FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED MARCH 31, 1996 COMMISSION FILE NUMBER 1-2981
FIRSTAR CORPORATION
(Exact Name of Registrant as Specified in its Charter)
WISCONSIN 39-0711710
(State of Incorporation) (I.R.S. EMPLOYER
Identification No.)
777 East Wisconsin Avenue, Milwaukee, Wisconsin 53202
Telephone Number (414) 765-5748
The registrant (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the precedeing
12 months and (2) has been subject to such filing requirements for the
past 90 days.
As of April 30, 1996, 73,305,907 shares of common stock were outstanding.
FIRSTAR CORPORATION
CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets 1
Consolidated Statements of Income 2
Consolidated Statements of Cash Flows 3
Supplemental Footnotes 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Additional Financial Data 14
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 16
<TABLE>
<CAPTION>
FIRSTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------------------------
March 31 December 31 March 31
(thousands of dollars) 1996 1995 1995
- ------------------------------------------------------ ------------ ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 1,179,828 $ 1,310,746 $ 895,395
Interest-bearing deposits with banks 9,625 5,467 9,414
Federal funds sold and resale agreements 80,827 109,945 222,663
Trading securities 10,067 10,029 12,922
Securities held to maturity (market value $2,413,016,
$2,492,346 and $4,013,178 on March 31, 1996,
December 31, 1995 and March 31, 1995) 2,379,425 2,427,030 3,904,686
Securities available for sale 2,036,551 2,047,848 296,595
Loans:
Commercial and industrial 3,217,744 3,078,148 2,948,579
Real estate 2,901,124 2,849,388 2,789,926
Other 969,365 1,038,677 964,250
------------ ------------ ------------
Commercial loans 7,088,233 6,966,213 6,702,755
Credit card 589,008 619,868 533,442
Real estate - mortgage 2,821,273 2,722,531 2,569,642
Home equity 937,677 935,907 810,148
Other 1,382,095 1,387,994 1,462,327
------------ ------------ ------------
Consumer loans 5,730,053 5,666,300 5,375,559
------------ ------------ ------------
Total loans 12,818,286 12,632,513 12,078,314
Reserve for loan losses (202,857) (195,283) (196,215)
------------ ------------ ------------
Loans - net 12,615,429 12,437,230 11,882,099
Bank premises and equipment 350,912 349,233 343,716
Customer acceptance liability 14,532 16,060 27,866
Other assets 446,106 454,712 464,631
------------ ------------ ------------
Total assets $ 19,123,302 $ 19,168,300 $ 18,059,987
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $ 3,122,457 $ 3,461,462 $ 2,928,138
Interest-bearing demand 1,506,358 1,602,350 1,570,989
Money market accounts 2,499,122 2,335,429 2,020,518
Savings passbook 1,643,233 1,634,430 1,754,249
Certificates of deposit 5,355,467 5,277,975 5,253,393
------------ ------------ ------------
Total deposits 14,126,637 14,311,646 13,527,287
Short-term borrowed funds 2,496,506 2,303,159 2,193,435
Other debt 733,204 734,021 525,138
Bank acceptances outstanding 14,532 16,060 27,866
Other liabilities 258,035 278,594 270,430
------------ ------------ ------------
Total liabilities 17,628,914 17,643,480 16,544,156
Stockholders' equity:
Preferred stock 14,414 15,344 26,979
Common stock 94,266 94,266 95,880
Issued: March 31, 1996, 75,413,098 shares
Issued: December 31, 1995, 75,413,098 shares
Issued: March 31, 1995, 76,703,652 shares
Capital surplus 141,265 147,502 211,707
Retained earnings 1,310,468 1,298,857 1,185,441
Treasury stock (80,675) (64,834) (2,600)
Held: March 31, 1996, 2,303,006 shares
Held: December 31, 1995, 2,186,834 shares
Held: March 31, 1995, 478,653 shares
Restricted stock (25) (442) (1,469)
Unrealized gains (losses) on secur avail for sale 14,675 34,127 (107)
------------ ------------ ------------
Total stockholders' equity 1,494,388 1,524,820 1,515,831
------------ ------------ ------------
Total liabilities and stockholders' equity $ 19,123,302 $ 19,168,300 $ 18,059,987
============ ============ ============
-1-
</TABLE>
<TABLE>
<CAPTION>
FIRSTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
- ----------------------------------------------------------------------
Three Months Ended
March 31
(thousands of dollars, except per share data) 1996 1995
- --------------------------------------------- ----------------------
(unaudited)
<S> <C> <C>
INTEREST REVENUE
Loans $ 275,413 $ 258,720
Securities 66,238 59,850
Interest-bearing deposits with banks 148 418
Federal funds sold and resale agreements 649 3,071
Trading securities 131 218
---------- ----------
Total interest revenue 342,579 322,277
INTEREST EXPENSE
Deposits 114,766 103,250
Short-term borrowed funds 30,544 30,621
Other debt 12,933 9,881
---------- ----------
Total interest expense 158,243 143,752
---------- ----------
NET INTEREST REVENUE 184,336 178,525
Provision for loan losses 9,209 13,136
---------- ----------
NET INTEREST REVENUE AFTER
LOAN LOSS PROVISION 175,127 165,389
OTHER OPERATING REVENUE
Trust and investment management fees 35,447 31,684
Service charges on deposit accounts 20,848 19,757
Credit card service revenue 15,568 13,955
Data processing fees 4,616 4,919
Securities gains (losses) 41 (5,683)
Other revenue 28,124 23,583
---------- ----------
Total other operating revenue 104,644 88,215
OTHER OPERATING EXPENSE
Salaries 82,140 81,093
Employee benefits 19,377 19,413
Equipment expense 16,675 13,870
Net occupancy expense 15,913 14,533
