SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
-------------------------------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------------------- --------------------
Commission file number 0-5519
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Associated Banc-Corp
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Wisconsin 39-1098068
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(State or other jurisdiction of (IRS employer identification no.)
incorporation or organization)
112 North Adams Street, Green Bay, Wisconsin 54301
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(Address of principal executive offices) (Zip code)
(920) 433-3166
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(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether 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 preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of registrant's common stock, par value $0.01
per share, at June 30, 1998, was 63,308,586 shares.
<PAGE>
ASSOCIATED BANC-CORP
TABLE OF CONTENTS
Page No.
---------
PART I. Financial Information
Item 1. Financial Statements:
Consolidated Statements of Financial
Condition - June 30, 1998 and December 31, 1997
Consolidated Statements of Income - Three and Six
Months Ended June 30, 1998 and 1997
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1998 and 1997
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About 30
Market Risk
PART II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
See Footnote (8) in Part I Item I
Signatures
<PAGE>
Special Note Regarding Forward-Looking Statements
Forward-looking statements have been made in this document, and in documents
that are incorporated by reference, that are subject to risks and uncertainties.
These forward-looking statements, which are included in Management's Discussion
and Analysis, describe future plans or strategies and include the Corporation's
expectations of future results of operations. The words "believes," "expects,"
"anticipates" or similar expressions identify forward-looking statements.
Shareholders should note that many factors, some of which are discussed
elsewhere in this document and in the documents that are incorporated by
reference, could affect the future financial results of the Corporation and
could cause those results to differ materially from those expressed in
forward-looking statements contained or incorporated by reference in this
document. These factors include the following:
- operating, legal and regulatory risks;
- economic, political and competitive forces affecting the Corporation's
banking, securities, asset management and credit services businesses;
and
- the risk that the Corporation's analyses of these risks and forces
could be incorrect and/or that the strategies developed to address
them could be unsuccessful.
These factors should be considered in evaluating the forward-looking statements,
and undue reliance should not be placed on such statements.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements:
ASSOCIATED BANC-CORP
Consolidated Statements of Financial Condition
(Unaudited)
June 30, December 31,
1998 1997
---- ----
(In Thousands, Except Share Data)
ASSETS
Cash and due from banks $ 275,844 $ 288,021
Interest-bearing deposits
in other financial institutions 4,619 4,154
Federal funds sold and securities
purchased under agreements to resell 18,500 11,511
Investment securities:
Held to maturity at amortized cost
(Fair value of approximately $685,495
and $782,240 at June 30, 1998 and
December 31, 1997, respectively) 674,691 772,524
Available for sale-stated at fair value 2,044,507 2,167,694
Loans, held for sale 86,851 114,001
Loans, net of unearned income 7,210,503 7,076,576
Less: Allowance for possible loan losses (91,708) (92,731)
------ ------
Loans, net 7,118,795 6,983,845
Premises and equipment 128,573 127,823
Other assets 209,287 221,866
-------- -------
Total assets $10,561,667 $10,691,439
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing deposits $ 842,077 $ 904,710
Interest-bearing deposits 7,625,071 7,459,427
--------- ---------
Total deposits 8,467,148 8,364,137
Short-term borrowings 1,066,287 1,337,008
Accrued expenses and other liabilities 133,188 161,331
Long-term borrowings 27,758 15,270
--------- ---------
Total liabilities 9,694,381 9,877,746
Commitments and contingent liabilities --- ---
Stockholders' equity
Preferred stock --- ---
Common stock (par value $0.01 per share,
authorized 100,000,000 shares issued;
63,389,734 and 62,993,309 shares,
respectively) 634 504
Surplus 224,982 218,072
Retained earnings 613,314 569,996
Accumulated other comprehensive income 31,810 26,144
Less: Treasury stock (81,148 and
23,618 shares, respectively
at cost) (3,454) (1,023)
------ -----
Total stockholders' equity 867,286 813,693
--------- ---------
Total liabilities and stockholders'
equity $10,561,667 $10,691,439
========== ==========
(See accompanying notes to Consolidated Financial Statements.)
<PAGE>
ITEM 1. Financial Statements Continued:
ASSOCIATED BANC-CORP
Consolidated Statements of Income
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1998 1997 1998 1997
---- ---- ---- ----
(In Thousands)
INTEREST INCOME
Interest and fees on loans $151,247 $146,162 $302,131 $288,417
Interest and dividends on
investment securities:
Taxable 41,564 46,127 85,837 90,692
Tax exempt 2,603 2,300 5,065 4,650
Interest on deposits in other
financial institutions 609 256 1,185 533
Interest on federal funds sold
and securities
purchased under agreements
to resell 232 211 487 506
------- ------- ------- -------
Total interest income 196,255 195,056 394,705 384,798
INTEREST EXPENSE
Interest on deposits 86,775 82,821 173,071 163,856
Interest on short-term borrowings 15,280 18,052 32,650 34,472
Interest on long-term borrowings 543 546 985 1,034
------- ------- ------- -------
Total interest expense 102,598 101,419 206,706 199,362
------- ------- ------- -------
NET INTEREST INCOME 93,657 93,637 187,999 185,436
Provision for possible loan losses 3,375 3,186 7,133 6,559
------- ------- ------- -------
Net interest income after provision
for possible loan losses 90,282 90,451 180,866 178,877
NONINTEREST INCOME
Trust service fees 8,066 6,983 15,981 13,931
Service charges on deposit accounts 6,816 7,023 13,186 13,522
Investment securities gains, net 642 188 5,953 1,383
Mortgage banking activity 11,183 5,438 22,079 10,554
Retail commission income 3,987 3,992 7,377 7,862
Loan fees 4,870 4,074 9,030 7,758
Asset sale gains, net 6,191 165 6,376 363
Other 3,341 3,249 6,863 6,377
------- ------- ------- -------
Total noninterest income 45,096 31,112 86,845 61,750
NONINTEREST EXPENSE
Salaries and employee benefits 37,103 33,518 73,046 66,839
Net occupancy expense 5,053 5,193 10,222 10,855
Equipment rentals, depreciation and
maintenance 3,458 3,026 6,867 6,205
Data processing expense 4,789 4,270 9,443 8,399
Stationery and supplies 1,486 1,249 2,882 2,577
Business development and advertising 4,069 3,787 7,335 7,691
FDIC expense 817 840 1,646 1,642
Other 16,084 14,909 32,992 29,449
------- ------- ------- -------
Total noninterest expense 72,859 66,792 144,433 133,657
------- ------- ------- -------
Income before income taxes 62,519 54,771 123,278 106,970
Income tax expense 21,515 19,291 42,414 37,631
------- ------- ------- -------
NET INCOME $ 41,004 $ 35,480 $ 80,864 $ 69,339
======= ======= ======= =======
Earnings per share:
Basic $ 0.65 $ 0.57 $ 1.28 $ 1.10
Diluted $ 0.64 $ 0.56 $ 1.26 $ 1.08
(See accompanying notes to Consolidated Financial Statements)
<PAGE>
ITEM 1. Financial Statements Continued:
ASSOCIATED BANC-CORP
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30,
--------
1998 1997
---- ----
(In Thousands)
OPERATING ACTIVITIES
Net income $ 80,864 $ 69,339
Adjustments to reconcile net income
to net cash used by operating
activities:
Provision for possible loan losses 7,133 6,559
Depreciation and amortization 7,915 7,084
Amortization of mortgage servicing
rights 3,183 2,492
Amortization of intangibles 2,920 3,116
Net amortization (accretion) of premiums
and discounts 882 (4,372)
Loss on sales of investment securities, net (5,953) (1,383)
Increase (decrease) in interest receivable
and other assets 12,334 (2,546)
Decrease in interest payable and other
liabilities (28,143) (3,941)
Amortization of loan fees and costs 31 26
Net increase in mortgage loans acquired
for sale 34,848 1,269
Loss on sales of mortgage loans held
for sale (7,698) (1,246)
Loss on other asset sales (6,376) (363)
------- -------
Net cash provided by operating activities 101,940 76,034
INVESTING ACTIVITIES
Net decrease (increase) in federal funds
sold and securities purchased
under agreements to resell (6,989) 15,523
Net increase in interest-bearing deposits in
other financial institutions (465) (1,892)
Purchases of held to maturity securities (10,019) (97,286)
Purchases of available for sale securities (216,432) (498,843)
Proceeds from sales of available for sale
securities 60,366 33,612
Maturities of held to maturity securities 107,601 144,742
Maturities of available for sale securities 296,619 249,760
Net increase in loans (174,024) (268,397)
Proceeds from sales of other real estate 3,513 3,872
Purchases of premises and equipment, net of
disposals (10,611) (8,016)
Purchase of mortgage servicing rights (10,345) (3,588)
Net cash received in purchase of subsidiary -- 5,051
Proceeds from sale of other assets 38,086 544
------- -------
Net cash used in investing activities 77,300 (424,918)
FINANCING ACTIVITIES
Net increase (decrease) in deposits 103,011 103,233
Net increase (decrease) in short-term
borrowings (271,732) 199,565
Cash dividends (29,368) (22,764)
Proceeds from issuance of long-term borrowings 13,500 425
Proceeds from exercise of stock options 6,177 2,308
Stock purchases by pooled company --- (21,048)
Purchase of treasury stock (13,005) (1,524)
------- -------
Net cash provided by (used in) financing activities (191,417) (260,195)
Net decrease in cash and cash equivalents (12,177) (88,689)
Cash and due from banks at beginning of period 288,021 369,842
------- -------
Cash and due from banks at end of period $ 275,844 $ 281,153
======= =======
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest $ 202,821 $ 193,348
Income taxes 3,839 37,092
Supplemental schedule of noncash investing activities:
Loans transferred to other real estate 4,160 13,465
Loans made in connection with the disposition of
other real estate 237 3,807
(See accompanying notes to Consolidated Financial Statements.)
