<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
Commission File Number 1-6906
FIRST SECURITY CORPORATION
(Exact name of registrant as specified in its charter)
State of incorporation Delaware
I.R.S. Employer Identification No. 87-6118148
Address of principal executive offices 79 South Main, P.O. Box 30006
Salt Lake City, Utah
Zip Code 84130-0006
Registrant's telephone number, including area code (801) 246-5706
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [ ]
As of April 30, 1998, outstanding shares of Common Stock, par value $1.25,
were 176,153,120 (net of 1,247,113 treasury shares).
FIRST SECURITY CORPORATION - INDEX
Part I. Financial Information
Item 1. Financial Statements:
Consolidated Statements of Income
Three Months and Year To Date Nine Months Ended March 31, 1998 and 1997
Consolidated Balance Sheets
March 31, 1998, December 31, 1997, and March 31, 1997
Condensed Consolidated Statements of Cash Flows
Year To Date Three Months Ended March 31, 1998 and 1997
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition:
Forward-Looking Statements
Highlights
Analysis of Statements of Income
Earnings Summary
Net Interest Income and Net Interest Margin
Provision For Loan Losses
Noninterest Income
Noninterest Expenses
Analysis of Balance Sheets
Summary
Interest-Earning Assets: Trading Account Securities and Other Money
Market Investments
Interest-Earning Assets: Available for Sale Securities
Interest-Earning Assets: Loans
Asset Quality: Problem Assets and Potential Problem Assets
Asset Quality: Reserve for Loan Losses
Asset Quality: Provision for Loan Losses
Asset / Liability Management: Liquidity
Asset / Liability Management: Market Risk
Asset / Liability Management: Interest Rate Risk - Other Than Trading
Account Securities
Asset / Liability Management: Market Risk - Trading Account Securities
Other Assets and Liabilities
Stockholders' Equity and Capital Adequacy
Common and Preferred Stock
Mergers And Acquisitions
Corporate Structure
National and Regional Economy
Factors That May Affect Future Results of Operations and Financial
Condition: Technological Change and Year 2000 Computer Issue
Supplemental Financial Tables:
Financial Highlights, Risk-Based Capital Ratios
Volume / Rate Analysis
Loans
Part II. Other Information
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signatures
Exhibit 11. Computation of Earnings Per Share
Exhibit 27. Financial Data Schedule
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
FIRST SECURITY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands, except per share data; unaudited)
<CAPTION>
Three Months
For the Periods Ended March 31, 1998 and 1997 1998 1997 $Chg %Chg
<S> <C> <C> <C> <C>
- - ------------------------------------------------------- ---------- -------- -------- -------
INTEREST INCOME:
Interest & fees on loans 248,306 205,501 42,805 20.8
Federal funds sold & securities purchased 824 652 172 26.4
Interest-bearing deposits in other banks 31 56 (25) (44.6)
Trading account securities 4,226 2,398 1,828 76.2
Available for sale securities 64,930 51,574 13,356 25.9
- - ------------------------------------------------------- ---------- -------- -------- -------
TOTAL INTEREST INCOME 318,317 260,181 58,136 22.3
- - ------------------------------------------------------- ---------- -------- -------- -------
INTEREST EXPENSE:
Deposits 96,558 77,804 18,754 24.1
Short-term borrowings 46,562 31,276 15,286 48.9
Long-term debt 21,974 16,882 5,092 30.2
- - ------------------------------------------------------- ---------- -------- -------- -------
TOTAL INTEREST EXPENSE 165,094 125,962 39,132 31.1
- - ------------------------------------------------------- ---------- -------- -------- -------
NET INTEREST INCOME 153,223 134,219 19,004 14.2
Provision for loan losses 12,523 13,899 (1,376) (9.9)
- - ------------------------------------------------------- ---------- -------- -------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 140,700 120,320 20,380 16.9
- - ------------------------------------------------------- ---------- -------- -------- -------
NONINTEREST INCOME:
Service charges on deposit accounts 21,629 20,394 1,235 6.1
Other service charges, collections, commissions, & fees 15,341 11,286 4,055 35.9
Asset securitization gains 2,548 5,952 (3,404) (57.2)
Bankcard servicing fees & third-party processing fees 8,149 8,008 141 1.8
Insurance commissions & fees 3,921 4,550 (629) (13.8)
Mortgage banking activities 44,194 22,793 21,401 93.9
Mortgage banking activities MSR amortization (7,404) (3,864) (3,540) (91.6)
Trust (fiduciary) commissions & fees 6,584 5,744 840 14.6
Trading account securities gains (losses) (171) 777 (948) (122.0)
Available for sale securities gains (losses) 1,712 605 1,107 183.0
Other 10,180 2,471 7,709 312.0
- - ------------------------------------------------------- ---------- -------- -------- -------
TOTAL NONINTEREST INCOME 106,683 78,716 27,967 35.5
- - ------------------------------------------------------- ---------- -------- -------- -------
NONINTEREST EXPENSES:
Salaries & employee benefits 85,197 65,083 20,114 30.9
Amortization of intangibles 2,243 1,973 270 13.7
Armored & messenger 1,567 1,458 109 7.5
Bankcard interbank interchange & fees 8,719 7,707 1,012 13.1
Credit, appraisal, & repossessions 4,871 3,544 1,327 37.4
Fees 2,325 1,851 474 25.6
Furniture & equipment 11,832 9,649 2,183 22.6
Insurance 1,709 1,264 445 35.2
Marketing 3,452 2,991 461 15.4
Occupancy, net 8,412 7,725 687 8.9
Other real estate expense & loss provision (recovery) 333 736 (403) (54.8)
Postage 3,156 2,696 460 17.1
Professional 4,591 2,779 1,812 65.2
Stationery & supplies 5,227 4,019 1,208 30.1
Telephone 4,187 4,114 73 1.8
Travel 2,415 1,887 528 28.0
Other 7,203 5,179 2,024 39.1
- - ------------------------------------------------------- ---------- -------- -------- -------
TOTAL NONINTEREST EXPENSES 157,439 124,655 32,784 26.3
- - ------------------------------------------------------- ---------- -------- -------- -------
INCOME BEFORE PROVISION FOR INCOME TAXES 89,944 74,381 15,563 20.9
Provision for income taxes 31,133 26,396 4,737 17.9
- - ------------------------------------------------------- ---------- -------- -------- -------
NET INCOME 58,811 47,985 10,826 22.6
======================================================= ========== ======== ======== =======
Dividend requirement of preferred stock 7 8 (1) (12.5)
- - ------------------------------------------------------- ---------- -------- -------- -------
NET INCOME APPLICABLE TO COMMON STOCK 58,804 47,977 10,827 22.6
======================================================= ========== ======== ======== =======
Common stock dividend 22,959 17,246 5,713 33.1
======================================================= ========== ======== ======== =======
EARNINGS PER COMMON SHARE (A):
Earnings per common share basic 0.34 0.28 0.06 21.4
Earnings per common share diluted 0.32 0.27 0.05 18.5
Common shares basic [Avg] 175,292 169,284 6,008 3.5
Common shares diluted [Avg] 181,603 174,670 6,933 4.0
======================================================= ========== ======== ======== =======
CASH DIVIDENDS PAID OR ACCRUED PER SHARE:
Preferred stock dividend ($3.15 annual rate) 0.79 0.79 0.00 0.0
Common stock dividend 0.130 0.102 0.03 27.5
======================================================= ========== ======== ======== =======
<FN>
Notes:
See "Notes to Consolidated Financial Statements".
</TABLE>
<PAGE>
<TABLE>
FIRST SECURITY CORPORATION
CONSOLIDATED BALANCE SHEETS
($ in thousands; unaudited)
<CAPTION>
March 31 December 31 March 31 Mar/Mar Mar/Mar
1998 1997 1997 $ Chg % Chg
<S> <C> <C> <C> <C> <C>
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
ASSETS:
Cash & due from banks 862,798 1,180,926 936,107 (73,309) (7.8)
Federal funds sold & securities purchased under resale agreements 41,020 191,666 20,498 20,522 100.1
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Total Cash & Cash Equivalents 903,818 1,372,592 956,605 (52,787) (5.5)
Interest-bearing deposits in other banks 2,104 600 500 1,604 320.8
Trading account securities 318,224 255,320 388,264 (70,040) (18.0)
Available for sale securities, at fair value 4,101,411 4,057,895 3,316,927 784,484 23.7
(Amortized cost: $4,068,504; $4,021,657; and $3,345,907; respectively)
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Loans, net of unearned income 11,982,677 10,779,547 9,069,267 2,913,410 32.1
(Unearned income: $101,990; $104,519; and $80,897; respectively)
Reserve for loan losses (154,852) (149,125) (135,928) (18,924) 13.9
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Total Loans, Net 11,827,825 10,630,422 8,933,339 2,894,486 32.4
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Premises & equipment, net 291,228 271,950 236,582 54,646 23.1
Accrued income receivable 100,302 101,790 86,784 13,518 15.6
Other real estate 3,454 5,764 3,968 (514) (13.0)
Other assets 403,169 342,064 322,650 80,519 25.0
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Goodwill 195,982 158,786 87,294 108,688 124.5
Mortgage servicing rights 125,476 108,630 81,776 43,700 53.4
Other intangible assets 1,525 1,598 1,939 (414) (21.4)
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Total Intangible Assets 322,983 269,014 171,009 151,974 88.9
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
TOTAL ASSETS 18,274,518 17,307,411 14,416,628 3,857,890 26.8
=========================================================================== =========== =========== =========== =========== =======
LIABILITIES:
Deposits: noninterest-bearing 2,270,669 2,348,638 2,021,116 249,553 12.3
Deposits: interest-bearing 8,840,984 8,367,687 7,288,766 1,552,218 21.3
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Total Deposits 11,111,653 10,716,325 9,309,882 1,801,771 19.4
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Federal funds purchased & securities sold under repurchase agreements 3,551,620 3,249,961 2,302,151 1,249,469 54.3
U.S. Treasury demand notes 20,727 20,000 20,244 483 2.4
Other short-term borrowings 361,818 281,890 240,383 121,435 50.5
Accrued income taxes 295,417 259,757 201,156 94,261 46.9
Accrued interest payable 51,695 50,339 39,807 11,888 29.9
Other liabilities 128,390 107,263 196,421 (68,031) (34.6)
Long-term debt 1,339,892 1,304,463 986,417 353,475 35.8
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
TOTAL LIABILITIES 16,861,212 15,989,998 13,296,461 3,564,751 26.8
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
STOCKHOLDERS' EQUITY:
Preferred stock: Series "A" $3.15 cumulative convertible 501 501 532 (31) (5.8)
(Shares issued: 10; 10; and 10; respectively)
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Common Stockholders' Equity:
Common stock: par value $1.25 221,594 218,953 215,224 6,370 3.0
(Shares issued: 177,275; 175,163; and 172,179; respectively)
Paid-in surplus 111,174 79,892 18,629 92,545 496.8
Retained earnings 1,084,045 1,048,202 948,716 135,329 14.3
Accumulated other comprehensive income 20,828 22,733 (18,358) 39,186 (213.5)
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Subtotal 1,437,641 1,369,780 1,164,211 273,430 23.5
Common treasury stock, at cost (24,836) (52,868) (44,576) 19,740 (44.3)
(Shares: 1,247; 1,654; and 3,584; respectively)
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Total Common Stockholders' Equity 1,412,805 1,316,912 1,119,635 293,170 26.2
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
TOTAL STOCKHOLDERS' EQUITY 1,413,306 1,317,413 1,120,167 293,139 26.2
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY 18,274,518 17,307,411 14,416,628 3,857,890 26.8
=========================================================================== =========== =========== =========== =========== =======
<FN>
See "Notes to Consolidated Financial Statements".
