<PAGE>
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 JUNE 30, 1998 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 July 31, 1998, 145,748,820 shares of common stock were outstanding.
<PAGE>
FIRSTAR CORPORATION
CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets 1
Consolidated Statements of Income 2
Consolidated Statements of Equity 3
Consolidated Statements of Cash Flows 4
Supplemental Footnotes 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Additional Financial Data 15
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 9,10
PART II. OTHER INFORMATION
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 18
<PAGE>
<TABLE>
<CAPTION>
FIRSTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------------------------
June 30 December 31 June 30
(thousands of dollars) (unaudited) 1998 1997 1997
- ------------------------------------------------------ ------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 1,039,987 $ 1,254,289 $ 1,317,063
Interest-bearing deposits with banks 5,574 5,249 26,496
Federal funds sold and resale agreements 79,257 82,589 224,006
Trading securities 617 2,293 1,763
Securities held to maturity (market value $2,426,232
$2,505,360 and $2,382,206 on June 30, 1998
December 31, 1997 and June 30, 1997) 2,374,235 2,452,124 2,346,013
Securities available for sale 1,803,690 1,707,606 1,782,225
Loans:
Commercial and industrial 3,943,643 3,644,721 3,539,141
Real estate 3,038,297 2,951,968 2,956,591
Other 1,114,994 1,123,824 1,157,169
------------ ------------ ------------
Commercial loans 8,096,934 7,720,513 7,652,901
Credit card 724,614 736,484 652,010
Real estate - mortgage portfolio 1,816,938 2,150,398 2,403,141
Real estate - mortgages held for sale 400,447 234,008 159,017
Home equity 1,294,734 1,271,966 1,169,210
Other 1,407,745 1,455,417 1,444,178
------------ ------------ ------------
Consumer loans 5,644,478 5,848,273 5,827,556
------------ ------------ ------------
Total loans 13,741,412 13,568,786 13,480,457
Reserve for loan losses (218,903) (218,861) (213,763)
------------ ------------ ------------
Loans - net 13,522,509 13,349,925 13,266,694
Bank premises and equipment 383,112 368,083 363,817
Customer acceptance liability 7,403 7,360 10,487
Other assets 755,281 614,167 567,121
------------ ------------ ------------
Total assets $ 19,971,665 $ 19,843,685 $ 19,905,685
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $ 3,770,826 $ 3,607,659 $ 3,730,430
Interest-bearing demand 1,595,934 1,756,520 1,590,408
Money market accounts 3,218,264 2,947,683 2,713,187
Savings passbook 1,301,640 1,339,038 1,449,381
Certificates of deposit 4,885,954 5,063,754 5,140,330
------------ ------------ ------------
Total deposits 14,772,618 14,714,654 14,623,736
Short-term borrowed funds 2,205,745 2,121,412 2,794,858
Long-term debt 955,898 1,057,151 627,935
Bank acceptances outstanding 7,403 7,360 10,487
Other liabilities 244,878 250,007 258,237
------------ ------------ ------------
Total liabilities 18,186,542 18,150,584 18,315,253
Stockholders' equity:
Preferred stock 0 5,308 7,454
Common stock 181,935 181,102 181,027
Issued: June 30, 1998, 145,548,059 shares
Issued: December 31, 1997, 144,881,896 shares
Issued: June 30, 1997, 144,881,896 shares
Capital surplus 9,023 0 0
Retained earnings 1,569,900 1,484,199 1,395,346
Treasury stock (3) (132) (6,059)
Held: June 30, 1998, 1,076 shares
Held: December 31, 1997, 48,547 shares
Held: June 30, 1997, 421,747 shares
Accumulated other comprehensive income 24,268 22,624 12,664
------------ ------------ ------------
Total stockholders' equity 1,785,123 1,693,101 1,590,432
------------ ------------ ------------
Total liabilities and stockholders' equity $ 19,971,665 $ 19,843,685 $ 19,905,685
============ ============ ============
-1-
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIRSTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
- ---------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
(thousands of dollars, except per share data) 1998 1997 1998 1997
- --------------------------------------------- ----------------------- -----------------------
(unaudited)
<S> <C> <C> <C> <C>
INTEREST REVENUE
Loans $ 286,326 $ 283,834 $ 570,297 $ 560,066
Securities 63,209 64,196 127,068 127,849
Interest-bearing deposits with banks 53 329 141 416
Federal funds sold and resale agreements 835 2,151 2,099 3,691
Trading securities 28 27 54 96
---------- ---------- ---------- ----------
Total interest revenue 350,451 350,537 699,659 692,118
INTEREST EXPENSE
Deposits 120,252 117,186 240,092 231,304
Short-term borrowed funds 30,626 34,663 59,119 62,957
Long-term debt 16,138 12,069 33,397 24,215
---------- ---------- ---------- ----------
Total interest expense 167,016 163,918 332,608 318,476
---------- ---------- ---------- ----------
NET INTEREST REVENUE 183,435 186,619 367,051 373,642
Provision for loan losses 10,600 9,532 26,250 19,249
---------- ---------- ---------- ----------
NET INTEREST REVENUE AFTER
LOAN LOSS PROVISION 172,835 177,087 340,801 354,393
OTHER OPERATING REVENUE
Trust and investment management fees 45,267 42,901 91,313 82,752
Service charges on deposit accounts 25,693 21,825 51,390 45,066
Credit card revenue 14,350 12,493 26,986 24,749
Mortgage banking revenue 22,977 10,092 44,271 18,776
Data processing fees 3,520 3,829 7,273 7,942
Securities gains 488 0 491 1,126
Other revenue 22,740 22,325 42,358 43,572
---------- ---------- ---------- ----------
Total other operating revenue 135,035 113,465 264,082 223,983
OTHER OPERATING EXPENSE
Salaries 89,602 83,930 176,300 162,198
Employee benefits 16,462 16,370 36,486 34,884
Equipment expense 19,437 15,970 35,736 33,039
Net occupancy expense 16,056 15,563 32,861 30,942
Other expense 54,167 48,364 104,807 97,825
---------- ---------- ---------- ----------
Total other operating expense 195,724 180,197 386,190 358,888
INCOME BEFORE INCOME TAXES 112,146 110,355 218,693 219,488
Provision for income taxes 35,495 37,647 69,126 74,985
---------- ---------- ---------- ----------
NET INCOME $ 76,651 $ 72,708 $ 149,567 $ 144,503
========== ========== ========== ==========
Net income applicable to common stock $ 76,651 $ 72,577 $ 149,484 $ 144,231
========== ========== ========== ==========
PER COMMON SHARE
Net income $ 0.53 $ 0.50 $ 1.03 $ 0.99
Net income assuming dilution 0.52 0.50 1.02 0.98
Dividends 0.23 0.21 0.44 0.40
-2-
</TABLE>
<PAGE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (unaudited)
<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 144,503
Unrealized loss on securities
available for sale
Reclassification adjustment
for gains realized on net
income
Income taxes
Comprehensive income 144,503
Cash dividends:
Preferred stock, series D ($17.50 per share) (272)
Common stock ($.40 per share) (58,722)
Converted 7,780 shares of preferred stock
into 333,871 shares of common stock (3,890) (518) (1,568)
Issued 806,678 shares of common stock for
employee plans (5,184) (3,951)
Retired 5,944,300 shares of common stock (7,505) (45,443) (122,535)
Purchased 1,071,900 shares of treasury stock
-------------- ----------- ----------- -----------
Balance at June 30, 1997 $ 7,454 $ 181,027 $ 0 $ 1,395,346
============== =========== =========== ===========
</TABLE>
<TABLE> Accumulated
<CAPTION> Other
Comprehensive Treasury
Income Stock Total
-------------- ----------- -----------
<S> <C> <C> <C>
Balance at December 31, 1996 $ 19,191 $ (4,056)$ 1,704,047
Net income 144,503
Unrealized loss on securities
available for sale (8,916) (8,916)
Reclassification adjustment
for gains realized in net
income (1,126) (1,126)
Income taxes 3,515 3,515
-----------
Comprehensive income 137,976
