<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 1998
Commission File Number 1-8918
SUNTRUST BANKS, INC.
(Exact name of registrant as specified in its charter)
Georgia 58-1575035
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
303 Peachtree Street, N.E., Atlanta, Georgia 30308
(Address of principal executive offices) (Zip Code)
(404) 588-7711
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes __X__ No _____
At July 31, 1998, 208,887,527 shares of the Registrant's Common Stock, $1.00
par value were outstanding.
Page 1
<PAGE>
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION Page
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Income 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 5
Consolidated Statements of Stockholders' Equity 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-23
PART II OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 2. Changes in Securities 24
Item 3. Defaults Upon Senior Securities 24
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 24
SIGNATURES 24
PART I - FINANCIAL INFORMATION
The following unaudited financial statements have been prepared in accordance
with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, and
accordingly do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
However, in the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the six months ended June 30, 1998 are not
necessarily indicative of the results that may be expected for the full year
1998.
Page 2
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
(Dollars in thousands except per share data) 1998 1997 1998 1997
(Unaudited)
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans $ 820,744 $ 747,526 $ 1,625,088 $ 1,463,678
Interest and dividends on investment
securities
Taxable interest 118,884 114,279 236,412 224,969
Tax-exempt interest 8,472 10,278 17,116 20,928
Dividends <1> 10,297 9,371 21,142 18,576
Interest on funds sold 14,904 13,207 30,516 27,255
Interest on deposits in other banks 128 143 291 417
Other interest 2,355 3,637 4,615 5,701
Total interest income 975,784 898,441 1,935,180 1,761,524
Interest Expense
Interest on deposits 283,800 289,934 568,307 566,898
Interest on funds purchased 107,183 77,738 207,741 155,445
Interest on other short-term borrowings 22,256 24,877 45,775 43,315
Interest on long-term debt 65,671 36,133 127,063 63,631
Total interest expense 478,910 428,682 948,886 829,289
Net Interest Income 496,874 469,759 986,294 932,235
Provision for loan losses 33,430 29,246 62,056 55,436
Net interest income after provision for loan losses 463,444 440,513 924,238 876,799
Noninterest Income
Trust income 95,369 78,692 188,468 157,062
Service charges on deposit accounts 62,706 61,890 124,846 121,632
Credit card fees 21,727 18,384 42,188 37,189
Corporate and institutional investment income 13,329 4,596 24,247 9,570
Retail investment income 12,796 8,473 23,165 16,481
Trading account profits and commissions 10,861 4,848 21,889 8,817
Securities gains (losses) 1,962 (362) 2,872 1,029
Other charges and fees 52,766 40,455 102,838 78,612
Other noninterest income 25,372 11,125 52,692 23,511
Total noninterest income 296,888 228,101 583,205 453,903
Noninterest Expense
Salaries and other compensation 249,561 205,741 484,619 408,149
Employee benefits 30,201 29,476 64,576 61,858
Net occupancy expense 32,955 32,428 66,027 64,958
Equipment expense 31,388 30,291 63,395 60,438
Outside processing and software 21,466 16,154 43,423 31,042
Marketing and customer development 18,586 16,850 35,845 33,652
Postage and delivery 10,553 10,455 21,348 21,793
Other noninterest expense 88,118 71,950 174,659 145,459
Total noninterest expense 482,828 413,345 953,892 827,349
Income before income taxes 277,504 255,269 553,551 503,353
Provision for income taxes 92,515 89,833 187,688 176,861
Net Income $ 184,989 $ 165,436 $ 365,863 $ 326,492
Average common shares - diluted 210,683,895 213,571,707 211,185,942 215,886,478
Average common shares - basic 207,335,355 210,608,429 207,885,545 212,762,005
Net income per average common share - diluted $ 0.88 $ 0.77 $ 1.73 $ 1.51
Net income per average common share - basic 0.89 0.78 1.76 1.53
Dividends declared per common share 0.250 0.225 0.500 0.450
<1>Includes dividends on common stock of
The Coca-Cola Company 6,878 6,757 14,480 13,515
<FN>
<F1>See notes to consolidated financial statements
</TABLE>
Page 3
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<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30 December 31 June 30
(Dollars in thousands)(Unaudited)<F1> 1998 1997 1997
<S> <C> <C> <C>
Assets
Cash and due from banks $ 3,018,148 $ 2,991,263 $ 2,631,506
Trading account 172,689 178,434 372,049
Investment securities <1> 12,791,021 11,729,298 11,776,991
Funds sold 1,163,721 1,012,000 805,644
Loans 41,647,269 40,135,505 37,684,289
Reserve for loan losses (762,582) (751,830) (739,776)
Net loans 40,884,687 39,383,675 36,944,513
Premises and equipment 986,501 964,169 947,783
Intangible assets 438,194 292,370 275,265
Customers' acceptance liability 381,339 488,632 458,889
Other assets 1,557,103 942,895 1,250,164
Total assets $ 61,393,403 $ 57,982,736 $ 55,462,804
Liabilities & Shareholders' Equity
Noninterest-bearing deposits $ 9,066,213 $ 8,927,796 $ 8,348,012
Interest-bearing deposits 27,916,371 29,269,732 27,484,866
Total deposits 36,982,584 38,197,528 35,832,878
Funds purchased 7,992,582 6,483,055 7,154,594
Other short-term borrowings 2,151,846 1,989,415 1,832,422
Long-term debt 4,547,860 3,171,832 2,699,169
Acceptances outstanding 381,339 488,632 458,889
Other liabilities 3,425,563 2,452,892 2,344,198
Total liabilities 55,481,774 52,783,354 50,322,150
Preferred stock,no par value; 50,000,000
shares authorized; none issued - - -
Common stock, $1.00 par value;
500,000,000 shares authorized 213,108 211,608 216,608
Additional paid in capital 392,598 296,751 300,281
Retained earnings 3,012,629 2,751,645 2,790,242
Treasury stock and other (326,058) (109,503) (230,532)
Realized shareholders' equity 3,292,277 3,150,501 3,076,599
Accumulated other comprehensive income 2,619,352 2,048,881 2,064,055
Total shareholders' equity 5,911,629 5,199,382 5,140,654
Total liabilities and shareholders' $ 61,393,403 $ 57,982,736 $ 55,462,804
Common shares outstanding 208,713,567 209,909,204 212,332,818
Treasury shares of common stock 4,394,490 1,698,853 4,275,239
<1>Includes unrealized gains (losses) on
investment securities $ 4,233,962 $ 3,311,979 $ 3,336,432
<FN>
<F1>See notes to consolidated financial statements.
