<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, 2000
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, 2000, 298,102,334 shares of the Registrant's Common Stock, $1.00 par
value were outstanding.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION Page
<S> <C>
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Income 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 5
Consolidated Statements of Shareholders' Equity 6
Notes to Consolidated Financial Statements 7-12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13-25
PART II OTHER INFORMATION
Item 1. Legal Proceedings 26
Item 2. Changes in Securities 26
Item 3. Defaults Upon Senior Securities 26
Item 4. Submission of Matters to a Vote of Security Holders 26
Item 5. Other Information 26
Item 6. Exhibits and Reports on Form 8-K 26
SIGNATURES 26
</TABLE>
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, 2000 are not
necessarily indicative of the results that may be expected for the full year
2000.
2
<PAGE>
Consolidated Statements of Income
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
-------------------------------- --------------------------------
(Dollars in thousands except per share data)(Unaudited) 2000 1999 2000 1999
-------------- --------------- -------------- ---------------
<S> <C>
Interest Income
Interest and fees on loans $ 1,367,374 $ 1,153,809 $2,673,903 $2,296,782
Interest and fees on loans held for sale 23,703 47,350 48,829 105,930
Interest and dividends on securities available for sale
Taxable interest 224,910 208,012 455,532 405,596
Tax-exempt interest 6,492 7,871 13,327 15,807
Dividends (1) 17,749 15,906 34,772 31,542
Interest on funds sold 24,505 16,528 43,843 32,003
Interest on deposits in other banks 232 184 567 1,892
Other interest 7,084 2,876 12,105 4,954
-------------- --------------- -------------- ---------------
Total interest income 1,672,049 1,452,536 3,282,878 2,894,506
-------------- --------------- -------------- ---------------
Interest Expense
Interest on deposits 590,255 391,627 1,145,217 785,766
Interest on funds purchased 154,561 172,391 297,394 341,688
Interest on other short-term borrowings 25,673 16,797 44,619 37,085
Interest on long-term debt 132,530 86,919 244,025 175,347
-------------- --------------- -------------- ---------------
Total interest expense 903,019 667,734 1,731,255 1,339,886
-------------- --------------- -------------- ---------------
Net Interest Income 769,030 784,802 1,551,623 1,554,620
Provision for loan losses 27,693 48,822 49,985 90,817
-------------- --------------- -------------- ---------------
Net interest income after provision for loan losses 741,337 735,980 1,501,638 1,463,803
-------------- --------------- -------------- ---------------
Noninterest Income
Trust income 125,350 126,285 255,639 252,605
Service charges on deposit accounts 112,589 107,067 223,855 213,181
Other charges and fees 48,773 49,368 96,221 95,910
Retail investment services 30,550 26,001 61,348 49,516
Credit card and other fees 24,378 28,222 46,469 51,349
Mortgage production related income 20,474 47,650 39,167 101,165
Mortgage servicing related income 7,692 5,178 15,414 8,134
Corporate and institutional investment services 35,321 16,310 54,992 34,990
Trading account profits and commissions (1,442) 11,437 10,571 22,026
Other noninterest income 38,754 31,546 68,753 48,649
Securities gains (losses) 1,531 3,879 8,393 3,147
-------------- --------------- -------------- ---------------
Total noninterest income 443,970 452,943 880,822 880,672
-------------- --------------- -------------- ---------------
Noninterest Expense
Salaries and other compensation 365,251 389,261 736,336 772,196
Employee benefits 41,411 41,535 98,335 95,918
Equipment expense 50,667 49,799 102,305 95,088
Net occupancy expense 49,890 49,937 99,950 97,606
Outside processing and software 44,388 38,749 85,999 73,523
Marketing and customer development 27,855 23,875 50,157 45,665
Merger-related expenses 18,183 17,547 31,816 31,391
Amortization of intangible assets 8,777 8,965 17,771 17,902
Other noninterest expense 113,362 116,247 201,430 230,326
-------------- --------------- -------------- ---------------
Total noninterest expense 719,784 735,915 1,424,099 1,459,615
-------------- --------------- -------------- ---------------
Income before provision for income taxes 465,523 453,008 958,361 884,860
Provision for income taxes 148,054 159,345 321,453 309,460
-------------- --------------- -------------- ---------------
Net Income $ 317,469 $ 293,663 $ 636,908 $ 575,400
============== =============== ============== ===============
Average common shares - diluted 302,140,506 322,448,490 304,439,570 322,406,414
Average common shares - basic 298,985,834 318,315,379 301,223,533 318,203,347
Net income per average common share - diluted $ 1.05 $ 0.91 $ 2.09 $ 1.78
Net income per average common share - basic 1.06 0.92 2.11 1.81
Dividends declared per common share 0.370 0.345 0.740 0.690
(1) Includes dividends on common stock of
The Coca-Cola Company 8,206 7,722 16,411 15,445
See notes to consolidated financial statements
</TABLE>
3
<PAGE>
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30 December 31 June 30
(Dollars in thousands) (Unaudited) 2000 1999 1999
---------------- --------------- ----------------
<S> <C>
Assets
Cash and due from banks $ 2,847,699 $ 3,909,687 $ 3,786,251
Trading account 668,709 259,547 240,648
Securities available for sale (1) 17,382,207 18,317,297 18,384,169
Funds sold 1,621,189 1,609,679 1,417,290
Loans held for sale 1,345,694 1,531,787 2,408,689
Loans 71,450,408 66,002,831 62,922,406
Allowance for loan losses (874,484) (871,323) (941,444)
---------------- --------------- ----------------
Net loans 70,575,924 65,131,508 61,980,962
Premises and equipment 1,631,331 1,636,484 1,618,936
Intangible assets 800,728 804,632 819,020
Customers' acceptance liability 173,964 192,045 350,865
Other assets 2,703,365 1,997,302 2,213,051
---------------- --------------- ----------------
Total assets $99,750,810 $95,389,968 $93,219,881
================ =============== ================
Liabilities and Shareholders' Equity
Noninterest-bearing deposits $13,719,684 $14,200,522 $13,441,890
Interest-bearing deposits 54,956,751 45,900,007 46,918,195
---------------- --------------- ----------------
Total deposits 68,676,435 60,100,529 60,360,085
Funds purchased 10,159,988 15,911,917 13,558,897
Other short-term borrowings 1,419,499 2,259,010 1,761,156
Long-term debt 7,200,459 4,967,346 4,519,796
Guaranteed preferred beneficial interests in debentures 1,050,000 1,050,000 1,050,000
Acceptances outstanding 173,964 192,045 350,865
Other liabilities 3,491,511 3,282,259 3,426,415
---------------- --------------- ----------------
Total liabilities 92,171,856 87,763,106 85,027,214
---------------- --------------- ----------------
Preferred stock, no par value; 50,000,000 shares authorized; none issued - - -
Common stock, $1.00 par value 323,163 323,163 323,012
Additional paid in capital 1,272,178 1,293,387 1,303,609
Retained earnings 5,873,963 5,461,351 4,930,193
Treasury stock and other (1,357,018) (1,013,861) (93,762)
---------------- --------------- ----------------
Realized shareholders' equity 6,112,286 6,064,040 6,463,052
Accumulated other comprehensive income 1,466,668 1,562,822 1,729,615
---------------- --------------- ----------------
Total shareholders' equity 7,578,954 7,626,862 8,192,667
---------------- --------------- ----------------
Total liabilities and shareholders' equity $99,750,810 $95,389,968 $93,219,881
================ =============== ================
Common shares outstanding 301,931,828 308,353,207 321,632,977
Common shares authorized 750,000,000 500,000,000 500,000,000
Treasury shares of common stock 21,230,929 14,809,550 1,379,469
(1) Includes net unrealized gains on securities available for sale $ 2,371,237 $ 2,527,705 $ 2,805,074
See notes to consolidated financial statements
</TABLE>
4
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Six Months
Ended June 30
---------------------------------------
(Dollars in thousands) (Unaudited) 2000 1999
------------------- ----------------
<S> <C>
Cash flows from operating activities:
Net income $ 636,908 $ 575,400
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and accretion 149,776 138,982
Provisions for loan losses and foreclosed property 50,192 92,972
Amortization of compensation element of restricted stock 4,726 6,741
Securities gains (8,393) (3,147)
Net gain on sale of non-interest earning assets (7,888) (14,106)
Net decrease in loans held for sale 186,093 1,137,918
Net increase in accrued interest receivable,
