FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED SEPTEMBER 30, 1994 COMMISSION FILE NUMBER 1-2981
FIRSTAR CORPORATION
(Exact Name of Registrant as Specified in its Charter)
WISCONSIN 39-0711710
(State of Incorporation) (I.R.S. EMPLOYER
Identification No.)
777 East Wisconsin Avenue, Milwaukee, Wisconsin 53202
Telephone Number (414) 765-4985
The registrant (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the precedeing
12 months and (2) has been subject to such filing requirements for the
past 90 days.
As of October 31, 1994, 65,868,136 shares of common stock were outstanding.
FIRSTAR CORPORATION
CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets 1
Consolidated Statements of Income 2
Consolidated Statements of Cash Flows 3
Supplemental Footnotes 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
Additional Financial Data 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 14
<TABLE>
<CAPTION>
FIRSTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- - ------------------------------------------------------------------------------------------------
September 30 December 31 September 30
(Thousands of Dollars) 1994 1993 1993
------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
ASSETS
Cash and Due from Banks $ 945,890 $ 1,228,957 $ 1,220,901
Interest-Bearing Deposits with Banks 4,479 4,328 4,532
Federal Funds Sold and Resale Agreements 326,398 282,517 267,589
Trading Account Securities 31,956 12,491 23,042
Investment Securities (market value $2,969,336,
$2,894,594 and $3,001,939 on September 30, 1994,
December 31, 1993 and September 30, 1993) 3,012,226 2,834,305 2,918,303
Loans:
Commercial and Industrial 2,630,141 2,470,454 2,349,135
Real Estate 2,143,814 1,948,789 1,891,753
Other 896,589 886,518 802,191
------------ ------------ ------------
Commercial Loans 5,670,544 5,305,761 5,043,079
Credit Card 505,693 546,051 505,502
Real Estate - Mortgage 1,459,793 1,363,671 1,304,804
Home Equity 497,519 445,135 442,898
Other 1,386,625 1,323,200 1,236,344
------------ ------------ ------------
Consumer Loans 3,849,630 3,678,057 3,489,548
------------ ------------ ------------
Total Loans 9,520,174 8,983,818 8,532,627
Reserve for Loan Losses (171,734) (174,873) (175,473)
------------ ------------ ------------
Loans - Net 9,348,440 8,808,945 8,357,154
Bank Premises and Equipment 273,988 264,569 262,237
Customer Acceptance Liability 16,006 17,412 20,972
Other Assets 369,821 340,471 353,826
------------ ------------ ------------
Total Assets $ 14,329,204 $ 13,793,995 $ 13,428,556
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $ 2,400,918 $ 3,064,314 $ 2,705,396
Interest-Bearing Demand 1,378,271 1,557,145 1,455,866
Savings Passbook 1,493,488 1,528,222 1,528,466
Consumer Time 4,145,476 4,041,411 4,140,064
Commercial Time 1,229,793 972,522 930,849
------------ ------------ ------------
Total Deposits 10,647,946 11,163,614 10,760,641
Short-Term Borrowed Funds 2,071,589 1,112,490 1,124,361
Long-Term Debt 125,268 126,275 127,106
Bank Acceptances Outstanding 16,006 17,412 20,972
Other Liabilities 227,384 218,307 223,968
------------ ------------ ------------
Total Liabilities 13,088,193 12,638,098 12,257,048
Stockholders' Equity:
Preferred Stock 500
Common Stock 81,233 81,149 81,081
Issued: September 30, 1994, 64,986,022 shares
Issued: December 31, 1993, 64,919,422 shares
Issued: September 30, 1993, 64,894,695 shares
Capital Surplus 150,729 149,882 196,558
Retained Earnings 1,024,825 928,559 896,403
Treasury Stock (15,221) (3,034) (3,034)
Held: September 30, 1994, 931,811 shares
Held: December 31, 1993, 558,603 shares
Held: September 30, 1993, 558,603 shares
Restricted Stock (555) (659) 0
------------ ------------ ------------
Total Stockholders' Equity 1,241,011 1,155,897 1,171,508
------------ ------------ ------------
Total Liabilities and Stockholders' Equity $ 14,329,204 $ 13,793,995 $ 13,428,556
============ ============ ============
-1-
</TABLE>
<TABLE>
<CAPTION>
FIRSTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
- - --------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30
(Thousands of Dollars, Except Per Share Data) 1994 1993 1994 1993
---------------------- ----------------------
(Unaudited)
<S> <C> <C> <C> <C>
INTEREST REVENUE
Loans $ 192,846 $ 172,322 $ 549,760 $ 511,991
Investment Securities 41,887 42,878 121,091 133,258
Interest-Bearing Deposits with Banks 73 89 217 1,304
Federal Funds Sold and Resale Agreements 2,559 1,106 5,924 3,594
Trading Account Securities 291 154 828 556
---------- ---------- ---------- ----------
Total Interest Revenue 237,656 216,549 677,820 650,703
INTEREST EXPENSE
Deposits 67,451 64,828 186,242 199,529
Short-Term Borrowed Funds 18,585 5,965 41,832 17,832
Long-Term Debt 3,213 3,244 9,640 10,234
---------- ---------- ---------- ----------
Total Interest Expense 89,249 74,037 237,714 227,595
NET INTEREST REVENUE 148,407 142,512 440,106 423,108
Provision for Loan Losses 2,674 6,789 8,274 18,451
---------- ---------- ---------- ----------
NET INTEREST REVENUE AFTER
LOAN LOSS PROVISION 145,733 135,723 431,832 404,657
OTHER OPERATING REVENUE
Trust and Investment Management Fees 29,163 27,203 88,928 81,576
Service Charges on Deposit Accounts 17,337 19,257 54,716 54,613
