FIRSTAR CORP /WI/, 10-K, 1998-03-13

FIRSTAR CORP /WI/
10-K, 1998-03-13
NATIONAL COMMERCIAL BANKS

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 1997 Commission File Number 1-2981

FIRSTAR CORPORATION

<TABLE>
<S> <C>
WISCONSIN 39-0711710
(State of Incorporation) (I.R.S. Employer Identification No.)
</TABLE>

777 East Wisconsin Avenue, Milwaukee, Wisconsin 53202
Telephone Number (414) 765-4321
Securities Registered Pursuant to Section 12(b) of the Act:

<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ------------------------
<S> <C>
Common Stock, $1.25 par value New York Stock Exchange, Inc.
Chicago Stock Exchange, Inc.
Preferred Stock, Series D Nasdaq
Preferred Share Purchase Rights New York Stock Exchange, Inc.
Chicago Stock Exchange, Inc.
</TABLE>

Securities Registered Pursuant to Section 12(g) of the Act: NONE

Indicated by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. X Yes _ No

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
- ----

As of February 27, 1998, 145,074,999 shares of common stock were
outstanding, and the aggregate market value of the shares (based upon the
closing price) held by nonaffiliates was approximately $5.4 billion.

Documents Incorporated by Reference:

Portions of the 1998 Notice of Annual Meeting and Proxy Statement are
incorporated by reference into Part III of the Form 10-K.

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<PAGE> 2

FORM 10-K TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
PART I
Item 1 - Business.................................................... 2
Item 2 - Properties.................................................. 5
Item 3 - Legal Proceedings........................................... 5
Item 4 - Submission of Matters to a Vote of Security Holders......... 5
PART II
Item 5 - Market for the Registrant's Common Equity and Related
Stockholder Matters......................................... 5
Item 6 - Selected Financial Data..................................... 6
Item 7 - Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 7
Item 7A - Quantitative and Qualitative Disclosures About Market
Risk........................................................ 21-23, 31-32
Item 8 - Financial Statements and Supplementary Data................. 26
Item 9 - Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 57
PART III
Item 10 - Directors and Executive Officers of the Registrant.......... 57
Item 11 - Executive Compensation...................................... 57
Item 12 - Security Ownership of Certain Beneficial Owners and
Management.................................................. 57
Item 13 - Certain Relationships and Related Transactions.............. 57
PART IV
Item 14 - Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 57
Signatures............................................................. 59
</TABLE>

1
<PAGE> 3

PART I

ITEM 1. BUSINESS

GENERAL

Firstar Corporation is a registered bank holding company incorporated in
Wisconsin in 1929. Firstar Corporation ("Firstar") is the largest bank holding
company headquartered in Wisconsin. Firstar's two bank subsidiaries in Wisconsin
had total assets of $10.5 billion at December 31, 1997. Its one bank in Iowa,
one Illinois bank and one Minnesota bank had total assets of approximately $2.7
billion, $2.7 billion and $2.5 billion, respectively, as of December 31, 1997.
Firstar has one bank in Phoenix, Arizona with total assets of $184 million.
Firstar's principal subsidiary, Firstar Bank Milwaukee, N.A., had total assets
of $6.6 billion which represented 33 percent of Firstar's consolidated assets at
December 31, 1997. Subsidiary asset totals are net of intercompany balances.

Firstar provides banking services throughout Wisconsin and Iowa and in the
Chicago, Minneapolis-St. Paul and Phoenix metropolitan areas. Its Wisconsin bank
subsidiaries operate in 116 locations, with offices in eight of the ten largest
metropolitan population centers of the state, including 41 offices in the
Milwaukee metropolitan area. Its Iowa bank subsidiary operates in 50 locations;
its Illinois bank subsidiary in 40 locations; its Minnesota bank subsidiary in
30 locations; and its Arizona bank in four locations. Firstar also provides
trust services in its five-state banking locations and in Florida at one
location. Firstar's bank subsidiaries provide a broad range of financial
services for companies based in Wisconsin, Iowa, Illinois and Minnesota,
national business organizations, governmental entities and individuals. These
commercial and consumer banking activities include accepting demand, time and
savings deposits; making both secured and unsecured business and personal loans;
and issuing and servicing credit cards. The bank subsidiaries also engage in
correspondent banking and provide trust and investment management services to
individual and corporate customers. Firstar Bank Milwaukee, N.A. also conducts
international banking services consisting of foreign trade financing, issuance
and confirmation of letters of credit, funds collection and foreign exchange
transactions. Nonbank subsidiaries provide retail brokerage services, trust and
investment management services, residential mortgage banking activities, title
insurance, business insurance, consumer and credit related insurance, and
corporate computer and operational services.

COMPETITION

Banking and bank-related services is a highly competitive business.
Firstar's subsidiaries compete primarily in Wisconsin, Iowa, Illinois and
Minnesota. Firstar and its subsidiaries have numerous competitors, some of which
are larger and have greater financial resources. Firstar competes with other
commercial banks and financial intermediaries, such as savings banks, savings
and loan associations, credit unions, mortgage companies, leasing companies and
a variety of financial services and advisory companies located throughout the
country.

SUPERVISION

Firstar's business activities as a bank holding company are regulated by
the Federal Reserve Board under the Bank Holding Company Act of 1956 which
imposes various requirements and restrictions on its operations. The activities
of Firstar and those of its banking and nonbanking subsidiaries are limited to
the business of banking and activities closely related or incidental to banking.

The business of banking is highly regulated, and there are various
requirements and restrictions in the laws of the United States and the states in
which the subsidiary banks operate including the requirement to maintain
reserves against deposits and adequate capital to support their operations,
restrictions on the nature and amount of loans which may be made by the banks,
restrictions relating to investment (including loans to and investments in
affiliates), branching and other activities of the banks.

Firstar's subsidiary banks with a national charter are supervised and
examined by the Comptroller of the Currency. The subsidiary banks with a state
charter are supervised and examined by their respective state banking agency and
either by the Federal Reserve if a member bank of the Federal Reserve or by the
FDIC if

2
<PAGE> 4

a nonmember. All of the Firstar subsidiary banks are also subject to examination
by the Federal Deposit Insurance Corporation.

In recent years Congress has enacted significant legislation which has
substantially changed the federal deposit insurance system and the regulatory
environment in which depository institutions and their holding companies
operate. The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA"), the Comprehensive Thrift and Bank Fraud Prosecution and Taxpayer
Recovery Act of 1990 and the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA") have significantly increased the enforcement powers of
the federal regulatory agencies having supervisory authority over Firstar and
its subsidiaries. Certain parts of such legislation, most notably those which
increase deposit insurance assessments and authorize further increases to
recapitalize the bank deposit insurance fund, increase the cost of doing
business for depository institutions and their holding companies. FIRREA also
provides that all commonly controlled FDIC insured depository institutions may
be held liable for any loss incurred by the FDIC resulting from a failure of, or
any assistance given by the FDIC, to any of such commonly controlled
institutions. Federal regulatory agencies have implemented provisions of FDICIA
with respect to taking prompt corrective action when a depository institution's
capital falls to certain levels. Under the rules, five capital categories have
been established which range from "critically undercapitalized" to "well
capitalized". Failure of a depository institution to maintain a capital level
within the top two categories will result in specific actions from the federal
regulatory agencies. These actions could include the inability to pay dividends,
restricting new business activity, prohibiting bank acquisitions, asset growth
limitations and other restrictions on a case by case basis.

In addition to the impact of regulation, commercial banks are affected
significantly by the actions of the Federal Reserve Board as it attempts to
control the money supply and credit availability in order to influence the
economy. Changes to such monetary policies have had a significant effect on
operating results of financial institutions in the past and are expected to have
such an effect in the future; however, the effect of possible future changes in
such policies on the business and operations of Firstar cannot be determined.

3
<PAGE> 5

EXECUTIVE OFFICERS OF THE REGISTRANT

The following is a list of all the executive officers (14) of Firstar as of
December 31, 1997. All of these officers are elected annually by their
respective boards of directors. All of the officers have been employed by
Firstar and/or one or more of its subsidiaries during the past five years. There
are no family relationships between any of the executive officers.

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Roger L. Fitzsimonds...................... 59 Chairman of the Board and Chief Executive Officer of
Firstar (Since February 1991)

John A. Becker............................ 55 President and Chief Operating Officer of Firstar
(Since January 1990)

Chris M. Bauer............................ 49 Senior Executive Vice President of Firstar (Since
January 1996)

Richard W. Schoenke....................... 54 Senior Executive Vice President of Firstar (Since
January 1996)

Steven R. Parish.......................... 40 Executive Vice President of Firstar (Since April
1996)

Jay B. Williams........................... 46 President of Firstar Bank Illinois (Since January
1995)

Michael J. Schmitz........................ 63 Executive Vice President of Firstar (Since September
1990)

Jon H. Stowe.............................. 53 Executive Vice President of Firstar (Since January
1995)

Dennis R. Fredrickson..................... 53 Senior Vice President of Firstar (Since October 1988)

Larry A. Greves........................... 50 Senior Vice President of Firstar (Since January 1992)

John R. Heistad........................... 51 Senior Vice President and Chief Credit Officer of
Firstar (Since January 1992)

Howard H. Hopwood III..................... 52 Senior Vice President and General Counsel of Firstar
(Since January 1986)

Ronald E. Roder........................... 49 Senior Vice President of Firstar Bank Milwaukee
(Since December 1988)

Jeffrey B. Weeden......................... 41 Senior Vice President -- Finance and Chief Financial
Officer of Firstar (Since April 1996)
</TABLE>

4
<PAGE> 6

ITEM 2. PROPERTIES

On December 31, 1997, Firstar had 241 banking locations, of which 162 were
owned and 79 were leased. All of these offices are considered by management to
be well maintained and adequate for the purpose intended. See Note 6 of the
Notes to Consolidated Financial Statements included under Item 8 of this
document for further information on properties.

ITEM 3. LEGAL PROCEEDINGS

Firstar and its subsidiaries are subject to various legal actions and
proceedings in the normal course of business, some of which involve substantial
claims for compensatory or punitive damages. Although litigation is subject to
many uncertainties and the ultimate exposure with respect to these matters
cannot be ascertained, management does not believe that the final outcome will
have a material adverse effect on the financial condition of Firstar.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

See Item 6 of this document for information on stock price ranges and
dividends. The principal markets for the quotations of stock prices are the New
York Stock Exchange and Chicago Stock Exchange. There were 11,972 holders of
record of Firstar's $1.25 par value Common Stock on February 27, 1998.

5
<PAGE> 7

ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(thousands of dollars, except per share)
<S> <C> <C> <C> <C> <C>
EARNINGS AND DIVIDENDS
Net interest revenue...................... $750,385 $749,886 $725,947 $698,838 $659,939
Provision for loan losses................. 54,658 42,647 36,756 23,891 29,090
Other operating revenue................... 491,139 440,452 392,197 370,619 392,918
Other operating expense................... 744,018 773,330 734,122 706,185 689,274
Net income................................ 295,209 250,177 228,913 226,673 227,938
Per common share:
Net income.............................. 2.03 1.68 1.50 1.49 1.50
Net income assuming dilution............ 2.00 1.66 1.48 1.47 1.49
Dividends............................... .82 .74 .66 .58 .50
Stockholders' equity.................... 11.65 11.26 10.31 9.73 8.89
Average common shares (000s).............. 145,143 148,061 151,432 150,391 148,262
Average common shares -- assuming dilution
(000's)................................. 147,306 150,436 154,856 154,489 152,930
- ------------------------------------------------------------------------------------------------
PERFORMANCE RATIOS
Return on average assets.................. 1.53% 1.31% 1.26% 1.37% 1.49%
Return on average common equity........... 18.41 15.95 15.11 15.96 17.81
Equity to assets.......................... 8.53 8.62 7.95 8.41 8.28
Total risk-based capital.................. 11.71 13.47 12.45 13.18 13.17
Net loan charge-offs as a percentage of
average loans........................... .37 .30 .27 .25 .25
Nonperforming assets as a percentage of
loans and foreclosed assets............. .52 .72 .77 .69 .81
Net interest margin....................... 4.47 4.51 4.55 4.89 5.04
Efficiency ratio.......................... 59.34* 58.17* 61.43* 61.75* 63.53
Fee revenue as a percentage of average
assets.................................. 2.42* 2.30 2.18 2.26 2.56
- ------------------------------------------------------------------------------------------------
(millions of dollars)
BALANCE SHEET AT DECEMBER 31
Total assets.............................. $ 19,844 $ 19,767 $ 19,168 $ 17,994 $ 16,412
Securities................................ 4,160 4,217 4,475 3,974 3,360
Loans:
Commercial loans........................ 7,721 7,312 6,966 6,710 5,996
Consumer loans.......................... 3,464 3,224 2,944 2,813 2,561
Consumer mortgage loans................. 2,384 2,660 2,723 2,383 2,268
Total loans.......................... 13,569 13,196 12,633 11,906 10,825
Earning assets............................ 17,819 17,626 17,233 16,293 14,551
Deposits:
Core deposits........................... 14,043 14,369 13,403 12,818 12,689
Other deposits.......................... 671 845 909 591 444
Total deposits....................... 14,714 15,214 14,312 13,409 13,133
Short-term borrowed funds................. 2,121 1,869 2,303 2,196 1,178
Long-term debt............................ 1,058 697 734 574 486
Stockholders' equity...................... 1,693 1,704 1,525 1,513 1,359
- ------------------------------------------------------------------------------------------------
STOCK PRICE INFORMATION
High...................................... $ 43 11/16 $ 26 7/8 $ 20 1/2 $ 17 11/16 $ 18 5/8
Low....................................... 25 9/16 18 5/16 13 1/8 12 9/16 14 11/16
Close..................................... 42 7/16 26 1/4 19 13/16 13 7/16 15 3/8
- ------------------------------------------------------------------------------------------------
</TABLE>

* The calculation excludes certain gains and/or expenses.

6
<PAGE> 8

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

FORWARD LOOKING INFORMATION

This review contains certain forward looking statements concerning
Firstar's business results that are based on estimates. Actual results could
differ materially due to factors such as changes in economic conditions,
compression of net interest revenue due to unanticipated declines in net
interest margins and outstanding loan balances, unanticipated delays in cost
reduction and revenue enhancements, and the ability of the company to attract
and retain qualified personnel. Therefore, there can be no assurances that
actual results will correspond to these forward-looking statements.

HIGHLIGHTS

Firstar recorded net income in 1997 of $295.2 million, an 18.0% increase
over the $250.2 million earned in 1996. Earnings per common share, on a diluted
basis, were $2.00 in 1997, an increase of 20.5% over the $1.66 earned in 1996.
In 1995, net income was $228.9 million, or $1.48 per common share, on a diluted
basis.

Return on average common equity was 18.41% in 1997 compared with 15.95% in
1996 and 15.11% in 1995. Return on average assets for 1997 was 1.53% compared
with 1.31% in 1996 and 1.26% in 1995.

Major factors affecting underlying earning trends during the past three
years were:

- Net interest revenue during 1997, on a taxable-equivalent basis, was
essentially level with 1996, increasing only 0.3%. This compares to the
3.2% increase during 1996. Increased average earning asset balances
during these periods contributed to higher net interest revenue.

- Net interest margins declined modestly, with the 1997 margin at 4.47%
compared with 4.51% in 1996 and 4.55% in 1995, thus reducing the impact
of the higher average earning asset balances.

- Growth in several fee revenue businesses continued, with trust and
investment management fees up 18.2% in 1997 and 10.2% in 1996. Overall,
fee revenue grew by 6.2% in 1997, excluding securities transactions and a
gain on the formation of a joint venture to provide credit card
processing services to merchants. This follows the 10.7% growth in fee
revenues realized in 1996.

- The provision for loan losses increased to $54.7 million in 1997 from
$42.6 million in 1996 and $36.8 million in 1995. Higher consumer loan
charge-offs were a factor in the increased loan loss provisions.

- Operating expenses increased by 4.5%, excluding certain restructuring
charges and other expenses incurred in 1996. This compares to an increase
of 0.2% during 1996.

Total nonperforming assets were $70.4 million at the end of the year, a
decrease of $24.7 million from the prior year end. Nonperforming assets as a
percent of loans and foreclosed assets were .52% at December 31, 1997 compared
to .72% a year earlier. This represents a historically low level for the
company.

Stockholders' equity stood at $1.7 billion at the end of 1997. Market
capitalization was $6.1 billion, an increase of 56% from a year earlier. Capital
strength, by all measures, remains strong.

NET INTEREST REVENUE

Net interest revenue, which comprises interest revenue and loan-related
fees less interest expense, is the principal source of earnings for Firstar. Net
interest revenue is affected by a number of factors including the level, pricing
and maturity of earning assets and interest-bearing liabilities, interest rate
fluctuations and asset quality. The net interest margin is net interest revenue
expressed as a percentage of average earning assets. To permit comparisons, net
interest revenue and margins in the accompanying discussion and tables have been
adjusted to show tax-exempt income, such as interest on municipal securities and
loans, on a

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taxable-equivalent basis. Table 1 shows the components of net interest revenue,
net income and net interest margin for the last three years.

TABLE 1

CONDENSED INCOME STATEMENTS -- TAXABLE-EQUIVALENT BASIS

<TABLE>
<CAPTION>
CHANGE FROM PRIOR YEAR
--------------------------------------
1997 VS 1996 1996 VS 1995
---------------- ----------------
1997 1996 1995 AMOUNT PERCENT AMOUNT PERCENT
-------- -------- -------- ------ ------- ------ -------
(millions of dollars)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest revenue..................... $1,401.5 $1,382.9 $1,347.8 $18.6 1.3% $35.1 2.6%
Taxable-equivalent adjustment........ 35.8 34.1 33.4 1.7 5.0 .7 2.1
-------- -------- -------- ------ ------
Interest revenue --
taxable-equivalent................. 1,437.3 1,417.0 1,381.2 20.3 1.4 35.8 2.6
Interest expense................... 651.1 633.0 621.8 18.1 2.9 11.2 1.8
-------- -------- -------- ------ ------
Net interest revenue --
taxable-equivalent............... 786.2 784.0 759.4 2.2 .3 24.6 3.2
Provision for loan losses............ 54.7 42.6 36.8 12.1 28.4 5.8 15.8
Other operating revenue.............. 491.1 440.4 392.2 50.7 11.5 48.2 12.3
Other operating expense.............. 744.0 773.3 734.1 (29.3) (3.8) 39.2 5.3
-------- -------- -------- ------ ------
Income before income taxes......... 478.6 408.5 380.7 70.1 17.2 27.8 7.3
Provision for income taxes........... 147.6 124.2 118.4 23.4 5.8
Taxable-equivalent adjustment........ 35.8 34.1 33.4 1.7 .7
-------- -------- -------- ------ ------
Net income......................... $ 295.2 $ 250.2 $ 228.9 $45.0 18.0 $21.3 9.3
======== ======== ======== ====== ======
Yield on earning assets.............. 8.17% 8.14% 8.28% .03% (.14)%
Cost of interest-bearing
liabilities........................ 4.57 4.48 4.59 .09 (.11)
-------- -------- -------- ------ ------
Interest spread...................... 3.60 3.66 3.69 (.06) (.03)
Impact of interest-free funds........ .87 .85 .86 .02 (.01)
-------- -------- -------- ------ ------
Net interest margin................ 4.47% 4.51% 4.55% (.04)% (.04)%
======== ======== ======== ====== ======
</TABLE>

During 1997, net interest revenue increased 0.3% to $786.2 million. This
follows a growth of 3.2% in 1996. The growth in both years resulted from higher
average earning asset balances. Average earning assets rose by 1.1% during 1997
and by 4.2% in 1996. A portion of this growth in earning assets was attributable
to a bank acquisition completed in 1996. This positive impact was somewhat
offset by a reduction in the net interest margin in both years.

The net interest margin for 1997 was 4.47% compared with 4.51% in 1996 and
4.55% in 1995. The margin has shown modest declines during the past two years.
Competitive pricing pressures on loan and deposit rates and a shift in the
funding mix to higher cost deposits and borrowed funds has and will continue to
impact the net interest margin.

The interest rate earned on average earning assets rose slightly in 1997 by
.03% to 8.17% from 8.14% in 1996. The corresponding increase in the cost of
funds rate was .09%, resulting in the decline in the net interest margin in
1997. The rate earned on average earning assets in 1996 declined by .14%. The
corresponding reduction in the cost of funds rate was .11%, thus reducing the
net interest margin in 1996. The contribution of interest free funds, primarily
in the form of demand deposits, remained relatively level in the .85% to .87%
range during the past three years.

Foregone interest on nonperforming loans and foreclosed assets reduced net
interest revenue by $5.2 million in 1997, $4.9 million in 1996 and $5.4 million
in 1995. This resulted in corresponding reductions in net interest margin of
.03% in each of the last three years. This nominal impact is a reflection of
Firstar's continued low level of nonperforming assets.

Table 2 shows the components of interest revenue and expense along with
changes related to volumes and rates. Total interest revenue increased by 1.4%
to $1,437.3 million in 1997. This resulted from the 1.1% increase in earning
assets along with the .03% increase in the rate earned. Interest income on loans
rose by 2.3% due to increased average loan balances partially offset by lower
commercial loan yields. Securities

8
<PAGE> 10

interest income declined with the reduction in the average balance levels
partially offset by the improvement in the yield. Total interest revenue
increased by 2.6% to $1,417.0 million in 1996. This resulted from an increase of
4.2% in average earning assets partially offset by the decline in the rate
earned. Interest income on loans rose by 2.9% due to loan balance increases
partially offset by lower commercial loan yields. Securities income rose due to
the higher average balance levels.

TABLE 2

ANALYSIS OF INTEREST REVENUE AND EXPENSE

<TABLE>
<CAPTION>
1997 VS 1996 1996 VS 1995
------------------------------ ----------------------------
INTEREST DUE TO DUE TO
------------------------------------ TOTAL ------------------- TOTAL ------------------
1997 1996 1995 CHANGE VOLUME RATE CHANGE VOLUME RATE
---------- ---------- ---------- -------- -------- -------- ------- ------- --------
(thousands of dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits
with banks............... $ 691 $ 380 $ 967 $ 311 $ 255 $ 56 $ (587) $ (352) $ (235)
Federal funds sold and
resale agreements........ 5,880 4,916 10,534 964 1,204 (240) (5,618) (4,806) (812)
Trading securities......... 133 392 968 (259) (403) 144 (576) (231) (345)
Securities................. 285,125 291,261 280,045 (6,136) (12,684) 6,548 11,216 11,612 (396)
Commercial loans........... 633,851 615,966 609,248 17,885 28,325 (10,440) 6,718 28,398 (21,680)
Consumer loans............. 319,424 295,508 278,236 23,916 23,943 (27) 17,272 18,350 (1,078)
Consumer mortgage loans.... 192,172 208,570 201,256 (16,398) (16,136) (262) 7,314 8,392 (1,078)
---------- ---------- ---------- -------- -------
Total loans............ 1,145,447 1,120,044 1,088,740 25,403 31,737 (6,334) 31,304 55,019 (23,715)
---------- ---------- ---------- -------- -------
Total interest
revenue.............. 1,437,276 1,416,993 1,381,254 20,283 16,172 4,111 35,739 57,967 (22,228)
Interest-bearing demand.... 24,775 21,786 23,831 2,989 815 2,174 (2,045) (259) (1,786)
Money market accounts...... 119,135 102,927 85,231 16,208 8,742 7,466 17,696 18,708 (1,012)
Savings passbook........... 33,179 40,034 44,509 (6,855) (3,777) (3,078) (4,475) (3,334) (1,141)
Certificates of deposit.... 294,581 300,806 291,135 (6,225) (7,007) 782 9,671 8,286 1,385
---------- ---------- ---------- -------- -------
Total deposits......... 471,670 465,553 444,706 6,117 (859) 6,976 20,847 18,700 2,147
Short-term borrowed
funds.................... 127,153 123,629 133,151 3,524 2,086 1,438 (9,522) 4,675 (14,197)
Long-term debt............. 52,265 43,830 43,982 8,435 9,724 (1,289) (152) 2,380 (2,532)
---------- ---------- ---------- -------- -------
Total interest
expense.............. 651,088 633,012 621,839 18,076 5,612 12,464 11,173 25,411 (14,238)
---------- ---------- ---------- -------- -------
Net interest revenue... $ 786,188 $ 783,981 $ 759,415 $ 2,207 8,884 (6,677) $24,566 31,662 (7,096)
========== ========== ========== ======== =======
</TABLE>

- ---------------

Calculations are computed on a taxable-equivalent basis using a tax rate of 35%.

The change attributable to both volume and rate has been allocated
proportionately to the changes due to volume and rate.

Total interest expense increased by 2.9% in 1997 to $651.1 million.
Interest on deposits rose by 1.3% with the continued consumer shift to money
market accounts and generally higher deposit interest rates. Interest cost for
borrowed funds rose by 7.1% due to the issuance of new long-term debt securities
and higher rates on short-term borrowed funds. In 1996, total interest expense
increased by 1.8% to $633.0 million. Interest expense on deposits rose by 4.7%
primarily due to a shift from lower cost interest-bearing demand and savings
passbook accounts to money market accounts and certificates of deposit. Interest
cost of borrowed funds declined in 1996 due to the lower rate paid for these
funds. Firstar expects the shift in deposit mix from lower cost passbook
accounts to money market accounts will continue into the future.

