<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 October 31, 1998, outstanding shares of Common Stock, par value $1.25,
were 188,694,430 (net of 1,238,574 treasury shares).
FIRST SECURITY CORPORATION - INDEX
Part I. Financial Information
Item 1. Financial Statements:
Consolidated Statements of Income
Three Months and Year To Date Nine Months Ended Sept. 30, 1998 and 1997
Consolidated Balance Sheets
September 30, 1998, December 31, 1997, and September 30, 1997
Condensed Consolidated Statements of Cash Flows
Year To Date Nine Months Ended September 30, 1998 and 1997
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition:
Important Notices
Forward-Looking Statements
Highlights
Analysis of Statements of Income
Earnings Summary
Total Revenues
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 Issues
Year 2000 Project
Year 2000 Risks
Year 2000 Contingency Plans
Year 2000 Forward-Looking Statements
Supplemental Financial Tables:
Financial Highlights, Risk-Based Capital Ratios
Volume / Rate Analysis
Loans
Part II. Other Information
Item 1. Legal Proceedings
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
Exhibit 11. Computation of Earnings Per Share
Exhibit 27. Financial Data Schedule
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
FIRST SECURITY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands, except per share data; unaudited) (A)
<CAPTION>
Three Months Year-To-Date Nine Months
For the Periods Ended September 30, 1998 and 1997 1998 1997 $Chg %Chg 1998 1997 $Chg %Chg
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- - ------------------------------------------------------- ---------- -------- -------- ------- ---------- -------- -------- -------
INTEREST INCOME:
Interest & fees on loans 288,031 251,211 36,820 14.7 822,223 697,685 124,538 17.9
Federal funds sold & securities purchased 1,160 1,081 79 7.3 4,025 3,294 731 22.2
Interest-bearing deposits in other banks 23 18 5 27.8 65 85 (20) (23.5)
Trading account securities 881 2,566 (1,685) (65.7) 6,930 10,324 (3,394) (32.9)
Available for sale securities 76,321 60,807 15,514 25.5 218,224 173,025 45,199 26.1
- - ------------------------------------------------------- ---------- -------- -------- ------- ---------- -------- -------- -------
TOTAL INTEREST INCOME 366,416 315,683 50,733 16.1 1,051,467 884,413 167,054 18.9
- - ------------------------------------------------------- ---------- -------- -------- ------- ---------- -------- -------- -------
INTEREST EXPENSE:
Deposits 103,178 90,786 12,392 13.6 305,703 257,090 48,613 18.9
Short-term borrowings 57,478 45,249 12,229 27.0 156,962 116,609 40,353 34.6
Long-term debt 26,005 16,337 9,668 59.2 71,818 50,352 21,466 42.6
- - ------------------------------------------------------- ---------- -------- -------- ------- ---------- -------- -------- -------
TOTAL INTEREST EXPENSE 186,661 152,372 34,289 22.5 534,483 424,051 110,432 26.0
- - ------------------------------------------------------- ---------- -------- -------- ------- ---------- -------- -------- -------
NET INTEREST INCOME 179,755 163,311 16,444 10.1 516,984 460,362 56,622 12.3
Provision for loan losses 18,068 13,922 4,146 29.8 49,062 42,144 6,918 16.4
- - ------------------------------------------------------- ---------- -------- -------- ------- ---------- -------- -------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 161,687 149,389 12,298 8.2 467,922 418,218 49,704 11.9
- - ------------------------------------------------------- ---------- -------- -------- ------- ---------- -------- -------- -------
NONINTEREST INCOME:
Service charges on deposit accounts 22,760 22,465 295 1.3 67,746 66,389 1,357 2.0
Other service charges, collections, commissions & fees 18,493 14,701 3,792 25.8 52,402 38,474 13,928 36.2
Asset securitization gains 1,260 201 1,059 526.9 17,709 8,017 9,692 120.9
Bankcard servicing fees & third-party processing fees 9,652 9,236 416 4.5 27,128 25,923 1,205 4.6
Insurance commissions & fees 4,617 4,163 454 10.9 12,626 12,769 (143) (1.1)
Mortgage banking activities 60,781 32,742 28,039 85.6 156,438 81,931 74,507 90.9
Mortgage banking activities MSR amortization (10,653) (3,877) (6,776) (174.8) (28,241) (11,968) (16,273) (136.0)
Trust (fiduciary) commissions & fees 7,549 6,422 1,127 17.5 21,296 18,459 2,837 15.4
Trading account securities gains (losses) 173 (244) 417 170.9 418 690 (272) (39.4)
Available for sale securities gains (losses) (2) 44 (46) (104.5) 3,310 2,957 353 11.9
Other 266 1,690 (1,424) (84.3) 11,114 6,641 4,473 67.4
- - ------------------------------------------------------- ---------- -------- -------- ------- ---------- -------- -------- -------
TOTAL NONINTEREST INCOME 114,896 87,543 27,353 31.2 341,946 250,282 91,664 36.6
- - ------------------------------------------------------- ---------- -------- -------- ------- ---------- -------- -------- -------
NONINTEREST EXPENSES:
Salaries & employee benefits 99,774 76,362 23,412 30.7 284,697 219,476 65,221 29.7
Amortization of intangibles 2,845 3,543 (698) (19.7) 8,347 8,379 (32) (0.4)
Armored & messenger 1,545 1,507 38 2.5 4,825 4,505 320 7.1
Bankcard interbank interchange & fees 9,174 8,876 298 3.4 26,561 25,415 1,146 4.5
Credit, appraisal & repossessions 6,963 4,915 2,048 41.7 19,607 10,591 9,016 85.1
Fees 2,669 2,301 368 16.0 8,548 7,522 1,026 13.6
Furniture & equipment 13,880 12,553 1,327 10.6 41,464 34,631 6,833 19.7
Insurance 2,076 1,539 537 34.9 6,185 4,684 1,501 32.0
Marketing 2,877 3,740 (863) (23.1) 10,331 9,810 521 5.3
Occupancy, net 9,450 8,961 489 5.5 28,194 26,893 1,301 4.8
Other real estate expense & loss provision (recovery) 112 560 (448) (80.0) 504 1,703 (1,199) (70.4)
Postage 3,257 2,913 344 11.8 9,929 8,310 1,619 19.5
Professional 3,570 3,203 367 11.5 14,859 9,421 5,438 57.7
Stationery & supplies 4,760 4,678 82 1.8 15,560 12,956 2,604 20.1
Telephone 4,310 4,040 270 6.7 12,034 12,219 (185) (1.5)
Travel 3,214 2,477 737 29.8 8,819 7,021 1,798 25.6
Other 9,040 7,662 1,378 18.0 29,135 20,424 8,711 42.7
- - ------------------------------------------------------- ---------- -------- -------- ------- ---------- -------- -------- -------
TOTAL NONINTEREST EXPENSES 179,516 149,830 29,686 19.8 529,599 423,960 105,639 24.9
- - ------------------------------------------------------- ---------- -------- -------- ------- ---------- -------- -------- -------
INCOME BEFORE PROVISION FOR INCOME TAXES 97,067 87,102 9,965 11.4 280,269 244,540 35,729 14.6
Provision for income taxes 33,976 31,066 2,910 9.4 99,902 87,297 12,605 14.4
- - ------------------------------------------------------- ---------- -------- -------- ------- ---------- -------- -------- -------
NET INCOME 63,091 56,036 7,055 12.6 180,367 157,243 23,124 14.7
======================================================= ========== ======== ======== ======= ========== ======== ======== =======
Dividend requirement of preferred stock 7 7 0 0.0 21 23 (2) (8.7)
- - ------------------------------------------------------- ---------- -------- -------- ------- ---------- -------- -------- -------
NET INCOME APPLICABLE TO COMMON STOCK 63,084 56,029 7,055 12.6 180,346 157,220 23,126 14.7
======================================================= ========== ======== ======== ======= ========== ======== ======== =======
Common stock dividend 24,472 20,318 4,154 20.4 71,001 57,647 13,354 23.2
======================================================= ========== ======== ======== ======= ========== ======== ======== =======
EARNINGS PER COMMON SHARE:
Earnings per common share basic 0.34 0.30 0.04 13.3 0.96 0.87 0.09 10.3
Earnings per common share diluted 0.33 0.29 0.04 13.8 0.93 0.84 0.09 10.7
Common shares basic [Avg] 187,931 184,717 3,214 1.7 187,303 181,450 5,853 3.2
Common shares diluted [Avg] 193,621 191,268 2,353 1.2 193,868 187,751 6,117 3.3
======================================================= ========== ======== ======== ======= ========== ======== ======== =======
CASH DIVIDENDS PAID OR ACCRUED PER SHARE:
Preferred stock dividend ($3.15 annual rate) 0.79 0.79 0.00 0.0 2.36 2.36 0.00 0.0
Common stock dividend 0.130 0.113 0.017 15.0 0.390 0.328 0.062 18.9
======================================================= ========== ======== ======== ======= ========== ======== ======== =======
<FN>
See "Notes to Consolidated Financial Statements".