Cash dividends:
Preferred stock, series D ($17.50 per share) (272)
Common stock ($.40 per share) (58,722)
Converted 7,780 shares of preferred stock
into 333,871 shares of common stock 5,976
Issued 806,678 shares of common stock for
employee plans 22,877 13,742
Retired 5,944,300 shares of common stock (12,941) (188,424)
Purchased 1,071,900 shares of treasury stock (17,915) (17,915)
-------------- ----------- -----------
Balance at June 30, 1997 $ 12,664 $ (6,059)$ 1,590,432
============== =========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Preferred Common Capital Retained
Stock Stock Surplus Earnings
-------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1997 $ 5,308 $ 181,102 $ $ 1,484,199
Net income 149,567
Unrealized gain on securities
available for sale
Reclassification adjustment
for gains realized in net
income
Income taxes
Comprehensive income
Cash dividends:
Preferred stock, series D ($8.75 per share) (83)
Common stock ($.44 per share) (63,782)
Converted 10,615 shares of preferred stock
into 452,761 shares of common stock (5,308) 537 4,182 492
Issued 362,119 shares of common stock for
employee and director plans 296 4,841 (493)
Purchased 101,246 shares of treasury stock
-------------- ----------- ----------- -----------
Balance at June 30, 1998 $ 0 $ 181,935 $ 9,023 $ 1,569,900
============== =========== =========== ===========
</TABLE>
<TABLE> Accumulated
<CAPTION> Other
Comprehensive Treasury
Income Stock Total
-------------- ----------- -----------
<S> <C> <C> <C>
Balance at December 31, 1997 $ 22,624 $ (132)$ 1,693,101
Net income 149,567
Unrealized gain on securities
available for sale 3,020 3,020
Reclassification adjustment
for gains realized in net
income (491) (491)
Income taxes (885) (885)
-----------
Comprehensive income 151,211
Cash dividends:
Preferred stock, series D ($8.75 per share) (83)
Common stock ($.44 per share) (63,782)
Converted 10,615 shares of preferred stock
into 452,761 shares of common stock 64 (33)
Issued 362,119 shares of common stock for
employee and director plans 4,001 8,645
Purchased 101,246 shares of treasury stock (3,936) (3,936)
-------------- ----------- -----------
Balance at June 30, 1998 $ 24,268 $ (3)$ 1,785,123
============== =========== ===========
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
FIRSTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------------------------------
Six Months Ended
June 30
(thousands of dollars) 1998 1997
- -------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 149,567 $ 144,503
Adjustments:
Provision for loan losses 26,250 19,250
Depreciation, amortization, and accretion 36,138 29,780
Net decrease in trading securities 1,676 11,726
Net increase in loans held for resale (166,439) (14,612)
Loss (gain) on securities and other assets 603 (1,764)
Deferred income taxes 2,395 1,028
(Increase) decrease in other assets (147,185) (89,863)
Increase (decrease) in other liabilities (5,129) (7,952)
Other, net (11,278) 12,368
------------- --------------
Net cash (used) provided by operating activities (113,402) 104,464
Cash Flows from Investing Activities:
Net decrease (increase) in federal funds sold and resale agreements 3,332 (31,041)
Net increase in interest-bearing deposits with banks (325) (20,147)
Sale of securities available for sale 490 1,126
Maturities of securities held to maturity 231,935 192,699
Maturities of securities available for sale 42,890 333,763
Purchase of securities held to maturity (157,174) (295,482)
Purchase of securities available for sale (137,920) (161,439)
Net increase in loans (36,266) (242,111)
Proceeds from sales of foreclosed assets 2,696 7,879
Purchases of bank premises and equipment (32,079) (31,998)
Proceeds from sales of bank premises and equipment 180 670
------------- --------------
Net cash provided (used) by investing activities (82,241) (246,081)
Cash Flows from Financing Activities:
Net increase (decrease) in deposits 57,964 (590,461)
Net increase in short-term borrowed funds 84,333 926,252
Repayment of long-term debt (198,340) (69,857)
Proceeds from long-term debt 97,087 598
Cash dividends (63,865) (58,994)
Common/treasury stock repurchases (3,936) (206,339)
Common/treasury stock issued 8,098 8,387
------------- --------------
Net cash provided (used) by financing activities (18,659) 9,586
Net increase (decrease) in cash and due from banks (214,302) (132,031)
Cash and due from banks at beginning of period 1,254,289 1,449,094
------------- --------------
Cash and due from banks at end of period $ 1,039,987 $ 1,317,063
============= ==============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 341,950 $ 323,523
Income taxes 56,699 69,481
Transfer to foreclosed assets from loans $ 4,882 $ 3,006
-4-
</TABLE>
<PAGE>
FIRSTAR CORPORATION AND SUBSIDIARIES
SUPPLEMENTAL FOOTNOTES (unaudited)
- -------------------------------------------------------
(thousands of dollars except as otherwise indicated)
1. The financial data presented herein are unaudited, however, 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
classifications used in the June 30, 1998 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,
1997.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." This statement establised standards for
reporting the components of comprehensive income prominently within the
financial statements. Comprehensive income includes net income plus
certain transactions that are reported directly within stockholders'
equity. Firstar adopted this statement with the first quarter of 1998
financial statements. The adoption of this statement did not have
any impact on financial position or results of operations of Firstar.
In March 1998, the American Institute of Certified Public Accountants
issued SOP 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." This statement requires the
capitalization of certain internal and external costs incurred in the
development of internal use computer software. Firstar adopted this
statement with the first quarter of 1998 financial statements and
capitalized $1.524 million of related expenses during the first
half of 1998.
In June 1998, the Financial Accounting Standards Board issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This statement requires the recognition of all
derivatives as either assets or liabilities on the balance sheet and
the measurement of those instruments at fair value. The statement is
effective in the first quarter of 2000. Firstar has not yet
determined the impact, if any, that this statement could have on its
financial position, or results of operations.
2. Pending Transactions - Mergers and Acquisitions:
In June, 1998, Firstar announced a definitive agreement to purchase
Cargill Leasing Corporation for a cash payment of $220 million.
Cargill has approximately $600 million of lease assets.
The transaction was completed on July 31, 1998 and will be accounted
for as a purchase transaction. The purchase price was in part
funded by the sale of approximately $200 million of securities
available for sale.
On July 1, 1998, Firstar Corporation and Star Banc Corporation signed a
definitive agreement to merge through an exchange of shares. Under the
terms of the agreement, Firstar shareholders will receive .76 shares of
common stock in the combined company for each share of Firstar common stock.
Shareholders of Star Banc will retain one share of common stock in the
combined company for each Star Banc common share. The combined company
will have total assets of approximately $38 billion The merger is expected
to be completed in the fourth quarter of 1998 and will be accounted for as
a pooling of interests.
