<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
Commission File Number 1-6906
FIRST SECURITY CORPORATION
(Exact name of registrant as specified in its charter)
State of incorporation Delaware
I.R.S. Employer Identification No. 87-6118148
Address of principal executive offices 79 South Main, P.O. Box 30006
Salt Lake City, Utah
Zip Code 84130-0006
Registrant's telephone number, including area code (801) 246-5706
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
As of October 31, 1997, outstanding shares of Common Stock, par value $1.25,
were 115,846,035 (net of 841,747 treasury shares).
FIRST SECURITY CORPORATION - INDEX
Part I. Financial Information
Item 1. Financial Statements:
Consolidated Statements of Income
Three Months and Year-To-Date Nine Months Ended Sept. 30, 1997 and 1996
Consolidated Balance Sheets
September 30, 1997, December 31, 1996, and September 30, 1996
Condensed Consolidated Statements of Cash Flows
Year-To-Date Nine Months Ended September 30, 1997 and 1996
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition:
Highlights
Analysis of Statements of Income
Summary
Net Interest Income and Margin
Provision For Loan Losses
Noninterest Income
Noninterest Expenses
Analysis of Balance Sheets
Summary
Interest-Earning Assets and Asset Quality
Trading Account Securities and Other Interest-Earning Assets
Investment 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
Corporate Structure
Year 2000 Computer Systems Conversion
National and Regional Economy
Forward-Looking Statements
Supplemental Tables:
Financial Highlights, Risk-Based Capital Ratios
Volume / Rate Analysis
Loans
Part II. Other Information
Item 1. Legal Proceedings
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 STATEMENTS OF INCOME
(in thousands, except per share data; unaudited)
<CAPTION>
Three Months Year-To-Date Nine Months
For the Periods Ended September 30, 1997 and 1996 1997 1996 $Chg %Chg 1997 1996 $Chg %Chg
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- - ------------------------------------------------------- --------- --------- --------- ------- --------- --------- --------- -------
INTEREST INCOME:
Interest & fees on loans 240,137 201,273 38,864 19.3 664,522 579,980 84,542 14.6
Federal funds sold & securities purchased 676 669 7 1.0 1,878 3,572 (1,694) (47.4)
Interest-bearing deposits in other banks 18 210 (192) (91.4) 85 554 (469) (84.7)
Trading account securities 2,565 1,858 707 38.1 10,324 8,406 1,918 22.8
Investment securities available for sale 57,599 47,866 9,733 20.3 164,006 131,899 32,107 24.3
- - ------------------------------------------------------- --------- --------- --------- ------- --------- --------- --------- -------
TOTAL INTEREST INCOME 300,995 251,876 49,119 19.5 840,815 724,411 116,404 16.1
- - ------------------------------------------------------- --------- --------- --------- ------- --------- --------- --------- -------
INTEREST EXPENSE:
Deposits 86,962 78,727 8,235 10.5 245,611 233,020 12,591 5.4
Short-term borrowings 45,190 26,922 18,268 67.9 116,516 75,844 40,672 53.6
Long-term debt 16,338 13,225 3,113 23.5 50,352 36,869 13,483 36.6
- - ------------------------------------------------------- --------- --------- --------- ------- --------- --------- --------- -------
TOTAL INTEREST EXPENSE 148,490 118,874 29,616 24.9 412,479 345,733 66,746 19.3
- - ------------------------------------------------------- --------- --------- --------- ------- --------- --------- --------- -------
NET INTEREST INCOME 152,505 133,002 19,503 14.7 428,336 378,678 49,658 13.1
Provision for loan losses 13,770 9,508 4,262 44.8 41,593 28,751 12,842 44.7
- - ------------------------------------------------------- --------- --------- --------- ------- --------- --------- --------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 138,735 123,494 15,241 12.3 386,743 349,927 36,816 10.5
- - ------------------------------------------------------- --------- --------- --------- ------- --------- --------- --------- -------
NONINTEREST INCOME:
Service charges on deposit accounts 21,697 20,858 839 4.0 64,076 57,925 6,151 10.6
Other service charges, collections, commissions, & fees 14,324 11,527 2,797 24.3 37,422 34,665 2,757 8.0
Bankcard servicing fees & third-party processing fees 8,796 7,805 991 12.7 24,530 21,579 2,951 13.7
Insurance commissions & fees 4,163 3,640 523 14.4 12,769 10,930 1,839 16.8
Mortgage banking activities 32,740 22,513 10,227 45.4 81,921 71,705 10,216 14.2
Mortgage banking activities MSR amortization (3,877) (3,719) (158) (4.2) (11,968) (10,306) (1,662) (16.1)
Trust (fiduciary) commissions & fees 6,422 5,640 782 13.9 18,459 16,846 1,613 9.6
Trading account securities gains (losses) (244) 540 (784) (145.2) 690 2,103 (1,413) (67.2)
Investment securities available for sale gains (losses) 46 1,414 (1,368) (96.7) 2,910 2,178 732 33.6
Other 1,699 2,094 (395) (18.9) 13,850 6,962 6,888 98.9
- - ------------------------------------------------------- --------- --------- --------- ------- --------- --------- --------- -------
TOTAL NONINTEREST INCOME 85,766 72,312 13,454 18.6 244,659 214,587 30,072 14.0
- - ------------------------------------------------------- --------- --------- --------- ------- --------- --------- --------- -------
TOTAL INCOME 224,501 195,806 28,695 14.7 631,402 564,514 66,888 11.8
- - ------------------------------------------------------- --------- --------- --------- ------- --------- --------- --------- -------
NONINTEREST EXPENSES:
Salaries & employee benefits 72,240 62,775 9,465 15.1 206,865 194,693 12,172 6.3
Advertising 2,600 2,588 12 0.5 6,785 7,333 (548) (7.5)
Amortization of intangibles 3,167 1,980 1,187 59.9 7,250 6,007 1,243 20.7
Bankcard interbank interchange 7,858 6,871 987 14.4 22,444 17,388 5,056 29.1
Furniture & equipment 11,922 9,959 1,963 19.7 32,623 28,828 3,795 13.2
Insurance 1,470 1,014 456 45.0 4,464 4,456 8 0.2
Occupancy, net 8,163 7,705 458 5.9 24,232 22,217 2,015 9.1
Other real estate expense & loss provision (recovery) 628 195 433 222.1 1,522 (73) 1,595 2184.9
Postage 2,826 2,157 669 31.0 8,030 8,455 (425) (5.0)
Stationery & supplies 4,555 4,424 131 3.0 12,581 13,793 (1,212) (8.8)
Telephone 3,909 3,455 454 13.1 11,833 10,103 1,730 17.1
Other 22,033 18,128 3,905 21.5 59,164 53,489 5,675 10.6
- - ------------------------------------------------------- --------- --------- --------- ------- --------- --------- --------- -------
TOTAL NONINTEREST EXPENSES 141,371 121,251 20,120 16.6 397,793 366,689 31,104 8.5
- - ------------------------------------------------------- --------- --------- --------- ------- --------- --------- --------- -------
INCOME BEFORE PROVISION FOR INCOME TAXES 83,130 74,555 8,575 11.5 233,609 197,825 35,784 18.1
- - ------------------------------------------------------- --------- --------- --------- ------- --------- --------- --------- -------
PROVISION FOR INCOME TAXES:
Operating earnings 29,474 26,611 2,863 10.8 81,863 70,383 11,480 16.3
Securities available for sale gains (losses) 12 548 (536) (97.8) 1,136 828 308 37.2
- - ------------------------------------------------------- --------- --------- --------- ------- --------- --------- --------- -------
TOTAL PROVISION FOR INCOME TAXES 29,486 27,159 2,327 8.6 82,999 71,211 11,788 16.6
- - ------------------------------------------------------- --------- --------- --------- ------- --------- --------- --------- -------
NET INCOME 53,644 47,396 6,248 13.2 150,610 126,614 23,996 19.0
======================================================= ========= ========= ========= ======= ========= ========= ========= =======
Dividend requirement of preferred stock 7 9 (2) (22.2) 23 25 (2) (8.0)
- - ------------------------------------------------------- --------- --------- --------- ------- --------- --------- --------- -------
NET INCOME APPLICABLE TO COMMON STOCK 53,637 47,387 6,250 13.2 150,587 126,589 23,998 19.0
======================================================= ========= ========= ========= ======= ========= ========= ========= =======
Common stock dividend 19,699 15,848 3,851 24.3 56,000 47,497 8,503 17.9
======================================================= ========= ========= ========= ======= ========= ========= ========= =======
EARNINGS PER COMMON SHARE:
Earnings per common share: primary 0.45 0.41 0.04 9.8 1.29 1.09 0.20 18.3
Earnings per common share: fully diluted 0.45 0.41 0.04 9.8 1.28 1.09 0.19 17.4
Common shares: primary [Avg] 119,350 116,061 3,289 2.8 117,064 115,878 1,186 1.0
Common shares: fully diluted [Avg] 119,623 116,348 3,275 2.8 117,340 116,168 1,172 1.0
======================================================= ========= ========= ========= ======= ========= ========= ========= =======
CASH DIVIDENDS PAID OR ACCRUED PER SHARE:
Preferred stock dividend ($3.15 annual rate) 0.79 0.79 0.00 0.0 2.36 2.36 0.00 0.0
Common stock dividend 0.17 0.14 0.03 21.4 0.49 0.42 0.07 17.5
======================================================= ========= ========= ========= ======= ========= ========= ========= =======
<FN>
See "Notes to Consolidated Financial Statements".
