STAR BANC CORPORATION AND SUBSIDIARIES
FORM 10Q
September 30, 1994
Table of Contents
Part I. Financial Information:
Financial Highlights...................................................3
Report of Independent Public Accountants...............................4
Item 1. Financial Statements:
Consolidated Financial Statements.................................5 - 8
Notes to Condensed Consolidated Financial Statements.............9 - 13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................14 - 23
Part II. Other Information
Item 1. Legal Proceedings...........................................none
Item 2. Changes in Securities.......................................none
Item 3. Defaults Upon Senior Securities.............................none
Item 4. Submission of Matters to a Vote of Security Holders.........none
Item 5. Other Information...........................................none
Item 6. Exhibits and Reports on Form 8-K..............................24
Signatures..............................................................24
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PART I. FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
(Dollars in thousands except per share data)
Third Quarter Year thru September
Percent Percent
1994 1993 Change 1994 1993 Change
<S> <C> <C> <C> <C> <C> <C>
Net income........................... $ 29,807 $ 23,536 26.6 % $ 86,183 $ 73,783 16.8 %
Per share:
Primary earnings................... $ 1.00 $ 0.78 27.0 % $ 2.88 $ 2.47 16.3 %
Fully diluted earnings............. 0.99 0.77 28.3 2.84 2.43 16.9
Common stock dividends declared.... 0.35 0.29 20.7 1.05 0.87 20.7
Preferred dividends declared....... 1.50 1.50 -- 4.50 4.50 --
Book value per common share........ 23.50 21.73 8.2 23.50 21.73 8.2
Market value per common share...... 41.00 36.00 13.9 41.00 36.00 13.9
Average balances:
Total assets....................... $ 8,227,994 $ 7,608,745 8.1 % $ 7,919,643 $ 7,512,268 5.4 %
Earning assets..................... 7,664,824 7,068,391 8.4 7,373,861 6,976,217 5.7
Loans, net of unearned interest.... 5,817,796 5,181,251 12.3 5,591,584 5,098,357 9.7
Deposits........................... 6,091,796 6,145,158 (0.9) 6,002,676 6,160,319 (2.6)
Shareholders' equity............... 703,899 650,445 8.2 695,694 631,658 10.1
Ratios:
Return on average assets........... 1.44 % 1.23 % 1.45 % 1.31 %
Return on average equity........... 16.80 14.36 16.56 15.62
Average shareholders' equity
to average assets................ 8.55 8.55 8.78 8.41
Risk-based capital ratios:
Tier 1........................... 8.59 10.75 8.59 10.75
Total............................ 12.17 12.06 12.17 12.06
Leverage........................... 6.04 7.97 6.04 7.97
Net interest margin................ 4.60 4.60 4.63 4.62
Noninterest expense to net revenue. 54.21 57.96 55.06 56.92
Noninterest income as a percent
of net revenue................... 24.49 25.77 25.19 25.71
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<PAGE>
ARTHUR ANDERSEN LLP
Report of Independent Public Accountants
To the Shareholders and Board of Directors
of Star Banc Corporation:
We have reviewed the accompanying condensed consolidated balance sheet of Star
Banc Corporation (an Ohio corporation) as of September 30, 1994, and the
related condensed consolidated statements of income for the three-month and
nine-month periods, and the consolidated statements of changes in
shareholders' equity and cash flows for the nine-month period ended
September 30, 1994 and 1993. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interin
financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Star Banc Corporation as
of December 31, 1993 (not presented herein), and, in our report dated
January 11, 1994, we expressed an unqualified opinion on that statement.
In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31, 1993, is fairly
stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
/s/ Arthur Andersen, LLP
Cincinnati, Ohio,
October 13, 1994.
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STAR BANC CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
September 30, December 31,
1994 1993
<S> <C> <C>
ASSETS:
Cash and Due From Banks........................... $ 414,054 $ 387,759
Interest Bearing Deposits in Banks................ 101 100
Federal Funds Sold and Securities Purchased
Under Agreements to Resell...................... 19,080 172,675
Investment Securities (market value of $2,401,823
at September 30, 1994 and $1,605,342 at
December 31, 1993).............................. 2,452,571 1,600,275
Loans:
Commercial Loans................................ 1,998,086 1,789,695
Real Estate Loans............................... 2,294,114 2,087,301
Retail Loans.................................... 1,783,835 1,462,815
Total Loans................................... 6,076,035 5,339,811
Less: Unearned Interest....................... 59,604 45,404
6,016,431 5,294,407
Allowance for Loan Losses............... 92,796 83,156
Net Loans..................................... 5,923,635 5,211,251
Premises and Equipment............................ 111,460 104,305
Acceptances - Customers' Liability................ 943 3,026
Other Assets...................................... 282,508 157,366
Total Assets.................................. $ 9,204,352 $ 7,636,757
LIABILITIES:
Deposits:
Noninterest-Bearing Deposits.................... $ 1,104,977 $ 1,200,609
Interest-Bearing Deposits:
Savings and NOW............................... 2,123,446 1,821,869
Time Deposits $100,000 and Over............... 519,808 351,095
All Other Deposits............................ 3,361,869 2,641,993
Total Deposits.............................. 7,110,100 6,015,566
Short-term Borrowings............................. 1,140,572 816,706
Long-term Debt.................................... 166,477 51,700
Acceptances Outstanding........................... 943 3,026
Other Liabilities................................. 85,320 73,960
Total Liabilities............................. 8,503,412 6,960,958
SHAREHOLDERS' EQUITY:
Preferred Stock:
Shares Authorized - 1,000,000
Shares Outstanding - 30,813 at September 30,
1994 and 176,164 at December 31, 1993......... 2,558 14,622
Common Stock:
Shares Authorized - 50,000,000
Shares Issued - 30,105,847 at September 30, 1994
and 29,753,378 at December 31, 1993........... 150,529 148,767
Surplus........................................... 78,634 80,038
Retained Earnings................................. 490,335 435,724
Treasury Stock, at cost - 392,822 shares at September
30, 1994 and 146,713 at December 31, 1993....... (12,896) (3,352)
Net Unrealized (Loss) on Securities
Available-For-Sale.............................. (8,220) --
Total Shareholders' Equity.................... 700,940 675,799
Total Liabilities and Shareholders' Equity.... $ 9,204,352 $ 7,636,757
See Notes to Condensed Consolidated Financial Statements
</TABLE>
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STAR BANC CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE PERIODS ENDED SEPTEMBER 30
(Unaudited)
(Dollars in thousands except per share data)
Third Quarter Nine Months
1994 1993 1994 1993
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INTEREST INCOME:
Interest and Fees on Loans..............$119,680 $105,378 $337,700 $314,883
Interest on Investment Securities:
Taxable................................ 22,891 20,261 64,576 63,563
Non-Taxable............................ 362 481 1,179 1,562
Interest on Federal Funds Sold and
Securities Purchased Under
Agreements to Resell................... 528 2,458 1,145 7,319
Interest on Interest-Bearing Deposits.... 300 1 457 236
Total Interest Income..................143,761 128,579 405,057 387,563
INTEREST EXPENSE:
Interest on Savings and NOW.............. 9,743 11,805 28,336 35,782
Interest on Time Deposits $100,000 and Ov 4,422 4,080 11,353 12,801