A summary of unaudited pro forma financial information giving effect to the
merger with Star Banc Corporation is shown below. The unaudited financial
information is not indicative of the results that would have been realized
had the entities been a single company during these periods, nor is it
indicative of the actual results the combined company will report in the
future.
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
(millions of dollars, except per share)
<S> <C> <C> <C>
Total average assets $ 34,585 $ 30,272 $ 29,328
Net interest revenue 1,366 1,243 1,174
Other operating revenue 768 641 555
Other operating expense 1,225 1,163 1,086
Net income 519 415 381
Net income per share - diluted 2.35 1.95 1.74
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
3. Securities - The amortized cost and approximate market values of securities are as follows:
June 30,1998
--------------------------------------------------
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Securities held to maturity:
Mortgage backed obligations of federal agencies $ 1,018,473 $ 28,527 $ (189)$ 1,046,811
State and political subdivisions 1,349,609 24,773 (1,059) 1,373,323
Corporate debt 6,153 5 (60) 6,098
----------- ----------- ----------- -----------
Total $ 2,374,235 $ 53,305 $ (1,308)$ 2,426,232
=========== =========== =========== ===========
Securities available for sale:
U.S. Treasury and federal agencies $ 1,394,873 $ 36,830 $ (249)$ 1,431,454
Mortgage backed obligations of federal agencies 148,265 1,250 (285) 149,230
State and political subdivisions 65,129 174 (236) 65,067
Equity securities 80,668 0 0 80,668
Money market mutual funds 77,271 0 0 77,271
----------- ----------- ----------- -----------
Total $ 1,766,206 $ 38,254 $ (770)$ 1,803,690
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31,1997
--------------------------------------------------
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Securities held to maturity:
Mortgage backed obligations of federal agencies $ 1,139,317 $ 32,038 $ (779)$ 1,170,576
State and political subdivisions 1,306,555 23,129 (1,144) 1,328,540
Corporate debt 6,252 0 (8) 6,244
----------- ----------- ----------- -----------
Total $ 2,452,124 $ 55,167 $ (1,931)$ 2,505,360
=========== =========== =========== ===========
Securities available for sale:
U.S. Treasury and federal agencies $ 1,425,457 $ 36,175 $ (818)$ 1,460,814
Mortgage backed obligations of federal agencies 103,036 949 (149) 103,836
State and political subdivisions 6,146 36 (9) 6,173
Equity securities 98,010 0 0 98,010
Money market mutual funds 38,773 0 0 38,773
----------- ----------- ----------- -----------
Total $ 1,671,422 $ 37,160 $ (976)$ 1,707,606
=========== =========== =========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
4. Nonperforming Assets and Past Due Loans are as follows:
June 30 December 31 June 30
1998 1997 1997
----------- ----------- -----------
<S> <C> <C> <C>
Nonaccrual loans:
Commercial $ 25,345 $ 26,739 $ 46,688
Commercial mortgage 17,048 20,291 22,555
Consumer 15,523 16,828 16,150
----------- ----------- -----------
57,916 63,858 85,393
Renegotiated loans:
Commercial mortgage 43 263 273
Foreclosed assets 7,996 6,244 6,196
----------- ----------- -----------
Total $ 65,955 $ 70,365 $ 91,862
=========== =========== ===========
Nonperforming assets as a percent of:
Loans and foreclosed assets .48 % .52 % .68 %
Total assets .33 .35 .46
Loans past due 90 days and still accruing
Commercial $ 30,455 $ 21,774 $ 25,375
Commercial - eeal estate 15,172 15,626 25,710
Consumer 17,601 20,228 21,867
----------- ----------- -----------
Total $ 63,228 $ 57,628 $ 72,952
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
5. Reserve for Loan Losses - An analysis of the reserve for loan losses is as follows:
Three Months Ended Six Months Ended
June 30 June 30
------------------------ ------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance - beginning of period $ 218,977 $ 213,136 $ 218,861 $ 213,138
Provision for loan losses 10,600 9,532 26,250 19,249
Loan recoveries 8,190 5,129 16,982 9,928
Loan charge-offs (18,864) (14,034) (43,190) (28,552)
----------- ----------- ----------- -----------
Balance - end of period $ 218,903 $ 213,763 $ 218,903 $ 213,763
=========== =========== =========== ===========
Net charge-offs to average loans .31 % .27 % .39 % .28 %
Reserve to period-end loans 1.59 1.59
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
6. Net Income Per Common Share - Basic and diluted earnings per share of Firstar was calculated
as follows:
Three Months Ended Six Months Ended
June 30 June 30
------------------------ ------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Basic:
Net income $ 76,651 $ 72,708 $ 149,567 $ 144,503
Less preferred dividends 0 131 83 272
----------- ----------- ----------- -----------
Net income applicable to common stock $ 76,651 $ 72,577 $ 149,484 $ 144,231
Average common shares outstanding 145,239 144,506 145,115 145,597
Net income per common share- basic $ 0.53 $ 0.50 $ 1.03 $ 0.99
Diluted:
Net income $ 76,651 $ 72,708 $ 149,567 $ 144,503
Average common shares outstanding 145,239 144,506 145,115 145,597
Options and stock plans 1,457 1,364 1,545 1,413
Preferred stock 304 640 356 669
----------- ----------- ----------- -----------
Average common shares outstanding- diluted 147,000 146,510 147,016 147,679
Net income per common share- diluted $ 0.52 $ 0.50 $ 1.02 $ 0.98
</TABLE>
<TABLE>
<CAPTION>
7. Mortgage Servicing Rights - The fair value of capitalized mortgage servicing
rights was $34.9 million on June 30, 1998. Firstar serviced $3.5 billion of
mortgage loans for other investors as of June 30, 1998. Changes in
capitalized mortgage servicing are summarized as follows:
Six Months Ended
June 30
-----------
1998
-----------
<S> <C>
Balance - beginning of period 16,180
Servicing rights capitalized 35,573
Amortization of servicing rights (1,788)
Sales of servicing rights (23,628)
-----------
Balance - end of period 26,337
===========
</TABLE>
<TABLE>
<CAPTION>
8. Stock Based Compensation Plans - The following table summarizes stock option
activity for the six months ended June 30, 1998:
Weight-Avg
Number of Exercise
Shares Price
----------- -----------
<S> <C> <C>
Options outstanding at December 31, 1997 5,065,089 $ 19.04
Granted 1,376,350 38.75
Exercised (321,994) 25.15
Forfeited (79,900) 32.76
-----------
Options outstanding at June 30, 1998 6,039,545 21.45
===========
Options excercisable on June 30, 1998 were 2,622,049. All options will
become excercisable upon the merger with Star Banc Corporation.
9. Subsequent Events
In July 1998, Firstar agreed to pay $4.5 million in settlement of a lawsuit.
This payment will be expensed in the third quarter of 1998 and will reduce
earnings per share by approximately 2 cents.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Forward Looking Information
The following discussion includes forward looking statements
concerning Firstar's business results. These forward-looking
statements, such as statements of plans, strategies, goals,
objectives, expectations, estimates and intentions, are based on
assumptions that involve risks and uncertainties and that are
subject to change based on various important factors (some of
which are beyond Firstar's control). The following factors,
among others, could cause actual results to differ materially
from any forward-looking statement: the strength of the U.S.
economy in general and the strength of the local economies in
the areas in which Firstar conducts operations; the effects of
and changes in trade, monetary and fiscal policies and laws,
including interest rate policies of the Board of Governors of
the Federal Reserve System on both Firstar and its customers;
inflation, interest rate and market fluctuations; the timely
development of and acceptance of new products and services and
the perceived overall value of these products; the willingness
of customers to substitute competitors' products and services
for Firstar's products and services; the impact of changes in
financial services' laws and regulations; technological changes;
acquisitions; changes in consumer spending and saving habits;
and the success of Firstar at managing the risks involved in the
foregoing.