</TABLE>
<PAGE>
<TABLE>
FIRST SECURITY CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands; unaudited)
<CAPTION>
Sept. 30 Dec. 31 Sept. 30 Sep/Sep Sep/Sep
1997 1996 1996 $ Chg % Chg
<S> <C> <C> <C> <C> <C>
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
ASSETS:
Cash & due from banks 892,500 937,144 758,493 134,007 17.7
Federal funds sold & securities purchased under resale agreements 16,796 223,235 83,568 (66,772) (79.9)
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Total Cash & Cash Equivalents 909,296 1,160,379 842,061 67,235 8.0
Interest-bearing deposits in other banks 600 31,617 46,920 (46,320) (98.7)
Trading account securities 87,154 447,486 171,910 (84,756) (49.3)
Investment securities available for sale, at fair value 3,840,970 3,150,276 3,166,608 674,362 21.3
(Amortized cost: $3,822,817; $3,148,622; and $3,179,116; respectively)
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Loans, net of unearned income 10,679,985 9,262,482 8,948,196 1,731,789 19.4
(Unearned income: $104,728; $67,396; and $57,859; respectively)
Reserve for loan losses (144,567) (134,428) (133,853) (10,714) 8.0
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Total Loans, Net 10,535,418 9,128,054 8,814,343 1,721,075 19.5
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Premises & equipment, net 267,838 233,497 229,293 38,545 16.8
Accrued income receivable 100,734 89,595 84,286 16,448 19.5
Other real estate 3,083 4,855 5,003 (1,920) (38.4)
Other assets 318,912 292,486 218,077 100,835 46.2
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Goodwill 153,298 89,142 90,987 62,311 68.5
Mortgage servicing rights 94,014 78,586 67,723 26,291 38.8
Other intangible assets 1,661 2,051 2,113 (452) (21.4)
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Total Intangible Assets 248,973 169,779 160,823 88,150 54.8
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
TOTAL ASSETS 16,312,978 14,708,024 13,739,324 2,573,654 18.7
=========================================================================== =========== =========== =========== =========== =======
LIABILITIES:
Deposits: noninterest-bearing 2,303,163 2,198,348 1,946,454 356,709 18.3
Deposits: interest-bearing 7,920,033 7,240,915 7,141,950 778,083 10.9
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Total Deposits 10,223,196 9,439,263 9,088,404 1,134,792 12.5
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Federal funds purchased & securities sold under repurchase agreements 2,914,917 2,542,592 2,159,727 755,190 35.0
U.S. Treasury demand notes 18,558 8,885 38,040 (19,482) (51.2)
Other short-term borrowings 421,447 279,156 201,442 220,005 109.2
Accrued income taxes 244,075 187,638 166,407 77,668 46.7
Accrued interest payable 45,703 41,442 39,727 5,976 15.0
Other liabilities 190,575 124,345 130,314 60,261 46.2
Long-term debt 954,463 944,055 821,932 132,531 16.1
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
TOTAL LIABILITIES 15,012,934 13,567,376 12,645,993 2,366,941 18.7
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
STOCKHOLDERS' EQUITY:
Preferred stock: Series "A" $3.15 cumulative convertible 510 540 549 (39) (7.1)
(Shares issued: 10; 10; and 10; respectively)
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Common Stockholders' Equity:
Common stock: par value $1.25 145,850 143,007 142,820 3,030 2.1
(Shares issued: 116,680; 114,405; and 114,256; respectively)
Paid-in surplus 140,970 82,729 78,462 62,508 79.7
Retained earnings 1,017,955 923,375 889,551 128,404 14.4
Net unrealized gain (loss) on investment securities AFS (net of taxes) 11,652 877 (8,051) 19,703 (244.7)
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Subtotal 1,316,427 1,149,988 1,102,782 213,645 19.4
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Common treasury stock, at cost (16,893) (9,880) (10,000) (6,893) 68.9
(Shares: 842; 846; and 861; respectively)
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Total Common Stockholders' Equity 1,299,534 1,140,108 1,092,782 206,752 18.9
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
TOTAL STOCKHOLDERS' EQUITY 1,300,044 1,140,648 1,093,331 206,713 18.9
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY 16,312,978 14,708,024 13,739,324 2,573,654 18.7
=========================================================================== =========== =========== =========== =========== =======
<FN>
See "Notes to Consolidated Financial Statements".
</TABLE>
<PAGE>
<TABLE>
FIRST SECURITY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except number of shares; unaudited)
<CAPTION>
For the Nine Months Ended September 30, 1997 1996
<S> <C> <C>
- - --------------------------------------------------------------------------------- -------------- --------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 594,675 860,156
- - --------------------------------------------------------------------------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investment securities available for sale 279,978 80,079
Redemption of matured investment securities available for sale 679,451 787,198
Purchases of investment securities available for sale (1,517,040) (1,443,765)
Net (increase) decrease in interest-bearing deposits in other banks 31,117 (25,357)
Net (increase) decrease in loans (1,322,836) (935,285)
Proceeds from sales of auto loans 0 0
Purchases of premises and equipment (25,571) (34,539)
Proceeds from sales of other real estate 4,287 3,669
Payments to improve other real estate (1,694) (3,676)
Net cash (paid for) received from acquisitions 32,189 0
- - --------------------------------------------------------------------------------- -------------- --------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (1,840,119) (1,571,676)
- - --------------------------------------------------------------------------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 586,921 314,762
Net increase (decrease) in Federal funds purchased, securities sold
under repurchase agreements, and U.S. Treasury demand notes 342,728 226,414
Proceeds from issuance of nonrecourse debt on leveraged leases 35,892 11,103
Payments on nonrecourse debt on leveraged leases (24,557) 0
Proceeds from issuance of long-term debt and short-term borrowings 201,438 205,423
Payments on long-term debt and short-term borrowings (48,796) (129,906)
Proceeds from issuance of common stock and sales of treasury stock 9,371 8,498
Purchases of treasury stock (52,613) (1,925)
Dividends paid (56,023) (47,521)
- - --------------------------------------------------------------------------------- -------------- --------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 994,361 586,848
- - --------------------------------------------------------------------------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (251,083) (124,672)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,160,379 966,733
- - --------------------------------------------------------------------------------- -------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD 909,296 842,061
================================================================================= ============== ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
- - --------------------------------------------------------------------------------- -------------- --------------
CASH PAID (RECEIVED) FOR:
Interest 408,218 354,742
Income taxes 28,916 22,162
================================================================================= ============== ==============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Conversion of preferred shares to common shares:
Number of preferred shares converted 553 413
Number of common shares issued 13,728 6,736
Conversion value 29 22
Transfer of loans to other real estate 1,785 652
Net unrealized gain (loss) on investment securities available for sale
included in stockholders' equity 10,776 (22,598)
Acquisitions:
Assets acquired 369,829 0
Liabilities assumed 272,768 0
Number of FSCO shares issued 3,574,159 0
================================================================================= ============== ==============
<FN>
See "Notes to Consolidated Financial Statements".
</TABLE>
<PAGE>
FIRST SECURITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of management, the accompanying unaudited consolidated
financial statements of First Security Corporation (FSCO) contain all
adjustments (consisting of normal recurring accruals) necessary to present
fairly, in all material respects, FSCO's: results of operations for the three
months and the year-to-date nine months in the periods ended September 30, 1997
and 1996; financial position as of September 30, 1997, December 31, 1996, and
September 30, 1996; and cash flows for the year-to-date nine months in the
periods ended September 30, 1997 and 1996.
2. FSCO's results of operations for the three months and the year-to-date
nine month periods ended September 30, 1997 and 1996 are not necessarily
indicative of the results to be expected for the full year.
3. All common stock and earnings per share data in this report reflect a
3-for-2 common stock split in the form of a 50% stock dividend paid in May
1997.
4. For purposes of reporting cash flows, cash and cash equivalents included
cash and due from banks, as well as Federal funds sold and securities purchased
under resale agreements.
5. FSCO's financial statements and commentary incorporate fair market
values for balances added from purchase transactions and historical values for
balances added from pooling-of-interests mergers, as well as earnings since
their acquisition, from three acquisitions completed in year-to-date 1997 (see:
MDA "Mergers and Acquisitions").
* Effective January 1, 1997, FS Insurance acquired Olson & Haig Employee
Benefits Inc. / SKI-MED, a developer of specialty benefit, group health, and
incentive programs.
* On March 31, 1997, CrossLand Mortgage purchased the wholesale loan
production branch operations of Harbourton Mortgage Co., L.P., with 15 offices
located in 11 states and which originated $2.7 billion in mortgage loans during
1996. Harbourton Mortgage was previously a subsidiary of Harbourton Financial
Services, L.P. (NYSE: HBT).
* On June 30, 1997, American Bancorp of Nevada (ABN), headquartered in Las
Vegas, Nevada, was acquired and merged into FSCO, and its wholly owned
subsidiary American Bank of Commerce, with 5 branches, total assets of $304
million, total loans of $146 million, and total deposits of $234 million, was
merged into FSCO's First Security Bank of Nevada (FSB Nevada).
Pro forma results of operations for 1997 and 1996, as if the above companies
purchased had combined at the beginning of the periods, are not presented
because the effect was not material.
6. In accordance with SFAS No. 125, FSCO's capitalized mortgage servicing
rights for the nine months ended September 30, 1997 included $24.2 million
originated and $12.0 million amortized during the period.
7. In February 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 128, "Earnings Per Share", which establishes standards for computing
and presenting earnings per share (EPS). This Statement simplifies the
standards for computing earnings per share previously found in APB Opinion No.
15, "Earnings Per Share", and makes them comparable to international EPS
standards. It replaces the presentation of primary EPS with a presentation of
basic EPS. It also requires dual presentation of basic and diluted EPS on the
face of the income statement for all entities with complex capital structures
and requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation.
SFAS No. 128 is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods; earlier application is not
permitted. This Statement requires restatement of all prior period EPS data
presented. The adoption of SFAS No. 128 is not expected to have a material
impact on FSCO.
FSCO's pro-forma basic EPS, reflecting the 3-for-2 common stock split, were
$1.33 for the first nine months of 1997, up $0.21 or 18.8% from $1.12 for the
year-ago period, and were $0.46 for the third quarter of 1997, up $0.04 or 9.5%
from $0.42 for the year-ago quarter.
8. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", which establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains, and losses) in a full set
of general-purpose financial statements. This Statement requires that all
items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. This
Statement does not require a specific format for that financial statement but
requires that an enterprise display an amount representing total comprehensive
income for the period in that financial statement.
SFAS No. 130 is effective for fiscal years beginning after December 15,
1997. Reclassification of financial statements for earlier periods provided
for comparative purposes is required.
9. In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information", which establishes standards for the
way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographical areas, and major
customers. This Statement supersedes SFAS No. 14, "Financial Reporting for
Segments of a Business Enterprise", but retains the requirement to report
information about major customers. It amends SFAS No. 94, "Consolidation of
All Majority-Owned Subsidiaries", to remove the special disclosure requirements
for previously unconsolidated subsidiaries.
SFAS No. 131 is effective for financial statements for periods beginning
after December 15, 1997. In the initial year of application, comparative
information for earlier years is to be restated. This Statement need not be
applied to interim financial statements in the initial year of its application,
but comparative information for interim periods in the initial year of
application is to be reported in financial statements for interim periods in
the second year of application.
The adoption of SFAS No. 131 will result in additional disclosures regarding
segments.
10. On January 31, 1997, the Securities and Exchange Commission (SEC) issued
final rules to clarify and expand existing disclosure requirements for
derivative financial instruments, other financial instruments, etc. Included
is Rule 210.4-08(n) of Regulation S-X "Accounting policies for certain
derivative instruments" which is effective, and disclosures under that rule are
required, for filings with the SEC that include financial statements for fiscal
periods ending after June 15, 1997.
Derivative products used by FSCO include financial futures, option
contracts, interest rate swaps, caps, floors, and interest rate corridors.
Financial futures are accounted for by daily recording the net change in the
futures contract value. This value is settled daily in cash. Net gains or
losses resulting from FSCO's daily settlements are included with the trading
account securities gains (losses) in the consolidated statements of income.
Options contracts are marked to market monthly with net gains or losses
recognized currently in trading securities gains (losses) in the consolidated
statements of income. Cash is exchanged with the counterparties on the option
contracts' settlement date.
