<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
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
Securities registered pursuant to Section 12(b) of the Act:
Floating Rate Notes Due 1999, listed on the New York Stock Exchange.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock - $1.25 Par Value.
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the Registrant knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of First Security Corporation (FSCO) voting
stock held by nonaffiliates was $1,751,519,000 as of January 31, 1996.
The number of shares outstanding of FSCO common stock $1.25 Par Value was
75,208,779* (net of 589,026* treasury shares) as of January 31, 1996. [*Note:
FSCO declared a three-for-two common stock split in the form of a 50% stock
dividend payable on Feb. 15, 1996, to shareholders of record as of Feb. 12,
1996. ALL SHARE AND PER SHARE DATA IN THIS REPORT HAVE BEEN RESTATED TO
REFLECT THIS STOCK SPLIT.]
FSCO's Proxy Statement dated March 15, 1996, is incorporated by reference
into Parts I and III of this Form 10-K.
<PAGE>
REGISTRANT (FIRST SECURITY CORPORATION, FSCO) INDEX
ITEM CAPTION
- ------------------------------------------------------------------------------
Part I
1 Business
1a General Development of Business
1c Narrative Description of Business
Competitive Position
Employment
Executive Officers (incorporated by reference from FSCO's Proxy
Statement dated March 15, 1996)
1d Financial Information About Foreign and Domestic Operations
Distribution of Assets, Liabilities and Stockholders' Equity; Interest
Rates and Interest Differential
Analysis of Interest Changes Due to Volumes and Changes in Rates
Investment Portfolio
Loan Portfolio
A. Types of Loans
B. Maturities and Sensitivities to Changes in Interest Rates
C. Risk Elements
D. Other Interest-Bearing Assets
Summary of Loan Loss Experience
Deposits
Return on Equity and Return on Assets
Short-Term Borrowings
2 Properties
3 Legal Proceedings
4 Submission of Matters to a Vote of Security Holders
Part II
5 Market for Registrant's Common Equity and Related Security Holder
Matters
6 Selected Financial Data
7 Management's Discussion and Analysis of Financial Condition and Results
of Operations
8 Financial Statements and Supplementary Data
9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
Part III
10 Directors and Executive Officers (A)
11 Executive Compensation (A)
12 Security Ownership of Certain Beneficial Owners and Management (A)
13 Certain Relationships and Related Transactions (A)
(A): Incorporated by reference from FSCO's Proxy Statement March 15, 1996.
Signatures
Part IV
14a Exhibits and Financial Statement Schedules:
1. Consolidated Balance Sheets
December 31, 1995 and 1994
Consolidated Statements of Income
for the Years Ended December 31, 1995, 1994, and 1993
Consolidated Statements of Stockholders' Equity
for the Years Ended December 31, 1993, 1994, and 1995
Consolidated Statements of Cash Flows
for the Years Ended December 31, 1995, 1994, and 1993
Notes to Consolidated Financial Statements
Report of Independent Certified Public Accountants
2. Exhibit Index
Ex. 3.1. Certificate of Incorporation, as amended. (Ex. 3.1 to FSCO's
Registration Statement on Form S-4, Reg # 33-30045, filed July 24,
1990, hereby incorporated by reference.)
Ex. 3.2. Bylaws of FSCO, as amended January 29, 1996. (Attached.)
Ex. 4.1. No instruments defining the rights of holders of long-term
debt of FSCO and its subsidiaries have been included as exhibits
because the total amount of indebtedness authorized under any such
instrument does not exceed 10% of the total assets of FSCO and its
subsidiaries on a consolidated basis.
Ex. 4.2. Rights Agreement dated Aug. 28, 1990, between FSCO and First
Security Bank of Utah, N.A. which includes: the form of Rights
Certificate and the form of Election of Exercise as Ex. A; the form
of Certificate of Designation of FSCO's Junior Series B Preferred
Stock, no par value per share, as Ex. B; and the Summary of Rights
as Ex. C. (Ex. 4 to FSCO's Report on Form 8-K, dated Aug. 28, 1990,
filed Sept. 1, 1990, and hereby incorporated by reference.)
Ex. 4.3. Amendment Agreement dated Sept. 26, 1990, between FSCO and
First Security Bank of Utah, N.A., amending the Rights Agreement
dated Aug. 28, 1990, between the same parties. (Ex. 1 to FSCO's
Amendment No. 1 on Form 8-A, dated Oct. 10, 1990, filed Oct. 16,
1990, amending FSCO's Report on Form 8-K, dated Aug. 28, 1990,
filed Sept. 1, 1990, and hereby incorporated by reference.)
Ex. 10. Material Contracts: Executive Compensation Plans and
Arrangements:
Ex. 10.1. Amended and Restated First Security Corporation
Comprehensive Management Incentive Plan. (Ex. 10.1 to FSCO's Report
on Form 10-K, dated Dec. 31, 1994, filed Mar. 31, 1995, and hereby
incorporated by reference.)
Ex. 10.2, 10.3, 10.4, 10.5, 10.6. Employment Agreements between FSCO
and Spencer F. Eccles, Morgan J. Evans, L. Scott Nelson, T. Eugene
King, and J. Patrick McMurray. (Exhibits to FSCO's Quarterly Report
on Form 10-Q for the quarter ended Sept. 30, 1991, hereby
incorporated by reference.)
Ex. 10.7. Employment Agreement between FSCO and Scott C. Ulbrich.
(Exhibit to FSCO's Quarterly Report on Form 10-Q for the quarter
ended Sept. 30, 1992, hereby incorporated by reference.)
Ex. 10.8, 10.9. Employment Agreements between FSCO and Brad D. Hardy
and Mark D. Howell. (Attached.)
Ex. 10.10. The form of First Security Deferred Compensation Plan
Deferral Election -- 01/01/95 - 12/31/95. (Ex. 10.1 to FSCO's Report
on Form 10-K, dated Dec. 31, 1994, filed Mar. 31, 1995, and hereby
incorporated by reference.)
Ex. 11. Computation of per share earnings. (Attached.)
Ex. 21. Subsidiaries. (Attached.)
Ex. 23.1. Consent of Independent Certified Public Accountants:
Deloitte & Touche LLP. (Attached.)
Ex. 27. Financial Data Schedule. (Attached.)
14b Reports on Form 8-K:
On Dec. 19, 1995, FSCO reported on Form 8-K a press release announcing
the results of Project VISION (corporate redesign effort), and a
press release announcing a common stock buy-back program.
On Jan. 31, 1996, FSCO reported on Form 8-K a press release announcing a
three-for-two common stock split in the form of a 50% stock dividend,
and an increase in the quarterly common stock cash dividend.
14c Exhibits required by Item 601 of Regulation S-K.
<PAGE>
FINANCIAL REVIEW
The following pages contain "Management's Discussion and Analysis" of First
Security Corporation's (FSCO) 1995 financial condition and results of
operations, including comparisons with prior years' results and identification
of possible risks and trends.
On January 29, 1996, FSCO declared a three-for-two common stock split in the
form of a 50% stock dividend payable on February 15, 1996, to shareholders of
record as of February 12, 1996. As a result of the split, shareholders received
one additional share of FSCO common stock for every two shares held. ALL SHARE
AND PER SHARE DATA IN THIS REPORT HAVE BEEN RESTATED TO REFLECT THIS STOCK SPLIT
(see: "Common and Preferred Stock"). Similar stock splits and restatements were
made in May 1992 and June 1991.
As required by applicable accounting rules, all 1992 and prior year amounts in
this report were restated in 1993 to reflect a pooling-of-interests merger with
First National Financial Corporation, and the adoption of SFAS 109 "Accounting
for Income Taxes", which was applied retroactively.
It should be noted that the five-year compound growth rates shown on tables
throughout this discussion may not represent actual trends due to recent
acquisitions and certain nonrecurring events.
TABLE OF CONTENTS
Financial Review
Glossary
Summary of Earnings and Financial Condition
Project VISION
Business Lines
Mergers and Acquisitions
Stockholders' Equity and Capital Adequacy
Common and Preferred Stock
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
Income Statement Analysis:
Net Interest Income
Noninterest Income
Noninterest Expenses
Provision for Income Taxes
Off-Balance Sheet Items
Inflation Accounting and Capital Commitments
National and Regional Economy
Competitive Position
Legal Proceedings
Management's Report on Financial Statements
Consolidated Financial Statements
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Tables:
Table 1: Financial Highlights (Five Year Summary)
Table 2: Financial Highlights - Restructuring Charge Impacts
Table 3: Consolidating Statements
Table 4: Capital Ratios
Table 5: Securities
Table 6: Loans
Table 7: Problem Assets and Potential Problem Assets
Table 8: Reconciliation of the Reserve for Loan Losses
Table 9: Allocation of the Reserve for Loan Losses
Table 10: Deposits
Table 11: Short-Term Borrowings
Table 12: Long-Term Debt
Table 13: Maturities and Interest Rate Sensitivities
Table 14: Maturities and Interest Rate Sensitivities of Selected Loan Categories
Table 15: Maturities of Time Certificates of Deposit of $100,000 or More
Table 16: Analysis of Interest Changes Due to Volumes and Rates
Table 17: Average Balance Sheets, Net Interest Income, Yields and Rates
Table 18: Noninterest Income
Table 19: Noninterest Expenses
Table 20: Quarterly Financial Summary
<PAGE>
Glossary
ALCO: Asset/liability management committees, comprised of senior officers from
the major divisions of each FSCO subsidiary. The ALCO process identifies,
assesses, and manages FSCO's capital adequacy, and the liquidity and interest
rate risk of FSCO's business lines.
Book value per share: Common stockholders' equity divided by the number of
common shares outstanding.
Capital adequacy: Sufficient equity to support strategic plans while providing
an attractive rate of return for stockholders. Often measured by risk-based
capital ratios.
Core deposits: Total deposits, excluding time deposits of $100,000 or more and
foreign deposits.
Derivatives: Financial instruments where the performance is derived from the
performance of another financial instrument or an interest rate, currency, or
other referenced index (see: "Note 11. Commitments, Contingent Liabilities, and
Financial Instruments with Off-Balance Sheet Risk").
Fair value: An approximation of current market value derived from carrying
value, market quotes, and discounted cash flow analysis.
FTE: Fully taxable equivalent. An adjustment made to interest income to
facilitate comparison of interest income earned on tax-exempt or tax-favored
loans, leases, and securities with interest earned subject to full taxation.
Gap: An asset/liability management term. Gap assigns each earning asset and
interest-bearing liability to a time frame reflecting its next repricing or
maturity date. The difference between total interest-sensitive assets and
liabilities at each time interval represents the interest sensitivity "gap" for
that interval.
Intangible assets: Goodwill, mortgage servicing rights, deposit-based
intangibles, and insurance intangibles.
Interest rate risk: The risk that changes in interest rates will cause
volatility in net interest income.
Leverage ratio: Tier 1 capital divided by the sum of total assets minus
nonqualifying intangibles.
Liquidity: The ability to meet cash flow requirements at reasonable cost.
Market capitalization: The market (bid) price of a share of common stock
multiplied by the number of shares of common stock outstanding, i.e., the total
market value of all outstanding shares.
NASDAQ/NMS: The National Association of Securities Dealers Automated Quotation
National Market System.
Net interest income: Interest income plus loan fees minus interest expense,
frequently adjusted to an FTE basis for analytical purposes.
Net interest margin: Net interest income FTE divided by average earning assets.
Net interest spread: The arithmetic difference between the FTE yield on earning
assets and the rate paid on interest-bearing funds.
Nonaccruing loans: Loans on which interest is not being accrued for income
statement purposes. Interest received on nonaccruing loans is reported on a
cash basis.
Nonperforming assets: Nonaccruing loans plus renegotiated loans plus ORE.
Notional amount: The contractual amount against which interest rates or other
indices are applied in the calculation of interest exchanges. Not a measurement
of principal at risk.
Operating expense ratio: Noninterest expenses divided by the sum of net
interest income FTE plus noninterest income.
ORE: Other real estate owned plus other foreclosed assets.
Potential problem loans: As defined by the SEC, potential problem loans are
performing loans that have characteristics that cause management to have serious
doubts about the borrower's ability to comply with the present loan repayment
terms. These loans are less than 90 days past due, and are accruing interest.
Problem assets: Nonperforming assets plus accruing loans past due 90 days or
more.
Productivity ratio: Noninterest expenses divided by average total assets.
Provision for loan losses: A charge against income made to adjust the reserve
for loan losses to a desired level to cover potential future loan losses.
Reserve for loan losses: An adjustment made to loans to recognize possible
future loan chargeoffs. All loan losses are charged against this reserve as
they become probable and subject to reasonable estimation. Recoveries of
amounts previously charged off are credited to this reserve. It is adjusted by
means of the provision for loan losses.
Risk-based capital ratios: Equity measurements used by regulatory agencies to
assess a bank's capital adequacy. These ratios are: Tier 1 Capital divided by
risk-adjusted assets; and Total Capital (Tier 1 plus Tier 2 capital) divided by
risk-adjusted assets.
ROAA: Return on average assets. Net income divided by average total assets.
ROAE: Return on average equity. Net income divided by average total
stockholders' equity.
SFAS: Statement of Financial Accounting Standards. Accounting pronouncements
issued by the Financial Accounting Standards Board.
Tangible common equity ratio: Common stockholders' equity minus intangible
assets, divided by the sum of total assets minus intangible assets.
Tier 1 Capital: Stockholders' equity plus minority equity in subsidiaries,
minus goodwill and deposit-based intangibles.
Tier 2 Capital: Reserves for loan losses up to 1.25% of risk-adjusted assets
plus qualifying subordinated debt.
Total Capital: The sum of Tier 1 Capital plus Tier 2 Capital.
<PAGE>
<TABLE>
<CAPTION>
Table 1: Financial Highlights (Five Year Summary) (in thousands, except per share data and ratios)
5-Year
95/94 Compound
1995 1994 1993 1992 1991 % Chg Growth Rate
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<S> <C> <C> <C> <C> <C> <C> <C>
Common Stock Data (A):
Earnings per common share:
primary................... $ 1.57 $ 1.87 $ 1.59 $ 1.44 $ 0.96 (16.0) 26.2
Earnings per common share:
fully diluted............. 1.57 1.87 1.58 1.44 0.91 (16.0) 28.4
Dividends paid per common
share..................... 0.75 0.69 0.59 0.45 0.40 7.7 14.5
Book value EOP............. 13.71 11.95 11.49 10.54 9.62 14.7 8.4
Tangible book value EOP.... 11.72 9.71 11.33 10.32 9.41 20.7 5.7
Market price (bid) EOP..... 25.33 15.17 17.17 18.17 12.67 67.0 28.6
High bid for the period... 25.33 21.33 20.17 18.33 12.67 18.8 21.0
Low bid for the period.... 14.67 14.33 16.00 12.11 6.67 2.4 22.4
Market capitalization EOP.. 1,903,344 1,128,286 1,247,253 1,243,745 834,803 68.7 34.8
Market price EOP/book
value EOP................. 184.82% 126.95% 149.36% 172.36% 131.58%
Dividend payout ratio:
DPCS/EPCS................. 47.46 37.01 36.97 31.55 41.56
Dividend yield EOP:
DPCS/market price......... 2.95 4.57 3.57 2.79 3.23
Price/earnings ratio....... 16.2x 8.1x 10.8x 12.6x 13.2x
Common shares: EOP......... 75,133 74,393 72,656 68,463 65,906 1.0 4.8
Common shares: average
primary................... 76,319 74,891 71,778 69,495 61,733 1.9 5.1
Common shares: average
fully diluted............. 76,527 75,126 72,030 69,780 65,573 1.9 3.5
Preferred shares
outstanding: EOP.......... 11 12 13 15 16 (8.3) (9.4)
Shareholders of record EOP
(not rounded):
Common shareholders....... 9,222 8,821 8,748 7,976 6,911 4.5 6.5
Preferred shareholders.... 588 634 671 742 813 (7.3) (7.6)
- --------------------------------------------------------------------------------------------------------------------
Income Statement:
Interest income............ $ 934,859 $ 773,517 $ 644,732 $ 656,448 $ 710,831 20.9 4.5
Interest expense........... 459,868 315,415 240,794 280,499 388,022 45.8 0.5
Net interest income........ 474,991 458,102 403,938 375,949 322,809 3.7 9.5
Fully taxable equivalent
(FTE) adjustment.......... 8,336 7,875 7,633 9,621 10,419 5.9 (5.9)
Net interest income, FTE... 483,327 465,977 411,571 385,570 333,228 3.7 9.0
Provision for loan losses.. 21,082 825 11,684 30,277 66,393 2,455.4 (26.0)
Noninterest income (B)..... 266,492 197,548 167,159 144,036 137,822 34.9 18.1
Noninterest expenses (B)... 530,205 433,648 386,146 339,456 306,504 22.3 13.2
Provision for income taxes. 70,191 81,043 59,211 49,909 28,322 (13.4) 50.9
Net income................. 120,005 140,134 114,056 100,343 59,412 (14.4) 32.8
Preferred stock dividend
requirement............... 35 39 43 48 52 (10.3) (9.0)
Common stock dividend...... 55,966 51,087 38,595 26,000 20,017 9.6 20.3
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Balance Sheet - End of Period:
Trading account securities. $ 638,393 $ 553,826 $ 607,854 $ 388,961 $ 313,930 15.3 32.7
Securities available for
sale (C).................. 2,623,557 1,993,797 (D) (D) (D) 31.6 NM
Securities held to
maturity (C).............. -- 252,622 1,762,783 1,750,180 1,547,088 (100.0) (100.0)
Loans, net of unearned
income.................... 8,315,095 8,173,678 6,561,021 5,616,624 5,432,951 1.7 8.9
Reserve for loan losses.... (129,982) (133,855) (134,848) (127,847) (126,887) (2.9) 2.1
Total interest-earning
assets.................... 11,746,677 11,019,059 9,329,273 8,054,059 7,452,158 6.6 10.7
Other assets............... 1,269,093 1,097,579 1,005,431 954,594 950,654 15.6 6.2
Intangible assets.......... 148,819 166,199 11,833 14,867 14,243 (10.5) 56.3
Total assets............... 13,034,607 12,148,982 10,211,689 8,895,673 8,290,168 7.3 10.6
Noninterest-bearing
deposits.................. 1,884,931 1,719,388 1,697,687 1,429,314 1,244,239 9.6 11.0
Interest-bearing deposits.. 6,888,711 6,333,956 5,806,020 5,439,139 5,270,453 8.8 6.3
Total deposits............. 8,773,642 8,053,344 7,503,707 6,868,453 6,514,692 8.9 7.2
Short-term borrowed funds.. 2,198,689 2,345,139 1,486,905 995,790 899,294 (6.2) 19.1
Long-term debt............. 720,521 685,426 224,836 127,203 87,516 5.1 48.8
Total interest-bearing
liabilities............... 9,807,921 9,364,521 7,517,761 6,562,132 6,257,263 4.7 10.0
Other liabilities.......... 311,183 175,330 160,242 181,561 153,247 77.5 17.0
Minority equity in
subsidiaries.............. 309 269 268 219 246 14.9 5.3
Preferred stockholders'
equity.................... 571 629 703 783 849 (9.2) (9.2)
Common stockholders' equity 1,029,692 888,845 835,028 721,664 634,324 15.8 13.6
Parent company investment
in subsidiaries........... 1,071,320 932,738 741,185 640,795 581,010 14.9 14.8
- --------------------------------------------------------------------------------------------------------------------
(continued)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Table 1: Financial Highlights (Five Year Summary) (in thousands, except per share data and ratios) (continued)
5-Year
95/94 Compound
1995 1994 1993 1992 1991 % Chg Growth Rate
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Problem Assets & Potential Problem Assets - End of Period:
Total nonaccruing loans.... $ 22,447 $ 23,868 $ 36,354 $ 79,968 $ 112,377 (6.0) (25.7)
ORE and other foreclosed
assets.................... 4,134 3,352 16,465 27,487 38,322 23.3 (39.6)
Total nonperforming assets. 26,581 27,220 52,819 107,455 150,699 (2.3) (29.3)
Accruing loans past due 90
days or more.............. 13,455 12,001 7,155 11,766 17,200 12.1 (4.2)
Total problem assets....... 40,036 39,221 59,974 119,221 167,899 2.1 (24.9)
Potential problem assets... 12,319 12,018 19,179 22,930 69,801 2.5 (25.8)
- ----------------------------------------------------------------------------------------------------------------------
Reconciliation of the Reserve for Loan Losses:
Reserve for loan losses,
beginning of period....... $ 133,855 $ 134,848 $ 127,847 $ 126,887 $ 117,192 (0.7) 11.2
Net loans (charged off)
recovered................. (24,955) (7,092) (11,865) (32,831) (58,709) 251.9 (15.7)
Provision for loan losses.. 21,082 825 11,684 30,277 66,393 2,455.4 (26.0)
Acquisitions and
reclassifications......... --- 5,274 7,182 3,514 2,011 (100.0) (100.0)
Reserve for loan losses,
end of period............. 129,982 133,855 134,848 127,847 126,887 (2.9) 2.1
- ----------------------------------------------------------------------------------------------------------------------
Balance Sheet - Average:
Trading account securities. $ 487,992 $ 629,308 $ 424,091 $ 430,025 $ 382,608 (22.5) 19.4
Securities available for
sale (C).................. 2,113,320 1,984,693 (D) (D) (D) 6.5 NM
Securities held to
maturity (C).............. 225,715 270,079 1,792,591 1,708,038 1,433,406 (16.4) (30.4)
Loans, net of unearned
income.................... 8,196,759 7,244,205 5,917,816 5,463,283 5,352,308 13.1 9.3
Reserve for loan losses.... (131,630) (134,802) (128,801) (130,548) (125,198) (2.4) 8.8
Deferred taxes on leases... (160,244) (145,264) (132,749) (124,327) (111,163) 10.3 10.1
Total interest-earning
assets, net of deferred
taxes on leases........... 11,017,061 10,042,060 8,319,615 7,680,167 7,261,560 9.7 9.3
Other assets............... 1,036,726 969,684 876,988 801,939 784,032 6.9 5.3
Intangible assets.......... 149,861 117,632 13,709 14,602 14,197 27.4 77.2
Total assets............... 12,232,262 11,139,838 9,214,260 8,490,487 8,045,754 9.8 9.1
Noninterest-bearing
deposits.................. 1,646,070 1,616,294 1,428,640 1,214,078 1,042,585 1.8 11.1
Interest-bearing deposits.. 6,745,786 6,083,333 5,527,474 5,353,698 5,163,236 10.9 7.1
Total deposits............. 8,391,856 7,699,627 6,956,114 6,567,776 6,205,821 9.0 7.8
Short-term borrowed funds.. 1,892,408 2,007,341 1,121,250 982,448 1,013,532 (5.7) 7.8
Long-term debt............. 728,788 368,096 204,129 103,659 104,300 98.0 38.4
Total interest-bearing
liabilities............... 9,366,982 8,458,770 6,852,853 6,439,805 6,281,068 10.7 8.5
Other liabilities.......... 232,741 195,774 147,877 150,208 142,935 18.9 9.0
Minority equity in
subsidiaries.............. 294 265 232 237 246 10.9 4.8
Preferred stockholders'
equity.................... 599 675 728 820 883 (11.3) (8.9)
Common stockholders' equity 985,576 868,060 783,930 685,339 578,037 13.5 12.3
- ----------------------------------------------------------------------------------------------------------------------
Other Data - End of Period (not rounded):
Full-time equivalent
employees................. 7,530 7,621 6,318 5,891 5,667 (1.2) 6.0
Total domestic bank offices 272 261 245 230 228 4.2 4.1
- ----------------------------------------------------------------------------------------------------------------------
(continued)
<FN>
Notes:
EOP: End of Period. 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) On July 1, 1995, FSCO adopted SFAS 122, "Accounting for Mortgage Servicing Rights". Per SFAS 122, prior periods
have been reclassified where necessary.
(C) 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.
(D) In 1994, FSCO adopted SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities". Per SFAS 115,
prior period comparisons are not available.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Table 1: Financial Highlights (Five Year Summary) (continued)
1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Selected Ratios:
Return on average assets............................ 0.98% 1.26% 1.24% 1.18% 0.74%
Return on average stockholders' equity.............. 12.17 16.13 14.54 14.62 10.26
Net interest margin, FTE............................ 4.39 4.64 4.95 5.02 4.59
Net interest spread, FTE............................ 3.65 4.05 4.33 4.31 3.75
Operating expense ratio (A)......................... 70.71 65.36 66.72 64.10 65.07
Productivity ratio (A).............................. 4.33 3.89 4.19 4.00 3.81
Loans EOP/deposits EOP.............................. 94.77 101.49 87.44 81.77 83.40
Loans EOP/assets EOP................................ 63.79 67.28 64.25 63.14 65.53
Reserve for loan losses EOP/:
Total loans....................................... 1.56 1.64 2.06 2.28 2.34
Nonaccruing loans................................. 579.06 560.81 370.93 159.87 112.91
Nonaccruing and accruing loans past due 90 days... 362.05 373.18 309.93 139.37 97.92
Nonaccruing loans/total loans....................... 0.27 0.29 0.55 1.42 2.07
Nonaccruing and accruing loans past due/Total loans. 0.43 0.44 0.66 1.63 2.39
Nonperforming assets EOP/:
Total loans and ORE............................... 0.32 0.33 0.80 1.90 2.75
Total assets...................................... 0.20 0.22 0.52 1.21 1.82
Total equity...................................... 2.58 3.06 6.32 14.87 23.73
Total equity plus reserve for loan losses......... 2.29 2.66 5.44 12.64 19.78
Problem assets EOP/:
Total loans plus ORE.............................. 0.48 0.48 0.91 2.11 3.07
Total assets...................................... 0.31 0.32 0.59 1.34 2.03
Total equity...................................... 3.89 4.41 7.18 16.50 26.43
Total equity plus reserve for loan losses......... 3.45 3.83 6.18 14.02 22.03
Net loans charged off/average loans................. 0.30 0.10 0.20 0.60 1.09
- -------------------------------------------------------------------------------------------------
Capital Ratios:
Stockholders' equity EOP/ assets EOP................ 7.90% 7.32% 8.18% 8.12% 7.66%
Average stockholders' equity/ average assets........ 8.06 7.80 8.52 8.08 7.20
Tangible common equity EOP/ tangible assets EOP..... 6.84 6.03 8.07 7.96 7.51
Risk-Based Capital Ratios:
Tier 1.............................................. 10.35 9.84 11.82 11.32 10.61
Total Capital (Tier 1 + Tier 2)..................... 13.86 11.98 14.15 13.78 11.84
Leverage Ratio...................................... 7.12 6.88 8.08 7.99 7.53
=================================================================================================
(concluded)
<FN>
Notes:
EOP: End of Period.
(A) On July 1, 1995, FSCO adopted SFAS 122, "Accounting for Mortgage Servicing Rights". Per SFAS 122, prior periods
have been reclassified where necessary.
</TABLE>
SUMMARY OF EARNINGS AND FINANCIAL CONDITION. First Security Corporation (FSCO)
earned net income totaling $120.0 million for 1995 (see: "Table 1: Financial
Highlights"). This was the second highest year in FSCO history, but was down
$20.1 million (14.4%) from the record $140.1 million earned in 1994, which in
turn was up $26.1 million (22.9%) from $114.1 million in 1993. Net income
generated a 0.98% ROAA and a 12.17% ROAE for 1995 on FSCO's average equity to
assets ratio of 8.06%, compared with a 1.26% ROAA and a 16.13% ROAE for 1994 and
a 1.24% ROAA and 14.54% ROAE for 1993. Fully diluted earnings per share were
$1.57 for 1995, down $0.30 (16.0%) from $1.87 for 1994, which in turn was up
$0.29 (18.4%) from $1.58 for 1993.
On December 14, 1995, FSCO announced the results of Project VISION, a
comprehensive corporate redesign and restructuring effort (see: "Project VISION"
and "Note 2. Restructuring Charge"). Associated with Project VISION was a one-
time restructuring charge of $44.0 million pre-tax, which equaled $27.7 million
after tax or $0.36 per share fully diluted.
FSCO earned net income, excluding the Project VISION restructuring charge,
totaling a record $147.7 million for 1995 (see: "Table 2: Financial Highlights -
Restructuring Charge Impact"). This was up $7.6 million (5.4%) from the previous
record of $140.1 million earned in 1994. Net income, excluding the restructuring
charge, generated a 1.21% ROAA and a 14.98% ROAE for 1995. Fully diluted
earnings per share, excluding the restructuring charge, were a record $1.93 for
1995, up $0.06 (3.2%) from $1.87 for 1994.
<PAGE>
<TABLE>
<CAPTION>
Table 2: Financial Highlights - Restructuring Charge Impacts (in thousands, except per share data and ratios)
The following table reflects the impact of a one time restructuring charge totaling $44.0 million pre-tax
($27.7 million after taxes) related to First Security Corporation's Project "VISION" corporate redesign
program. Data is shown as reported (i.e., including the restructuring charge) and as "core" (i.e.,
excluding the restructuring charge).
For the years ended December 31, 1995 1994 % Chg
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock Data (A):
Earnings per common share: fully diluted........ $ 1.57 $ 1.87 (16.0)
Restructuring charge............................ 0.36 --
EPCS fully diluted "core"....................... 1.93 1.87 3.2
Dividend payout ratio........................... 47.77% 36.90%
Restructuring charge............................ 12.20 --
Dividend payout ratio "core".................... 35.57 36.90
- --------------------------------------------------------------------------------
Income Statement:
Noninterest expenses (B)........................ $530,205 $433,648 22.3
Restructuring charge (pre-tax).................. 44,000 --
Noninterest expenses "core" (B)................. 486,205 433,648 12.1
Net income...................................... 120,005 140,134 (14.4)
Restructuring charge (after tax)................ 27,722 --
Net income "core"............................... 147,727 140,134 5.4
- --------------------------------------------------------------------------------
Selected Ratios:
Return on average assets (ROAA)................. 0.98% 1.26%
Restructuring charge............................ 0.23 --
ROAA "core"..................................... 1.21 1.26
Return on average stockholders' equity (ROAE)... 12.17 16.13
Restructuring charge............................ 2.81 --
ROAE "core"..................................... 14.98 16.13
Operating expense ratio (B)..................... 70.71 65.36
Restructuring charge............................ 5.87 --
Operating expense ratio "core".................. 64.84 65.36
Productivity ratio (B).......................... 4.33 3.89
Restructuring charge............................ 0.36 --
Productivity ratio "core"....................... 3.97 3.89
- --------------------------------------------------------------------------------
<FN>
Notes:
EPCS: Earnings Per Common Share.
(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) On July 1, 1995, FSCO adopted SFAS 122, "Accounting for Mortgage Servicing Rights". Per SFAS 122, prior periods
have been reclassified where necessary.
</TABLE>
Balance sheet growth in 1995 resulted in record levels in the following areas
at December 31, 1995, as compared with December 31, 1994: total assets at
$13.0 billion, up $886 million (7.3%); total earning assets at $11.7 billion,
up $728 million (6.6%); deposits at $8.8 billion, up $720 million (8.9%); and
stockholders' equity of $1.0 billion, up $141 million (15.8%).
Earning asset quality remained excellent in 1995 as nonperforming assets were
reduced to $26.6 million at December 31, 1995, down $0.6 million (2.3%) from
December 31, 1994. The ratio of nonperforming assets to total loans and ORE was
0.32% at year-end 1995, essentially unchanged from 0.33% at year-end 1994.
The reserve for loan losses declined slightly to $130.0 million at December 31,
1995, down $3.9 million (2.9%) from December 31, 1994. The ratio of the reserve
to total loans was 1.56% at year-end 1995, down from 1.64% at year-end 1994,
while the "coverage" ratio of the reserve to nonaccruing loans was 579.06% at
year-end 1995, up from 560.81% at year-end 1994.
All of FSCO's equity and risk-based capital ratios increased at December 31,
1995, as compared with December 31, 1994: the ratio of stockholders' equity to
total assets was 7.90%, up from 7.32%; the ratio of tangible common equity to
tangible total assets was 6.84%, up from 6.03%; the Tier 1 ratio was 10.35%, up
from 9.84%; the Total Capital ratio was 13.86%, up from 11.98%; and the
leverage ratio was 7.12%, up from 6.88%. FSCO and its subsidiary banks have
exceeded regulatory requirements for "well capitalized" status every year since
these requirements were established.
Generally strong local economies and loan demand throughout FSCO's six-state
banking franchise substantially contributed to the 9.7% growth in average
earning assets and the 3.7% increase in net interest income.
<PAGE>
PROJECT VISION: FSCO'S CUSTOMER FOCUSED CORPORATE REDESIGN PROGRAM. FSCO's
corporate vision is: "At First Security we are a high performance, independent
financial services company that provides the highest quality products and
services to the customers we serve. Our hallmark is a long and continuing
tradition of integrity, community involvement, and progressive leadership that
builds value and prosperity for our shareholders, customers, employees, and
communities, all of which are vital to our success."
FSCO's primary objective for 1996 is to build on this corporate vision through
implementation of Project VISION, the results of which were announced on
December 14, 1995. Project VISION was a comprehensive six-month corporate
redesign effort which included a major corporate and organizational
restructuring of FSCO to enhance shareholder value, to better meet customers
needs, and to increase efficiency and performance. When fully implemented,
Project VISION will improve customer service, create a more efficient FSCO by
eliminating unnecessary duplicate efforts, and empower employees with more
decision-making authority. Combined, these changes will lead to significantly
increased shareholder value, allowing FSCO to remain a high performance, viable
competitor within the current climate of mergers and takeovers in the financial
services industry, and help meet the increasingly sophisticated needs of FSCO's
customers.
FSCO's new corporate structure will combine its Utah and Idaho bank charters
into a single bank, and all banks and subsidiaries within FSCO's six-state
market area will begin operating as a single unit or "virtual bank".
FSCO's new organizational structure will consist of six customer-focused
business units: Community Banking Services; Retail Lending Services; Business
Banking Services; Finance & Capital Markets; Technology & Processing Services;
and Corporate Services. Each of the new units will benefit from FSCO's
commitment to spend at least $10.4 million on state-of-the-art technology that
will allow FSCO to better serve its customers.
On a full year run rate basis (i.e., as if Project VISION had been fully
implemented as of January 1, 1996), these redesign changes are expected to
result in $51.4 million total process cost savings and $10.5 million total
revenue enhancements, a $61.9 million total positive pre-tax financial impact
and a $37.8 million after-tax financial impact. On this full year run rate
basis, the full-year positive financial impact is expected to be $0.49 per share
by December 1996 following full implementation of the redesign. In addition,
FSCO has taken a $44.0 million pre-tax restructuring charge in 1995, related to
the redesign. This charge equates to $27.7 million on an after-tax basis, or
$0.36 per share (see: "Note 2. Restructuring Charge").
While FSCO's senior management is confident of achieving the forward looking
results that have been outlined, they also realize the challenges and risks
associated with implementing a redesign project like Project VISION. This is a
complex task that requires assuring that everyone understands what they need to
do and the time frame in which this implementation must occur. Changes will
need to be carefully sequenced, and all of this must occur across FSCO's
expansive geography and across organizational units in order to achieve the
planned financial results.
FSCO's redesign will have a direct impact on its current staffing levels. Of
the 1,577 total positions eliminated through Project VISION, 249 employees chose
to leave the company voluntarily, 82 employees have been placed in a redeploy-
ment pool, 211 positions were absorbed by a hiring freeze, 466 positions will be
assimilated through attrition in 1996, and 569 employees are leaving FSCO
involuntarily, most of whom have work-through dates scheduled throughout 1996.
BUSINESS LINES. First Security Corporation is the largest financial services
organization headquartered in the Intermountain West. Incorporated in 1928,
FSCO is also the nation's oldest multistate bank holding company. At December
31, 1995, FSCO bank subsidiaries operated 272 full-service domestic bank offices
in the six western states of Utah, Idaho, New Mexico, Oregon, Nevada, and
Wyoming. Nonbank subsidiaries are engaged in residential mortgage loan
origination and servicing, full-service leasing, bankcard transaction
processing, insurance services, investment management, full-service securities
brokerage, information technology, small business investment, and asset
management.
FSCO's subsidiaries and their principal activities are discussed below (see:
"Table 3: Consolidating Statements"; "Mergers and Acquisitions"; and "Note 15.
Mergers and Acquisitions").
* First Security Bank of Utah, N.A. (FSB Utah) is a nationally chartered bank
and the largest bank in Utah. FSB Utah has one wholly owned operating
subsidiary:
** CrossLand Mortgage originates and services residential term loans, and
services mortgage loans for all of FSCO's subsidiaries. All of CrossLand
Mortgage's loan originations are sold into the secondary market. At December
31, 1995, CrossLand Mortgage operated 66 offices in 22 states nationwide.
During 1995, CrossLand Mortgage acquired seven offices and certain assets of a
mortgage loan company.
* First Security Bank of Idaho, N.A. (FSB Idaho) is a nationally chartered bank
and the second largest bank in Idaho in terms of deposits.
* First Security Bank of New Mexico, N.A. (FSB New Mexico) is a nationally
chartered bank and the third largest bank in New Mexico in terms of deposits.
* First Security Bank of Oregon (FSB Oregon) is an Oregon state chartered
savings bank.
* First Security Bank of Nevada (FSB Nevada) is a Nevada state chartered bank.
* First Security Bank of Wyoming (FSB Wyoming) is a Wyoming state chartered
bank.
<PAGE>
* First Security Leasing Company (FS Leasing), a full-service leasing company,
originates and manages leases for both its own portfolio and the lease
portfolios of FSCO's subsidiary banks. Leases are carried by FSCO's
subsidiaries primarily to generate income, although significant deferred tax
benefits have been, and continue to be, generated by the lease portfolios.
* First Security Processing Services, Inc. (FS Processing Services) processes
bankcard transactions for other financial institutions.
* First Security Insurance, Inc. (FS Insurance), a full-service insurance
agency, offers a wide range of insurance products to customers in FSCO's market
areas. During 1995, FS Insurance acquired two insurance agencies.
* First Security Life Insurance Company of Arizona (FS Life Insurance) reinsures
the credit life and disability insurance of borrowers from other FSCO
subsidiaries.
* First Security Investment Services, Inc. (FS Investment Services) has two
operating subsidiaries:
** First Security Investor Services provides a full spectrum of securities
products and brokerage services to the public, including discount brokerage and
investment advice, and makes available FSCO's "Achievement Funds", a family of
proprietary mutual funds.
** First Security Investment Management, Inc. provides investment management
and advisory services to the trust groups of FSCO's subsidiary banks and to
other clients, and is an advisor to mutual funds, including certain of FSCO's
"Achievement Funds".
* First Security Business Investment Corporation (FS Business Investment)
invests in small businesses and provides alternative financing sources for small
companies whose financing needs are not being met by conventional lending
sources. Investments made by FS Business Investment include both equity and
debt positions.