Net foreclosed assets expense (income) 108 (343)
Restructuring expense 50,237 19,996
Other expense 43,061 51,194
---------- ----------
Total other operating expense 227,511 199,756
INCOME BEFORE INCOME TAXES 52,260 53,848
Applicable income taxes 15,142 17,563
---------- ----------
NET INCOME $ 37,118 $ 36,285
========== ==========
Net income applicable to common stock $ 36,866 $ 35,737
========== ==========
PER COMMON SHARE
Net income $.50 $.47
Dividends .34 .30
-2-
</TABLE>
<TABLE>
<CAPTION>
FIRSTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------------------------------
Three Months Ended
March 31
(thousands of dollars) 1996 1995
- -------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 37,118 $ 36,285
Adjustments:
Provision for loan losses 9,209 13,136
Depreciation, amortization, and accretion 18,713 7,579
Net (increase) decrease in trading securities (38) 16,128
Net decrease in loans held for resale 23,941 15,521
Gain on sale of assets (254) (1,475)
Decrease (increase) in other assets 31,999 (12,888)
Decrease in other liabilities (18,325) (16,827)
Other, net 452 (270)
------------- --------------
Net cash provided by operating activities 102,815 57,189
Cash Flows from Investing Activities:
Net decrease in federal funds sold and resale agreements 29,118 128,641
Net (increase) decrease in interest-bearing deposits with banks (4,158) 24,118
Purchase of securities available for sale (157,508) (489)
Sale of securities available for sale 38,430 120,451
Maturities of securities available for sale 136,705 0
Maturities of securities held to maturity 101,763 337,580
Purchase of securities held to maturity (57,036) (633,802)
Net decrease (increase) in loans 87,292 (170,063)
Cash acquired in acquisitions 4,901 294
Proceeds from sale of foreclosed assets 1,395 804
Purchase of bank premises and equipment (9,590) (17,666)
Proceeds from sale of bank premises and equipment 62 161
------------- --------------
Net cash provided by (used in) investing activities 171,374 (209,971)
Cash Flows from Financing Activities:
Net (decrease) increase in deposits (429,093) 44,144
Net increase (decrease) in short-term borrowed funds 133,347 (97,316)
Issuance of long-term debt 0 58,500
Repayment of long-term debt (17,817) (3,904)
Common/treasury stock repurchases (76,018) (22,694)
Common/treasury stock transactions 9,982 579
Cash dividends (25,508) (23,246)
------------- --------------
Net cash used in financing activities (405,107) (43,937)
Net decrease in cash and due from banks (130,918) (196,719)
Cash and due from banks at beginning of period 1,310,746 1,092,114
------------- --------------
Cash and due from banks at end of period $ 1,179,828 $ 895,395
============= ==============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 163,114 $ 142,528
Income taxes 10,540 5,268
Transfer to foreclosed assets from loans $ 1,848 $ 2,349
-3-
</TABLE>
FIRSTAR CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL FOOTNOTES (unaudited)
- -----------------------------------------------------
(thousands of dollars except as otherwise indicated)
1. The financial data presented herein are unaudited, but in the opinion
of management, reflect all adjustments which are necessary for a fair
presentation of such information. Results for interim periods should
not be considered indicative of results for a full year. Reference
should be made to the financial statements contained in the
registrant's annual report on Form 10-K for the year ended December
31, 1995.
2. Securities
The amortized cost and approximate market values of securities
are as follows:
<TABLE>
<CAPTION>
March 31, 1996
--------------------------------------------------
Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Securities held to maturity:
U.S. Treasury and federal agencies $ 1,768 $ 131 $ (17)$ 1,882
Mortgage backed obligations of federal agencies 1,237,323 30,352 (6,469) 1,261,206
State and political subdivisions 1,126,128 15,651 (5,932) 1,135,847
Corporate debt 14,009 81 (206) 13,884
Other 197 0 0 197
----------- ----------- ----------- -----------
Total $ 2,379,425 $ 46,215 $ (12,624)$ 2,413,016
=========== =========== =========== ===========
Securities available for sale:
U.S. Treasury and federal agencies $ 1,842,525 $ 32,565 $ (9,023)$ 1,866,067
Mortgage backed obligations of federal agencies 9,633 99 (259) 9,473
State and political subdivisions 9,067 73 (50) 9,090
Corporate debt 1,045 2 (1) 1,046
Equity securities 101,659 0 0 101,659
Money market mutual funds 49,216 0 0 49,216
----------- ----------- ----------- -----------
Total $ 2,013,145 $ 32,739 $ (9,333)$ 2,036,551
=========== =========== =========== ===========
</TABLE>
3. Nonperforming Assets and Past Due Loans
<TABLE>
<CAPTION>
March 31 December 31 March 31
1996 1995 1995
----------- ----------- -----------
<S> <C> <C> <C>
Nonaccrual loans:
Commercial $ 27,611 $ 26,239 $ 30,424
Commercial - real estate 48,107 46,959 36,273
Consumer 16,682 16,187 9,487
----------- ----------- -----------
92,400 89,385 76,184
Renegotiated loans:
Commercial 39 40 69
Commercial - real estate 1,336 1,336 644
----------- ----------- -----------
1,375 1,376 713
Foreclosed assets 8,933 7,141 11,209
----------- ----------- -----------
Total $ 102,708 $ 97,902 $ 88,106
=========== =========== ===========
Nonperforming assets as a percent of:
Loans and foreclosed assets .80 % .77 % .73 %
Total assets .54 .51 .49
Loans past due 90 days and still accruing
Commercial $ 10,902 $ 21,039 $ 16,218
