-----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, PkCxRUqVWmulWzthuxvilwuLr3f3VmM/w0BJr551tkWOReQDmlGZCTQn9QLdJDlw oauafbOOBTUBsQCs8jzchA== 0000037076-98-000055.txt : 19980814 0000037076-98-000055.hdr.sgml : 19980814 ACCESSION NUMBER: 0000037076-98-000055 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980813 SROS: CSX SROS: NASD SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRSTAR CORP /WI/ CENTRAL INDEX KEY: 0000037076 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 390711710 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 002-28711 FILM NUMBER: 98684410 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 JUNE 30, 1998 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) 765-4321 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 July 31, 1998, 145,748,820 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 Equity 3 Consolidated Statements of Cash Flows 4 Supplemental Footnotes 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Additional Financial Data 15 Item 3. Quantitative and Qualitative Disclosures About Market Risk 9,10 PART II. OTHER INFORMATION Item 5. Other Information 17 Item 6. Exhibits and Reports on Form 8-K 18 SIGNATURES 18
FIRSTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - ------------------------------------------------------------------------------------------------ June 30 December 31 June 30 (thousands of dollars) (unaudited) 1998 1997 1997 - ------------------------------------------------------ ------------ ------------ ------------ ASSETS Cash and due from banks $ 1,039,987 $ 1,254,289 $ 1,317,063 Interest-bearing deposits with banks 5,574 5,249 26,496 Federal funds sold and resale agreements 79,257 82,589 224,006 Trading securities 617 2,293 1,763 Securities held to maturity (market value $2,426,232 $2,505,360 and $2,382,206 on June 30, 1998 December 31, 1997 and June 30, 1997) 2,374,235 2,452,124 2,346,013 Securities available for sale 1,803,690 1,707,606 1,782,225 Loans: Commercial and industrial 3,943,643 3,644,721 3,539,141 Real estate 3,038,297 2,951,968 2,956,591 Other 1,114,994 1,123,824 1,157,169 ------------ ------------ ------------ Commercial loans 8,096,934 7,720,513 7,652,901 Credit card 724,614 736,484 652,010 Real estate - mortgage portfolio 1,816,938 2,150,398 2,403,141 Real estate - mortgages held for sale 400,447 234,008 159,017 Home equity 1,294,734 1,271,966 1,169,210 Other 1,407,745 1,455,417 1,444,178 ------------ ------------ ------------ Consumer loans 5,644,478 5,848,273 5,827,556 ------------ ------------ ------------ Total loans 13,741,412 13,568,786 13,480,457 Reserve for loan losses (218,903) (218,861) (213,763) ------------ ------------ ------------ Loans - net 13,522,509 13,349,925 13,266,694 Bank premises and equipment 383,112 368,083 363,817 Customer acceptance liability 7,403 7,360 10,487 Other assets 755,281 614,167 567,121 ------------ ------------ ------------ Total assets $ 19,971,665 $ 19,843,685 $ 19,905,685 ============ ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Demand $ 3,770,826 $ 3,607,659 $ 3,730,430 Interest-bearing demand 1,595,934 1,756,520 1,590,408 Money market accounts 3,218,264 2,947,683 2,713,187 Savings passbook 1,301,640 1,339,038 1,449,381 Certificates of deposit 4,885,954 5,063,754 5,140,330 ------------ ------------ ------------ Total deposits 14,772,618 14,714,654 14,623,736 Short-term borrowed funds 2,205,745 2,121,412 2,794,858 Long-term debt 955,898 1,057,151 627,935 Bank acceptances outstanding 7,403 7,360 10,487 Other liabilities 244,878 250,007 258,237 ------------ ------------ ------------ Total liabilities 18,186,542 18,150,584 18,315,253 Stockholders' equity: Preferred stock 0 5,308 7,454 Common stock 181,935 181,102 181,027 Issued: June 30, 1998, 145,548,059 shares Issued: December 31, 1997, 144,881,896 shares Issued: June 30, 1997, 144,881,896 shares Capital surplus 9,023 0 0 Retained earnings 1,569,900 1,484,199 1,395,346 Treasury stock (3) (132) (6,059) Held: June 30, 1998, 1,076 shares Held: December 31, 1997, 48,547 shares Held: June 30, 1997, 421,747 shares Accumulated other comprehensive income 24,268 22,624 12,664 ------------ ------------ ------------ Total stockholders' equity 1,785,123 1,693,101 1,590,432 ------------ ------------ ------------ Total liabilities and stockholders' equity $ 19,971,665 $ 19,843,685 $ 19,905,685 ============ ============ ============ -1-
FIRSTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME - --------------------------------------------------------------------------------------------- Three Months Ended Six Months Ended June 30 June 30 (thousands of dollars, except per share data) 1998 1997 1998 1997 - --------------------------------------------- ----------------------- ----------------------- (unaudited) INTEREST REVENUE Loans $ 286,326 $ 283,834 $ 570,297 $ 560,066 Securities 63,209 64,196 127,068 127,849 Interest-bearing deposits with banks 53 329 141 416 Federal funds sold and resale agreements 835 2,151 2,099 3,691 Trading securities 28 27 54 96 ---------- ---------- ---------- ---------- Total interest revenue 350,451 350,537 699,659 692,118 INTEREST EXPENSE Deposits 120,252 117,186 240,092 231,304 Short-term borrowed funds 30,626 34,663 59,119 62,957 Long-term debt 16,138 12,069 33,397 24,215 ---------- ---------- ---------- ---------- Total interest expense 167,016 163,918 332,608 318,476 ---------- ---------- ---------- ---------- NET INTEREST REVENUE 183,435 186,619 367,051 373,642 Provision for loan losses 10,600 9,532 26,250 19,249 ---------- ---------- ---------- ---------- NET INTEREST REVENUE AFTER LOAN LOSS PROVISION 172,835 177,087 340,801 354,393 OTHER OPERATING REVENUE Trust and investment management fees 45,267 42,901 91,313 82,752 Service charges on deposit accounts 25,693 21,825 51,390 45,066 Credit card revenue 14,350 12,493 26,986 24,749 Mortgage banking revenue 22,977 10,092 44,271 18,776 Data processing fees 3,520 3,829 7,273 7,942 Securities gains 488 0 491 1,126 Other revenue 22,740 22,325 42,358 43,572 ---------- ---------- ---------- ---------- Total other operating revenue 135,035 113,465 264,082 223,983 OTHER OPERATING EXPENSE Salaries 89,602 83,930 176,300 162,198 Employee benefits 16,462 16,370 36,486 34,884 Equipment expense 19,437 15,970 35,736 33,039 Net occupancy expense 16,056 15,563 32,861 30,942 Other expense 54,167 48,364 104,807 97,825 ---------- ---------- ---------- ---------- Total other operating expense 195,724 180,197 386,190 358,888 INCOME BEFORE INCOME TAXES 112,146 110,355 218,693 219,488 Provision for income taxes 35,495 37,647 69,126 74,985 ---------- ---------- ---------- ---------- NET INCOME $ 76,651 $ 72,708 $ 149,567 $ 144,503 ========== ========== ========== ========== Net income applicable to common stock $ 76,651 $ 72,577 $ 149,484 $ 144,231 ========== ========== ========== ========== PER COMMON SHARE Net income $ 0.53 $ 0.50 $ 1.03 $ 0.99 Net income assuming dilution 0.52 0.50 1.02 0.98 Dividends 0.23 0.21 0.44 0.40 -2-
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (unaudited)
Preferred Common Capital Retained Stock Stock Surplus Earnings -------------- ----------- ----------- ----------- Balance at December 31, 1996 $ 11,344 $ 188,532 $ 51,145 $ 1,437,891 Net income 144,503 Unrealized loss on securities available for sale Reclassification adjustment for gains realized on net income Income taxes Comprehensive income 144,503 Cash dividends: Preferred stock, series D ($17.50 per share) (272) Common stock ($.40 per share) (58,722) Converted 7,780 shares of preferred stock into 333,871 shares of common stock (3,890) (518) (1,568) Issued 806,678 shares of common stock for employee plans (5,184) (3,951) Retired 5,944,300 shares of common stock (7,505) (45,443) (122,535) Purchased 1,071,900 shares of treasury stock -------------- ----------- ----------- ----------- Balance at June 30, 1997 $ 7,454 $ 181,027 $ 0 $ 1,395,346 ============== =========== =========== ===========
Accumulated