</TABLE>
Page 4
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<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Six Months
Ended June 30
(Dollars in thousands)(Unaudited)<F1> 1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income $ 365,863 $ 326,491
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Net depreciation, amortization and accretion 86,334 75,528
Provision for loan losses 62,056 55,436
Provision for losses on other real estate 1,857 1,056
Amortization of compensation element of
restricted stock 5,155 4,448
Securities (gains) and losses, net (2,872) (1,029)
Net gain on sales of non-interest earning asset (11,476) (11,953)
Net increase in loans held for sale (328,627) (120,333)
Changes due to:
Trading account 5,745 (291,672)
Interest receivable (18,938) (40,456)
Prepaid expenses (59,494) (53,175)
Other assets (621,628) (331,345)
Taxes payable 69,940 40,494
Interest payable 6,937 27,549
Other liabilities 544,282 289,678
Net cash provided by (used in) operating
activities 105,134 (29,283)
Cash flows from investing activities:
Proceeds from maturities of investment securities 1,496,369 570,845
Proceeds from sales of investment securities 531,150 520,707
Purchases of investment securities (2,164,127) (1,568,041)
Net increase in loans (1,226,319) (2,191,774)
Capital expenditures (67,718) (236,382)
Proceeds form sales of non-interest earning assets 17,877 5,870
Net funds received in acquisitions 13,420 -
Loan recoveries 26,927 25,864
Other - (47,918)
Net cash used in investing activities (1,372,421) (2,920,829)
Cash flows from financing activities:
Net decrease in deposits (1,214,944) (1,057,511)
Net increase in funds purchased and other
short-term borrowings 1,671,958 2,071,363
Proceeds from the issuance of long-term debt 1,637,611 1,310,813
Repayment of long-term debt (261,583) (176,985)
Proceeds from issuance of treasury stock 10,319 11,676
Payments to acquire treasury stock (292,589) (448,401)
Dividends paid (104,879) (96,308)
Net cash provided by financing activities 1,445,893 1,614,647
Net increase (decrease) in cash and cash equivalents 178,606 (1,335,465)
Cash and cash equivalents at beginning of period 4,003,263 4,772,615
Cash and cash equivalents at end of period $ 4,181,869 $ 3,437,150
Supplemental Disclosure
Interest paid $ 955,823 $ 856,838
Taxes paid 108,344 137,935
<FN>
<F1>See notes to consolidated financial statements
</TABLE>
Page 5
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<TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTION> Accumulated
Additional Treasury Other
Common Paid in Retained Stock and Comprehensive
(Dollars in thousands)(Unaudited)<F1> Stock Capital Earnings Other<F2> Income Total
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 $ 225,608 $ 310,612 $2,972,900 $(230,918) $1,601,778 $4,879,980
Net income - - 326,492 - - 326,492
Cash dividends declared on common
stock, $0.450 per share - - (96,308) - - (96,308)
Proceeds from exercise of stock options - (12,629) - 17,024 - 4,395
Acquisition of treasury stock - - - (448,401) - (448,401)
Retirement of treasury stock (9,000) - (412,842) 421,842 - -
Issuance of treasury stock for 401(k) - 1,189 - 6,583 - 7,772
Issuance, net of forfeitures, of treasury
stock as restricted stock - 1,109 - 6,172 - 7,281
Compensation element of restricted stock - - - (7,282) - (7,282)
Amortization of compensation element
of restricted stock - - - 4,448 - 4,448
Change in unrealized gains (losses)
on securities, net of taxes - - - - 462,277 462,277
Balance, June 30, 1997 $ 216,608 $ 300,281 $2,790,242 $(230,532) $2,064,055 $5,140,654
Comprehensive Income - June 30, 1997 $ 788,769
Balance, January 1, 1998 $ 211,608 $ 296,751 $2,751,645 $(109,503) $2,048,881 $5,199,382
Net income - - 365,863 - - 365,863
Cash dividends declared on common
stock, $0.50 per share - - (104,879) - - (104,879)
Proceeds from exercise of stock options - (14,000) - 15,606 - 1,606
Issuance of common stock
and treasury stock for acquisitions 1,500 109,268 - 47,139 - 157,907
Acquisition of treasury stock - - - (292,589) - (292,589)
Issuance of treasury stock for 401(k) - 358 - 8,355 - 8,713
Issuance, net of forfeitures, of treasury
stock as restricted stock - 221 - 8,419 - 8,640
Compensation element of restricted stock - - - (8,640) - (8,640)
Amortization of compensation element
of restricted stock - - - 5,155 - 5,155
Change in unrealized gains (losses)
on securities, net of taxes - - - - 570,471 570,471
Balance, June 30, 1998 $ 213,108 $ 392,598 $3,012,629 $(326,058) $2,619,352 $5,911,629
Comprehensive Income - June 30, 1998 $ 936,334
<FN>
<F1>See notes to consolidated financial statements.
<F2>Balance at June 30, 1997 includes $178,234 for Treasury Stock and $52,298 for Deferred Compensation.
Balance at June 30, 1998 includes $264,532 for Treasury Stock and $61,526 for Deferred Compensation.
</TABLE>
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Notes to Consolidated Financial Statements (Unaudited)
Note 1 - Accounting Policies
The consolidated interim financial statements of SunTrust Banks, Inc.
("SunTrust" or "The Company") are unaudited. All significant intercompany
accounts and transactions have been eliminated. Certain prior period amounts
have been restated to conform with the current year financial statement
presentation. These financial statements should be read in conjunction with
the Annual Report on Form 10-K for the year ended December 31, 1997.
Note 2 - Recent Accounting Developments
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information", which is effective for annual and interim
periods beginning after December 15, 1997. However, this statement is not
required in interim financial statements in the initial year of its
application. This statement establishes standards for the method that public
entities use to report information about operating segments in annual
financial statements and requires those enterprises to report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. The anticipated
disclosure, when fully implemented, will provide required information by
reportable operating segment using the current internal management reporting
system which is prepared on a geographic basis.
During the first quarter of 1998, the American Institute to Certified Public
Accountants issued Statement of Position (SOP) 98-1, "Accounting for Costs of
Computer Software Developed or Obtained for Internal Use". SOP 98-1 requires
capitalization of computer software costs that meet certain criteria. The
statement is effective for fiscal years beginning after December 15, 1998.
Adoption of SOP 98-1 is not expected to have a material effect on the
Company's financial position or results of operations.
In April 1998, the Financial Accounting Standards Board issued Statement
No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits". This statement only modifies the disclosures companies make about
their pension and nonpension benefit plans and does not alter the accounting
for these plans. The FASB's intention in modifying the disclosures for
postretirement benefits is to make the disclosures more uniform and to provide
better information to investors about the economics of these benefit plans
rather than focusing on current period cost. The provisions of the statement
are effective for years beginning after December 15, 1997. Adoption of
Statement No. 132, when implemented, will provide the required information as
well as the restatement of previous disclosures.
Note 3 - Derivative Financial Instruments
Derivatives are used to hedge interest rate exposures by modifying the
interest rate characteristics of related balance sheet instruments. The
specific criteria required for derivatives used for such purposes are
described below. Derivatives that do not meet these criteria are carried at
market value with changes in value recognized currently in earnings in the
current period. It is not the Company's policy to hold derivatives that do
not qualify as hedges.
Page 7
<PAGE>
Notes to Consolidated Financial Statements (Unaudited) - continued
Note 3 - Derivative Financial Instruments (continued)
Derivatives used as hedges must be effective at reducing the risk associated
with the exposure being hedged and must be designated as a hedge at the
inception of the derivative contract. Derivatives used for hedging purposes
include swaps, forwards, futures, and purchased options. The fair values of
derivative contracts are carried off-balance sheet and the unrealized gains
and losses on these contracts are generally deferred. The interest component
is recognized over the life of the contract in net interest income for
derivatives used as hedges or those used to modify the interest rate
characteristics of assets and liabilities. Upon contract settlement or
termination, the cumulative change in the market value of derivatives is
recorded as an adjustment to the carrying value of the underlying asset or
liability and recognized in net interest income over the expected remaining
life of the related asset or liability. If the underlying instrument is sold,
the cumulative change in the value of the associated derivative is recognized
immediately in the earnings of the underlying instrument.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities". This statement establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. This statement
could increase volatility in earnings and other comprehensive income. This
statement is effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. Initial application of this statement should be as of the
beginning of an entity's fiscal quarter; on that date, hedging relationships
must be redesignated and documented pursuant to the provisions of this
statement. Earlier application of this statement is encouraged, but it is
permitted only as of the beginning of any fiscal quarter that begins after
issuance of this statement and should not be applied retroactively to
financial statements of prior periods. The company is currently evaluating
the impact of Statement No. 133 and has not yet determined when the statement
will be adopted or if the impact will be material.