<PAGE>
ITEM 1. Financial Statements Continued:
ASSOCIATED BANC-CORP
Notes to Consolidated Financial Statements
NOTE 1: In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly
Associated Banc-Corp's ("Corporation") financial position, results of its
operations and cash flows for the periods presented. All adjustments necessary
to the fair presentation of the financial statements are of a normal recurring
nature. The results of operations for the interim periods are not necessarily
indicative of the results to be expected for the full year.
In preparing the financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities as of
the date of the balance sheet and revenues and expenses for the period. Actual
results could differ significantly from those estimates.
NOTE 2: The consolidated financial statements include the accounts of all
subsidiaries. All material intercompany transactions and balances are
eliminated. The Corporation has not changed its accounting and reporting
policies from those stated in the Corporation's 1997 Form 10-K Annual Report.
NOTE 3: Business Combinations
The following table summarizes completed transactions during 1997 and 1998
(through June 30):
<TABLE>
<CAPTION>
Consideration Paid
---------------------------
Shares of
Date Method of Cash Common Total Assets Intangibles
Name of Acquired Acquired Accounting (In Millions) Stock (In Millions) (In Millions)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Centra Financial, Inc. [A] 2/97 Pooling of
West Allis, Wisconsin Interests $--- 517,956 $ 76 $---
First Financial
Corporation [B] 10/97 Pooling of
Stevens Point, Wisconsin Interests 0.1 34,794,911 6,005 ---
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
[A] The transaction, accounted for using the pooling-of-interests method, was
not material to operating results for years prior to the acquisition and,
accordingly, results for years prior to the acquisition were not restated.
[B] Allconsolidated financial information has been restated as if the
transaction had been effected as of the beginning of the earliest period
presented.
<PAGE>
NOTE 4: Investment Securities
The amortized cost and fair values of investment securities held to maturity and
securities available for sale for the periods indicated were as follows:
Investment Securities Held to Maturity
- --------------------------------------------------------------------------------
(In thousands) June 30, 1998
- --------------------------------------------------------------------------------
Amortized Cost Fair Value
- --------------------------------------------------------------------------------
Federal agency securities $ 107,815 $ 108,447
Mortgage-related securities 314,062 319,875
Obligations of state and political
subdivisions 178,795 181,632
Other securities (debt) 74,019 75,541
------- -------
Total $ 674,691 $ 685,495
================================================================================
(In thousands) December 31, 1997
- --------------------------------------------------------------------------------
Amortized Cost Fair Value
- --------------------------------------------------------------------------------
U.S. Treasury securities $ 498 $ 500
Federal agency securities 146,259 146,818
Mortgage-related securities 361,298 365,952
Obligations of state and political
subdivisions 183,286 186,300
Other securities (debt) 81,183 82,670
- --------------------------------------------------------------------------------
Total $ 772,524 $ 782,240
================================================================================
Investment Securities Available for Sale
- --------------------------------------------------------------------------------
(In thousands) June 30, 1998
- --------------------------------------------------------------------------------
Amortized Cost Fair Value
- --------------------------------------------------------------------------------
U.S. Treasury securities $ 94,559 $ 95,248
Federal agency securities 276,715 277,726
Mortgage-related securities 1,394,195 1,426,950
Obligations of state and political
subdivisions 51,219 51,383
Other securities (debt and equity) 177,660 193,200
- --------------------------------------------------------------------------------
Total $1,994,348 $2,044,507
================================================================================
(In thousands) December 31, 1997
- --------------------------------------------------------------------------------
Amortized Cost Fair Value
- --------------------------------------------------------------------------------
U.S. Treasury securities $ 109,200 $ 109,841
Federal agency securities 324,708 330,542
Mortgage-related securities 1,536,134 1,557,603
Obligations of state and political
subdivisions 14,312 14,136
Other securities (debt and equity) 142,081 155,572
- --------------------------------------------------------------------------------
Total $2,126,435 $2,167,694
================================================================================
<PAGE>
NOTE 5: Allowance for Possible Loan Losses
A summary of the changes in the allowance for possible loan losses for the
periods indicated is as follows:
For the Six For the Year
Months Ended Ended
June 30, December 31,
1998 1997
---- ----
(In Thousands)
- --------------------------------------------------------------------------------
Balance at beginning of period $ 92,731 $ 71,767
Balance related to acquisition -- 728
Provisions charged to operating expense 7,133 31,668
Net loan charge-offs (8,156) (11,432)
----- ------
Balance at end of period $ 91,708 $ 92,731
- --------------------------------------------------------------------------------
NOTE 6: Mortgage Servicing Rights
The Corporation recognizes as separate assets (capitalized) the rights to
service mortgage loans for others whether the servicing rights are acquired
through purchases or loan origination. The fair value of capitalized mortgage
servicing rights is based upon the present value of estimated expected future
cash flows. Based upon current fair values, capitalized mortgage servicing
rights are assessed periodically for impairment, which is recognized in the
statement of income during the period in which impairment occurs by establishing
a corresponding valuation allowance. For purposes of performing its impairment
evaluation, the Corporation stratifies its portfolio of capitalized mortgage
servicing rights on the basis of certain risk characteristics.
A summary of the changes in the balance of mortgage servicing rights is as
follows:
For the Six For the Year
Months Ended Ended
June 30, December 31,
1998 1997
---- ----
(In Thousands)
- --------------------------------------------------------------------------------
Balance at beginning of period $ 22,535 $ 20,238
Additions 10,345 9,801
Amortization (3,183) (6,472)
Sales of servicing rights --- ---
Change in valuation allowance (3,055) (1,032)
----- -----
Balance at end of period $ 26,642 $ 22,535
- --------------------------------------------------------------------------------
NOTE 7: Per Share Computations
The Corporation adopted Statement of Financial Accounting Standards (SFAS) No.
128, "Earnings Per Share," which became effective at year end 1997 for all
periods presented. Under the provisions of SFAS No. 128, primary and fully
diluted earnings per share were replaced with basic and diluted earnings per
share. Basic earnings per share is calculated by dividing net income available
to common stockholders by the weighted average number of common shares
outstanding. Diluted earnings per share is calculated by dividing net income by
the weighted average number of shares adjusted for the dilutive effect of
outstanding stock options.
The Corporation issued 500,995 shares of common stock to a wholly-owned
subsidiary as part of the 1996 acquisition of F&M Bankshares of Reedsburg, Inc.
These shares are not reflected on the Consolidated Statements of Financial
Condition as issued or outstanding.
NOTE 8: Earnings Per Share
Presented below are the calculations for basic and diluted earnings per share:
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
(In Thousands, Except Per Share Data)
Basic:
Net income available to common
stockholders $41,004 $35,480 $80,864 $69,339
Weighted average shares outstanding 63,261 62,696 63,271 62,938
Basic earnings per share $ 0.65 $ 0.57 $ 1.28 $ 1.10
==== ==== ==== ====
Diluted:
Net income available to common
stockholders $41,004 $35,480 $80,864 $69,339
Weighted average shares outstanding 63,261 62,696 63,271 62,938
Effect of dilutive stock options
outstanding 769 863 790 1,049
------ ------ ------ ------
Diluted weighted average shares
outstanding 64,030 63,559 64,061 63,987
Diluted earnings per common share $ 0.64 $ 0.56 $ 1.26 $ 1.08
==== ==== ==== ====
NOTE 9: Comprehensive Income
The Financial Accounting Standards Board (FASB) has issued SFAS No. 130,
"Reporting Comprehensive Income", which is effective for fiscal years beginning
after December 15, 1997. This statement establishes standards for reporting and
display of comprehensive income and its components (revenues, expenses, gains
and losses) in a full set of general purpose financial statements. This
statement requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. The Corporation adopted SFAS No. 130 on January 1, 1998,
and all annual required disclosures will be included beginning with the
Corporation's 1998 Form 10-K Annual Report.
<PAGE>
The Corporation's comprehensive income for the three and six month periods ended
June 30, 1998 and 1997, is as follows:
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
Net income $ 41,004 $ 35,480 $ 80,864 $ 69,339
Other comprehensive income,
net of tax-unrealized gain
on securities:
Unrealized holding gains
arising during the period 2,940 11,962 9,535 5,587
Less: reclassification
adjustmentfor net gains
realized in net income (417) (122) (3,869) (899)
------ ------ ------ ------
Subtotals 2,523 11,840 5,666 4,688
------ ------ ------ ------
Comprehensive income $ 43,527 $ 47,320 $ 86,530 $ 74,027
====== ====== ====== ======
ITEM 2. Management's Discussion and Analysis of Financial Condition and the
Results of Operations
The purpose of this discussion is to focus on information about the
Corporation's financial condition and results of operations that are not
otherwise apparent from the consolidated financial statements included in this
report. Reference should be made to those statements presented elsewhere in this
report for an understanding of the following discussion and analysis.