Interest rate swaps, caps, floors, and corridors are used in FSCO's interest
rate risk management activities and are classified as hedges or matched
transactions, i.e. these derivative products can be identified as hedging a
specific asset or liability and, therefore, are accounted for using settlement
or hedge accounting. FSCO has established policies and procedures which govern
the use of these derivative products. In addition, FSCO regularly reviews
these derivatives for effectiveness, market risk, and counterparty credit
exposure. These derivative agreements are designated with the principal
balance and term of specific debt obligations or loan balances. Net income /
expense is recognized in net interest income in the consolidated statements of
income. Gains and losses on termination of these derivative agreements are
deferred as an adjustment to the carrying amount of the outstanding assets or
liabilities and amortized as an adjustment to interest expense or income over
the remaining term of the original contract life of the terminated derivative
agreement. In the event of the early extinguishment of a designated asset or
debt obligation, any realized or unrealized gain or loss from the derivative
agreement would be recognized in income coincident with the extinguishment.
FSCO's policies regarding its use of settlement or hedge accounting were
discussed in greater detail in its 1996 Form 10-K (hereby incorporated by
reference).
# # #
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (MDA)
HIGHLIGHTS
Highlights for First Security Corporation (FSCO) for the first nine months and
the third quarter of 1997, compared to corresponding periods in 1996, included:
RESULTS OF OPERATIONS (compared with respective year-ago periods)
* Net income of $150.6 million for the year to date, up $24.0 million or 19.0%,
and $53.6 million for the quarter, up $6.2 million or 13.2%.
* Fully diluted earnings per share of $1.28 for the year to date, up $0.19 or
17.4%, and $0.45 for the quarter, up $0.04 or 9.8%.
* Total income was $631.4 million for the year to date, up $66.9 million or
11.8%, and was $224.5 million for the quarter, up $28.7 million or 14.7%.
* Consolidated operating expense ratio improved to 58.57% for the year to date
and 58.76% for the quarter.
FINANCIAL CONDITION AT SEPTEMBER 30, 1997 (compared with September 30, 1996)
* Record total assets of $16.3 billion, up $2.6 billion or 18.7%.
* Record loans of $10.7 billion, up $1.7 billion or 19.4%.
* Record stockholders' equity of $1.3 billion, up $207 million or 18.9%.
* Ratio of total problem assets to total loans & ORE at 0.54%, down from 0.60%.
* Ratio of reserve to total loans at 1.35%, down from 1.50%.
* Ratio of reserve to nonaccruing loans at 408.68%, up from 400.75%.
* All equity and risk-based capital ratios continued to exceed regulatory
requirements for "well capitalized" status.
OTHER HIGHLIGHTS
* On October 20, 1997, FSCO announced an agreement to acquire Rio Grande
Bancshares, Inc. (located in New Mexico) and its two subsidiary banks.
ANALYSIS OF STATEMENTS OF INCOME
SUMMARY
[Note: all common stock and earnings per share data reflect a 3-for-2 common
stock split in the form of a 50% stock dividend paid in May 1997.]
FSCO's net income totaled $150.6 million for year-to-date 1997, up $24.0
million or 19.0% from $126.6 million earned in the corresponding year-to-date
1996 period (see: Financial Statements "Consolidated Income Statements"; and
MDA Supplemental Tables "Financial Highlights"). This net income generated a
1.36% return on average assets (ROAA) and a 16.96% return on average equity
(ROAE) for year-to-date 1997, up from a 1.32% ROAA and a 16.03% ROAE for the
1996 period. Fully diluted earnings per share were $1.28 for year-to-date
1997, up $0.19 or 17.4% from $1.09 for the year-ago period. The tangible ROAA
was 1.51%, the tangible ROAE was 22.33%, and tangible fully diluted earnings
per share were $1.41 for year-to-date 1997, compared with a 1.47% tangible
ROAA, a 20.62% tangible ROAE, and tangible fully diluted earnings per share of
$1.19 for the year-ago period.
Net income was $53.6 million for the third quarter of 1997, up $6.2 million
or 13.2% from $47.4 million earned in the third quarter of 1996. This net
income generated a 1.36% ROAA and a 16.62% ROAE for the quarter, compared with
a 1.43% ROAA and a 17.55% ROAE for the year-ago quarter. Fully diluted
earnings per share were $0.45 for the quarter, up $0.04 or 9.8% from $0.41 for
the year-ago quarter. The tangible ROAA was 1.56%, the tangible ROAE was
23.23%, and tangible fully diluted earnings per share were $0.51 for the third
quarter of 1997, compared with a 1.60% tangible ROAA, a 22.67% tangible ROAE,
and tangible fully diluted earnings per share of $0.44 for the year-ago
quarter.
NET INTEREST INCOME AND MARGIN
FSCO's net interest income on a fully taxable equivalent (FTE) basis totaled
$434.5 million for year-to-date 1997, up $50.6 million or 13.2% from the year-
ago period, and was $154.8 million for the third quarter of 1997, up $20.1
million or 14.9% from the year-ago quarter (see: MDA Supplemental Tables
"Financial Highlights" and "Volume / Rate Analysis"). These increases were due
primarily to volume growth in loans and in investment securities, inclusive of
the impact of various asset securitizations and / or sales during the first and
second quarters of 1997, and partially offset by volume growth of average
interest-bearing liabilities. The asset securitizations and / or sales
included: the securitization and sale of $300 million of direct and indirect
auto loans during the first quarter of 1997; the sale of $99 million of
mortgage loans in the second quarter of 1997; and the direct sale of $23.3
million of leases during the third quarter of 1997. On a linked-quarter
basis, FSCO's net interest margin increased 8 basis points from the second
quarter of 1997. The net interest margin was 4.40% for year-to-date 1997, down
only 7 basis points from the year-ago period, and was 4.45% for the third
quarter of 1997, down 12 basis points from the year-ago quarter. These
decreases were due primarily to the combined impact of increased short term
borrowed funds and $300 million of long-term debt issued in the fourth quarter
of 1996 to take advantage of relatively low long-term interest rates. FSCO
expects that its full year 1997 quarterly net interest margin will range in a
band from approximately 4.40% to 4.50%
PROVISION FOR LOAN LOSSES
FSCO's provision for loan losses totaled $41.6 million for year-to-date
1997, up $12.8 million or 44.7% from the year-ago period, and was $13.8 million
for the third quarter of 1997, up $4.3 million or 44.8% from the year-ago
quarter (see: MDA "Interest-Earning Assets and Asset Quality: Provision For
Loan Losses").
NONINTEREST INCOME
FSCO's noninterest income totaled $244.7 million for year-to-date 1997, up
$30.1 million or 14.0% from the year-ago period, and was $85.8 million for the
third quarter of 1997, up $13.5 million or 18.6% from the year-ago quarter
(see: Financial Statements "Consolidated Income Statements"). These increases
were the result of FSCO's continued emphasis on increasing and diversifying
sources of noninterest income and improving the value pricing of all fee-based
services. In addition, year-to-date gains on the ongoing sale of loans and
loan servicing included: a $6.0 million gain on the securitization and sale of
$300 million of direct and indirect auto loans during the first quarter of
1997; a $2.5 million gain on the sale of servicing rights for $500 million of
real estate loans in the first quarter of 1997; a $1.6 million gain on the sale
of $99 million of mortgage loans in the second quarter of 1997, and a $1.1
million gain on the direct sale of $23.3 million of leases during the third
quarter of 1997.
FSCO's total income was $631.4 million for the year to date, up $66.9
million or 11.8%, and was $224.5 million for the quarter, up $28.7 million or
14.7%.
NONINTEREST EXPENSES
FSCO's noninterest expenses totaled $397.8 million for year-to-date 1997, up
$31.1 million or 8.5% from the year-ago period, and were $141.4 million for the
third quarter of 1997, up $20.1 million or 16.6% from the year-ago quarter
(see: Financial Statements "Consolidated Income Statements"). FSCO has
strengthened its ability to control noninterest expenses, as increases were
primarily due to additions of revenue-generating personnel and facilities,
acquisitions, technology, and the result of volume growth, particularly in
bankcard interbank expense. In addition, year-to-date reductions were achieved
in stationery and supplies, advertising, and postage expenses.
FSCO's operating expense ratio (the ratio of noninterest expenses to the sum
of net interest income FTE and noninterest income) was reduced to 58.57% for
year-to-date 1997, an improvement of 269 basis points from the year-ago period,
and was 58.76% for the third quarter of 1997, essentially unchanged from the
year-ago quarter.
CrossLand Mortgage has a higher operating expense ratio than FSCO's bank
subsidiaries, due to its labor intensive business of originating, selling, and
servicing mortgage loans. Excluding the impact of CrossLand Mortgage, FSCO's
"core" efficiency ratio was 56.35% for year-to-date 1997, an improvement of 261
basis points from the year-ago period "core", and was 57.73% for the third
quarter of 1997.
ANALYSIS OF BALANCE SHEETS
SUMMARY
FSCO's assets totaled a record $16.3 billion at September 30, 1997, up $2.6
billion or 18.7% from September 30, 1996, and up $1.6 billion or 10.9% from
December 31, 1996. Interest-earning assets were also a record $14.6 billion at
quarter end, up $2.2 billion or 17.8% from one year ago, and up $1.5 billion or
11.5% from year-end 1996 (see: MDA "Interest-Earning Assets and Asset
Quality").
At September 30, 1997, FSCO considered its interest-earning asset quality to
remain good, and its reserve for loan losses and its liquidity position to be
adequate for the foreseeable future.
Intangible assets were $249.0 million at quarter end, up from one year ago
and year-end 1996 due to goodwill associated with recent acquisitions and
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 $15.0 billion at September 30, 1997, up $2.4
billion or 18.7% from one year ago, and up $1.4 billion or 10.7% from year end.
Total interest-bearing liabilities were $12.2 billion at quarter end, up $1.9
billion or 18.0% from one year ago, and up $1.2 million or 11.0% from year end
(see: MDA "Liquidity").
Stockholders' equity in FSCO was a record $1.3 billion at September 30,
1997, up $206.7 million or 18.9% from one year ago, and up $159.4 million or
14.0% from year-end 1996 (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:
TRADING ACCOUNT SECURITIES AND OTHER INTEREST EARNING ASSETS
FSCO's trading account securities portfolio was $87.2 million at September
30, 1997, down $84.8 million or 49.3% from one year ago, and down $360.3
million or 80.5% from year end. Fluctuations in trading opportunities have
generally decreased over the past twelve months due to the stability in
interest rates with the exception of year-end opportunities which recur
seasonally.
Fluctuations in Federal funds sold and interest-bearing deposits held in
other banks occur in response to changing yield opportunities and liquidity.
INTEREST-EARNING ASSETS and ASSET QUALITY:
INVESTMENT SECURITIES
Since December 1995, FSCO has managed its entire investment securities
portfolio under the "available for sale" (AFS) classification.
FSCO's investment securities AFS were $3.8 billion at September 30, 1997, up
$674 million or 21.3% from one year ago, and up $691 million or 21.9% from year
end, due to a combination of growth consistent with overall balance sheet
growth, acquisitions of banks, and spread opportunities in the markets. The
SFAS No. 115 net unrealized gain (loss) on investment securities available for
sale generally responds inversely to changes in interest rates. The recent
increase in gains was due to a combination of new purchases and market value
improvements.