Interest on Other Deposits............... 28,968 26,452 79,874 83,673
Interest on Short-Term Borrowings........ 11,147 4,287 25,079 12,079
Interest on Long-Term Debt............... 2,051 1,250 6,908 3,982
Total Interest Expense................. 56,331 47,874 151,550 148,317
Net Interest Income.................. 87,430 80,705 253,507 239,246
Provision for Loan Losses................ 7,100 9,039 19,392 25,784
Net Interest Income after
Provision for Loan Losses.......... 80,330 71,666 234,115 213,462
NONINTEREST INCOME:
Trust Income............................. 8,986 8,978 26,915 26,767
Service Charges on Deposits.............. 9,063 8,560 25,686 26,009
Other Service Charges and Fees........... 8,412 7,807 24,841 23,578
Investment Securities Gains-Net.......... 9 4 8 135
All Other Income......................... 2,139 2,946 8,715 7,185
Total Noninterest Income............... 28,609 28,295 86,165 83,674
NONINTEREST EXPENSE:
Salaries................................. 26,887 24,410 76,435 71,815
Pension and Other Employee Benefits...... 4,861 4,841 14,243 14,614
Equipment Expense........................ 3,578 4,197 11,223 12,542
Occupancy Expense - Net.................. 4,504 4,441 13,284 12,820
All Other Expense........................ 23,494 25,756 73,129 73,439
Total Noninterest Expense.............. 63,324 63,645 188,314 185,230
INCOME BEFORE TAX........................ 45,615 36,316 131,966 111,906
Income Tax............................... 15,808 12,780 45,783 38,123
NET INCOME..............................$ 29,807 $ 23,536 $ 86,183 $ 73,783
PER SHARE:
Primary Earnings........................$ 1.00 $ 0.78 $ 2.88 $ 2.47
Fully Diluted Earnings................... 0.99 0.77 2.84 2.43
Common Stock Cash Dividends Declared..... 0.35 0.29 1.05 0.87
Preferred Stock Cash Dividends Declared.. 1.50 1.50 4.50 4.50
See Notes to Condensed Consolidated Financial Statements
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STAR BANC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Unaudited
(Dollars in thousands)
Net
Series B Unrealized
Preferred Common Retained Treasury Gain/(Loss) Total
Stock Stock Surplus Earnings Stock on Securities Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993. $ 15,408 $146,910 $ 72,826 $ 370,666 $ (3,477) $ -- $602,333
Net income................. 73,783 73,783
Cash dividends declared
on common stock........... (25,544) (25,544)
Cash dividends declared
on Series B Preferred
Stock..................... (819) (819)
Issuance of common
stock..................... 1,157 4,634 5,791
Conversion of Series B
Preferred Stock into
common stock, including
treasury stock issued..... (786) 215 571 -- --
Purchase of treasury
stock..................... (532) (532)
Treasury shares issued to
meet deferred compensation
obligations............... (332) 332 --
Shares reserved to meet
deferred compensation
obligations............... 532 532
Balance, September 30, 1993.$ 14,622 $148,282 $ 78,231 $ 418,086 $ (3,677) $ -- $655,544
Balance, January 1, 1994. $ 14,622 $148,767 $ 80,038 $ 435,724 $ (3,352) $ -- $675,799
Net income................. 86,183 86,183
Cash dividends declared
on common stock........... (31,295) (31,295)
Cash dividends declared
on Series B Preferred
Stock..................... (277) (277)
Issuance of shares upon
exercise of options
on common stock........... 90 17 2,348 2,455
Conversion of Series B
Preferred Stock into
common stock, including
treasury stock issued..... (12,064) 1,672 (1,938) 12,329 (1)
Purchase of treasury
stock..................... (24,809) (24,809)
Treasury shares issued to
meet deferred compensation
obligations............... (276) 276 --
Shares reserved to meet
deferred compensation
obligations, including
treasury stock issued..... 793 312 1,105
Initial adoption of
SFAS No.115............... 4,386 4,386
Change in net unrealized
gain/(loss) on securities
available-for-sale........ (12,606) (12,606)
Balance, September 30, 1994.$ 2,558 $150,529 $ 78,634 $ 490,335 $(12,896) $ (8,220) $700,940
See Notes to Condensed Consolidated Financial Statements
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STAR BANC CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Nine Months Ended
September 30
1994 1993
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 86,183 $ 73,783
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization......................... 22,965 23,712
Provision for loan losses............................. 19,392 25,784
Provision for deferred taxes.......................... 1,149 (6,906)
(Gain)/loss on sale of premises and equipment - net... (131) (191)
(Gain)/loss on sale of securities - net............... (1) (135)
Net change in mortgages held for sale................. 38,848 31,590
Net change in other assets............................ (7,991) (3,001)
Net change in other liabilities....................... (4,447) 7,180
Total adjustments................................... 69,784 78,033
Net cash provided by operating activities........... 155,967 151,816
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of held-to-maturity securities... 233,530 417,070
Proceeds from maturities of available-for-sale securities. 296,914 -
Proceeds from sales of available-for-sale securities...... 991 6,515
Purchase of held-to-maturity securities..................(1,006,422) (565,362),
Purchase of available-for-sale securities................. (397,586) -
Net change in loans....................................... (789,260) (336,289)
Proceeds from sales of loans.............................. 17,998 7,365
Proceeds from sales of premises and equipment............. 986 522
Purchase of premises and equipment........................ (16,074) (7,937)
Net change due to acquisition of branches................. 972,568 -
Net cash provided by/(used in) investing activities..... (686,355) (478,116)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits.................................... 15,862 (449,158)
Net change in short-term borrowings....................... 323,866 298,603
Principal payments on long-term debt...................... (33,390) (4,985)
Proceeds from issuance of long-term debt.................. 147,975 -
Proceeds from issuance of common stock.................... 2,455 5,791
Purchase of treasury stock................................ (24,810) (532)
Shares reserved to meet deferred compensation obligations. 1,105 532
Dividends paid............................................ (29,974) (25,420)
Net cash provided by/(used in) financing activities..... 403,089 (175,169)
Net change in cash and cash equivalents................... (127,299) (501,469)
Cash and cash equivalents at beginning of year............ 560,534 882,770
Cash and cash equivalents at September 30................$ 433,235 $ 381,301
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for nine months ended September 30, 1994 1993
Interest...............................................$ 140,878 $ 153,909
Income Taxes............................................ 41,700 37,835
Noncash transfer of loans to other real estate owned...... 867 415
See Notes to Condensed Consolidated Financial Statements
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NOTE 1. Basis of Presentation
These condensed consolidated financial statements have been
prepared by Star Banc Corporation ("the corporation") pursuant
to the rules and regulations of the Securities and Exchange
Commission and, therefore, certain information and footnote
disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have
been omitted. It is suggested that these financial statements be
read in conjunction with the financial statements and notes
thereto included in the corporation's annual report on Form 10-K
for the year ended December 31, 1993, filed with the Securities
and Exchange Commission.
