,135) (5,321)
---------- ------ ------
Other income:
Dividends from consolidated subsidiaries:
Commercial banks 17,766 13,982 14,007
Other 3,224 250 1,450
Other income 2,542 2,734 2,354
---------- ------ ------
23,532 16,966 17,811
---------- ------ ------
Expenses:
Salaries and employee benefits 3,989 3,532 2,887
Loss on early extinguishment of debt 6,022 - -
Operating expenses 844 181 (223)
---------- ------ ------
10,855 3,713 2,664
---------- ------ ------
Income before income tax benefit and cumulative effect of changes
in accounting principles 9,517 7,118 9,826
Income tax benefit (4,339) (2,815) (1,673)
---------- ------ ------
Income before cumulative effect of changes in accounting principles 13,856 9,933 11,499
Cumulative effect of changes in accounting principles (378) - -
---------- ------ ------
Income before equity in undistributed income (loss) of consolidated subsidiaries 13,478 9,933 11,499
---------- ------ ------
Equity in undistributed income (loss) of consolidated subsidiaries:
Commercial banks 42,386 32,492 17,665
Other (2,825) 977 (40)
---------- ------ ------
39,561 33,469 17,625
---------- ------ ------
Net income $ 53,039 43,402 29,124
========== ====== ======
65
68
ZIONS BANCORPORATION
Condensed Statements of Cash Flows
Years ended December 31, 1993, 1992, and 1991
(In thousands)
1993 1992 1991
--------- -------- -------
Cash flows from operating activities:
Net income $ 53,039 43,402 29,124
Adjustments to reconcile net income to net cash provided by operating activities:
Undistributed net income of consolidated subsidiaries (39,561) (33,469) (17,625)
Depreciation of premises and equipment 688 692 725
Amortization of excess costs of acquired businesses 349 349 349
Other 3,758 889 1,858
--------- -------- -------
Net cash provided by operating activities 18,273 11,863 14,431
--------- -------- -------
Cash flows from investing activities:
Net decrease (increase) in interest-bearing deposits 9,735 (787) (1,712)
Collection of advances to subsidiaries 154,272 148,466 80,234
Advances to subsidiaries (138,993) (170,495) (79,853)
Decrease (increase) of investment in subsidiaries 376 (467) 2,538
Other 2,060 1,199 863
--------- -------- -------
Net cash provided by (used in) investing activities 27,450 (22,084) 2,070
--------- -------- -------
Cash flows from financing activities:
Net change in short-term funds borrowed 9,000 - -
Proceeds from issuance of long-term debt - 50,000 -
Payments on long-term debt (43,224) (32,317) (9,764)
Proceeds from issuance of common stock 879 1,695 2,700
Dividends paid (12,207) (9,183) (8,698)
--------- -------- -------
Net cash provided by (used in) financing activities (45,552) 10,195 (15,762)
--------- -------- -------
Net increase (decrease) in cash and due from banks 171 (26) 739
Cash and due from banks at beginning of year 1,138 1,164 425
--------- -------- -------
Cash and due from banks at end of year $ 1,309 1,138 1,164
========= ======== =======
The Parent company paid interest of $8,577,000, $7,940,000, and $7,255,000 for
the years ended December 31, 1993, 1992, and 1991, respectively.
66
69
ZIONS BANCORPORATION
Condensed Statements of Retained Earnings
Years ended December 31, 1993, 1992, and 1991
(In thousands)
1993 1992 1991
---------- ------- -------
Balance at beginning of year $ 190,021 155,802 135,376
Retained earnings of acquired company 2,428 - -
Net income 53,039 43,402 29,124
Cash dividends:
Preferred, paid by subsidiary to minority shareholder (13) - -
Common (12,207) (9,183) (8,698)
---------- ------- -------
Balance at end of year $ 233,268 190,021 155,802
========== ======= =======
67
70
The selected quarterly financial data information required by this item
appears on pages 22 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
1994 Annual Meeting of Shareholders to be held April 29, 1994, is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item appearing on pages 8 through 16 of the
definitive Proxy Statement relating to the 1994 Annual Meeting of Shareholders
to be held April 29, 1994, 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 1994 Annual Meeting of Shareholders
to be held April 29, 1994, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item appearing on page 16 of the definitive
Proxy Statement relating to the 1994 Annual Meeting of Shareholders to be held
April 29, 1994, 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:
(1) Financial Statements: Page
Independent Auditors' Report 39
Consolidated Balance Sheets - December 31, 1993 and 1992 40
Consolidated Statements of Income - Years ended December 31, 1993, 1992, and 1991 41
Consolidated Statements of Cash Flows - Years ended December 31, 1993, 1992, and 1991 42
Consolidated Statements of Retained Earnings Years ended December 31, 1993, 1992, and 1991 43
Notes to Consolidated Financial Statements 44
(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.