INTEREST-EARNING ASSETS and ASSET QUALITY:
LOANS
FSCO's loan portfolio, net of unearned income but before the reserve for
loan losses, was a record $10.7 billion at September 30, 1997, up $1.7 billion
or 19.4% from one year ago, and up $1.4 billion or 15.3% from year end (see:
MDA Supplemental Tables "Loans" and "Financial Highlights"). This growth was
the result of very strong continued loan demand, combined with $284 million in
real estate loans added with the acquisition of Harbourton Mortgage Co., L.P.
(Harbourton) and $146 million in total loans added with the acquisition of
American Bancorp of Nevada (ABN), that were only partially offset by loan
securitizations and sales (see: "Notes to Consolidated Financial Statements"
and MDA "Mergers and Acquisitions"). The ratio of total loans to total assets
was 65.47% at quarter end, up slightly from 65.13% one year ago, and up from
62.98% at year end. The components of FSCO's loan portfolio at September 30,
1997, compared with September 30, 1996, and December 31, 1996, respectively,
are discussed below.
* Commercial loans were $2.5 billion, up $429 million or 20.4% from one year
ago, and up $379 million or 17.6% from year end. These increases were due
primarily to a continued broad-based business expansion in FSCO's market areas.
Commercial loans consist primarily of loans to small and medium-sized
businesses and agricultural loans.
* Real estate secured loans were $4.0 billion, up $663 million or 19.6% from
one year ago, and up $666 million or 19.7% from year end. These increases were
due primarily to loans added with the Harbourton and ABN acquisitions.
Increases in loan production generated by seasonal factors and lower interest
rates were mostly offset by higher ongoing mortgage loan sales. For balance
sheet management purposes, FSCO does not retain all newly originated mortgage
loans but regularly sells a portion in secondary markets. Mortgage loan
originations totaled $3.3 billion for year-to-date 1997, up $808 million or
31.8% from the year-ago period. At September 30, 1997, $859 million of these
loans were held for sale, up $451 million or 110.4% from one year ago, and up
$529 million or 160.3% from year end.
* Consumer loans were $3.2 billion, up $367 million or 13.2% from one year
ago, and up $172 million or 5.8% from year end, due primarily to growth in auto
lending. Indirect auto loan originations totaled $1.5 billion for year-to-date
1997, up $432 million or 40.7% from the year-ago period. This growth was
partially offset by the securitizations and sales of $300 million of auto loans
during the first quarter of 1997. FSCO remains the leading consumer lender in
its primary market area. Because FSCO is significantly involved in consumer
lending, it uses loan securitization as a tool to manage the size of its
consumer loan portfolio.
* Leases were $953 million, up $272 million or 40.0% from one year ago, and
up $200 million or 26.6% from year end. These increases were due primarily to
FSCO's growth in the auto and equipment leasing markets, partially offset by
the direct sale of $23.3 million of leases during the third quarter of 1997.
INTEREST-EARNING ASSETS AND ASSET QUALITY:
PROBLEM ASSETS AND POTENTIAL PROBLEM ASSETS
Strong asset quality continues to be a primary objective for FSCO. However,
economic cycles and loan-specific events can cause periodic fluctuations in
problem assets.
FSCO considered its interest-earning asset quality to be good, as the ratio
of problem assets to total loans and other real estate (ORE) was 0.54% at
September 30, 1997, down slightly from 0.60% one year ago and 0.62% at year-end
1996, and the lowest since June 30, 1996. Problem assets totaled $57.6 million
at September 30, 1997, up $3.5 million or 6.4% from one year ago, but
essentially unchanged from year end (see: MDA Supplemental Tables "Financial
Highlights - Problem Assets, - Selected Ratios"). The components of FSCO's
problem assets at September 30, 1997, compared with September 30, 1996, and
December 31, 1996, are discussed below.
* The ratio of nonaccruing loans to total loans was 0.33%, compared to 0.37%
for one year ago and 0.36% for year end. Nonaccruing loans were $35.4 million,
up $2.0 million or 5.9% from one year ago, and up $2.1 million or 6.3% from
year end. These increases included residential mortgage, residential
construction, and miscellaneous commercial loans. The majority of nonaccruing
real estate loans were 1 to 4 family residential mortgage term and construction
loans, which generally have a much lower rate of actual losses than other types
of nonaccruing loans.
* Other real estate was $3.1 million, down $1.9 million or 38.4% from one
year ago, and down $1.8 million or 36.5% from year end. These decreases were
due to the sale of one large property and several smaller ones. 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.
* The ratio of accruing loans past due 90 days or more to total loans was
0.18%, unchanged from 0.18% one year ago, and down from 0.21% at year end.
Accruing loans past due 90 days or more were $19.1 million, up $3.4 million or
21.7% from one year ago, but down slightly from year end. The increase from
one year ago was primarily due to consumer loans, combined with some commercial
real estate.
FSCO's asset quality indicators remained at favorable levels in comparison
to that of its peer group as reported in the March 31, 1997 Bank Holding
Company Performance Report (BHCPR), which was the most recent data available.
As of March 31, 1997, FSCO's ratio of nonaccruing loans to total loans was
0.34%, which compared favorably with the 0.63% reported for FSCO's peer group
in the BHCPR, while FSCO's ratio of accruing loans past due 90 days or more to
total loans was 0.23%, which compared favorably with the 0.27% reported for
FSCO's peer group in the BHCPR.
Potential problem loans identified by FSCO were $11.7 million, down $0.6
million or 5.1% from one year ago, but up $3.4 million or 40.9% from year end.
The decrease from one year ago was due to two large commercial credits which
have improved, while the increase from year end occurred primarily in
residential construction and small business loans. Potential problem loans
consisted primarily of commercial and residential construction loans.
INTEREST-EARNING ASSETS AND ASSET QUALITY:
RESERVE FOR LOAN LOSSES
The adequacy of FSCO's reserve for loan losses is evaluated quarterly based
on policies established by the board of directors of its subsidiary banks, by
regulatory and accounting guidelines, and industry practices. Most
specifically, FSCO follows the Comptroller of the Currency's regulations and
guidelines for determining the appropriate level of the reserve for loan
losses.
FSCO's reserve for loan losses was increased to $144.6 million at September
30, 1997, up $10.7 million or 8.0% from one year ago, and up $10.1 million or
7.5% from year end 1996 (see: MDA Supplemental Tables "Financial Highlights -
Reconciliation of the Reserve For Loan Losses"). These increases included $6.3
million in additions to the reserve over the last 12 months as FSCO responded
primarily to loan growth, and $4.5 million in reserves added with the June 30,
1997 acquisition of American Bancorp of Nevada (ABN) (see: MDA "Mergers and
Acquisitions").
Based on its analysis of reserve adequacy, FSCO considered its reserve for
loan losses at September 30, 1997 to be adequate to absorb estimated loan
losses in the current loan portfolios. The coverage ratio of the reserve to
nonaccruing loans was 408.68% at September 30, 1997, up slightly from 400.75%
one year ago and 403.98% at year end (see: MDA Supplemental Tables "Financial
Highlights - Selected Ratios"). The ratio of the reserve to total loans was
1.35% at September 30, 1997, down from 1.50% one year ago and 1.45% at year
end.
Net loans charged off were $35.9 million for year-to-date 1997, up $11.0
million or 44.3% from the year ago period, and were $10.8 million for the third
quarter of 1997, up $1.5 million or 16.1% from the year ago quarter (see: MDA
Supplemental Tables "Financial Highlights - Reconciliation of the Reserve For
Loan Losses"). These increases were due primarily to higher consumer losses
following national trends and an increase in the charge off of smaller
commercial credits. The annualized ratio of net loans charged off to average
loans was 0.49% for year-to-date 1997, up from 0.39% for the year-ago period
and 0.41% for all of 1996, and was 0.41% for the third quarter of 1997,
compared with 0.42% for the year ago quarter.
FSCO uses the provision for loan losses to adjust the reserve when a
replenishment or addition is appropriate.
INTEREST-EARNING ASSETS AND ASSET QUALITY:
PROVISION FOR LOAN LOSSES
FSCO's provision for loan losses totaled $41.6 million for year-to-date
1997, up $12.8 million or 44.7% from the year-ago period, and was $13.8 million
for the third quarter of 1997, up $4.3 million or 44.8% 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 included
additions in response to loan growth and $4.5 million in reserves added with
the ABN acquisition.
ASSET / LIABILITY MANAGEMENT
FSCO's asset / liability management committee (ALCO) process is responsible
for the identification, assessment, and management of interest rate risk,
liquidity, and capital adequacy (see: MDA "Stockholders' Equity and Capital
Adequacy") for FSCO and its subsidiaries. Formal policies and procedures
govern the ALCO process. This process, structured by FSCO's senior management
and approved by its board of directors, guides FSCO and each subsidiary bank
continuously through changing economic and market events.
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 use of
debt, and from a high quality investment securities portfolio (see: MDA
"Interest-Earning Assets and Asset Quality"). Maturing balances in the large
loan portfolios provide flexibility in managing cash flows. Assets may also be
sold or securitized in order to provide funding. The ability to redeploy these
funds is an important source of medium to long term liquidity. FSCO monitors
its liquidity levels on a daily basis through its Capital Markets / Treasury
area and on a monthly basis through its ALCO process.
FSCO has had continued success during 1997 in obtaining core deposits,
without having to offer above-market interest rates, through market growth,
special programs, and the efforts of its branch system. As a result, FSCO has
been able to maintain a strong, stable net interest margin as well as adequate
liquidity. FSCO has also utilized external funding sources, such as corporate
and bank notes as well as securitizations, in its normal course of business.
These funding sources have enabled FSCO to maximize earning assets while
continuing to maintain satisfactory liquidity goals. FSCO will avail itself of
opportunities in the European Medium Term Note market and will use Federal Home
Loan Bank Notes to provide additional sources of funding. Additionally, plans
are in place to effect auto and mortgage loan securitizations during the next
five months.
Backup sources of liquidity are provided by: credit lines to FSCO; Federal
funds lines carried by FSCO's subsidiary banks; borrowings from the Federal
Home Loan Bank; bank note issuances by FSCO's subsidiary banks; and borrowings
from the Federal Reserve System.
Deposits were $10.2 billion at September 30, 1997, up $1.1 billion or 12.5%
from one year ago, and up $0.8 billion or 8.3% from year end (see: Financial
Statements "Consolidated Balance Sheets"; and MDA Supplemental Tables "Volume /
Rate Analysis"). These increases were due to FSCO's continued emphasis on its
deposit gathering functions and the success of several deposit programs
oriented to customers' needs combined with $234 million in deposits added with
the ABN acquisition (see: MDA "Mergers and Acquisitions"). The ratio of loans
to deposits was 104.47% at quarter end, up from 98.46% one year ago, and up
from 98.13% at year end. This ratio, as well as other loan and liquidity
ratios, vary with changes in economic cycles and are monitored closely through
FSCO's ALCO process to ensure that the proper balance is maintained between
risk and economic opportunities.
Debt, which included short-term borrowings and long-term debt, totaled $4.3
billion at September 30, 1997, up $1.1 billion or 33.8% from one year ago, and
up $0.5 billion or 14.2% from year end (see: Financial Statements "Consolidated
Balance Sheets"). The components of FSCO's debt at September 30, 1997,
compared with September 30, 1996, and December 31, 1996, are discussed below.
