UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-7601
STAR BANC CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 31-0838189
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
425 Walnut Street, Cincinnati, OH 45202
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (513) 632-4000
---------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
95,882,471 common shares, par value $5, outstanding at August 1, 1998
- ---------------------------------------------------------------------
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<PAGE>
STAR BANC CORPORATION AND SUBSIDIARIES
FORM 10-Q
June 30, 1998
Page
Table of Contents Number
- ------------------------------------------------------------------------------
Part I. Financial Information:
Financial Highlights......................................... 3
Report of Independent Public Accountants..................... 4
Item 1. Financial Statements:
Condensed Consolidated Financial Statements............. 5 - 8
Notes to Condensed Consolidated Financial Statements.... 9 - 16
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.....................17 - 28
Part II. Other Information:
Item 1. Legal Proceedings.................................... none
Item 2. Changes in Securities................................ none
Item 3. Defaults Upon Senior Securities...................... none
Item 4. Submission of Matters to a Vote of Security Holders.. none
Item 5. Other Information.................................... none
Item 6. Exhibits and Reports on Form 8-K..................... 29
Signatures............................................................. 29
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<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
STAR BANC CORPORATION AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
(Dollars in thousands, except per share data)
<CAPTION>
Second Quarter Year through June 30,
------------------------------------- -------------------------------------
Percent Percent
1998 1997 Change 1998 1997 Change
------------ ------------ --------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Net income...............................$ 64,993 $ 47,613 36.5 % $ 124,337 $ 92,886 33.9 %
Per share:
Basic earnings per common share........$ 0.67 $ 0.55 21.8 % $ 1.32 $ 1.08 22.2 %
Diluted earnings per common share...... 0.66 0.54 22.2 1.28 1.04 23.1
Common dividends declared.............. 0.23 0.20 15.0 0.46 0.40 15.0
Book value per common share............ 15.33 9.93 54.4 15.33 9.93 54.4
Market value per common share.......... 63.88 42.25 51.2 63.88 42.25 51.2
Average balances:
Total assets...........................$ 14,159,105 $ 10,244,695 38.2 % $ 13,429,137 $ 10,144,620 32.4 %
Earning assets......................... 12,534,151 9,345,491 34.1 11,947,797 9,252,737 29.1
Loans, net of unearned interest........ 9,889,405 7,904,768 25.1 9,656,059 7,793,423 23.9
Deposits............................... 10,434,401 7,888,397 32.3 9,886,463 7,827,277 26.3
Total shareholders' equity............. 1,434,813 839,691 70.9 1,315,871 842,628 56.2
Ratios:
Return on average assets............... 1.84 % 1.86 % 1.87 % 1.85 %
Return on average equity............... 18.17 22.74 19.05 22.23
Average total shareholders' equity
to average total assets.............. 10.13 8.20 9.80 8.31
Risk-based capital ratios:
Tier 1............................... 8.01 8.56 8.01 8.56
Total................................ 11.38 12.54 11.38 12.54
Leverage - average assets (a).......... 6.93 7.74 6.93 7.74
Net interest margin.................... 4.55 4.96 4.63 4.94
Noninterest expense to net revenue..... 47.80 47.97 47.85 48.04
Noninterest income as a percent
of net revenue....................... 33.34 30.18 32.40 29.45
Net income to net revenue.............. 30.44 28.71 30.41 28.66
(a) - defined by regulatory authorities as tier 1 equity to the current
quarter's adjusted average assets.
</TABLE>
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<PAGE>
ARTHUR ANDERSEN LLP
Report of Independent Public Accountants
To the Shareholders and Board of Directors
of Star Banc Corporation:
We have reviewed the accompanying condensed consolidated balance sheet of
STAR BANC CORPORATION (an Ohio corporation) as of June 30, 1998, and the
related condensed consolidated statements of income for the three-month and
six-month periods ended June 30, 1998 and 1997, and the condensed consolidated
statements of changes in shareholders' equity and cash flows for the six-
month periods ended June 30, 1998 and 1997. These financial statements are
the responsibility of the Corporation's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to be
in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of Star Banc Corporation
as of December 31, 1997 (not presented herein), and, in our report dated
January 12, 1998, we expressed an unqualified opinion on that statement.
In our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 1997, is fairly stated, in
all material respects, in relation to the consolidated balance sheet from
which it has been derived.
/s/ Arthur Andersen LLP
Cincinnati, Ohio
July 13, 1998
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<PAGE>
<TABLE>
STAR BANC CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
(Unaudited)
June 30, December 31,
1998 1997
----------- -------------
<S> <C> <C>
ASSETS:
Cash and due from banks.............................$ 720,176 $ 577,479
Money market investments............................ 65,320 238,441
Investment securities:
Available-for-sale................................ 2,619,074 1,007,619
Held-to-maturity (market value of $139,548 at
June 30, 1998 and $154,996 at December 31,
1997............................................ 138,643 154,549
----------- -----------
Total securities.................................. 2,757,717 1,162,168
Loans:
Commercial loans.................................. 3,000,426 2,719,626
Real estate loans................................. 3,559,856 2,773,212
Retail loans...................................... 3,588,418 3,150,370
----------- -----------
Total loans..................................... 10,148,700 8,643,208
Less: Unearned interest......................... 244,050 198,942
----------- -----------
9,904,650 8,444,266
Allowance for loan losses................. 153,180 132,055
----------- -----------
Net loans....................................... 9,751,470 8,312,211
Loans held for sale................................. 286,335 --
Premises and equipment.............................. 189,426 141,439
Acceptances - customers' liability.................. 18,718 16,764
Other assets........................................ 1,141,750 510,399
----------- -----------
Total assets....................................$14,930,912 $10,958,901
=========== ===========
LIABILITIES:
Deposits:
Noninterest-bearing deposits......................$ 2,156,995 $ 1,717,987
Interest-bearing deposits......................... 9,342,858 6,479,588
----------- -----------
Total deposits................................ 11,499,853 8,197,575
Short-term borrowings............................... 1,141,773 1,113,570
Long-term debt...................................... 371,896 353,742
Guaranteed preferred beneficial interests in
Corporation's Junior subordinated debentures...... 148,605 148,581
Acceptances outstanding............................. 18,718 16,764
Other liabilities................................... 281,739 222,656
----------- -----------
Total liabilities............................... 13,462,584 10,052,888
----------- -----------
SHAREHOLDERS' EQUITY:
Preferred stock:
Shares authorized - 1,000,000
Shares outstanding - none
Common stock:
Shares authorized - 400,000,000 at June 30,
1998 and 200,000,000 at December 31, 1997
Shares issued - 96,402,651 at June 30, 1998 and
90,481,374 at December 31, 1997................. 482,013 452,407
Surplus............................................. 359,829 84,015
Retained earnings................................... 620,616 527,297
Treasury stock, at cost - 617,485 shares at
June 30, 1998 and 5,192,374 shares at
December 31, 1997................................. (9,357) (167,048)
Net unrealized gain/(loss) on available-for-sale
securities....................................... 15,227 9,342
----------- -----------
Total shareholders' equity...................... 1,468,328 906,013
----------- -----------
Total liabilities and shareholders' equity......$14,930,912 $10,958,901
=========== ===========
The accompanying notes are an integral part of these statements.
