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 September 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)
1200 Hansen Road, Green Bay, Wisconsin 54304
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Address of principal executive offices) (Zip code)
(920) 491-7000
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(Registrant's telephone number, including area code)
112 North Adams Street, Green Bay, Wisconsin 54301, (920) 433-3166
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(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 September 30, 1998, was 63,294,700 shares.
<PAGE>
ASSOCIATED BANC-CORP
TABLE OF CONTENTS
Page No.
--------
PART I. Financial Information
Item 1. Financial Statements:
Consolidated Statements of Financial Condition -
September 30, 1998 and December 31, 1997
Consolidated Statements of Income -
Three and Nine Months Ended
September 30, 1998 and 1997
Consolidated Statements of Cash Flows -
Nine Months Ended September 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
Market Risk
PART II. Other Information
Item 6. Exhibits and Reports See Footnote (8) in Part I Item I
on Form 8-K
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)
September 30, December 31,
1998 1997
---- ----
ASSETS (In Thousands, Except Share Data)
Cash and due from banks $ 241,447 $ 290,184
Interest-bearing deposits in other
financial institutions 10,348 5,019
Federal funds sold and securities
purchased under agreements to resell 68,695 11,511
Investment securities:
Held to maturity-at amortized cost
(fair value of approximately $ 634,353
and $782,240 at September 30, 1998 and
December 31, 1997, respectively 621,522 772,524
Available for sale-at fair value 2,118,320 2,167,694
Loans, held for sale 90,700 114,001
Loans, net of unearned income 7,180,810 7,072,550
Less: Allowance for possible loan losses (92,715) (92,731)
------------ ------------
Loans, net 7,088,095 6,979,819
Premises and equipment 134,612 127,824
Other assets 201,936 221,866
------------ ------------
Total assets $ 10,575,675 $ 10,690,442
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing deposits $ 888,896 $ 904,638
Interest-bearing deposits 7,610,772 7,459,427
------------ ------------
Total deposits 8,499,668 8,364,065
Short-term borrowings 1,040,095 1,337,008
Accrued expenses and other liabilities 125,459 160,406
Long-term borrowings 26,889 15,270
------------ ------------
Total liabilities 9,692,111 9,876,749
Commitments and contingent liabilities --- ---
Stockholders' equity
Preferred stock --- ---
Common stock (par value $0.01 per share,
authorized 634
100,000,000 shares, issued 63,389,734 and
62,993,309 shares, respectively) 504
Surplus 224,982 218,072
Retained earnings 631,052 569,996
Accumulated other comprehensive income 30,512 26,144
Less: Treasury stock (95,034 and 23,618
shares, respectively at cost) (3,616) (1,023)
------------ ------------
Total stockholders' equity 883,564 813,693
------------ ------------
Total liabilities and stockholders' equity $ 10,575,675 $ 10,690,442
============ ============
(See accompanying Notes to Consolidated Financial Statements.)
<PAGE>
ITEM 1. Financial Statements Continued:
ASSOCIATED BANC-CORP
Consolidated Statements of Income
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------ ------------
1998 1997 1998 1997
---- ---- ---- ----
(In Thousands)
INTEREST INCOME
Interest and fees on loans $151,557 $151,163 $453,685 $439,573
Interest and dividends on
investment securities:
Taxable 40,794 46,915 126,678 137,657
Tax exempt 2,791 2,212 7,809 6,812
Interest on deposits in other
financial institutions 256 120 1,441 653
Interest on federal funds sold and
securities purchased under agreements
to resell 778 231 1,265 737
------- ------- ------- -------
Total interest income 196,176 200,641 590,878 585,432
INTEREST EXPENSE
Interest on deposits 87,639 86,226 260,711 250,083
Interest on short-term borrowings 14,637 19,212 47,288 53,684
Interest on long-term borrowings 447 419 1,431 1,453
------- ------- ------- -------
Total interest expense 102,723 105,857 309,430 305,220
------- ------- ------- -------
NET INTEREST INCOME 93,453 94,784 281,448 280,212
Provision for possible loan losses 3,378 3,739 10,511 10,297
------- ------- ------- -------
Net interest income after provision
for possible loan losses 90,075 91,045 270,937 269,915
NONINTEREST INCOME
Trust service fees 8,496 7,089 24,477 21,020
Service charges on deposit accounts 7,092 7,211 20,279 20,732
Investment securities gains, net 35 851 5,989 2,234
Mortgage banking activity 10,568 6,745 32,647 17,299
Retail commission income 3,873 3,968 11,249 11,831
Loan fees 5,106 4,276 14,139 12,039
Asset sale gains, net 543 512 6,919 875
Other 3,537 3,510 10,399 9,891
------- ------- ------- -------
Total noninterest income 39,250 34,162 126,098 95,921
NONINTEREST EXPENSE
Salaries and employee benefits 36,624 34,035 110,209 101,196
Net occupancy expense 5,082 5,010 15,303 15,865
Equipment rentals, depreciation and
maintenance 3,499 3,165 10,366 9,370
Data processing expense 3,989 4,164 13,431 12,581
Stationery and supplies 1,572 1,450 4,454 4,026
Business development and advertising 3,233 3,962 10,569 11,653
FDIC expense 827 810 2,474 2,452
Other 17,225 15,752 49,677 44,863
------- ------- ------- -------
Total noninterest expense 72,051 68,348 216,483 202,006
------- ------- ------- -------
Income before income taxes 57,274 56,859 180,552 163,830
Income tax expense 18,874 20,037 61,288 57,669
-------- -------- -------- --------
NET INCOME $ 38,400 $ 36,822 $119,264 $106,161
======== ======== ======== ========
Earnings per share:
Basic $ 0.61 $ 0.59 $ 1.88 $ 1.69
Diluted $ 0.60 $ 0.58 $ 1.86 $ 1.66
(See accompanying Notes to Consolidated Financial Statements)
<PAGE>
ITEM 1. Financial Statements Continued:
ASSOCIATED BANC-CORP
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
------------
1998 1997
---- ----
(In Thousands)
OPERATING ACTIVITIES
Net income $ 119,264 $ 106,161
Adjustments to reconcile net income
to net cash provided by
Operating activities:
Provision for possible loan losses 10,511 10,297
Depreciation and amortization 11,853 10,611
Amortization of mortgage servicing
rights 4,822 3,811
Amortization of intangibles 4,380 4,673
Net amortization (accretion)
of premiums and discounts (4,557) (11,392)
Gain on sales of investment
securities, net (5,989) (2,234)
(Increase) decrease in interest
receivable and other assets 32,748 (14,207)
Decrease in interest
payable and other liabilities (34,947) (6,027)
Amortization of loan fees and costs 62 (395)
Net (increase) decrease in mortgage loans
acquired for sale 40,924 (17,245)
Gain on sales of mortgage loans
held for sale (17,623) (2,684)
Gain on other asset sales (6,919) (875)
------- ------
Net cash provided by operating activities 154,529 80,494
INVESTING ACTIVITIES
Net increase in federal funds
sold and securities purchased
under agreements to resell (57,184) (235)
Net increase in interest-bearing deposits in (5,329) (2,723)
other financial institutions
Purchases of held to maturity securities (10,019) (158,955)
Purchases of available for sale securities (468,136) (657,007)
Proceeds from sales of available for sale
securities 60,366 66,730
Maturities of held to maturity securities 160,554 203,542
Maturities of available for sale securities 474,366 367,274
Net increase in loans (123,923) (406,579)
Proceeds from sales of other real estate 5,414 5,726
Purchases of premises and equipment, net of
disposals (20,710) (11,762)
Purchase of mortgage servicing rights (15,321) (6,225)
Net cash received in purchase of subsidiary --- 5,051
Proceeds from sale of other assets 3,366 876
----- -------
Net cash provided by (used in) investing activities 3,444 (594,287)
FINANCING ACTIVITIES
Net increase in deposits 135,603 290,601
Net increase (decrease) in short-term
borrowings (297,578) 163,681
Cash dividends (47,744) (34,723)
Proceeds from issuance of long-term
borrowings 13,500 ---
Repayment of long-term borrowings (1,216) (1,617)
Proceeds from exercise of stock options 7,140 3,344
Stock purchases by pooled company --- (21,048)
Purchase of treasury stock (16,415) (1,584)
------ -----
Net cash provided by (used in) financing
activities (206,710) 398,654
------- -------
Net decrease in cash and cash equivalents (48,737) (115,139)
Cash and due from banks at beginning of period 290,184 369,934
Cash and due from banks at end of period $ 241,447 $ 254,795
========= =========
Supplemental disclosures of cash
flow information:
Cash paid during the period for:
Interest $ 279,850 $ 296,091
Income taxes 52,129 57,640
Supplemental schedule of noncash
investing activities:
Loans transferred to other real estate 5,074 6,627
Loans made in connection with the
disposition of other real estate 780 53
(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.
