<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K/A
AMENDMENT NO. 1
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1994 Commission File Number 1-2981
------------------------
FIRSTAR CORPORATION
WISCONSIN
(State of Incorporation)
30-0711710
(I.R.S. Employer Identification No.)
777 East Wisconsin Avenue, Milwaukee, Wisconsin 53202
Telephone Number (414) 765-4321
This Form 10-K/A amends and restates in its entirety the consolidated
financial statements of Firstar Corporation and its subsidiaries included under
Item 8 on pages 26 through 52 of its Form 10-K to reflect the acquisitions of
First Colonial Bankshares Corporation and Investors Bank Corp. The acquisitions
were accounted for using the pooling of interests method of accounting and,
accordingly, the financial statements have been restated for all periods prior
to the acquisitions to include the effect of those acquisitions.
- --------------------------------------------------------------------------------
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<PAGE> 2
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its 1994 Annual Report on Form 10-K as
set forth in the pages attached hereto.
ITEM 8. FINANCIAL STATEMENTS
Exhibit 23. Consent of Independent Auditors
Exhibit 27. Financial Data Schedule
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
Firstar Corporation
June 15, 1995 By /s/ ROGER L. FITZSIMONDS
--------------------------------------
Chairman, Chief Executive Officer
and Director
By /s/ JOHN A. BECKER
--------------------------------------
President, Chief Operating Officer
and Director
By /s/ WILLIAM H. RISCH
--------------------------------------
Senior Vice President-Finance &
Treasurer (Principal financial
accounting officer)
DIRECTORS
<TABLE>
<S> <C> <C>
Michael E. Batten* John H. Hendee, Jr.* Daniel F. McKeithan, Jr.*
Robert C. Buchanan* Jerry M. Hiegel* George W. Mead II*
George M. Chester, Jr.* Joe Hladky* Guy A. Osborn*
Roger H. Derusha* C. Paul Johnson* Judith D. Pyle*
James L. Forbes* James H. Keyes* Clifford V. Smith, Jr.*
Holmes Foster* Sheldon B. Lubar* William W. Wirtz*
Joseph F. Heil, Jr.*
</TABLE>
*By WILLIAM H. RISCH June 15, 1995
- ---------------------------------
William H. Risch
Attorney-in-Fact
1
<PAGE> 3
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FIRSTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1994 1993
----------- -----------
(thousands of dollars)
<S> <C> <C>
ASSETS
Cash and due from banks............................................ $ 1,118,138 $ 1,373,158
Interest-bearing deposits with banks............................... 5,076 5,635
Federal funds sold and resale agreements........................... 351,304 291,932
Trading securities................................................. 29,050 12,491
Securities held to maturity (market value $3,638,604 and $3,210,293
on December 31, 1994 and 1993)................................... 3,750,895 3,150,307
Securities available for sale...................................... 222,719 209,445
Loans.............................................................. 11,905,829 10,824,821
Reserve for loan losses............................................ (190,552) (189,714)
----------- -----------
Loans-net..................................................... 11,715,277 10,635,107
Bank premises and equipment........................................ 335,078 304,425
Customer acceptance liability...................................... 13,466 17,905
Other assets....................................................... 454,080 411,878
----------- -----------
Total assets.................................................. $17,995,083 $16,412,283
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand........................................................... $ 3,113,103 $ 3,361,001
Interest-bearing demand.......................................... 1,714,369 1,792,660
Money market accounts............................................ 2,086,663 1,967,432
Savings passbook................................................. 1,822,836 1,803,630
Certificates of deposit.......................................... 4,672,244 4,208,600
----------- -----------
Total deposits................................................ 13,409,215 13,133,323
Short-term borrowed funds.......................................... 2,497,478 1,397,106
Long-term debt..................................................... 272,545 266,635
Bank acceptances outstanding....................................... 13,466 17,905
Other liabilities.................................................. 289,694 238,000
----------- -----------
Total liabilities............................................. 16,482,398 15,052,969
Stockholders' equity:
Preferred stock.................................................. 26,979 28,916
Common stock..................................................... 96,465 94,256
Issued: 1994, 77,171,835 shares...............................
1993, 75,404,276 shares...............................
Capital surplus.................................................. 230,453 209,234
Retained earnings................................................ 1,172,062 1,030,177
Treasury stock, at cost.......................................... (10,669) (3,034)
Held: 1994, 792,303 shares....................................
1993, 558,603 shares....................................
Restricted stock................................................. (1,551) (1,335)
Unrealized (losses) gains on securities available for sale....... (1,054) 1,100
----------- -----------
Total stockholders' equity.................................... 1,512,685 1,359,314
----------- -----------
Total liabilities and stockholders' equity.................... $17,995,083 $16,412,283
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 4
FIRSTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------------------
1994 1993 1992
-------- -------- --------
(thousands of dollars, except per
share data)
<S> <C> <C> <C>
INTEREST REVENUE
Loans.................................................... $914,311 $824,082 $830,227
Securities:
Taxable................................................ 142,981 145,460 161,603
Nontaxable............................................. 51,251 50,931 55,907
-------- -------- --------
Total securities.................................. 194,232 196,391 217,510
Interest-bearing deposits with banks..................... 345 1,677 5,347
Federal funds sold and resale agreements................. 9,645 5,119 10,366
Trading securities....................................... 1,211 785 792
-------- -------- --------
Total interest revenue............................ 1,119,744 1,028,054 1,064,242
INTEREST EXPENSE
Deposits:
Interest-bearing demand................................ 21,064 29,366 39,872
Money market accounts.................................. 57,275 49,583 61,727
Savings passbook....................................... 43,887 45,330 48,314
Certificates of deposit................................ 199,743 191,579 240,076
-------- -------- --------
Total deposits.................................... 321,969 315,858 389,989
Short-term borrowed funds................................ 77,994 34,366 30,991
Long-term debt........................................... 20,943 17,891 16,891
-------- -------- --------
Total interest expense............................ 420,906 368,115 437,871
-------- -------- --------
NET INTEREST REVENUE..................................... 698,838 659,939 626,371
Provision for loan losses................................ 23,891 29,090 50,733
-------- -------- --------
NET INTEREST REVENUE AFTER LOAN LOSS PROVISION........... 674,947 630,849 575,638
OTHER OPERATING REVENUE
Trust and investment management fees..................... 120,349 112,521 98,296
Service charges on deposit accounts...................... 81,980 83,060 75,273
Credit card service revenue.............................. 56,265 53,728 51,867
Data processing fees..................................... 20,263 21,431 24,215
Mortgage banking revenue................................. 35,478 57,877 38,353
Securities gains (losses)................................ (3,583) 420 2,544
Other revenue............................................ 59,867 63,881 57,388
-------- -------- --------
Total other operating revenue..................... 370,619 392,918 347,936
OTHER OPERATING EXPENSE
Salaries................................................. 312,121 301,171 276,184
Employee benefits........................................ 68,841 67,343 56,354
Equipment expense........................................ 54,556 53,123 52,680
Net occupancy expense.................................... 52,984 58,328 53,514
Net other real estate (income) expense................... (553) 2,354 4,736
Other expense............................................ 218,236 206,955 211,976
-------- -------- --------
Total other operating expense..................... 706,185 689,274 655,444
-------- -------- --------
INCOME BEFORE INCOME TAXES............................... 339,381 334,493 268,130
Provision for income taxes............................... 112,708 106,555 82,131
-------- -------- --------
NET INCOME............................................... $226,673 $227,938 $185,999
======== ======== ========
Net income applicable to common stock.................... $224,450 $221,932 $179,852
PER COMMON SHARE
Net income............................................... $ 2.98 $ 2.99 $ 2.50
Dividends................................................ 1.16 1.00 .80
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 5
FIRSTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
LOSSES ON
SECURITIES
PREFERRED COMMON CAPITAL RETAINED AVAILABLE RESTRICTED TREASURY
STOCK STOCK SURPLUS EARNINGS FOR SALE STOCK STOCK TOTAL
--------- ------- -------- ---------- ---------- ---------- -------- ----------
(thousands of dollars, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1991
As previously reported.......... $49,005 $77,144 $111,518 $ 681,432 $ 0 $ 0 $ (2,760) $ 916,339
Adjustments for poolings of
interests....................... 12,719 11,621 54,204 74,738 153,282
--------- ------- -------- ---------- ---------- ---------- -------- ----------
BALANCE AT DECEMBER 31, 1991 AS
RESTATED........................ 61,724 88,765 165,722 756,170 0 0 (2,760) 1,069,621
Net income........................ 185,999 185,999
Cash dividends:
Preferred stock, series B
($7.5502 per share)........... (3,775) (3,775)
Common stock ($.80 per share)... (49,429) (49,429)
Pooled affiliates............... (7,601) (7,601)
Preferred stock issued:
Pooled affiliates............... 20,125 (894) 19,231
Common stock issued:
Bank acquisitions............... 1,634 15,812 19,948 37,394
Employee benefit plans.......... 184 2,947 416 3,547
Other........................... 118 701 819
Pooled affiliates stock
activity...................... 271 3,289 3,560
Treasury stock purchased.......... (22,492) (22,492)
Pooled affiliate restricted stock
granted......................... 50 450 (500) 0
Pooled affiliate restricted stock
amortization.................... 50 50
--------- ------- -------- ---------- ---------- ---------- -------- ----------
BALANCE AT DECEMBER 31, 1992...... 81,849 91,022 188,027 881,364 0 (450) (4,888) 1,236,924
Net income........................ 227,938 227,938
Cash dividends:
Preferred stock, series B
($7.4419 per share)........... (3,720) (3,720)
Common stock ($1.00 per
share)........................ (63,733) (63,733)
Pooled affiliates............... (9,177) (9,177)
Redemption of preferred stock..... (49,005) (2,495) (51,500)
Redemption of preferred stock of
pooled affiliate................ (3,928) (345) (4,273)
Common stock issued:
Bank acquisitions............... 1,273 12,234 3,098 16,605
