<PAGE>
INDEX TO FORM 10-K
STAR BANC CORPORATION
Part I
10-K
Page(s)
Item 1. BUSINESS
Description of Business............................................5
Item 2. PROPERTIES.........................................................6
Item 3. LEGAL PROCEEDINGS..................................................6
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a).............
Part II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS................................................6
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.............................None
Part III
Item 10. DIRECTORS OF THE REGISTRANT (a).....................................
EXECUTIVE OFFICERS OF THE REGISTRANT...............................7
Item 11. EXECUTIVE COMPENSATION (a)..........................................
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT (a)......................................................
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (a)..................
(a) Incorporated by reference from Star Banc Corporation's (the Corporation)
Proxy Statement for the Annual Meeting of Shareholders on April 9, 1996.
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<PAGE>
Part IV
Item 14. EXHIBITS, REPORTS ON FORM 8-K, AND FINANCIAL STATEMENT SCHEDULES(b)
EXHIBITS:
Exhibit 3.1 Amended Articles of Incorporation of Star Banc
Corporation (previously filed as an exhibit to the
registrant's Annual Report on Form 10-K for the year
ended December 31, 1991 and incorporated herein by
reference)
Exhibit 3.2 Code of Regulations (previously filed as an exhibit to
the registrant's Annual Report on Form 10-K for the year
ended December 31, 1988, and incorporated herein by
reference)
Exhibit 4 Rights Agreement (previously filed as an exhibit to the
registrant's Current Report on Form 8-K, dated October
27, 1989, and incorporated herein by reference)
Exhibit 10.1 1986 Stock Incentive Plan (previously filed as an exhibit
to Registration Statement No. 33-9494 and incorporated
herein by reference)
Exhibit 10.2 Amended 1991 Stock Incentive Plan (previously filed as an
exhibit to 1993 Proxy Statement and incorporated herein
by reference)
Exhibit 10.3 1987 Deferred Compensation Plan (previously filed as an
exhibit to Registration Statement No.33-10085 and
incorporated herein by reference)
Exhibit 10.4 Severance and Employment Agreements
Exhibit 11 Computation of Earnings Per Share
Exhibit 13 Annual Report to Security Holders
Exhibit 21 Subsidiaries of the Registrant
Exhibit 23 Consent of Independent Public Accountants in regards to
the previously filed Registration Statements
No. 2-94845, No. 33-9494, No. 33-10085, No. 33-24672,
No. 33-46018 and No. 33-61308
Exhibit 24 Power of Attorney
Exhibit 27 Financial Data Schedules
FORM 8-K During the fourth quarter of 1995, the Corporation filed
no Current Reports on Form 8-K.
The Corporation will file with the Commission its long-term debt instruments
upon request.
SIGNATURES..................................................................9
(b) Certain documents filed as a part of the From 10-K Financial
Statements and Financial statement schedules have been omitted
due to inapplicability or because required information is shown
in the consolidated financial statements or notes thereto. Copies
of exhibits may be obtained at a cost of 30 cents per page upon
written request to the chief financial officer of the Corporation.
-3-
<PAGE>
ANNUAL REPORT CROSS-REFERENCE INDEX
STAR BANC CORPORATION
The page numbers used in this index represent pages in the Star Banc
Corporation 1995 Annual Report.
PART I
Annual
Report
Page(s)
Item 1. Statistical Disclosure By Bank Holding Companies:
Financial Ratios..............................................15
Average Balance Sheets and Average Rates......................18
Volume/Rate Variance Analysis.................................19
Investment Securities......................................27-28
Loans......................................................23-24
Risk Elements of Loan Portfolio............................24-26
Summary of Loan Loss Experience...............................25
Deposits......................................................29
Short-Term Borrowings.........................................40
PART II
Item 6. Selected Financial Data.......................................15
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................16-31
Item 8. Financial Statements and Supplementary Data:
Report of Independent Public Accountants......................52
Consolidated Balance Sheets as of December 31, 1995 and 1994..32
Consolidated Statements of Income for the years ended
December 31, 1995, 1994 and 1993.............................33
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1995, 1994 and 1993.................34
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993..............................35
Notes to Consolidated Financial Statements.................36-51
Selected Quarterly Financial Data for the periods ended
December 31, 1995 and 1994...................................51
Part III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ..........53
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<PAGE>
DESCRIPTION OF BUSINESS
Star Banc Corporation ("the Corporation") was organized as a Delaware
corporation in 1973 under the name First National Cincinnati Corporation. In
1988, it was reincorporated under the laws of the State of Ohio and in 1989
changed its name to the current form. Executive offices are maintained in
Cincinnati, Ohio.
The Corporation is a bank holding company as defined by the Bank Holding
Company Act of 1956, as amended, and is registered with the Board of Governors
of the Federal Reserve System. As such, it is subject to regulation and
examination by the Federal Reserve.
Through its banking subsidiaries, the Corporation is engaged in commercial
banking and trust business, providing a full range of consumer, commercial and
trust financial products and investment services throughout Ohio, Kentucky and
Indiana. The Corporation competes for loans and/or deposits with numerous
other banks and financial institutions throughout its market area, as well as
with mutual funds, brokerage firms and other types of financial service
providers.
Types of loans offered through its banking subsidiaries include; commercial
loans, commercial leasing, commercial and residential mortgages, real estate
construction and a variety of consumer loan products including installment
loans, credit cards and retail leasing. The Corporation's loan portfolio is
well diversified between wholesale and consumer loans, with none of the above
mentioned loan types exceeding 30 percent of the total portfolio. See note 4 to
the Consolidated Financial Statements, on page 39 of the Corporation's Annual
Report, for additional loan information. The Corporation invests in U.S.
Treasury and a variety of mortgage-backed securities in order to, 1) facilitate
the management of interest rate risk, 2) provide liquidity, 3) provide a degree
of credit diversification and flexibility in the balance sheet, and 4) provide
collateral as necessary for public deposits. See the Management's Discussion
and Analysis section on pages 27 and 28 of the Corporation's Annual Report,
for additional information on investment securities.
In the past five years the Corporation has continued to expand through the
acquisition of branch offices or other smaller banking institutions throughout
its market area of Ohio, Kentucky and Indiana. These institutions included
Fir-Ban Inc. (Verona, Kentucky) and Kentucky Bancorporation Inc. (Covington,
Kentucky). Most recently the Corporation purchased 24 Columbus, Ohio area
branch offices from Household Bank, Federal Savings Bank. This followed the
1994 purchase of 47 former TransOhio Federal Savings Bank branch offices in the
Cleveland and Akron, Ohio areas, from the Resolution Trust Corporation and the
1992 purchase of 28 branches in the Cleveland, Ohio area from Ameritrust, N.A.
The Corporation continues to explore other acquisition opportunities in its
tri-state market area.
In 1993, as part of a comprehensive restructuring program, the Corporation
merged its six Ohio banks in Columbus, Eaton, Hillsboro, Ironton, Sidney and
Troy with Star Bank, N.A. In addition, the Corporation merged its two Indiana
banks in Lawrenceburg and Richmond to form Star Bank, N.A., Indiana. This
resulted in the Corporation wholly owning three bank subsidiaries directly. All
bank subsidiaries are national banks. The primary regulator of all national
banks is the Office of the Comptroller of the Currency. As federally insured
institutions and members of the Federal Reserve System, the Corporation's
national banks are also subject to regulation by the Federal Deposit Insurance
Corporation ("FDIC") and the Federal Reserve.
The Miami Valley Insurance Company, a wholly-owned subsidiary of the
Corporation, is incorporated under the laws of the State of Arizona and is
engaged solely in the business of issuing credit life and accident and health
insurance in connection with the lending activities of the Corporation's Ohio
and Indiana bank subsidiaries. First National Cincinnati Corporation is a
wholly-owned subsidiary which holds a 75.5 percent ownership of the
Corporation's headquarters building. The remaining 24.5 percent ownership is
held directly by the Corporation. In 1995, the Corporation formed a
wholly-owned consumer finance company, known as Star Banc Finance, Inc. The
finance company offers consumers a broad mix of credit products and services,
such as indirect and direct auto loans, second mortgages and personal
loans.
A tabulation of pertinent financial and operational data of all Star Banc
Corporation banking subsidiaries as of December 31, 1995, is shown in the
following table.
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<PAGE>
BANKING SUBSIDIARIES
<TABLE>
<CAPTION>
As of December 31, 1995 (dollars in thousands)
Total Employees
Total Total Total Equity (Full-Time Banking
Assets Loans Deposits Capital Equivalent) Offices
<S> <C> <C> <C> <C> <C> <C>
Star Bank, N.A. $8,388,681 $6,032,895 $6,720,184 $688,878 3,467 204
Star Bank, N.A., Kentucky 718,721 538,786 624,172 63,481 212 25
Star Bank, N.A., Indiana 436,141 315,010 386,623 29,491 154 19
</TABLE>
The Corporation and its subsidiaries had a total of 3,850 full-time equivalent
employees at December 31, 1995. The Corporation's banking subsidiaries operated
a total of 248 full service offices at December 31, 1995.
PROPERTIES
Star Banc Corporation and Star Bank, N.A. maintain their offices in Star Bank
Center, a 26-story office tower in downtown Cincinnati, which is wholly-owned
by the Corporation. This office building contains approximately 562,000 square
feet of space of which the Corporation and Star Bank, N.A. occupy approximately
248,000 square feet or 44 percent of the space in the building. The
Corporation's banking subsidiaries operate 248 banking offices throughout their
market areas. Of those, 117 are owned and 131 are leased.
LEGAL PROCEEDINGS
Neither the Corporation nor any of its subsidiaries presently is involved in
litigation which in the opinion of management will result in a material effect
upon the Corporation's consolidated financial position or results of
operations. See Note 16 to the Consolidated Financial Statements, on page 47 of
the Corporation's Annual Report, for additional information.
MARKET AND DIVIDEND
The Corporation's common stock (symbol: "STB") is traded on the New York Stock
Exchange. The following table sets forth the high and low sales prices of the
common stock for each quarterly period during 1995 and 1994 as reported by the
National Association of Securities Dealers, Inc., as well as dividends per
share which have been declared on a quarterly basis.
<TABLE>
<CAPTION>
Cash Dividends
1995 1994 Declared Per Share
High Low High Low 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Fourth Quarter $62.25 $53.38 $41.38 $33.50 $0.40 $0.35
Third Quarter 54.38 45.75 44.75 37.75 0.40 0.35
Second Quarter 46.00 41.13 39.75 36.25 0.40 0.35
First Quarter 42.63 36.25 37.00 33.75 0.40 0.35
</TABLE>
At December 31, 1995, there were 7,955 holders of record of the Corporation's
common stock.
-6-
<PAGE>
EXECUTIVE OFFICERS
Jerry A. Grundhofer Chairman since 1994. 51
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 Star Bank, N.A. 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.
Daniel B. Benhase Member of the Managing Committee since 1994. 36
Executive Vice President since 1994.
Daniel B. Benhase has served as Executive Vice President and Head of the 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. 53
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.
Richard K. Davis Member of the Managing Committee since 1993. 37
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.
Timothy J. Fogarty Member of the Managing Committee since 1993. 38
Executive Vice President since 1995.
Timothy J. Fogarty has served as Executive Vice President, Residential Mortgage
Banking since 1995. Previously he had served as Senior Vice President,
Residential Mortgage Banking since 1993 and Senior Vice President, Operations
since 1989.
S. Kay Geiger Member of the Managing Committee since 1995. 39
Executive Vice President since 1995.
S. Kay Geiger has served as Executive Vice President and Head of International
Banking since 1995. Previously she served as Senior Vice President and Manager
of the International Division since 1993. She joined Star in 1989 as Vice
President and Manager of International Banking.
Jerome C. Kohlhepp Member of the Managing Committee since 1994. 50
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.
-7-
<PAGE>
Thomas J. Lakin Member of the Managing Committee since 1993. 53
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
Star Bank, N.A. since 1989 and as Senior Vice President and Head of Trust
Financial Services since 1986.
David M. Moffett Member of the Managing Committee since 1993. 43
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 National Bank since 1990.
He has served as Treasurer and a Director of First National Cincinnati
Corporation.
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 and Vice President, Loan Review since 1986.
Andrew E. Randall Member of the Managing Committee since 1995. 43
Executive Vice President since 1995.
Andrew E. Randall joined Star Banc Corporation in 1995 as Executive Vice
President and Regional Chairman in Northeast Ohio. Prior to joining, he
served as Senior Vice President and Regional Sales Director at Bank of America.
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.
Stephen E. Smith Member of the Managing Committee since 1993. 48
Executive Vice President since 1995.
Stephen E. Smith has served as Executive Vice President, Corporate Human
Resources since 1995. Previously he had served as Senior Vice President,
Corporate Human Resources since 1993. He joined Star Banc Corporation in 1991.
Prior to joining Star, he had served as Senior Vice President, Human Resources
at Ameritrust Company since 1986.
-8-
<PAGE>
FORM 10-K SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized as of the twenty-seventh
day of March 1996.
Star Banc Corporation
/s/ Jerry A. Grundhofer
Jerry A. Grundhofer
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities indicated as of the twenty-seventh day of March 1996.
/s/ David M. Moffett /s/ James D. Hogan
David M. Moffett James D. Hogan
Executive Vice President and Senior Vice President and
Chief Financial Officer Controller
James R. Bridgeland, Jr., Director* Thomas J. Klinedinst Jr., Director*
Laurance L. Browning, Jr., Director* Charles S. Mechem, Jr., Director*
Victoria B. Buyniski, Director* Daniel J. Meyer, Director*
Samuel M. Cassidy, Director* David B. O'Maley, Director*
Raymond R. Clark, Director* O'dell M. Owens, M.D., M.P.H.,
Director*
V. Anderson Coombe, Director* Thomas E. Petry, Director*
John C. Dannemiller, Director* William C. Portman, Director*
J.P. Hayden, Jr., Director* Oliver W. Waddell, Director*
Roger L. Howe, Director*
/s/ Jerry A. Grundhofer
Jerry A. Grundhofer
Attorney-in-fact
*Pursuant to Power of Attorney
-9-
<PAGE>
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
registrant'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.
##Andrew E. Randall, Executive Vice President, Star Banc Corporation and
Star Bank, N.A.
## The three year agreement for Andrew E. Randall was added in 1995 and
included the same provisions as the previously filed three year agreement with
the exception of the elimination of sections 2.4 and 2.5, which provided for
additional years of service and coverage for pension and medical benefits.
<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 amended and previously filed as an exhibit
to the the regristrant's Annual Report on Form 10K for the year ended December
31, 1994 and is incorporated herein by reference.
The two year severance agreements cover the following executive officers:
Daniel B. Benhase, Executive Vice President, Star Banc Corporation and
Star Bank, N.A.
Timothy J. Fogarty, Executive Vice President, Star Banc Corporation and
Star Bank, N.A.
S. Kay Geiger, Executive 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, Executive Vice President, Star Banc Corporation and
Star Bank, N.A.
<PAGE>
EXECUTIVE RETENTION AGREEMENT
The executive retention agreement was previously filed as an exhibit to the the
regristrant's Annual Report on Form 10K for the year ended December 31, 1994
and is incorporated herein by reference.