Certain items in prior periods' consolidated financial statements have been
reclassified to conform with the September 30, 1998 presentation.
NOTE 3: Business Combinations
The following table summarizes completed transactions during 1997 and through
September 30, 1998:
Consideration Paid
------------------------
Shares Total
Method Cash of Assets Intangibles
Name of Date of (In Common (In (In
Acquired Acquired Accounting Millions Stock Millions) Millions)
- --------------------------------------------------------------------------------
Centra 2/97 Pooling of $--- 517,956 $ 76 $---
Financial, Interests
Inc. [A]
West Allis,
Wisconsin
First 10/97 Pooling of 0.1 34,794,911 6,005 ---
Financial Interests
Corporation
[B]
Stevens Point,
Wisconsin
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[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] All consolidated 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) September 30, 1998
- --------------------------------------------------------------------------------
Amortized Cost Fair Value
- --------------------------------------------------------------------------------
Federal agency securities $ 90,763 $ 91,766
Mortgage-related securities 288,280 292,948
Obligations of state and political
subdivisions 172,984 177,376
Other securities (debt) 69,495 72,263
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Total $621,522 $634,353
================================================================================
(In thousands) December 31, 1997
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Amortized Cost Fair Value
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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
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Total $772,524 $782,240
================================================================================
Investment Securities Available for Sale
(In thousands) September 30, 1998
- --------------------------------------------------------------------------------
Amortized Cost Fair Value
- --------------------------------------------------------------------------------
U.S. Treasury securities 81,580 82,812
Federal agency securities 279,218 282,289
Mortgage-related securities 1,489,788 1,520,641
Obligations of state and political
subdivisions 78,764 79,997
Other securities (debt and equity) 141,501 152,581
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Total $2,070,851 $2,118,320
================================================================================
(In thousands) December 31, 1997
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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 Nine For the Year
Months Ended Ended
September 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 10,511 31,668
Net loan charge-offs (10,527) (11,432)
Balance at end of period $92,715 $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 Nine For the Year
Months Ended Ended
September 30, December 31,
1998 1997
---- ----
(In Thousands)
- --------------------------------------------------------------------------------
Balance at beginning of period $22,535 $20,238
Additions 15,321 9,801
Amortization (4,822) (6,472)
Change in valuation allowance (4,599) (1,032)
Balance at end of period $28,435 $22,535
- --------------------------------------------------------------------------------
<PAGE>
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 Nine Months
Ended Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
(In Thousands, Except
Per Share Data)
Basic:
Net income available to common
stockholders $ 38,400 $ 36,822 $119,264 $106,161
Weighted average shares outstanding 63,306 62,738 63,283 62,871
Basic earnings per share $ 0.61 $ 0.59 $ 1.88 $ 1.69
==== ==== ==== ====
Diluted:
Net income available to common
stockholders $ 38,400 $ 36,822 $119,264 $106,161
Weighted average shares outstanding 63,306 62,738 63,283 62,871
Effect of dilutive stock options
outstanding 635 1,282 716 1,127
------ ------ ------ ------
Diluted weighted average shares
outstanding 63,941 64,020 63,999 63,998
Diluted earnings per common share $ 0.60 $ 0.58 $ 1.86 $ 1.66
====== ====== ====== ======
<PAGE>
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.
The Corporation's comprehensive income for the three and nine month periods
ended September 30, 1998 and 1997, is as follows:
Three Months Nine Months
Ended Ended
September 30, September 30,
(In thousands) 1998 1997 1998 1997
---- ---- ---- ----
Net income $38,400 $36,822 $119,264 $106,161
Other comprehensive income
(loss), net of tax-
Unrealized gain (loss)
on securities:
Unrealized holding gains
(losses) arising during
the period (1,275) (970) 8,261 11,765
Less: reclassification
adjustment for net gains
realized in net income (23) (553) (3,893) (1,452)
------- ------- -------- --------
Subtotals (1,298) (1,523) 4,368 10,313
------- ------- -------- --------
Comprehensive income $37,102 $35,299 $123,632 $116,474
======= ======= ======== ========
<PAGE>
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.
The following discussion refers to the impact of the Corporation's business
combinations activity (see Note 3 of the Notes to Consolidated Financial
Statements), particularly the acquisition of the $6.0 billion First Financial
Corporation (FFC). The FFC acquisition was accounted for using the
pooling-of-interests method. Thus, all consolidated financial information has
been restated as if the transaction had been effected as of the beginning of the
earliest reporting period.
In addition 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.
Finally, the following discussion will focus upon "operating earnings", with
respect to the fourth quarter of 1997, for the Corporation. Operating earnings
for the fourth quarter of 1997 exclude the impact of the merger, integration and
other one-time charges recorded by the Corporation (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.
EARNINGS SUMMARY
Net income for the nine months ended September 30, 1998 totaled $119.3 million,
an increase of $13.1 million or 12.3% over the $106.2 million earned during the
same period of 1997. Earnings per diluted share were $1.86 for the nine months
ended September 30, 1998, compared to $1.66 for the same period of 1997.
Operating results for the first nine months of 1998 generated an annualized
return on average assets (ROA) of 1.51% and an annualized return on average
equity (ROE) of 18.77%, compared to 1.38% and 17.09%, respectively, for the
comparable period in 1997.