EARNINGS
The following discussion will focus upon "operating earnings", with respect to
the fourth quarter of 1997, for Associated. Operating earnings for the fourth
quarter of 1997 exclude the impact of the merger, integration and other one-time
charges recorded by Associated (an $89.8 million reduction to net income). All
references to pre-tax operating income, noninterest income, noninterest expense,
tax expense, net income and net income per share are based upon operating
earnings.
In October 1997, Associated completed the acquisition of the $6.0 billion First
Financial Corporation (FFC) in Stevens Point, WI. This acquisition was accounted
for using the pooling-of-interests method. All consolidated financial
information has been restated as if the transaction had been effected as of the
beginning of the earliest reporting period.
All prior period per share results, period end shares and weighted average
shares have been restated to reflect the five-for-four stock split effected in
the form of a 25 percent stock dividend paid to shareholders on June 12, 1998.
Net income for the second quarter of 1998 was $41.0 million, up 15.6% over 1997
second quarter net income of $35.5 million, and up from the $39.9 million
reported in the first quarter of 1998. Earnings per basic share were $0.65 in
the second quarter of 1998, up 14.0% over the $0.57 reported in the second
quarter of 1997, and up from the $0.63 net income per share reported in the
first quarter of 1998. Earnings per diluted share were $0.64 in the second
quarter of 1998, up 14.3% over the $0.56 reported in the second quarter of 1997,
and up from the $0.62 net income per share reported in the first quarter of
1998. Diluted earnings take into account shares that could be issued through
stock option plans, convertible securities or other contracts.
Net income for the first six months of 1998 was $80.9 million, up 20.1% over the
net income in the same period of 1997 of $69.3 million. Earnings per basic share
were $1.28 in the first six months of 1998, up 16.4% over the $1.10 reported in
the first six months of 1997. Earnings per diluted share were $1.26 in the first
six months of 1998, up 16.7% over the $1.08 reported in the first six months of
1997.
Return on average assets (ROA) for the second quarter of 1998 was 1.56%, up from
1.38% during the same period last year. Second quarter 1998 ROA increased from
1.53% in the first quarter of 1998. Return on average equity (ROE) for the first
quarter of 1998 was 19.36%, up from 17.41% during the same period last year.
Second quarter 1998 ROE decreased from the 19.51% reported in the first quarter
of 1998.
Return on average assets (ROA) for the first six months of 1998 was 1.54%, up
from 1.37% during the same period last year. Return on average equity (ROE) for
the first six months of 1998 was 19.43%, up from 17.10% during the same period
last year.
The change in second quarter 1998 net income (increase of $5.5 million, or
15.6%), when compared to the same period last year, was a result of higher
noninterest income (up $14.0 million, or 44.9%), offset by higher provision for
loan losses (up $189,000, or 5.9%), higher noninterest expense (up $6.1 million,
or 9.1%) and higher tax expense (up $2.2 million, or 11.5%).
The change in second quarter 1998 net income (increase of $1.1 million, or
2.9%), when compared to the first quarter of 1998, was a result of lower
provisions for loan losses (down $384,000, or 10.2%), higher noninterest income
(up $3.3 million, or 8.0%), offset by lower net interest income (down $686,000,
or 0.7%), higher noninterest expense (up $1.3 million, or 1.8%), and higher
income tax expense (up $616,000, or 2.9%).
<PAGE>
The change in the first six months of 1998 net income (increase of $11.5
million, .or 16.6%), when compared to the same period last year, was a result of
higher net interest income (up $2.6 million, or 1.4%) and higher noninterest
income (up $25.1 million, or 40.6%), offset by higher provision for loan losses
(up $574,000, or 8.8%), higher noninterest expense (up $10.8 million, or 8.1%),
and higher income tax expense (up $4.8 million, or 12.7%).
Net Income
Quarterly Trends
(In Thousands)
- --------------------------------------------------------------------------------
2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr.
1998 1998 1997 1997 1997
- --------------------------------------------------------------------------------
Operating Net
Income (Qtr) $41,004 $39,860 $ 36,018 $ 36,822 $ 35,480
Operating Net
Income (YTD) $80,864 $39,860 $142,178 $106,161 $ 69,339
Consolidated Net
Income (Loss)(Qtr) $41,004 $39,860 $(53,802) $ 36,822 $ 35,480
Consolidated Net
Income (YTD) $80,864 $39,860 $ 52,359 $106,161 $ 69,339
Operating EPS -
Basic (Qtr) $ .65 $ .63 $ .57 $ .59 $ .57
Operating EPS -
Diluted (Qtr) $ .64 $ .62 $ .57 $ .58 $ .56
Operating EPS -
Basic (YTD) $ 1.28 $ .63 $ 2.26 $ 1.69 $ 1.10
Operating EPS -
Diluted (YTD) $ 1.26 $ .62 $ 2.22 $ 1.66 $ 1.08
Consolidated EPS -
Basic (Qtr) $ .65 $ .63 $ (1.86) $ .59 $ .57
Consolidated EPS -
Diluted (Qtr) $ .64 $ .62 $ (.85) $ .58 $ .56
Consolidated EPS -
Basic (YTD) $ 1.28 $ .63 $ .83 $ 1.69 $ 1.10
Consolidated EPS -
Diluted (YTD) $ 1.26 $ .62 $ .82 $ 1.66 $ 1.08
Operating ROE -
Quarter 19.36% 19.51% 16.46% 17.33% 17.41%
Operating ROE -
YTD 19.43% 19.51% 16.93% 17.09% 17.10%
Operating ROA -
Quarter 1.56% 1.53% 1.34% 1.40% 1.38%
Operating ROA -
YTD 1.54% 1.53% 1.37% 1.38% 1.37%
- --------------------------------------------------------------------------------
NET INTEREST INCOME
Second Quarter 1998 Compared to Second Quarter 1997:
Fully taxable equivalent (FTE) net interest income in the second quarter of 1998
was $95.2 million, an increase of $208,246 over the second quarter of 1997 FTE
net interest income of $95.0 million.
The increase in FTE net interest income was attributable to larger volumes of
earning assets (up $246 million) when compared to the second quarter of 1997.
The increase in net interest income due to the volume variance (change in
interest income from incremental earning assets less the change in interest
expense from incremental volumes of interest-bearing liabilities) was $5.2
million. This large increase was offset by a negative rate variance (change in
interest income from incremental yields on earning assets less the change in
interest expense from incremental rates on interest-bearing liabilities) of $5.0
million. The contribution from the growth in earning assets was essentially
offset by a 9 basis point decrease in the net interest margin. The growth in
earning assets was concentrated in loans, with loans increasing $416 million
offset by a $197 million decrease in investment securities, when compared to the
second quarter of 1997.
The net interest margin for the second quarter of 1998 was 3.77%, compared with
3.86% in the second quarter of 1997. The contribution from net free funds in the
second quarter of 1998 increased to 0.60% from 0.54% for the same period in
1997. The rate spread decreased to 3.17% from 3.32% reported a year ago.
Average earning assets grew $246 million from the second quarter of 1997. The
average loans to average deposits ratio increased to 86.7%, up from 85.6% in the
second quarter of 1997.
The growth in average loans of $416 million was funded by increased time
deposits (personal CDs and Brokered CDs) of $115 million ($123 million increase
in personal CDs and an $8 million decrease in Brokered CDs), higher balances of
Savings, NOW and MMA of $166 million and higher net free funds of $142 million,
a decrease in the balances of investments and short-term investments of $170,
offset by a $177 million decrease in wholesale borrowings ( funds purchased,
repurchase agreements, FHLB borrowings, and long-term borrowings).
<PAGE>
Net Interest Income
Tax Equivalent Basis
(In Thousands)
- --------------------------------------------------------------------------------
2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr.
1998 1998 1997 1997 1997
- --------------------------------------------------------------------------------
Interest Income $196,255 $198,451 $201,798 $200,647 $195,056
Tax Equivalent
Adjustment 1,543 1,509 1,464 1,406 1,355
------- ------- ------- ------- -------
Tax Equivalent
Interest Income $197,798 $199,960 $203,262 $202,053 $196,411
Interest Expense 102,598 104,108 106,418 105,857 101,419
------- ------- ------- ------- -------
Tax Equivalent Net
Interest Income $ 95,200 $ 95,852 $ 96,844 $ 96,196 $ 94,992
- --------------------------------------------------------------------------------
Second Quarter 1998 Compared to First Quarter 1998:
Fully taxable equivalent (FTE) net interest income in the second quarter of 1998
was $95.2 million, a decrease of $652,000 compared to the first quarter of 1998
FTE net interest income of $95.9 million.
The decrease in FTE net interest income was attributable to lower volumes of
earning assets (down $38 million) when compared to the first quarter of 1998.
The increase in net interest income due to the volume variance (change in
interest income from incremental earning assets less the change in interest
expense from incremental volumes of interest-bearing liabilities) was $938,000.
This variance is primarily attributable to a shift in earning assets to higher
yielding loans from lower yielding investments. This increase was more than
offset by a negative rate variance (change in interest income from incremental
yields on earning assets less the change in interest expense from incremental
rates on interest-bearing liabilities) of $1.7 million. Additionally, the extra
day in the second quarter compared to the first quarter contributed $116,000 to
net interest income. The contribution from the change in mix of earning assets
was more than offset by the 2 basis point decrease in the net interest margin.
The change in earning assets resulted as loans increased $84 million offset by a
$122 million decrease in investment securities, when compared to the first
quarter of 1998.
