<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
Commission File Number 1-6906
FIRST SECURITY CORPORATION
(Exact name of registrant as specified in its charter)
State of incorporation Delaware
I.R.S. Employer Identification No. 87-6118148
Address of principal executive offices 79 South Main, P.O. Box 30006
Salt Lake City, Utah
Zip Code 84130-0006
Registrant's telephone number, including area code (801) 246-5706
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No
As of July 31, 1996, outstanding shares of Common Stock, par value $1.25, were
75,505,000 (net of 596,000 treasury shares).
FIRST SECURITY CORPORATION - INDEX
Part I. Financial Information
Item 1. Financial Statements:
Consolidated Income Statements
Three Months and Year-To-Date Six Months Ended
June 30, 1996 and 1995
Consolidated Balance Sheets
June 30, 1996, December 31, 1995, and June 30, 1995
Condensed Consolidated Statements of Cash Flows
Year-To-Date Six Months Ended
June 30, 1996 and 1995
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations:
Analysis of Results of Operations
Summary
Net Interest Income and Margin
Provision For Loan Losses
Noninterest Income
Noninterest Expenses
Analysis of Financial Condition
Summary
Interest-Earning Assets and Asset Quality
Securities
Loans
Problem Assets and Potential Problem Assets
Reserve For Loan Losses
Provision For Loan Losses
Asset / Liability Management
Liquidity
Interest Rate Risk
Stockholders' Equity and Capital Adequacy
Common Stock
Mergers And Acquisitions
Project VISION
National and Regional Economy
Supplemental Tables:
Financial Highlights, Risk-Based Capital Ratios
Rate / Volume Analysis
Loans
Part II. Other Information
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
Exhibit 11. Computation of Earnings Per Share
Exhibit 27. Financial Data Schedule
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
FIRST SECURITY CORPORATION
CONSOLIDATED INCOME STATEMENTS
(in thousands, except per share data; unaudited)
<CAPTION>
Three Months Year-To-Date Six Months
For the Periods Ended June 30, 1996 and 1995 1996 1995 $Chg %Chg 1996 1995 $Chg %Chg
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- - ------------------------------------------------------- --------- --------- --------- ------- --------- --------- --------- -------
Interest Income:
Interest & fees on loans ............................... 193,035 191,075 1,960 1.0 378,707 369,537 9,170 2.5
Federal funds sold & securities purchased .............. 1,070 1,869 (799) (42.8) 2,903 2,807 96 3.4
Interest-bearing deposits in other banks ............... 147 12 135 1125.0 344 30 314 1046.7
Trading account securities ............................. 2,010 5,317 (3,307) (62.2) 6,548 13,452 (6,904) (51.3)
Securities available for sale .......................... 43,161 31,221 11,940 38.2 84,033 60,482 23,551 38.9
Securities held to maturity ............................ 0 3,574 (3,574) (100.0) 0 7,310 (7,310) (100.0)
- - ------------------------------------------------------- --------- --------- --------- ------- --------- --------- --------- -------
Total Interest Income 239,423 233,068 6,355 2.7 472,535 453,618 18,917 4.2
- - ------------------------------------------------------- --------- --------- --------- ------- --------- --------- --------- -------
Interest Expense:
Deposits ............................................... 76,809 76,535 274 0.4 154,293 142,523 11,770 8.3
Short-term borrowings .................................. 24,573 25,853 (1,280) (5.0) 48,922 59,231 (10,309) (17.4)
Long-term debt ......................................... 12,141 12,078 63 0.5 23,644 24,200 (556) (2.3)
- - ------------------------------------------------------- --------- --------- --------- ------- --------- --------- --------- -------
Total Interest Expense 113,523 114,466 (943) (0.8) 226,859 225,954 905 0.4
- - ------------------------------------------------------- --------- --------- --------- ------- --------- --------- --------- -------
Net Interest Income 125,900 118,602 7,298 6.2 245,676 227,664 18,012 7.9
Provision for loan losses .............................. 10,505 3,742 6,763 180.7 19,243 6,590 12,653 192.0
- - ------------------------------------------------------- --------- --------- --------- ------- --------- --------- --------- -------
Net Interest Income After Provision For Loan Losses 115,395 114,860 535 0.5 226,433 221,074 5,359 2.4
- - ------------------------------------------------------- --------- --------- --------- ------- --------- --------- --------- -------
Noninterest Income:
Service charges on deposit accounts .................... 19,628 16,790 2,838 16.9 37,067 33,157 3,910 11.8
Other service charges, collections, commissions, & fees 12,408 8,645 3,763 43.5 23,138 16,062 7,076 44.1
Bankcard servicing fees & third-party processing fees .. 7,277 5,998 1,279 21.3 13,774 11,980 1,794 15.0
Insurance commissions & fees ........................... 3,806 3,466 340 9.8 7,290 7,161 129 1.8
Mortgage banking activities, net ....................... 23,701 16,494 7,207 43.7 42,605 33,714 8,891 26.4
Trust (fiduciary) commissions & fees ................... 6,027 5,192 835 16.1 11,206 10,222 984 9.6
Trading account securities gains (losses) .............. 751 (377) 1,128 299.2 1,563 5,296 (3,733) (70.5)
Securities gains (losses) .............................. 764 29 735 2534.5 764 932 (168) (18.0)
Other .................................................. 1,352 5,608 (4,256) (75.9) 4,868 11,380 (6,512) (57.2)
- - ------------------------------------------------------- --------- --------- --------- ------- --------- --------- --------- -------
Total Noninterest Income 75,714 61,845 13,869 22.4 142,275 129,904 12,371 9.5
- - ------------------------------------------------------- --------- --------- --------- ------- --------- --------- --------- -------
Total Income 191,109 176,705 14,404 8.2 368,708 350,978 17,730 5.1
- - ------------------------------------------------------- --------- --------- --------- ------- --------- --------- --------- -------
Noninterest Expenses:
Salaries & employee benefits ........................... 63,889 63,624 265 0.4 131,918 125,812 6,106 4.9
Advertising ............................................ 3,245 1,937 1,308 67.5 4,745 4,014 731 18.2
Amortization of intangibles ............................ 2,066 2,249 (183) (8.1) 4,027 4,487 (460) (10.3)
Bankcard interbank interchange ......................... 6,100 4,103 1,997 48.7 10,517 8,574 1,943 22.7
Furniture & equipment .................................. 10,170 8,011 2,159 27.0 18,869 17,234 1,635 9.5
Insurance .............................................. 1,678 6,070 (4,392) (72.4) 3,442 12,058 (8,616) (71.5)
Occupancy, net ......................................... 7,165 6,911 254 3.7 14,512 13,940 572 4.1
Other real estate expense & loss provision (recovery) .. (33) (522) 489 93.7 (268) (1,021) 753 73.8
Postage ................................................ 2,881 2,837 44 1.6 6,298 5,683 615 10.8
Stationery & supplies .................................. 4,628 4,380 248 5.7 9,369 8,450 919 10.9
Telephone .............................................. 3,506 3,253 253 7.8 6,648 6,353 295 4.6
Other .................................................. 19,291 16,076 3,215 20.0 35,361 31,263 4,098 13.1
- - ------------------------------------------------------- --------- --------- --------- ------- --------- --------- --------- -------
Total Noninterest Expenses 124,586 118,929 5,657 4.8 245,438 236,847 8,591 3.6
- - ------------------------------------------------------- --------- --------- --------- ------- --------- --------- --------- -------
Income Before Provision For Income Taxes 66,523 57,776 8,747 15.1 123,270 114,131 9,139 8.0
- - ------------------------------------------------------- --------- --------- --------- ------- --------- --------- --------- -------
Provision For Income Taxes:
Operating earnings ..................................... 23,315 21,533 1,782 8.3 43,772 41,953 1,819 4.3
Securities gains (losses) .............................. 280 10 270 2700.0 280 345 (65) (18.8)
- - ------------------------------------------------------- --------- --------- --------- ------- --------- --------- --------- -------
Total Provision For Income Taxes 23,595 21,543 2,052 9.5 44,052 42,298 1,754 4.1
- - ------------------------------------------------------- --------- --------- --------- ------- --------- --------- --------- -------
NET INCOME 42,928 36,233 6,695 18.5 79,218 71,833 7,385 10.3
======================================================= ========= ========= ========= ======= ========= ========= ========= =======
Preferred stock dividend requirement ................... 8 9 (1) (11.1) 16 18 (2) (11.1)
- - ------------------------------------------------------- --------- --------- --------- ------- --------- --------- --------- -------
Net Income Applicable To Common Stock 42,920 36,224 6,696 18.5 79,202 71,815 7,387 10.3
======================================================= ========= ========= ========= ======= ========= ========= ========= =======
Common stock dividend .................................. 16,021 13,976 2,045 14.6 31,995 27,957 4,038 14.4
======================================================= ========= ========= ========= ======= ========= ========= ========= =======
EARNINGS PER COMMON SHARE:
Earnings per common share: primary ..................... 0.56 0.48 0.08 16.7 1.03 0.95 0.08 8.4
Earnings per common share: fully diluted ............... 0.55 0.48 0.07 14.6 1.02 0.95 0.07 7.4
Common shares outstanding: primary [Avg] ............... 77,216 76,065 1,151 1.5 77,190 75,958 1,232 1.6
Common shares outstanding: fully diluted [Avg] ......... 77,409 76,274 1,135 1.5 77,385 76,169 1,216 1.6
======================================================= ========= ========= ========= ======= ========= ========= ========= =======
CASH DIVIDENDS PAID OR ACCRUED PER SHARE:
Preferred Stock ($3.15 annual rate) .................... 0.79 0.79 1.58 1.58
Common stock ........................................... 0.21 0.19 0.02 10.5 0.42 0.38 0.04 10.5
======================================================= ========= ========= ========= ======= ========= ========= ========= =======
<FN>
Notes:
* See "Notes to Condensed Consolidated Financial Statements".