- The change between the comparable nine month periods was a result of
higher net interest income (up $1.2 million, or 0.4%) and higher
noninterest income (up $30.2 million, or 31.5%), offset by higher
provision for loan losses (up $214,000, or 2.1%), higher noninterest
expense (up $14.5 million, or 7.2%), and higher income tax expense (up
$3.6 million, or 6.3%).
Net income for third quarter 1998 was $38.4 million, up $1.6 million or 4.3%
over 1997 third quarter net income of $36.8 million, and down from the $41.0
million reported in the second quarter of 1998. Earnings per diluted share were
$0.60 in third quarter 1998, up 3.4% over the $0.58 reported in third quarter
1997, and down from the $0.64 net income per share reported in second quarter
1998. For third quarter 1998 ROA was 1.44% and ROE was 17.72%, up compared to
1.40% and 17.33%, respectively, for third quarter 1997, and down compared to
1.56% and 19.36%, respectively for second quarter 1998.
- The change in third quarter 1998 net income (increase of $1.6 million)
compared to the same period last year, was a result of higher
noninterest income (up $5.1 million, or 14.9%), lower provision for
loan losses (down $361,000, or 9.7%), lower income tax expense (down
$1.2 million, or 5.8%), offset by lower net interest income (down $1.3
million, or 1.4%) and higher noninterest expense (up $3.7 million, or
5.4%).
- The change in third quarter 1998 net income (decrease of $2.6 million,
or 6.4%), when compared to second quarter 1998, was a result of lower
net interest income (down $200,000, or 0.2%) and lower noninterest
income (down $5.8 million, or 13.0%) offset by lower noninterest
expense (down $806,000, or 1.1%) and lower income tax expense (down
$2.6 million, or 12.3%).
- --------------------------------------------------------------------------------
Net Income: Quarterly Trends
(In Thousands)
- --------------------------------------------------------------------------------
3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr.
1998 1998 1998 1997 1997
- --------------------------------------------------------------------------------
Operating net income (Qtr) $ 38,400 $41,004 $39,860 $ 36,017 $ 36,822
Operating net income (YTD) $119,264 $80,864 $39,860 $142,178 $106,161
Consolidated net income
(Loss) (Qtr) $ 38,400 $41,004 $39,860 $(53,802) $ 36,822
Consolidated net income (YTD) $119,264 $80,864 $39,860 $ 52,359 $106,161
Operating EPS - basic (Qtr) $0.61 $.65 $.63 $.57 $.59
Operating EPS - diluted (Qtr) $0.60 $.64 $.62 $.57 $.58
Operating EPS - basic (YTD) $1.88 $1.28 $.63 $2.26 $1.69
Operating EPS - diluted (YTD) $1.86 $1.26 $.62 $2.22 $1.66
Consolidated EPS - basic (Qtr) $0.61 $.65 $.63 $(1.86) $.59
Consolidated EPS - diluted (Qtr) $0.60 $.64 $.62 $(0.85) $.58
Consolidated EPS - basic (YTD) $1.88 $1.28 $.63 $.83 $1.69
Consolidated EPS - diluted (YTD) $1.86 $1.26 $.62 $.82 $1.66
Operating ROE - Quarter 17.72% 19.36% 19.51% 16.46% 17.33%
Operating ROE - YTD 18.77% 19.43% 19.51% 16.93% 17.09%
Operating ROA - Quarter 1.44% 1.56% 1.53% 1.34% 1.40%
Operating ROA - YTD 1.51% 1.54% 1.53% 1.37% 1.38%
- --------------------------------------------------------------------------------
<PAGE>
NET INTEREST INCOME
Third Quarter 1998 Compared to Third Quarter 1997:
Fully taxable equivalent (FTE) net interest income in the third quarter of 1998
was $95.1 million, a decrease of $1.1 million when compared to the third quarter
of 1997 of $96.2 million. Balance sheet growth contributed $3.4 million to FTE
net interest income, while the rate environment impacted net interest income
unfavorably by $4.5 million.
Average earning assets grew $102 million from the third quarter of 1997. The
growth in average earning assets was concentrated in loans, with loans
increasing $286 million, offset by a $184 million decrease in investment
securities and other short-term investable funds, when compared to the third
quarter of 1997. The net growth in average earning assets was funded by
increased time deposits of $60 million, higher balances of savings, NOW and MMA
of $155 million and higher net free funds of $115 million, offset by a $228
million decrease in wholesale borrowings (funds purchased, repurchase
agreements, FHLB borrowings, and long-term borrowings).
The net interest margin for the third quarter of 1998 was 3.76%, or 9 basis
points less than the 3.85% margin in the third quarter of 1997. The interest
rate spread (the difference between the average earning asset yield and the
average rate paid on interest-bearing liabilities) also decreased, to 3.16% from
3.28% reported a year ago. The contribution from net free funds increased to
0.60% from 0.57%. The 26 basis point decline in the earning asset yield outpaced
the 14 basis point decline in funding costs, contributing to the margin
compression experienced between the comparable third quarter periods.
The Corporation's net interest income was negatively impacted by the interest
rate environment encountered in the third quarter of 1998 as compared to the
third quarter of 1997. The lower rate environment accelerated the prepayment of
higher yielding residential real estate loans and mortgage-related securities.
The re-investment opportunities available were at lower yields. This rate
environment also made it difficult to grow total earning assets, as commercial
loan growth was offset by declining balances of residential real estate loans
and mortgage-related securities. Residential real estate mortgage related loans
and securities comprise 54.2% of the Corporation's total earning assets, down
from 56.5% in the third quarter of 1997.
<PAGE>
- --------------------------------------------------------------------------------
Net Interest Income: Tax Equivalent Basis
(In Thousands)
- --------------------------------------------------------------------------------
3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr.
1998 1998 1998 1997 1997
- --------------------------------------------------------------------------------
Interest income $196,176 $196,252 $198,450 $201,788 $200,641
Tax equivalent
adjustment 1,645 1,544 1,509 1,464 1,406
-------- -------- -------- -------- --------
Tax equivalent interest
income $197,821 $197,796 $199,959 $203,252 $202,047
Interest expense 102,723 102,599 104,108 106,418 105,857
-------- -------- -------- -------- --------
Tax equivalent net interest
income $ 95,098 $ 95,197 $ 95,851 $ 96,834 $ 96,190
- --------------------------------------------------------------------------------
Third Quarter 1998 Compared to Second Quarter 1998:
FTE net interest income in the third quarter of 1998 was $95.1 million, a
decrease of $99,000 compared to the second quarter of 1998 of $95.2 million.
Balance sheet growth contributed $269,000 to FTE net interest income, while the
rate environment impacted net interest income unfavorably by $442,000.
Additionally, the extra day in the third quarter compared to the second quarter
contributed $74,000 to net interest income.
Average earning assets increased $2 million from the second quarter of 1998,
with investment securities and other short-term investable funds growing $10
million and loans decreasing $8 million. Funding sources also shifted, with
interest-bearing deposits growing $14 million and wholesale borrowings
decreasing $23 million.
The net interest margin for the third quarter of 1998 was 3.76%, down 1 basis
point from the second quarter of 1998. The contribution from net free funds in
the third quarter of 1998 remained at 0.60%. The rate spread decreased to 3.16%
from 3.17% reported last quarter.
