Merger costs and an end-of-year effort to get other expenses out of the way drove down fourth-quarter earnings at two major banking companies.

SunTrust Banks Inc. said profits fell 38%, to $158 million, largely because of a $162 million pretax merger charge. The full year's net was off $5 million, to $971 million.

Indicating the magnitude of the charge, which was related to SunTrust's yearend acquisition of Crestar Financial Corp., operating earnings were up 8% in the quarter, to $275 million, and 11% for the year, to $1.09 billion.

Per-share operating income was up 12% for the year, to $3.41.

for the full year. Per-share operating income was up 12% for the year, to $3.41.

At Firstar Corp. of Milwaukee, also reporting Tuesday, net income dropped 90%, to $13 million. Before merger charges-the company combines the old Firstar with Star Banc of Cincinnati-income was up 20%, to $160 million.

"It's the quarter of the big restructuring charge and the outsize expense line," said Nancy Bush, an analyst at Ryan, Beck & Co. SunTrust "kitchen-sinked the quarter," she said.

Both reported strong loan growth, analysts noted. Other banks are likely to do the same over the next two weeks.

"Demand is getting much better for loans," said Lori Applebaum of Goldman, Sachs & Co. "But chargeoffs are also going to be higher."

SunTrust Banks Inc.

Fourth-quarter earnings per share for SunTrust came to 49 cents. Excluding the special charge, the figure was 86 cents, 4 cents short of analysts' estimates.

Still, analysts saw revenue momentum, particularly in 15% loan growth, to $65.1 billion, fueled by commercial demand.

"Commercial lending is expected to be stronger than consumer lending and SunTrust is indicative of that," said Henry C. Dickson, an analyst at Salomon Smith Barney.

Fee income rose 21%, to $436 million. Profits from the trust business jumped 15%, to $118 million. Mortgage fees skyrocketed 57%, to $39 million. Institutional investment income more than quadrupled, to $20 million.

The $93 billion-asset SunTrust's deposits rose 8%, to $59 billion.

Analysts said the net interest margin stabilized at 3.88%, though it was narrower than the 4.11% at yearend 1997.

Katrina Blecher, an analyst at Brown Brothers Harriman & Co., said SunTrust's results portend a strong showing at other regional banks "in lending, in the margins, and growth in fee income."

L. Phillip Humann, chairman and chief executive officer, said, "This past year marked an important point in the history of SunTrust," including, he said, the completion of the $9 billion Crestar deal, its largest, as well as the consolidation of corporate banking activities and the expansion of investment banking.

Analysts, who typically do not account for one-time charges in their estimates, said they were surprised by the shortfall in earnings per share. Many attributed it to expenses-and delays in closing the Crestar purchase because of a Securities and Exchange Commission review of loan-reserving practices.

The investigation led SunTrust to lower its loan-loss reserve by $100 million and to restate earnings for 1994 through 1996, which a spokesman said did not affect the 1998 fourth quarter.

The delay meant meaningful cost savings could not be achieved in the quarter, reflecting "the dilutive impact of the deal," said Michael Mayo, an analyst at Credit Suisse First Boston. "They didn't get any initial savings."

SunTrust's provision for loan losses was $67.1 million, up from $55.9 million. The 1998 quarter included $20 million in reserves related to the Crestar acquisition.

The company said it would take another $88 million in merger-related charges over the next five to six quarters as systems are integrated.

Firstar Corp.

Chargeoffs at Firstar were $103 million in 1998, an increase of 9%. Chargeoffs in the fourth quarter were $35 million, up 17% on an operating basis.

"We take a pretty aggressive approach to chargeoffs, and we felt there were a number of loans we should move on," said David Moffett, chief financial officer.

"The trends look fine," he added. "We have not seen any deterioration in the portfolio. It's going to be growth-oriented."

Operating earnings per share were 72 cents, which met analysts' estimates.

"It's a transition quarter" for the $38.5 billion-asset holding company, said Goldman, Sachs' Ms. Applebaum. "Management has only been there since Nov. 20. There hasn't been enough time for Star (Banc)'s managers to do their magic."

Earnings were affected by $219 million in pretax merger charges, which included more than $80 million in severance costs. The company said it would take $325 million pretax in merger-related charges through the end of 1999. It also committed $20 million to a charitable foundation and wrote down $6 million in problem loans made by the premerger Firstar of Milwaukee.

"The trends remain pretty good if you look at it from an income standpoint," said Eric Rothmann, an analyst with Stephens Inc. in Little Rock. "There is quite a bit of noise on the expense side, which is expected considering they made this type of acquisition." +++

Firstar Corp. Milwaukee, Wis. Dollar amounts in millions (except per share) Fourth Quarter 4Q98 4Q97 Net income $13.0 $133.5 Per share 0.06 0.63 ROA 0.13% 1.65% ROE 1.44% 19.54% Net interest margin 4.48% 4.66% Net interest income 380.0 340.5 Noninterest income 223.6 206.2 Noninterest expense 547.1 301.8 Loss provision 28.5 38.1 Net chargeoffs 41.3 30.2 Year to Date 1998 1997 Net income $430.1 $513.9 Per share 1.95 2.43 ROA 1.18% 1.62% ROE 12.73% 19.69% Net interest margin 4.47% 4.66% Net interest income 1,460.1 1,342.7 Noninterest income 860.1 712.0 Noninterest expense 1,521.2 1,126.5 Loss provision 113.6 117.8 Net chargeoffs 121.4 94.7 Balance Sheet 12/31/98 12/31/97 Assets $38,475.8 $32,860.0 Deposits 28,850.0 24,486.1 Loans 25,472.1 22,813.1 Reserve/nonp. loans 318% 334% Nonperf. loans/loans 0.48% 0.48% Nonperf. assets/assets 0.35% 0.37% Nonperf. assets/loans + OREO 0.53% 0.52% Leverage cap. ratio 7.52% 8.23% Tier 1 cap. ratio 8.92% 9.60% Tier 1+2 cap. ratio 11.01% 12.03%

SunTrust Banks Inc. Atlanta, Ga. Dollar amounts in millions (except per share) Fourth Quarter 4Q98 4Q97 Net income $157.9 $254.6 Per share 0.49 0.80 ROA 0.73% 1.33% ROE 10.62% 19.46% Net interest margin 3.88% 4.11% Net interest income 764.6 721.9 Noninterest income 436.1 361.7 Noninterest expense 851.0 623.4 Loss provision 67.1 55.9 Net chargeoffs 52.5 52.2 Year to Date 1998 1997 Net income $971.0 $975.9 Per share 3.04 3.04 ROA 1.18% 1.34% ROE 17.21% 19.07% Net interest margin 3.97% 4.23% Net interest income 2,973.5 2,832.6 Noninterest income 1,716.2 1,355.7 Noninterest expense 2,932.4 2,415.7 Loss provision 214.6 225.1 Net chargeoffs 193.5 190.8 Balance Sheet 12/31/98 12/31/97 Assets $93,170.0 $82,841.0 Deposits 59,033.0 54,581.0 Loans 65,089.0 56,765.0 Reserve/nonp. loans 456% 495% Nonperf. loans/loans 0.32% 0.33% Nonperf. assets/assets 0.26% 0.29% Nonperf. assets/loans + OREO 0.37% 0.42% Leverage cap. ratio NA 7.70% Tier 1 cap. ratio NA 8.04%

Tier 1+2 cap. ratio NA 12.39% ===

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