<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
Commission File Number 1-6906
FIRST SECURITY CORPORATION
(Exact name of Registrant as specified in its charter)
State of incorporation Delaware
I.R.S. Employer Identification No. 87-6118148
Address of principal executive offices 79 South Main, P.O. Box 30006
Salt Lake City, Utah
Zip Code 84130-0006
Registrant's telephone number, including area code (801) 246-5706
Securities registered pursuant to Section 12(b) of the Act:
Floating Rate Notes Due 1999, listed on the New York Stock Exchange.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock - $1.25 Par Value.
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the Registrant knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of First Security Corporation (FSCO) voting
stock held by nonaffiliates was $2,397,781,000 as of February 28, 1997.
The number of shares outstanding of FSCO common stock $1.25 Par Value was
74,976,285 (net of 1,498,565 treasury shares) as of February 28, 1997.
FSCO's Proxy Statement dated March 15, 1997, is incorporated by reference
into Parts I and III of this Form 10-K
<PAGE>
FIRST SECURITY CORPORATION, FSCO
INDEX
ITEM CAPTION
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Part I
1 Business
1a General Development of Business
1c Narrative Description of Business
Competitive Position
Employment
Executive Officers (incorporated by reference from FSCO's Proxy Statement
dated March 15, 1997)
1d Financial Information About Foreign and Domestic Operations
Distribution of Assets, Liabilities and Stockholders' Equity; Interest
Rates and Interest Differential
Analysis of Interest Changes Due to Volumes and Changes in Rates
Investment Portfolio
Loan Portfolio
A. Types of Loans
B. Maturities and Sensitivities to Changes in Interest Rates
C. Risk Elements
D. Other Interest-Bearing Assets
Summary of Loan Loss Experience
Deposits
Return on Equity and Return on Assets
Short-Term Borrowings
2 Properties
3 Legal Proceedings
4 Submission of Matters to a Vote of Security Holders
Part II
5 Market for Registrant's Common Equity and Related Security Holder Matters
6 Selected Financial Data
7 Management's Discussion and Analysis of Results of Operations and
Financial Condition
8 Financial Statements and Supplementary Data
9 Changes in and Disagreements with Accountants on Accounting and Financial
Disclosures
Part III
10 Directors and Executive Officers (*)
11 Executive Compensation (*)
12 Security Ownership of Certain Beneficial Owners and Management (*)
13 Certain Relationships and Related Transactions (*)
(*): Incorporated by reference from FSCO's Proxy Statement March 15, 1997.
Part IV
14a Exhibits and Financial Statement Schedules:
1. Report of Independent Certified Public Accountants
Consolidated Balance Sheets
December 31, 1996 and 1995
Consolidated Statements of Income
for the Years Ended December 31, 1996, 1995, and 1994
Consolidated Statements of Stockholders' Equity
for the Years Ended December 31, 1994, 1995, and 1996
Consolidated Statements of Cash Flows
for the Years Ended December 31, 1996, 1995, and 1994
Notes to Consolidated Financial Statements
2. Exhibit Index
Exhibit 3.1, Certificate of Incorporation, as amended (Exhibit 3.1 to
FSCO's Registration Statement on Form S-4, Reg #33-30045, filed July
24, 1990, incorporated by reference).
Exhibit 3.2, Bylaws of FSCO, as amended Jan. 29, 1996 (Exhibit 3.2 to
FSCO's Annual Report on Form 10-K for the year ended Dec. 31, 1995,
incorporated by reference).
Exhibit 4.1, No instruments defining the rights of holders of long-term
debt of FSCO and its subsidiaries have been included as exhibits
because the total amount of indebtedness authorized under any such
instrument does not exceed 10% of the total assets of FSCO and its
subsidiaries on a consolidated basis.
Exhibit 4.2, Rights Agreement between FSCO and First Security Bank of
Utah NA, dated Aug. 28, 1990, which includes: Exhibit A, the form of
Rights Certificate and the form of Election of Exercise; Exhibit B,
the form of Certificate of Designation of FSCO's Junior Series B
Preferred Stock, no par value per share; and Exhibit C, the Summary of
Rights (Exhibit 4 to FSCO's Report on Form 8-K, dated Aug. 28, 1990,
filed Sept. 1, 1990, incorporated by reference).
Exhibit 4.3, Amendment Agreement between FSCO and First Security Bank of
Utah NA, dated Sept. 26, 1990, amending the Rights Agreement between
the same parties dated Aug. 28, 1990, (Exhibit 1 to FSCO's Amendment
#1 on Form 8-A, dated Oct. 10, 1990, filed Oct. 16, 1990, amending
FSCO's Report on Form 8-K, dated Aug. 28, 1990, filed Sept. 1, 1990,
incorporated by reference).
Exhibit 10, Material Contracts: Executive Compensation Plans and
Arrangements:
Exhibit 10.1, Amended and Restated FSCO Comprehensive Management
Incentive Plan (Exhibit 10.1 to FSCO's Annual Report on Form 10-K for
the year ended Dec. 31, 1994, incorporated by reference).
Exhibit 10.2, Employment Agreement between FSCO and Spencer F. Eccles,
dated Oct. 16, 1996 (Exhibit 10.3 to FSCO's Registration Statement on
Form S-4, Reg #333-21759, filed Feb. 13, 1997, incorporated by
reference).
Exhibit 10.3, Employment Agreement between FSCO and Morgan J. Evans,
dated Oct. 16, 1996 (Exhibit 10.4 to FSCO's Registration Statement on
Form S-4, Reg #333-21759, filed Feb. 13, 1997, incorporated by
reference).
Exhibit 10.4, Employment Agreement between FSCO and Michael P. Caughlin,
dated Oct. 16, 1996 (Exhibit 10.9 to FSCO's Registration Statement on
Form S-4, Reg #333-21759, filed Feb. 13, 1997, incorporated by
reference).
Exhibit 10.5, Employment Agreement between FSCO and Brad D. Hardy,
dated Oct. 16, 1996 (Exhibit 10.8 to FSCO's Registration Statement on
Form S-4, Reg #333-21759, filed Feb. 13, 1997, incorporated by
reference).
Exhibit 10.6, Employment Agreement between FSCO and Mark D. Howell,
dated Oct. 16, 1996 (Exhibit 10.10 to FSCO's Registration Statement on
Form S-4, Reg #333-21759, filed Feb. 13, 1997, incorporated by
reference).
Exhibit 10.7, Employment Agreement between FSCO and J. Patrick McMurray,
dated Oct. 16, 1996 (Exhibit 10.6 to FSCO's Registration Statement on
Form S-4, Reg #333-21759, filed Feb. 13, 1997, incorporated by
reference).
Exhibit 10.8, Employment Agreement between FSCO and L. Scott Nelson,
dated Oct. 16, 1996 (Exhibit 10.5 to FSCO's Registration Statement on
Form S-4, Reg #333-21759, filed Feb. 13, 1997, incorporated by
reference).
Exhibit 10.9, Employment Agreement between FSCO and Scott C. Ulbrich,
dated Oct. 16, 1996 (Exhibit 10.7 to FSCO's Registration Statement on
Form S-4, Reg #333-21759, filed Feb. 13, 1997, incorporated by
reference).
Exhibit 10.10, The form of FSCO's Deferred Compensation Plan Deferral
Election -- 01/01/95 - 12/31/95 (Exhibit 10.10 to FSCO's Annual Report
on Form 10-K for the year ended Dec. 31, 1994, incorporated by
reference).
Exhibit 11, Computation of per share earnings.
Exhibit 21, Subsidiaries.
Exhibit 23, Consent of Independent Certified Public Accountants:
Deloitte & Touche LLP.
Exhibit 27, Financial Data Schedule.
14b Reports on Form 8-K:
FSCO has filed no reports on Form 8-K since Jan. 31, 1996.
Signatures
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FIRST SECURITY CORPORATION AND SUBSIDIARIES
The following pages contain "Management's Discussion and Analysis of Results of
Operations and Financial Condition" (MD&A) of First Security Corporation (FSCO)
for 1996, including comparisons with prior years' results and identification of
possible risks and trends.
THIS MD&A SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL
STATEMENTS AND ACCOMPANYING NOTES.
On January 29, 1996, FSCO declared a 3-for-2 common stock split in the form of a
50% stock dividend payable on February 15, 1996, to shareholders of record as of
February 12, 1996. As a result of the split, shareholders received an additional
share of FSCO common stock for every two shares held. All historical share and
per-share data in this report were restated for all years reported in First
Security Corporation's 1995 Annual Report to reflect this stock split (see
"Common and Preferred Stock").
As required by applicable accounting rules, all 1992 and prior-year amounts in
this report were restated in 1993 to reflect the 1993 pooling-of-interests
merger with First National Financial Corporation, and the adoption of SFAS 109
"Accounting for Income Taxes", which was applied retroactively.
It should be noted that the five-year compound growth rates shown on tables
throughout this discussion may not represent actual trends due to acquisitions
and certain nonrecurring events.
SUBSEQUENT EVENTS
Subsequent to the release of FSCO's 1996 Annual Report to Stockholders, FSCO
announced the signing of a definitive agreement to acquire American Bancorp, a
bank holding company, and its bank subsidiary, American Bank of Commerce.
American Bancorp is located in Nevada, and has total assets of $318 million and
equity of $31.7 million. This transaction, which is subject to regulatory
approval, is expected to be completed early in the third quarter of 1997.
FORWARD-LOOKING STATEMENTS
When used in this annual report on Form 10-K or other filings by FSCO with the
Securities and Exchange Commission (SEC), in FSCO's press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized FSCO executive officer, the words or phrases "would
be", "will allow", "intends to", "will likely result", "are expected to", "will
continue", "is anticipated", "estimate", "project", or similar expressions are
intended to identify "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, and advises readers that
various factors, including regional and national economic conditions,
substantial changes in levels of market interest rates, credit and other risks
of lending and investment activities, and competitive and regulatory factors,
could affect FSC0's financial performance and could cause FSCO's actual results
for future periods to differ materially from those anticipated or projected.
FSCO does not undertake, and specifically disclaims any obligation, to update
any forward-looking statements to reflect occurrences or unanticipated events or
circumstances after the date of such statements (see "Factors That May Affect
Future Results of Operations And Financial Condition").
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Forward-Looking Statements
Glossary
Table 1: Financial Highlights, Five-Year Summary
1996 Highlights
Project VISION
Operating Subsidiaries
Table 2: Consolidating Statements
Analysis of Statements of Income:
Summary
Net Interest Income and Margin
Table 3: Average Balance Sheets, Net Interest Income, Yields And Rates
Table 4: Analysis of Interest Changes Due To Volumes And Rates
Provision For Loan Losses
Noninterest Income
Table 5: Noninterest Income
Noninterest Expenses
Table 6: Noninterest Expenses
Provision for Income Taxes
Analysis of Balance Sheets:
Summary
Interest-Earning Assets and Asset Quality
Trading Account Securities
Investment Securities
Table 7: Investment Securities
Loans
Table 8: Loans
Problem Assets and Potential Problem Assets
Table 9: Problem Assets and Potential Problem Assets
Reserve for Loan Losses
Table 10: Reconciliation of the Reserve for Loan Losses
Table 11: Allocation of the Reserve for Loan Losses
Provision for Loan Losses
Asset/Liability Management
Liquidity
Table 12: Deposits
Table 13: Short-Term Borrowings
Table 14: Long-Term Debt
Interest Rate Risk
Table 15: Interest Rate Sensitivities
Table 16: Maturities of Time Certificates of Deposit
of $100,000 or More
Stockholders' Equity and Capital Adequacy
Table 17: Capital Ratios and Risk-Based Capital Ratios
Common and Preferred Stock
Off-Balance Sheet Items
Inflation Accounting and Capital Commitments
Table 18: Quarterly Financial Summary
Mergers and Acquisitions
National and Regional Economies
Competitive Position
Factors That May Affect Future Results of Operations
and Financial Condition
Legal Proceedings
MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Corporate Information
<PAGE>
GLOSSARY
ALCO: Asset/liability management committees, comprised of senior FSCO officers.
The ALCO process identifies, assesses, and manages FSCO's capital adequacy, and
the liquidity and interest rate risk of FSCO's business lines.
BHCPR: Bank Holding Company Performance Report. A banking industry report
prepared by the Federal Reserve and used by FSCO to compare its performance
against that of its national peer group. Typically this report is available 3
to 6 months after the reporting date.
BOOK VALUE PER SHARE: Common stockholders' equity divided by the number of
common shares outstanding, net of common treasury shares.
CAPITAL ADEQUACY: Sufficient equity to support strategic plans while providing
an attractive rate of return for stockholders. Often measured by risk-based
capital ratios.
DERIVATIVES: Financial instruments where the performance is derived from the
performance of another financial instrument or an interest rate, currency, or
other referenced index (see: "Note 11: Commitments, Contingent Liabilities, and
Financial Instruments with Off-Balance Sheet Risk").
FAIR VALUE: An approximation of current market value derived from carrying
value, market quotes, and discounted cash flow analysis.
FTE: Fully taxable equivalent. An adjustment made to interest income to
facilitate comparison of interest income earned on tax-exempt or tax-favored
loans, leases, and securities with interest earned subject to full taxation.
GAP: An asset/liability management term. Gap assigns each earning asset and
interest-bearing liability to a time frame reflecting its next repricing or
maturity date. The difference between total interest-sensitive assets and
liabilities at each time interval represents the interest sensitivity "Gap" for
that interval.
INTANGIBLE ASSETS: Goodwill, mortgage servicing rights, deposit-based
intangibles, and insurance intangibles.
INTEREST RATE RISK: The risk that changes in interest rates will cause
volatility in net interest income.
LEVERAGE RATIO: Tier 1 capital divided by the sum of total assets minus
nonqualifying intangibles.
LIQUIDITY: The ability to meet cash flow requirements at reasonable cost.
MARKET CAPITALIZATION: The market (bid) price of a share of common stock
multiplied by the number of shares of common stock outstanding, i.e., the total
market value of all outstanding shares.
MSR: Mortgage servicing rights. The asset value associated with the right to
service mortgage loans, classified as an intangible asset by the Federal
Reserve. MSR's are created when FSCO originates mortgage loans, or purchases
mortgage servicing rights through secondary markets.
NASDAQ: The National Association of Securities Dealers Automated Quotation
National Market System.
NET INTEREST INCOME: Interest income plus loan fees minus interest expense,
frequently adjusted to an FTE basis for analytical purposes.
NET INTEREST MARGIN: Net interest income FTE divided by average interest-
earning assets.
NET INTEREST SPREAD: The arithmetic difference between the FTE yield on
interest-earning assets and the rate paid on interest-bearing funds.
NONACCRUING LOANS: Loans on which interest is not being accrued for income
statement purposes. Interest received on nonaccruing loans is reported on a
cash basis.
NONPERFORMING ASSETS: Nonaccruing loans plus renegotiated loans plus ORE.
NOTIONAL AMOUNT: The contractual amount against which interest rates or other
indices are applied in the calculation of interest exchanges. Not a measurement
of principal at risk.
OPERATING EXPENSE RATIO: Noninterest expenses divided by the sum of net
interest income FTE plus noninterest income. Also known as an efficiency ratio.
ORE: Other real estate owned. Also includes other foreclosed assets.
POTENTIAL PROBLEM LOANS: As defined by the SEC, potential problem loans are
performing loans that have characteristics that cause management to have serious
doubts about the borrower's ability to comply with the present loan repayment
terms. These loans are less than 90 days past due, and are accruing interest.
PROBLEM ASSETS: Nonperforming assets plus accruing loans past due 90 days or
more.
PRODUCTIVITY RATIO: Noninterest expenses divided by average total assets.
PROVISION FOR LOAN LOSSES: A charge against income made to adjust the reserve
for loan losses to a desired level to cover potential future loan losses.
RESERVE FOR LOAN LOSSES: An adjustment made to loans to recognize possible
future loan chargeoffs. All loan losses are charged against this reserve as
they become probable and subject to reasonable estimation. Recoveries of
amounts previously charged off are credited to this reserve. The reserve is
adjusted by means of the provision for loan losses.
RISK-BASED CAPITAL RATIOS: Equity measurements used by regulatory agencies to
assess a bank's capital adequacy. These ratios are: Tier 1 Capital divided by
risk-adjusted assets; and Total Capital (Tier 1 plus Tier 2 capital) divided by
risk-adjusted assets.
ROAA: Return on average assets. Net income divided by average total assets.
ROAE: Return on average equity. Net income divided by average total
stockholders' equity.
SFAS: Statement of Financial Accounting Standards. Accounting pronouncements
issued by the Financial Accounting Standards Board.
TANGIBLE COMMON EQUITY RATIO: Common stockholders' equity minus intangible
assets, divided by the sum of total assets minus intangible assets.
TIER 1 CAPITAL: Stockholders' equity plus minority equity in subsidiaries and
certain capital securities, minus goodwill and deposit-based intangibles.
TIER 2 CAPITAL: Reserves for loan losses up to 1.25% of risk-adjusted assets
plus qualifying subordinated debt.
TOTAL CAPITAL: The sum of Tier 1 plus Tier 2 Capital.
<PAGE>
<TABLE>
TABLE 1: FINANCIAL HIGHLIGHTS, FIVE-YEAR SUMMARY (in thousands, except per share data and ratios)
<CAPTION>
5-Year
96/95 Compound
1996 1995 1994 1993 1992 % Chg Growth Rate
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<S> <C> <C> <C> <C> <C> <C> <C>
COMMON AND PREFERRED STOCK DATA:
Earnings per common share: primary $ 2.30 $ 1.57 $ 1.87 $ 1.59 $ 1.44 46.5 19.1
Earnings per common share: fully diluted 2.29 1.57 1.87 1.58 1.44 45.9 20.3
Tangible EPCS: fully diluted 2.49 1.75 2.07 1.78 1.65 42.3 17.3
Dividends paid per common share 0.86 0.75 0.69 0.59 0.45 14.7 16.5
Book value (EOP) 15.06 13.71 11.95 11.49 10.54 9.8 9.4
Tangible book value (EOP) 12.82 11.72 9.71 11.33 10.32 9.4 6.4
Market price (bid) (EOP) 34.13 25.33 15.17 17.17 18.17 34.7 21.9
High bid for the period 34.13 25.33 21.33 20.17 18.33 34.7 21.9
Low bid for the period 22.88 14.67 14.33 16.00 12.11 56.0 28.0
Market capitalization (mktprice x #shrs) (EOP) % 2,583,467 1,903,344 1,128,286 1,247,253 1,243,745 35.7 25.3
Market price / book value (EOP) % 226.59 184.82 126.95 149.36 172.36
Dividend payout ratio (DPCS / EPCS) % 37.39 47.77 37.01 36.97 31.55
Dividend yield (DPCS / mktprice) (EOP) % 2.52 2.95 4.57 3.57 2.79
Price-earnings ratio (mktprice / EPCS) 14.8X 16.2x 8.1x 10.8x 12.6x
Common shares (EOP) 75,706 75,133 74,393 72,656 68,463 0.8 2.8
Common shares: primary (Avg) 77,377 76,319 74,891 71,778 69,495 1.4 4.6
Common shares: fully diluted (Avg) 77,570 76,527 75,126 72,030 69,780 1.4 3.4
Common shareholders of record (not rounded) (EOP) 9,095 9,222 8,821 8,748 7,976 (1.4) 5.6
Preferred shares (EOP) 10 11 12 13 15 (9.1) (9.0)
Preferred shareholders of record (not rounded) (EOP) 541 588 634 671 742 (8.0) (7.8)
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INCOME STATEMENT:
Interest income $ 987,808 $ 934,859 $ 773,517 $ 644,732 $ 656,448 5.7 6.8
Interest expense 471,232 459,868 315,415 240,794 280,499 2.5 4.0
Net interest income 516,576 474,991 458,102 403,938 375,949 8.8 9.9
Fully taxable equivalent (FTE) adjustment 7,684 8,336 7,875 7,633 9,621 (7.8) (5.9)
Net interest income, FTE 524,260 483,327 465,977 411,571 385,570 8.5 9.5
Provision for loan losses 40,300 21,082 825 11,684 30,277 91.2 (9.5)
Noninterest income 298,686 266,492 197,548 167,159 144,036 12.1 16.7
Noninterest expenses 497,367 530,205 433,648 386,146 339,456 (6.2) 10.2
Provision for income taxes 99,752 70,191 81,043 59,211 49,909 42.1 28.6
Net income 177,843 120,005 140,134 114,056 100,343 48.2 24.5
Preferred stock dividend requirement 33 35 39 43 48 (5.7) (8.7)
Common stock dividend 64,893 55,966 51,087 38,595 26,000 16.0 26.5
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BALANCE SHEET - END OF PERIOD:
Trading account securities $ 477,486 $ 638,393 $ 553,826 $ 607,854 $ 388,961 (29.9) 7.3
Investment securities 3,150,276 2,623,557 2,246,419 1,762,783 1,750,180 20.1 15.3
Memo: fair value adjustment for
investment securities AFS 1,654 23,614 (86,537) -- -- (93.0) NM
Loans, net of unearned income 9,262,482 8,315,095 8,173,678 6,561,021 5,616,624 11.4 11.3
Reserve for loan losses (134,428) (129,982) (133,855) (134,848) (127,847) 3.4 1.2
Total interest-earning assets 13,115,096 11,746,677 11,019,059 9,329,273 8,054,059 11.6 12.0
Intangible assets 169,779 148,819 166,199 11,833 14,867 14.1 64.2
Total assets 14,708,024 13,034,607 12,148,982 10,211,689 8,895,673 12.8 12.1
Noninterest-bearing deposits 2,198,348 1,884,931 1,719,388 1,697,687 1,429,314 16.6 12.1
Interest-bearing deposits 7,240,915 6,888,711 6,333,956 5,806,020 5,439,139 5.1 6.6
Total deposits 9,439,263 8,773,642 8,053,344 7,503,707 6,868,453 7.6 7.7
Short-term borrowed funds 2,830,633 2,198,689 2,345,139 1,486,905 995,790 28.7 25.8
Long-term debt 944,055 720,521 685,426 224,836 127,203 31.0 60.9
Total interest-bearing liabilities 11,015,603 9,807,921 9,364,521 7,517,761 6,562,132 12.3 12.0
Minority equity in subsidiaries 342 309 269 268 219 10.7 6.8
Preferred stockholders' equity 540 571 629 703 783 (5.4) (8.7)
Common stockholders' equity 1,140,108 1,029,692 888,845 835,028 721,664 10.7 12.4
Parent company investment in subsidiaries 1,206,037 1,071,320 932,738 741,185 640,795 12.6 15.7
====================================================================================================================================
<FN>
Notes:
EOP: End of Period. EPCS: Earnings Per Common Share. DPCS: Dividends Per Common Share. AFS: Available For Sale. NM: Not Meaningful.
</TABLE>
<PAGE>
<TABLE>
TABLE 1: FINANCIAL HIGHLIGHTS, FIVE-YEAR SUMMARY (in thousands, except per share data and ratios) continued
<CAPTION>
5-Year
96/95 Compound
1996 1995 1994 1993 1992 % Chg Growth Rate
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<S> <C> <C> <C> <C> <C> <C> <C>
PROBLEM ASSETS AND POTENTIAL PROBLEM ASSETS - END OF PERIOD:
Total nonaccruing loans $ 33,276 $ 22,447 $ 23,868 $ 36,354 $ 79,968 48.2 (21.6)
Other real estate 4,855 4,134 3,352 16,465 27,487 17.4 (33.8)
Total nonperforming assets 38,131 26,581 27,220 52,819 107,455 43.5 (24.0)
Accruing loans past due 90
days or more 19,326 13,455 12,001 7,155 11,766 43.6 2.4
Total problem assets 57,457 40,036 39,221 59,974 119,221 43.5 (19.3)
Potential problem assets 8,271 12,319 12,018 19,179 22,930 (32.9) (34.7)
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RECONCILIATION OF THE RESERVE FOR LOAN LOSSES:
Reserve for loan losses,
beginning $ 129,982 $ 133,855 $ 134,848 $ 127,847 $ 126,887 (2.9) 2.1
Net loans charged off (35,854) (24,955) (7,092) (11,865) (32,831) 43.7 (9.4)
Provision for loan losses 40,300 21,082 825 11,684 30,277 91.2 (9.5)
Acquisitions and
reclassifications -- -- 5,274 7,182 3,514 -- (100.0)
Reserve for loan losses, ending 134,428 129,982 133,855 134,848 127,847 3.4 1.2
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BALANCE SHEET - AVERAGE:
Trading account securities $ 197,308 $ 487,992 $ 629,308 $ 424,091 $ 430,025 (59.6) (12.4)
Investment securities 2,857,948 2,339,035 2,254,772 1,792,591 1,708,038 22.2 14.8
Memo: fair value adjustment
for investment securities AFS (3,086) (21,335) (30,246) -- -- 85.5 NM
Loans, net of unearned income 8,679,860 8,196,759 7,244,205 5,917,816 5,463,283 5.9 10.2
Reserve for loan losses (132,127) (131,630) (134,802) (128,801) (130,548) 0.4 1.1
Deferred taxes on leases (170,588) (160,244) (145,264) (132,749) (124,327) 6.5 8.9
Total interest-earning assets,
excl. fair value adjustment
for investment securities AFS
and deferred tax on leases 11,671,304 11,038,396 10,072,306 8,319,615 7,680,167 5.7 10.0
Intangible assets 157,567 149,861 117,632 13,709 14,602 5.1 61.8
Total assets 13,045,607 12,232,262 11,139,838 9,214,260 8,490,487 6.6 10.1
Noninterest-bearing deposits 1,789,403 1,646,070 1,616,294 1,428,640 1,214,078 8.7 11.4
Interest-bearing deposits 7,095,040 6,745,786 6,083,333 5,527,474 5,353,698 5.2 6.6
Total deposits 8,884,443 8,391,856 7,699,627 6,956,114 6,567,776 5.9 7.4
Short-term borrowed funds 2,050,398 1,892,408 2,007,341 1,121,250 982,448 8.3 15.1
Long-term debt 746,885 728,788 368,096 204,129 103,659 2.5 48.2
Total interest-bearing
liabilities 9,892,323 9,366,982 8,458,770 6,852,853 6,439,805 5.6 9.5
Minority equity in subsidiaries 318 294 265 232 237 8.2 5.3
Preferred stockholders' equity 554 599 675 728 820 (7.5) (8.9)
Common stockholders' equity 1,067,293 985,576 868,060 783,930 685,339 8.3 13.0
- -------------------------------------------------------------------------------------------------------------------------------
OTHER DATA - END OF PERIOD:
Full-time equivalent employees 7,017 7,530 7,621 6,318 5,891 (6.8) 4.4
Total domestic bank offices 266 272 261 245 230 (2.2) 3.1
===============================================================================================================================
<FN>
Notes:
EOP: End of Period. NM: Not Meaningful. AFS: Available For Sale.
</TABLE>
<PAGE>
<TABLE>
TABLE 1: FINANCIAL HIGHLIGHTS, FIVE-YEAR SUMMARY continued
<CAPTION>
1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED RATIOS (%):
Return on average assets (ROAA) 1.36% 0.98% 1.26% 1.24% 1.18%
Tangible ROAA 1.50 1.11 1.41 1.39 1.36
Return on average stockholders' equity (ROAE) 16.65 12.17 16.13 14.54 14.62
Tangible ROAE 21.20 16.02 20.67 16.61 17.19
Net interest margin, FTE 4.49 4.38 4.63 4.95 5.02
Net interest spread, FTE 3.77 3.63 4.03 4.33 4.31
Operating expense ratio 60.44 70.71 65.36 66.72 64.10
Productivity ratio 3.81 4.33 3.89 4.19 4.00
Loans / deposits (EOP) 98.13 94.77 101.49 87.44 81.77
Loans / assets (EOP) 62.98 63.79 67.28 64.25 63.14
Reserve for loan losses (EOP) / :
Total loans 1.45 1.56 1.64 2.06 2.28
Nonaccruing loans 403.98 579.06 560.81 370.93 159.87
Nonaccruing + accruing loans past due 90 days 255.56 362.05 373.18 309.93 139.37
Nonaccruing loans / total loans 0.36 0.27 0.29 0.55 1.42
Nonaccruing + accruing loans past due / total loans 0.57 0.43 0.44 0.66 1.63
Nonperforming assets / :
Total loans + other real estate 0.41 0.32 0.33 0.80 1.90
Total assets 0.26 0.20 0.22 0.52 1.21
Total equity 3.34 2.58 3.06 6.32 14.87
Total equity + reserve for loan losses 2.99 2.29 2.66 5.44 12.64
Problem assets / :
Total loans + other real estate 0.62 0.48 0.48 0.91 2.11
Total assets 0.39 0.31 0.32 0.59 1.34
Total equity 5.04 3.89 4.41 7.18 16.50
Total equity + reserve for loan losses 4.51 3.45 3.83 6.18 14.02
Net loans charged off / average loans 0.41 0.30 0.10 0.20 0.60
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL RATIOS AND RISK-BASED CAPITAL RATIOS (%):
Stockholders' equity / assets (EOP) 7.76% 7.90% 7.32% 8.18% 8.12%
Stockholders' equity / assets (Avg) 8.19 8.06 7.80 8.52 8.08
Tangible common equity / tangible assets (EOP) 6.67 6.84 6.03 8.07 7.96
Leverage ratio 8.16 7.12 6.88 8.08 7.99
Tier 1 risk-based capital ratio 11.34 10.35 9.84 11.82 11.32
Total (Tier 1 + 2) risk-based capital ratio 14.50 13.86 11.98 14.15 13.78
====================================================================================================================================
<FN>
Notes:
EOP: End of Period. NM: Not Meaningful.
</TABLE>
<PAGE>
1996 HIGHLIGHTS
Highlights of First Security Corporation's operations in 1996, including
comparisons with 1995, included:
RESULTS OF OPERATIONS
* Record net income of $177.8 million for 1996, up $30.1 million or 20.4% before
the 1995 restructuring charge.
* Record net income of $51.2 million for the fourth quarter of 1996, up $14.7
million or 40.2% from the year-ago quarter before the 1995 restructuring charge.
* Fully diluted earnings per share of $2.29 for 1996, up $0.36 or 18.7% before
the 1995 restructuring charge.
* Net interest margin at 4.49% for 1996, up 11 basis points.
* Operating expense ratio improved to 60.44% for 1996 and 58.23% for the fourth
quarter.
FINANCIAL CONDITION AT DECEMBER 31, 1996
* Record total assets of $14.7 billion, up $1.7 billion or 12.8%.
* Record interest-earning assets of $13.1 billion, up $1.4 billion or 11.6%.
* Record stockholders' equity of $1.1 billion, up $110 million or 10.7%.
* Asset quality: total problem assets to total loans and ORE at 0.62%.
* Ratio of reserve to total loans at 1.45%.
* Ratio of reserve to nonaccruing loans at 403.98%.
* All equity and risk-based capital ratios continue to exceed regulatory
requirements for "well capitalized" status.
OTHER HIGHLIGHTS
* Project VISION implementation completed; favorable impact as originally
projected of approximately $0.49 per share (full-year run rate basis).
* First Security Bank, N.A., successor national bank resulting from merger of
First Security Bank of Utah, N.A. and First Security Bank of Idaho, N.A.
PROJECT VISION
FSCO'S CUSTOMER-FOCUSED CORPORATE REDESIGN PROGRAM
FSCO's Corporate Vision Statement is: "At First Security we are a high
performance, independent financial services company that provides the highest
quality products and services to the customers we serve. Our hallmark is a long
and continuing tradition of integrity, community involvement, and progressive
leadership that builds value and prosperity for our shareholders, customers,
employees, and communities, all of which are vital to our success."
FSCO's primary objective for 1996 was to build on this Corporate Vision through
implementation of Project VISION, the goals of which were announced on December
14, 1995. Project VISION was a comprehensive corporate redesign which included a
major restructuring of FSCO to better meet customers" needs, and to increase
operating efficiency, performance, and shareholder value.
PROJECT VISION IMPLEMENTATION COMPLETED
On December 31, 1996, FSCO completed its implementation of Project VISION. FSCO
has been gratified with the positive impact of Project VISION initiatives in the
areas of revenue enhancements and noninterest expense reductions. The favorable
impact of the Project VISION ideas implemented during 1996 was approximately
$0.27 per share.
On a full-year run rate basis (i.e., as if Project VISION had been fully
implemented as of January 1, 1996), the positive financial impact of these
redesign changes was as originally estimated, and constituted approximately
$0.49 per share. The components of this impact, as originally estimated and as
implemented, were approximately as follows:
<TABLE>
PROJECT VISION IMPLEMENTATION (FULL-YEAR RUN RATE)
<CAPTION>
$ in millions, except per share Estimated: Implemented:
- --------------------------------------------------------------------------------
<S> <C> <C>
Process cost savings $ 51.4 $ 48.1
Revenue enhancements 10.5 14.5
Pre-tax positive financial impact 61.9 62.6
After-tax positive financial impact 37.8 38.2
Per share $ 0.49 $ 0.49
- --------------------------------------------------------------------------------
</TABLE>
FSCO recognized a $44.0 million pre-tax restructuring charge in 1995 (the
"1995 restructuring charge"), related to the redesign. This 1995 restructuring
charge equated to $27.7 million on an after-tax basis, or $0.36 per share (see
"Note 2: Restructuring Charge").
FSCO's redesigned corporate structure has combined its Utah and Idaho bank
charters into a single bank, and all of FSCO's banks and subsidiaries have begun
to operate as a single unit or "virtual bank".
FSCO's organizational management structure now consists of six customer-
focused business units: Community Banking Services; Retail Lending Services;
Business Banking Services; Finance & Capital Markets; Technology & Processing
Services; and Corporate Services.