Federal funds purchased and securities sold under repurchase agreements were
$2.9 billion, up $0.8 billion or 35.0% from one year ago, and up $0.4 billion
or 14.6% from year end. These increases occurred as FSCO funded, on an interim
basis, approximately $200 million of loan growth generated by business-cycle
opportunities in its market areas, and funded approximately $700 million of
growth in investment securities through repurchase agreements.
* All other short-term borrowed funds were $440.0 million, up $200.5 million
or 83.7% from one year ago, and up $152.0 million or 52.8% from year end.
These increases were due to maturing issues formerly classified as long-term
debt.
* Long-term debt was $954.5 million, up $132.5 million or 16.1% from one
year ago, and up $10.4 million or 1.1% from year end. The increase from one
year ago included: the November 21, 1996 issuance of $150 million of 6.875%
Senior Notes due in 2006; the December 23, 1996, issuance of $150 million of
8.41% Capital Income Securities due in 2026 (see "Stockholders' Equity and
Capital Adequacy"); and new Federal Home Loan Bank borrowings. These increases
were partially offset by the ongoing maturity of existing long-term debt. On
October 10, 1997, FSCO issued $300 million of Floating Rate European Medium
Term Notes due in 2002 under a $1 billion program. This is part of FSCO's use
of diverse funding sources discussed above.
ASSET / LIABILITY MANAGEMENT:
INTEREST RATE RISK
During the 12 months ended September 30, 1997, FSCO continued to maintain a
relatively neutral interest rate risk position and a conservative balance
sheet. As of September 30, 1997, FSCO exhibited a slight liability
sensitivity at the one-year time frame and minimal overall interest rate risk.
During the 12-month period, a strong regional economy resulted in loan
growth of $1.7 billion or 19.4%, while successful deposit promotions helped to
generate deposit growth of $1.1 billion or 12.5%, which was a healthy increase
but not sufficient to entirely fund the loan growth. FSCO utilized external
funding sources to support a portion of its asset growth, including the
issuance of $150 million of 6.875% Senior Notes and the issuance of $150
million of 8.41% Capital Income Securities (see: MDA "Asset / Liability
Management - Liquidity"). Additionally, maturing FHLB debt was replaced with
new 2- to 3-year FHLB funding.
FSCO took advantage of its strong capital ratios and further leveraged the
balance sheet in 1996 and 1997 through an increase in the investment securities
portfolio of $674 million or 21.3%. This increase was primarily funded through
the use of repurchase agreements. As of September 30, 1997, FSCO's off-
balance sheet instruments used for interest rate risk management activities,
including interest rate swaps, caps, and corridors, were $1.8 billion notional
amount. Excluding CrossLand Mortgage for which year end data was not
available, off-balance sheet instruments used for interest rate risk management
activities were $369 million notional amount, compared with $618 million
notional amount at year end. Also at September 30, 1997, FSCO's financial
futures and options contracts related to trading account securities totaled
$16.2 billion notional par value, up from $10.1 billion notional par value at
year end. Fluctuations in these positions are common as traders take advantage
of opportunities in the short term futures and options markets.
STOCKHOLDERS' EQUITY and CAPITAL ADEQUACY
FSCO's stockholders' equity was a record $1.3 billion at September 30, 1997,
up $207 million or 18.9% from one year ago, and up $159 million or 14.0% from
year-end 1996 (see: Financial Statements "Consolidated Balance Sheets"). This
growth was due to earnings retained, the issuance of 3.6 million shares of new
common stock for the ABN acquisition, and the impact of the SFAS 115 net
unrealized gain (loss) on investment securities available for sale. These
increases were partially offset by repurchases of common stock in the public
markets totaling 2.3 million shares for year-to-date 1997. The ratio of
stockholders' equity to total assets was 7.97% at September 30, 1997,
essentially unchanged from 7.96% one year ago but up from 7.76% at year end
(see: MDA Supplemental Tables "Financial Highlights - Selected Ratios"). The
ratio of tangible common equity to tangible assets was 6.54% at September 30,
1997, down from 6.86% one year ago and 6.67% at year end, reflecting the
goodwill recognized with the ABN merger and the ongoing origination of mortgage
servicing rights.
Application of SFAS 115 has resulted in, and will continue to result in,
additions to or deductions from FSCO's total stockholders' equity due to
fluctuations in the fair value of investment securities. These fluctuations
are shown in the "Net unrealized gain (loss) on investment securities available
for sale" component of equity.
During the fourth quarter of 1996, FSCO issued $150 million of 8.41% Capital
Income Securities due in 2026. Although included in "Long-Term Debt" rather
than "Stockholders' Equity" on FSCO's financial statements, regulations permit
these Capital Income Securities to be included in Tier 1 Capital for purposes
of calculating the Tier 1 Leverage ratio and FSCO's risk-based capital ratios.
FSCO's risk-based capital ratios remained strong at September 30, 1997 due
to earnings retained, the above-mentioned issuance of Capital Income
Securities, and the impact of the SFAS 115 net unrealized gain (loss) on
investment securities available for sale (see: MDA Supplemental Tables
"Financial Highlights - Risk-Based Capital Ratios"). FSCO's risk-based capital
ratios at September 30, 1997, September 30, 1996, and December 31, 1996,
respectively, were: Tier 1 at 10.70%, compared with 10.10% and 11.34%; and
Total Capital at 13.60%, compared with 13.36% and 14.50%. At the same time
periods, the leverage ratio was 7.90%, compared with 7.34% and 8.16%.
FSCO and its subsidiary banks have exceeded regulatory requirements for
"well capitalized" status every year since these requirements were established.
It is FSCO's policy to maintain the "well capitalized" status at both the
consolidated and subsidiary bank levels.
With its strong equity and risk-based capital ratios, FSCO is well
positioned to selectively invest in profitable business opportunities, while
maintaining capital ratios at levels determined to be prudent and conservative
by management.
COMMON AND PREFERRED STOCK
FSCO's common stock is traded on Nasdaq under the symbol FSCO, and is
included in the Standard & Poors' "MidCap 400 Index", and the Keefe, Bruyette &
Woods, Inc. "KBW 50 Index".
On October 27, 1997, FSCO declared a regular quarterly common stock dividend
of $0.17 per share. This dividend is payable on December 1, 1997, to
shareholders of record on November 10, 1997, and equates to an annual dividend
rate of $0.68 per share. At the market closing price of $29.00 per share on
Friday, October 31, 1997 (before the announcement of the dividend), the annual
dividend yield on FSCO common stock would have been approximately 2.34%.
The December 1, 1997 dividend is the 171st common stock dividend declared by
FSCO, and marks the 63rd consecutive year in which FSCO has paid cash dividends
on its common stock. National and state banking and insurance regulations
impose restrictions on the ability of FSCO's bank and insurance subsidiaries to
transfer funds to FSCO in the form of loans or dividends. Such restrictions
have not had, nor are they expected to have, any effect on FSCO's current
ability to pay dividends. FSCO's current and past record of dividend payments
should not be construed as a guarantee of similar dividend payments in the
future.
The bid price of FSCO common stock was $29.75 per share at the close of the
market on September 30, 1997, versus a book value of $11.22 per share. This
resulted in a market-to-book ratio of 265.15%, up from 189.32% one year ago and
226.59% at year end. At September 30, 1997, FSCO's common stock market
capitalization was a record $3.4 billion, up 66.5% from one year ago, and up
33.4% from year end.
FSCO's preferred stock is convertible into FSCO common stock at the
conversion rate, restated for the stock split, of one share of preferred stock
for 27.3375 shares of common stock. There is no active trading market for
FSCO's preferred stock.
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 October 20, 1997, FSCO announced that it has signed a definitive
agreement to acquire Rio Grande Bancshares, Inc. (RGB) and its subsidiaries
First National Bank of Dona Ana County and First National Bank of Chaves
County. RGB had year-end 1996 assets of $407 million, equity of $44.6 million,
a diversified portfolio of loans and deposits, and 11 branches. RGB has been
in business in southern New Mexico for more than 90 years and its banks have 10
branches in Dona Ana County and one in Chaves County. This acquisition is
expected to be completed during the first quarter of 1998.
CORPORATE STRUCTURE
FSCO intends to merge First Security Bank of Wyoming into First Security
Bank, N.A. before the end of the fourth quarter of 1997. Combining the
charters of these two banks was originally announced in 1995 as part of Project
VISION, FSCO's restructuring project.
YEAR 2000 COMPUTER SYSTEMS CONVERSION
Like any other company, advances and changes in available technology can
significantly impact the business and operations of FSCO. Currently, a
challenging problem exists as many computer systems worldwide do not have the
capability of recognizing the year 2000 or years thereafter. No easy
technological "quick fix" has yet been developed for this problem. FSCO is
expending adequate resources to assure that its computer systems are
reprogrammed in time to effectively deal with transactions in the year 2000 and
beyond. This "Year 2000 Computer Problem" creates risks for FSCO from
unforeseen problems in its own computer systems and from third parties with
whom FSCO deals on financial transactions worldwide. Failures of FSCO's and/or
third parties' computer systems could have a material impact on FSCO's ability
to conduct its business, and especially to process and account for the transfer
of funds electronically.
FSCO believes that its plan for addressing "Year 2000" issues will enable it
to be fully compliant by the year 2000.
NATIONAL & REGIONAL ECONOMY
The U.S. economy recorded a solid overall performance in the 1997 third
quarter, and the 1998 outlook is favorable. Consumer spending bounced back in
the summer months, led by expenditures for automobiles, homes, and other
consumer durables. Despite this ongoing, above-trend growth in a fully
employed economy, the rate of inflation, contrary to many forecasters'
expectations, has actually fallen and interest rates have decreased.
Recent financial-market volatility reflects the underlying uncertainty of
international exchange markets and the future trend in wages and inflation when
combined with the possibility of additional declines in the unemployment rate.
Early in the fourth quarter, however, there are signals that the pace of
national economic growth is moderating. Accordingly, inflation and interest-
rate trends in the months ahead may remain relatively stable.
Intermountain Area economic growth rates have slowed somewhat from 1996,
with a tight labor market and a limited supply of employees as significant
factors. Unemployment rates in the metropolitan areas are still very low. In
many areas, residential construction is down modestly below last year, but the
supply-demand equation remains in general balance in most areas. Net in-
migration to the Intermountain states is slowing, which also contributes to the
tight labor-supply environment.
FORWARD-LOOKING STATEMENTS
Except for the historical information in this document, the matters
described herein are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. FSCO cautions readers not to
place undue reliance on any forward-looking statements, which speak only as of
the date made.
FSCO advises readers that various risks and uncertainties could affect
FSCO's financial performance and could cause FSCO's actual results for future
periods to differ materially from those anticipated or projected. These risks
and uncertainties include, but are not limited to, those related to: the
economic environment, particularly in the regions where FSCO operates;
competitive products and pricing; changes in prevailing interest rates; credit
and other risks of lending and investment activities; fiscal and monetary
policies of the U.S. and other governments; regulations affecting financial
institutions; acquisitions and the integration of acquired businesses; and
other risks and uncertainties affecting FSCO's operations and personnel.