This 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 $200,000
Executive Vice President
Wayne J. Shircliff, $200,000
Executive Vice President
Stephen E. Smith, $200,000
Executive Vice President
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
(Amounts in thousands except per share data)
Twelve Months
1995 1994 1993
Net income......................$ 136,603 $ 116,591 $ 100,273
Preferred dividends............... 76 321 1,084
Income available to common
shareholders..................$ 136,527 $ 116,270 $ 99,189
Weighted average of common
stock equivalents................ 30,029 29,873 29,549
Weighted average of preferred
stock convertible to common
stock equivalents............... 77 357 823
Weighted average of fully
diluted common stock equivalents. 30,106 30,230 30,372
Primary earnings per share
(income available to common
shareholders divided by weighted
average of common stock
equivalents)..................$ 4.55 $ 3.89 $ 3.36
Fully diluted earnings per share
(net income divided by weighted
average of fully diluted
common stock equivalents).....$ 4.54 $ 3.86 $ 3.30
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.
<PAGE>
FIVE YEAR LINE CHARTS OF NET INCOME, EPS, DIVIDENDS, AVERAGE
BALANCES AND VARIOUS RATIOS:
1991 1992 1993 1994 1995
Net Income $65.8 $76.1 $100.3 $116.6 $136.6
(in millions of dollars)
Earnings Per Share Fully Diluted $2.23 $2.53 $3.30 $3.86 $4.54
(in dollars)
Common Dividends Declared Per Share $1.00 $1.04 $1.16 $1.40 $1.60
(in dollars)
Average Shareholders' Equity to
Average Total Assets 8.35% 8.08% 8.50% 8.51% 8.24%
(in percents)
Return on Average Equity 12.44% 13.14% 15.65% 16.59% 17.57%
(in percents)
Return on Average Assets 1.04% 1.06% 1.33% 1.41% 1.45%
(in percents)
Net Interest Margin 4.69% 4.70% 4.67% 4.55% 4.44%
(in percents)
Efficiency Ratio 60.33% 61.34% 57.06% 55.84% 55.07%
(in percents)
Net Charge-Offs to Average Loans 0.79% 0.74% 0.56% 0.20% 0.21%
(in percents)
Average Shareholders' Equity $529.3 $579.5 $640.9 $702.6 $777.7
(in millions of dollars)
Average Total Assets $6.34 $7.17 $7.54 $8.25 $9.44
(in billions of dollars)
Dividend Payout Ratio 44.33% 40.35% 34.41% 35.89% 35.00%
(in percents)
- 2 -
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
(dollars in thousands, except per share data)
<CAPTION>
1995 % Change 1994 % Change 1993
<S> <C> <C> <C> <C> <C>
For The Year:
Net income $ 136,603 17.2% $ 116,591 16.3% $ 100,273
Per Share:
Primary earnings $ 4.55 17.0% $ 3.89 15.8% $ 3.36
Fully diluted earnings 4.54 17.6 3.86 17.0 3.30
Common dividends declared 1.60 14.3 1.40 20.7 1.16
Preferred dividends declared 6.00 --- 6.00 --- 6.00
Year-end book value per common
share outstanding 27.48 14.4 24.02 7.6 22.33
Year-end market value per
common share 59.50 63.6 36.38 3.9 35.00
Average Balances:
Total assets $ 9,439,626 14.4% $ 8,252,244 9.4% $ 7,542,798
Earning assets 8,588,587 12.0 7,665,037 9.5 7,003,053
Loans, net of unearned interest 6,669,806 16.6 5,721,667 11.2 5,146,341
Deposits 7,343,698 17.0 6,278,879 2.6 6,121,859
Shareholders' equity 777,674 10.7 702,605 9.6 640,868
At Year-End:
Common shares issued and
outstanding 29,833,588 29,802,796 29,606,665
Number of common shareholders 7,955 7,858 7,901
Number of employees 3,850 3,707 3,540
Ratios:
Return on average assets 1.45% 1.41% 1.33%
Return on average equity 17.57 16.59 15.65
Average shareholders' equity
to average total assets 8.24 8.51 8.50
Risk-based capital ratios:
Tier 1 7.97 8.66 11.10
Total 11.23 12.16 12.41
Leverage ratio 6.23 6.27 8.24
Net interest margin 4.44 4.55 4.67
Noninterest expense to net revenue 55.07 55.84 57.06
Noninterest income as a percent
of net revenue 26.58 25.10 25.68
Noninterest expense to total
average assets 3.03 3.15 3.33
</TABLE>
- 3 -
<PAGE>
<TABLE>
Consolidated Six Year Selected Financial Data
<CAPTION>
5 year
Compound
(dollars in thousands except per share data) 1995 1994 1993 1992 1991 1990 Growth Rate
<S> <C> <C> <C> <C> <C> <C> <C>
Results of Operations
Interest income $710,404 $569,724 $518,167 $541,421 $576,753 $586,829 3.9%
Interest expense 332,196 223,618 194,691 233,038 307,333 340,205 (0.5)
Net interest income 378,208 346,106 323,476 308,383 269,420 246,624 8.9
Taxable equivalent adjustment(a) 3,356 3,069 3,283 4,479 5,864 7,305 (14.4)
Taxable equivalent net interest income 381,564 349,175 326,759 312,862 275,284 253,929 8.5
Noninterest income 138,124 117,015 112,890 99,644 81,981 76,347 12.6
Net revenue 519,688 466,190 439,649 412,506 357,265 330,276 9.5
Noninterest expense 286,214 260,311 250,849 253,011 215,528 189,880 8.6
Provision for loan losses 25,101 24,372 33,008 40,898 39,913 40,417 (9.1)
Net income 136,603 116,591 100,273 76,119 65,832 64,889 16.1
Per Share
Primary earnings $4.55 $3.89 $3.36 $2.57 $2.24 $2.23 15.3%
Fully diluted earnings 4.54 3.86 3.30 2.53 2.23 2.23 15.3
Common stock cash dividends declared 1.60 1.40 1.16 1.04 1.00 0.96 10.8
Year-end book value 27.48 24.02 22.33 20.09 18.58 17.31 9.7
Year-end market value 59.50 36.38 35.00 36.00 25.00 16.75 28.9
Average Balances
Loans, net of unearned interest $6,669,806 $5,721,667 $5,146,341 $4,926,900 $4,718,795 $4,452,993 8.4%
Investment securities 1,901,722 1,900,290 1,592,210 1,341,917 883,411 826,943 18.1
Money market instruments 17,059 43,080 264,502 383,255 262,947 269,047 (42.4)
Total interest-earning assets 8,588,587 7,665,037 7,003,053 6,652,072 5,865,153 5,548,983 9.1
Total assets 9,439,626 8,252,244 7,542,798 7,171,898 6,336,096 6,024,108 9.4
Noninterest-bearing deposits 1,188,364 1,065,933 1,036,141 925,338 765,952 742,189 9.9
Interest-bearing deposits 6,155,334 5,212,946 5,085,718 4,955,133 4,426,203 4,219,659 7.8
Total deposits 7,343,698 6,278,879 6,121,859 5,880,471 5,192,155 4,961,848 8.2
Short-term borrowings 1,014,552 995,901 621,482 498,014 463,024 416,690 19.5
Long-term debt 163,788 155,172 54,308 59,906 45,937 35,476 35.8
Shareholders' equity 777,674 702,605 640,868 579,486 529,312 484,504 9.9
Ratios
Return on average assets 1.45% 1.41% 1.33% 1.06% 1.04% 1.08%
Return on average equity 17.57 16.59 15.65 13.14 12.44 13.39
Net interest margin 4.44 4.55 4.67 4.70 4.69 4.58
Noninterest expense to net revenue 55.07 55.84 57.06 61.34 60.33 57.49
Dividend payout ratio 35.00 35.89 34.41 40.35 44.33 42.67
Tier 1 risk-based capital 7.97 8.66 11.10 10.64 10.70 10.17
Total risk-based capital 11.23 12.16 12.41 11.99 12.10 11.63
Leverage(b) 6.23 6.27 8.24 7.51 7.96 7.75
Average shareholders' equity
to average total assets 8.24 8.51 8.50 8.08 8.35 8.04
(a) Taxable equivalent adjustment was calculated utilizing a marginal federal
income tax rate of 35 percent for 1993, 1994 and 1995 and 34 percent for
the years 1990-1992.
(b) Defined as tier 1 equity as a percent of average fourth quarter assets.
</TABLE>
- 15 -
<PAGE>
Management's Discussion and Analysis
Overview
Star Banc Corporation ("the Corporation") reported record earnings for 1995
with an increase of 17.2 percent to $136,603,000, compared to $116,591,000 in
1994 and $100,273,000 in 1993. Primary and fully diluted earnings per share
for 1995 were $4.55 and $4.54, respectively. This compares to primary earnings
per share of $3.89 in 1994 and $3.36 in 1993 and fully diluted earnings per
share of $3.86 in 1994 and $3.30 in 1993. Table 1 provides a summary of
significant items affecting the change in primary earnings per share for 1993
through 1995.
FIVE YEAR LINE CHART OF FULLY DILUTED EARNINGS PER SHARE
(In Dollars)
1991 1992 1993 1994 1995
$2.23 $2.53 $3.30 $3.86 $4.54
Earnings results for 1995 reflected increases in net interest income and
noninterest income, in addition to continued reduction in the Corporation's
noninterest expense ratio. The Corporation's return on average assets and
return on average equity increased to 1.45 percent and 17.57 percent,
respectively, in 1995. This compares to a return on average assets of 1.41
percent in 1994 and 1.33 percent in 1993 and a return on average shareholders'
equity of 16.59 percent in 1994 and 15.65 percent in 1993.
Tax equivalized net interest income increased $32.4 million or 9.3 percent
in 1995. This increase was the result of a $924 million increase in average
interest-earning assets and an improved mix of earning assets from securities
into higher yielding loans as was noted by a 16.6 percent increase in average
loans. This increase was somewhat offset by an 11 basis point decline in net
interest margin in 1995.
Noninterest income increased $21.1 million or 18.0 percent in 1995, while
noninterest expenses were up $25.9 million or 10.0 percent over 1994.
Noninterest expenses were up primarily as a result of branch acquisitions at
the end of 1994 and in 1995. The provision for loan losses increased 3.0
percent in 1995 primarily as a result of loan growth, as net charge-offs and
nonperforming loans remained at historically low levels.
Total assets at December 31, 1995 were $9.57 billion, up slightly from $9.39
billion a year earlier. Total loans, net of unearned interest, amounted to
$6.93 billion at the end of 1995, compared to $6.25 billion at the end of 1994.
Loan growth was led by an 18.1 percent increase in retail loans in 1995.
Deposits totaled $7.69 billion and $7.36 billion at December 31, 1995 and 1994,
respectively. The increase in deposits was due primarily to the acquisition of
24 branch offices of Household Bank, Federal Savings Bank discussed below.
On March 1, 1995, the Corporation established Star Banc Finance, Inc., a new
consumer finance subsidiary. Star Banc Finance provides nontraditional
consumer credit products to a wider sphere of customers within our current
markets and will allow the Corporation to compete more effectively with other
non-bank credit providers.
Mergers and Acquisitions
On July 15, 1995, the Corporation's largest subsidiary, Star Bank, N.A.
("the Bank"), acquired 24 Columbus, Ohio area branch offices from Household
Bank, Federal Savings Bank. 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 $564 million in
cash and $645 million in deposits for a premium of $64 million. A portion of
the cash received was invested in U.S. Government Agency backed or Agency
issued mortgage-backed securities, with the remainder being used to reduce
short-term borrowings of the Bank.
This acquisition greatly enhanced the Corporation's Central Ohio operations
and made Star Bank one of the top five financial institutions in the Columbus
market. This acquisition had a positive impact on net income and earnings per
share in 1995. However, for the near term, the Corporation's noninterest
expense ratio has increased as a result of this acquisition.
On September 17, 1994, 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 reduced return on
average assets and net interest margin, as well as increased the Corporation's
noninterest expense ratio.
For 1996, the Corporation has received regulatory approval and plans to
merge its Kentucky and Indiana banks into Star Bank, N.A. This will allow
customers to make deposits and complete transactions at over 250 branch offices
in Ohio, Kentucky and Indiana.
- 16 -
<PAGE>
<TABLE>
Table 1 - Analysis of Primary Earnings Per Share -
<CAPTION>
Dollar Change B/(W)
1995 vs. 1994 vs.
1995 1994 1993 1994 1993
<S> <C> <C> <C> <C> <C>
Interest income $23.66 $19.07 $17.54 $4.59 $1.53
Interest expense (11.06) (7.49) (6.59) (3.57) (0.90)
Net interest income 12.60 11.58 10.95 1.02 0.63
Provision for loan losses (0.84) (0.82) (1.12) (0.02) 0.30
Net interest income after
provision for loan losses 11.76 10.76 9.83 1.00 0.93
Noninterest income 4.60 3.92 3.82 0.68 0.10
Other noninterest expense (9.53) (8.71) (8.49) (0.82) (0.22)
Income taxes (2.28) (2.07) (1.77) (0.21) (0.30)
Preferred dividends (0.01) (0.03) 0.01 0.02
Primary earnings per share $ 4.55 $ 3.89 $ 3.36 $0.66 $0.53
</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 9.3 percent in 1995, following a 7.0 percent
increase in 1994. The increase in 1995 was due to an increase in the level of
interest-earning assets, as the Corporation experienced substantial loan growth
in 1995. Average earning assets were up 12.0 percent in 1995 led by a 16.6
percent increase in average loans. The increase in 1994 was also 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. These increases were somewhat offset by declines in net
interest margins and interest rate spreads in both 1994 and 1995.
Net interest margin was 4.44 percent in 1995, 4.55 percent in 1994 and 4.67
percent in 1993. The decrease in net interest margin in 1995 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. The Corporation began to reverse this trend in 1995
with continued improvement in the mix of earning assets as loan growth was
funded by sales and maturities of lower yielding investment securities. The
decrease in net interest margin in 1994 was also related to the TransOhio
branch acquisition, as previously discussed. In addition, the increases in
short-term market rates in 1994 and the first part of 1995 reduced interest
rate spreads and net interest margin. As market rates increased during this
period, rates on supporting funds increased faster than rates on the
Corporation's earning assets. The Corporation's margin is expected to improve
in 1996 as loan growth continues to be funded by maturities and sales of
securities. In addition, the Household acquisition helped improve the
Corporation's funding mix by lowering short-term borrowings and increasing core
deposits.
FIVE YEAR LINE CHART OF NET INTEREST INCOME
(In Millions of Dollars)
1991 1992 1993 1994 1995
$275 $313 $327 $349 $382
In order to reduce the Corporation's exposure to adverse changes in interest
rates, the Corporation began to enter into interest rate swap agreements in the
fourth quarter of 1993. The notional amount of such swaps was $471 million at
December 31, 1995, down from $640 million at December 31, 1994. Interest rate
swaps reduced net interest income $5.9 million and net interest margin seven
basis points in 1995. The effect of the interest rate swaps offset increases
in yields on loans that are indexed to the prime rate and one year U.S.
Treasury bills, thus stabilizing changes in net interest margin. In 1994,
swaps contributed $3.8 million to net interest income and added five 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 1993 through 1995. 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.