(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>
<TABLE>
FIRST SECURITY CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands; unaudited)
<CAPTION>
Jun. 30 Dec. 31 Jun. 30 Jun/Jun Jun/Jun
1996 1995 1995 $ Chg % Chg
<S> <C> <C> <C> <C> <C>
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
ASSETS:
Cash & due from banks ...................................................... 781,634 818,664 665,066 116,568 17.5
Federal funds sold & securities purchased under resale agreements .......... 86,029 148,069 118,158 (32,129) (27.2)
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Total Cash & Cash Equivalents 867,663 966,733 783,224 84,439 10.8
Interest-bearing deposits in other banks ................................... 6,266 21,563 1,116 5,150 461.5
Trading account securities ................................................. 150,529 638,393 477,560 (327,031) (68.5)
Securities available for sale, at fair value ............................... 2,715,770 2,623,557 2,086,509 629,261 30.2
(Amortized Cost: $2,735,773; $2,599,943; $2,090,829; respectively)
Securities held to maturity, at cost ....................................... 0 0 251,982 (251,982) (100.0)
(Fair value: $0; $0; $254,967 respectively)
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Loans, net of unearned income .............................................. 8,716,400 8,315,095 8,356,657 359,743 4.3
(Unearned income: $45,357; $16,250; $6,030; respectively)
Reserve for loan losses .................................................... (133,678) (129,982) (130,388) (3,290) 2.5
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Total Loans, Net 8,582,722 8,185,113 8,226,269 356,453 4.3
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Premises & equipment, net .................................................. 221,165 209,138 200,670 20,495 10.2
Accrued income receivable .................................................. 81,071 82,143 81,833 (762) (0.9)
Other real estate & other foreclosed assets ................................ 5,663 4,134 4,340 1,323 30.5
Other assets ............................................................... 248,167 155,014 167,307 80,860 48.3
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Goodwill ................................................................... 92,821 94,660 103,648 (10,827) (10.4)
Mortgage servicing rights .................................................. 62,518 52,604 39,181 23,337 59.6
Other intangible assets .................................................... 2,243 1,555 2,540 (297) (11.7)
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Total Intangible Assets .................................................. 157,582 148,819 145,369 12,213 8.4
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
TOTAL ASSETS 13,036,598 13,034,607 12,426,179 610,419 4.9
=========================================================================== =========== =========== =========== =========== =======
LIABILITIES:
Deposits: noninterest-bearing .............................................. 1,857,593 1,884,931 1,748,031 109,562 6.3
Deposits: interest-bearing ................................................. 7,027,120 6,888,711 6,843,356 183,764 2.7
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Total Deposits 8,884,713 8,773,642 8,591,387 293,326 3.4
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Federal funds purchased & securities sold under repurchase agreements ...... 1,796,266 1,937,456 1,732,140 64,126 3.7
U.S. Treasury demand notes ................................................. 34,321 33,897 32,959 1,362 4.1
Other short-term borrowings ................................................ 218,487 227,336 154,994 63,493 41.0
Accrued income taxes ....................................................... 145,269 131,510 124,425 20,844 16.8
Accrued interest payable ................................................... 45,136 48,737 34,134 11,002 32.2
Other liabilities .......................................................... 133,833 130,936 98,790 35,043 35.5
Long-term debt ............................................................. 723,728 720,521 666,858 56,870 8.5
Minority equity in subsidiaries ............................................ 319 309 298 21 7.0
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
TOTAL LIABILITIES 11,982,072 12,004,344 11,435,985 546,087 4.8
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
STOCKHOLDERS' EQUITY:
Preferred stock: Series "A" $3.15 cumulative convertible ................... 553 571 594 (41) (6.9)
(Shares issued: 11; 11; 11; respectively)
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Common Stockholders' Equity:
Common stock: par value $1.25 ............................................. 95,093 94,674 94,401 692 0.7
(Shares issued: 76,074; 75,740; 75,486; respectively)
Paid-in surplus ............................................................ 124,396 120,084 117,068 7,328 6.3
Retained earnings .......................................................... 857,665 810,458 790,313 67,352 8.5
Net unrealized gain (loss) on securities available for sale (net of taxes) . (12,638) 14,547 (2,884) (9,754) 338.2
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Subtotal 1,064,516 1,039,763 998,898 65,618 6.6
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Common treasury stock, at cost ............................................. (10,543) (10,071) (9,298) (1,245) 13.4
(Shares: 608; 607; 574; respectively)
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Total Common Stockholders' Equity 1,053,973 1,029,692 989,600 64,373 6.5
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
TOTAL STOCKHOLDERS' EQUITY 1,054,526 1,030,263 990,194 64,332 6.5
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY 13,036,598 13,034,607 12,426,179 610,419 4.9
=========================================================================== =========== =========== =========== =========== =======
<FN>
Notes:
* See "Notes to Condensed Consolidated Financial Statements".
(A) In December 1995, FSCO elected to reclassify all of its securities previously classified as "Held to Maturity" to
"Available for Sale" pursuant to SFAS 115 supplemental guidance.
</TABLE>
<PAGE>
<TABLE>
FIRST SECURITY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands; unaudited)
<CAPTION>
For the Six Months Ended June 30, 1996 and 1995 1996 1995
<S> <C> <C>
- - --------------------------------------------------------------------------------- -------------- --------------
NET CASH PROVIDED BY (USED IN) BY OPERATING ACTIVITIES 652,855 444,421
- - --------------------------------------------------------------------------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale ............................. 35,021 7,288
Redemption of matured securities available for sale .............................. 524,183 507,171
Redemption of matured securities held to maturity ................................ 0 42,409
Purchases of securities available for sale ....................................... (693,835) (558,558)
Purchases of securities held to maturity ......................................... 0 (7,016)
Net (increase) decrease in interest-bearing deposits in other banks .............. 15,297 694
Net (increase) decrease in loans ................................................. (530,801) (418,067)
Purchases of premises and equipment .............................................. (15,361) (19,134)
Proceeds from sales of other real estate ......................................... 2,106 4,450
Payments to improve other real estate ............................................ (1,957) (362)
Net cash (paid for) received from acquisitions ................................... 0 603
- - --------------------------------------------------------------------------------- -------------- --------------
NET CASH USED IN INVESTING ACTIVITIES (665,347) (440,522)
- - --------------------------------------------------------------------------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits .............................................. 111,071 538,043
Net increase (decrease) in Federal funds purchased, securities sold
under repurchase agreements, and U.S. Treasury demand notes .................... (140,766) (429,040)
Payments on nonrecourse debt on leveraged leases ................................. (23,470) (13,564)
Proceeds from issuance of long-term debt and short-term borrowings ............... 107,149 18
Payments on long-term debt and short-term borrowings ............................. (112,791) (14,826)
Proceeds from issuance of common stock and sales of treasury stock ............... 6,006 8,170
Purchases of treasury stock ...................................................... (1,765) (3,405)
Dividends paid ................................................................... (32,012) (27,975)
- - --------------------------------------------------------------------------------- -------------- --------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (86,578) 57,421
- - --------------------------------------------------------------------------------- -------------- --------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (99,070) 61,320
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 966,733 721,904
- - --------------------------------------------------------------------------------- -------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD 867,663 783,224
================================================================================= ============== ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
- - --------------------------------------------------------------------------------- -------------- --------------
CASH PAID (RECEIVED) FOR:
Interest ....................................................................... 230,460 219,529
Income taxes ................................................................... 12,342 29,038
================================================================================= ============== ==============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Conversion of preferred shares to common shares:
Preferred shares converted (not rounded) ..................................... 338 650
Common shares issued (not rounded) ........................................... 5,374 7,887
Conversion value ............................................................. 18 34
Transfer of loans to other real estate............................................ 1,318 3,887
Net unrealized gain (loss) on securities available for sale
(included in stockholders' equity) ............................................. (27,185) 51,457
Pooling-of-interests acquisitions:
Assets acquired ................................................................ 0 1,874
Liabilities assumed ............................................................ 0 1,235
FSCO shares issued (not rounded) ............................................... 0 134
================================================================================= ============== ==============
<FN>
See "Notes to Consolidated Financial Statements".
</TABLE>
<PAGE>
FIRST SECURITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of management, the accompanying unaudited consolidated
financial statements of First Security Corporation ("FSCO") contain all
adjustments (consisting of normal recurring accruals) necessary to present
fairly the following: FSCO's results of operations for the three months and
the year-to-date six months in the periods ended June 30, 1996 and 1995;
FSCO's financial position as of June 30, 1996, December 31, 1995, and June 30,
1995; and cash flows for the year-to-date six months in the periods ended June
30, 1996 and 1995.
2. The results of operations for the three months and the year-to-date six
month periods ended June 30, 1996 and 1995 are not necessarily indicative of
the results to be expected for the full year.
3. FSCO's financial statements include restatements and reclassifications of
prior periods as follows:
* Restatement of common stock and earnings per share data where appropriate
to reflect a 3-for-2 stock split in the form of a 50% stock dividend paid in
February 1996;
* Reclassification of noninterest income and noninterest expenses to
reflect the July 1, 1995, adoption of SFAS 122, "Accounting for Mortgage
Servicing Rights".
4. In December 1995, FSCO moved all securities classified as "Held to
Maturity" to "Available for Sale" pursuant to SFAS 115 supplemental guidance.
Prior periods were not reclassified.
5. On January 1, 1996, FSCO adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of".
This statement addresses the accounting for the impairment of long-lived
assets, such as premises, furniture and equipment, certain identifiable
intangibles, and goodwill related to those assets. Long-lived assets and
certain identifiable intangibles are to be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. An impairment loss is recognized when the sum
of the estimated future cash flows (undiscounted and without interest charges
expected from the use of the asset and its eventual disposition) is less than
the carrying amount of the asset. The statement also requires that long-lived
assets and identifiable intangibles be accounted for at the lower of cost or
fair value less cost to sell. SFAS No. 121 has had no material impact on FSCO
and its subsidiaries in relation to the consolidated financial statements.
6. The reconciliation of FSCO's mortgage servicing rights for the first six
months of 1996 from $52.6 million as of December 31, 1995 is as follows. FSCO
sold mortgage servicing rights with a book value of $4.8 million (resulting in
a gain of $2.5 million). In accordance with SFAS No. 122, FSCO recorded
originated mortgage servicing rights of $21.3 million. Mortgage servicing
rights of $6.6 million have been amortized. The resulting net unamortized
balance of mortgage servicing rights was $62.5 million as of June 30, 1996.
7. In October 1995, the Financial Accounting Standards Board issued SFAS 123
"Accounting for Stock-Based Compensation" which became effective for FSCO
beginning January 1, 1996. SFAS 123 requires expanded disclosures of stock-
based compensation arrangements with employees and encourages (but does not
require) compensation cost to be measured based on the fair value of the
equity instrument awarded. Companies are permitted, however, to continue to
apply APB Opinion 25, which recognizes compensation cost based on the
intrinsic value of the equity instrument awarded. FSCO will continue to apply
APB Opinion 25 in its financial statements and will disclose in a footnote to
its 1996 Annual Report on Form 10-K the proforma effect on net income and
earnings per share, as if FSCO had applied the new standard.
# # #
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 2: Management's Discussion and Analysis of Results of Operations and
Financial Condition ("MDA")
ANALYSIS OF RESULTS OF OPERATIONS
Summary
First Security Corporation ("FSCO") earned record net income totaling $79.2
million for the first six months of 1996, up $7.4 million or 10.3% from $71.8
million earned in the corresponding year-to-date 1995 period (see: Financial
Statements "Consolidated Income Statements"; and MDA Supplemental Tables
"Financial Highlights"). This net income generated a 1.26% ROAA and a 15.24%
ROAE for year-to-date 1996 on FSCO's strong average equity to assets ratio of
8.30%, compared with a 1.20% ROAA and a 15.29% ROAE for the 1995 period.
Fully-diluted earnings per share were $1.02 for year-to-date 1996, up $0.07 or
7.4% from $0.95 for the year-ago period. Adjusting for amortization of
intangibles on a year-to-date basis, the tangible ROAA was 1.41%, the tangible
ROAE was 19.68%, and the tangible fully-diluted earnings per share were $1.13.
