-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Kl1wUTiv4cPjG6XwB9bvFwt86gqw4PX52mwbwrq+ocYjij5dCe5MHXaHVCE7OIFR 2cnYd46+wIrujWLT3RTFvQ== 0000037076-96-000070.txt : 19960517 0000037076-96-000070.hdr.sgml : 19960517 ACCESSION NUMBER: 0000037076-96-000070 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NASD SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRSTAR CORP /WI/ CENTRAL INDEX KEY: 0000037076 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 390711710 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 002-28711 FILM NUMBER: 96567547 BUSINESS ADDRESS: STREET 1: 777 E WISCONSIN AVE CITY: MILWAUKEE STATE: WI ZIP: 53202 BUSINESS PHONE: 4147655977 MAIL ADDRESS: STREET 1: 777 EAST WISCONSIN AVENUE CITY: MILWAUKEE STATE: WI ZIP: 53202 FORMER COMPANY: FORMER CONFORMED NAME: FIRST WISCONSIN CORP DATE OF NAME CHANGE: 19890124 FORMER COMPANY: FORMER CONFORMED NAME: FIRST WISCONSIN BANKSHARES CORP DATE OF NAME CHANGE: 19750204 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR QUARTERLY PERIOD ENDED MARCH 31, 1996 COMMISSION FILE NUMBER 1-2981 FIRSTAR CORPORATION (Exact Name of Registrant as Specified in its Charter) WISCONSIN 39-0711710 (State of Incorporation) (I.R.S. EMPLOYER Identification No.) 777 East Wisconsin Avenue, Milwaukee, Wisconsin 53202 Telephone Number (414) 765-5748 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 precedeing 12 months and (2) has been subject to such filing requirements for the past 90 days. As of April 30, 1996, 73,305,907 shares of common stock were outstanding. FIRSTAR CORPORATION CONTENTS PAGE PART I. FINANCIAL INFORMATION Item 1. Financial Statements: Consolidated Balance Sheets 1 Consolidated Statements of Income 2 Consolidated Statements of Cash Flows 3 Supplemental Footnotes 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Additional Financial Data 14 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 16 Item 6. Exhibits and Reports on Form 8-K 16 SIGNATURES 16
FIRSTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - ------------------------------------------------------------------------------------------------ March 31 December 31 March 31 (thousands of dollars) 1996 1995 1995 - ------------------------------------------------------ ------------ ------------ ------------ (unaudited) (unaudited) ASSETS Cash and due from banks $ 1,179,828 $ 1,310,746 $ 895,395 Interest-bearing deposits with banks 9,625 5,467 9,414 Federal funds sold and resale agreements 80,827 109,945 222,663 Trading securities 10,067 10,029 12,922 Securities held to maturity (market value $2,413,016, $2,492,346 and $4,013,178 on March 31, 1996, December 31, 1995 and March 31, 1995) 2,379,425 2,427,030 3,904,686 Securities available for sale 2,036,551 2,047,848 296,595 Loans: Commercial and industrial 3,217,744 3,078,148 2,948,579 Real estate 2,901,124 2,849,388 2,789,926 Other 969,365 1,038,677 964,250 ------------ ------------ ------------ Commercial loans 7,088,233 6,966,213 6,702,755 Credit card 589,008 619,868 533,442 Real estate - mortgage 2,821,273 2,722,531 2,569,642 Home equity 937,677 935,907 810,148 Other 1,382,095 1,387,994 1,462,327 ------------ ------------ ------------ Consumer loans 5,730,053 5,666,300 5,375,559 ------------ ------------ ------------ Total loans 12,818,286 12,632,513 12,078,314 Reserve for loan losses (202,857) (195,283) (196,215) ------------ ------------ ------------ Loans - net 12,615,429 12,437,230 11,882,099 Bank premises and equipment 350,912 349,233 343,716 Customer acceptance liability 14,532 16,060 27,866 Other assets 446,106 454,712 464,631 ------------ ------------ ------------ Total assets $ 19,123,302 $ 19,168,300 $ 18,059,987 ============ ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Demand $ 3,122,457 $ 3,461,462 $ 2,928,138 Interest-bearing demand 1,506,358 1,602,350 1,570,989 Money market accounts 2,499,122 2,335,429 2,020,518 Savings passbook 1,643,233 1,634,430 1,754,249 Certificates of deposit 5,355,467 5,277,975 5,253,393 ------------ ------------ ------------ Total deposits 14,126,637 14,311,646 13,527,287 Short-term borrowed funds 2,496,506 2,303,159 2,193,435 Other debt 733,204 734,021 525,138 Bank acceptances outstanding 14,532 16,060 27,866 Other liabilities 258,035 278,594 270,430 ------------ ------------ ------------ Total liabilities 17,628,914 17,643,480 16,544,156 Stockholders' equity: Preferred stock 14,414 15,344 26,979 Common stock 94,266 94,266 95,880 Issued: March 31, 1996, 75,413,098 shares Issued: December 31, 1995, 75,413,098 shares Issued: March 31, 1995, 76,703,652 shares Capital surplus 141,265 147,502 211,707 Retained earnings 1,310,468 1,298,857 1,185,441 Treasury stock (80,675) (64,834) (2,600) Held: March 31, 1996, 2,303,006 shares Held: December 31, 1995, 2,186,834 shares Held: March 31, 1995, 478,653 shares Restricted stock (25) (442) (1,469) Unrealized gains (losses) on secur avail for sale 14,675 34,127 (107) ------------ ------------ ------------ Total stockholders' equity 1,494,388 1,524,820 1,515,831 ------------ ------------ ------------ Total liabilities and stockholders' equity $ 19,123,302 $ 19,168,300 $ 18,059,987 ============ ============ ============ -1-
FIRSTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME - ---------------------------------------------------------------------- Three Months Ended March 31 (thousands of dollars, except per share data) 1996 1995 - --------------------------------------------- ---------------------- (unaudited) INTEREST REVENUE Loans $ 275,413 $ 258,720 Securities 66,238 59,850 Interest-bearing deposits with banks 148 418 Federal funds sold and resale agreements 649 3,071 Trading securities 131 218 ---------- ---------- Total interest revenue 342,579 322,277 INTEREST EXPENSE Deposits 114,766 103,250 Short-term borrowed funds 30,544 30,621 Other debt 12,933 9,881 ---------- ---------- Total interest expense 158,243 143,752 ---------- ---------- NET INTEREST REVENUE 184,336 178,525 Provision for loan losses 9,209 13,136 ---------- ---------- NET INTEREST REVENUE AFTER LOAN LOSS PROVISION 175,127 165,389 OTHER OPERATING REVENUE Trust and investment management fees 35,447 31,684 Service charges on deposit accounts 20,848 19,757 Credit card service revenue 15,568 13,955 Data processing fees 4,616 4,919 Securities gains (losses) 41 (5,683) Other revenue 28,124 23,583 ---------- ---------- Total other operating revenue 104,644 88,215 OTHER OPERATING EXPENSE Salaries 82,140 81,093 Employee benefits 19,377 19,413 Equipment expense 16,675 13,870 Net occupancy expense 15,913 14,533 Net foreclosed assets expense (income) 108 (343) Restructuring expense 50,237 19,996 Other expense 43,061 51,194 ---------- ---------- Total other operating expense 227,511 199,756 INCOME BEFORE INCOME TAXES 52,260 53,848 Applicable income taxes 15,142 17,563 ---------- ---------- NET INCOME $ 37,118 $ 36,285 ========== ========== Net income applicable to common stock $ 36,866 $ 35,737 ========== ========== PER COMMON SHARE Net income $.50 $.47 Dividends .34 .30 -2-
FIRSTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - ------------------------------------------------------------------------------------------------------- Three Months Ended March 31 (thousands of dollars) 1996 1995 - ------------------------------------------------------------------------------------------------------- (unaudited) Cash Flows from Operating Activities: Net Income $ 37,118 $ 36,285 Adjustments: Provision for loan losses 9,209 13,136 Depreciation, amortization, and accretion 18,713 7,579 Net (increase) decrease in trading securities (38) 16,128 Net decrease in loans held for resale 23,941 15,521 Gain on sale of assets (254) (1,475) Decrease (increase) in other assets 31,999 (12,888) Decrease in other liabilities (18,325) (16,827) Other, net 452 (270) ------------- -------------- Net cash provided by operating activities 102,815 57,189 Cash Flows from Investing Activities: Net decrease in federal funds sold and resale agreements 29,118 128,641 Net (increase) decrease in interest-bearing deposits with banks (4,158) 24,118 Purchase of securities available for sale (157,508) (489) Sale of securities available for sale 38,430 120,451 Maturities of securities available for sale 136,705 0 Maturities of securities held to maturity 101,763 337,580 Purchase of securities held to maturity (57,036) (633,802) Net decrease (increase) in loans 87,292 (170,063) Cash acquired in acquisitions 4,901 294 Proceeds from sale of foreclosed assets 1,395 804 Purchase of bank premises and equipment (9,590) (17,666) Proceeds from sale of bank premises and equipment 62 161 ------------- -------------- Net cash provided by (used in) investing activities 171,374 (209,971) Cash Flows from Financing Activities: Net (decrease) increase in deposits (429,093) 44,144 Net increase (decrease) in short-term borrowed funds 133,347 (97,316) Issuance of long-term debt 0 58,500 Repayment of long-term debt (17,817) (3,904) Common/treasury stock repurchases (76,018) (22,694) Common/treasury stock transactions 9,982 579 Cash dividends (25,508) (23,246) ------------- -------------- Net cash used in financing activities (405,107) (43,937) Net decrease in cash and due from banks (130,918) (196,719) Cash and due from banks at beginning of period 1,310,746 1,092,114 ------------- -------------- Cash and due from banks at end of period $ 1,179,828 $ 895,395 ============= ============== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 163,114 $ 142,528 Income taxes 10,540 5,268 Transfer to foreclosed assets from loans $ 1,848 $ 2,349 -3-
FIRSTAR CORPORATION AND SUBSIDIARIES SUPPLEMENTAL FOOTNOTES (unaudited) - ----------------------------------------------------- (thousands of dollars except as otherwise indicated) 1. The financial data presented herein are unaudited, but in the opinion of management, reflect all adjustments which are necessary for a fair presentation of such information. Results for interim periods should not be considered indicative of results for a full year. Reference should be made to the financial statements contained in the registrant's annual report on Form 10-K for the year ended December 31, 1995. 2. Securities The amortized cost and approximate market values of securities are as follows:
March 31, 1996 -------------------------------------------------- Estimated Amortized Unrealized Unrealized Market Cost Gains Losses Value ----------- ----------- ----------- ----------- Securities held to maturity: U.S. Treasury and federal agencies $ 1,768 $ 131 $ (17)$ 1,882 Mortgage backed obligations of federal agencies 1,237,323 30,352 (6,469) 1,261,206 State and political subdivisions 1,126,128 15,651 (5,932) 1,135,847 Corporate debt 14,009 81 (206) 13,884 Other 197 0 0 197 ----------- ----------- ----------- ----------- Total $ 2,379,425 $ 46,215 $ (12,624)$ 2,413,016 =========== =========== =========== =========== Securities available for sale: U.S. Treasury and federal agencies $ 1,842,525 $ 32,565 $ (9,023)$ 1,866,067 Mortgage backed obligations of federal agencies 9,633 99 (259) 9,473 State and political subdivisions 9,067 73 (50) 9,090 Corporate debt 1,045 2 (1) 1,046 Equity securities 101,659 0 0 101,659 Money market mutual funds 49,216 0 0 49,216 ----------- ----------- ----------- ----------- Total $ 2,013,145 $ 32,739 $ (9,333)$ 2,036,551 =========== =========== =========== ===========
3. Nonperforming Assets and Past Due Loans
March 31 December 31 March 31 1996 1995 1995 ----------- ----------- ----------- Nonaccrual loans: Commercial $ 27,611 $ 26,239 $ 30,424 Commercial - real estate 48,107 46,959 36,273 Consumer 16,682 16,187 9,487 ----------- ----------- ----------- 92,400 89,385 76,184 Renegotiated loans: Commercial 39 40 69 Commercial - real estate 1,336 1,336 644 ----------- ----------- ----------- 1,375 1,376 713 Foreclosed assets 8,933 7,141 11,209 ----------- ----------- ----------- Total $ 102,708 $ 97,902 $ 88,106 =========== =========== =========== Nonperforming assets as a percent of: Loans and foreclosed assets .80 % .77 % .73 % Total assets .54 .51 .49 Loans past due 90 days and still accruing Commercial $ 10,902 $ 21,039 $ 16,218 Commercial - real estate 11,900 9,287 10,147 Consumer 23,769 19,084 13,054 ----------- ----------- ----------- Total $ 46,571 $ 49,410 $ 39,419 =========== =========== =========== -4-
4. Reserve for Loan Losses
Three Months Ended March 31 ------------------------ 1996 1995 ----------- ----------- Balance - beginning of period $ 195,283 $ 190,552 Provision for loan losses 9,209 13,136 Loan recoveries 5,687 3,957 Loan charge-offs (11,779) (12,295) Reserves of acquired banks 4,457 865 ----------- ----------- Balance - end of period $ 202,857 $ 196,215 =========== =========== Net charge-offs to average loans .19 % .28 % Reserve to period-end loans 1.58 1.62
5. Changes in Stockholders' Equity
Three Months Ended March 31 ------------------------ 1996 1995 ----------- ----------- Balance - beginning of period $ 1,524,820 $ 1,512,685 Net income 37,118 36,285 Common stock issued 0 3,870 Common stock retired (11) (24,407) Preferred stock converted (1,515) 0 Treasury stock issued 47,533 9,276 Treasury stock purchased (68,691) 0 Restricted stock transactions 1,451 82 Change in unrealized gains(losses) on securities available for sale (20,809) 947 Dividends - common stock (25,252) (22,359) - preferred stock (256) (548) ------------------------ Balance - end of period $ 1,494,388 $ 1,515,831 ========================
-5- FIRSTAR CORPORATION AND SUBSIDIARIES SUPPLEMENTAL FOOTNOTES (unaudited) - ---------------------------- ----------------------- 6. Derivative Financial Instruments The following table summarizes the various types of interest rate contracts that Firstar uses for the purpose of managing interest rate risk.
March 31, 1996 -------------------------------------------------------------- Market 12-31-95 Average Average Weighted Value Notional Notional Receive Pay Average Asset Amount Amount Rate Rate Maturity (Liability) --------- --------- ----------- ----------- ----------- ----------- (millions) Interest rate swaps Receive fixed rate Index amortizing $ 269 $ 192 5.23 % 5.30 % 2.1 yr $ (1.3) Other 55 95 6.52 6.49 .2 Receive variable 37 37 5.36 8.01 1.6 (1.3) Interest rate floors* 601 601 4.88 3.3 4.4 Interest rate caps* 100 100 6.25 .5 --------- --------- ----------- $ 1,062 $ 1,025 $ 1.8 ========= ========= =========== *Interest rate floors and caps provide for the receipt of payments when the index interest rate is below or above the predetermined interest rate. <\TABLE. 7. New Accounting Rules The Financial Accounting Standards Board issued Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of", which Firstar adopted in 1996. The statement requires that long-lived assets and certain identifiable intangibles to be held and used by a company be reviewed for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. The adoption of this statement did not have any significant impact on the results of operations. -6- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Firstar Corporation reported net income for the first quarter of 1996 of $37.1 million, or $.50 per common share, up 6.4% from the $36.2 million , or $.47 per common share , for the same period last year. Return on common equity was 9.59% for the first quarter of the year, compared with 9.77% for the same period last year, while return on average assets was .79% compared to .83% during the first quarter of last year. Table 1 shows the components of net income and net interest margin.