</TABLE>
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<PAGE>
<TABLE>
STAR BANC CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE PERIODS ENDED JUNE 30
(Unaudited)
(Dollars in thousands, except per share data)
<CAPTION>
Second Quarter Six Months
------------------ ------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans..............$216,203 $174,754 $424,383 $342,166
Interest and fees on loans held for sale 5,248 -- 8,517 --
Interest on investment securities:
Taxable............................... 38,524 22,797 65,709 46,417
Non-taxable........................... 1,098 904 2,101 1,706
Interest on money market investments.... 883 938 2,219 1,303
-------- -------- -------- --------
Total interest income................. 261,956 199,393 502,929 391,592
-------- -------- -------- --------
INTEREST EXPENSE:
Interest on deposits.................... 92,917 67,112 175,073 131,719
Interest on short-term borrowings....... 18,944 12,138 35,925 23,718
Interest on long-term debt.............. 8,638 5,220 17,253 9,168
-------- -------- -------- --------
Total interest expense................ 120,499 84,470 228,251 164,605
-------- -------- -------- --------
Net interest income................. 141,457 114,923 274,678 226,987
Provision for loan losses............... 11,550 13,725 22,325 27,364
-------- -------- -------- --------
Net interest income after
provision for loan losses......... 129,907 101,198 252,353 199,623
-------- -------- -------- --------
NONINTEREST INCOME:
Trust income............................ 17,882 13,817 33,960 26,963
Retail deposit income................... 12,608 10,010 24,023 19,767
Mortgage banking income................. 13,303 4,649 21,744 6,935
Cash management income.................. 5,425 4,359 10,396 8,958
Credit card income...................... 5,664 5,605 11,170 10,676
Electronic banking income............... 4,391 3,816 8,250 7,395
Investment securities gains/(losses)-net (19) (1,635) 157 (3,756)
All other income........................ 11,925 9,418 22,795 18,532
-------- -------- -------- --------
Total noninterest income.............. 71,179 50,039 132,495 95,470
-------- -------- -------- --------
NONINTEREST EXPENSE:
Salaries................................ 40,332 31,658 76,914 62,182
Pension and other employee benefits..... 6,034 5,238 12,426 10,518
Equipment expense....................... 6,421 4,859 12,253 9,436
Occupancy expense - net................. 7,089 5,569 13,477 11,156
All other expense....................... 42,188 32,217 80,587 62,428
-------- -------- -------- --------
Total noninterest expense............. 102,064 79,541 195,657 155,720
-------- -------- -------- --------
INCOME BEFORE TAX....................... 99,022 71,696 189,191 139,373
Income tax.............................. 34,029 24,083 64,854 46,487
-------- -------- -------- --------
NET INCOME..............................$ 64,993 $ 47,613 $124,337 $ 92,886
-------- -------- -------- --------
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Unrealized gains/(losses) on
securities:
Unrealized holding gains/(losses)
arising during period........... 6,126 1,033 5,987 (6,316)
Less: Reclassification adjust-
ment for gains/(losses)
included in net income..... 12 1,063 (102) 2,441
-------- -------- -------- --------
Other comprehensive income.............. 6,138 2,096 5,885 (3,875)
-------- -------- -------- --------
COMPREHENSIVE INCOME....................$ 71,131 $ 49,709 $130,222 $ 89,011
======== ======== ======== ========
PER SHARE:
Basic earnings per common share.........$ 0.67 $ 0.55 $ 1.32 $ 1.08
Diluted earnings per common share....... 0.66 0.54 1.28 1.04
Common stock cash dividends declared.... 0.23 0.20 0.46 0.40
The accompanying notes are an integral part of these statements.
</TABLE>
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<PAGE>
<TABLE>
STAR BANC CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in thousands)
(Unaudited)
<CAPTION>
Series B Unrealized
Preferred Common Retained Treasury Gain/(Loss) Total
Stock Stock Surplus Earnings Stock on Securities Equity
-------- --------- --------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997..... $ -- $ 452,407 $ 76,045 $ 400,838 $ (81,344) $ 7,126 $ 855,072
Net income.................. 92,886 92,886
Cash dividends declared
on common stock............ (34,214) (34,214)
Issuance of common stock
and treasury shares........ 508 9,185 9,693
Purchase of treasury
stock...................... (73,563) (73,563)
Shares reserved to meet
deferred compensation
obligations................ 2,071 (643) 1,428
Amortization of stock
awards..................... 210 210
Change in net unrealized
gain/(loss) on available-
for-sale securities........ (3,875) (3,875)
-------- --------- --------- --------- ---------- ----------- ----------
Balance, June 30, 1997....... $ -- $ 452,407 $ 78,834 $ 459,510 $(146,365) $ 3,251 $ 847,637
======== ========= ========= ========= ========== =========== ==========
Balance, January 1, 1998..... $ -- $ 452,407 $ 84,015 $ 527,297 $(167,048) $ 9,342 $ 906,013
Net income.................. 124,337 124,337
Cash dividends declared
on common stock............ (44,018) (44,018)
Issuance of common stock
and treasury shares........ 3,344 14,245 9,477 27,066
Acquisition of Great
Financial.................. 26,262 259,015 13,000 159,613 457,890
Purchase of treasury
stock...................... (10,393) (10,393)
Shares reserved to meet
deferred compensation
obligations................ 2,199 (1,006) 1,193
Amortization of stock
awards..................... 355 355
Change in net unrealized
gain/(loss) on available-
for-sale securities........ 5,885 5,885
-------- --------- --------- --------- ---------- ----------- ----------
Balance, June 30, 1998....... $ -- $ 482,013 $ 359,829 $ 620,616 $ (9,357) $ 15,227 $1,468,328
======== ========= ========= ========= ========== =========== ==========
The accompanying notes are an integral part of these statements.
</TABLE>
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<PAGE>
STAR BANC CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30
----------------------
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 124,337 $ 92,886
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization......................... 11,567 10,828
Intangible amortization............................... 23,189 8,768
Provision for loan losses............................. 22,325 27,364
Provision for deferred taxes.......................... 29,950 17,219
(Gain)/loss on sale of premises and equipment - net... 6 (93)
(Gain)/loss on sale of securities - net............... (157) 3,752
(Gain)/loss on sale of mortgage loans................. (8,386) (3,055)
Proceeds from sale of mortgage loans ................. 652,207 123,680
Mortgage loans originated for sale on the secondary
market.............................................. (734,120) (117,080)
Net change in other assets............................ (32,204) (97,461)
Net change in other liabilities....................... 9,438 1,279
---------- ----------
Total adjustments................................... (26,185) (24,799)
---------- ----------
Net cash provided by operating activities............ 98,152 68,087
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of held-to-maturity securities... 16,222 13,887
Proceeds from maturities of available-for-sale securities. 334,944 166,998
Proceeds from sales of available-for-sale securities...... 312,063 162,167
Purchase of held-to-maturity securities................... (466) (26,101)
Purchase of available-for-sale securities.................(1,007,372) (141,796)
Net change in loans....................................... (321,993) (502,469)
Proceeds from sales of loans.............................. 101,564 43,472
Proceeds from sales of premises and equipment............. 15 142
Purchase of premises and equipment........................ (17,918) (10,300)
Acquisition of Great Financial
Corporation (net of cash acquired)....................... (134,858) --
Net change due to acquisition of branch offices........... 816,978 83,711
---------- ----------
Net cash provided by/(used in) investing activities..... 99,179 (210,289)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in deposits.................................... 241,228 288,022
Net change in short-term borrowings....................... (149,948) 63,020
Principal payments on long-term debt...................... (305,042) --
Proceeds from issuance of long-term debt.................. 17,979 54,962
Proceeds from issuance of capital securities.............. -- 148,554
Proceeds from issuance of common stock.................... 16,273 9,693
Purchase of treasury stock................................ (10,393) (73,563)
Shares reserved to meet deferred compensation obligations. 1,193 1,428
Dividends paid............................................ (39,045) (30,742)
---------- ----------
Net cash provided by/(used in) financing activities..... (227,755) 461,374
---------- ----------
Net change in cash and cash equivalents................... (30,424) 319,172
Cash and cash equivalents at beginning of year............ 815,920 559,001
---------- ----------
Cash and cash equivalents at end of year..................$ 785,496 $ 878,173
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for the six months ended June 30: 1998 1997
---------- ----------
Interest................................................$ 217,093 $ 166,250
Income taxes............................................ 18,203 12,427
Noncash transfer of loans to other real estate owned...... 3,831 552
The accompanying notes are an integral part of these statements.
</TABLE>
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<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1. Basis of Presentation
- ------------------------------
These condensed consolidated financial statements have been prepared by
Star Banc Corporation ("the Corporation") pursuant to the rules and
regulations of the Securities and Exchange Commission and, therefore, certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted. It is suggested that these financial statements be read in
conjunction with the financial statements and notes thereto included in the
Corporation's annual report on Form 10-K for the year ended December 31, 1997,
filed with the Securities and Exchange Commission.
These condensed consolidated financial statements include the accounts of
the Corporation and all of its subsidiaries and reflect all adjustments which
are, in the opinion of management, necessary for a fair presentation of the
results for the periods reported. All such adjustments are of a normal
recurring nature.
Derivative Financial Instruments
As noted in the footnotes to its annual report on Form 10-K, the
Corporation utilizes derivative financial instruments, primarily interest rate
swaps and foreign exchange forward contracts for hedging purposes to reduce
exposure to adverse changes in interest rates and foreign currency exchange
rates. Substantially all derivatives of the Corporation are accounted for as
"hedges." Interest rate swap transactions are analyzed as to the spread, asset
yield or liability cost being protected. The specific asset or liability or
class of assets or liabilities are identified and the correlation between the
hedged item, the derivative instrument and the associated interest rate risk is
documented. The Corporation periodically reviews the correlation between the
rates on the derivative and the hedged items, in addition to the changes in the
market value of the derivative and the changes in the fair value of the hedged
item. If the underlying designated hedged item were to mature or be sold, the
related derivative instrument would be marked-to-market or terminated with any
gain or loss recognized in the current period.