Net income was a record $42.9 million for the second quarter of 1996, up
$6.7 million or 18.5% from $36.2 million earned in the second quarter of 1995.
This net income generated a 1.36% ROAA and a 16.52% ROAE for the quarter,
compared with a 1.21% ROAA and 14.91% ROAE for the year-ago quarter. Fully-
diluted earnings per share were $0.55 for the quarter, up $0.07 or 14.6% from
the year-ago quarter. The tangible ROAA was 1.51%, the tangible ROAE was
21.43%, and the tangible fully-diluted earnings per share were $0.61.
FSCO's record net income earned in the second quarter of 1996 and the year
to date were due to a combination of solid growth in loans and the ongoing
strength of its regional economies. In addition FSCO is now beginning to
realize the results of Project VISION (see: MDA "Project VISION").
On June 21, 1996, FSCO's two largest subsidiaries, First Security Bank of
Utah, N.A. and First Security Bank of Idaho, N.A., merged to become one legal
entity - First Security Bank, N.A. (see: MDA "Mergers and Acquisitions").
Net Interest Income and Margin
Net interest income on a fully-taxable equivalent ("FTE") basis totaled
$249.2 million for year-to-date 1996, up $17.6 million or 7.6% from the year-
ago period, and was $127.1 million for the second quarter of 1996, up $6.6
million or 5.5% from the year-ago quarter (see: MDA Supplemental Tables
"Financial Highlights" and "Rate / Volume Analysis"). These increases were
due to combinations of volume growth in earning assets, higher rates on
securities available for sale, and lower volumes and rates on overnight
borrowed funds. On a linked-quarter basis, net interest income for the second
quarter rose $5.0 million or 4.1% from the first quarter of 1996.
The net interest margin was 4.42% for year-to-date 1996, up 16 basis points
from the year-ago period, and was 4.47% for the second quarter of 1996, up
slightly from the year-ago quarter. On a linked-quarter basis, the net
interest margin for the second quarter rose 10 basis points over the first
quarter of 1996. FSCO expects that its quarterly net interest margin will
continue to fluctuate throughout 1996, ranging in a band from approximately
4.25% to 4.50%.
Provision For Loan Losses
The provision for loan losses totaled $19.2 million for year-to-date 1996,
up $12.7 million or 192.0% from the year-ago period, and was $10.5 million for
the second quarter of 1996, up $6.8 million or 180.7% from the year-ago
quarter (see: MDA "Provision For Loan Losses").
Noninterest Income
Noninterest income totaled $142.3 million for year-to-date 1996, up $12.4
million or 9.5% from the year-ago period, and was $75.7 million for the second
quarter of 1996, up $13.9 million or 22.4% from the year-ago quarter (see:
Financial Statements "Consolidated Income Statements"). These increases were
due primarily to Project VISION's emphasis on increasing and diversifying
sources of noninterest income, plus the positive impact of consolidated
mortgage banking activities.
During the second quarter of 1996, FSCO's CrossLand Mortgage subsidiary
took advantage of an exceptionally strong loan servicing market and sold loan
servicing rights in a bulk sale, generating a $2.5 million pre-tax gain for an
after-tax impact of $0.02 per share. After adjusting for this gain, and a
similar $7.5 million pre-tax gain in the first quarter of 1995, noninterest
income for year-to-date 1996 increased by $17.4 million or 14.2% over the
year-ago period.
Noninterest Expenses
Noninterest expenses totaled $245.4 million for year-to-date 1996, up $8.6
million or 3.6% from the year-ago period, and was $124.6 million for the
second quarter of 1996, up $5.7 million or 4.8% from the year-ago quarter
(see: Financial Statements "Consolidated Income Statements"). Year-to-date
noninterest expenses consisted of salaries & benefits of $131.9 million, up
$6.1 million or 4.9%, and nonpersonnel expense of $113.5 million, up $2.5
million or 2.2%. Quarterly noninterest expenses consisted of salaries &
benefits of $63.9 million, up only $265 thousand or 0.4%, and nonpersonnel
expense of $60.7 million, up $5.4 million or 9.7%. The components of the
increases in salaries & benefits and in nonpersonnel expense are discussed
below.
Salary & benefits expense, exclusive of additions to staff directly related
to increased lending activities, was reduced in the first half of 1996 by $4.9
million from the year-ago period with most of the decrease due to attrition
and planned reductions in staff resulting from Project VISION's process
redesign. This favorable effect was more than offset by additional expenses
related primarily to increased activities in several of FSCO's business lines
during the first half of 1996. Salary & benefits expense increased by $7.1
million as a result of mortgage lending activities which were particularly
strong during the first half of the year. Contract labor expenses rose by
$2.8 million as nonrecurring Project VISION implementation costs were
recognized. Insurance expense increased by $700 thousand due to higher
insurance sales activities, while retirement plan expense rose $400 thousand
due to higher actuarial expenses.
Project VISION has had, and will have, a direct impact on FSCO's staffing
levels as full-time equivalent employees totaled 7,003 at June 30, 1996, down
752 or 9.7% from one year ago, and down 527 or 7.0% from year-end 1995.
Most nonpersonnel expenses will begin to benefit from Project VISION
initiatives during the second half of 1996. However, certain noninterest
expense categories benefited selectively from reduced levels of expenditures
and process redesign during the first half of 1996. These included consulting
fees, employee expenses, and legal costs which decreased an aggregate of $3.8
million, and stationery & supplies, travel, and memberships where the combined
increase was limited to only $341 thousand or 2%.
Some nonpersonnel expenses were impacted by other factors during the first
half of 1996. Advertising expense increased $731 thousand as a result of
major advertising campaigns during 1996. Bankcard interbank interchange fees
rose $1.9 million from higher volumes. FDIC expense decreased by $8.4 million
to $1.6 million which is the statutory minimum for well capitalized financial
institutions. Occupancy and furniture & equipment expenses increased a
combined $2.2 million due to FSCO's increased levels of capital investments.
Nonrecurrence in 1996 of recoveries and other favorable expense events
generated in 1995 caused other real estate ("ORE") losses to increase by $753
thousand and other expenses to increase by $4.7 million.
Although FSCO experienced an increase in noninterest expenses, its
operating expense ratio (the ratio of noninterest expenses to the sum of net
interest income FTE and noninterest income) declined to 62.70% for year-to-
date 1996, an improvement of 282 basis points from the year-ago period, and
dropped to 61.44% for the second quarter of 1996, an improvement of 379 basis
points from the year-ago quarter. After adjusting for the effect of the gains
on the bulk sale of loan servicing rights in 1996 and 1995, the "adjusted"
operating expense ratios in 1996 were 63.10% for the year to date and 62.20%
for the second quarter, improved from 66.91% and 65.23% in 1995 respectively.
ANALYSIS OF FINANCIAL CONDITION
Summary
As of June 30, 1996, FSCO continued to maintain strong asset quality and
liquidity, and strengthen its well-capitalized position, as compared with June
30, 1995 and December 31, 1995.
FSCO's assets totaled $13.0 billion at June 30, 1996, up $610 million or
4.9% from one year ago, and essentially unchanged from year-end 1995. Total
interest-earning assets were $11.7 billion at quarter end, up $383 million or
3.4% from one year ago, but down $72 million or 0.6% from the year end (see:
MDA "Interest-Earning Assets and Asset Quality").
Intangible assets were $158 million at June 30, 1996, up $12 million or
8.4% from one year ago, and up $9 million or 5.9% from year-end 1995, due to
increased originated mortgage servicing rights from higher loan production.
Fluctuations in other assets and other liabilities were in part due to the
effect of timing differences on cash, accounts receivable, and accounts
payable resulting from unsettled transactions in the purchase and sale of
securities.
FSCO's liabilities totaled $12.0 billion at June 30, 1996, up $546 million
or 4.8% from one year ago, but essentially unchanged from year-end 1995.
Total interest-bearing liabilities were $9.8 billion at quarter end, up $370
million or 3.9% from one year ago, but essentially unchanged from the year end
(see: MDA "Liquidity").
Stockholders' equity in FSCO increased to $1.1 billion at June 30, 1996, up
$64 million or 6.5% from one year ago, and up $24 million or 2.4% from year-
end 1995 (see: MDA "Stockholders' Equity and Capital Adequacy").
FSCO's financial condition is discussed in greater detail in the following
MDA sections: "Interest-Earning Assets and Asset Quality"; "Asset / Liability
Management"; and "Stockholders' Equity and Capital Adequacy".
INTEREST-EARNING ASSETS and ASSET QUALITY
Securities
FSCO manages its securities available for sale portfolio within policies
which are designed to achieve desired liquidity levels, manage interest rate
sensitivity risk, meet earnings objectives, and fulfill requirements for
collateral to support deposit and/or repurchase agreement activities. FSCO's
investment strategy remains flexible and carefully reviewed by management,
shifting periodically in response to changing conditions. The average life of
the securities portfolio 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 June
30, 1996.
In December, 1995, FSCO took advantage of a one-time opportunity provided
by SFAS 115 supplemental guidance to reposition its securities portfolios by
transferring all of its held to maturity securities to the available for sale
portfolio. This repositioning provides FSCO the flexibility to manage its
entire securities portfolio consistently with balance sheet needs and market
opportunities.
FSCO's securities available for sale were $2.7 billion at June 30, 1996, up
$629 million or 30.2% from one year ago, and up $92 million or 3.5% from year-
end 1995 (see: Financial Statements "Consolidated Balance Sheets").
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 FSCO's 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 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, totaled a record $8.7 billion at June 30, 1996, up $360 million
or 4.3% from one year ago, and up $401 million or 4.8% from year-end 1995
(see: MDA Supplemental Tables "Loans Outstanding" and "Financial Highlights").
The increase from one year ago was due to increases in leases, commercial
loans, and real estate secured loans. The ratio of loans to total assets was
66.86% at quarter end, compared with 67.25% one year ago and 63.79% at year
end.
The components of FSCO's loan portfolio at June 30, 1996, compared with
June 30, 1995, and December 31, 1995, respectively, included:
* Commercial loans were $2.0 billion, up $134 million or 7.0% from one year
ago, and up $94 million or 4.8% from year end. The growth from one year ago
was due primarily to an ongoing broad-based business expansion in FSCO's
market areas with increases in loans of all sizes.
* Real estate secured loans were $3.4 billion, up $123 million or 3.7% from
one year ago, and up $93 million or 2.8% from year end. This growth was due
to increases in 1-4 family residential home equity and construction loans, and
commercial term and construction loans. For balance sheet management
purposes, FSCO does not retain all newly-originated fixed-rate mortgage loans
but sells a portion to secondary markets.
* Consumer loans were $2.7 billion, down $125 million or 4.5% from one year
ago, but up $26 million or 1.0% from year end. The decrease from one year ago
was due to the July 31, 1995 securitization and sale of $251 million of direct
and indirect auto loans, while the increase from year end was due to seasonal
factors. FSCO remains the leading consumer lender in its primary market area.
Problem Assets and Potential Problem Assets
Strong asset quality continues to be a primary objective for FSCO. FSCO's
interest-earning asset quality remained excellent at June 30, 1996. However,
it has been FSCO's experience that economic cycles and loan-specific events
cause fluctuations in problem assets, sometimes with little or no warning.