prepaid expenses and other assets (1,213,778) (194,446)
Net increase in accrued interest payable,
accrued expenses and other liabilities 269,566 53,393
--------------- ----------------
Net cash provided by operating activities 67,202 1,793,707
--------------- ----------------
Cash flows from investing activities:
Proceeds from maturities of securities available for sale 1,239,752 2,286,636
Proceeds from sales of securities available for sale 667,038 1,839,713
Purchases of securities available for sale (1,128,413) (5,522,642)
Net increase in loans (5,491,330) (1,429,064)
Capital expenditures (70,479) (166,306)
Proceeds from the sale of assets 12,766 23,181
Loan recoveries 28,795 35,045
--------------- ----------------
Net cash used in investing activities (4,741,871) (2,933,437)
--------------- ----------------
Cash flows from financing activities:
Net increase in deposits 8,575,906 1,326,802
Net decrease in funds purchased
and other short-term borrowings (6,591,440) (612,766)
Proceeds from the issuance of long-term debt 3,113,839 90,272
Repayment of long-term debt (880,726) (328,345)
Proceeds from the exercise of stock options 7,543 -
Proceeds from stock issuance 13,202 11,063
Proceeds used in the acquisition of stock (389,837) -
Dividends paid (224,296) (220,589)
--------------- ----------------
Net cash provided by financing activities 3,624,191 266,437
--------------- ----------------
Net decrease in cash and cash equivalents (1,050,478) (873,293)
Cash and cash equivalents at beginning of year 5,519,366 6,076,834
--------------- ----------------
Cash and cash equivalents at end of period $ 4,468,888 $ 5,203,541
=============== ================
Supplemental Disclosure
Interest paid $ 1,675,409 $ 1,363,341
Income taxes paid 269,144 239,106
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Accumulated
Additional Treasury Other
Common Paid in Retained Stock and Comprehensive
(Dollars in thousands) (Unaudited) Stock Capital Earnings Other* Income Total
----------------------------------------------------------------------------------------
<S> <C>
Balance, January 1, 1999 $322,485 $ 1,293,011 $4,575,382 $ (100,441) $2,088,207 $ 8,178,644
Net income - - 575,400 - - 575,400
Other comprehensive income:
Change in unrealized gains (losses) on
securities, net of taxes - - - - (358,592) (358,592)
---------------
Total comprehensive income - - - - - 216,808
Cash dividends declared, $0.690 per share - - (220,589) - - (220,589)
Exercise of stock options 470 6,714 - - - 7,184
Amortization of compensation element
of restricted stock - - - 6,741 - 6,741
Issuance of stock for employee benefit plans 57 3,884 - (62) - 3,879
----------------------------------------------------------------------------------------
Balance, June 30, 1999 $323,012 $ 1,303,609 $4,930,193 $ (93,762) $1,729,615 $ 8,192,667
========================================================================================
Balance, January 1, 2000 $323,163 $ 1,293,387 $5,461,351 $(1,013,861) $1,562,822 $ 7,626,862
Net income - - 636,908 - - 636,908
Other comprehensive income:
Change in unrealized gains (losses) on
securities, net of taxes - - - - (96,154) (96,154)
---------------
Total comprehensive income - - - - - 540,754
Cash dividends declared, $0.740 per share - - (224,296) - - (224,296)
Exercise of stock options - (16,529) - 24,072 - 7,543
Acquisition of treasury stock - - - (389,837) - (389,837)
Restricted stock activity - (594) - 594 - -
Amortization of compensation element
of restricted stock - - - 4,726 - 4,726
Issuance of stock for employee benefit plans - (4,086) - 17,288 - 13,202
----------------------------------------------------------------------------------------
Balance, June 30, 2000 $323,163 $ 1,272,178 $5,873,963 $(1,357,018) $1,466,668 $ 7,578,954
========================================================================================
</TABLE>
* Balance at June 30, 1999 includes $29,493 for treasury stock and $64,269 for
compensation element of restricted stock.
Balance at June 30, 2000 includes $1,306,813 for treasury stock and $50,205
for compensation element of restricted stock.
See notes to consolidated financial statements
6
<PAGE>
Notes to Consolidated Financial Statements (Unaudited)
Note 1 - Accounting Policies
The consolidated interim financial statements of SunTrust Banks, Inc.
("SunTrust" or "Company") are unaudited. All significant intercompany accounts
and transactions have been eliminated. These financial statements should be read
in conjunction with the Annual Report on Form 10-K for the year ended December
31, 1999. Certain reclassifications have been made to prior year amounts to
conform with the current year presentation.
Note 2 - Acquisitions
For the first six months of 2000, $31.8 million of merger-related charges were
recorded compared to $31.4 million in 1999. These charges included $0.6 million
in accelerated depreciation and amortization based upon estimates of systems
integration timetables, $0.8 million in severance and $30.4 million in system
integration costs. SunTrust expects to record additional merger-related charges
of approximately $10.7 million through the remainder of year 2000.
Note 3 - Derivative Financial Instruments
SunTrust uses derivatives to hedge interest rate exposures by modifying the
interest rate characteristics of related balance sheet instruments. The specific
criteria required for derivatives used as hedges are described below.
Derivatives that do not meet these criteria are carried at market value with
changes in value recognized currently in earnings.
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 may
include swaps, forwards, futures and options. The interest component associated
with derivatives used as hedges or to modify the interest rate characteristics
of assets and liabilities is recognized over the life of the contract in net
interest income. If a contract is cancelled prior to its termination date, the
cumulative change in the market value of such 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. In instances where the underlying instrument is
sold, the fair value of the associated derivative is recognized immediately in
the component of earnings relating to the underlying instrument.
7
<PAGE>
Notes to Consolidated Financial Statements (Unaudited) - continued
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") 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 on the
balance sheet and measures those instruments at fair value. This statement could
increase volatility in earnings and other comprehensive income. In June of 1999,
SFAS No. 133 was amended by SFAS No. 137, which delays the effective date of
implementation until fiscal years beginning after June 15, 2000. SunTrust will
adopt SFAS No. 133 effective January 1, 2001. In June of 2000, SFAS No. 133 was
amended by SFAS 138, which addresses issues related to implementation
difficulties. SunTrust completed an in-depth analysis to determine the effects
of the implementation and currently it is not expected to have a material impact
on SunTrust's financial position or results of operations.
Note 4 - Guaranteed Preferred Beneficial Interests in Debentures
SunTrust has established special purpose trusts, which collectively issued
$1,050 million in trust preferred securities. The proceeds from these issuances,
together with the proceeds of the related issuances of common securities of the
trusts, were invested in junior subordinated deferrable interest debentures of
SunTrust. The sole assets of these special purpose trusts are the debentures.
These debentures rank junior to the senior and subordinated debt of the issuing
company. SunTrust owns all of the common securities of the special purpose
trusts. The preferred securities issued by the trusts rank senior to the trusts'
common securities. The Company's obligations under the debentures, the
indentures, the relevant trust agreements and the guarantees, in the aggregate,
constitute a full and unconditional guarantee by SunTrust of the obligations of
the trusts under the trust preferred securities and rank subordinate and junior
in right of payment to all liabilities of the Company. The trust preferred
securities may be called prior to maturity at the option of SunTrust.
8
<PAGE>
Notes to Consolidated Financial Statements (Unaudited) - continued
Note 5 - Comprehensive Income
The Company's comprehensive income, which includes certain transactions and
other economic events that bypass the income statement, consists of net income
and unrealized gains and losses on securities available for sale, net of income
taxes.