Note 2. Investment Securities
- ------------------------------
The following table summarizes unrealized gains and losses for held-to-
maturity and available-for-sale securities at June 30, 1998 and December 31,
1997. (Dollars are in thousands)
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------------------------------- -------------------------------------
Amortized Unrealized Fair Amortized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Held-to-Maturity
- ----------------
Mortgage-backed
securities $ 75,489 $ -- $ 597 $ 74,892 $ 89,443 $ -- $ 747 $ 88,696
Obligations of state and
political subdivisions 63,154 2,184 682 64,656 65,106 2,048 854 66,300
Other debt securities -- -- -- -- -- -- -- --
---------- ------- ------- ---------- ---------- ------- ------- -----------
Total held-to-
maturity securities $ 138,643 $ 2,184 $ 1,279 $ 139,548 $ 154,549 $ 2,048 $ 1,601 $ 154,996
========== ======= ======= ========== ========== ======= ======= ==========
</TABLE>
-9-
<PAGE>
Note 2. (cont.)
- -------
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------------------------------- -------------------------------------
Amortized Unrealized Fair Amortized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Available-for-Sale
- ------------------
U.S. Treasuries and
agencies $ 14,538 $ 248 $ 16 $ 14,770 $ 14,727 $ 205 $ 4 $ 14,928
Mortgage-backed
securities 2,460,879 24,907 3,587 2,482,199 899,115 15,369 124 914,360
Obligations of state
and political
subdivisions 8,355 1,837 -- 10,192 -- -- -- --
Other debt securities 2,221 42 5 2,258 1,935 9 16 1,928
Federal Reserve/FHLB
stock and other
equity securities 109,655 -- -- 109,655 77,093 1 691 76,403
---------- ------- ------- ---------- ---------- ------- ------- ----------
Total available-for-
sale securities $2,595,648 $27,034 $ 3,608 $2,619,074 $ 992,870 $15,584 $ 835 $1,007,619
========== ======= ======= ========== ========== ======= ======= ==========
</TABLE>
As of June 30, 1998, the Corporation reported a net unrealized gain of
$23.4 million for available-for-sale securities. For the first six months of
1998, the after-tax net unrealized gain/(loss) reported as a separate component
of equity increased from a net unrealized gain of $9.3 million to a net
unrealized gain of $15.2 million, increasing shareholders' equity $5.9 million.
During the first quarter of 1998 approximately $615 million in mortgage loans
were converted to mortgage-backed securities.
The following table presents the amortized cost and fair value of held-to-
maturity and available-for-sale debt securities at June 30, 1998. (Dollars in
thousands)
Amortized Fair
Held-to-Maturity Cost Value
- ---------------- ----------- -----------
One year or less $ 25,872 $ 26,048
After one year through five years 44,637 44,629
After five years through ten years 30,314 30,443
After ten years 37,820 38,428
----------- -----------
Total $ 138,643 $ 139,548
=========== ===========
Available-for-Sale
- ------------------
One year or less $ 541,788 $ 546,378
After one year through five years 1,282,099 1,294,411
After five years through ten years 530,773 535,648
After ten years 131,333 132,982
----------- -----------
Total $ 2,485,993 $ 2,509,419
=========== ===========
Note: Maturity information related to mortgage-backed securities included above
is presented based upon weighted average maturities anticipating future
prepayments.
-10-
<PAGE>
Note 3. Loans
- --------------
The following table summarizes the composition of the loan portfolio, net
of unearned interest, as of June 30, 1998 and December 31, 1997.
(Dollars are in thousands)
June 30, December 31,
1998 1997
---------- ----------
Commercial loans:
Corporate loans $2,164,567 $1,972,609
Asset-based lending 398,150 325,140
Commercial leasing 350,854 336,382
Industrial revenue bonds 25,897 27,481
---------- ----------
Total commercial loans 2,939,468 2,661,612
---------- ----------
Real estate loans:
Residential mortgage 1,632,877 1,216,543
Commercial mortgage 1,470,089 1,184,315
Construction and land development 456,890 372,355
---------- ----------
Total real estate loans 3,559,856 2,773,213
---------- ----------
Retail loans:
Installment 1,886,514 1,639,566
Credit cards 419,052 439,371
Retail leasing 1,099,760 930,504
---------- ----------
Total retail loans 3,405,326 3,009,441
---------- ----------
Total loans, net of unearned interest $9,904,650 $8,444,266
========== ==========
Note 4. Impaired Loans
- -----------------------
The following table shows the Corporation's recorded investment in
impaired loans and the related valuation allowance calculated under SFAS
No. 114 (as amended by SFAS No. 118) at June 30, 1998 and December 31,
1997. (Dollars are in thousands)
June 30, 1998 December 31, 1997
--------------------- ---------------------
Recorded Valuation Recorded Valuation
Investment Allowance Investment Allowance
---------- --------- ---------- ---------
Impaired Loans:
Valuation allowance required $ 4,876 $ 1,088 $ 5,517 $ 1,112
No valuation allowance required 11,540 -- 11,190 --
--------- -------- --------- --------
Total impaired loans $ 16,416 $ 1,088 $ 16,707 $ 1,112
========= ======== ========= ========
The average recorded investment in impaired loans for the six months
ended June 30, 1998 was $17 million, compared to $28 million for the same
period in 1997. As a general policy, the Corporation applies both principal
and interest payments received on impaired loans as a reduction of principal.
No interest income was recognized on impaired loans in the first six months
of 1998 or 1997.
-11-
<PAGE>
Note 5. Allowance for Loan Losses
- ---------------------------------
A summary of the activity in the allowance for loan losses is shown in the
following table. (Dollars are in thousands)
Six Months Ended Year Ended
June 30, December 31,
-------------------- ------------
1998 1997 1997
--------- --------- ---------
Balance - beginning of period $ 132,055 $ 118,689 $ 118,689
Loans charged-off (27,442) (29,220) (55,831)
Recoveries on loans previously charged-off 6,874 8,656 15,583
--------- --------- ---------
Net charge-offs (20,568) (20,564) (40,248)
Provision charged to earnings 22,325 27,364 53,614
Allowances of banks purchased 19,368 -- --
--------- --------- ---------
Balance - end of period $ 153,180 $ 125,489 $ 132,055
========= ========= =========
Note 6. Deposits
- -----------------
The following table summarizes the composition of deposits of the
Corporation as of June 30, 1998 and December 31, 1997. (Dollars are in
thousands)
June 30, December 31,
1998 1997
----------- ----------
Noninterest-bearing deposits $ 2,156,995 $1,717,987
Interest-bearing deposits:
Savings 959,299 794,365
NOW accounts 204,445 119,573
Money market deposit accounts 3,283,697 2,327,703
Time deposits $100,000 and over - domestic 640,625 334,687
Foreign deposits $100,000 and over 29,458 30,143
All other deposits 4,225,334 2,873,117
----------- ----------
Total interest-bearing deposits 9,342,858 6,479,588
----------- ----------
Total deposits $11,499,853 $8,197,575
=========== ==========
Note 7. Guaranteed Preferred Beneficial Interests In Corporation's Junior
Subordinated Debt
- --------------------------------------------------------------------------
In 1997, the Corporation formed Star Capital I ("the Trust"), a wholly
owned Delaware business trust which issued $150 million of Corporation-
obligated mandatorily redeemable Floating Rate Securities ("Capital
Securities") and $4,460,000 aggregate liquidation amount of Corporation-
obligated redeemable Floating Rate Common Securities (the "Common Securities";
together with the Capital Securities, the "Trust Securities"). The Trust used
the proceeds from the issuance of the Trust Securities to purchase a like
amount of Floating Rate Junior Subordinated Debentures ("the Debentures") of
the parent company. The Debentures are the sole assets of the Trust and all
the Common Securities are held by the Corporation. The Corporation used the
proceeds from the sale of the Debentures for general corporate purposes, which
included repurchase of common equity of the Corporation, repayment of
indebtedness, and the financing of acquisitions.
-12-
<PAGE>
Note 7. (cont.)
- -------
The Trust Securities accrue and pay distributions quarterly at an annual
rate equal to three month LIBOR plus 0.765% of the liquidation amount of $1,000
per Trust Security. The Corporation has fully and unconditionally guaranteed
the obligations of the Trust. The guarantee covers the payment of the
distributions and payments on liquidation of the Trust or the redemption of the
Trust Securities, but only to the extent of the funds held by the Trust. The
Corporation has the right to defer payment of interest on the Debentures at any
time or from time to time for a period not exceeding 20 consecutive quarters,
provided that no deferred period extends beyond the stated maturity of the
Debentures.
The Trust Securities are mandatorily redeemable upon the maturity of the
Debentures on June 15, 2027, or upon earlier redemption as provided by the
indenture. The parent company can redeem the Debentures in whole or in part on
or after June 15, 2007 or any time in whole or upon the occurrence of a Special
Event (as defined in the offering circular). For financial reporting purposes
the Corporation treats the Trust Securities as debt and the distributions to
the security holders are recorded as interest expense.