* First Security Service Company (FS Service) provides specialized services to
FSCO's subsidiaries. These services include loan servicing, systems and
operations, accounting, tax, security, consumer compliance, human resources,
planning, sales training, marketing, communications, and purchasing.
* First Security Information Technology, Inc. (FS Information Technology)
provides specialized services including computer processing, telecommunications,
and personal computer support to FSCO and its subsidiaries.
<TABLE>
<CAPTION>
Table 3: Consolidating Statements (in thousands, except ratios) (A)
Reserve Non- Return on Return on
For the year ended Total Total for Loan Performing Total Total Net Average Average
December 31, 1995 Assets Loans Losses Assets Deposits Equity Income Assets Equity
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bank Subsidiaries:
FSB Utah (127 offices)..... $ 6,289,214 $3,713,511 $ (58,127) $ 8,797 $4,126,057 $ 516,799 $ 66,419 1.15% 13.54%
FSB Idaho (91 offices)..... 3,992,220 2,937,753 (36,476) 7,843 2,706,665 293,688 29,728 0.79 10.55
FSB New Mexico (27 offices) 1,775,147 804,642 (18,477) 2,860 1,167,656 107,944 13,507 0.79 13.46
FSB Oregon (13 offices).... 417,182 357,351 (4,885) 368 334,439 39,751 4,414 1.08 11.24
FSB Nevada (8 offices)..... 353,678 251,052 (4,389) 5,816 323,764 28,946 5,117 1.59 19.74
FSB Wyoming (6 offices).... 218,939 129,913 (2,740) 863 190,822 23,900 2,051 0.96 9.18
Consolidating Adjustments.. (8,474) ---- ---- ---- (75,761) (3) ---- ---- ----
- ----------------------------------------------------------------------------------------------------------------------------
Total Bank Subsidiaries.... 13,037,906 8,194,222 (125,094) 26,547 8,773,642 1,011,025 121,236 0.99 12.63
- ----------------------------------------------------------------------------------------------------------------------------
Nonbank Subsidiaries:
FS Leasing................. 189,971 192,024 (4,888) 34 ---- 30,160 3,663 2.08 13.02
FS Processing Services..... 4,145 ---- ---- ---- ---- 445 5,473 86.94 411.81
FS Insurance............... 8,775 900 ---- ---- ---- 7,200 1,274 14.82 20.03
FS Life Insurance.......... 12,484 ---- ---- ---- ---- 10,291 1,350 11.66 14.38
FS Investment Services..... 2,344 20 ---- ---- ---- 1,518 267 14.71 19.69
FS Business Investment..... 2,198 1,175 ---- ---- ---- 2,177 (317) (12.80) (12.86)
FS Service................. 32,739 3,622 ---- ---- ---- 1,917 (11,925) (41.52) (107.72)
FS Information Technology.. 11,203 ---- ---- ---- ---- 805 (1,760) (21.29) (81.37)
FS Mortgage................ 6,383 ---- ---- ---- ---- 6,194 803 12.83 13.28
Consolidating Adjustments.. (7,133) ---- ---- ---- ---- (103) ---- ---- ----
- ----------------------------------------------------------------------------------------------------------------------------
Total Nonbank Subsidiaries. 263,109 197,741 (4,888) 34 ---- 60,604 (1,172) (0.47) (1.72)
- ----------------------------------------------------------------------------------------------------------------------------
FSCO Parent Company Only... 1,396,565 297,751 ---- ---- ---- 1,030,263 54,108 4.25 5.54
Consolidating Adjustments.. (1,662,973) (374,619) ---- ---- ---- (1,071,629) (54,167) ---- ----
- ----------------------------------------------------------------------------------------------------------------------------
FSCO Consolidated.......... $13,034,607 $8,315,095 $(129,982) $26,581 $8,773,642 $1,030,263 $120,005 0.98 12.17
============================================================================================================================
<FN>
Notes:
(A) FSCO owns 100% of the stock of all of its subsidiaries except FSB Utah and FSB Wyoming, which are each 99.9% owned.
</TABLE>
<PAGE>
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 (see: "Note 15. Mergers and
Acquisitions"). Management believes that long-term returns on the stockholders'
investment will benefit from these acquisitions, and will continue its strategy
of acquiring solid, well-managed financial services companies when suitable
opportunities arise in new and existing markets.
In 1995, FSCO completed three acquisitions, including two insurance agencies and
a mortgage loan company. These acquisitions added 10 offices and $3 million in
assets to FSCO's consolidated operations.
In 1994, FSCO completed four bank acquisitions, expanding its existing bank
operations in Utah, Idaho, and Wyoming. These acquisitions added a total of 13
branches and $202.0 million in deposits to FSCO's consolidated operations. In
addition, FSCO, through its FSB Utah subsidiary, acquired CrossLand Mortgage
Acquisition Corporation ("CrossLand Mortgage"), the parent company of CrossLand
Mortgage Corp. (not affiliated with CrossLand Savings Bank). This acquisition
added $328 million in assets to FSCO's consolidated operations.
None of the 1995 and 1994 acquisitions were of sufficient size to require
restatement of FSCO's historical financial statements. However, FSCO's
acquisition of CrossLand Mortgage impacted FSCO's noninterest income and
noninterest expenses, so that comparisons of operating results for 1995 with
prior years may not be indicative of FSCO's actual comparative performance.
STOCKHOLDERS' EQUITY AND CAPITAL ADEQUACY. Total stockholders' equity in FSCO
increased to a record $1.0 billion at December 31, 1995, up $141 million (15.8%)
from $889.5 million at December 31, 1994. This growth was due to earnings, plus
an increase in the SFAS 115 net unrealized gain on securities available for sale
to $14.5 million, up $68.9 million from a $54.3 million net unrealized
securities loss at year-end 1994.
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.
FSCO's equity and risk-based capital ratios increased in 1995 due to earnings
plus the improvement in the SFAS 115 component of equity (see: "Table 4: Capital
Ratios"). At December 31, 1995 and 1994, respectively, the ratio of
stockholders' equity to total assets was 7.90%, up from 7.32%, while the ratio
of tangible common equity to tangible total assets was 6.84%, up from 6.03%.
FSCO's risk-based capital ratios at December 31, 1995 and 1994, respectively,
were: Tier 1 at 10.35%, up from 9.84%; and Total Capital at 13.86%, up from
11.98%. The leverage ratio at the same year ends was 7.12%, up from 6.88%.
FSCO and its subsidiary banks have exceeded regulatory requirements for "well
capitalized" status every year since these requirements were established. It is
FSCO's policy to maintain the "well capitalized" status at both the consolidated
and subsidiary bank levels. FSCO's goal for its minimum tangible common equity
to assets ratio is 7.00%.
With its strong equity and risk-based capital ratios, FSCO is well-positioned to
selectively invest in profitable business opportunities, while maintaining
capital ratios at levels determined to be prudent and conservative by
management.
<TABLE>
<CAPTION>
Table 4: Capital Ratios
FSCO FSB Utah FSB Idaho FSB New Mexico
- ------------------------------------------------------------------------------------------------------------------------------
As of December 31, 1995 1994 1995 1994 1995 1994 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Ratios:
Stockholders' equity EOP/assets EOP................ 7.90% 7.32% 8.22% 7.76% 7.36% 6.78% 6.08% 4.70%
Average stockholders' equity/average assets........ 8.06 7.80 8.48 6.66 7.45 6.66 5.87 5.88
Tangible common equity EOP/tangible assets EOP..... 6.84 6.03 6.37 5.46 7.03 6.42 6.08 4.70
Risk-Based Capital Ratios:
Tier 1............................................. 10.35 9.84 10.59 9.81 9.07 8.51 12.66 11.21
Total Capital (Tier 1 + Tier 2).................... 13.86 11.98 12.21 11.44 11.07 10.70 13.92 12.47
Leverage Ratio (A)................................... 7.12 6.88 7.06 6.85 6.91 6.58 5.93 5.62
- ------------------------------------------------------------------------------------------------------------------------------
<FN>
(A) Federal Reserve Board guidelines provide that all bank holding companies (other than those that meet certain criteria)
maintain a minimum leverage ratio of 3%, plus an additional cushion of 100 to 200 basis points. The guidelines also state
that bank organizations experiencing internal growth or making acquisitions will be expected to maintain "strong capital
positions" substantially above the minimum supervisory levels without significant reliance on intangible assets.
</TABLE>
<PAGE>
COMMON AND PREFERRED STOCK. First Security Corporation's common stock is traded
on the NASDAQ/NMS under the symbol "FSCO", and is included in the Standard &
Poors' "MidCap 400" Index, and the Keefe, Bruyette & Woods, Inc. "KBW 50 Index".
On January 29, 1996, FSCO declared a three-for-two common stock split in the
form of a 50% stock dividend payable on February 15, 1996, to shareholders of
record as of February 12, 1996. As a result of the split, shareholders received
one additional share of FSCO common stock for every two shares held. ALL SHARE
AND PER SHARE DATA IN THIS REPORT HAVE BEEN RESTATED TO REFLECT THIS STOCK
SPLIT.
The bid price of FSCO common stock, restated for the stock split, was $25.33 per
share at the close of the market on December 29, 1995, versus a restated book
value of $13.71 per share, resulting in a market-to-book ratio of 184.82%. In
comparison, the restated bid price was $15.17 per share at the close of the
market on December 31, 1994, versus a restated book value of $11.95 per share,
resulting in a market-to-book ratio of 126.95%. At December 31, 1995, FSCO's
common stock market capitalization was a record $1.9 billion, up 68.7% from
year-end 1994 and representing a five-year compound growth rate of 34.8%.
On January 23, 1995, FSCO increased its regular quarterly common stock cash
dividend to $0.1867 per restated share, up $0.0134 per share (7.7%) from the
previous $0.1733 per restated share. The $0.1867 cash dividend was paid in each
quarter of 1995 for an annual dividend rate of $0.7467 per share. Cash
dividends paid totaled $56.0 million in 1995, resulting in a dividend payout
ratio of 37.01%.
The 1995 dividends marked the 61st consecutive year in which 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.
On January 29, 1996, FSCO also increased its regular quarterly common stock cash
dividend to $0.21 per share, up $0.0233 per share (12.5%) from the previous
$0.1867 per restated share. The increased cash dividend will be paid on March
4, 1996, to shareholders of record on February 16, 1996. This equates to an
annual dividend rate of $0.84 per share. At the market closing price of $23.17
per restated share on Friday, January 26, 1996 (the last market day before the
announcement of the dividend increase), the annual dividend yield on FSCO common
stock would have been approximately 3.63%.
On December 15, 1995, FSCO announced an authorized common stock buyback program
to repurchase up to 2%, or approximately 1.5 million shares, of its common
stock, purchasing the shares at prevailing prices in the open market as
permitted by applicable rules. These purchases are in addition to ongoing
periodic share repurchases made over the last several years for use in employee
benefit plans.
For the years covered in this report, FSCO's preferred stock was convertible
into FSCO common stock at the conversion rate, restated for the stock split, of
one share of preferred stock for 18.225 shares of common stock. There is no
active trading market for FSCO's preferred stock.
EARNING ASSETS AND ASSET QUALITY.
SECURITIES. FSCO manages its securities available for sale and securities held
to maturity portfolios within policies which are designed to achieve desired
liquidity levels, manage interest rate sensitivity risk, meet earnings
objectives, and fulfill requirements for collateral to support deposit and/or
repurchase agreement activities. FSCO's investment strategy remains flexible
and carefully reviewed by management, shifting periodically in response to
changing conditions. The average life of the securities portfolios is
relatively short, providing a constant cash flow from maturing assets. With the
exception of U.S. Government and U.S. Government-sponsored agencies, FSCO had no
concentrations of securities from any single issuer that constituted 10% or more
of stockholders' equity at year-end 1995.
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 portfolio strategies are adjusted to the changing interest
rate environment, which in 1995 was driven by the Federal Reserve's shifting
attention from inflation concerns in the first half of the year to slowing
economic growth in the second half. Interest rates at year-end 1995 were
generally 250 basis points lower than at the beginning of the year, resulting in
an increase in the market value of all fixed income securities. The SFAS 115
repositioning of securities portfolios resulted in an increase in stockholders'
equity, reflecting the appreciation of FSCO's available-for-sale portfolio net
of the tax effect. FSCO actively manages its securities portfolio, rather than
holding lower rate securities to maturity which would result in an earnings
stream significantly below the current market yield. FSCO was able to improve
the income stream from its securities, moving its yield closer to the market's
yield and mitigating the impact of the spread between the securities yield and
the cost of funds.
<PAGE>
FSCO's securities portfolio grew to a record $2.6 billion at December 31, 1995,
up $377 million (16.8%) from $2.2 billion at year-end 1994 (see: "Table 5:
Securities"). Securities growth was due in large part to the temporary
investment of the proceeds from the securitization and sale of $251 million of
auto loans during the third quarter of 1995 and the sale of $100 million
portfolio mortgage loans during the fourth quarter of 1995. Securities
purchased included a mix of U.S. Treasuries, agencies, municipal bonds, Federal
agencies' collateralized mortgage obligations, and mortgage-backed securities.
The estimated average maturity of FSCO's security portfolio is 2.5 years as of
December 31, 1995.
During the fourth quarter of 1995, FSCO liquidated $224 million of certain
securities for a combined net loss of $2.8 million pre-tax. The proceeds were
reinvested in higher yielding securities. It is anticipated that this loss on
the sale of securities in 1995 will be more than offset in future years by
additional interest income from the purchase of higher yielding securities and
from the investment of tax savings that resulted from the loss.
As FSCO enters 1996, the priority of the securities portfolio strategy continues
to be a balance between liquidity and interest rate risk and return. U.S.
Treasury and agency related mortgage securities are currently the primary
reinvestment selection of maturing and prepaid investments. FSCO's investment
strategy remains flexible and carefully reviewed by its ALCOs, shifting
periodically in response to changing conditions, risks, and opportunities.
<TABLE>
<CAPTION>
Table 5: Securities (in thousands)
Available For Sale (A): Held To Maturity (A):
----------------------------------------- --------------------------------------------
Amortized Estimated Amortized Estimated
As of December 31, 1995 Cost Fair Value Yield (B) % Cost Fair Value Yield (B) %
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Debt Securities Issued By the U.S. Treasury & Other U.S. Government Agencies & Corporations:
One year or less.................... $ 284,766 $ 286,545 6.45
After one year through five years... 299,238 303,225 6.52
After five years through ten years.. 3,204 3,271 6.27
After ten years..................... 8,276 8,374 7.68
- ------------------------------------------------------------------------------------------------------------------------------------
Totals.............................. 595,484 601,415 6.50 None None
- ------------------------------------------------------------------------------------------------------------------------------------
Debt Securities Issued By States of the U.S. & Political Subdivisions:
One year or less.................... $ 59,575 $ 59,661 5.34
After one year through five years... 67,557 69,161 6.07
After five years through ten years.. 47,331 48,844 5.66
After ten years..................... 18,680 19,324 6.25
- ------------------------------------------------------------------------------------------------------------------------------------
Totals.............................. 193,143 196,990 5.76 None None
- ------------------------------------------------------------------------------------------------------------------------------------
Corporate Debt Securities:
One year or less.................... $ 1,653 $ 1,663 7.47
After one year through five years... 4,086 4,136 6.19
After five years through ten years.. 1,364 1,353 6.40
After ten years..................... 3,137 3,172 7.13
- ------------------------------------------------------------------------------------------------------------------------------------
Totals.............................. 10,240 10,324 6.71 None None
- ------------------------------------------------------------------------------------------------------------------------------------
Total Debt Securities:
One year or less........... $ 345,994 $ 347,869 6.27
After one year through five years... 370,881 376,522 6.44
After five years through ten years.. 51,899 53,468 5.72
After ten years............ 30,093 30,870 6.73
- ------------------------------------------------------------------------------------------------------------------------------------
Total Debt Securities...... 798,867 808,729 6.33 None None
- ------------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities 1,741,224 1,746,959 6.44
Equity securities (C)...... 59,852 67,869 5.82
- ------------------------------------------------------------------------------------------------------------------------------------
Total Securities........... $2,599,943 $2,623,557 6.39 None None
====================================================================================================================================
(continued)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Table 5: Securities (in thousands) (continued)
Available For Sale (A): Held To Maturity (A):
--------------------------------------------------- -------------------------------------------------
Amortized Unrealized Unrealized Estimated Amortized Unrealized Unrealized Estimated
As of December 31, 1995 Cost Gains Losses Fair Value Cost Gains Losses Fair Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Debt securities issued
by the U.S. Treasury and
other U.S. Government
agencies and corporations.. $ 595,484 $ 6,132 $ (201) $ 601,415
Debt securities issued by
states of the U.S. and
political subdivisions..... 193,143 4,090 (243) 196,990
Corporate debt securities.... 10,240 127 (43) 10,324
Mortgage-backed securities... 1,741,224 13,414 (7,679) 1,746,959
Equity securities (C)........ 59,852 8,093 (76) 67,869
- ------------------------------------------------------------------------------------------------------------------------------------
Total Securities............. $2,599,943 $ 31,856 $ (8,242) $2,623,557 None None None None
====================================================================================================================================
As of December 31, 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Debt securities issued
by the U.S. Treasury and
other U.S. Government
agencies and corporations.. $ 793,508 $ 485 $ (14,357) $ 779,636 $ 25 ---- ---- $ 25
Debt securities issued by
states of the U.S. and
political subdivisions..... ---- ---- ---- ---- 175,305 $ 2,058 $ (1,844) 175,519
Corporate debt securities.... 3,498 3 (270) 3,231 10,645 28 (267) 10,406
Mortgage-backed securities... 1,230,042 320 (76,665) 1,153,697 66,647 446 (3,072) 64,021
Equity securities (C)........ 53,360 4,244 (371) 57,233 ---- ---- ---- ----
- ------------------------------------------------------------------------------------------------------------------------------------
Total Securities............. $2,080,408 $ 5,052 $ (91,663) $1,993,797 $ 252,622 $ 2,532 $ (5,183) $ 249,971
====================================================================================================================================
As of December 31, 1993
- ------------------------------------------------------------------------------------------------------------------------------------
Debt securities issued
by the U.S. Treasury and
other U.S. Government
agencies and corporations.. $ 655,934 $ 11,696 $ (176) $ 667,454
Debt securities issued by
states of the U.S. and
political subdivisions..... 180,129 6,288 (94) 186,323
Corporate debt securities.... 31,109 556 (28) 31,637
Mortgage-backed securities... 857,836 7,388 (3,052) 862,172
Equity securities (C)........ 37,775 9,311 (25) 47,061
- ------------------------------------------------------------------------------------------------------------------------------------
Total Securities............. (D) (D) (D) (D) $1,762,783 $ 35,239 $ (3,375) $1,794,647
====================================================================================================================================
<FN>
(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.
(B) Average yields have been calculated using coupon rates, not adjusted to a fully-taxable equivalent basis.
(C) "Equity Securities" include common and preferred stocks, and stock in the Federal Reserve and Federal Home Loan Bank.
(D) In 1994, FSCO adopted SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities". Per SFAS 115,
prior period comparisons are not available.
</TABLE>
<PAGE>
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 across the six-state region,
which along with the customer mix, provides excellent natural diversification
for FSCO's various loan portfolios. FSCO has a high quality loan portfolio and
has policies and procedures in place designed to maintain this 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 loan portfolio, net of unearned income but before the reserve for loan
losses, grew to $8.3 billion at December 31, 1995, up $0.1 billion (1.7%) from
$8.2 billion at year-end 1994 (see: "Table 6: Loans"; and "Table 1: Financial
Highlights"). Increases occurred primarily in commercial real estate loans,
commercial loans, leases, and residential real estate loans. These increases
were partially offset by a decrease in consumer loans. The ratio of total loans
to total assets was 63.79% at December 31, 1995, down from 67.28% at year-end
1994.
Since FSCO is heavily dependent on the consumer area, it has secondary marketing
operations in place to sell portions of its auto, residential real estate term,
and home equity loan portfolios.
The components of FSCO's loan portfolio at December 31, 1995, compared with
December 31, 1994, are discussed below.
* Commercial loans are primarily loans to small and medium-sized businesses and
agricultural loans. Commercial loans increased to $2.0 billion, up $116 million
(6.3%) due to a continued broad-based business expansion in FSCO's market areas,
with increases in loans to customers of all sizes.
* Residential real estate loans increased to $2.1 billion, up only $25 million
(1.2%). However, FSCO originated $3.7 billion in new production and sold $3.5
billion in the secondary market. The decrease in residential real estate term
loans, which included the sale of $100 million portfolio mortgage loans during
the fourth quarter of 1995, was more than offset by increases in construction
and home equity loans which had strong demand in FSCO's market areas.
* Commercial real estate loans grew to $1.2 billion, up $156 million (15.2%) as
FSCO redesigned its delivery of owner-occupied and nonowner-occupied loans to
better serve the strong demand in its market areas.
* Consumer loans decreased to $2.6 billion, down $226 million (7.9%) due to the
securitization and sale of $251 million of auto loans during the third quarter
of 1995. However, FSCO remained the leading consumer lender in its primary
market areas.
* Leases increased to $412 million, up $71 million (20.8%) due to FSCO's
increased activity in the indirect auto leasing market.
Changing federal and state laws place increasing burdens on financial
institutions in connection with the national effort to combat hazardous wastes.
Some courts have held financial institutions liable for certain costs and
damages in connection with loan transactions involving properties containing
hazardous wastes. FSCO believes that placement of these burdens and potential
liabilities on financial institutions is unfair and misdirected. Nevertheless,
FSCO, like all financial institutions, is required to and does exercise due
diligence in its real property lending activities to attempt to uncover
hazardous waste violations on subject properties. Collateral values would
certainly diminish if hazardous wastes were discovered after underwriting was
complete and loan proceeds were disbursed. To date, FSCO has not experienced
any material losses from such transactions.
<PAGE>
<TABLE>
<CAPTION>
Table 6: Loans (in thousands) (A)
5-Year
95/94 Compound
As of December 31, 1995 1994 1993 1992 1991 % Chg Growth Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Commercial Loans:
Commercial/industrial................$1,559,533 $1,390,620 $1,164,835 $1,009,158 12.1
Agricultural......................... 280,179 291,807 255,122 240,818 (4.0)
Other commercial..................... 112,073 153,365 151,443 132,602 (26.9)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Commercial Loans............... 1,951,785 1,835,792 1,571,400 $1,382,578 $1,458,037 6.3 6.1
- ------------------------------------------------------------------------------------------------------------------------------------
Real Estate Secured Loans:
Residential Real Estate Loans:
Term............................... 1,457,811 1,560,700 1,239,395 1,077,007 (6.6)
Home equity........................ 451,980 358,858 280,776 225,906 25.9
Construction....................... 218,148 180,544 147,526 77,517 20.8
Construction land.................. 3,403 5,798 13,187 13,198 (41.3)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Residential Real Estate Loans.. 2,131,342 2,105,900 1,680,884 1,393,628 ---- 1.2 ----
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial Real Estate (CRE) Loans:
Term: owner occupied............... 347,095 367,990 319,542 363,186 (5.7)
Term: nonowner occupied............ 553,893 479,100 391,851 368,958 15.6
Construction: owner occupied....... 111,166 53,989 42,249 17,041 105.9
Construction: nonowner occupied.... 118,201 78,145 37,480 50,659 51.3
- ------------------------------------------------------------------------------------------------------------------------------------
Subtotal: CRE Owner Occupied....... 458,261 421,979 361,791 380,227 ---- 8.6 ----
Subtotal: CRE Nonowner Occupied.... 672,094 557,245 429,331 419,617 ---- 20.6 ----
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial Land.................... 47,890 43,331 54,197 32,703 ---- 10.5 ----
- ------------------------------------------------------------------------------------------------------------------------------------
Total Commercial Real Estate Loans... 1,178,245 1,022,555 845,319 832,547 ---- 15.2 ----
- ------------------------------------------------------------------------------------------------------------------------------------
Farm Land............................ 13,423 13,966 17,277 21,733 ---- (3.9) ----
- ------------------------------------------------------------------------------------------------------------------------------------
Total Real Estate Secured Loans...... 3,323,010 3,142,421 2,543,480 2,247,908 2,261,219 5.7 7.0
Memo: Total RE Term Loans.......... 2,852,837 2,819,051 2,299,393 2,085,749 2,052,154 1.2 6.2
Memo: Total RE Construction Loans.. 470,173 323,370 244,087 162,159 209,065 45.4 13.1
- ------------------------------------------------------------------------------------------------------------------------------------
Consumer Loans:
Auto................................. 1,907,425 2,129,128 1,542,202 1,131,784 (10.4)
Student.............................. 65,661 130,158 110,231 95,780 (49.6)
Credit card receivables.............. 311,271 306,270 275,467 292,983 299,706 1.6 0.7
Other consumer....................... 343,454 288,392 242,388 206,681 19.1
- ------------------------------------------------------------------------------------------------------------------------------------
Total Consumer Loans................. 2,627,811 2,853,948 2,170,288 1,727,228 1,482,053 (7.9) 13.8
- ------------------------------------------------------------------------------------------------------------------------------------
Leases:
Total Leases......................... 412,489 341,517 275,853 258,910 231,642 20.8 12.8
- ------------------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned income........ 8,315,095 8,173,678 6,561,021 5,616,624 5,432,951 1.7 8.9
Memo: Unearned Income.............. (16,250) (7,380) (12,182) (13,861) (16,609) 120.2 (6.9)
Reserve for loan losses.............. (129,982) (133,855) (134,848) (127,847) (126,887) (2.9) 2.1
- ------------------------------------------------------------------------------------------------------------------------------------
Total Loans, Net.....................$8,185,113 $8,039,823 $6,426,173 $5,488,777 $5,306,064 1.8 9.1
====================================================================================================================================
<FN>
(A) Meaningful comparisons of individual loan categories with years prior to December 31, 1992 are not possible because of the
November 19, 1993 acquisition of First National Financial Corporation (FNFC) in which FNFC's loan detail did not permit
restatement of years prior to 1992 on a line-by-line basis.
</TABLE>
<PAGE>
PROBLEM ASSETS AND POTENTIAL PROBLEM ASSETS. Superior asset quality continues
to be a primary objective for FSCO. Despite a general downward trend in problem
assets since 1991, it has been FSCO's experience that economic cycles and loan-
specific events will cause fluctuations in problem assets, sometimes with little
or no warning.
Problem assets totaled $40.0 million at December 31, 1995, remaining essentially
unchanged from $39.2 million at year-end 1994 (see: "Table 7: Problem Assets and
Potential Problem Assets"). This occurred as the strong economy in FSCO's
market areas continued to drive excellent credit quality in 1995. The ratio of
total problem assets to total loans and ORE was 0.48% at December 31, 1995,
remaining unchanged from year-end 1994 (see: "Table 1: Financial Highlights").
All of FSCO's asset quality indicators remained at very favorable levels and
continued to be better than industry standards.
There were no significant changes in the components of FSCO's problem assets at
December 31, 1995 as compared to December 31, 1994. The largest problem credit
was a $5.3 million agricultural credit.
Potential problem loans identified by FSCO were $12.3 million at December 31,
1995, also remaining essentially unchanged from $12.0 million at year-end 1994.
Potential problem loans consisted primarily of commercial loans and agricultural
loans.
<TABLE>
<CAPTION>
Table 7: Problem Assets And Potential Problem Assets (in thousands)
5-Year
95/94 Compound
As of December 31, 1995 1994 1993 1992 1991 % Chg Growth Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Nonaccruing loans:
Commercial................................... $ 9,158 $ 8,903 $ 9,408 $ 17,165 $ 17,627 2.9 (16.9)
Real estate: term............................ 10,430 12,246 21,940 55,704 80,726 (14.8) (28.0)
Real estate: construction.................... 2,349 1,714 1,877 6,101 11,851 37.0 (28.8)
Consumer..................................... 110 168 546 853 1,223 (34.5) (35.3)
Leases....................................... 400 837 1,484 145 423 (52.2) (36.1)
Renegotiated................................. ---- ---- 1,099 ---- 527 ---- (100.0)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Nonaccruing Loans...................... 22,447 23,868 36,354 79,968 112,377 (6.0) (25.7)
ORE and other foreclosed assets.............. 4,134 3,352 16,465 27,487 38,322 23.3 (39.6)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Nonperforming Assets................... 26,581 27,220 52,819 107,455 150,699 (2.3) (29.3)
Accruing loans past due 90 days or more...... 13,455 12,001 7,155 11,766 17,200 12.1 (4.2)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Problem Assets......................... $40,036 $39,221 $59,974 $119,221 $167,899 2.1 (24.9)
====================================================================================================================================
Problem assets: bank subsidiaries............ $39,903 $36,423 $46,595 $107,359 $145,957 9.6 (20.3)
Problem assets: nonbank subsidiaries......... 133 2,798 13,379 11,862 21,942 (95.2) (68.6)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Problem Assets......................... $40,036 $39,221 $59,974 $119,221 $167,899 2.1 (24.9)
====================================================================================================================================
Potential Problem Assets..................... $12,319 $12,018 $19,179 $ 22,930 $ 69,801 2.5 (25.8)
====================================================================================================================================
Gross interest income that would have been recorded if the loans and other real estate had been current in accordance with their
original stated terms:
Nonaccruing loans............................ $ 2,366 $ 1,994 $ 2,333 $ 6,450 $ 8,466 18.7 (21.7)
Renegotiated loans........................... ---- ---- 111 ---- 77 ---- (100.0)
Other real estate............................ 527 485 2,323 3,528 4,227 8.7 (42.8)
====================================================================================================================================
Interest actually recognized:
Nonaccruing loans............................ $ 2,766 $ 2,264 $ 679 $ 1,016 $ 905 22.2 10.2
Renegotiated loans........................... ---- ---- 87 ---- 100 ---- (100.0)
Other real estate............................ ---- ---- 32 48 56 ---- (100.0)
====================================================================================================================================
Approximate Percentage Of Nonperforming Assets Over $500,000 By Location:
Utah......................................... 11% 24% 26% 43% 49%
Idaho........................................ 45 15 5 8 4
New Mexico................................... 18 34 35 33 30
Washington and Oregon........................ ---- 9 13 6 2
Nevada....................................... 26 8 ---- ---- 6
All other.................................... ---- ---- 21 10 9
====================================================================================================================================
Approximate Percentage Of Nonperforming Assets Over $500,000 By Type Of Security (excludes FSB New Mexico prior to 1993):
Office buildings............................. 10% --- 5% 6% 25%
Shopping centers............................. --- 17% 28 19 8
Land......................................... 14 32 36 22 21
Single family dwellings...................... 21 8 4 2 1
Other real estate secured.................... 10 13 14 31 34
All other.................................... 45 30 13 20 11
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
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 for loan losses. 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 methodology followed by FSCO in determining appropriate reserve levels
includes a risk identification process that involves the assignment of "loan
quality grades" by individual lending officers. The assigned quality grades are
reviewed for accuracy and consistency of application by supervisors, loan
committees, and an independent credit review department. This risk rating
system is consistent with guidelines established by FSCO's regulators and
utilizes the following assigned grades: "Pass"; "Special Mention";
"Substandard"; "Doubtful"; and "Loss".
Also included in assessing an appropriate reserve level are: negative trends in
key portfolio indicators; loss migration studies; potential and current problem
assets; historical trends; loan portfolio concentrations; portfolio mix; local
and national economic trends; and emerging industry weaknesses. Specific
reserves are established when a loan is considered impaired as defined by SFAS
114.
FSCO's total reserve for loan losses was $130.0 million at December 31, 1995,
down $3.9 million (2.9%) from $133.9 million at year-end 1994 (see: "Table 8:
Reconciliation of the Reserve for Loan Losses"). These slight reductions in the
reserve reflected continued good credit quality. No reserves were added from
merger transactions. Based on its analysis of reserve adequacy, FSCO's
management considered the reserve for loan losses at December 31, 1995 to be
adequate to cover potential losses in the foreseeable future.
The "coverage" ratio of the reserve to nonaccruing loans increased to 579.06% at
December 31, 1995, up from 560.81% at year-end 1994, allowing the reserve for
loan losses to be reduced despite loan growth (see: "Table 1: Financial
Highlights"). The ratio of the reserve to total loans was 1.56% at year-end
1995, down from 1.64% at year-end 1994.
The allocation of the reserve for loan losses (see: "Table 9: Allocation of the
Reserve for Loan Losses") at December 31, 1995 as compared with year-end 1994
remained essentially unchanged, except real estate term loans which were
decreased because of a historically low loss history in the residential real
estate term portfolio.
While reserve adequacy and allocation are measured using the above criteria, the
reserve for loan losses is available for use by the entire portfolio, as needed,
regardless of allocation.
If the continuous analysis of reserve adequacy indicates that replenishment of,
or additions to, the reserve for loan losses is appropriate, the existing
reserve is adjusted by means of the provision for loan losses.
<TABLE>
<CAPTION>
Table 8: Reconciliation Of The Reserve For Loan Losses (in thousands)
5-Year
95/94 Compound
For the years ended December 31, 1995 1994 1993 1992 1991 % Chg Growth Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Reserve For Loan Losses, Beginning Of Period $133,855 $134,848 $127,847 $126,887 $117,192 (0.7) 11.2
- ------------------------------------------------------------------------------------------------------------------------------------
Loans Charged Off:
Commercial...................................... (4,328) (5,621) (9,698) (18,119) (37,343) (23.0) (34.9)
Real estate: term............................... (3,173) (1,718) (7,038) (11,471) (12,707) 84.7 (15.5)
Real estate: construction....................... (100) (506) (542) (261) (501) (80.2) (51.9)
Consumer: instalment............................ (33,903) (22,880) (14,846) (12,920) (13,358) 48.2 15.0
Consumer: credit card........................... (10,086) (6,828) (6,877) (9,201) (10,110) 47.7 13.0
Leases.......................................... (957) (239) (1,466) (426) (1,944) 300.4 (22.8)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Loans Charged Off.......................... (52,547) (37,792) (40,467) (52,398) (75,963) 39.0 (6.7)
- ------------------------------------------------------------------------------------------------------------------------------------
Recoveries On Loans Charged Off:
Commercial...................................... 7,312 11,138 11,789 8,900 6,262 (34.4) 7.2
Real estate: term............................... 2,963 5,651 3,294 2,460 3,456 (47.6) 12.6
Real estate: construction....................... 163 201 3,151 336 447 (18.9) (19.9)
Consumer: instalment............................ 14,609 11,101 8,380 6,252 5,509 31.6 17.6
Consumer: credit card........................... 2,082 1,790 1,875 1,571 1,525 16.3 19.4
Leases.......................................... 463 819 113 48 55 (43.5) (15.4)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Recoveries Of Loans Charged Off............ 27,592 30,700 28,602 19,567 17,254 (10.1) 11.9
- ------------------------------------------------------------------------------------------------------------------------------------
Net Loans (Charged Off) Recovered................ (24,955) (7,092) (11,865) (32,831) (58,709) 251.9 (15.7)
Provision for loan losses........................ 21,082 825 11,684 30,277 66,393 2,455.4 (26.0)
Acquisitions and reclassifications ---- 5,274 7,182 3,514 2,011 (100.0) (100.0)
- -----------------------------------------------------------------------------------------------------------------------------------
Reserve For Loan Losses, End Of Period...........$129,982 $133,855 $134,848 $127,847 $126,887 (2.9) 2.1
===================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Table 9: Allocation Of The Reserve For Loan Losses (in thousands)
As of December 31, 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------------------
Loan Loan Loan Loan Loan
Type/ Type/ Type/ Type/ Type/
Allocated Total Allocated Total Allocated Total Allocated Total Allocated Total
Loan Type Reserve Loans Reserve Loans Reserve Loans Reserve Loans Reserve Loans
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial................ $ 35,567 23.5% $ 36,378 22.5% $ 36,498 23.9% $ 43,413 24.6% $ 56,064 26.8%
Real estate: term......... 7,816 34.3 14,504 34.5 14,205 35.2 17,948 37.2 18,068 37.8
Real estate: construction. 4,005 5.7 4,897 3.9 4,619 3.7 1,691 2.9 4,439 3.8
Consumer.................. 42,681 31.6 42,143 34.9 32,624 33.0 24,764 30.7 20,641 27.3
Leases.................... 6,064 4.9 7,108 4.2 9,652 4.2 8,722 4.6 4,647 4.3
Unallocated............... 33,849 28,825 37,250 31,309 23,028
- -------------------------------------------------------------------------------------------------------------------------------
Totals.................... $ 129,982 100.0 $133,855 100.0 $134,848 100.0 $127,847 100.0 $126,887 100.0
===============================================================================================================================
</TABLE>
PROVISION FOR LOAN LOSSES. The provision for loan losses totaled $21.1
million for 1995, up from $0.8 million for 1994 (see: "Table 8: Reconciliation
of the Reserve for Loan Losses"). This increase was due to a combination of
higher consumer instalment and credit card losses, and lower recoveries on
commercial and real estate term loans charged off.
Although FSCO's consumer instalment and credit card losses were higher,
mirroring national trends in delinquencies and losses, they continued to be in
line with industry standards. FSCO raised its underwriting standards during
1995 to return its delinquency and loss patterns to more historical FSCO levels.
Recoveries on commercial and real estate term loans have had a major impact on
FSCO's overall net loans charged off in the last few years, but FSCO does not
expect that these levels of recoveries will continue.
During 1995, FSCO kept the provision for loan losses slightly below net
chargeoffs, allowing the reserve to decrease slightly. Net loans charged off
against reserves totaled $25.0 million for 1995, up $17.9 million (251.9%) from
$7.1 million in 1994. This resulted in the ratio of net loan chargeoffs to
average loans being a low 0.30%, up from 0.10% at year-end 1994.
ASSET/LIABILITY MANAGEMENT. FSCO's asset/liability management process is
responsible for the identification, assessment, and management of corporate
capital adequacy (see: "Stockholders' Equity and Capital Adequacy"; and "Table
4: Capital Ratios"), and the liquidity and interest rate risk of FSCO's business
lines. The objective of the ALCO process is to ensure that FSCO's investment
and funding structures maintain prudent levels of risk, within the context of
known and forecasted economic conditions, and that FSCO is compensated for the
assumption of those risks. Formalized policies and procedures govern the ALCO
process.
LIQUIDITY. FSCO has established specific policies and procedures governing
liquidity management through the ALCO process. Plans to address current and
future liquidity needs are developed in the ALCO process and executed through
FSCO's subsidiary banks, and its Capital Markets and Treasury Division.
FSCO maintains an adequate liquidity position in large part through stable core
deposits generated from its wide-spread branch network (see: "Table 10:
Deposits"), the prudent usage of debt (see: "Table 11: Short-Term Borrowings";
and "Table 12: Long-Term Debt"), and from a high quality securities portfolio
(see: "Table 5: Securities"). The average life of the securities portfolio is
relatively short, providing a constant stream of maturing and reinvestible
assets, which could be converted into cash without loss of value should the need
arise. Maturing balances in the large loan portfolios also provide flexibility
in managing cash flows. Assets may also be sold or securitized in order to
provide funding. The ability to redeploy these funds is an important source of
medium to long term liquidity.