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<PAGE> 11

OTHER OPERATING REVENUE

Total other operating revenue, excluding securities transactions and the
gain on the formation of a joint venture to provide credit card processing
services to merchants, increased by 6.2% to a level of $467.6 million in 1997.
This compares with a 10.7% increase in 1996. Firstar continues to emphasize
growth in fee revenue. Firstar's broad customer base provides opportunities for
expanded revenues as the marketplace looks to financial institutions for
services beyond traditional lending and deposit activities. Table 3 shows the
composition of other operating revenues.

TABLE 3

ANALYSIS OF OTHER OPERATING REVENUE

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1997 VS 1996 1996 VS 1995
------------------------------ ------------------ -----------------
1997 1996 1995 AMOUNT PERCENT AMOUNT PERCENT
-------- -------- -------- -------- ------- ------- -------
(thousands of dollars)
<S> <C> <C> <C> <C> <C> <C> <C>
Trust and investment management
fees........................... $174,899 $148,019 $134,354 $ 26,880 18.2% $13,665 10.2%
Service charges on deposit
accounts....................... 87,483 91,953 81,775 (4,470) (4.9) 10,178 12.4
Credit card service revenue...... 71,038 69,945 62,106 1,093 1.6 7,839 12.6
Mortgage origination............. 34,194 26,065 15,848 8,129 31.2 10,217 64.5
Mortgage servicing............... 12,635 23,035 22,631 (10,400) (45.1) 404 1.8
-------- -------- -------- -------- -------
Mortgage banking revenue....... 46,829 49,100 38,479 (2,271) (4.6) 10,621 27.6
Data processing fees............. 19,993 19,443 17,924 550 2.8 1,519 8.5
Brokerage revenue................ 10,993 10,764 8,897 229 2.1 1,867 21.0
Insurance revenue................ 10,586 10,828 11,730 (242) (2.2) (902) (7.7)
ATM fees......................... 6,504 5,109 5,085 1,395 27.3 24 .5
International fees............... 6,482 5,811 5,999 671 11.5 (188) (3.1)
Safe deposit fees................ 4,617 4,040 4,207 577 14.3 (167) (4.0)
Foreign exchange gains........... 2,704 2,272 2,426 432 19.0 (154) (6.3)
Trading securities gains......... 1,128 2,388 2,234 (1,260) (52.8) 154 6.9
Municipal finance fees........... 845 747 936 98 13.1 (189) (20.2)
Other............................ 23,538 19,967 21,775 3,571 17.9 (1,808) (8.3)
-------- -------- -------- -------- -------
Subtotal..................... 467,639 440,386 397,927 27,253 6.2 42,459 10.7
Gain on sale of merchant
processing..................... 22,821 22,821
Securities gains (losses)........ 679 66 (5,730) 613 5,796
-------- -------- -------- -------- -------
Total other operating
revenue.................... $491,139 $440,452 $392,197 $ 50,687 11.5 $48,255 12.3
======== ======== ======== ======== =======
</TABLE>

Other operating revenue now represents 37.3% of Firstar's total
taxable-equivalent revenues, an increase from 36.0% in 1996 and 34.4% in 1995.
An industry measure of fee revenue prominence is the ratio of this revenue to
average assets. During 1997 this ratio was 2.42% compared to 2.30% in 1996 and
2.18% in 1995. Firstar continues to remain in the top quartile of its peer group
by this measure of fee revenue.

Trust and investment management fees are the single largest source of fee
revenue for the company, contributing $174.9 million, or 37% of total other
operating revenue. Trust fees rose by 18.2% in 1997 as compared with the 10.2%
increase in 1996. The general rise in the market value of assets contributed to
the growth achieved in both years. In addition, expanded services are being
offered through Firstar's banking network and additional marketing efforts are
also being directed to institutional investors beyond the Midwest producing a
net growth in account relationships. Assets under management increased by 15.5%
during 1997 to a level of $25.5 billion which follows the 22.5% increase during
1996. Assets held in custody accounts were $91.1 billion at year-end 1997, a
30.0% increase from last year. Mutual fund services, where Firstar provides
custody and accounting duties have been expanding steadily. Firstar is now the
sixth largest third party transfer agent in the country with over 300 mutual
fund accounts and 1.3 million individual accounts. Over 20% of total trust and
investment management fees received by Firstar comes from this business
activity. The increased volatility of equity markets and interest rates has had
a significant effect on trust and investment management fees and future revenue
levels could likewise be influenced by these factors.

10
<PAGE> 12

Service fees on deposit accounts decreased by 4.9% in 1997 to a level of
$87.5 million. This reduction was in part due to declines in certain consumer
deposit accounts caused by Firstar's new deposit products introduced throughout
1997 and a higher earnings credit on commercial analyzed deposits. The
standardization and reduction of consumer deposit products across Firstar's
market regions has increased operational efficiencies, but the new pricing
structures have resulted in some customers closing their accounts. During 1996,
service charges on deposit account increased 12.4% due in part to higher
commercial analyzed service charges and revenue from newly acquired banks.

Credit card service revenues are the third largest source of fee revenue
and totaled $71.0 million in 1997, an increase of 1.6% over 1996. The formation
of the joint venture to process merchant activity reduced merchant fee revenue
in the fourth quarter of 1997 by $3.0 million from the amount realized in the
same period one year ago. Excluding merchant processing, credit card revenues
were up 10.2% in 1997. Firstar expects that future revenue from merchant
processing will also run at lower levels; however the impact on net income is
not expected to be material due to a reduction in expenses that supported this
activity. Over the longer term, the joint venture will benefit Firstar through
access to state of the art processing technology and overall net contributions
to earnings. The growth in credit card revenue during 1996 was 12.6%. Firstar
services 608,000 cardholders and provides credit card programs to more than 800
financial institution. This customer base, which covers the upper Midwest and
includes Wisconsin, Iowa, Illinois, Minnesota, Upper Michigan, Nebraska, Montana
and the Dakotas, provides a market for the sale and expansion of other financial
products.

Revenue from mortgage origination activity rose 31.2% to a level of $34.2
million in 1997 which compares to a 64.5% increase in 1996. A gain of $1.4
million on the sale of portfolio mortgages was realized in 1997 and contributed
to the higher revenues. Of more significance was the increased loan origination
volumes during this three year period. Originations totaled $1.9 billion in
1997, $1.7 billion in 1996, and $1.4 billion in 1995. Loan origination volumes
have increased with the overall reduction in interest rate levels during the
past two years and the addition of new mortgage origination locations.
Particularly, higher volumes were experienced during the latter half of 1997 and
have continued into early 1998 with the current low interest rates available to
borrowers.

Mortgage loan servicing revenues declined in 1997 by 45.1% to a level of
$12.6 million. Mortgage service contracts were sold in 1997 with a loss of $239
thousand compared with gains realized in both 1996 and 1995 of $7.1 million. The
gains realized in 1995 and 1996 resulted from the sale of servicing rights which
did not have a capitalized asset value. The reduced gains, along with the lower
volume of mortgage loans serviced for others, reduced servicing revenue.
Mortgage loans serviced for others were $3.1 billion at the end of 1997 compared
with $3.2 billion a year earlier.

Data processing fee income increased by 2.8% in 1997 following an 8.5%
increase in the previous year. One-half of the increase for 1996 was
attributable to an early buyout by a customer who was acquired by another bank.
A shrinking customer base due to continuing bank consolidations through mergers
or acquisitions and conversions by smaller community banks to in-house data
processing systems have put pressure on revenue increases over the past several
years. Intense pricing competition has also occurred due to the shrinking market
for sales and has affected revenue levels through pricing changes and some loss
of customers. Fee revenue in this business should remain under pressure in
coming years.

Securities losses of $5.7 million were realized in 1995. These losses were
generated by the partial liquidation of a merged bank's portfolio to bring them
in line with Firstar's investment policies.

As mentioned previously, Firstar entered into a joint venture with NOVA
Information Systems, Inc. and established Elan Merchant Services, LLC in the
fourth quarter of 1997. The new company provides credit card processing services
to merchants. Firstar contributed its existing payment processing contracts to
the company for a 49% interest in the venture. NOVA provides the technological
support. Firstar recorded a $22.8 million gain on the transaction in the fourth
quarter of 1997.

The remaining sources of other operating revenue are derived from a wide
range of services and collectively totaled $67.4 million in 1997, $61.9 million
in 1996 and $63.3 million in 1995. A gain on the sale of a payroll processing
operation of $2.1 million was realized in 1995.

11
<PAGE> 13

OTHER OPERATING EXPENSES

Total operating expenses increased 4.5% to $744.0 million in 1997,
excluding certain restructuring charges and other expenses incurred in 1996.
Operating expenses rose by 0.2% in 1996 on a comparable basis. Information on
the components of other operating expense is shown in Table 4.

TABLE 4

ANALYSIS OF OTHER OPERATING EXPENSE

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1997 VS 1996 1996 VS 1995
------------------------------ ------------------ ------------------
1997 1996 1995 AMOUNT PERCENT AMOUNT PERCENT
-------- -------- -------- -------- ------- -------- -------
(thousands of dollars)
<S> <C> <C> <C> <C> <C> <C> <C>
Salaries.......................... $333,866 $320,239 $323,163 $ 13,627 4.3% $ (2,924) (.9)%
Employee benefits................. 65,836 71,277 72,198 (5,441) (7.6) (921) (1.3)
-------- -------- -------- -------- --------
Total personnel expense....... 399,702 391,516 395,361 8,186 2.1 (3,845) (1.0)
Equipment expense................. 69,574 63,197 56,282 6,377 10.1 6,915 12.3
Net occupancy expense............. 63,232 64,235 57,992 (1,003) (1.6) 6,243 10.8
Business development.............. 30,415 27,540 29,413 2,875 10.4 (1,873) (6.4)
Stationery and supplies........... 22,034 24,696 21,284 (2,662) (10.8) 3,412 16.0
Professional fees................. 27,412 22,244 20,491 5,168 23.2 1,753 8.6
Information processing expense.... 23,493 20,840 21,918 2,653 12.7 (1,078) (4.9)
Delivery.......................... 21,091 19,497 19,192 1,594 8.2 305 1.6
Amortization of intangibles....... 14,987 15,321 11,068 (334) (2.2) 4,253 38.4
Processing and other losses....... 11,951 7,997 7,562 3,954 49.4 435 5.8
Wire communication................ 9,815 9,787 9,836 28 .3 (49) (.5)
Employee education/recruiting/
relocation...................... 9,597 6,793 9,061 2,804 41.3 (2,268) (25.0)
Commissions and service fees...... 5,673 6,246 5,799 (573) (9.2) 447 7.7
Bank processing fees.............. 7,392 5,926 5,707 1,466 24.7 219 3.8
Credit card assessment fees....... 5,904 5,890 5,011 14 .2 879 17.5
Published information............. 3,125 2,296 2,277 829 36.1 19 0.8
Amortization of loan servicing
rights.......................... 2,527 2,573 1,641 (46) (1.8) 932 56.8
F.D.I.C. insurance................ 2,480 2,282 16,531 198 8.7 (14,249) (86.2)
Insurance......................... 1,291 1,766 1,739 (475) (26.9) 27 1.6
Net foreclosed assets (income)
expense......................... (995) 349 (281) (1,344) 630
Other............................. 13,318 11,235 13,087 2,083 18.5 (1,852) (14.2)
-------- -------- -------- -------- --------
Subtotal...................... 744,018 712,226 710,971 31,792 4.5 1,255 .2
Restructuring expense............. 53,267 23,151 (53,267) 30,116
SAIF assessments.................. 7,837 (7,837) 7,837
-------- -------- -------- -------- --------
Total other operating
expense..................... $744,018 $773,330 $734,122 $(29,312) (3.8) $ 39,208 5.3
======== ======== ======== ======== ========
</TABLE>

Personnel costs, which include salaries and fringe benefits, are the
largest component of operating expenses, representing more than one-half of
operating costs. This expense increased by 2.1% in 1997 following a decline of
1.0% during 1996. Full time equivalent personnel headcount was 7,755 on December
31, 1997, down from 8,367 at the end of 1996 and 9,263 at the end of 1995. Staff
reductions have occurred under the corporate wide restructuring program which
started in the third quarter of 1995 and concluded in mid 1997. Salary expense
rose by 4.3% in 1997 despite the reduced FTE headcount due to increases in
temporary staffing costs, higher cost of variable pay programs, and normal
salary increases for all employees. Increased temporary staffing has occurred as
these resources are dedicated to implement technology related enhancements and
to staff operations areas of the company. Salary expense declined by 0.9% in
1996 with the major portion of the staff reductions occurring in that year.
Higher levels of temporary staffing was also a factor in 1996.

Fringe benefits declined by 7.6% in 1997 and by 1.3% in 1996. Lower pension
and post retirement benefit costs were a factor in 1997 along with reduced staff
levels in both years.

12
<PAGE> 14

Equipment expense increased by 10.1% in 1997 compared with 12.3% in 1996.
Firstar continues to invest in upgraded data processing equipment, ensuring that
its data processing capabilities are up-to-date in order to provide quality
service in a cost effective manner.

Net occupancy expense declined by 1.6% in 1997 compared with a 10.8%
increase in 1996. Occupancy expense has been reduced in recent years by the
amortization of a deferred gain on the sale of a building. This amortization was
$6.8 million in 1997 and $6.2 million in both 1996 and 1995. The amortization
period ended in 1997 and, accordingly, future years' occupancy expense will be
higher as a result.

Business development expense rose by 10.4% in 1997 as compared to an
unrepresentative lower level in 1996. Increased focus on customer development
activities was implemented in 1997 and includes a new corporate branding
campaign. Professional fees increased by 23.2% in 1997 as outside consultants
have been engaged to help implement various process improvement programs.
Processing and fraud losses have increased during the last two years driven by
both increases in activity volumes in the trust area and some one-time losses
incurred through the centralization of various operational functions.

FDIC insurance is an uncontrollable cost, with the premium established by
the federal regulatory agency. The FDIC sets varying premium amounts based upon
capitalization levels and soundness criteria. Firstar's capital strength has
permitted payments at the lowest rate levels since the inception of the current
system by the FDIC. The FDIC has substantially reduced premium requirements
during the past three years as can be seen in the $14 million reduction in
expense from 1995 to 1997.

The amortization of intangibles includes amounts associated with goodwill,
core deposit intangibles and purchased credit card premiums. Expenses increased
during 1996 due to the creation of additional intangible assets with the bank
acquisitions completed during the year.

All other operating expenses, excluding the charges described below,
increased by 6.3% in 1997 and 3.5% in 1996.

During 1996 Firstar recorded a $53.3 million charge in connection with
Firstar Forward, the corporate wide restructuring program which was announced by
the company in January 1996. The charge included severance accruals of $27.1
million associated with staff reductions of approximately 1,500 people, fixed
asset writedowns of $3.9 million, and other project costs of $22.3 million. The
total charge consisted of $45.4 million in anticipated cash expenditures and
$7.9 million of non-cash items. Substantially all of the cash payments have been
made as of December 31, 1997.

The Savings Association Insurance Fund(SAIF) charge of $7.8 million was
recorded in 1996. This banking industry-wide SAIF assessment helped recapitalize
the savings and loan deposit insurance fund. Firstar's SAIF assessment was based
upon deposits that it acquired through several savings and loan acquisitions.

During 1995 certain merger and restructuring charges were taken in
connection with four bank acquisitions. Acquisition related restructuring
charges totaling $23.2 million are included in other operating expenses.
Included in these charges were $11.9 million of costs associated with the
severance of approximately 500 employees, $4.9 million related with office
closings and write-offs of unusable equipment, $2.5 million of professional fees
and $3.9 million of other costs associated with mergers. The restructuring
charge of $23.2 million consisted of $17.3 million in anticipated cash
expenditures and $5.9 million on non-cash asset write-downs. All cash payments
have been made as of the end of 1997.

Firstar is implementing a program to insure that its computer systems are
year 2000 compliant. This process involves modifying or replacing certain
hardware and software maintained by Firstar as well as monitoring the progress
of service providers to ensure that they are taking the appropriate action to
solve their year 2000 issues. Year 2000 compliance does involve significant
business risk to both Firstar and its correspondent customers to which it
provides data processing. Firstar has completed assessment of its year 2000
issues and the required updates and testing are currently in progress. Firstar
expects that the total cost of this process will approach $20 million.
Approximately $4.1 million was expensed during 1997. Firstar plans to complete
nearly all year 2000 work by the end of 1998.

13
<PAGE> 15

A measure of the success in managing operating expense is expressed in the
ratio of expense to revenue and is referred to as the efficiency ratio. The
objective is to reduce this ratio through revenue growth, cost control or a
combination of both. Excluding the restructuring charges and other expenses
discussed above, this ratio was 59.3% in 1997, 58.2% in 1996 and 61.4% in 1995.

PROVISIONS FOR LOAN LOSSES

The provision for loan losses is used to cover actual loan losses and to
adjust the size of the reserve relative to the amount and quality of loans. In
determining the adequacy of the reserve, management considers the financial
strength of borrowers, loan collateral, current and anticipated economic
conditions and other factors. The 1997 provision for loan losses was $54.7
million, compared with $42.6 million in 1996 and $36.8 million in 1995.
Increased charge-off levels, primarily in the consumer lending area, have been
experienced during the past two years. Additionally during 1995, extra loan loss
provisions of $13.6 million were taken to increase newly acquired banks' loan
loss reserve levels to conform with Firstar's loan loss reserve policies.
Exclusive of this factor, the loan loss provision increased by $19.5 million in
1996. A further discussion of loan charge-off trends is included under "Credit
Risk Management".

INCOME TAXES

Income tax expense was $147.6 million in 1997, compared to $124.2 million
in 1996 and $118.4 million in 1995. The effective tax rate was 33.3% in 1997,
33.2% in 1996 and 34.1% in 1995. The effective tax rate remained relatively
level in 1997 as compared to 1996 due to a reduction in state tax expense which
was offset by a favorable settlement of prior years' taxes in 1996. The
effective tax rate declined in 1996 as compared to 1995 due to the favorable
settlement of prior years' taxes in 1996 and a reduction in state income tax
expense.

BALANCE SHEET ANALYSIS

Changes in the balance sheet of a financial institution reflect both the
forces of the marketplace and the company's response to these conditions.
Firstar's strategy in managing balance sheet growth is based upon the goals of
enhancing soundness, optimizing revenues and providing a broad range of services
for customers. Total assets at the end of 1997 were $19.8 billion, unchanged
from a year earlier. Average total assets for 1997 were $19.3 billion, an
increase of 0.9% over 1996.

EARNING ASSETS

Total earning assets were $17.8 billion at year-end 1997, representing a
$193 million, or 1.1% increase from December 31, 1996. On an average basis,
total earning assets were $17.6 billion in 1997 compared to $17.4 billion in
1996, an increase of 1.1%. Reductions in average investment securities were used
in part to fund the increased average loan balances. Table 5 shows the
distribution of average earning assets for the past three years.

Total loans were $13.6 billion at December 31, 1997, an increase of $373
million, or 2.8% from a year earlier. Average loan balances for 1997 increased
by $368 million, or 2.8%, to a level of $13.3 billion. Excluding the impact of a
mid-year 1996 bank acquisition, average loans increased by 0.3% in 1997. The
ratio of loans to earning assets increased to 75.5% from 74.3% in 1996.

14
<PAGE> 16

TABLE 5

AVERAGE EARNING ASSETS

<TABLE>
<CAPTION>
1997 1996 1995
------------------- ------------------- -------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
--------- ------- --------- ------- --------- -------
(millions of dollars)
<S> <C> <C> <C> <C> <C> <C>
Commercial and industrial............ $ 3,493.8 19.8% $ 3,228.9 18.6% $ 3,054.2 18.3%
Commercial mortgage.................. 2,966.9 16.9 2,941.9 16.9 2,817.9 16.9
Other commercial..................... 1,036.4 5.9 992.8 5.7 966.2 5.8
--------- ------ --------- ------ --------- ------
Commercial loans................... 7,497.1 42.6 7,163.6 41.2 6,838.3 41.0
Credit card.......................... 668.2 3.8 615.9 3.5 554.7 3.3
Consumer mortgage.................... 2,516.2 14.3 2,727.5 15.7 2,617.8 15.7
Home equity.......................... 1,174.7 6.7 1,013.1 5.8 859.5 5.2
Other consumer....................... 1,434.1 8.1 1,402.3 8.1 1,421.4 8.5
--------- ------ --------- ------ --------- ------
Consumer loans..................... 5,793.2 32.9 5,758.8 33.1 5,453.4 32.7
--------- ------ --------- ------ --------- ------
Total loans........................ 13,290.3 75.5 12,922.4 74.3 12,291.7 73.7
Securities held to maturity.......... 2,327.5 13.2 2,323.1 13.3 3,927.7 23.5
Securities available for sale........ 1,854.5 10.6 2,046.4 11.7 267.6 1.6
Trading securities................... 2.2 10.1 .1 14.2 .1
Interest-bearing deposits with
banks.............................. 14.0 .1 8.7 .1 15.7 .1
Federal funds sold and resale
agreements......................... 108.6 .6 88.3 .5 173.5 1.0
--------- ------ --------- ------ --------- ------
Total.............................. $17,597.1 100.0% $17,399.0 100.0% $16,690.4 100.0%
========= ====== ========= ====== ========= ======
</TABLE>

Commercial loans, which account for 57% of the loan portfolio, were $7.7
billion at the end of 1997, an increase of $409 million, or 5.6%, from December
31, 1996. On an average balance basis, commercial loans increased by $334
million, or 4.7%, to a level of $7.5 billion in 1997. Excluding the impact of
the bank acquisition on average balances, commercial loans increased by just
under 1.0% in 1997. The modest growth in commercial loan average balances was
influenced by a general decline in loans outstanding in certain regions of the
company during 1996. The year-end to year-end increase of 5.6% is more
representative of current growth trends in the commercial lending area.

Consumer loans, excluding residential mortgages, were $3.5 billion at
December 31, 1997, an increase of $240 million, or 7.5% from a year earlier.
Consumer loan average balances rose by $246 million, or 8.1% to a level of $3.3
billion in 1997. Again, excluding the impact of bank acquisitions, consumer loan
average balances increased by 6.5%. Strong growth has been experienced in
average balances of home equity loans, up 15.9%, and credit card loans, up 8.5%,
in 1997. Consumer loan growth has exceeded 10% on an annualized basis in the
last two quarters of 1997.

Residential mortgage loans totaled $2.4 billion at December 31, 1997, a
reduction of $276 million, or 10.4% from a year earlier. Average residential
mortgages declined by 7.7% in 1997. The reduction was attributable to the normal
amortization and prepayments. Firstar's strategy is to originate and sell
mortgages into the secondary market and thereby reduce the amount of mortgages
held on its balance sheet. Also, due to the relatively flat yield curve
experienced in 1997, consumer preference was toward longer-term fixed rate
secondary market products versus adjustable rate portfolio products.

15
<PAGE> 17

The investment securities portfolio was reduced by $58 million to a level
of $4.2 billion at December 31, 1997. Tables 6 and 7 show the maturity range and
changing mix of the securities portfolio. The portfolio is classified into two
categories: securities held to maturity and securities available for sale.
Securities that the company has the positive intent and ability to hold to
maturity are carried at amortized cost. The designation of securities as
available for sale are carried at their fair values with unrealized gains and
losses recorded as a component of stockholders' equity. During 1997, increased
investments in mortgage backed securities and municipal securities were made in
response to the more favorable interest rates available on these securities.
Reductions in U.S. Treasury securities occurred as these maturing securities
were reinvested in higher yielding investments and loans. The weighted average
yield on the investment portfolio rose from 6.16% on December 31, 1996 to 6.57%
on December 31, 1997. The average maturity of the portfolio was 3.6 years at the
end of 1997, down from 3.8 years a year earlier.

Short-term investments, which include interest-bearing deposits with banks,
trading account securities, and federal funds sold and resale agreements,
averaged $125 million during 1997, an increase of $18 million from 1996.

TABLE 6

MATURITY RANGE AND AVERAGE YIELD OF SECURITIES

<TABLE>
<CAPTION>
TOTAL
DUE WITHIN FIVE TO TEN DECEMBER 31,
ONE YEAR ONE TO FIVE YEARS YEARS AFTER TEN YEARS 1997
--------------- ----------------- --------------- --------------- -----------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE AMOUNT RATE AMOUNT RATE
-------- ---- ---------- ---- -------- ---- -------- ---- ---------- ----
(thousands of dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities held to
maturity:
Mortgage backed
obligations of federal
agencies............... $178,579 7.19% $ 510,636 7.19% $322,784 7.11% $127,318 6.38% $1,139,317 7.08%
State and political
subdivisions........... 146,798 6.72 617,934 7.01 483,400 7.43 58,423 7.35 1,306,555 7.15
Corporate debt........... 1,105 5.68 2,681 6.39 2,002 7.39 464 4.97 6,252 6.48
-------- ---------- -------- -------- ----------
Total................ $326,482 6.97 $1,131,251 7.09 $808,186 7.30 $186,205 6.68 $2,452,124 7.11
======== ========== ======== ======== ==========

Securities available for
sale:
U.S. Treasury and federal
agencies............... $109,690 5.71% $1,342,877 6.69% $ 8,247 6.54% $ % $1,460,814 6.62%
Mortgage backed
obligations of federal
agencies............... 12,430 6.31 39,702 6.35 36,420 6.27 15,284 6.17 103,836 6.29
State and political
subdivisions........... 3,217 8.18 2,435 6.41 521 3.53 6,173 7.09
Money market mutual
funds.................. 38,773 5.00 38,773 5.00
-------- ---------- -------- -------- ----------
Total................ $164,110 5.64 $1,385,014 6.68 $ 45,188 6.29 $ 15,284 6.17 1,609,596 6.56
======== ========== ======== ========
Equity securities........ 98,010 6.74
----------
$1,707,606 6.57
==========
</TABLE>

- ---------------

Rates are calculated on a taxable-equivalent basis using a tax rate of 35%. The
maturity information on mortgage-backed obligations is based on anticipated
payments.

