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, 1997 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) 765-4321
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, 1997, 144,542,466 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 8
Additional Financial Data 15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 17
<TABLE>
<CAPTION>
FIRSTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------------------------
March 31 December 31 March 31
(thousands of dollars) 1997 1996 1996
- ------------------------------------------------------ ------------ ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 1,082,339 $ 1,449,094 $ 1,179,828
Interest-bearing deposits with banks 9,458 6,349 9,625
Federal funds sold and resale agreements 192,073 192,965 80,827
Trading securities 994 13,489 10,067
Securities held to maturity (market value $2,264,757,
$2,287,448 and $2,413,016 on March 31, 1997,
December 31, 1996 and March 31, 1996) 2,251,167 2,250,776 2,379,425
Securities available for sale 1,942,234 1,966,590 2,036,551
Loans:
Commercial and industrial 3,491,449 3,366,016 3,217,744
Real estate 2,970,110 2,992,416 2,901,124
Other 1,118,083 953,145 969,365
------------ ------------ ------------
Commercial loans 7,579,642 7,311,577 7,088,233
Credit card 644,958 684,619 589,008
Real estate - mortgage 2,585,781 2,660,290 2,821,273
Home equity 1,120,622 1,121,580 937,677
Other 1,415,970 1,417,468 1,382,095
------------ ------------ ------------
Consumer loans 5,767,331 5,883,957 5,730,053
------------ ------------ ------------
Total loans 13,346,973 13,195,534 12,818,286
Reserve for loan losses (213,134) (213,138) (202,857)
------------ ------------ ------------
Loans - net 13,133,839 12,982,396 12,615,429
Bank premises and equipment 371,274 368,699 350,912
Customer acceptance liability 6,572 14,281 14,532
Other assets 548,368 522,781 446,106
------------ ------------ ------------
Total assets $ 19,538,318 $ 19,767,420 $ 19,123,302
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $ 3,595,873 $ 3,880,610 $ 3,122,457
Interest-bearing demand 1,551,807 1,687,885 1,506,358
Money market accounts 2,758,497 2,744,751 2,499,122
Savings passbook 1,504,410 1,518,033 1,643,233
Certificates of deposit 5,176,445 5,382,918 5,355,467
------------ ------------ ------------
Total deposits 14,587,032 15,214,197 14,126,637
Short-term borrowed funds 2,458,339 1,868,606 2,496,506
Long-term debt 697,688 697,194 733,204
Bank acceptances outstanding 6,572 14,281 14,532
Other liabilities 248,464 269,095 258,035
------------ ------------ ------------
Total liabilities 17,998,095 18,063,373 17,628,914
Stockholders' equity:
Preferred stock 8,129 11,344 14,414
Common stock 181,102 188,532 188,532
Issued: March 31, 1997, 144,881,896 shares
Issued: December 31, 1996, 150,826,196 shares
Issued: March 31, 1996, 150,826,196 shares
Capital surplus 0 51,145 46,999
Retained earnings 1,352,149 1,437,891 1,310,468
Treasury stock (1,817) (4,056) (80,675)
Held: March 31, 1997, 275,606 shares
Held: December 31, 1996, 490,396 shares
Held: March 31, 1996, 4,606,012 shares
Restricted stock 0 0 (25)
Unrealized gains on securities available for sale 660 19,191 14,675
------------ ------------ ------------
Total stockholders' equity 1,540,223 1,704,047 1,494,388
------------ ------------ ------------
Total liabilities and stockholders' equity $ 19,538,318 $ 19,767,420 $ 19,123,302
============ ============ ============
-1-
</TABLE>
<TABLE>
<CAPTION>
FIRSTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------
Three Months Ended
March 31
(thousands of dollars, except per share data) 1997 1996
- --------------------------------------------- ----------------------
(unaudited)
<S> <C> <C>
INTEREST REVENUE
Loans $ 276,230 $ 275,413
Securities 63,698 66,238
Interest-bearing deposits with banks 86 148
Federal funds sold and resale agreements 1,541 649
Trading securities 69 131
---------- ----------
Total interest revenue 341,624 342,579
INTEREST EXPENSE
Deposits 114,115 114,766
Short-term borrowed funds 28,294 30,544
Other debt 12,147 12,933
---------- ----------
Total interest expense 154,556 158,243
---------- ----------
NET INTEREST REVENUE 187,068 184,336
Provision for loan losses 9,718 9,209
---------- ----------
NET INTEREST REVENUE AFTER
LOAN LOSS PROVISION 177,350 175,127
OTHER OPERATING REVENUE
Trust and investment management fees 39,086 35,447
Service charges on deposit accounts 22,089 21,554
Credit card service revenue 17,060 15,273
Mortgage Banking Revenue 8,849 13,785
Data processing fees 5,144 4,616
Securities gains 1,126 41
Other revenue 17,095 14,339
---------- ----------
Total other operating revenue 110,449 105,055
OTHER OPERATING EXPENSE
Salaries 77,936 82,140
Employee benefits 18,527 19,377
Equipment expense 16,817 16,675
Net occupancy expense 15,677 15,913
Restructuring expense 0 50,237
Other expense 49,665 43,580
---------- ----------
Total other operating expense 178,622 227,922
INCOME BEFORE INCOME TAXES 109,177 52,260
Applicable income taxes 37,382 15,142
---------- ----------
