<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 March 31, 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 April 30, 2000, 302,445,909 shares of the Registrant's Common Stock, $1.00
par value were outstanding.
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1
<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 27
</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 three months ended March 31, 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
Ended March 31
-------------------------------------
(Dollars in thousands except per share data)(Unaudited) 2000 1999
--------------- ---------------
<S> <C> <C>
Interest Income
Interest and fees on loans $ 1,306,529 $ 1,142,973
Interest and fees on loans held for sale 25,126 58,580
Interest and dividends on securities available for sale
Taxable interest 230,622 197,584
Tax-exempt interest 6,835 7,936
Dividends (1) 17,023 15,636
Interest on funds sold 19,338 15,475
Interest on deposits in other banks 335 1,708
Other interest 5,021 2,078
------------ ------------
Total interest income 1,610,829 1,441,970
------------ ------------
Interest Expense
Interest on deposits 554,962 394,139
Interest on funds purchased 142,833 169,297
Interest on other short-term borrowings 18,946 20,288
Interest on long-term debt 111,495 88,428
------------ ------------
Total interest expense 828,236 672,152
------------ ------------
Net Interest Income 782,593 769,818
Provision for loan losses 22,292 41,995
------------ ------------
Net interest income after provision for loan losses 760,301 727,823
------------ ------------
Noninterest Income
Trust income 130,289 126,320
Service charges on deposit accounts 111,266 106,114
Other charges and fees 47,448 46,542
Retail investment services 30,798 23,515
Credit card and other fees 22,091 23,127
Corporate and institutional investment services 19,671 18,680
Mortgage production related income 18,693 53,515
Mortgage servicing related income 7,722 20,154
Trading account profits and commissions 12,013 10,589
Other noninterest income 29,999 17,103
Securities gains (losses) 6,862 (732)
------------ ------------
Total noninterest income 436,852 444,927
------------ ------------
Noninterest Expense
Salaries and other compensation 371,085 382,935
Employee benefits 56,924 54,383
Equipment expense 51,638 45,289
Net occupancy expense 50,060 47,669
Outside processing and software 41,611 34,774
Marketing and customer development 22,302 21,790
Merger-related expenses 13,633 13,844
Amortization of intangible assets 8,994 25,682
Other noninterest expense 88,068 114,532
------------ ------------
Total noninterest expense 704,315 740,898
------------ ------------
Income before provision for income taxes 492,838 431,852
Provision for income taxes 173,399 150,115
------------ ------------
Net Income $ 319,439 $ 281,737
============ ============
Average common shares - diluted 306,738,634 322,363,870
Average common shares - basic 303,461,233 318,090,071
Net income per average common share - diluted $ 1.04 $ 0.87
Net income per average common share - basic 1.05 0.89
Dividends declared per common share 0.370 0.345
(1) Includes dividends on common stock of
The Coca-Cola Company 8,205 7,723
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
Consolidated Balance Sheets
---------------------------
<TABLE>
<CAPTION>
March 31 December 31 March 31
(Dollars in thousands) (Unaudited) 2000 1999 1999
------------ --------------- ------------
<S> <C> <C> <C>
Assets
Cash and due from banks $ 3,600,689 $ 3,909,687 $ 3,529,131
Trading account 515,719 259,547 222,246
Securities available for sale (1) 17,184,884 18,317,297 17,870,140
Funds sold 1,036,211 1,609,679 1,021,335
Loans held for sale 1,121,702 1,531,787 2,812,052
Loans 68,614,360 66,002,831 61,462,014
Allowance for loan losses (874,034) (871,323) (952,589)
------------ ------------ ------------
Net loans 67,740,326 65,131,508 60,509,425
Premises and equipment 1,630,717 1,636,484 1,587,601
Intangible assets 780,677 804,632 816,621
Customers' acceptance liability 180,023 192,045 339,395
Other assets 2,249,962 1,997,302 2,414,546
------------ ------------ ------------
Total assets $ 96,040,910 $ 95,389,968 $ 91,122,492
============ ============ ============
Liabilities and Shareholders' Equity
Noninterest-bearing deposits $ 13,807,141 $ 14,200,522 $ 13,093,641
Interest-bearing deposits 52,533,087 45,900,007 44,834,459
------------ ------------ ------------
Total deposits 66,340,228 60,100,529 57,928,100
Funds purchased 10,178,602 15,911,917 13,435,207
Other short-term borrowings 1,305,323 2,259,010 1,714,672
Long-term debt 6,618,392 4,967,346 4,721,025
Guaranteed preferred beneficial interests in debentures 1,050,000 1,050,000 1,050,000
Acceptances outstanding 180,023 192,045 339,395
Other liabilities 3,259,630 3,282,259 3,795,352
------------ ------------ ------------
Total liabilities 88,932,198 87,763,106 82,983,751
------------ ------------ ------------
Preferred stock, no par value; 50,000,000 shares authorized; none issued - - -
Common stock, $1.00 par value 323,163 323,163 322,846
Additional paid in capital 1,280,116 1,293,387 1,299,681
Retained earnings 5,667,767 5,461,351 4,747,118