Commercial - real estate 11,900 9,287 10,147
Consumer 23,769 19,084 13,054
----------- ----------- -----------
Total $ 46,571 $ 49,410 $ 39,419
=========== =========== ===========
-4-
</TABLE>
4. Reserve for Loan Losses
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------------
1996 1995
----------- -----------
<S> <C> <C>
Balance - beginning of period $ 195,283 $ 190,552
Provision for loan losses 9,209 13,136
Loan recoveries 5,687 3,957
Loan charge-offs (11,779) (12,295)
Reserves of acquired banks 4,457 865
----------- -----------
Balance - end of period $ 202,857 $ 196,215
=========== ===========
Net charge-offs to average loans .19 % .28 %
Reserve to period-end loans 1.58 1.62
</TABLE>
5. Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------------
1996 1995
----------- -----------
<S> <C> <C>
Balance - beginning of period $ 1,524,820 $ 1,512,685
Net income 37,118 36,285
Common stock issued 0 3,870
Common stock retired (11) (24,407)
Preferred stock converted (1,515) 0
Treasury stock issued 47,533 9,276
Treasury stock purchased (68,691) 0
Restricted stock transactions 1,451 82
Change in unrealized gains(losses) on
securities available for sale (20,809) 947
Dividends - common stock (25,252) (22,359)
- preferred stock (256) (548)
------------------------
Balance - end of period $ 1,494,388 $ 1,515,831
========================
</TABLE>
-5-
FIRSTAR CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL FOOTNOTES (unaudited)
- ---------------------------- -----------------------
6. Derivative Financial Instruments
The following table summarizes the various types of interest rate
contracts that Firstar uses for the purpose of managing interest
rate risk.
<TABLE>
<CAPTION>
March 31, 1996
--------------------------------------------------------------
Market
12-31-95 Average Average Weighted Value
Notional Notional Receive Pay Average Asset
Amount Amount Rate Rate Maturity (Liability)
--------- --------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
(millions)
Interest rate swaps
Receive fixed rate
Index amortizing $ 269 $ 192 5.23 % 5.30 % 2.1 yr $ (1.3)
Other 55 95 6.52 6.49 .2
Receive variable 37 37 5.36 8.01 1.6 (1.3)
Interest rate floors* 601 601 4.88 3.3 4.4
Interest rate caps* 100 100 6.25 .5
--------- --------- -----------
$ 1,062 $ 1,025 $ 1.8
========= ========= ===========
*Interest rate floors and caps provide for the receipt of payments
when the index interest rate is below or above the predetermined
interest rate.
<\TABLE.
7. New Accounting Rules
The Financial Accounting Standards Board issued Statement No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of", which Firstar adopted in 1996. The statement
requires that long-lived assets and certain identifiable intangibles to
be held and used by a company be reviewed for impairment whenever events
or circumstances indicate that the carrying amount of an asset may not be
recoverable. The adoption of this statement did not have any significant
impact on the results of operations.
-6-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Firstar Corporation reported net income for the first quarter of 1996 of
$37.1 million, or $.50 per common share, up 6.4% from the $36.2 million ,
or $.47 per common share , for the same period last year. Return on common
equity was 9.59% for the first quarter of the year, compared with 9.77% for
the same period last year, while return on average assets was .79% compared
to .83% during the first quarter of last year. Table 1 shows the components
of net income and net interest margin.
</TABLE>
<TABLE>
<CAPTION>
Table 1. Condensed income statements - taxable equivalent basis
Three Months Ended
March 31
-------------------------------
1996 1995 Change
------- ----------- ---------
<S> <C> <C> <C>
(millions of dollars)
Interest revenue $ 342.6 $ 322.2 $ 20.4
Taxable-equivalent adjustment 8.6 8.5 0.1
------- ----------- ---------
Interest revenue - taxable-equivalent 351.2 330.7 20.5
Interest expense 158.2 143.7 14.5
------- ----------- ---------
Net interest revenue - taxable-equivalent 193.0 187.0 6.0
Provision for loan losses 9.2 13.1 (3.9)
Other operating revenue 104.6 88.2 16.4
Other operating expense 227.5 199.8 27.7
------- ----------- ---------
Income before income taxes 60.9 62.3 (1.4)
Provision for income taxes 15.2 17.5 (2.3)
Taxable-equivalent adjustment 8.6 8.5 0.1
------- ----------- ---------
Net income $ 37.1 $ 36.3 $ 0.8
======= =========== =========
Yield on earning assets 8.17 % 8.24 % (0.07)
Cost of interest-bearing liabilities 4.51 4.44 0.07
------- ----------- ---------
Interest spread 3.66 3.80 (0.14)
Impact of interest-free funds 0.82 0.85 (0.03)
------- ----------- ---------
Net interest margin 4.48 % 4.65 % (0.17)
======= =========== =========
</TABLE>
Both years' first quarters earnings included restructuring charges which
reduced reported net income. The current year's first quarter earnings
include a $30.3 million, or $.41 per share, after-tax charge associated with a
corporate restructuring. The $22.2 million, or $.29 per share, after-tax
charge taken in the first quarter of 1995 was in connection with several bank
acquisitions. Excluding both quarters' restructuring charges, earnings per
share rose 19.7% over the first quarter of 1995 to $.91 per share from $.76
per share. Return on equity, excluding these charges would have been 17.48%
in 1996 and 15.84% in the first quarter of 1995. Table 2 shows the detail of
these charges.