Note 4 - Acquisitions
On September 26, 1997, the Company signed a definitive agreement to acquire
Equitable Securities Corporation, a Nashville, Tennessee-based investment
banking, securities brokerage and investment advisory firm. The merger, which
was accounted for as a purchase, was completed on January 2, 1998, and the
new subsidiary was renamed SunTrust Equitable Securities Corporation (SESC).
Consideration tendered, including contingently returnable shares, aggregated
2.3 million shares of the Company's common stock.
On June 4, 1998, the Company signed a definitive agreement to acquire Citizens
Bancorporation, Inc. a bank holding company based in Marianna, Florida with
assets of $183 million. Subsequent to the completion of the acquisition,
Citizens Bank and Gadsden State Bank will be merged into SunTrust Bank,
Tallahassee, N.A., a subsidiary of SunTrust Banks of Florida, Inc., and
SunTrust Banks, Inc. The transaction will have no material impact on SunTrust
earnings per share. The acquisition, which is subject to regulatory approval
and other customary conditions, is expected to be completed during the third
quarter of 1998.
Page 8
<PAGE>
Notes to Consolidated Financial Statements (Unaudited) - continued
Note 5 - Comprehensive Income
Under Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income", certain transactions and other economic events that
bypass the income statement must be displayed as other comprehensive income.
The Company's comprehensive income consists of net income and unrealized gains
and losses on securities available-for-sale, net of income taxes.
Comprehensive income for the first six months of 1998 and 1997 is calculated
as follows:
(Dollars in thousands)
<TABLE>
COMPREHENSIVE INCOME
<CAPTION>
Before Income Net of
(Dollars in thousands) Tax Tax Tax
<S> <C> <C> <C>
Unrealized gains (net) recognized in other
comprehensive income:
Six months ended June 30, 1998 $933,668 $363,197 $570,471
Six months ended June 30, 1997 $756,591 $294,314 $462,277
1998 1997
Amounts reported in net income:
Gain on sale of securities $ 2,872 $ 1,029
Net amortization (accretion) 257 (486)
Reclassification adjustment 3,129 543
Income tax expense (1,217) (211)
Reclassification adjustment, net of tax 1,912 332
Amounts reported in other comprehensive
income:
Unrealized gain arising during period,
net of tax 572,383 462,609
Reclassification adjustment, net of tax (1,912) (332)
Unrealized gains (net) recognized in
other comprehensive income 570,471 462,277
Net income 365,863 326,492
Total comprehensive income $936,334 $788,769
</TABLE>
Page 9
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Notes to Consolidated Financial Statements (Unaudited) - continued
Note 6 - Earnings Per Share Reconciliation
In the calculation of basic and diluted EPS, net income is identical. Below
is a reconciliation for the periods ended June 30, 1998 and June 30, 1997 of
the difference between average basic common shares outstanding and average
diluted common shares outstanding.
<TABLE>
Statement re: Computation of Per Share Earnings
(In thousands, except per share data)
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Basic
Net income $184,989 $165,436 $365,863 $326,492
Average common shares 207,335 210,608 207,886 212,762
Earnings per common share - basic $ 0.89 $ 0.78 $ 1.76 $ 1.53
Diluted
Net income $184,989 $165,436 $365,863 $326,492
Average common shares outstanding 207,335 210,608 207,886 212,762
Incremental shares outstanding <1> 3,349 2,964 3,300 3,124
Average diluted common shares 210,684 213,572 211,186 215,886
Earnings per common share-diluted $ 0.88 $ 0.77 $ 1.73 $ 1.51
Three Months Six Months
Ended June 30 Ended June 30
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Average common shares - basic 207,335 210,608 207,886 212,762
Effect of dilutive securities:
Stock options 1,683 1,426 1,659 1,467
Performance restricted stock 1,666 1,538 1,641 1,657
Average common shares - diluted 210,684 213,572 211,186 215,886
<FN>
<F1>Includes the incremental effect of stock options and restricted
stock outstanding computed under the treasury stock method.
</TABLE>
Page 10
<PAGE>
Notes to Consolidated Financial Statements (Unaudited) - continued
Note 7 - Subsequent Event
On July 20, 1998, SunTrust issued a press release announcing that the Company
and Crestar Financial Corporation ("Crestar") had entered into a definitive
Agreement and Plan of Merger providing for the merger of a wholly owned
subsidiary of SunTrust with and into Crestar. Under terms of the agreement,
Crestar shareholders will receive, in a tax-free exchange, 0.96 shares of
SunTrust's common stock for each share of Crestar common stock. It is
intended that the merger will be accounted for as a pooling-of-interests. The
merger is subject to regulatory and shareholder approval of both companies and
is expected to be completed during the fourth quarter of 1998. In connection
with the announcement, the Board of Directors of SunTrust has rescinded its
stock repurchase authorization. For further information, see the Current
Report on Form 8-K filed by SunTrust on July 21, 1998.
Page 11
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
SunTrust Banks, Inc. is a multi-state bank holding company with its
headquarters in Atlanta, Georgia. The Company's principal banking
subsidiaries are SunTrust Banks of Florida, Inc., SunTrust Banks, of Georgia,
Inc. and SunTrust Banks of Tennessee, Inc., all of which are bank holding
companies in their respective states. Credit card services are provided
through SunTrust BankCard, N.A. of Orlando, Florida.
SunTrust has several wholly owned nonbanking subsidiaries that are engaged in
various businesses. They include SunTrust Mortgage, Inc., which originates
and services mortgage loans on both residential and income property,
principally throughout Florida, Georgia and Tennessee. SunTrust Insurance
Company operates as a reinsurer for credit life, accident and health insurance
sold to loan customers of SunTrust. SunTrust Securities, Inc. engages in
securities brokerage services and conducts incidental activities such as
offering custodial and cash management services. SunTrust Equitable
Securities Corporation conducts various business activities including
investment banking, securities brokerage, investment advisory services,
raising equity capital, underwriting of debt issues and selling investment
securities to corporations, institutions and government entities. SunTrust
Personal Loans, Inc. operates as a consumer finance company. STI Credit
Corporation operates as a leasing subsidiary, primarily for commercial
customers. Other nonbank subsidiaries primarily support the Company's banking
operations, providing data processing and other services.
SunTrust continues to believe that its plans for dealing with the Year 2000
issue will result in timely and adequate modifications of its systems and
technology. There have not been any material changes since the annual report
was filed.
The following analysis of the financial performance of SunTrust for the second
quarter of 1998 should be read in conjunction with the financial statements,
notes and other information contained in this document. SunTrust has made,
and may continue to make, various forward-looking statements with respect to
financial and business matters. These forward-looking statements are subject
to numerous assumptions, risks and uncertainties, all of which may change over
time. The actual results that are achieved could differ significantly from
the forward-looking statements contained in this document. The results of
operations for the six months ended June 30, 1998 are not indicative of the
results that may be attained for any other period. In this discussion, net
interest income and the net interest margin are presented on a taxable-
equivalent basis and the ratios are presented on an annualized basis.
EARNINGS ANALYSIS
SunTrust reported record net income of $185.0 million and $365.9 million for
the second quarter and first six months of 1998, an increase of 11.8% and
12.1% compared with $165.4 million and $326.5 million in the same periods of
1997. Diluted earnings per share grew 14.3% to $0.88 and 14.6% to $1.73 from
$0.77 and $1.51 in the same periods. The growth in net income resulted from
increases in noninterest income and continued strong loan demand.