Other Comprehensive Treasury Income Stock Total -------------- ----------- ----------- Balance at December 31, 1996 $ 19,191 $ (4,056)$ 1,704,047 Net income 144,503 Unrealized loss on securities available for sale (8,916) (8,916) Reclassification adjustment for gains realized in net income (1,126) (1,126) Income taxes 3,515 3,515 ----------- Comprehensive income 137,976 Cash dividends: Preferred stock, series D ($17.50 per share) (272) Common stock ($.40 per share) (58,722) Converted 7,780 shares of preferred stock into 333,871 shares of common stock 5,976 Issued 806,678 shares of common stock for employee plans 22,877 13,742 Retired 5,944,300 shares of common stock (12,941) (188,424) Purchased 1,071,900 shares of treasury stock (17,915) (17,915) -------------- ----------- ----------- Balance at June 30, 1997 $ 12,664 $ (6,059)$ 1,590,432 ============== =========== ===========
Preferred Common Capital Retained Stock Stock Surplus Earnings -------------- ----------- ----------- ----------- Balance at December 31, 1997 $ 5,308 $ 181,102 $ $ 1,484,199 Net income 149,567 Unrealized gain on securities available for sale Reclassification adjustment for gains realized in net income Income taxes Comprehensive income Cash dividends: Preferred stock, series D ($8.75 per share) (83) Common stock ($.44 per share) (63,782) Converted 10,615 shares of preferred stock into 452,761 shares of common stock (5,308) 537 4,182 492 Issued 362,119 shares of common stock for employee and director plans 296 4,841 (493) Purchased 101,246 shares of treasury stock -------------- ----------- ----------- ----------- Balance at June 30, 1998 $ 0 $ 181,935 $ 9,023 $ 1,569,900 ============== =========== =========== ===========
Accumulated
Other Comprehensive Treasury Income Stock Total -------------- ----------- ----------- Balance at December 31, 1997 $ 22,624 $ (132)$ 1,693,101 Net income 149,567 Unrealized gain on securities available for sale 3,020 3,020 Reclassification adjustment for gains realized in net income (491) (491) Income taxes (885) (885) ----------- Comprehensive income 151,211 Cash dividends: Preferred stock, series D ($8.75 per share) (83) Common stock ($.44 per share) (63,782) Converted 10,615 shares of preferred stock into 452,761 shares of common stock 64 (33) Issued 362,119 shares of common stock for employee and director plans 4,001 8,645 Purchased 101,246 shares of treasury stock (3,936) (3,936) -------------- ----------- ----------- Balance at June 30, 1998 $ 24,268 $ (3)$ 1,785,123 ============== =========== ===========
-3-
FIRSTAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - ------------------------------------------------------------------------------------------------------- Six Months Ended June 30 (thousands of dollars) 1998 1997 - ------------------------------------------------------------------------------------------------------- (unaudited) Cash Flows from Operating Activities: Net Income $ 149,567 $ 144,503 Adjustments: Provision for loan losses 26,250 19,250 Depreciation, amortization, and accretion 36,138 29,780 Net decrease in trading securities 1,676 11,726 Net increase in loans held for resale (166,439) (14,612) Loss (gain) on securities and other assets 603 (1,764) Deferred income taxes 2,395 1,028 (Increase) decrease in other assets (147,185) (89,863) Increase (decrease) in other liabilities (5,129) (7,952) Other, net (11,278) 12,368 ------------- -------------- Net cash (used) provided by operating activities (113,402) 104,464 Cash Flows from Investing Activities: Net decrease (increase) in federal funds sold and resale agreements 3,332 (31,041) Net increase in interest-bearing deposits with banks (325) (20,147) Sale of securities available for sale 490 1,126 Maturities of securities held to maturity 231,935 192,699 Maturities of securities available for sale 42,890 333,763 Purchase of securities held to maturity (157,174) (295,482) Purchase of securities available for sale (137,920) (161,439) Net increase in loans (36,266) (242,111) Proceeds from sales of foreclosed assets 2,696 7,879 Purchases of bank premises and equipment (32,079) (31,998) Proceeds from sales of bank premises and equipment 180 670 ------------- -------------- Net cash provided (used) by investing activities (82,241) (246,081) Cash Flows from Financing Activities: Net increase (decrease) in deposits 57,964 (590,461) Net increase in short-term borrowed funds 84,333 926,252 Repayment of long-term debt (198,340) (69,857) Proceeds from long-term debt 97,087 598 Cash dividends (63,865) (58,994) Common/treasury stock repurchases (3,936) (206,339) Common/treasury stock issued 8,098 8,387 ------------- -------------- Net cash provided (used) by financing activities (18,659) 9,586 Net increase (decrease) in cash and due from banks (214,302) (132,031) Cash and due from banks at beginning of period 1,254,289 1,449,094 ------------- -------------- Cash and due from banks at end of period $ 1,039,987 $ 1,317,063 ============= ============== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 341,950 $ 323,523 Income taxes 56,699 69,481 Transfer to foreclosed assets from loans $ 4,882 $ 3,006 -4-
FIRSTAR CORPORATION AND SUBSIDIARIES SUPPLEMENTAL FOOTNOTES (unaudited) - ------------------------------------------------------- (thousands of dollars except as otherwise indicated) 1. The financial data presented herein are unaudited, however, 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. Certain amounts have been reclassified in prior periods to conform to classifications used in the June 30, 1998 financial statements. 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, 1997. In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income." This statement establised standards for reporting the components of comprehensive income prominently within the financial statements. Comprehensive income includes net income plus certain transactions that are reported directly within stockholders' equity. Firstar adopted this statement with the first quarter of 1998 financial statements. The adoption of this statement did not have any impact on financial position or results of operations of Firstar. In March 1998, the American Institute of Certified Public Accountants issued SOP 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." This statement requires the capitalization of certain internal and external costs incurred in the development of internal use computer software. Firstar adopted this statement with the first quarter of 1998 financial statements and capitalized $1.524 million of related expenses during the first half of 1998. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement requires the recognition of all derivatives as either assets or liabilities on the balance sheet and the measurement of those instruments at fair value. The statement is effective in the first quarter of 2000. Firstar has not yet determined the impact, if any, that this statement could have on its financial position, or results of operations. 2. Pending Transactions - Mergers and Acquisitions: In June, 1998, Firstar announced a definitive agreement to purchase Cargill Leasing Corporation for a cash payment of $220 million. Cargill has approximately $600 million of lease assets. The transaction was completed on July 31, 1998 and will be accounted for as a purchase transaction. The purchase price was in part funded by the sale of approximately $200 million of securities available for sale. On July 1, 1998, Firstar Corporation and Star Banc Corporation signed a definitive agreement to merge through an exchange of shares. Under the terms of the agreement, Firstar shareholders will receive .76 shares of common stock in the combined company for each share of Firstar common stock. Shareholders of Star Banc will retain one share of common stock in the combined company for each Star Banc common share. The combined company will have total assets of approximately $38 billion The merger is expected to be completed in the fourth quarter of 1998 and will be accounted for as a pooling of interests. A summary of unaudited pro forma financial information giving effect to the merger with Star Banc Corporation is shown below. The unaudited financial information is not indicative of the results that would have been realized had the entities been a single company during these periods, nor is it indicative of the actual results the combined company will report in the future.