16
<PAGE> 18

TABLE 7

SECURITIES

<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(thousands of dollars)
<S> <C> <C> <C> <C> <C>
Securities held to maturity:
U.S. Treasury and federal
agencies......................... $ $ 756 $ 2,146 $1,612,188 $1,510,216
Mortgage backed obligations of
federal agencies................. 1,139,317 1,092,528 1,266,458 867,990 361,784
State and political subdivisions... 1,306,555 1,147,387 1,141,987 1,069,755 1,036,236
Corporate debt..................... 6,252 10,027 15,590 79,891 108,429
Other.............................. 78 849 1,139 1,118
---------- ---------- ---------- ---------- ----------
Total......................... $2,452,124 $2,250,776 $2,427,030 $3,630,963 $3,017,783
========== ========== ========== ========== ==========

Securities available for sale:
U.S. Treasury and federal
agencies......................... $1,460,814 $1,800,798 $1,917,725 $ 202,435 $ 79,200
Mortgage backed obligations of
federal agencies................. 103,836 8,481 9,787 12,060 93,427
State and political subdivisions... 6,173 7,626 7,831 7,720 33,231
Corporate debt..................... 1,196 504 3,587
Equity securities.................. 98,010 111,315 92,767 57,621 32,122
Money market mutual funds.......... 38,773 38,370 18,542 62,313 100,402
---------- ---------- ---------- ---------- ----------
Total......................... $1,707,606 $1,966,590 $2,047,848 $ 342,653 $ 341,969
========== ========== ========== ========== ==========
</TABLE>

FUND SOURCES

Total deposits were $14.7 billion at December 31, 1997, a reduction of $500
million, or 3.3%, from the year earlier level. Average deposits totaled $14.3
billion during 1997, essentially level with the 1996 level. Excluding deposits
derived from bank acquisitions, average deposit balances have declined by $343
million, or 2.3%, from 1996. Table 8 shows the composition of Firstar's deposits
and other fund sources.

TABLE 8

AVERAGE FUND SOURCES

17
<PAGE> 19

Core deposits, which include transaction accounts and other stable time
deposits, are Firstar's prime source of funding and totaled $14.0 billion at
December 31, 1997, a reduction of $326 million from a year earlier. These
deposits averaged $13.4 billion in 1997, unchanged from the 1996 level.
Excluding bank acquisitions, average core deposits declined by 2.4% in 1997.
Shifts in the mix of core deposits have been seen with movement from lower
yielding passbook accounts and checking accounts to higher rate money market
accounts and certificates of deposit. Core deposits represented 77% of average
fund sources in 1997, consistent with the prior two years. Increased competition
for consumer deposits; alternative investments such as mutual funds; and
heightened consumer sensitivity to interest rates have limited Firstar's core
deposit growth.

An increased reliance was placed on purchased fund sources to support
earning asset growth. Total purchased funds averaged $4.0 billion an increase of
$129 million, or 3.3%, over 1996. Purchased funds represented 23% of total fund
sources in 1997. Other time deposits, primarily certificates of deposit over
$100,000, were reduced to a level at $856 million. Short-term borrowed funds
were increased by $40 million to an average level of $2.4 billion and long-term
debt was increased by $105 million to an average level of $747 million.
Continued reliance on these alternative funding sources will be necessary into
the future. During the fourth quarter of 1997, Firstar put in place a bank note
program. Under this program, certain subsidiary banks may issue from time to
time up to $1.5 billion of debt outstanding at any time, with maturities ranging
from seven days to thirty years. At December 31, 1997, $250 million was
outstanding under this program.

CREDIT RISK MANAGEMENT

Emphasis on credit quality standards and diversification of risk have been
key strategies of Firstar. The benefits of this program are seen in the
reductions in nonperforming assets and overall credit quality achieved during
the past several years. During this period, nonperforming assets as a percentage
of loans and foreclosed assets have declined from over 3% in 1987 to .51% at the
end of 1997. The current nonperforming asset level represents a historically low
level for Firstar.

Nonperforming assets consist of loans that are not accruing interest, loans
with renegotiated credit terms and collateral acquired in settlement of
nonperforming loans. The composition of these assets is shown in Table 9. These
nonperforming assets totaled $70.4 million at December 31, 1997, and represented
.52% of Firstar's $13.6 billion of loans and foreclosed assets. This is a $24.7
million, or 26.0%, decrease from a year earlier.

Commercial mortgage related nonperforming assets totaled $26.8 million at
the end of 1997, a reduction of $13.3 million from a year earlier. These
nonperforming assets represented .91% of their loan category, a reduction from
1.34% a year earlier. Firstar experienced an increase in real estate related
nonperforming assets several years ago, although to a much lesser extent than
many other financial institutions. These assets stood at $84.0 million at the
end of 1991 and represented 4.20% of their respective loan category. As can be
seen in Table 9, significant progress has been made in reducing this category of
nonperforming assets and the overall credit quality is in line with the
commercial loan portfolio in general.

The remaining commercial loan portfolio had nonperforming assets of $26.7
million and a ratio of .56% of outstanding loans compared to .83% a year
earlier. This level is reflective of the overall financial strength of Firstar's
commercial borrowers.

18
<PAGE> 20

TABLE 9

NONPERFORMING ASSETS AND PAST DUE LOANS

<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(thousands of dollars)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans:
Commercial................................... $26,739 $35,757 $26,239 $29,710 $24,591
Commercial mortgage.......................... 20,291 30,128 46,959 28,993 30,963
Consumer..................................... 16,828 19,193 16,187 9,831 10,881
------- ------- ------- ------- -------
Total nonaccrual loans.................... 63,858 85,078 89,385 68,534 66,435

Renegotiated loans:
Commercial................................... 40 71 823
Commercial mortgage.......................... 263 1,028 1,336 674 697
------- ------- ------- ------- -------
Total renegotiated loans.................. 263 1,028 1,376 745 1,520
Foreclosed assets.............................. 6,244 8,926 7,141 13,282 19,881
------- ------- ------- ------- -------
Total nonperforming assets................ $70,365 $95,032 $97,902 $82,561 $87,836
======= ======= ======= ======= =======

Nonperforming assets as a percentage of:
Loans and foreclosed assets.................. .52% .72% .77% .69% .81%
Total assets................................. .35 .48 .51 .46 .54

Loans past due 90 days:
Commercial................................... $21,774 $24,368 $21,039 $ 7,432 $ 7,453
Commercial mortgage.......................... 15,626 27,352 9,287 3,760 4,441
Consumer..................................... 20,228 22,938 19,084 15,709 13,758
------- ------- ------- ------- -------
Total loans past due 90 days.............. $57,628 $74,658 $49,410 $26,901 $25,652
======= ======= ======= ======= =======
</TABLE>

Nonperforming consumer loans have been at higher levels during the past
three years than previously experienced. Total consumer nonperforming loans were
$16.8 million at December 31, 1997, or .29% of outstanding loans compared to
$19.2 million, or .33% of outstanding consumer loans, a year earlier. While
consumer nonperforming loans remain at a manageable level, the increase from the
earlier levels reflects the impact of consumers taking on increased debt burdens
in the past several years and the resulting increased level of personal
bankruptcies. The effect of this trend can be seen in the increased consumer
loan charge-off levels during the past two years.

Loans ninety days or more past due on December 31, 1997, totaled $57.6
million, compared with $74.7 million a year earlier. These loans are on a full
accrual basis and are judged by management to be collectible in full. In
addition, Firstar had $38 million of loans at December 31, 1997, on which
interest is accruing; however, because of existing economic conditions or
circumstances of the borrower, doubt exists as to the ability of the borrower to
comply with the present loan terms.

Additional indicators of asset quality can be found in the geographic
distribution, industry diversification and type of lending represented in the
loan portfolio. Credit policies have been changed over the past several years to
reduce vulnerability to potential adverse economic trends. Marketing efforts
have been directed to Firstar's primary market segments which are consumer,
small business and middle market customers in communities where Firstar banks
are located and in contiguous states. This emphasis on smaller, locally based
credits brings with it a diversified group of customers without any significant
industry concentration. Firstar does not participate in any significant
syndicated lending.

19
<PAGE> 21

The reserve for loan losses is reviewed and adjusted quarterly, subject to
evaluation of economic conditions and expectations, historical experience and
risk ratings of individual loans. Table 10 shows the activity affecting the
reserve for loan losses for the last five years. The reserve totaled $218.9
million at the end of 1997, compared with $213.1 million a year earlier. At
December 31, 1997, the ratio of the reserve for loan losses to loans was 1.61%
and the coverage of nonperforming assets was 311%. This compares with a reserve
for loan losses to loans of 1.62% and to nonperforming assets of 224% a year
earlier. Total net charge-offs of $48.9 million represented .37% of average
loans during 1997, up from the .30% level experienced in 1996.

TABLE 10

RESERVE FOR LOAN LOSSES

<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(thousands of dollars)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year.............. $213,138 $195,283 $190,552 $189,714 $183,251
Loan charge-offs:
Commercial.............................. 15,310 13,328 13,417 21,300 15,090
Commercial mortgage..................... 2,999 3,696 7,246 3,374 4,611
Consumer................................ 21,306 13,099 13,915 8,040 6,763
Consumer mortgage....................... 730 2,814 1,671 766 1,301
Credit card............................. 30,398 30,271 16,614 14,248 15,073
-------- -------- -------- -------- --------
Total charge-offs.................... 70,743 63,208 52,863 47,728 42,838
Loan recoveries:
Commercial.............................. 5,259 7,773 7,470 7,886 7,194
Commercial mortgage..................... 2,618 3,287 1,782 2,764 2,587
Consumer................................ 6,804 6,098 4,864 4,190 3,539
Consumer mortgage....................... 119 1,907 434 741 291
Credit card............................. 7,008 5,385 5,423 4,380 4,121
-------- -------- -------- -------- --------
Total recoveries..................... 21,808 24,450 19,973 19,961 17,732
-------- -------- -------- -------- --------
Net loan charge-offs...................... 48,935 38,758 32,890 27,767 25,106
Provision for loan losses................. 54,658 42,647 36,756 23,891 29,090
Reserves of acquired banks................ 13,966 865 4,714 2,479
-------- -------- -------- -------- --------
Total balance at end of year......... $218,861 $213,138 $195,283 $190,552 $189,714
======== ======== ======== ======== ========
Reserve to year-end loans................. 1.61% 1.62% 1.55% 1.60% 1.75%
Net charge-offs to average loans:
Commercial.............................. .22% .13% .15% .37% .26%
Commercial mortgage..................... .01 .01 .19 .02 .09
Total commercial loans............... .14 .08 .17 .22 .18
Consumer................................ .56 .29 .40 .27 .26
Consumer mortgage....................... .02 .03 .04 .04
Credit card............................. 3.50 4.04 2.02 1.93 2.18
Total consumer loans................. .66 .57 .39 .28 .34
Total loans.......................... .37 .30 .27 .25 .25
</TABLE>

As a regional financial institution, Firstar lends to a diversified group
of Midwestern borrowers and, to a much lesser degree, to national companies with
Midwest operations. Net charge-offs in this commercial segment of the portfolio
were $10.1 million, or .22% of average loans. This is up from the $5.6 million
of net charge-offs in 1996, representing .13% of loans. While charge-offs in
this segment of the portfolio have risen in 1997, the increase was for the most
part attributable to two credits. Future charge-offs in this area should trend
with the overall economic conditions of the markets that Firstar serves.

20
<PAGE> 22

Commercial mortgage loan net charge-offs were under one-half million
dollars in both 1997 and 1996 and represented only .01% of average commercial
mortgage loans. Future charge-off levels in this area should follow the overall
experience level of the other commercial lending areas of the company.

Consumer lending includes loans to individuals in communities served by
Firstar's banks. These loans include both open-ended credit arrangements subject
to an overall limit per customer, such as credit card and home equity loans, and
closed-end loans subject to specific contractual payment schedules, such as
installment loans and residential mortgages. Consumer net charge-offs were $38.5
million in 1997, compared with $32.8 million in 1996 and $21.5 million in 1995.
Total consumer net charge-offs of .66% in 1997 compares with .57% and .39% in
1996 and 1995, respectively. Consumer delinquency rates and bankruptcies have
increased industry wide over the past three years. Increased consumer
charge-offs have been the result of this trend.

Credit card losses were $23.4 million in 1997 compared to $24.9 million in
1996 and $11.2 million in 1995. This represented charge-off rates of 3.50%,
4.04%, and 2.02% in 1997, 1996, and 1995, respectively. While high compared to
Firstar's historical experience, these credit card charge-offs are well below
national averages.

Other consumer lending in the form of home equity loans and installment
debt has seen increased charge-off levels in the past three years, but at a
significantly lower rate than credit cards. These loss levels were at .56% of
outstanding loans in 1997 compared to .29% in 1996 and .40% in 1995. Losses on
consumer mortgages have been and should remain nominal.

LIQUIDITY AND MARKET RISK MANAGEMENT

Two objectives of Firstar's asset and liability management strategy include
the maintenance of appropriate liquidity and management of interest rate risk.
Liquidity management aligns sources and uses of funds to meet the cash flow
requirements of customers and Firstar. Interest rate risk management seeks to
generate growth in net interest revenue and manage exposure to risks associated
with interest rate movements and provide for acceptable and predictable results.
Although conceptually distinct, liquidity and interest rate sensitivity must be
managed together since action taken with respect to one often influences the
other.

Asset liquidity is generally provided by short-term investments such as
interest bearing deposits with other banks, federal funds sold and repurchase
agreements. These investments totaled $90 million at December 31, 1997.
Securities that have been designated as available for sale were $1.7 billion at
the end of 1997 and can be sold to meet liquidity needs. The remaining
securities portfolio, which is held to maturity, provides liquidity through
scheduled maturities and the ability to use these securities in repurchase
agreements.

The requirement of liquidity is diminished by the predominance of core
deposits, which account for 77% of Firstar's funding sources. Stable core
deposits do not require significant amounts of liquidity to meet the net
withdrawal demands of customers on a short or intermediate term basis. Other
sources of liquidity are short-term borrowed funds and commercial time deposits
which totaled $2.8 billion at the end of 1997. Firstar's ability to refinance
maturing amounts and, when necessary, increase this funding base is a
significant factor in its liquidity management.

Additionally, Firstar has access to capital markets through the issuance of
long-term debt or other securities. In December 1996, Firstar issued $150
million of Trust Capital Securities. In December 1997. Firstar Bank Milwaukee,
N.A. issued $250 million of five year senior bank notes. Firstar also has in
place a $125 million revolving credit facility which was unused at December 31,
1997.

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<PAGE> 23

TABLE 11

COMPOSITION OF LOANS

<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
(thousands of dollars)
<S> <C> <C> <C> <C> <C>
Commercial and industrial........ $ 3,644,721 $ 3,366,016 $ 3,078,148 $ 2,944,565 $ 2,641,967
Commercial construction.......... 466,934 418,040 387,378 329,717 262,476
Commercial mortgage.............. 2,485,034 2,574,376 2,462,010 2,472,042 2,166,390
Other commercial................. 1,123,824 953,145 1,038,677 963,883 925,370
----------- ----------- ----------- ----------- -----------
Commercial loans............... 7,720,513 7,311,577 6,966,213 6,710,207 5,996,203
Credit card...................... 736,484 684,619 619,868 575,278 547,769
Consumer mortgage................ 2,384,406 2,660,290 2,722,531 2,382,857 2,268,470
Home equity...................... 1,271,966 1,121,580 935,907 767,540 645,002
Other consumer................... 1,455,417 1,417,468 1,387,994 1,469,946 1,367,377
----------- ----------- ----------- ----------- -----------
Consumer loans................. 5,848,273 5,883,957 5,666,300 5,195,621 4,828,618
----------- ----------- ----------- ----------- -----------
Total loans.................... $13,568,786 $13,195,534 $12,632,513 $11,905,828 $10,824,821
=========== =========== =========== =========== ===========
</TABLE>

TABLE 12

MATURITY DISTRIBUTION OF LOANS

<TABLE>
<CAPTION>
TOTAL
DUE WITHIN ONE TO AFTER DECEMBER 31,
ONE YEAR FIVE YEARS FIVE YEARS 1997
---------- ----------- ---------- ------------
(thousands of dollars)
<S> <C> <C> <C> <C>
Commercial............................... $3,201,210 $3,697,161 $ 822,142 $ 7,720,513
Consumer................................. 2,087,119 2,241,050 1,520,104 5,848,273
---------- ---------- ---------- -----------
Total.................................. $5,288,329 $5,938,211 $2,342,246 $13,568,786
========== ========== ========== ===========
</TABLE>

- ------------

The maturity is based upon contractual terms, however, Firstar may extend the
maturity at prevailing rates and terms in the normal course of business.

Of the above loans due after one year, $5,021,977,000 have predetermined
interest rates and $3,258,480,000 have floating or adjustable interest rates.

TABLE 13

MATURITY RANGE OF TIME DEPOSITS

<TABLE>
<CAPTION>
TOTAL
DUE WITHIN THREE TO SIX TO AFTER DECEMBER 31,
THREE MONTHS SIX MONTHS TWELVE MONTHS TWELVE MONTHS 1997
------------ ---------- ------------- ------------- ------------
(thousands of dollars)
<S> <C> <C> <C> <C> <C>
Certificates of deposit
of $100,000 or
more................ $388,655 $221,759 $124,759 $112,497 $847,670
======== ======== ======== ======== ========
</TABLE>

Market risk is the risk of loss arising from adverse changes in the fair
value of financial instruments due to changes in interest rates, exchange rates
and equity prices. Firstar's market risk is composed primarily of interest rate
risk. Firstar's Asset/Liability Committee (ALCO) is responsible for reviewing
the interest rate sensitivity position of the Corporation and establishing
policies to monitor and limit exposure to interest rate risk. The guidelines
established by ALCO are reviewed by the Audit-Examining Committee.

Firstar's primary purpose is to manage exposure to risks associated with
interest rate movements and provide for acceptable and predictable results.
Firstar utilizes an investment portfolio as well as off-balance sheet
instruments to manage the interest rate risk naturally created through its
business activities. The

22
<PAGE> 24

components of interest rate risk which are actively measured and managed
include; repricing risk, basis risk, option risk and the risk of non-parallel
shifts in the yield curve. Interest rate risk is measured in two ways to capture
both near-term and long-term effects of rate volatility; earnings simulation
modeling and net present value estimation.

Earnings Simulation -- The earnings simulation model forecasts earnings
over each of the next two years under a variety of scenarios that incorporate
changes in the shape of the yield curve, changes in interest rate relationships
and changes in the direction of rates. Management evaluates the effects on
income of these various rate scenarios against earnings in a stable rate
environment.

The most recent earnings simulation projects net income would increase by
approximately 2.6% of stable-rate net income if rates gradually fall by 150
basis points over the next year. It projects a decrease of approximately 2.3% if
rates rise gradually by 150 basis points. Both simulations are well within the
policy of limiting changes to 5% of net income.

Net income is projected to fall below the level associated with stable
rates if the yield curve flattens. Earnings are also affected by the
relationship between different interest rates. For example, a 50 basis point
narrower spread between the prime rate and the federal funds rate is projected
to cause a 3.8% reduction in net income over a 1 year period.

This dynamic simulation model includes assumptions about how the balance
sheet is likely to evolve through time. Loan and deposit growth assumptions as
well as assumptions used to project rates for new loans and deposits are derived
from historical analysis and management's outlook. Mortgage loan prepayment
assumptions are developed from industry median estimates of prepayment speeds
for portfolios with similar coupon ranges and seasoning. Noncontractual deposit
growth rates and pricing are assumed to follow historical patterns.

Net Present Value -- The Net Present Value (NPV) is defined as the
discounted present value of all future expected cash flows of currently held
assets, liabilities and off-balance sheet items. Interest rate risk analysis
using NPV is an indication of the longer term repricing risk and options risk
embedded in the balance sheet. At year-end 1997, a 100 basis point immediate
increase in rates is estimated to reduce NPV by 2.2%. Alternatively, NPV is
projected to increase by .7% if a 100 basis point decrease in rates occurs.
Management considers this an acceptable risk profile commensurate with its core
business activities.

As with earnings simulation, assumptions about the timing and variability
of balance sheet cash flows are critical in NPV analysis. Particularly important
are the assumptions driving mortgage prepayments and the assumptions about
expected attrition of the core deposit portfolios. These assumptions are applied
consistently across the different rate risk measures.

CAPITAL

Total stockholders' equity was $1.7 billion at the end of 1997 and
represented 8.53% of total assets at the end of 1997 compared to 8.62% a year
earlier. The market price of a share of Firstar common stock closed the year at
$42.44, a 62% increase from a year earlier. Total market capitalization at
December 31, 1997 was over $6 billion.

Firstar's capital management plan strives to match longer term capital
needs with maintaining sound capital levels. It also seeks to provide to
shareholders a total return consistent with the best performing companies.
Firstar has taken actions with respect to this capital management strategy.

In December 1996 Firstar issued, through Firstar Capital Trust I, $150
million of Trust Capital Securities. These securities qualify as tier I capital
and are mandatorily redeemable in 30 years. The capital securities are similar
to preferred stock but have the tax advantage of deductibility of the cash
distributions.

A two for one stock split was announced in January 1997 with the issuance
of the shares occurring February 15, 1997. All per share data included in these
financial statements have been restated to give effect to this stock split.

A stock repurchase program was announced in January 1997. The program
authorized the buyback and retirement of up to 12 million shares of common
stock. In addition, Firstar repurchases common shares for reissuance to fund
employee stock plans. Firstar has sought to manage capital levels through stock

23
<PAGE> 25

repurchases. These shares have been either retired or reserved for issuance in
acquisitions or for employee stock plans. Firstar repurchased 7.1 million shares
in 1997, 8.1 million shares in 1996 and 9.6 million shares in 1995 at a cost of
$210 million, $190 million and $173 million in each respective year. Of these
shares, 11.2 million were retired, 8.6 million were reissued in acquisitions,
4.3 million were reissued for employee stock plans, and 700 thousand were
reissued in preferred stock conversions. Currently, Firstar has suspended its
stock buyback program in order to build its tier 1 capital level back to the top
quartile of its peer group of $10 to $25 billion banking companies and only
anticipates repurchasing shares for reissuance under employee stock plans and
for preferred stock conversions.

Dividends paid to common stockholders totaled $119.4 million, or $.82 per
share, an 11% increase over 1996. This represented a 40% payout of net income
for 1997. It is Firstar's target to maintain a dividend payout level
approximately at or above the median of its peer group which approximates 35%.

Bank regulatory agencies have established capital adequacy standards which
are used extensively in their monitoring and control of the industry. These
standards relate capital to level of risk by assigning different weightings to
assets and certain off-balance sheet activity. Capital is measured by two
risk-based ratios: tier I capital and total capital, which includes tier II
capital. The rules require that companies have minimum ratios of 4% and 8% for
tier I and total capital, respectively. As of December 31, 1997, Firstar had
tier I capital of 10.21% and total capital of 11.71%, significantly exceeding
regulatory minimum standards. Firstar is considered "well capitalized" by its
regulatory agency. The components of these capital levels are shown in Table 14.

Additionally, a tier I leverage ratio is also used by bank regulators as
another measure of capital strength. This ratio compares tier I capital to total
reported assets reduced by goodwill. The regulatory minimum level of this ratio
is 4%, and it acts as a constraint on the degree to which a company can leverage
its equity base. Firstar's tier I leverage ratio was 8.50% at December 31, 1997.

TABLE 14

CAPITAL COMPONENTS AND RATIOS

<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------------------------
1997 1996 1995
----------- ----------- -----------
(thousands of dollars)
<S> <C> <C> <C>
Risk-based capital:
Stockholders' equity............................ $ 1,693,101 $ 1,704,047 $ 1,524,820
Trust capital securities........................ 150,000 150,000
Adjustment for unrealized gains on securities
available for sale........................... (22,624) (19,191) (34,127)
Minority interest in subsidiaries............... 2,913 2,384 3,171
Less disallowed intangibles..................... (188,466) (200,540) (107,298)
----------- ----------- -----------
Total tier I capital......................... 1,634,924 1,636,700 1,386,566
Allowable reserve for loan losses............... 200,438 175,725 167,564
Allowable long-term debt........................ 40,000 75,668 111,336
----------- ----------- -----------
Total tier II capital........................ 240,438 251,393 278,900
----------- ----------- -----------
Total capital................................ $ 1,875,362 $ 1,888,093 $ 1,665,466
=========== =========== ===========
Risk-adjusted assets.............................. $16,016,627 $14,020,587 $13,377,391
Tier I capital to risk-adjusted assets............ 10.21% 11.67% 10.36%
Total capital to risk-adjusted assets............. 11.71 13.47 12.45
Tier I leverage ratio............................. 8.50 8.55 7.52
</TABLE>

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<PAGE> 26

[KPMG Peat Marwick LLP Logo]

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Firstar Corporation:

We have audited the accompanying consolidated balance sheets of Firstar
Corporation and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the years in the three-year period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Firstar Corporation
and subsidiaries at December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.