Table 1. Condensed income statements - taxable equivalent basis Three Months Ended March 31 ------------------------------- 1996 1995 Change ------- ----------- --------- (millions of dollars) Interest revenue $ 342.6 $ 322.2 $ 20.4 Taxable-equivalent adjustment 8.6 8.5 0.1 ------- ----------- --------- Interest revenue - taxable-equivalent 351.2 330.7 20.5 Interest expense 158.2 143.7 14.5 ------- ----------- --------- Net interest revenue - taxable-equivalent 193.0 187.0 6.0 Provision for loan losses 9.2 13.1 (3.9) Other operating revenue 104.6 88.2 16.4 Other operating expense 227.5 199.8 27.7 ------- ----------- --------- Income before income taxes 60.9 62.3 (1.4) Provision for income taxes 15.2 17.5 (2.3) Taxable-equivalent adjustment 8.6 8.5 0.1 ------- ----------- --------- Net income $ 37.1 $ 36.3 $ 0.8 ======= =========== ========= Yield on earning assets 8.17 % 8.24 % (0.07) Cost of interest-bearing liabilities 4.51 4.44 0.07 ------- ----------- --------- Interest spread 3.66 3.80 (0.14) Impact of interest-free funds 0.82 0.85 (0.03) ------- ----------- --------- Net interest margin 4.48 % 4.65 % (0.17) ======= =========== =========
Both years' first quarters earnings included restructuring charges which reduced reported net income. The current year's first quarter earnings include a $30.3 million, or $.41 per share, after-tax charge associated with a corporate restructuring. The $22.2 million, or $.29 per share, after-tax charge taken in the first quarter of 1995 was in connection with several bank acquisitions. Excluding both quarters' restructuring charges, earnings per share rose 19.7% over the first quarter of 1995 to $.91 per share from $.76 per share. Return on equity, excluding these charges would have been 17.48% in 1996 and 15.84% in the first quarter of 1995. Table 2 shows the detail of these charges. INSERT TABLE2
Table 2. Restructuring costs Three months ended March 31 -------------------------- 1996 1995 -------------------------- (thousands of dollars) Additional loan loss provisions $ 0 $ 8,794 Losses on sales of securities 0 5,709 Restructuring expenses: Employee severence 22,457 10,400 Facilities and equipment 5,502 4,032 Other 22,278 5,564 ----------- --------- 50,237 19,996 ----------- --------- Total pre-tax costs 50,237 34,499 Income tax benefit 19,926 12,310 ----------- --------- Total $ 30,311 $ 22,189 =========== ========= Per common share impact $ 0.41 $ 0.29
In the first quarter of 1996 Firstar recorded a $50.2 million pre-tax charge in connection with Firstar Forward , the corporate wide restructuring program. This program is expected to add $140 million to annualized pre-tax earnings when fully implemented by mid-1997. The charge included severance accruals of $22.4 million associated with staff reductions of approximately 1,450 people, fixed asset write-downs of $5.5 million, and other project costs of $22.3 million. The total charge consists of $44.1 million in anticipated cash expenditures and $6.1 million of non-cash asset writedowns. Approximately one-half of these cash expenditures have been made as of March 31,1996. -7- -7- In the first quarter of 1995 , certain merger and restructuring charges were taken in connection with completed bank acquisitions. These expenses totaled $34.5 million pre-tax. Additional loan loss provisions of $8.8 million were taken to increase the acquisition banks' loan loss reserve levels to conform with Firstar's policy. Also, securities not compatible with Firstar's investment policy were sold with a resulting loss of $5.7 million. These funds, totaling $120 million, were redeployed in the securities portfolio with a resulting increase in the net yield which recovered the loss within one year. Acquisition related restructuring charges totaling $20.0 million are included in operating expenses. Included in these charges were $10.4 million of costs associated with the severance of approximately 400 employees, $4.0 million related with office closing and write-off of unusable equipment, and $5.6 million of other costs associated with the mergers. The restructuring charge of $20.0 million consists of $14.7 million in anticipated cash expenditures and $5.3 million of non-cash write-downs. Cash payments have reduced this restructuring accrual to approximately $4.2 million as of March 31, 1996. Net interest revenue during the first quarter of 1996, on a taxable equivalent basis, was $193.0 million which was $5.8 million, or 3.2%, above the level of the same period last year. The net interest margin was 4.48% during the first quarter compared to 4.65% a year earlier. The increase in net interest revenue was attributable to the higher average earning asset balances, which increased 6.5% from a year earlier, partially offset by the reduced net interest margin. The margin has been compressed by rising cost of funds, due to a change in mix of deposits, which has not been fully offset by increased yields on earning assets. Table 3 shows the components of interest revenue and expense along with changes related to volumes and rates. Total interest revenue on a taxable-equivalent basis increased by 6.3% to $351.2 million during the first quarter of 1996 compared to the same period last year. This resulted from a 6.5% increase in average earning assets, partially offset by reductions in the average interest rate earned. The rate received on earning assets decreased from 8.24% in the first quarter of 1995 to 8.17% in the same period of 1996. Loan revenue increased $16.7 million, or 6.5%, from the same period last year. The increased loan revenue was the result of a 7.1% increase in loan balances from the same period last year which was only partially offset by lower rates. Total interest expense was $158.2 million during the first quarter 1996, an increase of $14.5 million, or 10.1%, from the same period last