Treasury stock and other (1,339,491) (1,013,861) (96,740)
------------ ------------ ------------
Realized shareholders' equity 5,931,555 6,064,040 6,272,905
Accumulated other comprehensive income 1,177,157 1,562,822 1,865,836
------------ ------------ ------------
Total shareholders' equity 7,108,712 7,626,862 8,138,741
------------ ------------ ------------
Total liabilities and shareholders' equity $ 96,040,910 $ 95,389,968 $ 91,122,492
============ ============ ============
Common shares outstanding 302,325,563 308,353,207 321,474,627
Common shares authorized 500,000,000 500,000,000 500,000,000
Treasury shares of common stock 20,837,194 14,809,550 1,370,938
(1) Includes net unrealized gains on securities available for sale $ 1,903,368 $ 2,527,705 $ 3,027,235
</TABLE>
4
<PAGE>
Consolidated Statements of Cash Flows
-------------------------------------
<TABLE>
<CAPTION>
Three Months
Ended March 31
-----------------------------------------
(Dollars in thousands) (Unaudited) 2000 1999
------------------ -----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 319,439 $ 281,737
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and accretion 75,774 68,185
Provisions for loan losses and foreclosed property 22,315 42,127
Amortization of compensation element of restricted stock 2,682 3,701
Securities (gains) losses (6,862) 732
Net (gain) loss on sale of non-interest earning assets (5,921) 299
Net decrease in loans held for sale 410,085 779,558
Net increase in accrued interest receivable,
prepaid expenses and other assets (539,094) (296,681)
Net increase in accrued interest payable,
accrued expenses and other liabilities 216,044 336,391
--------------- ----------------
Net cash provided by operating activities 494,462 1,216,049
--------------- ----------------
Cash flows from investing activities:
Proceeds from maturities of securities available for sale 776,165 1,725,620
Proceeds from sales of securities available for sale 88,353 1,431,520
Purchases of securities available for sale (353,785) (3,819,860)
Net (increase) decrease in loans (2,631,603) 28,431
Capital expenditures (30,599) (107,587)
Proceeds from the sale of assets 9,676 9,208
Loan recoveries 15,728 18,188
--------------- ----------------
Net cash used in investing activities (2,126,065) (714,480)
--------------- ----------------
Cash flows from financing activities:
Net increase (decrease) in deposits 6,239,699 (1,105,183)
Net (decrease) in funds purchased
and other short-term borrowings (6,687,002) (782,940)
Proceeds from the issuance of long-term debt 2,461,529 -
Repayment of long-term debt (810,483) (36,844)
Proceeds from the exercise of stock options 4,276 -
Proceeds from stock issuance 8,576 7,031
Proceeds used in the acquisition of stock (354,435) -
Dividends paid (113,023) (110,001)
--------------- ----------------
Net cash provided by (used in) financing activities 749,137 (2,027,937)
--------------- ----------------
Net decrease in cash and cash equivalents (882,466) (1,526,368)
Cash and cash equivalents at beginning of year 5,519,366 6,076,834
--------------- ----------------
Cash and cash equivalents at end of period $ 4,636,900 $ 4,550,466
=============== ================
Supplemental Disclosure
Interest paid $ 812,475 $ 695,032
Income taxes paid 26,349 34,463
</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> <C> <C> <C> <C> <C>
Balance, January 1, 1999 $ 322,485 $ 1,293,011 $ 4,575,382 $ (100,441) $ 2,088,207 $ 8,178,644
Net income - - 281,737 - 281,737
Other comprehensive income:
Change in unrealized gains (losses) on
securities, net of taxes - - - - (222,371) (222,371)
-----------
Total comprehensive income - - - - 59,366
Cash dividends declared, $0.345 per share - - (110,001) - (110,001)
Exercise of stock options 334 4,904 - - 5,238
Amortization of compensation element
of restricted stock - - - 3,701 3,701
Issuance of stock for employee benefit plans 27 1,766 - - 1,793
----------------------------------------------------------------------------------
Balance, March 31, 1999 $ 322,846 $ 1,299,681 $ 4,747,118 $ (96,740) $ 1,865,836 $ 8,138,741
==================================================================================
Balance, January 1, 2000 $ 323,163 $ 1,293,387 $ 5,461,351 $ (1,013,861) $ 1,562,822 $ 7,626,862
Net income - - 319,439 - 319,439
Other comprehensive income:
Change in unrealized gains (losses) on
securities, net of taxes - - - - (385,665) (385,665)
-----------
Total comprehensive income - - - - (66,226)
Cash dividends declared, $0.370 per share - - (113,023) - (113,023)
Exercise of stock options - (11,057) - 15,333 4,276
Acquisition of treasury stock - - - (354,435) (354,435)
Restricted stock activity - (328) - 328 -
Amortization of compensation element
of restricted stock - - - 2,682 2,682
Issuance of stock for employee benefit plans - (1,886) - 10,462 8,576
----------------------------------------------------------------------------------
Balance, March 31, 2000 $ 323,163 $ 1,280,116 $ 5,667,767 $ (1,339,491) $ 1,177,157 $ 7,108,712
==================================================================================
</TABLE>
* Balance at March 31, 1999 includes $29,143 for treasury stock and $67,597 for
compensation element of restricted stock.