Employee benefit plans.......... 130 1,920 31 2,081
Other........................... 628 3,858 4,486
Pooled affiliates stock
activity...................... 264 3,239 3,503
Treasury stock purchased.......... (1,275) (1,275)
Restricted stock granted.......... 38 892 (930) 0
Amortization of restricted
stock........................... 271 271
Pooled affiliate
amortization/adjustment of
restricted stock................ 310 (226) 84
Pooled affiliate stock split...... 901 (901) 0
Pooled affiliate implementation of
change in accounting for
unrealized gains on securities
available for sale.............. 1,100 1,100
--------- ------- -------- ---------- ---------- ---------- -------- ----------
BALANCE AT DECEMBER 31, 1993...... 28,916 94,256 209,234 1,030,177 1,100 (1,335) (3,034) 1,359,314
Net income........................ 226,673 226,673
Cash dividends:
Common stock ($1.16 per
share)........................ (75,081) (75,081)
Pooled affiliates............... (9,707) (9,707)
Pooled affiliate conversion of
preferred stock................. (1,937) 112 1,825 0
Common stock issued:
Bank acquisitions............... 2,078 22,735 4,551 29,364
Employee benefit plans.......... 105 1,563 36 1,704
Pooled affiliates stock
activity...................... (116 ) (5,494) (5,610)
Treasury stock purchased.......... (12,222) (12,222)
Unrealized losses on securities
available for sale.............. (988) (988)
Pooled affiliate change in
unrealized loss on securities
available for sale.............. (1,166) (1,166)
Pooled affiliate restricted stock
granted......................... 30 533 (563) 0
Amortization/adjustment of
restricted stock................ (113) 224 111
Pooled affiliate
amortization/adjustment of
restricted stock................ 170 123 293
--------- ------- -------- ---------- ---------- ---------- -------- ----------
BALANCE AT DECEMBER 31, 1994...... $26,979 $96,465 $230,453 $1,172,062 $ (1,054) $ (1,551) $(10,669) $1,512,685
======= ======= ======== ========= ======== ======== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 6
FIRSTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------------------
1994 1993 1992
----------- ----------- -----------
(thousands of dollars)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................. $ 226,673 $ 227,938 $ 185,999
Adjustments:
Provision for loan losses................................ 23,891 29,090 50,733
Depreciation, amortization and accretion................. 44,211 46,873 67,908
Net (increase) decrease in trading securities............ (16,559) 8,382 (4,824)
Net decrease (increase) in loans held for resale......... 275,326 (72,055) (83,318)
Gain on securities and other assets...................... (9,164) (12,964) (15,293)
Deferred income taxes.................................... 558 (9,531) (13,540)
Decrease in other assets................................. 31,910 5,484 21,540
Increase (decrease) in other liabilities................. 30,045 24,818 (23,681)
Other net................................................ (5,927) (1,557) (3,151)
----------- ----------- -----------
Net cash provided by operating activities.............. 600,964 246,478 182,373
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in federal funds sold and resale
agreements............................................... (58,072) (40,291) 63,582
Net decrease in interest-bearing deposits with banks....... 858 208,815 40,951
Sales of securities........................................ 10,753 205,030
Sales of securities available for sale..................... 131,801
Maturities of securities................................... 1,066,192 1,866,343 2,083,989
Purchases of securities held to maturity................... (1,662,474) (1,901,786) (2,144,784)
Purchases of securities available for sale................. (6,539)
Net increase in loans...................................... (1,070,168) (804,646) (366,755)
Net cash from acquisitions................................. 25,884 11,695 6,713
Proceeds from sales of other real estate................... 18,243 20,623 10,511
Purchases of bank premises and equipment................... (58,735) (43,235) (54,452)
Proceeds from sales of bank premises and equipment......... 1,125 458 2,486
----------- ----------- -----------
Net cash used in investing activities.................. (1,611,885) (671,271) (152,729)
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in deposits........................ (247,949) 179,769 208,792
Net increase in short-term borrowed funds.................. 1,094,553 371,760 63,562
Repayment of long-term debt................................ (31,706) (39,442) (26,336)
Proceeds from long-term debt............................... 43,690 3,263 36,154
Cash dividends............................................. (84,688) (76,510) (60,669)
Proceeds from issuance of preferred stock.................. 19,231
Preferred stock redemption................................. (55,773)
Common stock transactions.................................. (17,999) 3,641 (16,229)
----------- ----------- -----------
Net cash provided by financing activities.............. 755,901 386,708 224,505
----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH AND DUE FROM BANKS......... (255,020) (38,085) 254,149
Cash and due from banks at beginning of year............... 1,373,158 1,411,243 1,157,094
----------- ----------- -----------
Cash and due from banks at end of year..................... $ 1,118,138 $ 1,373,158 $ 1,411,243
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest................................................. $ 407,182 $ 373,314 $ 455,945
Income taxes............................................. 113,463 121,207 87,177
Transfers to foreclosed assets from loans.................. 10,708 9,326 22,124
Acquisitions:
Assets acquired.......................................... 610,541 218,592 655,095
Cash paid for purchase of stock.......................... $ (29,101) $ $ (12,730)
Cash acquired............................................ 54,985 11,695 19,443
----------- ----------- -----------
Net cash from acquisitions............................. $ 25,884 $ 11,695 $ 6,713
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 7
FIRSTAR CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies of Firstar Corporation and its
subsidiaries are summarized as follows:
Principles of consolidation--The consolidated financial statements include
the accounts of Firstar and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. Results of
operations of companies purchased are included from the date of acquisition.
Financial statements have been restated to include companies acquired under
pooling of interests when material. Certain prior year amounts have been
reclassified to conform to current year classifications.
Securities--Purchases of securities that are made with the positive intent
and ability to hold them to maturity are carried at cost, adjusted for
amortization of premium and accretion of discount using a level yield method.
Securities to be held for indefinite periods of time and not intended to be held
to maturity or on a long-term basis are classified as available for sale and
carried at market value. Valuation adjustments are recorded as an adjustment to
stockholders' equity. Securities held for indefinite periods of time may include
securities that management intends to use as part of its asset/liability
management strategy or have been acquired in business acquisitions and are
designated to be sold. Gains or losses on sales of securities are computed on
the basis of specific identification of the adjusted cost of each security.
Trading account securities are carried at market. Valuation adjustments are
included in other revenue in the consolidated statements of income.
Loans--Loans, which include lease financing receivables, are stated at the
principal amount. Interest is accrued on all loans not discounted by applying
the interest rate to the amount outstanding. On discounted loans, income is
recognized on a basis which results in approximately level rates of return over
the term of the loans. Loan origination and commitment fees and certain direct
loan origination costs are being deferred where material and the net amount
amortized as an adjustment of the related loans' yield. These amounts are being
amortized over the contractual life of the related loans. Where it is not
reasonable to expect that income will be realized, accrual of income ceases and
these loans are placed on a "cash basis" for purposes of income recognition.
Loans upon which foreclosure action is commenced or for which borrowers have
begun bankruptcy proceedings are reviewed individually as to continuation of
interest accrual. Mortgage loans held for sale are carried at the lower of
aggregate cost or market, after consideration of related loan sale commitments.
Reserve for loan losses--The reserve for loan losses is maintained at a
level adequate to provide for potential loan losses through charges to operating
expense. The reserve is based upon a continuing review of loans which includes
consideration of actual net loan loss experience, changes in the size and
character of the loan portfolio, identification of problem situations which may
affect the borrowers' ability to repay and evaluation of current economic
conditions. Loan losses are recognized through charges to the reserve.
Installment and credit card loan losses are charged to the reserve based upon
fixed delinquency periods. All other loans are evaluated individually and
charged to the reserve to the extent that outstanding principal balances are
deemed uncollectible. Any subsequent recoveries are added to the reserve.
Other Real Estate--Other real estate, the balance of which is included in
other assets, includes primarily properties acquired through loan foreclosure
proceedings or acceptance of deeds in lieu of foreclosure. These properties are
recorded at the lower of the carrying value of the related loans or the fair
market value of the real estate acquired less the estimated costs to sell the
real estate. Initial valuation adjustments, if any, are charged against the
reserve for loan losses. Subsequent reevaluations of the properties, which
indicate reduced value, are recognized through charges to operating expense.
Revenues and expenditures related to holding and operating these properties are
included in other operating expense.
6
<PAGE> 8
Bank premises and equipment--Bank premises and equipment are stated at cost
less depreciation, which has been accumulated on the straight-line basis.
Intangible assets--Intangible assets attributable to the value of core
deposits and goodwill acquired are included in other assets and are amortized
over fifteen to twenty-five years, on a straight-line basis. The value of
mortgage servicing rights acquired is amortized in relation to the servicing
revenue expected to be earned. Firstar periodically evaluates the carrying value
and remaining amortization periods of intangible assets for impairment.
Adjustments are recorded when the benefit of the intangible asset decreases due
to disposition of branches or deposits with regard to goodwill and core deposit
premium, and prepayments of serviced loans for purchased mortgage servicing
rights.
Income taxes--Firstar and its subsidiaries file a consolidated federal
income tax return. The effect of items of income and expense that are recognized
for financial reporting purposes in periods other than those in which they are
recognized for tax purposes are reflected as a current or deferred tax asset or
liability based on current tax laws. Accordingly, income taxes provided in the
consolidated statements of income include charges or credits for deferred income
taxes related to temporary differences.