NET INCOME $ 71,795 $ 37,118
========== ==========
Net income applicable to common stock $ 71,654 $ 36,866
========== ==========
PER COMMON SHARE
Net income $.49 $.25
Dividends .19 .17
-2-
</TABLE>
<TABLE>
<CAPTION>
FIRSTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------------------------------
Three Months Ended
March 31
(thousands of dollars) 1997 1996
- -------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 71,795 $ 37,118
Adjustments:
Provision for loan losses 9,718 9,209
Depreciation, amortization, and accretion 15,476 18,713
Net decrease (increase) in trading securities 12,495 (38)
Net decrease (increase) in loans held for resale 21,315 23,941
Gains on sale of assets (1,379) (254)
(Increase) decrease in other assets (31,149) 31,999
Decrease in other liabilities (19,427) (18,325)
Other, net 6,525 452
------------- --------------
Net cash provided by operating activities 85,369 102,815
Cash Flows from Investing Activities:
Net decrease in federal funds sold and resale agreements 892 29,118
Net increase in interest-bearing deposits with banks (3,109) (4,158)
Purchase of securities available for sale (144,079) (157,508)
Sale of securities available for sale 1,126 38,430
Maturities of securities available for sale 143,850 136,705
Maturities of securities held to maturity 98,038 101,763
Purchase of securities held to maturity (106,636) (57,036)
Net (increase) decrease in loans (174,144) 87,292
Cash acquired in acquisitions 0 4,901
Proceeds from sale of foreclosed assets 2,687 1,395
Purchase of bank premises and equipment (17,500) (9,590)
Proceeds from sale of bank premises and equipment 777 62
------------- --------------
Net cash provided by (used in) investing activities (198,098) 171,374
Cash Flows from Financing Activities:
Net decrease in deposits (627,165) (429,093)
Net increase in short-term borrowed funds 589,733 133,347
Issuance of long-term debt 598 0
Repayment of long-term debt (104) (17,817)
Common/treasury stock repurchases/retires (195,860) (76,018)
Common/treasury stock issued 7,448 9,982
Cash dividends (28,676) (25,508)
------------- --------------
Net cash used in financing activities (254,026) (405,107)
Net decrease in cash and due from banks (366,755) (130,918)
Cash and due from banks at beginning of period 1,449,094 1,310,746
------------- --------------
Cash and due from banks at end of period $ 1,082,339 $ 1,179,828
============= ==============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 166,620 $ 163,114
Income taxes 4,226 10,540
Transfer to foreclosed assets from loans $ 2,816 $ 1,848
-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. Certain
amounts have been reclassified in prior periods to conform to classifi-
cations used in the March 31, 1997 financial statements. 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, 1996.
All shares and per share amounts have been adjusted to reflect the two-
for-one common stock split completed in February, 1997.
2. Securities
The amortized cost and approximate market values of securities
are as follows:
<TABLE>
<CAPTION>
March 31, 1997
--------------------------------------------------
Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Securities held to maturity:
U.S. Treasury and federal agencies $ 398 $ 0 $ 0 $ 398
Mortgage backed obligations of federal agencies 1,097,996 17,069 (10,172) 1,104,893
State and political subdivisions 1,144,489 11,740 (5,033) 1,151,196
Corporate debt 8,284 20 (34) 8,270
----------- ----------- ----------- -----------
Total $ 2,251,167 $ 28,829 $ (15,239)$ 2,264,757
=========== =========== =========== ===========
Securities available for sale:
U.S. Treasury and federal agencies $ 1,771,229 $ 12,919 $ (11,981)$ 1,772,167
Mortgage backed obligations of federal agencies 8,347 93 (226) 8,214
State and political subdivisions 7,565 36 (25) 7,576
Equity securities 112,537 0 0 112,537
Money market mutual funds 41,740 0 0 41,740
----------- ----------- ----------- -----------
Total $ 1,941,418 $ 13,048 $ (12,232)$ 1,942,234
=========== =========== =========== ===========
</TABLE>
-4-
3. Nonperforming Assets and Past Due Loans
<TABLE>
<CAPTION>
March 31 December 31 March 31
1997 1996 1996
----------- ----------- -----------
<S> <C> <C> <C>
Nonaccrual loans:
Commercial $ 47,264 $ 35,757 $ 27,611
Commercial - real estate 25,957 30,128 48,107
Consumer 18,622 19,193 16,682
----------- ----------- -----------
91,843 85,078 92,400
Renegotiated loans:
Commercial 0 0 39
Commercial - real estate 274 1,028 1,336
----------- ----------- -----------
274 1,028 1,375
Foreclosed assets 9,347 8,926 8,933
----------- ----------- -----------
Total $ 101,464 $ 95,032 $ 102,708
=========== =========== ===========
Nonperforming assets as a percent of:
Loans and foreclosed assets .76 % .72 % .80 %
Total assets .52 .48 .54
Loans past due 90 days and still accruing
Commercial $ 32,686 $ 24,368 $ 10,902
Commercial - eeal estate 16,209 27,352 11,900
Consumer 22,854 22,938 23,769
----------- ----------- -----------
Total $ 71,749 $ 74,658 $ 46,571
=========== =========== ===========