Backup sources of liquidity are provided by: credit lines to FSCO; Federal funds
lines carried by FSCO's subsidiary banks; borrowings from the Federal Home Loan
Bank; bank note issuances by FSCO's subsidiary banks; and borrowings from the
Federal Reserve System.
<PAGE>
<TABLE>
<CAPTION>
Table 10: Deposits (in thousands)
5-Year
95/94 Compound
As of December 31, 1995 1994 1993 1992 1991 % Chg Growth Rate
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Noninterest-bearing deposits........... $1,884,931 $1,719,388 $1,697,687 $1,429,314 $1,244,239 9.6 11.0
Interest-Bearing Deposits:
Interest-bearing demand accounts....... 1,093,233 1,095,907 1,041,770 945,508 783,237 (0.2) 9.2
Savings accounts....................... 1,360,805 1,280,002 1,331,495 1,022,994 623,259 6.3 25.0
Money market accounts.................. 1,065,886 1,152,960 1,103,855 1,019,946 935,036 (7.6) 8.1
Time deposits of $100,000 or more...... 668,921 553,381 382,846 342,033 469,133 20.9 4.3
Other time deposits.................... 2,699,866 2,251,706 1,946,054 2,108,658 2,459,788 19.9 0.3
- -----------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Deposits........ 6,888,711 6,333,956 5,806,020 5,439,139 5,270,453 8.8 6.3
- -----------------------------------------------------------------------------------------------------------------------------------
Total Deposits......................... $8,773,642 $8,053,344 $7,503,707 $6,868,453 $6,514,692 8.9 7.2
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Table 11: Short-Term Borrowings (in thousands)
5-Year
95/94 Compound
As of December 31, 1995 1994 1993 1992 1991 % Chg Growth Rate
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
End Of Period Balance:
Federal funds purchased and
securities sold........................ $1,937,456 $2,160,587 $1,387,109 $ 944,385 $ 811,636 (10.3) 19.9
Other short-term borrowings............. 261,233 184,552 99,796 51,405 87,658 41.5 13.8
- -----------------------------------------------------------------------------------------------------------------------------------
Weighted Average Rate:
Federal funds purchased and
securities sold........................ 5.44% 5.38% 2.93% 3.07% 3.99%
Other short-term borrowings............. 6.89 6.00 3.38 4.29 4.22
- -----------------------------------------------------------------------------------------------------------------------------------
Average Outstandings For The Year:
Federal funds purchased and
securities sold........................ $1,685,763 $1,934,468 $1,065,495 $ 929,123 $ 907,724 (12.9) 6.5
Other short-term borrowings............. 206,645 72,873 55,755 53,325 105,808 183.6 25.0
- -----------------------------------------------------------------------------------------------------------------------------------
Weighted Average Rate For The Year:
Federal funds purchased and
securities sold........................ 5.61% 4.23% 2.97% 2.99% 5.52%
Other short-term borrowings............. 6.61 5.59 4.20 4.27 9.35
- -----------------------------------------------------------------------------------------------------------------------------------
Highest Month-End Balance For The Year:
Federal funds purchased and
securities sold........................ $2,434,087 $2,632,541 $1,387,109 $1,213,701 $1,159,899 (7.5) 10.2
Other short-term borrowings............. 349,678 184,552 99,796 90,490 147,558 89.5 20.5
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Table 12: Long-Term Debt (in thousands)
5-year
95/94 Compound
As of December 31, 1995 1994 1993 1992 1991 % Chg Growth Rate
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Parent Company:
12.50% notes due 1991................... ---- ---- ---- ---- $ 50 ---- ----
Medium-term notes due 1994-1998......... $ 50,000 $ 50,000 $ 31,250 $ 31,250 31,250 ---- NM
8.50% notes due 1997.................... ---- ---- ---- ---- 29,500 ---- ----
Floating rate notes due 1999............ 7,175 7,475 7,910 8,354 9,051 (4.0) (6.8)
7.875% senior notes due 1999............ 99,462 100,000 ---- ---- ---- (0.5) ----
7.50% subordinated notes due 2002....... 75,000 75,000 75,000 75,000 ---- ---- ----
7.00% subordinated notes due 2005....... 125,000 ---- ---- ---- ---- ---- ----
Subsidiaries:
Other long-term notes: banks............ 583,623 602,170 137,221 16,108 22,045 (3.1) 95.7
Other long-term notes: nonbanks......... 689 1,775 1,155 1,291 1,870 (61.2) (15.1)
- -----------------------------------------------------------------------------------------------------------------------------------
Total debt with original
maturity over 1 year................... 940,949 836,420 252,536 132,003 93,766 12.5 43.0
Less maturities under 1 year included
in short-term borrowings............... 220,428 150,994 27,700 4,800 6,250 46.0 30.3
- -----------------------------------------------------------------------------------------------------------------------------------
Total Long-Term Debt.................... $ 720,521 $ 685,426 $ 224,836 $ 127,203 $ 87,516 5.1 48.8
===================================================================================================================================
</TABLE>
<PAGE>
INTEREST RATE RISK. FSCO's quantitative asset/liability management utilizes
simulation modeling as its primary tool in determining the earnings and cash
flow effects of current and projected risk strategies under varying economic and
interest rate scenarios. Interest sensitivity gap and duration analysis are
also employed to provide a general overview and other perspectives of FSCO's
risk profile.
Qualitative asset/liability management takes place in formal ALCO meetings,
where risk profiles, sensitivities and recommended risk strategies are discussed
in the context of the competitive business environment. Final strategies are
approved, which are then executed in FSCO's subsidiary banks through the lending
and deposit gathering functions, and in its Capital Markets and Treasury
Division, where on- and off-balance sheet tools are utilized to achieve ALCO
objectives.
Many of the strategic asset/liability actions of late 1994 and 1995 focused on
liquidity enhancement and on reaching a position of minimal interest rate risk
exposure. Rapid loan growth throughout 1994 and early 1995 had put pressure on
liquidity levels. Strategic funding objectives for 1995 led to successful
actions which improved liquidity.
In the fourth quarter of 1994, FSB Utah, FSB Idaho, and FSB New Mexico issued a
total of $294 million in fixed rate bank notes due in the fourth quarters of
1996 and 1997. The predominantly fixed rate loan growth had created a need for
additional funding for some of the new loan production. At the end of 1995,
$148 million of these notes were included in other short-term borrowings,
reflecting the fourth quarter 1996 maturities.
Through the last quarter of 1994 and throughout all of 1995, FSCO placed renewed
emphasis on its deposit gathering functions. The result was successful customer
deposit promotions which allowed external short-term funding sources to be
reduced. A portion of FSCO's liquidity and interest rate risk objectives were
achieved as customers also demonstrated their willingness to extend deposit
maturities.
On July 17, 1995, FSCO issued $125 million of 7.0% subordinated notes due 2005
under an existing shelf registration.
A securitization of $251 million of auto loans was completed and sold on July
31, 1995. The assets securitized were originated by FSB Utah and FSB Idaho.
FSCO maintains quality control for these loan customers through the retention of
the servicing function for the assets securitized.
During the fourth quarter of 1995, FSCO sold approximately $100 million of
residential real estate loans from its portfolio. The majority of these loans
were adjustable rate with unattractive repricing characteristics.
Also in the fourth quarter, the securities portfolio was increased on an interim
basis. FSCO is well-positioned to support projected loan growth through the
sale/runoff of securities, acquisition of additional customer deposits, and
access to external sources of funding.
No new off-balance sheet derivatives were negotiated in 1995, as FSCO's interest
rate risk remained very well-balanced throughout the year. Some derivative
transactions from earlier years matured in 1995. Significant maturities will
occur in 1996, and FSCO will undertake additional transactions to manage its
risk profile.
FSCO's maturities and interest rate sensitivity report (see: "Table 13:
Maturities and Interest Rate Sensitivities") exhibits a slight asset sensitivity
at the one year time frame and moderate overall interest rate risk. Given
FSCO's expected 1996 balance sheet composition, additional short term market
interest rate decreases of up to 1.00% should not exert significant downward
pressure on the net interest margin.
FSCO has used off-balance sheet derivative products for many years in managing
interest rate risk. The components of FSCO's off-balance sheet derivative
products at December 31, 1995 are discussed below (see: "Note 11: Commitments,
Contingent Liabilities, and Financial Instruments with Off-Balance Sheet Risk").
* Derivative Products Used in the ALCO Process. Interest rate swaps, caps, and
floors have all served as tools to increase FSCO's flexibility in protecting
itself against adverse effects of interest rate volatility. It should be noted
that FSCO does not act as a dealer in these transactions, but as an end-user of
off-balance sheet derivative products. The ALCOs have established policies and
procedures which govern the use of derivatives. All off-balance sheet positions
used in the ALCO process are regularly reviewed for effectiveness, market risk,
and counterparty credit exposure. At December 31, 1995, off-balance sheet
instruments used for interest rate risk management activities, including
interest rate swaps, caps, and corridors, were $1.2 billion notional amount,
compared with $1.7 billion notional amount at year-end 1994.
* Derivative Products Used in the Trading Process. Off-balance sheet financial
futures and options contracts are also carried in the trading accounts of FSCO's
subsidiary banks. Financial futures and options contracts are traded for profit
or used to hedge market risk in the same way that on-balance sheet securities
are purchased and sold, and they are subject to the same policies and loss
control limits. At December 31, 1995, financial futures and options contracts
related to FSCO's trading account securities totaled $10.7 billion notional
amount, compared with $15.2 billion notional amount at year-end 1994. This
position consisted of futures and options contracts on short-term Federal funds,
one-month LIBOR, three-month Eurodollars, U.S. Treasury Bills, and options on
foreign exchange contracts. The net risk position of FSCO's trading account
securities (including futures, options, and on-balance sheet securities) at
December 31, 1995, was $30,051 per basis point (0.01%) change in yield, compared
with $50,121 at year-end 1994. For comparative purposes, this risk equates to
that of FSCO owning a $70 million position in five-year U.S. Treasury Notes.
<PAGE>
<TABLE>
<CAPTION>
Table 13: Maturities And Interest Rate Sensitivities (in thousands)
1-30 31-90 91-365 Over
As of December 31, 1995 Days Days Days 1 Year Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Interest-bearing deposits in other banks......... $ 21,167 $ 198 ---- $ 198 $ 21,563
Federal funds sold and securities purchased...... 148,069 ---- ---- ---- 148,069
Trading account securities....................... 638,393 ---- ---- ---- 638,393
Securities....................................... 301,303 91,810 $ 532,020 1,698,424 2,623,557
Loans, net of unearned income................... 3,499,475 507,924 1,613,531 2,694,165 8,315,095
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest-Earning Assets.................... 4,608,407 599,932 2,145,551 4,392,787 11,746,677
- ----------------------------------------------------------------------------------------------------------------------------------
Interest-Bearing Liabilities:
Interest-bearing demand and savings accounts..... 177,782 ---- ---- 2,276,256 2,454,038
Money market deposits............................ 1,065,886 ---- ---- ---- 1,065,886
Time deposits.................................... 334,374 501,804 1,456,731 1,075,878 3,368,787
Federal funds purchased and securities sold...... 1,937,456 ---- ---- ---- 1,937,456
Other short-term borrowings...................... 39,057 318 1,430 ---- 40,805
Long-term debt................................... 7,522 50,694 169,387 713,346 940,949
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Liabilities............... 3,562,077 552,816 1,627,548 4,065,480 9,807,921
- ----------------------------------------------------------------------------------------------------------------------------------
Interest rate swaps and financial futures, net... 318,596 1,514 (94,642) (225,468)
- ----------------------------------------------------------------------------------------------------------------------------------
Gap.............................................. $ 727,734 $ 45,602 $ 612,645 $ 552,775 $ 1,938,756
- ----------------------------------------------------------------------------------------------------------------------------------
Gap as percent of earning assets................. 6.20% 0.39% 5.22 4.71%
==================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Table 14: Maturities And Interest Rate Sensitivities Of Selected Loan Categories (in thousands)
1 Year 1 Year to Over
As of December 31, 1995 or Less 5 Years 5 Years Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Remaining maturity:
Commercial loans............................. $ 1,150,512 $ 708,056 $ 93,217 $ 1,951,785
Real estate: construction loans............... 418,474 51,093 606 470,173
- ----------------------------------------------------------------------------------------------------------------------------------
Totals.......................................... $ 1,568,986 $ 759,149 $ 93,823 $ 2,421,958
==================================================================================================================================
Interest Rate Sensitivities Of Loans Included Above Maturing In More Than One Year:
With fixed rates............................... $ 190,522 $ 28,572 $ 219,094
With floating rate............................. 568,627 65,251 633,878
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest Rate Sensitivities................ $ 759,149 $ 93,823 $ 852,972
==================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Table 15: Maturities Of Time Certificates Of Deposit Of $100,000 Or More (in thousands)
5-Year
95/94 Compound
As of December 31, 1995 1994 1993 1992 1991 % Chg Growth Rate
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Maturing within 3 months or less.... $ 228,820 $ 289,926 $ 162,746 $ 177,240 $ 249,331 (21.1) (3.7)
After 3 months through 6 months..... 130,948 66,432 68,505 58,703 100,931 97.1 (0.7)
After 6 months through 12 months.... 177,354 75,848 75,520 48,267 71,962 133.8 13.1
After 12 months..................... 131,799 121,175 76,075 57,823 46,909 8.8 32.0
- --------------------------------------------------------------------------------------------------------------------------------
Totals.............................. $ 668,921 $ 553,381 $ 382,846 $ 342,033 $ 469,133 20.9 4.3
================================================================================================================================
</TABLE>
<PAGE>
INCOME STATEMENT ANALYSIS.
NET INTEREST INCOME. The largest component of FSCO's operating income is net
interest income (see: "Table 1: Financial Highlights"; "Table 16: Analysis of
Interest Changes Due To Volumes and Rates"; and "Table 17: Average Balance
Sheets, Net Interest Income, Yields and Rates"). For purposes of this
discussion, interest income earned on tax-exempt or tax-favored loans, leases,
and securities is adjusted to a fully taxable equivalent ("FTE") basis to
facilitate comparison with interest earned which is subject to statutory
taxation. During 1995, a one basis point (0.01%) change in FSCO's net interest
margin FTE equaled approximately $1.1 million of net interest income FTE.
Changes in net interest income generally occur due to fluctuations in the
balances and/or mixes of earning assets and interest-bearing liabilities, and
changes in their corresponding interest yields and costs. Changes in
nonperforming assets, together with interest lost and recovered on those assets,
also impact comparisons of net interest income.
Net interest income FTE totaled $483.3 million for 1995, up $17.3 million (3.7%)
from $466.0 million for 1994. This increase was due mostly to the 13.1% volume
growth in average loans, inclusive of the impacts of the securitization and sale
of $251 million of auto loans during the third quarter of 1995 and the sale of
$100 million portfolio mortgage loans during the fourth quarter of 1995. The
9.7% growth in average earning assets was exceeded by the 10.7% growth in
average interest-bearing liabilities. The resulting compaction of spreads on
earning assets negatively impacted the net interest margin in 1995.
The net interest margin was 4.39% for 1995, down from 4.64% for 1994. This
decrease was due primarily to increased average balances in certificates of
deposit and long-term debt as FSCO continued to take steps during the year to
moderate interest rate risk and increase general liquidity. The decline was
partially offset by higher loan volumes and yields in 1995. Despite the year to
year decline, the quarterly net interest margin increased all year long in 1995,
rising to a high for the year of 4.57% in the fourth quarter of 1995, up from a
low for the year of 4.06% in the first quarter, and up from 4.37% for the year-
ago quarter.
<TABLE>
<CAPTION>
Table 16: Analysis Of Interest Changes Due To Volumes And Rates (in thousands) (A)
- --------------------------------------------------------------------------------------------------------------------------------
1995 over 1994 1994 over 1993 1993 over 1992
Changes Due to: Total Changes Due to: Total Changes Due to: Total
Volume Rate Change Volume Rate Change Volume Rate Change
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Federal funds sold and
securities purchased................. $ 3,419 $ 2,427 $ 5,846 $ (7,467) $ 596 $ (6,871) $ 3,963 $ (1,188) $ 2,775
Interest-bearing deposits
in other banks....................... 390 305 695 (388) 15 (373) (32) (202) (234)
Trading account securities............ (7,631) 2,778 (4,853) 10,085 3,057 13,142 (375) (5,953) (6,328)
Securities (B)........................ 4,236 17,158 21,394 27,380 (7,427) 19,953 5,330 (20,276) (14,946)
Loans, net of unearned income
and deferred taxes on leases (C).... 81,734 56,987 138,721 117,119 (13,943) 103,176 42,669 (37,640) 5,029
- --------------------------------------------------------------------------------------------------------------------------------
Total Interest-Earning Assets, Net
Of Deferred Taxes On Leases.......... 82,148 79,655 161,803 146,729 (17,702) 129,027 51,555 (65,259) (13,704)
- --------------------------------------------------------------------------------------------------------------------------------
Interest-Bearing Liabilities:
Interest-Bearing Deposits:
Interest-bearing demand accounts.... (470) 2,401 1,931 2,554 (1,861) 693 2,573 (7,428) (4,855)
Savings and money market accounts... (5,504) 16,410 10,906 10,093 (339) 9,754 14,157 (14,426) (269)
Time deposits of $100,000 or more... 12,194 10,470 22,664 3,158 1,276 4,434 (2,750) (3,342) (6,092)
Other time deposits................. 26,594 32,326 58,920 766 (2,914) (2,148) (13,970) (19,957) (33,927)
- --------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Deposits....... 32,814 61,607 94,421 16,571 (3,838) 12,733 10 (45,153) (45,143)
- --------------------------------------------------------------------------------------------------------------------------------
Federal funds purchased and
securities sold...................... (10,508) 23,381 12,873 25,803 24,293 50,096 4,667 (4,827) (160)
Other short-term borrowings........... 7,473 2,119 9,592 718 1,013 1,731 101 21 122
Long-term debt........................ 23,404 4,163 27,567 11,103 (1,042) 10,061 8,090 (2,614) 5,476
- --------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Liabilities.... 53,183 91,270 144,453 54,195 20,426 74,621 12,868 (52,573) (39,705)
- --------------------------------------------------------------------------------------------------------------------------------
Change in Net Interest Income......... $ 28,965 $(11,615) $ 17,350 $ 92,534 $(38,128) $ 54,406 $ 38,687 $(12,686) $ 26,001
================================================================================================================================
(continued)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Table 16: Analysis Of Interest Changes Due To Volumes And Rates (in thousands) (A) (continued)
- --------------------------------------------------------------------------------------------------
1992 over 1991 1991 over 1990
Changes Due to: Total Changes Due to: Total
Volume Rate Change Volume Rate Change
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Federal funds sold and
securities purchased................. $ 823 $ (3,960) $ (3,137) $(10,869) $ (4,452) $(15,321)
Interest-bearing deposits
in other banks....................... (1,179) (498) (1,677) 55 (339) (284)
Trading account securities............ 3,269 (2,476) 793 15,215 (5,762) 9,453
Securities (B)........................ 22,509 (23,682) (1,173) 3,774 (6,283) (2,509)
Loans, net of unearned income
and deferred taxes on leases (C).... 10,463 (60,450) (49,987) 10,557 (41,669) (31,112)
- --------------------------------------------------------------------------------------------------
Total Interest-Earning Assets, Net
Of Deferred Taxes On Leases.......... 35,885 (91,066) (55,181) 18,732 (58,505) (39,773)
- --------------------------------------------------------------------------------------------------
Interest-Bearing Liabilities:
Interest-Bearing Deposits:
Interest-bearing demand accounts.... 5,232 (12,772) (7,540) 3,366 (2,531) 835
Savings and money market accounts... 28,642 (27,346) 1,296 10,356 (5,304) 5,052
Time deposits of $100,000 or more... (10,975) (7,305) (18,280) (8,620) (5,902) (14,522)
Other time deposits................. (23,327) (33,730) (57,057) 18,579 (21,982) (3,403)
- --------------------------------------------------------------------------------------------------
Total Interest-Bearing Deposits....... (428) (81,153) (81,581) 23,681 (35,719) (12,038)
- --------------------------------------------------------------------------------------------------
Federal funds purchased and
securities sold...................... 1,181 (19,471) (18,290) (24,851) (19,959) (44,810)
Other short-term borrowings........... (4,874) (2,735) (7,609) 3,658 (335) 3,323
Long-term debt........................ (52) 9 (43) (3,953) (2,061) (6,014)
- --------------------------------------------------------------------------------------------------
Total Interest-Bearing Liabilities.... (4,173) (103,350) (107,523) (1,465) (58,074) (59,539)
- --------------------------------------------------------------------------------------------------
Change in Net Interest Income......... $ 40,058 $ 12,284 $ 52,342 $ 20,197 $ (431) $ 19,766
==================================================================================================
(concluded)
<FN>
(A) Changes not due entirely to changes in volume or rate have been allocated to rate. 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 1995-1993 and 38% for 1992-1990.
(B) In 1994, FSCO adopted SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities". Per SFAS 115,
prior period comparisons are not available.
(C) Loan fees included in interest income:
1995: $24,025; 1994: $18,658; 1993: $13,708; 1992: $12,736; 1991: $11,351; and 1990: $12,294.
</TABLE>
By comparison, net interest income FTE for 1994 totaled $466.0 million, up $54.4
million (13.2%) from $411.6 million in 1993. Growth in earning assets favorably
affected the year-to-year comparison as average earning assets increased 20.7%
from 1993, with growth in average loans accounting for 76.3% of this increase. A
portion of the revenue gains generated by asset growth in 1994 was offset by mix
and rate changes in FSCO's liability structure as deposit growth did not keep
pace with loan demand. Short-term borrowings, including repurchase agreements,
reacted swiftly to 1994's rising interest rate environment and funded 20.0% of
FSCO's average earning assets during the year, up from 13.5% for 1993.
Compaction of spreads on these assets negatively impacted the net interest
margin which was 4.64% in 1994, down from 4.95% in 1993.
Over the past nine years, growth in FSCO's net interest income FTE has largely
been due to sustained growth in average earning assets. The net interest margin
FTE has also reflected increased competition, balance sheet restructuring, and
the impact of changes in the yield curve. Effective asset/liability management,
however, has moderated the impact of external forces on net interest income FTE.
PROVISION FOR LOAN LOSSES. The provision for loan losses totaled $21.1 million
for 1995, up from $0.8 million for 1994 (see: "Earning Assets and Asset Quality-
Provision for Loan Losses"; and "Table 8: Reconciliation of the Reserve for Loan
Losses"). By comparison, the provision for loan losses for 1994 totaled $0.8
million, down from $11.7 million for 1993.
<PAGE>
<TABLE>
<CAPTION>
Table 17: Average Balance Sheets, Net Interest Income, Yields And Rates (in thousands) (A)
- -----------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
Tax Avg% Tax Avg% Tax Avg%
Average Equiv. Yield/ Average Equiv. Yield/ Average Equiv. Yield/
For the Years Ended December 31, Balance Interest Rate Balance Interest Rate Balance Interest Rate
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest-Earning Assets:
Fed funds sold and securities purchased.. $ 140,317 $ 8,166 5.82 $ 56,724 $ 2,320 4.09 $ 302,412 $ 9,191 3.04
Interest-bearing deposits in other banks. 13,202 778 5.89 2,315 83 3.59 15,454 456 2.95
Trading account securities............... 487,992 29,130 5.97 629,308 33,983 5.40 424,091 20,841 4.91
Securities available for sale (B)........ 2,113,320 129,247 6.12 1,984,693 108,947 5.49 (B) (B) (B)
Securities held to maturity (B).......... 225,715 18,295 8.11 270,079 17,201 6.37 1,792,591 106,195 5.92
Loans, net of unearned income
and deferred taxes on leases (C)....... 8,036,515 757,579 9.43 7,098,941 618,858 8.72 5,785,067 515,682 8.91
- -----------------------------------------------------------------------------------------------------------------------------------
Total Interest-Earning Assets,
Net of Deferred Taxes On Leases........ 11,017,061 943,195 8.56 10,042,060 781,392 7.78 8,319,615 652,365 7.84
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks.................. 604,295 604,479 547,758
Premises and equipment, net.............. 201,749 165,545 137,649
ORE and other foreclosed assets.......... 3,923 8,856 26,506
Deferred taxes on leases................. 160,244 145,264 132,749
Reserve for loan losses.................. (131,630) (134,802) (128,801)
Other assets............................. 376,620 308,436 178,784
- -----------------------------------------------------------------------------------------------------------------------------------
Total Assets............................. $12,232,262 $11,139,838 $ 9,214,260
===================================================================================================================================
Liabilities:
Interest-Bearing Liabilities:
Interest-Bearing Deposits:
Interest-bearing demand accounts..... $ 1,069,970 $ 20,863 1.95 $ 1,097,185 $ 18,932 1.73 $ 962,411 $ 18,239 1.90
Savings and money-market accounts..... 2,369,327 88,935 3.75 2,549,142 78,029 3.06 2,220,848 68,275 3.07
Time deposits of $100,000 or more..... 690,820 41,222 5.97 416,886 18,558 4.45 340,714 14,124 4.15
Other time deposits................... 2,615,669 149,126 5.70 2,020,120 90,206 4.47 2,003,501 92,354 4.61
- -----------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Deposits.......... 6,745,786 300,146 4.45 6,083,333 205,725 3.38 5,527,474 192,992 3.49
- -----------------------------------------------------------------------------------------------------------------------------------
Fed funds purchased and securities sold.. 1,685,763 94,608 5.61 1,934,468 81,735 4.23 1,065,495 31,639 2.97
Other short-term borrowings.............. 206,645 13,663 6.61 72,873 4,071 5.59 55,755 2,340 4.20
Long-term debt........................... 728,788 51,451 7.06 368,096 23,884 6.49 204,129 13,823 6.77
- -----------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Liabilities....... 9,366,982 459,868 4.91 8,458,770 315,415 3.73 6,852,853 240,794 3.51
- -----------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing deposits............. 1,646,070 1,616,294 1,428,640
Other liabilities........................ 233,035 196,039 148,109
- -----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities........................ 11,246,087 10,271,103 8,429,602
- -----------------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity:
Preferred stockholders' equity........... 599 675 728
Common stockholders' equity.............. 985,576 868,060 783,930
- -----------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity............... 986,175 868,735 784,658
- -----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities & Stockholders' Equity. $12,232,262 $11,139,838 $ 9,214,260
===================================================================================================================================
Interest income/earning assets........... 8.56 7.78 7.84
Interest expense/earning assets.......... 4.17 3.14 2.89
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income/earning assets....... 483,327 4.39 465,977 4.64 411,571 4.95
Less FTE adjustment...................... 8,336 7,875 7,633
- -----------------------------------------------------------------------------------------------------------------------------------
Net Interest Income Per Income Statement. $474,991 $458,102 $403,938
===================================================================================================================================
Loan Fees Included In Interest Income.... $ 24,025 $ 18,658 $ 13,708
===================================================================================================================================
(continued)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Table 17: Average Balance Sheets, Net Interest Income, Yields And Rates (in thousands) (A) (continued)
- -----------------------------------------------------------------------------------------------------------------------------------
1992 1991
Tax Avg% Tax Avg%
Average Equiv. Yield/ Average Equiv. Yield/
For the Years Ended December 31, Balance Interest Rate Balance Interest Rate
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-Earning Assets:
Fed funds sold and securities purchased.. $ 186,938 $ 6,416 3.43 $ 172,109 $ 9,553 5.55
Interest-bearing deposits in other banks. 16,210 690 4.26 32,292 2,367 7.33
Trading account securities............... 430,025 27,169 6.32 382,608 26,376 6.89
Securities available for sale (B)........ (B) (B) (B) (B) (B) (B)
Securities held to maturity (B).......... 1,708,038 121,141 7.09 1,433,406 122,314 8.53
Loans, net of unearned income
and deferred taxes on leases (C)....... 5,338,956 510,653 9.56 5,241,145 560,640 10.70
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest-Earning Assets,
Net of Deferred Taxes On Leases........ 7,680,167 666,069 8.67 7,261,560 721,250 9.93
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks.................. 482,445 456,106
Premises and equipment, net.............. 122,432 114,841
ORE and other foreclosed assets.......... 35,849 55,181
Deferred taxes on leases................. 124,327 111,163
Reserve for loan losses.................. (130,548) (125,198)
Other assets............................. 175,815 172,101
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets............................. $ 8,490,487 $ 8,045,754
====================================================================================================================================
Liabilities:
Interest-Bearing Liabilities:
Interest-Bearing Deposits:
Interest-bearing demand accounts..... $ 865,945 23,094 2.67 $ 739,615 30,634 4.14
Savings and money-market accounts..... 1,840,670 68,544 3.72 1,290,863 67,248 5.21
Time deposits of $100,000 or more..... 394,368 20,216 5.13 551,631 38,496 6.98
Other time deposits................... 2,252,715 126,281 5.61 2,581,127 183,338 7.10
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Deposits.......... 5,353,698 238,135 4.45 5,163,236 319,716 6.19
- ------------------------------------------------------------------------------------------------------------------------------------
Fed funds purchased and securities sold.. 929,123 31,799 3.42 907,725 50,089 5.52
Other short-term borrowings.............. 53,325 2,218 4.16 105,807 9,827 9.29
Long-term debt........................... 103,659 8,347 8.05 104,300 8,390 8.04
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Liabilities....... 6,439,805 280,499 4.36 6,281,068 388,022 6.18
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing deposits............. 1,214,078 1,042,585
Other liabilities........................ 150,445 143,181
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities........................ 7,804,328 7,466,834
- ------------------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity:
Preferred stockholders' equity........... 820 883
Common stockholders' equity.............. 685,339 578,037
- ------------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity............... 686,159 578,920
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities & Stockholders' Equity. $ 8,490,487 $ 8,045,754
====================================================================================================================================
Interest income/earning assets........... 8.67 9.93
Interest expense/earning assets.......... 3.65 5.34
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income/earning assets....... 385,570 5.02 333,228 4.59
Less FTE adjustment...................... 9,621 10,419
- ------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income Per Income Statement. $375,949 $322,809
====================================================================================================================================
Loan Fees Included In Interest Income.... $ 12,736 $ 11,351
====================================================================================================================================
(concluded)
<FN>
(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 1995-1993 and 38% for 1992 1990.
(B) In 1994, FSCO adopted SFAS 115, "Accounting for Certain Investments in Debt and Equity Securities". Per SFAS 115,
prior period comparisons are not available.
(C) Loans include nonaccruing loans.
</TABLE>
<PAGE>
FINANCIAL REVIEW
NONINTEREST INCOME. FSCO's noninterest income was impacted in 1995 by the 1994
acquisition of CrossLand Mortgage (see: "Table 18: Noninterest Income"; and
"Mergers and Acquisitions"). Noninterest income totaled $266.5 million for 1995,
up $68.9 million (34.9%) from 1994. This increase was due in part to FSCO's
continued emphasis on increasing and diversifying its sources of noninterest
income, and the positive impact of CrossLand Mortgage on mortgage banking
activities. These were partially offset by declines in bankcard servicing fees
and third-party processing fees for the year following the 1994 sale of certain
assets related to third-party processing for credit unions. In addition, FSCO
liquidated $224 million of certain securities for a combined loss of $2.9
million pre-tax during the fourth quarter (see: "Earning Assets and Asset
Quality-Securities").
The increase in FSCO's mortgage banking activities, including the 1994
acquisition of CrossLand Mortgage, has further diversified FSCO's noninterest
income. As a result, the ratio of noninterest income to total income FTE
increased to 35.54% for 1995, up from 29.77% for 1994.
By comparison, noninterest income for 1994 totaled $197.5 million, up $30.4
million (18.2%) from $167.2 million in 1993. The increases in most noninterest
income categories were due primarily to acquisitions, including CrossLand
Mortgage, and growth due to strong regional economies in FSCO's market areas.
NONINTEREST EXPENSES. FSCO's noninterest expenses were impacted in 1995 by the
one-time $44.0 million Project VISION restructuring charge, and by the
acquisition of CrossLand Mortgage in 1994 (see: "Table 19: Noninterest
Expenses"; and "Mergers and Acquisitions"). Noninterest expenses, including the
restructuring charge, totaled $530.2 million for 1995, up $96.6 million (22.3%)
from 1994. Noninterest expenses, excluding the restructuring charge, totaled
$486.2 million for 1995, up $52.6 million (12.1%) from 1994. The increase in
noninterest expenses other than the restructuring charge was due to the
combination of: volume-related growth; the first full year with CrossLand
Mortgage and its resulting impact on salaries and benefits expenses and costs
related to loan production; additional ATM equipment; and lower ORE recoveries.
These were partially offset by lower FDIC insurance expense.
By comparison, noninterest expenses for 1994 totaled $433.6 million, up $47.5
million (12.3%) from 1993. The increases in most noninterest expense categories
were due primarily to acquisitions, particularly the acquisition of CrossLand
Mortgage in 1994, and growth. In addition, numerous one-time expenses were
incurred, including costs associated with each acquisition and its integration
into FSCO. Bankcard interbank discount and interchange expense increased due to
growth in the volume of merchant deposits. Other real estate expense and loss
provision was a net recovery due to reductions in ORE outstandings and ORE
market valuation adjustments. Other noninterest expenses decreased in 1994 due
largely to one-time merger-related charges of $17.1 million ($11.1 million after
tax) associated with the 1993 acquisition of FSB New Mexico.
The operating expense ratio is one measure of FSCO's effectiveness and ongoing
efforts to control its noninterest expenses. The operating expense ratio,
including the restructuring charge, was 70.71% for 1995, up from 65.36% for 1994
and 66.72% for 1993. The operating expense ratio, excluding the restructuring
charge, was 64.84% for 1995.
Management believes that FSCO's operating expense ratio remained unacceptably
high in 1995 in comparison to its goal of below 60.00%. Sustainable efficiency
gains achieved in many of FSCO's line and staff functions were obscured by:
numerous one-time expenses associated with Project VISION, the 26 acquisitions
made in the past five years, and each acquisition's integration into FSCO;
amortization of intangibles related to acquisitions using purchase accounting;
and additional investment and expense to support the sustained growth of
traditional markets.
The productivity ratio, including the restructuring charge, was 4.33% for 1995,
up from 3.89% for 1994 and 4.19% for 1993. The productivity ratio, excluding the
restructuring charge, was 3.97% for 1995.
As FSCO moves through 1996, aggressive actions will be taken to implement
Project VISION and continue the efficient consolidation of certain activities
and complete the integration of recent acquisitions and other related projects.
FSCO is committed to becoming a more efficient and lower cost provider of
financial services within its marketplaces, while continuing to increase
franchise value for its shareholders.
PROVISION FOR INCOME TAXES. FSCO employs several effective strategies to
permanently reduce or defer payment of income taxes. As a result, FSCO's tax
provisions have historically been lower than statutory tax rates, and deferred
tax reserves have been an important source of interest-free long-term funding.
FSCO's tax strategies include investments in securities and loans yielding tax-
exempt interest, investments in leveraged leases, and the recognition of
investment tax credits (ITC) on leases using the deferral method. In 1995, FSCO
continued to employ these tax planning strategies and made investments in low
income housing projects to generate tax credits.
OFF-BALANCE SHEET ITEMS. During 1995, FSCO had "off-balance sheet" commitments
consisting primarily of loan commitments to customers, and derivative products
used in the ALCO process or carried in the trading accounts (see:
"Asset/Liability Management"; "Note 1. Summary of Significant Accounting and
Reporting Policies"; and "Note 10. Commitments, Contingent Liabilities, and
Financial Instruments with Off-Balance Sheet Risk").
<PAGE>
<TABLE>
<CAPTION>
Table 18: Noninterest Income (in thousands)
5-Year
95/94 Compound
For the Years Ended December 31, 1995 1994 1993 1992 1991 % Chg Growth Rate
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Noninterest Income:
Service charges on deposit accounts........ $ 68,114 $ 62,211 $ 55,865 $ 51,505 $ 46,137 9.5 11.8
Other service charges, collections,
commissions and fees..................... 36,208 27,544 24,654 21,154 17,400 31.5 25.8
Bankcard servicing fees and
third-party processing fees.............. 24,774 30,234 33,083 27,411 24,175 (18.1) 2.5
Insurance commissions and fees............. 13,655 12,631 9,953 8,719 7,017 8.1 16.0
Mortgage banking activities, net (A)....... 76,306 32,895 23,679 17,931 12,513 132.0 61.8
Trust (fiduciary) commissions and fees..... 20,894 20,706 18,980 18,176 16,793 0.9 6.9
Trading account securities gains (losses).. 6,390 (2,386) (4,856) (7,355) 1,632 NM 25.4
Securities gains (losses).................. (806) (1,330) 730 859 2,942 39.4 NM
Other...................................... 20,957 15,043 5,071 5,636 9,213 39.3 10.9
- ------------------------------------------------------------------------------------------------------------------------
Total Noninterest Income................... $266,492 $197,548 $167,159 $144,036 $137,822 34.9 18.1
========================================================================================================================
<FN>
Notes:
NM: Not Meaningful.
(A) On July 1, 1995, FSCO adopted SFAS 122, "Accounting for Mortgage Servicing Rights". Per SFAS 122, prior periods
have been reclassified where necessary.
</TABLE>
<TABLE>
<CAPTION>
Table 19: Noninterest Expenses (in thousands)
5-Year
95/94 Compound
For the Years Ended December 31, 1995 1994 1993 1992 1991 % Chg Growth Rate
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Noninterest Expenses:
Salaries and employee benefits............ $261,410 $222,895 $175,696 $160,982 $147,795 17.3 14.1
Advertising............................... 8,719 9,039 9,187 6,363 4,990 (3.5) 18.6
Amortization of intangibles (A)........... 8,712 6,792 3,312 2,695 2,323 28.3 51.3
Bankcard interbank interchange............ 17,263 16,301 13,983 11,245 10,121 5.9 15.3
Furniture and equipment................... 36,285 30,987 27,858 26,549 22,656 17.1 13.3
Insurance................................. 15,793 23,454 19,697 18,868 14,678 (32.7) 10.8
Occupancy, net............................ 27,862 25,874 24,224 19,373 18,316 7.7 9.0
Other real estate expense
and loss provision (recovery)........... (2,514) (6,543) 8,639 11,110 6,499 (61.6) NM
Postage................................... 11,272 9,708 7,428 7,243 6,684 16.1 15.2
Stationery and supplies................... 18,582 16,336 15,956 12,865 10,754 13.7 11.9
Telephone................................. 13,278 11,834 8,610 7,344 6,583 12.2 16.1
Other..................................... 69,543 66,971 71,556 54,819 55,105 3.8 4.3
Restructuring charge...................... 44,000 ---- ---- ---- ---- NM NM
- ------------------------------------------------------------------------------------------------------------------------
Total Noninterest Expenses................ $530,205 $433,648 $386,146 $339,456 $306,504 22.3 13.2
========================================================================================================================
<FN>
Notes:
NM: Not Meaningful.