Comprehensive income for the six months ended June 30, 2000 and 1999 is
calculated as follows:
(In thousands)
<TABLE>
<CAPTION>
Before Net of
Income Tax Income Tax Income Tax
---------- ---------- ----------
<S> <C>
Unrealized losses, net, recognized in other comprehensive income:
Six months ended June 30, 2000 $ (156,468) $ (60,314) $ (96,154)
Six months ended June 30, 1999 (574,651) (216,059) (358,592)
2000 1999
Amounts reported in net income:
Gain (loss) on sale of securities $ 8,393 $ 3,147
Net (accretion) amortization (4,622) 2,999
-------------- ----------------
Reclassification adjustment 3,771 6,146
Income tax expense (1,454) (2,311)
-------------- ----------------
Reclassification adjustment, net of tax $ 2,317 $ 3,835
============== ================
Amounts reported in other comprehensive income:
Unrealized loss arising during period, net of tax $ (93,837) $ (354,757)
Reclassification adjustment, net of tax (2,317) (3,835)
-------------- ----------------
Net unrealized losses recognized in
other comprehensive income (96,154) (358,592)
Net income 636,908 575,400
-------------- ----------------
Total comprehensive income $ 540,754 $ 216,808
============== ================
</TABLE>
9
<PAGE>
Notes to Consolidated Financial Statements (Unaudited) - continued
Note 6 - Earnings Per Share Reconciliation
Net income is the same in the calculation of basic and diluted EPS. A
reconciliation of the difference between average basic common shares outstanding
and average diluted common shares outstanding for the six months ended June 30,
2000 and 1999 is included in the following table.
Computation of Per Share Earnings
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
------------------------------- --------------------------------------
2000 1999 2000 1999
------------ ---------------- ----------------- -----------------
<S> <C>
Basic
Net income $ 317,469 $ 293,663 $ 636,908 $ 575,400
------------ ---------------- ----------------- -----------------
Average common shares 298,986 318,315 301,224 318,203
------------ ---------------- ----------------- -----------------
Earnings per common share - basic $ 1.06 $ 0.92 $ 2.11 $ 1.81
============ ================ ================= =================
Diluted
Net income $ 317,469 $ 293,663 $ 636,908 $ 575,400
------------ ---------------- ----------------- -----------------
Average common shares outstanding 298,986 318,315 301,224 318,203
Effect of dilutive securities:
Stock options 1,351 2,467 1,431 2,554
Performance restricted stock 1,804 1,666 1,785 1,649
------------ ---------------- ----------------- -----------------
Average diluted common shares 302,141 322,448 304,440 322,406
------------ ---------------- ----------------- -----------------
Earnings per common share - diluted $ 1.05 $ 0.91 $ 2.09 $ 1.78
============ ================ ================= =================
10
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements (Unaudited) - continued
Note 7 - Segment Reporting
Effective January 1, 2000, the Company significantly modified management's
internal reporting system with the consolidation of its individual bank
charters. In prior periods, the Company's reportable segments were based on
legal entities that were aligned along geographic regions. With the
consolidation of the bank charters, SunTrust Bank is now one legal entity with
Florida, Georgia, Tennessee, Alabama and Mid-Atlantic regions (which includes
Virginia, Maryland and the District of Columbia). As a result of the changes to
the legal entity structure, as well as the changes made to management's internal
system used to evaluate operating segment performance, prior periods have not
been reported because it is not practicable to restate prior period results to
conform to the current reporting methods or to present current year results
based on prior period reportable segments.
The Company's reportable segments as of June 30, 2000 are determined based on
management's internal reporting approach. The reportable segments are comprised
of the four regions of Florida, Georgia, Tennessee (which includes the branches
in Alabama) and Mid-Atlantic, in addition to Corporate and Investment Banking
and Parent/Other. Each geographic operating segment provides a wide array of
banking services to consumer and commercial customers and earns interest income
from loans made to customers. In addition, these geographic segments recognize
certain fees related to trust, deposit, lending and other services provided to
customers. The Corporate and Investment Banking segment consists of corporate
banking for the large corporate and identified industry specialties, as well as
SunTrust Equitable Securities and SunTrust Leasing. The Parent/Other segment
consists primarily of the Company's credit card bank and nonbank subsidiaries as
well as certain treasury and corporate expenses. The Treasury/Reconciling Items
Segment includes the net impact of transfer pricing on loan and deposit
balances, the cost of external debt, gains and losses on the investment
portfolio, income taxes and other amounts necessary to reconcile the Company's
internal management accounting practices described below to the consolidated
financial statements.
Unlike financial accounting, there is no comprehensive authoritative body of
guidance for management accounting equivalent to generally accepted accounting
principles. Therefore, the performance of the segments is not comparable with
SunTrust's consolidated results or with similar information presented by any
other financial institution. In addition, operating segment results may be
restated in the future as management's structure, information needs, and
reporting systems evolve.
The Company uses a transfer pricing process to aid in assessing operating
segment performance. This process involves matched maturity transfer pricing of
interest rates for assets and liabilities to determine a contribution to the net
interest margin on a segment basis. Currently, the Company does not allocate
corporate equity to the reportable segments. As a result, the difference between
the matched maturity transfer pricing and the consolidated net interest margin,
as well as the net interest margin benefit provided from equity are treated as
reconciling items. In addition, the Company uses a credit risk premium approach
to aid in assessing operating segment performance. This approach recognizes the
cost of the credit losses that SunTrust can expect over time on its loans
through a charge against earnings. The premium is judgmental but based on rates
derived from the Company's loss migration history for various loan categories as
well as the internal credit ratings of individual loans in certain of those loan
categories. The difference between the credit risk premium charged to the
segments and the Company's consolidated provision for loan losses is included as
a reconciling item within noninterest expense. The segment results also include
certain intercompany transactions that were recorded at cost. All intercompany
transactions have been eliminated to determine the consolidated balances. No
transactions with a single customer contributed 10% or more to the Company's
total revenue.
The following tables disclose selected financial information for SunTrust's
reportable business segments for the three months and six months ended June 30,
2000.
11
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended June 30, 2000
------------------------------------------------------------------------------------------------
Corporate &
Investment
(In thousands) Florida Georgia Tennessee Mid-Atlantic Banking Parent/Other
------------------------------------------------------------------------------------------------
<S> <C>
Net interest income $ 213,282 $ 126,336 $ 58,004 $ 180,260 $ 60,100 $ 1,781
Noninterest income
138,766 85,290 38,371 93,999 33,211 379,325
Noninterest expense
204,344 126,636 59,591 155,970 41,798 398,726
------------------------------------------------------------------------------------------------
Income before taxes 147,704 84,990 36,784 118,289 51,513 (17,620)
Income tax expense
- - - - - (22,057)
------------------------------------------------------------------------------------------------
Net income $ 147,704 $ 84,990 $ 36,784 $ 118,289 $ 51,513 $ 4,437
================================================================================================
Average total assets $ 21,465,873 $ 12,278,943 $ 6,131,066 $ 12,533,716 $ 16,684,548 $ 32,583,276
================================================================================================
Revenues from external
customers
Total net interest income $ 213,162 $ 126,273 $ 57,966 $ 180,260 $ 60,100 $ 2,002
Total noninterest income
109,593 70,129 30,116 80,401 32,884 133,119
------------------------------------------------------------------------------------------------
Total income $ 322,755 $ 196,402 $ 88,082 $ 260,661 $ 92,984 $ 135,121
================================================================================================
Revenues from affiliates
Total net interest income $ 120 $ 63 $ 38 $ - $ - $ (221)
Total noninterest income
29,173 15,161 8,255 13,598 327 246,206
------------------------------------------------------------------------------------------------
Total income $ 29,293 $ 15,224 $ 8,293 $ 13,598 $ 327 $ 245,985
================================================================================================
Three Months Ended June 30, 2000
--------------------------------------------------
Treasury/
Reconciling
(In thousands) Items Eliminations Consolidated
--------------------------------------------------
Net interest income $ 129,267 (1) $ - $ 769,030
Noninterest income (12,272)(2) (312,720) 443,970
Noninterest expense 73,132 (3) (312,720) 747,477
--------------------------------------------------
Income before taxes 43,863 - 465,523