- 17 -
<PAGE>
<TABLE>
Table 2 - Average Balance Sheets and Average Rates - For the years ended December 31 (dollars in thousands)
<CAPTION>
1995 1994 1993
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 $2,156,869 $198,087 9.18% $1,885,126 $156,373 8.30% $1,740,501 $130,477 7.50%
Real estate loans 2,540,854 213,014 8.38 2,199,485 172,817 7.86 2,045,011 166,225 8.13
Retail loans 1,972,083 178,047 9.03 1,637,056 138,471 8.46 1,360,829 127,392 9.36
Total loans 6,669,806 589,148 8.83 5,721,667 467,661 8.17 5,146,341 424,094 8.24
Federal funds sold
and securities
purchased under
agreements to resell 16,959 1,044 6.16 32,513 1,429 4.39 258,416 8,094 3.13
Taxable investment
securities 1,879,480 121,724 6.48 1,871,693 100,986 5.40 1,554,028 85,996 5.53
Non-taxable invest-
ment securities 22,242 1,839 8.27 28,597 2,260 7.90 38,182 3,029 7.93
Interest-bearing
deposits in banks 100 5 4.79 10,567 457 4.33 6,086 237 3.90
Total interest-
earning assets 8,588,587 713,760 8.31 7,665,037 572,793 7.47 7,003,053 521,450 7.45
Cash and due
from banks 425,201 370,357 349,096
Allowance for
loan losses (103,970) (90,426) (84,754)
Other assets 529,808 307,276 275,403
Total assets $9,439,626 $8,252,244 $7,542,798
Liabilities and Shareholders' Equity:
Savings and
NOW deposits $1,969,280 $44,055 2.24% $1,878,803 $40,124 2.14% $1,773,360 $45,673 2.58%
Money market
deposit accounts 772,020 28,577 3.70 718,692 18,745 2.61 958,987 24,992 2.61
Time deposits
$100,000 and over 480,055 28,097 5.85 389,456 17,390 4.47 433,412 16,540 3.82
Time deposits under
$100,000 2,933,979 165,243 5.63 2,225,995 98,961 4.45 1,919,959 83,717 4.36
Short-term borrowings 1,014,552 55,227 5.44 995,901 39,081 3.92 621,482 17,752 2.86
Long-term debt 163,788 10,997 6.71 155,172 9,317 6.00 54,308 6,017 11.08
Total interest-
bearing liabilities 7,333,674 332,196 4.53 6,364,019 223,618 3.51 5,761,508 194,691 3.38
Noninterest-bearing
deposits 1,188,364 1,065,933 1,036,141
Other liabilities 139,914 119,687 104,281
Shareholders' equity 777,674 702,605 640,868
Total liabilities
and shareholders'
equity $9,439,626 $8,252,244 $7,542,798
Net interest margin 4.44% 4.55% 4.67%
Interest rate spread 3.78 3.96 4.07
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, 1994 and 1995. The yield on available-
for-sale securities is computed based on historical cost balances. The
total of nonaccrual loans is included in the daily average balance.
</TABLE>
- 18 -
<PAGE>
<TABLE>
Table 3 - Volume/Rate Variance Analysis -
<CAPTION>
(dollars in thousands) Change from 1994 to 1995 Change from 1993 to 1994
Increase (decrease) in: Volume Rate Total Volume Rate Total
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Commercial loans $21,871 $19,843 $41,714 $11,592 $14,304 $25,896
Real estate loans 26,539 13,658 40,197 12,654 (6,062) 6,592
Retail loans 29,476 10,100 39,576 25,283 (14,204) 11,079
Total loans 77,886 43,601 121,487 49,529 (5,962) 43,567
Federal funds sold and securities
purchased under agreements
to resell (683) 298 (385) (7,076) 411 (6,665)
Taxable investment securities 426 20,312 20,738 20,832 (5,842) 14,990
Non-taxable investment securities (503) 82 (421) (761) (8) (769)
Interest-bearing deposits in banks (453) 1 (452) 174 46 220
Total 76,673 64,294 140,967 62,698 (11,355) 51,343
Interest expense:
Savings and NOW deposits 1,932 1,999 3,931 2,715 (8,264) (5,549)
Money market deposit accounts 1,391 8,441 9,832 (6,263) 16 (6,247)
Time deposits $100,000 and over 4,396 6,311 10,707 (1,678) 2,528 850
Time deposits under $100,000 31,475 34,807 66,282 13,346 1,898 15,244
Short-term borrowings 526 15,620 16,146 10,556 10,773 21,329
Long-term debt 478 1,202 1,680 (2,437) 5,737 3,300
Total 40,198 68,380 108,578 16,239 12,688 28,927
Net variance $36,475 $(4,086) $32,389 $46,459 $(24,043) $22,416
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 1993, 1994 and 1995. The
change in interest due to both volume and rate has been allocated completely to
changes in rate.
</TABLE>
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 interest rate risk and the
effect of interest rate changes on net interest income and net interest margin
is simulation analysis. Through these simulations, management estimates the
impact on net interest income of a 300 basis point upward or downward gradual
change of market interest rates over a one year time period. Asset/liability
policy guidelines indicate that a 300 basis point up or down change in interest
rates cannot result in more than a 7.5 percent change in net interest income,
as compared to a base case, without Board approval and a strategy in place to
reduce interest rate risk below the maximum level. In simulations as of
December 31, 1995, the 300 basis point upward change resulted in an increase in
net interest income compared to the base case, while the 300 basis point
downward change reduced net interest income. These results were significantly
impacted by assumptions utilized for managed rate deposits. These changes were
well within policy guidelines.
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, 1995. Table 4
shows the Corporation in a slightly liability sensitive position through the
one year repricing period in the amount of $95 million or 1.0 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 Corporation
calculates a one-year risk equivalent position which translates the earnings
risk for all periodic gap mismatches into an equivalent one-year risk adjusted
mismatched gap position. Asset/liability policy limits the one year risk
equivalent position to a maximum of +/- 15 percent of total assets.
- 19 -
<PAGE>
Although the periodic Gap analysis provides management with a method of
measuring current interest rate risk, it only measures rate sensitivity at a
specific point in time. 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.
The Corporation also utilizes market value of equity as a measurement tool
in managing interest rate sensitivity. The market value of equity measures the
degree at which the market values of the Corporation's assets and liabilities
will change given a change in interest rates. Asset/liability policy
guidelines indicate that a 200 basis point upward or downward change in
interest rates cannot result in more than a 20 percent change in portfolio
equity as compared to the base case. As of December 31, 1995, the Corporation
was well within this guideline.
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. In
1995, the Corporation terminated one of its interest rate swap contracts in
order to reduce its liability rate sensitive position.
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 4 - Interest Rate Sensitivity (Gap Analysis)-
<CAPTION>
As of December 31, 1995 0-30 31-90 91-180 181-365 1-5 Over 5
(dollars in millions) Total Days Days Days Days Years Years
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loans $6,926 $2,579 $ 433 $ 477 $ 779 $2,172 $ 486
Investment securities 1,703 106 70 237 330 798 162
Money market instruments 22 22 - - - - -
Total 8,651 2,707 503 714 1,109 2,970 648
Interest-Bearing Liabilities:
Deposits:
Savings and NOW 2,014 137 273 96 191 1,317 -
Other interest-bearing deposits 4,308 1,092 676 824 803 866 47
Short-term borrowings 735 725 3 6 - 1 -
Long-term debt 161 - - - - - 161
Total 7,218 1,954 952 926 994 2,184 208
Interest rate swap positions (145) (131) (195) 169 302 -
Total gap 1,433 608 (580) (407) 284 1,088 440
Cumulative gap $ - $ 608 $ 28 $(379) $ (95) $ 993 $1,433
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>
Noninterest Income
Noninterest income is a growing source of revenue, representing 26.6 percent
of the Corporation's tax equivalized net revenue in 1995, up from 25.1
percent in 1994. Noninterest income increased 18.0 percent to $138.1 million
in 1995, compared to $117.0 million in 1994 and $112.9 million in 1993. Growth
occurred in several areas, led by service charges on deposits, credit card
fees, ATM fees, international and trust income. In addition, 1995 included a
$1.2 million loss on $119 million in residential real estate loans which were
transferred from the portfolio and sold on the secondary market. This
transaction reflects the Corporation's strategy to reduce its residential
mortgage holdings and adverse prepayment risk, with funds being used to fund
higher yielding retail and commercial loans.
- 20 -
<PAGE>
Trust income increased 13.6 percent to $41.5 million in 1995, following a
2.2 percent increase in 1994. In 1995, the Corporation realized continued
expansion of the Star Funds proprietary mutual funds, an increase in custodial
assets and a higher level of market value based fees. The 1994 increase was a
result of expansion of the Star Funds 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. At
year-end 1995, total trust assets (both discretionary and non-discretionary)
amounted to $21.6 billion, compared to $13.4 billion at the end of 1994 and
$13.0 billion at the end of 1993. The increase in trust assets for 1995 was
due to the addition of the Lindner Funds to Star Bank, N.A.'s mutual fund
custody business, along with increases for new business and higher market
values.
Service charges on deposits increased $8.3 million or 23.4 percent in 1995,
following a slight increase in 1994. The strong growth in 1995 was primarily a
result of the TransOhio and Household acquisitions. For 1994, excluding the
estimated effect of the acquisition of the TransOhio offices, service charges
on deposits declined approximately 2.0 percent. This decline was due primarily
to customers shifting to lower fee products or maintaining compensating
balances.
Credit card fees continued to show strong growth in 1995, increasing $2.6
million or 21.2 percent, following a 15.0 percent increase in 1994. This
increase was attributable in part to a 16.2 percent increase in the credit card
customer account base in 1995, in addition to increases in levels of
interchange income, merchant activity and agent bank processing.
ATM fees had substantial growth in 1995 increasing $2.5 million or 49.9
percent. The Corporation has added 103 automated teller machines since the
fourth quarter of 1994, as a result of acquisitions and new installations.
Mortgage banking income decreased $1.9 million or 45.1 percent to $2.4
million in 1995, following a 34.7 percent decline in 1994. The decline in 1995
was due to a $2.1 million decrease in gains on sales of residential mortgage
loans on the secondary market, $1.2 million of which was due to the sale of
$119 million portfolio loans previously discussed. In 1994, gains on sales of
residential mortgage loans decreased $3.0 million as refinancing activity
declined compared to the unprecedented level experienced in 1993. 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 and $192 million in 1995 (excluding the $119 million).
In May 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 122 (SFAS No. 122), "Accounting for Mortgage
Servicing Rights, an amendment of FASB Statement No. 65." SFAS No. 122 requires
a mortgage banking enterprise to capitalize mortgage servicing rights on
originated mortgage loans, when the underlying loans are sold or securitized
and the servicing is retained. Although the adoption of SFAS No. 122 in 1996
is not expected to have a material impact on the Corporation's financial
condition or results of operations, it will result in an increase in the amount
of gains on sales of mortgage loans as compared to the same level of loan sales
from prior years.
All other service charges and fees from other banking services increased 9.7
percent to $13.5 million in 1995, following a slight decline in 1994. The
increase in 1995 was led by a 45.7 percent increase in international fees. All
other noninterest income increased $1.5 million in 1995, due primarily to
income from corporate owned life insurance programs, while 1994 included a $1.6
million nonrecurring recovery of legal expenses incurred in prior years and
higher levels of gains on disposition of leases.
Table 5 provides a summary of changes in noninterest income for the last
three years.
<TABLE>
Table 5 - Noninterest Income -
<CAPTION>
% Increase/ % Increase/
For the years ended December 31 (dollars in thousands) (decrease) (decrease)
1995 1994 1993 1995/1994 1994/1993
<S> <C> <C> <C> <C> <C>
Trust $ 41,512 $ 36,539 $ 35,768 13.6% 2.2%
Service charges on deposits 43,870 35,543 35,460 23.4 0.2
Credit card fees 15,118 12,475 10,848 21.2 15.0
ATM fees 7,652 5,104 4,958 49.9 2.9
International fees 4,935 3,388 3,108 45.7 9.0
Mortgage banking(a) 2,362 4,301 6,587 (45.1) (34.7)
Other service charges and fees 8,598 8,952 9,746 (4.0) (8.1)
Investment securities gains/(losses) - net 1,910 10 157 - (93.6)
All other noninterest income 12,167 10,703 6,258 13.7 71.0
Total noninterest income $138,124 $117,015 $112,890 18.0% 3.7%
(a) Mortgage banking income consists of mortgage loan servicing fees and gains
on sales of residential real estate loans.
</TABLE>
- 21 -
<PAGE>
Noninterest Expense
Total noninterest expense increased 10.0 percent to $286.2 million in 1995,
compared to $260.3 million in 1994 and $250.8 million in 1993. The
Corporation's noninterest expense ratio continued to improve, decreasing to
55.1 percent in 1995, compared to 55.8 percent in 1994 and 57.1 percent in
1993. The increase in noninterest expense in 1995 was a result of a full year's
effect of the TransOhio acquisition in addition to the acquisition of 24 branch
offices of Household Bank in July of 1995. The continued improvement in the
efficiency ratio in 1995 and 1994 reflects management's continued commitment to
reducing operating costs of the Corporation.
Salary expense increased 7.3 percent in 1995, following an 8.1 percent
increase in 1994. Pension and other employee benefits increased 3.0 percent in
1995 and 2.4 percent in 1994. The increase in 1995 was due to a full year's
effect of the TransOhio acquisition, in addition to the increase in staff
levels in the second half of 1995 with the Household acquisition. Full-time
equivalent staff increased from 3,707 at December 31, 1994 to 3,850 at December
31, 1995. 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 "pay for performance"
philosophy, which rewards employees for achieving sales and product goals and
objectives.
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.
Equipment expense increased 8.4 percent in 1995, following a 9.6 percent
decline in 1994. Equipment expense was up in 1995 as a result of the recent
branch purchases in addition to equipment purchases related to a new branch
automation system. The decline in expense in 1994 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 17.0 percent in 1995, following a 6.4 percent
increase in 1994. The increases in both 1995 and 1994 were due to branch
acquisitions, in addition to market value write-downs on several lease
obligations on unoccupied space.
Intangible amortization, outside processing and all other operating expenses
were all up in 1995 related primarily to TransOhio and Household. Outside
processing services were also up due to increases in credit card processing
volumes, while marketing expense increased in 1995 with the introduction of the
Corporation's new 24 hour remote banking retail delivery system. These
increases were partially offset by a $3.4 million or 25.8 percent decline in
FDIC insurance. Effective June 1, 1995, the FDIC deposit insurance rates
declined from 23 basis points on every $100 in deposits to four basis points.
For 1996, deposits insured by the bank insurance fund ("BIF") will not have an
assessment for the best capitalized banks, while deposits insured by the
savings association insurance fund ("SAIF") will continue to be assessed at the
current rate of 23 basis points. Currently, the Corporation has $1.3 billion
in deposits insured under the SAIF fund. In addition, legislation is pending
that would assess banks and savings and loans a one-time insurance premium for
deposits insured by SAIF. If this legislation passes, the Corporation's
assessment could range from $6 to $11 million based on the final assessment
rate.
The 1994 increase in all other expenses was due to the effect of the
TransOhio branch acquisition, which added approximately $2.8 million in other
operating expenses. Table 6 provides a summary of changes in noninterest
expense for the last three years.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 123 (SFAS No. 123), "Accounting for
Stock-Based Compensation," which establishes a "fair value" based method of
accounting for stock-based compensation plans. For 1996, the Corporation will
elect to continue to follow the principles of APB Opinion No. 25 for expense
recognition purposes and provide the required disclosures of SFAS No. 123 in
the annual Notes to Consolidated Financial Statements.