Years ended December 31, ------------------------------------- 1997 1996 1995 ----------- ----------- ----------- (millions of dollars, except per share) Total average assets $ 34,585 $ 30,272 $ 29,328 Net interest revenue 1,366 1,243 1,174 Other operating revenue 768 641 555 Other operating expense 1,225 1,163 1,086 Net income 519 415 381 Net income per share - diluted 2.35 1.95 1.74
3. Securities - The amortized cost and approximate market values of securities are as follows: June 30,1998 -------------------------------------------------- Amortized Unrealized Unrealized Market Cost Gains Losses Value ----------- ----------- ----------- ----------- Securities held to maturity: Mortgage backed obligations of federal agencies $ 1,018,473 $ 28,527 $ (189)$ 1,046,811 State and political subdivisions 1,349,609 24,773 (1,059) 1,373,323 Corporate debt 6,153 5 (60) 6,098 ----------- ----------- ----------- ----------- Total $ 2,374,235 $ 53,305 $ (1,308)$ 2,426,232 =========== =========== =========== =========== Securities available for sale: U.S. Treasury and federal agencies $ 1,394,873 $ 36,830 $ (249)$ 1,431,454 Mortgage backed obligations of federal agencies 148,265 1,250 (285) 149,230 State and political subdivisions 65,129 174 (236) 65,067 Equity securities 80,668 0 0 80,668 Money market mutual funds 77,271 0 0 77,271 ----------- ----------- ----------- ----------- Total $ 1,766,206 $ 38,254 $ (770)$ 1,803,690 =========== =========== =========== ===========
December 31,1997 -------------------------------------------------- Amortized Unrealized Unrealized Market Cost Gains Losses Value ----------- ----------- ----------- ----------- Securities held to maturity: Mortgage backed obligations of federal agencies $ 1,139,317 $ 32,038 $ (779)$ 1,170,576 State and political subdivisions 1,306,555 23,129 (1,144) 1,328,540 Corporate debt 6,252 0 (8) 6,244 ----------- ----------- ----------- ----------- Total $ 2,452,124 $ 55,167 $ (1,931)$ 2,505,360 =========== =========== =========== =========== Securities available for sale: U.S. Treasury and federal agencies $ 1,425,457 $ 36,175 $ (818)$ 1,460,814 Mortgage backed obligations of federal agencies 103,036 949 (149) 103,836 State and political subdivisions 6,146 36 (9) 6,173 Equity securities 98,010 0 0 98,010 Money market mutual funds 38,773 0 0 38,773 ----------- ----------- ----------- ----------- Total $ 1,671,422 $ 37,160 $ (976)$ 1,707,606 =========== =========== =========== ===========
4. Nonperforming Assets and Past Due Loans are as follows: June 30 December 31 June 30 1998 1997 1997 ----------- ----------- ----------- Nonaccrual loans: Commercial $ 25,345 $ 26,739 $ 46,688 Commercial mortgage 17,048 20,291 22,555 Consumer 15,523 16,828 16,150 ----------- ----------- ----------- 57,916 63,858 85,393 Renegotiated loans: Commercial mortgage 43 263 273 Foreclosed assets 7,996 6,244 6,196 ----------- ----------- ----------- Total $ 65,955 $ 70,365 $ 91,862 =========== =========== =========== Nonperforming assets as a percent of: Loans and foreclosed assets .48 % .52 % .68 % Total assets .33 .35 .46 Loans past due 90 days and still accruing Commercial $ 30,455 $ 21,774 $ 25,375 Commercial - eeal estate 15,172 15,626 25,710 Consumer 17,601 20,228 21,867 ----------- ----------- ----------- Total $ 63,228 $ 57,628 $ 72,952 =========== =========== ===========
5. Reserve for Loan Losses - An analysis of the reserve for loan losses is as follows: Three Months Ended Six Months Ended June 30 June 30 ------------------------ ------------------------ 1998 1997 1998 1997 ----------- ----------- ----------- ----------- Balance - beginning of period $ 218,977 $ 213,136 $ 218,861 $ 213,138 Provision for loan losses 10,600 9,532 26,250 19,249 Loan recoveries 8,190 5,129 16,982 9,928 Loan charge-offs (18,864) (14,034) (43,190) (28,552) ----------- ----------- ----------- ----------- Balance - end of period $ 218,903 $ 213,763 $ 218,903 $ 213,763 =========== =========== =========== =========== Net charge-offs to average loans .31 % .27 % .39 % .28 % Reserve to period-end loans 1.59 1.59
6. Net Income Per Common Share - Basic and diluted earnings per share of Firstar was calculated as follows: Three Months Ended Six Months Ended June 30 June 30 ------------------------ ------------------------ 1998 1997 1998 1997 ----------- ----------- ----------- ----------- Basic: Net income $ 76,651 $ 72,708 $ 149,567 $ 144,503 Less preferred dividends 0 131 83 272 ----------- ----------- ----------- ----------- Net income applicable to common stock $ 76,651 $ 72,577 $ 149,484 $ 144,231 Average common shares outstanding 145,239 144,506 145,115 145,597 Net income per common share- basic $ 0.53 $ 0.50 $ 1.03 $ 0.99 Diluted: Net income $ 76,651 $ 72,708 $ 149,567 $ 144,503 Average common shares outstanding 145,239 144,506 145,115 145,597 Options and stock plans 1,457 1,364 1,545 1,413 Preferred stock 304 640 356 669 ----------- ----------- ----------- ----------- Average common shares outstanding- diluted 147,000 146,510 147,016 147,679 Net income per common share- diluted $ 0.52 $ 0.50 $ 1.02 $ 0.98
7. Mortgage Servicing Rights - The fair value of capitalized mortgage servicing rights was $34.9 million on June 30, 1998. Firstar serviced $3.5 billion of mortgage loans for other investors as of June 30, 1998. Changes in capitalized mortgage servicing are summarized as follows: Six Months Ended June 30 ----------- 1998 ----------- Balance - beginning of period 16,180 Servicing rights capitalized 35,573 Amortization of servicing rights (1,788) Sales of servicing rights (23,628) ----------- Balance - end of period 26,337 ===========