Credit Card Service Revenue 13,922 13,879 39,622 38,849
Data Processing Fees 5,023 5,218 15,403 16,130
Investment Securities Gains 25 99 77 181
Other Revenue 16,933 22,402 50,866 60,319
---------- ---------- ---------- ----------
Total Other Operating Revenue 82,403 88,058 249,612 251,668
OTHER OPERATING EXPENSE
Salaries 66,639 66,683 197,975 190,047
Employee Benefits 13,702 15,012 45,751 47,397
Equipment Expense 12,250 12,232 36,133 36,030
Net Occupancy Expense 11,838 13,047 35,662 36,625
Net Other Real Estate (Revenue) Expense (8) (78) (850) 1,319
Other Expense 38,893 40,989 139,994 123,088
---------- ---------- ---------- ----------
Total Other Operating Expense 143,314 147,885 454,665 434,506
INCOME BEFORE INCOME TAXES 84,822 75,896 226,779 221,819
Applicable Income Taxes 28,953 24,541 75,183 70,041
---------- ---------- ---------- ----------
NET INCOME $ 55,869 $ 51,355 $ 151,596 $ 151,778
========== ========== ========== ==========
Net Income Applicable to Common Stock $ 55,869 $ 50,561 $ 151,596 $ 149,259
========== ========== ========== ==========
PER COMMON SHARE
Net Income $.87 $.79 $2.36 $2.35
Dividends .30 .26 .86 .74
-2-
</TABLE>
<TABLE>
<CAPTION>
FIRSTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- - ------------------------------------------------------------------------------------------------------
Nine Months Ended
September 30
(Thousands of Dollars) 1994 1993
- - ------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 151,596 $ 151,778
Adjustments:
Provision for loan losses 8,274 18,451
Depreciation, amortization, and accretion 23,803 21,310
Net increase in trading account securities (19,465) (2,169)
Net decrease (increase) in loans held for resale 176,028 (17,665)
Gains on sale of assets (1,469) (10,276)
Increase in other assets (33,609) (18,756)
Increase in other liabilities 14,261 30,822
Other net 3,000 2,484
------------- -------------
Net cash provided by operating activities 322,419 175,979
Cash Flows from Investing Activities:
Net increase in federal funds sold and resale agreements (43,881) (37,828)
Net (increase) decrease in interest-bearing deposits with banks (151) 178,651
Sales of investment securities 2,785
Maturities of investment securities 608,651 1,142,633
Purchase of investment securities (790,055) (1,126,889)
Net increase in loans (734,970) (267,717)
Cash acquired in acquisitions 12,916 11,695
Proceeds from sale of other real estate 10,186 14,845
Purchase of bank premises and equipment (30,056) (27,026)
Proceeds from sale of bank premises and equipment 787 330
------------- -------------
Net cash used in investing activities (966,573) (108,521)
Cash Flows from Financing Activities:
Net decrease in deposits (530,410) (317,857)
Net increase in short-term borrowed funds 959,099 257,674
Repayment of long-term debt (1,028) (26,506)
Common stock transactions (11,244) (231)
Cash dividends (55,330) (49,587)
------------- -------------
Net cash provided by (used in) financing activities 361,087 (136,507)
Net decrease in cash and due from banks (283,067) (69,049)
Cash and due from banks at beginning of period 1,228,957 1,289,950
------------- -------------
Cash and due from banks at end of period $ 945,890 $ 1,220,901
============= =============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 237,715 $ 227,688
Income taxes 75,942 79,705
Transfer to other real estate from loans $ 6,979 $ 4,324
-3-
</TABLE>
FIRSTAR CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL FOOTNOTES (Unaudited)
- - ---------------------------------------------------------------------------
(Thousands of Dollars except as Otherwise Indicated)
1. The financial data presented herein are unaudited, but in the opinion
of management, reflect all adjustments which are necessary for a fair
presentation of such information. Results for interim periods should
not be considered indicative of results for a full year. Reference
should be made to the financial statements contained in the
registrant's annual report on Form 10-K for the year ended December
31, 1993.
<TABLE>
<CAPTION>
2. Investment Securities
All investment securities are held for investment except equity securities
which are available for sale. The amortized cost and approximate market
values of investment securities as of September 30, 1994 are as follows:
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
U.S. Treasury and federal agencies $ 1,481,779 $ 2,880 $ (40,291)$ 1,444,368
Mortgage backed obligations of federal agencies 481,735 4,917 (9,759) 476,893
State and political subdivisions 872,560 8,444 (8,870) 872,134
Corporate debt 58,203 206 (417) 57,992
Equity securities 29,876 0 0 29,876
Other 88,073 0 0 88,073
----------- ---------- ------------ ------------
Total $ 3,012,226 $ 16,447 $ (59,337)$ 2,969,336
=========== ========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
3. Nonperforming Assets and Past Due Loans
September 30December 31 September 30
1994 1993 1993
---------- ------------ ------------
<S> <C> <C> <C>
Nonaccrual Loans:
Commercial $ 38,730 $ 21,243 $ 21,444
Commercial - Real Estate 17,624 25,477 28,290
Consumer 5,517 6,417 6,742
---------- ------------ ------------
61,871 53,137 56,476
Renegotiated Loans:
Commercial 71 823 829
Commercial - Real Estate 609 690 736