Income tax expense 170,111 (4) - 148,054
--------------------------------------------------
Net income $ (126,248) $ - $ 317,469
==================================================
Average total assets $ 54,088,329 $(58,268,497) $ 97,497,254
==================================================
Revenues from external
customers
Total net interest income $ 129,267 $ - $ 769,030
Total noninterest income (12,272) - 443,970
--------------------------------------------------
Total income $ 116,995 $ - $ 1,213,000
==================================================
Revenues from affiliates
Total net interest income $ - $ - $ -
Total noninterest income - (312,720) -
--------------------------------------------------
Total income $ - $ (312,720) $ -
==================================================
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 2000
-----------------------------------------------------------------------------------------------
Corporate &
Investment
(In thousands) Florida Georgia Tennessee Mid-Atlantic Banking Parent/Other
-----------------------------------------------------------------------------------------------
<S> <C>
Net interest income $ 422,133 $ 256,106 $ 117,244 $ 358,507 $ 126,809 $ 1,322
Noninterest income 273,700 173,257 74,822 193,290 62,976 745,817
Noninterest expense 412,417 257,555 119,398 330,339 83,597 763,557
-----------------------------------------------------------------------------------------------
Income before taxes 283,416 171,808 72,668 221,458 106,188 (16,418)
Income tax expense - - - - - (25,799)
-----------------------------------------------------------------------------------------------
Net income $ 283,416 $ 171,808 $ 72,668 $ 221,458 $ 106,188 $ 9,381
===============================================================================================
Average total assets $ 21,083,452 $ 11,710,878 $6,041,042 $ 12,468,960 $ 16,390,782 $ 29,780,093
===============================================================================================
Revenues from external
customers
Total net interest income $ 421,906 $ 256,004 $ 117,172 $ 358,507 $ 126,809 $ 1,723
Total noninterest income 220,746 143,517 58,999 158,639 62,118 239,545
-----------------------------------------------------------------------------------------------
Total income $ 642,652 $ 399,521 $ 176,171 $ 517,146 $ 188,927 $ 241,268
===============================================================================================
Revenues from affiliates
Total net interest income $ 227 $ 102 $ 72 $ - $ - $ (401)
Total noninterest income 52,954 29,740 15,823 34,651 858 506,272
-----------------------------------------------------------------------------------------------
Total income $ 53,181 $ 29,842 $ 15,895 $ 34,651 $ 858 $ 505,871
===============================================================================================
</TABLE>
Six Months Ended June 30, 2000
----------------------------------------------------
Treasury/
Reconciling
(In thousands) Items Eliminations Consolidated
----------------------------------------------------
Net interest income $ 269,502 (1) $ - $ 1,551,623
Noninterest income (2,742) (2) (640,298) 880,822
Noninterest expense 147,519 (3) (640,298) 1,474,084
----------------------------------------------------
Income before taxes 119,241 - 958,361
Income tax expense 347,252 (4) - 321,453
----------------------------------------------------
Net income $ (228,011) $ - $ 636,908
====================================================
Average total assets $ 55,237,671 $(56,257,559) $96,455,319
====================================================
Revenues from external
customers
Total net interest income $ 269,502 $ - $ 1,551,623
Total noninterest income (2,742) - 880,822
----------------------------------------------------
Total income $ 266,760 $ - $ 2,432,445
====================================================
Revenues from affiliates
Total net interest income $ - $ - $ -
Total noninterest income - (640,298) -
----------------------------------------------------
Total income $ - $ (640,298) $ -
====================================================
(1) The Company's reconciliation of total segment results to consolidated
results includes adjustments for funds transfer pricing credits and
charges related to funds provided and funds used, credits for loan loss
reserves, and credits for equity.
(2) Includes the effect of sales of securities, sales of fixed assets and
other items.
(3) Includes miscellaneous corporate expenses not allocated to the
operating segments.
(4) Reflects provision for income taxes that management does not include in
its internal reporting system.
12
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
SunTrust Banks, Inc. is a financial holding company with its headquarters in
Atlanta, Georgia. SunTrust's principal banking subsidiary, SunTrust Bank, offers
a full line of financial services for consumers and businesses through its
branches located primarily in Alabama, Florida, Georgia, Maryland, Tennessee,
Virginia and the District of Columbia. In addition to traditional deposit,
credit and trust and investment services offered by SunTrust Bank, other
SunTrust subsidiaries provide mortgage banking, commercial and auto leasing,
credit-related insurance, asset management, securities brokerage and investment
banking services.
SunTrust has 1,151 full-service branches, including supermarket branches, and
continues to leverage technology to provide customers the convenience of banking
on the internet, through 1,981 automated teller machines and via twenty-four
hour telebanking.
The following analysis of the financial performance of SunTrust for the second
quarter of 2000 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, 2000 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 operating earnings of $329.3 million and $657.6 million
for the second quarter and first six months of 2000, an increase of 6.7% and
9.5% compared with $308.5 million and $600.6 million in the same periods of 1999
(excluding after-tax merger-related charges of $11.8 million, $20.7 million,
$14.8 million and $25.2 million for the second quarter and the first six months
of 2000 and 1999, respectively). Diluted earnings per share, adjusted for merger
charges, grew 14.0% to $1.09 and 16.0% to $2.16 from $0.96 and $1.86 in the same
periods last year. Reported net income was $317.5 million, or $1.05 per diluted
share for the second quarter and $636.9 million, or $2.09 per diluted share for
the first six months of 2000. Net income growth for the first six months of 2000
compared to 1999 was impacted by lower loan loss provision resulting from the
fourth quarter credit card sale, lower expense levels, and a lower effective tax
rate.
13
<PAGE>
<TABLE>
<CAPTION>
Selected Quarterly Financial Data Table 1
(Dollars in millions except per share data) Quarters
--------------------------------------------------------------------------------
2000 1999
--------------------------------------------------------------------------------
2 1 4 3 2
-------------- -------------- ------------- ------------- --------------
<S> <C>
Summary of Operations
Interest and dividend income $ 1,672.0 $ 1,610.8 $ 1,559.4 $ 1,506.4 $ 1,452.5
Interest expense 903.0 828.2 763.4 711.4 667.8
-------------- -------------- ------------- ------------- --------------
Net interest income 769.0 782.6 796.0 795.0 784.7
Provision for loan losses 27.7 22.3 33.1 46.5 48.8
-------------- -------------- ------------- ------------- --------------
Net interest income after
provision for loan losses 741.3 760.3 762.9 748.5 735.9
Noninterest income(1) 444.0 436.9 299.2 446.1 452.9
Noninterest expense(2) 719.8 704.3 753.9 691.8 735.9
-------------- -------------- ------------- ------------- --------------
Income before provision for income
taxes and extraordinary gain 465.5 492.8 308.2 502.8 452.9
Provision for income taxes 148.0 173.4 81.0 181.4 159.2
-------------- -------------- ------------- ------------- --------------
Income before extraordinary gain 317.5 319.4 227.2 321.4 293.7
Extraordinary gain, net of taxes(3) - - 202.6 - -
-------------- -------------- ------------- ------------- --------------
Net income $ 317.5 $ 319.4 $ 429.8 $ 321.4 $ 293.7
============== ============== ============= ============= ==============
Net interest income (taxable-equivalent) $ 778.7 $ 792.1 $ 806.5 $ 805.4 $ 795.4
Per common share
Diluted
Income before extraordinary gain $ 1.05 $ 1.04 $ 0.71 $ 1.00 $ 0.91
Extraordinary gain, net of taxes - - 0.64 - -
-------------- -------------- ------------- ------------- --------------
Net income 1.05 1.04 1.35 1.00 0.91
Basic
Income before extraordinary gain 1.06 1.05 0.72 1.01 0.92
Extraordinary gain, net of taxes - - 0.64 - -
-------------- -------------- ------------- ------------- --------------
Net income 1.06 1.05 1.36 1.01 0.92
Dividends declared 0.370 0.370 0.345 0.345 0.345
Book value 25.10 23.51 24.73 24.50 25.47
Market price
High 66.00 68.06 76.00 70.88 73.00
Low 45.06 46.81 64.19 61.56 63.06
Close 45.69 57.75 68.81 65.75 69.44
Selected Average Balances
Total assets $97,497.3 $ 95,413.4 $ 94,804.6 $ 92,447.7 $ 92,304.2
Earning assets 88,200.6 85,857.5 84,447.9 82,517.2 81,329.1
Loans 69,830.6 67,030.0 64,941.7 62,859.8 61,973.8
Total deposits(4) 66,866.4 65,550.3 58,284.0 58,423.6 57,743.7
Realized shareholders' equity 5,948.9 6,023.3 6,496.4 6,522.5 6,328.2
Total shareholders' equity 7,195.9 7,476.2 8,083.1 8,210.7 8,322.5
Common shares - diluted (thousands) 302,141 306,739 317,701 322,223 322,448
Common shares - basic (thousands) 298,986 303,461 313,706 318,239 318,315
Financial Ratios(5)
ROA 1.34 % 1.38 % 1.85 % 1.42 % 1.32 %
ROE 21.46 21.33 26.25 19.55 18.61
Net interest margin 3.55 3.71 3.79 3.87 3.92
</TABLE>
(1) Includes securities losses of $114.9 million for the fourth quarter of 1999
related to the securities portfolio repositioning.