Problem assets were $47.5 million at June 30, 1996, up $13.4 million or
39.2% from one year ago, and up $7.4 million or 18.6% from year-end 1995 (see:
MDA Supplemental Tables "Financial Highlights - Problem Assets, - Selected
Ratios"). These increases were due primarily to one large credit in the
commercial loan portfolio and several smaller credits in the 1-4 family
residential mortgage portfolio. The ratio of total problem assets to total
loans and ORE was 0.54% at quarter end, indicating the continuing high quality
of FSCO's interest-earning assets, although up from 0.41% one year ago, and up
from 0.48% at year end.
The components of FSCO's problem assets at June 30, 1996, compared with
June 30, 1995, and December 31, 1995, respectively, included:
* Nonaccruing loans were $25.2 million, up $6.5 million or 34.5% from one
year ago, and up $2.7 million or 12.1% from year end. These increases were
primarily due to a large agricultural credit in the third quarter of 1995.
The ratio of nonaccruing loans to total loans was 0.29%, up from 0.22% one
year ago, and up from 0.27% at year end.
* ORE and other foreclosed assets were $5.7 million, up $1.3 million or
30.5% from one year ago, and up $1.5 million or 37.0% from year end. These
increases were primarily in 1-4 family residential properties, most of which
were employee residences acquired in connection with Project VISION
relocations. ORE property values are reviewed at least annually, and the
portfolio is adjusted to the lower of cost or fair value less estimated
selling costs.
* Accruing loans past due 90 days or more were $16.7 million, up $5.6
million or 50.4% from one year ago, and up $3.2 million or 23.8% from year
end. These increases were mainly in consumer loans, and to a lesser extent,
commercial loans and real estate secured loans.
Potential problem loans identified by FSCO were $23.5 million at June 30,
1996, up $3.9 million or 19.6% from one year ago, and up $11.2 million or
90.9% from year-end 1995. These increases were primarily in commercial loans.
Potential problem loans consisted primarily of commercial and agricultural
loans.
Reserve For Loan Losses
It is FSCO's philosophy to maintain a conservative balance sheet, including
its reserve for loan losses. FSCO carefully considers actual and potential
fluctuations in problem assets in the analysis and establishment of its
reserve. The adequacy of FSCO's reserve for loan losses is evaluated
quarterly based on policies established by the board of directors of its
subsidiary banks and regulatory and accounting guidelines. The reserve was
discussed in greater detail in FSCO's 1995 Form 10-K Annual Report: "Interest-
Earning Assets and Asset Quality - Reserve For Loan Losses".
The reserve for loan losses was increased to $133.7 million at June 30,
1996, up $3.3 million or 2.5% from one year ago, and up $3.7 million or 2.8%
from year-end 1995 as FSCO management chose to build the reserve in response
to loan growth in the first half of 1996 (see: MDA Supplemental Tables
"Financial Highlights - Reconciliation of the Reserve For Loan Losses").
Based on its analysis of reserve adequacy, FSCO's management considered the
reserve for loan losses at June 30, 1996 to be adequate to cover potential
losses in the foreseeable future.
The "coverage" ratio of the reserve to nonaccruing loans was 531.35% at
June 30, 1996, down from 697.19% one year ago, and down from 579.06% at year-
end 1995, while the ratio of the reserve to total loans was 1.53% at quarter
end, down slightly from the 1.56% one year ago and at year end (see: MDA
Supplemental Tables "Financial Highlights - Selected Ratios").
Net loans charged off against the reserve totaled $15.5 million for year-
to-date 1996, up $5.5 million or 54.6% from the year-ago period, and were $7.5
million for the second quarter of 1996, up $2.5 million or 50.9% from the
year-ago quarter (see: MDA Supplemental Tables "Financial Highlights -
Reconciliation of the Reserve For Loan Losses"). The higher net loans charged
off were the result of higher consumer and credit card losses and lower
commercial recoveries. FSCO's consumer and credit card losses were higher,
mirroring national trends in delinquencies and losses. FSCO raised its
underwriting standards during 1995 to return its delinquency and loss patterns
to more historical FSCO levels. While recoveries on commercial and real
estate term loans have had a major positive impact on FSCO's overall net loans
charged off in the last few years, FSCO does not expect that these levels of
recoveries will continue.
The ratio of net loans charged off to average loans remained at a low 0.37%
for year-to-date 1996, up from 0.25% for the year-ago period and 0.30% for all
of 1995, and 0.35% for the second quarter of 1996, up from 0.24% for the year-
ago quarter.
The reserve for loan losses is adjusted by means of the provision for loan
losses when replenishment of, or additions to, the reserve is considered
appropriate.
Provision For Loan Losses
The provision for loan losses totaled $19.2 million for year-to-date 1996,
up $12.7 million or 192.0% from the year-ago period, and was $10.5 million for
the second quarter of 1996, up $6.8 million or 180.7% from the year-ago
quarter (see: Financial Statements "Consolidated Income Statements"; MDA
"Reserve For Loan Losses"; and MDA Supplemental Tables "Financial Highlights -
Reconciliation of the Reserve For Loan Losses"). These increases were due
partially to higher net loans charged off resulting from higher consumer and
credit card losses and lower commercial recoveries. FSCO's management elected
to increase the provision to $3.0 million over net loans charged off in the
second quarter of 1996 and thereby build the reserve for loan losses in
response to loan growth.
ASSET / LIABILITY MANAGEMENT
FSCO's asset / liability management committee ("ALCO") process is
responsible for the identification, assessment, and management of corporate
capital adequacy (see: MDA "Stockholders' Equity and Capital Adequacy"), and
the liquidity and interest rate risk of FSCO's business lines. FSCO's ALCO
process, its components, and the associated objectives, policies and
procedures, were discussed in greater detail in FSCO's 1995 Form 10-K Annual
Report: "Asset / Liability Management".
Liquidity
FSCO maintains an adequate liquidity position in large part through stable
deposits generated from its wide-spread branch network, the prudent usage of
debt, and from a high quality securities portfolio (see: MDA "Interest-Earning
Assets and Asset Quality"). Maturing balances in the large loan portfolios,
and the sale or securitization of assets, are also important sources of medium
to long term liquidity.
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; and bank note issuances by FSCO's subsidiary banks.
Deposits totaled $8.9 billion at June 30, 1996, up $293 million or 3.4%
from one year ago, and up $111 million or 1.3% from year-end 1995. (see:
Financial Statements "Consolidated Balance Sheets"; and MDA Supplemental
Tables "Rate / Volume Analysis"). This increase occurred as FSCO placed
renewed emphasis on its deposit gathering functions. The ratio of loans to
deposits was 98.11% at quarter end, up from 97.27% one year ago, and up from
94.77% at year end.
Debt, which included short-term borrowings and long-term debt, totaled $2.8
billion at June 30, 1996, up $186 million or 7.2% from one year ago, but down
$146 million or 5.0% from year-end (see: Financial Statements "Consolidated
Balance Sheets"). Debt was decreased as loan sales, securitizations, and
repayments have largely offset loan originations, so that deposit growth
exceeded net loan growth and supported a reduction of debt.
The components of FSCO's debt at June 30, 1996, compared with June 30,
1995, and December 31, 1995, respectively, included:
* Federal funds purchased and securities sold under repurchase agreements
were $1.8 billion, up $64 million or 3.7% from one year ago, but down $141
million or 7.3% from year end.
* All other short-term borrowed funds were $253 million, up $65 million or
34.5% from one year ago, but down $8 million or 3.2% from year end.
* Long-term debt was $724 million, up $57 million or 8.5% from one year
ago, but essentially unchanged from year end.
The changes in short-term borrowings and long-term debt reflect the July
1995 issuance of $125 million of subordinated notes, offset by maturing debt
changing from long term to short term in the amounts of $165.5 million since
June 30, 1995 and $148.3 million since year end.
During the second quarter of 1996, FSCO filed a registration statement with
the Securities and Exchange Commission covering up to $600 million of
unspecified securities to be issued and offered from time to time on a delayed
basis.
Interest Rate Risk
Many of FSCO's strategic ALCO actions in the first six months of 1996
continued to focus on maintaining acceptable liquidity levels and on
maintaining a position of minimal interest rate risk exposure while ongoing
actions included an emphasis on deposit gathering functions and taking
advantage of various lending opportunities throughout FSCO's market areas.
FSCO has used off-balance sheet derivative products for many years in
managing interest rate risk and in the trading account. The components of
FSCO's off-balance sheet derivative products were discussed in greater detail
in FSCO's 1995 Form 10-K Annual Report: "Asset / Liability Management". As of
June 30, 1996, the notional amount of derivatives held for interest rate risk
management purposes was $924 million, down $283 million from year-end 1995,
while the notional amount of derivatives held for the trading account was $8.6
billion, down $2.1 billion from year-end 1995. During the second quarter of
1996, $250 million in interest rate swaps were acquired to balance the
increases in fixed rate funding with FSCO's floating rate loan growth.
Additionally, decreases in notional principal were $518 million due to the
maturity of several derivative instruments during the first half of 1996.
STOCKHOLDERS' EQUITY and CAPITAL ADEQUACY
FSCO and its subsidiary banks have exceeded regulatory requirements for
"well capitalized" status every year since these requirements were
established, including year-to-date 1996. It is FSCO's policy to maintain the
"well capitalized" status at both the consolidated and subsidiary bank levels.
FSCO's goal for its minimum tangible common equity to assets ratio is 7.00%.
Application of SFAS 115 has resulted in, and will continue to result in,
additions to or deductions from FSCO's total stockholders' equity as the
result of fluctuations in the fair value of securities available for sale.
These fluctuations are shown in the "Net unrealized gain (loss) on securities
available for sale" component of equity.
Stockholders' equity in FSCO increased to $1.1 billion at June 30, 1996, up
$64 million or 6.5% from one year ago and up $24 million or 2.4% from year-end
1995 (see: Financial Statements "Consolidated Balance Sheets"). This growth
was due to earnings, partially offset by volatility in the SFAS 115 net
unrealized gain (loss) on securities available for sale which decreased $9.8
million from one year ago and $27.2 million from year end.
The ratio of stockholders' equity to total assets was 8.09% at June 30,
1996, up from 7.97% one year ago and 7.90% at year-end 1995 (see: MDA
Supplemental Tables "Financial Highlights - Selected Ratios"). At the same
time, the ratio of tangible common equity to tangible total assets was 6.96%,
up from 6.87% one year ago and 6.84% at year end.
FSCO's risk-based capital ratios (see: MDA Supplemental Tables "Financial
Highlights - Risk-Based Capital Ratios") at June 30, 1996, compared with June
30, 1995, and December 31, 1995, respectively, were:
* Tier 1 ("well capitalized" = 6.00% or above) at 10.29%, compared with
10.12% one year ago, and 10.35% at year end.
* Total Capital ("well capitalized" = 10.00% or above) at 13.65%, compared
with 12.22% one year ago, and 13.86% at year end.