</TABLE>
4. Reserve for Loan Losses
<TABLE>
<CAPTION>
Three Months Ended
March 31
-----------------------
1997 1996
--------- -----------
<S> <C> <C>
Balance - beginning of period $ 213,138 $ 195,283
Provision for loan losses 9,718 9,209
Loan recoveries 5,061 5,687
Loan charge-offs (14,783) (11,779)
Reserves of acquired banks 0 4,457
--------- -----------
Balance - end of period $ 213,134 $ 202,857
========= ===========
Net charge-offs to average loans .30 % .19 %
Reserve to period-end loans 1.60 1.58
</TABLE>
-5-
5. Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Preferred Common Capital Retained
Stock Stock Surplus Earnings
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 15,344 188,532 53,235 1,298,858
Net income 0 0 0 37,118
Cash dividends: 0 0 0 0
Pref.stock, series D ($8.75 per share 0 0 0 (256)
Common stock ($.17 per share) 0 0 0 (25,252)
Converted 1,860 shares of preferred stock
into 79,840 shares of common stock (930) 0 (585) 0
Issued 1,774,408 shares of common stock for
bank acquisitions 0 0 4,920 0
Issued 1,021,722 shares of common stock for
employee benefit plans 0 0 (10,548) 0
Purchased 3,092,600 shares of treas. stock 0 0 0 0
Fractional shares paid on exchanges 0 0 (12) 0
Unrealized gains on secur. avail. for sale 0 0 0 0
Amortization/adjustment of restr. stock 0 0 (11) 0
----------- ----------- ----------- -----------
Balance at March 31, 1996 14,414 188,532 46,999 1,310,468
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Gain/ Restricted Treasury
(Loss) Stock Stock Total
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 34,127 (442) (64,834) 1,524,820
Net income 0 0 0 37,118
Cash dividends: 0 0 0 0
Preferred stock, series D ($8.75 per share) 0 0 0 (256)
Common stock ($.17 per share) 0 0 0 (25,252)
Converted 1,860 shares of preferred stock
into 79,840 shares of common stock 0 0 1,515 0
Issued 1,774,408 shares of common stock for
bank acquisitions 0 0 31,106 36,026
Issued 1,021,722 shares of common stock for
employee benefit plans 0 0 20,541 9,993
Purchased 3,092,600 shares of treasury stock 0 0 (68,691) (68,691)
Fractional shares paid on exchanges 0 0 0 (12)
Unrealized gains on secur. avail. for sale (19,438) 0 0 (19,438)
Amortization/adjustment of restricted stock (14) 417 (312) 80
--------- --------- --------- -----------
Balance at March 31, 1996 14,675 (25) (80,675) 1,494,388
========= ========= ========= ===========
</TABLE>
<TABLE>
<CAPTION> Preferred Common Capital Retained
Stock Stock Surplus Earnings
___________ _________ _________ __________
<S> <C> <C> <C> <C>
Balance at December 31, 1996 11,344 188,532 51,145 1,437,891
Net income 0 0 0 71,795
Cash dividends: 0 0 0 0
Preferred stock, series D ($8.75 per share) 0 0 0 (142)
Common stock ($.19 per share) 0 0 0 (28,534)
Converted 6,430 shares of preferred stock 0 0 0 0
into 275,974 shares of common stock (3,215) 0 (518) (592)
Issued 648,816 shares of common stock for 0 0 0 0
employee benefit plans 0 0 (5,184) (5,659)
Retired 5,944,300 shares of common stock 0 (7,430) (45,443) (122,610)
Purchased 648,816 shares of treasury stock 0 0 0 0
Unrealized gains on securities available for sale 0 0 0 0
----------- ----------- ----------- -----------
Balance at March 31, 1997 8,129 181,102 0 1,352,149
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Gain/ Restricted Treasury
Loss Stock Stock Total
_________ __________ ________ ________
<S> <C> <C> <C> <C>
Balance at December 31, 1996 19,191 0 (4,056) 1,704,047
Net income 0 0 0 71,795
Cash dividends: 0 0 0 0
Preferred stock, series D ($8.75 per share) 0 0 0 (142)
Common stock ($.19 per share) 0 0 0 (28,534)
Converted 6,430 shares of preferred stock 0 0 0 0
into 275,974 shares of common stock 0 0 4,325 0
Issued 648,816 shares of common stock for 0 0 0 0
employee benefit plans 0 0 18,291 7,448
Retired 5,944,300 shares of common stock 0 0 (12,941) (188,424)
Purchased 648,816 shares of treasury stock 0 0 (7,436) (7,436)
Unrealized gains on securities available for sale (18,531) 0 0 (18,531)
--------- --------- --------- -----------
Balance at March 31, 1997 660 0 (1,817) 1,540,223
========= ========= ========= ===========
</TABLE>
-6-
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, 1997
--------------------------------------------------------------
Market
12-31-96 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 $ 107 $ 91 5.07 % 5.58 % .7 yr $ (0.07)
Other 27 7 6.26 5.44 1.4 ----
Receive variable 62 28 5.57 7.88 .8 (0.04)
Interest rate floors* 591 591 4.89 2.5 0.07
--------- --------- -----------
$ 787 $ 717 2.2 $ (0.04)
========= ========= ===========
*Interest rate floors 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. 128,
"Earnings per Share". The statement will be effective with the
preparation of the year-end 1997 financial statements. The statement
will require the presentation of basic and diluted earnings per
share. Firstar's current calculation of its earnings per share will
be equivalent to the basic EPS of SFAS No. 128. The calculation of
diluted EPS will not be materially different from the basic EPS.