These condensed consolidated financial statements reflect all
adjustments which are, in the opinion of management, necessary
for a fair presentation of the results for the periods reported.
All such adjustments are of a normal recurring nature. Certain
amounts within the consolidated financial statements as of
September 30, 1993 have been reclassified to conform with the
1994 presentation.
NOTE 2. Investment Securities
Effective January 1, 1994 the corporation adopted Statement of
Financial Accounting Standards No. 115 (SFAS No. 115) related to
accounting for certain investments in debt and equity
securities. SFAS No. 115 addresses the accounting and reporting
for investments in equity securities that have readily
determinable fair values and for all investments in debt
securities. Those investments are classified in three categories
and accounted for as follows:
(1) Debt securities that the corporation has the positive intent
and ability to hold to maturity are classified as
held-to-maturity and reported at amortized cost.
(2) Debt and equity securities that are bought and held
principally for the purpose of selling them in the near term
are classified as trading securities and reported at fair value,
with unrealized gains and losses included in earnings.
Currently, the corporation has not classified any investments as
trading securities.
(3) Investments not classified as trading securities or
held-to-maturity are classified as available-for-sale
securities and reported at fair value. Unrealized gains and
losses for these securities are excluded from earnings and
reported as a net amount in a separate component of
shareholders' equity (net of tax).
The initial adoption of SFAS No. 115 resulted in increases to
shareholders' equity of $4.4 million (net of tax) and investment
securities of $6.7 million. The adoption of SFAS No. 115 had no
effect on current earnings.
As of September 30, 1994 the corporation reported a net
unrealized loss of $12.6 million for available-for-sale
securities. For the first nine months of 1994, the net
unrealized gain/(loss) reported as a separate component of
equity changed from an unrealized gain of $4.4 million to an
unrealized loss of $8.2 million reducing shareholders' equity
$12.6 million.
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The following table summarizes unrealized gains and losses for
held-to-maturity and available-for-sale securities at September
30, 1994 and December 31, 1993. (Dollars are in thousands)
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September 30, 1994 December 31, 1993
Amortized Unrealized Fair Amortized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
Held-to-Maturity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasuries
and Agencies $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
Mortgage-backed
Securities 1,775,923 927 52,008 1,724,842 865,881 5,168 7,563 863,486
Obligations of
State and
Political
Subdivisions 27,810 346 10 28,146 31,599 722 8 32,313
Other debt securities 135 -- 3 132 135 -- -- 135
Total Investment
Securities $1,803,868 $ 1,273 $52,021 $1,753,120 $ 897,615 $ 5,890 $ 7,571 $895,934
Available-for-Sale
U.S. Treasuries and
Agencies $ 173,650 $ 281 $ 968 $ 172,963 $ 387,315 $ 3,874 $ 1 $391,188
Mortgage-backed
Securities 445,950 585 3,860 442,675 305,842 2,885 10 308,717
Obligations of
State and
Political
Subdivisions -- -- -- -- -- -- -- --
Other debt securities -- -- -- -- 622 -- -- 622
Federal Reserve/FHLB
Stock and
other equity
securities 33,065 -- -- 33,065 8,881 -- -- 8,881
Total Investment
Securities $652,665 $ 866 $ 4,828 $ 648,703 $702,660 $6,759 $ 11 $709,408
</TABLE>
The following table presents the amortized cost and fair value
of held-to-maturity and available-for-sale debt securities at
September 30, 1994. (Dollars in thousands)
Amortized Fair
Held-to-Maturity Cost Value
One year or less $ 353,342 $ 343,401
After one year through five years 978,970 951,428
After five years through ten years 337,261 327,772
After ten years 134,295 130,519
Total $ 1,803,868 $ 1,753,120
Available-for-sale
One year or less $ 252,677 $ 251,039
After one year through five years 297,760 295,857
After five years through ten years 67,420 67,005
After ten years 1,743 1,737
Total $ 619,600 $ 615,638
Note: Maturity information related to mortgage-backed securities
included above is presented based upon weighted average
maturities anticipating future prepayments.
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NOTE 3. Loans
The following table summarizes the composition of the loan
portfolio, net of unearned interest, as of September 30, 1994
and December 31, 1993. (Dollars are in thousands)
September 30, December 31,
1994 1993
Commercial loans:
Corporate loans $1,562,984 $1,435,714
Asset-based lending 192,602 157,344
Commercial leasing 171,332 131,713
Industrial revenue bonds 43,036 43,596
Total commercial loans 1,969,954 1,768,367
Real estate loans:
Residential mortgage 1,119,572 997,748
Commercial mortgage 977,090 909,084
Construction and land development 197,452 180,470
Total real estate loans 2,294,114 2,087,301
Retail loans:
Installment 1,310,984 1,122,084
Credit cards 207,504 172,534
Retail leasing 233,875 144,121
Total retail loans 1,752,363 1,438,739
Total loans, net of unearned interest $6,016,431 $5,294,407
NOTE 4. Allowance for Loan Losses
A summary of the activity in the allowance for loan losses is
shown in the following table. (Dollars are in thousands)
Nine Months
Ended Year Ended
September 30, December 31,
1994 1993
Balance - beginning of period $ 83,156 $ 78,953
Loans charged-off (19,254) (40,122)
Recoveries on loans previously charged-off 9,502 11,317
Net charge-offs (9,752) (28,805)
Provision charged to earnings 19,392 33,008
Balance - end of period $ 92,796 $ 83,156
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NOTE 5. Income Tax
The components of the net deferred tax asset included in the
corporation's consolidated balance sheets at September 30, 1994
and December 31, 1993 are shown in the following table. (Dollars
are in thousands)
September 30, December 31,
1994 1993
Allowance for loan losses $ 31,837 $ 28,566
Deferred loan fees 2,432 3,140
Deferred compensation 1,716 1,464
Unrealized loss on securities 4,426 --
Other 2,734 2,678
Total deferred tax asset 43,145 35,848
Leased assets (28,345) (20,187)
Fixed asset depreciation (4,076) (4,076)
Pension liabilities (4,478) (4,314)
Purchase accounting/intangible assets (2,540) (2,367)
Other (1,254) (1,303)
Total deferred tax liability (40,693) (32,247)
Net deferred tax asset $ 2,452 $ 3,601
The corporation has not recorded a valuation reserve related to
deferred tax assets.