- --------------------------------------------------------------------------------
Net Interest Margin: Quarterly Trends
(Quarterly Info Only)
- --------------------------------------------------------------------------------
3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr.
1998 1998 1998 1997 1997
- --------------------------------------------------------------------------------
Yield on earning assets 7.81% 7.86% 7.97% 7.95% 8.07%
Cost of interest-bearing
liabilities 4.65% 4.69% 4.77% 4.78% 4.79%
---- ---- ---- ---- ----
Interest rate spread 3.16% 3.17% 3.20% 3.17% 3.28%
Net free funds contribution 0.60% 0.60% 0.59% 0.63% 0.57%
---- ---- ---- ---- ----
Net interest margin 3.76% 3.77% 3.79% 3.80% 3.85%
==== ==== ==== ==== ====
Average earning assets to
average asset 95.10% 95.32% 95.20% 95.35% 95.24%
Free funds ratio
(% of earning assets) 12.99% 12.88% 12.30% 13.14% 11.97%
- --------------------------------------------------------------------------------
Year-to-date (YTD) 1998 Compared to YTD 1997:
FTE net interest income in the first nine months of 1998 was $286.1 million, an
increase of $1.7 million over the same period in 1997 FTE net interest income of
$284.4 million. The consolidated increase for this period was primarily
attributable to a positive impact on net interest income from a volume variance
of $14.3 million, offset by a negative impact on net interest income from a rate
variance of $12.6 million.
Average earning assets increased $236 million in the first nine months of 1998
compared to the same period last year. Total average loans grew $365 million in
the first nine months of 1998 compared to the first nine months of 1997, while
balances of investments and short-term investments declined $129 million. The
net growth in average earning assets was funded by increased time deposits of
$106, higher balances of savings, NOW and MMA of $156 million, and increased net
free funds of $124 million, offset by decreased wholesale borrowings (funds
purchased, repurchase agreements, FHLB borrowings and long-term borrowings) of
$150 million.
The net interest margin for the first nine months of 1998 was 3.77%, down 8
basis points from the 3.85% in the first nine months of 1997. The interest rate
spread decreased to 3.17% from 3.29%, with the earning asset yield declining 11
basis points (loans down 17 basis points, investments down 5 basis points) and
total interest-bearing liabilities moving up only 1 basis point (retail deposits
up 3 basis points and wholesale funds down 1 basis point). The reduction in
interest rate spread was offset by a 4 basis point increase in contribution from
net free funds as a result of higher volumes of net free funds.
The Corporation's net interest income was impacted by the lower interest rate
environment experienced in the first nine months of 1998, which accelerated the
prepayment of higher yielding residential real estate loans and mortgage-related
securities (and lowered total yield on earning assets). Growth in total deposits
reduced reliance on wholesale funding sources, which helped to control the total
cost of interest-bearing liabilities as noted above. A 10.6% increase in the
average balance of net free funds contributed $4.4 million to net interest
income.
If the interest rate environment of the third quarter 1998 continues, continued
pressure on net interest income is likely. In addition, there will be impact on
the margin going forward from the Corporation's October 1998 purchase of $100
million of bank-owned life insurance (BOLI), which will be recorded in the
consolidated statement of financial condition in other assets. While the BOLI
was funded with interest-bearing liabilities, the revenue will be a component of
noninterest income in the consolidated statements of income.
- --------------------------------------------------------------------------------
Earning Asset and Interest-Bearing Liability Volumes: Quarterly Trends
(In Thousands)
- --------------------------------------------------------------------------------
3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr.
1998 1998 1998 1997 1997
- --------------------------------------------------------------------------------
Average loans $ 7,277,583 $ 7,285,819 $ 7,201,936 $ 7,161,089 $ 6,990,920
Average earning
assets 10,043,826 10,041,932 10,075,172 10,151,828 9,941,498
Average noninterest-
bearing deposits 826,204 796,361 778,885 824,332 726,880
Average interest-
bearing deposits 7,618,798 7,605,270 7,550,146 7,511,209 7,403,326
Average deposits 8,445,002 8,401,631 8,329,031 8,355,541 8,130,206
Average interest-
bearing
liabilities $ 8,739,163 $ 8,748,600 $ 8,835,493 $ 8,818,256 $ 8,751,596
- --------------------------------------------------------------------------------
LOAN LOSS
The provision for loan loss (PFLL) for the third quarter of 1998 was $3.4
million, unchanged from second quarter 1998, and a decrease of $361,000 from the
third quarter of 1997. PFLL recorded in the third quarter of 1998 exceeded net
charges recorded in the same quarter by $1.0 million.
As of September 30, 1998, the allowance for possible loan losses (AFLL) of $92.7
million represented 1.29% of total outstanding loans, down from the 1.31%
reported at December 31, 1997, and up from 1.05% reported at September 30, 1997.
The increase in AFLL to loans from the comparable third quarter periods is
attributable to the $16.8 million merger adjustment booked at year end 1997 in
conjunction with the acquisition of FFC.
During the third quarter of 1998, net charge-offs of $2.4 million were recorded.
Net charge-offs as a percent of average loans (on an annualized basis) were
0.13% for the three month period ended September 30, 1998.
<PAGE>
- --------------------------------------------------------------------------------
Allowance for Possible Loan Losses: Quarterly Trends
(In Thousands)
- --------------------------------------------------------------------------------
3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr.
1998 1998 1998 1997 1997
- --------------------------------------------------------------------------------
Provision Expense - Qtr $ 3,378 $ 3,375 $ 3,759 $ 4,571 $ 3,739
Merger Adjustment - Qtr --- --- --- 16,800 ---
Provision Expense - YTD 10,511 7,134 3,759 14,868 10,297
Merger Adjustment - YTD --- --- --- 16,800 ---
Net Charge-Offs - Qtr 2,370 5,081 3,075 3,113 2,947
Net Charge-Offs - YTD 10,527 8,156 3,075 11,432 8,319
------- ------- ------- ------- -------
Allowance at Period End $92,715 $91,708 $93,415 $92,731 $74,454
======= ======= ======= ======= =======
Allowance to Loans 1.29% 1.27% 1.30% 1.31% 1.05%
Net Charge-Offs to Average Loans
(Annualized) - Qtr 0.13% .28% .17% .17% .16%
Net Charge-Offs to Average Loans
(Annualized) - YTD 0.19% .23% .17% .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. The
Corporation had $8.3 million of these loans at September 30, 1998 and $7.4
million at June 30, 1998.
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.
Total nonperforming loans at September 30, 1998 were $43.0 million, a decrease
of $3.2 million from June 30, 1998 and an $8.7 million increase from December
31, 1997. The ratio of nonperforming loans to total loans at September 30, 1998
was 0.60% compared to 0.64% at June 30, 1998, 0.48% at December 31, 1997 and
0.54% at September 30, 1997. Other real estate owned of $4.1 million at
September 30, 1998 was essentially unchanged from $4.0 million at June 30, 1998.