-7-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward Looking Information
The following discussion includes foreward looking statements concerning
Firstar's business results that are based on estimates. Actual results could
differ materially due to factors such as changes in economic conditions,
compression of net interest revenue due to unanticipated declines in net
interest margins and oustanding loan balances, unanticipated delays in cost
reduction and revenue enhancements, and the ability to attract and retain
qualified personnel. Therefore, there can be no assurances that actual
results will correspond to these forward looking statements.
Financial Discussion
Firstar Corporation's net income for the first quarter of 1997 was $71.8
million, or $.49 per common share, up from the $37.1 million, or $.25 per
common share, for the same period last year. This represented a 96% increase
in earnings per share. Return on common equity was 18.35% for the first
quarter of the year, compared with 9.59% for the same period last year,
while return on average assets was 1.52% compared to .79% during the first
quarter of last year. was 1.52% compared to .79% during the first quarter of
last year.
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. Excluding this charge from last year's results, operating earnings
rose by 6.5% over the first quarter of 1996 from $.46 per share to $.49.
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
---------------------------------------
1997 1996 Change
------------ ------------ -----------
<S> <C> <C> <C>
(millions of dollars)
Interest revenue $ 341.6 $ 342.6 $ (1.0)
Taxable-equivalent adjustment 8.5 8.6 (0.1)
------------ ------------ -----------
Interest revenue - taxable-equivalent 350.1 351.2 (1.1)
Interest expense 154.6 158.2 (3.6)
------------ ------------ -----------
Net interest revenue - taxable-equivalent 195.5 193.0 2.5
Provision for loan losses 9.7 9.2 0.5
Other operating revenue 110.5 105.0 5.5
Other operating expense 178.6 227.9 (49.3)
------------ ------------ -----------
Income before income taxes 117.7 60.9 56.8
Provision for income taxes 37.4 15.2 22.2
Taxable-equivalent adjustment 8.5 8.6 (0.1)
------------ ------------ -----------
Net income $ 71.8 $ 37.1 $ 34.7
============ ============ ===========
Yield on earning assets 8.09 % 8.17 % (0.08)%
Cost of interest-bearing liabilities 4.46 4.51 (0.05)
------------ ------------ -----------
Interest spread 3.63 3.66 (0.03)
Impact of interest-free funds 0.88 0.82 0.06
------------ ------------ -----------
Net interest margin 4.51 % 4.48 % 0.03 %
============ ============ ===========
</TABLE>
Net interest revenue during the first quarter of 1997, on a taxable
equivalent basis, was $195.5 million, a $2.5 million, or 1.3%, increase from
the level experienced in the same period last year. The net interest margin
was 4.51% during the first quarter compared to 4.48% a year earlier. The
increase in net interest revenue was primarily attributable to the 1.3%
increase in average earning asset balances.
-8-
Table 2 shows the components of interest revenue and expense along with
changes related to volumes and rates. Total interest revenue on a
taxable-equivalent basis declined by .3% to $350.1 million during the first
quarter of 1997 compared to the same period last year. This resulted from a
reduction of the interest rate earned on earning assets from 8.17% to 8.09%
in the first quarter of 1997. This effect was partially offset by the increase
in average earning assets. Securities revenue declined by $2.7 million due
primarily to lower balance levels. Loan revenue rose by $845 thousand due to
higher average balances partially offset by lower interest rates.
Total interest expense was $154.6 million during the first quarter of 1997,
a decrease of $3.7 million, or 2.3%, from the same period last year. Interest
rates on liabilities decreased from 4.51% in 1996 to 4.46% in 1997. Interest
expense on total deposits decreased $651 thousand, or.6%, in the first quarter
of 1997 compared to the same period last year due to lower rates paid on
deposits partially offset by the higher deposit levels. Interest expense on
borrowed funds declined by $3.0 million due to both lower average balances and
reduced interest rates.
Net cash flows of off-balance sheet derivative instruments used to manage
interest rate risk reduced net interest revenue by $523 thousand and net
interest margin by .01% during the first quarter of 1997. This compares to a
decrease in net interest revenue of $410 thousand and a decrease in net
interest margin of .01% during the same period in 1996.
Table 2. Analysis of interest revenue and expense
<TABLE>
<CAPTION>
Three Months Ended March 31
----------------------------------------------------------------------
Interest Total Due to
------------------------- ----------------------------
1997 1996 Change Volume Rate
------------ ----------- ------------- ------------- -------------
(thousands of dollars)
<S> <C> <C> <C> <C> <C>
Interest-bearing deposits
with banks $ 86 $ 148 $ (62)$ (49)$ (13)
Federal funds sold and
resale agreements 1,541 649 892 916 (24)
Trading securities 71 145 (74) (95) 21
Securities 70,478 73,215 (2,737) (3,822) 1,085
Commercial loans 151,707 150,890 817 7,743 (6,926)
Consumer loans 126,215 126,187 28 488 (460)
------------ ----------- -------------
Total loans 277,922 277,077 845 8,352 (7,507)
------------ ----------- -------------
Total interest revenue 350,098 351,234 (1,136) 4,449 (5,585)
Interest-bearing demand 5,734 5,418 316 126 190
Money market accounts 27,596 24,109 3,487 3,040 447
Savings passbook 8,949 10,487 (1,538) (806) (732)
Certificates of deposit 71,836 74,752 (2,916) (1,170) (1,746)
------------ ----------- -------------
Total deposits 114,115 114,766 (651) 1,027 (1,678)
Short-term borrowed funds 28,294 30,544 (2,250) (1,239) (1,011)
Long-term debt 12,147 12,933 (786) 133 (919)
------------ ----------- -------------
Total interest expense 154,556 158,243 (3,687) (425) (3,262)
------------ ----------- -------------
Net interest revenue $ 195,542 $ 192,991 $ 2,551 2,449 102
============ =========== =============
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>
-9-
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 that
consolidated net interest revenue is expected to remain stable under the most
likely rate scenario as compared to current rates. This rate scenario
assumes an average prime rate of 8.73% compared with the current prime rate of
8.50%.