---------- ------------ ------------
680 1,513 1,565
Other Real Estate 6,532 10,215 10,997
---------- ------------ ------------
Total $ 69,083 $ 64,865 $ 69,038
========== ============ ============
Nonperforming Assets as a Percent of:
Loans and Other Real Estate 0.73% 0.72% 0.81%
Total Assets 0.48 0.47 0.51
Loans Past Due 90 Days and Still Accruing
Commercial $ 6,706 $ 5,521 $ 3,390
Commercial - Real Estate 5,710 3,934 8,712
Consumer 13,751 12,348 15,191
---------- ------------ ------------
Total $ 26,167 $ 21,803 $ 27,293
========== ============ ============
-4-
</TABLE>
FIRSTAR CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL FOOTNOTES (Unaudited)
- - ----------------------------------------------------
<TABLE>
<CAPTION>
4. Reserve for Loan Losses
Nine Months Ended
--------------------------
September 30
1994 1993
------------ ------------
<S> <C> <C>
Balance - Beginning of period $ 174,873 $ 168,482
Provision for Loan Losses 8,274 18,451
Loan Recoveries 13,753 13,318
Loan Charge-Offs (25,166) (27,257)
Reserves of Acquired Banks 2,479
------------ ------------
Balance - End of period $ 171,734 $ 175,473
============ ============
Net Charge-Offs to Average Loans 0.17% 0.23%
Reserve to Period-End Loans 1.80 2.06
</TABLE>
<TABLE>
<CAPTION>
5. Changes in Stockholders' Equity
Three Months Ended Nine Months Ended
September 30 September 30
----------------------- --------------------------
1994 1993 1994 1993
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Balance - Beginning of Period $ 1,212,011 $ 1,124,804 $ 1,155,897 $ 1,048,388
Net Income 55,869 51,355 151,596 151,778
Common Stock Issued 94 12,730 960 22,172
Treasury Stock Purchases (7,638) 0 (12,222) (1,244)
Restricted Stock Transactions (47) 0 110 0
Dividends - Common Stock (19,278) (16,573) (55,330) (47,003)
- Preferred Stock 0 (809) 0 (2,584)
----------------------- --------------------------
Balance - End of Period $ 1,241,011 $ 1,171,507 $ 1,241,011 $ 1,171,507
======================= ==========================
</TABLE>
6. Mergers and Acquisitions
On July 31, 1994, Firstar announced it had reached an
agreement to acquire First Colonial Bankshares Corporation.
First Colonial is a $1.8 billion holding company with 17 banks
and 30 offices in the Chicago area. The agreement calls for
Firstar to exchange .7725 of its shares for each outstanding
share of the Class A and Class B common stock of First
Colonial. Firstar also will issue up to 39,700 shares of new
Series D convertible preferred stock for all the outstanding
preferred shares of First Colonial. Based on the July 29,
1994 closing price of Firstar stock, the total value of the
transaction is $314 million. Firstar expects to complete this
transaction in the first quarter of 1995 subject to approval
by regulators and First Colonial shareholders.
On August 21, 1994, Firstar announced it had reached an
agreement to acquire Investors Bank Corp. Investors Bank Corp
is a $1.0 billion thrift with 12 banking locations and a
mortgage banking business in suburban Minneapolis/St. Paul.
The agreement calls for Firstar to exchange .8676 of its
shares for each outstanding share of Investors Bank Corp
common stock. Based on the August 19, 1994 closing price of
Firstar stock, the total value of the transaction is $106
million. Firstar expects to complete this transaction in the
second quarter of 1995 subject to approval by regulators and
Investors' shareholders.
On August 25, 1994, Firstar announced it had reached an
agreement to acquire First Moline Financial Corp. First
Moline Financial Corp. is an $80 million thrift with 5 offices
located in Moline, Illinois. The agreement calls for Firstar
to issue stock to total the purchase price of $9.8 million.
Firstar expects to complete this transaction in the second
quarter of 1995 subject to approval by regulators and First
Moline shareholders.
On October 18, 1994, Firstar issued 1,801,577 shares of common
stock to complete the acquisiton of the $423 million First
Southeast Banking Corp. First Southeast Banking Corp is a bank
holding company with two banks and 23 offices in the
Racine/Kenosha area. The transaction was accounted for as a
pooling of interests.
-5-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Firstar Corporation reported earnings for the nine months ended September
30, 1994 of $151.6 million, or $2.36 per common share, down slightly from
$151.8 million, or $2.35 per common share, for the same period last year.
Return on equity was 16.84% for the first nine months of the year, compared
with 18.81% for the same period last year, while return on assets was 1.50%
compared to 1.59% during the same period last year. Earnings declined as a
result of a $13.1 million after-tax charge, or 20 cents per share, taken in
the second quarter to cover the full amount of a check kiting loss.
Net income for the third quarter totaled $55.9 million, or $.87 per common
share, up from $50.6 million or $.79 per common share for the same quarter of
1993. Return on equity was 18.04% in the third quarter of 1994 compared to
18.23% a year ago. Return on assets was 1.60% compared with 1.58% in the same
period last year. Table 1 shows the components of net interest revenue, net
income and net interest margin.
