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, 1997
Commission File Number 1-6906
FIRST SECURITY CORPORATION
(Exact name of Registrant as specified in its charter)
State of incorporation Delaware
I.R.S. Employer Identification No. 87-6118148
Address of principal executive offices 79 South Main, P.O. Box 30006
Salt Lake City, Utah
Zip Code 84130-0006
Registrant's telephone number, including area code (801) 246-5706
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) common
stock held by nonaffiliates was $3,717,655,000 as of February 28, 1998.
The number of shares outstanding of FSCO common stock $1.25 Par Value was
175,952,000 (net of 1,247,000 treasury shares) as of February 28, 1998.
FSCO's Proxy Statement dated March 18, 1998, is incorporated by reference
into Parts I and III of this Form 10-K.
<PAGE>
FIRST SECURITY CORPORATION (FSCO) - INDEX
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 18, 1998)
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
Following the preparation, filing, and distribution of the Registrant's
Definitive Proxy Statement, dated March 18, 1998, the Registrant learned
that director Joseph G. Maloof failed to timely report on Form 4 or Form
5 gifts of FSCO's Common Stock of 800 shares made in December 1996 and of
1,200 shares made in December 1997. The Registrant understands that
corrective Form 5 filings have been made for Mr. Maloof. Otherwise, the
Registrant incorporates all other information responsive to this Item 10
from FSCO's Proxy Statement March 18, 1998.
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 dated March 18,
1998.
Part IV
14a Exhibits and Financial Statement Schedules:
1. Report of Independent Certified Public Accountants
Consolidated Balance Sheets
December 31, 1997 and 1996
Consolidated Statements of Income
for the Years Ended December 31, 1997, 1996, and 1995
Consolidated Statements of Stockholders' Equity
for the Years Ended December 31, 1995, 1996, and 1997
Consolidated Statements of Cash Flows
for the Years Ended December 31, 1997, 1996, and 1995
Notes to Consolidated Financial Statements
2. Exhibit Index
Exhibit 3.1, Certificate of Amendment of Certificate of Incorporation,
of FSCO, dated May 6, 1993.
Exhibit 3.2, Certificate of Amendment of Certificate of Incorporation,
of FSCO, dated May 8, 1996.
Exhibit 3.3, Restated FSCO Bylaws, as amended January 26, 1998.
Exhibit 3.4, Certificate of Designation Series A Preferred Stock, dated
Aug. 27, 1990.
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 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
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 Feb. 2, 1998.
Exhibit 10.3, Employment Agreement between FSCO and Morgan J. Evans,
dated Feb. 2, 1998.
Exhibit 10.4, Employment Agreement between FSCO and Michael P. Caughlin,
dated Feb. 2, 1998.
Exhibit 10.5, Employment Agreement between FSCO and Brad D. Hardy,
dated Feb. 2, 1998.
Exhibit 10.6, Employment Agreement between FSCO and Mark D. Howell,
dated Feb. 2, 1998.
Exhibit 10.7, Employment Agreement between FSCO and J. Patrick McMurray,
dated Feb. 2, 1998.
Exhibit 10.8, Employment Agreement between FSCO and Scott Nelson,
dated Feb. 2, 1998.
Exhibit 10.9, Employment Agreement between FSCO and Scott C. Ulbrich,
dated Feb. 2, 1998.
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 Earnings Per Share.
Exhibit 21, Subsidiaries.
Exhibit 23, Consent of Independent Certified Public Accountants:
Deloitte & Touche LLP.
Exhibit 27.1, Financial Data Schedule (with Restated Periods).
Exhibit 27.2, Financial Data Schedule (with Restated Periods).
14b Reports on Form 8-K:
Item 5. filed on October 22, 1997:
On October 20, 1997, FSCO issued a press release announcing that it had
signed a definitive agreement to acquire Rio Grande Bancshares, Inc. and
its subsidiaries First National Bank of Dona Ana County and First
National Bank of Chaves County.
Item 5. filed on January 27, 1998:
On January 26, 1998, FSCO issued a press release announcing a 3-for-2
common stock split and an increase in the quarterly cash dividend. Also
on January 26, 1998, FSCO issued a press release announcing that Michele
Papen-Daniel, Ph.D., has been elected to FSCO's board of directors.
Also on January 26, 1998, FSCO issued a press release announcing that
Dr. J. Bernard Machen has been elected to FSCO's board of directors.
Item 5. filed on February 19, 1998:
On February 19, 1998, FSCO issued a press release announcing that it has
signed a definitive agreement to acquire California State Bank. Also on
February 19, 1998, FSCO issued a press release announcing that its board
of directors had rescinded a stock buyback program.
Signatures
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following pages contain the First Security Corporation (FSCO)
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" (MDA) for 1997, including comparisons with prior years' results and
identification of possible risks and trends.
THIS MDA SHOULD BE READ IN CONJUNCTION WITH FSCO'S CONSOLIDATED FINANCIAL
STATEMENTS AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Subsequent to FSCO's 1996 Annual Report, FSCO declared two separate 3-for-2
common stock splits in the form of 50% stock dividends: on April 21, 1997, paid
May 15, 1997 to shareholders of record May 12, 1997; and on January 26, 1998,
paid February 24, 1998, to shareholders of record February 12, 1998. As a result
of each of these splits, shareholders received one additional share of FSCO
common stock for every two shares held. All common stock and earnings per common
share data in this report reflect these two stock splits.
As required by SFAS No. 128, "Earnings Per Share," "Earnings Per Common
Share: Primary" has been restated to "Earnings Per Common Share: Basic," and
"Earnings Per Common Share: Fully Diluted" has been restated to "Earnings Per
Common Share: Diluted."
As required by applicable accounting rules, all 1992 amounts used to
calculate five-year compound growth rates 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.
FORWARD-LOOKING STATEMENTS
Except for the historical information in this document, the matters
described herein are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. FSCO cautions readers not to
place undue reliance on any forward-looking statements, which speak only as of
the date made.
FSCO advises readers that various risks and uncertainties could affect
FSCO's financial performance and could cause FSCO's actual results for future
periods to differ materially from those anticipated or projected. These risks
and uncertainties include, but are not limited to, those related to: the
economic environment, particularly in the regions where FSCO operates;
competitive products and pricing; changes in prevailing interest rates; credit
and other risks of lending and investment activities; fiscal and monetary
policies of the U.S. and other governments; regulations affecting financial
institutions; acquisitions and the integration of acquired businesses;
technology and associated risks; and other risks and uncertainties affecting
FSCO's operations and personnel.
Be advised that FSCO, as part of its core business, regularly evaluates the
potential acquisition of, and holds discussions with, prospective acquisition
candidates, which candidates may conduct any type of businesses permissible for
a bank holding company and its affiliates. FSCO's discussions in this document
are subject to the changes that may result if any such acquisition transaction
is completed. FSCO restates its guiding principle that it will not comment on
or publicly announce any such acquisition until after a binding and definitive
acquisition agreement has been reached.
FSCO specifically disclaims any obligation to update any forward-looking
statements to reflect occurrences or unanticipated events or circumstances after
the date of such statements.
<PAGE>
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
Highlights
Operating Subsidiaries
Table 2: Consolidating Statements
Line of Business Segments
Analysis of Statements of Income:
Earnings Summary
Net Interest Income and Net Interest 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: Trading Account Securities
and Other Money Market Investments
Interest-Earning Assets: Available for Sale Securities
Table 7: Available for Sale Securities
Interest-Earning Assets: Loans
Table 8: Loans
Asset Quality: Problem Assets and Potential Problem Assets
Table 9: Problem Assets and Potential Problem Assets
Asset Quality: Reserve for Loan Losses
Table 10: Reconciliation of the Reserve for Loan Losses
Table 11: Allocation of the Reserve for Loan Losses
Asset Quality: Provision for Loan Losses
Asset/Liability Management
Asset/Liability Management: Liquidity
Table 12: Deposits
Table 13: Short-Term Borrowings
Table 14: Long-Term Debt
Asset/Liability Management: Market Risk Management
Asset/Liability Management: Interest Rate Risk -
Other Than Trading Account Securities
Asset/Liability Management: Interest Rate Risk - Trading Account Securities
Other Assets and Liabilities
Stockholders' Equity and Capital Adequacy
Table 15: Capital Ratios and Risk-Based Capital Ratios
Common and Preferred Stock
Off-Balance Sheet Items
Inflation Accounting and Capital Commitments
Table 16: Quarterly Financial Highlights
Mergers and Acquisitions
Corporate Structure
National and Regional Economies
Competitive Position
Factors That May Affect Future Results of Operations and Financial Condition
Competition
Changing Economic Conditions
Technological Change and Year 2000 Computer Issue
Regulatory and Legislative Attitudes
Financial Market Perceptions
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
Independent Auditors' Report
OFFICERS AND DIRECTORS
CORPORATE INFORMATION
<PAGE>
GLOSSARY
AFS: Available For Sale. A classification of securities which may be sold as
part of the asset/liability management process.
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 Performing 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 not available
until 3 to 6 months after the reporting date.
Book Value Per Common 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 measurement that assigns each
interest-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 common shares.
MSR: Mortgage Servicing Right. 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
System's National Market System on which FSCO Common Stock is traded.
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 estimated
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 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.
S&Ls: Savings and loan financial institutions.
SEC: The Securities and Exchange Commission.
SFAS: Statement of Financial Accounting Standards. Accounting pronouncements
issued by the Financial Accounting Standards Board.
Shock Analysis: An evaluation of the securities portfolios against small and
large movements in interest rates, which are assumed to be instantaneous and
parallel, and other spread factors that may affect the value of the portfolio.
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 certain capital securities and
minority equity in subsidiaries, minus goodwill and deposit-based intangibles.
Tier 2 Capital: Reserves for loan losses up to 1.25% of risk-adjusted assets
plus qualifying subordinated debt.
Total Capital: The sum of Tier 1 plus Tier 2 Capital.
<PAGE>
<TABLE>
TABLE 1: FINANCIAL HIGHLIGHTS - FIVE YEAR SUMMARY (in thousands, except per share data & ratios)
<CAPTION>
5-Year
Compound
97/96 Growth
1997 1996 1995 1994 1993 % Chg Rate
<S> <C> <C> <C> <C> <C> <C> <C>
- - ----------------------------------------------- ----------- ----------- ----------- ----------- ----------- -------- --------
Common & Preferred Stock Data (A,B):
Earnings per common share: basic $1.20 $1.05 $0.71 $0.85 $0.72 14.3 12.7
Earnings per common share: diluted 1.16 1.02 0.70 0.83 0.70 13.7 12.6
Tangible EPCS: diluted 1.25 1.11 0.78 0.90 0.72 12.6 13.6
Dividends paid per common share 0.442 0.382 0.332 0.308 0.261 15.7 17.0
Book value per common share (EOP) 7.59 6.69 6.09 5.31 5.11 13.5 10.2
Tangible book value per common share (EOP) 6.04 5.70 5.21 4.32 5.04 6.0 5.6
Market price (bid) (EOP) 27.917 15.167 11.259 6.741 7.630 84.1 28.2
High bid for the period 27.917 15.167 11.259 9.481 8.963 84.1 27.9
Low bid for the period 14.222 10.167 6.519 6.370 7.111 39.9 21.4
Market capitalization
(mkt price x #shrs) (EOP) 4,843,851 2,583,532 1,903,311 1,128,329 1,247,299 87.5 31.2
Market price / book value
per common share (EOP) % 367.81 226.71 184.88 126.95 149.32
Dividend payout ratio
(DPCS / EPCS: basic) % 36.83 36.38 46.76 36.24 36.25
Dividend yield
(DPCS / mkt price) (EOP) % 1.58 2.52 2.95 4.57 3.42
Price / earnings ratio
(mkt price / EPCS: basic) 23.3x 14.4x 15.9x 7.9x 10.6x
Common shares: basic (EOP) 173,509 170,339 169,048 167,383 163,473 1.9 2.4
Common shares: basic [Avg] 171,267 169,811 168,613 165,228 157,783 0.9 2.3
Common shares: diluted [Avg] 176,995 174,531 172,185 169,033 162,068 1.4 2.4
Common shareholders of record(not rounded)(EOP) 9,104 9,095 9,222 8,821 8,748 0.1 2.7
Preferred shares (EOP) 10 10 11 12 13 -- (7.8)
Prefer shareholders of record(not rounded)(EOP) 497 541 588 634 671 (8.1) (7.7)
- - ----------------------------------------------- ----------- ----------- ----------- ----------- ----------- -------- --------
Income Statement:
Interest income $1,153,785 $987,808 $934,859 $773,517 $644,732 16.8 11.9
Interest expense 571,285 471,232 459,868 315,415 240,794 21.2 15.3
Net interest income 582,500 516,576 474,991 458,102 403,938 12.8 9.2
Fully taxable equivalent (FTE) adjustment 10,370 7,684 8,336 7,875 7,633 35.0 1.5
Net interest income, FTE 592,870 524,260 483,327 465,977 411,571 13.1 9.0
Provision for loan losses 62,686 40,300 21,082 825 11,684 55.5 15.7
Noninterest income 349,645 298,686 266,492 197,548 167,159 17.1 19.4
Noninterest expenses 554,132 497,367 530,205 433,648 386,146 11.4 10.3
Provision for income taxes 109,383 99,752 70,191 81,043 59,211 9.7 17.0
Net income 205,944 177,843 120,005 140,134 114,056 15.8 15.5
Preferred stock dividend requirement 30 33 35 39 43 (9.1) (9.0)
Common stock dividend 75,696 64,893 55,966 51,087 38,595 16.6 23.8
- - ----------------------------------------------- ----------- ----------- ----------- ----------- ----------- -------- --------
Balance Sheet - End of Period:
Trading account securities $255,320 $447,486 $638,393 $553,826 $607,854 (42.9) (8.1)
Available for sale (AFS) securities 4,057,895 3,150,276 2,623,557 2,246,419 1,762,783 28.8 18.3
Memo: fair value adjustment for AFS securities 36,237 1,654 23,614 (86,537) -- 2090.9 NM
Loans, net of unearned income 10,779,547 9,262,482 8,315,095 8,173,678 6,561,021 16.4 13.9
Reserve for loan losses (149,125) (134,428) (129,982) (133,855) (134,848) 10.9 3.1
Total interest-earning assets 15,285,028 13,115,096 11,746,677 11,019,059 9,329,273 16.5 13.7
Intangible assets 269,014 169,779 148,819 166,199 11,833 58.4 78.4
Total assets 17,307,411 14,708,024 13,034,607 12,148,982 10,211,689 17.7 14.2
Noninterest-bearing deposits 2,348,638 2,198,348 1,884,931 1,719,388 1,697,687 6.8 10.4
Interest-bearing deposits 8,367,687 7,240,915 6,888,711 6,333,956 5,806,020 15.6 9.0
Total deposits 10,716,325 9,439,263 8,773,642 8,053,344 7,503,707 13.5 9.3
Short-term borrowed funds 3,551,851 2,830,633 2,198,689 2,345,139 1,486,905 25.5 29.0
Long-term debt 1,304,463 944,055 720,521 685,426 224,836 38.2 59.3
Total interest-bearing liabilities 13,224,001 11,015,603 9,807,921 9,364,521 7,517,761 20.0 15.0
Preferred stockholders' equity 501 540 571 629 703 (7.2) (8.5)
Common stockholders' equity 1,316,912 1,140,108 1,029,692 888,845 835,028 15.5 12.8
Parent company investment in subsidiaries 1,471,679 1,206,037 1,071,320 932,738 741,185 22.0 18.1
============================================== =========== =========== =========== =========== =========== ====== =========
<FN>
Notes:
EOP: End Of Period. EPCS: Earnings Per Common Share. DPCS: Dividends Per Common Share. AFS: Available For Sale. NM: Not Meaningful.
(A) Figures have been restated where appropriate to reflect two separate 3-for-2 stock splits in the form of 50% stock dividends
paid in May 1997 and February 1998.
(B) As required by SFAS No. 128, "Earnings Per Share",
"Earnings Per Common Share: Primary" has been restated to "Earnings Per Common Share: Basic" and
"Earnings Per Common Share: Fully Diluted" has been restated to "Earnings Per Common Share: Diluted".
</TABLE>
<PAGE>
<TABLE>
TABLE 1: FINANCIAL HIGHLIGHTS - FIVE YEAR SUMMARY (in thousands, except per share data & ratios) (continued)
<CAPTION>
5-Year
Compound
97/96 Growth
1997 1996 1995 1994 1993 % Chg Rate
<S> <C> <C> <C> <C> <C> <C> <C>
- - ----------------------------------------------- ----------- ----------- ----------- ----------- ----------- -------- --------
Problem Assets & Potential Problem Assets - End of Period:
Total nonaccruing loans $32,596 $33,276 $22,447 $23,868 $36,354 (2.0) (16.4)
Other real estate 5,764 4,855 4,134 3,352 16,465 18.7 (26.8)
Total nonperforming assets 38,360 38,131 26,581 27,220 52,819 0.6 (18.6)
Accruing loans past due 90 days or more 20,091 19,326 13,455 12,001 7,155 4.0 11.3
Total problem assets 58,451 57,457 40,036 39,221 59,974 1.7 (13.3)
Potential problem assets 7,423 8,271 12,319 12,018 19,179 (10.3) (20.2)
- - ----------------------------------------------- ----------- ----------- ----------- ----------- ----------- -------- --------
Reconciliation of the Reserve for Loan Losses:
Reserve for loan losses, beginning $134,428 $129,982 $133,855 $134,848 $127,847 3.4 1.2
Total loans charged off (85,309) (62,623) (52,547) (37,792) (40,467) 36.2 10.2
Total recoveries of loans charged off 32,861 26,769 27,592 30,700 28,602 22.8 10.9
Net loans charged off (52,448) (35,854) (24,955) (7,092) (11,865) 46.3 9.8
Provision for loan losses 62,686 40,300 21,082 825 11,684 55.5 15.7
Acquisitions & reclassifications 4,459 -- -- 5,274 7,182 NM 4.9
Reserve for loan losses, ending 149,125 134,428 129,982 133,855 134,848 10.9 3.1
- - ----------------------------------------------- ----------- ----------- ----------- ----------- ----------- -------- --------
Balance Sheet - Average:
Trading account securities $217,337 $197,308 $487,992 $629,308 $424,091 10.2 (12.8)
Available for sale (AFS) securities 3,492,092 2,857,948 2,339,035 2,254,772 1,792,591 22.2 15.4
Memo: fair value adjustment for AFS securities 6,890 (3,086) (21,335) (30,246) -- (323.3) NM
Loans, net of unearned income 9,991,216 8,679,860 8,196,759 7,244,205 5,917,816 15.1 12.8
Reserve for loan losses (139,672) (132,127) (131,630) (134,802) (128,801) 5.7 1.4
Deferred taxes on leases (187,588) (170,588) (160,244) (145,264) (132,749) 10.0 8.6
Total interest-earning assets, excluding fair value
adjustment AFS sec's and deferred tax on leases 13,554,151 11,671,304 11,038,396 10,072,306 8,319,615 16.1 12.0
Intangible assets 212,993 157,567 149,861 117,632 13,709 35.2 70.9
Total assets 15,207,247 13,045,607 12,232,262 11,139,838 9,214,260 16.6 12.4
Noninterest-bearing deposits 2,036,400 1,789,403 1,646,070 1,616,294 1,428,640 13.8 10.9
Interest-bearing deposits 7,592,495 7,095,040 6,745,786 6,083,333 5,527,474 7.0 7.2
Total deposits 9,628,895 8,884,443 8,391,856 7,699,627 6,956,114 8.4 8.0
Short-term borrowed funds 2,956,471 2,050,398 1,892,408 2,007,341 1,121,250 44.2 24.7
Long-term debt 1,040,147 746,885 728,788 368,096 204,129 39.3 58.6
Total interest-bearing liabilities 11,589,113 9,892,323 9,366,982 8,458,770 6,852,853 17.2 12.5
Preferred stockholders' equity 524 554 599 675 728 (5.4) (8.6)
Common stockholders' equity 1,215,566 1,067,293 985,576 868,060 783,930 13.9 12.1
- - ----------------------------------------------- ----------- ----------- ----------- ----------- ----------- -------- --------
Other Data - End of Period (not rounded):
Full-time equivalent employees 7,673 7,017 7,530 7,621 6,318 9.3 5.4
Domestic bank offices:
FS Bank (Utah) (A) 129 124 127 119 113 4.0 3.6
FS Bank (Idaho) (A) 88 87 91 91 86 1.1 0.9
FS Bank (Oregon) (A) 13 13 13 13 13 -- 3.4
FS Bank (Wyoming) (A) 8 7 6 6 2 14.3 51.6
FSB New Mexico 31 28 27 27 26 10.7 3.6
FSB Nevada 14 7 8 5 5 100.0 NM
Total domestic bank offices 283 266 272 261 245 6.4 4.2
============================================== =========== =========== =========== =========== =========== ====== =========
<FN>
Notes:
EOP: End Of Period. EPCS: Earnings Per Common Share. DPCS: Dividends Per Common Share. AFS: Available For Sale. NM: Not Meaningful.
(A) FSCO created FS Bank from these mergers: FSB Utah and FSB Idaho (June 1996); FSB Oregon (May 1997); FSB Wyoming (November 1997).
</TABLE>
<PAGE>
<TABLE>
TABLE 1: FINANCIAL HIGHLIGHTS - FIVE YEAR SUMMARY (continued)
<CAPTION>
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
- - ----------------------------------------------- ----------- ----------- ----------- ----------- ------------
Selected Ratios (%):
Return on average assets (ROAA) 1.35% 1.36% 0.98% 1.26% 1.24%
Tangible ROAA 1.48 1.50 1.11 1.41 1.39
Return on average stockholders' equity (ROAE) 16.93 16.65 12.17 16.13 14.54
Tangible ROAE 22.11 21.20 16.02 20.67 16.61
Net interest margin, FTE 4.37 4.49 4.38 4.63 4.95
Net interest spread, FTE 3.66 3.77 3.63 4.03 4.33
Operating expense ratio 58.79 60.44 70.71 65.36 66.72
Productivity ratio 3.64 3.81 4.33 3.89 4.19
Loans / deposits (EOP) 100.59 98.13 94.77 101.49 87.44
Loans / assets (EOP) 62.28 62.98 63.79 67.28 64.25
Reserve for loan losses (EOP) /:
Total loans 1.38 1.45 1.56 1.64 2.06
Nonaccruing loans 457.49 403.98 579.06 560.81 370.93
Nonaccruing + accruing loans past due 90 days 283.04 255.56 362.05 373.18 309.93
Nonaccruing loans / total loans 0.30 0.36 0.27 0.29 0.55
Nonaccruing + accruing lns. past due /
total loans 0.49 0.57 0.43 0.44 0.66
Nonperforming assets (EOP) /:
Total loans + other real estate 0.36 0.41 0.32 0.33 0.80
Total assets 0.22 0.26 0.20 0.22 0.52
Total equity 2.91 3.34 2.58 3.06 6.32
Total equity + reserve for loan losses 2.62 2.99 2.29 2.66 5.44
Problem assets (EOP) /:
Total loans + other real estate 0.54 0.62 0.48 0.48 0.91
Total assets 0.34 0.39 0.31 0.32 0.59
Total equity 4.44 5.04 3.89 4.41 7.18
Total equity + reserve for loan losses 3.99 4.51 3.45 3.83 6.18
Net loans charged off / average loans 0.52 0.41 0.30 0.10 0.20
- - ----------------------------------------------- ----------- ----------- ----------- ----------- ------------
Capital Ratios & Risk-Based Capital Ratios (%):
Stockholders' equity / assets (EOP) 7.61% 7.76% 7.90% 7.32% 8.18%
Stockholders' equity / assets [Avg] 8.00 8.19 8.06 7.80 8.52
Tangible common equity /
tangible assets (EOP) 6.15 6.67 6.84 6.03 8.07
Leverage ratio 7.51 8.16 7.12 6.88 8.08
Tier 1 risk-based capital ratio 10.58 11.34 10.35 9.84 11.82
Total (Tier 1 + 2)
risk-based capital ratio 13.46 14.50 13.86 11.98 14.15
=============================================== =========== =========== =========== =========== ============
<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>
MANAGEMENT'S DISCUSSION AND ANALYSIS
NOTES:
* All Common Stock and Earnings Per Common Share data in this report reflect two
separate 3-for-2 Common Stock splits in the form of 50% stock dividends, paid in
May 1997 and February 1998.
* As required by SFAS No. 128, "Earnings Per Share", "Earnings Per Common Share:
Primary" has been restated to "Earnings Per Common Share: Basic", and "Earnings
Per Common Share: Fully Diluted" has been restated to "Earnings Per Common
Share: Diluted".
1997 HIGHLIGHTS
Highlights of First Security Corporation's performance in 1997, and comparisons
to 1996, included:
RESULTS OF OPERATIONS - FULL YEAR 1997
* Record net income of $205.9 million, up $28.1 million or 15.8%.
* Record earnings per common share: diluted of $1.16, up $0.14 or 13.7%.
* Total revenues were $932.1 million, up $116.9 million or 14.3%.
* Consolidated operating expense ratio was 58.79%, improved from 60.44%.
RESULTS OF OPERATIONS - FOURTH QUARTER OF 1997
* Record net income of $55.3 million, up $4.1 million or 8.0%.
* Record earnings per common share: diluted of $0.31, up $0.02 or 6.9%.
FINANCIAL CONDITION AT DECEMBER 31, 1997
* Record total assets of $17.3 billion, up $2.6 billion or 17.7%.
* Record interest-earning assets of $15.3 billion, up $2.2 billion or 16.5%.
* Record loans of $10.8 billion, up $1.5 billion or 16.4%.
* Record stockholders' equity of $1.3 billion, up $176.8 million or 15.5%.
* Asset quality: total problem assets to total loans and ORE at 0.54%, down
from 0.62%.
* Ratio of reserve to nonaccruing loans at 457.49%, up from 403.98%.
* All equity and risk-based capital ratios continued to exceed regulatory
requirements for "well capitalized" status for FSCO and subsidiary banks.
OTHER 1997 HIGHLIGHTS
* FSCO declared a 3-for-2 common stock split in the form of a 50% stock
dividend.
* First Security Bank of Oregon and First Security Bank of Wyoming were merged
into First Security Bank, N.A.
* CrossLand Mortgage purchased the wholesale loan production branch operations
of Harbourton Mortgage Co., L.P.
* American Bancorp of Nevada was acquired and merged into FSCO.
YEAR-TO-DATE 1998 HIGHLIGHTS
* FSCO declared another 3-for-2 common stock split in the form of a 50% stock
dividend.
* Rio Grande Bancshares, Inc. and its two subsidiary banks were acquired and
merged into FSCO.
* FSCO signed a definitive agreement to acquire California State Bank.
* FSCO rescinded a stock buyback program begun in 1997.
OPERATING SUBSIDIARIES
First Security Corporation is the largest financial services organization
headquartered in the Intermountain West. Incorporated in 1928, FSCO is the
nation's oldest multistate bank holding company. At December 31, 1997, FSCO's
banks operated 283 full service domestic bank offices in 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 as of December 31, 1997, are
discussed below (see: "Table 2: Consolidating Statements").
* First Security Bank, N.A. (FS Bank) is a national bank with branches in Utah,
Idaho, Oregon, and Wyoming. During 1997, First Security Bank of Oregon and First
Security Bank of Wyoming were merged into FS Bank (see: "Corporate Structure").
FS Bank has two wholly owned operating subsidiaries:
** CrossLand Mortgage Corp (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, 1997, CrossLand Mortgage operated 81 offices in 26 states, and was
ranked among the top 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 national bank.
* First Security Bank of Nevada (FSB Nevada) is a Nevada 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.
* First Security Processing Services, Inc. (FS Processing Services) processes
bankcard and ATM 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 service
securities brokerage, investment advice, and discount brokerage services, and
makes available FSCO's "Achievement Funds", a family of proprietary mutual
funds.
** First Security Investment Management, Inc. provides investment management
and investment 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) makes
both equity and debt investments in small businesses and provides alternative
financing sources for small companies whose financing needs are typically not
being met by conventional lending sources.
* 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 to FSCO's subsidiaries.
* First Security Capital I (FS Capital I) is FSCO's special purpose business
trust supplying Tier 1 capital to FSCO's balance sheet for regulatory purposes.
* First Security Capital Markets, Inc. (FS Capital Markets) is a "Section 20"
full service securities broker dealer which provides business, municipal, and
individual customers a wide array of capital raising products as well as other
investment banking and securities related services.
* First Security Specialized Services Inc. (FS Specialized Services) provides
specialized finance consulting services for businesses.
Subsequent to year-end 1997, FSCO acquired Rio Grande Bancshares, Inc. (RGB) and
its subsidiaries, First National Bank of Dona Ana County and First National Bank
of Chaves County (see: "Mergers and Acquisitions").
<TABLE>
TABLE 2: CONSOLIDATING STATEMENTS (in thousands, except ratios) (A)
For the Year Ended December 31, 1997
<CAPTION>
Reserve Non- Return Return
Total Total for Loan Performing Total Total Net on Avg. on Avg.
Assets Loans, Net Losses Assets Deposits Equity Income Assets Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- - ----------------------------- ------------ ------------ ---------- --------- ------------ ----------- --------- ------- -------
Bank Subsidiaries:
FS Bank (B) $14,458,248 $9,527,861 ($115,424) $33,785 $8,767,642 $1,120,357 $192,606 1.52% 18.63%
FSB New Mexico 1,971,600 714,231 (18,577) 996 1,197,528 128,290 18,496 1.02 15.64
FSB Nevada 1,056,946 404,034 (10,148) 964 838,791 136,045 8,558 1.24 10.22
Consolidating adjustments (88,559) -- -- -- (79,024) -- (12) NM NM
- - ----------------------------- ------------ ------------ ---------- --------- ------------ ----------- --------- ------- -------
Total Bank Subsidiaries 17,398,235 10,646,126 (144,149) 35,745 10,724,937 1,384,692 219,648 1.46 17.81
- - ----------------------------- ------------ ------------ ---------- --------- ------------ ----------- --------- ------- -------
Nonbank Subsidiaries:
FS Leasing 148,946 130,044 (4,589) 2,615 -- 35,518 1,946 1.13 5.67
FS Processing Services 4,689 -- -- -- -- 1,110 (693) (16.89) (30.54)
FS Insurance 14,861 900 -- -- -- 10,705 1,395 9.77 14.12
FS Life Insurance 17,084 -- -- -- -- 13,570 1,428 9.22 11.51
FS Investment Services 4,939 20 -- -- -- 3,826 1,154 29.58 37.84
FS Business Investment 2,895 1,597 (387) -- -- 2,869 (425) (14.28) (14.41)
FS Service 36,449 866 -- -- -- 12,141 (5,257) (15.49) (50.45)
FS Information Technology 12,551 -- -- -- -- 1,892 (6,161) (49.60) NM
FS Capital I 155,236 154,640 -- -- -- 4,640 -- NM NM
FS Capital Markets 1,000 -- -- -- -- 1,000 -- NM NM
FS Specialized Services 10 -- -- -- -- 10 -- NM NM
Consolidating adjustments (3,702) -- -- -- -- (294) (55) NM NM
- - ----------------------------- ------------ ------------ ---------- --------- ------------ ----------- --------- ------- -------
Total Nonbank Subsidiaries 394,958 288,067 (4,976) 2,615 -- 86,987 (6,668) (2.30) (8.22)
- - ----------------------------- ------------ ------------ ---------- --------- ------------ ----------- --------- ------- -------
FSCO Parent Company only 1,971,342 477,226 -- -- -- 1,317,413 73,599 3.93 6.07
Consolidating adjustments (2,457,124) (631,872) -- -- (8,612) (1,471,679) (80,635) NM NM
- - ----------------------------- ------------ ------------ ---------- --------- ------------ ----------- --------- ------- -------
FSCO Consolidated $17,307,411 $10,779,547 ($149,125) $38,360 $10,716,325 $1,317,413 $205,944 1.35 16.93
============================= ============ ============ ========== ========= ============ =========== ========= ======= =======
<FN>
Notes:
(A) FSCO owns 100% of the stock of all of its subsidiaries.
(B) FSCO created FS Bank from these mergers: FSB Utah and FSB Idaho (June 1996); FSB Oregon (May 1997); FSB Wyoming (November 1997).
</TABLE>
LINE OF BUSINESS SEGMENTS
FSCO's organizational management structure now consists of six customer-focused
"lines of business": Community Banking Services; Retail Lending Services;
Business Banking Services; Finance and Capital Markets; Technology and
Processing Services; and Corporate Services.
* Community Banking Services provides transaction deposit, personal investment,
private banking, personal trust, insurance, electronic banking, and customer
services.
* Retail Lending Services provides a full range of credit products to retail
customers including consumer loans (direct and indirect vehicle, credit cards,
student loans, and other), residential real estate loans (mortgage, home equity,
and construction), and commercial loans under $100,000.
* Business Banking Services provides a full range of products to business
customers including commercial loans over $100,000, commercial real estate loans
(term and construction), leases, and banking, trust, and financial services for
businesses.
* Finance and Capital Markets combines FSCO's Capital Markets, Treasury,
Purchasing, Comptroller, and Corporate Communications functions.
* Technology and Processing Services combines FSCO's computer systems
(development, integration, and maintenance), items processing functions, and
customer service centers.
* Corporate Services combines FSCO's General Counsel, Corporate Compliance,
Human Resources, Facilities Administration, and Internal Audit functions.
ANALYSIS OF STATEMENTS OF INCOME
EARNINGS SUMMARY
NOTES:
* All common stock and earnings per common share data in this report reflect
two separate 3-for-2 common stock splits in the form of 50% stock dividends,
paid in May 1997 and February 1998.
* As required by SFAS No. 128, "Earnings Per Share", "Earnings Per Common
Share: Primary" has been restated to "Earnings Per Common Share: Basic", and
"Earnings Per Common Share: Fully Diluted" has been restated to "Earnings Per
Common Share: Diluted".
FSCO earned record net income totaling $205.9 million for 1997, up $28.1 million
or 15.8% from $177.8 million earned in 1996, which in turn was up $57.8 million
or 48.2% from $120.0 million earned in 1995 (see: "Table 1: Financial
Highlights"; and "Factors That May Affect Future Results of Operations and
Financial Condition"). This net income generated a 1.35% ROAA and a 16.93% ROAE
for 1997, compared with a 1.36% ROAA and a 16.65% ROAE for 1996 and a 0.98% ROAA
and a 12.17% ROAE for 1995. Earnings per common share: diluted were a record
$1.16 for the year, up $0.14 or 13.7% from $1.02 for 1996, which in turn was up
$0.32 or 45.7% from $0.70 for 1995. For 1997, 1996, and 1995, respectively, the
tangible ROAA was 1.48%, 1.50%, and 1.11%, the tangible ROAE was 22.11%, 21.20%,
and 16.02%, while tangible earnings per common share: diluted were $1.25, $1.11,
and $0.78.
FSCO's net income was a record $55.3 million for the fourth quarter of 1997, up
$4.1 million or 8.0% from $51.2 million in the fourth quarter of 1996. This net
income generated a 1.33% ROAA and a 16.86% ROAE for the quarter, compared with a
1.47% ROAA and a 18.42% ROAE for the year-ago quarter. Earnings per common
share: diluted were a record $0.31 for the quarter, up $0.02 or 6.9% from $0.29
for the year-ago quarter. The tangible ROAA was 1.39%, the tangible ROAE was
21.49%, and tangible earnings per common share: diluted were $0.32 for the
fourth quarter of 1997, compared with a 1.58% tangible ROAA, a 22.84% tangible
ROAE, and tangible earnings per common share: diluted of $0.31 for the year-ago
quarter.
NET INTEREST INCOME AND NET INTEREST MARGIN
The largest component of FSCO's 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.
FSCO's net interest income FTE totaled a record $592.9 million for 1997, up
$68.6 million or 13.1% from 1996 (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 increases of 15.1% in average loans, inclusive of the impact of various
asset securitizations / sales totaling $925 million (see: "Interest-Earning
Assets and Asset Quality - Loans"), and 22.2% in average AFS securities,
partially offset by a 17.2% increase in average interest-bearing liabilities.
By comparison, FSCO's net interest income FTE totaled $524.3 million for 1996,
up $40.9 million or 8.5% from 1995. That increase was due to volume growth of
5.9% in average loans and 22.2% in average AFS 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.
FSCO's net interest margin was 4.37% for 1997, down only 12 basis points from
1996, which in turn was up only 11 basis points from 1995. The decrease in 1997
was due primarily to the combined impact of increased short term borrowed funds
and $300 million of long-term debt issued in the fourth quarter of 1996 to take
advantage of relatively low long-term interest rates. During 1997, a one basis
point (0.01%) change in FSCO's net interest margin FTE equaled approximately
$1.4 million of net interest income FTE.
Over the past 11 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>
For the years ended December 31, 1997 1996
- - -------------------------------------------- ------------ ---------- ------ ------------ ---------- ------
Fully Fully
Taxable Avg % Taxable Avg %
Average Equivalent Yield/ Average Equivalent Yield/
Balance Interest Rate Balance Interest Rate
<S> <C> <C> <C> <C> <C> <C>
- - -------------------------------------------- ------------ ---------- ------ ------------ ---------- ------
Assets:
Interest-Earning Assets:
Federal funds sold and securities purchased $46,437 $2,530 5.45 $84,575 $4,483 5.30
Interest-bearing deposits in other banks 1,547 69 4.46 19,115 1,059 5.54
Trading account securities 217,337 12,724 5.85 197,308 10,094 5.12
Available for sale (AFS) securities (B) 3,485,202 235,078 6.75 2,861,034 187,830 6.57
Loans, net of unearned income and
deferred taxes on leases (C) 9,803,628 913,754 9.32 8,509,272 792,026 9.31
- - -------------------------------------------- ------------ ---------- ------ ------------ ---------- ------
Total Interest-Earning Assets, Excluding
Fair Value Adjustments for AFS Securities
and Deferred Taxes On Leases (B) 13,554,151 1,164,155 8.59 11,671,304 995,492 8.53
- - -------------------------------------------- ------------ ---------- ------ ------------ ---------- ------
Cash and due from banks 727,317 655,931
Premises and equipment, net 253,259 222,209
Other real estate 3,896 4,702
Reserve for loan losses (139,672) (132,127)
Other assets 613,818 456,086
Deferred taxes on leases, deducted above 187,588 170,588
Fair value adjustment for AFS securities 6,890 (3,086)
- - -------------------------------------------- ------------ ---------- ------ ------------ ---------- ------
Total Assets $15,207,247 $13,045,607
============================================ ============ ========== ====== ============ ========== ======
Liabilities:
Interest-Bearing Liabilities:
Interest-Bearing Deposits:
Interest-bearing demand accounts $426,423 9,419 2.21 $860,764 19,594 2.28
Savings and money market accounts 3,254,208 103,866 3.19 2,750,436 92,838 3.38
Time deposits of $100,000 or more 887,002 51,433 5.80 725,536 40,768 5.62
Other time deposits 3,024,862 172,495 5.70 2,758,304 159,810 5.79
- - -------------------------------------------- ------------ ---------- ------ ------------ ---------- ------
Total Interest-Bearing Deposits 7,592,495 337,213 4.44 7,095,040 313,010 4.41
- - -------------------------------------------- ------------ ---------- ------ ------------ ---------- ------
Federal funds purchased and securities sold 2,647,914 141,114 5.33 1,794,685 90,523 5.04
Other short-term borrowings 308,557 21,271 6.89 255,713 17,558 6.87
Long-term debt 1,040,147 71,687 6.89 746,885 50,141 6.71
- - -------------------------------------------- ------------ ---------- ------ ------------ ---------- ------
Total Interest-Bearing Liabilities 11,589,113 571,285 4.93 9,892,323 471,232 4.76
- - -------------------------------------------- ------------ ---------- ------ ------------ ---------- ------
Noninterest-bearing deposits 2,036,400 1,789,403
Other liabilities 365,644 296,034
- - -------------------------------------------- ------------ ---------- ------ ------------ ---------- ------
Total Liabilities 13,991,157 11,977,760
- - -------------------------------------------- ------------ ---------- ------ ------------ ---------- ------
Stockholders' Equity:
Preferred stockholders' equity 524 554
Common stockholders' equity 1,215,566 1,067,293
- - -------------------------------------------- ------------ ---------- ------ ------------ ---------- ------
Total Stockholders' Equity 1,216,090 1,067,847
- - -------------------------------------------- ------------ ---------- ------ ------------ ---------- ------
Total Liabilities And Stockholders' Equity $15,207,247 $13,045,607
============================================ ============ ========== ====== ============ ========== ======
Interest income / earning assets 8.59 8.53
Interest expense / earning assets 4.22 4.04
- - -------------------------------------------- ------------ ---------- ------ ------------ ---------- ------
Net interest income / earning assets 592,870 4.37 524,260 4.49
Less FTE adjustment 10,370 7,684
- - -------------------------------------------- ------------ ---------- ------ ------------ ---------- ------
Net Interest Income, Per Statements Of Income $582,500 $516,576
============================================ ============ ========== ====== ============ ========== ======
Loan Fees Included In Interest Income $37,865 $27,675
============================================ ============ ========== ====== ============ ========== ======
<FN>
Notes:
(A) Interest is presented on a fully taxable equivalent (FTE) basis, calculated on federal and state taxes applicable to the
subsidiary carrying the asset. The combined tax rate was approximately 39% for 1997-1993, and 38% for 1992.
(B) Yields on available for sale (AFS) securities exclude average fair value adjustments. Yields for 1995 and 1994 have been
restated to reflect this change. During 1995 and 1994, $225,715 and $270,079, respectively, were classified as held to maturity
(HTM) securities. Prior to 1994, all securities other than trading account securities were classified as HTM securities.
At the end of 1995, FSCO elected to classify all securities as AFS securities.
(C) Loans include nonaccruing loans.
</TABLE>
<PAGE>
<TABLE>
TABLE 3: AVERAGE BALANCE SHEETS, NET INTEREST INCOME, YIELDS AND RATES (in thousands) (A) (continued)
<CAPTION>
For the years ended December 31, 1995 1994
- - -------------------------------------------- ------------ ---------- ------ ------------ ---------- ------
Fully Fully
Taxable Avg % Taxable Avg %
Average Equivalent Yield/ Average Equivalent Yield/
Balance Interest Rate Balance Interest Rate
<S> <C> <C> <C> <C> <C> <C>
- - -------------------------------------------- ------------ ---------- ------ ------------ ---------- ------
Assets:
Interest-Earning Assets:
Federal funds sold and securities purchased $140,317 $8,166 5.82 $56,724 $2,320 4.09
Interest-bearing deposits in other banks 13,202 778 5.89 2,315 83 3.59
Trading account securities 487,992 29,130 5.97 629,308 33,983 5.40
Available for sale (AFS) securities (B) 2,360,370 147,542 6.25 2,285,018 126,148 5.52
Loans, net of unearned income and
deferred taxes on leases (C) 8,036,515 757,579 9.43 7,098,941 618,858 8.72
- - -------------------------------------------- ------------ ---------- ------ ------------ ---------- ------
Total Interest-Earning Assets, Excluding
Fair Value Adjustments for AFS Securities
and Deferred Taxes On Leases (B) 11,038,396 943,195 8.54 10,072,306 781,392 7.76
- - -------------------------------------------- ------------ ---------- ------ ------------ ---------- ------
Cash and due from banks 604,295 604,479
Premises and equipment, net 201,749 165,545
Other real estate 3,923 8,856
Reserve for loan losses (131,630) (134,802)
Other assets 376,620 308,436
Deferred taxes on leases, deducted above 160,244 145,264
Fair value adjustment for AFS securities (21,335) (30,246)
- - -------------------------------------------- ------------ ---------- ------ ------------ ---------- ------
Total Assets $12,232,262 $11,139,838
============================================ ============ ========== ====== ============ ========== ======
Liabilities:
Interest-Bearing Liabilities:
Interest-Bearing Deposits:
Interest-bearing demand accounts $1,069,970 20,863 1.95 $1,097,185 18,932 1.73
Savings and money market accounts 2,369,327 88,935 3.75 2,549,142 78,029 3.06
Time deposits of $100,000 or more 690,820 41,222 5.97 416,886 18,558 4.45
Other time deposits 2,615,669 149,126 5.70 2,020,120 90,206 4.47
- - -------------------------------------------- ------------ ---------- ------ ------------ ---------- ------
Total Interest-Bearing Deposits 6,745,786 300,146 4.45 6,083,333 205,725 3.38
- - -------------------------------------------- ------------ ---------- ------ ------------ ---------- ------
Federal funds purchased and securities sold 1,685,763 94,608 5.61 1,934,468 81,735 4.23
Other short-term borrowings 206,645 13,663 6.61 72,873 4,071 5.59
Long-term debt 728,788 51,451 7.06 368,096 23,884 6.49
- - -------------------------------------------- ------------ ---------- ------ ------------ ---------- ------
Total Interest-Bearing Liabilities 9,366,982 459,868 4.91 8,458,770 315,415 3.73
- - -------------------------------------------- ------------ ---------- ------ ------------ ---------- ------
Noninterest-bearing deposits 1,646,070 1,616,294
Other liabilities 233,035 196,039
- - -------------------------------------------- ------------ ---------- ------ ------------ ---------- ------
Total Liabilities 11,246,087 10,271,103
- - -------------------------------------------- ------------ ---------- ------ ------------ ---------- ------
Stockholders' Equity:
Preferred stockholders' equity 599 675
Common stockholders' equity 985,576 868,060
- - -------------------------------------------- ------------ ---------- ------ ------------ ---------- ------
Total Stockholders' Equity 986,175 868,735
- - -------------------------------------------- ------------ ---------- ------ ------------ ---------- ------
Total Liabilities And Stockholders' Equity $12,232,262 $11,139,838
============================================ ============ ========== ====== ============ ========== ======
Interest income / earning assets 8.54 7.76
Interest expense / earning assets 4.16 3.13
- - -------------------------------------------- ------------ ---------- ------ ------------ ---------- ------
Net interest income / earning assets 483,327 4.38 465,977 4.63
Less FTE adjustment 8,336 7,875
- - -------------------------------------------- ------------ ---------- ------ ------------ ---------- ------
Net Interest Income, Per Statements Of Income $474,991 $458,102
============================================ ============ ========== ====== ============ ========== ======
Loan Fees Included In Interest Income $24,025 $18,658
============================================ ============ ========== ====== ============ ========== ======
<FN>
Notes:
(A) Interest is presented on a fully taxable equivalent (FTE) basis, calculated on federal and state taxes applicable to the
subsidiary carrying the asset. The combined tax rate was approximately 39% for 1997-1993, and 38% for 1992.
(B) Yields on available for sale (AFS) securities exclude average fair value adjustments. Yields for 1995 and 1994 have been
restated to reflect this change. During 1995 and 1994, $225,715 and $270,079, respectively, were classified as held to maturity
(HTM) securities. Prior to 1994, all securities other than trading account securities were classified as HTM securities.
At the end of 1995, FSCO elected to classify all securities as AFS securities.
(C) Loans include nonaccruing loans.
</TABLE>
<PAGE>
<TABLE>
TABLE 3: AVERAGE BALANCE SHEETS, NET INTEREST INCOME, YIELDS AND RATES (in thousands) (A) (continued0
<CAPTION>
For the years ended December 31, 1993
- - -------------------------------------------- ------------ ---------- ------
Fully
Taxable Avg %
Average Equivalent Yield/
Balance Interest Rate
<S> <C> <C> <C>
- - -------------------------------------------- ------------ ---------- ------
Assets:
Interest-Earning Assets:
Federal funds sold and securities purchased $302,412 $9,191 3.04
Interest-bearing deposits in other banks 15,454 456 2.95
Trading account securities 424,091 20,841 4.91
Available for sale (AFS) securities (B) 1,792,591 106,195 5.92
Loans, net of unearned income and
deferred taxes on leases (C) 5,785,067 515,682 8.91
- - -------------------------------------------- ------------ ---------- ------
Total Interest-Earning Assets, Excluding
Fair Value Adjustments for AFS Securities
and Deferred Taxes On Leases (B) 8,319,615 652,365 7.84
- - -------------------------------------------- ------------ ---------- ------
Cash and due from banks 547,758
Premises and equipment, net 137,649
Other real estate 26,506
Reserve for loan losses (128,801)
Other assets 178,784
Deferred taxes on leases, deducted above 132,749
Fair value adjustment for AFS securities --
- - -------------------------------------------- ------------ ---------- ------
Total Assets $9,214,260
============================================ ============ ========== ======
Liabilities:
Interest-Bearing Liabilities:
Interest-Bearing Deposits:
Interest-bearing demand accounts $962,411 18,239 1.90
Savings and money market accounts 2,220,848 68,275 3.07
Time deposits of $100,000 or more 340,714 14,124 4.15
Other time deposits 2,003,501 92,354 4.61
- - -------------------------------------------- ------------ ---------- ------
Total Interest-Bearing Deposits 5,527,474 192,992 3.49
- - -------------------------------------------- ------------ ---------- ------
Federal funds purchased and securities sold 1,065,495 31,639 2.97
Other short-term borrowings 55,755 2,340 4.20
Long-term debt 204,129 13,823 6.77
- - -------------------------------------------- ------------ ---------- ------
Total Interest-Bearing Liabilities 6,852,853 240,794 3.51
- - -------------------------------------------- ------------ ---------- ------
Noninterest-bearing deposits 1,428,640
Other liabilities 148,109
- - -------------------------------------------- ------------ ---------- ------
Total Liabilities 8,429,602
- - -------------------------------------------- ------------ ---------- ------
Stockholders' Equity:
Preferred stockholders' equity 728
Common stockholders' equity 783,930
- - -------------------------------------------- ------------ ---------- ------
Total Stockholders' Equity 784,658
- - -------------------------------------------- ------------ ---------- ------
Total Liabilities And Stockholders' Equity $9,214,260
============================================ ============ ========== ======
Interest income / earning assets 7.84
Interest expense / earning assets 2.89
- - -------------------------------------------- ------------ ---------- ------
Net interest income / earning assets 411,571 4.95
Less FTE adjustment 7,633
- - -------------------------------------------- ------------ ---------- ------
Net Interest Income, Per Statements Of Income $403,938
============================================ ============ ========== ======
Loan Fees Included In Interest Income $13,708
============================================ ============ ========== ======
<FN>
Notes:
(A) Interest is presented on a fully taxable equivalent (FTE) basis, calculated on federal and state taxes applicable to the
subsidiary carrying the asset. The combined tax rate was approximately 39% for 1997-1993, and 38% for 1992.
(B) Yields on available for sale (AFS) securities exclude average fair value adjustments. Yields for 1995 and 1994 have been
restated to reflect this change. During 1995 and 1994, $225,715 and $270,079, respectively, were classified as held to maturity
(HTM) securities. Prior to 1994, all securities other than trading account securities were classified as HTM securities.
At the end of 1995, FSCO elected to classify all securities as AFS securities.
(C) Loans include nonaccruing loans.
</TABLE>
<PAGE>
<TABLE>
TABLE 4: ANALYSIS OF INTEREST CHANGES DUE TO VOLUMES AND RATES (in thousands) (A)
<CAPTION>
1997 over 1996 1996 over 1995
- - ----------------------------------------- ----------------------------- -----------------------------
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 ($2,022) $69 ($1,953) ($3,244) ($439) ($3,683)
Interest-bearing deposits in other banks (973) (17) (990) 348 (67) 281
Trading account securities 1,025 1,605 2,630 (17,352) (1,684) (19,036)
Available for sale (AFS) securities 40,977 6,271 47,248 31,296 8,992 40,288
Loans, net of unearned income and
deferred taxes on leases (B) 120,476 1,252 121,728 44,565 (10,118) 34,447
- - ----------------------------------------- ----------------------------- -----------------------------
Total Interest-Earning Assets, Excluding
Fair Value Adjustments for AFS Securities
and Deferred Taxes On Leases (B) 159,483 9,180 168,663 55,613 (3,316) 52,297
- - ----------------------------------------- ----------------------------- -----------------------------
Interest-Bearing Liabilities:
Interest-Bearing Deposits:
Interest-bearing demand accounts (9,887) (288) (10,175) (4,079) 2,810 (1,269)
Savings and money market accounts 17,004 (5,976) 11,028 14,305 (10,402) 3,903
Time deposits of $100,000 or more 9,073 1,592 10,665 2,072 (2,526) (454)
Other time deposits 15,444 (2,759) 12,685 8,132 2,552 10,684
- - ----------------------------------------- ----------------------------- -----------------------------
Total Interest-Bearing Deposits 31,634 (7,431) 24,203 20,430 (7,566) 12,864
- - ----------------------------------------- ----------------------------- -----------------------------
Federal funds purchased and securities sold 43,036 7,555 50,591 6,113 (10,198) (4,085)
Other short-term borrowings 3,628 85 3,713 3,244 651 3,895
Long-term debt 19,688 1,858 21,546 1,278 (2,588) (1,310)
- - ----------------------------------------- ----------------------------- -----------------------------
Total Interest-Bearing Liabilities 97,986 2,067 100,053 31,065 (19,701) 11,364
- - ----------------------------------------- ----------------------------- -----------------------------
Change In Net Interest Income $61,497 $7,113 $68,610 $24,548 $16,385 $40,933
========================================= ========= ========= ======== ========= ========= ========
<FN>
Notes:
(A) Changes not due entirely to changes in volume or rate have been allocated to rate. Interest is presented on a fully taxable
equivalent (FTE) basis, calculated on federal and state taxes applicable to the subsidiary carrying the asset. The combined
tax rate was approximately 39% for 1997-1993, and 38% for 1992.
(B) Loan fees included in interest income: 1997: $37,865; 1996: $27,675; 1995: $24,025; 1994: $18,658; 1993: $13,708;
and 1992: $12,736.
</TABLE>
<TABLE>
TABLE 4: ANALYSIS OF INTEREST CHANGES DUE TO VOLUMES AND RATES (in thousands) (A) (continued)
<CAPTION>
1995 over 1994 1994 over 1993
- - ----------------------------------------- ----------------------------- -----------------------------
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 $3,419 $2,427 $5,846 ($7,467) $596 ($6,871)
Interest-bearing deposits in other banks 390 305 695 (388) 15 (373)
Trading account securities (7,631) 2,778 (4,853) 10,085 3,057 13,142
Available for sale (AFS) securities 4,160 17,234 21,394 29,172 (9,219) 19,953
Loans, net of unearned income and
deferred taxes on leases (B) 81,734 56,987 138,721 117,119 (13,943) 103,176
- - ----------------------------------------- ----------------------------- -----------------------------
Total Interest-Earning Assets, Excluding
Fair Value Adjustments for AFS Securities
and Deferred Taxes On Leases (B) 82,072 79,731 161,803 148,521 (19,494) 129,027
- - ----------------------------------------- ----------------------------- -----------------------------
Interest-Bearing Liabilities:
Interest-Bearing Deposits:
Interest-bearing demand accounts (470) 2,401 1,931 2,554 (1,861) 693
Savings and money market accounts (5,504) 16,410 10,906 10,093 (339) 9,754
Time deposits of $100,000 or more 12,194 10,470 22,664 3,158 1,276 4,434
Other time deposits 26,594 32,326 58,920 766 (2,914) (2,148)
- - ----------------------------------------- ----------------------------- -----------------------------
Total Interest-Bearing Deposits 32,814 61,607 94,421 16,571 (3,838) 12,733
- - ----------------------------------------- ----------------------------- -----------------------------
Federal funds purchased and securities sold (10,508) 23,381 12,873 25,803 24,293 50,096
Other short-term borrowings 7,473 2,119 9,592 718 1,013 1,731
Long-term debt 23,404 4,163 27,567 11,103 (1,042) 10,061
- - ----------------------------------------- ----------------------------- -----------------------------
Total Interest-Bearing Liabilities 53,183 91,270 144,453 54,195 20,426 74,621
- - ----------------------------------------- ----------------------------- -----------------------------
Change In Net Interest Income $28,889 ($11,539) $17,350 $94,326 ($39,920) $54,406
========================================= ========= ========= ======== ========= ========= ========
<FN>
Notes:
(A) Changes not due entirely to changes in volume or rate have been allocated to rate. Interest is presented on a fully taxable
equivalent (FTE) basis, calculated on federal and state taxes applicable to the subsidiary carrying the asset. The combined
tax rate was approximately 39% for 1997-1993, and 38% for 1992.