(A) On July 1, 1995, FSCO adopted SFAS 122, "Accounting for Mortgage Servicing Rights". Per SFAS 122, prior periods
have been reclassified where necessary.
</TABLE>
<PAGE>
INFLATION ACCOUNTING AND CAPITAL COMMITMENTS. FSCO has determined that the
effects of changing prices on financial data were not significant to operating
results for the years 1995, 1994, or 1993.
As part of Project VISION, FSCO has committed to spend at least $10.4 million
on state-of-the-art technology that will allow FSCO to better serve its
customers. No material capital expenditure commitments existed at year-ends
1994 or 1993.
NATIONAL & REGIONAL ECONOMY. FSCO's banking and other financial businesses are
significantly influenced both by the financial strength and economic stability
of the regional economies in which they operate and by interest rate levels and
other economic conditions prevailing in regional, national, and international
financial markets. At the inception of 1995, interest rates were high and were
adversely impacting residential construction, automobile sales, and other
interest-sensitive consumer-durable markets. Throughout the course of 1995,
market-determined interest rates declined, and residential construction and real
estate sales improved significantly in the second half of the year. The ongoing
national weakness in consumer markets and excess inventories in manufacturing
evident at the end of 1995 had only modest decelerating influence on the
Intermountain regional economy.
The Intermountain West, which encompasses a significant portion of FSCO's
primary market areas, was the United States' fastest-growing regional economy in
1995 for the third consecutive year. Furthermore, Nevada, Utah, New Mexico, and
Oregon were four of the top five states in 1995 employment growth. Preliminary
1995 annual average job gains were: Utah 5.7%, Idaho 3.0%, New Mexico 4.7%,
Oregon 4.3%, Nevada 5.9%, and Wyoming 1.4%. The 1995 average unemployment rates
were: Utah 3.4%, Idaho 5.2%, New Mexico 4.7%, Oregon 4.3%, Nevada 5.9%, and
Wyoming 4.5%.
The basic rapid-growth formula evident to a significant degree in each of these
six states included:
* Rapid population growth fueled by substantial net in-migration;
* Expanding employment opportunities to absorb the new labor force entrants;
* Gains in commercial and industrial construction augmenting the improved
second-half residential construction activity;
* Employment and income gains translated into strong consumer spending
increases, with moderate gains evident in automobile sales.
The rate of economic growth, both nationally and in the Intermountain West, will
likely decelerate in 1996. Slower job growth and higher consumer debt levels
will probably constrain consumer spending gains nationally. Job growth in the
six-state region should remain solid, but in 1996 it will occur at a reduced
rate, influenced somewhat by labor supply constraints.
While the 1996 regional outlook remains generally favorable, the following
factors could adversely impact regional economic activity:
* Possibly the slower national growth may weaken further, threatening a
recession;
* Political uncertainty (i.e., Bosnia) may disrupt financial markets;
* Access to federal lands for timber, mining, and livestock industries may be
reduced, or even eliminated;
* International competitive pressures in the computer industry may possibly slow
or even decrease employment levels in that industry.
COMPETITIVE POSITION. FSCO is the largest bank holding company headquartered in
the Intermountain West. Incorporated in 1928, FSCO is the oldest multistate bank
holding company in the United States.
FSB Utah is the largest bank in Utah. At September 30, 1995, the most recent
date for which comparative data were available, FSB Utah had deposits totaling
$4.0 billion and 120 full-service domestic branches. Zion's First National Bank
was the second largest bank with approximately $3.0 billion in deposits and 95
branches, while Key Bank was the third largest with approximately $1.0 billion
in deposits and 38 branches. These three banks are all units of bank holding
companies with bank operations in other western states. Other competitors
included: 41 other banks with approximately $5.1 billion in deposits and 154
branches; five S&Ls with approximately $324 million in deposits and 23 branches;
and 156 credit unions with approximately $3.5 billion in deposits.
FSB Idaho is the second largest bank in Idaho in terms of deposits. At September
30, 1995, the most recent date for which comparative data were available, FSB
Idaho had deposits totaling $2.6 billion and 92 full-service branches. West One
Bank was the largest bank with approximately $3.4 billion in deposits and 91
branches, while Key Bank was the third largest with approximately $1.1 billion
in deposits and 45 branches. These three banks are all units of bank holding
companies with bank operations in other western states. Other competitors
included: 17 other banks with approximately $2.2 billion in deposits and 96
branches; four S&Ls with approximately $442 million in deposits and 16 branches;
and 90 credit unions with approximately $1.0 billion in deposits.
<PAGE>
FSB New Mexico is the third largest bank in New Mexico in terms of deposits. At
September, 1995, the most recent date for which comparative data were available,
FSB New Mexico had deposits totaling $1.2 billion and 28 full-service branches.
Norwest Bank, Inc. was the largest bank with approximately $1.8 billion in
deposits and 71 branches, while Sunwest Bank of Albuquerque was the second
largest with approximately $1.6 billion in deposits and 34 branches. These
three banks are all units of bank holding companies with bank operations in
other western states. Other competitors included: 67 other banks with
approximately $6.7 billion in deposits and 224 branches; 13 S&Ls with
approximately $1.0 billion in deposits and 22 branches; and 65 credit unions
with approximately $1.7 billion in deposits.
FSCO experiences substantial competition in attracting deposits and originating
loans. The primary factors in competing for deposits are interest rates, the
range and quality of services offered, the convenience of bank facilities and
automated teller machines, and hours of operation. Competition for deposits
comes principally from other commercial banks, S&Ls, and credit unions.
Additional competition comes from mutual funds, money market funds, and various
other corporate and government lenders. The primary factors in competing for
loans are interest rates, loan fees, and the quality and range of lending
services offered. Competition for the origination of instalment and commercial
loans comes from commercial banks, finance companies, S&Ls, and credit unions,
while competition for the origination of mortgage loans comes from S&Ls, credit
unions, mortgage banking firms, insurance companies, and other commercial banks.
FSCO, along with the rest of the banking industry, has felt the effects of added
competition as nonbank financial service companies enter what were already
highly competitive markets. Notwithstanding the increased competition, banks
still have only limited entry into nonbank financial markets. In spite of the
inequities of the present financial services market, FSCO has succeeded in
maintaining its position as a major catalyst in the financial services market
in the Intermountain West by being innovative and creative in providing new
products and services to its customers within the narrow constraints of current
banking regulations.
LEGAL PROCEEDINGS. FSCO and its subsidiaries are subject to various claims and
legal actions filed or threatened by customers and others in connection with
FSCO's regular business activities. In all litigation filed against it, FSCO
vigorously defends itself against unfounded claims, with a concomitant cost in
legal fees and expenses. Some legal actions filed against FSCO seek inflated
damages, often in an effort to force compromise of a troubled loan transaction,
and are disclosed in required filings with the SEC. Since the filing of FSCO's
Third Quarter 1995 10-Q Report, there have been no material developments in
connection with pending legal proceedings not already disclosed in previous
filings with the SEC.
<PAGE>
<TABLE>
<CAPTION>
Table 20: Quarterly Financial Summary (in thousands, except per share data and ratios)
1995
4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock Data (A):
Earnings per common share:
primary................... $ 0.11 $ 0.51 $ 0.48 $ 0.47
Earnings per common share:
fully diluted............. 0.11 0.51 0.48 0.47
Dividends paid per common
share..................... 0.19 0.19 0.19 0.19
Book value EOP............. 13.71 13.57 13.21 12.64
Tangible book value EOP.... 11.72 11.64 11.27 10.64
Market price (bid) EOP..... 25.33 20.92 18.67 16.00
High bid for the period... 25.33 22.17 19.09 17.09
Low bid for the period.... 20.33 18.33 15.33 14.67
Market capitalization EOP.. 1,903,094 1,569,974 1,398,348 1,197,768
Market price EOP/book
value EOP................. 184.76% 154.10% 141.27% 126.58%
Dividend payout ratio:
(DPCS/EPCS)............... 172.73 36.36 38.89 40.00
Dividend yield EOP......... 3.00 3.57 4.00 4.67
Price/earnings ratio....... 16.2x 10.9x 9.9x 8.5x
Common shares: EOP......... 75,133 75,059 74,912 74,861
Common shares: average
primary................... 76,883 76,466 76,065 75,849
Common shares: average
fully diluted............. 77,087 76,671 76,275 76,064
- ------------------------------------------------------------------------------------------------------------------
Income Statement:
Interest income............ $ 246,657 $ 234,584 $ 233,068 $ 220,550
Interest expense........... 119,109 114,805 114,466 111,488
Net interest income........ 127,548 119,779 118,602 109,062
Fully taxable equivalent
(FTE) adj................. 2,323 2,114 1,874 2,025
Net interest income, FTE... 129,871 121,893 120,476 111,087
Provision for loan losses.. 7,905 6,587 3,742 2,848
Noninterest income (B)..... 66,496 70,092 61,845 68,059
Noninterest expenses (B)... 172,083 121,275 118,929 117,918
Provision for income taxes. 5,227 22,666 21,543 20,755
Net income................. 8,829 39,343 36,233 35,600
Preferred stock dividend... 8 9 9 9
Common stock dividend...... 14,013 13,996 13,976 13,981
- ------------------------------------------------------------------------------------------------------------------
Balance Sheet - End of Period:
Trading account securities. $ 638,393 $ 484,761 $ 477,560 $ 437,415
Securities available for
sale (C).................. 2,623,557 2,219,488 2,086,509 2,044,257
Securities held to
maturity (C).............. ---- 247,493 251,982 243,915
Loans, net of unearned
income.................... 8,315,095 8,303,049 8,356,657 8,183,306
Reserve for loan losses.... (129,982) (131,878) (130,388) (131,603)
Total interest-earning
assets.................... 11,746,677 11,454,392 11,291,982 11,119,493
Intangible assets.......... 148,819 144,964 145,369 149,828
Total assets............... 13,034,607 12,675,014 12,426,179 12,189,310
Noninterest-bearing
deposits.................. 1,884,931 1,857,584 1,748,031 1,655,669
Interest-bearing deposits.. 6,888,711 6,831,503 6,843,356 6,617,045
Total deposits............. 8,773,642 8,689,087 8,591,387 8,272,714
Short-term borrowed funds.. 2,198,689 1,675,498 1,920,093 2,076,923
Long-term debt............. 720,521 856,550 666,858 683,785
Total interest-bearing
liabilities............... 9,807,921 9,363,551 9,430,307 9,377,753
Minority equity in
subsidiaries.............. 309 304 298 285
Preferred stockholders'
equity.................... 571 589 594 610
Common stockholders' equity 1,029,692 1,018,681 989,600 946,051
- ------------------------------------------------------------------------------------------------------------------
Problem Assets - End of Period:
Total nonaccruing loans.... $ 22,447 $ 25,381 $ 18,702 $ 19,205
ORE and other foreclosed
assets.................... 4,134 4,472 4,340 2,334
Total nonperforming assets. 26,581 29,853 23,042 21,539
Accruing loans past due
90 days or more........... 13,455 11,515 11,076 11,518
Total problem assets....... 40,036 41,368 34,118 33,057
- ------------------------------------------------------------------------------------------------------------------
Reconciliation of the Reserve for Loan Losses:
Reserve, Beginning of
Period.................... $ 131,878 $ 130,388 $ 131,603 $ 133,855
Net loans (charged off)
recovered................. (9,801) (5,097) (4,957) (5,100)
Provision for loan losses.. 7,905 6,587 3,742 2,848
Acquisitions and
reclassifications......... ---- ---- ---- ----
Reserve, End of Period..... 129,982 131,878 130,388 131,603
- ------------------------------------------------------------------------------------------------------------------
(continued)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Table 20: Quarterly Financial Summary (in thousands, except per share data and ratios) (continued)
1994
- ------------------------------------------------------------------------------------------------------------------
4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock Data (A):
Earnings per common share:
primary................... $ 0.46 $ 0.49 $ 0.47 $ 0.45
Earnings per common share:
fully diluted............. 0.46 0.49 0.47 0.45
Dividends paid per common
share..................... 0.17 0.17 0.17 0.17
Book value EOP............. 11.95 11.92 11.63 11.63
Tangible book value EOP.... 9.71 9.61 9.45 11.45
Market price (bid) EOP..... 15.17 19.00 19.33 18.50
High bid for the period... 19.00 21.33 20.67 19.33
Low bid for the period.... 14.33 18.50 18.17 17.17
Market capitalization EOP.. 1,128,286 1,411,691 1,426,133 1,337,994
Market price EOP/book
value EOP................. 126.95% 159.40% 166.19% 159.12%
Dividend payout ratio:
(DPCS/EPCS)............... 37.68 35.62 36.62 38.81
Dividend yield EOP......... 4.57 3.65 3.59 3.75
Price/earnings ratio....... 8.1x 11.2x 11.6x 11.6x
Common shares: EOP......... 74,393 74,300 73,766 72,324
Common shares: average
primary................... 75,512 75,525 74,531 73,974
Common shares: average
fully diluted............. 75,737 75,758 74,768 74,217
- ------------------------------------------------------------------------------------------------------------------
Income Statement:
Interest income............ $ 211,909 $ 200,365 $ 188,805 $ 172,438
Interest expense........... 96,955 83,829 72,460 62,171
Net interest income........ 114,954 116,536 116,345 110,267
Fully taxable equivalent
(FTE) adj................. 1,944 2,002 1,966 1,963
Net interest income, FTE... 116,898 118,538 118,311 112,230
Provision for loan losses.. 474 180 343 (172)
Noninterest income (B)..... 55,243 55,608 48,476 40,869
Noninterest expenses (B)... 114,214 113,456 109,044 99,582
Provision for income taxes. 20,541 21,724 20,214 18,564
Net income................. 34,968 36,784 35,220 33,162
Preferred stock dividend... 9 10 10 10
Common stock dividend...... 12,869 12,882 12,771 12,565
- ------------------------------------------------------------------------------------------------------------------
Balance Sheet - End of Period:
Trading account securities. $ 553,826 $ 398,087 $ 725,211 $ 797,254
Securities available for
sale (C).................. 1,993,797 2,087,639 2,127,690 1,960,075
Securities held to
maturity (C).............. 252,622 260,485 268,114 270,039
Loans, net of unearned
income.................... 8,173,678 7,745,350 7,282,550 6,674,067
Reserve for loan losses.... (133,855) (134,653) (132,714) (134,216)
Total interest-earning
assets.................... 11,019,059 10,563,552 10,484,219 9,816,274
Intangible assets.......... 166,199 171,583 160,737 12,698
Total assets............... 12,148,982 11,604,889 11,734,917 10,745,283
Noninterest-bearing
deposits.................. 1,719,388 1,734,255 1,843,559 1,556,498
Interest-bearing deposits.. 6,333,956 6,201,229 6,043,972 5,953,168
Total deposits............. 8,053,344 7,935,484 7,887,531 7,509,666
Short-term borrowed funds.. 2,345,139 2,298,101 2,411,385 1,848,100
Long-term debt............. 685,426 292,058 312,005 297,538
Total interest-bearing
liabilities............... 9,364,521 8,791,388 8,767,362 8,098,806
Minority equity in
subsidiaries.............. 269 270 259 260
Preferred stockholders'
equity.................... 629 668 675 685
Common stockholders' equity 888,845 885,721 858,091 840,962
- ------------------------------------------------------------------------------------------------------------------
Problem Assets - End of Period:
Total nonaccruing loans.... $ 23,868 $ 20,232 $ 24,610 $ 27,768
ORE and other foreclosed
assets.................... 3,352 3,148 8,387 14,842
Total nonperforming assets. 27,220 23,380 32,997 42,610
Accruing loans past due
90 days or more........... 12,001 9,265 9,184 10,318
Total problem assets....... 39,221 32,645 42,181 52,928
- ------------------------------------------------------------------------------------------------------------------
Reconciliation of the Reserve for Loan Losses:
Reserve, Beginning of
Period.................... $ 134,653 $ 132,714 $ 134,216 $ 134,848
Net loans (charged off)
recovered................. (3,360) (576) (2,490) (666)
Provision for loan losses.. 474 180 343 (172)
Acquisitions and
reclassifications......... 2,088 2,335 645 206
Reserve, End of Period..... 133,855 134,653 132,714 134,216
- ------------------------------------------------------------------------------------------------------------------
(continued)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Table 20: Quarterly Financial Summary (in thousands, except per share data and ratios) (continued)
1995
- --------------------------------------------------------------------------------------------------------------
4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance Sheet - Average:
Trading account securities. $ 637,492 $ 294,378 $ 345,158 $ 677,507
Securities available for
sale (C).................. 2,330,460 2,096,740 2,042,127 1,976,800
Securities held to
maturity (C).............. 173,374 243,993 238,637 250,957
Loans, net of unearned
income.................... 8,212,849 8,207,753 8,233,243 8,133,412
Reserve for loan losses.... (131,138) (130,358) (131,321) (133,747)
Deferred taxes on leases... (162,656) (160,855) (160,041) (157,360)
Total interest-earning
assets, net of deferred
taxes on leases........... 11,359,039 10,932,739 10,825,695 10,948,403
Intangible assets.......... 145,665 141,780 148,187 164,105
Total assets............... 12,648,043 12,150,912 12,005,834 12,120,570
Noninterest-bearing
deposits.................. 1,761,612 1,690,536 1,585,255 1,545,225
Interest-bearing deposits.. 6,899,375 6,887,306 6,766,077 6,423,604
Total deposits............. 8,660,987 8,577,842 8,351,332 7,968,829
Short-term borrowed funds.. 1,934,202 1,534,440 1,761,411 2,348,062
Long-term debt............. 755,457 791,348 682,382 684,497
Total interest-bearing
liabilities............... 9,589,034 9,213,094 9,209,870 9,456,163
Minority equity in
subsidiaries.............. 308 300 291 276
Preferred stockholders'
equity.................... 583 593 603 616
Common stockholders' equity 1,038,656 1,009,339 974,265 918,463
- --------------------------------------------------------------------------------------------------------------
Selected Ratios:
Return on average assets... 0.28% 1.28% 1.21% 1.19%
Return on average equity... 3.37 15.46 14.91 15.71
Net interest margin, FTE... 4.57 4.46 4.45 4.06
Net interest spread FTE.... 3.80 3.68 3.71 3.41
Operating expense ratio (B) 87.63 63.17 65.23 65.82
Productivity ratio (B)..... 5.40 3.96 3.97 3.95
Loans/deposits............. 94.77 95.56 97.27 98.92
Loans/assets............... 63.79 65.51 67.25 67.14
Reserve for loan losses EOP to:
Total loans............... 1.56 1.59 1.56 1.61
Nonaccruing loans......... 579.06 519.59 697.19 685.25
Nonaccruing and accruing
loans past due 90 days... 362.05 357.43 437.87 428.35
Nonaccruing loans/
total loans............... 0.27 0.31 0.22 0.23
Nonaccruing and accruing
loans past due/total loans 0.43 0.44 0.36 0.38
Net loans charged off/
average loans............. 0.47 0.25 0.24 0.25
- --------------------------------------------------------------------------------------------------------------
Capital Ratios (%):
Stockholders equity/assets 7.90 8.04 7.97 7.77
Average stockholders'
equity/ average assets... 8.22 8.31 8.12 7.58
Tangible common equity/
tangible assets........... 6.84 6.97 6.87 6.61
Risk-based capital ratios:
Tier 1.................... 10.35 10.52 10.12 10.00
Total Capital (Tier 1+2).. 13.96 14.06 12.22 12.12
Leverage Ratio............. 7.12 7.32 7.20 7.11
- --------------------------------------------------------------------------------------------------------------
Other Data - End Of Period (not rounded):
Full-time equivalent
employees................. 7,530 7,758 7,755 7,656
Total domestic bank offices 272 269 267 262
- --------------------------------------------------------------------------------------------------------------
(continued)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Table 20: Quarterly Financial Summary (in thousands, except per share data and ratios) (continued)
1994
- --------------------------------------------------------------------------------------------------------------
4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance Sheet - Average:
Trading account securities. $ 570,726 $ 669,955 $ 712,980 $ 563,039
Securities available for
sale (C).................. 2,059,821 2,108,122 2,002,866 1,763,348
Securities held to
maturity (C).............. 246,917 263,979 267,384 302,717
Loans, net of unearned
income.................... 7,928,754 7,489,686 6,993,753 6,547,493
Reserve for loan losses.... (135,325) (134,492) (134,270) (135,122)
Deferred taxes on leases... (153,585) (147,368) (141,901) (138,007)
Total interest-earning
assets, net of deferred
taxes on leases........... 10,705,435 10,427,360 9,883,013 9,131,644
Intangible assets.......... 169,375 169,246 117,508 12,104
Total assets............... 11,927,913 11,589,745 10,956,238 10,060,915
Noninterest-bearing
deposits.................. 1,684,321 1,641,041 1,616,036 1,522,496
Interest-bearing deposits.. 6,255,221 6,175,251 6,038,334 5,859,165
Total deposits............. 7,939,542 7,816,292 7,654,370 7,381,661
Short-term borrowed funds.. 2,310,480 2,388,601 1,955,541 1,360,105
Long-term debt............. 586,407 306,808 300,304 276,130
Total interest-bearing
liabilities............... 9,152,108 8,870,660 8,294,179 7,495,400
Minority equity in
subsidiaries.............. 270 265 259 266
Preferred stockholders'
equity.................... 650 671 683 699
Common stockholders' equity 890,505 871,333 855,989 853,978
- --------------------------------------------------------------------------------------------------------------
Selected Ratios:
Return on average assets... 1.16% 1.26% 1.29% 1.34%
Return on average equity... 15.57 16.74 16.49 15.74
Net interest margin, FTE... 4.37 4.55 4.79 4.92
Net interest spread FTE.... 3.75 3.98 4.23 4.32
Operating expense ratio (B) 66.35 65.15 65.38 65.04
Productivity ratio (B)..... 3.80 3.88 3.99 4.01
Loans/deposits............. 101.49 97.60 92.33 88.87
Loans/assets............... 67.28 66.74 62.06 62.11
Reserve for loan losses EOP to:
Total loans............... 1.64 1.74 1.82 2.01
Nonaccruing loans......... 560.81 665.54 539.27 483.35
Nonaccruing and accruing
loans past due 90 days... 373.18 456.50 392.71 352.40
Nonaccruing loans/
total loans............... 0.29 0.26 0.34 0.42
Nonaccruing and accruing
loans past due/total loans 0.44 0.38 0.46 0.57
Net loans charged off/
average loans............. 0.17 0.03 0.14 0.04
- --------------------------------------------------------------------------------------------------------------
Capital Ratios (%):
Stockholders equity/assets 7.32 7.64 7.32 7.83
Average stockholders'
equity/ average assets... 7.47 7.52 7.82 8.50
Tangible common equity/
tangible assets.......... 6.03 6.25 6.03 7.72
Risk-based capital ratios:
Tier 1.................... 9.84 9.79 9.92 11.51
Total Capital (Tier 1+2).. 11.98 11.96 12.12 13.79
Leverage Ratio............. 6.88 7.00 6.78 7.81
- --------------------------------------------------------------------------------------------------------------
Other Data - End Of Period (not rounded):
Full-time equivalent
employees................. 7,621 7,499 7,427 6,420
Total domestic bank offices 261 259 253 249
- --------------------------------------------------------------------------------------------------------------
(concluded)
<FN>
EOP: End of Period. EPCS: Earnings Per Common Share. DPCS: Dividends Per Common Share.
(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) On July 1, 1995, FSCO adopted SFAS 122, "Accounting for Mortgage Servicing Rights". Per SFAS 122, prior periods
have been reclassified where necessary.
(C) 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>
MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS.
February 22, 1996
To the Stockholders:
The management of First Security Corporation (FSCO) is responsible for the
preparation, integrity, and fair presentation of its published financial
statements and all other information presented in this annual report. The
financial statements have been prepared in accordance with generally accepted
accounting principles and, as such, include amounts based on informed judgments
and estimates made by management.
Management is responsible for establishing and maintaining an effective internal
control structure over financial reporting presented in conformity with
generally accepted accounting principles and the Federal Reserve Board's
instructions for the FR Y-9 Report. The structure contains monitoring
mechanisms, and actions are taken to correct deficiencies identified.
There are inherent limitations in the effectiveness of any structure of internal
control, including the possibility of human error and the circumvention or
overriding of controls. Accordingly, even an effective internal control
structure can provide only reasonable assurance with respect to financial
statement preparation. Further, because of changes in conditions, the
effectiveness of an internal control structure may vary over time.
Management assessed FSCO's internal control structure over financial reporting
presented in conformity with generally accepted accounting principles and the
Federal Reserve Board's instructions for the FR Y-9 Report as of December 31,
1995. This assessment was based on criteria for effective internal control over
financial reporting described in "Internal Control - Integrated Framework"
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on this assessment, management believes that FSCO maintained an effective
internal control structure over financial reporting presented in conformity with
generally accepted accounting principles and the Federal Reserve Board's
instructions for the FR Y-9 Report as of December 31, 1995.
The audit committee of the board of directors is comprised entirely of outside
directors who are independent of FSCO's management. The audit committee is
responsible for recommending to the board of directors the selection of
independent auditors. It meets periodically with management, the independent
auditors, and the internal auditors to ensure that they are carrying out their
responsibilities. The committee is also responsible for performing an oversight
role by reviewing and monitoring the financial, accounting, and auditing
procedures of FSCO in addition to reviewing FSCO's financial reports. The
independent auditors and the internal auditors have full and free access to the
audit committee, with or without the presence of management, to discuss the
adequacy of the internal control structure for financial reporting and any other
matters which they believe should be brought to the attention of the committee.
Management is also responsible for ensuring compliance with the Federal laws and
regulations concerning loans to insiders and the Federal and state laws and
regulations concerning dividend restrictions, both of which are designated by
the FDIC as safety and soundness laws and regulations.
Management assessed its compliance with the designated safety and soundness laws
and regulations and has maintained records of its determinations and assessments
as required by the FDIC. Based on this assessment, management believes that
FSCO has complied, in all material respects, with the designated safety and
soundness laws and regulations for the year ended December 31, 1995.
[SIGNED] [SIGNED]
Morgan J. Evans Scott C. Ulbrich
President Executive Vice President,
and Chief Operating Officer Finance and Capital Markets
and Chief Financial Officer
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Consolidated Balance Sheets
As of December 31, 1995 and 1994 (in thousands) 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash and due from banks (Note 3)............................................................ $ 818,664 $ 678,353
Federal funds sold and securities purchased under resale agreements (Note 1)................ 148,069 43,551
- ---------------------------------------------------------------------------------------------------------------------------------
Total Cash and Cash Equivalents............................................................. 966,733 721,904
- ---------------------------------------------------------------------------------------------------------------------------------
Interest-bearing deposits in other banks.................................................... 21,563 1,585
Trading account securities (Notes 1 and 4).................................................. 638,393 553,826
Securities available for sale, at fair value (cost $2,599,943 and $2,080,408, respectively)
(Notes 1 and 4)........................................................................... 2,623,557 1,993,797
Securities held to maturity, at cost (fair value $249,971) (Notes 1 and 4)................ ---- 252,622
- ---------------------------------------------------------------------------------------------------------------------------------
Loans (net of unearned income of $16,250 and $7,380, respectively) (Notes 1 and 5).......... 8,315,095 8,173,678
Reserve for loan losses (Notes 1 and 5)..................................................... (129,982) (133,855)
- ---------------------------------------------------------------------------------------------------------------------------------
Total Loans, Net............................................................................ 8,185,113 8,039,823
- ---------------------------------------------------------------------------------------------------------------------------------
Premises and equipment, net (Notes 1 and 6)................................................. 209,138 188,418
Accrued income receivable................................................................... 82,143 85,655
Other real estate and other foreclosed assets (Note 1)...................................... 4,134 3,352
Other assets................................................................................ 155,014 141,801
Intangible assets (Notes 1, 5, and 15)...................................................... 148,819 166,199
- ---------------------------------------------------------------------------------------------------------------------------------
Total Assets................................................................................ $ 13,034,607 $ 12,148,982
=================================================================================================================================
Liabilities:
Deposits (Note 7):
Noninterest-bearing....................................................................... $ 1,884,931 $ 1,719,388
Interest-bearing.......................................................................... 6,888,711 6,333,956
- ---------------------------------------------------------------------------------------------------------------------------------
Total Deposits.............................................................................. 8,773,642 8,053,344
- ---------------------------------------------------------------------------------------------------------------------------------
Securities sold under repurchase agreements (Notes 1 and 4)................................. 1,725,958 1,866,377
Federal funds purchased..................................................................... 211,498 294,210
U.S. Treasury demand notes.................................................................. 33,897 33,552
Other short-term borrowings (Notes 8 and 10)................................................ 227,336 151,000
Accrued income taxes (Notes 1 and 9)........................................................ 131,510 81,710
Accrued interest payable.................................................................... 48,737 27,709
Other liabilities........................................................................... 131,245 66,180
Long-term debt (Note 10).................................................................... 720,521 685,426
- ---------------------------------------------------------------------------------------------------------------------------------
Total Liabilities........................................................................... 12,004,344 11,259,508
- ---------------------------------------------------------------------------------------------------------------------------------
Commitments and contingent liabilities (Notes 4, 5, 6, and 11)
Stockholders' Equity (Notes 1, 12, 13, 14, 16 and 17):
Preferred stock: Series "A", $3.15 cumulative convertible................................... 571 629
- ---------------------------------------------------------------------------------------------------------------------------------
Common Stockholders' Equity:
Common stock (75,740 and 74,936 shares issued, respectively).............................. 94,674 93,669
Paid-in surplus........................................................................... 120,084 111,705
Retained earnings......................................................................... 810,458 746,454
Net unrealized gain (loss) on securities available for sale (net of taxes)
(Notes 1, 4, and 9)..................................................................... 14,547 (54,341)
- ---------------------------------------------------------------------------------------------------------------------------------
Subtotal.................................................................................... 1,039,763 897,487
Common treasury stock, at cost (607 and 543 shares, respectively)........................... (10,071) (8,642)
- ---------------------------------------------------------------------------------------------------------------------------------
Total Common Stockholders' Equity........................................................... 1,029,692 888,845
- ---------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity.................................................................. 1,030,263 889,474
- ---------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity.................................................. $ 13,034,607 $ 12,148,982
==================================================================================================================================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Consolidated Statements Of Income
For the years ended December 31, 1995, 1994, and 1993
(in thousands, except for per share amounts) 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income:
Interest and fees on loans (Note 1)........................................... $ 754,029 $ 615,558 $ 513,810
Federal funds sold and securities purchased under resale agreements........... 8,166 2,320 9,191
Interest-bearing deposits in other banks...................................... 778 83 456
Trading account securities (Notes 4 and 11)................................... 29,096 33,945 20,811
Securities available for sale (Note 4)........................................ 129,204 107,778 ----
Securities held to maturity (Note 4).......................................... 13,586 13,833 100,464
- ---------------------------------------------------------------------------------------------------------------------------------
Total Interest Income......................................................... 934,859 773,517 644,732
- ---------------------------------------------------------------------------------------------------------------------------------
Interest Expense:
Deposits (Note 7)............................................................. 300,146 205,725 192,992
Short-term borrowings (Note 10)............................................... 108,271 85,806 33,979
Long-term debt (Note 10)...................................................... 51,451 23,884 13,823
- ---------------------------------------------------------------------------------------------------------------------------------
Total Interest Expense........................................................ 459,868 315,415 240,794
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income........................................................... 474,991 458,102 403,938
Provision for loan losses (Notes 1 and 5)..................................... 21,082 825 11,684
- ---------------------------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Loan Losses........................... 453,909 457,277 392,254
- ---------------------------------------------------------------------------------------------------------------------------------
Noninterest Income:
Service charges on deposit accounts........................................... 68,114 62,211 55,865
Other service charges, collections, commissions, and fees..................... 36,208 27,544 24,654
Bankcard servicing fees and third-party processing fees....................... 24,774 30,234 33,083
Insurance commissions and fees................................................ 13,655 12,631 9,953
Mortgage banking activities, net (Notes 1 and 5).............................. 76,306 32,895 23,679
Trust (fiduciary) commissions and fees........................................ 20,894 20,706 18,980
Trading account securities gains (losses) (Notes 1, 4, and 11)................ 6,390 (2,386) (4,856)
Securities gains (losses) (Notes 1 and 4)..................................... (806) (1,330) 730
Other......................................................................... 20,957 15,043 5,071
- ---------------------------------------------------------------------------------------------------------------------------------
Total Noninterest Income...................................................... 266,492 197,548 167,159
- ---------------------------------------------------------------------------------------------------------------------------------
Total Income.................................................................. 720,401 654,825 559,413
- ---------------------------------------------------------------------------------------------------------------------------------
Noninterest Expenses:
Salaries and employee benefits (Note 13)...................................... 261,410 222,895 175,696
Advertising................................................................... 8,719 9,039 9,187
Amortization of intangibles (Notes 1, 5, and 15).............................. 8,712 6,792 3,312
Bankcard interbank exchange................................................... 17,263 16,301 13,983
Furniture and equipment....................................................... 36,285 30,987 27,858
Insurance..................................................................... 15,793 23,454 19,697
Net occupancy (Note 6)........................................................ 27,862 25,874 24,224
Other real estate expense and loss provision (recovery) (Note 1).............. (2,514) (6,543) 8,639
Stationery and supplies....................................................... 18,582 16,336 15,956
Telephone..................................................................... 13,278 11,834 8,610
Other......................................................................... 80,815 76,679 78,984
Restructuring charge (Note 2)................................................. 44,000 ---- ----
- ---------------------------------------------------------------------------------------------------------------------------------
Total Noninterest Expenses.................................................... 530,205 433,648 386,146
- ---------------------------------------------------------------------------------------------------------------------------------
Income Before Income Tax Provision............................................ 190,196 221,177 173,267
Provision for income taxes (including tax effect of securities transactions
of $(698), $(497), and $274, respectively) (Notes 1 and 9).................... 70,191 81,043 59,211
- ---------------------------------------------------------------------------------------------------------------------------------
Net Income.................................................................... 120,005 140,134 114,056
Dividend requirement of preferred stock (Note 1).............................. 35 39 43
- ---------------------------------------------------------------------------------------------------------------------------------
Net Income Applicable to Common Stock......................................... $ 119,970 $ 140,095 $ 114,013
=================================================================================================================================
Earnings Per Common Share Assuming No Dilution (Notes 1 and 12)............... $1.57 $1.87 $1.59
- ---------------------------------------------------------------------------------------------------------------------------------
Earnings Per Common Share Assuming Full Dilution (Notes 1 and 12)............. $1.57 $1.87 $1.58
=================================================================================================================================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Consolidated Statements Of Stockholders' Equity
Net Unrealized
Gain (Loss)
on Securities Common
For the years ended Common Paid-In Available Treasury
December 31, 1993, 1994, and 1995 Preferred Stock Surplus Retained for Sale Stock
(in thousands, except for per share amounts) Total Stock (Note 12) (Note 12) Earnings (Net of Taxes) (Note 12)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993:
As previously reported............... $ 722,447 $ 783 $ 57,704 $ 98,722 $ 572,845 ---- $ (7,607)
3-for-2 stock split dated
February 12, 1996 (Note 12)......... 28,852 (28,852)
- ------------------------------------------------------------------------------------------------------------------------------------
As restated (Note 12)................ 722,447 783 86,556 69,870 572,845 ---- (7,607)
- ------------------------------------------------------------------------------------------------------------------------------------
Net income for the year.............. 114,056 114,056
Sale of common stock through dividend
reinvestment and common stock
purchase plan (Note 12)............. 1,815 125 1,690
Sale of stock to employee benefit
plans (Note 12).................... 7,306 440 3,005 3,861
Common stock issued for acquisitions
(Notes 12 and 15)................... 27,869 4,227 14,370 9,358 (86)
Cash dividends:
Preferred stock - $3.15 per share... (43) (43)
Common stock - $0.59 per share
(Note 12)........................... (38,595) (38,595)
Conversion of preferred stock
to common........................... (1) (80) 34 45
Purchase of treasury stock........... (2,118) (2,118)
Other................................ 2,995 93 3,077 (175)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993........... 835,731 703 91,475 92,057 657,446 ---- (5,950)
- ------------------------------------------------------------------------------------------------------------------------------------
Net income for the year.............. 140,134 140,134
Sale of common stock through dividend
reinvestment and common stock
purchase plan (Note 12)............. 2,182 144 2,038
Sales of stock to employee benefit
plans (Note 12)..................... 8,138 439 2,521 5,178
Common stock issued for acquisitions
(Notes 12 and 15)................... 26,428 1,578 13,239 11,611
Cash dividends:
Preferred stock - $3.15 per share... (39) (39)
Common stock -- $0.69 per share
(Note 12)........................... (51,087) (51,087)
Conversion of preferred stock
to common........................... ---- (74) 33 41
Purchase of treasury stock........... (19,481) (19,481)
Net unrealized loss on securities
available for sale (net of taxes)
(Notes 1, 4, and 9)................. (54,341) $ (54,341)
Other................................ 1,809 1,809
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994........... 889,474 629 93,669 111,705 746,454 (54,341) (8,642)
- ------------------------------------------------------------------------------------------------------------------------------------
Net income for the year.............. 120,005 120,005
Sale of common stock through dividend
reinvestment and common stock
purchase plan (Note 12)............ 2,671 176 2,495
Sales of stock to employee benefit
plans and employee stock purchase
plan (Note 12)...................... 8,294 552 4,712 3,030
Common stock issued for acquisitions
(Notes 12 and 15)................... 637 252 385
Cash dividends:
Preferred stock - $3.15 per share... (35) (35)
Common stock - $0.75 per share
(Note 12)........................... (55,966) (55,966)
Conversion of preferred stock
to common........................... ---- (58) 25 33
Purchase of treasury stock........... (4,459) (4,459)
Net unrealized gain on securities
available for sale (net of taxes)
(Notes 1, 4, and 9)................. 68,888 68,888
Other................................ 754 754
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995........... $ 1,030,263 $ 571 $ 94,674 $ 120,084 $ 810,458 $ 14,547 $ (10,071)
====================================================================================================================================
See notes to consolidated financial statements.