<PAGE>
- --------------------------------------------------------------------------------
Nonperforming Loans and Other Real Estate
(In Thousands)
- --------------------------------------------------------------------------------
9/30/98 6/30/98 3/31/98 12/31/97 9/30/97
- --------------------------------------------------------------------------------
Nonaccrual loans $36,566 $39,512 $30,072 $32,415 $36,202
Accruing loans past due 90
days or more 6,161 6,404 3,414 1,324 1,648
Restructured loans 287 287 455 558 186
------- ------- ------- ------- -------
Total nonperforming loans $43,014 $46,203 $33,941 $34,297 $38,036
======= ======= ======= ======= =======
Nonperforming loans as a
Percent of loans 0.60% 0.64% 0.47% 0.48% 0.54%
Other real estate owned $ 4,085 $ 4,012 $ 4,265 $ 2,067 $ 2,447
- --------------------------------------------------------------------------------
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 September 30, 1998, potential problem loans totaled $69.8 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 September
30, 1998, no concentrations existed in the Corporation's loan portfolio in
excess of 10% of total loans.
Real estate construction loans at September 30, 1998, totaled $352 million, or
4.9% of loans while agricultural loans were 0.8% of total loans.
As of September 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
Third Quarter 1998 Compared to Third Quarter 1997:
Noninterest income increased $5.1 million or 14.9% over the third quarter of
1997. Noninterest income, excluding net investment securities gains, increased
$5.9 million, or 17.7%. Income from service charges on deposit accounts and
retail commission income decreased from the third quarter of 1997. All other
categories of noninterest income increased from the third quarter of 1997.
Trust service fees increased $1.4 million or 19.8% compared to the same quarter
last year, as a result of higher trust assets under management and general
market conditions.
Net investment securities gains decreased $816,000 or 95.9% compared to the
third quarter of 1997.
Mortgage banking income increased $3.8 million, or 56.7% from the third quarter
of 1997. Increases were recognized in higher servicing fees (up $420,000), and
increased gains on sales of loans (up $3.0 million). The remaining increase was
a result of production related revenue (origination, underwriting and escrow
waiver fees). Production volumes in the third quarter of 1998 were $471 million
compared to the same period last year at $287 million. The increased gains on
sales of loans is the result of this increased production in a lower rate
environment.
Income from loan fees increased $830,000, or 19.4% compared to the third quarter
of 1997. The increase is a result of increased fees on credit cards (up
$526,000) and commercial loans (up $262,000).
- --------------------------------------------------------------------------------
Noninterest Income: Quarterly Trends
(In Thousands)
- --------------------------------------------------------------------------------
3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr.
1998 1998 1998 1997 1997
- --------------------------------------------------------------------------------
Trust servicing fees $ 8,496 $ 8,066 $ 7,915 $ 7,744 $ 7,089
Service charges on deposit
accounts 7,092 6,816 6,370 7,177 7,211
Mortgage banking activity 10,568 11,183 10,896 8,410 6,745
Loan fees 5,106 4,872 4,161 4,389 4,276
Retail commission income 3,873 3,987 3,390 3,614 3,968
Asset sale gains (losses),
net 543 6,191 185 (22) 512
Other 3,537 3,341 3,522 3,780 3,510
------- ------- ------- ------- -------
Total, excluding securities
gains $39,215 $44,456 $36,440 $35,092 $33,311
Investment security gains,
net 35 642 5,311 279 851
Merger, integration and other
one-time charges --- --- --- (35,290) ---
------- ------- ------- ------- -------
Total noninterest income $39,250 $45,098 $41,751 $ 81 $34,162
- --------------------------------------------------------------------------------
Third Quarter 1998 Compared to Second Quarter 1998
Noninterest income decreased $5.8 million, or 13.0% in the third quarter of 1998
compared to second quarter 1998. Noninterest income, excluding net investment
securities gains and asset sale gains increased by $407,000, or 1.1%. All
categories showed moderate increases, except mortgage banking revenue, asset
sale gains and investment security gains.
Second quarter 1998 carried certain gains that did not recur in third quarter
1998. Net investment security gains decreased $607,000. Asset sale gains
decreased $5.6 million compared to the second quarter of 1998. Gains in the
second quarter of 1998 of $6.1 million were recognized on the sales of office
buildings, an affinity credit card portfolio and leased equipment.
Mortgage banking income decreased $615,000 or 5.5% from the second quarter of
1998. The decrease was principally a result of lower production between the
quarters ($471 million third quarter 1998 versus $539 million second quarter
1998), with net gains on sales down $782,000 between the sequential quarters.
YTD 1998 Compared to YTD 1997:
Noninterest income increased $30.2 million, or 31.5% in the first nine months of
1998 compared to the same period last year. Increases in trust service fees, net
investment securities gains, mortgage banking activity, loan fees and net asset
sale gains more than offset decreases in service charges on deposit accounts and
retail commission income compared to the first nine months of 1997. Noninterest
income, excluding net investment securities gains and asset sale gains,
increased $20.4 million, or 22.0%
Net investment security gains increased $3.8 million. 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, resulting. As a result, a net gain of $5.1
million was recognized.
Asset sale gains increased $6.0 million over the first nine months of 1997.
Gains recognized in the first nine months of 1998 included a gain of $2.8
million on the sale of an office building and a gain of $3.0 million on the sale
of an affinity credit card portfolio.
Mortgage banking income increased $15.3 million, or 88.7% from the first nine
months of 1997, primarily as a result of higher production volumes between the
two periods ($1.506 billion for the nine months of 1998 compared to $672 million
for the comparable prior period). Thus, gains on sales of loans were up $12.6
million, servicing fees increased $720,000, underwriting fees grew $1.1 million,
while other production related revenue accounted for the remaining increase. The
increased gains on sales of loans is the result of increased production and a
falling mortgage rate environment.
For the nine months of 1998 mortgage banking income represented 28.8% of
noninterest income before asset and securities gains, compared to 18.6% for the
comparable period last year. Mortgage banking activity income can fluctuate over
time. This is greatly due to its dependence on production volume and the
influence of the interest rate environment, the secondary market and general
economic conditions.
Trust service fees increased $3.5 million, or 16.4% compared to the same period
last year, as a result of higher trust assets under management and general
market conditions.
Income from loan fees increased $2.1 million, or 17.4% from the first nine
months of 1997 to the first nine months of 1998. The increase is a result of
increased fees on credit cards (up $1.2 million), with the remainder from real
estate fees and commercial loan fees.
<PAGE>
NONINTEREST EXPENSE
Third Quarter 1998 Compared to Third Quarter 1997:
Total noninterest expense increased $3.7 million, or 5.4% in the third quarter
of 1998 compared to the same period last year. All categories of noninterest
expense, with the exception of data processing and business
development/advertising, increased when compared to the third quarter of last
year.
Salaries and employee benefit expenses increased $2.6 million, or 7.6% when
compared to the third quarter of 1997. Total salary related expenses accounted
for $2.3 million, or 8.5%, of the increase, attributable to base merit
increases, transitional overlapping positions as support functions are
centralized, and new positions added.
Equipment rentals, depreciation and maintenance increased $334,000 or 10.6% over
the third quarter of 1997, primarily due to increased depreciation on computer
equipment.