The provision for loan losses of $9.7 million was $509 thousand higher than
last year. Net charge-offs for the first quarter of 1997 were at a level of
.30% of average outstanding loans compared to .19% a year earlier. The
reserve for loan losses represented 1.60% of total loans at March 31, 1997, up
from 1.58% a year earlier.
Consumer loan losses have shown increases over the past year with the charge
- -off rate rising from .41% of loans in the first quarter of 1996 to .71% in
the current quarter. Consumer delinquency and bankruptcies have increased
over the past several quarters. Increased consumer charge-offs have been the
result of this trend. Credit card losses represented 3.44% of average credit
card outstandings during the first quarter of 1997. This compares to 3.20% a
year ago and a high of 5.11% in the fourth quarter of 1996. Firstar expects
credit card charge-offs to remain in the 3.25% to 4.25% range for the
remainder of 1997. Commercial loan net recoveries were realized in the first
quarter of 1997. Table 3 shows information on loan charge-offs.
Nonperforming assets were $101.5 million at March 31, 1997 which amounted to
.76% of total loans and foreclosed assets. This was a $6.4 million increase
from the prior quarter and a decrease of $1.2 million from a year earlier.
<TABLE>
<CAPTION>
Table 3. Net loan charge-offs
Quarter ended
-----------------------------------------------------------------------
3-31-97 12-31-96 9-30-96 6-30-96 3-31-96
----------- ------------- ------------- ------------- ------------
(thousands of dollars)
<S> <C> <C> <C> <C> <C>
Credit card $ 5,556 $ 8,304 $ 6,162 $ 5,674 $ 4,746
Other consumer 4,497 2,314 1,800 2,722 1,072
----------- ------------- ------------- ------------- ------------
Total consumer 10,053 10,618 7,962 8,396 5,818
Commercial (333) 4,438 986 266 274
----------- ------------- ------------- ------------- ------------
Total net charge-offs $ 9,720 $ 15,056 $ 8,948 $ 8,662 $ 6,092
=========== ============= ============= ============= ============
Net charge-offs as a % of:
Credit card 3.44 % 5.11 % 3.94 % 3.81 % 3.20 %
Other consumer 0.36 0.17 0.14 0.22 0.08
Total consumer 0.71 0.72 0.55 0.60 0.41
Commercial (0.02) 0.24 0.05 0.02 0.02
Total loans 0.30 0.46 0.27 0.27 0.19
-10-
Other operating revenue, excluding securities gain and losses, increased by
4.1% to a level of $109.3 million in the first quarter of 1997 compared to the
same period last year. Table 4 shows the composition of other operating
revenue.
</TABLE>
<TABLE>
<CAPTION>
Table 4. Other operating revenue
Three Months Ended
March 31
---------------------------------------
1997 1996 Change
------------ ------------ -----------
(thousands of dollars)
<S> <C> <C> <C>
Trust and investment management fees $ 39,086 $ 35,447 10.3 %
Service charges on deposit accounts 22,089 21,554 2.5
Credit card service revenue 17,060 15,273 11.7
Mortgage loan servicing 3,368 6,686 (49.6)
Mortgage loan origination 5,481 7,099 (22.8)
Data processing fees 5,144 4,616 11.4
Insurance revenue 2,284 2,399 (4.8)
Brokerage revenue 3,344 3,463 (3.4)
International fees 1,449 1,355 6.9
Foreign exchange gains 666 675 (1.3)
ATM fees 1,156 1,190 (2.9)
Safe deposit fees 1,391 1,096 26.9
Trading securities gains 517 491 5.3
Other 6,288 3,670 71.3
------------ ------------
Subotal 109,323 105,014 4.1
Securities (losses) gains 1,126 41
Total ------------ ------------
$ 110,449 $ 105,055 5.1 %
============ ============
</TABLE>
Other operating revenue represents 36.1% of total taxable equivalent revenue
for the first quarter of 1997 compared to 35.2% for the same period one year
ago.
Trust and investment management fees are the single largest source of fee
revenue, contributing $39.1 million, or 36%, of other operating revenue. This
level represents a 10.3% growth in revenue during the first quarter of 1997
compared to the same period last year. Trust and investment assets under
management were $21.9 billion on March 31, 1997, a 16.2% increase from the
year earlier level due to both the result of general market appreciation and
additional net new business. Additionally, assets held in custody accounts
rose by 19.0% to a level of $72.8 billion due in part to increased mutual fund
services business. The increased volatility of equity markets and interest
rates experienced during the first quarter may have a negative effect on trust
and investment management fees in the coming months.