Financial Discussion - Income Statement
Firstar Corporation's net income for the second quarter of
1998 was $76.7 million, or $.52 per common share, on a diluted
basis, up from the $72.7 million, or $.50 per common share, for
the same period last year. This represented a 5.4% increase in
net income and a 4.0% increase in earnings per share. Return on
common equity was 17.58% for the quarter, compared with 18.86%
for the same period last year, while return on average assets
was 1.56% compared to 1.51% during the second quarter of last
year.
Net income for the first six months of 1998 was $149.6
million, or $1.02 per diluted common share, up from the $144.5
million, or $.98 per diluted common share, for the same period
last year. This represented a 4.1% increase in earnings per
share. Return on common equity was 17.41% for the first half of
the year, compared with 18.61% for the same period last year,
while return on average assets was 1.53% compared to 1.51%
during the first half of last year.
Table 1 shows the components of net income and the net interest
margin.
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Table 1. Condensed income statements - taxable equivalent basis
Three Months Ended Six Months Ended
June 30 June 30
---------------------------------- -------------------------------
1998 1997 Change 1998 1997 Change
---------- ---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(millions of dollars) (millions of dollars)
Interest revenue $ 350.5 $ 350.5 $ 0.0 $ 699.7 $ 692.1 $ 7.6
Taxable-equivalent adjustment 9.5 9.0 0.5 18.7 17.5 1.2
---------- ---------- ---------- --------- --------- ---------
Interest revenue - taxable-equivalent 360.0 359.5 0.5 718.4 709.6 8.8
Interest expense 167.0 163.9 3.1 332.6 318.5 14.1
---------- ---------- ---------- --------- --------- ---------
Net interest revenue - taxable-equivalent 193.0 195.6 (2.6) 385.8 391.1 (5.3)
Provision for loan losses 10.6 9.5 1.1 26.3 19.2 7.1
Other operating revenue 135.0 113.5 21.5 264.1 224.0 40.1
Other operating expense 195.7 180.3 15.4 386.2 358.9 27.3
---------- ---------- ---------- --------- --------- ---------
Income before income taxes 121.7 119.3 2.4 237.4 237.0 0.4
Provision for income taxes 35.5 37.6 (2.1) 69.1 75.0 (5.9)
Taxable-equivalent adjustment 9.5 9.0 0.5 18.7 17.5 1.2
---------- ---------- ---------- --------- --------- ---------
Net income $ 76.7 $ 72.7 $ 4.0 $ 149.6 $ 144.5 $ 5.1
========== ========== ========== ========= ========= =========
Yield on earning assets 8.05 % 8.16 % (0.11)% 8.09 % 8.13 % (0.04)%
Cost of interest-bearing liabilities 4.61 4.58 0.03 4.65 4.52 0.13
---------- ---------- ---------- --------- --------- ---------
Interest spread 3.44 3.58 (0.14) 3.44 3.61 (0.17)
Impact of interest-free funds 0.87 0.86 0.01 0.90 0.86 0.04
---------- ---------- ---------- --------- --------- ---------
Net interest margin 4.31 % 4.44 % (0.13)% 4.34 % 4.47 % (0.13)%
========== ========== ========== ========= ========= =========
</TABLE>
Net interest revenue during the first half of 1998, on a
taxable equivalent basis, was $385.8 million, a $5.3 million, or
1.4%, decrease from the level experienced in the same period
last year. The net interest margin was 4.34% during the first
half of 1998 compared to 4.47% a year earlier. The competition
for loans and deposits along with the flat yield curve have
placed pressure on the margin and net interest revenue.
Table 2 shows the components of interest revenue and expense
along with changes related to volumes and rates. Total interest
revenue on a taxable-equivalent basis increased by $8.8 million
to $718.4 million during the first six months of 1998 compared
to the same period last year. Loan income rose by $10.0 million
due to higher average commercial loan balances partially offset
by reduced yields on the loans. Securities revenue increased by
$647 thousand with higher yields being partially offset by lower
average balances. Short-term investment revenue was lower due
to reduced balances.
Total interest expense was $332.6 million during the first
half of 1998, an increase of $14.1 million from the same period
last year. Interest rates on liabilities increased to 4.65% in
1998 from 4.52% in 1997. Interest expense on total deposits
increased $8.8 million in the first half of 1998 compared to
the same period last year due to higher deposit levels and a
change in mix of deposits from lower cost savings passbook to
higher cost money market savings accounts and market competitive
certificates of deposit. Interest expense on short-term
borrowed funds decreased $3.8 million due to a shift from
short-term borrowing to long-term debt. Interest expense on
long-term debt increased $9.2 million due to additional
balances. This shift between short-term and long-term debt was
done to better match long-term assets and maintain the company's
interest rate risk profile within established guidelines.
<PAGE>
<TABLE>
<CAPTION>
Table 2. Analysis of interest revenue and expense
Six Months Ended June 30
---------------------------------------------------------------
Interest Total Due to
------------------------ ------------------------
1998 1997 Change Volume Rate
----------- ----------- ----------- ----------- -----------
(thousands of dollars)
<S> <C> <C> <C> <C> <C>
Interest-bearing deposits
with banks $ 141 $ 416 $ (275)$ (275)$ 0
Federal funds sold and
resale agreements 2,099 3,691 (1,592) (1,777) 185
Trading securities 54 98 (44) (44) 0
Securities 142,458 141,811 647 (1,403) 2,050
Commercial loans 322,752 310,757 11,995 18,517 (6,522)
Consumer loans 250,867 252,820 (1,953) (1,642) (311)
----------- ----------- -----------
Total loans 573,619 563,577 10,042 17,436 (7,394)
----------- ----------- -----------
Total interest revenue 718,371 709,593 8,778 11,992 (3,214)
Interest-bearing demand 13,975 11,766 2,209 670 1,539
Money market accounts 70,066 56,498 13,568 8,267 5,301
Savings passbook 14,911 17,287 (2,376) (1,913) (463)
Certificates of deposit 141,140 145,753 (4,613) (7,560) 2,947
----------- ----------- -----------
Total deposits 240,092 231,304 8,788 1,331 7,457
Short-term borrowed funds 59,119 62,957 (3,838) (4,567) 729
Long-term debt 33,397 24,215 9,182 11,265 (2,083)
----------- ----------- -----------
Total interest expense 332,608 318,476 14,132 4,834 9,298
----------- ----------- -----------
Net interest revenue $ 385,763 $ 391,117 $ (5,354) 6,562 (11,916)
=========== =========== ===========
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>
Market risk is the risk of loss arising from adverse changes
in the fair value of financial instruments due to changes in
interest rates, exchange rates and equity prices. Firstar's
market risk is composed primarily of interest rate risk.
Firstar's Asset/Liability Committee (ALCO) is responsible for
reviewing the interest rate sensitivity position of the
Corporation and establishing policies to monitor and limit
exposure to interest rate risk. The guidelines established by
ALCO are reviewed by the Audit-Examining Committee.