(3) Exhibits:
68
71
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, 1993.
For the purposes of complying with the amendments to the rules governing Form
S-8 (effective July 13, 1990) under the Securities Act of 1993, the undersigned
Registrant hereby undertakes as follows, which undertaking shall be
incorporated by reference into Registrant's Registration Statements on Form S-8
Nos. 33-52878 (filed on October 2, 1992) and 33-52796 (filed on October 2,
1992).
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
69
72
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
March 18, 1994 ZIONS BANCORPORATION
By /s/ Harris H. Simmons
------------------------------------
Harris H. Simmons, President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
March 18, 1994
/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
/s/ Roy W. Simmons /s/ Walter E. Kelly
- --------------------------------------------------- ----------------------------------------------------
ROY W. SIMMONS, Chairman and Director WALTER E. KELLY, Controller
/s/ Jerry C. Atkin /s/ Robert N. Sears
- --------------------------------------------------- ----------------------------------------------------
JERRY C. ATKIN, Director ROBERT N. SEARS, Director
/s/ Grant R. Caldwell /s/ L. E. Simmons
- --------------------------------------------------- ----------------------------------------------------
GRANT R. CALDWELL, Director L.E. SIMMONS, Director
/s/ R.D. Cash /s/ I. J. Wagner
- --------------------------------------------------- ----------------------------------------------------
R. D. CASH, Director I. J. WAGNER, Director
/s/ Roger B. Porter /s/ Dale W. Westergard
- --------------------------------------------------- ----------------------------------------------------
ROGER B. PORTER, Director DALE W. WESTERGARD, Director
/s/ Robert G. Sarver
- ---------------------------------------------------
ROBERT G. SARVER, Director
70
73
EXHIBIT INDEX
FILED AS PART OF THIS REPORT ON FORM 10-K
(Pursuant to Item 601 of Regulations S-K)
Page number in
sequential
numbering
Exhibit system of filed
no. Description and method of filing Form 10-K
- ------- ---------------------------------------------------------------------------------------------------- ---------------
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 Zions Utah Bancorporation Pension Plan (incorporated by reference to Exhibit 10.2 of Zions Utah
Bancorporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 1985) *
10.2 Amendment to Zions Bancorporation (formerly Zions Utah Bancorporation) Pension Plan dated July 17,
1987 (incorporated by reference to Exhibit 10.2 of Zions Bancorporation's Annual Report on Form
10-K for the year ended December 31, 1987) *
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 1992-1995 (incorporated by
reference to Exhibit 10.6 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 1991-1994 (incorporated by
reference to Exhibit 19 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 (filed) 75
21 List of subsidiaries of Zions Bancorporation (filed) 79
71
74
EXHIBIT INDEX
FILED AS PART OF THIS REPORT ON FORM 10-K (continued)
(Pursuant to Item 601 of Regulations S-K)
Page number in
sequential
numbering
Exhibit system of filed
no. Description and method of filing Form 10-K
- ------- ---------------------------------------------------------------------------------------------------- ---------------
23 Consent of KPMG Peat Marwick, independent certified public accountants (filed) 80
99.1 Form 11-K Annual Report of Zions Bancorporation Employee Stock Savings Plan (filed) 81
99.2 Form 11-K Annual Report of Zions Bancorporation Employee Investment Savings Plan (filed) 89
* incorporated by reference.
