FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED SEPT. 30, 2000 COMMISSION FILE NUMBER 1-2981
FIRSTAR CORPORATION
(Exact Name of Registrant as Specified in its Charter)
WISCONSIN 39-1940778
(State of Incorporation) (I.R.S. EMPLOYER Identification No.)
777 East Wisconsin Avenue, Milwaukee, Wisconsin 53202
Telephone Number (414) 765-4321
The registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
As of October 31, 2000, 950,110,195 shares of common stock were
outstanding.
-1-
FIRSTAR CORPORATION AND SUBSIDIARIES
FORM 10-Q
September 30, 2000
Page
Table of Contents Number
- ----------------------------------------------------------------------
Part I. Financial Information:
Financial Highlights.........................................3
Item 1. Financial Statements:
Consolidated Financial Statements ...................4
Notes to Consolidated Financial Statements ..........8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......16
Item 3. Quantitative and Qualitative Disclosures
About Market Risk ..................................18
Part II. Other Information:
Item 1. Legal Proceedings.................................none
Item 2. Changes in Securities.............................none
Item 3. Defaults Upon Senior Securities...................none
Item 4. Submission of Matters to a Vote of
Security Holders..................................none
Item 5. Other Information.................................none
Item 6. Exhibits and Reports on Form 8-K....................29
Signatures..........................................................29
-2-
PART I FINANCIAL INFORMATION
FIRSTAR CORPORATION AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
(dollars in thousands, except per share data)
Third Quarter Nine Months Ended September 30,
----------------------------------------- -------------------------------------------
Percent Percent
2000 1999 Change 2000 1999 Change
------------- ------------- ---------- ------------- ------------- -----------
Net income $ 308,994 $ 28,360 989.5 % $ 933,536 $ 607,273 53.7 %
Per share:
Basic earnings per common share $ 0.32 $ 0.03 966.7 % $ 0.96 $ 0.61 57.4 %
Diluted earnings per common share 0.32 0.03 966.7 0.96 0.60 60.0
Common stock cash dividends
declared 0.1625 0.10 62.5 0.4875 0.30 62.5
Book value per common share 6.52 6.56 (0.6) 6.52 6.56 (0.6)
Market value per common share 22.38 25.63 (12.7) 22.38 25.63 (12.7)
Average balances:
Total assets $ 74,207,564 $ 73,744,641 0.6 % $ 73,586,903 $ 73,822,468 (0.3) %
Earning assets 67,231,408 66,633,518 0.9 66,546,372 66,357,418 0.3
Loans 52,561,828 49,814,168 5.5 51,709,921 49,125,320 5.3
Deposits 53,138,726 51,375,982 3.4 52,571,049 52,201,932 0.7
Total shareholders' equity 6,329,409 6,667,774 (5.1) 6,349,101 6,756,939 (6.0)
Ratios:
Return on average assets 1.66 % 0.15 % 1.69 % 1.10 %
Return on average equity 19.42 1.69 19.64 12.02
Average total shareholders' equity
to average total assets 8.53 9.04 8.63 9.15
Risk-based capital ratios:
Tier 1 7.51 8.60 7.51 8.60
Total 10.40 10.70 10.40 10.70
Leverage - average assets (a) 7.20 7.43 7.20 7.43
Net interest margin 4.09 4.04 4.13 4.07
Noninterest expense to net revenue 50.12 82.11 48.89 61.95
Noninterest income as a percent
of net revenue 35.22 34.05 35.00 33.99
Net income to net revenue 29.02 2.77 29.49 19.83
Excluding Merger Related Charges: (b)
Adjusted net income $ 377,294 $ 320,313 17.8 % $ 1,081,036 $ 928,358 16.4 %
Noninterest expense 431,612 478,089 (9.7) 1,326,726 1,489,979 (11.0)
Return on average assets 2.02 % 1.72 % 1.96 % 1.68 %
Return on average equity 23.71 19.06 22.74 18.37
Noninterest expense to net revenue 40.54 46.70 41.92 48.64
(a) - defined by regulatory authorities as tier 1 equity to the current quarter's adjusted
average assets
(b) - Items reported in this section have been adjusted to exclude merger related charges.
The presentation of adjusted net income and related ratios is intended to enhance
the understanding and assessment of results of operations by highlighting net income
attributable to normal, recurring operations of the business. Adjusted net income
should not be viewed as a substitute for net income determined in accordance with
GAAP. Furthermore, Firstar's definition of "merger related charges and other
nonrecurring items" may differ from that used by other companies.
-3-
FIRSTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(dollars in thousands)
September 30, December 31,
2000 1999
------------- -------------
ASSETS:
Cash and due from banks $ 3,139,746 $ 3,288,291
Money market investments 262,057 896,910
Investment securities:
Available-for-sale 12,426,350 12,919,413
Held-to-maturity (market value of $247,682
at September 30, 2000, $200,310 at December
31, 1999) 234,313 194,454
------------ ------------
Total securities 12,660,663 13,113,867
Loans held for sale 1,119,992 624,680
Loans:
Commercial loans 18,929,260 17,346,596
Real estate loans 18,212,545 19,815,017
Retail loans 16,222,405 13,464,395
------------ ------------
Total loans 53,364,210 50,626,008
Allowance for loan losses 717,615 714,898
------------ ------------
Net loans 52,646,595 49,911,110
Premises and equipment 987,262 1,002,887
Acceptances - customers' liability 18,779 15,149
Other assets 3,671,275 3,934,939
------------ ------------
Total assets 74,506,369 $ 72,787,833
------------ ------------
------------ ------------
LIABILITIES:
Deposits:
Noninterest-bearing deposits 9,440,490 $ 10,299,994
Interest-bearing deposits 43,842,705 41,586,417
------------ ------------
Total deposits 53,283,195 51,886,411
Short-term borrowings 9,364,458 8,302,019
Long-term debt 4,143,765 5,038,383
Acceptances outstanding 18,779 15,149
Other liabilities 1,504,281 1,237,235
------------ ------------
Total liabilities 68,314,478 66,479,197
SHAREHOLDERS' EQUITY:
Common stock:
Shares authorized - 2,000,000,000 at September 30,
2000 and December 31, 1999
Shares issued - 984,397,677 at September 30,
2000 and 984,579,636 at December 31, 1999 9,844 9,846
Surplus 1,865,705 1,926,239
Retained earnings 5,126,242 4,660,463
Treasury stock, at cost - 34,485,594 shares at
September 30, 2000 and 9,033,176 shares at
December 31, 1999 (764,243) (192,894)
Accumulated other comprehensive income/(loss) (45,657) (95,018)
------------ ------------
Total shareholders' equity 6,191,891 6,308,636
------------ ------------
Total liabilities and shareholders' equity 74,506,369 $ 72,787,833
------------ ------------
------------ ------------
The accompanying notes are an integral part of these statements.