Firstar's primary purpose is to manage exposure to risks
associated with interest rate movements and provide for
acceptable and predictable results. Firstar utilizes an
investment portfolio as well as off-balance sheet instruments to
manage the interest rate risk naturally created through its
business activities. The components of interest rate risk which
are actively measured and managed include: repricing risk,
basis risk, option risk and the risk of non-parallel shifts in
the yield curve.
An earnings simulation model forecasts earnings over each of
the next two years under a variety of scenarios that incorporate
changes in the shape of the yield curve, changes in interest
rate relationships, changes in the direction of rates, and
changes in the mix and levels of balance sheet accounts.
Management evaluates the effects on income of these various rate
scenarios against earnings in a base rate environment.
<PAGE>
The most recent earnings simulation projects net income would
increase by approximately 1.9% of base rate net income if rates
gradually fall by 150 basis points over the next year. It
projects a decrease of approximately 3.4% if rates rise
gradually by 150 basis points. Both simulations are well within
the policy of limiting changes to 5% of income.
The provision for loan losses increased to $26.3 million in
the first half of 1998, from $19.2 million in the same period
last year due to increased net charge-offs. Net loan
charge-offs for the first half of 1998 were $26.2 million or
.39% of average outstanding loans, compared with $18.6 million
or .28% for the same period in 1997. The reserve for loan
losses represented 1.59% of total loans at June 30, 1998 and
June 30,1997.
Net charge-offs on consumer loans were .65% in the second
quarter and .74% for the first half of 1998. This was an
increase from .59% in the comparable quarter of 1997 and from
.65% the first six months of 1997. Increased credit card
charge-offs were incurred during 1998. Net credit card
charge-offs were 4.07% for the first six months of 1998,
compared to 3.48% for the same period one year ago. Commercial
loan charge-offs were .07% in the current quarter and .14% for
the first half of 1998. This is up from the unrepresentatively
low charge-off levels of the comparable periods of last year.
Total nonperforming assets were $66.0 million, or .48% of total
loans and foreclosed assets on June 30, 1998. This represents a
reduction in nonperforming assets of $14.0 million and $25.9
million from the prior quarter and one year ago, respectively.
<TABLE>
<CAPTION>
Table 3. Net loan charge-offs
Quarter ended Year to Date
---------------------- ----------------------
6-30-98 6-30-97 6-30-98 6-30-97
---------- ---------- ---------- ----------
(thousands of dollars)
<S> <C> <C> <C> <C>
Loan charge-offs
Commercial $ 4,906 $ 1,908 $ 14,061 $ 2,946
Commercial mortgage 504 315 741 491
Consumer 4,751 3,786 10,682 9,948
Consumer mortgage 131 282 399 185
Credit card 8,572 7,743 17,307 14,982
---------- ---------- ---------- ----------
Total charge-offs 18,864 14,034 43,190 28,552
Loan recoveries
Commercial 3,524 1,063 8,387 1,902
Commercial mortgage 487 599 1,129 1,505
Consumer 2,683 1,356 4,233 2,716
Consumer mortgage 33 42 192 52
Credit card 1,463 2,069 3,041 3,753
---------- ---------- ---------- ----------
Total recoveries 8,190 5,129 16,982 9,928
Total net charge-offs $ 10,674 $ 8,905 $ 26,208 $ 18,624
========== ========== ========== ==========
Net charge-offs as a % of
Commercial 0.11 % 0.07 % 0.23 % 0.05 %
Commercial mortgage 0.00 (0.04) (0.03) (0.07)
Total commercial loans 0.07 0.02 0.14 0.00
Consumer 0.31 0.38 0.48 0.57
Consumer mortgage 0.02 0.04 0.02 0.01
Credit card 4.00 3.52 4.07 3.48
Total consumer loans 0.65 0.59 0.74 0.65
Total loans 0.31 0.27 0.39 0.28
</TABLE>
<PAGE>
Other operating revenue, excluding securities gains and
losses, increased by 18.3% over the first half of 1997 to $263.6
million. Other operating revenue represents 40.6% of total
taxable equivalent revenue for the first half of 1998 compared
to 36.4% for the same period one year ago. Table 4 shows the
composition of other operating revenue.
<TABLE>
<CAPTION>
Table 4. Other operating revenue
Three Months Ended Six Months Ended
June 30 June 30
---------------------------------- ----------------------------------
1998 1997 Change 1997 1996 Change
---------- ---------- ---------- ---------- ---------- ----------
(thousands of dollars) (thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
Trust and investment management fees $ 45,267 $ 42,901 5.5 % 91,313 $ 82,752 10.3 %
Service charges on deposit accounts 25,693 21,825 17.7 51,390 45,066 14.0
Mortgage origination 19,538 7,012 178.6 33,654 12,324 173.1
Mortgage servicing 3,439 3,080 11.7 10,617 6,452 64.6
---------- ---------- ---------- ----------
Mortgage banking revenue 22,977 10,092 127.7 44,271 18,776 135.8
Credit card service revenue 14,350 12,493 14.9 26,986 24,749 9.0
Merchant fees 2,414 5,711 (57.7) 3,946 10,515 (62.5)
Insurance revenue 4,186 3,565 17.4 7,011 5,853 19.8
Data processing fees 3,520 3,829 (8.1) 7,273 7,942 (8.4)
Brokerage revenue 3,447 2,768 24.5 6,499 5,442 19.4
ATM fees 2,684 1,324 102.7 4,677 2,481 88.5
International fees 1,632 1,496 9.1 3,181 2,845 11.8
Safe deposit fees 944 1,081 (12.7) 2,157 2,476 (12.9)
Foreign exchange gains 767 884 (13.2) 1,438 1,649 (12.8)
Trading securities gains 264 209 26.3 436 726 (39.9)
Other 6,402 5,287 21.1 13,013 11,585 12.3
---------- ---------- ---------- ----------
Subtotal 134,547 113,465 18.6 263,591 222,857 18.3
Securities gains 488 0 491 1,126
---------- ---------- ---------- ----------
Total $ 135,035 $ 113,465 19.0 % 264,082 $ 223,983 17.9 %
========== ========== ========== ==========
</TABLE>
<PAGE>
Trust and investment management fees are the single largest
source of fee revenue, contributing $91.3 million, or 34.6%, of
other operating revenue. This level represents a 10.3% growth
in revenue during the first half of 1998 compared to the same
period last year. Adjustments to trust fee revenue accruals
resulting from a system conversion reduced revenue by $2.9
million in the second quarter of 1998. Firstar does not
anticipate similar adjustments in future periods. Trust and
investment assets under management were $27.3 billion on June
30, 1998, an 11.1% 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 7.0% to a level of $88.6 billion due in part to
increased mutual fund services business. The increased
volatility of equity markets and interest rates has had a
significant effect on trust and investment management fees and
future revenue levels could likewise be influenced by these
factors.
Revenue from service charges on deposit accounts are the
second largest source of fee revenue at $51.4 million for the
first half of 1998. This level represented a 14.0% increase
from the same period one year ago and was primarily the result
of increased commercial cash management revenues.
Revenue from mortgage loan originations activity for the first
half of this year increased 173.1%. The lower interest rates
currently available to borrowers has significantly increased
mortgage volumes. Mortgage loan closings were $2.1 billion in
the first half of 1998, compared to $743 million during the
comparable period of 1997. Mortgage loan servicing revenues
increased by 64.6% from the year earlier level due to $4.0
million in gains on the sale of servicing rights this year.
