UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant x Filed by a Party other than the Registrant ¨
Check the appropriate box:
¨x Preliminary Proxy Statement
¨ Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
x¨ Definitive Proxy Statement
¨ Definitive Additional Materials
¨ Soliciting Material under §240.14a-12
ZIONS BANCORPORATION
(Name of registrant as specified in its charter)
Payment of Filing Fee (Check the appropriate box):
x No fee required.
¨ Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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| (4) | Proposed maximum aggregate value of the transaction: |
¨ Fee paid previously with preliminary materials.
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MERGER PROPOSED - YOUR VOTE IS VERY IMPORTANT
April 19,[•], 2018
Dear Shareholder:
You are cordially invitedOn April 5, 2018, as part of an internal corporate restructuring to attendstreamline and simplify its corporate structure, Zions Bancorporation, or the Annual Meeting“Company,” and its wholly-owned bank subsidiary, ZB, N.A., or the “Bank,” entered into an Agreement and Plan of ShareholdersMerger, as amended and restated on July 10, 2018 referred to as the “plan of Zions Bancorporation. Themerger,” pursuant to which the Company will be merged with and into the Bank, with the Bank continuing as the surviving entity, referred to as the “restructuring.” Following the restructuring, the Bank will be renamed “Zions Bancorporation, N.A.” Before we complete the restructuring, holders of the Company’s common stock must approve the plan of merger. A special meeting of the holders of the Company’s common stock will be held on Friday, June 1,[•], 2018, at 1:00 p.m., localfor that purpose.
Pursuant to the plan of merger, each share of the Company’s common stock and preferred stock issued and outstanding immediately prior to the effective time of the restructuring (other than shares of Series I Preferred Stock or Series J Preferred Stock owned by shareholders who have dissented from the restructuring and properly demanded payment of the fair value of their shares in accordance with applicable Utah law) will be converted into one share of the ZionsBank’s common stock and preferred stock such that, following the restructuring, the separate corporate existence of the Company will cease and the share ownership of the Company immediately prior to the restructuring will become the share ownership of the Bank Building Founders Room, One South Main Street, 18th Floor, onfollowing the cornerrestructuring. The plan of South Templemerger also provides that each of the Company’s outstanding warrants to purchase common stock will be converted automatically into a warrant to purchase the Bank’s common stock. The Bank will assume the Company’s equity incentive plans, equity compensation plans, all other compensation plans, all employee stock options and Main Street in Salt Lake City, Utah.restricted stock and, following the restructuring, such awards will remain subject to the same terms and conditions that applied to the awards immediately prior to the effective time of the restructuring, including vesting schedules and other restrictions. The Bank will also assume the Company’s outstanding subordinated notes and senior notes.
The Company’s board of directors unanimously recommends that holders of the Company’s common stock vote “FOR” the approval of the plan of merger. We look forward to a successful completion of the restructuring and thank you for your prompt attention to this important matter.
We are furnishing our proxy materials to you over the Internet as allowed by the rules of the Securities and Exchange Commission. Accordingly, on or about April 21,[•], 2018, you will receive a Notice of Internet Availability of Proxy Materials, or Notice, which will provide instructions on how to access our Proxy Statementproxy statement and annual report online. This is designed to reduce our printing and mailing costs and the environmental impact of our proxy materials. A paper copy of our proxy materials may be requested through one of the methods described in the Notice.
It is important that all shareholders attend or be represented at the meeting. Whether or not you plan to attend the meeting, please promptly submit your proxy over the Internet by following the instructions found on your Notice. As an alternative, you may follow the procedures outlined in your Notice to request a paper proxy card to submit your vote by mail. The prompt submission of proxies will save the Company the expense of further requests for proxies, which might otherwise be necessary in order to ensure a quorum.
Shareholders, media representatives, analysts, and the public are welcome to listen to the Annual Meetingspecial meeting via a live webcast accessible at www.zionsbancorporation.com.
Sincerely,
Harris H. Simmons
Chairman and Chief Executive Officer
THE SECURITIES TO BE ISSUED IN CONNECTION WITH THE RESTRUCTURING ARE NOT SAVINGS ACCOUNTS OR DEPOSITS, OR OTHER OBLIGATIONS OF ANY BANK. THESE SECURITIES ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY, AND ARE SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF YOUR INVESTMENT.
ZIONS BANCORPORATION
One South Main Street, 11th Floor
Salt Lake City, Utah 84133-1109
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NOTICE OF THE 2018 ANNUALSPECIAL MEETING OF SHAREHOLDERS |
Important Notice Regarding the Availability of Proxy Materials for the
ShareholderSpecial Meeting to be held on June 1,[•], 2018
The Proxy Statement and Annual Report are available at www.zionsbancorporation.com/annualreport.
Date: June 1,[•], 2018
Time: 1:00 p.m.[•], local time
Place: Zions Bank Building Founders Room, 18th Floor
One South Main Street, Salt Lake City, Utah 84133
Webcast of the Annual Meeting: You may listen to a live webcast of the AnnualSpecial Meeting on our website at www.zionsbancorporation.com.
Purpose of the AnnualSpecial Meeting:
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| 1. | To electapprove the Agreement and Plan of Merger, dated as of April 5, 2018, by and between Zions Bancorporation (the “Company”) and its wholly-owned bank subsidiary, ZB, N.A. (the “Bank”), as amended and restated July 10, directors for2018 and as such agreement may be amended from time to time, referred to as the “plan of merger,” a one-year term (Proposal 1)copy of which is attached as Appendix A, effecting an internal corporate restructuring in which the Company will be merged with and into the Bank, with the Bank continuing as the surviving entity, referred to as the “restructuring.” This proposal is referred to as the “restructuring proposal.” |
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| 2. | To ratifyapprove a proposal to authorize the appointmentCompany’s board of our independent registered public accounting firm for our fiscal year ending December 31, 2018 (Proposal 2) |
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3. | To approve,directors to adjourn or postpone the special meeting to a later date, if necessary or appropriate, including adjournments to permit further solicitation of proxies in favor of the restructuring proposal or to vote on a nonbinding advisory basis,other matters properly brought before such special meeting, referred to as the compensation paid to our named executive officers with respect to the fiscal year ended December 31, 2017 (Proposal 3)adjournment proposal. |
The Company will transact no other business at the special meeting, except for business properly brought before the special meeting or any adjournment or postponement thereof. The restructuring proposal is described in more detail in the accompanying proxy statement, which you should read carefully in its entirety before voting.
Record Date:Only shareholdersholders of record of the Company’s common stock at the close of business on March 29,[•], 2018 are entitled to notice of and to vote at the Annual Meeting.special meeting or any adjournments or postponements of the special meeting.
Admission to the Meeting: Space at the location of the Annual Meetingspecial meeting is limited, and admission will be on a first-come, first-served basis. Before admission to the Annual Meeting,special meeting, you may be asked to present valid picture identification, such as a driver’s license or passport. If you hold your shares in the name of a brokerage, bank, trust, or other nominee as a custodian (“street name” holders), you will need to bring a copy of a brokerage statement reflecting your share ownership as of the record date. Cameras, recording devices, and other electronic devices will not be permitted at the Annual Meeting.special meeting.
Mail Date: This proxy statement and proxy card or voting instructions will either be made available to you over the Internet or mailed to you on or about [•], 2018.
Your vote is very important. To vote through the Internet, log on to the Internet and go to www.proxyvote.com and follow the steps on the secured website. If you are voting by paper ballot and wish to vote by telephone, please follow the instructions provided on your ballot. To vote by telephone or online you
will need the control number provided on the Notice of Internet Availability of Proxy Materials that will be sent to you on or about [•], 2018.
The Company’s board of directors has approved the plan of merger and the transactions contemplated thereby, and recommends that you vote “FOR” the restructuring proposal and “FOR” the adjournment proposal (if necessary or appropriate).
By order of the Board of Directors
Thomas E. Laursen
Corporate Secretary
Salt Lake City, Utah
[•], 2018
Where You Can Find More Information
AprilThe Company files annual, quarterly and current reports, proxy materials and other business and financial information with the Securities and Exchange Commission (the “ 19, 2018SEC”). You may read and copy any of the Company’s materials filed with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549, at prescribed rates. Please call the SEC at (800) SEC-0330 ((800) 732-0330) for further information on the public reference room. In addition, the Company files reports and other business and financial information with the SEC electronically, and the SEC maintains a website located at http://www.sec.gov containing this information. You will also be able to obtain these documents, free of charge, from the Company’s investor relations website at www.zionsbancorporation.com.
The Bank currently is not required to file reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) with the SEC or otherwise. In connection with the restructuring, the Bank’s common stock, as well as its warrants to purchase common stock, depositary shares representing certain series of preferred stock and certain subordinated notes, will be registered or deemed registered under the Exchange Act, which vests the Office of the Comptroller of the Currency (the “OCC”) with the power to administer and enforce certain sections of the Exchange Act applicable to banks such as the Bank. Following such registration, the Bank will be subject to the reporting and other requirements of the Exchange Act, and accordingly, the Bank will be required to file annual, quarterly and current reports, proxy materials and other business and financial information required by the Exchange Act. It is expected that the Bank will be permitted, and the Bank intends, to make such filings with the SEC as a “voluntary filer” following the restructuring and such filings will continue to be available at the SEC’s website located at http://www.sec.gov. For so long as the Bank’s filings are made in such a manner, it is not expected that the OCC will provide a duplicate means for the public to access such filings. In addition, following the restructuring, the Bank will maintain the same investor relations website currently used by the Company at www.zionsbancorporation.com and will include the Bank’s filings at that location.
None of the information about the Company or the Bank maintained on the Company’s or the Bank’s website is incorporated into this proxy statement by reference.
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| Table of Contents | |
SOLICITATIONQUESTIONS AND VOTING INFORMATIONANSWERS ABOUT THE RESTRUCTURING AND THE SPECIAL MEETING | |
BOARD OF DIRECTORS AND CORPORATE GOVERNANCE | |
BOARD AND CORPORATE GOVERNANCE HIGHLIGHTS | |
SHAREHOLDER OUTREACH | |
DIRECTOR NOMINEES | |
BOARD MEETINGS AND ATTENDANCE | |
CORPORATE GOVERNANCE | |
CORPORATE GOVERNANCE GUIDELINES AND POLICIES | |
BOARD INDEPENDENCE AND LEADERSHIP STRUCTURE | |
INDEPENDENT COMMITTEE LEADERSHIP AND LEAD DIRECTORSUMMARY | |
BOARD COMMITTEES | |
BOARD INVOLVEMENT IN RISK OVERSIGHTCAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS | |
OTHER DIRECTOR MATTERSRISK FACTORS | |
EXECUTIVE OFFICERSSPECIAL MEETING OF THE COMPANY | |
COMPENSATION DISCUSSION AND ANALYSIS | |
EXECUTIVE SUMMARYSHAREHOLDERS | |
2017 COMPENSATION HIGHLIGHTSTHE RESTRUCTURING AND PLAN OF MERGER | |
2017 PERFORMANCE HIGHLIGHTSAPPRAISAL RIGHTS OF DISSENTING SHAREHOLDERS | |
COMPENSATION DECISIONS FORMATERIAL UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES OF THE 2017 PERFORMANCE PERIODRESTRUCTURING | |
PLAN DESIGNDESCRIPTION OF BANK CAPITAL STOCK AND AWARD HIGHLIGHTSCOMPARISON OF SHAREHOLDERS’ RIGHTS | |
COMPENSATION DECISIONS FOR NAMED EXECUTIVE OFFICERS | |
COMPENSATION PHILOSOPHY AND OBJECTIVES | |
PHILOSOPHY, OBJECTIVES, AND PRACTICES | |
ROLES AND RESPONSIBILITIES | |
PEER GROUP | |
BENCHMARKING | |
COMPENSATION ELEMENTS | |
BASE SALARY | |
ANNUAL CASH INCENTIVE | |
LONG-TERM INCENTIVES | |
PERQUISITES | |
HEALTH AND WELFARE BENEFITS | |
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RETIREMENT BENEFITSINFORMATION ABOUT THE COMPANIES | |
OTHER COMPENSATION PRACTICES AND POLICIES | |
CHANGE IN CONTROL AGREEMENTS | |
EMPLOYMENT CONTRACTS | |
INCENTIVE COMPENSATION CLAWBACK POLICY | |
SHARE OWNERSHIP AND RETENTION GUIDELINES | |
ANTI-HEDGING AND PLEDGING POLICY | |
DEDUCTIBILITY AND EXECUTIVE COMPENSATION | |
NON-QUALIFIED DEFERRED COMPENSATION | |
2017 CEO PAY RATIO DISCLOSURE | |
ACCOUNTING FOR STOCK-BASED COMPENSATION | |
COMPENSATION COMMITTEE REPORT | |
COMPENSATION TABLES | |
2017 SUMMARY COMPENSATION TABLE | |
2017 GRANTS OF PLAN-BASED AWARDS | |
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END 2017 | |
OPTION EXERCISES AND STOCK VESTED IN 2017 | |
2017 PENSION BENEFITS TABLE | |
2017 NONQUALIFIED DEFERRED COMPENSATION TABLE | |
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL | |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS | |
ORDINARY COURSE LOANS | |
RELATED PARTY TRANSACTIONS POLICY | |
COMPENSATION OF DIRECTORS | |
CASH COMPENSATION | |
DIRECTOR STOCK PROGRAM | |
DEFERRED COMPENSATION PLAN FOR NONEMPLOYEE DIRECTORS | |
2017 DIRECTOR SUMMARY COMPENSATION TABLE | |
PRINCIPAL HOLDERS OF VOTING SECURITIES | |
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PROPOSALS | |
Proposal 1: NOMINATION AND ELECTION OF DIRECTORS | |
Proposal 2: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | |
Proposal 3: ADVISORY (NONBINDING) VOTE REGARDING 2017 EXECUTIVE COMPENSATION (“SAY ON PAY”) | |
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE | |
OTHER MATTERS | |
OTHER BUSINESS BEFORE THE ANNUAL MEETING | |
| SHAREHOLDER PROPOSALS FOR THE 2019 ANNUAL MEETING OF SHAREHOLDERS | |
COMMUNICATING WITH THE BOARDAPPENDIX A: AMENDED AND RESTATED AGREEMENT AND PLAN OF DIRECTORSMERGER BY AND BETWEEN ZIONS BANCORPORATION AND ZB, N.A. | |
“HOUSEHOLDING” OF PROXY MATERIALS | |
VOTING THROUGH THE INTERNET OR BY TELEPHONE | |
FORWARD-LOOKING STATEMENTS | |
PROXY STATEMENT FOR THE
SPECIAL MEETING
OF ZIONS BANCORPORATION
TO BE HELD ON [•], 2018
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| QUESTIONS AND ANSWERS ABOUT THE RESTRUCTURING AND THE SPECIAL MEETING |
The following are answers to certain questions you may have regarding the restructuring and the special meeting. We urge you to read carefully the remainder of this proxy statement, including the plan of merger attached as Appendix A, because the information in this section may not provide all the information that might be important to you in determining how to vote.
Q: What is the restructuring?
A:Zions Bancorporation (the “Company”) and its wholly-owned bank subsidiary, ZB, N.A. (the “Bank”), have entered into an Agreement and Plan of Merger, dated as of April 5, 2018, as amended and restated July 10, 2018 and as such agreement may be amended from time to time (the “plan of merger”), pursuant to which the Company will be merged with and into the Bank, with the Company’s separate corporate existence ceasing and the Bank continuing as the surviving entity, referred to herein as the “restructuring.” Following the restructuring, shares of the Bank’s common stock will be traded on the NASDAQ Global Select Market under the same ticker symbol currently used by the Company: ZION. We expect that Bank securities substantially similar to Zions’ other listed securities, including Zions’ warrants (ZIONSZ and ZIONW), which are currently traded on the NASDAQ Global Select Market, as well as depositary shares representing certain series of preferred stock and certain subordinated notes, which are currently traded on the New York Stock Exchange (the “NYSE”), will be traded on the NASDAQ Global Select Market or the NYSE, as applicable. In connection with the restructuring, we expect the Bank will change its name to “Zions Bancorporation, N.A.” A copy of the plan of merger is attached as Appendix A to this proxy statement. In this proxy statement, we sometimes refer to the “Zions organization,” by which we mean the Company and its subsidiaries (including the Bank) prior to the restructuring and by which we mean the Bank and its subsidiaries following the restructuring.
Q: What approvals are required for the restructuring?
In order for us to complete the restructuring, we need the approval of the holders of the Company’s common stock, the approval of the Federal Deposit Insurance Corporation (the “FDIC”) under Section 18(c) of the Federal Deposit Insurance Act (the “Bank Merger Act”) and the approval of the Office of the Comptroller of the Currency (“OCC”) under the National Bank Act. We filed applications with the FDIC and the OCC on April 6, 2018 and received approval from the OCC on July 6, 2018.
Q: Why am I receiving this proxy statement?
A: We are delivering this document to you because it is a proxy statement being used by the Company’s board of directors to solicit proxies of the holders of the Company’s common stock in connection with the approval of the plan of merger relating to the restructuring. In order to approve the plan of merger, the Company has called a special meeting of the holders of its common stock, which we refer to as the special meeting. This document serves as a proxy statement for the special meeting and describes the proposals to be presented at the meeting.
This proxy statement contains important information about the restructuring proposal and the adjournment proposal being voted on at the meeting. You should read it carefully and in its entirety. The enclosed materials allow you to have your shares voted by proxy without attending the special meeting. Your vote is important. We encourage you to submit your proxy as soon as possible.
Q: What are holders of the Company’s common stock being asked to vote on and why is this approval necessary?
A: Holders of the Company’s common stock are being asked to vote on the following proposals:
to approve the plan of merger, a copy of which is attached as Appendix A to this proxy statement, which is referred to as the restructuring proposal; and
to authorize the Company’s board of directors to adjourn or postpone the special meeting to a later date, if necessary or appropriate, including adjournments to permit further solicitation of proxies in favor of the restructuring proposal, which is referred to as the adjournment proposal.
Approval of the restructuring proposal requires the affirmative vote of the holders of a majority of the outstanding shares of the Company’s common stock entitled to vote at the special meeting, and approval of the restructuring proposal is required by applicable law for completion of the restructuring. Because the required vote is based upon the outstanding shares of Company common stock, a failure to vote, including a broker non-vote described in more detail below, or a vote to “ABSTAIN” will have the same effect as a vote against the restructuring proposal.
Approval of the adjournment proposal requires the affirmative vote of a majority of the votes cast on the adjournment proposal by holders of Company common stock represented in person or by proxy at the special meeting. A failure to vote, including a broker non-vote, or a vote to “ABSTAIN” will have no effect on the adjournment proposal.
Votes will be counted by the inspector of election appointed for the special meeting.
The Company will transact no other business at the special meeting, except for business properly brought before the special meeting or any adjournment or postponement thereof.
Q: What is the purpose of the restructuring?
A: The Company currently operates as the bank holding company of the Bank and conducts substantially all of its business through the Bank. In recent years, the Company has taken a number of steps designed to create operating efficiencies, such as combining eight of its subsidiary banks into a single bank and taking other steps to reduce or eliminate operating and regulatory burdens and inefficiencies. The Company believes that the restructuring will further improve the combined entity’s efficiency by eliminating redundant corporate infrastructure and activities as well as reduce direct and indirect costs associated with duplicative examinations. Currently, the Zions organization is subject to often duplicative examinations by both the Board of Governors of the Federal Reserve (the “FRB”) and the OCC, as well as examinations by the Consumer Financial Protection Bureau (the “CFPB”); following the restructuring, the Zions organization would no longer bear the costs associated with FRB examinations. For further information, see “The Restructuring and Plan of Merger: The Company’s Reasons for the Restructuring; Recommendation of the Company’s Board of Directors.”
Q: The President recently signed legislation amending the Dodd-Frank Wall Street Reform and Consumer Protection Act. Given this recent legislation, is there still a reason to complete the restructuring?
A: Yes. On May 24, 2018, the President signed into law the Economic Growth, Regulatory Relief, and Consumer Protection Act, which is sometimes informally referred to as the Crapo Act (the “Crapo Act”), which amended the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). Prior to the Crapo Act, the Dodd-Frank Act imposed “enhanced prudential standards,” including stress tests run annually by the FRB, automatically on bank holding companies with total assets of $50 billion or more. The Crapo Act raised the asset size threshold at which bank holding companies become subject to these Dodd-Frank enhanced prudential standards from $50 billion to $250 billion in total consolidated assets with immediate effect for those bank holding companies under $100 billion in total consolidated assets. The required annual stress tests under the Dodd-Frank Act have been implemented in coordination with the FRB’s annual Horizontal Capital Review, also referred to as the Comprehensive Capital Analysis and Review (“HCR/CCAR”) process, including the requirement to obtain the FRB’s prior non-objection under HCR/CCAR before making any dividends or share repurchases. While the Crapo Act did not affect the thresholds established by the FRB with respect to the HCR/CCAR process, the FRB has
announced that, to be consistent with the Crapo Act, it will modify those so that they no longer apply to bank holding companies under $100 billion in total consolidated assets such as Zions.
However, while the Crapo Act partially enables the Company to achieve the objective of reducing or eliminating regulatory burdens, it is still necessary to merge the Company into the Bank to more fully benefit from a simplified organizational structure and the elimination of duplicative regulation and examination.
Q: Given the passage of the Crapo Act, why is the Company pursuing an appeal with the Financial Stability Oversight Council regarding the Bank’s status as a “systemically important financial institution”?
A: In connection with pursuing the simplification of the corporate structure through the restructuring, the Company has filed an appeal (the “FSOC Appeal”) with the Financial Stability Oversight Council (“FSOC”) seeking a determination that the Bank, as successor to the Company upon completion of the restructuring, will not be treated as a systemically important financial institution (“SIFI”) supervised by the FRB under the Dodd-Frank Act As explained in the preceding answer, in order to achieve the benefits of a simplified structure and elimination of duplicative regulation, it will still be necessary to complete the restructuring, resulting in an organization with a standalone bank without a holding company. Under the Crapo Act, while bank holding companies with assets between $50 billion and $100 billion (including the Company) are automatically and immediately exempted from Dodd-Frank’s enhanced prudential standards, it will still be necessary for certain of such banking organizations that cease to have a bank holding company, including the Zions organization following the restructuring, to appeal to FSOC for a determination that they not be treated as a SIFI. Accordingly, the successful completion of our FSOC Appeal is a condition to the completion of the restructuring.
Q: Which other banking organizations have undertaken a similar restructuring? Are there other publicly traded banks without bank holding companies?
A: The Bank of the Ozarks and BancorpSouth, holding companies for state-chartered banks, each recently completed a restructuring in which it eliminated the parent bank holding company. In addition, Signature Bank and First Republic Bank, which are state-chartered banks, operate without holding companies. However, the Bank is the first national bank to undertake a holding company elimination restructuring and will become the only national bank whose common stock is listed on a national securities exchange.
Q: Will the board structure and corporate governance policies of the Zions organization change as a result of the restructuring?
A: No. The current members of the Company’s board of directors, who are also current members of the Bank’s board of directors, will continue as members of the Bank’s board of directors following completion of the restructuring. In addition, the Company’s and the Bank’s president and chief operating officer, Scott McLean, who is currently a member of the Bank’s board, will continue to serve on the Bank board as required by law. In connection with the completion of the restructuring, the Bank board will adopt the committee charters and the Bank will adopt the corporate governance guidelines and policies currently maintained by the Company and its board of directors. The members of the Company’s board committees will serve as members of the Bank’s board committees.
Q: Will the Bank have the same management following the restructuring?
A: Given that the Company operates substantially through the Bank, the senior management of the Company and the Bank are largely the same and will continue unchanged after the restructuring.
Q: Does the Company expect changes to the way it does business following the restructuring?
A: No. The Company expects that the Bank would continue to operate in substantially the same manner as before the restructuring.
Q: Will the Bank change its name following the restructuring?
A: Following the restructuring, the name of the Bank is expected to be Zions Bancorporation, N.A. The Bank will continue to operate under existing local brand names in each market it serves.
Q: What will Company shareholders receive in the restructuring?
A: If the plan of merger is approved and the restructuring is completed, at the effective time of the restructuring, each share of common stock and series of preferred stock of the Company (or “Company common stock” and “Company preferred stock,” respectively) outstanding immediately prior to the effective time of the restructuring (other than shares of Series I Preferred Stock or Series J Preferred Stock owned by shareholders who have dissented from the restructuring and properly demanded payment of the fair value of their shares in accordance with applicable Utah law) automatically will be converted into one share of common stock and corresponding series of preferred stock of the Bank (or “Bank common stock” and “Bank preferred stock”), respectively, with the same number and proportional ownership that existed in the Company. The terms of the Bank common stock and Bank preferred stock will have substantially the same terms as that of the Company. For a comparison of these terms, see “Description of Bank Capital Stock and Comparison of Shareholders’ Rights.”
Q: What will I need to do to receive my shares of Bank common stock?
A: Whether you hold shares of Company common stock represented by certificates or book-entry uncertificated shares of Company common stock, you will not be required to take any specific actions to exchange your shares of Company common stock for Bank common stock. We do not intend to exchange Company common stock certificates for Bank common stock certificates. Accordingly, if you hold physical share certificates of Company common stock, upon effectiveness of the restructuring such share certificates will represent an equal number of shares of Bank common stock. If you hold your shares of Company common stock in uncertificated book-entry form, upon completion of the restructuring, such shares will be automatically exchanged for Bank common stock. Following the restructuring, the Bank will issue common stock and its other securities in uncertificated book-entry form only.
Q: Will the Bank continue the Company’s stock, incentive and other benefit plans?
A: Yes. The Bank will assume and continue all of the Company’s stock and other compensation, benefit and incentive plans and will assume all outstanding stock options, restricted stock, other stock-based awards and performance awards previously granted or incurred under such plans. In connection with the restructuring, each of the Company’s outstanding stock options, restricted stock, other stock-based awards and performance awards will be converted into a stock option, restricted stock, other stock-based awards or performance awards, respectively, covering the same number of shares of the Bank’s common stock and with the same terms and conditions, including the same vesting, exercisability and other restrictions, which will not be affected by the restructuring.
Q: Will the Bank assume the Company’s change in control agreements with its officers?
A: Yes. The Bank will assume the Company’s obligations under the change in control agreements it has with its key officers, and these officers will continue to be subject to the obligations and restrictive covenants included in the agreements.
Q: Will the restructuring result in payments to its key officers under the Company’s change in control agreements?
A: No. The restructuring is not a “change in control” as defined in the change in control agreements that the Company maintains with its key officers. No payments will be due under those agreements as a result of the restructuring.
Q: Will the Bank assume the Company’s warrants and debt instruments?
A: Pursuant to the plan of merger, without any action on the part of the holder thereof, each of the Company’s outstanding warrants to purchase common stock will be converted automatically into a warrant to purchase the Bank’s common stock. The Bank will assume the Company’s outstanding 4.50% senior notes due 2023, 5.65% subordinated notes due 2023, and 6.95% subordinated notes due 2028.
Q: What will happen to the Company’s debt rating as a result of the restructuring?
A: Given that substantially all of the business of the Company is conducted through the Bank, we do not expect any adverse change in debt rating triggered by the restructuring. However, there can be no assurance that the restructuring will not result in an adverse change in debt rating.
Q: Will the Bank keep the same stock exchange listing as the Company?
A: It is expected that following the restructuring the Bank’s common stock will be listed on the NASDAQ Global Select Market under the same ticker symbol currently used by the Company (ZION). We expect the Bank’s Series A, G and H preferred stock, or depositary shares representing each such series of preferred stock, to be issued in exchange for the corresponding series of Company preferred stock, will be listed on the NYSE under the same ticker symbols currently used—ZB.PRGA, ZB.PRG and ZB.PRH, respectively; the Bank’s warrants into which corresponding Company warrants are converted will be listed on the NASDAQ Global Select Market under the same ticker symbols currently used—ZIONZ and ZIONW; and its other exchange-listed instruments into which the corresponding series of Company exchange-listed instruments are converted will be listed either on the NASDAQ Global Select Market or the NYSE.
Q: Will the Bank be subject to the information reporting requirements of the Exchange Act?
A: Yes. In connection with the restructuring, the Bank’s common stock and certain other securities will be registered or deemed registered under the Exchange Act, and accordingly, the Bank will be subject to the information reporting requirements of the Exchange Act. As required by the Exchange Act, which vests the OCC with the power to administer and enforce certain sections of the Exchange Act applicable to banks such as the Bank. However, it is expected that the Bank will be permitted, and the Bank intends, to make such filings with the SEC as a “voluntary filer” following the restructuring and, for so long as the Bank’s filings are made in such a manner, it is not expected that the OCC will provide a duplicate means for the public to access such filings. For further information, see “The Restructuring and Plan of Merger: Effects of the Restructuring - Securities Regulation.”
Q: How does the Company’s board of directors recommend that holders of the Company’s common stock vote at the special meeting?
A: The Company’s board of directors unanimously recommends that holders of the Company’s common stock vote “FOR” the restructuring proposal and “FOR” the adjournment proposal.
Q: What do I need to do now?
A: After you have carefully read this document, including the information incorporated into this document by reference, please vote as promptly as possible by using the Internet or telephone, or by signing, dating and returning the proxy card mailed to those who receive paper copies of this proxy statement. This will enable your shares to be represented and voted at the special meeting whether or not you attend. Information and applicable deadlines for voting by internet or by telephone are set forth in the enclosed proxy card instructions.
Q: Can I attend the special meeting and vote my shares in person?
A: Yes. All holders of the Company’s common stock are invited to attend the special meeting. Holders of record of the Company’s common stock can vote in person at the special meeting whether or not they have previously executed a proxy card. If a broker holds your shares in street name, then you are not the holder of record, and you must ask your broker how you can vote your shares at the special meeting.
Q: Will the special meeting be webcast?
A: Yes. The special meeting will be available through a live, audio-only webcast. Information about the webcast can be found on our website at www.zionsbancorporation.com.
Q: If my broker holds my shares in “street name,” will my broker automatically vote my shares for me?
A: No. If your shares are held in “street name” in a stock brokerage account or by a bank or other nominee, you must provide the record holder of your shares with instructions on how to vote your shares. Please follow the voting instructions provided by your broker, bank or other nominee. Please note that you may not vote shares held in street
name by returning a proxy card directly to the Company or by voting in person at the special meeting unless you provide a legal “proxy,” which you must obtain from your broker, bank or other nominee.
Q: What if I fail to instruct my broker to vote my shares?
A: If you fail to instruct your broker, bank or other nominee to vote your shares held in “street name,” the broker, bank or other nominee may submit an unvoted proxy (a broker “non-vote”) as to your shares. Broker non-votes will count toward a quorum at the special meeting. However, broker non-votes will not count as a vote with respect to the proposals, and will have the same effect as a vote “AGAINST” the restructuring proposal and will have no effect on the adjournment proposal.
Q: Can I change my vote after I return my proxy card?
A: Yes. If your shares are held in your name, you may revoke your proxy at any time before it is voted at the annual meeting by giving written notice to our corporate secretary, or by submitting a later dated proxy through the mail, Internet or telephone (in which case the later submitted proxy will be recorded and the earlier proxy revoked), or by voting in person at the special meeting.
If your shares are held of record by your broker, bank or other agent as your nominee, you should follow the instructions provided by your broker, bank or other agent.
Q: Will I be entitled to dissenters’ rights?
A: The Company is a Utah corporation that is governed by the Utah Revised Business Corporation Act (the “UBCA”). In accordance with Section 1302 of the UBCA, holders of the Company’s common stock, Series A preferred stock, Series G preferred stock and Series H preferred stock are not entitled to appraisal or dissenters’ rights in connection with the restructuring, as the shares of the Company’s common stock are listed on NASDAQ, and the depositary shares representing the Company’s Series A, Series G and Series H preferred stock are listed on the NYSE. However, the Company’s Series I preferred stock and Series J preferred stock are not listed on a national securities exchange. As a result, even though holders of each series of the Company’s preferred stock are not entitled to vote on the plan of merger, holders of the Series I preferred stock and Series J preferred stock may dissent from the restructuring in accordance with Section 1302 of the UBCA and have the fair value of their shares of Series I preferred stock or Series J preferred stock, as applicable, paid to them in cash. For more information regarding appraisal rights, see “Appraisal Rights of Dissenting Shareholders.”
Q: Should I send in my stock certificates now?
A: No. Please do not send your Company stock certificates with your proxy card. We do not intend to exchange Company common stock certificates for Bank common stock certificates. Accordingly, if the plan of merger is approved and the restructuring is consummated, then at the effective time of the restructuring, any Company common stock certificates you hold will thereafter represent an equal number of shares of Bank common stock.
Q: When do you expect the restructuring to be completed?
A: The Company currently expects to complete the restructuring in the third quarter of 2018, assuming all of the conditions to completion of the restructuring have been timely satisfied and approval of the plan of merger and restructuring by the applicable regulatory authorities has been obtained, although neither the Company nor the Bank can provide any assurances that the restructuring will close in a timely manner or at all.
Q: What are the conditions to the closing of the restructuring?
A: The restructuring is subject to the following conditions being satisfied:
approval of the plan of merger by the holders of the Company’s common stock;
shares of the Bank’s common stock and warrants issued in the restructuring shall have been authorized for quotation on NASDAQ and depositary shares representing certain series of the Bank’s preferred stock issued in the restructuring shall have been authorized for listing on the NYSE, subject to official notice of issuance;
all approvals and authorizations of, filings and registrations with, and notifications to, the FDIC, the OCC and all other relevant governmental authorities required for the consummation of the restructuring shall have been obtained or made, and shall be in full force and effect and all waiting periods required by law shall have expired;
FSOC shall have made a final determination that, following completion of the restructuring, the Bank will not be treated as a nonbank financial company supervised by the FRB under the Dodd-Frank Act;
no governmental authority of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, judgment, decree, injunction or other order (whether temporary, preliminary or permanent) that is in effect and prohibits consummation of the transactions contemplated by the plan of merger;
all third-party consents and approvals required, or deemed by the Company’s board of directors to be advisable, to be obtained under any material note, bond, mortgage, deed of trust, security interest, indenture, law, regulation, lease, license, contract, agreement, plan, instrument or obligation to which the Company or any subsidiary or affiliate of the Company is a party in connection with the restructuring shall have been obtained; and
the Company’s board of directors shall have received evidence in form and substance reasonably satisfactory to it that holders of the Company’s common stock will not recognize gain or loss for United States federal income tax purposes as a result of the restructuring.
Q: When do you expect to receive a determination with respect to the FSOC Appeal?
A: We expect to receive a final determination at or about the end of the third quarter of 2018, although the determination could take substantially longer. For further information, see “The Restructuring and Plan of Merger: FSOC Appeal Process.”
Q: Will I be able to sell the shares of Bank common stock that I receive in the restructuring?
A: Yes. The shares of Bank common stock to be issued in the restructuring will be freely tradeable (except for holders who are affiliates of the Bank).
Q: Are there any quorum requirements for the special meeting?
A: Yes. The presence, in person or by properly executed proxy, of the holders of a majority of the outstanding shares of common stock of the Company entitled to be cast is necessary to constitute a quorum at the special meeting of shareholders. Abstentions and broker non-votes will be counted for the purpose of determining whether a quorum is present.
Q: What will happen if the restructuring proposal is not approved by holders of a majority of the outstanding shares of Company common stock?
A: If the holders of the Company’s common stock do not approve the restructuring proposal, the Company and the Bank will likely terminate the plan of merger. The Company expects that it would continue to operate in its current holding company structure, rather than in the simpler structure that is being proposed. In that case, the Company would likely continue to incur certain costs, such as administrative costs and regulatory compliance costs associated with duplicative examinations by the FRB and the OCC, that could potentially be avoided if the restructuring were completed and the structure simplified.
The FSOC Appeal can only be successful if the restructuring to eliminate the Company’s bank holding company is completed. Therefore, if the restructuring proposal is not approved by holders of the Company’s common stock, we would expect to withdraw the FSOC Appeal if a final determination has not yet been received at that time. Because, however, the Crapo Act was enacted into law, the Company would no longer be subject to the enhanced prudential standards of the Dodd-Frank Act even if the restructuring is not completed.
Q: Whom should I call with questions?
A: If you have any questions concerning the restructuring or this proxy statement, would like additional copies of this proxy statement, or need help voting your shares of Company common stock, please contact Zions Bancorporation Investor Relations at the following address or telephone number: One South Main Street, 11th16th Floor,
Salt Lake City, Utah 84133-110984133 or by calling (801) 844-7637, and pressing option 2.
PROXY STATEMENT
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SOLICITATION AND VOTING INFORMATIONSUMMARY |
YourThis summary highlights selected information included in this document and does not contain all of the information that may be important to you. You should read this entire document, including the plan of merger attached as Appendix A, and the other documents to which this document refers before you decide how to vote with respect to the plan of merger. Each item in this summary includes a page reference directing you to a more complete description of that item.
Unless the context otherwise requires, throughout this proxy statement the “Company” refers to Zions Bancorporation, and the “Bank” refers to the Company’s wholly-owned bank subsidiary, ZB, N.A. Also, we refer to the proposed merger of the Company with and into the Bank as the “restructuring,” and the Agreement and Plan of Merger, dated April 5, 2018, by and between the Company and the Bank, as amended and restated July 10, 2018, and as it may be amended from time to time, pertaining to the restructuring as the “plan of merger.”
The Restructuring
The terms and conditions of the restructuring by which the Company will be merged with and into the Bank are contained in the plan of merger, a copy of which is solicitedattached to this document as Appendix A. We encourage you to read that agreement carefully.
Parties to the Restructuring (page [•])
Zions Bancorporation, a Utah corporation, is the parent bank holding company for ZB, N.A., a national bank association. The Company’s common stock trades on the NASDAQ Global Select Market under the symbol “ZION.” At March 31, 2018, the Company had consolidated total assets of approximately $66.481 billion, total deposits of approximately $52.963 billion and total shareholders’ equity of approximately $7.644 billion. The Bank and its subsidiaries conduct commercial banking operations through 431 branches in Arizona, California, Colorado, Idaho, Nevada, New Mexico, Oregon, Texas, Utah, Washington and Wyoming.
The principal executive offices of the Company and the Bank are located at One South Main Street, Salt Lake City, Utah 84133, and the telephone number is (801) 844-7637.
Effects of the Restructuring (page [•])
If the plan of merger is approved, and the restructuring is subsequently completed, at the effective time of the restructuring, the outstanding shares of the Company’s common stock, without par value, Series A Preferred Stock, Series G Preferred Stock, Series H Preferred Stock, Series I Preferred Stock and Series J Preferred Stock (other than shares of Series I Preferred Stock or Series J Preferred Stock owned by shareholders who have dissented from the restructuring and properly demanded payment of the fair value of their shares in accordance with applicable Utah law) will automatically be cancelled and cease to exist and be converted into an equal number of shares of the Bank’s common stock, Series A Preferred Stock, Series G Preferred Stock, Series H Preferred Stock, Series I Preferred Stock and Series J Preferred Stock, respectively.
Immediately following the restructuring, the Bank will have the same consolidated assets, liabilities and shareholders’ equity as the Company had immediately prior to the restructuring.
After consummation of the restructuring, the business of the Bank will remain unchanged. Given that the Company operates substantially through the Bank, the senior management of the Company and the Bank are largely the same and will continue unchanged after the restructuring. Similarly, the employees of the Bank will continue in their respective capacities, including those employees who work for locally managed and branded segments of the Bank. The offices and other business premises of the Bank will likewise continue to be occupied by the Bank. With respect to regulatory oversight, following the restructuring and assuming the successful resolution of the FSOC Appeal, the Bank will cease to be subject to a number of regulatory requirements that it is currently subject to (either directly or indirectly as the Company’s bank subsidiary), though certain other requirements will continue to apply to the Bank.
What Company Shareholders Will Receive in the Restructuring (page [•])
If the plan of merger is approved and the restructuring is subsequently completed, each share of Company common stock and preferred stock outstanding immediately prior to the effective time of the restructuring (other than shares of Series I Preferred Stock or Series J Preferred Stock owned by shareholders who have dissented from the restructuring and properly demanded payment of the fair value of their shares in accordance with applicable Utah law) automatically will be converted into one share of Bank common stock and preferred stock, respectively. Whether you hold shares of Company common stock represented by certificates or book-entry uncertificated shares of Company common stock or preferred stock, you will not be required to take any specific actions to exchange your shares of Company common stock or preferred stock for Bank common stock or preferred stock. We do not intend to exchange Company common stock certificates for Bank common stock certificates. Accordingly, if you hold physical share certificates of Company common stock, upon effectiveness of the reorganization such share certificates will represent an equal number of shares of Bank common stock. If you hold your shares of Company common stock in uncertificated book-entry form, upon completion of the restructuring, such shares will be automatically exchanged for Bank common stock. Shares of Company preferred stock (other than shares of Series I Preferred Stock or Series J Preferred Stock owned by shareholders who have dissented from the restructuring and properly demanded payment of the fair value of their shares in accordance with applicable Utah law) will be automatically exchanged for Bank preferred stock. Following the restructuring, the Bank will issue common stock and its other securities in uncertificated book-entry form only.
In connection with the restructuring, the Bank will assume and continue all of the Company’s stock and other compensation, benefit and incentive plans and will assume the Company’s equity incentive plans, equity compensation plans, all other compensation plans, all employee stock options and restricted stock previously granted or incurred under such plans.
Recommendation of the Company’s Board of Directors (referred(page [•])
The Company’s board of directors has determined that the plan of merger and the transactions contemplated by the plan of merger, constituting the restructuring, are fair and advisable to asand in the “Board”)best interests of Zions Bancorporation (referredthe Company and its shareholders and approved the plan of merger. The Company’s board of directors recommends that you vote “FOR” the restructuring proposal and “FOR” the adjournment proposal. For factors considered by the Company’s board of directors in reaching its decision to as “Zions,approve the plan of merger, see “The Restructuring and Plan of Merger: The Company’s Reasons for the Restructuring; Recommendation of the Company’s Board of Directors” “we,” “our,” “us,” or the “Company”) for use at the Annualon page [•].
Special Meeting of our shareholders to be held inShareholders (page [•])
The Company will hold a special meeting on [•], 2018, at [•], local time, at the Zions Bank Building Founders Room,One South Main Street, 18th18th Floor, on the corner of South Temple and Main Street in Salt Lake City, Utah 84133. At the special meeting, holders of the Company’s common stock will be asked to vote on Friday, June 1,the following proposals:
to approve the plan of merger, a copy of which is attached as Appendix A to this proxy statement, which we refer to as the restructuring proposal; and
to authorize the Company’s board of directors to adjourn or postpone the special meeting to a later date, if necessary or appropriate, including adjournments to permit further solicitation of proxies in favor of the restructuring proposal, which is referred to as the adjournment proposal.
Approval of the restructuring proposal by holders of the Company’s common stock is required for completion of the restructuring. The Company will transact no other business at the special meeting, except for business properly brought before the special meeting or any adjournment or postponement thereof.
You may vote at the special meeting of shareholders if you owned shares of Company common stock at the close of business on the record date, [•], 2018. On that date, there were [•] shares of Company common stock outstanding and entitled to vote at the special meeting. You may cast one vote for each share of Company common stock you owned on the record date.
Approval of the restructuring proposal requires the affirmative vote of the holders of a majority of all the votes entitled to be cast. Because the required vote is based upon the outstanding shares of Company common stock, a failure to vote or a vote to “ABSTAIN” will have the same effect as a vote against the restructuring. Approval of the adjournment proposal requires the affirmative vote of a majority of the votes cast by holders of Company common stock represented in person or by proxy at the special meeting and entitled to vote on the adjournment proposal.
Even if you expect to attend the special meeting, the Company recommends that you vote as promptly as possible by using the Internet or telephone, or by signing, dating and returning the proxy card mailed to those who receive paper copies of this proxy statement.
Interests of Company Executive Officers and Directors in the Restructuring (page [•])
Given that the Company operates substantially through the Bank, the senior management of the Company and the Bank are largely the same and will continue unchanged after the restructuring.
The executive officers and directors of the Company will hold the same offices with the Bank after the restructuring as they held with the Company prior to the restructuring, and will continue to be entitled to the same compensation and equity-based and other incentive awards as they held immediately prior to the restructuring. In addition, the restructuring is not a “change in control” as defined in the change in control agreements that the Company maintains with its key officers, and no payments will be due under those agreements as a result of the restructuring. Accordingly, other than their interest as Company shareholders, the executive officers and directors of the Company do not have any material interests in the restructuring.
Material United States Federal Income Tax Consequences of the Restructuring (page [•])
The Company and the Bank intend that the restructuring be treated as a reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”) for United States federal income tax purposes. It is expected that, for United States federal income tax purposes, you will not recognize any gain or loss with respect to the conversion of your shares of Company common stock for shares of Bank common stock in the restructuring.
You should read “Material United States Federal Income Tax Consequences of the Restructuring” on page [•] for a more complete discussion of the federal income tax consequences of the restructuring.
Regulatory Approvals Required for the Restructuring (page [•])
To complete the restructuring, the Company must receive the prior approval of the FDIC under the Bank Merger Act and of the OCC under the National Bank Act. The Bank will also need to obtain the OCC’s approval for the issuance of its common and preferred stock in connection with the restructuring. The applications for approval were filed with the FDIC and the OCC on April 6, 2018 and approval from the OCC was received on July 6, 2018. In addition, the Company and the Bank will file articles of merger with the Utah Division of Corporations and Commercial Code, and the Company and the Bank will comply with any obligations to make filings with the SEC, the FDIC and the OCC relating to the merger and restructuring.