(B) Loan fees included in interest income: 1997: $37,865; 1996: $27,675; 1995: $24,025; 1994: $18,658; 1993: $13,708;
and 1992: $12,736.
</TABLE>
<PAGE>
<TABLE>
TABLE 4: ANALYSIS OF INTEREST CHANGES DUE TO VOLUMES AND RATES (in thousands) (A) (continued)
<CAPTION>
1993 over 1992
- - ----------------------------------------- -----------------------------
Changes Due to: Total
Volume Rate Change
<S> <C> <C> <C>
- - ----------------------------------------- -----------------------------
Interest-Earning Assets:
Federal funds sold and securities purchased $3,963 ($1,188) $2,775
Interest-bearing deposits in other banks (32) (202) (234)
Trading account securities (375) (5,953) (6,328)
Available for sale (AFS) securities 5,330 (20,276) (14,946)
Loans, net of unearned income and
deferred taxes on leases (B) 42,669 (37,640) 5,029
- - ----------------------------------------- -----------------------------
Total Interest-Earning Assets, Excluding
Fair Value Adjustments for AFS Securities
and Deferred Taxes On Leases (B) 51,555 (65,259) (13,704)
- - ----------------------------------------- -----------------------------
Interest-Bearing Liabilities:
Interest-Bearing Deposits:
Interest-bearing demand accounts 2,573 (7,428) (4,855)
Savings and money market accounts 14,157 (14,426) (269)
Time deposits of $100,000 or more (2,750) (3,342) (6,092)
Other time deposits (13,970) (19,957) (33,927)
- - ----------------------------------------- -----------------------------
Total Interest-Bearing Deposits 10 (45,153) (45,143)
- - ----------------------------------------- -----------------------------
Federal funds purchased and securities sold 4,667 (4,827) (160)
Other short-term borrowings 101 21 122
Long-term debt 8,090 (2,614) 5,476
- - ----------------------------------------- -----------------------------
Total Interest-Bearing Liabilities 12,868 (52,573) (39,705)
- - ----------------------------------------- -----------------------------
Change In Net Interest Income $38,687 ($12,686) $26,001
========================================= ========= ========= ========
<FN>
Notes:
(A) Changes not due entirely to changes in volume or rate have been allocated to rate. Interest is presented on a fully taxable
equivalent (FTE) basis, calculated on federal and state taxes applicable to the subsidiary carrying the asset. The combined
tax rate was approximately 39% for 1997-1993, and 38% for 1992.
(B) Loan fees included in interest income: 1997: $37,865; 1996: $27,675; 1995: $24,025; 1994: $18,658; 1993: $13,708;
and 1992: $12,736.
</TABLE>
PROVISION FOR LOAN LOSSES
FSCO's provision for loan losses totaled $62.7 million for 1997, up $22.4
million or 55.5% from 1996, which in turn was 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").
NONINTEREST INCOME
FSCO's noninterest income totaled a record $349.6 million for 1997, up $51.0
million or 17.1% from 1996 (see: "Table 5: Noninterest Income"). In addition,
noninterest income was a record $105.0 million for the fourth quarter of 1997,
up $20.9 million or 24.8% from the year-ago quarter. These increases were the
result of FSCO's continued emphasis on increasing and diversifying sources of
noninterest income, improving the value pricing of all fee-based services, plus
the growing impact of mortgage banking activities and ongoing asset
securitizations / sales. FSCO's noninterest income for 1997 amounted to 37.51%
of total revenues, up from 36.64% for 1996 and 35.94% for 1995.
By comparison, FSCO's noninterest income totaled $298.7 million for 1996, up
$32.2 million or 12.1% from 1995. That increase was due primarily to FSCO's
ongoing 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 AFS
securities increased due to a variety of strategies which included swapping
short-term securities for those with longer maturities and greater returns.
<TABLE>
TABLE 5: NONINTEREST INCOME (in thousands)
<CAPTION>
5-Year
97/96 Compound
For the Years Ended December 31, 1997 1996 1995 1994 1993 % Chg Growth Rate
<S> <C> <C> <C> <C> <C> <C> <C>
- - ------------------------------------------------------------------------------------------------------------------------------------
Noninterest Income:
Service charges on deposit accounts $ 87,776 $ 80,924 $ 68,114 $ 62,211 $ 55,865 8.5 11.3
Other service charges, collections,
commissions and fees 54,020 45,560 36,208 27,544 24,654 18.6 20.6
Asset securitization gains 17,515 2,765 -- -- -- 533.5 NM
Bankcard servicing fees and
third-party processing fees 32,509 28,683 24,774 30,234 33,083 13.3 3.5
Insurance commissions and fees 16,975 15,016 13,655 12,631 9,953 13.0 14.3
Mortgage banking activities 117,849 97,564 86,235 41,968 24,502 20.8 45.7
Mortgage banking activities MSR amortization (16,146) (11,896) (9,316) (9,073) (823) (35.7) NM
Trust (fiduciary) commissions and fees 26,195 23,104 20,894 20,706 18,980 13.4 7.6
Trading account securities gains (losses) 1,446 2,383 6,390 (2,386) (4,856) (39.3) NM
Available for sale securities gains (losses) 3,085 4,549 (806) (1,330) 730 (32.2) 29.1
Other 8,421 10,034 20,344 15,043 5,071 (16.1) 8.4
- - ------------------------------------------------------------------------------------------------------------------------------------
Total Noninterest Income $349,645 $298,686 $266,492 $197,548 $167,159 17.1 19.4
====================================================================================================================================
<FN>
Notes:
NM: Not Meaningful.
</TABLE>
NONINTEREST EXPENSES
FSCO's noninterest expenses totaled $554.1 million for 1997, up $56.8 million or
11.4% from 1996 (see: "Table 6: Noninterest Expenses"). FSCO has strengthened
its ability to control noninterest expenses, as increases were primarily due to
additions of revenue-generating personnel and facilities, volume growth,
acquisitions, and investments in technological advances and upgrades appropriate
for a high performance financial services company. The components of FSCO's
noninterest expenses for 1997, compared with 1996, are discussed below.
* FSCO's salaries and benefits expense totaled $288.1 million for 1997, up $26.7
million or 10.2% from 1996. This was primarily due to personnel increases in
mortgage and consumer loan production, customer service, personal financial
services, and acquisitions. As a result, full-time equivalent employees were
increased to 7,673 at December 31, 1997, up 656 or 9.3% from year-end 1996.
* FSCO's nonpersonnel expenses totaled $266.0 million for 1997, up $30.0 million
or 12.7% from 1996. This increase was due to many factors including: additions
to production and services facilities with related increases in occupancy, rent,
furniture, equipment, and telephone expenses; volume growth in bankcard
interbank interchange and fees; volume growth in loans, deposits, and banking
services with related increases in credit, appraisal, and legal expenses;
marketing campaigns focused on deposit gathering; consulting expenses for
FSCO's line of business restructuring and reporting systems; higher ORE losses;
and $2.6 million expended in 1997 as part of FSCO's efforts to resolve its "Year
2000 Computer Issue" (see: "Technological Change And Year 2000 Computer Issue").
The above increases were partially offset by a reduction of stationery and
supplies expense, and a decrease in the amortization of intangibles.
By comparison, FSCO's noninterest expenses totaled $497.4 million for 1996,
reduced $32.8 million or 6.2% from 1995. Excluding the 1995 restructuring charge
for Project VISION, FSCO's restructuring project, noninterest expenses for 1996
were up $11.2 million or 2.3% from $486.2 million in 1995. Salaries and benefits
expense remained unchanged as Project VISION reductions in employees were offset
by additional personnel needed in loan production, centralized customer service,
and personal financial services. Nonpersonnel expenses, excluding the 1995
restructuring charge, increased due to: volume growth in bankcard interbank
interchange fees; higher depreciation expense on buildings, furniture, and
equipment; the absence of ORE recoveries and other favorable events that had
been generated in 1995; and advertising campaigns focused on deposit gathering.
These increases were partially offset by decreased insurance expense as FSCO was
not required to pay FDIC insurance during 1996, and by general noninterest
expense reductions related to Project VISION.
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 58.79% for 1997, an
improvement of 165 basis points from 60.44% for 1996 and 1,192 basis points from
70.71% for 1995.
CrossLand Mortgage has a higher operating expense ratio than FSCO's bank
subsidiaries, due to its labor intensive business of originating, selling, and
servicing mortgage loans. Excluding the impact of CrossLand Mortgage, FSCO's
"core" operating expense ratio was 57.42% for 1997, an improvement of 92 basis
points from 58.34% for 1996 and 1,171 basis points from 69.13% for 1995.
The productivity ratio was 3.64% for 1997, an improvement from 3.81% for 1996,
4.33% for 1995, and 3.97% for 1995 excluding the restructuring charge.
FSCO remains 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.
<TABLE>
TABLE 6: NONINTEREST EXPENSES (in thousands)
<CAPTION>
5-Year
97/96 Compound
For the Years Ended December 31, 1997 1996 1995 1994 1993 %Chg Growth Rate
<S> <C> <C> <C> <C> <C> <C> <C>
- - ------------------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSES:
Salaries and employee benefits $ 288,096 $ 261,358 $ 261,410 $ 222,895 $ 175,696 10.2 12.3
Amortization of intangibles 6,031 7,977 8,712 6,792 3,312 (24.4) 17.5
Armored and messenger 5,809 5,564 5,499 5,093 4,667 4.4 7.7
Bankcard interbank interchange and fees 32,352 27,694 17,263 16,301 13,983 16.8 23.5
Credit, appraisal and repossession 16,954 14,200 14,267 12,920 7,274 19.4 22.1
Fees 9,351 8,832 8,638 8,597 6,775 5.9 7.2
Furniture and equipment 43,578 40,987 36,285 30,987 27,858 6.3 10.4
Insurance 6,012 5,254 15,793 23,454 19,697 14.4 (20.4)
Marketing 13,760 11,993 11,062 11,973 10,689 14.7 12.6
Occupancy, net 33,268 29,776 27,862 25,874 24,224 11.7 11.4
Other real estate expense
and loss provision (recovery) 1,805 286 (2,514) (6,543) 8,639 531.1 (30.5)
Postage 11,004 10,748 11,272 9,708 7,428 2.4 8.7
Professional 14,383 8,437 11,514 10,942 13,175 70.5 7.2
Stationery and supplies 17,772 19,060 18,582 16,336 15,956 (6.8) 6.7
Telephone 15,809 13,683 13,278 11,834 8,610 15.5 16.6
Travel 9,284 7,687 8,178 7,884 6,305 20.8 12.6
Other 28,864 23,831 19,104 18,601 31,858 21.1 6.1
Restructuring charge -- -- 44,000 -- -- -- --
- - ------------------------------------------------------------------------------------------------------------------------------------
Total Noninterest Expenses $ 554,132 $ 497,367 $ 530,205 $ 433,648 $ 386,146 11.4 10.3
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PROVISION FOR INCOME TAXES
FSCO employs several 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 liabilities have been an important source
of 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 1997, FSCO continued to employ
these and other tax planning strategies.
ANALYSIS OF BALANCE SHEETS
SUMMARY
As of December 31, 1997, FSCO increased its total assets, interest-earning
assets, and equity to record levels, and maintained good asset quality and
liquidity (see: "Factors That May Affect Future Results of Operations And
Financial Condition").
FSCO's assets totaled a record $17.3 billion at December 31, 1997, up $2.6
billion or 17.7% from year-end 1996. Interest-earning assets were a record $15.3
billion at year-end 1997, up $2.2 billion or 16.5% from year-end 1996, while
loans were a record $10.8 billion, up $1.5 billion or 16.4% (see:
"Interest-Earning Assets and Asset Quality").
FSCO's liabilities totaled $16.0 billion at December 31, 1997, up $2.4 billion
or 17.9% from year-end 1996. Total interest-bearing liabilities were $13.2
billion at year-end 1997, up $2.2 billion or 20.0% from year-end 1996 (see:
"Asset / Liability Management").
FSCO's stockholders' equity was increased to a record $1.3 billion at December
31, 1997, up $177 million or 15.5% from year-end 1996 (see: "Stockholders'
Equity and Capital Adequacy").
INTEREST-EARNING ASSETS:
TRADING ACCOUNT SECURITIES AND OTHER MONEY MARKET INVESTMENTS
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 was $255.3 million at December 31,
1997, down $192.2 million or 42.9% from year-end 1996. Fluctuations in trading
opportunities have generally decreased over the past year due to stability in
interest rates.
In 1998, FSCO's priorities for trading account securities continue to be
identification of both market volatility and inefficiencies wherein cash or
futures transactions can generate profits within acceptable risk parameters.
Fluctuations in Federal funds sold and interest-bearing deposits held in other
banks occur in response to changing yield opportunities and liquidity.
INTEREST-EARNING ASSETS:
AVAILABLE FOR SALE SECURITIES
Since December 1995, FSCO has managed its entire securities portfolio under the
"available for sale" (AFS) classification. FSCO's AFS securities policies are
designed to achieve desired liquidity, interest rate sensitivity, earnings, and
collateral requirements. FSCO's AFS securities strategies are continually
monitored and adjusted to the changing interest rate environment and economic
conditions.
FSCO actively manages its AFS securities portfolio, rather than holding lower
rate 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 AFS 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 AFS 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 AFS securities portfolio is 3.1 years as of December 31,
1997, unchanged from December 31, 1996. With the exception of U.S. Government
and U.S. Government-sponsored agency securities, FSCO had no concentrations of
AFS securities from any single issuer that constituted 10% or more of
stockholders' equity at year-end 1997.
FSCO's AFS securities were $4.1 billion at December 31, 1997, up $908 million or
28.8% from year-end 1996 (see: "Table 7: Available For Sale Securities"). This
increase was due to a combination of growth consistent with overall balance
sheet growth, acquisitions of banks, and spread opportunities in the markets.
The SFAS No. 115 net unrealized gain (loss) on AFS securities generally responds
inversely to changes in interest rates. The recent increase in unrealized gains
was due to a combination of new purchases and market value improvements. AFS
securities purchased included a mix of U.S. Treasuries, Federal agencies,
municipal bonds, agency issued collateralized mortgage obligations, and agency
mortgage-backed securities.
In 1998, FSCO's AFS securities priorities 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 AFS
securities 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: AVAILABLE FOR SALE SECURITIES (in thousands) (A)
<CAPTION>
1997 1996 1995
Amortized Estimated Yield Amortized Estimated Yield Amortized Estimated Yield
As of December 31, Cost Fair Value % (B) Cost Fair Value % (B) Cost Fair Value % (B)
<S> <C> <C> <C> <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 $ 52,060 $ 52,171 6.10 $ 166,432 $ 166,910 6.51 $ 284,766 $ 286,545 6.45
After 1 year through 5 years 821,986 827,505 6.84 582,055 583,851 7.08 299,238 303,225 6.52
After 5 years through 10 years 40,005 40,682 6.85 9,120 9,159 6.47 3,204 3,271 6.27
After 10 years 5,986 6,213 7.57 7,500 7,570 7.27 8,276 8,374 7.68
- - ------------------------------------------------------------------------------------------------------------------------------------
Totals 920,037 926,571 6.80 765,107 767,490 6.95 595,484 601,415 6.50
Memo: Unrealized gains 6,697 3,435 6,132
Memo: Unrealized losses (163) (1,052) (201)
- - ------------------------------------------------------------------------------------------------------------------------------------
Debt Securities Issued by States of the U.S. and Political Subdivisions:
One year or less 41,862 41,944 5.06 46,210 46,298 5.13 59,575 59,661 5.34
After 1 year through 5 years 74,556 75,595 5.36 81,764 82,859 5.58 67,557 69,161 6.07
After 5 years through 10 years 120,728 124,255 5.28 76,211 76,930 5.27 47,331 48,844 5.66
After 10 years 58,631 59,989 5.88 33,979 34,329 6.16 18,680 19,324 6.25
- - ------------------------------------------------------------------------------------------------------------------------------------
Totals 295,777 301,783 5.39 238,164 240,416 5.48 193,143 196,990 5.76
Memo: Unrealized gains 6,213 2,951 4,090
Memo: Unrealized losses (207) (699) (243)
- - ------------------------------------------------------------------------------------------------------------------------------------
Corporate Debt Securities:
One year or less 100 101 9.09 2,103 2,107 6.46 1,653 1,663 7.47
After 1 year through 5 years 2,492 2,501 6.43 1,657 1,647 6.43 4,086 4,136 6.19
After 5 years through 10 years 4,337 4,381 6.83 4,262 4,281 6.83 1,364 1,353 6.40
After 10 years 592 607 6.84 -- -- -- 3,137 3,172 7.13
- - ------------------------------------------------------------------------------------------------------------------------------------
Totals 7,521 7,590 6.73 8,022 8,035 6.65 10,240 10,324 6.71
Memo: Unrealized gains 89 53 127
Memo: Unrealized losses (20) (40) (43)
- - ------------------------------------------------------------------------------------------------------------------------------------
Total Debt Securities:
One year or less 94,022 94,216 5.64 214,745 215,315 6.21 345,994 347,869 6.27
After 1 year through 5 years 899,034 905,601 6.72 665,476 668,357 6.89 370,881 376,522 6.44
After 5 years through 10 years 165,070 169,318 5.70 89,598 90,370 5.47 51,899 53,468 5.72
After 10 years 65,209 66,809 6.05 41,479 41,899 6.36 30,093 30,870 6.73
- - ------------------------------------------------------------------------------------------------------------------------------------
Total Debt Securities 1,223,335 1,235,944 6.46 1,011,293 1,015,941 6.60 798,867 808,729 6.33
- - ------------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities 2,661,241 2,676,173 6.77 2,028,507 2,019,551 6.60 1,741,224 1,746,959 6.44
Memo: Unrealized gains 19,193 7,858 13,414
Memo: Unrealized losses (4,261) (16,814) (7,679)
Equity securities 137,081 145,778 6.10 108,822 114,784 7.53 59,852 67,869 5.82
Memo: Unrealized gains 8,978 6,068 8,093
Memo: Unrealized losses (281) (106) (76)
- - ------------------------------------------------------------------------------------------------------------------------------------
Total AFS Securities $4,021,657 $4,057,895 6.65 $3,148,622 $3,150,276 6.63 $2,599,943 $2,623,557 6.39
Memo: Unrealized gains 41,170 20,365 31,856
Memo: Unrealized losses (4,932) (18,711) (8,242)
====================================================================================================================================
<FN>
Notes: (A) FSCO has elected to classify all securities as available for sale (AFS) securities.
(B) Average yield shave been calculated using coupon rates, not adjusted to a fully-taxable equivalent basis.
</TABLE>
INTEREST-EARNING ASSETS:
LOANS
FSCO's borrowers reside primarily in the states where it has banking and
mortgage offices and in markets contiguous to those states. FSCO's borrowers are
primarily small-and medium-sized businesses, and consumers. There is substantial
economic diversification across FSCO's six-state region which provides a
beneficial natural diversification for its loan portfolio. FSCO has policies and
procedures in place designed to maintain high quality in its loan portfolio.
These policies and procedures include underwriting standards for new credits
and continuous monitoring of and reporting on the existing loan portfolio.
FSCO's loan portfolio, net of unearned income but before the reserve for loan
losses, was a record $10.8 billion at December 31, 1997, up $1.5 billion or
16.4% from year end 1996 (see: "Table 8: Loans", "Table 1: Financial
Highlights", and "Note 5: Loans"). Growth occurred in most major components of
the loan portfolio as a result of continued strong loan demand, combined with
$284 million in real estate loans added with the acquisition of Harbourton
Mortgage Co., L.P. (Harbourton) and $146 million in total loans added with the
acquisition of American Bancorp of Nevada (ABN) (see: "Mergers and
Acquisitions"), partially offset by asset securitizations and sales totaling
$925 million.
The ratio of total loans to total assets was 62.28% at December 31, 1997,
essentially unchanged from 62.98% at year-end 1996. The components of FSCO's
loan portfolio at December 31, 1997, compared with December 31, 1996, are
discussed below.
* Commercial loans were a record $2.6 billion, up $485 million or 22.5%, due
primarily to a continued broad-based business expansion in FSCO's market areas.
Commercial loans consist primarily of loans to small- and medium-sized
businesses and agricultural loans.
* Real estate secured loans were a record $4.2 billion, up $851 million or
25.2%. Record loan originations were generated by increased demand and lower
interest rates, with 1 to 4 family residential term loan originations totaling
$6.4 billion, up $2.2 billion or 51.8%. Loans were also added from the
Harbourton and ABN acquisitions. However, loan originations were mostly offset
by mortgage loan sales. For balance sheet management purposes, FSCO does not
retain all newly originated mortgage loans but regularly sells most loans in the
secondary markets on an ongoing flow-through basis. At year-end 1997, $1.1
billion of real estate secured loans were held for sale, up $777 million or
235.5% from year-end 1996.
* Consumer loans were $2.9 billion, down $97 million or 3.3%. Indirect vehicle
loan originations totaled $2.3 billion for 1997, up $573 million or 32.6% from
1996. However, this growth was offset by a combination of maturing loans and
$803 million of loans securitized and sold during the year. FSCO remains the
leading consumer lender in its primary market area.
* Leases were $1.0 billion, up $278 million or 36.9% due primarily to FSCO's
growth in the vehicle and equipment leasing markets, partially offset by the
direct sale of $23.3 million of leases during the year.
<TABLE>
TABLE 8: LOANS (in thousands)
<CAPTION>
5-Year
97/96 Compound
As of December 31, 1997 1996 1995 1994 1993 % Chg Growth Rate
<S> <C> <C> <C> <C> <C> <C> <C>
- - ------------------------------------------------------------------------------------------------------------------------------------
Commercial Loans:
Commercial and industrial $ 2,155,573 $ 1,654,239 $ 1,559,533 $ 1,390,620 $ 1,164,835 30.3 16.4
Agricultural 337,700 312,402 280,179 291,807 255,122 8.1 7.0
Other commercial 144,567 185,973 112,073 153,365 151,443 (22.3) 1.7
- - ------------------------------------------------------------------------------------------------------------------------------------
Total Commercial Loans (A) 2,637,840 2,152,614 1,951,785 1,835,792 1,571,400 22.5 13.8
- - ------------------------------------------------------------------------------------------------------------------------------------
Real Estate Secured Loans:
1 to 4 family residential term 2,163,707 1,459,534 1,457,811 1,560,700 1,239,395 48.2 15.0
1 to 4 family residential home equity 482,608 471,109 451,980 358,858 280,776 2.4 16.4
1 to 4 family residential construction 425,343 349,771 221,551 186,342 160,713 21.5 36.2
Commercial and other term 873,755 904,135 943,046 899,493 779,222 (3.4) 2.2
Commercial and other construction 281,139 190,791 248,622 137,028 83,374 47.4 31.5
- - ------------------------------------------------------------------------------------------------------------------------------------
Total Real Estate Secured Loans 4,226,552 3,375,340 3,323,010 3,142,421 2,543,480 25.2 13.5
Memo: Total real estate term 3,520,070 2,834,778 2,852,837 2,819,051 2,299,393 24.2 11.0
Memo: Loans held for sale
included in total real estate term 1,107,182 330,032 258,119 168,961 NM 235.5 NM
Memo: Total real estate construction (A) 706,482 540,582 470,173 323,370 244,087 30.7 34.2
- - ------------------------------------------------------------------------------------------------------------------------------------
Consumer Loans:
Credit card and related 215,581 307,622 311,271 306,270 275,467 2.6 1.5
Vehicle and other consumer 2,569,110 2,674,283 2,316,540 2,547,678 1,894,821 (3.9) 12.4
- - ------------------------------------------------------------------------------------------------------------------------------------
Total Consumer Loans 2,884,691 2,981,905 2,627,811 2,853,948 2,170,288 (3.3) 10.8
- - ------------------------------------------------------------------------------------------------------------------------------------
Total Leases 1,030,464 752,623 412,489 341,517 275,853 36.9 31.8
- - ------------------------------------------------------------------------------------------------------------------------------------
Loans, Net Of Unearned Income 10,779,547 9,262,482 8,315,095 8,173,678 6,561,021 16.4 13.9
Memo: Unearned income (104,519) (67,396) (16,250) (7,380) (12,182) 55.1 49.8
Reserve for loan losses (149,125) (134,428) (129,982) (133,855) (134,848) 10.9 3.1
- - ------------------------------------------------------------------------------------------------------------------------------------
Total Loans, Net $ 10,630,422 $ 9,128,054 $ 8,185,113 $ 8,039,823 $ 6,426,173 18.5 14.1
====================================================================================================================================
<FN>
(A): Maturities And Interest Rate Sensitivities of Selected Loan Categories (in thousands)
<CAPTION>
1 Year 1 Year to Over
As of December 31, 1997 Total or Less 5 Years 5 Years
<S> <C> <C> <C> <C>
- - ------------------------------------------------------------------------------------------------------------------------------------
Remaining Maturity:
Commercial loans $ 2,637,840 $ 1,627,356 $ 583,754 $ 426,730
Real estate construction loans 706,482 586,968 109,910 9,604
- - ------------------------------------------------------------------------------------------------------------------------------------
Total $ 3,344,322 $ 2,214,324 $ 693,664 $ 436,334
====================================================================================================================================
Interest Rate Sensitivities Of Commercial Loans And Real Estate Construction Loans Maturing In More Than One Year:
With fixed rates $ 456,622 $ 214,575 $ 242,047
With floating rates 673,376 479,089 194,287
- - ------------------------------------------------------------------------------------------------------------------------------------
Total Interest Rate Sensitivities $ 1,129,998 $ 693,664 $ 436,334
====================================================================================================================================
<FN>
NM: Not Meaningful.
</TABLE>
ASSET QUALITY:
PROBLEM ASSETS AND POTENTIAL PROBLEM ASSETS
Strong asset quality continues to be a primary objective for FSCO. However,
economic cycles and loan-specific events can cause periodic fluctuations in
problem assets.
FSCO continued to maintain good asset quality in 1997, as its ratio of total
problem assets to total loans and ORE real estate was a low 0.54% at December
31, 1997, down from 0.62% at year-end 1996 (see: "Table 1: Financial
Highlights"), and the lowest since March 31, 1996 (see: "Table 16: Quarterly
Financial Highlights"). The ratio of nonperforming assets to total loans and
ORE was 0.36% at December 31, 1997, down from 0.41% at year-end 1996.
Problem assets totaled $58.5 million at December 31, 1997, up only $1.0 million
or 1.7% from $57.5 million at year-end 1996 (see: "Table 9: Problem Assets and
Potential Problem Assets"). The components of FSCO's problem assets at December
31, 1997, compared with December 31, 1996, are discussed below.
* Nonaccruing loans totaled $32.6 million, down slightly from 1996 despite
growth in the loan portfolio. The ratio of nonaccruing loans to total loans was
0.30%, down from 0.36% one year ago. On a linked-quarter basis, nonaccruing
loans at year end 1997 decreased $2.8 million or 7.9% from September 30, 1997,
and the ratio of nonaccruing loans to total loans was down slightly from 0.33%
at the end of the third quarter.
* Other real estate remained low at $5.8 million, up $909 thousand or 18.7%.
ORE property values are reviewed at least annually, and the ORE portfolio is
adjusted to the lower of cost or fair value less estimated selling costs.
* Accruing loans past due 90 days or more were $20.1 million, up only $765
thousand or 4.0%. The ratio of accruing loans past due 90 days or more to total
loans was 0.19%, down from 0.21%.
A comparison of FSCO to its BHCPR peer group as of September 30, 1997 showed
that: FSCO's ratio of nonaccruing loans to total loans was 0.33%, which compared
favorably with the peer group average of 0.57%; and FSCO's ratio of accruing
loans past due 90 days or more to total loans was 0.18%, which compared
favorably with the peer group average of 0.26%.
Potential problem loans identified by FSCO were $7.4 million at December 31,
1997, down $848 thousand or 10.3% from year end 1996. The decrease occurred
primarily in small- and medium-sized commercial loans. Potential problem loans
consisted primarily of commercial loans.
<TABLE>
TABLE 9: PROBLEM ASSETS AND POTENTIAL PROBLEM ASSETS (in thousands)
<CAPTION>
5-Year
97/96 Compound
As of December 31, 1997 1996 1995 1994 1993 % Chg Growth Rate
<S> <C> <C> <C> <C> <C> <C> <C>
- - ------------------------------------------------------------------------------------------------------------------------------------
PROBLEM ASSETS:
Nonaccruing Loans:
Commercial $ 13,505 $ 13,904 $ 9,158 $ 8,903 $ 9,408 (2.9) (4.7)
Real estate term 14,089 15,078 10,430 12,246 21,940 (6.6) (24.0)
Real estate construction 4,669 3,935 2,349 1,714 1,877 18.7 (5.2)
Consumer 2 108 110 168 546 (98.1) (70.2)
Leases 331 251 400 837 1,484 31.9 17.9
Renegotiated -- -- -- -- 1,099 -- NM
- - ------------------------------------------------------------------------------------------------------------------------------------
Total Nonaccruing Loans 32,596 33,276 22,447 23,868 36,354 (2.0) (16.4)
Other real estate 5,764 4,855 4,134 3,352 16,465 18.7 (26.8)
- - ------------------------------------------------------------------------------------------------------------------------------------
Total Nonperforming Assets 38,360 38,131 26,581 27,220 52,819 0.6 (18.6)
Accruing loans past due 90 days or more 20,091 19,326 13,455 12,001 7,155 4.0 11.3
- - ------------------------------------------------------------------------------------------------------------------------------------
Total Problem Assets $ 58,451 $ 57,457 $ 40,036 $ 39,221 $ 59,974 1.7 (13.3)
====================================================================================================================================
Potential Problem Assets $ 7,423 $ 8,271 $ 12,319 $ 12,018 $ 19,179 (10.3) (20.2)
====================================================================================================================================
Gross Interest Income That Would Have Been Recorded If Loans Had Been Current In Accordance With Original Terms:
Nonaccruing loans $ 2,643 $ 3,008 $ 2,366 $ 1,994 $ 2,333 (12.1) (16.3)
Renegotiated loans -- -- -- -- 111 -- NM
- - ------------------------------------------------------------------------------------------------------------------------------------
Interest Actually Recognized:
Non accruing loans $ 1,756 $ 2,158 $ 2,766 $ 2,264 $ 679 (18.6) 11.6
Renegotiated loans -- -- -- -- 87 -- NM
====================================================================================================================================
Approximate Percentage Of Nonperforming Assets Over $500,000 By Location:
Utah 12% 7% 11% 24% 26%
Idaho 82 63 45 15 5
New Mexico -- 3 18 34 35
Washington and Oregon 5 6 -- 9 13
Nevada -- 16 26 8 --
All others -- 5 -- 10 21
====================================================================================================================================
Approximate Percentage Of Nonperforming Assets Over $500,000 By Type of Security:
Office buildings --% --% 10% --% 5%
Shopping centers -- -- -- 17 28
Land -- -- 14 32 36
Single family dwellings 32 42 21 8 4
Other real estate secured 10 9 10 13 14
All others 58 49 45 30 13
====================================================================================================================================
</TABLE>
ASSET QUALITY:
RESERVE FOR LOAN LOSSES
The adequacy of a reserve for loan losses is evaluated quarterly based on
policies established by the board of directors of its subsidiary banks,
regulatory and accounting guidelines, and industry practices. Most specifically,
FSCO follows the Comptroller of the Currency's regulations and guidelines for
determining the appropriate level of the reserve for loan losses.
The methodology followed by FSCO in determining appropriate reserve levels
includes thorough analysis of historic loss trends, loan grades, concentration
and portfolio mix studies, loss migration analysis, industry and economic
trends, and ongoing analysis of identified problem and potential problem assets.
The methodology also takes into account unique characteristics of a large 1 to 4
family residential mortgage portfolio which may periodically exhibit higher
delinquency levels, but incur minimal actual chargeoffs, and large consumer loan
portfolios where loans are automatically charged off after becoming 120 days
past due. Finally, specific reserves are established on large substandard loans
and when a loan is considered impaired as defined by SFAS 114.
FSCO's reserve for loan losses was increased to $149.1 million at December 31,
1997, up $14.7 million or 10.9% from year end 1996 (see: "Table 10:
Reconciliation of the Reserve for Loan Losses"). This increase included $10.2
million in additions to the reserve as FSCO responded to 15.1% average loan
growth during the year, and $4.5 million in reserves added with the June 30,
1997 acquisition of American Bancorp of Nevada (ABN) (see: "Mergers and
Acquisitions").
Based on its analysis of reserve adequacy, FSCO considered its reserve for loan
losses at December 31, 1997 to be adequate to absorb estimated loan losses in
the current loan portfolio. At year-end 1997, FSCO's coverage ratio of the
reserve to nonaccruing loans was 457.49%, up from 403.98% at year end 1996,
while its ratio of the reserve to total loans was 1.38% at December 31, 1997,
down from 1.45% at year end 1996, due in large part to the strong volume growth
in loans (see: "Table 1: Financial Highlights").
Net loans charged off against the reserve totaled $52.4 million for 1997, up
$16.6 million or 46.3% from 1996 (see: "Table 10: Reconciliation of the Reserve
For Loan Losses"). This increase was due to higher consumer losses following
national trends and an increase in the charge off of smaller commercial credits.
The annualized ratio of net loans charged off to average loans was 0.52% for
1997, up from 0.41% for 1996.
A comparison of FSCO to its BHCPR peer group as of September 30, 1997 showed
that: FSCO's coverage ratio of the reserve to nonaccruing loans was 408.68%,
which compared favorably with the peer group average of 370.77%; its ratio of
the reserve to total loans was 1.35%, compared with the peer group average of
1.76%; and its annualized ratio of net loans charged off to average loans was
0.49% for the first nine months of 1997, which compared closely to the peer
group average of 0.52%. While comparisons with the BHCPR peer group are
instructive, FSCO relies on the methodology for analysis of reserve adequacy
outlined above and not on any specific reserve ratio comparison.
While reserve adequacy and allocation are measured using the above criteria,
FSCO's reserve for loan losses is available for use by its entire loan
portfolio, as needed, regardless of allocation.
ASSET QUALITY:
PROVISION FOR LOAN LOSSES
FSCO uses the provision for loan losses to adjust the reserve when a
replenishment or addition is appropriate.
FSCO's provision for loan losses totaled $62.7 million for 1997, up $22.4
million or 55.5% from 1996 (see: "Table 10: Reconciliation of the Reserve for
Loan Losses"). The increase included additions to the reserve for loan losses of
$10.2 million over and above net loans charged off during 1997.
<TABLE>
TABLE 10: RECONCILIATION OF THE RESERVE FOR LOAN LOSSES (in thousands)
<CAPTION>
5-Year
97/96 Compound
For the years ended December 31, 1997 1996 1995 1994 1993 % Chg Growth Rate
<S> <C> <C> <C> <C> <C> <C> <C>
- - ------------------------------------------------------------------------------------------------------------------------------------
Reserve For Loan Losses, Beginning $ 134,428 $ 129,982 $ 133,855 $ 134,848 $ 127,847 3.4 1.2
Loans Charged Off:
Commercial (11,947) (5,807) (4,328) (5,621) (9,898) 105.7 (8.0)
Real estate term (2,956) (1,061) (3,173) (1,718) (7,038) 178.6 (23.8)
Real estate construction (109) (314) (100) (506) (542) (65.3) (16.0)
Consumer credit card and related (13,939) (13,300) (10,086) (6,828) (6,877) 4.8 8.7
Consumer vehicle and other (53,381) (41,539) (33,903) (22,880) (14,846) 28.5 32.8
Leases (2,977) (602) (957) (239) (1,466) 394.5 47.5
- - ------------------------------------------------------------------------------------------------------------------------------------
Total Loans Charged Off (85,309) (62,623) (52,547) (37,792) (40,467) 36.2 10.2
- - ------------------------------------------------------------------------------------------------------------------------------------
Recoveries Of Loans Charged Off:
Commercial 5,256 6,535 7,312 11,138 11,789 (19.6) (10.0)
Real estate term 1,825 868 2,963 5,651 3,294 110.3 (5.8)
Real estate construction 9 847 163 201 3,151 (98.9) (51.5)
Consumer credit card and related 2,445 2,275 2,092 1,790 1,875 7.5 9.2
Consumer vehicle and other 21,863 15,928 14,609 11,101 8,380 37.3 28.5
Leases 1,463 316 463 819 113 363.0 98.1
- - ------------------------------------------------------------------------------------------------------------------------------------
Total Recoveries Of Loans Charged Off 32,861 26,769 27,592 30,700 28,602 22.8 10.9
- - ------------------------------------------------------------------------------------------------------------------------------------
Net Loans Charged Off (52,449) (35,854) (24,955) (7,092) (11,865) 46.3 9.8
Provision for loan losses 62,686 40,300 21,082 825 11,684 55.5 15.7
Acquisitions and reclassifications 4,459 -- -- 5,274 7,182 NM 4.9
- - ------------------------------------------------------------------------------------------------------------------------------------
Reserve for Loan Losses, Ending $ 149,125 $ 134,428 $ 129,982 $ 133,855 $ 134,848 10.9 3.1
===================================================================================================================================
</TABLE>
<TABLE>
TABLE 11: ALLOCATION OF THE RESERVE FOR LOAN LOSSES (in thousands)
<CAPTION>
As of December 31, 1997 1996 1995 1994 1993
- - ----------------------------------------- ---------------- ---------------- ---------------- ---------------- ----------------
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 $41,391 24.5% $43,340 23.3% $35,567 23.5% $36,378 22.5% $36,498 23.9%
Real estate term 11,526 32.7 10,879 30.6 7,816 34.3 14,504 34.5 14,205 35.2
Real estate construction 4,557 6.5 4,275 5.8 4,005 5.7 4,897 3.9 4,619 3.7
Consumer 44,125 26.7 43,267 32.2 42,681 31.6 42,143 34.9 32,624 33.0
Leases 8,963 9.6 8,222 8.1 6,064 4.9 7,108 4.2 9,652 4.2
Unallocated 38,563 -- 24,445 -- 33,849 -- 28,825 -- 37,250 --
- - ----------------------------------------- ---------------- ---------------- ---------------- ---------------- ----------------
TOTALS $149,125 100.0 $134,428 100.0 $129,982 100.0 $133,855 100.0 $134,848 100.0
========================================= ================ ================ ================ ================ ================
</TABLE>
ASSET/LIABILITY MANAGEMENT
FSCO's asset / liability management committee (ALCO) process is responsible for
the identification, assessment, and management of liquidity, interest rate risk,
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 liquidity,
market risk, and interest rate risks are limited to prudent levels while
earnings opportunities are maximized. As of March 1, 1998, FSCO expects to
contract with its new subsidiary, FS Capital Markets, to merge FSCO's
corporate-wide ALCO process under the direction of the several ALCO committees
and the boards of directors of the subsidiaries.
ASSET/LIABILITY MANAGEMENT:
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 widespread branch network (see: "Table 12:
Deposits"), the prudent use of debt (see: "Table 13: Short-Term Borrowings", and
"Table 14: Long-Term Debt"), from a high quality AFS securities portfolio (see:
"Interest-Earning Assets and Asset Quality - Available For Sale Securities"),
and from the loan portfolio. The average life of the AFS securities portfolio is
relatively short, providing a constant stream of maturing and reinvestable
assets which could be converted into cash without significant loss of value
should the need arise. Maturing balances in the large loan portfolio 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. FSCO monitors its
liquidity levels on a daily basis through its Capital Markets / Treasury area
and on a monthly basis through its ALCO process.
FSCO has had continued success during 1997 in obtaining core deposits, without
having to offer above-market interest rates, through market growth, special
programs, and the efforts of its branch system. As a result, FSCO has been able
to maintain a strong, stable net interest margin as well as adequate liquidity.
FSCO has also utilized external funding sources, such as corporate and bank
notes as well as securitizations, in its normal course of business. These
funding sources have enabled FSCO to maximize earning assets while continuing to
maintain satisfactory liquidity goals. FSCO issued European Medium Term Notes
during the year and continued to use Federal Home Loan Bank Notes to provide
additional sources of funding. Additionally, plans are in place to effect
vehicle and mortgage loan securitizations during 1998.
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.
FSCO's deposits totaled a record $10.7 billion at December 31, 1997, up $1.3
billion or 13.5% from year-end 1996 (see: "Table 12: Deposits"). This increase
was due to FSCO's continued emphasis on its deposit gathering functions, the
success of several deposit programs oriented to customers' needs, and $234
million in deposits added with the ABN acquisition (see: "Mergers and
Acquisitions"). The ratio of loans to deposits was 100.59% at December 31, 1997,
up from 98.13% at year end 1996. This ratio, as well as other loan and liquidity
ratios, varies with changes in economic cycles and is monitored closely through
FSCO's ALCO process to ensure that the proper balance is maintained between risk
and economic opportunities.
FSCO's debt, which included short-term borrowings and long-term debt, totaled
$4.9 billion at December 31, 1997, up $1.1 billion or 28.7% from year-end 1996
(see: "Table 13: Short-Term Borrowings", and "Table 14: Long-Term Debt"). The
components of FSCO's debt at December 31, 1997, compared with December 31, 1996,
are discussed below.
* Federal funds purchased and securities sold under repurchase agreements were
$3.2 billion, up $707 million or 27.8%. This increase occurred as FSCO funded,
on an interim basis, the loan growth generated by business-cycle opportunities
in its market areas, and funded growth in AFS securities through repurchase
agreements.
* All other short-term borrowed funds were $302 million, up $14 million or 4.8%.
This increase was due to maturing issues formerly classified as long-term debt.
* Long-term debt was $1.3 billion, up $360 million or 38.2%. This increase was
due to the October 10, 1997 issuance of $300 million of Floating Rate European
Medium Term Notes due in 2002 under a $1 billion program as part of FSCO's use
of diverse funding sources discussed above, and new Federal Home Loan Bank
borrowings. The increase was partially offset by the ongoing maturity of
existing long-term debt.
<TABLE>
TABLE 12: DEPOSITS (in thousands)
<CAPTION>
5-Year
Compound
97/96 Growth
As of December 31, 1997 1996 1995 1994 1993 % Chg Rate
<S> <C> <C> <C> <C> <C> <C> <C>
- - ----------------------------------------------- ------------ ------------ ------------ ------------ ------------ ------- -------
Noninterest-bearing deposits $2,348,638 $2,198,348 $1,884,931 $1,719,388 $1,697,687 6.8 10.4
Interest-Bearing Deposits:
Interest-bearing demand accounts 428,413 1,101,667 1,093,233 1,095,907 1,041,770 (61.1) (14.6)
Savings accounts 1,335,147 1,453,814 1,360,805 1,280,002 1,331,495 (8.2) 5.5
Money market accounts 1,927,195 1,030,912 1,065,886 1,152,960 1,103,855 86.9 13.6
Time deposits of $100,000 or more:
Maturing in 3 months or less 317,003 215,928 228,820 289,926 162,746 46.8 12.3
Over 3 months through 6 months 175,433 118,234 130,948 66,432 68,505 48.4 24.5
Over 6 months through 12 months 400,929 198,074 177,354 75,848 75,520 102.4 52.7
Over 12 months 410,109 255,422 131,799 121,175 76,075 60.6 48.0
Memo: Foreign office 168,016 75,565 88,949 -- -- 122.3 NM
Other time deposits 3,373,458 2,866,864 2,699,866 2,251,706 1,946,054 17.7 9.9
- - ----------------------------------------------- ------------ ------------ ------------ ------------ ------------ ------- -------
Total Interest-Bearing Deposits 8,367,687 7,240,915 6,888,711 6,333,956 5,806,020 15.6 9.0
- - ----------------------------------------------- ------------ ------------ ------------ ------------ ------------ ------- -------
Total Deposits $10,716,325 $9,439,263 $8,773,642 $8,053,344 $7,503,707 13.5 9.3
=============================================== ============ ============ ============ ============ ============ ======= =======
<FN>
NM: Not Meaningful.
</TABLE>
<TABLE>
TABLE 13: SHORT-TERM BORROWINGS (in thousands)
<CAPTION>
5-Year
Compound
97/96 Growth
As of December 31, 1997 1996 1995 1994 1993 % Chg Rate
<S> <C> <C> <C> <C> <C> <C> <C>
- - ----------------------------------------------- ------------ ------------ ------------ ------------ ------------ ------- -------
End Of Period Balance:
Federal funds purchased and securities sold $3,249,961 $2,542,592 $1,937,456 $2,160,587 $1,387,109 27.8 28.0
Other short-term borrowings 301,890 288,041 261,233 184,552 99,796 4.8 42.5
- - ----------------------------------------------- ------------ ------------ ------------ ------------ ------------ ------- -------
Weighted Average Rate:
Federal funds purchased and securities sold 5.38% 5.12% 5.44% 5.38% 2.93%
Other short-term borrowings 6.17 9.40 6.89 6.00 3.38
- - ----------------------------------------------- ------------ ------------ ------------ ------------ ------------ ------- -------
Average Outstandings For The Year:
Federal funds purchased and securities sold $2,647,914 $1,794,685 $1,685,763 $1,934,468 $1,065,495 47.5 23.3
Other short-term borrowings 308,557 255,713 206,645 72,873 55,755 20.7 42.1
- - ----------------------------------------------- ------------ ------------ ------------ ------------ ------------ ------- -------
Weighted Average Rate For The Year:
Federal funds purchased and securities sold 5.33% 5.04% 5.61% 4.23% 2.97%
Other short-term borrowings 6.89 6.87 6.61 5.59 4.20
- - ----------------------------------------------- ------------ ------------ ------------ ------------ ------------ ------- -------
Highest Month-End Balance For The Year:
Federal funds purchased and securities sold $3,249,961 $2,542,592 $2,434,087 $2,632,541 $1,387,109 27.8 21.8
Other short-term borrowings 440,006 321,962 349,678 184,552 99,796 36.7 37.2
=============================================== ============ ============ ============ ============ ============ ======= =======
</TABLE>
<TABLE>
TABLE 14: LONG-TERM DEBT (in thousands)
<CAPTION>
5-Year
Compound
97/96 Growth
As of December 31, 1997 1996 1995 1994 1993 % Chg Rate
<S> <C> <C> <C> <C> <C> <C> <C>
- - ----------------------------------------------- ------------ ------------ ------------ ------------ ------------ ------- -------
Parent Company:
Medium term notes due 1994-2003 $32,750 $32,750 $50,000 $50,000 $31,250 -- 0.9
Floating rate notes due 1999 6,842 6,984 7,175 7,475 7,910 (2.0) (3.9)
7.875% senior notes due 1999 98,962 98,962 99,462 100,000 -- -- NM
6.875% senior notes due 2006 150,000 150,000 -- -- -- -- NM
7.50% subordinated notes due 2002 75,000 75,000 75,000 75,000 75,000 -- --
7.00% subordinated notes due 2005 125,000 125,000 125,000 -- -- -- NM
Subsidiaries:
Guaranteed preferred beneficial interests - 8.41%
subordinated capital income securities due 2026 150,000 150,000 -- -- -- -- NM
Floating rate European medium term notes due 2002 300,000 -- -- -- -- NM NM
Other long-term notes: banks 647,397 583,476 583,623 602,170 137,221 11.0 109.3
Other long-term notes: nonbanks 402 1,039 689 1,775 1,155 (61.3) (20.8)
- - ----------------------------------------------- ------------ ------------ ------------ ------------ ------------ ------- -------
Total Debt With Original Maturity Over 1 Year 1,586,353 1,223,211 940,949 836,420 252,536 29.7 64.4
Less maturities under 1 year included in
short-term borrowings 281,890 279,156 220,428 150,994 27,700 1.0 125.8
- - ----------------------------------------------- ------------ ------------ ------------ ------------ ------------ ------- -------
Total Long-Term Debt $1,304,463 $944,055 $720,521 $685,426 $224,836 38.2 59.3
=============================================== ============ ============ ============ ============ ============ ======= =======
<FN>
NM: Not Meaningful.
</TABLE>
ASSET/LIABILITY MANAGEMENT:
MARKET RISK MANAGEMENT
Market risk is the risk of an increase or decrease in the market value / price
of a financial instrument due to anticipated or unanticipated changes in
prevailing interest rates, exchange rates or equity prices. FSCO's market risk
is composed primarily of interest rate risk throughout FSCO's balance sheet, and
to a lesser extent, market price risk in trading account securities. FSCO has no
material foreign currency exchange rate risk, commodity price risk, or equity
price risk.
ASSET/LIABILITY MANAGMENT:
INTEREST RATE RISK - OTHER THAN TRADING ACCOUNT SECURITIES
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.
In 1997, FSCO continued to maintain a relatively neutral interest rate risk
position and a conservative balance sheet. During the year, a strong regional
economy resulted in average loan growth of $1.3 billion or 15.1%, while
successful deposit promotions helped to generate average deposit growth of $744
million or 8.4%, which was a healthy increase but not sufficient to entirely
fund the loan growth. FSCO utilized securitizations and external funding sources
to support a portion of its asset growth, including the issuance of $300 million
of Floating Rate European Medium Term Notes and new Federal Home Loan Bank
borrowings (see: "Asset / Liability Management - Liquidity").
FSCO took advantage of its strong capital ratios and further leveraged the
balance sheet in 1997 through an increase in the average AFS securities
portfolio of $634 million or 22.2%. This increase was primarily funded through
the use of repurchase agreements.
FSCO is well positioned to support continued strong loan growth through growth
of regular deposit programs, the sale and / or runoff of securities, additional
securitizations, and access to external sources of funding.
During 1997, $50 million notional amount in new off-balance sheet derivative
positions were negotiated in connection with a $50 million brokered deposit
program. FSCO's derivatives portfolio decreased in 1997 principally due to
maturities of positions. When appropriate, new derivative transactions will be
considered.
Two interest rate risk monitoring tools, static interest rate gap analysis and
net income simulation, are currently used by FSCO to measure the level of
interest rate risk.
FSCO's static interest rate gap analysis measures the exposure to interest rate
risk based upon the mismatch between the maturity or repricing of interest-
earning assets and interest-bearing liabilities on the balance sheet at a given
point in time. The mismatch is calculated using the contractual maturity and
repricing dates for all such assets, liabilities, and derivative instruments.
Core deposits with indeterminate maturities are categorized based upon the
pricing behavior of estimated core and non-core components. These behaviors are
reviewed at least on an annual basis. The static interest rate gap analysis also
factors in prepayment estimates for FSCO's loan portfolio.
At December 31, 1997, FSCO's static interest rate gap analysis as a percent of
interest-earning assets for the 90 day and one year cumulative periods projected
the following results:
Static 90 day Cumulative Gap (2.2%)
Static 1 year Cumulative Gap (2.1%)
These results were well within FSCO's policy guidelines in which mismatched
positions of assets and liabilities are restricted to 15% of interest-earning
assets during the 90-day and one-year periods.
FSCO's net income simulation model forecasts 12 and 15 month net income under
varying scenarios which incorporate changes in the absolute level of interest
rates, changes in the shape of the yield curve, and changes in interest rate
relationships. FSCO's management evaluates the effects on net income of
alternative interest rate scenarios against a base net income scenario. The base
scenario is developed from internal FSCO economic projections.
The net income simulation model includes forecasts from FSCO's various business
lines. Growth assumptions for all FSCO balance sheet items are derived based
upon management's outlook coupled with historical analysis which incorporates
seasonality patterns where applicable. Each business line provides reinvestment
assumptions and yield / rate analyses. Mortgage loan prepayments are developed
from industry median estimates of prepayment speeds for portfolios having
similar coupons and seasoning characteristics. Deposit seasonality and pricing
is based upon historical analysis and is reviewed periodically. All key
assumptions are reviewed at least annually.
At December 31, 1997, FSCO's net income simulation projected the following
approximate increase (decrease) in net income compared with its base case net
income over one year:
2.8% if rates were shocked down 200 basis points
(4.4%) if rates were shocked up 200 basis points
For the same shock scenarios, FSCO's net interest margin would rise by 1.5% or
fall by 2.5%, well within its policy guidelines of 10%.
At December 31, 1997, FSCO exhibited slight liability sensitivity for the
one-year time horizon and minimal overall interest rate risk.
Additionally, specialized reports are produced for the AFS securities and
mortgage loan portfolios to monitor and control interest rate risk within
products characterized by embedded prepayment or explicit options. With the
complexity of FSCO's balance sheet increasing continuously, FSCO identifies and
implements the latest techniques and tools to measure and monitor 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 (see: "Note 11: Commitments, Contingent Liabilities, and
Financial Instruments with Off-Balance Sheet Risk"). The components of FSCO's
off-balance sheet derivative products at December 31, 1997, compared with
December 31, 1996, are discussed below.
* 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. 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. Off-balance sheet instruments used for interest
rate risk management activities, including interest rate swaps, caps, and
corridors, were $1.5 billion notional amount at year-end 1997. Excluding
CrossLand Mortgage for which 1996 year end data was not available, off-balance
sheet instruments used for interest rate risk management activities were $368
million notional amount at year-end 1997, down from $618 million notional amount
at year-end 1996.
ASSET/LIABILITY MANAGMENT:
MARKET RISK - TRADING ACCOUNT SECURITIES
FSCO's trading account securities consist of cash securities, financial futures,
and option contracts. Financial futures and options contracts related to FSCO's
trading account securities totaled $12.6 billion notional par value, up $2.5
billion from $10.1 billion notional par value at year-end 1996. This position
consisted of futures and options contracts on short-term Federal funds, one
month LIBOR, and three month Eurodollars with a small position in U.S. Treasury
Bond contracts. Market risk for trading account securities is monitored on a
daily basis through an assessed dollar value of risk per basis point method. The
net risk position of FSCO's trading account securities (including futures,
options, and on-balance sheet securities) at December 31, 1997, was $35,873 per
basis point (0.01%) change in yield, compared with $43,075 at year-end 1996, and
well within FSCO's $55,400 limit. For comparative purposes, this risk equates to
that of FSCO owning an $84 million position in five year U.S. Treasury Notes.
Fluctuations in these positions are common as traders take advantage of
opportunities in the short term futures and options markets. Additionally, on a
monthly basis the trading position is evaluated against small and large
movements in interest rates, assumed to be instantaneous and parallel, and other
spread factors that may affect the value of these securities or contracts. This
analysis is reported to management as part of the risk monitoring process.
Financial futures, options contracts, and other trading account securities 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 limit.
OTHER ASSETS AND LIABILITIES
FSCO's intangible assets were $269 million at December 31, 1997, up $99 million
or 58.4% from year-end 1996, due to goodwill associated with recent acquisitions
and increased originated mortgage servicing rights from higher loan production.
Fluctuations in other assets and other liabilities were in part due to the
effect of timing differences on cash, accounts receivable, and accounts payable
resulting from unsettled transactions in the purchase and sale of securities.
STOCKHOLDERS' EQUITY AND CAPITAL ADEQUACY
FSCO's stockholders' equity was increased to a record $1.3 billion at December
31, 1997, up $177 million or 15.5% from year-end 1996 (see: Financial Statements
"Consolidated Balance Sheets"). This growth was due to earnings retained, the
issuance of 5.4 million shares of new common stock, after adjusting for the
February 1998 stock split, for the ABN acquisition, and the impact of the SFAS
115 net unrealized gain (loss) on AFS securities, partially offset by
repurchases of 3.8 million shares of common stock, after adjusting for the
stock split, in the public markets in 1997.
FSCO repurchases shares of its common stock at prevailing prices in the open
market as permitted by applicable rules. FSCO repurchases shares to reduce
dilution to existing shareholders and take advantage of market price savings,
and uses these shares for ongoing employee benefit plans, acquisitions accounted
for under the purchase method, and other needs. On February 19, 1998, FSCO's
Board of Directors rescinded a stock buyback program that had been announced on
November 18, 1997. FSCO had completed approximately 80% of the 3.375 million,
adjusted for the 1998 stock split, share buyback program.