OPERATING SUBSIDIARIES
First Security Corporation is the largest financial services organization
headquartered in the Intermountain West. Incorporated in 1928, FSCO is also the
nation's oldest multistate bank holding company. At December 31, 1996, FSCO
bank subsidiaries operated 266 full-service domestic bank offices in the six
western states of Utah, Idaho, New Mexico, Oregon, Nevada, and Wyoming. Nonbank
subsidiaries are engaged in residential mortgage loan origination and servicing,
full-service leasing, bankcard transaction processing, insurance services,
investment management, full-service securities brokerage, information
technology, small business investment, and asset management.
FSCO's subsidiaries and their principal activities are discussed below (see
"Table 2: Consolidating Statements").
* FIRST SECURITY BANK, N.A. (FS Bank) is a nationally chartered bank. It is the
surviving bank resulting from the merger of FSCO's two largest subsidiaries,
First Security Bank of Utah, N.A. and First Security Bank of Idaho, N.A. on June
21, 1996. FS Bank has two wholly owned operating subsidiaries:
* CROSSLAND MORTGAGE CORPORATION (CrossLand Mortgage) originates and
services residential term loans, and services mortgage loans for all FSCO
subsidiaries. All CrossLand Mortgage loan originations are sold into the
secondary market. At December 31, 1996, CrossLand Mortgage operated 72
offices in 23 states, and was ranked among the top 20 mortgage banking
companies in the nation in terms of loan originations and servicing.
* FIRST SECURITY HONG KONG AGREEMENT CORPORATION provides letters of credit
and other international banking services.
* FIRST SECURITY BANK OF NEW MEXICO, N.A. (FSB New Mexico) is a nationally
chartered bank and the third largest bank in New Mexico in terms of deposits.
* FIRST SECURITY BANK OF OREGON (FSB Oregon) is an Oregon state-chartered
savings bank.
* FIRST SECURITY BANK OF NEVADA (FSB Nevada) is a Nevada state-chartered bank.
* FIRST SECURITY BANK OF WYOMING (FSB Wyoming) is a Wyoming state-chartered
bank.
* FIRST SECURITY LEASING COMPANY (FS Leasing), is a full-service leasing company
that originates and manages leases for both its own portfolio and the lease
portfolios of FSCO's subsidiary banks. Leases are carried by FSCO's
subsidiaries primarily to generate income. In addition, significant deferred
tax benefits have been, and continue to be, generated by the lease portfolio.
* FIRST SECURITY PROCESSING SERVICES, INC. (FS Processing Services) processes
bankcard transactions for other financial institutions.
* FIRST SECURITY INSURANCE, INC. (FS Insurance) is a full-service insurance
agency that offers a wide range of insurance products to customers in FSCO's
market areas.
* FIRST SECURITY LIFE INSURANCE COMPANY OF ARIZONA (FS Life Insurance) reinsures
the credit life and disability insurance of borrowers from other FSCO
subsidiaries.
* FIRST SECURITY INVESTMENT SERVICES, INC. (FS Investment Services) has two
operating subsidiaries:
* FIRST SECURITY INVESTOR SERVICES provides a full spectrum of securities
products and brokerage services to the public, including full and discount
brokerage services and investment advice, and makes available FSCO's
"Achievement Funds", a family of proprietary mutual funds.
* FIRST SECURITY INVESTMENT MANAGEMENT, INC. provides investment management
and advisory services to FSCO's trust business and to other clients, and is
an advisor to mutual funds, including certain of FSCO's "Achievement
Funds".
* FIRST SECURITY BUSINESS INVESTMENT CORPORATION (FS Business Investment)
invests in small businesses and provides alternative financing sources for small
companies whose financing needs are typically not being met by conventional
lending sources. Investments made by FS Business Investment include both equity
and debt positions.
* FIRST SECURITY SERVICE COMPANY (FS Service) provides operational services to
FSCO's subsidiaries. These services include loan servicing, item processing,
accounting, tax, security, consumer compliance, human resources, planning, sales
training, marketing, communications, purchasing, and risk management.
* FIRST SECURITY INFORMATION TECHNOLOGY, INC. (FS Information Technology)
provides specialized services including all forms of data processing and
telecommunications.
<PAGE>
<TABLE>
TABLE 2: CONSOLIDATING STATEMENTS (in thousands, except ratios) (A)
<CAPTION>
Reserve Non- Return Return
For the Year Ended Total Total for Loan Performing Total Total Net on Avg. on Avg.
December 31, 1996 Assets Loans Losses Assets Deposits Equity Income Assets Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BANK SUBSIDIARIES:
FS Bank (211 offices) (B) $11,698,810 $7,679,148 $ (97,649) $29,574 $7,285,214 $ 908,951 $147,441 1.44% 17.35%
FSB New Mexico (28 offices) 1,749,216 689,868 (18,577) 2,089 1,184,067 113,820 14,322 0.84 13.49
FSB Oregon (13 offices) 466,824 346,533 (5,185) 986 376,529 46,865 10,295 2.33 23.75
FSB Nevada (7 offices) 457,414 243,331 (5,688) 4,032 423,168 32,454 4,682 1.22 15.64
FSB Wyoming (7 offices) 222,166 130,125 (2,740) 1,244 187,696 26,311 2,687 1.22 10.75
Consolidating adjustments (145,847) (6,988) -- -- (8,316) -- (54) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Bank Subsidiaries 14,448,583 9,082,017 (129,839) 37,925 9,448,358 1,128,401 179,373 1.40 17.02
- ------------------------------------------------------------------------------------------------------------------------------------
NONBANK SUBSIDIARIES:
FS Leasing 183,945 176,434 (4,589) 206 -- 33,537 3,287 1.79 10.40
FS Processing Services 4,826 -- -- -- -- 1,804 (2,170) (62.46) (166.92)
FS Insurance 13,645 900 -- -- -- 8,929 1,629 15.42 20.29
FS Life Insurance 14,673 -- -- -- -- 11,646 1,445 10.90 13.35
FS Investment Services 3,565 20 -- -- -- 2,608 1,064 39.88 51.43
FS Business Investment 2,828 1,326 -- -- -- 2,794 (383) (15.90) (16.08)
FS Service 31,185 1,922 -- -- -- 11,442 (6,355) (20.98) (79.42)
FS Information Technology 17,821 -- -- -- -- 818 -- -- --
FS Capital I 154,955 154,640 -- -- -- 4,640 -- -- --
Consolidating adjustments (2,129) -- -- -- -- (240) (47) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Nonbank Subsidiaries 425,314 335,242 (4,589) 206 -- 77,978 (1,530) (0.59) (2.34)
- ------------------------------------------------------------------------------------------------------------------------------------
FSCO Parent Company only 1,794,593 543,288 -- -- -- 1,140,648 51,231 3.56 4.81
Consolidating adjustments (1,960,466) (698,065) -- -- (9,095) (1,206,379) (51,231) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
FSC CONSOLIDATED 14,708,024 9,262,482 (134,428) 38,131 9,439,263 1,140,648 177,843 1.36% 16.65%
====================================================================================================================================
<FN>
Notes:
(A) FSCO owns 100% of the stock of all of its subsidiaries except FS Bank and
FSB Wyoming, which are each more than 99.9% owned.
(B) On June 21, 1996, First Security Bank of Utah, N.A. and First Security Bank
of Idaho, N.A. merged to become First Security Bank, N.A.
</TABLE>
<PAGE>
ANALYSIS OF STATEMENTS OF INCOME
SUMMARY
[NOTE: ALL 1995 NET INCOME AND RELATED DATA REPORTED IN THIS SUMMARY INCLUDE
PROJECT VISION'S ONE TIME 1995 RESTRUCTURING CHARGE OF $44.0 MILLION PRE-TAX,
WHICH EQUALED $27.7 MILLION AFTER TAX OR $0.36 PER SHARE FULLY DILUTED.]
FSCO earned record net income totaling $177.8 million for 1996, up $57.8 or
48.2% from $120.0 million earned in 1995, which in turn was down $20.1 million
or 14.4% from $140.1 million in 1994 (see "Table 1: Financial Highlights' see
also "Factors That May Affect Future Results of Operations And Financial
Condition"). This net income generated a 1.36% ROAA and a 16.65% ROAE for 1996
on FSCO's strong average equity to assets ratio of 7.76%, up from a 0.98% ROAA
and a 12.17% ROAE for 1995 and a 1.26% ROAA and a 16.13% ROAE for 1994. Fully
diluted earnings per share were $2.29 for 1996, up $0.72 or 45.9% from $1.57 for
1995, which in turn was down $0.30 or 16.0% from $1.87 for 1994. Adjusting for
amortization of intangibles, the tangible ROAA was 1.50%, up from 1.11% for 1995
and 1.41% for 1994, the tangible ROAE was 21.20%, up from 16.02% for 1995 and
20.67% for 1994, and tangible fully diluted earnings per share were $2.49, up
from $1.75 in 1995 and $2.07 in 1994.
NET INTEREST INCOME AND MARGIN
The largest component of FSCO's operating income is net interest income. For
purposes of this discussion, interest income earned on tax-exempt or tax-favored
loans, leases, and securities is adjusted to an FTE basis to facilitate
comparison with interest earned that is subject to statutory taxation.
Changes in net interest income generally occur due to fluctuations in the
volumes (balances and/or mixes) of interest-earning assets and interest-bearing
liabilities, and changes in their corresponding interest rates (yields or
costs). Changes in nonperforming assets, together with interest lost and
recovered on those assets, also impact comparisons of net interest income.
Net interest income FTE totaled $524.3 million for 1996, up $40.9 million or
8.5% from 1995 (see "Table 3: Average Balance Sheets, Net Interest Income,
Yields and Rates", "Table 4: Analysis of Interest Changes Due To Volumes and
Rates", and "Table 1: Financial Highlights"). This increase was due to volume
growth of 5.9% in average loans and 22.2% in investment securities, and lower
average rates on savings/money market accounts and overnight borrowed funds,
partially offset by volume growth of 5.6% in average interest-bearing
liabilities.
By comparison, net interest income FTE for 1995 totaled $483.3 million, up
$17.3 million or 3.7% from $466.0 million for 1994. This increase was due
mostly to the 13.1% volume growth in average loans, inclusive of the impacts of
the securitization and sale of $251 million of auto loans during the third
quarter of 1995 and the sale of $100 million mortgage loans during the fourth
quarter of 1995. Compaction of spreads on interest-earning assets negatively
impacted the net interest margin, which was 4.38% for 1995, down from 4.63%
for 1994.
The net interest margin was 4.49% for 1996, up 11 basis points from 1995, and
was 4.55% for the fourth quarter of 1996, essentially unchanged from the year-
ago quarter and the third quarter of 1996. During 1996, a one basis point
(0.01%) change in FSCO's net interest margin FTE equaled approximately $1.2
million of net interest income FTE.
Over the past 10 years, growth in FSCO's net interest income FTE has largely
been due to sustained growth in average interest-earning assets. The net
interest margin FTE has also reflected increased competition, balance sheet
restructuring, and the impact of changes in the yield curve.
<PAGE>
<TABLE>
TABLE 3: AVERAGE BALANCE SHEETS, NET INTEREST INCOME, YIELDS AND RATES (in thousands) (A)
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995
Tax Avg % Tax Avg %
Average Equivalent Yield/ Average Equivalent Yield/
For the Years Ended December 31, Balance Interest Rate Balance Interest Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-Earning Assets:
Federal funds sold and securities purchased $ 84,575 $ 4,483 5.30 $ 140,317 $ 8,166 5.82
Interest-bearing deposits in other banks 19,115 1,059 5.54 13,202 778 5.89
Trading account securities 197,308 10,094 5.12 487,992 29,130 5.97
Investment securities (B) 2,861,034 187,830 6.57 2,360,370 147,542 6.25
Loans, net of unearned income
and deferred taxes on leases (C) 8,509,272 792,026 9.31 8,036,515 757,579 9.43
- -----------------------------------------------------------------------------------------------------------------------------
Total Interest-Earning Assets, Net of Deferred
Taxes On Leases and Excluding Fair Value
Adjust on Securities AFS (B) 11,671,304 995,492 8.53 11,038,396 943,195 8.54
- -----------------------------------------------------------------------------------------------------------------------------
Cash and due from banks 655,931 604,295
Premises and equipment, net 222,209 201,749
Other real estate 4,702 3,923
Reserve for loan losses (132,127) (131,630)
Other assets 456,086 376,620
Deferred taxes on leases, deducted above 170,588 160,244
Fair value adjustment for
securities available for sale (3,086) (21,335)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets $13,045,607 $12,232,262
====================================================================================================================================
LIABILITIES:
Interest-Bearing Liabilities:
Interest-Bearing Deposits:
Interest-bearing demand accounts $ 860,764 19,594 2.28 $ 1,069,970 20,863 1.95
Savings and money-market accounts 2,750,436 92,838 3.38 2,369,327 88,935 3.75
Time deposits of $100,000 or more 725,536 40,768 5.62 690,820 41,222 5.97
Other time deposits 2,758,304 159,810 5.79 2,615,669 149,126 5.70
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Deposits 7,095,040 313,010 4.41 6,745,786 300,146 4.45
- ------------------------------------------------------------------------------------------------------------------------------------
Federal funds purchased and securities sold 1,794,685 90,523 5.04 1,685,763 94,608 5.61
Other short-term borrowings 255,713 17,558 6.87 206,645 13,663 6.61
Long-term debt 746,885 50,141 6.71 728,788 51,451 7.06
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Liabilities 9,892,323 471,232 4.76 9,366,982 459,868 4.91
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing deposits 1,789,403 1,646,070
Other liabilities 296,034 233,035
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 11,977,760 11,246,087
- ------------------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Preferred stockholders' equity 554 599
Common stockholders' equity 1,067,293 985,576
- ------------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 1,067,847 986,175
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $13,045,607 $12,232,262
====================================================================================================================================
Interest income/earning assets 8.53 8.54
Interest expense/earning assets 4.04 4.16
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income/earning assets 524,260 4.49 483,327 4.38
Less FTE adjustment 7,684 8,336
- ------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income, Per Statements of Income $516,576 $474,991
====================================================================================================================================
Loan Fees Included In Interest Income $ 27,675 $ 24,025
====================================================================================================================================
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1994 1993
Tax Avg % Tax Avg %
Average Equivalent Yield/ Average Equivalent Yield/
For the Years Ended December 31, Balance Interest Rate Balance Interest Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-Earning Assets:
Federal funds sold and securities purchased $ 56,724 $ 2,320 4.09 $ 302,412 $ 9,191 3.04
Interest-bearing deposits in other banks 2,315 83 3.59 15,454 456 2.95
Trading account securities 629,308 33,983 5.40 424,091 20,841 4.91
Investment securities (B) 2,285,018 126,148 5.52 1,792,591 106,195 5.92
Loans, net of unearned income
and deferred taxes on leases (C) 7,098,941 618,858 8.72 5,785,067 515,682 8.91
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest-Earning Assets, Net of Deferred
Taxes On Leases and Excluding Fair Value
Adjust on Securities AFS (B) 10,072,306 781,392 7.76 8,319,615 652,365 7.84
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks 604,479 547,758
Premises and equipment, net 165,545 137,649
Other real estate 8,856 26,506
Reserve for loan losses (134,802) (128,801)
Other assets 308,436 178,784
Deferred taxes on leases, deducted above 145,264 132,749
Fair value adjustment for
securities available for sale (30,246) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets $11,139,838 $9,214,260
====================================================================================================================================
LIABILITIES:
Interest-Bearing Liabilities:
Interest-Bearing Deposits:
Interest-bearing demand accounts $ 1,097,185 18,932 1.73 $ 962,411 18,239 1.90
Savings and money-market accounts 2,549,142 78,029 3.06 2,220,848 68,275 3.07
Time deposits of $100,000 or more 416,886 18,558 4.45 340,714 14,124 4.15
Other time deposits 2,020,120 90,206 4.47 2,003,501 92,354 4.61
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Deposits 6,083,333 205,725 3.38 5,527,474 192,992 3.49
- ------------------------------------------------------------------------------------------------------------------------------------
Federal funds purchased and securities sold 1,934,468 81,735 4.23 1,065,495 31,639 2.97
Other short-term borrowings 72,873 4,071 5.59 55,755 2,340 4.20
Long-term debt 368,096 23,884 6.49 204,129 13,823 6.77
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Liabilities 8,458,770 315,415 3.73 6,852,853 240,794 3.51
- ------------------------------------------------------------------------------------------------------------------------------------
Noninterest-bearing deposits 1,616,294 1,428,640
Other liabilities 196,039 148,109
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 10,271,103 8,429,602
- ------------------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Preferred stockholders' equity 675 728
Common stockholders' equity 868,060 783,930
- ------------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 868,735 784,658
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $11,139,838 $9,214,260
====================================================================================================================================
Interest income/earning assets 7.76 7.84
Interest expense/earning assets 3.13 2.89
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest income/earning assets 465,977 4.63 411,571 4.95
Less FTE adjustment 7,875 7,633
- ------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income, Per Statements of Income $458,102 $403,938
====================================================================================================================================
Loan Fees Included In Interest Income $ 18,658 $ 13,708
====================================================================================================================================
<CAPTION>
- --------------------------------------------------------------------------------------
1992
Tax Avg%
Average Equivalent Yield/
Balance Interest Rate
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Interest-Earning Assets:
Federal funds sold and securities purchased $ 186,938 $ 6,416 3.43
Interest-bearing deposits in other banks 16,210 690 4.26
Trading account securities 430,025 27,169 6.32
Investment securities (B) 1,708,038 121,141 7.09
Loans, net of unearned income
and deferred taxes on leases (C) 5,338,956 510,653 9.56
- --------------------------------------------------------------------------------------
Total Interest-Earning Assets, Net of Deferred
Taxes On Leases and Excluding Fair Value
Adjust on Securities AFS (B) 7,680,167 666,069 8.67
- --------------------------------------------------------------------------------------
Cash and due from banks 482,445
Premises and equipment, net 122,432
Other real estate 35,849
Reserve for loan losses (130,548)
Other assets 175,815
Deferred taxes on leases, deducted above 124,327
Fair value adjustment for
securities available for sale --
- --------------------------------------------------------------------------------------
Total Assets $8,490,487
======================================================================================
LIABILITIES:
Interest-Bearing Liabilities:
Interest-Bearing Deposits:
Interest-bearing demand accounts $ 865,945 23,094 2.67
Savings and money-market accounts 1,840,670 68,544 3.72
Time deposits of $100,000 or more 394,368 20,216 5.13
Other time deposits 2,252,715 126,281 5.61
- --------------------------------------------------------------------------------------
Total Interest-Bearing Deposits 5,353,698 238,135 4.45
- --------------------------------------------------------------------------------------
Federal funds purchased and securities sold 929,123 31,799 3.42
Other short-term borrowings 53,325 2,218 4.16
Long-term debt 103,659 8,347 8.05
- --------------------------------------------------------------------------------------
Total Interest-Bearing Liabilities 6,439,805 280,499 4.36
- --------------------------------------------------------------------------------------
Noninterest-bearing deposits 1,214,078
Other liabilities 150,445
- --------------------------------------------------------------------------------------
Total Liabilities 7,804,328
- --------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Preferred stockholders' equity 820
Common stockholders' equity 685,339
- --------------------------------------------------------------------------------------
Total Stockholders' Equity 686,159
- --------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $8,490,487
======================================================================================
Interest income/earning assets 8.67
Interest expense/earning assets 3.65
- --------------------------------------------------------------------------------------
Net interest income/earning assets 385,570 5.02
Less FTE adjustment 9,621
- --------------------------------------------------------------------------------------
Net Interest Income, Per Statements of Income $375,949
======================================================================================
Loan Fees Included In Interest Income $ 12,736
======================================================================================
<FN>
(A) Interest is presented on a fully taxable equivalent (FTE) basis, calculated
on Federal and state taxes applicable to the subsidiary carrying the asset.
The combined tax rate was approximately 39% for 1996-1993 and 38% for 1992-
1991.
(B) Yields on investment securities exclude average valuation adjustments for
securities available for sale. Yields for 1995 and 1994 have been restated
to reflect this change. During 1995 and 1994, $225,715 and $270,079,
respectively, was classified as securities held to maturity. Prior to 1994,
all securities were classified as held to maturity. At the end of 1995,
FSCO elected to classify all of its securities held to maturity as
securities available for sale.
(C) Loans include nonaccruing loans.
</TABLE>
<PAGE>
<TABLE>
TABLE 4: ANALYSIS OF INTEREST CHANGES DUE TO VOLUMES AND RATES (in thousands) (A)
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
1996 OVER 1995 1995 over 1994
Changes Due to: Total Changes Due to: Total
Volume Rate Change Volume Rate Change
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Federal funds sold and securities purchased $ (3,244) $ (439) $ (3,683) $ 3,419 $ 2,427 $ 5,846
Interest-bearing deposits in other banks 348 (67) 281 390 305 695
Trading account securities (17,352) (1,684) (19,036) (7,631) 2,778 (4,853)
Investment securities 31,296 8,992 40,288 4,160 17,234 21,394
Loans, net of unearned income
and deferred taxes on leases (B) 44,565 (10,118) 34,447 81,734 56,987 138,721
- ---------------------------------------------------------------------------------------------------------------------------------
Total Interest-Earning Assets,
Net of Deferred Taxes On Leases 55,613 (3,316) 52,297 82,072 79,731 161,803
- ---------------------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES:
Interest-Bearing Deposits:
Interest-bearing demand accounts (4,079) 2,810 (1,269) (470) 2,401 1,931
Savings and money market accounts 14,305 (10,402) 3,903 (5,504) 16,410 10,906
Time deposits of $100,000 or more 2,072 (2,526) (454) 12,194 10,470 22,664
Other time deposits 8,132 2,552 10,684 26,594 32,326 58,920
- ---------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Deposits 20,430 (7,566) 12,864 32,814 61,607 94,421
- ---------------------------------------------------------------------------------------------------------------------------------
Federal funds purchased and securities sold 6,113 (10,198) (4,085) (10,508) 23,381 12,873
Other short-term borrowings 3,244 651 3,895 7,473 2,119 9,592
Long-term debt 1,278 (2,588) (1,310) 23,404 4,163 27,567
- ---------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Liabilities 31,065 (19,701) 11,364 53,183 91,270 144,453
- ---------------------------------------------------------------------------------------------------------------------------------
Change in Net Interest Income $ 24,548 $ 16,385 $ 40,933 $ 28,889 $(11,539) $ 17,350
=================================================================================================================================
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
1994 over 1993 1993 over 1992
Changes Due to: Total Changes Due to: Total
Volume Rate Change Volume Rate Change
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Federal funds sold and securities purchased $ (7,467) $ 596 $ (6,871) $ 3,963 $ (1,188) $ 2,775
Interest-bearing deposits in other banks (388) 15 (373) (32) (202) (234)
Trading account securities 10,085 3,057 13,142 (375) (5,953) (6,328)
Investment securities 29,172 (9,219) 19,953 5,330 (20,276) (14,946)
Loans, net of unearned income
and deferred taxes on leases (B) 117,119 (13,943) 103,176 42,669 (37,640) 5,029
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest-Earning Assets,
Net of Deferred Taxes On Leases 148,521 (19,494) 129,027 51,555 (65,259) (13,704)
- ----------------------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES:
Interest-Bearing Deposits:
Interest-bearing demand accounts 2,554 (1,861) 693 2,573 (7,428) (4,855)
Savings and money market accounts 10,093 (339) 9,754 14,157 (14,426) (269)
Time deposits of $100,000 or more 3,158 1,276 4,434 (2,750) (3,342) (6,092)
Other time deposits 766 (2,914) (2,148) (13,970) (19,957) (33,927)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Deposits 16,571 (3,838) 12,733 10 (45,153) (45,143)
- ----------------------------------------------------------------------------------------------------------------------------------
Federal funds purchased and securities sold 25,803 24,293 50,096 4,667 (4,827) (160)
Other short-term borrowings 718 1,013 1,731 101 21 122
Long-term debt 11,103 (1,042) 10,061 8,090 (2,614) 5,476
- ----------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Liabilities 54,195 20,426 74,621 12,868 (52,573) (39,705)
- ----------------------------------------------------------------------------------------------------------------------------------
Change in Net Interest Income $ 94,326 $(39,920) $ 54,406 $ 38,687 $(12,686) $ 26,001
===================================================================================================================================
<CAPTION>
- ----------------------------------------------------------------------------------------------
1992 over 1991
Changes Due to: Total
Volume Rate Change
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST-EARNING ASSETS:
Federal funds sold and securities purchased $ 823 $ (3,960) $ (3,137)
Interest-bearing deposits in other banks (1,179) (498) (1,677)
Trading account securities 3,269 (2,476) 793
Investment securities 22,509 (23,682) (1,173)
Loans, net of unearned income
and deferred taxes on leases (B) 10,463 (60,450) (49,987)
- ---------------------------------------------------------------------------------------------
Total Interest-Earning Assets,
Net of Deferred Taxes On Leases 35,885 (91,066) (55,181)
- ---------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES:
Interest-Bearing Deposits:
Interest-bearing demand accounts 5,232 (12,772) (7,540)
Savings and money market accounts 28,642 (27,346) 1,296
Time deposits of $100,000 or more (10,975) (7,305) (18,280)
Other time deposits (23,327) (33,730) (57,057)
- ---------------------------------------------------------------------------------------------
Total Interest-Bearing Deposits (428) (81,153) (81,581)
- ---------------------------------------------------------------------------------------------
Federal funds purchased and securities sold 1,181 (19,471) (18,290)
Other short-term borrowings (4,874) (2,735) (7,609)
Long-term debt (52) 9 (43)
- ---------------------------------------------------------------------------------------------
Total Interest-Bearing Liabilities (4,173) (103,350) (107,523)
- ---------------------------------------------------------------------------------------------
Change in Net Interest Income $ 40,058 $ 12,284 $ 52,342
=============================================================================================
<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 1996-1993 and
38% for 1992-1991.
(B) Loan fees included in interest income: 1996: $27,675; 1995: $24,025; 1994:
$18,658; 1993: $13,708; 1992: $12,736; and 1991: $11,351.
</TABLE>
<PAGE>
PROVISION FOR LOAN LOSSES
The provision for loan losses totaled $40.3 million for 1996, up $19.2 million
or 91.2% from $21.1 million for 1995 (see "Interest-Earning Assets and Asset
Quality - Provision for Loan Losses", and "Table 10: Reconciliation of the
Reserve for Loan Losses"). By comparison, the provision for loan losses for
1995 totaled $21.1 million, up from $0.8 million for 1994.
NONINTEREST INCOME
Noninterest income totaled $298.7 million for 1996, up $32.2 million or 12.1%
from 1995 (see "Table 5: Noninterest Income"). These increases were due
primarily to FSCO's ongoing, and Project VISION's added, emphasis on increasing
and diversifying sources of noninterest income, plus the positive impact of the
mortgage banking activities of CrossLand Mortgage and FSCO's subsidiary banks.
The gain on the sale of trading account securities decreased due to the lack of
volatility in short-term markets which resulted in limited trading
opportunities, while the gain on the sale of investment securities increased
due to a variety of strategies which included swapping short-term securities
for those with longer maturities and greater returns.
By comparison, noninterest income totaled $266.5 million for 1995, up $68.9
million or 34.9% from 1994. This increase was due in part to continued emphasis
on increasing and diversifying sources of noninterest income, and the full-year
positive impact on mortgage banking activities of the 1994 acquisition of
CrossLand Mortgage. These increases were partially offset by declines in
bankcard servicing fees & third-party processing fees resulting from the 1994
sale of certain assets related to third-party processing for credit unions. In
addition, FSCO liquidated $224 million of certain investment securities
available for sale for a combined loss of $2.9 million pre-tax during the
fourth quarter of 1995.
The increase in FSCO's mortgage banking activities following the 1994
acquisition of CrossLand Mortgage has further diversified FSCO's noninterest
income. As a result, the ratio of noninterest income to total income FTE
increased to 36.29% for 1996, up from 35.54% for 1995 and 29.77% for 1994.
<TABLE>
TABLE 5: NONINTEREST INCOME (in thousands)
<CAPTION>
5-Year
96/95 Compound
For the Years Ended December 31, 1996 1995 1994 1993 1992 % Chg Growth Rate
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NONINTEREST INCOME:
Service charges on deposit accounts $ 80,924 $ 68,114 $ 62,211 $ 55,865 $ 51,505 18.8 11.9
Other service charges, collections,
commissions, and fees 45,560 36,208 27,544 24,654 21,154 25.8 21.2
Bankcard servicing fees and
third-party processing fees 28,683 24,774 30,234 33,083 27,411 15.8 3.5
Insurance commissions and fees 15,016 13,655 12,631 9,953 8,719 10.0 16.4
Mortgage banking activities 97,564 86,235 41,968 24,502 17,931 13.1 50.8
Mortgage banking activities MSR amortization (11,896) (9,316) (9,073) (823) -- (27.7) NM
Trust (fiduciary) commissions and fees 23,104 20,894 20,706 18,980 18,176 10.6 6.6
Trading account securities gains (losses) 2,383 6,390 (2,386) (4,856) (7,355) (62.7) 7.9
Investment securities gains (losses) 4,549 (806) (1,330) 730 859 664.4 9.1
Other 12,799 20,344 15,043 5,071 5,636 (37.1) 6.8
- ------------------------------------------------------------------------------------------------------------------------------
Total Noninterest Income $298,686 $266,492 $197,548 $167,159 $144,036 12.1 16.7
==============================================================================================================================
<FN>
Notes: NM: Not Meaningful.
</TABLE>
<PAGE>
NONINTEREST EXPENSES
Noninterest expenses totaled $497.4 million for 1996, reduced $32.8 million or
6.2% from 1995 (see "Table 6: Noninterest Expenses"). Excluding the 1995
restructuring charge, noninterest expenses for 1996 were up $11.2 million or
2.3% from $486.2 million in 1995. The components of FSCO's noninterest expenses
for 1996, compared with 1995, are discussed below.
Salaries and benefits expense totaled $261.4 million for 1996, unchanged from
1995. Embedded in the comparison, however was a Project VISION process redesign
reduction of approximately $20 million spread throughout FSCO's operations.
These Project VISION savings were generally offset by the costs of increased
mortgage and consumer loan production, contract labor related to Project VISION
implementation, increased costs of centralized customer service, and higher
staffing costs from FSCO's ongoing emphasis on personal financial services.
Full-time equivalent employees were decreased to 7,017 at December 31, 1996,
down 513 or 6.8% from year-end 1995. This occurred as Project VISION process
redesign reductions were partially offset by increased personnel requirements
in the areas of mortgage and consumer loan production, centralized customer
service, and personal financial services.
Nonpersonnel expenses, excluding the 1995 restructuring charge, totaled $236.0
million for 1996, up $11.2 million or 5.0% from 1995. This increase occurred as
bankcard interbank interchange fees rose due to volume growth; depreciation
expense on occupancy and furniture & equipment increased as a result of capital
expenditures; other real estate expense rose in 1996 due to the absence of
recoveries and other favorable events that had been generated in 1995; and
advertising increased due to advertising campaigns focused on deposit
gathering. These increases were partially offset by insurance expense, which
decreased significantly as FSCO was not required by the FDIC to pay insurance
during 1996, and by approximately $6 million of general noninterest expense
reductions related to Project VISION.
By comparison, noninterest expenses were impacted in 1995 by the one-time $44.0
million Project VISION restructuring charge, and by the acquisition of
CrossLand Mortgage in 1994. Noninterest expenses, including the 1995
restructuring charge, totaled $530.2 million for 1995, up $96.6 million or
22.3% from 1994. Noninterest expenses, excluding the 1995 restructuring charge,
totaled $486.2 million for 1995, up $52.6 million or 12.1% from 1994. The
increase in noninterest expenses other than the 1995 restructuring charge was
due to the combination of volume-related growth; the first full year with
CrossLand Mortgage and its resulting impact on salaries and benefits expenses
and costs related to loan production; additional ATM equipment; and lower ORE
recoveries. These were partially offset by lower FDIC insurance expense.
The operating expense ratio is one measure of FSCO's effectiveness and ongoing
efforts to control its noninterest expenses, expressed as a percent of total
revenue. FSCO's operating expense ratio was reduced to 60.44% for 1996, down
from 70.71% for 1995, and was 58.23% for the fourth quarter of 1996.
Excluding the 1995 restructuring charge, FSCO's 1996 operating expense ratio
improved 440 basis points from 64.84% for 1995, and 700 basis points from
65.23% for the fourth quarter of 1995. Excluding the impact of CrossLand
Mortgage, which inherently has a much higher operating expense ratio than the
rest of FSCO's operations, FSCO's "core" operating expense ratio was 58.34% for
1996, down 1,079 basis points from 69.13% for 1995.
The productivity ratio was 3.81% for 1996, compared with 4.33% for 1995 and
3.89% for 1994. The productivity ratio, excluding the 1995 restructuring
charge, was 3.97% for 1995.
As FSCO moves through 1997, actions will continue to be taken to maximize the
positive impact of Project VISION. FSCO is committed to becoming a more
efficient and lower cost provider of financial services within its
marketplaces, while continuing to improve customer service and increase value
for shareholders.
PROVISION FOR INCOME TAXES
FSCO employs several effective strategies to permanently reduce or defer
payment of income taxes. As a result, FSCO's tax provisions have historically
been lower than statutory tax rates, and deferred tax reserves have been an
important source of interest-free long-term funding. FSCO's tax strategies
include investments in securities and loans yielding tax-exempt interest,
investments in leveraged leases, investments in tax credit producing affordable
housing and the recognition of investment tax credits on leases using the
deferral method. In 1996, FSCO continued to employ these tax planning
strategies.