Page 12
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<TABLE>
TABLE 1 - SELECTED QUARTERLY FINANCIAL DATA
(Dollars in millions except per share data)
<CAPTION>
Quarters
1998 1997
2 1 4 3 2
<S> <C> <C> <C> <C> <C>
Summary of Operations
Interest and dividend income $ 975.8 $ 959.5 $ 954.4 $ 934.9 $ 898.4
Interest expense 478.9 470.0 469.0 458.1 428.7
Net interest income 496.9 489.5 485.4 476.8 469.7
Provision for loan losses 33.5 28.6 32.6 29.0 29.2
Net interest income after provision for
loan losses 463.4 460.9 452.8 447.8 440.5
Noninterest income 296.9 286.3 247.4 232.9 228.1
Noninterest expense 482.8 471.1 433.9 424.4 413.3
Income before provision for income taxes 277.5 276.1 266.3 256.3 255.3
Provision for income taxes 92.5 95.2 94.1 87.7 89.9
Net income $ 185.0 $ 180.9 $ 172.2 $ 168.6 $ 165.4
Net interest income (taxable equivalent) $ 504.7 $ 497.5 $ 494.1 $ 485.7 $ 479.2
Per common share
Net income - diluted $ 0.88 $ 0.85 $ 0.82 $ 0.80 $ 0.77
Net income - basic 0.89 0.87 0.83 0.81 0.78
Dividends declared 0.250 0.250 0.250 0.225 0.225
Book value 28.32 27.20 24.77 23.63 24.21
Common stock market price
High 83.44 77.44 75.25 70.44 59.00
Low 73.38 65.25 61.13 54.75 44.13
Close 81.31 75.38 71.38 67.94 55.06
Selected Average Balances
Total assets $59,918.2 $58,368.4 $56,563.4 $55,060.2 $53,498.3
Earning assets 51,143.1 50,089.7 48,970.5 47,672.1 46,238.1
Loans 41,452.1 40,526.4 39,230.0 37,898.9 37,000.9
Total deposits 36,470.9 36,316.3 35,940.2 36,115.7 36,078.8
Realized shareholders' equity 3,391.4 3,356.6 3,150.0 3,127.6 3,128.2
Total shareholders' equity 5,761.5 5,410.8 5,006.0 5,090.4 5,007.8
Common shares - diluted (thousands) 210,684 211,694 210,554 211,671 213,572
Common shares - basic (thousands) 207,335 208,442 207,138 208,391 210,608
Financial Ratios
ROA<F1> 1.32 % 1.33 % 1.28 % 1.29 % 1.31 %
ROE<F1> 21.88 21.85 21.69 21.38 21.21
Net interest margin<F1> 3.96 4.03 4.00 4.04 4.16
<FN>
<F1>ROA, ROE and net interest margin are calculated excluding unrealized gains
on investment securities because the unrealized gains are not included in
income.
</TABLE>
Page 13
<PAGE>
<TABLE>
TABLE 2A - CONSOLIDATED DAILY AVERAGE BALANCES, INCOME/EXPENSE AND AVERAGE
YIELDS EARNED AND RATES PAID
(Dollars in millions; yields on a taxable-equivalent basis)
<CAPTION>
Quarter Ended
June 30, 1998 March 31, 1998 June 30, 1997
Average Income/ Yields/ Average Income/ Yields/ Average Income/ Yields/
Balances Expense Rates Balances Expense Rates Balances Expense Rates
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Loans<F1>
Taxable $40,773.3 $ 812.1 7.99 % $39,835.4 $ 795.0 8.09 % $36,296.5 $738.0 8.16 %
Tax-exempt<F2> 678.8 12.5 7.42 691.0 13.4 7.85 704.4 14.0 7.95
Total loans 41,452.1 824.6 7.98 40,526.4 808.4 8.09 37,000.9 752.0 8.15
Investment securities:
Taxable 7,807.8 129.2 6.64 7,643.8 128.4 6.81 7,412.5 123.7 6.69
Tax-exempt<F2> 597.7 12.4 8.31 607.4 12.6 8.46 708.5 15.1 8.57
Total investment securities 8,405.5 141.6 6.76 8,251.2 141.0 6.93 8,121.0 138.8 6.85
Funds sold 1,059.9 14.9 5.64 1,106.4 15.6 5.72 845.5 13.3 6.27
Other short-term investments<F2> 225.6 2.5 4.48 205.7 2.5 4.90 270.7 3.8 5.69
Total earning assets 51,143.1 983.6 7.71 50,089.7 967.5 7.83 46,238.1 907.9 7.88
Reserve for loan losses (759.6) (750.9) (733.5)
Cash and due from banks 2,299.0 2,356.1 2,197.8
Premises and equipment 979.2 965.5 945.0
Other assets 2,423.7 2,385.4 1,813.8
Unrealized gains(losses) on
investment securities 3,832.8 3,322.6 3,037.1
Total assets $59,918.2 $58,368.4 $53,498.3
Liabilities and Shareholders' Equity
Interest-bearing deposits:
NOW/Money market accounts $11,415.0 $ 78.2 2.75 % $10,908.5 $ 74.0 2.75 % $10,494.5 $ 71.2 2.72 %
Savings 5,164.4 46.2 3.59 5,239.9 46.8 3.62 5,297.6 47.4 3.59
Consumer time 6,759.8 88.3 5.24 6,877.9 88.9 5.24 7,016.1 90.6 5.18
Other time<F3> 4,978.2 71.1 5.73 5,388.3 74.8 5.63 5,808.1 80.7 5.58
Total interest-bearing deposits 28,317.4 283.8 4.02 28,414.6 284.5 4.06 28,616.3 289.9 4.06
Funds purchased 8,085.7 107.1 5.32 7,655.0 100.6 5.33 5,827.0 77.8 5.35
Other short-term borrowings 1,587.1 22.3 5.62 1,671.2 23.5 5.71 1,762.1 24.9 5.66
Long-term debt 4,290.9 65.7 6.14 3,898.8 61.4 6.39 2,191.7 36.1 6.61
Total interest-bearing liabilities 42,281.1 478.9 4.54 41,639.6 470.0 4.58 38,397.1 428.7 4.48
Noninterest-bearing deposits 8,153.5 7,901.7 7,462.5
Other liabilities 3,722.1 3,416.3 2,630.9
Realized shareholders' equity 3,391.4 3,356.6 3,128.2
Net unrealized gains(losses)
on investment securities 2,370.1 2,054.2 1,879.6
Total liabilities and
shareholders' equity $59,918.2 $58,368.4 $53,498.3
Interest rate spread 3.17 % 3.25 % 3.40 %
Net Interest Income $ 504.7 $ 497.5 $479.2
Net Interest Margin 3.96 % 4.03 % 4.16 %
<FN>
<F1>Interest income includes loan fees of $26.4, $25.8, and $24.1 in the
quarters ended June 30, March 31, 1998 and June 30, 1997 and $52.2 and
$47.3 in the six months ended June 30, 1998 and 1997. Nonaccrual loans
are included in average balances and income on such loans, if recognized,
is recorded on a cash basis.
<F2>Interest income includes the effects of taxable-equivalent adjustments
(reduced by the nondeductible portion of interest expense) using a
federal income tax rate of 35% and, where applicable, state income taxes,
to increase tax-exempt interest income to a taxable-equivalent basis.
