<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
Commission File Number 1-6906
FIRST SECURITY CORPORATION
(Exact name of registrant as specified in its charter)
State of incorporation Delaware
I.R.S. Employer Identification No. 87-6118148
Address of principal executive offices 79 South Main, P.O. Box 30006
Salt Lake City, Utah
Zip Code 84130-0006
Registrant's telephone number, including area code (801) 246-5706
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 [ ]
As of October 31, 1996, outstanding shares of Common Stock, par value $1.25,
were 75,636,660 (net of 559,820 treasury shares).
FIRST SECURITY CORPORATION - INDEX
Part I. Financial Information
Item 1. Financial Statements:
Consolidated Income Statements
Three Months and Year-To-Date Nine Months Ended
September 30, 1996 and 1995
Consolidated Balance Sheets
September 30, 1996, December 31, 1995, and September 30, 1995
Condensed Consolidated Statements of Cash Flows
Year-To-Date Nine Months Ended
September 30, 1996 and 1995
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations:
Analysis of Results of Operations
Summary
Net Interest Income and Margin
Provision For Loan Losses
Noninterest Income
Noninterest Expenses
Analysis of Financial Condition
Summary
Interest-Earning Assets and Asset Quality
Securities
Loans
Problem Assets and Potential Problem Assets
Reserve For Loan Losses
Provision For Loan Losses
Asset / Liability Management
Liquidity
Interest Rate Risk
Stockholders' Equity and Capital Adequacy
Common Stock
Mergers And Acquisitions
Project VISION
National and Regional Economy
Supplemental Tables:
Financial Highlights, Risk-Based Capital Ratios
Rate / Volume Analysis
Loans
Part II. Other Information
Item 1. Legal Proceedings
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
Exhibit 11. Computation of Earnings Per Share
Exhibit 27. Financial Data Schedule
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
FIRST SECURITY CORPORATION
CONSOLIDATED INCOME STATEMENTS
(in thousands, except per share data; unaudited)
<CAPTION>
Three Months Year-To-Date Nine Months
For the Periods Ended September 30, 1996 and 1995 1996 1995 $Chg %Chg 1996 1995 $Chg %Chg
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- - ------------------------------------------------------- --------- --------- --------- ------- --------- --------- --------- -------
Interest Income:
Interest & fees on loans ............................... 201,273 190,079 11,194 5.9 579,980 559,616 20,364 3.6
Federal funds sold & securities purchased .............. 669 3,228 (2,559) (79.3) 3,572 6,035 (2,463) (40.8)
Interest-bearing deposits in other banks ............... 210 446 (236) (52.9) 554 476 78 16.4
Trading account securities ............................. 1,858 4,843 (2,985) (61.6) 8,406 18,295 (9,889) (54.1)
Securities available for sale .......................... 47,866 32,261 15,605 48.4 131,899 92,743 39,156 42.2
Securities held to maturity ............................ 0 3,727 (3,727) (100.0) 0 11,037 (11,037) (100.0)
- - ------------------------------------------------------- --------- --------- --------- ------- --------- --------- --------- -------
Total Interest Income 251,876 234,584 17,292 7.4 724,411 688,202 36,209 5.3
- - ------------------------------------------------------- --------- --------- --------- ------- --------- --------- --------- -------
Interest Expense:
Deposits ............................................... 78,727 79,139 (412) (0.5) 233,020 221,662 11,358 5.1
Short-term borrowings .................................. 26,922 21,560 5,362 24.9 75,844 80,791 (4,947) (6.1)
Long-term debt ......................................... 13,225 14,106 (881) (6.2) 36,869 38,306 (1,437) (3.8)
- - ------------------------------------------------------- --------- --------- --------- ------- --------- --------- --------- -------
Total Interest Expense 118,874 114,805 4,069 3.5 345,733 340,759 4,974 1.5
- - ------------------------------------------------------- --------- --------- --------- ------- --------- --------- --------- -------
Net Interest Income 133,002 119,779 13,223 11.0 378,678 347,443 31,235 9.0
Provision for loan losses .............................. 9,508 6,587 2,921 44.3 28,751 13,177 15,574 118.2
- - ------------------------------------------------------- --------- --------- --------- ------- --------- --------- --------- -------
Net Interest Income After Provision For Loan Losses 123,494 113,192 10,302 9.1 349,927 334,266 15,661 4.7
- - ------------------------------------------------------- --------- --------- --------- ------- --------- --------- --------- -------
Noninterest Income:
Service charges on deposit accounts .................... 20,858 17,647 3,211 18.2 57,925 50,804 7,121 14.0
Other service charges, collections, commissions, & fees 11,527 9,689 1,838 19.0 34,665 25,751 8,914 34.6
Bankcard servicing fees & third-party processing fees .. 7,805 6,951 854 12.3 21,579 18,931 2,648 14.0
Insurance commissions & fees ........................... 3,640 3,190 450 14.1 10,930 10,351 579 5.6
Mortgage banking activities, net ....................... 18,794 21,101 (2,307) (10.9) 61,399 54,815 6,584 12.0
Trust (fiduciary) commissions & fees ................... 5,640 5,122 518 10.1 16,846 15,344 1,502 9.8
Trading account securities gains (losses) .............. 540 1,150 (610) (53.0) 2,103 6,446 (4,343) (67.4)
Securities gains (losses) .............................. 1,414 1,105 309 28.0 2,178 2,037 141 6.9
Other .................................................. 2,094 4,137 (2,043) (49.4) 6,962 15,517 (8,555) (55.1)
- - ------------------------------------------------------- --------- --------- --------- ------- --------- --------- --------- -------
Total Noninterest Income 72,312 70,092 2,220 3.2 214,587 199,996 14,591 7.3
- - ------------------------------------------------------- --------- --------- --------- ------- --------- --------- --------- -------
Total Income 195,806 183,284 12,522 6.8 564,514 534,262 30,252 5.7
- - ------------------------------------------------------- --------- --------- --------- ------- --------- --------- --------- -------
Noninterest Expenses:
Salaries & employee benefits ........................... 62,775 66,706 (3,931) (5.9) 194,693 192,518 2,175 1.1
Advertising ............................................ 2,588 2,324 264 11.4 7,333 6,338 995 15.7
Amortization of intangibles ............................ 1,980 2,173 (193) (8.9) 6,007 6,660 (653) (9.8)
Bankcard interbank interchange ......................... 6,871 4,419 2,452 55.5 17,388 12,993 4,395 33.8
Furniture & equipment .................................. 9,959 8,758 1,201 13.7 28,828 25,992 2,836 10.9
Insurance .............................................. 1,014 1,041 (27) (2.6) 4,456 13,099 (8,643) (66.0)
Occupancy, net ......................................... 7,705 6,763 942 13.9 22,217 20,703 1,514 7.3
Other real estate expense & loss provision (recovery) .. 195 (1,415) 1,610 113.8 (73) (2,436) 2,363 97.0
Postage ................................................ 2,157 2,763 (606) (21.9) 8,455 8,446 9 0.1
Stationery & supplies .................................. 4,424 5,103 (679) (13.3) 13,793 13,553 240 1.8
Telephone .............................................. 3,455 3,525 (70) (2.0) 10,103 9,878 225 2.3
Other .................................................. 18,128 19,115 (987) (5.2) 53,489 50,378 3,111 6.2
- - ------------------------------------------------------- --------- --------- --------- ------- --------- --------- --------- -------
Total Noninterest Expenses 121,251 121,275 (24) (0.0) 366,689 358,122 8,567 2.4
- - ------------------------------------------------------- --------- --------- --------- ------- --------- --------- --------- -------
Income Before Provision For Income Taxes 74,555 62,009 12,546 20.2 197,825 176,140 21,685 12.3
- - ------------------------------------------------------- --------- --------- --------- ------- --------- --------- --------- -------
Provision For Income Taxes:
Operating earnings ..................................... 26,611 22,249 4,362 19.6 70,383 64,202 6,181 9.6
Securities gains (losses) .............................. 548 417 131 31.4 828 762 66 8.7
- - ------------------------------------------------------- --------- --------- --------- ------- --------- --------- --------- -------
Total Provision For Income Taxes 27,159 22,666 4,493 19.8 71,211 64,964 6,247 9.6
- - ------------------------------------------------------- --------- --------- --------- ------- --------- --------- --------- -------
NET INCOME 47,396 39,343 8,053 20.5 126,614 111,176 15,438 13.9
======================================================= ========= ========= ========= ======= ========= ========= ========= =======
Preferred stock dividend requirement ................... 9 9 0 0.0 25 27 (2) (7.4)
- - ------------------------------------------------------- --------- --------- --------- ------- --------- --------- --------- -------
Net Income Applicable To Common Stock 47,387 39,334 8,053 20.5 126,589 111,149 15,440 13.9
======================================================= ========= ========= ========= ======= ========= ========= ========= =======
Common stock dividend .................................. 15,848 13,996 1,852 13.2 47,497 41,953 5,544 13.2
======================================================= ========= ========= ========= ======= ========= ========= ========= =======
EARNINGS PER COMMON SHARE:
Earnings per common share: primary ..................... 0.61 0.51 0.10 19.6 1.64 1.46 0.18 12.3
Earnings per common share: fully diluted ............... 0.61 0.51 0.10 19.6 1.63 1.46 0.17 11.6
Common shares outstanding: primary [Avg] ............... 77,374 76,466 908 1.2 77,252 76,129 1,123 1.5
Common shares outstanding: fully diluted [Avg] ......... 77,565 76,671 894 1.2 77,445 76,338 1,107 1.5
======================================================= ========= ========= ========= ======= ========= ========= ========= =======
CASH DIVIDENDS PAID OR ACCRUED PER SHARE:
Preferred Stock ($3.15 annual rate) .................... 0.79 0.79 2.36 2.36
Common stock ........................................... 0.21 0.19 0.02 10.5 0.63 0.57 0.06 10.5
======================================================= ========= ========= ========= ======= ========= ========= ========= =======
<FN>
Notes:
See "Notes to Condensed Consolidated Financial Statements".
Avg: Average.
