SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended Commission File Number
December 31, 1994 1-6906
FIRST SECURITY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 87-6118148
(State of incorporation) (I.R.S. Employer Identification No.)
79 South Main, P.O. Box 30006
Salt Lake City, Utah 84130-0006
(Address of principal executive offices) (Zip Code)
(801) 246-5706
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Floating Rate Notes Due 1999, listed on the New York Stock Exchange.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock - $1.25 Par Value.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
Yes [ ] No [X]
The aggregate market value of First Security Corporation voting stock
held by nonaffiliates as of February 28, 1995, was $1,192,435,138.50.
As of February 28, 1995, First Security Corporation had 49,910,935.54
shares of Common Stock - $1.25 Par Value outstanding (net of 327,355.22
treasury shares). They were held by 9,123 stockholders of record.
The Registrant's Proxy Statement dated March 15, 1995, is incorporated
by reference into Parts I and III of this Form 10-K.
<PAGE>
INDEX
Item Caption
------------------------------------------------------------------------------
Part I
1 Business
1(a) General Development of Business
1(b) Industry Segments
1(c) Narrative Description of Business
Competitive Position
Employment
Executive Officers of the Registrant (A)
1(d) Financial Information About Foreign and Domestic Operations
Distribution of Assets, Liabilities and Stockholders' Equity;
Interest Rates and Interest Differential
Analysis of Interest Changes Due to Volume and Changes in Rates
Investment Portfolio
Loan Portfolio
A. Types of Loans
B. Maturities and Sensitivities to Changes in Interest Rates
C. Risk Elements
D. Other Interest-Bearing Assets
Summary of Loan Loss Experience
Deposits
Return on Equity and Return on Assets
Short-Term Borrowings
2 Properties
3 Legal Proceedings
4 Submission of Matters to a Vote of Security Holders
------------------------------------------------------------------------------
Part II
5 Market for Registrant's Common Stock and Related Security
Holder Matters
6 Selected Financial Data
7 Management's Discussion and Analysis of Financial Condition and
Results of Operations
8 Financial Statements and Supplementary Data
9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
------------------------------------------------------------------------------
Part III
10 Directors and Executive Officers. (A)
11 Management Remuneration and Transactions. (A)
12 Security Ownership of Certain Beneficial Owners and
Management. (A)
13 Certain Relationships and Related Transactions. (A)
(A): Incorporated by reference from the Registrant's Proxy Statement
dated March 15, 1995.
------------------------------------------------------------------------------
Part IV
14(a) Exhibits and Financial Statement Schedules:
1. Report of Independent Certified Public Accountants
Consolidated Balance Sheets,
December 31, 1994 and 1993
Consolidated Statements of Income
for the Years Ended December 31, 1994, 1993, and 1992
Consolidated Statement of Stockholders' Equity
for the Years Ended December 31, 1992, 1993, and 1994
Consolidated Statement of Cash Flows
for the Years Ended December 31, 1994, 1993, and 1992
Notes to Consolidated Financial Statements
2. Exhibit Index
Ex. 3.1. Certificate of incorporation, as amended.
(Exhibit 3.1 to FSCO's Registration Statement on Form S-4,
Registration No. 33-30045, as filed on July 24, 1990,
hereby incorporated by reference.)
Ex. 3.2. Bylaws of FSCO, as amended.
(Exhibit 2 to FSCO's Registration Statement on Form S-7,
Registration No. 2-61892, as filed on June 16, 1978, and
Exhibit 3.2 to FSCO's Registration Statement on Form S-4,
Registration No. 33-30045, as filed on July 24, 1990,
hereby incorporated by reference.)
Ex. 4.1. No instruments defining the rights of holders of
long-term debt of FSCO and its subsidiaries have been
included as exhibits because the total amount of indebted-
ness authorized under any such instrument does not exceed
10% of the total assets of FSCO and its subsidiaries on a
consolidated basis.
Ex. 4.2. Rights Agreement dated as of August 28, 1990,
between FSCO and First Security Bank of Utah, N.A., which
includes the form of Rights Certificate (together with the
Form of Election of Exercise) as Exhibit A; the form of
Certificate of Designation of the series of Junior Series
B Preferred Stock, no par value per share, of FSCO as
Exhibit B; and the Summary of Rights as Exhibit C.
(Filed as Exhibit 4 to FSCO's Current Report on Form 8-K
dated August 28, 1990, as filed with the SEC on September
1, 1990, [File No. 1-6906] and hereby incorporated by
reference.)
Ex. 4.3. Amendment Agreement dated as of September 26,
1990, by and between FSCO and First Security Bank of Utah,
N.A., amending the Rights Agreement dated as of August 28,
1990, between the same parties.
(Filed as Exhibit 1 to Amendment No. 1 on Form 8, dated
October 10, 1990, as filed with the SEC on October 16,
1990, amending FSCO's Current Report on Form 8-K dated
August 28, 1990, as filed with the SEC Commission on
September 1, 1990, [File No. 1-6906] and hereby
incorporated by reference.)
Ex. 10. Material Contracts: Executive Compensation Plans
and Arrangements:
Ex. 10.1. Amended and Restated First Security Corporation
Comprehensive Management Incentive Plan.
Ex. 10.2, 10.3, 10.4, 10.5, 10.6. Employment Agreements
between FSCO and Spencer F. Eccles, Morgan J. Evans, L.
Scott Nelson, T. Eugene King, and J. Patrick McMurray.
(Exhibits to FSCO's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1991, hereby incorporated by
reference [File No. 1-6906].)
Ex. 10.7. Employment Agreement between FSCO and Scott C.
Ulbrich.
(Exhibit to FSCO's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1992, hereby incorporated by
reference [File No. 1-6906].)
Ex. 10.8. The form of First Security Deferred Compensation
Plan Deferral Election -- 01/01/95 - 12/31/95.
Ex. 11. Computation of per share earnings.
Ex. 21. Subsidiaries.
Ex. 23.1. Consent of Independent Certified Public
Accountants: Deloitte & Touche LLP.
Ex. 23.2. Consent of Independent Certified Public
Accountants: KPMG Peat Marwick LLP.
Ex. 27. Financial Data Schedule.
14(b) Reports on Form 8-K:
On January 31, 1995, FSCO reported on Form 8-K a press release
relating to an increase in its regular quarterly cash
dividend.
On February 2, 1995, FSCO reported on Form 8-K/A an amendment
to correct the record date reported in the Form 8-K filed on
January 31, 1995.
14(c) Exhibits required by Item 601 of Regulation S-K.
Signatures
------------------------------------------------------------------------------
<PAGE>
The following pages contain "Management's Discussion and Analysis" of First
Security Corporation's 1994 financial condition and results of operations,
including comparisons with prior years' results and identification of
possible risks and trends.
As required by applicable accounting rules, all 1992 and prior year amounts
in this report were restated in 1993 to reflect the 1993 pooling-of-interests
merger with First National Financial Corporation, and the adoption of SFAS
No 109 "Accounting for Income Taxes", which was applied retroactively. In
1992, historical per share data were restated where appropriate to reflect
three-for-two stock splits made in the form of 50% stock dividends paid in
May 1992 and June 1991.
It should be noted that the five-year compound growth rates shown on tables
throughout this discussion may not represent actual trends due to recent
acquisitions and certain nonrecurring events.
The consolidated financial statements should be read in conjunction with
this review.
TABLE OF CONTENTS
FINANCIAL REVIEW
Glossary
Summary of Earnings and Financial Condition
Business Lines
Mergers and Acquisitions
Stockholders' Equity and Capital Adequacy
Common and Preferred Stock
Interest Earning Assets and Asset Quality
Investment Securities
Loans
Problem Assets
Reserve for Loan Losses
Asset/Liability Management
Liquidity
Income Statement Analysis:
Net Interest Income
Noninterest Income
Noninterest Expenses
Provision for Income Taxes
Off-Balance Sheet Items
Inflation Accounting and Capital Commitments
National and Regional Economy
Competitive Position
Legal Proceedings
Management's Report on Financial Statements
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Corporate Information
TABLES:
Table 1: Financial Highlights
Table 2: Consolidating Statements
Table 3: Mergers and Acquisitions
Table 4: Capital Ratios
Table 5: Investment Securities
Table 6: Loans
Table 7: Problem Assets
Table 8: Reconciliation of the Reserve for Loan Losses
Table 9: Allocation of the Reserve for Loan Losses
Table 10: Maturities and Interest Rate Sensitivity
Table 11: Maturities and Interest Rate Sensitivities
of Selected Loan Categories
Table 12: Maturities of Time Certificates of
$100,000 or More
Table 13: Deposits
Table 14: Short-Term Borrowings
Table 15: Long-Term Debt
Table 16: Average Balance Sheets, Net Interest Income,
Yields and Rates
Table 17: Analysis of Interest Changes Due to
Volume and Rates
Table 18: Noninterest Income
Table 19: Noninterest Expenses
Table 20: Quarterly Financial Summary
<PAGE>
GLOSSARY
ALCO: Asset/liability management committees comprised of senior officers from
the major divisions of each FSCO subsidiary. The ALCO process identifies,
assesses, and manages FSCO's liquidity, capital adequacy, and interest rate
risks.
BOOK VALUE PER SHARE: Common stockholders' equity divided by the number of
common shares outstanding.
CAPITAL ADEQUACY: Sufficient equity to support strategic plans while
providing an attractive rate of return for stockholders. Often measured by
risk-based capital ratios.
CORE DEPOSITS: Total deposits, excluding time deposits of $100,000 or more
and foreign deposits.
DERIVATIVES: Financial instruments whose performance is derived from the
performance of another financial instrument or the change of an underlying index
which may be tied to the performance of one or many related or unrelated
financial instruments (see: "Note 10. To Consolidated Financial Statements -
Commitments, Contingent Liabilities, and Financial Instruments with Off-Balance
Sheet Risk").
EFFICIENCY RATIO: Noninterest expenses divided by the sum of net interest
income FTE plus noninterest income.
FAIR VALUE: An approximation of current market value derived from carrying
value, market quotes, and discounted cash flow analysis.
FTE: Fully-taxable equivalent. An adjustment made to interest income to
facilitate comparison of interest income earned on tax-exempt or tax-favored
loans, leases, and securities with interest earned subject to full taxation.
GAP: An asset/liability management term. Gap assigns each interest-earning
asset and interest-bearing liability to a time frame reflecting its next
repricing or maturity date. The difference between total interest-sensitive
assets and liabilities at each time interval represents the interest sensitivity
gap for that interval.
INTANGIBLE ASSETS: Goodwill, purchased mortgage servicing rights, deposit-based
intangibles, and insurance intangibles.
INTEREST RATE RISK: The risk that changes in interest rates will impact
net interest income.
LEVERAGE RATIO: Tier 1 capital divided by the sum of total assets minus
nonqualifying intangibles.
LIQUIDITY: The ability to meet cash flow requirements at reasonable cost.
MARKET CAPITALIZATION: The market (bid) price of a share of common stock
multiplied by the number of shares of common stock outstanding, i.e., the total
market value of all outstanding shares.
NASDAQ/NMS: The National Association of Securities Dealers Automated
Quotation/National Market System.
NET INTEREST INCOME: Interest income plus loan fees minus interest
expense, frequently adjusted to an FTE basis for analytical purposes.
NET INTEREST MARGIN: Net interest income FTE divided by average
interest-earning assets.
NET INTEREST SPREAD: The arithmetic difference between the FTE yield on
interest-earning assets and the rate paid on interest-bearing funds.
NONACCRUING LOANS: Loans on which interest is not being accrued for income
statement purposes. Interest received on nonaccruing loans is reported on a cash
basis.
NONPERFORMING ASSETS: Nonaccruing loans plus renegotiated loans plus ORE.
NOTIONAL AMOUNT: The contractual amount against which changes in interest
rates are applied in the calculation of interest exchanges. Not a measurement of
principal at risk, as no cash settlement of notional balances ever occurs.
ORE: Other real estate owned plus other foreclosed assets.
POTENTIAL PROBLEM LOANS: As defined by the SEC, potential problem loans
are performing loans that have characteristics that cause management to have
serious doubts about the borrower's ability to comply with the present loan
repayment terms. These loans are less than 90 days past due, and are accruing
interest.
PROBLEM ASSETS: Nonperforming assets plus accruing loans past due 90 days
or more.
PRODUCTIVITY RATIO: Noninterest expenses divided by average total assets.
PROVISION FOR LOAN LOSSES: A charge against income made to adjust the
reserve for loan losses to a desired level to cover potential future loan
losses.
RESERVE FOR LOAN LOSSES: An adjustment made to loans to recognize possible
future loan chargeoffs. All loan losses are charged against this reserve as they
become probable and subject to reasonable estimation. Recoveries of amounts
previously charged off are credited to this reserve. It is adjusted by means of
the provision for loan losses.
RISK-BASED CAPITAL RATIOS: Equity measurements used by regulatory agencies
to assess a bank's capital adequacy. These ratios are: Tier 1 Capital divided by
risk-adjusted assets; and Total Capital (Tier 1 plus Tier 2 capital) divided by
risk-adjusted assets.
ROAA: Return on average assets. Net income divided by average total
assets.
ROAE: Return on average equity. Net income divided by average total
stockholders' equity.
SFAS: Statement of Financial Accounting Standards. Accounting
pronouncements issued by the Financial Accounting Standards Board.
TANGIBLE COMMON EQUITY RATIO: Common stockholders' equity minus intangible
assets, divided by the sum of total assets minus intangible assets.
TIER 1 CAPITAL: Stockholders' equity plus minority equity in subsidiaries,
minus goodwill and deposit-based intangibles.
TIER 2 CAPITAL: Reserves for loan losses up to 1.25% of risk-adjusted
assets plus qualifying subordinated debt.
TOTAL CAPITAL: The sum of Tier 1 Capital plus Tier 2 Capital.
<PAGE>
<TABLE>
<CAPTION>
TABLE 1: FINANCIAL HIGHLIGHTS (IN THOUSANDS, EXCEPT PER SHARE DATA) 5-YEAR
94/93 COMPOUND
1994 1993 1992 1991 1990 % CHG GROWTH RATE
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Common Stock Data:
Earnings per common share: primary... $ 2.81 $ 2.38 $ 2.17 $ 1.44 $ 0.73 18.1 14.6
Earnings per common share:
fully-diluted....................... 2.80 2.38 2.16 1.36 0.67 17.6 16.2
Dividends paid per common share...... 1.04 0.88 0.68 0.60 0.57 18.2 13.6
Book value EOP....................... 17.92 17.24 15.81 14.44 13.74 4.0 5.7
Tangible book value EOP.............. 14.57 17.00 15.49 14.11 13.33 (14.3) 1.4
Market price (bid) EOP............... 22.75 25.75 27.25 19.00 10.78 (11.7) 10.0
High bid for the period............. 32.00 30.25 27.50 19.00 14.67 5.8 16.7
Low bid for the period.............. 21.50 24.00 18.17 10.00 8.00 (10.4) 14.3
Market capitalization EOP:
market price x # common shares...... 1,128,286 1,247,253 1,243,745 834,803 427,201 (9.5) 15.3
Market price EOP/book value EOP (%).. 126.95 149.36 172.36 131.58 78.46
Dividend payout ratio:
div. PS/EPS (%)..................... 37.01 36.97 31.55 41.56 77.69
Dividend yield EOP:
dividend/market price (%)........... 4.57 3.57 2.79 3.23 5.28
Price/earnings ratio................. 8.1x 10.8x 12.6x 13.2x 14.7x
Common shares outstanding: EOP....... 49,595 48,437 45,642 43,937 39,629 2.4 4.8
Common shares out: average primary... 49,927 47,852 46,330 41,155 39,607 4.3 4.9
Common shares out: avg. fully
diluted............................. 50,084 48,020 46,520 43,715 42,996 4.3 3.4
Preferred shares outstanding: EOP.... 12 13 15 16 18 (7.7) (8.8)
Shareholders of record (not
rounded to thousands)
Common shareholders................. 8,821 8,748 7,976 6,911 6,720 0.8 4.7
Preferred shareholders.............. 634 671 742 813 872 (5.5) (7.4)
-----------------------------------------------------------------------------------------------------------------------------------
Income Statement:
Interest income...................... $ 773,517 $ 644,732 $ 656,448 $ 710,831 $ 749,701 20.0 1.9
Interest expense..................... 315,415 240,794 280,499 388,022 447,561 31.0 (5.6)
Net interest income.................. 458,102 403,938 375,949 322,809 302,140 13.4 10.1
Fully-taxable equivalent (FTE)
adjustment.......................... 7,875 7,633 9,621 10,419 11,322 3.2 (5.1)
Net interest income, FTE............. 465,977 411,571 385,570 333,228 313,462 13.2 9.7
Provision for loan losses............ 825 11,684 30,277 66,393 94,899 (92.9) (55.2)
Noninterest income................... 206,621 167,159 144,036 137,822 115,823 23.6 16.8
Noninterest expenses................. 442,721 386,146 339,456 306,504 285,095 14.7 11.9
Provision for income taxes........... 81,043 59,211 49,909 28,322 8,968 36.9 27.9
Net income........................... 140,134 114,056 100,343 59,412 29,001 22.9 20.2
Preferred stock dividend
requirement......................... 39 43 48 52 56 (9.3) (8.6)
Common stock dividend................ 51,087 38,595 26,000 20,017 19,904 32.4 20.3
-----------------------------------------------------------------------------------------------------------------------------------
Balance Sheet - End of Period:
Trading account securities........... $ 553,826 $ 607,854 $ 388,961 $ 313,930 $ 154,951 (8.9) 23.4
Investment securities:
Available for sale (A).............. 1,993,797 (A) (A) (A) (A) NA NA
Held to maturity (A)................ 252,622 1,762,783 1,750,180 1,547,088 1,376,827 NA NA
Loans, net of unearned income........ 8,173,678 6,561,021 5,616,624 5,432,951 5,423,137 24.6 9.9
Reserve for loan losses.............. (133,855) (134,848) (127,847) (126,887) (117,192) (0.7) 11.2
Total interest-earning assets........ 11,019,059 9,329,273 8,054,059 7,452,158 7,056,556 18.1 10.1
Intangible assets.................... 166,199 11,833 14,867 14,243 15,970 1304.5 179.4
Other assets......................... 1,097,579 1,005,431 954,594 950,654 938,569 9.2 6.1
Total assets......................... 12,148,982 10,211,689 8,895,673 8,290,168 7,893,903 19.0 10.0
Noninterest-bearing deposits......... 1,719,388 1,697,687 1,429,314 1,244,239 1,117,483 1.3 11.4
Interest-bearing deposits............ 6,333,956 5,806,020 5,439,139 5,270,453 5,071,252 9.1 7.5
Total deposits....................... 8,053,344 7,503,707 6,868,453 6,514,692 6,188,735 7.3 8.3
Short-term borrowed funds............ 2,345,139 1,486,905 995,790 899,294 918,566 57.7 12.3
Long-term debt....................... 685,426 224,836 127,203 87,516 98,851 204.9 36.0
Total interest-bearing liabilities... 9,364,521 7,517,761 6,562,132 6,257,263 6,088,669 24.6 9.8
Other liabilities.................... 175,330 160,242 181,561 153,247 142,217 9.4 3.8
Minority equity in subsidiaries...... 269 268 219 246 239 0.4 3.8
Preferred stockholders' equity....... 629 703 783 849 926 (10.5) (8.7)
Common stockholders' equity.......... 888,845 835,028 721,664 634,324 544,369 6.4 10.8
Parent company investment in
subsidiaries........................ 932,738 741,185 640,795 581,010 536,815 25.8 12.1
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE 1: FINANCIAL HIGHLIGHTS (IN THOUSANDS, EXCEPT PER SHARE DATA) (CONTINUED) 5-YEAR
94/93 COMPOUND
1994 1993 1992 1991 1990 % CHG GROWTH RATE
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet - Average:
Trading account securities........... $ 629,308 $ 424,091 $ 430,025 $ 382,608 $ 201,472 48.4 45.3
Investment securities:
Available for sale (A).............. 1,984,693 (A) (A) (A) (A) NA NA
Held to maturity (A)................ 270,079 1,792,591 1,708,038 1,433,406 1,385,158 NA NA
Loans, net of unearned income........ 7,244,205 5,917,816 5,463,283 5,352,308 5,248,155 22.4 8.6
Reserve for loan losses.............. (134,802) (128,801) (130,548) (125,198) (86,342) 4.7 13.2
Total interest-earning assets,
net of deferred taxes on leases..... 10,042,060 8,319,615 7,680,167 7,261,560 7,073,226 20.7 9.6
Intangible assets.................... 117,632 13,709 14,602 14,197 8,589 758.1 209.8
Other assets......................... 1,114,948 1,009,737 926,266 895,195 900,672 10.4 6.8
Total assets......................... 11,139,838 9,214,260 8,490,487 8,045,754 7,896,145 20.9 9.5
Noninterest-bearing deposits......... 1,616,294 1,428,640 1,214,078 1,042,585 973,841 13.1 13.2
Interest-bearing deposits............ 6,083,333 5,527,474 5,353,698 5,163,236 4,777,451 10.1 7.1
Total deposits....................... 7,699,627 6,956,114 6,567,776 6,205,821 5,751,292 10.7 8.2
Short-term borrowed funds............ 2,007,341 1,121,250 982,448 1,013,532 1,297,477 79.0 13.1
Long-term debt....................... 368,096 204,129 103,659 104,300 143,747 80.3 19.3
Total interest-bearing liabilities... 8,458,770 6,852,853 6,439,805 6,281,068 6,218,675 23.4 8.8
Other liabilities.................... 195,774 147,877 150,208 142,935 151,495 32.4 6.8
Minority equity in subsidiaries...... 265 232 237 246 233 14.2 4.3
Preferred stockholders' equity....... 675 728 820 883 957 (7.3) (8.0)
Common stockholders' equity.......... 868,060 783,930 685,339 578,037 550,944 10.7 10.9
-----------------------------------------------------------------------------------------------------------------------------------
Problem Assets - End of Period:
Total nonaccruing loans.............. $ 23,868 $ 36,354 $ 79,968 $ 112,377 $ 99,238 (34.3) (16.7)
ORE and other foreclosed assets...... 3,352 16,465 27,487 38,322 51,247 (79.6) (44.1)
Total nonperforming assets........... 27,220 52,819 107,455 150,699 150,485 (48.5) (25.8)
Accruing loans past due 90 days
or more.............................. 12,001 7,155 11,766 17,200 16,643 67.7 (8.4)
Total problem assets................. 39,221 59,974 119,221 167,899 167,128 (34.6) (22.5)
-----------------------------------------------------------------------------------------------------------------------------------
Reconciliation of the Reserve for
Loan Losses:
Balance, beginning of period......... $ 134,848 $ 127,847 $ 126,887 $ 117,192 $ 78,694 5.5 13.8
Net loans charged off................ 7,092 11,865 32,831 58,709 58,454 (40.2) (28.6)
Provision for loan losses............ 825 11,684 30,277 66,393 94,899 (92.9) (55.2)
Acquisitions & reclassifications..... 5,274 7,182 3,514 2,011 2,053 (26.6) 68.4
Balance, end of period............... 133,855 134,848 127,847 126,887 117,192 (0.7) 11.2
-----------------------------------------------------------------------------------------------------------------------------------
Other Data - End of Period (not
rounded to thousands):
Full-time equivalent employees....... 7,621 6,318 5,891 5,667 5,616 20.6 7.7
Domestic bank offices:
FSB Utah............................ 119 113 108 107 100 5.3 5.3
FSB Idaho........................... 91 86 84 79 80 5.8 4.2
FSB New Mexico...................... 27 26 26 32 33 3.8 2.4
FSB Oregon.......................... 13 13 11 9 9 7.6
FSB Nevada.......................... 5 5 NA
FSB Wyoming......................... 6 2 1 1 1 200.0 43.1
Total domestic bank offices.......... 261 245 230 228 223 6.5 5.5
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) During 1994, FSCO adopted SFAS 115, "Accounting for Certain Investments in
Debt and Equity Securities". Per the new accounting requirements,
comparisons with prior periods are not available.
EOP=End of Period.
<PAGE>
<TABLE>
<CAPTION>
TABLE 1: FINANCIAL HIGHLIGHTS (IN THOUSANDS, EXCEPT PER SHARE DATA) (CONTINUED)
1994 1993 1992 1991 1990
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Selected Ratios (%):
Return on average assets......................... 1.26% 1.24% 1.18% 0.74% 0.37%
Return on average stockholders' equity........... 16.13 14.54 14.62 10.26 5.25
Net interest margin, FTE......................... 4.64 4.95 5.02 4.59 4.43
Net interest spread, FTE......................... 4.05 4.33 4.31 3.75 3.56
Efficiency ratio:
(noninterest expenses/FTE net interest
income plus noninterest income)................. 65.82 66.72 64.10 65.07 66.41
Productivity ratio:
(noninterest expenses/average assets)........... 3.97 4.19 4.00 3.81 3.61
Loans/deposits................................... 101.49 87.44 81.77 83.40 87.63
Loans/assets..................................... 67.28 64.25 63.14 65.53 68.70
Reserve for loan losses at end of period to:
Total loans..................................... 1.64 2.06 2.28 2.34 2.16
Nonaccruing loans............................... 560.81 370.93 159.87 112.91 118.09
Nonaccruing and accruing loans
past due 90 days............................... 373.18 309.93 139.37 97.92 101.13
Nonaccruing loans/total loans.................... 0.29 0.55 1.42 2.07 1.83
Nonaccruing and accruing loans past
due to total loans.............................. 0.44 0.66 1.63 2.39 2.14
Nonperforming assets EOP to:
Total loans and ORE............................. 0.33 0.80 1.90 2.75 2.75
Total assets.................................... 0.22 0.52 1.21 1.82 1.91
Total equity.................................... 3.06 6.32 14.87 23.73 27.60
Total equity plus reserve for
loan losses.................................... 2.66 5.44 12.64 19.78 22.72
Problem assets EOP to:
Total loans plus ORE............................ 0.48 0.91 2.11 3.07 3.05
Total assets.................................... 0.32 0.59 1.34 2.03 2.12
Total equity.................................... 4.41 7.18 16.50 26.43 30.65
Total equity plus reserve for
loan losses.................................... 3.83 6.18 14.02 22.03 25.23
Net loans charged off/average loans.............. 0.10 0.20 0.60 1.09 1.11
-----------------------------------------------------------------------------------------------------------------------------------
Capital Ratios (%):
Stockholders' equity/assets...................... 7.32% 8.18% 8.12% 7.66% 6.91%
Average stockholders' equity/
average assets.................................. 7.80 8.52 8.08 7.20 6.99
Tangible common equity/
tangible assets................................. 6.03 8.07 7.96 7.51 6.71
Risk-Based Capital Ratios:
Tier 1 risk-based capital ratio................. 9.84 11.82 11.32 10.61 9.32
Total (Tier 1 + 2) risk-based
capital ratio.................................. 11.98 14.15 13.78 11.84 11.27
Leverage ratio................................... 6.88 8.08 7.99 7.53 6.75
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
EOP= End of Period.
<PAGE>
SUMMARY OF EARNINGS AND FINANCIAL CONDITION. In 1994, First Security
Corporation ("FSCO") achieved the most profitable year in its 66-year
history and its third consecutive year of record earnings and earnings per
share. Net income earned in 1994 totaled $140.13 million, up $26.08 million
(22.9%) from $114.06 million in 1993, which was up $13.71 million (13.7%)
from $100.34 million in 1992.
Fully-diluted earnings per share were a record $2.80 for 1994, up $0.42
(17.6%) from $2.38 for 1993, which was up $0.22 (10.2%) from the $2.16
earned in 1992.
Net income generated an ROAA of 1.26% in 1994, representing continued
improvement from 1.24% and 1.18% in 1993 and 1992, respectively. Each of the
three years achieved an ROAA in excess of FSCO's minimum acceptable target
of 1.00%.
Net income also generated an ROAE of 16.13% in 1994, which exceeded FSCO's
minimum target of 15.00% and represented an increase from 14.54% and 14.62%
for 1993 and 1992, respectively.
Substantial growth occurred during 1994 in FSCO's balance sheet, which
reached record levels at December 31, 1994 with: total assets of $12.15
billion; total loans of $8.17 billion; total interest-earning assets of
$11.02 billion; deposits of $8.05 billion; and stockholders' equity of
$889.47 million.
Problem assets were reduced to $39.22 million at December 31, 1994, down
34.6% from year-end 1993. The ratio of total problem assets to total loans
and ORE was 0.48% at year-end 1994, down from 0.91% for year-end 1993.
The reserve for loan losses was $133.86 million at December 31, 1994, and
the "coverage" ratio of the reserve to nonaccruing loans was 560.81%. The
reserve was $134.85 million at year-end 1993, and the "coverage ratio" was
370.93%.
FSCO and its subsidiary Banks exceeded required regulatory minimums for
"well capitalized" status throughout 1994. Risk-based capital ratios at
December 31, 1994 were Tier 1 of 9.84% and Total Capital of 11.98%, while
the leverage ratio was 6.88%. Accounting for purchase acquisitions caused
the equity ratios to decline in 1994 from 1993 levels.
In 1994, FSCO completed 1 pooling-of-interests merger, and 4 purchase
acquisitions including the purchase of CrossLand Mortgage. In 1993, FSCO
completed 4 purchases, and 7 pooling-of-interests mergers including the
merger with First National Financial Corporation.
The year 1994 was pivotal in FSCO's 66-year history on a number of fronts:
* Strong local economies, driving unprecedented loan demand throughout
FSCO's six-state banking franchise, substantially contributed to the 20.7%
growth in average earning assets and the 13.4% increase in net interest
income.
* Acquisitions continued FSCO's expansion of traditional business lines
while diversifying revenue sources and geographic market penetration.
* Earnings performance for First Security Banks of New Mexico and Nevada,
both acquired in 1993, as well as the bank and branch acquisitions in Wyoming
and Utah, met or exceeded FSCO's proforma business plans.
* As the 1994 interest rate environment became increasingly volatile and
unsettled, a reduction in the absolute volume and changes in the mix of
national real estate loan production occurred, creating industry wide
overcapacity. CrossLand Mortgage was directly negatively impacted by these
conditions; fewer loans were originated and at higher costs than were
projected in FSCO's business plans. Aggressive actions to rebalance the
CrossLand Mortgage profitability equation to the emerging realities of
mortgage banking will continue during 1995.
It has been FSCO's business philosophy to maintain a conservatively stated
and well-diversified balance sheet capable of coping with opportunities or
challenges over the longer term. Building on this philosophy in 1994, FSCO
positioned itself to consider new and profitable business opportunities in
1995 and in the years beyond.
<PAGE>
<TABLE>
<CAPTION>
TABLE 2: CONSOLIDATING STATEMENTS (IN THOUSANDS, EXCEPT RATIOS) (A)
NON-
FOR THE YEAR ENDED RESERVE NON- RESERVE PERFORMING
DECEMBER 31, 1994 TOTAL TOTAL FOR LOAN PERFORMING TO TOTAL ASSETS TO TOTAL TOTAL
COMPANY ASSETS LOANS LOSSES ASSETS ORE LOANS LOANS+ORE DEPOSITS EQUITY
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FSB Utah................. $ 5,708,432 $3,634,249 $ (56,746) $ 9,006 $ 669 1.56 0.25 $ 3,712,946 $443,232
FSB Idaho................ 3,882,312 2,970,412 (35,726) 5,910 865 1.20 0.20 2,493,717 263,217
FSB New Mexico........... 1,780,107 886,370 (19,060) 3,149 1,165 2.15 0.35 1,118,442 83,609
FSB Oregon............... 383,067 335,944 (4,585) 2,350 454 1.36 0.70 303,538 36,189
FSB Nevada............... 295,402 196,389 (4,388) 3,513 2.23 1.79 271,171 23,287
FSB Wyoming.............. 221,279 112,880 (2,740) 667 172 2.43 0.59 197,866 20,387
Consolidating
Adjustments............. (263,685) (74,811) (31,714)
------------------------------------------------------------------------------------------------------------------------------------
Total Bank
Subsidiaries............ 12,006,914 8,061,433 (123,245) 24,595 3,325 1.53 0.30 8,065,966 869,921
------------------------------------------------------------------------------------------------------------------------------------
FS Leasing............... 174,166 176,421 (4,889) 38 2.77 0.02 26,456
FS Processing Services... 13,462 5,675 647
FS Insurance............. 7,362 5,248
FS Life Insurance........ 10,554 8,510
FS Investment Services... 1,831 10 1,244
FS Business Investment... 2,497 700 2,495
FS Service............... 22,649 1,880 10,643
FS Information
Technology.............. 8,436 2,565
FS Mortgage.............. 5,577 5,745 (5,721) 2,587 99.58 45.03 5,391
Consolidating
Adjustments............. (5,441) (112)
------------------------------------------------------------------------------------------------------------------------------------
Total Nonbank
Subsidiaries............ 241,093 190,431 (10,610) 2,625 5.57 1.38 63,087
------------------------------------------------------------------------------------------------------------------------------------
FSCO Parent Company Only. 1,132,926 165,839 889,474
Consolidating
Adjustments............. (1,231,951) (244,025) (12,622) (933,008)
------------------------------------------------------------------------------------------------------------------------------------
FSCO Consolidated........ $12,148,982 $8,173,678 $(133,855) $ 27,220 $ 3,325 1.64 0.33 $ 8,053,344 $889,474
====================================================================================================================================
<CAPTION>
NET PROVISION NON- NON- RETURN RETURN ON
INTEREST FOR LOAN INTEREST INTEREST NET ON AVERAGE AVERAGE AVERAGE AVERAGE
COMPANY INCOME LOSSES INCOME EXPENSES INCOME ASSETS EQUITY ASSETS EQUITY
------------------------------------------------------------------------------------------------------------------------------------
<S>...................... <C> <C> <C> <C> <C> <C> <C> <C> <C>
FSB Utah................. $ 202,234 $ 512 $ 122,717 $ 227,459 $ 60,323 1.16 15.02 $ 5,186,845 $401,673
FSB Idaho................ 141,762 10,550 39,879 116,243 33,523 0.94 14.15 3,556,728 236,838
FSB New Mexico........... 63,243 (4,060) 20,615 58,775 19,792 1.29 21.96 1,532,110 90,133
FSB Oregon............... 22,061 253 3,020 14,215 6,393 1.71 17.85 373,564 35,812
FSB Nevada............... 17,009 1,246 3,094 12,023 4,766 1.66 21.87 287,478 21,790
FSB Wyoming.............. 6,835 319 1,661 5,505 1,751 1.06 11.19 164,734 15,651
Consolidating
Adjustments............. (3,640) (3,640) (21,943)
------------------------------------------------------------------------------------------------------------------------------------
Total Bank Subsidiaries.. 453,144 8,820 187,346 430,580 126,548 1.14 15.78 11,079,516 801,897
------------------------------------------------------------------------------------------------------------------------------------
FS Leasing............... 6,599 (2,485) 2,454 6,843 4,092 2.65 16.70 154,370 24,500
FS Processing Services... 351 11,894 5,002 4,472 46.46 568.23 9,626 787
FS Insurance............. 147 8,521 7,174 912 13.86 19.41 6,579 4,698
FS Life Insurance........ 477 2,226 878 1,198 12.40 14.84 9,660 8,072
FS Investment Services... 13 8,595 8,380 134 9.69 12.97 1,383 1,033
FS Business Investment... 131 101 18 0.73 0.73 2,482 2,480
FS Service............... (88) 83,019 88,747 (3,625) (14.27) (25.95) 25,411 13,971
FS Information
Technology.............. (299) 34,068 33,970 (145) (1.86) (8.50) 7,780 1,705
FS Mortgage.............. 705 (5,510) 410 (3,992) 6,555 69.17 249.81 9,477 2,624
Consolidating
Adjustments............. (23,889) (23,880) (6) (5,018) (107)
------------------------------------------------------------------------------------------------------------------------------------
Total Nonbank
Subsidiaries............ 8,036 (7,995) 127,298 123,223 13,605 6.14 22.76 221,750 59,763
------------------------------------------------------------------------------------------------------------------------------------
FSCO Parent Company Only. 46,814 46,814 4.57 5.39 1,024,465 868,735
Consolidating
Adjustments............. (49,892) (108,023) (111,082) (46,833) (1,185,893) (861,660)
------------------------------------------------------------------------------------------------------------------------------------
FSCO Consolidated........ $ 458,102 $ 825 $ 206,621 $ 442,721 $ 140,134 1.26 16.13 $11,139,838 $868,735
====================================================================================================================================
</TABLE>
(A) FSCO owns 100% of the stock of all of its subsidiaries except FSB Utah and
FSB Wyoming, which are each 99.9% owned.
<PAGE>
BUSINESS LINES. First Security Corporation is the largest bank holding
company headquartered in the Intermountain West. Incorporated in 1928, FSCO
is the oldest multistate bank holding company in the United States. FSCO's
full-service banking business is conducted through six subsidiary Banks in
Utah, Idaho, New Mexico, Oregon, Nevada, and Wyoming. Other subsidiaries are
engaged in residential mortgage loan origination and servicing, full-service
leasing, operational and processing services, insurance services,
nonperforming asset liquidation and management, small business investment,
asset management, and securities brokerage.
FSCO's subsidiaries and their principal activities are discussed below (see:
"Table 2: Consolidating Statements"; "Mergers and Acquisitions"; and "Note
14. To Consolidated Financial Statements - Mergers and Acquisitions").
* First Security Bank of Utah, N.A. (FSB Utah) is a nationally chartered
bank and the largest bank in Utah. At December 31, 1994, FSB Utah operated
119 full-service domestic branches and 201 ATMs, plus one international
branch on Grand Cayman Island in the British West Indies.
