First Security Corp. continued its return to "more traditional profitability levels" in 1988, chalking up net income of $33.04 million for a 22.2 percent increase over 1987 and the highest earnings the bank holding company has enjoyed in six years.
But First Security Chairman Spencer F. Eccles and President Robert T. Heiner are not wasting time congratulating themselves. "While management is gratified at the gains achieved in 1988," they tell shareholders in the company's annual report published this week, "much remains to be done."The company needs to make "significant additional reductions in non-performing assets and must continue to work toward our goal of earnings 1 percent or better on average assets and at least 15 percent on our strong average stockholders' equity," they tell shareholders.
The company's earnings rose from $2.13 to $2.58 per share last year, resulting in a 9.1 percent increase in the annual dividend to $1.20 during the fourth quarter. Book value per share stood at $31.88 at year's end, up 4.9 percent, and equity capital rose to $385.9 million or 7.48 percent of total assets, a $20.7 million increase over the previous year.
Eccles credits the gains, in large part, to First Security employees' commitment to quality service as extolled in the company's highly visible "we're giving 110 percent" advertising campaign.
"While this successful new advertising approach raised customer awareness and increased business, it was the extra effort of our people - which the commercials merely documented - that accounted for our 1988 success," said Eccles in the report.
For example, First Security loan officers reduced the company's non-performing assets - mostly real estate owned by the bank and other subsidiaries - to $94.7 million by year's end, an 18 percent decline from 1987. Loss reserves stood at $67.6 million at the end of '88, with $57.5 million representing reserves for loan losses and $10.1 million reserved for losses on other real estate.
Eccles said First Security was an industry leader in dealing with non-performing assets, a problem that has been common to most financial institutions in the second half of this decade as many real estate projects failed and the local economy stalled.
"The wisdom of those difficult decisions has been amply demonstrated as we have steadily reduced non-performing assets and their drag on earnings," he noted.
Asset-liability management was another high note in 1988, he said, as net interest margin increased to 4.68 percent during the year, up from 4.42 percent in '87. Loan production was another factor, he said. Despite a relatively flat economy, First Security wrote loans totaling $3.8 billion for the year, a full $1 billion increase.
First Security reached an agreement to acquire Davis County Bank in December and Eccles said the corporation will continue to expand through acquisition as opportunities arise. "Above all," he said, "First Security will continue to be a major competitor, not only retaining but also expanding our position as the economic leader of our market area."
And he has a message for those who would continue to keep banks "in their place."
"(We) will seek and, if necessary, fight for the powers and authority to compete head-to-head with other non-bank financial institutions on an equitable basis. The United States Congress, which again in 1988 failed to address the structural problems of the financial services industry, must be convinced that it cannot long continue to abrogate its responsibility but rather must act with dispatch to remove the fetters which are strangling the banking industry.
"The benign congressional neglect that contributed to the savings and loan crisis must not be allowed to do the same thing to the nation's banks. Action is needed, and it is needed now!"
Eccles urged bank stockholders to contact their representatives in Congress to help move legislators to action.