Note 8. Income Tax
- ------------------
The components of the net deferred tax liability included in other
liabilities on the Corporation's consolidated balance sheets at June 30, 1998
and December 31, 1997 are shown in the following table. (Dollars are in
thousands)
June 30, December 31,
1998 1997
--------- ---------
Allowance for loan losses $ 52,604 $ 46,260
Deferred compensation 5,419 4,499
Deferred loan fees and costs 1,778 995
Intangible asset amortization 891 280
Other 4,782 3,166
--------- ---------
Total deferred tax asset 65,474 55,200
--------- ---------
Leased assets (147,263) (120,078)
Fixed asset depreciation (7,156) (6,364)
Pension liabilities (6,285) (6,410)
Unrealized gain on securities (8,199) (5,402)
FHLB stock dividends (7,798) (2,504)
Purchase accounting/intangible assets (1,309) (1,021)
Mortgage servicing rights (4,148) --
Other (5,863) (3,226)
--------- ---------
Total deferred tax liability (188,021) (145,005)
--------- ---------
Net deferred tax liability $(122,547) $ (89,805)
========= =========
The Corporation has not recorded a valuation reserve related to deferred tax
assets.
-13-
<PAGE>
Note 9. Other Noninterest Expense
- ---------------------------------
The following are included in all other expense for the three months and
six months ended June 30, 1998 and 1997. (Dollars are in thousands)
Three Months Six Months
----------------- -----------------
1998 1997 1998 1997
------- -------- ------- --------
Amortization of intangible assets $ 8,567 $ 4,278 $15,506 $ 8,768
Outside processing services 3,744 3,100 7,560 6,480
State taxes 3,604 2,800 7,009 5,044
Marketing 2,854 2,372 6,549 4,746
Note 10. Mortgage Servicing Assets
- -----------------------------------
The Corporation recognizes servicing assets on residential mortgage loans
to be sold on the secondary market. The value of mortgage servicing assets
are established based on either the amount of consideration paid for loans
purchased or pricing determined using a valuation model which calculates the
present value of estimated future cash flows based on the market rate at the
time the loan was originated. The Corporation sold all mortgage servicing
assets originated in 1997 to a third party on a quarterly basis, therefore
the value of those assets are established based on the future sale
commitment. Mortgage servicing assets are amortized as a reduction of
servicing revenues, over the period of the estimated lives of the underlying
loans, in proportion with estimated net servicing income.
Quarterly impairment testing of all mortgage servicing assets is performed
using a discounted cash flow methodology assuming current national prepayment
speeds and a current discount rate. The discount rates assumed were 9.50
percent at June 30, 1998 and 9.25 percent at December 31, 1997. Impairment
will be recognized through a valuation allowance for each impaired stratum.
The following is a summary of mortgage servicing assets included in other
assets at June 30, 1998 and December 31, 1997. (Dollars are in thousands)
June 30, Dec. 31,
Mortgage Servicing Assets: 1998 1997
-------- --------
Balance at beginning of year $ 9,286 $ 12,820
Amount capitalized/acquired 73,116 3,497
Amount sold (6,142) (5,548)
Amortization (3,118) (1,483)
-------- --------
Balance at end of period $ 73,142 $ 9,286
======== ========
There was no valuation allowance established related to mortgage servicing
rights at June 30, 1998 or December 31, 1997.
-14-
<PAGE>
Note 11. Earnings Per Share
- ----------------------------
The following table shows the amounts used in the computation of basic and
diluted earnings per share, in accordance with SFAS No. 128 for the three months
and six months ended June 30, 1998.
Three Months Six Months
------------------ -------------------
1998 1997 1998 1997
------- ------- -------- --------
Net income $64,993 $47,613 $124,337 $ 92,886
Dividends on preferred stock -- -- -- --
------- ------- -------- --------
Net income available to common
shareholders $64,993 $47,613 $124,337 $ 92,886
======= ======= ======== ========
Weighted average shares:
Common shares 96,316 86,021 94,087 86,385
Convertible preferred shares -- -- -- --
Stock awards 63 47 62 44
Stock options 2,717 2,660 2,765 2,592
------- ------- -------- --------
Weighted average diluted common
shares 99,096 88,728 96,914 89,021
======= ======= ======== ========
Basic earnings per share
(net income available to common
shareholders divided by weighted
average common shares) $ 0.67 $ 0.55 $ 1.32 $ 1.08
======= ======= ======== ========
Diluted earnings per share
(net income divided by weighted
average diluted common shares) $ 0.66 $ 0.54 $ 1.28 $ 1.04
======= ======= ======== ========
Note 12. Comprehensive Income
- ------------------------------
During the year, the Corporation adopted FASB Statement No. 130,
"Reporting Comprehensive Income". Statement No. 130 requires the reporting of
comprehensive income in addition to net income from operations. Comprehensive
income is a more inclusive financial reporting methodology that includes
disclosure of certain financial information that historically has not been
recognized in the calculation of net income.
At period end the Corporation held securities classified as available-for-
sale, which have unrealized gains (losses). The before tax and after tax
amount for the three months and six months ended June 30, 1998 and 1997 is
summarized below.
Three Months Six Months
---------------- ----------------
1998 1997 1998 1997
------- ------- ------- -------
Net unrealized holding
gains(losses) before tax $ 9,428 $ 1,607 $ 8,834 $(9,725)
Tax (expense)/benefit (3,302) (574) (2,847) 3,409
Reclassification adjustment
for gains(losses)
included in net income 19 1,635 (157) 3,756
Tax (expense)/benefit (7) (572) 55 (1,315)
------- ------- ------- -------
$ 6,138 $ 2,096 $ 5,885 $(3,875)
======= ======= ======= =======
-15-
<PAGE>
Note 13. Acquisitions
- ----------------------
On February 7, 1998, the Corporation acquired Great Financial Corporation
for 70 percent stock and 30 percent cash. The 70 percent of Great Financial's
shares were exchanged for common shares of Star Banc Corporation stock at an
exchange ratio of 0.949 Star Banc shares for each share of Great Financial.
The remaining 30 percent of Great Financial shares were exchanged for $44 in
cash for each share.
The Corporation issued 9.5 million shares and the total value of this
transaction was $648 million. This transaction is structured as a tax-free
exchange for shareholders receiving stock and has been accounted for as a
purchase transaction. The allocation of the purchase price for Great Financial
is preliminary and may change as certain estimates and contingencies are
finalized, although any adjustments are not expected to be material.
The following table presents an Unaudited Pro Forma Combined Summary of
Operations of the Corporation and Great Financial for the three months and
six months ended June 30, 1997. The Unaudited Pro Forma Combined Summary of
Operations is presented as if the Great Financial merger had been effective
January 1, 1997. (dollars are in thousands except per share data)
Three Months Ended Six Months Ended
June 30, 1997 June 30, 1997
------------------ ----------------
Net interest income $133,141 $263,186
Net income 50,129 97,450
Basic earnings per common share 0.52 1.02
Diluted earnings per common share 0.51 0.98
On June 19, 1998, Star Bank, N.A., the primary subsidiary of the
Corporation acquired 49 Bank One branches, including approximately
$1.1 billion in deposits and approximately $120 million in loans. The
acquisition was accounted for as a purchase transaction with an initial
premium of approximately $116 million. The allocation of the purchase
price for the branches is preliminary and may change as certain
estimates and contingencies are finalized, although any adjustments are
not expected to be material.
On April 10, 1998, the Corporation announced that it had signed a
definitive merger agreement to acquire Trans Financial, Inc. ("Trans
Financial"), a $2.2 billion Bowling Green, Kentucky-based financial services
holding company. Under the terms of the agreement the Corporation will acquire
Trans Financial through a stock-for-stock fixed exchange of 0.9003 Star Banc
shares for each share of Trans Financial. The value of the transaction is
approximately $696 million and is expected to be completed late in the third
quarter of 1998. This transaction is structured as a tax-free exchange for
shareholders and will be accounted for as a pooling-of-interest.
On July 1, 1998, the Corporation and Firstar Corporation ("Firstar")
announced it had signed a definitive agreement to merge through an exchange
of shares valued at approximately $7.2 billion. Firstar is a $20.0 billion
Milwaukee, Wisconsin-based financial services holding company. Under the
terms of the agreement, Firstar shareholders will receive a tax-free exchange
of 0.76 shares of common stock of the combined company for each share of
Firstar common stock and shareholders of Star Banc will retain one share of
common stock in the combined company for each Star Banc share. This transaction
is expected to be accounted for as a pooling-of-interest. The combined
company will be known as Firstar Corporation.
-16-
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
- ------------------------------------------------------------------------
Overview
- --------
Net income of Star Banc Corporation ("the Corporation") for the quarter
ended June 30, 1998, was $64,993,000, a 36.5 percent increase over the second
quarter of 1997. Net income for the first six months of 1998 was $124,337,000
a 33.9 percent increase over the same period in 1997. Diluted earnings per
common share was $0.66 for the second quarter of 1998, compared to $0.54 for
the second quarter of 1997, an increase of 22.2 percent. For the first six
months of 1998 diluted earnings per common share was $1.28, a 23.1 percent
increase over the same period in 1997.