</TABLE>
<PAGE>
<TABLE>
FIRST SECURITY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except number of shares; unaudited)
<CAPTION>
Year-To-Date Three Months
For the Periods Ended March 31, 1998 and 1997 1998 1997
<S> <C> <C>
- - --------------------------------------------------------------------- ----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (338,534) 329,008
- - --------------------------------------------------------------------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of available for sale securities 4,972 119,015
Redemption of matured available for sale securities 329,904 225,968
Purchases of available for sale securities (278,856) (541,961)
Net (increase) decrease in interest-bearing deposits in other banks (1,505) 31,117
Net (increase) decrease in loans (610,085) 41,726
Purchases of premises and equipment (3,673) (4,680)
Proceeds from sales of other real estate 2,518 1,272
Payments to improve other real estate (661) (420)
Net cash (paid for) received from acquisitions 41,505 (5)
- - --------------------------------------------------------------------- ----------- -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (515,881) (127,968)
- - --------------------------------------------------------------------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 51,974 (129,381)
Net increase (decrease) in Federal funds purchased, securities sold
under repurchase agreements, and U.S. Treasury demand notes 301,585 (229,082)
Proceeds (payments) on nonrecourse debt on leveraged leases (21,018) (713)
Proceeds from issuance of long-term debt and short-term borrowings 102,659 50,791
Payments on long-term debt and short-term borrowings (6,631) (47,202)
Proceeds from issuance of common stock and sales of treasury stock 3,484 2,724
Purchases of treasury stock (23,446) (34,697)
Dividends paid (22,966) (17,254)
- - --------------------------------------------------------------------- ----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 385,641 (404,814)
- - --------------------------------------------------------------------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (468,774) (203,774)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,372,592 1,160,379
- - --------------------------------------------------------------------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD 903,818 956,605
===================================================================== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
- - --------------------------------------------------------------------- ----------- -----------
CASH PAID (RECEIVED) FOR:
Interest 163,738 127,596
Income taxes 20 664
===================================================================== =========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Conversion of preferred shares to common shares:
Number of preferred shares converted - 137
Number of common shares issued - 5,609
Conversion value - 7
Transfer of loans to other real estate 2,200 -
Net unrealized gain (loss) on available for sale securities
included in stockholders' equity (1,905) (19,234)
Acquisitions:
Assets acquired 448,996 3
Liabilities assumed 367,072 -
Number of FSCO shares issued 4,350,000 117,000
===================================================================== =========== ===========
<FN>
See "Notes to Consolidated Financial Statements".
</TABLE>
<PAGE>
<TABLE>
FIRST SECURITY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
($ in thousands; unaudited) (A)
<CAPTION>
Three Months
For the Periods Ended March 31, 1998 and 1997 1998 1997 $Chg %Chg
<S> <C> <C> <C> <C>
- - ------------------------------------------------------- ---------- -------- -------- -------
NET INCOME 58,811 47,985 10,826 22.6
- - ------------------------------------------------------- ---------- -------- -------- -------
OTHER COMPREHENSIVE INCOME, AFTER TAX (1,905) (19,235) 17,330 90.1
- - ------------------------------------------------------- ---------- ----------------- -------
COMPREHENSIVE INCOME 56,906 28,750 28,156 97.9
======================================================= ========== ======== ======== =======
<FN>
(A) FSCO's Other Comprehensive Income consists of unrealized gains and losses on available for sale (AFS) securities only.
FSCO has no foreign currency translation adjustments or minimum pension liability adjustments.
</TABLE>
<PAGE>
FIRST SECURITY CORPORATION (FSCO)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of management, the accompanying unaudited consolidated
financial statements of FSCO contain all adjustments (consisting of normal
recurring accruals) necessary to present fairly, in all material respects,
FSCO's: results of operations for the three months ended March 31, 1998 and
1997; financial position as of March 31, 1998, December 31, 1997, and March
31, 1997; and cash flows for the year-to-date three months ended March 31,
1998 and 1997.
2. FSCO's results of operations for the three months ended March 31, 1998
and 1997 are not necessarily indicative of the results to be expected for the
full year.
3. Where appropriate, common stock data in this report have been restated
to reflect two separate 3-for-2 common stock splits in the form of 50% stock
dividends, paid in May 1997 and February 1998.
4. As required by SFAS No. 128, "Earnings Per Share", "Earnings Per Common
Share Primary" has been replaced with "Earnings Per Common Share Basic", and
"Earnings Per Common Share Fully Diluted" has been replaced with "Earnings Per
Common Share Diluted".
5. For purposes of reporting cash flows, cash and cash equivalents
included cash and due from banks, and Federal funds sold and securities
purchased under resale agreements.
6. FSCO's financial statements and commentary incorporate fair market
values for balances added from purchase transactions and historical values for
balances added from pooling-of-interests mergers, as well as earnings since
their acquisition, from the following acquisitions completed in 1997 and year-
to-date 1998.
* On March 31, 1997, FSCO's subsidiary CrossLand Mortgage purchased the
wholesale loan production branch operations of Harbourton Mortgage Co., L.P..
* On June 30, 1997, FSCO acquired American Bancorp of Nevada, and its
wholly owned subsidiary American Bank of Commerce was merged into FSCO's
subsidiary First Security Bank of Nevada.
* On February 2, 1998, FSCO acquired Rio Grande Bancshares, Inc. and its
subsidiaries First National Bank of Dona Ana County and First National Bank of
Chaves County.
Pro forma results of operations for 1998 and 1997, as if the above
companies purchased had combined at the beginning of the periods, are not
presented because the effect was not material.
7. In accordance with SFAS No. 125, FSCO's capitalized mortgage servicing
rights for the three months ended March 31, 1998 included $24.3 million
originated and $7.4 million amortized during the period.
8. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", which establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains, and
losses) in a full set of general-purpose financial statements. SFAS No. 130
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. SFAS No. 130 does not require a specific format for that
financial statement but requires that an enterprise display an amount
representing total comprehensive income for the period in that financial
statement.
SFAS No. 130 is effective for fiscal years beginning after December 15,
1997. Reclassification of financial statements for earlier periods provided
for comparative purposes is required.
In accordance with SFAS No. 130, FSCO's financial statements reflect
comprehensive income for the three months ended March 31, 1998 and 1997.
9. In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information", which establishes standards for the
way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. SFAS No. 131 also establishes standards for
related disclosures about products and services, geographical areas, and major
customers. SFAS No. 131 supersedes SFAS No. 14, "Financial Reporting for
Segments of a Business Enterprise", but retains the requirement to report
information about major customers. It amends SFAS No. 94, "Consolidation of
All Majority-Owned Subsidiaries", to remove the special disclosure
requirements for previously unconsolidated subsidiaries.
SFAS No. 131 is effective for financial statements for periods beginning
after December 15, 1997. In the initial year of application, comparative
information for earlier years is to be restated. SFAS No. 131 need not be
applied to interim financial statements in the initial year of its
application, but comparative information for interim periods in the initial
year of application is to be reported in financial statements for interim
periods in the second year of application.
The adoption of SFAS No. 131 will result in additional disclosures
regarding segments, beginning with FSCO's 1998 Annual Report on Form 10-K.
10. In accordance with Securities and Exchange Commission (SEC) Rule 210.4-
08(n) of Regulation S-X "Accounting policies for certain derivative
instruments", FSCO's accounting policies for derivative instruments were
discussed in detail in its 1997 Annual Report on Form 10-K (hereby
incorporated by reference). Since the filing of that report, there have been
no material changes in FSCO's accounting policies for derivative instruments.
# # #
<PAGE>
FIRST SECURITY CORPORATION (FSCO)
PART 1. FINANCIAL INFORMATION
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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.
HIGHLIGHTS
RESULTS OF OPERATIONS (first quarter 1998 compared with first quarter 1997):
* Record net income of $58.8 million, up $10.8 million or 22.6%.
* Record earnings per share diluted of $0.32, up $0.05 or 18.5%.
* Record total revenues of $259.9 million, up $47.0 million or 22.1%.