<TABLE>
<CAPTION>
Table 1. Condensed income statements - taxable equivalent basis
Three Months Ended Sept. 30 Nine Months Ended September 30
---------------------------------------------------------------
1994 1993 Change 1994 1993 Change
------ ---------- -------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
(millions of dollars)
Interest revenue $237.7 $ 216.5 $ 21.2 $ 677.8 $ 650.7 $ 27.1
Taxable-equivalent adjustment 7.5 8.4 (0.9) 21.7 22.3 (0.6)
------ ---------- -------- ----------- ----------- ----------
Interest revenue - taxable-equivalent 245.2 224.9 20.3 699.5 673.0 26.5
Interest expense 89.2 74.0 15.2 237.7 227.6 10.1
------ ---------- -------- ----------- ----------- ----------
Net interest revenue - taxable-equivalent 156.0 150.9 5.1 461.8 445.4 16.4
Provision for loan losses 2.7 6.8 (4.1) 8.3 18.5 (10.2)
Other operating revenue 82.4 88.1 (5.7) 249.6 251.7 (2.1)
Other operating expense 143.3 147.9 (4.6) 454.6 434.5 20.1
------ ---------- -------- ----------- ----------- ----------
Income before income taxes 92.4 84.3 8.1 248.5 244.1 4.4
Provision for income taxes 29.0 24.5 4.5 75.2 70.0 5.2
Taxable-equivalent adjustment 7.5 8.4 (0.9) 21.7 22.3 (0.6)
------ ---------- -------- ----------- ----------- ----------
Net income $ 55.9 $ 51.4 $ 4.5 $ 151.6 $ 151.8 $ (0.2)
====== ========== ======== =========== =========== ==========
Yield on earning assets 7.78 % 7.76 % 0.02 % 7.65 % 7.90 % (0.25)%
Cost of interest-bearing liabilities 3.57 3.28 0.29 3.31 3.40 (0.09)
------ ---------- -------- ----------- ----------- ----------
Interest spread 4.21 4.48 (0.27) 4.34 4.50 (0.16)
Impact of interest-free funds 0.74 0.73 0.01 0.71 0.73 (0.02)
------ ---------- -------- ----------- ----------- ----------
Net interest margin 4.95 % 5.21 % (0.26)% 5.05 % 5.23 % (0.18)%
====== ========== ======== =========== =========== ==========
</TABLE>
Net interest revenue during the first nine months of 1994, on a taxable
equivalent basis, was $461.8 million which was $16.4 million, or 4%, above the
level of the same period last year. The net interest margin was 5.05% during
the first nine months compared to 5.23% a year earlier. The increase in net
interest revenue was attributable to the higher average earning asset
balances, up 7.4% from a year earlier, partially offset by the reduced net
interest margin. The margin has been compressed as a result of narrowing
interest rate spreads between earning assets and liabilities.
Table 2 shows the components of interest revenue and expense along with
changes related to volumes and rates. Total interest revenue on a
taxable-equivalent basis increased by 3.9% to $699.5 million during the first
nine months of 1994 compared to the same period last year. This resulted from
a 7.4% increase in average earning assets, partially offset by lower interest
rates. The rate received on earning assets declined from 7.90% in the first
nine months of 1993 to 7.65% in the same period in 1994. Loan revenue
increased $37.9 million, or 7.3%, in the first nine months of 1994 compared to
the same period last year. The increased loan balances, up 10.5% from the same
period last year accounted for the increase in revenue, which was partially
offset by lower interest rates. Interest revenue from commercial loans
increased $34.0 million due to higher balances.
-6-
Total interest expense was $237.7 million during the first nine months in
1994, an increase of $10.1 million, or 4.4%, from the same period last year.
Although interest rates on liabilities declined from 3.40% in 1993 to 3.31%
in 1994, higher average balances produced a higher expense. Expense on total
deposits decreased $13.3 million, or 6.7%, in the first nine months of 1994
compared to the same period last year, due entirely to lower interest rates.
Interest paid on borrowed funds increased by $23.4 million, or 83.4%, due
mainly to higher average balances.
<TABLE>
<CAPTION>
Table 2. Analysis of interest revenue and expense
Nine Months Ended September 30
--------------------------------------------------------
Interest Total Due to
------------------- ----------------------
1994 1993 Change Volume Rate
---------- -------- ----------- ----------- ----------
(thousands of dollars)
<S> <C> <C> <C> <C> <C>
Interest-bearing deposits
with banks $ 217 $ 1,304 $ (1,087)$ (1,533)$ 446
Federal funds sold and
resale agreements 5,924 3,594 2,330 1,043 1,287
Trading account securities 1,064 695 369 227 142
Investment securities 137,514 150,476 (12,962) (1,174) (11,788)
Commercial loans 321,697 287,659 34,038 31,762 2,276
Consumer loans 233,121 229,246 3,875 21,496 (17,621)
---------- -------- -----------
Total loans 554,818 516,905 37,913 52,984 (15,071)
---------- -------- -----------
Total interest revenue 699,537 672,974 26,563 48,872 (22,309)
Interest-bearing demand 13,328 18,674 (5,346) (125) (5,221)
Savings passbook 26,543 29,046 (2,503) 1,233 (3,736)
Consumer time 120,422 130,475 (10,053) (2,610) (7,443)
Commercial time 25,949 21,334 4,615 2,872 1,743
---------- -------- -----------
Total deposits 186,242 199,529 (13,287) 1,441 (14,728)
Short-term borrowed funds 41,832 17,832 24,000 16,217 7,783
Long-term debt 9,640 10,234 (594) (522) (72)
---------- -------- -----------
Total interest expense 237,714 227,595 10,119 16,322 (6,203)
---------- -------- -----------
Net interest revenue $ 461,823 $445,379 $ 16,444 32,304 (15,860)
========== ======== ===========
Calculations are computed on a taxable-equivalent basis using a tax rate of 35% in 1994 and 1993.
The change attributable to both volume and rate has been allocated proportionately to the changes due to volume
and rate.
</TABLE>
Firstar uses computer simulation modeling as its primary method of
quantifying and evaluating interest rate risk. Simulation modeling is
performed at least quarterly and is used to quantify the impact on net
interest revenue of various assumptions about interest rate and balance sheet
changes and use of off-balance sheet derivatives and financial instruments.
The use of simulation modeling also enables Firstar to develop and test
alternative asset and liability management strategies. Interest rate risk and
the results of the simulation modeling is reviewed quarterly by bank, regional
and corporate committees who assess the interest rate risk position and
approve corresponding strategies. The objective of Firstar's asset liability
management policy is to maintain adequate capital and liquidity and manage
interest rate risk to produce an acceptable level of net interest revenue.