Revenue from service charges on deposit accounts at $22.1 million for the
first quarter of 1997 was 2.5% higher than last year.
Credit card service revenues are the third largest source of fee revenue,
totaling $17.1 million during the first quarter of 1997. This level
represented an 11.7% 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 decreased 22.8% from the
year earlier level. Mortgage interest rates have increased since the first
quarter of last year and origination volumes have declined. Mortgage loan
servicing revenues declined by 49.6% from the year earlier level due to the
gain on the sale of servicing rights in the first quarter of last year and the
resulting lower level of serviced loans.
The remaining sources of other operating revenue derive from a wide range of
services and aggregated $22.2 million, an increase of 17.3% over the same
period of 1996. This year's revenue included $1.6 million of nonrecurring
items.
-11-
Other operating expense declined to a level of $178.6 million for the first
quarter of 1997. Excluding the restructuring charges , expenses increased by
less than 1%. Personnel costs decreased by 5.0% to a level of $96.5 million.
Nonpersonnel expense , excluding the one-time charges, increased by 7.9%. The
detail of other operating expense is shown in Table 5.
Full-time equivalent personnel headcount was 8,038 on March 31, 1997, down
from 8,512 one year earilier. Staff reductions have occurred under the
corporate wide restructuring program currently being implemented.
Approximately 220 FTEs have been added during this period as a result of a
bank acquisition. This net staff reduction is seen in the lowered salary and
fringe benefits expense levels between the two periods.
Net occupancy declined by 1.5% from the first quarter of last year
reflecting in part a gain realized on a sublease of a bank office in 1997.
Equipment expense is essentially level with last year. Business development
expense rose by 34.4% from a somewhat unrepresentative lower level last year
and as a result of increased focus on customer development activities this
year. Professional fees increased 43.5% due to some one-time costs, increased
use of outside consultants as operation areas are integrated, and higher
collection expense in consumer credit. Amortization of intangibles increased
by 28.6% due to the addition of new intangibles from a bank acquisition
completed during 1996.
During the first quarter of 1996, Firstar recorded a $50.2 million charge in
connection with Firstar Forward, the corporate wide restructuring program
which was announced in January 1996. This program is expected to add $140
million to annualized pre-tax earnings when fully implemented by mid-1997. As
of March 31, 1997, Firstar had implemented 81% of its cost savings ideas and
62% of its revenue enhancement ideas. The 1996 charge included severence
accruals of $24.0 million associated with staff reductions of approximately
1,500 people, fixed asset writedowns of $3.9 million, and other project costs
of $22.3 million. There are approximately $4 million of remaining cash
payments to be made as of March 31, 1997.
The efficiency ratio, which is the ratio of expense to revenue, was 58.6% in
the first quarter of 1997 compared to 59.6% a year earlier. Firstar
anticipates reaching a 55% efficiency ratio by the end of 1997.
<TABLE>
<CAPTION>
Table 5. Other operating expense
Three Months Ended
March 31
---------------------------------------
1997 1996 Change
------------ ------------ -----------
(thousands of dollars)
<S> <C> <C> <C>
Salaries $ 77,936 $ 82,140 (5.1)%
Employee benefits 18,527 19,377 (4.4)
------------ ------------
Total personnel expense 96,463 101,517 (5.0)
Net occupancy expense 15,677 15,913 (1.5)
Equipment expense 16,817 16,675 0.9
Business development 7,235 5,384 34.4
F.D.I.C. insurance 649 1,097 (40.8)
Stationery and supplies 5,773 5,965 (3.2)
Delivery 5,041 5,200 (3.1)
Professional fees 6,538 4,555 43.5
Information processing expense 4,903 4,547 7.8
Amortization of intangibles 4,658 3,622 28.6
Employee education/recruiting 1,957 1,553 26.0
Federal Reserve processing fees 1,679 1,255 33.8
Commissions and service fees 1,151 1,324 (13.1)
Wire communication 2,550 1,983 28.6
Processing and other losses 1,402 1,804 (22.3)
Credit card assessment fees 1,816 1,522 19.3
Net foreclosed assets expense(income) (75) 108
Published information 831 643 29.2
Insurance 153 407 (62.4)
Other 3,404 2,611 30.4
------------ ------------
Total nonpersonnel expense 82,159 76,168 7.9
Restructuring charges 0 50,237
SAIF assessment 0 0
------------ ------------
Total other operating expense $ 178,622 $ 227,922 (21.6)%
============ ============
</TABLE>
-12-
Income tax expense was $37.1 million in the first quarter of 1997 compared
to $15.1 million in the same period of last year. The effective tax rate was
34.2% in 1997 compared to 29.0% in 1996. The lower 1996 tax rate was affected
by the restructuring charge which changed the relative proportions of
tax-exempt income and taxable income.
Total assets on March 31, 1997 were $19.5 billion, down $229 million from
December 31, 1996 and up $415 million from a year earlier. Earning assets
totaled $17.7 billion, up $117 million from year end. Earning assets have
increased $408 million, or 2.4% from a year earlier.
Average loans totaled $13.1 billion during the first quarter of 1997, an
increase of $390 million , or 3.1% from a year earlier. A bank acquisition
which occurred in the third quarter of last year added approximately $625
million of loans. Exclusive of this acquisition related impact, average loans
declind by 1.9% from a year ago.