Conditions to the Restructuring (page [•])
Completion of the restructuring depends on a number of conditions being satisfied or waived, including the following:
approval of the plan of merger by the holders of the Company’s common stock;
shares of the Bank’s common stock and warrants issued in the restructuring shall have been authorized for quotation on NASDAQ and depositary shares representing certain series of the Bank’s preferred stock issued in the restructuring shall have been authorized for listing on the NYSE, subject to official notice of issuance;
all approvals and authorizations of, filings and registrations with, and notifications to, the FDIC, the OCC and all other relevant governmental authorities required for the consummation of the restructuring shall have been obtained or made, and shall be in full force and effect and all waiting periods required by law shall have expired;
FSOC shall have made a final determination that, following completion of the restructuring, the Bank will not be treated as a nonbank financial company supervised by the FRB under the Dodd-Frank Act;
no governmental authority of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, judgment, decree, injunction or other order (whether temporary, preliminary or permanent) that is in effect and prohibits consummation of the transactions contemplated by the plan of merger;
all third-party consents and approvals required, or deemed by the Company’s board of directors to be advisable, to be obtained under any material note, bond, mortgage, deed of trust, security interest, indenture, law, regulation, lease, license, contract, agreement, plan, instrument or obligation to which the Company or any subsidiary or affiliate of the Company is a party in connection with the restructuring shall have been obtained; and
the Company’s board of directors shall have received evidence in form and substance reasonably satisfactory to it that holders of the Company’s common stock will not recognize gain or loss for United States federal income tax purposes as a result of the restructuring.
We cannot be certain when, or if, the conditions to the restructuring will be satisfied or waived, or whether or not the restructuring will be completed.
Termination of the Plan of Merger (page [•])
Pursuant to its terms, at 1:00 p.m. local time.any time prior to the consummation of the restructuring, the plan of merger may be terminated and the restructuring abandoned by mutual consent of the Company’s and the Bank’s boards of directors.
In accordanceAppraisal Rights of Dissenting Shareholders (page [•])
Under Utah law, by taking certain specific actions and/or refraining from taking other certain specific actions, holders of the Company’s Series I Preferred Stock and Series J Preferred Stock may dissent from the restructuring and have the fair value of their shares paid to them in cash. This right to appraisal is subject to a number of restrictions and technical requirements set forth in Part 13 of the UBCA regarding dissenters’ rights.
If any one of the required steps are not taken, holders of the Company’s Series I Preferred Stock and Series J Preferred Stock will lose their dissenters’ rights with rulesrespect to their shares under the UBCA.
Description of Bank Capital Stock and regulationsComparison of Shareholders’ Rights (page [•])
The rights of Company shareholders who become Bank shareholders as a result of the restructuring will be governed by the articles of association and bylaws of the Bank and the National Bank Act. The material differences between these organizational documents and the rights of shareholders of the Company and shareholders of the Bank, as well as a description of the Bank common stock to be issued in the restructuring, are set forth in more detail under the section “Description of Bank Capital Stock and Comparison of Shareholders’ Rights” beginning on page [•].
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| CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS |
This document, including information included or incorporated by reference herein, may contain forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Exchange Commission, we have electedAct. Statements contained in this proxy statement that are based on other than historical information or that express Zions Bancorporation’s expectations regarding future events or determinations are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide current expectations or forecasts of future events and include, among others: statements with respect to provide ourthe beliefs, plans, objectives, goals, targets, commitments, designs, guidelines, expectations, anticipations, and future financial condition, results of operations and performance of the Company and the Bank; the benefits of the restructuring, including future financial and operating results and cost savings that may be realized from the restructuring; and statements preceded by, followed by, or that include the words “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “target,” “commit,” “design,” “plan,” “projects,” and the negative thereof and similar words and expressions. Forward-looking statements, by their nature, address matters that are, to different degrees, uncertain, such as statements about the potential timing or consummation of the proposed transaction and receipt of regulatory approvals or determinations, including the outcome of the FSOC Appeal, or the anticipated benefits thereof, including, without limitation, future financial and operating results and economic and competitive uncertainties and contingencies, many of which are beyond the parties’ control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.
The following factors, among others, including the risks and uncertainties listed in “Risk Factors” beginning on page [•] of this proxy statement, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:
higher than expected costs and expenses incurred in connection with the restructuring;
the cost savings from the restructuring may not be fully realized or may take longer to realize than expected or may not be realized at all;
disruptions to the businesses of the Company and the Bank as a result of the announcement and pendency of the restructuring;
regulatory approvals of the restructuring may not be obtained or may be delayed, or adverse conditions may be imposed in connection with regulatory approvals of the restructuring;
other closing conditions to the restructuring may not be satisfied on the expected terms, schedule, or at all, including approval by the Company’s shareholders, with accessand other delays in closing the restructuring may occur;
legislative, regulatory and economic developments may diminish or eliminate the anticipated benefits of the consolidation;
the FSOC Appeal is not successful;
material adverse changes in the Company’s or the Bank’s operations or earnings; and
the manner in which the corporate and securities laws governing the Bank are applied to ourthe Bank, operating as a public company.
All subsequent written and oral forward-looking statements concerning the proposed transaction or other matters attributable to either the Company or the Bank or any person acting on the Company’s or the Bank’s behalf are expressly qualified in their entirety by the cautionary statements above. Forward-looking statements speak only as of the date that they were made, and, except as required by law, neither the Company nor the Bank undertakes any obligation to update or revise forward-looking statements to reflect circumstances or events that occur after the date of this proxy materials overstatement.
By approving the Internet rather thanrestructuring, upon completion of the restructuring the holders of the Company’s common stock will automatically receive Bank common stock, and thus will be investing in paper form. Accordingly,Bank common stock. An investment in the Bank’s common stock involves risks. The following risks and other information in this document should be carefully considered before deciding how to vote your shares. These risks may adversely affect the Bank’s financial condition, results of operations or liquidity. Many of these risks are out of the Bank’s direct control. These risks are not the only ones the Bank faces. Additional risks and uncertainties that the Bank is not aware of or focused on or about April 21, 2018, we will send a Notice of Internet Availability of Proxy Materials rather than a printed copythat the Bank currently deems immaterial may also adversely affect the Bank’s business and operations.
Because the operations of the materials to our shareholdersCompany are conducted substantially through the Bank, the risks faced by the Bank are substantially the same as those faced by the Company. For a description of record as of March 29, 2018,such risks, see “Item 1A. Risk Factors” in the record dateCompany’s Annual Report on Form 10-K for the Annual Meeting.fiscal year ended December 31, 2017, which item is incorporated herein by reference. In addition, risks that are specific to the restructuring and/or the Bank are described below.
The restructuring is subject to the receipt of consents and approvals from government entities that may impose conditions that could have an adverse effect on the Bank.
Before the restructuring may be completed, various approvals or consents must be obtained from governmental entities. Because the restructuring is the first transaction of its kind being undertaken by a national bank, it will be a matter of first impression with regulators. Due to the novelty of the transaction, there can be no assurance as to the timing and outcome of receipt of regulatory approvals, and whether regulators will impose conditions on the completion of the restructuring or require changes to the terms of the restructuring. Although the Company does not currently expect that any such conditions or changes would be imposed, there can be no assurance that they will not be, and such conditions or changes could have the effect of delaying completion of the restructuring or imposing additional costs on or otherwise impacting the earnings of the Bank following the restructuring, any of which might have a material adverse effect on the Bank following the restructuring. Applications for approval were filed with the FDIC and the OCC on April 6, 2018 and approval from the OCC was received on July 6, 2018. For more information, see “The Restructuring and Plan of Merger: Regulatory Approvals Required for the Restructuring” beginning on page [•].
The restructuring will not be completed unless important conditions are satisfied.
Specified conditions set forth in the plan of merger must be satisfied or waived to complete the restructuring. If you validly submit a proxy solicitedthe conditions are not satisfied, or waived in accordance with applicable law or stock exchange rules, the restructuring will not occur or will be delayed, and each of the Company and the Bank may lose some or all of the intended benefits of the restructuring. The following conditions, in addition to other closing conditions, must be satisfied or, if permissible, waived before the Company and the Bank complete the restructuring:
approval of the plan of merger by the Board,holders of the Company’s common stock;
shares of the Bank’s common stock and warrants issued in the restructuring shall have been authorized for quotation on NASDAQ and depositary shares representing certain series of the Bank’s preferred stock issued in the restructuring shall have been authorized for listing on the NYSE, subject to official notice of issuance;
all approvals and authorizations of, filings and registrations with, and notifications to, all relevant governmental authorities required for the consummation of the restructuring shall have been obtained or made, and shall be in full force and effect and all waiting periods required by law shall have expired;
FSOC shall have made a final determination that, following completion of the restructuring, the Bank will not be treated as a nonbank financial company supervised by the FRB under the Dodd-Frank Act;
no governmental authority of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, judgment, decree, injunction or other order (whether temporary, preliminary or permanent) that is in effect and prohibits consummation of the transactions contemplated by the plan of merger;
all third-party consents and approvals required, or deemed by the Company’s board of directors to be advisable, to be obtained under any material note, bond, mortgage, deed of trust, security interest, indenture, law, regulation, lease, license, contract, agreement, plan, instrument or obligation to which the Company or any subsidiary or affiliate of the Company is a party in connection with the restructuring shall have been obtained; and
the Company’s board of directors shall have received evidence in form and substance reasonably satisfactory to it that holders of the Company’s common stock will not recognize gain or loss for United States federal income tax purposes as a result of the restructuring.
The corporate and securities laws applicable to the Bank are not as well developed as those applicable to a state-chartered corporation, and this may impact the ability of the Bank to effect corporate transactions in an efficient and optimal manner.
Like other corporations organized under state law, the Company’s corporate affairs are governed by state law (the UBCA in the case of the Company), and securities law matters are governed by the federal securities laws, including the Securities Act and the Exchange Act, as administered by the SEC. Each of these legal regimes is well developed and used widely by public companies, including bank holding companies.
Following the completion of the restructuring, the Bank’s corporate affairs will be governed by the National Bank Act and related regulations administered by the OCC. With respect to securities matters, the Bank will not be subject to the Securities Act, but rather to OCC regulations governing securities offerings. The Bank’s common stock and certain other securities will be registered or deemed registered under the Exchange Act, which vests the OCC with the power to administer and enforce certain sections of the Exchange Act applicable to banks such as the Bank (though it is expected that the Bank will be permitted, and the Bank intends, to make filings required by the Exchange Act with the SEC as a “voluntary filer” following the restructuring). These OCC statutory and regulatory regimes have been used by publicly-traded banking organizations relatively rarely and are not as well developed as the corporate and securities law regimes applicable to corporations, including bank holding companies. While certain specific risks associated with operating under these regimes are discussed below, unless and until these regimes are further developed and established over time, the uncertainty of how these regimes might apply to any given corporate or securities matters may prevent us from effecting transactions in an efficient and optimal manner or perhaps at all.
Differences between the National Bank Act and the UBCA’s requirements in respect of mergers could result in the Bank not being able to execute acquisitions as efficiently and advantageously as the Company or other financial institutions.
Unlike state corporate law, including the UBCA, the National Bank Act requires shareholder approval of all mergers between a national bank and another national or state bank and does not allow for exceptions in the case of various “minor” mergers, such as a parent company’s merger with a subsidiary or an acquirer’s merger with an unaffiliated entity in which the shares representedissued by the proxyacquirer do not exceed a designated percentage. The National Bank Act and related regulations do not allow for the direct merger into a national bank of a non-affiliated non-bank.
These differences could adversely affect the Bank’s ability to efficiently consummate acquisition transactions. In addition, such differences could make the Bank less competitive as a potential acquirer in certain circumstances given that the Bank’s acquisition proposal may be conditioned on Bank shareholder approval while the Bank’s competitors’ proposals will not have such a condition.
Differences between the National Bank Act and UBCA could result in the Bank’s capacity to pay dividends and repurchase shares at any given time being different from the capacity that would exist for the Company.
The Company and the Bank are subject to differing limitations and considerations relating to the payment of dividends and repurchases or redemptions of outstanding common and preferred shares. The limitations and considerations include corporate law restrictions; regulatory requirements under capital adequacy standards of the FRB, the OCC and the FDIC; the HCR/CCAR rules administered by the FRB; and OCC regulations and guidance relating to dividends and share repurchases. While the Company does not believe the change in legal restrictions resulting from the restructuring will constrain the Zions organization from executing any capital plans that are currently contemplated or otherwise reasonably foreseeable in the near term, there can be no assurance that the
change in legal restrictions will not have an adverse effect on the Company’s ability to pay dividends and repurchase or redeem stock in the future.
Shares of common stock of a national bank are assessable and this may cause investors to view the Bank’s common stock less favorably than that of the Company.
The National Bank Act provides that under certain circumstances the common stock of a national bank is assessable, i.e., holders may be subject to a levy for more funds if so determined by the OCC. In contrast, the common stock of state corporations, including Utah corporations like the Company, is not subject to assessment. However, the OCC has confirmed that under the applicable provisions of the National Bank Act, assessability is limited to the par value of a national bank’s stock. Following the restructuring, the Bank’s common stock will have a par value of $0.001. Moreover, according to the OCC, it has not exercised its authority to levy assessments since 1933 and views the assessability authority as a mechanism for addressing capital deficiency that has long been overtaken by developments in statute and regulation, including robust capital standards, prompt corrective action requirements and supervisory and enforcement authorities requiring an institution to maintain capital at a particular level. Nonetheless, potential investors may be unfamiliar with the concept of assessment and, as a result, view the Bank less favorably as an investment.
The ability of investors to access financial and other reports filed by the Bank readily could be adversely affected if such reports were not able to be made available publicly through the SEC or a system operated by the OCC comparable to that of the SEC.
It is expected that the Bank will be votedpermitted, and the Bank intends, to make its Exchange Act filings as a “voluntary filer” with the SEC following the restructuring and that such filings will be made available by the SEC as described under “Where You Can Find More Information,” above. There can be no assurance, however, that the SEC will continue to allow the Bank to make filings as a voluntary filer or that the OCC will develop a comparable system for making Exchange Act filings publicly available. If the Bank’s Exchange Act filings ceased to be as readily available as those of bank holding companies, investors could view the Bank less favorably.
The Bank’s ability to issue securities in an optimal manner may be adversely affected by the fact the OCC’s securities offering regulations and organizational structure are less well-developed than those of the SEC, which apply to the Company.
The SEC maintains a well-developed regulatory regime and well-staffed organization relating to securities offerings under or exempt from the Securities Act. For example, the SEC has developed integrated disclosure rules, which allow Exchange Act filings to be incorporated by reference into prospectuses distributed as required by the Securities Act. In addition, under the SEC’s rules seasoned issuers who are timely in their filings are permitted to use “automatic shelf registration,” allowing them to offer securities under a registration statement that is automatically effective upon filing. The OCC maintains its own securities offering regime applicable to national banks and their securities offerings, which the Bank will need to comply with in order to access the public capital markets. Similar to the SEC’s offering rules, the OCC’s regime requires that registration statements be reviewed and declared effective. However, given that there are currently no other national banks whose common stock has been issued under the OCC’s securities offering regime, it is unknown at this point whether and how the OCC staff would review registration statements, and unclear whether the OCC would apply the same mechanics for automatic shelf registration filings used by SEC-filers, or how, more generally, the OCC will function as a securities regulator. Given the extent to and manner in which the Zions organization has accessed capital markets historically, or to which it currently contemplates accessing such markets, the Company does not believe there will be a material adverse impact on the proposalsBank’s ability to access capital markets effectively, although there can be no assurance that this will be the case and it is possible that operating under the OCC’s securities offering regime could impede the Bank’s ability to sell securities at the most advantageous times or to achieve optimum pricing in offerings.
The Bank is subject to restrictions on permissible activities that would limit the types of business it may conduct and that may make acquisitions of other financial companies more challenging.
Under applicable laws and regulations, bank holding companies and banks are generally limited to business activities and investments that are related to banking or are financial in nature. The range of permissible financial activities is set forth in the manner you specify. If no contrary directionGramm-Leach-Bliley Act and is given, yourmore limited for banks than for bank holding company
organizations. The differences relate mainly to insurance underwriting (but not insurance agency activities) and merchant banking (but not broker-dealer and investment advisory activities). Merchant banking authority is an important power for financial institutions that desire to engage in a full-scale investment banking business and can also be important for institutions that wish to engage in private equity and proprietary investment business lines. While historically the Company has not sought to engage in activities available only to bank holding companies under the Gramm-Leach-Bliley Act, without the ability to take advantage of financial holding company status, the Bank would not be able to engage in these activities if in the future it desired to do so. Loss of this status would also make future acquisitions by the Bank of financial institutions that have such operations more challenging.
The Bank’s common stock is not an insured deposit.
Shares of the Bank’s common stock are not a bank deposit and, therefore, losses in value are not insured by the FDIC, any other deposit insurance fund or by any other public or private entity. Investment in shares of the Bank’s common stock is inherently risky for the reasons described in this “Risk Factors” section of this proxy statement, and is subject to the same market forces and investment risks that affect the price of common stock in any other company, including the possible loss of some or all principal invested.
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| SPECIAL MEETING OF SHAREHOLDERS |
We will hold the special meeting of shareholders on [•], 2018 at [•], local time, at the Zions Bank Building Founders Room, One South Main Street, 18th Floor, Salt Lake City, Utah 84133.
Matters to be Considered
At the special meeting, holders of the Company’s common stock will be votedasked to:
approve the plan of merger, referred to as follows:the restructuring proposal; and
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Ø | FOR the election of the 10 directors listed on page 70 to a one-year term of office (Proposal 1)
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Ø | FOR ratification of the appointment of our independent registered public accounting firm for 2018 (Proposal 2)
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Ø | FOR approval, on a nonbinding advisory basis, of the compensation paid to our named executive officers identified in this Proxy Statement with respect to the year ended December 31, 2017 (Proposal 3)
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If youauthorize the board of directors to adjourn or postpone the special meeting to a later date, if necessary or appropriate, including adjournments to permit further solicitation of proxies in favor of the restructuring proposal, referred to as the adjournment proposal.
Proxy Card, Revocation of Proxy
You should submit your proxy but indicateto ensure that you want to ABSTAIN with respect to any proposal, your shares will bevote is counted for purposesat the special meeting of shareholders, regardless of whether a quorum exists. An abstention will have no effect onyou plan to attend. If you are the outcomerecord holder of any proposal. Youyour Company shares, you may REVOKErevoke your proxy at any time before it is voted at the Annual Meeting by giving written notice to our Corporate Secretary, or by submitting a later dated proxy through the mail, Internet, or telephone (in which case the later submitted proxy will be recorded and the earlier proxy revoked), or by voting in person at the Annual Meeting. If your shares are held by your broker in “street name,” you should follow the instructions you receive from your broker in order to direct your broker how to vote, or to revoke your proxy. If you plan to attend the special meeting, you will need to bring a copy of a brokerage statement reflecting your share ownership as of the record date for admission.
All shares represented by valid proxies that are not revoked will be voted in accordance with your instructions on your proxy submission. If you submit your proxy, but make no specification as to how you want your shares voted, your proxy will be voted “FOR” approval of the restructuring proposal and “FOR” approval of the adjournment proposal. The only sharesboard of directors is presently unaware of any other matter that may be votedpresented for action at the Annual Meeting arespecial meeting of shareholders. If any other matter does properly come before the 197,050,113 commonspecial meeting, the board of directors intends that shares outstandingrepresented by properly submitted proxies will be voted, or not voted, by and at the closediscretion of businessthe persons named as proxies on the record date. Each share is entitled to one vote.proxy card.
Solicitation of Proxies
On all matters other than the election of directors, the action will be approved if the number of shares validly voted “for” the action exceeds the number of shares validly voted “against” the action. In the election of directors, a nominee will be elected as director for a full term if, and only if, the the nominee receives the affirmative vote of the majority of the votes cast with respect to that nominee (meaning the number of shares validly voted “for” the nominee exceeds the number of shares voted “against” that nominee). If a nominee fails to receive such a majority of votes, he or she will be elected to a term of office ending on the earlier of 90 days after the date on which we certify election results and the day on which a person is selected by the Board to fill the office held by such director. This 90-day transitional period is required by Utah law and provides the Board time to identify an appropriate replacement, decide to leave the directorship vacant or otherwise respond to such a failed election. A quorum of our shares must be present or represented by proxy before any action can be taken at the meeting. A quorum of our shares is a majority of the shares entitled to vote on the record date. In order for a shareholder proposal to be acted on at the meeting, the proposal will need to be validly presented at the Annual Meeting by a shareholder proponent.
Please note that under the New York Stock Exchange, or NYSE, rules governing broker-dealers, brokers that have not received voting instructions from their customers 10 days prior to the Annual Meeting date may vote their customers’ shares in the brokers’ discretion on the proposal regarding the ratification of the appointment of our independent registered public accounting firm (Proposal 2) because this is considered “discretionary” under NYSE rules. If your broker is an affiliate of theThe Company NYSE policy states that, in the absence of your specific voting instructions, your shares may be voted only in the same proportion as all other shares are voted with respect to each discretionary item. Under the NYSE rules, each other proposal is a “non-discretionary” item, which means that member brokers who have not received instructions from the beneficial owners of the Company’s common stock do not have discretion to vote the shares of our common stock held by those beneficial owners on those proposals. This means that brokers may not vote your shares in the election of directors (Proposal 1), or on the proposal to approve 2017 compensation of our named executive officers on a nonbinding advisory basis (Proposal 3), unless you provide specific instructions on how to vote. Broker non-votes will have no effect on the outcome of these proposals. We encourage you to provide instructions to your broker regarding the voting of your shares.
We will bear the cost of soliciting proxies. WeThe Company will reimburse brokers and others who incur costs to send proxy materials to beneficial owners of shares held in a broker or nominee name. OurThe Company’s directors, officers and employees may solicit proxies in person, by mail or by telephone, but they will receive no extra compensation for doing so.
On November 20, 2017, we announced a proposal to streamline our corporate structure by merging into our bank subsidiary, ZB, N.A. (the “Bank”). If that restructuring is completed,Record Date
The close of business on [•], 2018 has been fixed as the record date for determining the holders of ourthe Company’s common stock will becomeentitled to receive notice of and to vote at the special meeting of shareholders. As of the close of business on the record date, [•] shares of the Company’s common stock were issued and outstanding and entitled to vote at the special meeting.
Voting Rights, Quorum Requirements and Vote Required
The presence, in person or by properly executed proxy, of the holders of a majority of the outstanding shares of common stock of the Company entitled to be cast is necessary to constitute a quorum at the special meeting of shareholders. Abstentions and broker non-votes will be counted for the purpose of determining whether a quorum is present.
Approval of the restructuring proposal requires the affirmative vote of the holders of a majority of the outstanding shares of the Company’s common stock entitled to vote at the special meeting. Because the required vote is based upon the outstanding shares of Company common stock, a failure to vote or a vote to “ABSTAIN” will have the same effect as a vote against the restructuring proposal.
Approval of the adjournment proposal requires the affirmative vote of a majority of the votes cast by holders of Company common stock represented in person or by proxy at the special meeting and entitled to vote on the adjournment proposal. Broker non-votes will have no effect on the adjournment proposal.
Votes will be counted by the inspector of election appointed for the special meeting.
Restructuring Proposal
As discussed throughout this document, the Company is asking the holders of the Company’s common stock to approve the restructuring proposal. Holders of the Company’s common stock should carefully read this document in its entirety for more detailed information concerning the plan of merger. In particular, holders of Company common stock are directed to the plan of merger, a copy of which is attached as Appendix A to this document and incorporated into this document by reference.
The Company’s board of directors has determined that the plan of merger and the transactions contemplated by the plan of merger, including the restructuring, are fair and advisable to and in the Bank, future annual meetings will be heldbest interests of the Company and its shareholders, and has approved the plan of merger and the transactions contemplated by the Bank,plan of merger.
The board of directors recommends a vote “FOR” the restructuring proposal.
Adjournment Proposal
The special meeting may be adjourned to another time or place, if necessary or appropriate, to permit, among other things, the solicitation of additional proxies if there are insufficient votes at the time of the special meeting to approve the restructuring proposal.
If, at the special meeting, the number of shares of Company common stock present or represented and voting in favor of the restructuring proposal is insufficient to approve the restructuring proposal, the Company intends to move to adjourn the special meeting in order to enable the board of directors to solicit additional proxies for approval of the restructuring proposal. In that event, the Company will ask the holders of the Company’s common stock to vote only upon the adjournment proposal and not the restructuring proposal.
In the adjournment proposal, the Company is asking the holders of its common stock to authorize the holder of any proxy solicited by the board of directors to vote in favor of granting discretionary authority to the board of directors to adjourn the special meeting to another time and place for the purpose of soliciting additional proxies. If such shareholders approve the adjournment proposal, the Company could adjourn the special meeting and any adjourned session of the special meeting and use the additional time to solicit additional proxies, including the solicitation of new proxies from shareholders who have previously voted.
The board of directors recommends a vote “FOR” the adjournment proposal.
Other Matters to Come Before the Special Meeting
No other matters are intended to be solicitedbrought before the special meeting by the Company, and the Company does not know of any matters to be brought before the special meeting by others. If, however, any other matters properly come before the special meeting, the persons named in the proxy will vote the shares represented thereby in accordance with the rules and regulations of the Office of the Comptroller of the Currency. If that restructuring is completed, we will, as appropriate, provide additional information concerning the next Bank annual meeting of stockholders to the extent it is inconsistent with the information in this proxy statement.
their best judgment on any such matter.
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BOARDTHE RESTRUCTURING AND PLAN OF DIRECTORS AND CORPORATE GOVERNANCEMERGER |
The description of the restructuring and the plan of merger contained in this proxy statement describes what we believe are the material effects of the restructuring and the material terms of the plan of merger. This summary description, however, is qualified in its entirety by reference to the plan of merger, which is attached to this proxy statement as Appendix A and incorporated herein by reference.
General
The plan of merger provides for the merger of the Company with and into the Bank, with the Company’s separate corporate existence ceasing at the effective time of the restructuring, and the Bank continuing as the surviving entity. If holders of the Company’s common stock approve the plan of merger at the special meeting, and if the required regulatory approvals are obtained and the other conditions to the parties’ obligations to effect the restructuring are met or waived (to the extent permitted by law), we anticipate that the restructuring will be completed at or about the end of the third quarter of 2018, although neither the Company nor the Bank can provide any assurances that the restructuring will close timely or at all.
The Company’s Reasons for the Restructuring; Recommendation of the Company’s Board of Directors
The Company’s board of directors believes that the restructuring, on the terms and conditions set forth in the plan of merger, is fair and advisable to, and in the best interests of, the Company and its shareholders. Accordingly, the Company’s board of directors has approved the plan of merger and the transactions contemplated thereby, including the restructuring, and unanimously recommends that the Company’s shareholders vote “FOR” approval of the plan of merger. The Company’s board of directors, prior to and in reaching its decision to approve the plan of merger and to recommend that holders of the Company’s common stock approve the plan of merger, consulted with the Company’s management and advisors and considered a variety of potential positive factors, potential risks and potential negative factors, including the risk factors discussed in “Risk Factors” above, relating to the restructuring, including, without limitation or in any particular order of importance, the following:
The restructuring is expected to simplify the corporate structure of the Zions organization, leading to managerial, operational and administrative cost savings and efficiencies associated with the elimination of redundant activities, including, but not limited to, simplified financial reporting and consolidation of governance and organizational structure, including policies and procedures, risk management, and the elimination of dual boards of directors and joint board meetings. The time and resources saved by simplifying the corporate structure of the Zions organization would be available for helping customers and further building the organization’s business. While the Crapo Act would enable the Company to partially achieve the objective of reducing or eliminating regulatory burdens, it is still necessary to merge the Company into the Bank to more fully benefit from a simplified organizational structure and the elimination of duplicative regulation.
Following the restructuring, the Zions organization would no longer be subject to duplicative examinations by the FRB and OCC and instead be subject to examinations by the OCC only. The Company would continue to be subject to examinations by the CFPB with respect to consumer financial regulations.
The Company has been advised that the merger of the Company into the Bank, with the Bank continuing as the surviving entity, would qualify as a “restructuring” for United States federal income tax purposes.
The foregoing discussion of the factors considered by the Company’s board of directors is not intended to be exhaustive, but rather a summary of the material factors considered by the board of directors. In reaching its decision to approve the plan of merger, the board of directors did not quantify or assign any relative weights to the factors considered, and individual directors may have given different weights to different factors. The board of directors considered the various factors as a whole, including the expected benefits and possible risks of the restructuring in light of the Zions organization’s current and contemplated business strategies and activities. The board discussed with and questioned management and the Company’s advisors, and overall considered the factors to be favorable to, and to support, its determination.
The foregoing discussion of the information and factors considered by the board of directors is forward-looking in nature. This information should be read in light of the factors described under the section entitled “Cautionary Note Regarding Forward-Looking Statements” on page [•].
Effects of the Restructuring
Conversion of Securities
At the effective time of the restructuring:
each share of Company common stock issued and outstanding immediately prior to the effective time will automatically, and without any action on the part of the holder of such common stock, be converted into one share of Bank common stock;
each share of Company Series A Preferred Stock, Series G Preferred Stock, Series H Preferred Stock, Series I Preferred Stock and Series J Preferred Stock issued and outstanding immediately prior to the effective time (other than shares of Series I Preferred Stock or Series J Preferred Stock owned by shareholders who have dissented from the restructuring and properly demanded payment of the fair value of their shares in accordance with applicable Utah law) will automatically, and without any action on the part of the holder of such preferred stock, be converted into one share of Bank Series A Preferred Stock, Series G Preferred Stock, Series H Preferred Stock, Series I Preferred Stock and Series J Preferred Stock respectively;
each stock option, share of restricted Company common stock or other stock-based awards or performance-based awards with respect to shares of Company common stock outstanding immediately prior to the effective time shall automatically be converted into a Bank stock option, share of restricted Bank stock or other stock-based award or performance-based award with respect to shares of Bank common stock, remaining subject to the same terms and conditions to which the Company’s stock options, restricted stock and other stock-based awards and performance awards are subject, including as to vesting, exercisability and other restrictions, which will not be affected by the restructuring. To more fully implement and continue the incentive awards, at the effective time of the restructuring the Bank will also assume the Company’s existing employee and non-employee director stock-based benefit plans; and
each warrant for shares of the Company’s common stock outstanding immediately prior to the effective time will automatically and without any action on the part of the holder thereof be converted into a warrant for shares of the Bank having the same terms and conditions as the corresponding warrant for Company shares.
Immediately after the effective time of the restructuring, each issued and outstanding share of Company common stock or preferred stock (other than shares of Series I Preferred Stock or Series J Preferred Stock owned by shareholders who have dissented from the restructuring and properly demanded payment of the fair value of their shares in accordance with applicable Utah law) shall automatically be cancelled and cease to exist and shall be converted into one share of Bank common stock and preferred stock, respectively, which shares will be issued in uncertificated book-entry form. Whether you hold shares of Company common stock represented by certificates or book-entry uncertificated shares of Company common stock or preferred stock, you will not be required to take any specific actions to exchange your shares of Company common stock or preferred stock for Bank common stock or preferred stock. We do not intend to exchange Company common stock certificates for Bank common stock certificates. Accordingly, if you hold physical share certificates of Company common stock, upon effectiveness of the reorganization such share certificates will represent an equal number of shares of Bank common stock. If you hold your shares of Company common stock in uncertificated book-entry form, upon completion of the restructuring, such shares will be automatically exchanged for Bank common stock. Shares of Company preferred stock (other than shares of Series I Preferred Stock or Series J Preferred Stock owned by shareholders who have dissented from the restructuring and properly demanded payment of the fair value of their shares in accordance with applicable Utah law) will be automatically exchanged for Bank preferred stock. Following the restructuring, the Bank will issue common stock and its other securities in uncertificated book-entry form only.
The registered owner on the books and records of the Company or its transfer agents of any such outstanding stock will be entitled to exercise any voting and other rights with respect to and to receive any dividends and other distributions upon the shares of Bank common stock or preferred stock registered in the name of such owner.
Governance, Management and Operations After the Restructuring
After the restructuring, the Bank’s board of directors will have the same corporate governance and oversight committees, including the Executive Committee, Nominating and Corporate Governance Committee, Audit Committee, Compensation Committee and Risk Oversight Committee, as the Company’s board of directors had immediately prior to the restructuring. These committees will have the same committee charters and committee chairpersons as were in place prior to the restructuring. In addition, the Bank will continue to maintain the corporate governance guidelines and policies currently maintained by the Company.
After consummation of the restructuring, the business of the Bank will remain unchanged. The Bank and the Company currently have the same directors (except that Mr. Scott McLean is a director of the Bank but not the Company), and it is expected that the Bank will continue to have the same directors, with the same terms of service, after the restructuring as the Bank had immediately prior thereto. Given that the Company operates substantially through the Bank, the senior management of the Company and the Bank are largely the same and will continue unchanged after the restructuring. The offices and other business premises of the Bank will likewise continue to be occupied by the Bank and the Bank will assume all of the contractual obligations of the Company, and the Company’s subordinated notes and senior notes in the principal amount of $247 million and $135 million, respectively.
The articles of association and bylaws of the Bank will be substantially similar to the articles of incorporation and bylaws of the Company as in effect immediately prior to the time of the restructuring. Immediately following the restructuring, the Bank will have the same outstanding capital stock with substantially the same rights and privileges as the outstanding capital stock of the Company immediately prior to the restructuring. Immediately after the restructuring, the Bank will have substantially the same consolidated assets, liabilities and shareholders’ equity as the Company. See “Description of Bank Capital Stock and Comparison of Shareholders’ Rights.”
Bank Regulatory Oversight
Following the restructuring and assuming the successful resolution of the FSOC Appeal, the Bank will cease to be subject to a number of regulatory requirements that it is currently subject to (either directly or indirectly as the Company’s bank subsidiary), though certain other requirements will continue to apply to the Bank, as described below:
Primary Federal Regulator. The Company’s current primary federal banking regulator is the FRB, and the Bank’s current primary federal regulator is the OCC. Following the elimination of the Company as a result of the restructuring, the Zions organization’s primary federal banking regulator will be the OCC.
Regulatory Examinations. The Bank will continue to be subject to regulation by the FDIC, the OCC, and the CFPB, but would not be subject to regulatory examinations by the FRB, as the Company currently is, because the Bank would no longer have a bank holding company.
Capital Standards under the Basel III Capital Rules. The Bank would continue to be subject to the Basel III capital rules published by the FRB, the FDIC and the OCC, which define the components of capital and address issues affecting the numerator in banking institutions’ regulatory capital ratios, and also address risk weights and issues affecting the denominator in banking institutions’ regulatory capital ratios.
Enhanced Prudential Supervision and Stress Testing. Assuming the successful resolution of the FSOC Appeal, the Bank would not be subject to the “enhanced prudential supervision” requirements of the Dodd-Frank Act, nor the annual HCR/CCAR process administered by the FRB, nor the liquidity capital requirements applicable to SIFIs. However, the Bank would be subject to the OCC’s heightened standard guidelines, which establish enhanced requirements for national banks with assets of $50 billion or more.
Resolution Plans (Living Wills). Following the restructuring, the Bank will remain subject to the FDIC’s 12 C.F.R. Part 360 Insured Depository Institution resolution plan requirement, which will remain in force.
Prompt Corrective Action. Following the restructuring, the Bank would continue to be subject to the FDIC’s prompt corrective action regime and supervision by the FDIC, as these requirements are tied to the Bank’s status as an insured depository institution.
Permissible Activities. Following the restructuring, the Bank would no longer have a holding company and thus would lose the ability to take advantage of “financial holding company” status under the Gramm-Leach-Bliley Act. Financial holding companies and their nonbank affiliates can engage in a broader range of activities than banks and their financial subsidiaries, including insurance underwriting, merchant banking and real estate investment activities. For further information, see “Financial Holding Company Status” below.
The foregoing description is illustrative and describes the material regulatory requirements to which the Company and the Bank are subject prior to and following the restructuring, and is not a comprehensive description of all regulations to which the Bank would be subject following the restructuring.
Securities Regulation
Pursuant to Section 3(a)(2) of the Securities Act, securities issued by the Bank, including the common stock to be issued in connection with the restructuring, are exempt from registration under the Securities Act. The offering and sale of securities issued by the Bank, including the securities to be issued in the restructuring, are subject to securities offering regulations promulgated and administered by the OCC. Following the restructuring, the Bank’s common stock will be registered under the Exchange Act, which vests the OCC with the power to administer and enforce certain sections of the Exchange Act applicable to banks such as the Bank.
In addition, following the restructuring, the Bank’s common stock and certain other of its securities will be registered under the Exchange Act with the OCC, and accordingly, the Bank will be required to file annual, quarterly and current reports on Forms 10-K, 10-Q and 8-K required by Section 13 of the Exchange Act, proxy materials required by certain provisions of Section 14 of the Exchange Act and other business and financial information required by the Exchange Act. Additionally, the Bank’s executive officers and directors intend to file Section 16 forms in respect of certain acquisitions and dispositions of Bank equity securities and will be subject to the prohibition on short-swing profits. It is expected that the Bank will be permitted, and the Bank intends, to make such filings with the SEC as a “voluntary filer” following the restructuring and, for so long as the Bank’s filings are made in such a manner, it is not expected that the OCC will provide a duplicate means for the public to access such filings. In connection with the restructuring and the registration of the Bank’s common stock under the Exchange Act, an application will be made to the SEC to de-register the Company’s common stock and its other listed instruments.
Corporate Law Matters
Following the restructuring, the Zions organization will operate as to matters of corporate law primarily under the National Bank Act, because its top tier entity will be a national bank rather than a corporation organized under state law. The National Bank Act was enacted in 1863 and has not been comprehensively revised since then. As a result, although for the most part the National Bank Act accommodates modern corporate and capital market practices and standards, the application of the National Bank Act to a relatively small number of matters may be more limiting or less clear than that of the UBCA. For example:
The UBCA and state corporate laws establish the fiduciary duties of directors and officers and a well-developed body of case law exists interpreting these duties. In contrast, the National Bank Act does not expressly address traditional fiduciary duties in the context of national bank directors and officers. Although there is less case law and other guidance specifically addressing the fiduciary duties of national bank directors and officers, the company believes the general common law principles applicable to corporations organized under state law should apply to national banks.
Under the National Bank Act, the requirements for shareholder approval of common and preferred stock issuances, repurchases and redemptions, are less clear and in some cases could have a broader application than under the UBCA and state corporate laws generally. The OCC has, however, provided clarifying interpretive guidance that enables national banks to engage in such transactions with essentially the same corporate formalities required of corporations organized under the UBCA and other state corporate laws.
Though the Bank would still require OCC approval as a supervisory matter, the guidance affirms that the board of directors of a national bank can authorize particular issuances of common and preferred stock, the setting of terms and designations of preferred stock to be issued pursuant to blank check procedures and the repurchase and redemption of common and preferred stock without specific shareholder approval as to each such action if authorized by the terms of the bank’s articles of association approved by the requisite vote of shareholders.
The National Bank Act does not provide exceptions to shareholder approval requirements for mergers similar to exceptions available under the UBCA and other state corporate laws. These include exceptions for parent company approval of parent-subsidiary mergers and acquirer-corporation approval of mergers in which the acquirer’s outstanding shares do not increase beyond a set percentage. In addition, the National Bank Act requires a two-thirds vote of shareholders in connection with mergers, compared to a majority vote requirement under the UBCA, and grants dissenters’ rights to shareholders more broadly than does the UBCA.
The National Bank Act contains a number of outdated provisions that may create minor administrative burdens, operational inflexibility or shareholder risks. These include such things as director residency requirements (which the OCC may waive) and qualifications, prohibitions on a national bank securing loans with its own stock, and the OCC’s right to assess national bank common stock up to its par value in certain circumstances.
Dividends and Share Repurchases
The National Bank Act and UBCA each establish limitations on the ability of the Bank and Company, respectively, to pay dividends and repurchase or redeem common and preferred stock. Under Section 640 of the UBCA, cash dividends and stock repurchases and redemptions are considered distributions and may only be made if, after giving effect to the distribution, (1) the corporation would be able to pay its debts as they come due in the ordinary course of business and (2) the corporation’s total assets would be equal to or greater than its total liabilities plus the amount that would be needed to satisfy the rights of shareholders with preferential rights. The National Bank Act treats cash dividends separately from stock repurchases and redemptions. Under 12 U.S.C. Sections 56 and 60(a), a national bank may declare dividends in amounts up to the bank’s undivided profits (i.e., retained earnings). However, under 12 U.S.C. § 60(b) a national bank may not declare dividends in any year in excess of the sum of the total of the net income for the bank for that year and the retained net income of the bank for the preceding two years (minus the sum of any transfers required by the OCC and any transfers required to be made to a fund for the retirement of any preferred stock), unless it receives OCC approval for such excess amount. Under 12 U.S.C. Sections 56 and 59, shareholder approval is generally required for a national bank’s repurchase or redemption of its common or preferred stock. The OCC has provided guidance that, if approved by the requisite vote of shareholders, a national bank’s articles of association may authorize the bank’s board of directors to approve particular stock repurchase or redemption transactions, alleviating the need for shareholder approval of particular transactions.
The ability of bank holding companies and banks to pay dividends, repurchase or redeem shares or make other distributions is also limited by their obligations to maintain sufficient capital and by other general regulatory restrictions on its dividends. For example, both the Company and the Bank are subject to extensive capital adequacy requirements under the Basel III capital rules. In addition, the OCC, the primary regulator of the Bank, has issued policy statements generally requiring insured banks to pay dividends only out of current earnings. Moreover, if, in the opinion of the applicable regulatory authority, a bank under its jurisdiction is engaged in or is about to engage in an unsafe or unsound practice, which could include the payment of dividends, such authority may take actions requiring that such bank refrain from the practice. Finally, it should be noted that the Company’s ability to pay dividends and repurchase or redeem shares is largely derived from and dependent upon the financial condition and results of operations of the Bank, which constitutes substantially all of the Company’s assets and generates substantially all of its profits.
Financial Holding Company Status
The Company and the Bank are subject to similar restrictions on their permissible activities. As a bank holding company, the Company may take advantage of “financial holding company” status under the Gramm-Leach-Bliley Act. Financial holding companies and their nonbank “financial subsidiaries” can engage in a broad range of
nonbanking activities that are financial in nature. Under the Gramm-Leach-Bliley Act, banks may engage in a similar, although more restricted, range of nonbanking, financial activities through bank “operating subsidiaries” and “financial subsidiaries.” The primary powers that the Gramm-Leach-Bliley Act grants to financial holding companies and their financial subsidiaries, but not financial and operating subsidiaries of banks, are merchant banking, insurance underwriting and certain real estate investing. These limitations can be significant. For example, although a bank may engage in broker-dealer and investment advisory activities through financial or operating subsidiaries, as a practical matter a bank organization could be precluded from conducting a full investment banking operation because of its lack of merchant banking powers. Moreover, without merchant banking powers, a bank cannot benefit from as broad a range of private equity and other proprietary investments as that available to financial holding companies. Similarly, a bank subsidiary may engage in insurance agency activities through financial or operating subsidiaries, but may not engage in insurance underwriting.
Interests of Company Executive Officers and Directors in the Restructuring
The executive officers and directors of the Company will hold the same offices with the Bank after the restructuring as they held with the Company prior to the restructuring, and will continue to be entitled to the same compensation and equity-based and other incentive awards as they held immediately prior to the restructuring. The directors of the Bank will continue as directors of the Bank following the restructuring, and will continue to be entitled to the same compensation and equity-based and other incentive awards as they held immediately prior to the restructuring as directors of the Company and/or the Bank. As such, other than their interest as Company shareholders, the executive officers and directors of the Company do not have any material interests in the restructuring.
Conditions to the Restructuring
The respective obligations of the Company and the Bank to complete the restructuring are subject to various conditions prior to the restructuring. The conditions include the following:
approval of the plan of merger by the holders of the Company’s common stock;
shares of the Bank’s common stock and warrants issued in the restructuring shall have been authorized for quotation on NASDAQ and depositary shares representing certain series of the Bank’s preferred stock issued in the restructuring shall have been authorized for listing on the NYSE, subject to official notice of issuance;
all approvals and authorizations of, filings and registrations with, and notifications to the FDIC, the OCC and all other relevant governmental authorities required for the consummation of the restructuring shall have been obtained or made, and shall be in full force and effect and all waiting periods required by law shall have expired;
FSOC shall have made a final determination that, following completion of the restructuring, the Bank will not be treated as a nonbank financial company supervised by the FRB under the Dodd-Frank Act;
no governmental authority of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, judgment, decree, injunction or other order (whether temporary, preliminary or permanent) that is in effect and prohibits consummation of the transactions contemplated by the plan of merger;
all third-party consents and approvals required, or deemed by the Company’s board of directors to be advisable, to be obtained under any material note, bond, mortgage, deed of trust, security interest, indenture, law, regulation, lease, license, contract, agreement, plan, instrument or obligation to which the Company or any subsidiary or affiliate of the Company is a party in connection with the restructuring shall have been obtained; and
the Company’s board of directors shall have received evidence in form and substance reasonably satisfactory to it that holders of the Company’s common stock will not recognize gain or loss for United States federal income tax purposes as a result of the restructuring.