-4-
FIRSTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(dollars in thousands, except per share data)
Third Quarter Nine Months Ended September 30,
----------------------------- -----------------------------
2000 1999 2000 1999
-------------- ------------- ------------- --------------
INTEREST INCOME:
Interest and fees on loans $ 1,148,149 $ 1,004,394 $ 3,300,824 $ 2,944,213
Interest and fees on loans held for sale 31,121 25,168 77,153 78,289
Interest on investment securities:
Taxable 200,329 207,841 604,235 635,372
Non-taxable 20,912 24,084 65,927 70,938
Interest on trading securities - 1,021 - 6,412
Interest on money market investments 5,035 5,177 18,232 18,413
----------- ----------- ----------- -----------
Total interest income 1,405,546 1,267,685 4,066,371 3,753,637
----------- ----------- ----------- -----------
INTEREST EXPENSE:
Interest on deposits 511,918 415,495 1,425,941 1,255,939
Interest on short-term borrowings 141,240 106,455 393,036 268,852
Interest on long-term debt 73,735 84,254 224,502 248,529
----------- ----------- ----------- -----------
Total interest expense 726,893 606,204 2,043,479 1,773,320
----------- ----------- ----------- -----------
Net interest income 678,653 661,481 2,022,892 1,980,317
Provision for loan losses 58,200 55,325 154,943 143,552
----------- ----------- ----------- -----------
Net interest income after
provision for loan losses 620,453 606,156 1,867,949 1,836,765
----------- ----------- ----------- -----------
NONINTEREST INCOME:
Trust income 111,151 105,705 338,363 314,005
Mortgage banking income 38,587 37,490 116,735 118,963
Retail deposit income 56,409 49,108 159,479 143,012
Cash management income 38,200 36,574 110,861 103,808
Credit card income 35,656 28,793 99,901 81,248
ATM income 11,147 10,147 34,319 28,080
Investment securities gains/(losses)-net 93 (1,491) 107 14,753
All other income 83,722 82,295 248,023 237,274
----------- ----------- ----------- -----------
Total noninterest income 374,965 348,621 1,107,788 1,041,143
----------- ----------- ----------- -----------
NONINTEREST EXPENSE:
Salaries 175,656 214,578 549,279 656,210
Pension and other employee benefits 18,347 32,742 71,474 113,572
Equipment expense 35,892 36,484 106,714 110,367
Occupancy expense - net 40,327 41,092 120,941 124,901
All other expense 161,390 153,193 478,318 484,929
Merger related charges 102,000 362,500 220,800 407,600
----------- ----------- ----------- -----------
Total noninterest expense 533,612 840,589 1,547,526 1,897,579
----------- ----------- ----------- -----------
INCOME BEFORE TAX 461,806 114,188 1,428,211 980,329
Income tax 152,812 85,828 494,675 373,056
----------- ----------- ----------- -----------
NET INCOME $ 308,994 $ 28,360 $ 933,536 $ 607,273
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
PER SHARE:
Basic earnings per common share $ 0.32 $ 0.03 $ 0.96 $ 0.61
Diluted earnings per common share 0.32 0.03 0.96 0.60
Common stock cash dividends declared 0.1625 0.10 0.4875 0.30
The accompanying notes are an integral part of these statements
-5-
FIRSTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(dollars in thousands)
(Unaudited)
Accumulated
Other
Common Retained Treasury Comprehensive Total
Stock Surplus Earnings Stock Income Equity
--------- ------------ ------------ ----------- ----------- ------------
Balance, January 1, 1999 $ 9,876 $ 2,170,024 $ 4,302,420 $ (19,659) $ 141,007 $ 6,603,668
Net income 607,273 607,273
Unrealized loss
on securities
available for sale (428,013) (428,013)
Reclassification
adjustment for gains
realized in net income 162,980 162,980
Income taxes 94,032 94,032
-----------
Comprehensive income 436,272
Cash dividends declared
on common stock (358,242) (358,242)
Issuance of common stock
and treasury shares 84 88,106 78,546 166,736
Purchase of treasury
stock (418,747) (418,747)
Retirement of treasury
stock (127) (343,866) (343,993) -
Shares reserved to meet
deferred compensation
obligations 1,749 (1,749) -
Amortization of stock
awards 6,186 6,186
-------- ----------- ----------- ---------- ---------- -----------
Balance, September 30, 1999 $ 9,833 $ 1,922,199 $ 4,551,451 $ (17,616) $ (29,994) $ 6,435,873
-------- ----------- ----------- ---------- ---------- -----------
-------- ----------- ----------- ---------- ---------- -----------
Balance, January 1, 2000 $ 9,846 $ 1,926,239 $ 4,660,463 $ (192,894) $ (95,018) $ 6,308,636
Net income 933,536 933,536
Unrealized gain
on securities
available for sale 76,067 76,067
Reclassification
adjustment for gains
realized in net income (107) (107)
Income taxes (26,599) (26,599)
-----------
Comprehensive income 982,897
Cash dividends declared
on common stock (467,757) (467,757)
Issuance of common stock
and treasury shares (2) (69,042) 185,423 116,379
Purchase of treasury
stock (749,987) (749,987)
Shares reserved to meet
deferred compensation
obligations 6,785 (6,785) -
Amortization of stock
awards 1,723 1,723
-------- ----------- ----------- ---------- ---------- -----------
Balance, September 30, 2000 $ 9,844 $ 1,865,705 $ 5,126,242 $ (764,243) $ (45,657) $ 6,191,891
-------- ----------- ----------- ---------- ---------- -----------
-------- ----------- ----------- ---------- ---------- -----------
The accompanying notes are an integral part of these statements
-6-
FIRSTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in thousands)
Nine Months Ended
September 30
2000 1999
------------ ------------
Cash Flows from Operating Activities:
Net Income $ 933,536 $ 607,273
Adjustments:
Depreciation and amortization 109,220 123,349
Intangible amortization 90,290 90,862
Provision for loan losses 154,943 143,552
Net decrease in trading securities 0 130,276
Provision for deferred taxes 187,932 147,998
(Gain) / loss on sale of premises and equipment - net 39,477 (1,692)
Net (gain) / loss on sale of assets (5,485) 159,576
Proceeds from sale of loans originated for sale 3,845,910 6,298,911
Mortgage loans originated for sale on the secondary market (3,950,952) (5,393,448)
Net change in other assets and liabilities 339,401 (259,323)
------------ ------------
Total adjustments 810,736 1,440,061
------------ ------------
Net cash provided by/(used in) operating activities 1,744,272 2,047,334
------------ ------------
Cash Flows from Investing Activities:
Proceeds from maturities of held-to-maturity securities 22,909 86,104
Proceeds from maturities of available-for-sale securities 1,060,767 3,420,352
Proceeds from sales of available-for-sale securities 9,071,577 5,701,116
Purchase of held-to-maturity securities (23,960) (19,978)
Purchase of available-for-sale securities (9,545,470) (6,648,423)
Net increase in loans (5,197,467) (2,608,322)
Proceeds from sales of loans 1,792,605 98,041
Proceeds from sales of premises and equipment 16,079 18,163
Purchases of premises and equipment (128,154) (132,766)
Purchases of corporate owned life insurance (80,000) (160,000)
Sale of banking offices, net of cash paid (78,211) (116,961)
------------ ------------
Net cash provided by/(used in) investing activities (3,089,325) (362,674)
------------ ------------
Cash Flows from Financing Activities:
Net increase/(decrease) in deposits 1,531,381 (3,475,610)
Net increase/(decrease) in short-term borrowings 1,062,439 833,652
Principal payments on long-term debt (1,194,618) (1,616,308)
Proceeds from issuance of long-term debt 298,626 1,757,761
Proceeds from issuance of common stock 86,011 152,191
Purchase of treasury stock (749,987) (418,747)
Dividends paid (472,197) (351,891)
------------ ------------
Net cash provided by/(used in) financing activities 561,655 (3,118,952)
------------ ------------
Net decrease in cash and cash equivalents (783,398) (1,434,292)
Cash and cash equivalents at beginning of period 4,185,201 4,605,484
------------ ------------
Cash and cash equivalents at end of period $ 3,401,803 $ 3,171,192
------------ ------------
------------ ------------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 2,133,181 $ 1,765,649
Income taxes 283,606 201,329
Transfer to foreclosed assets from loans $ 45,192 $ 56,684
Sales of Banking Offices
Assets sold $ 47,218 $ 4,503
Liabilities sold $ 135,438 120,810
The accompanying notes are an integral part of these statements
-7-
Notes to Consolidated Financial Statements (Unaudited)
- ------------------------------------------------------
Note 1. Basis of Presentation
- ------------------------------
These consolidated financial statements have been prepared by
Firstar Corporation ("Firstar") pursuant to the rules and regulations
of the Securities and Exchange Commission and, therefore, certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted. It is suggested that these financial
statements be read in conjunction with the financial statements and
notes thereto included in Firstar's annual report on Form 10-K for
the year ended December 31, 1999, filed with the Securities and
Exchange Commission.
These consolidated financial statements include the accounts
of Firstar and all of its subsidiaries and reflect all adjustments
which, in the opinion of management, are necessary for a fair
presentation of the results for the periods reported. All such
adjustments are of a normal recurring nature.
Note 2. Investment Securities
- ------------------------------
The following table summarizes unrealized gains and losses for
held-to-maturity and available-for-sale securities at September 30,
2000 and December 31, 1999. (dollars in thousands)
September 30, 2000 December 31, 1999
------------------------------------------ ------------------------------------------
Amortized Unrealized Market Amortized Unrealized Market
Cost Gains Losses Value Cost Gains Losses Value
---------- ------- ------- ----------- ----------- ------- ------- ----------
Held-to-Maturity
- ----------------
Mortgage-backed
securities $ 38,099 $ -- $ -- $ 38,099 $ 45,411 $ -- $ -- $ 45,411
Obligations of state and
political subdivisions 196,214 13,369 -- 209,583 149,043 5,856 -- 154,899
---------- ------- ------- ----------- ---------- ------- ------- -----------
Total held-to-
maturity securities $ 234,313 $ 13,369 $ -- $ 247,682 $ 194,454 $ 5,856 $ -- $ 200,310
---------- ------- ------- ----------- ---------- ------- ------- -----------
---------- ------- ------- ----------- ---------- ------- ------- -----------
September 30, 2000 December 31, 1999
------------------------------------------ ------------------------------------------
Amortized Unrealized Market Amortized Unrealized Market
Cost Gains Losses Value Cost Gains Losses Value
---------- ------- ------- ----------- ---------- ------- ------- -----------
Available-for-Sale
- ------------------
U.S. Treasuries and
agencies $ 1,022,936 $ 5,551 $ (6,736) $ 1,021,751 $ 1,787,717 $ 10,505 $ (12,210) $ 1,786,012
Mortgage-backed
securities 7,986,287 37,855 (98,408) 7,925,734 6,654,624 19,880 (119,652) 6,554,852
Obligations of state and
political subdivisions 1,432,037 13,074 (4,290) 1,440,821 1,598,685 14,860 (9,650) 1,603,895
Other debt securities 1,447,786 58 (17,486) 1,430,358 1,792,296 1 (50,061) 1,742,236
Money market mutual funds 154,220 -- -- 154,220 437,058 -- -- 437,058
Federal Reserve/FHLB
stock and other
equity securities 453,498 -- (32) 453,466 795,407 17 (64) 795,360
---------- ------- ------- ----------- ---------- ------- ------- -----------
Total available-for-
sale securities $12,496,764 $ 56,538 $(126,952) $12,426,350 $13,065,787 $ 45,263 $(191,637) $12,919,413
---------- ------- ------- ----------- ---------- ------- ------- -----------
---------- ------- ------- ----------- ---------- ------- ------- -----------
-8-
Note 3. Loans
- -------------
The following table summarizes the composition of the loan portfolio,
net of unearned interest, as of September 30, 2000 and December 31, 1999.