During 1994, FSB Utah acquired Community First Bank in a pooling-of-interests
merger, and purchased CrossLand Mortgage. CrossLand Mortgage operates as a
subsidiary of FSB Utah, originating and servicing its own mortgage loans, and
servicing mortgage loans for FSCO's subsidiaries and other financial
institutions. At December 31, 1994, CrossLand Mortgage operated 61 branches
in 21 states nationwide.
* First Security Bank of Idaho, N.A. (FSB Idaho) is a nationally chartered
bank and the second largest bank in Idaho. At December 31, 1994, FSB Idaho
operated 91 full-service branches and 83 ATMs.
During 1994, FSB Idaho acquired American Ban Corporation in a purchase
acquisition.
* First Security Bank of New Mexico, N.A. (FSB New Mexico - formerly First
National Bank in Albuquerque, the wholly owned bank subsidiary of FNFC) is a
nationally chartered bank and the second largest bank in New Mexico in
deposits. On November 19, 1993, FSCO acquired FNFC and its subsidiary bank.
At December 31, 1994, FSB New Mexico operated 27 full-service branches and
143 ATMs.
* First Security Bank of Oregon (FSB Oregon) is an Oregon state chartered
savings bank. At December 31, 1994, FSB Oregon operated 13 full-service
branches and 16 ATMs.
* First Security Bank of Nevada (FSB Nevada) is a Nevada state chartered
bank. At December 31, 1994, FSB Nevada operated 5 full-service branches and 3
ATMs.
* First Security Bank of Wyoming (FSB Wyoming) is a Wyoming state chartered
bank. At December 31, 1994, FSB Wyoming operated 6 full-service branches and
5 ATMs.
During 1994, FSB Wyoming purchased the Evanston and Bridger Valley, Wyoming
branches of Equality State Bank and Star Valley State Bank.
* First Security Leasing Company (FS Leasing), a full-service leasing
company, originates and manages leases for both its own portfolio and the
lease portfolios of FSCO's subsidiary Banks. Leases are carried by FSCO's
subsidiaries primarily to generate income, although significant deferred tax
benefits have been, and continue to be, generated by the lease portfolios.
* First Security Processing Services, Inc. (FS Processing Services)
processes bankcard transactions for other financial institutions. During
1994, a significant portion of the assets of FS Processing Services were
sold.
* First Security Insurance, Inc. (FS Insurance), a full-service insurance
agency, offers a wide range of insurance products to customers in FSCO's
market regions.
* First Security Life Insurance Company of Arizona (FS Life Insurance)
reinsures credit life and disability insurance for borrowers from other FSCO
subsidiaries.
* First Security Investment Services, Inc. (FS Investment Services) has two
operating subsidiaries:
** First Security Investor Services provides a full spectrum of securities
products and brokerage services, including discount brokerage and investment
advice, to the public.
** First Security Investment Management, Inc. provides investment
management and advisory services to the Trust Groups of FSCO's subsidiary
Banks and to other clients.
* First Security Business Investment Corporation (FS Business Investment)
invests in small businesses and provides alternative financing sources for
small companies whose financing needs are not being met by conventional
lending sources. Investments made by FS Business Investment include both
equity and debt positions.
* First Security Service Company (FS Service) provides specialized services
to FSCO's subsidiaries. These services include loan servicing, systems and
operations, accounting, security, consumer compliance, human resources,
planning, sales promotion and training, marketing, communications, and
purchasing.
* First Security Information Technology, Inc. (FS Information Technology)
provides specialized services including computer processing,
telecommunications, and personal computer support to FSCO and its
subsidiaries.
* First Security Mortgage Company (FS Mortgage) is FSCO's special purpose
subsidiary which holds and liquidates nonperforming assets and manages other
problem assets.
<TABLE>
<CAPTION>
TABLE 3: MERGERS AND ACQUISITIONS (IN THOUSANDS)
Date of Type of Acquired Bank Offices
Acquisition Acquisition Institution Home Office Acquired Assets Deposits
----------------------------------------------------------------------------------------------------------------------------------
<C> <C> <S> <C> <C> <C> <C>
1993:
01-Mar Purchase Fenton Insurance Agency Salt Lake City, UT - $ 104 -
01-Apr Pool-of-interests First Bancshares St. George, UT 5 79,808 $ 72,910
01-May Pool-of-interests Benton County Bank Corvallis, OR 2 36,731 31,987
02-Aug Purchase Bank of America Arizona Deposits only, UT - - 6,753
26-Aug Pool-of-interests Desert SouthWest Las Vegas, NV 1 49,490 43,242
Community Bancorp
02-Sep Pool-of-interests Kennevick Insurance Agency Boise, ID - 160 -
30-Sep Purchase Bank One of Utah Deposits only, UT - - 5,772
28-Oct Pool-of-interests State Bank of Green River Green River, WY 1 32,886 27,957
19-Nov Pool-of-interests First National Financial Corp. Albuquerque, NM 26 1,242,880 1,127,302
19-Nov Pool-of-interests Continental Bancorporation Las Vegas, NV 4 203,128 198,157
30-Nov Purchase First Professional Bank Core deposits only, UT - 6,030 6,020
1994:
18-Feb Purchase Equality State Bank 2 branches only, WY 2 31,399 30,545
29-Apr Purchase CrossLand Mortgage Salt Lake City, UT - 328,068 -
Acquisition Corp.
20-May Pool-of-interests Community First Bank Clearfield, UT 5 75,242 62,602
18-Jul Purchase American Ban Corporation Boise, ID 4 75,816 50,914
23-Aug Purchase Star Valley State Bank Afton, WY 2 73,578 57,930
----------------------------------------------------------------------------------------------------------------------------------
Totals...................................................................................... 52 $2,235,320 $1,722,091
==================================================================================================================================
</TABLE>
MERGERS AND ACQUISITIONS. FSCO's merger and acquisition activity (see: "Table
3: Mergers and Acquisitions"; and "Note 14. To Consolidated Financial
Statements - Mergers and Acquisitions") reflects management's strategy of
diversifying and enhancing FSCO's financial services delivery system through
the expansion and geographical diversification of its bank branch network and
nonbank activities. Management believes that long-term returns on the
stockholders' investment will benefit from these acquisitions, and will
continue its strategy of acquiring solid, well-managed financial services
companies when suitable opportunities arise in new and existing markets.
In 1994, FSCO completed 4 bank acquisitions, expanding its existing bank
operations in Utah, Idaho, and Wyoming. These acquisitions added a total of
13 branches and $202.00 million in deposits to FSCO's consolidated
operations.
In addition, FSCO, through its FSB Utah subsidiary, acquired CrossLand
Mortgage Acquisition Corporation ("CrossLand Mortgage"), the parent company
of CrossLand Mortgage Corp. (not affiliated with CrossLand Savings Bank), a
1-4 family residential mortgage loan originator and servicer which had 61
offices in 21 states across the country at December 31, 1994. The acquisition
of CrossLand Mortgage was accounted for as a purchase, thereby creating
intangible assets consisting of $63.85 million in purchased mortgage
servicing rights and $85.05 million in goodwill. CrossLand Mortgage now
services all mortgage loans for FSCO and its subsidiaries.
In 1993, FSCO completed 11 acquisitions, including the November 19, 1993,
pooling-of-interests merger with First National Financial Corporation
("FNFC"). These acquisitions added a total of 39 branches and $1.52 billion
in deposits to FSCO's consolidated operations. The merger with FNFC required
restatement of FSCO's historical financial statements for years prior to
1993
Except for the merger with FNFC, none of the other 1994 and 1993 acquisitions
were of sufficient size to require restatement of FSCO's historical financial
statements. However, year-to-year comparisons of FSCO's results of operations
and financial condition were substantially impacted by these nonrestated
acquisitions, particularly in the areas of noninterest income and noninterest
expenses.
<PAGE>
<TABLE>
<CAPTION>
TABLE 4: CAPITAL RATIOS
FSCO FSB Utah FSB Idaho FSB New Mexico
--------------------------------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1994 1993 1994 1993 1994 1993 1994 1993
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Risk-based Capital Ratios:
Tier 1 (minimum: 4.0%)................ 9.84% 11.82% 9.81% 9.72% 8.51% 8.38% 11.21% 14.04%
Total capital (Tier 1 + Tier 2;
minimum: 8.0%)....................... 11.98 14.15 11.44 11.46 10.70 10.79 12.47 15.32
Leverage (minimum: 4.0%-5.0%) (A)..... 6.88 8.08 6.85 6.35 6.58 6.40 5.62 7.01
Other Capital Ratios:
Stockholder' equity/assets............. 7.32 8.18 7.76 6.44 6.78 6.54 4.70 7.01
Average stockholders' equity/
average assets........................ 7.80 8.52 6.66 6.95 6.66 6.76 5.88 7.24
Tangible common equity/
tangible assets....................... 6.03 8.07 5.46 6.36 6.42 6.41 4.70 7.01
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Federal Reserve Board guidelines provide that all bank holding companies
(other than those that meet certain criteria) maintain a minimum leverage
ratio of 3%, plus an additional cushion of 100 to 200 basis points. The
guidelines also state that banking organizations experiencing internal
growth or making acquisitions will be expected to maintain "strong capital
positions" substantially above the minimum supervisory levels without
significant reliance on intangible assets.
STOCKHOLDERS' EQUITY AND CAPITAL ADEQUACY. FSCO and its subsidiary Banks
exceeded required regulatory minimums for "well capitalized" status
throughout 1994, and it is FSCO's policy to maintain this status at both the
consolidated and subsidiary Bank levels.
Total stockholders' equity at December 31, 1994 reached a record $889.47
million, up $53.74 million (6.4%) from $835.73 million at year-end 1993. The
growth was due primarily to record earnings combined with the impact of
acquisitions.
FSCO's equity and risk-based capital ratios declined somewhat in 1994 (see:
"Table 4: Capital Ratios") due to: the purchase of CrossLand Mortgage and the
resulting growth in FSCO's total assets and intangible assets; and FSCO's
adoption of SFAS 115 (see below). At December 31, 1994 and 1993,
respectively, the ratio of stockholders' equity to total assets was 7.32% and
8.18%, while the ratio of tangible common equity to tangible total assets was
6.03% and 8.07%. FSCO's risk-based capital ratios at December 31, 1994 and
1993, respectively, were: Tier 1 of 9.84% and 11.82%; and Total Capital of
11.98% and 14.15%. The leverage ratio at the same year ends was 6.88% and
8.08%.
With its strong equity and risk-based capital ratios, FSCO is well-positioned
to selectively invest in profitable business opportunities, while maintaining
capital ratios at levels determined to be prudent and conservative by
management.
On January 1, 1994, FSCO adopted SFAS 115 "Accounting for Certain Investments
in Debt and Equity Securities" (see: "Investment Securities"). Among other
requirements, SFAS 115 requires that investment securities available for sale
be accounted for at fair value with the tax-effected unrealized gains or
losses reported as a net amount in a separate component of stockholders'
equity. Application of SFAS 115 results in additions to or deductions from
FSCO's total stockholders' equity as the result of fluctuations in fair value
of investment securities available for sale. At December 31, 1994, the after-
tax unrealized loss on investment securities available for sale resulted in a
$54.34 million reduction of FSCO's stockholders' equity.
COMMON AND PREFERRED STOCK. First Security Corporation's Common Stock is
traded on the NASDAQ/NMS under the symbol "FSCO", and is included in the
Standard & Poors, "MidCap 400" Index, and the Keefe, Bruyette & Woods, Inc.
"KBW 50 Index". FSCO's Preferred Stock is convertible into FSCO Common Stock
at the conversion rate of one share of preferred stock for 12.15 shares of
common stock. There is no active trading market for FSCO's Preferred Stock.
The bid price of FSCO Common Stock was $22.75 per share at the close of the
market on December 31, 1994, versus a book value of $17.92 per share,
resulting in a market-to-book ratio of 126.95%. In comparison, the bid price
at December 30, 1993 was $25.75 per share versus a book value of $17.24 per
share for a market-to-book ratio of 149.36%. At December 31, 1994, FSCO's
market capitalization was $1.13 billion, representing a five-year compound
growth rate of 15.3%.
On January 24, 1994, FSCO increased its regular quarterly cash dividend to
$0.26 a share, from the previous $0.23 per share. The $0.26 dividend was paid
in each quarter of 1994, totaling $51.09 million for the year. On a per share
basis, this equaled a dividend payout ratio of 37.01%.
On January 23, 1995, FSCO announced an increase in its regular quarterly cash
dividend to $0.28 a share, up $0.02 per share (7.7%) from the previous $0.26
per share. The higher quarterly cash dividend indicated an annualized
dividend rate of $1.12 per share. At the market closing price of $23.25 per
share on Friday, January 20, 1995 (the last market day before the
announcement of the dividend increase), the annualized dividend yield on
FSCO's Common Stock was 4.82%.
The 1994 dividends marked the 60th consecutive year in which FSCO has paid
cash dividends. National and state banking and insurance regulations impose
restrictions on the ability of FSCO's bank and insurance subsidiaries to
transfer funds to FSCO in the form of loans or dividends. Such restrictions
have not had, nor are they expected to have, any effect on FSCO's current
ability to pay dividends. FSCO's current and past record of dividend payments
should not be construed as a guarantee of similar dividend payments in the
future.
On January 24, 1994, FSCO announced an authorized common stock buyback
program to repurchase approximately 1.5 million shares of its common stock,
purchasing the shares at prevailing prices in the open market as permitted by
applicable rules. Almost 45% of this program was executed during 1994, with
the shares repurchased used to acquire Star Valley State Bank (see: "Mergers
and Acquisitions") and to support employee benefit programs. These purchases
are in addition to ongoing periodic share repurchases made over the last
several years for use in employee benefit plans.
<PAGE>
<TABLE>
<CAPTION>
TABLE 5: INVESTMENT SECURITIES (IN THOUSANDS)
Available For Sale: Held To Maturity:
----------------------------------------- ------------------------------------------
Amortized Estimated Yield % Amortized Estimated Yield %
AS OF DECEMBER 31, 1994 COST FAIR VALUE (A) COST FAIR VALUE (A)
----------------------------------------------------------------------------------------------------------------------
Debt Securities Issued By The
U.S. Treasury & Other U.S.
Government Agencies &
Corporations:
<S> <C> <C> <C> <C> <C> <C>
One year or less............. $ 469,654 $ 467,188 6.83
After one year through
five years............ 307,202 296,664 6.18 $ 25 $ 25 7.54
After five years through
ten years.............. 7,567 7,202 6.20
After ten years.............. 9,085 8,582 5.91
-----------------------------------------------------------------------------------------------------------------------
Total........................ 793,508 779,636 6.56 25 25 7.54
-----------------------------------------------------------------------------------------------------------------------
Debt Securities Issued By States
& Political Subdivisions:
One year or less............. 49,450 49,515 5.30
After one year through
five years............ 67,603 67,785 6.25
After five years through
ten years.............. 39,794 39,846 6.58
After ten years.............. 18,458 18,373 6.18
------------------------------------------------------------------------------------------------------------------------
Total........................ 175,305 175,519 6.05
------------------------------------------------------------------------------------------------------------------------
Corporate Debt Securities:
One year or less............. 200 199 6.00 1,158 1,157 8.52
After one year through
five years.................. 1,592 1,544 6.85 5,566 5,326 6.31
After five years through
ten years................... 1,298 1,144 6.34 25 21 6.45
After ten years.............. 408 344 6.58 3,896 3,902 4.52
------------------------------------------------------------------------------------------------------------------------
Total........................ 3,498 3,231 6.58 10,645 10,406 5.90
------------------------------------------------------------------------------------------------------------------------
Total Debt Securities:
One year or less............. 469,854 467,387 6.83 50,608 50,672 5.37
After one year through
five years.................. 308,794 298,208 6.18 73,194 73,136 6.26
After five years through
ten years................... 8,865 8,346 6.22 39,819 39,867 6.58
After ten years.............. 9,493 8,926 5.94 22,354 22,275 5.89
-----------------------------------------------------------------------------------------------------------------------
Total........................ 797,006 782,867 6.56 185,975 185,950 6.04
-----------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities... 1,230,042 1,153,697 5.80 66,647 64,021 7.71
Equity securities (B)........ 53,360 57,233 5.65
-----------------------------------------------------------------------------------------------------------------------
Total Investment Securities.. $2,080,408 $1,993,797 6.09 $252,622 $249,971 6.48
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE 5: INVESTMENT SECURITIES (IN THOUSANDS) (CONTINUED)
Available For Sale: Held To Maturity:
---------------------------------------------- ----------------------------------------------
Amortized Unrealized Unrealized Estimated Amortized Unrealized Unrealized Estimated
As of December 31, 1994: Cost Gains Losses Fair Value Cost Gains Losses Fair Value
------------------------------------------------------------------------------- ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Debt securities issued
by the U.S. Treasury &
other U.S. Government
agencies & corporations..... $ 793,508 $ 485 $(14,357) $ 779,636 $ 25 $ 25
Debt securities issued by
states & political
subdivisions................ 175,305 $ 2,058 $ (1,844) 175,519
Corporate debt
securities.................. 3,498 3 (270) 3,231 10,645 28 (267) 10,406
Mortgage-backed
securities.................. 1,230,042 320 (76,665) 1,153,697 66,647 446 (3,072) 64,021
Equity securities (B) 53,360 4,244 (371) 57,233
---------------------------------------------------------------------------------------------------------------------------------
Total Investment Securities.. $ 2,080,408 $ 5,052 $(91,663) $1,993,797 $ 252,622 $ 2,532 $ (5,183) $ 249,971
=================================================================================================================================
As of December 31, 1993:
---------------------------------------------------------------------------------------------------------------------------------
Debt securities issued
by the U.S. Treasury &
other U.S. Government
agencies & corporations..... $ 655,934 $11,696 $ (176) $ 667,454
Debt securities issued by
states & political
subdivisions................ 180,129 6,288 (94) 186,323
Corporate debt
securities.................. 31,109 556 (28) 31,637
Mortgage-backed
securities.................. 857,836 7,388 (3,052) 862,172
Equity securities (B)........ 37,775 9,311 (25) 47,061
---------------------------------------------------------------------------------------------------------------------------------
Total Investment Securities.. $1,762,783 $ 35,239 $(3,375) $1,794,647
=================================================================================================================================
As of December 31, 1992:
---------------------------------------------------------------------------------------------------------------------------------
Debt securities issued
by the U.S. Treasury &
other U.S. Government
agencies & corporations...... $1,267,688 $22,609 $ (743) $1,289,554
Debt securities issued by
states & political
subdivisions................. 199,692 4,866 (209) 204,349
Corporate debt
securities................... 248,993 2,878 (519) 251,352
Equity securities (B)......... 33,807 2,874 (23) 36,658
---------------------------------------------------------------------------------------------------------------------------------
Total Investment Securities....... $1,750,180 $ 33,227 $(1,494) $1,781,913
=================================================================================================================================
</TABLE>
(A) Average yields have been calculated using coupon rates, not adjusted to a
fully-taxable equivalent basis.
(B) "Equity Securities" include common and preferred stocks, and stock in the
Federal Reserve and Federal Home Loan Bank.
<PAGE>
INTEREST-EARNING ASSETS AND ASSET QUALITY. The components of FSCO's interest-
earning assets and asset quality are discussed in the following sections:
"Investment Securities"; "Loans"; "Problem Assets"; and "Reserve for Loan
Losses".
INVESTMENT SECURITIES. FSCO manages its investment securities portfolios
within policies which are designed to achieve desired liquidity levels,
manage interest rate sensitivity risk, meet earnings objectives, and fulfill
requirements for collateral to support deposit and/or repurchase agreement
activities. With the exception of U.S. Government and U.S. Government-
sponsored agencies, FSCO had no concentrations of investment securities from
any single issuer that constituted 10% or more of stockholders' equity at
year-end 1994.
On January 1, 1994, FSCO adopted SFAS 115 "Accounting for Certain Investments
in Debt and Equity Securities". SFAS 115 requires FSCO to classify its debt
and equity securities as either held to maturity, available for sale, or
trading (see: "Table 5: Investment Securities"). Held to maturity securities
are accounted for at amortized cost, and in the extraordinary event that
gains or losses from disposition do occur, they are shown as a component of
noninterest income. Available for sale securities are accounted for at fair
value with the tax-effected unrealized gains or losses reported as a net
amount in a separate component of stockholders' equity. Trading account
securities are accounted for at fair value with unrealized gains or losses
included in earnings.
FSCO's adoption of SFAS 115 on January 1, 1994 resulted in the classification
of $1.42 billion of investment securities as available for sale to reflect
FSCO's investment strategy under the new statement.
FSCO's investment securities portfolio at December 31, 1994, grew to a record
$2.25 billion, up $483.64 million (27.4%) from $1.76 billion at year-end
1993. This growth occurred as a mix of U.S. Treasuries, adjustable rate
mortgage securities, and fixed and floating rate agency collateralized
mortgage obligations were purchased.
FSCO's investment portfolio strategies changed throughout 1994 in response
to, or anticipation of, interest rate adjustments by the Federal Reserve.
Rising interest rates and record levels of both government and mortgage-
related investments boosted the earnings contribution of investments during
1994. In the first six months of the year, FSCO exceeded its revenue and
financial targets through the increased usage of mortgage-based investments,
primarily collateralized mortgage obligations and adjustable rate mortgage
investments. In the latter half of the year, with rates having risen, FSCO
shifted its investment selection from mortgage-based investments to a mix of
these products along with U.S. Treasuries. Although the average maturity of
these securities did extend due to a slowdown in prepayments of underlying
mortgage collateral, the total maturity extension was less than one year due
to the conservative selection of minimal volatility products. The estimated
average life of FSCO's investment portfolio was 36.5 months as of December
31, 2994
As FSCO enters 1995, loan demand remains high and the priority of the
investment portfolio strategy continues to be liquidity. U.S. Treasury
securities are currently the primary reinvestment selection of maturing and
prepaid investments. FSCO's investment strategy remains flexible and
carefully reviewed by its ALCOs, shifting periodically in response to
changing conditions.
<PAGE>
<TABLE>
<CAPTION>
TABLE 6: LOANS (IN THOUSANDS) (A) 5-Year
94/93 Compound
1994 1993 1992 1991 1990 % Chg Growth Rate
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Commercial Loans:
Commercial/industrial................ $1,390,620 $1,164,835 $1,009,158 19.4
Agricultural......................... 291,807 255,122 240,818 14.4
Other commercial..................... 153,365 151,443 132,602 1.3
------------------------------------------------------------------------------------------------------------------------------------
Total Commercial Loans............... 1,835,792 1,571,400 1,382,578 $1,458,037 $1,453,817 16.8 4.4
------------------------------------------------------------------------------------------------------------------------------------
Real Estate Secured Loans:
Residential Real Estate Loans:
Term................................ 1,560,700 1,239,395 1,077,007 25.9
Home equity......................... 358,858 280,776 225,906 27.8
Construction........................ 180,544 147,526 77,517 22.4
Construction land................... 5,798 13,187 13,198 (56.0)
------------------------------------------------------------------------------------------------------------------------------------
Total Residential Real Estate Loans.. 2,105,900 1,680,884 1,393,628 25.3
------------------------------------------------------------------------------------------------------------------------------------
Commercial Real Estate (CRE)
Loans:
Term: owner occupied................ 367,990 319,542 363,186 15.2
Term: nonowner occupied............. 479,100 391,851 368,958 22.3
Construction: owner occupied........ 53,989 42,249 17,041 27.8
Construction: nonowner occupied..... 78,145 37,480 50,659 108.5
------------------------------------------------------------------------------------------------------------------------------------
Subtotal: CRE Owner Occupied........ 421,979 361,791 380,227 16.6
Subtotal: CRE Nonowner Occupied..... 557,245 429,331 419,617 29.8
------------------------------------------------------------------------------------------------------------------------------------
Commercial Land..................... 43,331 54,197 32,703 (20.0)
------------------------------------------------------------------------------------------------------------------------------------
Total Commercial Real Estate Loans... 1,022,555 845,319 832,547 21.0
------------------------------------------------------------------------------------------------------------------------------------
Farm Land............................ 13,966 17,277 21,733 (19.2)
------------------------------------------------------------------------------------------------------------------------------------
Total Real Estate Secured Loans...... 3,142,421 2,543,480 2,247,908 2,261,219 2,366,688 23.5 7.3
Memo: Total RE Term Loans........... 2,819,051 2,299,393 2,085,749 2,052,154 2,112,081 22.6 7.3
Memo: Total RE Construction Loans... 323,370 244,087 162,159 209,065 254,607 32.5 7.3
------------------------------------------------------------------------------------------------------------------------------------
Consumer Loans:
Auto................................. 2,129,128 1,542,202 1,131,784 38.1
Student.............................. 130,158 110,231 95,780 18.1
Credit card receivables.............. 306,270 275,467 292,983 299,706 301,173 11.2 1.6
Other consumer....................... 288,392 242,388 206,681 19.0
------------------------------------------------------------------------------------------------------------------------------------
Total Consumer Loans................. 2,853,948 2,170,288 1,727,228 1,482,053 1,376,438 31.5 18.6
------------------------------------------------------------------------------------------------------------------------------------
Leases:
Total Leases......................... 341,517 275,853 258,910 231,642 226,194 23.8 12.3
------------------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned income........ 8,173,678 6,561,021 5,616,624 5,432,951 5,423,137 24.6 9.9
Memo: Unearned income............... (7,380) (12,182) (13,861) (16,609) (23,179) (39.4) (19.0)
Reserve for loan losses.............. (133,855) (134,848) (127,847) (126,887) (117,192) (0.7) 11.2
------------------------------------------------------------------------------------------------------------------------------------
Total Loans, Net..................... $8,039,823 $6,426,173 $5,488,777 $5,306,064 $5,305,945 25.1 9.9
====================================================================================================================================
</TABLE>
(A) Meaningful comparisons of individual loan categories with years prior to
December 31, 1993 are not possible because of the November 19, 1993
acquisition of First National Financial Corporation (FNFC) in which FNFC's
loan detail did not permit restatement of years prior to 1993 on a
line-by-line basis.
LOANS. FSCO's borrowers reside primarily in states where FSCO has its banking
offices as well as in contiguous market areas. FSCO has policies and
procedures designed to maintain the quality of FSCO's loans. These include
setting underwriting standards for new credits and the continuous monitoring
and reporting of asset quality and adequacy of the reserve for loan losses.
FSCO's loan portfolio at December 31, 1994, net of unearned income but before
the reserve for loan losses, grew to a record $8.17 billion, up $1.61 billion
(24.6%) from $6.56 billion at year-end 1993 (see: "Table 1: Financial
Highlights"; and "Table 6: Loans"). This increase was due primarily to
increased loan activity, especially in consumer loans and residential
mortgages, plus the positive impact of acquisitions. The ratio of total loans
to total assets at December 31, 1994 was 67.28%, up from 64.25% at year-end
1993.
The components of FSCO's loan portfolio are discussed below.
* FSCO's commercial loans are primarily loans to small and medium-sized
businesses and agricultural loans. Commercial loans increased in 1994 due
primarily to acquisitions and strong loan demand.
* Residential real estate loans increased in 1994 due primarily to the
acquisition of CrossLand Mortgage. During 1994, FSCO originated $3.48
billion in real estate secured loans, passing through $2.10 billion into
secondary markets.
* Commercial real estate loans increased in 1994 due primarily to
acquisitions and strong loan demand.
* Consumer loans increased due to FSCO's strategy of increasing
dealer-originated auto loans.
<PAGE>
<TABLE>
<CAPTION>
TABLE 7: Problem Assets (in thousands)
5-Year
94/93 Compound
As of December 31, 1994 1993 1992 1991 1990 % chg Growth Rate
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Nonaccruing loans:
Commercial.............................. $ 8,903 $ 9,408 $ 17,165 $ 17,627 $ 23,092 (5.4) (9.5)
Real estate: term....................... 12,246 21,940 55,704 80,726 53,822 (44.2) (9.5)
Real estate: construction............... 1,714 1,877 6,101 11,851 12,865 (8.7) (26.9)
Consumer................................ 168 546 853 1,223 971 (69.2) (42.0)
Leases.................................. 837 1,484 145 423 3,760 (43.6) (27.8)
Nonaccruing loans: renegotiated.......... 1,099 527 4,728 NA NA
-----------------------------------------------------------------------------------------------------------------------------------
Total Nonaccruing Loans.................. 23,868 36,354 79,968 112,377 99,238 (34.3) (16.7)
ORE and other foreclosed assets.......... 3,352 16,465 27,487 38,322 51,247 (79.6) (44.1)
-----------------------------------------------------------------------------------------------------------------------------------
Total Nonperforming Assets............... 27,220 52,819 107,455 150,699 150,485 (48.5) (25.8)
Accruing loans past due
90 days or more......................... 12,001 7,155 11,766 17,200 16,643 67.7 (8.4)
-----------------------------------------------------------------------------------------------------------------------------------
Total Problem Assets..................... $39,221 $59,974 $119,221 $167,899 $167,128 (34.6) (22.5)
--------------------------------------------=======================================================================================
Problem assets breakdown by subsidiary:
Banks................................... $36,423 $46,595 $107,359 $145,957 $123,741 (21.8) (13.8)
Nonbanks................................ 2,798 13,379 11,862 21,942 43,387 (79.1) (46.4)
-----------------------------------------------------------------------------------------------------------------------------------
Total Problem Assets..................... $39,221 $59,974 $119,221 $167,899 $167,128 (34.6) (22.5)
--------------------------------------------=======================================================================================
Interest that would have been recorded
if the loans and other real estate
had been current in accordance
with their stated terms:
Nonaccruing loans....................... $ 1,994 $ 2,333 $ 6,450 $ 8,466 $ 8,016 (14.5) (17.2)
Renegotiated loans...................... 111 77 613 NA NA
Other real estate....................... 485 2,323 3,528 4,227 8,579 (79.1) (41.1)
-----------------------------------------------------------------------------------------------------------------------------------
Total interest per original terms........ 2,479 4,767 9,978 12,770 17,208 (48.0) (27.8)
-----------------------------------------------------------------------------------------------------------------------------------
Interest actually recognized:
Nonaccruing loans....................... 2,264 679 1,016 905 1,701 233.4 6.0
Renegotiated loans...................... 87 100 431 NA NA
Other real estate....................... 32 48 56 428 NA NA
-----------------------------------------------------------------------------------------------------------------------------------
Total interest actually recognized....... 2,264 798 1,064 1,061 2,560 183.7 (3.8)
-----------------------------------------------------------------------------------------------------------------------------------
Interest Lost For The Year............... $ 215 $ 3,969 $ 8,914 $ 11,709 $ 14,648 (94.6) (53.5)
--------------------------------------------=======================================================================================
Approximate Percentage Of Nonperforming
Assets Over $500,000 By Location (A):
Utah..................................... 24% 26% 43% 49% 50%
Idaho.................................... 15 5 8 4 11
New Mexico............................... 34 35 33 30 27
Washington and Oregon.................... 9 13 6 2 1
Nevada................................... 8 6
California............................... 10 18 7 6 6
All other................................ 3 3 3 5
-----------------------------------------------------------------------------------------------------------------------------------
Approximate Percentage Of Nonperforming
Over $500,000 By Type Of Security (B):
Office buildings......................... 5% 6% 25% 20%
Shopping centers......................... 17% 28 19 8 14
Condominiums &
multiple housing........................ 11 8 3 5
Land..................................... 32 36 22 21 18
Single family dwellings.................. 8 4 2 1 1
Other real estate secured................ 13 3 23 31 21
All other................................ 30 13 20 11 21
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(A) Includes FSB New Mexico for all years shown.
(B) Excludes FSB New Mexico prior to 1993.
<PAGE>
PROBLEM ASSETS. Superior asset quality continues to be a primary objective
for FSCO (see: "Table 7: Problem Assets"). FSCO reduced its total problem
assets at December 31, 1994 to $39.22 million, down $20.75 million (34.6%)
from $59.97 million at year-end 1993. The ratio of total problem assets to
total loans and ORE at December 31, 1994 was 0.48%, reduced from 0.91% at
year-end 1993 due to the reduction of problem loans from previous years, high
underwriting standards, and a healthy regional market.
Despite a strong downward trend in problem assets over the past three years,
it has been FSCO's experience that economic cycles and loan-specific events
beyond its control can cause cyclical fluctuations in problem assets.
Experience has led FSCO to take a conservative approach in its analysis of
the reserve for loan losses.
At December 31, 1994, FSCO's problem assets were at very low levels on both a
dollar and percentage basis. It is not expected that these levels will
continue to decline.
The components of FSCO's problem assets at December 31, 1994 are discussed
below.
* Nonaccruing loans decreased in spite of higher loan balances, reflecting
high credit standards and collection efforts.
* ORE and other foreclosed assets were reduced due to sales of ORE from
previous periods and a healthy regional market.
* Accruing loans past due 90 days or more increased due to increased
delinquencies on indirect auto loans associated with growth, and an increase
in delinquencies on residential term loans resulting from the consolidation
of loan servicing.
Potential Problem Loans: Potential problem loans identified by FSCO were
$13.25 million at December 31, 1994, down $10.38 million (43.9%) from $23.63
million at year-end 1993 due to the liquidation of several loans that were
previously classified as potential problem loans. Potential problem loans
consisted primarily of commercial loans and agricultural loans.
<PAGE>
<TABLE>
<CAPTION>
TABLE 8: Reconciliation Of The Reserve For Loan Losses (in thousands)
5-Year
94/93 Compound
1994 1993 1992 1991 1990 % Chg Growth Rate
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of January 1............. $134,848 $127,847 $126,887 $117,192 $ 78,694 5.5 13.8
-----------------------------------------------------------------------------------------------------------------------------------
Loans charged off:
Commercial......................... 5,621 9,698 18,119 37,343 37,125 (42.0) (21.6)
Real estate: term.................. 1,718 7,038 11,471 12,707 7,368 (75.6) (11.6)
Real estate: construction.......... 506 542 261 501 3,873 (6.6) (26.8)
Consumer: instalment............... 22,880 14,846 12,920 13,358 16,864 54.1 1.9
Consumer: credit card.............. 6,828 6,877 9,201 10,110 5,468 (0.7) 8.6
Leases............................. 239 1,466 426 1,944 3,485 (83.7) (39.5)
-----------------------------------------------------------------------------------------------------------------------------------
Total loans charged off............. 37,792 40,467 52,398 75,963 74,183 (6.6) (6.5)
-----------------------------------------------------------------------------------------------------------------------------------
Recoveries on loans charged off:
Commercial......................... (11,138) (11,789) (8,900) (6,262) (5,176) (5.5) 13.2
Real estate: term.................. (5,651) (3,294) (2,460) (3,456) (1,635) 71.6 43.2
Real estate: construction.......... (201) (3,151) (336) (447) (494) (93.6) (16.5)
Consumer: instalment............... (11,101) (8,380) (6,252) (5,509) (6,499) 32.5 12.7
Consumer: credit card.............. (1,790) (1,875) (1,571) (1,525) (858) (4.5) 21.6
Leases............................. (819) (113) (48) (55) (1,067) 624.8 11.1
-----------------------------------------------------------------------------------------------------------------------------------
Total recoveries of loans charged
off................................ (30,700) (28,602) (19,567) (17,254) (15,729) 7.3 15.9
-----------------------------------------------------------------------------------------------------------------------------------
Net loans charged off (recovered):
Commercial......................... (5,517) (2,091) 9,219 31,081 31,949 163.8 NA
Real estate: term.................. (3,933) 3,744 9,011 9,251 5,733 (205.0) NA
Real estate: construction.......... 305 (2,609) (75) 54 3,379 NA (30.8)
Consumer: instalment............... 11,779 6,466 6,668 7,849 10,365 82.2 (4.4)
Consumer: credit card.............. 5,038 5,002 7,630 8,585 4,610 0.7 5.5
Leases............................. (580) 1,353 378 1,889 2,418 (142.9) NA
-----------------------------------------------------------------------------------------------------------------------------------
Net loans charged off............... 7,092 11,865 32,831 58,709 58,454 (40.2) (28.6)
Provision for loan losses........... 825 11,684 30,277 66,393 94,899 (92.9) (55.2)
Acquisitions & reclassifications.... 5,274 7,182 3,514 2,011 2,053 (26.6) 68.4
-----------------------------------------------------------------------------------------------------------------------------------
Balance as of December 31........... $133,855 $134,848 $127,847 $126,887 $117,192 (0.7) 11.2
--------------------------------------=============================================================================================
</TABLE>
<TABLE>
<CAPTION>
Table 9: Allocation Of The Reserve For Loan Losses (in thousands)
As of December 31, 1994 1993 1992 1991 1990
---------------------------------------------------------------------------------------------------------------------------------
Type Type Type Type Type
% of % of % of % of % of
Allocated Total Allocated Total Allocated Total Allocated Total Allocated Total
Reserve Loans Reserve Loans Reserve Loans Reserve Loans Reserve Loans
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial.................. $ 36,378 22.5 $ 36,498 23.9 $ 43,413 24.6 $ 56,064 26.8 $ 65,116 26.7
Real estate: term........... 14,504 34.5 14,205 35.2 17,948 37.2 18,068 37.8 12,262 39.0
Real estate: construction... 4,897 3.9 4,619 3.7 1,691 2.9 4,439 3.8 3,494 4.7
Consumer.................... 42,143 34.9 32,624 33.0 24,764 30.7 20,641 27.3 18,888 25.4
Leases...................... 7,108 4.2 9,652 4.2 8,722 4.6 4,647 4.3 3,733 4.2
Unallocated................. 28,825 37,250 31,309 23,028 13,699
---------------------------------------------------------------------------------------------------------------------------------
Totals...................... $133,855 100.0 $134,848 100.0 $127,847 100.0 $126,887 100.0 $117,192 100.0
-------------------------------==================================================================================================
</TABLE>
RESERVE FOR LOAN LOSSES. It is FSCO's philosophy to maintain a conservative
balance sheet, including its reserve for loan losses. FSCO's level of reserves
and an analysis of its reserve position is described below.
