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, 2000
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, 2000, outstanding shares of Common Stock, par value $1.25,
were 197,140,172 (net of 1,718,567 treasury shares).
<PAGE>
FIRST SECURITY CORPORATION - INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Income
Three and Six Months Ended June 30, 2000 and 1999
Consolidated Balance Sheets
June 30, 2000, December 31, 1999, and June 30, 1999
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 2000 and 1999
Condensed Consolidated Statements of Comprehensive Income
Three and Six Months Ended June 30, 2000 and 1999
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition:
Forward-Looking Statements
Highlights
Major Unusual Items
Merger with Wells Fargo & Company
Line of Business Segments
Analysis of Statements of Income:
Net Income
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/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
National and Regional Economy
Business
Factors That May Affect Future Results of Operations and Financial Condition
Supplemental Financial Tables: Financial Highlights, Risk-Based Capital Ratios
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 2. Plan of acquisition, reorganization, arrangement, liquidation,
or succession:
* Exhibit 2.1: Agreement and Plan of Reorganization, dated as of April 9,
2000 by and between Wells Fargo & Company and First Security Corporation
(exhibit 10.4 to First Security's report on Form 10-Q for the quarter
ended March 31, 2000, incorporated by reference).
Exhibit 10. Material Contracts:
* Exhibit 10.1: Stock Option Agreement, dated as of April 9, 2000, by and
between Wells Fargo & Company and First Security Corporation
(exhibit 10.5 to First Security's report on Form 10-Q for the quarter
ended March 31, 2000, incorporated by reference).
Exhibit 11: Computation of Earnings Per Share (attached).
Exhibit 27: Financial Data Schedule (attached).
(b) Reports on Form 8-K:
* April 10, 2000, announcing a press release of an April 9, 2000 agreement
to merge with Wells Fargo & Company.
* May 31, 2000, announcing a press release that on May 23, 2000, Joseph G.
Maloof submitted to First Security Corporation his resignation as one of
its directors.
* July 20, 2000, announcing a July 18, 2000 press release reporting its
earnings and results of operations for the second quarter of this year.
SIGNATURES
EXHIBITS
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
FIRST SECURITY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands, except per share data; unaudited) (A)
For the Periods Ended June 30, 2000 and 1999 ------------Three Months--------------- --------Year-To-Date Six Months---------
2000 1999 $Chg %Chg 2000 1999 $Chg %Chg
<S> <C> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------- --------- --------- -------- ------ -------- -------- --------- -------
INTEREST INCOME:
Interest & fees on loans $354,155 $278,633 $ 75,522 27.1 $683,443 $561,075 $ 122,368 21.8
Federal funds sold & securities purchased 2,215 1,638 577 35.2 6,992 3,556 3,436 96.6
Interest-bearing deposits in other banks 56 69 (13) (18.8) 122 132 (10) (7.6)
Trading account securities 324 4,051 (3,727) (92.0) 621 8,395 (7,774) (92.6)
Available for sale securities 86,056 91,882 (5,826) (6.3) 172,734 172,144 590 0.3
------------------------------------------- --------- --------- -------- ------ -------- -------- --------- -------
TOTAL INTEREST INCOME 442,806 376,273 66,533 17.7 863,912 745,302 118,610 15.9
------------------------------------------- --------- --------- -------- ------ -------- -------- --------- -------
INTEREST EXPENSE:
Deposits 119,021 98,792 20,229 20.5 231,611 196,855 34,756 17.7
Short-term borrowings 83,768 52,890 30,878 58.4 154,047 103,167 50,880 49.3
Long-term debt 38,282 38,449 (167) (0.4) 78,333 77,363 970 1.3
------------------------------------------- --------- --------- -------- ------ -------- -------- --------- -------
TOTAL INTEREST EXPENSE 241,071 190,131 50,940 26.8 463,991 377,385 86,606 22.9
------------------------------------------- --------- --------- -------- ------ -------- -------- --------- -------
NET INTEREST INCOME 201,735 186,142 15,593 8.4 399,921 367,917 32,004 8.7
Provision for loan losses 15,804 10,596 5,208 49.2 36,349 27,473 8,876 32.3
------------------------------------------- --------- --------- -------- ------ -------- -------- --------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSS 185,931 175,546 10,385 5.9 363,572 340,444 23,128 6.8
------------------------------------------- --------- --------- -------- ------ -------- -------- --------- -------
NONINTEREST INCOME:
Service charges on deposit accounts 22,293 21,917 376 1.7 44,080 43,171 909 2.1
Other service charges, collections,
commissions, & fees 15,928 15,909 19 0.1 31,220 32,605 (1,385) (4.2)
Asset sale/securitization gains (losses) (54,510) 11,861 (66,371) (559.6) (57,557) 33,991 (91,548) (269.3)
Bankcard servicing fees &
third-party processing fees 885 1,459 (574) (39.3) 1,699 2,988 (1,289) (43.1)
Commissions & fees: insurance 4,977 4,944 33 0.7 10,837 10,284 553 5.4
Commissions & fees: securities 25,766 20,156 5,610 27.8 56,304 33,423 22,881 68.5
Mortgage banking & loan servicing activities 39,677 65,252 (25,575) (39.2) 76,437 109,039 (32,602) (29.9)
Loan servicing rights amortization (8,276) (14,930) 6,654 44.6 (18,042) (28,727) 10,685 37.2
Trust (fiduciary) commissions & fees 8,421 8,366 55 0.7 17,214 16,158 1,056 6.5
Trading account securities gains (losses) (3,976) 4,116 (8,092) (196.6) 8,149 5,045 3,104 61.5
Available for sale securities gains (losses) 27 5,495 (5,468) (99.5) 627 14,478 (13,851) (95.7)
Other (14,591) 1,690 (16,281) (963.4) (8,929) (2,054) (6,875) (334.7)
------------------------------------------- --------- --------- -------- ------ -------- -------- --------- -------
TOTAL NONINTEREST INCOME 36,621 146,235 (109,614) (75.0) 162,039 270,401 (108,362) (40.1)
------------------------------------------- --------- --------- -------- ------ -------- -------- --------- -------
NONINTEREST EXPENSES:
Salaries & employee benefits 119,018 122,769 (3,751) (3.1) 240,512 237,331 3,181 1.3
Amortization of intangibles 14,290 4,290 10,000 233.1 19,733 8,047 11,686 145.2
Armored & messenger 1,960 1,896 64 3.4 4,117 3,786 331 8.7
Bankcard interbank interchange & fees 5,414 4,398 1,016 23.1 10,005 7,975 2,030 25.5
Computer service & software 7,956 5,805 2,151 37.1 14,292 11,359 2,933 25.8
Credit, appraisal & repossessions 7,879 8,868 (989) (11.2) 14,928 15,923 (995) (6.2)
Fees 5,697 1,664 4,033 242.4 12,936 5,689 7,247 127.4
Furniture & equipment 17,366 15,658 1,708 10.9 35,683 32,710 2,973 9.1
Insurance 1,976 1,023 953 93.2 4,315 2,072 2,243 108.3
Marketing 6,242 4,766 1,476 31.0 8,941 8,787 154 1.8
Occupancy, net 12,569 11,893 676 5.7 25,119 23,016 2,103 9.1
Other real estate & loss
provision (recovery), net 454 19 435 NM 569 (53) 622 NM
Postage 2,972 4,137 (1,165) (28.2) 6,260 7,773 (1,513) (19.5)
Professional 3,635 5,291 (1,656) (31.3) 7,639 9,077 (1,438) (15.8)
Stationery & supplies 3,318 7,461 (4,143) (55.5) 7,400 12,692 (5,292) (41.7)
Telephone 5,427 6,671 (1,244) (18.6) 11,384 12,001 (617) (5.1)
Travel 3,334 3,914 (580) (14.8) 5,925 6,937 (1,012) (14.6)
Merger termination costs 2,900 - 2,900 NM 38,935 - 38,935 NM
Other 4,951 6,840 (1,889) (27.6) 8,950 4,656 4,294 92.2
------------------------------------------- --------- --------- -------- ------ -------- -------- --------- -------
TOTAL NONINTEREST EXPENSES 227,358 217,363 9,995 4.6 477,643 409,778 67,865 16.6
------------------------------------------- --------- --------- -------- ------ -------- -------- --------- -------
INCOME BEFORE PROVISION FOR INCOME TAXES (4,806) 104,418 (109,224) (104.6) 47,968 201,067 (153,099) (76.1)
Provision for income taxes (3,207) 35,575 (38,782) (109.0) 14,576 67,346 (52,770) (78.4)
------------------------------------------- --------- --------- -------- ------ -------- -------- --------- -------
NET INCOME (LOSS) $ (1,599) $ 68,843 $(70,442) (102.3) $ 33,392 $133,721 $(100,329) (75.0)
=========================================== ========= ========= ======== ====== ======== ======== ========= =======
Dividend requirement of preferred stock $ 6 $ 7 $ (1) (14.3) $ 13 $ 14 $ (1) (7.1)
------------------------------------------- --------- --------- -------- ------ -------- -------- --------- -------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK $ (1,605) $ 68,836 $(70,441) (102.3) $ 33,379 $133,707 $(100,328) (75.0)
=========================================== ========= ========= ======== ====== ======== ======== ========= =======
Common stock dividend $ 27,561 $ 26,544 $ 1,017 3.8 $ 55,007 $ 53,127 $ 1,880 3.5
=========================================== ========= ========= ======== ====== ======== ======== ========= =======
EARNINGS PER COMMON SHARE:
Earnings (loss) per common share basic $ (0.01) $ 0.36 $ (0.37) (102.8) $ 0.17 $ 0.70 $ (0.53) (75.7)
Earnings (loss) per common share diluted (0.01) 0.35 (0.36) (102.9) 0.17 0.69 (0.52) (75.4)
Common shares basic [Avg] 196,662 191,323 5,339 2.8 196,346 189,791 6,555 3.5
Common shares diluted [Avg] 199,558 196,402 3,156 1.6 199,875 194,911 4,964 2.5
=========================================== ========= ========= ======== ====== ======== ======== ========= =======
CASH DIVIDENDS PAID OR ACCRUED PER SHARE:
Preferred stock dividend ($3.15 annual rate) $ 0.79 $ 0.79 $ - - $ 1.58 $ 1.58 $ - -
Common stock dividend 0.14 0.14 - - 0.28 0.28 - -
=========================================== ========= ========= ======== ====== ======== ======== ========= =======
<FN>
See "Notes to Consolidated Financial Statements".