(dollars in thousands)
September 30, December 31,
2000 1999
------------- ------------
Commercial loans:
Corporate loans $14,943,923 $13,848,385
Asset-based lending 1,551,261 1,326,741
Commercial leasing 2,125,723 1,816,250
Industrial revenue bonds 308,353 355,220
----------- -----------
Total commercial loans 18,929,260 17,346,596
----------- -----------
Real estate loans:
Residential mortgage 6,437,729 8,779,037
Commercial mortgage 9,143,772 8,851,504
Construction and land development 2,631,044 2,184,476
----------- -----------
Total real estate loans 18,212,545 19,815,017
----------- -----------
Retail loans:
Installment 11,039,438 10,053,901
Credit cards 1,539,163 1,403,655
Retail leasing 3,643,804 2,006,839
----------- -----------
Total retail loans 16,222,405 13,464,395
----------- -----------
Total loans $53,364,210 $50,626,008
----------- -----------
----------- -----------
Note 4. Impaired Loans
- -----------------------
The following table shows Firstar's recorded investment in impaired
loans and the related valuation allowance calculated under SFAS No. 114
(as amended by SFAS No. 118) at September 30, 2000 and December 31, 1999.
(dollars in thousands)
September 30, 2000 December 31, 1999
--------------------------- ------------------------
Recorded Valuation Recorded Valuation
Investment Allowance Investment Allowance
---------- ----------- ---------- ----------
Impaired Loans:
Valuation allowance required $ 35,581 $ 18,899 $ 21,696 $ 8,218
No valuation allowance required 200,681 -- 131,514 --
---------- ----------- ---------- ----------
Total impaired loans $ 236,262 $ 18,899 $ 153,210 $ 8,218
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
The average recorded investment in impaired loans for the nine months
ended September 30, 2000 was $189.4 million, compared to $152.5 million for
the same period in 1999. As a general policy, Firstar applies both principal
and interest payments received on impaired loans as a reduction of principal.
-9-
Note 5. Allowance for Loan Losses
- ---------------------------------
A summary of the activity in the allowance for loan losses is shown
in the following table. (dollars in thousands)
Nine Months Ended
September 30,
--------------------
2000 1999
-------- --------
Balance - beginning of period $714,898 $704,846
Loans charged-off (207,782) (189,373)
Recoveries on loans previously charged-off 55,556 55,522
-------- --------
Net charge-offs (152,226) (133,851)
Provision charged to earnings 154,943 143,552
-------- --------
Balance - end of period $717,615 $714,547
-------- --------
-------- --------
Note 6. Deposits
- -----------------
The following table summarizes the composition of deposits of Firstar
as of September 30, 2000 and December 31, 1999. (dollars in thousands)
September 30, December 31,
2000 1999
------------- ------------
Noninterest-bearing deposits $ 9,440,490 $10,299,994
Interest-bearing deposits:
Savings 2,912,593 3,349,308
NOW accounts 6,280,025 6,980,734
Money market deposit accounts 9,843,302 10,263,894
Time deposits $100,000 and over - domestic 5,196,633 3,753,526
Foreign deposits $100,000 and over 3,323,759 773,926
All other deposits 16,286,393 16,465,029
----------- -----------
Total interest-bearing deposits 43,842,705 41,586,417
----------- -----------
Total deposits $53,283,195 $51,886,411
----------- -----------
----------- -----------
-10-
Note 7. Merger Related Charges
- ------------------------------
Firstar recorded merger and integration charges of $220.8 million in the first nine months of 2000
and $407.6 million in the first nine months of 1999. The components of the charges are shown below.
(dollars in thousands)
Nine Months Ended September 30, 2000
---------------------------------------------
Firstar/ Firstar/
Star Mercantile
Merger Merger Total
----------- ----------- -----------
Severance and related costs $ 12,937 $ 32,761 $ 45,698
Fixed asset write-downs 31 36,141 36,172
System conversions 17,419 94,688 112,107
Gain on sale of branches - (11,507) (11,507)
Charitable contributions - - -
Other merger-related charges 11,280 27,050 38,330
---------- ---------- ----------
Subtotal 41,667 179,133 220,800
Losses on securities - - -
Reversal of accrual - - -
---------- ---------- ----------
Total $ 41,667 $ 179,133 $ 220,800
---------- ---------- ----------
---------- ---------- ----------
Nine Months Ended September 30, 1999
---------------------------------------------
Firstar/ Firstar/
Star Mercantile
Merger Merger Total
----------- ----------- -----------
Severance and related costs $ 9,878 $ 129,789 $ 139,667
Fixed asset write-downs 2,233 - 2,233
System conversions 1,297 - 1,297
Gain on sale of branches 59,974 12,641 72,615
Charitable contributions - 35,000 35,000
Other merger-related charges 1,718 31,337 33,055
---------- ---------- ----------
Subtotal 75,100 208,767 283,867
Losses on securities - 177,733 177,733
Reversal of accrual - (54,000) (54,000)
---------- ---------- ----------
Total $ 75,100 $ 332,500 $ 407,600
---------- ---------- ----------
---------- ---------- ----------
The following table presents a summary of activity with respect to the merger related accrual:
Firstar/ Firstar/
Mercantile Star
Merger Merger Other Total
----------- ----------- ----------- -----------
Balance at December 31, 1999 $ 21,154 $ - $ 10,173 $ 31,327
Merger-related charge 179,133 41,667 - 220,800
Cash payments (145,249) (41,667) (1,336) (188,252)
Noncash write-downs (55,038) - (1,099) (56,137)
---------- ---------- ---------- ----------
Balance at September 30, 2000 $ - $ - $ 7,738 $ 7,738
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
-11-
Note 8. Mortgage Servicing Assets
- ----------------------------------
Mortgage servicing rights are capitalized based upon their fair value at
the time a loan is sold. Impairment testing is performed on a quarterly basis
in accordance with SFAS No. 125.
The fair value of capitalized mortgage servicing rights was $246.7
million on September 30, 2000 and $269.1 million on December 31, 1999. Firstar
serviced $18.1 billion of mortgage loans for other investors as of September
30, 2000 compared with $19.5 billion as of December 31, 1999.
Changes in capitalized mortgage servicing rights at September 30, 2000
and December 31, 1999 are summarized in the following table.
(dollars in thousands)
September 30, December 31,
2000 1999
------------- ------------
Mortgage Servicing Assets:
Balance at beginning of year $ 212,297 $ 232,105
Amount added in acquisitions 935 811
Amount capitalized 94,382 169,678
Amortization (26,028) (46,808)
Sales (66,624) (143,489)
Impairment (560) --
--------- ---------
Balance at end of period $ 214,402 $ 212,297
--------- ---------
--------- ---------
Note 9. Earnings Per Share
- ---------------------------
The following table shows the amounts used in the computation of basic
and diluted earnings per common share, in accordance with SFAS No. 128, for
the three and nine months ended September 30, 2000 and 1999.
(dollars in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
2000 1999 2000 1999
--------- --------- --------- ---------
Net income $ 308,994 $ 28,360 $ 933,536 $ 607,273
Weighted average shares (000s):
Common shares 958,886 985,779 967,436 989,799
Options and stock plans 8,692 13,519 9,710 16,103
--------- --------- --------- ---------
Weighted average diluted common shares 967,578 999,298 977,146 1,005,902
--------- --------- --------- ---------
--------- --------- --------- ---------
Basic earnings per common share $ 0.32 $ 0.03 $ 0.96 $ 0.61
------- ------- ------- -------
------- ------- ------- -------
Diluted earnings per common share $ 0.32 $ 0.03 $ 0.96 $ 0.60
------- ------- ------- -------
------- ------- ------- -------
-12-
Note 10. Mergers
- ----------------
On July 31, 2000, Firstar announced that its primary subsidiary,
Firstar Bank, N.A., signed a definitive agreement to purchase all 41 of
First Union National Bank's branches in Tennessee. The 41 First Union
branches equal approximately $1.7 billion in deposits and $474 million
in loans. Following the completion of this acquisition, Firstar will
have 61 full-service locations throughout Tennessee and be the seventh
largest bank in Tennessee. This transaction has received regulatory
approval. Firstar expects the transaction to be completed in the
fourth quarter of 2000.
On October 4, 2000, Firstar announced that it had signed a
definitive agreement to merge with U.S. Bancorp through an exchange of
shares. Under terms of the agreement, Firstar shareholders will receive
1 share, and U.S. Bancorp shareholders will receive 1.265 shares of
common stock of the combined company for each share of Firstar or U.S.
Bancorp common stock, respectively, owned as of the consummation of the
merger. The combined company will have assets of approximately $161
billion. The merger is expected to be completed in the first quarter
of 2001, subject to shareholder and regulatory approvals, and
will be accounted for as a pooling of interests.
A summary of unaudited pro forma financial information giving effect to
the merger is shown below. The unaudited financial information is not
indicative of the results that would have been realized had the entities
been a single company during these periods, nor is it indicative of the
actual results the combined company will report in the future.
Nine Months
Ended Years Ended December 31,
--------------------------------
Sept. 30, 2000 1999 1998 1997
-------------- --------------------------------
($ in millions, except per share data)
Total average assets $157,247 $150,170 $142,887 $129,493
Net interest revenue 4,596 5,904 5,596 5,416
Other operating revenue 3,532 4,161 3,622 2,715
Other operating expense 4,240 5,573 5,374 4,917
Net income 2,107 2,382 2,133 1,599
Diluted earnings per common share 1.10 1.23 1.10 0.85
Note 11. Business Segments
- --------------------------
Firstar's operations include three primary business segments: Consumer
Banking, Wholesale Banking, and Trust. Selected financial information
by business segment is summarized below. This information is derived
from the internal reporting systems used by management to assess
segment performance.
