August 12, 1999
To Whom It May Concern:
Attached is First Security Corporation's (FSCO) Form 10-Q Quarterly Report
for the quarter ended June 30, 1999, as filed via EDGAR with the S.E.C. on
Thursday, August 12, 1999.
<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 June 30, 1999
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) 246-5976
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 July 31, 1999, outstanding shares of Common Stock, par value $1.25,
were 195,245,056 (net of 1,626,269 treasury shares).
FIRST SECURITY CORPORATION - INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Income
Three Months and Year-To-Date Six Months Ended June 30, 1999 and 1998
Consolidated Balance Sheets
June 30, 1999, December 31, 1998, and June 30, 1998
Condensed Consolidated Statements of Cash Flows
Three Months Ended June 30, 1999 and 1998
Condensed Consolidated Statements of Comprehensive Income
Three Months and Year-To-Date Six Months Ended June 30, 1999 and 1998
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
Line of Business Segments
Analysis of Statements of Income
Earnings Summary
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
Asset/Liability Management: Liquidity
Asset/Liability Management: Market Risk Management
Asset/Liability Management: Interest Rate Risk (Excluding Trading Account
Securities
Asset/Liability Management: Market Risk - Trading Account Securities
Other Assets and Liabilities
Common and Preferred Stock
Stockholders' Equity and Capital Adequacy
Mergers And Acquisitions
National and Regional Economy
Factors That May Affect Future Results of Operations and Financial Condition
Year 2000 Issues: FSCO'S Year 2000 Readiness Disclosure
Year 2000 Issues: FSCO's 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 4. Submission Of Matters To A Vote Of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBITS
Exhibit 11. Computation of Earnings Per Share
Exhibit 27. Financial Data Schedule
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
FIRST SECURITY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands, except per share data; unaudited)
<CAPTION>
Three Months Year-To-Date Six Months
For the Periods Ended June 30, 1999 and 1998 1999 1998 $Chg %Chg 1999 1998 $Chg %Chg
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------ --------- --------- -------- ------- ---------- ---------- -------- -------
INTEREST INCOME:
Interest & fees on loans 278,633 274,737 3,896 1.4 561,075 534,192 26,883 5.0
Federal funds sold & securities purchased 1,638 1,897 (259) (13.7) 3,556 2,865 691 24.1
Interest-bearing deposits in other banks 69 11 58 527.3 132 42 90 214.3
Trading account securities 5,305 1,823 3,482 191.0 10,280 6,049 4,231 69.9
Available for sale securities 91,882 72,482 19,400 26.8 172,144 141,903 30,241 21.3
- ------------------------------------------------------ --------- --------- -------- ------- ---------- ---------- -------- -------
TOTAL INTEREST INCOME 377,527 350,950 26,577 7.6 747,187 685,051 62,136 9.1
- ------------------------------------------------------ --------- --------- -------- ------- ---------- ---------- -------- -------
INTEREST EXPENSE:
Deposits 98,792 102,016 (3,224) (3.2) 196,855 202,525 (5,670) (2.8)
Short-term borrowings 52,890 52,157 733 1.4 103,167 99,484 3,683 3.7
Long-term debt 38,449 23,839 14,610 61.3 77,363 45,813 31,550 68.9
- ------------------------------------------------------ --------- --------- -------- ------- ---------- ---------- -------- -------
TOTAL INTEREST EXPENSE 190,131 178,012 12,119 6.8 377,385 347,822 29,563 8.5
- ------------------------------------------------------ --------- --------- -------- ------- ---------- ---------- -------- -------
NET INTEREST INCOME 187,396 172,938 14,458 8.4 369,802 337,229 32,573 9.7
Provision for loan losses 10,596 18,396 (7,800) (42.4) 27,473 30,994 (3,521) (11.4)
- ------------------------------------------------------ --------- --------- -------- ------- ---------- ---------- -------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSS 176,800 154,542 22,258 14.4 342,329 306,235 36,094 11.8
- ------------------------------------------------------ --------- --------- -------- ------- ---------- ---------- -------- -------
NONINTEREST INCOME:
Service charges on deposit accounts 21,917 22,612 (695) (3.1) 43,171 44,986 (1,815) (4.0)
Other service charges, collections, commissions & fees 15,909 13,595 2,314 17.0 32,605 25,172 7,433 29.5
Asset sale / securitization gains 11,861 13,901 (2,040) (14.7) 33,991 16,449 17,542 106.6
Bankcard servicing fees & third-party processing fees 1,459 8,764 (7,305) (83.4) 2,988 17,476 (14,488) (82.9)
Commissions & fees: insurance 4,944 4,088 856 20.9 10,284 8,009 2,275 28.4
Commissions & fees: securities 18,902 4,760 14,142 297.1 31,538 8,737 22,801 261.0
Mortgage banking & loan servicing activities 65,252 51,448 13,804 26.8 109,039 95,657 13,382 14.0
Loan servicing rights amortization (14,930) (10,184) (4,746) (46.6) (28,727) (17,588) (11,139) (63.3)
Trust (fiduciary) commissions & fees 8,366 7,163 1,203 16.8 16,158 13,747 2,411 17.5
Trading account securities gains (losses) 4,116 416 3,700 889.4 5,045 245 4,800 1959.2
Available for sale securities gains (losses) 5,495 1,603 3,892 242.8 14,478 3,312 11,166 337.1
Other 1,690 368 1,322 359.2 (2,054) 10,848 (12,902) (118.9)
- ------------------------------------------------------ --------- --------- -------- ------- ---------- ---------- -------- -------
TOTAL NONINTEREST INCOME 144,981 118,534 26,447 22.3 268,516 227,050 41,466 18.3
- ------------------------------------------------------ --------- --------- -------- ------- ---------- ---------- -------- -------
NONINTEREST EXPENSES:
Salaries & employee benefits 122,769 95,557 27,212 28.5 237,331 184,923 52,408 28.3
Amortization of intangibles 4,290 2,882 1,408 48.9 8,047 5,502 2,545 46.3
Armored & messenger 1,896 1,658 238 14.4 3,786 3,280 506 15.4
Bankcard interbank interchange & fees 3,443 8,252 (4,809) (58.3) 6,536 17,387 (10,851) (62.4)
Credit, appraisal & repossessions 8,868 7,711 1,157 15.0 15,923 12,644 3,279 25.9
Fees 2,618 4,729 (2,111) (44.6) 7,127 8,015 (888) (11.1)
Furniture & equipment 15,658 15,085 573 3.8 32,710 27,584 5,126 18.6
Insurance 1,023 1,212 (189) (15.6) 2,072 2,203 (131) (5.9)
Marketing 4,766 3,857 909 23.6 8,787 7,454 1,333 17.9
Occupancy, net 11,893 9,604 2,289 23.8 23,016 18,744 4,272 22.8
Other real estate expense & loss provision (recovery), 19 111 (92) (82.9) (53) 392 (445) (113.5)
Postage 4,137 3,422 715 20.9 7,773 6,672 1,101 16.5
Professional 5,291 6,499 (1,208) (18.6) 9,077 11,289 (2,212) (19.6)
Stationery & supplies 7,461 5,449 2,012 36.9 12,692 10,800 1,892 17.5
Telephone 6,671 3,415 3,256 95.3 12,001 7,724 4,277 55.4
Travel 3,914 3,059 855 28.0 6,937 5,605 1,332 23.8
Other 12,646 11,775 871 7.4 16,016 19,865 (3,849) (19.4)
- ------------------------------------------------------ --------- --------- -------- ------- ---------- ---------- -------- -------
TOTAL NONINTEREST EXPENSES 217,363 184,277 33,086 18.0 409,778 350,083 59,695 17.1
- ------------------------------------------------------ --------- --------- -------- ------- ---------- ---------- -------- -------
INCOME BEFORE PROVISION FOR INCOME TAXES 104,418 88,799 15,619 17.6 201,067 183,202 17,865 9.8
Provision for income taxes 35,575 32,892 2,683 8.2 67,346 65,926 1,420 2.2
- ------------------------------------------------------ --------- --------- -------- ------- ---------- ---------- -------- -------
NET INCOME 68,843 55,907 12,936 23.1 133,721 117,276 16,445 14.0
====================================================== ========= ========= ======== ======= ========== ========== ======== =======
Dividend requirement of preferred stock 7 7 0 0.0 14 14 0 0.0
- ------------------------------------------------------ --------- --------- -------- ------- ---------- ---------- -------- -------
NET INCOME APPLICABLE TO COMMON STOCK 68,836 55,900 12,936 23.1 133,707 117,262 16,445 14.0
====================================================== ========= ========= ======== ======= ========== ========== ======== =======
Common stock dividend 26,544 22,943 3,601 15.7 53,127 46,529 6,598 14.2
====================================================== ========= ========= ======== ======= ========== ========== ======== =======
EARNINGS PER COMMON SHARE:
Earnings per common share basic 0.36 0.30 0.06 20.0 0.70 0.63 0.07 11.1
Earnings per common share diluted 0.35 0.29 0.06 20.7 0.69 0.60 0.09 15.0
Common shares basic [Avg] 191,323 187,623 3,700 2.0 189,791 186,983 2,808 1.5
Common shares diluted [Avg] 196,402 194,471 1,931 1.0 194,911 193,993 918 0.5
====================================================== ========= ========= ======== ======= ========== ========== ======== =======
CASH DIVIDENDS PAID OR ACCRUED PER SHARE:
Preferred stock dividend ($3.15 annual rate) 0.79 0.79 0.00 0.0 1.58 1.58 0.00 0.0
Common stock dividend 0.14 0.13 0.01 7.7 0.28 0.26 0.02 7.7
====================================================== ========= ========= ======== ======= ========== ========== ======== =======
<FN>
See "Notes to Consolidated Financial Statements".