The net interest margin for the second quarter of 1998 was 3.77%, compared with
3.79% in the first quarter of 1998. The contribution from net free funds in the
second quarter of 1998 increased to 0.60% from 0.59% compared to the first
quarter of 1998. The rate spread decreased to 3.17% from 3.20% reported last
quarter.
Average earning assets decreased $38 million from the first quarter of 1998.
Total loans grew $84 million. Included in the change in the average loan balance
for the quarter is a $24 million reduction from the sale of an affinity credit
card portfolio which resulted in a gain of $3.0 million. The average loans to
average deposits ratio increased to 86.7%, up from 86.5 % in the first quarter
of 1998. The ratio of average loans to average earning assets increased to 72.6%
for the second quarter of 1998 compared to 71.5% in the first quarter of 1998.
The growth in average loans of $84 million was funded by time deposits (personal
CDs and Brokered CDs) of $0 million ($8 million increase in personal CDs and an
$8 million decrease in Brokered CDs), higher balances of Savings, NOW and MMA of
$55 million and higher net free funds of $49 million, a decrease in the balances
of investments and short-term investments of $122, offset by a $142 million
decrease in wholesale borrowings (funds purchased, repurchase agreements, FHLB
borrowings, and long-term borrowings).
Net Interest Margin
Quarterly Trends
(Quarterly Info Only)
- --------------------------------------------------------------------------------
2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr.
1998 1998 1997 1997 1997
- --------------------------------------------------------------------------------
Yield on Earning Assets 7.86% 7.97% 7.95% 8.07% 8.01%
Cost of Interest-Bearing
Liabilities 4.69% 4.77% 4.78% 4.79% 4.69%
---- ---- ---- ---- ----
Interest Rate Spread 3.17% 3.20% 3.17% 3.28% 3.32%
Net Free Funds
Contribution 0.60% 0.59% 0.63% 0.57% 0.54%
---- ---- ---- ---- ----
Net Interest Margin 3.77% 3.79% 3.80% 3.85% 3.86%
==== ==== ==== ==== ====
Average Earning Assets
to Average Assets 95.30% 95.24% 95.34% 95.23% 95.27%
Free Funds Ratio
(% of Earning Assets) 12.86% 12.33% 13.12% 11.96% 11.73%
- --------------------------------------------------------------------------------
YTD Second Quarter 1998 Compared to YTD Second Quarter 1997:
FTE net interest income in the first six months of 1998 was $191.1 million, an
increase of $2.8 million over the same period in 1997 FTE net interest income of
$188.2 million.
The increase for this period was primarily attributable to a volume variance
(change in interest income from incremental earning assets less the change in
interest expense from incremental volumes of interest-bearing liabilities) of
$11.2 million, offset by a negative rate variance (change in interest income
from incremental yields on earning assets less the change in interest expense
from incremental rates on interest-bearing liabilities) of $8.4 million.
The net interest margin for the first six months of 1998 was 3.78%, compared
with 3.87% in the first six months of 1997. The largest factor contributing to
the decrease in net interest margin was the 14 basis point reduction in interest
rate spread. Contributing to this decline in spread was a 10 basis point
reduction in the yield on total earning assets (loans down 14 basis points,
investments down 7 basis points) and a higher rate on total interest-bearing
liabilities of 4 basis points (retail deposits up 6 basis points and wholesale
funds up 2 basis points). This 14 basis point reduction in interest rate spread
was offset by a 5 basis point increase in contribution from net free funds.
Average earning assets increased $372 million in the first six months of 1998
compared to the same period last year. Total average loans grew $444 million in
the first six months of 1998 compared to the first six months of 1997.
The average loan growth of $444 million was a result of increased time deposits
(personal CDs and Brokered CDs) of $153 million ($141 million increase in
personal CDs and a $12 million increase in Brokered CDs), higher balances of
Savings, Now and MMA of $157 million, increased net free funds of $134 million,
decreased balances of investments and short-term investments of $73 million
offset by increased wholesale borrowings (funds purchased, repurchase
agreements, FHLB borrowings and long-term borrowings) of $73 million.
Earning Asset and Interest-Bearing Liability Volumes
Quarterly Trends
(In Thousands)
- --------------------------------------------------------------------------------
2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr.
1998 1998 1997 1997 1997
- --------------------------------------------------------------------------------
Average Loans $ 7,285,819 $ 7,201,937 $ 7,161,090 $ 6,990,922 $ 6,869,948
Average Earning
Assets 10,039,967 10,078,411 10,150,486 9,940,700 9,794,201
Average Noninterest-
Bearing Deposits 769,465 778,957 824,393 726,945 704,798
Average Interest-
Bearing Deposits 7,605,270 7,550,146 7,511,209 7,403,326 7,323,884
Average Deposits 8,401,735 8,329,103 8,355,602 8,130,271 8,028,682
Average Interest-
Bearing
Liabilities $ 8,748,600 $ 8,835,493 $ 8,818,256 $ 8,751,596 $ 8,644,990
- --------------------------------------------------------------------------------
LOAN LOSS
The loan loss provision for the second quarter of 1998 was $3.4 million, a
decrease of $384,000 from the first quarter of 1998 provision of $3.8 million
and an increase of $186,000 from the second quarter of 1997.
As of June 30, 1998, the allowance for possible loan losses of $91.7 million
represented 1.27% of total outstanding loans, down from the 1.31% reported at
December 31, 1997, and up from 1.06% reported at June 30, 1997. The increase in
allowance for possible loan losses to loans from the second quarter of 1997 to
the first quarter of 1998 is attributable to the $16.8 million one-time charge
recorded at year end 1997 in conjunction with the acquisition of First
Financial. The decrease in the ratio of allowance for possible loan losses to
period end loans in the second quarter of 1998 compared to the first quarter of
1998 is attributable to net charge-offs exceeding the provision for loan losses
by $1.7 million and period end loans increasing by $43 million. Combined, these
two factors caused the allowance to decrease to 1.27% of loans as of June 30,
1998.
During the second quarter of 1998, net charge-offs of $5.1 million were
recorded. The majority of net charge-offs were related to the charge-offs of a
single commercial creditor totaling $2.0 million and the credit card portfolio
net charge-offs totaling $2.2 million.
<PAGE>
The second quarter of 1998 net charge-offs as a percent of average loans (on an
annualized basis) of 0.28% increased when compared to net charge-offs to average
loans (on an annualized basis) of 0.16% in the second quarter of 1997 and net
charge-offs as a percent of average loans (on an annualized basis) of 0.17% in
the first quarter of 1998.
<PAGE>
Allowance for Possible Loan Losses
Quarterly Trends
(In Thousands)
- --------------------------------------------------------------------------------
2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr.
1998 1998 1997 1997 1997
- --------------------------------------------------------------------------------
Provision Expense - Qtr $ 3,375 $ 3,759 $ 4,571 $ 3,739 $ 3,186
Merger Adjustment - Qtr --- --- 16,800 --- ---
Provision Expense - YTD 7,134 3,759 14,868 10,297 6,559
Merger Adjustment - YTD --- --- 16,800 --- ---
Net Charge-Offs - Qtr 5,081 3,075 3,113 2,947 2,752
Net Charge-Offs - YTD 8,156 3,075 11,432 8,319 5,372
Allowance at Period End $91,708 $93,415 $92,731 $74,454 $73,682
Allowance to Loans 1.27% 1.30% 1.31% 1.05% 1.06%
Net Charge-Offs to Average
Loans (Annualized) - Qtr .28% .17% .17% .16% .16%
Net Charge-Offs to Average
Loans (Annualized) - YTD .23% .17% .16% .16% .16%
- --------------------------------------------------------------------------------
NONPERFORMING LOANS
Management is committed to a nonaccrual and problem loan identification
philosophy. This philosophy is embodied through the monitoring and reviewing of
credit policies and procedures to ensure that all problem loans are identified
quickly and the risk of loss is minimized.
Nonperforming loans are considered a leading indicator of future loan losses.
Nonperforming loans are defined as nonaccrual loans, loans 90 days or more past
due but still accruing and restructured loans. The Corporation specifically
excludes student loan balances that are 90 days or more past due and still
accruing and that have contractual government guarantees as to collection of
principal and interest, from its definition of nonperforming loans.
Loans are normally placed in nonaccrual status when contractually past due 90
days or more as to interest or principal payments. Additionally, whenever
management becomes aware of facts or circumstances that may adversely impact on
the collectibility of principal or interest on loans, it is management's
practice to place such loans on nonaccrual status immediately, rather than
delaying such action until the loans become 90 days past due. Previously accrued
and uncollected interest on such loans is reversed and income is recorded only
to the extent that interest payments are subsequently received in cash and a
determination has been made that the principal balance of the loan is
collectible. If collectibility of the principal is in doubt, payments received
are applied to loan principal.
Loans past due 90 days or more but still accruing interest, with the exception
of guaranteed student loans, are also included in nonperforming loans. Student
loans past due 90 days or more but still accruing interest were $7.4 million at
June 30, 1998, compared to $8.0 million at March 31, 1998, and $8.0 million at
December 31, 1997. Loans past due 90 days or more but still accruing interest
are classified as such where the underlying loans are both well-secured (the
collateral value is sufficient to cover principal and accrued interest) and in
the process of collection. Also included in nonperforming loans are
"restructured" loans. Restructured loans involve the granting of some concession
to the borrower involving the modification of terms of the loan, such as changes
in payment schedule or interest rate.