Balance at March 31, 2000 includes $1,285,467 for treasury stock and $54,024
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
During 1998, SunTrust recorded $161.9 million in pre-tax merger-related charges
related to the acquisition of Crestar. At December 31, 1998, SunTrust expected
to record approximately $88 million in additional merger-related charges
primarily related to systems conversions and business line integration over the
next 18 to 24 months. During 1999, SunTrust recorded $45.6 million in pre-tax
merger-related charges related to additional severance, accelerated depreciation
and system conversion costs. For the first quarter of 2000, $13.6 million of
merger-related charges were recorded. These charges included $0.8 million in
accelerated depreciation and amortization based upon estimates of systems
integration timetables and $12.8 million in miscellaneous integration costs.
SunTrust expects to record additional merger-related charges of approximately
$28.9 million through the 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, "Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133". SFAS No. 137 delays the effective date of SFAS No. 133 until fiscal years
beginning after June 15, 2000. SunTrust will adopt SFAS No. 133 effective
January 1, 2001 and although SunTrust has begun an in-depth analysis to
determine the effects of the implementation, 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 three months ended March 31, 2000 and 1999 is
calculated as follows:
(In thousands)
<TABLE>
<CAPTION>
Before Net of
Income Tax Income Tax Income Tax
----------------- ----------------- -----------------
<S> <C> <C> <C>
Unrealized losses, net, recognized in
other comprehensive income:
Quarter ended March 31, 2000 $ (624,337) $ (238,672) $ (385,665)
Quarter ended March 31, 1999 (352,490) (130,119) (222,371)
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Amounts reported in net income:
Gain (loss) on sale of securities $ 6,862 $ (732)
Net (accretion) amortization (2,285) 1,865
------------- -------------
Reclassification adjustment 4,577 1,133
Income tax expense (1,750) (418)
------------- -------------
Reclassification adjustment, net of tax $ 2,827 $ 715
============= =============
Amounts reported in other comprehensive income:
Unrealized loss arising during period, net of tax $ (382,838) $ (221,656)
Reclassification adjustment, net of tax (2,827) (715)
------------- -------------
Net unrealized losses recognized in
other comprehensive income (385,665) (222,371)
Net income 319,439 281,737
------------- -------------
Total comprehensive income $ (66,226) $ 59,366
============= =============
</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 three months ended March
31, 2000 and 1999 is included in the following table.
Computation of Per Share Earnings
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months
Ended March 31
-------------------------------------
2000 1999
-------------- --------------
<S> <C> <C>
Basic
- -----
Net income $ 319,439 $ 281,737
-------------- --------------
Average common shares 303,461 318,090
-------------- --------------
Earnings per common share - basic $ 1.05 $ 0.89
============== ==============
Diluted
- -------
Net income $ 319,439 $ 281,737
-------------- --------------
Average common shares outstanding 303,461 318,090
Effect of dilutive securities:
Stock options 1,511 2,643
Performance restricted stock 1,767 1,631
-------------- --------------
Average diluted common shares 306,739 322,364
-------------- --------------
Earnings per common share - diluted $ 1.04 $ 0.87
============== ==============
</TABLE>
10
<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
branches in Florida, Georgia, Tennessee, Alabama and the Mid-Atlantic region
(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 March 31, 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.
The following table discloses selected financial information for SunTrust's
reportable business segments for the three months ended March 31, 2000.
11
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended March 31, 2000
------------------------------------------------------------------------------------------------------
Corporate &
Investment
(In thousands) Florida Georgia Tennessee Mid-Atlantic Banking Parent/Other
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net interest income $ 208,851 $ 129,770 $ 59,240 $ 178,247 $ 66,709 $ (459)
Noninterest income 134,934 87,967 36,451 99,291 29,765 366,492
Noninterest expense 208,073 130,919 59,807 174,369 41,799 364,831
------------------------------------------------------------------------------------------------------
Income before taxes 135,712 86,818 35,884 103,169 54,675 1,202
Income tax expense - - - - - (3,742)
------------------------------------------------------------------------------------------------------
Net income $ 135,712 $ 86,818 $ 35,884 $ 103,169 $ 54,675 $ 4,944
------------------------------------------------------------------------------------------------------
Average total assets $ 20,682,558 $ 11,142,814 $ 5,951,019 $ 16,082,580 $ 16,346,995 $ 27,248,766
======================================================================================================
Revenues from external
customers
Total net interest income $ 208,744 $ 129,731 $ 59,206 $ 178,247 $ 66,709 $ (279)
Total noninterest income 111,153 73,388 28,883 78,238 29,234 106,426
------------------------------------------------------------------------------------------------------
Total income $ 319,897 $ 203,119 $ 88,089 $ 256,485 $ 95,943 $ 106,147
======================================================================================================
Revenues from affiliates
Total net interest income $ 107 $ 39 $ 34 $ - $ - $ (180)
Total noninterest income 23,781 14,579 7,568 21,053 531 260,066
------------------------------------------------------------------------------------------------------
Total income $ 23,888 $ 14,618 $ 7,602 $ 21,053 $ 531 $ 259,886
======================================================================================================
<CAPTION>
Treasury/
Reconciling
Items Eliminations Consolidated
------------------------------------------------------
<S> <C> <C> <C>
Net interest income $ 140,235 (1) $ - $ 782,593
Noninterest income 9,530 (2) (327,578) 436,852
Noninterest expense 74,387 (3) (327,578) 726,607
-----------------------------------------------------
Income before taxes 75,378 - 492,838
Income tax expense $ 177,141 (4) - 173,399
-----------------------------------------------------
Net income $ (101,763) $ - $ 319,439
=====================================================
Average total assets $ 52,205,271 $ (54,246,620) $ 95,413,383
=====================================================
Revenues from external
customers
Total net interest income $ 140,235 $ - $ 782,593
Total noninterest income 9,530 - 436,852
-----------------------------------------------------
Total income $ 149,765 $ - $ 1,219,445
=====================================================
Revenues from affiliates
Total net interest income $ - $ - $ -
Total noninterest income - (327,578) -
------------------------------------------------------
Total income $ - $ (327,578) $ -
======================================================
</TABLE>
(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 net gains on sale of securities and fixed assets.