The net taxable-equivalent adjustment amounts included in the above table
aggregated $7.8, $8.0, and $9.5, in the quarters ended June 30, March 31,
1998 and June 30, 1997 and $15.8 and $19.0 in the six months ended
June 30, 1998 and 1997.
<F3>Interest rate swap transactions used to help balance the Company's
interest-sensitivity position decreased interest expense by $0.8, $1.7
and increased interest expense by $0.8 in the quarters ended June 30,
1998, March 31, 1998 and June 30, 1997 and decreased interest expense
by $2.5 and increased interest expense by $1.2 in the six months ended
June 30, 1998 and June 30, 1997. Without these swaps, the rate on other
time deposits and the net interest margin would have been 5.79% and 3.95%,
5.76% and 4.01%, and 5.52% and 4.16%, in the quarters ended June 30 and
March 31, 1998 and June 30, 1997 and 5.77% and 3.98%, and 5.46% and 4.21%
in the six months ended June 30, 1998 and 1997.
</TABLE>
Page 14
<PAGE>
<TABLE>
TABLE 2b - CONSOLIDATED DAILY AVERAGE BALANCES, INCOME/EXPENSE AND AVERAGE
YIELDS EARNED AND RATES PAID
(Dollars in millions; yields on a taxable-equivalent basis)
<CAPTION>
Six Months Ended
June 30, 1998 June 30, 1997
Average Income/ Yields/ Average Income/ Yields/
Balances Expense Rates Balances Expense Rates
<S> <C> <C> <C> <C> <C> <C>
Assets
Loans<F1>
Taxable $40,306.9 $1,607.1 8.04 % $35,748.2 $1,445.2 8.15 %
Tax-exempt<F2> 684.9 25.9 7.64 702.4 27.4 7.86
Total loans 40,991.8 1,633.0 8.03 36,450.6 1,472.6 8.15
Investment securities:
Taxable 7,726.3 257.6 6.72 7,344.5 243.6 6.69
Tax-exempt<F2> 602.5 25.0 8.39 719.7 30.8 8.64
Total investment securities 8,328.8 282.6 6.84 8,064.2 274.4 6.86
Funds sold 1,083.0 30.5 5.68 907.1 27.3 6.06
Other short-term investments<F2> 215.7 5.0 4.68 227.4 6.2 5.51
Total earning assets 50,619.3 1,951.1 7.77 45,649.3 1,780.5 7.87
Reserve for loan losses (755.3) (730.8)
Cash and due from banks 2,327.4 2,228.6
Premises and equipment 972.4 915.4
Other assets 2,404.7 1,722.0
Unrealized gains(losses) on
investment securities 3,579.1 2,922.3
Total assets $59,147.6 $52,706.8
Liabilities and Shareholders' Equity
Interest-bearing deposits:
NOW/Money market accounts $11,163.1 $ 152.2 2.75 % $10,492.1 $ 142.2 2.73 %
Savings 5,202.0 93.0 3.61 5,350.1 95.2 3.59
Consumer time 6,818.6 177.2 5.24 7,033.0 180.1 5.16
Other time<F3> 5,182.1 145.9 5.68 5,477.2 149.4 5.50
Total interest-bearing deposits 28,365.8 568.3 4.04 28,352.4 566.9 4.03
Funds purchased 7,871.5 207.7 5.32 5,966.8 155.5 5.25
Other short-term borrowings 1,628.9 45.8 5.67 1,561.6 43.3 5.59
Long-term debt 4,095.9 127.1 6.26 1,926.8 63.6 6.66
Total interest-bearing liabilities 41,962.1 948.9 4.56 37,807.6 829.3 4.42
Noninterest-bearing deposits 8,028.2 7,448.3
Other liabilities 3,570.2 2,463.5
Realized shareholders' equity 3,374.1 3,178.4
Net unrealized gains(losses)
on investment securities 2,213.0 1,809.0
Total liabilities and
shareholders' equity $59,147.6 $52,706.8
Interest rate spread 3.21 % 3.45 %
Net Interest Income $1,002.2 $ 951.2
Net Interest Margin 3.99 % 4.20 %
<FN>
<F1>See note <F1> on table 2A.
<F2>See note <F2> on table 2A.
<F3>See note <F3> on table 2A.
</TABLE>
Page 15
<PAGE>
Net Interest Income/Margins. The Company's net interest margin of 3.96% for
the second quarter of 1998 was 20 basis points lower than the second quarter
of last year. The rate on earning assets was 7.71% in the second quarter of
1998 and 7.88% in the second quarter of 1997. At the same time, the rate on
interest bearing liabilities increased 6 basis points due to the increase in
rates on time deposits.
Interest income which the Company was unable to recognize on nonperforming
loans in the first six months of 1998 had a negative impact of 1 basis point
on the net interest margin as compared to 2 basis points in the first six
months 1997. Table 2 contains more detailed information concerning average
balances and interest yields earned and rates paid.
The Company has evaluated the interest rate risk assumptions contained in
the annual report. Management continues to believe that our sensitivity to
interest rates is relatively neutral.
Noninterest Income. Noninterest income in the second quarter and the first
six months of 1998, adjusted to exclude the effect of securities gains
(losses), increased $66.5 million, or 29.1%, and $127.5 million, or 28.1% from
the comparable periods a year ago. SunTrust Equitable Securities Corporation
(SESC), which was acquired on January 2, 1998, accounted for $15.8 million and
$31.9 million of the increase in the second quarter and first six months of
this year. Trust income, the Company's largest source of noninterest income,
increased $16.7 million, or 21.2%, and $31.4 million, or 20.0% over the same
periods. Mortgage fees increased $8.1 million, or 74.7% and $16.4 million, or
81.6% over the same periods due to higher volume in our mortgage banking
business. The increase in loan volume is due to the increase in new home
sales and refinancing activity as long term interest rates have continued to
decline in the past year.
<TABLE>
TABLE 3 - NONINTEREST INCOME
(In millions)
<CAPTION>
Quarters
1998 1997
2 1 4 3 2
<S> <C> <C> <C> <C> <C>
Trust income $ 95.4 $ 93.1 $ 82.5 $ 79.0 $ 78.7
Service charges on deposit accounts 62.7 62.1 63.8 62.4 61.9
Other charges and fees 33.7 32.6 28.0 27.2 29.5
Credit card fees 21.7 20.5 18.9 17.5 18.4
Mortgage fees 19.0 17.5 13.6 12.2 10.9
Corporate and institutional investment
income 13.3 10.9 6.4 8.6 4.6
Retail investment income 12.8 10.4 8.4 8.3 8.5
Trading account profits and commissions 10.9 11.0 5.2 4.0 4.8
Securities gains (losses) 2.0 0.9 0.4 0.1 (0.4)
Other income 25.4 27.3 20.2 13.6 11.2
Total noninterest income $296.9 $286.3 $247.4 $232.9 $228.1
</TABLE>
Page 16
<PAGE>
Noninterest Expense. Noninterest expense increased $69.5 million, or 16.8%
and $126.5 million, or 15.3% in the second quarter and first six months of
1998 compared to the same periods last year. Personnel expense, consisting of
salaries, other compensation and employee benefits, increased $44.6 million,
or 18.9% and $79.2 million, or 16.9% over the second quarter and first six
months of last year. The SESC acquisition accounted for $13.6 million, or
19.7% of the total increase in noninterest expense in the second quarter. The
increase in other noninterest expense in the second quarter and first six
months of 1998 from the same periods in 1997 of $4.1 million, or 26.0% and
$9.2 million, or 26.0% is due to expenditures made in connection with various
projects to stimulate business growth and development. The efficiency ratio
increased from 58.4% in the second quarter of 1997 to 60.2% in the same
quarter of this year. Various growth projects accounted for the increase with
most of the change due to the acquisition of SESC. After adjusting for the
purchase of SESC, the efficiency ratio would have been 59.7% for the second
quarter of 1998.
