Annual Report (Form 10-K), fiscal year 1993

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.
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.
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.
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.
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.
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.
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. 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.
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.
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.
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.
ITEM 2.



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.

ITEM 3. LEGAL PROCEEDINGS
During 1988, a lawsuit was brought in the United States District Court, Utah District, against Zions First National Bank in connection with its performance of duties as an indenture trustee for certain investors in real estate and other syndication projects. In September 1992, a motion was granted allowing an amended complaint containing allegations that plaintiffs intend to proceed as a class action to recover approximately $23 million, prejudgment interest, attorneys' fees, and additional amounts under certain statutory provisions and common law. No motion to certify the classes has been filed, and the Bank intends to vigorously oppose such motion and to defend the entire action. Although no assurances can be given as to the outcome, the Company continues to believe that it has meritorious defenses to such lawsuit, and that there is insurance coverage for a substantial portion of the amount claimed.
The Company is also the defendant in various other legal proceedings arising in the normal course of business. The Company does not believe that the outcome of any of such proceedings, including the lawsuit discussed in the preceding paragraph, will have a material adverse effect on its consolidated financial position.
ITEM 4.

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:
PART II
ITEM 5.

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:
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:
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.
ITEM 6.

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.
ITEM 7.

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.
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.
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY, INTEREST RATES AND INTEREST DIFFERENTIAL AND CHANGES DUE TO VOLUME AND RATES
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1 Taxable-equivalent rates used where applicable. 2 Net of unearned income and fees, net of related costs. Loans include nonaccrual and restructured loans.
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY, INTEREST RATES AND INTEREST DIFFERENTIAL AND CHANGES DUE TO VOLUME AND RATES
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1 Taxable-equivalent rates used where applicable. 2 Net of unearned income and fees, net of related costs. Loans include nonaccrual and restructured loans.
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY, INTEREST RATES AND INTEREST DIFFERENTIAL AND CHANGES DUE TO VOLUME AND RATES
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1 Taxable-equivalent rates used where applicable. 2 Net of unearned income and fees, net of related costs. Loans include nonaccrual and restructured loans.
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
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.
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
The following table presents full-time equivalent employees and banking offices at December 31, for the years indicated:
FULL-TIME EQUIVALENT EMPLOYEES
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.
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)
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.
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
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
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.
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.
* 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.
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
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.
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.
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.
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.
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.
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.
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:
*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.
SUMMARY OF LOAN LOSS EXPERIENCE
The following table shows the changes in the allowance for losses for each year indicated.
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.
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
Substantially all foreign deposits are in denominations of $100,000 or more.
SHORT-TERM BORROWINGS
The following table sets forth data pertaining to the Company's short-term borrowings for each year indicated:
(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
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:
* 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.
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:
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.
ITEM 8.


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
ZIONS BANCORPORATION AND SUBSIDIARIES Consolidated Balance Sheets December 31, 1993 and 1992 (In thousands, except share amounts)
See accompanying notes to consolidated financial statements.
ZIONS BANCORPORATION AND SUBSIDIARIES Consolidated Statements of Income Years ended December 31, 1993, 1992, and 1991 (In thousands, except per share amounts)
See accompanying notes to consolidated financial statements.
ZIONS BANCORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended December 31, 1993, 1992, and 1991 (In thousands)
See accompanying notes to consolidated financial statements.
ZIONS BANCORPORATION AND SUBSIDIARIES Consolidated Statements of Retained Earnings Years ended December 31, 1993, 1992, and 1991 (In thousands)
See accompanying notes to consolidated financial statements.
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.
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.
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.
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).
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):
ZIONS BANCORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 1993, 1992, and 1991
3. INVESTMENT SECURITIES
Investment securities as of December 31, 1993, are summarized as follows (in thousands):
ZIONS BANCORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1993, 1992, and 1991
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):
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):
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):
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):
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):
5. DEPOSITS
Deposits are summarized as follows (in thousands):
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):
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):
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):
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):
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):
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):
8. LONG-TERM DEBT
Long-term debt is summarized as follows (in thousands):
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.
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):
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:
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.
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):
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.
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):
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.
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:
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.
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):
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):
Primary actuarial assumptions used in determining the net pension cost are as follows:
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):
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):
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):
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):
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.
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.
Condensed financial information of Zions Bancorporation (parent only) follows:
ZIONS BANCORPORATION Condensed Balance Sheets December 31, 1993 and 1992 (In thousands)
ZIONS BANCORPORATION Condensed Statements of Income Years ended December 31, 1993, 1992, and 1991 (In thousands)
ZIONS BANCORPORATION Condensed Statements of Cash Flows Years ended December 31, 1993, 1992, and 1991 (In thousands)
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.
ZIONS BANCORPORATION Condensed Statements of Retained Earnings Years ended December 31, 1993, 1992, and 1991 (In thousands)
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.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.



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.

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.

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.

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.

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:
(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:
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.
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
EXHIBIT INDEX FILED AS PART OF THIS REPORT ON FORM 10-K
(Pursuant to Item 601 of Regulations S-K)
EXHIBIT INDEX FILED AS PART OF THIS REPORT ON FORM 10-K (continued)
(Pursuant to Item 601 of Regulations S-K)
* incorporated by reference.
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.
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:
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.
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.
APPENDIX
ZIONS BANCORPORATION VALUE-SHARING PLAN: 1993-96
Calculation of Participation Unit Value
Average Annual ROE ("AROE")
If the AROE is:
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.
ZIONS BANCORPORATION AND SUBSIDIARIES
AT DECEMBER 31, 1993
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
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
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:
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.
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
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
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
ZIONS BANCORPORATION EMPLOYEE STOCK SAVINGS PLAN
Statements of Net Assets Available for Benefits
December 31, 1993 and 1992
See accompanying notes to financial statements.
ZIONS BANCORPORATION EMPLOYEE STOCK SAVINGS PLAN
Statements of Changes in Net Assets Available for Benefits
Years ended December 31, 1993, 1992, and 1991
See accompanying notes to financial statements.
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.
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.
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
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:
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.
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
(b) Exhibits - None
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
ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN
Statements of Net Assets Available for Benefits
December 31, 1993 and 1992
See accompanying notes to financial statements.
ZIONS BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN
Statements of Changes in Net Assets Available for Benefits
Years ended December 31, 1993, 1992, and 1991
See accompanying notes to financial statements.
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.
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.
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:
(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.
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 BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN
Notes to Financial Statements
(10) Financial Information by Fund Type (continued)
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 BANCORPORATION EMPLOYEE INVESTMENT SAVINGS PLAN
Notes to Financial Statements
(10) Financial Information by Fund Type (continued)