</TABLE>
<PAGE>
<TABLE>
FIRST SECURITY CORPORATION
CONSOLIDATED BALANCE SHEETS
($ in thousands; unaudited)
<CAPTION>
June 30 December 31 June 30 Jun/Jun Jun/Jun
1999 1998 1998 $Chg %Chg
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------- ------------ ------------ ------------ ------------ -------
ASSETS:
Cash & due from banks 949,452 1,026,335 908,605 40,847 4.5
Federal funds sold & securities purchased under resale agreements 159,851 230,210 26,323 133,528 507.3
- --------------------------------------------------------------------- ------------ ------------ ------------ ------------ -------
Total Cash & Cash Equivalents 1,109,303 1,256,545 934,928 174,375 18.7
Interest-bearing deposits in other banks 9,545 605 605 8,940 1477.7
Trading account securities 147,951 329,109 53,343 94,608 177.4
Available for sale securities, at fair value 5,923,169 4,764,127 4,806,559 1,116,610 23.2
(Amortized cost: $6,031,121; $4,715,876; and $4,767,405; respectively)
- --------------------------------------------------------------------- ------------ ------------ ------------ ------------ -------
Loans, net of unearned income 13,309,843 14,013,417 12,530,360 779,483 6.2
(Unearned income: $150,879; $127,593; and $105,407; respectively)
Reserve for loan losses (174,443) (173,350) (166,658) (7,785) 4.7
- --------------------------------------------------------------------- ------------ ------------ ------------ ------------ -------
Total Loans, Net 13,135,400 13,840,067 12,363,702 771,698 6.2
- --------------------------------------------------------------------- ------------ ------------ ------------ ------------ -------
Premises & equipment, net 420,494 378,032 316,999 103,495 32.6
Accrued income receivable 105,396 113,399 112,510 (7,114) (6.3)
Other real estate 5,301 3,617 3,908 1,393 35.6
Other assets 700,402 594,220 415,905 284,497 68.4
- --------------------------------------------------------------------- ------------ ------------ ------------ ------------ -------
Goodwill 359,886 224,802 208,657 151,229 72.5
Loan servicing rights 197,476 174,196 138,699 58,777 42.4
Other intangible assets 20,671 10,369 4,191 16,480 393.2
- --------------------------------------------------------------------- ------------ ------------ ------------ ------------ -------
Total Intangible Assets 578,033 409,367 351,547 226,486 64.4
- --------------------------------------------------------------------- ------------ ------------ ------------ ------------ -------
TOTAL ASSETS 22,134,994 21,689,088 19,360,006 2,774,988 14.3
===================================================================== ============ ============ ============ ============ =======
LIABILITIES:
Deposits: noninterest-bearing 2,621,559 2,752,009 2,402,497 219,062 9.1
Deposits: interest-bearing 10,361,391 9,906,565 9,514,706 846,685 8.9
- --------------------------------------------------------------------- ------------ ------------ ------------ ------------ -------
Total Deposits 12,982,950 12,658,574 11,917,203 1,065,747 8.9
- --------------------------------------------------------------------- ------------ ------------ ------------ ------------ -------
Federal funds purchased & securities sold under repurchase agreements 3,729,477 3,747,084 3,480,902 248,575 7.1
U.S. Treasury demand notes 38,040 25,081 37,562 478 1.3
Other short-term borrowings 366,977 493,424 386,786 (19,809) (5.1)
Accrued income taxes 349,114 333,881 303,779 45,335 14.9
Accrued interest payable 49,436 58,778 46,147 3,289 7.1
Other liabilities 300,568 167,213 131,713 168,855 128.2
Long-term debt 2,582,370 2,609,558 1,513,044 1,069,326 70.7
- --------------------------------------------------------------------- ------------ ------------ ------------ ------------ -------
TOTAL LIABILITIES 20,398,932 20,093,593 17,817,136 2,581,796 14.5
- --------------------------------------------------------------------- ------------ ------------ ------------ ------------ -------
STOCKHOLDERS' EQUITY:
Preferred stock: Series "A" $3.15 cumulative convertible 472 484 493 (21) (4.3)
(Shares issued: 9; 9; and 9; respectively)
- --------------------------------------------------------------------- ------------ ------------ ------------ ------------ -------
Common Stockholders' Equity:
Common stock: par value $1.25 245,865 238,760 236,416 9,449 4.0
(Shares issued: 196,692; 191,008; and 189,133; respectively)
Paid-in surplus 282,260 181,906 154,359 127,901 82.9
Retained earnings 1,313,844 1,233,264 1,151,927 161,917 14.1
Accumulated other comprehensive income (66,734) 30,377 24,552 (91,286) (371.8)
- --------------------------------------------------------------------- ------------ ------------ ------------ ------------ -------
Subtotal 1,775,235 1,684,307 1,567,254 207,981 13.3
- --------------------------------------------------------------------- ------------ ------------ ------------ ------------ -------
Common treasury stock, at cost (39,645) (89,296) (24,877) (14,768) 59.4
(Shares: 1,607; 4,296; and 1,238; respectively)
- --------------------------------------------------------------------- ------------ ------------ ------------ ------------ -------
Total Common Stockholders' Equity 1,735,590 1,595,011 1,542,377 193,213 12.5
- --------------------------------------------------------------------- ------------ ------------ ------------ ------------ -------
TOTAL STOCKHOLDERS' EQUITY 1,736,062 1,595,495 1,542,870 193,192 12.5
- ---------------------------------------------------------------------------------- ------------ ------------ ------------ -------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY 22,134,994 21,689,088 19,360,006 2,774,988 14.3
===================================================================== ============ ============ ============ ============ =======
<FN>
See "Notes to Consolidated Financial Statements".
</TABLE>
<PAGE>
<TABLE>
FIRST SECURITY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands, except number of shares; unaudited)
<CAPTION>
For the Year-To-Date Six Month Periods Ended June 30, 1999 and 1998 1999 1998
<S> <C> <C>
- --------------------------------------------------------------------- ----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 1,702,640 421,759
- --------------------------------------------------------------------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of available for sale securities 567,175 7,232
Redemption of matured available for sale securities 883,275 816,620
Purchases of available for sale securities (2,699,750) (1,173,316)
Net (increase) decrease in interest-bearing deposits in other banks (8,669) (5)
Net (increase) decrease in loans (2,533,543) (1,679,171)
Proceeds from sales of auto loans 2,040,498 500,501
Purchases of premises and equipment (8,148) (16,328)
Proceeds from sales of other real estate 4,736 4,374
Payments to improve other real estate (1,727) (1,754)
Net cash (paid for) received from acquisitions 16,487 45,002
- --------------------------------------------------------------------- ----------- -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (1,739,666) (1,496,845)
- --------------------------------------------------------------------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 28,705 156,215
Net increase (decrease) in Federal funds purchased, securities sold
under repurchase agreements, and U.S. Treasury demand notes (4,649) 244,355
Proceeds (payments) on nonrecourse debt on leveraged leases 85,824 1,244
Proceeds from issuance of long-term debt and short-term borrowings 202,127 250,810
Payments on long-term debt and short-term borrowings (355,761) (6,662)
Proceeds from issuance of common stock and sales of treasury stock 4,375 8,356
Purchases of treasury stock (17,696) (23,469)
Dividends paid (53,141) (46,536)
- --------------------------------------------------------------------- ----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (110,216) 584,313
- --------------------------------------------------------------------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (147,242) (490,773)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,256,545 1,425,701
- --------------------------------------------------------------------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD 1,109,303 934,928
===================================================================== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
- --------------------------------------------------------------------- ----------- -----------
CASH PAID (RECEIVED) FOR:
Interest 386,727 353,603
Income taxes 954 21,073
===================================================================== =========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Conversion of preferred shares to common shares:
Number of preferred shares converted 225 157
Number of common shares issued 9,225 5,986
Conversion value 12 8
Transfer of loans to other real estate 1,948 1,186
Net unrealized gain (loss) on available for sale securities
included in stockholders' equity (97,111) 984
Acquisitions:
Assets acquired 489,130 1,317,988
Liabilities assumed 309,298 1,147,242
Number of FSCO shares issued 8,456,724 13,295,044
===================================================================== =========== ===========
<FN>
See "Notes to Consolidated Financial Statements".
</TABLE>
<PAGE>
<TABLE>
FIRST SECURITY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
($ in thousands; unaudited)
<CAPTION>
Three Months Year-To-Date Six Months
For the Periods Ended June 30, 1999 and 1998 1999 1998 $Chg %Chg 1999 1998 $Chg %Chg
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------ --------- --------- -------- ------- ---------- ---------- -------- -------
NET INCOME 68,843 55,907 12,936 23.1 133,721 117,276 16,445 14.0
- ------------------------------------------------------ --------- --------- -------- ------- ---------- ---------- -------- -------
OTHER COMPREHENSIVE INCOME, AFTER TAX (75,093) 2,718 (77,811)(2862.8) (97,111) 984 (98,095)(9969.0)
- ------------------------------------------------------ --------- --------- -------- ------- ---------- ---------- -------- -------
COMPREHENSIVE INCOME (6,250) 58,625 (64,875) (110.7) 36,610 118,260 (81,650) (69.0)
====================================================== ========= ========= ======== ======= ========== ========== ======== =======
<FN>
See "Notes to Consolidated Financial Statements".
</TABLE>
<PAGE>
FIRST SECURITY CORPORATION (FSCO)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of FSCO's 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
six months ended June 30, 1999 and 1998; financial position as of June 30,
1999, December 31, 1998, and June 30, 1998; and cash flows for the year-to-
date six months ended June 30, 1999 and 1998.
2. FSCO's results of operations for the three months and year-to-date six
months ended June 30, 1999 and 1998 are not necessarily indicative of the
results to be expected for the full year.
3. All FSCO financial data have been previously restated for the May 30,
1998 pooling-of-interests merger with California State Bank (CSB; see:
"Mergers and Acquisitions"). 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 of 1998 amounts have been made to conform to 1999
classifications.
4. FSCO's financial statements and commentary incorporate fair market
values for balances added and earnings since their acquisition from the
following purchase acquisitions completed in 1998 and year-to-date 1999:
* On December 21, 1998, FSCO acquired Marine National Bank (MNB), located
in Irvine, California. At December 20, 1998, MNB had assets of $259 million,
loans of $114 million, deposits of $200 million, and three branches. MNB and
CSB were merged and renamed as First Security Bank of California.
* On February 12, 1999, FSCO acquired Van Kasper & Company in a purchase
acquisition and renamed it First Security Van Kasper (FS Van Kasper,
headquartered in San Francisco, California). FS Van Kasper is FSCO's full-
service investment banking and brokerage subsidiary.
* On June 1, 1999, FSCO acquired Comstock Bancorp (CB) and its Comstock
Bank subsidiary in a purchase transaction. At March 31, 1999, CB had assets
of $217 million, loans of $152 million, deposits of $188 million, five
offices, and two lending centers.
* On June 14, 1999, FSCO acquired XEON Financial Corporation and its Nevada
Banking Company subsidiary (NBC) in a purchase transaction. At March 31,
1999, NBC had assets of $128 million, loans of $85 million, deposits of $117
million, three offices, and one executive loan center.
Pro forma results of operations for 1999 and 1998, 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 loan servicing
rights for the year-to-date six months ended June 30, 1999 included $52.0
million originated and $28.7 million amortized during the period.
7. Effective January 1, 1998, FSCO adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information," which requires
disclosures of certain information about FSCO's reportable operating segments.
FSCO has the following reportable segments: Community Banking Services; Retail
Lending Services; Business Banking Services; Capital Markets, Treasury, &
Investment Management; and Parent & Other.
<TABLE>
LINE OF BUSINESS SEGMENTS - SELECTED DATA (in thousands; unaudited) (A)
<CAPTION>
Capital
Markets,
Community Retail Business Treasury &
Banking Lending Banking Investment Parent Total
Services Services Services Management & Other FSCO
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------ ------------ ------------ ------------ ------------ ------------
For the Year-To-Date Six Month Period Ended June 30, 1999
Total assets (Avg) 603,433 8,696,961 3,680,331 5,460,794 3,263,885 21,705,404
Total deposits (Avg) 8,936,535 218,258 747,152 338,747 2,243,431 12,484,123
Interest income 4,453 359,497 148,776 169,638 64,823 747,187
Interest expense 177,081 0 11,575 104,210 84,519 377,385
Intersegment interest income (expense), ne 262,917 (216,574) (69,531) (44,621) 67,809 0
Provision for income taxes 10,354 29,251 12,326 8,427 6,988 67,346
Net income 16,289 46,913 21,528 13,570 35,421 133,721
- ------------------------------------------------------ ------------ ------------ ------------ ------------ ------------
For the Year-To-Date Six Month Period Ended June 30, 1998
Total assets (Avg) 769,720 9,244,451 3,326,538 4,435,726 767,931 18,544,366
Total deposits (Avg) 8,434,308 182,975 600,460 398,380 1,935,679 11,551,802
Interest income 3,521 344,719 146,630 141,831 48,350 685,051
Interest expense 185,720 3,673 10,014 92,268 56,147 347,822
Intersegment interest income (expense), ne 282,234 (214,002) (70,464) (33,221) 35,453 0
Provision for income taxes 19,170 21,861 13,633 4,751 6,511 65,926
Net income 30,439 36,631 24,918 7,700 17,588 117,276
====================================================== ============ ============ ============ ============ ============
<FN>
(A) For the periods reported, FSCO:
* reported intersegment interest income and interest expenses on a net basis;
* had no material revenues from foreign countries;
* did not rely on any single major customer for 10% or more of external revenues;
* had no material depreciation, depletion, and/or amortization expenses;
* had no material unusual items, extraordinary items, and/or significant noncash items.
</TABLE>
Interest income and expense as well as the total average assets and total
average deposits are reported following the same accounting policies described
in Note 1 to the financial statements in FSCO's 1998 Annual Report on Form 10-
K (hereby incorporated by reference). Intersegment interest income and
expense are derived by modeling loans and deposits to determine duration-based
funds transfer pricing rates. Such rates are applied to loans and deposits to
determine intersegment interest income and expense. In addition, certain
operating, general and administrative expenses are allocated between and among
the business segments to derive net income.
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 1998 Annual Report on Form 10-K (hereby
incorporated by reference). Since the filing of that report, there have been
no material changes in FSCO's accounting policies for derivative instruments.