Foreign currency transactions--Monetary assets and liabilities recorded in
foreign currencies are translated at the rate of exchange in effect at each
year-end. Income statement items are translated monthly using the average rate
for the month. Firstar enters into forward exchange contracts on behalf of its
customers and hedges its risk by entering into offsetting transactions with
other counterparties. The fair value of these transactions are included in other
assets and liabilities and the related gain or loss is recorded in other
revenue.
Cash and cash equivalents--For purposes of the consolidated statements of
cash flows, cash and cash equivalents are considered to include the balance
sheet caption cash and due from banks.
Derivative and other financial instruments--Firstar enters into interest
rate swaps and other financial instruments to manage interest rate risks arising
from financial assets and financial liabilities and also as an intermediary for
transactions with its customers. Interest rate instruments entered into as an
intermediary are accounted for as trading instruments and are recorded in the
balance sheet at fair value. Realized and unrealized changes in fair values are
recognized in other operating revenue.
Amounts receivable or payable under financial instruments used to manage
interest rate risks are recognized as interest income or expense using the
accrual method. Gains and losses on financial instruments qualifying as hedges
of existing assets or liabilities are included in the carrying amount of those
assets and liabilities. Gains and losses on early termination of interest rate
swaps are included in the carrying amount of the related loan or debt and
amortized as yield adjustments over the remaining term of the loan or debt. Fees
paid or received in connection with interest rate floors and caps are deferred
and amortized over the life of the instrument.
Income per common share--Net Income per common share is based on the
weighted average number of shares of common stock outstanding during each year,
after giving effect to common stock splits and the amortization of restricted
stock. The weighted average shares were 75,195,000 in 1994, 74,131,000 in 1993
and 71,992,000 in 1992. For calculation purposes, earnings are reduced by
preferred stock dividends. Common stock equivalents are not significant in any
year presented.
7
<PAGE> 9
NOTE 2. MERGERS AND ACQUISITIONS
The following table summarizes completed acquisitions:
<TABLE>
<CAPTION>
TOTAL METHOD OF
NAME OF INSTITUTION ASSETS ACQUISITION DATE CONSIDERATION ACCOUNTING
- ---------------------------------------- ------ ---------------- --------------- ----------
(millions of dollars)
<S> <C> <C> <C> <C>
1995:
Investors Bank Corp.
Wayzata, MN........................ $1,134 April 1995 3,006,923 Pooling of
shares of interests
common stock
First Moline Financial Corp.
Moline, IL......................... $ 86 March 1995 313,650 shares Purchase
of common stock
First Colonial Bankshares Corporation
Chicago, IL........................ $1,780 January 1995 7,700,767 Pooling of
shares of interests
common stock
------
Total............................ $3,000
======
1994:
First Southeast Banking Corp.
Lake Geneva, WI.................... $ 423 October 1994 1,801,577 Pooling of
shares of interests
common stock
------
Total............................ $ 423
======
1993:
Bank of Athens
Athens, WI......................... $ 102 August 1993 447,655 shares Pooling of
of common stock interests
Deerfield State Bank
Deerfield, IL...................... 120 February 1993 676,317 shares Pooling of
of common stock interests
------
Total............................ $ 222
======
1992:
Federated Bank, S.S.B.
Wauwatosa, WI...................... $ 413 September 1992 Cash $12.7 Purchase
734,616 shares
of common stock
Citizens National Bank of Lake Geneva
Lake Geneva, WI.................... 49 August 1992 262,958 shares Pooling of
of common stock interests
First National Bank of Geneva
Geneva, IL......................... 193 June 1992 999,704 shares Pooling of
of common stock interests
------
Total............................ $ 655
======
</TABLE>
The acquisitions of First Colonial Bankshares Corporation and Investors
Bank Corp. were completed in January and April 1995 respectively. The financial
statements of Firstar Corporation as presented herein have been restated giving
effect to these transactions as poolings of interests. The table below
reconciles total assets and net income previously reported by Firstar
Corporation to the data reported in the restated consolidated statements.
8
<PAGE> 10
The other bank acquisitions shown above, accounted for as poolings of
interests were not material to prior years' reported operating results and,
accordingly, previously reported results have not been restated.
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------------------
1994 1993 1992
----------- ----------- -----------
(thousands of dollars, except per share
data)
<S> <C> <C> <C>
Total assets:
Firstar Corporation................................. $15,104,307 $13,793,995 $13,168,917
First Colonial Bankshares Corporation............... 1,766,746 1,601,203 1,576,565
Investor Bank Corp. ................................ 1,124,030 1,017,085 815,844
----------- ----------- -----------
Restated....................................... $17,995,083 $16,412,283 $15,561,326
========== ========== ==========
Net Income:
Firstar Corporation................................. $ 207,743 $ 204,294 $ 165,985
First Colonial Bankshares Corporation............... 12,002 13,619 12,202
Investor Bank Corp. ................................ 6,928 10,025 7,812
----------- ----------- -----------
Total $ 226,673 $ 227,938 $ 185,999
========== ========== ==========
Net Income per common share:
Firstar Corporation................................. $ 3.22 $ 3.15 $ 2.62
Firstar Corporation -- Restated..................... 2.98 2.99 2.50
</TABLE>
NOTE 3. INTANGIBLE ASSETS
Intangible assets, net of accumulated amortization, are summarized as
follows:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------------------
1994 1993 1992
----------- ----------- -----------
(thousands of dollars)
<S> <C> <C> <C>
Goodwill.............................................. $ 107,967 $ 98,527 $ 105,372
Core deposit intangibles.............................. 17,538 20,519 23,503
Purchased mortgage servicing rights................... 8,718 6,810 14,083
----------- ----------- -----------
Total............................................ $ 134,223 $ 125,856 142,958
========== ========== ==========
Amortization of intangibles during year............... $ 11,746 $ 18,738 $ 22,562
</TABLE>
9
<PAGE> 11
NOTE 4. SECURITIES
The amortized cost and approximate market values of securities are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1994
----------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
(thousands of dollars)
<S> <C> <C> <C> <C>
Held to maturity:
U.S. Treasury and federal agencies............ $1,613,291 $ 1,001 $ (65,163) $1,549,129
Mortgage backed obligations of federal
agencies................................... 867,990 1,889 (31,865) 838,014
State and political subdivisions.............. 1,069,755 6,913 (23,715) 1,052,953
Corporate debt................................ 78,677 103 (1,454) 77,326
Equity securities............................. 57,621 57,621
Other......................................... 63,561 63,561
---------- ---------- ---------- ----------
Total...................................... $3,750,895 $ 9,906 $ (122,197) $3,638,604
========= ======== ========= =========
Available for sale:
U.S. Treasury and federal agencies............ $ 203,974 $ 10 $ (1,045) $ 202,939
Mortgage backed obligations of federal
agencies................................... 12,672 103 (715) 12,060
State and political subdivisions.............. 7,754 59 (93) 7,720
---------- ---------- ---------- ----------
Total...................................... $ 224,400 $ 172 $ (1,853) $ 222,719
========= ======== ========= =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1993
----------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
(thousands of dollars)
<S> <C> <C> <C> <C>
Held to maturity:
U.S. Treasury and federal agencies............ $1,510,216 $ 24,890 $ (2,992) $1,532,114
Mortgage backed obligations of federal
agencies................................... 361,784 15,041 (749) 376,076
State and political subdivisions.............. 1,036,236 24,785 (1,941) 1,059,080
Corporate debt................................ 108,429 1,281 (329) 109,381
Equity securities............................. 32,122 32,122
Other......................................... 101,520 101,520
---------- ---------- ---------- ----------
Total...................................... $3,150,307 $ 65,997 $ (6,011) $3,210,293
========= ======== ========= =========
Available for sale:
U.S. Treasury and federal agencies............ $ 79,159 $ 51 $ (10) $ 79,200
Mortgage backed obligations of federal
agencies................................... 93,096 529 (198) 93,427
State and political subdivisions.............. 31,767 1,464 33,231
Corporate debt................................ 3,590 (3) 3,587
---------- ---------- ---------- ----------
Total...................................... $ 207,612 $ 2,044 $ (211) $ 209,445
========= ======== ========= =========
</TABLE>
10
<PAGE> 12
The amortized cost and approximate market value of securities at December
31, 1994, by contractual maturity, are shown below. Maturities of mortgage
backed obligations were estimated based on anticipated payments.
<TABLE>
<CAPTION>
HELD TO MATURITY AVAILABLE FOR SALE
------------------------ --------------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
---------- ---------- ----------- -----------
(thousands of dollars)
<S> <C> <C> <C> <C>
Due in one year or less................... $ 661,540 $ 657,936 $ 165,811 $ 165,620
Due after one year through five years..... 2,109,100 2,033,716 23,530 23,034
Due after five years through ten years.... 702,660 681,413 32,428 31,807
Due after 10 years........................ 219,974 207,918 2,631 2,258
---------- ---------- ----------- -----------
3,693,274 3,580,983 $ 224,400 $ 222,719
Equity securities......................... 57,621 57,621 =========== ===========
---------- ----------
Total................................ $3,750,895 $3,638,604
========== ==========
</TABLE>
Gross gains of $718,000, $476,000 and $2,764,000 and gross losses of
$4,301,000, $56,000 and $220,000 were realized on securities sales in 1994, 1993
and 1992, respectively.
The amortized cost of securities pledged to secure public or trust
deposits, securities sold under repurchase agreements and for other purposes as
required or permitted by law was $947,461,000 at December 31, 1994 and
$821,696,000 at December 31, 1993.
NOTE 5. LOANS
The composition of loans, including lease financing receivables, is
summarized below. Loans are presented net of unearned discount which amounted to
$24,116,000 and $17,417,000 at December 31, 1994 and 1993, respectively.