INSERT TABLE2
<TABLE>
<CAPTION>
Table 2. Restructuring costs
Three months ended March 31
--------------------------
1996 1995
--------------------------
<S> <C> <C>
(thousands of dollars)
Additional loan loss provisions $ 0 $ 8,794
Losses on sales of securities 0 5,709
Restructuring expenses:
Employee severence 22,457 10,400
Facilities and equipment 5,502 4,032
Other 22,278 5,564
----------- ---------
50,237 19,996
----------- ---------
Total pre-tax costs 50,237 34,499
Income tax benefit 19,926 12,310
----------- ---------
Total $ 30,311 $ 22,189
=========== =========
Per common share impact $ 0.41 $ 0.29
</TABLE>
In the first quarter of 1996 Firstar recorded a $50.2 million pre-tax charge
in connection with Firstar Forward , the corporate wide restructuring program.
This program is expected to add $140 million to annualized pre-tax earnings
when fully implemented by mid-1997. The charge included severance accruals of
$22.4 million associated with staff reductions of approximately 1,450 people,
fixed asset write-downs of $5.5 million, and other project costs of $22.3
million. The total charge consists of $44.1 million in anticipated cash
expenditures and $6.1 million of non-cash asset writedowns. Approximately
one-half of these cash expenditures have been made as of March 31,1996. -7-
-7-
In the first quarter of 1995 , certain merger and restructuring charges were
taken in connection with completed bank acquisitions. These expenses
totaled $34.5 million pre-tax. Additional loan loss provisions of $8.8
million were taken to increase the acquisition banks' loan loss reserve levels
to conform with Firstar's policy. Also, securities not compatible with
Firstar's investment policy were sold with a resulting loss of $5.7 million.
These funds, totaling $120 million, were redeployed in the securities
portfolio with a resulting increase in the net yield which recovered the
loss within one year. Acquisition related restructuring charges totaling
$20.0 million are included in operating expenses. Included in these charges
were $10.4 million of costs associated with the severance of approximately 400
employees, $4.0 million related with office closing and write-off of unusable
equipment, and $5.6 million of other costs associated with the mergers. The
restructuring charge of $20.0 million consists of $14.7 million in
anticipated cash expenditures and $5.3 million of non-cash write-downs. Cash
payments have reduced this restructuring accrual to approximately $4.2 million
as of March 31, 1996.
Net interest revenue during the first quarter of 1996, on a taxable
equivalent basis, was $193.0 million which was $5.8 million, or 3.2%, above
the level of the same period last year. The net interest margin was 4.48%
during the first quarter compared to 4.65% a year earlier. The increase in
net interest revenue was attributable to the higher average earning asset
balances, which increased 6.5% from a year earlier, partially offset by the
reduced net interest margin. The margin has been compressed by rising cost of
funds, due to a change in mix of deposits, which has not been fully offset by
increased yields on earning assets.
Table 3 shows the components of interest revenue and expense along with
changes related to volumes and rates. Total interest revenue on a
taxable-equivalent basis increased by 6.3% to $351.2 million during the first
quarter of 1996 compared to the same period last year. This resulted from a
6.5% increase in average earning assets, partially offset by reductions in
the average interest rate earned. The rate received on earning assets
decreased from 8.24% in the first quarter of 1995 to 8.17% in the same period
of 1996. Loan revenue increased $16.7 million, or 6.5%, from the same period
last year. The increased loan revenue was the result of a 7.1% increase in
loan balances from the same period last year which was only partially offset
by lower rates.
Total interest expense was $158.2 million during the first quarter 1996, an
increase of $14.5 million, or 10.1%, from the same period last year. Interest
rates on liabilities increased from 4.44% in 1995 to 4.51% in 1996. Interest
expense on total deposits increased $11.5 million, or 11.1%, in the first
quarter of 1996 compared to the same period last year, due to a change in mix to
higher costing certificates of deposits. Interest paid on short-term borrowed
funds increased by $3.0 million due to higher average balances.
Net cash flows of off-balance sheet derivative instruments used to manage
interest rate risk reduced net interest revenue by $400 thousand and net
interest margin by .01% during the first quarter of 1996. This compares to a
decrease in net interest revenue of $3.4 million and a decrease in net
interest margin of .09% during the same period in 1995.
The objective of Firstar's asset liability management policy is to maintain
adequate capital and liquidity and to manage interest rate risk to produce an
acceptable level of net interest revenue. The policy is to employ an asset
liability management strategy which limits the potential impact of projected
interest rate changes to 5% of net income over the subsequent four quarters.
Using the most recent simulation modeling, Firstar was within these
guidelines. The recently completed asset-liability forecast shows
consolidated net interest revenue remaining stable under our most likely rate
scenario. This rate scenario assumes an average prime rate of 7.60% compared
with the current prime rate of 8.25%.