</TABLE>
<PAGE>
<TABLE>
FIRST SECURITY CORPORATION
CONSOLIDATED BALANCE SHEETS
($ in thousands; unaudited) (A)
<CAPTION>
September 30 December 31 September 30 Sep/Sep Sep/Sep
1998 1997 1997 $ Chg % Chg
<S> <C> <C> <C> <C> <C>
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
ASSETS:
Cash & due from banks 828,015 1,219,435 928,056 (100,041) (10.8)
Federal funds sold & securities purchased under resale agreements 39,171 206,266 18,596 20,575 110.6
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Total Cash & Cash Equivalents 867,186 1,425,701 946,652 (79,466) (8.4)
Interest-bearing deposits in other banks 2,631 600 600 2,031 338.5
Trading account securities 73,067 255,320 87,154 (14,087) (16.2)
Available for sale securities, at fair value 4,912,396 4,351,525 4,109,176 803,220 19.5
(Amortized cost: $4,833,246; $4,313,847; and $4,089,980; respectively)
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Loans, net of unearned income 12,926,926 11,230,766 11,159,090 1,767,836 15.8
(Unearned income: $110,943; $106,369; and $106,743; respectively)
Reserve for loan losses (169,058) (157,525) (152,951) (16,107) 10.5
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Total Loans, Net 12,757,868 11,073,241 11,006,139 1,751,729 15.9
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Premises & equipment, net 327,671 288,433 284,709 42,962 15.1
Accrued income receivable 119,422 106,974 106,037 13,385 12.6
Other real estate 2,798 7,981 6,789 (3,991) (58.8)
Other assets 438,802 356,852 332,899 105,903 31.8
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Goodwill 205,915 174,928 169,817 36,098 21.3
Mortgage servicing rights 147,445 108,630 94,014 53,431 56.8
Other intangible assets 4,099 1,598 1,661 2,438 146.8
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Total Intangible Assets 357,459 285,156 265,492 91,967 34.6
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
TOTAL ASSETS 19,859,300 18,151,783 17,145,647 2,713,653 15.8
=========================================================================== =========== =========== =========== =========== =======
LIABILITIES:
Deposits: noninterest-bearing 2,431,637 2,431,006 2,391,563 40,074 1.7
Deposits: interest-bearing 9,511,979 8,986,628 8,531,915 980,064 11.5
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Total Deposits 11,943,616 11,417,634 10,923,478 1,020,138 9.3
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Federal funds purchased & securities sold under repurchase agreements 3,680,396 3,252,259 2,919,217 761,179 26.1
U.S. Treasury demand notes 39,091 21,050 18,844 20,247 107.4
Other short-term borrowings 307,432 331,890 461,448 (154,016) (33.4)
Accrued income taxes 341,952 255,062 239,086 102,866 43.0
Accrued interest payable 56,468 51,928 46,976 9,492 20.2
Other liabilities 130,861 116,651 199,645 (68,784) (34.5)
Long-term debt 1,749,478 1,304,463 954,463 795,015 83.3
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
TOTAL LIABILITIES 18,249,294 16,750,937 15,763,157 2,486,137 15.8
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
STOCKHOLDERS' EQUITY:
Preferred stock: Series "A" $3.15 cumulative convertible 491 501 510 (19) (3.7)
(Shares issued: 9; 10; and 10; respectively)
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Common Stockholders' Equity:
Common stock: par value $1.25 237,099 232,595 232,539 4,560 2.0
(Shares issued: 189,679; 186,076; and 186,032; respectively)
Paid-in surplus 157,164 115,855 109,369 47,795 43.7
Retained earnings 1,190,538 1,081,195 1,044,708 145,830 14.0
Accumulated other comprehensive income 49,595 23,568 12,257 37,338 304.6
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Subtotal 1,634,396 1,453,213 1,398,873 235,523 16.8
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Common treasury stock, at cost (24,881) (52,868) (16,893) (7,988) 47.3
(Shares: 1,238; 1,654; and 1,262; respectively)
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
Total Common Stockholders' Equity 1,609,515 1,400,345 1,381,980 227,535 16.5
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
TOTAL STOCKHOLDERS' EQUITY 1,610,006 1,400,846 1,382,490 227,516 16.5
- - --------------------------------------------------------------------------- ----------- ----------- ----------- ----------- -------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY 19,859,300 18,151,783 17,145,647 2,713,653 15.8
=========================================================================== =========== =========== =========== =========== =======
<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) (A)
<CAPTION>
Year-To-Date Nine Months
For the Periods Ended September 30, 1998 and 1997 1998 1997
<S> <C> <C>
- - --------------------------------------------------------------------- ----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 879,165 598,211
- - --------------------------------------------------------------------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of available for sale securities 7,232 347,653
Redemption of matured available for sale securities 1,285,996 712,180
Purchases of available for sale securities (1,708,858) (1,710,756)
Net (increase) decrease in interest-bearing deposits in other banks (2,031) 31,117
Net (increase) decrease in loans (2,064,283) (1,329,912)
Proceeds from sales of auto loans 0 0
Purchases of premises and equipment (29,715) (26,096)
Proceeds from sales of other real estate 8,972 8,478
Payments to improve other real estate (2,218) (2,754)
Net cash (paid for) received from acquisitions 45,007 32,189
- - --------------------------------------------------------------------- ----------- -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (2,459,898) (1,937,901)
- - --------------------------------------------------------------------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 182,628 590,830
Net increase (decrease) in Federal funds purchased, securities sold
under repurchase agreements, and U.S. Treasury demand notes 445,378 342,728
Proceeds (payments) on nonrecourse debt on leveraged leases 75,635 11,335
Proceeds from issuance of long-term debt and short-term borrowings 487,277 243,003
Payments on long-term debt and short-term borrowings (86,050) (48,796)
Proceeds from issuance of common stock and sales of treasury stock 11,864 10,228
Purchases of treasury stock (23,491) (53,787)
Dividends paid (71,023) (57,561)
- - --------------------------------------------------------------------- ----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,022,218 1,037,980
- - --------------------------------------------------------------------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (558,515) (301,710)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,425,701 1,248,362
- - --------------------------------------------------------------------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD 867,186 946,652
===================================================================== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
- - --------------------------------------------------------------------- ----------- -----------
CASH PAID (RECEIVED) FOR:
Interest 529,943 419,734
Income taxes 30,299 34,091
===================================================================== =========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Conversion of preferred shares to common shares:
Number of preferred shares converted 180 553
Number of common shares issued 6,929 13,728
Conversion value 10 29
Transfer of loans to other real estate 1,779 2,800
Net unrealized gain (loss) on available for sale securities
included in stockholders' equity 26,027 11,361
Acquisitions:
Assets acquired 1,317,988 369,829
Liabilities assumed 1,147,242 272,768
Number of FSCO shares issued 15,347,609 3,574,159
===================================================================== =========== ===========
<FN>
See "Notes to Consolidated Financial Statements".
</TABLE>
<PAGE>
<TABLE>
FIRST SECURITY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
($ in thousands; unaudited) (A, B)
<CAPTION>
Three Months Year-To-Date Nine Months
For the Periods Ended September 30, 1998 1997 $Chg %Chg 1998 1997 $Chg %Chg
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- - ------------------------------------------------- ---------- ---------- ---------- ------- ---------- ---------- ---------- -------
NET INCOME 63,091 56,036 7,055 12.6 180,367 157,243 23,124 14.7
- - ------------------------------------------------- ---------- ---------- ---------- ------- ---------- ---------- ---------- -------
OTHER COMPREHENSIVE INCOME, AFTER TAX 25,043 10,728 14,315 133.4 26,027 11,361 14,666 129.1
- - ------------------------------------------------- ---------- ---------- ---------- ------- ---------- ---------- ---------- -------
COMPREHENSIVE INCOME 88,134 66,764 21,370 32.0 206,394 168,604 37,790 22.4
================================================= ========== ========== ========== ======= ========== ========== ========== =======
<FN>
See "Notes to Consolidated Financial Statements".
</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 and year-to-date nine months
ended September 30, 1998 and 1997; financial position as of September 30, 1998,
December 31, 1997, and September 30, 1997; and cash flows for the year-to-date
nine months ended September 30, 1998 and 1997.
2. FSCO's results of operations for the three months and year-to-date nine
months ended September 30, 1998 and 1997 are not necessarily indicative of the
results to be expected for the full year.
3. All FSCO financial data has been restated for:
* two separate 3-for-2 common stock splits in the form of 50% stock
dividends, paid in May 1997 and February 1998 (see: "Common and Preferred
Stock").
* SFAS No. 128, "Earnings Per Share" (EPS), which required the restatement
of EPS primary to EPS basic and EPS fully diluted to EPS diluted (see:
"Analysis of Statements of Income: Earnings Summary").
* the May 30, 1998 pooling-of-interests merger with California State Bank
(CSB; see: "Mergers and Acquisitions"). In addition, on October 1, 1998, FSCO
restated the financial data for its previously released Annual Report on Form
10-K for the year ended December 31, 1997 in order to reflect the CSB merger
(see: "Item 6. Exhibits and Reports on Form 8-K"). For this merger, FSCO
issued approximately 11,383,000 shares of its common stock in exchange for all
of the outstanding shares of CSB common stock, and incurred one-time merger
charges totaling $8.9 million pre-tax (including $6.9 million of noninterest
expenses) and $7.2 million or $0.037 per share after tax recorded in the second
quarter of 1998. There were no material intercompany transactions between FSCO
and CSB prior to the merger. Certain reclassifications / adjustments have been
made to amounts previously reported by CSB to conform to FSCO accounting
practices and policies.
4. FSCO's financial statements and commentary incorporate fair market
values for balances added from purchase acquisitions, and historical values for
balances added from pooling-of-interests mergers, as well as earnings since
their acquisition from the following purchase acquisitions completed in 1997
and year-to-date 1998:
* On March 31, 1997, FSCO's subsidiary CrossLand Mortgage acquired the
wholesale loan production branch operations of Harbourton Mortgage Co., L.P.
* On June 30, 1997, FSCO acquired American Bancorp of Nevada and merged its
wholly owned subsidiary American Bank of Commerce into FSCO's First Security
Bank of Nevada.
* On February 2, 1998, FSCO acquired Rio Grande Bancshares, Inc. and its two
bank subsidiaries First National Bank of Dona Ana County and First National
Bank of Chaves County. On July 1, 1998, FSCO merged and renamed these
subsidiaries as First Security Bank of Southern New Mexico.
Pro forma results of operations for 1998 and 1997, as if the above acquired
companies had combined at the beginning of the periods, are not presented
because the effect was not material.
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. In accordance with SFAS No. 125, FSCO's capitalized mortgage servicing
rights for the year to date nine months ended September 30, 1998 included $67.1
million originated and $28.2 million amortized during the period.
7. 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.
8. 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 and in its October
1, 1998 Report on Form 8-K restating the financial data for that 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.
9. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which supercedes SFAS No. 80, "Accounting
for Futures Contracts", SFAS No. 105, "Disclosure of Information About
Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments
with Concentration of Credit Risk", and SFAS No. 119, "Disclosures About
Derivative Financial Instruments and Fair Value of Financial Instruments", and
also amends certain aspects of other SFAS's previously issued. This statement
establishes accounting and reporting standards for derivative instruments and
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value.
SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999.
FSCO is currently working on the implementation of SFAS No. 133 and expects
to make changes in its accounting for derivatives. The full effect of SFAS No.
133 is not known at this time.
# # #
<PAGE>
FIRST SECURITY CORPORATION (FSCO)
PART 1. FINANCIAL INFORMATION
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS (MDA) OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
IMPORTANT NOTICES:
1. THIS MDA SHOULD BE READ IN CONJUNCTION WITH FSCO'S CONSOLIDATED FINANCIAL
STATEMENTS AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2. ALL FSCO FINANCIAL DATA HAS BEEN RESTATED FOR:
* two separate 3-for-2 common stock splits in the form of 50% stock
dividends, paid in May 1997 and February 1998.
* SFAS No. 128, "Earnings Per Share" (EPS), which required the restatement
of EPS primary to EPS basic and EPS fully diluted to EPS diluted.