NOTE 6. Noninterest Income and Other Noninterest Expense
The following is included in other service charges and fees, and
all other income for the third quarter and nine months ended
September 30, 1994 and 1993.
Third Quarter Nine Months
1994 1993 1994 1993
Credit card fees $3,258 $2,821 $8,978 $8,000
Mortgage banking income 1,023 1,766 3,284 4,901
The following are included in all other expense for the third
quarter and nine months ended September 30, 1994 and 1993.
Third Quarter Nine Months
1994 1993 1994 1993
FDIC insurance $3,217 $3,455 $9,875 $10,532
State taxes 2,429 2,274 7,225 6,749
Marketing 1,769 1,850 6,092 5,671
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NOTE 7. Postemployment Benefits
In November 1992, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 112 (SFAS
No. 112) related to employers' accounting for postemployment
benefits. The statement requires companies to accrue, during the
period that an employee renders service to the company, the
expense of providing postemployment benefits. Types of benefits
include, but are not limited to, salary continuation, severance
benefits, job training and counseling, and continuation of
healthcare, disability and life insurance coverage.
Currently the corporation provides only workers' compensation as
a postemployment benefit. The corporation has adopted SFAS No.
112 for 1994, however, the effect of adoption was not material
to the corporation's financial condition or results of
operations.
NOTE 8. Acquisitions
As of September 17, 1994, Star Bank, N.A. ("the bank"), a wholly
owned subsidiary of Star Banc Corporation, acquired certain
assets and liabilities related to 47 former TransOhio Federal
Savings Bank branch offices from the Resolution Trust
Corporation ("RTC"). This transaction has been accounted for as
a purchase, and accordingly, all assets and liabilities assumed
have been recorded at estimated fair value. In purchasing these
branches, the bank received $973 million in cash and due from
bank balances and $1.1 billion in deposits for a premium of
$122.4 million. Intangible assets recorded in this transaction
represent the core deposit benefit and other unidentified
intangibles. The allocation of the purchase price has not been
completed at this time.
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ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
OVERVIEW
Net income of Star Banc Corporation ("the corporation") for
the quarter ended September 30, 1994 amounted to $29,807,000, a
26.6 percent increase compared to the third quarter of 1993. Net
income for the first nine months of 1994 was $86,183,000, a 16.8
percent increase over the same period of 1993. Primary and fully
diluted earnings per share for the third quarter of 1994
amounted to $1.00 and $0.99, respectively, compared to $0.78 and
$0.77, respectively, for the third quarter of 1993. These
amounts represent increases of 27.0 percent and 28.3 percent on
primary and fully diluted earnings per share, respectively. For
the first nine months of 1994, earnings per share amounted to
$2.88 on a primary basis, 16.3 percent higher than 1993 and
$2.84 on a fully diluted basis, a 16.9 percent increase.
Return on average assets increased 21 basis points to 1.44
percent for the third quarter of 1994 compared to 1.23 percent
for the same period in 1993. Return on average equity was 16.80
percent for the third quarter of 1994 compared to 14.36 percent
in 1993. For the first nine months of 1994, return on average
assets amounted to 1.45 percent and return on average equity was
16.56 percent. This compares to a return on average assets of
1.31 percent and a return on average equity of 15.62 percent for
the same period of 1993.
As of September 17, 1994, Star Bank, N.A. ("the bank"), the
corporation's largest subsidiary, purchased from the Resolution
Trust Corporation ("RTC") 47 former TransOhio Federal Savings
Bank branch offices. This transaction has been accounted for as
a purchase, and accordingly, the assets acquired and liabilities
assumed have been recorded at estimated fair value. In this
transaction the bank received $973 million in cash and due from
bank balances and $1.1 billion in deposits for a premium of $122
million. The bank invested approximately $939 million of the
cash received in this transaction in U.S. Agency mortgage-backed
securities. Approximately $592 million of these securities are
adjustable rate mortgage securities that reprice annually. The
remainder are fixed rate securities with an average life of
approximately 3.5 years.
FINANCIAL CONDITION
Total assets at September 30, 1994 amounted to $9.20 billion
compared to $7.64 billion at December 31, 1993. Total loans, net
of unearned interest, increased to $6.02 billion at September
30, 1994 compared to $5.29 billion at December 31, 1993. The
corporation has experienced strong increases in loan volumes for
all lending areas through the first nine months of 1994. Total
loans, net of unearned interest, have increased at an annualized
rate of 18.2 percent in the first nine months of 1994. Since
December 31, 1993 retail loans increased $314 million,
commercial loans increased $202 million, and real estate loans
increased $207 million.
Investment securities increased $852 million to $2.45 billion at September 30,
1994, compared to $1.60 billion at December 31, 1993. This increase was
due to the purchase of $939 million in mortgage-backed securities with the
cash received from the acquisition of the TransOhio offices. Excluding
TransOhio, investment securities would have declined $87 million as a
result of paydowns on mortgage-backed securities and maturities of
U.S. Treasuries. The funds received from the rolloff of
investments throughout 1994 has been used to fund new loans.
The corporation adopted Statement of Financial Accounting
Standards No. 115 (SFAS No. 115) in the first quarter of 1994.
SFAS No. 115 addresses the accounting and reporting for
investments in equity securities that have a readily
determinable fair value and for all investments in debt
securities. The initial adoption of
-14-
<PAGE>
SFAS No. 115 resulted in an increase of $6.7 million to
investment securities and $4.4 million (net of tax) to
shareholders' equity. As of September 30, 1994, there was a net
unrealized loss on securities classified as available-for-sale
of $12.6 million with an offsetting charge to shareholders'
equity of $8.2 million (net of tax). This change to the
unrealized gain/(loss) on the available-for-sale securities is
due to the increasing rate environment experienced in the first
nine months of 1994. The adoption of SFAS No. 115 had no effect
on current earnings for 1994. As of September 30, 1994, the
corporation's investment securities portfolio had $1.80 billion
classified as held-to-maturity and $649 million classified as
available-for-sale.