<PAGE>
<TABLE>
TABLE 6: NONINTEREST EXPENSES (in thousands)
<CAPTION>
5-Year
96/95 Compound
For the Years Ended December 31, 1996 1995 1994 1993 1992 % Chg Growth Rate
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NONINTEREST EXPENSES:
Salaries and employee benefits $261,358 $261,410 $222,895 $175,696 $160,982 (0.0) 12.1
Advertising 11,276 8,719 9,039 9,187 6,363 29.3 17.7
Amortization of intangibles 7,977 8,712 6,792 3,312 2,695 (8.4) 28.0
Bankcard interbank interchange 24,572 17,263 16,301 13,983 11,245 42.3 19.4
Furniture and equipment 40,987 36,285 30,987 27,858 26,549 13.0 12.6
Insurance 5,254 15,793 23,454 19,697 18,868 (66.7) (18.6)
Occupancy, net 29,776 27,862 25,874 24,224 19,373 6.9 10.2
Other real estate expense
and loss provision (recovery) 286 (2,514) (6,543) 8,639 11,110 111.4 (46.5)
Postage 10,748 11,272 9,708 7,428 7,243 (4.6) 10.0
Stationery and supplies 19,060 18,582 16,336 15,956 12,865 2.6 12.1
Telephone 13,683 13,278 11,834 8,610 7,344 3.1 15.8
Other 72,390 69,543 66,971 71,556 54,819 4.1 5.6
Restructuring charge -- 44,000 -- -- -- (100.0) NM
- ---------------------------------------------------------------------------------------------------------------
Total Noninterest Expenses $497,367 $530,205 $433,648 $386,146 $339,456 (6.2) 10.2
===============================================================================================================
<FN>
Notes: NM: Not Meaningful
</TABLE>
<PAGE>
ANALYSIS OF BALANCE SHEETS
SUMMARY
As of December 31, 1996, FSCO increased its total assets, interest-earning
assets, and equity to record levels, and maintained good asset quality and
liquidity, compared with December 31, 1995. (See "Factors That May Affect
Future Results of Operations And Financial Condition").
FSCO's assets totaled a record $14.7 billion at December 31, 1996, up $1.7
billion or 12.8% from year-end 1995. Interest-earning assets were a record
$13.1 billion at year-end 1996, up $1.4 billion or 11.6% from year-end 1995
(see "Interest-Earning Assets and Asset Quality").
Intangible assets were $169.8 million at December 31, 1996, up $21.0 million or
14.1% from year-end 1995, due to growth in MSR's generated by increased 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 $13.6 billion at December 31, 1996, up $1.6 billion
or 13.0% from year-end 1995. Total interest-bearing liabilities were $11.0
billion at year-end 1996, up $1.2 billion or 12.3% from year-end 1995 (see
"Asset/Liability Management").
Stockholders' equity in FSCO increased to a record $1.1 billion at December 31,
1996, up $110 million or 10.7% from year-end 1995 (see "Stockholders' Equity
and Capital Adequacy").
INTEREST-EARNING ASSETS AND ASSET QUALITY
TRADING ACCOUNT SECURITIES. FSCO's investment policies for trading account
securities are designed to monitor daily interest rate fluctuations and market
value volatility. Trading positions and strategies are continually monitored as
to the changing interest rate environment, are kept flexible to meet changing
economic conditions, and are carefully reviewed by management daily.
FSCO's trading account securities portfolio decreased to $447 million at
December 31, 1996, down $191 million or 29.9% from $638 million at year-end
1995. This decrease occurred as market opportunities for trading declined with
the stability of interest rates in 1996 as compared with 1995.
As FSCO enters 1997, the priorities of the trading account securities strategy
continue to be identification of both market volatility and inefficiencies
wherein cash or futures transactions can generate profits within acceptable
risk parameters.
INVESTMENT SECURITIES. Since December 1995, FSCO has managed its investment
securities portfolio under the "securities available for sale" classification.
FSCO's investment securities policies are designed to achieve desired liquidity,
interest rate sensitivity, earnings, and collateral requirements. FSCO's
investment securities strategies are continually monitored and adjusted to the
changing interest rate environment, are kept flexible to meet changing economic
conditions, and are carefully reviewed by management.
FSCO actively manages its investment securities portfolio, rather than holding
lower rate investment securities to maturity which could result in an earnings
level significantly below the current market yield. By so doing, FSCO is able to
improve the income stream from these investment securities, moving the
portfolio's yield closer to the market yield and mitigating the impact of
narrowing spreads between the securities yield and the cost of funds.
The investment securities portfolio has been positioned to have a relatively
short average life while providing a positive return and an appropriate mix of
securities to meet current and future requirements. The estimated average
maturity of FSCO's investment securities portfolio is 3.1 years as of December
31, 1996, up from 2.5 years as of December 31, 1995. The portfolio was extended
as part of a program to take advantage of the shape of the yield curve and the
projected direction of future interest rates. With the exception of U.S.
Government and U.S. Government-sponsored agency securities, FSCO had no
concentrations of investment securities from any single issuer that constituted
10% or more of stockholders' equity at year-end 1996.
FSCO's investment securities grew to $3.2 billion at December 31, 1996, up $527
million or 20.1% from $2.6 billion at year-end 1995 (see "Table 7: Investment
Securities"). This growth was due primarily to the implementation of a program
of investments funded by repurchase agreements providing additional return
within acceptable interest rate risk levels. Investment securities purchased
included a mix of U.S. Treasuries, Federal agencies, municipal bonds, agency
issued collateralized mortgage obligations, and agency mortgage-backed
securities.
As FSCO enters 1997, the priorities of the investment securities portfolio
strategy continue to be a balance between liquidity, interest rate risk, and
maximizing return. U.S. Treasury, Federal agency, and agency related mortgage
securities are currently the primary reinvestment selection of maturing and
prepaying investments. FSCO's investment strategy remains flexible to changing
market conditions and opportunities, while maintaining a continuous review of
risk and liquidity through the ALCO process.
<PAGE>
<TABLE>
TABLE 7: INVESTMENT SECURITIES (in thousands)
<CAPTION>
Available For Sale: Held To Maturity:
---------------------------------------------- -------------------------------------
Amortized Estimated Amortized Estimated
As of December 31, 1996 Cost Fair Value Yield (A) % Cost Fair Value Yield (A) %
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DEBT SECURITIES ISSUED BY THE U.S. TREASURY AND OTHER U.S. GOVERNMENT AGENCIES AND CORPORATIONS:
One year or less $ 166,432 $ 166,910 6.51
After one year through five years 582,055 583,851 7.08
After five years through ten years 9,120 9,159 6.47
After ten years 7,500 7,570 7.27
- ------------------------------------------------------------------------------------------------------------------------------------
Totals 765,107 767,490 6.95 None None
- ------------------------------------------------------------------------------------------------------------------------------------
DEBT SECURITIES ISSUED BY STATES OF THE U.S. AND POLITICAL SUBDIVISIONS:
One year or less $ 46,210 $ 46,298 5.13
After one year through five years 81,764 82,859 5.58
After five years through ten years 76,211 76,930 5.27
After ten years 33,979 34,329 6.16
- ------------------------------------------------------------------------------------------------------------------------------------
Totals 238,164 240,416 5.48 None None
- ------------------------------------------------------------------------------------------------------------------------------------
CORPORATE DEBT SECURITIES:
One year or less $ 2,103 $ 2,107 6.46
After one year through five years 1,657 1,647 6.43
After five years through ten years 4,262 4,281 6.83
After ten years -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Totals 8,022 8,035 6.65 None None
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL DEBT SECURITIES:
One year or less $ 214,745 $ 215,315 6.21
After one year through five years 665,476 668,357 6.89
After five years through ten years 89,593 90,370 5.47
After ten years 41,479 41,899 6.36
- ------------------------------------------------------------------------------------------------------------------------------------
Total Debt Securities 1,011,293 1,015,941 6.60 None None
- ------------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities 2,028,507 2,019,551 6.60
Equity securities 108,822 114,784 7.53
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investment Securities $3,148,622 $3,150,276 6.63 None None
====================================================================================================================================
<CAPTION>
Available For Sale: Held To Maturity:
----------------------------------------------- ---------------------------------------------------
Amortized Unrealized Unrealized Estimated Amortized Unrealized Unrealized Estimated
As of December 31, 1996 Cost Gains Losses Fair Value Cost Gains Losses Fair Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Debt securities issued by
U.S. Treasury and other
U.S. Government agencies
and corporations $ 765,107 $ 3,435 $ (1,052) $ 767,490
Debt securities issued by
states of the U.S. and
political subdivisions 238,164 2,951 (699) 240,416
Corporate debt securities 8,022 53 (40) 8,035
Mortgage-backed securities 2,028,507 7,858 (16,814) 2,019,551
Equity securities 108,822 6,068 (106) 114,784
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investment Securities $3,148,622 $20,365 $(18,711) $3,150,276 NONE NONE NONE NONE
====================================================================================================================================
As of December 31, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Debt securities issued by
U.S. Treasury and other
U.S. Government agencies
and corporations $ 595,484 $ 6,132 $ (201) $ 601,415
Debt securities issued by
states of the U.S. and
political subdivisions 193,143 4,090 (243) 196,990
Corporate debt securities 10,240 127 (43) 10,324
Mortgage-backed securities 1,741,224 13,414 (7,679) 1,746,959
Equity securities 59,852 8,093 (76) 67,869
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investment Securities $2,599,943 $31,856 $ (8,242) $2,623,557 None None None None
====================================================================================================================================
As of December 31, 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Debt securities issued by
U.S. Treasury and other
U.S. Government agencies
and corporations $ 793,508 $ 485 $(14,357) $ 779,636 $ 25 $ -- $ -- $ 25
Debt securities issued by
states of the U.S. and
political subdivisions -- -- -- -- 175,305 2,058 (1,844) 175,519
Corporate debt securities 3,498 3 (270) 3,231 10,645 28 (267) 10,406
Mortgage-backed securities 1,230,042 320 (76,665) 1,153,697 66,647 446 (3,072) 64,021
Equity securities 53,360 4,244 (371) 57,233 -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investment Securities $2,080,408 $ 5,052 $(91,663) $1,993,797 $252,622 $2,532 $(5,183) $249,971
====================================================================================================================================
<FN>
Notes:
(A) Average yields have been calculated using coupon rates, not adjusted to a fully-taxable equivalent basis.
</TABLE>
<PAGE>
LOANS. FSCO's borrowers reside primarily in the states where FSCO has its
banking offices and in markets contiguous to those states. FSCO's lending is
generally concentrated in small- and medium-sized businesses, and consumers.
There is substantial economic diversification and customer mix across FSCO's
six-state region which provides a beneficial natural diversification for FSCO's
loan portfolio. FSCO believes it has a high quality loan portfolio and has
policies and procedures in place designed to maintain high quality. These
policies and procedures include underwriting standards for new credits and
continuous monitoring and reporting of loan quality, coupled with quarterly
analysis to determine the adequacy of the reserve for loan losses.
FSCO's loan portfolio, net of unearned income but before the reserve for loan
losses, grew to a record $9.3 billion at December 31, 1996, up $947 million or
11.4% from $8.3 billion at year-end 1995 (see "Table 8: Loans", "Table 1:
Financial Highlights", and "Note 5: Loans"). Increases occurred in all major
components of the loan portfolio. The ratio of total loans to total assets was
62.98% at December 31, 1996, down slightly from 63.79% at year-end 1995.
The components of FSCO's loan portfolio at December 31, 1996, compared with
December 31, 1995, are discussed below.
* Commercial loans were $2.2 billion, up $201 million or 10.3%, due primarily to
a continued broad-based business expansion in FSCO's market areas with increases
in loans of all sizes. Commercial loans consist primarily of loans to small and
medium-sized businesses and agricultural loans.
* Real estate secured loans were $3.4 billion, up $52 million or 1.6%, due to
increases in 1 to 4 family residential home equity and construction loans. For
balance sheet management purposes, FSCO does not retain all newly originated
mortgage loans but regularly sells a portion in the secondary markets. At
December 31, 1996, $330.0 million of these loans were held for sale, up $72
million or 27.9% from year-end 1995.
* Consumer loans were $3.0 billion, up $354 million or 13.5%, due to growth in
indirect auto lending. FSCO remains the leading consumer lender in its primary
market area. Since FSCO is heavily dependent on the consumer area, it has
secondary marketing operations in place to sell portions of its auto and home
equity loan portfolios.
* Leases were $753 million, up $340 million or 82.5% due to FSCO's growth in the
auto leasing market, combined with increased equipment leases.
<TABLE>
TABLE 8: LOANS (in thousands)
<CAPTION>
5-Year
96/95 Compound
As of December 31, 1996 1995 1994 1993 1992 % Chg Growth Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
COMMERCIAL LOANS:
Commercial and industrial $1,654,239 $1,559,533 $1,390,620 $1,164,835 $1,009,158 6.1 (A)
Agricultural 312,402 280,179 291,807 255,122 240,818 11.5 (A)
Other commercial 185,973 112,073 153,365 151,443 132,602 65.9 (A)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Commercial Loans 2,152,614 1,951,785 1,835,792 1,571,400 $1,382,578 10.3 8.1
- ------------------------------------------------------------------------------------------------------------------------------------
REAL ESTATE SECURED LOANS:
1 to 4 family residential term 1,459,534 1,457,811 1,560,700 1,239,395 1,077,007 0.1 (A)
1 to 4 family residential home equity 471,109 451,980 358,858 280,776 225,906 4.2 (A)
1 to 4 family residential construction 349,771 221,551 186,342 160,713 90,715 57.9 (A)
Commercial and other term 904,135 943,046 899,493 779,222 782,836 (4.1) (A)
Commercial and other construction 190,791 248,622 137,028 83,374 71,444 (23.3) (A)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Real Estate Secured Loans 3,375,340 3,323,010 3,142,421 2,543,480 2,247,908 1.6 8.3
Memo: Total real estate term 2,834,778 2,852,837 2,819,051 2,299,393 2,085,749 (0.6) 6.7
Memo: Loans held for sale
included in total real estate term 330,032 258,119 168,961 -- -- 27.9 NM
Memo: Total real estate construction 540,562 470,173 323,370 244,087 162,159 15.0 20.9
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER LOANS:
Credit card and related 307,622 311,271 306,270 275,467 292,983 (1.2) 0.5
Auto and other consumer 2,674,283 2,316,540 2,547,678 1,894,821 1,434,245 15.4 17.7
- ------------------------------------------------------------------------------------------------------------------------------------
Total Consumer Loans 2,981,905 2,627,811 2,853,948 2,170,288 1,727,228 13.5 15.0
- ------------------------------------------------------------------------------------------------------------------------------------
Total Leases 752,623 412,489 341,517 275,853 258,910 82.5 26.6
- ------------------------------------------------------------------------------------------------------------------------------------
Loans, Net Of Unearned Income 9,262,482 8,315,095 8,173,678 6,561,021 5,616,624 11.4 11.3
Memo: Unearned income (67,396) (16,250) (7,380) (12,182) (13,861) 314.7 32.3
Reserve for loan losses (134,428) (129,982) (133,855) (134,848) (127,847) 3.4 1.2
- ------------------------------------------------------------------------------------------------------------------------------------
Total Loans, Net $9,128,054 $8,185,113 $8,039,823 $6,426,173 $5,488,777 11.5 11.5
====================================================================================================================================
<FN>
Notes: (A) Meaningful comparisons of individual loan categories with years
prior to December 31, 1992 are not possible because of the November 19,
1993 acquisition of First National Financial Corporation (FNFC) in which
FNFC's loan detail did not permit restatement of years prior to 1992 on
a line by line basis.
</TABLE>
<PAGE>
PROBLEM ASSETS AND POTENTIAL PROBLEM ASSETS. Strong asset quality continues to
be a primary objective for FSCO. However, it has been FSCO's experience that
economic cycles and loan-specific events cause fluctuations in problem assets,
sometimes with little or no warning.
FSCO's earning asset quality remained good at December 31, 1996, as the ratio of
total problem assets to total loans and ORE was 0.62%, indicating the continuing
high quality of FSCO's interest-earning assets, although up from 0.48% at year-
end 1995 (see "Table 1: Financial Highlights"). FSCO's asset quality indicators
remained at favorable levels and generally continued to be better than that of
FSCO's peer group as reported in the September 30, 1996 BHCPR. The ratio of
nonperforming assets to total loans and ORE was 0.41% at December 31, 1996, up
from 0.32% at year-end 1995, but compared favorably with the 0.91% reported in
the September 30, 1996 BHCPR.
Problem assets totaled $57.5 million at December 31, 1996, up $17.4 million or
43.5% from $40.0 million at year-end 1995 (see "Table 9: Problem Assets and
Potential Problem Assets").
The components of FSCO's problem assets at December 31, 1996, compared with
December 31, 1995, are discussed below.
* Nonaccruing loans totaled $33.3 million, up $10.8 million or 48.2% from one
year ago. Nonaccruing commercial loans increased $4.7 million or 51.8%,
consisting of a $1.5 million retailer credit and other smaller miscellaneous
commercial credits. In addition, nonaccruing real estate term and construction
loans increased $6.2 million or 48.8% at year end. The majority of these 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, and came from the repurchase of loans originated and sold
by CrossLand Mortgage. Typically, these repurchased assets remain on FSCO's
books for an average of six months and generally result in minimal losses. The
level of these repurchased assets is expected to moderate somewhat during 1997
as investors become less aggressive in requesting repurchases. The ratio of
nonaccruing loans to total loans was 0.36%, up from 0.27% one year ago, but
compared favorably with the 0.70% reported for FSCO's peer group in the
September 30, 1996 BHCPR. On a linked-quarter basis, nonaccruing loans at year
end 1996 were decreased $125 thousand or 0.4% from September 30, 1996 and the
ratio of nonaccruing loans to total loans was down slightly from 0.37% at the
end of the third quarter.
* Other real estate was $4.9 million, up $721 thousand or 17.4% from one year
ago. This increase was largely due to a decrease in the ORE valuation
adjustment. 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. On a linked quarter basis, other real estate at year end 1996 was
decreased $148 thousand or 3.0% from September 30, 1996.
* Accruing loans past due 90 days or more were $19.3 million, up $5.9 million or
43.6% from one year ago. These increases were due primarily to the consolidation
of FSCO's consumer collection activities into one new center located in Salt
Lake City which temporarily disrupted collection activities. FSCO anticipates
that as this consolidation is assimilated, the upward trend in loans past due
will stabilize and likely reverse itself. The ratio of accruing loans past due
90 days or more to total loans was 0.21%, up from 0.16% one year ago, but
compared favorably with the 0.28% reported for FSCO's peer group in the
September 30, 1996 BHCPR.
Potential problem loans identified by FSCO were $8.3 million at December 31,
1996, down $4.0 million or 32.9% from year-end 1995. The decrease from one year
ago was primarily in commercial loans. Potential problem loans consisted
primarily of commercial loans and real estate secured loans.
Changing Federal and state laws in connection with the national effort to combat
hazardous wastes may impact the loan portfolio from time to time. While recent
legislation has reduced potential liabilities of banks themselves, FSCO, like
all financial institutions, continues to exercise due diligence in its real
property lending activities to attempt to uncover hazardous waste violations on
subject properties and thus minimize possible loan losses. Collateral values
would certainly diminish if hazardous wastes were discovered after underwriting
was complete and loan proceeds were disbursed. To date, FSCO has not experienced
any material losses from such transactions.
<PAGE>
<TABLE>
TABLE 9: PROBLEM ASSETS AND POTENTIAL PROBLEM ASSETS (in thousands)
<CAPTION>
5-Year
96/95 Compound
As of December 31, 1996 1995 1994 1993 1992 % Chg Growth Rate
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PROBLEM ASSETS:
Nonaccruing Loans:
Commercial $13,904 $ 9,158 $ 8,903 $ 9,408 $ 17,165 51.8 (4.6)
Real estate term 15,078 10,430 12,246 21,940 55,704 44.6 (28.5)
Real estate construction 3,935 2,349 1,714 1,877 6,101 67.5 (19.8)
Consumer 108 110 168 546 853 (1.8) (38.5)
Leases 251 400 837 1,484 145 (37.3) (9.9)
Renegotiated -- -- -- 1,099 -- -- (100.0)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Nonaccruing Loans 33,276 22,447 23,868 36,354 79,968 48.2 (21.6)
Other real estate 4,855 4,134 3,352 16,465 27,487 17.4 (33.8)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Nonperforming Assets 38,131 26,581 27,220 52,819 107,455 43.5 (24.0)
Accruing loans past due 90 days or more 19,326 13,455 12,001 7,155 11,766 43.6 2.4
- -----------------------------------------------------------------------------------------------------------------------------------
Total Problem Assets $57,457 $40,036 $39,221 $59,974 $119,221 43.5 (19.3)
===================================================================================================================================
Potential Problem Assets $ 8,271 $12,319 $12,018 $19,179 $ 22,930 (32.9) (34.7)
===================================================================================================================================
<CAPTION>
5-Year
96/95 Compound
As of December 31, 1996 1995 1994 1993 1992 % Chg Growth Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Gross Interest Income that Would Have Been Recorded if Loans Had Been Current in Accordance with Original Terms:
Nonaccruing loans $ 3,008 $ 2,366 $ 1,994 $ 2,333 $ 6,450 27.1 (18.7)
Renegotiated loans -- -- -- 111 -- -- (100.0)
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Actually Recognized:
Nonaccruing loans $ 2,158 $ 2,766 $ 2,264 $ 679 $ 1,016 (22.0) (19.0)
Renegotiated loans -- -- -- 87 -- -- (100.0)
====================================================================================================================================
Approximate Percentage of Nonperforming Assets Over $500,000 by Location:
Utah 15% 11% 24% 26% 43%
Idaho 50 45 15 5 8
New Mexico 3 18 34 35 33
Washington and Oregon 6 -- 9 13 6
Nevada 15 26 8 -- --
All others 11 -- 10 21 10
====================================================================================================================================
</TABLE>
<PAGE>
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 Examiner's Handbook for determining the appropriate level of the
reserve for loan losses.
The methodology followed by FSCO in determining appropriate reserve levels
includes thorough reviews of factors affecting FSCO's credit quality. FSCO
carefully considers actual and potential fluctuations in problem assets in the
analysis and establishment of its reserve for loan losses. FSCO also uses a
risk identification process that involves the assignment of "loan quality
grades" by individual lending officers. The assigned quality grades are
reviewed for accuracy and consistency of application by supervisors, loan
committees, and an independent credit review department. This risk rating
system is consistent with guidelines established by FSCO's regulators and
utilizes the following assigned grades: "Pass"; "Special Mention";
"Substandard"; "Doubtful"; and "Loss".
Also included in assessing an appropriate reserve level are: negative trends in
key portfolio indicators; loss migration studies; potential and current problem
assets; historical trends; loan portfolio concentrations; portfolio mix; local
and national economic trends; and emerging industry weaknesses. Specific
reserves are established on large substandard loans and when a loan is
considered impaired as defined by SFAS 114.
The reserve for loan losses was increased to $134.4 million at December 31,
1996, up $4.4 million or 3.4% from year-end 1995 (see "Table 10: Reconciliation
of the Reserve for Loan Losses"). FSCO chose to increase its reserve in response
to its credit quality reviews and loan growth in 1996. No reserves were added
from merger transactions.
FSCO's loan portfolio has historically included substantial levels of 1 to 4
family residential mortgage loans. This portfolio has increased problem loans,
but these loans still exhibit minimal actual losses (see "Interest-Earning
Assets and Asset Quality - Problem Assets"). In addition, consumer loans in
FSCO's loan portfolio are automatically charged off at 120 days past due. As a
result, these types of loans require lower levels of reserve coverage in
comparison to other loan types. It is expected that certain consumer loans will
be securitized early in 1997, thus reducing outstanding loans and further
managing the risk of the portfolio.
Based on its analysis of reserve adequacy, FSCO considered the reserve for loan
losses at December 31, 1996, to be adequate to absorb estimated potential loan
losses in the foreseeable future. The coverage ratio of the reserve to
nonaccruing loans was 403.98% at December 31, 1996, down from 579.06% at year-
end 1995, but compared favorably with the 342.80% reported for FSCO's peer group
in the September 30, 1996 BHCPR. The ratio of the reserve to total loans was
1.45% at year-end 1996, down from 1.56% at year-end 1995, and compared with the
1.97% reported for FSCO's peer group in the September 30, 1996 BHCPR. While
comparisons with its peer group are instructive, FSCO relies on the methodology
for analysis of reserve adequacy outlined above and not on any specific reserve
ratio comparison. (See "Table 1: Financial Highlights").
Net loans charged off against the reserve totaled $35.9 million for 1996, up
$10.9 million or 43.7% from 1995 (see "Table 10: Reconciliation of the Reserve
For Loan Losses").
These increases were due to higher consumer and credit card losses, generally
involving loans originated before 1995, and lower commercial recoveries. FSCO
raised its consumer underwriting standards during 1995 to return its delinquency
and loss patterns to recent historical FSCO levels. While exceptionally high
recoveries on commercial and real estate term loans have had a major positive
impact on FSCO's overall net loans charged off in the last few years, FSCO does
not expect these levels of recoveries to continue. The ratio of net loans
charged off to average loans was a low 0.41% for 1996, compared with 0.30% for
1995, and compared favorably with the 0.48% reported for FSCO's peer group in
the September 30, 1996, BHCPR.
The allocation of the reserve for loan losses (see "Table 11: Allocation of the
Reserve for Loan Losses") was changed at December 31, 1996 as compared with
year-end 1995. The allocation to commercial loans was increased to reflect lower
credit grades on specific loans in the agricultural and forest products
portfolios. The allocation to real estate term loans was increased primarily to
cover repurchased assets of CrossLand Mortgage. The allocation to consumer loans
was increased in response to higher consumer loan losses experienced in 1996.
The allocation to leases was increased due to the growth in indirect auto
leases.
While reserve adequacy and allocation are measured using the above criteria, the
reserve for loan losses is available for use by the entire portfolio, as needed,
regardless of allocation.
FSCO uses the provision for loan losses to adjust the reserve for loan losses
when it considers a replenishment of, or addition to, the reserve is
appropriate.
PROVISION FOR LOAN LOSSES. The provision for loan losses totaled $40.3 million
for 1996, up $19.2 million or 91.2% from 1995 (see "Table 10: Reconciliation of
the Reserve for Loan Losses"). The increase included additions to the reserve
for loan losses of $4.4 million over and above net loans charged off during
1996.
<PAGE>
<TABLE>
TABLE 10: RECONCILIATION OF THE RESERVE FOR LOAN LOSSES (in thousands)
<CAPTION>
5-Year
96/95 Compound
For the years ended December 31, 1996 1995 1994 1993 1992 % Chg Growth Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Reserve For Loan Losses, Beginning $129,982 $133,855 $134,848 $127,847 $126,887 (2.9) 2.1
LOANS CHARGED OFF:
Commercial (5,807) (4,328) (5,621) (9,698) (18,119) 34.2 (31.1)
Real estate term (1,061) (3,173) (1,718) (7,038) (11,471) (66.6) (39.1)
Real estate construction (314) (100) (506) (542) (261) 214.0 (8.9)
Consumer credit card and related (13,300) (10,086) (6,828) (6,877) (9,201) 31.9 5.6
Consumer auto and other (41,539) (33,903) (22,880) (14,846) (12,920) 22.5 25.5
Leases (602) (957) (239) (1,466) (426) (37.1) (20.9)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Loans Charged Off (62,623) (52,547) (37,792) (40,467) (52,398) 19.2 (3.8)
- ------------------------------------------------------------------------------------------------------------------------------------
RECOVERIES OF LOANS CHARGED OFF:
Commercial 6,535 7,312 11,138 11,789 8,900 (10.6) 0.9
Real estate term 868 2,963 5,651 3,294 2,460 (70.7) (24.1)
Real estate construction 847 163 201 3,151 336 419.6 13.6
Consumer credit card and related 2,275 2,082 1,790 1,875 1,571 9.3 8.3
Consumer auto and other 15,928 14,609 11,101 8,380 6,252 9.0 23.7
Leases 316 463 819 113 48 (31.7) 41.9
- ------------------------------------------------------------------------------------------------------------------------------------
Total Recoveries Of Loans Charged Off 26,769 27,592 30,700 28,602 19,567 (3.0) 9.2
- ------------------------------------------------------------------------------------------------------------------------------------
Net Loans Charged Off (35,854) (24,955) (7,092) (11,865) (32,831) 43.7 (9.4)
Provision for loan losses 40,300 21,082 825 11,684 30,277 91.2 (9.5)
Acquisitions and reclassifications -- -- 5,274 7,182 3,514 -- (100.0)
====================================================================================================================================
Reserve For Loan Losses, Ending $134,428 $129,982 $133,855 $134,848 $127,847 3.4 1.2
====================================================================================================================================
</TABLE>
<TABLE>
TABLE 11: ALLOCATION OF THE RESERVE FOR LOAN LOSSES (in thousands)
<CAPTION>
As of December 31, 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
Loan Loan Loan Loan Loan
Type/ Type/ Type/ Type/ Type/
Allocated Total Allocated Total Allocated Total Allocated Total Allocated Total
Reserve Loans Reserve Loans Reserve Loans Reserve Loans Reserve Loans
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LOANS:
Commercial $ 43,340 23.3% $ 35,567 23.5% $ 36,378 22.5% $ 36,498 23.9% $ 43,413 24.6%
Real estate term 10,879 30.6 7,816 34.3 14,504 34.5 14,205 35.2 17,948 37.2
Real estate construction 4,275 5.8 4,005 5.7 4,897 3.9 4,619 3.7 1,691 2.9
Consumer 43,267 32.2 42,681 31.6 42,143 34.9 32,624 33.0 24,764 30.7
Leases 8,222 8.1 6,064 4.9 7,108 4.2 9,652 4.2 8,722 4.6
Unallocated 24,445 -- 33,849 -- 28,825 -- 37,250 -- 31,309 --
- ------------------------------------------------------------------------------------------------------------------------------------
Totals $134,428 100.0 $129,982 100.0 $133,855 100.0 $134,848 100.0 $127,847 100.0
====================================================================================================================================
</TABLE>
<PAGE>
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 "Stockholders' Equity and Capital Adequacy") for FSCO
and its subsidiaries. The objective of the ALCO process is to ensure that FSCO's
balance sheet structure maintains prudent levels of risk, within the context of
currently known and forecasted economic conditions, and to establish strategies
which provide FSCO with appropriate compensation for the assumption of those
risks. 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. Utilizing on- and off-balance sheet products, FSCO's market,
liquidity, and interest rate risks are limited to prudent levels while earnings
opportunities are maximized.
LIQUIDITY. FSCO's liquidity management objective is to ensure the availability
of sufficient cash flows to meet all financial commitments and to capitalize on
opportunities for profitable business expansion. FSCO has established specific
policies and procedures governing liquidity management through the ALCO process.
Plans to address current and future liquidity needs are developed in the ALCO
process and executed through FSCO's subsidiary banks, and its Capital Markets
and Treasury Division.
FSCO maintains an adequate liquidity position in large part through stable
deposits generated from its wide-spread branch network (see "Table 12:
Deposits"), the prudent usage of debt (see "Table 13: Short-Term Borrowings",
and "Table 14: Long-Term Debt"), and from a high quality investment securities
portfolio (see "Interest-Earning Assets and Asset Quality - Investment
Securities"). The average life of the investment securities portfolio is
relatively short, providing a constant stream of maturing and reinvestible
assets, which could be converted into cash without significant loss of value
should the need arise. Maturing balances in the large loan portfolios also
provide flexibility in managing cash flows. Assets may also be sold or
securitized in order to provide funding. The ability to redeploy these funds is
an important source of medium to long term liquidity.
Backup sources of liquidity are provided by: credit lines to FSCO; Federal funds
lines carried by FSCO's subsidiary banks; borrowings from the Federal Home Loan
Bank; bank note issuances by FSCO's subsidiary banks; and borrowings from the
Federal Reserve System.
On August 19, 1996, the Securities and Exchange Commission declared effective
FSCO's shelf registration statement covering up to $600 million of unspecified
debt and/or equity securities to be issued and offered from time to time. This
registration will enable FSCO to rapidly take advantage of market windows for
the issuance of long- or short-term debt and/or equity at favorable terms.
Deposits totaled a record $9.4 billion at December 31, 1996, up $666 million or
7.6% from year-end 1995 (see "Table 12: Deposits"). This increase was due to
FSCO's continued emphasis on its deposit gathering functions and the success of
several deposit programs oriented to customers' needs. The ratio of loans to
deposits was 98.13% at year-end 1996, up from 94.77% at year-end 1995. These and
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 $3.8
billion at December 31, 1996, up $855 million or 29.3% from year-end 1995 (see
"Table 13: Short-Term Borrowings", and "Table 14: Long-Term Debt").
The components of FSCO's debt at December 31, 1996, compared with December 31,
1995, are discussed below.
* Federal funds purchased and securities sold under repurchase agreements were
$2.5 billion, up $605 million or 31.2% from one year ago. These increases
occurred as FSCO funded approximately $100 million of loan growth generated by
business-cycle opportunities in its market areas, and funded approximately $500
million of growth in investment securities through repurchase agreements.
* All other short-term borrowed funds were $288 million, up $27 million or 10.3%
from one year ago. The increase was due to net increases in current maturities
of long-term debt.
* Long-term debt was $944 million, up $224 million or 31.0% from one year ago.
On November 21, 1996, FSCO issued $150 million of 6.875% Senior Notes due in
2006 under the new $600 million shelf registration.
On December 23, 1996, FSCO created FS Capital I, a special purpose business
trust, which sold $150 million in 8.41% Capital Income Securities that represent
interests in FSCO's new $150 million 8.41% Junior Subordinated Debentures due in
2026 (see "Stockholders' Equity and Capital Adequacy"). These increases were
partially offset by the ongoing maturation of existing long-term debt.