Earnings results for the second quarter and first six months of 1998 reflect
the acquisition of Great Financial Corporation ("GFC") with strong increases in
net interest income and noninterest income, and a corresponding percentage
increase in noninterest expenses. Return on average assets was 1.84 percent
for the second quarter and 1.87 percent for the first six months of 1998,
compared to 1.86 percent and 1.85 percent, respectively, for the same periods
in 1997. As a result of the GFC acquisition, return on average equity declined
to 18.17 percent for the second quarter and 19.05 percent for the first six
months of 1998, compared to 22.74 percent and 22.23 percent, respectively, for
the same periods in 1997.
On February 7, 1998, the Corporation completed the acquisition of Great
Financial Corporation for 70 percent stock and 30 percent cash. The
Corporation issued 9.5 million shares and the total value of the acquisition
was $648 million. This transaction was a tax-free exchange for shareholders
receiving stock and was accounted for as a purchase transaction. The GFC
acquisition added approximately $3.0 billion in assets and $1.9 billion in
deposits, in addition to 43 branch offices in Kentucky and two in Indiana.
On April 10, 1998, the Corporation announced a definitive agreement to
purchase Trans Financial Inc., a $2.2 billion financial services holding
company based in Bowling Green, Kentucky. The purchase of Trans Financial Inc.
is a tax-free stock-for-stock exchange and will be accounted for as a pooling-
of-interest. Under the terms of this agreement, the Corporation will exchange
0.9003 shares of Star Banc common stock for each share of Trans Financial. The
value of the transaction is approximately $696 million. This transaction has
been approved by Trans Financials' shareholders and all appropriate regulatory
agencies and will close on August 21, 1998.
On June 19, 1998, Star Bank, N.A. ("the Bank") completed the acquisition of
49 branch offices located in 26 counties throughout Ohio from Bank One. In
this acquisition the Bank acquired $1.1 billion in deposits and $120 million in
loans for a premium of $117 million. The remaining cash received in this
transaction was invested in mortgage-backed securities.
On July 1, 1998, Star Banc Corporation and Firstar Corporation ("Firstar")
announced they had signed a definitive agreement to merge through an exchange
of shares valued at approximately $7.2 billion. The merger is a tax-free stock
exchange and is expected to be accounted for as a pooling-of-interest. Firstar
is a $20 billion financial services holding company based in Milwaukee,
Wisconsin. The combined company will provide a full range of consumer banking,
commercial banking, trust and investment management services and products to
more than 3 million customers, with approximately 720 branch locations in eight
Midwest states and Arizona, in addition to trust operations in Florida. Under
the terms of the agreement, Firstar shareholders will receive 0.76 shares of
common stock of the combined company for each share of Firstar common stock and
Star Banc shareholders will retain one share of common stock in the combined
company for each common share of Star Banc. The combined company will be known
-17-
<PAGE>
as Firstar Corporation, its corporate headquarters will be located in
Milwaukee and consumer banking and specialized lending operations will be
located in Cincinnati.
Financial Condition
- -------------------
Total assets at June 30, 1998 amounted to $14.93 billion, up $4.0 billion
from $10.96 billion at December 31, 1997. Total loans, net of unearned
interest, increased $1.46 billion to $9.90 billion at June 30, 1998, compared
to $8.44 billion at December 31, 1997. These increases were due to the
acquisitions of GFC and the Bank One branch offices. The acquisition of
GFC added $2.81 billion in total assets and $1.87 billion in loans. Also
in the first six months of 1998, the Corporation swapped $615 million in
residential mortgages to investment securities. Outside of the changes in
residential mortgages the Corporation experienced strong loan growth in
several loan areas for the first half of 1998, led by retail leasing up
$169 million or 18.2 percent, and commercial loans up $114 million or
4.3 percent.
Investment securities increased $1.60 billion to $2.76 billion at June 30,
1998 compared to $1.16 billion at December 31, 1997. This increase was due in
part to the GFC acquisition and the residential mortgage swaps previously
discussed. In addition, the Corporation purchased $784 million in securities
with the cash received in the Bank One branch acquisition, resulting in a total
of $1.0 billion in mortgage-backed securities purchased in the first six
months of 1998. As of June 30, 1998, the Corporation's investment securities
portfolio included $2.62 billion in securities classified as available-for-sale
and $139 million classified as held-to-maturity. The securities added as a
result of the GFC acquisition and the mortgage swaps were all classified as
available-for-sale. At June 30, 1998, the Corporation reported a net
unrealized gain of $23.4 million on available-for-sale securities, with an
offsetting increase to shareholders' equity of $15.2 million (net of tax). For
the first six months of 1998, the after-tax net unrealized gain/(loss) reported
as a separate component of equity increased from an unrealized gain of $9.3
million to an unrealized gain of $15.2 million, increasing equity $5.9 million.
Deposits increased $3.30 billion to $11.50 billion at June 30, 1998 from
$8.20 billion at December 31, 1997. The acquisition of GFC and the Bank One
offices added $3.08 billion in deposits, with $1.71 billion in certificates of
deposit, $996 million in savings, NOW and money market accounts and $376
million in noninterest bearing deposits. Excluding GFC and Bank One, total
deposits increased $220 million in the first six months on 1998, with money
market deposit accounts up $450 million, while small CDs declined $88 million
and savings and NOW accounts declined $238 million. Noninterest-bearing
deposits increased $63 million in the first six months of 1998, primarily in
business accounts. The Corporation has continued to experience a decline in
savings accounts (excluding the acquisitions) through the first six months of
1998, as customers continue to transfer funds into tiered rate money market
deposits and other higher yielding nonbank products.
Results of Operations
- ---------------------
Net interest income, the Corporation's principal source of earnings,
increased $26.5 million or 23.1 percent in the second quarter of 1998, compared
to the same period in 1997. For the first six months of 1998, net interest
income increased $47.7 million or 21.0 percent. The increase in 1998 was due
primarily to increased volumes from continued strong loan growth and the
earning assets added as a result of the GFC and Bank One branch acquisitions.
The increase due to higher earning asset volumes has been partially offset by
negative earning asset mix changes. As a result of the GFC and Bank One
acquisitions, the majority of the assets acquired were lower yielding
residential mortgages and mortgage-backed securities. For the first six months
of 1998, average loans increased $1.86 billion or 23.9 percent, and investment
securities increased $569 million or 40.3 percent, compared to the same period
in 1997.
-18-
<PAGE>
Net interest margin decreased 41 basis points to 4.55 percent for the second
quarter and 31 basis points to 4.63 percent for the first six months of 1998,
compared to 4.96 percent and 4.94 percent, respectively for the same periods in
1997. These decreases in net interest margin have resulted from the Great
Financial and the Bank One acquisitions as the majority of assets acquired were
residential mortgages and mortgage-backed securities with overall lower yields
than the Corporation's earning assets. In addition, the interest-bearing
deposits and other funding sources of GFC had higher costs than similar funds
at Star Bank, which contributed to the increases in the cost of supporting
funds of 23 basis point for the second quarter and 26 basis points for the
first six months of 1998, compared to the same periods in 1997. As a result,
the acquisition of GFC compressed the Corporation's overall net interest
margin. Tables 1 and 2 provide detailed information on the average balances,
interest income/expense and rates earned or paid by major balance sheet
category.
The provision for loan losses decreased $2.2 million in the second quarter
and $5.0 million for the first six months of 1998, compared to the same periods
in 1997. As discussed further in the Asset Quality section, the provision was
down as a result of lower levels of charge-offs (as a percentage of average
loans) and a decline in nonperforming loan levels in 1998.
Noninterest income continues to be a growing source of revenue, representing
33.3 percent of the Corporation's tax-equivalent net revenues for the second
quarter and 32.4 percent for the first six months of 1998, compared to 28.7
percent in the same periods in 1997. Noninterest income was $71.2 million for
the second quarter and $132.5 million for the first six months of 1998,
increases of 42.2 percent and 38.8 percent, from the same periods of 1997.
Excluding gains/(losses) on sales of securities, noninterest income increased
$33.1 million or 33.4 percent in the first six months of 1998, compared to the
same period in 1997. The acquisition of GFC and its significant mortgage
servicing operation contributed greatly to the increase in noninterest income
as mortgage banking income increased $14.8 million or 214 percent in 1998. The
Corporation also had strong growth in several other areas, led by trust income,
which increased 29.4 percent for the second quarter and 26.0 percent for the
first half of 1998 due to new business in all product lines and improved market
conditions. Retail deposit income increased 26.0 percent in the second quarter
and 21.5 percent for the first half of 1998 due to higher demand deposit levels
and increased transaction volumes, in addition to the acquisition of GFC.
Other areas of strong growth in noninterest income for 1998 include
international income, mutual fund and annuity sales, insurance commissions and
electronic banking income.