* the May 30, 1998 pooling-of-interests merger with California State Bank
(CSB).
FORWARD-LOOKING STATEMENTS
Except for the historical information in this document, the matters
described herein, including the "year 2000 issues" discussion, 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: year 2000
issues; 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 ongoing 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 - YEAR-TO-DATE 1998 (compared to year-ago period)
* Net income: $180.4 million, up 14.7%; $187.6 million before CSB merger
charges, up 19.3%.
* Earnings per share diluted: $0.93, up 10.7%; $0.97 before CSB merger charges,
up 15.5%.
* Noninterest income: $341.9 million, up 36.6%.
RESULTS OF OPERATIONS - THIRD QUARTER 1998 (compared to year-ago quarter)
* Net income: $63.1 million, up 12.6%.
* Earnings per share diluted: $0.33, up 13.8%.
FINANCIAL CONDITION - SEPTEMBER 30, 1998 (compared to year end and year ago)
* Total assets: $19.9 billion, up 9.4% and 15.8%.
* Loans: $12.9 billion, up 15.1% and 15.8%.
* Stockholders' equity: $1.6 billion, up 14.9% and 16.5%.
* Ratio of total problem assets to total loans & ORE: 0.50%, down from 0.58%
and 0.58%.
* Ratio of reserve to total loans: 1.31%, down from 1.40% and 1.37%.
* Ratio of reserve to nonaccruing loans: 410.48%, down from 427.17% and
401.57%.
* All equity and risk-based capital ratios continued to exceed regulatory
requirements for "well capitalized" status.
OTHER HIGHLIGHTS
* September 23, 1998, FSCO signed a definitive agreement to acquire Van Kasper
& Company.
* October 7, 1998, FSCO signed a definitive agreement to acquire Marine
National Bank.
ANALYSIS OF STATEMENTS OF INCOME
EARNINGS SUMMARY
FSCO's net income was a record $180.4 million for year-to-date 1998, up
$23.1 million or 14.7% from the corresponding 1997 period. This net income
represented a 1.27% return on average assets (ROAA) and a 16.11% return on
average equity (ROAE) for the year to date, compared with a 1.35% ROAA and a
16.59% ROAE for the year-ago period. Earnings per share (EPS) diluted were
$0.93 for the year to date, up $0.09 or 10.7% from the year-ago period. The
tangible ROAA was 1.48%, the tangible ROAE was 23.70%, and tangible EPS diluted
were $1.06 for the year to date, compared with a 1.51% tangible ROAA, a 21.98%
tangible ROAE, and tangible EPS diluted of $0.92 for the year-ago period.
Before one-time CSB merger charges totaling $7.2 million after tax, FSCO's
net income was $187.6 million for year-to-date 1998, up $30.4 million or 19.3%
from the year-ago period. This net income generated a 1.33% ROAA and a 16.75%
ROAE. Earnings per share diluted were $0.97 for the year to date, up $0.13 or
15.5% from the year-ago period. The tangible ROAA was 1.53%, the tangible ROAE
was 24.54%, and tangible EPS diluted were $1.10 for the year to date.
FSCO's net income was a record $63.1 million for the third quarter of 1998,
up $7.1 million or 12.6% from the third quarter of 1997. This net income
generated a 1.27% ROAA and a 16.07% ROAE for the quarter, compared with a 1.36%
ROAA and a 16.31% ROAE for the year-ago quarter. Earnings per share diluted
were $0.33 for the quarter, up $0.04 or 13.8% from the year-ago quarter. The
tangible ROAA was 1.49%, the tangible ROAE was 23.81%, and tangible EPS diluted
were $0.37 for the quarter, compared with a 1.56% tangible ROAA, a 22.85%
tangible ROAE, and tangible EPS diluted of $0.33 for the year-ago quarter.
TOTAL REVENUES
FSCO's revenues (net interest income plus noninterest income) were $858.9
million for year-to-date 1998, up $148.3 million or 20.9% from the year-ago
period, and were $294.7 million for the third quarter of 1998, up $43.8 million
or 17.5% from the year-ago quarter. The components of FSCO's total revenues
are discussed below in the "Net Interest Income And Net Interest Margin" and
"Noninterest Income" sections.
NET INTEREST INCOME AND NET INTEREST MARGIN
FSCO's net interest income on a fully taxable equivalent (FTE) basis was
$524.6 million for year-to-date 1998, up $58.1 million or 12.5% from the year-
ago period, and was $182.0 million for the third quarter of 1998, up $16.4
million or 9.9% from the year-ago quarter. These increases were due to a
combination of continued strong demand for loans, growth in the securities
portfolios, and the positive impact of three purchase acquisitions completed in
the last twelve months. These factors were partially offset by growth of
average interest-bearing liabilities. On a linked quarter basis, FSCO's net
interest income FTE for the third quarter of 1998 increased $6.2 million or
3.6% over the second quarter of 1998.
FSCO's net interest margin was 4.15% for year-to-date 1998, down 35 basis
points from the year-ago period, and was 4.14% for the third quarter of 1998,
down 39 basis points from the year-ago quarter. These decreases were due to a
combination of the following factors: strong volume 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. On a linked quarter basis, FSCO's net interest margin has
remained essentially unchanged for three quarters in a row while net interest
income was increased through its lending and investing 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 $49.1 million for year-to-date 1998, up
$6.9 million or 16.4% from the year-ago period, and was $18.1 million for the
third quarter of 1998, up $4.1 million or 29.8% from the year-ago quarter (see:
"Asset Quality: Provision For Loan Losses").
NONINTEREST INCOME
FSCO's noninterest income was $341.9 million for year-to-date 1998, up $91.7
million or 36.6% from the year-ago period, and was $114.9 million for the third
quarter of 1998, up $27.4 million or 31.2% from the year-ago quarter. These
increases were due to several factors including: strong growth in mortgage
banking activities generated by lower interest rates and purchase acquisitions;
gains from ongoing asset securitizations / sales; growth in loan servicing and
trust fees; 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. FSCO's noninterest income amounted to 39.81% of total
revenues for year-to-date 1998, up from 35.22% for the year-ago period, and was
38.99% of total revenues for the quarter, up from 34.90% for the year-ago
quarter.
NONINTEREST EXPENSES
FSCO's noninterest expenses were $529.6 million for year-to-date 1998, up
$105.6 million or 24.9% from the year-ago period, and were $179.5 million for
the third quarter of 1998, up $29.7 million or 19.8% from the year-ago quarter.
These increases were primarily due to the following: additions of revenue-
generating personnel; additional operating expenses of purchase acquisitions;
ongoing volume growth; the cost of necessary technological advances and
upgrades including "year 2000" expenditures; one-time CSB merger noninterest
expenses of $6.9 million; and one-time costs for the creation of a "Section 20"
securities broker / dealer subsidiary. FSCO continued to control ongoing
noninterest expenses while expending the funds needed to support strong growth,
multiple acquisitions, and investments in technology. The components of FSCO's
noninterest expenses are discussed below.
* FSCO's salaries and benefits expense were $284.7 million for the year to
date, up $65.2 million or 29.7% from the year-ago period, and were $99.8
million for the quarter, up $23.4 million or 30.7% from the year-ago quarter.
* FSCO's nonpersonnel expenses were $244.9 million for the year to date, up
$40.4 million or 19.8% from the year-ago period, and were $79.7 million for the
quarter, up $6.3 million or 8.5% from the year-ago quarter.
FSCO's operating expense ratio (the ratio of noninterest expenses to the sum
of net interest income FTE and noninterest income) was 61.11% for year-to-date
1998, up 197 basis points from the year-ago period, and was 60.46% for the
third quarter of 1998, up 128 basis from the year-ago quarter. FSCO's tangible
operating expense ratio was 58.25% for the year to date, up 123 basis points
from the year-ago period, and was 57.44% for the quarter, up 53 basis from the
year-ago quarter. These increases were due to the noninterest expense and net
interest margin factors described above.
Before one-time CSB merger noninterest expenses of $6.9 million in the
second quarter of 1998, FSCO's noninterest expenses were $522.7 million for
year-to-date 1998, up $98.7 million or 23.3% from the year-ago period. FSCO's
operating expense ratio before CSB merger expenses was 60.31% for year-to-date
1998, up 117 basis points from the year-ago period.
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 efficiency ratio was 57.35% for year-to-date 1998,
up 186 basis points from the year-ago period, and was 56.88% for the third
quarter of 1998, up 120 basis from the year-ago quarter. Excluding both
CrossLand Mortgage and CSB merger expenses, FSCO's efficiency ratio was 56.40%
for year-to-date 1998, up 91 basis points from the year-ago period.
ANALYSIS OF BALANCE SHEETS
SUMMARY
FSCO's assets totaled $19.9 billion at September 30, 1998, up $1.7 billion
or 9.4% from year-end 1997, and up $2.7 billion or 15.8% from one year ago.
Interest-earning assets were $18.0 billion at quarter end, up $1.9 billion or
11.9% from year end, and up $2.6 billion or 16.8% from one year ago.
At September 30, 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 $18.2 billion at September 30, 1998, up $1.5
billion or 8.9% from year end, and up $2.5 billion or 15.8% from one year ago.
Total interest-bearing liabilities were $15.3 billion at quarter end, up $1.4
billion or 10.0% from year end, and up $2.4 billion or 18.6% from one year ago.
FSCO's stockholders' equity was increased to $1.6 billion at September 30,
1998, up $0.2 billion or 14.9% from year end, and up $0.2 billion or 16.5% from
one year ago.
INTEREST-EARNING ASSETS:
TRADING ACCOUNT SECURITIES AND OTHER MONEY MARKET INVESTMENTS
FSCO's trading account securities were $73.1 million at September 30, 1998,
down $182.3 million or 71.4% from year end, and down $14.1 million or 16.2%
from one year ago. Fluctuations in trading opportunities have 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 $4.9 billion at September
30, 1998, up $0.6 billion or 12.9% from year end, and up $0.8 billion or 19.5%
from one year ago. These increases were 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 $12.9 billion at September 30, 1998, up $1.7 billion or 15.1% from year
end, and up $1.8 billion or 15.8% from one year ago. This growth was a result
of continued strong loan demand, loans held temporarily for securitization or
sale, and loans added with purchase acquisitions, partially offset by asset
securitizations and sales. The ratio of total loans to total assets was 65.09%
at quarter end, up from 61.87% at year end, and essentially flat from 65.08%
one year ago. The components of FSCO's loan portfolio at September 30, 1998,
compared with December 31, 1997, and September 30, 1997, respectively, are
discussed below.