(2) Includes merger-related expenses of $18.2 million and $13.6 million for the
second and first quarters of 2000 and $7.1 million, $7.1 million, $17.6 million
and $13.8 million for the fourth, third, second and first quarters of 1999,
respectively.
(3) Represents the gain on sale of the Company's consumer credit card portfolio
during the fourth quarter of 1999, net of $124.6 million in taxes.
(4) Includes brokered and foreign deposits of $12.9 and $12.2 billion for the
second and first quarters of 2000 and $4.1 billion, $4.5 billion, $4.2 billion
and $3.6 billion for the fourth, third, second and first quarters of 1999,
respectively.
(5) Calculated excluding net unrealized gains on securities available for sale
because the net unrealized gains are not included in income.
14
<PAGE>
Consolidated Daily Average Balances, Income/Expense
and Average Yields Earned and Rates Paid
(Dollars in millions; yields on taxable-equivalent basis)
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------------------------------------------------------------------------------------------
June 30, 2000 March 31, 2000
------------------------------------------------------------------------------------------------------------------------------------
Average Income/ Yields/ Average Income/ Yields/
Balances Expense Rates Balances Expense Rates
------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Assets
Loans:(1)
Taxable $ 68,789.8 $ 1,354.7 7.92 % $65,975.8 $1,293.9 7.89 %
Tax-exempt(2) 1,040.8 19.8 7.65 1,054.2 19.6 7.48
------------------------------------- -----------------------------------
Total loans 69,830.6 1,374.5 7.92 67,030.0 1,313.5 7.88
Securities available for sale:
Taxable 14,483.6 242.7 6.74 15,032.5 247.6 6.63
Tax-exempt(2) 470.0 8.9 7.65 508.5 9.4 7.42
------------------------------------- ------------------------------------
Total securities available for sale 14,953.6 251.6 6.77 15,541.0 257.0 6.65
Funds sold 1,537.5 24.5 6.41 1,309.5 19.3 5.94
Loans held for sale 1,279.7 23.7 7.45 1,437.1 25.1 7.03
Other short-term investments(2) 599.2 7.4 4.95 539.9 5.4 4.02
------------------------------------- -----------------------------------
Total earning assets 88,200.6 1,681.7 7.67 85,857.5 1,620.3 7.59
Allowance for loan losses (873.8) (874.7)
Cash and due from banks 3,322.7 3,395.3
Premises and equipment 1,627.5 1,627.8
Other assets 3,204.3 3,058.3
Unrealized gains on securities
available for sale 2,016.0 2,349.2
------------------------------------- -----------------------------------
Total assets $ 97,497.3 $95,413.4
===================================== ===================================
Liabilities and Shareholders' Equity
Interest-bearing deposits:
NOW/Money market accounts $ 20,194.3 $ 155.7 3.10 % $20,397.8 $ 146.1 2.88 %
Savings 6,449.1 55.1 3.43 6,659.4 53.8 3.25
Consumer time 10,023.1 129.4 5.19 9,599.9 116.6 4.89
Other time 4,024.7 58.1 5.80 3,756.0 49.4 5.29
Brokered deposits 2,760.9 43.9 6.40 2,585.0 38.4 5.97
Foreign deposits 10,162.9 148.0 5.86 9,605.0 150.7 6.31
------------------------------------- -----------------------------------
Total interest-bearing deposits 53,615.0 590.2 4.43 52,603.1 555.0 4.24
Funds purchased 10,268.0 154.6 6.05 10,465.1 142.8 5.49
Other short-term borrowings 1,546.9 25.7 6.67 1,402.2 18.9 5.43
Long-term debt 8,070.9 132.5 6.60 6,952.9 111.5 6.45
------------------------------------- -----------------------------------
Total interest-bearing liabilities 73,500.8 903.0 4.94 71,423.3 828.2 4.66
Noninterest-bearing deposits 13,251.5 12,947.2
Other liabilities 3,549.0 3,566.7
Realized shareholders' equity 5,948.9 6,023.3
Accumulated other comprehensive income 1,247.1 1,452.9
------------------------------------- -----------------------------------
Total liabilities and shareholders' equity $ 97,497.3 $95,413.4
===================================== ===================================
Interest rate spread 2.73 % 2.93 %
------------------------------------- -----------------------------------
Net Interest Income $ 778.7 $ 792.1
------------------------------------- -----------------------------------
Net Interest Margin(3) 3.55 % 3.71 %
------------------------------------- -----------------------------------
</TABLE>
(1) Interest income includes loan fees of $32.8, $31.7, and $34.7 in the
quarters ended June 30, March 31, 2000, and June 30,1999 and $65.3 and $68.1 in
the six months ended June 30, 2000 and 1999. Nonaccrual loans are included in
average balances and income on such loans, if recognized, is recorded on a cash
basis.
(2) 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
$9.6, $9.5, and $10.7 in the quarters ended June 30, March 31, 2000, and June
30,1999 and $19.2 and $21.5 in the six months ended June 30, 2000 and 1999.
15
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
------------------------------------------------------------------------------------------------------------------------------------
June 30, 1999 June 30, 2000 June 30, 1999
------------------------------------------------------------------------------------------------------------------------------------
Average Income/ Yields/ Average Income/ Yields/ Average Income/ Yields/
Balances Expense Rates Balances Expense Rates Balances Expense Rates
------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
$60,837.0 $1,140.4 7.52 % $67,382.8 $2,648.6 7.90 % $60,418.2 $2,269.0 7.57 %
1,136.7 20.0 7.07 1,047.5 39.4 7.56 1,160.8 41.2 7.16
------------------------------------------------------------------------------------------------------------------------------------
61,973.7 1,160.4 7.51 68,430.3 2,688.0 7.90 61,579.0 2,310.2 7.57
14,415.3 224.4 6.24 14,758.1 490.3 6.68 14,045.7 438.0 6.29
566.2 11.5 8.10 489.2 18.3 7.53 569.9 23.0 8.13
------------------------------------------------------------------------------------------------------------------------------------
14,981.5 235.9 6.31 15,247.3 508.6 6.71 14,615.6 461.0 6.36
1,321.8 16.5 5.02 1,423.5 43.8 6.19 1,283.2 32.0 5.03
2,759.4 47.3 6.88 1,358.4 48.8 7.23 3,214.2 105.9 6.65
292.7 3.1 4.26 569.6 12.8 4.51 316.7 6.9 4.41
------------------------------------------------------------------------------------------------------------------------------------
81,329.1 1,463.2 7.22 87,029.1 3,302.0 7.63 81,008.7 2,916.0 7.26
(949.1) (874.3) (949.5)
3,599.7 3,359.0 3,594.3
1,598.1 1,627.7 1,564.0
3,502.5 3,131.3 3,535.0
3,223.9 2,182.6 3,249.6
------------------------------------------------------------------------------------------------------------------------------------
$92,304.2 $96,455.4 $92,002.1
====================================================================================================================================
$19,833.1 $ 126.5 2.56 % $20,296.0 $ 301.8 2.99 % $19,703.3 $ 253.7 2.60 %
7,003.4 49.9 2.86 6,554.3 108.9 3.34 6,981.7 100.5 2.90
9,815.2 116.2 4.75 9,811.5 246.0 5.04 9,915.0 237.5 4.83
4,011.9 48.8 4.88 3,890.3 107.5 5.56 4,121.3 100.8 4.93
3.3 4.87 2,673.0 82.3 6.20 1.7 - -
4,170.8 50.3 4.84 9,884.0 298.7 6.08 3,910.9 93.3 4.81
------------------------------------------------------------------------------------------------------------------------------------
44,837.7 391.7 3.50 53,109.1 1,145.2 4.34 44,633.9 785.8 3.55
14,849.3 172.4 4.66 10,366.6 297.4 5.77 14,817.5 341.7 4.65
1,448.1 16.8 4.65 1,474.5 44.6 6.09 1,611.7 37.1 4.64
5,741.4 86.9 6.07 7,511.9 244.0 6.53 5,764.2 175.3 6.13
------------------------------------------------------------------------------------------------------------------------------------
66,876.5 667.8 4.00 72,462.1 1,731.2 4.80 66,827.3 1,339.9 4.04
12,906.0 13,099.3 12,688.0
4,199.2 3,557.9 4,251.7
6,328.2 5,986.1 6,224.7
1,994.3 1,350.0 2,010.4
------------------------------------------------------------------------------------------------------------------------------------
$92,304.2 $96,455.4 $92,002.1
====================================================================================================================================
3.22 % 2.83 % 3.22 %
------------------------------------------------------------------------------------------------------------------------------------
$ 795.4 $1,570.8 $1,576.1
------------------------------------------------------------------------------------------------------------------------------------
3.92 % 3.63 % 3.92 %
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(3) Derivative instruments used to help balance SunTrust's interest-sensitivity
position increased net interest income $0.8, $5.8 in the quarters ended
June 30, 2000 and 1999, decreased net interest income $0.7 in the quarter
ended March 31, 2000, and increased net interest income $0.1 and $10.7 in
the six months ended June 30, 2000 and 1999. Without these swaps, the net
interest margin would have been 3.55%, 3.71%, and 3.89% in the quarters
ended June 30 and March 31, 2000, and June 30,1999,and 3.63% and 3.90% for
the six months ended June 30, 2000 and 1999.