FIVE YEAR LINE CHART OF THE EFFICIENCY RATIO
(In Percents)
1991 1992 1993 1994 1995
60.33% 61.34% 57.06% 55.84% 55.07%
- 22 -
<PAGE>
<TABLE>
Table 6 - Noninterest Expense -
<CAPTION>
% Increase/ % Increase/
For the years ended December 31 (decrease) (decrease)
(dollars in thousands) 1995 1994 1993 1995/1994 1994/1993
<S> <C> <C> <C> <C> <C>
Salaries $112,923 $105,279 $ 97,347 7.3% 8.1%
Pension and other employee benefits 20,273 19,692 19,237 3.0 2.4
Equipment expense 16,284 15,028 16,629 8.4 (9.6)
Occupancy expense-net 22,059 18,852 17,717 17.0 6.4
Amortization of goodwill and
other intangible assets 14,037 7,698 9,469 82.3 (18.7)
Outside processing services 10,655 9,530 9,010 11.8 5.8
Marketing expense 10,257 8,391 7,219 22.2 16.2
FDIC insurance 9,783 13,176 13,987 (25.8) (5.8)
State taxes 8,597 9,682 9,052 (11.2) 7.0
All other noninterest expense 61,346 52,983 51,182 15.8 3.5
Total noninterest expense $286,214 $260,311 $250,849 10.0% 3.8%
</TABLE>
Income Taxes
The Corporation's effective tax rate was 33.4 percent in 1995, compared to
34.7 percent in 1994 and 34.3 percent in 1993. The decline in the effective
rate for 1995 was due to tax benefits received from Corporate and Bank owned
life insurance programs established in the beginning of 1995, in addition to
benefits recorded on limited partnership investments. The increase in the
Corporation's effective tax rate in 1994 was 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 $676 million to $6.93 billion at
December 31, 1995, compared to $6.25 billion at December 31, 1994. The
Corporation experienced strong growth in all loan areas in 1995. The 10.8
percent increase in end-of-period loans was led by total retail loans which
increased $330 million or 18.1 percent in 1995, as credit cards and retail
leasing were up 47.9 percent and 45.3 percent, respectively.
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.
Residential mortgage loans were up $75 million or 6.4 percent despite the
sale of $119 million in fixed rate portfolio loans in 1995. This sale reflects
the Corporation's strategy to reduce its level of residential mortgages and the
related adverse prepayment risk, with the proceeds from the sales being used to
fund growth in higher yielding commercial and retail loans.
Following this strategy, the Corporation expects to sell a larger percentage
of its residential mortgage originations on the secondary market in future
periods. During 1995, the Corporation sold $310 million of residential
mortgage loans into the secondary market, compared to $134 million in 1994. As
of December 31, 1995, the Corporation serviced $1.5 billion in mortgage loans
for outside investors, compared to $1.2 billion at December 31, 1994.
- 23 -
<PAGE>
<TABLE>
Table 7 - Loans by Type -
<CAPTION>
As of December 31 (dollars in thousands) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Commercial $1,952,178 $1,847,848 $1,636,654 $1,606,251 $1,577,587
Real estate construction and development 250,467 227,879 180,470 192,975 192,220
Commercial real estate mortgage 1,082,001 981,954 909,084 801,490 644,657
Residential real estate mortgage 1,243,718 1,168,828 997,748 969,512 1,063,809
Credit card 338,138 228,673 172,534 173,271 173,161
Lease financing 658,917 484,363 275,834 176,083 144,048
Other retail 1,400,362 1,310,012 1,122,083 1,073,502 1,062,914
Total loans, net of
unearned interest $6,925,781 $6,249,557 $5,294,407 $4,993,084 $4,858,396
Percent of total loans by type
Commercial 28.2% 29.6% 30.9% 32.2% 32.5%
Real estate construction and development 3.6 3.6 3.4 3.9 4.0
Commercial real estate mortgage 15.6 15.7 17.2 16.0 13.3
Residential real estate mortgage 18.0 18.7 18.8 19.4 21.9
Credit card 4.9 3.7 3.3 3.5 3.5
Lease financing 9.5 7.7 5.2 3.5 2.9
Other retail 20.2 21.0 21.2 21.5 21.9
Total loans 100.0% 100.0% 100.0% 100.0% 100.0%
</TABLE>
<TABLE>
Table 8 - Selected Loan Maturity Distribution -
<CAPTION>
Over One Over
One Year Through Five Five
As of December 31, 1995 (dollars in thousands) or Less Years Years Total
<S> <C> <C> <C> <C>
Commercial $1,794,877 $132,842 $24,459 $1,952,178
Real estate construction and development 113,789 100,447 36,231 250,467
Total $1,908,666 $233,289 $60,690 $2,202,645
Total of these selected loans
due after one year with:
Predetermined interest rate $ 102,126
Floating interest rate 191,853
</TABLE>
Asset Quality
As of December 31, 1995, the allowance for loan losses was $106.9 million or
1.54 percent of total loans, net of unearned interest. This compares to $96.0
million or 1.54 percent of total loans, net of unearned interest, as of
December 31, 1994. The provision for loan losses totaled $25.1 million in
1995, $24.4 million in 1994 and $33.0 million in 1993. 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 remained at historically low levels in
1995 totaling 0.21 percent of average outstanding loans. This compares to
0.20 percent in 1994, a 36 basis point decline from 0.56 percent in 1993. Net
charge-offs increased $2.6 million to $14.2 million in 1995. This increase was
primarily in the retail area, with increases in credit card and installment
loan charge-offs. 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 low level of charge-offs in 1994 and 1995 reflects the Corporation's
continued commitment to maintaining strict credit standards and addressing
problem credits at an early stage, in addition to improved economic conditions.
However, if the economy should continue to slow, the Corporation would expect
the level of nonaccrual loans and net charge-offs to increase.
Tables 11 and 12 provide information related to nonperforming assets and
loans 90 days or more past due.
Nonperforming loans and nonperforming assets remained at historically low
levels in 1995. Nonaccrual loans increased slightly at December 31, 1995 to
$36.9 million following a $15.7 million reduction in 1994. Nonperforming loans
as a percentage of total loans decreased to 0.53 percent at December 31, 1995,
compared to 0.56 percent at December 31, 1994. Nonperforming assets as a
percentage of total loans and other real estate owned decreased to 0.58 percent
at December 31, 1995, compared to 0.61 percent a year earlier. This was the
sixth straight year of decline in this ratio. The decrease in nonperforming
loans for 1994 was led by a $9.4 million decline in the asset-based lending
area. Due to the uncertainty of economic conditions, it is difficult to
project future levels of nonperforming loans.
- 24 -
<PAGE>
<TABLE>
Table 9 - Summary of Loan Loss Experience-
<CAPTION>
As of December 31 (dollars in thousands) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Average loans-net of unearned interest $6,669,806 $5,721,667 $5,146,341 $4,926,900 $4,718,795
Allowance for loan losses:
Balance-beginning of year $ 95,979 $ 83,156 $ 78,953 $ 73,805 $ 65,938
Charge-offs:
Commercial (11,280) (10,785) (20,752) (19,529) (17,718)
Real estate (2,157) (1,281) (2,516) (4,465) (3,064)
Retail (14,811) (12,504) (16,854) (23,890) (24,265)
Total charge-offs (28,248) (24,570) (40,122) (47,884) (45,047)
Recoveries:
Commercial 5,773 4,255 3,372 3,083 1,769
Real estate 1,087 1,507 633 252 208
Retail 7,217 7,259 7,312 8,020 6,000
Total recoveries 14,077 13,021 11,317 11,355 7,977
Net charge-offs (14,171) (11,549) (28,805) (36,529) (37,070)
Provision charged to earnings 25,101 24,372 33,008 40,898 39,913
Net allowances of banks or offices
acquired/sold - - - 779 5,024
Balance-end of year $ 106,909 $ 95,979 $ 83,156 $ 78,953 $ 73,805
Ratio of net charge-offs to average loans 0.21% 0.20% 0.56% 0.74% 0.79%
Ratio of allowance for loan
losses to end of year loans, net
of unearned interest 1.54 1.54 1.57 1.58 1.52
</TABLE>
Other real estate owned, which is recorded at the lower of cost or fair
value less estimated selling costs, represents real estate of which the
Corporation has taken ownership in partial or total satisfaction of loans, in
addition to closed bank offices. Other real estate owned was $3.0 million at
December 31, 1995, up slightly from $2.8 million at December 31, 1994. There
were no significant additions to other real estate owned in 1995 or 1994.
Loans past due 90 days or more decreased slightly to $7.8 million at
December 31, 1995, compared to $8.3 million at December 31, 1994. Past due
credits have remained at historically low levels in 1995.
Management is not aware of any material amounts of loans outstanding, not
disclosed in Tables 11 and 12, where there is significant uncertainty as to the
ability of the borrower to comply with present payment terms. In addition, as
of December 31, 1995, 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
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.
Effective January 1, 1995, the Corporation adopted the Statement of
Financial Accounting Standards No. 114 (SFAS No. 114), as amended by Statement
of Financial Accounting Standards No. 118 (SFAS No. 118), related to accounting
by creditors for impairment of loans. 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. When the
measure of the impaired loan is less than the recorded investment in the loan,
a valuation allowance is recorded. The Corporation had previously measured the
allowance for loan losses on impaired loans using similar methods to those
prescribed by SFAS No. 114 and accordingly, the adoption of SFAS No.'s 114 and
118 in 1995 did not have a material effect on the Corporation's financial
condition or results of operations.
- 25 -
<PAGE>
The specific valuation allowance recorded on impaired loans is included in
the total allowance for loan losses. In addition to the methods prescribed in
SFAS No. 114 for impaired loans, the amount of the provision for loan losses
necessary to maintain the adequacy of the total allowance is based on
management's evaluation of several key factors: the current loan portfolio,
current economic conditions, evaluation of significant problem loans, an
analysis of periodic loan reviews, changes in the mix and levels of the various
types of loans, past charge-off experience and other pertinent information.
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, 1995
was adequate to absorb all anticipated losses in the loan portfolio as of that
date. The allowance for loan losses is based on estimates and ultimate losses
may vary from current estimates.
The recorded investment in impaired loans at December 31, 1995 was $29.9
million with a related allowance calculated under SFAS No. 114 of $3.9 million.
There was no additional allowance for loan losses required in 1995 as a result
of the adoption of SFAS No. 114 and SFAS No. 118.
Table 10 provides an allocation of the total allowance for loan losses by
selected loan categories. This allocation of the allowance reflects an estimate
of possible credit losses based on the loss potential, assessment of risk
characteristics and historical loss experience associated with specific loan
categories. Actual losses may vary from current estimates. The allowance is
available to absorb losses from any segment of the portfolio.
FIVE YEAR LINE CHART OF THE ALLOWANCE AS A PERCENT OF NONPERFORMING LOANS
(In Percents) "Coverage Ratio"
1991 1992 1993 1994 1995
129% 124% 163% 272% 289%
<TABLE>
Table 10 - Allocation of Allowance for Loan Losses-
<CAPTION>
Percent of loans
As of December 31 (dollars in thousands) 1995 to total loans
<S> <C> <C>
Loans:
Commercial and industrial $ 13,330 28.2%
Real estate mortgage 5,056 33.6
Real estate construction 553 3.6
Installment 4,624 20.2
Credit card 10,868 4.9
Lease financing 2,127 9.5
Unallocated 70,351 n/a
Total allowance $106,909 100.0%
</TABLE>
<TABLE>
Table 11 - Nonperforming Assets-
<CAPTION>
As of December 31 (dollars in thousands) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Loans on nonaccrual status $36,875 $34,990 $50,687 $62,299 $55,473
Loans which have been renegotiated 87 261 249 1,223 1,852
Total nonperforming loans 36,962 35,251 50,936 63,522 57,325
Other real estate owned 3,006 2,793 3,984 8,327 28,753
Total nonperforming assets $39,968 $38,044 $54,920 $71,849 $86,078
Percentage of nonperforming loans
to loans, net of unearned interest 0.53% 0.56% 0.96% 1.27% 1.18%
Percentage of nonperforming assets
to loans, net of unearned interest
and other real estate owned 0.58 0.61 1.04 1.44 1.76
Percentage of allowance for loan
losses to nonperforming loans 289 272 163 124 129
Loans past due 90 days or more $ 7,750 $ 8,264 $15,200 $15,529 $22,302
</TABLE>
- 26 -
<PAGE>
<TABLE>
Table 12 - Composition of Nonperforming Loans-
<CAPTION>
December 31, 1995 December 31, 1994
Nonperforming Loans 90 Days Nonperforming Loans 90 Days
or or
Non- Restru- Percentage More Non- Restru- Percentage More
(dollars in thousands) accrual ctured Total of Loans Past Due accrual ctured Total of Loans Past Due
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial loans:
Corporate $23,371 $87 $23,458 1.20% $ 958 $20,813 $261 $21,074 1.14% $1,213
Commercial leasing 216 - 216 0.09 - 25 - 25 0.01 -
Total commercial
loans 23,587 87 23,674 1.08 958 20,838 261 21,099 1.03 1,213
Real estate loans:
Residential 5,618 - 5,618 0.45 2,589 4,431 - 4,431 0.38 1,906
Commercial mortgage 5,722 - 5,722 0.53 949 8,268 - 8,268 0.84 2,090
Construction/land
development 99 - 99 0.04 433 404 - 404 0.18 1,446
Total real estate
loans 11,439 - 11,439 0.44 3,971 13,103 - 13,103 0.55 5,442
Retail loans:
Other retail 978 - 978 0.07 962 651 - 651 0.05 801
Credit cards 743 - 743 0.22 1,822 297 - 297 0.13 765
Retail leasing 128 - 128 0.03 37 101 - 101 0.04 43
Total retail loans 1,849 - 1,849 0.09 2,821 1,049 - 1,049 0.06 1,609
Total loans $36,875 $87 $36,962 0.53% $7,750 $34,990 $261 $35,251 0.56% $8,264
</TABLE>
Investment Securities
The Corporation's investment portfolio decreased $625 million to $1.70
billion at December 31, 1995, from $2.33 billion a year earlier. This decrease
was due to sales of $521 million in securities in 1995, in addition to
scheduled maturities and paydowns of mortgage-backed securities. All
securities sales were from the available-for-sale portfolio. The decline in
securities was used to fund continued loan growth throughout 1995.
It is anticipated the investment portfolio will continue to decline in 1996
as the funds received from maturities will be used to help fund expected loan
growth. However, if purchases of securities are made, the Corporation is
expected to invest in similar types of securities as have been held in the
portfolio. Credit risk has been minimized by restricting purchases of
mortgage-backed securities to U.S. Agency backed or AAA rated securities. To
reduce interest rate risks associated with these securities, purchases are
restricted to securities with relatively short maturities and/or durations.
The composition of the investment portfolio is primarily made up of GNMA
adjustable rate mortgages, FNMA and FHLMC pass-through securities (primarily
balloons and 15 year fixed rates) and collateralized mortgage obligations
("CMOs"). The CMOs consist of planned amortization classes ("PACs") and
sequential pay bonds that are in the first or second classes.
Included in the investment portfolio is a pool of residential mortgage loans
issued from Society Bank, which the Corporation purchased as part of the
acquisition of 28 former Ameritrust branch offices in 1992. This pool of
mortgage loans had a book value of $144.7 million and a market value of $143.4
million at December 31, 1995. Table 13 provides information as to the
composition of the Corporation's investment securities portfolio as of December
31, 1995.
In 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. As of December 31, 1995, the
Corporation's investment securities portfolio included $1.52 billion in
securities classified as available-for-sale and $185 million classified as
held-to-maturity. As of December 31, 1995, the Corporation reported a net
unrealized gain of $9.2 million on investment securities, with an offsetting
increase to shareholders' equity of $6.0 million (net of tax). In 1995, the
unrealized gain/(loss) reported as a separate component of equity changed from
an unrealized loss of $13.6 million to an unrealized gain of $6.0 million,
increasing equity $19.6 million. This change is a result of declines in market
rates in the second half of 1995 and the transfer of held-to-maturity
securities described below.