Commercial loans pledged to secure public deposits were $5,526,000 on December
31, 1994 and $15,444,000 on December 31, 1993. Firstar serviced $3,871 million,
$3,514 million and $2,856 million of mortgage loans for other investors as of
December 31, 1994, 1993 and 1992, respectively. Residential mortgage loans held
for resale were $39,296,000 and $304,302,000 on December 31, 1994 and 1993,
respectively.
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1994 1993
----------- -----------
(thousands of dollars)
<S> <C> <C>
Commercial and industrial........................................ $ 2,934,609 $ 2,636,626
Real estate--construction........................................ 329,717 262,476
Real estate--mortgage............................................ 2,450,638 2,141,101
Foreign.......................................................... 32,395 31,269
Other............................................................ 931,488 894,101
----------- -----------
Commercial..................................................... 6,678,847 5,965,573
Credit card...................................................... 575,278 547,769
Real estate--mortgage............................................ 2,414,217 2,299,100
Home equity...................................................... 767,539 645,002
Other............................................................ 1,469,948 1,367,377
----------- -----------
Consumer....................................................... 5,226,982 4,859,248
----------- -----------
Total....................................................... $11,905,829 $10,824,821
=========== ===========
</TABLE>
11
<PAGE> 13
Loans on which income is recognized only as cash payments are received or
is accrued at less than the original contract rate are summarized below.
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------
1994 1993 1992
-------- -------- --------
(thousands of dollars)
<S> <C> <C> <C>
Commercial............................................... $ 59,448 $ 57,074 $ 61,247
Consumer................................................. 9,831 10,880 13,287
-------- -------- --------
Total $ 69,279 $ 67,954 $ 74,534
======== ======== ========
</TABLE>
The effect of nonperforming loans on interest revenue was as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------
1994 1993 1992
-------- -------- --------
(thousands of dollars)
<S> <C> <C> <C>
Interest at original contract rate....................... $ 8,229 $ 7,949 $ 9,423
Interest collected....................................... 3,844 2,919 2,381
-------- -------- --------
Net reduction of interest revenue................... $ 4,385 $ 5,030 $ 7,042
======== ======== ========
</TABLE>
Certain executive officers, directors, shareholders, and their associates
of Firstar and significant subsidiaries are loan customers of the banking
subsidiaries. Loans outstanding to such parties were $150.3 million on December
31, 1994 and $154.5 million on December 31, 1993. During 1994 new loans of $34.9
million were made and loan payments of $39.1 million were received. These loans
were made in the ordinary course of business and on substantially the same terms
as those prevailing for comparable transactions with other persons.
NOTE 6. RESERVE FOR LOAN LOSSES
An analysis of the reserve for loan losses is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------
1994 1993 1992
-------- -------- --------
(thousands of dollars)
<S> <C> <C> <C>
Balance at beginning of year............................. $189,714 $183,251 $163,197
Provision for loan losses................................ 23,891 29,090 50,733
Loan recoveries.......................................... 19,961 17,732 18,665
Loan charge-offs......................................... (47,728) (42,838) (55,477)
Reserves of acquired banks............................... 4,714 2,479 6,133
-------- -------- --------
Balance at end of year................................. $190,552 $189,714 $183,251
======== ======== ========
Charge-offs, net of recoveries, as a percentage of
average loans.......................................... .25% .25% .40%
Reserve as a percentage of year-end loans................ 1.60 1.75 1.87
</TABLE>
The Financial Accounting Standards Board issued Statement No. 114,
"Accounting by Creditors for Impairment of a Loan", which is effective in 1995.
The Statement established procedures for determining the appropriate reserve for
loan losses for loans deemed impaired. The calculation of reserve levels would
be based upon the discounted present value of expected cash flows received from
the debtor or other measures of value such as market prices or collateral
values. This statement was adopted January 1, 1995 and did not have any
significant impact on the current level of the reserve for loan losses and is
not expected to effect 1995 operating results.
12
<PAGE> 14
NOTE 7. BANK PREMISES AND EQUIPMENT
Bank premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1994 1993
---------- ---------
(thousands of dollars)
<S> <C> <C>
Land................................................................ $ 43,655 $ 36,200
Bank premises....................................................... 318,216 282,916
Equipment........................................................... 274,274 254,083
---------- ---------
Subtotal.......................................................... 636,145 573,199
Accumulated depreciation............................................ (301,067) (268,774)
---------- ---------
Total............................................................. $ 335,078 $ 304,425
========= =========
</TABLE>
Depreciation charged to other operating expense amounted to $40,003,000,
$39,721,000 and $38,317,000 in 1994, 1993 and 1992, respectively. Rental expense
for bank premises and equipment amounted to $35,804,000, $35,648,000 and
$33,870,000 in 1994, 1993 and 1992, respectively. Contingent rentals and
sublease rental income amounts were not significant.
Occupancy expense is net of amortization of a total of $68 million of
pre-tax deferred gain on a building sale which is being amortized through 1997,
at which time the related leaseback expires. This amortization was $9,029,000 in
1994 and $6,312,000 in 1993 and 1992.
Firstar and its subsidiaries are obligated under noncancellable operating
leases for various bank premises and equipment. These leases expire
intermittently over the years through 2038. The minimum rental commitments under
noncancellable leases for the next five years are shown below.
<TABLE>
<CAPTION>
PERIOD AMOUNT
---------- ---------
(thousands of dollars)
<S> <C> <C>
Bank premises and equipment........................................... 1995 $ 23,052
1996 21,872
1997 21,126
1998 18,998
1999 18,246
</TABLE>
NOTE 8. SHORT-TERM BORROWED FUNDS
Short-term borrowed funds are summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ---------
(thousands of dollars)
<S> <C> <C> <C>
Federal funds purchased and repurchase agreements:
At December 31........................................ $2,133,709 $1,076,316 $ 818,266
Average during year................................... 1,530,644 777,185 647,005
Maximum month-end balance............................. 2,133,709 1,087,606 840,692
Average rate at year-end.............................. 5.59% 2.90% 2.62%
Average rate during year.............................. 4.28 2.84 3.32
</TABLE>
Federal funds purchased, which totaled $1,647 million at December 31, 1994,
generally represent one-day borrowings obtained primarily from financial
institutions in Firstar's marketplace in conjunction with their customer
correspondent relationships with the subsidiary banks. Securities sold under
repurchase agreements, which totaled $487 million at December 31, 1994,
represent borrowings maturing within one year that are secured by U.S. Treasury
and federal agency securities. Other short-term borrowed funds comprise
primarily treasury, tax and loan notes and Federal Home Loan Bank notes.
13
<PAGE> 15
NOTE 9. LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1994 1993
-------- --------
(thousands of
dollars)
<S> <C> <C>
Federal Home Loan Bank notes............................................ $101,500 $108,000
10 1/4% subordinated notes.............................................. 78,340 78,405
10% notes............................................................... 43,910 44,200
9 1/4% subordinated notes............................................... 23,000 23,000
Other debt.............................................................. 25,795 13,030
-------- --------
Total.............................................................. $272,545 $266,635
======== ========
</TABLE>
Notes payable to the Federal Home Loan Bank are collateralized by Federal
Home Bank stock and first mortgage real estate loans. The notes mature from 1996
through 2000 and have a variable interest rate with an average of 5.50% as of
December 31, 1994.
Firstar issued $100,000,000 of 10 1/4% notes under an indenture dated as of
May 1, 1988. The notes, which are subordinated to all unsubordinated
indebtedness of Firstar for borrowed money, are unsecured and mature May 1,
1998. The indenture contains a provision which restricts the disposition of or
subjecting to lien any common stock of certain subsidiaries.
Firstar issued $50,000,000 of 10% notes under an indenture dated as of June
1, 1986. The notes are unsecured and mature June 1, 1996. The indenture contains
a provision which restricts the disposition of or subjecting to lien any common
stock of certain subsidiaries.
The 9.25% subordinate notes are unsecured and may be redeemed at par on or
after December 15, 1995. The notes mature December 15, 2002.
Other debt at December 31, 1994 includes notes of $2,706,000 which bear
interest at 11.50% and mature in 1996, loans sold under a repurchase agreement
of $10,000,000 which mature in 1999 and bear interest at a variable LIBOR based
rate, a variable rate term note of $8,473,000 due in 1998, and capitalized lease
obligations of $2,061,000.
Long-term debt has aggregate maturities for the five years 1995 through
1999 as follows: $1,985,000 in 1995, $58,431,000 in 1996, $43,653,000 in 1997,
$106,910,000 in 1998 and $10,033,000 in 1999.
Firstar has repurchased portions of the 10 1/4% and 10% notes and incurred
losses of $25,000, $57,000 and $605,000, in 1994, 1993 and 1992, respectively.
14
<PAGE> 16
NOTE 10. STOCKHOLDERS' EQUITY
The authorized and outstanding shares of Firstar are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1994 1993
----------- -----------
<S> <C> <C>
Preferred stock, $1.00 par value
Authorized--Series C............................................. 2,500,000 2,500,000
Preferred stock from acquired banks:
First Colonial Bankshares Corporation, Series B
Authorized.................................................... 12,500
Outstanding................................................... 7,500
First Colonial Bankshares Corporation, Series C
Authorized.................................................... 40,250 40,250
Outstanding................................................... 38,775 40,250
Investors Bank Corp.