* Commercial loans were $3.0 billion, up $0.2 billion or 6.9% from year end,
and up $0.3 billion or 11.6% from one year ago. These increases were primarily
due to a continued broad-based business expansion in FSCO's market areas.
Commercial loans consisted primarily of loans to small and middle-market
businesses and agricultural-related businesses.
* Real estate secured loans were $5.1 billion, up $0.6 billion or 13.0% from
year end, and up $0.7 billion or 16.8% from one year ago. These increases were
primarily due to strong loan originations generated by increased demand and
lower interest rates, with 1 to 4 family residential term loan originations of
$10.6 billion in the last 9 months, and $12.9 billion in the last 12 months.
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 $0.5 billion or 45.3% from year
end, and up $0.8 billion or 86.9% from one year ago.
* Consumer loans were $3.7 billion, up $0.8 billion or 26.0% from year end,
and up $0.5 billion or 15.2% from one year ago. These increases were primarily
due to growth in auto lending, with indirect vehicle loan originations of $2.1
billion in the last 9 months, and $2.6 billion in the last 12 months. However,
this growth was partially offset by a combination of maturing loans and
indirect vehicle loan securitizations and sales, with $0.5 billion sold in
November 1997 and another $0.5 billion sold on April 13, 1998. In October
1998, FSCO securitized and sold an additional $0.75 billion. FSCO remained the
leading consumer lender in its primary market area.
* Leases were $1.2 billion, up $0.2 billion or 15.7% from year end, and up
$0.2 billion or 25.1% from one year ago. These increases were primarily due to
FSCO's growth in the auto and equipment leasing markets, partially offset by
sales of $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, as its ratio of total problem
assets to total loans and other real estate was 0.50% at September 30, 1998,
down from 0.58% at both year end and one year ago. The ratio of nonperforming
assets to total loans and ORE was 0.34% at September 30, 1998, down from 0.40%
at both year end and one year ago.
Problem assets totaled $64.4 million at September 30, 1998, down $1.3
million or 2.0% from year end, and down $0.6 million or 1.0% from one year ago.
The components of FSCO's problem assets at September 30, 1998, compared with
December 31, 1997, and September 30, 1997, respectively, are discussed below.
* Nonaccruing loans were $41.2 million, up $4.3 million or 11.7% from year
end, and up $3.1 million or 8.1% from one year ago. The increase from year end
occurred primarily in commercial loans and real estate term loans, while the
largest increase from one year ago occurred in real estate term loans. The
ratio of nonaccruing loans to total loans was 0.32%, down slightly from 0.33%
at year end and 0.34% one year ago.
* Other real estate was $2.8 million, down $5.2 million or 64.9% from year
end, and down $4.0 million or 58.8% from one year ago. These reductions were
the result of sales of several properties located throughout FSCO's market
areas. 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 $20.4 million, essentially
unchanged from $20.8 million at year end and $20.1 million one year ago. The
ratio of accruing loans past due 90 days or more to total loans was 0.16%, down
from 0.19% at year end and 0.18% one year ago.
A comparison of FSCO to its Bank Holding Company Performance Report (BHCPR)
peer group as of June 30, 1998 showed that: FSCO's ratio of nonaccruing loans
to total loans was 0.32%, 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 0.18%, which compared favorably with the peer group average of 0.21%.
Potential problem loans identified by FSCO amounted to $55.2 million at
September 30, 1998, up $47.7 million or 643.0% from year end, and up $43.5
million or 373.2% from one year ago. These increases were primarily caused by
one large secured loan to a Utah-based commercial borrower that experienced
product problems in its operations, a residential construction loan, and an
agricultural loan. Potential problem loans consisted primarily of commercial
loans and residential real estate loans.
ASSET QUALITY:
RESERVE FOR LOAN LOSSES
FSCO's reserve for loan losses was increased to $169.1 million at September
30, 1998, up $11.5 million or 7.3% from year end, and up $16.1 million or 10.5%
from one year ago. These increases were due to additions to the reserve in
response to strong growth in average loans, and reserves added with the Rio
Grande Bancshares (RGB) acquisition.
Based on its analysis of reserve adequacy, FSCO considered its reserve for
loan losses at September 30, 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 410.48% at September 30, 1998, down from 427.17% at year
end, but up from 401.57% one year ago. The ratio of the reserve to total loans
was 1.31% at quarter end, down from 1.40% at year end and 1.37% one year ago.
These decreases were due in large part to the significant growth in consumer
loans, many of which are periodically securitized and sold, and warehoused
residential mortgage loans, which are held for sale and which require lower
levels of reserve coverage in comparison to other loan types. FSCO relies on
the methodology for analysis of reserve adequacy outlined in its 1997 Annual
Report on Form 10-K and in its October 1, 1998 Report on Form 8-K restating the
financial data for that 10-K (hereby incorporated by reference) and not on any
specific reserve ratio comparison.
Net loans charged off against the reserve were $40.5 million for year-to-
date 1998, up $4.1 million or 11.3% from the year-ago period, and were $15.7
million for the third quarter of 1998, up $4.5 million or 40.6% from the year-
ago quarter. These increases were primarily due to increased net loans charged
off in consumer vehicle and other loans. The annualized ratio of net loans
charged off to average loans was 0.44% for year-to-date 1998, down from 0.48%
for the year-ago period, and was 0.48% for the quarter, up from 0.41% for the
year-ago quarter.
A comparison of FSCO to its BHCPR peer group as of June 30, 1998 showed
that: FSCO's coverage ratio of the reserve to nonaccruing loans was 419.66%,
which compared favorably with the peer group average of 361.18%; FSCO's ratio
of the reserve to total loans was 1.33%, compared with the peer group average
of 1.70%; and FSCO's annualized ratio of net loans charged off to average loans
was 0.42% for the year, which compared closely to the peer group average of
0.44% 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 and in its October 1, 1998
Report on Form 8-K restating the financial data for that 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 the entire loan portfolio, as
needed, regardless of allocation.
ASSET QUALITY:
PROVISION FOR LOAN LOSSES
FSCO's provision for loan losses was $49.1 million for year-to-date 1998, up
$6.9 million or 16.4% from the year-ago period, and was $18.1 million for the
third quarter of 1998, up $4.1 million or 29.8% from the year-ago quarter.
These increases included $13.2 million in additions to the reserve, over and
above net loans charged off, in the last 12 months as FSCO responded to loan
growth during the period, plus $2.9 million in reserves added with the RGB
acquisition.
ASSET / LIABILITY MANAGEMENT:
LIQUIDITY
FSCO's deposits totaled $11.9 billion at September 30, 1998, up $0.5 billion
or 4.6% from year end, and up $1.0 billion or 9.3% from one year ago, due to
FSCO's continued emphasis on its deposit gathering functions, the success of
several deposit gathering programs, and the acquisition of banks with strong
deposit characteristics. The ratio of loans to deposits was 108.23% at quarter
end, up from 98.36% at year end and 102.16% one year ago. These increases were
due to continued strong loan demand, significant increases in mortgage loans
due to refinance activity, and loans held temporarily for securitization or
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 $5.8 billion at September 30, 1998, up $0.9 billion or 17.7% from year
end, and up $1.4 billion or 32.7% from one year ago. The components of FSCO's
debt at September 30, 1998, compared with December 31, 1997, and September 30,
1997, respectively, are discussed below.
* Federal funds purchased and securities sold under repurchase agreements
were $3.7 billion, up $0.4 billion or 13.2% from year end, and up $0.8 billion
or 26.1% from one year ago. 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, loans held for securitization or sale,
and funded growth in AFS securities through repurchase agreements.
* All other short-term borrowed funds were $0.3 billion, essentially
unchanged from year end, but down $0.1 billion or 27.9% from one year ago,
primarily due to maturing issues formerly classified as long-term debt.
* Long-term debt was $1.7 billion, up $0.4 billion or 34.1% from year end,
and up $0.8 billion or 83.3% from one year ago. These increases were due to
new Federal Home Loan Bank borrowings and the October 1997 issuance of $300
million of Floating Rate European Medium Term Notes, 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 September 30, 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 for year-to-date 1998 grew $2.1 billion or 21.0% from
the year-ago period due to a strong regional economy and resulting loan demand
and mortgage refinance activity. Average deposits grew $1.5 billion or 15.2%
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. 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 for year-to-
date 1998, up $1.0 billion or 28.7% from the year-ago period. 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, forwards, futures, and
options totaled $2.6 billion notional amount at September 30, 1998, up from
$1.5 billion at year end, and up from $1.8 billion one year ago. These
increases were primarily associated with hedging mortgage loan servicing
rights.
ASSET / LIABILITY MANAGEMENT:
MARKET RISK - TRADING ACCOUNT SECURITIES
Financial futures and options contracts related to FSCO's trading account
securities totaled $10.3 billion notional par value at September 30, 1998, down
from $12.6 billion notional value at year end, and down from $16.6 billion
notional amount one year ago. 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 $357 million at September 30, 1998, up from
year end and one year ago 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 $1.6 billion at September 30,
1998, up $0.2 billion or 14.9% from year-end 1997 and up $0.2 billion or 16.5%
from one year ago. This growth was due to the following: earnings retained;
issuances of new FSCO common stock shares for acquisitions; and the impact of
the SFAS 130 accumulated other comprehensive income which consisted of
unrealized net gains on AFS securities; partially offset by repurchases of
common stock in the public markets in 1997 and early 1998.
Application of SFAS 130 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 7.93% at September
30, 1998, down from 8.01% at year-end 1997 and 8.31% one year ago. The ratio
of tangible common equity to tangible assets was 6.42% at quarter end, compared
with 6.24% at year end and 6.61% one year ago, reflecting the goodwill
recognized with the RGB acquisition and the ongoing origination of mortgage
servicing rights.
A comparison of FSCO to its BHCPR peer group as of June 30, 1998 showed
that: FSCO's ratio of stockholders' equity to total assets was 7.97%, compared
with the peer group average of 8.11%; and its ratio of tangible common equity
to tangible assets was 6.26%, which compared favorably with the peer group
average of 5.92%.
FSCO's risk-based capital ratios remained strong at September 30, 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. As of
September 30, 1998, FSCO's Tier 1 risk-based capital ratio was 10.19%, its
Total Capital risk-based capital ratio was 12.60%, and its leverage ratio was
7.67%.
FSCO and its subsidiary banks have exceeded regulatory requirements for
"well capitalized" status every year since these requirements were established.
It is FSCO's policy to maintain the "well capitalized" status at both the
consolidated and subsidiary bank levels.