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIRST SECURITY CORPORATION
CONSOLIDATED BALANCE SHEETS
($ in thousands; unaudited) (A)
<CAPTION>
As of June 30 December 31 June 30 Jun/Jun Jun/Jun
2000 1999 1999 $Chg %Chg
<S> <C> <C> <C> <C> <C>
---------------------------------------------------- ------------ ------------ ------------ ---------- -------
ASSETS:
Cash & due from banks $ 984,914 $ 926,148 $ 949,452 $ 35,462 3.7
Federal funds sold & securities purchased
under resale agreements 300,894 167,949 159,851 141,043 88.2
----------------------------------------------------- ----------- ----------- ----------- --------- -------
Total Cash & Cash Equivalents 1,285,808 1,094,097 1,109,303 176,505 15.9
Interest-bearing deposits in other banks 7,713 2,902 9,545 (1,832) (19.2)
Trading account securities 22,011 22,650 147,951 (125,940) (85.1)
Available for sale securities, at fair value 5,308,882 5,528,269 5,923,169 (614,287) (10.4)
(Amortized cost: $5,549,049; $5,740,611 and
$6,031,121; respectively)
----------------------------------------------------- ----------- ----------- ----------- --------- -------
Loans, net of unearned income 14,147,717 14,578,537 13,309,843 837,874 6.3
(Unearned income: $197,755; $177,669 and
$150,879; respectively)
Reserve for loan losses (174,443) (174,443) (174,443) - -
----------------------------------------------------- ----------- ----------- ----------- --------- -------
Total Loans, Net 13,973,274 14,404,094 13,135,400 837,874 6.4
----------------------------------------------------- ----------- ----------- ----------- --------- -------
Premises & equipment, net 419,502 429,422 420,494 (992) (0.2)
Accrued income receivable 118,422 119,895 105,396 13,026 12.4
Other real estate 9,955 8,055 5,301 4,654 87.8
Loan servicing rights 181,994 196,256 197,476 (15,482) (7.8)
Goodwill and other intangible assets 349,328 364,466 380,557 (31,229) (8.2)
Other assets 832,175 822,821 700,402 131,773 18.8
----------------------------------------------------- ----------- ----------- ----------- --------- -------
TOTAL ASSETS $22,509,064 $22,992,927 $22,134,994 $ 374,070 1.7
===================================================== =========== =========== =========== ========= =======
LIABILITIES:
Deposits: noninterest-bearing $ 2,326,842 $ 2,272,811 $ 2,621,559 $(294,717) (11.2)
Deposits: interest-bearing 10,909,249 10,937,605 10,361,391 547,858 5.3
----------------------------------------------------- ----------- ----------- ----------- --------- -------
Total Deposits 13,236,091 13,210,416 12,982,950 253,141 1.9
----------------------------------------------------- ----------- ----------- ----------- --------- -------
Federal funds purchased & securities sold
under repurchase agreements 3,677,764 3,697,346 3,729,477 (51,713) (1.4)
U.S. Treasury demand notes 26,590 34,993 38,040 (11,450) (30.1)
Other short-term borrowings 932,317 1,055,026 366,977 565,340 154.1
Accrued income taxes 342,043 349,986 349,114 (7,071) (2.0)
Accrued interest payable 64,885 57,844 49,436 15,449 31.3
Other liabilities 312,506 231,661 300,568 11,938 4.0
Long-term debt 2,174,447 2,585,755 2,582,370 (407,923) (15.8)
----------------------------------------------------- ----------- ----------- ----------- --------- -------
TOTAL LIABILITIES 20,766,643 21,223,027 20,398,932 367,711 1.8
----------------------------------------------------- ----------- ----------- ----------- --------- -------
STOCKHOLDERS' EQUITY:
Preferred stock: Series "A",
$3.15 cumulative convertible 433 451 472 (39) (8.3)
(Shares issued: 8; 9 and 9; respectively)
----------------------------------------------------- ----------- ----------- ----------- --------- -------
Common Stockholders' Equity:
Common stock: par value $1.25 248,544 247,058 245,865 2,679 1.1
(Shares issued: 198,835; 197,646 and
196,692; respectively)
Paid-in surplus 307,807 296,822 282,260 25,547 9.1
Retained earnings 1,376,991 1,398,619 1,313,844 63,147 4.8
Accumulated other comprehensive income (loss) (149,137) (131,652) (66,734) (82,403) 123.5
----------------------------------------------------- ----------- ----------- ----------- --------- -------
Subtotal 1,784,205 1,810,847 1,775,235 8,970 0.5
----------------------------------------------------- ----------- ----------- ----------- --------- -------
Common treasury stock, at cost (42,217) (41,398) (39,645) (2,572) 6.5
(Shares: 1,713; 1,675 and 1,607; respectively)
----------------------------------------------------- ----------- ----------- ----------- --------- -------
Total Common Stockholders' Equity 1,741,988 1,769,449 1,735,590 6,398 0.4
----------------------------------------------------- ----------- ----------- ----------- --------- -------
TOTAL STOCKHOLDERS' EQUITY 1,742,421 1,769,900 1,736,062 6,359 0.4
----------------------------------------------------- ----------- ----------- ----------- --------- -------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $22,509,064 $22,992,927 $22,134,994 $ 374,070 1.7
===================================================== =========== =========== =========== ========= =======
<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 Months Ended June 30, 2000 and 1999 2000 1999
<S> <C> <C>
--------------------------------------------------------------------- ---------- ----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 99,291 $1,702,640
--------------------------------------------------------------------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of available for sale securities 78,066 567,175
Redemption of matured available for sale securities 293,588 883,275
Purchases of available for sale securities (179,801) (2,699,750)
Net (increase) decrease in interest-bearing deposits in other banks (4,811) (8,669)
Net (increase) decrease in loans (1,499,743) (2,533,543)
Proceeds from sales of auto loans 1,993,264 2,040,498
Purchases of premises and equipment (55,530) (8,148)
Proceeds from sales of other real estate 5,646 4,736
Payments to improve other real estate (408) (1,727)
Net cash (paid for) received from acquisitions 8,882 16,487
--------------------------------------------------------------------- ---------- ----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 639,153 (1,739,666)
--------------------------------------------------------------------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 25,675 28,705
Net increase (decrease) in Federal funds purchased, securities sold
under repurchase agreements, and U.S. Treasury demand notes (27,985) (4,649)
Proceeds (payments) on nonrecourse debt on leveraged leases 41,863 85,824
Proceeds from issuance of long-term debt and short-term borrowings 107,366 202,127
Payments on long-term debt and short-term borrowings (641,383) (355,761)
Proceeds from issuance of common stock and sales of treasury stock 3,571 4,375
Purchases of treasury stock (819) (17,696)
Dividends paid (55,021) (53,141)
--------------------------------------------------------------------- ---------- ----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (546,733) (110,216)
--------------------------------------------------------------------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 191,711 (147,242)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,094,097 1,256,545
--------------------------------------------------------------------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $1,285,808 $1,109,303
===================================================================== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID (RECEIVED) FOR:
Interest $ 496,950 $ 386,727
Income taxes 11,806 954
===================================================================== ========== ==========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Conversion of preferred shares to common shares:
Number of preferred shares converted 344 225
Number of common shares issued 14,105 9,225
Conversion value $ 18 $ 12
Transfer of loans to other real estate 5,136 1,948
Net unrealized gain (loss) on available for sale securities
included in stockholders' equity (17,485) (97,111)
Acquisitions:
Assets acquired 3,832 489,130
Liabilities assumed 1,798 309,298
Number of First Security Corporation common shares issued 447,457 8,456,724
===================================================================== ========== ==========
<FN>
See "Notes to Consolidated Financial Statements".
</TABLE>
<TABLE>
FIRST SECURITY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
($ in thousands; unaudited)
<CAPTION>
For the Periods Ended June 30, 2000 and 1999
-------------Three Months------------- --------- Year-To-Date Six Months -------
2000 1999 $Chg %Chg 2000 1999 $Chg %Chg
<S> <C> <C> <C> <C> <C> <C> <C> <C>
--------------------------------------- ------- -------- -------- ------ -------- -------- --------- ------
NET INCOME (LOSS) $(1,599) $ 68,843 $(70,442) (102.3) $ 33,392 $133,721 $(100,329) (75.0)
--------------------------------------- ------- -------- -------- ------ -------- -------- --------- ------
OTHER COMPREHENSIVE INCOME (LOSS),
AFTER TAX 2,956 (75,093) 78,049 103.9 (17,485) (97,111) 79,626 82.0
--------------------------------------- ------- -------- -------- ------ -------- -------- --------- ------
COMPREHENSIVE INCOME (LOSS) $ 1,357 $ (6,250) $ 7,607 121.7 $ 15,907 $ 36,610 $ (20,703) (56.6)
======================================= ======= ======== ======== ====== ======== ======== ========= ======
<FN>
See "Notes to Consolidated Financial Statements".
</TABLE>
<PAGE>
FIRST SECURITY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of First Security's management, the accompanying
unaudited consolidated financial statements of First Security contain all
adjustments (consisting of normal recurring accruals) necessary to present
fairly, in all material respects, First Security's: results of operations for
the three and six month periods ended June 30, 2000 and 1999; financial
position as of June 30, 2000, December 31, 1999, and June 30, 1999; and cash
flows for the six months ended June 30, 2000 and 1999.
2. First Security's results of operations for the three and six month
periods ended June 30, 2000 and 1999 are not necessarily indicative of the
results to be expected for the full year.
3. Certain reclassifications of 1999 amounts have been made to conform to
2000 classifications.
4. First Security's financial statements and commentary incorporate fair
market values for balances added and earnings since their acquisition from the
following purchase acquisitions:
* On February 12, 1999, First Security acquired Van Kasper & Company and
renamed it First Security Van Kasper (FS Van Kasper, headquartered in San
Francisco, California). FS Van Kasper is First Security's full-service
investment banking and brokerage subsidiary. First Security issued 3,338,000
shares of its common stock, with a contingent issuance of 1,159,000 shares
after three years if earnings targets are met or in the case of other events,
such as a merger or change of control. Van Kasper's assets and liabilities at
the date of acquisition approximated $19,609,000 and $12,782,000,
respectively.
* On June 1, 1999, First Security acquired Comstock Bancorp and its
Comstock Bank subsidiary. First Security issued 3,476,000 shares of its
common stock in the transaction. Comstock's assets and liabilities at the
date of acquisition approximated $208,092,000 and $193,371,000, respectively.
* On June 14, 1999, First Security acquired XEON Financial Corporation and
its Nevada Banking Company subsidiary. First Security issued 1,562,000 shares
of its common stock in the transaction. XEON's assets and liabilities at the
date of acquisition approximated $121,740,000 and $112,801,000, respectively.
* May 1, 2000, First Security acquired Black & Company Inc., a securities
firm headquartered in Portland, Oregon with more than 50 employees and 20,000
clients nationwide. First Security issued 447,457 of its common shares in
this purchase transaction, with a contingent issuance of another 100,450 after
one year and another contingent issuance of up to 347,120 shares after three
years, subject to earnings and other conditions. At the date of acquisition,
Black & Company had assets and liabilities of approximately $3,832,000 and
$1,798,000, respectively.
The transactions listed above were accounted for using the purchase method
of accounting and resulted in intangible assets for First Security of
approximately $152,645,000, which are being amortized over 15 years, except
for core deposits, which are amortized over 10 years.
Pro forma results of operations for 2000 and 1999, 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 Statement of Financial Accounting Standards (SFAS)
No. 125, First Security's capitalized loan servicing rights for the six months
ended June 30, 2000 included $22.3 million additions and $18.0 million
amortized during the period.
7. Effective January 1, 1998, First Security adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
requires disclosures of certain information about First Security's reportable
operating segments. First Security has the following reportable line of
business segments: Community Banking Services; Retail Lending Services;
Business Banking Services; Capital Markets, Treasury, & Investment Management;
and Parent & Other.
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 First Security's 1999 Annual Report
on Form 10-K. 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.
First Security advises readers that its line of business segment data has
periodically undergone material changes in the alignment of products and
business units within its lines of business, and in internal reporting and
cost allocation systems. As a result, data for prior periods may not be
comparable with 2000. In addition, First Security further advises readers
that its actual results for future periods could differ materially from those
anticipated or projected.
<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 Months Ended June 30, 2000
Total assets (Avg) $ 562,184 $ 9,725,897 $ 4,729,615 $ 5,458,718 $ 2,880,333 $23,356,747
Total deposits (Avg) 9,511,641 179,572 1,154,164 343,892 2,166,858 13,356,127
Interest income 5,720 444,800 179,975 161,975 71,442 863,912
Interest expense 196,713 4,166 20,625 113,779 128,708 463,991
Intersegment interest income (expense) net 302,432 (269,042) (84,982) (38,169) 89,761 -
Provision for income taxes 19,698 (7,555) 16,721 2,725 (17,013) 14,576
Net income (loss) 31,466 (12,069) 26,709 4,354 (17,068) 33,392
--------------------------------------- ----------- ----------- ----------- ----------- ----------- -----------
For the Year-To-Date Six Months 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 62,938 745,302
Interest expense 177,081 - 11,575 104,210 84,519 377,385
Intersegment interest income (expense) net 262,917 (216,574) (69,531) (44,621) 67,809 -
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
======================================= =========== =========== =========== =========== =========== ===========
<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.