8. Stock Based Compensation Plans - The following table summarizes stock option activity for the six months ended June 30, 1998: Weight-Avg Number of Exercise Shares Price ----------- ----------- Options outstanding at December 31, 1997 5,065,089 $ 19.04 Granted 1,376,350 38.75 Exercised (321,994) 25.15 Forfeited (79,900) 32.76 ----------- Options outstanding at June 30, 1998 6,039,545 21.45 =========== Options excercisable on June 30, 1998 were 2,622,049. All options will become excercisable upon the merger with Star Banc Corporation. 9. Subsequent Events In July 1998, Firstar agreed to pay $4.5 million in settlement of a lawsuit. This payment will be expensed in the third quarter of 1998 and will reduce earnings per share by approximately 2 cents. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Forward Looking Information The following discussion includes forward looking statements concerning Firstar's business results. These forward-looking statements, such as statements of plans, strategies, goals, objectives, expectations, estimates and intentions, are based on assumptions that involve risks and uncertainties and that are subject to change based on various important factors (some of which are beyond Firstar's control). The following factors, among others, could cause actual results to differ materially from any forward-looking statement: the strength of the U.S. economy in general and the strength of the local economies in the areas in which Firstar conducts operations; the effects of and changes in trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System on both Firstar and its customers; inflation, interest rate and market fluctuations; the timely development of and acceptance of new products and services and the perceived overall value of these products; the willingness of customers to substitute competitors' products and services for Firstar's products and services; the impact of changes in financial services' laws and regulations; technological changes; acquisitions; changes in consumer spending and saving habits; and the success of Firstar at managing the risks involved in the foregoing. Financial Discussion - Income Statement Firstar Corporation's net income for the second quarter of 1998 was $76.7 million, or $.52 per common share, on a diluted basis, up from the $72.7 million, or $.50 per common share, for the same period last year. This represented a 5.4% increase in net income and a 4.0% increase in earnings per share. Return on common equity was 17.58% for the quarter, compared with 18.86% for the same period last year, while return on average assets was 1.56% compared to 1.51% during the second quarter of last year. Net income for the first six months of 1998 was $149.6 million, or $1.02 per diluted common share, up from the $144.5 million, or $.98 per diluted common share, for the same period last year. This represented a 4.1% increase in earnings per share. Return on common equity was 17.41% for the first half of the year, compared with 18.61% for the same period last year, while return on average assets was 1.53% compared to 1.51% during the first half of last year. Table 1 shows the components of net income and the net interest margin.
Table 1. Condensed income statements - taxable equivalent basis Three Months Ended Six Months Ended June 30 June 30 ---------------------------------- ------------------------------- 1998 1997 Change 1998 1997 Change ---------- ---------- ---------- --------- --------- --------- (millions of dollars) (millions of dollars) Interest revenue $ 350.5 $ 350.5 $ 0.0 $ 699.7 $ 692.1 $ 7.6 Taxable-equivalent adjustment 9.5 9.0 0.5 18.7 17.5 1.2 ---------- ---------- ---------- --------- --------- --------- Interest revenue - taxable-equivalent 360.0 359.5 0.5 718.4 709.6 8.8 Interest expense 167.0 163.9 3.1 332.6 318.5 14.1 ---------- ---------- ---------- --------- --------- --------- Net interest revenue - taxable-equivalent 193.0 195.6 (2.6) 385.8 391.1 (5.3) Provision for loan losses 10.6 9.5 1.1 26.3 19.2 7.1 Other operating revenue 135.0 113.5 21.5 264.1 224.0 40.1 Other operating expense 195.7 180.3 15.4 386.2 358.9 27.3 ---------- ---------- ---------- --------- --------- --------- Income before income taxes 121.7 119.3 2.4 237.4 237.0 0.4 Provision for income taxes 35.5 37.6 (2.1) 69.1 75.0 (5.9) Taxable-equivalent adjustment 9.5 9.0 0.5 18.7 17.5 1.2 ---------- ---------- ---------- --------- --------- --------- Net income $ 76.7 $ 72.7 $ 4.0 $ 149.6 $ 144.5 $ 5.1 ========== ========== ========== ========= ========= ========= Yield on earning assets 8.05 % 8.16 % (0.11)% 8.09 % 8.13 % (0.04)% Cost of interest-bearing liabilities 4.61 4.58 0.03 4.65 4.52 0.13 ---------- ---------- ---------- --------- --------- --------- Interest spread 3.44 3.58 (0.14) 3.44 3.61 (0.17) Impact of interest-free funds 0.87 0.86 0.01 0.90 0.86 0.04 ---------- ---------- ---------- --------- --------- --------- Net interest margin 4.31 % 4.44 % (0.13)% 4.34 % 4.47 % (0.13)% ========== ========== ========== ========= ========= =========
Net interest revenue during the first half of 1998, on a taxable equivalent basis, was $385.8 million, a $5.3 million, or 1.4%, decrease from the level experienced in the same period last year. The net interest margin was 4.34% during the first half of 1998 compared to 4.47% a year earlier. The competition for loans and deposits along with the flat yield curve have placed pressure on the margin and net interest revenue. Table 2 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 $8.8 million to $718.4 million during the first six months of 1998 compared to the same period last year. Loan income rose by $10.0 million due to higher average commercial loan balances partially offset by reduced yields on the loans. Securities revenue increased by $647 thousand with higher yields being partially offset by lower average balances. Short-term investment revenue was lower due to reduced balances. Total interest expense was $332.6 million during the first half of 1998, an increase of $14.1 million from the same period last year. Interest rates on liabilities increased to 4.65% in 1998 from 4.52% in 1997. Interest expense on total deposits increased $8.8 million in the first half of 1998 compared to the same period last year due to higher deposit levels and a change in mix of deposits from lower cost savings passbook to higher cost money market savings accounts and market competitive certificates of deposit. Interest expense on short-term borrowed funds decreased $3.8 million due to a shift from short-term borrowing to long-term debt. Interest expense on long-term debt increased $9.2 million due to additional balances. This shift between short-term and long-term debt was done to better match long-term assets and maintain the company's interest rate risk profile within established guidelines.