</TABLE>
<PAGE>
<TABLE>
FIRST SECURITY CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands; unaudited)
<CAPTION>
Sept 30 December 31 Sept 30 Sep/Sep Sep/Sep
1996 1995 1995 $ Chg % Chg
<S> <C> <C> <C> <C> <C>
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
ASSETS:
Cash & due from banks ...................................................... 758,493 818,664 701,353 57,140 8.1
Federal funds sold & securities purchased under resale agreements .......... 83,568 148,069 158,038 (74,470) (47.1)
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Total Cash & Cash Equivalents 842,061 966,733 859,391 (17,330) (2.0)
Interest-bearing deposits in other banks ................................... 46,920 21,563 41,563 5,357 12.9
Trading account securities ................................................. 171,910 638,393 484,761 (312,851) (64.5)
Securities available for sale, at fair value (A) ........................... 3,166,608 2,623,557 2,219,488 947,120 42.7
(Amortized Cost: $3,179,116; $2,599,943; $2,219,059; respectively)
Securities held to maturity, at cost (A) ................................... 0 0 247,493 (247,493) (100.0)
(Fair value: $0; $0; $251,159 respectively)
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Loans, net of unearned income .............................................. 8,948,196 8,315,095 8,303,049 645,147 7.8
(Unearned income: $57,859; $16,250; $10,265; respectively)
Reserve for loan losses .................................................... (133,853) (129,982) (131,878) (1,975) 1.5
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Total Loans, Net 8,814,343 8,185,113 8,171,171 643,172 7.9
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Premises & equipment, net .................................................. 229,293 209,138 209,926 19,367 9.2
Accrued income receivable .................................................. 84,286 82,143 83,508 778 0.9
Other real estate & other foreclosed assets ................................ 5,003 4,134 4,472 531 11.9
Other assets ............................................................... 218,077 155,014 208,277 9,800 4.7
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Goodwill ................................................................... 90,987 94,660 96,485 (5,498) (5.7)
Mortgage servicing rights .................................................. 67,723 52,604 46,276 21,447 46.3
Other intangible assets .................................................... 2,113 1,555 2,203 (90) (4.1)
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Total Intangible Assets .................................................. 160,823 148,819 144,964 15,859 10.9
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
TOTAL ASSETS 13,739,324 13,034,607 12,675,014 1,064,310 8.4
=========================================================================== =========== =========== =========== =========== =======
LIABILITIES:
Deposits: noninterest-bearing .............................................. 1,946,454 1,884,931 1,857,584 88,870 4.8
Deposits: interest-bearing ................................................. 7,141,950 6,888,711 6,831,503 310,447 4.5
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Total Deposits 9,088,404 8,773,642 8,689,087 399,317 4.6
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Federal funds purchased & securities sold under repurchase agreements ...... 2,159,727 1,937,456 1,472,452 687,275 46.7
U.S. Treasury demand notes ................................................. 38,040 33,897 30,799 7,241 23.5
Other short-term borrowings ................................................ 201,442 227,336 172,247 29,195 16.9
Accrued income taxes ....................................................... 166,407 131,510 123,726 42,681 34.5
Accrued interest payable ................................................... 39,727 48,737 38,822 905 2.3
Other liabilities .......................................................... 129,985 130,936 271,757 (141,772) (52.2)
Long-term debt ............................................................. 821,932 720,521 856,550 (34,618) (4.0)
Minority equity in subsidiaries ............................................ 329 309 304 25 8.2
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
TOTAL LIABILITIES 12,645,993 12,004,344 11,655,744 990,249 8.5
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
STOCKHOLDERS' EQUITY:
Preferred stock: Series "A" $3.15 cumulative convertible ................... 549 571 589 (40) (6.8)
(Shares issued: 10; 11; 11; respectively)
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Common Stockholders' Equity:
Common stock: par value $1.25 ............................................. 95,213 94,674 94,577 636 0.7
(Shares issued: 76,171; 75,740; 75,661; respectively)
Paid-in surplus ............................................................ 126,069 120,084 118,251 7,818 6.6
Retained earnings .......................................................... 889,551 810,458 815,651 73,900 9.1
Net unrealized gain (loss) on securities available for sale (net of taxes) . (8,051) 14,547 71 (8,122) NA
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Subtotal 1,102,782 1,039,763 1,028,550 74,232 7.2
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Common treasury stock, at cost ............................................. (10,000) (10,071) (9,869) (131) 1.3
(Shares: 574; 607; 602; respectively)
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Total Common Stockholders' Equity 1,092,782 1,029,692 1,018,681 74,101 7.3
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
TOTAL STOCKHOLDERS' EQUITY 1,093,331 1,030,263 1,019,270 74,061 7.3
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY 13,739,324 13,034,607 12,675,014 1,064,310 8.4
=========================================================================== =========== =========== =========== =========== =======
<FN>
Notes:
See "Notes to Condensed Consolidated Financial Statements".
(A) In December 1995, FSCO elected to reclassify all of its securities previously classified as "Held to Maturity" to
"Available for Sale" pursuant to SFAS 115 supplemental guidance.
</TABLE>
<PAGE>
<TABLE>
FIRST SECURITY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands; unaudited)
<CAPTION>
For the Nine Months Ended September 30, 1996 and 1995 1996 1995
<S> <C> <C>
- - --------------------------------------------------------------------------------- -------------- --------------
NET CASH PROVIDED BY (USED IN) BY OPERATING ACTIVITIES 860,156 730,436
- - --------------------------------------------------------------------------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale ............................. 80,079 37,369
Redemption of matured securities available for sale .............................. 787,198 657,708
Redemption of matured securities held to maturity ................................ 0 55,971
Purchases of securities available for sale ....................................... (1,443,765) (830,549)
Purchases of securities held to maturity ......................................... 0 (51,763)
Net (increase) decrease in interest-bearing deposits in other banks .............. (25,357) (39,753)
Net (increase) decrease in loans ................................................. (935,285) (465,095)
Purchases of premises and equipment .............................................. (34,539) (33,256)
Proceeds from sales of other real estate ......................................... 3,669 6,948
Payments to improve other real estate ............................................ (3,676) (824)
Net cash (paid for) received from acquisitions ................................... 0 603
- - --------------------------------------------------------------------------------- -------------- --------------
NET CASH USED IN INVESTING ACTIVITIES (1,571,676) (662,641)
- - --------------------------------------------------------------------------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits .............................................. 314,762 635,743
Net increase (decrease) in Federal funds purchased, securities sold
under repurchase agreements, and U.S. Treasury demand notes .................... 226,414 (690,888)
Proceeds (payments) on nonrecourse debt on leveraged leases ...................... 11,103 (30,869)
Proceeds from issuance of long-term debt and short-term borrowings ............... 205,423 224,923
Payments on long-term debt and short-term borrowings ............................. (129,906) (32,786)
Proceeds from issuance of common stock and sales of treasury stock ............... 8,498 9,525
Purchases of treasury stock ...................................................... (1,925) (3,976)
Dividends paid ................................................................... (47,521) (41,980)
- - --------------------------------------------------------------------------------- -------------- --------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 586,848 69,692
- - --------------------------------------------------------------------------------- -------------- --------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (124,672) 137,487
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 966,733 721,904
- - --------------------------------------------------------------------------------- -------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD 842,061 859,391
================================================================================= ============== ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
- - --------------------------------------------------------------------------------- -------------- --------------
CASH PAID (RECEIVED) FOR:
Interest ....................................................................... 354,742 329,646
Income taxes ................................................................... 22,162 49,843
================================================================================= ============== ==============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Conversion of preferred shares to common shares:
Preferred shares converted (not rounded) ..................................... 413 764
Common shares issued (not rounded) ........................................... 6,736 13,904
Conversion value ............................................................. 22 40
Transfer of loans to other real estate............................................ 652 4,530
Net unrealized gain (loss) on securities available for sale
(included in stockholders' equity) ............................................. (22,598) 54,412
Pooling-of-interests acquisitions:
Assets acquired ................................................................ 0 1,874
Liabilities assumed ............................................................ 0 1,235
FSCO shares issued (not rounded) ............................................... 0 200,757
Purchase acquisitions:
Fair value of assets acquired .................................................. 0 853
Liabilities assumed ............................................................ 0 0
Cash paid for the capital stock ................................................ 0 853
FSCO shares issued (not rounded) ............................................... 0 0
================================================================================= ============== ==============
<FN>
See "Notes to Consolidated Financial Statements".
</TABLE>
<PAGE>
FIRST SECURITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of management, the accompanying unaudited consolidated
financial statements of First Security Corporation (FSCO) contain all
adjustments (consisting of normal recurring accruals) necessary to present
fairly the following: FSCO's results of operations for the three months and
the year-to-date nine months in the periods ended September 30, 1996 and 1995;
FSCO's financial position as of September 30, 1996, December 31, 1995, and
September 30, 1995; and cash flows for the year-to-date nine months in the
periods ended September 30, 1996 and 1995.
2. The results of operations for the three months and the year-to-date nine
month periods ended September 30, 1996 and 1995 are not necessarily indicative
of the results to be expected for the full year.
3. FSCO's financial statements include restatements and reclassifications of
common stock and earnings per share data where appropriate to reflect a 3-for-
2 stock split in the form of a 50% stock dividend paid in February 1996.
4. In December 1995, FSCO moved all securities classified as "Held to
Maturity" to "Available for Sale" pursuant to SFAS 115 supplemental guidance.
Prior periods were not reclassified.
5. On January 1, 1996, FSCO adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of".
This statement addresses the accounting for the impairment of long-lived
assets, such as premises, furniture and equipment, certain identifiable
intangibles, and goodwill related to those assets. Long-lived assets and
certain identifiable intangibles are to be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. An impairment loss is recognized when the sum
of the estimated future cash flows (undiscounted and without interest charges
expected from the use of the asset and its eventual disposition) is less than
the carrying amount of the asset. The statement also requires that long-lived
assets and identifiable intangibles be accounted for at the lower of cost or
fair value less cost to sell. SFAS No. 121 has had no material impact on FSCO
and its subsidiaries in relation to the consolidated financial statements.
6. The reconciliation of FSCO's mortgage servicing rights for the first nine
months of 1996 from $52.6 million as of December 31, 1995 is as follows. FSCO
sold mortgage servicing rights with a book value of $4.8 million (resulting in
a gain of $2.5 million). In accordance with SFAS No. 122, FSCO recorded
originated mortgage servicing rights of $29.9 million. Mortgage servicing
rights of $10.3 million have been amortized. The resulting net unamortized
balance of mortgage servicing rights was $67.7 million as of September 30,
1996.
7. In October 1995, the Financial Accounting Standards Board issued SFAS 123
"Accounting for Stock-Based Compensation" which became effective for FSCO
beginning January 1, 1996. SFAS 123 requires expanded disclosures of stock-
based compensation arrangements with employees and encourages (but does not
require) compensation cost to be measured based on the fair value of the
equity instrument awarded. Companies are permitted, however, to continue to
apply APB Opinion 25, which recognizes compensation cost based on the
intrinsic value of the equity instrument awarded. FSCO will continue to apply
APB Opinion 25 in its financial statements and will disclose in a footnote to
its 1996 Annual Report on Form 10-K the proforma effect on net income and
earnings per share, as if FSCO had applied the new standard.