* Record noninterest income of $106.7 million, up $28.0 million or 35.5%.
* Consolidated operating expense ratio of 59.98%.
FINANCIAL CONDITION (March 31, 1998 compared with March 31, 1997):
* Record total assets of $18.3 billion, up $3.9 billion or 26.8%.
* Record loans of $12.0 billion, up $2.9 billion or 32.1%.
* Record stockholders' equity of $1.4 billion, up $293 million or 26.2%.
* Ratio of total problem assets to total loans & ORE at 0.47%, down from
0.60%.
* Ratio of reserve to total loans at 1.29%, down from 1.50%.
* Ratio of reserve to nonaccruing loans at 453.61%, up from 445.91%.
* All equity and risk-based capital ratios continued to exceed regulatory
requirements for "well capitalized" status.
OTHER HIGHLIGHTS
* 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.
* On February 19, 1998, FSCO announced an agreement to acquire California
State Bank (Nasdaq: CSTB).
ANALYSIS OF STATEMENTS OF INCOME
EARNINGS SUMMARY
[NOTES:
* Where appropriate, common stock data in this report have been restated to
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 replaced with "Earnings Per Common Share Basic", and
"Earnings Per Common Share Fully Diluted" has been replaced with "Earnings Per
Common Share Diluted".]
FSCO earned record net income of $58.8 million for the first quarter of
1998, up $10.8 million or 22.6% from $48.0 million in the first quarter of
1997. This net income generated a 1.38% return on average assets (ROAA) and a
17.98% return on average equity (ROAE) for the quarter, compared with a 1.39%
ROAA and a 17.02% ROAE for the year-ago quarter. Earnings per share diluted
were a record $0.32 for the quarter, up $0.05 or 18.5% from $0.27 for the
year-ago quarter. The tangible ROAA was 1.56%, the tangible ROAE was 25.64%,
and tangible earnings per share diluted were $0.36 for the quarter, compared
with a 1.53% tangible ROAA, a 21.81% tangible ROAE, and tangible earnings per
share diluted of $0.30 for the year-ago quarter.
NET INTEREST INCOME AND NET INTEREST MARGIN
FSCO's net interest income on a fully taxable equivalent basis was $155.8
million for the first quarter of 1998, up $19.6 million or 14.4% from the
year-ago quarter. This increase was due to a combination of strong demand for
loans, growth in the securities portfolios, and the positive impact of
acquisitions completed during the last year including Harbourton Mortgage Co.,
L.P. (HMC), American Bancorp of Nevada (ABN), and Rio Grande Bancshares, Inc.
(RGB). These factors were partially offset by volume growth of average
interest-bearing liabilities.
FSCO's net interest margin was 4.06% for the first quarter of 1998, down 32
basis points from the year-ago quarter. This decrease was due to a
combination of the following factors: strong growth in loans, especially
refinanced mortgages, which were originated at lower rates but funded by
additional short term borrowed funds and deposits at relatively constant
rates; and a small shift in the deposit mix from transaction accounts to time
deposits with higher rates. This compression in FSCO's net interest margin
was substantially offset by fee income resulting from increased mortgage and
lending activities. FSCO expects its full year 1998 net interest margin to
range in a band from approximately 4.00% to 4.25%.
PROVISION FOR LOAN LOSSES
FSCO's provision for loan losses was $12.5 million for the first quarter of
1998, down $1.4 million or 9.9% from the year-ago quarter (see: "Asset
Quality: Provision For Loan Losses").
NONINTEREST INCOME
FSCO's noninterest income was a record $106.7 million for the first quarter
of 1998, up $28.0 million or 35.5% from the year-ago quarter. This increase
was largely due to: growth in mortgage banking activities associated with the
March 31, 1997 purchase of HMC; a $9 million net gain related to the sale of
certain merchant servicing contracts; and FSCO's continued emphasis on
improving its value pricing of all fee-based services and on increasing and
diversifying its sources of noninterest income; partially offset by the
accelerated amortization of previously capitalized mortgage servicing rights.
FSCO's total revenue was $259.9 million for the quarter, up $47.0 million
or 22.1%. FSCO's noninterest income amounted to 41.05% of total revenue for
the quarter, up from 36.97% for the year-ago quarter.
NONINTEREST EXPENSES
FSCO's noninterest expenses were $157.4 million for the first quarter of
1998, up $32.8 million or 26.3% from the year-ago quarter. During the
quarter, FSCO continued to emphasize strengthening its control of ongoing
noninterest expenses while expending funds required to support strong growth,
multiple acquisitions, and investments in technology appropriate for a high
performance financial services company. The components of FSCO's noninterest
expenses for the first quarter of 1998, compared with the year-ago quarter,
are discussed below.
* FSCO's salaries and benefits expense were $85.2 million, up $20.1 million
or 30.9%. This was primarily due to additions to personnel for revenue-
generating activities and from acquisitions.
* FSCO's nonpersonnel expenses were $72.2 million, up $12.7 million or
21.3%. This increase was due to many factors including: additions to
facilities for revenue-generating activities and from acquisitions; volume
growth in loans, deposits, banking services, and bankcard interbank
interchange and fees; marketing campaigns focused on deposit gathering; the
cost of necessary technological advances and upgrades including "Year 2000"
expenditures; and one-time costs associated with the creation of a "Section
20" securities broker / dealer subsidiary.
FSCO's operating expense ratio was 59.98% for the first quarter of 1998, up
199 basis points from the year-ago quarter. FSCO's tangible operating expense
ratio was 57.50% for the quarter, up 143 basis points from the year-ago
quarter. These increases were due to the noninterest expense and net interest
margin factors described above.
FSCO's subsidiary, CrossLand Mortgage, has a higher operating expense ratio
than FSCO's bank subsidiaries due to its labor intensive business of
originating, selling, and servicing mortgage loans. Excluding the impact of
CrossLand Mortgage, FSCO's "core" efficiency ratio was 55.69% for the first
quarter of 1998, up 149 basis points from the year-ago quarter.
ANALYSIS OF BALANCE SHEETS
SUMMARY
FSCO's assets totaled a record $18.3 billion at March 31, 1998, up $3.9
billion or 26.8% from March 31, 1997, and up $1.0 billion or 5.6% from
December 31, 1997. Interest-earning assets were also a record $16.4 billion
at quarter end, up $3.6 billion or 28.5% from one year ago, and up $1.2
billion or 7.6% from year end.
At March 31, 1998, FSCO considered its interest-earning asset quality to
remain good, and its reserve for loan losses and its liquidity position to be
adequate for the foreseeable future.
FSCO's liabilities totaled $16.9 billion at March 31, 1998, up $3.6 billion
or 26.8% from one year ago, and up $0.9 billion or 5.4% from year end. Total
interest-bearing liabilities were $14.1 billion at quarter end, up $3.3
billion or 30.2% from one year ago, and up $0.9 billion or 6.7% from year end.
FSCO's stockholders' equity was increased to a record $1.4 billion at March
31, 1998, up $0.3 billion or 26.2% from one year ago, and up $0.1 billion or
7.3% from year end.
INTEREST-EARNING ASSETS:
TRADING ACCOUNT SECURITIES AND OTHER MONEY MARKET INVESTMENTS
FSCO's trading account securities were $318.2 million at March 31, 1998,
down $70.0 million or 18.0% from one year ago, but up $62.9 million or 24.6%
from year end. Fluctuations in trading opportunities have generally decreased
over the past year due to the lack of volatility in interest rates.
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
FSCO's available for sale (AFS) securities were $4.1 billion at March 31,
1998, up $0.8 billion or 23.7% from one year ago, and essentially unchanged
from year end. The increase from one year ago was due to a combination of
growth consistent with overall balance sheet growth, acquisitions of banks,
and spread opportunities in the markets.
INTEREST-EARNING ASSETS:
LOANS
FSCO's loans, net of unearned income but before the reserve for loan
losses, were a record $12.0 billion at March 31, 1998, up $2.9 billion or
32.1% from one year ago, and up $1.2 billion or 11.2% from year end. This
growth was a result of continued strong loan demand, combined with $284
million in real estate loans added with the HMC acquisition and $146 million
in total loans added with the ABN acquisition, partially offset by asset
securitizations and sales. The ratio of total loans to total assets was
65.57% at quarter end, up from 62.91% one year ago, and up from 62.28% at year
end. The components of FSCO's loan portfolio at March 31, 1998, compared with
March 31, 1997, and December 31, 1997, respectively, are discussed below.
* Commercial loans were $2.7 billion, up $0.4 billion or 18.9% from one
year ago, and essentially unchanged from year end. The increase from one year
ago was primarily due 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 $5.0 billion, up $1.7 billion or 52.3%
from one year ago, and up $0.8 billion or 19.1% from year end. These
increases were primarily due to record loan originations generated by
increased demand and lower interest rates, with 1 to 4 family residential term
loan originations of $8.9 billion for the 12 months since March 31, 1997, and
$3.3 billion for the three months since December 31, 1997. Loans were also
added from the HMC and ABN acquisitions. However, loan originations were, and
will be, 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 quarter end, $1.6 billion of real estate secured loans were held
for sale, up $1.4 billion or 516.7% from one year ago, and up $0.5 billion or
47.2% from year end.
* Consumer loans were $3.2 billion, up $0.6 billion or 21.2% from one year
ago, and up $0.3 billion or 12.0% from year end. These increases were
primarily due to growth in auto lending, with indirect vehicle loan
originations of $2.2 billion for the 12 months since March 31, 1997, and $0.5
billion for the three months since December 31, 1997. However, this growth
was partially offset by a combination of maturing loans and $0.5 billion of
indirect vehicle loans securitized and sold in November 1997. On April 13,
1998, FSCO securitized and sold an additional $0.5 billion of indirect vehicle
loans. FSCO remained the leading consumer lender in its primary market area.