Commercial loans averaged $7.4 billion during the first quarter of 1997, an
increase of $367 million, or 5.3% from a year earlier. Excluding loans
acquired through the bank acquisition, commercial loans declined by 1.9% from
last year. This trend has, however, reversed during the first quarter of 1997
where a 1% growth over the fourth quarter of 1996 was achieved. While this
loan growth is encouraging, competitive pressures are leading to narrower
interest spreads in 1997 for commercial lending.
Consumer loans, excluding residential mortgages, averaged $3.2 billion, an
increase of $256 million, or 8.7% over the first quarter of 1996. Excluding
loans from the bank acquisition, consumer lending increased by 5.5%. Good
growth has occured in home equity loans and credit card loans, up 13.8% and
9.7% respectively, excluding acquisition impacts.
Residential mortgage loans, exclusive of loans acquired through bank
acquisition and loans held for sale sale, declined by 9.8% on average from the
first quarter of 1996. The reduction was attributable to the normal loan
amortization and prepayments partially offset by the placement in the
portfolio of some shorter term variable rate mortgages. Firstar's strategy
is to originate and sell mortgages into the secondary market thereby reducing
the amount of mortgages held on the balance sheet.
Total securities, including both those designated as available for sale and
those held to maturity averaged $4.2 billion during the first quarter of 1997
compared with $4.4 billion a year earlier. Similar to portfolio mortgages,
Firstar intends to reduce the size of its investment portfolio through normal
run-off and redeploying the proceeds to loans or reduce short-term borrowed
funds.
Funding sources, consisting of deposits and borrowed funds, averaged $17.3
billion during the first quarter of 1997. Total deposits averaged $14.4
billion, a decrease of 1.9% from a year ago excluding the bank acquisition
impact. Increased competition for consumer deposits and heightened consumer
sensitivity to interest rates and other uses of funds, such as investments in
equity markets, have limited Firstar's deposit growth.
Borrowed funds averaged $2.9 billion during the first quarter of 1997, a
decrease of $137 million from a year earlier. Short-term borrowed funds were
reduced by $97 million and long term debt was lowered by $40 million. In
December 1996 Firstar issued through Firstar Capital Trust I, $150 million of
Trust Capital Securities. These securities qualify as Tier 1 capital and are
mandatorily redeemable in 30 years. These securities are included in long
term debt at March 31, 1997. This is a change from the presentation in
Firstar's 1996 Form 10- K wherein these securities were classified as a
minority interest .
-13-
Stockholders' equity totaled $1.540 billion at the end of the first quarter,
a decrease of $164 million from year end 1996. Firstar has repurchased
5,944,000 shares of its common stock during the first quarter of this year.
under its previously announced stock buyback plan which authorized up to 12
million shares for repurchase.
Firstar's capital management plan strives to match longer term capital needs
with maintaining sound capital levels. It is Firstar's policy to manage
tier 1 leverage to the top quartile level of its peer group which was 8.15% at
the end on 1996. Firstar also seeks to provide to its shareholders a total
return consistent with the best performing companies.
The board of directors increased the quarterly dividend to common
stockholders of $.21 per share from the previous rate of $.19. The dividend is
payable May 15 to shareholders of record on April 28. The board also
declared a quarterly dividend of $8.75 per Series D preferred share payable
June 30 to stockholders of record on June 15.
<TABLE>
<CAPTION>
Table 7. Capital components and ratios
March 31 December 31 March 31
1997 1996 1996
------------- ------------- -------------
(thousands of dollars)
<S> <C> <C> <C>
Risk-based capital:
Stockholders' equity $ 1,540,222 $ 1,704,047 $ 1,494,388
Trust capital securities 150,000 150,000 0
Unrealized (gains) losses on securities available for sale (661) (19,191) (14,675)
Minority interest in subsidiaries 2,469 2,384 2,198
Less disallowed intangibles (197,198) (200,540) (118,159)
------------- ------------- -------------
Total Tier I capital 1,494,832 1,636,700 1,363,752
Allowable reserve for loan losses 177,033 175,725 167,836
Allowable long-term debt 75,668 75,668 111,336
------------- ------------- -------------
Total Tier II capital 252,701 251,393 279,172
------------- ------------- -------------
Total capital $ 1,747,533 $ 1,888,093 $ 1,642,924
============= ============= =============
Risk-adjusted assets $ 14,126,511 $ 14,020,587 $ 13,391,890
Tier I capital to risk-adjusted assets 10.58 % 11.67 % 10.18 %
Total capital to risk-adjusted assets 12.37 13.47 12.27
Tier I leverage ratio 7.87 8.55 7.26
</TABLE>
<TABLE>
<CAPTION>
-14-
FIRSTAR CORPORATION AND SUBSIDIARIES
ADDITIONAL FINANCIAL DATA (unaudited)
- -----------------------------------------------------------------
Selected Financial Data
(thousands of dollars, except per share)
Quarter ended
March 31
----------------------
1997 1996
----------------------
<S> <C> <C>
Earnings and Dividends
Net income $ 71,795 $ 37,118
Per common share:
Net income 0.49 0.25
Dividends 0.19 0.17
Stockholders' equity 10.59 10.12
Performance Ratios
Return on average assets 1.52 % 0.79 %
Return on average common equity 18.35 9.59
Dividend payout ratio 38.78 36.96
Equity to assets 7.88 7.81
Net loan charge-offs as a percentage
of average loans 0.30 0.19
Nonperforming assets as a
percentage of loans and foreclosed
assets 0.76 0.80
Net interest margin 4.51 4.48
Efficiency ratio* 58.59 59.62 *
Fee revenue as a percentage
of average assets 2.31 2.23
Statistical Data
Full-time equivalent staff (at quarter end) 8,038 8,512
Average common shares
outstanding (000's) 146,701 147,596
Actual common shares
outstanding (000's at quarter end) 144,606 146,220
Stock Price Information
High $ 32.625 $ 22.938
Low 25.563 18.313
Close 27.500 22.375
*Excludes nonrecurring items.