Firstar's policy is to employ an asset liability management strategy which
limits the potential impact of projected interest rate changes to 5% of net
income over the subsequent four quarters. In Firstar's most recent simulation
modeling, net interest revenue was projected under most likely, high and low
interest rate assumptions in which the prime rate changes to 8.0%, 9.5% and
6.0%, respectively by the final quarter of the period. Under all three
assumptions, net interest revenue is projected to increase as compared to the
lagging four quarters. Under the most likely and low rate assumptions, net
interest revenue increases approximately $20 million compared to the prior
twelve months, while under the high rate assumption, net interest revenue
increases by approximately $10 million. While Firstar believes these
assumptions are reasonable, actual interest rates and other factors could be
significantly different from those assumed. Such differences could produce
actual results which are different from projected results and the differences
could be significant.
-7-
Firstar uses interest rate swaps, caps and floors to manage interest rate
risk. The use of such instruments allows Firstar to manage its own interest
rate risk while retaining the ability to offer products that satisfy customer
needs. Interest rate instruments have been used to alter the rate
characteristics of specifically identified groups of loans and deposits and
therefore are accounted for as hedges. The table below shows information on
interest rate instruments. The notional amount of these instruments was $1.6
billion on September 30, 1994. Net cash inflows related to these activities
increased net interest revenue by $2.8 million and net interest margin by .03%
for the nine months ended September 30, 1994. During the third quarter of
1994, net cash payments of $400,000 were made reducing net interest margin for
the quarter by .02%. Additionally, Firstar has $1.2 billion of interest rate
instruments for which it serves as an intermediary for customers. Where
Firstar acts as an intermediary, it purchases an offsetting position at the
same time it enters into the transaction with the customer. Notional
principal amounts are the basis for calculating interest paid and received
with respect to interest rate instruments.
<TABLE>
<CAPTION>
Table 3. Interest Rate Management Instruments
September 30, 1994
--------------------------------------------------------
Average Average Weighted Unrealized
Notional Rate Rate Average Market
Amount Received Paid Maturity Value
---------- -------- ----------- ----------- ----------
(millions) (millions)
<S> <C> <C> <C> <C> <C>
Swaps:
Receive fixed rate pay variable rate (1) $ 290 5.33 % 5.05% (2 3.7yr $ (17.1)
Receive fixed rate pay variable rate 75 6.99 6.47 (2 1.4 (0.8)
Receive variable rate pay fixed rate 37 4.29 (3 5.56 .8 0.1
Receive variable rate pay variable rate 930 4.36 (4 4.71 2.6 (24.6)
Caps 80 (5 .6 1.2
Floors 225 (6 4.3 0.9
---------- ----------
$ 1,637 $ (40.3)
========== ==========
____________
(1) Index amortizing swap
(2) Rate paid varies primarily with the three month LIBOR rate
(3) Rate received varies primarily with the Federal funds rate
(4) Rate received includes a fixed spread over three month LIBOR with limitations on periodic increases
(5) Receipt of payments start if the three month LIBOR rate exceeds a weighted average rate of 4.00%
(6) Receipt of payments start if the three month LIBOR rate is below a weighted average rate of 4.91%
</TABLE>
For interest rate management instruments, Firstar's credit policies for
exposure to customer and dealer counterparties are approved by Firstar Bank
Milwaukee's Credit and Executive Committees. Firstar measures credit exposure
to counterparties by multiplying notional principal amounts by 4%, times the
years remaining in the contract. To establish any collateral coverage
requirements, the market value of our position for each instrument is
calculated and, where allowable under bi-lateral netting, the net market value
of our exposure to each counterparty is calculated. Firstar's credit policy
for interest rate risk management instruments limits credit equivalent
exposure to a single counterparty to specific limits established by the above
committees. As appropriate, Firstar requires the use of two-way collateral
agreements which provide collateral coverage for the market value of any
exposure. At September 30, 1994, Firstar's largest credit equivalent exposure
to a single counterparty was $34 million. Importantly, this exposure is
under a two-way collateral agreement.
The provision for loan losses of $8.3 million was $10.2 million lower than
last year, with net charge-offs decreasing $2.5 million from the same period
last year. Net charge-offs for the first nine months were at a level of .17%
of average outstanding loans compared to .23% a year earlier. Credit card
charge-offs have decreased to 1.89% of outstanding loans during the third
quarter of 1994 from a level of 2.26% during the same period last year. This
level of charge-offs may not be representative of full year results. The
reserve for loan losses represented 1.80% of total loans at September 30,
1994, down from the year-end level of 1.95% and 2.06% a year earlier.
-8-
Nonperforming assets were $69.1 million at September 30, 1994, which
amounted to .73% of total loans and other real estate. This was a $7.8
million decrease from the June 30, 1994 level. Nonperforming real estate
related assets decreased $4.6 million during the third quarter. Commercial
nonperforming loans decreased $2.9 million and consumer nonperforming loans
decreased $214,000. Commercial nonperforming assets represent the major
portion of the nonperforming portfolio, with the balance at September 30, 1994
of $38.8 million, or 56%, of total nonperforming assets. Real estate related
nonperforming assets currently represent 36% of the nonperforming portfolio.
Other operating revenue declined by .8% to a level of $249.6 million in the
first nine months of 1994 compared to the same period last year. Firstar
continues to emphasize growth in non-interest revenue although recent
quarterly growth trends have been lower than previously experienced.
Firstar's broad customer base provides opportunities for expanded revenues as
the marketplace looks to financial institutions for services beyond
traditional lending and deposit activities. Table 4 shows the composition of
other operating revenue.
