Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-7601
STAR BANC CORPORATION
(Exact name of registrant as specified in its charter)
Ohio 31-0838189
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
425 Walnut Street, Cincinnati, Ohio 45202
(Address of principal executive offices)
Registrant's telephone number, including area code (513) 632-4000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $5 Par Value
Preferred Stock Purchase Rights
Series B Preferred Stock, $100 Stated Value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of common stock held by non-affiliates was
approximately $1,189,000,000 based upon the closing price of these shares
on March 1, 1995.
As of March 1, 1995, there were 29,816,999 shares of common stock outstanding.
Documents Incorporated by Reference
Portions of Star Banc Corporation's Proxy Statement for the Annual Meeting
of Shareholders on April 11, 1995 are incorporated by reference into Part III.
Portions of Star Banc Corporation's Annual Report to Shareholders for the
year ended December 31,1994 are incorporated by reference into Parts I, II,
III and IV.
Page 1 of 7
EXHIBIT 10.4
SEVERANCE, EMPLOYMENT AND RETENTION AGREEMENTS
Exhibit 10.4 includes the severance, employment and retention
agreements for executive officers
The employment contract of Jerry A. Grundhofer, Chairman,
President and Chief Executive Officer of Star Banc Corporation
and Star Bank, N.A. was previously filed as an exhibit to the
registrant's Annual Report on Form 10K for the year ended
December 31, 1993, and is incorporated herein by reference.
Three (3) Year Severance Agreement:
Previously filed as an exhibit to the regristrant's Annual Report on Form
10K for the year ended December 31, 1993, and is incorporated herein by
reference.
Three year severance agreements cover the following executive
officers:
David M. Moffett, Executive Vice President and Chief Financial
Officer, Star Banc Corporation and Star Bank, N.A.
Richard K. Davis, Executive Vice President, Star Banc Corporation
and Star Bank, N.A.
Joseph A. Campanella, Executive Vice President, Star Banc Corporation
and Star Bank, N.A.
<PAGE>
Two (2) Year Executive Severance Agreement:
-1 year protection period
-30 day walkaway rights
-Severance payment: two (2) times highest salary + highest bonus
-2 year continuation of medical coverage
-Pension coverage includes additional 2 years of service
-No 280G limitation
-Additional grossup provision for any excise tax owed.
-Term of Agreement: Initial 3 year term and renewal on each anniversary
Two year severance agreements were modified on December 13, 1994
for the following executive officers:
Daniel B. Benhase, Executive Vice President, Star Banc Corporation and
Star Bank, N.A.
Timothy J. Fogarty, Senior Vice President, Star Banc Corporation and
Star Bank, N.A.
Jerome C. Kohlhepp, Executive Vice President, Star Banc Corporation and
Star Bank, N.A.
Thomas J. Lakin, Executive Vice President, General Counsel and Secretary
Star Banc Corporation and Executive Vice President Star Bank, N.A.
Daniel R. Noe, Executive Vice President, Star Banc Corporation and Star
Bank, N.A.
Wayne J. Shircliff, Executive Vice President, Star Banc Corporation and
Star Bank, N.A.
Stephen E. Smith, Senior Vice President, Star Banc Corporation and
Star Bank, N.A.
<PAGE>
EXECUTIVE SEVERANCE AGREEMENT
This Executive Severance Agreement (hereinafter called the "Agreement"),
made as of the 13th day of December, 1994, between Star Banc Corporation,
an Ohio corporation (hereinafter called "Star Banc") and its Subsidiaries
(hereinafter individually and collectively called the "Company"),
and _______________________ (hereinafter called the "Executive").
WITNESSETH:
WHEREAS, the Company considers the recruitment and maintenance of sound and
vital management to be essential to protecting and enhancing its best
interests and those of its shareholders; and
WHEREAS, the Company recognizes that it is in an industry where there is a
strong potential for a change in control and that the potential for a change
in control may make it difficult to hire and retain strong management
personnel; and
WHEREAS, the Company recognizes that the possibility of a change in control
of Star Banc may exist and that, in the event negotiations are commenced to
bring about such a change in control, uncertainty and questions may arise among
management that could result in the distraction or departure of management
personnel to the detriment of the Company and the shareholders; and
WHEREAS, the Company has determined that appropriate steps should be taken
to reinforce and encourage the Executive's continued attention and
dedication as an executive officer to his assigned duties without
distraction in the face of potentially disruptive circumstances arising from
the possibility of a change in control of Star Banc;
NOW THEREFORE, the Company and the Executive do hereby agree as follows:
1. Definitions
The following words and terms as used herein shall have the following
meaning:
1.1 Change in Control. A "Change in Control" of Star Banc shall be deemed
to have occurred:
(a) Upon the filing with the Secretary of State of the State of Ohio
of a certificate of merger or certificate of consolidation with respect
to a merger or a consolidation in which Star Banc is a "constituent
corporation" or upon the consummation of a "combination" or "majority
share acquisition" in which Star Banc is the "acquiring corporation"
(as such terms are defined in Ohio Rev. Code Section 1701.01 as in
effect on September 26, 1989) and in which Star Banc's shareholders
immediately prior to entering into such agreement will beneficially own,
immediately after the effective time of the merger, consolidation,
combination or majority share acquisition, securities of Star Banc or
any surviving or new corporation having less than sixty-five percent (65%)
of the "voting power" of Star Banc or any surviving or new corporation,
including "voting power" exercisable on a contingent or deferred basis as
well as immediately exercisable "voting power"; or,
(b) Upon the consummation of a sale, lease, exchange or other transfer
or disposition by Star Banc of all or substantially all its assets to any
"person" (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended and in effect on September 26, 1989
(hereinafter called the "Exchange Act") other than to one (1) or more wholly
owned Subsidiaries, or upon the consummation of sales, lease, exchange or
other transfer or disposition by one (1) or more of the Subsidiaries of
all or substantially all the assets of Star Banc and its Subsidiaries, on a
consolidated basis, other than to other wholly owned Subsidiaries; provided,
however, that the mortgage or pledge of all or substantially all of Star
Banc's assets or of all or substantially all the assets of Star Banc and its
Subsidiaries, on a consolidated basis, in connection with a bona fide financing
shall not constitute a "Change in Control"; or,
(c) When any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act) directly or indirectly, of thirty-five
percent (35%) or more of the combined "voting power" of Star Banc's then
outstanding securities, excluding "voting power" exercisable on a contingent
or deferred basis; or,
(d) When a tender offer, pursuant to Regulation 14D promulgated by the
Securities and Exchange Commission under the Exchange Act is consummated
resulting in a "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act) becoming the beneficial owner of thirty-five percent (35%) or
more of the combined "voting power" of Star Banc's then outstanding
securities, excluding "voting power" exercisable on a contingent or deferred
basis; or,
(e) When those persons serving as Original Directors and/or their
Successors do not constitute a majority of the whole Board of Directors of
Star Banc.
1.2 Cause means conviction for the commission of a felony or removal from
office by order of the Comptroller of the Currency, Federal Reserve Board, or
other appropriate agency.
1.3 Date of Termination means the date the Executive's employment is
terminated under this Agreement whether by the Company or by the Executive.
1.4 Disability means disability as such term is defined in the Star Banc
Salary Continuation Plan.
1.5 Effective Date means the first date after the date hereof on which a
Change in Control occurs.
1.6 Employment Agreement means an employment agreement, if any, between the
Company and the Executive.
1.7 Good Reason means:
(a) A reduction by the Company in the Executive's base salary as in
effect on the date hereof or as the same may be increased from time-to-time
or a failure by the Company to increase the Executive's base salary each year
during the Protected Period by an amount which at least equals, on a
percentage basis, the lesser of: (i) the average percentage increase in
base salary for all officers of the Company during the three full calendar
years immediately preceding the Change in Control; or (ii) the average
percentage increase in base salary for the Executive during the three full
calendar years immediately preceding the Change in Control; or
(b) A change in the Executive's reporting responsibilities, titles, job
responsibilities or offices which in the Executive's sole opinion result in
a diminution of his status, control, or authority as in effect immediately prior
to a Change in Control; or
(c) The assignment to the Executive of any positions, duties or
responsibilities inconsistent in the sole opinion of the Executive with the
Executive's positions, duties and responsibilities or status with the Company
immediately prior to the Change in Control or that requires the Executive to
travel more than prior to the Change in Control; or
(d) A failure by the Company (i) to continue any cash bonus or other
incentive plans in substantially the same form and with the same opportunity
levels and perceived potential for obtaining performance objectives, in
effect immediately prior to the Change in Control, or (ii) to continue the
Executive as a participant in such plans on at least the same basis as the
Executive participated in accordance with the plans immediately prior to
the Change in Control; or
(e) A requirement by the Company that the Executive be based or perform
his duties anywhere other than at the Company's corporate office location
either (i) immediately prior to the Change in Control, or (ii) within one mile
of such prior corporate office location if the Company's corporate office
location is moved; or
(f) A failure by the Company to continue in effect any benefit, whether
or not qualified, or other compensation plan or the Company's failure to
provide the Executive with the number of paid vacation days to which he is
entitled in accordance with the Company's normal vacation practices with
respect to the Executive at the time of the Change in Control; or
(g) An agreement between the Board of Directors of Star Banc and the
Executive that employment should be terminated.
For purposes of this Section 1.7, any good faith determination of "Good
Reason" made by the Executive shall be conclusive. Anything in this
Agreement to the contrary notwithstanding, a termination by the Executive
for any reason during the 30-day period immediately following the first
anniversary of the Effective Date shall be deemed to be a termination for Good
Reason for all purposes of this Agreement.
1.8 Original Directors means those persons serving as Directors of Star
Banc on the date of this Agreement.
1.9 Protected Period means the twelve (12) month period immediately
following each and every Change in Control.
1.10 Successors means those directors whose election by Star Banc's
shareholders has been approved by the vote of at least two-thirds of the
Original Directors and previously qualified Successors serving as directors
of Star Banc at the time of such election or nomination for election.
1.11 Termination Benefits means those benefits described in Section 2 of
the Agreement.
1.12 Subsidiaries means any and all companies at least fifty percent (50%)
owned, directly or indirectly, by Star Banc.
2. Benefits Upon Termination of Employment.
2.1 General. If, during the Protected Period following each Change in
Control, the Executive's employment is terminated either (i) by the Company
(other than for Cause or Disability), or (ii) by the Executive for Good
Reason, then the Executive (or his estate or personal representative), shall be
entitled to the Termination Benefits provided in this Section 2.
2.2 Base Salary and Bonus Through Date of Termination. The Company shall
promptly pay the Executive his full base salary through the Date of
Termination at the rate in effect at the time notice of termination is given.
In addition, the Company shall promptly pay the amount of any bonus or
incentive for the year in which the Date of Termination occurs (based on the
target bonus for the Executive for the year) prorated to the Date of
Termination (without application of any denial provisions based on
unsatisfactory personal performance or any other reason). The Company shall
also pay the Executive for any vacation earned but not taken with such
payment being equal to the Executive's calculated daily base salary rate
times the applicable days of such vacation.
2.3 Severance Payment. The Company shall pay the Executive a severance
payment equal to two (2) times the sum of: (a) the Executive's highest
rate of pay, on an annualized basis, established by the Company during the
last five years plus (b) the highest bonus earned by the Executive, with
respect to any single year, over the last five (5) years. The severance
payment shall be made in a lump-sum within thirty (30) days of the Date
of Termination.
2.4 Pension Payment. The Company shall pay the Executive a supplemental
pension benefit equal to the lump sum benefit which the Executive would be
entitled to receive under the Star Banc Employees' Pension Plan if the
Executive were 100% vested and had two (2) additional years of service
minus the lump sum benefit actually payable to the Executive under the Star
Banc Employees' Pension Plan. Payment of this supplemental pension benefit
shall be made within thirty (30) days of the Date of Termination.
2.5 Medical Coverage. The Company shall, at its expense, maintain the
Executive's life, health and accidental death and disability insurance
coverage with the coverages maintained at the higher level in effect either
immediately prior to the date of the Change in Control or on the Date of
Termination, for a period of two (2) years following the Date of Termination.
2.6 Termination Which Does Not Require Payment Of Termination Benefits. No
Termination Benefits need to be provided by the Company to the Executive
under this Section 2 if the Executive's employment is terminated:
(a) By the Executive for any reason other than for Good Reason;
(b) By the Company for Cause or Disability; or
(c) By death.
3. New Employment; Reduction of Termination Benefits.
The Termination Benefits provided under Section 2 shall not be treated as
damages, but rather shall be treated as severance compensation to which
the Executive is entitled. The Executive shall not be required to mitigate the
amount of any Termination Benefit provided under Section 2 by seeking other
employment or otherwise.
4. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the Company to
or for the benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
4) (a "Payment") would be subject to the excise tax imposed by Section 4999
of the Internal Revenue Code of 1986, as amended (the "Code"), or any
interest or penalties are incurred by the Executive with respect to such
excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"),
then the Executive shall be entitled to receive an additional payment (a "Gross-
Up Payment") in an amount such that after payment by the Executive of all
taxes and any benefits that result from the deductibility by the Executive of
such taxes (including, in each case, any interest or penalties imposed with
respect to such taxes), including, without limitation, any income taxes (and
any interest and penalties imposed with respect thereto) and Excise Tax
imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-
Up Payment equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 4(c), all determinations
required to be made under this Section 4, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by KPMG Peat
Marwick or such other certified public accounting firm as may be designated
by the Executive (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or
such earlier time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the individual,
entity or group effecting the Change of Control, the Executive shall
appoint another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment,
as determined pursuant to this Section 4, shall be paid by the Company to
the Executive within five days of the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding
upon the Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 4(c) and the Executive thereafter is required to make a payment
of any Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be promptly
paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as
soon as practicable but no later than ten business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid.
The Executive shall not pay such claim prior to the expiration of the 30-day
period following the date on which it gives such notice to the Company (or
such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest such
claim, the Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect
to such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly
all costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold the
Executive harmless, on an after-tax basis, for any Excise Tax or income tax
(including interest and penalties with respect thereto) imposed as a result
of such representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 4(c), the Company
shall control all proceedings taken in connection with such contest and, at its
sole option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect of
such claim and may, at its sole option, either direct the Executive to pay
the tax claimed and sue for a refund or contest the claim in any permissible
manner, and the Executive agrees to prosecute such contest to a determination
before administrative tribunal, in a court of initial jurisdiction and in
one or more appellate courts, as the Company shall determine; provided,
however, that if the Company directs the Executive to pay such claim and sue
for a refund, the Company shall advance the amount of such payment to the
Executive, on an interest-free basis and shall indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to
such advance; and further provided that any extension of the statute of
limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company's control
of the contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Executive shall be entitled to
settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 4(a) or 4(c), the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall (subject to
the Company's complying with the requirements of Section 4(c)) promptly pay to
the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by
the Executive of an amount advanced by the Company pursuant to Section 4(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the
expiration of 30 days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
5. Notice of Termination.
Any purported termination by the Company of the Executive's employment for
Cause or Disability or by the Executive for Good Reason shall be
communicated by notice of termination to the other party. A notice of
termination shall include the specific reason for termination relied upon and
shall set forth in reasonable detail, the facts and circumstances claimed to
provide a basis for termination of employment.
Any dispute by a party hereto regarding a notice of termination delivered to
such party must be conveyed to the other party within thirty (30) days after
the notice of termination is given. If the particulars of the dispute are not
conveyed within the thirty (30) day period, then the disputing party's claims
regarding the termination shall be deemed forever waived.
6. Successor; Binding Agreement.
Star Banc will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of Star Banc expressly to assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place
(the assumption shall be by agreement in form and substance
satisfactory to the Executive). Failure of Star Banc to obtain such
agreement prior to the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle the Executive, at his election,
to Termination Benefits from the Company in the same amount and on the same
terms as the Executive would be entitled to hereunder if he terminated his
employment for Good Reason, except that for purposes of implementing the
foregoing, the date on which any such election becomes effective shall be
deemed the Date of Termination. As used in this Agreement, "Company" shall
mean the Company and any successor to its business and/or assets as described
above or which otherwise becomes bound by all the terms and provision of this
Agreement by operation of law.
In addition, as used in this Agreement, "Star Banc" shall mean Star Banc and
any successor to its business and/or assets as described above or which
otherwise becomes bound by all the terms and provision of this Agreement by
operation of law.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive
should die while any amount would still be payable to him hereunder if he had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to his designee or, if
there be no such designee, to his estate.
7. Miscellaneous.
7.1 Notice. All notices, elections, waivers and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given when delivered or mailed by United States certified mail,
return receipt requested, postage prepaid, to such address as either party
may have furnished to the other in writing in accordance herewith, except
that notices of change of address shall be effective only upon receipt.
7.2 No Waiver. No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in
writing signed by the Executive and the Chief Executive Officer of the Company.
No waiver by either party at any time of any breach by the other party of, or
compliance with, any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement.
7.3 Indemnification. If litigation shall be brought to enforce or
interpret any provision contained herein, the Company hereby agrees to
indemnify the Executive for his attorney's fees and disbursement incurred in
such litigation, and hereby agrees to pay prejudgment interest on any money
judgment obtained by the Executive, calculated at the prime interest rate
announced as such by the Wall Street Journal from time-to-time, from the
earliest date that payment(s) to him should have been made under this
Agreement. If the Wall Street Journal announces two or more rates as the prime
rate, then the highest rate shall be used.
7.4 Payment Obligations Absolute. The Company's obligation to pay the
Executive the compensation and to make the arrangements provided herein
shall be absolute and unconditional and shall not be affected by any
circumstances, including, without limitation, any set-off, counterclaim,
recoupment, defense or other right which the Company may have against the
Executive or any third party. All amounts payable by the Company hereunder
shall be paid without notice or demand. Each and every payment made hereunder
by the Company shall be final and the Company will not seek, nor permit its
subsidiaries, affiliates, successors or assigns to seek, to recover all or any
part of such payment from the Executive or from whosoever may be entitled
thereto, for any reason whatsoever.
7.5 Term of Agreement. The term of this Agreement shall continue for an
initial period of three (3) years from the date of this Agreement. On each
anniversary of this Agreement, the term shall be extended for an additional
year unless prior to an anniversary date Star Banc's Board of Directors cause
a notice of nonrenewal to be sent to the Executive. Any Termination Benefits
due pursuant to this Agreement shall continue to be an obligation of the
Company and enforceable by the Executive until paid in full.
7.6 Controlling Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio.
7.7 Interpretation of Agreement. In the event of any ambiguity,
vagueness or other matter involving the interpretation or meaning of this
Agreement, this Agreement shall be construed liberally so as to provide
to the Executive the full benefits set out herein.
7.8 Severability. Each section, subsection or paragraph of this
Agreement shall be deemed severable and if for any reason any portion of
this Agreement is unenforceable, invalid or contrary to any existing or
future law, such unenforceability or invalidity shall not affect the
applicability or validity of any other portion of this Agreement.
7.9 U.S. Dollars. All payments required to be made under this
Agreement shall be made in United States Dollars.
7.10 Employment Agreement. Any benefits provided to the Executive
under this Agreement will, unless specifically stated otherwise in this
Agreement, be in addition to and not in lieu of any benefits that may be
provided the Executive under an Employment Agreement, if any, with the
Company.
Nothing in this Agreement is to be deemed to give the Company the
right to take any action or engage in any omission with respect to the
Executive at any time when any such action or omission is not permissible
and proper under any Employment Agreement if then in force. Similarly,
except as provided otherwise in this Agreement, nothing in this Agreement
is to be deemed to give the Executive the right to take any action or engage
in any omission with respect to the Company at any time when any such act or
omission is not permissible and proper under any Employment Agreement if then
in force.
This Agreement shall continue in force so long as the Executive remains
employed by the Company and shall not be affected by any termination of any
Employment Agreement.
7.11 Footnotes, Title and Captions. All footnotes or section, subsection
or paragraph titles or captions contained in this Agreement are for
convenience only and shall not be deemed part of the text of this Agreement.
IN WITNESS WHEREOF, this Agreement has been executed as of the day and year
first above written.
Attest: STAR BANC CORPORATION, on
behalf of itself and each
Subsidiary
___________________________ By:___________________________
Name Stephen E. Smith
__________________________ ___________________________
Title Name
Senior Vice President
Title
EXECUTIVE
__________________________
Name
<PAGE>
EXECUTIVE RETENTION AGREEMENT
The executive retention agreement covers the following executive officers of
the Corporation for the amounts indicated:
David M. Moffett, $350,000
Executive Vice President and Chief Financial Officer
Richard K. Davis, $350,000
Executive Vice President
Daniel B. Benhase, $250,000
Executive Vice President
Jerome C. Kohlhepp, $250,000
Executive Vice President
Joseph A. Campanella
Executive Vice President $200,000
Wayne J. Shircliff, $200,000
Executive Vice President
Stephen E. Smith, $200,000
Senior Vice President
EXECUTIVE RETENTION AGREEMENT
This Executive Retention Agreement (Agreement) is made effective this 13th
day of December, 1994, between Star Banc Corporation, an Ohio corporation
(Star Banc) and its Subsidiaries (individually and collectively the Company),
and ___________________ (Executive).