<TABLE>
TABLE 4 - NONINTEREST EXPENSE
(In millions)
<CAPTION>
Quarters
1998 1997
2 1 4 3 2
<S> <C> <C> <C> <C> <C>
Salaries $193.1 $183.8 $178.7 $175.2 $169.8
Other compensation 56.5 51.2 42.9 39.2 36.0
Employee benefits 30.2 34.4 22.0 27.5 29.5
Net occupancy expense 32.9 33.1 30.9 30.9 32.5
Equipment expense 31.4 32.0 29.6 30.7 30.3
Outside processing and software 21.4 22.0 19.4 18.0 16.1
Marketing and customer development 18.5 17.3 19.2 15.9 16.9
Amortization of intangible assets 13.7 11.2 10.0 8.3 8.0
Postage and delivery 10.5 10.8 10.7 10.1 10.5
Communications 10.4 9.9 8.7 8.9 8.6
Operating supplies 9.4 9.0 9.8 8.7 9.1
Consulting and legal 8.7 7.3 9.3 8.1 5.4
FDIC premiums 1.3 1.3 1.3 1.3 1.4
Other real estate expense (2.7) (2.4) (5.8) (3.1) (1.3)
Other expense 47.5 50.2 47.2 44.7 40.5
Total noninterest expense $482.8 $471.1 $433.9 $424.4 $413.3
Efficiency ratio 60.2 % 60.1 % 58.5 % 59.1 % 58.4 %
</TABLE>
Provision for Loan Losses. The Company increased the provision for loan
losses in the second quarter of 1998 to $33.5 million from $29.2 million in
the same period last year. The provision exceeded net charge-offs by $4.1
million. Net loan charge-offs were $51.3 million in the first six months of
this year, representing 0.25% of average loans. The comparable net charge-off
amount in 1997 was $41.4 million or 0.24% of average loans.
The Company's reserve for loan losses totaled $762.6 million at June 30,
1998, which was 1.83% of quarter-end loans and 558% of total nonperforming
loans. On June 30, 1997 these ratios were 1.96% and 430%.
Page 17
<PAGE>
<TABLE>
TABLE 5 - SUMMARY OF LOAN LOSS EXPERIENCE
(Dollars in millions)
<CAPTION>
Quarters
1998 1997
2 1 4 3 2
<S> <C> <C> <C> <C> <C>
Reserve for Loan Losses
Balances - beginning of quarter $ 758.5 $ 751.8 $ 747.1 $ 739.8 $ 734.5
Provision for loan losses 33.5 28.6 32.6 29.0 29.2
Charge-offs:
Commercial (10.0) (4.8) (7.2) (6.8) (4.7)
Real estate:
Construction - (0.1) (0.4) (1.3) (0.5)
Residential mortgages (2.1) (1.6) (2.6) (2.0) (1.5)
Other (0.9) (0.9) (2.5) (1.3) (1.8)
Lease financing (0.4) (1.1) (0.6) (0.4) (0.3)
Credit card (17.6) (15.1) (13.4) (13.2) (12.5)
Other consumer loans (11.3) (12.3) (14.8) (12.4) (14.0)
Total charge-offs (42.3) (35.9) (41.5) (37.4) (35.3)
Recoveries:
Commercial 2.8 3.9 4.9 4.3 2.5
Real estate:
Construction 0.1 0.1 0.7 1.0 -
Residential mortgages 0.7 0.3 0.4 0.2 0.4
Other 1.3 2.2 1.0 2.6 1.1
Lease financing 0.2 0.2 0.1 0.2 0.1
Credit card 2.4 1.8 1.6 2.0 1.8
Other consumer loans 5.4 5.5 4.9 5.4 5.5
Total recoveries 12.9 14.0 13.6 15.7 11.4
Net charge-offs (29.4) (21.9) (27.9) (21.7) (23.9)
Balance - end of quarter $ 762.6 $ 758.5 $ 751.8 $ 747.1 $ 739.8
Quarter-end loans outstanding:
Domestic $41,306.3 $41,001.9 $39,875.7 $38,185.3 $37,382.9
International 341.0 262.1 259.8 290.2 301.4
Total $41,647.3 $41,264.0 $40,135.5 $38,475.5 $37,684.3
Ratio of reserve to quarter-end loan 1.83 % 1.84 % 1.87 % 1.94 % 1.96 %
Average loans $41,452.1 $40,526.4 $39,230.1 $37,898.9 $37,000.9
Ratio of net charge-offs (annualized)
to average loans 0.28 % 0.22 % 0.28 % 0.23 % 0.26 %
</TABLE>
Page 18
<PAGE>
<TABLE>
TABLE 6 - NONPERFORMING ASSETS
(Dollars in millions)
<CAPTION>
1998 1997
June 30 March 31 December 31 September 3 June 30
<S> <C> <C> <C> <C> <C>
Nonperforming Assets
Nonaccrual loans:
Commercial $ 38.1 $ 20.6 $ 20.9 $ 35.2 $ 29.1
Real Estate:
Construction 3.3 2.9 1.8 2.8 12.6
Residential mortgages 47.9 52.0 49.7 57.8 54.8
Other 38.8 42.6 41.2 47.1 55.0
Lease financing 2.1 2.3 3.0 0.7 1.0
Consumer loans 6.5 7.6 8.8 8.7 8.5
Total nonaccrual loans 136.7 128.0 125.4 152.3 161.0
Restructured loans - 2.7 2.7 2.7 11.0
Total nonperforming loans 136.7 130.7 128.1 155.0 172.0
Other real estate owned 26.7 31.4 22.5 35.7 41.9
Total Nonperforming Assets $163.4 $162.1 $150.6 $190.7 $213.9
Ratios:
Nonperforming loans to total loans 0.33 % 0.32 % 0.32 % 0.40 % 0.46 %
Nonperforming assets to total loans
plus other real estate owned 0.39 0.39 0.37 0.50 0.57
Reserve to nonperforming loans 558.0 580.4 586.9 482.0 430.1
Accruing Loans Past Due 90 Days or More $ 38.7 $ 43.3 $ 40.8 $ 41.4 $ 25.9
</TABLE>
Nonperforming Assets. Nonperforming assets consist of nonaccrual loans,
restructured loans and other real estate owned. Nonperforming assets have
increased 8.5%, or $12.8 million since December 31, 1997 and decreased 24.6%,
or $50.5 million since June 30, 1997. Included in nonperforming loans at
June 30, 1998 are loans aggregating $12.6 million which are current as to the
payment of principal and interest but have been placed in nonperforming status
because of uncertainty over the borrowers' ability to make future payments.
In management's opinion, all known material potential problem loans are
included in Table 6.
Interest income on nonaccrual loans, if recognized, is recorded on a cash
basis. During the first six months of 1998, the gross amount of interest
income that would have been recorded on nonaccrual loans and restructured
loans at June 30, 1998, if all such loans had been accruing interest at the
original contractual rate, was $6.6 million. Interest income recognized in
the six months ended June 30, 1998 on all such nonperforming loans at June 30,
1998, was $3.2 million.