Noninterest expense totaled $102.1 million in the second quarter and $195.7
million for the first half of 1998, increases of 28.3 percent and 25.6 percent,
respectively, compared to the same periods of 1997. The increase in
noninterest expenses in 1998 was primarily a result of the acquisition of GFC,
in addition to additional branch openings and expansion at Star Banc Finance,
Inc. Increases related to the Great Financial acquisition occurred in the
following categories: salaries, occupancy, equipment, state taxes,
communications, marketing, mortgage servicing and amortization of intangibles.
Incentive accruals, based on higher profit levels and increases in staff
levels, are also up in 1998. Despite the increases in expense levels, the
Corporation's noninterest expense ratio continued to improve as compared to
1997. The expense ratio declined to 47.80 percent for the second quarter and
47.85 percent for the first half of 1998.
The Corporation's effective tax rate for the first half of 1998 was 34.3
percent up from 33.4 percent for the first half of 1997. This increase was due
in part to higher levels of nondeductible intangible amortization expense.
YEAR 2000
In the 1997 annual report, the Corporation outlined the Year 2000 issue and
its plan for modifications to existing software and conversions to new software
to address the risk associated with this problem. The Corporation's Year 200
project has remained on schedule woth the majority of the process to be
completed by the end of 1998, with implementation in 1999. There have been no
significant changes in the expected costs to be incurred as part of the Year
2000 modifications.
-19-
<PAGE>
<TABLE>
STAR BANC CORPORATION AND SUBSIDIARIES
TABLE 1 AVERAGE BALANCE SHEETS AND AVERAGE RATES
(Dollars in thousands)
<CAPTION>
Second Quarter, 1998 Second Quarter, 1997
-------------------------------- ---------------------------------
Daily Average Daily Average
Average Interest Rate Average Interest Rate
----------- --------- -------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Commercial loans....................$ 2,974,110 $ 63,061 8.50 % $ 2,468,921 $ 53,756 8.73 %
Real estate loans................... 3,580,746 77,007 8.61 2,661,401 57,142 8.59
Retail loans........................ 3,334,549 76,495 9.19 2,774,446 64,277 9.28
----------- --------- ----------- ---------
Total loans.................... 9,889,405 216,563 8.77 7,904,768 175,175 8.88
Loans held for sale................. 286,105 5,248 7.34 -- -- --
Taxable investment securities....... 2,227,740 38,524 6.92 1,313,783 22,797 6.94
Non-taxable investment securities... 72,880 1,626 8.93 61,242 1,341 8.78
Money market investments............ 58,021 883 6.11 65,698 938 5.72
----------- --------- ----------- ---------
Total interest-earning assets.. 12,534,151 $ 262,844 8.40 % 9,345,491 $ 200,251 8.58 %
========= ==== ========= ====
Cash and due from banks............. 554,620 434,440
Allowance for loan losses........... (153,606) (125,250)
Other assets........................ 1,223,940 590,014
----------- -----------
Total assets...................$14,159,105 $10,244,695
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Savings and NOW.....................$ 1,079,321 $ 6,578 2.44 % $ 1,090,682 $ 6,898 2.54 %
Money market deposit accounts....... 2,896,186 25,109 3.48 2,043,386 15,654 3.07
Time deposits $100,000 and over..... 628,187 8,580 5.48 406,081 5,421 5.35
Time deposits under $100,000........ 3,911,327 52,650 5.40 2,889,491 39,139 5.43
Short-term borrowings............... 1,500,936 18,944 5.07 988,405 12,138 4.93
Long-term debt...................... 520,452 8,638 6.62 319,650 5,220 6.54
----------- --------- ----------- ---------
Total interest-bearing
liabilities.................. 10,536,409 $ 120,499 4.59 % 7,737,695 $ 84,470 4.38 %
========= ==== ========= ====
Noninterest-bearing deposits........ 1,919,380 1,458,757
Other liabilities................... 268,503 208,552
Shareholders' equity................ 1,434,813 839,691
----------- -----------
Total liabilities and
shareholders' equity.........$14,159,105 $10,244,695
=========== ===========
Net interest margin................. 4.55 % 4.96 %
Interest rate spread................ 3.81 4.20
Note: Interest and average rate are presented on a fully-taxable equivalent basis. Taxable equivalent
amounts are calculated utilizing marginal federal income tax rate of 35 percent. The total of
nonaccruing loans is included in average amounts outstanding.
</TABLE>
-20-
<PAGE>
<TABLE>
STAR BANC CORPORATION AND SUBSIDIARIES
TABLE 2 AVERAGE BALANCE SHEETS AND AVERAGE RATES
(Dollars in thousands)
<CAPTION>
Year through June 30, 1998 Year through June 30, 1997
-------------------------------- ---------------------------------
Daily Average Daily Average
Average Interest Rate Average Interest Rate
----------- --------- -------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Commercial loans....................$ 2,859,889 $ 122,756 8.65 % $ 2,430,047 $ 105,438 8.74 %
Real estate loans................... 3,563,806 153,394 8.62 2,637,534 112,507 8.54
Retail loans........................ 3,232,364 148,979 9.26 2,725,842 125,086 9.22
----------- --------- ----------- ---------
Total loans.................... 9,656,059 425,129 8.84 7,793,423 343,031 8.84
Loans held for sale................. 232,471 8,517 7.33 -- -- --
Taxable investment securities....... 1,911,280 65,709 6.88 1,355,272 46,417 6.85
Non-taxable investment securities... 70,852 3,111 8.78 57,768 2,530 8.81
Money market investments............ 77,135 2,219 5.80 46,274 1,303 5.68
----------- --------- ----------- ---------
Total interest-earning assets.. 11,947,797 $ 504,685 8.48 % 9,252,737 $ 393,281 8.53 %
========= ==== ========= ====
Cash and due from banks............. 528,953 439,321
Allowance for loan losses........... (148,631) (123,471)
Other assets........................ 1,101,018 576,033
----------- -----------
Total assets...................$13,429,137 $10,144,620
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Savings and NOW.....................$ 1,050,698 $ 13,233 2.54 % $ 1,108,260 $ 14,124 2.57 %
Money market deposit accounts....... 2,733,007 46,129 3.40 1,952,524 28,667 2.96
Time deposits $100,000 and over..... 568,178 15,416 5.47 413,732 10,988 5.36
Time deposits under $100,000........ 3,719,019 100,295 5.44 2,906,905 77,940 5.41
Short-term borrowings............... 1,448,514 35,925 5.00 989,095 23,718 4.84
Long-term debt...................... 519,094 17,253 6.66 283,724 9,168 6.47
----------- --------- ----------- ---------
Total interest-bearing
liabilities.................. 10,038,510 $ 228,251 4.58 % 7,654,240 $ 164,605 4.33 %
========= ==== ========= ====
Noninterest-bearing deposits........ 1,815,561 1,445,856
Other liabilities................... 259,195 201,896
Shareholders' equity................ 1,315,871 842,628
----------- -----------
Total liabilities and
shareholders' equity.........$13,429,137 $10,144,620
=========== ===========
Net interest margin................. 4.63 % 4.94 %
Interest rate spread................ 3.90 4.20
Note: Interest and average rate are presented on a fully-taxable equivalent basis. Taxable equivalent
amounts are calculated utilizing marginal federal income tax rate of 35 percent. The total of
nonaccruing loans is included in average amounts outstanding.
</TABLE>
-21-
<PAGE>
Recently Issued Accounting Standards
- ------------------------------------
On January 1, 1998, the Corporation adopted the Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 130 (SFAS No.
130), "Reporting Comprehensive Income." SFAS No. 130 requires the reporting of
comprehensive income as part of the Corporation's financial statements, in
addition to net income from operations. Comprehensive income is a more
inclusive financial reporting methodology that includes disclosure of certain
information that historically has not been recognized in the calculation of net
income. Refer to Footnote No. 12 to the consolidated financial statements for
further information.
On January 1, 1998, SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" became effective and supercedes SFAS No.
14, "Financial Reporting for Segments of a Business Enterprise." This
statement requires disclosure on a business segment basis, as defined by the
Corporation, a description of products and services, interest income and
expense, profit or loss and assets as measured by the Corporation's management
in assessing performance of its business segments. This statement is not
required to be applied to interim periods for 1998.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS No. 133"), Accounting for
Derivatives Instruments and Hedging Activities. The Statement establishes
accounting and reporting standards requiring that every derivative instrument
be recorded in the balance sheet as an asset or liability measured at its fair
value. SFAS No. 133 requires that the changes in the derivatives fair value be
recognized currently in earnings unless specific hedge accounting criteria is
met.
SFAS No. 1333 is effective beginning after June 15, 1999. The Corporation
has not determined the impact of adopting SFAS No. 133 on the financial
statements. However, it could increase volatility in earnings and comprehensive
income.
Asset Quality
- -------------
As of June 30, 1998, the allowance for loan losses was $153,2 million or
1.55 percent of loans, net of unearned interest. This compares to an
allowance of $132.1 million or 1.56 percent of loans, net of unearned
interest, at December 31, 1997. The allowance as a percentage of
nonperforming loans increased slightly to 532 percent at June 30, 1998
compared to 529 percent at December 31, 1997. Table 3 provides a summary
of activity in the allowance for loan losses account by type of loan.