FSCO's total reserve for loan losses at December 31, 1994 was $133.86 million,
down $993 thousand (0.7%) from $134.85 million at year-end 1993 (see: "Table 8:
Reconciliation of the Reserve for Loan Losses"). Acquisitions and
reclassifications added reserves of $5.27 million in 1994 and $7.18 million in
1993.
The reserve for loan losses was not increased proportionally with growth in
loans due to the continued improvement of asset quality as indicated by the
higher reserve to nonaccruing loan "coverage" ratio of 560.81%, up from 370.93%
at year-end 1993. The resulting ratio of the reserve for loan losses to total
loans at December 31, 1994 was 1.64%, down from 2.06% at year-end 1993.
The allocation of the reserve for loan losses (see: "Table 9: Allocation of
the Reserve for Loan Losses") at December 31, 1994 as compared to year-end 1993
included: reserves allocated for commercial loans and real estate secured loans,
essentially unchanged due to improved credit quality in these categories;
reserves allocated for consumer loans increased due to substantial growth in
consumer loans and increased losses; and reserves for leases decreased due to
the improved asset quality of leases.
FSCO determines the adequacy and appropriate level of its reserve for loan
losses by a continuous comprehensive review of loans taken in conjunction with
levels of problem assets, potential problem loans, and historical loss
experience. Judgments on relevant factors such as the state of the economy, loan
portfolio mix and concentrations, new lending activities/lines of
business/markets, and negative trends or uncertainties are also incorporated
into the determination of reserve adequacy.
FSCO considers the grades of credit risk of loans in its portfolio in
establishing an adequate reserve for loan losses. These risk grades are: "pass"
(essentially no problem); "special mention" (potentially weak); "substandard"
(possessing a well-defined weakness); "doubtful" (partial loss); and "loss"
(total loss). The definitions of these risk grades are consistent with guideline
definitions used by regulators of banks and bank holding companies. Risk grades
assigned by lending officers are reviewed for accuracy and consistency of
application by each subsidiary Bank's loan committee, by management, by an
independent internal loan review department, and periodically, by bank
regulators. The process of determining the adequacy of the reserve for loan
losses involves four main analytical methods:
* Specific Reserves: Substandard, doubtful, and loss graded loans with
balances in excess of $500,000 are individually reviewed to determine if
specific reserves for loan losses should be established.
* Migration Studies: For most commercial loans and commercial real estate
loans, FSCO examines a running two-year loss history based on loan grades to
determine historical loss percentages generated from each risk grade category.
The resulting historical loss percentages are then applied to the current levels
of each risk grade of loans to determine required reserves for the current loan
portfolio.
* Historical/Expected Trends: For consumer instalment loans, credit card
loans, or loans secured by residential property, historical and expected loss
trends and ratios are developed on a total portfolio basis and used to establish
reserves.
* Judgment: FSCO's management also uses its judgment to adjust the reserve
to account for factors such as local, national and international economic
conditions, off-balance sheet risk, past-due loans, industry loan
concentrations, new markets and products, lending policies, unfunded
commitments, and perceived trends or uncertainties in the portfolio.
While reserve adequacy and allocation are measured using the above
criteria, the reserve for loan losses is available for use by the entire
portfolio, as needed, regardless of allocation.
If the continuous analysis of reserve adequacy indicates that replenishment
of, or additions to, the reserve for loan losses is appropriate, the existing
reserve is adjusted by means of the provision for loan losses. Based on its
analysis of reserve adequacy, FSCO's management considered the reserve for loan
losses at December 31, 1994 to be adequate to cover potential losses in the
foreseeable future.
The provision for loan losses in 1994 totaled $825 thousand, down $10.86
million (92.9%) from $11.68 million in 1993 due to the combined effects of
excellent asset quality, a high level of recoveries on loans previously charged
off, lower than anticipated losses, and a healthy regional economy. Net loan
losses charged against reserves in 1994 totaled $7.09 million, down $4.77
million (40.2%) from $11.87 million in 1993 (see: "Table 8: Reconciliation of
the Reserve for Loan Losses"). This resulted in the ratio of net loan chargeoffs
to average loans at December 31, 1994 being a low 0.10%, down from 0.20% at
year-end 1993. FSCO does not expect that 1994's low levels of problem assets,
high level of recoveries on loans previously charged off, and low level of loans
charged off will continue.
<PAGE>
<TABLE>
<CAPTION>
TABLE 10: MATURITIES AND INTEREST RATE SENSITIVITY (IN THOUSANDS)
1-30 31-90 91-365 Over
As of December 31, 1994 Days Days Days 1 Year Total
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-bearing deposits..................... $ 127 $ 254 $ 1,077 $ 127 $ 1,585
Federal funds sold and
securities purchased......................... 43,551 43,551
Trading account securities.................... 553,826 553,826
Investment securities......................... 345,699 165,034 440,191 1,295,495 2,246,419
Loans, net of unearned income................ 3,245,196 502,524 1,661,781 2,764,177 8,173,678
-----------------------------------------------------------------------------------------------------------------------------------
Total Interest-earning Assets.................. 4,188,399 667,812 2,103,049 4,059,799 11,019,059
-----------------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
NOW and savings accounts...................... 56,537 2,319,372 2,375,909
Money market deposits......................... 1,152,960 1,152,960
Other certificates of deposit................. 395,276 375,315 910,457 1,124,039 2,805,087
Federal funds purchased and
securities sold............................... 2,160,587 2,160,587
Other short-term borrowings................... 40,080 11,045 133,427 184,552
Long-term debt................................ 7,475 677,951 685,426
-----------------------------------------------------------------------------------------------------------------------------------
Total Interest-bearing Liabilities............. 3,805,440 393,835 1,043,884 4,121,362 9,364,521
-----------------------------------------------------------------------------------------------------------------------------------
Interest rate swaps and financial futures, net. 523,151 87,838 (610,989)
-----------------------------------------------------------------------------------------------------------------------------------
Gap............................................ $ (140,192) $ 186,139 $1,059,165 $ 549,426 $ 1,654,538
-----------------------------------------------------------------------------------------------------------------------------------
Gap as percent of earning assets............... (1.27)% 1.69% 9.61% 4.99%
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
TABLE 11: MATURITIES AND INTEREST RATE SENSITIVITIES OF SELECTED LOAN CATEGORIES (IN THOUSANDS)
1 Year 1 Year to Over
As of December 31, 1994 or Less 5 Years 5 Years Total
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Remaining maturity:
Commercial loans...................................... $1,008,848 $677,870 $149,074 $1,835,792
Real estate: construction loans........................ 300,800 20,600 1,970 323,370
----------------------------------------------------------------------------------------------------------------------
Totals.................................................. $1,309,648 $698,470 $151,044 $2,159,162
-------------------------------------------------------------=========================================================
Interest rate sensitivities of loans included above
maturing in more than one year:
With fixed rates....................................... $211,305 $ 60,820 $ 272,125
With floating rate..................................... 487,165 90,224 577,389
----------------------------------------------------------------------------------------------------------------------
Totals.................................................. $698,470 $151,044 $ 849,514
-------------------------------------------------------------=========================================================
</TABLE>
<TABLE>
<CAPTION>
TABLE 12: MATURITIES OF TIME CERTIFICATES OF DEPOSIT OF $100,000 OR MORE
(IN THOUSANDS)
5-Year
94/93 Compound
As of December 31, 1994 1993 1992 1991 1990 % chg Growth Rate
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Maturing within 3 months......... $289,926 $162,746 $177,240 $249,331 $276,897 78.1 (4.7)
After 3 months but within
6 months........................ 66,432 68,505 58,703 100,931 135,942 (3.0) (16.5)
After 6 months but within
12 months....................... 75,848 75,520 48,267 71,962 96,007 0.4 (3.4)
After 12 months.................. 121,175 76,075 57,823 46,909 32,941 59.3 16.6
--------------------------------------------------------------------------------------------------------------------------
Totals........................... $553,381 $382,846 $342,033 $469,133 $541,787 44.5 (4.0)
-----------------------------------=======================================================================================
</TABLE>
ASSET/LIABILITY MANAGEMENT. FSCO's asset/liability management process
("ALCO") is responsible for the identification, assessment, and management of
the liquidity, capital adequacy and interest rate risks inherent in FSCO's
collective business lines. The objective of the ALCO process is to insure that
FSCO's investment and funding structures maintain prudent levels of risk, within
the context of known and forecasted economic conditions, and that FSCO is
compensated for the assumption of those risks. Formalized policies and
procedures govern the ALCO process.
FSCO's quantitative asset/liability management utilizes simulation modeling as
its primary tool in determining the earnings and cash flow effects of current
and projected risk strategies under varying economic and interest rate
scenarios. Interest sensitivity gap and duration analysis are also employed to
provide a general overview and other perspectives of FSCO's risk profile.
Qualitative asset/liability management occurs when theoretical models and
recommendations are presented and tested in formal ALCO meetings, resulting in
affirmation or modification of risk profiles and strategies. Active
asset/liability management occurs where theory meets practice in the realities
of the competitive line business environment. Strategies are executed in FSCO's
subsidiary Banks through the lending and deposit gathering functions, and in the
Capital Markets and Treasury Divisions where on- and off-balance sheet
management tools and national market relationships are utilized to achieve ALCO
objectives.
Early in 1994, as mortgage prepayments continued to shorten the
repricing/maturity characteristics of FSCO's loan portfolio, $800 million of
intermediate term investments were acquired, on- and off-balance sheet, to
restore a desired interest rate risk profile and to more fully utilize FSCO's
equity capital.
As the frequency and magnitude of national interest rate increases
accelerated throughout 1994, leading to the most bearish fixed income market
since 1927, FSCO modified its interest rate risk and liquidity profiles with
several actions taken in national and local markets:
* A $300 million shelf registration for debt securities was filed with the
SEC in March 1994. $100 million of 5-year fixed rate notes were issued under
this shelf registration in October 1994 (see: "Table 15: Long-Term Debt").
* A $600 million offering circular for bank notes to be issued by FSB Utah,
FSB Idaho, FSB New Mexico was filed in September. By year-end 1994, $294 million
of fixed rate bank notes with two and three year maturities had been issued.
* $300 million in off-balance sheet interest rate corridors were negotiated
during 1994's third quarter, providing a range of protection against rising
interest rates for two years.
* Federal Home Loan Bank advances, both term and overnight, were acquired
several times during 1994 as liquidity needs and market conditions made this
funding opportunity attractive.
* Renewed emphasis was placed upon new deposit generation in FSCO's
subsidiary Banks to enhance general liquidity and to provide increased core
funding to meet loan demand, as unprecedented demand for credit persisted
throughout 1994 in all of FSCO's regional markets. At the same time, the
generation of core deposits in highly competitive marketplaces required
aggressive pricing and increasingly innovative marketing and promotional
programs.
FSCO's Maturities and Interest Rate Sensitivity report (see: "Table 10.
Maturities and Interest Rate Sensitivity") exhibits a slight asset sensitivity
at the one year time frame and moderate overall interest rate risk. Given FSCO's
expected 1995 balance sheet composition, additional short-term market interest
rate increases of 1.00% to 1.50% should not exert significant further downward
pressure on the net interest margin as compared with December 1994 levels.
CAPITAL ADEQUACY. (See: "Stockholders' Equity and Capital Adequacy"; and
Table 4: Capital Ratios).
DERIVATIVE PRODUCTS USED IN THE ALCO PROCESS. FSCO has used off-balance
sheet derivative products for many years in managing interest rate risk (see:
Note 10. To Consolidated Financial Statements - Commitments, Contingent
Liabilities, and Financial Instruments with Off-Balance Sheet Risk"). Interest
rate swaps, caps, and floors have all served as tools to increase FSCO's
flexibility in positioning itself to protect against adverse effects of interest
rate volatility. It should be noted that FSCO does not act as a dealer in these
transactions, but as an end-user of off-balance sheet derivative products. The
ALCOs have established policies and procedures which govern the use of
derivatives. All off-balance sheet positions used in the asset/liability
management process are regularly reviewed for effectiveness, market risk, and
counterparty credit exposure. At December 31, 1994, off-balance sheet
instruments used for interest rate risk management activities, including
interest rate swaps, caps, and corridors, were $1.72 billion notional amount,
compared with $988 million notional amount at year-end 1993.
DERIVATIVE PRODUCTS CARRIED IN THE TRADING ACCOUNTS. Off-balance sheet
financial futures and options are also carried in the trading accounts of FSCO's
subsidiary Banks (see: "Note 10. To Consolidated Financial Statements -
Commitments, Contingent Liabilities, and Financial Instruments with Off-Balance
Sheet Risk"). Financial futures and options contracts are traded for profit or
used to hedge market risk in the same way that on-balance sheet securities are
purchased and sold, and they are subject to the same policies and loss control
limits. At December 31, 1994, financial futures and options contracts related to
FSCO's trading account securities totaled $15.21 billion notional amount,
compared with $6.53 billion notional amount at year-end 1993. This position
consisted of futures and options contracts on short-term Federal Funds, one-
month LIBORs, three-month Eurodollars, and U.S. Treasury Bills. The net risk
position of FSCO's trading account securities (including futures, options, and
on-balance sheet securities) at December 31, 1994, was $50,121 per 0.01% change
in yield, compared to $27,035 at year-end 1993. For comparative purposes, this
risk equates to that of FSCO owning a $120 million position in five-year U.S.
Treasury Notes. During 1994, total proprietary trading account position and risk
limits were increased with the acquisition of FNFC.
<PAGE>
<TABLE>
<CAPTION>
TABLE 13: DEPOSITS (in thousands)
5-Year
94/93 Compound
As of December 31, 1994 1993 1992 1991 1990 % Chg Growth
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Noninterest-bearing deposits....... $1,719,388 $1,697,687 $1,429,314 $1,244,239 $1,117,483 1.3 11.4
NOW accounts....................... 1,095,907 1,041,770 945,508 783,237 703,436 5.2 12.4
Savings accounts................... 1,280,002 1,331,495 1,022,994 623,259 445,997 (3.9) 27.3
Money market accounts.............. 1,152,960 1,103,855 1,019,946 935,036 723,659 4.4 12.8
Time deposits of $100,000 or more.. 553,381 382,846 342,033 469,133 541,787 44.5 (4.0)
Other time deposits................ 2,251,706 1,946,054 2,108,658 2,459,788 2,656,373 15.7 1.3
------------------------------------------------------------------------------------------------------------------------------------
Interest-bearing deposits.......... 6,333,956 5,806,020 5,439,139 5,270,453 5,071,252 9.1 7.5
------------------------------------------------------------------------------------------------------------------------------------
Total Deposits..................... $8,053,344 $7,503,707 $6,868,453 $6,514,692 $6,188,735 7.3 8.3
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TABLE 14: SHORT-TERM BORROWINGS (in thousands)
5-Year
94/93 Compound
As of December 31, 1994 1993 1992 1991 1990 % Chg Growth Rate
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
End Of Period Balance:
Federal funds purchased and
securities sold.................. $2,160,587 $1,387,109 $ 944,385 $ 811,636 $ 781,426 55.8 11.8
Other short-term borrowings....... 184,552 99,796 51,405 87,658 137,140 84.9 19.8
------------------------------------------------------------------------------------------------------------------------------------
Weighted Average Rate:
Federal funds purchased and
securities sold.................. 5.38% 2.93% 3.07% 3.99% 6.60%
Other short-term borrowings....... 6.00 3.38 4.29 4.22 10.02
------------------------------------------------------------------------------------------------------------------------------------
Average Outstandings For The Year:
Federal funds purchased and
securities sold.................. $1,934,468 $1,065,495 $ 929,123 $ 907,724 $1,229,759 81.6 13.4
Other short-term borrowings....... 72,873 55,755 53,325 105,808 67,718 30.7 5.5
------------------------------------------------------------------------------------------------------------------------------------
Weighted Average Rate For The
Year:
Federal funds purchased and
securities sold.................. 4.23% 2.97% 2.99% 5.52% 7.72%
Other short-term borrowings....... 5.59 4.20 4.27 9.35 9.68
------------------------------------------------------------------------------------------------------------------------------------
Highest Month-End Balance For The
Year:
Federal funds purchased and
securities sold.................. $2,632,541 $1,387,109 $1,213,701 $1,159,899 $1,499,002 89.8 13.8
Other short-term borrowings....... 184,552 99,796 90,490 147,558 137,636 84.9 20.2
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TABLE 15: LONG-TERM DEBT (in thousands)
5-Year
94/93 Compound
As of December 31, 1994 1993 1992 1991 1990 % Chg Growth Rate
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Parent Company:
Variable rate note due 1991....... $ 3,125 NA NA
12.50% notes due 1991............. $ 50 48,500 NA NA
Medium-term notes due 1994-1998... $ 50,000 $ 31,250 $ 31,250 31,250 60.0 NA
8.50% notes due 1997.............. 29,500 34,000 NA NA
Floating rate notes due 1999...... 7,475 7,910 8,354 9,051 10,208 (5.5) (6.9)
9.50% convertible subordinated
debentures due 2006.............. 39,750 NA NA
7.50% subordinated notes due 2002. 75,000 75,000 75,000 NA
7.875% senior notes due 1999...... 100,000 NA NA
Subsidiaries:
Other long-term notes:
Banks............................ 602,170 137,221 16,108 22,045 20,334 338.8 130.8
Nonbanks......................... 1,775 1,155 1,291 1,870 1,559 53.7 7.5
------------------------------------------------------------------------------------------------------------------------------------
Total debt with original
maturity over 1 year............. 836,420 252,536 132,003 93,766 157,476 231.2 39.4
Less maturities under 1 year
included in short-term
borrowings....................... 150,994 27,700 4,800 6,250 58,625 445.1 66.9
------------------------------------------------------------------------------------------------------------------------------------
Total Long-Term Debt.............. $685,426 $224,836 $127,203 $87,516 $ 98,851 204.9 36.0
====================================================================================================================================
</TABLE>
<PAGE>
LIQUIDITY. FSCO has established specific policies and procedures governing
liquidity management through the ALCO process. Plans to address current and
future liquidity needs are developed in the ALCO process and executed through
FSCO's subsidiary Banks, and Capital Markets and Treasury Divisions.
FSCO maintains an adequate liquidity position in large part through stable
core deposits generated from its widespread branch network (see: "Table 13:
Deposits"), the prudent usage of debt (see: "Asset/Liability Management"), and
from a high quality investment portfolio (see: "Table 5: Investment
Securities"). The average life of the investment portfolio is relatively short,
providing a constant stream of maturing and reinvestible assets, which could be
converted into cash without loss of value should the need arise. Maturing
balances in the large loan portfolios also provide flexibility in managing cash
flows. The ability to redeploy these funds is an important source of medium to
long-term liquidity.
Backup sources of liquidity are provided by credit lines to FSCO and by
Federal Funds lines carried by FSCO's subsidiary Banks. Additional liquidity
could be generated through borrowings from the Federal Home Loan Bank of which
FSB Utah, FSB Idaho, and FSB Oregon are members, and from the Federal Reserve
System.
A new source of liquidity through the utilization of bank note issuances by
FSB Utah, FSB Idaho, and FSB New Mexico received favorable market reception
during 1994's fourth quarter.
<PAGE>
<TABLE>
<CAPTION>
TABLE 16: AVERAGE BALANCE SHEETS, NET INTEREST INCOME, YIELDS AND RATES (in thousands) (A)
1994 1993
Tax Average Tax Average
Average Equivalent Rate/ Average Equivalent Rate/
FOR THE YEARS ENDED DECEMBER 31, Balance Interest Yield % Balance Interest Yield %
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning Assets:
Federal funds sold and
securities purchased.................. $ 56,724 $ 2,320 4.09 $ 302,412 $ 9,191 3.04
Interest-bearing deposits in
other banks........................... 2,315 83 3.59 15,454 456 2.95
Trading account securities............. 629,308 33,983 5.40 424,091 20,841 4.91
Investment securities: available
for sale (B).......................... 1,984,693 108,947 5.49 (B) (B) (B)
Investment securities: held to
maturity (B).......................... 270,079 17,201 6.37 1,792,591 106,195 5.92
Loans, net of unearned income
and deferred taxes on leases (C)...... 7,098,941 618,858 8.72 5,785,067 515,682 8.91
----------------------------------------------------------------------------------------------------------------------------------
Total Interest-earning Assets.......... 10,042,060 781,392 7.78 8,319,615 652,365 7.84
----------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks................ 604,479 547,758
Premises and equipment, net............ 165,545 137,649
ORE and other foreclosed assets........ 8,856 26,506
Deferred taxes on leases............... 145,264 132,749
Reserve for loan losses................ (134,802) (128,801)
Other assets........................... 308,436 178,784
----------------------------------------------------------------------------------------------------------------------------------
Total Assets........................... $11,139,838 $9,214,260
==================================================================================================================================
Liabilities:
Interest-bearing Liabilities:
Interest-bearing Deposits:
NOW accounts.......................... $ 1,097,185 18,932 1.73 $ 962,411 18,239 1.90
Savings and money-market accounts..... 2,549,142 78,029 3.06 2,220,848 68,275 3.07
TCDs of $100,000 or more.............. 416,886 18,558 4.45 340,714 14,124 4.15
Other TCDs............................ 2,020,120 90,206 4.47 2,003,501 92,354 4.61
----------------------------------------------------------------------------------------------------------------------------------
Total Interest-bearing Deposits........ 6,083,333 205,725 3.38 5,527,474 192,992 3.49
----------------------------------------------------------------------------------------------------------------------------------
Federal funds purchased and
securities sold....................... 1,934,468 81,735 4.23 1,065,495 31,639 2.97
Other short-term borrowings............ 72,873 4,071 5.59 55,755 2,340 4.20
Long-term debt......................... 368,096 23,884 6.49 204,129 13,823 6.77
----------------------------------------------------------------------------------------------------------------------------------
Total Interest-bearing Liabilities..... 8,458,770 315,415 3.73 6,852,853 240,794 3.51
----------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing deposits........... 1,616,294 1,428,640
Other liabilities...................... 196,039 148,109
----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities...................... 10,271,103 8,429,602
----------------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity:
Preferred stockholders' equity......... 675 728
Common stockholders' equity............ 868,060 783,930
----------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity............. 868,735 784,658
----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders'
Equity................................ $11,139,838 $9,214,260
==================================================================================================================================
Interest income/earning assets......... 7.78 7.84
Interest expense/earning assets........ 3.14 2.89
----------------------------------------------------------------------------------------------------------------------------------
Net interest income/earning assets..... 465,977 4.64 411,571 4.95
Less FTE adjustment.................... 7,875 7,633
----------------------------------------------------------------------------------------------------------------------------------
Net Interest Income, per
Income Statement...................... $ 458,102 $ 403,938
==================================================================================================================================
Loan Fees Included In Interest Income.. $ 18,658 $ 13,708
==================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE 16: AVERAGE BALANCE SHEETS, NET INTEREST INCOME, YIELDS AND RATES (in thousands) (A)(CONTINUED)
1992 1991
Tax Average Tax Average
Average Equivalent Rate/ Average Equivalent Rate/
FOR THE YEARS ENDED DECEMBER 31, Balance Interest Yield % Balance Interest Yield %
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning Assets:
Federal funds sold and
securities purchased.................. $ 186,938 $ 6,416 3.43 $ 172,109 $ 9,553 5.55
Interest-bearing deposits in
other banks........................... 16,210 690 4.26 32,292 2,367 7.33
Trading account securities............. 430,025 27,169 6.32 382,608 26,376 6.89
Investment securities: available
for sale (B).......................... (B) (B) (B) (B) (B) (B)
Investment securities: held to
maturity (B).......................... 1,708,038 121,141 7.09 1,433,406 122,314 8.53
Loans, net of unearned income
and deferred taxes on leases (C)...... 5,338,956 510,653 9.56 5,241,145 560,640 10.70
----------------------------------------------------------------------------------------------------------------------------------
Total Interest-earning Assets.......... 7,680,167 666,069 8.67 7,261,560 721,250 9.93
----------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks................ 482,445 456,106
Premises and equipment, net............ 122,432 114,841
ORE and other foreclosed assets........ 35,849 55,181
Deferred taxes on leases............... 124,327 111,163
Reserve for loan losses................ (130,548) (125,198)
Other assets........................... 175,815 172,101
----------------------------------------------------------------------------------------------------------------------------------
Total Assets........................... $8,490,487 $8,045,754
==================================================================================================================================
Liabilities:
Interest-bearing Liabilities:
Interest-bearing Deposits:
NOW accounts.......................... $ 865,945 23,094 2.67 $ 739,615 30,634 4.14
Savings and money-market accounts..... 1,840,670 68,544 3.72 1,290,863 67,248 5.21
TCDs of $100,000 or more.............. 394,368 20,216 5.13 551,631 38,496 6.98
Other TCDs............................ 2,252,715 126,281 5.61 2,581,127 183,338 7.10
----------------------------------------------------------------------------------------------------------------------------------
Total Interest-bearing Deposits........ 5,353,698 238,135 4.45 5,163,236 319,716 6.19
----------------------------------------------------------------------------------------------------------------------------------
Federal funds purchased and
securities sold....................... 929,123 31,799 3.42 907,725 50,089 5.52
Other short-term borrowings............ 53,325 2,218 4.16 105,807 9,827 9.29
Long-term debt......................... 103,659 8,347 8.05 104,300 8,390 8.04
----------------------------------------------------------------------------------------------------------------------------------
Total Interest-bearing Liabilities..... 6,439,805 280,499 4.36 6,281,068 388,022 6.18
----------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing deposits........... 1,214,078 1,042,585
Other liabilities...................... 150,445 143,181
----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities...................... 7,804,328 7,466,834
----------------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity:
Preferred stockholders' equity......... 820 883
Common stockholders' equity............ 685,339 578,037
----------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity............. 686,159 578,920
----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders'
Equity................................ $8,490,487 $8,045,754
==================================================================================================================================
Interest income/earning assets......... 8.67 9.93
Interest expense/earning assets........ 3.65 5.34
----------------------------------------------------------------------------------------------------------------------------------
Net interest income/earning assets..... 385,570 5.02 333,228 4.59
Less FTE adjustment.................... 9,621 10,419
----------------------------------------------------------------------------------------------------------------------------------
Net Interest Income, per
Income Statement...................... $ 375,949 $ 322,809
==================================================================================================================================
Loan Fees Included In Interest Income.. $ 12,736 $ 11,351
==================================================================================================================================
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
TABLE 16: AVERAGE BALANCE SHEETS, NET INTEREST INCOME, YIELDS AND RATES (in thousands) (A)(CONTINUED)
1990
Tax Average
Average Equivalent Rate/
FOR THE YEARS ENDED DECEMBER 31, Balance Interest Yield %
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets:
Interest-earning Assets:
Federal funds sold and
securities purchased.................. $ 305,675 $ 24,874 8.14
Interest-bearing deposits in
other banks........................... 31,640 2,651 8.38
Trading account securities............. 201,472 16,923 8.40
Investment securities: available
for sale (B).......................... (B) (B) (B)
Investment securities: held to
maturity (B).......................... 1,385,158 124,823 9.01
Loans, net of unearned income
and deferred taxes on leases (C)...... 5,149,281 591,752 11.49
---------------------------------------------------------------------------------------
Total Interest-earning Assets.......... 7,073,226 761,023 10.76
---------------------------------------------------------------------------------------
Cash and due from banks................ 489,365
Premises and equipment, net............ 105,964
ORE and other foreclosed assets........ 64,566
Deferred taxes on leases............... 98,874
Reserve for loan losses................ (86,342)
Other assets........................... 150,492
---------------------------------------------------------------------------------------
Total Assets........................... $7,896,145
=======================================================================================
Liabilities:
Interest-bearing Liabilities:
Interest-bearing Deposits:
NOW accounts.......................... $ 664,550 29,799 4.48
Savings and money-market accounts..... 1,106,599 62,196 5.62
TCDs of $100,000 or more.............. 658,735 53,018 8.05
Other TCDs............................ 2,347,567 186,741 7.95
---------------------------------------------------------------------------------------
Total Interest-bearing Deposits........ 4,777,451 331,754 6.94
---------------------------------------------------------------------------------------
Federal funds purchased and
securities sold....................... 1,229,759 94,899 7.72
Other short-term borrowings............ 67,718 6,504 9.60
Long-term debt......................... 143,747 14,404 10.02
Total Interest-bearing Liabilities..... 6,218,675 447,561 7.20
Noninterest-bearing deposits........... 973,841
Other liabilities...................... 151,728
---------------------------------------------------------------------------------------
Total Liabilities...................... 7,344,244
---------------------------------------------------------------------------------------
Stockholders' Equity:
Preferred stockholders' equity......... 957
Common stockholders' equity............ 550,944
---------------------------------------------------------------------------------------
Total Stockholders' Equity............. 551,901
---------------------------------------------------------------------------------------
Total Liabilities and Stockholders'
Equity................................ $7,896,145
=======================================================================================
Interest income/earning assets......... 10.76
Interest expense/earning assets........ 6.33
---------------------------------------------------------------------------------------
Net interest income/earning assets..... 313,462 4.43
Less FTE adjustment.................... 11,322
---------------------------------------------------------------------------------------
Net Interest Income, per
Income Statement...................... $ 302,140
=======================================================================================
Loan Fees Included In Interest Income.. $ 12,294
=======================================================================================
</TABLE>
(A) Interest is presented on a fully taxable equivalent basis, calculated on
federal and state taxes applicable to the subsidiary carrying the asset. The
combined tax rate was approximately 38% for 1989-1992 and 39% for 1993 and
1994
(B) During 1994, FSCO adopted SFAS 115, "Accounting for Certain Investments in
Debt and Equity Securities"; Per the new accounting requirements,
comparisons with prior periods are not available.
(C) Loans include nonaccruing loans.
<PAGE>
<TABLE>
<CAPTION>
TABLE 17: ANALYSIS OF INTEREST CHANGES DUE TO VOLUME AND RATES (in thousands) (A)
1994 over 1993 1993 over 1992
Changes Due to: Total Changes Due to: Total
Volume Rate Change Volume Rate Change
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning Assets:
Federal funds sold and
securities purchased............... $ (7,467) $ 596 $ (6,871) $ 3,963 $ (1,188) $ 2,775
Interest-bearing deposits in
other banks........................ (388) 15 (373) (32) (202) (234)
Trading account securities.......... 10,085 3,057 13,142 (375) (5,953) (6,328)
Total investment securities......... 27,380 (7,427) 19,953 5,330 (20,276) (14,946)
Loans, net of unearned income
and deferred taxes on leases (B)... 117,119 (13,943) 103,176 42,669 (37,640) 5,029
------------------------------------------------------------------------------------------------------------------------------------
Total Interest-earning Assets,
Net Of Deferred Taxes On Leases.... 146,729 (17,702) 129,027 51,555 (65,259) (13,704)
------------------------------------------------------------------------------------------------------------------------------------
Interest-bearing Liabilities:
Interest-bearing deposits:
NOW accounts....................... 2,554 (1,861) 693 2,573 (7,428) (4,855)
Savings and money market........... 10,093 (339) 9,754 14,157 (14,426) (269)
TCDs of $100,000 or more........... 3,158 1,276 4,434 (2,750) (3,342) (6,092)
Other TCDs......................... 766 (2,914) (2,148) (13,970) (19,957) (33,927)
------------------------------------------------------------------------------------------------------------------------------------
Total Interest-bearing Deposits..... 16,571 (3,838) 12,733 10 (45,153) (45,143)
------------------------------------------------------------------------------------------------------------------------------------
Federal funds purchased and
securities sold.................... 25,803 24,293 50,096 4,667 (4,827) (160)
Other short-term borrowings......... 718 1,013 1,731 101 21 122
Long-term debt...................... 11,103 (1,042) 10,061 8,090 (2,614) 5,476
------------------------------------------------------------------------------------------------------------------------------------
Total Interest-bearing Liabilities.. 54,195 20,426 74,621 12,868 (52,573) (39,705)
------------------------------------------------------------------------------------------------------------------------------------
Change in Net Interest Income....... $ 92,534 $(38,128) $ 54,406 $ 38,687 $(12,686) $ 26,001
====================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE 17: ANALYSIS OF INTEREST CHANGES DUE TO VOLUME AND RATES (in thousands) (A)(CONTINUED)
1992 over 1991 1991 over 1990
Changes Due to: Total Changes Due to: Total
Volume Rate Change Volume Rate Change
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning Assets:
Federal funds sold and
securities purchased............... $ 823 $ (3,960) $ (3,137) $(10,869) $ (4,452) $(15,321)
Interest-bearing deposits in
other banks........................ (1,179) (498) (1,677) 55 (339) (284)
Trading account securities.......... 3,269 (2,476) 793 15,215 (5,762) 9,453
Total investment securities......... 22,509 (23,682) (1,173) 3,774 (6,283) (2,509)
Loans, net of unearned income
and deferred taxes on leases (B)... 10,463 (60,450) (49,987) 10,557 (41,669) (31,112)
-----------------------------------------------------------------------------------------------------------------------------------
Total Interest-earning Assets,
Net Of Deferred Taxes On Leases.... 35,885 (91,066) (55,181) 18,732 (58,505) (39,773)
-----------------------------------------------------------------------------------------------------------------------------------
Interest-bearing Liabilities:
Interest-bearing deposits:
NOW accounts....................... 5,232 (12,772) (7,540) 3,366 (2,531) 835
Savings and money market........... 28,642 (27,346) 1,296 10,356 (5,304) 5,052
TCDs of $100,000 or more........... (10,975) (7,305) (18,280) (8,620) (5,902) (14,522)
Other TCDs......................... (23,327) (33,730) (57,057) 18,579 (21,982) (3,403)
-----------------------------------------------------------------------------------------------------------------------------------
Total Interest-bearing Deposits..... (428) (81,153) (81,581) 23,681 (35,719) (12,038)
-----------------------------------------------------------------------------------------------------------------------------------
Federal funds purchased and
securities sold.................... 1,181 (19,471) (18,290) (24,851) (19,959) (44,810)
Other short-term borrowings......... (4,874) (2,735) (7,609) 3,658 (335) 3,323
Long-term debt...................... (52) 9 (43) (3,953) (2,061) (6,014)
-----------------------------------------------------------------------------------------------------------------------------------
Total Interest-bearing Liabilities.. (4,173) (103,350) (107,523) (1,465) (58,074) (59,539)
-----------------------------------------------------------------------------------------------------------------------------------
Change in Net Interest Income....... $40,058 $ 12,284 $ 52,342 $ 20,197 $ (431) $ 19,766
===================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE 17: ANALYSIS OF INTEREST CHANGES DUE TO VOLUME AND RATES (in thousands) (A)(CONTINUED)
1990 over 1989
Changes Due to: Total
Volume Rate Change
---------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest-earning Assets:
Federal funds sold and
securities purchased............... $(5,118) $ (3,155) $(8,273)
Interest-bearing deposits in
other banks........................ (1,971) (380) (2,351)
Trading account securities.......... 8,734 64 8,798
Total investment securities......... 22,350 (143) 22,207
Loans, net of unearned income
and deferred taxes on leases (B)... 52,870 (26,447) 26,423
---------------------------------------------------------------------------------
Total Interest-earning Assets,
Net Of Deferred Taxes On Leases.... 76,865 (30,061) 46,804
---------------------------------------------------------------------------------
Interest-bearing Liabilities:
Interest-bearing deposits:
NOW accounts....................... 1,728 (395) 1,333
Savings and money market........... 6,719 (830) 5,889
TCDs of $100,000 or more........... 119 (5,882) (5,763)
Other TCDs......................... 24,862 (4,763) 20,099
---------------------------------------------------------------------------------
Total Interest-bearing Deposits..... 33,428 (11,870) 21,558
---------------------------------------------------------------------------------
Federal funds purchased and
securities sold.................... 17,158 (11,311) 5,847
Other short-term borrowings......... 1,131 87 1,218
Long-term debt...................... (924) (1,228) (2,152)
---------------------------------------------------------------------------------
Total Interest-bearing Liabilities.. 50,793 (24,322) 26,471
---------------------------------------------------------------------------------
Change in Net Interest Income....... $26,072 $ (5,739) $20,333
=================================================================================
</TABLE>
(A) Changes not due entirely to changes in volume or rate have been allocated to
rate. Interest is presented on a fully taxable equivalent basis, calculated
on federal and state taxes applicable to the subsidiary carrying the asset.
The combined tax rate was approximately 38% for 1989-1992 and 39% for 1993
and 1994.
(B) Loans include nonaccruing loans. Loan fees included in interest income:
1994: $18,658; 1993 $13,708; 1992: $12,736; 1991: $11,351; and 1990:
$12,294.
<PAGE>
NET INTEREST INCOME. The largest component of FSCO's operating income is
net interest income (see: "Table 1: Financial Highlights"; "Table 16: Average
Balance Sheets, Net Interest Income, Yields and Rates"; and "Table 17: Analysis
of Interest Changes Due To Volume and Rates"). For purposes of this discussion,
interest income earned on tax-exempt or tax-favored loans, leases, and
securities is adjusted to a fully-taxable equivalent ("FTE") basis to facilitate
comparison with interest earned which is subject to statutory taxation. During
1994, a one basis point change in FSCO's net interest margin FTE equaled
approximately $1.00 million of net interest income FTE.