9. Effective January 1, 1999, FSCO adopted SFAS No. 134, "Accounting for
Mortgage Backed Securities Retained after the Securitization of Mortgage Loans
for Sale by a Mortgage Banking Enterprise", which allows an entity engaged in
mortgage banking activities to classify the resulting mortgage-backed security
or other retained interest based on its ability and intent to sell or hold
those investments. The adoption of SFAS No. 134 did not have a material
effect on FSCO's consolidated financial statements.
10. On July 7, 1999, the FASB issued SFAS No. 137 "Accounting for
Derivative Instruments and Hedging Activities-Deferral of the Effective Date
of FASB Statement No. 133", an amendment of FASB Statement No. 133 which
establishes accounting and reporting standards for derivative instruments and
hedging activities and 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 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. SFAS No. 133, as amended by SFAS No. 137, is effective for
all quarterly and annual financial statements of fiscal years beginning after
June 15, 2000. FSCO management is currently evaluating the effects of this
change in its accounting for derivatives and hedging activities and does not
plan to implement SFAS No. 133 early.
# # #
<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:
THIS MDA SHOULD BE READ IN CONJUNCTION WITH FSCO'S CONSOLIDATED FINANCIAL
STATEMENTS AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
FORWARD-LOOKING STATEMENTS
Except for the historical information in this document, the matters
described herein are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. FSCO cautions readers not
to place undue reliance on any forward-looking statements, which speak only as
of the date made.
FSCO advises readers that various risks and uncertainties could affect
FSCO's financial performance and could cause FSCO's actual results for future
periods to differ materially from those anticipated or projected. These risks
and uncertainties include, but are not limited to, those related to: "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 core business, regularly evaluates the
potential acquisition of, and holds discussions with, prospective acquisition
candidates, which candidates may conduct any type of businesses permissible
for a bank holding company and its affiliates. FSCO's discussions in this
document are subject to the changes that may result if any such acquisition
transaction is completed. FSCO restates its guiding principle that it will
not comment on or publicly announce any acquisition until after a binding and
definitive acquisition agreement has been reached.
The discussion of FSCO's "Year 2000 Issues" constitutes a Year 2000
Readiness Disclosure pursuant to the provisions of the Year 2000 Information
Readiness and Disclosure Act and includes forward-looking statements that
involve inherent risks and uncertainties. A number of important factors could
cause the actual impact of Year 2000 issues to change significantly from what
is described in these forward-looking statements. Those factors include, but
are not limited to, ineffective remediation of computer code and the inability
of FSCO's suppliers and vendors to successfully resolve their individual Year
2000 issues.
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
Highlights of FSCO's performance in 1999, and comparisons to corresponding
1998 periods, included:
RESULTS OF OPERATIONS - YEAR-TO-DATE 1999:
* Net income: $133.7 million, up $16.4 million or 14.0%; and up $9.2 million
or 7.4% excluding 1998 one-time California State Bank (CSB) acquisition
charges totaling $7.2 million after tax.
* Earnings per share diluted: $0.69, up $0.09 or 15.0%; and up $0.05 or 7.8%
excluding 1998 CSB acquisition charges.
* Noninterest income: $268.5 million, up $41.5 million or 18.3%.
RESULTS OF OPERATIONS - SECOND QUARTER OF 1999:
* Net income: $68.8 million, up $12.9 million or 23.1%; and up $5.7 million or
9.0% excluding 1998 CSB acquisition charges.
* Earnings per share diluted: $0.35, up $0.06 or 20.7%; and up $0.03 or 9.4%
excluding 1998 CSB acquisition charges.
* Noninterest income: $145.0 million, up $26.4 million or 22.3%.
FINANCIAL CONDITION AT JUNE 30, 1999, COMPARED WITH YEAR-END 1998:
* Total assets: $22.1 billion, up $0.4 billion or 2.1%.
* Interest-earning assets: $19.6 billion, up $0.2 billion or 1.1%.
* Stockholders' equity: $1.7 billion, up $0.1 billion or 8.8%.
* Asset quality: ratio of total problem assets to total loans and ORE of
0.60%, up from 0.52%.
* All equity and risk-based capital ratios exceeded regulatory requirements
for "well capitalized" status.
MERGER & ACQUISITION HIGHLIGHTS:
* June 6, 1999, Zions Bancorporation and FSCO announced the signing of a
definitive agreement to merge.
* June 1, 1999, FSCO acquired Comstock Bancorp and subsidiary.
* June 14, 1999, FSCO acquired XEON Financial Corporation and subsidiary.
LINE OF BUSINESS SEGMENTS
FSCO's organizational management structure consisted of the following five
"Line of Business" segments (see: MDA Supplemental Tables "Line of Business
Segments"):
* Community Banking Services provides transaction, deposit, electronic
banking, and customer services. This segment was restructured during the
first quarter of 1999 with all personal investment, private banking, personal
trust, and insurance functions moved to the new Capital Markets, Treasury, and
Investment Management segment.
* Retail Lending Services provides a full range of credit products to
retail and small-business customers including consumer loans (direct and
indirect vehicle, credit cards, student loans, and other), residential real
estate loans (mortgage, home equity, and construction), and commercial loans
under $100,000. Retail Lending Services also makes loans (new and used car
flooring, capital loans, and real estate loans) to selected types of
businesses, including automobile dealers, residential lot developers, and home
builders (for construction of single family residential homes).
* Business Banking Services provides a full range of products to business
customers, including commercial loans over $100,000, commercial real estate
loans (term and construction), leases, and banking, trust, and financial
services for businesses.
* Capital Markets, Treasury, and Investment Management provides capital
markets, treasury, personal investment, private banking, personal trust,
insurance, investment management functions, and FS Van Kasper. This line of
business segment was restructured during the first quarter of 1999 by
combining the Finance and Capital Markets segment with all personal
investment, private banking, personal trust, and insurance functions from the
Community Banking Services segment.
* Parent and Other combines corporate administration, technology and
processing services, acquired banks that have not been converted to FSCO's
systems, and intersegment eliminations. This line of business segment was
restructured during the first quarter of 1999 by moving the accounting, tax,
and purchasing functions from the Finance and Capital Markets segment to this
segment.
FSCO advises readers that its line of business segment data for 1998 has
been restated so far as was practicable. In addition, FSCO further advises
readers that its actual results for future periods could differ materially
from those anticipated or projected.
ANALYSIS OF STATEMENTS OF INCOME
EARNINGS SUMMARY
FSCO's net income was $133.7 million for the first six months of 1999, up
$16.4 million or 14.0% from the corresponding year-ago 1998 period. This net
income generated earnings per share (EPS) diluted of $0.69 for the year to
date, up $0.09 or 15.0% from the year-ago period, and a 1.24% return on
average assets (ROAA) and a 16.58% return on average equity (ROAE) for year-
to-date 1999, compared with a 1.28% ROAA and a 16.13% ROAE for the year-ago
period. Tangible EPS diluted were $0.82, tangible ROAA was 1.51%, and
tangible ROAE was 27.77% for the year to date, compared with $0.69, 1.48%, and
23.65%, respectively, for the year-ago period.
FSCO's net income was $68.8 million for the second quarter of 1999, up
$12.9 million or 23.1% from the second quarter of 1998. This net income
generated EPS diluted of $0.35 for the quarter, up $0.06 or 20.7% from the
year-ago quarter, and a 1.26% ROAA and a 16.52% ROAE for the quarter, compared
with a 1.18% ROAA and a 14.75% ROAE for the year-ago quarter. Tangible EPS
diluted were $0.42, tangible ROAA was 1.53%, and tangible ROAE was 28.08% for
the quarter, compared with $0.33, 1.40%, and 22.26%, respectively, for the
year-ago quarter.
Excluding 1998 one-time acquisition charges totaling $7.2 million after tax
for FSCO's pooling of interests acquisition of California State Bank (CSB),
FSCO's net income was up $9.2 million or 7.4% for year-to-date 1999 and up
$5.7 million or 9.0% for the second quarter of 1999, while EPS diluted were up
$0.05 or 7.8% for the year to date and up $0.03 or 9.4% for the quarter.
REVENUES
FSCO's revenues (net interest income plus noninterest income) were $638.3
million for year-to-date 1999, up $74.0 million or 13.1% from the year-ago
period, and were $332.4 million for the second quarter of 1999, up $40.9
million or 14.0% from the year-ago quarter. The components of FSCO's 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
$375.1 million for year-to-date 1999, up $32.4 million or 9.5% from the year-
ago period, and was $190.0 million for the second quarter of 1999, up $14.2
million or 8.1% from the year-ago quarter. These increases were due to a
combination of continued strong growth in loans net of loan sales and
securitizations, growth in the securities portfolios, and the positive impact
of recent acquisitions accounted for on a purchase basis.
FSCO's net interest margin was 3.92% for the year-to-date, down 23 basis
points from the year-ago period, and was 3.93% for the second quarter of 1999,
down 22 basis points from the year-ago quarter. These decreases were due to
several factors including strong volume growth in lower yielding loans, sales
of assets through securitizations, refinancing of mortgages at lower rates,
and relatively stable overall funding costs. In addition, FSCO's long-term
component of funding costs rose during the year to date due to a strategic
decision to prefund longer term debt over the year in order to take advantage
of historically low rates and to avoid any potential negative market
conditions, including Year 2000 concerns, in the latter part of 1999. FSCO
expects its net interest margin to remain stable and to average between 3.90%
and 4.00% in 1999.
PROVISION FOR LOAN LOSSES
FSCO's provision for loan losses was $27.5 million for year-to-date 1999,
down $3.5 million or 11.4% from the year-ago period, and was $10.6 million for
the quarter, down $7.8 million or 42.4% from the year-ago quarter (see: "Asset
Quality: Provision For Loan Losses").
NONINTEREST INCOME
FSCO's noninterest income was $268.5 million for year-to-date 1999, up
$41.5 million or 18.3% from the year-ago period, and was $145.0 million for
the second quarter of 1999, up $26.4 million or 22.3% from the year-ago
quarter. These increases reflected FSCO's continued emphasis on increasing
and diversifying its sources of noninterest income and included the following:
the addition of FS Van Kasper and its commissions and fees from securities
transactions; securities gains on trading and available for sale portfolios;
continued strong mortgage banking fees and loan servicing net revenue; growth
in trust and insurance income; and gains from $2.0 billion in ongoing loan
securitizations during the year-to-date. These increases were partially
offset by decreased bankcard servicing & third-party processing fees,
reflecting a joint venture in a merchant servicing business that FSCO entered
into in the first quarter of 1998. FSCO's ratio of noninterest income to
revenues was 42.07% for year-to-date 1999, up from 40.24% for the year-ago
period, and was 43.62% for the quarter, up from 40.67% for the year-ago
quarter.
NONINTEREST EXPENSES
FSCO's noninterest expenses were $409.8 million for year-to-date 1999, up
$59.7 million or 17.1% from the year-ago period, and were $217.4 million for
the second quarter of 1999, up $33.1 million or 18.0% from the year-ago
quarter. These increases were primarily due to the following: additions of
revenue-generating personnel; additional personnel and operating expenses of
recent purchase acquisitions; and the cost of strategic technological
investments and upgrades, including Year 2000 expenditures, which were at peak
levels during the period. These increases reflected FSCO's absorption of the
impact of several major investments in support of strong growth, multiple
acquisitions, and strategic expenditures in technology appropriate for
building a high performance financial services company with a long-term
perspective. For 1999 and future years, FSCO will benefit from these
investments which will increase and diversify revenues, and improve
technology, providing more functionality and efficiencies. FSCO remained
committed to effectively managing its ongoing noninterest expenses, balanced
against the need to make strategic investments. The components of FSCO's
noninterest expenses are discussed below.
* FSCO's salaries and benefits expense were $237.3 million for the year to
date, up $52.4 million or 28.3% from the year-ago period, and were $122.8
million for the quarter, up $27.2 million or 28.5% from the year-ago quarter.
* FSCO's nonpersonnel expenses were $172.4 million for the year to date, up
$7.3 million or 4.4% from the year-ago period, and were $94.6 million for the
quarter, up $5.9 million or 6.6% 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 63.67% for year-to-
date 1999, up 222 basis points from the year-ago period, and was 64.89% for
the second quarter of 1999, up 227 basis points from the year-ago quarter.