</TABLE>
8. In accordance with Securities and Exchange Commission (SEC) Rule 210.4-
08(n) of Regulation S-X "Accounting policies for certain derivative
instruments", First Security's accounting policies for derivative instruments
were discussed in detail in its 1999 Annual Report on Form 10-K. Since the
filing of that report, there have been no material changes in First Security's
accounting policies for derivative instruments.
9. Effective January 1, 1999, First Security 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 First Security's consolidated financial
statements.
10. On July 7, 1999, the Financial Accounting Standards Board (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
SFAS 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. First Security 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.
11. On November 24, 1999, the SEC issued Staff Accounting Bulletin No. 100,
which expresses views of its staff regarding the accounting for and disclosure
of certain expenses commonly reported in connection with exit activities and
business combinations, including accrual of exit and employee termination
costs pursuant to Emerging Issues Task Force (EITF) Issues No. 94-3 and No.
95-3, and the recognition of impairment charges pursuant to Accounting
Principles Board (APB) Opinion No. 17 and Statement of Financial Accounting
Standards (SFAS) No. 121. First Security's management has taken this SAB
under advisement and believes that it will not have a material effect on First
Security's consolidated financial statements.
12. On December 3, 1999, the SEC issued Staff Accounting Bulletin No. 101,
which summarizes certain of its staff's views in applying generally accepted
accounting principles to revenue recognition in financial statements. First
Security's management has taken this SAB under advisement and believes that
it will not have a material effect on First Security's consolidated financial
statements.
13. On April 10, 2000, First Security and Wells Fargo & Company (NYSE: WFC)
announced the signing of an Agreement and Plan of Reorganization, which is
listed as Exhibit 2.1 to this report. Wells Fargo is a $234 billion
diversified financial services company providing banking, insurance,
investments, mortgage and consumer finance from more than 5,300 financial
services stores and the Internet (wellsfargo.com) across North America and
elsewhere internationally. The combined company will be the largest banking
franchise in deposits in Utah, Nevada, New Mexico, and Idaho, which comprise
the nation's fastest growing regional economy.
Pursuant to the Agreement and Plan of Reorganization, each share of First
Security stock will be converted into 0.355 of a share of Wells Fargo stock.
Based on Wells Fargo's closing stock price of $43.6875 on April 3, 2000, the
agreement values each First Security share at $15.50, for a total transaction
value of approximately $3.2 billion.
The proposed merger is expected to be completed early in the fourth quarter
of 2000 and is expected to be accounted for as a pooling of interests. It is
expected to be a tax-free transaction for First Security stockholders and was
approved by them at a special meeting held on July 31, 2000. The proposed
merger still requires approval from banking regulators. To receive federal
regulatory approval and comply with government anti-trust guidelines, First
Security and Wells Fargo expect to sell about $1.4 billion of deposits and
associated loans.
<PAGE>
FIRST SECURITY CORPORATION (FSCO)
PART 1. FINANCIAL INFORMATION
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS (MDA) OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
THIS MDA SHOULD BE READ IN CONJUNCTION WITH FIRST SECURITY'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. First Security cautions
readers not to place undue reliance on any forward-looking statements, which
speak only as of the date made.
First Security advises readers that various risks and uncertainties could
affect First Security's financial performance and could cause First Security's
actual results for future periods to differ materially from those anticipated
or projected. These risks and uncertainties include, but are not limited to,
those related to: the economic environment, particularly in the regions where
First Security 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 First Security's operations and personnel.
With respect to the announced merger with Wells Fargo, risks and
uncertainties in connection with First Security's merger into Wells Fargo
include, but are not limited to:
* conditions precedent to the close of the merger agreement may not be
satisfied;
* combining the business of First Security and Wells Fargo may cost more
than expected;
* the timing of the completion of the merger and new operations may be
delayed or prohibited;
* there may be increases in competitive pressures among financial
institutions;
* general economic conditions, either nationally or locally in areas in which
First Security conducts its operations, or conditions in securities markets
may be less favorable than currently anticipated;
* combining the businesses of First Security and Wells Fargo may require
divestiture of branches, deposits or loans as a result of the merger in an
amount greater than expected;
* legislation or regulatory changes may adversely affect the ability of the
combined company to conduct, or the accounting for, business combinations and
new operations;
* integrating the business of First Security and Wells Fargo and retaining
key personnel may be more difficult than expected;
* the combined company may lose more business or customers after the merger
than expected.
First Security 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
* Including the major unusual items discussed below, there was a net loss for
the quarter of $1.6 million or $0.01 per share but net income of $33.4
million or $0.17 per share for the year to date. Excluding the major
unusual charges discussed below, net income for the quarter was $56.5
million or $0.28 per share diluted, and year to date net income was $114.9
million or $0.57 per share diluted
* Total assets of $22.5 billion
* Total equity of $1.7 billion
* Merger with Wells Fargo & Company expected to close early in the fourth
quarter.
First Security reported that its second quarter 2000 earnings, including
the major unusual items discussed below, were a net loss for the quarter of
$1.6 million or $0.01 per share, compared with $68.8 million or $0.35 per
share in the same quarter of 1999. For the year to date, net income was $33.4
million or $0.17 per share for the year to date, compared with $133.7 million
or $0.69 per share for the first half of 1999.
Before the major unusual items, net income for the quarter was $56.5
million or $0.28 per share, compared with $68.8 million or $0.35 per share in
the same quarter of 1999. For the year to date, net income before the unusual
items was $114.9 million or $0.57 per share, compared with $133.7 million or
$0.69 per share for the first half of 1999.
MAJOR UNUSUAL ITEMS
In the second quarter, First Security took actions to strategically
position the Company and to address the remaining costs of the terminated
merger with Zions Bancorporation.
The following actions were taken as part of First Security's strategic
positioning resulting in certain unusual charges:
* ASSET SALES: First Security sold $2.0 billion of indirect auto loans
through securitization. These loans were fixed rate auto loans accumulated
over the last 12 to 18 months. First Security's historical practice has been
to securitize these loans every 4 to 6 months, but due to its pending merger
agreement with Zions, a securitization within the typical time frame did not
occur. With rising interest rates over this time frame, it was appropriate to
sell the loans to address interest rate risk, reduce short-term funding
dependency, and free up capital. The sale of the $2.0 billion in automobile
loans resulted in a pre-tax loss of $49.7 million, $30.3 million after tax
(reported as a reduction of noninterest income).
* SERVICING ASSET ADJUSTMENT: Based on changing market conditions, First
Security also charged off servicing assets associated with prior asset
securitizations, resulting in a pre-tax charge of $20.0 million, $12.2 million
after tax (also reflected in noninterest income).
* GOODWILL ADJUSTMENT: First Security charged off $8.4 million of goodwill
associated with its CrossLand Mortgage Corporation subsidiary.
* EMPLOYEE EXPENSES: First Security accrued $3.0 million as part of the
retention program to retain key personnel through the merger closing and $5.2
million to provide for other employee benefits.
* MERGER TERMINATION COSTS: First Security also incurred $2.9 million pre-
tax, $1.9 million after tax, as a result of the termination of its merger
agreement with Zions Bancorporation on March 31, 2000. This is in addition to
the $36.0 million pre-tax, $23.4 million after tax, reported in the first
quarter. First Security does not anticipate any material additional expenses
associated with the termination of the merger agreement with Zions.
MERGER WITH WELLS FARGO & COMPANY
On April 10, 2000, First Security and Wells Fargo & Company (NYSE:WFC)
announced the signing of a definitive agreement to merge. Wells Fargo is a
$234 billion diversified financial services company providing banking,
insurance, investments, mortgage and consumer finance from over 5,300
financial services stores and the Internet (wellsfargo.com) across North
America and elsewhere internationally. The combined company will be the
largest banking franchise in deposits in Utah, Nevada, New Mexico, and Idaho,
which comprise the nation's fastest growing regional economy.
The proposed merger is expected to be completed early in the fourth quarter
and is expected to be accounted for as a pooling of interests. It is expected
to be a tax-free transaction for First Security stockholders, who approved the
proposed merger at a special meeting of stockholders held on July 31, 2000.
Approval of banking regulators is still pending.
Approval by First Security stockholders of the proposed merger with Wells
Fargo will result in accelerated vesting and the activation of limited stock
appreciation rights ("LSARs") in the First Security Comprehensive Management
Incentive Plan. As a result of the activation of the LSARs, accounting rules
require recognition of the in-the-money value of the options in the income
statement (through a non-cash compensation charge) and an increase in
contributed equity by the amount of the charge and an increase in deferred tax
assets. Based on a "look-back" price of $16.312, the highest closing price
during the 60 day period preceding First Security stockholder approval of the
merger, First Security will incur a charge in the third quarter of 2000 of
approximately $48.0 million and a net increase in common equity of
approximately $29.3 million.
This charge is not included in the major unusual items previously
disclosed, and these accounting entries will not affect the on-going financial
performance or cash flow of First Security or the combined entity.
LINE OF BUSINESS SEGMENTS
First Security's organizational management structure consists of the
following five "Line of Business" segments (see: Note 7 above):
* Community Banking Services provides transaction, deposit, electronic
banking, and customer services.
* 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.
* Parent and Other combines corporate administration, technology and
processing services, acquired banks that have not been converted to First
Security'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.
First Security advises readers that its actual results for future periods
could differ materially from those anticipated or projected based on segment
data reported in Note 7 above, due to potential changes resulting from First
Security's anticipated merger with Wells Fargo.
ANALYSIS OF STATEMENTS OF INCOME
NET INCOME
Including the major unusual items discussed above, First Security had a net
loss of $1.6 million or $0.01 per share for the second quarter of 2000,
compared with net income of $68.8 million or $0.35 per share for the second
quarter of 1999. For the year to date, net income was $33.4 million or $0.17
per share for the first half of 2000, compared with $133.7 million or $0.69
per share for the prior year period.
Excluding the effects of the major unusual items discussed above, First
Security had net income of $56.5 million or $0.28 per share for the second
quarter of 2000, compared with $68.8 million or $0.35 per share for the second
quarter of 1999. For the year to date, First Security had net income
excluding the unusual items of $114.9 million or $0.57 per share, compared
with $133.7 million or $0.69 per share for the prior year period.
Earnings have shown an overall decline from prior periods due to the
impacts of the uncertainty caused by pending mergers for the past year,
pressure on net interest income due to rapidly increasing rates, a significant
slowdown in mortgage originations by First Security's mortgage-producing
affiliates, and lower second quarter earnings by First Security's securities
subsidiary.
The return on average assets (ROAA) including the unusual items, was a
negative 0.03%, compared with a positive 1.26% for the second quarter of 1999,
and for the year to date the ROAA was 0.29%, compared with 1.24% for the first
half of the prior year. Excluding the unusual items, ROAA was 0.96% for the
quarter and 0.99% for the year to date.
The return on average equity (ROAE) including the major unusual items was a
negative 0.37% for the quarter, compared with a positive 16.52% for the prior
year quarter, and for the year to date, the ROAE was 3.83%, compared with
16.58% for the prior year period. Excluding the unusual items, the ROAE was
13.01% for the quarter, and 13.19% for the year to date.