Consumer banking provides deposit, installment and credit card lending,
mortgage banking, leasing, investment, payment systems, personal financial
management and other financial services to individuals and small businesses.
These services are provided through retail branch offices, ATMs, voice banking,
PC and video banking options.
Wholesale banking provides traditional business lending, asset-based
lending, commercial real estate loans, equipment financing, cash management
services and international trade services to businesses and governmental
entities.
-13-
For the quarter ended September 30, 2000
-------------------------------------------------------------------------------------------
Merger-
Consumer Wholesale Related
Banking Banking Trust Treasury Total Expenses Consolidated
- ----------------------------------------------------------------------------------------------------------------------
Net interest income* $ 393,049 $ 145,396 $ 18,432 $ 132,845 $ 689,722 $ $ 689,722
Provision for loan losses 49,938 11,448 1,796 (4,982) 58,200 58,200
Noninterest income 191,717 59,732 112,570 10,946 374,965 374,965
Noninterest expense 308,669 60,135 53,105 9,703 431,612 102,000 533,612
Income taxes* 77,729 45,898 26,155 47,799 197,581 (33,700) 163,881
- ----------------------------------------------------------------------------------------------------------------------
Net income $ 148,430 $ 87,647 $ 49,946 $ 91,271 $ 377,294 $ (68,300) $ 308,994
- ----------------------------------------------------------------------------------------------------------------------
(dollars in millions)
Average balances:
Loans $ 25,899 $ 20,192 $ 43 $ 6,428 $ 52,562
Total assets 30,010 21,623 247 22,328 74,208
Deposits 42,087 5,117 656 5,279 53,139
- ----------------------------------------------------------------------------------------------------------------------
*Taxable equivalent basis
For the quarter ended September 30, 1999
-------------------------------------------------------------------------------------------
Merger-
Consumer Wholesale Related
Banking Banking Trust Treasury Total Expenses Consolidated
- ----------------------------------------------------------------------------------------------------------------------
Net interest income* $ 374,445 $ 148,611 $ 14,331 $ 137,740 $ 675,127 $ $ 675,127
Provision for loan losses 42,953 9,939 115 (5,182) 47,825 7,500 55,325
Noninterest income 182,787 48,756 110,115 6,963 348,621 348,621
Noninterest expense 351,284 61,913 56,970 7,922 478,089 362,500 840,589
Income taxes* 58,126 44,758 24,020 50,621 177,525 (78,051) 99,474
- ----------------------------------------------------------------------------------------------------------------------
Net income $ 104,869 $ 80,757 $ 43,341 $ 91,342 $ 320,309 $ (291,949) $ 28,360
- ----------------------------------------------------------------------------------------------------------------------
(dollars in millions)
Average balances:
Loans $ 25,650 $ 17,226 $ 78 $ 6,860 $ 49,814
Total assets 30,104 18,971 448 24,222 73,745
Deposits 43,521 5,590 667 1,598 51,376
- ----------------------------------------------------------------------------------------------------------------------
*Taxable equivalent basis
For the nine months ended September 30, 2000
-------------------------------------------------------------------------------------------
Merger-
Consumer Wholesale Related
Banking Banking Trust Treasury Total Expenses Consolidated
- ----------------------------------------------------------------------------------------------------------------------
Net interest income* $ 1,179,535 $ 441,476 $ 50,003 $ 386,435 $ 2,057,449 $ $ 2,057,449
Provision for loan losses 136,415 30,765 (197) (12,040) 154,943 154,943
Noninterest income 558,604 165,130 343,583 40,471 1,107,788 1,107,788
Noninterest expense 949,920 187,268 162,531 27,007 1,326,726 220,800 1,547,526
Income taxes* 233,274 139,067 82,763 147,428 602,532 (73,300) 529,232
- ----------------------------------------------------------------------------------------------------------------------
Net income $ 418,530 $ 249,506 $ 148,489 $ 264,511 $ 1,081,036 $ (147,500) $ 933,536
- ----------------------------------------------------------------------------------------------------------------------
(dollars in millions)
Average balances:
Loans $ 25,888 $ 19,478 $ 39 $ 6,305 $ 51,710
Total assets 29,575 20,768 335 22,909 73,587
Deposits 42,868 5,340 639 3,724 52,571
- ----------------------------------------------------------------------------------------------------------------------
*Taxable equivalent basis
For the nine months ended September 30, 1999
-------------------------------------------------------------------------------------------
Merger-
Consumer Wholesale Related
Banking Banking Trust Treasury Total Expenses Consolidated
- ----------------------------------------------------------------------------------------------------------------------
Net interest income* $ 1,088,021 $ 447,877 $ 53,697 $ 432,354 $ 2,021,949 $ -- $ 2,021,949
Provision for loan losses 126,393 31,147 17 (21,505) 136,052 7,500 143,552
Noninterest income 540,801 141,953 324,767 33,622 1,041,143 -- 1,041,143
Noninterest expense 1,089,734 200,362 175,506 24,377 1,489,979 407,600 1,897,579
Income taxes* 146,098 126,846 71,841 163,918 508,703 (94,015) 414,688
- ----------------------------------------------------------------------------------------------------------------------
Net income $ 266,597 $ 231,475 $ 131,100 $ 299,186 $ 928,358 $ (321,085) $ 607,273
- ----------------------------------------------------------------------------------------------------------------------
(dollars in millions)
Average balances:
Loans $ 25,341 $ 16,705 $ 75 $ 7,004 $ 49,125
Total assets 29,822 18,557 320 25,123 73,822
Deposits 44,219 5,886 581 1,516 52,202
- ----------------------------------------------------------------------------------------------------------------------
*Taxable equivalent basis
-14-
Trust provides asset management services, comprehensive employee benefit
plan services, mutual fund custody and corporate bond and stock transfer
services.
Treasury includes the net effect of transfer pricing of interest income
and expense along with the operating results of the investment securities and
residential loan portfolios.
All revenue and expenses of administrative and support functions have
been allocated to the primary business segments. Certain asset and liability
balances have been reclassified between business segments during the second
quarter of 2000. Additionally, the allocation methods used for administrative
and support functions were altered in the second quarter. Prior period segment
data has been restated to be comparable to the current period presentation.
Note 12. Recent Accounting Pronouncements
- -----------------------------------------
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities." This statement
requires the recognition of all derivatives as either assets or liabilities on
the balance sheet and the measurement of those instruments at fair value. The
statement requires that changes in the derivatives' fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. In
June 1999 SFAS 133 was amended by SFAS No. 137, "Accounting for Derivative
Investments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133" which deferred the effective date to January 1, 2001.
Firstar enters into commitments to sell groups of residential mortgage loans
that it originates or purchases as part of its mortgage banking business.
These commitments will be considered derivatives and carried at fair value.
These derivatives are used to hedge both loans held for sale and unfunded loan
commitments. SFAS No. 133 and its related interpretations do not currently
address the hedging opportunities for this activity. Until further
interpretations are issued by the FASB, Firstar cannot determine the impact,
if any, that this standard could have on its mortgage banking activities.
Firstar also uses interest rate swaps to hedge the fair value of certain
assets and liabilities. The changes in the fair values of these derivatives
will be offset in the income statement by changes in the hedged items' fair
value. We have evaluated the impact of the adoption of SFAS 133 and have
determined, based on current market information, that it will not have a
material impact on the company.
In September 2000 the Financial Accounting Standards Board SFAS No. 140
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishment's of Liabilities." The statement replaces SFAS No. 125 and
revises the standards for accounting for securitizations and other transfers
of financial assets and requires certain disclosures, but it also carries over
most of SFAS No. 125's provisions without modification. It is effective for
transactions occurring after March 31, 2001. Disclosures about
securitizations are effective on December 31, 2000. The adoption of this
statement will not have any material impact on Firstar's financial position
or results of operations.
-15-
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Overview
Net income of Firstar Corporation ("Firstar") for the quarter
ended September 30, 2000 was $309.0 million compared with $28.4 million
in the third quarter of 1999. Diluted earnings per common share was $.32
for the third quarter of 2000, compared to $.03 for the same period of the
prior year. Net income for the first nine months of 2000 was $933.5 million
compared with $607.3 million in the same period of 1999. Diluted earnings
per share for the first nine months of 2000 was $.96 compared to $.60 in
the same period of 1999. Return on average assets was 1.66% in the third
quarter of 2000 compared to 0.15% in the same period of last year and 1.69%
for the first nine months of 2000 compared to 1.10% for the same period of
last year. Return on average equity was 19.42% in the third quarter of
2000 compared to 1.69% in the same period of last year and 19.64% for the
first nine months of 2000 compared to 12.02% for the same period of last
year. The improvement in net income for both the quarter and first nine
months of 2000 resulted from higher net interest revenue and noninterest
revenue together with significantly lower operating costs.
Total assets at September 30, 2000 were $74.5 billion compared to $72.8
billion at December 31, 1999, while total earning assets were $67.4 billion
at September 30, 2000 compared to $65.3 billion at last year-end. Continued
restructuring of the balance sheet occurred during the first nine months of
2000 with the sale of residential mortgage loans from the loan portfolio and
changes in the mix of investment securities. Loan growth was strong in both
the commercial and retail portfolios during the period.