With its strong equity and risk-based capital ratios, FSCO is well
positioned to selectively invest in profitable business opportunities while
maintaining capital ratios at levels determined to be prudent and conservative
by management.
COMMON AND PREFERRED STOCK
FSCO's common stock is traded on Nasdaq under the symbol FSCO, and is
included in the Standard & Poors' "MidCap 400 Index", and the Keefe, Bruyette &
Woods, Inc. "KBW 50 Index".
On October 26, 1998, the directors of FSCO declared a regular quarterly
common stock cash dividend of $0.130 per share. This dividend is payable on
December 7, 1998 to shareholders of record on November 13, 1998, and is equal
to an annual dividend rate of $0.520 per share. At the market closing price of
$19.00 per share on Friday, October 23, 1998 (before the announcement of the
dividend), the annual dividend yield on FSCO common stock would have been
approximately 2.74%.
This dividend was the 175th common stock dividend declared by FSCO, and
marked the 64th 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 $16.688 per share at the close of the
market on September 30, 1998, versus a book value of $8.54 per share, resulting
in a market-to-book ratio of 195.41%. In comparison, the bid price of FSCO
common stock was $19.833 per share at the close of the market on September 30,
1997, versus a book value of $7.48 per share, resulting in a market-to-book
ratio of 265.17%. At September 30, 1998, FSCO's common stock market
capitalization was $3.1 billion, down $2.0 billion or 38.9% from year-end 1997,
but down only $0.5 billion or 14.2% 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 and in its October
1, 1998 Report on Form 8-K restating the financial data for that 10-K (hereby
incorporated by reference). Mergers and acquisitions for the periods covered
by this report, some previously reported, are discussed below.
* On March 31, 1997, FSCO's subsidiary CrossLand Mortgage acquired the
wholesale loan production branch operations of Harbourton Mortgage Co., L.P.
* On June 30, 1997, FSCO acquired American Bancorp of Nevada and merged its
wholly owned subsidiary American Bank of Commerce into FSCO's First Security
Bank of Nevada.
* On February 2, 1998, FSCO acquired Rio Grande Bancshares, Inc. and its two
bank subsidiaries First National Bank of Dona Ana County and First National
Bank of Chaves County. On July 1, 1998, FSCO merged and renamed these two
subsidiaries as First Security Bank of Southern New Mexico.
* On May 30, 1998, California State Bank (CSB) was merged with FSCO in a
pooling of interests. CSB is headquartered in West Covina, California, and at
March 31, 1998 had assets of $863.5 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. FSCO incurred one-time CSB merger charges totaling $8.9 million
pre-tax (including $6.9 million of noninterest expenses) or $7.2 million after
tax and recorded in the second quarter of 1998. This merger required the
restatement of all prior period FSCO financial statements.
* On September 23, 1998, FSCO signed a definitive agreement to acquire Van
Kasper & Company (VKCO). VKCO is a full-service investment banking, private
client and institutional brokerage firm located in San Francisco, California.
FSCO expects to close the VKCO acquisition early in 1999, pending regulatory
approval.
* On October 7, 1998, FSCO and its CSB subsidiary signed a definitive
agreement to acquire Marine National Bank (MNB) in a cash purchase transaction.
MNB is a wholly owned subsidiary of Shinhan Bank of Seoul, Korea, and is
located in Irvine, California. At June 30, 1998, MNB had $238 million in
assets, $167 million in deposits, and $31 million in equity. Pending
regulatory approvals, FSCO expects to close the MNB acquisition before year end
and then merge CSB with MNB to form a single California-based national bank.
NATIONAL & REGIONAL ECONOMY
Global economic uncertainty continued to mount in the third quarter.
International excess productive capacity evident in many commodity,
manufacturing, and high tech industries is pushing down prices and restraining
sales volume. While this broad-based debt deflation remains centered in Asia
(including Japan) its associated financial risks and effects are spreading
across the globe. As investors seek to measure the widening risks, problems of
illiquidity become evident. The Japanese government has been slow to address
their banking and financial problems, but their governmental actions provide
some hope that their economy may begin the healing process.
In the U.S., consumers are benefiting from the lower interest rates -
particularly in the mortgage market. Over the next several months it appears
likely that the Federal Reserve will further reduce short-term interest rates,
thus increasing the available supply of money and credit. Nevertheless, stock
market investors have expressed volatile expectations regarding future
corporate profits. If intense domestic and international competition combine
to reduce sales prices and volumes, corporations have no other choice but to
cut costs which may mean employee layoffs. Currently the nation and most of
the states in the western U.S. are at full employment with healthy labor market
conditions. The pace of economic expansion in 1998 has slowed and a
continuation of this trend appears probable for 1999.
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS AND FINANCIAL CONDITION:
TECHNOLOGICAL CHANGE AND YEAR 2000 COMPUTER ISSUES
Factors that may affect FSCO's future results of operations and financial
condition, including technological changes and year 2000 computer issues, were
discussed in detail in its 1997 Annual Report on Form 10-K and in its October
1, 1998 Report on Form 8-K restating the financial data for that 10-K (hereby
incorporated by reference).
YEAR 2000 PROJECT
All businesses and industries worldwide must address the problem that some
computer hardware, software, and other systems and equipment may not properly
process calculations involving dates during and after 1999. FSCO has made the
successful resolution of its own year 2000 issues its highest corporate
priority.
FSCO is aggressively managing its year 2000 project that encompasses all
internal operations and systems, including computer hardware and software,
data/voice systems, facilities control, security, and other non-information
technology systems and equipment to resolve any potential date-handling
problems. In addition, FSCO's year 2000 project includes interactions with
"other parties" such as deposit and loan customers, business partners, vendors
and suppliers, other financial institutions, regulatory agencies, utilities,
service providers, and others.
FSCO's year 2000 project strategy is to implement, where possible, the most
recent versions of currently used software that are year 2000 compliant. This
strategy will enable FSCO to obtain increased functionality from the newer
versions as well as achieve year 2000 compliance. In the strategic sense, this
approach allows FSCO to derive the most benefit from the dollars spent.
As of September 30, 1998, FSCO expects to be substantially completed with
necessary remediation work for its own mission critical systems by year end
1998, except for its instalment loan system, which is scheduled to be fully
implemented in April 1999. Testing, refinement, and further remediation of all
systems will continue through 1999.
FSCO's total year 2000 project expenditure was estimated at $40.5 million at
September 30, 1998, up $19.6 million from the year-end 1997 estimate. This
increase was due to: $9.3 million for systems where planned implementation was
accelerated for year 2000 purposes, the disclosure of which was not required
until the SEC's August 4, 1998 guidance on year 2000 issues; and $10.3 million
for additional remediation and testing identified subsequent to the previous
estimate. The $40.5 million estimate included: $2.6 million accrued and spent
in 1997; $13.8 million accrued and spent during the first nine months of 1998;
approximately $9.3 million planned but unaccrued for the remainder of 1998;
approximately $13.8 million planned in 1999; and $1.0 million planned in 2000.
These expenditures are being funded through operating cash flows. Of the $40.5
million total year 2000 project expenditure, it is expected that $11.5 million
will be capitalized and the rest expensed.
YEAR 2000 RISKS
FSCO's businesses, results of operations, and financial position could be
materially adversely affected if FSCO and/or the above-mentioned other parties
fail to resolve their individual year 2000 issues. Accordingly, FSCO has
formed a team charged with the task of monitoring its own progress and that of
significant other parties, assessing potential problems, and developing
contingency plans. FSCO is also assessing the year 2000 progress and
associated risks of its major deposit and borrowing customers.
Because FSCO has given its year 2000 project the highest priority, certain
other technology projects have been delayed. While such non-year 2000 projects
are expected to enhance operational efficiencies, make new products and
services available to customers, and improve the quality of information
available to management, the delay of such projects is not expected to have a
material impact on FSCO's operations.
It has been widely reported that significant litigation is expected to occur
related to business interruptions caused by year 2000 failures. It is
uncertain whether, or to what extent, FSCO will be affected by such litigation.
YEAR 2000 CONTINGENCY PLANS
Each FSCO business unit has developed contingency plans to continue
operations in the event FSCO and/or significant other parties do not achieve
year 2000 readiness. These plans principally involve the use of alternate
vendors, suppliers, and service delivery processes, manual processes, and/or
the internal remediation of systems. FSCO is also enhancing its existing
business resumption plans to incorporate year 2000 issues. There can be no
assurance that FSCO's contingency plans will fully mitigate failures or
problems. In addition, there may be certain mission critical vendors or
service providers, such as utilities or government agencies, where alternate
sources are limited or unavailable.
FSCO will endeavor to update its contingency plans as facts and
circumstances change.
YEAR 2000 FORWARD-LOOKING STATEMENTS
The preceding discussion of year 2000 issues includes forward-looking
statements that involve inherent risks and uncertainties. A number of
important factors could cause the actual cost of FSCO's year 2000 project and
the impact of year 2000 issues to increase significantly from what is described
in these forward-looking statements. Those factors include, but are not
limited to the availability and cost of programmers and other systems
personnel, changes to FSCO's original year 2000 project assessments,
ineffective remediation of computer code, and the ability of FSCO and/or other
parties to successfully resolve their individual year 2000 issues.