Application of SFAS 115 has resulted in, and will continue to result in,
additions to or deductions from FSCO's total stockholders' equity due to
fluctuations in the fair value of AFS securities. These fluctuations are shown
in the "Net unrealized gain (loss) on AFS securities" component of equity.
FSCO's ratio of stockholders' equity to total assets was 7.61% at December 31,
1997, compared with 7.76% at year-end 1996. The ratio of tangible common equity
to tangible assets was 6.15% at December 31, 1997, down from 6.67% at year-end
1996, reflecting the goodwill recognized with the ABN merger and the ongoing
origination of mortgage servicing rights.
A comparison of FSCO to its BHCPR peer group as of September 30, 1997 showed
that: FSCO's ratio of stockholders' equity to total assets was 7.97%, which
compared favorably with the peer group average of 7.90%; and its ratio of
tangible common equity to tangible assets was 6.54%, which compared favorably
with the peer group average of 6.02%.
Regulations permit FSCO's $150 million of Guaranteed Preferred Beneficial
Interest - 8.41% Subordinated Capital Income Securities due 2026, issued in
1996, to be included in Tier 1 Capital for purposes of calculating the Tier 1
Leverage ratio and FSCO's risk-based capital ratios.
FSCO's risk-based capital ratios remained strong at December 31, 1997 due to
earnings retained and the above-mentioned Capital Income Securities (see: "Table
15: Capital Ratios and Risk-Based Capital Ratios"). FSCO's risk-based capital
ratios at December 31, 1997 and 1996, respectively, were: Tier 1 at 10.58%,
down from 11.34%; and Total Capital at 13.46%, down from 14.50%. The leverage
ratio at December 31, 1997 was 7.51%, down from 8.16% at year-end 1996.
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.
<TABLE>
TABLE 15: CAPITAL RATIOS AND RISK-BASED CAPITAL RATIOS
<CAPTION>
FSCO FS Bank(A) FSB New Mexico FSB Nevada
- - ------------------------------------------------------------------------------------------------------------------------------------
As of December 31, 1997 1996 1997 1996 1997 1996 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- - ------------------------------------------------------------------------------------------------------------------------------------
Capital Ratios:
Stockholders' equity/assets (EOP) 7.61% 7.76% 7.75% 7.92% 6.51% 6.51% 12.87% 7.07%
Stockholders' equity/assets (Avg) 8.00 8.19 8.18 8.42 6.52 6.23 12.14 7.77
Tangible common equity/tangible assets (EOP) 6.15 6.67 6.42 6.66 6.50 6.50 7.45 7.07
Lever age ratio (B) 7.51 8.16 7.04 7.12 6.29 6.55 7.04 6.85
Risk-Based Capital Ratios:
Tier 1 risk-based capital ratio 10.58 11.34 9.64 9.52 13.28 13.53 13.05 10.99
Total (Tier 1 + 2) risk-based capital ratio 13.46 14.50 11.03 11.07 14.54 14.79 14.31 12.25
===================================================================================================================================
<FN>
Notes:
(A) FSCO created FS Bank from these mergers: FSB Utah and FSB Idaho (June 1996); FSB Oregon (May 1997); FSB Wyoming (November 1997).
(B) 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>
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 26, 1998, FSCO declared a 3-for-2 common stock split in the form of a
50% stock dividend paid on February 24, 1998, to common shareholders of record
on February 12, 1998. As a result of the split, shareholders received one
additional share of FSCO common stock for every two shares held. This was
FSCO's third stock split since year-end 1995. All common stock and earnings per
common share data in this report reflect this stock split.
Also on January 26, 1998, FSCO increased its quarterly common stock dividend to
$0.130 per share after adjusting for the stock split, up $0.017 per share or
15.0% from the previous $0.113 per share. This dividend was paid on March 12,
1998, to shareholders of record on February 25, 1998, and equated to an annual
dividend rate of $0.520 per share. This was the fourth dividend increase since
year-end 1995.
On April 21, 1997, FSCO declared a 3-for-2 common stock split in the form of a
50% stock dividend paid on May 15, 1997, to shareholders of record on May 12,
1997. As a result of the split, shareholders received one additional share of
FSCO common stock for every two shares held. All common stock and earnings per
common share data in this report also reflect that stock split.
Also on April 21, 1997, FSCO increased its quarterly common stock dividend,
restated for all 3-for-2 common stock splits, to $0.113 per share, up $0.011 per
share or 10.8% from the previous $0.102 per share. This dividend was paid on
June 2, 1997, to shareholders of record on May 16, 1997, and equated to an
annual dividend rate of $0.452 per share.
FSCO paid quarterly common stock dividends of $0.102 per share in the first
quarter of 1997, and $0.113 per share in each of the last three quarters of
1997, for a total of $0.442 per share in 1997. Common stock dividends paid
totaled $75.7 million in 1997, for a dividend payout ratio of 36.83%.
The 1997 dividends marked the 63rd consecutive year in which FSCO has paid cash
dividends on its common stock. National and state banking and insurance
regulations impose restrictions on the ability of FSCO's bank and insurance
subsidiaries to transfer funds to FSCO in the form of loans or dividends.
Such restrictions have not had, nor are they expected to have, any effect on
FSCO's current ability to pay dividends. FSCO's current and past record of
dividend payments should not be construed as a guarantee of similar dividend
payments in the future.
After adjusting for the 1998 stock split, the bid price of FSCO common stock was
$27.917 per share at the close of the market on December 31, 1997, versus a book
value of $7.59 per share, resulting in a market-to-book ratio of 367.81%. In
comparison, the bid price of FSCO common stock was $15.167 per share at the
close of the market on December 31, 1996, versus a book value of $6.69 per
share, resulting in a market-to-book ratio of 226.71%. At December 31, 1997,
FSCO's common stock market capitalization was a record $4.8 billion, up $2.3
billion or 87.5% from year-end 1996 and representing a five-year compound growth
rate of 31.2%.
The approximate number of beneficial shareholders of FSCO common stock was
estimated to be 16,275 at year-end 1997, compared with an estimated 17,095 at
year-end 1996.
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 41.00625 shares of common stock. There is no
active trading market for FSCO's preferred stock.
OFF-BALANCE SHEET ITEMS
During 1997, 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 1997 or 1996.
<PAGE>
<TABLE>
TABLE 16: QUARTERLY FINANCIAL HIGHLIGHTS (in thousands, except per share data & ratios)
<CAPTION>
4th Qtr 3rd Qtr 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
1997 1997 1997 1997 1996 1996 1996 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- - ------------------------------------ ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Common & Preferred Stock Data (A,B):
Earnings per common share: basic $0.32 $0.31 $0.29 $0.28 $0.30 $0.28 $0.25 $0.21
Earnings per common share: diluted 0.31 0.30 0.28 0.27 0.29 0.27 0.25 0.21
Tangible EPCS: diluted 0.32 0.34 0.30 0.30 0.31 0.30 0.27 0.23
Dividends paid per common share 0.113 0.113 0.113 0.102 0.102 0.093 0.093 0.093
Book value per common share (EOP) 7.59 7.48 7.26 6.64 6.69 6.42 6.21 6.11
Tangible book value
per common share (EOP) 6.04 6.05 5.84 5.63 5.70 5.48 5.28 5.19
Market price (bid) (EOP) 27.917 19.833 18.209 14.278 15.167 12.167 10.667 12.333
High bid for the period 27.917 21.333 19.000 16.555 15.167 12.500 12.278 12.333
Low bid for the period 19.083 17.583 14.445 14.222 12.500 10.556 10.167 10.296
Market capitalization
(mkt price x #shrs) (EOP) 4,843,851 3,446,123 3,164,615 2,407,199 2,583,532 2,069,522 1,811,246 2,091,973
Market price / book value
per common share (EOP) % 367.81 265.15 250.81 215.03 226.71 189.52 171.77 201.85
Dividend payout ratio
(DPCS / EPCS: basic) % 35.31 36.45 38.97 36.43 34.00 33.21 37.20 44.29
Dividend yield
(DPCS / mktprice) (EOP) % 1.62 2.28 2.48 2.86 2.69 3.06 3.49 3.02
Price / earnings ratio
(mkt price / 4 qtrs EPCS: basic) 23.3x 16.7x 15.7x 12.7x 14.5x 15.6x 14.5x 17.7x
Common shares: basic (EOP) 173,509 173,757 173,794 168,595 170,339 170,093 169,799 169,624
Common shares: basic [Avg] 173,651 173,693 168,366 169,284 170,216 169,938 169,681 169,403
Common shares: diluted [Avg] 179,918 179,435 173,873 174,670 175,363 174,522 174,171 174,061
Preferred shares (EOP) 10 10 10 10 10 10 11 11
- - ------------------------------------ ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Income Statement:
Interest income $312,970 $300,995 $279,639 $260,181 $263,397 $251,876 $239,423 $233,112
Interest expense 158,806 148,490 138,027 125,962 125,499 118,874 113,523 113,336
Net interest income 154,164 152,505 141,612 134,219 137,898 133,002 125,900 119,776
Fully taxable equivalent (FTE)
adjustment 4,176 2,336 1,851 2,007 2,409 1,764 1,178 2,333
Net interest income, FTE 158,340 154,841 143,463 136,226 140,307 134,766 127,078 122,109
Provision for loan losses 21,093 13,770 13,924 13,899 11,549 9,508 10,505 8,738
Noninterest income 104,986 85,766 80,177 78,716 84,099 72,312 75,714 66,561
Noninterest expenses 156,339 141,371 131,767 124,655 130,678 121,251 124,586 120,852
Provision for income taxes 26,384 29,486 27,117 26,396 28,541 27,159 23,595 20,457
Net income 55,334 53,644 48,981 47,985 51,229 47,396 42,928 36,290
Preferred stock dividend requirement 7 7 8 8 8 9 8 8
Common stock dividend 19,696 19,699 19,055 17,246 17,396 15,848 15,846 15,803
- - ------------------------------------ ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance Sheet - End of Period:
Trading account securities $255,320 $87,154 $274,014 $388,264 $447,486 $171,910 $150,529 $272,443
Available for sale (AFS) securities 4,057,895 3,840,970 3,457,692 3,316,927 3,150,276 3,166,608 2,715,770 2,693,820
Memo: fair value adjust
AFS securities 36,237 18,153 1,575 (28,980) 1,654 (12,506) (20,001) (4,048)
Loans, net of unearned income 10,779,547 10,679,985 10,093,820 9,069,267 9,262,482 8,948,196 8,716,400 8,375,060
Reserve for loan losses (149,125) (144,567) (141,637) (135,928) (134,428) (133,853) (133,678) (130,653)
Total interest-earning assets 15,285,028 14,625,505 14,066,684 12,795,456 13,115,096 12,417,202 11,674,994 11,486,526
Intangible assets 269,014 248,973 246,628 171,009 169,779 160,823 157,582 155,744
Total assets 17,307,411 16,312,978 15,671,546 14,416,628 14,708,024 13,739,324 13,036,598 12,751,772
Noninterest-bearing deposits 2,348,638 2,303,163 2,217,107 2,021,116 2,198,348 1,946,454 1,857,593 1,787,827
Interest-bearing deposits 8,367,687 7,920,033 7,602,574 7,288,766 7,240,915 7,141,950 7,027,120 7,069,406
Total deposits 10,716,325 10,223,196 9,819,681 9,309,882 9,439,263 9,088,404 8,884,713 8,857,233
Short-term borrowed funds 3,551,851 3,354,922 3,283,322 2,562,778 2,830,633 2,399,209 2,049,074 1,812,218
Long-term debt 1,304,463 954,463 959,897 986,417 944,055 821,932 723,728 675,460
Total interest-bearing liabilities 13,224,001 12,229,418 11,845,793 10,837,961 11,015,603 10,363,091 9,799,922 9,557,084
Preferred stockholders' equity 501 510 531 532 540 549 553 563
Common stockholders' equity 1,316,912 1,299,534 1,261,479 1,119,635 1,140,108 1,092,782 1,053,973 1,036,217
Parent company investment
in subsidiaries 1,471,679 1,420,607 1,369,329 1,216,236 1,206,037 1,155,998 1,117,599 1,090,036
- - ------------------------------------ ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Problem Assets & Potential Problem Assets - End of Period:
Total nonaccruing loans $32,596 $35,374 $35,450 $30,483 $33,276 $33,401 $25,158 $25,410
Other real estate 5,764 3,083 4,768 3,968 4,855 5,003 5,663 5,209
Total nonperforming assets 38,360 38,457 40,218 34,451 38,131 38,404 30,821 30,619
Accruing loans past due 90 days or more 20,091 19,147 20,537 20,430 19,326 15,728 16,656 13,501
Total problem assets 58,451 57,604 60,755 54,881 57,457 54,132 47,477 44,120
Potential problem assets 7,423 11,654 9,742 12,450 8,271 12,283 23,513 7,595
- - ------------------------------------ ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Reconciliation of the Reserve for Loan Losses:
Reserve for loan losses, beginning $144,567 $141,637 $135,928 $134,428 $133,853 $133,678 $130,653 $129,982
Total loans charged off (24,203) (18,645) (22,431) (20,030) (18,349) (15,528) (13,621) (15,125)
Total recoveries of loans charged off 7,668 7,805 9,757 7,631 7,375 6,195 6,141 7,058
Net loans charged off (16,535) (10,840) (12,674) (12,399) (10,974) (9,333) (7,480) (8,067)
Provision for loan losses 21,093 13,770 13,924 13,899 11,549 9,508 10,505 8,738
Acquisitions -- -- 4,459 -- -- -- -- --
Reserve for loan losses, ending 149,125 144,567 141,637 135,928 134,428 133,853 133,678 130,653
==================================== ========== ========== ========== ========== ========== ========== ========== ==========
<FN>
Notes:
EOP: End of period. EPCS: Earnings Per Common Share. DPCS: Dividends Per Common Share. AFS: Available For Sale.
(A) Figures have been restated where appropriate to reflect two separate 3-for-2 stock splits in the form of 50% stock dividends
paid in May 1997 and February 1998.
(B) As required by SFAS No. 128, "Earnings Per Share",
"Earnings Per Common Share: Primary" has been restated to "Earnings Per Common Share: Basic" and
"Earnings Per Common Share: Fully Diluted" has been restated to "Earnings Per Common Share: Diluted".
</TABLE>
<PAGE>
<TABLE>
TABLE 16: QUARTERLY FINANCIAL HIGHLIGHTS (in thousands, except per share data & ratios) (continued)
<CAPTION>
4th Qtr 3rd Qtr 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr 1st Qtr
1997 1997 1997 1997 1996 1996 1996 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- - ------------------------------------ ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance Sheet - Average:
Trading account securities $163,330 $178,070 $360,339 $168,094 $130,319 $159,258 $172,737 $328,072
Available for sale (AFS) securities 3,913,846 3,528,064 3,334,641 3,183,395 3,162,599 2,930,670 2,725,110 2,609,266
Memo: fair value adjust
AFS securities 27,650 13,126 (16,834) 3,284 6,446 (22,927) (15,977) 20,226
Loans, net of unearned income 10,771,482 10,380,275 9,573,919 9,205,427 9,125,014 8,800,072 8,534,146 8,254,010
Reserve for loan losses (145,526) (142,741) (135,991) (134,272) (133,885) (133,706) (130,816) (130,063)
Deferred taxes on leases (192,903) (186,212) (187,553) (183,598) (177,841) (172,614) (166,840) (164,953)
Total interest-earning assets, excluding
fair value adjust AFS sec's
and deferred tax on leases 14,674,219 13,933,748 13,140,234 12,427,261 12,339,265 11,807,137 11,375,936 11,154,064
Intangible assets 255,430 246,071 178,320 170,857 163,470 158,718 157,979 150,022
Total assets 16,469,757 15,620,168 14,687,847 14,009,082 13,825,829 13,153,786 12,718,595 12,474,704
Noninterest-bearing deposits 2,186,716 2,053,916 1,995,783 1,895,233 1,912,222 1,780,120 1,755,868 1,708,154
Interest-bearing deposits 8,009,294 7,747,020 7,339,642 7,264,138 7,260,035 7,158,996 7,019,739 6,938,872
Total deposits 10,196,010 9,800,936 9,335,425 9,159,371 9,172,257 8,939,116 8,775,607 8,647,026
Short-term borrowed funds 3,307,171 3,205,848 2,887,346 2,412,952 2,388,089 2,073,144 1,918,772 1,817,625
Long-term debt 1,246,482 971,356 989,408 950,850 831,910 771,128 691,766 691,535
Total interest-bearing liabilities 12,562,947 11,924,224 11,216,396 10,627,940 10,480,034 10,003,268 9,630,277 9,448,032
Preferred stockholders' equity 506 524 532 535 543 550 557 566
Common stockholders' equity 1,301,964 1,280,385 1,134,894 1,142,557 1,105,649 1,073,952 1,044,724 1,044,601
- - ------------------------------------ ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Other Data - End of Period (not rounded):
Full-time equivalent employees 7,673 7,507 7,329 6,987 7,017 7,089 7,003 7,088
Total domestic bank offices 283 277 273 267 266 262 263 271
- - ------------------------------------ ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Selected Ratios (%):
Return on average assets (ROAA) 1.33% 1.36% 1.34% 1.39% 1.47% 1.43% 1.36% 1.17%
Tangible ROAA 1.39 1.56 1.48 1.53 1.58 1.60 1.51 1.30
Return on average stockholders'
equity (ROAE) 16.86 16.62 17.30 17.02 18.42 17.55 16.52 13.97
Tangible ROAE 21.49 23.23 22.48 21.81 22.84 22.67 21.43 17.94
Net interest margin, FTE 4.32 4.45 4.37 4.38 4.55 4.57 4.47 4.38
Net interest spread, FTE 3.58 3.73 3.65 3.70 3.83 3.86 3.75 3.63
Operating expense ratio 59.37 58.76 58.92 57.99 58.23 58.55 61.44 64.05
Productivity ratio 3.77 3.59 3.60 3.61 3.76 3.67 3.94 3.90
Loans / deposits (EOP) 100.59 104.47 102.79 97.42 98.13 98.46 98.11 94.56
Loans / assets (EOP) 62.28 65.47 64.41 62.91 62.98 65.13 66.86 65.68
Reserve for loan losses (EOP) /:
Total loans 1.38 1.35 1.40 1.50 1.45 1.50 1.53 1.56
Nonaccruing loans 457.49 408.68 399.54 445.91 403.98 400.75 531.35 514.18
Nonaccr + accr lns past due 90 days 283.04 265.16 252.98 266.98 255.56 272.45 319.70 335.77
Nonaccruing loans / total loans 0.30 0.33 0.35 0.34 0.36 0.37 0.29 0.30
Accruing loans past due 90 days /
total loans 0.19 0.18 0.20 0.23 0.21 0.18 0.19 0.16
Nonaccruing + accr lns past due /
total loans 0.49 0.51 0.55 0.56 0.57 0.55 0.48 0.46
Nonperforming assets (EOP) /:
Total loans + other real estate 0.36 0.36 0.40 0.38 0.41 0.43 0.35 0.37
Total assets 0.22 0.24 0.26 0.24 0.26 0.28 0.24 0.24
Total equity 2.91 2.96 3.19 3.08 3.34 3.51 2.92 2.95
Total equity + reserve for loan losses 2.62 2.66 2.87 2.74 2.99 3.13 2.59 2.62
Problem assets (EOP) /:
Total loans + other real estate 0.54 0.54 0.60 0.60 0.62 0.60 0.54 0.53
Total assets 0.34 0.35 0.39 0.38 0.39 0.39 0.36 0.35
Total equity 4.44 4.43 4.81 4.90 5.04 4.95 4.50 4.26
Total equity + reserve for loan losses 3.99 3.99 4.33 4.37 4.51 4.41 4.00 3.78
Net loans charged off / average loans 0.61 0.41 0.53 0.55 0.48 0.42 0.35 0.39
- - ------------------------------------ ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Capital Ratios And Risk-Based Capital Ratios (%):
Stockholders' equity / assets (EOP) 7.61% 7.97% 8.05% 7.77% 7.76% 7.96% 8.09% 8.13%
Stockholders' equity / assets [Avg] 7.91 8.20 7.73 8.16 8.00 8.17 8.22 8.38
Tangible common equity /
tangible assets (EOP) 6.15 6.54 6.58 6.66 6.67 6.86 6.96 6.99
Leverage ratio 7.51 7.90 8.02 8.31 8.16 7.34 7.50 7.46
Tier 1 risk-based capital ratio 10.58 10.70 10.98 11.45 11.34 10.10 10.29 10.49
Total (Tier 1 + 2)
risk-based capital ratio 13.46 13.60 14.00 14.62 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>
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 FSCO 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.
FSCO regularly evaluates acquisition opportunities and conducts due diligence
activities in connection with possible acquisitions. As a result, acquisition
discussions, negotiations, and actual acquisitions involving cash, debt, or
equity securities may occur. Since an acquisition typically involves the payment
of a premium over the book value of the acquired company, some dilution of
FSCO's book value and earnings per common share may occur.
Effective January 1, 1997, FS Insurance acquired Olson & Haig Employee Benefits
Inc./SKI-MED, a developer of specialty benefit, group health, and incentive
programs.
On March 31, 1997, CrossLand Mortgage purchased the wholesale loan production
branch operations of Harbourton Mortgage Co., L.P., with 15 offices located in
11 states and which originated $2.7 billion in mortgage loans during 1996.
Harbourton Mortgage was previously a subsidiary of Harbourton Financial
Services, L.P. (NYSE: HBT). This merger placed CrossLand Mortgage among the top
mortgage loan originators in the United States.
On June 30, 1997, American Bancorp of Nevada (ABN), headquartered in Las Vegas,
Nevada, was acquired and merged into FSCO, and its wholly owned subsidiary
American Bank of Commerce was merged into FSCO's First Security Bank of Nevada
(FSB Nevada). This merger made FSB Nevada the fifth largest bank in Nevada, with
combined assets of $850 million, loans of $370 million, deposits of $680
million, and 13 branches.
On February 2, 1998, FSCO acquired Rio Grande Bancshares, Inc. (RGB) and its
subsidiaries First National Bank of Dona Ana County and First National Bank of
Chaves County. RGB had year-end 1997 assets of $417 million, equity of $47
million, diversified loan and deposit portfolios, and 11 branches. RGB has been
in business in southern New Mexico for more than 90 years, and its banks have 10
branches in Dona Ana County and one in Chaves County.
On February 19, 1998, FSCO announced that it had signed a definitive agreement
to acquire California State Bank (Nasdaq: CSTB), headquartered in West Covina,
California. California State Bank had year-end 1997 assets of $849.2 million,
and has 17 branches serving small- and middle-market business customers and
retail banking clients in the San Gabriel Valley, as well as Orange, Riverside,
and San Bernardino counties of Southern California. The transaction will be
accounted for as a pooling of interests and is expected to close by third-
quarter 1998, subject to regulatory and California State Bank shareholder
approval.
CORPORATE STRUCTURE
On May 23, 1997, FSCO merged First Security Bank of Oregon into First Security
Bank, N.A. Then, on November 21, 1997, FSCO merged First Security Bank of
Wyoming into First Security Bank, N.A. Combining the charters of these banks was
originally announced in 1995 as part of Project VISION, FSCO's restructuring
project.
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").
The U.S. economy was unexpectedly strong in 1997. Average growth of 3.90% pushed
the unemployment rate below 5%. Nevertheless, the rate of inflation actually
fell from 3% to 2%. Long-term Treasury yields, after exceeding 7% in the early
part of 1997, had dropped below 6% at year end. This seemingly incongruous
economic result primarily reflected intense international competition, with
declining exchange rates and prices in many Asian and Latin American countries.
Also, U.S. labor productivity continued to improve significantly, and U.S.
corporate profit margins remained very healthy. The Federal Reserve, after
raising short-term interest rates early in 1997, left monetary policy unchanged
for the remainder of the year.
In 1998, the pace of U.S. growth will likely moderate, and inflation will
probably continue near 2%. Perhaps the major uncertainty is the expected
reduction of U.S. exports flowing into Asia and the increased volume of Asian
imports to America.
The Intermountain West, which encompasses a significant portion of FSCO's
primary market areas, was the United States' fastest-growing regional economy in
1997 for the fifth consecutive year. Furthermore, Nevada, Utah, and Oregon were
three of the top six states in 1997 employment growth, as reflected in the
following table.
Preliminary Average Job Growth Gains and Unemployment Rates For 1997
Job Gains
--------------------- Unemployment
National Rates
Average(%) Rank Average(%)
- - ------------------------------------------------
National 2.2 4.9
Nevada 6.2 1 4.4
Utah 4.2 3 3.0
Oregon 3.3 6 5.4
Idaho 1.9 24 5.0
New Mexico 1.7 27 6.3
Wyoming 0.1 49 4.6
- - ------------------------------------------------
The overall 1997 economic performance in the Intermountain West was generally
favorable, but growth rates narrowed somewhat from the prior year. The volume of
new residential construction in several states slipped in 1997 but, with
expected lower interest rates, should stabilize in 1998. Automobile sales were
essentially flat in 1997, and competitive price pressures may help maintain that
sales volume in 1998.
The rate of economic growth, both nationally and in the Intermountain West, will
likely decelerate in 1998. 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 it will occur at a reduced rate in
1998, influenced somewhat by labor supply constraints.
While the 1998 regional outlook remains generally favorable, the following
factors could adversely impact regional economic activity:
* Deflationary competitive forces from Asia may narrow U.S. corporate profits
and result in slower national growth.
* Political uncertainty (i.e., Korea, China, 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, in terms of deposits, were all from the June 30,
1997, 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").
Deposits
--------------------
$ Market Offices
Location Institutions (number of) (billions) Share % #
- - -------------------------------------------------------------------------
Utah: FS Bank (Utah) 4.5 22.02 123
Other banks (49) 11.2 347
S&Ls and savings banks (4) 0.7 40
Credit unions (146) 4.2 146
Idaho: FS Bank (Idaho) 2.7 25.47 81
Other banks (23) 5.9 254
S&Ls and savings banks (7) 0.9 53
Credit unions (85) 1.2 85
Oregon: FS Bank (Oregon) 0.4 1.14 13
Other banks (42) 24.2 671
S&Ls and savings banks (11) 4.6 176
Credit unions (128) 5.3 128
Wyoming: FS Bank (Wyoming) 0.2 2.33 7
Other banks (43) 6.9 133
S&Ls and savings banks (4) 0.2 10
Credit unions (39) 0.5 39
New Mexico: FSB New Mexico 1.2 7.44 29
Other banks (52) 11.0 373
S&Ls and savings banks (12) 1.3 35
Credit unions (58) 2.1 58
Nevada: FSB Nevada 0.7 4.27 13
Other banks (26) 11.5 287
S&Ls and savings banks (3) 3.1 58
Credit unions (34) 1.9 34
=========================================================================
FS Bank is the largest bank in Utah, the second largest bank in Idaho, the 7th
largest bank in Oregon, and the 8th largest bank in Wyoming. FSB New Mexico is
the third largest bank in New Mexico, and FSB Nevada is the fifth largest bank
in Nevada.
On February 2, 1998, FSCO acquired the First National Bank of Dona Ana County
and the First National Bank of Chaves County. If combined with these two banks
at June 30, 1997, FSB New Mexico would have had combined deposits totaling $1.5
billion or 9.62% of all deposits in the state, and 39 full-service branches.
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 strong
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 exist in some form 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 in its market areas and nationally 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 a major
presence in four 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 estimate 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 AND YEAR 2000 COMPUTER ISSUE
Advances and changes in available technology can significantly impact the
business and operations of FSCO. Currently, a challenging problem exists as many
computer systems worldwide do not have the capability of recognizing the year
2000 or years thereafter, and some systems may have difficulty in late 1999. No
easy technological "quick fix" has yet been developed for this "Year 2000
Computer Issue". This problem creates risks for FSCO from unforeseen problems in
its own computer systems and from third parties with whom FSCO deals on
financial transactions worldwide. Failures of FSCO's and/or third parties'
computer systems could have a material impact on FSCO's ability to conduct its
business, and especially to process and account for the transfer of funds
electronically.
FSCO has been working to solve the "Year 2000 Computer Issue" since 1995. FSCO
is taking all appropriate actions and expending adequate resources to assure
that its computer systems are reprogrammed and / or replaced in time to
effectively deal with transactions through the year 2000 and beyond, and to
protect itself from problems in the data and / or systems of third parties. FSCO
believes that it will be technologically compliant for operating in the year
2000 and beyond.
As of December 31, 1997, FSCO had completed its assessment of problems and
solutions, and had begun the process of implementing and testing the
corrections. FSCO's expenditures to resolve the "Year 2000 Computer Issue"
currently are estimated to total approximately $20.9 million, including $2.6
million accrued and spent in 1997, plus planned but unaccrued expenditures of
approximately $9.7 million in 1998, $7.6 million in 1999, and $1.0 million in
2000.
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.
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, owner and /
or developer borrowers remain liable under these laws. FSCO 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.
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 SEC as required by
applicable rules. FSCO endeavors at all times to conduct its business in a
lawful manner, and will always vigorously defend itself against unfounded
claims, with a concomitant cost in legal fees and expenses. The following items
are deemed to be material litigation matters under SEC regulations that are now
pending and involving FSCO or one or more of its subsidiaries:
Various FSCO subsidiaries are defendants in two class action lawsuits in United
States District Courts, 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.
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 opposed class certification, and in 1997 the Court declined to
certify the proposed class. FSCO believes that a settlement of this case will
occur in early 1998 with minimal financial impact.
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. 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 totaled approximately $l.5 billion in the aggregate.
In November 1997, the Court dismissed those claims for relief seeking money
damages from FSCO's subsidiaries, First Security Bank, N.A. and First Security
Service Company, together with other Utah banks, but left in place the
declaratory judgment claims to resolve the legal issues surrounding the manner
in which credit unions compete with banks.
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
sought post-trial relief and the Court reduced the verdict in response to FSCO's
post trial motion. FSCO has appealed the remaining verdict based on its belief
that error was committed at the trial court.
Based on advice of legal counsel, and its own analysis, FSCO management
continues to believe that no reasonably foreseeable ultimate outcome of any or
all of the cases discussed above or previously reported will have a material
adverse impact on the business or assets of FSCO.
<PAGE>
MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS
February 20, 1998
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 internal control structure contains
monitoring mechanisms, and actions are taken to correct deficiencies identified.
There are inherent limitations in the effectiveness of any structure of internal
control, including the possibility of human error and the circumvention or
overriding of controls. Accordingly, even an effective internal control
structure can provide only reasonable assurance with respect to financial
statement preparation. Further, because of changes in conditions, the
effectiveness of an internal control structure may vary over time.
Management assessed FSCO's internal control structure over financial reporting
presented in conformity with generally accepted accounting principles and the
Federal Reserve Board's instructions for the FR Y-9 Report as of December 31,
1997. 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, 1997.
The audit committee of FSCO's 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, 1997.
/s/ Morgan J. Evans /s/ Scott C. Ulbrich
Morgan J. Evans Scott C. Ulbrich
President and Chief Operating Officer Executive Vice President and Chief
Financial Officer
Finance and Capital Markets
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
Consolidated Balance Sheets (in thousands)
<CAPTION>
As of December 31, 1997 1996
<S> <C> <C>
- - ----------------------------------------------------------------------------------------------------------------------------------
Assets:
Cash and due from banks $ 1,180,926 $ 937,144
Federal funds sold and securities purchased under resale agreements 191,666 223,235
- - ----------------------------------------------------------------------------------------------------------------------------------
Total Cash and Cash Equivalents 1,372,592 1,160,379
- - ----------------------------------------------------------------------------------------------------------------------------------
Interest-bearing deposits in other banks 600 31,617
Trading account securities 255,320 447,486
Available for sale securities, at fair value (cost $4,021,657 and $3,148,622, respectively) 4,057,895 3,150,276
Loans held for sale 1,107,182 330,032
Loans (net of reserve for loan losses of $149,125 and $134,428 and unearned income
of $104,519 and $67,396, respectively) 9,523,240 8,798,022
Premises and equipment, net 271,950 233,497
Accrued income receivable 101,790 89,595
Other real estate 5,764 4,855
Other assets 342,064 292,486
Intangible assets 269,014 169,779
- - ----------------------------------------------------------------------------------------------------------------------------------
Total Assets $17,307,411 $14,708,024
==================================================================================================================================
Liabilities And Stockholders' Equity:
Deposits:
Noninterest-bearing $ 2,348,638 $ 2,198,348
Interest-bearing 8,367,687 7,240,915
- - ----------------------------------------------------------------------------------------------------------------------------------
Total Deposits 10,716,325 9,439,263
- - ----------------------------------------------------------------------------------------------------------------------------------
Securities sold under repurchase agreements 2,250,137 2,076,202
Federal funds purchased 999,824 466,390
U.S. Treasury demand notes 20,000 8,885
Other short-term borrowings 281,890 279,156
Accrued income taxes 259,757 187,638
Accrued interest payable 50,339 41,442
Other liabilities 107,263 124,345
Long-term debt:
Guaranteed preferred beneficial interests 150,000 150,000
Other 1,154,463 794,055
- - ----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 15,989,998 13,567,376
- - ----------------------------------------------------------------------------------------------------------------------------------
Commitments and contingent liabilities
- - ----------------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity:
Preferred stock: Series "A", $3.15 cumulative convertible 501 540
- - ----------------------------------------------------------------------------------------------------------------------------------
Common Stockholders' Equity:
Common stock (175,163 and 171,608 shares issued, respectively) 218,953 214,510
Paid-in surplus 79,892 16,609
Retained earnings 1,048,202 917,992
Net unrealized gain on available for sale securities (net of taxes) 22,733 877
- - ----------------------------------------------------------------------------------------------------------------------------------
Subtotal 1,369,780 1,149,988
Common treasury stock, at cost (1,654 and 1,269 shares, respectively) (52,868) (9,880)
- - ----------------------------------------------------------------------------------------------------------------------------------
Total Common Stockholders' Equity 1,316,912 1,140,108
- - ----------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 1,317,413 1,140,648
- - ----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $17,307,411 $14,708,024
==================================================================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
Consolidated Statements Of Income (in thousands, except per share amounts)
<CAPTION>
For the years ended December 31, 1997 1996 1995
<S> <C> <C> <C>
- - ---------------------------------------------------------------------------------------------------------------------------------
Interest Income:
Interest and fees on loans $ 910,549 $789,488 $754,029
Federal funds sold and securities purchased under resale agreements 2,530 4,483 8,166
Interest-bearing deposits in other banks 69 1,059 778
Trading account securities 12,686 10,058 29,096
Available for sale (AFS) securities 227,951 182,720 129,204
Held to maturity (HTM) securities -- -- 13,586
- - ---------------------------------------------------------------------------------------------------------------------------------
Total Interest Income 1,153,785 987,808 934,859
- - ---------------------------------------------------------------------------------------------------------------------------------
Interest Expense:
Deposits 337,213 313,010 300,146
Short-term borrowings 162,385 108,081 108,271
Long-term debt 71,687 50,141 51,451
- - ---------------------------------------------------------------------------------------------------------------------------------
Total Interest Expense 571,285 471,232 459,868
- - ---------------------------------------------------------------------------------------------------------------------------------
Net Interest Income 582,500 516,576 474,991
Provision for loan losses 62,686 40,300 21,082
- - ---------------------------------------------------------------------------------------------------------------------------------
Net Interest Income After Provision for Loan Losses 519,814 476,276 453,909
- - ---------------------------------------------------------------------------------------------------------------------------------
Noninterest Income:
Service charges on deposit accounts 87,776 80,924 68,114
Other service charges, collections, commissions, and fees 54,020 45,560 36,208
Asset securitization gains 17,515 2,765 --
Bankcard servicing fees and third-party processing fees 32,509 28,683 24,774
Insurance commissions and fees 16,975 15,016 13,655
Mortgage banking activities, net 101,703 85,668 76,919
Trust (fiduciary) commissions and fees 26,195 23,104 20,894
Trading account securities gains (losses) 1,446 2,383 6,390
Securities gains (losses) 3,085 4,549 (806)
Other 8,421 10,034 20,344
- - ---------------------------------------------------------------------------------------------------------------------------------
Total Noninterest Income 349,645 298,686 266,492
- - ---------------------------------------------------------------------------------------------------------------------------------
Noninterest Expenses:
Salaries and employee benefits 288,096 261,358 261,410
Amortization of intangibles 6,031 7,977 8,712
Armored and messenger 5,809 5,564 5,499
Bankcard interbank interchange and fees 32,352 27,694 17,263
Credit, appraisal, and repossession 16,954 14,200 14,267
Fees 9,351 8,832 8,638
Furniture and equipment 43,578 40,987 36,285
Insurance 6,012 5,254 15,793
Marketing 13,760 11,993 11,062
Occupancy, net 33,268 29,776 27,862
Other real estate expenses and loss provision (recovery) 1,805 286 (2,514)
Postage 11,004 10,748 11,272
Professional 14,383 8,437 11,514
Stationery and supplies 17,772 19,060 18,582
Telephone 15,809 13,683 13,278
Travel 9,284 7,687 8,178
Other 28,864 23,831 19,104
Restructuring charge -- -- 44,000
- - ---------------------------------------------------------------------------------------------------------------------------------
Total Noninterest Expenses 554,132 497,367 530,205
- - ---------------------------------------------------------------------------------------------------------------------------------
Income Before Provision For Income Taxes 315,327 277,595 190,196
Provision for income taxes 109,383 99,752 70,191
- - ---------------------------------------------------------------------------------------------------------------------------------
Net Income 205,944 177,843 120,005
Dividend requirement of preferred stock 30 33 35
- - ---------------------------------------------------------------------------------------------------------------------------------
Net Income Applicable to Common Stock $ 205,914 $177,810 $119,970
- - ---------------------------------------------------------------------------------------------------------------------------------
Earnings Per Common Share: Basic $ 1.20 $ 1.05 $ 0.71
- - ---------------------------------------------------------------------------------------------------------------------------------
Earnings Per Common Share: Diluted $ 1.16 $ 1.02 $ 0.70
=================================================================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
Consolidated Statements Of Stockholders' Equity (in thousands, except per share amounts)
<CAPTION>
Net
Unrealized
Gain (Loss)
on Available
for Sale Common
Preferred Common Paid-In Retained Securities Treasury
Total Stock Stock Surplus Earnings (Net of Taxes) Stock
<S> <C> <C> <C> <C> <C> <C> <C>
- - ------------------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 1995: $ 889,474 $629 $210,757 $ -- $ 741,071 $(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 2,671 -- 396 2,275 -- -- --
Sales of stock to employee benefit plans and
employee stock purchase plan 8,294 -- 1,242 4,022 -- -- 3,030
Common stock issued for acquisitions 637 -- 567 70 -- -- --
Cash dividends:
Preferred stock - $3.15 per share (35) -- -- -- (35) -- --
Common stock - $0.33 per share (55,966) -- -- -- (55,966) -- --
Conversion of preferred stock to common -- (58) 55 3 -- -- --
Purchase of common treasury stock (4,459) -- -- -- -- -- (4,459)
Net unrealized gain on available for sale
securities (net of taxes) 68,888 -- -- -- -- 68,888 --
Other 754 -- -- 754 -- -- --
- - ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 1,030,263 571 213,017 7,124 805,075 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 3,339 -- 342 2,997 -- -- --
Sales of stock to employee benefit plans and
employee stock purchase plan 7,128 -- 1,123 3,765 -- -- 2,240
Cash dividends:
Preferred stock - $3.15 per share (33) -- -- -- (33) -- --
Common stock - $0.38 per share (64,893) -- -- -- (64,893) -- --
Conversion of preferred stock to common (1) (31) 28 2 -- -- --
Purchase of common treasury stock (2,049) -- -- -- -- -- (2,049)
Net unrealized loss on available for sale
securities (net of taxes) (13,670) -- -- -- -- (13,670) --
Other 2,721 -- -- 2,721 -- -- --
- - ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 1,140,648 540 214,510 16,609 917,992 877 (9,880)
- - ------------------------------------------------------------------------------------------------------------------------------------
Net income for the year 205,944 -- -- -- 205,944 -- --
Sale of common stock through dividend
reinvestment and common stock purchase plan 3,741 -- 264 3,477 -- -- --
Sales of stock to employee benefit plans and
employee stock purchase plan 7,967 -- 1,297 3,900 -- -- 2,770
Common stock issued for acquisitions 97,283 -- 2,844 50,738 (8) -- 43,709
Cash dividends:
Preferred stock - $3.15 per share (30) -- -- -- (30) -- --
Common stock - $0.44 per share (75,696) -- -- -- (75,696) -- --
Conversion of preferred stock to common (1) (39) 38 -- -- -- --
Purchase of common treasury stock (89,467) -- -- -- -- -- (89,467)
Net unrealized gain on available for sale
securities (net of taxes) 21,856 -- -- -- -- 21,856 --
Other 5,168 -- -- 5,168 -- -- --
- - ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 $1,317,413 $501 $218,953 $79,892 $1,048,202 $ 22,733 $(52,868)
====================================================================================================================================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
Consolidated Statements Of Cash Flows (in thousands, except number of shares)
<CAPTION>
For the years ended December 31, 1997 1996 1995
<S> <C> <C> <C>
- - --------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities:
Net income $ 205,944 $ 177,843 $ 120,005
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Provision for loan losses 62,686 40,300 21,082
Provision for (recovery of) loss on other real estate 1,135 20 (2,757)
Provision for depreciation and amortization 32,479 30,117 26,314
Provision for amortization of intangible assets 6,031 7,977 8,712
Provision for deferred income taxes 58,696 57,936 17,681
Net change in deferred loan origination fees and costs 55,717 54,356 (8,196)
Net amortization of AFS & HTM securities discounts and premiums 1,897 (1,376) (304)
Proceeds from sales of mortgage loans held for sale 5,175,757 3,709,605 3,460,687
Origination of mortgage loans held for sale (5,295,498) (3,253,230) (2,785,149)
AFS & HTM securities (gains) losses (3,085) (4,549) 806
Net realized gains on sold loans (26,613) (5,627) (9,107)
Decrease (increase) in trading account securities 192,166 190,907 (84,567)
Decrease (increase) in accrued income receivable (12,195) (7,452) 3,512
Increase (decrease) in accrued interest payable 8,897 (7,295) 21,028
Increase (decrease) in accrued income taxes 1,372 6,482 (9,153)
Other operating activities (179,301) (245,788) 58,303
- - --------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 286,085 750,226 838,897
- - --------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Proceeds from sales of available for sale securities 301,965 104,952 267,001
Redemption of matured available for sale securities 1,062,152 1,054,465 881,655
Redemption of matured held to maturity securities -- -- 69,884
Purchases of available for sale securities (2,120,806) (1,702,170) (1,414,460)
Purchases of held to maturity securities -- -- (71,547)
Net (increase) decrease in interest-bearing deposits in other banks 31,117 (10,054) (19,753)
Net increase in loans and leases (2,097,206) (1,470,740) (1,050,304)
Proceeds from sale of auto loans 802,935 -- 250,068
Purchase of premises and equipment (39,115) (47,353) (44,773)
Proceeds from sales of other real estate 5,389 6,537 10,854
Payments to improve other real estate (2,177) (2,571) (1,138)
Net cash (paid for) received from acquisitions 37,369 2,721 602
- - --------------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (2,018,377) (2,064,213) (1,121,911)
- - --------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Net increase in deposits 1,042,809 665,621 720,298
Net increase (decrease) in Federal funds purchased and securities sold
under repurchase agreements and U.S. Treasury demand notes 679,214 580,124 (223,131)
Proceeds from issuance of nonrecourse debt on leveraged leases 37,440 71,142 --
Payments on nonrecourse debt on leveraged leases (24,557) (28,099) (31,025)
Proceeds from issuance of long-term debt and short-term borrowings 566,439 585,387 238,806
Payments on long-term debt and short-term borrowings (203,355) (310,033) (127,610)
Proceeds from issuance of common stock and sales of treasury stock 11,708 10,466 10,965
Purchases of treasury stock (89,467) (2,049) (4,459)
Dividends paid (75,726) (64,926) (56,001)
- - --------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 1,944,505 1,507,633 527,843
- - --------------------------------------------------------------------------------------------------------------------------------
Net Increase in Cash and Cash Equivalents 212,213 193,646 244,829
Cash and Cash Equivalents, Beginning of Year 1,160,379 966,733 721,904
- - --------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Year $ 1,372,592 $ 1,160,379 $ 966,733
================================================================================================================================
(continued)
</TABLE>
<PAGE>
<TABLE>
Consolidated Statements Of Cash Flows (in thousands, except number of shares) continued
<CAPTION>
For the years ended December 31, 1997 1996 1995
<S> <C> <C> <C>
- - ----------------------------------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest $ 562,389 $478,527 $438,840
Income taxes 49,931 35,334 55,790
==================================================================================================================================
Supplemental Schedule of Noncash Investing
and Financing Activities:
Conversion of 736; 595; and 1,105 shares of convertible
preferred stock into 30,149; 23,876; and 45,249 shares of
common stock, respectively $ 39 $ 31 $ 58
==================================================================================================================================
Transfer of loans to other real estate $ 5,150 $ 4,707 $ 7,742
==================================================================================================================================
Securities transferred from held to maturity to available for sale $ -- $ -- $251,630
==================================================================================================================================
Net change in unrealized gain (loss) on available for sale securities
net of deferred taxes (included in stockholders' equity) $ 21,856 $(13,670) $ 68,888
==================================================================================================================================
</TABLE>
In 1997, FSCO acquired American Bancorp of Nevada with total assets of
approximately $304,272,000 and liabilities of $271,970,000 through the issuance
of 5,337,093 shares of FSCO's common stock. 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 454,725 shares of FSCO's common stock.
See notes to consolidated financial statements. (concluded)
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1997, 1996 AND 1995
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 business 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. The 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 Account, Available for Sale, and Held to Maturity Securities (See Note
4). Trading account securities are carried at fair value with net unrealized
gains or losses included in earnings during the period. Available for sale
securities 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. Held to maturity securities 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. 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 over the life of the related loan.
Mortgage Banking Activities. FSCO originates mortgage loans for sale in the
secondary market. 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 thereof 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.
Financial Asset Transfers and Servicing. Effective January 1, 1997, FSCO adopted
Statement of Financial Accounting Standards (SFAS) No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities"
(as amended by SFAS No. 127, see Note 16). SFAS No. 125 establishes certain
criteria for a transfer of assets to qualify as a sale. If the transfer does not
meet these criteria, the transaction is accounted for as a secured borrowing.
SFAS No. 125 also supersedes SFAS No. 122 by establishing new criteria for when
to recognize a servicing asset. All sales of financial assets during the year
have met the qualifications for sale treatment. The adoption of SFAS No. 125 did
not have a material effect on FSCO's consolidated financial statements.
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. Reserves for loan losses on consumer, credit card, residential
mortgage, leases, and other loans with similar homogeneous characteristics are
established for 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 previously used by management.
FSCO accounts for impaired loans in accordance with 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. FSCO
evaluates individual non-homogeneous loans in excess of $1 million for
impairment while such loans are on nonaccrual or the loan has been restructured.
Smaller balance, homogeneous loans, including consumer mortgage, installment,
revolving credit, and consumer loans, are collectively evaluated for impairment.
Loans are placed on nonaccrual status upon becoming 90 days past due as to
interest or principal, unless both well-secured and in the process of
collection. Generally, consumer loans not secured by real estate are not placed
on nonaccrual status, but are entirely charged off after 120 days of becoming
past due.
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 is carried at the lower of cost or fair
value less estimated selling costs.
Securities Sold Under Repurchase Agreements. In accordance with SFAS No. 125,
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 derivatives
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 FSCO
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
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 from 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 disclose
the effects of SFAS No. 123 on a proforma basis and to continue to follow APB 25
(as permitted by SFAS No. 123) as it relates to stock-based compensation, 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 25
years and periodically reviewed for impairment.
Long-Lived Assets. Impairment of long-lived assets is determined by evaluating
long-lived assets on a periodic basis 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. Assets determined to be
impaired are written down to their fair value. There were no significant
impairments during 1997 or 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 Share. Effective December 31, 1997, FSCO adopted SFAS No. 128,
"Earnings Per Share", and retroactively restated its earnings per share (EPS)
for 1997, 1996, and 1995 to conform with SFAS No. 128. Additional restatements
were made to reflect the effects of the 3-for-2 stock split announced January
26, 1998 and the stock splits that were paid May 15, 1997 and February 17, 1996
(See Note 12).
Reclassifications. Certain reclassifications to 1996 and 1995 amounts have been
made to conform to 1997 classifications.
NOTE 2: Restructuring Charge
In December 1995, FSCO completed an intensive review of its operations and
businesses and announced the results of a corporate-wide process redesign plan
called Project VISION. The process redesign was done 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 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 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>
1997 1996 1995
<S> <C> <C> <C>
- - ------------------------------------------------------------------------------------------
Balance, January 1 $ 9,147 $ 35,218 $ --
Provision charged against income -- -- 44,000
Cash outlays (7,330) (24,023) (3,824)
Noncash charges (890) (2,048) (4,958)
- - ------------------------------------------------------------------------------------------
Balance at December 31 $ 927 $ 9,147 $ 35,218
==========================================================================================
</TABLE>
The remaining balance in the restructuring reserve represents severance payable
over the next 12 months.
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, 1997 and 1996, the
required average reserve balances were approximately $74,932,000 and
$57,936,000, respectively.
NOTE 4: Trading Account, 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, 1997 Cost Gains Losses Value
<S> <C> <C> <C> <C>
- - -----------------------------------------------------------------------------------------------------------------------------
Debt Securities issued by U.S. Treasury
and other U.S. Government
agencies and corporations $ 920,037 $ 6,697 $ (163) $ 926,571
Debt securities issued by states
and political subdivisions 295,777 6,213 (207) 301,783
Corporate debt securities 7,521 89 (20) 7,590
Mortgage-backed securities 2,661,241 19,193 (4,261) 2,676,173
Equity securities 69,081 8,978 (281) 77,778
Federal Home Loan Bank and
Federal Reserve stock 68,000 -- -- 68,000
- - -----------------------------------------------------------------------------------------------------------------------------
Totals $4,021,657 $41,170 $ (4,932) $4,057,895
=============================================================================================================================
As of December 31, 1996
- - -----------------------------------------------------------------------------------------------------------------------------
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 50,147 6,068 (106) 56,109
Federal Home Loan Bank and
Federal Reserve stock 58,675 -- -- 58,675
- - -----------------------------------------------------------------------------------------------------------------------------
Totals $3,148,622 $20,365 $(18,711) $3,150,276
=============================================================================================================================
</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,
1997 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 $ 94,022 $ 94,216
Due after one year through five years 899,034 905,601
Due after five years through ten years 165,070 169,318
Due after ten years 65,209 66,809
- - --------------------------------------------------------------------------------
Total debt securities 1,223,335 1,235,944
Mortgage-backed securities 2,661,241 2,676,173
Equity securities 137,081 145,778
- - --------------------------------------------------------------------------------
Totals $4,021,657 $4,057,895
================================================================================
</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
---------------------------------------------------
1997 1996 1995
<S> <C> <C> <C>
- - ---------------------------------------------------------------------------
Proceeds $301,965 $104,952 $267,001
===========================================================================
Gross gains $ 5,190 $ 4,549 $ 2,658
Gross losses (2,105) -- (3,464)
- - ---------------------------------------------------------------------------
Net Gains (Losses) $ 3,085 $ 4,549 $ (806)
===========================================================================
</TABLE>
The change in net unrealized holding loss on trading account securities that has
been included in earnings for the years ended December 31, 1997, 1996, and 1995
totaled $618,617, $215,266, and $366,672, respectively.
Interest earned on tax exempt securities was approximately $13,469,000,
$10,508,000, and $9,350,000, respectively, for the years ended December 31,
1997, 1996, and 1995.
At December 31, 1997 and 1996, securities carried at $2,738,514,000 and
$2,432,546,000, respectively, were pledged for various purposes. Included in
these pledged securities were trading account securities totaling $38,775,000
and $66,555,000, respectively.
At December 31, 1997 and 1996, FSCO and its subsidiaries had available for sale
securities sold under repurchase agreements totaling $2,250,288,000 and
$1,994,972,000, 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>
1997 1996
- - -----------------------------------------------------------------------------------------------------------------
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 $ 74,077 $ 51,590 $ 44,871 $ 2,012
Market value 74,077 51,590 44,871 2,012
Repurchase liability 71,799 51,341 44,147 2,007
Weighted average interest rate 6.70% 6.02% 6.77% 4.85%
2 to 30 days:
Carrying amount 57,485 484,866 66,377 27,223
Market value 57,485 484,866 66,377 27,223
Repurchase liability 55,772 484,487 63,793 27,326
Weighted average interest rate 5.69% 5.89% 5.40% 5.36%
31 to 90 days:
Carrying amount 497 3,027 1,016 6,486
Market value 497 3,027 1,016 6,486
Repurchase liability 497 3,024 1,007 6,469
Weighted average interest rate 5.70% 5.50% 5.23% 5.33%
Demand:
Carrying amount 197,015 1,352,917 185,911 1,661,031
Market value 197,015 1,352,917 185,911 1,661,031
Repurchase liability 193,273 1,347,896 179,703 1,671,781
Weighted average interest rate 5.63% 5.35% 6.14% 5.67%
=================================================================================================================
</TABLE>
Securities sold under agreements to repurchase averaged approximately
$2,001,453,000 and $1,627,935,000 during 1997 and 1996, and the maximum amounts
outstanding at any month-end during 1997 and 1996 were $2,250,137,000 and
$2,076,202,000, 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, 1997 1996
<S> <C> <C>
- - ---------------------------------------------------------
Commercial, financial,
and agricultural $2,637,840 $2,152,614
Real estate:
Commercial 873,755 904,135
Residential 1,539,133 1,600,611
Construction 706,482 540,562
Consumer 2,884,691 2,981,905
Leases 1,030,464 752,623
- - ---------------------------------------------------------
Total 9,672,365 8,932,450
Reserve for loan losses (149,125) (134,428)
- - ---------------------------------------------------------
Totals $9,523,240 $8,798,022
=========================================================
</TABLE>
At December 31, 1997 and 1996, loans carried at approximately $885,146,000 and
$643,653,000, 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>
1997 1996
<S> <C> <C>
- - --------------------------------------------------------
Balance, January 1 $124,968 $ 73,080
Additions 21,798 55,512
Repayments (8,407) (3,624)
- - --------------------------------------------------------
Balance, December 31 $138,359 $124,968
========================================================
</TABLE>
None of the above loans to directors, executive officers, and to their
associates as of December 31, 1997 and 1996 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.
Lease financing consisted of the following (in thousands):
<TABLE>
<CAPTION>
As of December 31, 1997 1996
<S> <C> <C>
- - ------------------------------------------------------
Leveraged leases $ 209,070 $197,207
Non leveraged leases 819,667 554,882
Assets held for sale or lease 1,727 534
- - ------------------------------------------------------
Totals $1,030,464 $752,623
======================================================
</TABLE>
Changes in the reserve for loan losses were as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
- - --------------------------------------------------------
Balance, January 1 $134,428 $129,982 $133,855
Provision charged
to expense 62,686 40,300 21,082
Reserves acquired
through acquisitions
(Note15) 4,459 -- --
Loans charged off,
net of recoveries of
$32,861, $26,769,
and $27,592,
respectively (52,448) (35,854) (24,955)
- - --------------------------------------------------------
Balance, December 31 $149,125 $134,428 $129,982
========================================================
</TABLE>
FSCO's investment in impaired loans at December 31, 1997 and 1996, as defined in
SFAS Nos. 114 and 118, totaled $-0- and $1,536,000, respectively. The SFAS No.