[KPMG Peat Marwick LLP Logo]

Milwaukee, Wisconsin
January 14, 1998

25
<PAGE> 27

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

FIRSTAR CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31 AVERAGE BALANCES
------------------------- -------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
(thousands of dollars)
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks................... $ 1,254,289 $ 1,449,094 $ 998,381 $ 1,044,706
Interest-bearing deposits with banks...... 5,249 6,349 14,030 8,743
Federal funds sold and resale
agreements.............................. 82,589 192,965 108,655 88,319
Trading securities........................ 2,293 13,489 2,238 10,140
Securities held to maturity............... 2,452,124 2,250,776 2,327,482 2,323,050
Securities available for sale............. 1,707,606 1,966,590 1,854,480 2,046,402
Loans..................................... 13,568,786 13,195,534 13,290,260 12,922,374
Reserve for loan losses................... (218,861) (213,138) (214,026) (206,913)
----------- ----------- ----------- -----------
Loans-net............................... 13,349,925 12,982,396 13,076,234 12,715,461
Bank premises and equipment............... 368,083 368,699 366,862 356,368
Customer acceptance liability............. 7,360 14,281 12,504 17,273
Other assets.............................. 614,167 522,781 562,683 548,367
----------- ----------- ----------- -----------
Total assets............................ $19,843,685 $19,767,420 $19,323,549 $19,158,829
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand.................................. $ 3,607,659 $ 3,880,610 $ 3,186,828 $ 3,174,569
Interest-bearing demand................. 1,756,520 1,687,885 1,598,625 1,552,786
Money market accounts................... 2,947,683 2,744,751 2,785,697 2,577,477
Savings passbook........................ 1,339,038 1,518,033 1,441,221 1,599,075
Certificates of deposit................. 5,063,754 5,382,918 5,275,729 5,392,430
----------- ----------- ----------- -----------
Total deposits....................... 14,714,654 15,214,197 14,288,100 14,296,337
Short-term borrowed funds................. 2,121,412 1,868,606 2,397,346 2,357,838
Long-term debt............................ 1,057,151 697,194 746,500 641,082
Bank acceptances outstanding.............. 7,360 14,281 12,504 17,273
Other liabilities......................... 250,007 269,095 271,262 270,951
----------- ----------- ----------- -----------
Total liabilities.................... 18,150,584 18,063,373 17,715,712 17,583,481
Stockholders' equity:
Preferred stock......................... 5,308 11,344 7,139 12,662
Common stock............................ 181,102 188,532 175,081 188,532
Issued: 1997, 144,881,896 shares
1996, 150,826,196 shares
Capital surplus......................... 51,145 9,105 47,711
Retained earnings....................... 1,484,199 1,437,891 1,403,996 1,358,833
Treasury stock, at cost................. (132) (4,056) (3,007) (49,339)
Held: 1997, 48,547 shares
1996, 490,396 shares
Restricted stock.......................... (73)
Unrealized gains on securities available
for sale................................ 22,624 19,191 15,523 17,022
----------- ----------- ----------- -----------
Total stockholders' equity........... 1,693,101 1,704,047 1,607,837 1,575,348
----------- ----------- ----------- -----------
Total liabilities and equity......... $19,843,685 $19,767,420 $19,323,549 $19,158,829
=========== =========== =========== ===========
</TABLE>

- ------------
The average balances are not covered by the Independent Auditors' Report.

See accompanying notes to consolidated financial statements.
26
<PAGE> 28

FIRSTAR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------------------------
1997 1996 1995
------------- ------------- -------------
(thousands of dollars, except per share data)
<S> <C> <C> <C>
INTEREST REVENUE
Loans.................................................... $1,138,417 $1,113,459 $1,081,685
Securities:
Taxable................................................ 198,112 209,396 200,465
Nontaxable............................................. 58,242 54,403 53,329
---------- ---------- ----------
Total securities.................................... 256,354 263,799 253,794
Interest-bearing deposits with banks..................... 691 380 967
Federal funds sold and resale agreements................. 5,880 4,916 10,534
Trading securities....................................... 131 344 806
---------- ---------- ----------
Total interest revenue.............................. 1,401,473 1,382,898 1,347,786
INTEREST EXPENSE
Deposits:
Interest-bearing demand................................ 24,775 21,786 23,831
Money market accounts.................................. 119,135 102,927 85,231
Savings passbook....................................... 33,179 40,034 44,509
Certificates of deposit................................ 294,581 300,806 291,135
---------- ---------- ----------
Total deposits...................................... 471,670 465,553 444,706
Short-term borrowed funds................................ 127,153 123,629 133,151
Long-term debt........................................... 52,265 43,830 43,982
---------- ---------- ----------
Total interest expense.............................. 651,088 633,012 621,839
---------- ---------- ----------
NET INTEREST REVENUE..................................... 750,385 749,886 725,947
Provision for loan losses................................ 54,658 42,647 36,756
---------- ---------- ----------
NET INTEREST REVENUE AFTER LOAN LOSS PROVISION........... 695,727 707,239 689,191
OTHER OPERATING REVENUE
Trust and investment management fees..................... 174,899 148,019 134,354
Service charges on deposit accounts...................... 87,483 91,953 81,775
Credit card service revenue.............................. 71,038 69,945 62,106
Mortgage banking revenue................................. 46,829 49,100 38,479
Data processing fees..................................... 19,993 19,443 17,924
Gain on sale of merchant processing...................... 22,821
Securities gains (losses)................................ 679 66 (5,730)
Other revenue............................................ 67,397 61,926 63,289
---------- ---------- ----------
Total other operating revenue....................... 491,139 440,452 392,197
OTHER OPERATING EXPENSE
Salaries................................................. 333,866 320,239 323,163
Employee benefits........................................ 65,836 71,277 72,198
Equipment expense........................................ 69,574 63,197 56,282
Net occupancy expense.................................... 63,232 64,235 57,992
Restructuring expense.................................... 53,267 23,151
Other expense............................................ 211,510 201,115 201,336
---------- ---------- ----------
Total other operating expense....................... 744,018 773,330 734,122
---------- ---------- ----------
INCOME BEFORE INCOME TAXES............................... 442,848 374,361 347,266
Provision for income taxes............................... 147,639 124,184 118,353
---------- ---------- ----------
NET INCOME............................................... $ 295,209 $ 250,177 $ 228,913
========== ========== ==========
PER COMMON SHARE:
Net income............................................... $ 2.03 $ 1.68 $ 1.50
Net income assuming dilution............................. 2.00 1.66 1.48
Dividends................................................ .82 .74 .66
</TABLE>

See accompanying notes to consolidated financial statements.
27
<PAGE> 29

FIRSTAR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
NET
UNREALIZED
PREFERRED COMMON CAPITAL RETAINED GAIN/ RESTRICTED TREASURY
STOCK STOCK SURPLUS EARNINGS (LOSS) STOCK STOCK TOTAL
--------- -------- -------- ---------- ---------- ---------- --------- ----------
(thousands of dollars, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994.... $26,979 $190,731 $136,187 $1,172,062 $ (1,054) $(1,551) $ (10,669) $1,512,685
Net income...................... 228,913 228,913
Cash dividends:
Preferred stock, series D
($35.00 per share).......... (1,247) (1,247)
Preferred stock ($.90 per
share)...................... (274) (274)
Common stock ($.66 per
share)...................... (99,838) (99,838)
Converted 8,087 shares of
preferred stock into 347,074
shares of common stock........ (4,044) 80 (123) 4,087 0
Redemption of 303,640 shares of
preferred stock............... (7,591) (759) (8,350)
Retired 5,251,398 shares of
common stock.................. (3,283) (90,670) (93,953)
Issued 627,300 shares of common
stock for bank acquisitions... 1,207 8,069 9,276
Issued 1,779,880 shares of
common stock for employee
benefit plans................. 689 5,057 12,509 18,255
Issued 503,804 shares of common
stock for note conversion..... 315 1,185 1,500
Purchased 4,313,196 shares of
treasury stock................ (78,830) (78,830)
Unrealized gains on securities
available for sale............ 35,181 35,181
Amortization/adjustment of
restricted stock.............. 393 1,109 1,502
------- -------- -------- ---------- ---------- ------- --------- ----------
BALANCE AT DECEMBER 31, 1995.... 15,344 188,532 53,236 1,298,857 34,127 (442) (64,834) 1,524,820
Net income...................... 250,177 250,177
Cash dividends:
Preferred stock, series D
($35.00 per share).......... (867) (867)
Common stock ($.74 per
share)...................... (110,276) (110,276)
Converted 8,000 shares of
preferred stock into 343,366
shares of common stock........ (4,000) (1,083) 5,083 0
Issued 9,781,096 shares of
common stock for bank
acquisitions.................. 4,787 215,019 219,806
Issued 1,854,724 shares of
common stock for employee
benefit plans................. (5,783) 30,984 25,201
Purchased 8,080,200 shares of
treasury stock................ (189,997) (189,997)
Unrealized gains on securities
available for sale............ (14,936) (14,936)
Amortization/adjustment of
restricted stock.............. (12) 442 (311) 119
------- -------- -------- ---------- ---------- ------- --------- ----------
BALANCE AT DECEMBER 31, 1996.... $11,344 $188,532 $ 51,145 $1,437,891 $ 19,191 $ 0 $ (4,056) $1,704,047
Net income...................... 295,209 295,209
Cash dividends:
Preferred stock, series D
($35.00 per share).......... (483) (483)
Common stock ($.82 per
share)...................... (119,426) (119,426)
Converted 12,072 shares of
preferred stock into 518,127
shares of common stock........ (6,036) (518) (3,780) 10,334 0
Issued 1,095,622 shares of
common stock for employee
benefit plans................. (5,184) (2,601) 27,756 19,971
Purchased and retired 5,944,300
shares of common stock........ (7,430) (45,443) (122,611) (175,484)
Purchased 1,171,900 shares of
treasury stock................ (34,166) (34,166)
Unrealized gains on securities
available for sale............ 3,433 3,433
------- -------- -------- ---------- ---------- ------- --------- ----------
BALANCE AT DECEMBER 31, 1997.... $ 5,308 $181,102 $ 0 $1,484,199 $ 22,624 $ 0 $ (132) $1,693,101
======= ======== ======== ========== ========== ======= ========= ==========
</TABLE>

See accompanying notes to consolidated financial statements.
28
<PAGE> 30

FIRSTAR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
(thousands of dollars)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................................. $ 295,209 $ 250,177 $ 228,913
Adjustments:
Provision for loan losses............................. 54,658 42,647 36,756
Depreciation, amortization and accretion.............. 59,851 70,647 50,520
Net decrease (increase) in trading securities......... 11,196 (853) 19,021
Net (increase) decrease in loans held for resale...... (89,603) 173,454 (278,563)
(Gain) loss on securities and other assets............ (2,398) (1,325) 3,866
Deferred income taxes................................. 6,096 7,073 (335)
(Increase) decrease in other assets................... (105,726) 49,706 6,321
Decrease in other liabilities......................... (12,275) (25,740) (3,983)
Other net............................................. 5,055 (3,489) 3,044
----------- ----------- -----------
Net cash provided by operating activities........... 222,063 562,297 65,560
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease (increase) in federal funds sold and resale
agreements............................................ 110,376 (83,020) 241,359
Net decrease (increase) in interest-bearing deposits
with banks............................................ 1,100 (882) 28,065
Sales of securities held to maturity.................... 17,541
Sales of securities available for sale.................. 679 253,438 270,984
Maturities of securities held to maturity............... 382,681 408,630 666,169
Maturities of securities available for sale............. 526,916 432,002 156,018
Purchases of securities held to maturity................ (588,407) (224,488) (1,410,008)
Purchases of securities available for sale.............. (265,318) (371,728) (90,936)
Net (increase) decrease in loans........................ (331,571) 187,545 (521,197)
Net cash from acquisitions.............................. 64,718 294
Proceeds from sales of foreclosed assets................ 14,276 8,226 12,074
Purchases of bank premises and equipment................ (73,097) (57,773) (55,369)
Proceeds from sales of bank premises and equipment...... 10,102 3,221 4,638
----------- ----------- -----------
Net cash provided (used) by investing activities.... (212,263) 619,889 (680,368)
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in deposits..................... (499,543) (176,297) 828,503
Net increase (decrease) in short-term borrowed funds.... 252,806 (508,659) 103,908
Repayment of long-term debt............................. (29,319) (216,491) (25,127)
Proceeds from long-term debt............................ 389,276 148,500 186,760
Cash dividends.......................................... (119,909) (111,143) (101,359)
Preferred stock redemption.............................. (8,350)
Common/treasury stock repurchases....................... (209,650) (197,324) (165,456)
Common/treasury stock issued............................ 11,734 17,576 14,561
----------- ----------- -----------
Net cash (used) provided by financing activities.... (204,605) (1,043,838) 833,440
----------- ----------- -----------
Net increase (decrease) in cash and due from banks...... (194,805) 138,348 218,632
Cash and due from banks at beginning of year............ 1,449,094 1,310,746 1,092,114
----------- ----------- -----------
Cash and due from banks at end of year.................. $ 1,254,289 $ 1,449,094 $ 1,310,746
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest.............................................. $ 648,004 $ 636,493 $ 600,006
Income taxes.......................................... 137,737 116,052 116,443
Transfers to foreclosed assets from loans............... 8,153 8,345 9,166
Acquisitions:
Assets acquired....................................... 1,370,563 85,762
Cash paid for purchase of stock....................... $ $ (5,535) $
Cash acquired......................................... 70,253 294
----------- ----------- -----------
Net cash from acquisitions.......................... $ $ 64,718 $ 294
=========== =========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.
29
<PAGE> 31

FIRSTAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1997, 1996 AND 1995

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of business--Firstar Corporation is a registered bank holding
company providing financial services through 241 locations in Wisconsin,
Illinois, Minnesota, Iowa, Arizona and Florida. These banking activities include
accepting demand, time and savings deposits; making both secured and unsecured
business and personal loans; providing trust and investment management services
to individuals and corporate customers; providing correspondent banking services
to other financial institutions; conducting mortgage banking activities;
providing international banking services; conducting retail brokerage
operations; providing mutual fund custody services; and other related banking
activities.

Principles of presentation--The consolidated financial statements include
the accounts of Firstar and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. Results of
operations of companies purchased are included from the date of acquisition.
Assets and liabilities of purchased companies are recorded at estimated fair
value at the date of acquisition. Financial statements have been restated to
include companies acquired under pooling of interests when material. Investments
in joint ventures where Firstar's equity interest is less than fifty percent are
not consolidated and are accounted for under equity method accounting rules.
Certain prior year amounts have been reclassified to conform to current year
classifications. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and all accompanying footnotes. Actual results could differ from
those estimates.

Securities--Purchases of securities that are made with the positive intent
and ability to hold them to maturity are carried at cost, adjusted for
amortization of premium and accretion of discount using a level yield method.
Securities to be held for indefinite periods of time and not intended to be held
to maturity or on a long-term basis are classified as available for sale and
carried at market value. Valuation adjustments net of deferred tax are recorded
as a component of stockholders' equity. Securities held for indefinite periods
of time may include securities that management intends to use as part of its
asset/liability management strategy or have been acquired in business
acquisitions and are designated to be sold. Gains or losses on sales of
securities are computed on the basis of specific identification of the adjusted
cost of each security. Trading account securities are carried at market.
Valuation adjustments are included in other revenue in the consolidated
statements of income.

Loans--Loans, which include lease financing receivables, are stated at the
principal amount. Interest is accrued on all loans not discounted by applying
the interest rate to the amount outstanding. On discounted loans, income is
recognized on a basis which results in approximately level rates of return over
the term of the loans. Loan origination and commitment fees and certain direct
loan origination costs are being deferred where material and the net amount
amortized as an adjustment of the related loans' yield. These amounts are being
amortized over the contractual life of the related loans. Where it is not
reasonable to expect that income will be realized, accrual of income ceases and
these loans are placed on a "cash basis" for purposes of income recognition.
Loans upon which foreclosure action is commenced or for which borrowers have
begun bankruptcy proceedings are reviewed individually as to continuation of
interest accrual. Mortgage loans held for sale are carried at the lower of
aggregate cost or market, after consideration of related loan sale commitments.

Reserve for loan losses--The reserve for loan losses is maintained at a
level adequate to provide for potential loan losses through charges to operating
expense. The reserve is based upon a continuing review of loans which includes
consideration of actual net loan loss experience, changes in the size and
character of the loan portfolio, identification of problem situations which may
affect the borrowers' ability to repay, estimated value of underlying collateral
and evaluation of current economic conditions. With respect to loans which are
30
<PAGE> 32

deemed impaired, the calculation of reserve levels is based upon the discounted
present value of expected cash flows received from the debtor or other measures
of value such as market prices or collateral values. Firstar considers all
nonaccrual commercial loans to be impaired. Loan losses are recognized through
charges to the reserve. Installment and credit card loan losses are charged to
the reserve based upon fixed delinquency periods. All other loans are evaluated
individually and charged to the reserve to the extent that outstanding principal
balances are deemed uncollectible. Any subsequent recoveries are added to the
reserve.

Foreclosed assets--Foreclosed assets, the balance of which is included in
other assets, includes primarily properties acquired through loan foreclosure
proceedings or acceptance of deeds in lieu of foreclosure. These properties are
recorded at the lower of the carrying value of the related loans or the fair
market value of the foreclosed asset acquired less the estimated costs to sell
the foreclosed asset. Initial valuation adjustments, if any, are charged against
the reserve for loan losses. Subsequent reevaluations of the properties, which
indicate reduced value, are recognized through charges to other operating
expense. Revenues and expenditures related to holding and operating these
properties are included in other operating expense.

Bank premises and equipment--Bank premises and equipment are stated at cost
less depreciation, which has been accumulated on the straight-line basis.
Maintenance and repairs are charged to expense and betterments are capitalized.

Intangible assets--Intangible assets, consisting of goodwill, core deposit
premium and credit card premium, are included in other assets in the balance
sheet. Goodwill is amortized over periods of fifteen to twenty-five years. Core
deposit intangibles are amortized over a life of up to ten years. Credit card
premiums are amortized over a life of ten years. Firstar periodically evaluates
the carrying value and remaining amortization period of all long lived assets
including intangible assets for impairment. Adjustments are recorded when the
benefit of the asset decreases due to disposition of branches or deposits
associated with the entity acquired in the purchase business combination.

Mortgage servicing rights--Mortgage servicing rights associated with loans
originated and sold, where servicing is retained, are capitalized and included
in other assets in the balance sheet. The value of these capitalized servicing
rights, along with purchased mortgage servicing rights, are amortized in
relation to the servicing revenue expected to be earned. The carrying value of
these rights are reviewed for impairment. For purposes of measuring impairment,
the rights are stratified into certain risk characteristics including underlying
loan type, note rate, prepayment trends and external market factors.

Stock based compensation plans--Firstar has various stock based
compensation plans that authorize the granting of stock options, restricted
stock, and other stock based awards to eligible employees. Firstar has elected
not to adopt the recognition provisions of SFAS No. 123, "Accounting for Stock
Based Compensation" which requires a fair-value based method of accounting for
stock options and equity awards and will continue to follow APB No. 25
"Accounting for Stock Issued to Employees" and related interpretations to
account for its stock based compensation plans.

Income taxes--Firstar and its subsidiaries file a consolidated federal
income tax return. Income taxes are accounted for using the asset and liability
method. Under this method, deferred tax assets and liabilities are recognized
for the estimated future tax consequences attributable to differences between
the financial statement carrying amount of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.

Foreign currency transactions--Monetary assets and liabilities recorded in
foreign currencies are translated at the rate of exchange in effect at each
year-end. Income statement items are translated monthly using the average rate
for the month. Firstar enters into forward exchange contracts on behalf of its
customers and hedges its risk by entering into offsetting transactions with
other counterparties. The fair value of these transactions are included in other
assets and liabilities and the related gain or loss is recorded in other
revenue.

Derivative and other financial instruments--Firstar uses interest rate
swaps, caps and floors to manage its interest rate risks arising from recorded
financial assets and liabilities. These instruments are accounted for on
31
<PAGE> 33

an accrual basis when the instrument can be demonstrated to effectively change
the cash flows of a designated asset or liability and such asset or liability
exposes Firstar to interest rate risk.

Amounts to be paid or received under interest rate swaps, caps and floors
are recognized as interest income or expense of the related asset or liability.
Gains and losses on early termination of these instruments are deferred and
amortized as an adjustment to yield on the related asset or liability over the
shorter of the remaining contract life or the maturity of the related asset or
liability. If the related asset or liability is sold or otherwise liquidated,
the instrument is marked to market, with resultant gains and losses recognized
in other revenue. Interest rate swaps, caps and floors that do not meet this
criteria are carried at market value with changes therein recognized in other
revenue. Fees paid or received in connection with caps and floors are deferred
and amortized to income or expense over the life of the instrument.

Interest rate swaps, caps, floors and futures entered into as an
intermediary are accounted for at market value. Realized gains and losses and
changes in market value are recognized in other operating revenue.

Cash and cash equivalents--For purposes of the consolidated statements of
cash flows, cash and cash equivalents are considered to include the balance
sheet caption cash and due from banks.

Income per common share--In February 1997, the Financial Accounting
Standards Board issued SFAS No. 128, "Earnings Per Share," which became
effective for the Corporation for reporting periods ending after December 15,
1997. Under the provisions of SFAS No. 128, primary and fully-diluted earnings
per share were replaced with basic and diluted earnings per share. Basic
earnings per share is arrived at by dividing net income available to common
stockholders by the weighted-average number of common shares outstanding and
does not include the impact of any potentially dilutive common stock
equivalents. The diluted earnings per share calculation is arrived at by
dividing net income by the weighted-average number of shares outstanding,
adjusted for the dilutive effect of outstanding stock options, the conversion
impact of convertible preferred stock, and shares issuable under other
contracts. Prior years were also restated under SFAS No. 128.

Recent accounting pronouncements--The Financial Accounting Standard Board
issued SFAS No. 125 "Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities" which is effective for transactions entered
into after December 31, 1996. This statement supersedes the existing standards
on accounting for mortgage servicing rights and provides accounting and
reporting standards for transfers and servicing of all financial assets and
extinguishment of liabilities based upon consistent application of a financial
components approach that focuses on control. The adoption of this statement did
not have a significant effect on the result of operations or financial position.

In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." This statement establishes standards for
reporting the components of comprehensive income prominently within the
financial statements. Comprehensive income includes net income plus certain
transactions that are reported directly within stockholders' equity. The
provisions of this statement are effective with the first quarter of 1998
financial statements and will have no impact on financial position or results of
operations of Firstar.

In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." The
provisions of this statement require the disclosure of financial information
about a company's operating segments in interim and annual financial statements.
The definition of operating segments is to be based upon internal management
practices of the company. The statement is effective in 1998 and its adoption
will have no impact on the financial condition or results of operations of
Firstar.

32
<PAGE> 34

NOTE 2. MERGERS AND ACQUISITIONS

The following table summarizes completed acquisitions:

<TABLE>
<CAPTION>
TOTAL METHOD OF
NAME OF INSTITUTION ASSETS ACQUISITION DATE CONSIDERATION ACCOUNTING
------------------- ------ ---------------- ------------- ----------
(millions of dollars)
<S> <C> <C> <C> <C>
1996:
American Bancorporation, Inc.
St. Paul, MN........................ $1,187 July 1996 Cash $38.6 Purchase
8,000,000 shares
of common stock
Harvest Financial Corp.
Dubuque, IA......................... 353 January 1996 1,774,408 shares Purchase
of common stock
------
$1,540
======
1995:
Investors Bank Corp.
Wayzata, MN......................... $1,134 April 1995 6,013,846 shares Pooling of
of common stock interests
First Moline Financial Corp.
Moline, IL.......................... 86 March 1995 627,300 shares Purchase
of common stock
First Colonial Bankshares Corporation
Chicago, IL......................... 1,780 January 1995 15,401,534 shares Pooling of
of common stock interests
------
$3,000
======
</TABLE>

NOTE 3. SECURITIES

The amortized cost and approximate market values of securities are as
follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
(thousands of dollars)
<S> <C> <C> <C> <C>
Securities held to maturity:
Mortgage backed obligations of federal
agencies.................................... $1,139,317 $32,038 $ (779) $1,170,576
State and political subdivisions............... 1,306,555 23,129 (1,144) 1,328,540
Corporate debt................................. 6,252 (8) 6,244
---------- ------- ------- ----------
Total....................................... $2,452,124 $55,167 $(1,931) $2,505,360
========== ======= ======= ==========
Securities available for sale:
U.S. Treasury and federal agencies............. $1,425,457 $36,175 $ (818) $1,460,814
Mortgage backed obligations of federal
agencies.................................... 103,036 949 (149) 103,836
State and political subdivisions............... 6,146 36 (9) 6,173
Equity securities.............................. 98,010 98,010
Money market mutual funds...................... 38,773 38,773
---------- ------- ------- ----------
Total....................................... $1,671,422 $37,160 $ (976) $1,707,606
========== ======= ======= ==========
</TABLE>

33
<PAGE> 35

<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
(thousands of dollars)
<S> <C> <C> <C> <C>
Securities held to maturity:
U.S. Treasury and federal agencies............. $ 756 $ $ $ 756
Mortgage backed obligations of federal
agencies.................................... 1,092,528 28,511 (3,948) 1,117,091
State and political subdivisions............... 1,147,387 15,673 (3,544) 1,159,516
Corporate debt................................. 10,027 23 (43) 10,007
Other.......................................... 78 78
---------- ------- ------- ----------
Total....................................... $2,250,776 $44,207 $(7,535) $2,287,448
========== ======= ======= ==========
Securities available for sale:
U.S. Treasury and federal agencies............. $1,771,460 $32,950 $(3,612) $1,800,798
Mortgage backed obligations of federal
agencies.................................... 8,624 96 (239) 8,481
State and political subdivisions............... 7,601 55 (30) 7,626
Equity securities.............................. 111,315 111,315
Money market mutual funds...................... 38,370 38,370
---------- ------- ------- ----------
Total....................................... $1,937,370 $33,101 $(3,881) $1,966,590
========== ======= ======= ==========
</TABLE>

The amortized cost and approximate market value of securities at December
31, 1997, by contractual maturity, are shown below. Maturities of mortgage
backed obligations were estimated based on anticipated payments.