72
75
EXHIBIT 10.8
ZIONS BANCORPORATION
SENIOR MANAGEMENT VALUE SHARING PLAN
AWARD PERIOD: 1993 - 1996
Objective:
To provide an ongoing multi-year incentive for the senior managers of Zions
Bancorporation and its subsidiaries which:
A. Focuses managers' attention on the creation of long-term shareholder value;
B. Creates an incentive that promotes teamwork across departments and
subsidiaries, and which encourages managers to balance profit center
accountability with Company-wide goals; and,
C. Complements the short-range annual bonuses which reflect the achievement of
annual objectives and the Company's short-term profitability.
Eligibility:
Participants in the Plan shall consist of the senior management group (and
certain other key managers) of the Company and its major subsidiaries.
Participants for each Award Period shall be specifically identified by the
Company's Board of Directors (the "Board") or its Executive Compensation
Committee (the "Committee").
Allocation of Awards:
It is anticipated that during the first quarter of each year in which the Plan
operates, the Board of Directors shall approve the establishment of a pool of
Award Funds to be generated during the Award Period, according to the general
formula outlined below. Participants shall be designated by the Board or the
Committee. Claims against the pool of Award Funds for each Award Period shall
be represented by Participation Units ("PU's), and each Participant shall be
allocated a specific number of PU's by the Committee. The PU's shall represent
a pro-rata claim, in proportion to the total PU's designated for that Award
Period, on any Award Funds generated by the Plan during the Award Period.
Term:
Each Award Period shall consist of a continuous four-calendar-year period. The
Plan is intended to constitute a "moving four-year-average" incentive plan,
with the anticipation that a new Award Period would be designated each year,
with multiple Award Periods overlapping one another. Nevertheless, the
establishment of a new Award Period each year is subject to the Board's
discretion.
Determination of Award Funds:
The amount of Award Funds in the pool for each Award Period shall be a function
of the mathematical average return on shareholders' equity ("AROE") for each of
the four years in the Award Period, together with the aggregate earnings per
share ("AEPS") during the Award Period.
Each year, the Committee shall establish minimum targets for AROE and AEPS for
the Award Period. These minimum targets would both be required to be reached
in order for any Award Funds to be earned. Additionally, the Committee may
designate Award Fund AROE, with upward adjustments possible if higher levels of
AEPS are achieved. The Committee may also designate other conditions and
adjustment factors to ensure the Plan's integrity and consistency with
shareholder and depositor interests.
73
76
The 1993 - 1996 Award Period formula for the determination of total Award Funds
is as follows:
* Minimum AROE: 14.00%
* Minimum AEPS: $15.55
Funding of 1993 - 1996 Award Fund Pool:
AROE Cumulative Award Funds
---- ------------------------
14% $ 0
15% 217,000
16% 503,000
17% 855,000
18% 1,075,000
19% 1,513,000
20% 1,992,000
21% 2,507,000
22% 3,047,000
Interim amounts shall be calculated by interpolation.
The basic Award Fund amount would be further modified by multiplying the
cumulative Award Funds by 1+ [(AEPS - $15.55)/21.6], with a maximum AEPS figure
of $22.67 (resulting in a 33% maximum upward adjustment in the Award Funds.
For the 1993 - 96 Award Period, the following parameters shall be established,
and adjustments made to the Company's earnings calculations, for purposed 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 120% of the peer group level, as expressed in terms of
reserves/noncurrent loans as reported in the most current Uniform Bank
Performance Report available at January 31, 1996, 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 120% 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 120% 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' unrestated 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.
74
77
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.
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 with 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.
75
78
APPENDIX
ZIONS BANCORPORATION VALUE-SHARING PLAN: 1993-96
Calculation of Participation Unit Value
Average Annual ROE ("AROE")
If the AROE is:
Over - But not over - The Basic value of a Participation Unit is -
- ------------------------------------------------------------------------------------------------------------
14.00% 15.99% $0 + $.0280 per basis point of the amount over
14.00%.
16.00% 16.99% $5.59 + $.0391 per basis point of the amount over
16.00%.
17.00% 17.99% $9.50 + $.0244 per basis point of the amount over
17.00%.
18.00% 18.99% $11.94 + $.0487 per basis point of the amount over
18.00%.
19.00% 19.99% $16.81 + $.0532 per basis point of the amount over
19.00%.