The parties may waive conditions to their obligations, if permitted by law. Approval by the holders of the Company’s common stock and regulators may not be legally waived.
Termination; Amendment
Pursuant to its terms, at any time prior to the consummation of the restructuring, the plan of merger may be terminated and the restructuring abandoned by mutual consent of the Company’s and the Bank’s boards of directors. The plan of merger may be amended or modified at any time, before or after its approval by the holders of the Company’s common stock, by mutual agreement as authorized by the Company’s and the Bank’s boards of directors, except that no amendment shall be made after the special meeting, that would require further approval by the Company’s or the Bank’s shareholders, without obtaining such approval.
Effect of Termination
If the plan of merger is terminated, it will become void and have no effect and the parties will be relieved of all obligations and liabilities thereunder.
Effective Time of the Restructuring
The parties expect that the restructuring will be consummated in the third quarter of 2018, or as soon as possible after the receipt of all regulatory approvals and the approval of the holders of the Company’s common stock, the expiration of all regulatory waiting periods and the satisfaction or waiver of all other conditions to the completion of the restructuring. The restructuring will be legally completed by the filing of articles of merger with the Utah Division of Corporations and Commercial Code.
Dissenters’ Rights
The Company is a Utah corporation that is governed by the UBCA. In accordance with Section 1302 of the UBCA, holders of the Company’s common stock, Series A preferred stock, Series G preferred stock and Series H preferred stock are not entitled to appraisal or dissenters’ rights in connection with the restructuring, as the shares of the Company’s common stock are listed on NASDAQ, and the depositary shares representing shares of the Company’s Series A, Series G and Series H preferred stock are listed on the NYSE. However, the Company’s Series I preferred stock and Series J preferred stock are not listed on a national securities exchange. As a result, even though holders of each series of the Company’s preferred stock are not entitled to vote on the plan of merger, holders of the Series I preferred stock and Series J preferred stock may dissent from the restructuring in accordance with Section 1302 of the UBCA and have the fair value of their shares of Series I preferred stock or Series J preferred stock, as applicable, paid to them in cash. For more information regarding appraisal rights, see “Appraisal Rights of Dissenting Shareholders.”
Regulatory Approvals Required for the Restructuring
General
The Company will use commercially reasonable efforts to obtain all permits, consents, approvals and authorizations of all third parties and relevant governmental authorities that are necessary or advisable to consummate the restructuring. This includes the approval of the FDIC and the OCC. The application seeking approval from the FDIC and the OCC was submitted by the Company and the Bank on April 6, 2018, and approval from the OCC was received on July 6, 2018.
On April 26, 2018, the Company filed its appeal with the FSOC seeking a determination that following the restructuring, the Bank will not be treated as a SIFI subject to enhanced prudential standards under Section 165 of the Dodd-Frank Act. Following the enactment of the Crapo Act, a bank holding company, like the Company, with total assets of less than $100 billion is not treated as a SIFI subject to the Section 165 standards. However, the Crapo Act did not change Section 117 of the Dodd-Frank Act. Section 117 provides that a bank holding company that had total assets of $50 billion or more as of January 1, 2010 and received funds under the Troubled Asset Relief Program as well as its successors, including the Bank, will continue to be treated as a nonbank financial company supervised by the FRB even if it ceases to be a bank holding company. However, Section 117 of the Dodd-Frank Act also provides that a non-bank holding company may request an opportunity for a written or oral hearing before FSOC to appeal that treatment. For this reason, the Company filed, and intends to continue pursuing, the FSOC Appeal.
The Company is not aware of any material governmental approvals or actions that are required prior to the restructuring other than those described below. The Company presently contemplates that it will seek any additional
governmental approvals or actions that may be required; however, it cannot assure that it will obtain any such additional approvals or actions.
FDIC
The restructuring requires the approval of the FDIC under the Bank Merger Act.
The Bank Merger Act prohibits the FDIC from approving any proposed merger transaction that would result in a monopoly, or would further a combination or conspiracy to monopolize or to attempt to monopolize the business of banking in any part of the United States. Similarly, the Bank Merger Act prohibits the FDIC from approving a proposed merger transaction whose effect in any section of the country may be substantially to lessen competition, or to tend to create a monopoly, or which in any other manner would be in restraint of trade, unless the FDIC finds that the anticompetitive effects of the proposed transaction are clearly outweighed in the public interest by the probable effect of the transaction in meeting the convenience and needs of the communities to be served.
In every proposed merger transaction, the FDIC must also consider the financial and managerial resources and future prospects of the existing and proposed institutions, the convenience and needs of the community to be served, and the risk to the stability of the U.S. banking or financial system. In addition, the FDIC must consider the effectiveness of each insured depository institution involved in the proposed merger transaction in combatting money-laundering activities, including in overseas branches. Under the Community Reinvestment Act of 1977, the FDIC also must take into account the record of performance of each bank in meeting the credit needs of the entire community, including low and moderate-income neighborhoods, served by each bank.
Applicable regulations require publication of notice of an application for approval of a merger and an opportunity for the public to comment on the application in writing. Any merger approved by the FDIC may not be completed until 30 days after such approval, during which time the U.S. Department of Justice may challenge such transaction on antitrust grounds and seek divesture of certain assets and liabilities. With the approval of the FDIC and the U.S. Department of Justice, the waiting period may be reduced to 15 days.
OCC
The restructuring requires the approval of the OCC under the National Bank Act. The OCC considers the following factors in evaluating an application for a business combination: (1) the capital level of the resulting national bank, (2) conformity of the transaction to applicable law, regulation, and supervisory policies, (3) the transaction’s purpose, (4) the transaction’s impact on the safety and soundness of the national bank, and (5) the effect of the transaction on the national bank’s shareholders, depositors, other creditors, and customers. Approval from the OCC was received on July 6, 2018.
The FSOC Appeal Process
Section 165 of the Dodd-Frank Act imposes a so-called “enhanced prudential supervision” regulatory scheme on all bank holding companies with assets of $50 billion or more. Under Section 117 of the Dodd-Frank Act, such an entity, or its successor, that ceases to be a bank holding company, and meets certain conditions, nonetheless continues to be treated as a nonbank financial company supervised by the FRB. However, Section 117 of the Dodd-Frank Act also provides that an entity or its successor may request an opportunity for a written or oral hearing before FSOC to appeal that treatment. If the appeal to FSOC is approved, the entity or successor will cease to be subject to regulations as a SIFI under Section 165.
We submitted our FSOC Appeal on April 26, 2018 and FSOC set May 26, 2018 as the hearing date for the appeal. Within 60 days of the hearing date, FSOC must make and submit to the Senate Committee on Banking, Housing and Urban Affairs and the House Committee on Financial Services (the “Banking Committees”) its proposed determination on our FSOC Appeal. Following its submission of its proposed decision, FSOC will issue a final decision. The final decision must be rendered by the later of (1) 60 days after the FSOC’s submission of its report to the Banking Committees and (2) if either of the Banking Committees elect to hold hearings with respect to the preliminary determination within such 60-days period, the last hearing by a Banking Committee on the FSOC report (provided that any such hearing is within one year of the submission of FSOC’s report).
Accounting Treatment
For accounting purposes, the restructuring will be treated as a combination of related interests. The capitalization, assets, liabilities, income and financial statements of the Bank immediately following the restructuring will be substantially the same as the consolidated capitalization, assets, liabilities, income and financial statements of the Company immediately prior to the restructuring.
Resale of the Bank’s Common Stock
It is expected that the shares of Bank common stock to be issued to the holders of Company common stock under the plan of merger will be listed on the NASDAQ Global Select Market and freely tradable by such holders without restriction.
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BOARD AND CORPORATE GOVERNANCE HIGHLIGHTSAPPRAISAL RIGHTS OF DISSENTING SHAREHOLDERS |
We are committed to high standards of ethics and sound corporate governance, including oversightUnder Utah law, holders of the Company’s affairs by a strong, qualified,Series I Preferred Stock and independent BoardSeries J Preferred Stock have the right to dissent from the restructuring and have the fair value of Directors. We regularly review and enhancetheir shares paid to them in cash. Any of our corporate governance guidelines and practices.
CORPORATE GOVERNANCE ENHANCEMENT AND PRACTICES
Four new, independent members were addedshareholders electing to exercise dissenters’ rights must comply with the Board from 2015 through 2017. The average tenureprovisions of Part 13 of the Board asUBCA in order to perfect their rights. In view of the datecomplexity of this Proxy Statement is 12 years.
Our Board includes an independent Lead Director selected by our independent Board members, with clearly defined duties to complement the leadership of our Chairman and CEO, Harris H. Simmons.
Directors regularly review and approve corporate strategy, providing oversight and effective challenge of management as needed, to help facilitate the creation of value for our shareholders, employees, and the communities we serve.
Nine of our ten director nominees are independent and, with the exceptionPart 13, any holders of the Executive Committee, allCompany’s Series I Preferred Stock and Series J Preferred Stock who may wish to dissent from the restructuring and pursue dissenters’ rights should consult their legal advisors. Failure to take any required step in connection with exercising dissenters’ rights may result in the termination or waiver of the Board’s Committees are comprised entirely of independent Board members.such rights.
All directors are elected for one-year terms.
We use a majority vote standard in uncontested director elections. If the votes cast to elect a nominee fail to constitute a majority of the votes cast with respect to that nominee, he or she will not be elected for a full term but only for a transitional term of 90 days, a period designed to allow the Board time to identify an appropriate replacement, decide to leave the position vacant or otherwise respond to the failed election.
Board candidates are selected with consideration given to diversity in background, viewpoint, and experience.
Directors and executive officers are subject to stock ownership and retention requirements.
Hedging of company stock by directors and executive officers is strictly prohibited.
Pledging of company stock by directors and executive officers is restricted; such pledging is subject to approval, and is reviewed annually by the Board’s Compensation Committee.
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SHAREHOLDER OUTREACHMATERIAL UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES OF THE RESTRUCTURING |
ThroughoutThe following discussion describes the year we meet regularlymaterial U.S. federal income tax consequences of the restructuring to U.S. holders (as defined below) of Company common stock. The following discussion is based upon the Code, its legislative history, existing and proposed regulations thereunder and published rulings and decisions, all as currently in effect as of the date hereof, and all of which are subject to change, possibly with investorsretroactive effect. This discussion does not address the tax consequences to the Company or the Bank of the restructuring, nor does it address U.S. federal taxes other than income taxes (such as gift or estate tax liability or the alternative minimum tax), state, local or non-U.S. taxes or the Medicare tax on “net investment income.”
The restructuring is intended to qualify as a “reorganization” for U.S. federal income tax purposes within the meaning of Section 368(a) of the Code. However, the Company and activelythe Bank have not sought and will not seek their feedback on a wide variety of topicsany ruling from the IRS regarding any matters relating to our performance, including issues suchthe restructuring and, as business strategy, industry trends, capital management, governance, risk management, keysa result, there can be no assurance that the IRS will not assert, or that a court would not sustain, a position contrary to core earnings growth (including net interest margin management, loan and deposit growth and expense management), portfolio concentrations and compensation. During 2017, we held approximately 250 meetings with institutional investment firms. As partany of the conclusions set forth below.
For purposes of this outreach, we traveleddiscussion, the term “U.S. holder” means a beneficial owner that is: an individual citizen or resident of the United States; a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States or any of its political subdivisions; a trust that (i) is subject to see investors in 14 cities located inthe supervision of a court within the United States and Europe, presented at 8 investor conferences and hostedthe control of one or more than 70 face-to-face interactions with shareholdersU.S. persons or (ii) has a valid election in their offices, and held one-on-oneeffect under applicable U.S. Treasury regulations to be treated as a U.S. person; or small group meetings with more than 180 investors in conference settings. We also hosted an investor conference in March 2018 in Salt Lake City, Utah, which was also available via webcast. The feedback we receive at these eventsestate that is discussed in management-level and Board-level meetings.subject to U.S. federal income taxation on its income regardless of its source.
Additionally, we periodically seek shareholder feedback on our corporate governance practices to gain their perspective.
At our 2017 Annual Meeting, our shareholders approved a non-binding advisory say-on-pay proposal with approximately 94%This discussion regarding the U.S. federal income tax consequences of the votes cast voting in favorrestructuring addresses only those holders of Company common stock that proposal. The Compensation Committeehold their Company common stock as a capital asset within the meaning of Section 1221 of the BoardCode, and does not address all the U.S. federal income tax consequences that may be relevant to particular holders of Company common stock in light of their individual circumstances or to holders of Company common stock that are subject to special rules, including but not limited to:
reviewedfinancial institutions;
investors in pass-through entities;
insurance companies;
tax-exempt organizations;
dealers in securities or currencies;
traders in securities that elect to use a mark-to-market method of accounting;
persons that hold Company common stock part of a straddle, hedge, constructive sale or conversion transaction;
regulated investment companies;
real estate investment trusts;
persons whose “functional currency” is not the resultsU.S. dollar;
persons who are not citizens or residents of the shareholder vote, which indicates thereUnited States; or
holders who acquired their shares of Company common stock through the exercise of an employee stock option or otherwise as compensation.
If a partnership (or other entity that is strong support among shareholderstaxed as a partnership for our compensation structure and decisions.
As we design our compensation programs, we are mindfulU.S. federal income tax purposes) holds Company common stock, the tax treatment of balancinga partner in the objectives of our various constituencies, including our investors, regulators, customers, and employees. Industry-wide guidance from regulators has focused on ensuring that incentive compensation programs do not encourage excessive or unnecessary risk-taking. Our shareholders also have a wide variety of perspectives on compensation and we were pleased to engage with a number of them overpartnership generally will depend upon the course of 2017 to learn more about their viewpoints.
In recent years, our Board has worked to incorporate feedback from investors to more closely align pay with performance, in part by making the following refinements to our incentive compensation award determination processes:
Created greater transparency regarding incentive compensation targets for membersstatus of the Company’s Executive Management Committee (“EMC”)
Formalized guidance on how performance appraisals for each EMC member should inform cash bonus payments for respective EMC members, as described under “Compensation Discussionpartner and Analysis”
Expanded the scopeactivities of the risk management assessmentpartnership. Partnerships and partners in partnerships that hold Company common stock should consult their tax advisors about the tax consequences of the restructuring to them.
The actual tax consequences of the restructuring to you may be complex and will depend on your specific situation and on factors that are not within the control of the Company or the Bank. You should consult your tax advisor as to the tax consequences of the restructuring in your particular circumstances, including the applicability and effect of the alternative minimum tax and any state, local, non-U.S. and other tax laws and of changes in those laws.
Tax Consequences of the Restructuring Generally
Assuming the restructuring qualifies as a reorganization within the meaning of Section 368(a) of the Code, tax treatment and subject to the limitations and qualifications described herein, the material U.S. federal income tax consequences of the restructuring to a U.S. holder of Company common stock will be as follows:
no gain or loss will be recognized by a U.S. holder of Company common stock on the receipt of Bank common stock into which Company common stock is converted pursuant to the restructuring;
the aggregate basis of Bank common stock received by a U.S. holder of Company common stock in the restructuring will be the same as the aggregate basis of the Company common stock converted into such Bank common stock; and
the holding period of Bank common stock into which shares of Company common stock are converted will include the holding period of the Company common stock so converted.
If a U.S. holder of Company common stock acquired different blocks of Company common stock at different times or at different prices, such U.S. holder’s basis and holding period in the Bank common stock received in the restructuring will be determined separately with respect to each EMC member, which is an important input intoblock of Company common stock held, and the shares of Bank common stock received will be allocated pro rata to each EMC member’s overall Performance Appraisal Rating,such block of stock. A block generally consists of shares acquired at the same cost in a single transaction. U.S. holders should consult their tax advisors with regard to include a more comprehensive assessmentidentifying the bases or holding periods of each EMC member’s risk management performance
We intend to continue to manage our current compensation structures and approach to ensure that there is ongoing support for our pay programs among various constituencies, including our investors, regulators, and employees.
the particular shares of Bank common stock received in the restructuring.
You are being asked to elect 10 directors, each to hold office until the next Annual Meeting of shareholders or until his or her successor is duly elected or qualified. The proposal for the election of these directors (Proposal 1) begins on page 70 of this Proxy Statement. All of the nominees included on this year’s proxy card are directors standing for reelection.
The names, ages, and biographical information for each nominee to our Board are set forth below. See page 11 of this Proxy Statement for a listing of the Board Committee membership of each nominee.
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| Principal Occupation, Directorships of Publicly Traded Companies
During the Past Five Years, and Qualifications, Attributes, and Skills (1)
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Jerry C. Atkin
Age 69
Director since 1993
| Mr. Atkin is chairman and retired CEO of SkyWest, Inc., based in St. George, Utah.
Mr. Atkin brings his skills and experience as the head of a publicly traded company for 40 years as well as an accounting background to our Board. At SkyWest, he led the company’s growth from annual revenue of less than $1 million to more than $3 billion. Prior to becoming CEO of SkyWest, Mr. Atkin was its chief financial officer.
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Gary L. Crittenden
Age 64
Director since 2016
| Mr. Crittenden is a private investor and has been a non-employee executive director of HGGC, LLC, a California-based middle market private equity firm, since January 2017. During the period of 2009 to January 2017 he served in various capacities at HGGC, including managing director, chairman, and CEO. He is a member of the board of Primerica, where he serves on the audit committee. He previously served as chairman of Citi Holdings, and as chief financial officer at Citigroup, American Express Company, Monsanto, Sears Roebuck, Melville Corporation and Filene’s Basement following a consulting career at Bain & Company.
Mr. Crittenden brings substantial experience in banking and financial services, mergers and acquisitions, investment management, public markets, finance and accounting, risk management and regulatory relations.
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Suren K. Gupta
Age 57
Director Since 2015
| Mr. Gupta is executive vice president of Technology and Strategic Ventures at Allstate Insurance Company, where he has served since 2011. From 2003 to 2011, he served as executive vice president and group chief information officer, Home & Consumer Finance Group, at Wells Fargo & Company.
Mr. Gupta’s deep experience in technology, operations, and business strategy adds depth to our Board’s knowledge about data, technology, and security, areas of evolving and increasing risk to the financial services industry. He has held senior technology, operations, sales, marketing and strategic development roles at GMAC Residential, INTELSAT, a telecommunications company, and at Thomson Corp., an information company.
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J. David Heaney
Age 69
Director since 2005
| Mr. Heaney is chairman of Heaney Rosenthal Inc., a Houston, Texas-based financial organization specializing in investment in private companies in various industry sectors.
Mr. Heaney contributes financial and legal expertise, and broad knowledge of the Texas market to our Board. He was a founding director of Amegy Bancorporation, Inc., which we acquired in December 2005. He has also served as vice president of finance and chief financial officer of Sterling Chemicals, Inc. Mr. Heaney was a partner of the law firm Bracewell & Patterson (now Bracewell).
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| Principal Occupation, Directorships of Publicly Traded Companies
During the Past Five Years, and Qualifications, Attributes, and Skills (1)
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Vivian S. Lee
Age 51
Director since 2015
| Dr. Lee is currently on sabbatical as a faculty member of the University of Utah. From 2011 to May 2017, Dr. Lee served as senior vice president of Health Sciences at the University of Utah, dean of the University’s School of Medicine, and CEO of University of Utah Health Care since 2011. She was previously the vice dean for science, senior vice president, and chief scientific officer of New York University Medical Center.
Dr. Lee brings a wealth of experience as a CEO focused on streamlining processes and improving efficiency in the highly regulated and rapidly evolving health care industry. She has been responsible for an annual budget of more than $3.3 billion, and led a healthcare system comprising four hospitals, numerous clinical and research specialty centers, neighborhood health centers, an insurance plan, and more than 1,200 board-certified physicians. From 2014 until 2015, Dr. Lee also served on the Board of Directors of Zions First National Bank.
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Edward F. Murphy
Age 65
Director since 2014
| Mr. Murphy is a former executive vice president of the Federal Reserve Bank of New York where he served as the principal financial officer and was responsible for enterprise wide operational risk management. He is also a former executive vice president of JP Morgan Chase Incorporated.
Mr. Murphy is a Certified Public Accountant who contributes significant expertise in accounting and financial reporting in the banking industry, as well as extensive experience in operational risk management and internal control processes. During his 21-year career at JP Morgan Chase, he held several senior leadership positions, including principal accounting officer, global director of internal audit, chief operating officer of Asia Pacific operations, and chief financial officer of the consumer and middle markets businesses.
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Roger B. Porter
Age 71
Director since 1993
| Dr. Porter serves as IBM Professor of Business and Government at Harvard University, Cambridge, Massachusetts, and as a director of Extra Space Storage, Inc., Packaging Corporation of America, and Tenneco Inc.
Dr. Porter brings to the Board his broad knowledge of business-government relations and economics. He has served for more than a decade in senior economic policy positions in the White House, including as assistant to the president for economic and domestic policy from 1989 to 1993. He was also director of the White House Office of Policy Development in the Reagan Administration and executive secretary of the president’s economic policy board during the Ford Administration. He is the author of several books on economic policy.
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Stephen D. Quinn
Age 62
Director since 2002
| Mr. Quinn is a former managing director and general partner of Goldman, Sachs & Co. in New York, New York. He is a director of Group 1 Automotive, Inc. and was a director of American Express Bank Ltd. prior to its sale in 2009.
Mr. Quinn contributes financial and investment banking expertise to the Board. At Goldman Sachs, he specialized in corporate finance, spending two decades structuring mergers and acquisitions, debt and equity financings, and other transactions for some of America’s best-known corporations. At Group 1 Automotive, he is currently the non-executive Chairman; he chairs the nominating/governance committee and is a member of the audit and compensation committees. At American Express Bank Ltd., Mr. Quinn chaired the risk committee and served as a member of its audit committee.
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| Principal Occupation, Directorships of Publicly Traded Companies
During the Past Five Years, and Qualifications, Attributes, and Skills (1)
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Harris H. Simmons
Age 63
Director since 1989
| Mr. Simmons is Chairman and Chief Executive Officer, or CEO, of Zions Bancorporation and ZB, N.A., our national bank subsidiary. He is a director of Dominion Energy Midstream Partners where he serves on the audit committee, and was previously a director of Questar Corporation.
Mr. Simmons’ over 40 years of experience in banking and leadership of the Company is invaluable to the Board. During his tenure as our President and then Chairman and CEO, the Company has grown from $3 billion in assets to our present $66 billion in assets. He is past chairman of the American Bankers Association and a member of the Financial Services Roundtable.
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Barbara A. Yastine
Age 58
Director since 2017
| Ms. Yastine served as a director and Co-CEO of privately-held Lebenthal Holdings, LLC from September 2015 to June 2016. Ms. Yastine previously served as Chair, President and CEO of Ally Bank from March 2012 to June 2015. From May 2010 to March 2012, she served as either Chair or Executive Chair of Ally Bank and Chief Administrative Officer of Ally Financial, overseeing the risk, compliance, legal and technology areas. Prior to joining Ally Financial, she served in various capacities in the financial industry, including with Credit Suisse First Boston and Citigroup. Ms. Yastine is a member of the Boards of Directors of Primerica, Inc., where she chairs the compensation committee, and of First Data Corp., where she chairs the audit committee.
Ms. Yastine brings to our Board her expertise in general management, consumer and commercial banking, digital strategies, branding, investment banking and capital markets, wealth management, risk and asset management, finance, strategic planning, and bank regulatory matters from her broad experience serving in financial services.
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1
| Each member of the Company’s Board of Directors has also been a director of the Company’s subsidiary, ZB, N.A., since January 2016, with the exception of Mr. Crittenden who has been a director of ZB, N.A. since August 2016 and Ms. Yastine, who has been a director of ZB, N.A. since April 2017. |
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BOARD MEETINGS AND ATTENDANCE |
During 2017, our full Board held 11 meetings and the non-management directors met in confidential “executive sessions” 7 times. Our independent Lead Director presided at each such executive session. All directors attended at least 75% of the total number of all Board and applicable committee meetings. All Board members also attended last year’s Annual Meeting of shareholders, except for Dr. Lee, who was excused to fulfill a speaking engagement. All of our directors are expected to attend the regularly scheduled meetings of the Board, including the organizational meeting held in conjunction with the Annual Meeting, meetings of committees of which they serve as members, and our Annual Meeting of shareholders.
The Board regularly schedules educational presentations during its regular meetings to stay current on market, regulatory and industry issues. In addition, our Board members periodically attend industry conferences, meetings with regulatory agencies, and training and educational sessions pertaining to their service on the Board and its committees.
The Board typically invites members of management, including our president and chief operating officer, or COO; chief financial officer, or CFO; general counsel; chief risk officer, or CRO; chief credit officer; and director of Internal Audit to attend Board meetings and Board committee meetings (or portions thereof) to provide information relating to their areas of responsibility. Members of management do not attend executive sessions of the Board, except when requested by the Board.
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CORPORATE GOVERNANCEDESCRIPTION OF BANK CAPITAL STOCK AND COMPARISON OF SHAREHOLDERS’ RIGHTS |
CORPORATE GOVERNANCE GUIDELINES AND POLICIES
In additionThe following description summarizes the material terms of the Bank’s capital stock and describes the material differences, and some of the important similarities, between the rights of the Company’s and the Bank’s shareholders. Because it is only a summary, it may not contain all the information that is important to you. For a complete description, you should refer to the elementsBank’s Amended and Restated Articles of corporate governance reflected in our Board structureAssociation and responsibilities, we maintainAmended and Restated Bylaws and any applicable provisions of relevant law.
General
As a comprehensive setresult of corporate governance guidelines and policies. Thesethe restructuring, shareholders of the Company, a Utah corporation, whose rights are adopted and updatedpresently governed by the Board uponUBCA and the recommendationCompany’s articles of incorporation and bylaws, will become shareholders of the NominatingBank and, Corporate Governance Committeeas such, their rights will be governed by the National Bank Act, the regulations of the OCC, as well as the Bank’s articles of association and includebylaws. As a result, there will be certain differences between the following:
Corporate Governance Guidelines, which address our Board’s structure and responsibilities, includingrights of the Board’s role in management succession planningshareholders of the Company prior to the restructuring and the evaluation and compensation of executive officers
Code of Business Conduct and Ethics, which applies to all of our officers and employees, including the CEO, CFO, and controller
Code of Business Conduct and Ethics for membersrights of the Boardshareholders of Directorsthe Bank following the restructuring.
Related-Party Transactions Policy, which prohibits certain transactions betweenThe following is not intended to be complete and is qualified by reference to Utah and federal law, the Bank’s articles of association and bylaws and the Company’s articles of incorporation and bylaws. Copies of each of these documents will be sent to holders of shares of Company common stock upon request.
Authorized Capital Stock and Issuance of Capital Stock
The authorized capital stock of both the Company and its directors, executive officers,the Bank consists of 350,000,000 shares of common stock and 5% shareholders without necessary disclosure and approval or ratification
Stock Ownership and Retention Guidelines, under which our executive officers and directors are expected to hold specified amounts4,400,000 shares of our common shares
Policies prohibiting hedging and restricting pledgingpreferred stock. As of Company stock by directors or executive officers
Incentive Compensation Clawback Policy, which allowsthe record date, the Company to, among other actions, recapture prior incentive compensation or cancel all orhad [•] shares of common stock issued and outstanding and the Bank had 3,000,000 shares of common stock issued and outstanding, which was owned by the Company. Under the Company’s articles of incorporation, of the 4,400,000 shares authorized as preferred stock, the following series and numbers of shares have been designated (of which a portion of long-term incentive awards grantedeach series remains outstanding):
140,000 shares of Series A Preferred Stock;
200,000 shares of Series G Preferred Stock;
126,222 shares of Series H Preferred Stock;
300,893 shares of Series I Preferred Stock; and
195,152 shares of Series J Preferred Stock.
Previously, the Company designated Series C, D, E and F Preferred Stock; all shares of these series have been redeemed or repurchased and have reverted to an employeethe status of authorized and unissued shares of preferred stock.
These guidelinesUnder the UBCA, a corporation may increase the number of its authorized shares of common and policiesare posted on our website at www.zionsbancorporation.com and can be accessedpreferred stock if doing so is approved by clicking on “Corporate Governance.” Our Board committee charters and information concerning purchases and salesa vote of our equity securities by our executive officers and directors are also available on our website.
BOARD INDEPENDENCE AND LEADERSHIP STRUCTURE
Our Board continuesshareholders owning a majority of the votes entitled to be strongly independent. The Board has determined that 9cast. Under the National Bank Act, a national bank is permitted to increase the number of our 10 Board members nominated for reelectionits authorized shares of common and preferred stock if approved by a vote of holders of at the Annual Meeting are “independent” directors, as defined by the rules of The Nasdaq Stock Market LLC, or Nasdaq, and our Corporate Governance Guidelines. In addition, the Board’s Lead Director, the chairpersons of eachleast two-thirds of the Board’s committees, and allshares of the membersbank’s voting stock. A national bank is permitted to issue preferred stock if doing so is approved by a vote of shareholders owning a majority of its shares of voting stock. For both the Company and the Bank, no further shareholder approval is generally required for the issuance by such entity of previously authorized shares of common or preferred stock.
Common Stock
A share of Bank common stock has the same relative rights as, and is identical in all respects to, each share of Company common stock (except as to par value (the common stock of the Board’s committees, other thanCompany has no par value and the Executive Committee, are independent.common stock of the Bank will have a par value of $0.001 following the restructuring)). Company common stock currently is, and Bank common stock is currently expected to be, traded on the NASDAQ Global Select Market under the symbol “ZION.”
Under our Corporate Governance Guidelines,Voting Rights. Holders of the Bank’s and the Company’s common stock are entitled to one vote per share for the election of directors and for other purposes, subject to any voting rights of any series of preferred stock. Shares of Company and Bank common stock do not have cumulative voting rights.
Dividend and Liquidation Rights.The Company is currently subject to limitations on dividends under Utah corporate law, and the prior non-objection requirement under CCAR before making any dividends. Utah law generally prohibits any distribution if, after giving it effect, the corporation would not be able to pay its debts as they become due in the usual course of business, or the corporation’s total assets would be less than the sum of its total liabilities plus the amount that would be needed to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the distribution.
The Bank is, and following the restructuring will continue to be, subject to the limitations on dividends under the National Bank Act and related regulations, which provide that no national bank may withdraw, either in the form of dividends or otherwise, any portion of its capital, or make a directordividend on its common stock in an amount greater than its undivided profits (i.e., retained earnings). The Bank will also continue to be considered independent only if he or she: (i) is “independent” under Nasdaq rules,subject to requirements to maintain sufficient capital and (ii) doessafety and soundness banking regulations, all of which may limit its ability to pay dividends.
Preemptive Rights, Redemption and Assessment. Holders of the Bank’s common stock, like holders of the Company’s common stock, do not have any relationship which,preemptive, conversion or redemption rights. Pursuant to the National Bank Act and applicable regulations, under certain circumstances the capital stock of a national bank is assessable, i.e., holders may be subject to a levy for more funds by the OCC. According to an interpretive letter issued by the OCC on July 6, 2018 (the “2018 Letter”), such assessability is limited to the par value of a national bank’s stock. The Bank’s common stock’s par value post-restructuring will be $0.001. According to the OCC, it has not exercised its authority to levy funds under the National Bank Act and applicable regulations since 1933 and views the assessability authority as a mechanism for addressing capital deficiency that has long been overtaken by developments in statute and regulation, including robust capital standards, prompt corrective action requirements and supervisory and enforcement authorities requiring an institution to maintain capital at a particular level. In contrast, the capital stock of the Company is not subject to assessment.
Preferred Stock
The board of directors of the Company is empowered to authorize the issuance, in one or more series, of shares of preferred stock at such times, for such purposes and for such consideration as it may deem advisable without shareholder approval. The Company’s board of directors is also authorized to fix the designations, voting, conversion, preference and other relative rights, qualifications and limitations of any such series of preferred stock. The issuance of one or more series of preferred stock with voting and conversion rights could adversely affect the voting power of the holders of Company common stock and, under certain circumstances, discourage an attempt by others to gain control of the Company.
The creation and issuance of any future series of preferred stock, and the relative rights, designations and preferences of such series, if and when established, will depend upon, among other things, the future capital needs of the Company, then existing market conditions and other factors that, in the opinion of the Board, would interfere with the director’s exercise of independent judgment in carrying out the responsibilities of a director. Each director is required to inform the chairperson of the Company’s Nominating and Corporate Governance Committeeboard, might warrant the issuance of any such direct or indirect relationship betweenpreferred stock
According to an OCC interpretive letter, a national bank may also issue preferred stock pursuant to a “blank check” preferred stock provision without prior shareholder approval for each issuance if shareholders have previously approved a “blank check” preferred charter provision. Prior to the director and the Company or its subsidiaries (such as where the director is a partner, shareholder or officer of an organization that has any relationship with the Company or any of its subsidiaries) that could interfere with the director’s exercise of independent judgment. In determining whether any such relationship in fact would interfere with a director’s exercise of independent judgment, the Board considers such factors as it deems appropriate, such as the relative magnitudecompletion of the relationship, the financial or other importance of the relationship to the director and the Company and its subsidiaries, and whether the relationship was made in the ordinary course on arms-length terms for which substitute arrangements are readily available to the director and the Company and its subsidiaries. Applying this definition, the Board has determined that all of our directors are independent except for Harris H. Simmons, who is the CEO of the Company. In addition, members of the Board committees must meet all other independence and experience standards required by law or rules and regulations of governmental agencies or self-regulatory bodies.
Our Board considers its governance periodically and believes, at this time, that combining the roles of chairman and CEO is the most appropriate leadership structure for the Company. In reaching this view, the Board took into consideration several factors. Our CEO, Harris H. Simmons, has over 40 years of experience with the Company, including 27 years of service as our CEO. His knowledge, experience, and personality allow him to serve ably as both chairman and CEO. Combining the roles of chairman and CEO facilitates a single, focused structure to implement the Company’s strategic initiatives and business plans.
At the same time, the Board feels that the current governance structure—which includes regular executive sessions each chaired by an independent Lead Director; meetings with the Company’s external auditors, internal auditors, and other consultants; meetings with members of our management; and active Board and committee members—provides effective challenge and appropriate oversight of the Company’s policies and business. The Board believes that separating the chairman and CEO positions would not strengthen the effectiveness of the Board.
This structure was affirmed by votes of the shareholders in 2010, and each of 2013-2017, and allows the Board discretion to select the person or persons most qualified to lead the Company.
INDEPENDENT COMMITTEE LEADERSHIP AND LEAD DIRECTOR
Each member of our Board of Directors is charged with exercising independent judgment and critically evaluating management’s performance and decisions. In order to facilitate and support an active and independent Board, and in keeping with our corporate governance philosophy and commitment to effective oversight, the Company’s Corporate Governance Guidelines provide that, in the event the chairman of the Board is an executive officer of the Company, an independent director selected solely by the Company’s independent directors will serve as the “Lead Director.” The role of the Lead Director is to provide an independent counterbalance to our structure of a combined CEO/chairman role, by exercising the following duties:
Presiding at all meetings of the Board at which the chairman of the Board is not present, including executive sessions of the independent directors
Calling meetings of independent directors
Serving as a liaison between the chairman of the Board and the independent directors, including providing feedback to the chairman from the Board’s executive sessions and discussing with other directors any concerns they may have about the Company and its performance, and relaying those concerns, where appropriate, to the full Board
Conducting calls with each Board member as part of the Board’s effectiveness review process
Consulting with the CEO regarding the concerns of the directors
Being available for consultation with the senior executives ofrestructuring, the Company, as to any concerns anythe sole shareholder of the Bank, will have approved such executive mighta provision in the Bank’s articles of association.
The Company and Bank have each authorized the issuance of Series A Preferred Stock, Series C Preferred Stock, Series F Preferred Stock, Series G Preferred Stock, Series H Preferred Stock and Series I Preferred Stock. As of [•], 2018:
66,139 shares of Company Series A Preferred Stock were issued and outstanding;
138,391 shares of Company Series G Preferred Stock were issued and outstanding;
126,221 shares of Company Series H Preferred Stock were issued and outstanding;
Communicating with shareholders upon request98,555 shares of Company Series I Preferred Stock were issued and outstanding; and
Advising the chairman136,368 shares of Company Series J Preferred Stock were issued and outstanding.
As of [•], 2018, none of the Board regarding,Bank’s preferred stock is issued and approving, Board meeting schedules, agendas,outstanding. Each share of Bank preferred stock issued in connection with the restructuring will have substantially the same relative rights as each share of Company preferred stock of the corresponding series.
Voting Rights. Holders of the Bank’s preferred stock, like holders of the Company’s preferred stock, generally, do not have voting rights and informationare not entitled to elect directors, except as provided by the Bank’s articles of association and the Company’s articles of incorporation.
Dividend Rights. With respect to dividends on preferred stock, the OCC’s approval would be required if the undivided profits of the national bank are not sufficient to cover a proposed dividend on preferred stock. In addition, without the OCC’s approval, a national bank may not declare and pay dividends in any year in excess of an amount equal to the Board
Otherwise providing Board leadership when the chairmansum of the Board cannot or should not act in that role
Further, our Board’s Audit, Compensation, Risk Oversight, and Nominating and Corporate Governance Committees are composed entirely of independent directors, while fivetotal of the six membersnet income of the bank for that year and the retained net income of the bank for the preceding two years, minus the sum of any transfers required by the OCC and any transfers required to be made to a fund for the retirement of any preferred stock.
Preemptive Rights. Holders of the Bank’s preferred stock, like holders of the Company’s preferred stock, do not have any preemptive rights.
Series A Preferred Stock
Holders of certain series of the Company’s subordinated notes that are convertible into the Series A Preferred Stock occasionally convert such subordinated notes into the Series A Preferred Stock. Dividends on Series A Preferred Stock are non-cumulative and are computed at an annual rate equal to the greater of three-month LIBOR plus 0.52%, or 4.0%. Dividend payments are made on the 15th day of March, June, September, and December.
Ranking. Shares of the Series A Preferred Stock rank senior to common stock, equally with Series G Preferred Stock, Series H Preferred Stock, Series I Preferred Stock and Series J Preferred Stock and at least equally with each other series of preferred stock that the Company or Bank may issue (except for any senior series that may be issued with the requisite consent of the holders of the Series A Preferred Stock, the Series G Preferred Stock, the Series H Preferred Stock, the Series I Preferred Stock and the Series J Preferred Stock and any other class or series whose vote is required) with respect to the payment of dividends and distributions of assets upon liquidation, dissolution or winding up.
Liquidation Rights. Upon any voluntary or involuntary liquidation, dissolution or winding up of the Company or Bank, holders of the Series A Preferred Stock are entitled to receive out of assets available for distribution to shareholders, after satisfaction of liabilities to creditors and subject to the rights of holders of any securities ranking senior to the Series A Preferred Stock, before any distribution of assets is made to holders of common stock or of any of our Executive Committeeother shares of junior stock, a liquidating distribution in the amount of the liquidation preference of $1,000 per share (equivalent to $25 per depositary share) plus declared and unpaid dividends, without accumulation of any undeclared dividends. Holders of the Series A Preferred Stock will not be entitled to any other amounts from the Company or Bank, as applicable, after they have received their full liquidating distribution.
In any such distribution, if the assets of the Company or the Bank, as applicable, are independent. All fivenot sufficient to pay the liquidation preferences plus declared and unpaid dividends in full to all holders of the Series A Preferred Stock, the Series G Preferred Stock, the Series H Preferred Stock, the Series I Preferred Stock, the Series J Preferred Stock and all holders of any other shares of parity stock, the amounts paid to the holders of the Series A Preferred Stock, the Series G Preferred Stock, the Series H Preferred Stock, the Series I Preferred Stock, the Series J Preferred Stock and to the holders of all parity stock will be paid pro rata in accordance with the respective aggregate liquidating distribution owed to those holders. If the liquidation preference plus declared and unpaid dividends has been paid in full to all holders of the Series A Preferred Stock, the Series G Preferred Stock, the Series H Preferred Stock, the Series I Preferred Stock, the Series J Preferred Stock and any other shares of parity stock, the holders of junior stock will be entitled to receive all of our standing committees are chaired by independent directors.
BOARD COMMITTEES
Our Board’s standing committees are:
Executive Committee
Audit Committee
Risk Oversight Committee
Compensation Committee
Nominating and Corporate Governance Committee
Members of committees are appointed by the Board following recommendation by the Nominating and Corporate Governance Committee and serve at the pleasure of the Board for such term as the Board determines. All committees other than the Executive Committee have written charters. The Executive Committee’s authority is incorporated in the Company’s Bylaws. The current versions of the written charters are posted on our website at www.zionsbancorporation.com and can be accessed by clicking on the “Corporate Governance” link. Periodically, our general counsel (with the assistance of outside counsel and other advisors, as appropriate) reviews all committee charters in light of any changes in exchange listing rules, SEC regulations or other evidence of “best practices.” The results of the review and any recommended changes are discussed with the committees, which review their charters periodically. The full Board then approves the charters, with any revisions it deems appropriate, based on the committees’ recommendations. In addition, each Board committee conducts an annual effectiveness review. All of the committee charters were reviewed and updates made as needed in the first quarter of 2017.
The Board appoints one member of each committee as its chairperson. Chair positions are rotated periodically at the Board’s discretion. The committee calendars, meetings, and meeting agendas are set by the chairperson of the respective committee. As with full Board meetings, the CEO and other members of management are frequently invited to attend various committee meetings (or portions thereof) to provide information relatingremaining assets according to their areas of responsibility. Members of management attend executive sessions only on invitation.
According to their charters, each of the Board’s committees has the authority to select, retain, terminate,respective rights and approve the fees of experts or consultants, as it deems appropriate, without seeking approval of the Board or management.preferences.
Redemption. The following table provides membership information for eachSeries A Preferred Stock is not subject to any mandatory redemption, sinking fund or other similar provisions.
Per the terms of the Board’s standing committees asCompany’s articles of incorporation and the Bank’s articles of association, the Series A Preferred Stock may be redeemed at either the Company’s or Bank’s option, in whole at any time or in part from time to time, at a redemption price equal to $1,000 per share (equivalent to $25 per depositary share), plus any declared and unpaid dividends, without accumulation of any undeclared dividends. However, no shares of Series A Preferred Stock will be redeemed for at least five years after August 2, 2013.
In addition, pursuant to a commitment the Company made to the FRB, for at least five years after August 2, 2013, the Company will not redeem or repurchase depositary shares representing an interest in the Series A Preferred Stock if, after giving effect to such redemption or repurchase, the number of depositary shares representing an interest in the Series A Preferred Stock outstanding would be less than the number of depositary shares representing an interest in the Series A Preferred Stock issued during the period beginning on August 2, 2013 and ending on the date of such redemption. Neither the holders of Series A Preferred Stock nor holders of depositary shares representing an interest in the Series A Preferred Stock have the right to require the redemption or repurchase of the record date of this Proxy Statement.Series A Preferred Stock.
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Name | Executive
Committee
| Audit Committee | Risk Oversight Committee | Compensation Committee | Nominating and Corporate Governance Committee |
Jerry C. Atkin | | ü
| | ü | ü |
Gary L. Crittenden | ü | ü | | | ü*
|
Suren K. Gupta | | | ü | | |
J. David Heaney | ü | | ü*
| ü
|
|
Vivian S. Lee | ü
| | | ü*
| |
Edward F. Murphy | ü | ü*
| ü | | |
Roger B. Porter | | | | ü | ü |
Stephen D. Quinn, Lead Director | ü*
| ü | | | ü
|
Harris H. Simmons | ü | | | | |
Barbara A. Yastine | | | ü
| | |
* Committee Chair | | | | | |
Executive Committee
Our Executive Committee had six members during 2017. The Executive Committee reviews projects or proposals that require prompt action fromUnder the Company. SubjectFRB’s risk-based capital guidelines applicable to certain exceptions, the Executive Committee is authorized to exercise all powersbank holding companies, any redemption of the fullSeries A Preferred Stock by the Company is subject to prior approval of the FRB. Similarly, prior approval of the OCC is required in order for the Bank to repurchase shares of its capital stock, including Series A Preferred Stock. Redemption of the Company’s Series A Preferred Stock does not require shareholder approval and, in light of the Company’s approval of the Bank’s articles of association authorizing the Board to approve the redemption of the Series A Preferred Stock, no further shareholder approval is required for redemption of the Bank’s Series A Preferred Stock.
Voting Rights.
Preferred Directors. The Company’s articles of incorporation provide that if the Company fails to declare and pay to any class or series of Designated Preferred Stock dividends in an aggregate amount at least equal, as to any such class or series, to the amount of dividends payable on such class and series at its stated dividend rate for a period of six dividend periods, whether or not for consecutive dividend periods (a “Nonpayment”), the number of directors then constituting the Company’s board will be increased by two. Holders of all classes and series of any voting parity stock as to which a Nonpayment exists are entitled to vote as a single class for the election of the two additional members of our board of directors (the “Preferred Directors”), but only if the election of any such directors would not cause the Company to violate the listing standards of the Nasdaq Stock Market (or any other exchange on which its securities may be listed) or the rules and regulations of any other regulatory or self-regulatory body. In addition, the Company’s board of directors will at no time include more than two Preferred Directors. As used herein, “voting parity stock” means each class or series of preferred stock that ranks on parity with the Series A Preferred Stock as to payment of dividends and has voting rights similar to those described in this paragraph, which in this case includes Series G Preferred Stock, Series H Preferred Stock, Series I Preferred Stock and Series J Preferred Stock. The Bank’s articles of association contain an identical provision relating to the election of Preferred Directors.
