SunTrust, Firstar Show Post-Merger Profit Gains

Reaping the reward of large acquisitions completed last year, SunTrust Banks Inc. and Firstar Corp. posted sizable gains Tuesday in first-quarter profits.

Atlanta-based SunTrust reported a 6% jump, to $282 million. Firstar of Milwaukee earned $170 million, up 22%.

For both banks the quarter was the first full one since their respective deals closed. As a result, analysts and investors were watching the reports with special care.

"The market doesn't take a bank's views on faith-it's a show-me attitude," said R. Harold Schroeder of Keefe, Bruyette & Woods. "This was a very important quarter, and the banks came through with flying colors."

SunTrust, which acquired Richmond, Va.-based Crestar Financial Corp. in December, reported earnings per share of 91 cents, which matched consensus estimates.

The $91.1 billion-asset company took $10.4 million in merger-related charges. However, a 12% gain in noninterest income, to $445 million, helped overcome the expenses.

"This was a very solid quarter for us, especially in light of being the first quarter of the Crestar integration," said L. Phillip Humann, SunTrust's chairman, president, and chief executive officer.

The news helped push SunTrust's stock price to $TK, up $TK at Tuesday's close.

Analysts said they were pleased that SunTrust had managed to reduce costs and increase revenues during the Crestar integration. Excluding merger charges, the banking company sliced noninterest expenses by $5 million, to $727 million.

"Usually you get one or the other during an integration, but in this case you are getting the best of both," said Lori Appelbaum, an analyst with Goldman Sachs & Co.

In a conference call Tuesday, SunTrust's chief financial officer, John W. Spiegel, said he expects the bank to beat its own goals for the deal's revenue gains and cost savings. SunTrust predicted in July, when the merger was announced, that it would cut $130 million in expenses and enhance revenues by $28 million.

Roughly 75% of the revenue and cost improvements should be achieved by yearend, Mr. Spiegel added. Much of the revenue gain will be derived from trust and investment banking and advisory activities, he said.

Trust income at the bank increased 12% to $126 million. Corporate and institutional investment services nearly doubled to $19 million.

Mortgage servicing income also doubled, to $41 million, and retail investment income, which grew 59%, reached $24 million.

Firstar also gained handily from its November merger. The $38 billion- asset company is the result of Cincinnati-based Star Banc Corp.'s deal to buy Firstar of Milwaukee.

"We are making good progress in integrating our sales, service, and marketing philosophy in all our markets," Jerry A. Grundhofer, president and chief executive officer.

Net income was so strong that a $15 million merger charge hardly made a dent. Mr. Grundhofer credited 4% growth in consumer loans. The combined company's portfolio of such credits equaled $7.8 billion at quarter's end.

In addition, trust income gained 15%, to $72 million, helped by an influx of new customers and higher stock market values, the bank said. Corporate cash management income grew 15%, to $23 million.

"Some of the benefits of Star Banc's efficiency are making their way to the larger company," said Michael L. Mayo, managing director of bank research at Credit Suisse First Boston. "It's been a management play that is beginning to make its way to the bottom line."

Firstar's earnings per share of 81 cents, adjusted for a 3-for-1 stock split announced last month, beat consensus estimates by 4 cents. Its shares closed the day's trading at $103.4375, up $1.5625. +++

Suntrust Banks Inc.

Atlanta, Ga.

Dollar amounts in millions (except per share)

First Quarter 1Q99 1Q98

Net income $281.7 $264.9

Per share 0.87 0.83

ROA 1.29% 1.36%

ROE 18.67% 19.63%

Net interest margin 3.92% 4.11%

Net interest income 780.8 730.9

Noninterest income 444.9 398.7

Noninterest expense 740.9 660.4

Loss provision 42.0 51.7

Net chargeoffs 34.0 46.9

Balance Sheet 3/31/99 3/31/98

Assets $91,122.0 $85,910.0

Deposits 57,928.0 53,781.0

Loans 64,274.0 58,875.0

Reserve/nonp. loans 481.5% 478.5%

Nonperf. loans/loans 0.31% 0.33%

Nonperf. assets/assets 0.26% 0.29%

Nonperf. assets/loans + OREO 0.36% 0.42%

Leverage cap. ratio NA NA

Tier 1 cap. ratio NA NA

Tier 1+2 cap. ratio NA NA

Firstar Corp.

Milwaukee, Wis.

Dollar amounts in millions (except per share)

First Quarter 1Q99 1Q98

Net income $169.6 $138.8

Per share 0.25 0.21

ROA 1.80% 1.64%

ROE 18.81% 18.30%

Net interest margin 4.49% 4.51%

Net interest income 376.0 348.9

Noninterest income 223.1 197.0

Noninterest expense 300.2 300.4

Loss provision 35.9 28.6

Net chargeoffs 29.9 27.0

Balance Sheet 3/31/99 3/31/98

Assets $37,951.9 $36,402.8

Deposits 27,867.8 27,124.4

Loans 25,925.4 24,110.6

Reserve/nonp. loans 330% 317%

Nonperf. loans/loans 0.46% 0.51%

Nonperf. assets/assets 0.36% 0.38%

Nonperf. assets/loans + OREO 0.52% 0.56%

Leverage cap. ratio 8.07% 8.36%

Tier 1 cap. ratio 9.29% 9.88%

Tier 1+2 cap. ratio 11.29% 12.26%

Marshall & Ilsley Corp.

Milwaukee, Wis.

Dollar amounts in millions (except per share)

First Quarter 1Q99 1Q98

Net income $85.5 $75.5

Per share 0.75 0.66

ROA 1.61% 1.51%

ROE 15.55% 14.87%

Net interest margin 3.73% 3.71%

Net interest income 179.6 170.7

Noninterest income 195.4 179.3

Noninterest expense 234.3 221.2

Balance Sheet 3/31/99 3/31/98

Assets $21,989.6 $20,649.2

Deposits 15,475.1 14,925.1

Loans 14,031.0 12,966.0 ===