Table 2. Analysis of interest revenue and expense Six Months Ended June 30 --------------------------------------------------------------- Interest Total Due to ------------------------ ------------------------ 1998 1997 Change Volume Rate ----------- ----------- ----------- ----------- ----------- (thousands of dollars) Interest-bearing deposits with banks $ 141 $ 416 $ (275)$ (275)$ 0 Federal funds sold and resale agreements 2,099 3,691 (1,592) (1,777) 185 Trading securities 54 98 (44) (44) 0 Securities 142,458 141,811 647 (1,403) 2,050 Commercial loans 322,752 310,757 11,995 18,517 (6,522) Consumer loans 250,867 252,820 (1,953) (1,642) (311) ----------- ----------- ----------- Total loans 573,619 563,577 10,042 17,436 (7,394) ----------- ----------- ----------- Total interest revenue 718,371 709,593 8,778 11,992 (3,214) Interest-bearing demand 13,975 11,766 2,209 670 1,539 Money market accounts 70,066 56,498 13,568 8,267 5,301 Savings passbook 14,911 17,287 (2,376) (1,913) (463) Certificates of deposit 141,140 145,753 (4,613) (7,560) 2,947 ----------- ----------- ----------- Total deposits 240,092 231,304 8,788 1,331 7,457 Short-term borrowed funds 59,119 62,957 (3,838) (4,567) 729 Long-term debt 33,397 24,215 9,182 11,265 (2,083) ----------- ----------- ----------- Total interest expense 332,608 318,476 14,132 4,834 9,298 ----------- ----------- ----------- Net interest revenue $ 385,763 $ 391,117 $ (5,354) 6,562 (11,916) =========== =========== =========== 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.
Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates, exchange rates and equity prices. Firstar's market risk is composed primarily of interest rate risk. Firstar's Asset/Liability Committee (ALCO) is responsible for reviewing the interest rate sensitivity position of the Corporation and establishing policies to monitor and limit exposure to interest rate risk. The guidelines established by ALCO are reviewed by the Audit-Examining Committee. Firstar's primary purpose is to manage exposure to risks associated with interest rate movements and provide for acceptable and predictable results. Firstar utilizes an investment portfolio as well as off-balance sheet instruments to manage the interest rate risk naturally created through its business activities. The components of interest rate risk which are actively measured and managed include: repricing risk, basis risk, option risk and the risk of non-parallel shifts in the yield curve. An earnings simulation model forecasts earnings over each of the next two years under a variety of scenarios that incorporate changes in the shape of the yield curve, changes in interest rate relationships, changes in the direction of rates, and changes in the mix and levels of balance sheet accounts. Management evaluates the effects on income of these various rate scenarios against earnings in a base rate environment. The most recent earnings simulation projects net income would increase by approximately 1.9% of base rate net income if rates gradually fall by 150 basis points over the next year. It projects a decrease of approximately 3.4% if rates rise gradually by 150 basis points. Both simulations are well within the policy of limiting changes to 5% of income. The provision for loan losses increased to $26.3 million in the first half of 1998, from $19.2 million in the same period last year due to increased net charge-offs. Net loan charge-offs for the first half of 1998 were $26.2 million or .39% of average outstanding loans, compared with $18.6 million or .28% for the same period in 1997. The reserve for loan losses represented 1.59% of total loans at June 30, 1998 and June 30,1997. Net charge-offs on consumer loans were .65% in the second quarter and .74% for the first half of 1998. This was an increase from .59% in the comparable quarter of 1997 and from .65% the first six months of 1997. Increased credit card charge-offs were incurred during 1998. Net credit card charge-offs were 4.07% for the first six months of 1998, compared to 3.48% for the same period one year ago. Commercial loan charge-offs were .07% in the current quarter and .14% for the first half of 1998. This is up from the unrepresentatively low charge-off levels of the comparable periods of last year. Total nonperforming assets were $66.0 million, or .48% of total loans and foreclosed assets on June 30, 1998. This represents a reduction in nonperforming assets of $14.0 million and $25.9 million from the prior quarter and one year ago, respectively.
Table 3. Net loan charge-offs Quarter ended Year to Date ---------------------- ---------------------- 6-30-98 6-30-97 6-30-98 6-30-97 ---------- ---------- ---------- ---------- (thousands of dollars) Loan charge-offs Commercial $ 4,906 $ 1,908 $ 14,061 $ 2,946 Commercial mortgage 504 315 741 491 Consumer 4,751 3,786 10,682 9,948 Consumer mortgage 131 282 399 185 Credit card 8,572 7,743 17,307 14,982 ---------- ---------- ---------- ---------- Total charge-offs 18,864 14,034 43,190 28,552 Loan recoveries Commercial 3,524 1,063 8,387 1,902 Commercial mortgage 487 599 1,129 1,505 Consumer 2,683 1,356 4,233 2,716 Consumer mortgage 33 42 192 52 Credit card 1,463 2,069 3,041 3,753 ---------- ---------- ---------- ---------- Total recoveries 8,190 5,129 16,982 9,928 Total net charge-offs $ 10,674 $ 8,905 $ 26,208 $ 18,624 ========== ========== ========== ========== Net charge-offs as a % of Commercial 0.11 % 0.07 % 0.23 % 0.05 % Commercial mortgage 0.00 (0.04) (0.03) (0.07) Total commercial loans 0.07 0.02 0.14 0.00 Consumer 0.31 0.38 0.48 0.57 Consumer mortgage 0.02 0.04 0.02 0.01 Credit card 4.00 3.52 4.07 3.48 Total consumer loans 0.65 0.59 0.74 0.65 Total loans 0.31 0.27 0.39 0.28
Other operating revenue, excluding securities gains and losses, increased by 18.3% over the first half of 1997 to $263.6 million. Other operating revenue represents 40.6% of total taxable equivalent revenue for the first half of 1998 compared to 36.4% for the same period one year ago. Table 4 shows the composition of other operating revenue.