(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.
No transactions with a single customer contributed 10% or more to the Company's
total revenue.
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.
The following analysis of the financial performance of SunTrust for the first
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 three months ended March 31, 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 $328.3 million for the first
quarter of 2000, an increase of 12.4% compared with $292.2 million in the first
quarter of 1999 (excluding after-tax merger-related charges of $8.9 million and
$10.4 million for the first quarter of 2000 and 1999, respectively). Diluted
earnings per share, adjusted for merger charges, grew 18.0% to $1.07 in the
first quarter of 2000 from $0.91 in the same period last year. Reported net
income was $319.4 million, or $1.04 per diluted share for the first quarter of
2000. The growth in net income resulted from strong loan demand and lower
expenses compared to the first quarter of 1999.
13
<PAGE>
<TABLE>
<CAPTION>
Selected Quarterly Financial Data Table 1
(Dollars in millions except per share data) Quarters
----------------------------------------------------------------------------
2000 1999
----------- ------------------------------------------------------------
1 4 3 2 1
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Summary of Operations
Interest and dividend income $ 1,610.8 $ 1,559.4 $ 1,506.4 $ 1,452.5 $ 1,442.0
Interest expense 828.2 763.4 711.4 667.8 672.2
----------- ----------- ----------- ----------- ------------
Net interest income 782.6 796.0 795.0 784.7 769.8
Provision for loan losses 22.3 33.1 46.5 48.8 42.0
----------- ----------- ----------- ----------- ------------
Net interest income after
provision for loan losses 760.3 762.9 748.5 735.9 727.8
Noninterest income(1) 436.9 299.2 446.6 469.3 444.9
Noninterest expense(2) 704.3 753.9 692.3 752.3 740.9
----------- ----------- ----------- ----------- ------------
Income before provision for income
taxes and extraordinary gain 492.8 308.2 502.8 452.9 431.8
Provision for income taxes 173.4 81.0 181.4 159.2 150.1
----------- ----------- ----------- ----------- ------------
Income before extraordinary gain 319.4 227.2 321.4 293.7 281.7
Extraordinary gain, net of taxes(3) - 202.6 - - -
----------- ----------- ----------- ----------- ------------
Net income $ 319.4 $ 429.8 $ 321.4 $ 293.7 $ 281.7
============ =========== =========== =========== ============
Net interest income (taxable-equivalent) $ 792.1 $ 806.5 $ 805.4 $ 795.4 $ 780.7
Per common share
Diluted
Income before extraordinary gain $ 1.04 $ 0.71 $ 1.00 $ 0.91 $ 0.87
Extraordinary gain, net of taxes - 0.64 - - -
----------- ----------- ----------- ----------- ------------
Net income 1.04 1.35 1.00 0.91 0.87
Basic
Income before extraordinary gain 1.05 0.72 1.01 0.92 0.89
Extraordinary gain, net of taxes - 0.64 - - -
----------- ----------- ----------- ----------- ------------
Net income 1.05 1.36 1.01 0.92 0.89
Dividends declared 0.370 0.345 0.345 0.345 0.345
Book value 23.51 24.73 24.50 25.47 25.32
Market price
High 68.06 76.00 70.88 73.00 79.44
Low 46.81 64.19 61.56 63.06 60.44
Close 57.75 68.81 65.75 69.44 62.25
Selected Average Balances
Total assets $ 95,413.4 $ 94,804.6 $ 92,447.7 $ 92,304.2 $ 91,696.6
Earning assets 85,857.5 84,447.9 82,517.2 81,329.1 80,684.8
Loans 67,030.0 64,941.7 62,859.8 61,973.8 61,180.0
Total deposits(4) 65,550.3 58,284.0 58,423.6 57,743.7 56,895.4
Realized shareholders' equity 6,023.3 6,496.4 6,522.5 6,328.2 6,120.2
Total shareholders' equity 7,476.2 8,083.1 8,210.7 8,322.5 8,146.9
Common shares - diluted (thousands) 306,739 317,701 322,223 322,448 322,364
Common shares - basic (thousands) 303,461 313,706 318,239 318,315 318,090
Financial Ratios(5)
ROA 1.38% 1.85% 1.42% 1.32% 1.29%