<PAGE>
<TABLE>
TABLE 12: DEPOSITS (in thousands)
<CAPTION>
5-Year
96/95 Compound
As of December 31, 1996 1995 1994 1993 1992 % Chg Growth Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Noninterest-bearing deposits $ 2,198,348 $ 1,884,931 $ 1,719,388 $ 1,697,687 $ 1,429,314 16.6 12.1
INTEREST-BEARING DEPOSITS:
Interest-bearing demand accounts 1,101,667 1,093,233 1,095,907 1,041,770 945,508 0.8 7.1
Savings accounts 1,453,814 1,360,805 1,280,002 1,331,495 1,022,994 6.8 18.5
Money market accounts 1,030,912 1,065,886 1,152,960 1,103,855 1,019,946 (3.3) 2.0
Time deposits of $100,000 or more 787,658 668,921 553,381 382,846 342,033 17.8 10.9
Other time deposits 2,866,864 2,699,866 2,251,706 1,946,054 2,108,658 6.2 3.1
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Deposits 7,240,915 6,888,711 6,333,956 5,806,020 5,439,139 5.1 6.6
- ------------------------------------------------------------------------------------------------------------------------------------
Total Deposits $ 9,439,263 $ 8,773,642 $ 8,053,344 $ 7,503,707 $ 6,868,453 7.6 7.7
====================================================================================================================================
</TABLE>
<TABLE>
TABLE 13: SHORT TERM BORROWINGS (in thousands)
<CAPTION>
5-Year
96/95 Compound
As of December 31, 1996 1995 1994 1993 1992 % Chg Growth Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
END OF PERIOD BALANCE:
Federal funds purchased and
securities sold $ 2,542,592 $ 1,937,456 $ 2,160,587 $ 1,387,109 $ 944,385 31.2 25.7
Other short-term borrowings 288,041 261,233 184,552 99,796 51,405 10.3 26.9
- ------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE RATE:
Federal funds purchased and
securities sold 5.12% 5.44% 5.38% 2.93% 3.07%
Other short-term borrowings 9.40 6.89 6.00 3.38 4.29
- ------------------------------------------------------------------------------------------------------------------------------------
AVERAGE OUTSTANDINGS FOR THE YEAR:
Federal funds purchased and
securities sold $ 1,794,685 $ 1,685,763 $ 1,934,468 $ 1,065,495 $ 929,123 6.5 14.6
Other short-term borrowings 255,713 206,645 72,873 55,755 53,325 23.7 19.3
- ------------------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE RATE FOR THE YEAR:
Federal funds purchased and
securities sold 5.04% 5.61% 4.23% 2.97% 2.99%
Other short-term borrowings 6.87 6.61 5.59 4.20 4.27
- ------------------------------------------------------------------------------------------------------------------------------------
HIGHEST MONTH-END BALANCE FOR THE
YEAR:
Federal funds purchased and
securities sold $ 2,542,592 $ 2,434,087 $ 2,632,541 $ 1,387,109 $ 1,213,701 4.5 17.0
Other short-term borrowings 321,962 349,678 184,552 99,796 90,490 (7.9) 16.9
====================================================================================================================================
</TABLE>
<TABLE>
TABLE 14: LONG-TERM DEBT (in thousands)
<CAPTION>
5-Year
96/95 Compound
As of December 31, 1996 1995 1994 1993 1992 % Chg Growth Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PARENT COMPANY:
Medium term notes due 1994-2003 $ 32,750 $ 50,000 $ 50,000 $ 31,250 $ 31,250 (34.5) 0.9
Floating rate notes due 1999 6,984 7,175 7,475 7,910 8,354 (2.7) (5.1)
7.875% senior notes due 1999 98,962 99,462 100,000 -- -- (0.5) --
6.875% senior notes due 2006 150,000 -- -- -- -- 100.0 --
7.50% subordinated notes due 2002 75,000 75,000 75,000 75,000 75,000 -- --
7.00% subordinated notes due 2005 125,000 125,000 -- -- -- -- --
8.41% subordinated capital
income securities due 2026 150,000 -- -- -- -- 100.0 --
SUBSIDIARIES:
Other long-term notes: banks 583,476 583,623 602,170 137,221 16,108 (0.0) 92.5
Other long-term notes: nonbanks 1,039 689 1,775 1,155 1,291 50.8 (11.1)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Debt With Original
Maturity Over 1 Year 1,223,211 940,949 836,420 252,536 132,003 30.0 67.1
Less maturities under 1 year
included in short-term borrowings 279,156 220,428 150,994 27,700 4,800 26.6 113.8
- ------------------------------------------------------------------------------------------------------------------------------------
Total Long-Term Debt $ 944,055 $ 720,521 $ 685,426 $ 224,836 $ 127,203 31.0 60.9
====================================================================================================================================
</TABLE>
<PAGE>
INTEREST RATE RISK. FSCO's quantitative asset/liability management utilizes
simulation modeling as its primary tool in determining the earnings and cash
flow effects of current and projected risk strategies under varying economic and
interest rate scenarios. Interest sensitivity gap and product-specific duration
analysis are also employed to provide a general overview and other perspectives
of FSCO's risk profile.
Qualitative asset/liability management takes place in formal ALCO meetings,
where risk profiles, sensitivities and recommended risk strategies are discussed
in the context of the competitive business environment. Final strategies are
approved, which are then executed in FSCO's subsidiary banks through the lending
and deposit gathering functions, and in its Capital Markets and Treasury
Division, where on- and off-balance sheet tools are utilized to achieve ALCO
objectives.
Throughout 1996, FSCO continued to maintain a relatively neutral interest rate
risk position and a conservative balance sheet. A strong regional economy in
1996 resulted in significant loan growth during the year, particularly in the
consumer loan, commercial loan, and leasing areas. Deposits, while also growing
at a healthy rate, were not able to keep pace with the volume of new loans.
During 1996, loans increased by $947 million compared with deposit growth of
$666 million. Successful deposit promotions helped FSCO maintain a strong core
deposit base. Significant growth occurred in noninterest-bearing demand
deposits, certificates of deposits, and savings accounts.
FSCO took advantage of its strong capital ratios and further leveraged the
balance sheet in 1996 through an increase in the investment securities portfolio
of $527 million. This increase was primarily funded through the use of
repurchase agreements.
FSCO utilized external funding sources to support a portion of its asset growth
in 1996, including the November issuance of $150 million of 6.875% Senior Notes
due 2006 and the December sale of $150 million in 8.41% Capital Income
Securities (see "Asset/Liability Management - Liquidity"). Additionally,
maturing FHLB debt was replaced with new 2- to 3-year FHLB funding.
FSCO is well positioned to support continued strong loan growth through the sale
and/or runoff of securities, growth of regular deposit programs, additional
securitizations, and access to external sources of funding.
During May and June 1996, $250 million in new off-balance sheet derivative
positions were negotiated which created synthetic fixed rate assets of
intermediate term to offset the growth of longer term deposits and non-deposit
funding. FSCO's derivatives portfolio was considerably reduced in 1996 through
maturities or unwinding of positions. When appropriate, new derivative
transactions will be considered.
FSCO's maturities and interest rate sensitivity report (see "Table 15: Interest
Rate Sensitivities") exhibits a slight asset sensitivity at the one-year time
frame and moderate overall interest rate risk. Given FSCO's expected 1997
balance sheet composition, the net interest margin should be relatively
unaffected by small or moderate changes in interest rates. Two interest rate
risk monitoring models, gap and simulation, are used routinely. Specific
guidelines established for each model are maintained to control FSCO's exposure
to interest rate volatility. In rising and falling rates of 200 basis points,
volatility of net interest margin earnings are controlled to within ten percent
over a projected 12-month period. Mismatched positions of assets and liabilities
are restricted to fifteen percent of total assets during the 90-day and one-year
periods. Additionally, specialized reports are produced for the investment
securities and mortgage loan portfolios to monitor and control interest rate
risk within products characterized by embedded prepayment or explicit options.
With the mathematical complexity of FSCO's balance sheet increasing
continuously, FSCO identifies and implements the latest techniques and models to
restrict risk while enhancing returns. The ALCO policies and procedures guide
the balance sheet product selections and offerings to those which are well
understood and manageable by FSCO.
FSCO has used off-balance sheet derivative products for many years in managing
interest rate risk. The components of FSCO's off-balance sheet derivative
products at December 31, 1996 are discussed below (see "Note 11: Commitments,
Contingent Liabilities, and Financial Instruments with Off-Balance Sheet Risk").
* Derivative Products Used in the ALCO Process. Interest rate swaps, caps, and
floors have all served as useful tools to increase FSCO's flexibility in
protecting itself against adverse effects of interest rate volatility. It
should be noted that FSCO does not act as a dealer in these transactions, but as
an end user of off-balance sheet derivative products. The ALCO has established
policies and procedures which govern the use of derivatives. All off-balance
sheet positions used in the ALCO process are regularly reviewed for
effectiveness, market risk, and counterparty credit exposure. At December 31,
1996, off-balance sheet instruments used for interest rate risk management
activities, including interest rate swaps, caps, and corridors, were $618
million notional amount, compared with $1.2 billion notional amount at year-end
1995.
* Derivative Products Used in the Trading Process. Off-balance sheet financial
futures and options contracts are also carried in the trading accounts of FSCO's
subsidiary banks. Financial futures and options contracts are traded for profit
or used to hedge market risk in the same way that on-balance sheet securities
are purchased and sold, and they are subject to the same policies and loss
control limits. At December 31, 1996, financial futures and options contracts
related to FSCO's trading account securities totaled $10.1 billion notional
amount, compared with $10.7 billion notional amount at year-end 1995. This
position consisted of futures and options contracts on short-term Federal funds,
one month LIBOR, and three month Eurodollars. The net risk position of FSCO's
trading account securities (including futures, options, and on-balance sheet
securities) at December 31, 1996, was $43,075 per basis point (0.01%) change in
yield, compared with $30,051 at year-end 1995. For comparative purposes, this
risk equates to that of FSCO owning a $104 million position in five year U.S.
Treasury Notes.
<PAGE>
<TABLE>
TABLE 15: INTEREST RATE SENSITIVITIES (in thousands)
<CAPTION>
3 Months Over 3 Months Over 1 Year Over
As of December 31, 1996 or Less thru 12 Months thru 5 Years 5 Years (A) Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Federal funds sold and securities purchased $ 223,235 $ -- $ -- $ -- $ 223,235
Interest-bearing deposits in other banks 31,419 -- 198 -- 31,617
Trading account securities 447,486 -- -- -- 447,486
Investment securities 255,556 410,005 1,972,299 512,416 3,150,276
Loans (B):
Commercial 1,989,955 49,052 77,591 36,016 2,152,614
Real estate term 1,000,015 656,033 705,645 473,085 2,834,778
Real estate construction 525,828 2,170 9,601 2,963 540,562
Consumer credit card and related 307,622 -- -- -- 307,622
Consumer other 240,648 1,076,058 1,252,040 105,537 2,674,283
Leases 106,720 85,822 337,950 222,131 752,623
- ------------------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned income 4,170,788 1,869,135 2,382,827 839,732 9,262,482
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest-Earning Assets 5,128,484 2,279,140 4,355,324 1,352,148 13,115,096
- ------------------------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES:
Interest-Bearing Deposits:
Interest-bearing demand and savings accounts 172,661 -- -- 2,382,820 2,555,481
Money market deposits 1,030,912 -- -- -- 1,030,912
Time deposits 884,004 1,494,806 1,275,159 553 3,654,522
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Deposits 2,087,577 1,494,806 1,275,159 2,383,373 7,240,915
- ------------------------------------------------------------------------------------------------------------------------------------
Federal funds purchased and securities sold 2,542,592 -- -- -- 2,542,592
Other short-term borrowings 8,886 -- -- -- 8,886
Long-term debt 55,599 230,543 564,795 372,273 1,223,210
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest-Bearing Liabilities 4,694,654 1,725,349 1,839,954 2,755,646 11,015,603
- ------------------------------------------------------------------------------------------------------------------------------------
Interest rate swaps and financial
futures, net 193,184 7,333 (217,751) 17,234 --
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Rate Gap $ 240,646 $ 546,458 $ 2,733,121 $ (1,420,732) $ 2,099,493
- ------------------------------------------------------------------------------------------------------------------------------------
Interest Rate Gap As Percent Of Earning
Assets 1.83% 4.17% 20.84% (10.83)% --
====================================================================================================================================
<FN>
Notes: (A) Fixed rate instruments with no stated maturities have been shown as
maturing in over 5 years.
(B) Floating rate loans repricing in 3 months or less mature as follows:
Commercial loans: 1 year or less: $1,146,308; over 1 year thru 5
years: $468,314; over 5 years: $251,852. Real estate construction: 1
year or less: $453,364; over 1 year thru 5 years: $59,557; over 5
years: $4,538.
</TABLE>
<TABLE>
TABLE 16: MATURITIES OF TIME CERTIFICATES OF DEPOSIT OF $100,000 OR MORE (in thousands)
<CAPTION>
5-Year
96/95 Compound
As of December 31, 1996 1995 1994 1993 1992 % Chg Growth Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Maturing in 3 months or less $ 215,928 $ 228,820 $ 289,926 $ 162,746 $ 177,240 (5.6) (2.8)
After 3 months through 6 months 118,234 130,948 66,432 68,505 58,703 (9.7) 3.2
After 6 months through 12 months 198,074 177,354 75,848 75,520 48,267 11.7 22.4
After 12 months 255,422 131,799 121,175 76,075 57,823 93.8 40.3
- ------------------------------------------------------------------------------------------------------------------------------------
Totals $ 787,658 $ 668,921 $ 553,381 $ 382,846 $ 342,033 17.8 10.9
===================================================================================================================================
</TABLE>
<PAGE>
STOCKHOLDERS' EQUITY AND CAPITAL ADEQUACY
Total stockholders' equity in FSCO increased to a record $1.1 billion at
December 31, 1996, up $110 million or 10.7% from $1.0 billion at December 31,
1995. This growth was due to the retention of earnings, partially offset by
volatility in the SFAS 115 net unrealized gain (loss) on investment securities
available for sale which decreased $13.7 million or 94.0% from year-end 1995.
The ratio of stockholders' equity to total assets was 7.76% at December 31,
1996, down slightly from 7.90% at year-end 1995.
Application of SFAS 115 has resulted in, and will continue to result in,
additions to or deductions from FSCO's total stockholders' equity as the result
of fluctuations in the fair value of investment securities. These fluctuations
are shown in the "Net unrealized gain (loss) on securities available for sale"
component of equity.
On December 23, 1996, FS Capital I sold $150 million in 8.41% Capital Income
Securities that represent interests in FSCO's new $150 million 8.41% Junior
Subordinated Debentures due in 2026 (see "Asset/Liability Management -
Liquidity"). Although included in "Long-Term Debt" rather than "Stockholders'
Equity" on FSCO's financial statements, regulations permit the 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 equity and risk-based capital ratios remained strong in 1996 due to
earnings retained and the Capital Income Securities (see "Table 17: Capital
Ratios"). At December 31, 1996 and 1995, respectively, the ratio of
stockholders' equity to total assets was 7.76%, down from 7.90%, while the ratio
of tangible common equity to tangible total assets was 6.67%, down from 6.84%.
FSCO's risk-based capital ratios at December 31, 1996 and 1995, respectively,
were: Tier 1 at 11.34%, up from 10.35%; and Total Capital at 14.50%, up from
13.86%. The leverage ratio at December 31, 1996 was 8.16%, up from 7.12% at
year-end 1995.
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
First Security Corporation'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 January 29, 1996, FSCO declared a 3-for-2 common stock split in the form of a
50% stock dividend payable on February 15, 1996, to shareholders of record as of
February 12, 1996. As a result of the split, shareholders received one
additional share of FSCO common stock for every two shares held. All historical
share and per share data in this report were restated for all years reported in
FSCO's 1995 Annual Report to reflect this stock split.
FSCO increased its quarterly common stock dividend twice in 1996. On January 29,
1996, it was increased to $0.21 per share, up $0.0233 per share or 12.5% from
the previous $0.1867 per share, and then again on October 28, 1996, it was
increased to $0.23 per share, up $0.02 per share or 9.5% from the previous $0.21
per share.
FSCO paid quarterly common stock dividends of $0.21 per share in each of the
first three quarters of 1996, and $0.23 per share in the fourth quarter of 1996,
for a total of $0.86 per share in 1996. Common stock dividends paid totaled
$64.9 million in 1996, for a dividend payout ratio of 37.39%.
These 1996 dividends marked the 62nd 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 $34.125 per share at the close of the
market on December 31, 1996, versus a book value of $15.06 per share, resulting
in a market-to-book ratio of 226.59%. In comparison, the bid price of FSCO
common stock was $25.333 per share at the close of the market on December 29,
1995, versus a book value of $13.71 per share, resulting in a market-to-book
ratio of 184.82%. At December 31, 1996, FSCO's common stock market
capitalization was a record $2.6 billion, up 35.7% from year-end 1995 and
representing a five-year compound growth rate of 25.3%.
The approximate number of beneficial shareholders of FSCO common stock was
estimated to be 17,095 at December 31, 1996, compared with an estimated 13,522
at December 31, 1995.
For the years covered in this report, FSCO's preferred stock was convertible
into FSCO common stock at the conversion rate, restated for the stock split, of
one share of preferred stock for 18.225 shares of common stock. There is no
active trading market for FSCO's preferred stock.
<PAGE>
<TABLE>
TABLE 17: CAPITAL RATIOS & RISKED-BASED CAPITAL RATIOS
<CAPTION>
FSCO FS Bank FSB New Mex. FSB Oregon FSB Nevada FSB Wyoming
As of December 31: 1996 1995 1996 1995 1996 1995 1996 1995 1996 1995 1996 1995
- ----------------------------------------------- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Ratios:
Stockholders' equity / assets [EOP] 7.76% 7.90% 5.99% 7.62% 6.51% 6.08% 10.04% 9.53% 7.07% 8.16% 11.84% 10.92%
Stockholders' equity / assets [Avg] 8.19 8.06 6.16 6.95 6.23 5.87 9.81 9.59 7.77 8.04 11.33 10.41
Tangible common equity / tangible assets [EOP] 6.67 6.84 4.70 6.36 6.50 6.08 9.79 9.19 7.07 8.16 8.51 7.26
Leverage ratio 8.16 7.12 7.01 7.00 6.55 5.93 9.32 8.60 6.85 7.88 8.58 7.18
Risk-Based Capital Ratios:
Tier 1 risk-based capital ratio 11.34 10.35 9.38 9.95 13.53 12.66 11.69 10.11 10.99 10.40 12.90 10.87
Total (Tier 1 + 2) risk-based capital ratio 14.50 13.86 10.93 11.74 14.79 13.92 12.94 11.36 12.25 11.65 14.16 12.13
- ----------------------------------------------- ------------------------------------------------------------------------------------
<FN>
Notes:
(A): Federal Reserve Board guidelines provide that all bank holding companies (other than those that meet certain
criteria) maintain a minimum leverage ratio of 3%, plus an additional cushion of 100 to 200 basis points.
The guidelines also state that bank organizations experiencing internal growth or making acquisitions will be
expected to maintain "strong capital positions" substantially above the minimum supervisory levels without
significant reliance on intangible assets.
</TABLE>
OFF-BALANCE SHEET ITEMS
During 1996, FSCO had "off-balance sheet" commitments consisting primarily of
loan commitments to customers, and derivative products used in the ALCO process
or carried in the trading accounts (see "Asset/Liability Management", "Note 1:
Summary of Significant Accounting and Reporting Policies", and "Note 11:
Commitments, Contingent Liabilities, and Financial Instruments with Off-Balance
Sheet Risk").
INFLATION ACCOUNTING AND CAPITAL COMMITMENTS
FSCO has determined that the effects of changing prices on financial data were
not significant to operating results for all years covered by this report.
FSCO had no material capital expenditure commitments at year-ends 1996 or 1994.
At year-end 1995, FSCO had committed to spend at least $10.4 million as part of
Project VISION on state-of-the-art technology to allow FSCO to better serve its
customers.
<PAGE>
<TABLE>
TABLE 18: QUARTERLY FINANCIAL SUMMARY (in thousands, except per share data & ratios)
<CAPTION>
4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
1996 1996 1996 1996
- ----------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Common & Preferred Stock Data:
Earnings per common share: primary $0.66 $0.61 $0.56 $0.47
Earnings per common share: fully diluted 0.66 0.61 0.55 0.47
Tangible EPCS: fully diluted 0.69 0.67 0.61 0.52
Dividends paid per common share 0.23 0.21 0.21 0.21
Book value [EOP] 15.06 14.46 13.97 13.75
Tangible book value [EOP] 12.82 12.33 11.88 11.68
Market price (bid) [EOP] 34.13 27.38 24.00 27.75
High bid for the period 34.13 28.13 27.63 27.75
Low bid for the period 28.13 23.75 22.88 23.17
Market capitalization (mktprice x #shrs) [EOP] 2,583,467 2,069,468 1,811,184 2,092,017
Market price / book value [EOP] % 226.59 189.32 171.80 201.82
Dividend payout ratio (DPCS / EPCS) % 34.85 34.43 37.50 44.68
Dividend yield (DPCS / mktprice) [EOP] % 2.70 3.07 3.50 3.03
Price / earnings ratio (mktprice / EPCS) 14.8x 15.6x 14.5x 17.7x
Common shares [EOP] 75,706 75,597 75,466 75,388
Common shares: primary [Avg] 77,750 77,374 77,216 77,164
Common shares: fully diluted [Avg] 77,939 77,565 77,409 77,360
Preferred shares [EOP] 10 10 11 11
- ----------------------------------------------- ---------- ---------- ---------- ----------
Income Statement:
Interest income $263,397 $251,876 $239,423 $233,112
Interest expense 125,499 118,874 113,523 113,336
Net interest income 137,898 133,002 125,900 119,776
Fully taxable equivalent (FTE) adjustment 2,409 1,764 1,178 2,333
Net interest income, FTE 140,307 134,766 127,078 122,109
Provision for loan losses 11,549 9,508 10,505 8,738
Noninterest income 84,099 72,312 75,714 66,561
Noninterest expenses 130,678 121,251 124,586 120,852
Provision for income taxes 28,541 27,159 23,595 20,457
Net income 51,229 47,396 42,928 36,290
Preferred stock dividend requirement 8 9 8 8
Common stock dividend 17,396 15,848 15,846 15,803
- ---------------------------------------------- ---------- ---------- ---------- ----------
Balance Sheet - End of Period:
Trading account securities $447,486 $171,910 $150,529 $272,443
Investment securities AFS 3,150,276 3,166,608 2,715,770 2,693,820
Memo: fair value adjustment invest sec's AFS 1,654 (12,506) (20,001) (4,048)
Loans, net of unearned income 9,262,482 8,948,196 8,716,400 8,375,060
Reserve for loan losses (134,428) (133,853) (133,678) (130,653)
Total interest-earning assets 13,115,096 12,417,202 11,674,994 11,486,526
Intangible assets 169,779 160,823 157,582 155,744
Total assets 14,708,024 13,739,324 13,036,598 12,751,772
Noninterest-bearing deposits 2,198,348 1,946,454 1,857,593 1,787,827
Interest-bearing deposits 7,240,915 7,141,950 7,027,120 7,069,406
Total deposits 9,439,263 9,088,404 8,884,713 8,857,233
Short-term borrowed funds 2,830,633 2,399,209 2,049,074 1,812,218
Long-term debt 944,055 821,932 723,728 675,460
Total interest-bearing liabilities 11,015,603 10,363,091 9,799,922 9,557,084
Minority equity in subsidiaries 342 329 319 315
Preferred stockholders' equity 540 549 553 563
Common stockholders' equity 1,140,108 1,092,782 1,053,973 1,036,217
Parent company investment in subsidiaries 1,206,037 1,155,998 1,117,599 1,090,036
- ----------------------------------------------- ---------- ---------- ---------- ----------
Balance Sheet - Average:
Trading account securities $130,319 $159,258 $172,737 $328,072
Investment securities AFS 3,162,599 2,930,670 2,725,110 2,609,266
Memo: fair value adjustment invest sec's AFS 6,446 (22,927) (15,977) 20,226
Loans, net of unearned income 9,125,014 8,800,072 8,534,146 8,254,010
Reserve for loan losses (133,885) (133,706) (130,816) (130,063)
Deferred taxes on leases (177,841) (172,614) (166,840) (164,953)
Total interest-earning assets, excl. fair value
adjust invest sec's AFS & defer tax on leases 12,339,265 11,807,137 11,375,936 11,154,064
Intangible assets 163,470 158,718 157,979 150,022
Total assets 13,825,829 13,153,786 12,718,595 12,474,704
Noninterest-bearing deposits 1,912,222 1,780,120 1,755,868 1,708,154
Interest-bearing deposits 7,260,035 7,158,996 7,019,739 6,938,872
Total deposits 9,172,257 8,939,116 8,775,607 8,647,026
Short-term borrowed funds 2,388,089 2,073,144 1,918,772 1,817,625
Long-term debt 831,910 771,128 691,766 691,535
Total interest-bearing liabilities 10,480,034 10,003,268 9,630,277 9,448,032
Minority equity in subsidiaries 332 319 312 311
Preferred stockholders' equity 543 550 557 566
Common stockholders' equity 1,105,649 1,073,952 1,044,724 1,044,601
=============================================== ========== ========== ========== ==========
<FN>Notes:
EOP: End of period. EPCS: Earnings Per Common Share. DPCS: Dividends Per Common Share. AFS: Available For Sale.
</TABLE>
<PAGE>
<TABLE>
TABLE 18: QUARTERLY FINANCIAL SUMMARY (in thousands, except per share data & ratios)
<CAPTION>
4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
1995 1995 1995 1995
- ----------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Common & Preferred Stock Data:
Earnings per common share: primary $0.11 $0.51 $0.48 $0.47
Earnings per common share: fully diluted 0.11 0.51 0.48 0.47
Tangible EPCS: fully diluted 0.15 0.56 0.52 0.52
Dividends paid per common share 0.19 0.19 0.19 0.19
Book value [EOP] 13.71 13.57 13.21 12.64
Tangible book value [EOP] 11.72 11.64 11.27 10.64
Market price (bid) [EOP] 25.33 20.92 18.67 16.00
High bid for the period 25.33 22.17 19.09 17.09
Low bid for the period 20.33 18.33 15.33 14.67
Market capitalization (mktprice x #shrs) [EOP] 1,903,344 1,569,974 1,398,348 1,197,768
Market price / book value [EOP] % 184.82 154.10 141.27 126.58
Dividend payout ratio (DPCS / EPCS) % 172.73 36.36 38.89 40.00
Dividend yield (DPCS / mktprice) [EOP] % 2.95 3.57 4.00 4.67
Price / earnings ratio (mktprice / EPCS) 16.2x 10.9x 9.9x 8.5x
Common shares [EOP] 75,133 75,059 74,912 74,861
Common shares: primary [Avg] 76,883 76,466 76,065 75,849
Common shares: fully diluted [Avg] 77,087 76,671 76,275 76,064
Preferred shares [EOP] 11 11 11 12
- ----------------------------------------------- ---------- ---------- ---------- ----------
Income Statement:
Interest income $246,657 $234,584 $233,068 $220,550
Interest expense 119,109 114,805 114,466 111,488
Net interest income 127,548 119,779 118,602 109,062
Fully taxable equivalent (FTE) adjustment 2,323 2,114 1,874 2,025
Net interest income, FTE 129,871 121,893 120,476 111,087
Provision for loan losses 7,905 6,587 3,742 2,848
Noninterest income 66,496 70,092 61,845 68,059
Noninterest expenses 172,083 121,275 118,929 117,918
Provision for income taxes 5,227 22,666 21,543 20,755
Net income 8,829 39,343 36,233 35,600
Preferred stock dividend requirement 8 9 9 9
Common stock dividend 14,013 13,996 13,976 13,981
- ---------------------------------------------- ---------- ---------- ---------- ----------
Balance Sheet - End of Period:
Trading account securities $638,393 $484,761 $477,560 $437,415
Investment securities AFS 2,623,557 2,466,981 2,338,491 2,288,172
Memo: fair value adjustment invest sec's AFS 23,613 429 (4,320) (36,731)
Loans, net of unearned income 8,315,095 8,303,049 8,356,657 8,183,306
Reserve for loan losses (129,982) (131,878) (130,388) (131,603)
Total interest-earning assets 11,746,677 11,454,392 11,291,982 11,119,493
Intangible assets 148,819 144,964 145,369 149,828
Total assets 13,034,607 12,675,014 12,426,179 12,189,310
Noninterest-bearing deposits 1,884,931 1,857,584 1,748,031 1,655,669
Interest-bearing deposits 6,888,711 6,831,503 6,843,356 6,617,045
Total deposits 8,773,642 8,689,087 8,591,387 8,272,714
Short-term borrowed funds 2,198,689 1,675,498 1,920,093 2,076,924
Long-term debt 720,521 856,550 666,858 683,785
Total interest-bearing liabilities 9,807,921 9,363,551 9,430,307 9,377,754
Minority equity in subsidiaries 309 304 298 285
Preferred stockholders' equity 571 589 594 610
Common stockholders' equity 1,029,692 1,018,681 989,600 946,051
Parent company investment in subsidiaries 1,071,320 1,057,376 1,030,242 990,493
- ----------------------------------------------- ---------- ---------- ---------- ----------
Balance Sheet - Average:
Trading account securities $637,492 $294,378 $345,158 $677,507
Investment securities AFS 2,503,834 2,340,733 2,280,764 2,227,757
Memo: fair value adjustment invest sec's AFS 8,253 (3,546) (23,641) (67,434)
Loans, net of unearned income 8,212,849 8,207,753 8,233,243 8,133,412
Reserve for loan losses (131,138) (130,358) (131,321) (133,747)
Deferred taxes on leases (162,656) (160,855) (160,041) (157,360)
Total interest-earning assets, excl. fair value
adjust invest sec's AFS & defer tax on leases 11,350,786 10,936,285 10,849,339 11,014,611
Intangible assets 145,665 141,780 148,187 164,105
Total assets 12,648,043 12,150,912 12,005,834 12,120,570
Noninterest-bearing deposits 1,761,612 1,690,536 1,585,255 1,545,225
Interest-bearing deposits 6,899,375 6,887,306 6,766,077 6,423,604
Total deposits 8,660,987 8,577,842 8,351,332 7,968,829
Short-term borrowed funds 1,934,202 1,534,440 1,761,411 2,348,062
Long-term debt 755,457 791,348 682,382 684,497
Total interest-bearing liabilities 9,589,034 9,213,094 9,209,870 9,456,163
Minority equity in subsidiaries 308 300 291 276
Preferred stockholders' equity 583 593 603 616
Common stockholders' equity 1,038,656 1,009,339 974,265 918,463
=============================================== ========== ========== ========== ==========
<FN>Notes:
EOP: End of period. EPCS: Earnings Per Common Share. DPCS: Dividends Per Common Share. AFS: Available For Sale.
</TABLE>
<PAGE>
<TABLE>
TABLE 18: QUARTERLY FINANCIAL SUMMARY (in thousands, except per share data & ratios)
<CAPTION>
4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
1996 1996 1996 1996
- ----------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Problem Assets & Potential Problem Assets - End of Period:
Total nonaccruing loans $33,276 $33,401 $25,158 $25,410
Other real estate 4,855 5,003 5,663 5,209
Total nonperforming assets 38,131 38,404 30,821 30,619
Accruing loans past due 90 days or more 19,326 15,728 16,656 13,501
Total problem assets 57,457 54,132 47,477 44,120
Potential problem assets 8,271 12,283 23,513 7,595
- ----------------------------------------------- ---------- ---------- ---------- ----------
Reconciliation of the Reserve for Loan Losses:
Reserve for loan losses, beginning $133,853 $133,678 $130,653 $129,982
Net loans charged off (10,974) (9,333) (7,480) (8,067)
Provision for loan losses 11,549 9,508 10,505 8,738
Reserve for loan losses, ending 134,428 133,853 133,678 130,653
- ----------------------------------------------- ---------- ---------- ---------- ----------
Other Data - End of Period:
Full-time equivalent employees 7,017 7,089 7,003 7,088
Total domestic bank offices 266 262 263 271
- ----------------------------------------------- ---------- ---------- ---------- ----------
Selected Ratios (%):
Return on average assets (ROAA) 1.47% 1.43% 1.36% 1.17%
Tangible ROAA 1.58 1.60 1.51 1.30
Return on average stockholders' equity (ROAE) 18.42 17.55 16.52 13.97
Tangible ROAE 22.84 22.67 21.43 17.94
Net interest margin, FTE 4.55 4.57 4.47 4.38
Net interest spread, FTE 3.83 3.86 3.75 3.63
Operating expense ratio 58.23 58.55 61.44 64.05
Productivity ratio 3.76 3.67 3.94 3.90
Loans / deposits [EOP] 98.13 98.46 98.11 94.56
Loans / assets [EOP] 62.98 65.13 66.86 65.68
Reserve for loan losses [EOP] /:
Total loans 1.45 1.50 1.53 1.56
Nonaccruing loans 403.98 400.75 531.35 514.18
Nonaccruing + accruing loans past due 90 days 255.56 272.45 319.70 335.77
Nonaccruing loans / total loans 0.36 0.37 0.29 0.30
Nonaccruing + accr lns past due / total loans 0.57 0.55 0.48 0.46
Nonperforming assets /:
Total loans + other real estate 0.41 0.43 0.35 0.37
Total assets 0.26 0.28 0.24 0.24
Total equity 3.34 3.51 2.92 2.95
Total equity + reserve for loan losses 2.99 3.13 2.59 2.62
Problem assets /:
Total loans + other real estate 0.62 0.60 0.54 0.53
Total assets 0.39 0.39 0.36 0.35
Total equity 5.04 4.95 4.50 4.26
Total equity + reserve for loan losses 4.51 4.41 4.00 3.78
Net loans charged off / average loans 0.48 0.42 0.35 0.39
- ----------------------------------------------- ---------- ---------- ---------- ----------
Capital Ratios & Risk-Based Capital Ratios (%):
Stockholders' equity / assets [EOP] 7.76% 7.96% 8.09% 8.13%
Stockholders' equity / assets [Avg] 8.00 8.17 8.22 8.38
Tangible common equity / tangible assets [EOP] 6.67 6.86 6.96 6.99
Leverage ratio 8.16 7.34 7.50 7.46
Tier 1 risk-based capital ratio 11.34 10.10 10.29 10.49
Total (Tier 1 + 2) risk-based capital ratio 14.50 13.36 13.65 13.96
=============================================== ========== ========== ========== ==========
<FN>Notes:
EOP: End of period. EPCS: Earnings Per Common Share. DPCS: Dividends Per Common Share. AFS: Available For Sale.