Total nonperforming loans at June 30, 1998 were $46.2 million, an increase of
$12.3 million from March 31, 1998 and an $11.9 million increase from December
31, 1997. The ratio of nonperforming loans to total loans at June 30, 1998 was
.64% compared to .47% at March 31, 1998 and .61% at June 30, 1997. Other real
estate owned decreased in the second quarter to $4.0 million at June 30, 1998,
down from $4.3 million at March 31, 1998. The increase in nonaccrual loans is
primarily attributable to a single large commercial credit totaling $6.3
million.
Nonperforming Loans and Other Real Estate
(In Thousands)
- --------------------------------------------------------------------------------
6/30/98 3/31/98 12/31/97 9/30/97 6/30/97
------- ------- -------- ------- -------
Nonaccrual Loans $39,512 $30,072 $32,415 $36,202 $34,877
Accruing Loans Past
Due 90 Days or More 6,404 3,414 1,324 1,648 7,040
Restructured Loans 287 455 558 186 471
------ ------ ------ ------ ------
Total Nonperforming
Loans $46,203 $33,941 $34,297 $38,036 $42,388
====== ====== ====== ====== ======
Nonperforming Loans as
a Percent of Loans 0.64% 0.47% 0.48% 0.54% 0.61%
Other Real Estate Owned $ 4,012 $ 4,265 $ 2,067 $ 2,447 $ 2,510
- --------------------------------------------------------------------------------
Impaired loans are defined as those loans where it is probable that all amounts
due according to contractual terms, including principal and interest, will not
be collected. The Corporation has determined that commercial loans and
commercial real estate loans that have a nonaccrual status or have had their
terms restructured meet the definition. Impaired loans are measured at the fair
value of the collateral, if the loan is collateral dependent, or alternatively
at the present value of expected future cash flows. Interest income on impaired
loans is recognized only at the time that cash is received, unless applied to
reduce principal.
At June 30, 1998, the recorded investment in impaired loans totaled $20.1
million. Included in this amount is $18.6 million of impaired loans that do not
require a related allowance for possible loan losses and $1.5 million of
impaired loans for which the related allowance for possible loan losses totaled
$776,000. The average recorded investment in impaired loans during the twelve
months ended June 30, 1998, was approximately $14.5 million. Interest income
recognized on a cash basis on impaired loans during the first six months of 1998
totaled $960,000.
The following table shows, for those loans accounted for on a nonaccrual basis
and restructured loans for the six months ended June 30, 1998, the gross
interest that would have been recorded if the loans had been current in
accordance with their original terms and the amount of interest income that was
included in net income for the period.
<PAGE>
For the Six Months
Ended June 30, 1998
-------------------
(In Thousands)
Interest income in accordance with original terms $ 2,391
Interest income recognized (1,293)
-----
Reduction in interest income $ 1,098
=====
<PAGE>
Potential problem loans are loans where there are doubts as to the ability of
the borrower to comply with present repayment terms. The decision of management
to place loans in this category does not necessarily mean that the Corporation
expects losses to occur but that management recognizes that a higher degree of
risk is associated with these performing loans.
At June 30, 1998, potential problem loans totaled $63.0 million compared to
$74.0 million at the end of 1997. The loans that have been reported as potential
problem loans are not concentrated in a particular industry, but rather cover a
diverse range of businesses, e.g. communications, wholesale trade,
manufacturing, finance/insurance/real estate, and services. Management does not
presently expect significant losses from credits in this category.
LOAN CONCENTRATIONS
Loan concentrations are considered to exist when there are amounts loaned to a
multiple number of borrowers engaged in similar activities that would cause them
to be similarly impacted by economic or other conditions. The Corporation's
loans are widely diversified by borrower, industry group and area. At June 30,
1998, no concentrations existed in the Corporation's loan portfolio in excess of
10% of total loans.
Real estate construction loans at June 30, 1998, totaled $329 million, or 4.5%
of loans while agricultural loans were 0.8% of total loans.
As of June 30, 1998, the Corporation did not have any cross-border outstandings
to borrowers in any foreign country where such outstandings exceeded 1% of total
assets.
NONINTEREST INCOME
Second Quarter 1998 Compared to Second Quarter 1997
Noninterest income increased $14.0 million, or 44.9% over the second quarter of
1997. Noninterest income, excluding net investment securities gains, increased
$13.5 million, or 43.8%. Income from service charges on deposit accounts and
retail commission income decreased from the second quarter of 1997. All other
categories of noninterest income increased from the second quarter of 1997.
Trust service fees increased $1.1 million, or 15.5% compared to the same quarter
last year. The increase is a result of higher trust assets under management and
general market conditions.
Net investment securities gains increased $454,000, or 241.5% over the second
quarter of 1997. The $642,000 in net investment securities gains recognized in
the second quarter of 1998 consisted primarily of gains from the sale of equity
securities held as available for sale.
Mortgage banking income increased $5.7 million, or 105.6% from the second
quarter of 1997. Increases were recognized in higher origination fees (up
$314,000), underwriting fees (up $382,000), servicing fees (up $91,000), escrow
waiver fees (up $136,000) and gains on sales of loans (up $4.8 million). The
production related revenue, (origination, underwriting and escrow waiver fees)
was higher due to higher production volumes in the second quarter of 1998 ($539
million) compared to the same period last year ($190 million). The increased
gains on sales of loans is the result of this increased production in a more
favorable mortgage banking rate environment.
Retail commission income decreased $5,000, or 0.1% compared to the same period
last year. Decreases in income from annuities (down $204,000) and stocks (down
$400,000) were offset, in part, by an increase in income from mutual funds (up
$449,000).
Income from loan fees increased $796,000, or 19.5% compared to the second
quarter of 1997. The increase is a result of increased fees on credit cards (up
$666,000) and real estate loans (up $174,000).
Asset sale gains increased $6.0 million over the second quarter of 1997. Gains
recognized in the second quarter of 1998 include gains of $2.9 million on sales
of office buildings, a gain of $3.0 million on the sale of an affinity credit
card portfolio, a gain of $138,000 on sale of land trusts, and a gain of $92,000
on the sale of leased equipment.
Other miscellaneous income, from a variety of sources, increased $92,000, or
2.8% over the second quarter of 1997. The increase is primarily attributable to
higher income from TYME/electronic funds transfer and automatic teller machine
fees (up $339,000) and increased international income of $53,000 offset by lower
income from real estate held for investments (down $381,000). The reduced income
from real estate held for investments was a result of the sale of an office
building in early April. Rental income from tenants leasing the facility ceased
at that time.
Noninterest Income
Quarterly Trends
(In Thousands)
- --------------------------------------------------------------------------------
2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr.
1998 1998 1997 1997 1997
- --------------------------------------------------------------------------------
Trust Servicing Fees $ 8,066 $ 7,915 $ 7,744 $ 7,089 $ 6,983
Service Charges on Deposit
Accounts 6,816 6,370 7,177 7,211 7,023
Mortgage Banking Activity 11,183 10,896 8,410 6,745 5,438
Loan Fees 4,870 4,160 4,379 4,270 4,074
Retail Commission Income 3,987 3,390 3,614 3,969 3,992
Asset Sale Gains (Losses),
net 6,191 185 (23) 511 165
Other 3,341 3,522 3,780 3,509 3,249
------ ------ ------ ------ ------
Total, excluding Securities
Gains $ 44,454 $ 36,438 $ 35,081 $ 33,304 $ 30,924
Investment Security Gains,
net 642 5,311 280 851 188
Merger, Integration and Other
One-Time Charges -- -- (35,290) -- --
------ ------ ------ ------ ------
Total Noninterest Income $ 45,096 $ 41,749 $ 71 $ 34,155 $ 31,112
- --------------------------------------------------------------------------------
Second Quarter 1998 Compared to First Quarter 1998
Noninterest income increased $3.3 million, or 8.0% in the second quarter of 1998
compared to the first quarter of 1998. Noninterest income, excluding net
investment securities gains, increased $8.0 million, or 22.0%. All categories of
noninterest income, with the exception of investment securities gains and other,
increased in the second quarter of 1998 when compared to the first quarter of
1998.
Service charges on deposit accounts increased $446,000, or 7.0% during the
quarter. The increases were primarily due to increased service charges on
business accounts (up $235,000) and overdraft/NSF fees (up $265,000).
Net investment security gains decreased $4.7 million. In the fourth quarter of
1997, the Corporation hedged certain agency issued zero coupon bonds by
executing various interest rate futures contracts. In the first quarter of 1998,
these contracts were closed and the zero coupon bonds were sold. As a result, a
net gain of $5.1 million was recognized. The $642,000 in net investment
securities gains recognized in the second quarter of 1998 consisted primarily of
gains from the sale of equity securities.
Mortgage banking income increased $287,000, or 2.6% from the first quarter of
1998. Increases were recognized in higher origination fees (up $40,000), escrow
waiver fees (up $53,000) and gains on sales of loans (up $396,000), offset by
lower underwriting fees and servicing fees. The production related revenue
(origination and escrow waiver fees) was higher due to higher production volumes
in the second quarter of 1998 ($539 million) compared to the first quarter of
1998 ($495 million). The increased gains on sales of loans is the result of
increased production and a more favorable mortgage banking rate environment.
Retail commission income increased $597,000, or 17.6% compared to the same
period last year. Increases in income from annuities (up $419,000), mutual funds
(up $83,000) and insurance (up $80,000) accounted for the increase in the second
quarter.