* Leverage ("well capitalized" = 5.00% or above) at 7.50%, up from 7.20%
one year ago, and 7.12% at year end.
COMMON STOCK
On April 22, 1996, FSCO declared a regular quarterly common stock cash
dividend of $0.21 per share (see: MDA Supplemental Tables "Financial
Highlights"). The cash dividend was paid on June 3, 1996, to shareholders of
record on May 17, 1996. This equates to an annual dividend rate of $0.84 per
share. At the market closing price of $24.37 per share on Friday, April 19,
1996 (the last market day before the announcement of the dividend), the annual
dividend yield on FSCO common stock was 3.45%.
On July 29, 1996, FSCO also declared a regular quarterly common stock cash
dividend of $0.21 per share. The cash dividend is payable on September 3,
1996, to shareholders of record on August 9, 1996. This equates to an annual
dividend rate of $0.84 per share. At the market closing price of $25.625 per
share on Friday, July 26, 1996 (the last market day before the announcement of
the dividend), the annual dividend yield on FSCO common stock would have been
approximately 3.28%.
For over 61 consecutive years, FSCO has paid cash dividends on its common
stock. National and state banking and insurance regulations impose
restrictions on the ability of FSCO's bank and insurance subsidiaries to
transfer funds to FSCO in the form of loans or dividends. Such restrictions
have not had, nor are they expected to have, any effect on FSCO's current
ability to pay dividends. FSCO's current and past record of dividend payments
should not be construed as a guarantee of similar dividend payments in the
future.
First Security Corporation's common stock is traded on the NASDAQ/NMS under
the symbol "FSCO".
MERGERS AND ACQUISITIONS
FSCO's merger and acquisition activity reflects management's strategy of
diversifying and enhancing FSCO's financial services delivery system through
the expansion and geographical diversification of its bank branch network and
nonbank activities. Management believes that long-term returns on the
stockholders' investment will benefit from these acquisitions, and will
continue its strategy of acquiring solid, well-managed financial services
companies when suitable opportunities arise in new and existing markets.
On June 21, 1996, FSCO's two largest subsidiaries, First Security Bank of
Utah, N.A. and First Security Bank of Idaho, N.A., merged to become one legal
entity - First Security Bank, N.A.. The decision to combine the charters of
these two banks was announced in 1995 during Project VISION, and is part of
FSCO's goal of becoming a "virtual bank" in which all of FSCO's banks will be
managed as a single entity. This reorganization will have both expenses and
cost savings associated with it.
FSCO has completed no acquisitions since May 31, 1995.
PROJECT "VISION" - FSCO'S CUSTOMER FOCUSED CORPORATE REDESIGN PROGRAM
FSCO continued its successful implementation of Project VISION, a
comprehensive corporate redesign that includes a major restructuring of FSCO
to better meet customers' needs, and to increase efficiency, performance, and
shareholder value. Implementation of Project VISION is proceeding on schedule
and is having a positive impact on earnings in the areas of noninterest
expenses and revenue enhancements.
The favorable impact of the Project VISION ideas implemented during the
first half of 1996 is approximately $0.075 (7.5 cents) per share. On a full
year run-rate basis, the favorable impact of the Project VISION ideas already
implemented would be approximately $0.25 per share.
Project VISION has had, and will have, a direct impact on FSCO's staffing
levels as full-time equivalent employees totaled 7,003 at June 30, 1996, down
752 or 9.7% from one year ago, and down 527 or 7.0% from year-end 1995.
NATIONAL & REGIONAL ECONOMY
Economic growth nationwide strengthened in the second quarter of 1996, with
real growth reaching 4.2% in what was essentially a fully employed economy.
New job gains averaged 265,000 for the quarter, up from 200,000 in the first
quarter. The employment increases facilitated significant output expansion,
part of which was added to inventories in anticipation of continued robust
consumer buying. Despite higher interest rates, sales of automobile, home,
and other consumer durable goods have been firm.
With relatively strong economic growth expected to continue in the third
quarter, financial market concerns have focused on the possibility of rising
wage inflation. While current wage increases near 3% remain relatively
moderate, embedded wage inflation is more difficult to contain than commodity-
based price increases. The Federal Reserve is carefully evaluating the
inflationary potential and their approximate course for monetary policy. It
now appears that the interest-rate structure in the second half of 1996 will
remain rather stable, with little chance of significant increases.
The Intermountain regional economy recorded an excellent second quarter,
and prospects for the remainder of 1996 remain highly favorable. Construction
activity, both residential and commercial, continues to boom, and several
additional large projects have been announced. Job growth across the region
has been exceptionally strong. Wage and income growth has been the source of
significant sales gains, particularly of homes and autos. In the six state
area directly served by First Security banks, the mortgage and credit card
delinquency rates are noticeably below the national average, while the
combined automobile loan delinquency rate is near the national average.
# # #
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. Continued: Supplemental Tables
<TABLE>
FIRST SECURITY CORPORATION
FINANCIAL HIGHLIGHTS
(in thousands, except per share data and ratios; unaudited)
<CAPTION>
2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr Year-To-Date Six Months
1996 1996 1995 1995 1995 1996 1995 %Chg
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- - ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
Common Stock Data (A):
Earnings per common share: primary ............ 0.56 0.47 0.11 0.51 0.48 1.03 0.95 8.4
Earnings per common share: fully diluted ...... 0.55 0.47 0.11 0.51 0.48 1.02 0.95 7.4
Tangible EPCS: fully diluted .................. 0.61 0.52 0.15 0.56 0.52 1.13 1.04 8.7
Dividends paid per common share ............... 0.21 0.21 0.19 0.19 0.19 0.42 0.38 10.5
Book value [EOP] .............................. 13.97 13.75 13.71 13.57 13.21 13.97 13.21 5.7
Tangible book value [EOP] ..................... 11.88 11.68 11.72 11.64 11.27 11.88 11.27 5.4
Market price (bid) [EOP] ...................... 24.00 27.75 25.33 20.92 18.67 24.00 18.67 28.5
High bid for the period ..................... 27.63 27.75 25.33 22.17 19.09 27.75 19.09 45.4
Low bid for the period ...................... 22.88 23.17 20.33 18.33 15.33 22.88 14.67 55.9
Market capitalization (mktprice x #shrs) [EOP] 1,811,184 2,092,017 1,903,094 1,569,974 1,398,348 1,811,184 1,398,348 29.5
Market price / book value [EOP] % ............. 171.80 201.82 184.76 154.10 141.27 171.80 141.27
Dividend payout ratio (DPCS / EPCS) % ......... 37.50 44.68 172.73 36.36 38.89 40.78 38.89
Dividend yield (DPCS / mktprice) [EOP] % ...... 3.50 3.03 3.00 3.57 4.00 3.50 4.00
Price / earnings ratio (mktprice / 4 qtrs earn) 14.5x 16.5x 16.2x 10.9x 9.9x 14.5x 9.9x
Common shares [EOP] ........................... 75,466 75,388 75,133 75,059 74,912 75,466 74,912 0.7
Common shares: primary [Avg] .................. 77,216 77,164 76,883 76,466 76,065 77,190 75,958 1.6
Common shares: fully diluted [Avg] ............ 77,409 77,360 77,087 76,671 76,274 77,385 76,169 1.6
Preferred shares outstanding [EOP] ............ 11 11 11 11 11 11 11 0.0
- - ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
Income Statement:
Interest income ............................... 239,423 233,112 246,657 234,584 233,068 472,535 453,618 4.2
Interest expense .............................. 113,523 113,336 119,109 114,805 114,466 226,859 225,954 0.4
Net interest income ........................... 125,900 119,776 127,548 119,779 118,602 245,676 227,664 7.9
Fully taxable equivalent (FTE) adjustment ..... 1,178 2,333 2,323 2,114 1,874 3,511 3,899 (10.0)
Net interest income, FTE ...................... 127,078 122,109 129,871 121,893 120,476 249,187 231,563 7.6
Provision for loan losses ..................... 10,505 8,738 7,905 6,587 3,742 19,243 6,590 192.0
Noninterest income (B) ........................ 75,714 66,561 66,496 70,092 61,845 142,275 129,904 9.5
Noninterest expenses (B) ...................... 124,586 120,852 172,083 121,275 118,929 245,438 236,847 3.6
Provision for income taxes .................... 23,595 20,457 5,227 22,666 21,543 44,052 42,298 4.1
Net income .................................... 42,928 36,290 8,829 39,343 36,233 79,218 71,833 10.3
Preferred stock dividend requirement .......... 8 8 8 9 9 16 18 (11.1)
Common stock dividend ......................... 16,021 15,974 14,013 13,996 13,976 31,995 27,957 14.4
- - ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
Balance Sheet - End of Period:
Trading account securities .................... 150,529 272,443 638,393 484,761 477,560 150,529 477,560 (68.5)
Securities available for sale (C) ............. 2,715,770 2,693,820 2,623,557 2,219,488 2,086,509 2,715,770 2,086,509 30.2
Securities held to maturity (C) ............... 0 0 0 247,493 251,982 0 251,982 (100.0)
Loans, net of unearned income ................. 8,716,400 8,375,060 8,315,095 8,303,049 8,356,657 8,716,400 8,356,657 4.3
Reserve for loan losses ....................... (133,678) (130,653) (129,982) (131,878) (130,388) (133,678) (130,388) 2.5
Total interest-earning assets .................11,674,994 11,486,526 11,746,677 11,454,392 11,291,982 11,674,994 11,291,982 3.4
Other assets .................................. 1,337,700 1,240,155 1,269,093 1,207,536 1,119,216 1,337,700 1,119,216 19.5
Intangible assets ............................. 157,582 155,744 148,819 144,964 145,369 157,582 145,369 8.4
Total assets ..................................13,036,598 12,751,772 13,034,607 12,675,014 12,426,179 13,036,598 12,426,179 4.9
Noninterest-bearing deposits .................. 1,857,593 1,787,827 1,884,931 1,857,584 1,748,031 1,857,593 1,748,031 6.3
Interest-bearing deposits ..................... 7,027,120 7,069,406 6,888,711 6,831,503 6,843,356 7,027,120 6,843,356 2.7
Total deposits ................................ 8,884,713 8,857,233 8,773,642 8,689,087 8,591,387 8,884,713 8,591,387 3.4
Short-term borrowed funds ..................... 2,049,074 1,812,218 2,198,689 1,675,498 1,920,093 2,049,074 1,920,093 6.7
Long-term debt ................................ 723,728 675,460 720,521 856,550 666,858 723,728 666,858 8.5
Total interest-bearing liabilities ............ 9,799,922 9,557,084 9,807,921 9,363,551 9,430,307 9,799,922 9,430,307 3.9
Other liabilities ............................. 324,238 369,766 311,183 434,305 257,349 324,238 257,349 26.0
Minority equity in subsidiaries ............... 319 315 309 304 298 319 298 7.0
Preferred stockholders' equity ................ 553 563 571 589 594 553 594 (6.9)
Common stockholders' equity ................... 1,053,973 1,036,217 1,029,692 1,018,681 989,600 1,053,973 989,600 6.5
Parent company investment in subsidiaries ..... 1,117,599 1,090,036 1,071,320 1,057,376 1,030,242 1,117,599 1,030,242 8.5
- - ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
Problem Assets & Potential Problem Assets - End of Period:
Nonaccruing loans:
Commercial .................................. 10,171 11,670 9,158 11,046 5,501 10,171 5,501 84.9
Real estate term ............................ 12,965 11,703 10,430 11,831 10,047 12,965 10,047 29.0
Real estate construction .................... 1,556 1,609 2,349 1,278 1,637 1,556 1,637 (4.9)
Consumer .................................... 144 95 110 75 85 144 85 69.4
Leases ...................................... 322 333 400 1,151 1,432 322 1,432 (77.5)
Total nonaccruing loans ....................... 25,158 25,410 22,447 25,381 18,702 25,158 18,702 34.5
ORE & other foreclosed assets ................. 5,663 5,209 4,134 4,472 4,340 5,663 4,340 30.5
Total nonperforming assets .................... 30,821 30,619 26,581 29,853 23,042 30,821 23,042 33.8
Accruing loans past due 90 days or more ....... 16,656 13,501 13,455 11,515 11,076 16,656 11,076 50.4
Total problem assets .......................... 47,477 44,120 40,036 41,368 34,118 47,477 34,118 39.2
Potential problem assets ...................... 23,513 7,595 12,319 17,223 19,652 23,513 19,652 19.6
- - ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
Other Data - End of Period (not rounded):
Full-time equivalent employees ................ 7,003 7,088 7,530 7,758 7,755 7,003 7,755 (9.7)
Domestic bank offices (D):
First Security Bank (FSB Utah + FSB Idaho) .. 209 218 218 215 215 209 215 (2.8)
FSB New Mexico .............................. 28 26 27 27 27 28 27 3.7
FSB Oregon .................................. 13 13 13 13 13 13 13 0.0
FSB Nevada .................................. 7 8 8 8 6 7 6 16.7
FSB Wyoming ................................. 6 6 6 6 6 6 6 0.0
Total domestic bank offices ................... 263 271 272 269 267 263 267 (1.5)
============================================== ========== ========== ========== ========== ========== ========== ========== =======
<FN>
Notes:
EOP: End Of Period. Avg: Average. EPCS: Earnings Per Common Share. DPCS: Dividends Per Common Share. NM: Not Meaningful.