CrossLand Mortgage Corp., FSCO's mortgage banking subsidiary, and FS Van
Kasper, FSCO's full-service investment banking and brokerage subsidiary, have
higher inherent operating expense ratios than FSCO's bank subsidiaries.
Excluding CrossLand Mortgage and FS Van Kasper, FSCO's operating expense ratio
was 59.95% for year-to-date 1999, up 236 basis points from the year-ago
period, and was 56.32% for the second quarter of 1999, up 217 basis points
from the year-ago quarter.
Excluding 1998 one-time CSB acquisition charges to noninterest expense of
$6.9 million, FSCO's noninterest expenses were up $14.2 million or 9.0% for
year-to-date 1999 and up $12.8 million or 15.7% for the second quarter of
1999. Excluding CrossLand Mortgage, FS Van Kasper, and the 1998 acquisition
charges, FSCO's operating expense ratio of 59.95% for year-to-date 1999 was up
379 basis points from the year-ago period, and its ratio of 56.32% for the
second quarter of 1999 was up only 19 basis points from the year-ago quarter.
ANALYSIS OF BALANCE SHEETS
SUMMARY
As of June 30, 1999, FSCO increased its total assets and equity to record
levels. At period end, FSCO considered its interest-earning asset quality to
be good, its reserve for loan losses to be adequate, and its liquidity
position to be strong for the foreseeable future (see: "Factors That May
Affect Future Results of Operations And Financial Condition").
FSCO's total assets were $22.1 billion at June 30, 1999, up $0.4 billion or
2.1% from year-end 1998 and up $2.8 billion or 14.3% from one year ago.
Interest-earning assets were $19.6 billion at period end, up $0.2 billion or
1.1% from year end and up $2.1 billion or 12.2% from one year ago.
FSCO's total liabilities were $20.4 billion at June 30, 1999, up $0.3
billion or 1.5% from year end and up $2.6 billion or 14.5% from one year ago.
Total interest-bearing liabilities were $17.1 billion at period end, up $0.3
billion or 1.8% from year end and up $2.1 billion or 14.4% from one year ago.
FSCO's stockholders' equity increased to $1.7 billion at June 30, 1999, up
$0.1 billion or 8.8% from year end and up $0.2 billion or 12.5% from one year
ago.
INTEREST-EARNING ASSETS:
TRADING ACCOUNT SECURITIES AND OTHER MONEY MARKET INVESTMENTS
FSCO's trading account securities were $0.1 billion at June 30, 1999, down
$0.2 billion or 55.0% from year end but up $0.1 billion or 177.4% from one
year ago. Fluctuations in trading opportunities, reflected in the level of
securities held, are a normal part of this function.
Fluctuations in Federal funds sold and interest-bearing deposits held in
other banks occur in response to changing yield opportunities and liquidity
requirements.
INTEREST-EARNING ASSETS:
AVAILABLE FOR SALE SECURITIES
FSCO's available for sale (AFS) securities were $5.9 billion at June 30,
1999, up $1.2 billion or 24.3% from year end and up $1.1 billion or 23.2% 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 $13.3 billion at June 30, 1999, down $0.7 billion or 5.0% from
year end but up $0.8 billion or 6.2% from one year ago. The decrease from
year end was due to $2.0 billion in vehicle loan securitizations, ongoing
sales of 1-to-4 family residential term loans into secondary markets, and a
slight slowing in mortgage loan production. The increase from one year ago
was due to strong loan demand that more than offset ongoing loan
securitizations and sales. The ratio of total loans to total assets was
60.13% at period end, down from 64.61% at year end and 64.72% one year ago.
The components of FSCO's loan portfolio at June 30, 1999, compared with
December 31, 1998 and June 30, 1998, respectively, are discussed below.
* Commercial loans were $3.2 billion, up $0.1 billion or 1.9% from year end
and up $0.2 billion or 5.6% 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 $5.9 billion, down $0.2 billion or 4.0%
from year end but up $0.6 billion or 11.8% from one year ago. Fluctuations in
these loan balances occurred as loan originations, generated by strong demand
and lower interest rates during the periods, were offset by loan sales,
particularly in the first half of 1999. For balance sheet management
purposes, FSCO does not retain all newly originated mortgage loans but
regularly securitizes and sells most loans in the secondary markets on an
ongoing flow-through basis. For 1-to-4 family residential term loans year to
date, FSCO originated $4.2 billion, up $0.9 billion or 27.5% from the year-ago
period, and sold $4.8 billion, up $2.3 billion or 94.6% from the year-ago
period. At quarter end, $1.4 billion of real estate secured loans were held
for sale, down $1.0 billion or 40.4% from year end, and down $0.3 billion or
16.3% from one year ago.
* Consumer loans were $2.7 billion, down $0.7 billion or 20.5% from year
end and down $0.4 billion or 12.6% from one year ago. These decreases
occurred as vehicle loan originations were more than offset by vehicle loan
securitizations and maturing loans. For balance sheet management purposes,
FSCO does not retain all newly originated indirect vehicle loans but regularly
pools and securitizes such loans in the secondary markets. For indirect
vehicle loans year to date, FSCO originated $1.8 billion, up $0.6 billion or
44.5% from the year-ago period, and sold $2.0 billion, up $1.5 billion or
300.0% from the year-ago period. FSCO remained the leading consumer lender in
its primary market area.
* Leases were $1.5 billion, up $0.2 billion or 14.2% from year end and up
$0.4 billion or 34.8% from one year ago. These increases were primarily due
to FSCO's growth in the vehicle and equipment leasing markets.
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 strong asset quality, as its ratio of total
problem assets to total loans and other real estate was 0.60% at June 30,
1999, up from 0.52% at year end and 0.53% one year ago. The ratio of
nonperforming assets to total loans and ORE was 0.42% at period end, up from
0.35% at year end and one year ago.
Problem assets were $79.3 million at June 30, 1999, up $6.1 million or 8.3%
from year end and up $12.8 million or 19.3% from one year ago. The components
of FSCO's problem assets at June 30, 1999, compared with December 31, 1998 and
June 30, 1998, respectively, are discussed below.
* Nonaccruing loans were $50.4 million, up $4.6 million or 10.0% from year
end and up $10.7 million or 26.9% from one year ago. The ratio of nonaccruing
loans to total loans was 0.38%, up from 0.33% at year end and 0.32% one year
ago.
* Other real estate was $5.3 million, up $1.7 million or 46.6% from year
end and up $1.4 million or 35.6% from one year ago. 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 $23.6 million, essentially
unchanged from year end but up $0.7 million or 3.2% from one year ago. The
ratio of accruing loans past due 90 days or more to total loans was 0.18%,
compared with 0.17% 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 March 31, 1999 showed that: FSCO's ratio of nonaccruing loans
to total loans was 0.37%, which compared favorably with the peer group average
of 0.63%; and FSCO's ratio of accruing loans past due 90 days or more to total
loans was 0.20%, which compared favorably with the peer group average of
0.22%.
Potential problem loans identified by FSCO amounted to $28.0 million at
June 30, 1999, down $19.3 million or 40.8% from year end and down $9.2 million
or 24.7% from one year ago. Potential problem loans consisted primarily of
commercial and agricultural related loans.
ASSET QUALITY:
RESERVE FOR LOAN LOSSES
FSCO relies on the methodology for analysis of reserve adequacy outlined in
its 1998 Annual Report on Form 10-K (hereby incorporated by reference) and not
on any specific reserve ratio comparison.
FSCO's reserve for loan losses was $174.4 million at June 30, 1999, up $1.1
million or 0.6% from year-end 1998 and up $7.8 million or 4.7% from one year
ago. The increase from one year ago was due to reserves added with the
various purchase acquisitions during the period.
Based on its analysis of reserve adequacy, FSCO considered its reserve for
loan losses at June 30, 1999 to be adequate to absorb estimated loan losses in
the current loan portfolio. FSCO's coverage ratio of the reserve to
nonaccruing loans was 346.10% at period end, down from 378.39% at year end and
419.66% one year ago. The ratio of the reserve to total loans was 1.31% at
period end, compared with 1.24% at year end and 1.33% one year ago.
Net loans charged off against the reserve were $34.8 million for year-to-
date 1999, up $10.0 million or 40.4% from the year-ago period, and were $17.9
million for the second quarter of 1999, up $2.9 million or 19.6% from the
year-ago quarter. These increases were primarily due to higher net loans
charged off on consumer vehicle loans and commercial loans. The annualized
ratio of net loans charged off to average loans was 0.52% for year-to-date
1999, up from 0.42% for the year-ago period and 0.49% for all of 1998, and was
0.54% for the second quarter of 1999, up from 0.49% for the year-ago quarter.
A comparison of FSCO to its BHCPR peer group as of March 31, 1999 showed
that: FSCO's coverage ratio of the reserve to nonaccruing loans was 353.84%,
which compared favorably with the peer group average of 310.41%; its ratio of
the reserve to total loans was 1.32%, compared with the peer group average of
1.57%; and its annualized ratio of net loans charged off to average loans was
0.50% for the period, compared with the peer group average of 0.40%.
ASSET QUALITY:
PROVISION FOR LOAN LOSSES
FSCO uses the provision for loan losses to adjust the reserve when a
replenishment or addition is appropriate.
FSCO's provision for loan losses was $27.5 million for year-to-date 1999,
down $3.5 million or 11.4% from the year-ago period, and was $10.6 million for
the quarter, down $7.8 million or 42.4% from the year-ago quarter. These
decreases were more than offset by $10.3 million in reserves added with the
various purchase acquisitions during the period.
ASSET/LIABILITY MANAGEMENT
FSCO's asset/liability management committee (ALCO) process is responsible
for the identification, assessment, and management of liquidity, interest rate
risk, and capital adequacy for FSCO and its subsidiaries. FSCO's ALCO process
was discussed in its 1998 Annual Report on Form 10-K (hereby incorporated by
reference). The components of FSCO's ALCO process are discussed below.
ASSET/LIABILITY MANAGEMENT:
LIQUIDITY
FSCO's total deposits were $13.0 billion at June 30, 1999, up $0.3 billion
or 2.6% from year end and up $1.1 billion or 8.9% from one year ago. These
increases were due to FSCO's continued emphasis on its deposit gathering
functions and the acquisition of banks with strong deposit characteristics.
The ratio of loans to deposits was 102.52% at period end, down from 110.70% at
year end and 105.15% one year ago primarily due to increased deposit levels,
$2.0 billion in vehicle loan securitizations during the year-to-date period,
and ongoing sales of 1-to-4 family residential term loans. The ratio of loans
to assets was 60.13% at period end, down from 64.61% at year end and 64.72%
one year ago. These ratios, as well as other loan and liquidity ratios, vary
with changes in economic cycles and are monitored closely through FSCO's ALCO
process to ensure that the proper balance is maintained between risk, customer
borrowing needs, and economic opportunities.
FSCO's debt, which included short-term borrowings and long-term debt, was
$6.7 billion at June 30, 1999, down $0.2 billion or 2.3% from year end but up
$1.3 billion or 24.0% from one year ago. The components of FSCO's debt at
June 30, 1999, compared with December 31, 1998 and June 30, 1998,
respectively, are discussed below.
* Federal funds purchased and securities sold under repurchase agreements
were $3.7 billion, essentially unchanged from year end but up $0.2 billion or
7.1% from one year ago. The increase 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 sale or securitization, and
growth in AFS securities through repurchase agreements.
* All other short-term borrowed funds were $0.4 billion, down $0.1 billion
or 21.9% from year end but essentially unchanged from one year ago. The
decrease was due to maturing issues and the strategic use of long-term debt.
* Long-term debt was $2.6 billion, essentially unchanged from year end but
up $1.1 billion or 70.7% from one year ago. The increase from one year ago
was due to a strategic decision to prefund longer term debt in order to take
advantage of historically low rates and to avoid any potential negative market
conditions, including Year 2000 concerns, in the latter part of 1999. These
long-term debt instruments also provided favorable asset/liability rate risk
management opportunities during the year.