- 27 -
<PAGE>
In the fourth quarter of 1995, concurrent with the issuance of its
implementation guide on SFAS No. 115, the Financial Accounting Standards Board
allowed institutions a one-time reassessment of the SFAS No. 115
classifications of all securities currently held. Any reclassifications would
be accounted for at fair value in accordance with SFAS No. 115 and any
reclassifications from the held-to-maturity portfolio that resulted from this
one-time reassessment would not call into question the intent of the
Corporation to hold other debt securities to maturity in the future.
The Corporation used the opportunity under this one-time reassessment to
reclassify $1.46 billion in mortgage-backed securities from the
held-to-maturity to the available-for-sale portfolio. This transfer resulted
in a $16 million increase in the unrealized gain on available-for-sale
securities.
<TABLE>
Table 13 - Investment Securities-
<CAPTION>
Available-for-Sale Held-to-Maturity
Weighted Weighted
As of December 31, 1995 Carrying Market Average Average Carrying Market Average Average
(dollars in thousands) Value Value Maturity Yield Value Value Maturity Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and agencies:
Within one year $ 4,102 $ 4,102 0.6 yrs. 7.49% $ - $ - - -%
One through five years 10,577 10,577 2.6 yrs. 7.50 - - - -
Five through ten years 2,564 2,564 8.9 yrs. 7.70 - - - -
Over ten years 2,105 2,105 16.0 yrs. 6.31 - - - -
Total 19,348 19,348 4.4 yrs. 7.40% - - - -
Mortgage-backed securities:
Within one year 372,611 372,611 0.5 yrs. 6.87 17,363 17,229 0.5 yrs. 7.30
One through five years 775,734 775,734 3.9 yrs. 6.27 50,974 50,580 3.3 yrs. 7.30
Five through ten years 208,424 208,424 8.1 yrs. 6.36 76,364 75,774 6.9 yrs. 7.30
Over ten years 101,323 101,323 16.0 yrs. 6.75 - - - -
Total 1,458,092 1,458,092 4.5 yrs. 6.47% 144,701 143,583 4.9 yrs. 7.30%
Obligations of states and
political subdivisions:
Within one year - - - - 15,065 16,006 0.1 yrs. 8.73
One through five years - - - - 8,453 8,980 2.8 yrs. 9.52
Five through ten years - - - - 10,010 10,634 7.9 yrs. 9.65
Over ten years - - - - 6,458 6,861 16.0 yrs. 11.63
Total - - - - 39,986 42,481 5.2 yrs. 9.60%
Other debt securities:
Within one year 24 24 0.5 yrs. 8.00 - - - -
One through five years 308 308 3.9 yrs. 7.36 - - - -
Five through ten years 1,111 1,111 6.0 yrs. 5.51 - - - -
Over ten years - - - - - - - -
Total 1,443 1,443 5.3 yrs. 5.94% - - - -%
Federal Reserve Bank
stock and other equity
securities 38,985 38,985 - -
Total investment
securities $1,517,868 $1,517,868 $184,687 $186,064
Note: Information related to mortgage-backed securities included above is
presented based upon weighted average maturities anticipating future
prepayments. Average yields are presented on a fully-taxable equivalent basis.
Yields on available-for-sale securities are computed based on historical cost
balances.
</TABLE>
- 28 -
<PAGE>
Deposits
Total deposits increased $330 million to $7.69 billion at December 31, 1995,
compared to $7.36 billion a year earlier. The purchase of 24 former Household
Bank branch offices as of July 15, 1995 added $645 million of primarily
savings, money market and small time deposits. With the increase in core
deposits as a result of the Household acquisition, the Corporation reduced its
level of national market funding as shown by a $213 million decline in
eurodollar deposits of $100,000 and over. As of December 31, 1995, there were
$44 million in eurodollar deposits of $100,000 and over.
Noninterest-bearing deposits, NOW accounts, money market accounts and time
deposits less than $100,000 all increased in 1995 primarily as a result of the
Household acquisition. These increases were offset by a 5.6 percent decline in
savings accounts in 1995. As short-term market rates declined and savings
rates remained low in 1995, customers began moving their funds out of
certificates of deposits and savings accounts into tiered rate money market
accounts. Excluding the effect of Household, small certificates of deposit
decreased approximately $150 million or 5.4 percent at December 31, 1995,
compared to a year earlier.
In the second half of 1995, rates offered on deposit products began to
decline. This declining 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 continued shift by customers out of
traditional bank products to other nonbank or nondeposit financial instruments
or investments.
Table 14 provides a summary of total deposits by type at year-end for each
of the last five years. Table 15 provides maturity distribution for domestic
time deposits $100,000 and over.
<TABLE>
Table 14 - Deposits by Type-
<CAPTION>
As of December 31 (dollars in thousands) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Noninterest-bearing deposits $1,371,888 $1,214,703 $1,200,609 $1,137,024 $ 935,732
Interest-bearing deposits:
Savings 975,143 1,032,529 878,119 758,412 331,308
NOW 1,039,213 1,015,913 943,750 802,311 581,650
Money market deposit accounts 895,956 651,991 714,752 1,261,217 1,028,306
Time deposits $100,000 and over- domestic 409,515 378,480 351,095 425,128 539,923
Foreign deposits $100,000 and over 44,421 257,701 - - -
All other time deposits 2,957,862 2,812,498 1,927,241 2,018,664 2,011,629
Total deposits $7,693,998 $7,363,815 $6,015,566 $6,402,756 $5,428,548
Percent of total deposits by type
Noninterest-bearing deposits 17.8% 16.5% 20.0% 17.8% 17.2%
Interest-bearing deposits:
Savings 12.7 14.0 14.6 11.8 6.1
NOW 13.5 13.8 15.7 12.5 10.7
Money market deposit accounts 11.6 8.9 11.9 19.7 18.9
Time deposits $100,000 and over - domestic 5.3 5.1 5.8 6.7 10.0
Foreign deposits $100,00 and over 0.6 3.5 - - -
All other time deposits 38.5 38.2 32.0 31.5 37.1
Total deposits 100.0% 100.0% 100.0% 100.0% 100.0%
</TABLE>
- 29 -
<PAGE>
Table 15 - Maturity of Domestic Time Deposits $100,000 and Over -
As of December 31, 1995 (dollars in thousands)
Three months or less $169,354
Over three months through six months 67,018
Over six months through twelve months 57,266
Over twelve months 115,877
Total $409,515
Liquidity
The Asset/Liability Policy Committee ("ALPC") establishes policies, analyzes
and manages the Corporation's liquidity to ensure that adequate funds are
always available to meet normal operating requirements in addition to
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. ALPC policy requires
each subsidiary bank to periodically review 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. As of December 31, 1995, the Corporation was 99 percent funded from
customers within its market areas.
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. At December 31, 1995, the Bank had $50 million
outstanding 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 Bank 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,
1995, the Bank's subordinated and senior debt was rated "A-" and "A",
respectively, by Standard & Poor's and "A3" and "A1", respectively, 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 1995,
the Corporation's subsidiary banks could have provided an additional $159
million in dividends to the parent company, without additional regulatory
approval and still exceeded minimum regulatory capital ratios. In 1995, the
Corporation prepared a private placement memorandum in order to issue
commercial paper notes up to an aggregate amount of $100 million, with
maturities up to 270 days. At December 31, 1995, the Corporation's commercial
paper was rated "A2" by Standard & Poor's, "P2" by Moody's and "F2" by Fitch.
The proceeds of the notes from the commercial paper program will be used to
provide funding to Star Banc Finance, Inc. and for general corporate purposes.
At December 31, 1995, there was $37 million in commercial paper outstanding.
The parent company can also 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, 1995, the Corporation had not drawn upon
these bank lines of credit. These lines amounted to $50 million at December
31, 1995 and were increased to $100 million in January, 1996. 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, decreased $5 million to $161 million at December 31, 1995.
This decrease was due primarily to scheduled principal payments.
Capital Resources
The Corporation's total shareholders' equity increased $102 million or 14.2
percent to $820 million at December 31, 1995, compared to $718 million at
December 31, 1994. The increase is due to the retention of net income after
dividends on preferred and common shares, in addition to a $20 million increase
in the mark-to-market adjustment on available-for-sale securities. The
Corporation increased its annual dividend rate per common share 14.3 percent
from $1.40 in 1994 to $1.60 in 1995. The dividend payout ratio for 1995
declined slightly to 35.00 percent, following payout ratios of 35.89 percent in
1994 and 34.41 percent in 1993.
- 30 -
<PAGE>
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. In January of 1996, the board of directors approved the
purchase of an additional two million shares under the buyback program. The
repurchased shares are held as treasury shares for reissuance in connection
with potential conversions of preferred shares, the employee stock option plan
and other corporate purposes. As of December 31, 1995, the Corporation had
repurchased 882,000 shares through the buyback program.
In 1991, in connection with an acquisition, 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 1995,
26,320 shares of preferred stock were converted to 119,609 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, 1995, there were 3,387
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, 1995 amounted to 7.97 percent and 11.23
percent, respectively, well above the minimum requirements of 4.00 percent for
tier 1 and 8.00 percent for total risk-based capital. This compares to tier 1
and total risk-based capital ratios of 8.66 percent and 12.16 percent at
December 31, 1994. 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, 1995, the Corporation's leverage ratio was
6.23 percent, compared to 6.27 percent a year earlier. The decline in the
risk-based capital and leverage ratios in 1995 was primarily the result of the
acquisition of the Household Bank branch offices. 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 16 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, 1995 and 1994.
<TABLE>
Table 16 - Regulatory Capital Ratios-
<CAPTION>
As of December 31 (dollars in thousands) 1995 1994
<S> <C> <C>
Tier 1 capital:
Common shareholders' equity $ 819,896 $ 715,752
Qualifying preferred stock 281 2,466
Less: Unrealized gains/(losses) on
SFAS 115 securities 5,957 (13,637)
Goodwill and other adjustments 225,545 161,912
Total tier 1 capital 588,675 569,943
Tier 2 capital components:
Qualifying long-term debt 148,314 148,216
Allowance for loan losses 92,556 82,483
Total risk-based capital $ 829,545 $ 800,642
Risk-Weighted Assets:
Risk-weighted assets on-balance-sheet $6,974,316 $6,259,067
Risk-weighted assets off-balance-sheet 655,077 487,830
Less: Goodwill and other adjustments 239,243 161,771
Net risk-weighted assets $7,390,150 $6,585,126
Fourth quarter average assets,
net of adjustments $9,447,575 $9,090,925
Risk-based capital ratios:
Tier 1 7.97% 8.66%
Total 11.23 12.16
Tier 1 leverage ratio 6.23 6.27
</TABLE>
CHART OF COMMON STOCK - HIGH AND LOW STOCK PRICE AND BOOK VALUE
(Dollars Per Share)
1991 1992 1993 1994 1995
Stock Price -
High 27.50 39.50 39.38 44.75 62.25
Low 15.00 24.25 33.00 33.50 36.25
Book Value 18.58 20.09 22.33 24.02 27.48
- 31 -
<PAGE>
Consolidated Financial Statements
<TABLE>
Consolidated Balance Sheets
<CAPTION>
As of December 31 (dollars in thousands) 1995 1994
<S> <C> <C>
Assets:
Cash and due from banks $ 463,693 $ 429,467
Interest-bearing deposits in banks 100 100
Federal funds sold and securities purchased
under agreements to resell 22,400 56,545
Investment securities:
Available-for-sale 1,517,868 563,091
Held-to-maturity (market value of $186,064 in 1995
and $1,671,088 in 1994) 184,687 1,764,854
Total securities 1,702,555 2,327,945
Loans:
Commercial loans 2,234,847 2,079,804
Real estate loans 2,576,186 2,378,661
Retail loans 2,213,036 1,865,295
Total loans 7,024,069 6,323,760
Less: Unearned interest 98,288 74,203
6,925,781 6,249,557
Allowance for loan losses 106,909 95,979
Net loans 6,818,872 6,153,578
Premises and equipment 134,386 122,829
Acceptances-customers' liability 20,965 8,249
Other assets 410,361 292,078
Total assets $9,573,332 $9,390,791
Liabilities:
Deposits:
Noninterest-bearing deposits $1,371,888 $1,214,703
Interest-bearing deposits:
Savings and NOW 2,014,356 2,048,442
Time deposits $100,000 and over 453,936 636,181
All other deposits 3,853,818 3,464,489
Total deposits 7,693,998 7,363,815
Short-term borrowings 735,016 1,034,700
Long-term debt 161,190 166,466
Acceptances outstanding 20,965 8,249
Other liabilities 141,986 99,343
Total liabilities 8,753,155 8,672,573
Shareholders' Equity:
Preferred stock:
Shares authorized-1,000,000 in 1995 and 1994
Shares issued- 3,387 in 1995
-29,707 in 1994 281 2,466
Common stock:
Shares authorized-100,000,000 in 1995 and 50,000,000 in 1994
Shares issued-30,160,458 in 1995
-30,105,835 in 1994 150,802 150,529
Surplus 76,937 78,037
Retained earnings 599,005 510,268
Treasury stock, at cost (326,870 shares in 1995
and 303,039 shares in 1994) (12,805) (9,445)
Net unrealized gain/(loss) on securities available-for-sale 5,957 (13,637)
Total shareholders' equity 820,177 718,218
Total liabilities and shareholders' equity $9,573,332 $9,390,791
The accompanying notes are an integral part of these statements.
</TABLE>
- 32 -
<PAGE>
<TABLE>
Consolidated Statements of Income
<CAPTION>
For the years ended December 31
(amounts in thousands except per share data) 1995 1994 1993
<S> <C> <C> <C>
Interest Income:
Interest and fees on loans $586,416 $465,361 $421,826
Interest on investment securities:
Taxable 121,724 100,986 85,996
Non-taxable 1,215 1,491 2,014
Interest on federal funds sold and securities
purchased under agreements to resell 1,044 1,429 8,094
Interest on deposits in banks 5 457 237
Total interest income 710,404 569,724 518,167
Interest Expense:
Interest on savings and NOW 44,055 40,124 45,673
Interest on time deposits $100,000 and over 28,097 17,390 16,540
Interest on other deposits 193,820 117,706 108,709
Interest on short-term borrowings 55,227 39,081 17,752
Interest on long-term debt 10,997 9,317 6,017
Total interest expense 332,196 223,618 194,691
Net interest income 378,208 346,106 323,476
Provision for loan losses 25,101 24,372 33,008
Net interest income after provision
for loan losses 353,107 321,734 290,468
Noninterest Income:
Trust income 41,512 36,539 35,768
Service charges on deposits 43,870 35,543 35,460
Other service charges and fees 40,211 33,626 31,630
Investment securities gains/(losses)-net 1,910 10 157
All other income 10,621 11,297 9,875
Total noninterest income 138,124 117,015 112,890
Noninterest Expense:
Salaries 112,923 105,279 97,347
Pension and other employee benefits 20,273 19,692 19,237
Equipment expense 16,284 15,028 16,629
Occupancy expense-net 22,059 18,852 17,717
All other expense 114,675 101,460 99,919
Total noninterest expense 286,214 260,311 250,849
Income before income tax 205,017 178,438 152,509
Income tax 68,414 61,847 52,236
Net income $136,603 $116,591 $100,273
Per Share:
Primary earnings $ 4.55 $ 3.89 $ 3.36
Fully diluted earnings 4.54 3.86 3.30
Dividends declared on common stock 1.60 1.40 1.16
Dividends declared on preferred stock 6.00 6.00 6.00
Weighted average shares of common
stock outstanding 30,029 29,873 29,549
Weighted average fully diluted common
stock equivalents 30,106 30,230 30,372
The accompanying notes are an integral part of these statements.