WHEREAS, the Company considers the retention of sound and vital
management to be essential to protecting and enhancing its best
interests and those of its shareholders; and
WHEREAS, the Company has determined that appropriate steps should
be taken to reinforce and encourage the Executive's continued
role in the senior management of the Company;
NOW THEREFORE, the Company and the Executive agree as follows:
The Company agrees that it will pay the Executive a Retention
Bonus of $_________ if the Executive is actively employed by the
Company and is in good standing on January 1, 2000, and shall be
paid to the Executive not later than January 15, 2000. This
Retention Bonus is independent of Executive's regular
compensation package.
Star Banc will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of Star Banc
expressly to assume and agree to perform this Agreement in the
same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place (the
assumption shall be by agreemnt in form and substance
satisfactory to the Executive). Failure of Star Banc to obtain
such agreement prior to the effectiveness of any such succession
shall be a breach of this Agreement and shall entitle the
Executive, at his election, to seek specific performance of this
Agreement, and the Company agrees to indemnify the Executive for
all costs and expenses in pursuing such performance, including
legal fees. The Company further agrees to pay prejudgment
interest on the prime interest rate announced as such by the Wall
Street Journal from time-to-time, from the earliest date that
payment to him should have been made under this Agreement.
This Agreement shall terminate automatically on the date on which
the Executive ceases to be an active employee of the Company.
This Agreement shall be governed by the laws of the State of
Ohio.
IN WITNESS WHEREOF, this Agreement has been executed as of the
date and year first above written.
Attest: Star Banc Corporation, on behalf of itself
and each Subsidiary
_________________________________ By ____________________________________
Name Stephen E. Smith
Senior Vice President
(Authorized Signature)
________________________________________
Executive
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
(Amounts in thousands except per share data)
Twelve Months
1994 1993 1992
Net income......................$ 116,591 $ 100,273 $ 76,119
Preferred dividends............... 321 1,084 1,146
Income available to common
shareholders..................$ 116,270 $ 99,189 $ 74,973
Weighted average of common
stock equivalents................ 29,873 29,549 29,227
Weighted average of preferred
stock convertible to common
stock equivalents............... 357 823 884
Weighted average of fully
diluted common stock equivalents. 30,230 30,372 30,111
Primary earnings per share
(income available to common
shareholders divided by weighted
average of common stock
equivalents)..................$ 3.89 $ 3.36 $ 2.57
Fully diluted earnings per share
(net income divided by weighted
average of fully diluted
common stock equivalents).....$ 3.86 $ 3.30 $ 2.53
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.
EXHIBIT 13
<TABLE>
<CAPTION>
Financial Highlights
(dollars in thousands except per share data)
For The Year: 1994 % change 1993 % change 1992
<S> <C> <C> <C> <C> <C>
Net income $116,591 16.3% $100,273 31.7% $76,119
Per Share:
Primary earnings $3.89 15.8% $3.36 30.9% $2.57
Fully diluted earnings 3.86 17.0 3.30 30.6 2.53
Common dividends declared 1.40 20.7 1.16 11.5 1.04
Preferred dividends declared 6.00 - 6.00 - 6.00
Year-end book value per common
--share outstanding 24.02 7.6 22.33 11.1 20.09
Year-end market value per
--common share 36.38 3.9 35.00 (2.8) 36.00
Average Balances:
Total assets $8,252,244 9.4% $7,542,798 5.2% $7,171,898
Earning assets 7,665,037 9.5 7,003,053 5.3 6,652,072
Loans, net of unearned
interest 5,721,667 11.2 5,146,341 4.5 4,926,900
Deposits 6,278,879 2.6 6,121,859 4.1 5,880,471
Shareholders' equity 702,605 9.6 640,868 10.6 579,486
At Year-End:
Common shares issued and
--outstanding 29,802,796 29,606,665 29,216,453
Number of common shareholders 7,858 7,901 8,008
Number of employees 3,707 3,540 3,696
Ratios:
Return on average assets 1.41% 1.33% 1.06%
Return on average equity 16.59 15.65 13.14
Average shareholders' equity
to average total assets 8.51 8.50 8.08
Risk-based capital ratios:
Tier 1 8.66 11.10 10.64
Total 12.16 12.41 11.99
Leverage ratio 6.27 8.24 7.51
Net interest margin 4.55 4.67 4.70
Noninterest expense to net revenue 55.84 57.06 61.34
Noninterest income as a percent
of net revenue 25.10 25.68 24.16
</TABLE>
-2-
<PAGE>
5 YEAR LINE CHARTS OF NET INCOME, EPS, DIVIDENDS, AVERAGE BALANCES AND
VARIOUS RATIOS:
1990 1991 1992 1993 1994
Return on Average Equity 13.39% 12.44% 13.14% 15.65% 16.59%
(In Percents)
Return on Average Assets 1.08 1.04 1.06 1.33 1.41
(In Percents)
Net Interest Margin 4.58 4.69 4.70 4.67 4.55
(In Percents)
Noninterest Expense to
Net Revenue 57.49 60.33 61.34 57.06 55.84
(In Percents)
Net Charge-Offs to Average Loans 0.73 0.79 0.74 0.56 0.20
(In Percents)
Average Shareholders Equity
to Average Total Assets 8.04 8.35 8.08 8.50 8.51
(In Percents)
Earnings Per Share Fully Diluted $2.23 $2.23 $2.53 $3.30 3.86
(In Dollars)
Common Dividends Declared
Per Share 0.96 1.00 1.04 1.16 1.40
(In Dollars)
Average Shareholders Equity 484.5 529.3 579.5 640.9 702.6
(In Millions of Dollars)
Average Total Assets 6.02 6.34 7.17 7.54 8.25
(In Billions of Dollars)
Dividend Payout Ratio 42.67 44.33 40.35 34.41 35.89
(In Percents)
-3-
<PAGE>
<TABLE>
<CAPTION>
Consolidated Six Year Selected Financial Data
(dollars in thousands except per share data) 5 year
Compound
1994 1993 1992 1991 1990 1989 Growth rate
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Interest income $569,724 $518,167 $541,421 $576,753 $586,829 $563,938 0.20%
Interest expense 223,618 194,691 233,038 307,333 340,205 336,299 (7.84)
Net interest income 346,106 323,476 308,383 269,420 246,624 227,639 8.74
Taxable equivalent-
-adjustment(a) 3,069 3,283 4,479 5,864 7,305 8,770 18.94)
Taxable equivalent-
-net interest income 349,175 326,759 312,862 275,284 253,929 236,409 8.11
Noninterest income 117,015 112,890 99,644 81,981 76,347 72,144 10.16
Net revenue 466,190 439,649 412,506 357,265 330,276 308,553 8.60
Noninterest expense 260,311 250,849 253,011 215,528 189,880 184,219 7.16
Provision for loan losses 24,372 33,008 40,898 39,913 40,417 35,418 (7.20)
Net income 116,591 100,273 76,119 65,832 64,889 58,003 14.99
--------------------------------------------------------------------------------------------------------
PER SHARE:
Primary earnings $3.89 $3.36 $2.57 $2.24 $2.23 $2.01 14.12%
Fully diluted earnings 3.86 3.30 2.53 2.23 2.23 2.01 13.94
Common stock cash -
-dividends declared 1.40 1.16 1.04 1.00 0.96 0.88 9.73
Year-end book value 24.02 22.33 20.09 18.58 17.31 16.11 8.32
Year-end market value 36.38 35.00 36.00 25.00 16.75 2.00 10.58
--------------------------------------------------------------------------------------------------------
AVERAGE BALANCES:
Loans, net of-
-unearned interest $5,721,667 $5,146,341 $4,926,900 $4,718,795 $4,452,993 $4,054,382 7.13%
Investment securities 1,900,290 1,592,210 1,341,917 883,411 826,943 847,048 17.54
Money market instruments 43,080 264,502 383,255 262,947 269,047 325,127 (33.25)
Total interest-earning
assets 7,665,037 7,003,053 6,652,072 5,865,153 5,548,983 5,226,557 7.96
Total assets 8,252,244 7,542,798 7,171,898 6,336,096 6,024,108 5,686,410 7.73
Noninterest-bearing
deposits 1,065,933 1,036,141 925,338 765,952 742,189 719,003 8.19
Interest-bearing deposits 5,212,946 5,085,718 4,955,133 4,426,203 4,219,659 3,990,511 5.49
Total deposits 6,278,879 6,121,859 5,880,471 5,192,155 4,961,848 4,709,514 5.92
Short-term borrowings 995,901 621,482 498,014 463,024 416,690 356,025 22.84
Long-term debt 155,172 54,308 59,906 45,937 35,476 36,025 33.92
Shareholders' equity 702,605 640,868 579,486 529,312 484,504 448,071 9.41
--------------------------------------------------------------------------------------------------------
RATIOS:
Return on average assets 1.41% 1.33% 1.06% 1.04% 1.08% 1.02%
Return on average equity 16.59 15.65 13.14 12.44 13.39 12.95
Net interest margin 4.55 4.67 4.70 4.69 4.58 4.52
Noninterest expense to
net revenue 55.84 57.06 61.34 60.33 57.49 59.70
Dividend payout ratio 35.89 34.41 40.35 44.33 42.67 43.57
Tier 1 risk-based capital 8.66 11.10 10.64 10.70 10.17 n/a
Total risk-based capital 12.16 12.41 11.99 12.10 11.63 n/a
Leverage(b) 6.27 8.24 7.51 7.96 7.75 n/a
Average shareholders'equity
to average total assets 8.51 8.50 8.08 8.35 8.04 7.88
--------------------------------------------------------------------------------------------------------
(a) Taxable equivalent adjustment was calculated utilizing a marginal federal income tax rate of
35 percent for 1993 and 1994 and 34 percent for the years 1989-1992.
(b) Defined as tier 1 equity as a percent of average fourth quarter assets.
</TABLE>
-19-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
Star Banc Corporation ("the Corporation") reported record earnings for 1994 of
$116,591,000, compared to $100,273,000 in 1993 and $76,119,000 in 1992. Primary
and fully diluted earnings per share for 1994 were $3.89 and $3.86,
respectively. This compares to primary earnings per share of $3.36 in 1993 and
$2.57 in 1992 and fully diluted earnings per share of $3.30 in 1993 and $2.53
in 1992. Table 1 provides a summary of significant items affecting the change in
primary earnings per share for 1992 through 1994.
5 YEAR LINE CHART OF FULLY DILUTED EARNINGS PER SHARE
(In Dollars)
1990 1991 1992 1993 1994
$2.23 $2.23 $2.53 $3.30 $3.86
Earnings results for 1994 reflected increases in net interest income and
noninterest income, in addition to a significant reduction in the loan loss
provision, which resulted from decreases in the level of net charge-offs and
nonperforming assets.
The Corporation's return on average assets and return on average equity
increased to 1.41 percent and 16.59 percent, respectively, in 1994. This
compares to a return on average assets of 1.33 percent in 1993 and 1.06
percent in 1992 and return on average shareholders' equity of 15.65 percent
in 1993 and 13.14 percent in 1992.
Net interest income increased $22.6 million or seven percent in 1994. This
increase was the result of a $662 million increase in average interest-earning
assets, which was led by an 11.2 percent increase in average loans. This
increase was somewhat offset by a 12 basis point decline in net interest margin
in 1994.
Noninterest income increased $4.1 million or 3.7 percent in 1994, while
noninterest expenses were up $9.5 million or 3.8 percent over 1993. The
provision for loan losses declined $8.6 million or 26.2 percent in 1994, as a
result of a decrease in net charge-offs of $17.3 million or 59.9 percent and a
30.8 percent decline in nonperforming loans.
1992 results were adversely impacted by a one-time pre-tax restructuring
charge of $6.0 million or $4.0 million after-tax. This charge was the result of
a comprehensive restructuring program which began in 1992 and was designed to
evaluate and examine every aspect of the organization in an effort to enhance
revenues, as well as control costs by eliminating duplication of efforts, low
value activities and costs, unprofitable products and non-productive systems.
The majority of the expenses identified in the $6.0 million restructuring
charge were incurred in 1993 with the scheduled implementation of the program.
The actual expenses incurred were not significantly different from initial
estimates.
Total assets at December 31, 1994 were $9.39 billion, up significantly from
$7.64 billion a year earlier. Total loans, net of unearned interest, amounted to
$6.25 billion at the end of 1994, compared to $5.29 billion at the end of 1993.
Deposits totaled $7.36 billion and $6.02 billion at December 31, 1994 and 1993,
respectively. The increases in deposits and total assets were due primarily to
the acquisition of the deposits of 47 former TransOhio Federal Savings Bank
branch offices discussed below.
MERGERS AND ACQUISITIONS:
On September 17, 1994, the Corporation's largest subsidiary, Star Bank, N.A.
("the Bank"), acquired certain assets and liabilities of 47 former TransOhio
Federal Savings Bank branch offices located in the Cleveland and Akron, Ohio
areas from the Resolution Trust Corporation ("RTC"). This transaction was
accounted for as a purchase, and accordingly, all assets acquired and
liabilities assumed were recorded at 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 million. The cash received was
invested in U.S. Government Agency backed or Agency issued mortgage-backed
securities.
This significant acquisition doubled the size of the Bank's presence in
Northeast Ohio, making Star the third largest bank in the Cleveland, Ohio
market. The acquisition had a positive effect on net income and earnings per
share in 1994. However, for the near term, this acquisition will reduce return
on average assets and net interest margin, as well as increase the
Corporation's noninterest expense ratio.
In 1993, as part of the restructuring program, the Corporation merged
its ten subsidiary banks into three, Star Bank, N.A. (Ohio), Star Bank, N.A.,
Kentucky and Star Bank, N.A., Indiana. In addition, the back office operations
for most departments were centralized into Star Bank, N.A., the Corporation's
lead bank.
On June 19, 1992, Star Bank, N.A. purchased 28 Cleveland area branch offices
from Ameritrust Company, N.A. This transaction was accounted for as a purchase,
and accordingly, all assets acquired and liabilities assumed were recorded at
fair value. In this transaction, the Bank acquired $263 million in securities,
$111 million in loans and $937 million in deposits. The difference between the
amounts of securities, loans and deposits, less amounts for fixed assets and the
purchase premium, was received in the form of $557 million in cash. The cash
received was invested in U.S. Government Agency issued mortgage-backed
securities.
-20-
<PAGE>
<TABLE>
<CAPTION>
TABLE 1-Analysis of Primary Earnings Per Share -
Dollar Change B/(W)
1994 vs. 1993 vs.
1994 1993 1992 1993 1992
<S> <C> <C> <C> <C> <C>
Interest income $19.07 $17.54 $18.52 $1.53 $(0.98)
Interest expense (7.49) (6.59) (7.97) (0.90) 1.38
Net interest income 11.58 10.95 10.55 0.63 0.40
Provision for loan losses (0.82) (1.12) (1.40) 0.30 0.28
Net interest income after
provision for loan losses 10.76 9.83 9.15 0.93 0.68
Noninterest income 3.92 3.82 3.41 0.10 0.41
Restructuring charge - - (0.21) - 0.21
Other noninterest expense (8.71) (8.49) (8.45) (0.22) (0.04)
Income taxes (2.07) (1.77) (1.30) (0.30) (0.47)
Preferred dividends (0.01) (0.03) (0.03) 0.02 -
Primary earnings per share $ 3.89 $ 3.36 $ 2.57 $0.53 $0.79
</TABLE>
--------------------------------------------------------------------------------
RESULTS OF OPERATIONS
NET INTEREST INCOME
Net interest income, the difference between total interest income and total
interest expense, is the Corporation's principal source of earnings. The amount
of net interest income is determined by the volume of interest-earning assets,
the level of rates earned on those interest-earning assets, and the cost of
supporting funds. The difference between rates earned on interest-earning assets
(with an adjustment made to tax-exempt income to provide comparability with
taxable income) and the cost of supporting funds is measured by the net interest
margin.
Net interest income increased 7.0 percent in 1994, following a 4.9 percent
increase in 1993. The increase in 1994 was due to an increase in the level of
interest-earning assets, primarily loans, as well as an increase in the level of
investment securities related to the TransOhio branch acquisition. The increase
in 1993 was due to an increase in interest-earning assets, which resulted from
increased loan volume and a full year's effect of the Ameritrust branch
purchase.
5 YEAR LINE CHART OF NET INTEREST INCOME
(In Millions of Dollars)
1990 1991 1992 1993 1994
$254 $275 $313 $327 $349
The net interest margin was 4.55 percent in 1994, 4.67 percent in 1993 and
4.70 percent in 1992. The decrease in net interest margin in 1994 was primarily
a result of the TransOhio branch acquisition, which reduced margin due to the
proceeds from the deposits acquired being invested in investment securities
which have lower yields than the average yields of the Corporation's interest-
earning assets. In addition, the increases in short-term market rates in 1994
have reduced interest rate spreads and net interest margin. As market rates
have increased, rates on supporting funds have increased faster than rates on
the Corporation's earning assets. The slight decline in net interest margin
in 1993 was a result of the Ameritrust branch office acquisition, which
contributed positively to net interest income in 1993, but reduced net
interest margin due to the earning asset growth being supported solely by
deposits. The full year's effect of the Ameritrust purchase had a greater
impact on net interest margin in 1993 as compared to 1992. Partially
offsetting this negative impact was an increase in the spread between
rates earned on interest-earning assets and rates paid on supporting funds,
in addition to a larger percentage of earning assets being supported by
noninterest-bearing deposits in 1993.
In order to reduce the Corporation's exposure to adverse changes in
interest rates and to improve net interest margin, the Corporation began
to enter into interest rate swap agreements in the fourth quarter of 1993.
The notional amount of such swaps increased to $640 million at December 31,
1994, up from $490 million at December 31, 1993. Interest rate swaps
contributed $3.8 million to net interest income and added five basis
points to net interest margin in 1994. In 1993, swaps contributed $1.5
million to net interest income and two basis points to net interest margin.
Table 2 provides detailed information as to average balances, interest
income and expense, and rates earned or paid by major balance sheet category
for the years 1992 through 1994. Table 3 provides an analysis of the changes
in net interest income attributable to changes in volume of interest-earning
assets or interest-bearing liabilities and to changes in rates earned or paid.
-21-
<PAGE>
<TABLE>
<CAPTION>
TABLE 2 - Average Balance Sheets and Average Rates - For the years ended December 31
(dollars in thousands) 1994 1993 1992
Daily Average Daily Average Daily Average
Average Interest Rate Average Interest Rate Average Interest Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Commercial loans $1,885,126 $156,373 8.30% $1,740,501 $130,477 7.50% $1,732,481 $136,960 7.91%
Real estate loans 2,199,485 172,817 7.86 2,045,011 166,225 8.13 1,903,523 171,086 8.99
Retail loans 1,637,056 138,471 8.46 1,360,829 127,392 9.36 1,290,896 138,401 10.72
Total loans 5,721,667 467,661 8.17 5,146,341 424,094 8.24 4,926,900 446,447 9.06
Federal funds sold and
securities purchased
under agreements
to resell 32,513 1,429 4.39 258,416 8,094 3.13 324,641 11,568 3.56
Taxable investment
securities 1,871,693 100,986 5.40 1,554,028 85,996 5.53 1,282,084 81,001 6.32
Non-taxable invest-
ment securities 28,597 2,260 7.90 38,182 3,029 7.93 59,833 4,710 7.86
Interest-bearing
deposits in banks 10,567 457 4.33 6,086 237 3.90 58,614 2,174 3.71
Total interest-
earning assets 7,665,037 572,793 7.47 7,003,053 521,450 7.45 6,652,072 545,900 8.21
Cash and due
from banks 370,357 349,096 309,408
Allowance for
loan losses (90,426) (84,754) (77,809)
Other assets 307,276 275,403 288,227
Total assets $8,252,244 $7,542,798 $7,171,898
Liabilities and Shareholders' Equity:
Savings and
NOW deposits $1,878,803 $40,124 2.14% $1,773,360 $45,673 2.58% $1,233,843 $39,752 3.22%
Money market
deposit accounts 718,692 18,745 2.61 958,987 24,992 2.61 1,176,956 38,184 3.24
Time deposits $100,000
and over 389,456 17,390 4.47 433,412 16,540 3.82 506,359 23,961 4.73
Time deposits under
$100,000 2,225,995 98,961 4.45 1,919,959 83,717 4.36 2,037,975 108,442 5.32
Short-term borrowings 995,901 39,081 3.92 621,482 17,752 2.86 498,014 16,883 3.39
Long-term debt 155,172 9,317 6.00 54,308 6,017 11.08 59,906 5,816 9.71
Total interest-
bearing liabilities 6,364,019 223,618 3.51 5,761,508 194,691 3.38 5,513,053 233,038 4.23
Noninterest-bearing
deposits 1,065,933 1,036,141 925,338
Other liabilities 119,687 104,281 154,021
Shareholders' equity 702,605 640,868 579,486
Total liabilities
and shareholders'
equity $8,252,244 $7,542,798 $7,171,898
-------------------------------------------------------------------------------------------------------------------
Net interest margin 4.55% 4.67% 4.70%
Interest rate spread 3.96 4.07 3.98
-------------------------------------------------------------------------------------------------------------------
Note: Interest and average rate are presented on a fully-taxable equivalent basis. Taxable equivalent amounts
are calculated utilizing the marginal federal income tax rate of 35 percent for 1993 and 1994 and 34 percent
for 1992. The total of nonaccrual loans is included in the daily average balance.