Excluding these gains, revenue from mortgage servicing remained
flat. The company sold mortgage servicing rights as part of its
risk management of the servicing portfolio. Mortgage loans
serviced for others were $3.5 billion on June 30, 1998.
Credit card revenues, excluding merchant processing revenue,
totaled $27.0 million during the first half of 1998. This level
represented a 9.0% increase over the same period last year. In
the fourth quarter of 1997, Firstar formed a joint venture with
Nova Information Systems Inc. to provide credit card processing
services to merchants. Merchant processing revenue decreased
62.5% over a year earlier due to the transfer of this activity
to the joint venture.
The remaining sources of other operating revenue were derived
from a wide range of services and aggregated $46.2 million, an
increase of 9.6% over the first six months of 1997.
Other operating expense rose by 7.6% over the first half of
1997 to a level of $386.2 million. Personnel costs increased
by 8.0% from the same period last year. Nonpersonnel expense
increased by 7.2%. The detail of other operating expense is
shown in Table 5.
Personnel costs increased by 8.0%, reflecting higher
commissions paid to mortgage banking personnel due to the
increased sales volume, normal salary increases for all
employees, and increased contract programming costs due in part
to the Year 2000 project. Employee benefit expense has
increased due to higher pension costs and payroll taxes.
Full-time equivalent personnel headcount was 8,048 on June 30,
1998, down from 8,138 one year earlier.
Equipment expense increased by $2.7 million, or 8.2%,
primarily as a result of equipment upgrades and higher
maintenance charges. Net occupancy expense rose by $1.9 million
or 6.2%. As of the end of 1997, all deferred gains from the sale
of a building in 1988 had been amortized. This amortization
reduced occupancy expense in the first half of 1997 by $3.4
million. Business development expense rose by 4.9% from last
year as a result of increased advertising associated with a
Firstar brand identity program. Information processing expense
rose by 16.4% due to increased volumes in the mutual funds
processing area. Processing losses increased $1.5 million or
43.7%. All other operating expenses totaled $71.8 million, a
increase of 4.3% over the first six months of 1997.
<PAGE>
Firstar is implementing a program to insure that its computer
systems are year 2000 compliant. This process involves
modifying or replacing certain hardware and software maintained
by Firstar as well as monitoring the progress of service
providers to ensure that they are taking the appropriate action
to solve their year 2000 issues. Year 2000 compliance does
involve significant business risk to Firstar. Additionally,
Firstar is dependent upon the successful completion of year 2000
issues by its customers and third parties with whom Firstar has
financial transactions. Firstar has completed assessment of its
year 2000 issues and the required updates and testing are
currently in progress. Firstar expects that the total cost of
this process will approach $20 million. Approximately $9.0
million has been expensed during 1997 and through the first half
of 1998. Firstar plans to complete substantially all year 2000
work associated with its critical business applications by the
end of 1998. Testing of vendor provided software may continue
into 1999 dependent upon the availability of their upgrades.
<TABLE>
<CAPTION>
Table 5. Other operating expense
Three Months Ended Six Months Ended
June 30 June 30
---------------------------------- ----------------------------------
1998 1997 Change 1998 1997 Change
---------- ---------- ---------- ---------- ---------- ----------
(thousands of dollars) (thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
Salaries $ 89,602 $ 83,930 6.8 % $ 176,300 $ 162,198 8.7 %
Employee benefits 16,462 16,370 0.6 36,486 34,884 4.6
---------- ---------- ---------- ----------
Total personnel expense 106,064 100,300 5.7 212,786 197,082 8.0
Equipment expense 19,437 15,970 21.7 35,736 33,039 8.2
Net occupancy expense 16,056 15,563 3.2 32,861 30,942 6.2
Business development 7,705 7,464 3.2 15,416 14,696 4.9
Professional fees 7,614 7,517 1.3 14,376 15,147 (5.1)
Information processing expense 6,774 5,949 13.9 12,575 10,805 16.4
Delivery 5,088 4,602 10.6 9,387 9,642 (2.6)
Stationery and supplies 4,979 5,083 (2.0) 9,884 10,906 (9.4)
Amortization of intangibles 3,986 3,452 15.5 7,981 7,461 7.0
Wire communication 2,411 2,493 (3.3) 4,452 5,015 (11.2)
Employee education/recruiting 2,380 2,045 16.4 4,892 3,975 23.1
Processing and other losses 2,348 2,086 12.6 5,011 3,486 43.7
Bank processing fees 2,207 1,502 46.9 4,384 3,183 37.7
Published information 738 527 40.0 1,761 1,359 29.6
Credit card assessment fees 752 998 (24.6) 1,681 2,809 (40.2)
Insurance 597 220 171.4 958 374 156.1
Net foreclosed assets expense(income) 224 14 425 (59)
Other 6,364 4,412 44.2 11,624 9,026 28.8
---------- ---------- ---------- ----------
Total nonpersonnel expense 89,660 79,897 12.2 173,404 161,806 7.2
---------- ---------- ---------- ----------
Total other operating expense $ 195,724 $ 180,197 8.6 % $ 386,190 $ 358,888 7.6 %
========== ========== ========== ==========
</TABLE>
Income tax expense was $69.1 million in the first half of 1998
compared to $75.0 million in the same period last year. The
effective tax rate was 31.6 % in 1998 compared to 34.2% in 1997.
The implementation of various tax planning strategies has
reduced the effective tax rate.
<PAGE>
Financial Discussion - Balance Sheet
Total assets on June 30, 1998 were $20.0 billion, up $128
million from December 31, 1997 and up $66 million from a year
earlier. Earning assets totaled $18.0 billion, up $186 million
from December 31, 1997 and $144 million from a year earlier.
Average loans totaled $13.6 billion during the first six
months of 1998, an increase of $413 million, or 3.1% from a year
earlier.
Commercial loans averaged $7.9 billion during the first half
of 1998, an increase of $450 million, or 6.1% from a year
earlier. While this loan growth is encouraging, competitive
pressures are leading to narrower interest spreads for
commercial lending.
Consumer loans, excluding residential mortgages, averaged $3.4
billion, an increase of $206 million, or 6.4% over the first
half of 1997. Good growth has occurred in home equity loans and
credit card loans, which are up 12.0% and 8.7% respectively,
from the same period one year ago. Reductions in direct
installment debt and other areas of consumer lending have been
seen as customers are converting and consolidating their debt to
home equity or mortgage products.
Residential mortgage loans, exclusive of loans held for sale,
declined by 20.0% on average from the first half of 1997. 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. Lower interest
rates experienced in the last half of 1997 and continuing into
the first half of 1998 along with a flat yield curve, have
increased the prepayment rate on portfolio mortgages during this
same time period. Firstar's primary strategy in this area has
been to originate and sell mortgages into the secondary market
thereby reducing the amount of portfolio 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 half of both 1998 and 1997.
Funding sources, consisting of deposits and borrowed funds,
averaged $17.7 billion during the first half of 1998. Total
deposits averaged $14.5 billion, an increase of 1.0% from a year
ago. The change in the mix of deposits is reflected in the
11.3% reduction in average passbook deposit levels and the 4.4%
reduction of certificates of deposit. Money market deposit
accounts have increased by 13.8% during the same period as
consumers have moved money from passbook savings and
certificates of deposit. Increased competition for consumer
deposits and continued consumer sensitivity to interest rates
and other uses of funds, such as investments in equity markets,
have limited Firstar's deposit growth.