</TABLE>
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Consolidated Statements Of Cash Flows
For the years ended December 31, 1995, 1994, and 1993
(in thousands, except for number of shares) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income.......................................................... $ 120,005 $ 140,134 $ 114,056
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Provision for loan losses........................................ 21,082 825 11,684
Provision for (recovery of) loss on other real estate............ (2,757) (6,764) 7,448
Provision for depreciation and amortization...................... 35,026 38,132 26,281
Provision for deferred income taxes.............................. 17,681 27,010 7,116
Net change in deferred loan origination fees and costs........... (8,196) (4,802) (3,875)
Net amortization of investment security discounts and premiums... (304) 9,277 3,598
Proceeds from sales of mortgage loans held for sale.............. 3,460,687 2,117,121 976,999
Origination of mortgage loans held for sale...................... (2,785,149) (1,434,368) (976,999)
Investment securities (gains) losses............................. 806 1,330 (730)
Net realized gains on sold loans................................. (9,107) (10,778) (19,145)
Decrease (increase) in trading account securities................ (84,567) 54,028 (218,893)
Decrease (increase) in accrued income receivable................. 3,512 (31,329) 3,829
Increase (decrease) in accrued interest payable.................. 21,028 8,981 (601)
Increase (decrease) in accrued income taxes...................... (9,153) 3,223 (7,596)
Other operating activities....................................... 58,303 (51,130) (22,265)
- ----------------------------------------------------------------------------------------------------------------------
Net Cash Provided By (Used In) Operating Activities................. 838,897 860,890 (99,093)
- ----------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Proceeds from sales of securities available for sale................ 267,001 666,185 ----
Proceeds from sales of securities held to maturity.................. ---- ---- 2,310
Redemption of matured securities available for sale................. 881,655 488,487 ----
Redemption of matured securities held to maturity................... 69,884 96,183 1,489,247
Purchases of securities available for sale.......................... (1,414,460) (1,676,979) ----
Purchases of securities held to maturity............................ (71,547) (81,451) (1,404,115)
Net (increase) decrease in interest-bearing deposits in other banks. (19,753) 14,876 (6,425)
Net increase in loans and leases.................................... (1,050,304) (2,029,122) (739,484)
Proceeds from sales of auto loans................................... 250,068 ---- ----
Purchase of premises and equipment.................................. (44,773) (55,527) (15,662)
Proceeds from sales of other real estate............................ 10,854 30,276 7,373
Payments to improve other real estate............................... (1,138) (2,055) (2,213)
Net cash (paid for) received from acquisitions (Note 15)............ 602 (89,549) 54,108
- ----------------------------------------------------------------------------------------------------------------------
Net Cash Used In Investing Activities............................... (1,121,911) (2,638,676) (614,861)
- ----------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Net increase in deposits............................................ 720,298 347,646 267,813
Net increase (decrease) in Federal funds purchased and securities
sold under repurchase agreements and U.S. Treasury demand notes.... (223,131) 763,385 448,747
Proceeds from issuance of nonrecourse debt on leveraged leases...... ---- 40,378 70,244
Payments on nonrecourse debt on leveraged leases.................... (31,025) (30,802) (29,350)
Proceeds from issuance of long-term debt and short-term borrowings.. 238,806 624,925 140,190
Payments on long-term debt and short-term borrowings................ (127,610) (240,586) (1,403)
Proceeds from issuance of common stock and sales of treasury stock.. 10,965 10,320 9,121
Purchases of treasury stock......................................... (4,459) (19,481) (2,118)
Dividends paid...................................................... (56,001) (51,126) (38,638)
- ----------------------------------------------------------------------------------------------------------------------
Net Cash Provided By Financing Activities........................... 527,843 1,444,659 864,606
- ----------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents (Note 1)....... 244,829 (333,127) 150,652
Cash and Cash Equivalents, Beginning of Year........................ 721,904 1,055,031 904,379
- ----------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Year.............................. $ 966,733 $ 721,904 $ 1,055,031
======================================================================================================================
(continued)
</TABLE>
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Consolidated Statements Of Cash Flows (Continued)
For the years ended December 31, 1995, 1994, and 1993
(in thousands, except for number of shares) 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest...................................................................... $ 438,840 $ 305,135 $ 241,395
==================================================================================================================================
Income taxes.................................................................. $ 55,790 $ 56,123 $ 47,878
==================================================================================================================================
Supplemental Schedule of Noncash Investing and Financing Activities:
Conversion of 1,105, 1,419, and 1,523 shares of convertible preferred stock
into 20,110, 25,822 and 27,724 shares of common stock, respectively (Note 12).. $ 58 $ 74 $ 80
==================================================================================================================================
Transfer of loans to other real estate.......................................... $ 7,742 $ 8,100 $ 11,085
==================================================================================================================================
Securities transferred from held to maturity to available for sale (Note 1)..... $ 251,630 $ 1,417,217 ---
==================================================================================================================================
Net change in unrealized gain (loss) on securities available for sale
(net of taxes) included in stockholders' equity (Notes 1 and 9)................ $ 68,888 $ (54,341) ---
==================================================================================================================================
(concluded)
<FN>
In 1995, FSCO acquired three small companies with total assets of approximately $2,727,000 and $1,372,000 in liabilities for
$482,000 in cash and 202,100 shares of FSCO's common stock (Notes 12 and 15).
In 1994, 1,983,091 shares of common stock were issued and $137,291,000 cash was paid for the acquisitions of Equality State Bank,
CrossLand Mortgage Acquisition Corp., Community First Bank, American BanCorporation, and Star Valley State Bank. FSCO acquired
assets of approximately $584,103,000 and assumed liabilities of approximately $420,385,000 (Notes 12 and 15).
In 1993, 3,382,500 shares of common stock were issued for the acquisitions of Dixie State Bank, Benton County Bank, Nevada Community
Bank, State Bank of Green River, and Continental Bancorporation. FSCO acquired assets of approximately $404,062,000 and assumed
liabilities of approximately $376,344,000 (Notes 12 and 15).
See notes to consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
First Security Corporation (FSCO), a bank holding company, provides a full range
of financial services to individual and corporate customers through its bank and
nonbank subsidiaries and their branches in Utah, Idaho, New Mexico, Oregon,
Nevada, and Wyoming. FSCO and its subsidiaries are subject to competition from
other financial institutions and to the regulations of certain federal agencies
and undergo periodic examinations by those agencies.
Basis of Financial Statement Presentation: The consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles and with general practice within the banking industry. In preparing
such financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the balance
sheet and the reported amounts of revenues and expenses for the period. Actual
results could differ significantly from those estimates. Material estimates
that are particularly susceptible to significant change relate to the
determination of the reserve for loan losses, the valuation of real estate
acquired in connection with foreclosures or in satisfaction of loans, and the
valuation of mortgage servicing rights. In connection with the determination of
the reserve for loan losses and the valuation of real estate owned, management
obtains independent appraisals for significant properties.
Consolidation: The consolidated financial statements include the accounts of
FSCO and its subsidiaries. All significant intercompany accounts and
transactions are eliminated in consolidation. FSCO's results of operations of
insignificant companies acquired using the pooling of interests method and the
results of operations of companies which were acquired and subject to purchase
accounting are included from the dates of acquisition. In accordance with the
purchase method of accounting, the assets and liabilities of purchased companies
are stated at estimated fair values at the date of acquisition, and the excess
of cost over fair value of net assets acquired is amortized on the straight-line
basis over five to 15 years.
Federal Funds Sold and Securities Purchased Under Resale Agreements: Federal
funds sold are unsecured short-term investments entered into with other
financial institutions. Securities purchased under resale agreements are short-
term investments. FSCO's subsidiaries generally hold the securities as
collateral during the term of the investment.
Trading, Available for Sale, and Held to Maturity Securities (See Note 4): On
January 1, 1994, FSCO and its subsidiaries adopted Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt
and Equity Securities". SFAS No. 115 requires the classification of investment
securities as either trading securities, securities available for sale, or
securities held to maturity. Trading securities are carried at fair value with
net unrealized gains or losses included in earnings during the period.
Securities available for sale are carried at fair value with net unrealized
gains or losses (net of taxes) excluded from income and reported as a separate
component of stockholders' equity. Securities held to maturity are reported at
amortized cost, based on management's positive intent and FSCO's and its
subsidiaries' ability to hold such securities to maturity. Gains or losses are
determined on the specific identification method. Upon adoption of SFAS No.
115, FSCO and its subsidiaries reclassified $1,417,217,000 of securities as
available for sale to reflect FSCO's holding strategy under such statement. The
adoption of SFAS No. 115 on January 1, 1994 resulted in an increase in the
carrying value of securities of approximately $13,984,000, with corresponding
increases in stockholders' equity and deferred income tax liabilities of
approximately $8,887,000 and $5,097,000, respectively. As allowed for under
Financial Accounting Series "Special Report - A Guide to Implementation of
Statement 115 on Accounting for Certain Investments in Debt Securities", FSCO
elected to reclassify all investments from held to maturity to available for
sale in December 1995.
Mortgage Banking Activities: FSCO originates mortgage loans for sale in the
secondary market. Mortgage loans held for sale are carried at the lower of cost
or estimated market value determined on a net aggregate basis. On July 1, 1995,
FSCO adopted SFAS No. 122, "Accounting for Mortgage Servicing Rights". SFAS No.
122 requires that a portion of the cost of originating a mortgage loan be
allocated to the mortgage servicing right based on its fair value relative to
the loan as a whole. The adoption of SFAS No. 122 had no effect on net income.
Mortgage servicing rights are capitalized and amortized in proportion to and
over the period of estimated net servicing income from the related mortgage
loans. FSCO's carrying values of mortgage servicing rights and the amortization
thereon are periodically evaluated in relation to estimated future net servicing
revenues. Impairment of mortgage servicing rights is recorded through a
valuation allowance.
Lease Financing (See Note 5): Certain of FSCO's subsidiaries lease various
types of equipment to customers under both leveraged and nonleveraged
arrangements. For leveraged leases, a significant part of the cost of the
equipment is financed by other institutional lenders who depend on the related
lease and equipment as collateral for their loans, with no recourse to the
subsidiaries. The investment in lease financing consists principally of rentals
receivable and estimated residual values, less related unearned income. Unearned
income is amortized into income so as to produce a constant periodic rate of
return on the unrecovered investment. Investment tax credits on lease financing
equipment are deferred and amortized to income over the investment recovery
period.
Reserve for Loan Losses (See Note 5): The reserve for loan losses is
established to absorb known and inherent losses primarily resulting from
outstanding loans and leases, commitments to extend credit, standby letters of
credit, and other guarantees. Reserves for loan losses on consumer, credit
card, residential mortgage, leases, and other loans with similar characteristics
are established on the respective loan portfolio based on historical loss
experience considering current and anticipated economic conditions. Reserves
for loan losses on commercial, commercial real estate, construction loans, and
loan commitments are evaluated on both a specific loan basis and historical loss
experience considering the credit quality, collateral, financial strength of the
borrower and current economic conditions. Losses are charged and recoveries are
credited directly to the reserve. The provision for loan losses charged to
expense is an amount which, in management's judgment, is sufficient to maintain
the balance in the reserve at an adequate level. While management uses the best
information available on which to base estimates, future adjustments to the
reserve may be necessary if economic conditions, particularly in FSCO's markets,
differ substantially from the assumptions used by management.
On January 1, 1995, FSCO adopted SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan", as amended by SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures". A loan is
considered impaired under SFAS No. 114 when, based on current information, it is
probable that the lender will not be able to collect all the principal and
interest due under the contractual terms of the loan. SFAS Nos. 114 and 118
require that an impaired loan be valued based on the present value of expected
future cash flows discounted at the loan's effective interest rate or the fair
value of the collateral if the loan is collateral dependent. Cash receipts on
impaired loans not performing are generally applied to reduce principal
balances. The adoption of SFAS Nos. 114 and 118 did not have a material effect
on the consolidated financial statements of FSCO.
Premises and Equipment (See Note 6): Premises and equipment are stated at cost
less accumulated depreciation and amortization. Depreciation and amortization
included in noninterest expenses are computed using accelerated and straight-
line methods over the estimated useful lives of the related assets.
Other Real Estate and Other Foreclosed Assets: Other real estate and other
foreclosed assets are carried at the lower of cost or fair value less estimated
selling costs.
Securities Sold Under Repurchase Agreements: Securities sold under agreements
to repurchase are accounted for as financing transactions and are recorded at
the amount at which the securities will be reacquired, including accrued
interest. Collateralization limits, based on market values, generally range
from 100% to 105%, depending on maturity.
Derivative Financial Instruments: FSCO enters into a variety of derivative
financial instruments as part of its interest rate risk management and in its
trading activities. Derivatives used in trading activities such as financial
futures and options contracts are marked to market. Any changes in the market
value are recognized in income at the time the changes occur. Interest rate
swaps, caps, and corridors are used in FSCO's interest rate risk management
activities and are classified as hedges or matched transactions. For matched
transactions, net periodic settlement amounts are recognized in income
currently. For those classified as hedges, the derivative is marked to market
with the gains and losses deferred and amortized as a yield adjustment over the
life of the underlying assets or liabilities. Premiums paid are deferred and
amortized over the life of the agreement on a straight-line basis.
Income Taxes (See Note 9): FSCO utilizes an asset and liability approach for
financial accounting and reporting for income taxes. Deferred income taxes are
provided for temporary differences in the bases of assets and liabilities as
reported for financial statement purposes and income tax purposes.
Interest and Fees on Loans: Accrual of interest on a loan is discontinued when
the borrower has defaulted for a period of 90 days or more in the payment of
principal or interest, or both, unless the loan is well-secured and in the
process of collection. Loan origination fees and certain loan origination costs
are deferred and recognized over the lives of the related loans as an adjustment
of the yield.
Consolidated Statements of Cash Flows: For purposes of reporting cash flows,
cash and cash equivalents include cash and due from banks as well as federal
funds sold and securities purchased under resale agreements.
Earnings Per Common Share: Earnings per common share are based on the following
weighted average number of shares outstanding as adjusted for the February 12,
1996 three-for-two stock split described in Note 12 (in thousands):
1995 1994 1993
- ---------------------------------------------------------
Assuming no dilution.... 76,319 74,891 71,778
Assuming full dilution.. 76,527 75,126 72,030
=========================================================
Earnings per common share assuming no dilution are based on the weighted average
number of common shares outstanding, net income after deducting the dividend
requirement on preferred stock, and the effect, if dilutive, of stock options
outstanding using the treasury stock method.
Earnings per common share assuming full dilution are computed assuming all
outstanding preferred stock (see Note 12) are converted into common shares on
the basis of 18.225 shares of common for each share of preferred with the
elimination of dividends on the preferred stock, except in those years where the
effect of such conversion is antidilutive, and, the effect of stock options
outstanding using the treasury stock method.
Reclassifications: Certain reclassifications to the 1994 and 1993 amounts have
been made to conform to the 1995 classifications.
NOTE 2: RESTRUCTURING CHARGE
In December 1995, FSCO completed an intensive review of its operations and
businesses and announced the results of a corporate-wide process redesign plan
called Project VISION. The process redesign is expected to generate
efficiencies and enhance profitability of business and administrative work
processes of all operations of FSCO. As a result of this process redesign, FSCO
recorded a $44.0 million pre-tax restructuring charge, $27.7 million after-tax,
in December 1995.
<PAGE>
Included in the restructuring charge were reduction in force costs of $20.5
million associated with the elimination of approximately 818 full-time
equivalent employees from all levels throughout FSCO; costs of $11.5 million
associated with owned and leased facilities that will be vacated and furniture,
equipment and leasehold improvements that will be abandoned or sold as a result
of business and process changes under Project VISION (these costs include the
future lease payments of leased facilities that will be vacated, estimated
losses from the sale of owned facilities that will be vacated, and estimated
losses from the sale or abandonment of furniture, equipment, and leasehold
improvements that will no longer be utilized in the business operations of FSCO
and related costs of charter consolidation); pension and postretirement
curtailment losses of $1.2 million that result from the elimination of 1,577
full-time equivalent employees (including planned attrition) thus resulting in a
reduction in active plan participants in FSCO's pension and postretirement
benefit plans; and outside service fees and other costs related to the redesign
effort of $10.8 million.
The following table presents a summary of activity with respect to the
restructuring reserve:
Provision charged against income................. $ 44,000,000
Cash outlays..................................... (3,824,000)
Noncash charges.................................. (4,958,000)
- ------------------------------------------------------------------
Balance at December 31, 1995 $ 35,218,000
==================================================================
NOTE 3: CASH AND DUE FROM BANKS
The Federal Reserve requires FSCO's national banking subsidiaries to maintain
certain average reserve balances with the Federal Reserve or through approved
correspondent banks. For the years ended December 31, 1995 and 1994, the
required average reserve balances were approximately $101,320,000 and
$107,264,000, respectively.
NOTE 4: TRADING, AVAILABLE FOR SALE, AND HELD TO MATURITY SECURITIES
The amortized cost and fair value of securities were as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available For Sale:
As of December 31, 1995:
Debt Securities issued by U.S. Treasury
and other U.S. Government agencies and
corporations.................. $ 595,484 $ 6,132 $ (201) $ 601,415
Debt securities issued by states
and political subdivisions.... 193,143 4,090 (243) 196,990
Corporate debt securities...... 10,240 127 (43) 10,324
Mortgage-backed securities..... 1,741,224 13,414 (7,679) 1,746,959
Equity securities.............. 59,852 8,093 (76) 67,869
- -------------------------------------------------------------------------------------------------
Totals......................... $2,599,943 $31,856 $ (8,242) $2,623,557
=================================================================================================
Available For Sale:
As of December 31, 1994:
Debt Securities issued by U.S. Treasury
and other U.S. Government agencies and
corporations.................. $ 793,508 $ 485 $(14,357) $ 779,636
Corporate debt securities...... 3,498 3 (270) 3,231
Mortgage-backed securities..... 1,230,042 320 (76,665) 1,153,697
Equity securities.............. 53,360 4,244 (371) 57,233
- -------------------------------------------------------------------------------------------------
Totals......................... $2,080,408 $ 5,052 $(91,663) $1,993,797
=================================================================================================
Held To Maturity:
As of December 31, 1994:
Debt Securities issued by U.S. Treasury
and other U.S. Government agencies and
corporations.................. $ 25 ---- ---- $ 25
Debt securities issued by states
and political subdivisions.... 175,305 $ 2,058 $ (1,844) 175,519
Corporate debt securities...... 10,645 28 (267) 10,406
Mortgage-backed securities..... 66,647 446 (3,072) 64,021
- -------------------------------------------------------------------------------------------------
Totals......................... $ 252,622 $ 2,532 $ (5,183) $ 249,971
=================================================================================================
</TABLE>
The fair value and amortized cost of securities transferred from held to
maturity to available for sale in December 1995, as permitted by supplemental
guidance issued in relation to SFAS 115 (see Note 1), were $251,630 and
$247,378, respectively.
<PAGE>
The amortized cost and estimated fair value of debt securities at December 31,
1995 by contractual maturity are shown below (in thousands). Actual maturities
may differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Available For Sale: Amortized Estimated
Cost Fair Value
- --------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less................... $ 345,994 $ 347,869
Due after one year through five years..... 370,881 376,522
Due after five years through ten years.... 51,899 53,468
Due after ten years....................... 30,093 30,870
- --------------------------------------------------------------------------
Totals.................................... 798,867 808,729
Mortgage-backed securities................ 1,741,224 1,746,959
Equity securities......................... 59,852 67,869
- --------------------------------------------------------------------------
Totals.................................... $ 2,599,943 $ 2,623,557
==========================================================================
</TABLE>
Proceeds, gross gains, and gross losses from sales of securities using the
specific identification method were as follows (in thousands):
<TABLE>
<CAPTION>
Available For Sale Investment Securities
------------------------- ---------------------
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Proceeds............. $ 267,001 $ 666,185 $ 2,310
================================================================================
Gross gains.......... $ 2,658 $ 625 $ 731
Gross losses......... (3,464) (1,955) (1)
- --------------------------------------------------------------------------------
Net Gains (Losses)... $ (806) $ (1,330) $ 730
================================================================================
</TABLE>
The change in net unrealized holding loss on trading securities that has been
included in earnings for the years ended December 31, 1995 and 1994 totaled
$366,672 and $175,238, respectively.
Interest earned on tax exempt securities was approximately $9,350,000,
$9,466,000, and $10,501,000, respectively, for the years ended December 31,
1995, 1994, and 1993.
At December 31, 1995 and 1994, securities carried at $2,260,637,000 and
$1,718,781,000, respectively, were pledged for various purposes. In addition,
at December 31, 1995 and 1994, trading account securities totaling $380,420,000
and $551,391,000, respectively, were also pledged.
At December 31, 1995 and 1994, FSCO and its subsidiaries had available for sale
securities and held to maturity securities sold under repurchase agreements
totaling $1,658,981 and $1,346,436, respectively. The carrying value,
approximate market value, related repurchase liability, and weighted average
interest rate of the repurchase liabilities related to the securities sold under
repurchase agreements (grouped by maturity of the repurchase agreement) are as
follows (amounts in thousands):
<TABLE>
<CAPTION>
1995 1994
-------------------------------------- -------------------------------------
Collateralized By Collateralized By
-------------------------------------- -------------------------------------
U.S. Treasury U.S. Government U.S. Treasury U.S. Government
Maturity: Obligations Agency Obligations Obligations Agency Obligations
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Overnight:
Carrying amount................................... $ 99,940 $ 16,794 $ 224,892 $ 815,533
Market value...................................... 99,940 16,794 224,892 813,107
Repurchase liability.............................. 97,058 16,713 224,420 815,710
Weighted average interest rate.................... 5.87% 5.93% 5.41% 5.34%
2 to 30 days:
Carrying amount................................... 39,158 80,483 3,619
Market value...................................... 39,158 80,483 3,619
Repurchase liability.............................. 39,113 80,675 3,609
Weighted average interest rate.................... 5.47% 5.94% 5.62%
31 to 90 days:
Carrying amount................................... 603 1,029
Market value...................................... 603 1,029
Repurchase liability.............................. 600 1,023
Weighted average interest rate.................... 5.21% 5.42%
Demand:
Carrying amount................................... 452,766 1,049,720 209,780 11,100
Market value...................................... 452,766 1,049,720 209,780 11,103
Repurchase liability.............................. 455,636 1,056,286 215,751 11,106
Weighted average interest rate.................... 5.83% 5.31% 6.13% 5.01%
===================================================================================================================================
</TABLE>
<PAGE>
NOTE 5: LOANS
Loans (net of unearned income) consisted of the following (in thousands):
<TABLE>
<CAPTION>
As of December 31, 1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial, financial, and agricultural............ $1,951,785 $1,835,792
Real estate:
Commercial........................................ 943,046 899,493
Residential....................................... 1,909,791 1,919,558
Construction...................................... 470,173 323,370
Consumer........................................... 2,627,811 2,853,948
Leases............................................. 412,489 341,517
- --------------------------------------------------------------------------------------------
Totals............................................. $8,315,095 $8,173,678
=============================================================================================
</TABLE>
Included in residential real estate loans are approximately $258,119,000 and
$168,961,000 of mortgage loans held for sale as of December 31, 1995 and 1994,
respectively.
At December 31, 1995 and 1994, loans carried at approximately $523,429,000
and $546,209,000, respectively, were pledged for various purposes.
Included in loans were loans to directors, executive officers, and to their
associates as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
- ----------------------------------------------------------------------------------
<S> <C> <C>
Balance, January 1....................................... $ 54,638 $ 7,182
Additions................................................ 53,889 47,780
Repayments............................................... (35,447) (324)
- ----------------------------------------------------------------------------------
Balance, December 31..................................... $ 73,080 $54,638
===================================================================================
</TABLE>
None of the above loans to directors, executive officers, and to their
associates as of December 31, 1995 and 1994 were nonaccruing, were past due, or
had been restructured.
Concentrations of Credit Risk: Most of FSCO's lending activity is with
customers located in the western United States. An economic downturn in the
western United States would likely have a negative impact on the FSCO's results
of operations depending on the severity of the downturn. FSCO maintains a
diversified portfolio and does not have significant on- or off-balance-sheet
concentrations of credit risk in any one industry.
Lease financing consisted of the following (in thousands):
<TABLE>
<CAPTION>
As of December 31, 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Leveraged leases.............................. $183,815 $197,594
Non leveraged leases.......................... 225,493 141,970
Assets held for sale or lease................. 3,181 1,953
- --------------------------------------------------------------------------------
Totals........................................ $412,489 $341,517
================================================================================
</TABLE>
Changes in the reserve for loan losses were as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1............................... $133,855 $134,848 $127,847
Provision charged to expense..................... 21,082 825 11,684
Reserves acquired through acquisitions (Note 14). 5,274 7,182
Loans charged off, net of recoveries of
$27,592, $30,700, and $28,602, respectively..... (24,955) (7,092) (11,865)
- -----------------------------------------------------------------------------------
Balance, December 31............................. $129,982 $133,855 $134,848
===================================================================================
</TABLE>
FSCO's investment in impaired loans at December 31, 1995, as defined in SFAS
Nos. 114 and 118, totaled $5,300,000. The SFAS No. 114 allowance related to
impaired loans is $1,300,000. During the year ended December 31, 1995, FSCO's
average investment in impaired loans was $2,492,000 and no income was recorded
on loans considered impaired.
<PAGE>
In July 1995, FSCO securitized approximately $250,899,000 of auto loans and sold
certificates to investors bearing interest rates of 6.25%. FSCO will continue
to service the underlying auto loans for a fee through 2001.
Mortgage Banking Activities: At December 31, 1995 and 1994, FSCO's subsidiaries
were servicing 111,954 and 102,600 mortgage loans, aggregating $9,584,279,000
and $8,850,711,000, respectively, of which $71,632,000 and $389,053,000 were
subserviced as of December 31, 1995 and 1994, respectively. The amount of loan
principal that was delinquent on serviced loans at December 31, 1995 and 1994
was approximately $217,350,000 and $217,810,000. Related trust funds were on
deposit with FSCO's subsidiary banks.
As discussed in Note 15, in April 1994 FSCO acquired CrossLand Mortgage
Acquisition Corp. in a purchase business combination. The acquisition created
mortgage servicing rights of $63,850,000. In March 1995, FSCO sold mortgage
servicing rights with a book value of approximately $12,000,000, resulting in a
gain of approximately $7,500,000. FSCO purchased mortgage servicing rights of
$1,800,000 in 1995 and, in accordance with the adoption of SFAS No. 122 (see
Note 1), recorded originated mortgage servicing rights of $17,200,000 in 1995.
Approximately $9,316,000 and $8,663,000, respectively, of mortgage servicing
rights were amortized during 1995 and 1994. The net unamortized balance of
mortgage servicing rights as of December 31, 1995 and 1994 totaled $56,130,000
and $52,604,000, respectively.
During the year ended December 31, 1995, FSCO issued 139 GNMA loan pools with
security proceeds of $340,000,000. Additionally, FSCO was servicing 538 GNMA
loan pools with an outstanding security balance of $554,000,000 at December 31,
1995. During the year ended December 31, 1995, FSCO originated 7,392 FHA/VA
insured/guaranteed mortgage loans with loan proceeds of $683,733,000.
Additionally, FSCO was servicing 7,245 FHA/VA insured/guaranteed mortgage loans
with an unpaid principal balance of $517,000,000 at December 31, 1995.
NOTE 6: PREMISES AND EQUIPMENT
Premises and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
As of December 31, 1995 1994
- --------------------------------------------------------------------
<S> <C> <C>
Land....................................... $ 31,658 $ 30,554
Buildings and improvements................. 145,050 130,992
Equipment.................................. 205,240 191,203
Leasehold improvements..................... 16,480 14,116
Construction in progress................... 25,013 13,348
- --------------------------------------------------------------------
Totals..................................... 423,441 380,213
Accumulated depreciation and amortization.. (214,303) (191,795)
- --------------------------------------------------------------------
Net........................................ $ 209,138 $ 188,418
====================================================================
</TABLE>
The executive offices of FSCO are located in an owned facility in Salt Lake
City, Utah. In addition, other office buildings are owned in Salt Lake City,
Utah, Boise, Idaho, and Albuquerque, New Mexico.
At December 31, 1995, a total of 168 bank offices are in owned buildings, with
the remaining 104 bank offices located in facilities leased under operating
leases with terms ranging from 1 to 31 years and renewal options ranging from 1
to 30 years. Offices of the nonbank subsidiaries are almost all located in owned
quarters.
At December 31, 1995, future minimum lease payments by year related to operating
leases for premises and equipment were as follows (in thousands):
<TABLE>
<S> <C>
1996......................................... $14,890
1997......................................... 10,828
1998......................................... 6,508
1999......................................... 5,155
2000......................................... 4,425
Thereafter................................... 12,149
- ---------------------------------------------------------
Total........................................ $53,955
=========================================================
</TABLE>
Total rent expense under all operating leases for 1995, 1994, and 1993
approximated $17,118,000, $15,254,000, and $11,836,000, respectively.
<PAGE>
NOTE 7: DEPOSITS
Deposits consisted of the following (in thousands):
<TABLE>
<CAPTION>
As of December 31, 1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C>
Noninterest-bearing demand deposit accounts....... $1,884,931 $1,719,388
Interest-bearing demand and savings accounts...... 2,454,038 2,375,909
Money market accounts............................. 1,065,886 1,152,960
Time certificates of deposit less than $100,000... 2,699,866 2,251,706
Time certificates of deposit of $100,000 or more.. 668,921 553,381
- ----------------------------------------------------------------------------
Totals............................................ $8,773,642 $8,053,344
============================================================================
</TABLE>
NOTE 8: LINES OF CREDIT
FSCO had a $200,000,000 line of credit at December 31, 1995 which expires in
2000. The line was unsecured and bore interest generally at various calculated
rates or at the prime rates of the lending institutions. There were no
borrowings under the line of credit during 1995.
NOTE 9: INCOME TAXES
Accrued income taxes payable (receivable) consisted of the following (in
thousands):
<TABLE>
<CAPTION>
As of December 31, 1995 1994
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Current......................................... $ (4,112) $ 688
Deferred........................................ 135,622 81,022
- ----------------------------------------------------------------------------------
Totals.......................................... $131,510 $81,710
==================================================================================
The income tax provisions consisted of the following components (in thousands):
1995 1994 1993
- ----------------------------------------------------------------------------------
Current:
Federal........................................ $ 47,056 $ 48,555 $ 46,525
State.......................................... 5,454 5,478 5,570
- ----------------------------------------------------------------------------------
Subtotals....................................... 52,510 54,033 52,095
- ----------------------------------------------------------------------------------
Deferred:
Federal........................................ 14,454 23,280 4,774
State.......................................... 3,227 3,730 2,342
- ----------------------------------------------------------------------------------
Subtotals....................................... 17,681 27,010 7,116
- ----------------------------------------------------------------------------------
Totals.......................................... $ 70,191 $ 81,043 $ 59,211
==================================================================================
The tax provisions were at effective rates as follows:
1995 1994 1993
- ----------------------------------------------------------------------------------
U.S. Federal income tax rate.................... 35.0% 35.0% 35.0%
Change in rate resulting from:
Tax-exempt state and municipal bond income..... (1.9) (1.8) (2.2)
Amortization of intangibles.................... 1.4
State income taxes, net of U.S. Federal
income tax benefit............................ 2.5 2.5 3.0
Miscellaneous items............................ (0.1) .9 (1.6)
- ----------------------------------------------------------------------------------
Effective Tax Rates............................. 36.9% 36.6% 34.2%
==================================================================================
</TABLE>
<PAGE>
The tax effects of temporary differences that give rise to significant portions
of deferred tax assets and deferred tax liabilities are as follows (in
thousands):
<TABLE>
<CAPTION>
As of December 31, 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Loan loss reserve....................................... $ 48,147 $ 48,286
Other real estate....................................... 972 1,832
Other reserves.......................................... 8,241 803
Deferred income......................................... 637 5,607
Nonaccrual interest..................................... 423 318
Other postretirement benefits........................... 914 585
Safe harbor leases...................................... 320 450
Fair value adjustments on securities available for sale. ---- 32,270
Other................................................... 6,928 105
- --------------------------------------------------------------------------------
Total Deferred Tax Assets................................ 66,582 90,256
- --------------------------------------------------------------------------------
Liabilities:
Leasing operations...................................... 163,662 157,032
Depreciation............................................ 5,653 5,972
Core deposit intangibles................................ 2,433 1,791
Pension plan contributions.............................. 640 118
Originated mortgage servicing rights.................... 6,266 ----
Auto leases............................................. 4,151 ----
FHLB stock dividends.................................... 4,188 3,163
Deferred loan fees...................................... 4,654 2,357
Fair value on securities available for sale............. 9,067 ----
Other................................................... 1,490 845
- --------------------------------------------------------------------------------
Total Deferred Tax Liabilities........................... 202,204 171,278
- --------------------------------------------------------------------------------
Net Deferred Tax Liability............................... $ 135,622 $ 81,022
================================================================================
</TABLE>
NOTE 10: LONG-TERM DEBT
The details of long-term debt, including related short-term maturities, were as
follows (in thousands):
<TABLE>
<CAPTION>
As of December 31, 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Parent company:
Floating rate notes due 1999............................ $ 7,175 $ 7,475
Medium-term notes due 1996-2003......................... 50,000 50,000
7.50% notes due 2002.................................... 75,000 75,000
7.00% notes due 2005.................................... 125,000 ----
Senior notes due 1999................................... 99,462 100,000
Subsidiaries:
Bank.................................................... 583,623 602,170
Nonbank................................................. 689 1,775
- --------------------------------------------------------------------------------
Totals................................................... 940,949 836,420
Less current maturities included in other short-term
borrowings.............................................. (220,428) (150,994)
- --------------------------------------------------------------------------------
Long-Term Portion........................................ $ 720,521 $ 685,426
================================================================================
</TABLE>
Floating Rate Notes Due 1999: The interest rate of these notes is the higher of
1.25% above the defined U.S. Treasury Bill rate or a rate as determined by FSCO.
Interest rates during the three years ended December 31, 1995 have ranged from
4.2% to 6.7% and at December 31, 1995 was 6.75%. The notes are redeemable at
the option of the holder at par on any March l or September l and are subject to
redemption at any time by FSCO at par.
Medium Term Notes Due 1996-2003: Senior medium term notes of $50,000,000 are
unsecured and bear interest at fixed rates ranging from 6.08% to 9.07% with a
weighted average coupon of 7.28%. The notes mature from 1996 to 2003 with
interest payable semi-annually at the stated rate on February 19 and August 19
of each year. Terms of the notes restrict, among other things, the ability of
FSCO to reduce its ownership in any of its major constituent banks.
7.50% Notes Due 2002: Subordinated notes of $75,000,000 are unsecured, with
interest payable semi-annually at the stated rate on February 15 and August 15
of each year. The notes are payable at maturity in September 2002 and are not
subject to prepayment.
<PAGE>
7% Notes Due 2005: Subordinated notes of $125,000,000 are unsecured, with
interest payable semi-annually at the stated rate on January 15 and July 15 of
each year. The notes are payable at maturity in July 2005 and are not subject
to prepayment.
Senior Notes Due 1999: During 1994, FSCO filed a $300,000,000 debt shelf
registration statement and issued $100,000,000 of senior notes under the shelf
registration statement with interest and principal payable semi-annually on
April 15 and October 15 through 1999. The notes are unsecured and bear interest
at a fixed rate of 7.875%.
Subsidiaries: Long-term debt of the subsidiaries consisted of approximately
$283,998,000 of advances from the Federal Home Loan Bank which are
collateralized primarily by mortgage loans, bear interest at rates generally
ranging from 3.00% to 8.17%, and are payable principally through September 2015;
$293,561,000 of bank notes with interest rates of 6.88% to 8.01%, which are
payable principally through October 1997; and $6,064,000 of miscellaneous notes
payable at various rates and maturities.
Scheduled maturities of long-term debt by year were as follows as of December
31, 1995 (in thousands):
<TABLE>
<CAPTION>
Parent
Company Consolidated
- -------------------------------------------------------------------
<S> <C> <C>
1996...................................... $ 17,250 $220,428
1997...................................... -- 274,500
1998...................................... 4,000 4,700
1999...................................... 111,637 112,362
2000...................................... -- 101,173
Thereafter................................ 223,750 227,786
- -------------------------------------------------------------------
Totals.................................... $356,637 $940,949
===================================================================
</TABLE>
NOTE 11: COMMITMENTS, CONTINGENT LIABILITIES, AND FINANCIAL INSTRUMENTS WITH
OFF-BALANCE SHEET RISK
At December 31, 1995 and 1994, FSCO and its subsidiaries were involved in
various claims and litigation occurring in the ordinary course of business. In
the opinion of management or of management and its legal counsel, potential
liabilities arising from these claims, if any, will not have a material effect
on the consolidated financial statements of FSCO and its subsidiaries.
FSCO and its subsidiaries are parties to financial instruments with off-balance-
sheet risk in the normal course of business. These financial instruments
include commitments to extend credit, standby letters of credit, commitments to
sell loans and leases, interest rate swaps, caps, corridors, futures contracts,
and options contracts. Those instruments involve, to varying degrees, elements
of credit and interest rate risk in excess of the amounts recognized in the
consolidated balance sheets.
Loan Commitments and Letters of Credit: At December 31, 1995 and 1994, such
commitments include the following (in thousands):
<TABLE>
<CAPTION>
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Standby letters of credit...................... $ 215,481 $ 202,694
Undisbursed construction loans................. 293,002 262,614
Credit card lines.............................. 790,585 769,275
Other loan commitments to customers............ 2,050,076 1,994,586
Commitments to sell mortgage loans and leases.. 265,200 191,672
================================================================================
</TABLE>
FSCO and its subsidiaries' exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for commitments to
extend credit and standby letters of credit is represented by the contractual
amount of those instruments. FSCO and its subsidiaries use the same credit
policies in making commitments and conditional obligations as they do for on-
balance-sheet instruments. Market risk arises from changes in interest rates.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.
Derivative Trading Activities: FSCO uses financial futures and option contracts
in its proprietary trading activities which includes trading for profit. The
overall trading strategies of FSCO not only include futures and options but also
include cash market securities. FSCO's futures and options had net gains
(losses) of $(3,032,000) and $6,481,000 for the years ended December 31, 1995
and 1994, respectively. For the years ended December 31, 1995 and 1994, total
income including gains and interest from FSCO's overall trading activities was
$35,486,000 and $31,559,000, respectively. All trading activities including
futures and options contracts are subject to FSCO's policies and loss limit
controls. Market risk arises from changes in interest rates.
<PAGE>
Financial futures contracts represent commitments to purchase (asset) or sell
(liability) securities or money market instruments at a future date and at a
specified price. Futures contracts are traded on organized exchanges (exchange
traded) and are exchange guaranteed, therefore, minimizing FSCO's credit risk.
The net change in the futures contract value is settled daily in cash with the
exchanges. Net gains or losses resulting from FSCO's daily settlements are
included with trading account securities gains (losses) in the consolidated
statements of income.
Options contracts grant the buyer the right, but not the obligation, to purchase
or sell at a specified price, a stated number of units of an underlying
financial instrument, such as treasury securities, Eurodollars, and foreign
currency, at a future date. Options contracts are exchange traded. The price
of an option contract is equal to the premium paid by the purchaser and is
significantly less than the contract or notional amount. Option contracts are
marked to market monthly with net gains or losses recognized currently in
trading account securities gains (losses) in the consolidated statements of
income. Cash is exchanged with the counterparties on the option contracts'
settlement date.