-8-
Table 3. Analysis of interest revenue and expense
<TABLE>
<CAPTION>
Three Months Ended March 31
----------------------------------------------------------------
Interest Total Due to
---------------------- --------------------------
1996 1995 Change Volume Rate
----------- --------- ------------ ------------ ------------
(thousands of dollars)
<S> <C> <C> <C> <C> <C>
Interest-bearing deposits
with banks $ 148 $ 418 $ (270)$ (219)$ (51)
Federal funds sold and
resale agreements 649 3,071 (2,422) (2,187) (235)
Trading securities 145 270 (125) (73) (52)
Securities 73,215 66,459 6,756 6,315 441
Commercial loans 150,890 146,287 4,603 7,535 (2,932)
Consumer loans 126,187 114,252 11,935 10,987 948
----------- --------- ------------
Total loans 277,077 260,539 16,538 18,463 (1,925)
----------- --------- ------------
Total interest revenue 351,234 330,757 20,477 21,418 (941)
Interest-bearing demand 5,418 6,970 (1,552) (258) (1,294)
Money market accounts 24,109 20,097 4,012 3,936 76
Savings passbook 10,487 11,683 (1,196) (858) (338)
Certificates of deposit 74,752 64,500 10,252 4,569 5,683
----------- --------- ------------
Total deposits 114,766 103,250 11,516 5,713 5,803
Short-term borrowed funds 30,544 30,621 (77) 3,002 (3,079)
Long-term debt 12,933 9,881 3,052 3,476 (424)
----------- --------- ------------
Total interest expense 158,243 143,752 14,491 10,844 3,647
----------- --------- ------------
Net interest revenue $ 192,991 $ 187,005 $ 5,986 11,877 (5,891)
=========== ========= ============
Calculations are computed on a taxable-equivalent basis using a tax rate of 35%. The change attributable
to both volume and rate has been allocated proportionately to the changes due to volume
and rate.
</TABLE>
The provision for loan losses of $9.2 million was $3.9 million lower than
last year. As discussed previously, $8.8 million of 1995's provision related
to a merger adjustment to loan loss reserve levels. Net charge-offs for the
first quarter were at a level of .19% of average outstanding loans compared to
.28% a year earlier. The reserve for loan losses represented 1.58% of total
loans at March 31, 1996, down from 1.62% a year earlier.
Consumer loan losses have shown increases over the past year with the charge
- -off rate rising from .32% of loans in the first quarter of 1995 to .41% in
the current quarter. This trend is more evident in the credit card area where
charge-off levels rose from 1.76% to 3.19% between the two periods. Increased
consumer debt loads and delinquency rates have been experienced throughout the
country. Firstar expects that credit card charge-offs will remain at or
increase modestly from the current levels. The commercial loan charge-off
rate for the first quarter of this year of this year was only .02%. While
commercial loan charge-offs have fluctuated during the past five quarters,
they remain at an overall low level. Table 4 shows information on loan
charge-offs.
Nonperforming assets were $102.7 million at March 31, 1996 which amounted to
.80% of total loans and foreclosed assets. This was an $4.8 million increase
from the prior year end which was .77% and an increase of $14.6 million from a
year earlier. Nonperforming assets have gone up in part due to the application
of Firstar's credit review policies to the loan portfolios of the recently
acquired banks.
<TABLE>
<CAPTION>
Table 4. Net loan charge-offs
Quarter ended
------------------------------------------------------------------
3-31-96 12-31-95 9-30-95 6-30-95 3-31-95
----------- --------- ------------ ------------ ------------
(thousands of dollars) (thousands of dollars)
<S> <C> <C> <C> <C> <C>
Credit card $ 4,746 $ 4,215 $ 2,121 $ 2,468 $ 2,387
Other consumer 1,072 4,625 2,464 1,425 1,768
----------- --------- ------------ ------------ ------------
Total consumer 5,818 8,840 4,585 3,893 4,155
Commercial 274 4,277 71 2,886 4,183
----------- --------- ------------ ------------ ------------
Total net charge-offs $ 6,092 $ 13,117 $ 4,656 $ 6,779 $ 8,338
=========== ========= ============ ============ ============
Net charge-offs as a % of:
Credit card 3.19 % 2.43 % 1.95 % 1.81 % 1.76 %
Other consumer 0.08 0.42 0.15 0.09 0.15
Total consumer 0.41 0.63 0.33 0.26 0.32
Commercial 0.02 0.25 -- 0.19 0.26
Total loans 0.19 0.42 0.15 0.22 0.28
-9-
</TABLE>
Other operating revenue, excluding securities gain and losses, increased by
11.4% to a level of $104.6 million in the first quarter of 1996 compared to
the same period last year. Table 5 shows the composition of other operating
revenue.
<TABLE>
<CAPTION>
Table 5. Other operating revenue
Three Months Ended
March 31
----------------------------------------
1996 1995 Change
------------ ------------ ------------
(thousands of dollars)
<S> <C> <C> <C>
Trust and investment management fees $ 35,447 $ 31,684 11.9 %
Service charges on deposit accounts 20,848 19,757 5.5
Credit card service revenue 15,568 13,955 11.6
Mortgage loan servicing 6,686 5,963 12.1
Mortgage loan origination 7,099 1,675 323.8
Data processing fees 4,616 4,919 (6.2)
Insurance revenue 2,399 2,729 (12.1)
Brokerage revenue 3,463 2,340 48.0
International fees 1,355 1,402 (3.4)
Foreign exchange gains 675 539 25.2
ATM fees 1,190 1,258 (5.4)
Safe deposit fees 1,096 1,137 (3.6)
Trading securities gains 491 689 (28.7)
Other 3,670 5,851 (37.3)
------------ ------------
Subotal 104,603 93,898 11.4
Securities (losses) gains 41 (5,683)
Total ------------ ------------
$ 104,644 $ 88,215 18.6 %
============ ============
</TABLE>
Other operating revenue represents 35% of total revenue. An industry
measure of fee revenue prominence is the ratio of this revenue stream to
average assets. During the first quarter of 1996 this ratio was 2.22%
compared to 2.15 % during the same period last year.