FSCO specifically disclaims any obligation to update any forward-looking
statements to reflect occurrences or unanticipated events or circumstances
after the date of such statements.
# # #
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. Continued: Supplemental Tables
<TABLE>
FIRST SECURITY CORPORATION
FINANCIAL HIGHLIGHTS
(in thousands, except per share data and ratios; unaudited)
<CAPTION>
3rd Qtr 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr Year-To-Date Nine Months
1997 1997 1997 1996 1996 1997 1996 %Chg
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- - ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
Common & Preferred Stock Data (A):
Earnings per common share: primary 0.45 0.42 0.41 0.44 0.41 1.29 1.09 18.3
Earnings per common share: fully diluted 0.45 0.42 0.41 0.44 0.41 1.28 1.09 17.4
Tangible EPCS: fully diluted 0.51 0.46 0.45 0.46 0.44 1.41 1.19 18.5
Dividends paid per common share 0.17 0.17 0.15 0.15 0.14 0.49 0.42 17.5
Book value [EOP] 11.22 10.89 9.96 10.04 9.64 11.22 9.64 16.4
Tangible book value [EOP] 9.07 8.76 8.44 8.54 8.22 9.07 8.22 10.3
Market price (bid) [EOP] 29.75 27.31 21.42 22.75 18.25 29.75 18.25 63.0
High bid for the period 32.00 28.50 24.83 22.75 18.75 32.00 18.75 70.7
Low bid for the period 26.38 21.67 21.33 18.75 15.83 21.33 15.25 39.9
Market capitalization (mktprice x #shrs) [EOP] 3,446,181 3,164,508 2,407,161 2,583,467 2,069,468 3,446,181 2,069,468 66.5
Market price / book value [EOP] % 265.15 250.80 215.03 226.59 189.32 265.15 189.32
Dividend payout ratio (DPCS / EPCS) % 37.78 40.48 37.40 34.85 34.43 38.24 38.53
Dividend yield (DPCS / mktprice) [EOP] % 2.29 2.49 2.86 2.70 3.07 2.29 3.07
Price / earnings ratio (mktprice / 4 qtrs EPCS) 17.3x 16.3x 13.1x 14.8x 15.6x 17.3x 15.6x
Common shares [EOP] 115,838 115,863 112,397 113,559 113,396 115,838 113,396 2.2
Common shares: primary [Avg] 119,350 115,638 116,168 116,625 116,061 117,064 115,878 1.0
Common shares: fully diluted [Avg] 119,623 115,915 116,447 116,909 116,348 117,340 116,168 1.0
Preferred shares [EOP] 10 10 10 10 10 10 10 0.0
- - ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
Income Statement:
Interest income 300,995 279,639 260,181 263,397 251,876 840,815 724,411 16.1
Interest expense 148,490 138,027 125,962 125,499 118,874 412,479 345,733 19.3
Net interest income 152,505 141,612 134,219 137,898 133,002 428,336 378,678 13.1
Fully taxable equivalent (FTE) adjustment 2,336 1,851 2,007 2,409 1,764 6,194 5,275 17.4
Net interest income, FTE 154,841 143,463 136,226 140,307 134,766 434,530 383,953 13.2
Provision for loan losses 13,770 13,924 13,899 11,549 9,508 41,593 28,751 44.7
Noninterest income 85,766 80,177 78,716 84,099 72,312 244,659 214,587 14.0
Noninterest expenses 141,371 131,767 124,655 130,678 121,251 397,793 366,689 8.5
Provision for income taxes 29,486 27,117 26,396 28,541 27,159 82,999 71,211 16.6
Net income 53,644 48,981 47,985 51,229 47,396 150,610 126,614 19.0
Preferred stock dividend requirement 7 8 8 8 9 23 25 (8.0)
Common stock dividend 19,699 19,055 17,246 17,396 15,848 56,000 47,497 17.9
- - ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
Balance Sheet - End of Period:
Trading account securities 87,154 274,014 388,264 447,486 171,910 87,154 171,910 (49.3)
Investment securities available for sale (AFS) 3,840,970 3,457,692 3,316,927 3,150,276 3,166,608 3,840,970 3,166,608 21.3
Memo: fair value adjust invest securities AFS 18,153 1,575 (28,980) 1,654 (12,506) 18,153 (12,508) (245.1)
Loans, net of unearned income 10,679,985 10,093,820 9,069,267 9,262,482 8,948,196 10,679,985 8,948,196 19.4
Reserve for loan losses (144,567) (141,637) (135,928) (134,428) (133,853) (144,567) (133,853) 8.0
Total interest-earning assets 14,625,505 14,066,684 12,795,456 13,115,096 12,417,202 14,625,505 12,417,202 17.8
Intangible assets 248,973 246,628 171,009 169,779 160,823 248,973 160,823 54.8
Total assets 16,312,978 15,671,546 14,416,628 14,708,024 13,739,324 16,312,978 13,739,324 18.7
Noninterest-bearing deposits 2,303,163 2,217,107 2,021,116 2,198,348 1,946,454 2,303,163 1,946,454 18.3
Interest-bearing deposits 7,920,033 7,602,574 7,288,766 7,240,915 7,141,950 7,920,033 7,141,950 10.9
Total deposits 10,223,196 9,819,681 9,309,882 9,439,263 9,088,404 10,223,196 9,088,404 12.5
Short-term borrowed funds 3,354,922 3,283,322 2,562,778 2,830,633 2,399,209 3,354,922 2,399,209 39.8
Long-term debt 954,463 959,897 986,417 944,055 821,932 954,463 821,932 16.1
Total interest-bearing liabilities 12,229,418 11,845,793 10,837,961 11,015,603 10,363,091 12,229,418 10,363,091 18.0
Preferred stockholders' equity 510 531 532 540 549 510 549 (7.1)
Common stockholders' equity 1,299,534 1,261,479 1,119,635 1,140,108 1,092,782 1,299,534 1,092,782 18.9
Parent company investment in subsidiaries 1,420,607 1,369,329 1,216,236 1,206,037 1,155,998 1,420,607 1,155,998 22.9
- - ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
Problem Assets & Potential Problem Assets - End of Period:
Nonaccruing loans:
Commercial 15,821 17,094 14,139 13,904 13,244 15,821 13,244 19.5
Real estate term 15,420 12,848 14,225 15,078 18,681 15,420 18,681 (17.5)
Real estate construction 3,787 4,859 1,738 3,935 875 3,787 875 332.8
Consumer 30 32 102 108 70 30 70 (57.1)
Leases 316 617 279 251 531 316 531 (40.5)
Total nonaccruing loans 35,374 35,450 30,483 33,276 33,401 35,374 33,401 5.9
Other real estate 3,083 4,768 3,968 4,855 5,003 3,083 5,003 (38.4)
Total nonperforming assets 38,457 40,218 34,451 38,131 38,404 38,457 38,404 0.1
Accruing loans past due 90 days or more 19,147 20,537 20,430 19,326 15,728 19,147 15,728 21.7
Total problem assets 57,604 60,755 54,881 57,457 54,132 57,604 54,132 6.4
Potential problem assets 11,654 9,742 12,450 8,271 12,283 11,654 12,283 (5.1)
- - ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
Other Data - End of Period (not rounded):
Full-time equivalent employees 7,507 7,329 6,987 7,017 7,089 7,507 7,089 5.9
Domestic bank offices:
First Security Bank (Utah, Idaho, Oregon) (B) 227 224 224 224 221 227 221 2.7
FSB New Mexico 29 29 28 28 28 29 28 3.6
FSB Nevada (C) 14 13 8 7 7 14 7 100.0
FSB Wyoming 7 7 7 7 6 7 6 16.7
Total domestic bank offices 277 273 267 266 262 277 262 5.7
============================================== ========== ========== ========== ========== ========== ========== ========== =======
<FN>
Notes:
See "Notes to Condensed Consolidated Financial Statements".
EOP: End Of Period. EPCS: Earnings Per Common Share. DPCS: Dividends Per Common Share. AFS: Available For Sale. NM: Not Meaningful.
(A) Figures have been restated where appropriate to reflect 3-for-2 stock split in the form of a 50% stock dividend paid May 1997.
(B) On June 21, 1996, FSB Utah and FSB Idaho merged to become FS Bank. On May 23, 1997, FSB Oregon was merged into FS Bank.
(C) On June 30, 1997, American Bank of Commerce was merged into FSB Nevada.