Changes in net interest income generally occur due to fluctuations in the
balances and/or mixes of interest-earning assets and interest-bearing
liabilities, and changes in their corresponding interest yields and costs.
Changes in nonperforming assets, together with interest lost and recovered on
those assets, also impact comparisons of net interest income.
Net interest income FTE for 1994 totaled $465.98 million, up $54.41 million
(13.2%) from $411.57 million in 1993. Growth in earning assets favorably
affected the year-to-year comparison as average earning assets in 1994 reached
$10.04 billion, up $1.72 billion (20.7%) from 1993, with growth in average loans
accounting for 76.3% of this increase. A portion of the revenue gains generated
by asset growth in 1994 was offset by mix and rate changes in FSCO's liability
structure as deposit growth did not keep pace with loan demand. Short-term
borrowings, which reacted swiftly to 1994's rising interest rate environment,
funded 20.0% of FSCO's average earning assets during the year, up from 13.5% for
1993. Compaction of spreads on these assets negatively impacted the net interest
margin in 1994.
The net interest margin FTE for 1994 was 4.64%, down 31 basis points from 4.95%
in 1993. Rapid and sustained increases of interest rates, including six
increases in the Federal Funds rate,
negatively impacted FSCO's net interest margin, which fell throughout 1994.
The lower net interest margin FTE reflected FSCO's reliance on interest-bearing
funds, specifically short-term borrowed funds, to support interest-earning asset
growth, primarily loans, which exceeded deposit growth.
Through funding actions completed nationally and locally during the third
and fourth quarters of 1994 and additional related actions planned for 1995,
FSCO management believes the net interest margin has been stabilized.
By comparison, net interest income FTE for 1993 totaled $411.57 million, up
$26.00 million (6.7%) from $385.57 million in 1992. This increase resulted from
falling interest rates and the relatively wide spread between the prime rate and
the cost of short-term funds.
Over the past eight years, growth in FSCO's net interest income FTE has
largely been due to sustained growth in average interest-earning assets. The net
interest margin FTE has also reflected increased competition, balance sheet
restructuring, and the impact of changes in the yield curve. Effective
asset/liability management, however, has moderated the impact of external forces
on net interest income FTE.
<PAGE>
<TABLE>
<CAPTION>
TABLE 18: NONINTEREST INCOME (in thousands)
5-Year
94/93 Compound
For the Years Ended December 31, 1994 1993 1992 1991 1990 % Chg Growth Rate
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Noninterest Income:
Service charges on deposit accounts....... $ 62,211 $ 55,865 $ 51,505 $ 46,137 $ 39,007 11.4 12.4
Other service charges, collections,
commissions and fees..................... 27,544 24,654 21,154 17,400 11,504 11.7 22.8
Bankcard servicing fees and
third-party processing fees.............. 30,234 33,083 27,411 24,175 21,867 (8.6) 9.2
Fiduciary (trust) commissions and fees.... 20,706 18,980 18,176 16,793 14,955 9.1 9.7
Insurance commissions and fees............ 12,631 9,953 8,719 7,017 6,515 26.9 16.5
Real estate gains on sales of
loans and servicing rights............... 21,046 17,113 11,857 7,148 3,738 23.0 40.5
Real estate servicing fees on loans
sold..................................... 20,922 6,566 6,074 5,365 3,136 218.6 55.8
Other..................................... 15,043 5,071 5,636 9,213 12,493 196.6 26.5
Investment securities gains (losses)...... (1,330) 730 859 2,942 545 (282.2) NA
Trading account securities gains
(losses)................................. (2,386) (4,856) (7,355) 1,632 2,063 50.9 NA
------------------------------------------------------------------------------------------------------------------------------------
Total Noninterest Income.................. $206,621 $167,159 $144,036 $137,822 $115,823 23.6 16.8
====================================================================================================================================
</TABLE>
NONINTEREST INCOME. FSCO's noninterest income and expenses have been
impacted by recent acquisitions (see: "Table 18: Noninterest Income";
Noninterest Expenses; and "Mergers and Acquisitions"). Noninterest income for
1994 totaled $206.62 million, up $39.46 million (23.6%) from 1993, while
noninterest income for 1993 totaled $167.16 million, up $23.12 million (16.1%)
from $144.04 million in 1992. For both years, the increases in most noninterest
income categories were due primarily to acquisitions, most recently the
acquisition of CrossLand Mortgage in 1994, and growth due to strong regional
economies in FSCO's market areas. In 1994, FSCO's revenue grew for the 10th
straight year in both its service charges on deposit accounts and fiduciary
(trust) activities.
After excluding CrossLand Mortgage's 1994 noninterest income of $28.17
million, "base" noninterest income for 1994 increased by 6.8% from 1993 due to
other acquisitions. The acquisition of CrossLand Mortgage further diversified
FSCO's noninterest income and increased the ratio of noninterest income to total
income for 1994 to 31.1%, up from 29.3% and 27.7% for 1993 and 1992,
respectively.
The increases in most noninterest income categories in 1994 and 1993 were due
primarily to the impact of acquisitions and growth. The changes that were not
are discussed below.
* Bankcard service fees and third-party processing fees decreased in 1994
after having increased in 1993. The decrease in 1994 was due to the sale of
certain assets related to third-party processing for credit unions, while the
increase in 1993 was due to volume growth in transactions processed for third-
party clients.
* Real estate related fees and gains increased in both 1994 and 1993. The
increase in 1994 reflected the acquisition of CrossLand Mortgage and strong loan
demand, while the increase in 1993 was due primarily to the positive impact of
the relatively low interest-rate environment on mortgage and consumer loan
growth.
* Investment securities recorded a loss in 1994 which was mostly the result
of portfolio restructuring to reduce interest rate risk. The gain in 1993 was
due to securities called prior to maturity or sold for credit quality purposes.
* Trading account securities continued to provide FSCO with strong annual
revenues as 1994's results were the highest net revenue from trading in FSCO's
history. Because of required accounting treatment, the overall performance of
FSCO's trading activities must take into consideration the interest income as
well as the gains/losses generated on the trading account position. Total
revenues from all of FSCO's trading activities were $31.56 million, $15.97
million, and $19.75 million, for 1994, 1993, and 1992, respectively.
<PAGE>
<TABLE>
<CAPTION>
TABLE 19: NONINTEREST EXPENSES (IN THOUSANDS)
5-Year
94/93 Compound
For the Years Ended December 31, 1994 1993 1992 1991 1990 % Chg Growth Rate
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Noninterest Expenses:
Salaries and employee benefits......... $222,895 $175,696 $160,982 $147,795 $135,438 26.9 12.1
Advertising............................ 9,039 9,187 6,363 4,990 3,721 (1.6) 17.7
Amortization of intangibles............ 15,865 3,312 2,695 2,323 1,098 379.0 200.2
Bankcard interbank discount
and interchanges fees................. 16,301 13,983 11,245 10,121 8,456 16.6 18.0
Furniture and equipment................ 30,987 27,858 26,549 22,656 19,445 11.2 9.0
Insurance.............................. 23,454 19,697 18,868 14,678 9,472 19.1 26.8
Occupancy, net......................... 25,874 24,224 19,373 18,316 18,132 6.8 9.0
Other real estate expense
and loss provision.................... (6,543) 8,639 11,110 6,499 10,465 (175.7) NA
Postage................................ 9,708 7,428 7,243 6,684 5,551 30.7 14.0
Stationery and supplies................ 16,336 15,956 12,865 10,754 10,600 2.4 12.9
Telephone.............................. 11,834 8,610 7,344 6,583 6,284 37.4 14.5
Other.................................. 66,971 71,556 54,819 55,105 56,433 (6.4) 10.4
------------------------------------------------------------------------------------------------------------------------------------
Total Noninterest Expenses............. $442,721 $386,146 $339,456 $306,504 $285,095 14.7 11.9
====================================================================================================================================
</TABLE>
NONINTEREST EXPENSES. FSCO's noninterest income and expenses have been
impacted by recent acquisitions (see: "Table 19: Noninterest Expenses";
Noninterest Income; and "Mergers and Acquisitions"). Noninterest expenses for
1994 totaled $442.72 million, up $56.58 million (14.7%) from 1993, while
noninterest expenses for 1993 totaled $386.15 million, up $46.69 million (13.8%)
from $339.46 million in 1992. For both years, the increases in most noninterest
expense categories were due primarily to acquisitions, most recently the
acquisition of CrossLand Mortgage in 1994, and growth. In addition, numerous
one-time expenses were incurred. For both 1994 and 1993, these included costs
associated with each acquisition and its integration into FSCO. In addition, for
1993 there were also merger-related charges associated with the acquisition of
FNFC, and the installation of a new ATM system and the writeoff of the old
system.
The increases in most noninterest expense categories in 1994 and 1993 were
due primarily to the impact of acquisitions and growth. The changes that were
not are discussed below.
* Bankcard interbank discount and interchange expense increased in 1994 and
1993 due to growth in the volume of merchant deposits.
* Other real estate expense and loss provision was a net recovery in 1994,
an improvement from the net expense in 1993 due to reductions in ORE
outstandings and ORE market valuation adjustments. Other real estate expense and
loss provision in 1993 decreased due to the reduction of ORE, downward
revaluation of FSB New Mexico's ORE to conform with FSCO's practices and
policies, increased sales of ORE, and ORE market valuation adjustments.
* Other noninterest expenses decreased in 1994 and increased in 1993, due
largely to one-time merger-related charges of $17.11 million ($11.12 million
after tax) associated with the 1993 acquisition of FNFC.
One measure of FSCO's effectiveness and ongoing efforts to control noninterest
expenses is the efficiency ratio. FSCO's efficiency ratio for 1994 was 65.82%,
improved from 66.72% in 1993 and compared to 64.10% in 1992. FSCO's "base"
efficiency ratio, excluding both CrossLand Mortgage and FNFC effects, was 62.42%
for 1994, compared to 63.37% in 1993 and 62.08% in 1992.
Despite these improvements, management believes that FSCO's efficiency ratio
remained unacceptably high in 1994 in comparison to its goal of 60.0%.
Sustainable efficiency gains achieved in many of FSCO's line and staff functions
were obscured by numerous one-time expenses associated with the 28 acquisitions
made in the past five years and each acquisition's integration into FSCO;
additional investment and expense to support the sustained growth of traditional
markets; amortization related to acquisitions using purchase accounting; and
temporary overcapacity in real estate mortgage production resources.
FSCO's productivity ratio for 1994 was 3.97%, improved from 4.19% in 1993 and
4.00% in 1992, reflecting FSCO's ability to keep growth of noninterest expenses
in line with growth of average total assets.
As FSCO moves through 1995, aggressive actions will be taken to continue the
efficient consolidation of certain activities and complete the integration of
recent acquisitions and other related projects. FSCO is committed to becoming a
more efficient and lower cost provider of financial services in its
marketplaces, while continuing to increase franchise value for its shareholders.
On January 1, 1994, FSCO adopted SFAS 112 "Employers' Accounting for
Postemployment Benefits". SFAS 112 requires FSCO to accrue benefits to be
provided to former or inactive employees after employment but before retirement,
such as salary continuation, severance pay, or health care benefits. The impact
of SFAS 112 on FSCO was not material in relation to the consolidated financial
statements.
PROVISION FOR INCOME TAXES. FSCO employs several effective strategies to
permanently reduce or defer payment of income taxes. As a result, FSCO's tax
provisions have historically been lower than statutory tax rates, and deferred
tax reserves have been an important source of interest-free long-term funding.
FSCO's tax strategies include investments in securities and loans yielding tax-
exempt interest, investments in leveraged leases, and the recognition of
investment tax credits (ITC) on leases using the deferral method. In 1994, FSCO
continued to employ these tax planning strategies and made investments in low-
income housing projects to generate tax credits.
<PAGE>
OFF-BALANCE SHEET ITEMS. During 1994, FSCO had "off-balance sheet" commitments
consisting primarily of loan commitments to customers, and derivative products
used in the ALCO process or carried in the trading accounts (see:
Asset/Liability Management; "Note 1. To Consolidated Financial Statements -
Summary of Significant Accounting and Reporting Policies"; and "Note 10. To
Consolidated Financial Statements - Commitments, Contingent Liabilities, and
Financial Instruments with Off-Balance Sheet Risk").
INFLATION ACCOUNTING AND CAPITAL COMMITMENTS. FSCO has determined that the
effects of changing prices on financial data were not significant to operating
results for the years 1994, 1993, or 1992. No material capital expenditure
commitments existed at year-ends 1994, 1993, or 1992.
NATIONAL AND REGIONAL ECONOMY. FSCO's businesses are significantly influenced
both by the financial strength and economic stability of the regional economies
in which they operate and by interest-rate levels and other economic conditions
prevailing in regional, national and international financial markets. Impacted
by a series of Federal Reserve tightenings, many interest rates rose in 1994,
including the Federal Funds rate which rose 250 basis points. Despite these
higher rates, consumer sales and loan demand in the mortgage and automobile
sectors remained generally strong, while business borrowing increased rapidly.
The pace of national economic growth accelerated in 1994, but reported inflation
at the retail level actually dipped below 3%.
The Intermountain West, which encompasses a significant portion of FSCO's
primary market area, was the United States' fastest-growing regional economy in
1994 for the second consecutive year. Furthermore, Utah, Idaho, New Mexico and
Nevada were the top four states in 1994 employment growth. Preliminary 1994
annual average job gains were: Utah 6.2%; Idaho 5.3%; New Mexico 4.9%; Oregon
3.7%; Nevada 6.4%; and Wyoming 1.4%. The November 1994 unemployment rates were:
Utah 3.8%; Idaho 5.7%; New Mexico 5.4%; Oregon 4.8%; Nevada 5.8%; and Wyoming
4.5%.
The basic rapid-growth formula evident to a significant degree in each of
these six states included:
* Rapid population growth fueled by substantial net in-migration;
* Expanding employment opportunities to absorb the new labor force entrants;
* Gains in commercial and industrial construction offsetting the slowdown
evident in residential construction;
* Employment and income gains translated into strong consumer spending
increases, particularly in automobile sales.
The rate of economic growth, both nationally and in the Intermountain West,
will likely decelerate in 1995. Higher interest rates have reduced the pace of
housing construction and real estate sales and will probably slow automobile
buying as well. Job growth in the six-state region should remain solid, but it
will occur at a reduced rate, somewhat influenced by the slower national
economic growth.
While the 1995 outlook remains generally favorable, the following factors
could adversely impact regional economic activity:
* Higher interest rates significantly reducing loan demand;
* Possible closures of defense installations in FSCO's market areas and the
accompanying lost employment;
* Reduced, or even eliminated, access to Federal lands for timber, mining,
and livestock industries;
* International competitive pressures in the computer industry possibly
slowing or even decreasing employment levels.
COMPETITIVE POSITION. First Security Corporation is the largest bank holding
company headquartered in the Intermountain West. Incorporated in 1928, FSCO is
the oldest multistate bank holding company in the United States.
FSB Utah is the largest bank in Utah. At September 30, 1994, the most recent
date for which comparative data were available, FSB Utah had deposits totaling
$3.6 billion and 118 full-service domestic branches. Zion's First National Bank
was the second largest bank with approximately $2.6 billion in deposits and 88
branches, while Key Bank was the third largest with approximately $951 million
in deposits and 38 branches. These three banks are all units of bank holding
companies with bank operations in other western states. Other competitors
included: 30 other banks with approximately $4.0 billion in deposits and 144
branches; 4 S&Ls with approximately $604 million in deposits and 19 branches;
and 153 credit unions with approximately $3.3 billion in deposits.
FSB Idaho is the second largest bank in Idaho. At September 30, 1994, the most
recent date for which comparative data were available, FSB Idaho had deposits
totaling $2.4 billion and 91 full-service branches. West One Bank was the
largest bank with approximately $3.2 billion in deposits and 86 branches, while
Key Bank was the third largest with approximately $1.0 billion in deposits and
45 branches. These three banks are all units of bank holding companies with bank
operations in other western states. Other competitors included: 15 other banks
with approximately $2.0 billion in deposits and 87 branches; 4 S&Ls with
approximately $434 million in deposits and 16 branches; and 87 credit unions
with approximately $966 million in deposits.
FSB New Mexico is the second largest bank in New Mexico in terms of deposits. At
September 30, 1994, the most recent date for which comparative data were
available, FSB New Mexico had deposits totaling $1.1 billion and 26 full-service
branches. Boatmen's Sunwest, Inc. was the largest bank with approximately $1.6
billion in deposits and 34 branches, while Norwest Bank New Mexico was the third
largest with approximately $870 million in deposits and 26 branches. FSB New
Mexico and Boatmen's Sunwest, Inc. are units of bank holding companies with bank
operations in other western states. Other competitors included: 77 other banks
with approximately $7.5 billion in deposits and 246 branches; 14 S&Ls with
approximately $1 billion in deposits and 22 branches; and 60 credit unions with
approximately $1.6 billion in deposits.
FSCO experiences substantial competition in attracting deposits and originating
loans. The primary factors in competing for deposits are interest rates, the
range and quality of services offered, the convenience of bank facilities and
automated teller machines, and hours of operation. Competition for deposits
comes principally from other commercial banks, S&Ls, and credit unions.
Additional competition comes from money market funds, and various other
corporate and government lenders. The primary factors in competing for loans are
interest rates, loan fees, and the quality and range of lending services
offered. Competition for the origination of instalment and commercial loans
comes from commercial banks and finance companies, while competition for the
origination of mortgage loans comes from S&Ls, credit unions, mortgage banking
firms, insurance companies, and other commercial banks.
FSCO, along with the rest of the banking industry, has felt the effects of added
competition as nonbank financial service companies enter what were already
highly competitive markets. Notwithstanding the increased competition, banks
still have only limited entry into nonbank financial markets. In spite of the
inequities of the present financial services market, FSCO has succeeded in
maintaining its position as a major catalyst in the financial services market in
the Intermountain West by being innovative and creative in providing new
products and services to its customers within the narrow constraints of current
banking regulations.
LEGAL PROCEEDINGS. FSCO and its subsidiaries are subject to various claims and
legal actions filed or threatened by customers and others in connection with
FSCO's regular business activities. In all litigation filed against it, FSCO
vigorously defends itself against unfounded claims, with a concomitant cost in
legal fees and expenses. Some legal actions filed against FSCO seek inflated
damages, often in an effort to force compromise of a troubled loan transaction,
and are disclosed in required filings with the SEC. Since the filing of FSCO's
Third Quarter 1994 10-Q Report, there have been no material developments in
connection with pending legal proceedings not already disclosed in previous
filings with the SEC. Because this is the first Annual Report following the
legal proceedings disclosed in its Third Quarter 1994 10-Q Report, FSCO chooses
to re-report the items as follows:
Purported class action lawsuits have been filed in Florida and Illinois on
behalf of mortgage borrowers from CrossLand Mortgage alleging technical
violations of Federal "Truth in Lending" rules based on lending and disclosure
practices believed to be in compliance with such rules at the time. Rescissions
of the loans as well as statutory and compensatory damages are requested in the
lawsuits as filed. Discovery is now beginning and the classes have not yet been
certified. FSCO believes it has indemnification claims against the sellers of
CrossLand Mortgage for a substantial portion of any damages which plaintiffs may
establish in these litigations.
<PAGE>
<TABLE>
<CAPTION>
TABLE 20: QUARTERLY FINANCIAL SUMMARY (in thousands, except per share data and ratios)
1994
------------------------------------------------------------------------------------------------------
4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock Data:
Earnings per common share:
Primary............................. $ 0.69 $ 0.73 $ 0.71 $ 0.67
Fully-diluted....................... 0.69 0.73 0.71 0.67
Dividends paid per share............. 0.26 0.26 0.26 0.26
Book value EOP....................... 17.92 17.88 17.45 17.44
Tangible book value EOP.............. 14.57 14.42 14.18 17.18
Market price (bid) EOP............... 22.75 28.50 29.00 27.75
High bid for the period............. 28.50 32.00 31.00 29.00
Low bid for the period.............. 21.50 27.75 27.25 25.25
Market capitalization EOP: market
price x common shares............... 1,128,286 1,411,691 1,426,133 1,337,994
Market price EOP/
book value EOP (%).................. 126.95 159.40 166.19 159.12
Dividend payout ratio:
dividend/EPS (%).................... 37.68 35.62 36.62 38.81
Dividend yield EOP: dividend/
market price (%).................... 4.57 3.65 3.59 3.75
Price/earning ratio: marketprice/
4 quarters earnings................. 8.1X 11.2X 11.6X 11.6X
Common shares: EOP................... 49,595 49,533 49,177 48,216
Common shares: average primary....... 50,341 50,350 49,687 49,316
Common shares: average
fully-diluted....................... 50,491 50,505 49,845 49,478
------------------------------------------------------------------------------------------------------
Income Statement:
Interest income...................... $ 211,909 $ 200,365 $ 188,805 $ 172,438
Interest expense..................... 96,955 83,829 72,460 62,171
Net interest income.................. 114,954 116,536 116,345 110,267
Fully-taxable equivalent (FTE)
adjustment.......................... 1,944 2,002 1,966 1,963
Net interest income, FTE............. 116,898 118,538 118,311 112,230
Provision for loan losses............ 474 180 343 (172)
Noninterest income................... 58,357 58,919 48,476 40,869
Noninterest expenses................. 117,328 116,767 109,044 99,582
Provision for income taxes........... 20,541 21,724 20,214 18,564
Net income........................... 34,968 36,784 35,220 33,162
------------------------------------------------------------------------------------------------------
Balance Sheet - End of Period:
Trading account securities........... $ 553,826 $ 398,087 $ 725,211 $ 797,254
Securities available for sale (A).... 1,993,797 2,087,639 2,127,690 1,960,075
Securities held to maturity (A)...... 252,622 260,485 268,114 270,039
Loans, net of unearned income........ 8,173,678 7,745,350 7,282,550 6,674,067
Reserve for loan losses.............. (133,855) (134,653) (132,714) (134,216)
Total interest-earning assets........ 11,019,059 10,563,552 10,484,219 9,816,274
Intangible assets.................... 166,199 171,583 160,737 12,698
Total assets......................... 12,148,982 11,604,889 11,734,917 10,745,283
Noninterest-bearing deposits......... 1,719,388 1,734,255 1,843,559 1,556,498
Interest-bearing deposits............ 6,333,956 6,201,229 6,043,972 5,953,168
Total deposits....................... 8,053,344 7,935,484 7,887,531 7,509,666
Short-term borrowed funds............ 2,345,139 2,298,101 2,411,385 1,848,100
Long-term debt....................... 685,426 292,058 312,005 297,538
Total interest-bearing liabilities... 9,364,521 8,791,388 8,767,362 8,098,806
Preferred stockholders' equity....... 629 668 675 685
Common stockholders' equity.......... 888,845 885,721 858,091 840,962
======================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE 20: QUARTERLY FINANCIAL SUMMARY (in thousands, except per share data and ratios)(CONTINUED)
1993
------------------------------------------------------------------------------------------------------
4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock Data:
Earnings per common share:
Primary............................. $ 0.43 $ 0.68 $ 0.62 $ 0.65
Fully-diluted....................... 0.43 0.68 0.62 0.65
Dividends paid per share............. 0.23 0.23 0.23 0.19
Book value EOP....................... 17.24 17.12 16.64 16.31
Tangible book value EOP.............. 17.00 16.85 16.34 15.99
Market price (bid) EOP............... 25.75 28.00 28.25 28.50
High bid for the period............. 30.00 28.50 30.00 30.25
Low bid for the period.............. 24.00 26.50 25.50 25.50
Market capitalization EOP: market
price x common shares............... 1,247,253 1,322,804 1,316,930 1,305,072
Market price EOP/
book value EOP (%).................. 149.36 163.55 169.77 174.74
Dividend payout ratio:
dividend/EPS (%).................... 53.49 33.82 37.10 29.23
Dividend yield EOP: dividend/
market price (%).................... 3.57 3.29 3.26 2.67
Price/earning ratio: marketprice/
4 quarters earnings................. 10.8x 11.1x 11.5x 12.1x
Common shares: EOP................... 48,437 47,243 46,617 45,792
Common shares: average primary....... 48,805 47,981 47,660 46,937
Common shares: average
fully-diluted....................... 48,969 48,147 47,829 47,112
------------------------------------------------------------------------------------------------------
Income Statement:
Interest income...................... $ 165,853 $ 163,241 $ 160,090 $ 155,548
Interest expense..................... 59,990 59,898 61,211 59,695
Net interest income.................. 105,863 103,343 98,879 95,853
Fully-taxable equivalent (FTE)
adjustment.......................... 2,922 (1,092) 2,221 3,582
Net interest income, FTE............. 108,785 102,251 101,100 99,435
Provision for loan losses............ 4,647 5,139 (78) 1,976
Noninterest income................... 46,446 43,107 36,739 40,867
Noninterest expenses................. 116,015 94,824 90,081 85,226
Provision for income taxes........... 10,583 13,900 15,922 18,806
Net income........................... 21,064 32,587 29,693 30,712
------------------------------------------------------------------------------------------------------
Balance Sheet - End of Period:
Trading account securities........... $ 607,854 $ 398,087 $ 725,211 $ 602,392
Securities available for sale (A).... (A) (A) (A) (A)
Securities held to maturity (A)...... 1,762,783 1,760,168 1,862,131 1,970,338
Loans, net of unearned income........ 6,561,021 6,185,830 5,946,520 5,596,166
Reserve for loan losses.............. (134,848) (130,726) (126,896) (127,329)
Total interest-earning assets........ 9,329,273 8,797,725 8,524,631 8,447,960
Intangible assets.................... 11,833 13,009 13,849 14,553
Total assets......................... 10,211,689 9,725,657 9,490,282 9,158,974
Noninterest-bearing deposits......... 1,697,687 1,538,084 1,524,768 1,284,207
Interest-bearing deposits............ 5,806,020 5,523,565 5,453,683 5,460,770
Total deposits....................... 7,503,707 7,061,649 6,978,451 6,744,977
Short-term borrowed funds............ 1,486,905 1,289,505 1,181,217 1,245,394
Long-term debt....................... 224,836 226,505 237,895 119,062
Total interest-bearing liabilities... 7,517,761 7,039,575 6,872,795 6,825,226
Preferred stockholders' equity....... 703 711 726 733
Common stockholders' equity.......... 835,028 808,966 775,768 746,646
------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE 20: QUARTERLY FINANCIAL SUMMARY (in thousands, except per share data and ratios)(CONTINUED)
1994
------------------------------------------------------------------------------------------------------
4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance Sheet - Average:
Trading account securities........... $ 570,726 $ 669,955 $ 712,980 $ 563,039
Securities available for sale (A).... 2,059,821 2,108,122 2,002,866 1,763,348
Securities held to maturity (A)...... 246,917 263,979 267,384 302,717
Loans, net of unearned income........ 7,928,754 7,489,686 6,993,753 6,547,493
Reserve for loan losses.............. (135,325) (134,492) (134,270) (135,122)
Total interest-earning assets........ 10,705,435 10,427,360 9,883,013 9,131,644
Intangible assets.................... 169,375 169,246 117,508 12,104
Total assets......................... 11,927,913 11,589,745 10,956,238 10,060,915
Noninterest-bearing deposits......... 1,684,321 1,641,041 1,616,036 1,522,496
Interest-bearing deposits............ 6,255,221 6,175,251 6,038,334 5,859,165
Total deposits....................... 7,939,542 7,816,292 7,654,370 7,381,661
Short-term borrowed funds............ 2,310,480 2,388,601 1,955,541 1,360,105
Long-term debt....................... 586,407 306,808 300,304 276,130
Total interest-bearing liabilities... 9,152,108 8,870,660 8,294,179 7,495,400
Preferred stockholders' equity....... 650 671 683 699
Common stockholders' equity.......... 890,505 871,333 855,989 853,978
------------------------------------------------------------------------------------------------------
Problem Assets - End of Period:
Total nonaccruing loans.............. $ 23,868 $ 20,232 $ 24,610 $ 27,768
ORE and other
foreclosed assets................... 3,352 3,148 8,387 14,842
Total nonperforming assets........... 27,220 23,380 32,997 42,610
Accruing loans past due
90 days or more..................... 12,001 9,265 9,184 10,318
Total problem assets................. 39,221 32,645 42,181 52,928
------------------------------------------------------------------------------------------------------
Other Data-End Of Period (not
rounded to thousands):
Full-time equivalent employees....... 7,621 7,499 7,427 6,420
Total domestic bank offices.......... 261 259 253 249
------------------------------------------------------------------------------------------------------
Selected Ratios (%):
Reserve for loan losses EOP to:
Total loans......................... 1.64 1.74 1.82 2.01
Nonaccruing loans................... 560.81 665.54 539.27 483.35
Nonaccruing + accruing
loans past due 90 days.............. 373.18 456.50 329.71 352.40
Nonaccruing loans/total loans........ 0.29 0.26 0.34 0.42
Nonaccruing + accruing loans
past due/total loans................ 0.44 0.38 0.46 0.57
Nonperforming assets EOP to:
Total loans and ORE................. 0.33 0.30 0.45 0.64
Total assets........................ 0.22 0.20 0.28 0.40
Total equity........................ 3.06 2.64 3.84 5.06
Total equity and reserve
for loan losses..................... 2.66 2.29 3.33 4.37
Problem assets EOP to:
Total loans and ORE................. 0.48 0.42 0.58 0.79
Total assets........................ 0.32 0.28 0.36 0.49
Total equity........................ 4.41 3.68 4.91 6.29
Total equity and reserve
for loan losses..................... 3.83 3.20 4.25 5.42
Net loans charged off/
average loans....................... 0.17 0.03 0.14 0.04
------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE 20: QUARTERLY FINANCIAL SUMMARY (in thousands, except per share data and ratios)(CONTINUED)
1993
------------------------------------------------------------------------------------------------------
4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance Sheet - Average:
Trading account securities........... $ 361,121 $ 404,014 $ 458,436 $ 474,257
Securities available for sale (A).... (A) (A) (A) (A)
Securities held to maturity (A)...... 1,713,775 1,768,370 1,932,218 1,756,738
Loans, net of unearned income........ 6,314,632 6,037,540 5,745,825 5,563,702
Reserve for loan losses.............. (130,881) (127,787) (128,874) (127,736)
Total interest-earning assets........ 8,683,703 8,384,769 8,304,335 7,896,287
Intangible assets.................... 12,504 13,484 14,231 14,645
Total assets......................... 9,638,743 9,301,245 9,180,421 8,725,616
Noninterest-bearing deposits......... 1,597,929 1,474,789 1,383,485 1,254,069
Interest-bearing deposits............ 5,667,076 5,510,779 5,506,463 5,423,080
Total deposits....................... 7,265,005 6,985,568 6,889,948 6,677,149
Short-term borrowed funds............ 1,172,030 1,125,109 1,151,294 1,035,021
Long-term debt....................... 225,701 235,474 232,054 121,801
Total interest-bearing liabilities... 7,064,807 6,871,362 6,889,811 6,579,902
Preferred stockholders' equity....... 709 721 729 754
Common stockholders' equity.......... 830,108 797,712 768,345 738,395
------------------------------------------------------------------------------------------------------
Problem Assets - End of Period:
Total nonaccruing loans.............. $ 36,354 $ 53,707 $ 64,520 $ 67,312
ORE and other
foreclosed assets................... 16,465 23,052 27,181 31,343
Total nonperforming assets........... 52,819 76,759 91,701 98,655
Accruing loans past due
90 days or more..................... 7,155 8,310 9,150 10,309
Total problem assets................. 59,974 85,069 100,851 108,964
------------------------------------------------------------------------------------------------------
Other Data-End Of Period (not
rounded to thousands):
Full-time equivalent employees....... 6,318 6,259 6,059 5,911
Total domestic bank offices.......... 245 238 237 235
------------------------------------------------------------------------------------------------------
Selected Ratios (%):
Reserve for loan losses EOP to:
Total loans......................... 2.06 2.11 2.13 2.28
Nonaccruing loans................... 370.93 243.41 196.68 189.16
Nonaccruing + accruing
loans past due 90 days.............. 309.93 210.79 172.25 164.04
Nonaccruing loans/total loans........ 0.55 0.87 1.09 1.20
Nonaccruing + accruing loans
past due/total loans................ 0.66 1.00 1.24 1.39
Nonperforming assets EOP to:
Total loans and ORE................. 0.80 1.24 1.54 1.75
Total assets........................ 0.52 0.79 0.97 1.08
Total equity........................ 6.32 9.48 11.81 13.20
Total equity and reserve
for loan losses..................... 5.44 8.16 10.15 11.28
Problem assets EOP to:
Total loans and ORE................. 0.91 1.37 1.69 1.94
Total assets........................ 0.59 0.87 1.06 1.19
Total equity........................ 7.18 10.51 12.99 14.58
Total equity and reserve
for loan losses..................... 6.18 9.05 11.16 12.46
Net loans charged off/
average loans....................... 0.30 0.16 0.15 0.18
------------------------------------------------------------------------------------------------------
</TABLE>
EOP: End of period.
(A) SFAS 115 "Accounting for Certain Investments in Debt and Equity Securities"
was adopted January 1, 1994 and required FSC to classify its investment
securities as either available for sale or held to maturity. In years prior
to 1994, it was FSC's practice to hold investment securities to maturity.
<PAGE>
Management's Report On Financial Statements
February 17, 1995
To the Stockholders:
Financial Statements
The management of First Security Corporation ("the Corporation") is responsible
for the preparation, integrity, and fair presentation of its published financial
statements and all other information presented in this annual report. The
financial statements have been prepared in accordance with generally accepted
accounting principles and, as such, include amounts based on informed judgements
and estimates made by management.
Internal Controls
Management is responsible for establishing and maintaining an effective internal
control structure over financial reporting presented in conformity with
generally accepted accounting principles and the Federal Reserve Board's
instructions for the FR Y-9 Report. The structure contains monitoring
mechanisms, and actions are taken to correct deficiencies identified.
There are inherent limitations in the effectiveness of any structure of internal
control, including the possibility of human error and the circumvention or
overriding of controls. Accordingly, even an effective internal control
structure can provide only reasonable assurance with respect to financial
statement preparation. Further, because of changes in conditions, the
effectiveness of an internal control structure may vary over time.
Management assessed the Corporation's internal control structure over financial
reporting presented in conformity with generally accepted accounting principles
and the Federal Reserve Board's Instructions for the FR Y-9 Report as of
December 31, 1994. This assessment was based on criteria for effective internal
control over financial reporting described in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this assessment, management believes that the Corporation
maintained an effective internal control structure over financial reporting
presented in conformity with generally accepted accounting principles and the
Federal Reserve Board's Instructions for the FR Y-9 Report, as of December 31,
1994.
The Audit Committee of the Board of Directors is comprised entirely of outside
directors who are independent of the Corporation's management; it includes
members with banking or related management experience, has access to its own
outside counsel, and does not include any large customers of the Corporation.
The Audit Committee is responsible for recommending to the Board of Directors
the selection of independent auditors. It meets periodically with management,
the independent auditors, and the internal auditors to ensure that they are
carrying out their responsibilities. The Committee is also responsible for
performing an oversight role by reviewing and monitoring the financial,
accounting, and auditing procedures of the Corporation in addition to reviewing
the Corporation's financial reports. The independent auditors and the internal
auditors have full and free access to the Audit Committee, with or without the
presence of management, to discuss the adequacy of the internal control
structure for financial reporting and any other matters which they believe
should be brought to the attention of the Committee.
Compliance with Laws and Regulations
Management is also responsible for ensuring compliance with the federal laws and
regulations concerning loans to insiders and the federal and state laws and
regulations concerning dividend restrictions, both of which are designated by
the FDIC as safety and soundness laws and regulations.
Management assessed its compliance with the designated safety and soundness laws
and regulations and has maintained records of its determinations and assessments
as required by the FDIC. Based on this assessment, Management believes that the
Corporation has complied, in all material respects, with the designated safety
and soundness laws and regulations for the year ended December 31, 1994.