ROE 21.33 26.25 19.55 18.61 18.67
Net interest margin 3.71 3.79 3.87 3.92 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 $13.6 million for the first quarter 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 $12.2 billion for the first
quarter 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
------------------------------------------------------------------------------
March 31, 2000 December 31, 1999
-------------------------------------- -------------------------------------
Average Income/ Yields/ Average Income/ Yields/
Balances Expense Rates Balances Expense Rates
---------- ---------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Assets
Loans:(1)
Taxable $ 65,975.8 $ 1,293.9 7.89 % $ 63,884.5 $ 1,236.6 7.68 %
Tax-exempt(2) 1,054.2 19.6 7.48 1,057.2 19.8 7.43
------------------------------------ ------------------------------------
Total loans 67,030.0 1,313.5 7.88 64,941.7 1,256.4 7.68
Securities available for sale:
Taxable 15,032.5 247.6 6.63 15,443.8 247.5 6.36
Tax-exempt(2) 508.5 9.4 7.42 538.1 10.6 7.80
------------------------------------ ------------------------------------
Total securities available for sale 15,541.0 257.0 6.65 15,981.9 258.1 6.41
Funds sold 1,309.5 19.3 5.94 1,509.4 23.5 6.16
Loans held for sale 1,437.1 25.1 7.03 1,700.7 28.3 6.60
Other short-term investments(2) 539.9 5.4 4.02 314.2 3.5 4.42
------------------------------------ ------------------------------------
Total earning assets 85,857.5 1,620.3 7.59 84,447.9 1,569.8 7.38
Allowance for loan losses (874.7) (920.7)
Cash and due from banks 3,395.3 3,826.0
Premises and equipment 1,627.8 1,633.4
Other assets 3,058.3 3,251.9
Unrealized gains on securities
available for sale 2,349.2 2,566.1
------------------------------------ ------------------------------------
Total assets $ 95,413.4 $ 94,804.6
==================================== ====================================
Liabilities and Shareholders' Equity
Interest-bearing deposits:
NOW/Money market accounts $ 20,397.8 $ 146.1 2.88 % $ 20,369.5 $ 141.3 2.75 %
Savings 6,659.4 53.8 3.25 6,791.3 52.6 3.07
Consumer time 9,599.9 116.6 4.89 9,675.4 115.3 4.73
Other time 3,756.0 49.4 5.29 4,372.1 57.1 5.19
Brokered deposits 2,585.0 38.4 5.97 15.0 0.2 5.34
Foreign deposits 9,605.0 150.7 6.31 4,082.0 60.8 5.91
------------------------------------ ------------------------------------
Total interest-bearing deposits 52,603.1 555.0 4.24 45,305.3 427.3 3.74
Funds purchased 10,465.1 142.8 5.49 16,417.1 219.2 5.30
Other short-term borrowings 1,402.2 18.9 5.43 1,901.3 21.0 4.40
Long-term debt 6,952.9 111.5 6.45 6,120.3 95.8 6.21
------------------------------------ ------------------------------------
Total interest-bearing liabilities 71,423.3 828.2 4.66 69,744.0 763.3 4.34
Noninterest-bearing deposits 12,947.2 12,978.7
Other liabilities 3,566.7 3,998.8
Realized shareholders' equity 6,023.3 6,496.4
Accumulated other comprehensive income 1,452.9 1,586.7
------------------------------------ ------------------------------------
Total liabilities and shareholders' equity $ 95,413.4 $ 94,804.6
==================================== ====================================
Interest rate spread 2.93 % 3.04 %
------------------------------------ ------------------------------------
Net Interest Income $ 792.1 $ 806.5
------------------------------------ ------------------------------------
Net Interest Margin(3) 3.71 % 3.79 %
------------------------------------ ------------------------------------
</TABLE>
(1) Interest income includes loan fees of $31.7, $35.5, $36.1, $34.7 and
$32.6 in the quarters ended March 31, 2000, December 31, September 30,
June 30, and March 31,1999. 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 $9.5, $10.5, $10.4, $10.7 and $10.9 in the quarters ended
March 31, 2000, December 31, September 30, June 30, and March 31, 1999.