Total loans were $53.4 billion at September 30, 2000 compared to $50.6
billion at year-end 1999. Residential real estate loans have declined
reflecting management's decision to sell $1.7 billion of the residential loan
portfolio. Excluding residential real estate loans, total loans increased $5.1
billion, or 12.1%, since December 31, 1999. Specifically, retail loans, which
include such areas as installment lending, auto leasing and credit card
services have increased $2.8 billion, or 20.5%, led by a $1.6 billion, or
81.6%, increase in retail leases. Specialized lending and corporate loans
increased $1.6 billion or 9.1% since December 31, 1999. Commercial and
construction real estate loans increased $739 million or 6.7% since December
31, 1999. In the third quarter of 1998, Firstar established a loan conduit,
Stellar Funding Group, Inc. At September 30, 2000, $3.0 billion of short term,
high quality, low yielding commercial assets had been funded in the conduit
compared to $1.7 billion at December 31, 1999.
-16-
Total investment securities were $12.7 billion at September 30, 2000
compared to $13.1 billion at year-end 1999. At September 30, 2000 the net
unrealized loss on available for sale securities was $70.4 million and the
related after tax decrease to shareholders' equity was $45.7 million. Loans
held for sale were $1.1 billion at September 30, 2000 compared to $625 million
at December 31, 1999. This increase resulted from increased loan originations
during the first nine months of 2000.
Total deposits were $53.3 billion at September 30, 2000, an increase
of $1.4 billion, or 2.7%, from year-end 1999. Non-interest bearing demand
deposit balances declined by $860 million from year-end when deposit levels
typically peak. Interest-bearing deposits increased by $2.3 billion from
December 31, 1999 due to a $2.5 billion increase in large denomination
institutional CDs, brokered CDs and Eurodollar time deposits. Merger-related
branch divestitures reduced deposits by $135 million during the first nine
months of 2000. The shift in consumers' deposit preferences continues with
reductions in savings, MMDA and NOW accounts, collectively down by $1.6
billion. Retail deposit customers are seeking higher yields in deposit
accounts and alternative investment vehicles. Short-term borrowed funds of
$9.4 billion at September 30, 2000 were up $1.1 billion since year-end 1999
as additional funding was necessary to replace the reduced levels of core
deposits and to fund both earning asset growth and the stock buyback program.
As a result of acquisition activity during 1997, 1998 and 1999,
Firstar has incurred significant merger related charges. Management believes
that due to the nonrecurring nature of these costs the presentation of
financial measurements excluding merger related charges enhances the
understanding and assessment of the trends and ongoing operations of the
business. The presentation of these adjusted financial measurements is made
to facilitate the analysis of results of operations excluding merger related
charges. Further explanations of these charges are included under the
noninterest expense section of this discussion along with Note 7 of the
Consolidated Financial Statements.
Notwithstanding management's belief with respect to their relevance
and usefulness, these non-GAAP presentations should not be viewed as a
substitute for financial measurements determined in accordance with GAAP.
Furthermore, Firstar's definition of "merger related charges" may differ
from that used by other companies.
Net income before merger related charges ("adjusted net income") was
$377.3 million in the third quarter of 2000, a 17.8% increase over the
$320.3 million in the same period of last year. Adjusted net income for
the first nine months of 2000 was $1.081 billion, a 16.4% increase over the
$928.4 million in the same period of last year. Excluding merger related
charges, diluted earnings per share was $.39 in the third quarter of 2000,
compared to $.32 in the same quarter of last year, an increase of 21.9%.
Excluding merger related charges, diluted earnings per share for the first
nine months of 2000 was $1.11, a 20.7% increase over $.92 for the same
period last year. Return on average assets before merger related charges
was 2.02% in the third quarter of 2000 compared to 1.72% in the same period
of last year and 1.96% for the first nine months of 2000 compared to 1.68%
for the same period of last year. Return on average common equity before
merger related charges was 23.71% in the third quarter of 2000 compared to
19.06% in the same period of last year and 22.74% for the first nine months
of 2000 compared to 18.37% for the same period of last year.
-17-
Results of Operations
Net interest income on a taxable equivalent basis, was $689.7 million
in the third quarter of 2000, an increase of $14.6 million, or 2.2%, as
compared to the third quarter of 1999. Without the impact of the stock
buyback program, net interest income would have increased $26.2 million,
or 3.9%, over the third quarter of 1999. The increase in net interest
income was due to a higher net interest margin and increased average earning
assets. Average earning assets for the third quarter of 2000 were $67.2
billion, an increase of $598 million from the same period of 1999.
Net interest income on a taxable equivalent basis, was $2.057 billion
in the first nine months of 2000, an increase of $35.5 million, or 1.8%, as
compared to the same period of 1999. Without the impact of the stock buyback
program, net interest income would have increased $58.8 million, or 2.9%,
over the first nine months of 1999. The increase in net interest income was
due to a higher net interest margin and an improved mix of earning assets.
Average earning assets for the first nine months of 2000 were $66.5 billion,
up slightly from $66.4 billion in the same period of 1999.
Year-to-date average retail loans increased by $2.9 billion or 24.1%,
which included a 74.5% increase in leases; a 17.5% increase in home equity
loans; a 16.1% increase in installment lending and a 13.7% increase in credit
card loans. Year-to-date average commercial loans rose by $2.1 billion, or
12.8%. Year-to-date average total real estate loans declined by $2.3 billion
or 11.2%. Commercial mortgage and construction loans increased by $679
million or 6.3%. This growth was offset by a $3.0 billion decline in average
residential mortgage loans partially due to the sale of $1.7 billion of
portfolio mortgages in the first nine months of 2000 along with scheduled
maturities and prepayments.
Year-to-date average investment securities were reduced by $2.0
billion, or 13.2%, due to merger-related sales and restructuring of the
investment portfolio. The change in mix of assets from lower yielding
investment securities and residential mortgages to higher yielding loans
has largely contributed to the increase in net interest income.
This positive factor was partially offset by the increased use of
higher cost funding sources. Year-to-date average core (DDA, NOW, MMDA,
savings and CDs less than $100,000) deposits declined by $1.9 billion, or
3.9%, from the first nine months of 1999. Increased reliance on more
expensive funding sources including large denomination institutional CDs,
brokered CDs, Eurodollar time deposits and short-term borrowed funds was
required.
-18-
FIRSTAR CORPORATION AND SUBSIDIARIES
TABLE 1 AVERAGE BALANCE SHEETS AND AVERAGE RATES
(dollars in thousands)
Third Quarter, 2000 Third Quarter, 1999
------------------------------------ -------------------------------------
Daily Average Daily Average
Average Interest Rate Average Interest Rate
------------ ------------ ------- ------------ ------------ --------
ASSETS:
Commercial loans $ 18,778,026 $ 414,154 8.78% $ 16,686,323 $ 326,215 7.76%
Real estate loans 18,079,472 374,157 8.25 20,695,234 405,517 7.80
Retail loans 15,704,330 362,021 9.17 12,432,611 275,432 8.79
------------ ------------ ------------ -----------
Total loans 52,561,828 1,150,332 8.71 49,814,168 1,007,164 8.04
Loans held for sale 1,553,865 31,121 8.01 1,389,305 25,168 7.25
Investment securities 12,835,483 230,127 7.17 14,912,638 242,707 6.51
Money market investments 280,232 5,035 7.15 517,407 6,292 4.82
------------ ------------ ------------ -----------
Total interest-
earning assets 67,231,408 1,416,615 8.40% 66,633,518 1,281,331 7.65%
Cash and due from banks 3,157,819 3,212,447
Allowance for loan losses (724,025) (711,088)
Other assets 4,542,362 4,609,764
------------ ------------
Total assets $ 74,207,564 $ 73,744,641
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Savings and NOW $ 9,485,675 38,682 1.62% $ 10,434,695 46,987 1.79%
Money market deposit accounts 9,842,183 111,592 4.51 10,435,905 104,337 3.97
Time deposits 24,346,923 361,644 5.91 20,809,494 264,171 5.04
Short-term borrowings 9,190,183 141,240 6.11 8,842,015 106,455 4.78
Long-term debt 4,322,956 73,735 6.81 5,779,789 84,254 5.80
------------ ------------ ------------ -----------
Total interest-bearing
liabilities 57,187,920 726,893 5.06% 56,301,898 606,204 4.27%
Noninterest-bearing deposits 9,463,945 9,695,888
Other liabilities 1,226,290 1,079,081
Shareholders' equity 6,329,409 6,667,774
------------ ------------
Total liabilities and
shareholders' equity $ 74,207,564 $ 73,744,641
------------ ------------
------------ ------------
Net interest revenue/margin $ 689,722 4.09% $ 675,127 4.04%
----------- -----------
----------- -----------
Interest rate spread 3.34 3.38
Note: Interest and average rate are presented on a fully-taxable equivalent basis. Taxable equivalent amounts
are calculated utilizing a marginal federal income tax rate of 35 percent. The yield on available for sale
securities is based upon historical cost balances. The total of nonaccruing loans is included in average
amounts outstanding.