<PAGE>
Borrowed funds averaged $3.2 billion during the first half of
1998, up $150 million from a year earlier. A $250 million issue
of long-term senior bank notes was made in December 1997.
Firstar has called for redemption on September 1, 1998, the $100
million 7.15% subordinated notes due on September 1, 2000.
Stockholders' equity totaled $1,785 million at June 30, 1998,
a increase of $92 million from December 31, 1997. Firstar's
capital management plan strives to match longer term capital
needs with maintaining sound capital levels. Firstar's tier 1
leverage ratio was 8.85% at June 30, 1998. On June 30, 1998,
the Board of Directors rescinded the January 16, 1997
authorization to repurchase up to 12 million shares of Firstar
common stock for retirement. The Company still has
authorization to repurchase shares for reissue for certain
employee benefit plans.
The board of directors declared a quarterly dividend to common
stockholders of $.23 per share. The dividend is payable August
15 to shareholders of record on July 27.
<TABLE>
<CAPTION>
Table 6. Capital components and ratios
June 30 December 31 June 30
1998 1997 1997
------------ ------------ ------------
(thousands of dollars)
<S> <C> <C> <C>
Risk-based capital:
Stockholders' equity $ 1,785,123 $ 1,693,101 $ 1,590,432
Trust capital securities 150,000 150,000 150,000
Unrealized gains on securities available for sale (24,268) (22,624) (12,664)
Minority interest in subsidiaries 3,207 2,913 2,623
Less disallowed intangibles (181,262) (188,466) (194,415)
------------ ------------ ------------
Total Tier I capital 1,732,800 1,634,924 1,535,976
Allowable reserve for loan losses 200,748 200,438 182,806
Allowable long-term debt 0 40,000 60,000
------------ ------------ ------------
Total Tier II capital 200,748 240,438 242,806
------------ ------------ ------------
Total capital $ 1,933,548 $ 1,875,362 $ 1,778,782
============ ============ ============
Risk-adjusted assets $ 16,041,653 $ 16,016,627 $ 14,593,563
Tier I capital to risk-adjusted assets 10.80 % 10.21 % 10.53 %
Total capital to risk-adjusted assets 12.05 11.71 12.19
Tier I leverage ratio 8.85 8.50 8.03
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIRSTAR CORPORATION AND SUBSIDIARIES
ADDITIONAL FINANCIAL DATA (unaudited)
- -----------------------------------------------------------------------------------------
Selected Financial Data
(thousands of dollars, except per share)
Quarter ended Three Months ended
June 30 June 30
---------------------- ------------------------
1998 1997 1998 1997
---------------------- ------------------------
<S> <C> <C> <C> <C>
Earnings and Dividends
Net income $ 76,651 $ 72,708 $ 149,567 $ 144,503
Per common share:
Net income 0.53 0.50 1.03 0.99
Net income assuming dilution 0.52 0.50 1.02 0.98
Dividends 0.23 0.21 0.44 0.40
Stockholders' equity 12.26 10.96
Performance Ratios
Return on average assets 1.56 % 1.51 % 1.53 % 1.51 %
Return on average common equity 17.58 18.86 17.41 18.61
Dividend payout ratio 43.39 42.00 42.70 40.40
Equity to assets 8.94 7.99
Net loan charge-offs as a percentage
of average loans 0.31 0.27 0.39 0.28
Nonperforming assets as a
percentage of loans and foreclosed
assets 0.48 0.68
Net interest margin 4.31 4.44 4.34 4.47
Efficiency ratio 59.76 58.31 59.47 58.45
Fee revenue as a percentage
of average assets 41.08 36.71 40.59 36.30
Statistical Data
Full-time equivalent staff (at quarter end) 8,048 8,138
Average common shares
outstanding (000's) 145,239 144,506 145,115 145,597
Average common shares
outstanding assuming dilution (000's) 147,000 146,510 147,016 147,679
Actual common shares
outstanding (000's at quarter end) 145,547 144,460
Stock Price Information
High $ 41.000 $ 33.125 $ 42.625 $ 33.125
Low 32.750 27.250 32.750 25.563
Close 38.188 30.500 38.188 30.500
-14-
</TABLE>
<PAGE>
<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 June 30
------------------------------------------------------------------------
1998 1997
------------------------------------- ----------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-bearing deposits
with banks $ 4,022 $ 53 5.29 % $ 20,946 $ 329 6.30 %
Federal funds sold and
resale agreements 62,142 835 5.39 163,863 2,151 5.27
Trading securities 3,567 28 3.15 2,178 27 4.97
Securities:
Taxable 2,806,567 47,081 6.72 2,987,182 49,850 6.69
Nontaxable 1,350,403 23,951 7.09 1,196,425 21,484 7.18
----------- ---------- ----------- ----------
Total securities 4,156,970 71,032 6.84 4,183,607 71,334 6.83
Loans:
Commercial 8,009,179 163,190 8.17 7,512,853 159,051 8.49
Residential mortgage portfolio 1,874,172 35,162 7.50 2,420,172 46,007 7.60
Residential mortgage-held for sa 410,138 7,202 7.02 122,488 2,305 7.53
Consumer 3,405,569 82,506 9.72 3,222,588 78,290 9.74
----------- ---------- ----------- ----------
Total loans 13,699,058 288,060 8.43 13,278,101 285,653 8.62
----------- ---------- ----------- ----------
Interest earning assets 17,925,759 360,008 8.05 17,648,695 359,494 8.16
Reserve for loan losses (216,741) (212,970)
Cash and due from banks 1,046,248 958,441
Other assets 1,011,789 922,060
----------- -----------
Total assets $ 19,767,055 $ 19,316,226
=========== ===========
Liabilities and
Stockholders' Equity
Interest-bearing demand $ 1,656,691 $ 7,075 1.71 % $ 1,575,476 $ 6,032 1.54 %
Money market accounts 3,190,480 35,859 4.51 2,741,187 28,905 4.23
Savings passbook 1,319,220 7,455 2.27 1,480,249 8,335 2.26
Certificates of deposit 5,032,113 69,863 5.57 5,321,914 73,914 5.57
Short-term borrowed funds 2,333,386 30,626 5.26 2,578,069 34,663 5.39
Long-term debt 982,779 16,138 6.57 668,510 12,069 7.22
----------- ---------- ----------- ----------
Interest-bearing liabilities 14,514,669 167,016 4.61 14,365,405 163,918 4.58
Demand deposits 3,236,247 3,133,612
Other liabilities 263,843 266,227
Stockholders' equity 1,752,296 1,550,982
----------- -----------
Total liabilities and
stockholders' equity $ 19,767,055 $ 19,316,226
=========== ===========
Net interest
revenue/margin $ 192,992 4.31 % $ 195,576 4.44 %
========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Six months ended June 30
------------------------------------- ----------------------------------
1998 1997
----------------------------------- ----------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
------------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-bearing deposits
with banks $ 4,338 $ 141 6.55 % $ 12,772 $ 416 6.57 %