/s/ Morgan J. Evans /s/ Scott C. Ulbrich
Morgan J. Evans Scott C. Ulbrich
President and Chief Operating Officer Executive Vice President
and Chief Financial Officer
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
December 31, 1994 and 1993 (in thousands) 1994 1993
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
--------------------------------------------------------------------------------------------------------------------
Cash and due from banks (Note 2).................................................... $ 678,353 $ 673,877
Federal funds sold and securities purchased under resale agreements (Note 1)........ 43,551 381,154
--------------------------------------------------------------------------------------------------------------------
Total Cash and Cash Equivalents..................................................... 721,904 1,055,031
--------------------------------------------------------------------------------------------------------------------
Interest-bearing deposits in other banks............................................ 1,585 16,461
Trading account securities (Notes 1 and 3).......................................... 553,826 607,854
Securities available for sale, at fair value (cost $2,080,408) (Notes 1 and 3)...... 1,993,797
Securities held to maturity, at cost (fair value $249,971 and $1,794,647)
(Notes 1 and 3).................................................................... 252,622 1,762,783
--------------------------------------------------------------------------------------------------------------------
Loans (net of unearned income of $7,380 and $12,182, respectively)
(Notes 1, 4, and 15)............................................................... 8,173,678 6,561,021
Less reserve for loan losses (Notes 1 and 4)........................................ 133,855 134,848
--------------------------------------------------------------------------------------------------------------------
Total Loans, Net.................................................................... 8,039,823 6,426,173
--------------------------------------------------------------------------------------------------------------------
Premises and equipment, net (Notes 1 and 5)......................................... 188,418 145,718
Accrued income receivable........................................................... 85,655 52,654
Other real estate and other foreclosed assets (Note 1).............................. 3,352 16,465
Other assets........................................................................ 141,801 116,717
Intangible assets (Notes 1 and 14).................................................. 166,199 11,833
--------------------------------------------------------------------------------------------------------------------
Total Assets........................................................................ $12,148,982 $10,211,689
====================================================================================================================
Liabilities and Stockholders' Equity:
Deposits (Note 6):
Noninterest-bearing............................................................... $ 1,719,388 $ 1,697,687
Interest-bearing.................................................................. 6,333,956 5,806,020
--------------------------------------------------------------------------------------------------------------------
Total Deposits...................................................................... 8,053,344 7,503,707
--------------------------------------------------------------------------------------------------------------------
Securities sold under repurchase agreements (Note 1)................................ 1,866,377 1,188,569
Federal funds purchased............................................................. 294,210 198,540
U.S. Treasury demand notes.......................................................... 33,552 43,645
Other short-term borrowings (Notes 7 and 9)......................................... 151,000 56,151
Accrued income taxes (Notes 1 and 8)................................................ 81,710 85,837
Accrued interest payable............................................................ 27,709 17,429
Other liabilities................................................................... 66,180 57,244
Long-term debt (Note 9)............................................................. 685,426 224,836
--------------------------------------------------------------------------------------------------------------------
Total Liabilities................................................................... 11,259,508 9,375,958
--------------------------------------------------------------------------------------------------------------------
Commitments and contingent liabilities (Notes 3, 4, 5, and 10)
Stockholders' equity (Notes 1, 11, 12, 13, 14, and 16):
Preferred stock: Series "A", $3.15 cumulative convertible........................... 629 703
--------------------------------------------------------------------------------------------------------------------
Common stockholders' equity:
Common stock (49,957 and 48,787 shares issued, respectively)....................... 62,446 60,983
Paid-in surplus.................................................................... 142,928 122,549
Retained earnings.................................................................. 746,454 657,446
Net unrealized loss on securities available for sale (net of taxes)
(Notes 1, 3, and 8).............................................................. (54,341)
--------------------------------------------------------------------------------------------------------------------
Subtotal............................................................................ 897,487 840,978
Less common treasury stock, at cost (362 and 350 shares, respectively).............. (8,642) (5,950)
--------------------------------------------------------------------------------------------------------------------
Total common stockholders' equity................................................... 888,845 835,028
--------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity.......................................................... 889,474 835,731
--------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity.......................................... $12,148,982 $10,211,689
====================================================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31, 1994, 1993, and 1992
(in thousands, except for per share amounts) 1994 1993 1992
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income:
Interest and fees on loans (Note 1)...................................... $615,558 $513,810 $507,491
Interest and dividends on securities available for sale (Note 3)......... 107,778
Interest on securities held to maturity (Note 3)......................... 13,833 100,464 114,742
Federal funds sold and securities purchased under resale agreements...... 2,320 9,191 6,416
Interest-bearing deposits in other banks................................. 83 456 691
Trading account interest (Note 10)....................................... 33,945 20,811 27,108
-----------------------------------------------------------------------------------------------------------------
Total Interest Income.................................................... 773,517 644,732 656,448
-----------------------------------------------------------------------------------------------------------------
Interest Expense:
Interest on deposits..................................................... 205,725 192,992 238,135
Interest on short-term borrowings........................................ 85,806 33,979 34,017
Interest on long-term debt............................................... 23,884 13,823 8,347
-----------------------------------------------------------------------------------------------------------------
Total Interest Expense................................................... 315,415 240,794 280,499
-----------------------------------------------------------------------------------------------------------------
Net Interest Income:
Net interest income...................................................... 458,102 403,938 375,949
Provision for loan losses (Notes 1 and 4)................................ 825 11,684 30,277
-----------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Loan Losses...................... 457,277 392,254 345,672
-----------------------------------------------------------------------------------------------------------------
Noninterest Income:
Service charges on deposit accounts...................................... 62,211 55,865 51,505
Other service charges, collections, commissions, and fees................ 27,544 24,654 21,154
Bankcard servicing fees & third-party processing fees.................... 30,234 33,083 27,411
Fiduciary (trust) commissions & fees..................................... 20,706 18,980 18,176
Insurance commissions & fees............................................. 12,631 9,953 8,719
Servicing fees on loans sold............................................. 20,922 6,566 6,074
Gain on sales of loans & servicing rights (Note 4)....................... 21,046 17,113 11,857
Securities gains (losses) (Notes 1 and 3)................................ (1,330) 730 859
Trading account securities losses (Notes 1, 3, and 10)................... (2,386) (4,856) (7,355)
Other.................................................................... 15,043 5,071 5,636
-----------------------------------------------------------------------------------------------------------------
Total Noninterest Income................................................. 206,621 167,159 144,036
-----------------------------------------------------------------------------------------------------------------
Total Income............................................................. 663,898 559,413 489,708
-----------------------------------------------------------------------------------------------------------------
Noninterest Expenses:
Salaries and employee benefits (Note 12)................................. 222,895 175,696 160,982
Net occupancy (Note 5)................................................... 25,874 24,224 19,373
Furniture and equipment.................................................. 30,987 27,858 26,549
Stationery and supplies.................................................. 16,336 15,956 12,865
Amortization of intangibles (Notes 1, 4, and 14)......................... 15,865 3,312 2,695
Advertising.............................................................. 9,039 9,187 6,363
Telephone................................................................ 11,834 8,610 7,344
Provision for (recovery of) loss on other real estate
and expenses (Note 1).................................................... (6,543) 8,639 11,110
Insurance................................................................ 23,454 19,697 18,868
Bankcard interbank exchange.............................................. 16,301 13,983 11,245
Other.................................................................... 76,679 78,984 62,062
-----------------------------------------------------------------------------------------------------------------
Total Noninterest Expenses............................................... 442,721 386,146 339,456
-----------------------------------------------------------------------------------------------------------------
Income before income tax provision....................................... 221,177 173,267 150,252
Provision for income taxes (including tax effect of securities
transactions of $(497), $274, and $187) (Notes 1 and 8)................. 81,043 59,211 49,909
-----------------------------------------------------------------------------------------------------------------
Net Income:
Net Income............................................................... 140,134 114,056 100,343
Dividend requirement of preferred stock (Note 1)......................... 39 43 48
-----------------------------------------------------------------------------------------------------------------
Net Income Applicable to Common Stock.................................... $140,095 $114,013 $100,295
=================================================================================================================
Earnings Per Common Share Assuming No Dilution (Note 1).................. $2.81 $2.38 $2.17
-----------------------------------------------------------------------------------------------------------------
Earnings Per Common Share Assuming Full Dilution (Note 1)................ $2.80 $2.38 $2.16
=================================================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Net
Unrealized
Loss on
For the years ended Securities
December 31, 1992, 1993, and 1994 Common Available
(in thousands, Preferred Common Paid-In Retained Treasury for Sale
except for per share amounts) Total Stock Stock Surplus Earnings Stock (Net of Taxes)
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1992................. $635,173 $ 849 $ 56,118 $ 88,086 $498,665 $ (8,545)
Net income for the year.................. 100,343 100,343
Sale of common stock
through dividend reinvestment
and common stock purchase plan
(Note 11)............................... 1,293 72 1,221
Sale of stock to employee
benefit plans (Note 11)................. 11,260 3,703 7,557
Common stock issued for
acquisitions (Notes 11 and 14).......... 6,547 1,498 5,075 (26)
Cash dividends:
Preferred stock -- $3.15 per share...... (48) (48)
Common stock -- $0.68 per share......... (26,000) (26,000)
Conversion of preferred stock to
common.................................. (1) (66) 19 46
Purchase of treasury stock............... (6,593) (6,593)
Other.................................... 473 (3) 591 (115)
------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1992............... 722,447 783 57,704 98,722 572,845 (7,607)
------------------------------------------------------------------------------------------------------------------------------------
Net income for the year.................. 114,056 114,056
Sale of common stock
through dividend reinvestment
and common stock purchase plan
(Note 11)............................... 1,815 83 1,732
Sale of stock to employee
benefit plans (Note 11)................. 7,306 293 3,152 3,861
Common stock issued for
acquisitions (Notes 11 and 14).......... 27,869 2,818 15,779 9,358 (86)
Cash dividends:
Preferred stock -- $3.15 per share...... (43) (43)
Common stock -- $0.88 per share......... (38,595) (38,595)
Conversion of preferred stock to common.. (1) (80) 23 56
Purchase of treasury stock............... (2,118) (2,118)
Other.................................... 2,995 62 3,108 (175)
------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993............... 835,731 703 60,983 122,549 657,446 (5,950)
------------------------------------------------------------------------------------------------------------------------------------
Net income for the year.................. 140,134 140,134
Sale of common stock
through dividend reinvestment
and common stock purchase plan
(Note 11)............................... 2,182 96 2,086
Sales of stock to employee
benefit plans (Note 11)................. 8,138 293 2,667 5,178
Common stock issued for
acquisitions (Notes 11 and 14).......... 26,428 1,052 13,765 11,611
Cash dividends:
Preferred stock -- $3.15 per share...... (39) (39)
Common stock -- $1.04 per share......... (51,087) (51,087)
Conversion of preferred stock to
common.................................. (74) 22 52
Purchase of treasury stock............... (19,481) (19,481)
Net unrealized loss on securities
available for sale (net of taxes)
(Notes 1, 3, and 8).................... (54,341) $(54,341)
Other.................................... 1,809 1,809
------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994............... $889,474 $ 629 $ 62,446 $142,928 $746,454 $ (8,642) $(54,341)
====================================================================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1994, 1993, and 1992
(in thousands, except for number of shares) 1994 1993 1992
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income....................................................................... $ 140,134 $ 114,056 $ 100,343
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Provision for loan losses...................................................... 825 11,684 30,277
Provision for (recovery of) loss on other real estate.......................... (6,764) 7,448 6,903
Provision for depreciation and amortization.................................... 38,132 26,281 19,531
Provision for deferred income taxes............................................ 27,010 7,116 15,401
Net change in deferred loan origination fees and costs......................... (4,802) (3,875) (3,900)
Net amortization of investment security discounts and premiums................. 9,277 3,598 1,936
Proceeds from sales of mortgage loans held for sale............................ 2,117,121 976,999 828,787
Origination of mortgage loans held for sale.................................... (1,434,368) (976,999) (828,787)
Investment securities (gains) losses........................................... 1,330 (730) (859)
Net realized gains on sold loans............................................... (10,778) (19,145) (12,813)
Decrease (increase) in trading account securities.............................. 54,028 (218,893) (75,031)
Decrease (increase) in accrued income receivable............................... (31,329) 3,829 3,661
Increase (decrease) in accrued interest payable................................ 8,981 (601) (8,231)
Increase (decrease) in accrued income taxes.................................... 3,223 (7,596) 1,203
Other operating activities..................................................... (51,130) (22,265) (21,955)
---------------------------------------------------------------------------------------------------------------------------
Net Cash Provided By (Used In) Operating Activities.............................. 860,890 (99,093) 56,466
---------------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Proceeds from sales of securities available for sale............................. 666,185
Proceeds from sales of securities held to maturity............................... 2,310 43,290
Redemption of matured securities available for sale.............................. 488,487
Redemption of matured securities held to maturity................................ 96,183 1,489,247 960,718
Purchases of securities available for sale....................................... (1,676,979)
Purchases of securities held to maturity......................................... (81,451) (1,404,115) (1,135,988)
Net (increase) decrease in interest-bearing deposits in other banks.............. 14,876 (6,425) 2,140
Net increase in loans and leases................................................. (2,029,122) (739,484) (144,578)
Purchase of premises and equipment............................................... (55,527) (15,662) (27,039)
Proceeds from sales of other real estate......................................... 30,276 7,373 24,848
Payments to improve other real estate............................................ (2,055) (2,213) (1,097)
Net cash (paid for) received from acquisitions (Note 14)......................... (89,549) 54,108 47,319
---------------------------------------------------------------------------------------------------------------------------
Net Cash Used In Investing Activities............................................ (2,638,676) (614,861) (230,387)
---------------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Net increase in deposits......................................................... 347,646 267,813 128,823
Net increase in Federal funds purchased and securities sold under repurchase
agreements and U.S. Treasury demand notes....................................... 763,385 448,747 126,044
Proceeds from issuance of nonrecourse debt on leveraged leases................... 40,378 70,244 66,882
Payments on nonrecourse debt on leveraged leases................................. (30,802) (29,350) (26,747)
Proceeds from issuance of long-term debt and short-term borrowings............... 624,925 140,190 107,211
Payments on long-term debt and short-term borrowings............................. (240,586) (1,403) (99,599)
Proceeds from issuance of common stock and sales of treasury stock............... 10,320 9,121 12,553
Purchases of treasury stock...................................................... (19,481) (2,118) (6,593)
Dividends paid................................................................... (51,126) (38,638) (26,048)
---------------------------------------------------------------------------------------------------------------------------
Net Cash Provided By Financing Activities........................................ 1,444,659 864,606 282,526
---------------------------------------------------------------------------------------------------------------------------
Net Increase in Cash and Cash Equivalents (Note 1)............................... (333,127) 150,652 108,605
Cash and Cash Equivalents, Beginning of Year..................................... 1,055,031 904,379 795,774
---------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Year........................................... $ 721,904 $ 1,055,031 $ 904,379
============================================================================================================================
</TABLE>
(continued)
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the years ended December 31, 1994, 1993, and 1992
(in thousands, except for number of shares) 1994 1993 1992
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest............................................ $ 305,135 $241,395 $ 290,552
==================================================================================================
Income taxes........................................ $ 56,123 $ 47,878 $ 35,059
==================================================================================================
Supplemental Schedule of
Noncash Investing and Financing Activities:
Conversion of 1,419, 1,523, and 1,259 shares
of convertible preferred stock into 17,215,
18,483, and 15,297 shares of common stock,
respectively....................................... $ 74 $ 80 $ 66
==================================================================================================
Transfer of loans to other real estate............... $ 8,100 $ 11,085 $ 28,002
==================================================================================================
Securities transferred from held to maturity
to available for sale in conjunction with
adoption of SFAS No. 115........................... $1,417,217
==================================================================================================
Net unrealized loss on securities available
for sale net of deferred taxes of $32,270
(included in stockholders' equity)................. $ (54,341)
==================================================================================================
</TABLE>
In 1994, 1,322,061 shares of common stock were issued and $137,291,000 cash
was paid for the acquisitions of Equality State Bank, CrossLand Mortgage
Acquisition Corp., Community First Bank, American Ban Corporation, and Star
Valley State Bank. The Corporation acquired assets of approximately $584,103,000
and assumed liabilities of approximately $420,385,000 (Note 14).
In 1993, 2,255,000 shares of common stock were issued for the acquisitions of
Dixie State Bank, Benton County Bank, Nevada Community Bank, State Bank of Green
River, and Continental Bancorporation. The Corporation acquired assets of
approximately $404,062,000 and assumed liabilities of approximately $376,344,000
(Note 14).
In 1992, 1,125,000 shares of common stock were issued for the acquisition of
First National Bank of North Idaho (FNBNI). The Corporation acquired FNBNI's
assets of approximately $167,500,000 and assumed liabilities of approximately
$161,065,000 (Note 14). The Bank of Willamette Valley (BWV) was acquired for
cash of $5,481,000. The Corporation acquired BWV's assets of approximately
$27,319,000 and assumed liabilities of approximately $24,515,000 (Note 14).
See notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
Summary Of Significant Accounting And Reporting Policies
First Security Corporation (the Corporation), a bank holding company, provides a
full range of financial services to individual and corporate customers through
its bank and nonbank subsidiaries and their branches in Utah, Idaho, New Mexico,
Oregon, Nevada, and Wyoming. The Corporation and its subsidiaries are subject to
competition from other financial institutions and to the regulations of certain
Federal agencies and undergo periodic examinations by those agencies.
Basis of Financial Statement Presentation: The consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
and with general practice within the banking industry. In preparing such
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of the
balance sheet and revenues and expenses for the period. Actual results could
differ significantly from those estimates. Material estimates that are
particularly susceptible to significant change relate to the determination of
the reserve for loan losses and the valuation of real estate acquired in
connection with foreclosures or in satisfaction of loans. In connection with the
determination of the reserve for loan losses and the valuation of real estate
owned, management obtains independent appraisals for significant properties.
Consolidation: The consolidated financial statements include the accounts of the
Corporation and its subsidiaries. All significant intercompany accounts and
transactions are eliminated in consolidation. The consolidated financial
statements are restated to include the financial statements of companies
acquired and accounted for using the pooling of interests method. The
Corporation's results of operations of insignificant companies acquired using
the pooling of interests method and the results of operations of companies which
were acquired and subject to purchase accounting are included from the dates of
acquisition. In accordance with the purchase method of accounting, the assets
and liabilities of purchased companies are stated at estimated fair values at
the date of acquisition, and the excess of cost over fair value of net assets
acquired is amortized on the straight-line basis over 5 to 15 years.
Federal Funds Sold and Securities Purchased Under Resale Agreements: Federal
funds sold are unsecured short-term investments entered into with other
financial institutions. Securities purchased under resale agreements are short-
term investments. The Corporation's subsidiaries generally hold the securities
as collateral during the term of the investment.
Trading, Available for Sale, and Held to Maturity Securities (See Note 3): On
January 1, 1994, the Corporation and its subsidiaries adopted Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". SFAS No. 115 requires the
classification of investment securities as either trading securities, securities
available for sale, or securities held to maturity. Trading securities are
carried at fair value with net unrealized gains or losses included in earnings
during the period. Securities available for sale are carried at fair value with
net unrealized gains or losses (net of taxes) excluded from income and reported
as a separate component of stockholders' equity. Securities held to maturity are
reported at amortized cost, based on management's positive intent and the
Corporation's and its subsidiaries' ability to hold such securities to maturity.
Gains or losses are determined on the specific identification method. Upon
adoption of SFAS No. 115, the Corporation and its subsidiaries reclassified
$1,417,217,000 of securities as available for sale to reflect the Corporation's
holding strategy under such statement. The adoption of SFAS No. 115 on January
1, 1994 resulted in an increase in the carrying value of securities of
approximately $13,984,000, with corresponding increases in stockholders' equity
and deferred income tax liabilities of approximately $8,887,000 and $5,097,000,
respectively.
Mortgage Banking Activities: The Company originates mortgage loans for sale in
the secondary market. Mortgage loans held for sale are carried at the lower of
cost or estimated market value determined on a net aggregate basis. Purchased
mortgage servicing rights are capitalized and amortized in proportion to and
over the period of estimated net servicing income from the related mortgage
loans.
Lease Financing (See Note 4): Certain of the Corporation's subsidiaries lease
various types of equipment to customers under both leveraged and nonleveraged
arrangements. For leveraged leases, a significant part of the cost of the
equipment is financed by other institutional lenders who depend on the related
lease and equipment as collateral for their loans, with no recourse to the
subsidiaries. The investment in lease financing consists principally of rentals
receivable and estimated residual values, less related unearned income. Unearned
income is amortized into income so as to produce a constant periodic rate of
return on the unrecovered investment. Investment tax credits on lease financing
equipment are deferred and amortized to income over the investment recovery
period.
Reserve for Loan Losses (See Note 4): The reserve for loan losses is established
to absorb known and inherent losses primarily resulting from outstanding loans
and leases, commitments to extend credit, standby letters of credit, and other
guarantees. Reserve for loan losses on consumer, credit card, residential
mortgage, leases, and other loans with similar characteristics is established on
the respective loan portfolio based on historical loss experience considering
current and anticipated economic conditions. Reserve for loan losses on
commercial, commercial real estate, construction loans, and loan commitments are
evaluated on both a specific loan basis and historical loss experience
considering the credit quality, collateral, financial strength of the borrower
and current economic conditions. Losses and recoveries are charged or credited
directly to the reserve. The provision for loan losses charged to expense is an
amount which, in management's judgment, is sufficient to maintain the balance in
the reserve at an adequate level. While management uses the best information
available on which to base estimates, future adjustments to the reserve may be
necessary if economic conditions, particularly in the Corporation's markets,
differ substantially from the assumptions used by management.
Premises and Equipment (See Note 5): Premises and equipment are stated at cost
less accumulated depreciation and amortization. Depreciation and amortization
included in noninterest expenses are computed using accelerated and straight-
line methods over the estimated useful lives of the related assets.
Other Real Estate and Other Foreclosed Assets: Other real estate and other
foreclosed assets are carried at the lower of cost or fair value less estimated
selling costs.
Securities Sold Under Repurchase Agreements: Securities sold under agreements to
repurchase are accounted for as financing transactions and are recorded at the
amount at which the securities will be reacquired, including accrued interest.
Collateralization limits, based on market values, generally range from 100% to
105%, depending on maturity.
Derivative Financial Instruments: The Corporation enters into a variety of
derivative financial instruments as part of its interest rate risk management
and in its trading activities. Derivatives used in trading activities such as
financial futures and options contracts are marked to market. Any changes in the
market value are recognized in income at the time the changes occur. Interest
rate swaps, caps, and corridors are used in the Corporation's interest rate risk
management activities and are classified as hedges or matched transactions. For
matched transactions, net periodic settlement amounts are recognized in income
currently. For those classified as hedges, the derivative is marked to market
with the gains and losses deferred and amortized as a yield adjustment over the
life of the underlying assets or liabilities. Premiums paid are deferred and
amortized over the life of the agreement on a straight-line basis.
Income Taxes (See Note 8): The Corporation has recorded in its consolidated
balance sheets net deferred tax liabilities for the expected future tax
consequences of events that have been recognized in different periods for
financial statement purposes than for income tax purposes. The effect on
deferred taxes of a change in rates is recognized in income in the period that
includes the enactment date.
Interest and Fees on Loans: Accrual of interest on a loan is discontinued when
the borrower has defaulted for a period of 90 days or more in the payment of
principal or interest, or both, unless the loan is well-secured and in the
process of collection. Loan origination fees and certain loan origination costs
are deferred and recognized over the lives of the related loans as an adjustment
of the yield.
Consolidated Statements of Cash Flows: For purposes of reporting cash flows,
cash and cash equivalents include cash and due from banks as well as Federal
funds sold and securities purchased under resale agreements.
Earnings Per Common Share: Earnings per common share are based on the following
weighted average number of shares outstanding (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
-------------------------------------------------------
<S> <C> <C> <C>
Assuming no dilution....... 49,927 47,852 46,330
Assuming full dilution..... 50,084 48,020 46,520
-------------------------------------------------------
</TABLE>
Earnings per common share assuming no dilution are based on the weighted
average number of shares outstanding, net income after deducting the dividend
requirement on preferred stock, and the effect, if dilutive, of stock options
outstanding using the treasury stock method.
Earnings per common share assuming full dilution are computed assuming all
outstanding preferred stock (see Note 11) is converted into common shares on the
basis of 12.15 shares of common for each share of preferred with the elimination
of dividends on the preferred stock, except in those years where the effect of
such conversion is antidilutive, and, the effect of stock options outstanding
using the treasury stock method.
Reclassifications: Certain reclassifications to the 1993 and 1992 amounts
have been made to conform to the 1994 classifications.
NOTE 2
Cash And Due From Banks
The Federal Reserve requires the Corporation's national banking subsidiaries
to maintain certain average reserve balances with the Federal Reserve or through
approved correspondent banks. For the years ended December 31, 1994 and 1993,
the required average reserve balances were approximately $107,264,000 and
$105,630,000, respectively.
NOTE 3
Trading, Available For Sale, And Held To Maturity Securities
The amortized cost and fair value of securities were as follows (in thousands):
<TABLE>
<CAPTION>
Available For Sale Gross Gross Estimated
Amortized Unrealized Unrealized Fair
As of December 31, 1994: Cost Gains Losses Value
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Debt Securities issued by
U.S. Treasury & other
U.S. Government
agencies & corporations..... $ 793,508 $ 485 $(14,357) $ 779,636
Corporate debt securities.... 3,498 3 (270) 3,231
Mortgage-backed securities... 1,230,042 320 (76,665) 1,153,697
Equity securities............ 53,360 4,244 (371) 57,233
----------------------------------------------------------------------------
Totals....................... $2,080,408 $5,052 $(91,663) $1,993,797
============================================================================
Held To Maturity
As of December 31, 1994:
----------------------------------------------------------------------------
Debt Securities issued by
U.S. Treasury & other
U.S. Government
agencies & corporations..... $ 25 $ 25
Debt securities issued by
states and political
subdivisions................ 175,305 $2,058 $ (1,844) 175,519
Corporate debt securities.... 10,645 28 (267) 10,406
Mortgage-backed securities... 66,647 446 (3,072) 64,021
----------------------------------------------------------------------------
Totals....................... $ 252,622 $2,532 $ (5,183) $ 249,971
============================================================================
</TABLE>
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
As of December 31, 1993: Cost Gains Losses Value
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Debt Securities issued by
U.S. Treasury & other
U.S. Government
agencies & corporations............... $ 655,934 $11,696 $ (176) $ 667,454
Debt securities issued by
states and political
subdivisions.......................... 180,129 6,288 (94) 186,323
Corporate debt securities.............. 31,109 556 (28) 31,637
Mortgage-backed securities............. 857,836 7,388 (3,052) 862,172
Equity securities...................... 37,775 9,311 (25) 47,061
--------------------------------------------------------------------------------------------
Totals................................. $1,762,783 $35,239 $ (3,375) $1,794,647
============================================================================================
</TABLE>
The amortized cost and estimated fair value of debt securities at December
31, 1994 by contractual maturity are shown below (in thousands). Actual
maturities may differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
Available For Sale Amortized Estimated
Cost Fair Value
----------------------------------------------------------------------
<S> <C> <C>
Due in one year or less................. $ 469,854 $ 467,387
Due after one year through five years... 308,794 298,208
Due after five years through ten years.. 8,865 8,346
Due after ten years..................... 9,493 8,926
----------------------------------------------------------------------
Totals 797,006 782,867
Mortgage-backed securities.............. 1,230,042 1,153,697
Equity securities....................... 53,360 57,233
----------------------------------------------------------------------
Totals.................................. $2,080,408 $1,993,797
======================================================================
Held To Maturity
----------------------------------------------------------------------
Due in one year or less................. $ 50,608 $ 50,672
Due after one year through five years... 73,194 73,136
Due after five years through ten years.. 39,819 39,867
Due after ten years..................... 22,354 22,275
----------------------------------------------------------------------
Totals.................................. 185,975 185,950
Mortgage-backed securities.............. 66,647 64,021
----------------------------------------------------------------------
Totals.................................. $ 252,622 $ 249,971
======================================================================
</TABLE>
Proceeds, gross gains, and gross losses from sales of securities using the
specific identification method were as follows (in thousands):
<TABLE>
<CAPTION>
Available Investment Securities
For Sale 1994 1993 1992
----------------------------------------------------------------------
<S> <C> <C> <C>
Proceeds $666,185 $2,310 $43,290
======================================================================
Gross gains $ 625 $ 731 $ 912
Gross losses (1,955) (1) (53)
----------------------------------------------------------------------
Net Gains (Losses) $ (1,330) $ 730 $ 859
======================================================================
</TABLE>
The change in net unrealized holding loss on trading securities that has been
included in earnings for the year ended December 31, 1994 totaled $175,238.
There were no sales of or transfers from securities classified as held to
maturity during 1994.
Interest earned on tax exempt securities was approximately $9,466,000,
$10,501,000, and $12,486,000, respectively, for the years ended December 31,
1994, 1993, and 1992.
At December 31, 1994 and 1993, securities carried at $1,718,781,000 and
$1,659,133,000, respectively, were pledged for various purposes. In addition,
at December 31, 1994 and 1993, trading account securities totaling $551,391,000
and $337,656,000, respectively, were also pledged.
At December 31, 1994, the Corporation and its subsidiaries had available
for sale securities and held to maturity securities sold under repurchase
agreements totaling $1,346,436. The carrying value, approximate market value,
related repurchase liability, and weighted average interest rate of the
repurchase liabilities related to the securities sold under repurchase
agreements (grouped by maturity of the repurchase agreement) are as follows
(amounts in thousands):
<TABLE>
<CAPTION>
Collateralized By
------------------------------
U.S.
U.S. Government
Treasury Agency
Maturity Obligations Obligations
---------------------------------------------------------------------------
<S> <C> <C>
Overnight:
Carrying amount....................... $ 224,892 $ 815,533
Market value.......................... 224,892 813,107
Repurchase liability.................. 224,420 815,710
Weighted average interest rate........ 5.41% 5.34%
2 to 30 days:
Carrying amount....................... 80,483 3,619
Market value.......................... 80,483 3,619
Repurchase liability.................. 80,675 3,609
Weighted average interest rate........ 5.94% 5.62%
31 to 90 days:
Carrying amount....................... 1,029
Market value.......................... 1,029
Repurchase liability.................. 1,023
Weighted average interest rate........ 5.42%
Demand:
Carrying amount....................... 209,780 11,100
Market value.......................... 209,780 11,103
Repurchase liability.................. 215,751 11,106
Weighted average interest rate........ 6.13% 5.01%
---------------------------------------------------------------------------
</TABLE>
NOTE 4
Loans
Loans (net of unearned income) consisted of the following (in thousands):
<TABLE>
<CAPTION>
As of December 31, 1994 1993
--------------------------------------------------------------------------------
<S> <C> <C>
Commercial, financial, and agricultural......... $1,835,792 $1,571,400
Real estate secured:
Commercial..................................... 899,493 779,222
Residential.................................... 1,919,558 1,520,171
Construction................................... 323,370 244,087
Consumer........................................ 2,853,948 2,170,288
Leases.......................................... 341,517 275,853
---------------------------------------------------============================
Totals.......................................... $8,173,678 $6,561,021
---------------------------------------------------============================
</TABLE>
Included in residential real estate loans are approximately $168,961,000 of
mortgage loans held for sale as of December 31, 1994.
At December 31, 1994 and 1993, loans carried at approximately $546,209,000
and $301,933,000, respectively, were pledged for various purposes.
Included in loans were loans to directors, executive officers, and to their
associates as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
----------------------------------------------------
<S> <C> <C>
Balance, January 1....... $ 7,182 $ 9,161
Additions................ 47,780 110
Repayments............... (324) (2,089)
----------------------------------------------------
Balance, December 31..... $54,638 $ 7,182
----------------------------------------------------
</TABLE>
None of the above loans to directors, executive officers, and to their
associates as of December 31, 1994 and 1993 were nonaccruing, were past due, or
had been restructured.
Concentrations of Credit Risk: Most of the Corporation's lending activity is
with customers located in the Western United States. An economic downturn in the
Western United States would likely have a negative impact on the Corporation's
results of operations depending on the severity of the downturn. The Corporation
maintains a diversified portfolio and does not have significant on- or off-
balance-sheet concentrations of credit risk in any one industry.
Lease financing consisted of the following (in thousands):
<TABLE>
<CAPTION>
As of December 31, 1994 1993
---------------------------------------------------------------------------
<S> <C> <C>
Leveraged leases................................. $223,774 $192,883
Nonleveraged leases.............................. 115,790 82,230
Assets held for sale or lease.................... 1,953 740
---------------------------------------------------------------------------
Totals $341,517 $275,853
-------------------------------------------------==========================
</TABLE>
Changes in the reserve for loan losses were as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
--------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1............................ $134,848 $127,847 $126,887
Provision charged to expense.................. 825 11,684 30,277
Reserves acquired through
acquisitions (Note 14)....................... 5,274 7,182 3,514
Loans charged off, net of recoveries of
$30,700, $28,602, and $19,567, respectively.. (7,092) (11,865) (32,831)
--------------------------------------------------------------------------------------------
Balance, December 31 $133,855 $134,848 $127,847
------------------------------------------------============================================
</TABLE>
Loans at December 31, 1994 and 1993 included $23,868,000 and $36,354,000,
respectively, of loans on which interest was not being accrued. The effect on
interest income of such nonperforming loans was as follows (in thousands):
<TABLE>
<CAPTION>
For the years ended December 31, 1994 1993 1992
------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest that would have been recorded
if the loans had been current in
accordance with their stated terms:
Nonaccruing loans............................ $1,994 $2,333 $6,450
Renegotiated loans........................... NONE 111 None
Interest actually recognized:
Nonaccruing loans............................ 2,264 679 1,016
Renegotiated loans........................... NONE 87 None
------------------------------------------------===============================
</TABLE>
Mortgage Banking Activities: At December 31, 1994 and 1993, the Corporation's
subsidiaries were servicing 102,600 and 24,845 mortgage loans owned by
investors, aggregating $8,850,711,000 and $1,862,488,000, respectively, of which
$389,053,000 were subserviced as of December 31, 1994. The amount of loan
principal that was delinquent on serviced loans at December 31, 1994 was
approximately $217,810,000. Related trust funds were on deposit with the
Corporation's subsidiary banks at December 31, 1994. In connection with its loan
administration activities, the Corporation makes certain payments of property
taxes and insurance premiums in advance of collecting them from specific
mortgagors. The advances were approximately $4,003,000 at December 31, 1994.
As discussed in Note 14, in April 1994 the Corporation acquired CrossLand
Mortgage Acquisition Corp. in a purchase business combination. The acquisition
created purchased mortgage servicing rights of $63,854,000. Approximately
$8,663,000 of the purchased mortgage servicing rights were amortized during
1994
NOTE 5
Premises and Equipment
Premises and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
As of December 31, 1994 1993
-----------------------------------------------------------------------------
<S> <C> <C>
Land.......................................... $ 30,554 $ 25,790
Buildings and improvements.................... 130,992 117,331
Equipment..................................... 191,203 160,062
Leasehold improvements........................ 14,116 12,283
Construction in progress...................... 13,348 2,051
-----------------------------------------------------------------------------
Totals 380,213 317,517
Accumulated depreciation and amortization..... (191,795) (171,799)
-----------------------------------------------------------------------------
Net $ 188,418 $ 145,718
---------------------------------------------------==========================
</TABLE>
The executive offices of the Corporation are located in an owned facility in
Salt Lake City, Utah. In addition, other office buildings are owned in Salt Lake
City, Utah, Boise, Idaho, and Albuquerque, New Mexico.
At December 31, 1994, a total of 168 bank offices are in owned buildings, with
the remaining 93 bank offices located in facilities leased under operating
leases with terms ranging from 1 to 31 years and renewal options ranging from 1
to 30 years. Offices of the nonbank subsidiaries are almost all located in owned
quarters.
At December 31, 1994, future minimum lease payments by year related to operating
leases for premises and equipment were as follows (in thousands):
<TABLE>
<S> <C>
1995.................................. $12,635
1996.................................. 10,419
1997.................................. 6,898
1998.................................. 5,386
1999.................................. 4,933
Thereafter............................ 15,928
----------------------------------------------------
Total................................. $56,199
-------------------------------------------=========
</TABLE>
Total rent expense under all operating leases for 1994, 1993, and 1992
approximated $15,254,000, $11,836,000, and $12,075,000, respectively.
NOTE 6
Deposits
Deposits consisted of the following (in thousands):
<TABLE>
<CAPTION>
As of December 31, 1994 1993
-------------------------------------------------------------------------------------
<S> <C> <C>
Noninterest-bearing demand deposit accounts.......... $1,719,388 $1,697,687
Savings and NOW accounts............................. 2,375,909 2,373,265
Money market accounts................................ 1,152,960 1,103,855
Time certificates of deposit less than $100,000...... 2,251,706 1,946,054
Time certificates of deposit of $100,000 or more..... 553,381 382,846
-------------------------------------------------------------------------------------
Totals............................................... $8,053,344 $7,503,707
----------------------------------------------------------===========================
</TABLE>
NOTE 7
Lines of Credit
The Corporation had $100,000,000 in lines of credit at December 31, 1994 and
1993, respectively. At December 31, 1994, $60,000,000 of the lines expire at
various dates through 1995, $30,000,000 expire in 1996, and $10,000,000 have no
set expiration date. The lines were unsecured and bore interest generally at
various calculated rates or at the prime rates of the lending institutions.
There were no borrowings under the lines of credit during 1994 or 1993.
NOTE 8
Income Taxes
Accrued income taxes consisted of the following (in thousands):
<TABLE>
<CAPTION>
As of December 31, 1994 1993
-------------------------------------------------
<S> <C> <C>
Current................... $ 688 $ 2,778
Deferred.................. 81,022 83,059
-------------------------------------------------
Totals.................... $81,710 $85,837
----------------------------=====================
</TABLE>
The income tax provisions consisted of the following components (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
----------------------------------------------------
<S> <C> <C> <C>
Current:
Federal.......... $48,555 $46,525 $30,389
State............ 5,478 5,570 4,119
----------------------------------------------------
Subtotals......... 54,033 52,095 34,508
----------------------------------------------------
Deferred:
Federal.......... 23,280 4,774 14,376
State............ 3,730 2,342 1,025
----------------------------------------------------
Subtotals......... 27,010 7,116 15,401
----------------------------------------------------
Totals............ $81,043 $59,211 $49,909
-------------------=================================
</TABLE>
The tax provisions were at effective rates as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-----------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Federal income tax rate.................. 35.0% 35.0% 34.0%
Change in rate resulting from:
Tax-exempt state and municipal
bond income................................. (1.8) (2.2) (2.9)
Investment tax credit amortization
on leases................................... (.4)
State income taxes, net of U.S. Federal
income tax benefit.......................... 2.5 3.0 2.6
Miscellaneous items.......................... .9 (1.6) (.1)
-----------------------------------------------------------------------------
Effective Tax Rates........................... 36.6% 34.2% 33.2%
------------------------------------------------=============================
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of deferred tax assets and deferred tax liabilities are as follows (in
thousands):
<TABLE>
<CAPTION>
As of December 31, 1994 1993
--------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Loan loss reserve................................... $ 48,286 $ 49,809
Other real estate................................... 1,832 5,091
Other reserves...................................... 803 2,760
Deferred loan fees.................................. 1,918
Deferred income..................................... 5,607 1,298
Nonaccrual interest................................. 318 799
Other postretirement benefits....................... 585 400
Safe harbor leases.................................. 450 553
Fair value adjustments in investment securities
available for sale................................. 32,270
Operating loss carryforward......................... 132
Energy credit carryforward.......................... 503
Other............................................... 105 722
--------------------------------------------------------------------------------
Total Deferred Tax Assets............................ 90,256 63,985
--------------------------------------------------------------------------------
Liabilities:
Leasing operations.................................. 157,032 138,158
Depreciation........................................ 5,972 4,873
Core deposit intangibles............................ 1,791
Pension plan contributions.......................... 118 1,529
FHLB stock dividends................................ 3,163 1,994
Deferred loan fees.................................. 2,357
Other............................................... 845 490
--------------------------------------------------------------------------------
Total Deferred Tax Liabilities....................... 171,278 147,044
--------------------------------------------------------------------------------
Net Deferred Tax Liability........................... $ 81,022 $ 83,059
----------------------------------------------------------======================
</TABLE>
During 1993, the Omnibus Budget Reconciliation Act of 1994 increased the Federal
corporate income tax rate to 35%. The total provision for 1993 includes
$1,552,000 related to the effect of the tax rate increase on net deferred tax
liabilities at December 31, 1993.