Trust and investment management fees are the single largest source of fee
revenue, contributing $35.4 million, or 34%, of other operating revenue. This
level represents an 11.9% growth in revenue during the first quarter of 1996
compared to the same period last year. Trust and investment assets under
management were $18.9 billion on March 31, 1996, a 17.0% increase from the
year earlier level primarily due to the result of general market value
appreciation. Additionally, assets held in custody rose by 43.1% to a level
of $61.2 billion during the same time period.
Revenue from service charges on deposit accounts at $20.8 million for the
first quarter of 1996 was 5.5% higher than last year.
Credit card service revenues are the third largest source of fee revenue,
totaling $15.6 million during the first quarter of 1996, which was an 11.6%
increase over the same period last year. The introduction of new credit card
products, increased merchant fee revenue and the repricing of service charges
have all contributed to this revenue growth.
Revenue from mortgage loan origination activities more than tripled from the
year earlier level, increasing by $5.4 million to $7.1 million driven by the
increase in refinancing volumes which occured early in the first quarter of
1996. Mortgage interest rates have since increased modestly and origination
volumes have correspondingly declined. Mortgage loan servicing revenues
increased 12.1% to level of $6.7 million. Sales of servicing rights
contributed $2.8 million of revenue in the first quarter of this year and $1.9
million in the same quarter of 1995.
The remaining sources of other operating revenue derive from a wide range of
services and aggregated $19.0 million, a reduction of $1.9 million from the
same period of 1995. Last year's revenue included some nonrecurring items
which accounted for this decline.
-10-
Other operating expense increased to a level of $227.5 million for the first
quarter of 1996. Excluding the restructuring charges taken in both periods ,
expenses declined by 1.4%. Personnel costs rose by 1.0% to a level of $101.5
million. Nonpersonnel expense , excluding the restructuring charges, declined
by 4.4%. The detail of other operating expense is shown in Table 6.
Net occupancy expense increased $1.4 million, or 9.5% in the first quarter
of 1996 compared to the same period last year. The increase was due to a bank
acquisition in the first quarter. Equipment expense increased $2.8 million,
or 20.2% during the first quarter of 1996 compared to the same period last
year. The increase in equipment expense was due to data processing system
upgrades resulting from investments in new technology and increased processing
volumes from bank acquisitions.
In the third quarter of 1995, the FDIC reduced the rate charged for deposit
insurance to all BIF insured banks and refunded excess premiums paid. The
current rate is $2,000 per year for each insured bank compared with the $.23
per $100 of deposits previously charged. Firstar also has deposits subject to
SAIF insurance totaling approximately $1.3 billion. The insurance rate on
these deposits remains at $.23 per $100 of deposits, thus creating a blended
rate. These new rates reduced FDIC expense from $7.3 million in the first
quarter of 1995 to $1.1 million this year.
The efficiency ratio, which is the ratio of expense to revenue, was 59.6% in
the first quarter of 1996 compared to 64.0% a year earlier. Firstar has
initiated a corporate-wide restructuring program with a goal of reaching a 55%
efficiency ratio in 1997.
<TABLE>
<CAPTION>
Table 6. Other operating expense
Three Months Ended
March 31
----------------------------------------
1996 1995 Change
------------ ------------ ------------
(thousands of dollars)
<S> <C> <C> <C>
Salaries $ 82,140 $ 81,093 1.3 %
Employee benefits 19,377 19,413 (0.2)
------------ ------------
Total personnel expense 101,517 100,506 1.0
Net occupancy expense 15,913 14,533 9.5
Equipment expense 16,675 13,870 20.2
Business development 5,384 6,944 (22.5)
F.D.I.C. insurance 1,097 7,349 (85.1)
Stationery and supplies 5,554 4,603 20.7
Delivery 5,200 4,700 10.6
Professional fees 4,555 4,374 4.1
Information processing expense 4,547 5,534 (17.8)
Amortization of intangibles 3,622 3,048 18.8
Employee education/recruiting 1,531 2,260 (32.3)
Federal Reserve processing fees 925 1,087 (14.9)
Commissions and service fees 1,324 1,342 (1.3)
Wire communication 1,983 1,845 7.5
Processing and other losses 1,804 1,291 39.7
Credit card assessment fees 1,522 1,201 26.7
Net foreclosed assets expense(income) 108 (343)
Published information 643 883 (27.2)
Insurance 370 387 (4.4)
Other 3,000 4,346 (31.0)
------------ ------------
Total nonpersonnel expense 75,757 79,254 (4.4)
Restructuring charges 50,237 19,996
------------ ------------
Total other operating expense $ 227,511 $ 199,756 13.9 %
============ ============
</TABLE>
-11-
Total assets on March 31, 1996 were $19.1 billion, essentially level with
December 31, 1995 and up $1.1 billion from a year earlier. Earning assets
totaled $17.1 billion, up $94 million, or less than 1% from year end. Earning
assets have increased $804 million ,or 4.9%, from a year earlier.
Loans totaled $12.8 billion on March 31, 1996 an increase of $186 million
from year end 1995 and $740 million from a year earlier. A bank acquisition
which occurred in the first quarter of 1996 added approximately $300 million
of loans. Exclusive of acquisition related impact, loans declined by just
under 1% from year end and increased by 3.6% over a year ago.