(A) Figures have been restated where appropriate to reflect a 3-for-2 stock split in the form of a 50% stock dividend paid in
February 1996.
(B) 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) On June 21, 1996, FSB Utah and FSB Idaho merged to become First Security Bank, N.A.
</TABLE>
<PAGE>
<TABLE>
FIRST SECURITY CORPORATION
FINANCIAL HIGHLIGHTS - Continued
(in thousands, except per share data and ratios; unaudited)
<CAPTION>
2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr Year-To-Date Six Months
1996 1996 1995 1995 1995 1996 1995 %Chg
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- - ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
Balance Sheet - Average:
Trading account securities .................... 172,737 328,072 637,492 294,378 345,158 250,405 510,415 (50.9)
Securities available for sale (C) ............. 2,725,110 2,609,266 2,330,460 2,096,740 2,042,127 2,667,188 2,011,377 32.6
Securities held to maturity (C) ............... 0 0 173,374 243,993 238,637 0 243,030 (100.0)
Loans, net of unearned income ................. 8,534,146 8,254,010 8,212,849 8,207,753 8,233,243 8,394,078 8,182,993 2.6
Reserve for loan losses ....................... (130,816) (130,063) (131,138) (130,358) (131,321) (130,440) (132,528) (1.6)
Deferred taxes on leases ...................... (166,840) (164,953) (162,656) (160,855) (160,041) (165,896) (161,520) 2.7
Total int-earning assets - defer tax on leases 11,359,959 11,174,290 11,359,039 10,932,739 10,825,695 11,267,125 10,883,288 3.5
Other assets .................................. 1,164,633 1,115,502 1,437,133 1,045,896 1,003,232 1,140,067 993,893 14.7
Intangible assets ............................. 157,979 150,022 145,665 141,780 148,187 154,001 156,102 (1.3)
Total assets ..................................12,718,595 12,474,704 12,648,043 12,150,912 12,005,834 12,596,649 12,062,275 4.4
Noninterest-bearing deposits .................. 1,755,868 1,708,154 1,761,612 1,690,536 1,585,255 1,732,011 1,564,740 10.7
Interest-bearing deposits ..................... 7,019,739 6,938,872 6,899,375 6,887,306 6,766,077 6,979,306 6,595,786 5.8
Total deposits ................................ 8,775,607 8,647,026 8,660,987 8,577,842 8,351,332 8,711,317 8,160,526 6.7
Short-term borrowed funds ..................... 1,918,772 1,817,625 1,934,202 1,534,440 1,761,411 1,868,199 2,053,116 (9.0)
Long-term debt ................................ 691,766 691,535 755,457 791,348 682,382 691,651 683,434 1.2
Total interest-bearing liabilities ............ 9,630,277 9,448,032 9,589,034 9,213,094 9,209,870 9,539,156 9,332,336 2.2
Other liabilities ............................. 286,857 273,040 257,850 237,052 235,550 279,948 217,788 28.5
Minority equity in subsidiaries ............... 312 311 308 300 291 311 283 9.9
Preferred stockholders' equity ................ 557 566 583 593 603 562 610 (7.9)
Common stockholders' equity ................... 1,044,724 1,044,601 1,038,656 1,009,339 974,265 1,044,661 946,518 10.4
- - ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
Reconciliation of the Reserve for Loan Losses:
Reserve for loan losses, beginning of period .. 130,653 129,982 131,878 130,388 131,603 129,982 133,855 (2.9)
Loans (charged off):
Commercial .................................. (1,989) (1,139) (1,574) (954) (726) (3,128) (1,800) 73.8
Real estate term ............................ (186) (145) (1,803) (103) (573) (331) (1,267) (73.9)
Real estate construction .................... (19) 0 (6) 0 (1) (19) (94) (79.8)
Consumer instalment ......................... (8,658) (10,053) (9,151) (7,319) (8,008) (18,711) (17,433) 7.3
Consumer credit card ........................ (3,054) (2,992) (2,884) (2,464) (2,291) (6,046) (4,738) 27.6
Leases ...................................... 285 (796) (358) 1 (600) (511) (600) (14.8)
Total loans (charged off) ..................... (13,621) (15,125) (15,776) (10,839) (12,199) (28,746) (25,932) 10.9
Recoveries on loans charged off:
Commercial .................................. 930 1,641 1,469 1,215 2,216 2,571 4,628 (44.4)
Real estate term ............................ 511 709 239 399 560 1,220 2,325 (47.5)
Real estate construction .................... 8 7 68 43 30 15 52 (71.2)
Consumer instalment ......................... 4,040 4,133 3,658 3,178 3,843 8,173 7,773 5.1
Consumer credit card ........................ 526 535 525 500 553 1,061 1,057 0.4
Leases ...................................... 126 33 16 407 40 159 40 297.5
Total recoveries of loans charged off ......... 6,141 7,058 5,975 5,742 7,242 13,199 15,875 (16.9)
Net loans (charged off) recovered ............. (7,480) (8,067) (9,801) (5,097) (4,957) (15,547) (10,057) 54.6
Provision for loan losses ..................... 10,505 8,738 7,905 6,587 3,742 19,243 6,590 192.0
Reserve for loan losses, end of period ........ 133,678 130,653 129,982 131,878 130,388 133,678 130,388 2.5
- - ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
Selected Ratios (%):
Return on average assets (ROAA) ............... 1.36 1.17 0.28 1.28 1.21 1.26 1.20
Tangible ROAA ................................. 1.51 1.30 0.37 1.42 1.35 1.41 1.35
Return on average stockholders' equity (ROAE) . 16.52 13.97 3.37 15.46 14.91 15.24 15.29
Tangible ROAE ................................. 21.43 17.94 5.21 19.64 19.34 19.68 20.27
Net interest margin, FTE ...................... 4.47 4.37 4.57 4.46 4.45 4.42 4.26
Net interest spread, FTE ...................... 3.75 3.63 3.80 3.68 3.71 3.69 3.57
Operating expense ratio (B)
(nonint exp / (net int inc FTE + nonint inc)) 61.44 64.05 87.63 63.17 65.23 62.70 65.52
Productivity ratio (nonint exp / avg assets)(B) 3.94 3.90 5.40 3.96 3.97 3.92 3.96
Stockholders' equity / assets [EOP] ........... 8.09 8.13 7.90 8.04 7.97 8.09 7.97
Stockholders' equity / assets [Avg] ........... 8.22 8.38 8.22 8.31 8.12 8.30 7.85
Tangible common equity / tangible assets [EOP] 6.96 6.99 6.84 6.97 6.87 6.96 6.87
Loans / deposits [EOP] ........................ 98.11 94.56 94.77 95.56 97.27 98.11 97.27
Loans / assets [EOP] .......................... 66.86 65.68 63.79 65.51 67.25 66.86 67.25
Reserve for loan losses [EOP] /:
Total loans ................................. 1.53 1.56 1.56 1.59 1.56 1.53 1.56
Nonaccruing loans ........................... 531.35 514.18 579.06 519.59 697.19 531.35 697.19
Nonaccruing + accruing loans past due 90 days 319.70 335.77 362.05 357.43 437.87 319.70 437.87
Nonaccruing loans / total loans ............... 0.29 0.30 0.27 0.31 0.22 0.29 0.22
Nonaccruing + accr loans past due / total loans 0.48 0.46 0.43 0.44 0.36 0.48 0.36
Nonperforming assets /:
Total loans + ORE ........................... 0.35 0.37 0.32 0.36 0.28 0.35 0.28
Total assets ................................ 0.24 0.24 0.20 0.24 0.19 0.24 0.19
Total equity ................................ 2.92 2.95 2.58 2.93 2.33 2.92 2.33
Total equity + reserve for loan losses ...... 2.59 2.62 2.29 2.59 2.06 2.59 2.06
Problem assets /:
Total loans + ORE ........................... 0.54 0.53 0.48 0.50 0.41 0.54 0.41
Total assets ................................ 0.36 0.35 0.31 0.33 0.27 0.36 0.27
Total equity ................................ 4.50 4.26 3.89 4.06 3.45 4.50 3.45
Total equity + reserve for loan losses ...... 4.00 3.78 3.45 3.59 3.04 4.00 3.04
Net loans charged off / average loans ......... 0.35 0.39 0.47 0.25 0.24 0.37 0.25
============================================== ========== ========== ========== ========== ========== ========== ========== =======
Risk-Based Capital Ratios: FSC FSB FSB FSB FSB
As of June 30, 1996 Consolidate FSBank(D) NewMexico Oregon Nevada Wyoming
- - ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
Leverage ratio (%) ............................ 7.50 7.50 6.34 9.11 7.52 7.67
Tier 1 risk-based capital ratio (%) ........... 10.29 9.77 12.93 10.95 10.98 11.59
Total (Tier 1+2) risk-based capital ratio (%) . 13.65 11.49 14.19 12.20 12.24 12.85
Tier 1 capital ................................ 972,419 774,816 106,985 38,790 29,397 16,368
Total (Tier 1 + Tier 2) capital ............... 1,290,787 910,964 117,429 43,226 32,773 18,146
Total risk-based assets - loan loss reserve ... 9,454,121 7,930,742 827,509 354,317 267,796 141,248
============================================== ========== ========== ========== ========== ========== ========== ========== =======
<PAGE>
<FN>
Notes:
EOP: End Of Period. Avg: Average. EPCS: Earnings Per Common Share. DPCS: Dividends Per Common Share. NM: Not Meaningful.