114 allowance related to impaired loans at December 31, 1997 and 1996 was $-0-
and $1,536,000, respectively. During the years ended December 31, 1997, 1996,
and 1995, FSCO's average investment in impaired loans was approximately
$1,416,000, $3,570,000, and $2,492,000, respectively. No income was recorded on
loans considered impaired during 1997, 1996, or 1995.
At December 31, 1997 and 1996, total nonaccruing loans were $32,596,000 and
$33,276,000, respectively. Gross interest income foregone on nonaccruing loans
during 1997, 1996, and 1995 was $2,643,000, $3,008,000, and $2,366,000,
respectively. There were no troubled debt restructurings during 1997, 1996, and
1995.
During 1997 and 1995, FSCO securitized approximately $802,935,000 and
$250,899,000 of auto loans and sold certificates to investors bearing interest
rates ranging from 6.1% to 6.5% and 6.25%, respectively. FSCO will continue to
service the underlying auto loans for a fee through 2003 and 2001 for the 1997
and 1995 securitizations, respectively.
The estimated fair value of capitalized servicing rights related to the auto
loans securitized was $12,197,000 (net of a valuation allowance of $772,000) at
December 31, 1997. The risk characteristics used to value auto loan and mortgage
loan servicing assets are loss rates, prepayment speed, weighted average
remaining maturities, and weighted average loan ages. A discounted cash flow
model is used to value the auto loan servicing assets using a loss rate of 0.6%,
prepayment assumption of 1.5% (using the Asset-Backed Securities model), and a
discount rate of 9%.
Following is a summary of capitalized servicing rights, net of accumulated
amortization (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
- - ----------------------------------------------------------
Balance, January 1 $ 78,586 $ 52,604 $ 56,130
Originated 103,084 42,678 17,832
Purchased -- -- 1,818
Sold (56,122) (4,800) (13,860)
Amortization (16,146) (11,896) (9,316)
Valuation allowance (772) -- --
- - ----------------------------------------------------------
Balance, December 31 $108,630 $ 78,586 $ 52,604
==========================================================
</TABLE>
Mortgage Banking Activities. At December 31, 1997 and 1996, FSCO's subsidiaries
were servicing 127,858 and 123,524 mortgage loans, aggregating $11,152,501,000
and $10,664,568,000, respectively, of which $12,995,000 and $18,060,000 were
subserviced as of December 31, 1997 and 1996, respectively. The amount of loan
principal that was delinquent on serviced loans at December 31, 1997 and 1996
was approximately $447,968,000 and $321,946,000, respectively. Related trust
funds were on deposit with FSCO's subsidiary banks.
FSCO sold mortgage servicing rights on a bulk sale basis in 1996 and 1995
related to mortgage loans totaling approximately $0.5 billion and $1.2 billion
with gains of $2.5 million and $7.5 million, respectively. During 1997 FSCO sold
mortgage loan servicing rights on a monthly basis concurrent with the
securitization and marketing of approximately $2.8 billion of mortgage loans.
The value of such servicing rights recognized in accordance with the provisions
of FASB Statement 125 totaled approximately $51.4 million.
The mortgage servicing rights capitalized at December 31, 1997, represents the
rights to service approximately $8.8 billion of mortgage loans. In addition,
FSCO has approximately $2.4 billion of loans for which the mortgage servicing
rights were not capitalized. No valuation allowance was required as of December
31, 1997 or 1996. Mortgage servicing assets are recorded at a discounted fair
value based on an active market for such rights. The estimated fair value of
capitalized mortgage servicing rights was $122,141,000, $96,728,000 and
$62,294,000 at December 31, 1997, 1996, and 1995 respectively.
During the year ended December 31, 1997, FSCO issued 302 GNMA loan pools with
security proceeds of $2,437,749,000. Additionally, FSCO was servicing 1,081 GNMA
loan pools with an outstanding security balance of $1,890,187,000 at December
31, 1997. During the year ended December 31, 1997, FSCO originated 27,825 FHA/VA
insured/guaranteed mortgage loans with loan proceeds of $2,792,895,000.
Additionally, FSCO was servicing 29,983 FHA/VA insured/guaranteed mortgage loans
with an unpaid principal balance of $2,494,477,000 at December 31, 1997.
NOTE 6: Premises And Equipment
Premises and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
As of December 31, 1997 1996
<S> <C> <C>
- - --------------------------------------------------------
Land $ 41,004 $ 32,307
Buildings and improvements 192,612 157,142
Equipment 188,453 224,786
Leasehold improvements 17,842 16,285
Construction in progress 33,591 41,000
- - --------------------------------------------------------
Totals 473,502 471,520
Accumulated depreciation
and amortization (201,552) (238,023)
- - --------------------------------------------------------
Net $ 271,950 $ 233,497
========================================================
</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; Las Vegas, Nevada, and Albuquerque, New Mexico.
At December 31, 1997, a total of 179 bank offices were in owned buildings, with
the remaining 104 bank offices located in facilities leased under operating
leases with terms ranging from 1 to 30 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, 1997, future minimum lease payments by year related to operating
leases for premises and equipment were as follows (in thousands):
<TABLE>
<S> <C>
1998 $23,558
1999 18,785
2000 8,931
2001 6,655
2002 4,939
Thereafter 10,392
- - -------------------------------------------------
Total $73,260
=================================================
</TABLE>
Total rent expense under all operating leases for 1997, 1996, and 1995
approximated $22,236,000, $19,122,000, and $17,118,000, respectively.
NOTE 7: Deposits
Deposits consisted of the following (in thousands):
<TABLE>
<CAPTION>
As of December 31, 1997 1996
<S> <C> <C>
- - ---------------------------------------------------------------------------------
Non interest-bearing demand deposit accounts $ 2,348,638 $2,198,348
Interest-bearing demand and savings 1,763,560 2,555,481
Money market accounts 1,927,195 1,030,912
Time certificates of deposit less than $100,000 3,373,458 2,866,864
Time certificates of deposit of $100,000 or more 1,303,474 787,658
- - ---------------------------------------------------------------------------------
Totals $10,716,325 $9,439,263
=================================================================================
</TABLE>
NOTE 8: Line Of Credit
FSCO had a $200 million line of credit at December 31, 1997 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 at December 31, 1997.
NOTE 9: Income Taxes
Accrued income taxes payable consisted of the following (in thousands):
<TABLE>
<CAPTION>
As of December 31, 1997 1996
<S> <C> <C>
- - ----------------------------------------------------
Current $ 3,126 $ 2,370
Deferred 256,631 185,268
- - ----------------------------------------------------
Totals $259,757 $187,638
====================================================
</TABLE>
The income tax provisions consisted of the following components (in
thousands):
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
- - -----------------------------------------------------
Current:
Federal $ 46,328 $38,075 $47,056
State 4,359 3,741 5,454
- - -----------------------------------------------------
Subtotals 50,687 41,816 52,510
- - -----------------------------------------------------
Deferred:
Federal 49,552 49,048 14,454
State 9,144 8,888 3,227
- - -----------------------------------------------------
Subtotals 58,696 57,936 17,681
- - -----------------------------------------------------
Totals $109,383 $99,752 $70,191
=====================================================
</TABLE>
The tax provisions were at effective rates as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<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 (1.5) (1.4) (1.9)
Amortization of intangibles 0.6 0.9 1.4
State income taxes, net of U.S. Federal income tax benefit 2.8 2.7 2.5
Tax credits and miscellaneous items (2.2) (1.3) (0.1)
- - -----------------------------------------------------------------------------------------------
Effective Tax Rates 34.7% 35.9% 36.9%
===============================================================================================
</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>
As of December 31, 1997 1996
<S> <C> <C>
- - --------------------------------------------------------------------------------------
Assets:
Loan loss reserve $ 55,646 $ 49,962
Other reserves 559 3,127
Deferred income 3,718 1,639
Other postretirement benefits 1,707 1,438
NOL carryforward 1,498 1,498
Deferred compensation 1,700 1,063
Other 3,859 3,668
- - ---------------------------------------------------------------------------------------
Total Deferred Tax Assets 68,687 62,395
- - ---------------------------------------------------------------------------------------
Liabilities:
Leasing operations 259,596 207,562
Depreciation 5,498 4,881
Pension plan contributions 2,848 1,103
Originated mortgage servicing rights 28,376 19,530
FHLB stock dividends 7,000 5,538
Deferred loan fees 5,787 6,265
Fair value adjustments on available for sale securities 13,377 777
- - ---------------------------------------------------------------------------------------
Other 2,836 2,007
- - ---------------------------------------------------------------------------------------
Total Deferred Tax Liabilities 325,318 247,663
- - ---------------------------------------------------------------------------------------
Net Deferred Tax Liability $256,631 $185,268
=======================================================================================
</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, 1997 1996
<S> <C> <C>
- - ---------------------------------------------------------------------------------
Parent company:
Medium-term notes due 1998-2003 $ 32,750 $ 32,750
Floating rate notes due 1999 6,842 6,984
7.875% senior notes due 1999 98,962 98,962
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 150,000 150,000
Subsidiaries:
Bank:
European Medium Term Floating Rate Notes due 2002 300,000 --
Other 647,397 583,476
Guaranteed Preferred Beneficial Interests -
8.41% subordinated capital income securities due 2026 150,000 150,000
Nonbank 402 1,039
- - ---------------------------------------------------------------------------------
Totals 1,586,353 1,223,211
Less current maturities included
in other short-term borrowings (281,890) (279,156)
- - ---------------------------------------------------------------------------------
Long-Term Portion $1,304,463 $ 944,055
=================================================================================
</TABLE>
Medium Term Notes Due 1998-2003: Senior medium term notes are unsecured and bear
interest at fixed rates ranging from 5.71% to 9.07% with a weighted average
coupon of 6.53%. The notes mature from 1998 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, 1997 have ranged from
5.75% to 7.15% and at December 31, 1997 was 6.45%. 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 $300,000,000 debt shelf
registration statement and issued $100,000,000 of senior notes under the shelf
registration statement with interest payable semi-annually on April 15 and
October 15 through 1999. The notes are unsecured.
7.50% Subordinated Notes Due 2002: Subordinated notes of $75,000,000 are
unsecured, with interest payable semi-annually at the stated rate on February 15
and August 15 of each year. The notes are payable at maturity in September 2002
and are not subject to prepayment.
7.00% Subordinated Notes Due 2005: Subordinated notes of $125,000,000 are
unsecured, with interest payable semi-annually at the stated rate on January 15
and July 15 of each year. The notes are payable at maturity in July 2005 and are
not subject to prepayment.
6.875% Senior Notes Due 2006: During 1996, FSCO filed a $600,000,000 debt shelf
registration statement and issued $150,000,000 of senior notes under the shelf
registration statement with interest payable semi-annually on May 15 and
November 15 through 2006. The notes are unsecured.
Guaranteed Preferred Beneficial Interests- 8.41% Subordinated Capital Income
Securities Due 2026: In December 1996, First Security Capital I (the business
trust), a wholly owned subsidiary of FSCO, issued $150,000,000 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.
European Medium-Term Floating Rate Notes Due 2002: In October 1997, First
Security Bank, N.A., issued $300,000,000 of European Medium-Term Floating Rate
Notes under a $1 billion note program. The interest rate is based upon the three
month LIBOR and was 5.82% at December 31, 1997. The notes are unsecured and are
redeemable at the option of the issuer in whole on any interest payment date.
Interest is paid quarterly.
Other: Other long-term debt of the banking subsidiaries as of December 31, 1997
consisted of approximately $637,490,000 of advances from the Federal Home Loan
Bank which are collateralized primarily by mortgage loans, bear interest at
rates generally ranging from 3.00% to 8.17%, and are payable principally through
November 2012; and $9,907,000 of miscellaneous notes payable at various rates
and maturities.
Scheduled maturities of long-term debt by year were as follows as of December
31, 1997 (in thousands):
<TABLE>
<CAPTION>
Parent
Company Consolidated
<S> <C> <C>
- - ---------------------------------------------------
1998 $ 10,842 $ 281,890
1999 103,962 212,928
2000 -- 144,743
2001 8,750 60,219
2002 75,000 401,546
Thereafter 290,000 485,027
- - ---------------------------------------------------
Totals $488,554 $1,586,353
===================================================
</TABLE>
NOTE 11: Commitments, Contingent Liabilities, And Financial Instruments With
Off-Balance Sheet Risk
At December 31, 1997 and 1996, FSCO and its subsidiaries were involved in
various claims and litigation occurring in the ordinary course of business. In
the opinion 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, 1997 and 1996, such
commitments include the following (in thousands):
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
- - ----------------------------------------------------------------------
Standby letters of credit $ 281,910 $ 252,697
Undisbursed construction loans 340,584 339,085
Credit card lines 826,235 750,803
Other loan commitments to customers 3,441,598 2,681,797
Commitments to sell mortgage loans and leases 1,042,014 305,389
======================================================================
</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 include 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 $1,013,000, $3,018,000, and $(3,032,000) for the years ended
December 31, 1997, 1996, and 1995, respectively. For the years ended December
31, 1997, 1996, and 1995, total income including gains and interest from FSCO's
overall trading activities (including non-derivative securities) was
$14,132,000, $12,369,000, and $35,486,000, 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, thereby 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 dates.
Financial futures contracts and option contracts as of December 31, 1997 and
1996 were as follows (in thousands):
<TABLE>
<CAPTION>
Contract Average Assessed Dollar
(Notional) Fair Fair Value Net Value at Risk
Amount At Value At for the Gains At Year End(3)
December31,1997 Year End(1) Year End(2) Year(2) (Losses) (Unaudited)
<S> <C> <C> <C> <C> <C>
- - ------------------------------------------------------------------------------------------------------------------------
Assets (Long Position):
Financial futures contracts $8,507,000 $ 358 $ 2 $ 883 $82
Options contracts 100,000 18 -- (91) 1
- - ------------------------------------------------------------------------------------------------------------------------
Total Assets $8,607,000 $ 376 $ 2 $ 792 $83
========================================================================================================================
Liabilities (Short Position):
Financial futures contracts $1,194,200 $ (28) $ (3) $ (960) $35
Options contracts (written call) 2,834,800 (1,133) 3 1,181 40
- - ------------------------------------------------------------------------------------------------------------------------
Total Liabilities $4,029,000 $(1,161) $ -- $ 221 $75
========================================================================================================================
<CAPTION>
December 31, 1996
<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
========================================================================================================================
<FN>
(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.
</TABLE>
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 interest-earning 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, 1997 and
1996 fall into three categories:
Receive Fixed Interest Rate Swaps are entered into to convert the repricing
characteristics of floating rate assets to less volatile fixed rates. These
structures allow FSCO to add a dual stream of cash flows in which the interest
income received is at a fixed rate and the associated expense varies with the
level of short-term interest rates. The floating side of the transaction is tied
to the level of three-month LIBOR at the beginning or end of each settlement
period.
Interest Rate Corridors (LIBOR/LIBOR) are structured to provide a limited amount
of protection against increases in short-term funding rates. Rate corridors are
accounted for under the settlement basis of accounting previously described. No
interest rate corridors were outstanding at December 31, 1997.
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. FSCO accounts
for its customer transaction swaps based on the settlement method of accounting
described previously. In the event of a swap being terminated prior to the final
settlement date, any gain or loss resulting from the termination would be
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.
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, 1997. 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, 1997 and 1996, three-month LIBOR
was 5.81% and 5.56%, the six-month LIBOR was 5.84% and 5.60%, and the prime rate
was 8.50% and 8.25%, respectively.
Derivatives used for interest rate management activities as of December 31, 1997
and 1996 were as follows (in millions):
<TABLE>
<CAPTION>
Maturities as of Estimated Estimated
December 31, Fair Market Value At Fair Market Value At
Type and Notional Amount 1997 December 31, 1997 December 31, 1996
<S> <C> <C> <C>
- - -----------------------------------------------------------------------------------------------------------------------------------
Receive Fixed Swaps:
(Pay 3-month LIBOR):
$300.0 (fixed 4.83%) (expired during 1997) $ -- $(0.6)
$200.0 (fixed 6.24%) May/June 1998 0.4 1.4
$50.0 (fixed 7.125 - 7.35%) May/June 2007 0.1 --
(Pay 6-month LIBOR):
$50.0 (fixed 6.28%) May 1998 0.1 0.3
Customer Transaction Hedges:
$67.6 (1997); $67.8 (1996) Various maturities through 2004 (1.0) (1.0)
- - -----------------------------------------------------------------------------------------------------------------------------------
Total Positions ($367.6 and $617.8
in 1997 and 1996, respectively) $(0.4) $ 0.1
===================================================================================================================================
</TABLE>
NOTE 12: Stockholders' Equity
In January 1996, April 1997, and in January 1998, FSCO's board of directors
approved three-for-two stock splits in the form of dividends to stockholders of
record on February 12, 1996, May 12, 1997, and February 12, 1998, respectively.
The effects of the stock splits have been retroactively reflected in all common
shares and per share amounts in the financial statements and notes as if the
stock splits had occurred prior to 1995.
Earnings Per Common Share: Effective December 31, 1997, FSCO adopted SFAS No.
128, "Earnings Per Share", which established new standards for computing and
presenting EPS. Upon adoption, FSCO restated its EPS for 1997, 1996, and 1995 to
conform with SFAS No. 128. The computations of EPS under SFAS No. 128 are
summarized below:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------- ------------------------------- --------------------------
Per- Per- Per-
Average Share Average Share Average Share
Income Shares Amount Income Shares Amount Income Shares Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- - ------------------------------------------------------------------------------------------------------------------------------------
Income $205,944 $177,843 $120,005
Less preferred stock dividends 30 33 35
- - ------------------------------------------------------------------------------------------------------------------------------------
EPS: Basic:
Income available to
common stockholders 205,914 171,267 $1.20 177,810 169,811 $1.05 119,970 168,613 $0.71
- - ------------------------------------------------------------------------------------------------------------------------------------
Effect of Dilutive Securities:
Options -- 5,318 -- 4,287 -- 3,104
Convertible preferred 30 410 33 433 35 468
- - ------------------------------------------------------------------------------------------------------------------------------------
Total dilution 30 5,728 33 4,720 35 3,572
- - ------------------------------------------------------------------------------------------------------------------------------------
EPS: Diluted:
Income available to common
stockholders with assumed
conversions $205,944 176,995 $1.16 $177,843 174,531 $1.02 $120,005 172,185 $0.70
====================================================================================================================================
</TABLE>
Earnings per common share: diluted are computed assuming all outstanding
preferred stock is converted into common shares on the basis of 41.00625 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.
Changes in Shares of Stock: A summary of the changes in shares of stock during
the three years ended December 31, 1997 follows (in thousands):
<TABLE>
<CAPTION>
Preferred Stock-
Common Stock - Series "A"
Par Value $1.25 $3.15 Cumulative
Held In Convertible
Issued Treasury No Par
<S> <C> <C> <C>
- - -----------------------------------------------------------------------------------------------------------------
Balance, January 1, 1995 168,606 1,223 12
- - -----------------------------------------------------------------------------------------------------------------
Sale of common stock through dividend reinvestment
and common stock purchase plan 316 -- --
Purchase of common treasury stock -- 568 --
Conversion of preferred stock to common 45 -- (1)
Common stock issued for acquisitions 455 -- --
Sale of stock to employee benefit plans 446 (223) --
Sale of stock to employee stock purchase plan 546 (202) --
- - -----------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 170,414 1,366 11
- - -----------------------------------------------------------------------------------------------------------------
Sale of common stock through dividend reinvestment
and common stock purchase plan 273 -- --
Purchase of common treasury stock -- 184 --
Conversion of preferred stock to common 24 -- (1)
Sale of stock to employee benefit plans 897 (281) --
- - -----------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 171,608 1,269 10
- - -----------------------------------------------------------------------------------------------------------------
Sale of common stock through dividend reinvestment
and common stock purchase plan 211 -- --
Purchase of common treasury stock -- 3,826 --
Common stock issued for acquisitions 2,275 (3,256) --
Conversion of preferred stock to common 30 -- --
Sale of stock to employee benefit plans 1,039 (185) --
- - -----------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 175,163 1,654 10
=================================================================================================================
Shares Authorized, December 31, 1997 and 1996 300,000 -- 18
=================================================================================================================
Shares Authorized, December 31, 1995
(not adjusted for stock splits) 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. Each share of Series "A" preferred stock is
convertible at any time into 41.00625 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, 1997, a
total of 1,494,000 shares were issued pursuant to the plan.
Conversion of all preferred stock outstanding at December 31, 1997 would require
391,000 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
$13.17 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, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
- - ----------------------------------------------------------------------------------------------------------------
Actuarially computed present value of benefit obligations-
accumulated benefit obligation, including vested benefits of
$96,492 and $81,479 at December 31, 1997 and 1996, respectively $ 102,844 $ 83,768
- - ----------------------------------------------------------------------------------------------------------------
Plan assets at fair value, primarily common stocks and U.S.
Government debt securities $ 127,296 $ 99,802
Actuarially computed present value of benefit obligations-
projected benefit obligation for service rendered to date (127,894) (105,263)
Unrecognized prior service cost 7,502 8,648
Unrecognized net loss from past experience different from
that assumed and effects of changes in assumptions (1,776) 2,277
Unrecognized net assets at January 1, 1986 being recognized over 15 years (1,808) (2,282)
- - ----------------------------------------------------------------------------------------------------------------
Prepaid Pension Cost Included In Other Assets $ 3,320 $ 3,182
================================================================================================================
</TABLE>
Assumptions used in determining the projected benefit obligations as of December
31, 1997 and 1996 were:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
- - -------------------------------------------------------------------------------
Discount rate 7.25% 7.75%
Rate of increase in compensation levels 4.50 4.50
===============================================================================
</TABLE>
The net pension expense included the following components (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
- - ----------------------------------------------------------------------------------------------
Service cost for benefits earned during the period $ 6,139 $ 6,433 $ 5,004
Interest cost on projected benefit obligation 8,825 8,033 7,352
Actual loss (return) on plan assets (26,973) (11,130) (18,995)
Net amortization and deferral 18,671 3,195 13,111
- - ----------------------------------------------------------------------------------------------
Net Pension Expense $ 6,662 $ 6,531 $ 6,472
==============================================================================================
</TABLE>
Assumptions used in determining the net pension expense were:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
- - -----------------------------------------------------------------------------------------------
Discount rate 7.75% 7.25% 8.75%
Rate of increase in compensation levels 4.50 4.50 6.00
Expected long-term rate of return on assets 9.00 9.75 9.75
===============================================================================================
</TABLE>
401(k) Savings Plan: FSCO and its subsidiaries have a 401(k) contributory
savings plan (the Savings Plan) in which participation is limited to employees
age 21 or older with one year of service. Under provisions of the Savings Plan,
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 Plan were approximately $3,779,000, $3,705,000, and $3,555,000 in 1997,
1996, and 1995, respectively.
Stock-Based Compensation Plans: At December 31, 1997, 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, 1997 1996 1995
<S> <C> <C> <C>
- - -----------------------------------------------------------------------
Net Income:
As reported $205,944 $177,843 $120,005
Pro forma 203,871 177,191 119,923
- - -----------------------------------------------------------------------
Earnings per common share: basic
As reported $ 1.20 $ 1.05 $ 0.71
Pro forma 1.19 1.04 0.70
Earnings per common share: diluted
As reported 1.16 1.02 0.70
Pro forma 1.15 1.01 0.70
=======================================================================
</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 21,726,563 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 2,657,813 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 1997, 1996, and 1995, respectively: dividend
yield of 3.4%, 3.72%, and 3.24%; expected volatility of 37%, 35%, and 35%;
risk-free interest rates of 6.56%, 6.27%, and 6.18%, and expected lives of 10
years for 1997, 1996, and 1995.
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>
1997 1996 1995
-------------------------- --------------------------- ---------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
<S> <C> <C> <C> <C> <C> <C>
- - --------------------------------------------------------------------------------------------------------------------------------
Outstanding at beginning
of year 8,459,611 $6.21 8,342,311 $5.27 8,834,875 $5.22
Expired -- NA -- NA -- NA
Granted 1,489,920 14.47 1,047,700 11.99 33,750 8.30
Exercised (1,025,386) 4.25 (916,328) 4.24 (412,907) 8.66
Forfeited (38,376) 12.89 (14,072) 8.85 (113,407) 7.17
- - --------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 8,885,769 $7.79 8,459,611 $6.21 8,342,311 $5.27
================================================================================================================================
Options exercisable at year end 5,901,492 5,987,997 5,670,934
================================================================================================================================
Weighted average fair market value
of options granted during year $5.46 $4.46 $3.09
================================================================================================================================
</TABLE>
The following table summarizes information about the Comprehensive Management
Incentive Plan fixed stock options outstanding at December 31, 1997:
<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>
- - -------------------------------------------------------------------------- -------------------------------------------
$ 2.64- $ 4.15 2,167,849 1.70 $ 3.32 2,167,849 $ 3.32
5.22- 7.30 2,365,553 5.20 6.20 2,102,843 6.06
7.33- 12.00 2,879,726 7.30 9.07 1,630,800 8.27
14.39- 18.92 1,472,641 9.10 14.47 -- --
- - -------------------------------------------------------------------------- -------------------------------------------
$ 2.64- $ 18.92 8,885,769 7.40 $ 7.79 5,901,492 $ 8.02
========================================================================== ===========================================
</TABLE>
Non Employee Director Stock Option Plan: In 1995, FSCO adopted an incentive plan
for the board of directors, which allows up to 1,687,500 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 1997 and 1995, respectively:
dividend yield of 3.4% and 3.24%; expected volatility of 37% and 35%; risk-free
interest rates of 6.79% and 7.06%, and expected lives of 10 years. A summary of
these options follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------- ------------------------------- ----------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
<S> <C> <C> <C> <C> <C> <C>
- - ----------------------------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year 165,375 $ 7.07 182,250 $7.07 -- $ --
Expired -- NA -- NA -- --
Granted 2,250 15.83 -- NA 182,250 7.07
Exercised (10,125) 7.07 (16,875) 7.07 -- --
Forfeited -- NA -- NA -- --
- - ----------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 157,500 $ 7.20 165,375 $7.07 182,250 $ 7.07
- - ----------------------------------------------------------------------------------------------------------------------------------
Options exercisable at year end 94,500 43,875 none
- - ----------------------------------------------------------------------------------------------------------------------------------
Weighted average fair market value
of options granted during year $ 6.04 -- $ 2.78
==================================================================================================================================
</TABLE>
The following table summarizes information about the nonemployee director fixed
stock options outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- - ----------------------------------------------------------------------------------- --------------------------------------------
Weighted Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
<S><C> <C> <C> <C> <C> <C>
- - ----------------------------------------------------------------------------------------------------------------------------------
$ 7.07 155,000 7.4 years $ 7.07 94,500 $ 7.07
15.83 2,250 9.3 years 15.83 none none
==================================================================================================================================
</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, 546,750 shares of common stock
were issued to employees in 1995, and no shares of stock were issued to
employees in 1997 or 1996.
Postretirement Benefits: FSCO provides certain health care, dental, and life
benefits for substantially all of its retired employees. The plan's accumulated
postretirement benefit obligation and reconciliation to the consolidated balance
sheets at December 31, 1997 and 1996 are presented below (in thousands):
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
- - --------------------------------------------------------------------------------------------------
Retirees $ 4,074 $ 3,634
Fully eligible plan participants 461 408
Other active plan participants 2,232 1,928
- - --------------------------------------------------------------------------------------------------
Accumulated postretirement benefit obligation 6,767 5,970
Unrecognized net transition obligation (4,320) (4,580)
Unrecognized net loss 1,582 2,067
- - --------------------------------------------------------------------------------------------------
Accrued Postretirement Benefit Liability $ 4,029 $ 3,457
==================================================================================================
</TABLE>
FSCO has not funded any part of the accumulated postretirement benefit
obligation.
Net postretirement benefit cost for 1997, 1996, and 1995 consisted of the
following components (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
- - ----------------------------------------------------------------------------------------------------------------------
Service cost-benefits earned during the year $ 208 $ 355 $ 273
Interest cost on accumulated postretirement benefit obligation 468 655 625
Amortization of transition obligation 186 293 260
- - ----------------------------------------------------------------------------------------------------------------------
Totals $ 862 $ 1,303 $ 1,158
======================================================================================================================
</TABLE>
The assumed health care cost trend rate used to measure the expected cost of
benefits covered by the plan for 1997 is 9.5%; 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, 1997 by approximately $0.6 million and net postretirement benefit
cost by $0.1 million for the year. The assumed discount rate used in determining
the accumulated postretirement benefit obligation was 7.25% and 7.75% at
December 31, 1997 and 1996, 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 bank and insurance subsidiaries to transfer funds to FSCO in
the form of loans or dividends. At December 31, 1997 and 1996, FSCO's equity in
all of its subsidiaries was $1,471,679,000 and $1,206,037,000, respectively, of
which $1,079,618,000 and $884,680,000 were restricted and $392,061,000 and
$321,357,000 were unrestricted by such regulations.
NOTE 15: Mergers And Acquisitions
In 1995, FSCO acquired three small companies
with total assets of approximately $2,727,000 and liabilities of $1,372,000 for
$482,000 in cash and 454,725 shares of FSCO's common stock.
FSCO made no material acquisitions in 1996.
On June 30, 1997, FSCO issued approximately 5,337,093 shares of its common stock
in exchange for all of the outstanding common stock of American Bancorp of
Nevada (ABN), headquartered in Las Vegas, Nevada. The total assets and
liabilities of ABN at the date of merger were approximately $304,272,000 and
$271,970,000. On March 31, 1997, CrossLand Mortgage purchased the wholesale loan
production and fixed assets of Harbourton Mortgage Co., L.P. (Harbourton), with
15 offices located in 11 states for approximately $4 million plus earn-out
payments of up to $3.25 million based on 1997 results. The fixed assets
purchased had book value at the date of the merger of $1,595,000. The
acquisitions were accounted for using the purchase method of accounting. The
results of operations of the acquired institutions have been included in the
1997 consolidated financial statements from the dates of acquisition. The
acquisitions created intangible assets for FSCO of approximately $69,519,000.
Pro forma results of operations for 1997 and 1996 as if the companies had
combined at the beginning of the periods are not presented because the effect
was not material.
On October 20, 1997, FSCO announced that it has signed a definitive agreement to
acquire Rio Grande Bancshares, Inc. (RGB), headquartered in Las Cruces, New
Mexico. RGB's assets and liabilities at December 31, 1997 approximate
$416,995,000 and $369,652,000, respectively. This acquisition was completed
February 2, 1998 and will be accounted for using the purchase method of
accounting.
On February 19, 1998, FSCO announced it has signed a definitive agreement to
acquire California State Bank (CSB) headquartered in West Covina, California.
CSB had year-end assets and liabilities of $849.2 million and $765.8 million,
respectively. This acquisition is expected to close by the third quarter of 1998
and be accounted for as a pooling of interests.
NOTE 16: Recently Issued Financial Accounting Standards
In December 1996, the Financial Accounting Standards Board (FASB) issued SFAS
No. 127, "Deferral of the Effective Date of Certain Provisions of SFAS 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. SFAS No. 127 will be effective for all applicable transfers
occurring after December 31, 1997. The impact of SFAS No. 127 is not expected to
be material in relation to the consolidated financial statements.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income".
SFAS No. 130 establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains, and losses) in a full set
of general purpose financial statements. This Statement requires that an
enterprise (a) classify items of other comprehensive income by their nature in a
financial statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial position. SFAS No. 130
is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. The adoption of SFAS No. 130 will require FSCO
to add disclosure to the financial statements about comprehensive income.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information", which redefines how public business
enterprises report information about operating segments in annual financial
statements. It also establishes standards for related disclosures about products
and services, geographical areas, and major customers. SFAS No. 131 is effective
for financial statements for periods beginning after December 15, 1997. In the
initial year of application, comparative information for earlier years is to be
restated. The adoption of SFAS No. 131 will result in additional disclosures
regarding FSCO's segments.
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 at
right) 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, 1997, that
FSCO meets all capital adequacy requirements to which it is subject.
As of December 31, 1997 and 1996, 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 at right). 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, 1997 Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
- - ---------------------------------------------------------------------------------------------------------------------------------
Total Capital (Tier 1 + Tier 2) to Risk Weighted Assets:
Consolidated $1,633,601 13.46% $ 970,970 8.0% $1,213,712 10.0%
FS Bank 1,155,466 11.03 837,871 8.0 1,047,339 10.0
FSB New Mexico 135,440 14.54 74,529 8.0 93,161 10.0
FSB Nevada 79,186 14.31 44,268 8.0 55,335 10.0
Tier 1 Capital to Risk Weighted Assets:
Consolidated 1,284,476 10.58 485,485 4.0 728,227 6.0
FS Bank 1,010,042 9.64 418,936 4.0 628,403 6.0
FSB New Mexico 123,709 13.28 37,264 4.0 55,897 6.0
FSB Nevada 72,229 13.05 22,134 4.0 33,201 6.0
Tier 1 Capital to End of Period Assets (Leverage Ratio):
Consolidated 1,284,476 7.51 692,296 4.0 865,371 5.0
FS Bank 1,010,042 7.04 578,330 4.0 722,912 5.0
FSB New Mexico 123,709 6.29 78,864 4.0 98,580 5.0
FSB Nevada 72,229 7.04 42,278 4.0 52,847 5.0
=================================================================================================================================
As of December 31, 1996
- - ---------------------------------------------------------------------------------------------------------------------------------
Total Capital (Tier1 + 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
=================================================================================================================================
</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 market
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 long-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, 1997 1996
- - -------------------------------------------------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
<S> <C> <C> <C> <C>
- - -------------------------------------------------------------------------------------------------------------------------------
Financial Assets:
Cash and short-term investments $ 1,373,192 $ 1,373,192 $ 1,191,996 $ 1,191,996
Trading account securities 255,320 255,320 447,486 447,486
Available for sale securities 4,057,895 4,057,895 3,150,276 3,150,276
Net loans (excluding leases) 8,641,977 9,764,934 8,383,653 8,398,899
- - -------------------------------------------------------------------------------------------------------------------------------
Total Financial Assets $14,328,384 $15,451,341 $13,173,411 $ 13,188,657
===============================================================================================================================
Financial Liabilities:
Total deposits, excluding certificates $ 6,039,393 $ 6,039,393 $ 5,784,741 $ 5,784,741
Certificates of deposit 4,676,932 4,715,860 3,654,522 3,649,607
Short-term borrowings 1,301,715 1,301,715 754,431 754,431
Securities sold under repurchase agreements 2,250,137 2,250,137 2,076,202 2,076,202
Long-term debt 1,304,463 1,283,335 944,055 920,334
- - -------------------------------------------------------------------------------------------------------------------------------
Total Financial Liabilities $ 15,572,640 $ 15,590,440 $ 13,213,951 $ 13,185,315
===============================================================================================================================
Off-Balance Sheet Financial Instruments:
Financial futures and options (trading):
Gains $ 376 $ 376 $ 233 $ 233
Losses (1,161) (1,161) (37) (37)
Interest rate swaps, caps, and corridors-
interest rate risk management -- (356) -- 122
Letters of credit and other commitments
to extend credit -- (21,959) -- (19,723)
- - -------------------------------------------------------------------------------------------------------------------------------
Total Off-Balance-Sheet Financial Instruments $ (785) $ (23,100) $ 196 $ (19,405)
===============================================================================================================================
</TABLE>
NOTE 19: Condensed Financial Information Of Parent Company Only
<TABLE>
<CAPTION>
Condensed Balance Sheets (in thousands)
December 31, 1997 1996
<S> <C> <C>
- - -------------------------------------------------------------------------------------------------------------------------------
Assets:
Cash $ 54 $ --
Securities purchased under resale agreement with subsidiary bank 15,919 19,954
- - -------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 15,973 19,954
Commercial loans receivable from subsidiaries:
Banks 374,682 408,198
Nonbanks 102,544 135,091
Investments in subsidiaries:
Banks 1,384,692 1,128,059
Nonbanks 86,987 77,978
Other assets 6,474 24,971
- - -------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 1,971,352 $ 1,794,251
===============================================================================================================================
Liabilities and Stockholders' Equity:
Accrued interest and preferred dividends payable $ 10,745 $ 10,267
Short-term borrowings 10,842 --
Long-term debt:
With subsidiary 154,640 154,640
Other 477,712 488,696
- - -------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 653,939 653,603
- - -------------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity:
Preferred stock-Series "A", $3.15 cumulative convertible 501 540
- - -------------------------------------------------------------------------------------------------------------------------------
Common stock (175,163 and 171,608 shares issued, respectively) 218,953 214,510
Paid-in surplus 79,892 16,609
Retained earnings 1,048,202 917,992
Net unrealized gain on available for sale securities
held by subsidiaries (net of taxes) 22,733 877
- - -------------------------------------------------------------------------------------------------------------------------------
Subtotal 1,369,780 1,149,988
Common treasury stock, at cost (1,654 and 1,269 shares, respectively) (52,868) (9,880)
- - -------------------------------------------------------------------------------------------------------------------------------
Total Common Stockholders' Equity 1,316,912 1,140,108
- - -------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 1,317,413 1,140,648
- - -------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 1,971,352 $ 1,794,251
================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Condensed Statements Of Income (in thousands)
For the years ended December 31, 1997 1996 1995
<S> <C> <C> <C>
- - -------------------------------------------------------------------------------------------------------------------------------
Income:
Cash dividends from subsidiaries:
Banks $ 80,636 $ 51,231 $ 48,433
Nonbanks -- -- 5,675
Interest (principally from subsidiaries) 36,781 27,415 22,234
- - -------------------------------------------------------------------------------------------------------------------------------
Total income 117,417 78,646 76,342
Interest expense 48,154 27,415 22,234
Provision for taxes (4,336) -- --
- - -------------------------------------------------------------------------------------------------------------------------------
Income before equity in undistributed earnings of subsidiaries 73,599 51,231 54,108
Equity in undistributed earnings of subsidiaries:
Banks 139,012 128,142 72,743
Nonbanks (6,667) (1,530) (6,846)
- - -------------------------------------------------------------------------------------------------------------------------------
Net Income $ 205,944 $ 177,843 $ 120,005
================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Condensed Statements Of Cash Flows (in thousands, except number of shares)
For the years ended December 31, 1997 1996 1995
<S> <C> <C> <C>
- - -------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities:
Net income $ 205,944 $ 177,843 $ 120,005
Adjustments to reconcile net income to
net cash provided by operating activities (130,999) (121,557) (62,490)
- - -------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided By Operating Activities 74,945 56,286 57,515
- - -------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Purchases of securities (700) (20,000) --
Proceeds from sales of securities 20,000 -- --
Loans and capital contributions made to subsidiaries (263,147) (388,516) (340,630)
Principal collected on loans to subsidiaries 319,710 130,912 208,717
Cash investments in subsidiaries (1,478) (13,210) (2,401)
- - -------------------------------------------------------------------------------------------------------------------------------
Net Cash Used In Investing Activities 74,385 (290,814) (134,314)
- - -------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Proceeds from long-term debt -- 304,640 125,000
Payments on long-term debt and short-term borrowings 174 (17,940) (6,518)
Proceeds from issuance of common stock and sales of treasury stock 11,708 10,466 10,965
Purchase of treasury stock (89,467) (2,049) (4,459)
Dividends paid (75,726) (64,926) (56,001)
- - -------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided By (Used In) Financing Activities (153,311) 230,191 68,987
- - -------------------------------------------------------------------------------------------------------------------------------
Net Decrease In Cash And Cash Equivalents (3,981) (4,337) (7,812)
Cash And Cash Equivalents, Beginning Of Year 19,954 24,291 32,103
- - -------------------------------------------------------------------------------------------------------------------------------
Cash And Cash Equivalents, End Of Year $ 15,973 $ 19,954 $ 24,291
===============================================================================================================================
Supplemental Disclosures Of Cash Flow Information:
Cash paid during the year for:
Interest $ 47,675 $ 26,504 $ 18,067
Income taxes 1,964 19 25
===============================================================================================================================
</TABLE>
Supplemental Schedule of Non Cash Investing and Financing Activities (Note 15):
In 1997, FSCO issued 5,337,093 shares of common stock for the acquisition of
American Bancorp of Nevada. FSCO acquired assets of approximately $304,272,000
and assumed liabilities of $271,970,000. In 1995, FSCO issued 454,725 shares of
common stock for the acquisition of two small insurance agencies merged into FS
Insurance, Inc.
<PAGE>
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, 1997 and 1996, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1997. 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, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997, in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
February 20, 1998
<PAGE>
OFFICERS AND DIRECTORS
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
David R. Golden
Executive Vice President
Risk Management
Kelly K. Matthews
Executive Vice President and Chief Economist
David R. Wilson
Executive Vice President
Jay S. Bachman
Senior Vice President
Corporate Development
Leslie F. Paskett
Senior Vice President and Comptroller
Dennis G. Reeves
Senior Vice President and Chief Auditor
Chester A. Wood, Jr.
Senior Vice President
Portfolio and Treasury Management
Alonzo W. Watson, Jr.
Assistant Secretary
<PAGE>
SUBSIDIARIES
BANKS
First Security Bank, N.A.
(Utah, Idaho, Oregon, Wyoming)
Scott Nelson, President - Utah
J. Pat McMurray, President - Idaho
Edwin V. Davis, II, President - Oregon
Dave Wood, President - Wyoming
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 National Bank of Dona Ana County
Ben H. Haines, Jr., President and Chief Executive Officer
First National Bank of Chaves County
Larry G. Stoemer, President and Chief Executive Officer
NONBANKS
First Security Capital Markets, Inc.
David R. Wilson, President and Chief Executive Officer
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
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
<PAGE>
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 Dore Eccles Foundation
(Philanthropy)
Robert H. Garff
Chief Executive Officer
Garff Enterprises, Inc. (Automobile Dealerships and Other Enterprises)
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)
Dr. J. Bernard Machen
President
University of Utah (Education)
Joseph G. Maloof
President and Chief Executive Officer
Maloof Companies (Diversified Investments - Entertainment)
Michele Papen-Daniel, Ph.D. (2)
Former President
Rio Grande Bancshares (Banking)
Scott S. Parker (1,2,4)
President
Intermountain Health Care, Inc. (Health Care Provider)
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 DIRECTOR
Dr. Chase N. Peterson
President Emeritus
University of Utah
<PAGE>
CORPORATE INFORMATION
CORPORATE OFFICES
79 S. Main Street
Salt Lake City, Utah 84111
ANNUAL STOCKHOLDERS' MEETING
Monday, April 27, 1998, 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
Fitch
Moody's Investor
Thomson Standard Investors Service,
BankWatch & Poor's Service L.P.
- - ------------------------------------------------------------------------------
Overall B -- -- --
Senior Debt -- BBB+ A3 --
Subordinated Debt -- BBB Baal --
Subordinated Capital Income Securities -- BBB- a3 A-
- - ------------------------------------------------------------------------------
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 Rauscher
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.
Merrill Lynch, Pierce, Fenner & Smith
Montgomery Securities, Inc.
Morgan Stanley & Co.
Pacific Crest Securities
Piper, Jaffray & Hopwood, Inc.
Prudential Securities
Salomon Smith Barney
Sherwood Securities Corp.
Stearn, Agee & Leach, Inc.
Troster Singer Corp.
UBS Securities
The Transfer Agent and Registrar for First Security Corporation is:
First Chicago Trust Co. of New York
Stock Transfer Services
P.O. Box 2500
Jersey City, NJ 07303-2500
Toll free 1-800-756-8200
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:
Corporate Communications and Investor Relations
First Security Corporation
P.O. Box 30006
Salt Lake City, Utah 84130-0006
(801) 246-5044 / toll free 1-800-574-6695
e-mail: [email protected]
<PAGE>
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) 246-5048
e-mail: [email protected]
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. Information is also posted
on the Internet at www.prnewswire.com or www.firstsecuritybank.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
e-mail: [email protected]
Internet Address - Company news, financial updates and information about First
Security products and services can be found on the corporation's web site at
www.firstsecuritybank.com.
<PAGE>
SIGNATURES
FIRST SECURITY CORPORATION
Registrant
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
First Security Corporation, by
/s/ Scott C. Ulbrich March 17, 1998
Scott C. Ulbrich Date
Executive Vice President, Finance and Capital Markets
and Chief Financial Officer (Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
First Security Corporation, by
/s/ Spencer F. Eccles March 17, 1998
Spencer F. Eccles Date
Chairman and Chief Executive Officer
/s/ Morgan J. Evans March 17, 1998
Morgan J. Evans Date
President and Chief Operating Officer
Director
/s/ James C. Beardall March 17, 1998
James C. Beardall Date
Director
/s/ Rodney H. Brady March 17, 1998
Rodney H. Brady Date
Director
/s/ James E. Bruce March 20, 1998
James E. Bruce Date
Director
/s/ Thomas D. Dee, II March 17, 1998
Thomas D. Dee, II Date
Director
Dr. David P. Gardner
Director
/s/ Robert H. Garff March 17, 1998
Robert H. Garff Date
Director
/s/ Jay Dee Harris March 17, 1998
Jay Dee Harris Date
Director
/s/ Robert T. Heiner March 17, 1998
Robert T. Heiner Date
Director
/s/ Karen H. Huntsman March 18, 1998
Karen H. Huntsman Date
Director
/s/ G. Frank Joklik March 19, 1998
G. Frank Joklik Date
Director
/s/ B. Z. Kastler March 18, 1998
B. Z. Kastler Date
Director
/s/ Dr. J. Bernard Machen March 23, 1998
Dr. J. Bernard Machen Date
Director
/s/ Joseph G. Maloof March 19, 1998
Joseph G. Maloof Date
Director
/s/ Michele Papen-Daniel, Ph.D. March 16, 1998
Michele Papen-Daniel, Ph.D. Date
Director
/s/ Scott S. Parker March 17, 1998
Scott S. Parker Date
Director
/s/ James L. Sorenson March 17, 1998
James L. Sorenson Date
Director
/s/ Harold J. Steele March 18, 1998
Harold J. Steele Date
Director
/s/ James R. Wilson March 17, 1998
James R. Wilson Date
Director
CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION
OF FIRST SECURITY CORPORATION
First Security Corporation, a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware, does hereby
certify:
1. That at the meeting of the Board of Directors of First Security
Corporation held on the 25th day of January, 1993, resolutions were adopted
setting forth the proposed amendment to the Certificate of Incorporation of
said corporation, declaring said amendment to be advisable and instructing the
officers of the corporation to give notice that the amendment would be voted
upon by the shareholders of the corporation at the next annual meeting
thereof. The resolution setting forth the proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation of First Security
Corporation be amended to the extent of substitution for the first full
sentence of the first paragraph of Article IV thereof the following:
This corporation is authorized to issue a total of 150,400,000 shares of
stock consisting of 150,000,000 shares of common stock with a par value of One
Dollar and Twenty-five Cents ($1.25) per share and 400,000 shares of preferred
stock with no par value.
RESOLVED, that the Board of Directors of this corporation deems the
foregoing amendment to be in the best interest of the corporation and
recommends its adoption to the shareholders of First Security Corporation.
RESOLVED, that the officers of this corporation be and they hereby are
authorized and directed to take whatever action is necessary to acquire the
adoption of the foregoing amendment, including but not limited to, giving
notice of a shareholders' meeting at which the foregoing amendment will be
voted upon by the shareholders of this corporation and the filing of
appropriate certificates and documents with the appropriate authorities of the
State of Delaware to officially amend the Articles of Incorporation of this
corporation should the foregoing amendment be adopted by the shareholders of
this corporation.
2. That thereafter, pursuant to the resolution of its Board of Directors,
notice of the annual meeting of shareholders to be held on the 26th day of
April, 1993, and that the foregoing amendment would be voted upon thereat, was
duly given and said meeting called and held, at which meeting the necessary
number of shareholders as required by statute voted in favor of the amendment.
3. That said amendment was duly adopted in accordance with provisions of
Section 242 of the General Corporation Law of the State of Delaware.
4. That the capital of the corporation will not be reduced under or by
reason of said amendment.
IN WITNESS WHEREOF, said First Security Corporation has caused its
corporate seal to be hereunto affixed and this certificate to be signed by
Morgan J. Evans, its President, and Alonzo W. Watson, Jr., its Secretary, this
27th day of April, 1993.
FIRST SECURITY CORPORATION
By
/s/ Morgan J. Evans
Morgan J. Evans, President
ATTEST:
By
/s/ Alonzo W. Watson, Jr.
Alonzo W. Watson, Jr. Secretary
ACKNOWLEDGMENT
STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE )
Be it remembered that on this 27th day of April, 1993, personally appeared
before me, a notary public in and for the county and state aforesaid, Morgan
J. Evans and Alonzo W. Watson, Jr., personally known by me to be the President
and Secretary, respectively, of First Security Corporation, and after being
first duly sworn stated that they had duly executed the above certificate on
behalf of First Security Corporation and did this in their capacities as
President and Secretary of that corporation, respectively, and that the seal
affixed to said certificate was the corporate seal of First Security
Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal of office this
27th day of April, 1993.
/s/ Lark Jackson
Notary Public
Residing at: Salt Lake County, Utah
My Commission Expires: 8/13/93
CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION
OF FIRST SECURITY CORPORATION
First Security Corporation, a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware, does hereby
certify:
1. That at the meeting of the Board of Directors of First Security
Corporation held on the 29th day of January, 1996, resolutions were adopted
setting forth the proposed amendment to the Certificate of Incorporation of
said corporation, declaring said amendment to be advisable and instructing the
officers of the corporation to give notice that the amendment would be voted
upon by the shareholders of the corporation at the next annual meeting
thereof. The resolution setting forth the proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation of First Security
Corporation be amended to the extent of substitution for the first full
sentence of the first paragraph of Article IV thereof the following:
This corporation is authorized to issue a total of 300,400,000 shares of
stock consisting of 300,000,000 shares of common stock with a par value of One
Dollar and Twenty-five Cents ($1.25) per share and 400,000 shares of preferred
stock with no par value.
RESOLVED, that the Board of Directors of this corporation deems the
foregoing amendment to be in the best interest of the corporation and
recommends its adoption to the shareholders of First Security Corporation.
RESOLVED, that the officers of this corporation be and they hereby are
authorized and directed to take whatever action is necessary to acquire the
adoption of the foregoing amendment, including but not limited to, giving
notice of a shareholders' meeting at which the foregoing amendment will be
voted upon by the shareholders of this corporation and the filing of
appropriate certificates and documents with the appropriate authorities of the
State of Delaware to officially amend the Articles of Incorporation of this
corporation should the foregoing amendment be adopted by the shareholders of
this corporation.
2. That thereafter, pursuant to the resolution of its Board of Directors,
notice of the annual meeting of shareholders to be held on the 22nd day of
April, 1996, and that the foregoing amendment would be voted upon thereat, was
duly given and said meeting called and held, at which meeting the necessary
number of shareholders as required by statute voted in favor of the amendment.
3. That said amendment was duly adopted in accordance with provisions of
Section 242 of the General Corporation Law of the State of Delaware.
4. That the capital of the corporation will not be reduced under or by
reason of said amendment.
IN WITNESS WHEREOF, said First Security Corporation has caused its
corporate seal to be hereunto affixed and this certificate to be signed by
Morgan J. Evans, its President, and Brad D. Hardy, its Secretary, this 24th
day of April, 1996.
FIRST SECURITY CORPORATION
By
/s/ Morgan J. Evans
Morgan J. Evans, President
ATTEST:
By
/s/ Brad D. Hardy
Brad D. Hardy, Secretary
ACKNOWLEDGMENT
STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE )
Be it remembered that on this 24th day of April, 1996, personally appeared
before me, a notary public in and for the county and state aforesaid, Morgan
J. Evans and Brad D. Hardy, personally known by me to be the President and
Secretary, respectively, of First Security Corporation, and after being first
duly sworn stated that they had duly executed the above certificate on behalf
of First Security Corporation and did this in their capacities as President
and Secretary of that corporation, respectively, and that the seal affixed to
said certificate was the corporate seal of First Security Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and seal of office this
24th day of April, 1996.
/s/ Jeanine Atkin
Notary Public
Notary Public
Jeanine Atkin
79 So. Main 2nd Flr.
S.L.C., Ut 84111
Commission Expires
Aug. 8 1996
State of Utah
RESTATED as of January 29, 1996,
as amended January 26, 1998
FIRST SECURITY CORPORATION
BY-LAWS
ARTICLE I
OFFICES
Section 1. The principal office shall be in the City of Wilmington, County
of New Castle, State of Delaware.
Section 2. The corporation may also have offices at such other places both
within and without the State of Delaware as the board of directors may from
time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of directors
shall be held in the City of Salt Lake City, State of Utah, or at such place
as may be fixed from time to time by the board of directors, but if not so
fixed, at a principal office of the corporation in Salt Lake City, Utah.
Meetings of stockholders for any other purpose may be held at such time and
place, within and without the State of Delaware, as shall be stated in the
notice of the meeting or in a duly executed waiver of notice thereof.
Section 2. The date of the annual meeting may be advanced or delayed by
action of the board of directors or the Executive Committee, provided that
written notice thereof be given to each stockholder as required by all
applicable law.
Section 3. Written notice of the annual meeting shall be given to each
stockholder entitled to vote thereat at least ten days before the date of the
meeting.
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every election of
directors, a complete list of stockholders entitled to vote at said election,
arranged in alphabetical order, showing the address of and the number of
voting shares registered in the name of each stockholder. Such list shall be
open to the examination of any stockholder, during ordinary business hours,
for a period of at least ten days prior to the election, either at a place
within the city, town or village where the election is to be held and which
place shall be specified in the notice of the meeting, or, if not specified,
at the place where said meeting is to be held, and the list shall be produced
and kept at the time and place of election during the whole time thereof, and
subject to the inspection of any stockholder who may be present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called only by the Chairman or by the board of directors
pursuant to a resolution adopted by a majority of the total number of
directors which the corporation would have if there were no vacancies.
Section 6. Written notice of a special meeting of stockholders, stating
the time, place and object thereof, shall be given to each stockholder
entitled to vote thereat, at least five days before the date fixed for the
meeting.
Section 7.
(A) Annual Meetings of Stockholders.
(1) Nominations of persons for election to the board of directors
of the corporation and the proposal of business to be considered by the
stockholders may be made at an annual meeting of stockholders (a) pursuant to
the corporation's notice of meeting, (b) by or at the direction of the board
of directors or (c) by any stockholder of the corporation who was a
stockholder of record at the time of giving of notice provided for in this by-
law, who is entitled to vote at the meeting and who complies with the notice
procedures set forth in this by-law.
(2) For nominations or other business to be properly brought before
an annual meeting by a stockholder pursuant to clause (c) of paragraph (A)(1)
of this by-law, the stockholder must have given timely notice thereof in
writing to the secretary of the corporation and such other business must
otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice shall be delivered to the secretary at the principal
executive offices of the corporation not later than the close of business on
the 90th day nor earlier than the close of business on the 120th day prior to
the first anniversary of the preceding year's annual meeting; provided,
however, that in the event that the date of the annual meeting is more than 30
days before or more than 60 days after such anniversary date, notice by the
stockholder to be timely must be so delivered not earlier than the close of
business on the 120th day prior to such annual meeting and not later than the
close of business on the later of the 90th day prior to such annual meeting or
the 10th day following the day on which public announcement of the date of
such meeting is first made by the corporation. In no event shall the public
announcement of an adjournment of an annual meeting commence a new time period
for the giving of a stockholder's notice as described above. Such
stockholder's notice shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or re-election as a director all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors in an election contest, or
as otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule 14a-
11 thereunder (including such person's written consent to being named in the
proxy statement as a nominee and to serving as a director if elected); (b) as
to any other business that the stockholder proposes to bring before the
meeting, a brief description of the business desired to be brought before the
meeting, the reasons for conducting such business at the meeting and any
material interest in such business of such stockholder and the beneficial
owner, if any, on whose behalf the proposal is made; and (c) as to the
stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (i) the name and address of such
stockholder, as they appear on the corporation's books, and of such beneficial
owner and (ii) the class and number of shares of the corporation which are
owned beneficially and of record by such stockholder and such beneficial
owner.