As shown in that table, net charge-offs totaled $10.6 million in the
second quarter of 1998, an increase of $298,000 compared to the second quarter
of 1997. For the first six months of 1998 net charge-offs totaled $20.6
million, flat with 1997. Annualized net charge-offs as a percentage of average
outstanding loans were 0.43 percent for the second quarter of 1998, no change
from the first quarter and down nine basis points compared to 0.52 percent for
the same period in 1997.
The percentage of net charge-offs to average loans has continued to trend
downward since the first quarter of 1997. This decline in net charge-offs has
been primarily in the commercial loan area, partially offset by continued
increases in retail loans. Net charge-offs for retail loans increased $1.0
million in the second quarter of 1998, compared to the prior year, as net
charge-offs on installment loans and retail leases were up $1.8 million
compared to the second quarter of 1997, primarily due to higher loan volumes.
Credit card charge-offs remained flat with first quarter levels at $5.6 million
in the second quarter of 1998 and were down $772,000 compared to the second
quarter of 1997. Net charge-offs on commercial loans have continued to decline
in 1998, as second quarter net charge-offs decreased $820,000, compared to the
same period in 1997. The acquisition of GFC has resulted in slight increases in
residential and retail loan charge-off levels in the second quarter of 1998,
primarily as a result of higher loan volumes.
-22-
<PAGE>
As shown in Tables 4 and 5, nonperforming assets levels decreased $1.4
million to $35.3 million at June 30, 1998, compared to $36.7 million at June
30, 1997. The decrease in the second quarter was due to significant declines in
nonaccrual commercial loans offset by increases in nonaccrual residential
mortgages and OREO related to GFC. Nonperforming assets increased $6.2 million
in the six months ended June 30, 1998, due primarily to GFC. The percentage of
nonperforming loans to end of period loans decreased 12 basis points to 0.29
percent, compared to 0.41 at June 30, 1997 and was down slightly from December
31, 1997. Loans past due 90 days or more and still accruing interest increased
$3.5 million in the first six months of 1998, and increased $7.9 million
compared to June 30, 1997. The increase in loans past due 90 days or more
since June 30, 1997 was due to increases in residential mortgages related to
GFC and installment loans.
Certain accruing FHA/VA loans, in addition to insured FHA and guaranteed VA
loans which are contractually past due 90 days or more, are purchased by the
Corporation from GNMA pools it services or from third parties. By purchasing
delinquent loans out of pools, the Corporation is able to retain the benefit of
the net interest rate differential between the coupon rate the Corporation (as
servicer) would otherwise be obligated to pay the GNMA security holder and the
Corporation's current cost of funds. Most of the Corporation's investment in
delinquent FHA and VA loans is recoverable through claims made against FHA and
VA. Any credit losses incurred are no greater than if the FHA/VA loans
remained in the GNMA pools and the Corporation remained as servicer. The same
risk from foreclosure or loss of interest exists for the Corporation as
servicer or owner of the loan. At June 30, 1998, the Corporation held in its
loan portfolio $134 million of these FHA/VA buyout loans.
The specific valuation allowance recorded on impaired loans, as prescribed
by Statement of Financial Accounting Standards No. 114 (as amended by SFAS No.
118), is included in the total allowance for loan losses. In addition to the
valuation allowance on impaired loans, the adequacy of the total allowance for
loan losses is monitored on a continual basis and is based on management's
evaluation of several key factors: the quality of the current loan portfolio,
current economic conditions, evaluation of significant problem loans, an
analysis of periodic internal loan reviews, delinquency trends and ratios,
changes in the mix and levels of various loan types, historical charge-off and
recovery experience and other pertinent information. These estimates are
reviewed continually and, as adjustments become necessary, they are reported in
earnings in the period in which they become known. Management believes that
the allowance for loan losses at June 30, 1998 was adequate to absorb all
anticipated losses in the loan portfolio as of that date.
The recorded investment in impaired loans at June 30, 1998 was $16 million
with a related valuation allowance calculated under SFAS No. 114 of $1
million.
Liquidity, Capital Resources and Cash Flows
- -------------------------------------------
To ensure that adequate funds are always available to meet unexpected
customer demands for funds, such as high levels of deposit withdrawals or loan
demand, or other aspects of the banking business, the Corporation has succeeded
in developing and maintaining a large stable base of core funding from
customers based in its local market areas. By policy, the Corporation limits
the amount its banking subsidiary can borrow, subject to the Corporation's
ability to borrow funds in the capital markets in an efficient and cost
effective manner. Star Bank N.A. (the Bank) is a member of the Federal Home
Loan Bank of Cincinnati and is able to issue national market retail and
institutional certificates of deposit as a funding source. In 1994, the Bank
prepared an offering circular in order to issue senior or subordinated bank
notes of up to $500 million with terms that can vary from 30 days to 30 years.
-23-
<PAGE>
In December 1997, the Bank issued $100 million in subordinated notes under this
offering circular. In addition to these funding alternatives, the Corporation
maintains a presence in the national fed funds, repurchase agreements, and
eurodollar markets.
The Corporation issues commercial paper notes through a private placement
memorandum up to a maximum aggregate amount of $150 million, with maturities of
up to 270 days. The proceeds of the notes from the commercial paper program
are used for general corporate purposes and to provide funding to Star Banc
Finance, Inc. As of June 30, 1998, $88 million in commercial paper was
outstanding. The Corporation's consolidated long-term debt, which consists of
subordinated notes issued by the Bank and medium term notes issued by the
Parent Company, increased to $18 million for the first six months of 1998, due
to the issuance of medium term notes.
In 1996, the Board of Directors approved the purchase of a total of nine
million shares under the Corporation's buyback program over the next three
years. The repurchased shares are held as treasury shares for reissue in
connection with employee stock options. Through June 30, 1998, the Corporation
has repurchased 5.7 million shares under the current buyback program. The
Corporation repurchased 188,000 shares in the first quarter of 1998 and has
suspended the buyback plan at this time. All remaining treasury shares
acquired through the buyback program were reissued for the GFC acquisition.
Total shareholders' equity increased $562 million in the first six months to
$1.47 billion at June 30, 1998. This increase was the result of the $458
million in equity added for Great Financial, in addition to the retention of
earnings for the first half of 1998. The suspension of the buyback program in
the first quarter of 1998 has resulted in a $27 million increase in equity
related to shares issued from the exercise of stock options. The Corporation
also raised its quarterly dividend rate per common share from $0.20 in 1997 to
$0.23 in 1998, a 15.0 percent increase.
Banking industry regulators define minimum capital requirements for banks
and bank holding companies. The Corporation's tier 1 and total risk-based
capital ratios at June 30, 1998 were 8.01 percent and 11.38 percent,
respectively, well above the minimum requirements of 4.0 percent for tier 1
capital to risk-weighted assets and 8.0 percent for total capital to risk-
weighted assets. These compare to tier 1 and total ratios of 8.77 percent and
12.61 percent at December 31, 1997. Regulatory authorities have also
established a minimum adjusted equity-to-average quarterly assets ("leverage")
ratio of 3.0 percent. As of June 30, 1998 the Corporation's leverage ratio was
6.93 percent compared to 8.01 percent at December 31, 1997. The decreases in
the Corporation's tier 1 and total capital ratios in the first half of 1998
were due to the increase in intangible assets related to the Bank One branch
acquisition.
As shown in the Condensed Consolidated Statements of Cash Flows, cash flows
provided by operating activities amounted to $98 million for the six months
ended June 30, 1998 compared to $68 million for the same period in 1997. The
increase in 1998 as compared to1997 was due primarily to an $80 million
investment in bank owned life insurance in June 1997.
With the exception of historical information, the matters discussed or
incorporated by reference in this quarterly Form 10Q may contain certain
forward-looking statements that involve risk and uncertainties including, but
not limited to, economic conditions, product demand and industry capability,
competitive products and pricing, new product development, the regulatory and
trade environment and other risks indicated in filings with the Securities and
Exchange.