year. Interest rates on liabilities increased from 4.44% in 1995 to 4.51% in 1996. Interest expense on total deposits increased $11.5 million, or 11.1%, in the first quarter of 1996 compared to the same period last year, due to a change in mix to higher costing certificates of deposits. Interest paid on short-term borrowed funds increased by $3.0 million due to higher average balances. Net cash flows of off-balance sheet derivative instruments used to manage interest rate risk reduced net interest revenue by $400 thousand and net interest margin by .01% during the first quarter of 1996. This compares to a decrease in net interest revenue of $3.4 million and a decrease in net interest margin of .09% during the same period in 1995. The objective of Firstar's asset liability management policy is to maintain adequate capital and liquidity and to manage interest rate risk to produce an acceptable level of net interest revenue. The policy is to employ an asset liability management strategy which limits the potential impact of projected interest rate changes to 5% of net income over the subsequent four quarters. Using the most recent simulation modeling, Firstar was within these guidelines. The recently completed asset-liability forecast shows consolidated net interest revenue remaining stable under our most likely rate scenario. This rate scenario assumes an average prime rate of 7.60% compared with the current prime rate of 8.25%. -8- Table 3. Analysis of interest revenue and expense
Three Months Ended March 31 ---------------------------------------------------------------- Interest Total Due to ---------------------- -------------------------- 1996 1995 Change Volume Rate ----------- --------- ------------ ------------ ------------ (thousands of dollars) Interest-bearing deposits with banks $ 148 $ 418 $ (270)$ (219)$ (51) Federal funds sold and resale agreements 649 3,071 (2,422) (2,187) (235) Trading securities 145 270 (125) (73) (52) Securities 73,215 66,459 6,756 6,315 441 Commercial loans 150,890 146,287 4,603 7,535 (2,932) Consumer loans 126,187 114,252 11,935 10,987 948 ----------- --------- ------------ Total loans 277,077 260,539 16,538 18,463 (1,925) ----------- --------- ------------ Total interest revenue 351,234 330,757 20,477 21,418 (941) Interest-bearing demand 5,418 6,970 (1,552) (258) (1,294) Money market accounts 24,109 20,097 4,012 3,936 76 Savings passbook 10,487 11,683 (1,196) (858) (338) Certificates of deposit 74,752 64,500 10,252 4,569 5,683 ----------- --------- ------------ Total deposits 114,766 103,250 11,516 5,713 5,803 Short-term borrowed funds 30,544 30,621 (77) 3,002 (3,079) Long-term debt 12,933 9,881 3,052 3,476 (424) ----------- --------- ------------ Total interest expense 158,243 143,752 14,491 10,844 3,647 ----------- --------- ------------ Net interest revenue $ 192,991 $ 187,005 $ 5,986 11,877 (5,891) =========== ========= ============ Calculations are computed on a taxable-equivalent basis using a tax rate of 35%. The change attributable to both volume and rate has been allocated proportionately to the changes due to volume and rate.
The provision for loan losses of $9.2 million was $3.9 million lower than last year. As discussed previously, $8.8 million of 1995's provision related to a merger adjustment to loan loss reserve levels. Net charge-offs for the first quarter were at a level of .19% of average outstanding loans compared to .28% a year earlier. The reserve for loan losses represented 1.58% of total loans at March 31, 1996, down from 1.62% a year earlier. Consumer loan losses have shown increases over the past year with the charge - -off rate rising from .32% of loans in the first quarter of 1995 to .41% in the current quarter. This trend is more evident in the credit card area where charge-off levels rose from 1.76% to 3.19% between the two periods. Increased consumer debt loads and delinquency rates have been experienced throughout the country. Firstar expects that credit card charge-offs will remain at or increase modestly from the current levels. The commercial loan charge-off rate for the first quarter of this year of this year was only .02%. While commercial loan charge-offs have fluctuated during the past five quarters, they remain at an overall low level. Table 4 shows information on loan charge-offs. Nonperforming assets were $102.7 million at March 31, 1996 which amounted to .80% of total loans and foreclosed assets. This was an $4.8 million increase from the prior year end which was .77% and an increase of $14.6 million from a year earlier. Nonperforming assets have gone up in part due to the application of Firstar's credit review policies to the loan portfolios of the recently acquired banks.
Table 4. Net loan charge-offs Quarter ended ------------------------------------------------------------------ 3-31-96 12-31-95 9-30-95 6-30-95 3-31-95 ----------- --------- ------------ ------------ ------------ (thousands of dollars) (thousands of dollars) Credit card $ 4,746 $ 4,215 $ 2,121 $ 2,468 $ 2,387 Other consumer 1,072 4,625 2,464 1,425 1,768 ----------- --------- ------------ ------------ ------------ Total consumer 5,818 8,840 4,585 3,893 4,155 Commercial 274 4,277 71 2,886 4,183 ----------- --------- ------------ ------------ ------------ Total net charge-offs $ 6,092 $ 13,117 $ 4,656 $ 6,779 $ 8,338 =========== ========= ============ ============ ============ Net charge-offs as a % of: Credit card 3.19 % 2.43 % 1.95 % 1.81 % 1.76 % Other consumer 0.08 0.42 0.15 0.09 0.15 Total consumer 0.41 0.63 0.33 0.26 0.32 Commercial 0.02 0.25 -- 0.19 0.26 Total loans 0.19 0.42 0.15 0.22 0.28 -9-
Other operating revenue, excluding securities gain and losses, increased by 11.4% to a level of $104.6 million in the first quarter of 1996 compared to the same period last year. Table 5 shows the composition of other operating revenue.