<TABLE>
<CAPTION>
SECURITIES HELD TO MATURITY SECURITIES AVAILABLE FOR SALE
---------------------------- ------------------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
------------ ------------ ------------- -------------
(thousands of dollars)
<S> <C> <C> <C> <C>
Due in one year or less....................... $ 326,482 $ 333,366 $ 164,028 $ 164,110
Due after one year through five years......... 1,131,251 1,150,509 1,349,422 1,385,014
Due after five years through ten years........ 808,186 833,018 44,701 45,188
Due after 10 years............................ 186,205 188,467 15,261 15,284
---------- ---------- ---------- ----------
$2,452,124 $2,505,360 1,573,412 1,609,596
========== ==========
Equity securities............................. 98,010 98,010
---------- ----------
Total.................................... $1,671,422 $1,707,606
========== ==========
</TABLE>

Gross gains of $1,179,000 , $67,000 and $487,000 and gross losses of
$500,000 , $1,000 and $6,217,000 were realized on the sale of securities
classified as available for sale in 1997, 1996 and 1995, respectively.

The amortized cost of securities pledged to secure public or trust
deposits, securities sold under repurchase agreements and for other purposes as
required or permitted by law was $1,656,281,000 at December 31, 1997 and
$1,927,236,000 at December 31, 1996.

34
<PAGE> 36

NOTE 4. LOANS

The composition of loans, including lease financing receivables, is
summarized below. Loans are presented net of unearned discount which amounted to
$28,175,000 and $22,740,000 at December 31, 1997 and 1996, respectively.
Commercial loans pledged to secure public deposits were $169,015,000 on December
31, 1997 and $184,333,000 on December 31, 1996. Residential mortgage loans held
for resale were $234,008,000 and $143,614,000 on December 31, 1997 and 1996,
respectively.

<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1997 1996
----------- -----------
(thousands of dollars)
<S> <C> <C>
Commercial and industrial................................... $ 3,644,721 $ 3,366,016
Commercial construction..................................... 466,934 418,040
Commercial mortgage......................................... 2,485,034 2,574,376
Other commercial............................................ 1,123,824 953,145
----------- -----------
Commercial................................................ 7,720,513 7,311,577
Credit card................................................. 736,484 684,619
Consumer mortgage........................................... 2,384,406 2,660,290
Home equity................................................. 1,271,966 1,121,580
Other consumer.............................................. 1,455,417 1,417,468
----------- -----------
Consumer.................................................. 5,848,273 5,883,957
----------- -----------
Total.................................................. $13,568,786 $13,195,534
=========== ===========
</TABLE>

Loans on which income is recognized only as cash payments are received or
is accrued at less than the original contract rate are summarized below.

<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------------
1997 1996 1995
------- ------- -------
(thousands of dollars)
<S> <C> <C> <C>
Commercial................................................. $47,293 $66,913 $74,574
Consumer................................................... 16,828 19,193 16,187
------- ------- -------
Total................................................. $64,121 $86,106 $90,761
======= ======= =======
</TABLE>

The effect of nonperforming loans on interest revenue was as follows:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------------------
1997 1996 1995
------- ------- -------
(thousands of dollars)
<S> <C> <C> <C>
Interest at original contract rate......................... $ 7,367 $ 9,236 $ 8,348
Interest collected......................................... 2,463 4,474 3,768
------- ------- -------
Net reduction of interest revenue..................... $ 4,904 $ 4,762 $ 4,580
======= ======= =======
</TABLE>

35
<PAGE> 37

NOTE 5. RESERVE FOR LOAN LOSSES

An analysis of the reserve for loan losses is as follows:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------------------------
1997 1996 1995
-------- -------- --------
(thousands of dollars)
<S> <C> <C> <C>
Balance at beginning of year............................ $213,138 $195,283 $190,552
Provision for loan losses............................... 54,658 42,647 36,756
Loan recoveries......................................... 21,808 24,450 19,973
Loan charge-offs........................................ (70,743) (63,208) (52,863)
Reserves of acquired banks.............................. 13,966 865
-------- -------- --------
Balance at end of year.................................. $218,861 $213,138 $195,283
======== ======== ========
Charge-offs, net of recoveries, as a percentage of
average loans......................................... .37% .30% .27%
Reserve as a percentage of year-end loans............... 1.61 1.62 1.55
</TABLE>

A portion of the reserve for loan losses is allocated to loans deemed
impaired. All impaired loans are included in nonperforming assets. Information
on these loans and their related reserve for loan losses are as follows:

<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Impaired loans:
With reserve allocation.................................. $27,911 $41,643 $43,851
Without reserve allocation............................... 19,119 24,242 29,347
------- ------- -------
Total................................................. $47,030 $65,885 $73,198
======= ======= =======
Reserve allocated........................................ 2,295 4,914 8,952
Average balance of impaired loans during year............ 62,835 69,783 67,271
Interest income recognized during year................... 2,463 4,296 3,200
</TABLE>

NOTE 6. BANK PREMISES AND EQUIPMENT

Bank premises and equipment are summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1997 1996
--------- ---------
(thousands of dollars)
<S> <C> <C>
Land........................................................ $ 43,335 $ 45,991
Bank premises............................................... 367,639 345,986
Equipment................................................... 328,011 311,979
--------- ---------
Subtotal............................................... 738,985 703,956
Accumulated depreciation.................................... (370,902) (335,257)
--------- ---------
Total.................................................. $ 368,083 $ 368,699
========= =========
</TABLE>

Depreciation charged to other operating expense amounted to $49,179,000,
$46,791,000 and $42,684,000 in 1997, 1996 and 1995, respectively. Rental expense
for bank premises and equipment amounted to $40,901,000, $36,662,000 and
$34,057,000 in 1997, 1996 and 1995, respectively. Contingent rentals and
sublease rental income amounts were not significant.

Occupancy expense is net of amortization of a total of $68 million of
pre-tax deferred gain on a building sale which was amortized through 1997, at
which time the related leaseback expired. This amortization was $6,813,000 in
1997, $6,240,000 in 1996 and $6,240,000 in 1995.

36
<PAGE> 38

Firstar and its subsidiaries are obligated under noncancelable operating
leases for various bank premises and equipment. These leases expire
intermittently over the years through 2034. The minimum rental commitments under
noncancelable leases for the next five years are shown below:

<TABLE>
<CAPTION>
PERIOD AMOUNT
-------- ---------
(thousands of dollars)
<S> <C> <C>
Bank premises and equipment................................. 1998 $30,345
1999 28,991
2000 28,117
2001 26,503
2002 26,779
</TABLE>

NOTE 7. INTANGIBLE ASSETS

Intangible assets, net of accumulated amortization, are summarized as
follows:

<TABLE>
<CAPTION>
DECEMBER 31
------------------------------
1997 1996 1995
-------- -------- --------
(thousands of dollars)
<S> <C> <C> <C>
Goodwill.................................................... $174,954 $186,462 $107,298
Core deposit intangibles.................................... 20,496 24,438 15,161
Credit card premium......................................... 607
-------- -------- --------
Total.................................................. $196,057 $210,900 $122,459
======== ======== ========
Amortization of intangibles during year..................... $ 14,987 $ 15,321 $ 11,068
</TABLE>

NOTE 8. MORTGAGE SERVICING RIGHTS

The fair value of capitalized mortgage servicing rights was $23.1 million
on on December 31, 1997 and $17.0 million on December 31, 1996. Firstar serviced
$3,107 million and $3,164 million of mortgage loans for other investors as of
December 31, 1997 and 1996, respectively. Changes in capitalized mortgage
servicing are summarized as follows:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------------
1997 1996 1995
-------- -------- --------
(thousands of dollars)
<S> <C> <C> <C>
Balance--beginning of year.................................. $ 12,728 $ 9,538 $ 7,238
Servicing rights capitalized................................ 22,661 18,117 7,096
Amortization of servicing rights............................ (2,508) (2,461) (1,641)
Sales of servicing rights................................... (16,682) (12,354) (3,155)
Valuation allowance......................................... (19) (112)
-------- -------- --------
Balance--end of year........................................ $ 16,180 $ 12,728 $ 9,538
======== ======== ========
</TABLE>

NOTE 9. SHORT-TERM BORROWED FUNDS

Short-term borrowed funds are summarized as follows:

<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
(thousands of dollars)
<S> <C> <C> <C>
Federal funds purchased and repurchase agreements:
At December 31......................................... $1,512,882 $1,223,037 $1,980,442
Average during year.................................... 2,014,522 1,902,766 1,994,281
Maximum month-end balance.............................. 2,291,116 2,110,250 2,407,507
Average rate at year-end............................... 5.20% 5.66% 5.44%
Average rate during year............................... 5.29 5.25 5.83
</TABLE>

37
<PAGE> 39

Federal funds purchased, which totaled $1,123 million at December 31, 1997,
generally represent one-day borrowings. Securities sold under repurchase
agreements, which totaled $390 million at December 31, 1997, represent
borrowings maturing within one year that are secured by U.S. Treasury and
federal agency securities. Other short-term borrowed funds comprise primarily
treasury, tax and loan notes and Federal Home Loan Bank notes. Firstar
additionally has a $125 million line of credit agreement in place which expires
in April 2000. The credit agreement has certain restrictive covenants and
requires payment of quarterly fees based upon both the commitment amount and
usage levels. No advances were outstanding under this line at the end of 1997.

NOTE 10. LONG-TERM DEBT

Long-term debt is summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1997 1996
---------- --------
(thousands of dollars)
<S> <C> <C>
Federal Home Loan Bank notes................................ $ 457,438 $345,946
7.15% subordinated notes.................................... 100,000 100,000
10.25% subordinated notes................................... 78,340 78,340
Trust capital securities.................................... 150,000 150,000
6.25% senior bank notes..................................... 250,000
Other debt.................................................. 21,373 22,908
---------- --------
Total.................................................. $1,057,151 $697,194
========== ========
</TABLE>

Notes payable to the Federal Home Loan Bank are collateralized by Federal
Home Loan Bank stock and first mortgage consumer real estate loans. The notes
mature from 1998 through 2012 and have a variable interest rate averaging 5.89%
as of December 31, 1997.

Firstar issued $100,000,000 of 7.15% notes under an indenture dated as of
August 28, 1995. The notes, which are subordinated to all unsubordinated
indebtedness of Firstar for borrowed money, are unsecured and mature September
1, 2000. The notes may be redeemed on or after September 1, 1998. The indenture
contains a provision which restricts the disposition of or subjecting to lien
any common stock of certain subsidiaries.

Firstar issued $100,000,000 of 10 1/4% notes under an indenture dated as of
May 1, 1988. The notes, which are subordinated to all unsubordinated
indebtedness of Firstar for borrowed money, are unsecured and mature May 1,
1998. The indenture contains a provision which restricts the disposition of or
subjecting to lien any common stock of certain subsidiaries.

On December 17, 1996, Firstar issued $150 million of trust capital
securities through Firstar Capital Trust I, a statutory business trust, of which
all common securities are owned by Firstar. The capital securities pay
cumulative cash distributions semiannually at an annual rate of 8.32%. The
securities are redeemable from December 23, 2006 until December 23, 2016 at a
declining rate of 104.16% to 100% of the principal amount. After December 23,
2016 they are redeemable at par until December 15, 2026 when redemption is
mandatory. Prior redemption is permitted under certain circumstances such as
changes in tax or regulatory capital rules. The proceeds of the capital
securities were invested by the Trust in junior subordinated debentures of
Firstar. Firstar guarantees the capital securities through the combined
operation of the debentures and other related documents. Firstar's obligations
under the guarantee are unsecured and subordinate to senior and subordinated
indebtedness of Firstar. The securities qualify as tier I capital for regulatory
capital purposes.

Firstar Bank Milwaukee, N.A. issued $250 million of 6.25% senior notes on
December 4, 1997. The notes are unsecured and mature on December 1, 2002.

Long-term debt has aggregate maturities for the five years 1998 through
2002 as follows: $255,553,000 in 1998, $162,173,000 in 1999, $229,697,000 in
2000, $146,000 in 2001 and $253,840,000 in 2002.

38
<PAGE> 40

NOTE 11. STOCKHOLDERS' EQUITY

The authorized and outstanding shares of Firstar are as follows:

<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1997 1996
----------- -----------
<S> <C> <C>
Preferred stock, $1.00 par value
Series C--Authorized...................................... 2,500,000 2,500,000
Preferred stock from acquired bank:
Series D--Authorized...................................... 40,250 40,250
--Outstanding.................................... 10,615 22,688
Common stock, $1.25 par value:
Authorized................................................ 240,000,000 240,000,000
Outstanding (net of treasury stock)....................... 144,833,349 150,335,800
</TABLE>

Under the Firstar Shareholder rights plan each share of common stock
entitles its holder to one-quarter right. Under certain conditions, each right
entitles the holder to purchase one one-hundredth of a share of series C
preferred stock at a price of $85, subject to adjustment. The rights will only
be exercisable if a person or group has acquired, or announced an intention to
acquire, 20% or more of the outstanding shares of Firstar common stock. Under
certain circumstances, including the existence of a 20% acquiring party, each
holder of a right, other than the acquiring party, will be entitled to purchase
at the exercise price Firstar common shares having a market value of two times
the exercise price. In the event of the acquisition of Firstar by another
company subsequent to a party acquiring 20% or more of Firstar common stock,
each holder of a right is entitled to receive the acquiring company's common
shares having a market value of two times the exercise price. The rights may be
redeemed at a price of $.01 per right prior to the existence of a 20% acquiring
party, and thereafter, may be exchanged for one common share per right prior to
the existence of a 50% acquiring party. The rights will expire on January 19,
1999. The rights do not have voting or dividend rights and until they become
exercisable, have no dilutive effect on the earnings of Firstar. Under the
rights plan, the Board of Directors of Firstar may reduce the thresholds
applicable to the rights from 20% to not less than 10%.

Preferred shares, when issued, rank prior to common shares both as to
dividends and liquidation but have no general voting rights. The Series C
preferred stock, none of which is outstanding, is entitled to 100 votes per
share and other rights such that the value of a one one-hundredth interest in a
Series C preferred share should approximate the value of one common share.

On January 31, 1995, Firstar converted 38,775 shares of First Colonial
Bankshares Corporation Series C preference stock, represented by 775,500
depository shares, into like shares of its Series D preferred stock in
connection with the acquisition of First Colonial Bankshares Corporation. Each
share receives annual dividends of $35 and is convertible into 42.92 shares of
common stock. Shares are redeemable at $500 per share.

A two-for-one stock split was completed on February 15, 1997 to common
stockholders. All common stock and per share data included in the consolidated
financial statements and in the notes to consolidated financial statements have
been retroactively adjusted to reflect the split.

39
<PAGE> 41

NOTE 12. STOCK BASED COMPENSATION PLANS

Firstar has two stock based compensation plans, a stock option plan and a
performance based stock plan.

Firstar's incentive stock plan provides for a maximum grant of 11.2 million
stock options, appreciation rights, and/or shares of stock. Stock options are
granted with an exercise price equal to the stock fair market value at the date
of grant. All outstanding stock options expire ten years and one month after the
date of grant and vest and become fully exercisable after a period from between
one to three years. At December 31, 1997, there were 3,358,000 additional shares
available for grant under the plan.

Firstar in connection with bank acquisitions, converted existing options
for shares of the acquired banks into an equivalent number of options for shares
of Firstar common stock. As of December 31, 1997 these options totaled 253,770
with an exercise price of $5.40 to $11.81. No additional stock options will be
awarded under these plans.

The following table summarizes option activity under these plans:

<TABLE>
<CAPTION>
NUMBER OF WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
---------- ----------------
<S> <C> <C>
Options outstanding at December 31, 1994.................... 6,158,328 $10.00
Granted..................................................... 985,200 13.69
Assumed through acquisitions................................ 5,812 4.72
Exercised................................................... (1,524,979) 8.93
Forfeited................................................... (162,266) 12.88
Expired..................................................... (6,000) 15.84
----------
Options outstanding at December 31, 1995.................... 5,456,095 10.86
Granted..................................................... 1,021,400 20.12
Assumed through acquisitions................................ 69,904 6.36
Exercised................................................... (1,744,361) 8.98
Forfeited................................................... (290,336) 16.79
Expired..................................................... (25,444) 2.09
----------
Options outstanding at December 31, 1996.................... 4,487,258 13.30
Granted..................................................... 1,855,000 28.31
Exercised................................................... (1,061,005) 10.26
Forfeited................................................... (204,500) 24.64
Expired..................................................... (11,664) 11.02
----------
Options outstanding at December 31, 1997.................... 5,065,089 19.04
==========
</TABLE>

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------- -------------------------------
WEIGHTED-AVG.
RANGE OF NUMBER REMAINING WEIGHTED-AVG. NUMBER WEIGHTED-AVG.
EXERCISE PRICES OUTSTANDING CONTRACT LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
--------------- ----------- ------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$5.29 to 11.81................ 764,870 2.48yr. $ 7.55 764,870 $ 7.55
$12.56 to 16.25............... 1,765,052 6.16 14.41 1,241,797 14.69
$20.00 to 22.75............... 828,867 8.29 20.14 250,263 20.31
$28.31........................ 1,706,300 9.26 28.31 0
--------- ---------
Options at December 31,
1997........................ 5,065,089 2,256,930
========= =========
</TABLE>

40
<PAGE> 42

Firstar's performance based stock plan grants performance shares to key
executives. Estimated future payouts are predicated upon achievement of Firstar
return on equity goals in relation to peer group banking companies and the
market value of Firstar's common stock over a three year period. The grants are
designated in shares of stock and the participant is paid the value of the
earned shares one-half in cash and one-half in shares of Firstar's common stock
plus a dividend equivalent for the performance period. The maximum number of
performance shares awarded in 1997, 1996 and 1995 was 89,338, 132,891 and
178,035 respectively. The maximum number of common shares issuable under these
awards was 44,669 at $28.31 per share in 1997, 66,445 at $20.00 per share in
1996, and 89,017 at $13.69 per share in 1995. Compensation expense recorded
under this plan was $4,502,000 in 1997, $4,104,000 in 1996, and $2,092,000 in
1995.

For purposes of providing the pro forma disclosures required under SFAS No.
123 "Accounting for Stock Based Compensation", the fair value of stock options
granted was estimated using the Black-Scholes option pricing model. The per
share weighted-average fair value of stock options granted during 1997, 1996 and
1995 was $7.65, $4.78 and $3.27 on the date of grant with the following
weighted-average assumptions: 1997--expected dividend yield 3.0%, risk-free
interest rate of 6.5%, an expected life of 7 years and expected volatility of
22%; 1996--expected dividend yield 3.4%, risk-free interest rate of 5.55%, an
expected life of 7 years and expected volatility of 23%; 1995--expected dividend
yield 4.4%, risk-free interest rate of 7.76%, an expected life of 7 years and
expected volatility of 22%.

Had compensation cost for Firstar's stock-based plans been determined in
accordance with SFAS No. 123, net income would have been $292.5, $248.9 million
and $228.2 million in 1997, 1996 and 1995, respectively. Earnings per common
share assuming dilution would have been $1.99 in 1997, $1.65 in 1996 and $1.48
in 1995.

NOTE 13. OTHER OPERATING EXPENSE

A summary of other operating expense is as follows:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------------
1997 1996 1995
-------- -------- --------
(thousands of dollars)
<S> <C> <C> <C>
Business development........................................ $ 30,415 $ 27,540 $ 29,413
Professional fees........................................... 27,412 22,244 20,491
Information processing expense.............................. 23,493 20,840 21,918
Stationery and supplies..................................... 22,034 24,696 21,284
Delivery.................................................... 21,091 19,497 19,192
Intangible amortization..................................... 14,987 15,321 11,068
Processing and other losses................................. 11,951 7,997 7,562
F.D.I.C. insurance.......................................... 2,480 2,282 16,531
Net foreclosed assets (income) expense...................... (995) 349 (281)
SAIF assessments............................................ 7,837
Other....................................................... 58,642 52,512 54,158
-------- -------- --------
Total.................................................. $211,510 $201,115 $201,336
======== ======== ========
</TABLE>

41
<PAGE> 43

NOTE 14. EMPLOYEE BENEFIT PLANS

Firstar and its subsidiaries have non-contributory defined benefit pension
plans covering substantially all employees. The benefits are based upon years of
service and the employee's compensation during the last ten years of employment.
The funding policy is to contribute annually the minimum amount necessary to
satisfy federal minimum funding standards. Plan assets are primarily invested in
listed stocks and U.S. Treasury and federal agency securities. The table below
summarizes data relative to the plans.

<TABLE>
<CAPTION>
DECEMBER 31
------------------------------
1997 1996 1995
-------- -------- --------
(thousands of dollars)
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation................................. $257,798 $228,417 $216,261
Accumulated benefit obligation............................ 264,478 233,975 221,716
Projected benefit obligation.............................. 336,090 293,128 280,328
Plan assets at fair value................................... 338,005 291,462 237,195
Plan assets greater (less) than projected benefit
obligation................................................ 1,915 (1,666) (43,133)
Unrecognized prior service cost............................. 591 (120) (1,791)
Unrecognized net asset...................................... (2,213) (3,446) (4,680)
Unrecognized net loss....................................... 10,155 6,430 36,373
-------- -------- --------
Pension asset (liability).............................. $ 10,448 $ 1,198 $(13,231)
======== ======== ========
Net pension expense comprised the following:
Service cost.............................................. $ 9,447 $ 10,319 $ 7,526
Interest cost on projected benefit obligation............. 22,196 20,443 18,863
Actual return on plan assets.............................. (45,693) (31,086) (46,230)
Net amortization and deferral............................. 23,030 12,750 28,519
-------- -------- --------
Net pension expense.................................... $ 8,980 $ 12,426 $ 8,678
======== ======== ========
Assumptions used in actuarial values:
Discount rate............................................. 7.25% 7.75% 7.50%
Rates of increase in compensation levels.................. 5.50 5.50 5.50
Expected rate of return on plan assets.................... 9.00 9.00 9.00
</TABLE>

Firstar also has unfunded pension plans covering certain employees.
Interest rates used in calculating the actuarial values are essentially the same
as in the previously described plans. The table below summarizes data relative
to the plans.

<TABLE>
<CAPTION>
DECEMBER 31
------------------------------
1997 1996 1995
-------- -------- --------
(thousands of dollars)
<S> <C> <C> <C>

Projected benefit obligation................................ $(27,486) $(19,681) $(12,497)
Unrecognized prior service cost............................. 2,158 2,365 2,572
Unrecognized transition obligation.......................... 61 104 146
Unrecognized net loss....................................... 9,628 3,885 2,068
-------- -------- --------
Pension liability...................................... $(15,639) $(13,327) $ (7,711)
======== ======== ========
Net pension expense comprised the following:
Service cost.............................................. $ 696 $ 478 $ 294
Interest cost on projected benefit obligation............. 1,812 1,200 835
Net amortization and deferral............................. 592 451 260
-------- -------- --------
Net pension expense.................................... $ 3,100 $ 2,129 $ 1,389
======== ======== ========
</TABLE>

Firstar has profit sharing plans under which eligible employees can
participate by contributing a portion of their salary for investment in one or
more trust funds. Contributions are made to the account of each participant
based upon profitability or at the discretion of the board of directors. Amounts
expensed in connection with this plan were $9,597,000 in 1997, $7,013,000 in
1996, and $11,370,000 in 1995.

42
<PAGE> 44

In addition to pension benefits, certain health care benefits are made
available to active and retired employees. The table below summarizes data
relative to this benefit program. The program is unfunded and the transition
obligation is being amortized over 20 years.