</TABLE>
<PAGE>
<TABLE>
TABLE 18: QUARTERLY FINANCIAL SUMMARY (in thousands, except per share data & ratios)
<CAPTION>
4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
1995 1995 1995 1995
- ----------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Problem Assets & Potential Problem Assets - End of Period:
Total nonaccruing loans $22,447 $25,381 $18,702 $19,205
Other real estate 4,134 4,472 4,340 2,334
Total nonperforming assets 26,581 29,853 23,042 21,539
Accruing loans past due 90 days or more 13,455 11,515 11,076 11,518
Total problem assets 40,036 41,368 34,118 33,057
Potential problem assets 12,319 17,223 19,652 19,943
- ----------------------------------------------- ---------- ---------- ---------- ----------
Reconciliation of the Reserve for Loan Losses:
Reserve for loan losses, beginning $131,878 $130,388 $131,603 $133,855
Net loans charged off (9,801) (5,097) (4,957) (5,100)
Provision for loan losses 7,905 6,587 3,742 2,848
Reserve for loan losses, ending 129,982 131,878 130,388 131,603
- ----------------------------------------------- ---------- ---------- ---------- ----------
Other Data - End of Period:
Full-time equivalent employees 7,530 7,758 7,755 7,656
Total domestic bank offices 272 269 267 262
- ----------------------------------------------- ---------- ---------- ---------- ----------
Selected Ratios (%):
Return on average assets (ROAA) 0.28% 1.28% 1.21% 1.19%
Tangible ROAA 0.37 1.42 1.35 1.34
Return on average stockholders' equity (ROAE) 3.37 15.46 14.91 15.71
Tangible ROAE 5.21 19.64 19.34 21.19
Net interest margin, FTE 4.58 4.46 4.44 4.03
Net interest spread, FTE 3.80 3.68 3.71 3.41
Operating expense ratio 87.63 63.17 65.23 65.82
Productivity ratio 5.40 3.96 3.97 3.95
Loans / deposits [EOP] 94.77 95.56 97.27 98.92
Loans / assets [EOP] 63.79 65.51 67.25 67.14
Reserve for loan losses [EOP] /:
Total loans 1.56 1.59 1.56 1.61
Nonaccruing loans 579.06 519.59 697.19 685.25
Nonaccruing + accruing loans past due 90 days 362.05 357.43 437.87 428.35
Nonaccruing loans / total loans 0.27 0.31 0.22 0.23
Nonaccruing + accr lns past due / total loans 0.43 0.44 0.36 0.38
Nonperforming assets /:
Total loans + other real estate 0.32 0.36 0.28 0.26
Total assets 0.20 0.24 0.19 0.18
Total equity 2.58 2.93 2.33 2.28
Total equity + reserve for loan losses 2.29 2.59 2.06 2.00
Problem assets /:
Total loans + other real estate 0.48 0.50 0.41 0.40
Total assets 0.31 0.33 0.27 0.27
Total equity 3.89 4.06 3.45 3.49
Total equity + reserve for loan losses 3.45 3.59 3.04 3.07
Net loans charged off / average loans 0.47 0.25 0.24 0.25
- ----------------------------------------------- ---------- ---------- ---------- ----------
Capital Ratios & Risk-Based Capital Ratios (%):
Stockholders' equity / assets [EOP] 7.90% 8.04% 7.97% 7.77%
Stockholders' equity / assets [Avg] 8.22 8.31 8.12 7.58
Tangible common equity / tangible assets [EOP] 6.84 6.97 6.87 6.61
Leverage ratio 7.12 7.32 7.20 7.11
Tier 1 risk-based capital ratio 10.35 10.52 10.12 10.00
Total (Tier 1 + 2) risk-based capital ratio 13.86 14.06 12.22 12.12
=============================================== ========== ========== ========== ==========
<FN>Notes:
EOP: End of period. EPCS: Earnings Per Common Share. DPCS: Dividends Per Common Share. AFS: Available For Sale.
</TABLE>
<PAGE>
MERGERS AND ACQUISITIONS
FSCO's merger and acquisition activity reflects management's strategy of
diversifying and enhancing FSCO's financial services delivery system through
the expansion and geographical diversification of its bank branch network and
nonbank activities (see "Note 15: Mergers and Acquisitions"). Management
believes that long-term returns on the stockholders' investment will benefit
from these acquisitions, and will continue its strategy of acquiring solid,
well-managed financial services companies when suitable opportunities arise in
new and existing markets.
On June 21, 1996, FSCO's two largest subsidiaries, First Security Bank of Utah,
N.A. and First Security Bank of Idaho, N.A., merged to become one legal entity:
First Security Bank, N.A. The decision to combine the charters of these two
banks was announced in 1995 and is part of FSCO's goal of becoming a "virtual
bank" in which all of FSCO's banks will be managed as a single entity. This
reorganization will have both expenses and cost savings associated with it.
No other material mergers or acquisitions were made in 1996 or 1995.
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 February 3, 1997, CrossLand Mortgage announced a letter of intent to acquire
the wholesale loan production branch operations of Harbourton Mortgage Co.,
L.P., a subsidiary of Harbourton Financial Services, L.P. (NYSE: HBT). Through
this agreement, CrossLand Mortgage will acquire 15 offices, located in 11
states, that originated $2.7 billion in mortgage loans during 1996. This
acquisition is expected to be closed during the first quarter of 1997.
NATIONAL AND REGIONAL ECONOMIES
FSCO and its subsidiaries are significantly influenced both by the financial
strength and economic stability of the regional economies in which they operate
and by interest rates and other economic conditions prevailing in regional,
national, and international financial markets (see "Factors That May Affect
Future Results of Operations And Financial Condition"). With an essentially
unchanged U.S. monetary policy, short-term interest rates in 1996 were generally
stable. At the beginning of 1996, market-determined interest rates were low and
provided a demand stimulus for residential construction, automobile sales, and
other interest-sensitive, consumer-durable markets. By midyear, however, yields
on maturities from 2 to 30 years had increased more than a full percentage
point. Despite some interest rate decline in the third quarter, the lagged
impact of the higher rates helped narrow the gains in residential construction
and consumer durable sales in the latter part of 1996. The 1997 national
economic outlook is for moderate growth with little change in inflationary
pressure. More rapid wage increases appear likely, but it is doubtful that
companies will be able to pass those costs on.
The Intermountain West, which encompasses a significant portion of FSCO's
primary market areas, was the United States' fastest-growing regional economy in
1996 for the fourth consecutive year. Furthermore, Nevada, Utah, Oregon and
Idaho were four of the top eight states in 1996 employment growth, as reflected
in the following table.
<TABLE>
PRELIMINARY AVERAGE JOB GROWTH GAINS AND UNEMPLOYMENT RATES FOR 1996
<CAPTION>
Job Gains
-------------------
National Unemployment
Average (%) % Rank Rates
- --------------------------------------------------------------
<S> <C> <C> <C>
National 2.0 5.4
Nevada 7.0 1 5.2
Utah 5.3 2 3.4
Oregon 4.1 5 5.2
Idaho 3.5 8 5.4
New Mexico 2.4 -- 6.9
Wyoming 1.0 -- 4.6
- --------------------------------------------------------------
</TABLE>
The overall 1996 economic performance in Utah, Nevada, Idaho, and Oregon
actually improved from the prior year's robust gains. Increased activity in
residential construction, auto sales, and sales of other consumer durable goods
contributed to the expansion. Growth in New Mexico slowed, while Wyoming's
economy remained sluggish.
The rate of economic growth, both nationally and in the Intermountain West, will
likely decelerate in 1997. Modestly slower job growth and higher consumer debt
levels will probably restrain national consumer-spending gains. Job growth in
the six-state region should remain solid, but in 1997, it will occur at a
reduced rate, influenced somewhat by labor supply constraints.
While the 1997 regional outlook remains generally favorable, the following
factors could adversely impact regional economic activity:
* Interest rates may increase nationally, leading to an economic downturn.
* Political uncertainty (i.e., Russia, the Middle East) may disrupt financial
markets.
* Access to Federal lands for timber, mining, and livestock industries may be
reduced, or even eliminated.
* International competitive pressures in the computer industry may possibly
slow domestic production or even decrease job levels in that industry.
COMPETITIVE POSITION
FSCO is the largest bank holding company headquartered in the Intermountain
West. Incorporated in 1928, FSCO is the oldest multistate bank holding company
in the United States.
The following comparisons were all from the June 30, 1996, Sheshunoff "Branch
Source" report which was the most recent date for which comparative data were
available (see "Factors That May Affect Future Results of Operations And
Financial Condition").
FS Bank is the largest bank in Utah. At June 30, 1996, FS Bank's Utah operations
had deposits of $4.1 billion or approximately 22.1% of all deposits in the
state, and 122 full-service domestic branches. Zion's First National Bank was
the second largest bank with approximately $2.9 billion in deposits and 96
branches, while Key Bank was the third largest with approximately $952 million
in deposits and 39 branches. These three banks are all units of bank holding
companies with bank operations in other western states. Other competitors
included: 41 additional banks with approximately $5.8 billion in deposits and
196 branches; 5 savings and loans (S&Ls) and savings banks with approximately
$754 million in deposits and 41 branches; and 149 credit unions with
approximately $3.9 billion in deposits.
FS Bank is also the second largest bank in Idaho in terms of deposits. At June
30, 1996, FS Bank's Idaho operations had deposits of $2.8 billion or
approximately 24.7% of all deposits in the state, and 85 full-service branches.
US Bank was the largest bank with approximately $3.2 billion in deposits and 102
branches, while Key Bank was the third largest with approximately $1.1 billion
in deposits and 45 branches. These three banks are all units of bank holding
companies with bank operations in other western states. Other competitors
included 17 additional banks with approximately $2.1 billion in deposits and 102
branches; 7 S&Ls and savings banks with approximately $899 million in deposits
and 48 branches; and 86 credit unions with approximately $1.1 billion in
deposits.
FSB New Mexico is the third-largest bank in New Mexico in terms of deposits. At
June 30, 1996, FSB New Mexico had deposits totaling $1.1 billion or
approximately 7.7% of all deposits in the state, and 27 full-service branches.
Sunwest Bank of Albuquerque was the largest bank with approximately $2.8 billion
in deposits and 54 branches, while Norwest Bank, Inc. was the second largest
with approximately $1.8 billion in deposits and 65 branches. These three banks
are all units of bank holding companies with bank operations in other western
states. Other competitors included 49 additional banks with approximately $5.9
billion in deposits and 237 branches; 11 S&Ls and savings banks with
approximately $1.1 billion in deposits and 34 branches; and 60 credit unions
with approximately $1.9 billion in deposits.
FSCO experiences substantial competition in attracting deposits and originating
loans. The primary factors in competing for deposits are interest rates, the
range and quality of services offered, the convenience of bank facilities and
automated teller machines, and hours of operation. Competition for deposits
comes principally from other commercial banks, S&Ls, and credit unions.
Additional competition comes from mutual funds, money market funds, and various
other corporate and government lenders. The primary factors in competing for
loans are interest rates, loan fees, and the quality and range of lending
services offered. Competition for the origination of consumer and commercial
loans comes from commercial banks, finance companies, S&Ls, and credit unions,
while competition for the origination of mortgage loans comes from S&Ls, credit
unions, mortgage banking firms, insurance companies, and other commercial banks.
FSCO, along with the rest of the banking industry, has felt the effects of added
competition as nonbank financial service companies enter what were already
highly competitive markets. Notwithstanding the increased competition, banks
still have only limited entry into nonbank financial markets. In spite of the
inequities of the present financial services market, FSCO has succeeded in
maintaining its position as a major catalyst in the financial services market in
the Intermountain West by being innovative and creative in providing new
products and services to its customers within the narrow constraints of current
banking regulations.
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS AND FINANCIAL CONDITION
During its nearly 70 years of continuous operations, FSCO has experienced
remarkable growth in assets, deposits, capital and profits. This has been the
result of hard work by the FSCO team and the loyalty and patronage of its
customers. FSCO has also contributed to and benefited from its market areas,
which generally have been economically stable and growing over recent times.
Nevertheless, there have been business cycles along the way, with the downturns
in such cycles resulting from factors that continue today, and which require
attention and careful management. These factors include the effects of
competition; changing economic conditions in the local, national, and
international economies; technological change and its challenges; changing
regulatory and legislative attitudes; financial market perceptions; and socio-
economic trends. FSCO endeavors to anticipate and manage these many dynamic
factors, yet FSCO's businesses remain subject to rapid change which may impact
the results of operations and financial condition of FSCO.
COMPETITION. FSCO competes nationally and in its market areas with ever larger
and heavily capitalized financial services companies. The consolidation that is
now underway in the financial services industry has not only seen FSCO grow
through acquisitions of smaller banks and into new franchise areas, but has seen
large money-center banks acquire large national franchises, including footholds
in FSCO's traditional market areas. Moreover, the securities and insurance
industries increasingly compete in products and services that were traditionally
bank products and services, but without the regulatory capital requirements and
other constraints shouldered by banks. Thus, FSCO faces more and stronger
competition than ever before. These trends match with a socio-economic trend
toward the "commoditization" of financial services, with price frequently being
the dominant factor for customers. The competitive challenges to FSCO change
almost daily, and FSCO will continue to employ its resources to meet these
challenges.
CHANGING ECONOMIC CONDITIONS. FSCO now has full-service banking operations
in six states, with major presences in three of those states. FSCO's mortgage
origination and servicing spans the nation. Currently, the United States is
experiencing steady economic growth in almost all areas, and the demand for
FSCO's services remains high. There have been periods in the past when economic
conditions have changed rapidly for the worse in one or more of FSCO's market
areas, and results of operations as well as financial condition have suffered in
the short term. The reserve for loan losses attempts to cushion such changes in
the loan portfolio, but economic changes can also reduce the demand for loans
and other banking services. Generally, FSCO experiences economic conditions and
does not cause or create them. There can be no assurance that negative changes
in economic conditions in the nation or in one or more of FSCO's market areas
will not have an adverse impact on FSCO's future results of operations or
financial condition.
TECHNOLOGICAL CHANGE. Like any other company, advances and changes in available
technology can significantly impact the business and operations of FSCO. For
example, 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 significant 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. Such 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.
The increasing demands for computer access to bank accounts and for the ability
to do banking transactions away from bank premises also present challenges.
Moreover, as world business becomes ever more dependent on electronic media to
conduct business and to preserve business records, such business is made ever
more susceptible to negative impacts from technology failures, energy
disruptions, and technological mischief by those who would hurt a company or a
country.
REGULATORY AND LEGISLATIVE ATTITUDES. FSCO operates under significant national,
international, and local government regulations. Historically, the business of
banking has been legislatively separated from certain other businesses, like
insurance and securities activities, as well as other types of businesses.
Changes in technology and socio-economic trends have allowed insurance and
securities firms to enter traditional bank service markets, but banks have been
legally precluded from entering insurance and securities markets with the same
freedom. Now there is a changing regulatory attitude that is allowing banks
greater ability to compete in the securities and insurance fields. However,
these changes are happening disjointedly and slowly, with some competitors being
given regulatory powers that FSCO and its similarly sized competitors cannot yet
use. There are ongoing regulatory and legal battles between banking interests on
one side, and the securities, insurance and credit union interests on the other.
No one can predict how the regulatory landscape will look in the future, or how
such changes will affect FSCO's results of operations and financial condition at
that time.
FINANCIAL MARKET PERCEPTIONS. The price of FSCO's common stock in the public
markets is largely a result of perceptions of the market with respect to future
results of FSCO in particular and the financial services market generally. From
time to time, the market's perception does not match current reality, which may
result in higher or lower prices for FSCO shares. Such market perceptions are
totally outside of FSCO's control. Because of the existence of these factors,
however, past historical performance by FSCO should not be taken as a reliable
indicator of future performance, and investors should not use historical trends
to attempt to anticipate results or trends in future periods. Also FSCO is a
participant in a dynamic and changing industry, which could result in volatility
in public market prices for FSCO common stock.
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 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.
Various FSCO subsidiaries are defendants in four class action lawsuits, one each
in the United States District Courts in Florida and Illinois, alleging
violations of Federal Truth in Lending rules, one in New Mexico with respect to
force placed insurance in connection with automobile loans, and one in
Massachusetts alleging violation of the Real Estate Settlement Procedures Act
(RESPA) in connection with "yield spread premiums" paid to mortgage brokers.
In the Illinois action "Romaker v. CrossLand Mortgage Corporation", Case No. 94
C 3328, Northern District of Illinois, Eastern Division (filed June 3, 1994),
summary judgment on the issue of liability was rendered against FSCO and class
certification was ordered. During 1996, a settlement was reached that would
result in damages payable by FSCO to the plaintiff class well below $500
thousand. FSCO previously reported that any damages paid likely can be recovered
by indemnification claims against the former owners of CrossLand Mortgage.
The Florida litigation "Hilton v. CrossLand Mortgage Corp.", Case No. 948437 CIV
RYSKAMP, Southern District of Florida Northern Division (filed August 4, 1994),
was positively affected by Congressional action amending the applicable statute
to eliminate class liability for the violation which the plaintiff class was
asserting against a number of banks and mortgage companies, including CrossLand
Mortgage. The court denied the plaintiffs' motion for class certification. An
amended complaint has been filed which alleges violations in the placement of
mortgage insurance in connection with loans originated by CrossLand Mortgage at
the request of the class members. This claim is new and discovery is ongoing.
The prior denial of class certification also applies to this new claim.
The New Mexico case "Begay v. First Security Bank of New Mexico, et al.", Case
No. CIV 96 0348 MV, District of New Mexico (filed March 13, 1996), was filed in
United States District Court alleging unfair practices, fraud, RICO, and Federal
Truth in Lending violations in connection with the policies of FSB New Mexico
(and other FSCO entities) to force place insurance on vehicles subject to loans
whose owners fail to procure such insurance. Motions to dismiss a number of FSCO
entities named in the suit remain pending in the Court.
The Massachusetts case of "Moniz v. CrossLand Mortgage Co.", Case No. 96-12260-
WGY, United States District Court for the District of Massachusetts (filed
November 12, 1996) alleges violation of RESPA in connection with "yield spread
premiums" paid to mortgage brokers. The plaintiffs assert this claim as a class
action. FSCO has answered the Complaint and denied liability.
In "Utah Bankers' Association v. America First Credit Union" (3rd District
Court, Salt Lake County, Utah), FSCO's subsidiaries, FS Bank and FS Service,
together with other Utah banks, have been named in a third party complaint
brought by Utah based credit unions, filed on October 31, 1996. The complaint
was recently served on the defendants. This third party complaint arises in
pending litigation initiated by the Utah Bankers' Association seeking to define
and limit the eligible membership of credit unions operating in Utah. Damages
sought by the credit unions against the Utah Bankers' Association and its
members total approximately $l.5 billion in the aggregate. This litigation is
part of a national process which seeks to define the scope of credit union
powers. FSCO will defend itself vigorously in this matter. FSCO does not
foresee any materially adverse impact resulting from this litigation.
During October 1996, an Idaho jury verdict was entered against FS Bank (formerly
FSB Idaho) in a lender liability lawsuit. Based on advice of counsel, FSCO
believes that there is clear appealable error with this verdict, and FSCO has
filed post-trial motions and will proceed with an appeal of the verdict if
satisfactory post-trial relief is denied.
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 these cases reported will have a material adverse impact on the business
or assets of FSCO.
<PAGE>
MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS
February 21, 1997
To Our Stockholders:
The management of First Security Corporation (FSCO) is responsible for the
preparation, integrity, and fair presentation of its published financial
statements and all other information presented in this annual report. The
financial statements have been prepared in accordance with generally accepted
accounting principles and, as such, include amounts based on informed judgments
and estimates made by management.
Management is responsible for establishing and maintaining an effective internal
control structure over financial reporting presented in conformity with
generally accepted accounting principles and the Federal Reserve Board's
instructions for the FR Y-9 Report. The structure contains monitoring
mechanisms, and actions are taken to correct deficiencies identified.
There are inherent limitations in the effectiveness of any structure of internal
control, including the possibility of human error and the circumvention or
overriding of controls. Accordingly, even an effective internal control
structure can provide only reasonable assurance with respect to financial
statement preparation. Further, because of changes in conditions, the
effectiveness of an internal control structure may vary over time.
Management assessed FSCO's internal control structure over financial presented
in conformity with generally accepted accounting principles and the Federal
Reserve Board's instructions for the FR Y-9 Report as of December 31, 1996. This
assessment was based on criteria for effective internal control over financial
reporting described in "Internal Control - Integrated Framework" issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on this
assessment, management believes that FSCO maintained an effective internal
control structure over financial reporting presented in conformity with
generally accepted accounting principles and the Federal Reserve Board's
instructions for the FR Y-9 Report as of December 31, 1996.
The audit committee of the board of directors is comprised entirely of outside
directors who are independent of FSCO's management. The audit committee is
responsible for recommending to the board of directors the selection of
independent auditors. It meets periodically with management, the independent
auditors, and the internal auditors to ensure that they are carrying out their
responsibilities. The committee is also responsible for performing an oversight
role by reviewing and monitoring the financial, accounting, and auditing
procedures of FSCO in addition to reviewing FSCO's financial reports. The
independent auditors and the internal auditors have full and free access to the
audit committee, with or without the presence of management, to discuss the
adequacy of the internal control structure for financial reporting and any other
matters which they believe should be brought to the attention of the committee.
Management is also responsible for ensuring compliance with the Federal laws and
regulations concerning loans to insiders and the Federal and state laws and
regulations concerning dividend restrictions, both of which are designated by
the FDIC as safety and soundness laws and regulations.
Management assessed its compliance with the designated safety and soundness laws
and regulations and has maintained records of its determinations and assessments
as required by the FDIC. Based on this assessment, management believes that FSCO
has complied, in all material respects, with the designated safety and soundness
laws and regulations for the year ended December 31, 1996.
[SIGNED] [SIGNED]
Morgan J. Evans Scott C. Ulbrich
President and Chief Operating Officer Executive Vice President, Finance
and Capital Markets and Chief
Financial Officer
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS (in thousands)
<CAPTION>
As of December 31, 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Cash and due from banks (Note 3) $ 937,144 $ 818,664
Federal funds sold and securities purchased under resale agreements (Note 1) 223,235 148,069
- ------------------------------------------------------------------------------------------------------------------------------------
Total Cash and Cash Equivalents 1,160,379 966,733
- ------------------------------------------------------------------------------------------------------------------------------------
Interest-bearing deposits in other banks 31,617 21,563
Trading account securities (Notes 1 and 4) 447,486 638,393
Securities available for sale, at fair value (cost $3,148,622 and $2,599,943,
respectively) (Notes 1 and 4) 3,150,276 2,623,557
- ------------------------------------------------------------------------------------------------------------------------------------
Loans held for sale (Note 1) 330,032 258,119
Loans (net of reserve for loan losses of $134,428 and $129,982 and unearned income
of $67,396 and $16,250, respectively) (Notes 1 and 5) 8,798,022 7,926,994
Premises and equipment, net (Notes 1 and 6) 233,497 209,138
Accrued income receivable 89,595 82,143
Other real estate (Note 1) 4,855 4,134
Other assets 292,486 155,014
Intangible assets (Notes 1, 5, and 15) 169,779 148,819
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 14,708,024 $ 13,034,607
====================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits (Note 7):
Noninterest-bearing $ 2,198,348 $ 1,884,931
Interest-bearing 7,240,915 6,888,711
- ------------------------------------------------------------------------------------------------------------------------------------
Total Deposits 9,439,263 8,773,642
- ------------------------------------------------------------------------------------------------------------------------------------
Securities sold under repurchase agreements (Notes 1 and 4) 2,076,202 1,725,958
Federal funds purchased 466,390 211,498
U.S. Treasury demand notes 8,885 33,897
Other short-term borrowings (Notes 8 and 10) 279,156 227,336
Accrued income taxes (Notes 1 and 9) 187,638 131,510
Accrued interest payable 41,442 48,737
Other liabilities 124,345 131,245
Long-term debt (Note 10) 944,055 720,521
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 13,567,376 12,004,344
- ------------------------------------------------------------------------------------------------------------------------------------
Commitments and contingent liabilities (Notes 4, 5, 6, 11, and 15)
STOCKHOLDERS' EQUITY (NOTES 1, 12, 13, 14, AND 17):
Preferred stock: Series "A", $3.15 cumulative convertible 540 571
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKHOLDERS' EQUITY:
Common stock (76,270 and 75,740 shares issued, respectively) 95,338 94,674
Paid-in surplus 130,398 120,084
Retained earnings 923,375 810,458
Net unrealized gain on securities available for sale (net of taxes) (Notes 1, 4, and 9) 877 14,547
- ------------------------------------------------------------------------------------------------------------------------------------
Subtotal 1,149,988 1,039,763
Common treasury stock, at cost (564 and 607 shares, respectively) (9,880) (10,071)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Common Stockholders' Equity 1,140,108 1,029,692
- ------------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 1,140,648 1,030,263
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 14,708,024 $ 13,034,607
====================================================================================================================================
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share amounts)
<CAPTION>
For the years ended December 31, 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans (Note 1) $ 789,488 $ 754,029 $ 615,558
Federal funds sold and securities purchased under resale agreements 4,483 8,166 2,320
Interest-bearing deposits in other banks 1,059 778 83
Trading account securities (Notes 4 and 11) 10,058 29,096 33,945
Securities available for sale Note 4) 182,720 129,204 107,778
Securities held to maturity (Note 4) -- 13,586 13,833
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest Income 987,808 934,859 773,517
- ------------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Deposits (Note 7) 313,010 300,146 205,725
Short-term borrowings (Note 10) 108,081 108,271 85,806
Long-term debt (Note 10) 50,141 51,451 23,884
- ------------------------------------------------------------------------------------------------------------------------------------
Total Interest Expense 471,232 459,868 315,415
- ------------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME:
Net interest income 516,576 474,991 458,102
Provision for loan losses (Notes 1 and 5) 40,300 21,082 825
- ------------------------------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Loan Losses 476,276 453,909 457,277
- ------------------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME:
Service charges on deposit accounts 80,924 68,114 62,211
Other service charges, collections, commissions, and fees 45,560 36,208 27,544
Bankcard servicing fees and third-party processing fees 28,683 24,774 30,234
Insurance commissions and fees 15,016 13,655 12,631
Mortgage banking activities, net (Notes 1 and 5) 85,668 76,919 32,895
Trust (fiduciary) commissions and fees 23,104 20,894 20,706
Trading account securities gains (losses) (Notes 1, 4, and 11) 2,383 6,390 (2,386)
Securities gains (losses) (Notes 1 and 4) 4,549 (806) (1,330)
Other 12,799 20,344 15,043
- ------------------------------------------------------------------------------------------------------------------------------------
Total Noninterest Income 298,686 266,492 197,548
- ------------------------------------------------------------------------------------------------------------------------------------
Total Income 774,962 720,401 654,825
- ------------------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSES:
Salaries and employee benefits (Note 13) 261,358 261,410 222,895
Advertising 11,276 8,719 9,039
Amortization of intangibles (Notes 1, 5, and 15) 7,977 8,712 6,792
Bankcard interbank exchange 24,572 17,263 16,301
Furniture and equipment 40,987 36,285 30,987
Insurance 5,254 15,793 23,454
Net occupancy (Note 6) 29,776 27,862 25,874
Other real estate expenses and loss provision (recovery) 286 (2,514) (6,543)
Postage 10,748 11,272 9,708
Stationery and supplies 19,060 18,582 16,336
Telephone 13,683 13,278 11,834
Other 72,390 69,543 66,971
Restructuring charge (Note 2) -- 44,000 --
- -----------------------------------------------------------------------------------------------------------------------------------
Total Noninterest Expenses 497,367 530,205 433,648
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX PROVISION 277,595 190,196 221,177
Provision for income taxes (including tax effect of securities transactions
of $1,750, $(698), and $(497), respectively) (Notes 1 and 9) 99,752 70,191 81,043
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCOME:
Net income 177,843 120,005 140,134
Dividend requirement of preferred stock (Note 1) 33 35 39
- ------------------------------------------------------------------------------------------------------------------------------------
Net Income Applicable to Common Stock $ 177,810 $ 119,970 $ 140,095
====================================================================================================================================
Earnings Per Common Share Assuming No Dilution (Notes 1, 12, and 13) $ 2.30 $ 1.57 $ 1.87
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings Per Common Share Assuming Full Dilution (Notes 1, 12, and 13) $ 2.29 $ 1.57 $ 1.87
====================================================================================================================================
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands, except per share amounts)
<CAPTION>
Net
Unrealized
Gain (Loss)
on Securities Common
Preferred Common Available Treasury
For the years ended December 31, Stock Stock Paid-In Retained for Sale Stock
1994, 1995 and 1996 Total (Note 12) (Note 12) Surplus Earnings (Net of Taxes) (Note 12)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 $ 835,731 $703 $91,475 $ 92,057 $ 657,446 $ -- $ (5,950)
- ------------------------------------------------------------------------------------------------------------------------------------
Net income for the year 140,134 -- -- -- 140,134 -- --
Sale of common stock through
dividend reinvestment
and common stock purchase plan
(Note 12) 2,182 -- 144 2,038 -- -- --
Sales of stock to employee benefit
plans (Note 12) 8,138 -- 439 2,521 -- -- 5,178
Common stock issued for acquisitions
(Notes 12 and 15) 26,428 -- 1,578 13,239 -- -- 11,611
Cash dividends:
Preferred stock -- $3.15 per share (39) -- -- -- (39) -- --
Common stock -- $0.69 per share (Note 12) (51,087) -- -- -- (51,087) -- --
Conversion of preferred stock to common -- (74) 33 41 -- -- --
Purchase of treasury stock (19,481) -- -- -- -- -- (19,481)
Net unrealized loss on securities
available for sale
(net of taxes) (Notes 1, 4, and 9) (54,341) -- -- -- -- (54,341) --
Other 1,809 -- -- 1,809 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 889,474 629 93,669 111,705 746,454 (54,341) (8,642)
- ------------------------------------------------------------------------------------------------------------------------------------
Net income for the year 120,005 -- -- -- 120,005 -- --
Sale of common stock through
dividend reinvestment
and common stock purchase plan (Note 12) 2,671 -- 176 2,495 -- -- --
Sales of stock to employee benefit plans and
employee stock purchase plan (Note 12) 8,294 -- 552 4,712 -- -- 3,030
Common stock issued for acquisitions
(Notes 12 and 15) 637 -- 252 385 -- -- --
Cash dividends:
Preferred stock -- $3.15 per share (35) -- -- -- (35) -- --
Common stock -- $0.75 per share (Note 12) (55,966) -- -- -- (55,966) -- --
Conversion of preferred stock to common -- (58) 25 33 -- -- --
Purchase of treasury stock (4,459) -- -- -- -- -- (4,459)
Net unrealized gain on securities
available for sale
(net of taxes) (Notes 1, 4, and 9) 68,888 -- -- -- -- 68,888 --
Other 754 -- -- 754 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 1,030,263 571 94,674 120,084 810,458 14,547 (10,071)
- ------------------------------------------------------------------------------------------------------------------------------------
Net income for the year 177,843 -- -- -- 177,843 -- --
Sale of common stock through
dividend reinvestment
and common stock purchase plan (Note 12) 3,339 -- 152 3,187 -- -- --
Sales of stock to employee benefit plans and
employee stock purchase plan (Note 12) 7,128 -- 499 4,389 -- -- 2,240
Cash dividends:
Preferred stock -- $3.15 per share (33) -- -- -- (33) -- --
Common stock -- $0.86 per share (Note 12) (64,893) -- -- -- (64,893) -- --
Conversion of preferred stock to common (1) (31) 13 17 -- -- --
Purchase of treasury stock (2,049) -- -- -- -- -- (2,049)
Net unrealized loss on securities
available for sale
(net of taxes) (Notes 1, 4, and 9) (13,670) -- -- -- -- (13,670) --
Other 2,721 -- -- 2,721 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 $1,140,648 $540 $95,338 $ 130,398 $ 923,375 $ 877 $ (9,880)
====================================================================================================================================
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands, except number of shares)
<CAPTION>
For the years ended December 31, 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 177,843 $ 120,005 $ 140,134
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Provision for loan losses 40,300 21,082 825
Provision for (recovery of) loss on other real estate 20 (2,757) (6,764)
Provision for depreciation and amortization 30,117 26,314 31,340
Provision for amortization of intangible assets 7,977 8,712 6,792
Provision for deferred income taxes 57,936 17,681 27,010
Net change in deferred loan origination fees and costs 54,356 (8,196) (4,802)
Net amortization of investment security discounts and premiums (1,376) (304) 9,277
Proceeds from sales of mortgage loans held for sale 3,709,605 3,460,687 2,117,121
Origination of mortgage loans held for sale (3,253,230) (2,785,149) (1,434,368)
Investment securities (gains) losses (4,549) 806 1,330
Net realized gains on sold loans (5,627) (9,107) (10,778)
Decrease (increase) in trading account securities 190,907 (84,567) 54,028
Decrease (increase) in accrued income receivable (7,452) 3,512 (31,329)
Increase (decrease) in accrued interest payable (7,295) 21,028 8,981
Increase (decrease) in accrued income taxes 6,482 (9,153) 3,223
Other operating activities (245,788) 58,303 (51,130)
- ---------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 750,226 838,897 860,890
- ---------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale 104,952 267,001 666,185
Redemption of matured securities available for sale 1,054,465 881,655 488,487
Redemption of matured securities held to maturity -- 69,884 96,183
Purchases of securities available for sale (1,702,170) (1,414,460) (1,676,979)
Purchases of securities held to maturity -- (71,547) (81,451)
Net (increase) decrease in interest-bearing deposits in other banks (10,054) (19,753) 14,876
Net increase in loans and leases (1,470,740) (1,050,304) (2,029,122)
Proceeds from sale of auto loans -- 250,068 --
Purchase of premises and equipment (47,353) (44,773) (55,527)
Proceeds from sales of other real estate 6,537 10,854 30,276
Payments to improve other real estate (2,571) (1,138) (2,055)
Net cash (paid for) received from acquisitions (Note 15) 2,721 602 (89,549)
- ---------------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (2,064,213) (1,121,911) (2,638,676)
- ---------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 665,621 720,298 347,646
Net increase (decrease) in Federal funds purchased and securities sold
under repurchase agreements and U.S. Treasury demand notes 580,124 (223,131) 763,385
Proceeds from issuance of nonrecourse debt on leveraged leases 71,142 -- 40,378
Payments on nonrecourse debt on leveraged leases (28,099) (31,025) (30,802)
Proceeds from issuance of long-term debt and short-term borrowings 585,387 238,806 624,925
Payments on long-term debt and short-term borrowings (310,033) (127,610) (240,586)
Proceeds from issuance of common stock and sales of treasury stock 10,466 10,965 10,320
Purchases of treasury stock (2,049) (4,459) (19,481)
Dividends paid (64,926) (56,001) (51,126)
- ---------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 1,507,633 527,843 1,444,659
- ---------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents (Note 1) 193,646 244,829 (333,127)
Cash and Cash Equivalents, Beginning of Year 966,733 721,904 1,055,031
- ---------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Year $ 1,160,379 $ 966,733 $ 721,904
=================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands, except number of shares) continued
<CAPTION>
For the years ended December 31, 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 478,527 $ 438,840 $ 305,135
Income taxes 35,334 55,790 56,123
===============================================================================================================================
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Conversion of 595; 1,105; and 1,419 shares of convertible
preferred stock into 10,612; 20,110; and 25,822 shares of
common stock, respectively (Note 12) $ 31 $ 58 $ 74
===============================================================================================================================
Transfer of loans to other real estate $ 4,707 $ 7,742 $ 8,100
===============================================================================================================================
Securities transferred from held to maturity to available for sale (Note 1) $ -- $ 251,630 $ 1,417,217
===============================================================================================================================
Net change in unrealized gain (loss) on securities available for sale
net of deferred taxes (included in stockholders' equity) (Notes 1 and 9) $ (13,670) $ 68,888 $ (54,341)
===============================================================================================================================
<FN>
In 1995, FSCO acquired three small companies with total assets of approximately
$2,727,000 and $1,372,000 in liabilities for $482,000 in cash and 202,100 shares
of FSCO's common stock (Notes 12 and 15).