</TABLE>
<PAGE>
<TABLE>
FIRST SECURITY CORPORATION
FINANCIAL HIGHLIGHTS - Continued
(in thousands, except per share data and ratios; unaudited)
<CAPTION>
3rd Qtr 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr Year-To-Date Nine Months
1997 1997 1997 1996 1996 1997 1996 %Chg
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- - ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
Balance Sheet - Average:
Trading account securities 178,070 360,339 168,094 130,319 159,258 235,538 219,801 7.2
Investment securities available for sale (AFS) 3,528,064 3,334,641 3,183,395 3,162,599 2,930,670 3,349,963 2,755,656 21.6
Memo: fair value adjust invest securities AFS 13,126 (16,834) 3,284 6,446 (22,927) (106) (6,287) (98.3)
Loans, net of unearned income 10,380,275 9,573,919 9,205,427 9,125,014 8,800,072 9,724,177 8,530,397 14.0
Reserve for loan losses (142,741) (135,991) (134,272) (133,885) (133,706) (137,699) (131,536) 4.7
Deferred taxes on leases (186,212) (187,553) (183,598) (177,841) (172,614) (185,797) (168,152) 10.5
Total interest-earning assets, excl. fair value
adjust securities AFS & defer tax on leases 13,933,748 13,140,234 12,427,261 12,339,265 11,807,137 13,172,600 11,447,032 15.1
Intangible assets 246,071 178,320 170,857 163,470 158,718 198,692 155,584 27.7
Total assets 15,620,168 14,687,847 14,009,082 13,825,829 13,153,786 14,778,267 12,783,717 15.6
Noninterest-bearing deposits 2,053,916 1,995,783 1,895,233 1,912,222 1,780,120 1,982,226 1,748,164 13.4
Interest-bearing deposits 7,747,020 7,339,642 7,264,138 7,260,035 7,158,996 7,452,035 7,039,640 5.9
Total deposits 9,800,936 9,335,425 9,159,371 9,172,257 8,939,116 9,434,261 8,787,804 7.4
Short-term borrowed funds 3,205,848 2,887,346 2,412,952 2,388,089 2,073,144 2,838,287 1,937,012 46.5
Long-term debt 971,356 989,408 950,850 831,910 771,128 970,613 718,337 35.1
Total interest-bearing liabilities 11,924,224 11,216,396 10,627,940 10,480,034 10,003,268 11,260,935 9,694,989 16.2
Preferred stockholders' equity 524 532 535 543 550 530 558 (5.0)
Common stockholders' equity 1,280,385 1,134,894 1,142,557 1,105,649 1,073,952 1,186,450 1,054,496 12.5
- - ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
Reconciliation of the Reserve for Loan Losses:
Reserve for loan losses, beginning 141,637 135,928 134,428 133,853 133,678 134,428 129,982 3.4
Loans (charged off):
Commercial (1,990) (3,484) (1,470) (761) (1,918) (6,944) (5,046) 37.6
Real estate term (774) (967) (455) (415) (315) (2,196) (646) 239.9
Real estate construction (33) 0 (76) (138) (157) (109) (176) (38.1)
Consumer credit card & related (3,242) (3,426) (3,343) (3,613) (3,641) (10,011) (9,687) 3.3
Consumer auto & other (12,600) (14,554) (14,686) (13,422) (9,406) (41,840) (28,117) 48.8
Leases (6) 0 0 0 (91) (6) (602) (99.0)
Total loans (charged off) (18,645) (22,431) (20,030) (18,349) (15,528) (61,106) (44,274) 38.0
Recoveries on loans charged off:
Commercial 1,086 1,671 1,387 2,372 1,592 4,144 4,163 (0.5)
Real estate term 447 385 269 (373) 21 1,101 1,241 (11.3)
Real estate construction 2 1 4 698 134 7 149 (95.3)
Consumer credit card & related 571 646 617 717 497 1,834 1,558 17.7
Consumer auto & other 5,699 7,054 5,354 3,964 3,791 18,107 11,964 51.3
Leases 0 0 0 (3) 160 0 319 (100.0)
Total recoveries of loans charged off 7,805 9,757 7,631 7,375 6,195 25,193 19,394 29.9
Net loans (charged off) recovered (10,840) (12,674) (12,399) (10,974) (9,333) (35,913) (24,880) 44.3
Provision for loan losses 13,770 13,924 13,899 11,549 9,508 41,593 28,751 44.7
Acquisitions & reclassifications (C) 0 4,459 0 0 0 4,459 0 0.0
Reserve for loan losses, ending 144,567 141,637 135,928 134,428 133,853 144,567 133,853 8.0
- - ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
Selected Ratios (%):
Return on average assets (ROAA) 1.36 1.34 1.39 1.47 1.43 1.36 1.32
Tangible ROAA 1.56 1.48 1.53 1.58 1.60 1.51 1.47
Return on average stockholders' equity (ROAE) 16.62 17.30 17.02 18.42 17.55 16.96 16.03
Tangible ROAE 23.23 22.48 21.81 22.84 22.67 22.33 20.62
Net interest margin, FTE 4.45 4.37 4.38 4.55 4.57 4.40 4.47
Net interest spread, FTE 3.73 3.65 3.70 3.83 3.86 3.69 3.75
Operating expense ratio
(nonint exp / (net int inc FTE + nonint inc)) 58.76 58.92 57.99 58.23 58.55 58.57 61.26
Productivity ratio (nonint exp / avg assets) 3.59 3.60 3.61 3.76 3.67 3.60 3.83
Stockholders' equity / assets [EOP] 7.97 8.05 7.77 7.76 7.96 7.97 7.96
Stockholders' equity / assets [Avg] 8.20 7.73 8.16 8.00 8.17 8.03 8.25
Tangible common equity / tangible assets [EOP] 6.54 6.58 6.66 6.67 6.86 6.54 6.86
Loans / deposits [EOP] 104.47 102.79 97.42 98.13 98.46 104.47 98.46
Loans / assets [EOP] 65.47 64.41 62.91 62.98 65.13 65.47 65.13
Reserve for loan losses [EOP] /:
Total loans 1.35 1.40 1.50 1.45 1.50 1.35 1.50
Nonaccruing loans 408.68 399.54 445.91 403.98 400.75 408.68 400.75
Nonaccruing + accruing loans past due 90 days 265.16 252.98 266.98 255.56 272.45 265.16 272.45
Nonaccruing loans / total loans 0.33 0.35 0.34 0.36 0.37 0.33 0.37
Accruing loans past due 90 days / total loans 0.18 0.20 0.23 0.21 0.18 0.18 0.18
Nonaccruing + accr loans past due / total loans 0.51 0.55 0.56 0.57 0.55 0.51 0.55
Nonperforming assets /:
Total loans + other real estate 0.36 0.40 0.38 0.41 0.43 0.36 0.43
Total assets 0.24 0.26 0.24 0.26 0.28 0.24 0.28
Total equity 2.96 3.19 3.08 3.34 3.51 2.96 3.51
Total equity + reserve for loan losses 2.66 2.87 2.74 2.99 3.13 2.66 3.13
Problem assets /:
Total loans + other real estate 0.54 0.60 0.60 0.62 0.60 0.54 0.60
Total assets 0.35 0.39 0.38 0.39 0.39 0.35 0.39
Total equity 4.43 4.81 4.90 5.04 4.95 4.43 4.95
Total equity + reserve for loan losses 3.99 4.33 4.37 4.51 4.41 3.99 4.41
Net loans charged off / average loans 0.41 0.53 0.55 0.48 0.42 0.49 0.39
============================================== ========== ========== ========== ========== ========== ========== ========== =======
Capital Ratios & Risk-Based Capital Ratios (%): FSCO FS Bank FSB FSB FSB
As of September 30, 1997 Consol. (UT,ID,OR)(NewMexico) Nevada Wyoming
- - ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Leverage ratio 7.90 7.23 6.20 7.78 9.91
Tier 1 risk-based capital ratio 10.70 9.37 13.32 13.53 15.07
Total (Tier 1 + 2) risk-based capital ratio 13.60 10.74 14.58 14.79 16.33
Tier 1 risk-based capital ($) 1,274,248 951,087 121,894 69,012 20,865
Total (Tier 1 + 2) risk-based capital ($) 1,618,815 1,089,600 133,419 75,436 22,609
Total risk-based assets - loan loss reserve ($)11,904,812 10,145,569 914,939 510,207 138,486
============================================== ========== ========== ========== ========== ========== ========== ========== =======
<FN>
Notes:
See "Notes to Condensed Consolidated Financial Statements".
EOP: End Of Period. EPCS: Earnings Per Common Share. DPCS: Dividends Per Common Share. AFS: Available For Sale. NM: Not Meaningful.
(A) Figures have been restated where appropriate to reflect 3-for-2 stock split in the form of a 50% stock dividend paid May 1997.
(B) On June 21, 1996, FSB Utah and FSB Idaho merged to become FS Bank. On May 23, 1997, FSB Oregon was merged into FS Bank.
(C) On June 30, 1997, American Bank of Commerce was merged into FSB Nevada.
</TABLE
<PAGE>
</TABLE>
<TABLE>
FIRST SECURITY CORPORATION
VOLUME / RATE ANALYSIS
(in thousands; fully taxable equivalent; unaudited) (A)
<CAPTION>
For the Three Months Ended September 30, 1997 and 1996
Average Balance Yield/Rate % Interest Inc/Exp Change Changes Due To:
1997 1996 1997 1996 1997 1996 1997-96 Volume Rate
<C> <C> <C> <C> <S> <C> <C> <C> <C> <C>
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
INTEREST-EARNING ASSETS / INCOME:
45,794 50,784 5.90 5.27 Federal funds sold & securities purchased 676 669 7 (66) 73
883 16,040 8.15 5.24 Interest-bearing deposits in other banks 18 210 (192) (198) 6
178,070 159,258 5.79 4.69 Trading account securities 2,578 1,867 711 221 490
3,514,938 2,953,597 6.75 6.63 Investment securities AFS - amortized cost 59,305 48,931 10,374 9,300 1,074
Loans, net of unearned income &
10,194,063 8,627,458 9.45 9.36 deferred taxes on leases (B) 240,754 201,963 38,791 36,673 2,118
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
13,933,748 11,807,137 8.71 8.59 TOTAL INTEREST-EARNING ASSETS / INCOME 303,331 253,640 49,691 45,930 3,761
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
INTEREST-BEARING LIABILITIES / EXPENSE:
Interest-Bearing Deposits:
273,549 652,072 1.92 3.01 Interest-bearing demand accounts 1,315 4,914 (3,599) (2,853) (746)
3,487,335 2,997,952 3.22 3.16 Savings & money market accounts 28,108 23,647 4,461 3,860 601
927,275 740,172 5.93 5.55 Time deposits of $100,000 or more 13,738 10,277 3,461 2,598 863
3,058,861 2,768,800 5.73 5.76 Other time deposits 43,801 39,889 3,912 4,179 (267)
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
7,747,020 7,158,996 4.49 4.40 TOTAL INTEREST-BEARING DEPOSITS 86,962 78,727 8,235 7,784 451
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
2,858,725 1,830,154 5.41 5.06 Federal funds purchased & securities sold 38,685 23,149 15,536 13,010 2,526
347,123 242,990 7.50 6.21 Other short-term borrowings 6,505 3,773 2,732 1,617 1,115
971,356 771,128 6.73 6.86 Long-term debt 16,338 13,225 3,113 3,434 (321)
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
11,924,224 10,003,268 4.98 4.75 TOTAL INTEREST-BEARING LIABILITIES / EXPENSE 148,490 118,874 29,616 25,845 3,771
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
8.71 8.59 Interest income / earning assets
4.26 4.02 Interest expense / earning assets
------ ------ --------------------------------------------
4.45 4.57 Net interest income / earning assets 154,841 134,766 20,075 20,085 (10)
Less fully taxable equivalent adjustment 2,336 1,764 572
------ ------ -------------------------------------------- --------- --------- -------- -------- --------
NET INTEREST INCOME, PER CONSOLIDATED
STATEMENTS OF INCOME 152,505 133,002 19,503
=========== =========== ====== ====== ============================================ ========= ========= ======== ======== ========
<CAPTION>
For the Nine Months Ended September 30, 1997 and 1996
Average Balance Yield/Rate % Interest Inc/Exp Change Changes Due To:
1997 1996 1997 1996 1997 1996 1997-96 Volume Rate
<C> <C> <C> <C> <S> <C> <C> <C> <C> <C>
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
INTEREST-EARNING ASSETS / INCOME:
46,748 90,412 5.36 5.27 Federal funds sold & securities purchased 1,878 3,572 (1,694) (1,725) 31
1,865 12,631 6.08 5.85 Interest-bearing deposits in other banks 85 554 (469) (472) 3
235,538 219,801 5.86 5.12 Trading account securities 10,349 8,435 1,914 604 1,310
3,350,069 2,761,943 6.72 6.53 Investment securities AFS - amortized cost 168,735 135,170 33,565 28,783 4,782
Loans, net of unearned income &
9,538,380 8,362,245 9.31 9.28 deferred taxes on leases (B) 665,962 581,955 84,007 81,851 2,156
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
13,172,600 11,447,032 8.57 8.50 TOTAL INTEREST-EARNING ASSETS / INCOME 847,009 729,686 117,323 109,041 8,282
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
INTEREST-BEARING LIABILITIES / EXPENSE:
Interest-Bearing Deposits:
476,627 927,604 2.29 2.14 Interest-bearing demand accounts 8,171 14,862 (6,691) (7,226) 535
3,173,007 2,685,218 3.18 3.46 Savings & money market accounts 75,600 69,633 5,967 12,649 (6,682)
829,228 707,412 5.73 5.68 Time deposits of $100,000 or more 35,656 30,114 5,542 5,186 356
2,973,173 2,719,406 5.66 5.81 Other time deposits 126,184 118,411 7,773 11,050 (3,277)
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
7,452,035 7,039,640 4.39 4.41 TOTAL INTEREST-BEARING DEPOSITS 245,611 233,020 12,591 21,659 (9,068)
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
2,536,142 1,672,003 5.29 5.02 Federal funds purchased & securities sold 100,596 62,920 37,676 32,519 5,157
302,145 265,009 7.03 6.50 Other short-term borrowings 15,920 12,924 2,996 1,811 1,185
970,613 718,337 6.92 6.84 Long-term debt 50,352 36,869 13,483 12,948 535
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
11,260,935 9,694,989 4.88 4.75 TOTAL INTEREST-BEARING LIABILITIES / EXPENSE 412,479 345,733 66,746 68,937 (2,191)
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
8.57 8.50 Interest income / earning assets
4.17 4.03 Interest expense / earning assets
------ ------ --------------------------------------------
4.40 4.47 Net interest income / earning assets 434,530 383,953 50,577 40,104 10,473
Less fully taxable equivalent adjustment 6,194 5,275 919
------ ------ -------------------------------------------- --------- --------- -------- -------- --------
NET INTEREST INCOME, PER CONSOLIDATED
STATEMENTS OF INCOME 428,336 378,678 49,658
=========== =========== ====== ====== ============================================ ========= ========= ======== ======== ========
<FN>
Notes:
(A) Changes not due entirely to changes in volume or rate have been allocated to rate.