20.00% 20.99% $22.13 + $.0573 per basis point of the amount over
20.00%.
21.00% 21.99% $27.86 + $.0600 per basis point of the amount over
21.00%.
22.00% $33.86
Aggregate E.P. S. ("AEPS") Modifier:
The basis Participation Unit value determined above shall be adjusted as
follows:
If AEPS for 1993-96 is less than $15.55, the Participation Units shall have no
value.
If AEPS is greater than $15.55, the basic amount determined based on AROE shall
be multiplied by a factor of: 1+[(AEPS-$15.55)/21.6] (with a maximum factor
of 1.33) to arrive at a final total value of each Participation Unit.
******************
Example: If AROE is 18.23% and AEPS is $17.76, each Participation Unit would
be worth $16.69.
76
79
ZIONS BANCORPORATION AND SUBSIDIARIES
AT DECEMBER 31, 1993
SUBSIDIARY STATE
---------- -----
Zions First National Bank Federally chartered doing business in Utah
Nevada State Bank Nevada
Zions First 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
77
80
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 25, 1994, relating to the consolidated balance sheets of
Zions Bancorporation and subsidiaries as of December 31, 1993 and 1992, 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, 1993, which
report appears in this annual report on Form 10-K for the year ended December
31, 1993. 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, 1993, included in Part II, Item 7 on page
36. 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, 1993.
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 of our report dated March 16, 1994, relating to the net assets
available for benefits of Zions Bancorporation Employee Stock Savings Plan as
of December 31, 1993 and 1992, 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, 1993, which report appears in this annual report on Form
11-K for the year ended December 31, 1993.
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 of our report dated March 16, 1994, relating to the net
assets available for benefits of Zions Bancorporation Employee Investment
Savings as of December 31, 1993 and 1992, 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, 1993, which report appears in this annual report on
Form 11-K for the year ended December 31, 1993.
KPMG Peat Marwick
Salt Lake City, Utah
March 29, 1994
78
81
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, 1993
ZIONS BANCORPORATION
EMPLOYEE STOCK SAVINGS PLAN
ZIONS BANCORPORATION
1380 Kennecott Building
Salt Lake City, Utah 84133
79
82
ITEM 1. CHANGES IN THE PLAN
The Plan was completely amended and restated as of October 1, 1992. No changes
were made in the Plan during the year 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 1,524 participating employees in the Plan on December 31, 1993.
ITEM 5. ADMINISTRATION OF THE PLAN
(a) Zions Bancorporation is the Plan administrator. The Company's Board of
Directors has appointed an Administrative Committee consisting of six
persons. The Committee has full power and authority to administer the
Plan and to interpret its provisions. The present members of the
Committee and their positions held are:
Member Position - Company
----------------- --------------------------------------------------------------
Harris H. Simmons President and Chief Executive Officer of Zions Bancorporation
Gary L. Anderson Senior Vice President of Zions Bancorporation
Peter K. Ellison Executive Vice President of Zions First National Bank
W. David Hemingway Executive Vice President of Zions First National Bank
Richard G. Crandall Vice President of Zions First National Bank
Russell W. Miller President of Zions Insurance Agency, Inc.
The address of each fiduciary listed above is 1380 Kennecott Building,
Salt Lake City, Utah 84133.
(b) No compensation is paid to the Committee members by the Plan. All
expenses of the Plan and its administration are paid by the Company.
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.
80
83
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
Page
Report of Independent Auditors 82
Statements of Net Assets Available for Benefits - December 31, 1993 and 1992 83
Statements of Changes in Net Assets Available for Benefits - Years ended
December 31, 1993, 1992, and 1991 84
Notes to Financial Statements 85
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
81
84
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, 1993 and 1992, 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, 1993. These financial statements are the responsibility of the
plan's administrators. 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, 1993 and
1992, and the changes in net assets available for benefits for each of the
years in the three-year period ended December 31, 1993, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick
Salt Lake City, Utah
March 16, 1994
82
85
ZIONS BANCORPORATION
EMPLOYEE STOCK SAVINGS PLAN
Statements of Net Assets Available for Benefits
December 31, 1993 and 1992
1993 1992
---------- ----------
Assets:
Investments, at market value:
Zions Bancorporation common stock (approximate cost of
$5,366,000 in 1993 and $2,811,000 in 1992) $7,943,160 6,247,232
Short-term investment fund 61,243 9,992
---------- ---------
8,004,403 6,257,224
Contributions receivable:
Employees 114,948 40,416
Zions Bancorporation 57,475 20,209
Dividends receivable 60,243 34,917
Cash - 258
---------- ---------
Total assets 8,237,069 6,353,024
---------- ---------
Liabilities:
Accounts payable 6,805 -
Excess contribution refunds 7,073 -
---------- ---------
Total liabilities 13,878 -
---------- ---------
Net assets available for benefits $8,223,191 6,353,024
========== =========
See accompanying notes to financial statements.