Page 19
<PAGE>
<TABLE>
Table 7 - Loan Portfolio by Types of Loans (In millions)
<CAPTION>
1998 1997
June 30 March 31 December 31 September 30 June 30
<S> <C> <C> <C> <C> <C>
Commercial:
Domestic $15,428.1 $15,165.7 $14,139.9 $12,968.2 $12,668.3
International 320.5 249.6 247.4 278.0 289.9
Real estate:
Construction 1,532.2 1,451.8 1,442.6 1,400.7 1,411.2
Residential mortgages 13,092.7 13,195.2 12,992.9 12,726.3 12,326.0
Other 4,887.3 4,820.5 4,778.7 4,766.4 4,751.7
Lease financing 825.9 783.1 725.7 663.6 632.3
Credit card 958.8 982.7 1,041.3 1,022.5 993.9
Other consumer loans 4,601.8 4,615.4 4,767.0 4,649.8 4,611.0
Total Loans $41,647.3 $41,264.0 $40,135.5 $38,475.5 $37,684.3
</TABLE>
Loans. During the second quarter and first six months of 1998, average loans
increased 12.0% and 12.5% over the same periods a year ago. Since
December 31, 1997 domestic commercial loans increased 1.3 billion or 9.1%.
The average loan to deposit ratio was 113.7% and 112.6% in the second quarter
and first six months of 1998 compared with 102.6% and 101.8% in the same
periods of 1997.
At June 30, 1998, international outstandings, which include loans,
acceptances, deposits in other banks, foreign guarantees and accrued interest,
net of write-downs totaled $351.1 million, an increase of 22.6% from $286.4
million at December 31, 1997.
Income Taxes. The provision for income taxes was $92.5 million and $187.7
million in the second quarter and first six months of 1998 compared to $89.9
million and $176.9 million in the same period last year. This represented a
33% and 34% effective tax rate in the second quarter and first six months of
1998 and an effective tax rate of 35% in the same periods last year.
Investment Securities. The investment securities portfolio is classified as
available-for-sale and is carried at the current market value with unrealized
gains and losses net of tax, added to or deducted from realized shareholders'
equity to determine total shareholder's equity. The investment portfolio
continues to be managed to maximize yield over an entire interest rate cycle
while providing liquidity and minimizing risk. The portfolio yield decreased
from an average of 6.85% in the second quarter of 1997 to 6.76% in the second
quarter of this year. The portfolio size (measured at amortized cost)
increased by $353 million during the second quarter to $8.3 billion at quarter
end. The average life of the portfolio was approximately 1.6 years at
June 30, 1998. At June 30, 1998, approximately 18% of the portfolio consisted
of U.S. Treasury securities, 8% U.S. government agency securities, 57%
mortgage-backed securities, 10% trust preferred securities and 7% municipal
securities (calculated as a percent of total par value). All of the Company's
holdings in mortgage-backed securities are backed by U.S. government or
federal agency guarantees limiting the credit risk associated with the
mortgage loans. At June 30, 1998, the carrying value of the securities
portfolio was $4.2 billion over its amortized cost, consisting mostly of a
$4.1 billion unrealized gain on the Company's investment in common stock of
The Coca-Cola Company.
Page 20
<PAGE>
Liquidity Management. Liquidity is managed to ensure there is sufficient cash
flow to satisfy demand for credit, deposit withdrawals and attractive
investment opportunities. A large, stable core deposit base, strong capital
position and excellent credit ratings are the solid foundation for the
Company's liquidity position. Liquidity is enhanced by an investment
portfolio structured to provide liquidity as needed. It is also strengthened
by ready access to regional and national wholesale funding sources including
fed funds purchased, securities sold under agreements to repurchase,
negotiable certificates of deposit and offshore deposits, as well as an active
bank note program, commercial paper issuance by the Parent Company, and
Federal Home Loan Bank (FHLB) advances for subsidiary banks who are FHLB
members. Average total deposits for the second quarter and first six months
of 1998 increased $0.4 billion, or 1.1%, and $0.6 billion, or 1.7% over the
same periods a year ago. Interest-bearing deposits represented 77.6% and
77.9% of average deposits for the second quarter and first six months of 1998,
compared to 79.3% and 79.2% for the same periods in 1997. In the second
quarter of 1998, average net purchased funds (average funds purchased less
average funds sold) increased $2.0 billion and $1.7 billion over the same
periods in 1997. Net purchased funds were 13.7% and 13.4% of average earning
assets for the second quarter and first six months of 1998 as compared to
10.8% and 11.1% in the same periods a year ago.
Derivatives. The Company enters into various derivatives contracts in a
dealer capacity for customers and in managing its own interest rate risk.
Where contracts have been created for customers, the Company enters into
offsetting positions to eliminate the Company's exposure to interest rate
risk. The principal derivative contract used by the Company is the interest
rate swap. Interest rate swaps are contracts in which a series of interest
rate flows, based on a specific notional amount and a fixed and floating
interest rate, are exchanged over a prescribed period. Interest rate futures
contracts are also used but on a much more limited basis. The Company also
monitors its sensitivity to changes in interest rates and uses interest rate
swap contracts to limit the volatility of net interest income. Table 8
details interest rate swaps as of June 30, 1998 used for managing interest
rate sensitivity.
<TABLE>
TABLE 8 - INTEREST RATE SWAPS
<CAPTION>
Average Average Average
(Dollars in millions) Notional Fair Maturity Rate Rate
At June 30, 1998 Value Value In Months Paid Received
<S> <C> <C> <C> <C> <C>
Gain position:
Receive fixed $1,253.5 $ 46.9 59.9 5.69 % 6.44 %
Pay fixed 231.6 2.7 9.7 5.74 5.58
Basis swaps - - - - -
Total gain position 1,485.1 49.6
Loss position:
Receive fixed 500.0 (0.6) - 5.70 5.27
Pay fixed 726.2 (9.9) 99.1 6.44 5.90
Basis swaps 1,000.0 (8.4) 79.5 5.39 5.46
Total loss position 2,226.2 (18.9)
Total $3,711.3 $ 30.7
</TABLE>
The swaps are designated as hedges on investments, deposits and other
interest-bearing liabilities. During the six months ended June 30, 1998,
hedge swaps increased net interest income by $2.5 million, compared with a
$1.2 million decrease in the corresponding 1997 period.
Page 21
<PAGE>
<TABLE>
TABLE 9 - CAPITAL RATIOS
(Dollars in millions)
<CAPTION>
1998 1997
June 30 March 31 December 31 September 30 June 30
<S> <C> <C> <C> <C> <C>
Tier 1 capital:
Realized shareholders' equity $ 3,292.3 $ 3,382.2 $ 3,150.5 $ 3,110.8 $ 3,075.8
Trust preferred securities 850.0 850.0 600.0 600.0 600.0
Intangible assets other than servicing rights (351.5) (429.9) (292.4) (285.8) (275.3)
Total Tier 1 capital 3,790.8 3,802.3 3,458.1 3,425.0 3,400.5
Tier 2 capital:
Allowable reserve for loan losses 639.8 624.3 600.1 567.1 561.0
Allowable long-term debt 950.0 950.0 950.0 1,055.1 958.2
Regulatory adjustment 1,857.0 1,119.4 965.6 - -
Total Tier 2 capital 3,446.8 2,693.7 2,515.7 1,622.2 1,519.2
Total capital $ 7,237.6 $ 6,496.0 $ 5,973.8 $ 5,047.2 $ 4,919.7
Risk-weighted assets $52,921.2 $50,928.4 $47,856.6 $45,184.8 $44,703.9
Risk-based ratios:
Tier 1 capital 7.16 % 7.47 % 7.22 % 7.58 % 7.60 %
Total capital 13.67 12.76 12.48 11.17 11.00
Tier 1 leverage ratio 6.80 6.94 6.49 6.63 6.77
Total shareholders' equity to assets 9.63 9.61 8.97 9.00 9.27
</TABLE>
Capital Resources. Consistent with the objective of operating a sound
financial organization, SunTrust maintains capital ratios well above
regulatory requirements. The rate of internal capital generation has been
more than adequate to support asset growth. Table 9 presents capital ratios
for the five most recent quarters.