ASSET/LIABILITY MANAGEMENT:
MARKET RISK MANAGEMENT
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 (EXCLUDING TRADING ACCOUNT SECURITIES)
At June 30, 1999, FSCO exhibited slight liability sensitivity and minimal
overall interest rate risk.
During the 12 month period, a strong regional economy resulted in net
average loan growth of $0.9 billion or 7.5%, while successful deposit
promotions helped to generate average deposit growth of $0.9 billion or 7.5%.
FSCO also utilized loan sales and securitizations and external funding sources
to support asset growth.
FSCO took advantage of its strong capital ratios and further leveraged the
balance sheet resulting in an increase in the average AFS securities of $1.3
billion or 29.6% during the 12 month period. This increase was primarily
funded through the use of repurchase agreements and other short-term
borrowings.
FSCO is well positioned to support continued strong loan growth through
growth of regular deposit programs, the sale or maturity of securities,
additional asset sales and securitizations, and access to external sources of
funding.
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 June 30, 1999, down from $2.8
billion at year end but up from $2.2 billion one year ago. These changes 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 $9.4 billion notional par value at June 30, 1999, up from
$1.2 billion notional value at year end and up from $8.5 billion notional
amount one year ago. This position consisted of futures and options contracts
on short-term Federal funds, one month LIBOR, and three month Eurodollars.
OTHER ASSETS AND LIABILITIES
FSCO's intangible assets were $0.6 billion at June 30, 1999, up $0.2
billion or 41.2% from year end and up $0.2 billion or 64.4% from one year ago,
due to goodwill associated with recent acquisitions and increased loan
servicing rights from higher loan production and sales. Fluctuations in other
assets and other liabilities were due in part to the effect of acquisitions
and timing differences from unsettled transactions in the purchase and sale of
securities.
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 July 27, 1999, the directors of FSCO declared a regular quarterly common
stock cash dividend of $0.14 per share. This dividend is payable on September
7, 1999 to shareholders of record on August 13, 1999 and is equal to an annual
dividend rate of $0.56 per share. At the market closing price of $25.25 per
share on Tuesday, July 27, 1999 (before the announcement of the dividend), the
annual dividend yield on FSCO common stock would have been 2.22%. This
dividend was the 178th common stock dividend declared by FSCO and marked the
65th 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 $27.188 per share at the close of
the market on June 30, 1999, versus a book value of $8.90 per share, resulting
in a market-to-book ratio of 305.48%. In comparison, the bid price of FSCO
common stock was $21.375 per share at the close of the market on June 30,
1998, versus a book value of $8.21 per share, resulting in a market-to-book
ratio of 260.35%. At June 30, 1999, FSCO's common stock market capitalization
was $5.3 billion, up $1.0 billion or 21.9% from year-end 1998 and up $1.3
billion or 32.1% from one year ago.
FSCO's preferred stock is convertible into FSCO common stock at the
conversion rate of one share of preferred stock for 41.00625 shares of common
stock. There is no active trading market for FSCO's preferred stock.
STOCKHOLDERS' EQUITY AND CAPITAL ADEQUACY
FSCO's total stockholders' equity increased to $1.7 billion at June 30,
1999, up $0.1 billion or 8.8% from year-end 1998 and up $0.2 billion or 12.5%
from one year ago. This growth was due to earnings retained and issuances of
new FSCO common stock shares for acquisitions, partially offset by a decrease
in accumulated other comprehensive income, consisting of unrealized net gains
in the fair value of AFS securities, and by repurchases of common stock in the
public markets in 1998 and early 1999.
Application of SFAS 115 has resulted in, and will continue to result in,
additions to or deductions from FSCO's total stockholders' equity due to
fluctuations in the fair value of AFS securities. These fluctuations are
included in the "Accumulated other comprehensive income" component of equity.
FSCO's ratio of stockholders' equity to total assets was 7.84% at June 30,
1999, up from 7.36% at year-end but down from 7.97% one year ago. The ratio
of tangible common equity to tangible assets was 5.37% at quarter end, down
from 5.57% at year end and 6.26% one year ago, reflecting repurchases of
common stock, balance sheet growth, goodwill recognized with various mergers,
and the ongoing origination of loan servicing rights.
A comparison of FSCO to its BHCPR peer group as of March 31, 1999 showed
that: FSCO's ratio of stockholders' equity to total assets was 7.59%, compared
with the peer group average of 8.04%; and its ratio of tangible common equity
to tangible assets was 5.55%, compared with the peer group average of 5.92%.
Regulations permit FSCO's $150 million of Guaranteed Preferred Beneficial
Interest - 8.41% Subordinated Capital Income Securities due 2026, issued in
1997, to be included in Tier 1 Capital for purposes of calculating the Tier 1
Leverage ratio and FSCO's risk-based capital ratios.
FSCO's risk-based capital ratios remained strong at June 30, 1999 due to
earnings retained and the above-mentioned Capital Income Securities. FSCO's
leverage and risk-based capital ratios were as follows:
June 30 Dec. 31 June 30
1999 1998 1998
-------- -------- --------
Leverage ratio 7.01% 6.90% 7.62%
Tier 1 risk-based capital ratio 9.41 9.10 10.45
Total (Tier 1 + 2) risk-based capital ratio 11.63 11.31 12.97
FSCO and its subsidiary banks continued to be classified as "well
capitalized" according to the regulatory requirements of their respective
primary regulatory authorities. 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.
MERGERS AND ACQUISITIONS
ZIONS BANCORPORATION AND FIRST SECURITY CORPORATION MERGER
On June 6, 1999, Zions Bancorporation (Zions; Nasdaq: ZION) and FSCO
announced the signing of a definitive agreement to merge. The new
organization will be known as First Security Corporation, headquartered in
Salt Lake City, and is expected to be the nation's 20th largest bank holding
company with assets of approximately $40 billion. This merger is expected to
close in the fourth quarter of 1999, pending shareholder and regulatory
approvals.
OTHER MERGERS AND ACQUISITIONS
FSCO's merger and acquisition strategies, opportunities, and activities
were discussed in detail in its 1998 Annual Report on Form 10-K (hereby
incorporated by reference). Mergers and acquisitions for the periods covered
by this report, some previously reported, are discussed below.
On June 1, 1999, FSCO and its First Security Bank (FSB) Nevada subsidiary
acquired Comstock Bancorp (Comstock, located in Reno, Nevada; Nasdaq: LODE;)
and its Comstock Bank subsidiary in a purchase transaction. At March 31,
1999, Comstock had assets of $217 million, loans of $152 million, deposits of
$188 million, five offices, and two lending centers.
On June 14, 1999, FSCO and its FSB Nevada subsidiary acquired XEON
Financial Corporation (XEON, located in Stateline, Nevada; OTC: NVBC) and its
Nevada Banking Company subsidiary (NBC) in a purchase transaction. At March
31, 1999, NBC had assets of $128 million, loans of $85 million, deposits of
$117 million, three offices, and one executive loan center.
On July 1, 1999, FSCO merged three existing FSCO business divisions into
its First Security Van Kasper subsidiary (FS Van Kasper, located in Utah,
California, Idaho, Nevada, Oregon, New Mexico, and Wyoming) to create a single
company with a wide array of financial products and services, organized as
follows:
* the Van Kasper division provides investment banking, private client and
institutional securities brokerage;
* the First Security division deals in fixed income securities including
corporate debt, preferred stock, and tax exempt/ U.S. Treasury/agency
securities.
* the Investor Services division provides full service securities
brokerage, investment advisory, discount brokerage services, and makes
available First Security's Achievement Funds, a family of proprietary mutual
funds;
* the Insurance division is a full service insurance agency.
NATIONAL & REGIONAL ECONOMY
With the pace of U.S. economic growth continuing robust in the second
quarter of 1999, the Federal Reserve increased short-term interest rates by
one-quarter percentage point. The policymakers at the nation's central bank
were concerned that consumer-spending strength, partially fueled by rising
stock and real-estate prices, would intensify the demand for labor and
accelerate wage gains. If, at the same time, productivity stabilized, rising
costs may re-ignite inflationary fears.
The change in monetary policy was widely anticipated, and accordingly,
bond-market yields had mounted sharply. The associated jump in mortgage rates
has abruptly reduced the mortgage refinancing volume, and there are early
indications that real-estate sales may be slowing. If, as expected, 1999
second-half U.S. economic growth moderates to 3 percent, inflation may remain
near current levels. Nevertheless, with the tightening labor market, the
Federal Reserve may choose to again edge short-term interest rates higher.
Narrowing population and employment growth typifies several western states'
economies. This, combined with the higher mortgage rates, points to a
moderating impact in residential construction. Labor markets in mid-1999 are
generally tight, and consumer confidence is high.
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Factors that may affect FSCO's future results of operations and financial
condition, including competition, economic conditions, and technology, were
discussed in detail in its 1998 Annual Report on Form 10-K (hereby
incorporated by reference).
YEAR 2000 ISSUES:
FSCO'S YEAR 2000 READINESS DISCLOSURE
On June 30, 1999, FSCO completed its Year 2000 Project (see: "FSCO's Year
2000 Project")and announced that its computer systems were ready for the year
2000.
Year 2000 work at FSCO consisted of: analyzing systems to determine if they
properly process Year 2000 date calculations; upgrading or replacing systems
that were not Year 2000 ready; testing the systems for date calculation
errors; and installing Year 2000-ready applications on production systems.
FSCO's Year 2000 preparations also included checking that building security,
elevator, telephone, ATM and all other systems are Year 2000 ready, and
obtaining assurances from large customers of their readiness. FSCO, like most
other businesses, is dependent on critical suppliers such as electrical power
companies, telephone companies and communications carriers to provide service
to its operations. These suppliers were contacted and FSCO received
assurances from them that they are ready. Ongoing work includes testing to be
certain systems remain ready and communicating FSCO's Year 2000 readiness
status to customers.
In addition, 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. These plans were
tested in preparation for the Year 2000. FSCO's intent is to be thoroughly
prepared so contingency plans won't be necessary. If, however, situations
beyond FSCO's control dictate the use of these plans, the goal is to provide
services with a minimum of inconvenience to customers and resume normal
operations as quickly as possible.
FSCO's overall strategy for addressing the Year 2000 issue was to
implement, where possible, the most current systems available. This strategy
allowed FSCO to not only become Year 2000 ready, but also to add systems that
can support new products and services, become more efficient, reduce
maintenance costs, and, in many cases, improve customer service. In a
strategic sense, this approach gave FSCO the most benefit from the dollars
spent.
FSCO has taken, and continues to take, the actions it feels are prudent to
ensure that FSCO will provide uninterrupted service to customers into the Year
2000 and beyond. FSCO will continue to protect its customers' funds and
financial records to be certain they are safe, accurate and accessible before,
during and after the Year 2000 date change.
FSCO's Year 2000 project expenditures totaled $38.9 million from 1996
through to its completion on June 30, 1999. This amount included: $2.6
million accrued and spent in 1997; $23.7 million accrued and spent in 1998;
and $12.6 million accrued and spent in 1999. These expenditures were funded
through operating cash flows. Of the $38.9 million total expenditures, $11.9
million was capitalized, including approximately $0.4 million capitalized in
1999, and the remainder reported as expense.
FSCO's Year 2000 Project, Risks, and Contingency Plans were also previously
discussed in detail in its 1998 Annual Report on Form 10-K and its Quarterly
Report on Form 10-Q/A (amended) for the first quarter of 1999 (hereby
incorporated by reference).
YEAR 2000 ISSUES:
FSCO'S YEAR 2000 FORWARD-LOOKING STATEMENTS
The preceding discussions of FSCO's "Year 2000 Issues" constitutes a Year
2000 Readiness Disclosure pursuant to the provisions of the Year 2000
Information Readiness and Disclosure Act and includes forward-looking
statements that involve inherent risks and uncertainties. A number of
important factors could cause the actual impact of Year 2000 issues to change
significantly from what is described in these forward-looking statements.
Those factors include, but are not limited to, ineffective remediation of
computer code and the inability of FSCO's suppliers and vendors to
successfully resolve their individual Year 2000 issues.