</TABLE>
-22-
<PAGE>
<TABLE>
<CAPTION>
TABLE 3 - Volume/Rate Variance Analysis-
(dollars in thousands) Change from 1993 to 1994 Change from 1992 to 1993
Increase (decrease) in: Volume Rate Total Volume Rate Total
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Commercial loans $11,851 $14,045 $25,896 $ 210 $(6,693) $(6,483)
Real estate loans 12,241 (5,649) 6,592 11,561 (16,422) (4,861)
Retail loans 22,941 (11,862) 11,079 6,103 (17,112) (11,009)
Total loans 47,033 (3,466) 43,567 17,874 (40,227) (22,353)
Federal funds sold and
securities purchased under
agreements to resell (9,022) 2,357 (6,665) (2,182) (1,292) (3,474)
Taxable investment securities 17,067 (2,077) 14,990 15,888 (10,893) 4,995
Non-taxable investment
securities (758) (11) (769) (1,722) 41 (1,681)
Interest-bearing deposits
in banks 192 28 220 (2,043) 106 (1,937)
Total 54,512 (3,169) 51,343 27,815 (52,265) (24,450)
Interest expense:
Savings and NOW deposits 2,600 (8,149) (5,549) 14,929 (9,008) 5,921
Money market deposit accounts (6,247) - (6,247) (6,435) (6,757) (13,192)
Time deposits $100,000 and over (1,787) 2,637 850 (3,177) (4,244) (7,421)
Time deposits under $100,000 13,496 1,748 15,244 (6,006) (18,719) (24,725)
Short-term borrowings 12,980 8,349 21,329 3,477 (2,608) 869
Long-term debt 7,072 (3,772) 3,300 (574) 775 201
Total 28,114 813 28,927 2,214 (40,561) (38,347)
-------------------------------------------------------------------------------------------------------
Net variance $26,398 $(3,982) $22,416 $25,601 $(11,704) $13,897
-------------------------------------------------------------------------------------------------------
Note: Interest on non-taxable loans and securities is computed on a fully-taxable equivalent basis.
Taxable equivalent amounts are calculated utilizing the marginal federal income tax rate of
35 percent for 1994 and 1993 and 34 percent for 1992. The change in interest due to both volume
and rate has been allocated to volume and rate changes in proportion to the relationship of the
absolute dollar amounts of the change in each.
-23-
<PAGE>
-------------------------------------------------------------------------------
INTEREST RATE SENSITIVITY
To minimize the volatility of net interest income and exposure to economic
loss that may result from fluctuating interest rates, the Corporation controls
its exposure to adverse changes in interest rates through asset and liability
management activities within guidelines established by its Asset/Liability
Policy Committee ("ALPC"). The ALPC has the responsibility for approving and
ensuring compliance with asset/liability management policies of the Corporation,
which encompass interest rate risk exposure, off-balance-sheet activity,
liquidity, capital adequacy and the investment portfolio position.
One of the primary tools of management to measure the effect of interest rate
changes on net interest income and net interest margin is simulation analysis
through computer modeling. Through these simulations, management estimates the
impact on net interest income in a 200 basis point upward or downward change of
market interest rates. Asset/liability policy guidelines provide that a 200
basis point up or down change in interest rates cannot result in more than a
five percent change in net interest income. Simulations as of December 31, 1994
indicated that the Corporation was within this guideline.
The Corporation also manages its interest rate sensitivity position in order
to maintain a balance between the amounts of interest-earning assets and
interest-bearing liabilities which are expected to mature or reprice at any
point in time. The interest rate sensitivity ("Gap"), Table 4, demonstrates
the repricing characteristics of the Corporation's interest-earning assets,
liabilities and interest rate swap positions as of December 31, 1994. Table 4
shows the Corporation in a liability sensitive position through the one year
repricing period in the amount of $340 million or 3.6 percent of total assets.
Generally, a liability sensitive position indicates that rising interest rates
would negatively impact net interest margin, while falling interest rates would
positively affect net interest margin.
The Gap analysis does not take into consideration that assets and liabilities
with similar repricing characteristics may not reprice at the same time or to
the same degree and, therefore, does not necessarily predict the impact of
changes in general levels of interest rates on net interest income.
In order to manage interest rate risk, the Corporation began to utilize
interest rate swaps in 1993. These swaps are treated as hedges, and accordingly,
the income and expense related to these transactions is recognized on the hedged
instrument as an adjustment to interest income or expense. Disclosures of the
Corporation's interest rate swap contracts as required by Statement of Financial
Accounting Standards No. 119, "Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments," are shown in Note 15 in
the Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
TABLE 4 - Interest Rate Sensitivity (Gap Analysis)-
(Dollars in millions) 0-30 31-90 91-180 181-365 1-5 Over 5
As of December 31, 1994 Total Days Days Days Days Years Years
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loans $6,249 $2,074 $ 460 $ 504 $ 789 $1,943 $ 479
Investment securities 2,328 228 115 366 611 539 469
Money market instruments 57 57 - - - - -
Total 8,634 2,359 575 870 1,400 2,482 948
Interest-Bearing Liabilities:
Deposits:
Savings and NOW 2,048 403 91 136 78 600 740
Other interest-bearing deposits 4,101 813 771 844 728 866 79
Short-term borrowings 1,035 1,010 25 - - - -
Long-term debt 166 - - 3 2 9 152
Total 7,350 2,226 887 983 808 1,475 971
Interest rate swap positions (145) (300) (195) - 250 390
Total gap 1,284 (12) (612) (308) 592 1,257 367
Cumulative gap $ - $ (12) $(624) $(932) $ (340) $ 917 $1,284
-----------------------------------------------------------------------------------------------
Note: Savings and NOW accounts are subject to immediate withdrawal. However, for the purpose of
the above analysis these accounts are reported based on a historical analysis of Star Bank
accounts.
</TABLE>
-24-
<PAGE>
-------------------------------------------------------------------------------
NONINTEREST INCOME
Noninterest income increased 3.7 percent to $117.0 million in 1994, compared to
$112.9 million in 1993 and $99.6 million in 1992. Excluding the estimated effect
of the TransOhio acquisition, noninterest income was $116.1 million in 1994, an
increase of 2.8 percent over 1993. Growth occurred in several areas, led by
credit card fees and trust income. In addition, 1994 included a nonrecurring
recovery of legal expenses incurred in prior years. Reducing the effect of these
increases was a $2.3 million decline in mortgage banking income in 1994.
Trust income increased 2.2 percent to $36.5 million in 1994, following an 8.5
percent increase in 1993. The 1994 increase was a result of continued expansion
of Star Bank, N.A.'s proprietary mutual funds and its customer base. These
increases were partially offset by a reduction in market value based fees, as
both the stock and bond markets suffered down years. The increase in 1993
revenue was attributable to Star Bank, N.A.'s proprietary mutual funds,
continued expansion of the customer base and fee adjustments in certain product
lines. At year-end 1994, total trust assets (both discretionary and non-
discretionary) amounted to $13.4 billion, compared to $13.0 billion at the end
of 1993 and $11.6 billion at the end of 1992. Subsequent to year-end, total
trust assets increased over $3 billion with the addition of the Lindner Funds
to Star Bank, N.A.'s mutual funds custody business.
Service charges on deposits increased only slightly in 1994, following a
23.1 percent increase in 1993. Excluding the estimated effect of the
acquisition of the TransOhio branch offices, service charges on deposits
declined approximately $700,000 or 2.0 percent in 1994. This decline was due
primarily to customers shifting to lower fee products or maintaining
compensating balances. The 1993 increase was due to increases in deposit
account levels and activity, additional charges on particular product lines
and a full year's impact of the purchase of the Ameritrust branch offices in
1992.
Credit card fees showed strong growth in 1994, increasing $1.6 million or
15.0 percent, compared to 1993. This increase was attributable to a 17.5
percent increase in the credit card customer account base in 1994, in addition
to increases in levels of interchange income, merchant activity and agent bank
processing.
Mortgage banking income declined $2.3 million or 34.7 percent to $4.3 million
in 1994, following a 9.9 percent increase in 1993. In 1993, the mortgage
servicing industry experienced an unprecedented level of refinancing activity
as a result of the decline in mortgage rates that occurred throughout the year.
As a result of the increased activity, the Corporation sold $618 million of
residential mortgage loans into the secondary market in 1993, compared to $134
million in 1994. As a result of the extremely high level of sales in 1993, gains
on sales of residential mortgage loans decreased $3.0 million in 1994, compared
to 1993 levels. Future levels of gains on sales of residential real estate
loans in the secondary market are a function of changes in the rate environment
and origination volume and, therefore, difficult to project. Loan servicing
fees increased 24.8 percent to $3.7 million in 1994, compared to 1993. This
increase was due primarily to approximately $1.1 million in accelerated
amortization and write-downs of excess servicing fees in 1993.
All other service charges and fees from other banking services decreased
slightly to $17.4 million in 1994, following a 13.0 percent increase to $17.8
million in 1993.
All other noninterest income increased $4.4 million to $10.7 million in
1994, compared to $6.3 million in 1993 and $5.3 million in 1992. The increase in
1994 was due primarily to a $1.6 million nonrecurring recovery of legal
expenses incurred in prior years and an increase in the amount of gains on
disposition of leases.
Table 5 provides a summary of changes in noninterest income for the last
three years.
<TABLE>
<CAPTION>
TABLE 5 - Noninterest Income -
% Increase/ % Increase/
(Dollars in thousands) (decrease) (decrease)
For the years ended December 31 1994 1993 1992 1994/1993 1993/1992
<S> <C> <C> <C> <C> <C>
Trust $ 36,539 $ 35,768 $32,963 2.16% 8.51%
Service charges on deposits 35,543 35,460 28,817 0.23 23.05
Credit card fees 12,475 10,848 10,092 15.00 7.49
Mortgage banking(a) 4,301 6,587 5,994 (34.70) 9.89
Other service charges and fees 17,444 17,812 15,769 (2.07) 12.96
Investment securities gains/
(losses) - net 10 157 719 (93.63) (78.16)
All other noninterest income 10,703 6,258 5,290 71.03 18.30
Total noninterest income $117,015 $112,890 $99,644 3.65% 13.29%
------------------------------------------------------------------------------------------------
(a) Mortgage banking income consists of mortgage loan servicing fees and gains on sales of
residential real estate loans.
</TABLE>
-25-
<PAGE>
-------------------------------------------------------------------------------
NONINTEREST EXPENSE
Total noninterest expense, increased 3.8 percent to $260.3 million in 1994,
compared to $250.8 million in 1993 and $247.0 million in 1992 (excluding
restructuring charge). The Corporation's noninterest expense ratio improved
for the third straight year, decreasing to 55.8 percent in 1994, compared to
57.1 percent in 1993 and 59.9 percent in 1992 (excluding the restructuring
charge). The increase in noninterest expense in 1994 was due in part to the
purchase of 47 former TransOhio offices from the RTC. It is estimated that the
TransOhio acquisition increased noninterest expense approximately $6.7 million
in 1994. The effect of the TransOhio acquisition resulted in an estimated 50
basis point increase to the noninterest expense ratio.
The full year's effect of the acquisition of 28 branch offices in Cleveland
from Ameritrust Company, N.A. increased noninterest expense by approximately
$9.0 million in 1993. Despite this increase, noninterest expense grew only $3.8
million or 1.6 percent in 1993.
The improvement in the efficiency ratio in 1994 and 1993 reflects the
continued commitment by management to reducing operating costs of the
Corporation. This commitment is a continuation of the positive impact created
by the Corporation's restructuring program. As part of the restructuring
program the Corporation has continued to centralize and streamline operations.
Salary expense increased 8.2 percent in 1994, following a 2.6 percent decline
in 1993. Pension and other employee benefits increased 2.4 percent in 1994 and
4.3 percent in 1993. The increase in salary expense in 1994 was due to increased
staff levels related to the TransOhio acquisition, in addition to an increase in
employee awards and incentives based on management's new "pay for performance"
philosophy, which rewards employees for achieving sales and product goals and
objectives. Salary expense declined in 1993 as a result of a decrease in the
number of full-time equivalent employees. Benefits were up in 1993, due in part
to a change to accrual basis for recognition of postretirement benefits expense
as required by SFAS No. 106, which is described further below.
In 1994, the Corporation adopted Statement of Financial Accounting Standards
No. 112 (SFAS No. 112) related to employers' accounting for postemployment
benefits. SFAS No. 112 requires companies to accrue, during the period that
an employee renders service to the company, the expense of providing such
benefits. Types of benefits include, but are not limited to, salary
continuation, severance benefits, job training and counseling and
continuation of health care, disability and life insurance coverage. Currently,
the Corporation provides only workers' compensation as a postemployment
benefit. The adoption of SFAS No. 112 did not have a material effect on
the Corporation's financial condition or results of operations.
In December 1990, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 106 (SFAS No. 106) related to employers'
accounting for postretirement benefits other than pension. Although it applies
to all forms of postretirement benefits, the statement principally focuses on
postretirement health care benefits and requires companies to accrue, during
the period that the employee renders service to the company, the expense of
providing such benefits. The Corporation adopted SFAS No. 106 in 1993. The
accumulated postretirement benefit obligation of approximately $5.5 million,
as of the date of adoption, is being amortized on a straight-line basis over
the expected future lifetime of the retirees under the plan of 14 years. The
net periodic postretirement benefit expense recognized by the Corporation was
$763,000 in 1994 and $789,000 in 1993.
Equipment expense declined 9.6 percent in 1994, following a 2.7 percent
decline in 1993. The decline in equipment expense in both 1994 and 1993 was
primarily a result of a reduction in equipment lease expense, offset by a
slight increase in depreciation, as the Corporation purchased various types
of equipment which had been leased previously.
Occupancy expense increased 6.4 percent in 1994, following a 12.3 percent
increase in 1993. The increase for 1994 was due to the TransOhio acquisition,
in addition to market value write-downs on several lease obligations on
unoccupied space. The 1993 increase was due primarily to the full year's
effect of the purchase of the former Ameritrust branch offices in 1992.
All other operating expenses increased $1.5 million or 1.54 percent to
$101 million in 1994. The 1994 increase was due to the effect of the
TransOhio branch acquisition, which added approximately $2.8 million in
other operating expenses. Excluding the effect of TransOhio, all other
operating expense would have declined approximately $1.3 million or 1.3
percent. All other operating expenses were up in 1993 due primarily to a
$4.3 million increase in amortization of intangible assets. This increase was
a result of a $3.7 million increase in amortization of purchased mortgage
servicing rights (PMSRs). Amortization of PMSRs increased as a result of a
40.3 percent increase in the mortgage servicing portfolio and an acceleration
of amortization due to the unprecedented level of refinancing activity
previously described.
5 YEAR LINE CHART OF THE EFFICIENCY RATIO
(In Percents)
1990 1991 1992 1993 1994
57.49% 60.33% 61.34% 57.06% 55.84%
Table 6 provides a summary of changes in noninterest expense for the last
three years.
-26-
<PAGE>
<TABLE>
<CAPTION>
TABLE 6 - Noninterest Expense -
% Increase/ % Increase/
(Dollars in thousands) (decrease) (decrease)
For the years ended December 31 1994 1993 1992 1994/1993 1993/1992
<S> <C> <C> <C> <C> <C>
Salaries $105,279 $ 97,347 $ 99,900 8.15% (2.56)%
Pension and other employee benefits 19,692 19,237 18,438 2.37 4.33
Equipment expense 15,028 16,629 17,098 (9.63) (2.74)
Occupancy expense-net 18,852 17,717 15,781 6.41 12.27
FDIC insurance 13,176 13,987 12,933 (5.80) 8.15
State taxes 9,682 9,052 8,676 6.96 4.33
Marketing expense 8,391 7,219 6,129 16.23 17.78
Amortization of goodwill and
other intangible assets 7,698 9,469 5,142 (18.70) 84.15
All other noninterest expense 62,513 60,192 62,914 3.86 (4.33)
Total 260,311 250,849 247,011 3.77 1.55
Restructuring charge - - 6,000 - -
Total noninterest expense $260,311 $250,849 $253,011 3.77% (0.85)%
</TABLE>
--------------------------------------------------------------------------------
INCOME TAXES
The Corporation's effective tax rate was 34.7 percent in 1994, compared to 34.3
percent in 1993 and 33.3 percent in 1992. The increase in 1993 was due primarily
to the Budget Reconciliation Act passed by Congress in 1993. Under this new law,
the corporate income tax rate increased from 34 percent to 35 percent, effective
January 1, 1993. This increase in the corporate income tax rate resulted in a
$1.4 million increase in the Corporation's income tax expense in 1993, net of a
slight adjustment to deferred taxes.
The remaining increases in the Corporation's effective tax rate were due to
the continued shift in recent years from non-taxable sources of income toward
taxable sources of income, reducing the proportionate level of tax-exempt income
to total taxable income.
In 1993, the Corporation adopted Statement of Financial Accounting Standards
No. 109 (SFAS No. 109), "Accounting for Income Taxes." SFAS No. 109 superseded
SFAS No. 96, which was adopted by the Corporation in 1988. The adoption of SFAS
No. 109 did not impact the financial condition or results of operations of the
Corporation. Additional disclosures of deferred taxes required by SFAS No. 109
are shown in Note 8 in the Notes to Consolidated Financial Statements.
-------------------------------------------------------------------------------
BALANCE SHEET
LOANS
Loans, net of unearned interest, increased $955 million to $6.25 billion at
December 31, 1994, compared to $5.29 billion at December 31, 1993. The
Corporation experienced growth in all loan areas in 1994. The 18.0 percent
increase in end-of-period loans was led by total retail loans which increased
$388 million or 27.0 percent in 1994. In addition, residential mortgage loans
were up 17.1 percent and commercial loans and leases increased 15.6 percent in
1994.
Table 7 provides a summary of loans by type at year-end for each of the past
five years. Table 8 provides maturity distribution data for selected types of
loans.
The Corporation's mortgage banking department was formed in 1991 to manage
originations, secondary market sales and servicing of residential mortgages on
a corporatewide basis. In 1994, refinancing activity and sales of residential
mortgages in the secondary market declined significantly, compared to 1993, as
mortgage rates continued to increase throughout the year. During 1994, the
Corporation sold $134 million of residential mortgage loans into the secondary
market, compared to $618 million in 1993. As of December 31, 1994, the
Corporation serviced $1.2 billion in mortgage loans for outside investors,
compared to $1.4 billion at December 31, 1993.
-27-
<PAGE>
<TABLE>
<CAPTION>
TABLE 7 - Loans by Type -
As of December 31 (dollars in thousands) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Commercial $1,847,848 $1,636,654 $1,606,251 $1,577,587 $1,702,829
Real estate construction and
development 227,879 180,470 192,975 192,220 211,315
Commercial real estate mortgage 981,954 909,084 801,490 644,657 483,520
Residential real estate mortgage 1,168,828 997,748 969,512 1,063,809 875,536
Credit card 228,673 172,534 173,271 173,161 161,078
Lease financing 484,363 275,834 176,083 144,048 141,638
Other retail 1,310,012 1,122,083 1,073,502 1,062,914 983,800
Total loans, net of
unearned interest $6,249,557 $5,294,407 $4,993,084 $4,858,396 $4,559,716
Percent of total loans by type
Commercial 29.57% 30.91% 32.17% 32.47% 37.35%
Real estate construction and
development 3.65 3.41 3.86 3.96 4.63
Commercial real estate mortgage 15.71 17.17 16.05 13.27 10.60
Residential real estate mortgage 18.70 18.85 19.42 21.90 19.20
Credit card 3.66 3.26 3.47 3.56 3.53
Lease financing 7.75 5.21 3.53 2.96 3.11
Other retail 20.96 21.19 21.50 21.88 21.58
Total loans 100.00% 100.00% 100.00% 100.00% 100.00%
</TABLE>
<TABLE>
<CAPTION>
TABLE 8 - Selected Loan Maturity Distribution -
Over One Over
(Dollars in thousands) One Year Through Five Five
As of December 31, 1994 or Less Years Years Total
<S> <C> <C> <C> <C>
Commercial $1,268,071 $489,969 $ 89,808 $1,847,848
Real estate construction and development 108,020 87,555 32,304 227,879
Total $1,376,091 $577,524 $122,112 $2,075,727
Total of these selected loans due after one year with:
Predetermined interest rate $ 187,441
Floating interest rate 512,195
</TABLE>
-28-
<PAGE>
-------------------------------------------------------------------------------
ASSET QUALITY
As of December 31, 1994, the allowance for loan losses was $96.0 million or 1.54
percent of total loans, net of unearned interest. This compares to $83.2 million
or 1.57 percent of total loans, net of unearned interest, as of December 31,
1993. The provision for loan losses totaled $24.4 million in 1994, $33.0 million
in 1993 and $40.9 million in 1992. Table 9 provides a summary of activity in the
allowance for loan losses account by type of loan. As shown in Table 9, net
charge-offs as a percentage of average outstanding loans were 0.20 percent in
1994, the third straight year of improvement and the lowest level in more than
10 years. This compares to 0.56 percent in 1993, an 18 basis point decline from
0.74 percent in 1992. Net charge-offs declined in most lending areas in 1994,
led by the commercial lending areas where net charge-offs decreased 62.4
percent. The improvement in net charge-offs in 1994 reflects the Corporation's
continued commitment to maintaining strict credit standards and addressing
problem credits at an early stage, in addition to the improved economic
conditions.