(A) Figures have been restated where appropriate to reflect a 3-for-2 stock split in the form of a 50% stock dividend paid in
February 1996.
(B) 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) On June 21, 1996, FSB Utah and FSB Idaho merged to become First Security Bank, N.A.
</TABLE>
<PAGE>
<TABLE>
FIRST SECURITY CORPORATION
RATE / VOLUME ANALYSIS
(Fully taxable equivalent; in thousands; unaudited)
<CAPTION>
For the Three Months Ended June 30, 1996 and 1995
Average Balance Yield/Rate % Interest Inc/Exp (A) Change Changes Due To:
1996 1995 1996 1995 1996 1995 1996-95 Volume Rate(B)
<C> <C> <C> <C> <S> <C> <C> <C> <C> <C>
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
INTEREST-EARNING ASSETS / INCOME:
Loans, net of unearned income and
8,367,306 8,073,202 9.23 9.50 . deferred taxes on leases (C) .............. 193,068 191,788 1,280 6,987 (5,707)
84,693 125,195 5.05 5.97 .Federal funds sold & securities purchased ... 1,070 1,869 (799) (605) (194)
10,113 1,376 5.81 3.49 .Interest-bearing deposits in other banks..... 147 12 135 76 59
172,737 345,158 4.68 6.17 .Trading account securities .................. 2,022 5,324 (3,302) (2,660) (642)
2,725,110 2,042,127 6.50 6.12 .Securities available for sale ............... 44,294 31,226 13,068 10,443 2,625
0 238,637 0.00 7.92 .Securities held to maturity ................. 0 4,723 (4,723) (4,723) 0
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
11,359,959 10,825,695 8.47 8.68 TOTAL INTEREST-EARNING ASSETS / INCOME 240,601 234,942 5,659 9,518 (3,859)
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
INTEREST-BEARING LIABILITIES / EXPENSE:
Interest-bearing deposits:
1,045,674 1,063,570 1.91 1.97 .Interest-bearing demand accounts ............ 4,991 5,238 (247) (88) (159)
2,582,513 2,294,050 3.58 3.83 .Savings & money market accounts ............. 23,102 21,940 1,162 2,759 (1,597)
702,279 765,741 5.64 6.11 .Time deposits of $100,000 or more ........... 9,897 11,689 (1,792) (969) (823)
2,689,273 2,642,716 5.77 5.70 .Other time deposits ......................... 38,819 37,668 1,151 664 487
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
7,019,739 6,766,077 4.38 4.52 TOTAL INTEREST-BEARING DEPOSITS 76,809 76,535 274 2,366 (2,092)
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
1,644,295 1,579,470 4.94 5.80 .Federal funds purchased & securities sold ... 20,299 22,885 (2,586) 939 (3,525)
274,477 181,941 6.23 6.53 .Other short-term borrowings ................. 4,274 2,968 1,306 1,510 (204)
691,766 682,382 7.02 7.08 .Long-term debt .............................. 12,141 12,078 63 166 (103)
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
9,630,277 9,209,870 4.72 4.97 TOTAL INTEREST-BEARING LIABILITIES / EXPENSE 113,523 114,466 (943) 4,981 (5,924)
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
8.47 8.68 .Interest income / earning assets
4.00 4.23 .Interest expense / earning assets
------ ------ --------------------------------------------
4.47 4.45 .Net interest income / earning assets ........ 127,078 120,476 6,602 4,537 2,065
Less fully taxable equivalent adjustment .... 1,178 1,874 (696)
------ ------ -------------------------------------------- --------- --------- -------- -------- --------
NET INTEREST INCOME, PER CONDENSED
CONSOLIDATED INCOME STATEMENTS 125,900 118,602 7,298
=========== =========== ====== ====== ============================================ ========= ========= ======== ======== ========
<CAPTION>
For the Six Months Ended June 30, 1996 and 1995
Average Balance Yield/Rate % Interest Inc/Exp (A) Change Changes Due To:
1996 1995 1996 1995 1996 1995 1996-95 Volume Rate(B)
<C> <C> <C> <C> <S> <C> <C> <C> <C> <C>
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
INTEREST-EARNING ASSETS / INCOME:
Loans, net of unearned income and
8,228,182 8,021,473 9.24 9.25 . deferred taxes on leases (C) .............. 379,992 371,063 8,929 9,562 (633)
110,443 95,537 5.26 5.88 .Federal funds sold & securities purchased ... 2,903 2,807 96 438 (342)
10,907 1,456 6.31 4.12 .Interest-bearing deposits in other banks..... 344 30 314 195 119
250,405 510,415 5.25 5.28 .Trading account securities .................. 6,568 13,463 (6,895) (6,858) (37)
2,667,188 2,011,377 6.47 6.02 .Securities available for sale ............... 86,239 60,494 25,745 19,724 6,021
0 243,030 0.00 7.95 .Securities held to maturity ................. 0 9,660 (9,660) (9,660) 0
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
11,267,125 10,883,288 8.45 8.41 TOTAL INTEREST-EARNING ASSETS / INCOME 476,046 457,517 18,529 13,401 5,128
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
INTEREST-BEARING LIABILITIES / EXPENSE:
Interest-bearing deposits:
1,066,884 1,071,188 1.86 1.96 .Interest-bearing demand accounts ............ 9,948 10,521 (573) (42) (531)
2,527,133 2,324,980 3.64 3.70 .Savings & money market accounts ............. 45,986 43,070 2,916 3,745 (829)
690,852 675,516 5.74 5.91 .Time deposits of $100,000 or more ........... 19,837 19,964 (127) 453 (580)
2,694,437 2,524,102 5.83 5.46 .Other time deposits ......................... 78,522 68,968 9,554 4,654 4,900
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
6,979,306 6,595,786 4.42 4.32 TOTAL INTEREST-BEARING DEPOSITS 154,293 142,523 11,770 8,810 2,960
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
1,592,059 1,874,812 5.00 5.69 .Federal funds purchased & securities sold ... 39,771 53,385 (13,614) (8,051) (5,563)
276,140 178,304 6.63 6.56 .Other short-term borrowings ................. 9,151 5,846 3,305 3,208 97
691,651 683,434 6.84 7.08 .Long-term debt .............................. 23,644 24,200 (556) 291 (847)
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
9,539,156 9,332,336 4.76 4.84 TOTAL INTEREST-BEARING LIABILITIES / EXPENSE 226,859 225,954 905 4,258 (3,353)
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
8.45 8.41 .Interest income / earning assets
4.03 4.15 .Interest expense / earning assets
------ ------ --------------------------------------------
4.42 4.26 .Net interest income / earning assets ........ 249,187 231,563 17,624 9,143 8,481
Less fully taxable equivalent adjustment .... 3,511 3,899 (388)
------ ------ -------------------------------------------- --------- --------- -------- -------- --------
NET INTEREST INCOME, PER CONDENSED
CONSOLIDATED INCOME STATEMENTS 245,676 227,664 18,012
=========== =========== ====== ====== ============================================ ========= ========= ======== ======== ========
<FN>
Notes:
(A) Interest is presented on a fully taxable equivalent (FTE) basis, calculated on federal and state taxes applicable to the
subsidiary carrying the asset. The combined tax rate was approximately 39% for 1996 and 1995.
(B) Changes not due entirely to changes in volume or rate have been allocated to rate.
(C) Loans include nonaccruing and renegotiated loans. Interest on loans includes fees of $7,082 and $5,671 for the 1996 and 1995
quarters, respectively, and $12,095 and $10,174 for the 1996 and 1995 year-to-date periods, respectively.
</TABLE>
<PAGE>
<TABLE>
FIRST SECURITY CORPORATION
LOANS, NET OF UNEARNED INCOME
(in thousands; unaudited)
<CAPTION>
June 30, 1996 December 31, 1995 June 30, 1995
%Total %Total %Total Jun/Jun
Balance Loans Balance Loans Balance Loans %Chg
<S> <C> <C> <C> <C> <C> <C> <C>
- - ----------------------------------------- ----------- ------ ----------- ------ ----------- ------ --------
COMMERCIAL LOANS:
Commercial & industrial .................. 1,634,451 18.8 1,559,533 18.8 1,548,072 18.5 5.6
Agricultural ............................. 290,950 3.3 280,179 3.4 290,559 3.5 0.1
Other commercial ......................... 120,343 1.4 112,073 1.3 72,623 0.9 65.7
- - ----------------------------------------- ----------- ------ ----------- ------ ----------- ------ --------
TOTAL COMMERCIAL LOANS 2,045,744 23.5 1,951,785 23.5 1,911,254 22.9 7.0
- - ----------------------------------------- ----------- ------ ----------- ------ ----------- ------ --------
REAL ESTATE SECURED LOANS:
1-4 family residential: term ............. 1,507,387 17.3 1,457,811 17.5 1,565,960 18.7 (3.7)
1-4 family residential: home equity ...... 466,849 5.4 451,980 5.4 404,438 4.8 15.4
1-4 family residential: construction ..... 230,269 2.6 221,551 2.7 217,378 2.6 5.9
Commercial & other: term ................. 948,094 10.9 943,046 11.4 900,312 10.8 5.3
Commercial & other: construction ......... 263,609 3.0 248,622 3.0 205,424 2.5 28.3
- - ----------------------------------------- ----------- ------ ----------- ------ ----------- ------ --------
TOTAL REAL ESTATE SECURED LOANS 3,416,208 39.2 3,323,010 40.0 3,293,512 39.4 3.7
- - ----------------------------------------- ----------- ------ ----------- ------ ----------- ------ --------
CONSUMER LOANS:
Credit cards & related ................... 292,897 3.4 311,271 3.7 301,581 3.6 (2.9)
Other consumer ........................... 2,361,238 27.1 2,316,540 27.9 2,478,008 29.7 (4.7)
- - ----------------------------------------- ----------- ------ ----------- ------ ----------- ------ --------
TOTAL CONSUMER LOANS 2,654,135 30.4 2,627,811 31.6 2,779,589 33.3 (4.5)
- - ----------------------------------------- ----------- ------ ----------- ------ ----------- ------ --------
TOTAL LEASES ............................. 600,313 6.9 412,489 4.9 372,302 4.4 61.2
- - ----------------------------------------- ----------- ------ ----------- ------ ----------- ------ --------
LOANS, NET OF UNEARNED INCOME 8,716,400 100.0 8,315,095 100.0 8,356,657 100.0 4.3
Memo: Unearned Income .................. (45,357) (16,250) (6,030) 652.2
Reserve for Loan Losses .................. (133,678) (129,982) (130,388) 2.5
- - ----------------------------------------- ----------- ------ ----------- ------ ----------- ------ --------
TOTAL LOANS, NET 8,582,722 8,185,113 8,226,269 4.3
========================================= =========== ====== =========== ====== =========== ====== ========
<FN>
</TABLE>
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
FSCO and its subsidiaries are subject to various claims and legal actions
filed or threatened by customers and others in connection with FSCO's regular
business activities. Some legal actions filed against FSCO seek inflated
damages, often in an effort to force compromise of a troubled loan
transaction, and are disclosed in required filings with the SEC. In all
litigation filed against it, FSCO vigorously defends itself against unfounded
claims, with a concomitant cost in legal fees and expenses. Since the filing
of FSCO's 1995 Form 10-K Annual Report, there have been no material
developments in connection with pending legal proceedings not already
disclosed in previous filings with the Commission, except as follows:
In its Annual Report on Form 10-K for the year ended December 31, 1994 and
in its quarterly report on Form 10-Q for the quarter ended March 31, 1996,
FSCO reported the filing of three class action lawsuits, one each in the
United States District Courts in Florida and Illinois, alleging violations of
federal Truth in Lending rules by FSCO's CrossLand Mortgage subsidiary, and a
purported class action lawsuit in New Mexico with respect to force-placed
insurance in connection with automobile loans.