# # #
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 2: Management's Discussion and Analysis of Results of Operations and
Financial Condition (MDA)
ANALYSIS OF RESULTS OF OPERATIONS
Summary
First Security Corporation (FSCO) earned record net income totaling $126.6
million for the first nine months of 1996, up $15.4 million or 13.9% from
$111.2 million earned in the corresponding year-to-date 1995 period (see:
Financial Statements "Consolidated Income Statements"; and MDA Supplemental
Tables "Financial Highlights"). This net income generated a 1.32% return on
average assets (ROAA) and a 16.03% return on average equity (ROAE) for year-
to-date 1996 on FSCO's strong average equity to assets ratio of 8.25%,
compared with a 1.23% ROAA and a 15.35% ROAE for the 1995 period. Fully
diluted earnings per share were $1.63 for year-to-date 1996, up $0.17 or 11.6%
from $1.46 for the year-ago period. Adjusting for amortization of intangibles
on a year-to-date basis, the tangible ROAA was 1.47%, the tangible ROAE was
20.62%, and tangible fully diluted earnings per share were $1.79.
Net income was a record $47.4 million for the third quarter of 1996, up
$8.1 million or 20.5% from $39.3 million earned in the third quarter of 1995.
This net income generated a 1.43% ROAA and a 17.55% ROAE for the quarter,
compared with a 1.28% ROAA and 15.46% ROAE for the year-ago quarter. Fully
diluted earnings per share were $0.61 for the quarter, up $0.10 or 19.6% from
$0.51 for the year-ago quarter. The tangible ROAA was 1.60%, the tangible
ROAE was 22.67%, and tangible fully diluted earnings per share were $0.67.
Net Interest Income and Margin
Net interest income on a fully-taxable equivalent (FTE) basis totaled
$384.0 million for year-to-date 1996, up $30.5 million or 8.6% from the year-
ago period, and was $134.8 million for the third quarter of 1996, up $12.9
million or 10.6% from the year-ago quarter (see: MDA Supplemental Tables
"Financial Highlights" and "Rate / Volume Analysis"). These increases were
due to: volume growth and higher rates on securities available for sale;
volume growth in loans; and lower rates on overnight borrowed funds and other
interest-bearing liabilities. On a linked-quarter basis, net interest income
FTE for the third quarter rose $7.7 million or 6.0% from the second quarter of
1996.
The net interest margin was 4.47% for year-to-date 1996, up 15 basis points
from the year-ago period, and was 4.57% for the third quarter of 1996, up 11
basis points from the year-ago quarter. On a linked-quarter basis, the net
interest margin for the third quarter rose 10 basis points over the second
quarter of 1996.
Provision For Loan Losses
The provision for loan losses totaled $28.8 million for year-to-date 1996,
up $15.6 million or 118.2% from the year-ago period, and was $9.5 million for
the third quarter of 1996, up $2.9 million or 44.3% from the year-ago quarter
(see: MDA "Interest-Earning Assets and Asset Quality: Provision For Loan
Losses").
Noninterest Income
Noninterest income totaled $214.6 million for year-to-date 1996, up $14.6
million or 7.3% from the year-ago period, and was $72.3 million for the third
quarter of 1996, up $2.2 million or 3.2% from the year-ago quarter (see:
Financial Statements "Consolidated Income Statements"). These increases were
due primarily to FSCO's ongoing focus, and Project VISION's added emphasis, on
increasing and diversifying sources of noninterest income, plus the positive
impact of consolidated mortgage banking activities during the year-to-date
period.
Noninterest Expenses
Noninterest expenses totaled $366.7 million for the first nine months of
1996, up only $8.6 million or 2.4% from the year-ago period, and were $121.3
million for the third quarter of 1996, essentially unchanged from the year-ago
quarter (see: Financial Statements "Consolidated Income Statements").
Salaries and benefits expense totaled $194.7 million for year-to-date 1996,
up $2.2 million or 1.1% from the year-ago period, and was $62.8 million for
the third quarter of 1996, down $3.9 million or 5.9% from the year-ago
quarter. The increase in year-to-date salary and benefits expense included
$14.1 million of additional expense due to increased mortgage lending and
contracted Project VISION implementation expenses. This increase was largely
offset by a reduction in ongoing salary and benefits expense of $11.9 million
or 6.2% resulting from Project VISION's process redesign. The decrease in
third quarter salaries and benefits expense was almost entirely due to Project
VISION's process redesign which more than offset approximately $1.0 million of
additional expense due to increased lending and Project VISION implementation
costs. Project VISION has had, and will continue to have, a direct impact on
FSCO's staffing levels as full-time equivalent employees totaled 7,089 at
September 30, 1996, down 669 or 8.6% from one year ago and down 441 or 5.9%
from year-end 1995.
The benefits and implementation costs of Project VISION initiatives on
nonpersonnel expenses will continue to be realized throughout the remainder of
1996.
For both the year-to-date period and the quarter: bankcard interbank
interchange fees rose due to volume growth; depreciation expense on occupancy
and furniture & equipment increased as a result of capital expenditures; and
other real estate expense rose in 1996 due to the absence of recoveries and
other favorable events that had been generated in 1995. Year-to-date
insurance expense decreased significantly as FSCO was not required to pay any
FDIC insurance during the period.
FSCO's operating expense ratio (the ratio of noninterest expenses to the
sum of net interest income FTE and noninterest income) was reduced to 61.26%
for year-to-date 1996, an improvement of 345 basis points from the year-ago
period, and dropped to 58.55% for the third quarter of 1996, an improvement of
462 basis points from the year-ago quarter. On a linked-quarter basis, the
operating expense ratio for the third quarter was 289 basis points below the
second quarter of 1996.
During October 1996, a jury verdict was entered against First Security
Bank, N.A. (formerly First Security Bank of Idaho, N.A.) in a lender liability
lawsuit. FSCO management, based upon advice of counsel, believes that there
is clear appealable error with this verdict, and FSCO will take all
appropriate steps, including motions for a new trial and appeals, to set aside
the verdict. Based on counsel's advice and careful analysis, FSCO believes
that any final judgment against FSCO will not be material.
ANALYSIS OF FINANCIAL CONDITION
Summary
As of September 30, 1996, FSCO increased its total assets, interest-earning
assets, and equity to record levels, and maintained good asset quality and
liquidity, as compared with September 30, 1995 and December 31, 1995.
FSCO's assets totaled a record $13.7 billion at September 30, 1996, up $1.1
billion or 8.4% from one year ago, and up $705 million or 5.4% from year-end
1995. Interest-earning assets were a record $12.4 billion at quarter end, up
$963 million or 8.4% from one year ago, and up $671 million or 5.7% from the
year end (see: MDA "Interest-Earning Assets and Asset Quality").
Intangible assets were $160.8 million at September 30, 1996, up $15.9
million or 10.9% from one year ago, and up $12.0 million or 8.1% from year-end
1995, due to increased originated mortgage servicing rights from higher loan
production. Fluctuations in other assets and other liabilities were in part
due to the effect of timing differences on cash, accounts receivable, and
accounts payable resulting from unsettled transactions in the purchase and
sale of securities.
FSCO's liabilities totaled $12.6 billion at September 30, 1996, up $990
million or 8.5% from one year ago, and up $642 million or 5.3% from year-end
1995. Total interest-bearing liabilities were $10.4 billion at quarter end,
up $1.0 billion or 10.7% from one year ago, and up $555 million or 5.7% from
the year end (see: MDA "Liquidity").
Stockholders' equity in FSCO increased to $1.1 billion at September 30,
1996, up $74 million or 7.3% from one year ago, and up $63 million or 6.1%
from year-end 1995 (see: MDA "Stockholders' Equity and Capital Adequacy").
FSCO's financial condition is discussed in greater detail in the following
MDA sections: "Interest-Earning Assets and Asset Quality"; "Asset / Liability
Management"; and "Stockholders' Equity and Capital Adequacy".
INTEREST-EARNING ASSETS and ASSET QUALITY
Securities
FSCO manages its securities available for sale portfolio 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.
FSCO's investment strategy is carefully reviewed by management, and remains
flexible to meet changing economic conditions. The average life of the
securities portfolio is relatively short, providing a constant cash flow from
maturing and prepaying assets. With the exception of U.S. Government and U.S.
Government-sponsored agency securities, FSCO had no concentrations of
securities from any single issuer that constituted 10% or more of
stockholders' equity at September 30, 1996.
In December, 1995, FSCO took advantage of a one-time opportunity provided
by SFAS 115 supplemental guidance to reposition its securities portfolios by
transferring all of its held to maturity securities to the available for sale
portfolio. This repositioning provides FSCO the flexibility to manage its
entire securities portfolio consistently with balance sheet needs and market
opportunities.
FSCO's securities available for sale were $3.2 billion at September 30,
1996, up $947 million or 42.7% from one year ago, and up $543 million or 20.7%
from year-end 1995 (see: Financial Statements "Consolidated Balance Sheets").
This growth occurred primarily as FSCO utilized self-funding through
repurchase agreements and deposit growth to improve earnings by leveraging its
strong capital position with short term high quality securities.
Loans
FSCO's borrowers reside primarily in the states where FSCO has its banking
offices and in markets contiguous to those states. FSCO's lending is
generally concentrated in small- and medium-sized businesses, and consumers.
There is substantial economic diversification and customer mix across FSCO's
six-state region which provides a beneficial natural diversification for
FSCO's various loan portfolios. FSCO believes it has a high quality loan
portfolio and has policies and procedures in place designed to maintain high
quality. These policies and procedures include underwriting standards for new
credits and continuous monitoring and reporting of loan quality, coupled with
continuous analysis to determine the adequacy of the reserve for loan losses.
FSCO's loans, net of unearned income but before the reserve for loan
losses, grew to a record $8.9 billion at September 30, 1996, up $645 million
or 7.8% from one year ago, and up $633 million or 7.6% from year-end 1995; on
a linked-quarter basis, loans were up $232 million or 2.7% from June 30, 1996
(see: MDA Supplemental Tables "Loans" and "Financial Highlights"). The ratio
of loans to total assets was 65.13% at quarter end, compared with 65.51% one
year ago and 63.79% at year end, while the ratio of loans to deposits was
98.46% at quarter end, compared with 95.56% one year ago and 94.77% at year
end .