Deposits increased $1.09 billion to $7.11 billion at September
30, 1994 from $6.02 billion at December 31, 1993. Excluding
TransOhio, total deposits increased $22 million in the first
nine months of 1994. Due in part to seasonal factors,
non-interest bearing deposits declined $96 million during the
first nine months of 1994. Due to the traditional increase in
level of business activity during the fourth quarter of each
year, demand deposits are expected to increase significantly.
Interest-bearing deposits increased $1.19 billion to $6.01
billion in the first nine months of 1994, $1.02 billion of this
increase was deposits at the former TransOhio offices. Excluding
TransOhio, interest-bearing deposits increased $169 million.
Throughout 1994 customers have been shifting funds from savings,
NOW and money market accounts into higher yielding certificates
of deposit. As a result of this movement of customer funds, in
addition to marketing campaigns designed to retain funds of
current customers and attract new customers, small certificates
of deposit increased $172 million in the first nine months of
1994. Time deposits $100,000 and over increased $164 million
(excluding TransOhio) in the first nine months of 1994. This
increase was the result of Star Bank, N.A. opening an office in
Grand Cayman, British West Indies in the third quarter of 1994.
Total Eurodollar deposits were $192 million at September 30,
1994.
RESULTS OF OPERATIONS
Net interest income, the corporation's principal source of
earnings, increased $6.7 million or 8.3 percent in the third
quarter and $14.3 million or 6.0 percent in the first nine
months of 1994, compared to the same periods in 1993. The
increase in 1994 was due to an increase in average
interest-earning assets, which were up $596 million or 8.4% in
the third quarter, compared to 1993.
Net interest margin was flat in the third quarter and first nine
months of 1994, compared to the same periods in 1993. Yields on
earning assets increased 23 basis points in the third quarter of
1994, compared to 1993, as a result of increases in market rates
and a change in mix of earning assets from securities and money
market instruments into higher yielding loans. However, the
increase in asset yields was offset by a corresponding increase
in the cost of supporting funds. The average rate spread between
yields earned on interest-earning assets and the rates paid on
interest-bearing liabilities also remained basically flat in the
third quarter of 1994 at 3.97 percent, compared to 3.98 percent
in the third quarter of 1993. Tables 1 and 2 provide detailed
information as to the average balances, interest income/expense
and rates earned or paid by major balance sheet category.
Net interest income after provision for loan losses was impacted
by a decrease in the provision for loan losses of $1.9 million
in the third quarter and $6.4 million in the first nine months
of 1994, compared to 1993. As discussed further in the Asset
Quality section, the provision has declined in 1994 due to
reductions in net charge-offs and levels of nonperforming loans.
-15-
Noninterest income increased slightly to $28.6 million in the
third quarter of 1994, compared to $28.3 million for the same
period in 1993. For the first nine months of 1994, noninterest
income was up $2.5 million or 3.0 percent, compared to 1993.
Included in the third quarter of 1993 was a $569,000 write-down
excess servicing fees which resulted from an unprecedented level
of refinancing activity that took place in the second and third
quarters of 1993, as mortgage continued to decline. Service
charges on deposits and credit card fees increased 5.9 percent
and 15.5 percent, respectively in the third quarter of 1994,
compared to 1993. These increases were offset by a decline in
mortgage banking income as the volume of loans sold on the
secondary market have declined significantly in 1994.
Noninterest expense totaled $63.3 million in the third quarter
of 1994, a 0.5 percent decline from $63.6 million for the same
period of 1993. For the first nine months of 1994 noninterest
expenses increased $3.1 million or 1.7 percent, compared to the
same period of 1993. The reduction in noninterest expenses for
the third quarter was due to a $1.7 million write-down of
purchased mortgage servicing rights that occurred in the third
quarter of 1993. This was also due to the unprecedented level of
refinancing activity previously described. Offsetting the
decline in amortization of purchased mortgage servicing rights
in the third quarter of 1994 was a $2.5 million increase in
staff expense. This increase was the result of additions to
staff for new supermarket branches and the corporation's new
small business lending units. Also contributing to this increase
were employee awards and incentives based on a "pay for
performance" philosophy in achieving sales and product goals and
objectives. Management has continued its commitment to reducing
operating costs at the corporation. The corporation's
noninterest expense ratio declined significantly to 54.2 percent
for the third quarter and 55.1 for the first nine months of
1994, compared to 58.0 percent and 56.9 percent for the same
periods of 1993. Excluding the write-downs of purchased mortgage
servicing rights and excess servicing fees that occurred in the
third quarter of 1993, the third quarter 1994 noninterest
expense ratio would have declined 189 basis points, compared to 1993.
The corporation's effective tax rate amounted to 34.7 percent
for the three months and nine months ended September 30, 1994.
This compares to an effective rate of 35.2 percent and 34.1
percent for the same periods of 1993. The effective rate for the
third quarter of 1993 is higher due to the Budget Reconciliation
Act passed by Congress on August 6, 1993. Under this law, the
statutory corporate income tax rate was increased from 34% to
35%, effective January 1, 1993, this change was recorded in the
third quarter of 1993.
In October 1994, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 119 (SFAS No.
119), "Disclosure about Derivative Financial Instruments and
Fair Value of Financial Instruments" which requires disclosures
about amounts, nature, and terms of derivative financial
instruments, such as futures, forward, swap and option
contracts, that are not subject to SFAS No. 105. This statement
also amends certain disclosure requirements of SFAS No.'s 105
and 107. This statement only effects financial statement
disclosures and therefore will not have an impact on the
financial condition or results of operations of the corporation.