Table 5. Other operating revenue Three Months Ended March 31 ---------------------------------------- 1996 1995 Change ------------ ------------ ------------ (thousands of dollars) Trust and investment management fees $ 35,447 $ 31,684 11.9 % Service charges on deposit accounts 20,848 19,757 5.5 Credit card service revenue 15,568 13,955 11.6 Mortgage loan servicing 6,686 5,963 12.1 Mortgage loan origination 7,099 1,675 323.8 Data processing fees 4,616 4,919 (6.2) Insurance revenue 2,399 2,729 (12.1) Brokerage revenue 3,463 2,340 48.0 International fees 1,355 1,402 (3.4) Foreign exchange gains 675 539 25.2 ATM fees 1,190 1,258 (5.4) Safe deposit fees 1,096 1,137 (3.6) Trading securities gains 491 689 (28.7) Other 3,670 5,851 (37.3) ------------ ------------ Subotal 104,603 93,898 11.4 Securities (losses) gains 41 (5,683) Total ------------ ------------ $ 104,644 $ 88,215 18.6 % ============ ============
Other operating revenue represents 35% of total revenue. An industry measure of fee revenue prominence is the ratio of this revenue stream to average assets. During the first quarter of 1996 this ratio was 2.22% compared to 2.15 % during the same period last year. Trust and investment management fees are the single largest source of fee revenue, contributing $35.4 million, or 34%, of other operating revenue. This level represents an 11.9% growth in revenue during the first quarter of 1996 compared to the same period last year. Trust and investment assets under management were $18.9 billion on March 31, 1996, a 17.0% increase from the year earlier level primarily due to the result of general market value appreciation. Additionally, assets held in custody rose by 43.1% to a level of $61.2 billion during the same time period. Revenue from service charges on deposit accounts at $20.8 million for the first quarter of 1996 was 5.5% higher than last year. Credit card service revenues are the third largest source of fee revenue, totaling $15.6 million during the first quarter of 1996, which was an 11.6% increase over the same period last year. The introduction of new credit card products, increased merchant fee revenue and the repricing of service charges have all contributed to this revenue growth. Revenue from mortgage loan origination activities more than tripled from the year earlier level, increasing by $5.4 million to $7.1 million driven by the increase in refinancing volumes which occured early in the first quarter of 1996. Mortgage interest rates have since increased modestly and origination volumes have correspondingly declined. Mortgage loan servicing revenues increased 12.1% to level of $6.7 million. Sales of servicing rights contributed $2.8 million of revenue in the first quarter of this year and $1.9 million in the same quarter of 1995. The remaining sources of other operating revenue derive from a wide range of services and aggregated $19.0 million, a reduction of $1.9 million from the same period of 1995. Last year's revenue included some nonrecurring items which accounted for this decline. -10- Other operating expense increased to a level of $227.5 million for the first quarter of 1996. Excluding the restructuring charges taken in both periods , expenses declined by 1.4%. Personnel costs rose by 1.0% to a level of $101.5 million. Nonpersonnel expense , excluding the restructuring charges, declined by 4.4%. The detail of other operating expense is shown in Table 6. Net occupancy expense increased $1.4 million, or 9.5% in the first quarter of 1996 compared to the same period last year. The increase was due to a bank acquisition in the first quarter. Equipment expense increased $2.8 million, or 20.2% during the first quarter of 1996 compared to the same period last year. The increase in equipment expense was due to data processing system upgrades resulting from investments in new technology and increased processing volumes from bank acquisitions. In the third quarter of 1995, the FDIC reduced the rate charged for deposit insurance to all BIF insured banks and refunded excess premiums paid. The current rate is $2,000 per year for each insured bank compared with the $.23 per $100 of deposits previously charged. Firstar also has deposits subject to SAIF insurance totaling approximately $1.3 billion. The insurance rate on these deposits remains at $.23 per $100 of deposits, thus creating a blended rate. These new rates reduced FDIC expense from $7.3 million in the first quarter of 1995 to $1.1 million this year. The efficiency ratio, which is the ratio of expense to revenue, was 59.6% in the first quarter of 1996 compared to 64.0% a year earlier. Firstar has initiated a corporate-wide restructuring program with a goal of reaching a 55% efficiency ratio in 1997.