Authorized.................................................... 1,000,000 1,000,000
Outstanding................................................... 303,640 303,640
Common stock, $1.25 par value:
Authorized.................................................... 120,000,000 120,000,000
Outstanding (net of treasury stock)........................... 76,379,532 74,845,673
</TABLE>
Under the Firstar Shareholder rights plan each share of common stock
entitles its holder to one-half right. Under certain conditions, each right
entitles the holder to purchase one one-hundredth of a share of Series C
preferred stock at a price of $85, subject to adjustment. The rights will only
be exercisable if a person or group has acquired, or announced an intention to
acquire, 20% or more of the outstanding shares of Firstar common stock. Under
certain circumstances, including the existence of a 20% acquiring party, each
holder of a right, other than the acquiring party, will be entitled to purchase
at the exercise price Firstar common shares having a market value of two times
the exercise price. In the event of the acquisition of Firstar by another
company subsequent to a party acquiring 20% or more of Firstar common stock,
each holder of a right is entitled to receive the acquiring company's common
shares having a market value of two times the exercise price. The rights may be
redeemed at a price of $.01 per right prior to the existence of a 20% acquiring
party, and thereafter, may be exchanged for one common share per right prior to
the existence of a 50% acquiring party. The rights will expire on January 19,
1999. The rights do not have voting or dividend rights and until they become
exercisable, have no dilutive effect on the earnings of Firstar. Under the
rights plan, the Board of Directors of Firstar may reduce the thresholds
applicable to the rights from 20% to not less than 10%.
Preferred shares, when issued, rank prior to common shares both as to
dividends and liquidation but have no general voting rights. The Series C
preferred stock, none of which is outstanding, is entitled to 100 votes per
share and other rights such that the value of a one one-hundredth interest in a
Series C preferred share should approximate the value of one common share.
Firstar redeemed all of its Series B preferred stock on December 29, 1993
at $103 per share plus accrued dividends. Dividends deducted from net income for
purposes of determining net income applicable to common stockholders were
$3,266,000 in 1993 and $3,747,000 in 1992.
First Colonial Bankshares Corporation in April, 1992 issued 40,250 shares
of its Series C preference stock, represented by 863,765 depository shares. Each
share receives annual dividends of $35.00, payable quarterly, and is convertible
into 21.46 shares of common stock. During 1994, a total of 1,475 shares were
converted into 31,653 shares of common stock. Shares may be redeemed after June
30, 1997 at $500 per share. Dividends deducted from net income for purposes of
determining net income applicable to common stockholders were $1,389,000 in
1994, $1,409,000 in 1993, and $951,000 in 1992. On January 31, 1995 Firstar
converted 38,775 shares of First Colonial Bankshares Corporation Series C
preference stock into 38,775 shares of its Series D, preferred stock in
connection with the acquisition of First Colonial Bankshares Corporation.
15
<PAGE> 17
Investors Bank Corp. in November, 1991 issued 303,640 shares of preferred
stock in exchange for $7,591,000 of their 12.75% subordinated capital notes due
1999. The preferred stock was issued in units consisting of one share of
preferred stock and one warrant to purchase one half of Investor's Bank Corp.
common stock. Each share received annual dividends of $3.1875 until October,
1993 and are at an annual rate of $2.75 thereafter. Dividends are cumulative
from the date of original issue and are payable quarterly. Dividends deducted
from net income for purposes of determining net income applicable to common
stockholders were $835,000 in 1994, $946,000 in 1993, and $968,000 in 1992.
Shares are redeemable on or after October 31, 1996, at $25.00 per share plus
accumulated and unpaid dividends. Pursuant to the merger of Investors Bank Corp.
and Firstar Corporation each outstanding share of preferred stock would have the
right to receive $27.50 plus accumulated and unpaid dividends. Pursuant to the
merger of Investor Bank Corp. and Firstar Corporation the warrants became
warrants to purchase Firstar common stock. The warrants permit the purchase of
174,758 shares of common stock at a price of $12.75 per share on or after
February 11, 1992. The warrants expire on November 13, 1996.
First Colonial Bankshares Corporation converted in March 1994, all issued
and outstanding shares of their Series B preference stock into 57,938 shares of
common stock. Dividends deducted from net income for purposes of determining net
applicable for common stock were $102,000 in 1993 and $102,000 in 1992.
First Colonial Bankshares Corporation in September 1993, redeemed all
issued and outstanding shares of their Series A preferred stock at a price of
$62.00 per share. Dividends deducted from net income for purposes of determining
net income applicable for common stock were $284,000 in 1993 and $379,000 in
1992.
In conjunction with long-term incentive plans, 94,414 shares of restricted
common stock are being held in escrow for executive officers as of December 31,
1994. The shares cannot be sold prior to the end of the vesting period and are
subject to adjustment in accordance with the terms of the award.
Firstar reacquired 234,200 shares of its common stock during 1994 which are
expected to be reissued in 1995 in connection with a specific purchase business
combination.
NOTE 11. STOCK OPTIONS
Firstar has an incentive stock plan that provides for a maximum grant of
5,600,000 stock options, stock appreciation rights and/or shares of stock. The
options expire ten years and one month after the date of grant.
Firstar in connection with bank acquisitions, converted existing options
for shares of the acquired banks into an equivalent number of options for shares
of Firstar common stock. As of December 31, 1994 these
16
<PAGE> 18
options totalled 1,414,996 with an exercise price of $4.11 to $25.99. No
additional stock options will be awarded under these plans.
The following table summarizes option activity under these plans:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OPTION PRICE
--------- ----------------
<S> <C> <C>
Options outstanding at December 31, 1991......................... 2,476,206 $ 2.88 to $24.12
Granted........................................................ 627,829 10.59 to 25.13
Exercised...................................................... (397,533) 2.88 to 25.13
Cancelled...................................................... (79,455) 4.76 to 25.13
---------
Options outstanding at December 31, 1992......................... 2,627,047 2.88 to 25.13
Granted........................................................ 633,086 12.32 to 32.50
Exercised...................................................... (328,031) 2.88 to 21.68
Cancelled...................................................... (119,230) 5.19 to 32.50
---------
Options outstanding at December 31, 1993......................... 2,812,872 2.88 to 32.50
Granted........................................................ 549,258 19.59 to 31.25
Assumed through acquisitions................................... 27,832 9.36 to 15.72
Exercised...................................................... (262,093) 2.88 to 25.13
Cancelled...................................................... (50,305) 2.88 to 32.50
---------
Options outstanding at December 31, 1994......................... 3,077,564 4.11 to 32.50
=========
</TABLE>
At December 31, 1994, 2,356,964 options to acquire common stock were
exercisable, including all options of acquired banks whose options vested on the
merger date. In January 1995, options to acquire 499,300 shares of common stock
at $27.38 to $27.50 per share were granted.
NOTE 12. OTHER OPERATING EXPENSE
A summary of other operating expense is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------
1994 1993 1992
-------- -------- --------
(thousands of dollars)
<S> <C> <C> <C>
F.D.I.C. insurance............................................ $ 28,361 $ 27,898 $ 26,770
Business development.......................................... 26,602 27,789 27,131
Stationery and supplies....................................... 18,087 20,956 20,207
Information processing expense................................ 20,957 19,034 18,274
Professional fees............................................. 17,937 18,355 17,126
Delivery...................................................... 16,105 17,046 17,615
Check kiting loss............................................. 22,000
Other......................................................... 68,187 75,877 84,853
-------- -------- --------
Total....................................................... $218,236 $206,955 $211,976
======== ======== ========
</TABLE>
NOTE 13. EMPLOYEE BENEFIT PLANS
Firstar and its subsidiaries have non-contributory defined benefit pension
plans covering substantially all employees. The benefits are based upon years of
service and the employee's compensation during the last five years of
employment. The funding policy is to contribute annually the minimum amount
necessary to satisfy
17
<PAGE> 19
federal minimum funding standards. Plan assets are primarily invested in listed
stocks and U.S. Treasury and federal agency securities. The table below
summarizes data relative to the plans.
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------
1994 1993 1992
-------- -------- --------
(thousands of dollars)
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation................................... $175,537 $168,978 $145,806
Accumulated benefit obligation.............................. 179,086 172,742 148,892
Projected benefit obligation................................ 218,660 215,931 190,405
Plan assets at fair value..................................... 195,436 205,941 190,667
Plan assets (less than) in excess of projected benefit
obligation.................................................. (23,224) (9,990) 262
Unrecognized prior service cost............................... (2,075) (2,360) (859)
Unrecognized net asset........................................ (5,914) (7,147) (8,381)
Unrecognized net loss (gain).................................. 18,797 4,341 (5,857)
-------- -------- --------
Pension liability........................................ $(12,416) $(15,156) $(14,835)
======== ======== ========
Net pension expense comprised the following:
Service cost................................................ $ 7,852 $ 7,176 $ 6,739
Interest cost on projected benefit obligation............... 16,355 15,705 14,389
Actual loss (return) on plan assets......................... 8,725 (20,008) (13,133)
Net amortization and deferral............................... (26,755) 2,994 (2,870)
-------- -------- --------
Net pension expense...................................... $ 6,177 $ 5,867 $ 5,125
======== ======== ========
Assumptions used in actuarial values:
Discount rate............................................... 8.50% 7.75% 8.25%
Rates of increase in compensation levels.................... 5.50 5.50 6.00
Expected rate of return on plan assets...................... 9.00 9.50 9.50
</TABLE>
Firstar also has unfunded pension plans covering certain employees.
Interest rates used in calculating the actuarial values are essentially the same
as in the previously described plans. The table below summarizes data relative
to the plans.