In 1993, net charge-offs declined significantly in the retail loan portfolio
due in part to a strengthening in underwriting in the installment and credit
card areas. The Corporation also experienced declines in the levels of
charge-offs in the commercial real estate and real estate construction areas in
1993.
<TABLE>
<CAPTION>
TABLE 9 - Summary of Loan Loss Experience -
As of December 31 (dollars in thousands) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Average loans-net of unearned interest $5,721,667 $5,146,341 $4,926,900 $4,718,795 $4,452,993
Allowance for loan losses:
Balance-beginning of year $ 83,156 $78,953 $ 73,805 $ 65,938 $ 57,433
Charge-offs:
Commercial (10,785) (20,752) (19,529) (17,718) (15,298)
Real estate (1,281) (2,516) (4,465) (3,064) (4,091)
Retail (12,504) (16,854) (23,890) (24,265) (19,946)
Total charge-offs (24,570) (40,122) (47,884) (45,047) (39,335)
Recoveries:
Commercial 4,255 3,372 3,083 1,769 1,126
Real estate 1,507 633 252 208 67
Retail 7,259 7,312 8,020 6,000 5,462
Total recoveries 13,021 11,317 11,355 7,977 6,655
Net charge-offs (11,549) (28,805) (36,529) (37,070) (32,680)
Provision charged to earnings 24,372 33,008 40,898 39,913 40,417
Net allowances of banks or offices
acquired/sold - - 779 5,024 768
Balance-end of year $ 95,979 $ 83,156 $ 78,953 $ 73,805 $ 65,938
-----------------------------------------------------------------------------------------------------
Ratio of net charge-offs to average loans 0.20% 0.56% 0.74% 0.79% 0.73%
Ratio of allowance for loan
losses to end of year loans,
net--of unearned interest 1.54 1.57 1.58 1.52 1.45
----------------------------------------------------------------------------------------------------
</TABLE>
-29-
<PAGE>
Tables 10 and 11 provide information related to nonperforming assets and loans
90 days or more past-due.
Due to a reduction in nonaccrual loans, nonperforming assets declined $16.9
million to $38.0 million at December 31, 1994, following an additional $16.9
million reduction in 1993. Nonperforming assets as a percentage of total loans
and other real estate owned decreased to 0.61 percent at December 31, 1994,
compared to 1.04 percent a year earlier. Nonperforming loans as a percentage
of total loans decreased to 0.56 percent at December 31, 1994, compared to
0.96 percent at December 31, 1993. The decrease in nonperforming loans for
1994 was led by a $9.37 million decline in the asset-based lending area. In
1993, the majority of the decrease in nonperforming loans was achieved in the
commercial loan and real estate construction areas. Due to the uncertainty of
economic conditions, it is difficult to project future levels of nonperforming
loans.
Other real estate owned, which is recorded at the lower of cost or fair
value, represents real estate of which the Corporation has taken ownership in
partial or total satisfaction of loans. Other real estate owned was $2.8
million at December 31, 1994, a decrease of $1.2 million from December 31, 1993.
This was achieved primarily through the sale of property held. There were no
significant additions to other real estate owned in 1994 or 1993.
Loans past due 90 days or more decreased $6.9 million or 45.6 percent to
$8.3 million at December 31, 1994. The majority of this decrease was in the
commercial loan and commercial mortgage areas which declined 76.7 percent and
62.2 percent, respectively.
Management is not aware of any material amounts of loans outstanding, not
disclosed in Tables 10 and 11, where there is significant uncertainty as to the
ability of the borrower to comply with present payment terms. In addition, as
of December 31, 1994, there were no significant other interest-earning assets
classified as nonperforming or past-due 90 days or more. The Corporation's
credit exposure to foreign countries is not significant.
Responsibility for the establishment of policy and direction of the loan
portfolio lies with the Credit Policy Management Group. Composed of members
of senior management, this group determines and oversees the execution of
strategies for the growth and development of the loan portfolio. To maintain
the level of credit risk at an appropriate level, the group sets underwriting
standards and internal lending limits and provides for proper diversification
by monitoring and placing constraints on concentrations of credit within the
portfolio on a consolidated basis. In monitoring the level of credit risk
within the loan portfolio, the Corporation utilizes a corporatewide loan
tracking program. As part of this program, risk ratings are individually
assigned to each commercial and commercial real estate loan within the
portfolio and reported to management on a monthly basis. Risk ratings are
independently reviewed for propriety by the Corporation's loan review
department. The system provides for the proper measurement of the level of
risk within the portfolio and facilitates appropriate management and control.
Management does not allocate the allowance for loan losses to specific
categories of loans. The amount of the provision for loan losses necessary
to maintain the adequacy of the allowance is based on management's evaluation
of several key factors: the current loan portfolio, current economic
conditions, evaluation of significant problem loans, changes in the mix and
levels of the various types of loans, past charge-off experience and other
pertinent information. The allowance for loan losses is based on estimates
and ultimate losses may vary from current estimates. These estimates are
reviewed continually and, as adjustments become necessary, they are reported
in earnings in the periods in which they become known. It is management's
opinion that the allowance for loan losses at December 31, 1994 was adequate
to absorb all anticipated losses in the loan portfolio as of that date.
5 YEAR LINE CHART OF THE COVERAGE RATIO
ALLOWANCE FOR LOAN LOSSES AS A PERCENT OF NONPERFORMING LOANS
(In Percents)
1990 1991 1992 1993 1994
119% 129% 124% 163% 272%
-30-
<PAGE>
<TABLE>
<CAPTION>
TABLE 10 - Nonperforming Assets -
As of December 31 (dollars in thousands) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Loans on nonaccrual status $34,990 $50,687 $62,299 $55,473 $53,365
Loans which have been renegotiated 261 249 1,223 1,852 2,077
Total nonperforming loans 35,251 50,936 63,522 57,325 55,442
Other real estate owned 2,793 3,984 8,327 28,753 27,734
Total nonperforming assets $38,044 $54,920 $71,849 $86,078 $83,176
--------------------------------------------------------------------------------------------
Percentage of nonperforming loans
to loans, net of unearned interest 0.56% 0.96% 1.27% 1.18% 1.22%
Percentage of nonperforming assets
to loans, net of unearned interest
and other real estate owned 0.61 1.04 1.44 1.76 1.81
Percentage of allowance for loan
losses to nonperforming loans 272.27 163.26 124.29 128.75 118.93
Loans past-due 90 days or more $ 8,264 $15,200 $15,529 $22,302 $17,464
-------------------------------------------------------------------------------------------
</TABLE>
In 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 114 (SFAS No. 114), related to accounting
by creditors for impairment of a loan. SFAS No. 114 was amended in October
1994 by Statement of Financial Accounting Standards No. 118 (SFAS No. 118),
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures." SFAS No. 114 requires that impaired loans as defined by the
statement be measured based on (1) the present value of the expected future
cash flows discounted at the loan's effective interest rate, or (2) as a
practical expedient, at the loan's observable market price or the fair value
of the collateral if the loan is collateral dependent.
Adoption of SFAS No. 114 and No. 118 is required in 1995. Management
anticipates that the adoption of SFAS No. 114 and No. 118 will not have a
material impact on the Corporation's financial condition and results of
operations.
-31-
<TABLE>
<CAPTION>
Table 11 - Composition of Nonperforming Loans -
December 31, 1994 December 31, 1993
Nonperforming Loans Nonperforming Loans
90 Days 90 Days
or or
Non- Percentage More Non- Percentage More
(dollars in thousands) accrual Restructured Total of Loans Past-Due accrual Restructured Total of Loans Past-Due
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial loans:
Corporate $20,813 $261 $21,074 1.26% $1,213 $24,688 $249 $24,937 1.69% $ 5,199
Asset-based
lending - - - - - 9,371 - 9,371 5.96 -
Commercial
leasing 25 - 25 0.01 - 33 - 33 0.03 -
Total
commercial
loans 20,838 261 21,099 1.03 1,213 34,092 249 34,341 1.94 5,199
Real estate loans:
Residential 4,431 - 4,431 0.38 1,906 4,793 - 4,793 0.48 3,016
Commercial
mortgage 8,268 - 8,268 0.84 2,090 9,931 - 9,931 1.09 5,533
Construction/
land
development 404 - 404 0.18 1,446 363 - 363 0.20 53
Total real
estate loans 13,103 - 13,103 0.55 5,442 15,087 - 15,087 0.72 8,602
Retail loans:
Other retail 651 - 651 0.05 801 1,185 - 1,185 0.11 576
Credit cards 297 - 297 0.13 765 260 - 260 0.15 823
Retail leasing 101 - 101 0.04 43 63 - 63 0.04 -
Total retail
loans 1,049 - 1,049 0.06 1,609 1,508 - 1,508 0.10 1,399
Total loans $34,990 $261 $35,251 0.56% $8,264 $50,687 $249 $50,936 0.96% $15,200
</TABLE>
INVESTMENT SECURITIES
The Corporation's investment portfolio increased $728 million to $2.33 billion
at December 31, 1994, from $1.60 billion a year earlier. This increase is
due primarily to the cash received in the TransOhio branch office acquisition
which was used to purchase $939 million in mortgage-backed securities. In
addition, prepayments of the mortgage-backed securities slowed in 1994,
compared to 1993, as a result ofthe increase in mortgage rates.
It is anticipated the investment portfolio will decline in 1995 as the funds
received from maturities will be used to help fund expected loan growth. If
purchases of securities are made, the Corporation is expected to continue to
shift a greater portion of the investment securities portfolio toward
mortgage-backed securities and collateralized mortgage obligations and away from
U.S. Treasury obligations due to the availability of enhanced yields. This
is evidenced by a $270 million decline in U.S. Treasury and Agency securities in
1994. Credit risk has been minimized by restricting purchases to U.S. Agency
backed securities. To reduce interest rate risks associated with these
securities, purchases are restricted to securities with relatively short
maturities and/or durations.
Table 12 provides information as to the composition of the Corporation's
investment securities portfolio as of December 31, 1994.
-32-
<PAGE>
<TABLE>
<CAPTION>
Table 12 - Investment Securities -
Fully-Taxable
Equivalent
Carrying Market Average Weighted
As of December 31, 1994 (dollars in thousands) Value Value Maturity Average Yield
<S> <C> <C> <C> <C>
U.S. Treasury and agencies:
Within one year $ 87,956 $ 87,956 0.2 yrs. 4.63%
One through five years 26,690 26,690 1.9 yrs. 5.93
Five through ten years 687 687 7.9 yrs. 7.98
Over ten years 917 917 21.2 yrs. 5.00
Total 116,250 116,250 0.8 yrs. 4.95
Mortgage-backed securities:
Within one year 44,761 43,963 0.8 yrs. 5.90
One through five years 1,063,839 1,014,151 3.2 yrs. 5.22
Five through ten years 1,046,578 1,003,077 7.8 yrs. 6.22
Over ten years - - - -
Total 2,155,178 2,061,191 5.4 yrs. 5.72
Obligations of states and
political subdivisions:
Within one year 13,571 13,575 0.4 yrs. 6.58
One through five years 6,848 7,065 2.2 yrs. 8.86
Five through ten years 1,135 1,138 5.4 yrs. 11.62
Over ten years - - - -
Total 21,554 21,778 1.3 yrs. 7.57
Other debt securities:
Within one year - - - -
One through five years 157 156 4.4 yrs. 8.13
Five through ten years 1,160 1,158 6.6 yrs. 7.30
Over ten years 27 27 14.6 yrs. 9.26
Total 1,344 1,341 6.5 yrs. 7.44%
Federal Reserve Bank stock
and other equity securities 33,619 33,619
Total investment securities $2,327,945 $2,234,179
Note: Information related to mortgage-backed securities included above is presented
based upon weighted average maturities anticipating future prepayments. Average yields
on available-for-sale securities are calculated based upon the average amortized
historical cost.
</TABLE>
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.
The initial adoption of SFAS No. 115 resulted in increases to
shareholders' equity and investment securities of $4.4 million (net of tax)
and $6.7 million, respectively. The adoption of SFAS No. 115 had no effect
on current earnings.
As of December 31, 1994, the Corporation reported a net unrealized loss
of $21.0 million on investment securities, with an offsetting charge to
shareholders' equity of $13.6 million (net of tax). Since January 1, 1994,
the unrealized gain/(loss) reported as a separate component of equity
changed from an unrealized gain of $4.4 million to an unrealized loss
of $13.6, reducing equity $18.0 million. This change is a result of
the continued increases in market rates throughout 1994, which reduced
the fair value of the fixed rate securities held in the available-for-sale
portfolio.
As of December 31, 1994, the Corporation's investment securities
portfolio included $1.77 billion in securities classified as held-to-maturity
and $563 million classified as available-for-sale.
-33-
<PAGE>
------------------------------------------------------------------------------
DEPOSITS
Total deposits increased $1.35 billion to $7.36 billion at December 31, 1994,
compared to $6.02 billion a year earlier. The purchase of 47 former TransOhio
branch offices as of September 17, 1994 added $1.1 billion of primarily
savings, NOW and small time deposits. In addition, in the third quarter of
1994, Star Bank, N.A. reopened its Grand Cayman office to begin offering
eurodollar deposits of $100,000 and over. As of December 31, 1994, there
were $258 million in eurodollar deposits of $100,000 and over.
Noninterest-bearing deposits, savings and NOW accounts all increased
in 1994 as a result of the TransOhio acquisition. These increases were
offset by a 8.8 percent decline in money market deposit accounts in 1994.
As short-term market rates increased in 1994, customers began moving their
funds out of lower yielding savings and money market accounts into higher
yielding certificates of deposit. Excluding the effect of TransOhio, small
certificates of deposit increased approximately $300 million or 15.0 percent
at December 31, 1994, compared to a year earlier.
In 1993, rates offered on deposit products, as did all market interest rates,
continued to decline due to efforts of the Federal Reserve to stimulate
economic growth. The low rate environment prompted many customers to increase
their liquidity by increasing funds in immediately accessible deposit
vehicles and reducing the amount in longer term instruments such as
certificates of deposit. The Corporation also noted a shift by customers
out of traditional bank products to other nonbank or nondeposit financial
instruments or investments.
Table 13 provides a summary of total deposits by type at year-end for
each of the last five years. Table 14 provides maturity distribution for
domestic time deposits $100,000 and over.
<TABLE>
<CAPTION>
Table 13 - Deposits by Type-
As of December 31 (dollars in thousands) 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Noninterest-bearing deposits $ 1,214,703 $1,200,609 $1,137,024 $ 935,732 $ 879,735
Interest-bearing deposits:
Savings 1,032,529 878,119 758,412 331,308 264,323
NOW 1,015,913 943,750 802,311 581,650 449,711
Money market deposit accounts 651,991 714,752 1,261,217 1,028,306 882,513
Time deposits $100,000 and over - domestic 378,480 351,095 425,128 539,923 642,588
Foreign deposits $100,000 and over 257,701 - - - -
All other time deposits 2,812,498 1,927,241 2,018,664 2,011,629 2,010,886
Total deposits $7,363,815 $6,015,566 $6,402,756 $5,428,548 $5,129,756
Percent of total deposits by type
Noninterest-bearing deposits 16.50% 19.96% 17.76% 17.24% 17.15%
Interest-bearing deposits:
Savings 14.02 14.60 11.84 6.10 5.15
NOW 13.80 15.69 12.53 10.71 8.77
Money market deposit accounts 8.85 11.88 19.70 18.94 17.20
Time deposits $100,000 and over - domestic 5.14 5.83 6.64 9.95 12.53
Foreign deposits $100,000 and over 3.50 - - - -
All other time deposits 38.10 32.04 31.53 37.06 39.20
Total deposits 100.00% 100.00% 100.00% 100.00% 100.00%
</TABLE>
-34-
<PAGE>
Table 14 - Maturity of Domestic Time Deposits
$100,000 and Over -
As of December 31, 1994 (dollars in thousands)
3 months or less $208,150
Over 3 months through 6 months 57,175
Over 6 months through 12 months 65,089
Over 12 months 48,066
Total $378,480
LIQUIDITY
The Asset/Liability Policy Committee ("ALPC") actively analyzes and
manages the Corporation's liquidity 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. The most important
factor in the preservation of liquidity is the maintenance of public
confidence as this facilitates the retention and growth of a large,
stable supply of core deposits and funds. Ultimately, public confidence
is generated through profitable operations and a strong capital position.
The Corporation's strong record in both of these areas has enabled it to
succeed in developing a large and reliable base of core funding from
within its local market areas.
The ALPC's liquidity policies limit the amount the Corporation's
subsidiary banks can borrow, subject to the Corporation's ability to borrow
funds in the capital markets in an efficient and cost effective manner.
In addition, the Corporation's strategic liquidity and contingent planning
are subject to the amount of asset liquidity present in the balance sheet.
Each subsidiary bank periodically reviews its ability to meet funding
deficiencies due to adverse business events. These funding needs are then
matched up with specific asset-based sources to ensure sufficient funds are
available. Also, the strategic liquidity policy requires the Corporation to
diversify its national market funding sources to avoid concentration in
any one market.
The Corporation's lead bank is a member of the Federal Home Loan Bank
of Cincinnati and in 1994 reopened its Grand Cayman office. In 1994, Star
Bank, N.A. established relationships with dealers to issue national market
retail certificates of deposits. To date, the Bank has not issued any
certificates of deposits in this program. Also in 1994, Star Bank, N.A.
prepared an offering circular in order to issue bank notes of up to $500
million, to be available as an alternative funding source. The terms on
these notes can vary from 30 days to 30 years. Currently, the Bank has not
issued any notes under this offering circular. In addition to these funding
alternatives, the Corporation has maintained a presence in the national
fed funds, repurchase agreements and certificate of deposit markets.
Star Bank, N.A. currently has its short-term debt and both long-term senior
and subordinated debt rated by Standard & Poor's and Moody's. At December 31,
1994, the Bank's subordinated and senior debt was rated "A" and "A+",
respectively, by Standard & Poor's and "A3" and "A1" by Moody's. These
ratings assist the Bank in its ability to gather funds from the capital
markets.
The parent company obtains cash to meet its obligations from dividends
collected from its subsidiaries. Federal and state banking laws regulate the
amount of dividends that may be declared by banking subsidiaries. During 1994,
the Corporation's subsidiary banks could have provided an additional $90
million in dividends to the parent company, without additional regulatory
approval. The parent company can obtain funding on a short-term basis through
the issuance of short-term notes or by drawing upon lines of credit issued
by other banking institutions. At December 31, 1994, the Corporation has
not drawn upon these bank lines of credit, which amount to $10 million.
Longer term sources of funding are provided by the Corporation's access to
both the debt and equity markets.
In the first quarter of 1994, Star Bank, N.A. issued $150 million in
subordinated long-term debt, the proceeds of which were used to pay off
the mortgage on the corporate headquarters building in Cincinnati, purchase
common shares under a buyback program and various other corporate purposes.
The Corporation's consolidated long-term debt, which also includes senior
and promissory notes, increased $115 million to $166 million at December 31,
1994. The increase was a result of the subordinated debt issuance
which was reduced by prepayments of $5 million on one of the Corporation's
promissory notes and $24 million for the mortgage on the headquarters building.
CAPITAL RESOURCES
The Corporation's total shareholders' equity increased $42 million or 6.3
percent to $718 million at December 31, 1994, compared to $676 million at
December 31, 1993. The increase is due to the retention of net income after
dividends on preferred and common shares. The Corporation increased its
annual dividend rate per common share 20.7 percent from $1.16 in 1993 to
$1.40 in 1994. The dividend payout ratio for 1994 increased to 35.89 percent,
following payout ratios of 34.41 percent in 1993 and 40.35 percent in 1992.
-35-
In 1994, the board of directors of the Corporation approved a common stock
buyback program to purchase up to one million shares of common stock over
the next three years. The repurchased shares will be held as treasury shares
for reissue in connection with potential conversions of preferred shares,
the employee stock option plan and other corporate purposes. As of December 31,
1994, the Corporation had repurchased 649,000 shares through the buyback
program. In 1991, in connection with the acquisition of Kentucky
Bancorporation, Inc., the Corporation issued 217,800 shares of Series B
Cumulative Preferred Stock with a stated value of $100 per share. The preferred
stock, which had an original recorded value of $18 million, is convertible
into shares of the Corporation's common stock at a rate of 4.545 shares of
common stock for each share of preferred stock. In 1994, 146,457 shares
of preferred stock were converted to 665,710 shares of common stock.
The preferred stock pays a quarterly dividend at an annual rate of $6
per share and is callable at the Corporation's option at a price of $103 per
share starting in July 1996 with the call price declining ratably to $100
per share in July 2001 and thereafter. At December 31, 1994, there were
29,707 preferred shares that remained outstanding.