Financial futures contracts and option contracts as of December 31, 1995 and
1994 were as follows (in thousands):
<TABLE>
<CAPTION>
Contract Average Assessed Dollar
Amount Fair Value Fair Value Net Value of Risk
At Year At Year for the Gains At Year End (3)
December 31, 1995 End (1) End (2) Year (2) (Losses) (Unaudited)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets (Long Position):
Financial futures contracts.......... $6,234,000 $ 215 $ 12 $ 4,424 $60
Foreign exchange options
contracts (purchased put)............ 1,222 30 102 (869)
- ---------------------------------------------------------------------------------------------------------
Total Assets.......................... $6,235,222 $ 245 $114 $ 3,555 $60
=========================================================================================================
Liabilities (Short Position):
Financial futures contracts.......... $3,602,160 $ (66) $(22) $(8,001) $62
Options contracts (written call)..... 825,000 (256) 179 1,416 9
- ---------------------------------------------------------------------------------------------------------
Total Liabilities..................... $4,427,160 $(322) $157 $(6,585) $71
=========================================================================================================
December 31, 1994
- ---------------------------------------------------------------------------------------------------------
Assets (Long Position):
Financial futures contracts.......... $6,248,000 $ 13 $ (7) $(2,613) $54
Options contracts (purchased call)... 351,000 221 105 221 20
- ---------------------------------------------------------------------------------------------------------
Total Assets.......................... $6,599,000 $ 234 $ 98 $(2,392) $74
=========================================================================================================
Liabilities (Short Position):
Financial futures contracts.......... $4,922,000 $ (81) $ 22 $ 7,896 $54
Options contracts (written put:
$3,335,000; written call: $351,000).. 3,686,000 (588) 150 977 3
- ---------------------------------------------------------------------------------------------------------
Total Liabilities..................... $8,608,000 $(669) $172 $ 8,873 $57
=========================================================================================================
</TABLE>
(1) Contract (notional) amounts of futures and options contracts do not
represent amounts exchanged by the parties and, thus, are not a measure of
FSCO's exposure through its use of futures and options contracts. The
amounts exchanged are determined by reference to the notional amounts and
the other terms of the futures and options contracts.
(2) The fair value of futures and options contracts generally reflects the
estimated amounts that FSCO would receive or (pay) to terminate the
contracts at the reporting date, thereby taking into account the current
unrealized gains or losses of open contracts.
(3) The assessed dollar value of risk at year end represents the estimated
amount of change in fair value of futures and options contracts with a
change in interest rates of one basis point. An increase in interest rates
generally results in a loss in the long position and a gain in the short
position. A decrease in interest rates generally results in a gain in the
long position and a loss in the short position.
Interest Rate Risk Management Activities: FSCO uses off-balance-sheet derivative
instruments to manage volatility of net interest income. Net interest income is
generated from FSCO's investment of interest and noninterest bearing funding
into loans, securities, and other assets. Interest rate swaps, caps, and
corridors serve as tools in the management of interest rate risk.
The Asset/Liability Management Committees (ALCOs) within FSCO have established
policies and procedures which govern the use of off-balance-sheet derivative
instruments. Credit approval of counterparties, pre-approval of all transactions
and regular monitoring of these positions by the ALCOs assure prudent use of
these instruments to manage interest rate risk. FSCO does not act as a dealer in
off-balance-sheet derivative transactions, but as an end-user. As such, the
market risk arising from the use of derivatives comes primarily from uncertainty
regarding FSCO's future balance sheet and yield/cost structures as economic
conditions and customer preferences change. The structure of interest rates may
respond in unexpected ways to economic news. These uncertainties require ongoing
monitoring and adjustment of risk positions. Off-
<PAGE>
balance-sheet derivatives also carry credit exposure to counterparties. The
notional amount in a particular contract is not at-risk from a credit
standpoint, rather it is simply the negotiated amount upon which interest
payments are based. Credit risk arises from the potential inability of a
counterparty to meet the interest payment obligations on its transactions. FSCO
settles in cash with its counterparties on a quarterly basis on dates specified
in each contract.
The off-balance-sheet derivative instruments in place on December 31, 1995
and 1994 fall into five categories:
Receive Fixed Interest Rate Swaps are entered into to convert the repricing
characteristics of floating rate assets to less volatile fixed rates. These
structures allow FSCO to add a dual stream of cash flows in which the interest
income received is at a fixed rate and the associated expense varies with the
level of short-term interest rates. The floating side of the transaction is tied
to the level of three-month LIBOR at the beginning or end of each settlement
period.
Pay Fixed Interest Rate Swaps provide a mechanism to synthetically lengthen
the repricing characteristics of liabilities to effect a more stable level of
interest expense.
Interest Rate Corridors (LIBOR/LIBOR) are structured to provide a limited amount
of protection against increases in short-term funding rates. FSCO purchased
interest rate caps at 4.94%, and sold caps that exceeded the LIBOR forward rate
curve (final LIBOR cap sold at 7.19%, average level over the term of 6.34%).
Prime/LIBOR Basis Transactions lock in the spread between prime-based assets and
short-term funding costs, thereby stabilizing the net interest income realized
on the assets. Two structures have been in place:
Interest Rate Corridors (Prime/LIBOR) effectively locked in a fixed
spread on prime-based assets. FSCO has purchased a cap on three-month LIBOR
at 3.50%, and sold a cap on prime at 6.00%. Whenever both rates are above
the cap strike levels, FSCO realizes a fixed spread of 250 basis points on
the notional amount.
In Prime/LIBOR Interest Rate Swaps, FSCO pays the prime rate less a fixed
spread and receives three-month LIBOR up to 6.00% through June 1996. The
behavior of this structure was expected to stabilize the spread between the
yield on prime based assets and the cost of non-specific maturity
transactional deposits.
Customer Transactions (principally pay fixed swaps) are negotiated to protect
the spread on certain large-dollar loans to FSCO's customers. Any benefit or
cost arising from these transactions is offset by a corresponding cost or
benefit, respectively, in an on-balance-sheet loan. These transactions are
negotiated on a fairly regular basis in the course of business.
All of the transactions described above have fixed maturity dates and absolute
notional amounts.
The following table summarizes the terms and unrealized gains and losses of
derivative products by category as of December 31, 1995. The fixed rate or fixed
spread to a floating index has been specified for each group within the
category, where applicable. Where three-month LIBOR is used as the index for one
side of the swap, it may be expected to rise and fall as other short-term market
rates rise and fall in response to economic and monetary conditions. The
floating rate in effect on each contract depends on the level of LIBOR on the
contract's last reset date. At December 31, 1995 and 1994, three-month LIBOR was
5.625% and 6.5%, respectively, and the prime rate was 8.5%.
Derivatives used for interest rate management activities as of December 31, 1995
and 1994 were as follows (in millions):
<TABLE>
<CAPTION>
Estimated Fair Estimated Fair
Maturities as of Market Value At Market Value At
December 31, 1995 December 31, December 31,
----------------------
Type and Notional Amount 1996 1997 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Receive Fixed Swaps (Pay 3-month LIBOR):
$300.0 (fixed 4.86%)............................ Feb/Mar $(0.4) $(12.8)
$100.0 (fixed 5.75%)............................ Apr/May -- (2.5)
$300.0 (fixed 4.83%)............................ January (2.4) (20.7)
$100.0 (fixed 4.06%) (Expired during 1995)...... -- (0.8)
Interest Rate Corridors (LIBOR/LIBOR):
$300.0.......................................... August 1.3 7.6
(Unamortized premium paid)...................... (1.6) (4.4)
Pay Prime Swaps (Receive 3-month LIBOR):
$110.0 (prime less 2.57%)....................... June (0.1) (2.8)
$100.0 (prime less 2.62%) (Expired during 1995). -- (0.7)
Customer Transaction Hedges:
$97.4........................................... Various maturities through 2004 (2.9) 3.8
Pay Fixed Swaps (Receive 3-month LIBOR):
$100.0 (fixed 6.46%) (Expired during 1995)...... -- (0.1)
Interest Rate Corridors (Prime/LIBOR):
$200.0 (Expired during 1995).................... -- (0.1)
(Unamortized premium paid)...................... -- (0.1)
- ------------------------------------------------------------------------------------------------------------
Total Positions ($1,207.4 and $1,719.1
in 1995 and 1994, respectively)................. $(6.1) $(33.6)
============================================================================================================
</TABLE>
<PAGE>
NOTE 12: PREFERRED AND COMMON STOCK
In January 1996, FSCO's board of directors approved a three-for-two stock
split in the form of a dividend to stockholders of record on February 12, 1996.
The effects of the stock split have been retroactively reflected in all common
shares and per share amounts in the financial statements and notes as if the
stock split had occurred at the beginning of 1993.
A summary of the changes in shares during the three years ended December 31,
1995 follows (in thousands):
<TABLE>
<CAPTION>
Preferred Stock-
Common Stock Series "A"
Par Value $1.25 $3.15 Cumulative
-------------------------- Convertible
Issued Held In Treasury No Par
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1, 1993:
As previously reported............................... 46,163 521 15
3-for-2 stock split dated February 12, 1996.......... 23,081 260
- -------------------------------------------------------------------------------------------------------
As Restated.......................................... 69,244 781 15
- -------------------------------------------------------------------------------------------------------
Sale of common stock through dividend reinvestment
and stock purchase plan............................. 99
Purchase of treasury stock........................... 114
Conversion of preferred stock to common.............. 28 (2)
Common stock issued for acquisitions (Note 15)....... 3,383
Sale of stock to employee benefit plans.............. 351 (370)
Other................................................ 75
- -------------------------------------------------------------------------------------------------------
Balance, December 31, 1993........................... 73,180 525 13
- ------------------------------------------------------------------------------------------------------
Sale of common stock through dividend reinvestment
and stock purchase plan............................. 116
Purchase of treasury stock........................... 1,024
Conversion of preferred stock to common.............. 25 (1)
Common stock issued for acquisitions (Note 15)....... 1,263 (720)
Sale of stock to employee benefit plans.............. 352 (286)
- -------------------------------------------------------------------------------------------------------
Balance, December 31, 1994........................... 74,936 543 12
- -------------------------------------------------------------------------------------------------------
Sale of common stock through dividend reinvestment
and stock purchase plan............................. 141
Purchase of treasury stock........................... 253
Conversion of preferred
stock to common..................................... 20 (1)
Common stock issued for
acquisitions (Note 15).............................. 202
Sale of stock to employee
benefit plans....................................... 441 (189)
- ------------------------------------------------------------------------------------------------------
Balance, December 31, 1995........................... 75,740 607 11
=======================================================================================================
Shares Authorized,
December 31, 1993, 1994 and 1995.................... 150,000 18
=======================================================================================================
</TABLE>
The liquidating preference of Series "A", $3.15 cumulative convertible
preferred stock is $52.50 a share. At the option of FSCO's board of directors,
this stock is redeemable at $52.50 a share. Series "A" preferred stock is
convertible at any time into 18.225 shares of common stock.
One or more additional series of preferred stock, with a combined maximum of
400,000 shares, may be issued with the terms thereof determinable by the board.
A dividend reinvestment and common stock purchase plan for 2,500,000 shares
was established in 1978 to provide common shareholders a means of investing cash
dividends together with optional cash payments. Through December 31, 1995, a
total of 1,232,000 shares were issued pursuant to the plan.
Conversion of all preferred stock outstanding at December 31, 1995 would
require 204,413 shares of common stock.
During 1989, FSCO's board of directors approved issuance of a stockholder
right to all common stockholders which entitles each stockholder to buy one one-
thousandth of a share of a new class of preferred stock at an exercise price of
$29.63 in the event a group acquires or announces a tender offer which would
result in ownership of 15% or more of FSCO's common stock by such group.
<PAGE>
NOTE 13: EMPLOYEE BENEFIT PLANS
Retirement Plan: FSCO and its subsidiaries have a retirement plan (the Plan)
which covers generally all employees with one year or more of service of at
least 1,000 hours who are at least 21 years of age. The retirement benefits are
based on years of service and the average of the employee's highest three
consecutive years of base salary with 100% vesting at 5 years of service. FSCO's
policy is to fund the actuarially computed retirement cost accrued.
Contributions are intended to provide not only for benefits attributed to
service to date but also for those expected to be earned in the future.
The following table sets forth the Plan's funded status and amounts recognized
in the consolidated balance sheet at December 31, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Actuarially computed present value of benefit
obligations - accumulated benefit obligation, including
vested benefits of $73,279 and $65,041 at December 31,
1995 and 1994, respectively............................ $ 76,315 $ 66,204
================================================================================
Plan assets at fair value, primarily common stocks and
U.S. Government debt securities........................ $ 88,943 $ 66,834
Actuarially computed present value of benefit
obligations - projected benefit obligation for service
rendered to date....................................... (100,406) (84,568)
Unrecognized prior service cost......................... 9,794 10,940
Unrecognized net loss from past experience different
from that assumed and effects of changes in
assumptions............................................ 7,638 13,409
Unrecognized net assets at January 1, 1986
being recognized over 15 years......................... (2,756) (3,230)
- --------------------------------------------------------------------------------
Prepaid Pension Cost Included In Other Assets........... $ 3,213 $ 3,385
================================================================================
Assumptions used in determining the projected benefit obligations as of
December 31, 1995 and 1994 were:
<CAPTION>
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Discount rate........................................... 7.25% 8.75%
Rate of increase in compensation levels................. 6.00 6.00
- --------------------------------------------------------------------------------
The net pension expense included the following components (in thousands):
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost for benefits earned during the
period......................................... $ 5,004 $ 4,757 $ 4,290
Interest cost on projected benefit obligation... 7,352 6,814 5,986
Actual loss (return) on plan assets............. (18,995) 1,585 (982)
Net amortization and deferral................... 13,111 (6,869) (4,801)
- --------------------------------------------------------------------------------
Net Pension Expense............................. $ 6,472 $ 6,287 $ 4,493
================================================================================
Assumptions used in determining the net pension expense were:
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate................................... 8.75% 7.50% 8.00%
Rate of increase in compensation levels......... 6.00 6.00 6.00
Expected long-term rate of return on assets..... 9.75 9.75 9.75
================================================================================
</TABLE>
401(k) Savings Plans: FSCO and its subsidiaries have several section 401(k)
contributory savings plans (the Savings Plans) in which participation is limited
to employees age 21 or older with one year of service. Under provisions of the
Savings Plans, participants may contribute up to 17% of their pre-tax base
salary subject to the "excess contribution" limitations imposed by the tax law.
An additional amount, equal to 50% of the first 6% of the participants'
compensation contributed, is contributed by the employer. Employer contributions
to the Savings Plans were approximately $3,555,000, $3,116,000, and $2,461,000
in 1995, 1994, and 1993, respectively.
<PAGE>
Comprehensive Management Incentive Plan: FSCO and its subsidiaries adopted a
comprehensive management incentive plan (the Management Plan) which amends,
supersedes, and incorporates FSCO's previous restricted stock bonus plan and its
nonstatutory stock option and stock appreciation rights plan. The Management
Plan provides for the issuance of up to a total of 9,656,250 shares of FSCO's
common stock for all incentive awards under the Management Plan which may
consist of restricted awards of common stock, nonstatutory stock options, stock
appreciation rights, and incentive stock options. However, only 1,181,250 shares
of FSCO's common stock may be issued for restricted awards and performance
awards as defined by the Management Plan.
Nonstatutory stock options outstanding generally become exercisable in 25%
annual increments on each January 15, beginning with the first January 15
following the grant date, and expire after 10 years. Certain nonstatutory stock
options issued to management are exercisable at six months following the grant
date and expire after 10 years.
A summary of these options follows:
<TABLE>
<CAPTION>
1995 Shares Price Range Per Share
- --------------------------------------------------------------------------------
<S> <C> <C>
Granted.............................. 15,000 $18.67
Canceled............................. 50,403 11.75 - 17.17
Exercised............................ 183,514 5.93 - 17.17
Outstanding at December 31........... 3,707,694 5.93 - 20.33
Exercisable at December 31........... 2,516,292 5.93 - 20.33
1994
- --------------------------------------------------------------------------------
Granted.............................. 541,524 $16.50 - 20.33
Canceled............................. 82,603 5.93 - 17.17
Exercised............................ 348,820 5.93 - 17.17
Outstanding at December 31........... 3,926,611 5.93 - 17.17
Exercisable at December 31........... 2,351,265 5.93 - 17.17
1993
- --------------------------------------------------------------------------------
Granted.............................. 603,264 $16.42
Canceled............................. None
Exercised............................ 542,646 5.93 - 17.17
Outstanding at December 31........... 3,816,510 5.93 - 17.17
Exercisable at December 31........... 2,401,453 5.93 - 17.17
================================================================================
</TABLE>
Employee Stock Purchase Plan: During 1994, FSCO and its subsidiaries adopted
an Employee Stock Purchase Plan which allows eligible employees to purchase
FSCO's common stock at fair market value through payroll deductions without
incurring brokers' fees or commissions. Under this plan, 243,000 shares of
common stock were issued to employees in 1995 and no shares of stock were issued
to employees in 1994 or 1993.
Non Employee Director Stock Option Plan: In 1995, FSCO adopted an incentive
plan for the board of directors, which allows up to 750,000 options to be
granted to the directors. During 1995, 81,000 options were granted to directors
at an exercise price of $15.92 per share. One-third of the options vest each
year and no options were exercisable at December 31, 1995.
Postretirement Benefits: FSCO provides certain health care, dental, and life
benefits for substantially all of its retired employees. Effective January 1,
1993, FSCO adopted SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other than Pensions." SFAS No. 106 requires FSCO to accrue the
estimated cost of retiree benefit payments during the years the employee
provides services. FSCO previously expensed the cost of these benefits as claims
were incurred.
SFAS No. 106 allows recognition of the cumulative effect of the liability in
the year of the adoption or the amortization of the obligation over a period of
up to twenty years. FSCO has elected to recognize this obligation of
approximately $5,600,000 over a period of twenty years. FSCO's cash flows are
not affected by SFAS No. 106.
<PAGE>
The plan's accumulated postretirement benefit obligation and reconciliation
to the balance sheets at December 31, 1995 and 1994 is presented below (in
thousands):
<TABLE>
<CAPTION>
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Retirees..................................................... $ 5,309 $ 4,293
Fully eligible plan participants............................. 602 489
Other active plan participants............................... 2,909 2,357
- --------------------------------------------------------------------------------
Accumulated postretirement benefit obligation................ 8,820 7,139
Unrecognized net transition obligation....................... (4,840) (5,119)
Unrecognized net loss........................................ (1,536) (448)
- --------------------------------------------------------------------------------
Accrued Postretirement Benefit Liability..................... $ 2,444 $ 1,572
================================================================================
</TABLE>
FSCO has not funded any part of the accumulated postretirement benefit
obligation.
Net postretirement benefit cost for 1995 and 1994 consisted of the following
components (in thousands):
<TABLE>
<CAPTION>
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Service cost - benefits earned during the year............... $ 273 $ 250
Interest cost on accumulated postretirement benefit
obligation.................................................. 625 560
Amortization of transition obligation........................ 260 350
- --------------------------------------------------------------------------------
Totals....................................................... $ 1,158 $ 1,160
================================================================================
</TABLE>
The assumed health care cost trend rate used to measure the expected cost of
benefits covered by the Plan for 1996 is 10.0%; the rate is assumed to decrease
each successive year until it reaches 5.5% in 2005, after which it remains
constant. A one percent increase in the assumed health care cost trend rate for
each year would increase the accumulated postretirement benefit obligation as of
December 31, 1995 by approximately $0.6 million and net postretirement benefit
cost by $0.1 million for the year. The assumed discount rate used in determining
the accumulated postretirement benefit obligation was 7.25% and 8.75% at
December 31, 1995 and 1994, respectively.
Postemployment Benefits: As discussed in Note 2, during 1995 FSCO announced a
restructuring and accrued $1,213,000 relating to severance benefits.
NOTE 14: RESTRICTIONS ON THE TRANSFER OF FUNDS
National and state banking and insurance regulations impose restrictions on
the ability of FSCO's banking and insurance subsidiaries to transfer funds to
FSCO in the form of loans or dividends. At December 31, 1995 and 1994, FSCO's
equity in all of its subsidiaries was $1,071,320,000 and $932,738,000,
respectively, of which $831,161,000 and $611,928,000 were restricted and
$240,159,000 and $320,810,000 were unrestricted by such regulations.
NOTE 15: MERGERS AND ACQUISITIONS
In 1995, FSCO acquired three small companies with total assets of
approximately $2,727,000 and liabilities of $1,372,000 for $482,000 in cash and
202,100 shares of FSCO's common stock.
On May 20, 1994, FSCO issued approximately 1,263,099 shares of its common
stock in exchange for all of the outstanding common stock of Community First
Bank (CFB). The assets and liabilities of CFB at the date of merger were
approximately $75,242,000 and $63,694,000, respectively. The acquisition was
accounted for as a pooling of interests. However, because such amounts were not
significant to FSCO and its subsidiaries, the results of operations of CFB have
been included in the consolidated financial statements of FSCO from the date of
merger forward and prior periods' consolidated financial statements have not
been restated.
During 1994, FSCO acquired two branches of Equality State Bank (Evanston and
Lyman, Wyoming), CrossLand Mortgage Acquisition Corp. (Salt Lake City, Utah),
American BanCorporation (Boise, Idaho), and Star Valley State Bank (Afton,
Wyoming) with total assets and liabilities of approximately $508,861,000 and
$356,691,000, respectively, for approximately $152,170,000 of which
approximately $137,291,000 was paid in cash and approximately $14,880,000 was
paid through the issuance of 719,993 shares of FSCO's common stock held in
treasury. The acquisitions were accounted for using the purchase method of
accounting. The results of operations of the acquired institutions have been
included in the 1994 consolidated financial statements from the dates of
acquisition. The acquisitions created intangible assets for FSCO of
approximately $63,850,000 in mortgage servicing rights and approximately
$105,873,000 in goodwill (principally from the CrossLand Mortgage acquisition,
see Note 4). Pro forma results of operations for 1995 and 1994 as if the
companies had combined at the beginning of the periods are not presented because
the effect was not material.
<PAGE>
On November 19, 1993, FSCO issued approximately 11,019,000 shares of its
common stock in exchange for all of the outstanding common stock of First
National Financial Corporation and its subsidiary, First National Bank in
Albuquerque (collectively FNFC), a 26-branch banking operation located in
Albuquerque, New Mexico. At the date of merger, assets and liabilities of FNFC
were approximately $1,242,880,000 and $1,155,094,000, respectively. Total
interest income, net interest income, and net income of FNFC from January 1,
1993 to the date of merger were approximately $77,058,000, $50,066,000, and
$3,851,000, respectively. The merger with FNFC was accounted for as a pooling of
interests and, accordingly, during 1993 FSCO's consolidated financial statements
for 1993 and 1992 were restated as if FSCO and FNFC had been combined for those
years.
During 1993, FSCO also acquired Dixie State Bank (St. George, Utah), Benton
County Bank (Corvallis, Oregon), Nevada Community Bank and Continental
Bancorporation (Las Vegas, Nevada), and State Bank of Green River (Green River,
Wyoming) in separate pooling of interests mergers by issuing a total of
3,382,500 shares of its common stock. The combined assets and liabilities of
these entities at the time of the mergers totaled $404,062,000 and $376,344,000,
respectively. Because such amounts were not significant to FSCO and its
subsidiaries, the results of operations of these entities have been included in
the consolidated financial statements of FSCO from the date of merger forward
and prior periods' consolidated financial statements have not been restated.
During 1993, FSCO acquired assets of $18,996,000 and assumed liabilities of
$18,579,000 of certain branch operations from various financial institutions for
$417,000 in cash.
NOTE 16: RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board (FASB) issued SFAS
No. 123, "Accounting for Stock-Based Compensation". SFAS No. 123 encourages but
does not require a fair value based method of accounting for an employee stock
option or similar equity instrument. Fair value of the stock option or similar
equity instrument is determined considering factors such as the exercise price,
the expected life of the option or other equity instrument, the current price of
the underlying stock and its volatility, expected dividends on the stock, and
the risk-free interest rate for the expected term of the option. Under the fair
value based method, compensation cost is measured at the grant date based on the
fair value of the award and is recognized over the vesting period. A company may
elect to adopt the measurement provisions of SFAS No. 123 or elect to continue
accounting for its stock option or similar equity awards using the intrinsic
method, where compensation cost is measured at the date of grant based on the
excess of the market value of the underlying stock over the exercise price. If a
company elects not to adopt the measurement provisions of SFAS No. 123, then it
must provide pro forma disclosure of net income and earnings per share, as if
the fair value based method had been applied. SFAS No. 123 is effective for
fiscal years beginning after December 15, 1995. The impact of SFAS No. 123 on
FSCO is not expected to be material in relation to the consolidated financial
statements.
In March 1995, the FASB issued 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 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, except for assets of a discontinued operation held for disposal, be
accounted for at the lower of cost or fair value less cost to sell. SFAS No. 121
is effective for fiscal years beginning after December 15, 1995. The impact of
SFAS No. 121 on FSCO and its subsidiaries is not expected to be material in
relation to the consolidated financial statements.
NOTE 17: CAPITAL REQUIREMENTS
Bank holding companies are currently subject to certain risk-based capital
calculation guidelines. The guidelines require an institution to maintain "Tier
1" capital, intended to be composed of tangible equity, at a minimum of 4.0% of
total assets as adjusted for risk characteristics. Tangible equity is generally
defined as the total of common and preferred equity reduced by goodwill,
deposit-based intangibles, and loan servicing rights, subject to some
limitations. Risk-adjusted assets reflect the sum of all asset categories and
types, each weighted from 0% to 100% depending upon relative credit risk, plus
off-balance-sheet commitments and obligations, also weighted from 0% to 100% to
reflect relative credit risk.
Total "Tier 1" capital plus additional "Tier 2" components (primarily
reserves for loan losses and qualifying subordinated debt) must be at a minimum
of 8.0% of risk-adjusted assets. The "leverage ratio" ("Tier 1" capital to non-
risk-adjusted assets) must be equal to or greater than 3.0%, depending on each
institution's particular regulatory rating. Beginning on December 31, 1993, the
leverage ratio was increased by 100 to 200 basis points for all but the highest
rated banks.
At December 31, 1995, FSCO and its subsidiaries' risk-adjusted "Tier 1"
capital ratio was 10.35%, the total risk-adjusted "Tier 1 plus Tier 2" ratio was
13.86%, and the leverage ratio was 7.12%. At December 31, 1994, the "Tier 1"
ratio was 9.84%, the "Tier 1 plus Tier 2" ratio was 11.98%, and the leverage
ratio was 6.88%.
<PAGE>
NOTE 18: ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale. In the case of cash and short-term
investments, the carrying amount is considered a reasonable estimate of fair
value. For securities, the quoted market price is used to estimate fair value.
Trading account securities are marked to market, therefore the carrying amount
is considered a reasonable estimate of fair value. The carrying amount of
deposits with no stated maturity, such as demand deposits, money markets
accounts, and savings accounts, is considered a reasonable estimate of fair
value. The carrying amounts of securities sold under repurchase agreements and
short-term borrowings are considered a reasonable estimate of fair value. The
fair value of the remainder of on-balance-sheet instruments, such as loans,
certificates of deposit, and short-term borrowings, is estimated by using a
discounted cash flow approach. FSCO employs a modeling tool which discounts
estimated future cash flows through the projected maturity using market discount
rates that approximately reflect the credit risk, operating cost, and interest
rate risk potentially inherent in the instrument.
The estimated fair value of FSCO's financial futures and options used in
trading activities is obtained from market quotes. The estimated fair value of
interest rate swaps, caps, and corridors are obtained from market quotes
representing the estimated amount FSCO would receive or pay to terminate the
contracts or agreements, taking into account current interest rates. The
estimated fair value of commitments to extend credit and letters of credit are
estimated using the maximum fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements, the
present creditworthiness of the counterparties, and the difference between
current levels of interest rates and the committed rates.
Fair value estimates are made as of a specific point in time. Because no
market exists for a significant portion of FSCO's financial instruments, fair
value estimates are based on judgments regarding future expected loss
experience, current economic conditions, risk characteristics of various
financial instruments, interest rate levels and other factors. These estimates
are subjective in nature and involve uncertainties and matters of judgment and
therefore cannot be determined or relied on with any degree of certainty.
Changes in assumptions could significantly affect the estimates.
A summary of the carrying amounts and estimated fair values for FSCO was as
follows (in thousands):
<TABLE>
<CAPTION>
As of December 31, 1995 1994
- ------------------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and short-term investments............. $ 988,296 $ 988,296 $ 723,489 $ 723,489
Trading account securities.................. 638,393 638,393 553,826 553,826
Securities available for sale............... 2,623,557 2,623,557 1,993,797 1,993,797
Securities held to maturity................. None None 252,622 249,971
Net loans (excluding leases)................ 7,778,688 7,806,637 7,705,415 7,644,006
- ------------------------------------------------------------------------------------------------
Total Financial Assets...................... $12,028,934 $12,056,883 $11,229,149 $11,165,089
================================================================================================
Financial Liabilities:
Total deposits, excluding certificates...... $ 5,404,855 $ 5,404,855 $ 5,248,257 $ 5,248,257
Certificates of deposit..................... 3,368,787 3,375,645 2,805,087 2,784,367
Short-term borrowings....................... 472,731 472,731 478,762 478,762
Securities sold under repurchase agreements. 1,725,958 1,725,958 1,866,377 1,866,377
Long-term debt.............................. 720,521 714,315 685,426 541,185
- ------------------------------------------------------------------------------------------------
Total Financial Liabilities................. $11,692,852 $11,693,504 $11,083,909 $10,918,948
================================================================================================
Off-Balance Sheet Financial Instruments:
Financial futures and options (trading):
Gains...................................... $ 245 $ 245 $ 234 $ 234
Losses..................................... (322) (322) (669) (669)
Interest rate swaps, caps, and corridors -
interest rate risk management............. 1,656 (6,128) 4,494 (33,602)
Letters of credit and other commitments
to extend credit........................... (13,478) (13,209)
- -------------------------------------------------------------------------------------------------
Total Off-Balance-Sheet
Financial Instruments...................... $ 1,579 $ (19,683) $ 4,059 $ (47,246)
=================================================================================================
</TABLE>
<PAGE>
NOTE 19: CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY ONLY
<TABLE>
<CAPTION>
Condensed Balance Sheets:
December 31, 1995 and 1994 (in thousands) 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash on deposit and repurchase agreement with
subsidiary bank................................... $ 24,291 $ 32,103
Commercial loans receivable from subsidiaries:
Banks........................................... 161,540 128,700
Nonbanks........................................ 136,211 37,139
Investments in subsidiaries:
Banks........................................... 1,010,721 869,651
Nonbanks........................................ 60,599 63,087
Other assets....................................... 2,894 2,246
- --------------------------------------------------------------------------------
Total Assets....................................... $ 1,396,256 $ 1,132,926
================================================================================
Liabilities:
Accrued interest, accounts payable to
subsidiary, and dividends payable................. $ 9,356 $ 5,302
Short-term borrowings.............................. 17,250 5,675
Long-term debt..................................... 339,387 232,475
- --------------------------------------------------------------------------------
Total Liabilities.................................. 365,993 243,452
- --------------------------------------------------------------------------------
Stockholders' Equity:
Preferred stock
Series "A", $3.15 cumulative convertible.......... 571 629
- --------------------------------------------------------------------------------
Common Stockholders' Equity:
Common stock
(75,740 and 74,936 shares issued, respectively)... 94,674 93,669
Paid-in surplus................................... 120,084 111,705
Retained earnings................................. 810,458 746,454
Net unrealized gain (loss) on securities available
for sale of subsidiaries (net of taxes).......... 14,547 (54,341)
- --------------------------------------------------------------------------------
Subtotal........................................... 1,039,763 897,487
Common treasury stock, at cost
(607 and 543 shares, respectively)................ (10,071) (8,642)
- --------------------------------------------------------------------------------
Total Common Stockholders' Equity.................. 1,029,692 888,845
- --------------------------------------------------------------------------------
Total Stockholders' Equity......................... 1,030,263 889,474
- --------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity......... $ 1,396,256 $ 1,132,926
================================================================================
</TABLE>
<TABLE>
<CAPTION>
Condensed Statements Of Income:
For the years ended December 31, 1995, 1994, and 1993
(in thousands) 1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Cash dividends from subsidiaries:
Banks............................... $ 48,433 $ 39,139 $ 53,655
Nonbanks............................ 5,675 7,675
Interest (principally from
subsidiaries)......................... 22,234 12,286 9,132
- --------------------------------------------------------------------------------
Total income........................... 76,342 59,100 62,787
Interest expense....................... 22,234 12,286 9,132
- --------------------------------------------------------------------------------
Income before equity in undistributed
earnings of subsidiaries.............. 54,108 46,814 53,655
Equity in undistributed
earnings of subsidiaries:
Banks............................... 72,743 87,390 59,898
Nonbanks............................ (6,846) 5,930 503
- --------------------------------------------------------------------------------
Net Income............................. $ 120,005 $ 140,134 $ 114,056
================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Condensed Statements Of Cash Flows:
For the years ended December 31, 1995, 1994, and 1993
(in thousands, except for number of shares) 1995 1994 1993
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income........................................ $ 120,005 $ 140,134 $ 114,056
Adjustments to reconcile net income to
net cash provided by operating activities........ (62,490) (91,503) (59,036)
- ----------------------------------------------------------------------------------------------
Net Cash Provided By Operating Activities......... 57,515 48,631 55,020
- ----------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Loans and capital contributions made to
subsidiaries..................................... (340,630) (157,781) (147,846)
Principal collected on loans to subsidiaries...... 208,717 160,859 152,111
Cash investments in subsidiaries.................. (2,401) (124,335) (6,405)
- ----------------------------------------------------------------------------------------------
Net Cash Used In Investing Activities............. (134,314) (121,257) (2,140)
- ----------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Proceeds from short-term borrowings............... 10,000
Proceeds from long-term debt...................... 125,000 128,750
Payments on long-term debt and short-term
borrowings....................................... (6,518) (14,760) (3,820)
Proceeds from issuance of common stock
and sales of treasury stock...................... 10,965 10,320 9,121
Purchase of treasury stock........................ (4,459) (19,481) (2,118)
Dividends paid.................................... (56,001) (51,126) (38,638)
- ----------------------------------------------------------------------------------------------
Net Cash Provided By (Used In) Financing
Activities....................................... 68,987 63,703 (35,455)
- ----------------------------------------------------------------------------------------------
Net Increase (Decrease) In Cash And Cash
Equivalents...................................... (7,812) (8,923) 17,425
Cash And Cash Equivalents, Beginning Of Year...... 32,103 41,026 23,601
- ----------------------------------------------------------------------------------------------
Cash And Cash Equivalents, End Of Year............ $ 24,291 $ 32,103 $ 41,026
==============================================================================================
Supplemental Disclosures Of Cash Flow Information:
Cash paid during the year for:
Interest......................................... $ 18,067 $ 10,765 $ 9,033
==============================================================================================
Income taxes..................................... $ 25 $ (144) $ (366)
==============================================================================================
</TABLE>
Supplemental Schedule of Non Cash Investing and Financing Activities:
In 1995, FSCO issued 202,100 shares of common stock for the acquisition of
two small insurance agencies merged into FS Insurance, Inc.
In 1994, 1,983,092 shares of common stock were issued and $137,291,000 cash
was paid for the acquisitions of Equality State Bank, CrossLand Mortgage
Acquisition Corp., Community First Bank, American BanCorporation, and Star
Valley State Bank. FSCO acquired assets of approximately $584,103,000 and
assumed liabilities of approximately $420,385,000 (Note 15).
In 1993, 3,382,500 shares of common stock were issued for the acquisitions of
Dixie State Bank, Benton County Bank, Nevada Community Bank, State Bank of Green
River, and Continental BanCorporation. FSCO acquired assets of approximately
$404,062,000 and assumed liabilities of approximately $376,344,000 (Note 15).
<PAGE>
First Security Corporation and Subsidiaries
Independent Auditors' Report
To the Board of Directors and Stockholders of First Security Corporation:
We have audited the accompanying consolidated balance sheets of First
Security Corporation and subsidiaries (FSCO) as of December 31, 1995 and 1994,
and the related consolidated statements of income, stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of FSCO's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of First Security Corporation and
subsidiaries at December 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1995, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1994 FSCO
changed its method of accounting for investment securities to conform with
Statement of Financial Accounting Standards No. 115. On July 1, 1995, FSCO
changed its method of accounting for mortgage servicing rights to conform with
Statement of Financial Accounting Standards No. 122.
[SIGNED]
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
February 22, 1996
<PAGE>
CORPORATE INFORMATION
Corporate Offices
79 South Main Street
Salt Lake City, Utah 84111
Annual Stockholders' Meeting
Monday, April 22, 1996, 3 p.m.
Empire Room, Joseph Smith Memorial Building
15 East South Temple
Salt Lake City, Utah 84111
Independent Accountants
Deloitte & Touche LLP
50 South Main Street
Salt Lake City, Utah 84144
General Legal Counsel
Ray, Quinney & Nebeker
400 Deseret Building
Salt Lake City, Utah 84111
Form 10-K
Stockholders can obtain a copy of any exhibits filed with the Corporation's
report on Form l0-K upon written request to:
Financial Division
First Security Corporation
P.O. Box 30006
Salt Lake City, Utah 84130-0006
Dividend Reinvestment Plan
Shareholders can reinvest their cash dividends in additional shares of our
common stock at the market price. Shareholders, as well as brokers and
custodians, can obtain a prospectus of the plan by writing to:
First Security Bank of Utah, N.A.
Plan Agent, First Security Corporation
Dividend Reinvestment Plan
P.O. Box 30007
Salt Lake City, Utah 84130-0007
(80l) 246-5289.
Moody's
Thomson Standard Investors
Ratings BankWatch & Poors Service
- ----------------------------------------------------------------------
Overall.......................... B -- --
Senior Debt...................... -- BBB+ A3
Subordinated Debt................ -- BBB Baal
- ----------------------------------------------------------------------
First Security Corporation's shares are traded in the NASDAQ National Market
System under the NASDAQ symbol: FSCO.
NASDAQ Market Makers:
Alex, Brown & Sons, Inc.
Bear, Stearns & Co., Inc.
C.S. First Boston Corporation
Dain, Bosworth, Inc.
Dean Witter Reynolds, Inc.
Edward D. Jones & Co.
Fox-Pitt, Kelton, Inc.
Herzog, Heine, Geduld, Inc.
Keefe, Bruyette & Woods, Inc.
Kidder Peabody & Co., Inc.
Lehman Brothers, Inc.
Merrill Lynch, Pierce, Fenner & Smith
Montgomery Securities, Inc.
Morgan Stanley & Co., Inc.
J. P. Morgan Securities, Inc.
Pacific Crest Securities
Piper, Jaffray & Hopwood, Inc.
Prudential Securities
M.A. Schapiro & Co., Inc.
Salomon Brothers, Inc.