-24-
<PAGE>
STAR BANC CORPORATION AND SUBSIDIARIES
TABLE 3 SUMMARY OF LOAN LOSS EXPERIENCE
For the Periods Ended June 30
(Dollars in thousands)
Second Quarter Six Months
----------------------- -----------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
Average loans - net of unearned
interest..................... $ 9,889,405 $ 7,904,768 $ 9,656,059 $ 7,793,423
=========== =========== =========== ===========
Allowance for loan losses:
Balance - beginning of
period..................... $ 151,193 $ 122,029 $ 132,055 $ 118,689
Charge-offs:
Commercial................. (1,797) (3,930) (4,059) (8,227)
Real estate................ (434) (319) (725) (618)
Retail..................... (11,399) (10,455) (22,658) (20,375)
----------- ----------- ----------- -----------
Total charge-offs........ (13,630) (14,704) (27,442) (29,220)
----------- ----------- ----------- -----------
Recoveries:
Commercial................. 572 1,885 1,381 3,274
Real estate................ 153 120 288 349
Retail..................... 2,342 2,434 5,205 5,033
----------- ----------- ----------- -----------
Total recoveries......... 3,067 4,439 6,874 8,656
----------- ----------- ----------- -----------
Net charge-offs........ (10,563) (10,265) (20,568) (20,564)
Provision charged to
earnings................... 11,550 13,725 22,325 27,364
Allowances of banks purchased 1,000 -- 19,368 --
----------- ----------- ----------- -----------
Balance - end of period...... $ 153,180 $ 125,489 $ 153,180 $ 125,489
=========== =========== =========== ===========
Ratio of net charge-offs to
average loans - net of
unearned interest............ 0.43% 0.52% 0.43% 0.53%
=========== =========== =========== ===========
-25-
<PAGE>
<TABLE>
STAR BANC CORPORATION AND SUBSIDIARIES
TABLE 4 NONPERFORMING ASSETS
(Dollars in thousands)
<CAPTION>
June 30, December 31, June 30,
1998 1997 1997
------------ ------------ -------------
<S> <C> <C> <C>
Loans on nonaccrual status....... $ 28,805 $ 24,952 $ 33,077
Loans which have been
renegotiated................... 9 11 14
------------ ------------ -------------
Total nonperforming loans...... 28,814 24,963 33,091
Other real estate owned.......... 5,114 2,734 1,817
------------ ------------ -------------
Total nonperforming assets..... $ 33,928 $ 27,697 $ 34,908
============ ============ =============
Percentage of nonperforming
loans to loans* ............... 0.29% 0.30% 0.41%
============ ============ =============
Percentage of nonperforming
assets to loans* and other
real estate owned.............. 0.34% 0.33% 0.44%
============ ============ =============
Loans past due 90 days
or more........................ $ 18,091 $ 14,575 $ 10,234
============ ============ =============
* Net of unearned interest.
</TABLE>
-26-
<TABLE>
STAR BANC CORPORATION AND SUBSIDIARIES
TABLE 5 COMPOSITION OF NONPERFORMING LOANS
(Dollars in thousands)
<CAPTION>
June 30, 1998 December 31, 1997
------------------------------------------------ ------------------------------------------------
Nonperforming Loans 90 Days Nonperforming Loans 90 Days
-------------------------------------- or ------------------------------------- or
Non- Restruc- Percentage More Non- Restruc- Percentage More
accrual tured Total of Loans Past Due accrual tured Total of Loans Past Due
------------------------------------------------ ------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial:
Corporate.................$12,175 $ 9 $12,184 0.47 % $ 837 $11,586 $11 $11,597 0.50 % $ 463
Commercial leasing........ 125 -- 125 0.04 -- 805 -- 805 0.24 --
------- --- ------- ------ ------- --- ------- -------
Total commercial loans.. 12,300 9 12,309 0.42 837 12,391 11 12,402 0.47 463
------- --- ------- ------ ------- --- ------- -------
Real estate loans:
Residential............... 8,134 -- 8,134 0.50 7,374 5,416 -- 5,416 0.45 3,872
Commercial mortgage....... 3,150 -- 3,150 0.21 619 3,587 -- 3,587 0.30 394
Construction/land
development............. 593 -- 593 0.13 319 -- -- -- -- 855
------- --- ------- ------ ------- --- ------- -------
Total real estate loans. 11,877 -- 11,877 0.33 8,312 9,003 -- 9,003 0.32 5,121
------- --- ------- ------ ------- --- ------- -------
Retail loans:
Other retail.............. 1,582 -- 1,582 0.08 3,457 956 -- 956 0.06 2,023
Credit cards.............. 2,564 -- 2,564 0.61 4,897 2,092 -- 2,092 0.48 6,593
Retail leasing............ 482 -- 482 0.04 588 510 -- 510 0.05 375
------- --- ------- ------ ------- --- ------- -------
Total retail loans...... 4,628 -- 4,628 0.14 8,942 3,558 -- 3,558 0.12 8,991
------- --- ------- ------ ------- --- ------- -------
Total loans.............$28,805 $ 9 $28,814 0.29 % $18,091 $24,952 $11 $24,963 0.30 % $14,575
======= === ======= ==== ======= ======= === ======= ==== =======
</TABLE>
-27-
<PAGE>
PART II. OTHER INFORMATION
- ---------------------------
ITEMS 1. through 5. are not applicable.
ITEM 6. Exhibits and Reports on Form 8-K
(A) Exhibits filed:
Exhibit 11 - Computation of Earnings Per Share
Exhibit 27 - Financial Data Schedule
(B) The Corporation filed a Current Report on Form 8-K on
April 9, 1998 announcing the signing of the definitive
agreement to purchase Trans Financial Inc.
SIGNATURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STAR BANC CORPORATION
August 14, 1998 /s/ Jerry A. Grundhofer
- ----------------------- ------------------------------
Date Jerry A. Grundhofer
Chairman, President, and Chief
Executive Officer
August 14, 1998 /s/ David M. Moffett
- ----------------------- ------------------------------
Date David M. Moffett
Executive Vice President
and Chief Financial Officer
-28-
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
For the Periods Ended June 30
(Amounts in thousands, except per share data)
Second Quarter Six Months
1998 1997 1998 1997
- ----------------------------------------------------------------------------
Net income........................ $64,993 $47,613 $124,337 $ 92,886
Preferred dividends............... -- -- -- --
- ----------------------------------------------------------------------------
Net income available to common
shareholders.................... $64,993 $47,613 $124,337 $ 92,886
- ----------------------------------------------------------------------------
Weighted average shares:
Common shares..................... 96,316 86,021 94,087 86,385
Convertible preferred shares...... -- -- -- --
Stock awards...................... 63 47 62 44
Stock options..................... 2,717 2,660 2,765 2,592
- ----------------------------------------------------------------------------
Weighted average diluted common
shares........................... 99,096 88,728 96,914 89,021
- ----------------------------------------------------------------------------
Basic earnings per share.......... $ 0.67 $ 0.55 $ 1.32 $ 1.08
(net income available to common
shareholders divided by weighted
average of common shares)
- ----------------------------------------------------------------------------
Diluted earnings per share........ $ 0.66 $ 0.54 $ 1.28 $ 1.04
(net income divided by weighted
average diluted common shares)
- ----------------------------------------------------------------------------
Earnings per share and weighted average share amounts
have been restated for adoption of SFAS No. 128.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF INCOME, THE CONSOLIDATED BALANCE SHEETS, AND THE
CONSOLIDATED STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-END> JUN-30-1998 JUN-30-1998
<CASH> 720,176 720,176
<INT-BEARING-DEPOSITS> 15,320 15,320
<FED-FUNDS-SOLD> 50,000 50,000
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 2,619,074 2,619,074
<INVESTMENTS-CARRYING> 138,643 138,643
<INVESTMENTS-MARKET> 139,548 139,548
<LOANS> 9,904,650 9,904,650
<ALLOWANCE> 153,180 153,180
<TOTAL-ASSETS> 14,930,912 14,930,912
<DEPOSITS> 11,499,853 11,499,853
<SHORT-TERM> 1,141,773 1,141,773
<LIABILITIES-OTHER> 300,457 300,457
<LONG-TERM> 520,501 520,501
0 0
0 0
<COMMON> 482,013 482,013
<OTHER-SE> 986,315 986,315
<TOTAL-LIABILITIES-AND-EQUITY> 14,930,912 14,930,912
<INTEREST-LOAN> 216,203 424,383
<INTEREST-INVEST> 39,622 67,810
<INTEREST-OTHER> 6,131 10,736
<INTEREST-TOTAL> 261,956 502,929
<INTEREST-DEPOSIT> 92,917 175,073
<INTEREST-EXPENSE> 120,499 228,251
<INTEREST-INCOME-NET> 141,457 274,678
<LOAN-LOSSES> 11,550 22,325
<SECURITIES-GAINS> (19) 157
<EXPENSE-OTHER> 102,064 195,657
<INCOME-PRETAX> 99,022 189,191
<INCOME-PRE-EXTRAORDINARY> 64,993 124,337
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 64,993 124,337
<EPS-PRIMARY> 0.67 1.32
<EPS-DILUTED> 0.66 1.28
<YIELD-ACTUAL> 4.55 4.63
<LOANS-NON> 28,805 28,805
<LOANS-PAST> 18,091 18,091
<LOANS-TROUBLED> 9 9
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 151,193 132,055
<CHARGE-OFFS> 13,630 27,442
<RECOVERIES> 3,067 6,874
<ALLOWANCE-CLOSE> 153,180 153,180
<ALLOWANCE-DOMESTIC> 153,180 153,180
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