16
<PAGE>
Interest Rate Risk. The normal course of business activity exposes SunTrust to
interest rate risk. Fluctuations in interest rates may result in changes in the
fair market value of the Company's financial instruments, cash flows and net
interest income. SunTrust's asset/liability management process manages the
Company's interest rate risk position. The objective of this process is the
optimization of the Company's financial position, liquidity and net interest
income, while limiting the volatility to net interest income from changes in
interest rates.
SunTrust uses a simulation modeling process to measure interest rate risk and
evaluate potential strategies. These simulations incorporate assumptions
regarding balance sheet growth and mix, pricing, and the repricing and maturity
characteristics of the existing and projected balance sheet. Other
interest-rate-related risks such as prepayment, basis and option risk are also
considered. Simulation results quantify interest rate risk under various
interest rate scenarios. Senior management regularly reviews the overall
interest rate risk position and develops and implements strategies to manage the
risk.
Management estimates the Company's net interest income for the next twelve
months would decline 1.0% under a gradual increase in interest rates of 100
basis points, versus the projection under stable rates. Net interest income
would increase by less than 1.0% under a gradual decrease in interest rates of
100 basis points, versus the projection under stable rates.
The projections of interest rate risk do not necessarily include certain actions
that management may undertake to manage this risk in response to anticipated
changes in interest rates.
Net Interest Income/Margin. SunTrust's net interest margin was 3.63% for the
first six months of 2000, a decrease of 29 basis points from the first six
months of 1999, primarily attributable to the rising rate environment, the sale
of the Company's $1.5 billion higher yielding consumer credit card portfolio in
the fourth quarter of 1999 and additional purchases under the SunTrust stock
repurchase program. Compared to the first six months of 1999, the rate on
earning assets increased 37 basis points to 7.63% in the first six months of
2000 and the rate on interest bearing liabilities increased 76 basis points to
4.80% primarily due to the rising rates on purchased liabilities and increased
reliance on purchased liabilities to fund growth.
Interest income that SunTrust was unable to recognize on nonperforming loans had
a negative impact of 2 and 1 basis points on the net interest margin in the
first six months of 2000 and 1999, respectively.
Noninterest Income. Noninterest income in the second quarter and first six
months of 2000, adjusted to exclude the effect of securities gains and losses,
decreased $6.6 million, or 1.5% and $5.1 million, or 0.8%, from the comparable
periods last year. The decrease primarily relates to mortgage production income
which decreased $62.0 million, or 61.3% for the first six months of 2000, due to
a drop in refinancing activities resulting from the rising rate environment.
Included in credit card and other fees is debit card interchange income of $14.6
million and $27.9 million for second quarter and the first six months of 2000
compared to $18.8 million and $33.7 million in the same periods of 1999. Trust
income, SunTrust's largest source of noninterest income, increased $3.0 million,
or 1.2% for the first six months of 2000 compared to the same period last year.
Net new businesss in 2000 has not grown as much as the same period in 1999, and
the market value of trust assets under management is down to $92.8 billion in
June 2000, from $95.5 billion in June 1999. The Company expects that lower than
historical growth rates will continue throughout the year 2000.
Other income in the second quarter of 2000 includes $2.5 million in net gains on
the sale of mortgage and student loans. The third quarter of 1999 includes a
$6.8 million gain on the sale of student loans. The second quarter of 1999
includes an $8.5 million gain on the sale of student loans. In addition, the
Company incurred securities losses of $114.9 million during the fourth quarter
of 1999 primarily related to a portfolio repositioning program undertaken by the
Company.
17
<PAGE>
<TABLE>
<CAPTION>
Noninterest Income Table 3
(In millions)
Quarters
-----------------------------------------------------------------------
2000 1999
-----------------------------------------------------------------------
2 1 4 3 2
------------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Trust income $ 125.3 $ 130.3 $ 123.8 $ 126.4 $ 126.3
Service charges on deposit accounts 112.6 111.3 113.3 111.6 107.1
Miscellaneous charges and fees 48.8 47.4 48.1 49.0 49.3
Retail investment services 30.5 30.8 24.0 23.9 26.0
Credit card and other fees 24.4 22.1 25.7 29.2 28.2
Mortgage production related income 20.5 18.7 25.2 26.7 47.6
Mortgage servicing related income 7.7 7.7 7.5 11.5 5.1
Corporate and institutional investment services 35.3 19.7 19.6 13.2 16.3
Trading account profits and commissions (1.4) 12.0 6.9 6.2 11.4
Other income 38.8 30.0 20.0 45.8 31.7
Securities gains (losses) 1.5 6.9 (114.9) 2.6 3.9
------------- ------------ ----------- ----------- -----------
Total noninterest income $ 444.0 $ 436.9 $ 299.2 $ 446.1 $ 452.9
============= ============ =========== =========== ===========
</TABLE>
Noninterest Expense. Noninterest expense decreased $16.1 million, or 2.2% and
$35.5 million, or 2.4% in the second quarter and first six months of 2000
compared to the same periods last year. Personnel expenses, consisting of
salaries, other compensation and employee benefits, decreased $24.1 million, or
5.6% and $33.3 million, or 3.9% from the earlier periods. The reduction in other
compensation of $15.8 compared to the same quarter last year is due to
adjustments of business line incentive plan expense which occurred during the
second quarter. The efficiency ratio in the second quarter of 2000 improved to
58.87%, a decrease from 58.95% in the second quarter of 1999. In 1999,
merger-related expenses included additional severance, accelerated depreciation
and system conversion costs. In the second quarter of 2000, these merger-related
expenses primarily related to accelerated depreciation and miscellaneous
integration costs. Merger-related expenses were $18.2 million and $13.6 million
for the second and first quarters of 2000 and $7.1 million, $7.1 million,$17.6
million and $13.8 million for the fourth, third, second and first quarters of
1999, respectively.
<TABLE>
<CAPTION>
Noninterest Expense Table 4
(In millions)
Quarters
--------------------------------------------------------------------
2000 1999
--------------------------------------------------------------------
2 1 4 3 2
------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Salaries $ 292.1 $ 287.3 $ 287.1 $ 288.5 $ 300.4
Other compensation 73.1 83.8 93.9 80.9 88.9
Employee benefits 41.4 56.9 40.2 39.7 41.5
Equipment expense 50.7 51.6 55.4 48.0 49.8
Net occupancy expense 49.9 50.1 50.0 49.8 49.9
Outside processing and software 44.4 41.6 39.8 37.0 38.7
Marketing and customer development 27.9 22.3 35.0 24.7 23.9
Postage and delivery 16.3 16.7 17.3 16.3 17.4
Communications 15.4 15.2 16.1 16.5 17.6
Credit and collection services 16.0 14.3 15.1 17.8 19.2
Merger-related expenses 18.2 13.6 7.1 7.1 17.6
Operating supplies 12.6 12.2 13.6 10.7 14.3
Consulting and legal 18.2 11.8 18.5 13.0 15.6
Amortization of intangible assets 8.8 9.0 6.3 8.6 9.0
Other expense 34.8 17.9 58.5 33.2 32.1
------------- ----------- ---------- ---------- ----------
Total noninterest expense $ 719.8 $ 704.3 $ 753.9 $ 691.8 $ 735.9
============= =========== ========== ========== ==========
Efficiency ratio 58.9 % 57.3 % 68.2 % 55.3 % 58.9 %
</TABLE>
18
<PAGE>
Provision for Loan Losses. The SunTrust Allowance Committee meets at least
quarterly to assess the adequacy of the allowance, analyze provision and
charge-off trends and affirm allowance methodology. As a result of this review
process, the committee deemed the allowance as of June 30, 2000 to be adequate
to cover losses inherent in the loan portfolio. The adequacy of the allowance is
evaluated based on historical loss rates, specifically analyzed loans and other
internal and external factors that affect credit risk. These other factors, such
as the rising interest rate environment of the last six quarters, increasing
consumer debt levels, recent volatility in the financial markets, and known
current events that affect the Company's primary market area, are key elements
in the assessment of the adequacy of the allowance because of their impact on
borrowers' repayment capacity.