Table 4. Other operating revenue Three Months Ended Six Months Ended June 30 June 30 ---------------------------------- ---------------------------------- 1998 1997 Change 1997 1996 Change ---------- ---------- ---------- ---------- ---------- ---------- (thousands of dollars) (thousands of dollars) Trust and investment management fees $ 45,267 $ 42,901 5.5 % 91,313 $ 82,752 10.3 % Service charges on deposit accounts 25,693 21,825 17.7 51,390 45,066 14.0 Mortgage origination 19,538 7,012 178.6 33,654 12,324 173.1 Mortgage servicing 3,439 3,080 11.7 10,617 6,452 64.6 ---------- ---------- ---------- ---------- Mortgage banking revenue 22,977 10,092 127.7 44,271 18,776 135.8 Credit card service revenue 14,350 12,493 14.9 26,986 24,749 9.0 Merchant fees 2,414 5,711 (57.7) 3,946 10,515 (62.5) Insurance revenue 4,186 3,565 17.4 7,011 5,853 19.8 Data processing fees 3,520 3,829 (8.1) 7,273 7,942 (8.4) Brokerage revenue 3,447 2,768 24.5 6,499 5,442 19.4 ATM fees 2,684 1,324 102.7 4,677 2,481 88.5 International fees 1,632 1,496 9.1 3,181 2,845 11.8 Safe deposit fees 944 1,081 (12.7) 2,157 2,476 (12.9) Foreign exchange gains 767 884 (13.2) 1,438 1,649 (12.8) Trading securities gains 264 209 26.3 436 726 (39.9) Other 6,402 5,287 21.1 13,013 11,585 12.3 ---------- ---------- ---------- ---------- Subtotal 134,547 113,465 18.6 263,591 222,857 18.3 Securities gains 488 0 491 1,126 ---------- ---------- ---------- ---------- Total $ 135,035 $ 113,465 19.0 % 264,082 $ 223,983 17.9 % ========== ========== ========== ==========
Trust and investment management fees are the single largest source of fee revenue, contributing $91.3 million, or 34.6%, of other operating revenue. This level represents a 10.3% growth in revenue during the first half of 1998 compared to the same period last year. Adjustments to trust fee revenue accruals resulting from a system conversion reduced revenue by $2.9 million in the second quarter of 1998. Firstar does not anticipate similar adjustments in future periods. Trust and investment assets under management were $27.3 billion on June 30, 1998, an 11.1% increase from the year earlier level due to both the result of general market appreciation and additional net new business. Additionally, assets held in custody accounts rose by 7.0% to a level of $88.6 billion due in part to increased mutual fund services business. The increased volatility of equity markets and interest rates has had a significant effect on trust and investment management fees and future revenue levels could likewise be influenced by these factors. Revenue from service charges on deposit accounts are the second largest source of fee revenue at $51.4 million for the first half of 1998. This level represented a 14.0% increase from the same period one year ago and was primarily the result of increased commercial cash management revenues. Revenue from mortgage loan originations activity for the first half of this year increased 173.1%. The lower interest rates currently available to borrowers has significantly increased mortgage volumes. Mortgage loan closings were $2.1 billion in the first half of 1998, compared to $743 million during the comparable period of 1997. Mortgage loan servicing revenues increased by 64.6% from the year earlier level due to $4.0 million in gains on the sale of servicing rights this year. Excluding these gains, revenue from mortgage servicing remained flat. The company sold mortgage servicing rights as part of its risk management of the servicing portfolio. Mortgage loans serviced for others were $3.5 billion on June 30, 1998. Credit card revenues, excluding merchant processing revenue, totaled $27.0 million during the first half of 1998. This level represented a 9.0% increase over the same period last year. In the fourth quarter of 1997, Firstar formed a joint venture with Nova Information Systems Inc. to provide credit card processing services to merchants. Merchant processing revenue decreased 62.5% over a year earlier due to the transfer of this activity to the joint venture. The remaining sources of other operating revenue were derived from a wide range of services and aggregated $46.2 million, an increase of 9.6% over the first six months of 1997. Other operating expense rose by 7.6% over the first half of 1997 to a level of $386.2 million. Personnel costs increased by 8.0% from the same period last year. Nonpersonnel expense increased by 7.2%. The detail of other operating expense is shown in Table 5. Personnel costs increased by 8.0%, reflecting higher commissions paid to mortgage banking personnel due to the increased sales volume, normal salary increases for all employees, and increased contract programming costs due in part to the Year 2000 project. Employee benefit expense has increased due to higher pension costs and payroll taxes. Full-time equivalent personnel headcount was 8,048 on June 30, 1998, down from 8,138 one year earlier. Equipment expense increased by $2.7 million, or 8.2%, primarily as a result of equipment upgrades and higher maintenance charges. Net occupancy expense rose by $1.9 million or 6.2%. As of the end of 1997, all deferred gains from the sale of a building in 1988 had been amortized. This amortization reduced occupancy expense in the first half of 1997 by $3.4 million. Business development expense rose by 4.9% from last year as a result of increased advertising associated with a Firstar brand identity program. Information processing expense rose by 16.4% due to increased volumes in the mutual funds processing area. Processing losses increased $1.5 million or 43.7%. All other operating expenses totaled $71.8 million, a increase of 4.3% over the first six months of 1997. Firstar is implementing a program to insure that its computer systems are year 2000 compliant. This process involves modifying or replacing certain hardware and software maintained by Firstar as well as monitoring the progress of service providers to ensure that they are taking the appropriate action to solve their year 2000 issues. Year 2000 compliance does involve significant business risk to Firstar. Additionally, Firstar is dependent upon the successful completion of year 2000 issues by its customers and third parties with whom Firstar has financial transactions. Firstar has completed assessment of its year 2000 issues and the required updates and testing are currently in progress. Firstar expects that the total cost of this process will approach $20 million. Approximately $9.0 million has been expensed during 1997 and through the first half of 1998. Firstar plans to complete substantially all year 2000 work associated with its critical business applications by the end of 1998. Testing of vendor provided software may continue into 1999 dependent upon the availability of their upgrades.
Table 5. Other operating expense Three Months Ended Six Months Ended June 30 June 30 ---------------------------------- ---------------------------------- 1998 1997 Change 1998 1997 Change ---------- ---------- ---------- ---------- ---------- ---------- (thousands of dollars) (thousands of dollars) Salaries $ 89,602 $ 83,930 6.8 % $ 176,300 $ 162,198 8.7 % Employee benefits 16,462 16,370 0.6 36,486 34,884 4.6 ---------- ---------- ---------- ---------- Total personnel expense 106,064 100,300 5.7 212,786 197,082 8.0 Equipment expense 19,437 15,970 21.7 35,736 33,039 8.2 Net occupancy expense 16,056 15,563 3.2 32,861 30,942 6.2 Business development 7,705 7,464 3.2 15,416 14,696 4.9 Professional fees 7,614 7,517 1.3 14,376 15,147 (5.1) Information processing expense 6,774 5,949 13.9 12,575 10,805 16.4 Delivery 5,088 4,602 10.6 9,387 9,642 (2.6) Stationery and supplies 4,979 5,083 (2.0) 9,884 10,906 (9.4) Amortization of intangibles 3,986 3,452 15.5 7,981 7,461 7.0 Wire communication 2,411 2,493 (3.3) 4,452 5,015 (11.2) Employee education/recruiting 2,380 2,045 16.4 4,892 3,975 23.1 Processing and other losses 2,348 2,086 12.6 5,011 3,486 43.7 Bank processing fees 2,207 1,502 46.9 4,384 3,183 37.7 Published information 738 527 40.0 1,761 1,359 29.6 Credit card assessment fees 752 998 (24.6) 1,681 2,809 (40.2) Insurance 597 220 171.4 958 374 156.1 Net foreclosed assets expense(income) 224 14 425 (59) Other 6,364 4,412 44.2 11,624 9,026 28.8 ---------- ---------- ---------- ---------- Total nonpersonnel expense 89,660 79,897 12.2 173,404 161,806 7.2 ---------- ---------- ---------- ---------- Total other operating expense $ 195,724 $ 180,197 8.6 % $ 386,190 $ 358,888 7.6 % ========== ========== ========== ==========