The Tangible EPS diluted (EPS excluding the effects of amortization of
goodwill and deposit intangibles, net of tax), including the effects of the
unusual items, were $0.06 for the quarter, compared with $0.37 for the second
quarter of 1999, and $0.26 for the first half of 2000, compared with $0.73 for
the first half of the previous year. Tangible EPS diluted before the unusual
items discussed above was $0.35 for the second quarter and $0.67 for the year
to date.
The Tangible ROAA including the unusual items was 0.21% and 0.46% for the
quarter and year to date, respectively, compared with 1.36% and 1.34% for the
prior year periods, respectively. Tangible ROAA excluding the unusual items
was 1.22% for the second quarter and 1.18% for the year to date.
The Tangible ROAE including the unusual items was 4.06% for the three
months and 8.78% for the year to date, compared with 24.94%, and 24.68%,
respectively, for the prior year periods. Tangible ROAE excluding the unusual
items was 23.66% for the quarter and 22.49% for the six months.
<PAGE>
<TABLE>
<CAPTION>
FIRST SECURITY CORPORATION
VOLUME / RATE ANALYSIS
(in thousands; fully taxable equivalent; unaudited) (A, B)
For the Three Months Ended June 30, 2000 and 1999
Average Balance Yield/Rate % Interest Inc/Exp Change Changes Due To:
2000 1999 2000 1999 2000 1999 2000-99 Volume Rate
----------- ----------- ---- ---- --------------------------------------------- -------- -------- ------- ------- -------
<C> <C> <C> <C> <S> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS / INCOME:
$ 135,189 $ 135,929 6.55 4.82 Federal funds sold & securities purchased $ 2,215 $ 1,638 $ 577 $ (9) $ 586
6,442 4,975 3.48 5.55 Int-bearing deposits in other banks 56 69 (13) 20 (33)
21,471 250,743 6.04 6.46 Trading account securities 324 4,051 (3,727) (3,704) (23)
5,516,729 5,881,963 6.36 6.36 Available for sale securities, amortized cost 87,662 93,571 (5,909) (5,810) (99)
Loans, net of unearned income &
15,267,660 13,079,487 9.29 8.55 deferred taxes on leases (C) 354,715 279,555 75,160 46,769 28,391
----------- ----------- ---- ---- --------------------------------------------- -------- -------- ------- ------- -------
$20,947,491 $19,353,097 8.50 7.83 TOTAL INTEREST-EARNING ASSETS / INCOME 444,972 378,884 66,088 37,266 28,822
----------- ----------- ---- ---- --------------------------------------------- -------- -------- ------- ------- -------
INTEREST-BEARING LIABILITIES / EXPENSE:
Interest-Bearing Deposits:
$ 301,299 $ 367,282 1.51 1.34 Interest-bearing demand accounts 1,138 1,228 (90) (221) 131
5,284,091 4,720,171 2.82 2.55 Savings & money market accounts 37,257 30,117 7,140 3,598 3,542
1,901,018 1,410,342 5.92 5.40 Time deposits of $100,000 or more 28,147 19,051 9,096 6,628 2,468
3,784,793 3,643,203 5.55 5.31 Other time deposits 52,479 48,396 4,083 1,881 2,202
----------- ----------- ---- ---- --------------------------------------------- -------- -------- ------- ------- -------
11,271,201 10,140,998 4.22 3.90 TOTAL INTEREST-BEARING DEPOSITS 119,021 98,792 20,229 11,886 8,343
----------- ----------- ---- ---- --------------------------------------------- -------- -------- ------- ------- -------
4,387,199 4,028,240 6.14 4.66 Federal funds purchased & securities sold 67,295 46,952 20,343 4,184 16,159
1,032,753 320,203 6.38 7.42 Other short-term borrowings 16,473 5,938 10,535 13,214 (2,679)
2,372,017 2,657,803 6.46 5.79 Long-term debt 38,282 38,449 (167) (4,134) 3,967
----------- ----------- ---- ---- --------------------------------------------- -------- -------- ------- ------- -------
$19,063,170 $17,147,244 5.06 4.44 TOTAL INTEREST-BEAR LIABILITIES / EXPENSE 241,071 190,131 50,940 25,150 25,790
----------- ----------- ---- ---- --------------------------------------------- -------- -------- ------- ------- -------
8.50 7.83 Interest income FTE / earning assets
4.61 3.93 Interest expense / earning assets
---- ---- ---------------------------------------------
3.89 3.90 Net interest income FTE / earning assets 203,901 188,753 15,148 12,116 3,032
Less fully taxable equivalent adjustment 2,166 2,611 (445)
----------- ----------- ---- ---- --------------------------------------------- -------- -------- ------- ------- -------
NET INTEREST INCOME $201,735 $186,142 $15,593
----------- ----------- ---- ---- --------------------------------------------- -------- -------- ------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
For the Year-To-Date Six Months Ended June 30, 2000 and 1999
Average Balance Yield / Rate % Interest Inc/Exp Change Changes Due To:
2000 1999 2000 1999 2000 1999 2000-99 Volume Rate
----------- ----------- ---- ---- --------------------------------------------- -------- -------- ------- ------- -------
<C> <C> <C> <C> <S> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS / INCOME:
$ 234,222 $ 152,080 5.97 4.68 Federal funds sold & securities purchased $ 6,992 $ 3,556 $ 3,436 $ 1,921 $ 1,515
4,615 6,663 5.29 3.96 Int-bearing deposits in other banks 122 132 (10) (41) 31
17,125 262,733 7.25 6.39 Trading account securities 621 8,395 (7,774) (7,848) 74
5,574,710 5,446,566 6.31 6.46 Available for sale securities, amortized cost 175,896 175,808 88 4,136 (4,048)
Loans, net of unearned income &
14,825,910 13,267,371 9.24 8.48 deferred taxes on leases (C) 684,759 562,682 122,077 66,099 55,978
----------- ----------- ---- ---- --------------------------------------------- -------- -------- ------- ------- -------
$20,656,582 $19,135,413 8.41 7.84 TOTAL INTEREST-EARNING ASSETS / INCOME 868,390 750,573 117,817 64,267 53,550
=========== =========== ==== ==== ============================================= ======== ======== ======= ======= =======
INTEREST-BEARING LIABILITIES / EXPENSE:
Interest-Bearing Deposits:
$ 292,544 $ 367,162 1.51 1.37 Interest-bearing demand accounts 2,203 2,510 (307) (510) 203
5,256,585 4,662,216 2.74 2.61 Savings & money market accounts 72,120 60,737 11,383 7,743 3,640
1,866,923 1,398,416 5.77 5.38 Time deposits of $100,000 or more 53,840 37,646 16,194 12,612 3,582
3,790,357 3,591,710 5.46 5.34 Other time deposits 103,448 95,962 7,486 5,307 2,179
----------- ----------- ---- ---- --------------------------------------------- -------- -------- ------- ------- -------
11,206,409 10,019,504 4.13 3.93 TOTAL INTEREST-BEARING DEPOSITS 231,611 196,855 34,756 25,152 9,604
----------- ----------- ---- ---- --------------------------------------------- -------- -------- ------- ------- -------
4,108,126 3,875,930 5.86 4.67 Federal funds purchased & securities sold 120,300 90,478 29,822 5,420 24,402
1,079,793 381,516 6.25 6.65 Other short-term borrowings 33,747 12,689 21,058 23,224 (2,166)
2,446,204 2,655,479 6.40 5.83 Long-term debt 78,333 77,363 970 (6,097) 7,067
----------- ----------- ---- ---- --------------------------------------------- -------- -------- ------- ------- -------
$18,840,532 $16,932,429 4.93 4.46 TOTAL INTEREST-BEAR LIABILITIES / EXPENSE 463,991 377,385 86,606 47,699 38,907
----------- ----------- ---- ---- --------------------------------------------- -------- -------- ------- ------- -------
8.41 7.84 Interest income FTE / earning assets
4.49 3.94 Interest expense / earning assets
---- ---- ---------------------------------------------
3.92 3.90 Net interest income FTE / earning assets 404,399 373,188 31,211 16,568 14,643
Less fully taxable equivalent adjustment 4,478 5,271 (793)
----------- ----------- ---- ---- --------------------------------------------- -------- -------- ------- ------- -------
NET INTEREST INCOME $399,921 $367,917 $32,004
=========== =========== ==== ==== ============================================= ======== ======== ======= ======= =======
<FN>
(A) Certain reclassifications of 1999 amounts have been made to conform to 2000 classifications.
(B) Changes not due entirely to changes in volume or rate have been allocated to rate.
Interest is presented on a fully taxable equivalent (FTE) basis, calculated on Federal and state taxes
applicable to the subsidiary carrying the asset. The combined tax rate was approximately 39% for 2000 and 1999.
(C) Loans include nonaccruing loans.
Interest on loans includes fees of $15,818 and $16,363 for the 2000 and 1999 quarters, respectively.
Interest on loans includes fees of $30,405 and $29,267 for the 2000 and 1999 year-to-date periods, respectively.
</TABLE>
<PAGE>
NET INTEREST INCOME AND NET INTEREST MARGIN
First Security's net interest income on a fully taxable equivalent (FTE)
basis was $203.9 million for the second quarter of 2000, compared with $188.8
million for the 1999 second quarter. For the year to date, net interest
income on a fully taxable equivalent (FTE) basis was $404.4 million, compared
with $373.2 million for the same six months in 1999. Continuing strong loan
demand and the use of asset/liability management strategies has resulted in
modest growth in net interest income despite the rising interest rate
environment and the reduction of the investment portfolio over the past 10
months. First Security, like most financial institutions, is taking actions
to address margin compression in this rising interest rate environment in
which rates on deposits and short-term borrowings typically change more
quickly than rates on loans and investments.
In anticipation of the merger with Zions, First Security repositioned its
balance sheet, resulting, temporarily, in increased reliance on short-term
funding. With the Federal Reserve Board's multiple increases in the targeted
Federal Funds rates and with its forward bias toward increasing interest rates
to address inflationary concerns, interest expense has been and will continue
to be under pressure in the near term. In a rapidly rising interest rate
environment, the ongoing work of First Security to reprice its loan portfolio
will lag the increases in funding cost.
First Security's net interest margin was 3.89% for the second quarter of
2000, essentially identical to 3.90% for the year-ago quarter. For the year
to date, First Security's net interest margin was 3.92%, compared with 3.90%
for the year-ago period. As noted above, First Security is experiencing
pressure on its net interest margin, but is rigorously employing
asset/liability management strategies to mitigate interest rate risk.
PROVISION FOR LOAN LOSSES
Net loans charged off against the reserve and the provision for loan losses
were $15.8 million for the second quarter of 2000, compared with $10.6 million
for the year-ago quarter. On a year-to-date basis, net loans charged off
against the reserve and provision for loan losses were $36.3 million, compared
with $27.5 million for the year-ago period. The annualized ratio of net loans
charged off to average loans was 0.41% and 0.48% for the second quarter and
first half of 2000, respectively, compared with 0.54% for the year-ago quarter
and 0.49% for all of 1999. First Security believes that it has properly
addressed the previously announced moderate increase in consumer loan losses.
NONINTEREST INCOME
For the second quarter of 2000, First Security's noninterest income
including the unusual items was $36.6 million, compared with $146.2 million
for the 1999 quarter, and was $162.0 million for the year to date, compared
with $270.4 million for the first half of 1999. First Security's noninterest
income excluding the unusual items was $106.3 million, and for the year to
date, it was $231.7 million. The decrease excluding unusual items is
indicative of slower loan origination rates in the mortgage banking business,
strategic decreases in trading account activities to reduce market risks
(First Security ceased its trading activities for its own account), and
decreased securities gains, offset by growth in commissions and fees from
securities and insurance transactions; collections, commissions, and fees.