Business development and advertising decreased $729,000, or 18.4%, compared to
the third quarter of 1997, primarily in reducing duplicative advertising expense
from FFC.
Other miscellaneous expense, from various sources, increased $1.5 million
compared to the third quarter of 1997. The primary item contributing to the
increase was higher amortization of mortgage servicing rights (up $2.8 million)
as a function of the increase in capitalized mortgage servicing rights.
<PAGE>
- --------------------------------------------------------------------------------
Noninterest Expense: Quarterly Trends
(In Thousands)
- --------------------------------------------------------------------------------
3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr.
1998 1998 1998 1997 1997
- --------------------------------------------------------------------------------
Salaries and employee benefits $36,624 $37,322 $36,263 $ 33,123 $34,035
Net occupancy expense 5,082 5,054 5,168 4,432 5,010
Equipment rentals, depreciation
and maintenance 3,499 3,458 3,409 3,230 3,165
Data processing expense 3,989 4,789 4,654 4,347 4,164
Stationery and supplies 1,572 1,486 1,396 1,505 1,450
Business development and
advertising 3,233 4,069 3,266 4,283 3,962
FDIC expense 827 817 830 831 810
Other 17,225 15,863 16,589 18,269 15,752
------- ------- ------- ------- -------
Noninterest expense, excluding
merger, integration and other
one-time charges 72,051 72,858 71,575 70,020 68,348
Merger, integration and other
one-time charges --- --- --- 51,622 ---
------- ------- ------- -------- -------
Total noninterest expense $72,051 $72,858 $71,575 $121,642 $68,348
- --------------------------------------------------------------------------------
Third Quarter 1998 Compared to Second Quarter 1998
Total noninterest expense decreased $807,000, or 1.1% in the third quarter of
1998 compared to the second quarter of 1998. An increase in other miscellaneous
expense was offset by decreases in data processing expense, business development
and advertising and salaries and employee benefits.
Salaries and employee benefit expenses decreased $698,000, or 1.9% when compared
to the second quarter of 1998, primarily due to second quarter carrying
non-recurring levels of expense for certain contractual payouts. Business
development and advertising decreased $836,000 million, or 20.5% in the third
quarter of 1998 compared to the previous quarter, primarily in advertising
expense.
Other miscellaneous expense, from various sources, increased by $1.4 million, or
8.6% compared to the second quarter of 1998. The increase was primarily a result
of higher mortgage servicing rights amortization (up $1.3 million).
- --------------------------------------------------------------------------------
Expense Control
Quarterly Trends
- --------------------------------------------------------------------------------
3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr.
1998 1998 1998 1997 1997
- --------------------------------------------------------------------------------
Efficiency ratio - Quarter 53.64% 52.17% 54.10% 53.08% 52.78%
Efficiency ratio - YTD 53.29% 53.11% 54.10% 53.33% 53.43%
Expense ratio - Quarter 1.30% 1.13% 1.41% 1.37% 1.40%
Expense ratio - YTD 1.28% 1.27% 1.41% 1.45% 1.48%
- --------------------------------------------------------------------------------
YTD 1998 Compared to YTD 1997
Total noninterest expense increased $14.5 million, or 7.2% in the first nine
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 other were partially offset by decreases in net occupancy
and business development and advertising,
Salaries and employee benefit expenses represent 62% of the increase in
noninterest expense, increasing $9.0 million, or 8.9% when compared to the first
nine months of 1997. Total salary related expenses increased $7.8 million, or
9.7% in the first nine months while fringe benefit related expenses increased
$1.2 million, or 6.0%. Salary expense is up primarily as a result of base merit
increases, variable pay, transitional overlapping positions as support functions
are centralized, and new positions. Fringe benefit expenses increased primarily
as a result of higher expenses associated with the pension, profit sharing and
401k plans.
Net occupancy expense decreased $562,000, or 3.5% in the first nine months of
1998 compared to the first nine months of 1997. All categories of occupancy
expense have contributed to the decline in the first nine months of 1998 when
compared to the first nine months of 1997.
Equipment rentals, depreciation and maintenance increased $996,000 or 10.6% over
the first nine months of 1997. This increase was primarily attributable to
higher levels of depreciation on computer equipment (up $1.4 million) offset by
lower levels of depreciation on furniture and other equipment (down $445,000).
Data processing increased $850,000 or 6.8%, compared to the first nine months of
1997, primarily due to increases in the base contract processing costs and
additional data processing systems engineer hours.
Business development and advertising decreased $1.1 million, or 9.3% in the
first nine months of 1998 compared to the same period last year. The favorable
variance was seen in reduced advertising costs.
Other miscellaneous expense, from various sources, increased by $4.8 million, or
10.7% compared to the first nine months of 1997. This increase was primarily due
to increased mortgage servicing rights amortization and valuation provision (up
$5.4 million), increased legal/professional/consulting fees (up $915,000),
increased EFTS fees (up $521,000), increased placement/relocation/moving
expenses (up $495,000) offset by lower expenses on various other expense
categories.
The systems integration of FFC will occur in fourth quarter 1998. Thus, total
noninterest expense levels will continue to absorb related system integration
costs. In addition, noninterest expense levels will continue to be impacted by
technology enhancements and the introduction of various products to new markets
from recently completed and pending acquisitions.
INCOME TAXES
The effective tax rate for the third quarter of 1998 decreased to 32.95%, down
from 34.41% in the second quarter of 1998, down from 34.40% in the first quarter
of 1998 and down from 35.24% in the third quarter of 1997. The decrease in
effective tax rate, compared to 1997, is primarily due to the utilization of
capital loss carryforwards from the sales of assets and the settlement of a tax
examination issue. The capital loss carryforwards will be recognized throughout
the 1998 tax year.
BALANCE SHEET
During the past twelve months, total assets decreased $131 million, or 1.2%.
Investment securities have decreased to support loan growth. Loan growth has
been steady through the period, but offset in part by loan sales. Deposit growth
has also been steady through the period.
<PAGE>
- --------------------------------------------------------------------------------
Selected Balance Sheet Trends
(In Thousands)
- --------------------------------------------------------------------------------
September 30, December 30, 1997 September 30,
1998 1997 1997
- --------------------------------------------------------------------------------
Loans held for sale $ 90,700 $ 114,001 $ 62,419
Loans, net of unearned
income 2,118,320 2,167,694 1,951,462
Investment securities (1) 2,739,842 2,940,218 2,991,366
Other short-term investments 79,043 16,530 38,924
Total assets 10,575,675 10,690,442 10,707,097
Total deposits 8,499,668 8,364,065 8,317,490
Short-term borrowings 1,040,095 1,337,008 1,380,335
Long-term borrowings 26,889 15,270 16,438
Stockholders' equity 883,564 813,693 874,026
(1) includes securities held to maturity at cost and available for sale at fair
value
- --------------------------------------------------------------------------------
During the first nine months of 1998, total assets decreased by $115 million, or
1.5% on an annualized basis. Loans (including loans held for sale) increased $85
million, or 1.5% on an annualized basis. The loan growth was funded with a $138
million reduction of investments and short-term investments, a $151 million
increase of interest-bearing deposits and an increase in net free funds of $81
million offset by a $285 million decrease in wholesale funding. The $151 million
increase in interest-bearing deposits reflects a $2 million decrease in
outstanding brokered CD's and an increase of $153 million in retail
interest-bearing deposits.