-16-
<PAGE>
<TABLE>
<CAPTION>
TABLE 1 AVERAGE BALANCE SHEETS AND AVERAGE RATES
(dollars in thousands)
Third Quarter, 1994 Third Quarter, 1993
Daily Average Daily Average
Average Interest Rate Average Interest Rate
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Commercial loans.....................$1,893,422 $ 40,299 8.45 % $1,729,981 $ 32,283 7.41 %
Real estate loans.....................2,241,441 44,044 7.85 2,081,037 41,923 8.05
Retail loans..........................1,682,933 35,942 8.50 1,370,233 31,733 9.20
Total loans......................5,817,796 120,285 8.23 5,181,251 105,939 8.14
Taxable investment securities.........1,750,710 22,891 5.23 1,541,972 20,261 5.24
Non-taxable investment securities..... 28,424 536 7.69 35,681 725 8.09
Federal funds sold and securities
purchased under agreements to resell 44,203 528 4.74 309,387 2,458 3.15
Interest bearing deposits in banks.... 23,691 300 5.01 100 1 3.97
Total interest earning assets....7,664,824 $ 144,540 7.52 % 7,068,391 $ 129,384 7.29 %
Cash and due from banks............... 366,536 350,558
Allowance for loan losses............. (91,219) (86,931)
Other assets.......................... 287,853 276,727
Total assets....................$8,227,994 $7,608,745
LIABILITIES AND SHAREHOLDERS' EQUITY:
Savings and NOW......................$1,808,357 $ 9,743 2.14 % $1,816,104 $ 11,805 2.58 %
Money market deposit accounts......... 732,335 5,035 2.73 971,522 6,094 2.49
Time deposits $100,000 and over....... 381,229 4,422 4.60 427,118 4,080 3.79
Time deposits under $100,000..........2,131,427 23,933 4.45 1,890,823 20,358 4.27
Short-term borrowings.................1,062,282 11,147 4.16 579,592 4,287 2.93
Long-term debt........................ 166,841 2,051 4.88 52,226 1,250 9.49
Total interest bearing liabilities.6,282,471 $ 56,331 3.55 % 5,737,385 $ 47,874 3.31 %
Noninterest bearing deposits..........1,038,448 1,039,591
Other liabilities..................... 203,176 181,324
Shareholders' equity.................. 703,899 650,445
Total liabilities and
shareholders' equity..........$8,227,994 $7,608,745
Net interest margin..................... 4.60 % 4.60 %
Interest rate spread.................... 3.97 3.98
Note: Interest and average rate are presented on a fully-taxable equivalent basis. Taxable equivalent amounts
are calculated utilizing marginal federal income tax rate of 35 percent for 1994 and 1993. The total of
nonaccruing loans is included in average amount outstanding.
</TABLE>
-17-
<PAGE>
<TABLE>
<CAPTION>
TABLE 2 AVERAGE BALANCE SHEETS AND AVERAGE RATES
(dollars in thousands)
Nine Months, 1994 Nine Months, 1993
Daily Average Daily Average
Average Interest Rate Average Interest Rate
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Commercial loans.....................$1,851,946 $ 112,725 8.14 % $1,735,468 $ 96,805 7.46 %
Real estate loans.....................2,155,328 126,531 7.83 2,021,050 123,966 8.18
Retail loans..........................1,584,310 100,164 8.45 1,341,839 95,859 9.55
Total loans......................5,591,584 339,420 8.11 5,098,357 316,630 8.29
Taxable investment securities.........1,701,956 64,576 5.06 1,515,588 63,563 5.60
Non-taxable investment securities..... 29,354 1,785 8.23 39,689 2,345 7.92
Federal funds sold and securities
purchased under agreements to resell 36,873 1,145 4.20 314,479 7,319 3.90
Interest bearing deposits in banks.... 14,094 457 4.15 8,104 236 3.11
Total interest earning assets....7,373,861 $ 407,383 7.38 % 6,976,217 $ 390,093 7.47 %
Cash and due from banks............... 361,093 341,200
Allowance for loan losses............. (88,646) (84,297)
Other assets.......................... 273,335 279,148
Total assets....................$7,919,643 $7,512,268
LIABILITIES AND SHAREHOLDERS' EQUITY:
Savings and NOW......................$1,807,142 $ 28,336 2.10 % $1,756,434 $ 35,782 2.72 %
Money market deposit accounts......... 727,818 13,681 2.51 1,029,395 20,501 2.66
Time deposits $100,000 and over....... 362,156 11,353 4.19 444,516 12,801 3.85
Time deposits under $100,000..........2,058,163 66,193 4.30 1,916,636 63,172 4.41
Short-term borrowings................. 940,644 25,079 3.56 549,233 12,079 2.94
Long-term debt........................ 151,364 6,908 6.10 55,164 3,982 9.65
Total interest bearing liabilities.6,047,287 $ 151,550 3.35 % 5,751,378 $ 148,317 3.45 %
Noninterest bearing deposits..........1,047,397 1,013,338
Other liabilities..................... 129,265 115,894
Shareholders' equity.................. 695,694 631,658
Total liabilities and
shareholders' equity..........$7,919,643 $7,512,268
Net interest margin..................... 4.63 % 4.62 %
Interest rate spread.................... 4.03 4.02
Note: Interest and average rate are presented on a fully-taxable equivalent basis. Taxable equivalent amounts
are calculated utilizing marginal federal income tax rate of 35 percent for 1994 and 1993. The total of
nonaccruing loans is included in average amount outstanding.
</TABLE>
-18-
<PAGE>
ASSET QUALITY
As of September 30, 1994, the allowance for loan losses was
$92.8 million or 1.54 percent of loans, net of unearned
interest. This compares to an allowance of $83.2 million or 1.57
percent of loans, net of unearned interest, at December 31,
1993. The allowance as a percentage of nonperforming loans
improved to 226.8 percent at September 30, 1994 compared to
163.3 percent at December 31, 1993.
Table 3 provides a summary of activity in the allowance for loan
losses account by type of loan. As shown in that table, net
charge-offs totaled $2.6 million in the third quarter of 1994,
compared to $7.7 million for the same period a year earlier. Net
charge-offs for the first nine months of 1994 decreased to $9.8
million from $21.0 million in 1993. Annualized net charge-offs
as a percentage of average outstanding loans declined
significantly to 0.18 percent and 0.23 percent for the third
quarter and first nine months of 1994, respectively, compared to
0.59 percent and 0.55 percent for the same periods in 1993.
In the third quarter of 1994, the corporation experienced its
fourth straight quarterly decline in net charge-offs, which
covers almost all loan areas. The most significant decrease was
in the commercial loan area where net charge-offs were $1.5
million in the third quarter of 1994, compared to $3.7 million
for the same period in 1993. Retail net charge-offs also
improved significantly, decreasing $1.4 million in the third
quarter of 1994, compared to 1993. These results reflect the
corporation's commitment to maintaining strict credit standards,
as well as the improvement in the economy in 1994.
As shown in Tables 4 and 5, the corporation has reduced the
level of nonperforming assets in 1994. Nonperforming assets
declined $10.1 million during the first nine months of 1994.
Nonperforming loans decreased $10.0 million to $40.9 million at
September 30, 1994, as the percentage of nonperforming loans to
end-of-period loans declined to 0.68 percent from 0.96 percent
at December 31, 1993. The majority of the improvement was
achieved within the commercial loan portfolio. Loans past-due 90
days or more and still accruing interest decreased $5.6 million
in the first nine months of 1994. This decrease also occurred
within the commercial loan and commercial real estate portfolios'.