# # #
<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) (A)
<CAPTION>
3rd Qtr 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr Year-To-Date Nine Months
1998 1998 1998 1997 1997 1998 1997 %Chg
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- - ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
Common & Preferred Stock Data:
Earnings per common share basic 0.34 0.30 0.33 0.31 0.30 0.96 0.87 10.3
Earnings per common share diluted 0.33 0.29 0.32 0.30 0.29 0.93 0.84 10.7
Tangible EPCS diluted 0.37 0.33 0.35 0.31 0.33 1.06 0.92 15.2
Dividends paid per common share 0.130 0.130 0.130 0.113 0.113 0.390 0.328 18.9
Book value per common share [EOP] 8.54 8.21 8.02 7.59 7.48 8.54 7.48 14.2
Tangible book value per common share [EOP] 6.64 6.34 6.21 6.05 6.04 6.64 6.04 9.9
Market price (bid) [EOP] 16.688 21.375 23.813 27.917 19.833 16.688 19.833 (15.9)
High bid for the period 23.938 24.750 26.167 27.917 21.333 26.167 21.333 22.7
Low bid for the period 15.500 21.000 21.833 19.083 17.583 15.500 14.222 9.0
Market capitalization (mktprice x #shrs) [EOP] 3,144,703 4,016,256 4,457,936 5,148,509 3,664,543 3,144,703 3,664,543 (14.2)
Market price / book value per com share [EOP] % 195.41 260.35 296.92 367.81 265.17 195.41 265.17
Dividend payout ratio (DPCS / EPCS basic) % 38.24 43.33 39.39 36.45 37.67 40.63 37.70
Dividend yield (DPCS / mktprice) [EOP] % 3.12 2.43 2.18 1.62 2.28 3.12 2.28
Price / earnings ratio(mktprice/4qtrsEPCSbasic) 13.0x 17.2x 19.4x 23.7x 17.1x 13.0x 17.1x
Common shares basic [EOP] 188,441 187,895 187,206 184,422 184,770 188,441 184,770 2.0
Common shares basic [Avg] 187,931 187,623 186,336 184,583 184,717 187,303 181,450 3.2
Common shares diluted [Avg] 193,621 194,471 193,510 191,671 191,268 193,868 187,751 3.3
Preferred shares [EOP] 9 9 10 10 10 9 10 (10.0)
- - ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
Income Statement:
Interest income 366,416 350,950 334,101 328,965 315,683 1,051,467 884,413 18.9
Interest expense 186,661 178,012 169,810 163,388 152,372 534,483 424,051 26.0
Net interest income 179,755 172,938 164,291 165,577 163,311 516,984 460,362 12.3
Fully taxable equivalent (FTE) adjustment 2,259 2,827 2,579 4,176 2,336 7,665 6,194 23.7
Net interest income, FTE 182,014 175,765 166,870 169,753 165,647 524,649 466,556 12.5
Provision for loan losses 18,068 18,396 12,598 21,243 13,922 49,062 42,144 16.4
Noninterest income 114,896 118,534 108,516 106,876 87,543 341,946 250,282 36.6
Noninterest expenses 179,516 184,277 165,806 164,944 149,830 529,599 423,960 24.9
Provision for income taxes 33,976 32,892 33,034 28,235 31,066 99,902 87,297 14.4
Net income 63,091 55,907 61,369 58,031 56,036 180,367 157,243 14.7
Preferred stock dividend requirement 7 7 7 7 7 21 23 (8.7)
Common stock dividend 24,472 22,943 23,586 20,308 20,318 71,001 57,647 23.2
- - ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
Balance Sheet - End of Period:
Trading account securities 73,067 53,343 318,224 255,320 87,154 73,067 87,154 (16.2)
Available for sale (AFS) securities 4,912,396 4,806,559 4,386,629 4,351,525 4,109,176 4,912,396 4,109,176 19.5
Memo: fair value adjustment AFS securities 79,150 39,154 34,640 37,678 19,196 79,150 19,196 312.3
Loans, net of unearned income 12,926,926 12,530,360 12,436,407 11,230,766 11,159,090 12,926,926 11,159,090 15.8
Reserve for loan losses (169,058) (166,658) (163,256) (157,525) (152,951) (169,058) (152,951) 10.5
Total interest-earning assets 17,954,191 17,417,190 17,219,384 16,044,477 15,374,616 17,954,191 15,374,616 16.8
Intangible assets 357,459 351,547 338,844 285,156 265,492 357,459 265,492 34.6
Total assets 19,859,300 19,360,006 19,132,896 18,151,783 17,145,647 19,859,300 17,145,647 15.8
Noninterest-bearing deposits 2,431,637 2,402,497 2,339,665 2,431,006 2,391,563 2,431,637 2,391,563 1.7
Interest-bearing deposits 9,511,979 9,514,706 9,483,289 8,986,628 8,531,915 9,511,979 8,531,915 11.5
Total deposits 11,943,616 11,917,203 11,822,954 11,417,634 10,923,478 11,943,616 10,923,478 9.3
Short-term borrowed funds 4,026,919 3,905,250 3,986,966 3,605,199 3,399,509 4,026,919 3,399,509 18.5
Long-term debt 1,749,478 1,513,044 1,339,892 1,304,463 954,463 1,749,478 954,463 83.3
Total interest-bearing liabilities 15,288,376 14,933,000 14,810,147 13,896,290 12,885,887 15,288,376 12,885,887 18.6
Preferred stockholders' equity 491 493 501 501 510 491 510 (3.7)
Common stockholders' equity 1,609,515 1,542,377 1,500,734 1,400,345 1,381,980 1,609,515 1,381,980 16.5
Parent company investment in subsidiaries 1,788,947 1,719,975 1,678,122 1,555,112 1,503,053 1,788,947 1,503,053 19.0
- - ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
Problem Assets & Potential Problem Assets - End of Period:
Nonaccruing loans:
Commercial 17,042 16,463 16,055 13,670 16,094 17,042 16,094 5.9
Real estate term 18,309 17,982 15,826 16,288 17,861 18,309 17,861 2.5
Real estate construction 4,756 4,752 4,171 4,669 3,787 4,756 3,787 25.6
Consumer 305 82 140 2 30 305 30 916.7
Leases 773 434 361 331 316 773 316 144.6
Renegotiated 0 0 0 1,916 0 0 0 NM
Total nonaccruing loans 41,185 39,713 36,553 36,876 38,088 41,185 38,088 8.1
Other real estate 2,798 3,908 4,342 7,981 6,789 2,798 6,789 (58.8)
Total nonperforming assets 43,983 43,621 40,895 44,857 44,877 43,983 44,877 (2.0)
Accruing loans past due 90 days or more 20,369 22,833 19,693 20,841 20,109 20,369 20,109 1.3
Total problem assets 64,352 66,454 60,588 65,698 64,986 64,352 64,986 (1.0)
Potential problem assets 55,150 37,229 11,493 7,423 11,654 55,150 11,654 373.2
- - ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
Other Data - End of Period (not rounded):
Full-time equivalent employees 9,229 8,854 8,472 7,996 7,826 9,229 7,826 17.9
Domestic bank offices:
FS Bank: Utah 133 132 130 129 127 133 127 4.7
FS Bank: Idaho 88 88 88 88 87 88 87 1.1
FS Bank: Oregon 14 14 13 13 13 14 13 7.7
FS Bank: Wyoming 8 8 8 8 7 8 7 14.3
FSB New Mexico 32 31 31 31 29 32 29 10.3
FSB Southern New Mexico 11 11 11 0 0 11 0 NM
FSB Nevada 14 14 14 14 14 14 14 0.0
California State Bank 17 17 17 17 18 17 18 (5.6)
Total domestic bank offices 317 315 312 300 295 317 295 7.5
============================================== ========== ========== ========== ========== ========== ========== ========== =======
<FN>
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) All FSCO financial data has been restated for the May 30, 1998 pooling-of-interests merger with California State Bank.
</TABLE>
<PAGE>
<TABLE>
FIRST SECURITY CORPORATION
FINANCIAL HIGHLIGHTS - Continued
(in thousands, except per share data and ratios; unaudited) (A)
<CAPTION>
3rd Qtr 2nd Qtr 1st Qtr 4th Qtr 3rd Qtr Year-To-Date Nine Months
1998 1998 1998 1997 1997 1998 1997 %Chg
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- - ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
Balance Sheet - Average:
Trading account securities 64,310 138,157 295,414 163,330 178,070 165,114 235,538 (29.9)
Available for sale (AFS) securities 4,824,517 4,524,500 4,310,715 4,190,292 3,728,035 4,555,126 3,539,332 28.7
Memo: fair value adjustment AFS securities 41,719 33,956 41,342 28,511 13,808 39,007 (168) NM
Loans, net of unearned income 12,844,942 12,374,882 11,656,881 11,214,784 10,829,751 12,296,586 10,162,915 21.0
Reserve for loan losses (167,555) (164,256) (160,269) (153,922) (151,204) (164,053) (146,078) 12.3
Deferred taxes on leases (193,572) (198,673) (196,556) (192,903) (186,212) (196,256) (185,797) 5.6
Total interest-earning assets, excluding
fair value adjustment AFS securities
& deferred taxes on leases 17,580,579 16,939,894 16,091,448 15,415,241 14,612,051 16,876,095 13,836,337 22.0
Intangible assets 351,880 349,850 308,452 271,770 262,789 336,887 215,783 56.1
Total assets 19,652,528 18,998,533 18,085,153 17,295,476 16,394,898 18,917,813 15,541,701 21.7
Noninterest-bearing deposits 2,302,410 2,252,282 2,181,985 2,231,130 2,260,560 2,246,000 2,193,561 2.4
Interest-bearing deposits 9,531,570 9,459,908 9,207,647 8,658,839 8,223,536 9,400,895 7,916,967 18.7
Total deposits 11,833,980 11,712,190 11,389,632 10,889,969 10,484,096 11,646,895 10,110,528 15.2
Short-term borrowed funds 4,146,642 3,851,257 3,522,497 3,350,840 3,210,660 3,842,418 2,841,319 35.2
Long-term debt 1,611,966 1,433,195 1,314,965 1,246,482 971,356 1,454,463 970,613 49.8
Total interest-bearing liabilities 15,290,178 14,744,360 14,045,109 13,256,161 12,405,552 14,697,776 11,728,899 25.3
Preferred stockholders' equity 492 497 501 506 524 497 530 (6.2)
Common stockholders' equity 1,557,403 1,519,335 1,411,739 1,384,287 1,362,645 1,496,692 1,266,504 18.2
- - ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
Reconciliation of the Reserve for Loan Losses:
Reserve for loan losses, beginning 166,658 163,256 157,525 152,951 150,170 157,525 142,693 10.4
Loans (charged off):
Commercial (1,105) (3,725) (1,932) (5,122) (2,158) (6,762) (7,191) (6.0)
Real estate term (1,388) (607) (383) (761) (781) (2,378) (2,306) 3.1
Real estate construction 0 0 0 0 (33) 0 (109) (100.0)
Consumer credit card & related (3,568) (3,441) (3,445) (3,955) (3,348) (10,454) (10,267) 1.8
Consumer vehicle & other (17,004) (15,238) (13,122) (14,521) (12,651) (45,364) (41,952) 8.1
Leases (321) 0 (3) (5) (6) (324) (6) 5300.0
Total loans charged off (23,386) (23,011) (18,885) (24,364) (18,977) (65,282) (61,831) 5.6
Recoveries on loans charged off:
Commercial 614 1,173 1,955 1,117 1,089 3,742 4,199 (10.9)