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------
1994 1993 1992
-------- -------- --------
(thousands of dollars)
<S> <C> <C> <C>
Projected benefit obligation.................................. $(12,238) $ (9,275) $ (6,257)
Unrecognized prior service cost............................... 2,779
Unrecognized transition obligation............................ 189 232 275
Unrecognized net loss......................................... 2,641 3,847 1,486
-------- -------- --------
Pension liability........................................ $ (6,629) $ (5,196) $ (4,496)
======== ======== ========
Net pension expense comprised the following:
Service cost................................................ $ 436 $ 218 $ 131
Interest cost on projected benefit obligation............... 916 612 474
Net amortization and deferral............................... 416 211 122
-------- -------- --------
Net pension expense...................................... $ 1,768 $ 1,041 $ 727
======== ======== ========
</TABLE>
First Colonial Bankshares Corporation's pension plan existed as a defined
plan until October 31, 1989, the effective date of the plan curtailment. Under
the curtailment, a plan participant's account is maintained by the plan and is
accessible only when the participant attains age 59 1/2 or upon separation from
the Company. Payouts under the plan are made at the greater of the participant's
account balance on the date of curtailment increased annually by 8%, or an
amount based upon the accrued benefit as of the date of the curtailment
18
<PAGE> 20
discounted at the current pension Benefit Guaranty Corporation's rate. The table
below summarizes the plan's funded status.
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------
1994 1993 1992
------- -------- --------
(thousands of dollars)
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation................................. $(1,511) $ (2,193) $ (1,933)
Projected benefit obligation.............................. (1,511) (2,193) (1,933)
Plan assets at fair value................................... 2,114 2,492 2,577
Plan assets in excess of projected benefit obligation....... 603 299 644
Unrecognized net loss....................................... 673 1,125 991
------- -------- --------
Prepaid pension cost................................. $ 1,276 $ 1,424 $ 1,635
======= ======== ========
Net pension expense comprised the following:
Interest cost on projected benefit obligation............. $ 143 $ 149 $ 136
Actual loss (return) on plan assets....................... 33 (134) (127)
Net amortization and deferral............................. (155) 14 (9)
------- -------- --------
Net periodic pension expense........................... 21 29 0
Loss recognized on settlements......................... 128 182
------- -------- --------
Total pension expense................................ $ 149 $ 211 $ 0
======= ======== ========
Assumptions used in actuarial values:
Discount rate............................................. 8.25% 7.00% 7.25%
Expected rate of return on plan assets.................... 8.00 8.00 8.00
</TABLE>
Firstar has profit sharing plans under which eligible employees can
participate by contributing a portion of their salary for investment in one or
more trust funds. Contributions are made to the account of each participant
based upon profitability or at the discretion of the board of directors. Amounts
expensed in connection with this plan were $11,804,000 in 1994, $11,057,000 in
1993 and $9,705,000 in 1992.
In addition to pension benefits, certain health care benefits are made
available to active and retired employees. The table below summarizes data
relative to this benefit program. The program is unfunded and the transition
obligation is being amortized over 20 years.
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1994 1993
-------- --------
(thousands of
dollars)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees........................................................... $(41,029) $(33,507)
Fully eligible active plan participants............................ (7,340) (18,056)
Other active plan participants..................................... (13,290) (20,354)
-------- --------
Total........................................................... (61,659) (71,917)
Unrecognized transition obligation................................. 53,146 56,099
Unrecognized net (gain) loss....................................... (4,872) 8,854
-------- --------
Postretirement benefit liability................................ $(13,385) $ (6,964)
======== ========
Net postretirement benefit expense comprised the following:
Service cost....................................................... $ 1,220 $ 1,515
Interest cost...................................................... 4,721 4,938
Amortization of transition obligation.............................. 2,953 2,953
-------- --------
Net postretirement benefit expense.............................. $ 8,894 $ 9,406
======== ========
</TABLE>
For measurement purposes, an 11% annual rate of increase in the per capita
cost of covered health care benefits was assumed, decreasing to 6% by 2004 and
remaining at that level thereafter. The health care cost
19
<PAGE> 21
trend rate assumption has an effect on the amounts reported. To illustrate,
increasing the assumed health care cost trend rates by one percentage point in
each year would increase the accumulated postretirement accumulated benefit
obligation by $4,954,000 and the aggregate of the service and interest cost
components of net periodic postretirement benefit cost by $405,000. The discount
rate used in determining the accumulated postretirement benefit obligation was
8.50% and 7.75% at December 31, 1994 and 1993, respectively.
NOTE 14. INCOME TAXES
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes", was adopted by Firstar on January 1, 1993. The cumulative effect of
adoption of Statement No. 109 did not have a significant effect on net income in
1993.
The taxes applicable to net income were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------
1994 1993 1992
-------- -------- --------
(thousands of dollars)
<S> <C> <C> <C>
Current income taxes:
Federal..................................................... $ 91,584 $ 95,271 $ 78,377
State and other............................................. 20,566 20,940 17,294
-------- -------- --------
Subtotal................................................. 112,150 116,211 95,671
Deferred income taxes (benefit):
Federal..................................................... 419 (6,454) (12,379)
State and other............................................. 139 (798) (1,161)
-------- -------- --------
Subtotal................................................. 558 (7,252) (13,540)
Cumulative effect of change in accounting principle........... (2,404)
-------- -------- --------
Provision for income taxes............................... $112,708 $106,555 $ 82,131
======== ======== ========
</TABLE>
Income tax expense differed from the amount computed by applying the
federal statutory rate of 35% (34% in 1992) to income before taxes as shown
below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------
1994 1993 1992
-------- -------- --------
(thousands of dollars)
<S> <C> <C> <C>
Tax expense at statutory rate................................. $118,989 $117,261 $ 91,393
Increase (reduction) in taxes resulting from:
Tax-exempt income........................................... (21,001) (20,563) (22,688)
State and local taxes--net of federal income tax benefit.... 13,401 13,092 10,648
Amortization of intangibles................................. 2,542 2,265 2,997
Cumulative effect of change in accounting principle......... (2,404)
Adjustment to deferred tax assets and liabilities for
enacted changes in tax laws and rates.................... (1,586)
Other--net.................................................. (1,223) (1,510) (219)
-------- -------- --------
Provision for income taxes............................... $112,708 $106,555 $ 82,131
======== ======== ========
</TABLE>
20
<PAGE> 22
The significant components of deferred income tax expense attributable to
income from continuing operations are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
--------------------
1994 1993
-------- --------
(thousands of
dollars)
<S> <C> <C>
Deferred tax expense (exclusive of the effects of other components
listed below)......................................................... $ 38 $ (6,364)
Adjustments to deferred tax assets and liabilities for enacted changes
in tax laws and rates................................................. (1,586)
Change in balance of the valuation allowance for deferred tax assets.... 520 698
-------- --------
Total.............................................................. $ 558 $ (7,252)
======== ========
</TABLE>
The significant components of the net deferred tax asset were as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
--------------------
1994 1993
-------- --------
(thousands of
dollars)
<S> <C> <C>
Deferred tax liabilities:
Depreciation of bank premises and equipment........................... $(13,514) $(13,050)
Equipment leased to customers......................................... (14,276) (16,478)
Difference in basis of certain acquired assets accounted for as a
purchase........................................................... (9,265) (10,993)
Deferred tax assets:
Pension costs......................................................... 11,169 8,628
Reserve for loan losses............................................... 75,191 75,016
Other real estate..................................................... 3,904 3,187
Deferred gain on sale of building..................................... 7,720 11,338
Deferred compensation................................................. 7,089 6,977
State and federal net operating loss carryforwards.................... 10,532 8,965
Other--net............................................................ 9,795 8,909
-------- --------
Subtotal........................................................... 88,345 82,499
Less valuation allowance................................................ (11,066) (9,271)
-------- --------
Net deferred tax asset............................................. $ 77,279 $ 73,228
======== ========
</TABLE>
The deferred tax asset increased due to tax benefits recorded on securities
which were marked-to-market in accordance with Statement No. 115 and
acquisitions.
The valuation allowance has been recognized primarily to offset deferred
tax assets related to state net operating loss carryforwards totaling
approximately $187,000,000 which expire at various times within the next 15
years. If realized, the tax benefit for these items will reduce current tax
expense for that period. A valuation allowance of $1,275,000 was added in 1994
due to the acquisition of First Southeast Banking Corp.
Other assets include net deferred income tax charges of $77,279,000 and
$73,228,000 at December 31, 1994 and 1993, respectively. Furthermore, amounts
originally reported for 1993 have been reclassified to reflect actual tax return
results.
NOTE 15. COMMITMENTS AND CONTINGENT LIABILITIES
Firstar has outstanding at any time a significant number of commitments to
extend credits to its customers. These commitments include revolving credit
agreements, term loan commitments, short-term borrowing agreements and standby
letters of credit. These commitments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amounts recognized in the
consolidated balance sheets.
21
<PAGE> 23
Commitments to extend credit are agreements to lend to a customer as long
as there is not a violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.
Credit card commitments are unsecured agreements to extend credit. Such
commitments are reviewed periodically, at which time the commitments may be
maintained, increased, decreased or canceled depending upon evaluation of the
customer's credit worthiness and other considerations.
Standby and commercial letters of credit are conditional commitments issued
by Firstar to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private borrowing
arrangements, including commercial paper, bond financing and similar
transactions.
Firstar uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments. Firstar evaluates each
customer's credit worthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary upon extension of credit, is based on management's
credit evaluation of the party.
Firstar originates and sells residential mortgage loans as a part of
various mortgage-backed security programs sponsored by United States government
agencies or government-sponsored agencies, such as the Federal Home Loan
Mortgage Corporation, the Federal National Mortgage Association and the
Government National Mortgage Association. These sales are often subject to
certain recourse provisions in the event of default by the borrower.
The following is a summary of such commitments at December 31, 1994 and
1993:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1994 1993
------ ------
(millions of dollars)
<S> <C> <C>
Commitments to extend credit........................................... $4,461 $4,140
Credit card lines...................................................... 1,543 1,365
Standby and commercial letters of credit............................... 422 372
Mortgage loans sold with recourse...................................... 36 27
</TABLE>
Firstar and its subsidiaries are subject to various legal actions and
proceedings in the normal course of business, some of which involve substantial
claims for compensatory or punitive damages. Although litigation is subject to
many uncertainties and the ultimate exposure with respect to these matters
cannot be ascertained, management does not believe that the final outcome will
have a material adverse effect on the financial condition of Firstar.