The adequacy of the allowance for loan losses is monitored on a
continual basis and is based on management's evaluation of
several key factors: the quality of the current loan portfolio,
current economic conditions, evaluation of significant problem
loans, an analysis of periodic internal loan reviews,
delinquency trends and ratios, changes in the mix and levels of
various loan types, historical charge-off and recovery
experience and other pertinent information. These estimates are
reviewed continually and, as adjustments become necessary, they
are reported in earnings in the period in which they become
known. It is management's opinion that the allowance for loan
losses at September 30, 1994 was adequate to absorb all
anticipated losses in the loan portfolio as of that date.
In October 1994, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 118 (SFAS No.
118), "Accounting by Creditors for Impairment of a Loan-Income
Recognition and Disclosures." SFAS No. 118 is an amendment of
SFAS No. 114, "Accounting by Creditors for Impairment of a
Loan", to allow a creditor to use existing methods for
recognizing interest income on an impaired loan. SFAS No. 114
requires that impaired loans be measured based on the present
value of expected future cash flows discounted at the loan's
effective interest rate, the loan's observable market price or
the fair value of its collateral.
Adoption of SFAS No.'s 114 and 118 are required concurrently no
later than 1995. Management has not yet determined when it will
adopt SFAS No.'s 114 & 118 and is currently assessing the impact
on the corporation's financial condition and results of
operations.
-19-
<PAGE>
<TABLE>
<CAPTION>
TABLE 3 SUMMARY OF LOAN LOSS EXPERIENCE
(Dollars in thousands)
Third Quarter Nine Months
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Average loans - net of unearned
interest.....................$ 5,817,796 $ 5,181,251 $ 5,591,584 $ 5,098,357
Allowance for loan losses:
Balance - beginning of
period $ 88,307 $ 82,446 $ 83,156 $ 78,953
Charge-offs:
Commercial................. (2,621) (4,844) (8,896) (13,958)
Real estate................ (225) (1,710) (905) (2,350)
Retail..................... (2,878) (3,954) (9,453) (12,910)
Total charge-offs........ (5,724) (10,508) (19,254) (29,218)
Recoveries:
Commercial................. 1,154 1,105 3,009 2,607
Real estate................ 139 182 685 412
Retail..................... 1,820 1,472 5,808 5,198
Total recoveries......... 3,113 2,759 9,502 8,217
Net charge-offs........ (2,611) (7,749) (9,752) (21,001)
Provision charged to earnings 7,100 9,039 19,392 25,784
Balance - end of period......$ 92,796 $ 83,736 $ 92,796 $ 83,736
Ratio of net charge-offs to average
loans - net of unearned interest 0.18% 0.59% 0.23% 0.55%
</TABLE>
-20-
<PAGE>
<TABLE>
<CAPTION>
TABLE 4 NONPERFORMING ASSETS
(Dollars in thousands)
September 30, December 31, September 30,
1994 1993 1993
<S> <C> <C> <C>
Loans on nonaccrual status....$ 40,650 $ 50,687 $ 57,467
Loans which have been
renegotiated................. 273 249 259
Total nonperforming loans.... 40,923 50,936 57,726
Other real estate owned........ 3,876 3,984 4,437
Total nonperforming assets..$ 44,799 $ 54,920 $ 62,163
Percentage of nonperforming
loans to loans* ............. 0.68% 0.96% 1.10%
Percentage of nonperforming
assets to loans* and other
real estate owned............ 0.74% 1.04% 1.18%
Loans past due 90 days
or more.....................$ 9,612 $ 15,200 $ 18,455
* Net of unearned interest.
</TABLE>
-21-
<TABLE>
<CAPTION>
TABLE 5 COMPOSITION OF NONPERFORMING LOANS
(Dollars in thousands)
September 30, 1994 December 31, 1993
Nonperforming Loans 90 Days Nonperforming Loans 90 Days
or or
Non- Restruc- Percentage More Non- Restruc- Percentage More
accrual tured Total of Loans Past-Due accrual tured Total of Loans Past-Due
Commercial:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Corporate..............$16,180 $273 $16,453 1.02 % $2,284 $24,688 $249 $24,937 1.69 % $5,199
Asset-based lending.... 8,532 -- 8,532 4.43 -- 9,371 -- 9,371 5.96 --
Commercial leasing..... 28 -- 28 0.02 -- 33 -- 33 0.03 --
Total commercial loans. 24,740 273 25,013 1.26 2,284 34,092 249 34,341 1.94 5,199
Real estate loans:
Residential............ 4,168 -- 4,168 0.37 2,241 4,793 -- 4,793 0.48 3,016
Commercial mortgage.... 9,966 -- 9,966 1.02 3,540 9,931 -- 9,931 1.09 5,533
Construction/land
development.......... 538 -- 538 0.27 34 363 -- 363 0.20 53
Total real estate loans14,672 -- 14,672 0.64 5,815 15,087 -- 15,087 0.72 8,602
Retail loans:
Installment............ 867 -- 867 0.07 401 1,185 -- 1,185 0.11 576
Credit cards........... 327 -- 327 0.16 1,067 260 -- 260 0.15 823
Retail leasing......... 44 -- 44 0.02 45 63 -- 63 0.04 --
Total retail loans... 1,238 -- 1,238 0.07 1,513 1,508 -- 1,508 0.10 1,399
Total loans..........$40,650 $273 $40,923 0.68 % $9,612 $50,687 $249 $50,936 0.96 % $15,200
</TABLE>
-22-
<PAGE>
LIQUIDITY, CAPITAL RESOURCES AND CASH FLOWS
To ensure that adequate funds are always available to meet
unexpected customer demands for funds, such as high levels of
deposit withdrawals or loan demand, or other aspects of the
banking business, the corporation has succeeded in developing
and maintaining a large stable base of core funding from
customers based in its local market areas. By policy, the
corporation limits the amount each banking subsidiary can
borrow, subject to the corporation's ability to borrow funds in
the capital markets in an efficient and cost effective manner.
The corporation's lead bank, Star Bank N.A., joined the Federal
Home Loan Bank of Cincinnati in 1994 and reopened its Grand
Cayman office in the third quarter of 1994. In addition to these
funding alternatives, the corporation maintains a presence in
the national fed funds, certificate of deposit and Eurodollar
markets.
In the first quarter of 1994, the corporation's lead bank issued
$150 million in subordinated long-term debt, the proceeds of
which were used to refinance the mortgage on the corporate
headquarters building in Cincinnati, purchase common shares
under a buyback program and various other corporate purposes. In
the second quarter, the corporation's lead bank, Star Bank,
N.A., prepared an offering circular in order to issue bank notes
of up to $500 million, to be used as an alternative funding
source. The terms on these notes can vary from 30 days to 30
years. Currently, the corporation has not issued any notes under
this offering circular.