* Leases were $1.0 billion, up $0.2 billion or 22.9% from one year ago, but
essentially unchanged from year end. The increase from one year ago was
primarily due to FSCO's growth in the auto and equipment leasing markets,
partially offset by sales of $23 million of leases in the third quarter of
1997 and $32 million in the first quarter of 1998.
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 the first quarter of 1998,
as its ratio of total problem assets to total loans and real estate was 0.47%
at March 31, 1998, down from 0.60% one year ago, and down from 0.54% at year
end, and the lowest since June 30, 1995. The ratio of nonperforming assets to
total loans and ORE was 0.31% at March 31, 1998, down from 0.38% one year ago,
and down from 0.36% at year end, and also the lowest since June 30, 1995.
Problem assets totaled $56.4 million at March 31, 1998, up $1.5 million or
2.8% from one year ago, but down $2.1 million or 3.5% from year end. The
components of FSCO's problem assets at March 31, 1998, compared with March 31,
1997, and December 31, 1997, respectively, are discussed below.
* Nonaccruing loans were $34.1 million, up $3.7 million or 12.0% from one
year ago, and up $1.5 million or 4.7% from year end. The increase from one
year ago occurred in real estate residential term loans, real estate project
construction loans, and smaller commercial loans. The ratio of nonaccruing
loans to total loans was 0.28%, down from 0.34% one year ago, and down from
0.30% at year end.
* Other real estate was $3.5 million, down $0.5 million or 13.0% from one
year ago, and down $2.3 million or 40.1% from year end. The decrease from
year end was primarily due to the sale of a $2.4 million property. 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 $18.8 million, down $1.6
million or 8.0% from one year ago, and down $1.3 million or 6.4% from year
end. The ratio of accruing loans past due 90 days or more to total loans was
0.16%, down from 0.23% one year ago, and down from 0.19% at year end.
A comparison of FSCO to its Bank Holding Company Performance Report (BHCPR)
peer group as of December 31, 1997 showed that: FSCO's ratio of nonaccruing
loans to total loans was 0.30%, which compared favorably with the peer group
average of 0.55%; and FSCO's ratio of accruing loans past due 90 days or more
to total loans was 0.19%, which compared favorably with the peer group average
of 0.23%.
Potential problem loans identified by FSCO amounted to $11.5 million at
March 31, 1998, down $1.0 million or 7.7% from one year ago, but up $4.1
million or 54.8% from year end. The increase from year end was primarily due
to one large residential real estate property. Potential problem loans
consisted of commercial loans and residential real estate.
ASSET QUALITY:
RESERVE FOR LOAN LOSSES
FSCO's reserve for loan losses was increased to $154.9 million at March 31,
1998, up $18.9 million or 13.9% from one year ago, and up $5.7 million or 3.8%
from year end. This increase included $11.5 million in additions to the
reserve over the last 12 months as FSCO responded to 21.7% average loan growth
during that period, $4.5 million in reserves added with the ABN acquisition,
and $2.9 million in reserves added with the RGB acquisition.
Based on its analysis of reserve adequacy, FSCO considered its reserve for
loan losses at March 31, 1998 to be adequate to absorb estimated loan losses
in the current loan portfolio. FSCO's coverage ratio of the reserve to
nonaccruing loans was 453.61% at March 31, 1998, essentially unchanged from
445.91% one year ago and 457.49% at year end. The ratio of the reserve to
total loans was 1.29% at quarter end, down from 1.50% one year ago and 1.38%
at year end, due in large part to the strong volume growth in loans. However,
FSCO expects this ratio to increase with subsequent loan securitizations and
sales, including one already completed in April 1998 and others planned for
the remainder of the year.
Net loans charged off against the reserve totaled $9.7 million for year-to-
date 1998, down $2.7 million or 21.6% from the year-ago period. This decrease
was primarily due to lower consumer loan charge offs and higher commercial
loan recoveries. The annualized ratio of net loans charged off to average
loans was 0.35% for year-to-date 1998, down from 0.55% for the year-ago
period, and down from 0.52% for all of 1997.
A comparison of FSCO to its BHCPR peer group as of December 31, 1997 showed
that: FSCO's coverage ratio of the reserve to nonaccruing loans was 457.49%,
which compared favorably with the peer group average of 353.61%; FSCO's ratio
of the reserve to total loans was 1.38%, compared with the peer group average
of 1.72%; and FSCO's annualized ratio of net loans charged off to average
loans was 0.53% for the year, which compared closely to the peer group average
of 0.52% for the year. While comparisons with the BHCPR peer group are
instructive, FSCO relies on the methodology for analysis of reserve adequacy
outlined in its 1997 Annual Report on Form 10-K (hereby incorporated by
reference) 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's provision for loan losses was $12.5 million for the first quarter of
1998, down $1.4 million or 9.9% from the year-ago quarter. The quarterly
provision, although decreased from the year-ago quarter, included a $2.8
million addition to the reserve over and above net loans charged off, as FSCO
responded to 21.7% average loan growth over that period.
ASSET / LIABILITY MANAGEMENT:
LIQUIDITY
FSCO's deposits totaled a record $11.1 billion at March 31, 1998, up $1.8
billion or 19.4% from one year ago, and up $0.4 billion or 3.7% from year end.
This increase was due to FSCO's continued emphasis on its deposit gathering
functions, the success of several deposit programs, and $234 million in
deposits added with the ABN acquisition. The ratio of loans to deposits was
107.84% at quarter end, up from 97.42% one year ago, and up from 100.59% at
year end. These increases were due to continued strong loan demand and loans
added with acquisitions, plus loans held for securitization or sale, which at
quarter end included $0.5 billion of indirect vehicle loans securitized and
sold on April 13, 1998 and $1.6 billion of real estate loans held for sale.
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 $5.3 billion at March 31, 1998, up $1.7 billion or 48.6% from one year
ago, and up $0.4 billion or 8.6% from year end. The components of FSCO's debt
at March 31, 1998, compared with March 31, 1997, and December 31, 1997, are
discussed below.
* Federal funds purchased and securities sold under repurchase agreements
were $3.6 billion, up $1.2 billion or 54.3% from one year ago, and up $0.3
billion or 9.3% from year end. These increases occurred as FSCO funded, on an
interim basis, the loan and mortgage refinance 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 $0.4 billion, up $0.1 billion or
46.8% from one year ago, and up $0.1 billion or 26.7% from year end. These
increases were due to maturing issues formerly classified as long-term debt.
* Long-term debt was $1.3 billion, up $0.4 billion or 35.8% from one year
ago, but essentially unchanged from year end. The increase from one year ago
was due to the October 1997 issuance of $300 million of Floating Rate European
Medium Term Notes, and new Federal Home Loan Bank borrowings. The increase
was partially offset by the ongoing maturity of existing long-term debt.
ASSET / LIABILITY MANAGEMENT:
MARKET RISK
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 MANAGEMENT:
INTEREST RATE RISK - OTHER THAN TRADING ACCOUNT SECURITIES
FSCO continued to maintain a relatively neutral interest rate risk position
and a conservative balance sheet for year-to-date 1998. At March 31, 1998,
FSCO exhibited slight liability sensitivity for the one-year time horizon and
minimal overall interest rate risk. FSCO's net interest income was adversely
affected as a result of the significant growth in mortgage refinance activity
which generated a large volume of lower rate assets while liability rates
exhibited minimal changes during the same period.
FSCO's average loans grew $2.0 billion or 21.7% during year-to-date 1998
due to a strong regional economy and resulting loan demand and mortgage
refinance activity. Average deposits grew $1.5 billion or 16.9% during the
same period due to FSCO's successful deposit promotions, 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 previously-mentioned issuance of $300 million of
Floating Rate European Medium Term Notes and new Federal Home Loan Bank
borrowings. FSCO remained well positioned to support continued strong loan
growth through growth of regular deposit programs, the sale or runoff of
securities, additional securitizations, and access to external sources of
funding.
FSCO took advantage of its strong capital ratios and further leveraged the
balance sheet through an increase in the average AFS securities of $0.8
billion or 26.3% for year-to-date 1998. This increase was primarily funded
through the use of repurchase agreements.
Off-balance sheet derivatives used to manage FSCO's interest rate risk,
including interest rate swaps, caps, corridors, floors, and forwards, totaled
$3.4 billion notional amount at March 31, 1998, up from $1.5 billion at year
end. This increase was due to additional derivatives negotiated in connection
with the increased mortgage refinance activity, partially offset by maturities
of existing derivatives during the period.
ASSET / LIABILITY MANAGMENT:
MARKET RISK - TRADING ACCOUNT SECURITIES
Financial futures and options contracts related to FSCO's trading account
securities totaled $6.3 billion notional par value at March 31, 1998, down
from $16.6 billion notional amount one year ago, and down from $12.6 billion
notional par value at year end. Fluctuations in these derivative positions
are common as FSCO's traders take advantage of opportunities in the short term
futures and options markets.
OTHER ASSETS AND LIABILITIES
FSCO's intangible assets were $323 million at March 31, 1998, up from one
year ago and year end 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 $1.4 billion at March
31, 1998, up $0.3 billion or 26.2% from one year ago, and up $0.1 billion from
year end. This growth was due to earnings retained, and the issuance of 5.4
million and 4.4 million shares of new common stock for the ABN and RGB
acquisitions, respectively, partially offset by repurchases of 3.8 million
shares of common stock in the public markets in 1997. 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 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
included in the "Accumulated other comprehensive income" component of equity.
FSCO's ratio of stockholders' equity to total assets was 7.73% at March 31,
1998, essentially unchanged from 7.77% one year ago, and up from 7.61% at year
end. The ratio of tangible common equity to tangible assets was 6.07% at
quarter end, down from 6.66% one year ago, and down from 6.15% at year end,
reflecting the goodwill recognized with the ABN and RGB mergers and the
ongoing origination of mortgage servicing rights.