Sherwood Securities Corporation
Smith Barney Inc.
Stearn, Agee & Leach, Inc.
Troster Singer Corporation
The Transfer Agent and Registrar for First Security Corporation is:
Stock Transfer Services
Trust Group
First Security Bank of Utah, N.A.
P. O. Box 30007
Salt Lake City, Utah 84130-0007
Financial Information
Analysts, investors and others seeking financial information about the
Corporation should contact:
Scott C. Ulbrich (80l) 246-5706
Executive Vice President and Chief Financial Officer
Leslie R. Nelson (801) 246-5266
Vice President & Manager Corporate Communications
General Information
News media representatives and others seeking general information should
contact:
Kenny Thomas, APR (801) 246-5535
Assistant Vice President and Manager Communications & Public Relations
<PAGE>
SIGNATURES
FIRST SECURITY CORPORATION
Registrant
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
FIRST SECURITY CORPORATION
By
[SIGNED] March 12, 1996
_______________________________________________________ ____________________
Scott C. Ulbrich (Date)
Executive Vice President, Finance and Capital Markets
and Chief Financial Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By
[SIGNED] March 12, 1996
_______________________________________________________ ______________
Spencer F. Eccles (Date)
Chairman and Chief Executive Officer
By
[SIGNED] March 12, 1996
_______________________________________________________ ______________
Morgan J. Evans (Date)
President and Chief Operating Officer
<PAGE>
SIGNATURES
FIRST SECURITY CORPORATION
Registrant
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
[SIGNED] March 19, 1996
_______________________________________________________ ______________
James C. Beardall Date
Director
[SIGNED] March 13, 1996
_______________________________________________________ ______________
Rodney H. Brady Date
Director
[SIGNED] March 13, 1996
_______________________________________________________ ______________
James E. Bruce Date
Director
[SIGNED] March 19, 1996
_______________________________________________________ ______________
Thomas D. Dee, II Date
Director
[SIGNED] March 13, 1996
_______________________________________________________ ______________
Dr. David P. Gardner Date
Director
[SIGNED] March 12, 1996
_______________________________________________________ ______________
Robert H. Garff Date
Director
[SIGNED] March 14, 1996
_______________________________________________________ ______________
U. Edwin Garrison Date
Director
[SIGNED] March 12, 1996
_______________________________________________________ ______________
David B. Haight Date
Director
[SIGNED] March 13, 1996
_______________________________________________________ ______________
Jay Dee Harris Date
Director
[SIGNED] March 19, 1996
_______________________________________________________ ______________
Robert T. Heiner Date
Director
[SIGNED] March 13, 1996
_______________________________________________________ ______________
Karen H. Huntsman Date
Director
[SIGNED] March 13, 1996
_______________________________________________________ ______________
G. Frank Joklik Date
Director
[SIGNED] March 13, 1996
_______________________________________________________ ______________
B. Z. Kastler Date
Director
[SIGNED] March 17, 1996
_______________________________________________________ ______________
Joseph G. Maloof Date
Director
[SIGNED] March 13, 1996
_______________________________________________________ ______________
Scott S. Parker Date
Director
[SIGNED] March 12, 1996
_______________________________________________________ ______________
Dr. Arthur K. Smith Date
Director
[SIGNED] March 13, 1996
_______________________________________________________ ______________
James L. Sorenson Date
Director
[SIGNED] March 13, 1996
_______________________________________________________ ______________
Harold J. Steele Date
Director
Part IV EXHIBITS
Ex. 3.2. Bylaws of FSCO, as amended January 29, 1996:
FIRST SECURITY CORPORATION
BY-LAWS
ARTICLE I
OFFICES
Section 1. The principal office shall be in the City of Wilmington, County
of New Castle, State of Delaware.
Section 2. The corporation may also have offices at such other places both
within and without the State of Delaware as the board of directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of directors
shall be held in the City of Salt Lake City, State of Utah, or at such place
as may be fixed from time to time by the board of directors, but if not so
fixed, at a principal office of the corporation in Salt Lake City, Utah.
Meetings of stockholders for any other purpose may be held at such time and
place, within and without the State of Delaware, as shall be stated in the
notice of the meeting or in a duly executed waiver of notice thereof.
Section 2. The date of the annual meeting may be advanced or delayed by
action of the board of directors or the Executive Committee, provided that
written notice thereof be given to each stockholder as required by all
applicable law.
Section 3. Written notice of the annual meeting shall be given to each
stockholder entitled to vote thereat at least ten days before the date of the
meeting.
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every election of
directors, a complete list of stockholders entitled to vote at said election,
arranged in alphabetical order, showing the address of and the number of
voting shares registered in the name of each stockholder. Such list shall be
open to the examination of any stockholder, during ordinary business hours,
for a period of at least ten days prior to the election, either at a place
within the city, town or village where the election is to be held and which
place shall be specified in the notice of the meeting, or, if not specified,
at the place where said meeting is to be held, and the list shall be produced
and kept at the time and place of election during the whole time thereof, and
subject to the inspection of any stockholder who may be present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the president and shall be called by the
president or secretary at the request in writing of a majority of the board of
directors, or at the request in writing of stockholders owning a majority in
amount of the entire capital stock and the corporation issued and outstanding
and entitled to vote. Such request shall state the purpose or purposes of the
proposed meeting.
Section 6. Written notice of a special meeting of stockholders, stating
the time, place and object thereof, shall be given to each stockholder
entitled to vote thereat, at least five days before the date fixed for the
meeting.
Section 7. Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum shall not be present and represented
at any meeting of the stockholders, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified.
Section 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or
of the certificate of incorporation, a different vote is required in which
case such express provision shall govern and control the decision of such
question.
Section 10. Each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three years from its date, unless the proxy provides for a longer
period, and, except where the transfer books of the corporation have been
closed or a date has been fixed as a record date for the determination of its
stockholders entitled to vote, no share of shall be voted on at any election
for directors which has been transferred on the books of the corporation
within twenty days next preceding such election of directors.
Section 11. Whenever the vote of stockholders at a meeting hereof is
required or permitted to be taken in connection with any corporate action by
any provisions of the statutes or of the certificate of incorporation, the
meeting and vote of stockholders may be dispensed with, if all the
stockholders who would have been entitled to vote upon the action if such
meeting were held, shall consent in writing to such corporate action being
taken.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the whole board
shall be not less than six nor more than thirty. The first board shall
consist of six directors. Thereafter, within the limits above specified, the
number of directors shall be determined by resolution of the board of
directors, or if they shall not have acted, by the stockholders at the annual
meeting. The directors shall be elected at the annual meeting of the
stockholders, except as provided in Section 2 of this Article, and each
director elected shall hold office until his successor is elected and
qualified. Directors need not be stockholders.
Section 2. Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, and the directors so
chosen shall hold office until the next annual election and until their
successors are duly elected and shall qualify, unless sooner displaced.
Section 3. The business of the corporation shall be managed by its board
of directors which may exercise all such powers of the corporation and do all
such lawful acts and things as are not by statute or by the certificate of
incorporation or by these by-laws directed or required to be exercised or done
by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The board of directors of the corporation may hold meetings,
both regular and special, either within or without the State of Delaware.
Section 5. The first meeting of each newly elected board of directors
shall be held at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of
the stockholders to fix the time or place of such first meeting of the newly
elected board of directors, or in the event such meeting is not held at the
time and place so fixed by the stockholders, the meeting may be held at such
time and place as shall be specified in a notice given as hereinafter provided
for special meetings of the board of directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 6. Regular meetings of the board of directors may be held without
notice at such time and at such place as shall from time to time be determined
by the board.
Section 7. Special meetings of the board may be called by the on five
days' notice to each director, either personally or by mail or by telegram;
special meetings shall be called by the president or secretary in like manner
and or like notice on the written request of two directors.
Section 8. At all meetings of the board a majority of the directors then
in office shall constitute a quorum for the transaction of business and the
act of a majority of the directors present at any meeting at which there is a
quorum shall be the act of the board of directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the board of directors the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be
present.
Section 9. Unless otherwise restricted by the certificate of incorporation
or these by-laws, any action required or permitted to be taken at any meeting
of the board of directors or of any committee thereof may be taken without a
meeting if prior to such action a written consent thereto is signed by all
members of the board or of such committee as the case may be, and such written
consent is filed with the minutes of proceedings of the board or committee.
COMMITTEES OF DIRECTORS
Section 10. The board of directors may, by resolution passed by a majority
of the whole board, designate one or more committees, each committee to
consist of two or more of the directors of the corporation, which, to the
extent provided in the resolution, shall have and may exercise the powers of
the board of directors in the management of the business and affairs of the
corporation and may authorize the seal of the corporation to be affixed to all
papers which may require it. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the board of directors.
Section 11. Each committee shall keep regular minutes of its meetings and
report the same to the board of directors when required.
COMPENSATION OF DIRECTORS
Section 12. The directors may be paid their expenses, if any, of
attendance at each meeting of the board of directors and may be paid a fixed
sum for attendance at each meeting of the board of directors or a stated
salary as director. No such payment shall preclude any director from serving
the corporation in any other capacity and receiving compensation therefor.
Members of special or standing committees may be allowed like compensation for
attending committee meetings.
ARTICLE IV
NOTICES
Section 1. Notices to directors and stockholders shall be in writing and
delivered personally or mailed to the directors or stockholders at their
addresses appearing on the books of the corporation. Notice by mail shall be
deemed to be given at the time when the same shall be mailed. Notice to
directors may also be given by telegram.
Section 2. The board of directors at its first meeting after each annual
meeting of the stockholders shall choose a chairman of the board of directors
and a president from among the directors.
Section 3. The board of directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
Section 4. The salaries of all officers and agents (other than ordinary
employees) of the corporation shall be fixed by the board of directors.
Section 5. The officers of the corporation shall hold office until their
successors are chosen and qualify. Any officer elected or appointed by the
board of directors may be removed at any time by the affirmative vote of a
majority of the board of directors.
Any vacancy occurring in any office of the corporation shall be filled by
the board of directors.
THE CHAIRMAN OF THE BOARD
Section 6. The Chairman of the Board shall be the chief executive officer
of the corporation and a member of its board of directors and of its executive
committee. He shall preside at meetings of the shareholders and directors,
shall have general management of the business of the corporation and shall see
that all orders and resolutions of the board of directors and the executive
committee are carried into effect.
THE PRESIDENT
Section 7. The president shall assume the duties and responsibilities of
the chairman of the board in his absence and shall be responsible for the
implementation of the resolutions and directions of the board of directors and
the executive committee and subject to the control and direction of the
chairman of the board and shall supervise the daily operations of the
corporation.
Section 8. He shall execute bonds, mortgages and other contracts requiring
a seal, under the seal of the corporation, except where required or permitted
by law to be otherwise signed and executed and except where the signing and
execution thereof shall be expressly delegated by the board of directors to
some other officer or agent of the corporation.
THE VICE PRESIDENTS
Section 9. The vice president, or if there shall be more than one, the
vice presidents in the order determined by the board of directors, shall in
the absence or disability of the president, perform the duties and exercise
the powers of the president and shall perform such other duties and have such
other powers as the board of directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARIES
Section 10. The secretary shall attend all meetings of the board of
directors and all meetings of the stockholders and record all the proceedings
of the meetings of the corporation and of the board of directors in a book to
be kept for that purpose and shall perform like duties for the standing
committees when required. He shall give, or cause to be given, notice of all
meetings of the stockholders and the special meetings of the board of
directors, and shall perform such other duties as may be prescribed by the
board of directors or president, under whose supervision he shall be. He
shall keep in safe custody the seal of the corporation and, when authorized by
the board of directors, affix the same to any instrument requiring it and when
so affixed, it shall be attested by his signature or by the signature of an
assistant secretary.
Section 11. The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the board of directors,
shall, in the absence or disability of the secretary, perform the duties and
exercise the powers of the secretary and shall perform such other duties and
have such other powers as the board of directors may from time to time
prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 12. The treasurer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all
monies and other valuable effects in the name and to the credit of the
corporation in such depositories as may be designated by the board of
directors.
Section 13. He shall disburse the funds of the corporation as may be
ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the president and the board of directors,
at its regular meeting or when the board of directors so requires, an account
of all his transactions as treasurer and of the financial condition of the
corporation.
Section 14. If required by the board of directors, he shall give the
corporation a bond (which shall be renewed every six years) in such sum and
with such surety or sureties as shall be satisfactory to the board of
directors for the faithful performance of the duties of his office and for the
restoration to the corporation, in case of his death, resignation, retirement
or removal from office, of all books, papers, vouchers, money and other
property of whatever kind in his possession or under his control belonging to
the corporation.
Section 15. The assistant treasurer, or if there shall be more than one,
the assistant treasurers in the order determined by the board of directors,
shall, in the absence or disability of the treasurer, perform the duties and
exercise the powers of the treasurer and shall perform such other duties and
have such other duties and have such other powers as the board of directors
may from time to time prescribe.
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Every holder of stock in the corporation shall be entitled to
have a certificate, signed by, or in the name of the corporation by, the
chairman of the board or the president, or a vice president and the treasurer
or an assistant treasurer, or the secretary or an assistant secretary of the
corporation, certifying the number of shares owned by him in the corporation.
Section 2. Where a certificate is signed (1) by a transfer agent or an
assistant transfer agent or (2) by a transfer clerk acting on behalf of the
corporation and a registrar, the signature of such president, vice president,
treasurer, assistant treasurer, secretary and assistant secretary may be
facsimile. In case any officer or officers who have signed, or whose
facsimile signature or signatures have been used on, any such certificate or
certificates shall cease to such officer or officers of the corporation,
whether because of death, resignation or otherwise, before such certificate or
certificates have been delivered by the corporation, such certificate or
certificates may nevertheless be adopted by the corporation and be issued and
delivered as though the person or persons who signed such certificate or
certificates or whose facsimile signature or signatures have been used thereon
had not ceased to be such officer or officers of the corporation.
LOST CERTIFICATES
Section 3. The board of directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost or destroyed,
upon the making of an affidavit of that fact by the person claiming the
certificate of stock to be lost or destroyed. When authorizing such issue of
a new certificate or certificates, the board of directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such list or destroyed certificate or certificates, or his legal
representative to advertise the same in such manner as it shall require and/or
to give the corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost or destroyed. From time to time the
board of directors may delegate to a transfer agent the authority and power to
accept such an affidavit and to require the deposit with it or him and to
receive such an indemnity bond for each claimed, lost or destroyed
certificate. When, and in the event such delegation of authority and power is
made by the board of directors, and the transfer agent indicates its or his
acceptance and receipt of the affidavit and the indemnity bond, duplicate
certificates may be then issued without further action or approval of the
board of directors. In lieu of a separate indemnity bond, the transfer agent
may accept a blank assumption of liability bond written by a surety
satisfactory to the transfer agent and showing the company, its transfer agent
and registrar as indemnitees.
TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
CLOSING OF TRANSFER BOOKS
Section 5. The board of directors may close the stock transfer books of
the corporation for a period not exceeding fifty days preceding the date of
any meeting of stockholders or the date for payment of any dividend or the
date for the allotment of right or the date when any change or conversion or
exchange of capital stock shall go into effect or for a period of not
exceeding fifty days in connection with obtaining the consent of stockholders
for any purpose. In lieu of closing the stock transfer books as aforesaid,
the board of directors may fix in advance a date, not exceeding fifty days
preceding the date of any meeting of stockholders, or the date for the payment
of any dividend, or the date for the allotment of rights, or the date when any
change or conversion or exchange of capital stock shall go into effect, or a
date in connection with obtaining such consent as a record date for the
determination of the stockholders entitled to notice of, and to vote at any
such meeting, and any adjournment thereof, or entitled to receive payment of
any such dividend, or to any such allotment of rights, or to exercise the
rights in respect of any such change, conversion or exchange of capital stock,
or to give such consent and in such case such stockholders and only such
stockholders as shall be stockholders of record on the date so fixed shall be
entitled to such notice of, and to vote at, such meeting and any adjournment
thereof, or to receive payment of such dividend, or to receive such allotment
of rights, or to exercise such rights, to give such consent, as the case may
be notwithstanding any transfer of any stock on the books of the corporation
after any such record date fixed as aforesaid.
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividend and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the law of
Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation, subject to
the provisions of the certificate of incorporation, if any, may be declared by
the board of directors at any regular or special meeting, pursuant to law.
Dividend may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside out of
any funds of the corporation available for dividends such sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall deem conductive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
ANNUAL STATEMENT
Section 3. The board of directors shall present at each annual meeting,
and at any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
corporation.
CHECKS
Section 4. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the board of directors from time to time designate.
FISCAL YEAR
Section 5. The fiscal year of the corporation shall be fixed by resolution
of the board of directors.
SEAL
Section 6. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the words "Corporate Seal,
Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
Section 7. The corporation shall indemnify any person who was or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
by reason of the fact that he is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation as
a director, officer, employee or agent of another company, partnership, joint
venture, trust or other enterprise against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding, to the
full extent, and under the circumstances, permitted by the General Corporation
Law of the State of Delaware. Such indemnification (unless ordered by a
court) shall be made as authorized in a specific case upon a determination
that indemnification of the director, officer, employee or agent is proper in
the circumstances because he has met the applicable standards of conduct set
forth in the General Corporation Law of the State of Delaware. Such
determination shall be made (1) by the board of directors who were not parties
to such action, suit or proceeding, or (2) if such quorum is not obtainable,
or even if obtainable a quorum of disinterested directors so directors, by
independent legal counsel in a written opinion, or (3) by the majority vote of
a quorum of the stockholders. Expenses incurred in defending a civil or
criminal action, suit or proceeding may be paid by the corporation in advance
of the final disposition of such action, suit or proceeding as authorized by
the board of directors in the manner provided in the preceding sentence upon
receipt of an undertaking by or on behalf of the director, officer, employee
or agent to repay such amount unless it shall ultimately be determined that he
is entitled to be indemnified by the corporation as authorized in this
Article. The foregoing right of indemnification shall not be deemed exclusive
of any other rights to which those seeking indemnification may be entitled
under any bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person. Notwithstanding anything to
the contrary elsewhere in this Article, any such person shall not be entitled
to indemnification hereunder if such indemnification is prohibited by any law
or regulation, including the banking laws of the United States or any state,
or regulations of federal or state banking regulatory agencies, or the
Securities Act of 1933, the Securities Exchange Act of 1934 or regulations of
the SEC. The corporation shall have the power to purchase and maintain
insurance on behalf of any such person against the liability asserted against
or incurred by such person in his/her capacity as a director, officer,
employee or agent or arising out of the agent's status as such whether or not
the corporation would have the power to indemnify such person against
liability under the indemnification provisions of these by-laws.
ARTICLE VIII
AMENDMENTS
Section 1. These by-laws may be altered or repealed at any regular meeting
of the stockholders or of the board of directors or at any special meeting of
the stockholders or of the board of directors if notice of such alteration or
repeal be contained in the notice of such special meeting. In the event the
board of directors amends the by-laws to change the time or place of the
meeting for the election of directors, written notice thereof shall be given
to each stockholder as required by all applicable law.
Ex. 10.8. Employment Agreement between FSCO and Brad D. Hardy:
Employment Agreement
THIS AGREEMENT, entered into pursuant to authority of a resolution of the
Compensation Committee on the 10th day of July, 1995, effective as of the 1st
day of July, 1995, between First Security Corporation (the "Employer"), and
Brad D. Hardy (the "Employee").
1. Employment. The Employer hereby employs the Employee, and the Employee
hereby accepts such employment, upon the terms and subject to the conditions
set forth in this Agreement.
2. Duties.
2.1 General Duties. As of the date hereof, the Employee's position with the
Employer is that of Executive Vice President and Chief Legal Counsel of First
Security Corporation. Subject to the provisions of paragraphs 6 and 7 of this
Agreement, the Employer may change the title, powers and duties of the
Employee in its sole discretion, and the Employee agrees to perform such
duties upon the terms and subject to the conditions set forth in this
Agreement.
2.2 Other Duties. Employee shall also serve, without additional compensation,
in such other offices and directorships of First Security Corporation (the
"Corporation") and its subsidiaries and related corporations ("Affiliates")
that he presently holds, or to which he in the future be elected or appointed.
Upon a termination of his employment with the Employer, the Employee shall
immediately submit a letter of resignation from all offices and directorships
with the Employer, the Corporation and its Affiliates.
3. Employment-at-will. The Employee and the Employer acknowledge and agree
that the Employee's employment with the Employer is and shall remain at all
times "employment-at-will." The Employee shall have the right to quit at any
time, and the Employer shall have the right to terminate the Employee's
employment at any time with or without cause, subject to the provisions of
paragraphs 6 and 7, below.
4. Compensation.
4.1 Base Compensation. As regular or base compensation for services rendered
to the Corporation and its Affiliates in whatever capacity rendered, the
Employer shall pay to the Employee a regular base salary (hereinafter
sometimes referred to as "regular compensation" or "regular base salary").
The parties acknowledge that, as of the date of this Agreement, the Employer
is paying to the Employee an annual regular base salary of $190,000.08,
payable semi-monthly. Such amount may be increased or decreased from time to
time in the sole and absolute discretion of the Employer, without need to
amend or modify this Agreement, subject only to the provisions of paragraphs 6
and 7, below.
4.2 Additional Compensation. The Employer, in its sole and absolute
discretion, may from time to time offer equity-based incentives or other
incentives or benefits to the Employee, which shall be in addition to such
regular compensation. The Employer may modify or terminate such incentives in
its discretion, and the Employee acknowledges that he shall have no vested
rights in any such incentives, except as expressly provided under the terms
thereof, and subject to the provisions of paragraphs 6 and 7, below.
4.3 Qualified and Non-Qualified Pension and Savings Plans. It is the intent
of the Employer that the Employee is to earn benefits under the qualified and
non-qualified pension and savings plans. Furthermore, it is the intent of the
Employer that, should the Employee terminate prior to vesting under any of
these plans, he is to receive full benefits, as if vested.
(a) The Employee shall be eligible to participate in the Executive Deferred
Compensation Plan immediately.
(b) If the Employee terminates prior to vesting in the Incentive Savings Plan
(ISP), the balance forfeited in the ISP shall be added to the Employee's
account in the Executive Deferred Compensation Plan and paid out under the
terms of that plan.
(c) When the Employee terminates or retires from First Security, the
retirement benefits shall be calculated as if the Employee commenced service
at his actual date of employment. Any resultant benefit shall be paid as a
non-qualified pension, in the same form (lump-sum or annuity) as elected under
the First Security Supplemental Executive Retirement Plan (SERP).
(d) If the Employee terminates prior to vesting in the First Security
Retirement Plan, any benefit forfeited shall be added to the Employee's SERP
benefit.
5. Term.
5.1 Initial Term. The term of this Agreement shall begin on July 1, 1995, and
shall continue for a period of three (3) years (the "Term").
5.2 Automatic Renewal. The Term of this Agreement and each renewal thereof
shall automatically be renewed for successive periods of three (3) years each,
unless either the Employee or the Employer shall give notice of his or its
intention not to renew not less than six (6) months before the end of the
then-current Term.
5.3 Extension Upon Change of Control. If a Change of Control (as defined in
paragraph 7.1, below) shall occur during the Term or any renewal thereof, the
Term shall automatically be extended for a period of three years from the date
on which such Change of Control occurs.
6. Terminations Severance Payments.
6.1 Termination. The Employee's employment by the Employer may be terminated
by the Employer at any time, and the Employee may terminate his employment
with the Employer at any time, subject to the following provisions:
(a) Termination with Cause. If the Employer terminates the Employee's
employment with the Employer at any time "with cause" (as defined below), the
Employer shall only be obligated to pay to the Employee, on or before the
effective date of such termination, the Employee's regular compensation (as in
effect on the date of termination) through the effective date of such
termination, and the amounts, if any, required by the terms of any applicable
Plan in accordance with paragraph 11 hereof. For purposes of this paragraph,
the Employer may terminate the Employee "with cause" when the Employer
reasonably determines that:
(i) the Employee intentionally, recklessly or as the result of gross
negligence substantially violates his duties under this Agreement or as
otherwise assigned to him from time to time by the Employer; or
(ii) the Employee commits any act or acts which constitute dishonesty,
commission of a felony, or fraud;
(b) Termination Without Cause Prior to Change of Control. If the Employer
terminates the Employee's employment with the Employer at any time prior to
the occurrence of a Change of Control and other than "with cause' as defined
by subparagraph 6.1 (a) above, the Employer shall only be obligated to pay to
the Employee, on or before the effective date of such termination, the
Employee's regular compensation (as in effect on the date of termination)
through the effective date of such termination, and the amounts, if any,
required by the terms of any applicable Plan in accordance with paragraph 11
hereof.
(c) Termination Without Cause After Change of Control. If the Employer
terminates the Employee's employment with the Employer at any time after the
occurrence of a Change of Control and other than "with cause" as defined by
subparagraph 6.1 (a) above, the Employer shall be obligated to pay to the
Employee on or before the effective date of such termination (1) the
Employee's regular compensation (as in effect on the date of termination)
through the effective date of such termination, and (2) "severance pay" in a
single lump sum amount, determined as follows:
(i) the Employee's "regular monthly compensation" shall be determined by
dividing by twelve (12) the greater of (A) the Employee's annual regular
compensation as in effect as of the last day of the full calendar month
immediately prior to the month in which the Change of Control occurred, and
(B) the Employee's annual regular compensation as in effect as of the last day
of the full calendar month immediately prior to the month in which the
termination occurs;
(ii) the Employee's "average monthly bonus" shall be determined by adding
together the total amount of bonus and other cash incentives received by the
Employee during each of the three (3) full calendar years immediately
preceding the year in which the termination occurs, and dividing the sum by
thirty-six.
(a) In the case where the Employee has worked less than three (3) full
calendar years, the average monthly bonus shall be determined by adding
together the total amount of bonus and other cash incentives received by the
Employee during the employment period and dividing by the number of months of
employment.
(iii) the Employee's "gross severance pay" shall be determined by adding
together the Employee's regular monthly compensation and average monthly
bonus, and multiplying the sum by the lesser of (A) thirty-six, and (B) the
number of whole calendar months remaining until the Employee's 65th birthday;
and
(a) In the case where the Employee has worked less than three (3) full
calendar years, the "gross severance pay" shall be determined by adding
together the total amount of bonus and other cash incentives received by the
Employee during the employment period and dividing by the number of months of
employment.
(iv) the net amount of severance pay which the Employer shall pay to the
Employee shall be determined by subtracting from the Employee's gross
severance pay any amounts actually paid to the Employee under the First
Security Severance Pay Plan or any successor severance plan or program
sponsored by the Employer, the Corporation or its Affiliate; provided that
such amount may be further reduced as provided in paragraph 17, below, and
shall be subject to the withholding and offset as provided in paragraph 10.
(d) Termination by the Employee Before a Change of Control. The Employee may
terminate his employment with the Employer at any time before a change of
control, in which event the Employer shall only be obligated to pay to the
Employee, on or before the effective date of such termination, the Employee's
regular compensation (as in effect on the date of such termination) through
the effective date of termination, and the amounts, if any, required by the
terms of any applicable Plan in accordance with paragraph 11 hereof.
(e) Termination by the Employee After a Change of Control. The Employee may
terminate his employment with the Employer at any time after a change of
control, in which event the Employer shall be obligated to pay to the
Employee, on or before the effective date of such termination, the Employee's
regular compensation (as in effect on the date of such termination) through
the effective date of termination, and the amounts, if any, required by the
terms of any applicable Plan in accordance with paragraph 11 hereof. In
addition if the Employee elects to terminate his employment with the Employer
due to or as a result of any "Change in Duties or Compensation" (as defined
below) from the duties and compensation that existed immediately before such
Change of Control occurred, then the Employer shall be obligated to pay to the
Employee, on or before the thirtieth (30th) day following the date upon which
the Employee gives notice of his intent to terminate his employment, the
amount specified in paragraph 6.1 (c) above.
The foregoing provisions shall not affect Employee's entitlement under any
plan sponsored by the Corporation or the Employer as set forth in paragraph 11
hereof.
6.2 Limitations Upon Obligation to Pay Severance Pay. The Employer shall not
be required to pay severance pay under paragraph 6.1 (c) or 6.1 (e), above,
if:
(a) the termination of the Employee's employment with the Employer is due to
the Employee's retirement or other severance on or after age sixty-five (65);
(b) the Employee dies while employed by the Employer; or
(c) the Employee's employment is terminated or the Employee is transferred as
a result of or in connection with a corporate reorganization, the sale of a
subsidiary, a sale of assets, a transfer of a division, reincorporation, or
any similar event, if as part of such event the Employee is employed or is
offered employment by any successor entity in the same position with no Change
in Duties or Compensation as defined by paragraph 7.3, and either such
successor has assumed, or the Employer agrees to remain liable under, this
Agreement.
7. Definitions.
7.1 Change of Control. For purposes of this Agreement, "Change of Control"
shall mean the occurrence of any of the following events:
(a) either (i) receipt by the Corporation of a report on Schedule 13D, or an
amendment to such a report, filed with the Securities and Exchange Commission
pursuant to Section 13(d) of the Securities Exchange Act of 1934 (the "1934
Act") disclosing that any person (as such term is used in Section 13(d) of the
1934 Act) ("Person"), is the beneficial owner, directly or indirectly, of
twenty (20) percent or more of the outstanding stock of the Corporation or
(ii) actual knowledge by the Corporation of facts, on the basis of which any
Person is required to file such a report on Schedule 13D, or to make an
amendment to such a report, with the SEC (or would be required to file such a
report or amendment upon the lapse of the applicable period of time specified
in Section 13(d) of the 1934 Act) disclosing that such Person is the
beneficial owner, directly or indirectly, of twenty (20) percent or more of
the outstanding stock of the Company;
(b) the purchase by any Person, other than the Corporation or a wholly-owned
subsidiary of the Corporation, of shares pursuant to a tender or exchange
offer to acquire any stock of the Corporation (or securities convertible into
stock) for cash, securities or any other consideration; provided that, after
consummation of the offer, such Person is the beneficial owner (as defined in
Rule 13d-3 under the 1934 Act), directly or indirectly, of twenty (20) percent
or more of the outstanding stock of the Corporation (calculated as provided in
paragraph (d) of Rule 13d-3 under the 1934 Act in the case of rights to
acquire stock);
(c) approval by the stockholders of the Corporation of (i) any consolidation
or merger of the Corporation in which the Corporation is not the continuing or
surviving corporation or pursuant to which shares of stock of the Corporation
would be converted into cash, securities or other property, other than a
consolidation or merger of the Corporation in which holders of its common
stock immediately prior to the consolidation or merger have substantially the
same proportionate ownership of common stock of the surviving corporation
immediately after the consolidation or merger as immediately before, or (ii)
any consolidation or merger in which the Corporation is the continuing or
surviving corporation but in which the common stockholders of the Corporation
immediately prior to the consolidation or merger do not hold at least a
majority of the outstanding common stock of the continuing or surviving
corporation (except where such holders of common stock hold at least a
majority of the common stock of the corporation which owns all of the common
stock of the Corporation), or (iii) any sale, lease, exchange or other
transfer (in one transaction or series of related transactions) of all or
substantially all the assets of the Corporation; or
(d) a change in the majority of the members of the Corporation's Board of
Directors within a 24-month period unless the election or nomination for
election by the Corporation's stockholders of each new director was approved
by the vote of at least two-thirds of the directors then still in office who
were in office at the beginning of the 24-month period.
7.2 Determination by Board of Directors. A determination of the Board of
Directors, or the Executive Committee of the Board of Directors, of the
Corporation that a Change of Control within the above definition has occurred
and its decision to activate a similar provision upon such Change of Control
under any plan or other arrangement shall be final and binding on the
Corporation and all persons interested in the Agreement.
7.3 Change in Duties or Compensation. For purposes of this Agreement, "Change
in Duties or Compensation" shall mean any one or more of the following:
(a) a significant change in the nature or scope of the Employee's authorities
or duties from those authorities or duties of the Employee immediately prior
to the date upon which a Change of Control occurs;
(b) a reduction in the Employee's regular base salary from that provided to
him immediately prior to the date upon which a Change of Control occurs;
(c) if the Employee shall be subjected to a material decrease in compensation
or benefits (other than decreases imposed equally upon all employees);
(d) if the Employer requires the Employee to change location from the
particular location at which Employee was located immediately before such
Change of Control to a location outside a 30-mile radius of such prior
location, or requires the Employee to undertake new and excessive business
travel without the Employee's prior consent; or
(e) if, as a result of a Change in Control and a change in circumstances
thereafter significantly affecting the position of the Employee, the Employee
is unable to exercise the authorities, powers, function or duties attached to
his position immediately prior to the date on which a Change of Control
occurs.
8. Obligations of the Employee. The Employee shall conscientiously and to the
best of his ability perform all duties assigned to him by the Employer (in or
with the Corporation, the Employer or any Affiliate), and shall devote his
full time and attention to the performance of such duties to the exclusion of
any other commercial duties or pursuits whatsoever. The Employee shall not
become involved in any personal investment or business which may adversely
affect the business of the Employer, the Corporation or its Affiliates.
Compliance by the Employee with the Standards for Officers and Professionals
of First Security Corporation and Affiliates, as now in effect or as amended
from time to time, shall be a condition of the Employee's continued
employment. The Employee shall affirm compliance with such Standards at least
annually, and shall make disclosures as required by such Standards.
9. Confidential Information. The Employee acknowledges and recognizes that
the Employer and its Affiliates are in the financial, investment and banking
business, which business is highly competitive, and that the Employee, in his
position, will have access to and become familiar with certain proprietary and
confidential information of the Employer, the Corporation and its Affiliates,
including without limitation customer, investment and financial data of a
highly confidential nature. The Employee hereby agrees not to use, during the
course of his employment or thereafter, any such confidential or proprietary
information or divulge such information to any person, unless the Employer
gives its consent in writing in each instance, or unless the Employee is
compelled to disclose such information by a governmental process. The
Employee further hereby agrees not to publish orally or in writing any
derogatory information tending to defame or malign or in fact defaming or
maligning the Employer, the Corporation or its Affiliates, or present or
former employees or directors of the Employer, the Corporation or its
Affiliates. The Employee also hereby agrees and warrants that under no
circumstances shall the Employee remove from the Employer's premises any
books, records, documents, customer lists, financial data, or any other
documents. The provisions of this paragraph 9 shall survive any termination
of this Agreement or of the Employee's employment with the Employer.
10. Withholding from and Offset of Severance Payments. The obligation of the
Employer to make the payments referred to in paragraphs 4 and 6 of this
Agreement shall be subject to the following:
(a) Taxes. The Employer shall withhold all applicable federal, state and
local taxes as required by relevant law and regulation then in effect,
including without limitation FICA and other taxes.
(b) Debts and Liabilities of the Employee. The Employer may withhold from or
offset against such payments any liabilities or debts of the Employee to the
Employer, the Corporation and its Affiliates, and may suspend or defer such
payments during the pendency of resolution of any claims of the Employer, the
Corporation and its Affiliates against the Employee of whatsoever nature.
11. Application to Other Plans, Etc. Except as otherwise specifically
provided in this paragraph 11, this Agreement shall not determine, govern or
effect the Employee's entitlement to (a) any payments or benefits after
severance under the First Security Management Annual Cash Incentive Bonus Plan
("MACIBP"), (b) any accrued vacation or other compensation under any other
plan, policy or arrangement provided by the Employer, the Corporation or its
Affiliates, or (c) any other employee benefit plan or arrangement. Any
benefits to which Employee may be entitled Under the First Security
Supplemental Executive Retirement Plan ("SERP"), the First Security Incentive
Savings Plan, the First Security Retirement Plan, the First Security ERISA
Excess Plan, the First Security Corporation Comprehensive Management Incentive
Plan, the First Security Deferred Compensation Plan, the First Security
Severance Pay Plan, or any other plan now or hereafter established by the
Employer, the Corporation or its Affiliates for a group of its eligible
employees shall be paid, if required by such plan, in addition to the payments
hereunder, in accordance with and limited by the terms of the respective plans
then in effect; provided that:
(a) the severance payments under this Agreement shall not cause an increase
under any pension, welfare or other plan sponsored by the Employer, the
Corporation or any Affiliate; there shall be no accrual of retirement,
vacation, or any pension and/or welfare benefits of any nature as a result of
such severance payments; and the Employee shall not be deemed employed or on a
paid leave for any purpose or for any period of time as a result of such
severance payments.
(b) The calculation of the amount of severance pay to be paid under this
Agreement shall be reduced by any severance payments that may be due under the
First Security Severance Pay Plan or any successor severance plan or program
then sponsored by the Employer, the Corporation or an Affiliate, that are
actually paid to the Employee. The Employer's right to cancel or reduce any
plan or program now or hereafter in effect shall not be reduced or affected by
the Agreement.
12. Acknowledgments and Representations. The Employee hereby represents and
acknowledges that:
(a) no promises of any special treatment or provision have been made by any
person to the Employee;
(b) nothing in this Agreement shall be construed to limit or prevent the
Employer, the Corporation or any Affiliate from reducing, discontinuing,
terminating or amending any benefit plans or programs in any manner permitted
by law.
(c) the Employee's legal counsel has reviewed this Agreement, and the Employee
has had an opportunity to consult with an attorney or other person or advisor
of his choice in connection with the execution of this Agreement.
13. No Fiduciary Relationship. Nothing contained in this Agreement and no
action taken pursuant to the provisions of this Agreement shall create or be
construed to create a trust of any kind, or a fiduciary relationship between
(a) the Employer, the Corporation or any of its Affiliates, and (b) the
Employee or any other person.
14. No Assignment of Benefits. The rights of the Employee or any other person
to the payment of compensation or other payments under this Agreement may not
be assigned, transferred, pledged, or encumbered in any manner, either
voluntarily or involuntarily. Any attempt to so transfer or otherwise dispose
of such interest shall be void.
15. Merger or Consolidation. In the event of any consolidation or merger of
the Employer into or with another corporation or entity, or the sale of all or
substantially all of the assets of the Employer to another corporation, person
or entity, such person, corporation or entity shall assume the Employer's
obligations under this Agreement and become obligated to perform all of the
terms and conditions hereof. The Employee's employment shall not be deemed to
have terminated in any such event for purposes of this Agreement.
16. No Funding. The Employer shall be under no obligation whatsoever to
purchase or maintain any contract, policy, arrangement or other asset to
provide the benefits under this Agreement. Further, any contract, policy,
arrangement, or other asset which the Employer may utilize to assure itself of
the funds to provide the benefits required hereunder shall not serve in any
way as security to the Employee for the Employer's performance under this
Agreement. The rights accruing to the Employee hereunder shall be solely
those of an unsecured creditor of the Employer.