NOTE 16. REGULATORY RESTRICTIONS ON SUBSIDIARY DIVIDENDS AND CASH
Federal regulations require Firstar to maintain as reserves, minimum cash
balances based on deposit levels at subsidiary banks. Cash balances restricted
from usage due to these requirements were $253 million and $276 million at
December 31, 1994 and 1993, respectively.
Firstar's subsidiary banks are restricted by regulation as to the amount of
funds which can be transferred to the parent in the form of dividends. As of
December 31, 1994, $255 million could be paid to Firstar by subsidiary banks in
the form of dividends. In addition each subsidiary bank could pay dividends to
Firstar in an amount which approximates Firstar's equity in their 1995 net
income. The payment of dividends by any subsidiary bank may also be affected by
other factors beyond this regulatory limitation, such as maintenance of adequate
capital for each subsidiary bank.
22
<PAGE> 24
NOTE 17. DERIVATIVE FINANCIAL INSTRUMENTS
Rate Risk Management
As part of its asset and liability management, Firstar uses various types
of interest rate contracts for the purpose of managing its interest rate risks.
The use of interest rate contracts enables Firstar to synthetically alter the
repricing characteristics of designated earning assets and interest-bearing
liabilities. The following tables summarize the notional amounts of interest
rate contracts at December 31, 1994, used by Firstar in its asset and liability
management process:
<TABLE>
<CAPTION>
INTEREST RATE SWAPS
-------------------------------------------
RECEIVE FIXED RATE TOTAL
------------------- INTEREST
INDEX RECEIVE PERIODIC CAPS AND RATE
AMORTIZING OTHER VARIABLE CAPS FLOORS CONTRACTS
---------- ----- -------- -------- -------- ---------
(millions of dollars)
<S> <C> <C> <C> <C> <C> <C>
December 31, 1992........................ $ $ 113 $ 193 $ $ 80 $ 386
Additions.............................. 200 10 50 720 120 1,100
Maturities............................. (63) (57) (20) (140)
---- ----- ------ ---- ---- -------
December 31, 1993........................ 200 60 186 720 180 1,346
Additions.............................. 90 50 5 210 241 596
Maturities............................. (35) (115) (40) (190)
---- ----- ------ ---- ---- -------
December 31, 1994........................ $290 $ 75 $ 76 $930 $381 $ 1,752
==== ===== ====== ==== ==== =======
</TABLE>
Index amortizing interest rate swaps are used to convert variable rate
loans to a fixed rate basis. The amortizing feature of these swaps serves to
extend the maturity after a predetermined mandatory period if the three-month
LIBOR index rate is above a pre-established reference rate on a quarterly basis.
Additionally, the notional amount of the swaps is reduced on a quarterly basis
based upon pre-established rates beginning in 1997.
Interest rate swaps used to convert variable rate loans to fixed rate loans
have a total notional value of $75 million. Other swaps totalling $76 million
were used to convert fixed rate loans and securities to a variable rate basis.
Interest rate swaps with periodic caps involve the exchange of LIBOR based
variable interest payments with one party receiving a fixed basis point shim
over the LIBOR index, subject to a 25 basis point cap in quarterly increases in
rates receivable by Firstar. These swaps were entered into in 1993 and early
1994, when interest rates were at cycle lows, to preserve the net interest
margin on variable rate loans which were funded by low cost savings and
transaction deposit accounts. These swaps hedge loans of $230 million and
deposits of $700 million.
Interest rate floors provide for the receipt of payments when the three
month LIBOR rate is below a predetermined interest rate floor. Firstar entered
into $195 million of floors to hedge variable rate loans against a decline in
interest rates. Floors were also entered into to hedge $106 million of deposits
where such deposits have a guaranteed interest rate.
Interest rate caps provide for the receipt of payments when the three month
LIBOR rate exceeds predetermined interest rate caps. These instruments manage
interest rate risk on securities and loans.
23
<PAGE> 25
The maturity of derivative financial instruments as of December 31, 1994 is
as follows:
<TABLE>
<CAPTION>
MATURITY RANGE OF DERIVATIVE FINANCIAL INSTRUMENTS
-------------------------------------------------------------------------------------------
WEIGHTED MARKET
AVERAGE VALUE ASSET
1995 1996 1997 1998 1999 BEYOND TOTAL MATURITIES (LIABILITY)
----- ----- ----- ----- ----- ------ ------ ---------- -----------
(millions of dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Rate Swaps
Receive variable........... $ 37 $ 6 $ 25 $ 8 $ 76 1.5 yr $ (0.2)
Average receive rate..... 5.19% 6.12% 6.19% 6.31% 5.79%
Average pay rate......... 5.56% 6.52% 8.33% 8.59% 6.85%
Receive fixed.............. $ 20 $ 55 $ 75 1.2 yrs (1.8)
Average receive rate..... 6.39% 7.20% 6.99%
Average pay rate......... 6.75% 7.07% 6.99%
Receive fixed--amortizing.. $ 100 $ 100 $ 90 $ 290 3.4 yrs (23.2)
Average receive rate..... 4.90% 5.17% 6.00 5.33%
Average pay rate......... 5.62% 5.75% 6.50 5.94%
Periodic cap............... $ 5 $ 205 $ 620 $ 100 $ 930 2.3 yrs (38.8)
Average receive rate..... 6.54% 4.91% 4.34% 4.86% 4.54%
Average pay rate......... 6.50% 6.16% 5.49% 5.94% 5.69%
Interest Rate Floors......... $ 10 $ 50 $ 10 $ 201 $ 30 $ 301 4.3 yrs 1.2
Average floor rate......... 4.50% 4.70% 5.00% 5.04% 5.17% 4.98%
Interest Rate Caps........... $ 80 $ 80 .6 yr 1.2
Average cap rate........... 4.00% 4.00%
----- ----- ----- ----- ----- ----- ------ -------
Total.................. $ 142 $ 276 $ 795 $ 210 $ 299 $ 30 $1,752 2.7 yrs $ (61.6)
===== ===== ===== ===== ===== ===== ====== =======
</TABLE>
- ------------
All interest rates represent rates in effect on December 31, 1994.
Index rate for interest rate caps/floors is three month LIBOR.
The notional values of derivative financial instruments represent the
amounts on which interest payments are exchanged between the counterparties.
Those notional values do not represent direct credit exposures. Firstar is
exposed to credit-related losses in the event of nonperformance by
counterparties to these instruments but does not expect any counterparty to fail
to meet their obligations. Where appropriate, Firstar requires collateral based
upon the positive market value of the exposure taking into account bi-lateral
netting agreements with certain counterparties. Based on market values,
Firstars' credit exposure was $3.6 million at December 31, 1994.
Firstar enters into both mandatory and optional commitments to sell groups
of residential mortgage loans that it originates or purchases as part of its
mortgage banking activities. Firstar commits to sell the loans at specified
prices in a future period typically within 90 days. The risk associated with
these commitments consists primarily of loans not closing in sufficient volumes
and at appropriate yields to meet the sale commitments. Firstar had contracts
totaling $44 million and $328 million on December 31, 1994 and 1993,
respectively. Gains or losses on these contracts are included in the
determination of the market value of mortgages held for sale.
24
<PAGE> 26
Trading Activities
Firstar also acts as an intermediary for customers in their management of
interest rate and foreign currency rate risk. In this regard, Firstar will enter
into interest rate swaps, caps, floors and foreign exchange contracts with
customers to minimize their exposure to market risk. Firstar enters into
essentially offsetting transactions with other counterparties. Customer related
derivative activity is marked-to-market value. The credit exposure at year-end
of $21.1 million is represented by the fair value of contracts with a positive
value. Gross credit exposure amounts disregard the value of any collateral.
Revenue from this intermediary activity was $3.2 million and $1.8 million in
1994 and 1993 respectively.
Information on these transactions is shown below.
<TABLE>
<CAPTION>
1994 1993
------------------------------- -------------------------------
ESTIMATED ESTIMATED
FAIR VALUE FAIR VALUE
NOTIONAL ------------------- NOTIONAL -------------------
AMOUNT YEAR-END AVERAGE AMOUNT YEAR-END AVERAGE
-------- -------- ------- -------- -------- -------
(millions of dollars)
<S> <C> <C> <C> <C> <C> <C>
Interest Rate Swaps:
In a receivable position............... $442 $ 18.1 $21.8 $586 $ 10.0 $11.3
In a payable position.................. 442 18.5 21.3 586 9.1 10.6
Interest Rate Caps/Floors:
Held................................... 115 2.2 1.3 36 .1 .1
Written................................ 115 2.2 1.3 36 .1 .1
Foreign Exchange Contracts:
In a receivable position............... 28 .7 1.0 39 1.5 N/A
In a payable position.................. 29 .7 1.1 38 1.4 N/A
</TABLE>
25
<PAGE> 27
NOTE 18. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments", requires that Firstar disclose estimated
fair values for its financial instruments. Fair value estimates were based on
relevant market data and information about the various financial instruments.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time Firstar's entire holdings of a particular
financial instrument. Because no market exists for a significant portion of
Firstar's financial instruments, fair value estimates are based on judgments
regarding current economic conditions, risk characteristics of various financial
instruments, future expected loss experience, and other factors. These estimates
are subjective and involve uncertainties and matters of significant judgment and
therefore cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
Fair value estimates are based on existing on and off balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities which are not considered
financial instruments. Significant assets that are not considered financial
instruments include goodwill, core deposit-intangibles, certain customer
relationships and fixed assets. In addition, the tax ramifications related to
the realization of the unrealized gains and losses can have a significant effect
on fair value estimates and have not been considered.