-19-
FIRSTAR CORPORATION AND SUBSIDIARIES
TABLE 2 AVERAGE BALANCE SHEETS AND AVERAGE RATES
(Dollars in thousands)
Year through September 30, 2000 Year through September 30, 1999
------------------------------------- -------------------------------------
Daily Average Daily Average
Average Interest Rate Average Interest Rate
------------ ------------ ------- ------------ ------------ --------
ASSETS:
Commercial loans $ 18,318,177 $ 1,175,385 8.57% $ 16,238,669 $ 932,583 7.68%
Real estate loans 18,677,622 1,133,394 8.10 21,025,522 1,230,195 7.81
Retail loans 14,714,122 998,804 9.07 11,861,129 790,339 8.91
------------ ----------- ------------ -----------
Total loans 51,709,921 3,307,583 8.54 49,125,320 2,953,117 8.03
Loans held for sale 1,314,462 77,153 7.83 1,449,800 78,289 7.20
Investment securities 13,153,622 697,961 7.07 15,145,450 739,148 6.51
Money market investments 368,367 18,231 6.61 636,848 24,715 5.19
------------ ----------- ------------ -----------
Total interest-
earning assets 66,546,372 4,100,928 8.23% 66,357,418 3,795,269 7.64%
Cash and due from banks 3,197,793 3,336,294
Allowance for loan losses (717,429) (709,473)
Other assets 4,560,167 4,838,229
------------ ------------
Total assets $ 73,586,903 $ 73,822,468
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Savings and NOW $ 9,852,792 122,763 1.66% $ 10,692,295 145,974 1.83%
Money market deposit accounts 10,011,434 328,734 4.39 10,365,937 303,674 3.92
Time deposits 23,083,109 974,444 5.64 21,172,143 806,291 5.09
Short-term borrowings 8,940,422 393,036 5.87 7,806,144 268,852 4.60
Long-term debt 4,548,231 224,502 6.59 5,875,028 248,529 5.65
------------ ----------- ------------ -----------
Total interest-bearing
liabilities 56,435,988 2,043,479 4.84% 55,911,547 1,773,320 4.24%
Noninterest-bearing deposits 9,623,714 9,971,557
Other liabilities 1,178,100 1,182,425
Shareholders' equity 6,349,101 6,756,939
------------ ------------
Total liabilities and
shareholders' equity $ 73,586,903 $ 73,822,468
------------ ------------
------------ ------------
Net interest revenue/margin $ 2,057,449 4.13% $ 2,021,949 4.07%
----------- -----------
----------- -----------
Interest rate spread 3.39 3.40
Note: Interest and average rate are presented on a fully-taxable equivalent basis. Taxable equivalent amounts
are calculated utilizing a marginal federal income tax rate of 35 percent. The yield on available for sale
securities is based upon historical cost balances. The total of nonaccruing loans is included in average
amounts outstanding.
-20-
The net interest margin increased by five basis points to 4.09%
in the third quarter of 2000 compared to the third quarter of 1999. For
the first nine months of 2000 the net interest margin increased by six
basis points to 4.13%. The year-to-date yield on total earning assets
rose by 59 basis points to 8.23%. Likewise, the yield on total loans
increased by 51 basis points reflecting market driven forces and the
change in mix of loans. The comparable rate paid on interest bearing
liabilities increased by 60 basis points reflecting higher market rates
and more reliance on higher cost purchased funds. Interest spread, the
difference between the rate earned on total earning assets and the rate
paid on interest bearing liabilities decreased by one basis point. The
contribution of interest free funds to the net interest margin increased
by seven basis points producing the net increase to the margin of six
basis points. Tables 1 and 2 provide detailed information on the average
balances, interest income/expense and rates earned or paid.
Firstar's major market risk exposure is to changing interest
rates. To minimize the volatility of net interest income and exposure
to economic loss, Firstar manages its exposure to adverse changes in
interest rates through asset and liability management activities within
guidelines established by its Asset/Liability Policy Committee ("ALPC").
The ALPC has the responsibility for approving and ensuring compliance
with asset/liability management policies of Firstar, including interest
rate risk exposure, off-balance-sheet activity and the investment
portfolio position.
One of the primary tools to measure interest rate risk and the
effect of interest rate changes on net interest income and net interest
margin is simulation analysis. Through these simulations, management
estimates the impact on net interest income of a 300 basis point upward
or downward gradual change of market interest rates over a one year time
period. Asset/liability policy guidelines indicate that a 300 basis point
up or down change in interest rates cannot result in more than a 7.5
percent change in net interest income, as compared to a base case, without
approval by the Board of Directors and a strategy in place to reduce
interest rate risk below the maximum level. At September 30, 2000, the
impact of these rate changes on net interest income was well within policy
guidelines. Firstar has not experienced any material changes to its market
risk position since December 31, 1999, from that disclosed in the 1999 Form
10-K Annual Report.
The loan loss provision charged to earnings in the third quarter
of 2000 was $58.2 million, compared to $55.3 million in the third quarter
of 1999.For the first nine months of 2000 the provision for loan losses
was $154.9 million compared to $143.6 million in the same period of last
year. Net loan charge-offs were $152.2 million in the first nine months
of 2000 compared to $133.9 million a year earlier. For the first nine
months of 2000, net charge-offs were .39% of average loans compared with
.36% in the same period of last year.
-21-
FIRSTAR CORPORATION AND SUBSIDIARIES
TABLE 3 NONINTEREST INCOME
(dollars in thousands)
% Increase/ % Increase/
Third Quarter Change (decrease) Year Through September 30, Change (decrease)
----------------------- From Prior ------------------------- From Prior
2000 1999 Period 2000/1999 2000 1999 Period 2000/1999
------------------------------------------------ --------------------------------------------------
Trust income $ 111,151 $ 105,705 $ 5,446 5.2 % $ 338,363 $ 314,005 $ 24,358 7.8 %
Mortgage banking:
Origination and sales 21,431 21,910 (479) (2.2) 55,958 84,858 (28,900) (34.1)
Loan Servicing, net 11,124 9,060 2,064 22.8 34,091 25,598 8,493 33.2
Gain on sale of servicing 6,032 6,520 (488) (7.5) 26,686 8,507 18,179 213.7
--------- --------- --------- ------- --------- --------- --------- -------
Total mortgage banking 38,587 37,490 1,097 2.9 116,735 118,963 (2,228) (1.9)
Retail deposit fees 56,409 49,108 7,301 14.9 159,479 143,012 16,467 11.5
Cash management income 38,200 36,574 1,626 4.4 110,861 103,808 7,053 6.8
Credit card income 35,656 28,793 6,863 23.8 99,901 81,248 18,653 23.0
ATM income 11,147 10,147 1,000 9.9 34,319 28,080 6,239 22.2
Brokerage revenue 5,399 10,365 (4,966) (47.9) 16,966 31,533 (14,567) (46.2)
International income 10,979 10,556 423 4.0 31,438 28,918 2,520 8.7
Bank owned life insurance 10,224 7,500 2,724 36.3 24,914 18,262 6,652 36.4
Insurance commissions 7,276 6,518 758 11.6 21,006 21,205 (199) (0.9)
Securitization revenue 17,328 9,270 8,058 86.9 54,949 25,793 29,156 113.0
All other income 32,516 38,086 (5,570) (14.6) 98,750 111,563 (12,813) (11.5)
--------- --------- --------- ------- --------- --------- --------- -------
Total noninterest income,
excluding investment
securities gains/
(losses) - net 374,872 350,112 24,760 7.1 1,107,681 1,026,390 81,291 7.9
Investment securities
gains/(losses) - net 93 (1,491) 1,584 n/m 107 14,753 (14,646) (99.3)
--------- --------- --------- ------- --------- --------- --------- -------
Total noninterest
income $ 374,965 $ 348,621 $ 26,344 7.6 % $ 1,107,788 $ 1,041,143 $ 66,645 6.4 %
--------- --------- --------- ------- --------- --------- --------- -------
--------- --------- --------- ------- --------- --------- --------- -------
n/m = not meaningful
FIRSTAR CORPORATION AND SUBSIDIARIES
TABLE 4 NONINTEREST EXPENSE
(dollars in thousands)
% Increase/ % Increase/
Third Quarter Change (decrease) Year Through September 30, Change (decrease)
----------------------- From Prior -------------------------- From Prior
2000 1999 Period 2000/1999 2000 1999 Period 2000/1999
------------------------------------------------ --------------------------------------------------
Salaries $ 175,656 $ 214,578 $ (38,922) (18.1)% $ 549,279 $ 656,210 $ (106,931) (16.3)%
Pension and other
employee benefits 18,347 32,742 (14,395) (44.0) 71,474 113,572 (42,098) (37.1)
Equipment expense 35,892 36,484 (592) (1.6) 106,714 110,367 (3,653) (3.3)
Occupancy expense--net 40,327 41,092 (765) (1.9) 120,941 124,901 (3,960) (3.2)
Amortization of intangible
assets 30,091 30,139 (48) (0.2) 90,290 90,862 (572) (0.6)
Outside services 26,273 27,498 (1,225) (4.5) 80,724 90,166 (9,442) (10.5)
Postage and courier 17,577 17,875 (298) (1.7) 52,643 53,519 (876) (1.6)
Marketing expense 9,045 11,396 (2,351) (20.6) 25,325 37,441 (12,116) (32.4)
Professional services 6,570 5,677 893 15.7 19,131 19,560 (429) (2.2)
Travel and entertainment 6,783 6,148 635 10.3 19,947 18,603 1,344 7.2
Stationery and supplies 9,895 8,849 1,046 11.8 30,304 28,322 1,982 7.0
Communication expense 12,830 12,173 657 5.4 37,117 36,057 1,060 2.9
All other expense 42,326 33,438 8,888 26.6 122,837 110,399 12,438 11.3
--------- --------- --------- ------- --------- --------- --------- -------
Total noninterest expense,
excluding merger
related charges 431,612 478,089 (46,477) (9.7) 1,326,726 1,489,979 (163,253) (11.0)
Merger related charges 102,000 362,500 (260,500) (71.9) 220,800 407,600 (186,800) (45.8)
--------- --------- --------- ------- --------- --------- --------- -------
Total noninterest
expense $ 533,612 $ 840,589 $ (306,977) (36.5)% $ 1,547,526 $ 1,897,579 $ (350,053) (18.4)%
--------- --------- --------- ------- --------- --------- --------- -------
--------- --------- --------- ------- --------- --------- --------- -------
n/m = not meaningful
-22-
Noninterest income is a significant source of revenue for Firstar,
representing 35.2% of tax equivalent net revenue in the third quarter of
2000 and 35.0% for the first nine months of 2000. This compares with
34.1% in the third quarter of last year and 33.7% in the first nine
months of last year, excluding net securities gains. Noninterest income,
excluding net securities gains, increased by $24.8 million, or 7.1%, to a
level of $374.9 million in the third quarter of 2000 when compared to
the same quarter of last year. For the first nine months of the year
noninterest income, excluding net securities gains, increased by $81.3
million, or 7.9%, to a level of $1.108 billion.