Commercial loans were $7.1 billion on March 31,1996 , an increase of $53
million, or less than 1% from last year end, exclusive of the effect of the
bank acquisition. Compared to a year earlier , commercial loans have
increased by 4.7%. Commercial loan growth has slowed during the past two
quarters. Current expectations are for loans to grow in the 3% to 4% range in
1996 which is less than the 10% plus growth experienced in the past two years.
Consumer loans were $5.7 billion on March 31, 1996, a decline of $165
million, or 2.9% from year end, excluding loans added from the bank
acquisition. Consumer loans increased $126 million, or 2.3%, from a year
earlier. Good growth has been evident in charge card loans, which are up
nearly 10% from a year ago and home equity loans which increased by over 15%.
Residential mortgage loans ,excluding loans from the bank acquisition and
mortgages held for sale have declined by over $200 million from March 31,1995
due to both loan repayments and consumer preference for longer term mortgages
which Firstar originates but does not hold as portfolio loans.
Total securities, including both those designated as available for sale
and those held to maturity were $4.4 billion at March 31,1996 compared with
$4.5 billion at year end and $4.2 billion a year earlier.
Fund sources, consisting of deposits and borrowed funds, were $17.4 billion
on March 31,1996, level with year end 1995 and $1.1 billion higher than a year
earlier. Total deposits were $14.1 billion, a decrease of $437 million from
year end levels and an increase of $348 million, or 2.6% from a year ago
excluding the impact of the bank acquisition. The decline from year end
deposit levels was for the most part attributable to the higher commercial
deposit balances typically maintained by Firstar's customers at year end
periods. Increased competition for consumer deposits and heightened consumer
sensitivity to interest rates have limited Firstar's deposit growth.
Borrowed funds increased to $3.2 billion on March 31,1996, an increase of
$193 million from year end and $511 million from a year earlier. More
reliance has been placed on borrowed funds to support earning asset growth, as
loan growth has continued to outpace deposit growth over the past year.
Stockholders' equity totaled $1,494 million at the end of the first quarter,
a decrease of $30 million from the year end level and $21 million from the
total at March 31,1995. Firstar has repurchased over 5.4 million shares of
its common stock over the past twelve months. Of this total, 1.8 million were
permanently retired; 887 thousand were reissued in a bank acquisition; 970
thousand were reissued for stock options and conversions; and 1.7 million are
currently reserved for issuance in a pending acquisition. Firstar's capital
management plan strives to match longer term capital needs while maintaining
sound capital levels and enhancing the return on equity. A summary of capital
components and ratios is shown in Table 7.
The board of directors declared a quarterly dividend to common stockholders
of $.38 per share which was payable May 15 to stockholders of record May 1.
This was an 11.8% increase in the quarterly dividend rate.
-12-
<TABLE>
<CAPTION>
Table 7. Capital components and ratios
March 31 December 31 March 31
1996 1995 1995
------------ ------------ ------------
(thousands of dollars)
<S> <C> <C> <C>
Risk-based capital:
Stockholders' equity $ 1,494,388 $ 1,524,820 $ 1,515,831
Unrealized (gains) losses on securities available for sale (14,675) (34,127) 107
Minority interest in subsidiaries 2,198 3,171 2,849
Less goodwill (118,159) (107,298) (110,774)
------------ ------------ ------------
Total Tier I capital 1,363,752 1,386,566 1,408,013
Allowable reserve for loan losses 167,836 167,564 158,465
Allowable long-term debt 111,336 111,336 78,786
------------ ------------ ------------
Total Tier II capital 279,172 278,900 237,251
------------ ------------ ------------
Total capital $ 1,642,924 $ 1,665,466 $ 1,645,264
============ ============ ============
Risk-adjusted assets $ 13,391,890 $ 13,377,391 $ 12,639,485
Tier I capital to risk-adjusted assets 10.18 % 10.36 % 11.14 %
Total capital to risk-adjusted assets 12.27 12.45 13.02
Tier I leverage ratio 7.26 7.52 7.99
</TABLE>
The foregoing discussion under Item 2 included forecasts concerning
revenues, expenses and other business results which are based upon estimates.
There are numerous factors such as changes in economic conditions that could
adversely affect actual results. Therefore, there will be differences between
these forecasts and actual results and no assurance can be given that these
forecasts will be achieved.