Other Voting Rights. So long as any shares of Series A Preferred Stock remain outstanding:
the affirmative vote or consent of the holders of at least two-thirds of all outstanding shares of Series A Preferred Stock and any class or series of preferred stock that ranks on a parity with such series of preferred stock as to payment of dividends and the distribution of assets upon liquidation, dissolution or winding-up (which in this case would include Series G Preferred Stock, Series H Preferred Stock, Series I Preferred Stock and Series J Preferred Stock), voting together as a class, is required to issue, authorize or increase the authorized amount of, or to issue or authorize any obligation or security convertible into or evidencing the right to purchase, any class or series of stock ranking senior to such series of preferred stock with respect to such projectsthe payment of dividends or proposals when it is not practical to delay action pending approval by the entire Board. The Executive Committee does not have authority to approvedistribution of assets upon liquidation, dissolution or adopt,winding-up; and
the affirmative vote or recommend to the shareholders, any action or matter expressly required by law to be submitted to the shareholders for approval; adopt, amend, or repeal the Restated Articles of Incorporation or Restated Bylawsconsent of the Company; or remove or indemnify directors. The chairmanholders of at least two-thirds of all shares of such series of preferred stock at the Executive Committeetime outstanding, voting separately as a class, is an independent director and serves as the Lead Director. The Executive Committee did not meet in 2017.
Audit Committee
Our Audit Committee had four members and met 12 times during 2017, and held one additional joint session with the Company’s Risk Oversight Committee. A written charter approved by the Board governs the Audit Committee. Each of its members is independent, determined as described in its committee charter. Information regarding the functions performed by the Audit Committee and its membership is set forth in its charter and highlighted in the “Reportrequired to amend any provisions of the Audit Committee” included in this Proxy Statement. The Board has determined that each member of the Audit Committee as listed on page 11 of this Proxy Statement is an audit committee financial expert with experience and attributes in accordance with the rules of the SEC and Nasdaq’s listing standards.
Risk Oversight Committee
Our Risk Oversight Committee had four members and met eight times during 2017, and held one additional joint session with the Company’s Audit Committee. A written charter approved by the Board governs the Risk Oversight Committee. Each of its members is independent, determined as described in its committee charter. The Risk Oversight Committee serves to provide oversight of the Company’s enterprise-wide risk management framework, including the strategies, policies, procedures, and systems established by management to assess, understand, measure, monitor, and manage the Company’s significant risks. The Board has also determined that the experience and backgrounds of the members of the Risk Oversight Committee collectively satisfy the pertinent requirements under its committee charter and the Dodd-Frank Act that its members have experience in identifying, assessing, and managing the risks of large, complex, financial firms.
Compensation CommitteeCompany’s articles of incorporation or the Bank’s articles of association, whether by merger, consolidation or otherwise, so as to materially and adversely affect the powers, preferences, privileges or rights of such series of preferred stock, taken as a whole.
Our Compensation Committee had four members and met five times during 2017. Each of its membersSeries C Preferred Stock
In September 2013, the Company redeemed all outstanding Series C Preferred Stock. There is independent, determined as described in its committee charter. The purposecurrently no Series C Preferred Stock of the Compensation CommitteeCompany outstanding. Following the redemption of all the shares of Series C Preferred Stock, the previously issued shares became authorized shares of preferred stock without designation as a series.
Series F Preferred Stock
In June 2017, the Company redeemed all outstanding Series F Preferred Stock. There is currently no Series F Preferred Stock of the Company outstanding.
Series G Preferred Stock
Dividends on Series G Preferred Stock are non-cumulative and are computed (i) from and including February 7, 2013 to dischargebut excluding March 15, 2023, at a rate per annum equal to 6.30% and (ii) from and including March 15, 2023, at an annual floating rate equal to three-month LIBOR plus 4.24%. Dividend payments are made on the Board’s responsibilities relating15th day of March, June, September, and December.
Ranking. Shares of the Series G Preferred Stock rank senior to common stock, equally with Series A Preferred Stock, Series H Preferred Stock, Series I Preferred Stock and Series J Preferred Stock and at least equally with each other series of preferred stock that the Company or Bank may issue (except for any senior series that may be issued with the requisite consent of the holders of the Series A Preferred Stock, the Series G Preferred Stock, the Series H Preferred Stock, the Series I Preferred Stock and the Series J Preferred Stock and any other class or series whose vote is required) with respect to the evaluationpayment of dividends and compensationdistributions of assets upon liquidation, dissolution or winding up.
Liquidation Rights. Upon any voluntary or involuntary liquidation, dissolution or winding up of the Company or Bank, holders of the Series G Preferred Stock are entitled to receive out of assets available for distribution to shareholders, after satisfaction of liabilities to creditors and subject to the rights of holders of any securities ranking senior to the Series G Preferred Stock, before any distribution of assets is made to holders of common stock or of any of our executives, including reviewingother shares of junior stock, a liquidating distribution in the Company’s executive compensation arrangements with a view toward assuring proper balanceamount of objectives, eliminating elements that could encourage unnecessarythe liquidation preference of $1,000 per share (equivalent to $25 per depositary share) plus declared and excessive risks,unpaid dividends, without accumulation of any undeclared dividends. Holders of the Series G Preferred Stock will not be entitled to any other amounts from the Company or Bank, as applicable, after they have received their full liquidating distribution.
In any such distribution, if the assets of the Company or the Bank, as applicable, are not sufficient to pay the liquidation preferences plus declared and avoiding jeopardyunpaid dividends in full to all holders of the Series A Preferred Stock, the Series G Preferred Stock, the Series H Preferred Stock, the Series I Preferred Stock and the Series J Preferred Stock and all holders of any other shares of parity stock, the amounts paid to the safety and soundnessholders of the Company. The Compensation Committee considersSeries A Preferred Stock, the perspectivesSeries G Preferred Stock, the Series H Preferred Stock, the Series I Preferred Stock and the Series J Preferred Stock and to the holders of shareholders, regulators, and outside consultants regarding executive compensation and produces reports, filings, and certifications related to compensation,all parity stock will be paid pro rata in accordance with the rulesrespective aggregate liquidating distribution owed to those holders. If the liquidation preference plus declared and regulationsunpaid dividends has been paid in full to all holders of the SECSeries A Preferred Stock, the Series G Preferred Stock, the Series H Preferred Stock, the Series I Preferred Stock and the Series J Preferred Stock and any other governmental agencies. The manner in whichshares of parity stock, the Compensation Committee oversees and determines the compensationholders of junior stock will be entitled to receive all of our CEOremaining assets according to their respective rights and preferences.
Redemption. The Series G Preferred Stock is not subject to any mandatory redemption, sinking fund or other executive officers is describedsimilar provisions.
The Series G Preferred Stock may be redeemed at either the Company’s or Bank’s option, in this Proxy Statement under “Compensation Discussionwhole or in part, on or after March 15, 2023 at a redemption price equal to $1,000 per share (equivalent to $25 per depositary share), plus any declared and Analysis.”
Compensation Committee Interlocks and Insider Participation
None of the members of the Compensation Committee during 2017 or as of the date of this Proxy Statement is or has been an officer or employee of the Company, and no executive officer of the Company served on the compensation committee or boardunpaid dividends, without accumulation of any company that employed any member of the Company’s Compensation Committee or Board. None of the members had a relationship that would require disclosure under the “Certain Relationships and Related Transactions” caption of any of our filings with the SEC during the past three fiscal years, except as may be described under “Ordinary Course Loans” in this Proxy Statement.
Nominating and Corporate Governance Committee
Our Nominating and Corporate Governance Committee had four members who met four times during 2017. Each of its members is independent, determined as described in its committee charter. The purpose of the Committee is to identify and recommend individuals to the Board for nomination as members of the Board and its committees and to assist the Board in oversight of the corporate governance principles of the Company.
In identifying and recommending nominees for positions on the Board, the Nominating and Corporate Governance Committee places primary emphasis on the following criteria, which are set forth under “Candidates for Board Membership” in our Corporate Governance Guidelines:
Personal qualities and characteristics, accomplishments, and professional reputation
Current knowledge and understanding of the communities in which we do business and in our industry or other industries relevant to our business
Ability and willingness to commit adequate time to Board and committee matters
Fit of the individual’s skills and qualities with those of other directors and potential directors in building a Board that is effective, collegial, and responsive to the needs of the Company
Diversity of viewpoints, backgrounds, and experience
Ability and skill set required to chair committees of the Board
Relevant and significant experience in public companies
The Nominating and Corporate Governance Committee does not assign specific weights to these criteria. Its objective is to assemble a Board whose members collectively meet the criteria and possess the talents and characteristics necessary to enable the Board to fulfill its responsibilities effectively.
The Nominating and Corporate Governance Committee evaluates each nominee based on the nominee’s individual merits, taking into account our needs and the composition of the Board. Members of the committee discuss and evaluate possible candidates in detail and suggest individuals to explore in more depth. Once a candidate is identified whom the committee wants to seriously consider and move toward nomination, the matter is discussed with the Board. Thereafter, the chairperson of the committee or his or her designee enters into a discussion with that candidate to determine interest and availability.undeclared dividends.
The Nominating and Corporate Governance Committee also considers candidates recommended by shareholders. The policy adopted by the committee provides that nominees recommended by shareholders are given appropriate consideration in the same manner as other nominees. Shareholders who wish to submit director nominees for consideration by the Nominating and Corporate Governance Committee should follow the process set forth inSeries G Preferred Stock may be redeemed at the Company’s Bylaws. For more information on this process, see “Shareholder Proposals for 2019 Annual Meeting.or Bank’s option in whole prior to March 15, 2023 upon the occurrence of a “Series G regulatory capital treatment event,”
BOARD INVOLVEMENT IN RISK OVERSIGHT
Risk Management Philosophy as described below, at a redemption price equal to $1,000 per share (equivalent to $25 per depositary share), plus any declared and Framework
The Company has developedunpaid dividends, without accumulation of any undeclared dividends. Notice of intent to redeem upon the occurrence of a multifaceted and comprehensive approach to risk management. We recognize that risk is inherent in our business and central to everything we do. As a result, we have established a risk management process and philosophy that encourage enterprise-wide involvement in understanding and managing risks so that we may align levels and types of risk that we undertake with our business strategies, Risk Appetite Framework, and the interests of shareholders and other stakeholders.
The Company’s Risk Appetite Framework is a fundamental component“Series G regulatory capital treatment event” must be sent within 90 days of the Company’s or the Bank’s good faith determination that such event has occurred. Neither the holders of Series G Preferred Stock nor holders of depositary shares representing an interest in the Series G Preferred Stock have the right to require the redemption or repurchase of the Series G Preferred Stock.
A “Series G regulatory capital treatment event” means a determination, in good faith, that, as a result of any:
amendment to, or change (including any announced prospective change) in, the laws or regulations of the United States or any political subdivision of or in the United States that is enacted or becomes effective after the initial issuance of any share of Series G Preferred Stock;
proposed change in those laws or regulations that is announced after the issuance of any share of Series G Preferred Stock; or
official administrative decision or judicial decision or administrative action or other official pronouncement interpreting or applying those laws or regulations that is announced after the initial issuance of any share of Series G Preferred Stock,
there is more than an insubstantial risk management process. The framework enablesthat the BoardCompany or the Bank will not be entitled to treat the full liquidation value of all shares of Series G Preferred Stock then outstanding as Tier 1 capital (or its equivalent) for purposes of the capital adequacy guidelines or regulations of the appropriate federal banking agency, as then in effect and managementapplicable, for as long as any share of Series G Preferred Stock is outstanding.
Under the FRB’s risk-based capital guidelines applicable to better assess, understand, measure, monitor, and managebank holding companies, any redemption of the risks posedSeries G Preferred Stock by the Company’s business. The Risk Appetite FrameworkCompany is organized into three linessubject to prior approval of defense. The first linethe FRB. Similarly, prior approval of defense rests with the business lines, which are closestOCC is required in order for the Bank to the Company’s day-to-day activities, have the greatest understandingrepurchase shares of key risks, and own and manage those risks. The second line of defense comprises the Company’s enterprise risk management functions, which are charged with the oversight and monitoring of risks that have been taken by the business lines. Enterprise risk management includes, without limitation, the Company’s Enterprise Risk Management Committee, which is responsible for adopting and implementing the Risk Appetite Framework and related procedures. The third line of defense rests with the internal audit function. Internal Audit performs reviews independentits capital stock, including Series G Preferred Stock. Redemption of the Company’s business activities and provides the Board and senior management with independent and objective assurance on the overall effectiveness of governance, risk management, and internal controls. The Board’s Risk Oversight Committee reviews the Risk Appetite Framework at least annually and refers any recommended amendments to the Board for consideration and approval.
The Board oversees our overall risk management process, and monitors, reviews, and responds to reports and recommendations presented by its committees, management, internal and external auditors, legal counsel, and regulators. Through this ongoing oversight, the Board obtains an understanding of and provides significant input into how our management assesses, quantifies, and manages risk throughout the enterprise. The Board’s active involvement in risk oversight helps to hold management accountable for implementing the Company’s Risk Appetite Framework, policies, and practices in a manner thatSeries G Preferred Stock does not encourage unnecessary or excessive risk taking.
Board Committee Risk Oversight
The Board oversees risk through actions of the full Boardrequire shareholder approval and, the activities of its Risk Oversight, Audit, and Compensation Committees:
Risk Oversight Committee.The Risk Oversight Committee reviews management’s assessmentin light of the Company’s aggregate enterprise-wide risk profileapproval of the Bank’s articles of association authorizing the Board to approve the redemption of the Series G Preferred Stock, no further shareholder approval is required for redemption of the Bank’s Series G Preferred Stock.
Voting Rights. The voting rights of holders of the Series G Preferred Stock are substantially the same as holders of the Series A Preferred Stock. See “Series A Preferred Stock: Voting Rights.”
Series H Preferred Stock
Dividends on Series H Preferred Stock are non-cumulative and are computed at a rate per annum of 5.75%. Dividend payments are made on the 15th day of March, June, September, and December.
Ranking. Shares of the Series H Preferred Stock rank senior to common stock, equally with Series A Preferred Stock, Series G Preferred Stock, Series I Preferred Stock and Series J Preferred Stock and at least equally with each other series of preferred stock that the Company or Bank may issue (except for any senior series that may be issued with the requisite consent of the holders of the Series A Preferred Stock, the Series G Preferred Stock, the Series H Preferred Stock, the Series I Preferred Stock and the alignmentSeries J Preferred Stock and any other class or series whose vote is required) with respect to the payment of dividends and distributions of assets upon liquidation, dissolution or winding up.
Liquidation Rights. Upon any voluntary or involuntary liquidation, dissolution or winding up of the risk profile with the Company’s strategic plan, goals, and objectives. It reviews and oversees the operationCompany or Bank, holders of the Company’s Risk Appetite Framework. It formally reportsSeries H Preferred Stock are entitled to receive out of assets available for distribution to shareholders, after satisfaction of liabilities to creditors and subject to the full Board periodically and reviews and recommendsrights of holders of any securities ranking senior to the articulationSeries H Preferred Stock, before any distribution of assets is made to holders of common stock or of any of our other shares of junior stock, a liquidating distribution in the amount of the Company’s Risk Appetite Frameworkliquidation preference of $1,000 per share (equivalent to $25 per depositary share) plus declared and the overall risk capacity and risk appetite limits. The Risk Oversight Committee assists the Board and its other committees with their risk related activities. The Risk Oversight Committee coordinates with the Audit Committee and other committees of the Board with regard to areas of overlapping responsibility. The corporate CRO reports directly to the Risk Oversight Committee and directly to the Company’s CEO. The Risk Oversight Committee and the CEO jointly review the performance of the CRO and, when necessary, oversee the selection of his or her replacement.
Audit Committee.The Audit Committee plays a key role in risk management through its oversight of management’s responsibility to maintain an effective system of controls over financial reporting. Among other responsibilities, the Audit Committee regularly reviews our earnings releases and annual and quarterly filings withunpaid dividends, without accumulation
of any undeclared dividends. Holders of the SEC, and, where appropriate, reviewsSeries H Preferred Stock will not be entitled to any other selected SEC filings and disclosures regarding financial matters. It also receives formal reportsamounts from the Company or Bank, as applicable, after they have received their full liquidating distribution.
In any such distribution, if the assets of the Company or the Bank, as applicable, are not sufficient to pay the liquidation preferences plus declared and unpaid dividends in full to all holders of the Series A Preferred Stock, the Series G Preferred Stock, the Series H Preferred Stock, the Series I Preferred Stock and the Series J Preferred Stock and all holders of any other shares of parity stock, the amounts paid to the holders of the Series A Preferred Stock, the Series G Preferred Stock, the Series H Preferred Stock, the Series I Preferred Stock and the Series J Preferred Stock and to the holders of all parity stock will be paid pro rata in accordance with the respective aggregate liquidating distribution owed to those holders. If the liquidation preference plus declared and unpaid dividends has been paid in full to all holders of the Series A Preferred Stock, the Series G Preferred Stock, the Series H Preferred Stock, the Series I Preferred Stock and the Series J Preferred Stock and any other shares of parity stock, the holders of junior stock will be entitled to receive all of our remaining assets according to their respective rights and preferences.
Redemption. The Series H Preferred Stock is not subject to any mandatory redemption, sinking fund or other similar provisions.
The Series H Preferred Stock may be redeemed at either the Company’s or Bank’s option, in whole or in part, on or after June 15, 2019 at a redemption price equal to $1,000 per share (equivalent to $25 per depositary share), plus any declared and unpaid dividends, without accumulation of any undeclared dividends.
The Series H Preferred Stock may be redeemed at the Company’s or Bank’s option in whole prior to June 15, 2019 upon the occurrence of a “Series H regulatory capital treatment event,” as described below, at a redemption price equal to $1,000 per share (equivalent to $25 per depositary share), plus any declared and unpaid dividends, without accumulation of any undeclared dividends. Notice of intent to redeem upon the occurrence of a “Series H regulatory capital treatment event” must be sent within 90 days of the Company’s or the Bank’s good faith determination that such event has occurred. Neither the holders of Series H Preferred Stock nor holders of depositary shares representing an interest in the Series H Preferred Stock have the right to require the redemption or repurchase of the Series H Preferred Stock.
A “Series H regulatory capital treatment event” means a determination, in good faith, that, as a result of any:
amendment to, or change (including any announced prospective change) in, the laws or regulations of the United States or any political subdivision of or in the United States that is enacted or becomes effective after the initial issuance of any share of Series H Preferred Stock;
proposed change in those laws or regulations that is announced after the issuance of any share of Series H Preferred Stock; or
official administrative decision or judicial decision or administrative action or other official pronouncement interpreting or applying those laws or regulations that is announced after the initial issuance of any share of Series H Preferred Stock,
there is more than an insubstantial risk that the Company or the Bank will not be entitled to treat the full liquidation value of all shares of Series H Preferred Stock then outstanding as Tier 1 capital (or its equivalent) for purposes of the capital adequacy guidelines or regulations of the appropriate federal banking agency, as then in effect and applicable, for as long as any share of Series H Preferred Stock is outstanding.
Under the FRB’s risk-based capital guidelines applicable to bank holding companies, any redemption of the Series H Preferred Stock by the Company is subject to prior approval of the FRB. Similarly, prior approval of the OCC is required in order for the Bank to repurchase shares of its capital stock, including Series H Preferred Stock. Redemption of the Company’s Series H Preferred Stock does not require shareholder approval and, in light of the Company’s approval of the Bank’s articles of association authorizing the Board to approve the redemption of the Series H Preferred Stock, no further shareholder approval is required for redemption of the Bank’s Series H Preferred Stock.
Voting Rights. The voting rights of holders of the Series H Preferred Stock are substantially the same as holders of the Series A Preferred Stock. See “Series A Preferred Stock: Voting Rights.”
Series I Preferred Stock
Dividends on Series I Preferred Stock are non-cumulative and are computed (i) from and including May 21, 2013 to but excluding June 15, 2023, at a rate per annum equal to 5.80% and (ii) from and including June 15, 2023, at an annual floating rate equal to three-month LIBOR plus 3.80%. From May 21, 2013 to but excluding June 15, 2023, dividend payments are made on the 15th day of June and December. From and including June 15, 2023, dividend payments are made on the 15th day of March, June, September, and December.
Ranking. Shares of the Series I Preferred Stock rank senior to common stock, equally with Series A Preferred Stock, G Preferred Stock, Series H Preferred Stock and Series J Preferred Stock and at least equally with each other series of preferred stock that the Company or Bank may issue (except for any senior series that may be issued with the requisite consent of the holders of the Series A Preferred Stock, the Series G Preferred Stock, the Series H Preferred Stock, the Series I Preferred Stock and the Series J Preferred Stock and any other class or series whose vote is required) with respect to the payment of dividends and distributions of assets upon liquidation, dissolution or winding up.
Liquidation Rights. Upon any voluntary or involuntary liquidation, dissolution or winding up of the Company or Bank, holders of the Series I Preferred Stock are entitled to receive out of assets available for distribution to shareholders, after satisfaction of liabilities to creditors and subject to the rights of holders of any securities ranking senior to the Series I Preferred Stock, before any distribution of assets is made to holders of common stock or of any of our other shares of junior stock, a liquidating distribution in the amount of the liquidation preference of $1,000 per share plus declared and unpaid dividends, without accumulation of any undeclared dividends. Holders of the Series I Preferred Stock will not be entitled to any other amounts from the Company or Bank, as applicable, after they have received their full liquidating distribution.
In any such distribution, if the assets of the Company or the Bank, as applicable, are not sufficient to pay the liquidation preferences plus declared and unpaid dividends in full to all holders of the Series A Preferred Stock, the Series G Preferred Stock, the Series H Preferred Stock, the Series I Preferred Stock and the Series J Preferred Stock and all holders of any other shares of parity stock, the amounts paid to the holders of the Series A Preferred Stock, the Series G Preferred Stock, the Series H Preferred Stock, the Series I Preferred Stock and the Series J Preferred Stock and to the holders of all parity stock will be paid pro rata in accordance with the respective aggregate liquidating distribution owed to those holders. If the liquidation preference plus declared and unpaid dividends has been paid in full to all holders of the Series A Preferred Stock, the Series G Preferred Stock, the Series H Preferred Stock, the Series I Preferred Stock and the Series J Preferred Stock and any other shares of parity stock, the holders of junior stock will be entitled to receive all of our remaining assets according to their respective rights and preferences.
Redemption. The Series I Preferred Stock is not subject to any mandatory redemption, sinking fund or other similar provisions.
The Series I Preferred Stock may be redeemed at either the Company’s or Bank’s option, in whole or in part, on or after June 15, 2023 at a redemption price equal to $1,000 per share, plus any declared and unpaid dividends, without accumulation of any undeclared dividends.
The Series I Preferred Stock may be redeemed at the Company’s or Bank’s option in whole prior to June 15, 2023 upon the occurrence of a “Series I regulatory capital treatment event,” as described below, at a redemption price equal to $1,000 per share, plus any declared and unpaid dividends, without accumulation of any undeclared dividends. Notice of intent to redeem upon the occurrence of a “Series I regulatory capital treatment event” must be sent within 90 days of the Company’s or the Bank’s good faith determination that such event has occurred. Holders of Series I Preferred Stock do not have the right to require the redemption or repurchase of the Series I Preferred Stock.
A “Series I regulatory capital treatment event” means a determination, in good faith, that, as a result of any:
amendment to, or change (including any announced prospective change) in, the laws or regulations of the United States or any political subdivision of or in the United States that is enacted or becomes effective after the initial issuance of any share of Series I Preferred Stock;
proposed change in those laws or regulations that is announced after the issuance of any share of Series I Preferred Stock; or
official administrative decision or judicial decision or administrative action or other official pronouncement interpreting or applying those laws or regulations that is announced after the initial issuance of any share of Series I Preferred Stock,
there is more than an insubstantial risk that the Company or the Bank will not be entitled to treat the full liquidation value of all shares of Series I Preferred Stock then outstanding as Tier 1 capital (or its equivalent) for purposes of the capital adequacy guidelines or regulations of the appropriate federal banking agency, as then in effect and applicable, for as long as any share of Series I Preferred Stock is outstanding.
Under the FRB’s risk-based capital guidelines applicable to bank holding companies, any redemption of the Series I Preferred Stock by the Company is subject to prior approval of the FRB. Similarly, prior approval of the OCC is required in order for the Bank to repurchase shares of its capital stock, including Series I Preferred Stock. Redemption of the Company’s Series I Preferred Stock does not require shareholder approval and, in light of the Company’s approval of the Bank’s articles of association authorizing the Board to approve the redemption of the Series I Preferred Stock, no further shareholder approval is required for redemption of the Bank’s Series I Preferred Stock.
Voting Rights. The voting rights of holders of the Series I Preferred Stock are substantially the same as holders of the Series A Preferred Stock. See “Series A Preferred Stock: Voting Rights.”
Series J Preferred Stock
Dividends on Series J Preferred Stock are non-cumulative and are computed (i) from and including August 13, 2013 to but excluding September 15, 2023, at a rate per annum equal to 7.20% and (ii) from and including September 15, 2023, at an annual floating rate equal to three-month LIBOR plus 4.44%. From August 13, 2013 to but excluding September 15, 2023, dividend payments are made on the 15th day of March and September. From and including September 15, 2023, dividend payments are made on the 15th day of March, June, September, and December.
Ranking. Shares of the Series J Preferred Stock rank senior to common stock, equally with Series A Preferred Stock, Series G Preferred Stock, Series H Preferred Stock and Series I Preferred Stock and at least equally with each other series of preferred stock that the Company or Bank may issue (except for any senior series that may be issued with the requisite consent of the holders of the Series A Preferred Stock, the Series G Preferred Stock, the Series H Preferred Stock, the Series I Preferred Stock and the Series J Preferred Stock and any other class or series whose vote is required) with respect to the payment of dividends and distributions of assets upon liquidation, dissolution or winding up.
Liquidation Rights. Upon any voluntary or involuntary liquidation, dissolution or winding up of the Company or Bank, holders of the Series J Preferred Stock are entitled to receive out of assets available for distribution to shareholders, after satisfaction of liabilities to creditors and subject to the rights of holders of any securities ranking senior to the Series J Preferred Stock, before any distribution of assets is made to holders of common stock or of any of our other shares of junior stock, a liquidating distribution in the amount of the liquidation preference of $1,000 per share plus declared and unpaid dividends, without accumulation of any undeclared dividends. Holders of the Series J Preferred Stock will not be entitled to any other amounts from the Company or Bank, as applicable, after they have received their full liquidating distribution.
In any such distribution, if the assets of the Company or the Bank, as applicable, are not sufficient to pay the liquidation preferences plus declared and unpaid dividends in full to all holders of the Series A Preferred Stock, the Series G Preferred Stock, the Series H Preferred Stock, the Series I Preferred Stock and the Series J Preferred Stock and all holders of any other shares of parity stock, the amounts paid to the holders of the Series A Preferred Stock, the Series G Preferred Stock, the Series H Preferred Stock, the Series I Preferred Stock and the Series J Preferred Stock and to the holders of all parity stock will be paid pro rata in accordance with the respective aggregate
liquidating distribution owed to those holders. If the liquidation preference plus declared and unpaid dividends has been paid in full to all holders of the Series A Preferred Stock, the Series G Preferred Stock, the Series H Preferred Stock, the Series I Preferred Stock and the Series J Preferred Stock and any other shares of parity stock, the holders of junior stock will be entitled to receive all of our remaining assets according to their respective rights and preferences.
Redemption. The Series J Preferred Stock is not subject to any mandatory redemption, sinking fund or other similar provisions.
The Series J Preferred Stock may be redeemed at either the Company’s or Bank’s option, in whole or in part, on or after September 15, 2023 at a redemption price equal to $1,000 per share, plus any declared and unpaid dividends, without accumulation of any undeclared dividends.
The Series J Preferred Stock may be redeemed at the Company’s or Bank’s option in whole prior to September 15, 2023 upon the occurrence of a “Series J regulatory capital treatment event,” as described below, at a redemption price equal to $1,000 per share, plus any declared and unpaid dividends, without accumulation of any undeclared dividends. Notice of intent to redeem upon the occurrence of a “Series J regulatory capital treatment event” must be sent within 90 days of the Company’s or the Bank’s good faith determination that such event has occurred. Holders of Series J Preferred Stock do not have the right to require the redemption or repurchase of the Series J Preferred Stock.
A “Series J regulatory capital treatment event” means a determination, in good faith, that, as a result of any:
amendment to, or change (including any announced prospective change) in, the laws or regulations of the United States or any political subdivision of or in the United States that is enacted or becomes effective after the initial issuance of any share of Series J Preferred Stock;
proposed change in those laws or regulations that is announced after the issuance of any share of Series J Preferred Stock; or
official administrative decision or judicial decision or administrative action or other official pronouncement interpreting or applying those laws or regulations that is announced after the initial issuance of any share of Series J Preferred Stock,
there is more than an insubstantial risk that the Company or the Bank will not be entitled to treat the full liquidation value of all shares of Series J Preferred Stock then outstanding as Tier 1 capital (or its equivalent) for purposes of the capital adequacy guidelines or regulations of the appropriate federal banking agency, as then in effect and applicable, for as long as any share of Series J Preferred Stock is outstanding.
Under the FRB’s risk-based capital guidelines applicable to bank holding companies, any redemption of the Series J Preferred Stock by the Company is subject to prior approval of the FRB. Similarly, prior approval of the OCC is required in order for the Bank to repurchase shares of its capital stock, including Series J Preferred Stock. Redemption of the Company’s Series J Preferred Stock does not require shareholder approval and, in light of the Company’s approval of the Bank’s articles of association authorizing the Board to approve the redemption of the Series J Preferred Stock, no further shareholder approval is required for redemption of the Bank’s Series J Preferred Stock.
Voting Rights. The voting rights of holders of the Series J Preferred Stock are substantially the same as holders of the Series A Preferred Stock. See “Series A Preferred Stock: Voting Rights.”
Directors
Under Utah law and the National Bank Act, respectively, the number of Company and Bank directors may be fixed or changed by the shareholders or by the directors if so authorized by the articles of incorporation or bylaws. Each of the Company’s and the Bank’s articles of association and bylaws provide that the number of directors shall be fixed from time to time by resolution of the board of directors. The Company’s board of directors shall not be less than three directors and the Bank’s board of directors shall not be less than five nor more than 25 directors, unless exempted from the 25-member limit by the OCC.
The National Bank Act imposes certain citizenship, residency and shareholding requirements with respect to director eligibility for the Bank. Under the National Bank Act and implementing regulations, directors must be U.S. citizens, and a majority of the Bank’s directors must reside within the state where the Bank is located or within 100 miles of one of the Bank’s branches, and must own Bank shares worth at least $1,000. The OCC may waive citizenship and residency requirements.
The Bank and the Company currently have the same directors (except that Mr. Scott McLean is a director of Internal Audit, the CFOBank but not the Company), and our general counsel on significant matters.it is expected that the Bank will continue to have the same directors, with the same terms of service, after the restructuring as the Bank had immediately prior thereto.
Neither the Company’s articles of incorporation nor the Bank’s articles of association authorize the board of directors to divide the directors into staggered classes, though staggered boards are permitted under the National Bank Act. The Company’s and the Bank’s directors serve for a term of one year until a successor is elected and qualified.
The Company’s directors are elected by a plurality of the votes cast by the holders of shares entitled to vote in the election of directors at a meeting at which a quorum is present; provided that, the Bank is restricted from voting shares held by the Bank as sole trustee in the election of the Bank’s directors. A “plurality” means the individuals who receive the greatest number of votes cast “FOR” are elected as directors. It is expected that the Bank will adopt bylaws providing that, in an uncontested election, an incumbent director of Internal Audit reports directlythe Bank who does not receive the affirmative vote of a majority of the shares actually voted will continue to serve as a director until deemed removed on the earlier of (a) 90 days following the date of the applicable annual meeting, or (b) the date on which the remaining directors select an individual to fill the prospective vacancy.
Vacancies on the Company’s and Bank’s boards of directors (including any vacancy resulting from an increase in the number of directors) may be filled by (i) the shareholders, (ii) a majority of directors remaining in office or (iii) if the directors remaining in office constitute fewer than a quorum of the board, the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office.
Removal of Directors
Both the Bank’s articles of association and the Company’s articles of incorporation provide that while the shareholders may remove any director for or without cause, it may only be done with the affirmative vote of the holders of two-thirds of the outstanding shares then entitled to vote at an election of directors.
Limitations on Director Liability
Under the Company’s articles of incorporation and the Bank’s articles of association, directors are not personally liable to the Audit CommitteeCompany or Bank, or the Company’s or Bank’s shareholders for monetary damages for breaches of fiduciary duty as a director, except, (i) in the case of the Company’s articles of incorporation, for (A) breach of the director’s duty of loyalty, (B) acts or omissions not in good faith or which involve intentional misconduct or knowing violations or law or (C) any transaction from which the director derived an improper personal benefit and, administratively(ii) in the case of the Bank’s articles of association, for (A) the amount of a financial benefit received by a director to which the director is not entitled, (B) an intentional infliction of harm on the Bank or its shareholders, (C) an unlawful distribution in violation of applicable law, (D) an intentional violation of criminal law or (E) liability for any act or omission occurring prior to the Company’s CEO. The Audit Committee reviewsdate such provision limiting the performanceliability of directors becomes effective.
Indemnification
Additionally, the UBCA permits a corporation to pay for or reimburse reasonable expenses incurred by a director who is a party to a proceeding in advance of a final disposition if: (i) the director of Internal Audit annually, determinesfurnishes the director’s compensation and, when necessary, oversees the selectioncorporation a written affirmation of his or her replacement.
Compensation Committee.The Compensation Committee reviews our executive compensation programs and overall compensation arrangements, when appropriate, with external consultants and our senior risk officers, including our CRO, with a view to designing compensation in waysgood faith belief that discourage unnecessary and excessive risk taking. As notedhe or she has met the applicable standard of conduct set forth in the section titled “Compensation Discussion and Analysis,”UBCA; (ii) the Compensation Committee also evaluatesdirector furnishes to the compliance of our compensation arrangements with any applicable laws and guidancecorporation a written undertaking, executed personally or limitations issued by regulatory agencies.
OTHER DIRECTOR MATTERS
Gary Crittenden served as CFO of Citigroup from March 2007on his or her behalf, to March 2009. In July 2010, Mr. Crittenden entered into an order withrepay the SEC in whichadvance if it foundis ultimately determined that he should have known that certain statements made by Citigroup, while he was chief financial officer, were materially misleading and he paid a civil monetary penalty of $100,000. Mr. Crittendenor she did not admitmeet the standard of conduct; and (iii) a determination is made that the facts then known to those making the determination would not preclude indemnification.
Under the UBCA, the Company’s bylaws and the Bank’s bylaws, to the extent that a director, officer, employee or agent of a corporation has been successful on the merits regarding any wrongdoingsuch action, he or she shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by him or her in connection therewith. In addition, the Company’s bylaws and the Bank’s bylaws authorize the Company to maintain insurance on behalf of any person who is or was a director, officer, employee, fiduciary or agent of either the Company or the Bank, as applicable, in each case whether or not the Company or the Bank, respectively, would have the power to provide indemnification to such person. These provisions are designed to reduce, in appropriate cases, the risks incident to serving in such capacities and to enable the Company and the Bank to attract and retain the best personnel available.
The rights of indemnification provided in the Company’s articles of incorporation and the Bank’s articles of association (discussed above under “Description of Bank Capital Stock and Comparison of Shareholders’ Rights - Indemnification”) are not exclusive of any other rights which may be available under the bylaws, any insurance or other agreement, by vote of shareholders or directors (regardless of whether directors authorizing such indemnification are beneficiaries thereof) or otherwise. The Bank is restricted from entering into indemnification agreements, pursuant to OCC regulation, which provide for payments to a director, officer, employee or controlling stockholder to pay or reimburse the cost of any judgment or civil money penalty assessed against such person in an administrative proceeding or civil action commenced by any federal banking agency.
Special Meetings
For both the Company and the Bank, special meetings of the shareholders may be called at any time by the board of directors, by such officers or persons as may be authorized by the bylaws to call a special meeting, or by the holders of shares representing at least 51% of all the votes entitled to be cast on any issue proposed to be considered at the meeting.
Shareholder Action by Written Consent
For both the Company and the Bank, any shareholder action required or permitted to be taken at a meeting of shareholders of the Company or the Bank may be taken without a meeting if the shareholders holding the number of votes necessary to take the action consent in writing. Under Utah law, consent from 100% of the Company’s shareholders is required to elect directors by written consent.
Annual Meeting Shareholder Proposals and Advance Notice Requirement
The bylaws of both the Company and the Bank provide that annual meeting of the shareholders for the election of directors shall be held each year on a date and at a time designated by the Company’s and Bank’s respective boards of directors.
The Company’s bylaws require a shareholder who intends to nominate a candidate for election to the board of directors, or to raise new business at a shareholder meeting, to deliver timely written notice of such business to the Secretary of the Company not earlier than the date which is 150 calendar days nor later than the date which is 120 calendar days before the first anniversary of the date on which the Company first mailed its proxy statement to shareholders in connection with the matterprior year’s annual meeting of shareholders. However, if the date of the applicable year’s annual meeting has been changed by more than 30 calendar days from the first anniversary of the date of the previous year’s annual meeting, then a shareholder’s notice must be received by the Secretary the later of the close of business on (i) the date which is 120 calendar days before the applicable year’s annual meeting is to be held or disgorge(ii) 10 calendar days after the Company’s first public announcement of the date of the applicable year’s annual meeting of shareholders. The Bank’s bylaws contain an identical provision relating to the timing and mechanics of shareholder nomination and proposals.
The notice provisions in the Company’s and Bank’s bylaws require each entity’s shareholders who desire to raise new business to provide certain information to the corporation concerning the nature of the new business, reasons why the shareholder favors the proposal and the shareholder’s interest in the business matter. Similarly, a shareholder wishing to nominate any amount to Citigroup,person for election as a director must provide the corporation with certain information concerning the nominee and he did not face a banthe proposing shareholder. Such requirements may discourage each corporation’s shareholders from any future activities. In considering Mr. Crittenden’ssubmitting nomination to our Board in 2016, our Nominating and Corporate Governance Committee reviewed the SEC Orderproposals.
Amendment of Charter and related matters and concludedBylaws
The Company’s articles of incorporation provide that they do not raisemay be amended, altered, changed or repealed in any concerns aboutmanner prescribed by statute. The UBCA permits an amendment of the articles of incorporation by approval of a majority of the board of directors and a majority of the outstanding common stock entitled to vote. However, the Company’s articles of incorporation further provide that the affirmative vote of two-thirds of the outstanding and issued shares entitled by statute to vote shall be required to amend, alter, change or repeal the third paragraph of Article IV (regarding the removal of directors), or any provision of Articles V (regarding quorum requirement and management of the Company by the board) or XII (regarding amendment of the Company’s articles of incorporation) or any other provision of the Company’s articles of incorporation if the amendment, alteration, change or repeal would restrict, limit or alter the power or authority of the board of directors or any other officer or agent of the Company; would vest any powers of the Company in any other officer or agent other than the board of directors, or officers and agents appointed by or under the authority of the board of directors; would require the approval of any shareholders in order for the board of directors or any officer or agent to take any action; or would change the number of directors, the quorum requirements for any meeting of the board of directors, the vote by which it must act in connection with any matter, the manner of calling or conducting meetings of directors, or the place of such meetings.
The Company’s bylaws may be amended by the board of directors or the shareholders. Amendment of the bylaws by the board of directors requires the affirmative vote of a majority of the directors then in office. Shareholders of the Company can amend the bylaws at an annual or special meeting of the shareholders at which a quorum is present. A shareholder amendment of the Company’s bylaws requires the affirmative vote of a majority of the shares voted thereon.
The Bank’s articles of association may be amended, altered, changed, or repealed in any manner prescribed by statute, except as set forth below. The National Bank Act permits an amendment of the articles of association by approval of the holders of a majority of the voting shares of the association. The Bank’s articles of association further provide that the affirmative vote of two-thirds of the outstanding and issued shares entitled by statute to vote will be required to amend, alter, change or repeal the third paragraph of Article Fifth (regarding the number and removal of directors), or any provision of Article Sixth (regarding quorum requirement and management of the Bank by the board) or Article Tenth (regarding amendment of the Bank’s articles of association) or any other provision of the Bank’s articles of association if the amendment, alteration, change or repeal would: (i) restrict, limit or alter the power or authority of the board or any other officer or agent of the Bank, (ii) vest any powers of the Bank in any other officer or agent other than the board, or officers and agents appointed by or under the authority of the board, (iii) require the approval of any shareholders in order for the board or any officer or agent to take any action or (iv) change the number of directors, the quorum requirements for any meeting of the board, the vote by which it must act in connection with any matter, the manner of calling or conducting meetings of directors, or the place of such meetings.
The Bank’s bylaws may be amended by the majority vote of its directors or by the affirmative vote of a majority of the shares voted on such amendment.
Takeover Protection Statutes
The Company’s articles of incorporation provide that certain business transactions with a person who owns, directly or indirectly, over 10% of the Company’s outstanding stock must be approved by a majority vote of the continuing directors or a shareholder vote of at least 80% of the Company’s outstanding voting shares. Such business transactions include mergers, consolidations, sales of all or more than 20% of the corporation’s assets, issuance of securities of the corporation, reclassifications that increase voting power of the interested shareholder, or liquidations, spin-offs or dissolution of the corporation. The Bank’s articles of association have an identical provision.
The Company is also subject to the Utah Control Shares Acquisitions Act, which limits the ability of persons acquiring more than 20% of the Company’s voting stock to vote those shares absent approval of voting rights by the holders of a majority of all shares entitles to be cast, excluding all interested shares. There is no similar provision applicable to the Bank under the National Bank Act.
Shareholders’ Rights to Examine Books and Records
Utah law provides a shareholder, and his, qualificationher or its agent or attorney, with a right to serveinspect (beginning on our Board.the earlier of (i) 10 days before the meeting for which the list was prepared or (ii) two business days after notice of a meeting is given) and copy the corporation’s shareholder list.
Utah law permits any shareholder, and his, her or its agent or attorney on at least five business days advance written demand to the corporation, to inspect (1) the articles of incorporation and bylaws of the corporation and all amendments thereto that are in effect, (2) minutes of shareholder meetings, records of actions taken by shareholders without a meeting and all written communications to shareholders, including financial statements furnished to shareholders, for the past three years, (3) all written communications within the past three years to shareholders as a group or to the holders of any class or series of shares as a group, (4) the names and business addresses of the current directors and officers, (5) the most recent annual report delivered to the Division of Corporations and Commercial Code and (6) all annual or quarterly financial statements showing in reasonable detail its assets and liabilities and the results of its operations for periods ending during the last three years. In addition, a shareholder satisfying specified conditions is entitled to inspect and copy, during normal business hours at a reasonable location (a) excerpts of minutes of any meeting of the board of directors and records of any actions taken by the board of directors or any committee of the board of directors, (b) excerpts of minutes of any meeting of the shareholders or records of any actions taken by the shareholders, (c) excerpts of any waivers of notices of any meeting of the shareholders, of any meeting of the board of directors, or of any meeting of a committee of the board of directors, (d) accounting records and (e) the record of shareholders’ names and addresses within each voting group, class or series of shares, in each case if the demand is made in good faith and for a proper purpose, describes the purpose of the inspection and the desired records with reasonable particularity, and the desired records are directly connected to the purpose of such inspection.
Under the National Bank Act, the president and cashier of the Bank must cause to be kept at all times a full and correct list of the names and residences of all the shareholders in the Bank, and the number of shares held by each, in the office where its business is transacted. Such list shall be subject to the inspection of all the shareholders and creditors of the Bank, and the officers authorized to assess taxes under State authority, during business hours of each day in which business may be legally transacted. A copy of such list, verified by the oath of such president or cashier, must also be transmitted to the OCC within ten days of any demand therefor made by the OCC.
Shareholder Rights Plan
Neither the Bank nor the Company currently has a shareholder rights plan in effect, and neither the Bank nor the Company has any present plans or agreements to adopt such a plan.
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EXECUTIVE OFFICERS OF THE COMPANY |
The following information is furnished with respect to certain of the executive officers of the Company. Unless otherwise noted, the positions listed are those the officers hold with the Company and its subsidiary, ZB, N.A., as of the date of this Proxy Statement.