Income from loan fees increased $710,000, or 17.1% from the first quarter of
1998 to the second quarter of 1998. The increase is a result of increased fees
on credit cards (up $846,000) and real estate loans (up $132,000) offset by
decreases in commercial loan fees (down $221,000) and letter of credit/SBA fees
(down $61,000).
Asset sale gains increased $6.0 million over the first quarter of 1998. Gains
recognized in the second quarter of 1998 were gains of $2.9 million on sales of
office buildings, a gain of $3.0 million on the sale of an affinity credit card
portfolio, a gain of $138,000 on sale of land trusts, and a gain of $92,000 on
sale of leased equipment.
Other miscellaneous income, from a variety of sources, decreased $181,000, or
5.1% compared to the first quarter of 1998. The decrease is primarily
attributable to reduced income from real estate held for investments as a result
of the sale of an office building in early April. Rental income from tenants
leasing the facility ceased at that time.
YTD Second Quarter 1998 Compared to YTD Second Quarter 1997
Noninterest income increased $25.1 million, or 40.6% in the first six months of
1998 compared to the same period last year. Noninterest income, excluding net
investment securities gains, increased $20.5 million, or 34.0%. Decreases in
service charges on deposit accounts and retail commission income were more than
offset by increases in trust service fees, net investment security gains,
mortgage banking activity, loan fees and net asset sale gains compared to the
first six months of 1997.
Trust service fees increased $2.1 million, or 14.7% compared to the same period
last year. The increase is a result of higher trust assets under management and
general market conditions.
Service charges on deposit accounts decreased $336,000, or 2.5% during the first
six months of 1998. Lower levels of service charges on personal deposit accounts
and overdraft/NSF fees (approximately $500,000 lower) were somewhat offset by
higher fees collected on business accounts.
Net investment security gains increased $4.6 million. In the fourth quarter of
1997, the Corporation hedged certain agency issued zero-coupon bonds by
executing various interest rate futures contracts. In the first quarter of 1998,
these contracts were closed and the zero-coupon bonds were sold. As a result, a
net gain of $5.1 million was recognized. The first six months of 1998 also
includes gains of $642,000 recognized in the second quarter of 1998. These gains
consisted primarily of gains from the sale of equity securities. The first six
months of 1997 included gains on sales of mortgage-related securities ($721,000)
and gains on sales of Sallie Mae stock.
Mortgage banking income increased $11.5 million, or 109.2% from the first six
months of 1997. Increases were recognized in higher origination fees (up
$573,000), underwriting fees (up $857,000), servicing fees (up $288,000), escrow
waiver fees (up $221,000) and gains on sales of loans (up $9.6 million). The
production related revenue (origination, underwriting and escrow fees) was
higher due to higher production volumes in the first six months of 1998 ($1.034
billion) compared to the first six months of 1997 ($385 million). The increased
gains on sales of loans is the result of increased production and a more
favorable mortgage banking rate environment.
Retail commission income decreased $485,000, or 6.2% compared to the same period
last year. Increases in income from mutual funds (up $823,000), was offset by
lower fees on stocks (down $798,000) and annuities (down $622,000).
Income from loan fees increased $1.3 million, or 16.4% from the first six months
of 1997 to the first six months of 1998. The increase is a result of increased
fees on credit cards (up $673,000), real estate loans (up $296,000) and
commercial loan fees (up $306,000).
Asset sale gains increased $6.0 million over the first six months of 1997. Gains
recognized in the first six months of 1998 included gains of $2.9 million on
sales of office buildings, a gain of $3.0 million on the sale of an affinity
credit card portfolio, a gain of $138,000 on sale of land trusts, a gain of
$117,000 on the sale of leased equipment, and a gain of $85,000 on the sale of
an operations building.
NONINTEREST EXPENSE
Second Quarter 1998 Compared to Second Quarter 1997
Total noninterest expense increased $6.1 million, or 9.1% in the second quarter
of 1998 compared to the same period last year. All categories of noninterest
expense, with the exception of net occupancy expense and deposit insurance
premiums, increased when compared to the second quarter of last year.
Salaries and employee benefit expenses increased $3.6 million, or 10.7% when
compared to the second quarter of 1997. Total salary related expenses increased
$2.9 million, or 9.9%, compared to the second quarter of 1997, while fringe
benefit related expenses increased $673,000, or 9.7%. The 9.9% increase in
salary expense is attributable to base merit increases, transitional overlapping
positions as support functions are centralized, and new positions added. The
fringe benefit increase was primarily due to higher social security tax expense
(up $275,000), pension expense ($195,000), health insurance premiums ($177,000)
and profit sharing expense ($177,000). All except the health insurance premium
increase are linked to the higher levels of salary expense.
Equipment rentals, depreciation and maintenance increased $432,000, or 14.3%
over the second quarter of 1997. This increase was primarily attributable to
higher levels of depreciation on computer equipment ($501,000).
Data processing increased $519,000, or 12.2%, compared to the second quarter of
1997. This increase is primarily due to the cost of processing volumes in excess
of the volumes covered in the base contract.
Business development and advertising increased $282,000, or 7.4%, compared to
the second quarter of 1997. The increased costs are attributable to higher
levels of newspaper directory and other advertising costs offset, in part, by
lower direct mail costs resulting, in part, from the merger with First Financial
Corporation.
Other miscellaneous expense, from various sources, increased $1.2 million
compared to the second quarter of 1997. The increase was the result of higher
amortization of mortgage servicing rights, partially offset by lower
miscellaneous expense accruals.
<PAGE>
Noninterest Expense
Quarterly Trends
(In Thousands)
- --------------------------------------------------------------------------------
2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr.
1998 1998 1997 1997 1997
- --------------------------------------------------------------------------------
Salaries and
Employee Benefits $ 37,103 $ 35,943 $ 32,933 $ 33,883 $ 33,518
Net Occupancy Expense 5,053 5,168 4,432 5,010 5,193
Equipment Rentals,
Depreciation and
Maintenance 3,458 3,409 3,230 3,165 3,026
Data Processing Expense 4,789 4,654 4,347 4,155 4,270
Stationery and Supplies 1,486 1,396 1,505 1,450 1,249
Business Development
and Advertising 4,069 3,266 4,283 3,962 3,787
FDIC Expense 817 830 831 810 840
Other 16,084 16,908 18,459 15,913 14,909
------ ------ ------ ------ ------
Noninterest Expense,
Excluding Merger,
Integration and Other
One-Time Charges 72,859 71,574 70,020 68,348 66,792
Merger, Integration and
Other One-Time Charges --- --- 51,622 --- ---
------ ------ ------- ------ ------
Total Noninterest Expense $ 72,859 $ 71,574 $121,642 $ 68,348 $ 66,792
- --------------------------------------------------------------------------------
Second Quarter 1998 Compared to First Quarter 1998
Total noninterest expense increased $1.6 million, or 2.2% in the second quarter
of 1998 compared to the first quarter of 1998. Increases in salaries and
employee benefits, net occupancy expense, equipment rentals, depreciation and
maintenance and data processing expense were partially offset by decreases in
stationery and supplies, business development and advertising, FDIC expense and
other expenses.
Salaries and employee benefit expenses increased $1.2 million, or 1.9% when
compared to the first quarter of 1998. Salary expense accounted for the entire
increase. Increases are attributable to overtime, temporary help, an extra day
of pay in the quarter, contractual earn-outs, incremental commissions paid to
sales driven positions, and the reflection of continued centralization of
support staff.
Business development and advertising increased $803,000, or 24.6% in the second
quarter of 1998 compared to the first quarter. The increase was primarily a
result of reduced marketing initiatives in the first quarter.
Other miscellaneous expense, from various sources, decreased by $824,000, or
4.9% compared to the first quarter of 1998. The decrease was a result of lower
consulting costs and lower miscellaneous expense accruals offset by higher
mortgage servicing rights amortization and higher legal and professional fees.
YTD Second Quarter 1998 Compared to YTD Second Quarter 1997
Total noninterest expense increased $10.8 million, or 8.1% in the first six
months of 1998 compared to the same period last year. Increases in salaries and
employee benefits, equipment rentals, depreciation and maintenance, data
processing expense and others were partially offset by decreases in net
occupancy and business development and advertising.
Salaries and employee benefit expenses increased $6.2 million, or 9.3% when
compared to the first six months of 1997. Total salary related expenses
increased $5.2 million, or 9.9% in the first six months while fringe benefit
related expenses increased $1.0 million, or 7.1%. Salary expense is up primarily
as a result of base merit increases (approximately $3.0 million), variable pay
(commissions/incentives up $1.8 million), transitional overlapping positions as
support functions are centralized, and new positions added at the parent and
other affiliates. Fringe benefit expenses increased due to higher health
insurance expense (up $293,000), profit sharing expense (up $407,000), social
security expense (up $409,000) and pension expense (up $270,000).
Net occupancy expense decreased $633,000, or 5.8% in the first six months of
1998 compared to the first six months of 1997. All categories of occupancy
expense have contributed to the decline.
Equipment rentals, depreciation and maintenance increased $662,000 or 10.7% over
the first six months of 1997. This increase was primarily attributable to higher
levels of depreciation on computer equipment (up $948,000) offset by lower
levels of depreciation on furniture and other equipment (down $329,000).
Data processing increased $1.0 million, or 12.4%, compared to the first six
months of 1997. This increase is primarily due to increases in the base contract
processing costs and additional systems engineer hours.