NONINTEREST EXPENSES
Including $36.0 million in the first quarter and $19.5 million in the
second quarter of 2000 of unusual expenses, noninterest expenses were $227.4
million for the second quarter of 2000, compared with $217.4 million for the
second quarter of 1999, and $477.6 million for the year to date, compared with
$409.8 million for the same 1999 period. Excluding the unusual expenses
discussed above, First Security's noninterest expenses were $207.9 million for
the quarter and $422.1 million for the year to date. The year-over-year
changes incorporate reductions in salary and benefit expense due to lower
staffing levels, decreased stationery and supplies, postage, professional
services, and telephone costs, offset in part by higher marketing, occupancy
and equipment, computer service, and fee expenses.
* First Security's salaries and benefits expense was $119.0 million for the
quarter, compared with $122.8 million for the second quarter of 1999, and
$240.5 million for the year to date, compared with $237.3 million for the same
period of 1999. The current year numbers reflect staffing decreases from
10,101 to 8,168 full-time-equivalent employees offset by $8.2 million of
unusual charges related to pending mergers, and increases in commission-based
compensation, primarily related to the addition of and increases in securities
brokerage activities during 2000 and the last half of 1999.
* First Security's nonpersonnel expenses were $108.3 million for the
quarter, compared with $94.6 million for the second quarter of 1999, and
$237.1 million for the year to date, compared with $172.4 million for the
prior year. In addition to $36.0 million of merger termination expenses in
the first quarter of 2000 and an additional $2.9 million in the second
quarter, unusual charges of $8.4 million were recognized during the quarter to
adjust goodwill for First Security's CrossLand Mortgage subsidiary. Increases
were also noted in fees, occupancy and equipment, intangible amortization, and
other noninterest expenses, reflecting acquisitions during 1999.
First Security's operating expense ratio (the ratio of noninterest expenses
to the sum of net interest income FTE and noninterest income) calculated
including the effect of the unusual items, was 94.53% for the second quarter
of 2000, compared with 64.89% for the year-ago quarter, and was 84.32% for the
year to date, compared with 63.67% for the year-ago period. First Security's
operating expense ratio excluding the unusual items was 67.00% for the second
quarter of 2000, and 66.36% for the year to date.
CrossLand Mortgage Corp., First Security's mortgage banking subsidiary, and
First Security Van Kasper, First Security's full-service investment banking
and brokerage subsidiary, have higher inherent operating expense ratios than
First Security's bank subsidiaries. Excluding CrossLand Mortgage, FS Van
Kasper, and the unusual items, First Security's operating expense ratio was
55.87% for the second quarter of 2000, compared with 60.13% for the year-ago
quarter. Year to date, this adjusted operating expense ratio was 56.31%,
compared with 59.31% for 1999. Excluding amortization of goodwill and deposit
intangibles, the adjusted operating expense ratio was 50.01% for the quarter,
compared with 58.36% for the prior year quarter, and it was 52.24% for the
first half of 2000, compared with 57.67% for the same period of 1999.
As the merger integration proceeds with Wells Fargo, First Security's
conformance of accounting policies may result in expense accruals or other
adjustments in future periods. First Security also may incur additional
salary and benefits expense associated with retention and other bonus programs
for employees.
ANALYSIS OF BALANCE SHEETS
SUMMARY
First Security's total assets were $22.5 billion at June 30, 2000, compared
with $23.0 billion at year-end 1999 and $22.1 billion one year ago. The
decrease from year end reflects sales of loans and securities, with
application of the proceeds to reduce borrowed funds. Loans, net of unearned
income but before the reserve for loan losses, were $14.1 billion at quarter
end, compared with $14.6 billion at year end 1999 and $13.3 billion one year
ago, in spite of $2.0 billion in vehicle loan securitizations and sales during
the second quarter of 2000 and ongoing mortgage loan sales during the year.
Available for sale securities were $5.3 billion at quarter end, compared with
$5.5 billion at year end and $5.9 billion one year ago, reflecting merger-
related strategic decisions to reduce First Security's position in these
assets.
In conjunction with its planned merger with Wells Fargo, First Security
will take actions to reposition its balance sheet, which may result in
accounting or valuation adjustments in future periods.
INTEREST-EARNING ASSETS:
TRADING ACCOUNT SECURITIES AND OTHER MONEY MARKET INVESTMENTS
First Security's trading account securities were $22.0 million at June 30,
2000, compared with $22.7 million at year end and $148.0 million one year ago.
In anticipation of the merger with Zions, First Security discontinued its
proprietary securities trading activity at year end, except for securities
held in trading accounts at FS Van Kasper, pending sales to customers.
Fluctuations in trading and sales 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
First Security's available for sale (AFS) securities were $5.3 billion at
June 30, 2000, compared with $5.5 billion at year end and $5.9 billion one
year ago. These decreases reflect a general balance sheet repositioning in
anticipation of the merger with Zions. This has been accomplished by sales of
securities as well as by not replacing maturing securities.
<PAGE>
<TABLE>
FIRST SECURITY CORPORATION
LOANS
(in thousands; unaudited) (A)
<CAPTION>
% of % of % of
As of Jun. 30 Total Dec. 31 Total Jun. 30 Total Jun/Jun
2000 Loans 1999 Loans 1999 Loans %Chg
<S> <C> <C> <C> <C> <C> <C> <C>
------------------------------------------- ----------- ----- ----------- ----- ----------- ----- -----
COMMERCIAL LOANS:
Commercial & industrial $ 2,893,681 20.5 $ 2,852,681 19.6 $ 2,689,356 20.2 7.6
Agricultural 336,807 2.4 300,685 2.1 342,205 2.6 (1.6)
Other commercial 176,532 1.2 160,738 1.1 192,566 1.4 (8.3)
------------------------------------------- ----------- ----- ----------- ----- ----------- ----- -----
TOTAL COMMERCIAL LOANS 3,407,020 24.1 3,314,104 22.7 3,224,127 24.2 5.7
------------------------------------------- ----------- ----- ----------- ----- ----------- ----- -----
REAL ESTATE SECURED LOANS:
1 to 4 family residential term 2,532,413 17.9 2,252,057 15.4 2,767,065 20.8 (8.5)
1 to 4 family residential home equity 414,580 2.9 407,066 2.8 392,018 2.9 5.8
1 to 4 family residential construction 948,314 6.7 842,669 5.8 702,567 5.3 35.0
Commercial & other term 1,732,183 12.2 1,661,991 11.4 1,492,483 11.2 16.1
Commercial & other construction 697,413 4.9 633,632 4.3 501,320 3.8 39.1
------------------------------------------- ----------- ----- ----------- ----- ----------- ----- -----
TOTAL REAL ESTATE SECURED LOANS 6,324,903 44.7 5,797,415 39.8 5,855,453 44.0 8.0
Memo: Total real estate term 4,679,176 33.1 4,321,114 29.6 4,651,566 34.9 0.6
Memo: Loans held for sale included
in total real estate term 916,081 6.5 772,696 5.3 1,425,720 10.7 (35.7)
Memo: Total real estate construction 1,645,727 11.6 1,476,301 10.1 1,203,887 9.0 36.7
------------------------------------------- ----------- ----- ----------- ----- ----------- ----- -----
CONSUMER LOANS:
Credit card & related 322,538 2.3 338,570 2.3 315,118 2.4 2.4
Vehicle & other consumer 2,313,251 16.4 3,495,348 24.0 2,423,756 18.2 (4.6)
------------------------------------------- ----------- ----- ----------- ----- ----------- ----- -----
TOTAL CONSUMER LOANS 2,635,789 18.6 3,833,918 26.3 2,738,874 20.6 (3.8)
------------------------------------------- ----------- ----- ----------- ----- ----------- ----- -----
TOTAL LEASES 1,780,005 12.6 1,633,100 11.2 1,491,389 11.2 19.4
------------------------------------------- ----------- ----- ----------- ----- ----------- ----- -----
LOANS, NET OF UNEARNED INCOME 14,147,717 100.0 14,578,537 100.0 13,309,843 100.0 6.3
Memo: Unearned income (197,755) (177,669) (150,879) 31.1
Reserve for loan losses (174,443) (174,443) (174,443) -
------------------------------------------- ----------- ----- ----------- ----- ----------- ----- -----
TOTAL LOANS, NET $13,973,274 $14,404,094 $13,135,400 6.4
=========================================== =========== ===== =========== ===== =========== ===== =====
<FN>
(A) Certain reclassifications of 1999 amounts have been made to conform to 2000 classifications.
</TABLE>
INTEREST-EARNING ASSETS:
LOANS
First Security's loans, net of unearned income but before the reserve for
loan losses, were $14.1 billion at June 30, 2000, compared with $14.6 billion
at year end and $13.3 billion one year ago. These balances reflect two
separate $1.0 billion vehicle loan securitizations during the first and second
quarters of 1999 and $2.0 billion during the second quarter of 2000, ongoing
sales of 1-to-4 family residential term loans into secondary markets, and a
slowing in mortgage loan production. The ratio of total loans to total assets
was 62.85% at period end, compared with 63.40% at year end and 60.13% one year
ago.
The components of First Security's loan portfolio at June 30, 2000,
compared with December 31, 1999 and June 30, 1999, respectively, are discussed
below.
* Commercial loans were $3.4 billion, compared with $3.3 billion at year
end and $3.2 billion one year ago. The increase from one year ago was
primarily due to a continued broad-based business expansion in First
Security's market areas. Commercial loans consisted primarily of loans to
small and middle-market businesses and agricultural-related businesses.
* Real estate secured loans were $6.3 billion, compared with $5.8 billion
at year end and $5.9 billion one year ago. Fluctuations in these loan
balances occurred as loan originations were offset by loan sales. For balance
sheet management purposes, First Security 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. The year to date change in loan
balances reflects the fact that 1-to-4 family residential loan originations
exceeded sales by $0.8 billion.
* Consumer loans were $2.6 billion, compared with $3.8 billion at year end
and $2.7 billion one year ago. First Security is a leading consumer lender in
its primary market area, having made nearly $1.5 billion in indirect vehicle
loans during the first half of this year. For balance sheet management
purposes, First Security does not retain all newly originated indirect vehicle
loans but regularly pools and securitizes such loans in the secondary markets.
During the first half of 1999, $2.0 billion of such loans were securitized and
sold, and an additional $2.0 billion were securitized and sold in the second
quarter of 2000.
* Leases were $1.8 billion, compared with $1.6 billion at year end and $1.5
billion one year ago. These increases were primarily due to First Security's
growth in the vehicle and equipment leasing markets.
ASSET QUALITY:
PROBLEM ASSETS AND POTENTIAL PROBLEM ASSETS
The ratio of nonperforming assets to total loans and other real estate was
0.57% at June 30, 2000, compared with 0.46% at year-end 1999 and 0.42% one
year ago. Nonperforming assets were $80.2 million at quarter end, compared
with $67.3 million at year end and $55.7 million one year ago. The changes
were due primarily to one large loan secured by timberland, increases in
mortgage term loans, and several smaller secured loans. First Security's
nonperforming assets have historically been below its peer group, and it is
expected that First Security's asset quality will remain strong despite the
reported increase.
First Security's ratio of total problem assets to total loans and other
real estate was 0.76% at June 30, 2000, compared with 0.68% at year end and
0.60% one year ago. The ratio of nonperforming assets to total loans and ORE
was 0.57% at period end, compared with 0.46% at year end and 0.42% one year
ago.
Problem assets were $107.3 million at June 30, 2000, compared with $99.2
million at year end and $79.3 million one year ago. The components of First
Security's problem assets at June 30,2000, compared with December 31, 1999 and
June 30, 1999, respectively, are discussed below.
* Nonaccruing loans were $70.3 million, compared with $59.2 million at year
end and $50.4 million one year ago. The ratio of nonaccruing loans to total
loans was 0.50%, compared with 0.41% at year end and 0.38% one year ago.