The corporation's consolidated long-term debt, which also
includes senior and promissory notes, increased $115 million in
the first nine months of 1994, to $166 million. This increase
was the result of the subordinated debt issuance which was
reduced by a $5 million prepayment of one of the corporation's
promissory notes and the $24 million prepayment of the mortgage
on the corporate headquarters building.
Total shareholders' equity increased $25 million in the first
nine months to $701 million at September 30, 1994. The
corporation also increased its quarterly dividend rate per
common share from $0.29 in 1993 to $0.35 in 1994.
Regulations governing minimum capital requirements for banks and
bank holding companies computed on a "risk basis" became
effective on December 31, 1990. As defined by regulations, the
minimum capital requirements for banking companies are 4.0
percent for tier 1 capital to risk-weighted assets and 8.0
percent for total capital to risk-weighted assets. Regulatory
authorities have also established a minimum adjusted
equity-to-total assets ("leverage") ratio of 3.00 percent. As of
September 30, 1994 the corporation's tier 1 and total risk-based
capital ratios amounted to 8.59 and 12.17 percent, respectively,
compared to tier 1 and total ratios of 11.10 percent and 12.41
percent at December 31, 1993. The decrease in the Tier 1
capital ratio was the result of the purchase of the former
TransOhio offices, which added approximately $1.1 billion in
assets with no addition in the corporation's capital. The total
capital ratio has not declined despite the effect of the
TransOhio purchase due to the issuance of $150 million in
subordinated debt in the first quarter of 1994. At September 30,
1994, the corporation's leverage ratio was 6.04 percent,
compared to 8.23 percent at December 31 1993. This decline was a
result of the TransOhio branch acquisition.
As shown in the Condensed Consolidated Statements of Cash Flows,
cash flows provided by operating activities amounted to $156
million for the nine months ended September 30, 1994 compared to
$152 million for the same period in 1993. The increase was
attributable to a $39 million decrease in mortgages held for
sale in the first nine months of 1994, compared to a $31 million
decrease in the first nine months of 1993.
-23-
<PAGE>
PART II. OTHER INFORMATION
ITEMS 1. through 5. are not applicable.
ITEM 6. Exhibits and Reports on Form 8-K
(A) Exhibits filed:
Exhibit 11--Computation of earnings per share
(B) A Current Report on Form 8-K was filed by the
corporation on October 3, 1994 reporting the
acquisition by Star Bank, N.A., a wholly owned subsidiary
of Star Banc Corporation, of assets relating to 47 former
TransOhio Federal Savings Bank branch offices from the
Resolution Trust Corporation.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
STAR BANC CORPORATION
November 14, 1994 /s/ Jerry A. Grundhofer
Date Jerry A. Grundhofer
Chairman, President, and
Chief Executive Officer
November 14, 1994 /s/ David M. Moffett
Date David M. Moffett
Executive Vice President
and Chief Financial
Officer
-24-
<TABLE>
<CAPTION>
Exhibit 11 COMPUTATION OF EARNINGS PER SHARE
(Amounts in thousands except per share data)
Third Quarter Nine Months
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Net income.....................$ 29,807 $ 23,536 $ 86,183 $ 73,783
Preferred dividends.............. 46 264 277 819
Income available to common
shareholders.................$ 29,761 $ 23,272 $ 85,906 $ 72,964
Weighted average of common
stock equivalents............... 29,831 29,626 29,866 29,494
Weighted average of preferred
stock convertible to common
stock equivalents.............. 201 809 430 831
Weighted average of fully
diluted common stock equivalents 30,032 30,435 30,296 30,325
Primary earnings per share
(income available to common
shareholders divided by weighted
average of common stock
equivalents).................$ 1.00 $ 0.78 $ 2.88 $ 2.47
Fully diluted earnings per share
(net income divided by weighted
average of fully diluted
common stock equivalents)....$ 0.99 $ 0.77 $ 2.84 $ 2.43
Note: The effect of stock options outstanding are not dilutive to earnings
per share as defined in APB 15 and therefore are not included with
the above calculations.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED
CONSOLIDATED STATEMENTS OF INCOME, THE CONDENSED CONSOLIDATED BALANCE SHEETS,
AND THE CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER>1,000
<S> <C> <C>
<PERIOD-TYPE> QTR-3 9-MOS
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1994
<PERIOD-END> SEP-30-1994 SEP-30-1994
<CASH> 414,054 414,054
<INT-BEARING-DEPOSITS> 101 101
<FED-FUNDS-SOLD> 19,080 19,080
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 648,703 648,703
<INVESTMENTS-CARRYING> 1,803,868 1,803,868
<INVESTMENTS-MARKET> 1,753,120 1,753,120
<LOANS> 6,016,431 6,016,431
<ALLOWANCE> 92,796 92,796
<TOTAL-ASSETS> 9,204,352 9,204,352
<DEPOSITS> 7,110,100 7,110,100
<SHORT-TERM> 1,140,572 1,140,572
<LIABILITIES-OTHER> 86,263 86,263
<LONG-TERM> 166,477 166,477
<COMMON> 150,529 150,529
0 0
2,558 2,558
<OTHER-SE> 547,853 547,853
<TOTAL-LIABILITIES-AND-EQUITY> 9,204,352 9,204,352
<INTEREST-LOAN> 119,680 337,700
<INTEREST-INVEST> 23,253 65,755
<INTEREST-OTHER> 828 1,602
<INTEREST-TOTAL> 143,761 405,057
<INTEREST-DEPOSIT> 43,133 119,563
<INTEREST-EXPENSE> 56,331 151,550
<INTEREST-INCOME-NET> 87,430 253,507
<LOAN-LOSSES> 7,100 19,392
<SECURITIES-GAINS> 9 8
<EXPENSE-OTHER> 63,324 188,314
<INCOME-PRETAX> 45,615 131,966
<INCOME-PRE-EXTRAORDINARY> 45,615 131,966
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 29,807 86,183
<EPS-PRIMARY> 1.00 2.88
<EPS-DILUTED> .99 2.84
<YIELD-ACTUAL> 7.52 7.38
<LOANS-NON> 40,650 40,650
<LOANS-PAST> 9,612 9,612
<LOANS-TROUBLED> 273 273
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 88,307 83,156
<CHARGE-OFFS> 5,724 19,254
<RECOVERIES> 3,113 9,502
<ALLOWANCE-CLOSE> 92,796 92,796
<ALLOWANCE-DOMESTIC> 92,796 92,796
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