</TABLE>
- 33 -
<PAGE>
<TABLE>
Consolidated Statements of Changes in Shareholders' Equity
<CAPTION>
Series B Common Unrealized
Preferred Stock Stock Retained Treasury Gain/(Loss)
(dollars in thousands) $100 Stated Value $5 Par Surplus Earnings Stock on Securities Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993 $15,408 $146,910 $72,826 $370,666 $ (3,477) $ - $602,333
Net income - - - 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 common stock
and treasury shares - 1,642 5,976 - 790 - 8,408
Purchase of treasury stock - - - - (665) - (665)
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 common stock
and treasury shares - 90 (917) - 6,600 - 5,773
Purchase of treasury stock - - - - (25,680) - (25,680)
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
Net income - - - 136,603 - - 136,603
Cash dividends declared on
common stock - - - (47,790) - - (47,790)
Cash dividends declared on
Series B Preferred Stock - - - (76) - - (76)
Conversion of Series B Preferred
Stock into common stock (2,185) - (2,863) - 5,047 - (1)
Issuance of common stock
and treasury shares - 273 583 - 3,743 - 4,599
Purchase of treasury stock - - - - (12,081) - (12,081)
Shares reserved to meet deferred
compensation obligations - - 1,180 - (69) - 1,111
Change in net unrealized gain/(loss)
on available-for-sale securities - - - - - 19,594 19,594
Balance, December 31, 1995 $ 281 $150,802 $76,937 $599,005 $(12,805) $ 5,957 $820,177
The accompanying notes are an integral part of these statements.
</TABLE>
- 34 -
<PAGE>
<TABLE>
Consolidated Statements of Cash Flows
<CAPTION>
For the years ended December 31 (dollars in thousands) 1995 1994 1993
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 136,603 $ 116,591 $ 100,273
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 33,688 30,559 33,571
Provision for loan losses 25,101 24,372 33,008
Provision for deferred taxes 19,674 7,298 (2,873)
Gains on sale of premises and equipment-net (311) (235) (55)
Gains on sale of securities-net (1,910) (10) (157)
(Gain)/loss on sale of mortgage loans 1,546 (594) (3,617)
Mortgage loans originated for sale
on the secondary market (235,026) (95,082) (575,212)
Proceeds from sale of mortgage loans
on the secondary market 191,760 134,966 621,550
Net change in other assets (96,360) (19,435) (4,857)
Net change in other liabilities 39,780 7,416 6,761
Total adjustments (22,058) 89,255 108,119
Net cash provided by operating activities 114,545 205,846 208,392
Cash Flows from Investing Activities:
Proceeds from maturities of held-to-maturity securities 223,349 273,522 593,955
Proceeds from maturities of available-for-sale securities 123,150 370,940 -
Proceeds from sales of available-for-sale securities 520,772 991 6,537
Purchase of held-to-maturity securities (43,895) (1,007,526) (566,736)
Purchase of available-for-sale securities (170,488) (398,244) -
Net change in loans (780,130) (1,029,181) (385,608)
Proceeds from sales of loans 134,595 22,172 11,766
Proceeds from sales of premises and equipment 2,091 1,261 1,153
Purchase of premises and equipment (19,977) (30,462) (13,065)
Net change due to acquisitions of banks or offices 568,488 972,568 -
Net cash provided by/(used in)
investing activities 557,955 (823,959) (351,998)
Cash Flows from Financing Activities:
Net change in deposits (314,496) 270,006 (387,190)
Net change in short-term borrowings (299,684) 217,994 239,513
Principal payments on long-term debt (5,470) (33,450) (5,122)
Proceeds from issuance of long-term debt - 148,050 -
Proceeds from issuance of common stock 4,598 5,773 8,408
Purchase of treasury stock (12,081) (25,680) (665)
Shares reserved to meet deferred compensation obligations 1,111 1,420 665
Dividends paid (46,397) (40,422) (34,239)
Net cash provided by/(used in)
financing activities (672,419) 543,691 (178,630)
Net change in cash and cash equivalents 81 (74,422) (322,236)
Cash and cash equivalents at beginning of year 486,112 560,534 882,770
Cash and cash equivalents at end of year $ 486,193 $ 486,112 $ 560,534
Supplemental Disclosure of Cash Flow Information
For the years ended December 31 (dollars in thousands) 1995 1994 1993
Cash Paid During the Year for:
Interest $ 321,300 $ 206,616 $ 198,640
Income taxes 45,394 55,096 48,987
Noncash transfer of loans to other real estate owned 1,327 1,325 704
The accompanying notes are an integral part of these statements.
</TABLE>
- 35 -
<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.
Basis of Presentation
The consolidated financial statements include the accounts of the Corporation
and all of its subsidiaries. All significant intercompany accounts and
transactions have been eliminated. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Actual results may
differ from those estimates.
Certain amounts within the consolidated financial statements as of and for
the years ended December 31, 1994 and 1993 have been restated to conform to the
1995 presentation.
Nature of Operations
Star Banc Corporation is a multi-state bank holding company headquartered in
Cincinnati, Ohio. Through its banking subsidiaries, the Corporation operates
over 250 banking offices in Ohio, Kentucky and Indiana, providing a full range
of consumer, commercial and trust financial products, including deposit, credit
and investment services.
Investment Securities
When securities are purchased, they are classified in the held-to-maturity
portfolio, the available-for-sale portfolio, or as trading securities.
Held-to-maturity securities are debt securities that the Corporation has the
positive intent and ability to hold to maturity. Held-to-maturity securities
are reported at historical cost adjusted for amortization of premiums and
accretion of discounts. Available-for-sale securities are debt and equity
securities which will be held for an indefinite period of time and may be sold
from time to time for asset/liability management purposes, in order to manage
interest rate risk, for liquidity needs or other corporate purposes.
Available-for-sale securities are reported at fair value, with unrealized gains
or losses excluded from earnings and reported, net of tax, in a separate
component of equity. 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 current earnings. Currently, the Corporation has not
classified any securities as trading. The cost of securities sold is
determined on a specific identification basis.
The investment security classifications described above are as defined in
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," which the Corporation
adopted in 1994. This initial adoption of SFAS No. 115 increased shareholders'
equity and investment securities $4.4 million (net of tax) and $6.7 million,
respectively. Additional disclosures required by 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 held-for-sale are carried in the aggregate at the lower of cost or
fair value and included in total loans in the consolidated balance sheets.
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.
Effective January 1, 1995, the Corporation adopted SFAS No. 114, as amended
by SFAS No. 118, related to accounting by creditors for impairment of loans.
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. When the measure of the
impaired loan is less than the recorded investment in the loan, a valuation
allowance is recorded. The Corporation had previously measured the
allowance for loan losses on impaired loans using similar methods to those
prescribed by SFAS No. 114.
The specific valuation allowance recorded on impaired loans is included in
the total allowance for loan losses. In addition to the methods prescribed in
SFAS No. 114 for impaired loans, the amount of the provision for loan losses
necessary to maintain the adequacy of the total 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.
- 36 -
<PAGE>
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.
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, in addition to
closed bank offices.
Other real estate owned is carried at the lower of cost or fair value, less
estimated costs to sell, 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, as well as operating income or expense related
to other real estate owned are recorded in noninterest 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 25
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.
The Corporation reviews acquisition related intangibles for impairment
whenever events or changes in circumstances indicate the carrying value may not
be recoverable. Asset values and the related amortization expense are based on
estimated lives and significant changes in these lives could significatly
affect future amortization expense.
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 lives 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 ranging
from 5 to 17 years.
Income Taxes
The Corporation files a consolidated federal income tax return. The Corporation
adopted SFAS No. 109 related to accounting for income taxes in 1993.
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.
Derivative Financial Instruments
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. Additional disclosures related to derivates are shown in Note 15.
Postemployment Benefits
SFAS No. 112 related to employers' accounting for postemployment benefits,
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.
Mortgage Servicing Rights
In May 1995, the Financial Accounting Standards Board issued SFAS No. 122,
"Accounting for Mortgage Servicing Rights, an amendment of FASB Statement No.
65." SFAS No. 122 requires a mortgage banking enterprise to capitalize mortgage
servicing rights on originated mortgage loans when the underlying loans are
sold or securitized and servicing is retained. A mortgage banking enterprise
that acquires mortgage servicing rights through either the purchase or
origination of mortgage loans and sells or securitizes those loans with
servicing rights retained should allocate the total cost of the mortgage loans
to the mortgage servicing rights and the loans (excluding the servicing rights)
based on their relative fair values. SFAS No. 122 also requires that
capitalized servicing rights be assessed for impairment based on the fair value
of those rights. Capitalized mortgage servicing rights should be stratified
based upon one or more of the predominant risk characteristics of the
underlying loans and impairment should be recognized through a valuation
allowance for each impaired stratum.
- 37 -
<PAGE>
Adoption of SFAS No. 122 is required for fiscal years beginning after
December 15, 1995 and is applied prospectively to transactions in which
mortgage loans are sold or securitized with servicing rights retained
and to impairment valuations of all capitalized mortgage servicing rights. The
adoption of SFAS No. 122 in 1996 is not expected to have a material impact on
the Corporation's financial condition or results of operations.
Impairment of Long-Lived Assets
In 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of," which addresses accounting for impairment of long-lived assets,
including certain identifiable intangibles and the goodwill related to those
assets. SFAS No. 121 requires that assets to be held and used be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The adoption of SFAS
No. 121 in 1996 is not expected to 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 $204,195,000 and $183,548,000 at December 31, 1995 and
1994, respectively.
Note 3 -- Investment Securities
The table below summarizes unrealized gains and losses for held-to-maturity and
available-for-sale securities at December 31, 1995 and 1994.
In the fourth quarter of 1995, concurrent with the issuance of its
implementation guide on SFAS No. 115, the Financial Accounting Standards Board
allowed institutions a one-time reassessment of the SFAS No. 115
classifications of all securities currently held. Any reclassifications would
be accounted for at fair value in accordance with SFAS No. 115 and any
reclassifications from the held-to-maturity portfolio that resulted from this
one-time reassessment would not call into question the intent of the
Corporation to hold other debt securities to maturity in the future.
The Corporation used the opportunity under this one-time reassessment to
reclassify $1.46 billion in mortgage-backed securities from the
held-to-maturity to the available-for-sale portfolio. This transfer
resulted in a $16 million increase in the net unrealized gain on
available-for-sale securities.
<TABLE>
<CAPTION>
1995 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
Mortgage-backed securities $ 144,701 $ --- $1,118 $ 143,583 $1,742,165 $506 $94,493 $1,648,178
Obligations of state and political subdivisions 39,986 2,500 5 42,481 21,554 249 25 21,778
Other debt securities --- --- --- --- 1,135 --- 3 1,132
Total held-to-maturity securities $ 184,687 $ 2,500 $1,123 $ 186,064 $1,764,854 $755 $94,521 $1,671,088
Available-for-Sale
U.S. Treasuries and agencies $ 18,933 $ 419 $ 4 $ 19,348 $ 117,357 $ 42 $ 1,149 $ 116,250
Mortgage-backed securities 1,449,217 14,896 6,021 1,458,092 424,461 21 11,469 413,013
Other debt securities 1,435 9 1 1,443 215 --- 6 209
Federal Reserve/FHLB stock
and other equity securities 38,985 --- --- 38,985 33,619 --- --- 33,619
Total available-for-sale securities $1,508,570 $15,324 $6,026 $1,517,868 $ 575,652 $ 63 $12,624 $ 563,091
</TABLE>
- 38 -
<PAGE>
The following table presents the amortized cost and fair value of
held-to-maturity and available-for-sale debt securities at December 31, 1995.
Amortized Fair
(dollars in thousands) Cost Value
Held-to-Maturity
One year or less $ 32,428 $ 33,235
After one year through five years 59,427 59,560
After five years through ten years 86,374 86,408
After ten years 6,458 6,861
Total $ 184,687 $ 186,064
Available-for-Sale
One year or less $ 374,381 $ 376,737
After one year through five years 781,669 786,619
After five years through ten years 210,769 212,099
After ten years 102,766 103,428
Total $1,469,585 $1,478,883
Note: Maturity information related to mortgage-backed securities included
above is presented based upon weighted average maturities anticipating future
prepayments.
As of December 31, 1995, the Corporation reported a net unrealized gain of $9.3
million for available-for-sale securities. For 1995, the unrealized gain/(loss)
reported as a separate component of equity (net of tax) changed from an
unrealized loss of $13.6 million to an unrealized gain of $6.0 million,
increasing equity $19.6 million.
The following table provides information as to the amount of gross gains and
losses realized through the sales of investment securities (from
available-for-sale securities for 1994 and 1995).
(dollars in thousands) 1995 1994 1993
Debt securities:
Gross gains $ 3,275 $10 $ 42
Gross (losses) (1,365) -- --
Equity securities net gains -- -- 115
Net securities gains/(losses) $ 1,910 $10 $157
Securities with a carrying value of $1.41 billion at December 31, 1995 and
$1.84 billion at December 31, 1994, 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.
(dollars in thousands) 1995 1994
Loans on nonaccrual status $36,875 $34,990
Restructured loans 87 261
Total nonperforming loans $36,962 $35,251
Interest that would have been recognized
on nonperforming loans in accordance
with their original terms $ 3,888 $ 3,759
Actual interest recorded for nonaccrual
and restructured loans 982 981
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, 1995, 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, 1995, residential real estate loans held for sale, included
in total loans, amounted to $48 million, compared to $3 million at December 31,
1994.
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 $31,623,000 and
$35,139,000 at December 31, 1995 and 1994, respectively. During 1995, new loans
and repayments related to outstanding loans amounted to $2,647,000 and
$6,888,000, respectively. Changes in the composition of the board of directors
and executive management had a net effect of increasing such loans
$782,000 in 1995. 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 and Impaired Loans
A summary of the activity in the allowance for loan losses is shown in the
following table.
(dollars in thousands) 1995 1994 1993
Balance--beginning of year $ 95,979 $ 83,156 $ 78,953
Loans charged off (28,248) (24,570) (40,122)
Recoveries on loans
previously charged off 14,077 13,021 11,317
Net charge-offs (14,171) (11,549) (28,805)
Provision charged
to earnings 25,101 24,372 33,008
Balance--end of year $106,909 $ 95,979 $ 83,156
- 39 -
<PAGE>
As described in Note 1, the Corporation adopted SFAS No. 114 and SFAS No.
118 in 1995. The valuation allowance recorded on impaired loans in accordance
with SFAS No. 114, is included in the total allowance for loan losses shown
above. The adoption of SFAS No. 114 and 118 did not have a material impact on
the financial condition or results of operations of the Corporation.
The following table shows the Corporation's recorded investment in impaired
loans and the related valuation allowance, as calculated under SFAS No. 114, at
December 31, 1995.
Recorded Valuation
(dollars in thousands) Investment Allowance
Impaired Loans:
Valuation allowance required $15,688 $3,922
No valuation allowance required 14,171 ---
Total impaired loans $29,859 $3,922
The average recorded investment in impaired loans for 1995 was $28 million. As
a general policy, the Corporation applies both principal and interest payments
received on impaired loans as a reduction of principal. The Corporation
recognized $152,000 in interest income on impaired loans in 1995.
Note 6 -- Premises and Equipment
Premises and equipment as of December 31 are summarized in the following table.