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Individual (1)
| Principal Occupation During Past Five Years (2)
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Harris H. Simmons
Age 63
Officer since 1981
| Chairman* and Chief Executive Officer. |
James R. Abbott
Age 44
Officer since 2009
| Senior Vice President, Investor Relations. |
Bruce K. Alexander
Age 65
Officer since 2000
| Executive Vice President. President and Chief Executive Officer of ZB, N.A. – Vectra Bank Colorado.* |
A. Scott Anderson
Age 71
Officer since 1997
| Executive Vice President. President and Chief Executive Officer of ZB, N.A. – Zions Bank.* |
Paul E. Burdiss
Age 52
Officer since 2015
| Executive Vice President and Chief Financial Officer. Prior to May 2015, Corporate Treasurer at SunTrust Banks, Inc. and SunTrust Bank. |
David E. Blackford
Age 69
Officer since 2001
| Executive Vice President. Chief Executive Officer of ZB, N.A. – California Bank & Trust.* |
Alan M. Forney
Age 57
Officer since 2018
| Executive Vice President. President and Chief Executive Officer of ZB, N.A. – The Commerce Bank of Washington. Officer of The Commerce Bank of Washington* holding various positions from 2006 to 2018, including chief lending officer from 2014-2018. |
Alexander J. Hume
Age 44
Officer since 2006
| Senior Vice President and Corporate Controller. |
Dianne R. James
Age 64
Officer since 2012
| Executive Vice President and Chief Human Resources Officer. Officer of National Bank of Arizona holding various positions from 2006 to 2013. |
Thomas E. Laursen
Age 66
Officer since 2004
| Executive Vice President, General Counsel and Secretary. |
LeeAnne B. Linderman
Age 62
Officer since 2015
| Executive Vice President, Enterprise Retail Banking. Officer of Zions First National Bank holding various positions from 1992 to 2015. |
Scott J. McLean
Age 61
Officer since 2006
| President and Chief Operating Officer. Executive Vice President of the Company and Chief Executive Officer, Amegy Bank N.A. from 2009 to 2014. Mr. McLean also serves on the Board of ZB, N.A. |
Keith D. Maio
Age 60
Officer since 2005
| Executive Vice President and Chief Banking Officer. President and Chief Executive Officer of National Bank of Arizona from 2005 to 2015. |
Michael Morris
Age 59
Officer since 2013
| Executive Vice President, Chief Credit Officer. Prior to August 2013, Executive Vice President, Real Estate Banking of Zions First National Bank. |
Joseph L. Reilly
Age 64
Officer since 2011
| Executive Vice President and Chief Technology Strategist. Executive Vice President and Chief Information Officer of the Company from 2011 to 2015. |
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Individual (1)
| Principal Occupation During Past Five Years (2)
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Rebecca K. Robinson
Age 43
Officer since 2016
| Executive Vice President and Director of Wealth Management. President of Zions Trust from 2013 to 2016. Prior to April 2013, Senior Director of Planning at Wells Fargo. |
Edward P. Schreiber
Age 59
Officer since 2013
| Executive Vice President and Chief Risk Officer. From 2010 to April 2013, Managing Director of Alvarez & Marsal. |
Terry A. Shirey
Age 46
Officer since 2017
| Executive Vice President. President and CEO of ZB, N.A. – Nevada State Bank. Officer of Nevada State Bank* holding various positions from 2008 to 2017. |
Jennifer A. Smith
Age 45
Officer since 2015
| Executive Vice President and Chief Information Officer. Officer of Zions Management Services Company holding various positions from 2011 to 2015. |
Steve D. Stephens
Age 59
Officer since 2010
| Executive Vice President. President and CEO of ZB, N.A. – Amegy Bank.* |
Mark R. Young
Age 58
Officer since 2015
| Executive Vice President. President and Chief Executive Officer of ZB, N.A. – National Bank of Arizona.* From 2011 to 2015, Executive Vice President, Real Estate Banking of National Bank of Arizona. |
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1
| Officers are appointed for indefinite terms of office and may be removed or replaced by the Board or by the supervising officer to whom the officer reports. |
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2
| An asterisk (*) denotes that the individual held the same or similar position for one or more of the Company’s former bank affiliates for some or all of the period from 2013 to December 31, 2015, when such affiliates were consolidated with the Company’s subsidiary, ZB, N.A. |
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COMPENSATION DISCUSSION AND ANALYSISINFORMATION ABOUT THE COMPANIES |
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COMPENSATION DISCUSSION AND ANALYSIS | |
EXECUTIVE SUMMARY | |
2017 COMPENSATION HIGHLIGHTS | |
2017 PERFORMANCE HIGHLIGHTS | |
COMPENSATION DECISIONS FOR THE 2017 PERFORMANCE PERIOD | |
PLAN DESIGN AND AWARD HIGHLIGHTS | |
COMPENSATION DECISIONS FOR NAMED EXECUTIVE OFFICERS | |
COMPENSATION PHILOSOPHY AND OBJECTIVES | |
PHILOSOPHY, OBJECTIVES, AND PRACTICES | |
ROLES AND RESPONSIBILITIES | |
PEER GROUP | |
BENCHMARKING | |
COMPENSATION ELEMENTS | |
BASE SALARY | |
ANNUAL CASH INCENTIVE | |
LONG-TERM INCENTIVES | |
PERQUISITES | |
HEALTH AND WELFARE BENEFITS | |
RETIREMENT BENEFITS | |
OTHER COMPENSATION PRACTICES AND POLICIES | |
CHANGE IN CONTROL AGREEMENTS | |
EMPLOYMENT CONTRACTS | |
INCENTIVE COMPENSATION CLAWBACK POLICY | |
SHARE OWNERSHIP AND RETENTION GUIDELINES | |
ANTI-HEDGING AND PLEDGING POLICY | |
DEDUCTIBILITY AND EXECUTIVE COMPENSATION | |
NON-QUALIFIED DEFERRED COMPENSATION | |
2017 CEO PAY RATIO DISCLOSURE | |
ACCOUNTING FOR STOCK-BASED COMPENSATION | |
COMPENSATION COMMITTEE REPORT | |
COMPENSATION TABLES | |
In this Compensation Discussion and Analysis, or CD&A, we provide an overview of our executive compensation philosophy and decision-making processZions Bancorporation, a Utah corporation, is the parent bank holding company for 2017 compensation paid or awarded to our Named Executive Officers, or NEOs, and the factors we considered in making those decisions. Our NEOs for 2017 which included our CEO, CFO, and our three next most highly compensated executive officers, are:
Harris H. Simmons, Chairman and CEO
Paul E. Burdiss, CFO
Scott J. McLean, President & COO
Edward P. Schreiber, CRO
A. Scott Anderson, President and CEO of ZB, N.A. - Zions Bank
All of the NEOs are members of our Executive Management Committee, or EMC, which is made up of our CEO and his senior leadership team. Compensation for members of the EMC is determined by the Compensation Committee, or the Committee.
2017 COMPENSATION HIGHLIGHTS
The Committee awarded the Company’s NEOs total compensation with respect to 2017 that the Committee believes is generally commensurate with the Company’s performance in 2017. The Company had many accomplishments in 2017, some of which are as summarized below under “2017 Performance Highlights.” We achieved peer group-leading growth in both pre-provision net revenue and earnings per share, and we performed in line with our stated efficiency ratio target in the low 60% range for the 2017 performance year. We also experienced strong credit quality in 2017, with net charge-offs totaling a very modest 0.17% of average loans.
Our 2017 total shareholder return of 19% outpaced the median of our peers by over 6 percentage points. Due to the equity component of our compensation program design and our stock ownership and retention guidelines, an 18% rise in our stock price impacted our executives in direct alignment with our shareholders.
The 2017 combined annual cash incentive awards for the Company’s NEOs (excluding the CEO) increased 11% year-over-year and the total grant date value of the long-term incentive awards made to these four executives was also up 11% in aggregate from the prior year.
The total compensation for the Company’s CEO is less than the peer median. For 2017, the total compensation for Mr. Simmons is estimated to be 37% less than the market median for similarly situated executives in the Company’s 2017 Custom Peer Group (described below). The 2017 total compensation for the Company’s other NEOs is competitive with market medians. For 2017, the aggregate total compensation for Messrs. Burdiss, McLean, Schreiber, and Anderson is estimated to be approximately 1% greater than the median for similarly situated executives in the Company’s 2017 Custom Peer Group.
The Company continues to sharpen the design of its incentive compensation programs. Our aim is to promote accountability on the part of all employees; focus on the creation of long-term shareholder value; and strengthen the connections between executive pay and performance.
Given the Company’s emphasis on incentive-based compensation, as illustrated below, we provide our executives and employees with the incentive to achieve our ultimate goal of generating competitive rates of return and value for our shareholders.
In 2017, our shareholders approved a non-binding advisory say-on-pay proposal with over 94% of the votes cast voting in favor of that proposal. The Committee reviewed the results of the shareholder vote, which indicates that there is strong support among shareholders for our compensation structure and decisions.
We believe that our executive compensation program strikes an appropriate balance between fixed and variable pay as well as short and long-term pay. The exhibits below present the mix of direct compensation at target performance for our CEO and other NEOs in 2017.
1 Multi-year cash incentives refer to Value Sharing Plans.
1 Multi-year cash incentives refer to Value Sharing Plans.
The long-term awards granted in February 2017 (which vest over multi-year periods and make up approximately two-thirds of total incentive compensation) are focused on future performance. The grant mix of these long-term incentives to NEOs varies by position. Overall, the target mix in 2017 (as a percentage of total target long-term incentive compensation) was 46% multi-year cash incentive units, or Value Sharing Plan units, 43% restricted stock or restricted stock units, and 11% stock options. The actual compensation ultimately earned from these awards is highly dependent upon future stock price and financial performance. Details on the program and on individual grant decisions are set forth below under the “Components of Executive Compensation” and “Compensation Decisions for Named Executive Officers” sections, respectively.
Risk mitigation was balanced with profitability and other performance objectives through features of our compensation plans that expose our executives to loss of potential compensation value in the event of adverse financial results, adverse risk outcomes or other factors. This balancing of objectives and risk concerns has been furthered by other important design characteristics of our executive compensation arrangements.
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What We Do: |
Require strong ownership and retention of equity | The Company has adopted strong share ownership and retention guidelines. The ownership guidelines range from 1x to 5x base salary. The Committee has assigned the CEO a stock ownership guideline of 5x base salary. Executives not meeting the 1x to 5x base salary ownership guidelines may also comply by retaining 50% of the net shares awarded to them. The retention provision is designed to allow newly hired executives to build stock holdings over time and to enable executives to maintain compliance with guidelines in times of substantial stock price volatility. Further, beginning in 2015, two-year post-vest holding restrictions were attached to the restricted stock or restricted stock unit grants awarded to Messrs. Simmons and McLean. These restrictions prohibit Messrs. Simmons and McLean from selling, transferring or otherwise disposing of the shares associated with these grants for an additional two years following their respective vesting dates. |
Require “double trigger” for benefits under CIC agreements | The Company’s change in control, or CIC, agreements are subject to “double trigger” requirements, meaning that severance benefits are payable only if an executive experiences a qualifying termination of employment after a CIC. These requirements are intended to prevent our executive officers from receiving windfall benefits in the event of a CIC. |
Require a “double trigger” for accelerated vesting of equity awards upon a CIC | The Company’s 2015 Omnibus Incentive Plan provides for accelerated vesting of equity and other awards under the plan after a CIC on a “double trigger” basis, that is, only if the holder experiences a qualifying termination of employment after a CIC. Our double-trigger severance benefits are intended to prevent a windfall to award holders upon a CIC. |
Review share utilization | The Compensation Committee regularly reviews share overhang and run-rates in our equity plans and maintains share utilization levels within industry norms. |
Maintain clawback policy | Our current incentive compensation clawback policy allows the Company to, among other actions, recapture prior incentive compensation awarded based on materially inaccurate performance metrics and cancel all or a portion of long-term incentive awards based on performance against risk metrics, risk-related actions, or detrimental conduct. |
Retain an Independent Consultant | The Compensation Committee retains an independent compensation consultant to assist in developing and reviewing our executive compensation strategy and programs. The Compensation Committee, with the assistance of the independent consultant, regularly evaluates the compensation practices of our peer companies to confirm that our compensation programs are consistent with market practice. |
Discourage excessive and unnecessary risk taking | We discourage excessive risk taking by executives in many ways, including our balanced program design, multiple performance measures, clawback policy, and retention provisions. Our compensation programs discourage taking excessive risks that are likely to have an adverse impact on the Company. We validate this through risk assessments of our incentive-based compensation plans. Further, each member of the EMC is evaluated on the effectiveness of their individual risk management actions and results. This risk management effectiveness rating is an important input in the determination of their overall individual performance rating and annual cash incentive award. |
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What We Don’t Do: |
No tax gross-ups on change in control payments | The Company’s CIC agreements do not provide for excise tax gross-ups on payments made in connection with a CIC. |
No “timing” of equity grants | The Company maintains a disciplined equity approval policy. The Company doesn’t grant equity awards in anticipation of the release of material, non-public information. Similarly, Zions does not time the release of material, non-public information based on equity grant dates. |
No option re-pricing | The Company does not re-price or backdate stock options. |
No discounted stock options | The Company does not grant stock options with exercise prices below 100% of market value on the date of the grant. |
Limit the use of employment agreements | The Company presently has no active employment contracts with members of the Company’s Executive Management Committee. |
No personal use of corporate aircraft | The Company does not own or lease a corporate airplane, so personal use of corporate aircraft is not possible. |
No hedging; restrictions on pledging | The Company adopted a policy prohibiting transactions by executives and directors that are designed to hedge or offset any decrease in the market value of Zions equity securities. As more fully described elsewhere in this Proxy Statement, certain limitations have been placed on the extent to which executives and directors may hold Zions securities in a margin account or pledge Zions securities as collateral for a loan. |
2017 PERFORMANCE HIGHLIGHTS
Key items highlighting the Company’s 2017 performance include:
The Company’s Net Earnings Applicable to Common Shareholders (NEAC) increased approximately $139 million in 2017 to $550 million when compared to 2016 results. During 2017, the Company made a $12 million one-time contribution to the Company’s charitable foundation and recorded a $47 million deferred tax asset valuation adjustment related to the Tax Cuts and Jobs Act. Excluding these items, Net Earnings Applicable to Common Shareholders (NEAC) increased approximately $193 million in 2017 to $604 million when compared to 2016 results. Earnings per diluted common share were $2.60 compared to $1.99 in 2016. Incorporating the adjustments referenced above, earnings per diluted common share were $2.88 compared to $1.99 in 2016.
Additionally, the Company’s 62.3% efficiency ratio was in line with its publicly-announced target ratio in the low 60% range. In 2017, total adjusted noninterest expense was $1.640 billion. Excluding the impact of the charitable contribution noted above, adjusted noninterest expense increased $49 million, or 3%, to $1.628 billion, compared to $1.579 billion in 2016, which was in line with our publicly stated commitment to restrain growth of noninterest expenses to a modest 2-3% for 2017. These results include reductions to the Company’s incentive compensation expense in amounts that were necessary to achieve these objectives. Details of the adjusted noninterest expense and the efficiency ratio calculation can be found on page 64 of this document.
The Company’s Pre-Provision Net Revenue (PPNR) of $995 million improved by approximately $172 million in 2017 when compared to 2016 results. The Company’s adjusted Pre-Provision Net Revenue (PPNR) of $992 million improved by approximately $172 million in 2017, or 21% when compared to 2016 results, which compared favorably to the median growth rate for peers of approximately 11% in 2017. Adjusted PPNR excludes the impact of the charitable contribution described above. This adjustment is consistent with the way the Company calculates its efficiency ratio, as detailed on page 64 in this document.
Average loans increased $1.4 billion or 3.4% over 2016. This increase was driven by growth across most products and geographies, with particular strength in 1-4 family residential, commercial and industrial and municipal loan portfolios in 2017.
Average total deposits grew 3.2% or $1.6 billion as compared to 2016. This growth continued to be driven by noninterest bearing demand deposits, which were up $1.3 billion or 5.9% in 2017.
The Company’s net interest margin was 3.45% in 2017, up from 3.37% in 2016, This increase is largely related to the rising rate environment and the repositioning of cash balances into the Company’s investment portfolio. As a result of the loan, deposit, and securities trends referenced above, net interest income grew $198 million or 10.6% compared to 2016.
Noninterest income grew almost $28 million or 5.4% to $544 million in 2017. The Company grew managed core fee income (excludes FHLB/Federal Reserve dividends, Bank-owned Life Insurance (BOLI) income, gains/losses on sale of assets, and securities related gains/losses or impairments) by $8 million or 1.7% over 2016. Total revenues were up 9.5% to $2.609 billion in 2017 compared to $2.383 billion in 2016.
Net charge-offs were $73 million in 2017, which is down $59 million from 2016. Additionally, criticized balances, classified balances and non-performing loan balances decreased 14% , 28%, and 27%, respectively, from 2016 levels.
2017 PERFORMANCE SNAPSHOT
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1
| Reported tax equivalent net interest income minus net loan charge-offs as a percentage of average earning assets |
For purposes of these charts, peer median is the median of the relevant metric for the Zions Custom Peer Group described later in this document under the section labeled “Peer Group.”
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COMPENSATION DECISIONS FOR THE 2017 PERFORMANCE PERIOD |
PLAN DESIGN AND AWARD HIGHLIGHTS
In 2017, the Company continued to implement certain compensation design features it believed would help align compensation incentives with key performance objectives. These features included the following:
The Committee established formal incentive award targets for the Company’s EMC members and adopted structured guidelines designed to clarify how these EMC members’ overall performance rating should inform their respective annual cash incentive award payment. The Company also continued to utilize its assessment of each NEO’s risk management effectiveness for consideration in the determination of each EMC member’s overall performance rating.
The Committee approved the design of the Company’s 2017–2019 Value Sharing Plans in substantially the same form as the design of the 2015–2017 and 2016–2018 Value Sharing Plans. Historically, the Value Sharing Plans (VSP) have been designed for recipients to share directly in meeting operating performance results specific to their organizations.
Full funding of the final settlement values for the 2017–2019 Value Sharing Plans established by the Committee in February 2017 requires the Company to: (i) restrain growth of total noninterest expenses to just slightly greater than 2016 levels and (ii) achieve an efficiency ratio in the low 60% range for 2017; the extent to which these Plans are funded will also be contingent on continued achievement of the Company’s financial and operating objectives over the three-year period ending December 31, 2019.
The Committee attached two-year post-vest holding restrictions to the restricted stock unit grants made to Messrs. Simmons and McLean during 2017. These post-vest holding restrictions prohibit Messrs. Simmons and McLean from trading these shares for an additional two-year period following each vesting event.
COMPENSATION DECISIONS FOR NAMED EXECUTIVE OFFICERS
Individual compensation decisions for all the NEOs are based upon a variety of factors including, but not limited to, operational performance, financial and risk management results, achievement of strategic objectives and individual performance.
Base Salary
In February 2017, the Committee approved the following base salary increases for the NEOs. The base salary increases include a competitive merit increase and also recognize individual performance, experience, criticality of the position and market data. These increases became effective on January 1, 2017. Because his job responsibilities require his dual residency in both Texas and Utah, Mr. McLean’s 2016 and 2017 base salary listed below also includes a $34,000 housing subsidy which is not considered in the determination of his incentive compensation targets or actual incentive compensation awards (which are based on a percentage of base salary as discussed below).
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| 2017 Base Salary Increases |
| Name | 2016 Base Salary | 2017 Base Salary | % Increase |
| Harris H. Simmons | $ | 940,000 |
| $ | 960,000 |
| 2.1% |
| Paul E. Burdiss | $ | 550,000 |
| $ | 561,000 |
| 2.0% |
| Scott J. McLean | $ | 644,000 |
| $ | 656,000 |
| 1.9% |
| Edward P. Schreiber | $ | 518,000 |
| $ | 528,000 |
| 1.9% |
| A. Scott Anderson | $ | 548,000 |
| $ | 559,000 |
| 2.0% |
In February 2018, the Committee approved the following base salary increases for the NEOs. The base salary increases include a competitive merit increase and also recognize individual performance, experience, criticality of the position and market data. These increases became effective on January 1, 2018. As described earlier, Mr. McLean’s 2017 and 2018 base salary listed below also includes a $34,000 housing subsidy. Further, Mr. McLean’s 2018 base salary includes a $6,000 increase in lieu of a previously provided car allowance. Neither of these items were considered in the determination of his incentive compensation targets or actual incentive compensation awards (which are based on a percentage of base salary as discussed below).
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| 2018 Base Salary Increases |
| Name | 2017 Base Salary | 2018 Base Salary | % Increase |
| Harris H. Simmons | $ | 960,000 |
| $ | 1,000,000 |
| 4.2% |
| Paul E. Burdiss | $ | 561,000 |
| $ | 575,000 |
| 2.5% |
| Scott J. McLean | $ | 656,000 |
| $ | 692,000 |
| 5.6% |
| Edward P. Schreiber | $ | 528,000 |
| $ | 539,000 |
| 2.1% |
| A. Scott Anderson | $ | 559,000 |
| $ | 575,500 |
| 3.0% |
Annual Cash Incentive
The Committee decided that since it has been their practice and preference to evaluate and determine all aspects of the CEO’s compensation on a discretionary basis, it would not establish a formal target for Mr. Simmons’ annual cash incentive. However, the Committee did establish target and maximum potential cash incentive amounts for other EMC members for the 2017 performance year. The target cash incentive structures were developed based on an independent analysis of peer compensation structures and target levels by position. The 2017 annual cash incentive targets for EMC members ranged from 50% to 85% of base salary. Maximum potential annual cash incentive amounts continued to be limited to 125% of target in order to discourage excessive and/or unnecessary risk taking.
In February 2018, the Committee assessed each EMC member’s performance against a variety of pre-established performance categories tailored to each EMC member at the recommendation of the CEO. The performance categories for each individual EMC member contained descriptions of key priorities for each executive to focus on during 2017. These focus areas and the relative weighting assigned to each category were established in the first quarter of 2017 and could be modified, if appropriate, during the course of the year. The performance categories and 2017 priorities for each NEO are set forth in the table below:
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| 2017 Performance Categories | Harris Simmons | Paul Burdiss | Scott McLean | Edward Schreiber | Scott Anderson |
| Operating earnings | ü | ü | ü | ü | ü |
| Effective expense management | ü | ü | ü | ü | ü |
| Noninterest income generation | ü | – | ü | – | ü |
| Effective risk management | ü | ü | ü | ü | ü |
| Talent management & succession planning | ü | ü | ü | ü | ü |
| Leadership for major projects | – | ü | ü | ü | – |
| Optimization & mgmt. of core business unit | – | – | – | ü | ü |
| Other priorities and needs, teamwork, etc. | ü | ü | ü | ü | ü |
The Company also expanded its assessment of each NEO’s risk management effectiveness for consideration in the determination of each EMC member’s overall performance rating.
The Committee has adopted structured guidelines designed to clarify how each EMC member’s overall performance rating should inform their respective actual annual cash incentive award payments. There are six tiers of performance ratings, and an EMC member’s performance under each tier can result in a different level of adjustment to such member’s actual annual cash incentive award, as compared with such member’s target annual
cash incentive. The range of potential adjustment to the target annual cash incentive for the top five performance ratings is 50% to 125%. The lowest performance rating level limits actual annual cash incentive payments to a range of 0% to 50% of the individual EMC member’s target annual cash incentive.
While the Company believes these guidelines improve transparency and strengthen the alignment between pay and performance, the Committee continues to rely on discretion and the exercise of disciplined judgment in making its final award determinations so that individual contributions align properly with the organization’s financial and risk management results.
The Committee relied on its review and evaluation of the aforementioned factors to award the following cash incentives to the NEOs for the 2017 performance year:
|
| | | | | | | | |
| 2017 Annual Cash Incentive Award |
| Name | 2017 Target Cash Incentive | 2017 Actual Cash Incentive Award | % of Target Awarded |
| Harris H. Simmons | N/A | $ | 940,800 |
| N/A |
| Paul E. Burdiss | $ | 476,850 |
| $ | 460,000 |
| 97 | % |
| Scott J. McLean | $ | 528,700 |
| $ | 525,000 |
| 99 | % |
| Edward P. Schreiber | $ | 396,000 |
| $ | 410,000 |
| 104 | % |
| A. Scott Anderson | $ | 419,250 |
| $ | 405,000 |
| 97 | % |
Most executives received awards that were higher than the prior year’s awarded bonus but less than the target amounts available to them based on their performance ratings. The Committee noted the following significant 2017 accomplishments in the assessment of each NEO’s performance during 2017:
Harris H. Simmons, Chairman & CEO
Achieved expense and efficiency ratio targets established in mid-2015, reducing our efficiency ratio from 74.1% in the fourth quarter 2014 to 61.6% for the fourth quarter 2017 (and 59.8% if adjusted for the charitable contribution attributable to tax reform)
Strong improvement in operating performance in 2017, with industry-leading growth in pre-tax pre-provision (PPNR) net revenue
Solid progress in growing customer-related fee income
Achieved better than peer median credit outcomes, including a 44% reduction in net charge-offs
Continued improvement in risk management, organizational simplification and effectiveness, including the initiation of a corporate organizational restructuring as well as strengthened utilization of stress testing in risk management and profitability reporting
Paul E. Burdiss, CFO
Superb job of managing growth in the securities portfolio, managing liquidity, capital planning activities and managing the stress testing process
Successfully brought additional enterprise focus to the active management of noninterest expense through the development of new reporting and tracking tools
Outstanding job of promoting and supporting our efforts to simplify our operations, including in the accounting and finance functions
Continued improvements in financial reporting and communications with management, the Board, investors and regulators
Scott J. McLean, President & COO
Extraordinary efforts and leadership on the Company’s cost reduction projects resulted in the Company achieving all aspects of the noninterest expense targets associated with our multi-year performance improvement plan
Highly engaged in helping to manage implementation of critical technology projects
Helped streamline and simplify credit processes that have hampered production
Very effective in working with management to continue building our culture of continuous improvement throughout the organization
Good momentum and progress on improving fee income, with especially notable growth in municipal finance, foreign exchange, treasury management, and wealth management
Continues to provide exemplary leadership representing the Company in the Houston community and beyond
Edward P. Schreiber, CRO
Exceptional leadership and risk management results as reflected by industry-leading performance relative to peers on net charge-offs and credit losses (17 basis points in 2017 and trending lower), relatively modest levels of operational losses and relatively high levels of satisfactory outcomes in compliance
Continued improvements in the implementation of a strong enterprise risk management program and integrating it into our banking operations
Very good job of working through some organizational changes within Risk Management over the past year. Mr. Schreiber is very supportive of our diversity efforts, and is good at developing people
Strong leadership and support in the development of revised processes designed to streamline our work and reduce costs
A. Scott Anderson, President and CEO of ZB, N.A. – Zions Bank
Strong net income performance, helped by strong pricing discipline in a challenging interest rate environment
Effective risk management, with net charge-offs of .28% of average loans, and only .04% when adjusted for a single, unusual loss on a larger credit; audit and compliance exceptions are consistently low and quickly responded to
Strong talent management and diversity, including recognition by American Banker as having one of the nation’s leading teams of women bankers
Exceptionally effective brand management, with strong engagement in the Intermountain community and exemplary personal community leadership
Long-Term Incentives
Value Sharing Plans
The Company’s multi-year cash incentive plans, referred to as Value Sharing Plans, encourage participants to focus on long-term financial results for the entities they manage and provide an opportunity for executive officers and certain designated key employees to share directly in meeting operating performance results (greater than predetermined minimum performance thresholds) over multi-year periods. In addition, both equity awards and Value Sharing Plan units subject executives to long-term risks faced by the Company. These plans are also useful as a key retention element because payouts are dependent upon continued association with the Company.
2015–2017 Value Sharing Plans
The 2-year deferral periods for the 2015–2017 Value Sharing Plans concluded on December 31, 2017. Accordingly, payouts were made to each of the Company’s NEOs participating in these plans in March 2018.
In March 2015, the Committee established the 2015–2017 Value Sharing Plans consisting of a corporate-level and seven subsidiary-level plans covering the period beginning January 1, 2015 and ending December 31, 2017. Each of the plans was designed with an initial nominal value to be set at the end of a 12-month performance period (ending December 31, 2015) based on the performance of Zions Bancorporation or a subsidiary bank, as the case may be, during the one-year performance period. The initial nominal value was subject to reduction based on the occurrence of certain unusual events during a subsequent 2-year deferral period (i.e., January 1, 2016 to December 31, 2017), resulting in a final settlement value.
The one-year performance periods for the 2015–2017 Value Sharing Plans concluded on December 31, 2015. Following the conclusion of the 12-month performance period, the Compensation Committee reviewed the one-year performance results for each of the plans and assigned each plan an overall quartile rating based on their assessment. Finally, the Committee used the overall quartile ratings to determine the Per Unit Funding Rates used to calculate the initial nominal unit value for each of the Plans.
The initial nominal values were computed based on the results achieved over the 12-month performance period, referencing the Per Unit Funding Rates assigned by the Compensation Committee as detailed in the illustrations below:
The initial nominal values were subject to a risk-based forfeiture clause and were not to be settled until after the conclusion of the 2-year deferral period which ended on December 31, 2017. There were several events and decisions made during the subsequent 2-year deferral period which resulted in the final settlement value being reduced from the initial nominal values set in July 2016.
First, the Compensation Committee determined in December 2015 to eliminate the design feature which linked the settlement value of the initial nominal values to changes in the Company’s stock price during the deferral period. The Committee took this action in order to reduce the volatility of accruals connected with these future payments. Second, the Committee also determined in December 2015 that future payouts under this Plan could be reduced in the event the Company did not achieve its 2016 noninterest expense and efficiency ratio targets. Due to somewhat higher than expected operating expense performance in both 2015 and 2016, discretionary performance adjustments were applied to the initial nominal values to ensure the Company achieved its publicly communicated noninterest expense and efficiency ratio goals. These discretionary performance adjustments reduced final settlement values as detailed in the chart below:
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| | | | | | | | | | | | | | | |
2015–2017 Value Sharing Plan - Final Settlement Values |
| Name | VSP Plan | # of Units | Initial Nominal Values (Per Unit) | Discretionary Performance Adjustments (Per Unit) | Final Settlement Values (Per Unit) | Final Settlement |
| Harris H. Simmons | Zions Bancorp | 1,102,833 |
| $ | 0.47 |
| $ | (0.15 | ) | $ | 0.32 |
| $ | 352,907 |
|
| Paul E. Burdiss | Zions Bancorp | 583,333 |
| $ | 0.47 |
| $ | (0.15 | ) | $ | 0.32 |
| $ | 186,667 |
|
| Scott J. McLean | Zions Bancorp | 708,333 |
| $ | 0.47 |
| $ | (0.15 | ) | $ | 0.32 |
| $ | 226,667 |
|
| Edward P. Schreiber | Zions Bancorp | 466,667 |
| $ | 0.47 |
| $ | (0.15 | ) | $ | 0.32 |
| $ | 149,333 |
|
| A. Scott Anderson | Zions Bancorp | 298,296 |
| $ | 0.47 |
| $ | (0.15 | ) | $ | 0.32 |
| $ | 95,455 |
|
| | Zions Bank | 298,295 |
| $ | 0.58 |
| $ | (0.19 | ) | $ | 0.39 |
| $ | 116,335 |
|
All participation units in these Value Sharing Plans had an aspirational target value of $1.00 per unit and a potential maximum value of $1.20 per unit.
Messrs. Simmons, Burdiss, McLean, and Schreiber held 100% of their participation units in the Zions Bancorporation Value Sharing Plan. Mr. Anderson held 50% of his participation units in the Zions Bancorporation Plan with the remaining 50% of his participation units held in the Zions Bank Value Sharing Plan.
Further details on the design of the 2015–2017 Value Sharing Plans are provided in the “Compensation Elements” section.
2016–2018 Value Sharing Plans
The one-year performance periods for the 2016–2018 Value Sharing Plans concluded on December 31, 2016. Accordingly, at the end of the performance period, the Compensation Committee was responsible for reviewing the one-year performance results for each of the plans and assigning each plan an overall quartile rating based on their assessment. In addition, the Committee used the overall quartile ratings to determine the Per Unit Funding Rates used to calculate the initial nominal value for each of the Plans’ participants.
Detailed in the table below are the initial nominal values calculations for each of the Company’s NEOs.
|
| | | | | | | | |
2016–2018 Value Sharing Plan |
| Name | VSP Plan | # of Units | Overall Quartile Rating | Funding Rate (Per Unit) | Initial Nominal Value |
| Harris H. Simmons | Zions Bancorp | 1,175,000 |
| Q2 (Low) | $0.66 | $ | 775,500 |
|
| Paul E. Burdiss | Zions Bancorp | 583,333 |
| Q2 (Low)
| $0.66 | $ | 385,000 |
|
| Scott J. McLean | Zions Bancorp | 762,500 |
| Q2 (Low)
| $0.66 | $ | 503,250 |
|
| Edward P. Schreiber | Zions Bancorp | 518,000 |
| Q2 (Low)
| $0.66 | $ | 341,880 |
|
| A. Scott Anderson | Zions Bancorp | 274,000 |
| Q2 (Low) | $0.66 | $ | 180,140 |
|
| | Zions Bank | 274,000 |
| Q2 (Mid) | $0.74 | $ | 202,760 |
|
Messrs. Simmons, Burdiss, McLean, and Schreiber hold 100% of their participation units in the Zions Bancorporation Value Sharing Plan. Mr. Anderson holds 50% of his participation units in the Zions Bancorporation Plan with the remaining 50% of his participation units held in the Zions Bank Value Sharing Plan.
All participation units in these Value Sharing Plans have an aspirational target value of $1.00 per unit and a potential maximum value of $1.20 per unit. The initial nominal values displayed in the above table were computed using the Per Unit Funding Rates assigned by the Compensation Committee as detailed in the illustrations below:
The initial nominal values are subject to a risk based forfeiture clause and will not be settled until after the conclusion of the 24-month deferral period which ends on December 31, 2018. The Compensation Committee determined in December 2015 to eliminate the design feature which linked the settlement value of the initial nominal values to changes in the Company’s stock price during the deferral period. The Committee took this action in order to reduce the volatility of accruals connected with these future payments. Future payouts under this Plan may also be reduced in the event the Company does not achieve its 2017 noninterest expense and efficiency ratio targets.
Further details on the design of the 2016���2018 Value Sharing Plans are provided in the “Compensation Elements” section.
2017–2019 Value Sharing Plans
In February 2017, the Committee established Value Sharing Plans consisting of a corporate-level and seven affiliate-level plans covering the years 2017 through 2019. Unit awards to executives and other officers in the Value Sharing Plans are granted by the Committee on a discretionary basis, reflecting the position and proportionate responsibility for overall corporate results of each executive officer in the Company.
The allocation of units is based on an evaluation of individual performance, the individual’s contribution to Company performance, and the scope of individual responsibilities. Award sizes are also considered in view of competitive market levels of compensation for similarly situated executives in the Custom Peer Group (described below). Notably, however, since Value Sharing Plans are forward-looking incentives whose value to participants is realized over future time periods based on the achievement of specific future business and risk management objectives and/or the creation of shareholder value over time, there is less year-over-year variance (at an individual level) in the grant value of these types of incentives to participants.
The following table details the number and value of participation units in the 2017–2019 Value Sharing Plans granted to the Company’s NEOs.
|
| | | | | |
| 2017–2019 Value Sharing Plan |
| Name | # of Participation Units | Value @ $1.00 per unit |
| Harris H. Simmons | 1,440,000 |
| $ | 1,440,000 |
|
| Paul E. Burdiss | 687,500 |
| $ | 687,500 |
|
| Scott J. McLean | 777,500 |
| $ | 777,500 |
|
| Edward P. Schreiber | 518,000 |
| $ | 518,000 |
|
| A. Scott Anderson | 548,000 |
| $ | 548,000 |
|
Messrs. Simmons, Burdiss, McLean, and Schreiber hold 100% of their participation units in the Zions Bancorporation Value Sharing Plan. Mr. Anderson holds 50% of his participation units in the Zions Bancorporation Plan with the remaining 50% of his participation units held in the Zions Bank Value Sharing Plan.
All participation units in these Value Sharing Plans have a potential aggregate maximum value of $1.20 per unit. The value displayed in the above table was computed using the aspirational target value of $1.00 per unit.
The design of the 2017–2019 Value Sharing Plans is essentially the same as that used for the prior year. Future payouts under this Plan may be reduced in the event the Company does not achieve its financial and operating objectives.
The one-year performance periods for the 2017–2019 Value Sharing Plans concluded on December 31, 2017. Accordingly, at the end of the performance period, the Compensation Committee was responsible for reviewing the one-year performance results for each of the plans and assigning each plan an overall quartile rating based on their assessment. In addition, the Committee used the overall quartile ratings to determine the Per Unit Funding Rates used to calculate the initial nominal value for each of the Plans’ participants.
Detailed in the table below are the initial nominal values calculations for each of the Company’s NEOs.
|
| | | | | | | | | | |
2017–2019 Value Sharing Plan |
| Name | VSP Plan | # of Units | Overall Quartile Rating | Funding Rate (Per Unit) | Initial Nominal Value |
| Harris H. Simmons | Zions Bancorp | 1,440,000 |
| Q2 (Low) | $ | 0.64 |
| $ | 921,600 |
|
| Paul E. Burdiss | Zions Bancorp | 687,500 |
| Q2 (Low)
| $ | 0.64 |
| $ | 440,000 |
|
| Scott J. McLean | Zions Bancorp | 777,500 |
| Q2 (Low)
| $ | 0.64 |
| $ | 497,600 |
|
| Edward P. Schreiber | Zions Bancorp | 518,000 |
| Q2 (Low)
| $ | 0.64 |
| $ | 331,520 |
|
| A. Scott Anderson | Zions Bancorp | 274,000 |
| Q2 (Low) | $ | 0.64 |
| $ | 175,360 |
|
| | Zions Bank | 274,000 |
| Q2 (Mid) | $ | 0.56 |
| $ | 153,440 |
|
Messrs. Simmons, Burdiss, McLean, and Schreiber hold 100% of their participation units in the Zions Bancorporation Value Sharing Plan. Mr. Anderson holds 50% of his participation units in the Zions Bancorporation Plan with the remaining 50% of his participation units held in the Zions Bank Value Sharing Plan.
All participation units in these Value Sharing Plans have an aspirational target value of $1.00 per unit and a potential maximum value of $1.20 per unit. The initial nominal values displayed in the above table were computed using the Per Unit Funding Rates assigned by the Compensation Committee as detailed in the illustrations below:
The initial nominal values are subject to a risk based forfeiture clause and will not be settled until after the conclusion of the 24-month deferral period which ends on December 31, 2018. The Compensation Committee determined in December 2015 to eliminate the design feature which linked the settlement value of the initial nominal values to changes in the Company’s stock price during the deferral period. The Committee took this action in order to reduce the volatility of accruals connected with these future payments. Future payouts under this Plan may also be reduced in the event the Company does not achieve its 2017 noninterest expense and efficiency ratio targets.
Specific details on the design of the 2017–2019 Value Sharing Plans are provided in the “Compensation Elements” section.
Stock Option Awards
In February 2017, the Committee approved the following stock option grants for four of the Company’s five NEOs (i.e., Messrs. Burdiss, McLean, Schreiber and Anderson). The stock option grant for Mr. Simmons was approved by the Company’s Board of Directors at its meeting held in March 2017. Generally, grants of stock options are influenced by a subjective evaluation of individual performance, the scope of the individual’s responsibilities and market data. Since stock options are forward-looking incentives, there is less year-over-year variance (at an individual level) in the value of the options granted to participants.
|
| | | | | |
| 2017 Stock Option Grants |
| Name | # of Stock Options | Grant Date Fair Value (Black-Scholes Option Value) |
| Harris H. Simmons | 19,238 |
| $ | 191,995 |
|
| Paul E. Burdiss | 10,530 |
| $ | 121,306 |
|
| Scott J. McLean | 10,590 |
| $ | 121,997 |
|
| Edward P. Schreiber | 8,733 |
| $ | 100,604 |
|
| A. Scott Anderson | 6,247 |
| $ | 71,965 |
|
Additionally, these stock option grants were, in accordance with the expectations issued by the Federal Reserve Board, limited to less than 10% of each respective NEO’s total incentive compensation. Further details on the Company’s stock option grant practices are contained in the “Compensation Elements” section.
Restricted Stock Unit Awards
In February 2017, the Committee also approved restricted stock unit awards for four of the NEOs (i.e., Messrs. Burdiss, McLean, Schreiber and Anderson). Similarly, the restricted stock unit grant for Mr. Simmons was approved by the Company’s Board of Directors at its meeting held in March 2017. These grants were intended to focus senior executives on future performance. Like the granting of stock options, the size of these grants is generally influenced by a subjective evaluation of individual performance, the scope of the individual’s responsibilities and market data. Since restricted stock unit awards are forward-looking incentives, there is less year-over-year variance (on an individual level) in the value of the awards granted to participants.
These awards will vest ratably, 25% per year for four years on the anniversary date of the grant. The Committee also attached two-year post vest holding restrictions on the restricted stock units awarded to Messrs. Simmons and McLean. The two-year post vest holding restrictions prohibit Messrs. Simmons and McLean from the sale, transfer, or other disposition of these shares for an additional two-year period following each vesting event.
|
| | | | | |
| 2017 Restricted Stock Unit Grants |
| Name | # of Restricted Stock Units | Grant Value Date Fair Value |
| Harris H. Simmons | 18,773 |
| $ | 768,003 |
|
| Paul E. Burdiss | 10,891 |
| $ | 485,194 |
|
| Scott J. McLean | 10,954 |
| $ | 488,001 |
|
| Edward P. Schreiber | 9,033 |
| $ | 402,420 |
|
| A. Scott Anderson | 6,461 |
| $ | 287,838 |
|
|
|
COMPENSATION PHILOSOPHY AND OBJECTIVES |
PHILOSOPHY, OBJECTIVES, AND PRACTICES
We believe the most effective executive compensation program is one that emphasizes the alignment of executives’ interests with those of Company shareholders. Specifically, our executive compensation programs are designed to achieve the following objectives:
Attract and retain talented and experienced executives necessary to prudently manage shareholder capital in the highly competitive financial services industry
Motivate and reward executives whose knowledge, skills, and performance are critical to our success
Align the interests of our executive officers and shareholders by compensating our executives for managing our business to meet our long-term objectives, and reward performance greater than established targets
Support performance-based goals by linking significant percentages of CEO and senior executive compensation to performance, effectively using deferred pay, “clawbacks,” and performance conditions
Pursue all compensation objectives in a manner that seeks to discourage risks that are unnecessary or excessive, or could jeopardize the safety and soundness of the Company, including incorporating performance goals specifically tied to risk management
Our compensation philosophy supports and reflects the Company’s risk management culture. Zions’ 2017 compensation program for senior executives was designed to encourage management of risk and discourage inappropriate risk taking by granting a diverse portfolio of incentive compensation awards to our executives and other senior employees that are expected to reward desired behavior over time.
Our portfolio of awards is balanced between fixed and variable compensation, cash and equity-based compensation, and annual and long-term compensation. Compensation decisions for 2017 relied on discretion to consider other factors, such as effective risk management, compliance with controls and ethical duties, competition for top talent, market-based pay levels, and the need to attract, develop, grow, and retain the leadership team.
ROLES AND RESPONSIBILITIES
Role of the Committee
The Compensation Committee makes decisions regarding the compensation of our executives. Specifically, the Committee has strategic and administrative responsibility for a broad range of issues. These include ensuring that we compensate executives and key management effectively and in a manner consistent with our stated compensation philosophy and objectives and the requirements of the applicable regulatory bodies. The Compensation Committee’s authority and responsibilities are set forth in its charter and include, but are not limited to the following:
Reviewing and recommending to the full Board the compensation for the Company’s CEO
Approving the compensation for the remaining NEOs, and other members of the EMC
Selecting and approving the performance metrics and goals for all executive management compensation programs and evaluating performance at the end of each performance period
Approving annual cash incentive award opportunities, equity award opportunities, and long-term cash award opportunities under the Company’s Value Sharing Plans
In making compensation decisions, the Committee uses several resources and tools, including the services of McLagan, an independent executive compensation consulting firm with financial services industry expertise that was retained by, and reports to, the Committee. The Committee also considers summary analyses of total compensation delineating each compensation element, risk scorecards provided by our CRO, competitive benchmarking and other analyses as described below.
In 2017, the Committee took the following steps, among others, to ensure that it effectively carries out its responsibilities:
Conducted an annual review of the Committee Charter to ensure that it effectively reflects the Committee’s responsibilities
Conducted an annual review of the Company’s Custom Peer Group
Scheduled an executive session prior to the conclusion of each of the Committee meetings, without members of management, for the purpose of discussing decisions related to the CEO’s performance, goal-setting, compensation levels, and other items deemed appropriate by the Committee
Completed an annual self-evaluation of the Committee’s effectiveness
Completed an annual review of the external compensation consultant’s performance to ensure the Committee receives the appropriate resources and counsel
Worked to meet expectations and guidance from our banking regulators
Role of the Independent Consultant
The Committee uses the services of an outside executive compensation consultant, McLagan, to provide guidance and advice to the Committee on all matters covered by its charter. This consultant was directly selected and engaged by the Committee to provide a broad set of services pertaining to the compensation of the Company’s executives.