83
86
ZIONS BANCORPORATION
EMPLOYEE STOCK SAVINGS PLAN
Statements of Changes in Net Assets Available for Benefits
Years ended December 31, 1993, 1992, and 1991
1993 1992 1991
------------- ------------ ----------
Additions (deductions) to net assets attributed to:
Net appreciation (depreciation) in market value of
investment in Zions Bancorporation common stock $ (516,233) 2,333,081 694,360
Dividends 200,330 106,606 87,004
Interest 1,543 269 314
---------- --------- --------
(314,360) 2,439,956 781,678
---------- --------- --------
Contributions:
Employees 1,806,956 400,265 126,136
Zions Bancorporation 903,477 200,133 62,933
---------- --------- --------
2,710,433 600,398 189,069
---------- --------- --------
Transfer of assets from Zions Bancorporation Employee
Investment Savings Plan - 1,390,989 -
---------- --------- --------
Total additions 2,396,073 4,431,343 970,747
Deductions from net assets attributed to benefits paid
directly to participants 525,906 706,422 314,626
---------- --------- --------
Net increase 1,870,167 3,724,921 656,121
Net assets available for benefits:
Beginning of year 6,353,024 2,628,103 1,971,982
---------- --------- ---------
End of year $8,223,191 6,353,024 2,628,103
========== ========= =========
See accompanying notes to financial statements.
84
87
ZIONS BANCORPORATION
EMPLOYEE STOCK SAVINGS PLAN
Notes to Financial Statements
December 31, 1993, 1992, and 1991
(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).
(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 trade-date
basis.
(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, 1993 and 1992, there were
1,524 participants and 1,260 participants, respectively, in the Plan.
(4) Employee and Company Contributions
Each eligible employee who elects to participate makes contributions
ranging from one to five percent of their total compensation.
Company contributions are equal to 50 percent of the amount contributed by
the employee.
85
88
ZIONS BANCORPORATION
EMPLOYEE STOCK SAVINGS PLAN
Notes to Financial Statements
(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. 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, 1993 and 1992, investment in common stock of the Company
consisted of 214,680 and 164,401 shares, respectively.
(9) Plan Amendments
The Plan became effective on January 1, 1978, and has been amended and
restated at various times thereafter. The Plan was completely amended
and restated as of October 1, 1992. The following summarizes the Plan's
amended areas:
(a) Participant Contributions
Participants can elect for either a pretax reduction or post-tax
salary reduction of 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.
86
89
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, 1993
ZIONS BANCORPORATION
EMPLOYEE INVESTMENT SAVINGS PLAN
ZIONS BANCORPORATION
1380 KENNECOTT BUILDING
SALT LAKE CITY, UTAH 84133
87
90
ITEM 1.CHANGES IN THE PLAN
The Plan was completely amended and restated as of October 1, 1992. No changes
were made in the Plan during the year 1993.
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 1993 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 1,405 participating employees in the Plan on December 31, 1993.
ITEM 5. ADMINISTRATION OF THE PLAN
(a) Zions Bancorporation is the Plan administrator. The Company's Board of
Directors has appointed an Administrative Committee consisting of six
persons. The Committee has full power and authority to administer the
Plan and to interpret its provisions. The present members of the
Committee and their positions held are:
Member Position - Company
- -------------------- -------------------------------------------------------------
Harris H. Simmons President and Chief Executive Officer of Zions Bancorporation
Gary L. Anderson Senior Vice President of Zions Bancorporation
Peter K. Ellison Executive Vice President of Zions First National Bank
W. David Hemingway Executive Vice President of Zions First National Bank
Richard G. Crandall Vice President of Zions First National Bank
Russell W. Miller President of Zions Insurance Agency, Inc.