Table 6. Other operating expense Three Months Ended March 31 ---------------------------------------- 1996 1995 Change ------------ ------------ ------------ (thousands of dollars) Salaries $ 82,140 $ 81,093 1.3 % Employee benefits 19,377 19,413 (0.2) ------------ ------------ Total personnel expense 101,517 100,506 1.0 Net occupancy expense 15,913 14,533 9.5 Equipment expense 16,675 13,870 20.2 Business development 5,384 6,944 (22.5) F.D.I.C. insurance 1,097 7,349 (85.1) Stationery and supplies 5,554 4,603 20.7 Delivery 5,200 4,700 10.6 Professional fees 4,555 4,374 4.1 Information processing expense 4,547 5,534 (17.8) Amortization of intangibles 3,622 3,048 18.8 Employee education/recruiting 1,531 2,260 (32.3) Federal Reserve processing fees 925 1,087 (14.9) Commissions and service fees 1,324 1,342 (1.3) Wire communication 1,983 1,845 7.5 Processing and other losses 1,804 1,291 39.7 Credit card assessment fees 1,522 1,201 26.7 Net foreclosed assets expense(income) 108 (343) Published information 643 883 (27.2) Insurance 370 387 (4.4) Other 3,000 4,346 (31.0) ------------ ------------ Total nonpersonnel expense 75,757 79,254 (4.4) Restructuring charges 50,237 19,996 ------------ ------------ Total other operating expense $ 227,511 $ 199,756 13.9 % ============ ============
-11- Total assets on March 31, 1996 were $19.1 billion, essentially level with December 31, 1995 and up $1.1 billion from a year earlier. Earning assets totaled $17.1 billion, up $94 million, or less than 1% from year end. Earning assets have increased $804 million ,or 4.9%, from a year earlier. Loans totaled $12.8 billion on March 31, 1996 an increase of $186 million from year end 1995 and $740 million from a year earlier. A bank acquisition which occurred in the first quarter of 1996 added approximately $300 million of loans. Exclusive of acquisition related impact, loans declined by just under 1% from year end and increased by 3.6% over a year ago. Commercial loans were $7.1 billion on March 31,1996 , an increase of $53 million, or less than 1% from last year end, exclusive of the effect of the bank acquisition. Compared to a year earlier , commercial loans have increased by 4.7%. Commercial loan growth has slowed during the past two quarters. Current expectations are for loans to grow in the 3% to 4% range in 1996 which is less than the 10% plus growth experienced in the past two years. Consumer loans were $5.7 billion on March 31, 1996, a decline of $165 million, or 2.9% from year end, excluding loans added from the bank acquisition. Consumer loans increased $126 million, or 2.3%, from a year earlier. Good growth has been evident in charge card loans, which are up nearly 10% from a year ago and home equity loans which increased by over 15%. Residential mortgage loans ,excluding loans from the bank acquisition and mortgages held for sale have declined by over $200 million from March 31,1995 due to both loan repayments and consumer preference for longer term mortgages which Firstar originates but does not hold as portfolio loans. Total securities, including both those designated as available for sale and those held to maturity were $4.4 billion at March 31,1996 compared with $4.5 billion at year end and $4.2 billion a year earlier. Fund sources, consisting of deposits and borrowed funds, were $17.4 billion on March 31,1996, level with year end 1995 and $1.1 billion higher than a year earlier. Total deposits were $14.1 billion, a decrease of $437 million from year end levels and an increase of $348 million, or 2.6% from a year ago excluding the impact of the bank acquisition. The decline from year end deposit levels was for the most part attributable to the higher commercial deposit balances typically maintained by Firstar's customers at year end periods. Increased competition for consumer deposits and heightened consumer sensitivity to interest rates have limited Firstar's deposit growth. Borrowed funds increased to $3.2 billion on March 31,1996, an increase of $193 million from year end and $511 million from a year earlier. More reliance has been placed on borrowed funds to support earning asset growth, as loan growth has continued to outpace deposit growth over the past year. Stockholders' equity totaled $1,494 million at the end of the first quarter, a decrease of $30 million from the year end level and $21 million from the total at March 31,1995. Firstar has repurchased over 5.4 million shares of its common stock over the past twelve months. Of this total, 1.8 million were permanently retired; 887 thousand were reissued in a bank acquisition; 970 thousand were reissued for stock options and conversions; and 1.7 million are currently reserved for issuance in a pending acquisition. Firstar's capital management plan strives to match longer term capital needs while maintaining sound capital levels and enhancing the return on equity. A summary of capital components and ratios is shown in Table 7. The board of directors declared a quarterly dividend to common stockholders of $.38 per share which was payable May 15 to stockholders of record May 1. This was an 11.8% increase in the quarterly dividend rate. -12-
Table 7. Capital components and ratios March 31 December 31 March 31 1996 1995 1995 ------------ ------------ ------------ (thousands of dollars) Risk-based capital: Stockholders' equity $ 1,494,388 $ 1,524,820 $ 1,515,831 Unrealized (gains) losses on securities available for sale (14,675) (34,127) 107 Minority interest in subsidiaries 2,198 3,171 2,849 Less goodwill (118,159) (107,298) (110,774) ------------ ------------ ------------ Total Tier I capital 1,363,752 1,386,566 1,408,013 Allowable reserve for loan losses 167,836 167,564 158,465 Allowable long-term debt 111,336 111,336 78,786 ------------ ------------ ------------ Total Tier II capital 279,172 278,900 237,251 ------------ ------------ ------------ Total capital $ 1,642,924 $ 1,665,466 $ 1,645,264 ============ ============ ============ Risk-adjusted assets $ 13,391,890 $ 13,377,391 $ 12,639,485 Tier I capital to risk-adjusted assets 10.18 % 10.36 % 11.14 % Total capital to risk-adjusted assets 12.27 12.45 13.02 Tier I leverage ratio 7.26 7.52 7.99