# # #
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. Continued: Supplemental Tables
<TABLE>
FIRST SECURITY CORPORATION
FINANCIAL HIGHLIGHTS
($ in thousands, except per share data and ratios; unaudited)
<CAPTION>
2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr Year-To-Date Six Months
1999 1999 1998 1998 1998 1999 1998 %Chg
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
Common & Preferred Stock Data:
Earnings per common share basic 0.36 0.34 0.36 0.34 0.30 0.70 0.63 11.1
Earnings per common share diluted 0.35 0.34 0.35 0.33 0.29 0.69 0.60 15.0
Tangible EPS diluted 0.42 0.40 0.41 0.37 0.33 0.82 0.69 18.8
Dividends paid per common share 0.14 0.14 0.13 0.13 0.13 0.28 0.26 7.7
Book value per common share [EOP] 8.90 8.77 8.54 8.54 8.21 8.90 8.21 8.4
Tangible book value per common share [EOP] 5.93 6.29 6.35 6.64 6.34 5.93 6.34 (6.5)
Market price (bid) [EOP] 27.188 19.250 23.313 16.688 21.375 27.188 21.375 27.2
High bid for the period 27.188 23.750 23.313 23.938 24.750 27.188 26.167 3.9
Low bid for the period 17.875 17.563 15.938 15.500 21.000 17.563 21.000 (16.4)
Market capitalization (mktprice x #shrs) [EOP] 5,303,971 3,654,285 4,352,817 3,144,703 4,016,256 5,303,971 4,016,256 32.1
Market price / book value per com share [EOP] % 305.48 219.50 272.99 195.41 260.35 305.48 260.35
Dividend payout ratio (DPS / EPS basic) % 38.89 41.18 36.11 38.24 43.33 40.00 41.27
Dividend yield (DPS / mktprice) [EOP] % 2.06 2.91 2.23 3.12 2.43 2.06 2.43
Price / earnings ratio(mktprice/4qtrsEPSbasic) 19.4x 14.4x 17.5x 13.0x 17.2x 19.4x 17.2x
Common shares basic [EOP] 195,085 189,833 186,712 188,441 187,895 195,085 187,895 3.8
Common shares basic [Avg] 191,323 188,242 188,370 187,931 187,623 189,791 186,983 1.5
Common shares diluted [Avg] 196,402 193,403 193,756 193,621 194,471 194,911 193,993 0.5
Preferred shares [EOP] 9 9 9 9 9 9 9 0.0
- ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
Income Statement:
Interest income 377,527 369,836 369,193 366,416 350,950 747,187 685,051 9.1
Interest expense 190,131 187,254 182,478 186,661 178,012 377,385 347,822 8.5
Net interest income 187,396 182,582 186,715 179,755 172,938 369,802 337,229 9.7
Fully taxable equivalent (FTE) adjustment 2,611 2,660 2,716 2,259 2,827 5,271 5,406 (2.5)
Net interest income, FTE 190,007 185,242 189,431 182,014 175,765 375,073 342,635 9.5
Provision for loan losses 10,596 16,877 22,861 18,068 18,396 27,473 30,994 (11.4)
Noninterest income 144,981 123,359 132,444 114,896 118,534 268,516 227,050 18.3
Noninterest expenses 217,363 192,415 193,489 179,516 184,277 409,778 350,083 17.1
Provision for income taxes 35,575 31,771 35,496 33,976 32,892 67,346 65,926 2.2
Net income 68,843 64,878 67,313 63,091 55,907 133,721 117,276 14.0
Preferred stock dividend requirement 7 7 7 7 7 14 14 0.0
Common stock dividend 26,544 26,583 24,580 24,472 22,943 53,127 46,529 14.2
- ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
Balance Sheet - End of Period:
Trading account securities 147,951 396,563 329,109 73,067 53,343 147,951 53,343 177.4
Available for sale (AFS) securities 5,923,169 5,825,155 4,764,127 4,912,396 4,806,559 5,923,169 4,806,559 23.2
Memo: fair value adjustment AFS securities (107,952) 12,507 48,251 79,150 39,154 (107,952) 39,154 (375.7)
Loans, net of unearned income 13,309,843 13,160,919 14,013,417 12,926,926 12,530,360 13,309,843 12,530,360 6.2
Reserve for loan losses (174,443) (173,350) (173,350) (169,058) (166,658) (174,443) (166,658) 4.7
Total interest-earning assets 19,550,359 19,404,947 19,337,468 17,954,191 17,417,190 19,550,359 17,417,190 12.2
Intangible assets 578,033 472,066 409,367 357,459 351,547 578,033 351,547 64.4
Total assets 22,134,994 21,959,222 21,689,088 19,859,300 19,360,006 22,134,994 19,360,006 14.3
Noninterest-bearing deposits 2,621,559 2,489,976 2,752,009 2,431,637 2,402,497 2,621,559 2,402,497 9.1
Interest-bearing deposits 10,361,391 10,083,997 9,906,565 9,511,979 9,514,706 10,361,391 9,514,706 8.9
Total deposits 12,982,950 12,573,973 12,658,574 11,943,616 11,917,203 12,982,950 11,917,203 8.9
Short-term borrowed funds 4,134,494 4,236,283 4,265,589 4,026,919 3,905,250 4,134,494 3,905,250 5.9
Long-term debt 2,582,370 2,706,320 2,609,558 1,749,478 1,513,044 2,582,370 1,513,044 70.7
Total interest-bearing liabilities 17,078,255 17,026,600 16,781,712 15,288,376 14,933,000 17,078,255 14,933,000 14.4
Preferred stockholders' equity 472 476 484 491 493 472 493 (4.3)
Common stockholders' equity 1,735,590 1,665,303 1,595,011 1,609,515 1,542,377 1,735,590 1,542,377 12.5
Parent company investment in subsidiaries 2,147,444 2,068,992 1,945,390 1,788,947 1,719,975 2,147,444 1,719,975 24.9
============================================== ========== ========== ========== ========== ========== ========== ========== =======
<FN>
See "Notes to Condensed Consolidated Financial Statements".
EOP: End Of Period. Avg: Average. EPS: Earnings Per Common Share. DPS: Dividends Per Common Share. NM: Not Meaningful.
</TABLE>
<PAGE>
<TABLE>
FIRST SECURITY CORPORATION
FINANCIAL HIGHLIGHTS - Continued
($ in thousands, except per share data and ratios; unaudited)
<CAPTION>
2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr Year-To-Date Six Months
1999 1999 1998 1998 1998 1999 1998 %Chg
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
Problem Assets & Potential Problem Assets - End of Period:
Nonaccruing loans:
Commercial 20,459 22,741 19,562 17,042 16,463 20,459 16,463 24.3
Real estate term 24,006 18,770 18,670 18,309 17,982 24,006 17,982 33.5
Real estate construction 3,603 6,389 6,213 4,756 4,752 3,603 4,752 (24.2)
Consumer 87 146 137 305 82 87 82 6.1
Leases 2,247 945 1,230 773 434 2,247 434 417.7
Total nonaccruing loans 50,402 48,991 45,812 41,185 39,713 50,402 39,713 26.9
Other real estate 5,301 3,404 3,617 2,798 3,908 5,301 3,908 35.6
Total nonperforming assets 55,703 52,395 49,429 43,983 43,621 55,703 43,621 27.7
Accruing loans past due 90 days or more 23,567 26,949 23,758 20,369 22,833 23,567 22,833 3.2
Total problem assets 79,270 79,344 73,187 64,352 66,454 79,270 66,454 19.3
Potential problem assets 28,031 36,552 47,319 55,150 37,229 28,031 37,229 (24.7)
- ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
Reconciliation of the Reserve for Loan Losses:
Reserve for loan losses, beginning 173,350 173,350 169,058 166,658 163,256 173,350 157,525 10.0
Loans (charged off):
Commercial (6,770) (1,186) (3,259) (1,105) (3,725) (7,956) (5,657) 40.6
Real estate term (533) (671) (877) (1,388) (607) (1,204) (990) 21.6
Real estate construction (137) 0 (164) 0 0 (137) 0 #DIV/0!
Consumer credit card & related (4,116) (4,042) (3,633) (3,568) (3,441) (8,158) (6,886) 18.5
Consumer vehicle & other (15,988) (22,441) (21,428) (17,004) (15,238) (38,429) (28,360) 35.5
Leases (12) (33) (147) (321) 0 (45) (3) 1400.0
Total loans charged off (27,556) (28,373) (29,508) (23,386) (23,011) (55,929) (41,896) 33.5
Recoveries on loans charged off:
Commercial 921 1,186 1,552 614 1,173 2,107 3,128 (32.6)
Real estate term 39 381 291 403 400 420 1,131 (62.9)
Real estate construction 214 2 1 1 18 216 21 928.6
Consumer credit card & related 677 669 728 657 622 1,346 1,350 (0.3)
Consumer vehicle & other 7,777 9,256 6,491 6,032 5,801 17,033 11,474 48.4
Leases 2 2 0 11 3 4 4 0.0
Total recoveries of loans charged off 9,630 11,496 9,063 7,718 8,017 21,126 17,108 23.5
Net loans (charged off) recovered (17,926) (16,877) (20,445) (15,668) (14,994) (34,803) (24,788) 40.4
Provision for loan losses 10,596 16,877 22,861 18,068 18,396 27,473 30,994 (11.4)
Acquisitions 8,423 0 1,876 0 0 8,423 2,927 187.8
Reserve for loan losses, ending 174,443 173,350 173,350 169,058 166,658 174,443 166,658 4.7
- ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
Balance Sheet - Average:
Trading account securities 250,743 274,855 139,293 64,310 138,157 262,733 216,351 21.4
Available for sale (AFS) securities 5,862,259 5,043,922 4,870,349 4,824,517 4,524,500 5,455,351 4,418,198 23.5
Memo: fair value adjustment AFS securities (19,704) 37,590 62,380 41,719 33,956 8,785 37,629 (76.7)
Loans, net of unearned income 13,307,887 13,675,678 13,310,822 12,844,942 12,374,882 13,490,766 12,017,865 12.3
Reserve for loan losses (174,686) (174,556) (170,129) (167,555) (164,256) (174,621) (162,274) 7.6
Deferred taxes on leases (228,400) (218,334) (200,571) (193,572) (198,673) (223,395) (197,620) 13.0
Total interest-earning assets, excluding
fair value adjustment AFS securities
& deferred taxes on leases 19,353,097 18,916,172 18,175,389 17,580,579 16,939,894 19,135,413 16,518,015 15.8
Intangible assets 497,914 442,252 371,371 351,880 349,850 470,237 329,266 42.8
Total assets 21,972,307 21,435,536 20,438,133 19,652,528 18,998,533 21,705,404 18,544,366 17.0
Noninterest-bearing deposits 2,454,808 2,474,540 2,510,491 2,302,410 2,252,282 2,464,619 2,217,328 11.2
Interest-bearing deposits 10,140,998 9,896,659 9,587,111 9,531,570 9,459,908 10,019,504 9,334,474 7.3
Total deposits 12,595,806 12,371,199 12,097,602 11,833,980 11,712,190 12,484,123 11,551,802 8.1
Short-term borrowed funds 4,348,443 4,165,438 3,779,161 4,146,642 3,851,257 4,257,446 3,687,785 15.4
Long-term debt 2,657,803 2,653,130 2,350,927 1,611,966 1,433,195 2,655,479 1,374,407 93.2
Total interest-bearing liabilities 17,147,244 16,715,227 15,717,199 15,290,178 14,744,360 16,932,429 14,396,666 17.6
Preferred stockholders' equity 472 477 487 492 497 474 499 (5.0)
Common stockholders' equity 1,671,059 1,579,645 1,617,608 1,557,403 1,519,335 1,625,605 1,465,834 10.9
- ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
<FN>
See "Notes to Condensed Consolidated Financial Statements".
EOP: End Of Period. Avg: Average. NM: Not Meaningful.