* Other real estate was $10.0 million, compared with $8.1 million at year
end and $5.3 million 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 $27.1 million, compared with
$31.9 million at year end and $23.6 million one year ago. The ratio of
accruing loans past due 90 days or more to total loans was 0.19%, compared
with 0.22% at year end and 0.18% one year ago.
Potential problem loans identified by First Security amounted to $47.2
million at June 30, 2000, compared with $37.3 million at year end and $28.0
million one year ago. Potential problem loans consist primarily of commercial
and agricultural related loans, plus recent additions of loans and leases to
residential contractors.
ASSET QUALITY:
RESERVE FOR LOAN LOSSES
First Security relies on the methodology for analysis of reserve adequacy
outlined in its 1999 Annual Report on Form 10-K and not on any specific
reserve ratio comparison.
First Security's reserve for loan losses was $174.4 million at June 30,
2000, unchanged from year-end 1999 and one year ago. Based on its analysis of
reserve adequacy, First Security considered its reserve for loan losses at
quarter end to be adequate to absorb estimated loan losses in the current loan
portfolio. The ratio of the reserve to total loans was 1.23% at quarter end,
compared with 1.20% at year end and 1.31% one year ago. The annualized ratio
of net loans charged off to average loans was 0.41% and 0.48% for the second
quarter and first half of 2000, respectively, compared with 0.54% for the
year-ago quarter and 0.49% for all of 1999. First Security's coverage ratio
of the reserve to nonaccruing loans was 248.31% at quarter end, compared with
294.57% at year end and 346.10% one year ago.
First Security's conformance with Wells Fargo accounting policies may
result in adjustments to the reserve for loan losses in future periods.
ASSET/LIABILITY MANAGEMENT
First Security's asset/liability management committee (ALCO) process is
responsible for the identification, assessment, and management of liquidity,
interest rate risk, and capital adequacy for First Security and its
subsidiaries. First Security's ALCO process was discussed in its 1999 Annual
Report on Form 10-K. The components of First Security's ALCO process are
discussed below.
ASSET/LIABILITY MANAGEMENT:
LIQUIDITY
First Security's total deposits were $13.2 billion at June 30, 2000,
compared with $13.2 billion at year end and $13.0 billion one year ago. First
Security continues to emphasize deposit gathering functions and the
acquisition of banks with strong deposit characteristics. The ratio of loans
to deposits was 106.89% at period end, compared with 110.36% at year end and
102.52% one year ago, primarily due to the fact that in spite of two separate
$1.0 billion loan securitizations during the first and second quarters of
1999, $2.0 billion in loan securitizations during the second quarter of 2000,
and ongoing sales of 1-to-4 family residential term loans, loan growth
outpaced growth in deposit levels. The ratio of loans to assets was 62.85% at
period end, compared with 63.40% at year end and 60.13% one year ago. These
ratios, as well as other loan and liquidity ratios, vary with changes in
economic cycles and are monitored closely through First Security's ALCO
process to ensure that the proper balance is maintained between risk, customer
borrowing needs, and economic opportunities.
First Security's debt, which included short-term borrowings and long-term
debt, was $6.8 billion at June 30, 2000, compared with $7.4 billion at year
end and $6.7 billion one year ago. The components of First Security's debt at
June 30, 2000, compared with December 31, 1999 and June 30, 1999,
respectively, are discussed below.
* Federal funds purchased and securities sold under repurchase agreements
were $3.7 billion, compared with $3.7 billion at year end and one year ago.
* All other short-term borrowed funds were $1.0 billion, compared with $1.1
billion at year end and $0.4 billion one year ago. The quarter over quarter
change was due primarily to reclassification and repayment of current
maturities of long-term debt, and the year over year change reflects an
increased reliance on FHLB advances for funding.
* Long-term debt was $2.2 billion at quarter end, compared with $2.6
billion at year end and one year ago. The decrease reflects the
reclassification of maturing long-term debt to short-term borrowed funds, and
the repayment in the second quarter of 2000 of $200 million in floating rate
notes issued in the fourth quarter of 1999.
ASSET/LIABILITY MANAGEMENT:
MARKET RISK MANAGEMENT
First Security's market risk is composed primarily of interest rate risk
throughout First Security's balance sheet, and, to a lesser extent, market
price risk in trading account securities. First Security 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, 2000, First Security exhibited slight liability sensitivity and
minimal overall interest rate risk. The principal strategy used in
accomplishing this near-neutral position was the sale of longer-term auto
loans, offset by reductions in short-term funding.
A strong regional economy has resulted in quarter over quarter net average
loan growth of $2.3 billion or 16.9%, while successful deposit promotions
helped to generate average deposit growth of $0.9 billion or 6.9%. First
Security also utilized loan sales and securitizations and external funding
sources to support asset growth.
First Security 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 First Security's interest rate
risk, including interest rate swaps, caps, corridors, floors, forwards,
futures, and options totaled $2.6 billion notional amount at June 30, 2000,
compared with $2.0 billion at year end and $2.6 billion one year ago. These
derivatives were primarily associated with hedging mortgage loan servicing
rights.
ASSET/LIABILITY MANAGEMENT:
MARKET RISK - TRADING ACCOUNT SECURITIES
Because of the changes in the nature of First Security's trading account
activities at the end of 1999, it currently has no financial futures and
options contracts related to First Security's trading account securities
compared with $9.4 billion notional value one year ago. That position
consisted of futures and options contracts on short-term Federal funds, one
month LIBOR, and three month Eurodollars.
OTHER ASSETS AND LIABILITIES
First Security's noninterest-earning assets totaled $2.7 billion, compared
with $2.7 billion at year end 1999 and $2.6 billion one year ago. The
increase from the prior year reflects goodwill and premises and equipment
added with acquisitions during 1999, originated loan servicing rights, and
timing differences from unsettled transactions in the purchase and sale of
securities. Fluctuations in noninterest-bearing 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
First Security'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".
For the second quarter of 2000, the directors of First Security declared a
regular quarterly common stock cash dividend of $0.14 per share. This
dividend was paid on June 5, 2000 to shareholders of record on May 19, 2000
and is equal to an annual dividend rate of $0.56 per share. At their meeting
held on July 31, 2000, the directors of First Security declared a regular
quarterly common stock dividend of $0.14, equal to an annual dividend rate of
$0.56 per share. This dividend will be paid on September 5, 2000 to
stockholders of record on August 11, 2000. At the July 28, 2000 market
closing price of $14.625 per share before the announcement of the dividend,
the annual dividend yield on First Security common stock would have been
3.83%. This dividend is the 182nd common stock dividend declared by First
Security and marks the 65th consecutive year in which First Security has paid
cash dividends on its common stock.
National and state banking and insurance regulations impose restrictions on
the ability of First Security's bank and insurance subsidiaries to transfer
funds to First Security in the form of loans or dividends. Such restrictions
have not had, nor are they expected to have, any effect on First Security's
current ability to pay dividends. First Security'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 First Security common stock was $13.563 per share at the
close of the market on June 30, 2000, versus a book value of $8.84 per share,
resulting in a market-to-book ratio of 153.43%. In comparison, the bid price
of First Security 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%.
First Security's preferred stock is convertible into First Security 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 First
Security's preferred stock.
STOCKHOLDERS' EQUITY AND CAPITAL ADEQUACY
First Security's total stockholders' equity was $1.7 billion at June 30,
2000, compared with $1.8 billion at year-end 1999 and $1.7 billion one year
ago. Despite the unusual items incurred in the first and second quarters of
2000 and a decrease in accumulated other comprehensive income, which consists
of unrealized net gains and losses in the fair value of available for sale
securities, First Security's earnings and new First Security common stock
shares issued for acquisitions resulted in flat capital levels.
First Security's ratio of stockholders' equity to total assets was 7.74% at
quarter end, compared with 7.70% at year end and 7.84% one year ago. The
ratio of tangible common equity to tangible assets, which excludes goodwill
and deposit intangibles from the ratio calculations, was 6.28% at quarter end,
compared with 6.21% at year end and 6.23% one year ago, reflecting balance
sheet growth and various mergers.
Application of SFAS 115 has resulted in, and will continue to result in,
additions to or deductions from First Security'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.
Regulations permit First Security'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 First Security's risk-based capital ratios.
First Security's risk-based capital ratios remained strong at June 30, 2000
due to earnings retained and the above-mentioned Capital Income Securities.
First Security's leverage and risk-based capital ratios were as follows:
Jun. 30 Dec. 31 Jun. 30
2000 1999 1999
-------- -------- --------
Leverage ratio 7.13% 7.27% 7.17%
Tier 1 risk-based capital ratio 8.56 8.61 8.26
Total (Tier 1 + 2) risk-based capital ratio 10.24 11.41 10.16
First Security and its subsidiary banks continued to be classified as "well
capitalized" according to the regulatory requirements of their respective
primary regulatory authorities. It is First Security's policy to maintain the
"well capitalized" status at both the consolidated and subsidiary bank levels.
As disclosed in its Annual Report on Form 10-K for 1999, on November 19,
1999, First Security modified the regulatory accounting treatment of certain
securitization transactions entered into by First Security Bank, N.A. (FS
Bank) for the purposes of calculating the level of regulatory capital
maintained by FS Bank for the period of April 1, 1998 to September 30, 1999.
This resulted in a restatement of the June 30, 1999 ratios shown above.
With its strong equity and risk-based capital ratios, First Security is
well positioned to selectively invest in profitable business opportunities,
while maintaining capital ratios at levels determined to be prudent and
conservative by management.
NATIONAL AND REGIONAL ECONOMY
The second-quarter economic landscape and financial markets' activity were
significantly influenced by a tighter Federal Reserve monetary policy. Short-
term interest rates, which affect funding costs, were pushed higher with the
intent of moderating consumer and business demand, thereby avoiding renewed
inflationary forces throughout the economy. Long-term interest rates, which
affect our lending rates, did not move up consistently like short-term rates.
The jump in gasoline prices-primarily reflecting supply constraints by energy
producers-hopefully will not spread into other sectors of the economy.
By midyear, there were many indicators pointing to a slower pace of
economic growth. Reduced gains in consumer spending and new job creation
suggested that perhaps central bank monetary policy could remain on hold in
the third quarter. Curbing economic growth to avoid inflation without
generating pockets of noticeable economic weakness is not simple. Hopefully,
the central bank will be successful in this endeavor.
BUSINESS
First Security Corporation is the West's second largest independent bank
holding company, and is the nation's oldest multistate bank holding company,
having been incorporated on June 15, 1928. During the second quarter of 2000,
First Security became a Financial Holding Company under the Gramm-Leach-Bliley
Act of 1999. This change enables First Security greater opportunities to
affiliate with companies that are "financial" in nature rather than just those
"related to banking" as required under the previous regulations.
At June 30, 2000, First Security's banks operated 336 full service domestic
bank offices in Utah, Idaho, Oregon, Wyoming, New Mexico, Nevada, and
California. Nonbank subsidiaries include a residential mortgage loan company,
a leasing company, an insurance subsidiary, an investment management company,
a full-service retail securities broker/dealer/investment banking company, a
bankcard transaction processing company, an information technology subsidiary,
and a small business investment corporation.
Internet Address: news, financial updates and information about products
and services can be found on First Security's web site at
www.firstsecuritybank.com.
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Factors that may affect First Security's future results of operations and
financial condition, including competition, economic conditions, and
technology, were discussed in detail in its 1999 Annual Report on Form 10-K.
In addition, the pending merger with Wells Fargo is expected to have a
significant impact on First Security's future results of operations and
financial condition. (See also "Forward- Looking Statements" above.)