Banking industry regulators define minimum capital requirements for banks
and bank holding companies. The Corporation's tier 1 and total risk-based
capital ratios as of December 31, 1994 amounted to 8.66 and 12.16 percent,
respectively, well above the minimum requirements of 4.00 percent for tier
1 and 8.00 percent for total risk-based capital. Regulatory authorities have
also established a minimum "leverage" ratio of 3.00 percent, which is defined
as tier 1 equity to average quarterly assets. At December 31, 1994, the
Corporation's leverage ratio was 6.27 percent, compared to 8.24 percent a year
earlier. The decline in the tier 1 and leverage ratios in 1994 was a result
of the acquisition of the former TransOhio branch offices, which added
approximately $1.1 billion in assets with no addition to the Corporation's
capital. The total risk-based capital ratio did not decline significantly as
a result of TransOhio. This is due to the $150 million subordinate debt
issuance in 1994, which qualifies as tier 2 capital.
Each of the Corporation's subsidiary banks maintain risk-based capital and
leverage ratios within the "well capitalized" category as defined by the FDIC.
The "well capitalized" category requires tier 1 and total risk-based capital
ratios of at least 6.00 percent and 10.00 percent, respectively, and a minimum
leverage ratio of 5.00 percent.
Table 15 provides a summary of the components of tier 1 and total risk-based
capital, the amounts of risk-weighted assets and capital ratios as defined by
the regulatory agencies as of December 31, 1994 and 1993.
<TABLE>
<CAPTION>
Table 15 - Regulatory Capital Ratios -
Risk-based capital at December 31 (dollars in thousands) 1994 1993
<S> <C> <C>
Tier 1 capital:
Common shareholders' equity $ 715,752 $ 661,177
Qualifying preferred stock 2,466 14,622
Less: Unrealized gains/(losses) on - securities (13,637) -
Goodwill and other adjustments 161,912 51,379
Total tier 1 capital 569,943 624,420
Tier 2 capital components:
Qualifying long-term debt 148,216 3,500
Allowance for loan losses 82,483 70,498
Total risk-based capital $ 800,642 $ 698,418
Risk-weighted assets:
Risk-weighted assets on balance sheet $6,259,067 $5,304,457
Risk-weighted assets off-balance-sheet 487,830 386,721
Less: Goodwill and other adjustments 161,771 64,038
Net risk-weighted assets $6,585,126 $5,627,140
Fourth quarter average assets,
net of adjustments $9,090,925 $7,582,045
Risk-based capital ratios:
Tier 1 8.66% 11.10%
Total 12.16 12.41
Tier 1 leverage ratio 6.27 8.24
</TABLE>
5 YEAR CHART OF COMMON STOCK - HIGH AND LOW STOCK PRICE AND BOOK VALUE
(Dollars Per Share)
1990 1991 1992 1993 1994
Stock Price -
High 22.38 27.50 39.50 39.38 44.75
Low 14.50 15.00 24.25 33.00 33.50
Book Value 17.31 18.58 20.09 22.33 24.02
-36-
<PAGE>
RESPONSIBILITY FOR FINANCIAL STATEMENTS OF STAR BANC CORPORATION
Responsibility for the financial information presented in the Annual Report
rests with Star Banc Corporation's management. The Corporation believes
that the consolidated financial statements reflect fairly the substance of
transactions and present fairly the Corporation's financial position and
results of operations in conformity with generally accepted accounting
principles appropriate in the circumstances applying certain estimates
and judgments as required.
In meeting its responsibilities for the reliability of the financial
statements, the Corporation depends on its system of internal accounting
controls. The system is designed to provide reasonable assurance
that assets are safeguarded and transactions are executed in accordance
with the appropriate corporate authorization and recorded properly to permit
the preparation of financial statements in accordance with generally
accepted accounting principles. Although accounting control procedures
are designed to achieve these objectives, it must be recognized that errors
or irregularities may nevertheless occur. Also, estimates and judgments
are required to assess and balance the relative cost and expected benefits
of the controls.
The Corporation believes that its accounting controls provide reasonable
assurance that errors or irregularities that could be material to the
financial statements are prevented or would be detected within a timely
period by employees in the normal course of performing their assigned
functions. An important element of the system is a continuing and extensive
internal audit program.
The board of directors of the Corporation has an Audit Committee composed
of five directors who are not officers or employees of the Corporation. The
committee meets periodically and privately with management, the internal
auditors and the independent public accountants to consider audit results
and to discuss internal accounting control, auditing and financial reporting
matters.
Arthur Andersen LLP, independent public accountants, have been engaged
to render an independent professional opinion on the Corporation's financial
statements. Their audit is conducted in accordance with generally accepted
auditing standards and forms the basis for their report as to the fair
presentation, in the financial statements, of the Corporation's financial
position, operating results and cash flows.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Star Banc Corporation:
We have audited the accompanying consolidated balance sheets of STAR
BANC CORPORATION (an Ohio corporation) and subsidiaries as of December 31, 1994
and 1993 and the related consolidated statements of income, changes in
shareholders'equity and cash flows for each of the three years in the period
ended December 31, 1994. These financial statements are the responsibility of
the Corporation's management. Our responsilbiity is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Star Banc Corporation and
subsidiaries as of December 31, 1994 and 1993, and the results of thier
operations and cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
As explained in Note 3 to the consolidated financial statements,
the Corporation changed its method of accounting for investment securities
effective January 1994.
/s/ Arthur Andersen LLP
Cincinnati, Ohio
January 9, 1995
-37-
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
As of December 31 (dollars in thousands) 1994 1993
<S> <C> <C>
Assets:
Cash and due from banks $ 429,467 $ 387,759
Interest-bearing deposits in banks 100 100
Federal funds sold and securities purchased under agreements to
resell 56,545 172,675
Investment securities:
Available-for-sale 563,091 -
Held-to-maturity (market value of $1,671,088 in 1994 and
$1,605,342 in 1993) 1,764,854 1,600,275
Total securities 2,327,945 1,600,275
Loans:
Commercial loans 2,079,804 1,789,695
Real estate loans 2,378,661 2,087,301
Retail loans 1,865,295 1,462,815
Total loans 6,323,760 5,339,811
Less: Unearned interest 74,203 45,404
6,249,557 5,294,407
Allowance for loan losses 95,979 83,156
Net loans 6,153,578 5,211,251
Premises and equipment 122,829 104,305
Acceptances-customers' liability 8,249 3,026
Other assets 292,078 157,366
Total assets $9,390,791 $7,636,757
Liabilities:
Deposits:
Noninterest-bearing deposits $1,214,703 $1,200,609
Interest-bearing deposits:
Savings and NOW 2,048,442 1,821,869
Time deposits $100,000 and over 636,181 351,095
All other deposits 3,464,489 2,641,993
Total deposits 7,363,815 6,015,566
Short-term borrowings 1,034,700 816,706
Long-term debt 166,466 51,700
Acceptances outstanding 8,249 3,026
Other liabilities 99,343 73,960
Total liabilities 8,672,573 6,960,958
Shareholders' Equity:
Preferred stock:
Shares authorized-1,000,000 in 1994 and 1993
Shares issued - 29,707 in 1994
-176,164 in 1993 2,466 14,622
Common stock:
Shares authorized-50,000,000 in 1994 and 1993
Shares issued -30,105,835 in 1994
-29,753,378 in 1993 150,529 148,767
Surplus 78,037 80,038
Retained earnings 510,268 435,724
Treasury stock, at cost (303,039 shares in 1994 and 146,713
shares in 1993) (9,445) (3,352)
Net unrealized gain/(loss) on securities available-for-sale (13,637) -
Total shareholders' equity 718,218 675,799
Total liabilities and shareholders' equity $9,390,791 $7,636,757
The accompanying notes are an integral part of these statements.
</TABLE>
-38-
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31
(amounts in thousands except per share data) 1994 1993 1992
<S> <C> <C> <C>
Interest Income:
Interest and fees on loans $465,361 $421,826 $443,460
Interest on investment securities:
Taxable 100,986 85,996 81,001
Non-taxable 1,491 2,014 3,218
Interest on federal funds sold and securities
purchased under agreements to resell 1,429 8,094 11,568
Interest on deposits in banks 457 237 2,174
Total interest income 569,724 518,167 541,421
Interest Expense:
Interest on savings and NOW 40,124 45,673 39,752
Interest on time deposits $100,000 and over 17,390 16,540 23,961
Interest on other deposits 117,706 108,709 146,626
Interest on short-term borrowings 39,081 17,752 16,883
Interest on long-term debt 9,317 6,017 5,816
Total interest expense 223,618 194,691 233,038
Net interest income 346,106 323,476 308,383
Provision for loan losses 24,372 33,008 40,898
Net interest income after provision
for loan losses 321,734 290,468 267,485
Noninterest Income:
Trust income 36,539 35,768 32,963
Service charges on deposits 35,543 35,460 28,817
Other service charges and fees 33,626 31,630 28,646
Investment securities gains/(losses)-net 10 157 719
All other income 11,297 9,875 8,499
Total noninterest income 117,015 112,890 99,644
Noninterest Expense:
Salaries 105,279 97,347 99,900
Pension and other employee benefits 19,692 19,237 18,438
Equipment expense 15,028 16,629 17,098
Occupancy expense-net 18,852 17,717 15,781
All other expense 101,460 99,919 95,794
260,311 250,849 247,011
Restructuring charge - - 6,000
Total noninterest expense 260,311 250,849 253,011
Income before income tax 178,438 152,509 114,118
Income tax 61,847 52,236 37,999
Net income $116,591 $100,273 $ 76,119
Per Share:
Primary earnings $ 3.89 $ 3.36 $ 2.57
Fully diluted earnings 3.86 3.30 2.53
Dividends declared on common stock 1.40 1.16 1.04
Dividends declared on preferred stock 6.00 6.00 6.00
Weighted average shares of common stock outstanding 29,873 29,549 29,227
Weighted average fully diluted common stock equivalents 30,230 30,372 30,111
The accompanying notes are an integral part of these statements.
</TABLE>
-39-
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Unrealized
Series B Gain/(Loss) on
Preferred Common Available-
Stock $100 Stock Retained Treasury for-sale
Stated Value $5 Par Surplus Earnings Stock Securities Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1992 $ 18,004 $145,520 $69,425 $325,942 $ (3,909) $ - $554,982
Net income - - - 76,119 - - 76,119
Cash dividends declared on
common stock - - - (30,249) - - (30,249)
Cash dividends declared on
Series B Preferred Stock - - - (1,146) - - (1,146)
Conversion of Series B Preferred
Stock into common stock (2,596) 711 1,885 - - - -
Issuance of shares upon exercise
of options on common stock - 617 1,740 - - - 2,357
Issuance of common stock - 62 208 - - - 270
Purchase of treasury stock - - - - (654) - (654)
Treasury shares issued to meet
deferred compensation obligations - - (1,086) - 1,086 - -
Shares reserved to meet deferred
compensation obligations - - 654 - - - 654
Balance, December 31, 1992 15,408 146,910 72,826 370,666 (3,477) - 602,333
Net income - - - 100,273 - - 100,273
Cash dividends declared on
common stock - - - (34,131) - - (34,131)
Cash dividends declared on
Series B Preferred Stock - - - (1,084) - - (1,084)
Conversion of Series B Preferred
Stock into common stock (786) 215 571 - - - -
Issuance of shares upon exercise
of options on common stock - 1,642 6,766 - - - 8,408
Purchase of treasury stock - - - - (665) - (665)
Treasury shares issued to meet
deferred compensation obligations - - (790) - 790 - -
Shares reserved to meet deferred
compensation obligations - - 665 - - - 665
Balance, December 31, 1993 14,622 148,767 80,038 435,724 (3,352) - 675,799
Net income - - - 116,591 - - 116,591
Cash dividends declared on
common stock - - - (41,726) - - (41,726)
Cash dividends declared on
Series B Preferred Stock - - - (321) - - (321)
Conversion of Series B Preferred
Stock into common stock (12,156) 1,672 (2,039) - 12,522 - (1)
Issuance of shares upon exercise
of options on common stock - 90 (629) - 6,312 - 5,773
Purchase of treasury stock - - - - (25,680) - (25,680)
Treasury shares issued to meet
deferred compensation obligations - - (288) - 288 - -
Shares reserved to meet deferred
compensation obligations - - 955 - 465 - 1,420
Adoption of SFAS No. 115 - - - - - 4,386 4,386
Change in net unrealized gain/(loss)
on available-for-sale securities - - - - - (18,023) (18,023)
Balance, December 31, 1994 $ 2,466 $150,529 $78,037 $510,268 $ (9,445) $(13,637)$718,218
The accompanying notes are an integral part of these statements.
</TABLE>
-40-
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31
(dollars in thousands) 1994 1993 1992
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 116,591 $ 100,273 $ 76,119
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 30,559 33,571 26,264
Provision for loan losses 24,372 33,008 40,898
Provision for deferred taxes 7,298 (2,873) (3,690)
(Gain)/loss on sale of premises and equipment-net (235) (55) (73)
(Gain)/loss on sale of securities-net (10) (157) (719)
Mortgage loans originated for sale (95,082) (575,212) (601,704)
Sale of mortgage loans on the secondary market 134,372 617,933 553,990
Net change in other assets (19,435) (4,857) 8,371
Net change in other liabilities 7,416 6,761 (23,626)
Total adjustments 89,255 108,119 (289)
Net cash provided by operating activities 205,846 208,392 75,830
Cash Flows from Investing Activities:
Proceeds from maturities of held-to-maturity securities 273,522 593,955 668,026
Proceeds from maturities of available-for-sale securities 370,940 - -
Proceeds from sales of available-for-sale securities 991 6,537 1,190
Purchase of held-to-maturity securities (1,007,526) (566,736) (1,115,814)
Purchase of available-for-sale securities (398,244) - -
Net change in loans (1,029,181) (385,608) (31,221)
Proceeds from sales of retail loans 22,172 11,766 2,344
Proceeds from sales of premises and equipment 1,261 1,153 883
Purchase of premises and equipment (30,462) (13,065) (6,649)
Proceeds from sale of subsidiary - - 3,210
Net change due to acquisitions/sales of banks or offices 972,568 - 556,578
Net cash provided by (used in) investing activities (823,959) (351,998) 78,547
Cash Flows from Financing Activities:
Net change in deposits 270,006 (387,190) 69,420
Net change in short-term borrowings 217,994 239,513 68,935
Principal payments on long-term debt (33,450) (5,122) (6,046)
Proceeds from issuance of long-term debt 148,050 - -
Proceeds from issuance of common stock 5,773 8,408 2,627
Purchase of treasury stock (25,680) (665) (654)
Shares reserved to meet deferred compensation obligations 1,420 665 654
Dividends paid (40,422) (34,239) (31,071)
Net cash provided by (used in) financing activities 543,691 (178,630) 103,865
Net change in cash and cash equivalents (74,422) (322,236) 258,242
Cash and cash equivalents at beginning of year 560,534 882,770 624,528
Cash and cash equivalents at end of year $ 486,112 $ 560,534 $ 882,770
Supplemental Disclosure of Cash Flow Information
For the years ended December 31 (dollars in thousands) 1994 1993 1992
Cash Paid During the Year for:
Interest $ 206,616 $ 198,640 $ 244,238
Income taxes 55,096 48,987 43,922
Noncash transfer of loans to other real estate owned 1,325 704 4,266
The accompanying notes are an integral part of these statements.
</TABLE>
-41-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Summary of Significant Accounting Policies
The accounting and reporting policies of Star Banc Corporation
and subsidiaries ("the Corporation") are based on generally
accepted accounting principles and conform to general practices
within the banking industry. The following is a description of
the more significant accounting policies followed by the
Corporation.
CONSOLIDATION
The consolidated financial statements include the accounts of the
Corporation and all of its subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
Certain amounts within the consolidated financial statements as
of and for the years ended December 31, 1993 and 1992 have been
restated to conform to the 1994 presentation.
INVESTMENT SECURITIES
Prior to 1994, debt securities held in the investment securities
portfolio were carried at historical cost, adjusted for
amortization of premiums and accretion of discounts.
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: (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, and (3) all other investment securities
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). Currently, the
Corporation has not classified any securities as trading.
Disclosures required in SFAS No. 115 are shown in Note 3.
LOANS
Loans are stated at the principal amount outstanding, net of
unearned interest and unamortized origination fees and costs.
Interest income on loans is recognized using the interest method
or methods that approximate the interest method.
Loans are placed on nonaccrual status when, in the opinion of
management, there is a reasonable doubt as to future
collectibility of interest or principal. Loans are generally
placed on nonaccrual status when they are past due 90 days as to
either principal or interest. However, loans that are well
secured and in the process of collection may not be placed on
nonaccrual status, at the judgment of senior management.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses, which is reported as a deduction
from loans, is available for loan charge-offs. This allowance is
increased by provisions charged to earnings and recoveries of
loans previously charged off and is reduced by loan charge-offs.
The adequacy of the allowance is based on management's evaluation
of several key factors: the current loan portfolio, current
economic conditions, evaluation of significant problem loans,
changes in the mix and levels of the various types of loans, past
charge-off experience and other pertinent information. The
allowance for loan losses is based on estimates and ultimate
losses may vary from current estimates. These estimates are
reviewed continually and, as adjustments become necessary, they
are reported in earnings in the periods in which they become
known. Charge-offs are made against the allowance for loan losses
when management concludes that loan amounts are likely to be
uncollectible.
In 1993, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 114 (SFAS No.
114) related to accounting by creditors for impairment of a loan.
SFAS No. 114 was amended in October 1994 by Statement of
Financial Accounting Standards No. 118 (SFAS No. 118),
"Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures." SFAS No. 114 requires that impaired
loans as defined by the statement be measured based on (1) the
present value of the expected future cash flows discounted at the
loan's effective interest rate, or (2) as a practical expedient,
at the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent.
Adoption of SFAS No. 114 and No. 118 is required in 1995.
Management anticipates the adoption of SFAS No. 114 and No. 118
will not have a material impact on the Corporation's financial
condition or results of operations.
PREMISES AND EQUIPMENT
Premises and equipment are reported at cost, less accumulated
depreciation and amortization. Expenditures for major additions
and improvements are capitalized, and maintenance and repair
costs are charged to operating expense. Depreciation and
amortization of premises and equipment are computed on a
straight-line basis over the estimated useful lives of the
individual assets.
OTHER REAL ESTATE OWNED
Other real estate owned represents real estate of which the
Corporation has taken ownership in partial or total satisfaction
of loans.
Other real estate owned is carried at the lower of cost or fair
value and is included in other assets in the consolidated balance
sheets. Losses at the time property is classified as other real
estate owned are charged to the allowance for loan losses.
Subsequent gains and losses,
42
<PAGE>
as well as operating income or expense related to other real
estate owned are recorded in non-interest expense.
INTANGIBLE ASSETS
The excess of the Corporation's cost of acquisitions over the
fair value of net assets acquired is being amortized on a
straight-line basis over periods of 17 to 40 years. Core deposit
intangibles, which represent the net present value of the future
economic benefits related to deposits purchased, are being
amortized on a straight-line basis over periods ranging from 8 to
17 years.
Purchased mortgage servicing rights (PMSRs) represent the cost of
the right to receive future servicing income on residential
mortgage loans serviced. PMSRs are amortized on an accelerated
basis (in proportion to the recognition of net servicing income)
over the estimated life of the related loans. PMSRs are recorded
at cost and subsequently evaluated for possible impairment on a
quarterly basis.
Other identified intangible assets of the Corporation are being
amortized on a straight-line basis over periods up to 25 years.
INCOME TAXES
The Corporation files a consolidated federal income tax return.
The Corporation adopted Statement of Financial Accounting
Standards No. 109 (SFAS No. 109) related to accounting for income
taxes in 1993. SFAS No. 109 superseded SFAS No. 96, which the
Corporation adopted in 1988.
The Corporation recognizes the amount of taxes payable (or
refundable) for the current year and deferred tax liabilities and
assets in accordance with SFAS No. 109. Temporary differences
occur when tax laws differ from the recognition and measurement
requirements of financial accounting standards. Types of
temporary differences relate to lease financing, allowance for
loan losses, depreciation of fixed assets, pension liabilities
and deferred loan fees, among others. Provisions for deferred
taxes are made at each legal entity of the Corporation in
recognition of such temporary differences. Disclosures required
by SFAS No. 109 are shown in Note 8.
RESTRUCTURING CHARGE
During the fourth quarter of 1992, the Corporation recognized a
nonrecurring restructuring charge of $6,000,000 as part of a
comprehensive restructuring program. The restructuring charge was
comprised of estimates of severance pay and benefits,
outplacement services, professional fees and occupancy expenses
related to the consolidation of support operations and subsidiary
banks.