In 1994, 1,983,091 shares of common stock were issued and $137,291,000 cash was
paid for the acquisitions of Equality State Bank, CrossLand Mortgage Acquisition
Corporation, Community First Bank, American BanCorporation, and Star Valley
State Bank. FSCO acquired assets of approximately $584,103,000 and assumed
liabilities of approximately $420,385,000 (Notes 12 and 15).
See notes to consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31,
1996, 1995 AND 1994
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
First Security Corporation (FSCO), a bank holding company, provides a full range
of financial services to individual and corporate customers through its bank and
nonbank subsidiaries and their branches in Utah, Idaho, New Mexico, Oregon,
Nevada, and Wyoming. FSCO and its subsidiaries are subject to competition from
other financial institutions and to the regulations of certain federal agencies
and undergo periodic examinations by those agencies.
BASIS OF FINANCIAL STATEMENT PRESENTATION. The consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles. In preparing such financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the date
of the balance sheet and the reported amounts of revenues and expenses for the
period. Actual results could differ significantly from those estimates. Material
estimates that are particularly susceptible to significant change relate to the
determination of the reserve for loan losses, the valuation of real estate
acquired in connection with foreclosures or in satisfaction of loans, and the
valuation of mortgage servicing rights. In connection with the determination of
the reserve for loan losses and the valuation of real estate owned, management
obtains independent appraisals for significant properties.
CONSOLIDATION. The consolidated financial statements include the accounts of
FSCO and its subsidiaries. All significant intercompany accounts and
transactions are eliminated in consolidation. FSCO's results of operations of
insignificant companies acquired using the pooling of interests method and the
results of operations of companies which were acquired and subject to purchase
accounting are included from the dates of acquisition.
FEDERAL FUNDS SOLD AND SECURITIES PURCHASED UNDER RESALE AGREEMENTS. Federal
funds sold are unsecured short-term investments entered into with other
financial institutions. Securities purchased under resale agreements are short-
term investments. FSCO's subsidiaries generally hold the securities as
collateral during the term of the investment.
TRADING, AVAILABLE FOR SALE, AND HELD TO MATURITY SECURITIES (see Note 4).
On January 1, 1994, FSCO and its subsidiaries adopted Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt
and Equity Securities". SFAS No. 115 requires the classification of investment
securities as either trading securities, securities available for sale, or
securities held to maturity. Trading securities are carried at fair value with
net unrealized gains or losses included in earnings during the period.
Securities available for sale are carried at fair value with net unrealized
gains or losses (net of taxes) excluded from income and reported as a separate
component of stockholders' equity. Securities held to maturity are reported at
amortized cost, based on management's positive intent and FSCO's and its
subsidiaries' ability to hold such securities to maturity. Gains or losses are
determined on the specific identification method. Upon adoption of SFAS No.
115, FSCO and its subsidiaries reclassified $1,417,217,000 of securities as
available for sale to reflect FSCO's holding strategy under such statement. The
adoption of SFAS No. 115 on January 1, 1994 resulted in an increase in the
carrying value of securities of approximately $13,984,000, with corresponding
increases in stockholders' equity and deferred income tax liabilities of
approximately $8,887,000 and $5,097,000, respectively. As allowed for under
Financial Accounting Series "Special Report - A Guide to Implementation of
Statement 115 on Accounting for Certain Investments in Debt Securities", FSCO
elected to reclassify all investments from held to maturity to available for
sale in December 1995.
LOANS HELD FOR SALE. Mortgage loans originated for sale in the secondary market
are carried at the lower of cost or estimated market value in the aggregate. Net
unrealized losses are recognized through a valuation allowance by charges to
income.
LOANS RECEIVABLE (see Note 5). Loans that management has the intent and ability
to hold for the foreseeable future are reported at their outstanding principal
balance adjusted for any deferred fees or costs on originated loans and
unamortized premiums or discounts on purchased loans. Loan origination fees and
certain direct origination costs are capitalized and recognized as an adjustment
of the yield of the related loan.
MORTGAGE BANKING ACTIVITIES. FSCO originates mortgage loans for sale in the
secondary market. Mortgage loans held for sale are carried at the lower of cost
or estimated market value determined on a net aggregate basis. On July 1, 1995,
FSCO adopted SFAS No. 122, "Accounting for Mortgage Servicing Rights". SFAS No.
122 requires that a portion of the cost of originating a mortgage loan sold or
securitized be allocated to the mortgage servicing right based on its fair value
relative to the loan as a whole. The adoption of SFAS No. 122 had no effect on
net income. Mortgage servicing rights are capitalized and amortized in
proportion to and over the period of estimated net servicing income from the
related mortgage loans. FSCO's carrying values of mortgage servicing rights and
the amortization thereon are periodically evaluated in relation to estimated
future net servicing revenues. Impairment of mortgage servicing rights is
recorded through a valuation allowance. For purposes of impairment evaluation
and measurement, the mortgage servicing rights are stratified based on the
predominant risk characteristics of the underlying loans. For FSCO, these risk
characteristics include interest rate above and below 9%, term to maturity 15
and 30 year, and loan type. Mortgage servicing rights are included with
intangible assets in the consolidated balance sheets.
LEASE FINANCING (see Note 5). Certain of FSCO's subsidiaries lease various
types of equipment to customers under both leveraged and nonleveraged
arrangements. For leveraged leases, a significant part of the cost of the
equipment is financed by other institutional lenders who depend on the related
lease and equipment as collateral for their loans, with no recourse to the
subsidiaries. The investment in lease financing consists principally of rentals
receivable and estimated residual values, less related unearned income. Unearned
income is amortized into income so as to produce a constant periodic rate of
return on the unrecovered investment. Investment tax credits on lease financing
equipment are deferred and amortized to income over the investment recovery
period.
RESERVE FOR LOAN LOSSES (see Note 5). The reserve for loan losses is
established to absorb known and inherent losses primarily resulting from
outstanding loans and leases, commitments to extend credit, standby letters of
credit, and other guarantees. Reserves for loan losses on consumer, credit card,
residential mortgage, leases, and other loans with similar homogeneous
characteristics are established on the respective loan portfolio based on
historical loss experience considering current and anticipated economic
conditions. Reserves for loan losses on commercial, commercial real estate,
construction loans, and loan commitments are evaluated on both a specific loan
basis and historical loss experience considering the credit quality, collateral,
financial strength of the borrower and current economic conditions. Losses are
charged and recoveries are credited directly to the reserve. The provision for
loan losses charged to expense is an amount which, in management's judgment, is
sufficient to maintain the balance in the reserve at an adequate level. While
management uses the best information available on which to base estimates,
future adjustments to the reserve may be necessary if economic conditions,
particularly in FSCO's markets, differ substantially from the assumptions used
by management.
On January 1, 1995, FSCO adopted SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan", as amended by SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures". A loan is considered
impaired under SFAS No. 114 when, based on current information, it is probable
that the lender will not be able to collect all the principal and interest due
under the contractual terms of the loan. SFAS Nos. 114 and 118 require that an
impaired loan be valued based on the present value of expected future cash flows
discounted at the loan's effective interest rate or, as a practical expedient,
the loan's observable market value or the fair value of the collateral if the
loan is collateral dependent. Cash receipts on impaired loans not performing are
generally applied to reduce principal balances. SFAS Nos. 114 and 118 are
applied to all non-homogenous accruing and nonaccruing loans within the loan
portfolio. The adoption of SFAS Nos. 114 and 118 did not have a material effect
on the consolidated financial statements of FSCO.
PREMISES AND EQUIPMENT (see Note 6). Premises and equipment are stated at cost
less accumulated depreciation and amortization. Depreciation and amortization
included in noninterest expenses are computed using accelerated and straight-
line methods over the estimated useful lives of the related assets.
OTHER REAL ESTATE. Other real estate and other foreclosed assets are carried
at the lower of cost or fair value less estimated selling costs.
SECURITIES SOLD UNDER REPURCHASE AGREEMENTS. Securities sold under agreements
to repurchase are accounted for as financing transactions and are recorded at
the amount at which the securities will be reacquired, including accrued
interest. Collateralization limits, based on market values, generally range from
100% to 105%, depending on maturity.
DERIVATIVE FINANCIAL INSTRUMENTS. FSCO enters into a variety of derivative
financial instruments as part of its interest rate risk management and in its
trading activities. Derivatives used in trading activities such as financial
futures and options contracts are marked to market. Any changes in the market
value are recognized in income at the time the changes occur and are reported as
noninterest income in the consolidated statements of income. Interest rate
swaps, caps, and corridors are used in FSCO's interest rate risk management
activities and are classified as hedges or matched transactions. Interest-rate
swap agreements are designated with the principal balance and term of specific
debt obligations or loan balances. These agreements involve the exchange of
amounts based on a fixed or variable interest rate for amounts based on variable
or fixed interest rates over the life of the agreement without an exchange of
the notional amount upon which the payments are based. The differential to be
paid or received as interest rates change is accrued and recognized as an
adjustment of interest income or interest expense depending on the assets or
liabilities designated (the accrual accounting method). The related amount
payable to or receivable from counterparties is included in other liabilities or
assets. The fair values of the swap agreements are not recognized in the
financial statements. Gains and losses on terminations of interest-rate swap
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 swap agreement. In the event of the early extinguishment of a
designated asset or debt obligation, any realized or unrealized gain or loss
from the swap would be recognized in income coincident with the extinguishment.
For those classified as hedges, the derivative is marked to market with the
gains and losses deferred and amortized as a yield adjustment over the life of
the underlying assets or liabilities. Premiums paid are deferred and amortized
over the life of the agreement on a straight-line basis.
FSCO purchases and sells interest-rate cap and corridor agreements that hedge
specific customer transactions and limit its exposure to interest rates. The
strike price of these agreements exceeds the current market levels at the time
they are entered into. The interest rate indices specified by the agreements
have been and are expected to be highly correlated with the interest rates the
Company incurs on these transactions. Payments to be received/paid as a result
of the specified interest rate index differing from the strike price are accrued
in accrued income receivable/interest payable and are recognized as an offset to
interest income/expense (the accrual accounting method). The cost of these
agreements is included in other assets and amortized to interest income/expense
ratably during the life of the agreement. Upon termination of an interest-rate
cap agreement, to the extent it represents the value attributable to the market
interest rate differing the strike rate of the cap/corridor, the gain/loss is
deferred in other liabilities and amortized over the remaining term of the
original contractual life of the agreement as an offset of interest
income/expense. Additional gains or losses are recognized in earnings. Any
notional amounts of agreements in excess of the balance of the customer
transaction expected to be outstanding during their terms would be marked to
market, with changes in market value recorded in other income (expense).
INCOME TAXES (see Note 9). FSCO utilizes an asset and liability approach for
financial accounting and reporting for income taxes. Deferred income taxes are
provided for temporary differences in the bases of assets and liabilities as
reported for financial statement purposes and income tax purposes.
INTEREST AND FEES ON LOANS. Accrual of interest on a loan is discontinued when
the borrower has defaulted for a period of 90 days or more in the payment of
principal or interest, or both, unless the loan is well-secured and in the
process of collection. Loan origination fees net of certain loan origination
costs are deferred and recognized over the lives of the related loans as an
adjustment of the yield.
STOCK-BASED COMPENSATION. In October 1995, the Financial Accounting Standards
Board issued SFAS No. 123, "Accounting for Stock-Based Compensation", which
became effective for FSCO beginning January 1, 1996. SFAS No. 123 requires
expanded disclosures of stock-based compensation arrangements with employees and
encourages (but does not require) compensation cost to be measured based on the
fair value of the equity instrument awarded. Since FSCO has decided to continue
to apply APB 25 (as permitted by SFAS No. 123), the appropriate required
disclosure of the effects of SFAS No. 123 are included in Note 13.
INTANGIBLE ASSETS. Included in intangible assets is the excess of cost over
fair value of net assets acquired of companies acquired using the purchase
method of accounting. Such excess is amortized on the straight-line basis over
five to 15 years.
LONG-LIVED ASSETS. Impairment of long-lived assets is determined in accordance
with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and of
Long-Lived Assets to be Disposed Of," which was adopted on January 1, 1996.
There were no impairments as of December 31, 1996.
CONSOLIDATED STATEMENTS OF CASH FLOWS. For purposes of reporting cash flows,
cash and cash equivalents include cash and due from banks as well as federal
funds sold and securities purchased under resale agreements with an original
maturity of 90 days or less.
EARNINGS PER COMMON SHARE. Earnings per common share are based on the following
weighted average number of shares outstanding as adjusted for the February 12,
1996 3-for-2 stock split described in Note 12 (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------
<S> <C> <C> <C>
Assuming no dilution 77,377 76,319 74,891
Assuming full dilution 77,570 76,527 75,126
=========================================================
</TABLE>
Earnings per common share assuming no dilution are based on the weighted
average number of common shares outstanding, net income after deducting the
dividend requirement on preferred stock, and the effect, if dilutive, of stock
options outstanding using the treasury stock method.
Earnings per common share assuming full dilution are computed assuming all
outstanding preferred stock (see Note 12) are converted into common shares on
the basis of 18.225 shares of common for each share of preferred with the
elimination of dividends on the preferred stock, except in those years where the
effect of such conversion is antidilutive, and, the effect of stock options
outstanding using the treasury stock method.
RECLASSIFICATIONS. Certain reclassifications to 1995 and 1994 amounts have been
made to conform to 1996 classifications.
NOTE 2: RESTRUCTURING CHARGE
In December 1995, FSCO completed an intensive review of its operations and
businesses and announced the results of a corporatewide process redesign plan
called Project VISION. The process redesign is expected to generate efficiencies
and enhance profitability of business and administrative work processes of all
operations of FSCO. As a result of this process redesign, FSCO recorded a $44.0
million pre-tax restructuring charge, $27.7 million after-tax in December 1995.
Included in the restructuring charge were reduction in force costs of $20.5
million associated with the elimination of approximately 818 full-time
equivalent employees from all levels throughout FSCO; costs of $11.5 million
associated with owned and leased facilities that will be vacated, and furniture,
equipment and leasehold improvements that will be abandoned or sold as a result
of business and process changes under Project VISION (these costs include the
future lease payments of leased facilities that will be vacated, estimated
losses from the sale of owned facilities that will be vacated, and estimated
losses from the sale or abandonment of furniture, equipment, and leasehold
improvements that will no longer be utilized in the business operations of FSCO
and related costs of charter consolidation); pension and postretirement
curtailment losses of $1.2 million that result from the elimination of 1,577
full-time equivalent employees (including planned attrition) thus resulting in
a reduction in active plan participants in FSCO's pension and postretirement
benefit plans; and outside service fees and other costs related to the redesign
effort of $10.8 million.
The following table presents a summary of activity with respect to the
restructuring reserve (in thousands):
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Balance, January 1 $ 35,218 $ --
Provision charged against income -- 44,000
Cash outlays (24,023) (3,824)
Noncash charges (2,048) (4,958)
- --------------------------------------------------------------------------------
Balance at December 31 $ 9,147 $ 35,218
================================================================================
</TABLE>
NOTE 3: CASH AND DUE FROM BANKS
The Federal Reserve requires FSCO's national banking subsidiaries to maintain
certain average reserve balances with the Federal Reserve or through approved
correspondent banks. For the years ended December 31, 1996 and 1995, the
required average reserve balances were approximately $57,936,000 and
$101,320,000, respectively.
NOTE 4: TRADING, AVAILABLE FOR SALE, AND HELD TO MATURITY SECURITIES
The amortized cost and fair value of securities were as follows (in thousands):
<TABLE>
<CAPTION>
AVAILABLE FOR SALE: Gross Gross Estimated
Amortized Unrealized Unrealized Fair
As of December 31, 1996 Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Debt Securities issued by U.S. Treasury
and other U.S. Government
agencies and corporations $ 765,107 $ 3,435 $ (1,052) $ 767,490
Debt securities issued by states
and political subdivisions 238,164 2,951 (699) 240,416
Corporate debt securities 8,022 53 (40) 8,035
Mortgage-backed securities 2,028,507 7,858 (16,814) 2,019,551
Equity securities 108,822 6,068 (106) 114,784
- ----------------------------------------------------------------------------------------------
Totals $3,148,622 $20,365 $(18,711) $3,150,276
==============================================================================================
As of December 31, 1995
- ----------------------------------------------------------------------------------------------
Debt Securities issued by U.S. Treasury
and other U.S. Government
agencies and corporations $ 595,484 $ 6,132 $ (201) $ 601,415
Debt securities issued by states
and political subdivisions 193,143 4,090 (243) 196,990
Corporate debt securities 10,240 127 (43) 10,324
Mortgage-backed securities 1,741,224 13,414 (7,679) 1,746,959
Equity securities 59,852 8,093 (76) 67,869
- ----------------------------------------------------------------------------------------------
Totals $2,599,943 $31,856 $ (8,242) $2,623,557
==============================================================================================
</TABLE>
The fair value and amortized cost of securities transferred from held to
maturity to available for sale in December 1995, as permitted by supplemental
guidance issued in relation to SFAS No. 115 (see Note 1), were $251,630,000 and
$247,378,000, respectively. The net unrealized gain related to the securities
transferred was $4,252,000.
The amortized cost and estimated fair value of debt securities at December
31, 1996 by contractual maturity are shown below (in thousands). Actual
maturities may differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
AVAILABLE FOR SALE: Amortized Estimated
Cost Fair Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 214,745 $ 215,315
Due after one year through five years 665,476 668,357
Due after five years through ten years 89,593 90,370
Due after ten years 41,479 41,899
- -----------------------------------------------------------------------------------------------
Total 1,011,293 1,015,941
Mortgage-backed securities 2,028,507 2,019,551
Equity securities 108,822 114,784
- -----------------------------------------------------------------------------------------------
Totals $3,148,622 $3,150,276
===============================================================================================
</TABLE>
Proceeds, gross gains, and gross losses from sales of securities using the
specific identification method were as follows (in thousands):
<TABLE>
<CAPTION>
Available for Sale
--------------------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Proceeds $104,952 $267,001 $666,185
===============================================================================================
Gross gains $ 4,549 $ 2,658 $ 625
Gross losses -- (3,464) (1,955)
- -----------------------------------------------------------------------------------------------
Net Gains (Losses) $ 4,549 $ (806) $ (1,330)
===============================================================================================
</TABLE>
The change in net unrealized holding loss on trading securities that has been
included in earnings for the years ended December 31, 1996, 1995, and 1994
totaled $215,266, $366,672, and $175,238, respectively.
Interest earned on tax exempt securities was approximately $10,508,000,
$9,350,000, and $9,466,000, respectively, for the years ended December 31, 1996,
1995, and 1994.
At December 31, 1996 and 1995, securities carried at $2,432,546,000 and
$2,260,637,000, respectively, were pledged for various purposes. In addition, at
December 31, 1996 and 1995, trading account securities totaling $66,555,000 and
$380,420,000, respectively, were also pledged.
At December 31, 1996 and 1995, FSCO and its subsidiaries had available for sale
securities sold under repurchase agreements totaling $1,994,972,000 and
$1,658,981,000, respectively. The carrying value, approximate market value,
related repurchase liability, and weighted average interest rate of the
repurchase liabilities related to the securities sold under repurchase
agreements (grouped by maturity of the repurchase agreement) are as follows
(amounts in thousands):
<TABLE>
<CAPTION>
1996 1995
------------------------------------ -----------------------------------
Collateralized By Collateralized By
------------------------------------ -----------------------------------
U.S. Treasury U.S. Government U.S. Treasury U.S. Government
Maturity Obligations Agency Obligations Obligations Agency Obligations
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OVERNIGHT:
Carrying amount $ 44,871 $ 2,012 $ 99,940 $ 16,794
Market value 44,871 2,012 99,940 16,794
Repurchase liability 44,147 2,007 97,058 16,713
Weighted average interest rate 6.77% 4.85% 5.87% 5.93%
2 TO 30 DAYS:
Carrying amount 66,377 27,223 39,158 --
Market value 66,377 27,223 39,158 --
Repurchase liability 63,793 27,326 39,113 --
Weighted average interest rate 5.40% 5.36% 5.47% --
31 TO 90 DAYS:
Carrying amount 1,016 6,486 603 --
Market value 1,016 6,486 603 --
Repurchase liability 1,007 6,469 600 --
Weighted average interest rate 5.23% 5.33% 5.21% --
DEMAND:
Carrying amount 185,911 1,661,031 452,766 1,049,720
Market value 185,911 1,661,031 452,766 1,049,720
Repurchase liability 179,703 1,671,781 455,636 1,056,286
Weighted average interest rate 6.14% 5.67% 5.83% 5.31%
- ------------------------------------------------------------------------------------------ ----------------------
</TABLE>
Securities sold under agreements to repurchase averaged approximately
$1,627,935,000 and $1,505,213,000 during 1996 and 1995, and the maximum amounts
outstanding at any month-end during 1996 and 1995 was $2,076,202,000 and
$2,047,369,000, respectively. Approximately 25% of the securities sold under
repurchase agreements were delivered to broker-dealers who arranged the
transactions. The broker-dealers may have sold, loaned, or otherwise disposed of
such securities to other parties in the normal course of their operations, and
have agreed to resell to FSCO substantially identical securities at the
maturities of the agreements. The remaining securities sold are either held by
FSCO or delivered into a third-party custodian's account designated by FSCO
under a written custodial agreement that explicitly recognizes FSCO's interest
in the securities.
NOTE 5: LOANS
Loans (net of unearned income) consisted of the following (in thousands):
<TABLE>
<CAPTION>
As of December 31, 1996 1995
- --------------------------------------------------------------------
<S> <C> <C>
Commercial, financial, and agricultural $2,152,614 $1,951,785
Real estate commercial 904,135 943,046
Real estate residential 1,600,611 1,651,672
Real estate construction 540,562 470,173
Consumer 2,981,905 2,627,811
Leases 752,623 412,489
- --------------------------------------------------------------------
Total 8,932,450 8,056,976
Reserve for loan losses (134,428) (129,982)
- --------------------------------------------------------------------
Totals $8,798,022 $7,926,994
====================================================================
</TABLE>
At December 31, 1996 and 1995, loans carried at approximately $643,653,000
and $523,429,000, respectively, were pledged for various purposes.
Included in loans were loans to directors, executive officers, and to their
associates as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------
<S> <C> <C>
Balance, January 1 $ 73,080 $ 54,638
Additions 55,512 53,889
Repayments (3,624) (35,447)
- --------------------------------------------------------------------
Balance, December 31 $124,968 $ 73,080
====================================================================
</TABLE>
None of the above loans to directors, executive officers, and to their
associates as of December 31, 1996 and 1995 were nonaccruing, were past due, or
had been restructured.
CONCENTRATIONS OF CREDIT RISK. Most of FSCO's lending activity is with
customers located in the western United States. An economic downturn in the
western United States would likely have a negative impact on FSCO's results of
operations depending on the severity of the downturn. FSCO maintains a
diversified portfolio and does not have significant on- or off-balance sheet
concentrations of credit risk in any one industry.
<TABLE>
<CAPTION>
Lease financing consisted of the following (in thousands):
As of December 31, 1996 1995
- --------------------------------------------------------------------
<S> <C> <C>
Leveraged leases $ 197,207 $ 183,815
Nonleveraged leases 554,882 225,493
Assets held for sale or lease 534 3,181
- --------------------------------------------------------------------
Totals $ 752,623 $ 412,489
====================================================================
</TABLE>
Changes in the reserve for loan losses were as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1 $ 129,982 $ 133,855 $ 134,848
Provision charged to expense 40,300 21,082 825
Reserves acquired through acquisitions (Note 15) -- -- 5,274
Loans charged off, net of recoveries of $26,769,
$27,592, and $30,700, respectively (35,854) (24,955) (7,092)
- -----------------------------------------------------------------------------------------------
Balance, December 31 $ 134,428 $ 129,982 $ 133,855
===============================================================================================
</TABLE>
FSCO's investment in impaired loans at December 31, 1996 and 1995, as defined
in SFAS Nos. 114 and 118, totaled $1,536,000 and $5,300,000, respectively. The
SFAS No. 114 allowance related to impaired loans at December 31, 1996 and 1995
was $1,536,000 and $1,300,000, respectively. During the years ended December
31, 1996 and 1995, FSCO's average investment in impaired loans was $3,570,000
and $2,492,000, respectively. No income was recorded on loans considered
impaired during 1996 or 1995.
At December 31, 1996 and 1995, total nonaccruing loans were $33,276,000 and
$22,447,000, respectively. Gross interest income foregone on nonaccruing loans
during 1996, 1995 and 1994 was $3,008,000; $2,366,000; and $1,994,000,
respectively. There were no troubled debt restructurings during 1996, 1995 and
1994.
In July 1995, FSCO securitized approximately $250,899,000 of auto loans and
sold certificates to investors bearing interest rates of 6.25%. FSCO will
continue to service the underlying auto loans for a fee through 2001.
MORTGAGE BANKING ACTIVITIES. At December 31, 1996 and 1995, FSCO's
subsidiaries were servicing 123,524 and 111,954 mortgage loans, aggregating
$10,664,568,000 and $9,584,279,000, respectively, of which $18,060,000 and
$71,632,000 were subserviced as of December 31, 1996 and 1995, respectively.
The amount of loan principal that was delinquent on serviced loans at December
31, 1996 and 1995 was approximately $321,946,000 and $217,350,000, respectively.
Related trust funds were on deposit with FSCO's subsidiary banks.
As discussed in Note 15, in April 1994 FSCO acquired CrossLand Mortgage
Acquisition Corp. in a purchase business combination. The acquisition created
mortgage servicing rights of $63,850,000. In June 1996 and March 1995, FSCO
sold mortgage servicing rights with a book value of approximately $4,800,000 and
$12,000,000, respectively, resulting in gains of approximately $2,500,000 and
$7,500,000.
Following is a summary of capitalized mortgage servicing rights, net of
accumulated amortization (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1 $ 52,604 $ 56,130 $ 979
Originated 42,678 17,832 --
Purchased -- 1,818 65,306
Sold (4,800) (13,860) (1,287)
Amortization (11,896) (9,316) (8,868)
Valuation allowance -- -- --
- ---------------------------------------------------------------------
Balance, December 31 $ 78,586 $ 52,604 $56,130
=====================================================================
</TABLE>
The mortgage servicing rights capitalized at December 31, 1996, represents
the rights to service approximately $7.6 billion of mortgage loans. In
addition, FSCO has approximately $3.1 billion of loans for which the mortgage
servicing rights were not capitalized. No valuation allowance was required as of
December 31, 1996 and 1995. The estimated fair value of capitalized servicing
rights was $96,728,000 and $62,294,000 at December 31, 1996 and 1995,
respectively.
During the year ended December 31, 1996, FSCO issued 272 GNMA loan pools with
security proceeds of $924,047,000. Additionally, FSCO was servicing 785 GNMA
loan pools with an outstanding security balance of $1,365,000,000 at December
31, 1996. During the year ended December 31, 1996, FSCO originated 18,112
FHA/VA insured/guaranteed mortgage loans with loan proceeds of $1,613,596,000.
Additionally, FSCO was servicing 23,476 FHA/VA insured/guaranteed mortgage loans
with an unpaid principal balance of $1,797,681,000 at December 31, 1996.
NOTE 6: PREMISES AND EQUIPMENT
Premises and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
As of December 31, 1996 1995
- --------------------------------------------------------------------
<S> <C> <C>
Land $ 32,307 $ 31,658
Buildings and improvements 157,142 145,050
Equipment 224,786 205,240
Leasehold improvements 16,285 16,480
Construction in progress 41,000 25,013
- --------------------------------------------------------------------
Totals 471,520 423,441
Accumulated depreciation
and amortization (238,023) (214,303)
- --------------------------------------------------------------------
Net $ 233,497 $ 209,138
====================================================================
</TABLE>
The executive offices of FSCO are located in an owned facility in Salt Lake
City, Utah. In addition, other office buildings are owned in Salt Lake City,
Utah; Boise, Idaho; and Albuquerque, New Mexico.
At December 31, 1996, a total of 161 bank offices are in owned buildings, with
the remaining 105 bank offices located in facilities leased under operating
leases with terms ranging from 1 to 31 years and renewal options ranging from 1
to 30 years. Offices of the nonbank subsidiaries are almost all located in owned
quarters.
At December 31, 1996, future minimum lease payments by year related to
operating leases for premises and equipment were as follows (in thousands):
<TABLE>
- --------------------------------------------------------------------
<S> <C>
1997 $14,779
1998 11,075
1999 8,381
2000 5,863
2001 4,171
Thereafter 3,467
- --------------------------------------------------------------------
Total $47,736
====================================================================
</TABLE>
Total rent expense under all operating leases for 1996, 1995, and 1994
approximated $19,122,000, $17,118,000, and $15,254,000, respectively.
NOTE 7: DEPOSITS
Deposits consisted of the following (in thousands):
<TABLE>
<CAPTION>
As of December 31, 1996 1995
- --------------------------------------------------------------------
<S> <C> <C>
Noninterest-bearing demand deposit accounts $ 2,198,348 $ 1,884,931
Interest-bearing demand and savings 2,555,481 2,454,038
Money market accounts 1,030,912 1,065,886
Time certificates of deposit less than
$100,000 2,866,864 2,699,866
Time certificates of deposit of
$100,000 or more 787,658 668,921
- --------------------------------------------------------------------
Totals $ 9,439,263 $ 8,773,642
====================================================================
</TABLE>
NOTE 8: LINE OF CREDIT
FSCO had a $200 million line of credit at December 31, 1996 which expires in
2000. The line is unsecured and bears interest generally at various calculated
rates or at the prime rates of the lending institutions. There were no
borrowings under the line of credit during 1996.