The components of FSCO's loan portfolio at September 30, 1996, compared
with September 30, 1995, and December 31, 1995, respectively, included:
* Commercial loans were $2.1 billion, up $89 million or 4.4% from one year
ago, and up $151 million or 7.7% from year end. The growth from one year ago
was due primarily to an ongoing broad-based business expansion in FSCO's
market areas with increases in loans of all sizes.
* Real estate secured loans were $3.4 billion, up $14 million or 0.4% from
one year ago, and up $55 million or 1.7% from year end. This growth was due
to increases in 1-4 family residential home equity and construction loans.
For balance sheet management purposes, FSCO does not retain all newly-
originated fixed-rate mortgage loans but sells a portion to secondary markets.
* Consumer loans were $2.8 billion, up $195 million or 7.5% from one year
ago, and up $159 million or 6.1% from year end. These increases were due to
growth in indirect auto lending and leasing. FSCO remains the leading
consumer lender in its primary market area.
Problem Assets and Potential Problem Assets
Strong asset quality continues to be a primary objective for FSCO.
However, it has been FSCO's experience that economic cycles and loan-specific
events cause fluctuations in problem assets, sometimes with little or no
warning.
FSCO's earning asset quality remained good at September 30, 1996, as the
ratio of total problem assets to total loans and ORE was 0.60% at quarter end,
indicating the continuing high quality of FSCO's interest-earning assets,
although up from 0.50% one year ago, and up from 0.48% at year end.
Problem assets were $54.1 million at September 30, 1996, up $12.8 million
or 30.9% from one year ago, and up $14.1 million or 35.2% from year-end 1995
(see: MDA Supplemental Tables "Financial Highlights - Problem Assets, -
Selected Ratios"). The components of FSCO's problem assets at September 30,
1996, compared with September 30, 1995, and December 31, 1995, respectively,
included:
* Nonaccruing loans were $33.4 million, up $8.0 million or 31.6% from one
year ago, and up $11.0 million or 48.8% from year end. These increases were
due primarily to nonaccruing 1-4 family residential mortgage loans which were
approximately $17.9 million at quarter end. The majority of these loans,
which generally have a much lower rate of actual losses than other types of
nonaccruing loans, came from the repurchase of secondary marketing loans
originated and sold by FSCO's CrossLand Mortgage subsidiary. Typically, these
repurchased assets remain on FSCO's books for an average of six months and
generally result in minimal losses. The level of these repurchased assets is
expected to increase somewhat for the next two to three quarters due to a
nationwide trend of more aggressive investor standards in the retention of
loans purchased. The ratio of nonaccruing loans to total loans was 0.37%, up
from 0.31% one year ago, and up from 0.27% at year end.
* Other real estate (ORE) and other foreclosed assets were $5.0 million, up
$0.5 million or 11.9% from one year ago, and up $0.9 million or 21.0% from
year end. These increases were primarily in 1-4 family residential
properties, most of which were employee residences acquired in connection with
Project VISION relocations. ORE property values are reviewed at least
annually, and the portfolio is adjusted to the lower of cost or fair value
less estimated selling costs.
* Accruing loans past due 90 days or more were $15.7 million, up $4.2
million or 36.6% from one year ago, and up $2.3 million or 16.9% from year
end. These increases were mainly in consumer loans, and to a lesser extent,
real estate secured loans.
Potential problem loans identified by FSCO were $12.3 million at September
30, 1996, down $4.9 million or 28.7% from one year ago, and essentially
unchanged from year-end 1995. The decrease from one year ago was primarily in
commercial loans. Potential problem loans consisted primarily of commercial
loans and real estate secured loans.
Reserve For Loan Losses
It is FSCO's philosophy to maintain a conservative balance sheet, including
its reserve for loan losses. FSCO carefully considers actual and potential
fluctuations in problem assets in the analysis and establishment of its
reserve. The adequacy of FSCO's reserve for loan losses is evaluated
quarterly based on policies established by the board of directors of its
subsidiary banks and regulatory and accounting guidelines. The reserve was
discussed in greater detail in FSCO's 1995 Form 10-K Annual Report: "Interest-
Earning Assets and Asset Quality - Reserve For Loan Losses".
The reserve for loan losses was increased to $133.9 million at September
30, 1996, up $2.0 million or 1.5% from one year ago and up $3.9 million or
3.0% from year-end 1995 (see: MDA Supplemental Tables "Financial Highlights -
Reconciliation of the Reserve For Loan Losses"). The reserve was nominally
increased as FSCO chose to build the reserve in response to loan growth in the
first nine months of 1996.
Since the acquisition of CrossLand Mortgage in 1994, FSCO's loan portfolio
has included substantial levels of 1-4 family residential mortgage loans,
which historically have minimal actual losses. In addition, consumer loans in
FSCO's loan portfolio are automatically charged off at 120 days past due. As
a result, these types of loans require lower levels of reserve coverage in
comparison to other loan types. Based on its analysis of reserve adequacy,
FSCO considered the reserve for loan losses at September 30, 1996 to be
adequate to cover potential losses in the foreseeable future. The coverage
ratio of the reserve to nonaccruing loans was 400.75% at September 30, 1996,
down from 519.59% one year ago and 579.06% at year-end 1995, while the ratio
of the reserve to total loans was 1.50% at quarter end, down from 1.59% one
year ago and 1.56% at year-end 1995 (see: MDA Supplemental Tables "Financial
Highlights - Selected Ratios").
Net loans charged off against the reserve totaled $24.9 million for year-
to-date 1996, up $9.7 million or 64.2% from the year-ago period, and were $9.3
million for the third quarter of 1996, up $4.2 million or 83.1% from the year-
ago quarter (see: MDA Supplemental Tables "Financial Highlights -
Reconciliation of the Reserve For Loan Losses"). These increases were due to
higher consumer and credit card losses, generally involving loans originated
before 1995, and lower commercial recoveries. FSCO raised its consumer
underwriting standards during 1995 to return its delinquency and loss patterns
to more recent historical FSCO levels. While recoveries on commercial and
real estate term loans have had a major positive impact on FSCO's overall net
loans charged off in the last few years, FSCO does not expect these levels of
recoveries to continue. The ratio of net loans charged off to average loans
was a low 0.39% for year-to-date 1996, compared with 0.25% for the year-ago
period and 0.30% for all of 1995, and was 0.42% for the third quarter of 1996,
compared with 0.25% for the year-ago quarter.
FSCO uses the provision for loan losses to adjust the reserve for loan
losses when it considers that replenishment of, or additions to, the reserve
is appropriate.
Provision For Loan Losses
The provision for loan losses totaled $28.8 million for year-to-date 1996,
up $15.6 million or 118.2% from the year-ago period, and was $9.5 million for
the third quarter of 1996, up $2.9 million or 44.3% from the year-ago quarter
(see: Financial Statements "Consolidated Income Statements"; MDA "Reserve For
Loan Losses"; and MDA Supplemental Tables "Financial Highlights -
Reconciliation of the Reserve For Loan Losses"). The year-to-date increase
included a second quarter 1996 addition to the reserve for loan losses of $3
million over and above net loans charged off for that quarter.
ASSET / LIABILITY MANAGEMENT
FSCO's asset / liability management committee (ALCO) process is responsible
for the identification, assessment, and management of corporate capital
adequacy (see: MDA "Stockholders' Equity and Capital Adequacy"), and the
liquidity and interest rate risk of FSCO's business lines. FSCO's ALCO
process, its components, and the associated objectives, policies and
procedures, were discussed in greater detail in FSCO's 1995 Form 10-K Annual
Report: "Asset / Liability Management".
Liquidity
FSCO maintains an adequate liquidity position in large part through stable
deposits generated from its wide-spread branch network, the prudent usage of
debt, and from a high quality securities portfolio (see: MDA "Interest-Earning
Assets and Asset Quality"). Maturing balances in the large loan portfolios,
and the sale or securitization of assets, are also important sources of medium
to long term liquidity.
Additional sources of liquidity are provided by credit lines to FSCO,
Federal funds purchased and securities sold under repurchase agreements
carried by FSCO's subsidiary banks, borrowings from the Federal Home Loan
Bank, bank note issuances by FSCO's subsidiary banks, debt offerings by FSCO,
securitization of certain types of assets, and access to the Federal Reserve
for short term liquidity needs.
Deposits totaled a record $9.1 billion at September 30, 1996, up $399
million or 4.6% from one year ago, and up $315 million or 3.6% from year-end
1995. (see: Financial Statements "Consolidated Balance Sheets"; and MDA
Supplemental Tables "Rate / Volume Analysis"). This increase was due to
FSCO's renewed emphasis on its deposit gathering functions and the success of
several deposit programs oriented to customers' needs. The ratio of loans to
deposits was 98.46% at quarter end, up from 95.56% one year ago, and up from
94.77% at year end. These and other loan and liquidity ratios vary with
changes in economic cycles and are monitored closely through FSCO's ALCO
process to insure adequacy of liquidity as well as profitability
opportunities.
Debt, which included short-term borrowings and long-term debt, totaled $3.2
billion at September 30, 1996, up $689 million or 27.2% from one year ago, and
up $302 million or 10.3% from year-end (see: Financial Statements
"Consolidated Balance Sheets"). The components of FSCO's debt at September
30, 1996, compared with September 30, 1995, and December 31, 1995,
respectively, included:
* Federal funds purchased and securities sold under repurchase agreements
(repo's) were $2.2 billion, up $687 million or 46.7% from one year ago, and up
$222 million or 11.5% from year end. These increases occurred as FSCO funded
loan growth generated by business-cycle opportunities in its market areas, and
funded growth in securities available for sale through repo's.
* All other short-term borrowed funds were $239 million, up $36 million or
17.9% from one year ago, but down $22 million or 8.3% from year end. The
increase was due to the normal growth of nondeposit funding in periods of high
loan growth.
* Long-term debt was $822 million, down $35 million or 4.0% from one year
ago, but up $101 million or 14.1% from year end. The increase was also due to
the normal growth of nondeposit funding in periods of high loan growth, plus
FSCO's asset / liability maturity matching program to minimize its exposure to
interest rate risk.
On May 9, 1996, FSCO filed a shelf registration statement with the
Securities and Exchange Commission (SEC) covering up to $600 million of
unspecified debt and / or equity securities to be issued and offered from time
to time. This registration will enable FSCO to rapidly take advantage of
market windows for the issuance of long- or short-term debt and / or equity at
favorable terms. On August 19, 1996, this registration statement was declared
effective by the SEC.
Interest Rate Risk
Many of FSCO's strategic ALCO actions in the first nine months of 1996
continued to focus on maintaining acceptable liquidity levels and on
maintaining a position of minimal interest rate risk exposure while ongoing
actions included an emphasis on deposit gathering functions and taking
advantage of various lending opportunities throughout FSCO's market areas.