15
<PAGE>
<TABLE>
<CAPTION>
Table 2
Quarter Ended
- ---------------------------------------------------------------------------------------------------------------------------------
September 30, 1999 June 30, 1999 March 31, 1999
- ----------------------------------------- ---------------------------------------- ---------------------------------------
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>
$ 61,832.1 $ 1,185.5 7.61 % $ 60,837.0 $ 1,140.4 7.52 % $ 59,994.8 $ 1,128.6 7.63 %
1,027.7 19.1 7.36 1,136.7 20.0 7.07 1,185.2 21.2 7.25
- ------------------------------------- ------------------------------------- -------------------------------------
62,859.8 1,204.6 7.60 61,973.7 1,160.4 7.51 61,180.0 1,149.8 7.62
15,357.3 242.1 6.25 14,415.3 224.4 6.24 13,672.0 213.6 6.34
555.3 11.0 7.91 566.2 11.5 8.10 573.6 11.5 8.15
- ------------------------------------- ------------------------------------- -------------------------------------
15,912.6 253.1 6.31 14,981.5 235.9 6.31 14,245.6 225.1 6.41
1,274.5 17.9 5.58 1,321.8 16.5 5.02 1,244.2 15.5 5.04
2,200.2 38.0 6.84 2,759.4 47.3 6.88 3,674.0 58.6 6.47
270.1 3.2 4.71 292.7 3.1 4.26 341.0 3.8 4.53
- ------------------------------------- ------------------------------------- -------------------------------------
82,517.2 1,516.8 7.29 81,329.1 1,463.2 7.22 80,684.8 1,452.8 7.30
(949.0) (949.1) (950.0)
3,505.4 3,599.7 3,588.8
1,622.9 1,598.1 1,529.5
3,014.3 3,502.5 3,568.0
2,736.9 3,223.9 3,275.5
- ------------------------------------- ------------------------------------- -------------------------------------
$ 92,447.7 $ 92,304.2 $ 91,696.6
===================================== ===================================== =====================================
$ 19,920.5 $ 132.0 2.63 % $ 19,833.1 $ 126.5 2.56 % $ 19,572.2 $ 127.2 2.64 %
6,922.6 50.7 2.90 7,003.4 49.9 2.86 6,959.7 50.6 2.95
9,794.8 115.8 4.69 9,815.2 116.2 4.75 10,016.0 121.3 4.91
4,480.4 56.4 4.99 4,011.9 48.8 4.88 4,231.9 52.0 4.99
9.3 0.2 5.29 3.3 0.0 4.87 0.0 0.0 0.00
4,441.8 57.9 5.17 4,170.8 50.3 4.84 3,648.0 43.0 4.78
- ------------------------------------- ------------------------------------- -------------------------------------
45,569.4 413.0 3.60 44,837.7 391.7 3.50 44,427.8 394.1 3.60
14,817.9 188.6 5.05 14,849.3 172.4 4.66 14,785.4 169.3 4.64
1,632.3 21.4 5.19 1,448.1 16.8 4.65 1,777.1 20.3 4.63
5,782.6 88.4 6.06 5,741.4 86.9 6.07 5,787.1 88.4 6.20
- ------------------------------------- ------------------------------------- -------------------------------------
67,802.2 711.4 4.16 66,876.5 667.8 4.00 66,777.4 672.1 4.08
12,854.2 12,906.0 12,467.6
3,580.6 4,199.2 4,304.7
6,522.5 6,328.2 6,120.2
1,688.2 1,994.3 2,026.7
- ------------------------------------- ------------------------------------- -------------------------------------
$ 92,447.7 $ 92,304.2 $ 91,696.6
===================================== ===================================== =====================================
3.13 % 3.22 % 3.22 %
- ------------------------------------- ------------------------------------- -------------------------------------
$ 805.4 $ 795.4 $ 780.7
- ------------------------------------- ------------------------------------- -------------------------------------
3.87 % 3.92 % 3.92 %
- ------------------------------------- ------------------------------------- -------------------------------------
</TABLE>
(3) Derivative instruments used to help balance SunTrust's interest-sensitivity
position decreased net interest income $0.7 in the quarter ended March 31,
2000 and increased net interest income $1.3, $4.3, $5.8 and $4.9 in the
quarters ended December 31, September 30, June 30, and March 31,1999.
Without these swaps, the net interest margin would have been 3.71%, 3.78%,
3.85%, 3.89% and 3.90% in the quarters ended March 31, 2000, December 31,
September 30, June 30, and March 31, 1999, respectively.
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 1.4% 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% 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 3.71% for the
first quarter of 2000, a decrease of 21 basis points from the first quarter 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 quarter of 1999, the rate on earning
assets increased 29 basis points to 7.59% in the first quarter of 2000 and the
rate on interest bearing liabilities increased 58 basis points to 4.66%
primarily due to the rising rates on purchased liabilities.
Interest income that SunTrust was unable to recognize on nonperforming loans had
a negative impact of 1 and 2 basis points on the net interest margin in the
first three months of 2000 and 1999, respectively.
Noninterest Income. Noninterest income in the first quarter of 2000, adjusted to
exclude the effect of securities gains and losses, decreased $15.6 million, or
3.5%, from the first quarter of 1999. The decrease primarily relates to mortgage
production income which decreased $34.8 million, or 65.0%, due to a drop in
refinancing activities resulting from the rising rate environment. In addition,
during the third quarter of 1999, SunTrust began to record amortization expense
for mortgage-servicing rights as a reduction to mortgage servicing related
income, conforming to industry practice. The $14.5 million of amortization
expense recorded in the first quarter of 2000 and the $30.3 million recorded in
the third and fourth quarters of 1999 were charged to noninterest expense in
prior periods. Trust income, SunTrust's largest source of noninterest income,
increased $4.0 million, or 3.1% over the same period in 1999.