Income tax expense was $69.1 million in the first half of 1998 compared to $75.0 million in the same period last year. The effective tax rate was 31.6 % in 1998 compared to 34.2% in 1997. The implementation of various tax planning strategies has reduced the effective tax rate. Financial Discussion - Balance Sheet Total assets on June 30, 1998 were $20.0 billion, up $128 million from December 31, 1997 and up $66 million from a year earlier. Earning assets totaled $18.0 billion, up $186 million from December 31, 1997 and $144 million from a year earlier. Average loans totaled $13.6 billion during the first six months of 1998, an increase of $413 million, or 3.1% from a year earlier. Commercial loans averaged $7.9 billion during the first half of 1998, an increase of $450 million, or 6.1% from a year earlier. While this loan growth is encouraging, competitive pressures are leading to narrower interest spreads for commercial lending. Consumer loans, excluding residential mortgages, averaged $3.4 billion, an increase of $206 million, or 6.4% over the first half of 1997. Good growth has occurred in home equity loans and credit card loans, which are up 12.0% and 8.7% respectively, from the same period one year ago. Reductions in direct installment debt and other areas of consumer lending have been seen as customers are converting and consolidating their debt to home equity or mortgage products. Residential mortgage loans, exclusive of loans held for sale, declined by 20.0% on average from the first half of 1997. The reduction was attributable to the normal loan amortization and prepayments partially offset by the placement in the portfolio of some shorter term variable rate mortgages. Lower interest rates experienced in the last half of 1997 and continuing into the first half of 1998 along with a flat yield curve, have increased the prepayment rate on portfolio mortgages during this same time period. Firstar's primary strategy in this area has been to originate and sell mortgages into the secondary market thereby reducing the amount of portfolio mortgages held on the balance sheet. Total securities, including both those designated as available for sale and those held to maturity averaged $4.2 billion during the first half of both 1998 and 1997. Funding sources, consisting of deposits and borrowed funds, averaged $17.7 billion during the first half of 1998. Total deposits averaged $14.5 billion, an increase of 1.0% from a year ago. The change in the mix of deposits is reflected in the 11.3% reduction in average passbook deposit levels and the 4.4% reduction of certificates of deposit. Money market deposit accounts have increased by 13.8% during the same period as consumers have moved money from passbook savings and certificates of deposit. Increased competition for consumer deposits and continued consumer sensitivity to interest rates and other uses of funds, such as investments in equity markets, have limited Firstar's deposit growth. Borrowed funds averaged $3.2 billion during the first half of 1998, up $150 million from a year earlier. A $250 million issue of long-term senior bank notes was made in December 1997. Firstar has called for redemption on September 1, 1998, the $100 million 7.15% subordinated notes due on September 1, 2000. Stockholders' equity totaled $1,785 million at June 30, 1998, a increase of $92 million from December 31, 1997. Firstar's capital management plan strives to match longer term capital needs with maintaining sound capital levels. Firstar's tier 1 leverage ratio was 8.85% at June 30, 1998. On June 30, 1998, the Board of Directors rescinded the January 16, 1997 authorization to repurchase up to 12 million shares of Firstar common stock for retirement. The Company still has authorization to repurchase shares for reissue for certain employee benefit plans. The board of directors declared a quarterly dividend to common stockholders of $.23 per share. The dividend is payable August 15 to shareholders of record on July 27.
Table 6. Capital components and ratios June 30 December 31 June 30 1998 1997 1997 ------------ ------------ ------------ (thousands of dollars) Risk-based capital: Stockholders' equity $ 1,785,123 $ 1,693,101 $ 1,590,432 Trust capital securities 150,000 150,000 150,000 Unrealized gains on securities available for sale (24,268) (22,624) (12,664) Minority interest in subsidiaries 3,207 2,913 2,623 Less disallowed intangibles (181,262) (188,466) (194,415) ------------ ------------ ------------ Total Tier I capital 1,732,800 1,634,924 1,535,976 Allowable reserve for loan losses 200,748 200,438 182,806 Allowable long-term debt 0 40,000 60,000 ------------ ------------ ------------ Total Tier II capital 200,748 240,438 242,806 ------------ ------------ ------------ Total capital $ 1,933,548 $ 1,875,362 $ 1,778,782 ============ ============ ============ Risk-adjusted assets $ 16,041,653 $ 16,016,627 $ 14,593,563 Tier I capital to risk-adjusted assets 10.80 % 10.21 % 10.53 % Total capital to risk-adjusted assets 12.05 11.71 12.19 Tier I leverage ratio 8.85 8.50 8.03
FIRSTAR CORPORATION AND SUBSIDIARIES ADDITIONAL FINANCIAL DATA (unaudited) - ----------------------------------------------------------------------------------------- Selected Financial Data (thousands of dollars, except per share) Quarter ended Three Months ended June 30 June 30 ---------------------- ------------------------ 1998 1997 1998 1997 ---------------------- ------------------------ Earnings and Dividends Net income $ 76,651 $ 72,708 $ 149,567 $ 144,503 Per common share: Net income 0.53 0.50 1.03 0.99 Net income assuming dilution 0.52 0.50 1.02 0.98 Dividends 0.23 0.21 0.44 0.40 Stockholders' equity 12.26 10.96 Performance Ratios Return on average assets 1.56 % 1.51 % 1.53 % 1.51 % Return on average common equity 17.58 18.86 17.41 18.61 Dividend payout ratio 43.39 42.00 42.70 40.40 Equity to assets 8.94 7.99 Net loan charge-offs as a percentage of average loans 0.31 0.27 0.39 0.28 Nonperforming assets as a percentage of loans and foreclosed assets 0.48 0.68 Net interest margin 4.31 4.44 4.34 4.47 Efficiency ratio 59.76 58.31 59.47 58.45 Fee revenue as a percentage of average assets 41.08 36.71 40.59 36.30 Statistical Data Full-time equivalent staff (at quarter end) 8,048 8,138 Average common shares outstanding (000's) 145,239 144,506 145,115 145,597 Average common shares outstanding assuming dilution (000's) 147,000 146,510 147,016 147,679 Actual common shares outstanding (000's at quarter end) 145,547 144,460 Stock Price Information High $ 41.000 $ 33.125 $ 42.625 $ 33.125 Low 32.750 27.250 32.750 25.563 Close 38.188 30.500 38.188 30.500 -14-