A comparison of FSCO to its BHCPR peer group as of December 31, 1997 showed
that: FSCO's ratio of stockholders' equity to total assets was 7.61%, compared
with the peer group average of 7.89%; and its ratio of tangible common equity
to tangible assets was 6.15%, which compared favorably with the peer group
average of 5.98%.
FSCO's risk-based capital ratios remained strong at March 31, 1998 due to
earnings retained and FSCO's Guaranteed Preferred Beneficial Interest - 8.41%
Subordinated Capital Income Securities due 2026. Regulations permit these
Capital Income Securities to be included in Tier 1 Capital for purposes of
calculating the Tier 1 Leverage ratio and risk-based capital ratios. FSCO's
risk-based capital ratios at March 31, 1998, compared with one year ago and
year end, respectively, were: Tier 1 at 10.31%, compared with 11.45% and
10.58%; and Total Capital at 13.04%, compared with 14.62% and 13.46%. For the
same time periods, the leverage ratio was 7.45%, compared with 8.31% and
7.51%.
FSCO and its subsidiary banks have exceeded regulatory requirements for
"well capitalized" status every year since these requirements were
established. It is FSCO's policy to maintain the "well capitalized" status at
both the consolidated and subsidiary bank levels.
With its strong equity and risk-based capital ratios, FSCO is well
positioned to selectively invest in profitable business opportunities while
maintaining capital ratios at levels determined to be prudent and conservative
by management.
COMMON AND PREFERRED STOCK
FSCO's common stock is traded on Nasdaq under the symbol FSCO, and is
included in the Standard & Poors' "MidCap 400 Index", and the Keefe, Bruyette
& Woods, Inc. "KBW 50 Index".
On 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 previously reported, on April 21, 1997, FSCO
also declared a 3-for-2 common stock split in the form of a 50% stock dividend
paid on May 15, 1997 to common shareholders of record on May 12, 1997. In
each of these two separate stock splits, shareholders received one additional
share of FSCO common stock for every two shares held. Where appropriate,
common stock data in this report have been restated for all stock splits.
Also on January 26, 1998, FSCO increased its quarterly common stock
dividend to $0.130 per share, 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 was equal to an annual dividend rate of
$0.520 per share. Also as previously reported, on April 21, 1997, FSCO
increased its quarterly common stock dividend 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 was equal to an
annual dividend rate of $0.452 per share.
Subsequent to quarter end, on April 27, 1998, FSCO declared a regular
quarterly common stock dividend of $0.130 per share. This dividend is payable
on June 1, 1998 to shareholders of record on May 8, 1998, and is equal to an
annual dividend rate of $0.520 per share. At the market closing price of
$24.38 per share on Friday, April 24, 1998 (before the announcement of the
dividend), the annual dividend yield on FSCO common stock would have been
approximately 2.1%.
The April 27, 1998 dividend was the 173rd common stock dividend declared by
FSCO, and 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.
The bid price of FSCO common stock was $23.813 per share at the close of
the market on March 31, 1998, versus a book value of $8.03 per share,
resulting in a market-to-book ratio of 296.55%. In comparison, the bid price
of FSCO common stock was $14.278 per share at the close of the market on March
31, 1997, versus a book value of $6.64 per share, resulting in a market-to-
book ratio of 215.03%. At March 31, 1998, FSCO's common stock market
capitalization was $4.2 billion, up $1.8 billion or 74.1% from one year ago.
FSCO's preferred stock is convertible into FSCO common stock at the
conversion rate of one share of preferred stock for 41.00625 shares of common
stock. There is no active trading market for FSCO's preferred stock.
MERGERS AND ACQUISITIONS
FSCO's merger and acquisition strategies, opportunities, and activities
were discussed in detail in its 1997 Annual Report on Form 10-K (hereby
incorporated by reference). Previously reported mergers and acquisitions in
the last twelve months are discussed below.
* On March 31, 1997, FSCO's subsidiary CrossLand Mortgage purchased the
wholesale loan production branch operations of Harbourton Mortgage Co., L.P.
(HMC).
* On June 30, 1997, FSCO acquired American Bancorp of Nevada (ABN), and
ABN's wholly owned subsidiary American Bank of Commerce was merged into FSCO's
First Security Bank of Nevada.
* 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. CSTB had year-end 1997 assets of $849.2 million, and
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. This transaction will be
accounted for as a pooling of interests and is expected to close by the end of
the second quarter of 1998, subject to regulatory and CSTB shareholder
approval.
NATIONAL & REGIONAL ECONOMY
A strong U.S. first-quarter economic performance was aided by low interest
rates, declining commodity prices, and falling import prices. The Asian
financial crisis was an important factor in these trends. The demand stimulus
of these factors on consumer spending more than offset the adverse impact on
the production or supply component in the economy. Mortgage demand for
refinancing and new-home purchases accelerated, while automobile sales
continued at a solid pace. New job creation was slowed by adverse weather
conditions in March but nevertheless rose sharply in the first quarter, and
intensified wage pressures remain a concern.
By the second half of 1998, the adverse consequences of Asia's economic
plunge should be clearly evident in a widening U.S. trade deficit and distinct
pressures on corporate profit margins. Inflation likely will remain subdued.
With inflation near 1.5%, real interest rates are historically high and edging
higher.
The western U.S. economy sustained solid first-quarter growth. Revised
1997 job growth shows gains of 3.9% in the Mountain States and 3.3% in the
Pacific Region - both significantly above the 2.6% national average. Nevada's
employment gains ranked first, while Utah was fourth.
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS AND FINANCIAL CONDITION:
TECHNOLOGICAL CHANGE AND YEAR 2000 COMPUTER ISSUE
Factors that may affect FSCO's future results of operations and financial
condition, including technological changes and the "Year 2000 Computer Issue",
were discussed in detail in its 1997 Annual Report on Form 10-K (hereby
incorporated by reference).
FSCO has been working to solve the "Year 2000 Computer Issue" since 1995.
As of March 31, 1998, FSCO continues to take all appropriate actions and
expend adequate resources to assure that its computer systems are reprogrammed
or replaced in time to effectively deal with transactions through the year
2000 and beyond, and to protect itself from problems in the data or systems of
third parties. FSCO believes that it will be technologically compliant for
operating in the year 2000 and beyond.
FSCO had completed its assessment of problems and solutions as of December
31, 1997, and subsequently has 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.
# # #
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. Continued: Supplemental Tables
<TABLE>
FIRST SECURITY CORPORATION
FINANCIAL HIGHLIGHTS
(in thousands, except per share data and ratios; unaudited)
<CAPTION>
1st Qtr 4th Qtr 3rd Qtr 2nd Qtr 1st Qtr Year-To-Date Three Months
1998 1997 1997 1997 1997 1998 1997 %Chg
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- - ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
Common & Preferred Stock Data (A,B):
Earnings per common share basic 0.34 0.32 0.31 0.29 0.28 0.34 0.28 21.4
Earnings per common share diluted 0.32 0.31 0.30 0.28 0.27 0.32 0.27 18.5
Tangible EPCS diluted 0.36 0.32 0.34 0.30 0.30 0.36 0.30 20.0
Dividends paid per common share 0.130 0.113 0.113 0.113 0.102 0.130 0.102 27.5
Book value per common share [EOP] 8.03 7.59 7.48 7.26 6.64 8.03 6.64 20.9
Tangible book value per common share [EOP] 6.19 6.04 6.05 5.84 5.63 6.19 5.63 9.9
Market price (bid) [EOP] 23.813 27.917 19.833 18.209 14.278 23.813 14.278 66.8
High bid for the period 26.167 27.917 21.333 19.000 16.555 26.167 16.555 58.1