Trust income is the largest source of noninterest income for
Firstar and in the first nine months of 2000 increased $24.4 million, or
7.8% due to new business in all product lines. Additionally, this year's
trust income benefited from one-time changes to accrual procedures, which
increased revenues by $3.7 million in the first quarter of this year.
Retail deposit income increased $16.5 million, or 11.5%, due to an
increased customer base, transaction volumes and new pricing policies.
Credit card income increased $18.7 million, or 23.0%, due to an expanded
customer base and increased card usage. Electronic banking income
increased $6.2 million, or 22.2%, as a result of growing customer usage,
additional service features, an expanded network and a $2.9 million
one-time credit from resolution of reconciling issues recorded in the
first quarter of this year. Cash management income increased by $7.1
million, or 6.8%, due to new business development, an expanded product
line and also included one-time changes in accrual procedures, which
increased revenues by $4.4 million primarily in the first quarter.
Mortgage banking revenue declined by $2.2 million, or 1.9%, with reduced
gains from the sale of loans of $28.9 million partially offset by
increased gains on the sale of servicing rights of $18.2 million and
higher net servicing income. Securitization revenue increased by $29.2
million or 113.0% due to the establishment and continued placement of
loans and investments in conduits which provide management and referral
fees to Firstar. Brokerage revenue declined as a result of the
outsourcing of this activity to a third party broker. Table 3 shows
the components of noninterest income.
Noninterest expense totaled $533.6 million, a decrease of $307.0
million from the third quarter of 1999. For the first nine months of
2000 noninterest expense totaled $1.548 billion, a decrease of $350.1
million from the same period of last year. Firstar's efficiency ratio
was 50.12% in the third quarter of 2000, a significant improvement over
the 82.11% of the same quarter of last year. For the first nine months
of 2000 the efficiency ratio was 48.89 compared to 61.95 in the same
period of last year.
Staff expense for the first nine months of 2000 decreased $149.0
million, or 19.4%. This decrease results primarily from staff reductions
in support and back room operations as a result of mergers, as well as
lower incentive accruals. In addition, staff expenses were reduced as a
result of the outsourcing of the brokerage business. Offsetting these
decreases, somewhat, were increases in staff as a result of opening new
branch and in-store locations. Pension and benefits costs also decreased
as a result of merging the separate companies' plans, benefiting from a
reduced headcount and an alignment of certain provisions of the
previously separate plans including assumptions used in determining
pension values. In addition, a higher amount of loan costs were
deferred as a result of the benefits gained from merging the separate
companies' loan systems and capitalization of loan origination cost
policies.
-23-
FIRSTAR CORPORATION AND SUBSIDIARIES
TABLE 5 SUMMARY OF LOAN LOSS EXPERIENCE
(dollars in thousands)
Third Quarter Nine Months
------------------------------- -------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
Average loans $ 52,561,828 $ 49,814,168 $ 51,709,921 $ 49,125,320
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Allowance for loan losses:
Balance - beginning of period $ 717,631 $ 714,430 $ 714,898 $ 704,846
Charge-offs:
Commercial (23,940) (31,082) (68,282) (63,347)
Commercial real estate (3,323) (3,289) (7,381) (7,273)
Residential real estate (2,182) (3,832) (6,238) (10,425)
Credit card (17,851) (16,246) (55,701) (52,622)
Other retail (27,084) (21,925) (70,180) (55,706)
------------ ------------ ------------ ------------
Total charge-offs (74,380) (76,374) (207,782) (189,373)
------------ ------------ ------------ ------------
Recoveries:
Commercial 4,878 9,063 20,777 20,302
Commercial real estate 841 1,160 3,787 4,074
Residential real estate 137 170 257 394
Credit card 2,602 5,104 9,623 13,050
Other retail 7,706 5,669 21,112 17,702
------------ ------------ ------------ ------------
Total recoveries 16,164 21,166 55,556 55,522
------------ ------------ ------------ ------------
Net charge-offs (58,216) (55,208) (152,226) (133,851)
Provision charged to earnings 58,200 55,325 154,943 143,552
------------ ------------ ------------ ------------
Balance - end of period $ 717,615 $ 714,547 $ 717,615 $ 714,547
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Ratio of net charge-offs to average
loans:
Commercial 0.40% 0.52% 0.35% 0.35%
Commercial real estate 0.09% 0.08% 0.04% 0.04%
Residential real estate 0.13% 0.15% 0.11% 11.30%
Credit card 4.08% 3.50% 4.33% 4.23%
Other Retail 0.54% 0.44% 0.39% 0.36%
-------- -------- -------- --------
Total loans 0.44% 0.44% 0.39% 0.36%
-------- -------- -------- --------
-------- -------- -------- --------
-24-
Occupancy expenses declined $4.0 million, or 3.2%, due to the
consolidation of facilities related to recent mergers. Marketing costs
declined $6.0 million, or 19.2%, from the first nine months of last year.
Table 4 shows the components of noninterest expenses.
Merger-related charges totaled $102.0 million in the third quarter
of 2000 compared to $362.5 million in the same period of last year. For
the first nine months of 2000, merger related charges totaled $220.8
million compared to $407.6 million in the same period of last year. In
the first quarter of 2000, total merger-related charges for the Star Banc
Corporation/Firstar and the Firstar/Mercantile mergers were estimated to
be $920.0 million. This is now anticipated to be $985.0 million for both
mergers, of which $915.8 million has been expensed through September 30,
2000. The estimated increase of $65.0 million is related to higher
severance, retention and employee related charges as well as other
conversion costs. As a result of these mergers, significantly higher cost
savings have been achieved than were originally estimated. Note 7 to the
financial statements provides a summary of merger-related costs and
activity in the accrual accounts.
Noninterest expense, excluding merger related expenses, totaled
$431.6 million, a decrease of $46.5 million, or 9.7%, from the third
quarter of 1999. For the first nine months of 2000 noninterest expense,
excluding merger related charges, totaled $1.327 billion, a decrease of
$163.3 million, or 11.0%, from the same period of last year.
Excluding merger related costs, Firstar's efficiency ratio was
40.54% in the third quarter of 2000, a significant improvement over the
46.70% for the same quarter of last year. For the first nine months of
2000 the efficiency ratio was 41.92% compared to 48.64% in the same
period of last year.
The effective income tax rate, before merger related charges, was
34.4% in the first nine months of 2000 compared to 33.1% in the same
period of last year. The increase in the effective tax rate was due to a
tax refund recognized in 1999 along with lower tax exempt revenues
relative to taxable income. The effective tax rate for the third quarter
of 2000 declined to 33.1% reflecting current tax planning strategies
involving tax-exempt income, deductions and state tax liabilities.
Asset Quality
As of September 30, 2000, the allowance for loan losses was $717.6
million, or 1.34% of loans outstanding compared to 1.41% at December 31,
1999 and 1.47% a year earlier. The decrease from the prior year resulted
from a change in the management of problem loans as a result of the merger
when a more aggressive charge-off policy had been adopted. The allowance
as a percentage of nonperforming loans was 259% at September 30, 2000
compared to 341% at December 31, 1999 and 326% a year earlier.