FSCO has used off-balance sheet derivative products for many years in
managing interest rate risk and in the trading account. The components of
FSCO's off-balance sheet derivative products were discussed in greater detail
in FSCO's 1995 Form 10-K Annual Report: "Asset / Liability Management". As of
September 30, 1996, the notional amount of derivatives held for interest rate
risk management purposes was $629.7 million, down $577.7 million from year-end
1995, while the notional amount of derivatives held for the trading account
was $10.8 billion, down $133 million from year-end 1995. During the second
quarter of 1996, $250 million in interest rate swaps were acquired to balance
the increases in fixed rate funding with FSCO's floating rate loan growth.
Additionally, decreases in notional principal were $814 million due to the
maturity of several derivative instruments during the first nine months of
1996.
STOCKHOLDERS' EQUITY and CAPITAL ADEQUACY
FSCO and its subsidiary banks have exceeded regulatory requirements for
"well capitalized" status every year since these requirements were
established, including year-to-date 1996. It is FSCO's policy to maintain the
"well capitalized" status at both the consolidated and subsidiary bank levels.
Application of SFAS 115 has resulted in, and will continue to result in,
additions to or deductions from FSCO's total stockholders' equity as the
result of fluctuations in the fair value of securities available for sale.
These fluctuations are shown in the "Net unrealized gain (loss) on securities
available for sale" component of equity.
Stockholders' equity in FSCO increased to $1.1 billion at September 30,
1996, up $74 million or 7.3% from one year ago, and up $63 million or 6.1%
from year-end 1995 (see: Financial Statements "Consolidated Balance Sheets").
This growth was due to earnings retained, partially offset by volatility in
the SFAS 115 net unrealized gain / (loss) on securities available for sale
which decreased $8 million from one year ago and $23 million from year-end
1995. The ratio of stockholders' equity to total assets was 7.96% at
September 30, 1996, down from 8.04% one year ago but up from 7.90% at year end
(see: MDA Supplemental Tables "Financial Highlights - Selected Ratios"). At
the same time, the ratio of tangible common equity to tangible total assets
was 6.86%, compared to 6.97% one year ago and 6.84% at year end.
FSCO's risk-based capital ratios (see: MDA Supplemental Tables "Financial
Highlights - Risk-Based Capital Ratios") at September 30, 1996, compared with
September 30, 1995, and December 31, 1995, respectively, were:
* Tier 1 ("well capitalized" = 6.00% or above) at 10.10%, compared with
10.52% one year ago, and 10.35% at year end.
* Total Capital ("well capitalized" = 10.00% or above) at 13.37%, compared
with 14.06% one year ago, and 13.86% at year end.
* Leverage ("well capitalized" = 5.00% or above) at 7.34%, compared with
7.32% one year ago, and 7.12% at year end.
COMMON STOCK
On July 29, 1996, FSCO declared a regular quarterly common stock cash
dividend of $0.21 per share (see: MDA Supplemental Tables "Financial
Highlights"). This was the 166th common stock dividend declared by FSCO. The
cash dividend was paid on September 3, 1996, to shareholders of record on
August 9, 1996. This equates to an annual dividend rate of $0.84 per share.
At the market closing price of $25.625 per share on Friday, July 26, 1996 (the
last market day before the announcement of the dividend), the annual dividend
yield on FSCO common stock was 3.28%.
On October 28, 1996, FSCO declared an increased regular quarterly common
stock cash dividend of $0.23 per share, up 9.5% from the previous $0.21 per
share. The cash dividend is payable on December 2, 1996, to shareholders of
record on November 8, 1996. This equates to an annual dividend rate of $0.92
per share. At the market closing price of $29.125 per share on Friday,
October 25, 1996 (the last market day before the announcement of the
dividend), the annual dividend yield on FSCO common stock was 3.16%.
For over 62 consecutive years, FSCO has paid cash dividends on its common
stock. 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.
First Security Corporation's common stock is traded on the NASDAQ / NMS
under the symbol "FSCO".
MERGERS AND ACQUISITIONS
FSCO's merger and acquisition activity 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.
On June 21, 1996, FSCO's two largest subsidiaries, First Security Bank of
Utah, N.A. and First Security Bank of Idaho, N.A., merged to become one legal
entity - First Security Bank, N.A.. The decision to combine the charters of
these two banks was announced in 1995 during Project VISION, and is part of
FSCO's goal of becoming a "virtual bank" in which all of FSCO's banks will be
managed as a single entity. This reorganization will have both expenses and
cost savings associated with it.
FSCO has completed no acquisitions since May 31, 1995.
PROJECT "VISION" - FSCO'S CUSTOMER FOCUSED CORPORATE REDESIGN PROGRAM
FSCO continued its implementation of Project VISION, a comprehensive
corporate redesign that includes a major restructuring of FSCO to better meet
customers' needs, and to increase efficiency, performance, and shareholder
value. Implementation of Project VISION is proceeding on schedule and is
having a positive impact on earnings in the areas of noninterest expenses and
revenue enhancements.
The favorable impact of the Project VISION ideas implemented during the
first nine months of 1996 is approximately $0.15 per share. On a full year
run-rate basis, the favorable impact of the Project VISION ideas already
implemented would be approximately $0.30 per share.
Project VISION has had, and will have, a direct impact on FSCO's staffing
levels as full-time equivalent employees totaled 7,089 at September 30, 1996,
down 669 or 8.6% from one year ago and down 441 or 5.9% from year-end 1995.
NATIONAL & REGIONAL ECONOMY
Monetary policy, and thereby short-term interest rates, remained unchanged
into the fourth quarter of 1996, but a bond-market rally pushed intermediate-
and longer-term interest rates lower. The U.S. economy, with a 5.2% jobless
rate, is essentially at full employment. While economic growth moderated to a
2.2% growth rate during the third quarter of 1996, there is still some
lingering concern that rising wage gains may either narrow profit margins or
be passed on in higher prices. It now appears, however, that moderate
economic growth, little change in inflation, and a steady interest-rate
environment may characterize the economy in the months ahead.
Investors in both the stock and bond markets reacted favorably, first, to
the decision to leave monetary policy unchanged and, second, to the latest
national economic data showing a reduced rate of economic growth. The outcome
of the presidential and congressional elections suggests that a major change
in the direction of national economic policies does not appear likely.
The Intermountain regional economy continued to record highly favorable
economic growth in the third quarter of 1996. As of August 1996, Nevada,
Utah, and Idaho were the top three states nationally in job growth, while New
Mexico and Oregon were also in the top ten. Consumer buying, including
automobile and home sales, has provided ongoing economic stimulus.
Nevertheless, rising debt, delinquency and bankruptcy levels in the consumer
sector nationally are also evident to some degree in the states served
directly by FSCO. While this trend is a concern, it does not appear to be of
sufficient magnitude to cause major problems.
# # #
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. Continued: Supplemental Tables
<TABLE>
FIRST SECURITY CORPORATION
FINANCIAL HIGHLIGHTS
(in thousands, except per share data and ratios; unaudited)
<CAPTION>
3rd Qtr 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr Year-To-Date Nine Months
1996 1996 1996 1995 1995 1996 1995 %Chg
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- - ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
Common Stock Data (A):
Earnings per common share: primary ............ 0.61 0.56 0.47 0.11 0.51 1.64 1.46 12.3
Earnings per common share: fully diluted ...... 0.61 0.55 0.47 0.11 0.51 1.63 1.46 11.6
Tangible EPCS: fully diluted .................. 0.67 0.61 0.52 0.15 0.56 1.79 1.61 11.2
Dividends paid per common share ............... 0.21 0.21 0.21 0.19 0.19 0.63 0.57 10.5
Book value [EOP] .............................. 14.46 13.97 13.75 13.71 13.57 14.46 13.57 6.5
Tangible book value [EOP] ..................... 12.33 11.88 11.68 11.72 11.64 12.33 11.64 5.9
Market price (bid) [EOP] ...................... 27.38 24.00 27.75 25.33 20.92 27.38 20.92 30.9
High bid for the period ..................... 28.13 27.63 27.75 25.33 22.17 28.13 22.17 26.9
Low bid for the period ...................... 23.75 22.88 23.17 20.33 18.33 22.88 14.67 56.0
Market capitalization (mktprice x #shrs) [EOP] 2,069,468 1,811,184 2,092,017 1,903,094 1,569,974 2,069,468 1,569,974 31.8
Market price / book value [EOP] % ............. 189.32 171.80 201.82 184.76 154.10 189.32 154.10
Dividend payout ratio (DPCS / EPCS) % ......... 34.43 37.50 44.68 172.73 36.36 38.41 36.36
Dividend yield (DPCS / mktprice) [EOP] % ...... 3.07 3.50 3.03 3.00 3.57 3.07 3.57
Price / earnings ratio (mktprice / 4 qtrs earn) 15.6x 14.5x 16.5x 16.2x 10.9x 15.6x 10.9x
Common shares [EOP] ........................... 75,597 75,466 75,388 75,133 75,059 75,597 75,059 0.7
Common shares: primary [Avg] .................. 77,374 77,216 77,164 76,883 76,466 77,252 76,129 1.5
Common shares: fully diluted [Avg] ............ 77,565 77,409 77,360 77,087 76,671 77,445 76,338 1.5
Preferred shares outstanding [EOP] ............ 10 11 11 11 11 10 11 (9.1)
- - ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
Income Statement:
Interest income ............................... 251,876 239,423 233,112 246,657 234,584 724,411 688,202 5.3
Interest expense .............................. 118,874 113,523 113,336 119,109 114,805 345,733 340,759 1.5
Net interest income ........................... 133,002 125,900 119,776 127,548 119,779 378,678 347,443 9.0
Fully taxable equivalent (FTE) adjustment ..... 1,764 1,178 2,333 2,323 2,114 5,275 6,013 (12.3)
Net interest income, FTE ...................... 134,766 127,078 122,109 129,871 121,893 383,953 353,456 8.6