DERIVATIVE FINANCIAL INSTRUMENTS
During 1994, the Corporation adopted Statement of Financial
Accounting Standards No. 119 (SFAS No. 119), "Disclosure about
Derivative Financial Instruments and Fair Value of Financial
Instruments." SFAS No. 119 requires that a distinction be made
between derivative financial instruments held or issued for
trading purposes and derivative financial instruments held for
purposes other than trading, including hedging. The Corporation
utilizes derivative financial instruments, primarily interest
rate swap agreements, for hedging purposes to reduce exposure to
adverse changes in interest rates and in foreign currency
exchange rates. The income or expense related to these
transactions is recognized, on an accrual basis, over the life of
the hedged instrument as an adjustment to interest income or
expense. Disclosures required by SFAS No. 119 are shown in Note
15.
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 health
care and life insurance coverage. Currently the Corporation
provides only workers' compensation as a postemployment benefit.
The adoption of SFAS No. 112 in 1994 did not have a material
impact on the Corporation's financial condition or results of
operations.
STATEMENT OF CASH FLOWS
For purposes of reporting cash flows on the consolidated
statements of cash flows, cash and cash equivalents include cash
on hand, amounts due from banks, federal funds sold and
securities purchased under agreements to resell.
EARNINGS PER SHARE
Primary earnings per share is computed by dividing net income,
reduced by dividends on preferred stock, by the weighted average
number of common share equivalents outstanding for each period
presented. Fully diluted earnings per share is computed by
dividing net income by common share equivalents adjusted for the
assumed conversion of the preferred stock into common stock. The
dilutive effects of unexercised stock options are not material
and therefore not included in earnings per share.
NOTE 2 - Reserve Balance Requirements
Banking regulations require the Corporation's banking
subsidiaries to maintain cash reserves which are unavailable for
investment. The amounts of such reserves, which are included in
cash and due from banks in the consolidated balance sheets, were
$183,548,000 and $185,401,000 at December 31, 1994 and 1993,
respectively.
43
<PAGE>
NOTE 3 - 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 securities
as trading.
(3) Investments not classified as trading securities or
held-to-maturity are classified as available-for-sale
securities and reported at fair value. Net unrealized gains
and losses for these securities are excluded from earnings
and reported net of tax in a separate component of
shareholders' equity.
The initial adoption of SFAS No. 115 increased shareholders'
equity and investment securities $4.4 million (net of tax) and
$6.7 million, respectively. The adoption of SFAS No. 115 had no
effect on current earnings. As of December 31, 1994, the
Corporation reported a net unrealized loss of $21.0 million for
available-for-sale securities. Since January 1, 1994, the
unrealized gain/(loss) reported as a separate component of equity
changed from an unrealized gain of $4.4 million to an unrealized
loss of $13.6 million reducing equity $18.0 million.
The following table summarizes unrealized gains and losses for
held-to-maturity and available-for-sale securities at December
31, 1994 and January 1, 1994.
<TABLE>
<CAPTION>
December 31, 1994 January 1, 1994
Amortized Unrealized Fair Amortized Unrealized Fair
(dollars in thousands) Cost Gains Losses Value Cost Gains Losses Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Held-to-Maturity
U.S. Treasuries and agencie $ - $ - $ - $ - $ - $ - $ - $ -
Mortgage-backed securities 1,742,165 506 94,493 1,648,178 865,881 5,168 7,563 863,486
Obligations of state and
political subdivisions 21,554 249 25 21,778 31,599 722 8 32,313
Other debt securities 1,135 - 3 1,132 135 - - 135
Total held-to-maturity
securities $ 1,764,854 $755 $ 94,521 $1,671,088 $ 897,615 $ 5,890 $ 7,571 $ 895,934
Available-for-Sale
U.S. Treasuries and agencies $ 117,357 $ 42 $ 1,149 $ 116,250 $ 387,315 $ 3,874 $ 1 $ 391,188
Mortgage-backed securities 424,461 21 11,469 413,013 305,842 2,885 10 308,717
Obligations of state and
political subdivisions - - - - - - - -
Other debt securities 215 - 6 209 622 - - 622
Federal Reserve/FHLB stock
and other equity securities 33,619 - - 33,619 8,881 - - 8,881
Total available-for-sale
securities $ 575,652 $ 63 $ 12,624 $ 563,091 $ 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
December 31, 1994.
<TABLE>
<CAPTION>
Amortized Fair
(dollars in thousands) Cost Value
Held-to-Maturity
<S> <C> <C>
One year or less $ 52,594 $ 51,800
After one year through five years 954,016 904,544
After five years through ten years 758,244 714,744
After ten years - -
Total $1,764,854 $1,671,088
Available-for-Sale
One year or less $ 94,023 $ 93,694
After one year through five years 146,658 143,518
After five years through ten years 300,416 291,316
After ten years 936 944
Total $ 542,033 $ 529,472
</TABLE>
Note: Maturity information related to mortgage-backed securities
included above is presented based upon weighted average
maturities anticipating future prepayments.
44
<PAGE>
The following table provides information as to the amount of
gross gains and losses realized through the sales of investment
securities.
<TABLE>
<CAPTION>
(dollars in thousands) 1994 1993 1992
<S> <C> <C> <C>
Debt and equity securities:
Gross gains $10 $157 $721
Gross (losses) - - (2)
Net securities gains/(losses) $10 $157 $719
</TABLE>
Securities with a carrying value of $1,843,923,000 at December
31, 1994 and $1,329,854,000 at December 31, 1993, were pledged to
secure deposits and for other purposes.
NOTE 4 - Loans
The following table lists information related to nonperforming
loans as of December 31.
<TABLE>
<CAPTION>
(dollars in thousands) 1994 1993
<S> <C> <C>
Loans on nonaccrual status $34,990 $50,687
Restructured loans 261 249
Total nonperforming loans $35,251 $50,936
Interest that would have been recognized
on nonperforming loans in accordance
with their original terms $ 3,759 $ 6,157
Actual interest recorded for nonaccrual
and restructured loans 981 848
</TABLE>
Most of the Corporation's business activity is with customers
located in the immediate market areas of its subsidiary banks in
Ohio, Kentucky and Indiana. As of December 31, 1994, loans to
customers engaged in similar activities and having similar
economic characteristics, as defined by standard industrial
classifications, did not exceed 10 percent of total loans.
At December 31, 1994, residential real estate loans held for
sale, included in total loans, amounted to $3 million, compared
to $43 million at December 31, 1993.
The Corporation evaluates the credit risk of each customer on an
individual basis and obtains collateral when it is deemed
appropriate. Collateral varies by individual loan customer, but
may include accounts receivable, inventory, real estate,
equipment, deposits, personal and government guaranties, and
general security agreements. Access to collateral is dependent on
the type of collateral obtained. On an ongoing basis, the
Corporation monitors its collateral and the collateral value
related to the loan balance outstanding.
The aggregate amount of loans in excess of $60,000 outstanding to
directors and executive officers (including their related
interests) of the parent company and its wholly-owned subsidiary,
Star Bank, N.A., amounted to $35,139,000 and $29,759,000 at
December 31, 1994 and 1993, respectively. During 1993, new loans
and repayments related to outstanding loans amounted to
$13,611,000 and $7,758,000, respectively. Changes in the
composition of the board of directors and executive management
had no effect on such loans in 1994. Management believes these
loans were made on substantially the same terms, including
interest rate and collateral, as those prevailing at the same
time for comparable transactions with other persons.
NOTE 5 - Allowance for Loan Losses
A summary of the activity in the allowance for loan losses is
shown in the following table.
<TABLE>
<CAPTION>
(dollars in thousands) 1994 1993 1992
<S> <C> <C> <C>
Balance-beginning of year $83,156 $78,953 $73,805
Loans charged off (24,570) (40,122) (47,884)
Recoveries on loans
previously charged off 13,021 11,317 11,355
Net charge-offs (11,549) (28,805) (36,529)
Provision charged
to earnings 24,372 33,008 40,898
Net allowances of banks
or offices acquired/sold - - 779
Balance-end of year $95,979 $83,156 $78,953
</TABLE>
45
<PAGE>
NOTE 6 - Premises and Equipment
Premises and equipment as of December 31 are summarized in the
following table.
<TABLE>
<CAPTION>
(dollars in thousands) 1994 1993
<S> <C> <C>
Land $ 14,330 $ 14,754
Bank buildings 89,471 86,307
Furniture, fixtures & equipment 59,405 41,791
Leasehold improvements 17,126 16,587
Construction in progress 3,517 1,589
Total premises and equipment 183,849 161,028
Less: Accumulated depreciation and
amortization 61,020 56,723
Net premises and equipment $122,829 $104,305
</TABLE>
Depreciation and amortization expense related to premises and
equipment amounted to $10,369,000 in 1994, $9,899,000 in 1993 and
$8,982,000 in 1992.
Total rental expense was $15,793,000 in 1994, $15,635,000 in 1993
and $14,852,000 in 1992.
Future minimum rental payments related to non-cancelable
operating leases having initial terms in excess of one year are
$12,140,000 in 1995, $10,647,000 in 1996, $9,820,000 in 1997,
$8,551,000 in 1998, $7,475,000 in 1999 and $41,066,000 in later
years.
NOTE 7 - Short-Term Borrowings
The following table is a summary of short-term borrowings at
December 31.
<TABLE>
<CAPTION>
(dollars in thousands) 1994 1993
<S> <C> <C>
Federal funds purchased $ 421,228 $279,655
Securities sold under agreements
to repurchase 496,066 392,052
Other short-term borrowings 117,406 144,999
Total short-term borrowings $1,034,700 $816,706
</TABLE>
The following table is a summary of selected information
regarding short-term borrowings for the years ended December 31.
<TABLE>
<CAPTION>
(dollars in millions) 1994 1993 1992
<S> <C> <C> <C>
Maximum amount outstanding
at any month-end $1,199.3 $875.8 $577.2
Average amount outstanding 995.9 621.5 498.0
Average interest rate during
the year 3.9% 2.9% 3.4%
Approximate average interest
rate on year-end balance 5.2 2.8 3.1
</TABLE>
NOTE 8 - Income Taxes
At December 31, 1994, in accordance with SFAS No. 109, included
in the Corporation's consolidated balance sheet was a net
deferred tax asset of $3,646,000, reflecting the benefit expected
to be realized from net deductible temporary differences. The
Corporation has not recorded a valuation reserve related to
deferred tax assets.
The components of the net deferred tax asset at December 31, 1994
and 1993 were as follows:
<TABLE>
<CAPTION>
(dollars in thousands) 1994 1993
<S> <C> <C>
Allowance for loan losses $ 33,151 $ 28,566
Deferred loan fees/costs 2,313 3,140
Deferred compensation 1,825 1,464
Unrealized loss on securities 7,343 -
Other 2,656 2,678
Total deferred tax asset 47,288 35,848
Leased assets (32,206) (20,187)
Pension liabilities (4,511) (4,314)
Depreciation of fixed assets (4,444) (4,076)
Intangible assets/purchase
accounting adjustments (965) (2,367)
Other (1,516) (1,303)
Total deferred tax liability (43,642) (32,247)
Net deferred tax asset $ 3,646 $ 3,601
</TABLE>
Income tax expense for the last three years consisted of the
following:
<TABLE>
<CAPTION>
(dollars in thousands) 1994 1993 1992
<S> <C> <C> <C>
Current payable:
Federal $53,740 $54,349 $40,918
State 809 760 771
Total current
income tax 54,549 55,109 41,689
Deferred federal income tax resulting from:
Allowance for loan losses (4,585) (2,563) (1,609)
Leasing 12,019 3,477 (1,253)
Intangible assets (1,402) (3,875) -
Change in tax rate - (107) -
Other-net 1,266 195 (828)
Total deferred
federal income tax 7,298 (2,873) (3,690)
Income tax $61,847 $52,236 $37,999
</TABLE>
46
<PAGE>
A reconciliation of the statutory tax rate to the effective tax
rate is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Statutory tax rate 35.0% 35.0% 34.0%
Adjustments to statutory
tax rate:
Tax-exempt interest income (1.1) (1.4) (2.6)
Other-net 0.8 0.7 1.9
Effective tax rate 34.7% 34.3% 33.3%
</TABLE>
NOTE 9 - Long-Term Debt
The following is a summary of the Corporation's long-term debt as
of December 31.
<TABLE>
<CAPTION>
(dollars in thousands) 1994 1993
<S> <C> <C>
Parent company:
12.3/4% Promissory note-quarterly
payments of interest, principal
due 1995 $ 2,500 $ 5,000
10.17% Promissory note-prepaid
in 1994 - 5,000
9.25% Senior notes-semiannual
payments of interest and annual
principal payments of $2,250,000
through 2001 15,750 18,000
8.7/8% Mortgage- prepaid in 1994 - 5,792
Total parent
company long-term debt 18,250 33,792
Other companies:
6.3/8% Subordinated notes-semiannual
payments of interest, principal
due 2004 148,216 -
6.3/4% Industrial revenue bonds
due through 1994 - 60
8.7/8% Mortgage- prepaid in 1994 - 17,848
Total long-term debt $166,466 $51,700
</TABLE>
Each of the above parent company notes contains certain
limitations on funded debt, dividends and other matters. These
limitations are not materially restrictive to the Corporation.
The parent company has lines of credit amounting to $10,000,000
available, none of which is currently in use.
The following table presents the scheduled payments of the
Corporation's long-term debt.
(dollars in thousands)
1995 $ 4,750
1996 2,250
1997 2,250
1998 2,250
1999 2,250
Later years 152,716
Total $166,466
NOTE 10 - Pension
The Corporation has a non-contributory defined benefit pension
plan covering substantially all employees. The benefits are based
on years of service and the employee's compensation while
employed. The Corporation's funding policy is to make an annual
contribution to the plan which at least equals the minimum
required contribution.
The following table sets forth the plan's funded status and
amounts recognized in the Corporation+s consolidated balance
sheets at December 31, 1994 and 1993.
<TABLE>
<CAPTION>
(dollars in thousands) 1994 1993
<S> <C> <C>
Projected benefit obligation:
Vested benefits $38,353 $ 38,216
Nonvested benefits 1,614 1,993
Accumulated benefit obligation 39,967 40,209
Effect of projected future
compensation levels 7,788 9,786
Projected benefit obligation 47,755 49,995
Plan assets 69,565 72,249
Plan assets in excess of
projected benefit obligation 21,810 22,254
Unrecognized net loss due to past
experience different from
assumptions made 2,244 1,623
Unrecognized prior service cost (312) -
Unrecognized net asset being
recognized over 16 years (8,534) (10,117)
Prepaid pension cost in
consolidated balance sheets $15,208 $ 13,760
</TABLE>
Plan assets primarily consist of listed stocks, corporate bonds,
United States Treasury and Agency securities, and mutual funds.
Included in plan assets at December 31, 1994 and 1993 were shares
of the Corporation's stock with a value of $8,570,000 and
$8,246,000, respectively.
Net pension cost, which amounted to a credit for 1992 through
1994, included the following components:
<TABLE>
<CAPTION>
(dollars in thousands) 1994 1993 1992
<S> <C> <C> <C>
Service cost - benefits
earned during the
period $ 2,555 $ 2,388 $ 2,243
Interest cost of
projected benefit
obligation 3,773 3,782 3,434
Actual total return
on plan assets (324) (8,117) (6,882)
Curtailment gain - (595) -
Net amortization
and deferral (7,452) 822 (75)
Net periodic
pension (credit) $(1,448) $(1,720) $(1,280)
47
<PAGE>
In determining the projected benefit obligation, the following
weighted average rates were used.
</TABLE>
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Discount rate 8.25% 7.75% 8.50%
Future salary increases 4.00 4.00 6.00
Long-term return on assets 9.58 9.58 9.51
</TABLE>
The Corporation recognized a curtailment gain in 1993 due to
staff reductions which resulted from the implementation of the
Corporation's restructuring program.
NOTE 11 - Other Postretirement Benefits
The Corporation provides health care benefits to current
retirees, and their spouses, who had retired prior to January 1,
1993. Employees who retired after January 1, 1993 may obtain
health care benefits under the Corporation's health care plan;
however, the total amount of the premiums are paid by the
retiree.
The Corporation adopted Statement of Financial Accounting
Standards No. 106 (SFAS No. 106), "Employers' Accounting for
Postretirement Benefits other than Pensions," in 1993. The
statement requires companies to accrue, during the period that
the employee renders service to the company, the expense of
providing postretirement benefits (principally health care
benefits). In prior years the Corporation recognized this cost on
a cash basis. The accumulated postretirement benefit obligation,
$5.5 million at date of adoption, is being amortized on a
straight-line basis over an expected future lifetime of the
retirees under the plan of 14 years.
The following table sets forth the amount of the accumulated
benefit obligation recognized in the Corporation+s consolidated
balance sheet at December 31, 1994 and 1993.
<TABLE>
<CAPTION>
December 31, December 31,
(dollars in thousands) 1994 1993
<S> <C> <C>
Accumulated postretirement -benefit obligation:
Retirees $ 2,800 $ 5,751
Fully eligible active participants - -
Total 2,800 5,751
Unrecognized obligation net gain/(loss) 2,676 (150)
Unrecognized transition
obligation being amortized over 14 years (4,691) (5,082)
Accrued postretirement obligation
in consolidated balance sheets $ 785 $ 519
</TABLE>
The components of the net periodic costs of postretirement
benefits for 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
(dollars in thousands) 1994 1993
<S> <C> <C>
Interest cost of projected benefit obligation $372 $398
Amortization of the unrecognized
transition obligation 391 391
Net periodic postretirement benefit cost $763 $789
</TABLE>
The weighted average discount rates used in determining the
amount of the accumulated benefit obligation were 7.25 percent as
of December 31, 1994 and 6.75 percent as of December 31, 1993.
The measurement of the accumulated benefit obligation assumed a
health care cost trend rate of 12.00 percent for 1994 and 13.00
percent for 1993, which gradually decreases to an ultimate rate
of 5.80 percent by 2012 and thereafter. The health care cost
trend assumption has a significant effect on the amounts
reported. To illustrate, a one percent increase in each future
year would increase the accumulated postretirement benefit
obligation at December 31, 1994 by $207,000 and increase the
aggregate of the service and interest cost components of the net
periodic benefit cost for the year by $15,000.
NOTE 12 - Stock Options and Compensation Plans
In 1992, the shareholders of the Corporation approved the
adoption of the Star Banc Corporation 1991 Stock Incentive Plan
("the Plan") replacing the 1986 plan. The Plan provides for the
grant, to selected key managerial personnel, of options to
purchase shares of common stock generally at the stock's fair
market value at the date of grant. In addition, the Plan provides
for the grant, to selected key managerial personnel, of shares of
common stock which are subject to restriction on transfer and to
a right of repurchase by the Corporation and of shares of common
stock as performance awards. Not more than 1,000,000 authorized
and unissued shares of common stock, in the aggregate, are
available for issue under the Plan. The Plan will terminate on
January 7, 2001.
In 1993, the Corporation adopted the StarShare Stock Option Plan
for employees. The StarShare Plan provided a one-time grant to
all eligible employees of options to purchase shares of common
stock at the stock's fair market value at the grant date. This
one-time grant to purchase shares of common stock of the
Corporation was made to all active employees (not currently
eligible under the 1991 Incentive Plan) as a performance award
following the Corporation's restructuring program. Not more than
125,000 shares were authorized and available under the StarShare
Plan. The StarShare Plan has no expressed termination date;
however, it may be terminated or modified by the board of
directors at any time.
-48-
<PAGE>
The following is a summary of options outstanding and exercised
under the 1991 Plan, the 1986 Stock Incentive Plan and the
StarShare Option Plan.
<TABLE>
<CAPTION>
1994 1993
Number of Number of
Shares Option Price Shares Option Price
<S> <C> <C> <C> <C>
Stock Incentive Plans:
Options outstanding at
beginning of year 1,002,027 $16.75 -$50.75 893,867 $16.75 - $33.75
Granted 653,900 33.88 - 40.63 435,400 33.75 - 50.75
Exercised (181,071) 16.75 - 33.75 (327,240) 16.75 - 33.75
Cancelled (18,500) 34.75 - -
Options outstanding at
end of year 1,456,356 16.75 - 50.75 1,002,027 16.75 - 50.75
Exercisable at end of year 607,377 $16.75 -$38.75 570,527 $16.75 - $38.75
Available for future grant under
the Stock Incentive Plans 905,089 40,489
StarShare Stock Option Plan:
Options outstanding at
beginning of year 98,203 $35.00 -$36.00 - -
Granted - - 114,152 $35.00 - $36.00
Exercised (3,656) 35.00 - 36.00 (992) 35.25
Cancelled (8,718) 35.25 - 36.00 (14,957) 35.00 - 36.00
Options outstanding at
end of year 85,829 35.00 - 36.00 98,203 35.00 - 36.00
Exercisable at end of year 85,829 $35.00 -$36.00 97,303 $35.25 - $36.00
Available for future grant under
the StarShare Stock Option Plan 10,848 10,848
</TABLE>
Directors and selected senior officers of the Corporation and its
banking subsidiaries may participate in the Corporation's
Deferred Compensation Plan through which they may postpone the
receipt of compensation. Amounts deferred under the plan may be
valued on the basis of an interest index or be used to purchase
shares of the Corporation's common stock. Although the plan is
unfunded for tax purposes, a portion of the shares of treasury
stock held at December 31, 1994 and 1993 were acquired to meet
obligations arising from this plan and are considered common
stock equivalents for the purpose of computing earnings per
share.