Other income in the first quarter of 2000 includes $9.8 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
---------- ----------------------------------------------------
1 4 3 2 1
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Trust income $ 130.3 $ 123.8 $ 126.4 $ 126.3 $ 126.3
Service charges on deposit accounts 111.3 113.3 111.6 107.1 106.1
Miscellaneous charges and fees 47.4 48.1 49.0 49.3 46.5
Retail investment services 30.8 24.0 23.9 26.0 23.5
Credit card and other fees 22.1 25.7 29.2 28.2 23.1
Corporate and institutional investment services 19.7 19.6 13.2 16.3 18.7
Mortgage production related income 18.7 25.2 26.7 47.6 53.5
Mortgage servicing related income 7.7 7.5 12.0 21.5 20.2
Trading account profits and commissions 12.0 6.9 6.2 11.4 10.6
Other income 30.0 20.0 45.8 31.7 17.1
Securities gains (losses) 6.9 (114.9) 2.6 3.9 (0.7)
---------- ---------- ---------- ---------- ----------
Total noninterest income $ 436.9 $ 299.2 $ 446.6 $ 469.3 $ 444.9
========== ========== ========== ========== ==========
</TABLE>
Noninterest Expense. Noninterest expense decreased $36.6 million, or 4.9% in the
first quarter of 2000 compared to the same period last year. Personnel expenses,
consisting of salaries, other compensation and employee benefits, decreased $9.3
million, or 2.1% from the earlier period. The efficiency ratio in the first
quarter of 2000 improved to 57.3%, a decrease from 60.5% in the first quarter of
1999. In 1999, merger-related expenses included additional severance,
accelerated depreciation and system conversion costs. In the first quarter of
2000, these merger-related expenses primarily related to accelerated
depreciation and miscellaneous integration costs. The decrease in the
amortization of intangible assets of $16.7 million is primarily due to the
Company recording the amortization of mortgage servicing rights as a reduction
of other income beginning with the third quarter of 1999. Other expenses
decreased $18.1 million, or 50.3%, from the first quarter of 1999 primarily due
to the reduction of certain miscellaneous expenses related to lower mortgage
production volumes.
<TABLE>
<CAPTION>
Noninterest Expense Table 4
(In millions)
Quarters
------------------------------------------------------------------
2000 1999
---------- ----------------------------------------------------
1 4 3 2 1
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Salaries $ 287.3 $ 287.1 $ 288.5 $ 300.4 $ 298.5
Other compensation 83.8 93.9 80.9 88.9 84.4
Employee benefits 56.9 40.2 39.7 41.5 54.4
Equipment expense 51.6 55.4 48.0 49.8 45.3
Net occupancy expense 50.1 50.0 49.8 49.9 47.7
Outside processing and software 41.6 39.8 37.0 38.7 34.8
Marketing and customer development 22.3 35.0 24.7 23.9 21.8
Postage and delivery 16.7 17.3 16.3 17.4 17.1
Communications 15.2 16.1 16.5 17.6 16.1
Credit and collection services 14.3 15.1 17.8 19.2 16.6
Merger-related expenses 13.6 7.1 7.1 17.6 13.8
Operating supplies 12.2 13.6 10.7 14.3 13.3
Consulting and legal 11.8 18.5 13.0 15.6 15.4
Amortization of intangible assets 9.0 6.3 9.1 24.9 25.7
Other expense 17.9 58.5 33.2 32.6 36.0
---------- ---------- ---------- ---------- ----------
Total noninterest expense $ 704.3 $ 753.9 $ 692.3 $ 752.3 $ 740.9
---------- ---------- ---------- ---------- ----------
Efficiency ratio 57.3 % 68.2 % 55.3 % 59.5 % 60.5 %
========== ========== ========== ========== ==========
</TABLE>
18
<PAGE>
Provision for Loan Losses. SunTrust has a committee that meets at least
quarterly to assess the adequacy of the allowance, analyze provision and charge-
off trends and to affirm allowance methodology. As a result of this review
process, the committee deemed the allowance as of March 31, 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. The Company has
experienced on-going credit deterioration in two specialty lending sectors
(healthcare, particularly long-term healthcare, and textiles) that have
primarily resulted in the increase in nonperforming loans as well as a small
increase in the level of commercial loan charge-offs from the first quarter of
1999. However, the charge-offs in the first quarter of 2000 are well below the
previous quarters. In addition, the level of nonperforming loans to total loans
is still very low compared to historical levels for SunTrust and the industry.
Other factors that impact credit risk, such as the rising interest rate
environment of the last few quarters, ever-increasing consumer debt levels,
recent volatility in the financial markets, and any known near-term events that
affect the Company's primary market area are carefully considered in assessing
the adequacy of the allowance.
SunTrust lowered the provision for loan losses in the first quarter of 2000 to
$22.3 million from $42.0 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 approximately $15 to $20 million in net charge-offs and provision
expense each quarter. The ratio of net charge-offs to average loans dropped to
.12% from .23% one year ago. Total provision exceeded net charge-offs by $2.7
million.
At March 31, 2000, SunTrust's allowance for loan losses totaled $874.0 million
which was 1.27% of quarter-end loans and 306.8% of total nonperforming loans.