17. Limitation on Golden Parachute Payments.
17.1 Reduction of Benefits. Any provision of the Agreement to the contrary
notwithstanding, in the event that the independent auditors most recently
selected by the Corporation's or the Employer's Board of Directors (the
"Auditors') determine that any payment or transfer by the Employer to or for
the benefit of the Employee, whether paid or payable (or transferred or
transferable) pursuant to the terms of this Agreement or otherwise (a
'Payment"), would be nondeductible by the Employer for federal income tax
purposes because of the provisions covering "excess parachute payments" in
section 280G of the Internal Revenue Code of 1986, as amended, or any
successor code or law (the "Code"), then the aggregate present value of all
payments shall be reduced (but not below zero) to the Reduced Amount. For
purposes of this paragraph 17, the "Reduced Amount" shall be the amount,
expressed as a present value, which maximizes the aggregate present value of
the Payments without causing any Payment to be nondeductible by the Employer
because of section 280G of the Code.
17.2 Notice to the Employee. If the Auditors determine that any Payment would
be nondeductible by the Employer because of section 280G of the Code, then the
Employer shall promptly give-notice of such determination to the Employee,
together with a detailed calculation thereof and of the Reduced Amount. The
Employee may then elect, in his sole discretion, which and how much of the
Payments shall be eliminated or reduced (as long as after such election the
aggregate present value of the Payments equals the Reduced Amount), and shall
advise the Employer in writing of his election within 10 days of receipt of
such notice. If no such election is made by the Employee within such 10-day
period, then the Employer may elect which and how much of the Payments shall
be eliminated or reduced (as long as after such election the aggregate present
value of the Payments equals the Reduced Amount) and shall promptly notify the
Employee of such election. For purposes of this paragraph 17, present value
shall be determined in accordance with section 280G(d)(4) of the Code. All
determinations made by the Auditors under this paragraph 15 shall be binding
upon the Employer and the Employee and shall be made within sixty (60) days of
the date a payment becomes payable or transferable.
17.3 Payment. As promptly as practicable following such determination and the
elections hereunder, the Employer shall pay or transfer to or for the benefit
of the Employee such amounts as are then due to him under the Agreement and
shall promptly pay or transfer to or for the benefit of the Employee in the
future such amounts as become due to him under the Agreement.
17.4 Overpayments and Underpayments. As a result of uncertainty in the
application of section 280G of the Code at the time of an initial
determination by the Auditors hereunder, it is possible that Payments will
have been made by the Employer which should not have been made (an
"Overpayment"), or that additional Payments which will not have been made by
the Employer could have been made (an "Underpayment"), consistent in each case
with the calculation of the Reduced Amount hereunder. In the event that the
Auditors, based upon the assertion of a deficiency by the Internal Revenue
Service against the Employer or the Employee that the Auditors believe has a
high probability of success, determine that an Overpayment has been made, such
Overpayment shall be treated for all purposes as a loan to the Employee which
he shall repay to the Employer, together with interest at the applicable
federal rate provided in section 7872(b)(2) of the Code; provided, however,
that no amount shall be payable by the Employee to the Employer if and to the
extent that such payment would not reduce the amount which is subject to
taxation under section 4999 of the Code. In the event that the Auditors
determine that an Underpayment has occurred, such Underpayment shall promptly
be paid or transferred by the Employer to or for the benefit of the Employee,
together with interest at the applicable federal rate provided in section
7872(f)(2) of the Code.
17.5 Definition of "Employer". For purposes of this paragraph 17 only, the
term "Employer" shall include affiliated corporations to the extent determined
by the Auditors in accordance with section 280G(d)(5) of the Code.
18. Arbitration. Any controversy or claim arising out of, or relating to,
this Agreement or the breach thereof, shall be settled by arbitration in
accordance with the rules then applicable of the American Arbitration
Association, and judgment upon the award rendered may be entered in any court
having jurisdiction thereof.
19. Notices. All notices, requests, consents and demands shall be given to or
made upon the parties at their respective addresses set forth below, or at
such other address as a party may designate in writing delivered to the other
party. Unless otherwise agreed in this Agreement, all notices, requests,
consents and demands shall be given or made by personal delivery, by confirmed
air courier, by telegram, by facsimile transmission ("fax"), or by certified
first class mail, return receipt requested, postage prepaid, to the party
addressed to such address. If sent by confirmed air courier, such notice
shall be deemed to be given upon the earlier to occur of the date upon which
it is actually received by the addressee or the business day upon which
delivery is made at such address as confirmed by the air courier (or if the
date of such confirmed delivery is not a business day, the next succeeding
business day). If mailed, such notice shall be deemed to be given upon the
earlier to occur of the date upon which it is actually received by the
addressee or the third business day following the date upon which it is
deposited in a first-class postage-prepaid envelope in the United States mail
addressed to such address. If given by fax, such notice shall be deemed to be
given upon the date it is actually received by the addressee. If given by
telegram, such notice shall be deemed to be given upon the earlier to occur of
the date actually received by the addressee or the business day following the
date upon which it is delivered to the telegraph company.
If to the Employer:
First Security Corporation
79 South Main Street
Salt Lake City, Utah 84111
If to the Employee:
Brad D. Hardy
940 South 2300 East
Salt Lake City, Utah 84108
20. Assignment. The Employee may be transferred from employment with the
Employer to employment with another corporation that was affiliated with the
Employer prior to the date on which a Change of Control occurs, in which case
such other corporation or affiliate shall be substituted for the Employer
hereunder, and no termination of the Employee's employment shall be deemed to
have occurred. The Employee may not assign the benefit of this Agreement or
delegate his obligations under this Agreement. Subject to the foregoing
limitation upon assignment and delegation, this Agreement shall be binding
upon and inure to the benefit of the parties and their respective legal
representatives, successors, agents, heirs and assigns.
21. Determination by the Employer. The Employee shall not make any
determinations regarding this Agreement. If the Employee is the President of
the Employer at a time that a determination is to be made by the Employer
pursuant to this Agreement, such determination shall be made by the Board of
Directors of the Employer or an authorized delegates of such Board of
Directors.
22. Governing Law. This Agreement shall be construed in accordance with, and
governed by the substantive laws of, the State of Utah, without reference to
principles governing choice or conflicts of laws.
23. Enforcement of Severance Provision. In the event that after a Change of
Control a dispute between the parties on entitlement to severance payments
under this Agreement results in litigation, the Employer shall pay after the
conclusion of such litigation such Employee's costs arising out of or in
connection with such litigation, including without limitation court costs and
reasonable attorneys' fees.
24. Captions. The captions used herein are for ease of reference only and
shall not define or limit the provisions hereof.
25. Entire Agreement. This Agreement constitutes the entire agreement between
the parties hereto with respect to the subject matter contained herein, and
there are no covenants, terms or conditions, express or implied, other than as
set forth or referred to herein. This Agreement supersedes all provisions of
any prior employment agreement between the Employee and the Employer, and all
other prior agreements between the parties hereto relating to all or part of
the subject matter herein. No party has made any representations, oral or
written, modifying or contradicting the terms of this Agreement. The parties
may not amend, modify or cancel this Agreement except as provided herein or by
a written agreement signed by all of the party to this Agreement. No promises
of any nature have been made in connection with the employment or continued
employment of the Employee other than as set forth in this Agreement, and
provided further that it is expressly agreed that the Employee shall be
entitled to only such benefits as are expressly provided by the various plans
of the Corporation and the Employer for eligible employees to the extent the
Employee qualifies for such benefits strictly in accordance with the terms and
provisions of such plans as now in effect or as modified from time to time.
IN WITNESS WHEREOF, the parties have executed this Agreement on the 24th day
of January, 1996.
THE EMPLOYER: THE EMPLOYEE:
FIRST SECURITY CORPORATION
By:
[SIGNED] [SIGNED]
____________________________________ ____________________________________
Morgan J. Evans Brad D. Hardy
Member of the Board of the Employer,
and
President of First Security Corporation
Ex. 10.9. Employment Agreement between FSCO and Mark D. Howell:
Employment Agreement
THIS AGREEMENT, entered into pursuant to authority of a resolution of the
Executive Committee on the 19th day of December, 1995, effective as of the
11th day of November, 1995, between First Security Corporation (the
"Employer"), and Mark D. Howell (the "Employee"), subject to ratification of
this contract by the Compensation Committee.
1. Employment. The Employer hereby employs the Employee, and the Employee
hereby accepts such employment, upon the terms and subject to the conditions
set forth in this Agreement.
2. Duties.
2.1 General Duties. As of the date hereof, the Employee's position with the
Employer is that of an Executive Vice President, Business Banking Services, of
First Security Corporation. Subject to the provisions of paragraphs 6 and 7
of this Agreement, the Employer may change the title, powers and duties of the
Employee in its sole discretion, and the Employee agrees to perform such
duties upon the terms and subject to the conditions set forth in this
Agreement.
2.2 Other Duties. Employee shall also serve, without additional compensation,
in such other offices and directorships of First Security Corporation (the
"Corporation") and its subsidiaries and related corporations ("Affiliates")
that he presently holds, or to which he in the future be elected or appointed.
Upon a termination of his employment with the Employer, the Employee shall
immediately submit a letter of resignation from all offices and directorships
with the Employer, the Corporation and its Affiliates.
3. Employment-at-will. The Employee and the Employer acknowledge and agree
that the Employee's employment with the Employer is and shall remain at all
times "employment-at-will." The Employee shall have the right to quit at any
time, and the Employer shall have the right to terminate the Employee's
employment at any time with or without cause, subject to the provisions of
paragraphs 6 and 7, below.
4. Compensation.
4.1 Base Compensation. As regular or base compensation for services rendered
to the Corporation and its Affiliates in whatever capacity rendered, the
Employer shall pay to the Employee a regular base salary (hereinafter
sometimes referred to as "regular compensation" or "regular base salary").
The parties acknowledge that, as of the date of this Agreement, the Employer
is paying to the Employee an annual regular base salary of $166,502, payable
semi-monthly. Such amount may be increased or decreased from time to time in
the sole and absolute discretion of the Employer, without need to amend or
modify this Agreement, subject only to the provisions of paragraphs 6 and 7,
below.
4.2 Additional Compensation. The Employer, in its sole and absolute
discretion, may from time to time offer equity-based incentives or other
incentives or benefits to the Employee, which shall be in addition to such
regular compensation. The Employer may modify or terminate such incentives in
its discretion, and the Employee acknowledges that he shall have no vested
rights in any such incentives, except as expressly provided under the terms
thereof, and subject to the provisions of paragraphs 6 and 7, below.
5. Term.
5.1 Initial Term. The term of this Agreement shall begin on November 11,
1995, and shall continue for a period of three (3) years (the "Term").
5.2 Automatic Renewal. The Term of this Agreement and each renewal thereof
shall automatically be renewed for successive periods of three (3) years each,
unless either the Employee or the Employer shall give notice of his or its
intention not to renew not less than six (6) months before the end of the
then-current Term.
5.3 Extension Upon Change of Control. If a Change of Control (as defined in
paragraph 7.1, below) shall occur during the Term or any renewal thereof, the
Term shall automatically be extended for a period of three years from the date
on which such Change of Control occurs.
6. Terminations Severance Payments.
6.1 Termination. The Employee's employment by the Employer may be terminated
by the Employer at any time, and the Employee may terminate his employment
with the Employer at any time, subject to the following provisions:
(a) Termination with Cause. If the Employer terminates the Employee's
employment with the Employer at any time "with cause" (as defined below), the
Employer shall only be obligated to pay to the Employee, on or before the
effective date of such termination, the Employee's regular compensation (as in
effect on the date of termination) through the effective date of such
termination, and the amounts, if any, required by the terms of any applicable
Plan in accordance with paragraph 11 hereof. For purposes of this paragraph,
the Employer may terminate the Employee "with cause" when the Employer
reasonably determines that:
(i) the Employee intentionally, recklessly or as the result of gross
negligence substantially violates his duties under this Agreement or as
otherwise assigned to him from time to time by the Employer; or
(ii) the Employee commits any act or acts which constitute dishonesty,
commission of a felony, or fraud;
(b) Termination Without Cause Prior to Change of Control. If the Employer
terminates the Employee's employment with the Employer at any time prior to
the occurrence of a Change of Control and other than "with cause' as defined
by subparagraph 6.1 (a) above, the Employer shall only be obligated to pay to
the Employee, on or before the effective date of such termination, the
Employee's regular compensation (as in effect on the date of termination)
through the effective date of such termination, and the amounts, if any,
required by the terms of any applicable Plan in accordance with paragraph 11
hereof.
(c) Termination Without Cause After Change of Control. If the Employer
terminates the Employee's employment with the Employer at any time after the
occurrence of a Change of Control and other than "with cause" as defined by
subparagraph 6.1 (a) above, the Employer shall be obligated to pay to the
Employee on or before the effective date of such termination (1) the
Employee's regular compensation (as in effect on the date of termination)
through the effective date of such termination, and (2) "severance pay" in a
single lump sum amount, determined as follows:
(i) the Employee's "regular monthly compensation" shall be determined by
dividing by twelve (12) the greater of (A) the Employee's annual regular
compensation as in effect as of the last day of the full calendar month
immediately prior to the month in which the Change of Control occurred, and
(B) the Employee's annual regular compensation as in effect as of the last day
of the full calendar month immediately prior to the month in which the
termination occurs;
(ii) the Employee's "average monthly bonus" shall be determined by adding
together the total amount of bonus and other cash incentives received by the
Employee during each of the three (3) full calendar years immediately
preceding the year in which the termination occurs, and dividing the sum by
thirty-six.
(a) In the case where the Employee has worked less than three (3) full
calendar years, the average monthly bonus shall be determined by adding
together the total amount of bonus and other cash incentives received by the
Employee during the employment period and dividing by the number of months of
employment.
(iii) the Employee's "gross severance pay" shall be determined by adding
together the Employee's regular monthly compensation and average monthly
bonus, and multiplying the sum by the lesser of (A) thirty-six, and (B) the
number of whole calendar months remaining until the Employee's 65th birthday;
and
(a) In the case where the Employee has worked less than three (3) full
calendar years, the "gross severance pay" shall be determined by adding
together the total amount of bonus and other cash incentives received by the
Employee during the employment period and dividing by the number of months of
employment.
(iv) the net amount of severance pay which the Employer shall pay to the
Employee shall be determined by subtracting from the Employee's gross
severance pay any amounts actually paid to the Employee under the First
Security Severance Pay Plan or any successor severance plan or program
sponsored by the Employer, the Corporation or its Affiliate; provided that
such amount may be further reduced as provided in paragraph 17, below, and
shall be subject to the withholding and offset as provided in paragraph 10.
(d) Termination by the Employee Before a Change of Control. The Employee may
terminate his employment with the Employer at any time before a change of
control, in which event the Employer shall only be obligated to pay to the
Employee, on or before the effective date of such termination, the Employee's
regular compensation (as in effect on the date of such termination) through
the effective date of termination, and the amounts, if any, required by the
terms of any applicable Plan in accordance with paragraph 11 hereof.
(e) Termination by the Employee After a Change of Control. The Employee may
terminate his employment with the Employer at any time after a change of
control, in which event the Employer shall be obligated to pay to the
Employee, on or before the effective date of such termination, the Employee's
regular compensation (as in effect on the date of such termination) through
the effective date of termination, and the amounts, if any, required by the
terms of any applicable Plan in accordance with paragraph 11 hereof. In
addition if the Employee elects to terminate his employment with the Employer
due to or as a result of any "Change in Duties or Compensation" (as defined
below) from the duties and compensation that existed immediately before such
Change of Control occurred, then the Employer shall be obligated to pay to the
Employee, on or before the thirtieth (30th) day following the date upon which
the Employee gives notice of his intent to terminate his employment, the
amount specified in paragraph 6.1 (c) above.
The foregoing provisions shall not affect Employee's entitlement under any
plan sponsored by the Corporation or the Employer as set forth in paragraph 11
hereof.
6.2 Limitations Upon Obligation to Pay Severance Pay. The Employer shall not
be required to pay severance pay under paragraph 6.1 (c) or 6.1 (e), above,
if:
(a) the termination of the Employee's employment with the Employer is due to
the Employee's retirement or other severance on or after age sixty-five (65);
(b) the Employee dies while employed by the Employer; or
(c) the Employee's employment is terminated or the Employee is transferred as
a result of or in connection with a corporate reorganization, the sale of a
subsidiary, a sale of assets, a transfer of a division, reincorporation, or
any similar event, if as part of such event the Employee is employed or is
offered employment by any successor entity in the same position with no Change
in Duties or Compensation as defined by paragraph 7.3, and either such
successor has assumed, or the Employer agrees to remain liable under, this
Agreement.
7. Definitions.
7.1 Change of Control. For purposes of this Agreement, "Change of Control"
shall mean the occurrence of any of the following events:
(a) either (i) receipt by the Corporation of a report on Schedule 13D, or an
amendment to such a report, filed with the Securities and Exchange Commission
pursuant to Section 13(d) of the Securities Exchange Act of 1934 (the "1934
Act") disclosing that any person (as such term is used in Section 13(d) of the
1934 Act) ("Person"), is the beneficial owner, directly or indirectly, of
twenty (20) percent or more of the outstanding stock of the Corporation or
(ii) actual knowledge by the Corporation of facts, on the basis of which any
Person is required to file such a report on Schedule 13D, or to make an
amendment to such a report, with the SEC (or would be required to file such a
report or amendment upon the lapse of the applicable period of time specified
in Section 13(d) of the 1934 Act) disclosing that such Person is the
beneficial owner, directly or indirectly, of twenty (20) percent or more of
the outstanding stock of the Company;
(b) the purchase by any Person, other than the Corporation or a wholly-owned
subsidiary of the Corporation, of shares pursuant to a tender or exchange
offer to acquire any stock of the Corporation (or securities convertible into
stock) for cash, securities or any other consideration; provided that, after
consummation of the offer, such Person is the beneficial owner (as defined in
Rule 13d-3 under the 1934 Act), directly or indirectly, of twenty (20) percent
or more of the outstanding stock of the Corporation (calculated as provided in
paragraph (d) of Rule 13d-3 under the 1934 Act in the case of rights to
acquire stock);
(c) approval by the stockholders of the Corporation of (i) any consolidation
or merger of the Corporation in which the Corporation is not the continuing or
surviving corporation or pursuant to which shares of stock of the Corporation
would be converted into cash, securities or other property, other than a
consolidation or merger of the Corporation in which holders of its common
stock immediately prior to the consolidation or merger have substantially the
same proportionate ownership of common stock of the surviving corporation
immediately after the consolidation or merger as immediately before, or (ii)
any consolidation or merger in which the Corporation is the continuing or
surviving corporation but in which the common stockholders of the Corporation
immediately prior to the consolidation or merger do not hold at least a
majority of the outstanding common stock of the continuing or surviving
corporation (except where such holders of common stock hold at least a
majority of the common stock of the corporation which owns all of the common
stock of the Corporation), or (iii) any sale, lease, exchange or other
transfer (in one transaction or series of related transactions) of all or
substantially all the assets of the Corporation; or
(d) a change in the majority of the members of the Corporation's Board of
Directors within a 24-month period unless the election or nomination for
election by the Corporation's stockholders of each new director was approved
by the vote of at least two-thirds of the directors then still in office who
were in office at the beginning of the 24-month period.
7.2 Determination by Board of Directors. A determination of the Board of
Directors, or the Executive Committee of the Board of Directors, of the
Corporation that a Change of Control within the above definition has occurred
and its decision to activate a similar provision upon such Change of Control
under any plan or other arrangement shall be final and binding on the
Corporation and all persons interested in the Agreement.
7.3 Change in Duties or Compensation. For purposes of this Agreement, "Change
in Duties or Compensation" shall mean any one or more of the following:
(a) a significant change in the nature or scope of the Employee's authorities
or duties from those authorities or duties of the Employee immediately prior
to the date upon which a Change of Control occurs;
(b) a reduction in the Employee's regular base salary from that provided to
him immediately prior to the date upon which a Change of Control occurs;
(c) if the Employee shall be subjected to a material decrease in compensation
or benefits (other than decreases imposed equally upon all employees);
(d) if the Employer requires the Employee to change location from the
particular location at which Employee was located immediately before such
Change of Control to a location outside a 30-mile radius of such prior
location, or requires the Employee to undertake new and excessive business
travel without the Employee's prior consent; or
(e) if, as a result of a Change in Control and a change in circumstances
thereafter significantly affecting the position of the Employee, the Employee
is unable to exercise the authorities, powers, function or duties attached to
his position immediately prior to the date on which a Change of Control
occurs.
8. Obligations of the Employee. The Employee shall conscientiously and to the
best of his ability perform all duties assigned to him by the Employer (in or
with the Corporation, the Employer or any Affiliate), and shall devote his
full time and attention to the performance of such duties to the exclusion of
any other commercial duties or pursuits whatsoever. The Employee shall not
become involved in any personal investment or business which may adversely
affect the business of the Employer, the Corporation or its Affiliates.
Compliance by the Employee with the Standards for Officers and Professionals
of First Security Corporation and Affiliates, as now in effect or as amended
from time to time, shall be a condition of the Employee's continued
employment. The Employee shall affirm compliance with such Standards at least
annually, and shall make disclosures as required by such Standards.
9. Confidential Information. The Employee acknowledges and recognizes that
the Employer and its Affiliates are in the financial, investment and banking
business, which business is highly competitive, and that the Employee, in his
position, will have access to and become familiar with certain proprietary and
confidential information of the Employer, the Corporation and its Affiliates,
including without limitation customer, investment and financial data of a
highly confidential nature. The Employee hereby agrees not to use, during the
course of his employment or thereafter, any such confidential or proprietary
information or divulge such information to any person, unless the Employer
gives its consent in writing in each instance, or unless the Employee is
compelled to disclose such information by a governmental process. The
Employee further hereby agrees not to publish orally or in writing any
derogatory information tending to defame or malign or in fact defaming or
maligning the Employer, the Corporation or its Affiliates, or present or
former employees or directors of the Employer, the Corporation or its
Affiliates. The Employee also hereby agrees and warrants that under no
circumstances shall the Employee remove from the Employer's premises any
books, records, documents, customer lists, financial data, or any other
documents. The provisions of this paragraph 9 shall survive any termination
of this Agreement or of the Employee's employment with the Employer.
10. Withholding from and Offset of Severance Payments. The obligation of the
Employer to make the payments referred to in paragraphs 4 and 6 of this
Agreement shall be subject to the following:
(a) Taxes. The Employer shall withhold all applicable federal, state and
local taxes as required by relevant law and regulation then in effect,
including without limitation FICA and other taxes.
(b) Debts and Liabilities of the Employee. The Employer may withhold from or
offset against such payments any liabilities or debts of the Employee to the
Employer, the Corporation and its Affiliates, and may suspend or defer such
payments during the pendency of resolution of any claims of the Employer, the
Corporation and its Affiliates against the Employee of whatsoever nature.
11. Application to Other Plans, Etc. Except as otherwise specifically
provided in this paragraph 11, this Agreement shall not determine, govern or
effect the Employee's entitlement to (a) any payments or benefits after
severance under the First Security Management Annual Cash Incentive Bonus Plan
("MACIBP"), (b) any accrued vacation or other compensation under any other
plan, policy or arrangement provided by the Employer, the Corporation or its
Affiliates, or (c) any other employee benefit plan or arrangement. Any
benefits to which Employee may be entitled Under the First Security
Supplemental Executive Retirement Plan ("SERP"), the First Security Incentive
Savings Plan, the First Security Retirement Plan, the First Security ERISA
Excess Plan, the First Security Corporation Comprehensive Management Incentive
Plan, the First Security Deferred Compensation Plan, the First Security
Severance Pay Plan, or any other plan now or hereafter established by the
Employer, the Corporation or its Affiliates for a group of its eligible
employees shall be paid, if required by such plan, in addition to the payments
hereunder, in accordance with and limited by the terms of the respective plans
then in effect; provided that:
(a) the severance payments under this Agreement shall not cause an increase
under any pension, welfare or other plan sponsored by the Employer, the
Corporation or any Affiliate; there shall be no accrual of retirement,
vacation, or any pension and/or welfare benefits of any nature as a result of
such severance payments; and the Employee shall not be deemed employed or on a
paid leave for any purpose or for any period of time as a result of such
severance payments.
(b) The calculation of the amount of severance pay to be paid under this
Agreement shall be reduced by any severance payments that may be due under the
First Security Severance Pay Plan or any successor severance plan or program
then sponsored by the Employer, the Corporation or an Affiliate, that are
actually paid to the Employee. The Employer's right to cancel or reduce any
plan or program now or hereafter in effect shall not be reduced or affected by
the Agreement.
12. Acknowledgments and Representations. The Employee hereby represents and
acknowledges that:
(a) no promises of any special treatment or provision have been made by any
person to the Employee;
(b) nothing in this Agreement shall be construed to limit or prevent the
Employer, the Corporation or any Affiliate from reducing, discontinuing,
terminating or amending any benefit plans or programs in any manner permitted
by law.
(c) the Employee's legal counsel has reviewed this Agreement, and the
Employee has had an opportunity to consult with an attorney or other person or
advisor of his choice in connection with the execution of this Agreement.
13. No Fiduciary Relationship. Nothing contained in this Agreement and no
action taken pursuant to the provisions of this Agreement shall create or be
construed to create a trust of any kind, or a fiduciary relationship between
(a) the Employer, the Corporation or any of its Affiliates, and (b) the
Employee or any other person.
14. No Assignment of Benefits. The rights of the Employee or any other person
to the payment of compensation or other payments under this Agreement may not
be assigned, transferred, pledged, or encumbered in any manner, either
voluntarily or involuntarily. Any attempt to so transfer or otherwise dispose
of such interest shall be void.
15. Merger or Consolidation. In the event of any consolidation or merger of
the Employer into or with another corporation or entity, or the sale of all or
substantially all of the assets of the Employer to another corporation, person
or entity, such person, corporation or entity shall assume the Employer's
obligations under this Agreement and become obligated to perform all of the
terms and conditions hereof. The Employee's employment shall not be deemed to
have terminated in any such event for purposes of this Agreement.
16. No Funding. The Employer shall be under no obligation whatsoever to
purchase or maintain any contract, policy, arrangement or other asset to
provide the benefits under this Agreement. Further, any contract, policy,
arrangement, or other asset which the Employer may utilize to assure itself of
the funds to provide the benefits required hereunder shall not serve in any
way as security to the Employee for the Employer's performance under this
Agreement. The rights accruing to the Employee hereunder shall be solely
those of an unsecured creditor of the Employer.
17. Limitation on Golden Parachute Payments.
17.1 Reduction of Benefits. Any provision of the Agreement to the contrary
notwithstanding, in the event that the independent auditors most recently
selected by the Corporation's or the Employer's Board of Directors (the
"Auditors') determine that any payment or transfer by the Employer to or for
the benefit of the Employee, whether paid or payable (or transferred or
transferable) pursuant to the terms of this Agreement or otherwise (a
'Payment"), would be nondeductible by the Employer for federal income tax
purposes because of the provisions covering "excess parachute payments" in
section 280G of the Internal Revenue Code of 1986, as amended, or any
successor code or law (the "Code"), then the aggregate present value of all
payments shall be reduced (but not below zero) to the Reduced Amount. For
purposes of this paragraph 17, the "Reduced Amount" shall be the amount,
expressed as a present value, which maximizes the aggregate present value of
the Payments without causing any Payment to be nondeductible by the Employer
because of section 280G of the Code.
17.2 Notice to the Employee. If the Auditors determine that any Payment would
be nondeductible by the Employer because of section 280G of the Code, then the
Employer shall promptly give-notice of such determination to the Employee,
together with a detailed calculation thereof and of the Reduced Amount. The
Employee may then elect, in his sole discretion, which and how much of the
Payments shall be eliminated or reduced (as long as after such election the
aggregate present value of the Payments equals the Reduced Amount), and shall
advise the Employer in writing of his election within 10 days of receipt of
such notice. If no such election is made by the Employee within such 10-day
period, then the Employer may elect which and how much of the Payments shall
be eliminated or reduced (as long as after such election the aggregate present
value of the Payments equals the Reduced Amount) and shall promptly notify the
Employee of such election. For purposes of this paragraph 17, present value
shall be determined in accordance with section 280G(d)(4) of the Code. All
determinations made by the Auditors under this paragraph 15 shall be binding
upon the Employer and the Employee and shall be made within sixty (60) days of
the date a payment becomes payable or transferable.
17.3 Payment. As promptly as practicable following such determination and the
elections hereunder, the Employer shall pay or transfer to or for the benefit
of the Employee such amounts as are then due to him under the Agreement and
shall promptly pay or transfer to or for the benefit of the Employee in the
future such amounts as become due to him under the Agreement.
17.4 Overpayments and Underpayments. As a result of uncertainty in the
application of section 280G of the Code at the time of an initial
determination by the Auditors hereunder, it is possible that Payments will
have been made by the Employer which should not have been made (an
"Overpayment"), or that additional Payments which will not have been made by
the Employer could have been made (an "Underpayment"), consistent in each case
with the calculation of the Reduced Amount hereunder. In the event that the
Auditors, based upon the assertion of a deficiency by the Internal Revenue
Service against the Employer or the Employee that the Auditors believe has a
high probability of success, determine that an Overpayment has been made, such
Overpayment shall be treated for all purposes as a loan to the Employee which
he shall repay to the Employer, together with interest at the applicable
federal rate provided in section 7872(b)(2) of the Code; provided, however,
that no amount shall be payable by the Employee to the Employer if and to the
extent that such payment would not reduce the amount which is subject to
taxation under section 4999 of the Code. In the event that the Auditors
determine that an Underpayment has occurred, such Underpayment shall promptly
be paid or transferred by the Employer to or for the benefit of the Employee,
together with interest at the applicable federal rate provided in section
7872(f)(2) of the Code.
17.5 Definition of "Employer". For purposes of this paragraph 17 only, the
term "Employer" shall include affiliated corporations to the extent determined
by the Auditors in accordance with section 280G(d)(5) of the Code.
18. Arbitration. Any controversy or claim arising out of, or relating to,
this Agreement or the breach thereof, shall be settled by arbitration in
accordance with the rules then applicable of the American Arbitration
Association, and judgment upon the award rendered may be entered in any court
having jurisdiction thereof.
19. Notices. All notices, requests, consents and demands shall be given to or
made upon the parties at their respective addresses set forth below, or at
such other address as a party may designate in writing delivered to the other
party. Unless otherwise agreed in this Agreement, all notices, requests,
consents and demands shall be given or made by personal delivery, by confirmed
air courier, by telegram, by facsimile transmission ("fax'), or by certified
first class mail, return receipt requested, postage prepaid, to the party
addressed to such address. If sent by confirmed air courier, such notice
shall be deemed to be given upon the earlier to occur of the date upon which
it is actually received by the addressee or the business day upon which
delivery is made at such address as confirmed by the air courier (or if the
date of such confirmed delivery is not a business day, the next succeeding
business day). If mailed, such notice shall be deemed to be given upon the
earlier to occur of the date upon which it is actually received by the
addressee or the third business day following the date upon which it is
deposited in a first-class postage-prepaid envelope in the United States mail
addressed to such address. If given by fax, such notice shall be deemed to be
given upon the date it is actually received by the addressee. If given by
telegram, such notice shall be deemed to be given upon the earlier to occur of
the date actually received by the addressee or the business day following the
date upon which it is delivered to the telegraph company.
If to the Employer:
First Security Corporation
79 South Main Street
Salt Lake City, Utah 84111
If to the Employee:
Mark D. Howell
1220 East Walden Lane
Draper, Utah 84020
20. Assignment. The Employee may be transferred from employment with the
Employer to employment with another corporation that was affiliated with the
Employer prior to the date on which a Change of Control occurs, in which case
such other corporation or affiliate shall be substituted for the Employer
hereunder, and no termination of the Employee's employment shall be deemed to
have occurred. The Employee may not assign the benefit of this Agreement or
delegate his obligations under this Agreement. Subject to the foregoing
limitation upon assignment and delegation, this Agreement shall be binding
upon and inure to the benefit of the parties and their respective legal
representatives, successors, agents, heirs and assigns.
21. Determination by the Employer. The Employee shall not make any
determinations regarding this Agreement. If the Employee is the President of
the Employer at a time that a determination is to be made by the Employer
pursuant to this Agreement, such determination shall be made by the Board of
Directors of the Employer or an authorized delegates of such Board of
Directors.
22. Governing Law. This Agreement shall be construed in accordance with, and
governed by the substantive laws of, the State of Utah, without reference to
principles governing choice or conflicts of laws.
23. Enforcement of Severance Provision. In the event that after a Change of
Control a dispute between the parties on entitlement to severance payments
under this Agreement results in litigation, the Employer shall pay after the
conclusion of such litigation such Employee's costs arising out of or in
connection with such litigation, including without limitation court costs and
reasonable attorneys' fees.
24. Captions. The captions used herein are for ease of reference only and
shall not define or limit the provisions hereof.
25. Entire Agreement. This Agreement constitutes the entire agreement between
the parties hereto with respect to the subject matter contained herein, and
there are no covenants, terms or conditions, express or implied, other than as
set forth or referred to herein. This Agreement supersedes all provisions of
any prior employment agreement between the Employee and the Employer, and all
other prior agreements between the parties hereto relating to all or part of
the subject matter herein. No party has made any representations, oral or
written, modifying or contradicting the terms of this Agreement. The parties
may not amend, modify or cancel this Agreement except as provided herein or by
a written agreement signed by all of the party to this Agreement. No promises
of any nature have been made in connection with the employment or continued
employment of the Employee other than as set forth in this Agreement, and
provided further that it is expressly agreed that the Employee shall be
entitled to only such benefits as are expressly provided by the various plans
of the Corporation and the Employer for eligible employees to the extent the
Employee qualifies for such benefits strictly in accordance with the terms and
provisions of such plans as now in effect or as modified from time to time.
IN WITNESS WHEREOF, the parties have executed this Agreement on the 7th day of
February, 1996.
THE EMPLOYER: THE EMPLOYEE:
FIRST SECURITY CORPORATION
By:
[SIGNED] [SIGNED]
____________________________________ ____________________________________
Morgan J. Evans Mark D. Howell
Member of the Board of the Employer,
and
President of First Security Corporation
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 12 Months
For the Periods Ended December 31, 1995 and 1994 1995 1994 1995 1994
<S> <C> <C> <C> <C>
- ----------------------------------------------------------- ---------- ---------- ---------- ----------
Net Income:
Net income per condensed consolidated income statements .... 8,829 34,968 120,005 140,134
Deduct dividend requirement of preferred stock ............. 8 9 35 39
- ----------------------------------------------------------- ---------- ---------- ---------- ----------
NET INCOME APPLICABLE TO COMMON STOCK (PRIMARY) 8,821 34,959 119,970 140,095
Add dividend requirement of preferred stock ................ 8 9 35 39
- ----------------------------------------------------------- ---------- ---------- ---------- ----------
NET INCOME FULLY DILUTED 8,829 34,968 120,005 140,134
=========================================================== ========== ========== ========== ==========
Earnings Per Common Share:
EARNINGS PER COMMON SHARE: PRIMARY 0.11 0.46 1.57 1.87
EARNINGS PER COMMON SHARE: FULLY DILUTED 0.11 0.46 1.57 1.87
=========================================================== ========== ========== ========== ==========
Average Common Shares Outstanding:
Common stock ............................................... 75,701 74,886 75,504 74,250
Common stock equivalents (options) ......................... 1,796 1,193 1,380 1,457
Treasury shares ............................................ (614) (567) (565) (816)
- ----------------------------------------------------------- ---------- ---------- ---------- ----------
COMMON STOCK SHARES OUTSTANDING: AVERAGE PRIMARY 76,883 75,512 76,319 74,891
Preferred stock: average common equivalents ................ 204 225 208 235
- ----------------------------------------------------------- ---------- ---------- ---------- ----------
COMMON STOCK SHARES OUTSTANDING: AVERAGE FULLY DILUTED 77,087 75,737 76,527 75,126
=========================================================== ========== ========== ========== ==========
<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 12.15 shares of common for each share
of preferred, with the elimination of dividends on the preferred stock. Common stock equivalents are
common stock options outstanding accounted for on the treasury stock method for purposes of these
computations.
</TABLE>
<TABLE>
EXHIBIT 21. Subsidiaries
FIRST SECURITY CORPORATION
For the year ended December 31, 1995
<CAPTION>
Organized Percentage of
Under Laws Voting Securities
Name of Subsidiary (A) of Owned by FSC
- ----------------------------------------------------------------------- -------------------------------
<S> <C> <C>
First Security Bank of Utah, National Association U.S.A. 99.9
2nd Tier Subsidiary: CrossLand Mortgage Acquisition Corp. Utah 100.0
3rd Tier Subsidiary: CrossLand Mortgage Corp. Utah 100.0
2nd Tier Subsidiary: Foreign Exchange Limited (B) California 100.0
First Security Bank of Idaho, National Association U.S.A. 100.0
First Security Bank of New Mexico, National Association U.S.A. 100.0
First Security Bank of Oregon Oregon 100.0
First Security Bank of Nevada Nevada 100.0
2nd Tier Subsidiary: First Security Trust Company of Nevada Nevada 100.0
2nd Tier Subsidiary: First Security Services of Nevada, Inc. Nevada 100.0
First Security Bank of Wyoming Wyoming 99.9
First Security Leasing Company Utah 100.0
2nd Tier Subsidiary: First Security Leasing Company of Nevada Nevada 100.0
First Security Processing Services, Inc. Utah 100.0
First Security Insurance, Inc. Utah 100.0
2nd Tier Subsidiary: First Security Insurance of Idaho, Inc. Idaho 100.0
2nd Tier Subsidiary: Intermountain Insurance Agency, Inc. (Inactive) Oregon 100.0
2nd Tier Subsidiary: First Security Insurance of Oregon Inc. Oregon 100.0
First Security Life Insurance Company of Arizona Arizona 100.0
First Security Investment Services, Inc. Utah 100.0
2nd Tier Subsidiary: First Security Investor Services Utah 100.0
3rd Tier Subsid.: First Security Investor Services of Wyoming, Inc. Wyoming 100.0
2nd Tier Subsidiary: First Security Investment Management, Inc. Utah 100.0
First Security Business Investment Corporation Utah 100.0
First Security Service Company Utah 100.0
First Security Information Technology, Inc. Utah 100.0
First Security Mortgage Company Utah 100.0
2nd Tier Subsidiary: Asset Recovery, Inc. (Inactive) Utah 100.0
<FN>
(A) All subsidiaries are included in consolidated financial statements.
(B) Foreign Exchange Limited was sold on February 9, 1996.
</TABLE>
Ex. 23.1. Consent of Independent Certified Public Accountants:
Deloitte & Touche LLP.
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No. 33-
52609 on Form S-3, in Pre-Effective Amendment No. 1 to Registration Statement
No. 33-52205 on Form S-3, in Post-Effective Amendment No. 1 to Registration
Statement No. 2-62919 on Form S-3, in Registration Statement Nos. 33-9501, 33-
21556, and 33-57107 on Form S-8 of First Security Corporation of our report
dated February 22, 1996, appearing in this Annual Report on Form 10-K of First
Security Corporation for the year ended December 31, 1995.
[SIGNED]
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
March 25, 1996
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