Low bid for the period 21.833 19.083 17.583 14.445 14.222 21.833 14.222 53.5
Market capitalization (mktprice x #shrs) [EOP] 4,191,755 4,843,851 3,446,123 3,164,615 2,407,199 4,191,755 2,407,199 74.1
Market price / book value per com share [EOP] % 296.55 367.81 265.15 250.81 215.03 296.55 215.03
Dividend payout ratio (DPCS / EPCS basic) % 38.24 35.31 36.45 38.97 36.43 38.24 36.43
Dividend yield (DPCS / mktprice) [EOP] % 2.18 1.62 2.28 2.48 2.86 2.18 2.86
Price / earnings ratio(mktprice/4qtrsEPCSbasic) 18.9x 23.3x 16.7x 15.7x 12.7x 18.9x 12.7x
Common shares basic [EOP] 176,028 173,509 173,757 173,794 168,595 176,028 168,595 4.4
Common shares basic [Avg] 175,292 173,651 173,693 168,366 169,284 175,292 169,284 3.5
Common shares diluted [Avg] 181,603 179,918 179,435 173,873 174,670 181,603 174,670 4.0
Preferred shares [EOP] 10 10 10 10 10 10 10 0.0
- - ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
Income Statement:
Interest income 318,317 312,970 300,995 279,639 260,181 318,317 260,181 22.3
Interest expense 165,094 158,806 148,490 138,027 125,962 165,094 125,962 31.1
Net interest income 153,223 154,164 152,505 141,612 134,219 153,223 134,219 14.2
Fully taxable equivalent (FTE) adjustment 2,579 4,176 2,336 1,851 2,007 2,579 2,007 28.5
Net interest income, FTE 155,802 158,340 154,841 143,463 136,226 155,802 136,226 14.4
Provision for loan losses 12,523 21,093 13,770 13,924 13,899 12,523 13,899 (9.9)
Noninterest income 106,683 104,986 85,766 80,177 78,716 106,683 78,716 35.5
Noninterest expenses 157,439 156,339 141,371 131,767 124,655 157,439 124,655 26.3
Provision for income taxes 31,133 26,384 29,486 27,117 26,396 31,133 26,396 17.9
Net income 58,811 55,334 53,644 48,981 47,985 58,811 47,985 22.6
Preferred stock dividend requirement 7 7 7 8 8 7 8 (12.5)
Common stock dividend 22,959 19,696 19,699 19,055 17,246 22,959 17,246 33.1
- - ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
Balance Sheet - End of Period:
Trading account securities 318,224 255,320 87,154 274,014 388,264 318,224 388,264 (18.0)
Available for sale (AFS) securities 4,101,411 4,057,895 3,840,970 3,457,692 3,316,927 4,101,411 3,316,927 23.7
Memo: fair value adjustment AFS securities 32,907 36,237 18,153 1,575 (28,980) 32,907 (28,980) (213.6)
Loans, net of unearned income 11,982,677 10,779,547 10,679,985 10,093,820 9,069,267 11,982,677 9,069,267 32.1
Reserve for loan losses (154,852) (149,125) (144,567) (141,637) (135,928) (154,852) (135,928) 13.9
Total interest-earning assets 16,445,436 15,285,028 14,625,505 14,066,684 12,795,456 16,445,436 12,795,456 28.5
Intangible assets 322,983 269,014 248,973 246,628 171,009 322,983 171,009 88.9
Total assets 18,274,518 17,307,411 16,312,978 15,671,546 14,416,628 18,274,518 14,416,628 26.8
Noninterest-bearing deposits 2,270,669 2,348,638 2,303,163 2,217,107 2,021,116 2,270,669 2,021,116 12.3
Interest-bearing deposits 8,840,984 8,367,687 7,920,033 7,602,574 7,288,766 8,840,984 7,288,766 21.3
Total deposits 11,111,653 10,716,325 10,223,196 9,819,681 9,309,882 11,111,653 9,309,882 19.4
Short-term borrowed funds 3,934,165 3,551,851 3,354,922 3,283,322 2,562,778 3,934,165 2,562,778 53.5
Long-term debt 1,339,892 1,304,463 954,463 959,897 986,417 1,339,892 986,417 35.8
Total interest-bearing liabilities 14,115,041 13,224,001 12,229,418 11,845,793 10,837,961 14,115,041 10,837,961 30.2
Preferred stockholders' equity 501 501 510 531 532 501 532 (5.8)
Common stockholders' equity 1,412,805 1,316,912 1,299,534 1,261,479 1,119,635 1,412,805 1,119,635 26.2
Parent company investment in subsidiaries 1,590,193 1,471,679 1,420,607 1,369,329 1,216,236 1,590,193 1,216,236 30.7
- - ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
Problem Assets & Potential Problem Assets - End of Period:
Nonaccruing loans:
Commercial 15,989 13,505 15,821 17,094 14,139 15,989 14,139 13.1
Real estate term 13,529 14,089 15,420 12,848 14,225 13,529 14,225 (4.9)
Real estate construction 4,171 4,669 3,787 4,859 1,738 4,171 1,738 140.0
Consumer 88 2 30 32 102 88 102 (13.7)
Leases 361 331 316 617 279 361 279 29.4
Total nonaccruing loans 34,138 32,596 35,374 35,450 30,483 34,138 30,483 12.0
Other real estate 3,454 5,764 3,083 4,768 3,968 3,454 3,968 (13.0)
Total nonperforming assets 37,592 38,360 38,457 40,218 34,451 37,592 34,451 9.1
Accruing loans past due 90 days or more 18,800 20,091 19,147 20,537 20,430 18,800 20,430 (8.0)
Total problem assets 56,392 58,451 57,604 60,755 54,881 56,392 54,881 2.8
Potential problem assets 11,493 7,423 11,654 9,742 12,450 11,493 12,450 (7.7)
- - ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
Other Data - End of Period (not rounded):
Full-time equivalent employees 7,889 7,673 7,507 7,329 6,987 7,889 6,987 12.9
Domestic bank offices:
FS Bank: Utah (C) 130 129 127 124 124 130 124 4.8
FS Bank: Idaho (C) 88 88 87 87 87 88 87 1.1
FS Bank: Oregon (C) 13 13 13 13 13 13 13 0.0
FS Bank: Wyoming (C) 8 8 7 7 7 8 7 14.3
FSB New Mexico 31 31 29 29 28 31 28 10.7
FNB Dona Ana County (D) 10 10 NM
FNB Chaves County (D) 1 1 NM
FSB Nevada (E) 14 14 14 13 8 14 8 75.0
Total domestic bank offices 295 283 277 273 267 295 267 10.5
============================================== ========== ========== ========== ========== ========== ========== ========== =======
<FN>
Notes:
See "Notes to Condensed Consolidated Financial Statements".
EOP: End Of Period. EPCS: Earnings Per Common Share. DPCS: Dividends Per Common Share. AFS: Available For Sale. NM: Not Meaningful.
(A) Figures have been restated where appropriate to reflect 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 replaced with "Earnings Per Common Share Basic" and
"Earnings Per Common Share Fully Diluted" has been replaced with "Earnings Per Common Share Diluted".
(C) FSCO created FS Bank from these mergers: FSB Utah and FSB Idaho (June 1996); FSB Oregon (May 1997); FSB Wyoming (November 1997).
(D) On February 2, 1998, FSCO acquired First National Bank of Dona Ana County and First National Bank of Chaves County.
(E) On June 30, 1997, American Bank of Commerce was merged into FSB Nevada.
</TABLE>
<PAGE>
<TABLE>
FIRST SECURITY CORPORATION
FINANCIAL HIGHLIGHTS - Continued
(in thousands, except per share data and ratios; unaudited)
<CAPTION>
1st Qtr 4th Qtr 3rd Qtr 2nd Qtr 1st Qtr Year-To-Date Three Months
1998 1997 1997 1997 1997 1998 1997 %Chg
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- - ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
Balance Sheet - Average:
Trading account securities 295,414 163,330 178,070 360,339 168,094 295,414 168,094 75.7
Available for sale (AFS) securities 4,019,422 3,913,846 3,528,064 3,334,641 3,183,395 4,019,422 3,183,395 26.3
Memo: fair value adjustment AFS securities 39,271 27,650 13,126 (16,834) 3,284 39,271 3,284 1095.8
Loans, net of unearned income 11,205,418 10,771,482 10,380,275 9,573,919 9,205,427 11,205,418 9,205,427 21.7
Reserve for loan losses (151,884) (145,526) (142,741) (135,991) (134,272) (151,884) (134,272) 13.1
Deferred taxes on leases (196,556) (192,903) (186,212) (187,553) (183,598) (196,556) (183,598) 7.1
Total interest-earning assets, excluding
fair value adjustment AFS securities
& deferred taxes on leases 15,339,868 14,674,219 13,933,748 13,140,234 12,427,261 15,339,868 12,427,261 23.4
Intangible assets 292,483 255,430 246,071 178,320 170,857 292,483 170,857 71.2
Total assets 17,250,908 16,469,757 15,620,168 14,687,847 14,009,082 17,250,908 14,009,083 23.1
Noninterest-bearing deposits 2,137,924 2,186,716 2,053,916 1,995,783 1,895,233 2,137,924 1,895,233 12.8
Interest-bearing deposits 8,565,305 8,009,294 7,747,020 7,339,642 7,264,138 8,565,305 7,264,138 17.9
Total deposits 10,703,229 10,196,010 9,800,936 9,335,425 9,159,371 10,703,229 9,159,371 16.9
Short-term borrowed funds 3,466,633 3,307,171 3,205,848 2,887,346 2,412,952 3,466,633 2,412,952 43.7
Long-term debt 1,314,965 1,246,482 971,356 989,408 950,850 1,314,965 950,850 38.3
Total interest-bearing liabilities 13,346,903 12,562,947 11,924,224 11,216,396 10,627,940 13,346,903 10,627,940 25.6
Preferred stockholders' equity 501 506 524 532 535 501 535 (6.4)
Common stockholders' equity 1,326,041 1,301,964 1,280,385 1,134,894 1,142,557 1,326,041 1,142,557 16.1
- - ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
Reconciliation of the Reserve for Loan Losses:
Reserve for loan losses, beginning 149,125 144,567 141,637 135,928 134,428 149,125 134,428 10.9
Loans (charged off):
Commercial (1,870) (5,003) (1,990) (3,484) (1,470) (1,870) (1,470) 27.2
Real estate term (376) (760) (774) (967) (455) (376) (455) (17.4)
Real estate construction (33) (76) (76) (100.0)
Consumer credit card & related (3,417) (3,928) (3,242) (3,426) (3,343) (3,417) (3,343) 2.2
Consumer auto & other (13,122) (14,507) (12,600) (14,554) (14,686) (13,122) (14,686) (10.6)
Leases (3) (5) (6) (3) NM
Total loans charged off (18,788) (24,203) (18,645) (22,431) (20,030) (18,788) (20,030) (6.2)
Recoveries on loans charged off:
Commercial 1,948 1,112 1,086 1,671 1,387 1,948 1,387 40.4
Real estate term 730 724 447 385 269 730 269 171.4
Real estate construction 2 2 2 1 4 2 4 (50.0)
Consumer credit card & related 725 611 571 646 617 725 617 17.5
Consumer auto & other 5,660 5,219 5,699 7,054 5,354 5,660 5,354 5.7
Leases NM
Total recoveries of loans charged off 9,065 7,668 7,805 9,757 7,631 9,065 7,631 18.8
Net loans (charged off) recovered (9,723) (16,535) (10,840) (12,674) (12,399) (9,723) (12,399) (21.6)
Provision for loan losses 12,523 21,093 13,770 13,924 12,523 13,899 (9.9)
Acquisitions 2,927 2,927 NM
Reserve for loan losses, ending 154,852 149,125 144,567 141,637 135,928 154,852 135,928 13.9
- - ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
Selected Ratios (%):
Return on average assets (ROAA) 1.38 1.33 1.36 1.34 1.39 1.38 1.39
Tangible ROAA 1.56 1.39 1.56 1.48 1.53 1.56 1.53
Return on average stockholders' equity (ROAE) 17.98 16.86 16.62 17.30 17.02 17.98 17.02
Tangible ROAE 25.64 21.49 23.23 22.48 21.81 25.64 21.81
Net interest margin, FTE 4.06 4.32 4.45 4.37 4.38 4.06 4.38
Net interest spread, FTE 3.42 3.58 3.73 3.65 3.70 3.42 3.70
Operating expense ratio
(nonint exp / (net int inc FTE + nonint inc)) 59.98 59.37 58.76 58.92 57.99 59.98 57.99
Tangible operating expense ratio 57.50 58.90 56.53 56.90 56.07 57.50 56.07
Productivity ratio (nonint exp / avg assets) 3.70 3.77 3.59 3.60 3.61 3.70 3.61
Stockholders' equity / assets [EOP] 7.73 7.61 7.97 8.05 7.77 7.73 7.77
Stockholders' equity / assets [Avg] 7.69 7.91 8.20 7.73 8.16 7.69 8.16
Tangible common equity / tangible assets [EOP] 6.07 6.15 6.54 6.58 6.66 6.07 6.66
Loans / deposits [EOP] 107.84 100.59 104.47 102.79 97.42 107.84 97.42
Loans / assets [EOP] 65.57 62.28 65.47 64.41 62.91 65.57 62.91
Reserve for loan losses [EOP] /:
Total loans 1.29 1.38 1.35 1.40 1.50 1.29 1.50
Nonaccruing loans 453.61 457.49 408.68 399.54 445.91 453.61 445.91
Nonaccruing + accruing loans past due 90 days 292.52 283.04 265.16 252.98 266.98 292.52 266.98
Nonaccruing loans / total loans 0.28 0.30 0.33 0.35 0.34 0.28 0.34
Accruing loans past due 90 days / total loans 0.16 0.19 0.18 0.20 0.23 0.16 0.23
Nonaccruing + accr loans past due / total loans 0.44 0.49 0.51 0.55 0.56 0.44 0.56
Nonperforming assets /:
Total loans + other real estate 0.31 0.36 0.36 0.40 0.38 0.31 0.38
Total assets 0.21 0.22 0.24 0.26 0.24 0.21 0.24
Total equity 2.66 2.91 2.96 3.19 3.08 2.66 3.08
Total equity + reserve for loan losses 2.40 2.62 2.66 2.87 2.74 2.40 2.74
Problem assets /:
Total loans + other real estate 0.47 0.54 0.54 0.60 0.60 0.47 0.60
Total assets 0.31 0.34 0.35 0.39 0.38 0.31 0.38
Total equity 3.99 4.44 4.43 4.81 4.90 3.99 4.90
Total equity + reserve for loan losses 3.60 3.99 3.99 4.33 4.37 3.60 4.37
Net loans charged off / average loans 0.35 0.61 0.41 0.53 0.55 0.35 0.55
============================================== ========== ========== ========== ========== ========== ========== ========== =======
Capital Ratios & Risk-Based Capital Ratios (%) - as of March 31, 1998
FSCO FS Bank(C) FSB NewMex FSB Nevada FNBDonaAna FNB Chaves
---------- ---------- ---------- ---------- ---------- ----------
Leverage ratio 7.45 6.93 6.50 7.48 10.21 6.98
Tier 1 risk-based capital ratio 10.31 9.23 13.52 14.01 16.42 9.82
Total (Tier 1 + 2) risk-based capital ratio 13.04 10.56 14.78 15.27 17.47 11.08
Tier 1 risk-based capital ($) 1,345,115 1,030,198 127,166 75,612 39,366 2,709
Total (Tier 1 + 2) risk-based capital ($) 1,699,967 1,178,422 139,004 82,398 41,892 3,054
Total risk-based assets - loan loss reserve ($)13,041,149 11,164,272 940,312 539,555 239,742 27,577
============================================== ========== ========== ========== ========== ========== ========== ========== =======
<FN>
Notes:
See "Notes to Condensed Consolidated Financial Statements".
EOP: End Of Period. EPCS: Earnings Per Common Share. DPCS: Dividends Per Common Share. AFS: Available For Sale. NM: Not Meaningful.
(A) Figures have been restated where appropriate to reflect 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 replaced with "Earnings Per Common Share Basic" and
"Earnings Per Common Share Fully Diluted" has been replaced with "Earnings Per Common Share Diluted".
(C) FSCO created FS Bank from these mergers: FSB Utah and FSB Idaho (June 1996); FSB Oregon (May 1997); FSB Wyoming (November 1997).
(D) On February 2, 1998, FSCO acquired First National Bank of Dona Ana County and First National Bank of Chaves County.
(E) On June 30, 1997, American Bank of Commerce was merged into FSB Nevada.
</TABLE>
<PAGE>
<TABLE>
FIRST SECURITY CORPORATION
VOLUME / RATE ANALYSIS
(in thousands; fully taxable equivalent; unaudited) (A)
<CAPTION>
For the Three Months Ended March 31, 1998 and 1997
Average Balance Yield/Rate % Interest Inc/Exp Change Changes Due To:
1998 1997 1998 1997 1998 1997 1998-97 Volume Rate
<C> <C> <C> <C> <S> <C> <C> <C> <C> <C>
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
INTEREST-EARNING ASSETS / INCOME:
53,857 52,977 6.12 4.92 Federal funds sold & securities purchased 824 652 172 11 161
1,584 4,250 7.83 5.27 Interest-bearing deposits in other banks 31 56 (25) (35) 10
295,414 168,094 5.74 5.75 Trading account securities 4,238 2,415 1,823 1,829 (6)
3,980,151 3,180,111 6.72 6.67 Available for sale securities, amortized cost 66,865 53,009 13,856 13,336 520
Loans, net of unearned income &
11,008,862 9,021,829 9.05 9.14 deferred taxes on leases (B) 248,938 206,056 42,882 45,383 (2,501)
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
15,339,868 12,427,261 8.37 8.44 TOTAL INTEREST-EARNING ASSETS / INCOME 320,896 262,188 58,708 60,524 (1,816)
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
INTEREST-BEARING LIABILITIES / EXPENSE:
Interest-Bearing Deposits:
303,349 648,210 1.78 2.84 Interest-bearing demand accounts 1,350 4,600 (3,250) (2,447) (803)
3,581,999 2,958,162 3.17 3.05 Savings & money market accounts 28,380 22,541 5,839 4,754 1,085
1,255,488 776,641 5.89 5.48 Time deposits of $100,000 or more 18,499 10,647 7,852 6,565 1,287
3,424,469 2,881,125 5.65 5.56 Other time deposits 48,329 40,016 8,313 7,547 766
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
8,565,305 7,264,138 4.51 4.28 TOTAL INTEREST-BEARING DEPOSITS 96,558 77,804 18,754 16,419 2,335
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
3,126,545 2,133,464 5.31 5.03 Federal funds purchased & securities sold 41,523 26,807 14,716 12,478 2,238
340,088 279,488 5.93 6.40 Other short-term borrowings 5,039 4,469 570 969 (399)
1,314,965 950,850 6.68 7.10 Long-term debt 21,974 16,882 5,092 6,465 (1,373)
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
13,346,903 10,627,940 4.95 4.74 TOTAL INTEREST-BEARING LIABILITIES / EXPENSE 165,094 125,962 39,132 36,331 2,801
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
8.37 8.44 Interest income / earning assets
4.31 4.06 Interest expense / earning assets
------ ------ --------------------------------------------
4.06 4.38 Net interest income / earning assets 155,802 136,226 19,576 24,193 (4,617)
Less fully taxable equivalent adjustment 2,579 2,007 572
------ ------ -------------------------------------------- --------- --------- -------- -------- --------
NET INTEREST INCOME, PER CONSOLIDATED
STATEMENTS OF INCOME 153,223 134,219 19,004
=========== =========== ====== ====== ============================================ ========= ========= ======== ======== ========
<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 1998 and 1997.
(B) Loans include nonaccruing loans.
Interest on loans includes fees of $9,411 and $7,705 for the 1998 and 1997 quarters, respectively.
Interest on loans includes fees of $9,411 and $7,705 for the 1998 and 1997 year-to-date periods, respectively.