<TABLE>
<CAPTION>
Table 4. Other operating revenue
Nine Months Ended
September
-----------------------------------
1994 1993 Change
----------- ----------- ----------
(thousands of dollars)
<S> <C> <C> <C>
Trust and investment management fees $ 88,928 $ 81,576 9.01 %
Service charges on deposit accounts 54,716 54,613 0.19
Credit card service revenue 39,622 38,849 1.99
Data processing fees 15,403 16,130 (4.51)
Mortgage loan servicing fees 6,276 5,508 13.94
Mortgage loan origination income 5,814 13,522 (57.00)
Insurance revenue 8,120 7,970 1.88
Brokerage revenue 5,578 6,481 (13.93)
International fees 4,321 3,877 11.45
Foreign exchange gains 1,441 1,383 4.19
ATM fees 3,233 2,723 18.73
Safe deposit fees 2,575 2,494 3.25
Trading securities gains 157 1,764 (91.10)
Municipal finance fees 744 1,058 (29.68)
Investment securities gains 77 181 (57.46)
Other 12,607 13,539 (6.88)
----------- -----------
Total $ 249,612 $ 251,668 (0.82)
=========== ===========
</TABLE>
Other operating revenue represents 35% of Firstar's revenue. An industry
measure of fee revenue prominence is the ratio of this revenue stream to
average assets. During the first nine months of 1994, this ratio was 2.46%
compared to 2.64% during the same period last year.
Trust and investment management fees are the single largest source of fee
revenue, contributing $88.9 million, or 36%, of other operating revenue. This
level represents a 9.0% growth in revenue during the first nine months of 1994
compared to the same period last year. Trust assets under management were
$15.2 billion on September 30, 1994, a 2.7% increase from the year-end level
and reflects a 5% increase due to new funds partially offset by a decline in
market values. Additional assets held in custody accounts rose 6.3% to $41.7
billion since year-end.
Revenue from service charges of deposit accounts at $54.7 million for the
first nine months of 1994 was at the same level as last year.
Credit card service revenues are the third largest source of fee revenue
totaling $39.6 million during the first nine months of 1994, which was a 2.0%
increase over the same period last year.
Data processing fee income declined 4.5% in the first nine months of 1994
from the same period last year. A shrinking customer base due to continuing
bank consolidations through mergers or acquisitions and conversions by smaller
community banks to in-house data processing systems have acted to reduce
revenues.
-9-
Revenue from mortgage loan origination activities decreased 57.0% to $5.8
million during the first nine months of 1994 compared to the same period last
year, due to substantially reduced refinancing activity resulting from higher
interest rates. Mortgage loan originations reached $1.3 billion in 1993,
while 1994 originations are expected to total $850 million. Mortgage loan
servicing fees have however increased by 13.9% to $6.3 million reflecting
higher servicing balances.
The remaining sources of other operating revenue derive from a wide range of
services and collectively decreased by 2.3%, exclusive of trading and
investment securities transactions, in the first nine months of 1994 compared
to the same period last year.
Other operating expense increased to a level of $454.7 million. Excluding
the check kiting loss taken in the second quarter of this year, expenses
decreased .4%. Personnel costs rose by 2.6% to a level of $243.7 million due
in the most part to merit increases taking effect at the beginning of the
year. Nonpersonnel costs, excluding the check kiting loss decreased 4%. The
efficiency ratio, which is the ratio of expense to revenue improved further
during the quarter. This ratio, excluding the check kiting loss, was 60.8% in
the first nine months of 1994 compared to 62.4% a year earlier. It is
Firstar's goal to reach a 60% efficiency ratio in 1995. The detail of other
expense is shown in table 5.
<TABLE>
<CAPTION>
Table 5. Other operating expense
Nine Months Ended
September 30
-----------------------------------
1994 1993 Change
----------- ----------- ----------
(thousands of dollars)
<S> <C> <C> <C>
Salaries $ 197,975 $ 190,047 4.17 %
Employee benefits 45,751 47,397 (3.47)
----------- -----------
Total personnel expense 243,726 237,444 2.65
Net occupancy expense 35,662 36,625 (2.63)
Equipment expense 36,133 36,030 0.29
Business development 16,171 15,660 3.26
F.D.I.C. insurance 17,800 17,804 (0.02)
Stationery and supplies 11,851 13,906 (14.78)
Delivery 10,604 11,181 (5.16)
Professional fees 10,663 11,703 (8.89)
Information processing expense 11,876 10,923 8.72
Amortization of intangibles 6,152 9,352 (34.22)
Employee education/recruiting 5,157 4,983 3.49
Federal Reserve processing fees 3,447 3,668 (6.03)
Commissions and service fees 3,606 3,676 (1.90)
Wire communication 3,941 3,352 17.57
Processing and other losses 24,404 2,396 918.53
(including check kiting loss of $22 million in 1994)
Credit card assessment fees 3,057 2,718 12.47
Net other real estate expense (850) 1,319 (164.44)
Published information 1,526 1,537 (0.72)
Insurance 750 931 (19.44)
Other 8,989 9,298 (3.32)
----------- -----------
Total nonpersonnel expense 210,939 197,062 7.04
----------- -----------
Total other operating expense $ 454,665 $ 434,506 4.64
=========== ===========
</TABLE>
Total assets on September 30, 1994 were $14.3 billion, an increase of $900.6
million from the same time last year.
Earning assets totaled $12.9 billion on September 30, 1994, an increase of
$1.1 billion, or 9.8%, over September 30, 1993. Loans, the largest category
of earning assets, represented 73.8% of earning assets as compared to 72.6% a
year earlier. Total loans were $9.5 billion on September 30, 1994, an
increase of $987.5 million, or 11.6%, over the 1993 level.
-10-
Commercial loans, which account for 60% of the loan portfolio, increased by
$627.5 million, or 12.4%, to $5.7 billion on September 30, 1994. Consumer
loans totaled $3.8 billion, an increase of $360.1 million, or 10.3% compared
to the same time last year. Such loan growth is expected to continue into
next year.
Short-term investments, which include interest-bearing deposits with banks,
trading account securities, and federal funds sold and resale agreements,
totaled $362.8 million on September 30, 1994, an increase of $47.7 million,
or 15.1%, from a year earlier.