Provision for loan losses ..................... 9,508 10,505 8,738 7,905 6,587 28,751 13,177 118.2
Noninterest income ............................ 72,312 75,714 66,561 66,496 70,092 214,587 199,996 7.3
Noninterest expenses .......................... 121,251 124,586 120,852 172,083 121,275 366,689 358,122 2.4
Provision for income taxes .................... 27,159 23,595 20,457 5,227 22,666 71,211 64,964 9.6
Net income .................................... 47,396 42,928 36,290 8,829 39,343 126,614 111,176 13.9
Preferred stock dividend requirement .......... 9 8 8 8 9 25 27 (7.4)
Common stock dividend ......................... 15,848 15,846 15,803 14,013 13,996 47,497 41,953 13.2
- - ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
Balance Sheet - End of Period:
Trading account securities .................... 171,910 150,529 272,443 638,393 484,761 171,910 484,761 (64.5)
Securities available for sale (B) ............. 3,166,608 2,715,770 2,693,820 2,623,557 2,219,488 3,166,608 2,219,488 42.7
Securities held to maturity (B) ............... 0 0 0 0 247,493 0 247,493 (100.0)
Loans, net of unearned income ................. 8,948,196 8,716,400 8,375,060 8,315,095 8,303,049 8,948,196 8,303,049 7.8
Reserve for loan losses ....................... (133,853) (133,678) (130,653) (129,982) (131,878) (133,853) (131,878) 1.5
Total interest-earning assets .................12,417,202 11,674,994 11,486,526 11,746,677 11,454,392 12,417,202 11,454,392 8.4
Other assets .................................. 1,295,152 1,337,700 1,240,155 1,269,093 1,207,536 1,295,152 1,207,536 7.3
Intangible assets ............................. 160,823 157,582 155,744 148,819 144,964 160,823 144,964 10.9
Total assets ..................................13,739,324 13,036,598 12,751,772 13,034,607 12,675,014 13,739,324 12,675,014 8.4
Noninterest-bearing deposits .................. 1,946,454 1,857,593 1,787,827 1,884,931 1,857,584 1,946,454 1,857,584 4.8
Interest-bearing deposits ..................... 7,141,950 7,027,120 7,069,406 6,888,711 6,831,503 7,141,950 6,831,503 4.5
Total deposits ................................ 9,088,404 8,884,713 8,857,233 8,773,642 8,689,087 9,088,404 8,689,087 4.6
Short-term borrowed funds ..................... 2,399,209 2,049,074 1,812,218 2,198,689 1,675,498 2,399,209 1,675,498 43.2
Long-term debt ................................ 821,932 723,728 675,460 720,521 856,550 821,932 856,550 (4.0)
Total interest-bearing liabilities ............10,363,091 9,799,922 9,557,084 9,807,921 9,363,551 10,363,091 9,363,551 10.7
Other liabilities ............................. 336,119 324,238 369,766 311,183 434,305 336,119 434,305 (22.6)
Minority equity in subsidiaries ............... 329 319 315 309 304 329 304 8.2
Preferred stockholders' equity ................ 549 553 563 571 589 549 589 (6.8)
Common stockholders' equity ................... 1,092,782 1,053,973 1,036,217 1,029,692 1,018,681 1,092,782 1,018,681 7.3
Parent company investment in subsidiaries ..... 1,155,998 1,117,599 1,090,036 1,071,320 1,057,376 1,155,998 1,057,376 9.3
- - ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
Problem Assets & Potential Problem Assets - End of Period:
Nonaccruing loans:
Commercial .................................. 13,244 10,171 11,670 9,158 11,046 13,244 11,046 19.9
Real estate term ............................ 18,681 12,965 11,703 10,430 11,831 18,681 11,831 57.9
Real estate construction .................... 875 1,556 1,609 2,349 1,278 875 1,278 (31.5)
Consumer .................................... 70 144 95 110 75 70 75 (6.7)
Leases ...................................... 531 322 333 400 1,151 531 1,151 (53.9)
Total nonaccruing loans ....................... 33,401 25,158 25,410 22,447 25,381 33,401 25,381 31.6
ORE & other foreclosed assets ................. 5,003 5,663 5,209 4,134 4,472 5,003 4,472 11.9
Total nonperforming assets .................... 38,404 30,821 30,619 26,581 29,853 38,404 29,853 28.6
Accruing loans past due 90 days or more ....... 15,728 16,656 13,501 13,455 11,515 15,728 11,515 36.6
Total problem assets .......................... 54,132 47,477 44,120 40,036 41,368 54,132 41,368 30.9
Potential problem assets ...................... 12,283 23,513 7,595 12,319 17,223 12,283 17,223 (28.7)
- - ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
Other Data - End of Period (not rounded):
Full-time equivalent employees ................ 7,089 7,003 7,088 7,530 7,758 7,089 7,758 (8.6)
Domestic bank offices (C):
First Security Bank (FSB Utah + FSB Idaho) .. 208 209 218 218 215 208 215 (3.3)
FSB New Mexico .............................. 28 28 26 27 27 28 27 3.7
FSB Oregon .................................. 13 13 13 13 13 13 13 0.0
FSB Nevada .................................. 7 7 8 8 8 7 8 (12.5)
FSB Wyoming ................................. 6 6 6 6 6 6 6 0.0
Total domestic bank offices ................... 262 263 271 272 269 262 269 (2.6)
============================================== ========== ========== ========== ========== ========== ========== ========== =======
<FN>
Notes:
EOP: End Of Period. Avg: Average. EPCS: Earnings Per Common Share. DPCS: Dividends Per Common Share. NM: Not Meaningful.
(A) Figures have been restated where appropriate to reflect a 3-for-2 stock split in the form of a 50% stock dividend paid in
February 1996.
(B) In December 1995, FSCO elected to reclassify all of its securities previously classified as "Held to Maturity" to
"Available for Sale" pursuant to SFAS 115 supplemental guidance.
(C) On June 21, 1996, FSB Utah and FSB Idaho merged to become First Security Bank, N.A.
</TABLE>
<PAGE>
<TABLE>
FIRST SECURITY CORPORATION
FINANCIAL HIGHLIGHTS - Continued
(in thousands, except per share data and ratios; unaudited)
<CAPTION>
3rd Qtr 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr Year-To-Date Nine Months
1996 1996 1996 1995 1995 1996 1995 %Chg
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- - ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
Balance Sheet - Average:
Trading account securities .................... 159,258 172,737 328,072 637,492 294,378 219,801 437,611 (49.8)
Securities available for sale (B) ............. 2,930,670 2,725,110 2,609,266 2,330,460 2,096,740 2,755,656 2,040,144 35.1
Securities held to maturity (B) ............... 0 0 0 173,374 243,993 0 243,354 (100.0)
Loans, net of unearned income ................. 8,800,072 8,534,146 8,254,010 8,212,849 8,207,753 8,530,397 8,191,337 4.1
Reserve for loan losses ....................... (133,706) (130,816) (130,063) (131,138) (130,358) (131,536) (131,796) (0.2)
Deferred taxes on leases ...................... (172,614) (166,840) (164,953) (162,656) (160,855) (168,152) (159,431) 5.5
Total int-earning assets - defer tax on leases 11,784,210 11,359,959 11,174,290 11,359,039 10,932,739 11,440,745 10,901,816 4.9
Other assets .................................. 1,171,950 1,164,633 1,115,502 1,437,133 1,045,896 1,150,772 1,011,418 13.8
Intangible assets ............................. 158,718 157,979 150,022 145,665 141,780 155,584 151,275 2.8
Total assets ..................................13,153,786 12,718,595 12,474,704 12,648,043 12,150,912 12,783,717 12,092,144 5.7
Noninterest-bearing deposits .................. 1,780,120 1,755,868 1,708,154 1,761,612 1,690,536 1,748,164 1,607,133 8.8
Interest-bearing deposits ..................... 7,158,996 7,019,739 6,938,872 6,899,375 6,887,306 7,039,640 6,694,028 5.2
Total deposits ................................ 8,939,116 8,775,607 8,647,026 8,660,987 8,577,842 8,787,804 8,301,161 5.9
Short-term borrowed funds ..................... 2,073,144 1,918,772 1,817,625 1,934,202 1,534,440 1,937,012 1,878,324 3.1
Long-term debt ................................ 771,128 691,766 691,535 755,457 791,348 718,337 719,800 (0.2)
Total interest-bearing liabilities ............10,003,268 9,630,277 9,448,032 9,589,034 9,213,094 9,694,989 9,292,152 4.3
Other liabilities ............................. 295,577 286,857 273,040 257,850 237,052 285,196 224,278 27.2
Minority equity in subsidiaries ............... 319 312 311 308 300 314 289 8.7
Preferred stockholders' equity ................ 550 557 566 583 593 558 604 (7.6)
Common stockholders' equity ................... 1,073,952 1,044,724 1,044,601 1,038,656 1,009,339 1,054,496 967,688 9.0
- - ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
Reconciliation of the Reserve for Loan Losses:
Reserve for loan losses, beginning of period .. 133,678 130,653 129,982 131,878 130,388 129,982 133,855 (2.9)
Loans (charged off):
Commercial .................................. (1,918) (1,989) (1,139) (1,574) (954) (5,046) (6,897) (26.8)
Real estate term ............................ (315) (186) (145) (1,803) (103) (646) (1,267) (49.0)
Real estate construction .................... (157) (19) 0 (6) 0 (176) (94) 87.2
Consumer instalment ......................... (9,406) (8,658) (10,053) (9,151) (7,319) (28,117) (17,433) 61.3
Consumer credit card ........................ (3,641) (3,054) (2,992) (2,884) (2,464) (9,687) (4,738) 104.5
Leases ...................................... (91) 285 (796) (358) 1 (602) (600) 0.3
Total loans (charged off) ..................... (15,528) (13,621) (15,125) (15,776) (10,839) (44,274) (31,029) 42.7
Recoveries on loans charged off:
Commercial .................................. 1,592 930 1,641 1,469 1,215 4,163 4,628 (10.0)
Real estate term ............................ 21 511 709 239 399 1,241 2,325 (46.6)
Real estate construction .................... 134 8 7 68 43 149 52 186.5
Consumer instalment ......................... 3,791 4,040 4,133 3,658 3,178 11,964 7,773 53.9
Consumer credit card ........................ 497 526 535 525 500 1,558 1,057 47.4
Leases ...................................... 160 126 33 16 407 319 40 697.5
Total recoveries of loans charged off ......... 6,195 6,141 7,058 5,975 5,742 19,394 15,875 22.2
Net loans (charged off) recovered ............. (9,333) (7,480) (8,067) (9,801) (5,097) (24,880) (15,154) 64.2
Provision for loan losses ..................... 9,508 10,505 8,738 7,905 6,587 28,751 13,177 118.2
Reserve for loan losses, end of period ........ 133,853 133,678 130,653 129,982 131,878 133,853 131,878 1.5
- - ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
Selected Ratios (%):
Return on average assets (ROAA) ............... 1.43 1.36 1.17 0.28 1.28 1.32 1.23