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. Continued: Supplemental Tables
<TABLE>
FIRST SECURITY CORPORATION
FINANCIAL HIGHLIGHTS
($ in thousands, except per share data and ratios; unaudited) (A)
<CAPTION>
2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr Year-To-Date Six Months
2000 2000 1999 1999 1999 2000 1999 %Chg
<S> <C> <C> <C> <C> <C> <C> <C> <C>
--------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -----
COMMON & PREFERRED STOCK DATA:
Earnings per common share basic (0.01) 0.18 0.34 0.38 0.36 0.17 0.70 (75.7)
Earnings per common share diluted (0.01) 0.17 0.33 0.37 0.35 0.17 0.69 (75.4)
Tangible EPS diluted (B) 0.06 0.20 0.36 0.39 0.37 0.26 0.73 (64.0)
Dividends paid per common share 0.14 0.14 0.14 0.14 0.14 0.28 0.28 -
Book value per common share [EOP] 8.84 8.96 9.03 8.99 8.90 8.84 8.90 (0.7)
Tangible book value per common share [EOP](B) 7.06 7.14 7.17 7.06 6.95 7.06 6.95 1.6
Market price (bid) [EOP] 13.563 12.063 25.500 23.750 27.188 13.563 27.188 (50.1)
Market price: high bid for the period 16.250 26.063 29.750 27.375 27.188 26.063 27.188 (4.1)
Market price: low bid for the period 11.938 11.063 23.000 21.375 17.875 11.063 17.563 (37.0)
Market capitalization (mktprice x #shrs)[EOP] 2,673,566 2,366,206 4,997,261 4,648,944 5,303,971 2,673,566 5,303,971 (49.6)
Market price / book value per com share[EOP]% 153.43 134.63 282.39 264.18 305.48 153.43 305.48
Dividend payout ratio (DPS / EPS basic) % NM 77.78 41.18 36.84 38.89 164.71 40.00
Dividend yield (DPS / mktprice) [EOP] % 4.13 4.64 2.20 2.36 2.06 4.13 2.06
Price / earnings ratio(mktprice/4qtrsEPSbasic) 15.2x 9.6x 18.0x 16.5x 19.4x 15.2x 19.4x
Common shares basic [EOP] 197,122 196,154 195,971 195,745 195,085 197,122 195,085 1.0
Common shares basic [Avg] 196,662 196,030 195,849 195,428 191,323 196,346 189,791 3.5
Common shares diluted [Avg] 199,558 200,191 201,426 200,788 196,402 199,875 194,911 2.5
Preferred shares [EOP] 8 9 9 9 9 8 9 (11.1)
--------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -----
INCOME STATEMENT:
Interest income 442,806 421,106 432,022 407,911 376,273 863,912 745,302 15.9
Interest expense 241,071 222,920 215,430 205,973 190,131 463,991 377,385 22.9
Net interest income 201,735 198,186 216,592 201,938 186,142 399,921 367,917 8.7
Fully taxable equivalent (FTE) adjustment 2,166 2,312 2,588 2,097 2,611 4,478 5,271 (15.0)
Net interest income, FTE 203,901 200,498 219,180 204,035 188,753 404,399 373,188 8.4
Provision for loan losses 15,804 20,545 19,196 12,778 10,596 36,349 27,473 32.3
Noninterest income 36,621 125,418 129,205 133,369 146,235 162,039 270,401 (40.1)
Noninterest expenses 227,358 250,285 224,432 210,235 217,363 477,643 409,778 16.6
Provision for income taxes (3,207) 17,783 35,863 38,979 35,575 14,576 67,346 (78.4)
Net income (1,599) 34,991 66,306 73,315 68,843 33,392 133,721 (75.0)
Preferred stock dividend requirement 6 7 6 7 7 13 14 (7.1)
Common stock dividend 27,561 27,446 27,422 27,411 26,544 55,007 53,127 3.5
--------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -----
BALANCE SHEET - END OF PERIOD:
Trading account securities 22,011 29,052 22,650 89,867 147,951 22,011 147,951 (85.1)
Available for sale (AFS) securities 5,308,882 5,324,658 5,528,269 6,146,907 5,923,169 5,308,882 5,923,169 (10.4)
Memo: fair value adjustment AFS securities (240,167) (245,159) (212,342) (151,619) (107,952) (240,167) (107,952) 122.5
Loans, net of unearned income 14,147,717 15,086,559 14,578,537 13,817,241 13,309,843 14,147,717 13,309,843 6.3
Reserve for loan losses (174,443) (174,443) (174,443) (174,443) (174,443) (174,443) (174,443) -
Total interest-earning assets 19,787,217 20,586,932 20,300,307 20,601,393 19,550,359 19,787,217 19,550,359 1.2
Loan servicing rights 181,994 196,545 196,256 190,083 197,476 181,994 197,476 (7.8)
Goodwill and other intangible assets 349,328 356,984 364,466 376,809 380,557 349,328 380,557 (8.2)
Total assets 22,509,064 23,336,582 22,992,927 23,346,617 22,134,994 22,509,064 22,134,994 1.7
Noninterest-bearing deposits 2,326,842 2,291,167 2,272,811 2,567,762 2,621,559 2,326,842 2,621,559 (11.2)
Interest-bearing deposits 10,909,249 11,312,204 10,937,605 10,645,203 10,361,391 10,909,249 10,361,391 5.3
Total deposits 13,236,091 13,603,371 13,210,416 13,212,965 12,982,950 13,236,091 12,982,950 1.9
Short-term borrowed funds 4,636,671 4,791,810 4,787,365 5,149,732 4,134,494 4,636,671 4,134,494 12.1
Long-term debt 2,174,447 2,474,930 2,585,755 2,536,949 2,582,370 2,174,447 2,582,370 (15.8)
Total interest-bearing liabilities 17,720,367 18,578,944 18,310,725 18,331,884 17,078,255 17,720,367 17,078,255 3.8
Preferred stockholders' equity 433 447 451 456 472 433 472 (8.3)
Common stockholders' equity 1,741,988 1,757,697 1,769,449 1,759,123 1,735,590 1,741,988 1,735,590 0.4
Parent company investment in subsidiaries 2,257,250 2,268,597 2,210,472 2,171,810 2,147,444 2,257,250 2,146,444 5.2
============================================= ========== ========== ========== ========== ========== ========== ========== =====
<FN>
See "Notes to Condensed Consolidated Financial Statements".
EOP: End Of Period. Avg: Average. EPS: Earnings Per Common Share. DPS: Dividends Per Common Share.
(A) Certain reclassifications of 1999 amounts have been made to conform to 2000 classifications.
(B) Tangible ratios are calculated excluding the effect of goodwill and deposit intangibles, net of taxes.
</TABLE>
<PAGE>
<TABLE>
FIRST SECURITY CORPORATION
FINANCIAL HIGHLIGHTS (continued)
($ in thousands, except per share data and ratios; unaudited) (A)
<CAPTION>
2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr Year-To-Date Six Months
2000 2000 1999 1999 1999 2000 1999 %Chg
<S> <C> <C> <C> <C> <C> <C> <C> <C>
--------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -----
PROBLEM ASSETS & POTENTIAL PROBLEM ASSETS - END OF PERIOD:
Nonaccruing loans:
Commercial 33,043 34,538 30,204 20,644 20,459 33,043 20,459 61.5
Real estate term 26,620 26,021 22,806 22,664 24,006 26,620 24,006 10.9
Real estate construction 5,771 6,970 3,626 3,267 3,603 5,771 3,603 60.2
Consumer 163 424 256 238 87 163 87 87.4
Leases 4,654 3,887 2,328 2,385 2,247 4,654 2,247 107.1
Total nonaccruing loans 70,251 71,840 59,220 49,198 50,402 70,251 50,402 39.4
Other real estate 9,955 7,408 8,055 8,054 5,301 9,955 5,301 87.8
Total nonperforming assets 80,206 79,248 67,275 57,252 55,703 80,206 55,703 44.0
Accruing loans past due 90 days or more 27,066 23,470 31,948 21,282 23,567 27,066 23,567 14.8
Total problem assets 107,272 102,718 99,223 78,534 79,270 107,272 79,270 35.3
Potential problem assets 47,176 39,962 37,303 45,888 28,031 47,176 28,031 68.3
--------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -----
RECONCILIATION OF THE RESERVE FOR LOAN LOSSES:
Reserve for loan losses, beginning 174,443 174,443 174,443 174,443 173,350 174,443 173,350 0.6
Loans (charged off):
Commercial (2,619) (4,159) (2,775) (2,679) (6,770) (6,778) (7,956) (14.8)
Real estate term (583) (556) (537) (309) (533) (1,139) (1,204) (5.4)
Real estate construction - - - (188) (137) - (137)(100.0)
Consumer credit card & related (3,780) (4,294) (3,004) (3,520) (4,116) (8,074) (8,158) (1.0)
Consumer vehicle & other (16,249) (21,257) (19,417) (14,914) (15,988) (37,506) (38,429) (2.4)
Leases (45) (136) (373) (1) (12) (181) (45) 302.2
Total loans charged off (23,276) (30,402) (26,106) (21,611) (27,556) (53,678) (55,929) (4.0)
Recoveries on loans charged off:
Commercial 830 887 844 698 921 1,717 2,107 (18.5)
Real estate term 177 241 70 103 39 418 420 (0.5)
Real estate construction 129 1 3 63 214 130 216 (39.8)
Consumer credit card & related 764 777 933 1,012 677 1,541 1,346 14.5
Consumer vehicle & other 5,567 7,949 5,058 6,956 7,777 13,516 17,033 (20.6)
Leases 5 2 2 1 2 7 4 75.0
Total recoveries of loans charged off 7,472 9,857 6,910 8,833 9,630 17,329 21,126 (18.0)
Net loans (charged off) recovered (15,804) (20,545) (19,196) (12,778) (17,926) (36,349) (34,803) 4.4
Provision for loan losses 15,804 20,545 19,196 12,778 10,596 36,349 27,473 32.3
Acquisitions - - - - 8,423 - 8,423 (100.0)
Reserve for loan losses, ending 174,443 174,443 174,443 174,443 174,443 174,443 174,443 -
--------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -----
BALANCE SHEET - AVERAGE:
Trading account securities 21,471 12,778 39,955 131,292 250,743 17,125 262,733 (93.5)
Available for sale (AFS) securities 5,235,878 5,383,324 5,803,593 6,087,635 5,862,259 5,309,601 5,455,351 (2.7)
Memo: fair value adjustment AFS securities (280,851) (249,366) (162,861) (153,354) (19,704) (265,109) 8,785 NM
Loans, net of unearned income 15,561,687 14,667,724 14,258,274 13,711,047 13,307,887 15,114,705 13,490,766 12.0
Reserve for loan losses (174,443) (174,443) (174,443) (174,443) (174,686) (174,443) (174,621) (0.1)
Deferred taxes on leases (294,027) (283,562) (263,508) (244,353) (228,400) (288,795) (223,395) 29.3
Total interest-earning assets, excluding
fair value adjustment AFS securities
& deferred taxes on leases 20,947,491 20,365,673 20,506,697 20,298,109 19,353,097 20,656,582 19,135,413 7.9
Loan servicing rights 196,241 196,268 189,065 203,727 178,010 196,254 178,470 10.0
Goodwill and other intangible assets 357,310 362,322 372,674 377,251 319,904 359,817 291,767 23.3
Total assets 23,634,093 23,079,401 23,326,624 23,017,626 21,972,307 23,356,747 21,705,404 7.6
Noninterest-bearing deposits 2,196,338 2,103,097 2,420,301 2,556,921 2,454,808 2,149,718 2,464,619 (12.8)
Interest-bearing deposits 11,271,201 11,141,617 11,047,181 10,544,685 10,140,998 11,206,409 10,019,504 11.8
Total deposits 13,467,539 13,244,714 13,467,482 13,101,606 12,595,806 13,356,127 12,484,123 7.0
Short-term borrowed funds 5,419,952 4,955,884 4,963,058 4,923,639 4,348,443 5,187,919 4,257,446 21.9
Long-term debt 2,372,017 2,520,392 2,481,403 2,591,434 2,657,803 2,446,204 2,655,479 (7.9)
Total interest-bearing liabilities 19,063,170 18,617,893 18,491,642 18,059,758 17,147,244 18,840,532 16,932,429 11.3
Preferred stockholders' equity 445 449 455 461 472 447 474 (5.7)
Common stockholders' equity 1,745,272 1,757,248 1,768,455 1,734,772 1,671,059 1,751,260 1,625,605 7.7
--------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -----
<FN>
See "Notes to Condensed Consolidated Financial Statements".