(3) Notwithstanding anything in the second sentence of paragraph
(A)(2) of this by-law to the contrary, in the event that the number of
directors to be elected to the board of directors of the corporation is
increased and there is no public announcement by the corporation naming all of
the nominees for director or specifying the size of the increased board of
directors at least 100 days prior to the first anniversary of the preceding
year's annual meeting, a stockholder's notice required by this by-law shall
also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the secretary
at the principal executive offices of the corporation not later than the close
of business on the 10th day following the day on which such public
announcement is first made by the corporation.
(B) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought
before the meeting pursuant to the corporation's notice of meeting.
Nominations of persons for election to the board of directors may be made at a
special meeting of stockholders at which directors are to be elected pursuant
to the corporation's notice of meeting (a) by or at the direction of the board
of directors or (b) provided that the board of directors has determined that
directors shall be elected at such meeting, by any stockholder of the
corporation who is a stockholder of record at the time of giving of notice
provided for in this by-law, who shall be entitled to vote at the meeting and
who complies with the notice procedures set forth in this by-law. In the
event the corporation calls a special meeting of stockholders for purposes of
electing one or more directors to the board of directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the corporation's notice of meeting, if the
stockholder's notice required by paragraph (A)(2) of this by-law shall be
delivered to the secretary at the principal executive offices of the
corporation not earlier than the close of business on the 120th day prior to
such special meeting and not later than the close of business on the later of
the 90th day prior to such special meeting or the 10th day following the day
on which public announcement is first made of the date of the special meeting
and of the nominees proposed by the board of directors to be elected at such
meeting. In no event shall the public announcement of an adjournment of a
special meeting commence a new time period for the giving of a stockholder's
notice as described above.
(C) General.
(1) Only such persons who are nominated in accordance with the
procedures set forth in this by-law shall be eligible to serve as directors
and only such business shall be conducted at a meeting of stockholders as
shall have been brought before the meeting in accordance with the procedures
set forth in this by-law. Except as otherwise provided by law, the
certificate of incorporation or these by-laws, the Chairman of the meeting
shall have the power and duty to determine whether a nomination or any
business proposed to be brought before the meeting was made or proposed, as
the case may be, in accordance with the procedures set forth in this by-law
and, if any proposed nomination or business is not in compliance with this by-
law, to declare that such defective proposal or nomination shall be
disregarded.
(2) For purposes of this by-law, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones New Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant
to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this by-law, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this by-law. Nothing in this by-law shall be deemed to affect any
rights (i) of stockholders to request inclusion of proposals in the
corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or
(ii) of the holders of any series of Preferred Stock to elect directors under
specified circumstances.
Section 8. Any previously scheduled meeting of the stockholders may be
postponed, and (unless the certificate of incorporation otherwise provides)
any special meeting of the stockholders may be canceled, by resolution of the
board of directors upon public notice given prior to the date previously
scheduled for such meeting of stockholders.
Section 9. The holders of a majority of the stock issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. The Chairman of the meeting or a majority of the shares so
represented may adjourn the meeting from time to time, whether or not there is
such a quorum. No notice of the time and place of adjourned meetings need be
given except as required by law. At such adjourned meeting at which a quorum
shall be present or represented any business may be transacted which might
have been transacted at the meeting as originally notified.
Section 10. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or
of the certificate of incorporation, a different vote is required in which
case such express provision shall govern and control the decision of such
question.
Section 11. Each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three years from its date, unless the proxy provides for a longer
period, and, except where the transfer books of the corporation have been
closed or a date has been fixed as a record date for the determination of its
stockholders entitled to vote, no share of [stock] shall be voted on at any
election for directors which has been transferred on the books of the
corporation within twenty days next preceding such election of directors.
Section 12. Whenever the vote of stockholders at a meeting hereof is
required or permitted to be taken in connection with any corporate action by
any provisions of the statutes or of the certificate of incorporation, the
meeting and vote of stockholders may be dispensed with, if all the
stockholders who would have been entitled to vote upon the action if such
meeting were held, shall consent in writing to such corporate action being
taken.
Section 13. In order that the corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the
board of directors may fix a record date, which record date shall not precede
the date upon which the resolution fixing the record date is adopted by the
board of directors, and which date shall not be more than 10 days after the
date upon which the resolution fixing the record date is adopted by the board
of directors. Any stockholder of record seeking to have the stockholders
authorize or take corporate action by written consent shall, by written notice
to the secretary, request the board of directors to fix a record date. The
board of directors shall promptly, but in all events within 10 days after the
date on which such a request is received, adopt a resolution fixing the record
date. If no record date has been fixed by the board of directors within 10
days of the date on which such a request is received, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the board of directors is required
by applicable law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
corporation by delivery to its registered office in Delaware, its principal
place of business or to any officer or agent of the corporation having custody
of the book in which proceedings of meetings of stockholders are recorded.
Delivery made to the corporation's registered office shall be by hand or by
certified or registered mail, return receipt requested. If no record date has
been fixed by the board of directors and prior action by the board of
directors is required by applicable law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the date on which the board of
directors adopts the resolution taking such prior action.
Section 14. In the event of the delivery, in the manner provided by
Section 13, to the corporation of the requisite written consent or consents to
take corporate action and/or any related revocation or revocations, the
corporation shall engage nationally recognized independent inspectors of
elections for the purpose of promptly performing a ministerial review of the
validity of the consents and revocations. For the purpose of permitting the
inspectors to perform such review, no action by written consent without a
meeting shall be effective until such date as the independent inspectors
certify to the corporation that the consents delivered to the corporation in
accordance with Section 13 at least the minimum number of votes that would be
necessary to take the corporate action. Nothing contained in this paragraph
shall in any way be construed to suggest or imply that the board of directors
or any stockholder shall not be entitled to contest the validity of any
consent or revocation thereof, whether before or after such certification by
the independent inspectors, or to take any other action (including, without
limitation, the commencement, prosecution or defense of any litigation with
respect thereto, and the seeking of injunctive relief in such litigation).
Section 15. Every written consent shall bear the date of signature of each
stockholder who signs the consent and no written consent shall be effective to
take the corporate action referred to therein unless, within 60 days of the
date the earliest dated written consent was received in accordance with
Section 13, a written consent or consents signed by a sufficient number of
holders to take such action are delivered to the corporation in the manner
prescribed in Section 13.
Section 16. The board of directors by resolution shall appoint one or more
inspectors, which inspector or inspectors may include individuals who serve
the corporation in other capacities, including, without limitation, as
officers, employees, agents or representatives, to act at the meetings of
stockholders and make a written report thereof. One or more persons may be
designated as alternate inspectors to replace any inspector who fails to act.
If no inspector or alternate has been appointed to act or is able to act at a
meeting of stockholders, the Chairman of the meeting shall appoint one or more
inspectors to act at the meeting. Each inspector, before discharging his or
her duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his or her
ability. The inspectors shall have the duties prescribed by law. The
Chairman of the meeting shall fix and announce at the meeting the date and
time of the opening and the closing of the polls for each matter upon which
the stockholders will vote at a meeting.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the whole board
of this corporation shall be 20 directors, until such time as the directors of
this corporation shall, by resolution, amend this Section 1 of Article III.
The directors shall be elected at the annual meeting of the stockholders,
except as provided in Section 2 of this Article, and each director elected
shall hold office until his successor is elected and qualified. Directors
need not be stockholders of the corporation.
Section 2. Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled by a majority of
the directors then in office, though less than a quorum, and the directors so
chosen shall hold office until the next annual election and until their
successors are duly elected and shall qualify, unless sooner displaced.
Section 3. The business of the corporation shall be managed by its board
of directors which may exercise all such powers of the corporation and do all
such lawful acts and things as are not by statute or by the certificate of
incorporation or by these by-laws directed or required to be exercised or done
by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The board of directors of the corporation may hold meetings,
both regular and special, either within or without the State of Delaware.
Section 5. The first meeting of each newly elected board of directors
shall be held at such time and place as shall be fixed by the vote of the
stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of
the stockholders to fix the time or place of such first meeting of the newly
elected board of directors, or in the event such meeting is not held at the
time and place so fixed by the stockholders, the meeting may be held at such
time and place as shall be specified in a notice given as hereinafter provided
for special meetings of the board of directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 6. Regular meetings of the board of directors may be held without
notice at such time and at such place as shall from time to time be determined
by the board.
Section 7. Special meetings of the board of directors shall be called at
the request of the Chairman, the secretary or a majority of the board of
directors then in office. The person or persons authorized to call special
meetings of the board of directors may fix the place and time of the meeting.
Section 8. At all meetings of the board a majority of the directors then
in office shall constitute a quorum for the transaction of business and the
act of a majority of the directors present at any meeting at which there is a
quorum shall be the act of the board of directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the board of directors the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be
present.
Section 9. Unless otherwise restricted by the certificate of incorporation
or these by-laws, any action required or permitted to be taken at any meeting
of the board of directors or of any committee thereof may be taken without a
meeting if prior to such action a written consent thereto is signed by all
members of the board or of such committee as the case may be, and such written
consent is filed with the minutes of proceedings of the board or committee.
COMMITTEES OF DIRECTORS
Section 10. The board of directors may, by resolution passed by a majority
of the whole board, designate one or more committees, each committee to
consist of two or more of the directors of the corporation, which, to the
extent provided in the resolution, shall have and may exercise the powers of
the board of directors in the management of the business and affairs of the
corporation and may authorize the seal of the corporation to be affixed to all
papers which may require it. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the board of directors.
Section 11. Each committee shall keep regular minutes of its meetings and
report the same to the board of directors when required.
COMPENSATION OF DIRECTORS
Section 12. The directors may be paid their expenses, if any, of
attendance at each meeting of the board of directors and may be paid a fixed
sum for attendance at each meeting of the board of directors or a stated
salary as director. No such payment shall preclude any director from serving
the corporation in any other capacity and receiving compensation therefor.
Members of special or standing committees may be allowed like compensation for
attending committee meetings.
ARTICLE IV
NOTICES
Section 1. Notice of any special meeting of directors shall be given to
each director at his business or residence in writing by hand delivery, first-
class or overnight mail or courier service, telegram or facsimile
transmission, or orally by telephone. If mailed by first-class mail, such
notice shall be deemed adequately delivered when deposited in the United
States mail so addressed, with postage thereon prepaid, at least five (5) days
before such meeting. If by telegram, overnight mail or courier service, such
notice shall be deemed adequately delivered when the telegram is delivered to
the telegraph company or the notice is delivered to the overnight mail or
courier service company at least twenty-four (24) hours before such meeting.
If by facsimile transmission, such notice shall be deemed adequately delivered
when the notice is transmitted at least twelve (12) hours before such meeting.
If by telephone or by hand delivery, the notice shall be given at least twelve
(12) hours prior to the time set for the meeting. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the board
of directors need be specified in the notice of such meeting, except for
amendments to these by-laws. A meeting may be held at any time without notice
if all the directors are present or if those not present waive notice of the
meeting as provided by applicable law.
[ARTICLE V]
[OFFICERS]
Section 1. The board of directors at its first meeting after each annual
meeting of the stockholders shall choose a chairman of the board of directors
and a president from among the directors.
Section 2. The board of directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the board.
Section 3. The salaries of all officers and agents (other than ordinary
employees) of the corporation shall be fixed by the board of directors.
Section 4. The officers of the corporation shall hold office until their
successors are chosen and qualify. Any officer elected or appointed by the
board of directors may be removed at any time by the affirmative vote of a
majority of the board of directors.
Any vacancy occurring in any office of the corporation shall be filled by
the board of directors.
THE CHAIRMAN OF THE BOARD
Section 5. The Chairman of the Board shall be the chief executive officer
of the corporation and a member of its board of directors and of its executive
committee. He shall preside at meetings of the shareholders and directors,
shall have general management of the business of the corporation and shall see
that all orders and resolutions of the board of directors and the executive
committee are carried into effect.
THE PRESIDENT
Section 6. The president shall assume the duties and responsibilities of
the chairman of the board in his absence and shall be responsible for the
implementation of the resolutions and directions of the board of directors and
the executive committee and subject to the control and direction of the
chairman of the board and shall supervise the daily operations of the
corporation.
Section 7. He shall execute bonds, mortgages and other contracts requiring
a seal, under the seal of the corporation, except where required or permitted
by law to be otherwise signed and executed and except where the signing and
execution thereof shall be expressly delegated by the board of directors to
some other officer or agent of the corporation.
THE VICE PRESIDENTS
Section 8. The vice president, or if there shall be more than one, the
vice presidents in the order determined by the board of directors, shall in
the absence or disability of the president, perform the duties and exercise
the powers of the president and shall perform such other duties and have such
other powers as the board of directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARIES
Section 9. The secretary shall attend all meetings of the board of
directors and all meetings of the stockholders and record all the proceedings
of the meetings of the corporation and of the board of directors in a book to
be kept for that purpose and shall perform like duties for the standing
committees when required. He shall give, or cause to be given, notice of all
meetings of the stockholders and the special meetings of the board of
directors, and shall perform such other duties as may be prescribed by the
board of directors or president, under whose supervision he shall be. He
shall keep in safe custody the seal of the corporation and, when authorized by
the board of directors, affix the same to any instrument requiring it and when
so affixed, it shall be attested by his signature or by the signature of an
assistant secretary.
Section 10. The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the board of directors,
shall, in the absence or disability of the secretary, perform the duties and
exercise the powers of the secretary and shall perform such other duties and
have such other powers as the board of directors may from time to time
prescribe.
THE TREASURER AND ASSISTANT TREASURERS
Section 11. The treasurer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all
monies and other valuable effects in the name and to the credit of the
corporation in such depositories as may be designated by the board of
directors.
Section 12. He shall disburse the funds of the corporation as may be
ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the president and the board of directors,
at its regular meeting or when the board of directors so requires, an account
of all his transactions as treasurer and of the financial condition of the
corporation.
Section 13. If required by the board of directors, he shall give the
corporation a bond (which shall be renewed every six years) in such sum and
with such surety or sureties as shall be satisfactory to the board of
directors for the faithful performance of the duties of his office and for the
restoration to the corporation, in case of his death, resignation, retirement
or removal from office, of all books, papers, vouchers, money and other
property of whatever kind in his possession or under his control belonging to
the corporation.
Section 14. The assistant treasurer, or if there shall be more than one,
the assistant treasurers in the order determined by the board of directors,
shall, in the absence or disability of the treasurer, perform the duties and
exercise the powers of the treasurer and shall perform such other duties and
have such other powers as the board of directors may from time to time
prescribe.
ARTICLE [VI]
CERTIFICATES OF STOCK
Section 1. Every holder of stock in the corporation shall be entitled to
have a certificate, signed by, or in the name of the corporation by, the
chairman of the board or the president, or a vice president and the treasurer
or an assistant treasurer, or the secretary or an assistant secretary of the
corporation, certifying the number of shares owned by him in the corporation.
Section 2. Where a certificate is signed (1) by a transfer agent or an
assistant transfer agent or (2) by a transfer clerk acting on behalf of the
corporation and a registrar, the signature of such president, vice president,
treasurer, assistant treasurer, secretary and assistant secretary may be
facsimile. In case any officer or officers who have signed, or whose
facsimile signature or signatures have been used on, any such certificate or
certificates shall cease to [be] such officer or officers of the corporation,
whether because of death, resignation or otherwise, before such certificate or
certificates have been delivered by the corporation, such certificate or
certificates may nevertheless be adopted by the corporation and be issued and
delivered as though the person or persons who signed such certificate or
certificates or whose facsimile signature or signatures have been used thereon
had not ceased to be such officer or officers of the corporation.
LOST CERTIFICATES
Section 3. The board of directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost or destroyed,
upon the making of an affidavit of that fact by the person claiming the
certificate of stock to be lost or destroyed. When authorizing such issue of
a new certificate or certificates, the board of directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such [lost] or destroyed certificate or certificates, or his legal
representative to advertise the same in such manner as it shall require and/or
to give the corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost or destroyed. From time to time the
board of directors may delegate to a transfer agent the authority and power to
accept such an affidavit and to require the deposit with it or him and to
receive such an indemnity bond for each claimed, lost or destroyed
certificate. When, and in the event such delegation of authority and power is
made by the board of directors, and the transfer agent indicates its or his
acceptance and receipt of the affidavit and the indemnity bond, duplicate
certificates may be then issued without further action or approval of the
board of directors. In lieu of a separate indemnity bond, the transfer agent
may accept a blank assumption of liability bond written by a surety
satisfactory to the transfer agent and showing the company, its transfer agent
and registrar as indemnitees.
TRANSFER OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
CLOSING OF TRANSFER BOOKS
Section 5. The board of directors may close the stock transfer books of
the corporation for a period not exceeding fifty days preceding the date of
any meeting of stockholders or the date for payment of any dividend or the
date for the allotment of right or the date when any change or conversion or
exchange of capital stock shall go into effect or for a period of not
exceeding fifty days in connection with obtaining the consent of stockholders
for any purpose. In lieu of closing the stock transfer books as aforesaid,
the board of directors may fix in advance a date, not exceeding fifty days
preceding the date of any meeting of stockholders, or the date for the payment
of any dividend, or the date for the allotment of rights, or the date when any
change or conversion or exchange of capital stock shall go into effect, or a
date in connection with obtaining such consent as a record date for the
determination of the stockholders entitled to notice of, and to vote at any
such meeting, and any adjournment thereof, or entitled to receive payment of
any such dividend, or to any such allotment of rights, or to exercise the
rights in respect of any such change, conversion or exchange of capital stock,
or to give such consent and in such case such stockholders and only such
stockholders as shall be stockholders of record on the date so fixed shall be
entitled to such notice of, and to vote at, such meeting and any adjournment
thereof, or to receive payment of such dividend, or to receive such allotment
of rights, or to exercise such rights, to give such consent, as the case may
be notwithstanding any transfer of any stock on the books of the corporation
after any such record date fixed as aforesaid.
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividend and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the law of
Delaware.
ARTICLE [VII]
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation, subject to
the provisions of the certificate of incorporation, if any, may be declared by
the board of directors at any regular or special meeting, pursuant to law.
Dividend may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside out of
any funds of the corporation available for dividends such sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall deem conductive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
ANNUAL STATEMENT
Section 3. The board of directors shall present at each annual meeting,
and at any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
corporation.
CHECKS
Section 4. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the board of directors from time to time designate.
FISCAL YEAR
Section 5. The fiscal year of the corporation shall be fixed by resolution
of the board of directors.
SEAL
Section 6. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the words "Corporate Seal,
Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
INDEMNIFICATION
Section 7. The corporation shall indemnify any person who was or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
by reason of the fact that he is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation as
a director, officer, employee or agent of another company, partnership, joint
venture, trust or other enterprise against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding, to the
full extent, and under the circumstances, permitted by the General Corporation
Law of the State of Delaware. Such indemnification (unless ordered by a
court) shall be made as authorized in a specific case upon a determination
that indemnification of the director, officer, employee or agent is proper in
the circumstances because he has met the applicable standards of conduct set
forth in the General Corporation Law of the State of Delaware. Such
determination shall be made (1) by the board of directors who were not parties
to such action, suit or proceeding, or (2) if such quorum is not obtainable,
or even if obtainable a quorum of disinterested directors so direct, by
independent legal counsel in a written opinion, or (3) by the majority vote of
a quorum of the stockholders. Expenses incurred in defending a civil or
criminal action, suit or proceeding may be paid by the corporation in advance
of the final disposition of such action, suit or proceeding as authorized by
the board of directors in the manner provided in the preceding sentence upon
receipt of an undertaking by or on behalf of the director, officer, employee
or agent to repay such amount unless it shall ultimately be determined that he
is entitled to be indemnified by the corporation as authorized in this
Article. The foregoing right of indemnification shall not be deemed exclusive
of any other rights to which those seeking indemnification may be entitled
under any bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person. Notwithstanding anything to
the contrary elsewhere in this Article, any such person shall not be entitled
to indemnification hereunder if such indemnification is prohibited by any law
or regulation, including the banking laws of the United States or any state,
or regulations of federal or state banking regulatory agencies, or the
Securities Act of 1933, the Securities Exchange Act of 1934 or regulations of
the SEC. The corporation shall have the power to purchase and maintain
insurance on behalf of any such person against the liability asserted against
or incurred by such person in his/her capacity as a director, officer,
employee or agent or arising out of the agent's status as such whether or not
the corporation would have the power to indemnify such person against
liability under the indemnification provisions of these by-laws.
ARTICLE [VIII]
AMENDMENTS
Section 1. These by-laws may be altered or repealed at any regular meeting
of the stockholders or of the board of directors or at any special meeting of
the stockholders or of the board of directors if notice of such alteration or
repeal be contained in the notice of such special meeting. In the event the
board of directors amends the by-laws to change the time or place of the
meeting for the election of directors, written notice thereof shall be given
to each stockholder as required by all applicable law.
Section 2. In the case of amendments by stockholders, notwithstanding any
other provision of these by-laws or any provision of law which might otherwise
permit a lesser or no vote, but in addition to any affirmative vote of the
holders of any particular class or series of the capital stock of the
corporation required by law, the certificate of incorporation or these by-
laws, the affirmative vote of the holders of at least 80% of the voting power
of all the then outstanding shares of capital stock of the corporation
entitled to vote generally in the election of directors, voting together as a
single class, shall be required to alter, amend or repeal any provision of
these by-laws.
CERTIFICATE OF DESIGNATION
The undersigned, Robert T. Heiner and Alonzo W. Watson, acting in
accordance with the provisions of Section 151(g) of the Delaware General
Corporation Law, do hereby certify that:
1. They are the duly elected and acting President and Secretary of First
Security Corporation, a Delaware Corporation (the "Corporation").
2. At a regular meeting of the Board of Directors of the Corporation duly
held at the principal offices of the Corporation on July 30, 1990, at which
meeting there were at all times present and acting a quorum of the members of
the board of directors of the Corporation, the following resolutions were duly
adopted:
WHEREAS, on December 16, 1969 the Board of Directors of this Corporation
adopted a resolution providing for the issuance of an initial series of
preferred shares of the Corporation, which series was designated as "Three
Dollar and Fifteen Cent ($3.15) Cumulative Convertible Preferred Stock,
Series 'A'" (hereafter, "Series A Preferred Shares"), consisting of 225,000
shares, and determining the rights, preferences, restrictions and other
matters relating to such series; and
WHEREAS, a Certificate of Designation with respect to the Series A
Preferred Shares was filed with the Secretary of State of the State of
Delaware on April 1, 1970; and
WHEREAS, as of June 30, 1990, there were 18,052 Series A Preferred
Shares issued and outstanding; and
WHEREAS, Section 151(g) of the Delaware General Corporation Law permits
the Board of Directors to reduce the authorized number of Series A Preferred
Shares to not less than the number of shares of such series outstanding on the
date of such action; and
WHEREAS, it is deemed to be in the best interest of the Corporation and
its stockholders to so reduce the number of Series A Preferred Shares;
THEREFORE, BE IT RESOLVED: That the number of Series A Preferred Shares
be, and it hereby is, reduced to 18,052.
FURTHER RESOLVED: That the president or any vice president, and the
secretary or any assistant secretary of this Corporation be and they hereby
are authorized and directed to prepare and file an appropriate certificate in
accordance with the foregoing resolution and the provisions of Delaware law.
3. The authorized number of preferred shares of the Corporation is
400,000, and the number of Series A Preferred Shares which are issued and
outstanding on the date hereof is 18,052.
IN WITNESS WHEREOF, the undersigned have executed this Certificate this
20th day of August, 1990.
FIRST SECURITY CORPORATION
By
/s/ R. T. Heiner
Name:
Title: President
By
/s/ Alonzo W. Watson
Alonzo W. Watson
Secretary
CHANGE OF CONTROL
EMPLOYMENT AGREEMENT
AGREEMENT by and between First Security Corporation, a Utah corporation (the
"Company"), and Spencer F. Eccles (the "Executive"), dated as of the 2nd day
of February, 1998.
The Board of Directors of the Company (the "Board"), has determined that it is
in the best interests of the Company and its shareholders to assure that the
Company will have the continued dedication of the Executive, notwithstanding
the possibility, threat or occurrence of a Change of Control (as defined
below) of the Company. The Board believes it is imperative to diminish the
inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control
and to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of
other corporations. Therefore, in order to accomplish these objectives, the
Board has caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall mean the first date
during the Change of Control Period (as defined in Section 1(b)) on which a
Change of Control (as defined in Section 2) occurs. Anything in this
Agreement to the contrary notwithstanding, if a Change of Control occurs and
if the Executive's employment with the Company is terminated prior to the date
on which the Change of Control occurs, and if it is reasonably demonstrated by
the Executive that such termination of employment (i) was at the request of a
third party who has taken steps reasonably calculated to effect a Change of
Control or (ii) otherwise arose in connection with or anticipation of a Change
of Control, then for all purposes of this Agreement the "Effective Date" shall
mean the date immediately prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing on the
date hereof and ending on the third anniversary of the date hereof; provided,
however, that commencing on the date one year after the date hereof, and on
each annual anniversary of such date (such date and each annual anniversary
thereof shall be hereinafter referred to as the "Renewal Date"), unless
previously terminated, the Change of Control Period shall be automatically
extended so as to terminate three years from such Renewal Date, unless at
least 60 days prior to the Renewal Date the Company shall give notice to the
Executive that the Change of Control Period shall not be so extended.
2. Change of Control. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally
in the election of directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (iv)
any acquisition pursuant to a transaction which complies with clauses (i),
(ii) and (iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of
the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with respect to
the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; or
(c) Consummation by the Company of a reorganization, merger or consolidation
or sale or other disposition of all or substantially all of the assets of the
Company or the acquisition of assets of another entity (a "Business
Combination"), in each case, unless, following such Business Combination, (i)
all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 60% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or
more subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, as the case may be,
(ii) no Person (excluding any employee benefit plan (or related trust) of the
Company or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or more of, respectively, the
then outstanding shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then outstanding
voting securities of such corporation except to the extent that such ownership
existed prior to the Business Combination and (iii) at least a majority of the
members of the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board, providing
for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete liquidation or
dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue the Executive in
its employ, and the Executive hereby agrees to remain in the employ of the
Company subject to the terms and conditions of this Agreement, for the period
commencing on the Effective Date and ending on the third anniversary of such
date (the "Employment Period").
4. Terms of Employment. (a) Position and Duties. (i) During the Employment
Period, (A) the Executive's position (including status, offices, titles and
reporting requirements), authority, duties and responsibilities shall be at
least commensurate in all material respects with the most significant of those
held, exercised and assigned to the Executive at any time during the 90-day
period immediately preceding the Effective Date and (B) the Executive's
services shall be performed at the location where the Executive was employed
immediately preceding the Effective Date or any office or location less than
35 miles from such location.
(ii) During the Employment Period, and excluding any periods of vacation and
sick leave to which the Executive is entitled, the Executive agrees to devote
reasonable attention and time during normal business hours to the business and
affairs of the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or
charitable boards or committees, (B) deliver lectures, fulfill speaking
engagements or teach at educational institutions and (C) manage personal
investments, so long as such activities do not significantly interfere with
the performance of the Executive's responsibilities as an employee of the
Company in accordance with this Agreement. It is expressly understood and
agreed that to the extent that any such activities have been conducted by the
Executive prior to the Effective Date, the continued conduct of such
activities (or the conduct of activities similar in nature and scope thereto)
subsequent to the Effective Date shall not thereafter be deemed to interfere
with the performance of the Executive's responsibilities to the Company.
(b) Compensation. (i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to twelve times the highest
monthly base salary paid or payable, including any base salary which has been
earned but deferred, to the Executive by the Company and its affiliated
companies in respect of the 12-month period immediately preceding the month in
which the Effective Date occurs. During the Employment Period, the Annual
Base Salary shall be reviewed no more than 12 months after the last salary
increase awarded to the Executive prior to the Effective Date and thereafter
at least annually. Any increase in Annual Base Salary shall not serve to
limit or reduce any other obligation to the Executive under this Agreement.
Annual Base Salary shall not be reduced after any such increase and the term
Annual Base Salary as utilized in this Agreement shall refer to Annual Base
Salary as so increased. As used in this Agreement, the term "affiliated
companies" shall include any company controlled by, controlling or under
common control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary, the Executive shall be
awarded, for each fiscal year ending during the Employment Period, an annual
bonus (the "Annual Bonus") in cash at least equal to the Executive's highest
bonus under the Company's annual incentive plans for the last three fiscal
years prior to the Effective Date (annualized in the event that the Executive
was not employed by the Company for the whole of such fiscal year) (the
"Recent Annual Bonus"). Each such Annual Bonus shall be paid no later than
the end of the third month of the fiscal year next following the fiscal year
for which the Annual Bonus is awarded, unless the Executive shall elect to
defer the receipt of such Annual Bonus.
(iii) Incentive, Savings and Retirement Plans. During the Employment Period,
the Executive shall be entitled to participate in all incentive, savings and
retirement plans, practices, policies and programs applicable generally to
other peer executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with incentive opportunities (measured with respect to both regular and
special incentive opportunities, to the extent, if any, that such distinction
is applicable), savings opportunities and retirement benefit opportunities, in
each case, less favorable, in the aggregate, than the most favorable of those
provided by the Company and its affiliated companies for the Executive under
such plans, practices, policies and programs as in effect at any time during
the 90-day period immediately preceding the Effective Date or if more
favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies.
(iv) Welfare Benefit Plans. During the Employment Period, the Executive
and/or the Executive's family, as the case may be, shall be eligible for
participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life, accidental death
and travel accident insurance plans and programs) to the extent applicable
generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with benefits which are less favorable, in the
aggregate, than the most favorable of such plans, practices, policies and
programs in effect for the Executive at any time during the 90-day period
immediately preceding the Effective Date or, if more favorable to the
Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.
(v) Expenses. During the Employment Period, the Executive shall be entitled
to receive prompt reimbursement for all reasonable expenses incurred by the
Executive in accordance with the most favorable policies, practices and
procedures of the Company and its affiliated companies in effect for the
Executive at any time during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect generally
at any time thereafter with respect to other peer executives of the Company
and its affiliated companies.
(vi) Fringe Benefits. During the Employment Period, the Executive shall be
entitled to fringe benefits, including, without limitation, tax and financial
planning services, payment of club dues, and, if applicable, use of an
automobile and payment of related expenses, in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 90-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
(vii) Office and Support Staff. During the Employment Period, the Executive
shall be entitled to an office or offices of a size and with furnishings and
other appointments, and to exclusive personal secretarial and other
assistance, at least equal to the most favorable of the foregoing provided to
the Executive by the Company and its affiliated companies at any time during
the 90-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided generally at any time thereafter with
respect to other peer executives of the Company and its affiliated companies.
(viii) Vacation. During the Employment Period, the Executive shall be
entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated companies
as in effect for the Executive at any time during the 90-day period
immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
5. Termination of Employment. (a) Death or Disability. The Executive's
employment shall terminate automatically upon the Executive's death during the
Employment Period. If the Company determines in good faith that the
Disability of the Executive has occurred during the Employment Period
(pursuant to the definition of Disability set forth below), it may give to the
Executive written notice in accordance with Section 12(b) of this Agreement of
its intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties.
For purposes of this Agreement, "Disability" shall mean the absence of the
Executive from the Executive's duties with the Company on a full-time basis
for 180 consecutive business days as a result of incapacity due to mental or
physical illness which is determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to the Executive or
the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment during the
Employment Period for Cause. For purposes of this Agreement, "Cause" shall
mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its affiliates
(other than any such failure resulting from incapacity due to physical or
mental illness), after a written demand for substantial performance is
delivered to the Executive by the Board or the Chief Executive Officer of the
Company which specifically identifies the manner in which the Board or Chief
Executive Officer believes that the Executive has not substantially performed
the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board or upon the instructions of the Chief Executive
Officer or a senior officer of the Company or based upon the advice of counsel
for the Company shall be conclusively presumed to be done, or omitted to be
done, by the Executive in good faith and in the best interests of the Company.
The cessation of employment of the Executive shall not be deemed to be for
Cause unless and until there shall have been delivered to the Executive a copy
of a resolution duly adopted by the affirmative vote of not less than three-
quarters of the entire membership of the Board at a meeting of the Board
called and held for such purpose (after reasonable notice is provided to the
Executive and the Executive is given an opportunity, together with counsel, to
be heard before the Board), finding that, in the good faith opinion of the
Board, the Executive is guilty of the conduct described in subparagraph (i) or
(ii) above, and specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean:
(i) the assignment to the Executive of any duties inconsistent in any
respect with the Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as contemplated
by Section 4(a) of this Agreement, or any other action by the Company which
results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the provisions of
Section 4(b) of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any office or
location other than as provided in Section 4(a)(i)(B) hereof or the Company's
requiring the Executive to travel on Company business to a substantially
greater extent than required immediately prior to the Effective Date;
(iv) any purported termination by the Company of the Executive's employment
otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy Section 11(c) of
this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good
Reason" made by the Executive shall be conclusive. Anything in this Agreement
to the contrary notwithstanding, a termination by the Executive for any reason
during the 30-day period immediately following the first anniversary of the
Effective Date shall be deemed to be a termination for Good Reason for all
purposes of this Agreement.
(d) Notice of Termination. Any termination by the Company for Cause, or by
the Executive for Good Reason, shall be communicated by Notice of Termination
to the other party hereto given in accordance with Section 12(b) of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means a
written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination
of the Executive's employment under the provision so indicated and (iii) if
the Date of Termination (as defined below) is other than the date of receipt
of such notice, specifies the termination date (which date shall be not more
than thirty days after the giving of such notice). The failure by the
Executive or the Company to set forth in the Notice of Termination any fact or
circumstance which contributes to a showing of Good Reason or Cause shall not
waive any right of the Executive or the Company, respectively, hereunder or
preclude the Executive or the Company, respectively, from asserting such fact
or circumstance in enforcing the Executive's or the Company's rights
hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the Executive's
employment is terminated by the Company for Cause, or by the Executive for
Good Reason, the date of receipt of the Notice of Termination or any later
date specified therein, as the case may be, (ii) if the Executive's employment
is terminated by the Company other than for Cause or Disability, the date on
which the Company notifies the Executive of such termination and (iii) if the
Executive's employment is terminated by reason of death or Disability, the
date of death of the Executive or the Disability Effective Date, as the case
may be.
6. Obligations of the Company upon Termination. (a) Good Reason; Other Than
for Cause, Death or Disability. If, during the Employment Period, the Company
shall terminate the Executive's employment other than for Cause or Disability
or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash within 30
days after the Date of Termination the aggregate of the following amounts:
A. the sum of (1) the Executive's Annual Base Salary through the Date of
Termination to the extent not theretofore paid, (2) the product of (x) the
higher of (I) the Recent Annual Bonus and (II) the Annual Bonus paid or
payable, including any bonus or portion thereof which has been earned but
deferred (and annualized for any fiscal year consisting of less than twelve
full months or during which the Executive was employed for less than twelve
full months), for the most recently completed fiscal year during the
Employment Period, if any (such higher amount being referred to as the
"Highest Annual Bonus"), and (y) a fraction, the numerator of which is the
number of days in the current fiscal year through the Date of Termination, and
the denominator of which is 365 and (3) any compensation previously deferred
by the Executive (together with any accrued interest or earnings thereon) and
any accrued vacation pay, in each case to the extent not theretofore paid (the
sum of the amounts described in clauses (1), (2), and (3) shall be hereinafter
referred to as the "Accrued Obligations"); and
B. the amount equal to the product of (1) three and (2) the sum of (x) the
Executive's Annual Base Salary and (y) the Highest Annual Bonus; and
C. an amount equal to the difference between (a) the aggregate benefit under
the Company's qualified defined benefit retirement plans (collectively, the
"Retirement Plan") and any excess or supplemental defined benefit retirement
plans in which the Executive participates (collectively, the "SERP") which the
Executive would have accrued (whether or not vested) if the Executive's
employment had continued for three years following the Date of Termination
(provided, that, for purposes of determining the SERP benefit the Executive
would have accrued, (i) if the Executive had not attained "Early Retirement
Date" under the First Security Supplemental Executive Retirement Plan (after
being credited with three years of age and service), the Executive shall be
treated as if the Executive had remained employed through the Early Retirement
Date, (ii) the SERP benefit shall be calculated as if consent had been granted
under the First Security Supplemental Executive Retirement Plan and (iii)
"Early Retirement Percentages" (as defined in Section 5.02 of the First
Security Supplemental Retirement Plan) will be treated as continuing to
increase at a rate of 3% per year for each year prior to age 50) and (b) the
actual vested benefit, if any, of the Executive under the Retirement Plan and
the SERP, determined as of the Date of Termination (with the foregoing amounts
to be computed on an actuarial present value basis, based on the assumption
that the Executive's compensation in each of the three years following such
termination would have been that required by Section 4(b)(i) and Section
4(b)(ii), and using actuarial assumptions no less favorable to the Executive
than the most favorable of those in effect for purposes of computing benefit
entitlements under the Retirement Plan and the SERP at any time from the day
before the Effective Date) through the Date of Termination;
(ii) for three years following the Date of Termination, or such longer
period as may be provided by the terms of the appropriate plan, program,
practice or policy, the Company shall continue benefits to the Executive
and/or the Executive's family at least equal to those which would have been
provided to them in accordance with the plans, programs, practices and
policies described in Section 4(b)(iv) of this Agreement if the Executive's
employment had not been terminated or, if more favorable to the Executive, as
in effect generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies and their families,
provided, however, that if the Executive becomes reemployed with another
employer and is eligible to receive medical or other welfare benefits under
another employer-provided plan, the medical and other welfare benefits
described herein shall be secondary to those provided under such other plan
during such applicable period of eligibility, and for purposes of determining
eligibility (but not the time of commencement of benefits) of the Executive
for retiree benefits pursuant to such plans, practices, programs and policies,
the Executive shall be considered to have remained employed until three years
following the Date of Termination and to have retired on the last day of such
period;
(iii) the Company shall, at its sole expense as incurred, provide the
Executive with outplacement services the scope and provider of which shall be
selected by the Executive in the Executive's sole discretion; and
(iv) to the extent not theretofore paid or provided, the Company shall
timely pay or provide to the Executive any other amounts or benefits required
to be paid or provided or which the Executive is eligible to receive under any
plan, program, policy or practice or contract or agreement of the Company and
its affiliated companies (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement shall terminate
without further obligations to the Executive's legal representatives under
this Agreement, other than for payment of Accrued Obligations and the timely
payment or provision of Other Benefits. Accrued Obligations shall be paid to
the Executive's estate or beneficiary, as applicable, in a lump sum in cash
within 30 days of the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall
include, without limitation, and the Executive's estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and affiliated companies to the estates and
beneficiaries of peer executives of the Company and such affiliated companies
under such plans, programs, practices and policies relating to death benefits,
if any, as in effect with respect to other peer executives and their
beneficiaries at any time during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive's estate and/or the
Executive's beneficiaries, as in effect on the date of the Executive's death
with respect to other peer executives of the Company and its affiliated
companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by reason of the
Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive in a lump sum in cash
within 30 days of the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 6(c) shall
include, and the Executive shall be entitled after the Disability Effective
Date to receive, disability and other benefits at least equal to the most
favorable of those generally provided by the Company and its affiliated
companies to disabled executives and/or their families in accordance with such
plans, programs, practices and policies relating to disability, if any, as in
effect generally with respect to other peer executives and their families at
any time during the 90-day period immediately preceding the Effective Date or,
if more favorable to the Executive and/or the Executive's family, as in effect
at any time thereafter generally with respect to other peer executives of the
Company and its affiliated companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's employment shall be
terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligations to the Executive other than the
obligation to pay to the Executive (x) the Annual Base Salary through the Date
of Termination, (y) the amount of any compensation previously deferred by the
Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the
Employment Period, excluding a termination for Good Reason, this Agreement
shall terminate without further obligations to the Executive, other than for
Accrued Obligations and the timely payment or provision of Other Benefits. In
such case, all Accrued Obligations shall be paid to the Executive in a lump
sum in cash within 30 days of the Date of Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
and for which the Executive may qualify, nor, subject to Section 12(f), shall
anything herein limit or otherwise affect such rights as the Executive may
have under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan, policy, practice or program of
or any contract or agreement with the Company or any of its affiliated
companies at or subsequent to the Date of Termination shall be payable in
accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
8. Full Settlement; Legal Fees. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any setoff, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this Agreement and
except as specifically provided in Section 6(a)(ii), such amounts shall not be
reduced whether or not the Executive obtains other employment. The Company
agrees to pay as incurred, to the full extent permitted by law, all legal fees
and expenses which the Executive may reasonably incur as a result of any
contest (regardless of the outcome thereof) by the Company, the Executive or
others of the validity or enforceability of, or liability or entitlement
under, any provision of this Agreement or any guarantee of performance thereof
(whether such contest is between the Company and the Executive or between
either of them and any third party, and including as a result of any contest
by the Executive about the amount of any payment pursuant to this Agreement),
plus in each case interest on any delayed payment at the applicable Federal
rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of
1986, as amended (the "Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding, in the event
it shall be determined that any payment, award, benefit or distribution by the
Company (or any of its affiliated entities) or by any entity which effectuates
a Change of Control (or any of its affiliated entities) to or for the benefit
of the Executive (whether pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments required
under this Section 9) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Code or any corresponding provisions of state or local
tax laws, or any interest or penalties are incurred by the Executive with
respect to such excise tax (such excise tax, together with any such interest
and penalties, are hereinafter collectively referred to as the "Excise Tax"),
then the Executive shall be entitled to receive an additional payment (a
"Gross-Up Payment") in an amount such that after payment by the Executive of
all taxes (including any interest or penalties imposed with respect to such
taxes), including, without limitation, any income taxes (and any interest and
penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-
Up Payment, the Executive retains an amount of the Gross-Up Payment equal to
the Excise Tax imposed upon the Payments. The payment of a Gross-Up Payment
under this Section 9(a) shall not be conditioned upon the Executive's
termination of employment. Notwithstanding the foregoing provisions of this
Section 9(a), if it shall be determined that the Executive is entitled to a
Gross-Up Payment, but that the portion of the Payments that would be treated
as "parachute payments" under Section 280G of the Code does not exceed 110% of
the greatest amount (the "Safe Harbor Amount") that could be paid to the
Executive such that the receipt of Payments would not give rise to any Excise
Tax, then no Gross-Up Payment shall be made to the Executive and the amounts
payable under this Agreement shall be reduced so that the Payments, in the
aggregate, are reduced to the Safe Harbor Amount. The reduction of the
amounts payable hereunder, if applicable, shall be made by first reducing the
payments under Section 6(a)(i)(B), unless an alternative method of reduction
is elected by the Executive. For purposes of reducing the Payments to the
Safe Harbor Amount, only amounts payable under this Agreement (and no other
Payments) shall be reduced. If the reduction of the amounts payable under
this Agreement would not result in a reduction of the Payments to the Safe
Harbor Amount, no amounts payable under this Agreement shall be reduced
pursuant to this Section 9(a).
(b) Subject to the provisions of Section 9(c), all determinations required to
be made under this Section 9, including whether and when a Gross-Up Payment is
required and the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by Deloitte & Touche
LLP or such other certified public accounting firm as may be designated by the
Executive (the "Accounting Firm"), which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or
such earlier time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change of Control, the Executive shall appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Section 9, shall be paid by the Company to the Executive within five days of
the receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a
result of the uncertainty in the application of Section 4999 of the Code at
the time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the Company
should have been made ("Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company exhausts its
remedies pursuant to Section 9(c) and the Executive thereafter is required to
make a payment of any Excise Tax, the Accounting Firm shall determine the
amount of the Underpayment that has occurred and any such Underpayment shall
be promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day
period following the date on which the Executive gives such notice to the
Company (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest such
claim, the Executive shall:
(i) give the Company any information reasonably requested by the Company
relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim
by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceedings relating to such
claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 9(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with
the taxing authority in respect of such claim and may, at its sole option,
either direct the Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and the Executive agrees to
prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall advance
the amount of such payment to the Executive, on an interest-free basis and
shall indemnify and hold the Executive harmless, on an after-tax basis, from
any Excise Tax or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and further provided that any extension
of the statute of limitations relating to payment of taxes for the taxable
year of the Executive with respect to which such contested amount is claimed
to be due is limited solely to such contested amount. Furthermore, the
Company's control of the contest shall be limited to issues with respect to
which a Gross-Up Payment would be payable hereunder and the Executive shall be
entitled to settle or contest, as the case may be, any other issue raised by
the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 9(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 9(c)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 9(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall
offset, to the extent thereof, the amount of Gross-Up Payment required to be
paid.
10. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its
affiliated companies, and their respective businesses, which shall have been
obtained by the Executive during the Executive's employment by the Company or
any of its affiliated companies and which shall not be or become public
knowledge (other than by acts by the Executive or representatives of the
Executive in violation of this Agreement). After termination of the
Executive's employment with the Company, the Executive shall not, without the
prior written consent of the Company or as may otherwise be required by law or
legal process, communicate or divulge any such information, knowledge or data
to anyone other than the Company and those designated by it. In no event
shall an asserted violation of the provisions of this Section 10 constitute a
basis for deferring or withholding any amounts otherwise payable to the
Executive under this Agreement.
11. Successors. (a) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law, or
otherwise.
12. Miscellaneous. (a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Utah, without reference to principles
of conflict of laws. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
Spencer F. Eccles
First Security Corporation
79 South Main Street, 2nd Fl.
Salt Lake City, Utah 84111
If to the Company:
First Security Corporation
79 South Main Street, 2nd Fl.
Salt Lake City, Utah 84111
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
(d) The Company may withhold from any amounts payable under this Agreement
such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict compliance
with any provision hereof or any other provision of this Agreement or the
failure to assert any right the Executive or the Company may have hereunder,
including, without limitation, the right of the Executive to terminate
employment for Good Reason pursuant to Section 5(c)(i)-(v) of this Agreement,
shall not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement.
(f) The Executive and the Company acknowledge that, except as may otherwise be
provided under any other written agreement between the Executive and the
Company, the employment of the Executive by the Company is "at will" and,
prior to the Effective Date, the Executive's employment may be terminated by
either the Executive or the Company at any time prior to the Effective Date,
in which case the Executive shall have no further rights under this Agreement.
From and after the Effective Date this Agreement shall supersede any other
agreement between the parties with respect to the subject matter hereof,
including, without limitation, the right of the Executive to participate in
any severance plan of the Company or otherwise receive severance benefits from
the Company during the Employment Period.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused this Agreement to be executed in its name on its behalf, all as of the
day and year first above written.
/s/ Spencer F. Eccles
Spencer F. Eccles
FIRST SECURITY CORPORATION
By:
/s/ Morgan J. Evans
CHANGE OF CONTROL
EMPLOYMENT AGREEMENT
AGREEMENT by and between First Security Corporation, a Utah corporation (the
"Company"), and Morgan J. Evans (the "Executive"), dated as of the 2nd day of
February, 1998.
The Board of Directors of the Company (the "Board"), has determined that it is
in the best interests of the Company and its shareholders to assure that the
Company will have the continued dedication of the Executive, notwithstanding
the possibility, threat or occurrence of a Change of Control (as defined
below) of the Company. The Board believes it is imperative to diminish the
inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control
and to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of
other corporations. Therefore, in order to accomplish these objectives, the
Board has caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
Certain Definitions. (a) The "Effective Date" shall mean the first date
during the Change of Control Period (as defined in Section 1(b)) on which a
Change of Control (as defined in Section 2) occurs. Anything in this
Agreement to the contrary notwithstanding, if a Change of Control occurs and
if the Executive's employment with the Company is terminated prior to the date
on which the Change of Control occurs, and if it is reasonably demonstrated by
the Executive that such termination of employment (i) was at the request of a
third party who has taken steps reasonably calculated to effect a Change of
Control or (ii) otherwise arose in connection with or anticipation of a Change
of Control, then for all purposes of this Agreement the "Effective Date" shall
mean the date immediately prior to the date of such termination of employment.
The "Change of Control Period" shall mean the period commencing on the date
hereof and ending on the third anniversary of the date hereof; provided,
however, that commencing on the date one year after the date hereof, and on
each annual anniversary of such date (such date and each annual anniversary
thereof shall be hereinafter referred to as the "Renewal Date"), unless
previously terminated, the Change of Control Period shall be automatically
extended so as to terminate three years from such Renewal Date, unless at
least 60 days prior to the Renewal Date the Company shall give notice to the
Executive that the Change of Control Period shall not be so extended.
Change of Control. For the purpose of this Agreement, a "Change of Control"
shall mean:
(a) The acquisition by any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally
in the election of directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (iv)
any acquisition pursuant to a transaction which complies with clauses (i),
(ii) and (iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of
the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with respect to
the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; or
(c) Consummation by the Company of a reorganization, merger or consolidation
or sale or other disposition of all or substantially all of the assets of the
Company or the acquisition of assets of another entity (a "Business
Combination"), in each case, unless, following such Business Combination, (i)
all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 60% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or
more subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, as the case may be,
(ii) no Person (excluding any employee benefit plan (or related trust) of the
Company or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or more of, respectively, the
then outstanding shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then outstanding
voting securities of such corporation except to the extent that such ownership
existed prior to the Business Combination and (iii) at least a majority of the
members of the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board, providing
for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete liquidation or
dissolution of the Company.
Employment Period. The Company hereby agrees to continue the Executive in its
employ, and the Executive hereby agrees to remain in the employ of the Company
subject to the terms and conditions of this Agreement, for the period
commencing on the Effective Date and ending on the third anniversary of such
date (the "Employment Period").
Terms of Employment. (a) Position and Duties. (i) During the Employment
Period, (A) the Executive's position (including status, offices, titles and
reporting requirements), authority, duties and responsibilities shall be at
least commensurate in all material respects with the most significant of those
held, exercised and assigned to the Executive at any time during the 90-day
period immediately preceding the Effective Date and (B) the Executive's
services shall be performed at the location where the Executive was employed
immediately preceding the Effective Date or any office or location less than
35 miles from such location.
During the Employment Period, and excluding any periods of vacation and sick
leave to which the Executive is entitled, the Executive agrees to devote
reasonable attention and time during normal business hours to the business and
affairs of the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or
charitable boards or committees, (B) deliver lectures, fulfill speaking
engagements or teach at educational institutions and (C) manage personal
investments, so long as such activities do not significantly interfere with
the performance of the Executive's responsibilities as an employee of the
Company in accordance with this Agreement. It is expressly understood and
agreed that to the extent that any such activities have been conducted by the
Executive prior to the Effective Date, the continued conduct of such
activities (or the conduct of activities similar in nature and scope thereto)
subsequent to the Effective Date shall not thereafter be deemed to interfere
with the performance of the Executive's responsibilities to the Company.
Compensation. (i) Base Salary. During the Employment Period, the Executive
shall receive an annual base salary ("Annual Base Salary"), which shall be
paid at a monthly rate, at least equal to twelve times the highest monthly
base salary paid or payable, including any base salary which has been earned
but deferred, to the Executive by the Company and its affiliated companies in
respect of the 12-month period immediately preceding the month in which the
Effective Date occurs. During the Employment Period, the Annual Base Salary
shall be reviewed no more than 12 months after the last salary increase
awarded to the Executive prior to the Effective Date and thereafter at least
annually. Any increase in Annual Base Salary shall not serve to limit or
reduce any other obligation to the Executive under this Agreement. Annual
Base Salary shall not be reduced after any such increase and the term Annual
Base Salary as utilized in this Agreement shall refer to Annual Base Salary as
so increased. As used in this Agreement, the term "affiliated companies"
shall include any company controlled by, controlling or under common control
with the Company.
Annual Bonus. In addition to Annual Base Salary, the Executive shall be
awarded, for each fiscal year ending during the Employment Period, an annual
bonus (the "Annual Bonus") in cash at least equal to the Executive's highest
bonus under the Company's annual incentive plans for the last three fiscal
years prior to the Effective Date (annualized in the event that the Executive
was not employed by the Company for the whole of such fiscal year) (the
"Recent Annual Bonus"). Each such Annual Bonus shall be paid no later than
the end of the third month of the fiscal year next following the fiscal year
for which the Annual Bonus is awarded, unless the Executive shall elect to
defer the receipt of such Annual Bonus.
Incentive, Savings and Retirement Plans. During the Employment Period, the
Executive shall be entitled to participate in all incentive, savings and
retirement plans, practices, policies and programs applicable generally to
other peer executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with incentive opportunities (measured with respect to both regular and
special incentive opportunities, to the extent, if any, that such distinction
is applicable), savings opportunities and retirement benefit opportunities, in
each case, less favorable, in the aggregate, than the most favorable of those
provided by the Company and its affiliated companies for the Executive under
such plans, practices, policies and programs as in effect at any time during
the 90-day period immediately preceding the Effective Date or if more
favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies.
Welfare Benefit Plans. During the Employment Period, the Executive and/or the
Executive's family, as the case may be, shall be eligible for participation in
and shall receive all benefits under welfare benefit plans, practices,
policies and programs provided by the Company and its affiliated companies
(including, without limitation, medical, prescription, dental, disability,
salary continuance, employee life, group life, accidental death and travel
accident insurance plans and programs) to the extent applicable generally to
other peer executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with benefits which are less favorable, in the aggregate, than the most
favorable of such plans, practices, policies and programs in effect for the
Executive at any time during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive, those provided
generally at any time after the Effective Date to other peer executives of the
Company and its affiliated companies.
Expenses. During the Employment Period, the Executive shall be entitled to
receive prompt reimbursement for all reasonable expenses incurred by the
Executive in accordance with the most favorable policies, practices and
procedures of the Company and its affiliated companies in effect for the
Executive at any time during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect generally
at any time thereafter with respect to other peer executives of the Company
and its affiliated companies.
Fringe Benefits. During the Employment Period, the Executive shall be
entitled to fringe benefits, including, without limitation, tax and financial
planning services, payment of club dues, and, if applicable, use of an
automobile and payment of related expenses, in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 90-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
Office and Support Staff. During the Employment Period, the Executive shall
be entitled to an office or offices of a size and with furnishings and other
appointments, and to exclusive personal secretarial and other assistance, at
least equal to the most favorable of the foregoing provided to the Executive
by the Company and its affiliated companies at any time during the 90-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as provided generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
Vacation. During the Employment Period, the Executive shall be entitled to
paid vacation in accordance with the most favorable plans, policies, programs
and practices of the Company and its affiliated companies as in effect for the
Executive at any time during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect generally
at any time thereafter with respect to other peer executives of the Company
and its affiliated companies.
Termination of Employment. (a) Death or Disability. The Executive's
employment shall terminate automatically upon the Executive's death during the
Employment Period. If the Company determines in good faith that the
Disability of the Executive has occurred during the Employment Period
(pursuant to the definition of Disability set forth below), it may give to the
Executive written notice in accordance with Section 12(b) of this Agreement of
its intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties.
For purposes of this Agreement, "Disability" shall mean the absence of the
Executive from the Executive's duties with the Company on a full-time basis
for 180 consecutive business days as a result of incapacity due to mental or
physical illness which is determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to the Executive or
the Executive's legal representative.
Cause. The Company may terminate the Executive's employment during the
Employment Period for Cause. For purposes of this Agreement, "Cause" shall
mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its affiliates
(other than any such failure resulting from incapacity due to physical or
mental illness), after a written demand for substantial performance is
delivered to the Executive by the Board or the Chief Executive Officer of the
Company which specifically identifies the manner in which the Board or Chief
Executive Officer believes that the Executive has not substantially performed
the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board or upon the instructions of the Chief Executive
Officer or a senior officer of the Company or based upon the advice of counsel
for the Company shall be conclusively presumed to be done, or omitted to be
done, by the Executive in good faith and in the best interests of the Company.