The foregoing discussion under Item 2 included forecasts concerning revenues, expenses and other business results which are based upon estimates. There are numerous factors such as changes in economic conditions that could adversely affect actual results. Therefore, there will be differences between these forecasts and actual results and no assurance can be given that these forecasts will be achieved. -13-
FIRSTAR CORPORATION AND SUBSIDIARIES ADDITIONAL FINANCIAL DATA (unaudited) - ----------------------------------------------------------------- Selected Financial Data (thousands of dollars, except per share) Quarter ended March 31 ---------------------- 1996 1995 ---------------------- Earnings and Dividends Net income $ 37,118 $ 36,285 Per common share: Net income 0.50 0.47 Dividends 0.34 0.30 Stockholders' equity 20.24 19.53 Performance Ratios Return on average assets 0.79 % 0.83 % Return on average common equity 9.59 9.77 Dividend payout ratio 37.40 38.50 Equity to assets 7.81 8.39 Net loan charge-offs as a percentage of average loans 0.19 0.28 Nonperforming assets as a percentage of loans and other real estate 0.80 0.73 Net interest margin 4.48 4.65 Statistical Data Full-time equivalent staff (at quarter end) 8,512 9,697 Average common shares outstanding (000's) 73,798 76,026 Actual common shares outstanding (000's at quarter end) 73,110 76,225 Stock Price Information High $ 45.875 $ 30.250 Low 36.625 26.250 Close 44.750 29.500 -14-
FIRSTAR CORPORATION AND SUBSIDIARIES ADDITIONAL FINANCIAL DATA (Unaudited) - ------------------------------------------------------------------------------------------------------- Consolidated Average Balance Sheets, Net Interest Revenue and Rate Analysis (Thousands of Dollars) Quarter ended March 31 ----------------------------------------------------------------------- 1996 1995 ------------------------------------- --------------------------------- Average Average Average Average Balance Interest Rate Balance Interest Rate ------------------------------------- --------------------------------- Assets Interest-bearing deposits with banks $ 11,390 $ 148 5.23 % $ 27,792 $ 418 6.10 % Federal funds sold and resale agreements 47,586 649 5.49 206,556 3,071 6.03 Trading securities 10,070 145 5.79 14,594 270 7.50 Securities: Taxable 3,305,879 52,433 6.36 3,001,508 46,600 6.26 Nontaxable 1,137,883 20,782 7.31 1,058,804 19,859 7.50 ----------- ---------- ----------- --------- Total securities 4,443,762 73,215 6.60 4,060,312 66,459 6.58 Loans: Commercial 6,988,904 150,890 8.68 6,641,823 146,287 8.93 Consumer 5,760,457 126,187 8.79 5,258,569 114,252 8.76 ----------- ---------- ----------- --------- Total loans 12,749,361 277,077 8.73 11,900,392 260,539 8.85 ----------- ---------- ----------- --------- Interest earning assets 17,262,169 351,234 8.17 16,209,646 330,757 8.24 Reserve for loan losses (199,373) (191,582) Cash and due from banks 1,036,561 907,648 Other assets 818,078 801,109 ----------- ----------- Total assets $ 18,917,435 $ 17,726,821 =========== =========== Liabilities and Stockholders' Equity Interest-bearing demand $ 1,556,357 $ 5,418 1.40 % $ 1,611,493 $ 6,970 1.75 % Money market accounts 2,443,300 24,109 3.97 2,044,623 20,097 3.99 Savings passbook 1,639,475 10,487 2.57 1,772,449 11,683 2.67 Certificates of deposit 5,376,477 74,752 5.59 5,023,929 64,500 5.21 Short-term borrowed funds 2,339,607 30,544 5.25 2,120,846 30,621 5.86 Other debt 737,533 12,933 7.02 547,723 9,881 7.22 ----------- ---------- ----------- --------- Interest-bearing liabilities 14,092,749 158,243 4.51 13,121,063 143,752 4.44 Demand deposits 2,998,780 2,798,752 Other liabilities 265,784 296,630 Stockholders' equity 1,560,122 1,510,376 ----------- ----------- Total liabilities and stockholders' equity $ 18,917,435 $ 17,726,821 =========== =========== Net interest revenue/margin $ 192,991 4.48 % $ 187,005 4.65 % ========== =========
-15- PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The annual meeting of the shareholders of Firstar Corporation was held on April 18, 1996. The items presented at the meeting and the results of the vote were as follows: 1. The management nominees for directors for terms expiring in 1999 were elected. There were no abstentions or broker nonvotes. Authority to vote For withheld ---------------- ---------- Michael E. Batten 60,601,510 395,080 Robert C. Buchanan 60,588,690 407,900 James L. Forbes 60,102,270 894,320 C. Paul Johnson 60,114,588 882,002 James H. Keyes 60,143,402 853,188 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits to Part 1 of Form 10-Q 27. Financial Data Schedule (b) No reports on Form 8-K were filed during the quarter SIGNATURES 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. FIRSTAR CORPORATION /s/ Jeffrey B. Weeden ------------------ Jeffrey B. Weeden Senior Vice President-Finance and Treasurer (Chief Financial Officer) May 13, 1996 -16- EX-27 2 EXHIBIT 27 (FDS) FILED WITH FORM 10-Q
9 1,000 3-MOS DEC-31-1995 MAR-31-1996 1,179,828 9,625 80,827 10,067 2,036,551 2,379,425 2,413,016 12,818,286 202,857 19,123,302 14,126,637 2,496,506 272,567 733,204 94,226 0 14,414 1,385,708 19,123,302 275,413 66,238 928 342,579 114,766 158,243 184,336 9,209 41 227,511 52,260 37,118 0 0 37,118 0.50 0.50 4.48 92,400 46,571 1,375 0 195,283 11,779 5,687 202,857 202,345 512 0
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