Interest is presented on a fully taxable equivalent (FTE) basis, calculated on Federal and state taxes
applicable to the subsidiary carrying the asset. The combined tax rate was approximately 39% for 1997 and 1996.
(B) Loans include nonaccruing and renegotiated loans.
Interest on loans includes fees of $9,848 and $7,106 for the 1997 and 1996 quarters, respectively.
Interest on loans includes fees of $26,399 and $19,202 for the 1997 and 1996 year-to-date periods, respectively.
</TABLE>
<PAGE>
<TABLE>
FIRST SECURITY CORPORATION
LOANS (in thousands; unaudited)
<CAPTION>
September30 %Total December31 %Total September30 %Total Sep/Sep
1997 Loans 1996 Loans 1996 Loans %Chg
<S> <C> <C> <C> <C> <C> <C> <C>
- - ----------------------------------------- ----------- ------ ----------- ------ ----------- ------ --------
COMMERCIAL LOANS:
Commercial & industrial 2,024,735 19.0 1,654,239 17.9 1,636,236 18.3 23.7
Agricultural 346,546 3.2 312,402 3.4 302,578 3.4 14.5
Other commercial 160,379 1.5 185,973 2.0 163,555 1.8 (1.9)
- - ----------------------------------------- ----------- ------ ----------- ------ ----------- ------ --------
TOTAL COMMERCIAL LOANS 2,531,660 23.7 2,152,614 23.2 2,102,369 23.5 20.4
- - ----------------------------------------- ----------- ------ ----------- ------ ----------- ------ --------
REAL ESTATE SECURED LOANS:
1 to 4 family residential term 1,889,154 17.7 1,459,534 15.8 1,457,829 16.3 29.6
1 to 4 family residential home equity 480,160 4.5 471,109 5.1 472,526 5.3 1.6
1 to 4 family residential construction 460,379 4.3 349,771 3.8 278,770 3.1 65.1
Commercial & other term 951,701 8.9 904,135 9.8 921,249 10.3 3.3
Commercial & other construction 259,536 2.4 190,791 2.1 247,557 2.8 4.8
- - ----------------------------------------- ----------- ------ ----------- ------ ----------- ------ --------
TOTAL REAL ESTATE SECURED LOANS 4,040,930 37.8 3,375,340 36.4 3,377,931 37.7 19.6
Memo: Total real estate term 3,321,015 31.1 2,834,778 30.6 2,851,604 31.9 16.5
Memo: Loans held for sale
included in total real estate term 858,944 8.0 330,032 3.6 408,222 4.6 110.4
Memo: Total real estate construction 719,915 6.7 540,562 5.8 526,327 5.9 36.8
- - ----------------------------------------- ----------- ------ ----------- ------ ----------- ------ --------
CONSUMER LOANS:
Credit card & related 292,534 2.7 307,622 3.3 288,287 3.2 1.5
Auto & other consumer 2,861,754 26.8 2,674,283 28.9 2,498,710 27.9 14.5
- - ----------------------------------------- ----------- ------ ----------- ------ ----------- ------ --------
TOTAL CONSUMER LOANS 3,154,288 29.5 2,981,905 32.2 2,786,997 31.1 13.2
- - ----------------------------------------- ----------- ------ ----------- ------ ----------- ------ --------
TOTAL LEASES 953,107 8.9 752,623 8.1 680,899 7.6 40.0
- - ----------------------------------------- ----------- ------ ----------- ------ ----------- ------ --------
LOANS, NET OF UNEARNED INCOME 10,679,985 100.0 9,262,482 100.0 8,948,196 100.0 19.4
Memo: Unearned income (104,728) (67,396) (57,859) 81.0
Reserve for loan losses (144,567) (134,428) (133,853) 8.0
- - ----------------------------------------- ----------- ------ ----------- ------ ----------- ------ --------
TOTAL LOANS, NET 10,535,418 9,128,054 8,814,343 19.5
========================================= =========== ====== =========== ====== =========== ====== ========
</TABLE>
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, FSCO and its subsidiaries are subject to claims and legal
actions filed or threatened by customers and others in the ordinary course of
FSCO's business activities. Some legal actions filed against FSCO seek
inflated damages, often in an effort to force compromise of a troubled loan
transaction. Others recently have been filed as class actions alleging
technical violations of arcane Federal statutes with modest individual damages,
but potentially large class damage amounts. These are disclosed in filings
with the Securities and Exchange Commission (SEC) as required by applicable
rules. FSCO endeavors at all times to conduct its business in a lawful manner,
and will always vigorously defend itself against unfounded claims, with a
concomitant cost in legal fees and expenses. Since the filing of FSCO's 1996
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 SEC, except as follows:
In November 1997, the Court in "Utah Bankers' Association v. America First
Credit Union" (3rd District Court, Salt Lake County, Utah), dismissed those
claims for relief seeking money damages from FSCO's subsidiaries, First
Security Bank, N.A. and First Security Service Company, together with other
Utah banks, but left in place the declaratory judgment claims to resolve the
legal issues surrounding the manner in which credit unions compete with banks.
In the lender liability lawsuit in Idaho previously described in FSCO's 1996
Annual Report on Form 10-K, the Court has reduced the verdict in response to
FSCO's post trial motion. FSCO will appeal the remaining verdict based on its
belief that error was committed at the trial court.
Based on advice of legal counsel, and its own analysis, FSCO management
continues to believe that no reasonably foreseeable ultimate outcome of any or
all of the cases discussed above or previously reported will have a material
adverse impact on the business or assets of FSCO.
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:
On October 22, 1997, FSCO filed a report on Form 8-K reporting its press
release of October 20, 1997, announcing that FSCO has signed a definitive
agreement to acquire Rio Grande Bancshares, Inc. and its subsidiaries
First National Bank of Dona Ana County and First National Bank of Chaves.
# # #
<PAGE>
SIGNATURES
FIRST SECURITY CORPORATION
Registrant
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FIRST SECURITY CORPORATION
by
[SIGNED] November 10, 1997
_______________________________________________________ ____________________
Scott C. Ulbrich (Date)
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 Nine Months
For the Periods Ended September 30, 1997 and 1996 1997 1996 1997 1996
<S> <C> <C> <C> <C>
- - ----------------------------------------------------------- ---------- ---------- ---------- ----------
NET INCOME:
Net income per consolidated income statements 53,644 47,396 150,610 126,614
Subtract dividend requirement of preferred stock 7 9 23 25
- - ----------------------------------------------------------- ---------- ---------- ---------- ----------
NET INCOME APPLICABLE TO COMMON STOCK (PRIMARY) 53,637 47,387 150,587 126,589
Add dividend requirement of preferred stock 7 9 23 25
- - ----------------------------------------------------------- ---------- ---------- ---------- ----------
NET INCOME FULLY DILUTED 53,644 47,396 150,610 126,614
=========================================================== ========== ========== ========== ==========
EARNINGS PER COMMON SHARE: PRIMARY 0.45 0.41 1.29 1.09
EARNINGS PER COMMON SHARE: FULLY DILUTED 0.45 0.41 1.28 1.09
=========================================================== ========== ========== ========== ==========
SHARES OUTSTANDING (AVERAGE):
Common shares 118,249 114,173 115,938 113,987
Common equivalents (options) 3,555 2,769 3,421 2,761
Treasury shares (2,454) (881) (2,295) (870)
- - ----------------------------------------------------------- ---------- ---------- ---------- ----------
COMMON SHARES: PRIMARY (AVG) 119,350 116,061 117,064 115,878
Preferred shares: common equivalents 273 287 276 290
- - ----------------------------------------------------------- ---------- ---------- ---------- ----------
COMMON SHARES: FULLY DILUTED (AVG) 119,623 116,348 117,340 116,168
=========================================================== ========== ========== ========== ==========
<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 27.3375 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
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM FIRST SECURITY CORPORATION'S FORM 10-Q
FOR THE QUARTER ENDED September 30, 1997, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 892,500
<INT-BEARING-DEPOSITS> 600
<FED-FUNDS-SOLD> 16,796
<TRADING-ASSETS> 87,154
<INVESTMENTS-HELD-FOR-SALE> 3,840,970
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 10,679,985
<ALLOWANCE> (144,567)
<TOTAL-ASSETS> 16,312,978
<DEPOSITS> 10,223,196
<SHORT-TERM> 3,354,922
<LIABILITIES-OTHER> 480,353
<LONG-TERM> 954,463
<COMMON> 1,299,534
0
510
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 16,312,978
<INTEREST-LOAN> 664,522
<INTEREST-INVEST> 164,006
<INTEREST-OTHER> 12,287
<INTEREST-TOTAL> 840,815
<INTEREST-DEPOSIT> 245,611
<INTEREST-EXPENSE> 412,479
<INTEREST-INCOME-NET> 428,336
<LOAN-LOSSES> 41,593
<SECURITIES-GAINS> 2,910
<EXPENSE-OTHER> 397,793
<INCOME-PRETAX> 233,609
<INCOME-PRE-EXTRAORDINARY> 233,609
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 150,610
<EPS-PRIMARY> 1.29
<EPS-DILUTED> 1.28
<YIELD-ACTUAL> 4.40
<LOANS-NON> 35,374
<LOANS-PAST> 19,147
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 57,604
<ALLOWANCE-OPEN> 134,428
<CHARGE-OFFS> (61,106)
<RECOVERIES> 25,193
<ALLOWANCE-CLOSE> 144,567
<ALLOWANCE-DOMESTIC> 144,567
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