Business development and advertising decreased $356,000, or 4.6% in the first
six months of 1998 compared to the same period last year. The favorable variance
was primarily due to the savings from reduced direct mail costs resulting, in
part, from the merger with First Financial Corporation.
Other miscellaneous expense, from various sources, increased by $3.5 million, or
12.0% compared to the first six months of 1997. This increase was primarily due
to increased mortgage servicing rights amortization, increased
placement/relocation/moving expenses, and increased consultant fees.
Expense Control
Quarterly Trends
- --------------------------------------------------------------------------------
2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr.
1998 1998 1997 1997 1997
- --------------------------------------------------------------------------------
Efficiency Ratio - Quarter 52.17% 54.10% 53.08% 52.78% 53.05%
Efficiency Ratio - Year 53.11% 54.10% 53.33% 53.43% 53.76%
Expense Ratio - Quarter 1.13% 1.41% 1.37% 1.40% 1.47%
Expense Ratio - Year 1.27% 1.41% 1.45% 1.48% 1.53%
- --------------------------------------------------------------------------------
<PAGE>
INCOME TAXES
The effective tax rate for the second quarter of 1998 remained stable at 34.41%,
down from both the 35.22% in the second quarter of 1997 and the 35.86% in the
fourth quarter of 1997.
Income Tax Expense
Quarterly Trends
(In Thousands)
- --------------------------------------------------------------------------------
2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr.
1998 1998 1997 1997 1997
- --------------------------------------------------------------------------------
Operating Income
Before Taxes $ 62,519 $ 60,759 $ 56,151 $ 56,859 $ 54,771
------ ------ ------ ------ ------
Merger, Integration and
Other One-Time Charges
Before Taxes --- --- (103,713) --- ---
------ ------ ------- ------ ------
State Tax Expense -
Operating $ 1,401 $ 1,747 $ 1,478 $ 1,836 $ 1,676
Federal Tax Expense -
Operating 20,114 19,152 18,655 18,201 17,615
------ ------ ------ ------ ------
Total Income Tax Expense - $ 21,515 $ 20,899 $ 20,133 $ 20,037 $ 19,291
Operating
Federal Tax - Merger,
Integration and Other
One-Time Charges --- --- (13,893) --- ---
------ ------ ------ ------ ------
Total Income Tax Expense $ 21,515 $ 20,899 $ 6,240 $ 20,037 $ 19,291
====== ====== ===== ====== ======
Effective Tax Rate 34.41% 34.40% 35.86% 35.24% 35.22%
===== ===== ===== ===== =====
- --------------------------------------------------------------------------------
BALANCE SHEET
June 30, 1998 Compared to June 30, 1997
During the past twelve months, total assets increased $30 million, or 0.3%.
Loans (including loans held for sale) increased $300 million, or 4.3%. The loan
growth was all in commercial and other loans (up $404 million or 17.7%) and
loans held for sale (up $44 million, or 104.5%). Real estate and consumer loans
decreased from June 30, 1997 ($100 million or 2.7% and $48 million or 5.2%,
respectively). A sale of an affinity credit card portfolio, $24 million of
outstanding balances, in the second quarter of 1998 contributed to the decline
in consumer loans. The loan growth was funded with an increase in
interest-bearing deposits of $233 million, a decrease in investments of $243 and
$165 million increase in net free funds offset by a $341 million decrease in
wholesale funding. The $233 million increase in interest-bearing deposits
reflects a $40 million decrease in outstanding brokered CDs offset by an
increase of $273 million in retail interest-bearing deposits.
June 30, 1998 Compared to December 31, 1997
During the first six months of 1998, total assets decreased by $130 million, or
2.4% on an annualized basis. Loans (including loans held for sale) increased
$107 million, or 3.0% on an annualized basis. The loan growth was all in
commercial (up $232 million, or 19.0% on an annualized basis). Real estate and
consumer loans decreased from December 31, 1997 ($46 million, or 2.5% and $53
million, or 11.3% on an annualized basis, respectively). A sale of an affinity
credit card portfolio, $24 million of outstanding balances, in the second
quarter of 1998 contributed to the decline in consumer loans. Loans held for
resale also declined by $27 million, or 48.0% on an annualized basis. The loan
growth was funded with a $214 million reduction of investments and short-term
investments and a $166 million increase of interest-bearing deposits offset by a
$15 million decrease in net free funds and a $258 million decrease in wholesale
funding. The $166 million increase in interest-bearing deposits reflects a $7
million increase in outstanding brokered CDs and an increase of $159 million in
retail interest-bearing deposits.
June 30, 1998 Compared to March 31, 1998
During the second quarter of 1998, total assets decreased by $131 million, or
4.9% on an annualized basis. Loans, including loans held for sale, increased $28
million, or 1.6% on an annualized basis. The loan growth was all in commercial
and other loans (up $75 million, or 11.6% on an annualized basis). Loans held
for sale and consumer loans decreased from March 31, 1998 ($15 million, or 59.0%
and $35 million, or 15.1% on an annualized basis, respectively). The loan growth
was funded with a $152 million reduction of investments and short-term
investments and a $34 million increase in net free funds offset by a $41 million
decrease in interest-bearing deposits and a $117 million decrease in wholesale
funding. The $41 million decrease in interest-bearing deposits reflects a $5
million decrease in outstanding brokered CDs and a decrease of $36 million in
retail interest-bearing deposits.
LIQUIDITY
Liquidity refers to the ability of the Corporation to generate adequate amounts
of cash to meet the Corporation's needs for cash. The subsidiary banks and the
parent company of the Corporation have different liquidity considerations.
Banking subsidiaries meet their cash flow requirements by having funds available
to satisfy customer credit needs as well as having available funds to satisfy
deposit withdrawal requests. Liquidity at banking subsidiaries is derived from
deposit growth, money market assets, maturing loans, the maturity of securities,
access to other funding sources and markets, and a strong capital position.
Deposit growth is the primary source of liquidity at the banking subsidiaries.
Interest-bearing deposits increased $165.6 million, while noninterest-bearing
deposits fell $62.6 million from the seasonally high year-end balance.
As of June 30, 1998, the securities portfolio contained $371.2 million at
amortized cost of U.S. Treasury and federal agency securities available for
sale, representing 13.9% of the total securities portfolio. These government
securities are highly marketable and had a market value equal to 100.5% of
amortized cost at quarter end.
Money market investments, consisting of federal funds sold, securities purchased
under agreements to resell, and interest-bearing deposits in other financial
institutions, averaged $63.6 million in the second quarter of 1998 compared to
$37.0 million during the same period in 1997. Being short-term and liquid by
nature, money market investments generally provide a lower yield than other
earning assets. The Corporation has a strategy of maintaining a sufficient level
of liquidity to accommodate fluctuations in funding sources and will
periodically take advantage of specific opportunities to temporarily invest
excess funds at narrower than normal rate spreads while still generating
additional net interest income. At June 30, 1998, the Corporation had $23.1
million outstanding in short-term money market investments, serving as an
essential source of liquidity. The amount at quarter end represents .2% of total
assets compared to .1% at December 31, 1997.
Short-term borrowings totaled $1.1 billion at June 30, 1998, compared with $1.3
billion at the end of 1997. Within the classification of short-term borrowings
are federal funds purchased, securities sold under agreements to repurchase and
FHLB advances with a remaining maturity of less than one year. Federal funds are
purchased from a sizable network of correspondent banks while securities sold
under agreements to repurchase are obtained from a base of individual, business
and public entity customers. FHLB advances with a remaining maturity of greater
than one year are included in long-term borrowings.
Deposit growth will continue to be the primary source of bank subsidiary
liquidity on a long-term basis, along with stable earnings, the resulting cash
generated by operating activities and strong capital positions. Shorter-term
liquidity needs will mainly be derived from growth in short-term borrowings,
maturing securities and money market assets, loan maturities and access to other
funding sources.
Liquidity is also necessary at the parent company level. The parent company's
primary sources of funds are dividends and service fees from subsidiaries,
borrowings and proceeds from the issuance of equity. The parent company manages
its liquidity position to provide the funds necessary to pay dividends to
shareholders, service debt, invest in subsidiaries and satisfy other operating
requirements. Dividends received from subsidiaries totaled $38.6 million in the
first six months of 1998 and will continue to be the parent's main source of
long-term liquidity.
At June 30, 1998, the parent company had $150 million of established lines of
credit with non-affiliated banks, of which $78 million was in use for nonbank
affiliates.
The Corporation's long-term debt to equity ratio at June 30, 1998, was 3.2%,
compared to 1.9% at December 31, 1997. This increase is primarily attributable
to an increase in outstanding long-term FHLB advances.
Management believes that, in the current economic environment, the Corporation's
subsidiaries and parent company liquidity positions are adequate. There are no
known trends nor any known demands, commitments, events or uncertainties that
will result or are reasonably likely to result in a material increase or
decrease in the Corporation's liquidity.
CAPITAL
Stockholders' equity at June 30, 1998, increased $53.6 million, or 6.6% since
December 31, 1997. This increase was composed of $51.5 million of retained
earnings, $9.4 million from option exercises and a $5.7 million increase in the
unrealized gain on available for sale securities, reduced by $13.0 million from
treasury stock purchases. Equity to assets at June 30, 1998 increased to 8.21%,
with the Tier 1 leverage ratio climbing to 7.62%.
<PAGE>
Cash dividends of $0.232 were paid in the second quarter of 1998, representing a
payout ratio of 35.69% for the quarter.