NOTE 9
Long-Term Debt
The details of long-term debt, including related short-term maturities, were
as follows (in thousands):
<TABLE>
<CAPTION>
As of December 31, 1994 1993
-----------------------------------------------------------------------------------
<S> <C> <C>
Parent company:
Floating rate notes due 1999....................... $ 7,475 $ 7,910
Medium-term notes due 1996-2003.................... 50,000 31,250
7.50% notes due 2002............................... 75,000 75,000
Senior notes due 1999.............................. 100,000
Subsidiaries:
Bank............................................... 602,170 137,221
Nonbank............................................ 1,775 1,155
-----------------------------------------------------------------------------------
Totals.............................................. 836,420 252,536
Less current maturities included in other
short-term borrowings.............................. (150,994) (27,700)
-----------------------------------------------------------------------------------
Long-term Portion................................... $ 685,426 $224,836
----------------------------------------------------------=========================
</TABLE>
Floating Rate Notes Due 1999: The interest rate of these notes is the higher of
1.25% above the defined U.S. Treasury Bill rate or a rate as determined by the
Corporation. Interest rates during the three years ended December 31, 1994 have
ranged from 4.2% to 6.7% and at December 31, 1994 was 5.8%. The notes are
redeemable at the option of the holder at par on any March l or September l and
are subject to redemption at any time by the Corporation at par.
Medium-Term Notes Due 1996-2003: Senior medium-term notes of $50,000,000 are
unsecured and bear interest at fixed rates ranging from 6.08% to 9.07% with a
weighted average coupon of 7.28%. The notes mature from 1996 to 2003 with
interest payable semi-annually at the stated rate on February 19 and August 19
of each year. Terms of the notes restrict, among other things, the ability of
the Corporation to reduce its ownership in any of its major constituent banks.
7.50% Notes Due 2002: Subordinated notes of $75,000,000 are unsecured, with
interest payable semi-annually at the stated rate on February 15 and August 15
of each year. The notes are payable at maturity in September 2002 and are not
subject to prepayment.
Senior Notes Due 1999: During 1994, the Corporation filed a $300,000,000 debt
shelf registration statement and issued $100,000,000 of senior notes under the
shelf registration statement with interest and principal payable semi-annually
on April 15 and October 15 through 1999. The notes are unsecured and bear
interest at a fixed rate of 7.875%.
Subsidiaries: Long-term debt of the subsidiaries consisted of approximately
$306,250,000 of advances from the Federal Home Loan Bank which are
collateralized primarily by mortgage loans, bear interest at rates generally
ranging from 3.00% to 6.16%, and are payable principally through April 2000.
During 1994, subsidiary banks issued $294,250,000 of bank notes with interest
rates of 6.88% to 8.01%, and are payable principally through October 1997. The
remaining $3,445,000 relates to miscellaneous notes payable at various rates and
maturities.
Scheduled maturities of long-term debt by year were as follows as of December
31, 1994 (in thousands):
<TABLE>
<CAPTION>
Parent
Company Consolidated
-----------------------------------------------
<S> <C> <C>
1995............... $150,994
1996............... $ 17,250 166,461
1997............... 193,981
1998............... 4,000 4,055
1999............... 112,475 112,657
Thereafter......... 98,750 208,272
-----------------------------------------------
Totals............. $232,475 $836,420
--------------------===========================
</TABLE>
NOTE 10
Commitments, Contingent Liabilities, And Financial Instruments With Off-Balance
Sheet Risk
At December 31, 1994 and 1993, the Corporation and its subsidiaries were
involved in various claims and litigation occurring in the ordinary course of
business. In the opinion of management or of management and its legal counsel,
potential liabilities arising from these claims, if any, will not have a
material effect on the consolidated financial statements of the Corporation and
its subsidiaries.
The Corporation and its subsidiaries are parties to financial instruments with
off-balance-sheet risk in the normal course of business. These financial
instruments include commitments to extend credit, standby letters of credit,
commitments to sell loans and leases, interest rate swaps, caps, corridors,
futures contracts, and options contracts. Those instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amounts
recognized in the consolidated balance sheets.
Loan Commitments and Letters of Credit: At December 31, 1994 and 1993,
such commitments include the following (in thousands):
<TABLE>
<CAPTION>
1994 1993
--------------------------------------------------------------------------------
<S> <C> <C>
Standby letters of credit......................... $ 202,694 $ 226,520
Undisbursed construction loans.................... 262,614 184,123
Credit card lines................................. 769,275 617,957
Other loan commitments to customers............... 1,994,586 1,541,420
Commitments to sell mortgage loans and leases..... 191,672 12,390
--------------------------------------------------------------------------------
</TABLE>
The Corporation and its subsidiaries' exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for commitments to
extend credit and standby letters of credit is represented by the contractual
amount of those instruments. The Corporation and its subsidiaries use the same
credit policies in making commitments and conditional obligations as they do for
on-balance-sheet instruments.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.
Derivative Trading Activities: The Corporation uses financial futures and option
contracts in its proprietary trading activities which include trading for
profit. The overall trading strategies of the Corporation not only include
futures and options but also include cash market securities. The Corporation's
futures and options had net gains of $6,481,000 for the year ended December 31,
1994. For the year ended December 31, 1994, total income including gains and
interest from the Corporation's overall trading activities was $31,559,000. All
trading activities including futures and options contracts are subject to the
Corporation's policies and loss limit controls. Market risk arises from changes
in interest rates.
Financial futures contracts represent commitments to purchase (asset) or
sell (liability) securities or money market instruments at a future date and at
a specified price. Futures contracts are traded on organized exchanges (exchange
traded) and are exchange guaranteed, therefore, minimizing the Corporation's
credit risk. The net change in the futures contract value is settled daily in
cash with the exchanges. Net gains or losses resulting from the Corporation's
daily settlements are included with trading account securities gains (losses) in
the consolidated statements of income.
Options contracts grant the buyer the right, but not the obligation, to purchase
or sell at a specified price, a stated number of units of an underlying
financial instrument, at a future date. Options contracts are exchange traded.
The price of an option contract is equal to the premium paid by the purchaser
and is significantly less than the contract or notional amount. Option contracts
are marked to market monthly with net gains or losses recognized currently in
trading account securities gains (losses) in the consolidated statements of
income. Cash is exchanged with the counterparties on the option contracts'
settlement date.
Financial futures contracts and option contracts as of December 31, 1994 were as
follows (in thousands):
<TABLE>
<CAPTION>
Contract Average Assessed Dollar
Amount Fair Value Fair Value Net Value of Risk
At Year At Year for the Gains At Year End (3)
End (1) End (2) Year (2) (Losses) (Unaudited)
<S> <C> <C> <C> <C> <C>
---------------------------------------------------------------------------------------------------------------------
Assets (Long Position):
Financial futures contracts $6,248,000 $ 13 $ (7) $(2,613) $54
Options contracts 351,000 221 105 221 20
---------------------------------------------------------------------------------------------------------------------
Total Assets $6,599,000 $ 234 $ 98 $(2,392) $74
---------------------------------------==============================================================================
Liabilities (Short Position):
Financial futures contracts $4,922,000 $ (81) $ 22 $ 7,896 $54
Options contracts 3,686,000 (588) 150 977 3
---------------------------------------------------------------------------------------------------------------------
Total Liabilities $8,608,000 $(669) $172 $ 8,873 $57
---------------------------------------==============================================================================
</TABLE>
(1)Contract (notional) amounts of futures and options contracts do not
represent amounts exchanged by the parties and, thus, are not a measure
of the Corporation's exposure through its use of futures and options
contracts. The amounts exchanged are determined by reference to the
notional amounts and the other terms of the futures and options
contracts.
(2)The fair value of futures and options contracts generally reflects the
estimated amounts that the Corporation would receive or (pay) to
terminate the contracts at the reporting date, thereby taking into
account the current unrealized gains or losses of open contracts.
(3)The assessed dollar value of risk at year end represents the estimated
amount of change in fair value of futures and options contracts with a
change in interest rates of one basis point. An increase in interest
rates generally results in a loss in the long position and a gain in the
short position. A decrease in interest rates generally results in a gain
in the long position and a loss in the short position.
Interest Rate Risk Management Activities: The Corporation uses off-balance-
sheet derivative instruments to manage volatility of net interest income. Net
interest income is generated from the Corporation's investment of interest and
noninterest bearing funding into loans, securities, and other assets. Interest
rate swaps, caps, and corridors serve as tools in the management of interest
rate risk.
The Asset/Liability Management Committees (ALCOs) within the Corporation have
established policies and procedures which govern the use of off-balance-sheet
derivative instruments. Credit approval of counterparties, pre-approval of all
transactions and regular monitoring of these positions by the ALCOs assure
prudent use of these instruments to manage interest rate risk. The Corporation
does not act as a dealer in off-balance-sheet derivative transactions, but as an
end-user. As such, the market risk arising from the use of derivatives comes
primarily from uncertainty regarding the Corporation's future balance sheet and
yield/cost structures as economic conditions and customer preferences change.
The structure of interest rates may respond in unexpected ways to economic news.
These uncertainties require ongoing monitoring and adjustment of risk positions.
Off-balance-sheet derivatives also carry credit exposure to counterparties. The
notional amount in a particular contract is not at-risk from a credit
standpoint, rather it is simply the negotiated amount upon which interest
payments are based. Credit risk arises from the potential inability of a
counterparty to meet the interest payment obligations on its transactions. The
Corporation settles in cash with its counterparties on a quarterly basis on
dates specified in each contract.
The off-balance-sheet derivative instruments in place on December 31, 1994 fall
into five categories:
Receive Fixed Interest Rate Swaps have been entered into to convert the
repricing characteristics of floating rate assets to less volatile fixed rates.
These structures allow the organization to add a dual stream of cash flows in
which the interest income received is at a fixed rate and the associated expense
varies with the level of short-term interest rates. The floating side of the
transaction is tied to the level of three-month LIBOR at the beginning or end of
each settlement period. $400 million notional amount of these swaps were added
during 1994.
Pay Fixed Interest Rate Swaps provide a mechanism to synthetically lengthen
the repricing characteristics of liabilities to effect a more stable level of
interest expense. No activity occurred in this category during 1994.
Interest Rate Corridors (LIBOR/LIBOR) are structured to provide a limited
amount of protection against increases in short-term funding rates. The
Corporation added $300 million of these in 1994, through the purchase of
interest rate caps at 4.94%, selling the protection that exceeded the LIBOR
forward rate curve (final LIBOR cap sold at 7.19%, average level over the term
of 6.34%).
Prime/LIBOR Basis Transactions lock in the spread between prime-based assets and
short-term funding costs, thereby stabilizing the net interest income realized
on the assets. Two structures are in place:
Interest Rate Corridors (Prime/LIBOR) effectively lock in a fixed spread on
prime-based assets. The Corporation has purchased a cap on three-month
LIBOR at 3.50%, and sold a cap on Prime at 6.00%. Whenever both rates are
above the cap strike levels, as they were at the end of 1994, the
Corporation realizes a fixed spread of 250 basis points on the notional
amount. No new transactions were added in 1994.
In Prime/LIBOR Interest Rate Swaps, the Corporation pays the prime rate
less a fixed spread and receives three-month LIBOR up to 5.00% through June
1995 and 6.00% through June 1996. The behavior of this structure was
expected to stabilize the spread between the yield on prime based assets
and the cost of non-specific maturity transactional deposits. No activity
occurred in this category in 1994.
Customer Transactions (principally pay fixed swaps) are negotiated to protect
the spread on certain large-dollar loans to the Corporation's customers. Any
benefit or cost arising from these transactions is offset by a corresponding
cost or benefit, respectively, in an on-balance-sheet loan. These transactions
are negotiated on a fairly regular basis in the course of business.
All of the transactions described above have fixed maturity dates and absolute
notional amounts.
The following table summarizes the terms and unrealized gains and losses of
derivative products by category as of December 31, 1994. The fixed rate or fixed
spread to a floating index has been specified for each group within the
category, where applicable. Where three-month LIBOR is used as the index for one
side of the swap, it may be expected to rise and fall as other short-term market
rates rise and fall in response to economic and monetary conditions. The
floating rate in effect on each contract depends on the level of LIBOR on the
contract's last reset date. At December 31, 1994, three-month LIBOR was 6.50%,
and the prime rate was 8.50%.
Derivative interest rate management activities as of December 31, 1994 are as
follows (in millions):
<TABLE>
<CAPTION>
Maturities Estimated
------------------------------ Fair Value
Type and Notional Amount 1995 1996 1997 At Year End
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Receive Fixed Swaps (Pay 3-month LIBOR):
$100.0 (fixed 4.06%)........................ Mar/Apr $ (0.8)
$300.0 (fixed 4.86%)........................ Feb/Mar (12.8)
$100.0 (fixed 5.75%)........................ Apr/May (2.5)
$300.0 (fixed 4.83%)........................ January (20.7)
Pay Fixed Swaps (Receive 3-month LIBOR):
$100.0 (fixed 6.46%)........................ Mar/Apr (0.1)
Interest Rate Corridors (LIBOR/LIBOR):
$300.0...................................... August 7.6
(Unamortized premium paid).................. (4.4)
Interest Rate Corridors (Prime/LIBOR):
$200.0...................................... Feb/Mar (0.1)
(Unamortized premium paid).................. (0.1)
Pay Prime Swaps (Receive 3-month LIBOR):
$100.0 (prime less 2.62%)................... June (0.7)
$110.0 (prime less 2.57%)................... June (2.8)
Customer Transaction Hedges:
$109.1...................................... Various maturities through 2004 3.8
--------------------------------------------------------------------------------------------------
Total Positions - $1,719.1................... $(33.6)
---------------------------------------------------------------------------------------===========
</TABLE>
NOTE 11
Preferred And Common Stock
A summary of the changes in shares during the three years ended December 31,
1994 follows (in thousands):
<TABLE>
<CAPTION>
Preferred Stock-
Common Stock - Series "A"
Par Value $1.25 $3.15 Cumulative
------------------------------- Convertible
Issued Held In Treasury No Par
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1, 1992............................... 44,894 957 16
Sale of common stock through dividend reinvestment
and stock purchase plan............................... 55
Purchase of treasury stock............................. 254
Conversion of preferred stock to common................ 15 (1)
Common stock issued for acquisitions (Note 14)......... 1,199
Sale of treasury stock to employee benefit plans....... (690)
--------------------------------------------------------------------------------------------------------------
Balance, December 31, 1992............................. 46,163 521 15
Sale of common stock through dividend reinvestment
and stock purchase plan............................... 66
Purchase of treasury stock............................. 76
Conversion of preferred stock to common................ 19 (2)
Common stock issued for acquisitions (Note 14)......... 2,255
Sale of treasury stock to employee benefit plans....... 234 (247)
Other.................................................. 50
Balance, December 31, 1993............................. 48,787 350 13
Sale of common stock through dividend reinvestment
and stock purchase plan............................... 77
Purchase of treasury stock............................. 683
Conversion of preferred stock to common................ 17 (1)
Common stock issued for acquisitions (Note 14)......... 842 (480)
Sale of treasury stock to employee benefit plans....... 234 (191)
--------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994............................. 49,957 362 12
----------------------------------------------------------====================================================
Shares Authorized, December 31, 1994................... 150,000 18
----------------------------------------------------------====================================================
Shares Authorized, December 31, 1993................... 150,000 18
----------------------------------------------------------====================================================
</TABLE>
The liquidating preference of Series "A", $3.15 cumulative convertible preferred
stock is $52.50 a share. At the option of the Corporation's Board of Directors,
this stock is redeemable at $52.50 a share. Series "A" preferred stock is
convertible at any time into 12.15 shares of common stock.
One or more additional series of preferred stock, with a combined maximum of
400,000 shares, may be issued with the terms thereof determinable by the Board.
A dividend reinvestment and common stock purchase plan for 1,000,000 shares was
established in 1978 to provide common shareholders a means of investing cash
dividends together with optional cash payments. Through December 31, 1994, a
total of 724,343 shares were issued pursuant to the Plan.
Conversion of all preferred stock outstanding at December 31, 1994 would require
145,521 shares of common stock.
During 1989, the Corporation's Board of Directors approved issuance of a
Stockholder Right to all common stockholders which entitles each stockholder to
buy one one-thousandth of a share of a new class of preferred stock at an
exercise price of $100 in the event a group acquires or announces a tender offer
which would result in ownership of 15% or more of the Corporation's common stock
by such group.
NOTE 12
Employee Benefit Plans
Retirement Plan: The Corporation and its subsidiaries have a retirement plan
(the Plan) which covers generally all employees with one year or more of service
of at least 1,000 hours who are at least 21 years of age. The retirement
benefits are based on years of service and the average of the employee's highest
three consecutive years of base salary with 100% vesting at 5 years of service.
The Corporation's policy is to fund the actuarially computed retirement cost
accrued. Contributions are intended to provide not only for benefits attributed
to service to date but also for those expected to be earned in the future.
The following table sets forth the Plan's funded status and amounts recognized
in the consolidated balance sheet at December 31, 1994 and 1993 (in thousands):
<TABLE>
<CAPTION>
1994 1993
----------------------------------------------------------------------------------------
<S> <C> <C>
Actuarially computed present value of benefit obligations:
accumulated benefit obligation, including vested
benefits of $65,041 and $60,709 at December 31, 1994
and 1993, respectively....................................... $ 66,204 $ 62,823
-----------------------------------------------------------------========================
Plan assets at fair value, primarily common stocks and U.S.
Government debt securities................................... $ 66,834 $ 65,742
Actuarially computed present value of benefit obligations:
projected benefit obligation for service rendered to date.... (84,568) (86,965)
Unrecognized prior service cost............................... 10,940 13,433
Unrecognized net loss from past experience different from
that assumed and effects of changes in assumptions........... 13,409 14,964
Unrecognized net assets at January 1, 1986 being
recognized over 15 years..................................... (3,230) (3,702)
-----------------------------------------------------------------------------------------
Prepaid Pension Cost Included In Other Assets................. $ 3,385 $ 3,472
-----------------------------------------------------------------========================
</TABLE>
Assumptions used in determining the projected benefit obligations as of
December 31, 1994 and 1993 were:
<TABLE>
<CAPTION>
1994 1993
-----------------------------------------------------------------------------------------
<S> <C> <C>
Discount rate................................................. 8.75% 7.50%
Rate of increase in compensation levels....................... 6.00 6.00
-----------------------------------------------------------------------------------------
</TABLE>
The net pension expense included the following components (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost for benefits earned during the period..... $ 4,757 $ 4,290 $ 3,676
Interest cost on projected benefit obligation.......... 6,814 5,986 5,236
Actual loss (return) on plan assets.................... 1,585 (982) (3,496)
Net amortization and deferral.......................... (6,869) (4,801) (3,121)
------------------------------------------------------------------------------------------------
Net Pension Expense.................................... $ 6,287 $ 4,493 $ 2,295
------------------------------------------------------------====================================
</TABLE>
Assumptions used in determining the net pension expense were:
<TABLE>
<CAPTION>
1994 1993 1992
---------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate.................................. 7.50% 8.00% 8.50%
Rate of increase in compensation levels........ 6.00 6.00 6.50
Expected long-term rate of return on assets.... 9.75 9.75 10.50
---------------------------------------------------------------------------------
</TABLE>
401(k) Savings Plans: The Corporation and its subsidiaries have several
section 401(k) contributory savings plans (the Savings Plans) in which
participation is limited to employees age 21 or older with one year of service.
Under provisions of the Savings Plans, participants may contribute up to 17% of
their pre-tax base salary subject to the "excess contribution" limitations
imposed by the tax law. An additional amount, equal to 50% of the first 6% of
the participants' compensation contributed, is contributed by the employer.
Employer contributions to the Savings Plans were approximately $3,116,000,
$2,461,000, and $1,958,000 in 1994, 1993, and 1992, respectively.
Comprehensive Management Incentive Plan: The Corporation and its subsidiaries
adopted a Comprehensive Management Incentive Plan (the Management Plan) which
amends, supersedes, and incorporates the Corporation's previous Restricted Stock
Bonus Plan and its Nonstatutory Stock Option and Stock Appreciation Rights Plan.
The Management Plan provides for the issuance of up to a total of 6,437,500
shares of the Corporation's common stock for all incentive awards under the
Management Plan which may consist of restricted awards of common stock,
nonstatutory stock options, stock appreciation rights, and incentive stock
options. However, only 787,500 shares of the Corporation's common stock may be
issued for restricted awards and performance awards as defined by the Management
Plan.
Nonstatutory stock options outstanding generally become exercisable in 25%
annual increments on each January 15, beginning with the first January 15
following the grant date, and expire after 10 years. Certain nonstatutory stock
options issued to management are exercisable at six months following the grant
date and expire after 10 years. A summary of these options follows:
<TABLE>
<CAPTION>
1994 SHARES PRICE RANGE PER SHARE
--------------------------------------------------------------------------
<S> <C> <C> <C><C>
Granted........................ 361,016 $ 24.75 - $ 30.50
Canceled....................... 55,069 8.89 - 25.75
Exercised...................... 232,547 8.89 - 25.75
Outstanding at December 31..... 2,617,740 8.89 - 25.75
Exercisable at December 31..... 1,567,510 8.89 - 25.75
1993
--------------------------------------------------------------------------
Granted........................ 402,176 24.63
Canceled....................... None
Exercised...................... 361,764 8.89 - 25.75
Outstanding at December 31..... 2,544,340 8.89 - 25.75
Exercisable at December 31..... 1,600,969 8.89 - 25.75
1992
--------------------------------------------------------------------------
Granted........................ 282,112 25.75
Canceled....................... None
Exercised...................... 463,576 8.89 - 14.00
Outstanding at December 31..... 2,503,928 8.89 - 25.75
Exercisable at December 31..... 2,008,287 8.89 - 14.00
--------------------------------------------------------------------------
</TABLE>
Employee Stock Purchase Plan: During 1994, the Corporation and its subsidiaries
adopted an Employee Stock Purchase Plan which allows eligible employees to
purchase the Corporation's common stock at fair market value through payroll
deductions without incurring brokers' fees or commissions. Under this plan, no
shares of stock were issued to employees in 1994.
Other: Certain employees of a merged subsidiary have options to purchase 1,116
shares of the Corporation's common stock under an incentive plan at prices
ranging from $4.39 to $6.27 at December 31, 1994, which expire from 1997 to
1999. During the year ended December 31, 1993, 637 shares were purchased under
the plan at $6.27 per share. No shares were purchased in 1994.
Postretirement Benefits: The Company provides certain health care, dental, and
life benefits for substantially all of its retired employees. Effective January
1, 1993, the Company adopted SFAS 106, "Employers' Accounting for Postretirement
Benefits Other than Pensions." SFAS 106 requires the Company to accrue the
estimated cost of retiree benefit payments during the years the employee
provides services. The Company previously expensed the cost of these benefits as
claims were incurred.
SFAS 106 allows recognition of the cumulative effect of the liability in the
year of the adoption or the amortization of the obligation over a period of up
to twenty years. The Company has elected to recognize this obligation of
approximately $5,600,000 over a period of twenty years. The Company's cash flows
are not affected by this Statement.
The plan's accumulated postretirement benefit obligation and reconciliation to
the balance sheets at December 31, 1994 and 1993 is presented below (in
thousands):
<TABLE>
<CAPTION>
1994 1993
---------------------------------------------------------------
<S> <C> <C>
Retirees............................... $ 4,293 $ 4,846
Fully eligible plan participants....... 489 566
Other active plan participants......... 2,357 2,516
---------------------------------------------------------------
Accumulated postretirement
benefit obligation.................... 7,139 7,928
Unrecognized net transition
obligation............................ (5,119) (5,395)
Unrecognized net loss.................. (448) (1,815)
----------------------------------------------------------------
Accrued Postretirement Benefit
Liability............................. $ 1,572 $ 718
-----------------------------------------=======================
</TABLE>
The Corporation has not funded any part of the accumulated postretirement
benefit obligation.
Net postretirement benefit cost for 1994 and 1993 consisted of the following
components (in thousands):
<TABLE>
<CAPTION>
1994 1993
----------------------------------------------------------------
<S> <C> <C>
Service cost - benefits earned
during the year....................... $ 250 $ 180
Interest cost on accumulated
postretirement benefit obligation..... 560 481
Amortization of transition
obligation............................ 350 173
----------------------------------------------------------------
Totals................................. $ 1,160 $ 834
-----------------------------------------=======================
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation as of December 31, 1994 was 11% for 1994
decreasing each successive year until it reaches 5.5% in 2005, after which it
remains constant. A one percent increase in the assumed health care cost trend
rate for each year would increase the accumulated postretirement benefit
obligation as of December 31, 1994 by approximately $0.6 million and net
postretirement benefit cost by $0.1 million for the year. The assumed discount
rate used in determining the accumulated postretirement benefit obligation was
8.75% and 7.5% at December 31, 1994 and 1993, respectively.
Postemployment Benefits: On January 1, 1994, the Corporation adopted SFAS No.
112, "Employers' Accounting for Postemployment Benefits". SFAS No. 112 requires
an accrual of benefits to be provided for former or inactive employees after
employment but before retirement, such as salary continuation, severance pay, or
health care benefits. The impact of SFAS No. 112 on the Corporation and its
subsidiaries was not material in relation to the consolidated financial
statements.
NOTE 13
Restrictions On The Transfer Of Funds
National and state banking and insurance regulations impose restrictions on the
ability of the Corporation's banking and insurance subsidiaries to transfer
funds to the Corporation in the form of loans or dividends. At December 31, 1994
and 1993, the Corporation's equity in all of its subsidiaries was $932,738,000
and $741,185,000, respectively, of which $611,928,000 and $592,775,000 were
restricted and $320,810,000 and $148,410,000 were unrestricted by such
regulations.
NOTE 14
Mergers And Acquisitions
On January 24, 1992, the Corporation issued approximately 1,125,000 shares of
its common stock in exchange for all of the outstanding common stock of First
National Bank of North Idaho (FNBNI). The assets and liabilities of FNBNI at the
date of merger were approximately $167,500,000 and $161,065,000, respectively.
The acquisition was accounted for as a pooling of interests. However, because
such amounts were not significant to the Corporation and its subsidiaries, the
results of operations of FNBNI have been included in the consolidated financial
statements of the Corporation from the date of merger forward and prior periods'
consolidated financial statements have not been restated.
On April 1, 1992, the Corporation acquired the Bank of Willamette Valley (BWV),
a one-branch bank located in Dallas, Oregon, with assets and liabilities of
approximately $27,319,000 and $24,515,000, respectively, for approximately
$5,481,000 in cash. The acquisition was accounted for using the purchase method
of accounting. The results of operations of BWV were not material and have been
included in the 1993 consolidated financial statements from the date of
acquisition.
On November 19, 1993, the Corporation issued approximately 7,346,000 shares of
its common stock in exchange for all of the outstanding common stock of First
National Financial Corporation and its subsidiary, First National Bank in
Albuquerque (collectively FNFC), a 26-branch banking operation located in
Albuquerque, New Mexico. At the date of merger, assets and liabilities of FNFC
were approximately $1,242,880,000 and $1,155,094,000, respectively. Total
interest income, net interest income, and net income of FNFC from January 1,
1993 to the date of merger were approximately $77,058,000, $50,066,000, and
$3,851,000, respectively. The merger with FNFC was accounted for as a pooling of
interests and, accordingly, during 1993 the Corporation's consolidated financial
statements for 1993 and 1992 were restated as if the Corporation and FNFC had
been combined for those years.
During 1993, the Corporation also acquired Dixie State Bank (St. George, Utah),
Benton County Bank (Corvallis, Oregon), Nevada Community Bank and Continental
Bancorporation (Las Vegas, Nevada), and State Bank of Green River (Green River,
Wyoming) in separate pooling of interests mergers by issuing a total of
2,255,000 shares of its common stock. The combined assets and liabilities of
these entities at the time of the mergers totaled $404,062,000 and $376,344,000,
respectively. Because such amounts were not significant to the Corporation and
its subsidiaries, the results of operations of these entities have been included
in the consolidated financial statements of the Corporation from the date of
merger forward and prior periods' consolidated financial statements have not
been restated. During 1993, the Corporation acquired assets of $18,996,000 and
assumed liabilities of $18,579,000 of certain branch operations from various
financial institutions for $417,000 in cash.
On May 20, 1994, the Corporation issued approximately 842,066 shares of its
common stock in exchange for all of the outstanding common stock of Community
First Bank (CFB). The assets and liabilities of CFB at the date of merger were
approximately $75,242,000 and $63,694,000, respectively. The acquisition was
accounted for as a pooling of interests. However, because such amounts were not
significant to the Corporation and its subsidiaries, the results of operations
of CFB have been included in the consolidated financial statements of the
Corporation from the date of merger forward and prior periods' consolidated
financial statements have not been restated.
During 1994, the Corporation acquired two branches of Equality State Bank
(Evanston and Lyman, Wyoming), CrossLand Mortgage Acquisition Corp. (Salt Lake
City, Utah), American BanCorporation (Boise, Idaho), and Star Valley State Bank
(Afton, Wyoming) with total assets and liabilities of approximately $508,861,000
and $356,691,000, respectively, for approximately $152,170,000 of which
approximately $137,291,000 was paid in cash and approximately $14,880,000 was
paid through the issuance of 479,995 shares of the Corporation's common stock
held in treasury. The acquisitions were accounted for using the purchase method
of accounting. The results of operations of the acquired institutions have been
included in the 1994 consolidated financial statements from the dates of
acquisition. The acquisitions created intangible assets for the Corporation of
approximately $63,850,000 in mortgage servicing rights and approximately
$105,873,000 in goodwill (principally from the CrossLand Mortgage acquisition,
see Note 4). Pro forma results of operations for 1994 and 1993 as if the
companies had combined at the beginning of the periods are not presented because
the effect was not material.
NOTE 15
Effect Of Recently Issued Financial Accounting Standards
In May 1994, the Financial Accounting Standards Board issued SFAS No. 114,
Accounting by Creditors for Impairment of a Loan, as amended by SFAS No. 118,
Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures", issued in October 1994. SFAS Nos. 114 and 118 require that an
impaired loan be valued based on the present value of expected future cash flows
or fair value of the collateral if the loan is collateral dependent. SFAS Nos.
114 and 118 are effective for fiscal years beginning January 1, 1995. The impact
of SFAS Nos. 114 and 118 on the Corporation and its subsidiaries is not expected
to be material in relation to the consolidated financial statements.
NOTE 16
Capital Requirements
Bank holding companies are currently subject to certain risk-based capital
calculation guidelines. The guidelines require an institution to maintain "Tier
1" capital, intended to be composed of tangible equity, at a minimum of 4.0% of
total assets as adjusted for risk characteristics. Tangible equity is generally
defined as the total of common and preferred equity reduced by goodwill,
deposit-based intangibles, and purchased loan servicing rights, subject to some
limitations. Risk-adjusted assets reflect the sum of all asset categories and
types, each weighted from 0% to 100% depending upon relative credit risk, plus
off-balance-sheet commitments and obligations, also weighted from 0% to 100% to
reflect relative credit risk.
Total "Tier 1" capital plus additional "Tier 2" components (primarily reserves
for loan losses and qualifying subordinated debt) must be at a minimum of 8.0%
of risk-adjusted assets. The "leverage ratio" ("Tier 1" capital to non-risk-
adjusted assets) must be equal to or greater than 3.0%, depending on each
institution's particular regulatory rating. Beginning on December 31, 1993, the
leverage ratio was increased by 100 to 200 basis points for all but the highest
rated banks.
At December 31, 1994, the Corporation and its subsidiaries' risk-adjusted "Tier
1" capital ratio was 9.84%, the total risk-adjusted "Tier 1 plus Tier 2" ratio
was 11.98%, and the leverage ratio was 6.88%. At December 31, 1993, the "Tier 1"
ratio was 11.82%, the "Tier 1 plus Tier 2" ratio was 14.15%, and the leverage
ratio was 8.08%.
NOTE 17
Estimated Fair Value Of Financial Instruments
The estimated fair value of a financial instrument is the amount at which
instrument could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale. In the case of cash and short-term
investments, the carrying amount is considered a reasonable estimate of fair
value. For securities, the quoted market price is used to estimate fair value.
Trading account securities are marked to market, therefore the carrying amount
is considered a reasonable estimate of fair value. The carrying amount of
deposits with no stated maturity, such as demand deposits, money markets
accounts, and savings accounts, is considered a reasonable estimate of fair
value. The carrying amounts of securities sold under repurchase agreements and
short-term borrowings are considered a reasonable estimate of fair value. The
fair value of the remainder of on-balance-sheet instruments, such as loans,
certificates of deposit, and short-term borrowings, is estimated by using a
discounted cash flow approach. The Corporation employs a modeling tool which
discounts estimated future cash flows through the projected maturity using
market discount rates that approximately reflect the credit risk, operating
cost, and interest rate risk potentially inherent in the instrument.
The estimated fair value of the Corporation's financial futures and options used
in trading activities is obtained from market quotes. The estimated fair value
of interest rate swaps, caps, and corridors are obtained from market quotes
representing the estimated amount the Corporation would receive or pay to
terminate the contracts or agreements, taking into account current interest
rates. The estimated fair value of commitments to extend credit and letters of
credit are estimated using the maximum fees currently charged to enter into
similar agreements, taking into account the remaining terms of the agreements,
the present creditworthiness of the counter-parties, and the difference between
current levels of interest rates and the committed rates.
Fair value estimates are made as of a specific point in time. Because no market
exists for a significant portion of the Corporation's financial instruments,
fair value estimates are based on judgments regarding future expected loss
experience, current economic conditions, risk characteristics of various
financial instruments, interest rate levels and other factors. These estimates
are subjective in nature and involve uncertainties and matters of judgment and
therefore cannot be determined or relied on with any degree of certainty.
Changes in assumptions could significantly affect the estimates.