The cessation of employment of the Executive shall not be deemed to be for
Cause unless and until there shall have been delivered to the Executive a copy
of a resolution duly adopted by the affirmative vote of not less than three-
quarters of the entire membership of the Board at a meeting of the Board
called and held for such purpose (after reasonable notice is provided to the
Executive and the Executive is given an opportunity, together with counsel, to
be heard before the Board), finding that, in the good faith opinion of the
Board, the Executive is guilty of the conduct described in subparagraph (i) or
(ii) above, and specifying the particulars thereof in detail.
Good Reason. The Executive's employment may be terminated by the Executive
for Good Reason. For purposes of this Agreement, "Good Reason" shall mean:
(i) the assignment to the Executive of any duties inconsistent in any
respect with the Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as contemplated
by Section 4(a) of this Agreement, or any other action by the Company which
results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the provisions of
Section 4(b) of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any office or
location other than as provided in Section 4(a)(i)(B) hereof or the Company's
requiring the Executive to travel on Company business to a substantially
greater extent than required immediately prior to the Effective Date;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy Section 11(c) of
this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good
Reason" made by the Executive shall be conclusive. Anything in this Agreement
to the contrary notwithstanding, a termination by the Executive for any reason
during the 30-day period immediately following the first anniversary of the
Effective Date shall be deemed to be a termination for Good Reason for all
purposes of this Agreement.
Notice of Termination. Any termination by the Company for Cause, or by the
Executive for Good Reason, shall be communicated by Notice of Termination to
the other party hereto given in accordance with Section 12(b) of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means a
written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination
of the Executive's employment under the provision so indicated and (iii) if
the Date of Termination (as defined below) is other than the date of receipt
of such notice, specifies the termination date (which date shall be not more
than thirty days after the giving of such notice). The failure by the
Executive or the Company to set forth in the Notice of Termination any fact or
circumstance which contributes to a showing of Good Reason or Cause shall not
waive any right of the Executive or the Company, respectively, hereunder or
preclude the Executive or the Company, respectively, from asserting such fact
or circumstance in enforcing the Executive's or the Company's rights
hereunder.
Date of Termination. "Date of Termination" means (i) if the Executive's
employment is terminated by the Company for Cause, or by the Executive for
Good Reason, the date of receipt of the Notice of Termination or any later
date specified therein, as the case may be, (ii) if the Executive's employment
is terminated by the Company other than for Cause or Disability, the date on
which the Company notifies the Executive of such termination and (iii) if the
Executive's employment is terminated by reason of death or Disability, the
date of death of the Executive or the Disability Effective Date, as the case
may be.
Obligations of the Company upon Termination. (a) Good Reason; Other Than for
Cause, Death or Disability. If, during the Employment Period, the Company
shall terminate the Executive's employment other than for Cause or Disability
or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash within 30
days after the Date of Termination the aggregate of the following amounts:
the sum of (1) the Executive's Annual Base Salary through the Date of
Termination to the extent not theretofore paid, (2) the product of (x) the
higher of (I) the Recent Annual Bonus and (II) the Annual Bonus paid or
payable, including any bonus or portion thereof which has been earned but
deferred (and annualized for any fiscal year consisting of less than twelve
full months or during which the Executive was employed for less than twelve
full months), for the most recently completed fiscal year during the
Employment Period, if any (such higher amount being referred to as the
"Highest Annual Bonus"), and (y) a fraction, the numerator of which is the
number of days in the current fiscal year through the Date of Termination, and
the denominator of which is 365 and (3) any compensation previously deferred
by the Executive (together with any accrued interest or earnings thereon) and
any accrued vacation pay, in each case to the extent not theretofore paid (the
sum of the amounts described in clauses (1), (2), and (3) shall be hereinafter
referred to as the "Accrued Obligations"); and
the amount equal to the product of (1) three and (2) the sum of (x) the
Executive's Annual Base Salary and (y) the Highest Annual Bonus; and
an amount equal to the difference between (a) the aggregate benefit under
the Company's qualified defined benefit retirement plans (collectively, the
"Retirement Plan") and any excess or supplemental defined benefit retirement
plans in which the Executive participates (collectively, the "SERP") which the
Executive would have accrued (whether or not vested) if the Executive's
employment had continued for three years following the Date of Termination
(provided, that, for purposes of determining the SERP benefit the Executive
would have accrued, (i) if the Executive had not attained "Early Retirement
Date" under the First Security Supplemental Executive Retirement Plan (after
being credited with three years of age and service), the Executive shall be
treated as if the Executive had remained employed through the Early Retirement
Date, (ii) the SERP benefit shall be calculated as if consent had been granted
under the First Security Supplemental Executive Retirement Plan and (iii)
"Early Retirement Percentages" (as defined in Section 5.02 of the First
Security Supplemental Executive Retirement Plan) will be treated as continuing
to increase at a rate of 3% per year for each year prior to age 50) and (b)
the actual vested benefit, if any, of the Executive under the Retirement Plan
and the SERP, determined as of the Date of Termination (with the foregoing
amounts to be computed on an actuarial present value basis, based on the
assumption that the Executive's compensation in each of the three years
following such termination would have been that required by Section 4(b)(i)
and Section 4(b)(ii), and using actuarial assumptions no less favorable to the
Executive than the most favorable of those in effect for purposes of computing
benefit entitlements under the Retirement Plan and the SERP at any time from
the day before the Effective Date) through the Date of Termination;
(ii) for three years following the Date of Termination, or such longer
period as may be provided by the terms of the appropriate plan, program,
practice or policy, the Company shall continue benefits to the Executive
and/or the Executive's family at least equal to those which would have been
provided to them in accordance with the plans, programs, practices and
policies described in Section 4(b)(iv) of this Agreement if the Executive's
employment had not been terminated or, if more favorable to the Executive, as
in effect generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies and their families,
provided, however, that if the Executive becomes reemployed with another
employer and is eligible to receive medical or other welfare benefits under
another employer-provided plan, the medical and other welfare benefits
described herein shall be secondary to those provided under such other plan
during such applicable period of eligibility, and for purposes of determining
eligibility (but not the time of commencement of benefits) of the Executive
for retiree benefits pursuant to such plans, practices, programs and policies,
the Executive shall be considered to have remained employed until three years
following the Date of Termination and to have retired on the last day of such
period;
(iii) the Company shall, at its sole expense as incurred, provide the
Executive with outplacement services the scope and provider of which shall be
selected by the Executive in the Executive's sole discretion; and
(iv) to the extent not theretofore paid or provided, the Company shall
timely pay or provide to the Executive any other amounts or benefits required
to be paid or provided or which the Executive is eligible to receive under any
plan, program, policy or practice or contract or agreement of the Company and
its affiliated companies (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits").
Death. If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement shall terminate
without further obligations to the Executive's legal representatives under
this Agreement, other than for payment of Accrued Obligations and the timely
payment or provision of Other Benefits. Accrued Obligations shall be paid to
the Executive's estate or beneficiary, as applicable, in a lump sum in cash
within 30 days of the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall
include, without limitation, and the Executive's estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and affiliated companies to the estates and
beneficiaries of peer executives of the Company and such affiliated companies
under such plans, programs, practices and policies relating to death benefits,
if any, as in effect with respect to other peer executives and their
beneficiaries at any time during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive's estate and/or the
Executive's beneficiaries, as in effect on the date of the Executive's death
with respect to other peer executives of the Company and its affiliated
companies and their beneficiaries.
Disability. If the Executive's employment is terminated by reason of the
Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive in a lump sum in cash
within 30 days of the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 6(c) shall
include, and the Executive shall be entitled after the Disability Effective
Date to receive, disability and other benefits at least equal to the most
favorable of those generally provided by the Company and its affiliated
companies to disabled executives and/or their families in accordance with such
plans, programs, practices and policies relating to disability, if any, as in
effect generally with respect to other peer executives and their families at
any time during the 90-day period immediately preceding the Effective Date or,
if more favorable to the Executive and/or the Executive's family, as in effect
at any time thereafter generally with respect to other peer executives of the
Company and its affiliated companies and their families.
Cause; Other than for Good Reason. If the Executive's employment shall be
terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligations to the Executive other than the
obligation to pay to the Executive (x) the Annual Base Salary through the Date
of Termination, (y) the amount of any compensation previously deferred by the
Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the
Employment Period, excluding a termination for Good Reason, this Agreement
shall terminate without further obligations to the Executive, other than for
Accrued Obligations and the timely payment or provision of Other Benefits. In
such case, all Accrued Obligations shall be paid to the Executive in a lump
sum in cash within 30 days of the Date of Termination.
Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit
the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
and for which the Executive may qualify, nor, subject to Section 12(f), shall
anything herein limit or otherwise affect such rights as the Executive may
have under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan, policy, practice or program of
or any contract or agreement with the Company or any of its affiliated
companies at or subsequent to the Date of Termination shall be payable in
accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
Full Settlement; Legal Fees. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any setoff, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this Agreement and
except as specifically provided in Section 6(a)(ii), such amounts shall not be
reduced whether or not the Executive obtains other employment. The Company
agrees to pay as incurred, to the full extent permitted by law, all legal fees
and expenses which the Executive may reasonably incur as a result of any
contest (regardless of the outcome thereof) by the Company, the Executive or
others of the validity or enforceability of, or liability or entitlement
under, any provision of this Agreement or any guarantee of performance thereof
(whether such contest is between the Company and the Executive or between
either of them and any third party, and including as a result of any contest
by the Executive about the amount of any payment pursuant to this Agreement),
plus in each case interest on any delayed payment at the applicable Federal
rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of
1986, as amended (the "Code").
Certain Additional Payments by the Company.
Anything in this Agreement to the contrary notwithstanding, in the event it
shall be determined that any payment, award, benefit or distribution by the
Company (or any of its affiliated entities) or by any entity which effectuates
a Change of Control (or any of its affiliated entities) to or for the benefit
of the Executive (whether pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments required
under this Section 9) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Code or any corresponding provisions of state or local
tax laws, or any interest or penalties are incurred by the Executive with
respect to such excise tax (such excise tax, together with any such interest
and penalties, are hereinafter collectively referred to as the "Excise Tax"),
then the Executive shall be entitled to receive an additional payment (a
"Gross-Up Payment") in an amount such that after payment by the Executive of
all taxes (including any interest or penalties imposed with respect to such
taxes), including, without limitation, any income taxes (and any interest and
penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-
Up Payment, the Executive retains an amount of the Gross-Up Payment equal to
the Excise Tax imposed upon the Payments. The payment of a Gross-Up Payment
under this Section 9(a) shall not be conditioned upon the Executive's
termination of employment. Notwithstanding the foregoing provisions of this
Section 9(a), if it shall be determined that the Executive is entitled to a
Gross-Up Payment, but that the portion of the Payments that would be treated
as "parachute payments" under Section 280G of the Code does not exceed 110% of
the greatest amount (the "Safe Harbor Amount") that could be paid to the
Executive such that the receipt of Payments would not give rise to any Excise
Tax, then no Gross-Up Payment shall be made to the Executive and the amounts
payable under this Agreement shall be reduced so that the Payments, in the
aggregate, are reduced to the Safe Harbor Amount. The reduction of the
amounts payable hereunder, if applicable, shall be made by first reducing the
payments under Section 6(a)(i)(B), unless an alternative method of reduction
is elected by the Executive. For purposes of reducing the Payments to the
Safe Harbor Amount, only amounts payable under this Agreement (and no other
Payments) shall be reduced. If the reduction of the amounts payable under
this Agreement would not result in a reduction of the Payments to the Safe
Harbor Amount, no amounts payable under this Agreement shall be reduced
pursuant to this Section 9(a).
Subject to the provisions of Section 9(c), all determinations required to be
made under this Section 9, including whether and when a Gross-Up Payment is
required and the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by Deloitte & Touche
LLP or such other certified public accounting firm as may be designated by the
Executive (the "Accounting Firm"), which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or
such earlier time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change of Control, the Executive shall appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Section 9, shall be paid by the Company to the Executive within five days of
the receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a
result of the uncertainty in the application of Section 4999 of the Code at
the time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the Company
should have been made ("Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company exhausts its
remedies pursuant to Section 9(c) and the Executive thereafter is required to
make a payment of any Excise Tax, the Accounting Firm shall determine the
amount of the Underpayment that has occurred and any such Underpayment shall
be promptly paid by the Company to or for the benefit of the Executive.
The Executive shall notify the Company in writing of any claim by the Internal
Revenue Service that, if successful, would require the payment by the Company
of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day
period following the date on which the Executive gives such notice to the
Company (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest such
claim, the Executive shall:
(i) give the Company any information reasonably requested by the Company
relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim
by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceedings relating to such
claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 9(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with
the taxing authority in respect of such claim and may, at its sole option,
either direct the Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and the Executive agrees to
prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall advance
the amount of such payment to the Executive, on an interest-free basis and
shall indemnify and hold the Executive harmless, on an after-tax basis, from
any Excise Tax or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and further provided that any extension
of the statute of limitations relating to payment of taxes for the taxable
year of the Executive with respect to which such contested amount is claimed
to be due is limited solely to such contested amount. Furthermore, the
Company's control of the contest shall be limited to issues with respect to
which a Gross-Up Payment would be payable hereunder and the Executive shall be
entitled to settle or contest, as the case may be, any other issue raised by
the Internal Revenue Service or any other taxing authority.
If, after the receipt by the Executive of an amount advanced by the Company
pursuant to Section 9(c), the Executive becomes entitled to receive any refund
with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 9(c)) promptly pay to the Company
the amount of such refund (together with any interest paid or credited thereon
after taxes applicable thereto). If, after the receipt by the Executive of an
amount advanced by the Company pursuant to Section 9(c), a determination is
made that the Executive shall not be entitled to any refund with respect to
such claim and the Company does not notify the Executive in writing of its
intent to contest such denial of refund prior to the expiration of 30 days
after such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid.
Confidential Information. The Executive shall hold in a fiduciary capacity
for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the
Executive during the Executive's employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by the Executive or representatives of the Executive in violation
of this Agreement). After termination of the Executive's employment with the
Company, the Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process, communicate
or divulge any such information, knowledge or data to anyone other than the
Company and those designated by it. In no event shall an asserted violation
of the provisions of this Section 10 constitute a basis for deferring or
withholding any amounts otherwise payable to the Executive under this
Agreement.
Successors. (a) This Agreement is personal to the Executive and without the
prior written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
This Agreement shall inure to the benefit of and be binding upon the Company
and its successors and assigns.
The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law, or
otherwise.
Miscellaneous. (a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Utah, without reference to principles
of conflict of laws. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
All notices and other communications hereunder shall be in writing and shall
be given by hand delivery to the other party or by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
Morgan J. Evans
First Security Corporation
79 South Main Street, 2nd Fl.
Salt Lake City, Utah 84111
If to the Company:
First Security Corporation
79 South Main Street, 2nd Fl.
Salt Lake City, Utah 84111
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement.
The Company may withhold from any amounts payable under this Agreement such
Federal, state, local or foreign taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
The Executive's or the Company's failure to insist upon strict compliance with
any provision hereof or any other provision of this Agreement or the failure
to assert any right the Executive or the Company may have hereunder,
including, without limitation, the right of the Executive to terminate
employment for Good Reason pursuant to Section 5(c)(i)-(v) of this Agreement,
shall not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement.
The Executive and the Company acknowledge that, except as may otherwise be
provided under any other written agreement between the Executive and the
Company, the employment of the Executive by the Company is "at will" and,
prior to the Effective Date, the Executive's employment may be terminated by
either the Executive or the Company at any time prior to the Effective Date,
in which case the Executive shall have no further rights under this Agreement.
From and after the Effective Date this Agreement shall supersede any other
agreement between the parties with respect to the subject matter hereof,
including, without limitation, the right of the Executive to participate in
any severance plan of the Company or otherwise receive severance benefits from
the Company during the Employment Period.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused this Agreement to be executed in its name on its behalf, all as of the
day and year first above written.
/s/ Morgan J. Evans
Morgan J. Evans
FIRST SECURITY CORPORATION
By:
/s/ Spencer F. Eccles
CHANGE OF CONTROL
EMPLOYMENT AGREEMENT
AGREEMENT by and between First Security Corporation, a Utah corporation (the
"Company"), and Michael P. Caughlin (the "Executive"), dated as of the 2nd day
of February, 1998.
The Board of Directors of the Company (the "Board"), has determined that it is
in the best interests of the Company and its shareholders to assure that the
Company will have the continued dedication of the Executive, notwithstanding
the possibility, threat or occurrence of a Change of Control (as defined
below) of the Company. The Board believes it is imperative to diminish the
inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control
and to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of
other corporations. Therefore, in order to accomplish these objectives, the
Board has caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall mean the first date
during the Change of Control Period (as defined in Section 1(b)) on which a
Change of Control (as defined in Section 2) occurs. Anything in this
Agreement to the contrary notwithstanding, if a Change of Control occurs and
if the Executive's employment with the Company is terminated prior to the date
on which the Change of Control occurs, and if it is reasonably demonstrated by
the Executive that such termination of employment (i) was at the request of a
third party who has taken steps reasonably calculated to effect a Change of
Control or (ii) otherwise arose in connection with or anticipation of a Change
of Control, then for all purposes of this Agreement the "Effective Date" shall
mean the date immediately prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing on the
date hereof and ending on the third anniversary of the date hereof; provided,
however, that commencing on the date one year after the date hereof, and on
each annual anniversary of such date (such date and each annual anniversary
thereof shall be hereinafter referred to as the "Renewal Date"), unless
previously terminated, the Change of Control Period shall be automatically
extended so as to terminate three years from such Renewal Date, unless at
least 60 days prior to the Renewal Date the Company shall give notice to the
Executive that the Change of Control Period shall not be so extended.
2. Change of Control. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally
in the election of directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (iv)
any acquisition pursuant to a transaction which complies with clauses (i),
(ii) and (iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of
the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with respect to
the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; or
(c) Consummation by the Company of a reorganization, merger or consolidation
or sale or other disposition of all or substantially all of the assets of the
Company or the acquisition of assets of another entity (a "Business
Combination"), in each case, unless, following such Business Combination, (i)
all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 60% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or
more subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, as the case may be,
(ii) no Person (excluding any employee benefit plan (or related trust) of the
Company or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or more of, respectively, the
then outstanding shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then outstanding
voting securities of such corporation except to the extent that such ownership
existed prior to the Business Combination and (iii) at least a majority of the
members of the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board, providing
for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete liquidation or
dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue the Executive in
its employ, and the Executive hereby agrees to remain in the employ of the
Company subject to the terms and conditions of this Agreement, for the period
commencing on the Effective Date and ending on the third anniversary of such
date (the "Employment Period").
4. Terms of Employment. (a) Position and Duties. (i) During the Employment
Period, (A) the Executive's position (including status, offices, titles and
reporting requirements), authority, duties and responsibilities shall be at
least commensurate in all material respects with the most significant of those
held, exercised and assigned to the Executive at any time during the 90-day
period immediately preceding the Effective Date and (B) the Executive's
services shall be performed at the location where the Executive was employed
immediately preceding the Effective Date or any office or location less than
35 miles from such location.
(ii) During the Employment Period, and excluding any periods of vacation and
sick leave to which the Executive is entitled, the Executive agrees to devote
reasonable attention and time during normal business hours to the business and
affairs of the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or
charitable boards or committees, (B) deliver lectures, fulfill speaking
engagements or teach at educational institutions and (C) manage personal
investments, so long as such activities do not significantly interfere with
the performance of the Executive's responsibilities as an employee of the
Company in accordance with this Agreement. It is expressly understood and
agreed that to the extent that any such activities have been conducted by the
Executive prior to the Effective Date, the continued conduct of such
activities (or the conduct of activities similar in nature and scope thereto)
subsequent to the Effective Date shall not thereafter be deemed to interfere
with the performance of the Executive's responsibilities to the Company.
(b) Compensation. (i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to twelve times the highest
monthly base salary paid or payable, including any base salary which has been
earned but deferred, to the Executive by the Company and its affiliated
companies in respect of the 12-month period immediately preceding the month in
which the Effective Date occurs. During the Employment Period, the Annual
Base Salary shall be reviewed no more than 12 months after the last salary
increase awarded to the Executive prior to the Effective Date and thereafter
at least annually. Any increase in Annual Base Salary shall not serve to
limit or reduce any other obligation to the Executive under this Agreement.
Annual Base Salary shall not be reduced after any such increase and the term
Annual Base Salary as utilized in this Agreement shall refer to Annual Base
Salary as so increased. As used in this Agreement, the term "affiliated
companies" shall include any company controlled by, controlling or under
common control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary, the Executive shall be
awarded, for each fiscal year ending during the Employment Period, an annual
bonus (the "Annual Bonus") in cash at least equal to the Executive's highest
bonus under the Company's annual incentive plans for the last three fiscal
years prior to the Effective Date (annualized in the event that the Executive
was not employed by the Company for the whole of such fiscal year) (the
"Recent Annual Bonus"). Each such Annual Bonus shall be paid no later than
the end of the third month of the fiscal year next following the fiscal year
for which the Annual Bonus is awarded, unless the Executive shall elect to
defer the receipt of such Annual Bonus.
(iii) Incentive, Savings and Retirement Plans. During the Employment Period,
the Executive shall be entitled to participate in all incentive, savings and
retirement plans, practices, policies and programs applicable generally to
other peer executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with incentive opportunities (measured with respect to both regular and
special incentive opportunities, to the extent, if any, that such distinction
is applicable), savings opportunities and retirement benefit opportunities, in
each case, less favorable, in the aggregate, than the most favorable of those
provided by the Company and its affiliated companies for the Executive under
such plans, practices, policies and programs as in effect at any time during
the 90-day period immediately preceding the Effective Date or if more
favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies.
(iv) Welfare Benefit Plans. During the Employment Period, the Executive
and/or the Executive's family, as the case may be, shall be eligible for
participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life, accidental death
and travel accident insurance plans and programs) to the extent applicable
generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with benefits which are less favorable, in the
aggregate, than the most favorable of such plans, practices, policies and
programs in effect for the Executive at any time during the 90-day period
immediately preceding the Effective Date or, if more favorable to the
Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.
(v) Expenses. During the Employment Period, the Executive shall be entitled
to receive prompt reimbursement for all reasonable expenses incurred by the
Executive in accordance with the most favorable policies, practices and
procedures of the Company and its affiliated companies in effect for the
Executive at any time during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect generally
at any time thereafter with respect to other peer executives of the Company
and its affiliated companies.
(vi) Fringe Benefits. During the Employment Period, the Executive shall be
entitled to fringe benefits, including, without limitation, tax and financial
planning services, payment of club dues, and, if applicable, use of an
automobile and payment of related expenses, in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 90-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
(vii) Office and Support Staff. During the Employment Period, the Executive
shall be entitled to an office or offices of a size and with furnishings and
other appointments, and to exclusive personal secretarial and other
assistance, at least equal to the most favorable of the foregoing provided to
the Executive by the Company and its affiliated companies at any time during
the 90-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided generally at any time thereafter with
respect to other peer executives of the Company and its affiliated companies.
(viii) Vacation. During the Employment Period, the Executive shall be
entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated companies
as in effect for the Executive at any time during the 90-day period
immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
5. Termination of Employment. (a) Death or Disability. The Executive's
employment shall terminate automatically upon the Executive's death during the
Employment Period. If the Company determines in good faith that the
Disability of the Executive has occurred during the Employment Period
(pursuant to the definition of Disability set forth below), it may give to the
Executive written notice in accordance with Section 12(b) of this Agreement of
its intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties.
For purposes of this Agreement, "Disability" shall mean the absence of the
Executive from the Executive's duties with the Company on a full-time basis
for 180 consecutive business days as a result of incapacity due to mental or
physical illness which is determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to the Executive or
the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment during the
Employment Period for Cause. For purposes of this Agreement, "Cause" shall
mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its affiliates
(other than any such failure resulting from incapacity due to physical or
mental illness), after a written demand for substantial performance is
delivered to the Executive by the Board or the Chief Executive Officer of the
Company which specifically identifies the manner in which the Board or Chief
Executive Officer believes that the Executive has not substantially performed
the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board or upon the instructions of the Chief Executive
Officer or a senior officer of the Company or based upon the advice of counsel
for the Company shall be conclusively presumed to be done, or omitted to be
done, by the Executive in good faith and in the best interests of the Company.
The cessation of employment of the Executive shall not be deemed to be for
Cause unless and until there shall have been delivered to the Executive a copy
of a resolution duly adopted by the affirmative vote of not less than three-
quarters of the entire membership of the Board at a meeting of the Board
called and held for such purpose (after reasonable notice is provided to the
Executive and the Executive is given an opportunity, together with counsel, to
be heard before the Board), finding that, in the good faith opinion of the
Board, the Executive is guilty of the conduct described in subparagraph (i) or
(ii) above, and specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean:
(i) the assignment to the Executive of any duties inconsistent in any
respect with the Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as contemplated
by Section 4(a) of this Agreement, or any other action by the Company which
results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the provisions of
Section 4(b) of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any office or
location other than as provided in Section 4(a)(i)(B) hereof or the Company's
requiring the Executive to travel on Company business to a substantially
greater extent than required immediately prior to the Effective Date;
(iv) any purported termination by the Company of the Executive's employment
otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy Section 11(c) of
this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good
Reason" made by the Executive shall be conclusive. Anything in this Agreement
to the contrary notwithstanding, a termination by the Executive for any reason
during the 30-day period immediately following the first anniversary of the
Effective Date shall be deemed to be a termination for Good Reason for all
purposes of this Agreement.
(d) Notice of Termination. Any termination by the Company for Cause, or by
the Executive for Good Reason, shall be communicated by Notice of Termination
to the other party hereto given in accordance with Section 12(b) of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means a
written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination
of the Executive's employment under the provision so indicated and (iii) if
the Date of Termination (as defined below) is other than the date of receipt
of such notice, specifies the termination date (which date shall be not more
than thirty days after the giving of such notice). The failure by the
Executive or the Company to set forth in the Notice of Termination any fact or
circumstance which contributes to a showing of Good Reason or Cause shall not
waive any right of the Executive or the Company, respectively, hereunder or
preclude the Executive or the Company, respectively, from asserting such fact
or circumstance in enforcing the Executive's or the Company's rights
hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the Executive's
employment is terminated by the Company for Cause, or by the Executive for
Good Reason, the date of receipt of the Notice of Termination or any later
date specified therein, as the case may be, (ii) if the Executive's employment
is terminated by the Company other than for Cause or Disability, the date on
which the Company notifies the Executive of such termination and (iii) if the
Executive's employment is terminated by reason of death or Disability, the
date of death of the Executive or the Disability Effective Date, as the case
may be.
6. Obligations of the Company upon Termination. (a) Good Reason; Other Than
for Cause, Death or Disability. If, during the Employment Period, the Company
shall terminate the Executive's employment other than for Cause or Disability
or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash within 30
days after the Date of Termination the aggregate of the following amounts:
A. the sum of (1) the Executive's Annual Base Salary through the Date of
Termination to the extent not theretofore paid, (2) the product of (x) the
higher of (I) the Recent Annual Bonus and (II) the Annual Bonus paid or
payable, including any bonus or portion thereof which has been earned but
deferred (and annualized for any fiscal year consisting of less than twelve
full months or during which the Executive was employed for less than twelve
full months), for the most recently completed fiscal year during the
Employment Period, if any (such higher amount being referred to as the
"Highest Annual Bonus"), and (y) a fraction, the numerator of which is the
number of days in the current fiscal year through the Date of Termination, and
the denominator of which is 365 and (3) any compensation previously deferred
by the Executive (together with any accrued interest or earnings thereon) and
any accrued vacation pay, in each case to the extent not theretofore paid (the
sum of the amounts described in clauses (1), (2), and (3) shall be hereinafter
referred to as the "Accrued Obligations"); and
B. the amount equal to the product of (1) three and (2) the sum of (x) the
Executive's Annual Base Salary and (y) the Highest Annual Bonus; and
C. an amount equal to the difference between (a) the aggregate benefit under
the Company's qualified defined benefit retirement plans (collectively, the
"Retirement Plan") and any excess or supplemental defined benefit retirement
plans in which the Executive participates (collectively, the "SERP") which the
Executive would have accrued (whether or not vested) if the Executive's
employment had continued for three years following the Date of Termination
(provided, that, for purposes of determining the SERP benefit the Executive
would have accrued, (i) if the Executive had not attained "Early Retirement
Date" under the First Security Supplemental Executive Retirement Plan (after
being credited with three years of age and service), the Executive shall be
treated as if the Executive had remained employed through the Early Retirement
Date, (ii) the SERP benefit shall be calculated as if consent had been granted
under the First Security Supplemental Executive Retirement Plan and (iii)
"Early Retirement Percentages" (as defined in Section 5.02 of the First
Security Supplemental Executive Retirement Plan) will be treated as continuing
to increase at a rate of 3% per year for each year prior to age 50) and (b)
the actual vested benefit, if any, of the Executive under the Retirement Plan
and the SERP, determined as of the Date of Termination (with the foregoing
amounts to be computed on an actuarial present value basis, based on the
assumption that the Executive's compensation in each of the three years
following such termination would have been that required by Section 4(b)(i)
and Section 4(b)(ii), and using actuarial assumptions no less favorable to the
Executive than the most favorable of those in effect for purposes of computing
benefit entitlements under the Retirement Plan and the SERP at any time from
the day before the Effective Date) through the Date of Termination;
(ii) for three years following the Date of Termination, or such longer
period as may be provided by the terms of the appropriate plan, program,
practice or policy, the Company shall continue benefits to the Executive
and/or the Executive's family at least equal to those which would have been
provided to them in accordance with the plans, programs, practices and
policies described in Section 4(b)(iv) of this Agreement if the Executive's
employment had not been terminated or, if more favorable to the Executive, as
in effect generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies and their families,
provided, however, that if the Executive becomes reemployed with another
employer and is eligible to receive medical or other welfare benefits under
another employer-provided plan, the medical and other welfare benefits
described herein shall be secondary to those provided under such other plan
during such applicable period of eligibility, and for purposes of determining
eligibility (but not the time of commencement of benefits) of the Executive
for retiree benefits pursuant to such plans, practices, programs and policies,
the Executive shall be considered to have remained employed until three years
following the Date of Termination and to have retired on the last day of such
period;
(iii) the Company shall, at its sole expense as incurred, provide the
Executive with outplacement services the scope and provider of which shall be
selected by the Executive in the Executive's sole discretion; and
(iv) to the extent not theretofore paid or provided, the Company shall
timely pay or provide to the Executive any other amounts or benefits required
to be paid or provided or which the Executive is eligible to receive under any
plan, program, policy or practice or contract or agreement of the Company and
its affiliated companies (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement shall terminate
without further obligations to the Executive's legal representatives under
this Agreement, other than for payment of Accrued Obligations and the timely
payment or provision of Other Benefits. Accrued Obligations shall be paid to
the Executive's estate or beneficiary, as applicable, in a lump sum in cash
within 30 days of the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall
include, without limitation, and the Executive's estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and affiliated companies to the estates and
beneficiaries of peer executives of the Company and such affiliated companies
under such plans, programs, practices and policies relating to death benefits,
if any, as in effect with respect to other peer executives and their
beneficiaries at any time during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive's estate and/or the
Executive's beneficiaries, as in effect on the date of the Executive's death
with respect to other peer executives of the Company and its affiliated
companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by reason of the
Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive in a lump sum in cash
within 30 days of the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 6(c) shall
include, and the Executive shall be entitled after the Disability Effective
Date to receive, disability and other benefits at least equal to the most
favorable of those generally provided by the Company and its affiliated
companies to disabled executives and/or their families in accordance with such
plans, programs, practices and policies relating to disability, if any, as in
effect generally with respect to other peer executives and their families at
any time during the 90-day period immediately preceding the Effective Date or,
if more favorable to the Executive and/or the Executive's family, as in effect
at any time thereafter generally with respect to other peer executives of the
Company and its affiliated companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's employment shall be
terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligations to the Executive other than the
obligation to pay to the Executive (x) the Annual Base Salary through the Date
of Termination, (y) the amount of any compensation previously deferred by the
Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the
Employment Period, excluding a termination for Good Reason, this Agreement
shall terminate without further obligations to the Executive, other than for
Accrued Obligations and the timely payment or provision of Other Benefits. In
such case, all Accrued Obligations shall be paid to the Executive in a lump
sum in cash within 30 days of the Date of Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
and for which the Executive may qualify, nor, subject to Section 12(f), shall
anything herein limit or otherwise affect such rights as the Executive may
have under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan, policy, practice or program of
or any contract or agreement with the Company or any of its affiliated
companies at or subsequent to the Date of Termination shall be payable in
accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
8. Full Settlement; Legal Fees. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any setoff, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this Agreement and
except as specifically provided in Section 6(a)(ii), such amounts shall not be
reduced whether or not the Executive obtains other employment. The Company
agrees to pay as incurred, to the full extent permitted by law, all legal fees
and expenses which the Executive may reasonably incur as a result of any
contest (regardless of the outcome thereof) by the Company, the Executive or
others of the validity or enforceability of, or liability or entitlement
under, any provision of this Agreement or any guarantee of performance thereof
(whether such contest is between the Company and the Executive or between
either of them and any third party, and including as a result of any contest
by the Executive about the amount of any payment pursuant to this Agreement),
plus in each case interest on any delayed payment at the applicable Federal
rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of
1986, as amended (the "Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding, in the event
it shall be determined that any payment, award, benefit or distribution by the
Company (or any of its affiliated entities) or by any entity which effectuates
a Change of Control (or any of its affiliated entities) to or for the benefit
of the Executive (whether pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments required
under this Section 9) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Code or any corresponding provisions of state or local
tax laws, or any interest or penalties are incurred by the Executive with
respect to such excise tax (such excise tax, together with any such interest
and penalties, are hereinafter collectively referred to as the "Excise Tax"),
then the Executive shall be entitled to receive an additional payment (a
"Gross-Up Payment") in an amount such that after payment by the Executive of
all taxes (including any interest or penalties imposed with respect to such
taxes), including, without limitation, any income taxes (and any interest and
penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-
Up Payment, the Executive retains an amount of the Gross-Up Payment equal to
the Excise Tax imposed upon the Payments. The payment of a Gross-Up Payment
under this Section 9(a) shall not be conditioned upon the Executive's
termination of employment. Notwithstanding the foregoing provisions of this
Section 9(a), if it shall be determined that the Executive is entitled to a
Gross-Up Payment, but that the portion of the Payments that would be treated
as "parachute payments" under Section 280G of the Code does not exceed 110% of
the greatest amount (the "Safe Harbor Amount") that could be paid to the
Executive such that the receipt of Payments would not give rise to any Excise
Tax, then no Gross-Up Payment shall be made to the Executive and the amounts
payable under this Agreement shall be reduced so that the Payments, in the
aggregate, are reduced to the Safe Harbor Amount. The reduction of the
amounts payable hereunder, if applicable, shall be made by first reducing the
payments under Section 6(a)(i)(B), unless an alternative method of reduction
is elected by the Executive. For purposes of reducing the Payments to the
Safe Harbor Amount, only amounts payable under this Agreement (and no other
Payments) shall be reduced. If the reduction of the amounts payable under
this Agreement would not result in a reduction of the Payments to the Safe
Harbor Amount, no amounts payable under this Agreement shall be reduced
pursuant to this Section 9(a).
(b) Subject to the provisions of Section 9(c), all determinations required to
be made under this Section 9, including whether and when a Gross-Up Payment is
required and the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by Deloitte & Touche
LLP or such other certified public accounting firm as may be designated by the
Executive (the "Accounting Firm"), which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or
such earlier time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change of Control, the Executive shall appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Section 9, shall be paid by the Company to the Executive within five days of
the receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a
result of the uncertainty in the application of Section 4999 of the Code at
the time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the Company
should have been made ("Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company exhausts its
remedies pursuant to Section 9(c) and the Executive thereafter is required to
make a payment of any Excise Tax, the Accounting Firm shall determine the
amount of the Underpayment that has occurred and any such Underpayment shall
be promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day
period following the date on which the Executive gives such notice to the
Company (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest such
claim, the Executive shall:
(i) give the Company any information reasonably requested by the Company
relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim
by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceedings relating to such
claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 9(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with
the taxing authority in respect of such claim and may, at its sole option,
either direct the Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and the Executive agrees to
prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall advance
the amount of such payment to the Executive, on an interest-free basis and
shall indemnify and hold the Executive harmless, on an after-tax basis, from
any Excise Tax or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and further provided that any extension
of the statute of limitations relating to payment of taxes for the taxable
year of the Executive with respect to which such contested amount is claimed
to be due is limited solely to such contested amount. Furthermore, the
Company's control of the contest shall be limited to issues with respect to
which a Gross-Up Payment would be payable hereunder and the Executive shall be
entitled to settle or contest, as the case may be, any other issue raised by
the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 9(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 9(c)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 9(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall
offset, to the extent thereof, the amount of Gross-Up Payment required to be
paid.
10. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its
affiliated companies, and their respective businesses, which shall have been
obtained by the Executive during the Executive's employment by the Company or
any of its affiliated companies and which shall not be or become public
knowledge (other than by acts by the Executive or representatives of the
Executive in violation of this Agreement). After termination of the
Executive's employment with the Company, the Executive shall not, without the
prior written consent of the Company or as may otherwise be required by law or
legal process, communicate or divulge any such information, knowledge or data
to anyone other than the Company and those designated by it. In no event
shall an asserted violation of the provisions of this Section 10 constitute a
basis for deferring or withholding any amounts otherwise payable to the
Executive under this Agreement.
11. Successors. (a) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law, or
otherwise.
12. Miscellaneous. (a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Utah, without reference to principles
of conflict of laws. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
Michael P. Caughlin
First Security Corporation
79 South Main Street, 2nd Fl.
Salt Lake City, Utah 84111
If to the Company:
First Security Corporation
79 South Main Street, 2nd Fl.
Salt Lake City, Utah 84111
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
(d) The Company may withhold from any amounts payable under this Agreement
such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict compliance
with any provision hereof or any other provision of this Agreement or the
failure to assert any right the Executive or the Company may have hereunder,
including, without limitation, the right of the Executive to terminate
employment for Good Reason pursuant to Section 5(c)(i)-(v) of this Agreement,
shall not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement.
(f) The Executive and the Company acknowledge that, except as may otherwise be
provided under any other written agreement between the Executive and the
Company, the employment of the Executive by the Company is "at will" and,
prior to the Effective Date, the Executive's employment may be terminated by
either the Executive or the Company at any time prior to the Effective Date,
in which case the Executive shall have no further rights under this Agreement.
From and after the Effective Date this Agreement shall supersede any other
agreement between the parties with respect to the subject matter hereof,
including, without limitation, the right of the Executive to participate in
any severance plan of the Company or otherwise receive severance benefits from
the Company during the Employment Period.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused this Agreement to be executed in its name on its behalf, all as of the
day and year first above written.
/s/ Michael P. Caughlin
Michael P. Caughlin
FIRST SECURITY CORPORATION
By:
/s/ Morgan J. Evans
CHANGE OF CONTROL
EMPLOYMENT AGREEMENT
AGREEMENT by and between First Security Corporation, a Utah corporation (the
"Company"), and Brad D. Hardy (the "Executive"), dated as of the 2nd day of
February, 1998.
The Board of Directors of the Company (the "Board"), has determined that it is
in the best interests of the Company and its shareholders to assure that the
Company will have the continued dedication of the Executive, notwithstanding
the possibility, threat or occurrence of a Change of Control (as defined
below) of the Company. The Board believes it is imperative to diminish the
inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control
and to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of
other corporations. Therefore, in order to accomplish these objectives, the
Board has caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall mean the first date
during the Change of Control Period (as defined in Section 1(b)) on which a
Change of Control (as defined in Section 2) occurs. Anything in this
Agreement to the contrary notwithstanding, if a Change of Control occurs and
if the Executive's employment with the Company is terminated prior to the date
on which the Change of Control occurs, and if it is reasonably demonstrated by
the Executive that such termination of employment (i) was at the request of a
third party who has taken steps reasonably calculated to effect a Change of
Control or (ii) otherwise arose in connection with or anticipation of a Change
of Control, then for all purposes of this Agreement the "Effective Date" shall
mean the date immediately prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing on the
date hereof and ending on the third anniversary of the date hereof; provided,
however, that commencing on the date one year after the date hereof, and on
each annual anniversary of such date (such date and each annual anniversary
thereof shall be hereinafter referred to as the "Renewal Date"), unless
previously terminated, the Change of Control Period shall be automatically
extended so as to terminate three years from such Renewal Date, unless at
least 60 days prior to the Renewal Date the Company shall give notice to the
Executive that the Change of Control Period shall not be so extended.
2. Change of Control. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally
in the election of directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (iv)
any acquisition pursuant to a transaction which complies with clauses (i),
(ii) and (iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of
the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with respect to
the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; or
(c) Consummation by the Company of a reorganization, merger or consolidation
or sale or other disposition of all or substantially all of the assets of the
Company or the acquisition of assets of another entity (a "Business
Combination"), in each case, unless, following such Business Combination, (i)
all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 60% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or
more subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, as the case may be,
(ii) no Person (excluding any employee benefit plan (or related trust) of the
Company or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or more of, respectively, the
then outstanding shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then outstanding
voting securities of such corporation except to the extent that such ownership
existed prior to the Business Combination and (iii) at least a majority of the
members of the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board, providing
for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete liquidation or
dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue the Executive in
its employ, and the Executive hereby agrees to remain in the employ of the
Company subject to the terms and conditions of this Agreement, for the period
commencing on the Effective Date and ending on the third anniversary of such
date (the "Employment Period").
4. Terms of Employment. (a) Position and Duties. (i) During the Employment
Period, (A) the Executive's position (including status, offices, titles and
reporting requirements), authority, duties and responsibilities shall be at
least commensurate in all material respects with the most significant of those
held, exercised and assigned to the Executive at any time during the 90-day
period immediately preceding the Effective Date and (B) the Executive's
services shall be performed at the location where the Executive was employed
immediately preceding the Effective Date or any office or location less than
35 miles from such location.
(ii) During the Employment Period, and excluding any periods of vacation and
sick leave to which the Executive is entitled, the Executive agrees to devote
reasonable attention and time during normal business hours to the business and
affairs of the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or
charitable boards or committees, (B) deliver lectures, fulfill speaking
engagements or teach at educational institutions and (C) manage personal
investments, so long as such activities do not significantly interfere with
the performance of the Executive's responsibilities as an employee of the
Company in accordance with this Agreement. It is expressly understood and
agreed that to the extent that any such activities have been conducted by the
Executive prior to the Effective Date, the continued conduct of such
activities (or the conduct of activities similar in nature and scope thereto)
subsequent to the Effective Date shall not thereafter be deemed to interfere
with the performance of the Executive's responsibilities to the Company.
(b) Compensation. (i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to twelve times the highest
monthly base salary paid or payable, including any base salary which has been
earned but deferred, to the Executive by the Company and its affiliated
companies in respect of the 12-month period immediately preceding the month in
which the Effective Date occurs. During the Employment Period, the Annual
Base Salary shall be reviewed no more than 12 months after the last salary
increase awarded to the Executive prior to the Effective Date and thereafter
at least annually. Any increase in Annual Base Salary shall not serve to
limit or reduce any other obligation to the Executive under this Agreement.
Annual Base Salary shall not be reduced after any such increase and the term
Annual Base Salary as utilized in this Agreement shall refer to Annual Base
Salary as so increased. As used in this Agreement, the term "affiliated
companies" shall include any company controlled by, controlling or under
common control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary, the Executive shall be
awarded, for each fiscal year ending during the Employment Period, an annual
bonus (the "Annual Bonus") in cash at least equal to the Executive's highest
bonus under the Company's annual incentive plans for the last three fiscal
years prior to the Effective Date (annualized in the event that the Executive
was not employed by the Company for the whole of such fiscal year) (the
"Recent Annual Bonus"). Each such Annual Bonus shall be paid no later than
the end of the third month of the fiscal year next following the fiscal year
for which the Annual Bonus is awarded, unless the Executive shall elect to
defer the receipt of such Annual Bonus.
(iii) Incentive, Savings and Retirement Plans. During the Employment Period,
the Executive shall be entitled to participate in all incentive, savings and
retirement plans, practices, policies and programs applicable generally to
other peer executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with incentive opportunities (measured with respect to both regular and
special incentive opportunities, to the extent, if any, that such distinction
is applicable), savings opportunities and retirement benefit opportunities, in
each case, less favorable, in the aggregate, than the most favorable of those
provided by the Company and its affiliated companies for the Executive under
such plans, practices, policies and programs as in effect at any time during
the 90-day period immediately preceding the Effective Date or if more
favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies.
(iv) Welfare Benefit Plans. During the Employment Period, the Executive
and/or the Executive's family, as the case may be, shall be eligible for
participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life, accidental death
and travel accident insurance plans and programs) to the extent applicable
generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with benefits which are less favorable, in the
aggregate, than the most favorable of such plans, practices, policies and
programs in effect for the Executive at any time during the 90-day period
immediately preceding the Effective Date or, if more favorable to the
Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.
(v) Expenses. During the Employment Period, the Executive shall be entitled
to receive prompt reimbursement for all reasonable expenses incurred by the
Executive in accordance with the most favorable policies, practices and
procedures of the Company and its affiliated companies in effect for the
Executive at any time during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect generally
at any time thereafter with respect to other peer executives of the Company
and its affiliated companies.
(vi) Fringe Benefits. During the Employment Period, the Executive shall be
entitled to fringe benefits, including, without limitation, tax and financial
planning services, payment of club dues, and, if applicable, use of an
automobile and payment of related expenses, in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 90-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
(vii) Office and Support Staff. During the Employment Period, the Executive
shall be entitled to an office or offices of a size and with furnishings and
other appointments, and to exclusive personal secretarial and other
assistance, at least equal to the most favorable of the foregoing provided to
the Executive by the Company and its affiliated companies at any time during
the 90-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided generally at any time thereafter with
respect to other peer executives of the Company and its affiliated companies.
(viii) Vacation. During the Employment Period, the Executive shall be
entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated companies
as in effect for the Executive at any time during the 90-day period
immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
5. Termination of Employment. (a) Death or Disability. The Executive's
employment shall terminate automatically upon the Executive's death during the
Employment Period. If the Company determines in good faith that the
Disability of the Executive has occurred during the Employment Period
(pursuant to the definition of Disability set forth below), it may give to the
Executive written notice in accordance with Section 12(b) of this Agreement of
its intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties.
For purposes of this Agreement, "Disability" shall mean the absence of the
Executive from the Executive's duties with the Company on a full-time basis
for 180 consecutive business days as a result of incapacity due to mental or
physical illness which is determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to the Executive or
the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment during the
Employment Period for Cause. For purposes of this Agreement, "Cause" shall
mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its affiliates
(other than any such failure resulting from incapacity due to physical or
mental illness), after a written demand for substantial performance is
delivered to the Executive by the Board or the Chief Executive Officer of the
Company which specifically identifies the manner in which the Board or Chief
Executive Officer believes that the Executive has not substantially performed
the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board or upon the instructions of the Chief Executive
Officer or a senior officer of the Company or based upon the advice of counsel
for the Company shall be conclusively presumed to be done, or omitted to be
done, by the Executive in good faith and in the best interests of the Company.
The cessation of employment of the Executive shall not be deemed to be for
Cause unless and until there shall have been delivered to the Executive a copy
of a resolution duly adopted by the affirmative vote of not less than three-
quarters of the entire membership of the Board at a meeting of the Board
called and held for such purpose (after reasonable notice is provided to the
Executive and the Executive is given an opportunity, together with counsel, to
be heard before the Board), finding that, in the good faith opinion of the
Board, the Executive is guilty of the conduct described in subparagraph (i) or
(ii) above, and specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean:
(i) the assignment to the Executive of any duties inconsistent in any
respect with the Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as contemplated
by Section 4(a) of this Agreement, or any other action by the Company which
results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the provisions of
Section 4(b) of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any office or
location other than as provided in Section 4(a)(i)(B) hereof or the Company's
requiring the Executive to travel on Company business to a substantially
greater extent than required immediately prior to the Effective Date;
(iv) any purported termination by the Company of the Executive's employment
otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy Section 11(c) of
this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good
Reason" made by the Executive shall be conclusive. Anything in this Agreement
to the contrary notwithstanding, a termination by the Executive for any reason
during the 30-day period immediately following the first anniversary of the
Effective Date shall be deemed to be a termination for Good Reason for all
purposes of this Agreement.
(d) Notice of Termination. Any termination by the Company for Cause, or by
the Executive for Good Reason, shall be communicated by Notice of Termination
to the other party hereto given in accordance with Section 12(b) of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means a
written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination
of the Executive's employment under the provision so indicated and (iii) if
the Date of Termination (as defined below) is other than the date of receipt
of such notice, specifies the termination date (which date shall be not more
than thirty days after the giving of such notice). The failure by the
Executive or the Company to set forth in the Notice of Termination any fact or
circumstance which contributes to a showing of Good Reason or Cause shall not
waive any right of the Executive or the Company, respectively, hereunder or
preclude the Executive or the Company, respectively, from asserting such fact
or circumstance in enforcing the Executive's or the Company's rights
hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the Executive's
employment is terminated by the Company for Cause, or by the Executive for
Good Reason, the date of receipt of the Notice of Termination or any later
date specified therein, as the case may be, (ii) if the Executive's employment
is terminated by the Company other than for Cause or Disability, the date on
which the Company notifies the Executive of such termination and (iii) if the
Executive's employment is terminated by reason of death or Disability, the
date of death of the Executive or the Disability Effective Date, as the case
may be.
6. Obligations of the Company upon Termination. (a) Good Reason; Other Than
for Cause, Death or Disability. If, during the Employment Period, the Company
shall terminate the Executive's employment other than for Cause or Disability
or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash within 30
days after the Date of Termination the aggregate of the following amounts:
A. the sum of (1) the Executive's Annual Base Salary through the Date of
Termination to the extent not theretofore paid, (2) the product of (x) the
higher of (I) the Recent Annual Bonus and (II) the Annual Bonus paid or
payable, including any bonus or portion thereof which has been earned but
deferred (and annualized for any fiscal year consisting of less than twelve
full months or during which the Executive was employed for less than twelve
full months), for the most recently completed fiscal year during the
Employment Period, if any (such higher amount being referred to as the
"Highest Annual Bonus"), and (y) a fraction, the numerator of which is the
number of days in the current fiscal year through the Date of Termination, and
the denominator of which is 365 and (3) any compensation previously deferred
by the Executive (together with any accrued interest or earnings thereon) and
any accrued vacation pay, in each case to the extent not theretofore paid (the
sum of the amounts described in clauses (1), (2), and (3) shall be hereinafter
referred to as the "Accrued Obligations"); and
B. the amount equal to the product of (1) three and (2) the sum of (x) the
Executive's Annual Base Salary and (y) the Highest Annual Bonus; and
C. an amount equal to the difference between (a) the aggregate benefit under
the Company's qualified defined benefit retirement plans (collectively, the
"Retirement Plan") and any excess or supplemental defined benefit retirement
plans in which the Executive participates (collectively, the "SERP") which the
Executive would have accrued (whether or not vested) if the Executive's
employment had continued for three years following the Date of Termination
(provided, that, for purposes of determining the SERP benefit the Executive
would have accrued, (i) if the Executive had not attained "Early Retirement
Date" under the First Security Supplemental Executive Retirement Plan (after
being credited with three years of age and service), the Executive shall be
treated as if the Executive had remained employed through the Early Retirement
Date, (ii) the SERP benefit shall be calculated as if consent had been granted
under the First Security Supplemental Executive Retirement Plan, (iii) "Early
Retirement Percentages" (as defined in Section 5.02 of the First Security
Supplemental Executive Retirement Plan) will be treated as continuing to
increase at a rate of 3% per year for each year prior to age 50) and (iv) the
SERP benefit shall be calculated as if the Executive had six additional years
of credited service (in addition to the three years of credited service above)
following the Date of Termination for purposes of the First Security
Supplemental Executive Retirement Plan and (b) the actual vested benefit, if
any, of the Executive under the Retirement Plan and the SERP, determined as of
the Date of Termination (with the foregoing amounts to be computed on an
actuarial present value basis, based on the assumption that the Executive's
compensation in each of the three years following such termination would have
been that required by Section 4(b)(i) and Section 4(b)(ii), and using
actuarial assumptions no less favorable to the Executive than the most
favorable of those in effect for purposes of computing benefit entitlements
under the Retirement Plan and the SERP at any time from the day before the
Effective Date) through the Date of Termination;
(ii) for three years following the Date of Termination, or such longer
period as may be provided by the terms of the appropriate plan, program,
practice or policy, the Company shall continue benefits to the Executive
and/or the Executive's family at least equal to those which would have been
provided to them in accordance with the plans, programs, practices and
policies described in Section 4(b)(iv) of this Agreement if the Executive's
employment had not been terminated or, if more favorable to the Executive, as
in effect generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies and their families,
provided, however, that if the Executive becomes reemployed with another
employer and is eligible to receive medical or other welfare benefits under
another employer-provided plan, the medical and other welfare benefits
described herein shall be secondary to those provided under such other plan
during such applicable period of eligibility, and for purposes of determining
eligibility (but not the time of commencement of benefits) of the Executive
for retiree benefits pursuant to such plans, practices, programs and policies,
the Executive shall be considered to have remained employed until three years
following the Date of Termination and to have retired on the last day of such
period;
(iii) the Company shall, at its sole expense as incurred, provide the
Executive with outplacement services the scope and provider of which shall be
selected by the Executive in the Executive's sole discretion; and
(iv) to the extent not theretofore paid or provided, the Company shall
timely pay or provide to the Executive any other amounts or benefits required
to be paid or provided or which the Executive is eligible to receive under any
plan, program, policy or practice or contract or agreement of the Company and
its affiliated companies (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement shall terminate
without further obligations to the Executive's legal representatives under
this Agreement, other than for payment of Accrued Obligations and the timely
payment or provision of Other Benefits. Accrued Obligations shall be paid to
the Executive's estate or beneficiary, as applicable, in a lump sum in cash
within 30 days of the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall
include, without limitation, and the Executive's estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and affiliated companies to the estates and
beneficiaries of peer executives of the Company and such affiliated companies
under such plans, programs, practices and policies relating to death benefits,
if any, as in effect with respect to other peer executives and their
beneficiaries at any time during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive's estate and/or the
Executive's beneficiaries, as in effect on the date of the Executive's death
with respect to other peer executives of the Company and its affiliated
companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by reason of the
Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive in a lump sum in cash
within 30 days of the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 6(c) shall
include, and the Executive shall be entitled after the Disability Effective
Date to receive, disability and other benefits at least equal to the most
favorable of those generally provided by the Company and its affiliated
companies to disabled executives and/or their families in accordance with such
plans, programs, practices and policies relating to disability, if any, as in
effect generally with respect to other peer executives and their families at
any time during the 90-day period immediately preceding the Effective Date or,
if more favorable to the Executive and/or the Executive's family, as in effect
at any time thereafter generally with respect to other peer executives of the
Company and its affiliated companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's employment shall be
terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligations to the Executive other than the
obligation to pay to the Executive (x) the Annual Base Salary through the Date
of Termination, (y) the amount of any compensation previously deferred by the
Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the
Employment Period, excluding a termination for Good Reason, this Agreement
shall terminate without further obligations to the Executive, other than for
Accrued Obligations and the timely payment or provision of Other Benefits. In
such case, all Accrued Obligations shall be paid to the Executive in a lump
sum in cash within 30 days of the Date of Termination.