Charge-offs in the second quarter of 2000 were lower than in the same period
last year, mainly due to the sale of the consumer credit card portfolio. The
Company anticipates that higher levels of problem loans in the corporate market,
particularly in the industry segments referenced below, will lead to a slight
increase in net charge-offs during the rest of 2000. Nonperforming loans
increased from June 30, 1999, primarily due to structural changes in the
healthcare industry. Other industry sectors, however, are beginning to feel
pressure from rising interest rates and the softening economy, leading SunTrust
to anticipate further increases in nonperforming loans during the remainder of
the year. Besides healthcare, the Company is concerned about weakening in
textiles and agri-business, particularly poultry products.
SunTrust lowered the provision for loan losses in the first six months of 2000
to $50.0 million from $90.8 million in the same period last year. This reduction
in the provision is almost entirely due to the sale of the Company's consumer
credit card portfolio in November 1999. The credit card portfolio previously
accounted for up to $20 million in net charge-offs and provision expense each
quarter. The ratio of net charge-offs to average loans dropped to .14% from .26%
one year ago. Total provision exceeded net charge-offs by $3.2 million.
At June 30, 2000, SunTrust's allowance for loan losses totaled $874.5 million
which was 1.22% of period loans and 309.6% of total nonperforming loans. Both
ratios decreased from the second quarter of 1999. As of June 30, 1999, the
allowance totaled $941.4 million, or 1.50% of period loans and 392.9% of total
nonperforming loans. These decreases are primarily attributable to the sale of
the consumer credit card portfolio, which had a relatively high level of
allowance for loan losses and no nonperforming loans.
19
<PAGE>
<TABLE>
<CAPTION>
Summary of Loan Loss Experience Table 5
(Dollars in millions)
Quarters
------------------------------------------------------------------------------------
2000 1999
------------------------------------------------------------------------------------
2 1 4 3 2
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Allowance for Loan Losses
Balances - beginning of quarter $ 874.0 $ 871.3 $ 947.2 $ 941.4 $ 952.6
Allowance from acquisitions and
other activity - net - - - 0.1 (13.4)
Provision for loan losses 27.7 22.3 33.1 46.5 48.8
Charge-offs:
Commercial (23.5) (16.3) (84.4) (21.4) (24.0)
Real estate:
Construction (0.1) - (0.3) (1.1) (0.1)
Residential mortgages (2.2) (2.2) (4.8) (3.5) (3.6)
Other (0.9) (0.3) (1.1) (0.9) (2.6)
Credit card (0.9) (1.2) (18.6) (18.2) (19.4)
Other consumer loans (12.6) (15.3) (14.6) (11.6) (13.7)
-------------- -------------- -------------- -------------- --------------
Total charge-offs (40.2) (35.3) (123.8) (56.7) (63.4)
-------------- -------------- -------------- -------------- --------------
Recoveries:
Commercial 4.6 4.6 3.7 3.8 4.0
Real estate:
Construction - 0.1 - 0.1 0.4
Residential mortgages 0.7 0.6 0.2 1.6 0.8
Other 0.2 1.8 1.6 0.6 1.3
Credit card 0.6 1.5 2.7 2.7 3.3
Other consumer loans 6.9 7.1 6.6 7.1 7.0
-------------- -------------- -------------- -------------- --------------
Total recoveries 13.0 15.7 14.8 15.9 16.8
-------------- -------------- -------------- -------------- --------------
Net charge-offs (27.2) (19.6) (109.0) (40.8) (46.6)
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
Balance - end of quarter $ 874.5 $ 874.0 $ 871.3 $ 947.2 $ 941.4
============== ============== ============== ============== ==============
Quarter-end loans outstanding $ 71,450.4 $ 68,614.4 $ 66,002.8 $ 64,189.3 $ 62,922.4
Average loans 69,830.6 67,030.0 64,941.7 62,859.8 61,973.7
Allowance to quarter-end loans 1.22 % 1.27 % 1.32 % 1.48 % 1.50 %
Allowance to nonperforming loans 309.6 306.8 350.0 398.6 392.9
Net charge-offs to average loans
(annualized) 0.16 0.12 0.67 0.26 0.30
Provision to average loans (annualized) 0.16 0.13 0.20 0.29 0.32
Recoveries to total charge-offs 32.3 44.5 12.0 28.0 26.5
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Nonperforming Assets Table 6
(Dollars in millions)
2000 1999
-------------------------------------------------------------------------------
June 30 March 31 December 31 September 30 June 30
------------- -------------- --------------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
Nonperforming Assets
Nonaccrual loans:
Commercial $ 149.1 $ 129.6 $ 105.0 $ 82.3 $ 85.4
Real Estate:
Construction 1.8 4.7 9.0 11.8 14.0
Residential mortgages 75.6 84.0 82.6 85.9 80.7
Other 27.4 37.8 34.9 45.8 48.0
Consumer loans 28.6 28.8 17.4 11.8 11.5
------------- -------------- ------------- -------------- -------------
Total nonaccrual loans 282.5 284.9 248.9 237.6 239.6
Restructured loans - - - 0.1 -
------------- -------------- ------------- -------------- -------------
Total nonperforming loans 282.5 284.9 248.9 237.7 239.6
Other real estate owned 23.2 27.0 26.8 24.2 28.2
------------- -------------- ------------- -------------- -------------
Total nonperforming assets $ 305.7 $ 311.9 $ 275.7 $ 261.9 $ 267.8
============= ============== ============= ============== =============
Ratios:
Nonperforming loans to total loans 0.40 % 0.42 % 0.38 % 0.37 % 0.38 %
Nonperforming assets to total loans
plus other real estate owned 0.43 0.45 0.42 0.41 0.43
Accruing Loans Past Due
90 Days or More $ 189.4 $ 160.1 $ 117.4 $ 113.1 $ 101.7
</TABLE>
Nonperforming Assets. Nonperforming assets consist of nonaccrual loans,
restructured loans and other real estate owned. Nonperforming assets have
increased 10.9%, or $30.0 million since December 31, 1999 and increased 14.2%,
or $37.9 million since June 30, 1999. Much of the increase since June 30, 1999
occurred in healthcare credits, an industry sector that continues to experience
structural change and intense market pressures.
Interest income on nonaccrual loans, if recognized, is recorded using the cash
basis method of accounting. During the first six months of 2000, an additional
$7.4 million of interest income would have been recorded if all nonaccrual and
restructured loans had been accruing interest according to their original
contract terms. Interest income recognized on nonperforming loans using the cash
basis in the first six months of 2000 was $7.7 million.