-15-
</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
------------------------------------------------------------------------
1997 1996
------------------------------------- ----------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-bearing deposits
with banks $ 7,298 $ 86 4.78 % $ 11,390 $ 148 5.23 %
Federal funds sold and
resale agreements 117,137 1,541 5.34 47,586 649 5.49
Trading securities 4,231 71 6.81 10,070 145 5.79
Securities:
Taxable 3,068,710 50,009 6.57 3,305,879 52,433 6.36
Nontaxable 1,145,757 20,469 7.15 1,137,883 20,782 7.31
----------- ---------- ----------- ----------
Total securities 4,214,467 70,478 6.73 4,443,762 73,215 6.60
Loans:
Commercial 7,356,445 151,707 8.36 6,988,904 150,890 8.68
Consumer 5,782,792 126,215 8.80 5,760,457 126,187 8.79
----------- ---------- ----------- ----------
Total loans 13,139,237 277,922 8.56 12,749,361 277,077 8.73
----------- ---------- ----------- ----------
Interest earning assets 17,482,370 350,098 8.09 17,262,169 351,234 8.17
Reserve for loan losses (212,469) (199,373)
Cash and due from banks 1,029,563 1,036,561
Other assets 904,402 818,078
----------- -----------
Total assets $ 19,203,866 $ 18,917,435
=========== ===========
Liabilities and
Stockholders' Equity
Interest-bearing demand $ 1,589,960 $ 5,734 1.46 % $ 1,556,357 $ 5,418 1.40 %
Money market accounts 2,744,691 27,596 4.08 2,443,300 24,109 3.97
Savings passbook 1,508,525 8,949 2.41 1,639,475 10,487 2.57
Certificates of deposit 5,271,576 71,836 5.53 5,376,477 74,752 5.59
Short-term borrowed funds 2,242,899 28,294 5.12 2,339,607 30,544 5.25
Other debt 697,126 12,147 6.97 737,533 12,933 7.02
----------- ---------- ----------- ----------
Interest-bearing liabilities 14,054,777 154,556 4.46 14,092,749 158,243 4.51
Demand deposits 3,263,554 2,998,780
Other liabilities 293,779 265,784
Stockholders' equity 1,591,756 1,560,122
----------- -----------
Total liabilities and
stockholders' equity $ 19,203,866 $ 18,917,435
=========== ===========
Net interest
revenue/margin $ 195,542 4.51 % $ 192,991 4.48 %
========== ==========
</TABLE>
:
-16-
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits to Part 1 of Form 10-Q
27. Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
FIRSTAR CORPORATION
/s/ Jeffrey B. Weeden
------------------
Jeffrey B. Weeden
Senior Vice President-Finance and
Treasurer (Chief Financial Officer)
May 14, 1997
-17-
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<CASH> 1,082,339
<INT-BEARING-DEPOSITS> 9,458
<FED-FUNDS-SOLD> 192,073
<TRADING-ASSETS> 994
<INVESTMENTS-HELD-FOR-SALE> 1,942,234
<INVESTMENTS-CARRYING> 2,251,167
<INVESTMENTS-MARKET> 2,264,757
<LOANS> 13,346,973
<ALLOWANCE> 213,134
<TOTAL-ASSETS> 19,538,318
<DEPOSITS> 14,587,032
<SHORT-TERM> 2,458,339
<LIABILITIES-OTHER> 255,036
<LONG-TERM> 697,688
<COMMON> 181,102
0
8,129
<OTHER-SE> 1,350,992
<TOTAL-LIABILITIES-AND-EQUITY> 19,538,318
<INTEREST-LOAN> 276,230
<INTEREST-INVEST> 63,698
<INTEREST-OTHER> 1,696
<INTEREST-TOTAL> 341,624
<INTEREST-DEPOSIT> 114,115
<INTEREST-EXPENSE> 154,556
<INTEREST-INCOME-NET> 187,068
<LOAN-LOSSES> 9,718
<SECURITIES-GAINS> 1,126
<EXPENSE-OTHER> 178,622
<INCOME-PRETAX> 109,177
<INCOME-PRE-EXTRAORDINARY> 71,795
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 71,795
<EPS-PRIMARY> 0.49
<EPS-DILUTED> 0.49
<YIELD-ACTUAL> 4.51
<LOANS-NON> 91,843
<LOANS-PAST> 71,749
<LOANS-TROUBLED> 274
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 213,138
<CHARGE-OFFS> 14,783
<RECOVERIES> 5,061
<ALLOWANCE-CLOSE> 213,134
<ALLOWANCE-DOMESTIC> 212,537
<ALLOWANCE-FOREIGN> 597
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