Federal funds sold and
resale agreements 75,980 2,099 5.57 140,629 3,691 5.29
Trading securities 3,024 54 3.60 3,199 98 6.18
Securities:
Taxable 2,831,898 95,471 6.83 3,027,697 99,856 6.63
Nontaxable 1,325,716 46,987 7.09 1,171,231 41,955 7.16
----------- ---------- ----------- ----------
Total securities 4,157,614 142,458 6.87 4,198,928 141,811 6.78
Loans:
Commercial 7,886,510 322,752 8.25 7,436,469 310,757 8.42
Residential mortgage portfolio 1,963,896 73,706 7.51 2,454,957 93,772 7.64
Residential mortgage-held for sa 360,569 12,619 7.00 112,767 4,120 7.31
Consumer 3,411,967 164,542 9.72 3,206,248 154,928 9.74
----------- ---------- ----------- ----------
Total loans 13,622,942 573,619 8.48 13,210,441 563,577 8.59
----------- ---------- ----------- ----------
Interest earning assets 17,863,898 718,371 8.09 17,565,969 709,593 8.13
Reserve for loan losses (217,076) (212,721)
Cash and due from banks 1,056,310 993,790
Other assets 997,691 913,261
----------- -----------
Total assets $ 19,700,823 $ 19,260,299
=========== ===========
Liabilities and
Stockholders' Equity
Interest-bearing demand $ 1,669,530 $ 13,975 1.69 % $ 1,582,678 $ 11,766 1.50 %
Money market accounts 3,121,978 70,066 4.53 2,742,929 56,498 4.15
Savings passbook 1,325,198 14,911 2.27 1,494,309 17,287 2.33
Certificates of deposit 5,063,747 141,140 5.62 5,296,884 145,753 5.55
Short-term borrowed funds 2,238,219 59,119 5.33 2,411,410 62,957 5.26
Other debt 1,005,851 33,397 6.64 682,739 24,215 7.10
----------- ---------- ----------- ----------
Interest-bearing liabilities 14,424,523 332,608 4.65 14,210,949 318,476 4.52
Demand deposits 3,275,608 3,198,224
Other liabilities 264,851 279,898
Stockholders' equity 1,735,841 1,571,228
----------- -----------
Total liabilities and
stockholders' equity $ 19,700,823 $ 19,260,299
=========== ===========
Net interest
revenue/margin $ 385,763 4.34 % $ 391,117 4.47 %
========== ==========
-16-
</TABLE>
<PAGE>
PART II. OTHER INFORMATION
Item 5. Other Information
Proposals of shareholders pursuant to Rule 14a-8 under the
Securities Exchange Act of 1934 that are intended to be
presented at Firstar's 1999 Annual Meeting of Shareholders must
be received by Firstar no later than November 13, 1998 to be
included in Firstar's proxy materials for that meeting.
Further, a shareholder who otherwise intends to present business
at the 1999 annual meeting must comply with the requirements set
forth in Firstar's By-laws. Among other things, to bring
business before an annual meeting, a shareholder must give
written notice thereof, complying with the By-laws, to the
Secretary of Firstar not less than 50 days in advance of the
third Thursday in the month of April next succeeding the last
annual meeting held. If the annual meeting is held earlier than
the third Thursday in April, the shareholder's notice must be
received by the Secretary of Firstar by the later of a) 50 days
prior to the earlier date of the annual meeting and b) 10
business days (as defined in the By-laws) after the first public
announcement of the earlier date of such annual meeting. If
Firstar does not receive notice of a shareholder proposal by the
relevant date, then the notice will be considered untimely and
Firstar is not required to present such proposal at the annual
meeting. Furthermore, if the Board of Directors chooses to
present at the 1999 annual meeting a proposal received after the
relevant date (which date is February 24, 1999, assuming the
1999 annual meeting is held on the third Thursday in April),
then the persons named in the proxies solicited by the Board of
Directors for the 1999 annual meeting may exercise discretionary
voting power with respect to such proposal.
-17-
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits to Part 1 of Form 10-Q
27. Financial Data Schedule
(b) A Form 8-K and 8-KA both
dated June 30, 1998 reported
the announcement of a definitive
agreement to merge Firstar
Corporation and Star Banc
Corporation.
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
Chief Financial Officer
August 12, 1998
-18-
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,039,987
<INT-BEARING-DEPOSITS> 5,574
<FED-FUNDS-SOLD> 79,257
<TRADING-ASSETS> 617
<INVESTMENTS-HELD-FOR-SALE> 1,803,690
<INVESTMENTS-CARRYING> 2,374,235
<INVESTMENTS-MARKET> 2,426,232
<LOANS> 13,741,412
<ALLOWANCE> 218,903
<TOTAL-ASSETS> 19,971,665
<DEPOSITS> 14,772,618
<SHORT-TERM> 2,205,745
<LIABILITIES-OTHER> 252,281
<LONG-TERM> 955,898
<COMMON> 181,935
0
0
<OTHER-SE> 1,603,188
<TOTAL-LIABILITIES-AND-EQUITY> 19,971,665
<INTEREST-LOAN> 570,297
<INTEREST-INVEST> 127,068
<INTEREST-OTHER> 2,294
<INTEREST-TOTAL> 699,659
<INTEREST-DEPOSIT> 240,092
<INTEREST-EXPENSE> 332,608
<INTEREST-INCOME-NET> 367,051
<LOAN-LOSSES> 26,250
<SECURITIES-GAINS> 491
<EXPENSE-OTHER> 386,190
<INCOME-PRETAX> 218,693
<INCOME-PRE-EXTRAORDINARY> 149,567
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 149,567
<EPS-PRIMARY> 1.03
<EPS-DILUTED> 1.02
<YIELD-ACTUAL> 4.34
<LOANS-NON> 57,916
<LOANS-PAST> 63,228
<LOANS-TROUBLED> 43
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 218,861
<CHARGE-OFFS> 43,190
<RECOVERIES> 16,982
<ALLOWANCE-CLOSE> 218,903
<ALLOWANCE-DOMESTIC> 218,323
<ALLOWANCE-FOREIGN> 580
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,317,063
<INT-BEARING-DEPOSITS> 26,496
<FED-FUNDS-SOLD> 224,006
<TRADING-ASSETS> 1,763
<INVESTMENTS-HELD-FOR-SALE> 1,782,225
<INVESTMENTS-CARRYING> 2,346,013
<INVESTMENTS-MARKET> 2,382,206
<LOANS> 13,480,457
<ALLOWANCE> 213,763
<TOTAL-ASSETS> 19,905,685
<DEPOSITS> 14,623,736
<SHORT-TERM> 2,794,858
<LIABILITIES-OTHER> 268,724
<LONG-TERM> 627,935
<COMMON> 181,027
0
7,454
<OTHER-SE> 1,401,951
<TOTAL-LIABILITIES-AND-EQUITY> 19,905,685
<INTEREST-LOAN> 560,068
<INTEREST-INVEST> 127,849
<INTEREST-OTHER> 4,203
<INTEREST-TOTAL> 692,120
<INTEREST-DEPOSIT> 231,304
<INTEREST-EXPENSE> 318,476
<INTEREST-INCOME-NET> 373,644
<LOAN-LOSSES> 19,249
<SECURITIES-GAINS> 1,126
<EXPENSE-OTHER> 358,888
<INCOME-PRETAX> 219,490
<INCOME-PRE-EXTRAORDINARY> 144,503
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 144,503
<EPS-PRIMARY> 0.99
<EPS-DILUTED> 0.98
<YIELD-ACTUAL> 4.47
<LOANS-NON> 85,393
<LOANS-PAST> 72,952
<LOANS-TROUBLED> 273
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 213,138
<CHARGE-OFFS> 28,552
<RECOVERIES> 9,928
<ALLOWANCE-CLOSE> 213,763
<ALLOWANCE-DOMESTIC> 213,248
<ALLOWANCE-FOREIGN> 515
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