Tangible ROAA ................................. 1.60 1.51 1.30 0.37 1.42 1.47 1.37
Return on average stockholders' equity (ROAE) . 17.55 16.52 13.97 3.37 15.46 16.03 15.35
Tangible ROAE ................................. 22.67 21.43 17.94 5.21 19.64 20.62 20.07
Net interest margin, FTE ...................... 4.57 4.47 4.37 4.57 4.46 4.47 4.32
Net interest spread, FTE ...................... 3.86 3.75 3.63 3.80 3.68 3.75 3.60
Operating expense ratio
(nonint exp / (net int inc FTE + nonint inc)) 58.55 61.44 64.05 87.63 63.17 61.26 64.71
Productivity ratio (nonint exp / avg assets) .. 3.67 3.94 3.90 5.40 3.96 3.83 3.96
Stockholders' equity / assets [EOP] ........... 7.96 8.09 8.13 7.90 8.04 7.96 8.04
Stockholders' equity / assets [Avg] ........... 8.17 8.22 8.38 8.22 8.31 8.25 8.01
Tangible common equity / tangible assets [EOP] 6.86 6.96 6.99 6.84 6.97 6.86 6.97
Loans / deposits [EOP] ........................ 98.46 98.11 94.56 94.77 95.56 98.46 95.56
Loans / assets [EOP] .......................... 65.13 66.86 65.68 63.79 65.51 65.13 65.51
Reserve for loan losses [EOP] /:
Total loans ................................. 1.50 1.53 1.56 1.56 1.59 1.50 1.59
Nonaccruing loans ........................... 400.75 531.35 514.18 579.06 519.59 400.75 519.59
Nonaccruing + accruing loans past due 90 days 272.45 319.70 335.77 362.05 357.43 272.45 357.43
Nonaccruing loans / total loans ............... 0.37 0.29 0.30 0.27 0.31 0.37 0.31
Nonaccruing + accr loans past due / total loans 0.55 0.48 0.46 0.43 0.44 0.55 0.44
Nonperforming assets /:
Total loans + ORE ........................... 0.43 0.35 0.37 0.32 0.36 0.43 0.36
Total assets ................................ 0.28 0.24 0.24 0.20 0.24 0.28 0.24
Total equity ................................ 3.51 2.92 2.95 2.58 2.93 3.51 2.93
Total equity + reserve for loan losses ...... 3.13 2.59 2.62 2.29 2.59 3.13 2.59
Problem assets /:
Total loans + ORE ........................... 0.60 0.54 0.53 0.48 0.50 0.60 0.50
Total assets ................................ 0.39 0.36 0.35 0.31 0.33 0.39 0.33
Total equity ................................ 4.95 4.50 4.26 3.89 4.06 4.95 4.06
Total equity + reserve for loan losses ...... 4.41 4.00 3.78 3.45 3.59 4.41 3.59
Net loans charged off / average loans ......... 0.42 0.35 0.39 0.47 0.25 0.39 0.25
============================================== ========== ========== ========== ========== ========== ========== ========== =======
Risk-Based Capital Ratios: FSC FSB FSB FSB FSB
As of September 30, 1996 Consolidated FS Bank(C) NewMexico Oregon Nevada Wyoming
- - ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
Leverage ratio (%) ............................ 7.34 7.32 6.17 9.10 7.16 8.01
Tier 1 risk-based capital ratio (%) ........... 10.10 9.49 12.85 11.79 10.97 12.01
Total (Tier 1+2) risk-based capital ratio (%) . 13.36 11.11 14.11 13.04 12.23 13.27
Tier 1 capital ................................ 1,002,200 793,757 111,156 38,790 30,202 17,067
Total (Tier 1 + Tier 2) capital ............... 1,326,381 928,905 122,063 42,915 33,672 18,856
Total risk-based assets - loan loss reserve ... 9,924,814 8,361,295 864,896 329,029 275,380 142,134
============================================== ========== ========== ========== ========== ========== ========== ========== =======
<FN>
Notes:
EOP: End Of Period. Avg: Average. EPCS: Earnings Per Common Share. DPCS: Dividends Per Common Share. NM: Not Meaningful.
(A) Figures have been restated where appropriate to reflect a 3-for-2 stock split in the form of a 50% stock dividend paid in
February 1996.
(B) In December 1995, FSCO elected to reclassify all of its securities previously classified as "Held to Maturity" to
"Available for Sale" pursuant to SFAS 115 supplemental guidance.
(C) On June 21, 1996, FSB Utah and FSB Idaho merged to become First Security Bank, N.A.
</TABLE>
<PAGE>
<TABLE>
FIRST SECURITY CORPORATION
RATE / VOLUME ANALYSIS
(Fully taxable equivalent; in thousands; unaudited)
<CAPTION>
For the Three Months Ended September 30, 1996 and 1995
Average Balance Yield/Rate % Interest Inc/Exp (A) Change Changes Due To:
1996 1995 1996 1995 1996 1995 1996-95 Volume Rate(B)
<C> <C> <C> <C> <S> <C> <C> <C> <C> <C>
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
INTEREST-EARNING ASSETS / INCOME:
Loans, net of unearned income and
8,627,458 8,046,898 9.36 9.49 . deferred taxes on leases (C) .............. 201,963 190,990 10,973 13,779 (2,806)
50,784 220,984 5.27 5.84 .Federal funds sold & securities purchased ... 669 3,228 (2,559) (2,486) (73)
16,040 29,746 5.24 6.00 .Interest-bearing deposits in other banks..... 210 446 (236) (206) (30)
159,258 294,378 4.69 6.59 .Trading account securities .................. 1,867 4,851 (2,984) (2,227) (757)
2,930,670 2,096,740 6.68 6.16 .Securities available for sale ............... 48,931 32,281 16,650 12,839 3,811
0 243,993 0.00 8.04 .Securities held to maturity ................. 0 4,902 (4,902) (4,902) 0
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
11,784,210 10,932,739 8.61 8.66 TOTAL INTEREST-EARNING ASSETS / INCOME 253,640 236,698 16,942 16,797 145
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
INTEREST-BEARING LIABILITIES / EXPENSE:
Interest-bearing deposits:
652,072 1,057,126 3.01 1.94 .Interest-bearing demand accounts ............ 4,914 5,134 (220) (1,967) 1,747
2,997,952 2,388,909 3.16 3.84 .Savings & money market accounts ............. 23,647 22,915 732 5,842 (5,110)
740,172 735,368 5.55 6.14 .Time deposits of $100,000 or more ........... 10,277 11,297 (1,020) 74 (1,094)
2,768,800 2,705,903 5.76 5.88 .Other time deposits ......................... 39,889 39,793 96 925 (829)
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
7,158,996 6,887,306 4.40 4.60 TOTAL INTEREST-BEARING DEPOSITS 78,727 79,139 (412) 4,874 (5,286)
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
1,830,154 1,346,186 5.06 5.52 .Federal funds purchased & securities sold ... 23,149 18,573 4,576 6,677 (2,101)
242,990 188,254 6.21 6.35 .Other short-term borrowings ................. 3,773 2,987 786 868 (82)
771,128 791,348 6.86 7.13 .Long-term debt .............................. 13,225 14,106 (881) (360) (521)
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
10,003,268 9,213,094 4.75 4.98 TOTAL INTEREST-BEARING LIABILITIES / EXPENSE 118,874 114,805 4,069 12,059 (7,990)
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
8.61 8.66 .Interest income / earning assets
4.04 4.20 .Interest expense / earning assets
------ ------ --------------------------------------------
4.57 4.46 .Net interest income / earning assets ........ 134,766 121,893 12,873 4,738 8,135
Less fully taxable equivalent adjustment .... 1,764 2,114 (350)
------ ------ -------------------------------------------- --------- --------- -------- -------- --------
NET INTEREST INCOME, PER CONDENSED
CONSOLIDATED INCOME STATEMENTS 133,002 119,779 13,223
=========== =========== ====== ====== ============================================ ========= ========= ======== ======== ========
<CAPTION>
For the Nine Months Ended September 30, 1996 and 1995
Average Balance Yield/Rate % Interest Inc/Exp (A) Change Changes Due To:
1996 1995 1996 1995 1996 1995 1996-95 Volume Rate(B)
<C> <C> <C> <C> <S> <C> <C> <C> <C> <C>
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
INTEREST-EARNING ASSETS / INCOME:
Loans, net of unearned income and
8,362,245 8,031,906 9.28 9.33 . deferred taxes on leases (C) .............. 581,955 562,053 19,902 23,116 (3,214)
90,412 137,812 5.27 5.84 .Federal funds sold & securities purchased ... 3,572 6,035 (2,463) (2,076) (387)
12,631 10,989 5.85 5.78 .Interest-bearing deposits in other banks..... 554 476 78 71 7
219,801 437,611 5.12 5.58 .Trading account securities .................. 8,435 18,314 (9,879) (9,115) (764)
2,755,656 2,040,144 6.54 6.06 .Securities available for sale ............... 135,170 92,775 42,395 32,538 9,857
0 243,354 0.00 7.98 .Securities held to maturity ................. 0 14,562 (14,562) (14,562) 0
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
11,440,745 10,901,816 8.50 8.49 TOTAL INTEREST-EARNING ASSETS / INCOME 729,686 694,215 35,471 29,972 5,499
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
INTEREST-BEARING LIABILITIES / EXPENSE:
Interest-bearing deposits:
927,604 1,066,450 2.14 1.96 .Interest-bearing demand accounts ............ 14,862 15,655 (793) (2,038) 1,245
2,685,218 2,346,524 3.46 3.75 .Savings & money market accounts ............. 69,633 65,985 3,648 9,524 (5,876)
707,412 695,686 5.68 5.99 .Time deposits of $100,000 or more ........... 30,114 31,261 (1,147) 527 (1,674)
2,719,406 2,585,368 5.81 5.61 .Other time deposits ......................... 118,411 108,761 9,650 5,639 4,011
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
7,039,640 6,694,028 4.41 4.42 TOTAL INTEREST-BEARING DEPOSITS 233,020 221,662 11,358 13,652 (2,294)
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
1,672,003 1,696,667 5.02 5.65 .Federal funds purchased & securities sold ... 62,920 71,958 (9,038) (1,046) (7,992)
265,009 181,657 6.50 6.48 .Other short-term borrowings ................. 12,924 8,833 4,091 4,053 38
718,337 719,800 6.84 7.10 .Long-term debt .............................. 36,869 38,306 (1,437) (78) (1,359)
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
9,694,989 9,292,152 4.75 4.89 TOTAL INTEREST-BEARING LIABILITIES / EXPENSE 345,733 340,759 4,974 16,581 (11,607)
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
8.50 8.49 .Interest income / earning assets
4.03 4.17 .Interest expense / earning assets
------ ------ --------------------------------------------
4.47 4.32 .Net interest income / earning assets ........ 383,953 353,456 30,497 13,391 17,106
Less fully taxable equivalent adjustment .... 5,275 6,013 (738)
------ ------ -------------------------------------------- --------- --------- -------- -------- --------
NET INTEREST INCOME, PER CONDENSED
CONSOLIDATED INCOME STATEMENTS 378,678 347,443 31,235
=========== =========== ====== ====== ============================================ ========= ========= ======== ======== ========
<FN>
Notes:
(A) Interest is presented on a fully taxable equivalent (FTE) basis, calculated on federal and state taxes applicable to the
subsidiary carrying the asset. The combined tax rate was approximately 39% for 1996 and 1995.