Investment securities represent 23% of earning assets. They totaled $3.0
billion on September 30, 1994, an increase of $113.9 million, or 3.9%, over
last year. The average maturity of the portfolio was 2.8 years at the end of
September.
Total fund sources, consisting of deposits and borrowed funds, increased by
$832.7 million, or 6.9%, to $12.8 billion on September 30, 1994. Total
deposits were $10.6 billion, a decrease of $112.7 million, or 1% over a year
earlier.
Core deposits, which include transaction accounts and consumer deposits,
equaled $9.4 billion on September 30, 1994, a decrease of $411.6 million, or
4.2%, from last year. Lower business demand deposits, which fluctuate with
interest rate levels, produced the decline in core deposits. Core deposits
represent 73% of fund sources. Commercial time deposits were increased by
$111.6 million. Short-term borrowed funds were increased by $947.2 million,
or 84.2%, which was used in part to fund the loan growth.
Stockholders' equity totaled $1,241.0 million at the end of the third
quarter, an increase of $85.1 million from the level at year-end and $69.5
million over last year. Total equity as a percent of total assets amounted to
8.66%. Under risk-based capital rules, total capital is 13.43% of
risk-adjusted assets, compared to an 8% requirement. A summary of capital
components and ratios is shown in table 6.
<TABLE>
<CAPTION>
Table 6. Capital components and ratios
Sept 30 December 31 Sept 30
1994 1993 1993
----------- ----------- ----------
(thousands of dollars)
<S> <C> <C> <C>
Risk-based capital:
Stockholders' equity $ 1,241,011 $ 1,155,897 $1,171,508
Minority interest in subsidiaries 2,537 2,214 2,182
Less goodwill (70,812) (72,602) (73,791)
----------- ----------- ----------
Total Tier I capital 1,172,736 1,085,509 1,099,899
Allowable reserve for loan losses 126,805 123,953 119,366
Allowable long-term debt 56,374 81,486 81,638
----------- ----------- ----------
Total Tier II capital 183,179 205,439 201,004
----------- ----------- ----------
Total capital $ 1,355,915 $ 1,290,948 $1,300,903
=========== =========== ==========
Risk-adjusted assets $ 10,099,479 $ 9,792,746 $9,419,353
Tier I capital to risk-adjusted assets 11.61 % 11.08 % 11.68 %
Total capital to risk-adjusted assets 13.43 13.18 13.81
Tier I leverage ratio 8.53 8.30 8.59
The Board of Directors declared a quarterly dividend to common stockholders
of 30 cents per share which is payable November 15 to shareholders of record
October 31.
-11-
</TABLE>
<TABLE>
<CAPTION>
FIRSTAR CORPORATION AND SUBSIDIARIES
ADDITIONAL FINANCIAL DATA (Unaudited)
=====================================================================================================
Selected Financial Data
(Thousands of dollars, except per share)
Quarter ended September 30 Nine Months ended September 30
-------------------------------------------------------------
1994 1993 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Earnings and Dividends
Net income $ 55,869 $ 51,355 $ 151,596 $ 151,778
Per common share:
Net income 0.87 0.79 2.36 2.35
Dividends 0.30 0.26 0.86 0.74
Stockholders' equity 19.37 17.44
Performance Ratios
Return on average assets 1.60 % 1.58 % 1.50 % 1.59 %
Return on average common equity 18.04 18.23 16.84 18.81
Dividend payout ratio 34.48 32.91 36.44 31.49
Equity to assets 8.66 8.72
Net loan charge-offs as a percentage
of average loans 0.27 0.27 0.17 0.23
Nonperforming assets as a
percentage of loans and other
real estate 0.73 0.81
Net interest margin 4.95 5.21 5.05 5.23
Statistical Data
Full-time equivalent staff (at quarter end) 8,555 8,418
Number of common stockholders (at quarter end) 9,860 9,520
Average common shares
outstanding (000's) 64,226 64,026 64,299 63,538
Actual common shares
outstanding (000's at quarter end) 64,054 64,306
Stock Price Information
High $ 35.125 $ 34.125 $ 35.375 $ 37.250
Low 29.625 31.625 29.625 29.500
Close 31.000 33.625 31.000 33.625
-12-
</TABLE
</TABLE>
<TABLE>
<CAPTION>
FIRSTAR CORPORATION AND SUBSIDIARIES
ADDITIONAL FINANCIAL DATA (Unaudited)
- - --------------------------------------------------------------------------------------------------
Consolidated Average Balance Sheets, Net Interest Revenue and Rate Analysis
(Thousands of Dollars)
Quarter ended September 30
------------------------------------------------------------------
1994 1993
---------------------------------- -------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
---------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-bearing deposits
with banks $ 4,952 $ 73 5.85 % $ 4,579 $ 89 7.71 %
Federal funds sold and
resale agreements 216,906 2,559 4.68 139,501 1,106 3.15
Trading account securities 20,761 378 7.22 13,441 211 6.23
Investment securities:
Taxable 2,045,219 30,880 6.01 2,011,350 31,820 6.30
Nontaxable 938,017 16,580 7.07 915,428 17,530 7.66
----------- --------- ----------- ---------
Total investment
securities 2,983,236 47,460 6.34 2,926,778 49,350 6.72
Loans:
Commercial 5,529,809 114,151 8.19 5,007,142 97,805 7.75
Consumer 3,762,914 80,497 8.51 3,435,592 76,368 8.84
----------- --------- ----------- ---------
Total loans 9,292,723 194,648 8.32 8,442,734 174,173 8.20
----------- --------- ----------- ---------
Interest earning assets 12,518,578 245,118 7.78 11,527,033 224,929 7.76
Reserve for loan losses (175,308) (174,670)
Cash and due from banks 823,766 917,739
Other assets 658,561 623,506
----------- -----------
Total assets $13,825,597 $12,893,608
=========== ===========
Liabilities and
Stockholders' Equity
Interest-bearing demand $ 1,384,294 $ 4,419 1.27 % $ 1,415,693 $ 5,684 1.59 %
Savings passbook 1,528,532 8,958 2.33 1,519,594 9,622 2.51
Consumer time 4,123,078 43,142 4.15 4,159,749 42,370 4.04
Commercial time 1,119,800 10,932 3.87 921,395 7,152 3.08
Short-term borrowed funds 1,648,495 18,585 4.47 826,311 5,965 2.86
Long-term debt 126,017 3,213 10.20 127,800 3,244 10.15
----------- --------- ----------- ---------
Interest-bearing liabilities 9,930,216 89,249 3.57 8,970,542 74,037 3.28
Demand deposits 2,430,437 2,534,050
Other liabilities 236,310 238,707
Stockholders' equity 1,228,634 1,150,309
----------- -----------
Total liabilities and
stockholders' equity $13,825,597 $12,893,608
=========== ===========
Net interest
revenue/margin $ 155,869 4.95 % $ 150,892 5.21 %
========= =========
</TABLE>
<TABLE>
<CAPTION>
Nine months ended September 30
---------------------------------- -------------------------------
1994 1993
--------------------------------- -------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
---------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-bearing deposits
with banks $ 4,722 $ 217 6.14 % $ 42,674 $ 1,304 4.09 %
Federal funds sold and
resale agreements 193,258 5,924 4.10 154,060 3,594 3.12
Trading account securities 20,647 1,064 6.89 15,959 695 5.82
Investment securities:
Taxable 1,983,441 88,537 5.96 2,010,278 99,036 6.58
Nontaxable 932,404 48,977 7.00 928,657 51,440 7.39
----------- --------- ----------- ---------
Total investment
securities 2,915,845 137,514 6.30 2,938,935 150,476 6.83
Loans:
Commercial 5,421,522 321,697 7.93 4,885,955 287,659 7.87
Consumer 3,666,242 233,121 8.49 3,339,365 229,246 9.17
----------- --------- ----------- ---------
Total loans 9,087,764 554,818 8.16 8,225,320 516,905 8.40
----------- --------- ----------- ---------
Interest earning assets 12,222,236 699,537 7.65 11,376,948 672,974 7.90
Reserve for loan losses (175,465) (172,622)
Cash and due from banks 864,432 913,928
Other assets 643,303 632,584
----------- -----------
Total assets $13,554,506 $12,750,838
=========== ===========
Liabilities and
Stockholders' Equity
Interest-bearing demand $ 1,414,334 $ 13,328 1.26 % $ 1,409,944 $ 18,674 1.77 %
Savings passbook 1,540,267 26,543 2.30 1,475,534 29,046 2.63
Consumer time 4,072,814 120,422 3.95 4,191,930 130,475 4.16
Commercial time 1,021,114 25,949 3.40 913,035 21,334 3.12
Short-term borrowed funds 1,430,949 41,832 3.91 824,999 17,832 2.89
Long-term debt 126,104 9,640 10.19 135,428 10,234 10.08
----------- --------- ---------
Interest-bearing liabilities 9,605,582 237,714 3.31 8,950,870 227,595 3.40
Demand deposits 2,500,248 2,457,082
Other liabilities 245,073 231,769
Stockholders' equity 1,203,603 1,111,117
----------- -----------
Total liabilities and
stockholders' equity $13,554,506 $12,750,838
=========== ===========
Net interest
revenue/margin $ 461,823 5.05 % $ 445,379 5.23 %
========= =========
-12-
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits to Part 1 of Form 10-Q
27. Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
FIRSTAR CORPORATION
/s/ William H. Risch
----------------------
November 14, 1994 William H. Risch
Senior Vice President-Finance and
Treasurer (Chief Financial Officer)
-14-
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 945,890
<INT-BEARING-DEPOSITS> 4,479
<FED-FUNDS-SOLD> 326,398
<TRADING-ASSETS> 31,956
<INVESTMENTS-HELD-FOR-SALE> 5,502
<INVESTMENTS-CARRYING> 3,006,724
<INVESTMENTS-MARKET> 2,963,834
<LOANS> 9,520,174
<ALLOWANCE> 171,734
<TOTAL-ASSETS> 14,329,204
<DEPOSITS> 10,647,946
<SHORT-TERM> 2,071,589
<LIABILITIES-OTHER> 243,390
<LONG-TERM> 125,268
<COMMON> 81,233
0
0
<OTHER-SE> 1,159,778
<TOTAL-LIABILITIES-AND-EQUITY> 14,329,204
<INTEREST-LOAN> 549,760
<INTEREST-INVEST> 121,091
<INTEREST-OTHER> 6,969
<INTEREST-TOTAL> 677,820
<INTEREST-DEPOSIT> 186,242
<INTEREST-EXPENSE> 237,714
<INTEREST-INCOME-NET> 440,106
<LOAN-LOSSES> 8,274
<SECURITIES-GAINS> 77
<EXPENSE-OTHER> 454,665
<INCOME-PRETAX> 226,779
<INCOME-PRE-EXTRAORDINARY> 151,596
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 151,596
<EPS-PRIMARY> 2.36
<EPS-DILUTED> 2.36
<YIELD-ACTUAL> 8
<LOANS-NON> 61,871
<LOANS-PAST> 26,167
<LOANS-TROUBLED> 680
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 174,873
<CHARGE-OFFS> 25,166
<RECOVERIES> 13,753
<ALLOWANCE-CLOSE> 171,734
<ALLOWANCE-DOMESTIC> 171,189
<ALLOWANCE-FOREIGN> 545
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