The consultant fulfills the following responsibilities:
Reviews the Committee’s charter and recommends changes as appropriate
Reviews the Committee’s agendas and supporting materials in advance of each meeting
Advises the Committee on management proposals, as requested
Reviews information from the Custom Peer Group (described below) and survey data for competitive comparisons
Reviews the Company’s executive compensation programs and advises the Committee on the design of incentive plans or practices that might be changed to improve the effectiveness of its compensation program
Reviews competitive pay practices of the Custom Peer Group for its Boards of Directors and recommends to the Committee changes required to pay the Company’s Board of Directors in a competitive fashion
Reviews, analyzes, and summarizes survey data on executive pay practices and amounts that come before the Committee
Attends all of the Committee meetings, including all executive sessions with only the Committee members as requested
Advises the Committee on potential practices for Board governance of executive compensation as well as areas of concern and risk in the Company’s programs
During 2017, McLagan was specifically engaged on the following projects:
Advised the Committee with respect to the appropriateness of compensation structure and actual amounts paid to the Company’s executive officers given the Company’s compensation philosophy, size, and Custom Peer Group
Advised on the appropriateness of executive performance goals and metrics
Reviewed and advised on the compensation for the Company’s Board of Directors
Conducted critical analysis relating to the valuation of post-vest holding requirements on the 2017 restricted stock unit grants to Messrs. Simmons and McLean
Worked collaboratively with members of management and the Committee to assess the composition of the Company’s Custom Peer Group and provided counsel on possible adjustments
Advised the Committee on market and regulatory trends and developments
Reviewed the 2017 Compensation Discussion and Analysis and related sections for this Proxy Statement
Based on its review of relevant factors, the Committee assessed McLagan’s independence and concluded that no conflict of interest existed that would have prevented McLagan from independently advising the Committee
during 2017. Fees paid to McLagan for work performed for the Compensation Committee during 2017 totaled $155,848 Compensation survey data and consulting advice delivered to management during 2017 totaled $51,900.
Role of Executive Officers in Compensation Decisions
The CEO annually reviews the performance of each of the other NEOs, along with a risk effectiveness assessment. Based on these evaluations, the CEO makes compensation recommendations to the Committee, including recommendations for salary adjustments, annual cash incentive awards, and long-term equity and long-term cash incentive award opportunities. In addition, the CEO and other members of the EMC also annually assess performance for other executive officers and make compensation recommendations to the Committee. Although the Committee considers these recommendations along with data provided by its other advisors, it retains full discretion to set all compensation for the Company’s executive officers.
Additionally, the CEO, CFO, CRO, chief credit officer, and other select members of the Company’s EMC serve on the Incentive Compensation Oversight Committee, or ICOC. The ICOC reviews and evaluates all incentive compensation plans in which the participants include executive management and other employees that expose the organization to material inherent risks. The purpose of these reviews is to address the concern that the Company’s incentive compensation plans not incent or pose excessive or unnecessary risks to the Company.
PEER GROUP
In making compensation decisions, the Committee has historically compared major elements of total direct compensation against a custom peer group of comparable publicly traded commercial banking companies, which we refer to as the Custom Peer Group. The Committee refers to this Custom Peer Group for both compensation and performance-related benchmarking. Financial performance data is prepared either by the Committee’s independent compensation consultant, McLagan, or by the Company, using publicly available data from peer group members’ public filings and audited financial statements. Compensation data is generally prepared by the Committee’s independent compensation consultants, using proprietary compensation databases and publicly available data from proxy statements. The Company’s consultant reviews any financial and/or compensation data that is prepared by the Company and provided to the Committee.
The Custom Peer Group consists of companies that are reasonably comparable in terms of size and scope of business to the Company and against which the Committee believes the Company competes for talent and shareholder investment. The following 19 companies were identified by the Committee as the 2017 Custom Peer Group. |
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| •
Huntington Bancshares Incorporated |
| |
•
BOK Financial Corporation | |
•
Citizens Financial Group | •
People’s United Financial, Inc. |
| •
Regions Financial Corporation |
•
Commerce Bancshares, Inc. | |
| |
•
First Horizon National Corp. |
|
| •
WinTrust Financial, Inc (added 2017)
|
| |
The Committee periodically, but not less than annually, reviews the Custom Peer Group and considers changes to the Custom Peer Group deemed necessary to ensure that the nature and size of the organizations continues to be appropriate. Based on the Committee’s evaluation of the Custom Peer Group for 2017, the Committee decided to make changes from the prior year. Specifically, the Company added WinTrust Financial, Inc. to the 2017 Custom Peer Group. The Company’s assets (48th percentile), market capitalization (46th percentile), and number of employees (57th percentile) ranked close to the median (50th percentile) of the revised Custom Peer Group as of June 2017.
BENCHMARKING
The Company’s goal is to provide a competitive total compensation package that will attract and retain executives with the ability and experience necessary to lead the Company and deliver strong performance to our shareholders. Since the Company competes nationally for executive talent, the Committee believes it is appropriate to generally target base salaries, annual cash compensation, and the grant value of long-term incentives to the market median (50th percentile) for similarly situated executives working at organizations in the Custom Peer Group.
When determining compensation mix and levels, the following items are considered:
The most recent and prior years’ comparative proxy statement and survey data for similar jobs among the Custom Peer Group
The 25th percentile, median (i.e., 50th percentile), and 75th percentile Custom Peer Group data for major elements of compensation (base salary, target annual cash incentive compensation, and total direct compensation)
The ability to provide market median (i.e., 50th percentile) total cash compensation (i.e., base salary plus annual cash incentive compensation) for 50th percentile performance relative to the Custom Peer Group
The ability to conform to guidance issued by the Federal Reserve Board which expects upside leverage for incentive compensation plans to be limited to no more than 125% of target
Expectations issued by the Federal Reserve Board that grants of stock options to executive management should be no more than 10% of each respective EMC member’s total incentive compensation and 50% or more of each respective EMC member’s total incentive compensation should be granted in the form of long-term incentives (e.g., stock options, restricted stock units, or cash performance plans with multi-year vesting and/or performance periods)
In aggregate, the 2017 target direct compensation package (base salary, plus target annual bonus, plus target grant value of stock options and restricted stock units, plus target value of Value Sharing Plan units) for the Company’s CEO and other senior executives, including executive officers not listed in this Proxy Statement, were within 9% of the estimated 2017 market median total compensation for similarly situated executives working at peer financial institutions in the Custom Peer Group.
We provide a brief explanation of the factors used to determine each component of the NEO’s compensation in the sections that follow.
BASE SALARY
We provide our NEOs, as well as other employees, with a base salary to compensate them for services rendered during the fiscal year. Salary levels are typically considered annually as part of our performance review process, as well as upon a promotion or other change in job responsibility. In determining base salaries, the Committee considers the executive’s qualifications and experience, scope of responsibilities, individual job performance, market conditions, competitive salary levels, and practices at companies in the Custom Peer Group, as well as pay relative to other officers of the Company.
ANNUAL CASH INCENTIVE
The annual cash incentive is a cash incentive program that provides annual cash awards to the NEOs and other key employees based on the achievement of goals established annually by the Committee. The Company awards annual bonuses to its NEOs under the Zions Bancorporation Management Incentive Plan, or MIP, which was approved by shareholders in May 2016. Under the provisions of this plan, the maximum award that may be granted to each of the NEOs with respect to any plan year is 1% of the Company’s adjusted operating income for that plan year. The MIP defines “adjusted operating income” as the Company’s consolidated income from continuing
operations before income taxes and minority interest, as determined in accordance with generally accepted accounting principles, or GAAP. The actual bonus awards made to the NEOs may not exceed the maximum awards described above, and the Committee is not obligated to disburse the full amount of the applicable percentage of adjusted operating income for the plan year and, in fact, has never done so. The amount of the actual bonus award paid to each NEO is determined by the Committee in its discretion and may be less than the maximum award allowed under the MIP based on factors the Committee deems relevant, including, but not limited to, adjusted operating income for the plan year.
Each year the Committee establishes target and maximum potential cash incentive amounts for the NEOs and other EMC members. The target cash incentive structures are developed based on an independent analysis of our Custom Peer Group’s compensation structures and target levels by position. Maximum potential annual cash incentive amounts are limited to 125% of the target in order to discourage excessive and/or unnecessary risk taking.
Details on individual annual cash incentive award decisions for 2017 are set forth in the section “Compensation Decisions for the 2017 Performance Period.”
LONG-TERM INCENTIVES
Long-term incentive compensation has historically been an area of particular emphasis in our executive compensation program, based on our belief that long-term incentives promote the long-term perspective necessary for our continued success, including sustained and improving profitability, and management and mitigation of risk. This emphasis is consistent with our executive compensation objective of aligning a significant portion of each executive’s total compensation with our long-term performance and the financial interests of our shareholders.
Value Sharing Plans
The Company’s multi-year cash incentive plans, referred to as Value Sharing Plans, encourage participants to focus on long-term financial results for the entities they manage and provide an opportunity for executive officers and certain designated key employees to be rewarded for financial results greater than predetermined minimum performance thresholds over multi-year periods. In addition, both equity awards and Value Sharing Plan units expose executives to long-term risks faced by the Company. These plans are also useful as a key retention element because payouts are dependent upon continued association with the Company. A corporate-level Value Sharing Plan is established each year for participants with corporate or enterprise-wide responsibilities, and corresponding Value Sharing Plans are established for senior officers at each of our seven banking “affiliates” in order to more directly reward those participants for results that are within their own sphere of influence. Affiliate CEOs typically are granted units in both the corporate and affiliate-level plans. Value Sharing Plans are reviewed and updated each year to ensure alignment with the Company’s business strategy, regulatory guidance and the external market.
Value Sharing Plan payments may be reduced based on the occurrence of unusual events, including but not limited to severe deterioration in asset quality, earnings, fraud, malfeasance, material errors or reputational harm during the deferral period. The Committee retains the ability to make adjustments, at its sole discretion, to the computation or assessment of performance measures or to any other provision of the Value Sharing Plans in order to equitably reflect or evaluate performance over the duration of the plan period.
2015–2017 Value Sharing Plans
The 2015–2017 Value Sharing Plans measure performance in the following categories, each of which is to be equally weighted in determining award values:
Adjusted Pre-Tax, Pre-Provision Earnings (or PTPP)
Net Charge-offs
Adjusted Total Direct Expense
Adjusted Noninterest Income
Strategic Progress (i.e., a comprehensive assessment of four to five initiatives tailored to the Company or to each affiliate)
Return on Average Assets (relative to Zions’ peers in the Custom Peer Group)
Tier 1 Common Capital Ratio (relative to Zions’ peers in the Custom Peer Group)
Initial nominal values for the 2015-2017 Value Sharing Plans were determined by the Committee at the conclusion of a one-year performance period ending December 31, 2015 based on the assignment, within one of four quartiles, of achieved performance results relative to a range of pre-established performance goals for each of the above factors.national bank association. The Committee determined the initial overall funding of each Value Sharing Plan pool using discretion which was informed by recommended funding “markers” assigned to each performance quartile.
The 2015–2017 Value Sharing Plans originally provided for the initial nominal unit values to be converted to phantom shares of the Company’s common stock with settlement in cash to reflect the market value of the phantom shares at the conclusion of a twenty-four-month deferral period. The Committee determined in December 2015 to eliminate this design feature which linked the settlement value of the initial nominal values to changes in the company’s stock price in order to reduce the volatility of accruals connected with future payments. Future payouts under this Plan may be reduced or eliminated in the event the Company does not achieve its financial and operating objectives.
Additional informationtrades on the design of the Company’s 2015–2017 Value Sharing Plans is provided in Exhibit 10.1 to the Company’s report on Form 10-Q for the quarter ended March 31, 2015.
Details on individual 2015–2017 Value Sharing Plan award decisions are set forth in the section “Compensation Decisions for the 2017 Performance Period.”
2016–2018 Value Sharing Plans
The 2016-2018 Value Sharing Plans measure performance in the following categories, and with the indicated weights to be applied in determining award values:
Pre-Tax, Pre-Provision Earnings (or PTPP) - 20% weight
Noninterest Income Growth - 15% weight
Net Charge-offs - 20% weight
Noninterest Expense - 15% weight
Return on Assets (relative to Zions’ peers in the Custom Peer Group) - 15% weight
Risk-adjusted Net Interest Margin - 15% weight
Each performance indicator is intended to measure consolidated corporate performance, except that in the case of the affiliate bank-level plans, noninterest income growth and net charge-offs are measured at the affiliate bank level.
Initial nominal values for the 2016–2018 Value Sharing Plans were determined by the Committee at the conclusion of the one-year performance period ending December 31, 2016 based on the assignment, within one of four quartiles, of achieved performance results relative to a range of pre-established performance goals for each of the above factors. Future payouts under this Plan may be reduced or eliminated in the event the Company does not achieve its financial and operating objectives.
Additional information on the design of the Company’s 2016–2018 Value Sharing Plans is provided in Exhibit 10.1 to the Company’s report on Form 10-Q for the quarter ended September 30, 2016.
Details on individual 2016–2018 Value Sharing Plan award decisions are set forth in the section “Compensation Decisions for the 2017 Performance Period.”
2017–2019 Value Sharing Plans
The 2017-2019 Value Sharing Plans measure performance in the following categories, and with the indicated weights to be applied in determining award values:
Pre-Tax, Pre-Provision Earnings (or PTPP) - 20% weight
Customer-Related Fee Income - 15% weight
Net Charge-offs - 20% weight
Direct “Efficiency Ratio” Expense - 15% weight
Return on Assets (relative to Zions’ peers in the Custom Peer Group) - 15% weight
Risk-adjusted Net Interest Margin - 15% weight
Each performance indicator is intended to measure consolidated corporate performance, except that in the case of the affiliate bank-level plans, noninterest income growth and net charge-offs are measured at the affiliate bank level.
Initial nominal values for the 2017–2019 Value Sharing Plans were determined by the Committee at the conclusion of the one-year performance period ending December 31, 2017 based on the assignment, within one of four quartiles, of achieved performance results relative to a range of pre-established performance goals for each of the above factors. Future payouts under this Plan may be reduced or eliminated in the event the Company does not achieve its financial and operating objectives.
Details on individual 2017–2019 Value Sharing Plan award decisions are set forth in the section “Compensation Decisions for the 2017 Performance Period.”
Stock Options
We have historically granted stock options on an annual basis, representing the right to purchase a specified number of our common shares at a purchase price not less than 100% of the fair market value (defined as the closing price) of the common shares on the date the option is granted. Such grants are discretionary by the Committee, based on a subjective evaluation of individual performance, the scope of the individual’s responsibilities, and market data.
Stock option grants are designed to assist the Company to:
Enhance the focus of executives on the creation of long-term shareholder value as reflected in the Company’s stock price performance
Provide an opportunity for increased ownership by executives
Maintain competitive levels of total compensation
The Company’s practice has been to grant incentive stock options up to the maximum amounts available under Section 422 of the Internal Revenue Code and, if needed, additional nonqualified stock options to reach the targeted long-term incentive value for each executive.
In accordance with the expectations issued by the Federal Reserve Board, the Committee has decided to limit grants of stock options to members of the EMC to less than 10% of each respective EMC member’s total incentive compensation. Details on individual grants of stock options to NEOs are provided in the “Compensation Decisions for Named Executive Officers” section.
Restricted Stock
A restricted stock award is an award of shares of our common stock that vests over a period of time specified by the Committee at the time of the award. A restricted stock unit is a right to acquire a share upon vesting of the restricted stock unit.
The Committee believes that restricted stock and restricted stock unit awards have been an important tool for the Committee to utilize in meeting the objectives of our executive compensation program. These awards have permitted the Committee to continue to provide a competitive total compensation value to allow us to retain key individuals, while at the same time aligning a significant portion of each NEO’s total compensation with the Company’s long-term financial performance as well as the financial interests of our shareholders. Because the restricted stock and restricted stock units that have been granted generally vest over four years, these awards expose executives to the risk of diminution in compensation value as a result of poor future Company performance.
Summary of 2017 Long-Term Incentive Grants
The following chart briefly summarizes the vesting schedule for all long-term incentives granted to the NEOs and other members of the Company’s EMC during 2017.
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| Award | 2017 | 2018 | 2019 | 2020 | 2021 |
| Stock Options | Granted at fair market value on date of grant Value realized only if stock price increases over time | 33.3% vest | 33.3% vest | 33.3% vest | |
| Restricted Stock Units | Granted at fair market value on date of grant
Grants to Messrs. Simmons and McLean include two-year post vest holding restrictions | 25% vest
Messrs. Simmons and McLean must hold vested shares for an additional two years. | 25% vest
Messrs. Simmons and McLean must hold vested shares for an additional two years. | 25% vest
Messrs. Simmons and McLean must hold vested shares for an additional two years. | 25% vest
Messrs. Simmons and McLean must hold vested shares for an additional two years. |
| Value Sharing Plan Units | Performance metrics: Goals for Compensation Committee assessment established: (i) Pre-tax, Pre-provision earnings (ii) Net charge-offs (iii) Direct “efficiency ratio” expense (iv) Customer-Related Fee Income (v) Return on assets (vi) Risk-adjusted net interest margin Performance period begins 1/1/2017 | End of performance period is 12/31/2017 Compensation Committee assesses performance and approves “Provisional Settlement” in actual initial nominal values | Risk-based forfeiture clause evaluation occurs at 12/31/2019. The total units permitted to vest may only be reduced or forfeited, not increased Upon vesting, final nominal value is determined | Actual settlement in cash unless risk-based forfeiture clause is enforced at Compensation Committee’s discretion | |
PERQUISITES
From time to time, we provide NEOs as well as other executive officers with perquisites and other personal benefits that we and the Committee believe are reasonable and consistent with our overall compensation objective to better enable the Company to attract and retain superior employees for key positions. The Committee believes that perquisites and other personal benefits generally should be modest and should have a demonstrative and significant benefit to the advancement of our business or to the efficiency of our executives in the performance of their jobs.
HEALTH AND WELFARE BENEFITS
Each of the NEOs may participate in our health and welfare benefit programs, including medical, dental, and vision care coverage, disability insurance, and life insurance, on the same terms and in the same amounts as are available to our other full-time employees.
RETIREMENT BENEFITS
We believe that providing competitive retirement security programs is an important factor in attracting and retaining highly qualified employees and executives. In accordance with this objective, we have continually reviewed and updated the design and structure of our retirement programs to maintain market competitiveness. All employees who are at least 21 years of age are eligible to participate in the Company’s Payshelter 401(k) and Employee Stock Ownership Plan. Eligibility and participation in the Deferred Compensation Plan, Excess Benefit Program, Cash Balance Plan, and Supplemental Retirement Plan, each described below, are limited to highly compensated employees or “grandfathered” employees.
Payshelter 401(k) and Employee Stock Ownership Plan
The Payshelter 401(k) and Employee Stock Ownership Plan is a defined contribution plan qualified under provisions of Section 401 of the Internal Revenue Code. The plan is a combination of a 401(k) plan and an employee stock ownership plan. The plan permits participants to contribute between 1% and 80% of their earnings on a tax-deferred basis, up to a maximum of $18,000 ($24,000 for participants age 50 and over) in 2017. Vesting of employee and employer matching contributions occur upon contribution. We provide a matching contribution of up to 4% of compensation in the form of common shares. Our contributions are determined by reference to the employee’s contributions and are not discretionary. Participants may diversify their Company matching contribution into any of the plan’s array of mutual funds at any time.
The plan also has a profit sharing component in which contributions are based upon our performance according to a discretionary formula approved annually by the Board. In recent years, the formula has been based upon the achievement of varying levels of return on average shareholder common equity. In view of the Company’s profit results in 2016, we made a profit sharing plan contribution equal to 1.0% of eligible compensation in 2017. We also made a contribution in 2018 equal to 1.75% of eligible compensation in light of 2017 performance. Company profit sharing contributions are invested in our common shares. Participants may diversify the Company’s profit sharing contribution into any of the plan’s array of mutual funds after three years of service. Vesting of the Company contributions is an incremental vesting schedule over five years. The maximum profit sharing contribution permittedNASDAQ Global Select Market under the plan is limited by Sections 415 and 401(a)(17) of the Internal Revenue Code. Under current regulations, compensation for the purpose of determining benefits in 2017 cannot exceed $270,000.
For selected executives, including Messrs. Simmons and Anderson, profit sharing contributions that cannot be provided due to the compensation limitation are restored in the Company’s Excess Benefit Plan, which is described below.
Deferred Compensation Plan
The Deferred Compensation Plan allows highly compensated employees (currently earning over $160,000 annually) to defer up to 50% of their base salary and up to 100% of their bonus and incentive compensation.
Under this plan, we have established a wide array of investment options that are maintained for the purposes of determining the amount of notional investment earnings to be credited to participants’ accounts. Participants must select the investment options for their notional contributions at the time of enrollment but can change their investment elections at any time. Individual accounts are credited with the notional earnings of the reference investment options they select, net of any investment or management fees.
Generally, participants can elect the time and manner of distribution of their vested account balance, subject to the requirements of Section 409A of the Internal Revenue Code. The manner may be in the form of a lump-sum cash payment, or payments in monthly amounts over a specified number of years. The time may be date-specific or upon the occurrence of a triggering event, such as retirement.
Assets under this plan are set aside in a rabbi trust that can only be used for the payment of benefits under the plan. However, in the event of our bankruptcy or insolvency, the assets would be subject to the claims of general creditors and participant claims would be considered along with the claims of other general creditors.
Excess Benefit Plan
On January 1, 2004, we segregated the employer-contributed executive management restoration benefit from the Deferred Compensation Plan and established the Excess Benefit Plan. The Excess Benefit Plan consists solely of employer contributions that restore benefits that are limited by tax-qualified plan limitations.
Cash Balance Plan
Benefit accruals under our cash balance defined benefit retirement plan were frozen as of December 31, 2002. A group of certain eligible (grandfathered) employees continue to accrue earnings and interest credits to their cash balance accounts in the plan. Those grandfathered were over age 55 with at least 10 years of service at the time the plan was frozen. Of the 2017 NEOs, only Mr. Anderson was a grandfathered employee receiving earnings and interest credits in this plan. Mr. Simmons accrued interest credits only. None of the other NEOs has a benefit in this plan. On June 30, 2013, the plan was frozen as to earnings credits for all participants.
Supplemental Retirement Plan
From approximately 1978 to 1995, Zions Bancorporation and Zions First National Bank provided certain executives with individual non-qualified pension arrangements. These Supplemental Retirement Plans commit to make payments over 10 years upon retirement at age 65. Messrs. Simmons and Anderson have this arrangement, which will provide each of them $20,000 per year for 10 years beginning at retirement at age 65 or older. These amounts are reduced in the instance of early retirement.
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OTHER COMPENSATION PRACTICES AND POLICIES |
CHANGE IN CONTROL AGREEMENTS
The Company has entered into change in control agreements with certain senior executives selected by the Board designed to ensure their continued services in the event of a change in control. All of the NEOs are included in this group. We entered into these agreements because the financial services industry has been consolidating and we wanted to minimize distractions to our executives caused by a rumored or actual change in control. Further, if a change in control should occur, we want our executives to be focused on the business of the organization and the interests of shareholders. In addition, we believe it is important that our executives be able to react neutrally to a potential change in control and to minimize the influence of personal financial concerns. We believe our change in control agreements assist us in retaining executive talent and realizing the aforementioned objectives.
For purposes of the change in control agreements, unless certain members of the Board determine that a change in control has not occurred, a change in control will be deemed to have occurred in any of the following circumstances:
Any person, other than the Company or any employee benefit plan of the Company, acquires beneficial ownership of more than 20% of the combined voting power of the Company’s then outstanding securities
The majority of the Board changes within any two consecutive years, unless certain conditions of Board approval are met
A merger or consolidation of the Company is consummated in which the prior owners of our common shares no longer control 50% or more of the combined voting power of the surviving entity
The shareholders of the Company approve a plan of complete liquidation of the Company
An agreement providing for the sale or disposition by the Company of all or substantially all of its assets is consummated
The change in control agreements provide that if, within the two-year period immediately following a change in control, an executive’s employment is terminated other than for cause or the executive terminates his or
her employment for “good reason” (generally, an unfavorable change in employment status, compensation or benefits, or a required relocation), then the executive generally will be entitled to receive the following:
A lump sum severance payment equal to two or three times (depending on whether the individual is grandfathered under a prior iteration of the CIC arrangement that provided for three times) the sum of annual base salary plus the greater of the targeted annual bonus then in effect, or the average of the executive’s annual bonuses for each of the two or three years (depending on the individual) immediately prior to the change in control
Full base salary through the date of termination, any unpaid annual bonus, and the targeted annual bonus prorated through the date of termination
Continuation of medical and dental health benefits for two or three years (depending on the individual)
Outplacement services for two years at an aggregate cost to the Company not to exceed 25% of the executive’s annual base salary
Full vesting in accrued benefits under our pension, profit sharing, deferred compensation, or supplemental plans
Our change in control agreements do not provide tax gross-up benefits. If any payment or distribution to or for the benefit of the executive would be subject to an excise payment required by Section 280(g) of the Internal Revenue Code, the total payment or distribution will be reduced to such extent required to not trigger the excise tax. The executive will determine which payments or benefits to reduce.
Our change in control agreements provide that, immediately prior to a change in control, all outstanding options granted to the executive under the Company’s stock option plans, incentive plans, or other similar plans will become fully vested and exercisable and the restricted period with respect to any restricted stock or any other equity award will lapse. However, this “single trigger” for accelerated vesting and exercisability has been overridden by the terms of all equity grants made by the Company during or after May 2012, which require actual or constructive termination of employment following a change-in-control for accelerated vesting and exercisability; these grants also provide for continued vesting and exercisability, even in the absence of a change-in-control or termination of employment, for certain retirement eligible employees. As a result, equity awards granted during or after May 2012 generally provide for accelerated vesting and exercisability after a change in control only if the employment of the executive is terminated (i.e., only upon the occurrence of a “double trigger”), while equity grants awarded prior to that time generally provide for accelerated vesting and exercisability after a change-in-control, regardless of any change in employment status. Additionally, executives will be entitled to pro rata payment of benefits available under the Value Sharing Plans.
Commencing on the date of termination of his or her employment, the executive may not disclose any confidential information and, for one year following such date of termination, may not solicit or attempt to solicit away from the Company any of its officers or employees.
EMPLOYMENT CONTRACTS
Generally, we do not enter into employment contracts with our NEOs or our other officers. However, in certain circumstances, such as mergers and acquisitions, or when recruiting executives from outside of the Company, it is sometimes necessary and in the best interest of the Company to enter into such contracts for a period of time. In such cases, it is the Company’s practice to enter into the contract for a limited period, typically one to three years, without extensions. Currently, the Company has no active executive employment contracts.
INCENTIVE COMPENSATION CLAWBACK POLICY
The Company believes that incentive compensation offered to its employees should be subject to clawback in order to incentivize employees to manage the Company’s risks carefully and avoid acts and practices that expose the Company to undue risk of short- or long-term financial loss, reputational damage or similar adverse impacts, and to ensure that incentive compensation realized by employees fairly reflects the short- and long-term value of the services provided by the employees. The principal and ordinary means of subjecting incentive compensation to
clawback is through compensation design features which expose our employees to loss of potential compensation in the event of such adverse impacts. These design features include, but are not limited to, risk-adjusted performance metrics, award caps, limitations on upside reward leverage, payout deferrals, multi-year performance and vesting periods, and the use of discretion by those responsible for overseeing the payout of the incentive compensation. In addition, as described in the previous section, certain senior officers are expected to hold specified amounts of Zions Bancorporation common stock under the Company’s Stock Ownership and Retention Guidelines while employed in such positions, further exposing them to risk of financial loss in the event of adverse impacts to the Company. These design features and share ownership expectations serve objectives similar to post-payout clawback policies.
The Company also believes that in extraordinary circumstances these design features and ownership requirements may not be sufficient to disincentivize undue risk-taking and ensure the fairness of realized compensation. To address such circumstances, in May 2013, the Company revised its Incentive Compensation Clawback Policy, which gives the Company the discretion to clawback incentive compensation awarded to any employee in the event of certain adverse impacts for which the employee is responsible.
Accordingly, the Company in its discretion may require any employee who has been awarded incentive compensation to forfeit, disgorge, return or adjust such compensation to the Company, and if so required any employee shall forfeit, disgorge, return or adjust such compensation in the manner directed by the Company, in the following circumstances:
As required by Section 304 of the Sarbanes Oxley Act, which generally provides that in the event the Company is required to prepare an accounting restatement due to material noncompliance, as a result of misconduct, with financial reporting requirements under securities laws, the CEO and CFO must reimburse the Company for any incentive compensation or equity compensation and profits from the sale of the Company’s securities during the 12-month period following initial publication of the financial statements that had been restated
As required by Section 954 of the Dodd-Frank Act, which indirectly provides that, in the event the Company is required to prepare an accounting restatement due to its material noncompliance with financial reporting requirements under the securities laws, the Company may recover from any of its current or former executive officers who received incentive compensation, including stock options, during the three-year period preceding the date on which the Company is required to prepare such restatement, any amount that exceeds what would have been paid to the executive officer after giving effect to the restatement
As required by any other applicable law, regulation or regulatory requirement
If the Company suffers extraordinary financial loss, reputational damage or similar adverse impact as a result of actions taken or decisions made by the employee in circumstances constituting illegal or intentionally wrongful conduct, gross negligence or seriously poor judgment
If the employee is awarded or is paid out under incentive compensation plans on the basis of significantly incorrect financial calculations or information or if events coming to light after the award or payout would have significantly reduced the amount of the award or payout if known at the time of the award or payout
Awards and incentive compensation subject to clawback under this policy include equity awards, whether or not vested or restricted; shares acquired upon vesting or lapse of restriction; short- and long-term incentive, bonus and similar plans; and discretionary bonuses. The clawback may be effectuated through the reduction or forfeiture of awards, the return of paid-out cash or exercised or released shares, adjustments to future incentive compensation opportunities or in such other manner as the Company in its discretion determines to be appropriate.
In exercising its discretion under this Incentive Compensation Clawback Policy, the Company may, to the extent permitted by law or regulation, consider the degree of harm suffered by the Company, the employee’s responsibility for the harm and his or her state of mind relative to the acts or decisions giving rise to the harm, the extent to which the employee was acting in accordance with Company policies, procedures and processes, the extent to which others were responsible for the acts or decisions giving rise to the harm, the position and responsibilities of
the employee relative to the magnitude of harm suffered by the Company, the long-term value of the employee to the Company and such other factors as the Company deems to be appropriate.
SHARE OWNERSHIP AND RETENTION GUIDELINES
We maintain share ownership and retention guidelines. These guidelines call for our executive officers either to hold common shares with an aggregate value equal to a multiple of their salaries, ranging from one to five depending on their position, or to retain shares equal to one-half of the net shares acquired through equity grants until they meet the ownership thresholds established in the guidelines.
In addition, the Committee attached two-year post-vest holding restrictions on the restricted stock and restricted stock unit grants made to Messrs. Simmons and McLean in March 2017 and February 2017, respectively. These post-vest holding restrictions prohibit Messrs. Simmons and McLean from selling, transferring or otherwise disposing of these shares for an additional two-year period following each vesting event.
ANTI-HEDGING AND PLEDGING POLICY
Our Insider Trading Policy was amended in 2013 to prohibit hedging and to place certain restrictions on pledging of Company stock by directors and executive officers. Under this policy, our directors and executive officers may pledge Company stock only with the approval of the Company CEO, CFO or General Counsel, which should not be granted unless (1) the officer or director confirms that he or she reasonably believes he or she is, and in the future will be, able to perform under the financing transaction without increased pledging of securities or foreclosure upon pledged securities; and (2) the aggregate amount of securities pledged by all officers and directors does not at the time of the pledge exceed 5% of the outstanding amount of the class of securities subject to the pledge. As of December 31, 2017, less than one-half of one percent of the Company’s total outstanding common shares were subject to pledge by directors and executive officers. All such pledges met the requirements of our Insider Trading Policy. See the beneficial ownership table on page 69 of this Proxy Statement for additional information. The Compensation Committee reviews these pledging activities annually and may direct one or more pledgors to reduce their outstanding pledged positions if the Committee believes it is necessary or advisable to reduce risk. Pledged stock is not included in amounts held by directors and officers to meet the Company’s stock ownership and retention guidelines.
DEDUCTIBILITY AND EXECUTIVE COMPENSATION
2017 Compensation
Prior to enactment of the Tax Cuts and Jobs Act of 2017, section 162(m) generally disallowed a federal income tax deduction for compensation over $1 million paid for any fiscal year to the Chief Executive Officer and the three other highest paid executive officers other than the Chief Financial Officer (referred to as “covered employees”) unless the compensation qualified as “performance-based compensation” (within the meaning of Section 162(m)). When establishing and administering our executive compensation programs for 2017, the Compensation Committee generally intended that performance-based compensation be deductible under Section 162(m). For 2017, our Annual Cash Incentive, Value Sharing Plan awards and Stock Option award programs were intended to be eligible for the performance-based compensation exemption available under Section 162(m) and therefore be deductible for income tax purposes. We are evaluating the impact of the Tax Cuts and Jobs Act as it relates to the deductibility of our 2017 long-term incentive plans. Due to the complexities of Section 162(m), however, there can be no guarantee that all amounts intended to comply with the requirements of Section 162(m) will so qualify.
Impact of Tax Cuts and Jobs Act of 2017
For taxable years beginning on and after January 1, 2018, the Tax Cuts and Jobs Act generally eliminated the “performance-based” compensation exception under Section 162(m), and expanded the $1 million per covered employee annual limitation on deductibility to a larger group of named executive officers. In addition, the new tax law also provides that any named executive officer who was a covered employee in taxable years beginning on and after January 1, 2017, will continue to be a covered employee for all subsequent taxable years (including taxable years after his or her death). As a result, the Company may no longer take an annual deduction for any compensation
paid to its expanded number of covered employees in excess of $1 million per covered employee unless “performance-based” compensation is paid pursuant to a written binding contract which was in effect on November 2, 2017, and which was not modified in any material respect on or after such date. We are still evaluating the impact of this new law on our executive compensation practices. Because the Committee believes that shareholders’ interests may best be served by offering compensation that is not fully deductible, where appropriate, to attract, retain and motivate talented executives, the Committee retains the discretion to authorize compensation that does not qualify for income tax deductibility.
NON-QUALIFIED DEFERRED COMPENSATION
On October 22, 2004, the American Jobs Creation Act of 2004 was signed into law, which changed the tax rules applicable to nonqualified deferred compensation arrangements. Section 409A of the Internal Revenue Code, or Section 409A, imposes substantial penalties and results in the loss of any tax deferral for nonqualified deferred compensation that does not meet its requirements. The Company has structured the elements of our compensation program to comply with the distribution, timing, and other requirements of Section 409A. These structures are intended to prevent certain elements of executive compensation from resulting in substantial tax liability for the NEOs pursuant to Section 409A. However, because of the uncertainties associated with the application and interpretation of Section 409A and the guidance issued thereunder, there can be no assurance that every element of the Company’s compensation program does, in fact, comply with such requirements. A more detailed discussion of the Company’s nonqualified deferred compensation arrangements is provided under the heading “Deferred Compensation Plan.symbol “ZION.”
2017 CEO PAY RATIO DISCLOSURE
As required by Item 402(u) of Regulation S-K, we are providing the following information:
For fiscal 2017, our last completed fiscal year:
The median of the annual total compensation of all employees, excluding the CEO, of our Company was $63,321; and
The annual total compensation of Harris H. Simmons, our CEO, was $3,370,603.
Based on this information, the ratio for 2017 of the annual total compensation of our CEO to the median of the annual total compensation of all employees is 53 to 1.
We completed the following steps to identify the median of the annual total compensation of all our employees and to determine the annual total compensation of our median employee and CEO:
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1. | As of December 31, 2017, our employee population consisted of approximately 10,393individuals, including any full-time, part-time, temporary, or seasonal employees employed on that date.
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2. | To find the median of the annual total compensation of all our employees, we used wages from our payroll records as reported to the Internal Revenue Service on Form W-2 for fiscal 2017. In making this determination, we annualized the compensation of full-time and part-time permanent employees who were employed on December 31, 2017, but did not work for us the entire year. No full-time equivalent adjustments were made for part time employees. |
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3. | After identifying the median employee, we added together all of the elements of such employee’s compensation for 2017 in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K. |
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4. | With respect to the annual total compensation of our CEO, we used the amount reported in the “Total” column of our 2017 Summary Compensation Table. |
ACCOUNTING FOR STOCK-BASED COMPENSATION
Beginning on January 1, 2006, we began accounting for share-based payments in accordance with the requirements of FASB Accounting Standards Codification Topic 718 Compensation - Stock Compensation (or ASC 718). See Note 1 “Summary of Significant Accounting Policies-Share-Based Compensation” and Note 17 “Share-based Compensation” to our Consolidated Financial Statements, each in our Annual Report on Form 10-K for the year ended December 31, 2017.
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COMPENSATION COMMITTEE REPORT |
The following Report of the Compensation Committee does not constitute soliciting material and should not and will not be deemed filed or incorporated by reference into any other Company filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent the Company specifically incorporates this Report by reference therein.
The Compensation Committee of the Company has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussion, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.
This report was adopted March 22, 2018, by the Compensation Committee of the Board of Directors.
Compensation Committee
Vivian S. Lee, Chairperson
Jerry C. Atkin
J. David Heaney
Roger B. Porter
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2017 SUMMARY COMPENSATION TABLE |
The following table provides information concerning the compensation of the NEOs for our most recently completed fiscal year.
In the “Salary” column, we disclose the amount of base salary paid to the NEO during the fiscal year. As described in the footnotes below, salary in 2017 is denominated in cash only. In the “Bonus” column, we detail the amount of the annual cash incentive or other bonuses paid to each NEO for 2017. In the “Stock Awards” and “Option Awards” columns, SEC regulations require us to disclose the grant date fair market value of equity awards made during the fiscal year. For restricted stock units and performance stock units, the grant date fair market value per share is equal to the closing price of our common shares on the date of grant. For stock options, the grant date fair value per share is based on certain assumptions that we explain in Note 16 “Share-Based Compensation” to our financial statements, which are included in our Annual Report on Form 10-K for the year ending December 31, 2017. Please also refer to the table in this Proxy Statement with the title “2017 Grants of Plan-Based Awards.”
We made grants of stock options, restricted stock and restricted stock units to NEOs in 2017. Vesting of these stock awards is conditioned on the participant’s continued employment with us. The restricted stock and restricted stock units vest 25% per year over four years, with potential accelerated vesting in the instance of death, disability, or a constructive termination following a change in control. The stock options have up to a seven-year term and vest 33% per year over three years, with potential accelerated vesting in the instance of death, disability, or a constructive termination following a change in control.
In the “Nonequity Incentive Plan Compensation” column, we disclose the dollar value of all compensation for services performed during the years covering the measurement period pursuant to awards under nonequity incentive plans (e.g., our Value Sharing Plans). Whether an award is included with respect to any particular fiscal year depends on whether the relevant performance measures were satisfied during that fiscal year. For example, payments under our Value Sharing Plans are typically based upon the achievement of financial results over a multi-year period; accordingly, we incorporate payments under the Value Sharing Plans for the fiscal year that includes the last day of the multi-year performance period for which the award was earned, even though such payment may be made after the end of such fiscal year.
In the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” column, we disclose the sum of the dollar value of (i) the aggregate change in the actuarial present value of the NEO’s accumulated benefit under all defined benefit pension plans (including supplemental plans) in 2017; and (ii) any above-market or preferential earnings on nonqualified deferred compensation.
In the “All Other Compensation” column, we disclose the sum of the dollar value of the following:
Perquisites and other personal benefits, or property, unless the aggregate amount of such compensation is less than $10,000
Amounts we paid or that became due related to termination, severance, or change in control, if any
Our contributions to vested and unvested defined contribution plans
Any life insurance premiums we paid during the year for the benefit of an NEO
SEC rules require us to report perquisites at the aggregate incremental cost to the Company.
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| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) |
Name and Principal Position(1) | Year | Salary ($) | Bonus ($) | Stock Awards ($)(3) | Option Awards ($) | Nonequity Incentive Plan Compen-sation ($) (11) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) (4)(5) | All Other Compensation ($) | Total ($) |
Harris H. Simmons Chairman and Chief Executive Officer Zions Bancorporation
| 2017 | 960,000 | 940,800 |
| 768,003 |
| 191,995 |
| 352,907 |
| 130,423 |
| 26,475 |
| (6) | 3,370,603 |
|
| 2016 | 940,000 | 500,000 |
| 751,989 |
| 187,997 |
| 363,935 |
| 38,170 |
| 24,913 |
| (6) | 2,807,004 |
|
| 2015 | 940,000 | 420,000 |
| 548,507 |
| 210,573 |
| 253,651 |
| 25,791 |
| 37,216 |
| (6) | 2,435,738 |
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| | | | | | | | | | | |
Paul E. Burdiss Chief Financial Officer Zions Bancorporation | 2017 | 561,000 | 460,000 |
| 485,194 |
| 121,306 |
| 186,667 |
| — | 13,352 |
| (7) | 1,827,519 |
|
| 2016 | 550,000 | 412,500 |
| 411,992 |
| 103,075 |
| — | — | 88,890 |
| (7) | 1,566,457 |
|
| 2015 | 380,769 | 385,000 |
| 1,040,513 |
| — | — | — | 170,549 |
| (7) | 1,976,830 |
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| | | | | | | | | | | |
Scott J. McLean President and Chief Operating Officer, Zions Bancorporation | 2017 | 656,000(2) | 525,000 |
| 488,001 |
| 121,997 |
| 226,667 |
| — | 26,158 |
| (8) | 2,043,823 |
|
| 2016 | 644,000(2) | 450,000 |
| 414,804 |
| 103,777 |
| 191,250 |
| — | 31,478 |
| (8) | 1,835,309 |
|
| 2015 | 644,000(2) | 400,000 |
| 393,569 |
| 144,789 |
| 159,375 |
| — | 50,959 |
| (8) | 1,792,692 |
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Edward P. Schreiber Chief Risk Officer Zions Bancorporation | 2017 | 528,000 | 410,000 |
| 402,420 |
| 100,604 |
| 149,333 |
| — | 16,281 |
| (9) | 1,606,638 |
|
| 2016 | 518,000 | 388,500 |
| 352,234 |
| 88,056 |
| 154,000 |
| — | 10,331 |
| (9) | 1,511,121 |
|
| 2015 | 518,000 | 375,000 |
| 384,225 |
| 72,456 |
| 107,333 |
| — | 15,638 |
| (9) | 1,472,652 |
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A. Scott Anderson President and Chief Executive Officer of ZB, N.A. – Zions Bank. | 2017 | 559,000 | 405,000 |
| 287,838 |
| 71,965 |
| 211,790 |
| 12,996 |
| 21,410 |
| (10) | 1,569,999 |
|
| 2016 | 548,000 | 375,000 |
| 263,047 |
| 65,807 |
| 217,756 |
| 24,710 |
| 20,042 |
| (10) | 1,514,362 |
|
| 2015 | 569,077(12) | 340,000 |
| 264,982 |
| 110,586 |
| 173,012 |
| 11,782 |
| 29,116 |
| (10) | 1,498,555 |
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1
| The table reflects the position held by each NEO as of December 31, 2017. |
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2
| Mr. McLean’s 2015, 2016, and 2017 salary includes a housing allowance that became effective upon his promotion to President of Zions Bancorporation. This housing allowance reflects the time worked in Salt Lake City, Utah for this role as well as the time worked in Houston, Texas to retain a key leadership role with the Amegy Bank in Texas. The housing allowance is more cost effective for the Company compared to the alternative of securing corporate housing or utilizing hotels. |
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3
| Grant values of restricted stock, restricted stock units and performance stock units are displayed for grants made during the fiscal year. The grant date value per share is equal to the closing price of our common stock on the grant date. |
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4
| The net change in the accumulated present value of pension benefits for each NEO during 2017 was as follows: for Mr. Simmons, $130,423, and for Mr. Anderson, $12,996. |
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5
| Amounts deferred by participants in the Deferred Compensation Plan are invested by the Company in various investment vehicles at the direction of the participant. The Company does not guarantee any rate of return on these investments. The array of investment vehicles includes publicly available mutual funds as well as publicly traded common and preferred share securities of the Company. No above market or preferential earnings were credited on deferred compensation accounts in 2017. |
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6
| All other compensation for Mr. Simmons consists of the following: (i) in 2017, $12,988 in matching and profit sharing contributions to the Company’s tax-qualified defined contribution plan and a $13,487 contribution to the non-qualified Excess Benefit Plan; (ii) in 2016, $13,662 in matching and profit sharing contributions to the Company’s tax-qualified defined contribution plan and $11,251 contribution to the non-qualified Excess Benefit Plan; (iii) in 2015, $16,781 in matching and profit sharing contributions to the Company’s tax-qualified defined contribution plan, $20,333 contribution to the non-qualified Excess Benefit Plan and $102 for a Christmas bonus. |
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7
| All other compensation for Mr. Burdiss consists of the following: (i) in 2017, $13,352 for matching contributions to the Company’s tax-qualified defined contribution plan; (ii) in 2016, $77,021 for relocation and $11,869 for matching contributions to the Company’s tax-qualified defined contribution plan; and (iii) in 2015, $150,000 sign-on bonus, $17,960 for relocation, $2,538 for matching contributions to the Company’s tax-qualified defined contribution plan and $51 for a Christmas bonus. |
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8
| All other compensation for Mr. McLean consists of the following: (i) for 2017, $12,546 in matching, true-up, and profit sharing contributions to the Company’s tax-qualified defined contribution plan, $7,762 in imputed income for club dues and $5,850 in annual car allowance; (ii) for 2016, $14,046 in matching, true-up, and profit sharing contributions to the Company’s tax-qualified defined contribution plan, $11,582 in imputed income for club dues and $5,850 in annual car allowance; (iii) for 2015, $15,004 in matching, true-up, and profit sharing contributions to the Company’s tax-qualified defined contribution plan, $17,163 in imputed income for club dues, $11,012 for relocation expenses, $5,850 in annual car allowance, $1,828 in imputed income for bank owned life insurance and $102 for a Christmas bonus. |
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9
| All other compensation for Mr. Schreiber consists of the following: (i) for 2017, $16,281 in matching, true-up, and profit sharing contributions to the Company’s tax-qualified defined contribution plan; (ii) for 2016, $10,331 in matching, true-up, and profit sharing contributions to the Company’s tax-qualified defined contribution plan; (iii) for 2015, $15,536 in matching, true-up, and profit sharing contributions to the Company’s tax-qualified defined contribution plan and $102 for a Christmas bonus. |
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10
| All other compensation for Mr. Anderson consists of the following: (i) in 2017, $13,450 in matching and profit sharing contributions to the company’s tax-qualified defined contribution plan and $7,960 contribution to the non-qualified Excess Benefit Plan; (ii) in 2016, $13,250 in matching and profit sharing contributions to the company’s tax-qualified defined contribution plan and $6,792 contribution to the non-qualified Excess Benefit Plan; (iii) in 2015, $15,800 in matching and profit sharing contributions to the company’s tax-qualified defined contribution plan, $13,214 contribution to the non-qualified Excess Benefit Plan and $102 for a Christmas bonus. |
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11
| Value Sharing Plan amounts under the 2015-17 Plans were considered earned as of December 31, 2017 and are reflected in the Nonequity Incentive Plan Compensation column. More information about the determination of these payments is disclosed in the Compensation Discussion & Analysis under the “Compensation Decisions for Named Executive Officers” section. |
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2017 GRANTS OF PLAN-BASED AWARDS |
In this table, we provide information concerning each grant to an NEO in the most recently completed fiscal year of restricted stock, restricted stock units, performance stock units, stock options, performance options, and Value Sharing Plan units. Long-term compensation is discussed in greater detail in this Proxy Statement under the caption, “Compensation Discussion and Analysis.” In the last column, we report the grant date fair value of all awards made in 2017.