The loan growth was all in commercial (up $264 million, or 14.3% on an
annualized basis). Real estate and consumer loans decreased from December 31,
1997 ($97 million, or 3.6% and $58 million, or 8.3% 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 sale also declined by $23 million, or 27.3% on
an annualized basis, as a function of secondary market activity.
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 $151.3 million, while noninterest-bearing
deposits fell $15.7 million from the seasonally high year-end balance.
As of September 30, 1998, the securities portfolio contained $360.8 million at
amortized cost of U.S. Treasury and federal agency securities available for
sale, representing 13.4% of the total securities portfolio. These government
securities are highly marketable and had a market value equal to 101.2% 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 $72.0 million in the third quarter of 1998 compared to
$27.0 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 September 30, 1998, the Corporation had $79.0
million outstanding in short-term money market investments, serving as an
essential source of liquidity. The amount at quarter end represents .7% of total
assets compared to .2% at December 31, 1997.
Short-term borrowings totaled $1.0 billion at September 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 $53.9 million in the
first nine months of 1998 and will continue to be the parent's main source of
long-term liquidity.
At September 30, 1998, the parent company had $150 million of established lines
of credit with non-affiliated banks, of which $87 million was in use for nonbank
affiliates.
The Corporation's long-term debt to equity ratio at September 30, 1998, was
3.0%, 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 September 30, 1998 increased $69.9 million, or 8.6%
since December 31, 1997. This increase was composed of $71.5 million of retained
earnings, $10.4 million from option exercises and $4.4 million increase in the
net SFAS 115 investment market value adjustment, reduced by $16.4 million from
treasury stock purchases. Equity to assets at September 30, 1998 increased to
8.35%, with the Tier 1 leverage ratio climbing to 7.82%.
Cash dividends of $0.29 per share were paid in the third quarter of 1998,
representing a pay-out ratio of 47.54% for the quarter.
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.
<PAGE>
- --------------------------------------------------------------------------------
Capital: Quarterly Trends
(In Thousands)
- --------------------------------------------------------------------------------
3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr.
1998 1998 1998 1997 1997
- --------------------------------------------------------------------------------
Stockholders' equity $883,564 $867,286 $836,826 $813,693 $874,027
Average equity to
average assets 8.14% 8.07% 7.83% 8.15% 8.08%
Equity to assets -
period end 8.35% 8.21% 7.83% 7.61% 8.16%
Tier 1 capital to risk
weighted assets -
period end 12.30% 12.14% 10.89% 10.61% 12.45%
Total capital to risk
weighted assets -
period end 13.54% 13.37% 12.14% 11.86% 13.49%
Tier 1 leverage ratio -
period end 7.82% 7.63% 7.34% 7.10% 7.77%
Market value per share -
period end $31.44 $37.63 $43.16 $44.09 $36.05
Book value per share -
period end $13.96 $13.70 $13.24 $12.92 $13.91
Market value per share to
book value per share 225% 275% 326% 341% 259%
Dividends per share -
Quarter $0.290 $0.232 $0.232 $0.232 $0.232
Dividends per share -
YTD $0.754 $0.464 $0.232 $0.889 $0.657
Basic operating earnings
per share - Quarter $0.61 $0.65 $0.63 $0.57 $0.59
Basic operating earnings
per share - YTD $1.88 $1.28 $0.63 $2.26 $1.69
Dividend payout ratio -
Quarter 47.54% 35.69% 36.83% 40.70% 39.32%
Dividend payout ratio -
YTD 40.11% 36.25% 36.83% 39.34% 38.88%
- --------------------------------------------------------------------------------
<PAGE>
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 September 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 September 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 Corporation's Year 2000 Project is proceeding on schedule. The Year 2000
Project relates to systems designed to use two digits rather than four to define
the applicable year. The Corporation has adopted a centralized approach to
addressing the Year 2000 problem. The Corporation's Director of Systems and
Operations has overall responsibility for the Year 2000 compliance efforts and
is assisted by a project management office that is staffed with both internal
and external resources. Overseeing the project is a steering committee composed
of senior management officials. Monthly status reports are provided to each of
the Corporation's affiliates and the Corporation's Board of Directors monitors
progress on a quarterly basis. The Corporation has dedicated significant
internal and external resources to assess, plan and execute a strategy for
achieving Year 2000 readiness.
Using the Federal Financial Institution's Examination Council (FFIEC) Year 2000
directives that have been published since 1996, the Corporation has established
policy guidelines and time frames that are used to manage the work effort and
guide Year 2000 compliance decision making. All project management activities
and plans have incorporated the FFIEC guidelines published to date.
The Corporation's Year 2000 compliance efforts have included completing an
inventory of all products and services that may be affected by Year 2000 date
related issues. Each product or service inventoried has been categorized as:
mission critical, significant, ancillary or other, depending on its significance
to the successful continuance of a business activity. Concurrent with and
immediately following the completion of the inventory of products and services,
the Corporation undertook and completed an awareness project involving all
employees, management, boards of directors, and customers of the Corporation.
The Corporation is adhering to FFIEC guidelines for completing Year 2000
remediation, testing and implementation for all Mission Critical products and
services by June 30, 1999, and for Significant Products and services by December
31, 1999. The Corporation is currently on schedule to complete Year 2000
compliance activities within these designated timeframes.
The Corporation uses national third party service providers and software vendors
almost exclusively. The products and services provided by these organizations
have been integrated to provide an overall technology infrastructure for the
Corporation. As a result, a large part of the Corporation's Mission Critical
product Year 2000 testing effort is for products processed by service bureaus.
The Corporation must conduct Year 2000 testing with these service bureaus and/or
verify that the service bureau's systems that the Corporation utilizes have
successfully completed Year 2000 tests. The Corporation must determine not only
that the service bureau's systems will function properly in the Year 2000 and
beyond, but also test that the specific functions utilized by the Corporation
will properly perform.
The Corporation has no custom developed system code. Therefore, the remediation
phase of the Corporation's Year 2000 compliance effort does not include code
renovation. Product and service upgrades provided by the Corporation's service
bureaus and other vendors are the primary remediation strategy. This also
impacts the testing phase of the overall project plan and requires that it will
be proportionally larger than a plan which has significant code renovation as
its focus.
The Corporation has been careful to consider non-information technology as well
as information technology systems in its approach to Year 2000 compliance.
Non-information technology systems include equipment in use in the business
areas, which is not defined as computer hardware or peripheral devices.
Equipment includes: calculators, time clocks,
heating/ventilating/air-conditioning, elevators, telephones, facsimiles,
satellite dishes, and security devices. The Corporation has contacted vendors of
non- information technology systems to determine Year 2000 compliance of these
systems and products and anticipates the completion of testing of these systems
and products during 1999. The Corporation has also identified third parties with
which it has a material relationship, such as telecommunications, power and
other utility vendors. The impact and status of these services is being reviewed
and appropriate steps are being taken to ensure continued operation for all
areas.