(dollars in thousands) 1995 1994
Land $ 14,588 $ 14,330
Bank buildings 92,735 89,471
Furniture, fixtures & equipment 71,756 59,405
Leasehold improvements 17,448 17,126
Construction in progress 2,639 3,517
Total premises and equipment 199,166 183,849
Less: Accumulated depreciation
and amortization 64,780 61,020
Net premises and equipment $134,386 $122,829
Depreciation and amortization expense related to premises and equipment
amounted to $13,894,000 in 1995, $10,369,000 in 1994 and $9,899,000 in 1993.
Total rental expense was $15,506,000 in 1995, $15,793,000 in 1994 and
$15,635,000 in 1993.
Future minimum rental payments related to non-cancelable operating leases
having initial terms in excess of one year are $12,375,000 in 1996, $11,595,000
in 1997, $10,298,000 in 1998, $9,050,000 in 1999, $8,573,000 in 2000 and
$45,292,000 in later years.
Note 7 -- Short-Term Borrowings
The following table is a summary of short-term borrowings for the last three
years.
<TABLE>
<CAPTION>
(dollars in thousands) 1995 1994 1993
Amount Rate Amount Rate Amount Rate
<S> <C> <C> <C> <C> <C> <C>
At year end:
Federal funds purchased $ 211,854 5.8% $ 421,228 5.9% $279,655 3.1%
Securities sold under
agreements to repurchase 471,987 5.1 496,066 5.4 392,052 2.6
Commercial paper 36,810 5.7 --- --- --- ---
Other short-term borrowings 14,365 4.5 117,406 5.0 144,999 2.6
Total 735,016 5.3 1,034,700 5.2 816,706 2.8
Average for the year:
Federal funds purchased 440,335 5.9 471,538 4.4 324,200 3.1
Securities sold under
agreements to repurchase 479,285 4.9 459,730 3.5 270,517 2.6
Commercial paper 11,861 5.9 --- --- --- ---
Other short-term borrowings 83,071 5.7 64,633 4.0 26,765 2.6
Total $1,014,552 5.4% $ 995,901 3.9% $621,482 2.9%
Maximum month-end balances:
Federal funds purchased $ 544,269 $ 724,486 $335,955
Securities sold under
agreements to repurchase 549,437 502,777 458,933
Commercial paper 36,810 --- ---
Other short-term borrowings 295,007 456,032 105,489
</TABLE>
- 40 -
<PAGE>
Note 8 -- Income Taxes
At December 31, 1995, in accordance with SFAS No. 109, included in the
Corporation's consolidated balance sheet was a net deferred tax liability of
$26,579,000, compared to a net deferred tax asset of $3,646,000 at
December 31, 1994. This change was primarily due to increases in leasing
operations and a change in the unrealized gain/(loss) position on
available-for-sale securities. The Corporation has not recorded a valuation
reserve related to deferred tax assets.
The components of the net deferred tax asset/(liability) at December 31,
1995 and 1994 were as follows:
(dollars in thousands) 1995 1994
Allowance for loan losses $ 37,567 $ 33,151
Deferred loan fees/costs 1,749 2,313
Deferred compensation 2,522 1,825
Unrealized loss on securities --- 7,343
Intangible asset amortization 509 543
Other 3,347 2,656
Total deferred tax asset 45,694 47,831
Leased assets (55,343) (32,206)
Pension liabilities (4,945) (4,511)
Depreciation of fixed assets (5,379) (4,444)
Unrealized gain on securities (3,208) ---
Intangible assets/purchase
accounting adjustments (580) (1,508)
Other (2,818) (1,516)
Total deferred tax liability (72,273) (44,185)
Net deferred tax asset/(liability) $(26,579) $ 3,646
Income tax expense for the last three years consisted of the following:
(dollars in thousands) 1995 1994 1993
Current payable:
Federal $47,704 $53,740 $54,349
State 1,036 809 760
Total current
income tax 48,740 54,549 55,109
Deferred federal income tax
resulting from:
Allowance for loan losses (4,416) (4,585) (2,563)
Leasing 23,137 12,019 3,477
Intangible assets (1,299) (1,402) (3,875)
Change in tax rate --- --- (107)
Other--net 2,252 1,266 195
Total deferred
federal income tax 19,674 7,298 (2,873)
Income tax $68,414 $61,847 $52,236
A reconciliation of the statutory tax rate to the effective tax rate is as
follows:
1995 1994 1993
Statutory tax rate 35.0% 35.0% 35.0%
Adjustments to statutory
tax rate:
Tax-exempt interest income (1.1) (1.1) (1.4)
Other--net (0.5) 0.8 0.7
Effective tax rate 33.4% 34.7% 34.3%
Note 9 -- Long-Term Debt
The following is a summary of the Corporation's long-term debt as of December
31.
(dollars in thousands) 1995 1994
Parent company:
12 3/4% Promissory note--quarterly
payments of interest, principal
paid off in 1995 $ --- $ 2,500
9.25% Senior notes--semiannual
payments of interest and annual
principal payments of $2,130,000
through 2001 12,780 15,750
Total parent
company long-term debt 12,780 18,250
Other companies:
6 3/8% Subordinated notes--semiannual
payments of interest, principal
due 2004 148,410 148,216
Total long-term debt $161,190 $166,466
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 a line of credit of $50
million, of which the total amount was available as of December 31, 1995. This
line was increased to $100 million as of January 2, 1996.
The following table presents the scheduled payments of the Corporation's
long-term debt.
(dollars in thousands)
1996 $ 2,130
1997 2,130
1998 2,130
1999 2,130
2000 2,130
Later years 150,540
Total $161,190
- 41 -
<PAGE>
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,
1995 and 1994.
(dollars in thousands) 1995 1994
Projected benefit obligation:
Vested benefits $46,041 $38,353
Nonvested benefits 1,887 1,614
Accumulated benefit obligation 47,928 39,967
Effect of projected future
compensation levels 9,397 7,788
Projected benefit obligation 57,325 47,755
Plan assets 77,801 69,565
Plan assets in excess of
projected benefit obligation 20,476 21,810
Unrecognized net loss due to past
experience different from
assumptions made 4,364 2,244
Unrecognized prior service cost (291) (312)
Unrecognized net asset being
recognized over 16 years (7,283) (8,534)
Prepaid pension cost in
consolidated balance sheets $17,266 $15,208
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, 1995 were 132,600 shares of the Corporation's stock with a value
of $7,890,000. December 31, 1994 plan assets included 235,600 shares with a
value of $8,570,000.
Net pension cost, which amounted to a credit for 1993 through 1995, included
the following components:
(dollars in thousands) 1995 1994 1993
Service cost - benefits
earned during the
period $ 2,108 $ 2,555 $ 2,388
Interest cost of
projected benefit
obligation 3,806 3,773 3,782
Actual total return
on plan assets (11,245) (324) (8,117)
Curtailment gain --- --- (595)
Net amortization
and deferral 3,273 (7,452) 822
Net periodic
pension (credit) $ (2,058) $(1,448) $(1,720)
In determining the projected benefit obligation, the following weighted average
rates were used.
1995 1994 1993
Discount rate 7.50% 8.25% 7.75%
Future salary increases 4.00 4.00 4.00
Long-term return on assets 9.58 9.58 9.58
The Corporation recognized a curtailment gain in 1993 due to staff reductions
which resulted from the implementation of the Corporation's restructuring
program.
- 42 -
<PAGE>
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 retirees.
The Corporation adopted 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). Prior to 1993, the Corporation recognized this cost on a cash basis
as part of annual premiums paid.
The liability for postretirement benefits is unfunded. The following table
sets forth the amount of the accumulated benefit obligation recognized in the
Corporation's consolidated balance sheet at December 31, 1995 and 1994.
(dollars in thousands) 1995 1994
Accumulated postretirement
benefit obligation:
Retirees $ 2,420 $ 2,800
Fully eligible active participants --- ---
Total 2,420 2,800
Unrecognized obligation net gain/(loss) 2,796 2,676
Unrecognized transition
obligation being amortized over 14 years (4,300) (4,691)
Accrued postretirement obligation
in consolidated balance sheets $ 916 $ 785
The components of the net periodic cost of postretirement benefits for 1995 and
1994 were as follows:
(dollars in thousands) 1995 1994
Interest cost of projected benefit obligation $ 194 $372
Amortization of the unrecognized
transition obligation 391 391
Amortization of the unrecognized
obligation net gain (185) ---
Net periodic postretirement benefit cost $ 400 $763
The weighted average discount rates used in determining the amount of the
accumulated benefit obligation were 6.50 percent as of December 31, 1995 and
7.25 percent as of December 31, 1994. The measurement of the accumulated
benefit obligation assumed a health care cost trend rate of 11.00 percent for
1995 and 12.00 percent for 1994, 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, 1995 by $187,000 and increase the aggregate
of the service and interest cost components of the net periodic benefit cost
for the year by $12,000.
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 stock awards and of shares of common
stock which are subject to restriction on transfer and to a right of repurchase
by the Corporation. Not more than 2,000,000 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.
Recipients of stock awards are entitled to compensation equivalent to the
dividends that would have been payable on the shares reserved, over the number
of years the award is deemed to be fully earned. Compensation expense and the
related increase in equity is recognized by the Corporation over the service
period until the award is fully earned, based on the market value of the award
as of the date of the grant. Stock awards granted in 1995 had a market value
of $1.8 million, these awards were granted at the end of the year and
therefore, no compensation expense was recorded in 1995.
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.
- 43 -
<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>
-------------1995------------------ -----------1994----------
Stock Stock Stock
Awards Options Option Price Options Option Price
<S> <C> <C> <C> <C> <C>
Stock Incentive Plans:
Number of shares outstanding
at beginning of year --- 1,456,356 $16.75-$50.75 1,002,027 $16.75-$50.75
Granted 30,000 416,100 36.63- 61.00 653,900 33.88- 40.63
Exercised --- (98,308) 18.13- 38.00 (181,071) 16.75- 33.75
Cancelled --- (3,175) 33.88- 38.63 (18,500) 34.75
Number of shares outstanding
at end of year 30,000 1,770,973 16.75- 61.00 1,456,356 16.75- 50.75
Exercisable at end of year --- 782,888 $16.75-$40.63 607,377 $16.75-$38.75
Available for future grant under
the Stock Incentive Plans 462,164 905,089
StarShare Stock Option Plan:
Options outstanding at
beginning of year 85,829 $35.00-$36.00 98,203 $35.00-$36.00
Granted --- --- --- ---
Exercised (17,780) 35.00- 36.00 (3,656) 35.00- 36.00
Cancelled (5,528) 35.25- 36.00 (8,718) 35.25- 36.00
Options outstanding at
end of year 62,521 35.00- 36.00 85,829 35.00- 36.00
Exercisable at end of year 62,521 $35.00-$36.00 85,829 $35.00-$36.00
Available for future grant under
the StarShare Stock Option Plan 40,051 34,523
</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, 1995 and 1994 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 right to receive payment under these agreements would be
approximately $38 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.
- 44 -
<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 authorized the
repurchase of up to one million shares of the Corporation's common stock, over
a three year period. In January 1996, the board of directors approved the
purchase of an additional two million shares under the buyback plan. 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 January 9, 1999.
Through December 31, 1995, 882,000 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) 1995 1994
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $2,079 $2,039
Standby letters of credit 249 168
Commercial and other letters of credit 31 23
Financial instruments whose notional or
contract amounts exceed the amount of
credit risk:
Forward commitments $ 90 $ 8
Interest rate swap agreements 471 640
Foreign currency spot and forward contracts 44 10
Caps --- 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 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 accounted for as hedges, following hedge accounting criteria as
outlined in SFAS No. 80, "Accounting for Futures Contracts," 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.
- 45 -
<PAGE>
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 Corporation is party to a variety of foreign currency forward contracts
in order to manage its foreign exchange risks. Currency forward contracts are
used in hedging the risks associated with firm commitments to purchase
instruments 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."
The Corporation uses forward sale commitments to manage the risk associated
with adverse changes in interest rates on mortgage loans held for sale. The
sale agreements commit the Corporation to deliver mortgage loans in future
periods at specified coupon rates. These commitments have terms of up to 120
days.
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. In 1995 the Corporation
terminated one of its interest rate contracts in order to reduce its liability
rate sensitive position. The termination of this swap resulted in a deferred
loss of $547,000.
Monthly, the Corporation's Asset/Liability Policy Committee and Credit
Administration review 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 to the
counterparty.
The following table provides information related to derivative financial
instruments as of December 31, 1995.
<TABLE>
<CAPTION>
Maturities of Derivative
Products as of December 31,
(dollars in thousands) 1996 1997 2000 Total
<S> <C> <C> <C> <C>
Interest Rate Swaps
Receive fixed rate swaps
Notional value $100,000 $ --- $240,000 $340,000
Weighted average receive rate 4.45% 5.41% 5.13%
Weighted average pay rate 5.90% 5.90% 5.90%
Receive fixed amortizing swaps
Notional value $ 69,141 $62,165 --- $131,306
Weighted average receive rate 4.39% 4.47% 4.43%
Weighted average pay rate 5.81% 5.50% 5.67%
Total Interest Rate Swaps
Notional value $169,141 $62,165 $240,000 $471,306
Weighted average receive rate 4.43% 4.47% 5.41% 4.93%
Weighted average pay rate 5.87% 5.50% 5.90% 5.84%
Forward Commitments $ 90,065 --- --- $90,065
Foreign Currency Spot and Forward Contracts 44,242 --- --- 44,242
Total notional/contract amount $303,448 $62,165 $240,000 $605,613
</TABLE>
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<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 1995 were
approximately $183.6 million. During 1995, the subsidiary banks declared $31.6
million in cash dividends to the parent company of which $17.5 million of Star
Bank, N.A., Indiana's dividends required regulatory agency approval. The carry
over amount of dividends available to the parent company from the subsidiary
banks at January 1, 1996 was $112.7 million.
Note 18 -- Acquisitions
On July 15, 1995, Star Bank, N.A. ("the Bank"), the lead bank of the
Corporation, purchased 24 Columbus area branch offices of the Ohio division of
Household Bank, Federal Savings Bank. 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 $564
million in cash and $645 million in deposits for a total premium of $71
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 13 to 25 years.
On September 17, 1994, Star Bank, N.A., acquired certain assets and
liabilities related to 47 former TransOhio Federal Savings Bank branch offices
from the Resolution Trust Corporation ("RTC"). This transaction has been
accounted for as a purchase. 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.
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.
(dollars in thousands) 1995 1994
Intangibles from acquisitions:
Excess of cost over fair value
of assets acquired $ 70,204 $ 52,090
Core deposit benefits 92,404 68,401
Other identified intangibles 62,282 45,266
Purchased mortgage servicing rights 6,819 6,904
Purchased credit card relationships 39 65
Total intangible assets $231,748 $172,726
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) 1995 1994 1993
Credit card fees $15,118 $12,475 $10,848
ATM fees 7,652 5,104 4,958
Mortgage banking income 2,362 4,301 6,587
The following are included in all other expense for the years ended December
31.
(dollars in thousands) 1995 1994 1993
Amortization of intangibles $14,037 $ 7,698 $ 9,469
Outside processing services 10,655 9,530 9,010
Marketing 10,257 8,391 7,219
FDIC insurance 9,783 13,176 13,987
State taxes 8,597 9,682 9,052
Note 21 -- Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," 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
agreements to resell and interest-bearing deposits in banks, the carrying
value is a reasonable estimate of fair value.