-25-
FIRSTAR CORPORATION AND SUBSIDIARIES
TABLE 6 NONPERFORMING ASSETS
(dollars in thousands)
September 30, December 31, September 30,
2000 1999 1999
------------- ------------ -------------
Loans on nonaccrual status:
Commercial $ 185,735 $ 89,168 $ 87,133
Residential mortgage 26,960 36,806 56,562
Commercial mortgage 44,241 57,733 53,381
Construction and land
development 6,286 6,309 4,290
Retail loans 12,939 17,980 16,300
---------- ---------- ----------
Total nonaccrual loans 276,161 207,996 217,666
Loans which have been
renegotiated 1,073 1,664 1,605
---------- ---------- ----------
Total nonperforming loans 277,234 209,660 219,271
Other real estate owned 19,770 19,272 21,017
---------- ---------- ----------
Total nonperforming
assets $ 297,004 $ 228,932 $ 240,288
---------- ---------- ----------
---------- ---------- ----------
Percentage of nonperforming
loans to loans 0.52% 0.41% 0.45%
Percentage of nonperforming
assets to loans and other
real estate owned 0.56% 0.45% 0.49%
Loans past due 90 days
or more $ 173,301 $ 122,760 $ 122,047
---------- ---------- ----------
---------- ---------- ----------
-26-
FIRSTAR CORPORATION AND SUBSIDIARIES
TABLE 7 COMPOSITION OF NONPERFORMING LOANS
(dollars in thousands)
September 30, 2000
------------------------------------------------------------------
Nonperforming Loans 90 Days
---------------------------------------------------
or
Non- Restruc- Percentage More
accrual tured Total of Loans Past Due
--------- -------- --------- ---------- ----------
Commercial loans:
Corporate $ 167,635 $ 28 $ 167,663 1.12 % $ 27,392
Commercial leasing 18,100 - 18,100 0.45 30
--------- ------- --------- ---------
Total commercial loans 185,735 28 185,763 0.98 27,422
--------- ------- --------- ---------
Real estate loans:
Residential 26,960 - 26,960 0.42 51,191
Commercial mortgage 44,241 44 44,285 0.48 15,073
Construction/land
development 6,286 - 6,286 0.24 4,409
--------- ------- --------- ---------
Total real estate loans 77,487 44 77,531 0.43 70,673
--------- ------- --------- ---------
Retail loans:
Other retail 7,540 1,001 8,541 0.08 43,406
Credit cards 5,399 - 5,399 0.35 26,460
Retail leasing - - - - 5,340
--------- ------- --------- ---------
Total retail loans 12,939 1,001 13,940 0.09 75,206
--------- ------- --------- ---------
Total loans $ 276,161 $ 1,073 $ 277,234 0.52 % $ 173,301
--------- ------- --------- ------- ---------
--------- ------- --------- ------- ---------
December 31, 1999
------------------------------------------------------------------
Nonperforming Loans 90 Days
---------------------------------------------------
or
Non- Restruc- Percentage More
accrual tured Total of Loans Past Due
----------- -------- --------- ---------- ---------
Commercial loans:
Corporate $ 76,382 $ 87 $ 76,469 0.49 % $ 12,819
Commercial leasing 12,786 - 12,786 0.70 17
--------- ------- --------- ---------
Total commercial loans 89,168 87 89,255 0.51 12,836
--------- ------- --------- ---------
Real estate loans:
Residential 36,806 - 36,806 0.42 47,778
Commercial mortgage 57,733 1,577 59,310 0.67 11,281
Construction/land
development 6,309 - 6,309 0.29 2,585
--------- ------- --------- ---------
Total real estate loans 100,848 1,577 102,425 0.52 61,644
--------- ------- --------- ---------
Retail loans:
Other retail 12,563 - 12,563 0.12 25,827
Credit cards 4,960 - 4,960 0.35 20,210
Retail leasing 457 - 457 0.02 2,243
--------- ------- --------- ---------
Total retail loans 17,980 - 17,980 0.13 48,280
--------- ------- --------- ---------
Total loans $ 207,996 $ 1,664 $ 209,660 0.41 % $ 122,760
--------- ------- --------- ------- ---------
--------- ------- --------- ------- ---------
September 30, 1999
------------------------------------------------------------------
Nonperforming Loans 90 Days
---------------------------------------------------
or
Non- Restruc- Percentage More
accrual tured Total of Loans Past Due
----------- -------- --------- ---------- ---------
Commercial loans:
Corporate $ 73,705 $ 92 $ 73,797 0.50 % $ 16,535
Commercial leasing 13,428 - 13,428 0.84 375
--------- ------- --------- ---------
Total commercial loans 87,133 92 87,225 0.53 16,910
--------- ------- --------- ---------
Real estate loans:
Residential 56,562 - 56,562 0.64 48,006
Commercial mortgage 53,381 - 53,381 0.60 9,734
Construction/land
development 4,290 - 4,290 0.22 4,084
--------- ------- --------- ---------
Total real estate loans 114,233 - 114,233 0.58 61,824
--------- ------- --------- ---------
Retail loans:
Other retail 11,813 1,513 13,326 0.14 22,221
Credit cards 3,957 - 3,957 0.30 19,555
Retail leasing 530 - 530 0.03 1,537
--------- ------- --------- ---------
Total retail loans 16,300 1,513 17,813 0.14 43,313
--------- ------- --------- ---------
Total loans $ 217,666 $ 1,605 $ 219,271 0.45 % $ 122,047
--------- ------- --------- ------- ---------
--------- ------- --------- ------- ---------
-27-
Table 5 provides a summary of activity in the allowance for
loan losses by type of loan. Net charge-offs totaled $58.2 million in
the third quarter of 2000 compared with $55.2 million in the same
period of last year. For the first nine months of 2000 net charge-offs
were $152.2 million compared with $133.9 million in the same period of
last year. Annualized net charge-offs as a percent of average loans
were 0.44% in both the third quarter of 2000 and 1999. For the first
nine months of this year annualized net charge-offs were .39% compared
to .36% in the same period of last year. Credit card net charge-offs
increased from 4.23% of average outstandings in 1999 to 4.33% in the
first nine months of 2000. Commercial loan net charge-offs were
unchanged from a level of .35% of average outstandings for the first
nine months of 1999. Other retail lending net charge-offs increased
from .36% of average outstandings in 1999 to .39% in the current
period. Net charge-offs for the fourth quarter of 2000 are anticipated
to approximate third quarter of 2000 net charge-offs.
Nonperforming assets, as shown in Tables 6 and 7, were $297.0
million at September 30, 2000. This is an increase of $68.1 million
from December 31, 1999 and $56.7 million from a year earlier. Measured
as a percent of loans and other real estate, nonperforming assets have
increased from .49% at September 30, 1999 to .56% at September 30,
2000. Approximately one-half of the increase in nonperforming assets
over year-end was due to several large shared national credits recently
downgraded.
Management believes that the allowance for loan losses at
September 30, 2000 was adequate to absorb all anticipated losses
existing in the loan portfolio as of that date. The allowance for
loan losses is based on estimates and ultimate losses may vary from
current estimates.
Capital Resources
Total shareholders' equity was $6.2 billion at September 30,
2000, a decrease of $116.7 million from December 31, 1999 and $244.0
million from a year earlier. These declines are the result of strong
core earnings offset by dividend payments, merger-related charges,
stock repurchase program and unrealized losses on investment securities
reflected in other comprehensive income. The tangible common ratio
was 6.55% at September 30, 2000, compared to 6.83% at December 31,
1999 and 7.03% a year earlier. The ratio of total shareholders'
equity to total assets was 8.31% at September 30, 2000 compared to
8.67% at December 31, 1999 and 9.02% at September 30, 1999.
Banking industry regulators define minimum capital requirements
for bank holding companies. At September 30, 2000, Firstar's Tier I
and Total Risk-Based Capital ratios amounted to 7.51% and 10.40%,
respectively, well above the minimum requirements of 4.00% for Tier
I and 8.00% for Total Risk-Based Capital. This compares to Tier I
and Total Risk-Based Capital ratios of 8.60% and 10.70% at September
30, 1999. Regulatory authorities have also established a minimum
leverage ratio of 4.00%, which is defined as Tier I equity to average
quarterly assets. At September 30, 2000, Firstar's leverage ratio
was 7.20% compared to 7.43% at September 30, 1999. These declines
since 1999 were due to the stock repurchase program and changes in
balance sheet mix of earning assets. These regulatory ratios continue
to be in excess of stated regulatory "well capitalized" requirements.
-28-
On April 11, 2000, the Board of Directors approved an additional
common stock repurchase program of 100 million shares to be completed
during the next two years. The reacquired common shares will be held
as treasury shares for reissuance for various corporate purposes,
including employee stock option plans. During the second and third
quarters of 2000 Firstar repurchased 24.4 million shares at a cost
of $567 million. On October 4, 2000, the Board of Directors rescinded
its prior authority to repurchase up to 100 million shares of its
common stock. This action was taken in unison with the announcement
that Firstar had signed a definitive agreement to merge with U.S.
Bancorp.
This discussion may contain forward-looking statements with respect
to the financial condition, results of operations and business of
Firstar. These forward-looking statements involve certain risks and
uncertainties. Factors that may cause actual results to differ
materially from those contemplated include among other things, the
following possibilities: (i)expected cost savings from recent
acquisitions cannot be fully realized or realized within the expected
time; (ii)revenues are lower than expected; (iii)competitive pressure
among depository institutions increases significantly; (iv)changes in
the interest rate environment reduce interest margins; (v)general
economic conditions are less favorable than expected; and (vi)legislation
or regulatory requirements adversely affect the business that Firstar
is engaged in.
-29-
PART II. OTHER INFORMATION
- --------------------------
ITEM 6. Exhibits and Reports on Form 8-K
- -------
(A) Exhibits filed:
Exhibit 27. Financial Data Schedule
(B) Reports on Form 8-K
None
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
FIRSTAR CORPORATION
January 10, 2000 /s/ Jerry A. Grundhofer
- ----------------- ------------------------------------------
Date Jerry A. Grundhofer
President and Chief Executive Officer
January 10, 2000 /s/ David M. Moffett
- ----------------- ------------------------------------------
Date David M. Moffett
Vice Chairman and Chief Financial Officer
January 10, 2000 /s/ James D. Hogan
- ----------------- ------------------------------------------
Date James D. Hogan
Executive Vice President and Controller
-30-