Fair value estimates, methods, and assumptions are set forth below for
Firstar's financial instruments.
Cash and short-term investments--The carrying amounts for short-term
investments (which include interest-bearing deposits with banks, federal funds
sold and resale agreements) approximate fair value because they mature in 90
days or less and do not represent unanticipated credit concerns.
Securities--Estimated fair value for securities is based on quoted market
prices. The fair value of certain small issues and municipal securities which
are not readily available through market quotations is assumed to equal carrying
value as these securities generally have short terms. These securities do not
represent a significant portion of the portfolio.
Loans--Fair values were estimated for loans with similar financial
characteristics. The commercial loan portfolio was separated into credit risk
categories by variable and fixed rate loans. The fair value of performing loans,
except for internally criticized commercial and lease financing loans, was
calculated by discounting cash flows using an estimated discount rate that
reflects current market rates, the type of loan, credit risk inherent in the
loan category and repricing characteristics. Fair value for criticized
commercial loans was calculated by reducing the carrying value by an amount that
reflects the estimated principal loss. This loss was based on internal credit
analysis of specific borrowers taking into consideration past loan loss
experience and trends in loan quality. For lease financing loans, carrying value
was considered to approximate fair value.
The fair value of credit card loans was estimated using the net present
value method. Credit card portfolios are not actively traded and the discount
rate used reflects an estimated rate of return based on the credit quality of
the portfolio. This estimate does not include the value that relates to
estimated cash flows from new loans generated from existing cardholders over the
remaining life of the portfolio. For residential mortgages, fair value was
estimated by discounting cash flows adjusted for anticipated prepayments using
discount rates based on current market rates for similar loans.
Deposits--The fair value of deposits with no stated maturity, such as
interest bearing and non-interest bearing demand, savings and money market
accounts, is equal to the amount payable on demand. The fair value of
certificates of deposit is based on the discounted value of contractual cash
flows using current market rates for similar types of deposits.
Borrowed funds--The carrying value of short-term borrowed funds approximate
fair value as they are payable within three months or less. The estimated fair
value of long-term debt is based on broker quotations, when available. Debt for
which quoted prices were not available was valued using cash flows discounted at
a current market rate for similar types of debt.
26
<PAGE> 28
Derivative financial instruments--The fair value of interest rate swap
agreements is based on the present value of the swap primarily using dealer
quotes. Fair values for caps and floors were obtained using an option pricing
model. These values represent the estimated amount Firstar would receive or pay
to terminate the contracts or agreements taking into account current interest
rates and market volatility. The fair value of commitments to extend credit and
standby letters of credit was estimated using fees currently charged to enter
into similar agreements. The fair value of credit card lines is based on
cardholder fees currently being charged.
The estimated fair value of Firstar's financial instruments is summarized
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1993
-------------------------- --------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
----------- ----------- ----------- -----------
(thousands of dollars)
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term investments......... $ 1,474,518 $ 1,474,518 $ 1,670,725 $ 1,670,725
Trading securities...................... 29,050 29,050 12,491 12,491
Securities available for sale........... 222,719 222,719 209,445 209,445
Securities held to maturity............. 3,750,895 3,638,604 3,150,307 3,210,293
Loans, net of allowance for loan
losses............................... 11,715,277 11,501,567 10,635,107 10,883,943
Financial liabilities:
Deposits:
Without stated maturities............ 8,736,971 8,736,971 8,924,723 8,924,723
With stated maturities............... 4,672,244 4,661,409 4,208,600 4,239,524
Short-term borrowed funds............... 2,497,478 2,497,478 1,397,106 1,397,106
Long-term debt.......................... 272,545 272,464 266,635 284,646
Derivative financial instruments:
Asset and liability management:
Interest rate instruments:
Asset.............................. -- 3,728 -- 3,981
Liability.......................... -- 64,778 -- 7,792
Credit commitments...................... -- 13,643 -- 15,345
As Intermediary for customers:
Interest rate contracts:
Asset.............................. 20,491 20,491 -- 10,091
Liability.......................... 20,843 20,843 -- 9,195
Foreign exchange contracts:
Asset.............................. 740 740 1,535 1,535
Liability.......................... 659 659 1,354 1,354
</TABLE>
27
<PAGE> 29
NOTE 19. PARENT CORPORATION CONDENSED FINANCIAL STATEMENTS
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1994 1993
---------- ----------
(thousands of dollars)
<S> <C> <C>
Assets:
Cash and due from banks............................................ $ 670 $ 124
Short-term investments............................................. 70,950 52,485
Commercial loans................................................... 424 694
Loans to bank subsidiaries......................................... 35,000 25,000
Loans to other subsidiaries........................................ 3,758 8,018
Investment in bank subsidiaries.................................... 1,522,825 1,396,922
Investment in other subsidiaries................................... 15,668 13,473
Other assets....................................................... 7,266 6,166
---------- ----------
Total assets.................................................... $1,656,561 $1,502,882
========== ==========
Liabilities and stockholders' equity:
Long-term debt..................................................... $ 124,956 $ 125,311
Other liabilities.................................................. 18,920 18,257
Stockholders' equity............................................... 1,512,685 1,359,314
---------- ----------
Total liabilities and stockholders' equity...................... $1,656,561 $1,502,882
========== ==========
</TABLE>
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------------
1994 1993 1992
---------- ---------- ----------
(thousands of dollars)
<S> <C> <C> <C>
Revenue:
Dividends from bank subsidiaries....................... $ 119,920 $ 135,519 $ 90,611
Dividends from other subsidiaries...................... 4,000 4,024 2,000
Fees from subsidiaries................................. 22,859 21,566 20,005
Investment and loan income............................. 4,897 3,784 3,834
Other revenue.......................................... 1,201 1,673 148
---------- ---------- ----------
Total revenue....................................... 152,877 166,566 116,598
Expense:
Interest............................................... 12,748 13,045 13,578
Salaries and employee benefits......................... 16,003 15,267 14,182
Other expense.......................................... 12,396 10,508 13,290
---------- ---------- ----------
Total expense....................................... 41,147 38,820 41,050
Income before income taxes and equity in undistributed
income of subsidiaries................................. 111,730 127,746 75,548
Provision for income tax expense (benefits).............. (5,413) 8,151 (5,216)
---------- ---------- ----------
Income before equity in undistributed income of
subsidiaries........................................... 117,143 119,595 80,764
Equity in undistributed income of subsidiaries........... 109,530 108,343 105,235
---------- ---------- ----------
Net income.......................................... $ 226,673 $ 227,938 $ 185,999
========== ========== ==========
</TABLE>
28
<PAGE> 30
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------------
1994 1993 1992
--------- --------- ---------
(thousands of dollars)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................... $ 226,673 $ 227,938 $ 185,999
Adjustments:
Equity in undistributed income of subsidiaries........ (109,530) (108,343) (105,235)
Depreciation, amortization and accretion.............. 813 733 729
(Increase) decrease in other assets................... (991) 10,527 (4,397)
Increase in other liabilities......................... 185 3,153 785
Other net............................................. 30 406 1,216
--------- --------- ---------
Net cash provided by operating activities........... 117,180 134,414 79,097
Cash flows from investing activities:
Net (increase) decrease in short-term investments........ (18,465) (18,335) 23,615
Net decrease (increase) in commercial loans.............. 270 174 (1,513)
Net (increase) decrease in loans to subsidiaries......... (5,740) 5,978 2,566
Purchases of premises and equipment...................... (1,031) (902) (328)
Funds invested in acquisitions........................... (12,730)
Capital contributions to subsidiaries.................... (5,950) (710) (10,300)
Purchase of minority shares of subsidiaries.............. (9) (591) (779)
Net decrease (increase) in intercompany receivables...... 622 (956) 168
Other net................................................ 206 167 (451)
--------- --------- ---------
Net cash (used in) provided by investing
activities....................................... (30,097) (15,175) 248
Cash flows from financing activities:
Repayment of long-term debt.............................. (380) (366) (6,428)
Cash dividends........................................... (75,081) (67,453) (53,204)
Preferred stock redemption............................... (51,500)
Common stock transactions................................ (11,076) 138 (19,788)
--------- --------- ---------
Net cash used in financing activities............... (86,537) (119,181) (79,420)
--------- --------- ---------
Net increase (decrease) in cash and due from banks......... 546 58 (75)
Cash and due from banks at beginning of year............... 124 66 141
--------- --------- ---------
Cash and due from banks at end of year..................... $ 670 $ 124 $ 66
========= ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest................... $ 12,753 $ 12,829 $ 13,672
</TABLE>
29
<PAGE> 31
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Firstar Corporation:
We have audited the accompanying consolidated balance sheets of Firstar
Corporation and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the years in the three-year period ended December 31, 1994. These
consolidated financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Firstar
Corporation and subsidiaries at December 31, 1994 and 1993, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1994, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Milwaukee, Wisconsin
January 19, 1995
30
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Firstar Corporation:
Under date of January 19, 1995, we issued our audit report on the
consolidated balance sheets of Firstar Corporation and subsidiaries as of
December 31, 1994 and 1993, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the years in the three-year
period ending December 31, 1994 that were included in the annual report on Form
10-K for the year 1994.
Firstar Corporation is amending its aforementioned annual report by
substituting the attached consolidated financial statements and related notes
for the corresponding statements in item 8 in the original filing which have
been restated for business combinations accounted for as poolings of interests
subsequent to December 31, 1994.
We consent to the use of our audit report dated January 19, 1995, included
in the aforementioned annual report on Form 10-K, as it is being amended.
[Signature]
KPMG Peat Marwick LLP
Milwaukee, Wisconsin
January 19, 1995
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