A summary of the estimated fair values for the Corporation was as follows (in
thousands):
<TABLE>
<CAPTION>
1994 1993
---------------------------------------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
As of December 31, Amount Fair Value Amount Fair Value
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and short-term investments....................... $ 723,489 $ 723,489 $1,071,492 $1,071,492
Trading account securities............................ 553,826 553,826 607,854 607,854
Securities available for sale......................... 1,993,797 1,993,797
Securities held to maturity........................... 252,622 249,971 1,762,783 1,794,647
Net loans (excluding leases).......................... 7,705,415 7,644,006 6,159,972 6,291,435
---------------------------------------------------------------------------------------------------------------------
Total Financial Assets................................ $11,229,149 $11,165,089 $9,602,101 $9,765,428
-------------------------------------------------------==============================================================
Financial Liabilities:
Total deposits, excluding certificates................ $ 5,248,257 $ 5,248,257 $5,174,807 $5,174,807
Certificates of deposit............................... 2,805,087 2,784,367 2,328,900 2,347,473
Short-term borrowings................................. 478,762 478,762 298,336 296,434
Securities sold under
repurchase agreements............................... 1,866,377 1,866,377 1,188,569 1,188,569
Long-term debt........................................ 685,426 541,185 224,836 207,339
---------------------------------------------------------------------------------------------------------------------
Total Financial Liabilities........................... $11,083,909 $10,918,948 $9,215,448 $9,214,622
-------------------------------------------------------==============================================================
Off-balance Sheet Financial Instruments:
Financial futures and options:
trading activities.................................. $ (435) $ (435) $ 33 $ 33
Interest rate swaps, caps, and corridors:
interest rate risk management....................... 4,494 (33,602) 96 (2,994)
Letters of credit and other
commitments to extend credit........................ (13,209) (11,512)
---------------------------------------------------------------------------------------------------------------------
Total Off-balance-Sheet Financial Instruments......... $ 4,059 $ (47,246) $ 129 $ (14,473)
-------------------------------------------------------==============================================================
</TABLE>
<PAGE>
NOTE 18
Condensed Financial Information Of Parent Company Only
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS:
December 31, 1994 and 1993 (in thousands) 1994 1993
-------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash on deposit and repurchase agreement
with subsidiary bank......................................... $ 32,103 $ 41,026
Commercial loans receivable from subsidiaries:
Banks........................................................ 128,700 108,038
Nonbanks..................................................... 37,139 60,879
Investments in subsidiaries:
Banks........................................................ 869,651 685,029
Nonbanks..................................................... 63,087 56,156
Other assets................................................... 2,246 2,008
-------------------------------------------------------------------------------------------
Total Assets................................................... $1,132,926 $953,136
-----------------------------------------------------------------==========================
Liabilities and Stockholders' Equity:
Accrued interest, accounts payable to subsidiary, and
dividends payable............................................ $ 5,302 $ 3,245
Short-term borrowings.......................................... 5,675 10,000
Long-term debt................................................. 232,475 104,160
-------------------------------------------------------------------------------------------
Total Liabilities.............................................. 243,452 117,405
-------------------------------------------------------------------------------------------
Stockholders' Equity:
Preferred stock -- Series "A", $3.15 cumulative convertible.... 629 703
-------------------------------------------------------------------------------------------
Common stock (49,957 and 48,787 shares issued, respectively)... 62,446 60,983
Paid-in surplus................................................ 142,928 122,549
Retained earnings.............................................. 746,454 657,446
Net unrealized loss on investment securities available
for sale of subsidiaries (net of taxes)...................... (54,341)
-------------------------------------------------------------------------------------------
Subtotal....................................................... 897,487 840,978
Less common treasury stock, at cost............................ (8,642) (5,950)
-------------------------------------------------------------------------------------------
Total Common Stockholders' Equity.............................. 888,845 835,028
-------------------------------------------------------------------------------------------
Total Stockholders' Equity..................................... 889,474 835,731
-------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity..................... $1,132,926 $953,136
-----------------------------------------------------------------==========================
</TABLE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF INCOME:
For the years ended December 31, 1994, 1993, and 1992
(in thousands) 1994 1993 1992
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Cash dividends from subsidiaries:
Banks....................................................... $ 39,139 $ 53,655 $ 52,856
Nonbanks.................................................... 7,675
Interest (principally from subsidiaries)..................... 12,286 9,132 7,764
---------------------------------------------------------------------------------------------------------------
Total income................................................. 59,100 62,787 60,620
Interest expense............................................. 12,286 9,132 7,764
---------------------------------------------------------------------------------------------------------------
Income before equity in undistributed
earnings of subsidiaries.................................... 46,814 53,655 52,856
Equity in undistributed earnings of subsidiaries:
Banks....................................................... 87,390 59,898 46,396
Nonbanks.................................................... 5,930 503 1,091
---------------------------------------------------------------------------------------------------------------
Net Income................................................... $140,134 $ 114,056 $100,343
--------------------------------------------------------------------===========================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS:
For the years ended December 31, 1994, 1993, and 1992
(in thousands) 1994 1993 1992
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income................................................... $ 140,134 $ 114,056 $ 100,343
Adjustments to reconcile net income to
net cash provided by operating activities................... (91,503) (59,036) (47,670)
--------------------------------------------------------------------------------------------------------
Net Cash Provided By Operating Activities.................... 48,631 55,020 52,673
--------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Loans and capital contributions made
to subsidiaries............................................. (157,781) (147,846) (177,878)
Principal collected on loans to subsidiaries................. 160,859 152,111 96,506
Cash investments in subsidiaries............................. (124,335) (6,405) (1,788)
--------------------------------------------------------------------------------------------------------
Net Cash Used In Investing Activities........................ (121,257) (2,140) (83,160)
--------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Proceeds from short-term borrowings.......................... 10,000
Proceeds from long-term debt................................. 128,750 75,000
Payments on long-term debt and
short-term borrowings....................................... (14,760) (3,820) (30,548)
Proceeds from issuance of common stock
and sales of treasury stock................................. 10,320 9,121 12,553
Purchase of treasury stock................................... (19,481) (2,118) (6,593)
Dividends paid............................................... (51,126) (38,638) (26,048)
--------------------------------------------------------------------------------------------------------
Net Cash Provided By (Used In) Financing Activities.......... 63,703 (35,455) 24,364
--------------------------------------------------------------------------------------------------------
Net Increase (Decrease) In Cash
And Cash Equivalents........................................ (8,923) 17,425 (6,123)
Cash And Cash Equivalents, Beginning Of Year................. 41,026 23,601 29,724
--------------------------------------------------------------------------------------------------------
Cash And Cash Equivalents, End Of Year....................... $ 32,103 $ 41,026 $ 23,601
---------------------------------------------------------------=========================================
Supplemental Disclosures Of Cash Flow Information:
Cash paid during the year for:
Interest.................................................... $ 10,765 $ 9,033 $ 5,211
---------------------------------------------------------------=========================================
Income taxes................................................ $ (144) $ (366) $ (1)
---------------------------------------------------------------=========================================
</TABLE>
Supplemental Schedule of Non Cash Investing and Financing Activities:
In 1994, 1,322,061 shares of common stock were issued and $137,291,000 cash was
paid for the acquisitions of Equality State Bank, CrossLand Mortgage Acquisition
Corp., Community First Bank, American Ban Corporation, and Star Valley State
Bank. The Corporation acquired assets of approximately $584,103,000 and assumed
liabilities of approximately $420,385,000 (Note 14).
In 1993, 2,255,000 shares of common stock were issued for the acquisitions of
Dixie State Bank, Benton County Bank, Nevada Community Bank, State Bank of Green
River, and Continental BanCorporation. The Corporation acquired assets of
approximately $404,062,000 and assumed liabilities of approximately $376,344,000
(Note 14).
In 1992, 1,125,000 shares of common stock were issued for the acquisition of
First National Bank of North Idaho (FNBNI). The Corporation acquired FNBNI's
assets of approximately $167,500,000 and assumed liabilities of approximately
$161,065,000 (Note 14). The Bank of Willamette Valley (BWV) was acquired for
cash of $5,481,000. The Corporation acquired BWV's assets of approximately
$27,319,000 and assumed liabilities of approximately $24,515,000 (Note 14).
<PAGE>
Independent Auditors' Report
To the Board of Directors and Stockholders of First Security Corporation:
We have audited the accompanying consolidated balance sheets of First Security
Corporation and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1994. These financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. The consolidated financial statements give retroactive effect to
the merger of First Security Corporation and First National Financial
Corporation, which has been accounted for as a pooling of interests as described
in Note 14 to the consolidated financial statements. We did not audit the
related consolidated statements of operations, changes in stockholders' equity,
and cash flows of First National Financial Corporation for the year ended
December 31, 1992, which statements reflect interest income of $98,603,000 for
the year ended December 31, 1992. Those statements, prior to any restatement,
were audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for First National
Financial Corporation for 1992, is based solely on the report of such other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of First Security Corporation and
subsidiaries at December 31, 1994 and 1993, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1994, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1994 the
Corporation changed its method of accounting for investment securities to
conform with Statement of Financial Accounting Standards No. 115.
[SIGNED]
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
February 17, 1995
<PAGE>
Independent Auditors' Report
The Board of Directors
First National Financial Corporation
We have audited the consolidated statements of operations, changes in
stockholders' equity and cash flows of First National Financial Corporation
(Corporation) and subsidiary for the year ended December 31, 1992 (before
restatement for the change in method of accounting for income taxes) (not
presented separately herein). These consolidated financial statements are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of First National Financial Corporation and subsidiary for the year
ended December 31, 1992, in conformity with generally accepted accounting
principles.
As discussed in Note 16 to the consolidated financial statements, the Board of
Directors of the Corporation, on behalf of the Corporation, has entered into a
Memorandum of Understanding with the Federal Reserve Bank of Kansas City
(Reserve Bank). In addition, the Board of Directors of First National Bank in
Albuquerque (Bank), the subsidiary of the Corporation, on behalf of the Bank,
has entered into a Formal Agreement with the Office of the Comptroller of the
Currency (OCC). Although the Corporation and the Bank have been subjected to
regulatory on-site examinations which indicate substantial compliance with
both agreements, if the Corporation and the Bank are unable to comply totally
with the terms of the respective agreements, the Reserve Bank and the OCC
could, among other things, take additional administrative actions.
[SIGNED]
KPMG Peat Marwick LLP
Albuquerque, New Mexico
February 5, 1993
<PAGE>
F I R S T S E C U R I T Y C O R P O R A T I O N
Corporate Information
Corporate Offices
79 South Main Street
Salt Lake City, Utah 84111
Annual Stockholders' Meeting
Monday, April 24, 1995, 3 p.m.
Utah Power & Light Co., Auditorium
40 East First South
Salt Lake City, Utah 84111
Independent Auditors
Deloitte & Touche LLP
50 South Main Street
Salt Lake City, Utah 84144
General Legal Counsel
Ray, Quinney & Nebeker
400 Deseret Building
Salt Lake City, Utah 84111
Form 10-K
Stockholders can obtain a copy of the Corporation's report on Form l0-K
without charge upon written request to:
Financial Division
First Security Corporation
P.O. Box 30006
Salt Lake City, Utah 84130-0006
Dividend Reinvestment Plan
Shareholders can reinvest their cash dividends in additional shares of our
common stock at the market price. Shareholders, as well as brokers and
custodians, can obtain a prospectus of the plan by writing to:
First Security Bank of Utah, N.A.
Plan Agent, First Security Corporation
Dividend Reinvestment Plan
P.O. Box 30007
Salt Lake City, Utah 84130-0007
(80l) 246-5289.
<TABLE>
<CAPTION>
Ratings Moody's
Thomson Standard Investors
BankWatch & Poors Service
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
Overall B -- --
Senior Debt -- BBB+ A3
Subordinated Debt -- BBB Baal
--------------------------------------------------------------------------------------
</TABLE>
Stock Information
First Security Corporation's shares are traded in the NASDAQ National Market
System under the NASDAQ symbol: FSCO.
NASDAQ Market Makers:
Bear, Stearns & Co., Inc.
C.S. First Boston Corporation
Dain, Bosworth, Inc.
Dean Witter Reynolds, Inc.
Dillon, Read & Co., Inc.
Fox-Pitt, Kelton, Inc.
Herzog, Heine, Geduld, Inc.
Jefferies and Company, Inc.
Keefe, Bruyette & Woods, Inc.
Kemper Securities Group
Kidder Peabody & Co., Inc.
Merrill Lynch, Pierce, Fenner & Smith
Montgomery Securities, Inc.
Morgan Stanley & Co., Inc.
J. P. Morgan Securities, Inc.
Pacific Crest Securities
Piper, Jaffray & Hopwood, Inc.
Prudential Securities
M.A. Schapiro & Co., Inc.
Shearson Lehman Hutton
Sherwood Securities Corporation
Smith Barney Shearson Inc.
Stearn, Agee & Leach, Inc.
Troster Singer Corporation
The Transfer Agent and Registrar for
First Security Corporation is:
Stock Transfer Services
Trust Group
First Security Bank of Utah, N.A.
P. O. Box 30007
Salt Lake City, Utah 84130-0007
Financial Information
Analysts, investors and others seeking
financial information about the Corporation should contact:
Scott C. Ulbrich
Executive Vice President and
Chief Financial Officer
Financial Division
(80l) 246-5706
Leslie R. Nelson
Vice President & Manager,
Investor Relations
(801) 246-5266
General Information
News media representatives and others seeking general information should
contact:
Phillip F. Hudson
Executive Vice President and Manager,
Retail Banking and Marketing Group
(801) 246-5258
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FIRST SECURITY CORPORATION
(Registrant)
[SIGNED] March 10, 1995
------------------------------------------------------- --------------
Scott C. Ulbrich (Date)
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
Registrant and in the capacities indicated.
[SIGNED] March 10, 1995
------------------------------------------------------- --------------
Spencer F. Eccles (Date)
Chairman and Chief Executive Officer
[SIGNED] March 10, 1995
------------------------------------------------------- --------------
Morgan J. Evans (Date)
President and Chief Operating Officer
<PAGE>
SIGNATURES
FIRST SECURITY CORPORATION
Registrant
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
Registrant and in the capacities indicated.
[SIGNED] March 13, 1995
------------------------------------------------------- --------------
James C. Beardall Date
Director
[SIGNED] March 15, 1995
------------------------------------------------------- --------------
Rodney H. Brady Date
Director
[SIGNED] March 13, 1995
------------------------------------------------------- --------------
James E. Bruce Date
Director
[SIGNED] March 25, 1995
------------------------------------------------------- --------------
Thomas D. Dee, II Date
Director
[SIGNED] March 15, 1995
------------------------------------------------------- --------------
Dr. David P. Gardner Date
Director
[SIGNED] March 14, 1995
------------------------------------------------------- --------------
Robert H. Garff Date
Director
[SIGNED] March 14, 1995
------------------------------------------------------- --------------
U. Edwin Garrison Date
Director
[SIGNED] March 14, 1995
------------------------------------------------------- --------------
David B. Haight Date
Director
[SIGNED] March 14, 1995
------------------------------------------------------- --------------
Jay Dee Harris Date
Director
[SIGNED] March 13, 1995
------------------------------------------------------- --------------
Robert T. Heiner Date
Director
[SIGNED] March 14, 1995
------------------------------------------------------- --------------
Karen H. Huntsman Date
Director
[SIGNED] March 15, 1995
------------------------------------------------------- --------------
G. Frank Joklik Date
Director
[SIGNED] March 13, 1995
------------------------------------------------------- --------------
B. Z. Kastler Date
Director
[SIGNED] March 16, 1995
------------------------------------------------------- --------------
Joseph G. Maloof Date
Director
[SIGNED] March 14, 1995
------------------------------------------------------- --------------
Scott S. Parker Date
Director
[SIGNED] March 14, 1995
------------------------------------------------------- --------------
Dr. Arthur K. Smith Date
Director
[SIGNED] March 16, 1995
------------------------------------------------------- --------------
James L. Sorenson Date
Director
[SIGNED] March 13, 1995
------------------------------------------------------- --------------
Harold J. Steele Date
Director
EXHIBIT 10.1.
RESOLUTIONS
OF THE EXECUTIVE COMMITTEE OF THE BOARD OF DIRECTORS OF
FIRST SECURITY CORPORATION
Adopted on February 22, 1994, and approved by the Shareholders on April 25,
1994
Whereas the Corporation's best interests will be served by providing
continued flexibility to the Compensation Committee of the Board in adequately
rewarding and incenting key employees and contractors of the Corporation over
and above the ability now available through the existing Comprehensive
Management Incentive Plan, and in increasing such key employees' and
contractors' equity interests in the Corporation,
Resolved that the First Security Corporation Comprehensive Management
Incentive Plan ("the Plan"), be and is hereby amended and restated, as
evidenced in the text and form attached to the minutes of this Meeting, and all
such amendments and restatements are hereby approved and adopted for
implementation by the Corporation as of the date of this Meeting, including the
authorization for issuance under the Plan of up to the new maximum number of
shares provided in the Plan;
Resolved further that the Compensation Committee of the Board of Directors,
as constituted from time to time, shall continue to act as the Plan
Administrative Committee, to act until their successors are duly chosen by the
Board of Directors;
Resolved further that the Plan Administrative Committee is hereby authorized
to use such employees of the Corporation as it sees fit to maintain records and
communications required under the Plan, provided, however, that such other
employees shall not be deemed members of the Plan Administrative Committee for
the purpose of participation in the Plan;
Resolved further that the Executive Vice President of the Corporation acting
as Chief Financial Officer is authorized--and any prior acts in this regard are
ratified--to engage the services of expert legal and accounting advisors in
connection with drafting and qualifying the Plan, to issue or cause to be
issued all checks payable from the funds of the Corporation required to
compensate such counsel and accountants, as well as SEC filing fees and other
associated costs;
Resolved further that the Chief Financial Officer and other officers of the
Corporation, in cooperation with legal counsel, shall do all other acts
necessary to file a Registration Statement covering the Shares offered under
the Plan on Form S-8 with the Securities and Exchange Commission. Such
Registration Statement may be filed on behalf of the Corporation upon the
agreement of legal counsel and the Chief Financial Officer that such
registration statement is complete and accurate;
Resolved further that the Executive Vice President acting as Chief Financial
Officer of the Corporation is authorized and directed to engage the services of
such legal and accounting professional as he deems necessary, and to use such
personnel to accomplish all necessary securities filings in the several states
in which the employees of the Corporation will participate in the Plan prior to
the Effective Date set forth in the Plan. In this regard, the Chief Financial
Officer is hereby authorized to issue or cause to be issued all checks payable
from funds of the Corporation, sign all consents to service of process, and to
execute other documents and filings necessary to the qualification or exemption
of the Shares to be offered under the Plan in the several states on behalf of
the Corporation. The Secretary or an Assistant Secretary may attest to the
signature of the Executive Vice President so designated.
Resolved further that the Executive Vice President acting as Chief Financial
Officer of the Corporation and A. Robert Thorup Esq. of the law firm of Ray,
Quinney & Nebeker are hereby appointed attorneys-in-fact for the Corporation,
with authority hereafter to prepare, sign and file, on behalf of the
Corporation, all necessary amendments to any filings made with the Securities
and Exchange Commission or any of the States in connection with the Plan and
the qualification of the Shares offered under the Plan.
<PAGE>
FIRST SECURITY CORPORATION
AMENDED AND RESTATED COMPREHENSIVE MANAGEMENT INCENTIVE PLAN
SECTION CONTENTS PAGE
1. Purpose; Definitions 1
2. Administration 4
3. Stock Subject to Plan 5
4. Eligibility 6
5. Stock Options 6
6. Stock Appreciation Rights 12
7. Restricted Stock 14
8. Long-Term Performance Awards 16
9. Change-in-Control Provisions 18
10. Amendments and Termination 21
11. Unfunded Status of Plan 21
12. General Provisions 22
13. Effective Date of Plan 22
14. Term of Plan 24
15. Indemnification of Committee 24
16. Financing 25
Adopted by the Executive Committee in February, 1994, and approved by the
Shareholders in April, 1994
SECTION 1. Purpose; Relationship to Other Plans of the Company; Definitions.
The name of this plan is the First Security Corporation Comprehensive
Management Incentive Plan (the "Plan").
The purposes of the Plan are to promote the best interests of the
Corporation and its Shareholders by strengthening the Corporation's ability to
attract and retain skilled and competent managerial and technical employees and
contractors, and to provide a means to encourage stock ownership and
proprietary interest in the Corporation and its future success by executive and
other officers, key consultants and contractors, and key employees upon all of
whose judgment, initiative and efforts the financial success and growth of the
Corporation largely depend, and to align the interests of such persons directly
with the interests of the Shareholders of the Corporation. Specifically the
Plan will enable key employees and Eligible Independent Contractors (as
hereinafter defined) of First Security Corporation ("the Company") to (i) own
shares of stock in the Company, (ii) participate in the shareholder value which
has been created, (iii) have a mutuality of interest with other shareholders
and (iv) enable the Company to attract, retain and motivate key employees,
non-employee directors, and independent contractors of particular merit.
It is intended that eligibility under this Plan be restricted to a select
group of management or highly compensated employees as defined by the Employee
Retirement Income Security Act of 1974. All provisions of this Plan shall be
construed to effectuate such purposes.
This Plan is an amendment of, and supersedes and incorporates, the First
Security Restricted Stock Bonus Plan and the First Security Corporation
Nonstatutory Stock Option and Stock Appreciation Rights Plan ("Prior Plans").
All Bonus Awards, Options and Stock Appreciation Rights under the Prior Plans
are deemed to have been issued under this Plan, and are to be governed by this
Plan. Any difference between the terms of the Prior Plans and the terms of
this Plan will be resolved by reference to the terms of this Plan, which will
govern in all respects.
For the purposes of the Plan, the following terms shall be defined as set
forth below:
(i) "Board" means the Board of Directors of the Company.
(ii) "Cause" means a felony conviction of a Participant or the failure of
a Participant to contest prosecution for a felony, or a Participant's willful
misconduct or dishonesty, any of which is directly and materially harmful to
the business or reputation of the Company.
(iii) "Code" means the Internal Revenue Code of 1986, as amended from time
to time, and any successor thereto.
(iv) "Committee" means the Administrative Committee referred to in Section
2 of the Plan. If at any time no Committee shall be duly elected and serving
as a result of Board action or resignations of the Committee or otherwise, then
the functions of the Committee specified in the Plan shall be exercised by the
Board.
(v) "Company" means First Security Corporation, a corporation organized
under the laws of the State of Delaware and its subsidiaries or any successor
organization.
(vi) "Disability" shall have the same meaning as under the First Security
Retirement Plan, as amended from time to time.
(vii) "Disinterested Person" shall mean a Director of the Company meeting
the requirements for a "disinterested person" set forth in Rule 16b-3 as
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
(viii) "Early Retirement" means retirement, with consent of the Committee
at the time of retirement, from active employment with the Company prior to
normal retirement age under provisions of the Company's pension plan, if such a
plan is in effect at the time; or pursuant to the Company's profit-sharing plan
if no pension plan is then in effect; or retirement prior to age 65 if neither
a pension plan nor a profit sharing plan are then in place.
(ix) "Eligible Independent Contractor" means an independent contractor
hired by the Company to provide consulting services on a regular basis for the
Company at or after the time the Plan is initially approved by the
shareholders.
(x) "Fair Market Value" means, as of any given date, the last sale price
of the Stock as furnished by the National Association of Securities Dealers
Inc.'s Automated Quotation National Market System ("NASDAQ-NMS") on the day
before, or, if either no such sale is reported by NASDAQ-NMS on such date or
the Stock is not publicly traded on or as of such date, the fair market value
of the Stock as determined by the Committee in good faith based on the best
available facts and circumstances at the time.
(xi) "Incentive Stock Option" means any Stock Option intended to be and
designated as an "Incentive Stock Option" within the meaning of Section 422A of
the Code.
(xii) "Insider" means a Participant who is subject to the requirements of
the Rules (as defined below).
(xiii) "Long-Term Performance Award" or "Long-Term Award" means an award
made pursuant to Section 8 below that is payable in cash and/or Stock
(including Restricted Stock) in accordance with the terms of the grant, based
on Company, business unit and/or individual performance over a period of at
least two years.
(xiv) "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
(xv) "Normal Retirement" means retirement from active employment with the
Company and any Affiliate (as defined in Section 9) pursuant to the normal
retirement provisions of the Company's pension plan, if such a plan is in
effect at the time; or pursuant to the Company's profit-sharing plan if no
pension plan is then in effect; or retirement at or after age 65 if neither a
pension plan nor a profit sharing plan are then in place.
(xvi) "Participant" means an employee, or Eligible Independent Contractor
to whom an Award is granted pursuant to the Plan.
(xvii) "Restricted Stock" means an award of shares of Stock that is
subject to restrictions pursuant to Section 7 below.
(xviii) "Retirement" shall have the same meaning prescribed in Section
herein. The term shall contemplate either normal or early retirement.
(xix) "Rules" means the regulations promulgated under Section 16 of the
Exchange Act.
(xx) "Securities Broker" means the registered securities broker acceptable
to the Company who agrees to effect the cashless exercise of an Option pursuant
to Section 5(m) hereof.
(xxi) "Stock" means the Common Stock, $1.25 par value per share, of the
Company.
(xxii) "Stock Appreciation Right" means the right, pursuant to an award
granted under Section 6 below, to surrender to the Company all (or a portion)
of a Stock Option in exchange for an amount equal to the difference between (i)
the Fair Market Value, as of the date such Stock Option (or such portion
thereof) is surrendered, of the shares of Stock covered by such Stock Option
(or such portion thereof), and (ii) the aggregate exercise price of such Stock
Option (or such portion thereof).
(xxiii) "Stock Option" or "Option" means any option to purchase shares of
Stock (including Restricted Stock, if the Committee so determines) granted
pursuant to Section 5 below.
In addition, the terms "Change-in-Control," "Potential Change-in-Control"
and "Change-in-Control Price" shall have meanings set forth, respectively, in
Sections 9(b), (c) and (d) below.
SECTION 2. Administration; Duty of Insiders.
The Plan shall be administered by an Administrative Committee of not less
than three Disinterested Persons, who shall be appointed by the Board of
Directors of the Company and who shall serve at the pleasure of the Board.
The Committee shall have the authority to grant pursuant to the terms of the
Plan: (i) Stock Options, (ii) Stock Appreciation Rights, (iii) Restricted Stock
and/or (iv) Long-Term Performance Awards to key employees and officers of the
Company; (i) Stock Options and/or (ii) Stock Appreciation Rights to Eligible
Independent Contractors.
In particular, the Committee shall have the authority:
(i) to select the officers and other key employees of the Company to whom
Stock Options, Stock Appreciation Rights, Restricted Stock and Long-Term
Performance Awards may from time to time be granted hereunder and Eligible
Independent Contractors to whom Stock Options and Stock Appreciation Rights may
from time to time be granted hereunder;
(ii) to determine whether and to what extent Incentive Stock Options, Non-
Qualified Stock Options, Stock Appreciation Rights, Restricted Stock and
Long-Term Performance Awards, or any combination thereof, are to be granted
hereunder;
(iii) to determine the number of shares of Stock to be covered by each
such award granted hereunder,
(iv) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any award granted hereunder: including, but not limited
to, the share price and any restriction or limitation, or any vesting
acceleration or forfeiture waiver regarding any Stock Option or other award
and/or the shares of Stock relating thereto, based on such factors as the
Committee shall determine, in its sole discretion;
(v) to determine whether and under what circumstances a Stock Option may
be settled in cash or stock, including Restricted Stock under Section 5(1);
(vi) to determine whether and under what circumstances a Stock Option may
be exercised without a payment of cash under Section 5(m); and
(vii) to determine whether, to what extent and under what circumstances
Stock or cash distributable or payable with respect to an award under this Plan
shall be deferred either automatically or at the election of the Participant.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable; to interpret the terms and provisions of the
Plan and any award issued under the Plan (and any agreements relating thereto);
and to otherwise supervise the administration of the Plan.
All decisions made by the Committee pursuant to the provisions of the Plan
shall be final and binding on all persons, including the Company and Plan
Participants.
It shall be a condition of participation in this Plan by an Insider that
such Participant individually assume full responsibility to comply with all
federal, state or other applicable securities laws in connection with their
Awards and award exercise decisions under the Plan, and that such Insider
retain competent counsel or other advisors to ensure compliance with all such
applicable laws.
SECTION 3. Stock Subject to the Plan.
(i) Stock Subject to Plan. Awards of Stock under the Plan shall be made
from Stock which is either authorized and unissued or held in the treasury of
the Company. The maximum number of shares of Stock authorized for issuance
under the Plan with respect to the grant of awards while the Plan is in effect,
subject to adjustment in accordance with paragraph 3(d) below, shall be up to
6,437,500 shares in the aggregate, or such other number of shares as are
subsequently approved by the Company's Shareholders.
(ii) Computation of Stock Available for the Plan. For the purpose of
computing the total number of shares of Stock available for distribution at any
time in each calendar year during which the Plan is in effect in connection
with the exercise of options awarded under the Plan, there shall be debited
against the total number of shares determined to be available pursuant to
paragraphs (i), and (iii) of this Section 3 the maximum number of shares of
Stock subject to issuance upon exercise of options or other stock based awards
made under the Plan.
(iii) Unused, Forfeited and Reacquired Shares. Any unused portion of the
shares annually available for award shall be carried forward and shall be made
available for Plan awards in succeeding calendar years. The shares related to
the unexercised or undistributed portion of any terminated, expired or
forfeited award for which no material benefit was received by a Participant
(i.e. dividends) also shall be made available for distribution in connection
with future awards under the Plan to the extent permitted to receive exemptive
relief pursuant to the Rules.
(iv) Other Adjustments. In the event of any merger, reorganization,
consolidation, recapitalization, stock dividend, or other change in corporate
structure affecting the Stock, such substitution or adjustment shall be made in
the aggregate number of shares reserved for issuance under the Plan, and in the
number and option price of shares subject to outstanding Options granted under
the Plan, as may be determined to be appropriate by the Committee in its sole
discretion, provided that the number of shares subject to any award shall
always be a whole number. Such adjusted option price shall also be used to
determine the amount payable by the Company upon the exercise of any Stock
Appreciation Right associated with any Stock Option.
SECTION 4. Eligibility; Limit on Awards to Certain Persons.
Officers of the Company, other key employees of the Company, and Eligible
Independent Contractors, who are responsible for or contribute to the
management, growth and/or profitability of the business of the Company are
eligible to be granted awards under the Plan as determined in the sole
discretion of the Committee.
Section 162(m) of the Internal Revenue Code places a limit of $1 million on
the tax-deductibility of compensation paid to individuals listed in the proxy
statements of publicly held corporations. Compensation for the individual
executives listed in company proxy statements which exceeds $1 million on an
individual basis may not be tax-deductible unless it meets certain requirements
with respect to being performance-based.
To ensure that its executive compensation program is in full compliance with
the provisions regarding performance-based compensation, the number of Awards
(calculated as a number of Shares granted to an individual under the Plan may
not exceed, in total over the life of that individual, 20% of the shares
authorized and approved for grants under the Plan.
SECTION 5. Stock Options.
Stock Options may be granted alone, in addition to or in tandem with other
awards granted under the Plan, consistent with the requirement of Section
12(vi), below. Any Stock Option granted under the Plan shall be in such form
as the Committee may from time to time approve.
Stock Options granted under the Plan may be of two types: (i) Incentive
Stock Options and (ii) Non-Qualified Stock Options.
The Committee shall have the authority to grant Incentive Stock Options,
Non-Qualified Stock Options, or both types of Stock Options (in each case with
or without Stock Appreciation Rights). To the extent that any Stock Option
does not qualify as an Incentive Stock Option, it shall constitute a separate
Non-Qualified Stock Option.
Anything in the Plan to the contrary notwithstanding, no term of this Plan
relating to Incentive Stock Options shall be interpreted, amended or altered,
nor shall any discretion or authority granted under the Plan be so exercised,
so as to disqualify the Plan under Section 422A of the Code, or, without the
consent of the optionee(s) affected, to disqualify any Incentive Stock Option
under such Section 422A.
In the discretion of the Committee, Non-Qualified Stock Options may be
issued to an employee in consideration of the waiver of a portion of such
Employee's salary, compensation or fees, with the spread between the exercise
price of such Stock Options and the then Fair Market Value of the Stock subject
to such Stock Options being equal to the salary, compensation or fees waived or
such other terms and provisions as the Committee may in its discretion provide.
Stock Options granted under the Plan shall be subject to the following terms
and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem
appropriate:
(i) Option Price. The option price per share of Stock purchasable under a
Stock Option shall be determined by the Committee at the time of grant but
shall be not less than 100% of the Fair Market Value of the Stock at the time
of grant for Incentive Stock Options and 85% of the Fair Market Value of the
Stock at the time of grant for Non-Qualified Options; provided, however that
Non-Qualified Options issued in exchange for options held by employees of an
acquired company or a division or subsidiary thereof may, at the Committee's
discretion, be issued at not less than 50% of the Fair Market Value of the
Stock at the time of grant.
Any Incentive Stock Option granted to any optionee who, at the time the
option is granted, owns more than 10% of the voting power of all classes of
stock of the Company or of a Parent or Subsidiary corporation, shall have an
exercise price no less than 110% of Fair Market Value per share on date of the
grant.
(ii) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Incentive Stock Option shall be exercisable more than ten
years after the date the Option is granted and no Non-Qualified Stock Option
shall be exercisable more than ten years and one day after the date the Option
is granted. However, any option granted to any optionee who, at the time the
option is granted owns more than 10% of the voting power of all classes of
Stock of the Company or of a Parent or Subsidiary corporation may not have a
term of more than five years. No option may be exercised by any person after
expiration of the term of the option.
(iii) Exercisability. Stock Options shall be exercisable at such time or
times and subject to such terms and conditions as shall be determined by the
Committee at or after grant, provided, however, that, except as provided in
Section 5(vii) and Section 9, unless otherwise determined by the Committee at
or after grant, no Stock Option shall be exercisable during the six months
following the date of the granting of the Option. If the Committee provides,
in its discretion, that any Stock Option is exercisable only in installments,
the Committee may waive such installment exercise provisions at any time at or
after grant in whole or in part, based on such factors as the Committee shall
determine, in its sole discretion.
No shares of Stock shall be issued until full payment therefor has been
made. An optionee shall generally have the rights to dividends or other rights
of a shareholder with respect to shares subject to the Option when the optionee
has given written notice of exercise, has paid in full for such shares, and, if
requested, has given the representation described in Section 12(i).
(iv) Methods of Exercise.
(a) Stock Options may be exercised in whole or in part by giving
written notice of exercise to the Company specifying the number of shares of
Stock to be purchased. Such notice shall be accompanied by payment in full of
the purchase price, either by certified or bank check, or such other instrument
as the Committee may accept.
(b) As determined by the Committee, in its sole discretion, at or after
grant, payment in full or in part may also be made in the form of unrestricted
shares of Stock already owned by the optionee based on the Fair Market Value of
the Stock on the date the option is exercised, as determined by the Committee),
provided, however, that, in the case of an Incentive Stock Option, the right to
make a payment in the form of already owned shares may be authorized only at
the time the option is granted.
If payment of the option exercise price of a Non-Qualified Stock
Option is made in whole or in part in the form of Restricted Stock, such
Restricted Stock (and any replacement shares relating thereto) shall remain (or
be) restricted in accordance with the original terms of the Restricted Stock
award in question, and any additional Stock received upon the exercise shall be
subject to the same forfeiture restrictions, unless otherwise determined by the
Committee, in its sole discretion, at or after grant.
If payment of the Option exercise price of a Non-Qualified Option is
made in whole or in part in the form of unrestricted stock already owned by the
Participant, the Company may require that the stock has been owned by the
Participant for a period of time so that such payment would not result in a
charge to the Company's earnings as a result of the exercise. Such provision
may be used by the Company to prevent a pyramid exercise.
(c) On receipt of written notice to exercise, the Committee may, in its
sole discretion, elect to cash out all or part of the portion of the option(s)
to be exercised by paying the optionee an amount, in cash or Stock, equal to
the excess of the Fair Market Value of the Stock over the option price (the
"Spread Value") on the effective date of such cash-out.
In addition, if the option agreement so provides at grant or is
amended after grant and prior to exercise to so provide (with the optionee's
consent), the Committee may require that all or part of the shares to be issued
with respect to the Spread Value of an exercised option take the form of
Restricted Stock, which shall be valued on the date of exercise on the basis of
the Fair Market Value of such Restricted Stock determined without regard to the
forfeiture restrictions involved.
(d) To the extent permitted under the applicable laws and regulations,
at the request of the Participant, and with the consent of the Committee, the
Company agrees to cooperate in a "cashless exercise" of an Option. The
cashless exercise shall be effected by the Participant delivering to a
Securities Broker instructions to sell a sufficient number of shares of Common
Stock to cover the costs and expenses associated therewith.
(v) Withholding Taxes. The Company shall withhold the number of shares of
Common Stock obtainable on the exercise of an Option which, when valued at Fair
Market Value (determined as of the day preceding the date of exercise), is
equivalent to the required withholding taxes due.
(vi) Replacement Options. If an Option granted pursuant to the Plan may
be exercised by an optionee by means of a stock-for-stock swap method of
exercise as provided above, then the Committee may, in its sole discretion and
at the time of the original option grant, authorize the Participant to
automatically receive a replacement Option pursuant to this part of the Plan.
This replacement option shall cover a number of shares determined by the
Committee, but in no event more than the number of shares equal to the
difference between the number of shares of the original option exercised and
the net shares received by the Participant from such exercise. The exercise
price of the replacement option shall equal the then current Fair Market Value,
and with a term extending to the expiration date of the original Option.
The Committee shall have the right, in its sole discretion and at any
time, to discontinue the automatic grant of replacement options if it
determines the continuance of such grants to no longer be in the best interest
of the Company.
(vii) Non-transferability of Options. No Stock Option shall be
transferable by the optionee otherwise than by will or by the laws of descent
and distribution, and all Stock Options shall be exercisable, during the
optionee's lifetime, only by the optionee.
(viii) Termination of Participant's Employment by Reason of Death.
Subject to Section 5(xi), if an optionee's employment by the Company terminates
by reason of death, any Stock Option then held by optionee may thereafter be
exercised, to the extent then exercisable or on such accelerated basis as the
Committee may determine at or after grant, by the legal representative of the
estate or by the legatee of the optionee under the will of the optionee, for a
period of five (5) years (or such shorter period as the Committee may specify
at grant) from the date of such death or until the expiration of the stated
term of such Stock Option, whichever period is the shorter. In the event of
termination of employment by reason of Death, if an Incentive Stock Option is
exercised after the expiration of the exercise periods that apply for purposes
of Section 422A of the Code, such Stock Option will thereafter be treated as a
Non-Qualified Stock Option.
(ix) Termination of Participant's Employment by Reason of Disability.
Subject to Section 5(xi), if an optionee's employment by the Company terminates
by reason of Disability, any Stock Option held by such optionee may thereafter
be exercised by the optionee, to the extent it was exercisable at the time of
termination, or on such accelerated basis as the Committee may determine at or
after grant, for a period of five years (or such shorter period as the
Committee may specify at grant) from the date of such termination of employment
or until the expiration of the stated term of such Stock Option, whichever
period is the shorter; provided, however, that, if the optionee dies within
such five-year period (or such shorter period as the Committee shall specify at
grant), any unexercised Stock Option held by such optionee shall thereafter be
exercisable to the extent to which it was exercisable at the time of death for
a period of twelve months from the date of such death or until the expiration
of the stated term of such Stock Option, whichever period is the shorter. In
the event of termination of employment by reason of Disability, if an Incentive
Stock Option is exercised after the expiration of the exercise periods that
apply for purposes of Section 422A of the Code, such Stock Option will
thereafter be treated as a Non-Qualified Stock Option.
(x) Termination of Participant's Employment by Reason of Retirement.