The Corporation's customers who are not preparing for the Year 2000 may
experience a disruption in business that could potentially result in significant
financial difficulties. Through the use of personal contacts and questionnaires,
the Corporation has taken an active role in heightening customer awareness of
the Year 2000 issues, assessing and monitoring material customers' Year 2000
compliance efforts, and taking steps to minimize the Corporation's exposure.
Material customers include fund takers, fund providers, and capital market and
asset management counterparties. The Year 2000 readiness of material customers
is being monitored by the Corporation on a quarterly basis and prospective
credit customers are also assessed for Year 2000 compliance as part of the
underwriting process. Additionally, consideration of Year 2000 credit risk has
been incorporated into the Corporation's loan reserve methodology.
The estimated costs for Year 2000 compliance are not expected to have a
significant impact on the Corporation's results of operations, liquidity or
capital resources. The Corporation estimates the total cost of addressing Year
2000 issues will be approximately $12 million, of which approximately $5 million
has been expended as of September 30, 1998. Additional expenditures will be made
in the fourth quarter of 1998 and will continue through 1999. Year 2000
compliance costs have been influenced by a heavy reliance on external resources
that have been contracted to assist the Corporation in the project management,
vendor management, and testing phases of its Year 2000 compliance effort.
Scheduled systems upgrades and enhancements which would have taken place,
notwithstanding the Year 2000 compliance process, have not been included in the
estimated Year 2000 costs, even though certain of these expenses may result in
Year 2000 solutions.
Management of the Corporation believes that the potential effects on the
Corporation's internal operations of the Year 2000 compliance effort can and
will be addressed prior to the Year 2000. However, if required product or
service upgrades are not made or are not completed on a timely basis prior to
the Year 2000, the Year 2000 issue could disrupt normal business operations.
Normal business operations could also be disrupted if third party servicers,
upon which the Corporation depends for services, including service bureaus,
payment systems, utilities, etc., encounter difficulties relating to the Year
2000 issue.
The most reasonable likely worst case Year 2000 scenarios foreseeable at this
time would include the Corporation temporarily not being able to process, in
some combination, various types of customer transactions. This could affect the
ability of the Corporation to, among other things, originate new loans, post
loan payments, accept deposits or allow immediate withdrawals, and, depending on
the amount of time such scenario lasted, could have a material adverse effect on
the Corporation. Because of the serious implications of these scenarios,
contingency plans have been established and are being monitored for all mission
critical products to mitigate the risks associated with any failure to
successfully complete Year 2000 compliance renovation, validation, or
implementation efforts. Additionally, a business resumption contingency plan is
being developed to mitigate risks associated with the failure at critical dates
of systems that support core business processes. The Year 2000 business
resumption contingency plan is designed to ensure that Mission Critical core
business processes will continue if one or more supporting systems fail and
would allow for limited transactions, including the ability to make certain
deposit withdrawals, until the Year 2000 problems are fixed.
The costs of the Year 2000 project and the date on which the Corporation plans
to complete Year 2000 compliance are based on management's best estimates, which
were derived using numerous assumptions of future events such as service
bureaus' and other vendors' plans, the availability of certain resources
(including internal and external resources), and other factors. However, there
can be no guarantee that these estimates will be achieved at the cost disclosed
or within the timeframe indicated, and actual results could differ materially
from these plans. Factors that might affect the timely and efficient completion
of the Corporation's Year 2000 project include, but are not limited to, vendors'
and service bureaus' abilities to adequately correct or convert software and the
effect on the Corporation's ability to test these systems, the availability and
cost of personnel trained in the Year 2000 area, the ability to identify and
correct all relevant computer programs, and similar uncertainties.
Readers should be cautioned that forward-looking statements contained in the
Year 2000 discussion should be read in conjunction with the Corporation's
disclosures under the heading, "Special Note Regarding Forward-Looking
Statements," appearing on page 3.
RECENT DEVELOPMENTS
On October 8, 1998, the Corporation announced its Board of Directors approved a
repurchase of up to 900,000 shares of its common stock in relation to its
pending acquisition of Citizens Bankshares, Inc. The repurchase has since been
completed.
PENDING COMBINATIONS
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 transaction, as amended, is expected to be completed in the
fourth quarter of 1998, and will be accounted for using the purchase method of
accounting.
On October 1, 1998 the Corporation announced the signing of a definitive
agreement to acquire Windsor Bancshares, Inc. ("Windsor"), parent company of the
$190 million Bank Windsor, with offices in Minneapolis, Nerstrand, Sleepy Eye
and Chisholm, Minnesota. The stock-for-stock merger transaction is contingent
upon approval of regulatory authorities and the shareholders of Windsor. The
transaction, expected to be completed in the first quarter of 1999, 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 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.
The FASB has issued SFAS No. 134, "Accounting for Mortgage-Backed Securities
after the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise: an amendment of FASB Statement No. 65," which is effective for the
first fiscal quarter beginning after December 31, 1998. This statement requires
that after the securitization of a mortgage loan held for sale, an entity
engaged in mortgage banking activities classify the resulting mortgage-backed
securities or other retained interests based on its ability and intent to sell
or hold those investments. This statement conforms the subsequent accounting for
securities retained after the securitization of mortgage loans by a mortgage
banking entity with the required accounting for securities retained after the
securitization of other types of assets by a nonmortgage banking enterprise The
Corporation anticipates that the adoption of SFAS No. 134 will not have a
material impact in the Corporation's financial statements.
<PAGE>
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
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 nine months ended
September 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: November 13, 1998 /s/ H. B. Conlon
-------------------------------------------
H. B. Conlon
Chairman and Chief Executive Officer
Date: November 13, 1998 /s/ Joseph B. Selner
--------------------------------------------
Joseph B. Selner
Principal Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 241,447
<INT-BEARING-DEPOSITS> 10,348
<FED-FUNDS-SOLD> 68,695
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,118,320
<INVESTMENTS-CARRYING> 621,522
<INVESTMENTS-MARKET> 634,353
<LOANS> 7,180,810
<ALLOWANCE> (92,715)
<TOTAL-ASSETS> 10,575,675
<DEPOSITS> 8,499,668
<SHORT-TERM> 1,040,095
<LIABILITIES-OTHER> 125,459
<LONG-TERM> 26,889
0
0
<COMMON> 634
<OTHER-SE> 882,930
<TOTAL-LIABILITIES-AND-EQUITY> 10,575,675
<INTEREST-LOAN> 453,685
<INTEREST-INVEST> 134,487
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<INTEREST-TOTAL> 590,878
<INTEREST-DEPOSIT> 260,711
<INTEREST-EXPENSE> 309,430
<INTEREST-INCOME-NET> 281,448
<LOAN-LOSSES> 10,511
<SECURITIES-GAINS> 5,989
<EXPENSE-OTHER> 49,677
<INCOME-PRETAX> 180,552
<INCOME-PRE-EXTRAORDINARY> 180,552
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 119,264
<EPS-PRIMARY> 1.88
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<LOANS-NON> 36,566
<LOANS-PAST> 6,161
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