</TABLE>
<PAGE>
<TABLE>
FIRST SECURITY CORPORATION
FINANCIAL HIGHLIGHTS - Continued
($ in thousands, except per share data and ratios; unaudited)
<CAPTION>
2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr Year-To-Date Six Months
1999 1999 1998 1998 1998 1999 1998 %Chg
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -------
Other Data - End of Period (not rounded):
Full-time equivalent employees 10,101 10,030 9,424 9,229 8,854 10,101 8,854 14.1
Domestic bank offices:
FS Bank (Utah offices) 139 138 134 133 132 139 132 5.3
FS Bank (Idaho offices) 88 88 88 88 88 88 88 0.0
FS Bank (Oregon offices) 14 14 14 14 14 14 14 0.0
FS Bank (Wyoming offices) 8 8 8 8 8 8 8 0.0
FSB New Mexico 34 34 34 32 31 34 31 9.7
FSB Southern New Mexico 11 11 11 11 11 11 11 0.0
FSB Nevada 23 15 15 14 14 23 14 64.3
FSB California 16 16 18 17 17 16 17 (5.9)
Total domestic bank offices 333 324 322 317 315 333 315 5.7
============================================== ========== ========== ========== ========== ========== ========== ========== =======
Selected Ratios (%):
Return on average assets (ROAA) 1.26 1.23 1.31 1.27 1.18 1.24 1.28
Tangible ROAA 1.53 1.49 1.56 1.49 1.40 1.51 1.48
Return on average stockholders' equity (ROAE) 16.52 16.65 16.50 16.07 14.75 16.58 16.13
Tangible ROAE 28.08 27.44 25.08 23.81 22.26 27.77 23.65
Net interest margin, FTE 3.93 3.92 4.17 4.14 4.15 3.92 4.15
Net interest spread, FTE 3.42 3.40 3.54 3.51 3.52 3.40 3.53
Operating expense ratio
(nonint exp / (net int inc FTE + nonint inc)) 64.89 62.35 60.11 60.46 62.62 63.67 61.45
Productivity ratio (nonint exp / avg assets) 3.97 3.64 3.76 3.62 3.89 3.81 3.81
Stockholders' equity / assets [EOP] 7.84 7.59 7.36 8.11 7.97 7.84 7.97
Stockholders' equity / assets [Avg] 7.61 7.37 7.92 7.93 8.00 7.49 7.91
Tangible common equity / tangible assets [EOP] 5.37 5.55 5.57 6.42 6.26 5.37 6.26
Loans / deposits [EOP] 102.52 104.67 110.70 108.23 105.15 102.52 105.15
Loans / assets [EOP] 60.13 59.93 64.61 65.09 64.72 60.13 64.72
Reserve for loan losses [EOP] /:
Total loans 1.31 1.32 1.24 1.31 1.33 1.31 1.33
Nonaccruing loans 346.10 353.84 378.39 410.48 419.66 346.10 419.66
Nonaccruing + accruing loans past due 90 days 235.83 228.27 249.17 274.65 266.46 235.83 266.46
Nonaccruing loans / total loans 0.38 0.37 0.33 0.32 0.32 0.38 0.32
Nonaccruing + accr loans past due / total loans 0.56 0.58 0.50 0.48 0.50 0.56 0.50
Nonperforming assets /:
Total loans + other real estate 0.42 0.40 0.35 0.34 0.35 0.42 0.35
Total assets 0.25 0.24 0.23 0.22 0.23 0.25 0.23
Total equity 3.21 3.15 3.10 2.73 2.83 3.21 2.83
Total equity + reserve for loan losses 2.92 2.85 2.79 2.47 2.55 2.92 2.55
Problem assets /:
Total loans + other real estate 0.60 0.60 0.52 0.50 0.53 0.60 0.53
Total assets 0.36 0.36 0.34 0.32 0.34 0.36 0.34
Total equity 4.57 4.76 4.59 4.00 4.31 4.57 4.31
Total equity + reserve for loan losses 4.15 4.31 4.14 3.62 3.89 4.15 3.89
Net loans charged off / average loans 0.54 0.50 0.61 0.48 0.49 0.52 0.42
============================================== ========== ========== ========== ========== ========== ========== ========== =======
Capital Ratios & Risk-Based Capital Ratios (%) - as of June 30, 1999:
FSCO FS Bank FSB NM FSB SNM FSB Nev. FSB Cal.
---------- ---------- ---------- ---------- ---------- ----------
Leverage ratio 7.01 7.66 5.91 12.10 7.62 7.12
Tier 1 risk-based capital ratio 9.41 9.97 10.85 21.66 12.68 10.13
Total (Tier 1 + 2) risk-based capital ratio 11.63 11.08 12.10 22.91 13.93 11.38
Tier 1 risk-based capital $ 1,529,502 1,274,235 146,664 49,337 107,515 85,873
Total (Tier 1 + 2) risk-based capital $ 1,889,386 1,415,963 163,577 52,185 118,159 96,475
Total risk-based assets - loan loss reserve $ 16,245,491 12,780,063 1,351,465 227,747 848,150 847,443
============================================== ========== ========== ========== ========== ========== ========== ========== =======
<FN>
See "Notes to Condensed Consolidated Financial Statements".
EOP: End Of Period. Avg: Average. NM: Not Meaningful.
</TABLE>
<PAGE>
<TABLE>
FIRST SECURITY CORPORATION
VOLUME / RATE ANALYSIS
(in thousands; fully taxable equivalent; unaudited) (A)
<CAPTION>
For the Three Months Ended June 30, 1999 and 1998
Average Balance Yield/Rate % Interest Inc/Exp Change Changes Due To:
1999 1998 1999 1998 1999 1998 1999-98 Volume Rate
<C> <C> <C> <C> <S> <C> <C> <C> <C> <C>
- ----------- ----------- ------ ------ -------------------------------------------- ---------- ---------- -------- -------- --------
INTEREST-EARNING ASSETS / INCOME:
135,929 133,868 4.82 5.67 Federal funds sold & securities purchased 1,638 1,897 (259) 29 (288)
4,975 1,116 5.55 3.94 Interest-bearing deposits in other banks 69 11 58 38 20
250,743 138,157 8.46 5.28 Trading account securities 5,305 1,822 3,483 1,485 1,998
5,881,963 4,490,544 6.36 6.62 Available for sale securities, amortized cost 93,571 74,351 19,220 23,038 (3,818)
Loans, net of unearned income &
13,079,487 12,176,209 8.55 9.06 deferred taxes on leases (B) 279,555 275,696 3,859 20,452 (16,593)
- ----------- ----------- ------ ------ -------------------------------------------- ---------- ---------- -------- -------- --------
19,353,097 16,939,894 7.86 8.35 TOTAL INTEREST-EARNING ASSETS / INCOME 380,138 353,777 26,361 45,042 (18,681)
- ----------- ----------- ------ ------ -------------------------------------------- ---------- ---------- -------- -------- --------
INTEREST-BEARING LIABILITIES / EXPENSE:
Interest-Bearing Deposits:
367,282 339,386 1.34 1.69 Interest-bearing demand accounts 1,228 1,437 (209) 118 (327)
4,720,171 4,245,292 2.55 2.93 Savings & money market accounts 30,117 31,114 (997) 3,480 (4,477)
1,410,342 1,373,212 5.40 5.74 Time deposits of $100,000 or more 19,051 19,716 (665) 533 (1,198)
3,643,203 3,502,018 5.31 5.68 Other time deposits 48,396 49,749 (1,353) 2,006 (3,359)
- ----------- ----------- ------ ------ -------------------------------------------- ---------- ---------- -------- -------- --------
10,140,998 9,459,908 3.90 4.31 TOTAL INTEREST-BEARING DEPOSITS 98,792 102,016 (3,224) 6,137 (9,361)
- ----------- ----------- ------ ------ -------------------------------------------- ---------- ---------- -------- -------- --------
4,028,240 3,406,527 4.66 5.37 Federal funds purchased & securities sold 46,952 45,710 1,242 8,342 (7,100)
320,203 444,730 7.42 5.80 Other short-term borrowings 5,938 6,447 (509) (1,805) 1,296
2,657,803 1,433,195 5.79 6.65 Long-term debt 38,449 23,839 14,610 20,369 (5,759)
- ----------- ----------- ------ ------ -------------------------------------------- ---------- ---------- -------- -------- --------
17,147,244 14,744,360 4.44 4.83 TOTAL INTEREST-BEAR LIABILITIES / EXPENSE 190,131 178,012 12,119 33,043 (20,924)
- ----------- ----------- ------ ------ -------------------------------------------- ---------- ---------- -------- -------- --------
7.86 8.35 Interest income FTE / earning assets
3.93 4.20 Interest expense / earning assets
------ ------ --------------------------------------------
3.93 4.15 Net interest income FTE / earning assets 190,007 175,765 14,242 11,999 2,243
Less fully taxable equivalent adjustment 2,611 2,827 (216)
------ ------ -------------------------------------------- ---------- ---------- -------- -------- --------
NET INTEREST INCOME 187,396 172,938 14,458
=========== =========== ====== ====== ============================================ ========== ========== ======== ======== ========
<CAPTION>
For the Six Months Ended June 30, 1999 and 1998
Average Balance Yield/Rate % Interest Inc/Exp Change Changes Due To:
1999 1998 1999 1998 1999 1998 1999-98 Volume Rate
<C> <C> <C> <C> <S> <C> <C> <C> <C> <C>
- ----------- ----------- ------ ------ -------------------------------------------- ---------- ---------- -------- -------- --------
INTEREST-EARNING ASSETS / INCOME:
152,080 99,502 4.68 5.76 Federal funds sold & securities purchased 3,556 2,865 691 1,514 (823)
6,663 1,348 3.96 6.23 Interest-bearing deposits in other banks 132 42 90 166 (76)
262,733 216,351 7.83 5.60 Trading account securities 10,280 6,060 4,220 1,299 2,921
5,446,566 4,380,569 6.46 6.65 Available for sale securities, amortized cost 175,808 145,707 30,101 35,457 (5,356)
Loans, net of unearned income &
13,267,371 11,820,245 8.48 9.07 deferred taxes on leases (B) 562,682 535,783 26,899 65,595 (38,696)
- ----------- ----------- ------ ------ -------------------------------------------- ---------- ---------- -------- -------- --------
19,135,413 16,518,015 7.86 8.36 TOTAL INTEREST-EARNING ASSETS / INCOME 752,458 690,457 62,001 104,031 (42,030)
- ----------- ----------- ------ ------ -------------------------------------------- ---------- ---------- -------- -------- --------
INTEREST-BEARING LIABILITIES / EXPENSE:
Interest-Bearing Deposits:
367,162 323,932 1.37 1.73 Interest-bearing demand accounts 2,510 2,800 (290) 374 (664)
4,662,216 4,151,106 2.61 2.95 Savings & money market accounts 60,737 61,307 (570) 7,548 (8,118)
1,398,416 1,366,514 5.38 5.80 Time deposits of $100,000 or more 37,646 39,628 (1,982) 925 (2,907)
3,591,710 3,492,922 5.34 5.66 Other time deposits 95,962 98,790 (2,828) 2,794 (5,622)
- ----------- ----------- ------ ------ -------------------------------------------- ---------- ---------- -------- -------- --------
10,019,504 9,334,474 3.93 4.34 TOTAL INTEREST-BEARING DEPOSITS 196,855 202,525 (5,670) 11,641 (17,311)
- ----------- ----------- ------ ------ -------------------------------------------- ---------- ---------- -------- -------- --------
3,875,930 3,270,058 4.67 5.34 Federal funds purchased & securities sold 90,478 87,304 3,174 16,176 (13,002)
381,516 417,727 6.65 5.83 Other short-term borrowings 12,689 12,180 509 (1,056) 1,565
2,655,479 1,374,407 5.83 6.67 Long-term debt 77,363 45,813 31,550 42,702 (11,152)
- ----------- ----------- ------ ------ -------------------------------------------- ---------- ---------- -------- -------- --------
16,932,429 14,396,666 4.46 4.83 TOTAL INTEREST-BEAR LIABILITIES / EXPENSE 377,385 347,822 29,563 69,463 (39,900)
- ----------- ----------- ------ ------ -------------------------------------------- ---------- ---------- -------- -------- --------
7.86 8.36 Interest income FTE / earning assets
3.94 4.21 Interest expense / earning assets
------ ------ --------------------------------------------
3.92 4.15 Net interest income FTE / earning assets 375,073 342,635 32,438 34,568 (2,130)
Less fully taxable equivalent adjustment 5,271 5,406 (135)
------ ------ -------------------------------------------- ---------- ---------- -------- -------- --------
NET INTEREST INCOME 369,802 337,229 32,573
=========== =========== ====== ====== ============================================ ========== ========== ======== ======== ========
<FN>
(A) Changes not due entirely to changes in volume or rate have been allocated to rate.