The address of each fiduciary listed above is 1380 Kennecott Building,
Salt Lake City, Utah 84133.
(b) No compensation is paid to the Committee members by the Plan. All
expenses of the Plan and its administration are paid by the Company.
88
91
ITEM 6. CUSTODIAN OF INVESTMENTS
(a) Zions First National Bank, One South Main Street, Salt Lake City, Utah
84133 is the custodian and trustee.
(b) The custodian and trustee receive no compensation from the Plan.
ITEM 7. REPORTS TO PARTICIPATING EMPLOYEES
Participating employees are furnished an annual statement reflecting the status
of their accounts as of the end of the fiscal year.
ITEM 8. INVESTMENT OF FUNDS
As elected by participants, approximately seventy-two percent of the assets of
the Plan are invested in securities of the Company, approximately thirteen
percent in the Fidelity mutual fund, approximately thirteen percent in the
money market fund, and approximately two percent invested in the fixed income
fund.
ITEM 9. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements Page
----
Report of Independent Auditors 90
Statements of Net Assets Available for Benefits - December 31, 1993 and 1992 91
Statements of Changes in Net Assets Available for Benefits - Years ended
December 31, 1993, 1992, and 1991 92
Notes to Financial Statements 93
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
89
92
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, 1993 and 1992, 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, 1993. These financial statements are the responsibility of the
Plan's administrators. 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, 1993 and
1992, and the changes in net assets available for benefits for each of the
years in the three-year period ended December 31, 1993, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick
Salt Lake City, Utah
March 16, 1994
90
93
ZIONS BANCORPORATION
EMPLOYEE INVESTMENT SAVINGS PLAN
Statements of Net Assets Available for Benefits
December 31, 1993 and 1992
1993 1992
---- ----
Assets:
Investments, at market value:
Zions Bancorporation common stock (approximate cost of $9,689,000 in 1993 and
$9,755,000 in 1992) $18,828,375 22,720,320
Fidelity mutual fund (approximate cost of $3,229,000 in 1993 and $1,318,000
in 1992) 3,525,534 1,432,841
Money market fund 3,477,123 1,591,280
Fixed income fund (approximate cost of $515,000 in 1993) 526,295 -
Short-term investment fund 3,207 2,432
----------- -----------
26,360,534 25,746,873
Contributions receivable:
Employees 69,556 29,044
Zions Bancorporation 15,782 6,170
Participant loans receivable 1,341,223 775,238
Dividends receivable 142,484 129,345
Interest receivable 5,187 4,435
Due from Zions Bancorporation 4,095 1,956
----------- -----------
Total assets 27,938,861 26,693,061
Liabilities:
Accounts payable 3,656 8,700
Excess contribution refunds 90,183 -
----------- -----------
Total liabilities 93,839 8,700
----------- -----------
Net assets available for benefits $27,845,022 26,684,361
=========== ===========
See accompanying notes to financial statements.
91
94
ZIONS BANCORPORATION
EMPLOYEE INVESTMENT SAVINGS PLAN
Statements of Changes in Net Assets Available for Benefits
Years ended December 31, 1993, 1992, and 1991
1993 1992 1991
----------- ----------- -----------
Additions to net assets attributed to:
Investment income:
Net appreciation (depreciation) in market value of
investments $ (118,055) 10,477,861 3,606,687
Dividends 564,557 508,484 479,798
Capital gain distributions 198,053 83,830 62,501
Interest 169,448 58,427 67,736
----------- ----------- ----------
814,003 11,128,602 4,216,722
----------- ----------- ----------
Contributions:
Employees 1,326,267 1,683,313 1,551,756
Zions Bancorporation 271,519 592,491 572,619
Plan rollovers 196,725 - -
----------- ----------- ----------
1,794,511 2,275,804 2,124,375
----------- ----------- ----------
Total additions 2,608,514 13,404,406 6,341,097
Deductions from net assets attributed to:
Benefits paid directly to participants (1,447,853) (1,706,335) (1,457,874)
Transfer of assets to Zions Bancorporation Employee
Stock Savings Plan - (1,390,989) -
----------- ----------- ----------
Total deductions (1,447,853) (3,097,324) (1,457,874)
----------- ----------- ----------
Net increase 1,160,661 10,307,082 4,883,223
Net assets available for benefits:
Beginning of year 26,684,361 16,377,279 11,494,056
----------- ----------- ----------
End of year $27,845,022 26,684,361 16,377,279
=========== =========== ==========
See accompanying notes to financial statements.