NOTE 9: INCOME TAXES
Accrued income taxes payable (receivable) consisted of the following (in
thousands):
<TABLE>
<CAPTION>
As of December 31, 1996 1995
- --------------------------------------------------------------------
<S> <C> <C>
Current $ 2,370 $ (4,112)
Deferred 185,268 135,622
- --------------------------------------------------------------------
Totals $187,638 $131,510
====================================================================
</TABLE>
The income tax provisions consisted of the following components (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------
<S> <C> <C> <C>
CURRENT:
Federal $38,075 $47,056 $48,555
State 3,741 5,454 5,478
- --------------------------------------------------------------------
Subtotals 41,816 52,510 54,033
- --------------------------------------------------------------------
DEFERRED:
Federal 49,048 14,454 23,280
State 8,888 3,227 3,730
- --------------------------------------------------------------------
Subtotals 57,936 17,681 27,010
- --------------------------------------------------------------------
Totals $99,752 $70,191 $81,043
====================================================================
</TABLE>
The tax provisions were at effective rates as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Federal income tax rate 35.0% 35.0% 35.0%
Change in rate resulting
from:
Tax-exempt state and
municipal bond income (1.4) (1.9) (1.8)
Amortization of intangibles 0.9 1.4 --
State income taxes, net of
U.S. Federal income tax
benefit 2.7 2.5 2.5
Miscellaneous items (1.3) (0.1) 0.9
- ---------------------------------------------------------------------
Effective Tax Rates 35.9% 36.9% 36.6%
=====================================================================
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities are as follows (in
thousands):
<TABLE>
<CAPTION>
As of December 31, 1996 1995
- ---------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Loan loss reserve $ 49,962 $ 48,147
Other real estate 466 972
Other reserves 3,127 8,241
Deferred income 1,639 637
Nonaccrual interest 242 423
Other postretirement benefits 1,438 914
Safe harbor leases 155 320
Deferred compensation 1,063 377
Other 3,627 6,551
- ---------------------------------------------------------------------
Total Deferred Tax Assets 61,719 66,582
- ---------------------------------------------------------------------
LIABILITIES:
Leasing operations 207,562 167,813
Depreciation 4,881 5,653
Core deposit intangibles (676) 2,433
Pension plan contributions 1,103 640
Originated mortgage servicing rights 19,530 6,266
FHLB stock dividends 5,538 4,188
Deferred loan fees 6,265 4,654
Fair value adjustments on securities
available for sale 777 9,067
Other 2,007 1,490
- ---------------------------------------------------------------------
Total Deferred Tax Liabilities 246,987 202,204
- ---------------------------------------------------------------------
Net Deferred Tax Liability $185,268 $135,622
=====================================================================
</TABLE>
NOTE 10: LONG-TERM DEBT
The details of long-term debt, including related short-term maturities, were as
follows (in thousands):
<TABLE>
<CAPTION>
As of December 31, 1996 1995
- --------------------------------------------------------------------
<S> <C> <C>
PARENT COMPANY:
Medium-term notes due 1997-2003 $ 32,750 $ 50,000
Floating rate notes due 1999 6,984 7,175
7.875% senior notes due 1999 98,962 99,462
7.50% subordinated notes due 2002 75,000 75,000
7.00% subordinated notes due 2005 125,000 125,000
6.875% senior notes due 2006 150,000 --
8.41% subordinated capital income
securities due 2026 150,000 --
SUBSIDIARIES:
Bank 583,476 583,623
Nonbank 1,039 689
- --------------------------------------------------------------------
Totals 1,223,211 940,949
Less current maturities included
in other short-term borrowings 279,156 220,428
- --------------------------------------------------------------------
Long-Term Portion $ 944,055 $720,521
====================================================================
</TABLE>
MEDIUM TERM NOTES DUE 1997-2003. Senior medium term notes are unsecured and
bear interest at fixed rates ranging from 6.08% to 9.07% with a weighted average
coupon of 7.28%. The notes mature from 1997 to 2003 with interest payable semi-
annually at the stated rate on February 19 and August 19 of each year. Terms of
the notes restrict, among other things, the ability of FSCO to reduce its
ownership in any of its major constituent banks.
FLOATING RATE NOTES DUE 1999. The interest rate of these notes is the higher of
1.25% above the defined U.S. Treasury Bill rate or a rate as determined by FSCO.
Interest rates during the three years ended December 31, 1996 have ranged from
4.3% to 7.15% and at December 31, 1996 was 6.68%. The notes are redeemable at
the option of the holder at par on any March l or September l and are subject to
redemption at any time by FSCO at par.
7.875% SENIOR NOTES DUE 1999. During 1995, FSCO filed a $300 million debt shelf
registration statement and issued $100 million of senior notes under the shelf
registration statement with interest and principal payable semi-annually on
April 15 and October 15 through 1999. The notes are unsecured and bear interest
at a fixed rate of 7.875%.
7.50% SUBORDINATED NOTES DUE 2002. Subordinated notes of $75 million are
unsecured, with interest payable semi-annually at the stated rate on February 15
and August 15 of each year. The notes are payable at maturity in September
2002 and are not subject to prepayment.
7.00% SUBORDINATED NOTES DUE 2005. Subordinated notes of $125 million are
unsecured, with interest payable semi-annually at the stated rate on January 15
and July 15 of each year. The notes are payable at maturity in July 2005 and
are not subject to prepayment.
6.875% SENIOR NOTES DUE 2006. During 1996, FSCO filed a $600 million debt shelf
registration statement and issued $150 million of senior notes under the shelf
registration statement with interest and principal payable semi-annually on May
15 and November 15 through 2006. The notes are unsecured and bear interest at a
fixed rate of 6.875%.
8.41% SUBORDINATED CAPITAL INCOME SECURITIES. In December 1996, First Security
Capital I (the business trust), a wholly owned subsidiary of FSCO, issued $150
million of subordinated capital income securities (capital securities) which
represent preferred undivided beneficial ownership interest in the assets of the
business trust. The business trust's sole assets are junior subordinated
debentures which have a distribution rate and distribution payment dates which
correspond to the interest rate and interest payment date of the capital
securities and which are guaranteed by FSCO and due in 2026.
SUBSIDIARIES. Long-term debt of the subsidiaries consisted of approximately
$430,641,000 of advances from the Federal Home Loan Bank which are
collateralized primarily by mortgage loans, bear interest at rates generally
ranging from 4.75% to 8.17%, and are payable principally through September 2015;
$146,000,000 of bank notes with interest rates of 7.18% to 7.87%, which are
payable principally through November 1997; and $6,835,000 of miscellaneous notes
payable at various rates and maturities.
Scheduled maturities of long-term debt by year were as follows as of December
31, 1996 (in thousands):
<TABLE>
<CAPTION>
Parent
Company Consolidated
- -------------------------------------------------------------------
<S> <C> <C>
1997 $ 154,640 $ 279,156
1998 4,000 157,094
1999 110,946 162,136
2000 -- 94,142
2001 8,750 9,662
Thereafter 365,000 521,021
- -------------------------------------------------------------------
Totals $ 643,336 $ 1,223,211
===================================================================
</TABLE>
NOTE 11: COMMITMENTS, CONTINGENT LIABILITIES, AND FINANCIAL INSTRUMENTS WITH
OFF-BALANCE SHEET RISK
At December 31, 1996 and 1995, FSCO and its subsidiaries were involved in
various claims and litigation occurring in the ordinary course of business. In
the opinion of management or of management and its legal counsel, potential
liabilities arising from these claims, if any, will not have a material effect
on the consolidated financial statements of FSCO and its subsidiaries.
FSCO and its subsidiaries are parties to financial instruments with off-
balance sheet risk in the normal course of business. These financial
instruments include commitments to extend credit, standby letters of credit,
commitments to sell loans and leases, interest rate swaps, caps, corridors,
futures contracts, and options contracts. Those instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amounts
recognized in the consolidated balance sheets.
LOAN COMMITMENTS AND LETTERS OF CREDIT. At December 31, 1996 and 1995, such
commitments include the following (in thousands):
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------
<S> <C> <C>
Standby letters of credit $ 252,697 $ 215,481
Undisbursed construction loans 339,085 293,002
Credit card lines 750,803 790,585
Other loan commitments to customers 2,681,797 2,050,076
Commitments to sell mortgage loans and leases 305,389 265,200
- --------------------------------------------------------------------
</TABLE>
FSCO and its subsidiaries' exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for commitments to
extend credit and standby letters of credit is represented by the contractual
amount of those instruments. FSCO and its subsidiaries use the same credit
policies in making commitments and conditional obligations as they do for on-
balance sheet instruments. Market risk arises from changes in interest rates.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements.
DERIVATIVE TRADING ACTIVITIES. FSCO uses financial futures and option
contracts in its proprietary trading activities which includes trading for
profit. The overall trading strategies of FSCO not only include futures and
options but also include cash market securities. FSCO's futures and options had
net gains (losses) of $3,018,000, $(3,032,000), and $6,481,000, for the years
ended December 31, 1996, 1995, and 1994, respectively. For the years ended
December 31, 1996, 1995, and 1994, total income including gains and interest
from FSCO's overall trading activities was $12,369,000, $35,486,000, and
$31,559,000, respectively. All trading activities including futures and options
contracts are subject to FSCO's policies and loss limit controls. Market risk
arises from changes in interest rates. Credit risk arises from the potential
inability of a counterparty to meet the interest payment obligations on its
transactions.
Financial futures contracts represent commitments to purchase (asset) or sell
(liability) securities or money market instruments at a future date and at a
specified price. Futures contracts are traded on organized exchanges (exchange
traded) and are exchange guaranteed, therefore, minimizing FSCO's credit risk.
The net change in the futures contract value is settled daily in cash with the
exchanges. Net gains or losses resulting from FSCO's daily settlements are
included with trading account securities gains (losses) in the consolidated
statements of income.
Options contracts grant the buyer the right, but not the obligation, to
purchase or sell at a specified price, a stated number of units of an underlying
financial instrument, such as treasury securities, Eurodollars, and foreign
currency, at a future date. Options contracts are exchange traded. The price
of an option contract is equal to the premium paid by the purchaser and is
significantly less than the contract or notional amount. Option contracts are
marked to market monthly with net gains or losses recognized currently in
trading account securities gains (losses) in the consolidated statements of
income. Cash is exchanged with the counterparties on the option contracts'
settlement date.
Financial futures contracts and option contracts as of December 31, 1996 and
1995 were as follows (in thousands):
<TABLE>
<CAPTION>
Contract Average Assessed Dollar
Amount Fair Value Fair Value Net Value of Risk
At Year At Year for the Gains At Year End (3)
December 31, 1996 End (1) End (2) Year (2) (Losses) (Unaudited)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS (LONG POSITION):
Financial futures contracts $7,901,000 $ (37) $ 6 $ 2,293 $66
Options contracts -- -- 3 (29) --
Foreign exchange options --
contracts (purchased put) -- -- -- 38 --
- ---------------------------------------------------------------------------------------------------------------
Total Assets $7,901,000 $ (37) $ 9 $ 2,302 $66
===============================================================================================================
LIABILITIES (SHORT POSITION):
Financial futures contracts $1,204,000 $ 56 $ -- $ 124 $14
Options contracts (written call) 989,000 177 243 592 9
- ---------------------------------------------------------------------------------------------------------------
Total Liabilities $2,193,000 $ 233 $243 $ 716 $23
===============================================================================================================
December 31, 1995
- ---------------------------------------------------------------------------------------------------------------
ASSETS (LONG POSITION):
Financial futures contracts $6,234,000 $ 215 $ 12 $ 4,424 $60
Foreign exchange options
contracts (purchased put) 1,222 30 102 (869) --
- ---------------------------------------------------------------------------------------------------------------
Total Assets $6,235,222 $ 245 $114 $ 3,555 $60
===============================================================================================================
LIABILITIES (SHORT POSITION):
Financial futures contracts $3,602,160 $ (66) $(22) $(8,001) $62
Options contracts (written call) 825,000 (256) 179 1,416 9
- ---------------------------------------------------------------------------------------------------------------
Total Liabilities $4,427,160 $(322) $157 $(6,585) $71
===============================================================================================================
</TABLE>
(1) Contract (notional) amounts of futures and options contracts do not
represent amounts exchanged by the parties and, thus, are not a measure of
FSCO's exposure through its use of futures and options contracts. The
amounts exchanged are determined by reference to the notional amounts and
the other terms of the futures and options contracts.
(2) The fair value of futures and options contracts generally reflects the
estimated amounts that FSCO would receive (or pay) to terminate the
contracts at the reporting date, thereby taking into account the current
unrealized gains or losses of open contracts.
(3) The assessed dollar value at risk at year end represents the estimated
amount of change in fair value of futures and options contracts with a
change in interest rates of one basis point. An increase in interest rates
generally results in a loss in the long position and a gain in the short
position. A decrease in interest rates generally results in a gain in the
long position and a loss in the short position.
INTEREST RATE RISK MANAGEMENT ACTIVITIES. FSCO uses off-balance-sheet
derivative instruments to manage volatility of net interest income. Net
interest income is generated from FSCO's investment of interest and noninterest
bearing funding into loans, securities, and other assets. Interest rate swaps,
caps, and corridors serve as tools in the management of interest rate risk.
FSCO's asset/liability management committee (ALCO) process is responsible for
the identification, assessment, and management of interest rate risk, liquidity,
and capital adequacy for FSCO and its subsidiaries. The objective of the ALCO
process is to ensure that FSCO's balance sheet structure maintains prudent
levels of risk, within the context of currently known and forecasted economic
conditions, and to establish strategies which provide FSCO with appropriate
compensation for the assumption of those risks. 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. Utilizing on- and
off-balance sheet products, FSCO's market, liquidity, and interest rate risks
are limited to prudent levels while earnings opportunities are maximized. Off-
balance-sheet derivatives also carry credit exposure to counterparties. The
notional amount in a particular contract is not at-risk from a credit
standpoint, rather it is simply the negotiated amount upon which interest
payments are based. Credit risk arises from the potential inability of a
counterparty to meet the interest payment obligations on its transactions. FSCO
settles in cash with its counterparties on a quarterly or semi-annual basis on
dates specified in each contract.
The off-balance-sheet derivative instruments in place on December 31, 1996
and 1995 fall into three categories:
Receive Fixed Interest Rate Swaps are entered into to convert the repricing of
floating rate assets to less volatile fixed rates. These structures allow FSCO
to add a dual stream of cash flows in which the interest income received is at a
fixed rate and the associated expense varies with the level of short-term
interest rates. The floating side of the transaction is tied to the level of
three-month LIBOR at the beginning or end of each settlement period.
Interest Rate Corridors (LIBOR/LIBOR) are structured to provide a limited
amount of protection against increases in short-term funding rates. FSCO
purchased interest rate caps at 4.94%, and sold caps that exceeded the LIBOR
forward rate curve (final LIBOR cap sold at 7.19%, average level over the term
of 6.34%).
Customer Transactions (principally pay fixed swaps) are negotiated to protect
the spread on certain large-dollar loans to FSCO's customers. Any benefit or
cost arising from these transactions is offset by a corresponding cost or
benefit, respectively, in an on-balance-sheet loan. These transactions are
negotiated on a fairly regular basis in the course of business.
All of the transactions described above have fixed maturity dates and absolute
notional amounts.
The following table summarizes the terms and unrealized gains and losses of
derivative products by category as of December 31, 1996. The fixed rate or
fixed spread to a floating index has been specified for each group within the
category, where applicable. Where three-or six-month LIBOR is used as the
index for one side of the swap, they may be expected to rise and fall as other
short-term market rates rise and fall in response to economic and monetary
conditions. The floating rate in effect on each contract depends on the level
of LIBOR on the contract's last reset date. At December 31, 1996 and 1995,
three-month LIBOR was 5.56% and 5.63%, the six-month LIBOR was 5.60% and 5.50%,
and the prime rate was 8.25% and 8.50%, respectively.
Derivatives used for interest rate management activities as of December 31, 1996
and 1995 were as follows (in millions):
<TABLE>
<CAPTION>
Maturities as of
December 31, 1996 Estimated Estimated
-------------------------- Fair Value At Fair Value At
Type and Notional Amount 1997 1998 December 31, 1996 December 31,1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Receive Fixed Swaps (Pay 3-month LIBOR):
$300.0 (fixed 4.86%) (expired during 1996) $ -- $ (0.4)
$300.0 (fixed 4.83%) January (0.6) (2.4)
$200.0 (fixed 6.24%) May/June 1.4 --
Receive Fixed Swaps (Pay 6-month LIBOR):
$50.0 (fixed 6.28%) May 0.3 --
Interest Rate Corridors (LIBOR/LIBOR):
$300.0 (expired during 1996) -- 1.3
(Unamortized premium paid) -- (1.6)
Pay Prime Swaps (Receive 3-month LIBOR):
$110.0 (prime less 2.57%) (expired during 1996) -- (0.1)
Customer Transaction Hedges:
$67.8 (1996); $97.4 (1995) Various maturities through 2004 (1.0) (2.9)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Positions ($617.8 and $1,207.4
in 1996 and 1995, respectively) $ 0.1 $ (6.1)
====================================================================================================================================
</TABLE>
NOTE 12: STOCKHOLDERS' EQUITY
In January 1996, FSCO's board of directors approved a 3-for-2 stock split in the
form of a dividend to stockholders of record on February 12, 1996. The effects
of the stock split have been retroactively reflected in all common shares and
per share amounts in the financial statements and notes as if the stock split
had occurred prior to 1994.
A summary of the changes in shares during the three years ended December 31,
1996 follows (in thousands):
<TABLE>
<CAPTION>
Preferred Stock-
Series "A"
Common Stock - $3.15 Cumulative
Par Value $1.25 Convertible
--------------------------------
Issued Held In Treasury No Par
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1, 1994 73,180 525 13
- ------------------------------------------------------------------------------------------------------------------------------------
Sale of common stock through dividend reinvestment
and stock purchase plan 116 -- --
Purchase of treasury stock -- 1,024 --
Conversion of preferred stock to common 25 -- (1)
Common stock issued for acquisitions (Note 15) 1,263 (720) --
Sale of stock to employee benefit plans 352 (286) --
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 74,936 543 12
- ------------------------------------------------------------------------------------------------------------------------------------
Sale of common stock through dividend reinvestment
and stock purchase plan 141 -- --
Purchase of treasury stock -- 253 --
Conversion of preferred stock to common 20 -- (1)
Common stock issued for acquisitions (Note 15) 202 -- --
Sale of stock to employee benefit plans 198 (99) --
Sale of stock to employee stock purchase plan 243 (90) --
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 75,740 607 11
- ------------------------------------------------------------------------------------------------------------------------------------
Sale of common stock through dividend reinvestment
and stock purchase plan 121 -- --
Purchase of treasury stock -- 82 --
Conversion of preferred stock to common 10 -- (1)
Sale of stock to employee benefit plans 399 (125) --
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 76,270 564 10
====================================================================================================================================
Shares Authorized, December 31, 1996 300,000 -- 18
====================================================================================================================================
Shares Authorized, December 31, 1995 and 1994 150,000 -- 18
====================================================================================================================================
</TABLE>
The liquidating preference of Series "A", $3.15 cumulative convertible
preferred stock is $52.50 a share. At the option of FSCO's board of directors,
this stock is redeemable at $52.50 a share. Series "A" preferred stock is
convertible at any time into 18.225 shares of common stock.
One or more additional series of preferred stock, with a combined maximum of
400,000 shares, may be issued with the terms thereof determinable by the board.
A dividend reinvestment and common stock purchase plan for 2,500,000 shares was
established in 1978 to provide common shareholders a means of investing cash
dividends together with optional cash payments. Through December 31, 1996, a
total of 1,353,0000 shares were issued pursuant to the plan.
Conversion of all preferred stock outstanding at December 31, 1996 would require
187,000 shares of common stock.
During 1989, FSCO's board of directors approved issuance of a stockholder right
to all common stockholders which entitles each stockholder to buy one one-
thousandth of a share of a new class of preferred stock at an exercise price of
$29.63 in the event a group acquires or announces a tender offer which would
result in ownership of 15% or more of FSCO's common stock by such group.
NOTE 13: EMPLOYEE BENEFIT PLANS
RETIREMENT PLAN. FSCO and its subsidiaries have a retirement plan (the Plan)
which covers generally all employees with one year or more of service of at
least 1,000 hours who are at least 21 years of age. The retirement benefits are
based on years of service and the average of the employee's highest three
consecutive years of base salary with 100% vesting at 5 years of service.
FSCO's policy is to fund the actuarially computed retirement cost accrued.
Contributions are intended to provide not only for benefits attributed to
service to date but also for those expected to be earned in the future.
The following table sets forth the Plan's funded status and amounts recognized
in the consolidated balance sheets at December 31, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarially computed present value of benefit obligations
(accumulated benefit obligation, including vested benefits of
$81,479 and $73,279 at December 31, 1996 and 1995, respectively) $ 83,768 $ 76,315
====================================================================================================================================
Plan assets at fair value, primarily common stocks and U.S.
Government debt securities $ 99,802 $ 88,943
Actuarially computed present value of benefit obligations
(projected benefit obligation for service rendered to date) (105,263) (100,406)
Unrecognized prior service cost 8,648 9,794
Unrecognized net loss from past experience different from
that assumed and effects of changes in assumptions 2,277 7,638
Unrecognized net assets at January 1, 1986 being recognized over 15 years (2,282) (2,756)
- ------------------------------------------------------------------------------------------------------------------------------------
Prepaid Pension Cost Included In Other Assets $ 3,182 $ 3,213
====================================================================================================================================
</TABLE>
Assumptions used in determining the projected benefit obligations as of December
31, 1996 and 1995 were:
<TABLE>
<CAPTION>
1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Discount rate 7.75% 7.25%
Rate of increase in compensation levels 4.50 6.00
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The net pension expense included the following components (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost for benefits earned during the period $ 6,433 $ 5,004 $ 4,757
Interest cost on projected benefit obligation 8,033 7,352 6,814
Actual loss (return) on plan assets (11,130) (18,995) 1,585
Net amortization and deferral 3,195 13,111 (6,869)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Pension Expense $ 6,531 $ 6,472 $ 6,287
====================================================================================================================================
</TABLE>
Assumptions used in determining the net pension expense were:
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.25% 8.75% 7.50%
Rate of increase in compensation levels 4.50 6.00 6.00
Expected long-term rate of return on assets 9.75 9.75 9.75
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
401(K) SAVINGS PLANS. FSCO and its subsidiaries have several section 401(k)
contributory savings plans (the Savings Plans) in which participation is limited
to employees age 21 or older with one year of service. Under provisions of the
Savings Plans, participants may contribute up to 17% of their pre-tax base
salary subject to the "excess contribution" limitations imposed by the tax law.
An additional amount, equal to 50% of the first 6% of the participants'
compensation contributed, is contributed by the employer. Employer
contributions to the Savings Plans were approximately $3,705,000, $3,555,000,
and $3,116,000 in 1996, 1995, and 1994, respectively.
STOCK-BASED COMPENSATION PLANS. At December 31, 1996, FSCO has three stock-
based compensation plans, which are described below. FSCO applied APB Opinion
25 and related Interpretations in accounting for its plans. Accordingly, no
compensation cost has been recognized for its fixed stock option plans and its
stock purchase plan. Had compensation cost for FSCO's three stock-based
compensation plans been determined based on the fair value at the grant dates
for awards under those plans consistent with the method of SFAS No. 123, FSCO's
net income and earnings per common share would have changed to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
Years Ended
December 31,
As of December 31, 1996 1995
- ----------------------------------------------------------------
<S> <C> <C>
Net Income:
As reported $177,843 $120,005
Pro forma 177,191 119,924
- ----------------------------------------------------------------
Earnings per common
share assuming no dilution:
As reported $ 2.30 $ 1.57
Pro forma 2.29 1.57
Fully diluted earnings per common
share assuming full dilution:
As reported 2.29 1.57
Pro forma 2.28 1.57
- ----------------------------------------------------------------
</TABLE>
COMPREHENSIVE MANAGEMENT INCENTIVE PLAN. FSCO and its subsidiaries adopted a
comprehensive management incentive plan (the Management Plan) which amends,
supersedes, and incorporates FSCO's previous restricted stock bonus plan and its
nonstatutory stock option and stock appreciation rights plan. The Management
Plan provides for the issuance of up to a total of 9,656,250 shares of FSCO's
common stock for all incentive awards under the Management Plan which may
consist of restricted awards of common stock, nonstatutory stock options, stock
appreciation rights, and incentive stock options. However, only 1,181,250 shares
of FSCO's common stock may be issued for restricted awards and performance
awards as defined by the Management Plan.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995, respectively: dividend yield of
3.72% and 3.24%, expected volatility of 38% and 35%, risk-free interest rates of
6.27% and 6.18%, and expected lives of 10 years.
Nonstatutory stock options outstanding generally become exercisable in 25%
annual increments on each January 15, beginning with the first January 15
following the grant date, and expire after 10 years. Certain nonstatutory stock
options issued to management are exercisable at six months following the grant
date and expire after 10 years. A summary of these options follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------------- ------------------------------ ------------------------------
Weighted Average Weighted Average Price Range
Shares Exercise Price Shares Exercise Price Shares Per Share
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 3,707,694 $11.86 3,926,611 $11.75 3,816,510 $5.93 - $ 17.17
Granted 465,644 26.97 15,000 18.67 541,524 16.50 - 20.33
Exercised (407,257) 9.53 (183,514) 19.48 (348,820) 16.33 - 21.33
Forfeited (6,254) 19.92 (50,403) 16.14 (82,603) 11.75 - 17.17
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding at end
of year 3,759,827 $13.97 3,707,694 $11.86 3,926,611 $5.93 - $ 20.33
====================================================================================================================================
Options exercisable
at year end 2,661,332 2,520,415 2,358,154 --
====================================================================================================================================
Weighted average fair
value of options
granted during year $10.04 $6.96 -- --
====================================================================================================================================
</TABLE>
The following table summarizes information about the Comprehensive Management
Incentive Plan fixed stock options outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ---------------------------------------------------------------------- -----------------------------
Weighted Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Life Exercise Number Exercise
Exercise Prices Outstanding (in years) Price Exercisable Price
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 5.93 - 7.41 833,951 2.5 $ 6.88 833,951 $ 6.84
8.89 - 11.75 1,080,306 3.4 9.73 1,080,307 10.36
16.42 - 20.33 1,381,973 7.0 16.67 731,651 16.67
23.75 - 27.00 463,597 9.3 26.97 15,424 27.00
- ------------------------------------------------------------------------------------------------------
$ 5.93 - 27.00 3,759,827 6.5 $ 13.97 2,661,333 $ 13.06
======================================================================================================
</TABLE>
NONEMPLOYEE DIRECTOR STOCK OPTION PLAN. In 1995, FSCO adopted an incentive
plan for the board of directors, which allows up to 750,000 options to be
granted to the directors. The fair value of each option grant is estimated on
the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in 1996 and 1995,
respectively: dividend yield of 3.24% for all past years; expected volatility of
35%; risk-free interest rates of 7.06%, and expected lives of 10 years. A
summary of these options follows:
<TABLE>
<CAPTION>
1996 1995
--------------------------- ----------------------------
Weighted Average Weighted Average
Shares Exercise Price Shares Exercise Price
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 81,000 $15.92 -- --
Granted -- -- 81,000 $15.92
Exercised (7,500) 15.92 -- --
- ------------------------------------------------------------------------------------------------------
Outstanding at end of year 73,500 $15.92 81,000 $15.92
- ------------------------------------------------------------------------------------------------------
Options exercisable at year end 19,500 -- -- --
- ------------------------------------------------------------------------------------------------------
Weighted average fair value
of options granted during year -- -- -- $ 6.25
======================================================================================================
</TABLE>
The following table summarizes information about the nonemployee director fixed-
stock options outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ------------------------------------------------------------------------------------------------------
Weighted Weighted
Weighted Average Average Average
Range of Number Remaining Exercise Number Exercise
Exercise Prices Outstanding Contractual Life Price Exercisable Price
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 15.92 73,500 8.5 years $ 15.92 19,500 $ 15.92
======================================================================================================
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN. During 1994, FSCO and its subsidiaries adopted an
employee stock purchase plan which allows eligible employees to purchase FSCO's
common stock at fair market value through payroll deductions without incurring
brokers' fees or commissions. Under this plan, 243,000 shares of common stock
were issued to employees in 1995, and no shares of stock were issued to
employees in 1996 or 1994.
POSTRETIREMENT BENEFITS. FSCO provides certain health care, dental, and life
benefits for substantially all of its retired employees. Effective January 1,
1993, FSCO adopted SFAS No. 106, "Employers' Accounting for Postretirement
Benefits Other than Pensions." SFAS No. 106 requires FSCO to accrue the
estimated cost of retiree benefit payments during the years the employee
provides services. FSCO previously expensed the cost of these benefits as claims
were incurred.
SFAS No. 106 allows recognition of the cumulative effect of the liability in the
year of the adoption or the amortization of the obligation over a period of up
to twenty years. FSCO has elected to recognize this obligation of approximately
$5,600,000 over a period of twenty years. FSCO's cash flows are not affected by
SFAS No. 106.
The plan's accumulated postretirement benefit obligation and reconciliation to
the balance sheets at December 31, 1996 and 1995 are presented below (in
thousands):
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Retirees $ 3,634 $ 5,309
Fully eligible plan participants 408 602
Other active plan participants 1,928 2,909
- --------------------------------------------------------------------------------
Accumulated postretirement benefit obligation 5,970 8,820
Unrecognized net transition obligation (4,580) (4,840)
Unrecognized net loss 2,067 (1,536)
- --------------------------------------------------------------------------------
Accrued Postretirement Benefit Liability $ 3,457 $ 2,444
================================================================================
</TABLE>
FSCO has not funded any part of the accumulated postretirement benefit
obligation.
Net postretirement benefit cost for 1996, 1995, and 1994 consisted of the
following components (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost (benefits earned during the year) $ 355 $ 273 $ 250
Interest cost on accumulated postretirement
benefit obligation 655 625 560
Amortization of transition obligation 293 260 350
- --------------------------------------------------------------------------------
Totals $1,303 $ 1,158 $ 1,160
================================================================================
</TABLE>
The assumed health care cost trend rate used to measure the expected cost of
benefits covered by the plan for 1996 is 10%; the rate is assumed to decrease
each successive year until it reaches 5.5% in 2005, after which it remains
constant. A one percent increase in the assumed health care cost trend rate for
each year would increase the accumulated postretirement benefit obligation as of
December 31, 1996 by approximately $0.6 million and net postretirement benefit
cost by $0.1 million for the year. The assumed discount rate used in determining
the accumulated postretirement benefit obligation was 7.75% and 7.25% at
December 31, 1996 and 1995, respectively.
POSTEMPLOYMENT BENEFITS. As discussed in Note 2, during 1995 FSCO announced a
restructuring and accrued $1,213,000 relating to severance benefits.
NOTE 14: RESTRICTIONS ON THE TRANSFER OF FUNDS
National and state banking and insurance regulations impose restrictions on the
ability of FSCO's banking and insurance subsidiaries to transfer funds to FSCO
in the form of loans or dividends. At December 31, 1996 and 1995, FSCO's equity
in all of its subsidiaries was $1,206,037,000 and $1,071,320,000, respectively,
of which $884,680,000 and $831,161,000 were restricted and $321,357,000 and
$240,159,000 were unrestricted by such regulations.
NOTE 15: MERGERS AND ACQUISITIONS
On February 3, 1997, CrossLand Mortgage, a subsidiary of FSCO, announced a
letter of intent to acquire the wholesale loan production branch operations of
Harbourton Mortgage Co., L.P., a subsidiary of Harbourton Financial Services,
L.L.P. (NYSE: HBT). The agreement provides for the acquisition of 15 offices in
11 states, for approximately $4,000,000 plus up to $3,250,000 of earn-out
payments based upon actual 1997 operating results.
In 1995, FSCO acquired three small companies with total assets of approximately
$2,727,000 and liabilities of $1,372,000 for $482,000 in cash and 202,100 shares
of FSCO's common stock.
On May 20, 1994, FSCO issued approximately 1,263,099 shares of its common stock
in exchange for all of the outstanding common stock of Community First Bank
(CFB). The assets and liabilities of CFB at the date of merger were
approximately $75,242,000 and $63,694,000, respectively. The acquisition was
accounted for as a pooling of interests. However, because such amounts were not
significant to FSCO and its subsidiaries, the results of operations of CFB have
been included in the consolidated financial statements of FSCO from the date of
merger forward and prior periods' consolidated financial statements have not
been restated.
During 1994, FSCO acquired two branches of Equality State Bank (Evanston and
Lyman, Wyoming), CrossLand Mortgage Acquisition Corp. (Salt Lake City, Utah),
American BanCorporation (Boise, Idaho), and Star Valley State Bank (Afton,
Wyoming) with total assets and liabilities of approximately $508,861,000 and
$356,691,000, respectively, for approximately $152,170,000 of which
approximately $137,291,000 was paid in cash and approximately $14,880,000 was
paid through the issuance of 719,993 shares of FSCO's common stock held in
treasury. The acquisitions were accounted for using the purchase method of
accounting. The results of operations of the acquired institutions have been
included in the 1994 consolidated financial statements from the dates of
acquisition. The acquisitions created intangible assets for FSCO of
approximately $63,850,000 in mortgage servicing rights and approximately
$105,873,000 in goodwill (principally from the CrossLand Mortgage acquisition,
see Note 5). Pro forma results of operations for 1995 and 1994 as if the
companies had combined at the beginning of the periods are not presented because
the effect was not material.
NOTE 16: RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In June 1996, the Financial Accounting Standards Board (FASB) issued SFAS No.
125, 'Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities". SFAS No. 125 provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishments of
liabilities. Those standards are based on consistent application of a financial-
components approach that focuses on control. Under that approach, after a
transfer of financial assets, an entity recognizes the financial and servicing
assets it controls and the liabilities it has incurred, derecognizes financial
assets when control has been surrendered, and derecognizes liabilities when
extinguished. This Statement provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are secured
borrowings. SFAS No. 125 is effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring after December 31, 1996. The
impact of SFAS No. 125 on FSCO and its subsidiaries is not expected to be
material in relation to the consolidated financial statements.
In December 1996, the FASB issued SFAS No. 127, "Deferral of the Effective Date
of Certain Provisions of FASB Statement No. 125". SFAS No. 127 defers for one
year the effective date of certain provisions of SFAS No. 125 to allow affected
enterprises to modify information systems and accounting processes to comply
with SFAS No. 125. The delay applies to the provisions that deal with secured
borrowings and collateral, as well as to transfers of financial assets for
repurchase agreements, dollar rolls, and securities lending.
NOTE 17: CAPITAL REQUIREMENTS
FSCO is subject to various regulatory capital requirements administered by the
federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary, actions by
regulators that, if undertaken, could have a direct material effect on FSCO's
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, FSCO must meet specific capital
guidelines that involve quantitative measures of FSCO's assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices. FSCO's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require FSCO to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to risk-
weighted assets (as defined), and of Tier I capital (as defined) to end of
period assets (as defined). Management believes, as of December 31, 1996, that
FSCO meets all capital adequacy requirements to which it is subject.