(B) Changes not due entirely to changes in volume or rate have been allocated to rate.
(C) Loans include nonaccruing and renegotiated loans. Interest on loans includes fees of $7,106 and $5,182 for the 1996 and 1995
quarters, respectively, and $19,202 and $15,356 for the 1996 and 1995 year-to-date periods, respectively.
</TABLE>
<PAGE>
<TABLE>
FIRST SECURITY CORPORATION
LOANS
(in thousands; unaudited)
<CAPTION>
September 30, 1996 December 31, 1995 September 30, 1995
%Total %Total %Total Sep/Sep
Balance Loans Balance Loans Balance Loans %Chg
<S> <C> <C> <C> <C> <C> <C> <C>
- - ----------------------------------------- ----------- ------ ----------- ------ ----------- ------ --------
COMMERCIAL LOANS:
Commercial & industrial .................. 1,636,236 18.3 1,559,533 18.8 1,538,144 18.5 6.4
Agricultural ............................. 302,578 3.4 280,179 3.4 309,133 3.7 (2.1)
Other commercial ......................... 163,555 1.8 112,073 1.3 165,622 2.0 (1.2)
- - ----------------------------------------- ----------- ------ ----------- ------ ----------- ------ --------
TOTAL COMMERCIAL LOANS 2,102,369 23.5 1,951,785 23.5 2,012,899 24.2 4.4
- - ----------------------------------------- ----------- ------ ----------- ------ ----------- ------ --------
REAL ESTATE SECURED LOANS:
1-4 family residential: term ............. 1,457,829 16.3 1,457,811 17.5 1,591,242 19.2 (8.4)
1-4 family residential: home equity ...... 472,526 5.3 451,980 5.4 422,957 5.1 11.7
1-4 family residential: construction ..... 278,770 3.1 221,551 2.7 216,877 2.6 28.5
Commercial & other: term ................. 921,249 10.3 943,046 11.3 911,934 11.0 1.0
Commercial & other: construction ......... 247,557 2.8 248,622 3.0 221,359 2.7 11.8
- - ----------------------------------------- ----------- ------ ----------- ------ ----------- ------ --------
TOTAL REAL ESTATE SECURED LOANS 3,377,931 37.7 3,323,010 40.0 3,364,369 40.5 0.4
- - ----------------------------------------- ----------- ------ ----------- ------ ----------- ------ --------
CONSUMER LOANS:
Credit cards & related ................... 288,287 3.2 311,271 3.7 308,368 3.7 (6.5)
Other consumer ........................... 2,498,710 27.9 2,316,540 27.9 2,284,099 27.5 9.4
- - ----------------------------------------- ----------- ------ ----------- ------ ----------- ------ --------
TOTAL CONSUMER LOANS 2,786,997 31.1 2,627,811 31.6 2,592,467 31.2 7.5
- - ----------------------------------------- ----------- ------ ----------- ------ ----------- ------ --------
TOTAL LEASES ............................. 680,899 7.6 412,489 4.9 333,314 4.0 104.3
- - ----------------------------------------- ----------- ------ ----------- ------ ----------- ------ --------
LOANS, NET OF UNEARNED INCOME 8,948,196 100.0 8,315,095 100.0 8,303,049 100.0 7.8
Memo: Unearned Income .................. (57,859) (16,250) (10,265) 463.7
Reserve for Loan Losses .................. (133,853) (129,982) (131,878) 1.5
- - ----------------------------------------- ----------- ------ ----------- ------ ----------- ------ --------
TOTAL LOANS, NET 8,814,343 8,185,113 8,171,171 7.9
========================================= =========== ====== =========== ====== =========== ====== ========
<FN>
</TABLE>
<PAGE>
PART II. OTHER INFORMATION
Item 1. 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. 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. In all
litigation filed against it, FSCO vigorously defends itself against unfounded
claims, with a concomitant cost in legal fees and expenses. Since the filing
of FSCO's 1995 Form 10-K Annual Report, there have been no material
developments in connection with pending legal proceedings not already
disclosed in previous filings with the Commission, except as follows.
"Utah Bankers' Association v. America First Credit Union" (3rd District
Court, Salt Lake County, Utah). FSCO's subsidiary First Security Bank, N.A.
(formerly First Security Bank of Utah, N.A. and First Security Bank of Idaho,
N.A.), together with other Utah banks, has been named in a third party
complaint brought by Utah based credit unions, filed on October 31, 1996.
This third party complaint arises in pending litigation initiated by the
Utah Bankers' Association seeking to define and limit the eligible membership
of credit unions operating in Utah. The damages sought by the credit unions
against the Utah Bankers' Association and its members are alleged to exceed
$1.5 billion in the aggregate. FSCO believes the matter to be without merit
and will join the other bank defendants in defending vigorously against these
claims. This litigation is similar in nature to litigation in process
nationally which seeks to define the geographical scope of credit union powers
and, ultimately, will be resolved through both the judicial and legislative
processes.
During October 1996, a jury verdict in a lawsuit against First Security
Bank, N.A. was entered (see: MDA "Analysis of Results of Operations:
Noninterest Expenses").
Item 5. Other Information
On July 30, 1996, FSCO announced that James R. Wilson was elected to serve
as a member of FSCO's board of directors. Mr. Wilson is currently the
chairman, president, and chief executive officer of Thiokol Corporation,
headquartered in Ogden Utah.
Item 6. Exhibits, and Reports on Form 8-K
(a). Exhibits:
Exhibit 11. Computation of Earnings Per Share
Exhibit 27. Financial Data Schedule
(b). Reports on Form 8-K:
FSCO filed no reports on Form 8-K in the third quarter of 1996.
# # #
<PAGE>
SIGNATURES
Pursuant to the requirements 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
DATE: November 12, 1996 BY:_[SIGNED]________________________________________
Scott C. Ulbrich
Executive Vice President Finance and Capital Markets
and Chief Financial Officer
(Principal Financial and Accounting Officer)
# # #
EXHIBIT 11. COMPUTATION OF EARNINGS PER SHARE
<TABLE>
FIRST SECURITY CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share amounts; unaudited)
<CAPTION>
Three Months Year-To-Date 9 Months
For the Periods Ended September 30, 1996 and 1995 1996 1995 1996 1995
<S> <C> <C> <C> <C>
- - ----------------------------------------------------------- ---------- ---------- ---------- ----------
Net Income:
Net income per consolidated income statements .............. 47,396 39,343 126,614 111,176
Deduct dividend requirement of preferred stock ............. 9 9 25 27
- - ----------------------------------------------------------- ---------- ---------- ---------- ----------
NET INCOME APPLICABLE TO COMMON STOCK (PRIMARY) 47,387 39,334 126,589 111,149
Add dividend requirement of preferred stock ................ 9 9 25 27
- - ----------------------------------------------------------- ---------- ---------- ---------- ----------
NET INCOME FULLY DILUTED 47,396 39,343 126,614 111,176
=========================================================== ========== ========== ========== ==========
Earnings Per Common Share:
EARNINGS PER COMMON SHARE: PRIMARY 0.61 0.51 1.64 1.46
EARNINGS PER COMMON SHARE: FULLY DILUTED 0.61 0.51 1.63 1.46
=========================================================== ========== ========== ========== ==========
Average Common Shares Outstanding:
Common stock ............................................... 76,115 75,587 75,991 75,438
Common stock equivalents (options) ......................... 1,846 1,464 1,841 1,239
Treasury shares ............................................ (587) (585) (580) (548)
- - ----------------------------------------------------------- ---------- ---------- ---------- ----------
COMMON STOCK SHARES OUTSTANDING: AVERAGE PRIMARY 77,374 76,466 77,252 76,129
Preferred stock: average common equivalents ................ 191 205 193 209
- - ----------------------------------------------------------- ---------- ---------- ---------- ----------
COMMON STOCK SHARES OUTSTANDING: AVERAGE FULLY DILUTED 77,565 76,671 77,445 76,338
=========================================================== ========== ========== ========== ==========
<FN>
Note: Earnings Per Common Share Fully Diluted were computed assuming that all outstanding shares of
preferred stock were converted into common stock on the basis of 18.225 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
computations.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<PERIOD-TYPE> 9-MOS
<CASH> 758,493
<INT-BEARING-DEPOSITS> 46,920
<FED-FUNDS-SOLD> 83,568
<TRADING-ASSETS> 171,910
<INVESTMENTS-HELD-FOR-SALE> 3,166,608
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 8,948,196
<ALLOWANCE> (133,853)
<TOTAL-ASSETS> 13,739,324
<DEPOSITS> 9,088,404
<SHORT-TERM> 2,399,209
<LIABILITIES-OTHER> 336,448
<LONG-TERM> 821,932
0
549
<COMMON> 1,092,782
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 13,739,324
<INTEREST-LOAN> 579,980
<INTEREST-INVEST> 131,899
<INTEREST-OTHER> 12,532
<INTEREST-TOTAL> 724,411
<INTEREST-DEPOSIT> 233,020
<INTEREST-EXPENSE> 345,733
<INTEREST-INCOME-NET> 378,678
<LOAN-LOSSES> 28,751
<SECURITIES-GAINS> 2,178
<EXPENSE-OTHER> 366,689
<INCOME-PRETAX> 197,825
<INCOME-PRE-EXTRAORDINARY> 197,825
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 126,614
<EPS-PRIMARY> 1.64
<EPS-DILUTED> 1.63
<YIELD-ACTUAL> 4.47
<LOANS-NON> 33,401
<LOANS-PAST> 15,728
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 54,132
<ALLOWANCE-OPEN> 129,982
<CHARGE-OFFS> (44,274)
<RECOVERIES> 19,394
<ALLOWANCE-CLOSE> 133,853
<ALLOWANCE-DOMESTIC> 133,853
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