In the Illinois action, "Romaker v. CrossLand Mortgage Corporation, Case
No. 94-C-3328, Northern District of Illinois, Eastern Division", summary
judgment on the issue of liability was rendered against FSCO. During the
second quarter a settlement was reached in the Illinois litigation that would
result in a damage amount payable by FSCO well below $1,000,000. FSCO
previously reported that any damages paid likely can be recovered by
indemnification claims against the former owners of CrossLand Mortgage.
Publication and confirmation of the settlement must await certification of the
class, mailing of notice of the settlement, and a hearing on the fairness of
the settlement. The main claim in the Illinois case was tied to a computer
program used by the Company's CrossLand Mortgage subsidiary, which program
failed to include a function required by federal truth in lending laws and
rules for a short period of time. The computer program has been changed to
properly perform the function at issue in the lawsuit. A lesser claim in the
Illinois case had to do with the language of a rider on insurance policies
used in closing the loans in question. The Company believes such a rider is
needed for the loans to be sold into the secondary mortgage market. Damages
in connection with this insurance rider language claim would have been de
minimus in any event, approximating $20,000 for the entire class of customers
represented by the suit.
The Florida litigation, "Hilton v. CrossLand Mortgage Corp., Case No. 94-
8437-CIV-RYSKAMP, Southern District of Florida, Northern Division", was
positively affected by Congressional action amending the applicable statute to
eliminate the violation which the plaintiff class was asserting against a
number of banks and mortgage companies, including CrossLand Mortgage. The
court issued an order dismissing those claims. An amended complaint has been
filed in the Florida action which alleges violations in the placement of
mortgage insurance in connection with loans originated by CrossLand Mortgage
at the request of the class members. This claim is new and discovery is
ongoing. FSCO currently believes the new amended complaint to be without
merit.
The purported class action lawsuit in United States District Court in New
Mexico alleging unfair trade practices, fraud, RICO and federal Truth in
Lending violations in connection with the policies of First Security Bank of
New Mexico to force-place insurance on vehicles subject to loans whose owners
fail to procure such insurance is denominated "Begay v. First Security Bank of
New Mexico, et al., Case No. CIV-96-0348 MV, District of New Mexico". FSCO
intends to vigorously defend itself against such liability. Motions to
dismiss a number of FSCO entities named in the suit have been filed and remain
pending in the Court. Management continues to believe that no reasonably
foreseeable ultimate outcome of this litigation will have a material adverse
impact on the business or assets of FSCO.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
FSCO held its Annual Shareholders' Meeting on April 22, 1996. At this
meeting, there were 62,677,417 "voting shares" (62,671,515 common shares and
5,902 preferred shares) present or represented by proxy, which was equal to
83.21% of the 75,323,788 total shares (75,313,084 common shares and 10,704
preferred shares) outstanding. Votes were taken on the following Shareholder
Proposals, described in FSCO's Proxy Statement dated March 15, 1996:
* Shareholder Proposal #1 "To elect a Board of Directors to serve for the
ensuing year". All current members of the Board of Directors, except U. Edwin
Garrison who retired from the Board, were nominated for re-election by
Management. The results of this vote were as follows:
Votes Votes Votes For /
Nominee: For: Against: Abstain: Voting Shares:
Beardall, James C. 62,425,383 252,034 0 99.60%
Brady, Rodney H. 62,417,692 259,725 0 99.59%
Bruce, James E. 62,364,239 313,178 0 99.50%
Dee, Thomas D. II 62,376,021 301,396 0 99.52%
Eccles, Spencer F. 62,379,450 297,967 0 99.52%
Evans, Morgan J. 62,424,784 252,633 0 99.60%
Gardner, David P. 62,382,678 294,739 0 99.53%
Garff, Robert H. 62,385,172 292,245 0 99.53%
Haight, David B. 62,253,938 423,479 0 99.32%
Harris, Jay Dee 62,345,744 331,673 0 99.47%
Heiner, Robert T. 62,282,764 394,653 0 99.37%
Huntsman, Karen H. 62,354,058 323,359 0 99.48%
Joklik, G. Frank 62,342,384 335,033 0 99.47%
Kastler, B. Z. 62,338,605 338,812 0 99.46%
Maloof, Joseph G. 62,067,094 610,323 0 99.03%
Parker, Scott S. 62,412,406 265,011 0 99.58%
Smith, Arthur K. 62,385,925 291,492 0 99.53%
Sorenson, James L. 62,242,494 434,923 0 99.31%
Steele, Harold J. 62,331,646 345,771 0 99.45%
* Shareholder Proposal #2 "To consider and vote on the proposed increase in
the number of authorized shares of common stock that can be issued by the
Company, from the present 150,000,000 shares to a new level of 300,000,000
shares". The results of this vote were as follows:
Votes Votes Votes For /
For: Against: Abstain: Voting Shares:
52,309,333 9,945,751 401,302 83.46%
Item 5. Other Information
On July 30, 1996, FSCO announced that James R. Wilson was elected to serve
as a member of FSCO's board of directors. Mr. Wilson is currently the
chairman, president, and chief executive officer of Thiokol Corporation,
headquartered in Ogden Utah.
Item 6. Exhibits, and Reports on Form 8-K
(a). Exhibits:
Exhibit 11. Computation of Earnings Per Share
Exhibit 27. Financial Data Schedule
(b). Reports on Form 8-K:
FSCO filed no reports on Form 8-K in the second quarter of 1996.
# # #
<PAGE>
SIGNATURES
Pursuant to the requirements of the Security Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FIRST SECURITY CORPORATION
DATE: August 12, 1996 BY:_[SIGNED]________________________________________
Scott C. Ulbrich
Executive Vice President Finance and Capital Markets
and Chief Financial Officer
(Principal Financial and Accounting Officer)
# # #
EXHIBIT 11. COMPUTATION OF EARNINGS PER SHARE
<TABLE>
FIRST SECURITY CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share amounts; unaudited)
<CAPTION>
Three Months Year-To-Date Six Months
For the Periods Ended June 30, 1996 and 1995 1996 1995 1996 1995
<S> <C> <C> <C> <C>
- - ----------------------------------------------------------- ---------- ---------- ---------- ----------
Net Income:
Net income per consolidated income statements .............. 42,928 36,233 79,218 71,833
Deduct dividend requirement of preferred stock ............. 8 9 16 18
- - ----------------------------------------------------------- ---------- ---------- ---------- ----------
NET INCOME APPLICABLE TO COMMON STOCK (PRIMARY) 42,920 36,224 79,202 71,815
Add dividend requirement of preferred stock ................ 8 9 16 18
- - ----------------------------------------------------------- ---------- ---------- ---------- ----------
NET INCOME FULLY DILUTED 42,928 36,233 79,218 71,833
=========================================================== ========== ========== ========== ==========
Earnings Per Common Share:
EARNINGS PER COMMON SHARE: PRIMARY 0.56 0.48 1.03 0.95
EARNINGS PER COMMON SHARE: FULLY DILUTED 0.55 0.48 1.02 0.95
=========================================================== ========== ========== ========== ==========
Average Common Shares Outstanding:
Common stock ............................................... 76,013 75,447 75,928 75,362
Common stock equivalents (options) ......................... 1,802 1,186 1,838 1,126
Treasury shares ............................................ (599) (568) (576) (530)
- - ----------------------------------------------------------- ---------- ---------- ---------- ----------
COMMON STOCK SHARES OUTSTANDING: AVERAGE PRIMARY 77,216 76,065 77,190 75,958
Preferred stock: average common equivalents ................ 193 209 195 211
- - ----------------------------------------------------------- ---------- ---------- ---------- ----------
COMMON STOCK SHARES OUTSTANDING: AVERAGE FULLY DILUTED 77,409 76,274 77,385 76,169
=========================================================== ========== ========== ========== ==========
<FN>
Note: Earnings Per Common Share Fully Diluted were computed assuming that all outstanding shares of
preferred stock were converted into common stock on the basis of 18.225 shares of common for each share
of preferred, with the elimination of dividends on the preferred stock. Common stock equivalents are
common stock options outstanding accounted for on the treasury stock method for purposes of these
computations.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<PERIOD-TYPE> 6-MOS
<CASH> 781,634
<INT-BEARING-DEPOSITS> 6,266
<FED-FUNDS-SOLD> 86,029
<TRADING-ASSETS> 150,529
<INVESTMENTS-HELD-FOR-SALE> 2,715,770
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 8,716,400
<ALLOWANCE> (133,678)
<TOTAL-ASSETS> 13,036,598
<DEPOSITS> 8,884,713
<SHORT-TERM> 2,049,074
<LIABILITIES-OTHER> 324,557
<LONG-TERM> 723,728
0
553
<COMMON> 1,053,973
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 13,036,598
<INTEREST-LOAN> 378,707
<INTEREST-INVEST> 84,033
<INTEREST-OTHER> 9,795
<INTEREST-TOTAL> 472,535
<INTEREST-DEPOSIT> 154,293
<INTEREST-EXPENSE> 226,859
<INTEREST-INCOME-NET> 245,676
<LOAN-LOSSES> 19,243
<SECURITIES-GAINS> 764
<EXPENSE-OTHER> 245,438
<INCOME-PRETAX> 123,270
<INCOME-PRE-EXTRAORDINARY> 123,270
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 79,218
<EPS-PRIMARY> 1.03
<EPS-DILUTED> 1.02
<YIELD-ACTUAL> 4.42
<LOANS-NON> 25,158
<LOANS-PAST> 16,656
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 47,477
<ALLOWANCE-OPEN> 129,982
<CHARGE-OFFS> (28,746)
<RECOVERIES> 13,199
<ALLOWANCE-CLOSE> 133,678
<ALLOWANCE-DOMESTIC> 133,678
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