<TABLE>
<CAPTION>
DECEMBER 31
------------------------------
1997 1996 1995
-------- -------- --------
(thousands of dollars)
<S> <C> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.................................................. $(32,648) $(31,178) $(40,893)
Fully eligible active plan participants................... (5,553) (5,716) (6,478)
Other active plan participants............................ (13,351) (11,552) (12,641)
-------- -------- --------
Total.................................................. (51,552) (48,446) (60,012)
Unrecognized transition obligation.......................... 38,124 42,590 50,194
Unrecognized net gain....................................... (17,780) (20,661) (7,528)
-------- -------- --------
Postretirement benefit liability....................... $(31,208) $(26,517) $(17,346)
======== ======== ========
Net postretirement benefit expense comprised the following:
Service cost.............................................. $ 943 $ 963 $ 787
Interest cost............................................. 3,658 4,401 3,753
Net amortization and deferral............................. 1,760 2,354 2,093
Plan curtailment.......................................... 1,287 2,181
-------- -------- --------
Net postretirement benefit expense..................... $ 7,648 $ 9,899 $ 6,633
======== ======== ========
</TABLE>

For measurement purposes, a 9.5% annual rate of increase in the per capita
cost of covered health care benefits was assumed, decreasing to 5.5% by 2004 and
remaining at that level thereafter. The health care cost trend rate assumption
has an effect on the amounts reported. To illustrate, increasing the assumed
health care cost trend rates by one percentage point in each year would increase
the accumulated postretirement accumulated benefit obligation by $3,404,000 and
the aggregate of the service and interest cost components of net periodic
postretirement benefit cost by $421,000. The discount rate used in determining
the accumulated postretirement benefit obligation was 7.25%, 7.75% and 7.50 % at
December 31, 1997, 1996 and 1995, respectively.

NOTE 15. INCOME TAXES

The taxes applicable to income before income taxes were as follows:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------------
1997 1996 1995
-------- -------- --------
(thousands of dollars)
<S> <C> <C> <C>
Current income taxes:
Federal................................................... $122,997 $ 97,942 $ 95,797
State and other........................................... 18,546 19,169 22,891
-------- -------- --------
Subtotal............................................... 141,543 117,111 118,688
Deferred income taxes:
Federal................................................... 5,611 5,339 510
State and other........................................... 485 1,734 (845)
-------- -------- --------
Subtotal............................................... 6,096 7,073 (335)
-------- -------- --------
Provision for income taxes............................. $147,639 $124,184 $118,353
======== ======== ========
</TABLE>

Exercised stock options produced tax benefits of $8,237,000 in 1997,
$7,848,000 in 1996 and $3,785,000 in 1995 which were allocated directly to
stockholders' equity. Also, the sale of subsidiaries which were acquired in a
purchase business combination produced tax expense of $4,515,000 in 1996 which
was allocated directly to goodwill.

43
<PAGE> 45

The actual provision for income taxes differed from the amount computed by
applying the federal statutory rate of 35% to income before income taxes as
shown below:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------------
1997 1996 1995
-------- -------- --------
(thousands of dollars)
<S> <C> <C> <C>
Tax expense at statutory rate............................... $154,997 $131,091 $121,543
Increase (reduction) in taxes resulting from:
Tax-exempt income......................................... (21,714) (20,460) (20,456)
State and local taxes--net of federal income tax
benefit................................................ 12,370 13,587 14,330
Amortization of nondeductible intangibles................. 3,703 4,050 2,748
Favorable settlement of prior years' taxes................ (3,229)
Other--net................................................ (1,717) (855) 188
-------- -------- --------
Provision for income taxes............................. $147,639 $124,184 $118,353
======== ======== ========
</TABLE>

The significant components of deferred income tax expense attributable to
income from continuing operations are as follows:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------------
1997 1996 1995
-------- -------- --------
(thousands of dollars)
<S> <C> <C> <C>
Deferred tax expense (exclusive of the effects of other
components listed below).................................. $ 6,298 $ 6,541 $ 98
Change in beginning of year valuation allowance due to
effective tax planning strategies......................... (1,008)
Change in valuation allowance due to creation/utilization
of net operating losses................................... (202) 532 575
-------- -------- --------
Total.................................................. $ 6,096 $ 7,073 ($ 335)
======== ======== ========
</TABLE>

The significant components of the net deferred tax asset were as follows:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------------
1997 1996 1995
-------- -------- ----
(thousands of dollars)
<S> <C> <C> <C>
Deferred tax liabilities:
Equipment leased to customers............................. $(23,464) $(16,952) $(13,860)
Securities available for sale............................. (13,242) (10,019) (20,164)
Bank premises and equipment............................... (12,704) (12,616) (11,120)
Acquired assets accounted for as a purchase............... (11,043) (12,906) (9,491)
Other--net................................................ (619)
Deferred tax assets:
Reserve for loan losses................................... 88,644 85,734 78,176
Pension and post-retirement benefits...................... 16,188 14,335 11,463
State and federal net operating loss carry forwards....... 11,462 11,887 11,378
Deferred compensation..................................... 10,618 12,834 8,889
Other--net................................................ 3,347 6,755
-------- -------- --------
Subtotal............................................... 65,840 75,644 62,026
Valuation allowance......................................... (10,941) (11,143) (10,611)
-------- -------- --------
Net deferred tax asset................................. $ 54,899 $ 64,501 $ 51,415
======== ======== ========
</TABLE>

The change in net deferred tax asset includes $3,223,000 of tax expense in
1997, $10,145,000 of tax benefit in 1996 and $20,800,000 of tax expense in 1995
allocated directly to stockholders' equity for unrealized

44
<PAGE> 46

gains (losses) on securities available for sale recorded in accordance with SFAS
No. 115. Other changes relate to acquisitions.

The valuation allowance was decreased $202,000 in 1997, increased $532,000
in 1996 and decreased $433,000 in 1995. The valuation allowance has been
recognized primarily to offset deferred tax assets related to state net
operating loss carry forwards totaling approximately $212,983,000 which expire
at various times within the next 15 years.

The net deferred tax asset is included in other assets. Amounts originally
reported for 1996 have been reclassified to reflect actual tax return results.

NOTE 16. NET INCOME PER COMMON SHARE

Basic and diluted earnings per share of Firstar were calculated as follows:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------------
1997 1996 1995
-------- -------- --------
(thousands of dollars,
except per share)
<S> <C> <C> <C>
Basic:
Net income................................................ $295,209 $250,177 $228,913
Less preferred dividends.................................. 483 867 1,521
-------- -------- --------
Net income applicable to common stock..................... $294,726 $249,310 $227,392
Average common shares outstanding......................... 145,143 148,061 151,432
Net income per common share--basic..................... $ 2.03 $ 1.68 $ 1.50
Diluted:
Net income................................................ $295,209 $250,177 $228,913
Average common shares outstanding......................... 145,143 148,061 151,432
Options & stock plans..................................... 1,570 1,312 2,106
Preferred stock........................................... 593 1,063 1,318
-------- -------- --------
Average common shares outstanding--diluted................ 147,306 150,436 154,856
Net income per common share--diluted................... $ 2.00 $ 1.66 $ 1.48
</TABLE>

NOTE 17. COMMITMENTS AND CONTINGENT LIABILITIES

Firstar has outstanding at any time a significant number of commitments to
extend credits to its customers. These commitments include revolving credit
agreements, term loan commitments, short-term borrowing agreements and standby
letters of credit. These commitments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amounts recognized in the
consolidated balance sheets.

Commitments to extend credit are agreements to lend to a customer as long
as there is not a violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.

Credit card commitments are unsecured agreements to extend credit. Such
commitments are reviewed periodically, at which time the commitments may be
maintained, increased, decreased or canceled depending upon evaluation of the
customer's credit worthiness and other considerations.

Standby and commercial letters of credit are conditional commitments issued
by Firstar to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private borrowing
arrangements, including commercial paper, bond financing and similar
transactions.

Firstar uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments. Firstar evaluates each
customer's credit worthiness on a case-by-case basis. The

45
<PAGE> 47

amount of collateral obtained, if deemed necessary upon extension of credit, is
based on management's credit evaluation of the party.

Firstar originates and sells residential mortgage loans as a part of
various mortgage backed security programs sponsored by United States government
agencies or government-sponsored agencies, such as the Federal Home Loan
Mortgage Corporation, the Federal National Mortgage Association and the
Government National Mortgage Association. These sales are often subject to
certain recourse provisions in the event of default by the borrower.

The following is a summary of such commitments at December 31, 1997 and
1996:

<TABLE>
<CAPTION>
DECEMBER 31
----------------
1997 1996
------ ------
(millions of
dollars)
<S> <C> <C>

Commitments to extend credit................................ $5,547 $6,044
Credit card lines........................................... 2,969 2,470
Standby and commercial letters of credit.................... 546 550
Mortgage loans sold with recourse........................... 179 220
</TABLE>

NOTE 18. REGULATORY RESTRICTIONS AND CAPITAL RATIOS

Federal regulations require Firstar to maintain as reserves, minimum cash
balances based on deposit levels at subsidiary banks. Cash balances restricted
from usage due to these requirements were $75 million and $60 million at
December 31, 1997 and 1996, respectively.

Firstar's subsidiary banks are restricted by regulation as to the amount of
funds which can be transferred to the parent in the form of loans and dividends.
As of December 31, 1997, $173 million could be loaned to Firstar by the
subsidiary banks subject to strict collateral requirements, and $114 million
could be paid to Firstar by the subsidiary banks in the form of dividends. In
addition each subsidiary bank could pay dividends to Firstar in an amount which
approximates Firstar's equity in their 1998 net income. The payment of dividends
by any subsidiary bank may also be affected by other factors beyond this
regulatory limitation, such as maintenance of adequate capital for each
subsidiary bank.

Firstar and its bank subsidiaries are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory--and possibly
additional discretionary--actions by regulators that, if undertaken, could have
a direct material effect on Firstar's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
Firstar must meet specific capital guidelines that involve quantitative measures
of assets, liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. Firstar's capital amounts and classification
are also subject to qualitative judgments by the regulators about components,
risk weightings and other factors.

46
<PAGE> 48

Firstar and its subsidiaries listed below have met all capital requirements
necessary to be classified as "well capitalized" as of December 31, 1997 and
1996.

<TABLE>
<CAPTION>
MINIMUM TO BE WELL
DECEMBER 31, 1997 CAPITAL REQUIREMENT CAPITALIZED
--------------------- --------------------- ---------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------- ----- ---------- ----- ---------- -----
(thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk Weighted Assets):
Consolidated.......................... $1,875,362 11.71% $1,281,330 8.00% $1,601,663 10.00%
Firstar Bank Milwaukee................ 655,236 10.21 513,593 8.00 641,992 10.00
Firstar Bank Wisconsin................ 353,984 11.43 247,791 8.00 309,738 10.00
Firstar Bank Minnesota................ 241,675 12.27 157,544 8.00 196,930 10.00
Firstar Bank Iowa..................... 243,968 11.63 167,814 8.00 209,767 10.00
Firstar Bank Illinois................. 212,508 14.31 118,464 8.00 148,080 10.00
Firstar Bank U.S.A.................... 139,390 12.76 87,381 8.00 109,227 10.00
Tier 1 Capital (to Risk Weighted Assets):
Consolidated.......................... 1,634,924 10.21% 640,665 4.00% 960,998 6.00%
Firstar Bank Milwaukee................ 538,295 8.38 256,797 4.00 385,195 6.00
Firstar Bank Wisconsin................ 303,196 9.79 123,895 4.00 185,843 6.00
Firstar Bank Minnesota................ 216,964 11.02 78,772 4.00 118,158 6.00
Firstar Bank Iowa..................... 210,707 10.04 83,907 4.00 125,860 6.00
Firstar Bank Illinois................. 193,882 13.05 59,232 4.00 88,848 6.00
Firstar Bank U.S.A.................... 105,705 9.68 43,691 4.00 65,536 6.00
Tier 1 Leverage (to Average Assets):
Consolidated.......................... 1,634,924 8.50% 769,046 4.00% 961,307 5.00%
Firstar Bank Milwaukee................ 538,295 7.29 295,445 4.00 369,306 5.00
Firstar Bank Wisconsin................ 303,196 7.57 160,213 4.00 200,266 5.00
Firstar Bank Minnesota................ 216,964 8.16 106,353 4.00 132,941 5.00
Firstar Bank Iowa..................... 210,707 7.29 115,672 4.00 144,590 5.00
Firstar Bank Illinois................. 193,882 7.28 106,498 4.00 133,122 5.00
Firstar Bank U.S.A.................... 105,705 12.77 33,114 4.00 41,393 5.00
</TABLE>

<TABLE>
<CAPTION>
MINIMUM TO BE WELL
DECEMBER 31, 1996 CAPITAL REQUIREMENT CAPITALIZED
------------------- -------------------- -------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------- ------ ----------- ------ ---------- ------
(thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk Weighted Assets):
Consolidated.......................... $1,888,093 13.47% $1,121,647 8.00% $1,402,059 10.00%
Firstar Bank Milwaukee................ 569,904 11.19 407,573 8.00 509,466 10.00
Firstar Bank Wisconsin................ 379,913 12.82 237,135 8.00 296,419 10.00
Firstar Bank Minnesota................ 291,586 13.67 170,702 8.00 213,377 10.00
Firstar Bank Iowa..................... 244,750 12.64 154,892 8.00 193,615 10.00
Firstar Bank Illinois................. 223,752 14.83 120,731 8.00 150,914 10.00
Firstar Bank U.S.A.................... 56,532 11.47 39,421 8.00 49,276 10.00
Tier 1 Capital (to Risk Weighted Assets):
Consolidated.......................... 1,636,700 11.67% 560,823 4.00% 841,235 6.00%
Firstar Bank Milwaukee................ 482,490 9.47 203,786 4.00 305,680 6.00
Firstar Bank Wisconsin................ 340,363 11.48 118,568 4.00 177,852 6.00
Firstar Bank Minnesota................ 264,821 12.41 85,351 4.00 128,026 6.00
Firstar Bank Iowa..................... 220,542 11.39 77,446 4.00 116,169 6.00
Firstar Bank Illinois................. 204,796 13.57 60,366 4.00 90,548 6.00
Firstar Bank U.S.A.................... 50,227 10.19 19,711 4.00 29,566 6.00
Tier 1 Leverage (to Average Assets):
Consolidated.......................... 1,636,700 8.55% 765,900 4.00% 957,375 5.00%
Firstar Bank Milwaukee................ 482,490 6.73 286,717 4.00 358,397 5.00
Firstar Bank Wisconsin................ 340,363 8.10 168,150 4.00 210,188 5.00
Firstar Bank Minnesota................ 264,821 9.22 114,873 4.00 143,592 5.00
Firstar Bank Iowa..................... 220,542 7.91 111,489 4.00 139,361 5.00
Firstar Bank Illinois................. 204,796 7.46 109,773 4.00 137,216 5.00
Firstar Bank U.S.A.................... 50,227 11.47 17,516 4.00 21,895 5.00
</TABLE>

47
<PAGE> 49

NOTE 19. DERIVATIVE FINANCIAL INSTRUMENTS

Rate Risk Management

As part of its asset and liability management, Firstar uses various types
of interest rate contracts for the purpose of managing its interest rate risks.
The use of interest rate contracts enables Firstar to synthetically alter the
repricing characteristics of designated earning assets and interest-bearing
liabilities. The following tables summarize the notional amounts of interest
rate contracts at December 31, 1997, used by Firstar in its asset and liability
management process:

<TABLE>
<CAPTION>
INTEREST RATE SWAPS
-----------------------------
RECEIVE FIXED RATE TOTAL
------------------ INTEREST
INDEX RECEIVE CAPS AND RATE
AMORTIZING OTHER VARIABLE FLOORS CONTRACTS
---------- ----- -------- -------- ---------
(millions of dollars)
<S> <C> <C> <C> <C> <C>
December 31, 1995................................. $ 269 $ 55 $ 37 $ 701 $1,062
Additions....................................... 25 25
Maturities...................................... (162) (28) (110) (300)
----- ---- ---- ----- ------
December 31, 1996................................. 107 27 62 591 787
Maturities...................................... (84) (27) (54) (50) (215)
----- ---- ---- ----- ------
December 31, 1997................................. $ 23 $ 0 $ 8 $ 541 $ 572
===== ==== ==== ===== ======
</TABLE>

Index amortizing interest rate swaps are used to convert variable rate
loans to a fixed rate basis. The amortizing feature of these swaps serves to
extend the maturity after a predetermined mandatory period if the three-month
LIBOR index rate is above a pre-established reference rate on a quarterly basis.
Additionally, the notional amount of the swaps is reduced on a quarterly basis
based upon pre-established rates.

Interest rate swaps were used to convert variable rate loans to fixed rate
loans. Interest rate swaps totaling $8 million were used to convert fixed rate
loans and securities to a variable rate basis.

Interest rate floors provide for the receipt of payments when the three
month LIBOR rate is below a predetermined interest rate floor. Firstar has
entered into $210 million of floors to manage interest rate risk on certain
variable rate loans and has entered into $331 million of floors to manage the
interest rate risk on money market fund deposits which have guaranteed minimum
interest rates.

Interest rate caps provide for the receipt of payments when the three month
LIBOR rate exceeds predetermined interest rate caps. Firstar had entered into
interest rate caps to manage interest rate risk on variable rate borrowed funds.
No interest rate caps are currently in place.

Net cash flows associated with off-balance sheet interest rate contracts
used to manage interest rate risk reduced net interest revenue by $1,100,000,
$1,500,000 and $9,100,000 during 1997, 1996 and 1995, respectively.

The notional values of derivative financial instruments represent the
amounts on which interest payments are exchanged between the counterparties.
Those notional values do not represent direct credit exposures. Firstar is
exposed to credit-related losses in the event of nonperformance by
counterparties to these instruments but does not expect any counterparty to fail
to meet their obligations. Where appropriate, Firstar requires collateral based
upon the positive market value of the exposure taking into account bilateral
netting agreements with certain counterparties. Based on market values,
Firstar's credit exposure was $251 thousand at December 31, 1997.

Firstar enters into both mandatory and optional commitments to sell groups
of residential mortgage loans that it originates or purchases as part of its
mortgage banking activities. Firstar commits to sell the loans at specified
prices in a future period typically within 90 days. The risk associated with
these commitments consists primarily of loans not closing in sufficient volumes
and at appropriate yields to meet the sale commitments. Firstar had contracts
totaling $334 million and $173 million on December 31, 1997 and 1996,

48
<PAGE> 50

respectively. Gains or losses on these contracts are included in the
determination of the market value of mortgages held for sale.

The maturity of derivative financial instruments as of December 31, 1997 is
as follows:

<TABLE>
<CAPTION>
MATURITY RANGE OF DERIVATIVE FINANCIAL INSTRUMENTS
---------------------------------------------------------------------
MARKET
WEIGHTED VALUE
AVERAGE ASSET
1998 1999 2000 TOTAL MATURITIES (LIABILITY)
----- ----- ----- ----- ---------- -----------
(millions of dollars)
<S> <C> <C> <C> <C> <C> <C>
Interest rate swaps
Receive variable....................... $ 8 $ 8 1.3 yrs $(.3)
Average receive rate................ 5.91% 5.91%
Average pay rate.................... 8.59% 8.59%
Receive fixed.......................... $ 16 $ 7 $ 23 1.0 yrs (.1)
Average receive rate................ 5.17% 5.40% 5.24%
Average pay rate.................... 5.78% 5.75% 5.77%
Interest rate floors..................... $ 25 $ 211 $ 305 $ 541 1.9 yrs .3
Average floor rate..................... 5.00% 5.09% 4.77% 4.90%
----- ----- ----- ----- ----
Total............................. $ 41 $ 226 $ 305 $ 572 1.9 yrs $(.1)
===== ===== ===== ===== ====
</TABLE>

- ---------------

All interest rates represent rates in effect on December 31, 1997.
Index rate for interest rate caps/floors is three month LIBOR.

Trading Activities

Firstar also acts as an intermediary for customers in their management of
interest rate and foreign currency rate risk. In this regard, Firstar will enter
into interest rate swaps, caps, floors and foreign exchange contracts with
customers to minimize their exposure to market risk. Firstar enters into
essentially offsetting transactions with other counterparties. Customer related
derivative activity, as well as derivative contracts not used to manage interest
rate risk on recorded assets and liabilities, is marked to market value. The
credit exposure at year-end of $6.5 million is represented by the fair value of
contracts with a positive value. Gross credit exposure amounts disregard the
value of any collateral. Revenue from this intermediary activity was $2.9
million and $2.2 million in 1997 and 1996, respectively.

Information on these transactions is shown below:

<TABLE>
<CAPTION>
1997 1996
----------------------------- -----------------------------
ESTIMATED ESTIMATED
FAIR VALUE FAIR VALUE
NOTIONAL ------------------ NOTIONAL ------------------
AMOUNT YEAR-END AVERAGE AMOUNT YEAR-END AVERAGE
-------- -------- ------- -------- -------- -------
(millions of dollars)
<S> <C> <C> <C> <C> <C> <C>
Interest rate swaps
In a receivable position............... $283 $2.9 $3.1 $460 $3.4 $5.4
In a payable position.................. 267 2.0 2.3 311 2.5 4.5
Interest rate caps/floors
Held................................... 63 0.6 9.6 77 1.2 1.5
Written................................ 63 0.6 9.6 77 1.2 1.5
Foreign exchange contracts
In a receivable position............... 38 3.0 2.7 49 1.5 1.6
In a payable position.................. 51 1.5 1.3 36 .9 .9
</TABLE>

49
<PAGE> 51

NOTE 20. FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments", requires that Firstar disclose estimated
fair values for its financial instruments. Fair value estimates were based on
relevant market data and information about the various financial instruments.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time Firstar's entire holdings of a particular
financial instrument. Because no market exists for a significant portion of
Firstar's financial instruments, fair value estimates are based on judgments
regarding current economic conditions, risk characteristics of various financial
instruments, future expected loss experience, and other factors. These estimates
are subjective and involve uncertainties and matters of significant judgment and
therefore cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.

Fair value estimates are based on existing on and off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities which are not considered
financial instruments. Significant assets that are not considered financial
instruments include goodwill, core deposit intangibles, certain customer
relationships and fixed assets. In addition, the tax ramifications related to
the realization of the unrealized gains and losses can have a significant effect
on fair value estimates and have not been considered.

Fair value estimates, methods and assumptions are set forth below for
Firstar's financial instruments.

Cash and short-term investments--The carrying amounts for short-term
investments (which include interest-bearing deposits with banks, federal funds
sold and resale agreements) approximate fair value because they mature in 90
days or less and do not represent unanticipated credit concerns.

Securities--Estimated fair value for securities is based on quoted market
prices. The fair value of certain small issues and municipal securities which
are not readily available through market quotations is assumed to equal carrying
value as these securities generally have short terms. These securities do not
represent a significant portion of the portfolio.

Loans--Fair values were estimated by discounting the expected future
cashflows using current interest rates at which similar loans would be made to
borrowers with similar credit ratings and remaining maturities. For variable
rate loans which reprice frequently, the estimated fair value is equal to the
carrying value.

Deposits--The fair value of deposits with no stated maturity, such as
interest bearing and non-interest bearing demand, savings and money market
accounts, is equal to the amount payable on demand. The fair value of
certificates of deposit is based on the discounted value of contractual cash
flows using current market rates for similar types of deposits.

Borrowed funds--The carrying value of short-term borrowed funds
approximates fair value as they are payable within three months or less. The
estimated fair value of long-term debt is based on broker quotations, when
available. Debt for which quoted prices were not available was valued using cash
flows discounted at a current market rate for similar types of debt.

Derivative financial instruments--The fair value of interest rate swap
agreements is based on the present value of the swap primarily using counter
party or third party dealer quotes. Fair values for caps and floors were
obtained using an option pricing model. These values represent the estimated
amount Firstar would receive or pay to terminate the contracts or agreements
taking into account current interest rates and market volatility. Prices
obtained from counter parties or pricing models are tested by obtaining third
party valuations. The fair value of commitments to extend credit and standby
letters of credit is not material and is not shown here.