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| | | Estimated Future Payouts Under Non-Equity Incentive Plan Awards | | | | |
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | (k) |
| Name | Grant Type | Equity Award Grant Date | Units Awarded (#) | Threshold ($) | Target ($) | Maximum ($) | All Other Stock Awards: Number of Stock or Stock Units (#) | All Other Option Awards: Number of Securities Under-lying Options (#) | Exercise or Base Price of Option Awards ($/sh) | Grant Date Fair Value of Shares and Option Awards ($) |
| Harris H. Simmons | Rest. Stock Units (1) | 3/24/2017 | — | — | — | — | 18,773 |
| — | — | 768,003 |
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Options (2) | 3/24/2017 | — | — | — | — | — | 19,238 |
| 40.91 | 191,995 |
|
Value Sharing Plan (3) | — | 1,440,000 |
| — | 1,440,000 |
| 1,728,000 |
| — | — | — | — |
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| Paul E. Burdiss | Rest. Stock Units (1) | 2/24/2017 | — | — | — | — | 10,891 |
| — | — | 485,194 |
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Options (2) | 2/24/2017
| — | — | — | — | — | 10,530 |
| 44.55 | 121,306 |
|
Value Sharing Plan (3) | — | 687,500 |
| — | 687,500 |
| 825,000 |
| — | — | — | — |
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| Scott J. McLean | Rest. Stock Units (1) | 2/24/2017
| — | — | — | — | 10,954 |
| — | — | 488,001 |
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Options (2) | 2/24/2017
| — | — | — | — | — | 10,590 |
| 44.55 | 121,997 |
|
Value Sharing Plan (3) | — | 777,500 |
| — | 777,500 |
| 933,000 |
| — | — | — | — |
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| Edward P. Schreiber | Rest. Stock Units (1) | 2/24/2017
| — | — | — | — | 9,033 |
| — | — | 402,420 |
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Options (2) | 2/24/2017
| — | — | — | — | — | 8,733 |
| 44.55 | 100,604 |
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Value Sharing Plan (3) | — | 518,000 |
| — | 518,000 |
| 621,600 |
| — | — | — | — |
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| A. Scott Anderson | Rest. Stock Units (1) | 2/24/2017
| — | — | — | — | 6,461 |
| — | — | 287,838 |
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Options (2) | 2/24/2017
| — | — | — | — | — | 6,247 |
| 44.55 | 71,965 |
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Value Sharing Plan (3) | — | 548,000 |
| — | 548,000 |
| 657,600 |
| — | — | — | — |
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1
| Restricted stock units and restricted stock awards were granted under the Zions Bancorporation 2015 Omnibus Incentive Plan. The restricted stock has provisions consistent with our typical structure, 25% vesting each year over four years with potential accelerated vesting upon a death, disability, or constructive termination following a change in control. Upon a retirement after attainment of age 60 or older with five or more years of total service with the Company, the restricted stock continues to vest according to the original vesting schedule. All unvested restricted stock is forfeited upon a termination of employment for any other reason. During the vesting period, restricted stock units do not provide voting rights, but do have dividend equivalent rights. An additional two year post-vest hold provision applies to the restricted stock and restricted stock units awarded to Messrs. Simmons and McLean. This provision prohibits Messrs. Simmons and McLean from the sale, transfer, or other disposition of these shares for an additional two-year period following each vesting event. |
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2
| Stock options were granted under the Zions Bancorporation 2015 Omnibus Incentive Plan. The stock options have an exercise price equal to the fair market value on the date of the grant and vest 33% each year until fully vested on the third anniversary, with potential accelerated vesting in the instance of death, disability or a constructive termination following a change in control. Upon a retirement after attainment of age 60 or older with five or more years of total service with the Company, the options continue to vest according to the original vesting schedule. All unvested awards are forfeited upon a termination of employment for any other reason. |
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3
| Units were granted under the 2017–2019 Value Sharing Plans. Messrs. Simmons, Burdiss, McLean, and Schreiber participate in the Bancorporation VSP, while Mr. Anderson has half of his VSP units in the Bancorporation Plan and half in the VSP of Zions Bank. Performance under these plans is based on an assessment of achievement by the Committee of various financial goals compared to predetermined thresholds over the time period from January 1, 2017 to December 31, 2017. Value continues to be subject to a risk based forfeiture clause and other possible reductions until the deferral period concludes on December 31, 2019. |
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OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END 2017 |
The following table provides information concerning outstanding options, restricted shares, restricted stock units, and performance stock units as of the end of our most recently completed fiscal year. Each outstanding award is represented by a separate row that indicates the number of securities underlying the award.
For option awards, the table discloses the exercise price and the expiration date. For restricted stock, restricted stock units and performance stock units, the table provides the total number of shares that have not vested and the aggregate market value of shares that have not vested.
We computed the market value of the stock awards by multiplying the closing market price of our common stock at the end of the most recent fiscal year by the number of shares or units.
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| | Option Awards | Stock Awards |
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) |
| Name | Number of Securities Underlying Unexercised Options(#) Exercisable | Number of Securities Underlying Unexercised Options(#) Unexercisable(1) | Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($)(2) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(3) |
| Harris H. Simmons | 32,191 |
| — |
| 30.10 | 6/9/2021 | 2,077 |
| 105,574 |
| 4,555 | 231,531 |
| | 22,742 |
| 11,371 |
| 29.02 | 5/21/2022 | 9,450(4) |
| 480,344 |
| — | — |
| | 10,006 |
| 20,014 |
| 25.21 | 3/17/2023 | 22,371(4) |
| 1,137,118 |
| — | — |
| | — | 19,238 |
| 40.91 | 3/23/2024 | 18,773(4) |
| 954,232 |
| — | — |
| | 64,939 |
| 50,623 |
| | | 52,671 |
| 2,677,268 |
| 4,555 | 231,531 |
| | | | | | | | | |
| Paul E. Burdiss | 6,653 |
| 13,308 |
| 20.99 | 2/11/2023 | 9,312 |
| 473,329 |
| — | — |
| — | 10,530 |
| 44.55 | 2/23/2024 | 14,721 |
| 748,268 |
| — | — |
| | | | | 10,891 |
| 553,590 |
| — | — |
| | 6,653 |
| 23,838 |
| | | 34,924 |
| 1,775,187 |
| — | — |
| | | | | | | | | |
| Scott J. McLean | 14,502 |
| — | 27.49 | 5/23/2020 | 2,798 |
| 142,222 |
| — | — |
| | 15,578 |
| — | 28.59 | 5/29/2021 | 582 |
| 29,583 |
| — | — |
| | 15,637 |
| 7,819 |
| 29.02 | 5/21/2022 | 6,780(4) |
| 344,627 |
| — | — |
| | 6,699 |
| 13,398 |
| 20.99 | 2/11/2023 | 14,821(4) |
| 753,351 |
| — | — |
| | — | 10,590 |
| 44.55 | 2/23/2024 | 10,954(4) |
| 556,792 |
| — | — |
| | 52,416 |
| 31,807 |
| | | 35,935 |
| 1,826,575 |
| — | — |
| | | | | | | | | |
| Edward P. Schreiber | 8,202 |
| — | 24.78 | 3/31/2020 | 3,323 |
| 168,908 |
| — | — |
| | 9,482 |
| — | 28.59 | 5/29/2021 | 997 |
| 50,678 |
| — | — |
| | 7,825 |
| 3,913 |
| 29.02 | 5/21/2022 | 6,620 |
| 336,495 |
| — | — |
| | 4,687 |
| 9,374 |
| 25.21 | 3/17/2023 | 10,479 |
| 532,648 |
| — | — |
| | — | 8,733 |
| 44.55 | 2/23/2024 | 9,033 |
| 459,147 |
| — | — |
| | 30,196 |
| 22,020 |
| | | 30,452 |
| 1,547,876 |
| — | — |
| | | | | | | | | |
| A. Scott Anderson | 14,929 |
| — | 27.49 | 5/23/2020 | 2,273 |
| 115,537 |
| — | — |
| | 14,359 |
| — | 28.59 | 5/29/2021 | 582 |
| 29,583 |
| — | — |
| | 11,943 |
| 5,972 |
| 29.02 | 5/21/2022 | 4,565 |
| 232,039 |
| — | — |
| | 4,248 |
| 8,496 |
| 20.99 | 2/11/2023 | 9,399 |
| 477,751 |
| — | — |
| | — | 6,247 |
| 44.55 | 5/23/2024 | 6,461 |
| 328,413 |
| — | — |
| | 45,479 |
| 20,715 |
| | | 23,280 |
| 1,183,323 |
| — | — |
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1
| All outstanding stock options vest 33% each year and have a seven year term. |
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2
| Based on closing market price on December 29, 2017, of $50.83 per share. |
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3
| Mr. Simmons was granted performance stock units in 2014. The performance conditions required that these grants would not be eligible to vest on the four-year ratable vesting schedule unless the Company successfully made substantial progress in meeting certain targets with respect to regulatory issues, stress testing and capital planning as determined by the Committee in its sole discretion. The amounts displayed in this table reflect the grants remaining after the performance determination by the Committee. Of the original performance stock units, 100% were deemed earned and are being distributed in 25% increments on the grant anniversary dates. |
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4
| An additional two year post-vest hold provision applies to the restricted stock units awarded to Messrs. Simmons and McLean in 2015, 2016 and 2017. This provision prohibits Messrs. Simmons and McLean from trading these shares for an additional two-year period following each vesting event. |
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OPTION EXERCISES AND STOCK VESTED IN 2017 |
The following table provides information concerning exercises of options and vesting of restricted stock during the most recently completed fiscal year for each of the NEOs on an aggregate basis. The table reports the number of securities for which the options were exercised, the aggregate dollar value realized upon exercise of options, the number of shares that have vested, and the aggregate dollar value realized upon vesting of shares.
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| | | | | | |
| | Option Awards | Stock Awards |
| (a) | (b) | (c) | (d) | (e) |
| Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($)(1) |
| Harris H. Simmons | — | — | 30,437 |
| 1,292,034 |
|
| Paul E. Burdiss | — | — | 18,178 |
| 749,927 |
|
| Scott J. McLean | — | — | 18,880 |
| 795,197 |
|
| Edward P. Schreiber | — | — | 14,957 |
| 619,393 |
|
| A. Scott Anderson | — | — | 15,549 |
| 661,346 |
|
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1
| We computed the aggregate dollar amount realized upon vesting, according to the vesting schedule, by multiplying the number of shares by the market value of the underlying shares on the vesting date. |
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2017 PENSION BENEFITS TABLE |
The following table provides information with respect to each plan that provides for payments or other benefits at, following, or in connection with retirement. This includes tax-qualified defined benefit plans and supplemental executive retirement plans, but does not include defined contribution plans (whether tax qualified or not).
Values reflect the actuarial present value of the NEO’s accumulated benefit under the plans, computed as of December 31, 2017. In making such a calculation, we relied on interest rate and mortality rate assumptions consistent with those used in our financial statements.
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| | | | | |
Name(1) | Plan Name | Number of Years of Credited Service(2) | Present Value of Accumulated Benefit ($) | Payments During Last Fiscal Year |
| Harris H. Simmons | Cash Balance Pension Plan | 21.46 | 682,158 |
| — |
| | Excess Benefit Plan | 21.46 | 405,680 |
| — |
| | Supplemental Retirement Plan | N/A | 163,963 |
| — |
| | | | | |
| A. Scott Anderson | Cash Balance Pension Plan | 22.50 | 453,804 |
| — |
| | Excess Benefit Plan | 22.50 | 411,425 |
| — |
| | Supplemental Retirement Plan | N/A | 169,469 |
| — |
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1
| Messrs. Burdiss, McLean, and Schreiber are not eligible to participate in the Company’s defined benefit retirement programs. |
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2
| The Zions Bancorporation Pension Plan and the cash balance restoration benefit within the Excess Benefit Plan were frozen on December 31, 2002, except for certain grandfathered individuals who met the age and service requirements established to continue receiving service credits. As of that date, Mr. Simmons did not meet the age requirement, but Mr. Anderson did meet the requirements. Subsequently, on June 30, 2013, the Zions Bancorporation Pension Plan was frozen resulting in the cash balance restoration benefit within the Excess Benefit Plan being frozen for all plan participants. The service credits displayed in the table will remain constant in future years. Any future present value changes will only result from interest crediting. |
Information regarding the Pension Plan, Excess Benefit Plan, and Supplemental Retirement Plan can be found under the heading “Retirement Benefits.”
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2017 NONQUALIFIED DEFERRED COMPENSATION TABLE |
The following table provides information with respect to each nonqualified deferred compensation plan. The amounts shown include compensation earned and deferred in prior years, and earnings on, or distributions of, such amounts.
The “Executive Contributions in Last FY” column indicates the aggregate amount contributed to such plans by each NEO during 2017.
The “Registrant Contributions in Last FY” column indicates our aggregate contributions on behalf of each NEO during 2017. Generally, these amounts reflect restoration benefits provided under the Company’s Excess Benefit Plan. We also make matching contributions to the qualified 401(k) plan, but that plan is tax qualified and, therefore, we do not include our contributions to it in this table. We include our matching contributions to the tax qualified retirement plans in the “All Other Compensation” column of the Summary Compensation Table.
The “Aggregate Earnings in Last FY” column indicates the total dollar amount of the increase (or decrease) in the value of the account from investment returns accrued during 2017, including interest and dividends paid. We pay such amounts to compensate the executive for the deferral, and we do not consider payment of interest and other earnings at market rates to be compensation. We report such amounts as compensation in the Summary Compensation Table only to the extent such earnings were paid at above-market or preferential rates as defined by the SEC, and such amounts, if any, are shown in a footnote to that table.
The “Aggregate Withdrawals/Distributions” column reports the aggregate dollar amount of all withdrawals by and distributions to the executive during our last fiscal year. Generally, neither the “Withdrawals/Distribution” column nor the “Aggregate Balance” column represents compensation with respect to our most recently completed fiscal year.
The “Aggregate Balance at Last FYE” column reports the total balance of the executive’s Deferred Compensation Plan and Excess Benefit Plan accounts as of December 31, 2017.
|
| | | | | | | | |
| Name | Executive Contributions in Last FY ($) | Registrant Contributions in Last FY ($) | Aggregate Earnings in Last FY ($) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last FYE ($) |
| Harris H. Simmons | — | 13,487 |
| 74,404 |
| — | 462,559 |
|
| Paul E. Burdiss | — | — | — | — | — |
| Scott J. McLean | — | — | — | — | — |
| Edward P. Schreiber | — | — | — | — | — |
| A. Scott Anderson | — | 7,960 |
| 137,530 |
| — | 845,062 |
|
|
|
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL |
The following table summarizes the estimated payments to be made under each contract, agreement, plan, or arrangement that provides for payments to an NEO at, following, or in connection with any termination of employment including by resignation, retirement, disability, or a constructive termination of an NEO, or change in control of the Company or a change in the NEO’s responsibilities.
For purposes of quantitative disclosure in the following table, and in accordance with SEC regulations, we have assumed that the termination took place on the last business day of our most recently completed fiscal year, and that the price per share of our common shares is the closing market price as of that date, $50.83.
SEVERANCE
Our NEOs do not have employment agreements which guarantee them employment for any period of time. Therefore, we would provide post-termination payments of salary or severance to these NEOs only under the Company’s broad-based severance policy in the event of a reduction-in-force or other applicable consideration pursuant to a CIC agreement.
Under Zions Bancorporation’s severance guidelines, which applies to all regular employees, the NEOs could receive the maximum severance of 52 weeks base salary. We pay such amounts in anticipation of unemployment and not as a reward for past service. Payment is triggered upon circumstances which may include, but are not limited to, a reduction-in-force, job elimination, consolidation, merger, or re-organization (other than a change in control). Severance is typically paid in biweekly installments but the Company reserves the right to make such payments in a single lump-sum. Payment of severance is conditioned upon, among other things, a release of claims against us by the executive. Refer to the section, “Change in Control Agreements” for a description of the benefits the Company is obligated to pay the NEOs in the event of their termination of employment after a change in control by Zions Bancorporation involuntarily “without cause” or by the executive for “good reason.”
ACCELERATED VESTING OF LONG-TERM INCENTIVES
Presently, we have long-term incentive plan arrangements in place with our NEOs through Value Sharing Plans and equity awards. Please also refer to the discussion of long-term incentives above under the heading “Compensation Discussion and Analysis.”
VALUE SHARING PLANS
NEO’s received Value Sharing Plan units in 2015, 2016 and 2017. These plans provide for a pro-rata payment at the completion of the three-year award period, if value is earned, in the event of a termination of employment due to death, disability, or retirement. The plans provide for the payment to be made upon completion of the award period. However, upon a change in control of the Company, the pro-rata payment is to be made based on plan value determined at the higher of target or performance as of the end of the quarter prior to the change in control.
EQUITY AWARDS
The Company has granted equity awards, consisting of stock options, restricted stock and restricted stock units, to executives, including the NEOs, in recent years. The provisions of equity awards vest and become exercisable upon the death or disability of the holder. Equity awards vest and become exercisable after a change in control if the executive is terminated by the Company other than for cause or by the executive for good reason. In addition, the provisions of equity awards provide that, upon the executive’s retirement at age 60 or older with five or more years of service with the Company, any unvested equity awards will continue to vest and become exercisable according to the original vesting schedule, subject to certain non-compete, non-disparagement and confidentiality conditions. Unvested equity awards are forfeited by the executive upon termination in circumstances not described above. Please refer to the section “Compensation Discussion and Analysis” for more information about our equity awards.
RETIREMENT PLANS
All of our NEOs are fully vested in their retirement benefits except for Messrs. Burdiss and Schreiber who have unvested balances in the Payshelter 401(k) and Employee Stock Purchase Plan related to profit sharing contributions. These profit sharing contributions vest over five years. Retirement benefits are not enhanced based on circumstances regarding termination. However, upon a change in control, any unvested balance(s) would fully vest and these amounts are reflected in the table below. We report additional information regarding our retirement plans above under the headings “Compensation Discussion and Analysis” and “2017 Pension Benefits Table,” and in the “2016 Nonqualified Deferred Compensation Table.”
MISCELLANEOUS BENEFITS
Under the Company’s change in control agreements, which are described above under the heading “Compensation Discussion and Analysis,” the Company is obligated to pay certain other benefits. These include continuation of medical and dental benefits under the change in control agreements for 36 months. The conditions of the Company’s obligations under the change in control arrangements are discussed elsewhere in this Proxy Statement.
|
| | | | | |
Executive Benefits and
Payments Upon Termination
| Voluntary
Termination
($)
| Death or
Disability
($)
| For Cause
Termination
($)
| Involuntary
Not for Cause
or Voluntary Good Reason
Termination
(without Change in Control)
($)
| Involuntary
Not for Cause
or Voluntary Good Reason
Termination
(with Change in Control)
($)
|
Harris H. Simmons | | | | | |
Severance | — | — | — | 960,000(1)
| 5,578,600(2)(3)
|
Accelerated Vesting of Long-Term Incentives | — | —(6)
| — | — | 862,066(7)
|
Retirement Plans | — | — | — | — | 32,400(4)
|
Other Benefits | — | — | — | — | 29,556(5)
|
| | | | | |
Paul E. Burdiss | | | | | |
Severance | — | — | — | 561,000(1)
| 845,848(2)(3)
|
Accelerated Vesting of Long-Term Incentives | — | 2,238,426(6)
| — | — | 2,686,620(7)
|
Retirement Plans | — | — | — | — | 34,790(4)
|
Other Benefits | — | — | — | — | 29,556(5)
|
| | | | | |
Scott J. McLean | | | | | |
Severance | — | — | — | 661,850(1)
| 3,673,268(2)(3)
|
Accelerated Vesting of Long-Term Incentives | — | —(6)
| — | — | 547,700(7)
|
Retirement Plans | — | — | — | — | 32,400(4)
|
Other Benefits | — | — | — | — | 22,896(5)
|
| | | | | |
Edward P. Schreiber | | | | | |
Severance | — | — | — | 528,000(1)
| 935,499(2)(3)
|
Accelerated Vesting of Long-Term Incentives | — | 1,928,223(6)
| — | — | 2,291,103(7)
|
Retirement Plans | — | — | — | — | 39,954(4)
|
Other Benefits | — | — | — | — | 29,556(5)
|
| | | | | |
A. Scott Anderson | | | | | |
Severance | — | — | — | 559,000(1)
| 2,934,750(2)(3)
|
Accelerated Vesting of Long-Term Incentives | — | —(6)
| — | — | 441,981(7)
|
Retirement Plans | — | — | — | — | 32,400(4)
|
Other Benefits | — | — | — | — | 20,124(5)
|
| |
1
| Zions Bancorporation maintains severance guidelines for executive officers that generally provide four weeks salary for each $20,000 in base salary (rounded to the nearest thousand) or two weeks pay for every year of completed service up to ten years and an additional week of pay for every year over ten years of service, whichever is greater up to a maximum of 52 weeks. A severance payment for a NEO, if any, is not enhanced over what any other employee would be due as a result of the termination occurrence. |
| |
2
| Under the Company’s change in control agreements, upon a change in control and termination by the Company other than for cause or by the executive for good reason (i.e., a “double trigger”), severance for the NEO would consist of three times the sum of the individual’s salary at the time of the change in control plus the greater of: (i) the average annual bonus paid to the executive for the three years preceding the change in control or (ii) the individual’s current target bonus. |
| |
3
| The Company’s change in control agreements specify that if any payment or distribution to the executive would be subject to excise payment required by Section 280(g) of the Internal Revenue Code, the total payment or distribution will be reduced to such extent required to not trigger the excise tax. If a reduction is necessary, the executive may decide which element of pay should be reduced. We have assumed that the executive elects to reduce amounts attributable to the annual cash incentive. Accordingly, this figure reflects only the amount necessary (in |
addition to accelerated vesting of long term incentives, retirement plans and other benefits) to reach the excise tax limit for this executive, rather than the full value of the long-term incentives accelerated as a result of the change in control. The reported value of severance has been reduced for Messrs. Burdiss and Schreiber in order to avoid the imposition of excise taxes.
| |
4
| Under the Company’s change in control arrangements, each NEO would be entitled to receive an amount equal to the matching contribution the Company would have contributed under the Company’s 401(k) plan had they remained employed for three years and had the executive made the maximum elected deferral contribution. The Company’s change in control agreements also provide for accelerated vesting of any unvested 401(k) plan balances. Messrs. Burdiss and Schreiber had unvested 401(k) balances as of December 31, 2017. The reported amounts reflect the maximum employer contribution of 4% applied to the compensation limit ($270,000) imposed by Sections 415 and 401(a)(17) of the Internal Revenue Code and the acceleration of Messrs. Burdiss’ and Schreiber’s unvested balances. |
| |
5
| Under the Company’s change in control agreements, each of the NEOs would be entitled to the continuation of medical and dental benefits for 36 months if terminated following a change in control of the Company. This figure represents the aggregate cost of fulfilling that obligation. |
| |
6
| The equity awards contain a provision that would accelerate vesting in the instance of death or disability. Messrs. Burdiss and Schreiber would receive an incremental benefit from this provision. These figures represent the potential value of this acceleration as of December 31, 2017. Messrs. Simmons, McLean and Anderson would not receive an incremental benefit from the death or disability provision, because they have already met the retirement eligibility provision of these grants based on their age and service as of December 31, 2017. |
| |
7
| The Company’s change in control arrangements, Value Sharing Plan provisions, and equity award terms would give the NEOs certain benefits under change in control circumstances that they would not otherwise receive. The figures in the table represent the incremental increase in value of long-term incentives resulting from an assumed change in control as of December 31, 2017. For Value Sharing Plans, the incremental value results in instances where the target value of plan units exceeds the estimated value as of December 31, 2017. For equity awards that are held by NEOs who were not age 60 or did not have five years service as of December 31, 2017, the incremental value is based on, in the case of stock options, the difference between the price of our common stock on December 31, 2017 and the exercise price of the unvested option or, in the case of restricted stock or restricted stock units, the price of our common stock on December 31, 2017. For equity awards held by executives who had attained age 60 and five years of service as of December 31, 2017, no incremental value is reflected, because the value of the award will be fully recognized regardless of whether a change in control occurs. |
|
|
RECONCILIATION OF NON-GAAP PERFORMANCE METRICS |
For Net Earnings Applicable to Common Shareholders, Pre-Provision Net Revenue and the Efficiency Ratio, the identified adjustments to reconcile from the applicable GAAP financial measures to the non-GAAP financial measures are included where applicable in financial results or in the balance sheet presented in accordance with GAAP. We consider these adjustments to be relevant to ongoing operating results and financial position.
We believe that excluding the amounts associated with these adjustments to present the non-GAAP financial measures provides a meaningful base for period-to-period and company-to-company comparisons, which will assist regulators, investors, and analysts in analyzing the operating results or the financial position of the Company and in predicting future performance. These non-GAAP financial measures are used by management to assess the performance of the Company’s business or its financial position for evaluating bank reporting segment performance, for presentations of the Company’s performance to investors, and for other reasons as may be requested by investors and analysts. We further believe that presenting these non-GAAP financial measures will permit investors and analysts to assess our performance on the same basis as that applied by management.
Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. Although these non-GAAP financial measures are frequently used by stakeholders to evaluate a company, they have limitations as an analytical tool, and should not be considered in isolation or as a substitute for analysis of results reported under GAAP.
The following table presents a reconciliation of net earnings applicable to common shareholders (GAAP) to the same performance measure on a non-GAAP basis after adjusting for the items specified.
|
| | | | | | |
| Net Earnings Applicable to Common Shareholders (GAAP) |
| $ In millions except per share amounts | 2017 | | 2016 |
| (a) | Net earnings applicable to common shareholders (GAAP) | 550 |
| | 411 |
|
| (b) | Diluted Shares (in thousands) | 209,653 |
| | 204 |
|
| | EPS (GAAP) | 2.60 |
| | 1.99 |
|
| | | | | |
| | PLUS Adjustments: (1) | | | |
| | Adjustments to noninterest expense | 9 |
| | 6 |
|
| | Adjustments to revenue | (12 | ) | | (9 | ) |
| | Tax effect for adjustments | 1 |
| | 1 |
|
| | Preferred stock redemption | 2 |
| | 10 |
|
| (c) | Total adjustments | — |
| | 8 |
|
| | | | | |
| (a+c)=(d) | Adjusted net earnings applicable to common (non-GAAP) | 550 |
| | 419 |
|
| (d)/(b) | Adjusted EPS (non-GAAP)(1) | 2.60 |
| | 2.05 |
|
| |
1
| See Details of Adjustments on the following page. |
The following table provides a reconciliation of noninterest expense (GAAP), taxable-equivalent net interest income (GAAP) and noninterest income (GAAP) to the efficiency ratio (non-GAAP) and pre-provision net revenue (non-GAAP).
|
| | | | | | |
| Efficiency Ratio and Pre-tax, Pre-provision Net Revenue |
| $ In millions except per share amounts | 2017 | | 2016 |
| Pre-Provision Net Revenue (PPNR) | | | |
| (a) | Total noninterest expense (GAAP) | 1,649 |
| | 1,585 |
|
| | LESS adjustments: | | | |
| | Severance costs | 7 |
| | 5 |
|
| | Other real estate expense | (1 | ) | | (2 | ) |
| | Provision for unfunded lending commitments | (7 | ) | | (10 | ) |
| | Debt extinguishment cost | — |
| | — |
|
| | Amortization of core deposit and other intangibles | 6 |
| | 8 |
|
| | Restructuring costs | 4 |
| | 5 |
|
| (b) | Total adjustments | 9 |
| | 6 |
|
| | | | | |
| (a-b)=(c) | Adjusted noninterest expense (non-GAAP) | 1,640 |
| | 1,579 |
|
| | | | | |
| (d) | Net interest income (GAAP) | 2,065 |
| | 1,867 |
|
| (e) | Fully taxable-equivalent adjustments | 35 |
| | 25 |
|
| (d+e)=(f) | Taxable-equivalent net interest income | 2,100 |
| | 1,892 |
|
| (g) | Noninterest Income (GAAP) | 544 |
| | 516 |
|
| (f+g)=(h) | Combined Revenue | 2,644 |
| | 2,408 |
|
| | | | | |
| | LESS adjustments: | | | |
| | Fair value and nonhedge derivative income (loss) | (2 | ) | | 2 |
|
| | Impairment losses on investment securities, net | — |
| | — |
|
| | Securities gains (losses), net | 14 |
| | 7 |
|
| (i) | Total adjustments | 12 |
| | 9 |
|
| | | | | |
| (h-i)=(j) | Adjusted revenue | 2,632 |
| | 2,399 |
|
| (h-a) | Pre-Provision net revenue (GAAP) | 995 |
| | 823 |
|
| (j-c) | Adjusted Pre-Provision Net Revenue (non-GAAP) | 992 |
| | 820 |
|
| | | | | |
| (c)/(j) | Efficiency Ratio (non-GAAP) | 62.3 | % | | 65.8 | % |
The following table presents a reconciliation of Pre-tax Pre-Provision Net Income, Noninterest Income and Total Direct Expense to the same performance measures on a non-GAAP basis after adjusting for the items specified. The adjusted measures are utilized in the Value Sharing Plans.
|
| | | | | | | |
| $ In thousands except per share amounts | | CONSOLIDATED ZB |
| | | 2015 | 2016 | 2017 |
| | | | | |
| Net interest income (GAAP) | (a) | 1,715,260 |
| 1,867,350 |
| 2,065,018 |
|
| FDIC-Supported transactions | (b) | 31,420 |
| 18,615 |
| — |
|
| Adjusted net interest income (non-GAAP) | (a-b) = c | 1,683,840 |
| 1,848,733 |
| 2,065,018 |
|
| | | | | |
| Noninterest income (GAAP) | (d) | 357,241 |
| 515,609 |
| 543,615 |
|
| Adjustments: | | | | |
| Reclass credit and corporate credit card programs expense | (e) | (19,879 | ) | — |
| — |
|
| Fully taxable equivalent adjustments | (f) | — |
| — |
| (35,508 | ) |
| FDIC-Supported transactions | (g) | 607 |
| 828 |
| — |
|
| Fair value and nonhedge derivative income (loss) | (h) | (111 | ) | 2,206 |
| (936 | ) |
| Equity securities gains, net | (i) | 11,875 |
| 7,168 |
| 13,420 |
|
| Fixed income securities losses, net | (j) | (138,735 | ) | 102 |
| 120 |
|
| Total adjustments | (e+f+g+h+i+j) = (k) | (146,243 | ) | 10,304 |
| (22,904 | ) |
| Adjusted noninterest income (non-GAAP) | (d-k) = (l) | 503,484 |
| 505,305 |
| 566,519 |
|
| | | | | |
| Adjusted revenue (non-GAAP) | (c+l) = (m) | 2,187,324 |
| 2,354,038 |
| 2,631,537 |
|
| | | | | |
| Noninterest expense (GAAP) | (n) | 1,580,607 |
| 1,585,274 |
| 1,649,017 |
|
| Other real estate owned expenses | (o) | — |
| — |
| (1,421 | ) |
| Reclass credit and corporate credit card program expense | (p) | (19,879 | ) | — |
| — |
|
| FDIC-supported transactions | (q) | 9,228 |
| 5,774 |
| — |
|
| Severance costs | (r) | 11,005 |
| 4,649 |
| 7,096 |
|
| Restructuring costs | (s) | 3,852 |
| 4,682 |
| 3,975 |
|
| Provision for unfunded lending commitments | (t) | (6,238 | ) | (9,927 | ) | (6,992 | ) |
| Amortization of core deposit and other intangibles | (u) | 9,247 |
| 7,853 |
| 6,404 |
|
| Other adjustments (Charitable Contrib., Hurricane Harvey) | (v) | — |
| — |
| 14,900 |
|
| Debt extinguishment cost | (w) | 2,530 |
| 353 |
| — |
|
| Total adjustments | (n+o+p+q+r+s+t+u+v+w) = (x) | 9,745 |
| 13,384 |
| 23,962 |
|
| Adjusted noninterest expense (non-GAAP) | (n-x) = (y) | 1,570,862 |
| 1,571,890 |
| 1,625,055 |
|
| | | | | |
| Amortization of core deposit and other intangibles | (u) = (z) | 9,247 |
| 7,853 |
| — |
|
| | | | | |
Adjusted noninterest expense plus CDI amortization (non-GAAP) | (y+z) = (a1) | 1,580,109 |
| 1,579,743 |
| 1,625,055 |
|
| | | | | |
Adjusted pre-tax pre-provision net income (non-GAAP) | (m-a1) = (a2) | 607,215 |
| 774,295 |
| 1,006,482 |
|
|
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS |
Certain directors and executive officers, corporations and other organizations associated with them, and members of their immediate families, were during 2017 and continue to be customers of and had banking transactions, including loans, with the Company’s bank subsidiary in the ordinary course of business. Such loans were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with persons unrelated to us.
These ordinary course transactions include extensions of credit to directors, executive officers and companies considered to be controlled by directors or officers that are subject to Regulation O of the Board of Governors of the Federal Reserve System, which governs a bank’s loans to insiders (“Reg O”). Such loans must meet certain standards and must be reported to or, in certain cases, approved by the board of directors of the bank making the extension of credit. At March 31, 2018, the Company had outstandingconsolidated total assets of approximately $2.4 million$66.481 billion, total deposits of approximately $52.963 billion and total shareholders’ equity of approximately $7.644 billion. The Bank and its subsidiaries conduct commercial banking operations through 431 branches in lending commitments with approximately $1.8 million in outstanding balances subject to Reg O. None of these loans involve more than the normal risk of collection or present other unfavorable features.
|
|
RELATED PARTY TRANSACTIONS POLICY |
Arizona, California, Colorado, Idaho, Nevada, New Mexico, Oregon, Texas, Utah, Washington and Wyoming.The Company’s Related Party Transactions Policy requires the Nominating and Corporate Governance Committee to approve or ratify any transaction betweenprincipal executive offices of the Company and any executive officer or director, as well as 5% or greater shareholdersthe Bank are located at One South Main Street, Salt Lake City, Utah, 84133 and certain family membersthe telephone number is (801) 844-7637.
Security Ownership of anyManagement and Principal Shareholders of the foregoing that would need to be disclosed pursuant to Item 404(a)Company
The following table sets forth certain information regarding the beneficial ownership of the SEC’s Regulation S-K. The Related Party Transactions Policy provides that in determining whether to approve or ratify any related party transaction, the NominatingCompany’s common stock and Corporate Governance Committee will consider, among other things, the following factors: (i) whether the termsperpetual preferred stock as of the transaction are fair to the Company and on the same basis as would apply if it did not involve a related party, (ii) whether the Company has business reasons for entering into the transaction, (iii) whether the transaction would impair the independence of an outside[•], 2018 (the record date), unless otherwise noted, by (1) each director, and (iv) whether the transaction would present an improper conflict of interest for any director ornamed executive officer of the Company. The only transactions occurring since January 1, 2017 for which disclosure is required under Item 404(a) are described above under “Ordinary Course Loans.”
|
|
COMPENSATION OF DIRECTORS |
Our Board of Directors establishes director compensation. The Compensation Committee, with the assistance of outside consultants, periodically reviews the amountCompany and composition of director compensation(2) all directors and makes recommendations to the Board.
In 2017, each of our outside directors received a $47,500 annual retainer and $1,500 for each regular, special or committee meeting that they attended. The Lead Director serving as chair of the Executive Committee receives an additional $25,000 annual retainer. The chairmen of the Risk Oversight and Audit Committees receive an additional $15,000 annual retainer and members of the Risk Oversight and Audit Committee, including the chairs, receive an additional $3,000 annual retainer. The chair of each of the other standing committees receives an additional $10,000 annual retainer. The Risk Oversight Committee has given one of its members a special technology assignment for which he received an additional $7,500 retainer. The retainer and meeting fees are paid in cash unless the director elects to defer his or her compensation as described below. Directors who are full-time compensated employeesofficers of the Company do not receive either the retainer or any other compensation for attendance at meetings of the Board or its committees.
Nonemployee directors were granted either restricted stock or restricted stock units in 2017. The number of restricted stock or units was determined by dividing $91,500 by the closing price of Zions Bancorporation common stock on the grant date and rounding to the nearest share.
|
|
DEFERRED COMPENSATION PLAN FOR NONEMPLOYEE DIRECTORS |
We maintain a Deferred Compensation Plan for directors, pursuant to which a director may elect to defer receipt of all or a portion of his or her compensation until retirement or resignation from the Board. Amounts deferred are held in a rabbi trust and invested in either a guaranteed income investment fund or our common shares based upon the director’s election, subject to plan limitations. Settlement is made only in cash, unless in our sole discretion we determine to make a distribution in kind (or partly in kind and partly in cash), and is based on the current market value of the account.
In 2017, Mr. Heaney served as a membergroup. The information below includes, where applicable, shares underlying options and warrants that are exercisable within 60 days of the advisory board of Amegy Bank, a division of the Company’s subsidiary ZB, N.A. His 2017 advisory board compensation is reported in the table below in the “All Other Compensation” column.
|
|
2017 DIRECTOR SUMMARY COMPENSATION TABLE |
|
| | | | | | | | | |
| (a) | (b) | (c) | (d) | (e) | (f) | (g) |
Name(1) | Fees Earned or Paid in Cash ($)(2) | Stock Awards ($)(3)(4) | Option Awards ($)(4) | Change in Pension Value and Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) |
| Jerry C. Atkin | 92,417 |
| 91,508 |
| — | — | — | 183,925 |
|
| Gary L. Crittenden | 90,833 |
| 91,508 |
| — | — | — | 183,342 |
|
Patricia Frobes(5) | 44,667 |
| — |
| — | — | — | 44,667 |
|
| Suren K. Gupta | 86,500 |
| 91,508 |
| — | — | — | 178,008 |
|
| J. David Heaney | 97,917 |
| 91,508 |
| — | — | 15,004 | 204,429 |
|
| Vivian S. Lee | 71,083 |
| 91,508 |
| — | — | — | 162,592 |
|
| Edward F. Murphy | 115,000 |
| 91,508 |
| — | — | — | 206,508 |
|
| Roger B. Porter | 76,000 |
| 91,508 |
| — | — | — | 167,508 |
|
| Stephen D. Quinn | 119,208 |
| 91,508 |
| — | — | — | 210,717 |
|
Shelley Thomas Williams(5) | 7,208 |
| — | — | — | — | 7,208 |
|
Barbara A. Yastine(3, 5) | 56,875 |
| 98,632 |
| — | — | — | 155,507 |
|
| |
1
| Harris H. Simmons, the Company’s Chairman and CEO, is not included in this table because he is an employee of the Company and thus receives no compensation as a director. His compensation as an employee of the Company is shown in the Summary Compensation Table on page 53.
|
| |
2
| Amounts earned include fees deferred by participating directors under the Zions Bancorporation Deferred Compensation Plan for Directors. |
| |
3
| Grants of 2,282 shares of restricted stock were made to each director effective June 2, 2017, under the 2015 Omnibus Incentive Plan, which vested immediately on the date of grant. The fair market value on the date of grant was $40.10 per share. In addition, Ms. Yastine received a prorated grant following her election to the Board. She received 173 shares with a fair market value of $41.18 per share as of the date of grant. |
| |
4
| The directors’ stock option awards outstanding as of December 31, 2017 are set forth in the table below and are also included in the “Common Shares Beneficially Owned” column of the table on page 69. |
| |
5
| Ms. Yastine was elected to the Board on April 10, 2017. The following directors retired from the Board: Ms. Williams on January 31, 2017, and Ms. Frobes on June 2, 2017. |
|
| | | | |
| Name | Restricted Stock Awards Outstanding | Stock Options Outstanding | Stock Options Expired in 2017 |
| Jerry C. Atkin | — | 7,800 |
| 4,000 |
| Gary L. Crittenden | — | — | — |
| Patricia Frobes | — | — | 4,000 |
| Suren K. Gupta | — | — | — |
| J. David Heaney | — | 10,308 |
| 4,000 |
| Vivian S. Lee | — | — | — |
| Edward F. Murphy | — | — | — |
| Roger B. Porter | — | 7,800 |
| 4,000 |
| Stephen D. Quinn | — | 7,800 |
| 4,000 |
| Shelley Thomas Williams | — | — | 4,000 |
| Barbara A. Yastine | — | — | — |
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PRINCIPAL HOLDERS OF VOTING SECURITIES |
[•], 2018 (the record date). Under Section 13(d) of the Securities Exchange Act of 1934, a beneficial owner of a security is any person who directly or indirectly has or shares voting power or investment power over such security. A beneficial owner under this definition need not enjoy the economic benefit ofUnless otherwise indicated, based on information furnished by such securities.The following are the only shareholders, known to the Company to be deemed to be beneficial owners of 5% or more of the common stockmanagement of the Company believes that each person has sole voting and dispositive power over the shares indicated as owned by such person and the address of March 31, 2018.
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| | | |
| | | Common Stock |
| Name and Address | Type of Ownership | No. of Shares | % of Class |
The Vanguard Group, Inc. 100 Vanguard Boulevard Malvern, PA 19355 | Beneficial | 22,208,193 | 11.27% |
BlackRock, Inc. 55 East 52nd Street New York, NY 10055 | Beneficial | 13,455,558 | 6.83% |
Invesco Ltd. 1555 Peachtree Street NE, Suite 1800 Atlanta, GA 30309 | Beneficial | 12,891,044 | 6.54% |
State Street Corporation State Street Financial Center One Lincoln Street Boston, MA 02111 | Beneficial | 12,334,547 | 6.26% |
The following table showseach shareholder is the beneficial ownership,same as of March 31, 2018,the address of the Company’s shares by each of our directors, NEOs, and all directors and executive officers as a group. The information below includes, where applicable, shares underlying options and warrants that are exercisable within 60 days of March 31, 2018.Company.
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| | | | | | | | | | | |
| | | | Perpetual Preferred Series* |
| Directors and Officers | Common Shares Beneficially Owned |
% of Class | A(1) | G(1) | H(1) | J |
| A. Scott Anderson | 151,663 |
| * | | | | |
| Jerry C. Atkin | 86,509 |
| * | | | 24,000 |
| |
| Paul Burdiss | 41,628 |
| * | | | | |
| Gary Crittenden | 4,645 |
| * | | | 16,230 |
| |
| Suren Gupta | 8,256 |
| * | | | | |
| J. David Heaney | 70,978 |
| * | | | | |
| Vivian S. Lee | 8,103 |
| * | | | | |
| Scott McLean | 232,715 |
| * | | | | |
| Edward Murphy | 13,687 |
| * | | | | |
| Roger B. Porter | 78,168 |
| * | | | | 2,500 |
|
| Stephen D. Quinn | 172,032 |
| * | | 200,000 |
| | |
| Edward Schreiber | 63,306 |
| * | | | | |
| Harris H. Simmons | 1,508,942 |
| * | | | | 412 |
|
| Barbara Yastine | 2,455 |
| * | | | | |
| | | | | | | |
All directors and officers as a group (30 persons)(2) | 3,152,764 |
| 1.6% | 1,984 |
| 200,000 |
| 40,230 |
| 2,912 |
|
| |
| * | Less than one percent. Each of the directors, NEOs, and all directors and officers as a group, owns less than 1% of each class of the outstanding preferred shares except as follows: Mr. Quinn holds approximately 3.6% of the total outstanding Preferred Series G shares, while all directors and officers as a group own approximately 3.6% of the total outstanding Preferred Series G shares. |
| |
1 | Number of depositary shares, each representing one-fortieth of one preferred share. Except under limited circumstances, the preferred shares are non-voting. |
| |
2 | As of December 31, 2017, of the total shares owned by Harris H. Simmons, 377,415 common shares were held in brokerage accounts, which may from time to time, together with other securities held in these accounts, have served as collateral for margin loans made from such accounts. Of the total shares held by all directors and officers as a group, 409,969 common shares similarly served as collateral and may have been subject to pledge. Less than one-half of one percent of the total outstanding common shares of the Company were subject to pledge by our directors and officers as a group as of December 31, 2017. |
_______________________
The following are the only shareholders known to the Company to be deemed to be beneficial owners of five percent or more of the common stock of the Company as of [•], 2018 (the record date).