The Corporation has entered into severance agreements with
certain officers of the Corporation. In general, the agreements
provide for the payment of a lump sum benefit to the officer,
plus the continuation of certain medical and insurance benefits
and immediate exercisability of stock options, in the event that
the officer's employment is terminated involuntarily by the
Corporation, or voluntarily by the officer for good reason,
following a change in control of the Corporation during the
officer's protected period. The benefits payable under the
agreements can be up to three times the officer's base salary and
incentive bonus. The aggregate amount payable if all officers
were entitled to and exercised their rights to receive payment
under these agreements would be approximately $20 million.
NOTE 13 - Shareholders' Equity
Each share of common stock outstanding (and each share issued by
the Corporation prior to the occurrence of certain events)
carries with it one Preferred Stock Purchase Right to purchase,
at a price of $100, one-hundredth of a share of Series A
Preferred Stock. The Preferred Stock Purchase Rights are
exercisable only if a person or group acquires or obtains the
right to acquire ownership of 20 percent or more of the
Corporation's common stock, commences a tender or exchange offer
for 30 percent or more of the common stock, or a holder of 10
percent or more of common stock is declared an "Adverse Person"
by the Corporation+s board of directors. The Corporation is
entitled to redeem the Preferred Stock Purchase Rights at a price
of one cent per Preferred Stock Purchase Right at any time before
the twentieth day following the date a 20 percent position has
been acquired.
In connection with the shareholder rights plan, 500,000 shares of
the Corporation's 1,000,000 authorized shares of Preferred Stock
have been designated as Series A Preferred Stock; no shares of
Series A Preferred Stock have been issued.
49
<PAGE>
In 1991, in connection with the acquisition of Kentucky
Bancorporation, Inc., the Corporation issued 217,800 shares of
Series B Cumulative Preferred Stock with a stated value of $100
per share. This series of preferred stock, which had an original
recorded value of $18 million, is convertible into shares of the
Corporation's common stock at a rate of 4.545 shares of common
stock for each share of preferred stock. Series B Cumulative
Preferred Stock pays a quarterly dividend at an annual rate of $6
per share and is callable at the Corporation's option at a price
of $103 per share starting in July 1996 with the call price
declining ratably to $100 per share in July 2001 and thereafter.
In 1994, the board of directors approved a buyback plan which
authorizes the repurchase of up to one million shares of the
Corporation's common stock. The shares repurchased are held as
treasury shares and designated for reissue in connection with
conversions of preferred shares and exercises of employee stock
options. The repurchase period covers three years and expires
March 15, 1997. Through December 31, 1994, 649,000 shares had
been repurchased under the buyback plan.
NOTE 14 - Financial Instruments with Off-Balance-Sheet Risk
The Corporation becomes a party to financial instruments with
off-balance-sheet risk in the normal course of business in
managing its interest rate risk and meeting the financing needs
of its customers. These financial instruments include commitments
to extend credit, standby letters of credit, interest rate swap
agreements, interest rate caps, forward contracts to purchase or
sell foreign currencies and forward commitments to sell
residential mortgage loans. These instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of
the amount recognized on the Corporation's consolidated balance
sheet. The contract or notional amounts of these instruments
reflect the extent of involvement the Corporation has in
particular classes of financial instruments.
The Corporation's exposure to credit loss for commitments to
extend credit, standby letters of credit and commercial letters
of credit is represented by the contract amount of these
instruments. Commitments generally have fixed expiration dates or
other termination clauses and may require payment of a fee. Since
many of the commitments are expected to or typically expire
without being drawn upon, the total commitment amount does not
necessarily represent future cash requirements. The Corporation
uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet
instruments. The need for collateral is assessed on a
case-by-case basis, based upon management's credit evaluation of
the other party.
The Corporation utilizes interest rate caps, commitments to
purchase or sell foreign currencies and commitments to sell
residential real estate loans to hedge positions taken in
transactions with customers. In addition, the Corporation
utilizes interest rate swap agreements as hedge instruments to
reduce exposure to adverse changes in interest rates. The
notional amounts of these instruments do not represent exposure
to credit loss. Risks associated with these types of financial
instruments arise from the movement of interest rates or foreign
exchange rates and failure of the other party to the transaction
to meet its obligation. The Corporation controls the risk of such
instruments through approvals, limits, and monitoring procedures.
Note 15 provides additional disclosures on the Corporation+s
derivative financial instruments.
The following table shows the contract or notional amount of the
Corporation's off-balance-sheet financial instruments as of
December 31.
Contract or
Notional Amount
(dollars in millions) 1994 1993
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $2,039 $1,698
Standby letters of credit 168 153
Commercial and other letters of credit 23 18
Financial instruments whose notional or
contract amounts exceed the amount of
credit risk:
Forward commitments $ 8 $ 38
Interest rate swap agreements 640 490
Foreign currency forward contracts 10 11
Caps 3 3
NOTE 15 - Derivative Financial Instruments
The Corporation currently holds derivative financial instruments
only for purposes other than trading. The Corporation's primary
objective is the "hedging" or management of interest rate and
foreign exchange risks arising out of nontrading assets. Interest
rate swap agreements are the primary type of derivative used by
the Corporation. The two parties to an interest rate swap
agreement agree to exchange, at particular intervals, payment
streams calculated on a specified notional amount, with one
stream based on a floating interest rate and the other stream
based on a fixed interest rate. The Corporation has entered into
interest rate swap agreements as part of its overall management
of interest rate risk. The current swaps were entered into in
order to reduce the overall interest rate sensitivity of the
Corporation. The majority of the Corporation's interest rate swap
agreements are the standard fixed/floating type of swap
agreement. In addition, two of the Corporation's
-50-
<PAGE>
interest rate swaps are indexed amortizing swaps, which also have
a fixed and a floating stream of interest payments. All of the interest
rate swaps are treated as hedges, and accordingly, are
accounted for on the same basis as the underlying asset or
liability being hedged. The income or expense related to derivative
financial instruments is recognized on an accrual basis, over the estimated
life of the hedged instrument, as an adjustment to interest
income or expense.
The Corporation has also purchased interest rate caps in the
management of its interest rate risk. The seller of these caps is
obligated to pay the Corporation the amount, if any, by which a
specified market interest rate exceeds the fixed cap applied to a
notional amount. The interest rate cap purchased by the
Corporation matured in January 1995.
The Corporation is party to a variety of foreign currency forward
contracts in order to manage its foreign exchange risks. Foreign
currency forward contracts are used in hedging the risks
associated with firm commitments to purchase securities
denominated in foreign currencies for agreed amounts. The
majority of foreign exchange contracts relate to major foreign
currencies such as Canadian dollars, British pounds, Deutsche
marks, and Japanese yen. All foreign currency forward contracts
qualify as hedges as defined by SFAS No. 52, "Foreign Currency
Translation."
Currently, all derivative financial instruments qualify as
hedges; however, if a derivative financial instrument that was
previously accounted for as a hedge fails to meet the hedge
accounting criteria the instrument will be marked-to-market from
that point forward, with any resulting gain or loss recognized in
the future period. For derivative instruments which are
terminated prior to maturity, the unrealized gain or loss would
be deferred and amortized as an adjustment to interest income or
expense over the life of the underlying asset or liability which
was hedged. Currently, the Corporation has no derivative
financial instruments which have been terminated prior to
maturity.
Monthly, the Corporation's Asset/Liability Policy Committee and
Credit Administration reviews the credit risk of the
Corporation's interest rate swap agreements. Credit
Administration reviews the creditworthiness of each counterparty
annually and updates individual derivative financial instrument
credit lines for each counterparty. To date, none of the interest
rate swap agreements include bi-lateral collateralization
requirements, except in the case of credit downgrades by Moody's
or Standard & Poor's to a rating below investment grade.
All of the Corporation's derivative financial instruments, fixed
rate and floating rate payments are settled on a net basis as
permitted under master netting agreements. This reduces the
overall potential exposure of the counterparty.
The following table provides information related to derivative
financial instruments as of December 31, 1994.
<TABLE>
<CAPTION>
Maturities of Derivative Products as of December 31,
(dollars in thousands) 1995 1996 1997 2000 2004 Total
<S> <C> <C> <C> <C> <C> <C>
Interest Rate Swaps
Receive fixed generic swaps
Notional value $ - $100,000 - $240,000 $150,000 $490,000
Weighted average receive rate 4.45% 5.41% 6.18% 5.45%
Weighted average pay rate 5.86% 5.87% 5.00% 5.60%
Receive fixed amortizing swaps
Notional value $ - $ 75,000 $75,000 - - $150,000
Weighted average receive rate 4.39% 4.47% 4.43%
Weighted average pay rate 7.31% 6.38% 6.85%
Total Interest Rate Swaps
Notional value $ - $175,000 $75,000 $240,000 $150,000 $640,000
Weighted average receive rate 4.43% 4.47% 5.41% 6.18% 5.21%
Weighted average pay rate 6.48% 6.38% 5.87% 5.00% 5.89%
Interest Rate Caps 3,000 - - - - 3,000
Forward Commitments 7,848 - - - - 7,848
Foreign Currency Forward Contracts 10,173 - - - - 10,173
Total notional/contract amount $21,021 $175,000 $75,000 $240,000 $150,000 $661,021
</TABLE>
-51-
<PAGE>
NOTE 16 - Litigation
Various legal claims have arisen during the normal course of
business which, in the opinion of management, will not result in
material liability to the Corporation.
NOTE 17 - Dividend Restriction
Bank regulatory agencies limit the amount of dividends a
subsidiary bank can declare to the parent company in any calendar
year without obtaining prior approval. The limitations of all
subsidiary banks combined for 1994 were approximately
$223,896,000. During 1994, the subsidiary banks declared
$146,174,000 in cash dividends to the parent company with
$12,236,000 of Star Bank, N.A., Kentucky's dividends requiring
regulatory agency approval. The carryover amount of dividends
available to the parent company from the subsidiary banks at
January 1, 1995 was $43,539,000.
NOTE 18 - Acquisitions
On 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 Resolution Trust Corporation
("RTC"). This transaction has been accounted for as a purchase,
and accordingly, all assets acquired 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. The premium was allocated to certain identified
intangibles, such as core deposit, as well as other unidentified
intangibles. Accordingly, the premium is being amortized over the
estimated useful lives of these intangibles ranging from 10 to 25
years.
On June 19, 1992, the Bank purchased 28 Cleveland area branch
offices from Ameritrust Company National Association. This
transaction has been accounted for as a purchase, and
accordingly, all assets acquired and liabilities assumed have
been recorded at estimated fair value. In purchasing these
branches, the Bank acquired a $263 million participation in a
pool of mortgage loans made by Ameritrust and Society National
Bank which is recorded as an investment security, $111 million in
loans and $937 million in deposits for a premium of 2.19 percent
of the deposits. The core deposit intangible assigned through the
allocation of the purchase price amounted to $19 million.
NOTE 19 - Intangible Assets
The following is a summary of intangible assets as of December 31
which are included in other assets in the consolidated balance
sheets.
<TABLE>
<CAPTION>
(dollars in thousands) 1994 1993
<S> <C> <C>
Intangibles from acquisitions:
Excess of cost over fair value
of assets acquired $52,090 $30,530
Core deposit benefits 68,401 20,850
Other identified intangibles 45,266 -
Purchased mortgage servicing rights 6,904 8,451
Purchased credit card relationships 65 91
Total intangible assets $172,726 $59,922
</TABLE>
NOTE 20 - Noninterest Income and Other Noninterest Expense
The following are included in other service charges and fees and
all other income for the years ended December 31.
(dollars in thousands) 1994 1993 1992
Credit card fees $12,475 $10,848 $10,092
Mortgage banking income 4,301 6,587 5,994
The following are included in all other expense for the years
ended December 31.
(dollars in thousands) 1994 1993 1992
FDIC insurance $13,176 $13,987 $12,933
State taxes 9,682 9,052 8,676
Marketing 8,391 7,219 6,129
NOTE 21 - Fair Value of Financial Instruments
In December 1991, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 107, "Disclosures
about Fair Value of Financial Instruments," which requires
disclosure of fair value information about both on- and
off-balance-sheet financial instruments for which it is
practicable to estimate that value. For many of the Corporation's
financial instruments, however, an available trading market does
not exist; therefore, significant estimations and present value
calculations were used to determine fair values as described
below. Changes in estimates and assumptions could have a
significant impact on these fair values.
CASH AND CASH EQUIVALENTS
For cash and due from banks, federal funds sold, securities
purchased under agreement to resell and interest-bearing deposits
in banks, the carrying value is a reasonable estimate of fair
value.
-52-
<PAGE>
INVESTMENT SECURITIES
Fair values for investment securities are based on quoted market
prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of
comparable instruments or estimated current replacement cost of
the instrument.
LOANS
For variable rate loans which reprice frequently or are based on
market changes, with no significant changes in credit risk, fair
values are based on carrying values. Fair values for residential
real estate loans are estimated based on quoted market prices for
securities backed by similar loans. The fair values for other
types of loans (including nonperforming loans) are estimated by
discounting the future cash flows using current rates being
offered for similar loans to borrowers of similar credit quality.
DEPOSIT LIABILITIES
The fair values of noninterest-bearing deposits, savings, NOW and
money market deposit accounts are, by definition, equal to the
amount payable on demand at the reporting date. The carrying
values of variable rate, fixed-term time deposits and
certificates of deposit approximate their fair values. For
fixed-rate certificates of deposit, fair values are estimated
using a discounted cash flow analysis based on rates currently
offered for deposits of similar remaining maturities.
SHORT-TERM BORROWINGS
The carrying amounts of federal funds purchased, securities sold
under agreements to repurchase and other short-term borrowings
approximate their fair values.
LONG-TERM DEBT
Fair values of the Corporation's long-term debt are estimated by
using discounted cash flow analyses, based on current market
rates for debt with similar terms and remaining maturities.
OFF-BALANCE-SHEET INSTRUMENTS
The fair values of interest rate caps and floors, forward
commitments to purchase or sell foreign currency and to sell real
estate loans are based upon quoted market prices for similar
instruments. The fair value of commitments to extend credit and
standby and commercial letters of credit is estimated using the
fees currently charged to enter into similar agreements, taking
into account the remaining terms of the agreements and the
counterparties' creditworthiness. The fair value of interest rate
swap agreements is the estimated amount that the Corporation
would receive or pay to terminate the swap agreement at the
reporting date, taking into account current interest rates and
the creditworthiness of the counterparties.
The following table summarizes the estimated fair values of the
Corporation's financial instruments at December 31.
<TABLE>
<CAPTION>
(dollars in thousands) 1994 1993
Carrying Amount Fair Value Carrying Amount Fair Value
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 486,112 $ 486,112 $ 560,534 $ 560,534
Investment securities 2,327,945 2,234,179 1,600,275 1,605,342
Net loans 6,153,577 5,995,434 5,211,251 5,291,965
Financial liabilities:
Deposits (7,363,815) (7,306,764) (6,015,566) (6,025,225)
Short-term borrowings (1,034,700) (1,034,668) (816,706) (816,706)
Long-term debt (166,466) (135,948) (51,700) (57,195)
Off-balance-sheet instruments:(1)
Commitments to extend credit (5) (5) (4) (4)
Standby letters of credit (627) (627) (434) (434)
Interest rate caps and floors/foreign currency - (131) - 27
Interest rate swap agreements:
Loans (823) (48,228) 1,085 (1,759)
Debt 2,384 (22,944) - -
Forward commitments - (18) - (21)
(1)The amounts shown under "Carrying Amount" represent accruals or unamortized fees remaining from those unrecognized financial
instruments. Unamortized fee amounts related to commitments and standby letters of credit are included in other liabilities.
Interest rate swap accruals are presented net of amounts offset in accordance with FASB interpretation No. 39, "Offsetting of
Amounts Related to Certain Contracts," and included in other assets.
</TABLE>
Due to the wide range of permitted valuation techniques and
numerous estimates and assumptions which must be made for
financial instruments which lack available secondary markets,
management is concerned that reasonable comparability of
estimated fair value disclosures between financial institutions
may not be likely.
-53-
<PAGE>
Note 22 - Parent Company Financial Information
Balance Sheets
<TABLE>
<CAPTION>
As of December 31 (dollars in thousands) 1994 1993
<S> <C> <C>
Assets:
Investment in subsidiaries:
Banking subsidiaries $654,404 $682,479
Nonbank subsidiaries 6,139 5,347
Total investment
in subsidiaries 660,543 687,826
Cash and cash equivalents 38,474 7,074
Other investments 1,899 1,220
Receivables from subsidiaries 38,193 15,292
Premises and equipment 9,946 10,471
Other assets 890 903
Total assets $749,945 $722,786
Liabilities and Shareholders' Equity:
Long-term debt $ 18,250 $ 33,792
Other liabilities 13,477 13,195
Shareholders' equity 718,218 675,799
Total liabilities and
shareholders' equity $749,945 $722,786
</TABLE>
<TABLE>
<CAPTION>
Statements of Income
For the years ended December 31 (dollars in thousands) 1994 1993 1992
<S> <C> <C> <C>
Revenue:
Dividends from subsidiaries:
Banking subsidiaries $146,174 $ 50,561 $43,588
Fees and assessments from subsidiaries - 1,388 43,376
Other income 3,104 231 (1,286)
Total revenue 149,278 52,180 85,678
Expense:
Interest on short-term borrowings - 129 661
Interest on long-term debt 2,423 4,003 4,189
Salaries and benefits - - 28,560
Other operating expense 1,771 1,905 28,712
Total expense 4,194 6,037 62,122
Income before income tax 145,084 46,143 23,556
Income tax expense/(benefit) 173 (1,496) (6,696)
Equity in undistributed income of subsidiaries (28,320) 52,634 45,867
Net income $116,591 $100,273 $76,119
The above statements of income reflect substantial decreases in fees and assessments from subsidiaries, salaries and benefits,
and other operating expense in 1993. These decreases were the result of the parent company+s various operations and
administration departments being transferred to the Corporation's lead subsidiary bank in 1993.
</TABLE>
-54-
<PAGE>
<TABLE>
<CAPTION>
Statements of Cash Flows
For the years ended December 31 (dollars in thousands) 1994 1993 1992
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $116,591 $100,273 $ 76,119
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in undistributed income of subsidiaries 28,320 (52,634) (45,867)
Depreciation and amortization 387 313 1,972
Net change in receivables from subsidiaries (5,588) (2,322) 540
Net change in other assets 153 3,964 326
Net change in other liabilities (1,187) (3,515) 259
Net cash provided by operating activities 138,676 46,079 33,349
Cash Flows from Investing Activities:
Capital contribution to Star Bank, N.A. (15,000) - -
Net change in advances to subsidiaries (17,178) 1,312 8,163
Purchase of premises and equipment - (218) (2,353)
Other investing activity (647) (538) (373)
Net cash provided by (used in) investing activities (32,825) 556 5,437
Cash Flows from Financing Activities:
Net change in short-term borrowings - (12,000) (2,500)
Principal payments on long-term debt (15,542) (4,827) (5,657)
Dividends paid (40,422) (34,239) (31,071)
Proceeds from issuance of common stock 5,773 8,408 2,627
Purchase of treasury stock (25,680) (665) (654)
Shares reserved to meet deferred compensation obligations 1,420 665 654
Net cash provided by (used in) financing activities (74,451) (42,658) (36,601)
Net change in cash and cash equivalents 31,400 3,977 2,185
Cash and cash equivalents at beginning of year 7,074 3,097 912
Cash and cash equivalents at end of year $ 38,474 $ 7,074 $ 3,097
Supplemental Disclosure of Cash Flow Information
For the years ended December 31 (dollars in thousands) 1994 1993 1992
Cash Paid (Received) During the Year for:
Interest expense $ 3,143 $ 3,938 $ 5,067
Income taxes, net of tax payments received from subsidiaries (2,220) (1,790) (6,353)
</TABLE>
-55-
<PAGE>
NOTE 23 - Summary of Quarterly Financial Information (unaudited)
The following is a summary of quarterly results of operations for
1994 and 1993.