92
95
ZIONS BANCORPORATION
EMPLOYEE INVESTMENT SAVINGS PLAN
Notes to Financial Statements
December 31, 1993, 1992, and 1991
(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).
(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 trade-date basis.
(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, 1993 and 1992, there were 1,405 participants
and 1,266 participants, respectively, in the Plan.
93
96
ZIONS BANCORPORATION
EMPLOYEE INVESTMENT SAVINGS PLAN
Notes to Financial Statements
(4) Employee and Company Contributions
Participants may elect to contribute one to fifteen percent of their
compensation to the Employee Investment Savings Plan, limited by
participant contributions made to Zions Bancorporation Employee Stock
Savings Plan. The contributions are invested in one or more of the
following investment options: (i) the Company's stock, (ii) the Fidelity
mutual fund, (iii) a money market fund, and (iv) a fixed income fund. The
Company contributes an amount equal to 25 percent of the contribution made
by each participant up to ten percent of their compensation with no match
made on contributions in excess thereof. The maximum amount a participant
may contribute to the Plan in a calendar year is the lesser of fifteen
percent of their compensation, or $8,994, for 1993.
(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.
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.
94
97
ZIONS BANCORPORATION
EMPLOYEE INVESTMENT SAVINGS PLAN
Notes to Financial Statements
(8) Investments
The investments in common stock of the Company and the Fidelity mutual
fund, consists of 508,875 and 597,903 shares, and 193,923 and 57,336
shares, respectively, at December 31, 1993 and 1992. The investment in the
fixed income fund consists of 24,207 shares at December 31, 1993.
The net unrealized appreciation (depreciation) in market value for each of
the years in the three-year period ended December 31, 1993, in comparison
to the market value at the beginning of each year is as follows:
Investment 1993 1992 1991
---------- ---- ---- ----
Zions Bancorporation common stock $(222,329) 10,477,363 3,453,584
Fidelity mutual fund 122,428 498 153,103
Fixed income fund (18,154) - -
--------- ---------- ---------
Net appreciation (depreciation)
in market value $(118,055) 10,477,861 3,606,687
========= ========== =========
(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. 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.
95
98
ZIONS BANCORPORATION
EMPLOYEE INVESTMENT SAVINGS PLAN
Notes to Financial Statements
(d) Investment Options
The Plan maintains four separate types of investment funds: (i)
company securities, which consists of Company stock and short-term
investments pending the acquisition of Company 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.
(e) Participant Loans
Beginning October 1, 1992, a participant who is an active employee may
apply for and obtain a loan of up to fifty percent of the eligible
amounts in their account. Loans may not exceed five years and must be
secured by the participants account. Loan repayment is made through
payroll deduction.