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| | | |
| | | Common Stock |
| Name and Address | Type of Ownership | No. of Shares | % of Class |
The Vanguard Group, Inc. 100 Vanguard Boulevard Malvern, PA 19355 | Beneficial | 22,208,193 | 11.27% |
BlackRock, Inc. 55 East 52nd Street New York, NY 10055 | Beneficial | 13,455,558 | 6.83% |
Invesco Ltd. 1555 Peachtree Street NE, Suite 1800 Atlanta, GA 30309 | Beneficial | 12,891,044 | 6.54% |
State Street Corporation State Street Financial Center One Lincoln Street Boston, MA 02111 | Beneficial | 12,334,547 | 6.26% |
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Proposal 1: NOMINATION AND ELECTION OF DIRECTORS |
The following 10 persons are nominated for election as directors for a one year term:
Jerry C. Atkin
Gary L. Crittenden
Suren K. Gupta
J. David Heaney
Vivian S. Lee
Edward F. Murphy
Roger B. Porter
Stephen D. Quinn
Harris H. Simmons
Barbara A. Yastine
Biographical information for each of the nominees is set out in the section entitled “Director Nominees” on page 5 of this Proxy Statement. Until their successors are elected and qualified, the nominees will constitute our entire elected Board of Directors.
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The Board of Directors unanimously recommends that shareholders vote “FOR” the election of the nominees for director listed above. |
We will vote the proxies that we receive “FOR” the election of the nominees for director named above unless otherwise indicated on the proxies. If any of the nominees is unable or declines to serve, an event which management does not anticipate, proxies will then be voted for a nominee who will be designated by the present Board of Directors to fill such vacancy. If the votes cast “for” a nominee fail to constitute a majority of the votes cast with respect to that nominee, he or she will be elected to a term of office ending on the earlier of 90 days after the day on which we certify election results and the day on which a person is selected by the Board to fill the office held by such director. If the votes cast “for” a nominee do constitute a majority of the votes cast with respect to that nominee, he or she will be elected to a full one-year term.
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Proposal 2: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
The Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the Company’s independent registered public accounting firm. The Audit Committee has reappointed the firm of Ernst & Young LLP (EY) as the independent registered public accounting firm to audit the financial statements of the Company for the year ending December 31, 2018. A resolution will be presented at the meeting to ratify the Audit Committee’s appointment of EY.
EY or its predecessors have audited the Company’s financial statements each year since 2000. In accordance with SEC rules and EY policies, audit partners are subject to rotation requirements that limit the number of years an individual partner may provide audit services to the Company. The Audit Committee was directly involved in the selection of the current lead audit partner for the Company, who was designated commencing with the Company’s 2015 audit.
Services provided to the Company and its subsidiaries by EY in fiscal 2017 are described under “Fees paid to EY” below.
For the reasons described in the Report of the Audit Committee included following this proposal at page 71, the members of the Audit Committee and the Board believe that continued retention of EY as the Company’s independent external auditor is in the best interests of the Company and its shareholders.
Representatives from EY are expected to be present at the Annual Meeting. They will have an opportunity to make a statement if they so desire and will be available to respond to appropriate questions.
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The Board unanimously recommends that shareholders vote “FOR” the ratification of Ernst & Young LLP as the Company’s independent registered public accounting firm for fiscal 2018. |
The affirmative vote of a majority of votes validly cast for or against the proposal will be required for adoption of the ratification of the appointment of our independent registered public accounting firm.
Fees Paid to EY. The Audit Committee is responsible for the audit fee negotiations associated with the Company’s retention of EY. Aggregate fees for professional services rendered by EY for the Company with respect to the years ended December 31, 2017 and 2016, were:
|
| | | | | | |
| ($ approximate) | 2017 | 2016 |
| Audit | $ | 4,003,528 |
| $ | 4,130,000 |
|
| Audit-Related | 556,150 |
| 309,000 |
|
| Tax | 173,895 |
| 60,000 |
|
| All other | 4,000 |
| 84,000 |
|
| Total | $ | 4,737,573 |
| $ | 4,583,000 |
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Audit Fees. Audit fees include fees for the annual audit of the Company’s consolidated financial statements, audits of subsidiary financial statements, and reviews of interim financial statements included in the Company’s quarterly reports on Form 10-Q. Audit fees also include fees for services closely related to the audit and that in many cases could only be performed by the independent registered public accounting firm. Such services include comfort letters and consents related to registration statements.
Audit-Related Fees. Audit-related fees include fees for accounting consultations, audits of employee benefit plans, due diligence related to acquisitions, and certain agreed-upon procedures and compliance engagements.
Tax Fees. Tax fees include trust tax compliance, planning, and advisory services. The aggregate tax fees billed to the Company by Ernst & Young LLP for the years ended December 31, 2017 and 2016 totaled approximately $173,895 and $60,000, respectively.
All Other Fees. All other fees billed by EY include general consulting fees and other miscellaneous fees.
Pre-Approval Policies and Procedures. The Audit Committee has adopted a policy that requires its pre-approval of all services performed by the independent registered public accounting firm, including non-audit services. In determining whether to pre-approve the provision by EY of a permissible non-audit service, the Audit Committee considers whether the provision of the service by EY could impair the independence of EY with respect to the Company. As part of this process, the Audit Committee considers the facts and circumstances of the proposed engagement, including whether EY can provide the service more effectively and efficiently than other firms because of its familiarity with the Company’s operations. The Audit Committee also considers the proposed engagement in light of any other non-audit services that EY provides to the Company and the fees paid to EY for such services. The Audit Committee requires competitive bidding for non-audit services where it is warranted by the facts and circumstances of the proposed engagement. There were no EY services or fees in 2017 or 2016 that were not approved in advance by the Audit Committee.
Report of the Audit Committee
The following report of the Audit Committee does not constitute soliciting material and should not and will not be deemed filed or incorporated by reference into any other Company filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent the Company specifically incorporates this report by reference therein.
The Audit Committee assists the Board in fulfilling its responsibility for oversight of the quality and integrity of the accounting, auditing, and financial reporting practices of Zions Bancorporation. During 2017, the Audit Committee met 12 times, and held one additional joint meeting with the Risk Oversight Committee. The Audit
Committee discussed with the CEO, CFO, controller, internal auditors, and our independent registered public accounting firm, which we refer to as the external auditors, the Company’s annual and quarterly SEC reports on Forms 10-K and 10-Q including the financial statements and disclosures, prior to their public release. The Audit Committee also reviewed, where appropriate, other selected SEC filings and public disclosures regarding financial matters, such as earnings press releases, prior to their public release. In addition, the Audit Committee reviewed the allowance for credit losses and related methodology and other selected accounting determinations such as accruals for legal and other loss contingencies. The Audit Committee discussed with Company management and the external auditors changes in accounting rules or standards that could materially impact the Company’s financial statements and the implementation of those rules or standards.
In discharging its oversight responsibility, the Audit Committee periodically reviews the external auditor’s qualifications, performance and independence in connection with the determination as to whether to retain the external auditors. In conducting its review for its 2018 recommendation to retain EY as external auditors, the Audit Committee considered a number of factors, including the professional qualifications of the external auditor; the external auditor’s historical and more recent performance in connection with the Company’s audit, including a review of auditor performance surveys completed by the Audit Committee and management and the external auditors’ responses to the same; a review of fees and scope of services; results of external auditor’s peer reviews and Public Company Accounting Oversight Board (PCAOB) examinations; and an evaluation of the external auditors’ independence, including obtaining a formal written statement describing all relationships between the external auditors and the Company that might bear on such independence and discussing with the external auditors any relationships that may impact their objectivity and independence.
In addition, the Audit Committee discussed with management, the internal auditors, and the external auditors the quality and adequacy of Zions Bancorporation’s internal controls and the internal audit function’s organization, responsibilities, budget, and staffing. The Audit Committee reviewed both with the external and internal auditors their audit plans, audit scope, and identification of audit risks.
The Audit Committee discussed and reviewed with the external auditors all communications required by generally accepted auditing standards, the PCAOB, SEC, and others, including the statement on Auditing Standards No. 61, as amended, as adopted by the PCAOB in Rule 3200T, and, with and without management present, discussed and reviewed the results of the external auditors’ audit of the financial statements and internal controls over financial reporting. The Audit Committee received the written disclosures and the letter from the independent auditors required by the applicable requirements of the PCAOB regarding the independent auditors’ communications with the Audit Committee. The Audit Committee has also discussed auditor independence with the independent auditors. The Audit Committee followed formal policies and procedures governing the pre-approval of audit and permissible non-audit services to be performed by the Company’s external auditors. The Audit Committee also discussed the results of the internal audit examinations.
During 2018, the Audit Committee’s charter was reviewed and updated. In addition, the Audit Committee held regular executive sessions and private meetings with members of management, regulators of the Company, internal auditors, and external auditors, and performed other actions deemed necessary to discharge the Audit Committee’s responsibilities. The Audit Committee conducts periodic effectiveness self-evaluations for review with the Board of Directors that include a comparison of the performance of the Audit Committee with the requirements of its charter. The Audit Committee’s charter, which describes the Committee’s roles and responsibilities, is available on the Company’s website at www.zionsbancorporation.com. See the description of the Audit Committee in this Proxy Statement under “Board Committees” and “Board Involvement in Risk Oversight” for further information about the Audit Committee’s composition and responsibilities.
As set forth in the Audit Committee charter, management of the Company is responsible for the integrity of the Company’s financial statements and reporting. Management is also responsible for maintaining an effective system of controls over appropriate accounting and financial reporting principles, policies, and internal controls that provide for compliance with accounting standards and applicable laws and regulations, policies and procedures, and ethical standards. The internal auditors are responsible for independently assessing such financial reporting principles, policies, and internal controls as well as monitoring management’s follow-up to any internal audit reports. The external auditors are responsible for planning and carrying out a proper audit of the Company’s annual financial statements, reviews of the Company’s quarterly financial statements prior to the filing of each Quarterly
Report on Form 10-Q, annually auditing the effectiveness of internal controls over financial reporting and other procedures. The members of the Audit Committee are not full-time employees of the Company and are not performing the functions of auditors or accountants. As such, it is not the duty or responsibility of the Audit Committee or its members to conduct “field work” or other types of auditing or accounting reviews or procedures or to set auditor independence standards.
The Audit Committee reviewed and discussed the audited financial statements and the report of management on internal control over financial reporting of Zions Bancorporation as of and for the year ended December 31, 2017, with management and internal and external auditors. Relying on the reviews and discussions described above, the Audit Committee recommended to the Board of Directors that the Zions Bancorporation audited financial statements and management’s assessment of internal control over financial reporting be included in the Annual Report on Form 10-K for the year ended December 31, 2017 for filing with the SEC.
Edward F. Murphy, Chairman
Jerry C. Atkin
Gary Crittenden
Stephen D. Quinn
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Proposal 3: ADVISORY (NONBINDING) VOTE REGARDING 2017 EXECUTIVE COMPENSATION (“SAY ON PAY”) |
We are required under Section 14A(a)(1) of the Exchange Act to provide shareholders with the right to cast a nonbinding vote at our 2018 Annual Meeting regarding the compensation of our named executive officers, as disclosed in this Proxy Statement according to the compensation disclosure rules of the SEC.
Recommendation of the Board:
The Board unanimously recommends that shareholders approve the following resolution:
RESOLVED, that the shareholders hereby APPROVE, on a nonbinding basis, the 2017 compensation of the named executive officers as disclosed in this Proxy Statement pursuant to the compensation disclosure rules of the SEC, including the compensation discussion and analysis, compensation tables, and related material.
The Board’s recommendation is based on its belief that our compensation programs operated in accordance with our compensation philosophy and resulted in the payment of an appropriate level of compensation to our named executive officers in 2017.
The Company’s executive compensation program places heavy emphasis on performance-based compensation, particularly in the form of long-term incentives. In fact, all of our named executive officers, on average, have over two-thirds of their annual target direct compensation dependent upon short- and long-term performance-based incentives. Further, the Company’s compensation philosophy subjects employee compensation to a clawback policy and other features designed to incentivize employees to manage the Company’s risks carefully and avoid acts and practices that may expose the Company to undue risk of short- or long-term financial loss, reputational damage or similar adverse impacts. These design features include, but are not limited to, risk-adjusted performance metrics, award caps, limitations on upside reward leverage, payout deferrals, multi-year performance and vesting periods, and the use of discretion by those responsible for overseeing the payout of the incentive compensation.
In order to further align compensation practices with shareholder interests, the named executive officers are expected to hold specified amounts of Zions Bancorporation common stock under the Company’s Stock Ownership and Retention Guidelines while employed in such positions, further exposing them to risk of financial loss in the event of adverse impacts to the Company. In addition, the Compensation Committee attached two-year post-vest holding restrictions on the restricted stock unit grants made to Messrs. Simmons and McLean beginning in May 2015. These post-vest holding restrictions prohibit Messrs. Simmons and McLean from the sale, transfer, or other disposition of these shares for an additional two-year period following each vesting event.
As provided by Section 14A(c) of the Exchange Act, the shareholders’ vote with respect to executive compensation is advisory and will not be binding upon the Board. In addition, the shareholder vote may not be construed as overriding a decision by the Board, nor will it create or imply any additional fiduciary duty by the Board. Our Compensation Committee will, however, take into account the outcome of the vote when considering future executive compensation arrangements. In making compensation decisions in 2017, the Compensation Committee considered the shareholder ratification at our 2017 Annual Meeting of the compensation paid to our named executive officers for 2016. At our 2017 Annual Meeting of shareholders, approximately 94% of voting shareholders approved the non-binding advisory resolution regarding compensation of our named executive officers.
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The Board unanimously recommends that shareholders vote “FOR” approval of the 2017
compensation of named executive officers as disclosed in this Proxy Statement
pursuant to the compensation disclosure rules of the SEC.
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The affirmative vote of a majority of votes validly cast for or against the resolution will be required for approval of the proposal.
Under current SEC rules, we are required to hold an advisory vote to establish the frequency of the advisory Say on Pay vote at least once every six years. The Board has adopted an annual frequency for the Company’s advisory Say on Pay vote, based in part on the preference expressed by our shareholders in the nonbinding frequency vote held during the Annual Meeting of shareholders in 2013.
Under SEC rules, the next Say on Pay frequency vote is required to be held during the Annual Meeting of shareholders in 2019.
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE |
Based solely on its review of such information, the Company believes that for the period from January 1, 2017 through December 31, 2017, its officers and directors were in compliance with all applicable filing requirements, except as follows: Messrs. Alexander, Anderson, Blackford, and Simmons, and Mr. Stan Savage, an Executive Vice President of the Company during 2017, each filed one late report for one reportable transaction due to oversight by the Company’s third-part deferred compensation plan administrator. Messrs. Burdiss, Hume and Young each filed one late report for one reportable transaction due to Company oversight. Ms. James filed one late report for one reportable transaction.
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OTHER BUSINESS BEFORE THE ANNUAL MEETING |
Except as set forth in this Proxy Statement, management has no knowledge of any other business to come before the Annual Meeting. If, however, any other matters of which management is now unaware properly come before the Annual Meeting, it is the intention of the persons named in the Proxy to vote the Proxy in accordance with their judgment on such matters.
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| SHAREHOLDER PROPOSALS FOR THE 2019 ANNUAL MEETING OF SHAREHOLDERS |
PursuantIf the restructuring is completed, the Company will be merged with and into the Bank and the Company will not have any future meetings of shareholders. However, if the restructuring is not completed, the Company would expect to our Bylaws, business must be properly brought beforehold an annual meeting of shareholders in order2019, referred to be considered by our shareholders.as the 2019 annual meeting. Company shareholders may submit proposals on matters appropriate for shareholder action at that meeting in accordance with the Company’s bylaws. The Bylawsbylaws specify the procedure for shareholders to follow in order to bring business before a meeting of the shareholders. Notice of any proposal to be presented by any shareholder, or the name of any person to be nominated by any shareholder for election as a director of the Company at any annual meeting of shareholders, must be delivered to ourthe Company’s secretary at least 120 days but not more than 150 days before the date of our Proxy Statementthe Company’s proxy statement released to our shareholders in connection with the Annual Meetingannual meeting for the preceding year, or no sooner than November 20, 2018 and no later than December 20, 2018 with respect to the 2019 Annual Meetingannual meeting; provided, however, that if and only if the annual meeting is not scheduled to be held within a period that commences 30 days before the anniversary date of shareholders. We must receive proposals from our shareholdersthe 2018 annual meeting and ends 30 days after such anniversary date (i.e., between May 2, 2019 and July 1, 2019), such shareholder notice shall be given by the later of the close of business on (i) the date 120 prior to the 2019 annual meeting date or before December 20, 2018, in order to have such proposals evaluated for inclusion in(ii) the proxy materials relating to our10th day following the date the 2019 Annual Meeting of shareholders.annual meeting date is first publicly announced or disclosed. Any proposal submitted for the proxy materials will be subject to the rules of the SEC concerning shareholder proposals.
TheA shareholder notice of a proposal must contain the following items:
Shareholder’s name, address, and share ownership of the Company
Text of the proposal to be presented
Brief written statement of the reasons why such shareholder favors the proposal and any material interest of such shareholder in the proposal
TheA shareholder notice stating a desire to nominate any person for election as a director of the Company must contain the following items:
Shareholder’s name, address, and share ownership of the Company
Name of the person to be nominated
Name, age, business address, residential address, and principal occupation or employment of each nominee
Nominee’s signed consent to serve as a director of the Company, if elected
Number of shares of the Company owned by each nominee
Description of all arrangements and understandings between the shareholder and nominee pursuant to which the nomination is to be made
Such other information concerning the nominee as would be required in a proxy statement soliciting proxies for the election of the nominee under the rules of the SEC
A copy of our Bylaws specifying the requirements will be furnished to any shareholder upon written request to our corporate secretary.
A copy of the Company’s bylaws may be obtained upon written request to the Corporate Secretary of the Company.
If the restructuring is completed within the expected time period and the Bank holds a 2019 annual meeting of shareholders, the Bank’s bylaws contain the same advance notice requirements, including the same timing requirements with respect to written notice of proposals, as the Company’s requirements described above.
Neither the Company nor the Bank has authorized anyone to give any information or make any representation about the restructuring or the parties thereto that is different from, or in addition to, that contained in this document or in any of the materials that have been incorporated into this document. Therefore, if anyone does give you information of this sort, you should not rely on it. If you are in a
jurisdiction where offers to exchange or sell, or solicitations of offers to exchange or purchase, the securities offered by this document or the solicitation of proxies is unlawful, or if you are a person to whom it is unlawful to direct these types of activities, then the offer presented in this document does not extend to you. The information contained in this document speaks only as of the date of this document, regardless of the time of delivery of this proxy statement, unless the information specifically indicates that another date applies.
WE URGE YOU TO VOTE YOUR PROXY AT ONCE.
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COMMUNICATING WITH THE BOARDAPPENDIX A: AMENDED AND RESTATED AGREEMENT AND PLAN OF DIRECTORSMERGER BY AND BETWEEN ZIONS BANCORPORATION AND ZB, N.A. |
Management speaks forAMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
OF
ZIONS BANCORPORATION
AND ZB, NATIONAL ASSOCIATION
This Amended and Restated Agreement and Plan of Merger (this “Agreement”), dated as of July 10, 2018, is adopted and made by and between ZIONS BANCORPORATION, a Utah corporation (the “Company”), and ZB, NATIONAL ASSOCIATION, a banking association organized under the Company. Inquiries from shareholders should be referred to the CEO or other appropriate officerslaws of the Company. Shareholders are, however, welcome to communicate directly, and without the concurrence of the Board or CEO,United States with the Lead Director of the Board regarding any matters. Shareholders interestedits main office in communicating directly with the Lead Director may do so by writing care of the Corporate Secretary, Zions Bancorporation, One South Main Street, 11th Floor, Salt Lake City, Utah 84133-1109. All such communications are handled(“Bank”).
WITNESSETH:
WHEREAS, the respective Boards of Directors of the Company and Bank have each adopted a resolution approving this Agreement, authorizing the execution hereof and recommending that this Agreement and the merger of the Company with and into the Bank (the “Merger”) contemplated hereby be submitted to the shareholders of the Company and Bank, respectively, for approval;
WHEREAS, it is intended that the Merger for federal tax purposes qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code;
WHEREAS, the Company and the Bank entered into an Agreement and Plan of Merger, dated as of April 5, 2018 (the “Original Agreement”); and
WHEREAS, the Company and the Bank desire to amend and restate the terms of the Original Agreement as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and subject to the terms and conditions of this Agreement, the parties hereto agree as follows:
ARTICLE I
Merger
1.1Merger. Subject to the terms and conditions of this Agreement, effective as of the Effective Time (as defined below), the Company shall be merged with and into Bank in accordance with Section 1101 et seq. of the Utah Revised Business Corporations Act (“UBCA”) with the effect provided in Section 1106 of the UBCA and the laws of the United States with the effect provided in 12 U.S.C. § 215a-3. At the Effective Time, the separate existence of the Company shall cease, and Bank, as the surviving entity (sometimes hereinafter referred to as the “Surviving Entity”), shall continue as a national bank association governed by the laws of the United States.
1.2Effective Time. The Merger shall become effective, and the effective time shall occur, upon the date and time set forth in the articles of merger and in the letter issued by the Office of the Comptroller of the Currency certifying the effectiveness of the Merger (such date and time being herein referred to as the “Effective Time”).
ARTICLE II
Charter, Bylaws, Etc.
2.1Articles of Association. At the Effective Time, the articles of association of Bank in effect immediately prior to the Effective Time shall be the articles of association of the Surviving Entity until thereafter amended in accordance with the Company’s Corporate Governance Guidelines approved byapplicable law.
2.2Bylaws. At the Board. Under that process, our Corporate Secretary reviews and forwardsEffective Time, the bylaws of Bank in effect immediately prior to the Board a summary of all such correspondence and copies of all correspondence that, inEffective Time shall be the opinion of our Corporate Secretary, deals with the functionsbylaws of the Board or committees thereof, or that the Corporate Secretary otherwise determines requires their attention. The Secretary may elect not to forward summaries or copies of communications that the Secretary believes are business solicitations, resumes, or are abusive, frivolous or similarly inappropriate. Directors may at any time review a log of all correspondence we receive that is addressed to members of the Board and request copies of any such correspondence. Concerns relating to accounting, internal controls, or auditing matters are brought to the attention of our Internal Audit department and handledSurviving Entity until thereafter amended in accordance with procedures established by the Audit Committee with respect to such matters. These procedures include processes for the confidential, anonymous submission by Company employees of reports of alleged or suspected wrongdoing.
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“HOUSEHOLDING” OF PROXY MATERIALS |
SEC rules permit companies and intermediaries such as brokers to satisfy the delivery requirements for proxy statements or Notices of Internet Availability of Proxy Materials with respect to two or more shareholders sharing the same address by delivering a single proxy statement or Notice of Internet Availability of Proxy Materials, or Notice, addressed to those shareholders. This process, which is commonly referred to as “householding,” potentially provides extra convenience for shareholders and cost savings for companies. We will household the Notice for addresses with multiple shareholders unless we receive contrary instructions from the affected shareholders. If you are an affected shareholder and no longer wish to participate in householding, or if you are receiving multiple copies of the Notice and wish to receive only one, please notify your broker if your shares are held in a brokerage account, or the Company if you hold registered shares. A written request should be sent to Zions First National Bank, Corporate Trust Department, P.O. Box 30880, Salt Lake City, Utah 84130 or by calling (801) 844-7545.
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VOTING THROUGH THE INTERNET OR BY TELEPHONE |
Our shareholders voting through the Internet should understand that there may be costs associated with electronic access, such as usage charges from Internet access providers and telephone companies, which must be borne by the shareholder. If you are voting by paper ballot and wish to vote by telephone, please follow the instructions provided on the paper ballot. To vote through the Internet, log on to the Internet and go to www.proxyvote.com and follow the steps on the secured website. To vote by telephone or online you will need the control number provided on the Notice of Internet Availability of Proxy Materials that will be sent to you on or about April 21, 2018.applicable law.
2.3Directors and Officers. At the Effective Time, the directors of Bank immediately prior to the Effective Time will continue as the directors of the Surviving Entity and the officers of Bank immediately prior to the Effective Time will continue as the officers of the Surviving Entity, in each case, until thereafter changed in accordance with the articles of association and bylaws of the Surviving Entity.
ARTICLE III
Conversion of Shares
3.1Effect on Capital Stock. At the Effective Time, as a result of the Merger and without any action on the part of the holder of any shares of the capital stock of the Company, Bank or Surviving Entity:
a.Outstanding Company Common Stock. Each share of common stock of the Company (“Company Common Stock”) issued and outstanding immediately prior to the Effective Time shall be canceled and converted into the right to receive one share of common stock of Bank (“Bank Common Stock”). Any fraction of a share of Company Common Stock shall be converted into the right to receive the same fraction of a share of Bank Common Stock.
b.Outstanding Company Preferred Stock. Each share of:
i.Series A Floating-Rate Non-Cumulative Perpetual Preferred Stock of the Company (“Company Series A”) issued and outstanding immediately prior to the Effective Time shall be canceled and converted into the right to receive one share of Series A Floating-Rate Non-Cumulative Perpetual Preferred Stock of Bank (“Bank Series A”);
ii.Series G Fixed/Floating Rate Non-Cumulative Perpetual Preferred Stock of the Company (“Company Series G”) issued and outstanding immediately prior to the Effective Time shall be canceled and converted into the right to receive one share of Series G Fixed/Floating Rate Non-Cumulative Perpetual Preferred Stock of Bank (“Bank Series G”);
iii.Series H Fixed-Rate Non-Cumulative Perpetual Preferred Stock of the Company (“Company Series H”) issued and outstanding immediately prior to the Effective Time shall be canceled and converted into the right to receive one share of Series H Fixed-Rate Non-Cumulative Perpetual Preferred Stock of Bank (“Bank Series H”);
iv.Series I Fixed/Floating Rate Non-Cumulative Perpetual Preferred Stock of the Company (“Company Series I”) issued and outstanding immediately prior to the Effective Time shall be canceled and converted into the right to receive one share of Series I Fixed/Floating Rate Non-Cumulative Perpetual Preferred Stock of Bank (“Bank Series I”); and
v.Series J Fixed/Floating Rate Non-Cumulative Perpetual Preferred Stock of the Company (“Company Series J” and together with Company Series A, Company Series G, Company Series H and Company Series I, the “Company Preferred Stock”) issued and outstanding immediately prior to the Effective Time shall be canceled and converted into the right to receive one share of Series J Fixed/Floating Rate Non-Cumulative Perpetual Preferred Stock of Bank (“Bank Series J” and together with Bank Series A, Bank Series G, Bank Series H and Bank Series I, the “Bank Preferred Stock”).
Any fraction of a share of Company Preferred Stock shall be converted into the right to receive the same fraction of a share of Bank Preferred Stock.
c.Cancelation of Certificated Shares. Each holder of certificates which represent shares of Company Common Stock or Company Preferred Stock (collectively, “Company Capital Stock”) immediately prior to the Effective Time shall be entitled to receive new certificates evidencing an equivalent number of shares of Bank Common Stock or Bank Preferred Stock (collectively, “Bank Capital Stock”), as applicable, or an equivalent number of shares of Bank Capital Stock in book-entry form by complying with such reasonable and customary procedures as may be established by the Surviving Entity and/or its transfer agent to effectuate the intent and purposes.
d.Effect on Bank Capital Stock. Each share of Bank Capital Stock issued and outstanding immediately prior to the Effective Time shall be automatically cancelled and shall cease to exist, and no consideration shall be delivered in exchange therefor. The Bank Capital Stock issued in the Merger to the holders of Company Capital Stock immediately prior to the Merger shall be the only Bank Capital Stock outstanding as of the Effective Time.
3.2Company Warrants. At the Effective Time, as a result of the Merger and without any action on the part of the holder thereof, each warrant to purchase Company Common Stock (“Company Warrants”) shall cease to represent a warrant to purchase Company Common Stock and shall be converted automatically into a warrant to purchase Bank Common Stock (“Bank Warrants”), and Bank will assume such Company Warrants subject to its terms.
3.3Other Rights to Company Stock and Employee Benefit Plans.
a.At the Effective Time, by operation of this Agreement and by reason of the Merger becoming effective, the Company shall assign to Bank, and Bank, as the Surviving Entity, shall assume and agree to perform, all obligations of the Company pursuant to (i) the Company Equity Incentive Plans, (ii) the Company Performance Incentive Plans, (iii) the Other Plans, (iv) the Equity Awards and (v) the Non-Equity Awards. Each Equity Award and Non-Equity Award so assumed by Bank under this Agreement will continue to have, and be subject to, the same terms and conditions as set forth in the applicable Company Equity Incentive Plans and Company Performance Incentive Plan, respectively, and any grant agreements thereunder in effect immediately prior to the Effective Time, including, without limitation, the performance goals, if any, as then in effect, vesting schedules (without acceleration thereof by virtue of the Merger or the transactions contemplated thereby) and per share exercise price, as applicable.
b.At the Effective Time, (i) the Company Equity Incentive Plans, (ii) the Company Performance Incentive Plans, (iii) the Other Plans, (iv) the Equity Awards and (v) the Non-Equity Awards and any grant agreements thereunder shall each automatically be deemed to be amended as necessary to provide that references to the Company in such agreements shall be read to refer to Bank. The Company and Bank agree that they will, at or promptly following the Effective Time, execute, acknowledge and deliver any and all instruments, agreements or documents necessary or desirable to effect or memorialize the assignments and assumptions contemplated by this Section 3.3.
c.Definitions. For purposes of this Section 3.3, the following terms shall have the meanings provided below:
i.“Company Equity Incentive Plans” means all equity incentive compensation plans of the Company and any of its predecessors that provide for the purchase, grant or issuance of Company Common Stock or awards convertible into or exchangeable for Company Common Stock, which are effective at the Effective Time, including the Zions Bancorporation 2015 Omnibus Incentive Plan.
ii.“Company Performance Incentive Plans” means the Zions Bancorporation 2014-2016 Value Sharing Plans, Zions Bancorporation 2015-2017 Value Sharing Plans and the Zions Bancorporation 2016-2018 Value Sharing Plans, together with any similar plans established by the Company prior to the Effective Time.
iii.“Equity Awards” means all time-based and performance-based options, restricted stock, restricted stock units, stock appreciation rights, phantom units and any other equity or equity-based awards issued under the Company Equity Incentive Plans, in any such case, which are outstanding at the Effective Time.
iv.“Non-Equity Awards” means all performance based incentive awards issued under the Company Performance Incentive Plans, in any such case, which are payable in cash.
v.“Other Plans” means all compensation, retirement, benefit, incentive or other similar plans, including tax-qualified and non-qualified retirement plans, health and welfare
benefit plans, excess benefit plans, deferred compensation plans, cash balance plans for directors, officers or employees of the Company (other than Company Equity Incentive Plans and Company Performance Incentive Plans), and any employment, indemnification, separation and retirement, change in control or similar agreements.
ARTICLE IV
Effect of the Merger
4.1Effect Under Utah Law. From and after the Effective Time, by virtue of the Merger (i) the separate existence of the Company shall cease; (ii) title to all real estate and other property owned by each of the Company and Bank shall be transferred to and vested in the Surviving Entity without reversion or impairment, with such transfer and vesting occurring by operation of law; (iii) all liabilities of each of the Company and Bank shall become the Surviving Entity’s liabilities; and (iv) any proceeding pending against the Company or Bank may be continued as if the Merger did not occur or the Surviving Entity may be substituted in the proceeding for the Company.
4.2Effect Under United States Law. From and after the Effective Time, by virtue of the Merger, the corporate existence of the Company shall be merged into continued in the Surviving Entity, and the Surviving Entity shall be deemed to be the same corporation as Bank. All rights, franchises and interests of the Company and Bank in and to every type of property (real, personal, and mixed) and choses in action shall be transferred to and vested in the Surviving Entity by virtue of the Merger without any deed or other transfer. The Surviving Entity, upon the Merger and without any order or other action on the part of any court or otherwise, shall hold and enjoy all rights of property, franchises, and interests, including appointments, designations, and nominations, and all other rights and interests as trustee, executor, administrator, registrar of stocks and bonds, guardian of estates, assignee, and receiver, and in every other fiduciary capacity, in the same manner and to the same extent as such rights, franchises, and interests were held or enjoyed by the Company and Bank immediately at the Effective Time. The Surviving Entity shall be liable for all liabilities of the Company and Bank.
ARTICLE V
Conditions to the Merger
The respective obligations of each of the Company and Bank to consummate the Merger are subject to the fulfillment, or written waiver by the other party entitled to satisfaction thereof prior to the Effective Time, of each of the following conditions:
(a)This Agreement shall have been approved by holders of Company Common Stock constituting a majority of all votes entitled to be cast on such matter at a shareholder meeting duly called and held for such purpose and shall have been ratified and confirmed by the sole shareholder of Bank, in each case, in accordance with applicable law and the articles of incorporation and articles of association, respectively, and the bylaws of each such entity.
(b)The Bank shall have caused the shares of Bank Common Stock issued in the Merger and the Bank Warrants to be authorized for quotation on the NASDAQ Global Select Market (“NASDAQ”) and shares of Bank Series A, Bank Series G and Bank Series H issued in the Merger to be authorized for listing on the New York Stock Exchange (“NYSE”), subject to official notice of issuance.
(c)All approvals and authorizations of, filings and registrations with, and notifications to, all governmental authorities required for the consummation of the Merger shall have been obtained or made by the Company and Bank, and shall be in full force and effect and all waiting periods required by law shall have expired.
(d)No governmental authority of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, judgment, decree, injunction or other order (whether temporary, preliminary or permanent) that is in effect and prohibits consummation of the transactions contemplated by this Agreement.
(e)All third party consents and approvals required, or deemed by the Board of Directors of the Company advisable, to be obtained under any material note, bond, mortgage, deed of trust, security interest, indenture, law, regulation, lease, license, contract, agreement, plan, instrument or obligation to which the Company or any subsidiary or affiliate of the Company is a party, or by which the Company or any subsidiary or affiliate of the Company, or any property of the Company or any subsidiary or affiliate of the Company, may be bound, in connection with the Merger and the transactions contemplated thereby, shall have been obtained by the Company or its subsidiary or affiliate, as the case may be.
(f)The Board of Directors of the Company shall have received evidence in form and substance reasonably satisfactory to it that holders of Company Common Stock will not recognize gain or loss for United States federal income tax purposes as a result of the Merger.
(g)The Financial Stability Oversight Council shall have made a final determination that, following completion of the Merger, the Bank shall not be treated as a nonbank financial company supervised by the Board of Governors of the Federal Reserve under the Dodd-Frank Wall Street Reform and Consumer Protection Act.
ARTICLE VI
Covenants
6.1Meeting of Company Shareholders. The Company shall take, in accordance with applicable laws of the State of Utah and its articles of incorporation and bylaws, all action necessary to convene a meeting of holders of Company Common Stock (the “Company Shareholders Meeting”) as promptly as practicable to consider and vote upon the approval of this Agreement.
6.2Proxy Statement. For the purpose of holding the Company Shareholders Meeting, the Company shall draft and prepare, and Bank shall cooperate in the preparation of, a proxy statement.
6.3Notes. Upon the Effective Time, Bank shall expressly assume, by one or more indenture supplements, executed and delivered to the applicable trustee, in form satisfactory to such trustee, the due and punctual payment on each of the 6.95% Fixed-to-Floating Rate Subordinated Notes due September 15, 2028, the 5.65% Fixed-to-Floating Rate Subordinated Notes due November 15, 2023 and the 4.50% Senior Notes due June 13, 2023 (collectively, the “Notes”) issued pursuant to the applicable indentures and supplemental indentures and the performance or observance of every covenant of such indentures on the part of the Company to be performed or observed. In connection therewith, the Company and Bank shall execute and deliver any documents required to make such assumptions effective and shall provide any opinion of counsel to the trustee thereof if requested.
6.4Stock Exchange Listing and Delisting. As soon as practicable after the Effective Time, the Surviving Entity shall use its commercially reasonable efforts to cause the shares of Bank Common Stock issued in the Merger and the Bank Warrants each to be approved for quotation on NASDAQ and use its commercially reasonable efforts to cause the shares of Bank Series A, Bank Series G and Bank Series H issued in the Merger each to be approved for listing on the NYSE, subject to official notice of issuance. The Company shall use commercially reasonable efforts to take, or cause to be taken, all actions, and do or cause to be done all things, reasonably necessary, proper or advisable on its part under applicable laws and rules and policies of the NYSE to enable the delisting by the Surviving Entity of the Company Preferred Stock from the NYSE and the deregistration of such securities under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Surviving Entity shall use its commercially reasonable efforts to cause the Company Common Stock and the Company Warrants to no longer be quoted on the NASDAQ and deregistered under the Exchange Act as soon as practicable following the Effective Time.
6.5Other Actions. During the period from the date of this Agreement and continuing until the Effective Time, each of the parties hereto agrees to use all commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement.
6.6Further Documents. If at any time the Surviving Entity shall consider or be advised that any further deeds, assignments, conveyances or assurances in law are necessary or desirable to vest, perfect or confirm
of record in the Surviving Entity the title to any property or rights of the constituent entities, or otherwise to carry out the provisions hereof, the persons who were the proper officers and directors of the constituent entities immediately prior to the Effective Time (or their successors in office) shall execute and deliver any and all proper deeds, assignments, conveyances and assurances in law, and do all things necessary or desirable, to vest, perfect or confirm title to such property or rights in the Surviving Entity and otherwise to carry out the provisions hereof.
6.7Tax Treatment. It is intended that for United States federal income tax purposes (i) the Merger will qualify as a “reorganization” within the meaning of Section 368(a)(1) of the Internal Revenue Code of 1986, as amended (the “Code”) and (ii) this Agreement will constitute a plan of reorganization within the meaning of Treasury Regulation Section 1.368-2(g). Neither the Company nor Bank will take any action inconsistent with the treatment of the Merger as a reorganization within the meaning of Section 368(a)(1) of the Code.
ARTICLE VII
Termination
7.1Termination. This Agreement may be terminated at any time prior to the Effective Time by an instrument executed by each of the parties hereto.
ARTICLE VIII
Miscellaneous
8.1Representations and Warranties. Each of the parties hereto represents and warrants that this Agreement has been duly authorized, executed and delivered by such party and constitutes the legal, valid and binding obligation of such party, enforceable against it in accordance with the terms hereof.
8.2Entire Agreement. This Agreement (including the documents and instruments referred to herein and attached hereto) constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof.
8.3Counterparts. This Agreement may be executed in counterparts (including by facsimile or other electronic means), each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement.
8.4Severability. In the event that any one or more provisions of this Agreement shall for any reason be held invalid, illegal or unenforceable in any respect, by any court of competent jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provisions of this Agreement and the parties hereto shall use their reasonable efforts to substitute a valid, legal and enforceable provision which, insofar as practical, implements the purposes and intents of this Agreement.
8.5Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Utah, without regard to choice of law principles, except to the extent that the federal laws of the United States shall be applicable hereto.
8.6Assignment; Third-Party Beneficiaries. This Agreement shall not be assignable by operation of law or otherwise. Any purported assignment in contravention hereof shall be null and void. This Agreement (including the documents and instruments referred to in this Agreement) is not intended to and does not confer upon any person other than the parties hereto any rights or remedies under this Agreement.
8.7Nonsurvival of Agreements. None of the agreements in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the Effective Time or termination of this Agreement as provided in Article VII.
8.8Amendment. This Agreement may not be amended, except by an instrument in writing signed on behalf of each of the parties hereto.
[Signature page to follow]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on their behalf by their respective officers thereunto duly authorized as of the day and year first written above.
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FORWARD-LOOKING STATEMENTSZIONS BANCORPORATION |
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| By: | /s/ Harris H. Simmons |
| Name: | Harris H. Simmons |
| Title: | Chairman & CEO |
This Proxy Statement contains “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements are based on management’s current expectations and involve risks and uncertainties, which may cause results to differ materially from those set forth in or implied by the statements. The forward-looking statements may include statements regarding the Company’s future or expected financial performance or expectations regarding future levels of executive compensation, including payouts pursuant to long-term incentive compensation programs. The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise. Forward-looking statements should be evaluated together with the many uncertainties that affect the Company’s business, particularly those mentioned in the cautionary statements in its Annual Report on Form 10-K for the year ended December 31, 2017.
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH SHAREHOLDER, ON WRITTEN REQUEST, A COPY OF THE COMPANY’S ANNUAL REPORT ON FORM 10-K FOR ITS FISCAL YEAR ENDED DECEMBER 31, 2017, INCLUDING THE FINANCIAL STATEMENTS AND SCHEDULES THERETO, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. WRITTEN REQUESTS FOR SUCH INFORMATION SHOULD BE DIRECTED TO THE CORPORATE SECRETARY, ONE SOUTH MAIN STREET, 11th FLOOR, SALT LAKE CITY, UTAH 84133-1109. |
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| ZB, NATIONAL ASSOCIATION |
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| By: | /s/ Paul Burdiss |
| Name: | Paul Burdiss |
| Title: | EVP & CFO |
ZIONS BANCORPORATION
ONE SOUTH MAIN STREET, 11TH FLOOR - SALT LAKE CITY, UTAH 84133-1109
(801) 844-7637
www.zionsbancorporation.com
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ZIONS BANCORPORATION Stock Transfer Department One South Main Street, 12th Floor Salt Lake City, Utah 84133-1109 | | VOTE BY INTERNET - www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions. VOTE BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. |
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| TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: |
| KEEP THIS PORTION FOR YOUR RECORDS |
| DETACH AND RETURN THIS PORTION ONLY |
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| THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. |
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| The Board of Directors recommends you vote FOR the following Proposals. | For | Against | Abstain |
1.RESTRUCTURING PROPOSAL. To approve the Agreement and Plan of Merger, dated as of April 5, 2018, by and between the Company and its wholly-owned subsidiary, ZB, N.A., as amended and restated July 10, 2018 and as such plan of merger may be amended from time to time. | ¨ | ¨ | ¨ |
2.ADJOURNMENT PROPOSAL. To authorize the Board of Directors to adjourn or postpone the special meeting to a later date, if necessary or appropriate, including adjournments to permit further solicitation of proxies in favor of the restructuring proposal or to vote on other matters properly brought before the special meeting. | ¨ | ¨ | ¨ |
OTHER BUSINESS. On any other matter properly presented for action by shareholders at the special meeting, such as any matters incident to the conduct of the meeting, the proxies are authorized to vote the shares represented by this appointment of proxy according to their best judgment. In accordance with applicable law, only business within the purposes described in the meeting notice may be conducted at the special meeting. | ¨ | ¨ | ¨ |
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| Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, trustee or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. |
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| Signature [PLEASE SIGN WITHIN BOX] | Date | Signature (Joint Owners) | Date | |
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Important Notice Regarding the Availability of Proxy Materials for the Special Meeting: The Notice and Proxy Statement is available at www.proxyvote.com. |
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ZIONS BANCORPORATION PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON [•], 2018
The shareholder(s) hereby appoint(s) Paul E. Burdiss and Edward P. Schreiber, or either of them, as proxies, each with the power to appoint (his/her) substitute and hereby authorize them to represent and vote, as designated on the reverse side of this ballot, all of the shares of (Common/Preferred) stock of ZIONS BANCORPORATION that the shareholder(s) is/are entitled to vote at the Special Meeting of shareholders to be held at [•], MDT on [•], 2018 at the Zions Bank Building Founders Room - 18th Floor, One South Main Street, Salt Lake City, UT 84133, and any adjournment or postponement thereof. The Proxy, when properly executed, will be voted in the manner directed herein. IF NO SUCH DIRECTION IS MADE, THIS PROXY WILL BE VOTED “FOR” THE PROPOSAL TO APPROVE THE AGREEMENT AND PLAN OF MERGER, DATED AS OF APRIL 5, 2018, BY AND BETWEEN THE COMPANY AND ITS WHOLLY-OWNED SUBSIDIARY, ZB, N.A., AS AMENDED AND RESTATED JULY 10, 2018 AND AS SUCH PLAN OF MERGER MAY BE AMENDED FROM TIME TO TIME, AND THE RESTRUCTURING IN PROPOSAL 1 AND “FOR” THE PROPOSAL TO AUTHORIZE THE BOARD OF DIRECTORS TO ADJOURN OR POSTPONE THE SPECIAL MEETING TO A LATER DATE, IF NECESSARY OR APPROPRIATE, INCLUDING ADJOURNMENTS TO PERMIT FURTHER SOLICITATION OF PROXIES IN FAVOR OF THE RESTRUCTURING PROPOSAL OR TO VOTE ON OTHER MATTERS PROPERLY BROUGHT BEFORE THE SPECIAL MEETING IN PROPOSAL 2. |
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| Continued and to be signed on reverse side |