Real estate term 403 400 731 724 448 1,534 1,128 36.0
Real estate construction 1 18 3 3 2 22 7 214.3
Consumer credit card & related 657 622 728 621 578 2,007 1,856 8.1
Consumer vehicle & other 6,032 5,801 5,673 5,229 5,718 17,506 18,282 (4.2)
Leases 11 3 1 2 1 15 14 7.1
Total recoveries of loans charged off 7,718 8,017 9,091 7,696 7,836 24,826 25,486 (2.6)
Net loans (charged off) recovered (15,668) (14,994) (9,794) (16,669) (11,141) (40,456) (36,345) 11.3
Provision for loan losses 18,068 18,396 12,598 21,242 13,922 49,062 42,144 16.4
Acquisitions 0 0 2,927 0 0 2,927 4,459 (34.4)
Reserve for loan losses, ending 169,058 166,658 163,256 157,525 152,951 169,058 152,951 10.5
- - ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
Selected Ratios (%):
Return on average assets (ROAA) 1.27 1.18 1.38 1.33 1.36 1.27 1.35
Tangible ROAA 1.49 1.40 1.56 1.39 1.56 1.48 1.51
Return on average stockholders' equity (ROAE) 16.07 14.75 17.62 16.63 16.31 16.11 16.59
Tangible ROAE 23.81 22.26 25.14 21.31 22.85 23.70 21.98
Net interest margin, FTE 4.14 4.15 4.15 4.40 4.53 4.15 4.50
Net interest spread, FTE 3.51 3.52 3.53 3.71 3.79 3.52 3.76
Operating expense ratio
(nonint exp / (net int inc FTE + nonint inc)) 60.46 62.62 60.21 59.63 59.18 61.11 59.14
Tangible operating expense ratio 57.44 59.57 57.71 59.04 56.91 58.25 57.02
Productivity ratio (nonint exp / avg assets) 3.62 3.89 3.72 3.78 3.63 3.74 3.65
Stockholders' equity / assets [EOP] 8.11 7.97 7.85 7.72 8.06 8.11 8.06
Stockholders' equity / assets [Avg] 7.93 8.00 7.81 8.01 8.31 7.91 8.15
Tangible common equity / tangible assets [EOP] 6.42 6.26 6.18 6.24 6.61 6.42 6.61
Loans / deposits [EOP] 108.23 105.15 105.19 98.36 102.16 108.23 102.16
Loans / assets [EOP] 65.09 64.72 65.00 61.87 65.08 65.09 65.08
Reserve for loan losses [EOP] /:
Total loans 1.31 1.33 1.31 1.40 1.37 1.31 1.37
Nonaccruing loans 410.48 419.66 446.63 427.17 401.57 410.48 401.57
Nonaccruing + accruing loans past due 90 days 274.65 266.46 290.25 272.93 262.82 274.65 262.82
Nonaccruing loans / total loans 0.32 0.32 0.29 0.33 0.34 0.32 0.34
Nonaccruing + accr loans past due / total loans 0.48 0.50 0.45 0.51 0.52 0.48 0.52
Nonperforming assets /:
Total loans + other real estate 0.34 0.35 0.33 0.40 0.40 0.34 0.40
Total assets 0.22 0.23 0.21 0.25 0.26 0.22 0.26
Total equity 2.73 2.83 2.72 3.20 3.25 2.73 3.25
Total equity + reserve for loan losses 2.47 2.55 2.46 2.88 2.92 2.47 2.92
Problem assets /:
Total loans + other real estate 0.50 0.53 0.49 0.58 0.58 0.50 0.58
Total assets 0.32 0.34 0.32 0.36 0.38 0.32 0.38
Total equity 4.00 4.31 4.04 4.69 4.70 4.00 4.70
Total equity + reserve for loan losses 3.62 3.89 3.64 4.22 4.23 3.62 4.23
Net loans charged off / average loans 0.48 0.49 0.34 0.59 0.41 0.44 0.48
============================================== ========== ========== ========== ========== ========== ========== ========== =======
Capital Ratios & Risk-Based Capital Ratios (%) - as of September 30, 1998:
FSCO FS Bank FSB NM FSB Nev. FSB SNM CSB
---------- ---------- ---------- ---------- ---------- ----------
Leverage ratio 7.67 7.14 6.59 7.93 11.93 8.13
Tier 1 risk-based capital ratio 10.19 9.12 13.33 14.82 19.32 11.48
Total (Tier 1 + 2) risk-based capital ratio 12.60 10.33 14.58 16.08 20.49 12.73
Tier 1 risk-based capital ($) 1,500,468 1,093,162 131,287 81,800 48,329 70,538
Total (Tier 1 + 2) risk-based capital ($) 1,854,526 1,237,186 143,679 88,738 51,256 78,241
Total risk-based assets - loan loss reserve($) 14,720,888 11,981,551 985,184 551,843 250,096 614,534
============================================== ========== ========== ========== ========== ========== ========== ========== =======
<FN>
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) All FSCO financial data has been restated for the May 30, 1998 pooling-of-interests merger with California State Bank.
</TABLE>
<PAGE>
<TABLE>
FIRST SECURITY CORPORATION
VOLUME / RATE ANALYSIS
(in thousands; fully taxable equivalent; unaudited) (A, B)
<CAPTION>
For the Three Months Ended September 30, 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:
81,144 75,333 5.72 5.74 Federal funds sold & securities purchased 1,160 1,081 79 83 (4)
957 883 9.61 8.15 Interest-bearing deposits in other banks 23 18 5 2 3
64,310 178,069 5.48 5.79 Trading account securities 881 2,579 (1,698) (1,648) (50)
4,782,798 3,714,227 6.54 6.73 Available for sale securities, amortized cost 78,197 62,513 15,684 17,985 (2,301)
Loans, net of unearned income &
12,651,370 10,643,539 9.12 9.46 deferred taxes on leases (C) 288,414 251,828 36,586 47,506 (10,920)
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
17,580,579 14,612,051 8.39 8.71 TOTAL INTEREST-EARNING ASSETS / INCOME 368,675 318,019 50,656 63,928 (13,272)
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
INTEREST-BEARING LIABILITIES / EXPENSE:
Interest-Bearing Deposits:
341,443 328,494 1.63 1.75 Interest-bearing demand accounts 1,391 1,438 (47) 57 (104)
4,382,843 3,764,076 2.97 3.18 Savings & money market accounts 32,494 29,914 2,580 4,917 (2,337)
1,313,262 1,015,256 5.85 5.89 Time deposits of $100,000 or more 19,199 14,943 4,256 4,386 (130)
3,494,022 3,115,710 5.73 5.71 Other time deposits 50,094 44,491 5,603 5,402 201
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
9,531,570 8,223,536 4.33 4.42 TOTAL INTEREST-BEARING DEPOSITS 103,178 90,786 12,392 14,762 (2,370)
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
3,793,737 2,860,950 5.48 5.41 Federal funds purchased & securities sold 51,929 38,711 13,218 12,621 597
352,905 349,710 6.29 7.48 Other short-term borrowings 5,549 6,538 (989) 60 (1,049)
1,611,966 971,356 6.45 6.73 Long-term debt 26,005 16,337 9,668 10,774 (1,106)
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
15,290,178 12,405,552 4.88 4.91 TOTAL INTEREST-BEARING LIABILITIES / EXPENSE 186,661 152,372 34,289 38,217 (3,928)
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
8.39 8.71 Interest income FTE / earning assets
4.25 4.18 Interest expense / earning assets
------ ------ --------------------------------------------
4.14 4.53 Net interest income FTE / earning assets 182,014 165,647 16,367 25,711 (9,344)
Less fully taxable equivalent adjustment 2,259 2,336 (77)
------ ------ -------------------------------------------- --------- --------- -------- -------- --------
NET INTEREST INCOME 179,755 163,311 16,444
=========== =========== ====== ====== ============================================ ========= ========= ======== ======== ========
<CAPTION>
For the Nine Months Ended September 30, 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:
93,315 82,316 5.75 5.34 Federal funds sold & securities purchased 4,025 3,294 731 440 291
1,217 1,865 7.12 6.08 Interest-bearing deposits in other banks 65 85 (20) (30) 10
165,114 235,538 5.61 5.86 Trading account securities 6,941 10,349 (3,408) (3,094) (314)
4,516,119 3,539,500 6.61 6.70 Available for sale securities, amortized cost 223,904 177,754 46,150 49,046 (2,896)
Loans, net of unearned income &
12,100,330 9,977,118 9.08 9.34 deferred taxes on leases (C) 824,197 699,125 125,072 148,779 (23,707)
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
16,876,095 13,836,337 8.37 8.58 TOTAL INTEREST-EARNING ASSETS / INCOME 1,059,132 890,607 168,525 195,141 (26,616)
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
0
INTEREST-BEARING LIABILITIES / EXPENSE:
Interest-Bearing Deposits:
329,833 541,283 1.69 2.14 Interest-bearing demand accounts 4,191 8,685 (4,494) (3,393) (1,101)
4,229,201 3,430,411 2.96 3.15 Savings & money market accounts 93,801 81,046 12,755 18,872 (6,117)
1,348,568 915,615 5.82 5.70 Time deposits of $100,000 or more 58,827 39,166 19,661 18,520 1,141
3,493,293 3,029,658 5.68 5.64 Other time deposits 148,884 128,193 20,691 19,618 1,073
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
9,400,895 7,916,967 4.34 4.33 TOTAL INTEREST-BEARING DEPOSITS 305,703 257,090 48,613 53,617 (5,004)
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
3,446,536 2,537,894 5.39 5.29 Federal funds purchased & securities sold 139,233 100,657 38,576 36,038 2,538
395,882 303,425 5.97 7.01 Other short-term borrowings 17,729 15,952 1,777 4,861 (3,084)
1,454,463 970,613 6.58 6.92 Long-term debt 71,818 50,352 21,466 25,100 (3,634)
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
14,697,776 11,728,899 4.85 4.82 TOTAL INTEREST-BEARING LIABILITIES / EXPENSE 534,483 424,051 110,432 119,616 (9,184)
- - ----------- ----------- ------ ------ -------------------------------------------- --------- --------- -------- -------- --------
8.37 8.58 Interest income FTE / earning assets
4.22 4.08 Interest expense / earning assets
------ ------ --------------------------------------------
4.15 4.50 Net interest income FTE / earning assets 524,649 466,556 58,093 75,525 (17,432)
Less fully taxable equivalent adjustment 7,665 6,194 1,471
------ ------ -------------------------------------------- --------- --------- -------- -------- --------
NET INTEREST INCOME 516,984 460,362 56,622
=========== =========== ====== ====== ============================================ ========= ========= ======== ======== ========
<FN>
(A) All FSCO financial data has been restated for the May 30, 1998 pooling-of-interests merger with California State Bank.
(B) 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.
(C) Loans include nonaccruing loans.
Interest on loans includes fees of $11,571 and $10,277 for the 1998 and 1997 quarters, respectively.