50
<PAGE> 52

The estimated fair value of Firstar's financial instruments is summarized
as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------ -------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
----------- ---------- ----------- -----------
(thousands of dollars)
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term investments.......... $ 1,342,127 $1,342,127 $ 1,648,408 $ 1,648,408
Trading securities....................... 2,293 2,293 13,489 13,489
Securities available for sale............ 1,707,606 1,707,606 1,966,590 1,966,590
Securities held to maturity.............. 2,452,124 2,505,360 2,250,776 2,287,448
Loans, net of allowance for loan
losses................................ 13,349,925 13,474,914 12,982,396 12,991,668
Financial liabilities:
Deposits:
Without stated maturities............. 9,650,900 9,650,900 9,831,279 9,831,279
With stated maturities................ 5,063,754 5,082,283 5,382,918 5,400,419
Short-term borrowed funds................ 2,121,412 2,121,412 1,868,606 1,868,606
Long-term debt........................... 1,057,151 1,069,438 697,194 701,879
Derivative financial instruments:
Asset and liability management:
Interest rate instruments
Asset............................... 251 2,561
Liability........................... 361 1,199
Trading activities:
Interest rate contracts
Asset............................... 3,512 3,512 4,589 4,589
Liability........................... 2,675 2,675 3,700 3,700
Foreign exchange contracts
Asset............................... 2,969 2,969 1,500 1,500
Liability........................... 1,475 1,475 900 900
</TABLE>

51
<PAGE> 53

NOTE 21. PARENT CORPORATION CONDENSED FINANCIAL STATEMENTS

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1997 1996
---------- ----------
(thousands of dollars)
<S> <C> <C> <C>
Assets:
Cash and due from banks................................... $ $ 80
Short-term investments.................................... 34,672 161,150
Securities available for sale............................. 4,997 5,011
Commercial loans.......................................... 21 64
Loans to bank subsidiaries................................ 80,000 36,282
Investment in bank subsidiaries........................... 1,890,844 1,905,505
Investment in other subsidiaries.......................... 33,554 25,381
Other assets.............................................. 10,025 8,124
---------- ----------
Total assets........................................... $2,054,113 $2,141,597
========== ==========
Liabilities and stockholders' equity:
Short-term borrowed funds................................. $ $ 75,000
Long-term debt............................................ 332,980 332,980
Other liabilities......................................... 28,032 29,570
Stockholders' equity...................................... 1,693,101 1,704,047
---------- ----------
Total liabilities and stockholders' equity............. $2,054,113 $2,141,597
========== ==========
</TABLE>

STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------
1997 1996 1995
-------- ---------- ----------
(thousands of dollars)
<S> <C> <C> <C>
Revenue:
Dividends from bank subsidiaries.......................... $322,423 $ 219,714 $ 145,338
Dividends from other subsidiaries......................... 6,000 6,000 6,000
Fees from subsidiaries.................................... 43,429 29,810 26,083
Investment and loan income................................ 5,302 5,362 5,423
Other revenue............................................. 188 1,546 121
-------- ---------- ----------
Total revenue.......................................... 377,342 262,432 182,965
Expense:
Interest.................................................. 29,085 23,760 15,501
Salaries and employee benefits............................ 28,740 20,336 18,795
Other expense............................................. 18,015 13,814 17,251
-------- ---------- ----------
Total expense.......................................... 75,840 57,910 51,547
Income before income taxes and equity in undistributed
income of subsidiaries.................................... 301,502 204,522 131,418
Provision for income tax benefits........................... (10,825) (7,096) (6,465)
-------- ---------- ----------
Income before equity in undistributed income of
subsidiaries.............................................. 312,327 211,618 137,883
Equity in undistributed income (dividends in excess of
earnings)................................................. (17,118) 38,559 91,030
-------- ---------- ----------
Net income............................................. $295,209 $ 250,177 $ 228,913
======== ========== ==========
</TABLE>

52
<PAGE> 54

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
---------------------------------
1997 1996 1995
--------- --------- ---------
(thousands of dollars)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................... $ 295,209 $ 250,177 $ 228,913
Adjustments:
Equity in undistributed income of subsidiaries........ 17,118 (38,559) (91,030)
Depreciation, amortization and accretion.............. 743 789 553
(Increase) decrease in other assets................... (1,495) 11,789 (2,579)
(Decrease) increase in other liabilities.............. (623) 4,269 1,516
Other net............................................. 392 (248) 94
--------- --------- ---------
Net cash provided by operating activities........... 311,344 228,217 137,467
Cash flows from investing activities:
Net decrease (increase) in short-term investments........ 126,478 (114,750) 24,550
Net increase in long-term investments.................... (24) (5,011)
Net decrease in commercial loans......................... 42 263 98
Net (increase) decrease in loans to subsidiaries......... (43,718) 831 1,645
Purchases of premises and equipment...................... (1,377) (589) (1,092)
Capital contributions to subsidiaries.................... (5,028) (400)
--------- --------- ---------
Net cash provided by (used in) investing
activities....................................... 81,401 (119,273) 19,790
Cash flows from financing activities:
Repayment of long-term debt.............................. (46,616)
Net proceeds from long-term debt......................... 153,050 99,360
Repayment of short-term debt............................. (175,000)
Net proceeds from short-term debt........................ 100,000 75,000
Cash dividends........................................... (119,909) (111,143) (101,359)
Preferred stock redemption............................... (8,350)
Common stock transactions................................ (197,916) (179,748) (146,985)
--------- --------- ---------
Net cash used in financing activities............... (392,825) (109,457) (157,334)
--------- --------- ---------
Net decrease in cash and due from banks.................... (80) (513) (77)
Cash and due from banks at beginning of year............... 80 593 670
--------- --------- ---------
Cash and due from banks at end of year..................... $ 0 $ 80 $ 593
========= ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest................... $ 28,711 $ 23,757 $ 13,036
</TABLE>

53
<PAGE> 55

FIRSTAR CORPORATION AND SUBSIDIARIES

SUMMARY OF QUARTERLY FINANCIAL INFORMATION
(UNAUDITED)

<TABLE>
<CAPTION>
1997
--------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(thousands of dollars, except per share)
<S> <C> <C> <C> <C>
Interest revenue.................................... $341,580 $350,532 $354,256 $355,105
Interest expense.................................... 154,556 163,921 166,398 166,213
-------- -------- -------- --------
Net interest revenue................................ 187,024 186,611 187,858 188,892
Provision for loan losses........................... 9,718 9,532 11,290 24,118
Other operating revenue............................. 110,449 113,378 120,906 146,406
Other operating expense............................. 178,622 180,102 183,764 201,530
-------- -------- -------- --------
Income before income taxes.......................... 109,133 110,355 113,710 109,650
Provision for income taxes.......................... 37,338 37,647 38,423 34,231
-------- -------- -------- --------
Net income.......................................... $ 71,795 $ 72,708 $ 75,287 $ 75,419
======== ======== ======== ========
Per common share:
Net income.......................................... $ .49 $ .50 $ .52 $ .52
Net income assuming dilution........................ .48 .50 .51 .51
Dividends........................................... .19 .21 .21 .21
Stock price ranges:
High.............................................. 32 5/8 33 1/8 38 43 11/16
Low............................................... 25 9/16 27 1/4 30 5/8 34
Close............................................. 27 1/2 30 1/2 36 1/4 42 7/16
</TABLE>

<TABLE>
<CAPTION>
1996
--------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(thousands of dollars, except per share)
<S> <C> <C> <C> <C>
Interest revenue.................................... $342,579 $340,835 $351,022 $348,462
Interest expense.................................... 158,243 156,636 161,152 156,981
-------- -------- -------- --------
Net interest revenue................................ 184,336 184,199 189,870 191,481
Provision for loan losses........................... 9,209 10,846 8,908 13,684
Other operating revenue............................. 105,055 106,223 113,351 115,823
Other operating expense............................. 227,922 169,530 187,012 188,866
-------- -------- -------- --------
Income before income taxes.......................... 52,260 110,046 107,301 104,754
Provision for income taxes.......................... 15,142 39,883 38,029 31,130
-------- -------- -------- --------
Net income.......................................... $ 37,118 $ 70,163 $ 69,272 $ 73,624
======== ======== ======== ========
Per common share:
Net income.......................................... $ .25 $ .48 $ .46 $ .49
Net income assuming dilution........................ .25 .48 .46 .48
Dividends........................................... .17 .19 .19 .19
Stock price ranges:
High.............................................. 22 15/16 24 7/8 24 9/16 26 7/8
Low............................................... 18 5/16 21 1/16 21 7/16 23 3/4
Close............................................. 22 3/8 23 1/16 24 1/8 26 1/4
</TABLE>

54
<PAGE> 56

FIRSTAR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND FINANCIAL RATIOS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(thousands of dollars, except per share data)
<S> <C> <C> <C> <C> <C>
INTEREST REVENUE LOANS............... $1,138,417 $1,113,459 $1,081,685 $ 914,311 $ 824,082
Securities........................... 256,354 263,799 253,794 193,280 195,391
Other................................ 6,702 5,640 12,307 12,153 8,581
---------- ---------- ---------- ---------- ----------
Total interest revenue............. 1,401,473 1,382,898 1,347,786 1,119,744 1,028,054
INTEREST EXPENSE
Deposits............................. 471,670 465,553 444,706 321,969 315,858
Short-term borrowed funds............ 127,153 123,629 133,151 67,622 25,189
Long-term debt....................... 52,265 43,830 43,982 31,315 27,068
---------- ---------- ---------- ---------- ----------
Total interest expense............. 651,088 633,012 621,839 420,906 368,115
---------- ---------- ---------- ---------- ----------
NET INTEREST REVENUE................. 750,385 749,886 725,947 698,838 659,939
Provision for loan losses............ 54,658 42,647 36,756 23,891 29,090
---------- ---------- ---------- ---------- ----------
NET INTEREST REVENUE AFTER LOAN LOSS
PROVISION.......................... 695,727 707,239 689,191 674,947 630,849
OTHER OPERATING REVENUE
Trust and investment management
fees............................... 174,899 148,019 134,354 120,349 112,521
Service charges on deposit
accounts........................... 87,483 91,953 81,775 82,378 83,060
Credit card service revenue.......... 71,038 69,945 62,106 55,867 53,728
Other................................ 157,719 130,535 113,962 112,025 143,609
---------- ---------- ---------- ---------- ----------
Total other operating revenue...... 491,139 440,452 392,197 370,619 392,918
OTHER OPERATING EXPENSE
Salaries and employee benefits....... 399,702 391,516 395,361 380,961 368,514
Equipment expense.................... 69,574 63,197 56,282 54,556 53,123
Net occupancy expense................ 63,232 64,235 57,992 52,984 58,328
Other................................ 211,510 254,382 224,487 217,684 209,309
---------- ---------- ---------- ---------- ----------
Total other operating expense...... 744,018 773,330 734,122 706,185 689,274
---------- ---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES........... 442,848 374,361 347,266 339,381 334,493
Provision for income taxes........... 147,639 124,184 118,353 112,708 106,555
---------- ---------- ---------- ---------- ----------
NET INCOME........................... $ 295,209 $ 250,177 $ 228,913 $ 226,673 $ 227,938
========== ========== ========== ========== ==========
Per common share:
Net income......................... $ 2.03 $ 1.68 $ 1.50 $ 1.49 $ 1.50
Net income assuming dilution....... 2.00 1.66 1.48 1.47 1.49
Dividends.......................... .82 .74 .66 .58 .50
Return on average total assets....... 1.53% 1.31% 1.26% 1.37% 1.49%
Return on average common equity...... 18.41 15.95 15.11 15.96 17.81
Dividend payout ratio................ 40.39 44.05 44.00 38.93 33.33
Equity as a percentage of assets:
At year-end........................ 8.53 8.62 7.95 8.41 8.28
Average for the year............... 8.32 8.22 8.37 8.67 8.67
Full-time equivalent staff (at
year-end).......................... 7,755 8,367 9,263 9,895 9,831
Average common shares outstanding
(000's)............................ 145,143 148,061 151,432 150,391 148,262
Average common shares outstanding--
assuming dilution (000's).......... 147,306 150,436 154,856 154,489 152,930
</TABLE>

55
<PAGE> 57

FIRSTAR CORPORATION AND SUBSIDIARIES

CONSOLIDATED AVERAGE BALANCE SHEETS, NET INTEREST REVENUE AND RATE ANALYSIS
<TABLE>
<CAPTION>
1997 1996 1995
---------------------------------- ---------------------------------- ------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST
----------- ---------- ------- ----------- ---------- ------- ----------- ----------
(thousands of dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-bearing deposits
with banks.............. $ 14,030 $ 691 4.93% $ 8,743 $ 380 4.35% $ 15,668 $ 967
Federal funds sold and
resale agreements....... 108,655 5,880 5.41 88,319 4,916 5.57 173,541 10,534
Trading securities....... 2,238 133 5.94 10,140 392 3.87 14,243 968
Securities:
Taxable................. 2,967,029 198,112 6.68 3,243,188 209,408 6.46 3,125,536 200,484
Nontaxable.............. 1,214,933 87,013 7.16 1,126,264 81,853 7.27 1,069,721 79,561
----------- ---------- ----------- ---------- ----------- ----------
Total securities...... 4,181,962 285,125 6.82 4,369,452 291,261 6.67 4,195,257 280,045
Loans:
Commercial.............. 7,497,082 633,851 8.45 7,163,564 615,966 8.60 6,838,277 609,248
Consumer................ 3,277,008 319,424 9.75 3,031,369 295,508 9.75 2,835,632 278,236
Consumer mortgage....... 2,516,170 192,172 7.64 2,727,441 208,570 7.65 2,617,765 201,256
----------- ---------- ----------- ---------- ----------- ----------
Total loans........... 13,290,260 1,145,447 8.62 12,922,374 1,120,044 8.67 12,291,674 1,088,740
----------- ---------- ----------- ---------- ----------- ----------
Interest earning
assets................ 17,597,145 1,437,276 8.17 17,399,028 1,416,993 8.14 16,690,383 1,381,254
Reserve for loan
losses.................. (214,026) (206,913) (197,181)
Cash and due from
banks................... 998,381 1,044,706 895,767
Other assets............. 942,049 922,008 826,431
----------- ----------- -----------
Total assets.......... $19,323,549 $19,158,829 $18,215,400
=========== =========== ===========
LIABILITIES AND EQUITY
Interest-bearing
demand.................. $ 1,598,625 $ 24,775 1.55% $ 1,552,786 $ 21,786 1.40% $ 1,571,378 $ 23,831
Money market accounts.... 2,785,697 119,135 4.28 2,577,477 102,927 3.99 2,110,503 85,231
Savings passbook......... 1,441,221 33,179 2.30 1,599,075 40,034 2.50 1,731,344 44,509
Certificates of
deposit................. 5,275,729 294,581 5.58 5,392,430 300,806 5.58 5,261,589 291,135
Short-term borrowed
funds................... 2,397,346 127,153 5.30 2,357,838 123,629 5.24 2,275,739 133,151
Long-term debt........... 746,500 52,265 7.00 641,082 43,830 6.84 610,889 43,982
----------- ---------- ----------- ---------- ----------- ----------
Interest-bearing
liabilities........... 14,245,118 651,088 4.57 14,120,688 633,012 4.48 13,561,442 621,839
Demand deposits.......... 3,186,828 3,174,569 2,827,623
Other liabilities........ 283,766 288,224 300,942
Stockholders' equity..... 1,607,837 1,575,348 1,525,393
----------- ----------- -----------
Total liabilities and
equity................ $19,323,549 $19,158,829 $18,215,400
=========== =========== ===========
Net interest
revenue/margin.......... $ 786,188 4.47% $ 783,981 4.51% $ 759,415
========== ========== ==========

<CAPTION>
1995 1994 1993
------- ---------------------------------- ----------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
------- ----------- ---------- ------- ----------- ---------- -------
(thousands of dollars)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-bearing deposits
with banks.............. 6.17% $ 24,843 $ 1,297 5.22% $ 64,832 $ 2,667 4.11%
Federal funds sold and
resale agreements....... 6.07 219,521 9,645 4.39 165,042 5,119 3.10
Trading securities....... 6.80 22,123 1,560 7.05 17,332 985 5.68
Securities:
Taxable................. 6.41 2,452,243 145,358 5.93 2,313,373 144,460 6.24
Nontaxable.............. 7.44 1,074,371 75,355 7.01 1,064,975 78,460 7.37
----------- ---------- ----------- ----------
Total securities...... 6.68 3,526,614 220,713 6.26 3,378,348 222,920 6.60
Loans:
Commercial.............. 8.91 6,243,142 513,254 8.22 5,637,854 432,271 7.67
Consumer................ 9.81 2,636,378 241,152 9.15 4,472,934 396,560 8.87
Consumer mortgage....... 7.69 2,336,342 167,087 7.15 * * *
----------- ---------- ----------- ----------
Total loans........... 8.86 11,215,862 921,493 8.22 10,110,788 828,831 8.20
----------- ---------- ----------- ----------
Interest earning
assets................ 8.28 15,008,963 1,154,708 7.69 13,736,342 1,060,522 7.72
Reserve for loan
losses.................. (191,441) (188,358)
Cash and due from
banks................... 954,489 1,016,639
Other assets............. 773,024 744,283
----------- -----------
Total assets.......... $16,545,035 $15,308,906
=========== ===========
LIABILITIES AND EQUITY
Interest-bearing
demand.................. 1.52% $ 1,643,922 $ 21,065 1.28% $ 1,632,045 $ 29,366 1.80%
Money market accounts.... 4.04 2,027,485 57,274 2.82 1,960,086 49,583 2.53
Savings passbook......... 2.57 1,854,944 43,887 2.37 1,755,129 45,330 2.58
Certificates of
deposit................. 5.53 4,410,873 199,743 4.53 4,290,651 191,579 4.47
Short-term borrowed
funds................... 5.85 1,591,305 67,622 4.25 865,298 25,189 2.91
Long-term debt........... 7.20 477,405 31,315 6.56 421,537 27,068 6.42
----------- ---------- ----------- ----------
Interest-bearing
liabilities........... 4.59 12,005,934 420,906 3.51 10,924,746 368,115 3.37
Demand deposits.......... 2,837,257 2,793,567
Other liabilities........ 268,098 263,080
Stockholders' equity..... 1,433,746 1,327,513
----------- -----------
Total liabilities and
equity................ $16,545,035 $15,308,906
=========== ===========
Net interest
revenue/margin.......... 4.55% $ 733,802 4.89% $ 692,407 5.04%
========== ==========
</TABLE>

- ---------------

Interest and rates are calculated on a taxable equivalent basis, using a tax
rate of 35%. The rate calculations include the effect of certain loans on which
income is recognized only as cash payments are received or is accrued at less
than the original contract rate.

* Comparable data not available

56
<PAGE> 58

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The Notice of the 1998 Annual Meeting and Proxy Statement filed pursuant to
Regulation 14A is incorporated herein by reference.

The executive officers of Firstar Corporation are listed under Item 1 of
this document.

ITEM 11. EXECUTIVE COMPENSATION

The Notice of the 1998 Annual Meeting and Proxy Statement filed pursuant to
Regulation 14A is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The Notice of the 1998 Annual Meeting and Proxy Statement filed pursuant to
Regulation 14A is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Notice of the 1998 Annual Meeting and Proxy Statement filed pursuant to
Regulation 14A is incorporated herein by reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)1. FINANCIAL STATEMENTS

The following financial statements of Firstar Corporation are filed as a
part of this document under Item 8. Financial Statements and Supplementary Data.

Consolidated Balance Sheets as of December 31, 1997 and 1996

Consolidated Statements of Income for the Years Ended December 31, 1997,
1996 and 1995

Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1997, 1996 and 1995

Consolidated Statements of Cash Flows for the Years Ended December 31,
1997, 1996 and 1995

Notes to Consolidated Financial Statements

Independent Auditors' Report

(a)2. FINANCIAL STATEMENT SCHEDULES

All financial statement schedules have been included in the consolidated
financial statements or are either not applicable or not significant.

57
<PAGE> 59

(a)3. EXHIBITS

<TABLE>
<C> <S>
3.1 Articles of incorporation of Firstar Corporation
(incorporated by reference to Exhibit 3.1 of the Form 10-K
for the year ended December 31, 1996)
3.2 By-Laws of Firstar Corporation (incorporated by reference to
Exhibit 3.2 of the Form 10-K for the year ended December 31,
1996)
4.3 Indenture dated as of May 1, 1988 between Firstar
Corporation and Chemical Bank, as Trustee, relating to
10 1/4% Subordinated Notes due May 1, 1998 (incorporated by
reference to Exhibit 4(a) to Amendment No. 1 to Registration
No. 33-21527 of Firstar)
4.4 Shareholder Rights Plan of Firstar Corporation (incorporated
by reference to Exhibit 4 of Form 8-K dated January 19, 1989
of Firstar)
4.5 Indenture dated as of August 23, 1995 between Firstar
Corporation and Chemical Bank, as Trustee, relating to 7.15%
Subordinated Notes Due September 1, 2000 (incorporated by
reference to Exhibit 4(a) to Amendment No. 1 to Registration
No. 33-61633 of Firstar)
4.6 Credit Agreement dated as of April 22, 1996 between Firstar
Corporation and First National Bank of Chicago, as agent,
(incorporated by reference to Exhibit 4.6 of the 10-K for
1996)
4.9 Form of Amended and Restated Depository Agreement among
Firstar Corporation, Firstar Trust Company as depository,
and the holders from time-to-time of Depository Receipts
issued thereunder and the Form of Depository Receipt
(incorporated by reference to Exhibit 4(g) of Amendment No.
1 to Registration No. 33-57245 of Firstar)
4.10 Series A Capital Securities Guarantee Agreement dated as of
December 23, 1996 between Firstar Corporation and The Chase
Manhattan Bank, as Guarantee Trustee (incorporated by
reference to Exhibit 4.10 of the Form 10-K for the year
ended December 31, 1996)
4.11 Indenture dated as of December 23, 1996 between Firstar
Corporation and The Chase Manhattan Bank, as Debenture
Trustee, relating to 8.32% Series A Junior Subordinated
Deferrable Interest Debentures due December 15, 2026
(incorporated by reference to Exhibit 4.11 of the Form 10-K
for the year ended December 31, 1996)
10.2 Directors' Stock Plan
10.3 Directors' Deferred Compensation Plan, as amended
10.4* Key Executive Employment and Severance Agreement, as amended
(incorporated by reference to Exhibit 10.4 of the Form 10-Q
of Firstar for the quarter ended September 30, 1993)
10.5 First Colonial Bankshares Corporation 1988 Stock Option
Plan, as amended, assumed by Firstar (incorporated by
reference to Exhibits 4.1 to 4.10 of Registration No.
33-57521 of Firstar)
10.6 Investors Bank Corp. Stock Option Plan, as amended, assumed
by Firstar (incorporated by reference to Exhibits 4.1 and
4.2 of Registration No. 33-58915 of Firstar)
10.7* 1988 Incentive Stock Plan, as amended (incorporated by
reference to Exhibit A of the Notice of the 1994 Annual
Meeting and Proxy Statement of Firstar)
10.8* Annual Executive Incentive Plan, as amended (incorporated by
reference to Exhibit B of the Notice of the 1994 Annual
Meeting and Proxy Statement of Firstar)
10.10 Form of Indemnity Agreement between Firstar Corporation and
its directors (incorporated by reference to Exhibit 10 of
the Quarterly Report on Form 10-Q of Firstar for the quarter
ended September 30, 1988)
21. Subsidiaries of Firstar Corporation
23. Consent of Independent Auditors
24. Powers of Attorney
27. Financial Data Schedule
</TABLE>

- ---------------
* Executive Compensation Plans

A copy of the exhibits listed herein can be obtained by writing to Mr.
Jeffrey B. Weeden, Senior Vice President-Finance and Chief Financial Officer,
Firstar Corporation, P.O. Box 532, Milwaukee, Wisconsin 53201.

(b) No Form 8-Ks were filed during the fourth quarter of 1997.

58
<PAGE> 60

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

FIRSTAR CORPORATION

/s/ ROGER FITZSIMONDS
--------------------------------------
Roger L. Fitzsimonds
March 12, 1998 Chairman and Chief Executive Officer

Pursuant to the requirement 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.

<TABLE>
<S> <C>
/s/ ROGER FITZSIMONDS March 12, 1998
- ------------------------------------------------------
Roger L. Fitzsimonds
Chairman, Chief Executive Officer and director

/s/ JOHN A. BECKER March 12, 1998
- ------------------------------------------------------
John A. Becker
President, Chief Operating Officer and director

/s/ JEFFREY B. WEEDEN March 12, 1998
- ------------------------------------------------------
Jeffrey B. Weeden
Senior Vice President-Finance and Chief
Financial Officer
</TABLE>

DIRECTORS

Michael E. Batten*
Robert C. Buchanan*
George M. Chester, Jr.*
Roger H. Derusha*
James L. Forbes*
Joe F. Hladky*
C. Paul Johnson*
James H. Keyes*
William H. Lacy*
Sheldon B. Lubar*
Kenneth P. Manning*
Daniel F. McKeithan, Jr.*
Robert J. O'Toole*
Judith D. Pyle*
William W. Wirtz*

<TABLE>
<S> <C>
*By /s/ WILLIAM J. SCHULZ March 12, 1998
--------------------------------------------------
William J. Schulz
Attorney-in-Fact
</TABLE>

<PAGE> 1
EXHIBIT 10.2

FIRSTAR CORPORATION DIRECTORS' STOCK PLAN

1. ESTABLISHMENT; PURPOSE

Firstar Corporation and each of its bank subsidiaries (individually,
"Firstar") hereby establish a stock plan for the benefit of their directors,
known as the Firstar Corporation Directors' Stock Plan (the "Stock Plan"), to be
administered by Firstar Corporation (the "Administrator"). The purpose of the
Stock Plan is to provide an incentive to Firstar directors who are not employees
of Firstar to remain as directors, increase their efforts for the success of
Firstar, and encourage them to own shares of Common Stock of Firstar Corporation
(or units of phantom stock under the Firstar Corporation Directors' Deferred
Compensation Plan), thereby aligning their interests more closely with the
interests of the stockholders of Firstar Corporation.