(e) Other Retirement Benefits. Notwithstanding anything herein to the
contrary, if the Executive's Date of Termination occurs prior to Executive
vesting in the Company account of the Company's Incentive Savings Plan (the
"ISP"), the balance forfeited in the ISP shall be added to the Executive's
account in the Executive's Deferred Compensation Plan and paid out under the
terms of such plan. In the event the Executive's benefit under the SERP is
reduced, in accordance with Sections 2.14, 4.04 and/or 5.01 of the SERP, by an
amount equal to retirement income from sources that are not related to the
Executive's employment with the Company, the Company shall pay the amount of
such reduction to the Executive pursuant to this Section 6(e) in the manner
and form in which the SERP payments are made.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
and for which the Executive may qualify, nor, subject to Section 12(f), shall
anything herein limit or otherwise affect such rights as the Executive may
have under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan, policy, practice or program of
or any contract or agreement with the Company or any of its affiliated
companies at or subsequent to the Date of Termination shall be payable in
accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
8. Full Settlement; Legal Fees. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any setoff, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this Agreement and
except as specifically provided in Section 6(a)(ii), such amounts shall not be
reduced whether or not the Executive obtains other employment. The Company
agrees to pay as incurred, to the full extent permitted by law, all legal fees
and expenses which the Executive may reasonably incur as a result of any
contest (regardless of the outcome thereof) by the Company, the Executive or
others of the validity or enforceability of, or liability or entitlement
under, any provision of this Agreement or any guarantee of performance thereof
(whether such contest is between the Company and the Executive or between
either of them and any third party, and including as a result of any contest
by the Executive about the amount of any payment pursuant to this Agreement),
plus in each case interest on any delayed payment at the applicable Federal
rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of
1986, as amended (the "Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding, in the event
it shall be determined that any payment, award, benefit or distribution by the
Company (or any of its affiliated entities) or by any entity which effectuates
a Change of Control (or any of its affiliated entities) to or for the benefit
of the Executive (whether pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments required
under this Section 9) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Code or any corresponding provisions of state or local
tax laws, or any interest or penalties are incurred by the Executive with
respect to such excise tax (such excise tax, together with any such interest
and penalties, are hereinafter collectively referred to as the "Excise Tax"),
then the Executive shall be entitled to receive an additional payment (a
"Gross-Up Payment") in an amount such that after payment by the Executive of
all taxes (including any interest or penalties imposed with respect to such
taxes), including, without limitation, any income taxes (and any interest and
penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-
Up Payment, the Executive retains an amount of the Gross-Up Payment equal to
the Excise Tax imposed upon the Payments. The payment of a Gross-Up Payment
under this Section 9(a) shall not be conditioned upon the Executive's
termination of employment. Notwithstanding the foregoing provisions of this
Section 9(a), if it shall be determined that the Executive is entitled to a
Gross-Up Payment, but that the portion of the Payments that would be treated
as "parachute payments" under Section 280G of the Code does not exceed 110% of
the greatest amount (the "Safe Harbor Amount") that could be paid to the
Executive such that the receipt of Payments would not give rise to any Excise
Tax, then no Gross-Up Payment shall be made to the Executive and the amounts
payable under this Agreement shall be reduced so that the Payments, in the
aggregate, are reduced to the Safe Harbor Amount. The reduction of the
amounts payable hereunder, if applicable, shall be made by first reducing the
payments under Section 6(a)(i)(B), unless an alternative method of reduction
is elected by the Executive. For purposes of reducing the Payments to the
Safe Harbor Amount, only amounts payable under this Agreement (and no other
Payments) shall be reduced. If the reduction of the amounts payable under
this Agreement would not result in a reduction of the Payments to the Safe
Harbor Amount, no amounts payable under this Agreement shall be reduced
pursuant to this Section 9(a).
(b) Subject to the provisions of Section 9(c), all determinations required to
be made under this Section 9, including whether and when a Gross-Up Payment is
required and the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by Deloitte & Touche
LLP or such other certified public accounting firm as may be designated by the
Executive (the "Accounting Firm"), which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or
such earlier time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change of Control, the Executive shall appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Section 9, shall be paid by the Company to the Executive within five days of
the receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a
result of the uncertainty in the application of Section 4999 of the Code at
the time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the Company
should have been made ("Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company exhausts its
remedies pursuant to Section 9(c) and the Executive thereafter is required to
make a payment of any Excise Tax, the Accounting Firm shall determine the
amount of the Underpayment that has occurred and any such Underpayment shall
be promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day
period following the date on which the Executive gives such notice to the
Company (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest such
claim, the Executive shall:
(i) give the Company any information reasonably requested by the Company
relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim
by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceedings relating to such
claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 9(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with
the taxing authority in respect of such claim and may, at its sole option,
either direct the Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and the Executive agrees to
prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall advance
the amount of such payment to the Executive, on an interest-free basis and
shall indemnify and hold the Executive harmless, on an after-tax basis, from
any Excise Tax or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and further provided that any extension
of the statute of limitations relating to payment of taxes for the taxable
year of the Executive with respect to which such contested amount is claimed
to be due is limited solely to such contested amount. Furthermore, the
Company's control of the contest shall be limited to issues with respect to
which a Gross-Up Payment would be payable hereunder and the Executive shall be
entitled to settle or contest, as the case may be, any other issue raised by
the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 9(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 9(c)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 9(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall
offset, to the extent thereof, the amount of Gross-Up Payment required to be
paid.
10. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its
affiliated companies, and their respective businesses, which shall have been
obtained by the Executive during the Executive's employment by the Company or
any of its affiliated companies and which shall not be or become public
knowledge (other than by acts by the Executive or representatives of the
Executive in violation of this Agreement). After termination of the
Executive's employment with the Company, the Executive shall not, without the
prior written consent of the Company or as may otherwise be required by law or
legal process, communicate or divulge any such information, knowledge or data
to anyone other than the Company and those designated by it. In no event
shall an asserted violation of the provisions of this Section 10 constitute a
basis for deferring or withholding any amounts otherwise payable to the
Executive under this Agreement.
11. Successors. (a) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law, or
otherwise.
12. Miscellaneous. (a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Utah, without reference to principles
of conflict of laws. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
Brad D. Hardy
First Security Corporation
79 South Main Street, 2nd Fl.
Salt Lake City, Utah 84111
If to the Company:
First Security Corporation
79 South Main Street, 2nd Fl.
Salt Lake City, Utah 84111
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
(d) The Company may withhold from any amounts payable under this Agreement
such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict compliance
with any provision hereof or any other provision of this Agreement or the
failure to assert any right the Executive or the Company may have hereunder,
including, without limitation, the right of the Executive to terminate
employment for Good Reason pursuant to Section 5(c)(i)-(v) of this Agreement,
shall not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement.
(f) The Executive and the Company acknowledge that, except as may otherwise be
provided under any other written agreement between the Executive and the
Company, the employment of the Executive by the Company is "at will" and,
prior to the Effective Date, the Executive's employment may be terminated by
either the Executive or the Company at any time prior to the Effective Date,
in which case the Executive shall have no further rights under this Agreement.
From and after the Effective Date this Agreement shall supersede any other
agreement between the parties with respect to the subject matter hereof,
including, without limitation, the right of the Executive to participate in
any severance plan of the Company or otherwise receive severance benefits from
the Company during the Employment Period.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused this Agreement to be executed in its name on its behalf, all as of the
day and year first above written.
/s/ Brad D. Hardy
Brad D. Hardy
FIRST SECURITY CORPORATION
By:
/s/ Morgan J. Evans
President
CHANGE OF CONTROL
EMPLOYMENT AGREEMENT
AGREEMENT by and between First Security Corporation, a Utah corporation (the
"Company"), and Mark D. Howell (the "Executive"), dated as of the 2nd day of
February, 1998.
The Board of Directors of the Company (the "Board"), has determined that it is
in the best interests of the Company and its shareholders to assure that the
Company will have the continued dedication of the Executive, notwithstanding
the possibility, threat or occurrence of a Change of Control (as defined
below) of the Company. The Board believes it is imperative to diminish the
inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control
and to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of
other corporations. Therefore, in order to accomplish these objectives, the
Board has caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall mean the first date
during the Change of Control Period (as defined in Section 1(b)) on which a
Change of Control (as defined in Section 2) occurs. Anything in this
Agreement to the contrary notwithstanding, if a Change of Control occurs and
if the Executive's employment with the Company is terminated prior to the date
on which the Change of Control occurs, and if it is reasonably demonstrated by
the Executive that such termination of employment (i) was at the request of a
third party who has taken steps reasonably calculated to effect a Change of
Control or (ii) otherwise arose in connection with or anticipation of a Change
of Control, then for all purposes of this Agreement the "Effective Date" shall
mean the date immediately prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing on the
date hereof and ending on the third anniversary of the date hereof; provided,
however, that commencing on the date one year after the date hereof, and on
each annual anniversary of such date (such date and each annual anniversary
thereof shall be hereinafter referred to as the "Renewal Date"), unless
previously terminated, the Change of Control Period shall be automatically
extended so as to terminate three years from such Renewal Date, unless at
least 60 days prior to the Renewal Date the Company shall give notice to the
Executive that the Change of Control Period shall not be so extended.
2. Change of Control. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally
in the election of directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (iv)
any acquisition pursuant to a transaction which complies with clauses (i),
(ii) and (iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of
the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with respect to
the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; or
(c) Consummation by the Company of a reorganization, merger or consolidation
or sale or other disposition of all or substantially all of the assets of the
Company or the acquisition of assets of another entity (a "Business
Combination"), in each case, unless, following such Business Combination, (i)
all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 60% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or
more subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, as the case may be,
(ii) no Person (excluding any employee benefit plan (or related trust) of the
Company or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or more of, respectively, the
then outstanding shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then outstanding
voting securities of such corporation except to the extent that such ownership
existed prior to the Business Combination and (iii) at least a majority of the
members of the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board, providing
for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete liquidation or
dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue the Executive in
its employ, and the Executive hereby agrees to remain in the employ of the
Company subject to the terms and conditions of this Agreement, for the period
commencing on the Effective Date and ending on the third anniversary of such
date (the "Employment Period").
4. Terms of Employment. (a) Position and Duties. (i) During the Employment
Period, (A) the Executive's position (including status, offices, titles and
reporting requirements), authority, duties and responsibilities shall be at
least commensurate in all material respects with the most significant of those
held, exercised and assigned to the Executive at any time during the 90-day
period immediately preceding the Effective Date and (B) the Executive's
services shall be performed at the location where the Executive was employed
immediately preceding the Effective Date or any office or location less than
35 miles from such location.
(ii) During the Employment Period, and excluding any periods of vacation and
sick leave to which the Executive is entitled, the Executive agrees to devote
reasonable attention and time during normal business hours to the business and
affairs of the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or
charitable boards or committees, (B) deliver lectures, fulfill speaking
engagements or teach at educational institutions and (C) manage personal
investments, so long as such activities do not significantly interfere with
the performance of the Executive's responsibilities as an employee of the
Company in accordance with this Agreement. It is expressly understood and
agreed that to the extent that any such activities have been conducted by the
Executive prior to the Effective Date, the continued conduct of such
activities (or the conduct of activities similar in nature and scope thereto)
subsequent to the Effective Date shall not thereafter be deemed to interfere
with the performance of the Executive's responsibilities to the Company.
(b) Compensation. (i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to twelve times the highest
monthly base salary paid or payable, including any base salary which has been
earned but deferred, to the Executive by the Company and its affiliated
companies in respect of the 12-month period immediately preceding the month in
which the Effective Date occurs. During the Employment Period, the Annual
Base Salary shall be reviewed no more than 12 months after the last salary
increase awarded to the Executive prior to the Effective Date and thereafter
at least annually. Any increase in Annual Base Salary shall not serve to
limit or reduce any other obligation to the Executive under this Agreement.
Annual Base Salary shall not be reduced after any such increase and the term
Annual Base Salary as utilized in this Agreement shall refer to Annual Base
Salary as so increased. As used in this Agreement, the term "affiliated
companies" shall include any company controlled by, controlling or under
common control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary, the Executive shall be
awarded, for each fiscal year ending during the Employment Period, an annual
bonus (the "Annual Bonus") in cash at least equal to the Executive's highest
bonus under the Company's annual incentive plans for the last three fiscal
years prior to the Effective Date (annualized in the event that the Executive
was not employed by the Company for the whole of such fiscal year) (the
"Recent Annual Bonus"). Each such Annual Bonus shall be paid no later than
the end of the third month of the fiscal year next following the fiscal year
for which the Annual Bonus is awarded, unless the Executive shall elect to
defer the receipt of such Annual Bonus.
(iii) Incentive, Savings and Retirement Plans. During the Employment Period,
the Executive shall be entitled to participate in all incentive, savings and
retirement plans, practices, policies and programs applicable generally to
other peer executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with incentive opportunities (measured with respect to both regular and
special incentive opportunities, to the extent, if any, that such distinction
is applicable), savings opportunities and retirement benefit opportunities, in
each case, less favorable, in the aggregate, than the most favorable of those
provided by the Company and its affiliated companies for the Executive under
such plans, practices, policies and programs as in effect at any time during
the 90-day period immediately preceding the Effective Date or if more
favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies.
(iv) Welfare Benefit Plans. During the Employment Period, the Executive
and/or the Executive's family, as the case may be, shall be eligible for
participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life, accidental death
and travel accident insurance plans and programs) to the extent applicable
generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with benefits which are less favorable, in the
aggregate, than the most favorable of such plans, practices, policies and
programs in effect for the Executive at any time during the 90-day period
immediately preceding the Effective Date or, if more favorable to the
Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.
(v) Expenses. During the Employment Period, the Executive shall be entitled
to receive prompt reimbursement for all reasonable expenses incurred by the
Executive in accordance with the most favorable policies, practices and
procedures of the Company and its affiliated companies in effect for the
Executive at any time during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect generally
at any time thereafter with respect to other peer executives of the Company
and its affiliated companies.
(vi) Fringe Benefits. During the Employment Period, the Executive shall be
entitled to fringe benefits, including, without limitation, tax and financial
planning services, payment of club dues, and, if applicable, use of an
automobile and payment of related expenses, in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 90-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
(vii) Office and Support Staff. During the Employment Period, the Executive
shall be entitled to an office or offices of a size and with furnishings and
other appointments, and to exclusive personal secretarial and other
assistance, at least equal to the most favorable of the foregoing provided to
the Executive by the Company and its affiliated companies at any time during
the 90-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided generally at any time thereafter with
respect to other peer executives of the Company and its affiliated companies.
(viii) Vacation. During the Employment Period, the Executive shall be
entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated companies
as in effect for the Executive at any time during the 90-day period
immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
5. Termination of Employment. (a) Death or Disability. The Executive's
employment shall terminate automatically upon the Executive's death during the
Employment Period. If the Company determines in good faith that the
Disability of the Executive has occurred during the Employment Period
(pursuant to the definition of Disability set forth below), it may give to the
Executive written notice in accordance with Section 12(b) of this Agreement of
its intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties.
For purposes of this Agreement, "Disability" shall mean the absence of the
Executive from the Executive's duties with the Company on a full-time basis
for 180 consecutive business days as a result of incapacity due to mental or
physical illness which is determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to the Executive or
the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment during the
Employment Period for Cause. For purposes of this Agreement, "Cause" shall
mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its affiliates
(other than any such failure resulting from incapacity due to physical or
mental illness), after a written demand for substantial performance is
delivered to the Executive by the Board or the Chief Executive Officer of the
Company which specifically identifies the manner in which the Board or Chief
Executive Officer believes that the Executive has not substantially performed
the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board or upon the instructions of the Chief Executive
Officer or a senior officer of the Company or based upon the advice of counsel
for the Company shall be conclusively presumed to be done, or omitted to be
done, by the Executive in good faith and in the best interests of the Company.
The cessation of employment of the Executive shall not be deemed to be for
Cause unless and until there shall have been delivered to the Executive a copy
of a resolution duly adopted by the affirmative vote of not less than three-
quarters of the entire membership of the Board at a meeting of the Board
called and held for such purpose (after reasonable notice is provided to the
Executive and the Executive is given an opportunity, together with counsel, to
be heard before the Board), finding that, in the good faith opinion of the
Board, the Executive is guilty of the conduct described in subparagraph (i) or
(ii) above, and specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean:
(i) the assignment to the Executive of any duties inconsistent in any
respect with the Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as contemplated
by Section 4(a) of this Agreement, or any other action by the Company which
results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the provisions of
Section 4(b) of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any office or
location other than as provided in Section 4(a)(i)(B) hereof or the Company's
requiring the Executive to travel on Company business to a substantially
greater extent than required immediately prior to the Effective Date;
(iv) any purported termination by the Company of the Executive's employment
otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy Section 11(c) of
this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good
Reason" made by the Executive shall be conclusive. Anything in this Agreement
to the contrary notwithstanding, a termination by the Executive for any reason
during the 30-day period immediately following the first anniversary of the
Effective Date shall be deemed to be a termination for Good Reason for all
purposes of this Agreement.
(d) Notice of Termination. Any termination by the Company for Cause, or by
the Executive for Good Reason, shall be communicated by Notice of Termination
to the other party hereto given in accordance with Section 12(b) of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means a
written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination
of the Executive's employment under the provision so indicated and (iii) if
the Date of Termination (as defined below) is other than the date of receipt
of such notice, specifies the termination date (which date shall be not more
than thirty days after the giving of such notice). The failure by the
Executive or the Company to set forth in the Notice of Termination any fact or
circumstance which contributes to a showing of Good Reason or Cause shall not
waive any right of the Executive or the Company, respectively, hereunder or
preclude the Executive or the Company, respectively, from asserting such fact
or circumstance in enforcing the Executive's or the Company's rights
hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the Executive's
employment is terminated by the Company for Cause, or by the Executive for
Good Reason, the date of receipt of the Notice of Termination or any later
date specified therein, as the case may be, (ii) if the Executive's employment
is terminated by the Company other than for Cause or Disability, the date on
which the Company notifies the Executive of such termination and (iii) if the
Executive's employment is terminated by reason of death or Disability, the
date of death of the Executive or the Disability Effective Date, as the case
may be.
6. Obligations of the Company upon Termination. (a) Good Reason; Other Than
for Cause, Death or Disability. If, during the Employment Period, the Company
shall terminate the Executive's employment other than for Cause or Disability
or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash within 30
days after the Date of Termination the aggregate of the following amounts:
A. the sum of (1) the Executive's Annual Base Salary through the Date of
Termination to the extent not theretofore paid, (2) the product of (x) the
higher of (I) the Recent Annual Bonus and (II) the Annual Bonus paid or
payable, including any bonus or portion thereof which has been earned but
deferred (and annualized for any fiscal year consisting of less than twelve
full months or during which the Executive was employed for less than twelve
full months), for the most recently completed fiscal year during the
Employment Period, if any (such higher amount being referred to as the
"Highest Annual Bonus"), and (y) a fraction, the numerator of which is the
number of days in the current fiscal year through the Date of Termination, and
the denominator of which is 365 and (3) any compensation previously deferred
by the Executive (together with any accrued interest or earnings thereon) and
any accrued vacation pay, in each case to the extent not theretofore paid (the
sum of the amounts described in clauses (1), (2), and (3) shall be hereinafter
referred to as the "Accrued Obligations"); and
B. the amount equal to the product of (1) three and (2) the sum of (x) the
Executive's Annual Base Salary and (y) the Highest Annual Bonus; and
C. an amount equal to the difference between (a) the aggregate benefit under
the Company's qualified defined benefit retirement plans (collectively, the
"Retirement Plan") and any excess or supplemental defined benefit retirement
plans in which the Executive participates (collectively, the "SERP") which the
Executive would have accrued (whether or not vested) if the Executive's
employment had continued for three years following the Date of Termination
(provided, that, for purposes of determining the SERP benefit the Executive
would have accrued, (i) if the Executive had not attained "Early Retirement
Date" under the First Security Supplemental Executive Retirement Plan (after
being credited with three years of age and service), the Executive shall be
treated as if the Executive had remained employed through the Early Retirement
Date, (ii) the SERP benefit shall be calculated as if consent had been granted
under the First Security Supplemental Executive Retirement Plan and (iii)
"Early Retirement Percentages" (as defined in Section 5.02 of the First
Security Supplemental Executive Retirement Plan) will be treated as continuing
to increase at a rate of 3% per year for each year prior to age 50) and (b)
the actual vested benefit, if any, of the Executive under the Retirement Plan
and the SERP, determined as of the Date of Termination (with the foregoing
amounts to be computed on an actuarial present value basis, based on the
assumption that the Executive's compensation in each of the three years
following such termination would have been that required by Section 4(b)(i)
and Section 4(b)(ii), and using actuarial assumptions no less favorable to the
Executive than the most favorable of those in effect for purposes of computing
benefit entitlements under the Retirement Plan and the SERP at any time from
the day before the Effective Date) through the Date of Termination;
(ii) for three years following the Date of Termination, or such longer
period as may be provided by the terms of the appropriate plan, program,
practice or policy, the Company shall continue benefits to the Executive
and/or the Executive's family at least equal to those which would have been
provided to them in accordance with the plans, programs, practices and
policies described in Section 4(b)(iv) of this Agreement if the Executive's
employment had not been terminated or, if more favorable to the Executive, as
in effect generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies and their families,
provided, however, that if the Executive becomes reemployed with another
employer and is eligible to receive medical or other welfare benefits under
another employer-provided plan, the medical and other welfare benefits
described herein shall be secondary to those provided under such other plan
during such applicable period of eligibility, and for purposes of determining
eligibility (but not the time of commencement of benefits) of the Executive
for retiree benefits pursuant to such plans, practices, programs and policies,
the Executive shall be considered to have remained employed until three years
following the Date of Termination and to have retired on the last day of such
period;
(iii) the Company shall, at its sole expense as incurred, provide the
Executive with outplacement services the scope and provider of which shall be
selected by the Executive in the Executive's sole discretion; and
(iv) to the extent not theretofore paid or provided, the Company shall
timely pay or provide to the Executive any other amounts or benefits required
to be paid or provided or which the Executive is eligible to receive under any
plan, program, policy or practice or contract or agreement of the Company and
its affiliated companies (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement shall terminate
without further obligations to the Executive's legal representatives under
this Agreement, other than for payment of Accrued Obligations and the timely
payment or provision of Other Benefits. Accrued Obligations shall be paid to
the Executive's estate or beneficiary, as applicable, in a lump sum in cash
within 30 days of the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall
include, without limitation, and the Executive's estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and affiliated companies to the estates and
beneficiaries of peer executives of the Company and such affiliated companies
under such plans, programs, practices and policies relating to death benefits,
if any, as in effect with respect to other peer executives and their
beneficiaries at any time during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive's estate and/or the
Executive's beneficiaries, as in effect on the date of the Executive's death
with respect to other peer executives of the Company and its affiliated
companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by reason of the
Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive in a lump sum in cash
within 30 days of the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 6(c) shall
include, and the Executive shall be entitled after the Disability Effective
Date to receive, disability and other benefits at least equal to the most
favorable of those generally provided by the Company and its affiliated
companies to disabled executives and/or their families in accordance with such
plans, programs, practices and policies relating to disability, if any, as in
effect generally with respect to other peer executives and their families at
any time during the 90-day period immediately preceding the Effective Date or,
if more favorable to the Executive and/or the Executive's family, as in effect
at any time thereafter generally with respect to other peer executives of the
Company and its affiliated companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's employment shall be
terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligations to the Executive other than the
obligation to pay to the Executive (x) the Annual Base Salary through the Date
of Termination, (y) the amount of any compensation previously deferred by the
Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the
Employment Period, excluding a termination for Good Reason, this Agreement
shall terminate without further obligations to the Executive, other than for
Accrued Obligations and the timely payment or provision of Other Benefits. In
such case, all Accrued Obligations shall be paid to the Executive in a lump
sum in cash within 30 days of the Date of Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
and for which the Executive may qualify, nor, subject to Section 12(f), shall
anything herein limit or otherwise affect such rights as the Executive may
have under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan, policy, practice or program of
or any contract or agreement with the Company or any of its affiliated
companies at or subsequent to the Date of Termination shall be payable in
accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
8. Full Settlement; Legal Fees. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any setoff, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this Agreement and
except as specifically provided in Section 6(a)(ii), such amounts shall not be
reduced whether or not the Executive obtains other employment. The Company
agrees to pay as incurred, to the full extent permitted by law, all legal fees
and expenses which the Executive may reasonably incur as a result of any
contest (regardless of the outcome thereof) by the Company, the Executive or
others of the validity or enforceability of, or liability or entitlement
under, any provision of this Agreement or any guarantee of performance thereof
(whether such contest is between the Company and the Executive or between
either of them and any third party, and including as a result of any contest
by the Executive about the amount of any payment pursuant to this Agreement),
plus in each case interest on any delayed payment at the applicable Federal
rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of
1986, as amended (the "Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding, in the event
it shall be determined that any payment, award, benefit or distribution by the
Company (or any of its affiliated entities) or by any entity which effectuates
a Change of Control (or any of its affiliated entities) to or for the benefit
of the Executive (whether pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments required
under this Section 9) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Code or any corresponding provisions of state or local
tax laws, or any interest or penalties are incurred by the Executive with
respect to such excise tax (such excise tax, together with any such interest
and penalties, are hereinafter collectively referred to as the "Excise Tax"),
then the Executive shall be entitled to receive an additional payment (a
"Gross-Up Payment") in an amount such that after payment by the Executive of
all taxes (including any interest or penalties imposed with respect to such
taxes), including, without limitation, any income taxes (and any interest and
penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-
Up Payment, the Executive retains an amount of the Gross-Up Payment equal to
the Excise Tax imposed upon the Payments. The payment of a Gross-Up Payment
under this Section 9(a) shall not be conditioned upon the Executive's
termination of employment. Notwithstanding the foregoing provisions of this
Section 9(a), if it shall be determined that the Executive is entitled to a
Gross-Up Payment, but that the portion of the Payments that would be treated
as "parachute payments" under Section 280G of the Code does not exceed 110% of
the greatest amount (the "Safe Harbor Amount") that could be paid to the
Executive such that the receipt of Payments would not give rise to any Excise
Tax, then no Gross-Up Payment shall be made to the Executive and the amounts
payable under this Agreement shall be reduced so that the Payments, in the
aggregate, are reduced to the Safe Harbor Amount. The reduction of the
amounts payable hereunder, if applicable, shall be made by first reducing the
payments under Section 6(a)(i)(B), unless an alternative method of reduction
is elected by the Executive. For purposes of reducing the Payments to the
Safe Harbor Amount, only amounts payable under this Agreement (and no other
Payments) shall be reduced. If the reduction of the amounts payable under
this Agreement would not result in a reduction of the Payments to the Safe
Harbor Amount, no amounts payable under this Agreement shall be reduced
pursuant to this Section 9(a).
(b) Subject to the provisions of Section 9(c), all determinations required to
be made under this Section 9, including whether and when a Gross-Up Payment is
required and the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by Deloitte & Touche
LLP or such other certified public accounting firm as may be designated by the
Executive (the "Accounting Firm"), which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or
such earlier time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change of Control, the Executive shall appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Section 9, shall be paid by the Company to the Executive within five days of
the receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a
result of the uncertainty in the application of Section 4999 of the Code at
the time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the Company
should have been made ("Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company exhausts its
remedies pursuant to Section 9(c) and the Executive thereafter is required to
make a payment of any Excise Tax, the Accounting Firm shall determine the
amount of the Underpayment that has occurred and any such Underpayment shall
be promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day
period following the date on which the Executive gives such notice to the
Company (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest such
claim, the Executive shall:
(i) give the Company any information reasonably requested by the Company
relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim
by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceedings relating to such
claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 9(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with
the taxing authority in respect of such claim and may, at its sole option,
either direct the Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and the Executive agrees to
prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall advance
the amount of such payment to the Executive, on an interest-free basis and
shall indemnify and hold the Executive harmless, on an after-tax basis, from
any Excise Tax or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and further provided that any extension
of the statute of limitations relating to payment of taxes for the taxable
year of the Executive with respect to which such contested amount is claimed
to be due is limited solely to such contested amount. Furthermore, the
Company's control of the contest shall be limited to issues with respect to
which a Gross-Up Payment would be payable hereunder and the Executive shall be
entitled to settle or contest, as the case may be, any other issue raised by
the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 9(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 9(c)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 9(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall
offset, to the extent thereof, the amount of Gross-Up Payment required to be
paid.
10. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its
affiliated companies, and their respective businesses, which shall have been
obtained by the Executive during the Executive's employment by the Company or
any of its affiliated companies and which shall not be or become public
knowledge (other than by acts by the Executive or representatives of the
Executive in violation of this Agreement). After termination of the
Executive's employment with the Company, the Executive shall not, without the
prior written consent of the Company or as may otherwise be required by law or
legal process, communicate or divulge any such information, knowledge or data
to anyone other than the Company and those designated by it. In no event
shall an asserted violation of the provisions of this Section 10 constitute a
basis for deferring or withholding any amounts otherwise payable to the
Executive under this Agreement.
11. Successors. (a) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law, or
otherwise.
12. Miscellaneous. (a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Utah, without reference to principles
of conflict of laws. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
Mark D. Howell
First Security Corporation
79 South Main Street, 2nd Fl.
Salt Lake City, Utah 84111
If to the Company:
First Security Corporation
79 South Main Street, 2nd Fl.
Salt Lake City, Utah 84111
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
(d) The Company may withhold from any amounts payable under this Agreement
such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict compliance
with any provision hereof or any other provision of this Agreement or the
failure to assert any right the Executive or the Company may have hereunder,
including, without limitation, the right of the Executive to terminate
employment for Good Reason pursuant to Section 5(c)(i)-(v) of this Agreement,
shall not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement.
(f) The Executive and the Company acknowledge that, except as may otherwise be
provided under any other written agreement between the Executive and the
Company, the employment of the Executive by the Company is "at will" and,
prior to the Effective Date, the Executive's employment may be terminated by
either the Executive or the Company at any time prior to the Effective Date,
in which case the Executive shall have no further rights under this Agreement.
From and after the Effective Date this Agreement shall supersede any other
agreement between the parties with respect to the subject matter hereof,
including, without limitation, the right of the Executive to participate in
any severance plan of the Company or otherwise receive severance benefits from
the Company during the Employment Period.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused this Agreement to be executed in its name on its behalf, all as of the
day and year first above written.
/s/ Mark D. Howell
Mark D. Howell
FIRST SECURITY CORPORATION
By:
/s/ Morgan J. Evans
CHANGE OF CONTROL
EMPLOYMENT AGREEMENT
AGREEMENT by and between First Security Corporation, a Utah corporation (the
"Company"), and J. Pat McMurray (the "Executive"), dated as of 2nd day of
February, 1998.
The Board of Directors of the Company (the "Board"), has determined that it is
in the best interests of the Company and its shareholders to assure that the
Company will have the continued dedication of the Executive, notwithstanding
the possibility, threat or occurrence of a Change of Control (as defined
below) of the Company. The Board believes it is imperative to diminish the
inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control
and to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of
other corporations. Therefore, in order to accomplish these objectives, the
Board has caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall mean the first date
during the Change of Control Period (as defined in Section 1(b)) on which a
Change of Control (as defined in Section 2) occurs. Anything in this
Agreement to the contrary notwithstanding, if a Change of Control occurs and
if the Executive's employment with the Company is terminated prior to the date
on which the Change of Control occurs, and if it is reasonably demonstrated by
the Executive that such termination of employment (i) was at the request of a
third party who has taken steps reasonably calculated to effect a Change of
Control or (ii) otherwise arose in connection with or anticipation of a Change
of Control, then for all purposes of this Agreement the "Effective Date" shall
mean the date immediately prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing on the
date hereof and ending on the third anniversary of the date hereof; provided,
however, that commencing on the date one year after the date hereof, and on
each annual anniversary of such date (such date and each annual anniversary
thereof shall be hereinafter referred to as the "Renewal Date"), unless
previously terminated, the Change of Control Period shall be automatically
extended so as to terminate three years from such Renewal Date, unless at
least 60 days prior to the Renewal Date the Company shall give notice to the
Executive that the Change of Control Period shall not be so extended.
2. Change of Control. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally
in the election of directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (iv)
any acquisition pursuant to a transaction which complies with clauses (i),
(ii) and (iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of
the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with respect to
the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; or
(c) Consummation by the Company of a reorganization, merger or consolidation
or sale or other disposition of all or substantially all of the assets of the
Company or the acquisition of assets of another entity (a "Business
Combination"), in each case, unless, following such Business Combination, (i)
all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 60% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or
more subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, as the case may be,
(ii) no Person (excluding any employee benefit plan (or related trust) of the
Company or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or more of, respectively, the
then outstanding shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then outstanding
voting securities of such corporation except to the extent that such ownership
existed prior to the Business Combination and (iii) at least a majority of the
members of the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board, providing
for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete liquidation or
dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue the Executive in
its employ, and the Executive hereby agrees to remain in the employ of the
Company subject to the terms and conditions of this Agreement, for the period
commencing on the Effective Date and ending on the third anniversary of such
date (the "Employment Period").
4. Terms of Employment. (a) Position and Duties. (i) During the Employment
Period, (A) the Executive's position (including status, offices, titles and
reporting requirements), authority, duties and responsibilities shall be at
least commensurate in all material respects with the most significant of those
held, exercised and assigned to the Executive at any time during the 90-day
period immediately preceding the Effective Date and (B) the Executive's
services shall be performed at the location where the Executive was employed
immediately preceding the Effective Date or any office or location less than
35 miles from such location.
(ii) During the Employment Period, and excluding any periods of vacation and
sick leave to which the Executive is entitled, the Executive agrees to devote
reasonable attention and time during normal business hours to the business and
affairs of the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or
charitable boards or committees, (B) deliver lectures, fulfill speaking
engagements or teach at educational institutions and (C) manage personal
investments, so long as such activities do not significantly interfere with
the performance of the Executive's responsibilities as an employee of the
Company in accordance with this Agreement. It is expressly understood and
agreed that to the extent that any such activities have been conducted by the
Executive prior to the Effective Date, the continued conduct of such
activities (or the conduct of activities similar in nature and scope thereto)
subsequent to the Effective Date shall not thereafter be deemed to interfere
with the performance of the Executive's responsibilities to the Company.
(b) Compensation. (i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to twelve times the highest
monthly base salary paid or payable, including any base salary which has been
earned but deferred, to the Executive by the Company and its affiliated
companies in respect of the 12-month period immediately preceding the month in
which the Effective Date occurs. During the Employment Period, the Annual
Base Salary shall be reviewed no more than 12 months after the last salary
increase awarded to the Executive prior to the Effective Date and thereafter
at least annually. Any increase in Annual Base Salary shall not serve to
limit or reduce any other obligation to the Executive under this Agreement.
Annual Base Salary shall not be reduced after any such increase and the term
Annual Base Salary as utilized in this Agreement shall refer to Annual Base
Salary as so increased. As used in this Agreement, the term "affiliated
companies" shall include any company controlled by, controlling or under
common control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary, the Executive shall be
awarded, for each fiscal year ending during the Employment Period, an annual
bonus (the "Annual Bonus") in cash at least equal to the Executive's highest
bonus under the Company's annual incentive plans for the last three fiscal
years prior to the Effective Date (annualized in the event that the Executive
was not employed by the Company for the whole of such fiscal year) (the
"Recent Annual Bonus"). Each such Annual Bonus shall be paid no later than
the end of the third month of the fiscal year next following the fiscal year
for which the Annual Bonus is awarded, unless the Executive shall elect to
defer the receipt of such Annual Bonus.
(iii) Incentive, Savings and Retirement Plans. During the Employment Period,
the Executive shall be entitled to participate in all incentive, savings and
retirement plans, practices, policies and programs applicable generally to
other peer executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with incentive opportunities (measured with respect to both regular and
special incentive opportunities, to the extent, if any, that such distinction
is applicable), savings opportunities and retirement benefit opportunities, in
each case, less favorable, in the aggregate, than the most favorable of those
provided by the Company and its affiliated companies for the Executive under
such plans, practices, policies and programs as in effect at any time during
the 90-day period immediately preceding the Effective Date or if more
favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies.
(iv) Welfare Benefit Plans. During the Employment Period, the Executive
and/or the Executive's family, as the case may be, shall be eligible for
participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life, accidental death
and travel accident insurance plans and programs) to the extent applicable
generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with benefits which are less favorable, in the
aggregate, than the most favorable of such plans, practices, policies and
programs in effect for the Executive at any time during the 90-day period
immediately preceding the Effective Date or, if more favorable to the
Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.
(v) Expenses. During the Employment Period, the Executive shall be entitled
to receive prompt reimbursement for all reasonable expenses incurred by the
Executive in accordance with the most favorable policies, practices and
procedures of the Company and its affiliated companies in effect for the
Executive at any time during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect generally
at any time thereafter with respect to other peer executives of the Company
and its affiliated companies.
(vi) Fringe Benefits. During the Employment Period, the Executive shall be
entitled to fringe benefits, including, without limitation, tax and financial
planning services, payment of club dues, and, if applicable, use of an
automobile and payment of related expenses, in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 90-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
(vii) Office and Support Staff. During the Employment Period, the Executive
shall be entitled to an office or offices of a size and with furnishings and
other appointments, and to exclusive personal secretarial and other
assistance, at least equal to the most favorable of the foregoing provided to
the Executive by the Company and its affiliated companies at any time during
the 90-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided generally at any time thereafter with
respect to other peer executives of the Company and its affiliated companies.
(viii) Vacation. During the Employment Period, the Executive shall be
entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated companies
as in effect for the Executive at any time during the 90-day period
immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
5. Termination of Employment. (a) Death or Disability. The Executive's
employment shall terminate automatically upon the Executive's death during the
Employment Period. If the Company determines in good faith that the
Disability of the Executive has occurred during the Employment Period
(pursuant to the definition of Disability set forth below), it may give to the
Executive written notice in accordance with Section 12(b) of this Agreement of
its intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties.
For purposes of this Agreement, "Disability" shall mean the absence of the
Executive from the Executive's duties with the Company on a full-time basis
for 180 consecutive business days as a result of incapacity due to mental or
physical illness which is determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to the Executive or
the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment during the
Employment Period for Cause. For purposes of this Agreement, "Cause" shall
mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its affiliates
(other than any such failure resulting from incapacity due to physical or
mental illness), after a written demand for substantial performance is
delivered to the Executive by the Board or the Chief Executive Officer of the
Company which specifically identifies the manner in which the Board or Chief
Executive Officer believes that the Executive has not substantially performed
the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board or upon the instructions of the Chief Executive
Officer or a senior officer of the Company or based upon the advice of counsel
for the Company shall be conclusively presumed to be done, or omitted to be
done, by the Executive in good faith and in the best interests of the Company.
The cessation of employment of the Executive shall not be deemed to be for
Cause unless and until there shall have been delivered to the Executive a copy
of a resolution duly adopted by the affirmative vote of not less than three-
quarters of the entire membership of the Board at a meeting of the Board
called and held for such purpose (after reasonable notice is provided to the
Executive and the Executive is given an opportunity, together with counsel, to
be heard before the Board), finding that, in the good faith opinion of the
Board, the Executive is guilty of the conduct described in subparagraph (i) or
(ii) above, and specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean:
(i) the assignment to the Executive of any duties inconsistent in any
respect with the Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as contemplated
by Section 4(a) of this Agreement, or any other action by the Company which
results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the provisions of
Section 4(b) of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any office or
location other than as provided in Section 4(a)(i)(B) hereof or the Company's
requiring the Executive to travel on Company business to a substantially
greater extent than required immediately prior to the Effective Date;
(iv) any purported termination by the Company of the Executive's employment
otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy Section 11(c) of
this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good
Reason" made by the Executive shall be conclusive. Anything in this Agreement
to the contrary notwithstanding, a termination by the Executive for any reason
during the 30-day period immediately following the first anniversary of the
Effective Date shall be deemed to be a termination for Good Reason for all
purposes of this Agreement.
(d) Notice of Termination. Any termination by the Company for Cause, or by
the Executive for Good Reason, shall be communicated by Notice of Termination
to the other party hereto given in accordance with Section 12(b) of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means a
written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination
of the Executive's employment under the provision so indicated and (iii) if
the Date of Termination (as defined below) is other than the date of receipt
of such notice, specifies the termination date (which date shall be not more
than thirty days after the giving of such notice). The failure by the
Executive or the Company to set forth in the Notice of Termination any fact or
circumstance which contributes to a showing of Good Reason or Cause shall not
waive any right of the Executive or the Company, respectively, hereunder or
preclude the Executive or the Company, respectively, from asserting such fact
or circumstance in enforcing the Executive's or the Company's rights
hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the Executive's
employment is terminated by the Company for Cause, or by the Executive for
Good Reason, the date of receipt of the Notice of Termination or any later
date specified therein, as the case may be, (ii) if the Executive's employment
is terminated by the Company other than for Cause or Disability, the date on
which the Company notifies the Executive of such termination and (iii) if the
Executive's employment is terminated by reason of death or Disability, the
date of death of the Executive or the Disability Effective Date, as the case
may be.
6. Obligations of the Company upon Termination. (a) Good Reason; Other Than
for Cause, Death or Disability. If, during the Employment Period, the Company
shall terminate the Executive's employment other than for Cause or Disability
or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash within 30
days after the Date of Termination the aggregate of the following amounts:
A. the sum of (1) the Executive's Annual Base Salary through the Date of
Termination to the extent not theretofore paid, (2) the product of (x) the
higher of (I) the Recent Annual Bonus and (II) the Annual Bonus paid or
payable, including any bonus or portion thereof which has been earned but
deferred (and annualized for any fiscal year consisting of less than twelve
full months or during which the Executive was employed for less than twelve
full months), for the most recently completed fiscal year during the
Employment Period, if any (such higher amount being referred to as the
"Highest Annual Bonus"), and (y) a fraction, the numerator of which is the
number of days in the current fiscal year through the Date of Termination, and
the denominator of which is 365 and (3) any compensation previously deferred
by the Executive (together with any accrued interest or earnings thereon) and
any accrued vacation pay, in each case to the extent not theretofore paid (the
sum of the amounts described in clauses (1), (2), and (3) shall be hereinafter
referred to as the "Accrued Obligations"); and
B. the amount equal to the product of (1) three and (2) the sum of (x) the
Executive's Annual Base Salary and (y) the Highest Annual Bonus; and
C. an amount equal to the difference between (a) the aggregate benefit under
the Company's qualified defined benefit retirement plans (collectively, the
"Retirement Plan") and any excess or supplemental defined benefit retirement
plans in which the Executive participates (collectively, the "SERP") which the
Executive would have accrued (whether or not vested) if the Executive's
employment had continued for three years following the Date of Termination
(provided, that, for purposes of determining the SERP benefit the Executive
would have accrued, (i) if the Executive had not attained "Early Retirement
Date" under the First Security Supplemental Executive Retirement Plan (after
being credited with three years of age and service), the Executive shall be
treated as if the Executive had remained employed through the Early Retirement
Date, (ii) the SERP benefit shall be calculated as if consent had been granted
under the First Security Supplemental Executive Retirement Plan and (iii)
"Early Retirement Percentages" (as defined in Section 5.02 of the First
Security Supplemental Executive Retirement Plan) will be treated as continuing
to increase at a rate of 3% per year for each year prior to age 50) and (b)
the actual vested benefit, if any, of the Executive under the Retirement Plan
and the SERP, determined as of the Date of Termination (with the foregoing
amounts to be computed on an actuarial present value basis, based on the
assumption that the Executive's compensation in each of the three years
following such termination would have been that required by Section 4(b)(i)
and Section 4(b)(ii), and using actuarial assumptions no less favorable to the
Executive than the most favorable of those in effect for purposes of computing
benefit entitlements under the Retirement Plan and the SERP at any time from
the day before the Effective Date) through the Date of Termination;
(ii) for three years following the Date of Termination, or such longer
period as may be provided by the terms of the appropriate plan, program,
practice or policy, the Company shall continue benefits to the Executive
and/or the Executive's family at least equal to those which would have been
provided to them in accordance with the plans, programs, practices and
policies described in Section 4(b)(iv) of this Agreement if the Executive's
employment had not been terminated or, if more favorable to the Executive, as
in effect generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies and their families,
provided, however, that if the Executive becomes reemployed with another
employer and is eligible to receive medical or other welfare benefits under
another employer-provided plan, the medical and other welfare benefits
described herein shall be secondary to those provided under such other plan
during such applicable period of eligibility, and for purposes of determining
eligibility (but not the time of commencement of benefits) of the Executive
for retiree benefits pursuant to such plans, practices, programs and policies,
the Executive shall be considered to have remained employed until three years
following the Date of Termination and to have retired on the last day of such
period;
(iii) the Company shall, at its sole expense as incurred, provide the
Executive with outplacement services the scope and provider of which shall be
selected by the Executive in the Executive's sole discretion; and
(iv) to the extent not theretofore paid or provided, the Company shall
timely pay or provide to the Executive any other amounts or benefits required
to be paid or provided or which the Executive is eligible to receive under any
plan, program, policy or practice or contract or agreement of the Company and
its affiliated companies (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement shall terminate
without further obligations to the Executive's legal representatives under
this Agreement, other than for payment of Accrued Obligations and the timely
payment or provision of Other Benefits. Accrued Obligations shall be paid to
the Executive's estate or beneficiary, as applicable, in a lump sum in cash
within 30 days of the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall
include, without limitation, and the Executive's estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and affiliated companies to the estates and
beneficiaries of peer executives of the Company and such affiliated companies
under such plans, programs, practices and policies relating to death benefits,
if any, as in effect with respect to other peer executives and their
beneficiaries at any time during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive's estate and/or the
Executive's beneficiaries, as in effect on the date of the Executive's death
with respect to other peer executives of the Company and its affiliated
companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by reason of the
Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive in a lump sum in cash
within 30 days of the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 6(c) shall
include, and the Executive shall be entitled after the Disability Effective
Date to receive, disability and other benefits at least equal to the most
favorable of those generally provided by the Company and its affiliated
companies to disabled executives and/or their families in accordance with such
plans, programs, practices and policies relating to disability, if any, as in
effect generally with respect to other peer executives and their families at
any time during the 90-day period immediately preceding the Effective Date or,
if more favorable to the Executive and/or the Executive's family, as in effect
at any time thereafter generally with respect to other peer executives of the
Company and its affiliated companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's employment shall be
terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligations to the Executive other than the
obligation to pay to the Executive (x) the Annual Base Salary through the Date
of Termination, (y) the amount of any compensation previously deferred by the
Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the
Employment Period, excluding a termination for Good Reason, this Agreement
shall terminate without further obligations to the Executive, other than for
Accrued Obligations and the timely payment or provision of Other Benefits. In
such case, all Accrued Obligations shall be paid to the Executive in a lump
sum in cash within 30 days of the Date of Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
and for which the Executive may qualify, nor, subject to Section 12(f), shall
anything herein limit or otherwise affect such rights as the Executive may
have under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan, policy, practice or program of
or any contract or agreement with the Company or any of its affiliated
companies at or subsequent to the Date of Termination shall be payable in
accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
8. Full Settlement; Legal Fees. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any setoff, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this Agreement and
except as specifically provided in Section 6(a)(ii), such amounts shall not be
reduced whether or not the Executive obtains other employment. The Company
agrees to pay as incurred, to the full extent permitted by law, all legal fees
and expenses which the Executive may reasonably incur as a result of any
contest (regardless of the outcome thereof) by the Company, the Executive or
others of the validity or enforceability of, or liability or entitlement
under, any provision of this Agreement or any guarantee of performance thereof
(whether such contest is between the Company and the Executive or between
either of them and any third party, and including as a result of any contest
by the Executive about the amount of any payment pursuant to this Agreement),
plus in each case interest on any delayed payment at the applicable Federal
rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of
1986, as amended (the "Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding, in the event
it shall be determined that any payment, award, benefit or distribution by the
Company (or any of its affiliated entities) or by any entity which effectuates
a Change of Control (or any of its affiliated entities) to or for the benefit
of the Executive (whether pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments required
under this Section 9) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Code or any corresponding provisions of state or local
tax laws, or any interest or penalties are incurred by the Executive with
respect to such excise tax (such excise tax, together with any such interest
and penalties, are hereinafter collectively referred to as the "Excise Tax"),
then the Executive shall be entitled to receive an additional payment (a
"Gross-Up Payment") in an amount such that after payment by the Executive of
all taxes (including any interest or penalties imposed with respect to such
taxes), including, without limitation, any income taxes (and any interest and
penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-
Up Payment, the Executive retains an amount of the Gross-Up Payment equal to
the Excise Tax imposed upon the Payments. The payment of a Gross-Up Payment
under this Section 9(a) shall not be conditioned upon the Executive's
termination of employment. Notwithstanding the foregoing provisions of this
Section 9(a), if it shall be determined that the Executive is entitled to a
Gross-Up Payment, but that the portion of the Payments that would be treated
as "parachute payments" under Section 280G of the Code does not exceed 110% of
the greatest amount (the "Safe Harbor Amount") that could be paid to the
Executive such that the receipt of Payments would not give rise to any Excise
Tax, then no Gross-Up Payment shall be made to the Executive and the amounts
payable under this Agreement shall be reduced so that the Payments, in the
aggregate, are reduced to the Safe Harbor Amount. The reduction of the
amounts payable hereunder, if applicable, shall be made by first reducing the
payments under Section 6(a)(i)(B), unless an alternative method of reduction
is elected by the Executive. For purposes of reducing the Payments to the
Safe Harbor Amount, only amounts payable under this Agreement (and no other
Payments) shall be reduced. If the reduction of the amounts payable under
this Agreement would not result in a reduction of the Payments to the Safe
Harbor Amount, no amounts payable under this Agreement shall be reduced
pursuant to this Section 9(a).
(b) Subject to the provisions of Section 9(c), all determinations required to
be made under this Section 9, including whether and when a Gross-Up Payment is
required and the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by Deloitte & Touche
LLP or such other certified public accounting firm as may be designated by the
Executive (the "Accounting Firm"), which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or
such earlier time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change of Control, the Executive shall appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Section 9, shall be paid by the Company to the Executive within five days of
the receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a
result of the uncertainty in the application of Section 4999 of the Code at
the time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the Company
should have been made ("Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company exhausts its
remedies pursuant to Section 9(c) and the Executive thereafter is required to
make a payment of any Excise Tax, the Accounting Firm shall determine the
amount of the Underpayment that has occurred and any such Underpayment shall
be promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day
period following the date on which the Executive gives such notice to the
Company (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest such
claim, the Executive shall:
(i) give the Company any information reasonably requested by the Company
relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim
by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceedings relating to such
claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 9(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with
the taxing authority in respect of such claim and may, at its sole option,
either direct the Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and the Executive agrees to
prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall advance
the amount of such payment to the Executive, on an interest-free basis and
shall indemnify and hold the Executive harmless, on an after-tax basis, from
any Excise Tax or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and further provided that any extension
of the statute of limitations relating to payment of taxes for the taxable
year of the Executive with respect to which such contested amount is claimed
to be due is limited solely to such contested amount. Furthermore, the
Company's control of the contest shall be limited to issues with respect to
which a Gross-Up Payment would be payable hereunder and the Executive shall be
entitled to settle or contest, as the case may be, any other issue raised by
the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 9(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 9(c)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 9(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall
offset, to the extent thereof, the amount of Gross-Up Payment required to be
paid.
10. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its
affiliated companies, and their respective businesses, which shall have been
obtained by the Executive during the Executive's employment by the Company or
any of its affiliated companies and which shall not be or become public
knowledge (other than by acts by the Executive or representatives of the
Executive in violation of this Agreement). After termination of the
Executive's employment with the Company, the Executive shall not, without the
prior written consent of the Company or as may otherwise be required by law or
legal process, communicate or divulge any such information, knowledge or data
to anyone other than the Company and those designated by it. In no event
shall an asserted violation of the provisions of this Section 10 constitute a
basis for deferring or withholding any amounts otherwise payable to the
Executive under this Agreement.
11. Successors. (a) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law, or
otherwise.
12. Miscellaneous. (a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Utah, without reference to principles
of conflict of laws. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
J. Pat McMurray
First Security Corporation
79 South Main Street, 2nd Fl.
Salt Lake City, Utah 84111
If to the Company:
First Security Corporation
79 South Main Street, 2nd Fl.
Salt Lake City, Utah 84111
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
(d) The Company may withhold from any amounts payable under this Agreement
such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict compliance
with any provision hereof or any other provision of this Agreement or the
failure to assert any right the Executive or the Company may have hereunder,
including, without limitation, the right of the Executive to terminate
employment for Good Reason pursuant to Section 5(c)(i)-(v) of this Agreement,
shall not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement.
(f) The Executive and the Company acknowledge that, except as may otherwise be
provided under any other written agreement between the Executive and the
Company, the employment of the Executive by the Company is "at will" and,
prior to the Effective Date, the Executive's employment may be terminated by
either the Executive or the Company at any time prior to the Effective Date,
in which case the Executive shall have no further rights under this Agreement.
From and after the Effective Date this Agreement shall supersede any other
agreement between the parties with respect to the subject matter hereof,
including, without limitation, the right of the Executive to participate in
any severance plan of the Company or otherwise receive severance benefits from
the Company during the Employment Period.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused this Agreement to be executed in its name on its behalf, all as of the
day and year first above written.
/s/ J. Pat McMurray
J. Pat McMurray
FIRST SECURITY CORPORATION
By:
/s/ Morgan J. Evans
CHANGE OF CONTROL
EMPLOYMENT AGREEMENT
AGREEMENT by and between First Security Corporation, a Utah corporation (the
"Company"), and Scott Nelson (the "Executive"), dated as of the 2nd day
February, 1998.
The Board of Directors of the Company (the "Board"), has determined that it is
in the best interests of the Company and its shareholders to assure that the
Company will have the continued dedication of the Executive, notwithstanding
the possibility, threat or occurrence of a Change of Control (as defined
below) of the Company. The Board believes it is imperative to diminish the
inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control
and to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of
other corporations. Therefore, in order to accomplish these objectives, the
Board has caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall mean the first date
during the Change of Control Period (as defined in Section 1(b)) on which a
Change of Control (as defined in Section 2) occurs. Anything in this
Agreement to the contrary notwithstanding, if a Change of Control occurs and
if the Executive's employment with the Company is terminated prior to the date
on which the Change of Control occurs, and if it is reasonably demonstrated by
the Executive that such termination of employment (i) was at the request of a
third party who has taken steps reasonably calculated to effect a Change of
Control or (ii) otherwise arose in connection with or anticipation of a Change
of Control, then for all purposes of this Agreement the "Effective Date" shall
mean the date immediately prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing on the
date hereof and ending on the third anniversary of the date hereof; provided,
however, that commencing on the date one year after the date hereof, and on
each annual anniversary of such date (such date and each annual anniversary
thereof shall be hereinafter referred to as the "Renewal Date"), unless
previously terminated, the Change of Control Period shall be automatically
extended so as to terminate three years from such Renewal Date, unless at
least 60 days prior to the Renewal Date the Company shall give notice to the
Executive that the Change of Control Period shall not be so extended.
2. Change of Control. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally
in the election of directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (iv)
any acquisition pursuant to a transaction which complies with clauses (i),
(ii) and (iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of
the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with respect to
the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; or
(c) Consummation by the Company of a reorganization, merger or consolidation
or sale or other disposition of all or substantially all of the assets of the
Company or the acquisition of assets of another entity (a "Business
Combination"), in each case, unless, following such Business Combination, (i)
all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 60% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or
more subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, as the case may be,
(ii) no Person (excluding any employee benefit plan (or related trust) of the
Company or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or more of, respectively, the
then outstanding shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then outstanding
voting securities of such corporation except to the extent that such ownership
existed prior to the Business Combination and (iii) at least a majority of the
members of the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board, providing
for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete liquidation or
dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue the Executive in
its employ, and the Executive hereby agrees to remain in the employ of the
Company subject to the terms and conditions of this Agreement, for the period
commencing on the Effective Date and ending on the third anniversary of such
date (the "Employment Period").