Interest on loans includes fees of $32,726 and $27,926 for the 1998 and 1997 year-to-date periods, respectively.
</TABLE>
<PAGE>
<TABLE>
FIRST SECURITY CORPORATION
LOANS (in thousands; unaudited) (A)
<CAPTION>
September 30 %Total December 31 %Total September30 %Total Sep/Sep
1998 Loans 1997 Loans 1997 Loans %Chg
<S> <C> <C> <C> <C> <C> <C> <C>
- - ----------------------------------------- ----------- ------ ----------- ------ ----------- ------ --------
COMMERCIAL LOANS:
Commercial & industrial 2,348,573 18.2 2,251,179 20.0 2,113,291 18.9 11.1
Agricultural 405,705 3.1 362,820 3.2 368,524 3.3 10.1
Other commercial 196,297 1.5 144,866 1.3 161,074 1.4 21.9
- - ----------------------------------------- ----------- ------ ----------- ------ ----------- ------ --------
TOTAL COMMERCIAL LOANS 2,950,575 22.8 2,758,865 24.6 2,642,889 23.7 11.6
- - ----------------------------------------- ----------- ------ ----------- ------ ----------- ------ --------
REAL ESTATE SECURED LOANS:
1 to 4 family residential term 2,625,904 20.3 2,177,415 19.4 1,942,648 17.4 35.2
1 to 4 family residential home equity 460,526 3.6 506,999 4.5 506,318 4.5 (9.0)
1 to 4 family residential construction 512,805 4.0 425,343 3.8 460,379 4.1 11.4
Commercial & other term 1,226,218 9.5 1,112,042 9.9 1,189,587 10.7 3.1
Commercial & other construction 298,253 2.3 313,686 2.8 287,498 2.6 3.7
- - ----------------------------------------- ----------- ------ ----------- ------ ----------- ------ --------
TOTAL REAL ESTATE SECURED LOANS 5,123,706 39.6 4,535,485 40.4 4,386,430 39.3 16.8
Memo: Total real estate term 4,312,648 33.4 3,796,456 33.8 3,638,553 32.6 18.5
Memo: Loans held for sale included
in total real estate term 1,635,678 12.7 1,125,616 10.0 874,960 7.8 86.9
Memo: Total real estate construction 811,058 6.3 739,029 6.6 747,877 6.7 8.4
- - ----------------------------------------- ----------- ------ ----------- ------ ----------- ------ --------
CONSUMER LOANS:
Credit card & related 316,504 2.4 320,656 2.9 297,015 2.7 6.6
Vehicle & other consumer 3,343,482 25.9 2,585,139 23.0 2,879,430 25.8 16.1
- - ----------------------------------------- ----------- ------ ----------- ------ ----------- ------ --------
TOTAL CONSUMER LOANS 3,659,986 28.3 2,905,795 25.9 3,176,445 28.5 15.2
- - ----------------------------------------- ----------- ------ ----------- ------ ----------- ------ --------
TOTAL LEASES 1,192,659 9.2 1,030,621 9.2 953,326 8.5 25.1
- - ----------------------------------------- ----------- ------ ----------- ------ ----------- ------ --------
LOANS, NET OF UNEARNED INCOME 12,926,926 100.0 11,230,766 100.0 11,159,090 100.0 15.8
Memo: Unearned income (110,943) (106,369) (106,743) 3.9
Reserve for loan losses (169,058) (157,525) (152,951) 10.5
- - ----------------------------------------- ----------- ------ ----------- ------ ----------- ------ --------
TOTAL LOANS, NET 12,757,868 11,073,241 11,006,139 15.9
========================================= =========== ====== =========== ====== =========== ====== ========
<FN>
(A) All FSCO financial data has been restated for the May 30, 1998 pooling-of-interests merger with California State Bank.
</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, the
following items were deemed to be material litigation matters under SEC
regulations, and involved FSCO and / or one or more of its subsidiaries:
In "Utah Bankers' Association v. America First Credit Union" (3rd District
Court, Salt Lake County, Utah), the Utah Bankers' Association and its members
(collectively UBA), including FSCO's subsidiaries First Security Bank, N.A. and
First Security Service Company, were named in a third party complaint brought
by Utah based credit unions, filed on October 31, 1996. This third party
complaint arose in pending litigation initiated by the UBA seeking to define
and limit the eligible membership of credit unions operating in Utah. Damages
sought by the credit unions against the UBA totaled approximately $l.5 billion
in the aggregate. In November 1997, the Court dismissed those claims for
relief seeking money damages from the UBA, but left in place the declaratory
judgment claims to resolve the legal issues surrounding the manner in which
credit unions compete with banks. Then in November 1998, the Court ruled in
favor of the UBA and determined that the statutory framework prohibits
branching by credit unions except as specifically allowed by statute.
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 previously reported will have a material adverse
impact on the business or assets of FSCO.
ITEM 5. OTHER INFORMATION
Shareholder proposals for action at FSCO's 1999 Annual Meeting that are not
requested to be included in its 1999 Proxy Statement must be received by FSCO
in the same way and within the same time periods as all other shareholder
proposals. A special bylaw provision requires all shareholder proposals to be
received by FSCO 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: (1) the 90th day prior to such annual meeting; or (2) the 10th
day following the day on which public announcement of the date of such meeting
is first made by FSCO.
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 July 20, 1998, FSCO filed a Report on Form 8-K reporting that it had
issued a press release announcing its earnings and other financial data
for the first six months of 1998.
* On October 1, 1998, FSCO filed a Report on Form 8-K reporting that it
had issued a press release on September 23, 1998 announcing the signing
of a definitive agreement to acquire Van Kasper & Company.
* Also on October 1, 1998, FSCO filed a Report on Form 8-K restating the
financial data for its previously released Annual Report on Form 10-K for
the year ended December 31, 1997. This restatement was done in order to
reflect the pooling-of-interests merger with California State Bank on May
30, 1998. The restated financial data included an independent auditors'
report on the related financial statements.
* On October 15, 1998, FSCO filed a Report on Form 8-K reporting it had
reached final agreement with its underwriters on the form of Underwriting
Agreement that will govern take downs of securities from the FSCO
Universal Shelf Registration now effective at the Securities and Exchange
Commission (Commission file number 333-58873). The form of this
Underwriting Agreement will be incorporated by reference into the
Universal Shelf registration statement.
* On November 2, 1998, FSCO filed a Report on Form 8-K reporting that its
board of directors had amended FSCO's Shareholder Rights Agreement, dated
as of August 28, 1989, as previously amended as of September 26, 1989 and
as of May 18, 1993 (the "Rights Plan"), by and between FSCO and First
Security Bank, N.A. as Rights Agent. The board also adopted a successor
shareholder rights Agreement to take effect immediately upon the
expiration of the Rights Plan on August 28, 1999.
# # #
<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
/s/ Scott C. Ulbrich November 12, 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) (A,B)
<CAPTION>
Three Months YTD Nine Months
For the Periods Ended September 30, 1998 and 1997 1998 1997 1998 1997
<S> <C> <C> <C> <C>
- - ----------------------------------------------------------- ---------- ---------- ---------- ----------
NET INCOME:
Net income per consolidated income statements 63,091 56,036 180,367 157,243
Subtract dividend requirement of preferred stock 7 7 21 23
- - ----------------------------------------------------------- ---------- ---------- ---------- ----------
NET INCOME APPLICABLE TO COMMON STOCK (BASIC) 63,084 56,029 180,346 157,220
Add dividend requirement of preferred stock 7 7 21 23
- - ----------------------------------------------------------- ---------- ---------- ---------- ----------
NET INCOME DILUTED 63,091 56,036 180,367 157,243
=========================================================== ========== ========== ========== ==========
EARNINGS PER COMMON SHARE BASIC 0.34 0.30 0.96 0.87
EARNINGS PER COMMON SHARE DILUTED 0.33 0.29 0.93 0.84
=========================================================== ========== ========== ========== ==========
SHARES OUTSTANDING (AVERAGE):
Common shares 189,169 188,398 188,869 184,893
Treasury shares (1,238) (3,681) (1,566) (3,443)
- - ----------------------------------------------------------- ---------- ---------- ---------- ----------
COMMON SHARES BASIC (AVG) 187,931 184,717 187,303 181,450
Common share equivalents for options 5,306 6,142 6,177 5,887
Preferred share equivalents 384 409 388 414
- - ----------------------------------------------------------- ---------- ---------- ---------- ----------
COMMON SHARES DILUTED (AVG) 193,621 191,268 193,868 187,751
=========================================================== ========== ========== ========== ==========
<FN>
(A) All FSCO financial data has been restated for the May 30, 1998 pooling-of-interests merger with California State Bank.
(B) 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 828,015
<INT-BEARING-DEPOSITS> 2,631
<FED-FUNDS-SOLD> 39,171
<TRADING-ASSETS> 73,067
<INVESTMENTS-HELD-FOR-SALE> 4,912,396
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 12,926,926
<ALLOWANCE> (169,058)
<TOTAL-ASSETS> 19,859,300
<DEPOSITS> 11,943,616
<SHORT-TERM> 4,026,919
<LIABILITIES-OTHER> 529,281
<LONG-TERM> 1,749,478
<COMMON> 1,609,515
0
491
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 19,859,300
<INTEREST-LOAN> 822,223
<INTEREST-INVEST> 218,224
<INTEREST-OTHER> 11,020
<INTEREST-TOTAL> 1,051,467
<INTEREST-DEPOSIT> 305,703
<INTEREST-EXPENSE> 534,483
<INTEREST-INCOME-NET> 516,984
<LOAN-LOSSES> 49,062
<SECURITIES-GAINS> 3,310
<EXPENSE-OTHER> 529,599
<INCOME-PRETAX> 280,269
<INCOME-PRE-EXTRAORDINARY> 280,269
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 180,367
<EPS-PRIMARY> 0.960
<EPS-DILUTED> 0.930
<YIELD-ACTUAL> 4.15
<LOANS-NON> 41,185
<LOANS-PAST> 20,369
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 64,352
<ALLOWANCE-OPEN> 157,525
<CHARGE-OFFS> (65,282)
<RECOVERIES> 24,826
<ALLOWANCE-CLOSE> 169,058
<ALLOWANCE-DOMESTIC> 169,058
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
* All FSCO financial data has been restated for the May 30, 1998 pooling-of-interests merger with California State Bank.
* 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, so that:
- "EPS-Primary" is actually "Earnings Per Common Share Basic"; and
- "EPS-Diluted" is actually "Earnings Per Common Share Diluted".
</TABLE>