Subject to Section 5(xi), if an optionee's employment by the Company terminates
by reason of Normal or Early Retirement, any Stock Option held by such optionee
may thereafter be exercised by the optionee, to the extent it was exercisable
at the time of such Retirement or on such accelerated basis as the Committee
may determine at or after grant, for a period of five years (or such shorter
period as Committee may specify at grant) from the date of such termination of
employment or the expiration of the stated term of such Stock Option, whichever
period is the shorter; provided, however, that, if the optionee dies within
such three-year period, any unexercised Stock Option held by such optionee
shall thereafter be exercisable, to the extent to which it was exercisable at
the time of death, for a period of twelve months from the date of such death or
until the expiration of the stated term of such Stock Option, whichever period
is the shorter. In the event of termination of employment by reason of
Retirement, if an Incentive Stock Option is exercised after the expiration of
the exercise periods that apply for purposes of Section 422A of the Code, the
option will thereafter be treated as a Non-Qualified Stock Option.
(xi) Other Terminations of Employment of a Participant. Unless otherwise
determined by the Committee at or after grant, if an optionee's employment by
the Company terminates for any reason other than death, Disability or Normal or
Early Retirement, the Stock Option shall thereupon terminate, except that such
Stock Option may be exercised for the lesser of three months or the balance of
such Stock Option's term if the optionee is involuntarily terminated by the
Company without Cause to the extent it was exercisable at the time of such
termination or on such accelerated basis as the Committee may determine at or
after grant.
(xii) Special Incentive Stock Option Limitations. To the extent required
for "incentive stock option" status under Section 422A of the Code, the
aggregate Fair Market Value (determined as of the time of grant) of the Stock
with respect to which Incentive Stock Options granted after 1986 are
exercisable for the first time by the optionee during any calendar year under
the Plan and/or any other stock option plan of the Company (within the meaning
of Section 425 of the Code) after 1986 shall not exceed $100,000.
To the extent (if any) permitted under Section 422A of the Code, if (i) a
Participant's employment with the Company is terminated by reason of death,
Disability or Retirement and (ii) the portion of any Incentive Stock Option
that is otherwise exercisable during the post-termination period specified
under Section 5(g), (h) or (i), applied without regard to this Section 5(k), is
greater than the portion of such option that is exercisable as an "incentive
stock option" during such post-termination period under Section 422A, such
post-termination period shall automatically be extended (but not beyond the
original option term) to the extent necessary to permit the optionee to
exercise such Incentive Stock Option. The Committee is also authorized to
provide at grant for a similar extension of the post-termination exercise
period in the event of a Change-in-Control.
SECTION 6. Stock Appreciation Rights.
(i) Grant and Exercise. Stock Appreciation Rights may be granted in
conjunction with all or part of any Stock Option granted under the Plan,
complying at all times with the requirement of Section 12(vi), below. In the
case of a Non-Qualified Stock Option, such rights may be granted either at or
after the time of the grant of such Stock Option. In the case of an Incentive
Stock Option, such rights may be granted only at the time of the grant of such
Stock Option.
A Stock Appreciation Right or applicable portion thereof granted with
respect to a given Stock Option shall terminate and no longer be exercisable
upon the termination or exercise of the related Stock Option, except that,
unless otherwise determined by the Committee, in its sole discretion, at the
time of grant, a Stock Appreciation Right granted with respect to less than the
full number of shares covered by a related Stock Option shall not be reduced
until the number of shares covered by an exercise or termination of the related
Stock Option exceeds the number of shares not covered by the Stock Appreciation
Right.
A Stock Appreciation Right may be exercised by an optionee, in accordance
with Section 6(ii), by surrendering the applicable portion of the related Stock
Option. Upon such exercise and surrender, the optionee shall be entitled to
receive an amount determined in the manner prescribed in Section 6(b). Stock
Options which have been so surrendered, in whole or in part, shall no longer be
exercisable to the extent the related Stock Appreciation Rights have been
exercised.
(ii) Terms and Conditions. Stock Appreciation Rights shall be subject to
such terms and conditions, not inconsistent with the provisions of the Plan, as
shall be determined from time to time by the Committee, including the
following:
(a) Stock Appreciation Rights shall be exercisable only at such time or
times and to the extent that the Stock Options to which they relate, if any,
shall be exercisable in accordance with the provisions of Section 5 and this
Section 6 of the Plan; provided, however, that any Stock Appreciation Right
granted subsequent to the grant of the related Stock Option shall not be
exercisable during the first six months of its term, except that this special
limitation shall not apply in the event of death or Disability of the optionee
prior to the expiration of the six-month period.
(b) Upon the exercise of a Stock Appreciation Right, an optionee shall
be entitled to receive up to, but not more than, an amount in cash and/or
shares of Stock equal in value to the excess of the Fair Market Value of one
share of Stock over the option price per share specified in the related Stock
Option, multiplied by the number of shares in respect of which the Stock
Appreciation Right shall have been exercised, with the Committee having the
right to determine the form of payment.
(c) Stock Appreciation Rights shall be transferable only when and to
the extent that the underlying Stock Option would be transferable under Section
S(f) of the Plan.
(d) Upon the exercise of a Stock Appreciation Right, the Stock Option
or part thereof to which such Stock Appreciation Right is related shall be
deemed to have been exercised for the purpose of the limitation set forth in
Section 3 of the Plan on the number of shares of Stock to be issued under the
Plan, but only to the extent of the number of shares issued under the Stock
Appreciation Right at the time of exercise based on the value of the Stock
Appreciation Right at such time.
(e) A Stock Appreciation Right granted in connection with an Incentive
Stock Option may be exercised only if and when the market price of the Stock
subject to the Incentive Stock Option exceeds the exercise price of such Stock
Option.
(f) In its sole discretion, the Committee may provide, at the time of
grant of a Stock Appreciation Right under this Section 6, that such Stock
Appreciation Right can be exercised only in the event of a Change-in-Control
and/or a Potential Change-in-Control, subject to such terms and conditions as
the Committee may specify at grant.
(g) The Committee, in its sole discretion, may also provide that, in
the event of a Change-in-Control and/or a Potential Change-in-Control, the
amount to be paid upon the exercise of a Stock Appreciation Right shall be
based on the Change-in-Control Price, subject to such terms and conditions as
the Committee may specify at grant.
SECTION 7. Restricted Stock.
(i) Administration. Shares of Restricted Stock may be issued either alone
or in addition to other awards granted under the Plan, complying at all times
with the requirement of Section 12(vi), below. The Committee shall determine
the number of shares to be awarded, the price (if any) to be paid by the
recipient of Restricted Stock (subject to Section 7(ii)), the time or times
within which such awards may be subject to vesting and/or forfeiture, and all
other conditions of the awards.
The Committee may condition the grant of Restricted Stock upon the
attainment of specified performance goals or such other factors as the
Committee may determine, in its sole discretion.
The provisions of Restricted Stock awards need not be the same with
respect to each recipient.
(ii) Awards and Certificates. The grantee of a Restricted Stock award
shall not have any rights with respect to such award, unless and until such
recipient has executed an agreement evidencing the award and has delivered a
fully executed copy thereof to the Company, and has otherwise complied with the
applicable terms and conditions of such award.
(a) The purchase price for shares of Restricted Stock shall be equal to
or less than their par value and may be zero.
(b) Awards of Restricted Stock must be accepted within a period of 60
days (or such shorter period as the Committee may specify at grant) after the
award date, by executing a Restricted Stock Award Agreement and paying whatever
price (if any) is required under Section 7(ii)(a).
(c) Each Participant receiving a Restricted Stock award shall be issued
a stock certificate in respect of such shares of Restricted Stock. Such
certificate shall be registered in the name of such Participant, and shall bear
an appropriate legend referring to the terms, conditions, and restrictions
applicable to such award, substantially in the following form:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) of the First Security Corporation Comprehensive Management
Incentive Plan and an Agreement entered into between the registered owner and
First Security Corporation. Copies of such Plan and Agreement are on file at
the offices of First Security Corporation, 200 Deseret Building, 79 South Main
Street, Salt Lake City, Utah 84111".
(d) The Committee shall require that the stock certificates evidencing
such shares be held in custody by the Company until the restrictions thereon
shall have lapsed, and that, as a condition of any Restricted Stock award, the
Participant shall have delivered a stock power, endorsed in blank, relating to
the Stock covered by such award.
(iii) Restrictions and Conditions. The shares of Restricted Stock awarded
pursuant to this Section 7 shall be subject to the following restrictions and
conditions:
(a) Subject to the provisions of this Plan and the award Agreement,
during a period set by the Committee commencing with the date of such award
(the "Restriction Period"), the Participant shall not be permitted to sell,
transfer, pledge, assign or otherwise encumber shares of Restricted Stock
awarded under the Plan. Within these limits, the Committee, in its sole
discretion, may provide for the lapse of such restrictions in installments and
may accelerate or waive such restrictions in whole or in part, based on
service, performance and/or such other factors or criteria as the Committee may
determine, in its sole discretion.
(b) Except as provided in this paragraph (b) and Section 7(iii)(a), the
Participant shall have, with respect to the shares of Restricted Stock, all of
the rights of a Shareholder of the Company, including the right to vote the
shares, and the right to receive any cash dividends. The Committee, in its
sole discretion, as determined at the time of award, may permit or require the
payment of cash dividends to be deferred and, if the Committee so determines,
reinvested in additional Restricted Stock to the extent shares are available
under Section 3.
(c) Subject to the applicable provisions of the award Agreement and
this Section 7, upon termination of a Participant's employment with the Company
for any reason during the Restriction Period, all shares still subject to
restriction shall be forfeited by the Participant.
(d) In the event of hardship or other special circumstances of a
Participant whose employment with the Company is involuntarily terminated
(other than for Cause), the Committee may, in it sole discretion, waive in
whole or in part any or all remaining restrictions with respect to such
Participant's shares of Restricted Stock, based on such factors as the
Committee may deem appropriate.
(e) If and when the Restriction Period expires without a prior
forfeiture of the Restricted Stock subject to such Restriction Period, the
certificates for such shares shall be delivered to the Participant promptly.
SECTION 8. Long Term Performance Awards.
(i) Awards and Administration. Long Term Performance Awards may be
awarded either alone or in addition to other awards granted under the Plan,
complying at all times with the requirement of Section 12(vi), below. The
Committee shall determine the nature, length and starting date of the
performance period (the "Performance Period") for each Long Term Performance
Award, which shall be at least two years (subject to Section 9 below), and
shall determine the performance objectives to be used in valuing Long Term
Performance Awards and determining the extent to which such Long Term
Performance Awards have been earned. Performance objectives may vary from
Participant to Participant and between groups of Participants and shall be
based upon such Company, business unit and/or individual performance factors
and criteria as the Committee may deem appropriate, including, but not limited
to, earnings per share or return on equity. Performance Periods may overlap
and Participants may participate simultaneously with respect to Long Term
Performance Awards that are subject to different Performance Periods and/or
different performance factors and criteria.
At the beginning of each Performance Period, the Committee shall
determine for each Long Term Performance Award subject to such Performance
period the range of dollar values or number of shares of Stock to be awarded to
the Participant at the end of the performance Period if and to the extent that
the relevant measure(s) of performance for such Long Term Performance Award is
(are) met. Such dollar values or number of shares of Stock may be fixed or may
vary in accordance with such performance and/or other criteria as may be
specified by the Committee, in its sole discretion.
(ii) Adjustment of Awards. In the event of special or unusual events or
circumstances affecting the application of one or more performance objectives
to a Long Term Performance Award, the Committee may revise the performance
objectives and/or underlying factors and criteria applicable to the Long Term
Performance Awards affected, to the extent deemed appropriate by the Committee,
in its sole discretion, to avoid unintended windfalls or hardship.
(iii) Termination of Employment. Subject to Section 9 below and unless
otherwise provided in the applicable award agreement(s), if a Participant
terminates employment with the Company during a Performance Period because of
death, Disability or Retirement, such Participant shall be entitled to a
payment with respect to each outstanding Long Term Performance Award at the end
of the applicable Performance Period:
(a) based, to the extent relevant under the terms of the award, upon
the Participant's performance for the portion of such Performance Period ending
on the date of termination and the performance of the applicable business
unit(s) for the entire Performance Period, and
(b) prorated, where deemed appropriate by the Committee, for the
portion of the Performance Period during which the Participant was employed by
the Company, all as determined by the Committee, in its sole discretion.
However, the Committee may provide for an earlier payment in settlement
of such award in such amount and under such terms and conditions as the
Committee deems appropriate.
Subject to Section 9 below, if a Participant terminates employment with
the Company during a Performance Period for any other reason, then such
Participant shall not be entitled to any payment with respect to the Long Term
Performance Awards subject to such Performance Period, unless the Committee
shall otherwise determine, in its sole discretion.
(iv) Form of Payment. The earned portion of a Long Term Performance Award
may be paid currently or on a deferred basis with such interest or earnings
equivalent as may be determined by the Committee, in its sole discretion.
Payment shall be made in the form of cash or whole shares of Stock, including
Restricted Stock, either in a lump sum payment or in annual installments
commencing as soon as practicable after the end of the relevant Performance
Period, all as the Committee shall determine at or after grant. If and to the
extent a Long Term Performance Award is payable in Stock and the full amount of
such value is not paid in Stock, then the shares of Stock representing the
portion of the value of the Long Term Performance Award not paid in Stock shall
again become available for award under the Plan.
SECTION 9. Change in Control Provisions.
(i) Impact of Event. In the event of:
(a) a "Change in Control" as defined in Section 9(ii), unless otherwise
determined by the Committee or the Board at or after grant, but prior to the
occurrence of such Change in Control, or
(b) a "Potential Change in Control" as defined in Section 9(iii), but
only if and to the extent so determined by the Committee or the Board at or
after grant (subject to any right of approval expressly reserved by the
Committee or the Board at the time of such determination),
the following acceleration and valuation provisions shall apply:
(c) Any Stock Appreciation Rights outstanding for at least six months
and any Stock Options awarded under the Plan not previously exercisable and
vested shall become fully vested and exercisable.
(d) The restrictions applicable to any Restricted Stock awards under
the Plan shall lapse and such shares and awards shall be deemed fully vested.
(e) The value of all outstanding Stock Options, Stock Appreciation
Rights and Restricted Stock awards shall, unless otherwise determined by the
Committee at or after grant, be cashed out on the basis of the "Change in
Control Price" as defined in Section 9(iv) as of the date such Change in
Control or such Potential Change in Control is determined to have occurred or
such other date as the Committee may determine prior to the Change in Control.
(f) Any outstanding Long Term Performance Awards shall be vested and
paid out based on the prorated target results for the Performance Periods in
question, unless the Committee provides at or after grant and prior to the
Change in Control event, for a different payment.
(ii) Definition of "Change in Control". For purposes of Section 9(i), a
"Change in Control" means the happening of any of the following:
(a) When any "person," as such term is used in Sections 13(d) and 14(d)
of the Exchange Act, other than the Company or an Affiliate of the Company (as
defined in Rule 12b-2 under the Securities Exchange Act) or any Company
employee benefit plan (including any trustee of such plan acting as trustee) is
or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly of securities of the Company representing 20
percent or more of the combined voting power of the Company's then outstanding
securities without the consent of a majority of the Board;
(b) The occurrence of any transactions or event relating to the Company
required to be described pursuant to the requirements of Item 5(f) of Schedule
13A of the Exchange Act;
(c) When, during any period of two consecutive years during the
existence of the Plan, the individuals who, at the beginning of such period,
constitute the Board of Directors of the Company cease for any reason other
than death to constitute at least a two-thirds majority thereof, provided,
however, that a director who was not a director at the beginning of such period
shall be deemed to have satisfied the two-year requirement if such director was
elected by, or on the recommendation of, at least two-thirds of the directors
who were directors at the beginning of such period (either actually or by prior
operation of this Section 9(b) (iii); or
(d) The occurrence of a transaction requiring stockholder approval for
the acquisition of the Company by an entity other than the Company through
purchase of assets, or by merger, or otherwise.
(iii) Definition of Potential Change in Control. For purposes of Section
9(i), a "Potential Change in Control" means the happening of any one of the
following:
(a) The entering into an agreement by the Company, the consummation of
which would result in a Change in Control of the Company as defined in Section
9(ii); or
(ii) The acquisition of beneficial ownership, directly or indirectly,
by any entity, person or group other than the Company or any Company employee
benefit plan (including any trustee of such plan acting as such trustee) of
securities of the Company representing five percent or more of the combined
voting power of the Company's outstanding securities and the adoption by the
Board of Directors of a resolution to the effect that a Potential Change in
Control of the Company has occurred for the purposes of this Plan.
(iv) Change in Control Price. For purposes of this Section 9, "Change in
Control Price" means the highest bid price per share paid in any transaction as
furnished by NASDAQ-NMS or the highest price paid or offered in any bona fide
transaction related to a potential or actual change in control of the Company
at any time during the preceding sixty day period as determined by the
Committee except that, in the case of Incentive Stock Options and Stock
Appreciation Rights relating to Incentive Stock Options, such price shall be
based only on transactions reported for the date on which the Committee decides
to cash out such options.
(v) Compliance with Section 280G. No payment shall be made under this
Section 9 which, when aggregated with other payments made to the employee,
would, as determined by such person(s) as the Committee shall irrevocably
designate at or prior to a Change in Control or Potential Change in Control,
result in an excess parachute payment for which the Company, would not receive
a Federal income tax deduction by reason of Section 280G of the Code.
SECTION 10. Amendments and Termination.
The Board may amend, alter, or discontinue the Plan at any time and from
time to time, but no amendment, alteration, or discontinuation shall be made
which would impair the rights of an optionee or Participant under a Stock
Option, Stock Appreciation Right, Restricted Stock or Long Term Performance
Award theretofore granted, without the optionee's or Participant's consent, or
which, without the approval of the Company's stockholders, would:
(i) except as expressly provided in this Plan, increase the total number
of shares reserved for the purpose of the Plan;
(ii) decrease the option price of (i) any Stock Option to less than 100%
of the Fair Market Value on the date of grant, or (ii) change the pricing terms
of Section 9(i);
(iii) change the employees or class of employees eligible to participate
in the Plan, or
(iv) extend the maximum option period under Section 5(ii) of the Plan.
The Committee may amend the terms of any Stock Option or other award
theretofore granted, prospectively or retroactively, but, subject to Section 3
above, no such amendment shall impair the rights of any Award holder without
the holder's consent. The Committee may also substitute new Stock Options for
previously granted Stock Options, including previously granted Stock Options
having higher option prices.
Subject to the above provisions, the Board shall have broad authority to
amend the Plan to take into account changes in applicable tax laws and
accounting rules, as well as other developments.
SECTION 11. Unfunded Status of Plan.
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
Participant or optionee by the Company, nothing contained herein shall give any
such Participant or optionee any rights that are greater than those of a
general creditor of the Company. In its sole discretion, the Committee may
authorize the creation of trusts or other arrangements to meet the obligations
created under the Plan to deliver Stock or payments in lieu of or with respect
to awards hereunder, provided, however, that, unless the Committee otherwise
determines with the consent of the affected Participant, the existence of such
trusts or other arrangements is consistent with the "unfunded" status of the
Plan.
SECTION 12. General Provisions.
(i) The Committee may require each person purchasing shares pursuant to a
Stock Option under the Plan to represent to and agree with the Company in
writing that the optionee or Participant is acquiring the shares without a view
to distribution thereof. The certificates for such shares may include any
legend which the Committee deems appropriate to reflect any restrictions on
transfer.
All certificates for shares of Stock or other securities delivered under
the Plan shall be subject to such stock-transfer orders and other restrictions
as the Committee may deem advisable under the rules, regulations, and other
requirements of the Exchange Act, any stock exchange upon which the Stock is
then listed, and any applicable Federal or state securities law, and the
Committee may cause a legend or legends to be put on any such certificates to
make appropriate reference to such restrictions.
(ii) Nothing contained in this Plan shall prevent the Board of Directors
from adopting other or additional compensation arrangements, subject to
stockholder approval if such approval is required; and such arrangements may be
either generally applicable or applicable only in specific cases.
(iii) The adoption of the Plan shall not confer upon any Participant any
right to continued employment with the Company, as the case may be, nor shall
it interfere in any way with the right of the Company to terminate the
employment of any of its employees, directors, or independent contractors at
any time.
(iv) No later than the date as of which an amount first becomes includable
in the gross income of the Participant for Federal income tax purposes with
respect to any award under the Plan, the Participant who is an officer or key
employee of the Company, shall pay to the Company, or make arrangements
satisfactory to the Committee regarding the payment of, any Federal, state, or
local taxes of any kind required by law to be withheld with respect to such
amount. Unless otherwise determined by the Committee, the minimum required
withholding obligations will be settled with Stock that is part of the award
that gives rise to the withholding requirement. If the particular Award is not
payable in Stock, the obligations of the Company under the Plan shall be
conditional on such withholding tax payment or arrangements and the Company
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind otherwise due to the Participant.
(v) At the time of grant, the Committee may provide in connection with any
grant made under this Plan that the shares of Stock received as a result of
such grant shall be subject to a right of first refusal, pursuant to which the
Participant shall be required to offer to the Company any shares that the
Participant wishes to sell, with the price being the then Fair Market Value of
the Stock, subject to such other terms and conditions as the Committee specify
at the time of grant.
(vi) Any grant made under this Plan shall be represented by a WRITTEN
AGREEMENT between the Company and the Participant receiving the grant setting
forth the material terms of the grant, and incorporating the terms of this Plan
(specifically as well as generally by reference) into each such Agreement.
(vii) The Committee shall establish such procedures as it deems
appropriate for a Participant to designate a beneficiary to whom any amounts
payable in the event of the Participant's death are to be paid.
(viii) In the event any Section or paragraph in this Plan or any Agreement
or writing relating to the Plan is found to be illegal or invalid for any
reason, such illegality or invalidity shall not affect the remaining provisions
of the Plan and the Plan shall be construed and enforced as if such illegal and
invalid provision had never been set forth in the Plan; provided, that the
Committee may conclude that the purposes of the Plan have been materially
frustrated by such a finding, and may thereupon terminate the Plan.
(ix) Where applicable, the masculine includes feminine and neuter and vice
versa. Where applicable, the singular includes the plural and vice versa.
Where a word or phrase is defined in one place in the Plan and appears in
capitalized form in another paragraph of the Plan, such word or phrase shall
have the meaning first set forth unless the context clearly requires otherwise.
A word or phrase in noncapitalized form shall retain its plain meaning taken
in the context in which it appears, regardless of whether said word or phrase
is defined in the Plan.
(x) The headings are for reference only. In the event of a conflict
between a heading and the content of an Article or paragraph, the content of
the Article or paragraph shall control.
(xi) The Plan and all awards made and actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of Delaware.
SECTION 13. Effective Date of Plan.
The Plan, as amended and restated, shall be effective on the date it is
approved by the Company's Executive Committee or Board of Directors, subject to
a condition subsequent that the Shareholders of the Company also approve the
Plan, as amended and restated, at a meeting duly noticed and called for that
purpose by the vote of holders of a majority of the total outstanding Stock
within 12 months of such date.
SECTION 14. Term of Plan.
No Stock Option, Stock Appreciation Right, Restricted Stock or Long Term
Performance Award shall be granted pursuant to the Plan on or after the tenth
anniversary of the date of stockholder approval, but awards granted prior to
such tenth anniversary may extend beyond that date.
SECTION 15. Indemnification of Committee
In addition to such other rights of indemnification as they may have as
Directors of the Company, the members of the Committee shall be indemnified by
the Corporation against the reasonable expenses, including attorneys' fees
actually and necessarily incurred in connection with the defense of any action,
suit or proceeding, or in connection with any appeal therein, to which they or
any of them may be a party by reason of any action taken or failure to act
under or in connection with the Plan or any Incentive Award granted thereunder,
and against all amounts paid by them in settlement thereof (provided such
settlement is approved by independent legal counsel selected by the Company) or
paid by them in satisfaction of a judgment in any such action, suit or
proceeding, except in relation to matters as to which it shall be adjudged in
such action, suit or proceeding that such Committee member is liable for gross
negligence or willful misconduct in the performance of his duties; such
indemnification shall result provided that within sixty (60) days after
institution of any above action, suit or proceeding, a member of such Committee
shall in writing offer the Company the opportunity, at its own expense, to
handle and defend the same. Notwithstanding anything herein to the contrary, a
condition of such indemnification shall be the cooperation of the Committee
member with the Company in the defense of any such action, suit or proceeding.
SECTION 16. Financing
The Committee may arrange for and offer loans to a Participant under the
Plan to pay for the exercise of any Stock Option or other Award if applicable,
provided that no Participant shall have a right or entitlement to such a loan,
and loans may be determined on a basis of individual selection in the sole and
absolute discretion of the Committee governed at all times by Regulation G or
successor provisions of the Federal Reserve Board. It is contemplated but not
required that if any loans are made under the Plan, the loans will be made by
First Security Service Company, provided that the foregoing provision shall not
be construed to require that loans be made available to any Participant at any
time by First Security Service Company or the Company.
IN WITNESS WHEREOF, verifying that the required approvals of the
shareholders and the Directors have been obtained for the foregoing Plan as of
the 26th day of April, 1994.
[SIGNED]
/s/Spencer F. Eccles
Chairman and Chief Executive Officer
EXHIBIT 10.8.
FIRST SECURITY DEFERRED COMPENSATION PLAN
DEFERRAL ELECTION -- 01/01/95 - 12/31/95
Participant information (please print or type)
Name ___________________________ Social Security Number __________________
A. Deferral Election I wish to irrevocably defer:
______________________ the same deferral amounts as in 1994.
______________________ % of my salary
______________________ % of my eligible bonus, or
______________________ % of my eligible bonus in excess of $_____________
If my Incentive Savings Plan contributions are limited by statutory
limits, automatically commence deferral into this Plan [ ] Yes [ ] No
If refunded an amount form the Incentive Savings Plan due to contributions
in excess of IRS limits, I wish to have an identical amount of my salary
into this Plan. [ ] Yes [ ] No
B. Distribution Options I wish to irrevocably defer these amounts:
______________________ as elected in 1994.
until _____________________ (Distribution Date or Retirement)
Primary Distribution Method
At distribution date (elected above) pay this amount (choose only one):
Immediate Lump Sum [ ] Yes [ ] No or
Installments [ ] Annual [ ] Quarterly over __ years (up to 20)
Contingent Distribution Methods
Choose one distribution method per contingency or elect the same
distribution method as Primary Distribution Method above for all:
I elect the same distribution method for all contingencies as elected
in the Primary Distribution Method [ ] Yes [ ] No
Upon death prior to the distribution date, pay this amount:
Immediate Lump Sum [ ] Yes [ ] No or
Installments [ ] Annual [ ] Quarterly over __ years (up to 20)
Upon disability prior to the distribution date, pay this amount:
Immediate Lump Sum [ ] Yes [ ] No or
Installments [ ] Annual [ ] Quarterly over __ years (up to 20)
Upon change of control prior to the distribution date, pay this
amount:
Immediate Lump Sum [ ] Yes [ ] No or
Installments [ ] Annual [ ] Quarterly over __ years (up to 20)
_________________________________________________ ________________________
Signature Date
See Reverse Side for Beneficiary Designation
Please Complete Investment Direction Form for 1st Quarter, 1995
<PAGE>
BENEFICIARY DESIGNATION
I hereby revoke all prior designations made by me, and designate the
following primary beneficiary(ies) who survive(s) me of all benefits in the
First Security Deferred Compensation Plan at the time of my death:
Primary Beneficiary(ies)
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
If there is no primary beneficiary who survives me, I designate the
following contingent beneficiary(ies) who survive me all of my benefits in
the First Security Deferred Compensation Plan at the time of my death:
Contingent Beneficiary(ies)
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
Please include the relationship of beneficiary and any other information, if
necessary, to identify the beneficiary.
I am: [ ] Married [ ] Single (single, widowed, divorced)
Social Security Number: ___________________
Participant: _______________________________________________________________
(Please Print)
Signature: _________________________________________ Date ________________
If you are married and designate your spouse as primary beneficiary, a
spousal consent form is not necessary. If you are married and designate
anyone other than your spouse as primary beneficiary, your designation will
not be effective under federal law, unless a waiver is signed by your
spouse. A Spousal Consent Form is provided below.
SPOUSAL CONSENT
CAUTION: This "spousal consent" is a legally binding waiver of your rights
under federal law. If the waiver is not understood, you should contact your
attorney or other advisor. Upon request, the Plan administrator will
furnish additional information.
The undersigned, being the spouse of the Participant herein named, hereby
consents to the foregoing designation of beneficiary under the First
Security Deferred Compensation Plan as elected by the Participant. The
undersigned spouse represents and specifically acknowledges she/he is aware
of the following:
1. By execution of this written consent, the spouse is waiving certain
rights to which she/he is entitled as a matter of law.
2. If the spouse does not execute the consent, the spouse will be the
death beneficiary of 100% of the Participant's accounts.
3. The undersigned spouse, after reading the foregoing hereby signs the
Spousal Consent in the presence of a witness, and has requested this
witness in his/her presence to notarize and witness the signature at
the same time she/he signs this written consent.
Spouse's Signature _________________________________ Date ________________
Witness ____________________________________________ Date ________________
(Plan Representative of notary listed below)
State of
SS.
County of
On the ______ day of ____________ , A.D. 199___, personally appeared before
me the above-named spouse who declared to me that __he is the spouse of
_______________________________________ and requested me to be a witness to
h____ signature of the above Spousal Consent, and who thereupon signed said
Spousal Consent in my presence, and I do now hereby sign my name to the
signature of said spouse.
<TABLE>
EXHIBIT 11. COMPUTATION OF EARNINGS PER SHARE
For the Periods Ended December 31, 1994 and 1993
<CAPTION>
Three Months Year-To-Date Twelve Months
(in thousands, except per share amounts; unaudited) 1994 1993 1994 1993
<S> <C> <C> <C> <C>
----------------------------------------------------------- ----------- ----------- ------------- -------------
Net Income:
Per statement of consolidated income........................ $34,968 $21,064 $140,134 $114,056
Deduct dividend requirements of preferred stock............. 9 10 39 43
----------------------------------------------------------- ----------- ----------- ------------- -------------
Net income applicable to common stock 34,959 21,054 140,095 114,013
Add dividend requirements of preferred stock................ 9 10 39 43
----------------------------------------------------------- ----------- ----------- ------------- -------------
Net income assuming full dilution $34,968 $21,064 $140,134 $114,056
=========================================================== =========== =========== ============= =============
Net Income Per Share:
Assuming no dilution........................................ $0.69 $0.43 $2.81 $2.38
Assuming full dilution...................................... $0.69 $0.43 $2.80 $2.38
=========================================================== =========== =========== ============= =============
Average common shares outstanding:
Average common shares outstanding........................... 49,924 48,166 49,500 47,132
Common stock equivalents (options).......................... 795 1,002 971 1,101
Treasury shares............................................. (378) (363) (544) (381)
----------------------------------------------------------- ----------- ----------- ------------- -------------
Assuming no dilution 50,341 48,805 49,927 47,852
Issuable assuming conversion of preferred stock 150 164 157 168
----------------------------------------------------------- ----------- ----------- ------------- -------------
Assuming full dilution 50,491 48,969 50,084 48,020
=========================================================== =========== =========== ============= =============
<FN>
Note: Per share amounts assuming full dilution were computed assuming all outstanding shares of preferred
stock were converted into common shares on the basis of 12.15 shares of common for each share of preferred,
with the elimination of dividends on the preferred stock. Common stock equivalents are common stock
options outstanding accounted for on the treasury stock method for purposes of these calculations.
</TABLE>
<TABLE>
Exhibit 21: Subsidiaries
FIRST SECURITY CORPORATION
For the year ended December 31, 1994
<CAPTION>
Percentage of
Organized Voting Securities
Name of Subsidiary (*) Under Laws of Owned by FSC
<S> <C> <C>
----------------------------------------------------------------------- ----------------- -----------------
First Security Bank of Utah, N.A.* U.S.A. 99.9
2nd Tier Subsidiary: CrossLand Mortgage Acquisition Corp. Utah -----
3rd Tier Subsidiary: CrossLand Mortgage Corp. Utah -----
2nd Tier Subsidiary: Foreign Exchange, Ltd. California -----
First Security Bank of Idaho, N.A. U.S.A. 100.0
First Security Bank of New Mexico, N.A. U.S.A. 100.0
First Security Bank of Oregon Oregon 100.0
First Security Bank of Nevada* Nevada 100.0
2nd Tier Subsidiary: First Security Trust Company of Nevada Nevada -----
2nd Tier Subsidiary: First Security Services of Nevada, Inc. Nevada -----
First Security Bank of Wyoming Wyoming 99.9
First Security Leasing Company* Utah 100.0
2nd Tier Subsidiary: First Security Leasing Company of Nevada Nevada -----
First Security Processing Services, Inc. Utah 100.0
First Security Insurance, Inc.* Utah 100.0
2nd Tier Subsidiary: First Security Insurance of Idaho, Inc. Idaho -----
2nd Tier Subsidiary: Intermountain Insurance Agency, Inc. (Inactive) Oregon -----
First Security Life Insurance Company of Arizona Arizona 100.0
First Security Investment Services, Inc.* Utah 100.0
2nd Tier Subsidiary: First Security Investor Services Utah -----
3rd Tier Subsid.: First Security Investor Services of Wyoming, Inc. Wyoming -----
2nd Tier Subsidiary: First Security Investment Management, Inc. Utah -----
First Security Business Investment Corporation Utah 100.0
First Security Service Company Utah 100.0
First Security Information Technology, Inc. Utah 100.0
First Security Mortgage Company* Utah 100.0
2nd Tier Subsidiary: Asset Recovery, Inc. (Inactive) Utah -----
<FN>
(*) All subsidiaries are included in consolidated financial statements.
</TABLE>
EXHIBIT 23.1 Consent of Independent Certified Public Accountants
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-52609 and 33-38483 on Form S-3, in Pre-Effective Amendment No. 1 to
Registration Statement No. 33-52205 on Form S-3, in Post-Effective Amendment
No. 1 to Registration Statement No. 2-62919 on Form S-3, in Registration
Statement Nos. 33-9501, 33-21556, and 33-57107 on Form S-8 of First Security
Corporation of our report dated February 17, 1995, appearing in this Annual
Report on Form 10-K of First Security Corporation for the year ended December
31, 1994.
[SIGNED]
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
March 23, 1995
EXHIBIT 23.2 Consent of Independent Certified Public Accountants
Independent Auditors' Consent
The Board of Directors
First National Financial Corporation
We consent to incorporation by reference into each registration
statement listed below of our report dated February 5, 1993, relating to
the consolidated statements of operations, changes in stockholders'
equity, and cash flows of First National Financial Corporation
(Corporation) and subsidiary for the year ended December 31, 1992
(before restatement for the change in method of accounting for income
taxes), which report appears as an exhibit to the December 31, 1994
annual report on Form 10-K of First Security corporation:
Form No.
S-3 33-52609
S-3 33-38483
S-3 33-52205 (Pre-effective Amendment No. 1)
S-3 2-62919 (Post-effective Amendment No. 1)
S-8 33-9501
S-8 33-21556
S-8 33-57107
Our report dated February 5, 1993 contains an explanatory paragraph that
states that the Board of Directors of the Corporation, on behalf of the
Corporation, has entered into a Memorandum of Understanding with the
Federal Reserve Bank of Kansas City (Reserve Bank). In addition, the
Board of Directors of First National Bank of Albuquerque (Bank), the
subsidiary of the Corporation, on behalf of the Bank, has entered into a
Formal Agreement with the Office of the Comptroller of the Currency
(OCC). Although the Corporation and the Bank have been subjected to
regulatory on-site examinations which indicate substantial compliance
with both agreements, if the Corporation and the Bank are unable to
comply totally with the terms of the respective agreements, the Reserve
Bank and the OCC could, among other things, take additional
administrative actions.
[SIGNED]
KPMG Peat Marwick LLP
Albuquerque, New Mexico
March 23, 1995
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000312367
<NAME> FIRST SECURITY CORP
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 678353
<INT-BEARING-DEPOSITS> 1585
<FED-FUNDS-SOLD> 43551
<TRADING-ASSETS> 553826
<INVESTMENTS-HELD-FOR-SALE> 1993797
<INVESTMENTS-CARRYING> 252622
<INVESTMENTS-MARKET> 249971
<LOANS> 8173678
<ALLOWANCE> (133855)
<TOTAL-ASSETS> 12148982
<DEPOSITS> 8053344
<SHORT-TERM> 2345139
<LIABILITIES-OTHER> 175599
<LONG-TERM> 685426
<COMMON> 888845
0
629
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 12148982
<INTEREST-LOAN> 615558
<INTEREST-INVEST> 121611
<INTEREST-OTHER> 36348
<INTEREST-TOTAL> 773517
<INTEREST-DEPOSIT> 205725
<INTEREST-EXPENSE> 315415
<INTEREST-INCOME-NET> 458102
<LOAN-LOSSES> 825
<SECURITIES-GAINS> (1330)
<EXPENSE-OTHER> 442721
<INCOME-PRETAX> 221177
<INCOME-PRE-EXTRAORDINARY> 221177
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 140134
<EPS-PRIMARY> 2.81
<EPS-DILUTED> 2.80
<YIELD-ACTUAL> 4.64
<LOANS-NON> 23868
<LOANS-PAST> 12001
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 13250
<ALLOWANCE-OPEN> 134848
<CHARGE-OFFS> 37792
<RECOVERIES> 30700
<ALLOWANCE-CLOSE> 133855
<ALLOWANCE-DOMESTIC> 105030
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 28825
</TABLE>