EOP: End Of Period. Avg: Average.
(A) Certain reclassifications of 1999 amounts have been made to conform to 2000 classifications.
</TABLE>
<PAGE>
<TABLE>
FIRST SECURITY CORPORATION
FINANCIAL HIGHLIGHTS (continued)
($ in thousands, except per share data and ratios; unaudited) (A)
<CAPTION>
2nd Qtr 1st Qtr 4th Qtr 3rd Qtr 2nd Qtr Year-To-Date Six Months
2000 2000 1999 1999 1999 2000 1999 %Chg
<S> <C> <C> <C> <C> <C> <C> <C> <C>
--------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -----
OTHER DATA - END OF PERIOD (not rounded):
Full-time equivalent employees 8,168 8,563 9,602 9,941 10,101 8,168 10,101 (19.1)
Domestic bank offices:
FS Bank (Utah offices) 140 138 139 139 139 140 139 0.7
FS Bank (Idaho offices) 88 87 88 88 88 88 88 -
FS Bank (Oregon offices) 14 14 14 14 14 14 14 -
FS Bank (Wyoming offices) 8 8 8 8 8 8 8 -
FSB New Mexico 48 45 46 46 45 48 45 6.7
FSB Nevada 22 23 22 23 23 22 23 (4.3)
FSB California 16 15 16 16 16 16 16 -
Total domestic bank offices 336 330 333 334 333 336 333 0.9
--------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -----
SELECTED RATIOS (%):
Return on average assets (ROAA) (0.03) 0.61 1.13 1.26 1.26 0.29 1.24
Tangible ROAA (B) 0.21 0.72 1.26 1.38 1.36 0.46 1.34
Return on average stockholders' equity (ROAE) (0.37) 8.01 14.87 16.76 16.52 3.83 16.58
Tangible ROAE (B) 4.06 13.47 23.70 26.84 24.94 8.78 24.68
Net interest margin, FTE 3.89 3.94 4.28 4.02 3.90 3.92 3.90
Net interest spread, FTE 3.44 3.53 3.82 3.52 3.39 3.48 3.38
Operating expense ratio
(nonint exp/(net int inc FTE + nonint inc)) 94.53 76.79 64.42 62.31 64.89 84.32 63.67
Productivity ratio (nonint exp/avg assets) 3.87 4.36 3.82 3.62 3.97 4.11 3.81
Stockholders' equity/assets [EOP] 7.74 7.53 7.70 7.54 7.84 7.74 7.84
Stockholders' equity/assets [Avg] 7.39 7.62 7.58 7.54 7.61 7.50 7.49
Tangible common equity/tangible assets [EOP] 6.28 6.10 6.21 6.02 6.23 6.28 6.23
Loans/deposits [EOP] 106.89 110.90 110.36 104.57 102.52 106.89 102.52
Loans/assets [EOP] 62.85 64.65 63.40 59.18 60.13 62.85 60.13
Reserve for loan losses [EOP] /:
Total loans 1.23 1.16 1.20 1.26 1.31 1.23 1.31
Nonaccruing loans 248.31 242.82 294.57 354.57 346.10 248.31 346.10
Nonaccruing + accruing loans past due 90 days 179.25 183.03 191.34 247.51 235.83 179.25 235.83
Nonaccruing loans/total loans 0.50 0.48 0.41 0.36 0.38 0.50 0.38
Accruing loans past due 90 days/total loans 0.19 0.16 0.22 0.15 0.18 0.19 0.18
Nonaccruing + accr loans past due/total loans 0.69 0.63 0.63 0.51 0.56 0.69 0.56
Nonperforming assets [EOP] /:
Total loans + other real estate 0.57 0.53 0.46 0.41 0.42 0.57 0.42
Total assets 0.36 0.34 0.29 0.25 0.25 0.36 0.25
Total equity 4.60 4.51 3.80 3.25 3.21 4.60 3.21
Total equity + reserve for loan losses 4.18 4.10 3.46 2.96 2.92 4.18 2.92
Problem assets [EOP] /:
Total loans + other real estate 0.76 0.68 0.68 0.57 0.60 0.76 0.60
Total assets 0.48 0.44 0.43 0.34 0.36 0.48 0.36
Total equity 6.16 5.84 5.61 4.46 4.57 6.16 4.57
Total equity + reserve for loan losses 5.60 5.32 5.10 4.06 4.15 5.60 4.15
Net loans charged off/average loans 0.41 0.56 0.53 0.37 0.54 0.48 0.52
--------------------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -----
CAPITAL RATIOS & RISK-BASED CAPITAL RATIOS (%) - AS OF JUNE 30, 2000:
FSCO FS Bank FSB NM FSB Nev. FSB Cal.
---------- ---------- ---------- ---------- ----------
Leverage ratio 7.13 8.41 7.79 8.30 9.14
Tier 1 risk-based capital ratio 8.56 9.29 12.25 15.16 12.69
Total (Tier 1 + 2) risk-based capital ratio 10.24 10.14 13.43 16.42 13.94
Tier 1 risk-based capital $ 1,676,737 1,457,553 222,121 118,338 110,207
Total (Tier 1 + 2) risk-based capital $ 2,006,180 1,590,281 243,517 128,147 121,069
Total risk-based assets - loan loss reserve $ 19,594,252 15,688,070 1,813,857 780,496 868,527
============================================= ========== ========== ========== ========== ========== ========== ========== =====
<FN>
See "Notes to Condensed Consolidated Financial Statements".
EOP: End Of Period. Avg: Average.
(A) Certain reclassifications of 1999 amounts have been made to conform to 2000 classifications.
(B) Tangible ratios are calculated excluding the effect of goodwill and deposit intangibles, net of taxes where applicable.
</TABLE>
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, First Security Corporation and its subsidiaries are
subject to claims and legal actions filed or threatened by customers and
others in the ordinary course of First Security'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. First Security endeavors at all times to conduct its
business in a lawful manner, and will always vigorously defend itself against
unfounded claims, with a concomitant cost in legal fees and expenses. Since
the filing of First Security's Annual Report on Form 10-K for 1999, there have
been no material litigation or changes in existing litigation, as defined
under SEC regulations, involving First Security and/or one or more of its
subsidiaries except as follows:
Three purported class actions (the Anderson, Gilbert and Dibble cases)
alleging securities disclosure violations have been filed in connection with
statements by First Security with respect to its fourth quarter 1999 earnings
and related accounting issues have been filed against First Security and three
of its executive officers. First Security is informed by counsel that an
effort is under way to consolidate all of these cases for pre-trial and trial
proceedings.
Based on advice of legal counsel, and its own analysis, First Security
continues to believe that no reasonably foreseeable ultimate outcome of any or
all of the cases discussed or previously reported will have a material adverse
impact on the business or assets of First Security.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
First Security Corporation held its 2000 Annual Meeting of Shareholders on
May 22, 2000 at 3 p.m. in the Empire Room of the Joseph Smith Memorial
Building, 15 E. South Temple, Salt Lake City, Utah. The only proposal for
shareholder action listed in the Proxy Statement was the election of directors
for the coming year.
There were 197,927,207 total equivalent shares outstanding (entitled to
vote) of which 154,552,923 or 78.086% shares were actually voted (by proxy and
in person).
The Nominating Committee of First Security'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 148,146,721 6,406,202 95.855
RODNEY H. BRADY 148,137,710 6,415,213 95.849
JAMES E. BRUCE 148,147,204 6,405,719 95.855
THOMAS D. DEE, II 148,134,556 6,418,367 95.847
SPENCER F. ECCLES 147,948,885 6,604,038 95.727
MORGAN J. EVANS 148,131,898 6,421,025 95.845
DR. DAVID P. GARDNER 148,116,307 6,436,616 95.835
ROBERT H. GARFF 148,155,074 6,397,849 95.860
JAY DEE HARRIS 148,015,073 6,537,850 95.770
ROBERT T. HEINER 148,121,221 6,431,702 95.839
KAREN H. HUNTSMAN 148,088,359 6,464,564 95.817
G. FRANK JOKLIK 148,046,744 6,506,179 95.790
B. Z. KASTLER 148,035,745 6,517,178 95.783
DR. J. BERNARD MACHEN 147,874,735 6,678,188 95.679
JOSEPH G. MALOOF 147,414,457 7,138,466 95.381
MICHELE PAPEN-DANIEL 148,174,002 6,378,921 95.873
SCOTT S. PARKER 148,041,790 6,511,133 95.787
JAMES L. SORENSON 148,115,843 6,437,080 95.835
HAROLD J. STEELE 148,053,387 6,499,536 95.795
JAMES R. WILSON 148,142,906 6,410,017 95.853
On July 31, 2000, a special meeting of shareholders was held to vote on
certain matters relating to the pending merger agreement with Wells Fargo &
Company. First Security Corporation shareholders voted in favor of the
proposal to approve the Agreement and Plan of Reorganization entered into as
of the 9th day of April 2000, by and between First Security and Wells Fargo &
Company; and a related Agreement and Plan of Merger, dated as of June 23,
2000, by and between First Security and Wells Fargo FSCO Merger Co., a wholly-
owned subsidiary of Wells Fargo.
A Quorum of 128,849,226 shares or 65.422% of the 196,952,213 shares
entitled to vote were represented at the meeting.
The Proposal passed with 117,023,489 votes in favor (90.822% of votes cast
and 59.417% of outstanding shares), 10,178,663 votes against (7.900% of votes
cast and 5.169% of outstanding shares), and 1,647,074 votes abstaining (1.278%
of votes cast and 0.836% of outstanding shares).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 2. Plan of acquisition, reorganization, arrangement, liquidation,
or succession:
Exhibit 2.1: Agreement and Plan of Reorganization, dated as of April 9,
2000 by and between Wells Fargo & Company and First Security
Corporation. (Exhibit 10.4 to First Security's report on Form 10-Q for
the quarter ended March 31, 2000, incorporated by reference).
Exhibit 10. Material Contracts:
Exhibit 10.1: Stock Option Agreement, dated as of April 9, 2000, by and
between Wells Fargo & Company and First Security Corporation. (Exhibit
10.5 to First Security's report on Form 10-Q for the quarter ended March
31, 2000, incorporated by reference).
Exhibit 11: Computation of Earnings Per Share (attached).
Exhibit 27: Financial Data Schedule (attached).
(b) Reports on Form 8-K:
* April 10, 2000, announcing a press release of an April 9, 2000 agreement
to merge with Wells Fargo & Company.
* May 31, 2000, announcing a press release that on May 23, 2000, Joseph G.
Maloof submitted to First Security Corporation his resignation as one of
its directors.
* July 20, 2000, announcing a July 18, 2000 press release reporting its
earnings and results of operations for the second quarter of this year.
<PAGE>
SIGNATURES
FORM 10-Q for the quarterly period ended June 30, 2000
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 14, 2000
---------------------------------------- ------------------
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)
# # #