FIRSTAR CORPORATION AND SUBSIDIARIES ADDITIONAL FINANCIAL DATA (Unaudited) -------------------------------------------------------------------------------------------------------- Consolidated Average Balance Sheets, Net Interest Revenue and Rate Analysis (Thousands of Dollars) Quarter ended June 30 ------------------------------------------------------------------------ 1998 1997 ------------------------------------- ---------------------------------- Average Average Average Average Balance Interest Rate Balance Interest Rate ------------------------------------- ---------------------------------- Assets Interest-bearing deposits with banks $ 4,022 $ 53 5.29 % $ 20,946 $ 329 6.30 % Federal funds sold and resale agreements 62,142 835 5.39 163,863 2,151 5.27 Trading securities 3,567 28 3.15 2,178 27 4.97 Securities: Taxable 2,806,567 47,081 6.72 2,987,182 49,850 6.69 Nontaxable 1,350,403 23,951 7.09 1,196,425 21,484 7.18 ----------- ---------- ----------- ---------- Total securities 4,156,970 71,032 6.84 4,183,607 71,334 6.83 Loans: Commercial 8,009,179 163,190 8.17 7,512,853 159,051 8.49 Residential mortgage portfolio 1,874,172 35,162 7.50 2,420,172 46,007 7.60 Residential mortgage-held for sa 410,138 7,202 7.02 122,488 2,305 7.53 Consumer 3,405,569 82,506 9.72 3,222,588 78,290 9.74 ----------- ---------- ----------- ---------- Total loans 13,699,058 288,060 8.43 13,278,101 285,653 8.62 ----------- ---------- ----------- ---------- Interest earning assets 17,925,759 360,008 8.05 17,648,695 359,494 8.16 Reserve for loan losses (216,741) (212,970) Cash and due from banks 1,046,248 958,441 Other assets 1,011,789 922,060 ----------- ----------- Total assets $ 19,767,055 $ 19,316,226 =========== =========== Liabilities and Stockholders' Equity Interest-bearing demand $ 1,656,691 $ 7,075 1.71 % $ 1,575,476 $ 6,032 1.54 % Money market accounts 3,190,480 35,859 4.51 2,741,187 28,905 4.23 Savings passbook 1,319,220 7,455 2.27 1,480,249 8,335 2.26 Certificates of deposit 5,032,113 69,863 5.57 5,321,914 73,914 5.57 Short-term borrowed funds 2,333,386 30,626 5.26 2,578,069 34,663 5.39 Long-term debt 982,779 16,138 6.57 668,510 12,069 7.22 ----------- ---------- ----------- ---------- Interest-bearing liabilities 14,514,669 167,016 4.61 14,365,405 163,918 4.58 Demand deposits 3,236,247 3,133,612 Other liabilities 263,843 266,227 Stockholders' equity 1,752,296 1,550,982 ----------- ----------- Total liabilities and stockholders' equity $ 19,767,055 $ 19,316,226 =========== =========== Net interest revenue/margin $ 192,992 4.31 % $ 195,576 4.44 % ========== ==========
Six months ended June 30 ------------------------------------- ---------------------------------- 1998 1997 ----------------------------------- ---------------------------------- Average Average Average Average Balance Interest Rate Balance Interest Rate ------------------------------------- ---------------------------------- Assets Interest-bearing deposits with banks $ 4,338 $ 141 6.55 % $ 12,772 $ 416 6.57 % Federal funds sold and resale agreements 75,980 2,099 5.57 140,629 3,691 5.29 Trading securities 3,024 54 3.60 3,199 98 6.18 Securities: Taxable 2,831,898 95,471 6.83 3,027,697 99,856 6.63 Nontaxable 1,325,716 46,987 7.09 1,171,231 41,955 7.16 ----------- ---------- ----------- ---------- Total securities 4,157,614 142,458 6.87 4,198,928 141,811 6.78 Loans: Commercial 7,886,510 322,752 8.25 7,436,469 310,757 8.42 Residential mortgage portfolio 1,963,896 73,706 7.51 2,454,957 93,772 7.64 Residential mortgage-held for sa 360,569 12,619 7.00 112,767 4,120 7.31 Consumer 3,411,967 164,542 9.72 3,206,248 154,928 9.74 ----------- ---------- ----------- ---------- Total loans 13,622,942 573,619 8.48 13,210,441 563,577 8.59 ----------- ---------- ----------- ---------- Interest earning assets 17,863,898 718,371 8.09 17,565,969 709,593 8.13 Reserve for loan losses (217,076) (212,721) Cash and due from banks 1,056,310 993,790 Other assets 997,691 913,261 ----------- ----------- Total assets $ 19,700,823 $ 19,260,299 =========== =========== Liabilities and Stockholders' Equity Interest-bearing demand $ 1,669,530 $ 13,975 1.69 % $ 1,582,678 $ 11,766 1.50 % Money market accounts 3,121,978 70,066 4.53 2,742,929 56,498 4.15 Savings passbook 1,325,198 14,911 2.27 1,494,309 17,287 2.33 Certificates of deposit 5,063,747 141,140 5.62 5,296,884 145,753 5.55 Short-term borrowed funds 2,238,219 59,119 5.33 2,411,410 62,957 5.26 Other debt 1,005,851 33,397 6.64 682,739 24,215 7.10 ----------- ---------- ----------- ---------- Interest-bearing liabilities 14,424,523 332,608 4.65 14,210,949 318,476 4.52 Demand deposits 3,275,608 3,198,224 Other liabilities 264,851 279,898 Stockholders' equity 1,735,841 1,571,228 ----------- ----------- Total liabilities and stockholders' equity $ 19,700,823 $ 19,260,299 =========== =========== Net interest revenue/margin $ 385,763 4.34 % $ 391,117 4.47 % ========== ========== -16-
PART II. OTHER INFORMATION Item 5. Other Information Proposals of shareholders pursuant to Rule 14a-8 under the Securities Exchange Act of 1934 that are intended to be presented at Firstar's 1999 Annual Meeting of Shareholders must be received by Firstar no later than November 13, 1998 to be included in Firstar's proxy materials for that meeting. Further, a shareholder who otherwise intends to present business at the 1999 annual meeting must comply with the requirements set forth in Firstar's By-laws. Among other things, to bring business before an annual meeting, a shareholder must give written notice thereof, complying with the By-laws, to the Secretary of Firstar not less than 50 days in advance of the third Thursday in the month of April next succeeding the last annual meeting held. If the annual meeting is held earlier than the third Thursday in April, the shareholder's notice must be received by the Secretary of Firstar by the later of a) 50 days prior to the earlier date of the annual meeting and b) 10 business days (as defined in the By-laws) after the first public announcement of the earlier date of such annual meeting. If Firstar does not receive notice of a shareholder proposal by the relevant date, then the notice will be considered untimely and Firstar is not required to present such proposal at the annual meeting. Furthermore, if the Board of Directors chooses to present at the 1999 annual meeting a proposal received after the relevant date (which date is February 24, 1999, assuming the 1999 annual meeting is held on the third Thursday in April), then the persons named in the proxies solicited by the Board of Directors for the 1999 annual meeting may exercise discretionary voting power with respect to such proposal. -17- Item 6. Exhibits and Reports on Form 8-K (a) Exhibits to Part 1 of Form 10-Q 27. Financial Data Schedule (b) A Form 8-K and 8-KA both dated June 30, 1998 reported the announcement of a definitive agreement to merge Firstar Corporation and Star Banc Corporation. 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 Chief Financial Officer August 12, 1998 -18- EX-27 2 EXHIBIT 27 (FDS) FILED WITH FORM 10-Q
9 1,000 6-MOS DEC-31-1998 JUN-30-1998 1,039,987 5,574 79,257 617 1,803,690 2,374,235 2,426,232 13,741,412 218,903 19,971,665 14,772,618 2,205,745 252,281 955,898 181,935 0 0 1,603,188 19,971,665 570,297 127,068 2,294 699,659 240,092 332,608 367,051 26,250 491 386,190 218,693 149,567 0 0 149,567 1.03 1.02 4.34 57,916 63,228 43 0 218,861 43,190 16,982 218,903 218,323 580 0
EX-27 3 EXHIBIT 27 (FDS) FILED WITH FORM 10-Q
9 1,000 6-MOS DEC-31-1997 JUN-30-1997 1,317,063 26,496 224,006 1,763 1,782,225 2,346,013 2,382,206 13,480,457 213,763 19,905,685 14,623,736 2,794,858 268,724 627,935 181,027 0 7,454 1,401,951 19,905,685 560,068 127,849 4,203 692,120 231,304 318,476 373,644 19,249 1,126 358,888 219,490 144,503 0 0 144,503 0.99 0.98 4.47 85,393 72,952 273 0 213,138 28,552 9,928 213,763 213,248 515 0
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