As of December 31, 1996 and 1995, the most recent notification from the Office
of the Comptroller of the Currency categorized FSCO's most significant banking
subsidiaries as "well capitalized" under the regulatory framework for prompt
corrective action (see table below). To be categorized as "well capitalized",
FSCO must maintain minimum total risk-based, Tier I risk-based, and Tier I
leverage ratios as set forth in the table. There are no conditions or events
since that notification that management believes have changed the institution's
category.
FSCO's actual capital amounts and ratios are also presented in the table. No
amounts were deducted from capital for interest-rate risk.
<TABLE>
<CAPTION>
Minimum To Be
"Well Capitalized"
Minimum for Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------- ------------------- -------------------------
As of December 31, 1996 Amount Ratio Amount Ratio Amount Ratio
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
TOTAL CAPITAL (TIER 1 + TIER 2) TO RISK WEIGHTED ASSETS:
Consolidated $1,522,713 14.50% $840,249 8.0% $1,050,311 10.0%
FS Bank 958,361 10.93 701,462 8.0 876,828 10.0
FSB New Mexico 125,075 14.79 67,652 8.0 84,565 10.0
FSB Oregon 47,695 12.94 29,477 8.0 36,846 10.0
FSB Nevada 35,641 12.25 23,283 8.0 29,104 10.0
FSB Wyoming 20,195 14.16 11,410 8.0 14,262 10.0
TIER 1 CAPITAL TO RISK WEIGHTED ASSETS:
Consolidated 1,191,385 11.34 420,125 4.0 630,187 6.0
FS Bank 822,713 9.38 350,731 4.0 526,097 6.0
FSB New Mexico 114,406 13.53 33,826 4.0 50,739 6.0
FSB Oregon 43,082 11.69 14,739 4.0 22,108 6.0
FSB Nevada 31,978 10.99 11,641 4.0 17,462 6.0
FSB Wyoming 18,400 12.90 5,705 4.0 8,557 6.0
TIER 1 CAPITAL TO END OF PERIOD ASSETS (LEVERAGE RATIO):
Consolidated 1,191,385 8.16 584,012 4.0 730,015 5.0
FS Bank 822,713 7.01 469,451 4.0 586,814 5.0
FSB New Mexico 114,406 6.55 69,866 4.0 87,333 5.0
FSB Oregon 43,082 9.32 18,490 4.0 23,113 5.0
FSB Nevada 31,978 6.85 18,673 4.0 23,342 5.0
FSB Wyoming 18,400 8.58 8,578 4.0 10,723 5.0
===============================================================================================================================
<CAPTION>
As of December 31, 1995
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL CAPITAL (TIER 1 + TIER 2) TO RISK WEIGHTED ASSETS:
Consolidated $1,231,102 13.86% $710,774 8.0% $ 888,468 10.0%
FSB Utah, N.A. 506,201 12.21 331,727 8.0 414,659 10.0
FSB Idaho, N.A. 335,025 11.07 242,192 8.0 302,741 10.0
FSB New Mexico 115,573 13.92 66,429 8.0 83,037 10.0
FSB Oregon 39,840 11.36 28,049 8.0 35,062 10.0
FSB Nevada 31,802 11.65 21,839 8.0 27,298 10.0
FSB Wyoming 16,829 12.13 11,101 8.0 13,876 10.0
TIER 1 CAPITAL TO RISK WEIGHTED ASSETS:
Consolidated 919,810 10.35 355,387 4.0 533,081 6.0
FSB Utah, N.A. 439,291 10.59 165,863 4.0 248,795 6.0
FSB Idaho, N.A. 274,549 9.07 121,096 4.0 181,644 6.0
FSB New Mexico 105,093 12.66 33,215 4.0 49,822 6.0
FSB Oregon 35,451 10.11 14,025 4.0 21,037 6.0
FSB Nevada 28,378 10.40 10,919 4.0 16,379 6.0
FSB Wyoming 15,082 10.87 5,550 4.0 8,325 6.0
TIER 1 CAPITAL TO END OF PERIOD ASSETS (LEVERAGE RATIO):
Consolidated 919,810 7.12 516,747 4.0 645,934 5.0
FSB Utah, N.A. 439,291 7.06 248,890 4.0 311,113 5.0
FSB Idaho, N.A. 274,549 6.91 158,929 4.0 198,661 5.0
FSB New Mexico 105,093 5.93 70,889 4.0 88,611 5.0
FSB Oregon 35,451 8.60 16,489 4.0 20,611 5.0
FSB Nevada 28,378 7.88 14,405 4.0 18,006 5.0
FSB Wyoming 15,082 7.18 8,402 4.0 10,503 5.0
===============================================================================================================================
</TABLE>
NOTE 18: ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale. In the case of cash and short-term
investments, the carrying amount is considered a reasonable estimate of fair
value. For securities, the quoted market price is used to estimate fair value.
Trading account securities are marked to market, therefore the carrying amount
is considered a reasonable estimate of fair value. The carrying amount of
deposits with no stated maturity, such as demand deposits, money markets
accounts, and savings accounts, is considered a reasonable estimate of fair
value. The carrying amounts of securities sold under repurchase agreements and
short-term borrowings are considered a reasonable estimate of fair value. The
fair value of the remainder of on-balance-sheet instruments, such as loans,
certificates of deposit, and short-term borrowings, is estimated by using a
discounted cash flow approach. FSCO employs a modeling tool which discounts
estimated future cash flows through the projected maturity using market discount
rates that approximately reflect the credit risk, operating cost, and interest
rate risk potentially inherent in the instrument.
The estimated fair value of FSCO's financial futures and options used in
trading activities is obtained from market quotes. The estimated fair value of
interest rate swaps, caps, and corridors are obtained from market quotes
representing the estimated amount FSCO would receive or pay to terminate the
contracts or agreements, taking into account current interest rates. The
estimated fair value of commitments to extend credit and letters of credit are
estimated using the maximum fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements, the
present creditworthiness of the counterparties, and the difference between
current levels of interest rates and the committed rates.
Fair value estimates are made as of a specific point in time. Because no
market exists for a significant portion of FSCO's financial instruments, fair
value estimates are based on judgments regarding future expected loss
experience, current economic conditions, risk characteristics of various
financial instruments, interest rate levels, and other factors. These estimates
are subjective in nature and involve uncertainties and matters of judgment and
therefore cannot be determined or relied on with any degree of certainty.
Changes in assumptions could significantly affect the estimates.
A summary of the carrying amounts and estimated fair values for FSCO was as
follows (in thousands):
<TABLE>
<CAPTION>
As of December 31, 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and short-term investments $ 1,191,996 $ 1,191,996 $ 988,296 $ 988,296
Trading account securities 447,486 447,486 638,393 638,393
Securities available for sale 3,150,276 3,150,276 2,623,557 2,623,557
Net loans (excluding leases) 8,383,653 8,398,899 7,778,688 7,806,637
- -------------------------------------------------------------------------------------------------------------------------
Total Financial Assets $13,173,411 $13,188,657 $12,028,934 $12,056,883
=========================================================================================================================
FINANCIAL LIABILITIES:
Total deposits, excluding certificates $ 5,784,741 $ 5,784,741 $ 5,404,855 $ 5,404,855
Certificates of deposit 3,654,522 3,649,607 3,368,787 3,375,645
Short-term borrowings 754,431 754,431 472,731 472,731
Securities sold under repurchase agreements 2,076,202 2,076,202 1,725,958 1,725,958
Long-term debt 944,055 920,334 720,521 714,315
- -------------------------------------------------------------------------------------------------------------------------
Total Financial Liabilities $13,213,951 $13,185,315 $11,692,852 $11,693,504
=========================================================================================================================
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS:
Financial futures and options (trading):
Gains $ 233 $ 233 $ 245 $ 245
Losses (37) (37) (322) (322)
Interest rate swaps, caps, and corridors -
interest rate risk management -- 122 1,656 (6,128)
Letters of credit and other commitments
to extend credit -- (19,723) -- (13,478)
- -------------------------------------------------------------------------------------------------------------------------
Total Off-Balance-Sheet Financial Instruments $ 196 $ (19,405) $ 1,579 $ (19,683)
=========================================================================================================================
</TABLE>
NOTE 19: CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY ONLY
<TABLE>
CONDENSED BALANCE SHEETS (in thousands)
<CAPTION>
December 31, 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Cash on deposit and repurchase agreement with subsidiary bank $ 19,954 $ 24,291
Commercial loans receivable from subsidiaries:
Banks 408,198 161,540
Nonbanks 135,091 136,211
Investments in subsidiaries: Banks 1,128,059 1,010,721
Investments in subsidiaries: Nonbanks 77,978 60,599
Other assets 24,971 2,894
- ----------------------------------------------------------------------------------------------------------------------------
Total Assets $ 1,794,251 $ 1,396,256
============================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accrued interest and preferred dividends payable $ 10,267 $ 9,356
Short-term borrowings -- 17,250
Long-term debt: With subsidiary 154,640 --
Long-term debt: Other 488,696 339,387
- ----------------------------------------------------------------------------------------------------------------------------
Total Liabilities 653,603 365,993
- ----------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Preferred stock -- Series "A", $3.15 cumulative convertible 540 571
- ----------------------------------------------------------------------------------------------------------------------------
Common stock (76,270 and 75,740 shares issued, respectively) 95,338 94,674
Paid-in surplus 130,398 120,084
Retained earnings 923,375 810,458
Net unrealized gain on investment securities available for sale of subsidiaries (net of taxes) 877 14,547
- ----------------------------------------------------------------------------------------------------------------------------
Subtotal 1,149,988 1,039,763
Less common treasury stock, at cost (564 and 607 shares, respectively) (9,880) (10,071)
- ----------------------------------------------------------------------------------------------------------------------------
Total Common Stockholders' Equity 1,140,108 1,029,692
- ----------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 1,140,648 1,030,263
- ----------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 1,794,251 $ 1,396,256
============================================================================================================================
</TABLE>
<TABLE>
CONDENSED STATEMENTS OF INCOME (in thousands)
<CAPTION>
For the years ended December 31, 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME:
Cash dividends from subsidiaries: Banks $ 51,231 $ 48,433 $ 39,139
Cash dividends from subsidiaries: Nonbanks -- 5,675 7,675
Interest (principally from subsidiaries) 27,415 22,234 12,286
- ----------------------------------------------------------------------------------------------------------------------------
Total income 78,646 76,342 59,100
Interest expense 27,415 22,234 12,286
- ----------------------------------------------------------------------------------------------------------------------------
Income before equity in undistributed earnings of subsidiaries 51,231 54,108 46,814
Equity in undistributed earnings of subsidiaries: Banks 128,142 72,743 87,390
Equity in undistributed earnings of subsidiaries: Nonbanks (1,530) (6,846) 5,930
- ----------------------------------------------------------------------------------------------------------------------------
Net Income $ 177,843 $ 120,005 $ 140,134
============================================================================================================================
</TABLE>
<TABLE>
CONDENSED STATEMENTS OF CASH FLOWS (in thousands, except number of shares)
<CAPTION>
For the years ended December 31, 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 177,843 $ 120,005 $ 140,134
Adjustments to reconcile net income to
net cash provided by operating activities (121,557) (62,490) (91,503)
- ----------------------------------------------------------------------------------------------------------------------------
Net Cash Provided By Operating Activities 56,286 57,515 48,631
- ----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities (20,000) -- --
Loans and capital contributions made to subsidiaries (388,516) (340,630) (157,781)
Principal collected on loans to subsidiaries 130,912 208,717 160,859
Cash investments in subsidiaries (13,210) (2,401) (124,335)
- ----------------------------------------------------------------------------------------------------------------------------
Net Cash Used In Investing Activities (290,814) (134,314) (121,257)
- ----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings -- -- 10,000
Proceeds from long-term debt 304,640 125,000 128,750
Payments on long-term debt and short-term borrowings (17,940) (6,518) (14,760)
Proceeds from issuance of common stock
and sales of treasury stock 10,466 10,965 10,320
Purchase of treasury stock (2,049) (4,459) (19,481)
Dividends paid (64,926) (56,001) (51,126)
- ----------------------------------------------------------------------------------------------------------------------------
Net Cash Provided By (Used In) Financing Activities 230,191 68,987 63,703
- ----------------------------------------------------------------------------------------------------------------------------
Net Decrease In Cash And Cash Equivalents (4,337) (7,812) (8,923)
Cash And Cash Equivalents, Beginning Of Year 24,291 32,103 41,026
- ----------------------------------------------------------------------------------------------------------------------------
Cash And Cash Equivalents, End Of Year $ 19,954 $ 24,291 $ 32,103
============================================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 26,504 $ 18,067 $ 10,765
Income taxes 19 25 (144)
============================================================================================================================
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
In 1995, FSCO issued 202,100 shares of common stock for the acquisition of two
small insurance agencies that merged into FS Insurance, Inc.
In 1994, 1,983,092 shares of common stock were issued and $137,291,000 cash was
paid for the acquisitions of Equality State Bank, CrossLand Mortgage
Acquisition Corp., Community First Bank, American BanCorporation, and Star
Valley State Bank. FSCO acquired assets of approximately $584,103,000 and
assumed liabilities of approximately $420,385,000 (Note 15).
INDEPENDENT AUDITORS' REPORT
To the board of directors and stockholders of First Security Corporation:
We have audited the accompanying consolidated balance sheets of First Security
Corporation and subsidiaries (FSCO) as of December 31, 1996 and 1995, and the
related consolidated statements of income, stockholder's equity, and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of FSCO's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of First Security Corporation and
subsidiaries at December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1994 FSCO
changed its method of accounting for investment securities to conform with
Statement of Financial Accounting Standards (SFAS) No. 115. On July 1, 1995,
FSCO changed its method of accounting for mortgage servicing rights to conform
with SFAS No. 122.
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
February 21, 1997
<PAGE>
CORPORATE OFFICERS
MANAGEMENT COMMITTEE
SPENCER F. ECCLES
Chairman and Chief Executive Officer
MORGAN J. EVANS
President and Chief Operating Officer
SCOTT C. ULBRICH
Executive Vice President and Chief Financial Officer
Finance and Capital Markets
BRAD D. HARDY
Executive Vice President, Secretary and General Counsel
Corporate Services
MICHAEL P. CAUGHLIN
Executive Vice President
Technology and Processing Services
MARK D. HOWELL
Executive Vice President
Business Banking Services
J. PAT MCMURRAY
Executive Vice President
Community Banking Services
SCOTT NELSON
Executive Vice President
Retail Lending Services
OTHER OFFICERS
JAY S. BACHMAN
Senior Vice President
Corporate Development
DAVID R. GOLDEN
Executive Vice President
Risk Management
DR. KELLY K. MATTHEWS
Senior Vice President and Chief Economist
LESLIE F. PASKETT
Senior Vice President and Comptroller
DENNIS G. REEVES
Senior Vice President and Chief Auditor
ALONZO W. WATSON, JR.
Assistant Secretary
DAVID R. WILSON
Executive Vice President
Capital Markets and Treasury
SUBSIDIARIES
BANKS
FIRST SECURITY BANK, N.A. (UTAH AND IDAHO)
Scott Nelson, Chairman and Chief Executive Officer
J. Pat McMurray, President
FIRST SECURITY BANK OF NEW MEXICO, N.A.
Edward T. O'Leary, President and Chief Executive Officer
FIRST SECURITY BANK OF NEVADA
David J. Smith, President and Chief Executive Officer
FIRST SECURITY BANK OF OREGON
Edwin V. Davis, II, President and Chief Executive Officer
FIRST SECURITY BANK OF WYOMING
Dave Wood, President and Chief Executive Officer
NONBANKS
FIRST SECURITY INVESTMENT MANAGEMENT, INC.
Sterling K. Jenson, President and Chief Executive Officer
FIRST SECURITY INVESTOR SERVICES
Joseph Cooney, President and Chief Executive Officer
FIRST SECURITY INSURANCE, INC.
Daniel S. Schull, President and Chief Executive Officer
FIRST SECURITY LIFE INSURANCE COMPANY OF ARIZONA
Daniel S. Schull, President and Chief Executive Officer
FIRST SECURITY PROCESSING SERVICES, INC.
Phillip F. Hudson, President and Chief Executive Officer
CROSSLAND MORTGAGE CORPORATION
Christopher J. Sumner, President and Chief Executive Officer
FIRST SECURITY LEASING COMPANY
Michael W. Chaney, President and Chief Executive Officer
FIRST SECURITY TRADE SERVICES, LTD. (HONG KONG)
Randal Roberts, President and Chief Executive Officer
FIRST SECURITY BUSINESS INVESTMENT CORPORATION
Louis "Butch" Alder, President and Chief Executive Officer
FIRST SECURITY INFORMATION TECHNOLOGY, INC.
Michael P. Caughlin, Chief Business Officer
Al Pino, Chief Operations Officer
BOARD OF DIRECTORS
JAMES C. BEARDALL /1,2,4/
Chairman, President and Chief Executive Officer
Anderson Lumber Company
(Lumber Products)
RODNEY H. BRADY /1,3,4/
President and Chief Executive Officer
Deseret Management
(Private Holding Company)
JAMES E. BRUCE
Former Chairman and Chief Executive Officer
Idaho Power Company
(Electric Power Service - Utility)
THOMAS D. DEE II /1,3,4/
President
The Dee Company
(Investments)
SPENCER F. ECCLES /1,4/
Chairman and Chief Executive Officer
First Security Corporation
MORGAN J. EVANS /1,4/
President and Chief Operating Officer
First Security Corporation
DR. DAVID P. GARDNER
President
The William & Flora Hewlett Foundation
Chairman and Chief Executive Officer
The George S. & Delores Dori Eccles Foundation
(Philanthropy)
ROBERT H. GARFF
Chief Executive Officer
Garff Enterprises, Inc.
(Automobile Dealerships and Other Enterprises)
DAVID B. HAIGHT
Member, Council of the Twelve
The Church of Jesus Christ of Latter-day Saints
JAY DEE HARRIS
President
Harris Truck & Equipment Company
(Construction Equipment)
ROBERT T. HEINER /1,2,4/
Former President and Chief Administrative Officer
First Security Corporation
KAREN H. HUNTSMAN
Vice President and Director
Huntsman Chemical Corporation
(Petrochemicals)
G. FRANK JOKLIK /3/
President and Chief Executive Officer
MK Gold Company
(Gold Exploration and Development)
B.Z. KASTLER /2/
Former Chairman and Chief Executive Officer
Questar Corporation
(Natural Gas)
JOSEPH G. MALOOF
President and Chief Executive Officer
Maloof Companies
(Diversified Investments - Entertainment)
SCOTT S. PARKER /1,2,4/
President
Intermountain Health Care, Inc.
(Health Care Provider)
DR. ARTHUR K. SMITH /3/
President
University of Utah
(Education)
JAMES L. SORENSON
Chairman and Chief Executive Officer
Sorenson Development, Inc.
(Investments)
HAROLD J. STEELE
Former President
First Security Bank of Utah, N.A.
JAMES R. WILSON /3/
Chairman, President and Chief Executive Officer
Thiokol Corporation
(Aerospace and Industrial Manufacturing)
/1/ Member of Corporate Executive Committee
/2/ Member of Corporate Audit Committee
/3/ Member of Corporate Compensation Committee
/4/ Member of Corporate Nominating Committee
HONORARY DIRECTORS
KENDALL D. GARFF
Chairman
Garff Enterprises
DR. CHASE N. PETERSON
President Emeritus
University of Utah
JAMES E. PHELPS
Former Chairman
First Security Bank of Idaho, N.A.
CORPORATE OFFICES
79 S. Main Street
Salt Lake City, Utah 84111
ANNUAL STOCKHOLDERS' MEETING
Monday, April 21, 1997, 3:00 p.m.
Joseph Smith Memorial Building
15 E. South Temple
Salt Lake City, Utah
GENERAL LEGAL COUNSEL
Ray, Quinney & Nebeker
400 Deseret Building
Salt Lake City, Utah 84111
INDEPENDENT ACCOUNTANTS
Deloitte & Touche LLP
50 S. Main Street
Salt Lake City, Utah 84144
RATINGS
<TABLE>
<CAPTION>
Moody's Fitch
Thomson Standard Investors Investor
BankWatch & Poor's Service Service, L.P.
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Overall B -- -- --
Senior Debt -- BBB+ A3 --
Subordinated Debt -- BBB Baal --
Subordinated Capital
Income Securities -- BBB- a3 A-
- -----------------------------------------------------------------------------
</TABLE>
STOCK INFORMATION
First Security shares are traded on the Nasdaq National Market System under
the symbol FSCO. Nasdaq market makers include:
Alex, Brown & Sons
Bear, Stearns & Co.
Cantor Fitzgerald & Co.
C.S. First Boston Corp.
Dain, Bosworth, Inc.
Dean Witter Reynolds, Inc.
Edward D. Jones & Co.
F.J. Morrissey & Co.
Fox-Pitt, Kelton, Inc.
Herzog, Heine, Geduld, Inc.
J.P. Morgan Securities, Inc.
Keefe, Bruyette & Woods, Inc.
Lehman Brothers, Inc.
M.A. Schapiro & Co.
Merrill Lynch, Pierce, Fenner & Smith
Montgomery Securities, Inc.
Morgan Stanley & Co.
Pacific Crest Securities
Piper, Jaffray & Hopwood, Inc.
Prudential Securities
Salomon Brothers, Inc.
Sherwood Securities Corp.
Smith Barney Inc.
Stearn, Agee & Leach, Inc.
Troster Singer Corp.
UBS Securities
The Transfer Agent and Registrar for First Security Corporation is:
Stock Transfer Services
First Security Bank, N.A.
P.O. Box 30007
Salt Lake City, Utah 84130-0007
SHAREHOLDER SERVICES
First Security offers the following services to its shareholders:
DIVIDEND REINVESTMENT PLAN - Automatically reinvests common stock cash
dividends in additional shares of First Security common stock at the current
market price.
COMMON STOCK PURCHASE PLAN - Allows shareholders to invest $50 to $5,000 per
month in additional shares of First Security common stock, with no brokerage
commissions or service charges.
DIVIDEND DIRECT DEPOSIT PLAN - Automatically transfers dividend payments to an
account, at any bank in the country the same day dividends are paid.
Inquire about these free shareholder services by contacting:
Stock Transfer Services
First Security Bank, N.A.
P.O. Box 30007
Salt Lake City, Utah 84130-0007
(801) 246-5873 or toll free 1-800-574-6695
e-mail: [email protected]
TO REQUEST ADDITIONAL INFORMATION
FORM 10-K - Stockholders can obtain a copy of any exhibits filed with the
corporation's report on Form 10-K upon written request to:
Financial Division
First Security Corporation
P.O. Box 30006
Salt Lake City, Utah 84130-0006
FINANCIAL INFORMATION - Analysts, investors and others seeking financial
information about First Security should contact:
Leslie R. Nelson
Senior Vice President and Manager
Corporate Communications and Investor Relations
15 E. 100 South, 2nd Floor
Salt Lake City, Utah 84111
(801) 246-5266
NEWS RELEASES - As a courtesy to shareholders and prospective investors, copies
of First Security's recent news releases are available by fax at no charge. Call
Company News On Call at 1-800-758-5804 ext. 313925. On-Call information is also
posted on the Internet at http://www.prnewswire.com.
GENERAL INFORMATION - News media representatives and others seeking general
information should contact:
Adrian R. Gostick
Assistant Vice President and Manager
Communications and Public Relations
15 E. 100 South, 2nd Floor
Salt Lake City, Utah 84111
(801) 246-5535
SIGNATURES
FIRST SECURITY CORPORATION
Registrant
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FIRST SECURITY CORPORATION
By
[SIGNED] March 11, 1997
_______________________________________________________ ____________________
Scott C. Ulbrich (Date)
Executive Vice President, Finance and Capital Markets
and Chief Financial Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
By
[SIGNED] March 12, 1997
_______________________________________________________ ______________
Spencer F. Eccles (Date)
Chairman and Chief Executive Officer
By
[SIGNED] March 12, 1997
_______________________________________________________ ______________
Morgan J. Evans (Date)
President and Chief Operating Officer
SIGNATURES
<PAGE>
FIRST SECURITY CORPORATION
Registrant
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
[SIGNED] March 11, 1997
_______________________________________________________ ______________
James C. Beardall Date
Director
[SIGNED] March 11, 1997
_______________________________________________________ ______________
Rodney H. Brady Date
Director
[SIGNED] March 11, 1997
_______________________________________________________ ______________
James E. Bruce Date
Director
[SIGNED] March 11, 1997
_______________________________________________________ ______________
Thomas D. Dee, II Date
Director
[SIGNED] March 11, 1997
_______________________________________________________ ______________
Dr. David P. Gardner Date
Director
[SIGNED] March 11, 1997
_______________________________________________________ ______________
Robert H. Garff Date
Director
[SIGNED] March 11, 1997
_______________________________________________________ ______________
Elder David B. Haight Date
Director
[SIGNED] March 11, 1997
_______________________________________________________ ______________
Jay Dee Harris Date
Director
[SIGNED] March 12, 1997
_______________________________________________________ ______________
Robert T. Heiner Date
Director
[SIGNED] March 11, 1997
_______________________________________________________ ______________
Karen H. Huntsman Date
Director
[SIGNED] March 12, 1997
_______________________________________________________ ______________
G. Frank Joklik Date
Director
[SIGNED] March 11, 1997
_______________________________________________________ ______________
B. Z. Kastler Date
Director
[SIGNED] March 21, 1997
_______________________________________________________ ______________
Joseph G. Maloof Date
Director
[SIGNED] March 12, 1997
_______________________________________________________ ______________
Scott S. Parker Date
Director
[SIGNED] March 14, 1997
_______________________________________________________ ______________
Dr. Arthur K. Smith Date
Director
[SIGNED] March 11, 1997
_______________________________________________________ ______________
James L. Sorenson Date
Director
[SIGNED] March 11, 1997
_______________________________________________________ ______________
Harold J. Steele Date
Director
[SIGNED] March 11, 1997
_______________________________________________________ ______________
James R. Wilson Date
Director
EXHIBIT 11. COMPUTATION OF EARNINGS PER SHARE
<TABLE>
FIRST SECURITY CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share amounts; unaudited)
<CAPTION>
For the Years Ended December 31, 1996 1995 1994
<S> <C> <C> <C>
- ----------------------------------------------------------- ---------- ---------- ----------
Net Income:
Net income per consolidated income statements 177,843 120,005 140,134
Deduct dividend requirement of preferred stock 33 35 39
- ----------------------------------------------------------- ---------- ---------- ----------
NET INCOME APPLICABLE TO COMMON STOCK 177,810 119,970 140,095
Add dividend requirement of preferred stock 33 35 39
- ----------------------------------------------------------- ---------- ---------- ----------
NET INCOME FULLY DILUTED 177,843 120,005 140,134
=========================================================== ========== ========== ==========
Earnings Per Common Share:
EARNINGS PER COMMON SHARE: PRIMARY 2.30 1.57 1.87
EARNINGS PER COMMON SHARE: FULLY DILUTED (A) 2.29 1.57 1.87
=========================================================== ========== ========== ==========
Common Shares Outstanding (Average):
Common shares 76,047 75,504 74,250
Common shares equivalent (options) (B) 1,906 1,380 1,457
Treasury shares (576) (565) (816)
- ----------------------------------------------------------- ---------- ---------- ----------
COMMON SHARES OUTSTANDING: PRIMARY (AVERAGE) 77,377 76,319 74,891
Preferred shares: common shares equivalent (average) 193 208 235
- ----------------------------------------------------------- ---------- ---------- ----------
COMMON SHARES OUTSTANDING: FULLY DILUTED (AVERAGE) 77,570 76,527 75,126
=========================================================== ========== ========== ==========
<FN>
(A) Earnings Per Common Share Fully Diluted were computed assuming that all outstanding shares
of preferred stock were converted into common stock on the basis of 18.225 shares of common
for each share of preferred, with the elimination of dividends on the preferred stock.
(B) Common shares equivalent are common stock options outstanding accounted for on the treasury
stock method for purposes of these computations.
(C) Shares have been restated where appropriate to reflect a 3-for-2 stock split in the form of
a 50% stock dividend paid in February 1996.
</TABLE>
<TABLE>
EXHIBIT 21. Subsidiaries
FIRST SECURITY CORPORATION
For the year ended December 31, 1996
<CAPTION>
Organized Percentage of
Under Voting Securities
Tier and Name of Subsidiary (A) Location Laws of Owned by FSC
- ----------------------------------------------------------------------------------------- --------- -------------------
<S> <C> <C> <C>
First Security Bank, National Association (B) (C) Salt Lake City, Utah U.S.A. 99.9
2nd Tier: CrossLand Mortgage Acquisition Corp. Salt Lake City, Utah Utah 100.0
3rd Tier: CrossLand Mortgage Corp. Salt Lake City, Utah Utah 100.0
2nd Tier: First Security Hong Kong Agreement Corp. Salt Lake City, Utah Utah 100.0
3rd Tier: First Security Trade Services Ltd. Hong Kong, Hong Kong Hong Kong 100.0
First Security Bank of New Mexico, National Association Albuquerque, NM U.S.A. 100.0
First Security Bank of Oregon Salem, Oregon Oregon 100.0
First Security Bank of Nevada Las Vegas, Nevada Nevada 100.0
2nd Tier: First Security Trust Company of Nevada Las Vegas, Nevada Nevada 100.0
2nd Tier: First Security Services of Nevada, Inc. Las Vegas, Nevada Nevada 100.0
First Security Bank of Wyoming Rock Springs, Wyoming Wyoming 99.9
First Security Leasing Company Salt Lake City, Utah Utah 100.0
2nd Tier: First Security Leasing Company of Nevada Las Vegas, Nevada Nevada 100.0
First Security Processing Services, Inc. Salt Lake City, Utah Utah 100.0
First Security Insurance, Inc. Salt Lake City, Utah Utah 100.0
2nd Tier: First Security Insurance of Idaho, Inc. Boise, Idaho Idaho 100.0
2nd Tier: Intermountain Insurance Agency, Inc. (Inactive) Salem, Oregon Oregon 100.0
2nd Tier: First Security Insurance of Oregon Inc. Portland, Oregon Oregon 100.0
First Security Life Insurance Company of Arizona Salt Lake City, Utah Arizona 100.0
First Security Investment Services, Inc. Salt Lake City, Utah Utah 100.0
2nd Tier: First Security Investor Services Salt Lake City, Utah Utah 100.0
3rd Tier: First Security Investor Services of Nevada, Inc. Las Vegas, Nevada Nevada 100.0
3rd Tier: First Security Investor Services of Wyoming, Inc. Rock Springs, Wyoming Wyoming 100.0
2nd Tier: First Security Investment Management, Inc. Salt Lake City, Utah Utah 100.0
First Security Business Investment Corporation Salt Lake City, Utah Utah 100.0
First Security Service Company Salt Lake City, Utah Utah 100.0
First Security Information Technology, Inc. Salt Lake City, Utah Utah 100.0
First Security Mortgage Company (Inactive) Salt Lake City, Utah Utah 100.0
2nd Tier: Asset Recovery, Inc. (Inactive) Salt Lake City, Utah Utah 100.0
First Security Capital I Salt Lake City, Utah Delaware 100.0
<FN>
(A) All subsidiaries are included in consolidated financial statements.
(B) On June 21, 1996, First Security Bank of Utah, N.A. and First Security Bank of Idaho, N.A. merged
to become First Security Bank, National Association.
(C) Foreign Exchange Limited, a 2nd Tier Subsidiary of First Security Bank of Utah, N.A., was sold
during 1996.
</TABLE>
Exhibit 23, Consent of Independent Certified Public Accountants:
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-52205, 33-52609, and 333-3377 on Form S-3, in Post-Effective Amendment No. 1
to Registration Statement No. 2-62919 on Form S-3, and in Registration
Statement Nos. 33-9501, 33-21556, and 33-57107 on Form S-8 of First Security
Corporation of our report dated February 21, 1997, appearing in this Annual
Report on Form 10-K of First Security Corporation for the year ended December
31, 1996.
[SIGNED]
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
March 25, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<PERIOD-TYPE> 12-MOS
<CASH> 937,144
<INT-BEARING-DEPOSITS> 31,617
<FED-FUNDS-SOLD> 223,235
<TRADING-ASSETS> 447,486
<INVESTMENTS-HELD-FOR-SALE> 3,150,276
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 9,262,482
<ALLOWANCE> (134,428)
<TOTAL-ASSETS> 14,733,024
<DEPOSITS> 9,444,424
<SHORT-TERM> 2,830,633
<LIABILITIES-OTHER> 373,264
<LONG-TERM> 944,055
0
540
<COMMON> 1,140,108
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 14,733,024
<INTEREST-LOAN> 789,488
<INTEREST-INVEST> 182,720
<INTEREST-OTHER> 15,600
<INTEREST-TOTAL> 987,808
<INTEREST-DEPOSIT> 313,010
<INTEREST-EXPENSE> 471,232
<INTEREST-INCOME-NET> 516,576
<LOAN-LOSSES> 40,300
<SECURITIES-GAINS> 4,549
<EXPENSE-OTHER> 497,367
<INCOME-PRETAX> 277,595
<INCOME-PRE-EXTRAORDINARY> 277,595
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 177,843
<EPS-PRIMARY> 2.30
<EPS-DILUTED> 2.29
<YIELD-ACTUAL> 4.49
<LOANS-NON> 0
<LOANS-PAST> 19,326
<LOANS-TROUBLED> 33,276
<LOANS-PROBLEM> 57,457
<ALLOWANCE-OPEN> 129,982
<CHARGE-OFFS> (62,623)
<RECOVERIES> 26,769
<ALLOWANCE-CLOSE> 134,428
<ALLOWANCE-DOMESTIC> 134,428
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