Regulatory agencies measure capital adequacy with a framework that makes
capital requirements sensitive to the risk profiles of individual banking
companies. The guidelines define capital as either Tier 1 (primarily
shareholders' equity) or Tier 2 (certain debt instruments and a portion of the
reserve for loan losses). The Company and its subsidiary banks are subject to
a minimum Tier 1 capital ratio (Tier 1 capital to risk-weighted assets) of 4%,
total capital ratio (Tier 1 plus Tier 2 to risk-weighted assets) of 8% and
Tier 1 leverage ratio (Tier 1 to average quarterly assets) of 3%.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
requires the establishment of a capital-based supervisory system of prompt
corrective action for all depository institutions. The Regulator's
implementation of FDICIA defines "well capitalized" institutions as those
whose capital ratios equal or exceed the following minimum ratios: Tier 1
capital ratio of 6%, total risk-based capital ratio of 10%, and a Tier 1
leverage ratio of 5%. The Federal Reserve Bank has given SunTrust permission
to include a portion of the unrealized gains on equity securities of The
Coca-Cola Company in the Tier 2 capital calculation. At June 30, 1998, the
Company's Tier 1 capital, total risk-based capital and Tier 1 leverage ratios
were 7.16%, 13.67% and 6.80%, respectively. SunTrust is committed to
maintaining well capitalized banks.
In April 1997, the Board of Directors authorized the Company to
repurchase up to 15,000,000 shares of SunTrust common stock. At June 30,
1998, the Company had 9,289,694 shares remaining to be repurchased under this
authorization. SunTrust announced the cessation of its share repurchase
program in a Form 8-K filing on July 21, 1998. The total number of shares
repurchased under this program were 5,710,306.
Page 22
<PAGE>
<TABLE>
TABLE 10 - FINANCIAL HIGHLIGHTS - BANKING SUBSIDIARIES
(Dollars in Millions)
<CAPTION>
SunTrust Banks SunTrust Banks SunTrust Banks
of Florida, Inc. of Georgia, Inc. of Tennessee, Inc.
1998 1997 1998 1997 1998 1997
<S> <C> <C> <C> <C> <C> <C>
Summary of Operations<F1>
Net interest income <FTE> $ 515.2 $ 500.2 $ 347.9 $ 321.9 $ 148.6 $ 146.1
Provision for loan losses 18.1 20.5 11.6 10.0 3.7 4.5
Trust income 87.6 76.7 68.1 57.3 22.4 19.0
Other noninterest income 189.2 150.5 111.9 96.9 49.2 41.7
Personnel expense 184.3 171.1 120.4 112.0 57.5 55.0
Other noninterest expense 265.7 247.7 167.6 144.0 69.0 61.1
Net income 200.6 176.9 148.4 135.7 55.6 53.1
Selected Average Balances<F1>
Total assets 27,493 25,051 22,569 20,774 8,023 7,485
Earning assets 25,892 23,591 17,652 16,275 7,692 7,212
Loans 19,723 17,773 14,669 12,892 6,053 5,596
Total deposits 18,964 18,444 11,478 11,673 6,036 5,747
Realized shareholders' equity 2,195 2,062 1,584 1,452 635 593
At June 30
Total assets 27,682 25,767 24,190 22,473 8,328 7,697
Earning assets 25,928 24,202 18,148 17,311 7,934 7,346
Loans 19,863 18,185 14,958 13,494 6,185 5,744
Reserve for loan losses 387 380 204 200 110 113
Total deposits 19,271 18,350 11,856 11,718 5,861 5,796
Realized shareholders' equity 2,290 2,114 1,768 1,554 652 615
Total shareholders' equity 2,308 2,125 4,333 3,591 660 618
Credit Quality
Net loan charge-offs<F1> 10.9 10.1 8.3 5.9 3.5 5.4
Nonperforming loans<F2> 88.0 94.7 36.7 53.5 11.6 23.4
Other real estate owned<F2> 10.0 25.7 2.5 3.8 14.2 12.1
Ratios
ROA<F3> 1.47 % 1.42 % 1.57 % 1.53 % 1.40 % 1.43 %
ROE<F3> 18.43 17.30 18.89 18.85 17.65 18.06
Net interest margin<F3> 4.01 4.28 3.97 3.99 3.90 4.09
Efficiency ratio<F3> 56.82 57.58 54.55 53.78 57.46 56.14
Total shareholders' equity/assets<F2> 8.34 8.25 17.91 15.98 7.92 8.03
Net loan charge-offs to average loans<F3> 0.11 0.12 0.12 0.09 0.12 0.20
Nonperforming loans to total loans<F2> 0.45 0.53 0.25 0.40 0.19 0.42
Nonperforming assets to total loans plus
other real estate owned<F2> 0.50 0.68 0.27 0.43 0.43 0.63
Reserve to loans<F2> 1.99 2.14 1.38 1.50 1.82 2.01
Reserve to nonperforming loans<F2> 439.5 400.9 557.3 373.2 949.3 483.0
<FN>
<F1>For the six month period ended June 30.
<F2>At June 30.
<F3>Annualized for the first six months.
</TABLE>
Page 23
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
None
B. Reports on Form 8-K
The Registrant filed a Current Report on Form 8-K dated July 21,
1998 reporting that the Registrant and Crestar Financial
Corporation had entered into a definitive agreement and plan of
merger providing for a merger of a wholly owned subsidiary of the
Registrant with and into Crestar.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized this 10th day of August, 1998.
SunTrust Banks, Inc.
(Registrant)
/s/ W.P. O'Halloran
William P. O'Halloran
Senior Vice President and Controller
(Chief Accounting Officer)
Page 24
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,018,148
<INT-BEARING-DEPOSITS> 8,547
<FED-FUNDS-SOLD> 1,155,174
<TRADING-ASSETS> 172,689
<INVESTMENTS-HELD-FOR-SALE> 12,791,021
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 41,647,269
<ALLOWANCE> 762,582
<TOTAL-ASSETS> 61,393,403
<DEPOSITS> 36,982,584
<SHORT-TERM> 10,144,428
<LIABILITIES-OTHER> 3,806,902
<LONG-TERM> 4,547,860
<COMMON> 213,108
0
0
<OTHER-SE> 5,698,521
<TOTAL-LIABILITIES-AND-EQUITY> 61,393,403
<INTEREST-LOAN> 1,625,088
<INTEREST-INVEST> 274,670
<INTEREST-OTHER> 35,422
<INTEREST-TOTAL> 1,935,180
<INTEREST-DEPOSIT> 568,307
<INTEREST-EXPENSE> 948,886
<INTEREST-INCOME-NET> 986,294
<LOAN-LOSSES> 62,056
<SECURITIES-GAINS> 2,872
<EXPENSE-OTHER> 953,892
<INCOME-PRETAX> 553,551
<INCOME-PRE-EXTRAORDINARY> 365,863
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 365,863
<EPS-PRIMARY> 1.76
<EPS-DILUTED> 1.73
<YIELD-ACTUAL> 3.99
<LOANS-NON> 136,656
<LOANS-PAST> 38,714
<LOANS-TROUBLED> 16
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 722,569
<CHARGE-OFFS> 78,324
<RECOVERIES> 27,020
<ALLOWANCE-CLOSE> 762,582
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 762,582
</TABLE>