Interest is presented on a fully taxable equivalent (FTE) basis, calculated on Federal and state taxes
applicable to the subsidiary carrying the asset. The combined tax rate was approximately 39% for 1999 and 1998.
(B) Loans include nonaccruing loans.
Interest on loans includes fees of $16,363 and $11,300 for the 1999 and 1998 quarters, respectively.
Interest on loans includes fees of $29,267 and $21,155 for the 1999 and 1998 year-to-date periods, respectively.
</TABLE>
<PAGE>
<TABLE>
FIRST SECURITY CORPORATION
LOANS (in thousands; unaudited)
<CAPTION>
June 30 %Total December 31 %Total June 30 %Total Jun/Jun
1999 Loans 1998 Loans 1998 Loans %Chg
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------ ------------ -------- ------------ -------- ------------ -------- --------
COMMERCIAL LOANS:
Commercial & industrial 2,689,356 20.2 2,562,274 18.3 2,460,080 19.6 9.3
Agricultural 342,205 2.6 404,038 2.9 411,855 3.3 (16.9)
Other commercial 192,566 1.4 198,673 1.4 181,280 1.4 6.2
- ------------------------------------------------ ------------ -------- ------------ -------- ------------ -------- --------
TOTAL COMMERCIAL LOANS 3,224,127 24.2 3,164,985 22.6 3,053,215 24.4 5.6
- ------------------------------------------------ ------------ -------- ------------ -------- ------------ -------- --------
REAL ESTATE SECURED LOANS:
1 to 4 family residential term 2,767,065 20.8 3,505,920 25.0 2,838,179 22.7 (2.5)
1 to 4 family residential home equity 392,018 2.9 424,102 3.0 466,598 3.7 (16.0)
1 to 4 family residential construction 702,567 5.3 577,940 4.1 485,704 3.9 44.6
Commercial & other term 1,492,483 11.2 1,325,071 9.5 1,176,676 9.4 26.8
Commercial & other construction 501,320 3.8 265,879 1.9 271,010 2.2 85.0
- ------------------------------------------------ ------------ -------- ------------ -------- ------------ -------- --------
TOTAL REAL ESTATE SECURED LOANS 5,855,453 44.0 6,098,912 43.5 5,238,167 41.8 11.8
Memo: Total real estate term 4,651,566 34.9 5,255,093 37.5 4,481,453 35.8 3.8
Memo: Loans held for sale included
in total real estate term 1,425,720 10.7 2,391,508 17.1 1,704,036 13.6 (16.3)
Memo: Total real estate construction 1,203,887 9.0 843,819 6.0 756,714 6.0 59.1
- ------------------------------------------------ ------------ -------- ------------ -------- ------------ -------- --------
CONSUMER LOANS:
Credit card & related 315,118 2.4 328,853 2.3 313,292 2.5 0.6
Vehicle & other consumer 2,423,756 18.2 3,114,506 22.2 2,818,938 22.5 (14.0)
- ------------------------------------------------ ------------ -------- ------------ -------- ------------ -------- --------
TOTAL CONSUMER LOANS 2,738,874 20.6 3,443,359 24.6 3,132,230 25.0 (12.6)
- ------------------------------------------------ ------------ -------- ------------ -------- ------------ -------- --------
TOTAL LEASES 1,491,389 11.2 1,306,161 9.3 1,106,748 8.8 34.8
- ------------------------------------------------ ------------ -------- ------------ -------- ------------ -------- --------
LOANS, NET OF UNEARNED INCOME 13,309,843 100.0 14,013,417 100.0 12,530,360 100.0 6.2
Memo: Unearned income (150,879) (127,593) (105,407) 43.1
Reserve for loan losses (174,443) (173,350) (166,658) 4.7
- ------------------------------------------------ ------------ -------- ------------ -------- ------------ -------- --------
TOTAL LOANS, NET 13,135,400 13,840,067 12,363,702 6.2
================================================ ============ ======== ============ ======== ============ ======== ========
</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 corresponding cost in legal
fees and expenses. Since the filing of FSCO's 1998 Annual Report on Form 10-
K, there have been no material litigation or changes in existing litigation,
as defined under SEC regulations, involving FSCO and/or one or more of its
subsidiaries, except as discussed below.
The New Mexico case of "Brown, et al. v. First Security Bank of New Mexico,
N.A., et al.," Case No. CV 99-02904, Second Judicial District Court, County of
Bernalillo, State of New Mexico (filed March 25, 1999), recently filed as a
class action in New Mexico state court, was dismissed during the second
quarter. The plaintiffs in Brown were added to the plaintiff class in the
pending "Bunn v. First Security Bank of New Mexico, N.A., et al.," Case No. CV
97-10975, Second Judicial District Court, County of Bernalillo, State of New
Mexico. The allegations in the Bunn case are substantially identical to the
allegations in the Brown case. Motions to dismiss are pending in the Bunn
case and should not be affected by the additional plaintiffs added from the
Brown case.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
FSCO held its Annual Shareholders' Meeting on April 26, 1999. There were
194,631,275.000 total equivalent shares outstanding (entitled to vote) of
which 161,829,765.000 or 83.147% shares were actually voted (by proxy and in
person).
Votes were taken on the following Proposals For Shareholder Action,
described in FSCO's Proxy Statement dated March 22, 1999:
* Item No. 1 "Election of Directors". The Nominating Committee of FSCO's
board of directors nominated all twenty current Directors, named below, to
serve as Directors until the next Annual Meeting or until their successors are
elected and qualified. The results of this vote were as follows:
VOTES VOTES VOTES
NOMINEE: FOR # WITHHELD # FOR %
JAMES C. BEARDALL 159,943,300.000 1,886,465.000 98.834
RODNEY H. BRADY 159,925,510.000 1,904,255.000 98.823
JAMES E. BRUCE 159,810,848.000 2,018,917.000 98.752
THOMAS D. DEE, II 159,819,502.000 2,010,263.000 98.758
SPENCER F. ECCLES 159,732,409.000 2,097,356.000 98.704
MORGAN J. EVANS 159,897,029.000 1,932,736.000 98.806
DR. DAVID P. GARDNER 159,858,778.000 1,970,987.000 98.782
ROBERT H. GARFF 159,813,258.000 2,016,507.000 98.754
JAY DEE HARRIS 159,717,183.000 2,112,582.000 98.695
ROBERT T. HEINER 159,878,133.000 1,951,632.000 98.794
KAREN H. HUNTSMAN 158,743,536.000 3,086,229.000 98.093
G. FRANK JOKLIK 159,344,308.000 2,485,457.000 98.464
B. Z. KASTLER 159,769,947.000 2,059,818.000 98.727
DR. J. BERNARD MACHEN 159,427,596.000 2,402,169.000 98.516
JOSEPH G. MALOOF 159,133,500.000 2,696,265.000 98.334
MICHELE PAPEN-DANIEL 159,917,088.000 1,912,677.000 98.818
SCOTT S. PARKER 159,910,625.000 1,919,140.000 98.814
JAMES L. SORENSON 159,766,120.000 2,063,645.000 98.725
HAROLD J. STEELE 159,726,438.000 2,103,327.000 98.700
JAMES R. WILSON 159,870,638.000 1,959,127.000 98.789
* Item No. 2: "Proposed increase in the number of shares available under
First Security's Comprehensive Management Incentive Plan" from the current
21,726,563 shares to 27,726,563 shares. The results of this vote were as
follows:
VOTES FOR VOTES AGAINST VOTES WITHHELD
# % # % # %
134,549,012.000 83.142 22,066,418.000 13.636 5,214,335.000 3.222
ITEM 5. OTHER INFORMATION
Shareholder proposals for action at FSCO's 2000 Annual Meeting that are not
requested to be included in its 2000 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:
* June 6, 1999, Item 5. Other Events. FSCO, a Delaware corporation, and
Zions Bancorporation, a Utah corporation, announced that they had
entered into an Agreement and Plan of Merger, dated as of June 6, 1999.
# # #
<PAGE>
SIGNATURES
FORM 10-Q - for the quarterly period ended June 30, 1999
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/ Brad D. Hardy August 12, 1999
- ---------------------------------------- ------------------
Brad D. Hardy Date
Executive Vice President Corporate Services,
General Counsel,
Chief Financial Officer, and
Secretary of First Security Corporation
(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)
<CAPTION>
Three Months YTD Six Months
For the Periods Ended June 30, 1999 and 1998 1999 1998 1999 1998
<S> <C> <C> <C> <C>
- ----------------------------------------------------------- ---------- ---------- ---------- ----------
NET INCOME:
Net income per consolidated income statements 68,843 55,907 133,721 117,276
Subtract dividend requirement of preferred stock 7 7 14 14
- ----------------------------------------------------------- ---------- ---------- ---------- ----------
NET INCOME APPLICABLE TO COMMON STOCK (BASIC) 68,836 55,900 133,707 117,262
Add dividend requirement of preferred stock 7 7 14 14
- ----------------------------------------------------------- ---------- ---------- ---------- ----------
NET INCOME DILUTED 68,843 55,907 133,721 117,276
=========================================================== ========== ========== ========== ==========
EARNINGS PER COMMON SHARE BASIC 0.36 0.30 0.70 0.63
EARNINGS PER COMMON SHARE DILUTED 0.35 0.29 0.69 0.60
=========================================================== ========== ========== ========== ==========
SHARES OUTSTANDING (AVERAGE):
Common shares 192,921 188,867 192,410 188,716
Treasury shares (1,598) (1,244) (2,619) (1,733)
- ----------------------------------------------------------- ---------- ---------- ---------- ----------
COMMON SHARES BASIC (AVG) 191,323 187,623 189,791 186,983
Common share equivalents for options 4,711 6,459 4,749 6,620
Preferred share equivalents 368 389 371 390
- ----------------------------------------------------------- ---------- ---------- ---------- ----------
COMMON SHARES DILUTED (AVG) 196,402 194,471 194,911 193,993
=========================================================== ========== ========== ========== ==========
<FN>
(A) 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1999
<CASH> 949,452
<INT-BEARING-DEPOSITS> 9,545
<FED-FUNDS-SOLD> 159,851
<TRADING-ASSETS> 147,951
<INVESTMENTS-HELD-FOR-SALE> 5,923,169
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 13,309,843
<ALLOWANCE> (174,443)
<TOTAL-ASSETS> 22,134,994
<DEPOSITS> 12,982,950
<SHORT-TERM> 4,134,494
<LIABILITIES-OTHER> 699,118
<LONG-TERM> 2,582,370
<COMMON> 1,735,590
0
472
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 22,134,994
<INTEREST-LOAN> 561,075
<INTEREST-INVEST> 172,144
<INTEREST-OTHER> 13,968
<INTEREST-TOTAL> 747,187
<INTEREST-DEPOSIT> 196,855
<INTEREST-EXPENSE> 377,385
<INTEREST-INCOME-NET> 369,802
<LOAN-LOSSES> 27,473
<SECURITIES-GAINS> 14,478
<EXPENSE-OTHER> 409,778
<INCOME-PRETAX> 201,067
<INCOME-PRE-EXTRAORDINARY> 201,067
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 133,721
<EPS-BASIC> 0.700
<EPS-DILUTED> 0.690
<YIELD-ACTUAL> 3.92
<LOANS-NON> 50,402
<LOANS-PAST> 23,567
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 79,270
<ALLOWANCE-OPEN> 173,350
<CHARGE-OFFS> (55,929)
<RECOVERIES> 21,126
<ALLOWANCE-CLOSE> 174,443
<ALLOWANCE-DOMESTIC> 174,443
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
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>