<TABLE>
<CAPTION>
(amounts in thousands, except per share data) Quarter Ended
1994 Dec. 31 Sept. 30 June 30 Mar. 31
<S> <C> <C> <C> <C>
Net interest income $92,599 $87,430 $85,227 $80,850
Provision for loan losses 4,980 7,100 5,820 6,472
Net interest income after provision for loan losses 87,619 80,330 79,407 74,378
Noninterest income 30,850 28,609 28,626 28,930
Noninterest expense 71,997 63,324 64,671 60,319
Income taxes 16,064 15,808 14,835 15,140
Net income 30,408 29,807 28,527 27,849
Per share:
Primary earnings $ 1.02 $ 1.00 $ .95 $ .93
Fully diluted earnings 1.01 0.99 0.94 0.91
Cash dividends declared on common stock 0.35 0.35 0.35 0.35
Book value of common shares at quarter-end 24.02 23.50 23.01 22.86
Market price-high 41.38 44.75 39.75 37.00
low 33.50 37.75 36.25 33.75
Weighted average shares of common stock
outstanding 29,894 29,831 29,975 29,801
Weighted average fully diluted common
stock equivalents 30,032 30,032 30,318 30,555
Ratios:
Return on average assets 1.31% 1.44% 1.47% 1.46%
Return on average equity 16.68 16.80 16.44 16.44
Net interest margin 4.38 4.60 4.74 4.55
Noninterest expense as a percent of net revenue 57.97 54.21 56.41 54.57
Noninterest income as a percent of net revenue 24.84 24.49 24.97 26.17
1993
Net interest income $84,230 $80,705 $79,322 $79,219
Provision for loan losses 7,224 9,039 8,291 8,454
Net interest income after provision for loan losses 77,006 71,666 71,031 70,765
Noninterest income 29,216 28,295 28,512 26,867
Noninterest expense 65,619 63,645 61,393 60,192
Income taxes 14,113 12,780 12,806 12,537
Net income 26,490 23,536 25,344 24,903
Per share:
Primary earnings $ .89 $ .78 $ .85 $ .84
Fully diluted earnings .87 .77 .84 .82
Cash dividends declared on common stock .29 .29 .29 .29
Market price-high 37.25 37.25 39.38 38.50
low 33.00 34.00 34.75 34.50
Weighted average shares of common stock
outstanding 29,710 29,626 29,457 29,397
Weighted average fully diluted common
stock equivalents 30,510 30,435 30,298 30,239
Ratios:
Return on average assets 1.38% 1.23% 1.36% 1.35%
Return on average equity 15.73 14.36 16.11 16.48
Net interest margin 4.79 4.60 4.64 4.63
Noninterest expense as a percent of net revenue 57.46 57.96 56.49 56.27
Noninterest income as a percent of net revenue 25.58 25.77 26.24 25.12
</TABLE>
-56-
<PAGE>
Executive Officers
Jerry A. Grundhofer Chairman since 1994. 50
President and Chief Executive Officer since 1993.
Director since 1993.
Jerry A. Grundhofer joined Star Banc Corporation in May 1993 as
President and was named Chief Executive Officer in June 1993. He
has served as Chairman of the Board since January 1, 1994. He has
served as President and Chief Executive Officer of Star Bank,
N.A. since January 1, 1995 and as Chairman of Star Bank, N.A.
since June 1993. He has served on the Board of Directors of the
Corporation and the Bank since June 1993. Prior to joining Star,
he had served as Vice Chairman of the Board for BankAmerica
Corporation since 1992. Prior to the merger between BankAmerica
Corporation and Security Pacific Corporation, he had served as
President and Chief Executive Officer of Security Pacific
National Bank since 1990. He has been a Director of The Miami
Valley Insurance Company since 1993.
Daniel B. Benhase Member of the Managing Committee since 1994. 35
Executive Vice President since 1994.
Daniel B. Benhase has served as Executive Vice President and Head
of Trust Financial Services Group and Private Banking since 1994.
Previously he had served as Senior Vice President since 1992 and
Director of Corporate Trust and Employee Benefits since 1987.
Joseph A. Campanella Member of the Managing Committee since 1991. 52
Executive Vice President since 1991.
Joseph A. Campanella served as President and Chief Executive
Officer of Star Bank, N.A., Cleveland from its founding in 1988
to June 1991, at which time he was elected Executive Vice
President of Star Banc Corporation. From 1983 to 1988, he had
served as Director of Corporate Finance at The Koptis
Organization, a financial services firm.
Richard K. Davis Member of the Managing Committee since 1993. 36
Executive Vice President since 1993.
Richard K. Davis joined Star Banc Corporation in November 1993 as
Executive Vice President. Prior to joining Star, he had served as
Executive Vice President of BankAmerica Corporation since 1992.
Prior to the merger between BankAmerica Corporation and Security
Pacific Corporation, he had served as Executive Vice President at
Security Pacific National Bank since 1990. He has been President
and a Director of The Miami Valley Insurance Company since 1993.
Jerome C. Kohlhepp Member of the Managing Committee since 1994. 49
Executive Vice President since 1994.
Jerome C. Kohlhepp has served as Executive Vice President and
Head of Specialized Lending since 1994. Previously he had served
as Senior Vice President, Specialized Lending for the Corporation
since 1992 and Head of Specialized Lending since 1990. He joined
Star Bank, N.A. in 1987 as Senior Vice President, Asset-Based
Lending. Prior to joining Star, he served as Vice President,
Citicorp Industrial Credit since 1981.
Thomas J. Lakin Member of the Managing Committee since 1993. 52
Executive Vice President since 1994.
General Counsel and Secretary since 1994.
Thomas J. Lakin has served as Executive Vice President, General
Counsel and Secretary since 1994. Previously he had served as
Senior Vice President, Operations and Administration since 1992
and as Executive Vice President of the Bank since 1989 and as
Senior Vice President and Head of Trust Financial Services since
1986. He joined Star Bank, N.A. in 1966.
David M. Moffett Member of the Managing Committee since 1993. 42
Executive Vice President and Chief Financial
Officer since 1993.
David M. Moffett joined Star Banc Corporation in September 1993
as Executive Vice President and Chief Financial Officer. Prior to
joining Star, he had served as Senior Vice President and
Assistant Treasurer of BankAmerica Corporation since 1992. Prior
to the merger between BankAmerica Corporation and Security
Pacific Corporation, he had served as Senior Vice President and
Director of Corporate Treasury at Security Pacific Corporation
since 1990. He has served as Treasurer and a Director of First
National Cincinnati Corporation and as Vice President, Treasurer
and a Director of The Miami Valley Insurance Company since 1993.
Daniel R. Noe Member of the Managing Committee since 1994. 44
Executive Vice President since 1994.
Daniel R. Noe has served as Executive Vice President and Head of
Credit Administration since 1994. Previously he had served as
Senior Vice President, Credit Administration since 1990, as Vice
President, Loan Review since 1986 and Vice President, Commercial
Lending since 1983. He joined Star Bank, N.A. in 1970.
Wayne J. Shircliff Member of the Managing Committee since 1994. 45
Executive Vice President since 1994.
Wayne J. Shircliff has served as Executive Vice President and
Head of Commercial Lending since 1994. Previously he had served
as Senior Vice President, Commercial Lending for the Corporation
and Executive Vice President, Commercial Lending for Star Bank,
N.A., since 1990 and as Senior Vice President, Commercial Lending
National/Regional Division since 1983.
Timothy J. Fogarty Member of the Managing Committee since 1993. 37
Senior Vice President since 1987.
Timothy J. Fogarty has served as Senior Vice President,
Residential Mortgage Banking since 1993. Previously he had served
as Senior Vice President, Operations since 1989. He joined Star
Banc Corporation in 1987 as Senior Vice President, Director of
Auditing.
Stephen E. Smith Member of the Managing Committee since 1993. 47
Senior Vice President since 1993.
Stephen E. Smith has served as Senior Vice President, Corporate
Human Resources since 1993. He joined Star Banc Corporation in
1991. Previously he had served as Senior Vice President, Human
Resources at Ameritrust Company since 1986 and Vice President
since 1978.
-57-
<PAGE>
CORPORATE DIRECTORS
James R. Bridgeland, Jr., 1,5
Partner, Taft, Stettinius & Hollister
Laurance L. Browning, Jr., 2
Formerly Vice Chairman, Emerson Electric Co.
Victoria B. Buyniski, 5
President and Chief Executive Officer,
United Medical Resources, Inc.
Samuel M. Cassidy, 1
Formerly President and Chief Executive Officer, Star Bank, N.A.
and Executive Vice President, Star Banc Corporation
Raymond R. Clark, 3
President and Chief Executive Officer, Cincinnati Bell Telephone
V. Anderson Coombe, 3,5
Chairman, The Wm. Powell Co.
John C. Dannemiller, 3,4
Chairman and Chief Executive Officer, Bearings, Inc.
Jerry A. Grundhofer
Chairman, President and Chief Executive Officer, Star Banc
Corporation and Star Bank, N.A.
J.P. Hayden, Jr., 1,2,3
Chairman and Chief Executive Officer, The Midland Company
Roger L. Howe, 1,2
Chairman, U.S. Precision Lens, Inc.
Thomas J. Klinedinst, Jr., 5
President, Thos. E. Wood, Inc.
Charles S. Mechem, Jr.
Commissioner, Ladies Professional Golf
Association and Chairman, U.S. Shoe Corporation
Daniel J. Meyer, 2
Chairman and Chief Executive Officer, Cincinnati Milacron, Inc.
David B. O'Maley**
Chairman, President and Chief Executive Officer,
Ohio National Life Insurance Company
O'dell M. Owens, M.D., M.P.H., 4
Director of Reproductive -Endocrinology and Infertility, The Christ Hospital
Thomas E. Petry, 1,2
Chairman and Chief Executive Officer, Eagle-Picher Industries, Inc.
William C. Portman, 1,2,4
Chairman, Portman Equipment Company
Oliver W. Waddell
Formerly Chairman, Star Banc Corporation and Vice Chairman, Star Bank, N.A.
Bradley L. Warnemunde*
Formerly Chairman, President and Chief Executive Officer,
Ohio National Life Insurance Company
1=Executive Committee
2=Compensation Committee
3=Audit Committee
4=Community Outreach Committee
5=Pension Committee
**Resigned effective 1/10/95.
**Appointed 1/10/95 to fill vacancy created by the resignation of
Mr. Warnemunde.
-58-
<PAGE>
<TABLE>
<CAPTION>
BANKING SUBSIDIARY DIRECTORS & REGIONAL ADVISORY BOARDS
<S> <C> <C> <C>
BANKING SUBSIDIARY DIRECTORS REGIONAL ADVISORY BOARDS PREBLE COUNTY Kentucky
STAR BANK, N.A. OHIO (EATON) Carroll County
CINCINNATI, OHIO BUTLER COUNTY Daniel M. Duke Perry S. Dean
James R. Bridgeland, Jr. (HAMILTON) Floyd C. Geeding James Dorenbusch
Laurance L. Browning, Jr. James M. Dixon Frederick M. Haber Robert C. Froman
Victoria B. Buyniski Roger A. Hamilton William W. Hiestand H. C. Jasper
Samuel M. Cassidy Jacque R. Huber Gene R. Lindley John T. Newcomb
V. Anderson Coombe James G. Robinson Robert L. Miller Layton L. Rouse
Jerry A. Grundhofer Thomas G. Stretch John A. Vosler, D.O. H. Riddle Stout
Jean Patrice Harrington, S.C. Dr. Mark W. Ulrich
J. P. Hayden, Jr. NORTHEAST OHIO(CLEVELAND,
Roger L. Howe AKRON, CANTON) Marion County
Margot James Copeland SIDNEY Donald Ball
Thomas J. Klinedinst, Jr. Gregory W. Edwards Timothy J. Geise John Randall Donahue
David B. O'Maley** John C. Dannemiller Thomas B. Heringhaus Kenneth A. George
O'dell M. Owens, M.D., M.P.H. John V. McFadden Roger L. Lentz William J. Higdon
Thomas E. Petry Tony Philiou Paul C. Perin Linda M. Myers
William C. Portman Melvin G. Pye, Jr. Charles G. Rhyan John S. Smith
Oliver W. Waddell Edwin Z. Singer Thomas E. Shoemaker
Bradley L. Warnemunde* Pendleton County
CENTRAL OHIO TRI-STATE Robert Bathalter
STAR BANK, N.A., KENTUCKY (COLUMBUS) (GALLIPOLIS, IRONTON, Dixie Owen
COVINGTON Todd Barnum PORTSMOUTH) David H. Pribble
Joseph A. Campanella Frank S. Benson, III Donald L. Crance Jonathan Smith
Nicholas C. Ellison Thomas R. Green Robert L. Dalton
Kenneth F. Harper William H. Guy Douglas R. Daniel Indiana
Clarence J. Martin Carl Horton Robert E. Dever Southeastern Indiana
Edwin T. Robinson Robert W. McLaughlin Bill W. Dingus (Lawrenceburg)
Asa M. Rouse Bernard L. Edwards William Barrott, III
James Simpson, Jr. CIRCLEVILLE D. Dean Evans John E. Borgman
John S. Smith Roger Bennington James L. Heald Douglas R. Denmure
Frank B. Sommerkamp, Jr. Philip L. Evans Charles C. Klein Robert Hastings
William C. Vermillion Donald W. Greenlee Dean F. Massie, M.D. Patricia Krider
Thomas O. Youtsey, Jr. Robert M. Johnson John V. Reinhardt Donald Laker
Rita J. Knece James W. Staker Mark J. Neff
STAR BANK, N.A., INDIANA Gerald A. Leist J. Craig Strafford,MD.Johnny Nugent
RICHMOND Richard M. Patrick Wayne F. White Sheldon A. Rox
Joseph A. Campanella A. W. Stryker
J. Richard Cox HILLSBORO TROY Walter C. Wilson
Robert Hastings Dan L. Combs Rebekah Mohr Brown
Patricia Krider William L. Cornelius Richard J. Fraas
William C. Merkin Jeffrey J. Duncan Mark T. Hamler
Mark J. Neff William H. Siddons Thomas B. Hamler
Ronald L. Oberle Ronald L. Swonger Robert R. Koverman
William M. Quigg Steven W. Thompson Stewart I. Lipp
David W. Stidham Dr. Ralph E. Williams George N. Meeker
Richard J. Wood Max A. Myers
Michael E. Pfeffenberger
Jerrold R. Stammen
</TABLE>
**Resigned 1/10/95.
**Appointed 1/10/95 to fill vacancy created by the resignation of
Mr. Warnemunde.
-59-
<PAGE>
Corporate Information
ANNUAL MEETING
There is a new location for the Annual Meeting this year. The
Annual Meeting of Shareholders of Star Banc Corporation will be
held at 11:00 a.m. (EDT), Tuesday, April 11, 1995, in the Taft
Room on the Third Floor at the Westin Hotel facing Fountain
Square on Fifth Street in downtown Cincinnati, Ohio.
FINANCIAL INFORMATION
Additional financial or general information, including copies of
this annual report, Form 10-K filed with the Securities and
Exchange Commission, and interim reports published quarterly
during the year may be obtained by contacting:
David M. Moffett, Executive Vice President and Chief Financial
Officer,at the executive office address listed below or by
calling (513) 632-4008; or Jennifer J. Finger, Senior Vice President and
Manager, Corporate Development (513) 632-4703
Media requests should be made to:
Steven W. Dale, Vice President and Director,
Public Relations (513) 632-4524
STOCK LISTING
Star Banc Corporation common stock is listed under the symbol
"STB" on the New York Stock Exchange.
TRANSFER AGENT
Inquiries relating to shareholder records, stock transfers,
changes of ownership, changes of address and dividend payment
should be sent to the transfer agent at the following address:
Star Bank, N.A. Securities Transfer Department
425 Walnut Street,Mail Location #5155
Cincinnati, OH 45202
DIVIDEND REINVESTMENT
Star Banc Corporation offers its shareholders an automatic
dividend reinvestment program. The program enables shareholders
to reinvest their dividends in shares at the prevailing market
price. For more information, write to Star Banc Corporation,
Dividend Reinvestment Department, 425 Walnut Street, Mail
Location #9140, Cincinnati, OH 45202 or call (513) 632-4610.
INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants of Star Banc Corporation are
Arthur Andersen LLP, Cincinnati, OH.
EXECUTIVE OFFICES
Star Bank Center
425 Walnut Street
Cincinnati, OH 45202
Federated Securities Corp., Distributor of The Star Funds
Star Bank is Investment Adviser to The Star Funds.
Products and services available through Star's branch-based
investment centers, including the Star Family of Mutual Funds,
are not bank deposits and therefore are not obligations of or
guaranteed by Star Bank, are not FDIC insured and involve
investment risk, including the possible loss of principal. Star's
investment centers offer a program of life insurance, annuities
and securities products offered at Star Bank. Insurance and
annuities are offered through Financial Horizons Distributors
Agency of Ohio, Inc., an independent insurance agency. Securities
products and services are offered through Financial Horizons
Securities Corp., a registered broker dealer, member NASD. Star
Bank is not a registered broker dealer; when making investment
transactions through branch-based investment centers, you are
dealing with representatives of Financial Horizons. None of the
Financial Horizons companies is affiliated with Star Bank.
The financial section of this annual report has been produced on
recycled paper.
-60-
EXHIBIT 21
STAR BANC CORPORATION
SUBSIDIARIES OF THE REGISTRANT
Star Bank, N.A. (A)
Star Bank, N.A., Kentucky (B)
Star Bank, N.A., Indiana (C)
First National Cincinnati Corporation (A)
The Miami Valley Insurance Company (D)
Star Banc Finance Company (A) #
P.N.B. Insurance Agency (C) *
First-In-Leasing, Inc. (C) *
(A) Ohio Corporation
(B) Kentucky Corporation
(C) Indiana Corporation
(D) Arizona Corporation
* Inactive
# Effective March 1, 1995
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report incorporated by reference in this
Form 10-K, into the Company's previously filed Registration
Statement Files No. 2-94845, No. 33-9494, No. 33-10085, No. 33-
24672, No. 33-46018 and No. 33-61308.
/s/ ARTHUR ANDERSEN & COMPANY
ARTHUR ANDERSEN & COMPANY
Cincinnati, Ohio,
March 28, 1995
POWER OF ATTORNEY
We, the undersigned Directors of Star Banc Corporation, hereby
appoint Jerry A. Grundhofer and Thomas J. Lakin or either of them with full
power of substitution, our true and lawful attorneys and agents, to do any and
all acts and things in our name and on our behalf as Directors of the
Corporation, which said attorneys and agents may deem necessary or advisable
to enable the Corporation to comply with the Securities Exchange Act of 1934,
as amended, and any rules, regulations or requirements of the Securities and
Exchange Commission, in connection with the filing of the corporation's annual
report on Form 10-K for the year 1994, including, without limitation, signing
for us, or any of us, in our names as Directors of the Corporation, such Form
10-K and any and all amendments thereto, and we hereby ratify and confirm
all that said attorneys and agents shall do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
and the rules and regulations thereunder, this Power of Attorney has been
signed below by thefollowing persons as Directors of the Corporation as of the
13th day of December, 1994.
/s/ James R. Bridgeland, Jr. Director
James R. Bridgeland, Jr.
/s/ Laurance L. Browning, Jr. Director
Laurance L. Browning, Jr.
/s/ Victoria Buyniski Director
Victoria Buyniski
/s/ Samuel M. Cassidy Director
Samuel M. Cassidy
/s/ Raymond R. Clark Director
Raymond R. Clark
/s/ V. Anderson Coombe Director
V. Anderson Coombe
/s/ John C. Dannemiller Director
John C. Dannemiller
/s/ J. P. Hayden, Jr. Director
J. P. Hayden, Jr.
/s/ Roger L. Howe Director
Roger L. Howe
/s/ Thomas J. Klinedinst, Jr. Director
Thomas J. Klinedinst, Jr.
/s/ Charles S. Mechem, Jr. Director
Charles S. Mechem, Jr.
/s/ Daniel J. Meyer Director
Daniel J. Meyer
/s/ O'dell M. Owens, M.D. Director
O'dell M. Owens, M. D.
/s/ Thomas E. Petry Director
Thomas E. Petry
/s/ William C. Portman Director
William C. Portman
/s/ Oliver W. Waddell Director
Oliver W. Waddell
/s/ Bradley L. Warnemunde Director
Bradley L. Warnemunde
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF INCOME, THE CONSOLIDATED BALANCE SHEETS,
AND THE CONSOLIDATED STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 429,467
<INT-BEARING-DEPOSITS> 100
<FED-FUNDS-SOLD> 56,545
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 563,091
<INVESTMENTS-CARRYING> 1,764,854
<INVESTMENTS-MARKET> 2,234,179
<LOANS> 6,249,557
<ALLOWANCE> 95,979
<TOTAL-ASSETS> 9,390,791
<DEPOSITS> 7,363,815
<SHORT-TERM> 1,034,700
<LIABILITIES-OTHER> 107,592
<LONG-TERM> 166,466
<COMMON> 150,529
0
2,466
<OTHER-SE> 565,223
<TOTAL-LIABILITIES-AND-EQUITY> 9,390,791
<INTEREST-LOAN> 465,361
<INTEREST-INVEST> 102,477
<INTEREST-OTHER> 1,886
<INTEREST-TOTAL> 569,724
<INTEREST-DEPOSIT> 175,220
<INTEREST-EXPENSE> 223,618
<INTEREST-INCOME-NET> 346,106
<LOAN-LOSSES> 24,372
<SECURITIES-GAINS> 10
<EXPENSE-OTHER> 260,311
<INCOME-PRETAX> 178,438
<INCOME-PRE-EXTRAORDINARY> 178,438
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 116,591
<EPS-PRIMARY> 3.89
<EPS-DILUTED> 3.86
<YIELD-ACTUAL> 7.47
<LOANS-NON> 34,990
<LOANS-PAST> 8,264
<LOANS-TROUBLED> 261
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 83,156
<CHARGE-OFFS> 24,570
<RECOVERIES> 13,021
<ALLOWANCE-CLOSE> 95,979
<ALLOWANCE-DOMESTIC> 95,979
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