4. Terms of Employment. (a) Position and Duties. (i) During the Employment
Period, (A) the Executive's position (including status, offices, titles and
reporting requirements), authority, duties and responsibilities shall be at
least commensurate in all material respects with the most significant of those
held, exercised and assigned to the Executive at any time during the 90-day
period immediately preceding the Effective Date and (B) the Executive's
services shall be performed at the location where the Executive was employed
immediately preceding the Effective Date or any office or location less than
35 miles from such location.
(ii) During the Employment Period, and excluding any periods of vacation and
sick leave to which the Executive is entitled, the Executive agrees to devote
reasonable attention and time during normal business hours to the business and
affairs of the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or
charitable boards or committees, (B) deliver lectures, fulfill speaking
engagements or teach at educational institutions and (C) manage personal
investments, so long as such activities do not significantly interfere with
the performance of the Executive's responsibilities as an employee of the
Company in accordance with this Agreement. It is expressly understood and
agreed that to the extent that any such activities have been conducted by the
Executive prior to the Effective Date, the continued conduct of such
activities (or the conduct of activities similar in nature and scope thereto)
subsequent to the Effective Date shall not thereafter be deemed to interfere
with the performance of the Executive's responsibilities to the Company.
(b) Compensation. (i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to twelve times the highest
monthly base salary paid or payable, including any base salary which has been
earned but deferred, to the Executive by the Company and its affiliated
companies in respect of the 12-month period immediately preceding the month in
which the Effective Date occurs. During the Employment Period, the Annual
Base Salary shall be reviewed no more than 12 months after the last salary
increase awarded to the Executive prior to the Effective Date and thereafter
at least annually. Any increase in Annual Base Salary shall not serve to
limit or reduce any other obligation to the Executive under this Agreement.
Annual Base Salary shall not be reduced after any such increase and the term
Annual Base Salary as utilized in this Agreement shall refer to Annual Base
Salary as so increased. As used in this Agreement, the term "affiliated
companies" shall include any company controlled by, controlling or under
common control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary, the Executive shall be
awarded, for each fiscal year ending during the Employment Period, an annual
bonus (the "Annual Bonus") in cash at least equal to the Executive's highest
bonus under the Company's annual incentive plans for the last three fiscal
years prior to the Effective Date (annualized in the event that the Executive
was not employed by the Company for the whole of such fiscal year) (the
"Recent Annual Bonus"). Each such Annual Bonus shall be paid no later than
the end of the third month of the fiscal year next following the fiscal year
for which the Annual Bonus is awarded, unless the Executive shall elect to
defer the receipt of such Annual Bonus.
(iii) Incentive, Savings and Retirement Plans. During the Employment Period,
the Executive shall be entitled to participate in all incentive, savings and
retirement plans, practices, policies and programs applicable generally to
other peer executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with incentive opportunities (measured with respect to both regular and
special incentive opportunities, to the extent, if any, that such distinction
is applicable), savings opportunities and retirement benefit opportunities, in
each case, less favorable, in the aggregate, than the most favorable of those
provided by the Company and its affiliated companies for the Executive under
such plans, practices, policies and programs as in effect at any time during
the 90-day period immediately preceding the Effective Date or if more
favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies.
(iv) Welfare Benefit Plans. During the Employment Period, the Executive
and/or the Executive's family, as the case may be, shall be eligible for
participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life, accidental death
and travel accident insurance plans and programs) to the extent applicable
generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with benefits which are less favorable, in the
aggregate, than the most favorable of such plans, practices, policies and
programs in effect for the Executive at any time during the 90-day period
immediately preceding the Effective Date or, if more favorable to the
Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.
(v) Expenses. During the Employment Period, the Executive shall be entitled
to receive prompt reimbursement for all reasonable expenses incurred by the
Executive in accordance with the most favorable policies, practices and
procedures of the Company and its affiliated companies in effect for the
Executive at any time during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect generally
at any time thereafter with respect to other peer executives of the Company
and its affiliated companies.
(vi) Fringe Benefits. During the Employment Period, the Executive shall be
entitled to fringe benefits, including, without limitation, tax and financial
planning services, payment of club dues, and, if applicable, use of an
automobile and payment of related expenses, in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 90-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
(vii) Office and Support Staff. During the Employment Period, the Executive
shall be entitled to an office or offices of a size and with furnishings and
other appointments, and to exclusive personal secretarial and other
assistance, at least equal to the most favorable of the foregoing provided to
the Executive by the Company and its affiliated companies at any time during
the 90-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided generally at any time thereafter with
respect to other peer executives of the Company and its affiliated companies.
(viii) Vacation. During the Employment Period, the Executive shall be
entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated companies
as in effect for the Executive at any time during the 90-day period
immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
5. Termination of Employment. (a) Death or Disability. The Executive's
employment shall terminate automatically upon the Executive's death during the
Employment Period. If the Company determines in good faith that the
Disability of the Executive has occurred during the Employment Period
(pursuant to the definition of Disability set forth below), it may give to the
Executive written notice in accordance with Section 12(b) of this Agreement of
its intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties.
For purposes of this Agreement, "Disability" shall mean the absence of the
Executive from the Executive's duties with the Company on a full-time basis
for 180 consecutive business days as a result of incapacity due to mental or
physical illness which is determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to the Executive or
the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment during the
Employment Period for Cause. For purposes of this Agreement, "Cause" shall
mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its affiliates
(other than any such failure resulting from incapacity due to physical or
mental illness), after a written demand for substantial performance is
delivered to the Executive by the Board or the Chief Executive Officer of the
Company which specifically identifies the manner in which the Board or Chief
Executive Officer believes that the Executive has not substantially performed
the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board or upon the instructions of the Chief Executive
Officer or a senior officer of the Company or based upon the advice of counsel
for the Company shall be conclusively presumed to be done, or omitted to be
done, by the Executive in good faith and in the best interests of the Company.
The cessation of employment of the Executive shall not be deemed to be for
Cause unless and until there shall have been delivered to the Executive a copy
of a resolution duly adopted by the affirmative vote of not less than three-
quarters of the entire membership of the Board at a meeting of the Board
called and held for such purpose (after reasonable notice is provided to the
Executive and the Executive is given an opportunity, together with counsel, to
be heard before the Board), finding that, in the good faith opinion of the
Board, the Executive is guilty of the conduct described in subparagraph (i) or
(ii) above, and specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean:
(i) the assignment to the Executive of any duties inconsistent in any
respect with the Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as contemplated
by Section 4(a) of this Agreement, or any other action by the Company which
results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the provisions of
Section 4(b) of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any office or
location other than as provided in Section 4(a)(i)(B) hereof or the Company's
requiring the Executive to travel on Company business to a substantially
greater extent than required immediately prior to the Effective Date;
(iv) any purported termination by the Company of the Executive's employment
otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy Section 11(c) of
this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good
Reason" made by the Executive shall be conclusive. Anything in this Agreement
to the contrary notwithstanding, a termination by the Executive for any reason
during the 30-day period immediately following the first anniversary of the
Effective Date shall be deemed to be a termination for Good Reason for all
purposes of this Agreement.
(d) Notice of Termination. Any termination by the Company for Cause, or by
the Executive for Good Reason, shall be communicated by Notice of Termination
to the other party hereto given in accordance with Section 12(b) of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means a
written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination
of the Executive's employment under the provision so indicated and (iii) if
the Date of Termination (as defined below) is other than the date of receipt
of such notice, specifies the termination date (which date shall be not more
than thirty days after the giving of such notice). The failure by the
Executive or the Company to set forth in the Notice of Termination any fact or
circumstance which contributes to a showing of Good Reason or Cause shall not
waive any right of the Executive or the Company, respectively, hereunder or
preclude the Executive or the Company, respectively, from asserting such fact
or circumstance in enforcing the Executive's or the Company's rights
hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the Executive's
employment is terminated by the Company for Cause, or by the Executive for
Good Reason, the date of receipt of the Notice of Termination or any later
date specified therein, as the case may be, (ii) if the Executive's employment
is terminated by the Company other than for Cause or Disability, the date on
which the Company notifies the Executive of such termination and (iii) if the
Executive's employment is terminated by reason of death or Disability, the
date of death of the Executive or the Disability Effective Date, as the case
may be.
6. Obligations of the Company upon Termination. (a) Good Reason; Other Than
for Cause, Death or Disability. If, during the Employment Period, the Company
shall terminate the Executive's employment other than for Cause or Disability
or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash within 30
days after the Date of Termination the aggregate of the following amounts:
A. the sum of (1) the Executive's Annual Base Salary through the Date of
Termination to the extent not theretofore paid, (2) the product of (x) the
higher of (I) the Recent Annual Bonus and (II) the Annual Bonus paid or
payable, including any bonus or portion thereof which has been earned but
deferred (and annualized for any fiscal year consisting of less than twelve
full months or during which the Executive was employed for less than twelve
full months), for the most recently completed fiscal year during the
Employment Period, if any (such higher amount being referred to as the
"Highest Annual Bonus"), and (y) a fraction, the numerator of which is the
number of days in the current fiscal year through the Date of Termination, and
the denominator of which is 365 and (3) any compensation previously deferred
by the Executive (together with any accrued interest or earnings thereon) and
any accrued vacation pay, in each case to the extent not theretofore paid (the
sum of the amounts described in clauses (1), (2), and (3) shall be hereinafter
referred to as the "Accrued Obligations"); and
B. the amount equal to the product of (1) three and (2) the sum of (x) the
Executive's Annual Base Salary and (y) the Highest Annual Bonus; and
C. an amount equal to the difference between (a) the aggregate benefit under
the Company's qualified defined benefit retirement plans (collectively, the
"Retirement Plan") and any excess or supplemental defined benefit retirement
plans in which the Executive participates (collectively, the "SERP") which the
Executive would have accrued (whether or not vested) if the Executive's
employment had continued for three years following the Date of Termination
(provided, that, for purposes of determining the SERP benefit the Executive
would have accrued, (i) if the Executive had not attained "Early Retirement
Date" under the First Security Supplemental Executive Retirement Plan (after
being credited with three years of age and service), the Executive shall be
treated as if the Executive had remained employed through the Early Retirement
Date, (ii) the SERP benefit shall be calculated as if consent had been granted
under the First Security Supplemental Executive Retirement Plan and (iii)
"Early Retirement Percentages" (as defined in Section 5.02 of the First
Security Supplemental Executive Retirement Plan) will be treated as continuing
to increase at a rate of 3% per year for each year prior to age 50) and (b)
the actual vested benefit, if any, of the Executive under the Retirement Plan
and the SERP, determined as of the Date of Termination (with the foregoing
amounts to be computed on an actuarial present value basis, based on the
assumption that the Executive's compensation in each of the three years
following such termination would have been that required by Section 4(b)(i)
and Section 4(b)(ii), and using actuarial assumptions no less favorable to the
Executive than the most favorable of those in effect for purposes of computing
benefit entitlements under the Retirement Plan and the SERP at any time from
the day before the Effective Date) through the Date of Termination;
(ii) for three years following the Date of Termination, or such longer
period as may be provided by the terms of the appropriate plan, program,
practice or policy, the Company shall continue benefits to the Executive
and/or the Executive's family at least equal to those which would have been
provided to them in accordance with the plans, programs, practices and
policies described in Section 4(b)(iv) of this Agreement if the Executive's
employment had not been terminated or, if more favorable to the Executive, as
in effect generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies and their families,
provided, however, that if the Executive becomes reemployed with another
employer and is eligible to receive medical or other welfare benefits under
another employer-provided plan, the medical and other welfare benefits
described herein shall be secondary to those provided under such other plan
during such applicable period of eligibility, and for purposes of determining
eligibility (but not the time of commencement of benefits) of the Executive
for retiree benefits pursuant to such plans, practices, programs and policies,
the Executive shall be considered to have remained employed until three years
following the Date of Termination and to have retired on the last day of such
period;
(iii) the Company shall, at its sole expense as incurred, provide the
Executive with outplacement services the scope and provider of which shall be
selected by the Executive in the Executive's sole discretion; and
(iv) to the extent not theretofore paid or provided, the Company shall
timely pay or provide to the Executive any other amounts or benefits required
to be paid or provided or which the Executive is eligible to receive under any
plan, program, policy or practice or contract or agreement of the Company and
its affiliated companies (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement shall terminate
without further obligations to the Executive's legal representatives under
this Agreement, other than for payment of Accrued Obligations and the timely
payment or provision of Other Benefits. Accrued Obligations shall be paid to
the Executive's estate or beneficiary, as applicable, in a lump sum in cash
within 30 days of the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall
include, without limitation, and the Executive's estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and affiliated companies to the estates and
beneficiaries of peer executives of the Company and such affiliated companies
under such plans, programs, practices and policies relating to death benefits,
if any, as in effect with respect to other peer executives and their
beneficiaries at any time during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive's estate and/or the
Executive's beneficiaries, as in effect on the date of the Executive's death
with respect to other peer executives of the Company and its affiliated
companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by reason of the
Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive in a lump sum in cash
within 30 days of the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 6(c) shall
include, and the Executive shall be entitled after the Disability Effective
Date to receive, disability and other benefits at least equal to the most
favorable of those generally provided by the Company and its affiliated
companies to disabled executives and/or their families in accordance with such
plans, programs, practices and policies relating to disability, if any, as in
effect generally with respect to other peer executives and their families at
any time during the 90-day period immediately preceding the Effective Date or,
if more favorable to the Executive and/or the Executive's family, as in effect
at any time thereafter generally with respect to other peer executives of the
Company and its affiliated companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's employment shall be
terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligations to the Executive other than the
obligation to pay to the Executive (x) the Annual Base Salary through the Date
of Termination, (y) the amount of any compensation previously deferred by the
Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the
Employment Period, excluding a termination for Good Reason, this Agreement
shall terminate without further obligations to the Executive, other than for
Accrued Obligations and the timely payment or provision of Other Benefits. In
such case, all Accrued Obligations shall be paid to the Executive in a lump
sum in cash within 30 days of the Date of Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
and for which the Executive may qualify, nor, subject to Section 12(f), shall
anything herein limit or otherwise affect such rights as the Executive may
have under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan, policy, practice or program of
or any contract or agreement with the Company or any of its affiliated
companies at or subsequent to the Date of Termination shall be payable in
accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
8. Full Settlement; Legal Fees. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any setoff, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this Agreement and
except as specifically provided in Section 6(a)(ii), such amounts shall not be
reduced whether or not the Executive obtains other employment. The Company
agrees to pay as incurred, to the full extent permitted by law, all legal fees
and expenses which the Executive may reasonably incur as a result of any
contest (regardless of the outcome thereof) by the Company, the Executive or
others of the validity or enforceability of, or liability or entitlement
under, any provision of this Agreement or any guarantee of performance thereof
(whether such contest is between the Company and the Executive or between
either of them and any third party, and including as a result of any contest
by the Executive about the amount of any payment pursuant to this Agreement),
plus in each case interest on any delayed payment at the applicable Federal
rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of
1986, as amended (the "Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding, in the event
it shall be determined that any payment, award, benefit or distribution by the
Company (or any of its affiliated entities) or by any entity which effectuates
a Change of Control (or any of its affiliated entities) to or for the benefit
of the Executive (whether pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments required
under this Section 9) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Code or any corresponding provisions of state or local
tax laws, or any interest or penalties are incurred by the Executive with
respect to such excise tax (such excise tax, together with any such interest
and penalties, are hereinafter collectively referred to as the "Excise Tax"),
then the Executive shall be entitled to receive an additional payment (a
"Gross-Up Payment") in an amount such that after payment by the Executive of
all taxes (including any interest or penalties imposed with respect to such
taxes), including, without limitation, any income taxes (and any interest and
penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-
Up Payment, the Executive retains an amount of the Gross-Up Payment equal to
the Excise Tax imposed upon the Payments. The payment of a Gross-Up Payment
under this Section 9(a) shall not be conditioned upon the Executive's
termination of employment. Notwithstanding the foregoing provisions of this
Section 9(a), if it shall be determined that the Executive is entitled to a
Gross-Up Payment, but that the portion of the Payments that would be treated
as "parachute payments" under Section 280G of the Code does not exceed 110% of
the greatest amount (the "Safe Harbor Amount") that could be paid to the
Executive such that the receipt of Payments would not give rise to any Excise
Tax, then no Gross-Up Payment shall be made to the Executive and the amounts
payable under this Agreement shall be reduced so that the Payments, in the
aggregate, are reduced to the Safe Harbor Amount. The reduction of the
amounts payable hereunder, if applicable, shall be made by first reducing the
payments under Section 6(a)(i)(B), unless an alternative method of reduction
is elected by the Executive. For purposes of reducing the Payments to the
Safe Harbor Amount, only amounts payable under this Agreement (and no other
Payments) shall be reduced. If the reduction of the amounts payable under
this Agreement would not result in a reduction of the Payments to the Safe
Harbor Amount, no amounts payable under this Agreement shall be reduced
pursuant to this Section 9(a).
(b) Subject to the provisions of Section 9(c), all determinations required to
be made under this Section 9, including whether and when a Gross-Up Payment is
required and the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by Deloitte & Touche
LLP or such other certified public accounting firm as may be designated by the
Executive (the "Accounting Firm"), which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or
such earlier time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change of Control, the Executive shall appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Section 9, shall be paid by the Company to the Executive within five days of
the receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a
result of the uncertainty in the application of Section 4999 of the Code at
the time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the Company
should have been made ("Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company exhausts its
remedies pursuant to Section 9(c) and the Executive thereafter is required to
make a payment of any Excise Tax, the Accounting Firm shall determine the
amount of the Underpayment that has occurred and any such Underpayment shall
be promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day
period following the date on which the Executive gives such notice to the
Company (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest such
claim, the Executive shall:
(i) give the Company any information reasonably requested by the Company
relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim
by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceedings relating to such
claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 9(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with
the taxing authority in respect of such claim and may, at its sole option,
either direct the Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and the Executive agrees to
prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall advance
the amount of such payment to the Executive, on an interest-free basis and
shall indemnify and hold the Executive harmless, on an after-tax basis, from
any Excise Tax or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and further provided that any extension
of the statute of limitations relating to payment of taxes for the taxable
year of the Executive with respect to which such contested amount is claimed
to be due is limited solely to such contested amount. Furthermore, the
Company's control of the contest shall be limited to issues with respect to
which a Gross-Up Payment would be payable hereunder and the Executive shall be
entitled to settle or contest, as the case may be, any other issue raised by
the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 9(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 9(c)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 9(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall
offset, to the extent thereof, the amount of Gross-Up Payment required to be
paid.
10. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its
affiliated companies, and their respective businesses, which shall have been
obtained by the Executive during the Executive's employment by the Company or
any of its affiliated companies and which shall not be or become public
knowledge (other than by acts by the Executive or representatives of the
Executive in violation of this Agreement). After termination of the
Executive's employment with the Company, the Executive shall not, without the
prior written consent of the Company or as may otherwise be required by law or
legal process, communicate or divulge any such information, knowledge or data
to anyone other than the Company and those designated by it. In no event
shall an asserted violation of the provisions of this Section 10 constitute a
basis for deferring or withholding any amounts otherwise payable to the
Executive under this Agreement.
11. Successors. (a) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law, or
otherwise.
12. Miscellaneous. (a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Utah, without reference to principles
of conflict of laws. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
Scott Nelson
First Security Corporation
79 South Main Street, 2nd Fl.
Salt Lake City, Utah 84111
If to the Company:
First Security Corporation
79 South Main Street, 2nd Fl.
Salt Lake City, Utah 84111
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
(d) The Company may withhold from any amounts payable under this Agreement
such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict compliance
with any provision hereof or any other provision of this Agreement or the
failure to assert any right the Executive or the Company may have hereunder,
including, without limitation, the right of the Executive to terminate
employment for Good Reason pursuant to Section 5(c)(i)-(v) of this Agreement,
shall not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement.
(f) The Executive and the Company acknowledge that, except as may otherwise be
provided under any other written agreement between the Executive and the
Company, the employment of the Executive by the Company is "at will" and,
prior to the Effective Date, the Executive's employment may be terminated by
either the Executive or the Company at any time prior to the Effective Date,
in which case the Executive shall have no further rights under this Agreement.
From and after the Effective Date this Agreement shall supersede any other
agreement between the parties with respect to the subject matter hereof,
including, without limitation, the right of the Executive to participate in
any severance plan of the Company or otherwise receive severance benefits from
the Company during the Employment Period.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused this Agreement to be executed in its name on its behalf, all as of the
day and year first above written.
/s/ Scott Nelson
Scott Nelson
FIRST SECURITY CORPORATION
By:
/s/ Morgan J. Evans
CHANGE OF CONTROL
EMPLOYMENT AGREEMENT
AGREEMENT by and between First Security Corporation, a Utah corporation (the
"Company"), and Scott C. Ulbrich (the "Executive"), dated as of the 2nd of
February, 1998.
The Board of Directors of the Company (the "Board"), has determined that it is
in the best interests of the Company and its shareholders to assure that the
Company will have the continued dedication of the Executive, notwithstanding
the possibility, threat or occurrence of a Change of Control (as defined
below) of the Company. The Board believes it is imperative to diminish the
inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control
and to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which ensure that the compensation and benefits expectations
of the Executive will be satisfied and which are competitive with those of
other corporations. Therefore, in order to accomplish these objectives, the
Board has caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall mean the first date
during the Change of Control Period (as defined in Section 1(b)) on which a
Change of Control (as defined in Section 2) occurs. Anything in this
Agreement to the contrary notwithstanding, if a Change of Control occurs and
if the Executive's employment with the Company is terminated prior to the date
on which the Change of Control occurs, and if it is reasonably demonstrated by
the Executive that such termination of employment (i) was at the request of a
third party who has taken steps reasonably calculated to effect a Change of
Control or (ii) otherwise arose in connection with or anticipation of a Change
of Control, then for all purposes of this Agreement the "Effective Date" shall
mean the date immediately prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing on the
date hereof and ending on the third anniversary of the date hereof; provided,
however, that commencing on the date one year after the date hereof, and on
each annual anniversary of such date (such date and each annual anniversary
thereof shall be hereinafter referred to as the "Renewal Date"), unless
previously terminated, the Change of Control Period shall be automatically
extended so as to terminate three years from such Renewal Date, unless at
least 60 days prior to the Renewal Date the Company shall give notice to the
Executive that the Change of Control Period shall not be so extended.
2. Change of Control. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally
in the election of directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (iv)
any acquisition pursuant to a transaction which complies with clauses (i),
(ii) and (iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of
the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by
the Company's shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with respect to
the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; or
(c) Consummation by the Company of a reorganization, merger or consolidation
or sale or other disposition of all or substantially all of the assets of the
Company or the acquisition of assets of another entity (a "Business
Combination"), in each case, unless, following such Business Combination, (i)
all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 60% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or
more subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, as the case may be,
(ii) no Person (excluding any employee benefit plan (or related trust) of the
Company or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or more of, respectively, the
then outstanding shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then outstanding
voting securities of such corporation except to the extent that such ownership
existed prior to the Business Combination and (iii) at least a majority of the
members of the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board, providing
for such Business Combination; or
(d) Approval by the shareholders of the Company of a complete liquidation or
dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue the Executive in
its employ, and the Executive hereby agrees to remain in the employ of the
Company subject to the terms and conditions of this Agreement, for the period
commencing on the Effective Date and ending on the third anniversary of such
date (the "Employment Period").
4. Terms of Employment. (a) Position and Duties. (i) During the Employment
Period, (A) the Executive's position (including status, offices, titles and
reporting requirements), authority, duties and responsibilities shall be at
least commensurate in all material respects with the most significant of those
held, exercised and assigned to the Executive at any time during the 90-day
period immediately preceding the Effective Date and (B) the Executive's
services shall be performed at the location where the Executive was employed
immediately preceding the Effective Date or any office or location less than
35 miles from such location.
(ii) During the Employment Period, and excluding any periods of vacation and
sick leave to which the Executive is entitled, the Executive agrees to devote
reasonable attention and time during normal business hours to the business and
affairs of the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or
charitable boards or committees, (B) deliver lectures, fulfill speaking
engagements or teach at educational institutions and (C) manage personal
investments, so long as such activities do not significantly interfere with
the performance of the Executive's responsibilities as an employee of the
Company in accordance with this Agreement. It is expressly understood and
agreed that to the extent that any such activities have been conducted by the
Executive prior to the Effective Date, the continued conduct of such
activities (or the conduct of activities similar in nature and scope thereto)
subsequent to the Effective Date shall not thereafter be deemed to interfere
with the performance of the Executive's responsibilities to the Company.
(b) Compensation. (i) Base Salary. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to twelve times the highest
monthly base salary paid or payable, including any base salary which has been
earned but deferred, to the Executive by the Company and its affiliated
companies in respect of the 12-month period immediately preceding the month in
which the Effective Date occurs. During the Employment Period, the Annual
Base Salary shall be reviewed no more than 12 months after the last salary
increase awarded to the Executive prior to the Effective Date and thereafter
at least annually. Any increase in Annual Base Salary shall not serve to
limit or reduce any other obligation to the Executive under this Agreement.
Annual Base Salary shall not be reduced after any such increase and the term
Annual Base Salary as utilized in this Agreement shall refer to Annual Base
Salary as so increased. As used in this Agreement, the term "affiliated
companies" shall include any company controlled by, controlling or under
common control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary, the Executive shall be
awarded, for each fiscal year ending during the Employment Period, an annual
bonus (the "Annual Bonus") in cash at least equal to the Executive's highest
bonus under the Company's annual incentive plans for the last three fiscal
years prior to the Effective Date (annualized in the event that the Executive
was not employed by the Company for the whole of such fiscal year) (the
"Recent Annual Bonus"). Each such Annual Bonus shall be paid no later than
the end of the third month of the fiscal year next following the fiscal year
for which the Annual Bonus is awarded, unless the Executive shall elect to
defer the receipt of such Annual Bonus.
(iii) Incentive, Savings and Retirement Plans. During the Employment Period,
the Executive shall be entitled to participate in all incentive, savings and
retirement plans, practices, policies and programs applicable generally to
other peer executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with incentive opportunities (measured with respect to both regular and
special incentive opportunities, to the extent, if any, that such distinction
is applicable), savings opportunities and retirement benefit opportunities, in
each case, less favorable, in the aggregate, than the most favorable of those
provided by the Company and its affiliated companies for the Executive under
such plans, practices, policies and programs as in effect at any time during
the 90-day period immediately preceding the Effective Date or if more
favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies.
(iv) Welfare Benefit Plans. During the Employment Period, the Executive
and/or the Executive's family, as the case may be, shall be eligible for
participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life, accidental death
and travel accident insurance plans and programs) to the extent applicable
generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and programs
provide the Executive with benefits which are less favorable, in the
aggregate, than the most favorable of such plans, practices, policies and
programs in effect for the Executive at any time during the 90-day period
immediately preceding the Effective Date or, if more favorable to the
Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.
(v) Expenses. During the Employment Period, the Executive shall be entitled
to receive prompt reimbursement for all reasonable expenses incurred by the
Executive in accordance with the most favorable policies, practices and
procedures of the Company and its affiliated companies in effect for the
Executive at any time during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect generally
at any time thereafter with respect to other peer executives of the Company
and its affiliated companies.
(vi) Fringe Benefits. During the Employment Period, the Executive shall be
entitled to fringe benefits, including, without limitation, tax and financial
planning services, payment of club dues, and, if applicable, use of an
automobile and payment of related expenses, in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 90-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
(vii) Office and Support Staff. During the Employment Period, the Executive
shall be entitled to an office or offices of a size and with furnishings and
other appointments, and to exclusive personal secretarial and other
assistance, at least equal to the most favorable of the foregoing provided to
the Executive by the Company and its affiliated companies at any time during
the 90-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided generally at any time thereafter with
respect to other peer executives of the Company and its affiliated companies.
(viii) Vacation. During the Employment Period, the Executive shall be
entitled to paid vacation in accordance with the most favorable plans,
policies, programs and practices of the Company and its affiliated companies
as in effect for the Executive at any time during the 90-day period
immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
5. Termination of Employment. (a) Death or Disability. The Executive's
employment shall terminate automatically upon the Executive's death during the
Employment Period. If the Company determines in good faith that the
Disability of the Executive has occurred during the Employment Period
(pursuant to the definition of Disability set forth below), it may give to the
Executive written notice in accordance with Section 12(b) of this Agreement of
its intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties.
For purposes of this Agreement, "Disability" shall mean the absence of the
Executive from the Executive's duties with the Company on a full-time basis
for 180 consecutive business days as a result of incapacity due to mental or
physical illness which is determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to the Executive or
the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment during the
Employment Period for Cause. For purposes of this Agreement, "Cause" shall
mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its affiliates
(other than any such failure resulting from incapacity due to physical or
mental illness), after a written demand for substantial performance is
delivered to the Executive by the Board or the Chief Executive Officer of the
Company which specifically identifies the manner in which the Board or Chief
Executive Officer believes that the Executive has not substantially performed
the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board or upon the instructions of the Chief Executive
Officer or a senior officer of the Company or based upon the advice of counsel
for the Company shall be conclusively presumed to be done, or omitted to be
done, by the Executive in good faith and in the best interests of the Company.
The cessation of employment of the Executive shall not be deemed to be for
Cause unless and until there shall have been delivered to the Executive a copy
of a resolution duly adopted by the affirmative vote of not less than three-
quarters of the entire membership of the Board at a meeting of the Board
called and held for such purpose (after reasonable notice is provided to the
Executive and the Executive is given an opportunity, together with counsel, to
be heard before the Board), finding that, in the good faith opinion of the
Board, the Executive is guilty of the conduct described in subparagraph (i) or
(ii) above, and specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean:
(i) the assignment to the Executive of any duties inconsistent in any
respect with the Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as contemplated
by Section 4(a) of this Agreement, or any other action by the Company which
results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the provisions of
Section 4(b) of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any office or
location other than as provided in Section 4(a)(i)(B) hereof or the Company's
requiring the Executive to travel on Company business to a substantially
greater extent than required immediately prior to the Effective Date;
(iv) any purported termination by the Company of the Executive's employment
otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy Section 11(c) of
this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good
Reason" made by the Executive shall be conclusive. Anything in this Agreement
to the contrary notwithstanding, a termination by the Executive for any reason
during the 30-day period immediately following the first anniversary of the
Effective Date shall be deemed to be a termination for Good Reason for all
purposes of this Agreement.
(d) Notice of Termination. Any termination by the Company for Cause, or by
the Executive for Good Reason, shall be communicated by Notice of Termination
to the other party hereto given in accordance with Section 12(b) of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means a
written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination
of the Executive's employment under the provision so indicated and (iii) if
the Date of Termination (as defined below) is other than the date of receipt
of such notice, specifies the termination date (which date shall be not more
than thirty days after the giving of such notice). The failure by the
Executive or the Company to set forth in the Notice of Termination any fact or
circumstance which contributes to a showing of Good Reason or Cause shall not
waive any right of the Executive or the Company, respectively, hereunder or
preclude the Executive or the Company, respectively, from asserting such fact
or circumstance in enforcing the Executive's or the Company's rights
hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the Executive's
employment is terminated by the Company for Cause, or by the Executive for
Good Reason, the date of receipt of the Notice of Termination or any later
date specified therein, as the case may be, (ii) if the Executive's employment
is terminated by the Company other than for Cause or Disability, the date on
which the Company notifies the Executive of such termination and (iii) if the
Executive's employment is terminated by reason of death or Disability, the
date of death of the Executive or the Disability Effective Date, as the case
may be.
6. Obligations of the Company upon Termination. (a) Good Reason; Other Than
for Cause, Death or Disability. If, during the Employment Period, the Company
shall terminate the Executive's employment other than for Cause or Disability
or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash within 30
days after the Date of Termination the aggregate of the following amounts:
A. the sum of (1) the Executive's Annual Base Salary through the Date of
Termination to the extent not theretofore paid, (2) the product of (x) the
higher of (I) the Recent Annual Bonus and (II) the Annual Bonus paid or
payable, including any bonus or portion thereof which has been earned but
deferred (and annualized for any fiscal year consisting of less than twelve
full months or during which the Executive was employed for less than twelve
full months), for the most recently completed fiscal year during the
Employment Period, if any (such higher amount being referred to as the
"Highest Annual Bonus"), and (y) a fraction, the numerator of which is the
number of days in the current fiscal year through the Date of Termination, and
the denominator of which is 365 and (3) any compensation previously deferred
by the Executive (together with any accrued interest or earnings thereon) and
any accrued vacation pay, in each case to the extent not theretofore paid (the
sum of the amounts described in clauses (1), (2), and (3) shall be hereinafter
referred to as the "Accrued Obligations"); and
B. the amount equal to the product of (1) three and (2) the sum of (x) the
Executive's Annual Base Salary and (y) the Highest Annual Bonus; and
C. an amount equal to the difference between (a) the aggregate benefit under
the Company's qualified defined benefit retirement plans (collectively, the
"Retirement Plan") and any excess or supplemental defined benefit retirement
plans in which the Executive participates (collectively, the "SERP") which the
Executive would have accrued (whether or not vested) if the Executive's
employment had continued for three years following the Date of Termination
(provided, that, for purposes of determining the SERP benefit the Executive
would have accrued, (i) if the Executive had not attained "Early Retirement
Date" under the First Security Supplemental Executive Retirement Plan (after
being credited with three years of age and service), the Executive shall be
treated as if the Executive had remained employed through the Early Retirement
Date, (ii) the SERP benefit shall be calculated as if consent had been granted
under the First Security Supplemental Executive Retirement Plan and (iii)
"Early Retirement Percentages" (as defined in Section 5.02 of the First
Security Supplemental Executive Retirement Plan) will be treated as continuing
to increase at a rate of 3% per year for each year prior to age 50) and (b)
the actual vested benefit, if any, of the Executive under the Retirement Plan
and the SERP, determined as of the Date of Termination (with the foregoing
amounts to be computed on an actuarial present value basis, based on the
assumption that the Executive's compensation in each of the three years
following such termination would have been that required by Section 4(b)(i)
and Section 4(b)(ii), and using actuarial assumptions no less favorable to the
Executive than the most favorable of those in effect for purposes of computing
benefit entitlements under the Retirement Plan and the SERP at any time from
the day before the Effective Date) through the Date of Termination;
(ii) for three years following the Date of Termination, or such longer
period as may be provided by the terms of the appropriate plan, program,
practice or policy, the Company shall continue benefits to the Executive
and/or the Executive's family at least equal to those which would have been
provided to them in accordance with the plans, programs, practices and
policies described in Section 4(b)(iv) of this Agreement if the Executive's
employment had not been terminated or, if more favorable to the Executive, as
in effect generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies and their families,
provided, however, that if the Executive becomes reemployed with another
employer and is eligible to receive medical or other welfare benefits under
another employer-provided plan, the medical and other welfare benefits
described herein shall be secondary to those provided under such other plan
during such applicable period of eligibility, and for purposes of determining
eligibility (but not the time of commencement of benefits) of the Executive
for retiree benefits pursuant to such plans, practices, programs and policies,
the Executive shall be considered to have remained employed until three years
following the Date of Termination and to have retired on the last day of such
period;
(iii) the Company shall, at its sole expense as incurred, provide the
Executive with outplacement services the scope and provider of which shall be
selected by the Executive in the Executive's sole discretion; and
(iv) to the extent not theretofore paid or provided, the Company shall
timely pay or provide to the Executive any other amounts or benefits required
to be paid or provided or which the Executive is eligible to receive under any
plan, program, policy or practice or contract or agreement of the Company and
its affiliated companies (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement shall terminate
without further obligations to the Executive's legal representatives under
this Agreement, other than for payment of Accrued Obligations and the timely
payment or provision of Other Benefits. Accrued Obligations shall be paid to
the Executive's estate or beneficiary, as applicable, in a lump sum in cash
within 30 days of the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 6(b) shall
include, without limitation, and the Executive's estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and affiliated companies to the estates and
beneficiaries of peer executives of the Company and such affiliated companies
under such plans, programs, practices and policies relating to death benefits,
if any, as in effect with respect to other peer executives and their
beneficiaries at any time during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive's estate and/or the
Executive's beneficiaries, as in effect on the date of the Executive's death
with respect to other peer executives of the Company and its affiliated
companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by reason of the
Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive in a lump sum in cash
within 30 days of the Date of Termination. With respect to the provision of
Other Benefits, the term Other Benefits as utilized in this Section 6(c) shall
include, and the Executive shall be entitled after the Disability Effective
Date to receive, disability and other benefits at least equal to the most
favorable of those generally provided by the Company and its affiliated
companies to disabled executives and/or their families in accordance with such
plans, programs, practices and policies relating to disability, if any, as in
effect generally with respect to other peer executives and their families at
any time during the 90-day period immediately preceding the Effective Date or,
if more favorable to the Executive and/or the Executive's family, as in effect
at any time thereafter generally with respect to other peer executives of the
Company and its affiliated companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's employment shall be
terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligations to the Executive other than the
obligation to pay to the Executive (x) the Annual Base Salary through the Date
of Termination, (y) the amount of any compensation previously deferred by the
Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the
Employment Period, excluding a termination for Good Reason, this Agreement
shall terminate without further obligations to the Executive, other than for
Accrued Obligations and the timely payment or provision of Other Benefits. In
such case, all Accrued Obligations shall be paid to the Executive in a lump
sum in cash within 30 days of the Date of Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
and for which the Executive may qualify, nor, subject to Section 12(f), shall
anything herein limit or otherwise affect such rights as the Executive may
have under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan, policy, practice or program of
or any contract or agreement with the Company or any of its affiliated
companies at or subsequent to the Date of Termination shall be payable in
accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
8. Full Settlement; Legal Fees. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any setoff, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this Agreement and
except as specifically provided in Section 6(a)(ii), such amounts shall not be
reduced whether or not the Executive obtains other employment. The Company
agrees to pay as incurred, to the full extent permitted by law, all legal fees
and expenses which the Executive may reasonably incur as a result of any
contest (regardless of the outcome thereof) by the Company, the Executive or
others of the validity or enforceability of, or liability or entitlement
under, any provision of this Agreement or any guarantee of performance thereof
(whether such contest is between the Company and the Executive or between
either of them and any third party, and including as a result of any contest
by the Executive about the amount of any payment pursuant to this Agreement),
plus in each case interest on any delayed payment at the applicable Federal
rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of
1986, as amended (the "Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding, in the event
it shall be determined that any payment, award, benefit or distribution by the
Company (or any of its affiliated entities) or by any entity which effectuates
a Change of Control (or any of its affiliated entities) to or for the benefit
of the Executive (whether pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments required
under this Section 9) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Code or any corresponding provisions of state or local
tax laws, or any interest or penalties are incurred by the Executive with
respect to such excise tax (such excise tax, together with any such interest
and penalties, are hereinafter collectively referred to as the "Excise Tax"),
then the Executive shall be entitled to receive an additional payment (a
"Gross-Up Payment") in an amount such that after payment by the Executive of
all taxes (including any interest or penalties imposed with respect to such
taxes), including, without limitation, any income taxes (and any interest and
penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-
Up Payment, the Executive retains an amount of the Gross-Up Payment equal to
the Excise Tax imposed upon the Payments. The payment of a Gross-Up Payment
under this Section 9(a) shall not be conditioned upon the Executive's
termination of employment. Notwithstanding the foregoing provisions of this
Section 9(a), if it shall be determined that the Executive is entitled to a
Gross-Up Payment, but that the portion of the Payments that would be treated
as "parachute payments" under Section 280G of the Code does not exceed 110% of
the greatest amount (the "Safe Harbor Amount") that could be paid to the
Executive such that the receipt of Payments would not give rise to any Excise
Tax, then no Gross-Up Payment shall be made to the Executive and the amounts
payable under this Agreement shall be reduced so that the Payments, in the
aggregate, are reduced to the Safe Harbor Amount. The reduction of the
amounts payable hereunder, if applicable, shall be made by first reducing the
payments under Section 6(a)(i)(B), unless an alternative method of reduction
is elected by the Executive. For purposes of reducing the Payments to the
Safe Harbor Amount, only amounts payable under this Agreement (and no other
Payments) shall be reduced. If the reduction of the amounts payable under
this Agreement would not result in a reduction of the Payments to the Safe
Harbor Amount, no amounts payable under this Agreement shall be reduced
pursuant to this Section 9(a).
(b) Subject to the provisions of Section 9(c), all determinations required to
be made under this Section 9, including whether and when a Gross-Up Payment is
required and the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by Deloitte & Touche
LLP or such other certified public accounting firm as may be designated by the
Executive (the "Accounting Firm"), which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or
such earlier time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change of Control, the Executive shall appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Section 9, shall be paid by the Company to the Executive within five days of
the receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a
result of the uncertainty in the application of Section 4999 of the Code at
the time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the Company
should have been made ("Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company exhausts its
remedies pursuant to Section 9(c) and the Executive thereafter is required to
make a payment of any Excise Tax, the Accounting Firm shall determine the
amount of the Underpayment that has occurred and any such Underpayment shall
be promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day
period following the date on which the Executive gives such notice to the
Company (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest such
claim, the Executive shall:
(i) give the Company any information reasonably requested by the Company
relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim
by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceedings relating to such
claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 9(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with
the taxing authority in respect of such claim and may, at its sole option,
either direct the Executive to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner, and the Executive agrees to
prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall advance
the amount of such payment to the Executive, on an interest-free basis and
shall indemnify and hold the Executive harmless, on an after-tax basis, from
any Excise Tax or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and further provided that any extension
of the statute of limitations relating to payment of taxes for the taxable
year of the Executive with respect to which such contested amount is claimed
to be due is limited solely to such contested amount. Furthermore, the
Company's control of the contest shall be limited to issues with respect to
which a Gross-Up Payment would be payable hereunder and the Executive shall be
entitled to settle or contest, as the case may be, any other issue raised by
the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 9(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 9(c)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 9(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall
offset, to the extent thereof, the amount of Gross-Up Payment required to be
paid.
10. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its
affiliated companies, and their respective businesses, which shall have been
obtained by the Executive during the Executive's employment by the Company or
any of its affiliated companies and which shall not be or become public
knowledge (other than by acts by the Executive or representatives of the
Executive in violation of this Agreement). After termination of the
Executive's employment with the Company, the Executive shall not, without the
prior written consent of the Company or as may otherwise be required by law or
legal process, communicate or divulge any such information, knowledge or data
to anyone other than the Company and those designated by it. In no event
shall an asserted violation of the provisions of this Section 10 constitute a
basis for deferring or withholding any amounts otherwise payable to the
Executive under this Agreement.
11. Successors. (a) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law, or
otherwise.
12. Miscellaneous. (a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Utah, without reference to principles
of conflict of laws. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
Scott C. Ulbrich
First Security Corporation
79 South Main Street, 2nd Fl.
Salt Lake City, Utah 84111
If to the Company:
First Security Corporation
79 South Main Street, 2nd Fl.
Salt Lake City, Utah 84111
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
(d) The Company may withhold from any amounts payable under this Agreement
such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict compliance
with any provision hereof or any other provision of this Agreement or the
failure to assert any right the Executive or the Company may have hereunder,
including, without limitation, the right of the Executive to terminate
employment for Good Reason pursuant to Section 5(c)(i)-(v) of this Agreement,
shall not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement.
(f) The Executive and the Company acknowledge that, except as may otherwise be
provided under any other written agreement between the Executive and the
Company, the employment of the Executive by the Company is "at will" and,
prior to the Effective Date, the Executive's employment may be terminated by
either the Executive or the Company at any time prior to the Effective Date,
in which case the Executive shall have no further rights under this Agreement.
From and after the Effective Date this Agreement shall supersede any other
agreement between the parties with respect to the subject matter hereof,
including, without limitation, the right of the Executive to participate in
any severance plan of the Company or otherwise receive severance benefits from
the Company during the Employment Period.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused this Agreement to be executed in its name on its behalf, all as of the
day and year first above written.
/s/ Scott C. Ulbrich
Scott C. Ulbrich
FIRST SECURITY CORPORATION
By:
/s/ Morgan J. Evans
EXHIBIT 11. COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
FIRST SECURITY CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE (in thousands, except per share amounts; unaudited)
<CAPTION>
For the Years Ended December 31, 1997 1996 1995
<S> <C> <C> <C>
- - ----------------------------------------------------------- ------------ ------------ ------------
NET INCOME:
Net income per consolidated income statements 205,944 177,843 120,005
Subtract dividend requirement of preferred stock 30 33 35
- - ----------------------------------------------------------- ------------ ------------ ------------
NET INCOME APPLICABLE TO COMMON STOCK (BASIC) 205,914 177,810 119,970
Add dividend requirement of preferred stock 30 33 35
- - ----------------------------------------------------------- ------------ ------------ ------------
NET INCOME DILUTED 205,944 177,843 120,005
=========================================================== ============ ============ ============
EARNINGS PER COMMON SHARE: BASIC 1.20 1.05 0.71
EARNINGS PER COMMON SHARE: DILUTED 1.16 1.02 0.70
=========================================================== ============ ============ ============
SHARES OUTSTANDING (AVERAGE):
Common shares 174,198 171,107 169,884
Treasury shares (2,931) (1,296) (1,271)
- - ----------------------------------------------------------- ------------ ------------ ------------
COMMON SHARES: BASIC (AVG) 171,267 169,811 168,613
Options: common equivalents 5,318 4,287 3,104
Preferred shares: common equivalents 410 433 468
- - ----------------------------------------------------------- ------------ ------------ ------------
COMMON SHARES: DILUTED (AVG) 176,995 174,531 172,185
=========================================================== ============ ============ ============
<FN>
Notes:
* Figures have been restated where appropriate to reflect two separate 3-for-2 stock splits in the form of
50% stock dividends paid in May 1997 and February 1998.
* As required by SFAS No. 128, "Earnings Per Share",
"Earnings Per Common Share Primary" has been restated to "Earnings Per Common Share Basic" and
"Earnings Per Common Share Fully Diluted" has been restated to "Earnings Per Common Share Diluted".
* Earnings Per Common Share Diluted were computed assuming that all outstanding shares of preferred stock
were converted into common stock on the basis of 41.00625 shares of common for each share of preferred,
with the elimination of dividends on the preferred stock. Common stock equivalents are common stock
options outstanding accounted for on the treasury stock method for purposes of these computations.
</TABLE>
<TABLE>
EXHIBIT 21. Subsidiaries
FIRST SECURITY CORPORATION
For the year ended December 31, 1997
<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) Salt Lake City, Utah U.S.A. 100.0
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 China 100.0
First Security Bank of New Mexico, National Association Albuquerque, NM U.S.A. 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 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
2nd Tier: First Security Benefits Salt Lake City, Utah Utah 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
First Security Capital Markets Inc. Salt Lake City, Utah Utah 100.0
First Security Specialized Services Inc. Salt Lake City, Utah Utah 100.0
<FN>
(A) All subsidiaries are included in consolidated financial statements.
(B) FSCO created FS Bank from these mergers: FSB Utah and FSB Idaho (June 1996); FSB Oregon (May 1997); FSB Wyoming (November 1997).
</TABLE>
Exhibit 23, Consent of Independent Certified Public Accountants:
Deloitte & Touche LLP.
We consent to the incorporation by reference in Registration Statement Nos.
33-35847, 333-28497, 333-29701, 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 20, 1998,
appearing in the Annual Report on Form 10-K of First Security Corporation for
the year ended December 31, 1997.
/s/ Deloitte & Touche LLP.
DELOITTE & TOUCHE LLP.
Salt Lake City, Utah
March 27, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-END> DEC-31-1997 SEP-30-1997 JUN-30-1997 MAR-31-1997
<CASH> 1,180,926 892,500 841,097 936,107
<INT-BEARING-DEPOSITS> 600 600 600 500
<FED-FUNDS-SOLD> 191,666 16,796 240,558 20,498
<TRADING-ASSETS> 255,320 87,154 274,014 388,264
<INVESTMENTS-HELD-FOR-SALE> 4,057,895 3,840,970 3,457,692 3,316,927
<INVESTMENTS-CARRYING> 0 0 0 0
<INVESTMENTS-MARKET> 0 0 0 0
<LOANS> 10,779,547 10,679,985 10,093,820 9,069,267
<ALLOWANCE> (149,125) (144,567) (141,637) (135,928)
<TOTAL-ASSETS> 17,307,411 16,312,978 15,671,546 14,416,628
<DEPOSITS> 10,716,325 10,223,196 9,819,681 9,309,882
<SHORT-TERM> 3,551,851 3,354,922 3,283,322 2,562,778
<LIABILITIES-OTHER> 417,359 480,353 346,636 437,384
<LONG-TERM> 1,304,463 954,463 959,897 986,417
<COMMON> 1,316,912 1,299,534 1,261,479 1,119,635
0 0 0 0
501 510 531 532
<OTHER-SE> 0 0 0 0
<TOTAL-LIABILITIES-AND-EQUITY> 17,307,411 16,312,978 15,671,546 14,416,628
<INTEREST-LOAN> 910,549 664,522 424,385 205,501
<INTEREST-INVEST> 227,951 164,006 106,407 51,574
<INTEREST-OTHER> 15,285 12,287 9,028 3,106
<INTEREST-TOTAL> 1,153,785 840,815 539,820 260,181
<INTEREST-DEPOSIT> 337,213 245,611 158,649 77,804
<INTEREST-EXPENSE> 571,285 412,479 263,989 125,962
<INTEREST-INCOME-NET> 582,500 428,336 275,831 134,219
<LOAN-LOSSES> 62,686 41,593 27,823 13,899
<SECURITIES-GAINS> 3,085 2,910 2,864 605
<EXPENSE-OTHER> 554,132 397,793 256,422 124,655
<INCOME-PRETAX> 315,327 233,609 150,479 74,381
<INCOME-PRE-EXTRAORDINARY> 315,327 233,609 150,479 74,381
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 205,944 150,610 96,966 47,985
<EPS-PRIMARY> 1.20 0.88 0.57 0.28
<EPS-DILUTED> 1.16 0.85 0.55 0.27
<YIELD-ACTUAL> 4.37 4.40 4.38 4.38
<LOANS-NON> 32,596 35,374 35,450 30,483
<LOANS-PAST> 20,091 19,147 20,537 20,430
<LOANS-TROUBLED> 0 0 0 0
<LOANS-PROBLEM> 58,451 57,604 60,755 54,881
<ALLOWANCE-OPEN> 134,428 134,428 134,428 134,428
<CHARGE-OFFS> (85,309) (61,106) (42,461) (20,030)
<RECOVERIES> 32,861 25,193 17,388 7,631
<ALLOWANCE-CLOSE> 149,125 144,567 141,637 135,928
<ALLOWANCE-DOMESTIC> 149,125 144,567 141,637 135,928
<ALLOWANCE-FOREIGN> 0 0 0 0
<ALLOWANCE-UNALLOCATED> 0 0 0 0
<FN>
* This financial data schedule contains restated summary financial information extracted from
First Security Corporation's 1997 Forms 10-K and 10-Q and is qualified in its entirety by reference
to such financial statements.
* Figures have been restated where appropriate to reflect two separate 3-for-2 stock splits
in the form of 50% stock dividends paid in May 1997 and February 1998.
* As required by SFAS No. 128, "Earnings Per Share",
"Earnings Per Common Share: Primary" has been restated to "Earnings Per Common Share: Basic" and
"Earnings Per Common Share: Fully Diluted" has been restated to "Earnings Per Common Share: Diluted".
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS 6-MOS 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1995
<PERIOD-END> DEC-31-1996 SEP-30-1996 JUN-30-1996 MAR-31-1996 DEC-31-1995
<CASH> 937,144 758,493 781,634 714,026 818,664
<INT-BEARING-DEPOSITS> 31,617 46,920 6,266 31,365 21,563
<FED-FUNDS-SOLD> 223,235 83,568 86,029 113,838 148,069
<TRADING-ASSETS> 447,486 171,910 150,529 272,443 638,393
<INVESTMENTS-HELD-FOR-SALE> 3,150,276 3,166,608 2,715,770 2,693,820 2,623,557
<INVESTMENTS-CARRYING> 0 0 0 0 0
<INVESTMENTS-MARKET> 0 0 0 0 0
<LOANS> 9,262,482 8,948,196 8,716,400 8,375,060 8,315,095
<ALLOWANCE> (134,428) (133,853) (133,678) (130,653) (129,982)
<TOTAL-ASSETS> 14,708,024 13,739,324 13,036,598 12,751,772 13,034,607
<DEPOSITS> 9,439,263 9,088,404 8,884,713 8,857,233 8,773,642
<SHORT-TERM> 2,830,633 2,399,209 2,049,074 1,812,218 2,198,689
<LIABILITIES-OTHER> 373,264 336,448 324,557 370,081 311,492
<LONG-TERM> 944,055 821,932 723,728 675,460 720,521
<COMMON> 1,140,108 1,092,782 1,053,973 1,036,217 1,029,692
0 0 0 0 0
540 549 553 563 571
<OTHER-SE> 0 0 0 0 0
<TOTAL-LIABILITIES-AND-EQUITY> 14,708,024 13,739,324 13,036,598 12,751,772 13,034,607
<INTEREST-LOAN> 789,488 579,980 378,707 185,672 754,029
<INTEREST-INVEST> 182,720 131,899 84,033 40,872 142,790
<INTEREST-OTHER> 15,600 12,532 9,795 6,568 38,040
<INTEREST-TOTAL> 987,808 724,411 472,535 233,112 934,859
<INTEREST-DEPOSIT> 313,010 233,020 154,293 77,484 300,146
<INTEREST-EXPENSE> 471,232 345,733 226,859 113,336 459,868
<INTEREST-INCOME-NET> 516,576 378,678 245,676 119,776 474,991
<LOAN-LOSSES> 40,300 28,751 19,243 8,738 21,082
<SECURITIES-GAINS> 4,549 2,178 764 0 (806)
<EXPENSE-OTHER> 497,367 366,689 245,438 120,852 530,205
<INCOME-PRETAX> 277,595 197,825 123,270 56,747 190,196
<INCOME-PRE-EXTRAORDINARY> 277,595 197,825 123,270 56,747 190,196
<EXTRAORDINARY> 0 0 0 0 0
<CHANGES> 0 0 0 0 0
<NET-INCOME> 177,843 126,614 79,218 36,290 120,005
<EPS-PRIMARY> 1.05 0.74 0.47 0.21 0.71
<EPS-DILUTED> 1.02 0.73 0.46 0.21 0.70
<YIELD-ACTUAL> 4.49 4.47 4.42 4.37 4.38
<LOANS-NON> 33,276 33,401 25,158 25,410 22,447
<LOANS-PAST> 19,326 15,728 16,656 13,501 13,455
<LOANS-TROUBLED> 0 0 0 0 0
<LOANS-PROBLEM> 57,457 54,132 47,477 44,120 40,036
<ALLOWANCE-OPEN> 129,982 129,982 129,982 129,982 133,855
<CHARGE-OFFS> (62,623) (44,274) (28,746) (15,125) (52,547)
<RECOVERIES> 26,769 19,394 13,199 7,058 27,592
<ALLOWANCE-CLOSE> 134,428 133,853 133,678 130,653 129,982
<ALLOWANCE-DOMESTIC> 134,428 133,853 133,678 130,653 129,982
<ALLOWANCE-FOREIGN> 0 0 0 0 0
<ALLOWANCE-UNALLOCATED> 0 0 0 0 0
<FN>
* This financial data schedule contains restated summary financial information extracted from
First Security Corporation's 1996 Forms 10-K and 10-Q, and 1995 Form 10-K, and is qualified
in its entirety by reference to such financial statements.
* Figures have been restated where appropriate to reflect two separate 3-for-2 stock splits
in the form of 50% stock dividends paid in May 1997 and February 1998.
* As required by SFAS No. 128, "Earnings Per Share",
"Earnings Per Common Share: Primary" has been restated to "Earnings Per Common Share: Basic" and
"Earnings Per Common Share: Fully Diluted" has been restated to "Earnings Per Common Share: Diluted".
</TABLE>