-13-
<TABLE>
<CAPTION>
FIRSTAR CORPORATION AND SUBSIDIARIES
ADDITIONAL FINANCIAL DATA (unaudited)
- -----------------------------------------------------------------
Selected Financial Data
(thousands of dollars, except per share)
Quarter ended
March 31
----------------------
1996 1995
----------------------
<S> <C> <C>
Earnings and Dividends
Net income $ 37,118 $ 36,285
Per common share:
Net income 0.50 0.47
Dividends 0.34 0.30
Stockholders' equity 20.24 19.53
Performance Ratios
Return on average assets 0.79 % 0.83 %
Return on average common equity 9.59 9.77
Dividend payout ratio 37.40 38.50
Equity to assets 7.81 8.39
Net loan charge-offs as a percentage
of average loans 0.19 0.28
Nonperforming assets as a
percentage of loans and other
real estate 0.80 0.73
Net interest margin 4.48 4.65
Statistical Data
Full-time equivalent staff (at quarter end) 8,512 9,697
Average common shares
outstanding (000's) 73,798 76,026
Actual common shares
outstanding (000's at quarter end) 73,110 76,225
Stock Price Information
High $ 45.875 $ 30.250
Low 36.625 26.250
Close 44.750 29.500
-14-
</TABLE>
<TABLE>
<CAPTION>
FIRSTAR CORPORATION AND SUBSIDIARIES
ADDITIONAL FINANCIAL DATA (Unaudited)
- -------------------------------------------------------------------------------------------------------
Consolidated Average Balance Sheets, Net Interest Revenue and Rate Analysis
(Thousands of Dollars)
Quarter ended March 31
-----------------------------------------------------------------------
1996 1995
------------------------------------- ---------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-bearing deposits
with banks $ 11,390 $ 148 5.23 % $ 27,792 $ 418 6.10 %
Federal funds sold and
resale agreements 47,586 649 5.49 206,556 3,071 6.03
Trading securities 10,070 145 5.79 14,594 270 7.50
Securities:
Taxable 3,305,879 52,433 6.36 3,001,508 46,600 6.26
Nontaxable 1,137,883 20,782 7.31 1,058,804 19,859 7.50
----------- ---------- ----------- ---------
Total securities 4,443,762 73,215 6.60 4,060,312 66,459 6.58
Loans:
Commercial 6,988,904 150,890 8.68 6,641,823 146,287 8.93
Consumer 5,760,457 126,187 8.79 5,258,569 114,252 8.76
----------- ---------- ----------- ---------
Total loans 12,749,361 277,077 8.73 11,900,392 260,539 8.85
----------- ---------- ----------- ---------
Interest earning assets 17,262,169 351,234 8.17 16,209,646 330,757 8.24
Reserve for loan losses (199,373) (191,582)
Cash and due from banks 1,036,561 907,648
Other assets 818,078 801,109
----------- -----------
Total assets $ 18,917,435 $ 17,726,821
=========== ===========
Liabilities and
Stockholders' Equity
Interest-bearing demand $ 1,556,357 $ 5,418 1.40 % $ 1,611,493 $ 6,970 1.75 %
Money market accounts 2,443,300 24,109 3.97 2,044,623 20,097 3.99
Savings passbook 1,639,475 10,487 2.57 1,772,449 11,683 2.67
Certificates of deposit 5,376,477 74,752 5.59 5,023,929 64,500 5.21
Short-term borrowed funds 2,339,607 30,544 5.25 2,120,846 30,621 5.86
Other debt 737,533 12,933 7.02 547,723 9,881 7.22
----------- ---------- ----------- ---------
Interest-bearing liabilities 14,092,749 158,243 4.51 13,121,063 143,752 4.44
Demand deposits 2,998,780 2,798,752
Other liabilities 265,784 296,630
Stockholders' equity 1,560,122 1,510,376
----------- -----------
Total liabilities and
stockholders' equity $ 18,917,435 $ 17,726,821
=========== ===========
Net interest
revenue/margin $ 192,991 4.48 % $ 187,005 4.65 %
========== =========
</TABLE>
-15-
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of the shareholders of Firstar Corporation
was held on April 18, 1996. The items presented at the
meeting and the results of the vote were as follows:
1. The management nominees for directors for terms expiring
in 1999 were elected. There were no abstentions or broker
nonvotes.
Authority
to vote
For withheld
---------------- ----------
Michael E. Batten 60,601,510 395,080
Robert C. Buchanan 60,588,690 407,900
James L. Forbes 60,102,270 894,320
C. Paul Johnson 60,114,588 882,002
James H. Keyes 60,143,402 853,188
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits to Part 1 of Form 10-Q
27. Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
FIRSTAR CORPORATION
/s/ Jeffrey B. Weeden
------------------
Jeffrey B. Weeden
Senior Vice President-Finance and
Treasurer (Chief Financial Officer)
May 13, 1996
-16-
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1996
<CASH> 1,179,828
<INT-BEARING-DEPOSITS> 9,625
<FED-FUNDS-SOLD> 80,827
<TRADING-ASSETS> 10,067
<INVESTMENTS-HELD-FOR-SALE> 2,036,551
<INVESTMENTS-CARRYING> 2,379,425
<INVESTMENTS-MARKET> 2,413,016
<LOANS> 12,818,286
<ALLOWANCE> 202,857
<TOTAL-ASSETS> 19,123,302
<DEPOSITS> 14,126,637
<SHORT-TERM> 2,496,506
<LIABILITIES-OTHER> 272,567
<LONG-TERM> 733,204
<COMMON> 94,226
0
14,414
<OTHER-SE> 1,385,708
<TOTAL-LIABILITIES-AND-EQUITY> 19,123,302
<INTEREST-LOAN> 275,413
<INTEREST-INVEST> 66,238
<INTEREST-OTHER> 928
<INTEREST-TOTAL> 342,579
<INTEREST-DEPOSIT> 114,766
<INTEREST-EXPENSE> 158,243
<INTEREST-INCOME-NET> 184,336
<LOAN-LOSSES> 9,209
<SECURITIES-GAINS> 41
<EXPENSE-OTHER> 227,511
<INCOME-PRETAX> 52,260
<INCOME-PRE-EXTRAORDINARY> 37,118
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,118
<EPS-PRIMARY> 0.50
<EPS-DILUTED> 0.50
<YIELD-ACTUAL> 4.48
<LOANS-NON> 92,400
<LOANS-PAST> 46,571
<LOANS-TROUBLED> 1,375
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 195,283
<CHARGE-OFFS> 11,779
<RECOVERIES> 5,687
<ALLOWANCE-CLOSE> 202,857
<ALLOWANCE-DOMESTIC> 202,345
<ALLOWANCE-FOREIGN> 512
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