<PAGE>
Capital
Quarterly Trends
(In Thousands)
- --------------------------------------------------------------------------------
2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr.
1998 1998 1997 1997 1997
- --------------------------------------------------------------------------------
Stockholders' Equity $867,286 $836,826 $813,693 $874,027 $842,561
Average Equity to
Average Assets 8.06% 7.83% 8.15% 8.08% 7.95%
Equity to Assets -
Period End 8.21% 7.83% 7.61% 8.16% 8.00%
Tier 1 Capital to Risk
Weighted Assets -
Period End 12.14% 10.89% 10.61% 12.45% 12.21%
Total Capital to Risk
Weighted Assets -
Period End 13.37% 12.14% 11.86% 13.49% 13.26%
Tier 1 Leverage Ratio -
Period End 7.63% 7.34% 7.10% 7.77% 7.72%
Market Value Per Share -
Period End $37.63 $43.16 $44.09 $36.05 $31.59
Book Value Per Share -
Period End $13.70 $13.24 $12.92 $13.91 $13.44
Market Value Per Share
to Book Value
Per Share 275% 326% 341% 259% 235%
Dividends Per Share -
This Quarter $0.232 $0.232 $0.232 $0.232 $0.232
Dividends Per Share -
Year to Date $0.464 $0.232 $0.889 $0.657 $0.425
Basic Operating Earnings
Per Share - This Quarter $0.65 $0.63 $0.57 $0.59 $0.57
Basic Operating Earnings
Per Share- Year to Date $1.28 $0.63 $2.26 $1.69 $1.12
Dividend Payout Ratio -
This Quarter 35.69% 36.83% 40.70% 39.32% 40.70%
Dividend Payout Ratio -
Year to Date 36.25% 36.83% 39.34% 38.88% 37.95%
- --------------------------------------------------------------------------------
The adequacy of the Corporation's capital is regularly reviewed to ensure that
sufficient capital is available for current and future needs and is in
compliance with regulatory guidelines. The assessment of overall capital
adequacy depends on a variety of factors, including asset quality, liquidity,
stability of earnings, changing competitive forces, economic conditions in
markets served and strength of management.
As of June 30, 1998, the Corporation's tier 1 risk-based capital ratio, total
risk-based capital (tier 1 and tier 2) ratio and tier 1 leverage ratio were well
in excess of regulatory minimums. Management of the Corporation expects to
continue to exceed the minimum standards in the future.
Similar capital guidelines are also required of the individual banking
subsidiaries of the Corporation. As of June 30, 1998, each banking subsidiary
exceeded the minimum ratios for tier 1 capital, total capital and the tier 1
leverage ratio.
Management actively reviews capital strategies for the Corporation and each of
its subsidiaries to ensure that capital levels are appropriate based on the
perceived business risks, future growth opportunities, industry standards and
regulatory requirements.
YEAR 2000
The Year 2000 issue relates to systems designed to use two digits rather than
four to define the applicable year. The Corporation uses third party service
providers and software vendors almost exclusively. As such, product and service
upgrades are the primary remediation strategy which, along with testing, are the
major parts of the Corporation's Year 2000 project plan. The Corporation
previously completed an initial assessment of the Year 2000 issue, which was
performed by an independent third party. Based upon experience to date and
recently issued guidance from banking industry regulators and the SEC,
management continues to revisit and revise its Year 2000 project plans and
related cost estimates. Delivery commitments of Year 2000 ready products from
vendors and service providers have been integrated with the Corporation's Year
2000 project plan to ensure that all Mission Critical systems are tested and
implemented by the second quarter of 1999. While the Year 2000 related costs
have increased from initial estimates, management believes that the costs for
Year 2000 compliance are not material and, thus, will not have a significant
impact on the Corporation's results of operations, liquidity or capital
resources.
RECENT DEVELOPMENTS
On April 22, 1998, the Corporation announced the awarding of a 5-for-4 stock
split to be effected as a 25 percent stock dividend. The 5-for-4 stock split
effected in the form of a 25 percent stock dividend was paid on June 12, 1998,
to shareholders of record at the close of business on June 1, 1998. All share
data has been adjusted retroactively to reflect the stock split effected in the
form of a stock dividend. Any fractional shares resulting from the dividend were
paid in cash.
PENDING COMBINATION
On February 17, 1998 the Corporation announced the signing of a definitive
agreement to acquire Citizens Bankshares, Inc. ("Citizens"), parent company of
the $164 million Citizens Bank, N.A., with four banking locations in Northeast
Wisconsin. The stock-for-stock merger transaction is contingent upon approval of
regulatory authorities and the shareholders of Citizens. The transaction,
expected to be completed in the fourth quarter of 1998, will be accounted for
using the pooling-of-interests method. However, the transaction is not expected
to be material to prior years' reported operating results and, accordingly,
previously reported results will not be restated.
ACCOUNTING DEVELOPMENTS
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which is effective for fiscal years
beginning after December 15, 1997. This statement establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. The
Corporation adopted SFAS No. 131 on January 1, 1998, and required disclosures
will be included beginning with the Corporation's 1998 Form 10-K Annual Report.
The FASB has issued SFAS No. 132, "Employers' Disclosures about Pensions and
Other Post-Retirement Benefits," which is effective for fiscal years beginning
after December 15, 1997. This statement revises employers' disclosures about
pension and other post-retirement benefit plans. It does not change the
measurement of recognition of those plans. It standardizes the disclosure
requirements for pensions and other post-retirement benefits to the extent
practicable, requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis, and eliminates certain disclosures that are no longer as useful. The
Corporation adopted SFAS No. 132 on January 1, 1998, and required disclosures
will be included beginning with the Corporation's 1998 Form 10-K Annual Report.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
was issued by FASB in June 1998. SFAS No. 133 standardizes the accounting for
derivative instruments, including certain derivative instruments embedded in
other contracts. Under the standard, entities are required to carry all
derivative instruments in the statement of financial position at fair value. The
accounting for changes in the fair value (i.e., gains or losses) of a derivative
instrument depends on whether it has been designated and qualifies as part of a
hedging relationship and, if so, on the reason for holding it. If certain
conditions are met, entities may elect to designate a derivative instrument as a
hedge of exposures to changes in fair values, cash flows, or foreign currencies.
If the hedged exposure is a fair value exposure, the gain or loss on the
derivative instrument is recognized in earnings in the period of change together
with the offsetting loss or gain on the hedged item attributable to the risk
being hedged. If the hedged exposure is a cash flow exposure, the effective
portion of the gain or loss on the derivative instrument is reported initially
as a component of other comprehensive income (outside earnings) and subsequently
reclassified into earnings when the forecasted transaction affects earnings. Any
amounts excluded from the assessment of hedge effectiveness as well as the
ineffective portion of the gain or loss is reported in earnings immediately. The
Corporation anticipates that the adoption of SFAS No. 133 will not have a
material impact in the Corporation's financial statements.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
The Corporation has not experienced any material changes to its market risk
position from that disclosed in the Corporation's 1997 Form 10-K Annual Report.
<PAGE>
ASSOCIATED BANC-CORP
PART II - OTHER INFORMATION
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The corporation held its Annual Meeting of Shareholders on April
22, 1998. Proxies were solicited by corporation management
pursuant to Regulation 14A under the Securities Exchange Act of
1934.
(b) Directors elected at the Annual Meeting were Robert S.
Gaiswinkler, Robert C. Gallagher, Robert P. Konopacky, George R.
Leach, John C. Meng, John C. Seramur, John H. Sproule, Ralph R.
Staven, and Norman L. Wanta.
(c) The matters voted upon and the results of the voting were as
follows:
(i) Election of the below-named nominees to the Board of
Directors of the Corporation:
FOR WITHHELD
--- --------
All Nominees: 42,844,982.475 440,902.419
By Nominee:
Robert S. Gaiswinkler 42,907,158.648 378,726.246
Robert C. Gallagher 42,924,980.897 360,903.997
Robert P. Konopacky 42,849,769.766 436,115.128
George R. Leach 42,860,780.213 425,104.681
John C. Meng 42,931,814.237 354,070.657
John C. Seramur 42,923,432.984 362,451.910
John H. Sproule 42,898,577.247 387,307.647
Ralph R. Staven 42,889,121.690 396,763.204
Norman L. Wanta 42,844,982.475 440,902.419
(ii) Approval of the Associated Banc-Corp Amended and Restated
Long-Term Incentive Stock Plan.
FOR AGAINST ABSTAIN
--- ------- -------
39,172,674.625 3,079,019.278 1,034,190.991
(iii)Ratification of the selection of KPMG Peat Marwick LLP as
independent auditors of Associated for the year ending
December 31, 1998.
FOR AGAINST ABSTAIN
--- ------- -------
42,852,648.508 242,067.894 191,168.492
(d) Not applicable
<PAGE>
ASSOCIATED BANC-CORP
PART II - OTHER INFORMATION
Page No.
--------
ITEM 6: Exhibits and Reports on Form 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed for the six months ended June
30, 1998.
<PAGE>
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 hereunto duly authorized.
ASSOCIATED BANC-CORP
-----------------------------------------
(Registrant)
Date: August 14, 1998 /s/ H. B. Conlon
-----------------------------------------
H. B. Conlon
Chairman and Chief Executive Officer
Date: August 14, 1998 /s/ Joseph B. Selner
-----------------------------------------
Joseph B. Selner
Principal Financial Officer
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
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