(10) Financial Information by Fund Type
Financial information by fund type as of, and for the year ended December
31, 1993, are as follows:
Statement of Net Assets Available for Benefits by Fund Type
December 31, 1993
Zions
Bancorp-
oration Fidelity
common mutual Money Fixed
stock fund market income Loans Total
----- -------- ------ ------ ----- -----
Assets:
Investments, at
market value:
Zions
Bancorporation
common stock $ 18,828,375 - - - - 18,828,375
Fidelity mutual
fund - 3,525,534 - - - 3,525,534
Money market
fund - - 3,477,123 - - 3,477,123
Fixed income
fund - - - 526,295 - 526,295
Short-term
investment
fund 3,207 - - - - 3,207
------------ ------------ ------------ ------------ ----------- ------------
18,831,582 3,525,534 3,477,123 526,295 - 26,360,534
96
99
ZIONS BANCORPORATION
EMPLOYEE INVESTMENT SAVINGS PLAN
Notes to Financial Statements
(10) Financial Information by Fund Type (continued)
Zions
Bancorp-
oration Fidelity
common mutual Money Fixed
stock fund market income Loans Total
------- -------- ------ ------ ----- -----
Contributions
receivable:
Employees $ 21,395 28,533 17,416 2,212 - 69,556
Zions
Bancorporation 4,692 6,554 4,192 344 - 15,782
Participant loans
receivable - - - - 1,341,223 1,341,223
Dividends receivable 142,484 - - - - 142,484
Interest receivable - - 5,187 - - 5,187
Due from Zions
Bancorporation - 2,624 - 1,471 - 4,095
----------- --------- --------- ------- --------- ----------
Total assets 19,000,153 3,563,245 3,503,918 530,322 1,341,223 27,938,861
Liabilities:
Accounts payable 2,774 - - 882 - 3,656
Excess contribution
refunds 28,807 37,652 19,478 4,246 - 90,183
----------- --------- --------- ------- --------- ----------
Total
liabilities 31,581 37,652 19,478 5,128 - 93,839
----------- --------- --------- ------- --------- ----------
Net assets available
for benefits $18,968,572 3,525,593 3,484,440 525,194 1,341,223 27,845,022
=========== ========= ========= ======= ========= ==========
97
100
ZIONS BANCORPORATION
EMPLOYEE INVESTMENT SAVINGS PLAN
Notes to Financial Statements
(10) Financial Information by Fund Type (continued)
Statement of Changes in Net Assets Available for Benefits by Fund Type
Year ended December 31, 1993
Zions
Bancorp-
oration Fidelity
common mutual Money Fixed
stock fund market income Loans Total
----- ---- ------ ------ ----- -----
Additions to net assets
attributed to:
Investment income:
Net appreciation
(depreciation) in
market value of
investments $ (222,329) 122,428 - (18,154) - (118,055)
Dividends 500,811 36,822 - 26,924 - 564,557
Capital gain
distributions - 184,807 - 13,246 - 198,053
Interest 62,156 8,654 98,475 163 - 169,448
----------- -------- -------- ------- -------- ----------
340,638 352,711 98,475 22,179 - 814,003
----------- -------- -------- ------- -------- ----------
Contributions:
Employees 444,853 535,485 303,659 42,270 - 1,326,267
Zions
Bancorporation 73,559 120,059 71,756 6,145 - 271,519
Plan rollovers 97,314 23,002 61,671 14,738 - 196,725
----------- -------- -------- ------- -------- ----------
615,726 678,546 437,086 63,153 - 1,794,511
----------- -------- -------- ------- -------- ----------
Principal loan
payments 181,877 23,474 24,383 480 (230,214) -
----------- -------- -------- ------- -------- ----------
Total additions 1,138,241 1,054,731 559,944 85,812 (230,214) 2,608,514
Deductions from net
assets attributed to:
Benefits paid
directly to
participants (954,245) (127,202) (351,331) (28) (15,047) (1,447,853)
Loans disbursed (583,465) (81,030) (143,291) (3,460) 811,246 -
----------- -------- -------- ------- -------- ----------
Total
deductions (1,537,710) (208,232) (494,622) (3,488) 796,199 (1,447,853)
----------- -------- -------- ------- -------- ----------
98
101
ZIONS BANCORPORATION
EMPLOYEE INVESTMENT SAVINGS PLAN
Notes to Financial Statements
(10) Financial Information by Fund Type (continued)
Zions
Bancorp-
oration Fidelity
common mutual Money Fixed
stock fund market income Loans Total
------- ------ ------ ------ ----- -----
Interfund transfers $(3,504,699) 1,251,016 1,810,813 442,870 - -
----------- --------- --------- ------- --------- ----------
Net increase
(decrease) (3,904,168) 2,097,515 1,876,135 525,194 565,985 1,160,661
Net assets available
for benefits:
Beginning of year 22,872,740 1,428,078 1,608,305 - 775,238 26,684,361
----------- ---------- --------- ------- --------- ----------
End of year $18,968,572 3,525,593 3,484,440 525,194 1,341,223 27,845,022
=========== ========== ========= ======= ========= ==========
99