2. ELECTION TO PARTICIPATE

Any director of Firstar who is not an employee of Firstar may elect to
participate in the Stock Plan by filing an election with the Administrator prior
to January 1 of the year the director desires to participate. Any director who
serves on more than one Firstar board of directors may make a separate election
to participate in the Stock Plan with respect to each such Firstar entity. Once
an election has been filed with the Administrator, the director shall
participate in the Stock Plan with respect to the applicable Firstar board of
directors for the entire year in which he or she has initially elected to
participate and for all subsequent years until the director files a notice of
revocation of election with the Administrator, which revocation shall be
effective as of December 31 of the year in which it is filed.

3. FEES PAID IN STOCK

Commencing as of January 1 of the year a director elects to participate,
all director fees earned by the director shall be paid in the form of shares of
Common Stock of Firstar Corporation ("Common Stock") until the director shall
cease to serve as a member of the applicable Firstar board of directors or until
December 31 of the year in which the director shall file a notice of revocation
of election pursuant to paragraph 2, whichever first occurs. Director fees for
the purpose of the Stock Plan shall be all fees paid to a director by reason of
his or her being a member of any voting, non-advisory board of directors of
Firstar or any committee thereof.

The number of shares of Common Stock to be paid to a director shall be
computed by dividing the total amount of fees earned by the director in a given
period by the fair market value of one share of Common Stock as of the last
business day of the calendar quarter immediately preceding the quarter in which
the period occurs. Fair market value means the closing price of the Common Stock
on the New York Stock Exchange. Shares paid to a director shall be credited on a
quarterly or more frequent basis to an account ("Share Account") for such
director established by the Administrator with Firstar Trust Company, the
transfer agent for the Common Stock. Directors may transfer or withdraw shares
held in their Share Account subject to the restrictions of paragraph 7.

<PAGE> 2

4. TREASURY SHARES

Shares paid to directors under the Stock Plan shall be paid out of Treasury
Shares of Common Stock held by Firstar Corporation.

5. DIVIDENDS

Dividends paid on shares held in a director's Share Account will be paid to
the director in the ordinary course of business by the Transfer Agent unless the
director participates in the Firstar Corporation Dividend Reinvestment Plan, in
which case such dividends will be reinvested in additional shares of Common
Stock in accordance with the Dividend Reinvestment Plan.

6. NO FRACTIONAL SHARES

No fractional shares shall be credited to the Share Accounts. Whenever the
computation of the number of shares to be credited to a director's Share Account
results in a fractional amount of one-half or greater, such amount shall be
rounded up to the next greater whole number of shares and in all other cases
such amount shall be rounded down to the next lower whole number of shares.

7. SECURITIES LAW COMPLIANCE

The Administrator may impose such requirements and restrictions with
respect to any shares of Common Stock acquired under the Stock Plan as it may
deem advisable including, without limitation, (a) legends and/or stop-transfer
orders restricting transferability, (b) investment and other representations
from directors, and (c) other requirements or restrictions under applicable
Federal or state securities laws and any stock exchange upon which the Common
Stock is then listed.

8. ADJUSTMENT IN CAPITALIZATION

In the event that any change in the outstanding shares of Common Stock
occurs by reason of a stock dividend, stock split, recapitalization, merger,
consolidation, combination, share exchange or similar corporate change, the
number of shares of Common Stock to be credited to a director's Share Account in
the calendar quarter in which such change occurs shall be appropriately
adjusted.

9. FIRSTAR CORPORATION DIRECTORS' DEFERRED COMPENSATION PLAN

Directors who participate in the Stock Plan may elect to defer receipt of
their shares of Common Stock otherwise payable under the Stock Plan by electing
to also participate in the Firstar Corporation Directors' Deferred Compensation
Plan.

10. AMENDMENT

The Stock Plan may be amended or terminated at any time by action of the
board of directors of Firstar.

<PAGE> 1

EXHIBIT 10.3

FIRSTAR CORPORATION DIRECTORS'
DEFERRED COMPENSATION PLAN (THE "PLAN")

The Plan is hereby amended and restated as follows:

1. ESTABLISHMENT

Firstar Corporation and each of its bank subsidiaries (individually,
"Firstar") hereby establish a deferred compensation plan for the benefit of
their directors, known as the Firstar Corporation Directors' Deferred
Compensation Plan (the "Plan"), to be administered by Firstar Corporation (the
"Administrator"). One of the purposes of the Plan is to provide a means for
participating directors to defer federal and state taxation on their director
fees until they receive the balances in their Accounts. Consequently, Firstar
Corporation shall have the discretion to interpret the Plan and to restrict the
timing of elections under the Plan beyond that otherwise set forth in the terms
of the Plan, as necessary to comply with applicable tax laws and rules on
deferral of compensation.

2. ELECTION TO PARTICIPATE

Any director of Firstar may elect to participate in the Plan with
respect to Cash Fees or Stock Fees (as defined in Section 3 below), by filing an
election with the Administrator prior to January 1 of the year the director
desires to participate. Any director who serves on more than one Firstar board
of directors may make a separate election to participate in the Plan with
respect to each such Firstar entity. Once an election has been filed with the
Administrator, the director shall participate in the Plan for the entire year in
which he or she has initially elected to participate and for all subsequent
years until the director files a notice or revocation of election with the
Administrator, which revocation shall be effective as of December 31 of the year
in which it is filed.

Any participating director may elect once, at the time of his or her
first election to participate in the Plan with respect to Stock Fees, to have
the entire balance in his or her Cash Account converted to units in a Stock
Account by dividing the dollar amount in the Cash Account by the market value of
Common Stock of Firstar Corporation ("Firstar Stock") on the last trading day of
the year of such election. The election to convert the director's Cash Account
to a Stock Account shall be effective on January 1 of the following year.

3. DIRECTOR FEES

Commencing as of January 1 of the year a director elects to participate
all director fees earned by the director shall be deferred.

Director fees that a Firstar director has elected to receive in Firstar
Stock pursuant to the Firstar Corporation Directors' Stock Plan ("Stock Fees")
shall be credited to his or her Stock Account under this Plan. Any amount
credited to the Stock Account shall be converted into a

<PAGE> 2

number of units equal to the number of shares of Firstar Stock that would have
been distributed had the shares not been deferred hereunder.

For any director who participates in the Plan with respect to more than
one Firstar entity, separate Accounts shall be established for such director for
each such Firstar entity.

Director fees other than Stock Fees ("Cash Fees") shall be credited to
a director's Cash Account under this Plan.

Deferral under this Plan shall continue until the director shall cease
to serve as a member of any Firstar board of directors or until December 31 of
the year in which the director shall file a notice of revocation of election
pursuant to Section 2, whichever first occurs. Director fees for the purpose of
this Plan shall be all fees paid to a director by reason of his or her being a
member of any voting, non-advisory board of directors of Firstar or any
committee thereof.

4. DIRECTOR'S DEFERRED COMPENSATION ACCOUNTS

For each director who participates in the Plan a Director's Deferred
Compensation Account (the "Account"), consisting of a Cash Account and/or a
Stock Account, shall be established. All Cash Fees deferred pursuant to this
Plan shall be credited to the director's Cash Account on the date on which such
fees otherwise would have been payable to the director had they not been
deferred hereunder. All deferred Stock Fees shall be credited to the director's
Stock Account on the date on which the underlying Firstar Stock would have been
distributable to the Director pursuant to the Firstar Corporation Directors'
Stock Plan had the receipt of such shares not been deferred hereunder.

5. EARNINGS FACTOR

Until the balance of a director's Cash Account has been fully paid in
accordance with Section 8, the balance from time to time standing in the Cash
Account shall bear interest at a rate equivalent to the yield on 90-Day Treasury
Bills in effect at the beginning of each calendar quarter. Such interest shall
be credited to the Cash Account on the last day of each calendar quarter on
which there is a balance in a director's Cash Account.

On each dividend payment date applicable to Firstar Stock, each Stock
Account shall be credited with an amount of dollars equal to the dividend that
would have been paid on the same number of shares of Firstar Stock as the number
of units in the Stock Account. Such dividend amount shall then be converted into
additional units by dividing the dividend amount by the closing price of one
share of Firstar Stock on the New York Stock Exchange on the dividend payment
date (or the last business day prior thereto if the dividend payment date is not
a business day.)

In the event of a stock split or stock dividend, the number of units
held by each Stock Account shall be adjusted in the same manner as the same
number of shares of Firstar Stock would be adjusted. In the event of Firstar
Corporation's merger with another corporation or conversion of its common stock
into other securities, the Stock Account shall be adjusted to reflect units in
the new securities equivalent to those that would have been received by a

2
<PAGE> 3

shareholder holding the number of shares of Firstar Stock equal to the number of
units held by the Stock Account. For all purposes thereafter, whenever "Firstar
Corporation" or "Firstar Stock" is used in this Plan there shall be substituted
for such terms the name of the corporation whose shares or securities were
received by the Firstar shareholders. The board of directors of Firstar
Corporation may make such other appropriate adjustments in the Stock Account as
may be necessary to have that account reflect for Plan participants the economic
value of being a Firstar shareholder.

6. NATURE OF ACCOUNTS

The Accounts shall be utilized solely as devices for the measurement
and determination of the amount of deferred compensation payable under the Plan.
The Accounts shall not constitute or be treated as trust funds of any kind. All
amounts at any time credited to the Account shall be and remain the sole
property of Firstar Corporation, and a director shall have no ownership rights
of any kind with respect thereto. A director's rights are limited to the right
to receive payments as provided herein and a director's position with respect
thereto is that of a general unsecured creditor of Firstar Corporation.

Directors with balances in the Stock Account have no voting rights in
Firstar Stock and no other incidents of stock ownership, by virtue of such
balances, except the rights to dividend-equivalent credits set forth in Section
5.

7. NONASSIGNMENT

Neither a director nor his or her duly designated beneficiary shall
have any right to assign, transfer, pledge or otherwise convey the right to
receive any amount of compensation which may be due hereunder, and any such
attempted assignment, transfer, pledge or other conveyance shall not be
recognized by Firstar.

8. PAYMENT OR DISTRIBUTION OF DIRECTOR'S DEFERRED
COMPENSATION ACCOUNTS

A director, prior to January 1 of any full calendar year of service as
a director of Firstar, may elect and (subject to prior approval by the Board of
Directors of Firstar Corporation in the case of changes by directors of Firstar
Corporation affecting distribution of their Stock Accounts) may change any such
prior elections, by giving notice to the Administrator, to have the balance in
his or her Cash Account paid and/or the balance in his or her Stock Account
converted into Firstar Common Stock and distributed, in any one of the following
ways:

(a) In a lump sum on January 31 of the first calendar year after the
director ceases to serve as a member of any board of directors of
Firstar or on January 31 of any calendar year within ten years
thereafter.

(b) In any number of equal consecutive annual installments, up to and
including ten, commencing on January 31 of the first calendar year
after the director ceases to serve as a member of any board of
directors of Firstar, or commencing on January 31 of any calendar year
within ten years thereafter.

3
<PAGE> 4

(c) In a lump sum upon the earlier of (i) a Change of Control of the
Corporation, as defined in the Firstar Corporation Key Executive
Employment and Severance Agreement (a "Change of Control") or (ii) on
January 31 of the first calendar year after the director ceases to
serve as a member of any board of directors of Firstar or on January
31 of any calendar year within ten years thereafter.

(d) In any number of equal consecutive annual installments, up to and
including ten, commencing on January 31 of the first calendar year
after the director ceases to serve as a member of any board of
directors of Firstar, or commencing on January 31 of any calendar year
within ten years thereafter, provided, however, that upon a Change of
Control any amounts remaining in the Account shall be paid in a lump
sum.

The payment election made with respect to a director's Cash Account and
the distribution election made with respect to the director's Stock Account,
must be the same.

The units in the Stock Account shall be converted one-for-one into
shares of Firstar Stock and distributed to the director on the dates elected
hereunder for distribution of the Stock Account. Cash shall be paid in lieu of
fractional shares of Firstar Stock.

In the event that the director makes a payment/distribution election
under this Section 8, and does not serve as a director of Firstar for the full
calendar year immediately following the year in which such election was filed,
such election shall have no effect. In such event, if the director had made an
earlier payment/distribution election under this Section 8 prior to a full
calendar year in which he or she serves as a director of Firstar, the earlier
election shall continue to govern the form of payment or distribution of the
balance in the director's Account. If the director did not make such an earlier
election, he or she shall be deemed to have made no payment/distribution
election under this Section 8. In the event that the director makes no
payment/distribution election under this Section 8, the balance in his or her
Account shall be paid in a lump sum on January 31 of the first calendar year
after the director ceases to serve as a member of any board of directors of
Firstar.

In the event of the death of a director, the balance in his or her
Account shall be paid or distributed in a lump sum to the director's designated
beneficiary (or to his or her estate in the absence of any beneficiary
designation) on January 31 of the first calendar year following the date of
death.

9. DESIGNATION OF BENEFICIARY

A director may designate the beneficiary which is to receive all the
funds in or stock payable under the director's Account at the director's death.
Such designation shall be effective by filing a written notification with the
Administrator and may be changed from time to time by similar action. If no such
designation is made by a director, any such balance shall be paid to the
director's estate.

<PAGE> 5

10. ADMINISTRATOR

The Administrator shall maintain all books and records in connection
with the Plan. The Administrator shall calculate the balances in the Accounts
and shall annually notify directors as to the balances in their Accounts. The
Administrator, however, shall not be liable for Firstar's obligations under the
Plan.

11. AMENDMENT

The Plan may be amended or terminated at any time by action of the
board of directors of Firstar but no amendment shall decrease the then current
balances in the Accounts.

<PAGE> 1
EXHIBIT 21

SUBSIDIARIES

Firstar Corporation has no parents. The following list shows the name of each
subsidiary of Firstar and the percentage of ownership as of February 27, 1998.

Percentage Jurisdiction in which
Name of Subsidiary Ownership Incorporated or Organized
------------------ --------- -------------------------
<S> <C> <C> <C>
1 Firstar Bank Milwaukee, National Association 100% United States
1 Firstar Bank Wisconsin 100% Wisconsin
1 Firstar Bank Wausau, National Association 100% United States
1 Firstar Bank Iowa, National Association 100% United States
1 Firstar Bank Burlington, National Association 100% United States
1 Firstar Bank of Minnesota, National Association 100% United States
1 Firstar Bank Illinois 100% Illinois
1 Firstar Bank U.S.A., National Association 100% United States
2 Firstar Metropolitan Bank & Trust 100% Arizona

1 Firstar Corporation of Arizona 100% Arizona
1 Firstar Trust Company 99.95% Wisconsin
1 Firstar Trust Company of Florida, National Association 100% United States
3 DPC of Milwaukee, Inc. 100% Wisconsin
3 Firstar Trade Services Corporation 100% Wisconsin
5 Firstar Trade Services Limited 100% Hong Kong
1 American Credit Corporation 100% Minnesota
1 Firstar Investment Research & Management Company, LLC 100% Wisconsin
1 Firstar Insurance Services, LLC 100% Wisconsin
3 Firstar Investment Services, Inc. 100% Wisconsin
1 Elan Life Insurance Company, Inc. 79% Arizona
1 Firstar Title Corp. 100% Wisconsin
3 Firstar Community Investment Corporation 100% Wisconsin
3 Firstar Leasing Services Corporation 100% Wisconsin
3 CSFM Corporation 100% Wisconsin
3 Firstar Home Mortgage Corporation 100% Wisconsin
3 Firstar Information Services Corporation 100% Wisconsin
1 Banks of Iowa Capital Corporation 100% Iowa
</TABLE>
<PAGE> 2

<TABLE>
<S> <C> <C> <C>
3 Milwaukee Capital Corporation 100% Nevada
4 Wisconsin Capital Corporation 100% Nevada
1 Firstar Capital Trust I 100% Delaware

Notes
-----
1 Subsidiary of Firstar Corporation
2 Subsidiary of Firstar Corporation of Arizona
3 Subsidiary of Firstar Bank Milwaukee, National Association
4 Subsidiary of Firstar Bank Wisconsin
5 Subsidiary of Firstar Trade Services Corporation
</TABLE>

<PAGE> 1
EXHIBIT 23

The Board of Directors
Firstar Corporation:

We consent to incorporation by reference in the Registration Statements
Nos. 33-38830, 33-41030, 33-19830, 33-57521, 33-57523, 33-58559, 33-58913,
33-58915 and 33-59207 on Form S-8 of Firstar Corporation of our report dated
January 14, 1998 relating to the consolidated balance sheets of Firstar
Corporation and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the years in the three-year period ended December 31, 1997, which report
appears in the December 31, 1997 annual report on Form 10-K of Firstar
Corporation.

KPMG Peat Marwick LLP

Milwaukee, Wisconsin
March 12, 1998

<PAGE> 1
EXHIBIT 25

FIRSTAR CORPORATION

(Commission File No. 1-2981)

POWER OF ATTORNEY

Annual Report on Form 10-K

WHEREAS, FIRSTAR CORPORATION, a Wisconsin corporation (hereinafter
referred to as the "Corporation"), will file with the Securities and Exchange
Commission, under the provisions of the Securities Exchange Act of 1934, an
Annual Report of Form 10-K for the fiscal year ended December 31, 1997; and

WHEREAS, the undersigned is or may hereafter be a director or executive
officer of the Corporation;

NOW, THEREFORE, the undersigned hereby constitutes and appoints ROGER L.
FITZSIMONDS, JEFFREY B. WEEDEN AND WILLIAM J. SCHULZ, and each of them, his
or her attorney, with full power to act for and in his or her name, place and
stead, to sign his or her name in such capacity to the Annual Report or Form
10-K, hereby ratifying and confirming all that said attorney may or shall
lawfully do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, the undersigned has signed this Power of Attorney
this 23rd day of February, 1998.

/s/ George M. Chester, Jr.
--------------------------
George M. Chester, Jr.

<PAGE> 2

FIRSTAR CORPORATION

(Commission File No. 1-2981)

POWER OF ATTORNEY

Annual Report on Form 10-K

WHEREAS, the undersigned is or may hereafter be a director or executive
officer of the Corporation;

IN WITNESS WHEREOF, the undersigned has signed this Power of Attorney
this 18th day of February, 1998.

/s/ C. Paul Johnson
-------------------
C. Paul Johnson

<PAGE> 3

FIRSTAR CORPORATION

(Commission File No. 1-2981

POWER OF ATTORNEY

Annual Report on Form 10-K

WHEREAS, the undersigned is or may hereafter be a director or executive
officer of the Corporation;

IN WITNESS WHEREOF, the undersigned has signed this Power of Attorney
this 30th day of January, 1998.

/s/ William H. Lacy
-------------------
William H. Lacy
<PAGE> 4

FIRSTAR CORPORATION

(Commission File No. 1-2981

POWER OF ATTORNEY

Annual Report on Form 10-K

WHEREAS, the undersigned is or may hereafter be a director or executive
officer of the Corporation;

IN WITNESS WHEREOF, the undersigned has signed this Power of Attorney
this 29th day of January, 1998.

/s/ Robert C. Buchanan
-----------------------
Robert C. Buchanan
<PAGE> 5

FIRSTAR CORPORATION

(Commission File No. 1-2981)

POWER OF ATTORNEY

Annual Report on Form 10-K

WHEREAS, the undersigned is or may hereafter be a director or executive
officer of the Corporation;

IN WITNESS WHEREOF, the undersigned has signed this Power of Attorney
this 29th day of January, 1998.

/s/ William W. Wirtz
--------------------
William W. Wirtz
<PAGE> 6

FIRSTAR CORPORATION

(Commission File No. 1-2981)

POWER OF ATTORNEY

Annual Report on Form 10-K

WHEREAS, the undersigned is or may hereafter be a director or executive
officer of the Corporation;

IN WITNESS WHEREOF, the undersigned has signed this Power of Attorney
this 23rd day of January, 1998.

/s/ Robert J. O'Toole
---------------------
Robert J. O'Toole
<PAGE> 7

FIRSTAR CORPORATION

(Commission File No. 1-2981)

POWER OF ATTORNEY

Annual Report on Form 10-K

WHEREAS, the undersigned is or may hereafter be a director or executive
officer of the Corporation;

IN WITNESS WHEREOF, the undersigned has signed this Power of Attorney
this 21st day of January, 1998.

/s/ Daniel F. McKeithan, Jr.
----------------------------
Daniel F. McKeithan, Jr.
<PAGE> 8

FIRSTAR CORPORATION

(Commission File No. 1-2981)

POWER OF ATTORNEY

Annual Report on Form 10-K

WHEREAS, the undersigned is or may hereafter be a director or executive
officer of the Corporation;

IN WITNESS WHEREOF, the undersigned has signed this Power of Attorney
this 11th day of February, 1998.

/s/ Michael E. Batten
---------------------
Michael E. Batten

<PAGE> 9

FIRSTAR CORPORATION

(Commission File No. 1-2981)

POWER OF ATTORNEY

Annual Report on Form 10-K

WHEREAS, the undersigned is or may hereafter be a director or executive
officer of the Corporation;

IN WITNESS WHEREOF, the undersigned has signed this Power of Attorney
this 14th day of January, 1998.

/s/ Judith D. Pyle
------------------
Judith D. Pyle
<PAGE> 10

FIRSTAR CORPORATION

(Commission File No. 1-2981)

POWER OF ATTORNEY

Annual Report on Form 10-K

WHEREAS, the undersigned is or may hereafter be a director or executive
officer of the Corporation;

IN WITNESS WHEREOF, the undersigned has signed this Power of Attorney
this 15th day of January, 1998.

/s/ Kenneth P. Manning
----------------------
Kenneth P. Manning
<PAGE> 11

FIRSTAR CORPORATION

(Commission File No. 1-2981)

POWER OF ATTORNEY

Annual Report on Form 10-K

WHEREAS, the undersigned is or may hereafter be a director or executive
officer of the Corporation;

IN WITNESS WHEREOF, the undersigned has signed this Power of Attorney
this 19th day of January, 1998.

/s/ Sheldon B. Lubar
--------------------
Sheldon B. Lubar
<PAGE> 12

FIRSTAR CORPORATION

(Commission File No. 1-2981)

POWER OF ATTORNEY

Annual Report on Form 10-K

WHEREAS, the undersigned is or may hereafter be a director or executive
officer of the Corporation;

IN WITNESS WHEREOF, the undersigned has signed this Power of Attorney
this 20th day of January, 1998.

/s/ James H. Keyes
------------------
James H. Keyes
<PAGE> 13

FIRSTAR CORPORATION

(Commission File No. 1-2981)

POWER OF ATTORNEY

Annual Report on Form 10-K

WHEREAS, the undersigned is or may hereafter be a director or executive
officer of the Corporation;

IN WITNESS WHEREOF, the undersigned has signed this Power of Attorney
this 12th day of January, 1998.

/s/ Joe F. Hladky
-----------------
Joe F. Hladky
<PAGE> 14

FIRSTAR CORPORATION

(Commission File No. 1-2981)

POWER OF ATTORNEY

Annual Report on Form 10-K

WHEREAS, the undersigned is or may hereafter be a director or executive
officer of the Corporation;

IN WITNESS WHEREOF, the undersigned has signed this Power of Attorney
this 13th day of January, 1998.

/s/ James L. Forbes
-------------------
James L. Forbes
<PAGE> 15

FIRSTAR CORPORATION

(Commission File No. 1-2981)

POWER OF ATTORNEY

Annual Report on Form 10-K

WHEREAS, the undersigned is or may hereafter be a director or executive
officer of the Corporation;

IN WITNESS WHEREOF, the undersigned has signed this Power of Attorney
this 12th day of January, 1998.

/s/ Roger H. Derusha
--------------------
Roger H. Derusha

<ARTICLE> 9
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,254,289
<INT-BEARING-DEPOSITS> 5,249
<FED-FUNDS-SOLD> 82,589
<TRADING-ASSETS> 2,293
<INVESTMENTS-HELD-FOR-SALE> 1,707,606
<INVESTMENTS-CARRYING> 2,452,124
<INVESTMENTS-MARKET> 2,505,360
<LOANS> 13,568,786
<ALLOWANCE> 218,861
<TOTAL-ASSETS> 19,843,685
<DEPOSITS> 14,714,654
<SHORT-TERM> 2,121,412
<LIABILITIES-OTHER> 257,367
<LONG-TERM> 1,057,151
0
5,308
<COMMON> 181,102
<OTHER-SE> 1,506,691
<TOTAL-LIABILITIES-AND-EQUITY> 19,843,685
<INTEREST-LOAN> 1,138,417
<INTEREST-INVEST> 256,354
<INTEREST-OTHER> 6,702
<INTEREST-TOTAL> 1,401,473
<INTEREST-DEPOSIT> 471,670
<INTEREST-EXPENSE> 651,088
<INTEREST-INCOME-NET> 750,385
<LOAN-LOSSES> 54,658
<SECURITIES-GAINS> 679
<EXPENSE-OTHER> 744,018
<INCOME-PRETAX> 442,848
<INCOME-PRE-EXTRAORDINARY> 295,209
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 295,209
<EPS-PRIMARY> 2.03
<EPS-DILUTED> 2.00
<YIELD-ACTUAL> 4.47
<LOANS-NON> 63,858
<LOANS-PAST> 57,628
<LOANS-TROUBLED> 263
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 213,138
<CHARGE-OFFS> 70,743
<RECOVERIES> 21,808
<ALLOWANCE-CLOSE> 218,861
<ALLOWANCE-DOMESTIC> 218,552
<ALLOWANCE-FOREIGN> 309
<ALLOWANCE-UNALLOCATED> 0

</TABLE>