</TABLE>
<PAGE>
<TABLE>
FIRST SECURITY CORPORATION
LOANS (in thousands; unaudited)
<CAPTION>
March 31 %Total December 31 %Total March 31 %Total Mar/Mar
1998 Loans 1997 Loans 1997 Loans %Chg
<S> <C> <C> <C> <C> <C> <C> <C>
- - ----------------------------------------- ----------- ------ ----------- ------ ----------- ------ --------
COMMERCIAL LOANS:
Commercial & industrial 2,199,722 18.4 2,155,573 20.0 1,859,287 20.5 18.3
Agricultural 315,686 2.6 337,700 3.1 271,611 3.0 16.2
Other commercial 165,468 1.4 144,567 1.3 123,636 1.4 33.8
- - ----------------------------------------- ----------- ------ ----------- ------ ----------- ------ --------
TOTAL COMMERCIAL LOANS 2,680,876 22.4 2,637,840 24.5 2,254,534 24.9 18.9
- - ----------------------------------------- ----------- ------ ----------- ------ ----------- ------ --------
REAL ESTATE SECURED LOANS:
1 to 4 family residential term 2,940,558 24.5 2,163,707 20.1 1,400,072 15.4 110.0
1 to 4 family residential home equity 456,546 3.8 482,608 4.5 460,086 5.1 (0.8)
1 to 4 family residential construction 451,700 3.8 425,343 3.9 361,700 4.0 24.9
Commercial & other term 906,681 7.6 873,755 8.1 885,503 9.7 2.4
Commercial & other construction 278,783 2.3 281,139 2.6 197,916 2.2 40.9
- - ----------------------------------------- ----------- ------ ----------- ------ ----------- ------ --------
TOTAL REAL ESTATE SECURED LOANS 5,034,268 42.0 4,226,552 39.2 3,305,277 36.4 52.3
Memo: Total real estate term 4,303,785 35.9 3,520,070 32.7 2,745,661 30.3 56.7
Memo: Loans held for sale included
included in total real estate term 1,629,832 13.6 1,107,182 10.3 264,267 2.9 516.7
Memo: Total real estate construction 730,483 6.1 706,482 6.6 559,616 6.1 30.5
- - ----------------------------------------- ----------- ------ ----------- ------ ----------- ------ --------
CONSUMER LOANS:
Credit card & related 307,120 2.6 315,581 2.9 292,610 3.2 5.0
Vehicle & other consumer 2,924,169 24.4 2,569,110 23.8 2,373,788 26.2 23.2
- - ----------------------------------------- ----------- ------ ----------- ------ ----------- ------ --------
TOTAL CONSUMER LOANS 3,231,289 27.0 2,884,691 26.8 2,666,398 29.4 21.2
- - ----------------------------------------- ----------- ------ ----------- ------ ----------- ------ --------
TOTAL LEASES 1,036,244 8.6 1,030,464 9.6 843,058 9.3 22.9
- - ----------------------------------------- ----------- ------ ----------- ------ ----------- ------ --------
LOANS, NET OF UNEARNED INCOME 11,982,677 100.0 10,779,547 100.0 9,069,267 100.0 32.1
Memo: Unearned income (101,990) (104,519) (80,897) 26.1
Reserve for loan losses (154,852) (149,125) (135,928) 13.9
- - ----------------------------------------- ----------- ------ ----------- ------ ----------- ------ --------
TOTAL LOANS, NET 11,827,825 10,630,422 8,933,339 32.4
========================================= =========== ====== =========== ====== =========== ====== ========
</TABLE>
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, FSCO and its subsidiaries are subject to claims and
legal actions filed or threatened by customers and others in the ordinary
course of FSCO's business activities. Some legal actions filed against FSCO
seek inflated damages, often in an effort to force compromise of a troubled
loan transaction. Others recently have been filed as class actions alleging
technical violations of arcane Federal statutes with modest individual
damages, but potentially large class damage amounts. These are disclosed in
filings with the SEC as required by applicable rules. FSCO endeavors at all
times to conduct its business in a lawful manner, and will always vigorously
defend itself against unfounded claims, with a concomitant cost in legal fees
and expenses. Since the filing of FSCO's 1997 Annual Report on Form 10-K,
there have been no material developments in connection with pending legal
proceedings not already disclosed in previous filings with the SEC, except as
discussed below.
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) alleged violation of RESPA in connection with "yield
spread premiums" paid to mortgage brokers. The plaintiffs asserted this claim
as a class action. A settlement of this case took place in the first quarter
of 1998 and the case was dismissed.
Based on advice of legal counsel, and its own analysis, FSCO management
continues to believe that no reasonably foreseeable ultimate outcome of any or
all of the cases discussed above or previously reported will have a material
adverse impact on the business or assets of FSCO.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
FSCO held its Annual Shareholders' Meeting on April 27, 1998. Shares voted
(by proxy and in person) and total shares entitled to vote were as follows:
Votes # Votes % Entitled to Vote #
Shares 138,469,806.000 78.676 175,999,052.000
Votes were taken on the following Shareholder Proposals, described in
FSCO's Proxy Statement dated March 18, 1998:
* SHAREHOLDER PROPOSAL #1 "To elect a Board of Directors to serve for the
ensuing year". Management nominated all current members of the Board of
Directors for re-election. The results of this vote were as follows:
Votes Votes Votes For
Nominee: For # Withheld # / Cast %
JAMES C. BEARDALL 137,055,059.000 1,414,747.000 98.978
RODNEY H. BRADY 137,033,527.000 1,436,279.000 98.963
JAMES E. BRUCE 136,897,098.000 1,572,708.000 98.864
THOMAS D. DEE, II 136,945,967.000 1,523,839.000 98.900
SPENCER F. ECCLES 136,987,998.000 1,481,808.000 98.930
MORGAN J. EVANS 137,057,908.000 1,411,898.000 98.980
DR. DAVID P. GARDNER 136,989,080.000 1,480,726.000 98.931
ROBERT H. GARFF 136,981,464.000 1,488,342.000 98.925
JAY DEE HARRIS 136,902,458.000 1,567,348.000 98.868
ROBERT T. HEINER 136,523,170.000 1,946,636.000 98.594
KAREN H. HUNTSMAN 137,055,089.000 1,414,717.000 98.978
G. FRANK JOKLIK 136,729,994.000 1,739,812.000 98.744
B.Z. KASTLER 136,912,667.000 1,557,139.000 98.875
JOSEPH G. MALOOF 124,524,876.000 13,944,930.000 89.929
MICHELE PAPEN-DANIEL, PH.D 137,053,387.000 1,416,419.000 98.977
DR. J. BERNARD MACHEN 136,724,067.000 1,745,739.000 98.739
SCOTT S. PARKER 136,954,335.000 1,515,471.000 98.906
JAMES L. SORENSON 136,895,452.000 1,574,354.000 98.863
HAROLD J. STEELE 136,865,965.000 1,603,841.000 98.842
JAMES R. WILSON 137,005,130.000 1,464,676.000 98.942
* SHAREHOLDER PROPOSAL #2 "To consider and vote on the proposed increase in
the number of authorized shares of common stock that can be issued by the
company, from the present 300,000,000 shares to a new level of 600,000,000
shares". The results of this vote were as follows:
Votes Votes Votes For
Nominee: For # Withheld # / Cast %
SHAREHOLDER PROPOSAL #2 123,694,430.000 14,769,939.000 89.333
ITEM 6. EXHIBITS, AND REPORTS ON FORM 8-K
(a) Exhibit 11: Computation of Earnings Per Share (attached)
Exhibit 27: Financial Data Schedule (attached)
(b) Reports on Form 8-K:
* On January 26, 1998, FSCO filed a report on Form 8-K reporting the
following three items:
- 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.
* On February 19, 1998, FSCO filed a report on Form 8-K reporting the
following two items:
- 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.
# # #
<PAGE>
SIGNATURES
FIRST SECURITY CORPORATION
Registrant
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FIRST SECURITY CORPORATION
by
[SIGNED] May 14, 1998
_______________________________________________________ ____________________
Scott C. Ulbrich (Date)
Executive Vice President and Chief Financial Officer
Finance and Capital Markets
(Principal Financial and Accounting Officer)
# # #
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>
Three Months
For the Periods Ended March 31, 1998 and 1997 1998 1997
<S> <C> <C>
- - ----------------------------------------------------------- ---------- ----------
NET INCOME:
Net income per consolidated income statements 58,811 47,985
Subtract dividend requirement of preferred stock 7 8
- - ----------------------------------------------------------- ---------- ----------
NET INCOME APPLICABLE TO COMMON STOCK (BASIC) 58,804 47,977
Add dividend requirement of preferred stock 7 8
- - ----------------------------------------------------------- ---------- ----------
NET INCOME DILUTED 58,811 47,985
=========================================================== ========== ==========
EARNINGS PER COMMON SHARE BASIC 0.34 0.28
EARNINGS PER COMMON SHARE DILUTED 0.32 0.27
=========================================================== ========== ==========
SHARES OUTSTANDING (AVERAGE):
Common shares 177,519 171,931
Common equivalents (options) 5,920 4,968
Treasury shares (2,227) (2,647)
- - ----------------------------------------------------------- ---------- ----------
COMMON SHARES BASIC (AVG) 181,212 174,252
Preferred shares: common equivalents 391 418
- - ----------------------------------------------------------- ---------- ----------
COMMON SHARES DILUTED (AVG) 181,603 174,670
=========================================================== ========== ==========
<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 replaced with "Earnings Per Common Share Basic" and
- "Earnings Per Common Share Fully Diluted" has been replaced with "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> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 862,798
<INT-BEARING-DEPOSITS> 2,104
<FED-FUNDS-SOLD> 41,020
<TRADING-ASSETS> 318,224
<INVESTMENTS-HELD-FOR-SALE> 4,101,411
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 11,982,677
<ALLOWANCE> (154,852)
<TOTAL-ASSETS> 18,274,518
<DEPOSITS> 11,111,653
<SHORT-TERM> 3,934,165
<LIABILITIES-OTHER> 475,502
<LONG-TERM> 1,339,892
<COMMON> 1,412,805
0
501
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 18,274,518
<INTEREST-LOAN> 248,306
<INTEREST-INVEST> 64,930
<INTEREST-OTHER> 5,081
<INTEREST-TOTAL> 318,317
<INTEREST-DEPOSIT> 96,558
<INTEREST-EXPENSE> 165,094
<INTEREST-INCOME-NET> 153,223
<LOAN-LOSSES> 12,523
<SECURITIES-GAINS> 1,712
<EXPENSE-OTHER> 157,439
<INCOME-PRETAX> 89,944
<INCOME-PRE-EXTRAORDINARY> 89,944
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 58,811
<EPS-PRIMARY> 0.340
<EPS-DILUTED> 0.320
<YIELD-ACTUAL> 4.06
<LOANS-NON> 34,138
<LOANS-PAST> 18,800
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 56,392
<ALLOWANCE-OPEN> 149,125
<CHARGE-OFFS> (18,788)
<RECOVERIES> 9,065
<ALLOWANCE-CLOSE> 154,852
<ALLOWANCE-DOMESTIC> 154,852
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
* As required by SFAS No. 128, "Earnings Per Share":
- "Earnings Per Common Share Primary" has been replaced with "Earnings Per Common Share Basic" and
- "Earnings Per Common Share Fully Diluted" has been replaced with "Earnings Per Common Share Diluted".
* However, the EDGAR Tags used on this Financial Data Schedule do not comply with SFAS No. 128. As a result, data shown above as
"EPS-Primary" is actually "Earnings Per Common Share Basic" and "EPS-Diluted" is actually "Earnings Per Common Share Diluted".
</TABLE>