21
<PAGE>
<TABLE>
<CAPTION>
Loan Portfolio by Types of Loans Table 7
(In millions)
2000 1999
---------------------------------------------------------------------------------------
June 30 March 31 December 31 September 30 June 30
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Commercial $ 30,209.5 $ 29,639.6 $ 26,933.5 $ 24,918.3 $ 24,772.2
Real estate:
Construction 2,647.2 2,600.8 2,457.1 2,348.0 2,240.8
Residential mortgages 20,295.0 19,643.1 19,619.3 18,696.6 18,237.1
Other 7,851.5 7,937.4 7,794.9 7,656.1 7,523.5
Credit card 75.4 98.7 77.4 1,497.2 1,476.6
Other consumer loans 10,371.8 8,694.8 9,120.6 9,073.1 8,672.2
--------------- --------------- --------------- --------------- ---------------
Total loans $ 71,450.4 $ 68,614.4 $ 66,002.8 $ 64,189.3 $ 62,922.4
=============== =============== =============== =============== ===============
</TABLE>
Loans. Total loans at June 30, 2000 were $71.5 billion, an increase of $8.5
billion or 13.6% from June 30, 1999. The Company recorded significant loan
growth in commercial loans and other consumer loans, up 21.9% and 19.6% from
June 30, 1999, respectively, while continuing to realize steady growth in its
residential mortgage portfolio (up 11.3%), as customers shifted from fixed rate
to adjustable rate mortgages. Of the $20.3 billion in residential mortgages at
June 30, 2000, $2.1 billion were home equity loans, which also demonstrated
significant growth (14.3%) in the last twelve months. The drop in credit card
loans from June 30, 1999 reflects te sale of the Company's $1.5 billion consumer
credit card portfolio during the fourth quarter of 1999.
Income Taxes. The provision for income taxes was $148.1 million and $321.5 in
the second quarter and first six months of 2000 compared to $159.3 million and
$309.5 in the same periods last year. This represents a 34% effective tax rate
for the six months ended June 30, 2000, compared to 35% for the same period last
year.
Securities available for sale. Securities in the investment portfolio are
classified as available-for-sale and are carried at market value with unrealized
gains and losses, net of any tax effect, included in accumulated other
comprehensive income and added to or deducted from realized shareholders' equity
to determine total shareholders' equity. The investment portfolio continues to
be proactively managed to optimize yield over an entire interest rate cycle
while providing liquidity and managing market risk. The portfolio yield
increased from an average of 6.31% in the second quarter of 1999 to 6.77% in the
second quarter of 2000 primarily due to the repositioning of the securities
portfolio during the fourth quarter of 1999 to take advantage of higher market
rates.
At June 30, 2000 the portfolio size (measured at amortized cost) decreased by
$800 million from December 31, 2000. At June 30, 2000, approximately 3% of the
portfolio consisted of U.S. Treasury securities, 15% U.S. government agency
securities, 47% mortgage-backed securities, 8% asset-backed securities, 20%
corporate bonds, 3% municipal securities and 4% other securities. Most of
SunTrust'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, 2000, the carrying value of the securities portfolio
was $2.4 billion over amortized cost, consisting of a $2.8 billion unrealized
gain on SunTrust's investment in common stock of The Coca-Cola Company and other
unrealized net losses. The market value of this common stock investment
increased $507.0 million during the second quarter of 2000, which did not affect
the net income of SunTrust, but was included in comprehensive income.
22
<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 SunTrust's liquidity
position. Liquidity is enhanced by an investment portfolio structured to provide
liquidity as needed. It is also strengthened by ready access to a diversified
base of 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 a bank note program,
commercial paper issuance by the Parent Company, and Federal Home Loan Bank
advances.
Total deposits consist of consumer deposits, commercial deposits and purchased
deposits. The purchased deposits include foreign and brokered deposits. Total
deposits as of June 30, 2000 grew $8.3 billion, or 13.8%, from June 30, 1999.
Consumer and commercial deposits decreased $443.9 million, or 0.8% while
purchased deposits grew $8.8 billion, or 165.2%. Consumer and commercial
deposits represented 80.7% of average deposits for the second quarter of 2000
compared to 92.8% for the same period of 1999.
Net borrowed funds, which primarily include short term funds purchased and sold,
purchased deposits, other short term borrowings and long term debt, were $32.8
billion for the second quarter of 2000 compared with $26.2 billion for the same
period in 1999. The increase is primarily due to the Company's increased use of
purchased deposits and long term debt. Net borrowed funds were 37.2% of average
earning assets for the second quarter of 2000 as compared to 32.2% in the same
period a year ago.
On April 28, 2000, the Company issued $300 million of 7.75% subordinated notes
due May 1, 2010. The Company intends to use the net proceeds from the sale of
the subordinated notes for general corporate purposes.
Derivatives. SunTrust enters into various derivative contracts to meet the
financial needs of its customers, generate revenue through trading activities,
and to manage interest rate sensitivity for the bank. These derivative
instruments include futures and forward contracts, interest rate swaps, options,
interest rate caps and floors, and swaptions.
23
<PAGE>
When acting in a dealer capacity for customers, SunTrust will enter into
offsetting positions to eliminate exposure to interest rate and market risk.
Derivative instruments used to manage the bank's interest rate sensitivity and
the generation of revenue through its trading activities as of June 30, 2000 are
shown in Table 8.
<TABLE>
<CAPTION>
Derivative Instruments Table 8
(Dollars in thousands)
Estimated Fair Value
----------------------------------------------
Weighted
Average Average
Notional Maturity Received Average Carrying Unrealized Unrealized
Balance In Months Rate Pay Rate amount(1) Gains Losses Net
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Hedges on Lending Commitments
Forward Contracts $ 1,824,250 2 - % - % $ - $ 266 $ (8,637) $ (8,371)
Hedges on Foreign Currency
Forward Contracts 971,002 3 - - - 14,854 (9,075) 5,779
Interest Rate Swaps 1,797,106 45 6.60 6.31 (1,083) 18,860 (10,595) 7,182
Interest Rate Caps/Floors 756,989 27 5.26 (2) - (2,741) 1,240 - (1,501)
Futures Contracts 288,000 20 - - - 1,037 (2) 1,035
Options Contracts 20,000 1 6.50 (2) - - - - -
---------
Total Derivatives $ 4,124
=========
</TABLE>
(1) Carrying amount includes accrued interest receivable or payable and
unamortized premiums.
(2) Average option strike price.
Derivative contracts used in the management of interest rate volatility and
trading activities increased net interest income by $0.8 million and $0.1
million in the second quarter and first six months of 2000.
<TABLE>
<CAPTION>
Capital Ratios Table 9
(Dollars in millions)
2000 1999
---------------------------------------------------------------------------------------
June 30 March 31 December 31 September 30 June 30
--------------- ---------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Tier 1 capital $ 6,648.7 $ 6,484.3 $ 6,579.6 $ 7,065.0 $ 6,973.2
Total capital 10,342.7 9,754.8 9,939.1 10,314.7 10,543.1
Risk-weighted assets 95,571.5 88,973.4 87,866.1 84,458.9 83,192.0
Risk-based ratios:
Tier 1 capital 6.95 % 7.28 % 7.48 % 8.36 % 8.38 %
Total capital 10.82 10.96 11.31 12.21 12.67
Tier 1 leverage ratio 7.00 7.00 7.17 7.91 7.86
Total shareholders' equity to assets 7.60 7.40 8.00 8.45 8.79
</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 adequate to
support asset growth. However, the Company's capital ratios have experienced a
decline over the last five quarters primarily resulting from additional
purchases under the SunTrust stock repurchase program and a decline in the
market value of SunTrust's investment in common stock of The Coca-Cola Company.
Table 9 presents capital ratios for the five most recent quarters.
Regulatory agencies measure capital adequacy within 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, as defined to include certain debt obligations) or Tier 2
(to include certain other debt obligations and a portion of the allowance for
loan losses, and 45% of the unrealized gains on equity securities). SunTrust is
24
<PAGE>
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%. To
be considered a "well capitalized" institution, the Tier 1 capital ratio, the
total capital ratio, and the Tier 1 leverage ratio must equal or exceed 6%, 10%
and 5%, respectively. SunTrust is committed to remaining well capitalized.
On August 10, 1999, the Board of Directors authorized the purchase of up to 15
million shares of SunTrust common stock. In 2000, SunTrust purchased 1,159,200
shares of SunTrust common stock to complete the August 10, 1999 authorization.
On February 8, 2000, the Board of Directors authorized the purchase of up to 12
million shares of SunTrust common stock. As of August 2, 2000, SunTrust has
purchased 10,105,542 shares of common stock under this authorization. On August
8, 2000, the Board of Directors authorized the purchase of up to 10 million
shares of SunTrust common stock of the Company, including 1,894,458 shares
remaining under the authorization to purchase shares of February 8, 2000.
25
<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
None
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 14th day of August, 2000.
SunTrust Banks, Inc.
(Registrant)
/s/ W.P. O'Halloran
-------------------
William P. O'Halloran
Senior Vice President and Controller
(Chief Accounting Officer)
26