- 47 -
<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. The fair values for all 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 a
discounted cash flow analysis, 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) 1995 1994
Carrying Amount Fair Value Carrying Amount Fair Value
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 486,193 $ 486,193 $ 486,112 $ 486,112
Investment securities 1,702,555 1,703,932 2,327,945 2,234,179
Net loans 6,818,872 6,915,352 6,153,578 5,995,434
Financial liabilities:
Deposits (7,693,998) (7,729,533) (7,363,815) (7,306,764)
Short-term borrowings (735,016) (735,016) (1,034,700) (1,034,668)
Long-term debt (161,191) (159,313) (166,466) (135,948)
Off-balance-sheet instruments:(1)
Commitments to extend credit (249) (249) (5) (5)
Standby letters of credit (719) (719) (627) (627)
Interest rate caps and floors/foreign currency --- (10) --- (131)
Interest rate swap agreements:
Loans (721) (4,487) (823) (48,228)
Debt 547 --- 2,384 (22,944)
Forward commitments --- (1,371) --- (18)
(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 or other
liabilities, as appropriate.
</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.
- 48 -
<PAGE>
Note 22 -- Parent Company Financial Information
Balance Sheets
As of December 31 (dollars in thousands) 1995 1994
Assets:
Investment in subsidiaries:
Banking subsidiaries $793,850 $654,404
Nonbank subsidiaries 17,509 6,139
Total investment in subsidiaries 811,359 660,543
Cash and cash equivalents 8,248 38,474
Other investments 3,188 1,899
Receivables from subsidiaries 50,201 38,193
Premises and equipment 9,574 9,946
Other assets 5,185 890
Total assets $887,755 $749,945
Liabilities and Shareholders' Equity:
Short-term borrowings $ 36,813 $ ---
Long-term debt 12,780 18,250
Other liabilities 17,985 13,477
Shareholders' equity 820,177 718,218
Total liabilities and
shareholders' equity $887,755 $749,945
Statements of Income
For the years ended December 31 (dollars in thousands)
1995 1994 1993
Revenue:
Dividends from banking subsidiaries $ 31,550 $146,174 $ 50,561
Fees and assessments from subsidiaries --- --- 1,388
Other income 3,486 3,104 231
Total revenue 35,036 149,278 52,180
Expense:
Interest on short-term borrowings 703 --- 129
Interest on long-term debt 1,541 2,423 4,003
Other operating expense 3,247 1,771 1,905
Total expense 5,491 4,194 6,037
Income before income tax benefit 29,545 145,084 46,143
Income tax expense/(benefit) (836) 173 (1,496)
Equity in undistributed income of subsidiaries 106,222 (28,320) 52,634
Net income $136,603 $116,591 $100,273
- 49 -
<PAGE>
<TABLE>
<CAPTION>
Statements of Cash Flows
For the years ended December 31 (dollars in thousands) 1995 1994 1993
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 136,603 $ 116,591 $ 100,273
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in undistributed income of subsidiaries (106,222) 28,320 (52,634)
Depreciation and amortization 829 387 313
Net change in receivables from subsidiaries 14,850 (5,588) (2,322)
Net change in other assets (4,165) 153 3,964
Net change in other liabilities 2,912 (1,187) (3,515)
Net cash provided by operating activities 44,807 138,676 46,079
Cash Flows from Investing Activities:
Capital contributions to subsidiaries (25,000) (15,000) ---
Net change in advances to subsidiaries (26,858) (17,178) 1,312
Purchase of premises and equipment (387) --- (218)
Other investing activity (1,362) (647) (538)
Net cash provided by/(used in) investing activities (53,607) (32,825) 556
Cash Flows from Financing Activities:
Net change in short-term borrowings 36,813 --- (12,000)
Principal payments on long-term debt (5,470) (15,542) (4,827)
Dividends paid (46,397) (40,422) (34,239)
Proceeds from issuance of common stock 4,598 5,773 8,408
Purchase of treasury stock (12,081) (25,680) (665)
Shares reserved to meet deferred compensation obligations 1,111 1,420 665
Net cash used in financing activities (21,426) (74,451) (42,658)
Net change in cash and cash equivalents (30,226) 31,400 3,977
Cash and cash equivalents at beginning of year 38,474 7,074 3,097
Cash and cash equivalents at end of year $ 8,248 $ 38,474 $ 7,074
Supplemental Disclosure of Cash Flow Information
For the years ended December 31 (dollars in thousands) 1995 1994 1993
Cash Paid (Received) During the Year for:
Interest expense $ 2,450 $ 3,143 $ 3,938
Income taxes, net of tax payments received from subsidiaries (4,139) (2,220) (1,790)
</TABLE>
- 50 -
<PAGE>
Note 23 -- Summary of Quarterly Financial Information (unaudited)
The following is a summary of quarterly results of operations for 1995 and 1994.
<TABLE>
<CAPTION>
(amounts in thousands, except per share data) Quarter Ended
Dec. 31 Sept. 30 June 30 Mar. 31
<S> <C> <C> <C> <C>
1995
Net interest income $97,977 $96,883 $92,600 $90,748
Provision for loan losses 5,660 7,288 6,924 5,229
Net interest income after provision for loan losses 92,317 89,595 85,676 85,519
Noninterest income 39,361 32,057 33,512 33,194
Noninterest expense 77,766 70,374 68,519 69,555
Income taxes 18,042 17,081 16,899 16,392
Net income 35,870 34,197 33,770 32,766
Per share:
Primary earnings $ 1.19 $ 1.14 $ 1.12 $ 1.09
Fully diluted earnings 1.19 1.14 1.12 1.09
Cash dividends declared on common stock 0.40 0.40 0.40 0.40
Book value of common shares at quarter-end 27.48 26.35 25.75 24.99
Market price -- high 62.25 54.38 46.00 42.63
low 53.38 45.75 41.13 36.25
Weighted average shares of common stock outstanding 30,022 30,052 30,051 29,988
Weighted average fully diluted common stock equivalents 30,041 30,111 30,156 30,117
Ratios:
Return on average assets 1.47% 1.43% 1.47% 1.42%
Return on average equity 17.65 17.21 17.61 17.81
Net interest margin 4.53 4.53 4.44 4.27
Noninterest expense as a percent of net revenue 56.28 54.22 53.96 55.75
Noninterest income as a percent of net revenue 28.49 24.70 26.39 26.61
1994
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 $ 0.95 $ 0.93
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
</TABLE>
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<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 and Star Bank, N.A. have an Audit
Committee composed of eight 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, 1995 and
1994 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, 1995. These financial statements are the responsibility of
the Corporation's management. Our responsibility 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, 1995 and 1994, and the results of their
operations and cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
As explained in Note 1 to the consolidated financial statements, the
Corporation changed its method of accounting for investment securities
effective January 1, 1994.
/s/ Arthur Andersen LLP
Cincinnati, Ohio
January 10, 1996
- 52 -
<PAGE>
EXECUTIVE OFFICERS AND MEMBERS OF THE MANAGING COMMITTEE
Jerry A. Grundhofer
Chairman since 1994
President and Chief Executive Officer since 1993
Director since 1993
Chairman, Star Bank, N.A. since 1993
President and Chief Executive Officer, Star Bank, N.A. since 1995
Daniel B. Benhase
Member of the Managing Committee since 1994
Executive Vice President since 1994
Joseph A. Campanella
Member of the Managing Committee since 1991
Executive Vice President since 1991
Richard K. Davis
Member of the Managing Committee since 1993
Executive Vice President since 1993
S. Kay Geiger
Member of the Managing Committee since 1995
Executive Vice President since 1995
Timothy J. Fogarty
Member of the Managing Committee since 1993
Executive Vice President since 1995
Jerome C. Kohlhepp
Member of the Managing Committee since 1994
Executive Vice President since 1994
Thomas J. Lakin
Member of the Managing Committee since 1993
Executive Vice President since 1994
General Counsel and Secretary since 1994
David M. Moffett
Member of the Managing Committee since 1993
Executive Vice President and Chief Financial Officer since 1993
Daniel R. Noe
Member of the Managing Committee since 1994
Executive Vice President since 1994
Andrew E. Randall
Member of the Managing Committee since 1995
Executive Vice President since 1995
Wayne J. Shircliff
Member of the Managing Committee since 1994
Executive Vice President since 1994
Stephen E. Smith
Member of the Managing Committee since 1993
Executive Vice President since 1995
CORPORATE DIRECTORS
James R. Bridgeland, Jr. (1,5)
Partner, Taft, Stettinius & Hollister
Laurance L. Browning, Jr. (2,5)
Formerly Vice Chairman, Emerson Electric Co.
Victoria B. Buyniski (2,3)
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 (3,4)
Formerly President and Chief Executive Officer, Cincinnati Bell Telephone
V. Anderson Coombe (3)
Chairman, The Wm. Powell Co.
John C. Dannemiller (4,5)
Chairman and Chief Executive Officer, Bearings, Inc.
Jerry A. Grundhofer (1)
Chairman, President and Chief Executive Officer, Star Banc Corporation and Star
Bank, N.A.
J.P. Hayden, Jr. (1,2,3,5)
Chairman and Chief Executive Officer, The Midland Company
Roger L. Howe (1,2,3)
Chairman, U.S. Precision Lens, Inc.
Thomas J. Klinedinst, Jr. (3)
Chairman, President, Chief Executive Officer and Chief Operating Officer, Thos.
E. Wood, Inc.
Charles S. Mechem, Jr.
Commissioner Emeritus, Ladies Professional Golf Association and Formerly
Chairman, U.S. Shoe Corporation
Daniel J. Meyer (2)
Chairman and Chief Executive Officer, Cincinnati Milacron, Inc.
David B. O'Maley (2)
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 (1,2,3)
Chairman and Chief Executive Officer, Eagle-Picher Industries, Inc.
William C. Portman (1,4,5)
Chairman, Portman Equipment Company
Oliver W. Waddell (1)
Formerly Chairman, Star Banc Corporation and Vice Chairman, Star Bank, N.A.
1=Executive Committee
2=Compensation Committee
3=Audit Committee
4=Community Outreach Committee
5=Governance Committee
- 53 -
<PAGE>
BANKING SUBSIDIARY DIRECTORS & REGIONAL ADVISORY BOARDS
Banking Subsidiary Directors
Star Bank, N.A.
Cincinnati, Ohio
James R. Bridgeland, Jr.
Laurance L. Browning, Jr.
Victoria B. Buyniski
Samuel M. Cassidy
Raymond R. Clark
V. Anderson Coombe
John C. Dannemiller
Jerry A. Grundhofer
Jean Patrice Harrington, S.C.
J.P. Hayden, Jr.
Roger L. Howe
Thomas J. Klinedinst, Jr.
Charles S. Mechem, Jr.
Daniel J. Meyer
David B. O'Maley
O'dell M. Owens, M.D., M.P.H.
Thomas E. Petry
William C. Portman
Oliver W. Waddell
Star Bank, N.A., Kentucky
Covington
Joseph A. Campanella
Nicholas C. Ellison
Kenneth F. Harper
Andrew T. Hawking
Clarence J. Martin
Edwin T. Robinson
Asa M. Rouse
James Simpson, Jr.
John S. Smith
Frank B. Sommerkamp, Jr.
Thomas O. Youtsey, Jr.
Star Bank, N.A., Indiana
Richmond
Joseph A. Campanella
J. Richard Cox
Robert Hastings
Patricia Krider
William C. Merkin
Ronald L. Oberle
William M. Quigg
David W. Stidham
Richard J. Wood
Regional Advisory Boards
Ohio
Butler County
(Hamilton)
James M. Dixon
Roger A. Hamilton
Jacque R. Huber
James G. Robinson
Thomas G. Stretch
Northeast Ohio
(Cleveland, Akron, Canton)
Margot James Copeland
John C. Dannemiller
John V. McFadden
Tony Philiou
Melvin G. Pye, Jr.
Andrew E. Randall
Edwin Z. Singer
Central Ohio
(Columbus)
Todd Barnum
Frank S. Benson, III
John E. Christy
Thomas R. Green
William H. Guy
Carl Horton
Circleville
Roger Bennington
Philip L. Evans
Robert M. Johnson
Rita J. Knece
Gerald A. Leist
Richard M. Patrick
Hillsboro
Dan L. Combs
William L. Cornelius
Jeffrey J. Duncan
William H. Siddons
Ronald L. Swonger
Steven W. Thompson
Dr. Ralph E. Williams
Preble County
(Eaton)
Dennis Behnken
Daniel M. Duke
Floyd C. Geeding
Frederick M. Haber
William W. Hiestand
Gene R. Lindley
Dr. Mark W. Ulrich
John A. Vosler, D.O.
Sidney
Timothy J. Geise
Martin L. Given
Thomas B. Heringhaus
Scott J. Hinsch, Jr.
Roger L. Lentz
Paul C. Perin
Charles G. Rhyan
Thomas E. Shoemaker
Bradley L. Smith
Tri-State
(Gallipolis, Ironton, Portsmouth)
Jeanie Balzer
Donald L. Crance
Robert L. Dalton
Douglas R. Daniel
Robert E. Dever
Bill W. Dingus
Bernard L. Edwards
D. Dean Evans
James L. Held*
Charles C. Klein
Dean F. Massie, M.D.
John V. Reinhardt
James W. Skater
J. Craig Strafford, M.D.
Wayne F. White
Troy
Rebeka Mohr Brown
Richard J. Fraas
Mark T. Hamler
Robert R. Koverman
Stewart I. Lipp
George N. Meeker
Max A. Myers
Michael E. Pfeffenberger
Jerrold R. Stammen
Timothy J. Weaver
Kentucky
Carroll County
Mark A. Andrew
Perry S. Dean
James Dorenbusch
Robert C. Froman
H. C. Jasper
John T. Newcomb
Layton L. Rouse
H. Riddle Stout
Marion County
Donald Ball
John Randall Donahue
Kenneth A. George
William J. Higdon
Linda M. Myers
John S. Smith
Pendleton County
Robert Bathalter
Jim LaFollette
Dixie Wyatt Owen
David H. Pribble
Jonathan Smith
Indiana
Southeastern Indiana
(Lawrenceburg)
John E. Borgman
Douglas R. Denmure
Robert Hastings
Patricia Krider
Donald Laker
Mark J. Neff
Johnny Nugent
Sheldon A. Rox
A. W. Stryker
Walter C. Wilson
*Deceased December 1995
- 54 -
<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 9, 1996, in the Fountain Room on the Second 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.
This annual report has been produced on recycled paper.
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 branch-based investment centers at Star
include 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;
involve investment risk, including the possible loss of principal. The
investment centers offer a program of life insurance, annuities and securities
products, available at Star Bank branches. Insurance and annuities are offered
through InveStar Insurance Agency, Inc., an independent insurance agency
licensed in the states of Ohio, Indiana and Kentucky. Securities products and
services are offered through MDS Securities, Inc., a registered broker-dealer
and member NASD/SIPC. Star Bank is not a registered broker-dealer. When making
investment transactions through branch-based investment centers, you are
dealing with representatives of MDS Securities, Inc. None of these companies is
affiliated with Star Bank.
The financial section of this annual report has been produced on recycled
paper.
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, Inc. (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
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, 1996
<PAGE>
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 1995, 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 the following persons as Directors of the Corporation as of the 12th
day of December, 1995.
/s/ James R. Bridgeland, Jr.
_____________________________________ Director
James R. Bridgeland, Jr.
/s/ Laurance L. Browning, Jr.
_____________________________________ Director
Laurance L. Browning, Jr.
/s/ Victoria B. Buyniski
_____________________________________ Director
Victoria B. 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/ David B. O'Maley
_____________________________________ Director
David B. O'Maley
/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
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