Both ratios decreased from the first quarter of 1999. As of March 31, 1999, the
allowance totaled $952.6 million, or 1.55% of quarter-end loans and 481.5% 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
---------- ----------------------------------------------------
1 4 3 2 1
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for Loan Losses
Balances - beginning of quarter $ 871.3 $ 947.2 $ 941.4 $ 952.6 $ 944.6
Allowance from acquisitions and
other activity - net - - 0.1 (13.4) -
Provision for loan losses 22.3 33.1 46.5 48.8 42.0
Charge-offs:
Commercial (16.3) (84.4) (21.4) (24.0) (12.2)
Real estate:
Construction - (0.3) (1.1) (0.1) (0.7)
Residential mortgages (2.2) (4.8) (3.5) (3.6) (3.1)
Other (0.3) (1.1) (0.9) (2.6) (0.6)
Credit card (1.2) (18.6) (18.2) (19.4) (22.7)
Other consumer loans (15.3) (14.6) (11.6) (13.7) (12.9)
---------- ---------- ---------- ---------- ----------
Total charge-offs (35.3) (123.8) (56.7) (63.4) (52.2)
---------- ---------- ---------- ---------- ----------
Recoveries:
Commercial 4.6 3.7 3.8 4.0 4.0
Real estate:
Construction 0.1 - 0.1 0.4 0.2
Residential mortgages 0.6 0.2 1.6 0.8 0.8
Other 1.8 1.6 0.6 1.3 2.6
Credit card 1.5 2.7 2.7 3.3 3.2
Other consumer loans 7.1 6.6 7.1 7.0 7.4
---------- ---------- ---------- ---------- ----------
Total recoveries 15.7 14.8 15.9 16.8 18.2
---------- ---------- ---------- ---------- ----------
Net charge-offs (19.6) (109.0) (40.8) (46.6) (34.0)
---------- ---------- ---------- ---------- ----------
Balance - end of quarter $ 874.0 $ 871.3 $ 947.2 $ 941.4 $ 952.6
========== ========== ========== ========== ==========
Quarter-end loans outstanding $ 68,614.4 $ 66,002.8 $ 64,189.3 $ 62,922.4 $ 61,462.0
Average loans 67,030.0 64,941.7 62,859.8 61,973.7 61,180.0
Allowance to quarter-end loans 1.27% 1.32% 1.48% 1.50% 1.55%
Allowance to nonperforming loans 306.8 350.0 398.6 392.9 481.5
Net charge-offs to average loans
(annualized) 0.12 0.67 0.26 0.30 0.23
Provision to average loans (annualized) 0.13 0.20 0.29 0.32 0.28
Recoveries to total charge-offs 44.5 12.0 28.0 26.5 34.9
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Nonperforming Assets Table 6
(Dollars in millions)
2000 1999
---------- -----------------------------------------------------------------
March 31 December 31 September 30 June 30 March 31
---------- ------------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Nonperforming Assets
Nonaccrual loans:
Commercial $ 129.6 $ 105.0 $ 82.3 $ 85.4 $ 47.7
Real Estate:
Construction 4.7 9.0 11.8 14.0 14.8
Residential mortgages 84.0 82.6 85.9 80.7 80.7
Other 37.8 34.9 45.8 48.0 41.6
Consumer loans 28.8 17.4 11.8 11.5 13.0
---------- ------------- -------------- ------------- ------------
Total nonaccrual loans 284.9 248.9 237.6 239.6 197.8
Restructured loans - - 0.1 - 0.1
---------- ------------- -------------- ------------- ------------
Total nonperforming loans 284.9 248.9 237.7 239.6 197.9
Other real estate owned 27.0 26.8 24.2 28.2 36.1
---------- ------------- -------------- ------------- ------------
Total nonperforming assets $ 311.9 $ 275.7 $ 261.9 $ 267.8 $ 234.0
========== ============= ============== ============= ============
Ratios:
Nonperforming loans to total loans 0.42 % 0.38 % 0.37 % 0.38 % 0.32 %
Nonperforming assets to total loans
plus other real estate owned 0.45 0.42 0.41 0.43 0.38
Accruing Loans Past Due
90 Days or More $ 160.1 $ 117.4 $ 113.1 $ 101.7 $ 103.8
</TABLE>
Nonperforming Assets. Nonperforming assets consist of nonaccrual loans,
restructured loans and other real estate owned. Nonperforming assets have
increased 13.1%, or $36.2 million since December 31, 1999 and increased 33.3%,
or $77.9 million since March 31, 1999. Much of the increase since March 31, 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 three months of 2000, $7.2 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 three months of 2000 was $4.1 million.
21
<PAGE>
<TABLE>
<CAPTION>
Loan Portfolio by Types of Loans Table 7
(In millions)
2000 1999
---------- -----------------------------------------------------------------
March 31 December 31 September 30 June 30 March 31
---------- ------------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Commercial $ 29,639.6 $ 26,933.5 $ 24,918.3 $ 24,772.2 $ 24,058.1
Real estate:
Construction 2,600.8 2,457.1 2,348.0 2,240.8 2,180.2
Residential mortgages 19,643.1 19,619.3 18,696.6 18,237.1 17,751.6
Other 7,937.4 7,794.9 7,656.1 7,523.5 7,403.5
Credit card 98.7 77.4 1,497.2 1,476.6 1,522.3
Other consumer loans 8,694.8 9,120.6 9,073.1 8,672.2 8,546.3
---------- ------------- -------------- ------------- ------------
Total loans $ 68,614.4 $ 66,002.8 $ 64,189.3 $ 62,922.4 $ 61,462.0
========== ============= ============== ============= ============
</TABLE>
Loans. Total loans at March 31, 2000 were $68.6 billion, an increase of $7.2
billion or 11.6% from March 31, 1999. The growth in loans is primarily due to
growth in commercial loans and a shift in mix from fixed rate to adjustable rate
residential mortgage loans. The Company's portfolio of residential mortgages
grew 10.7% from March 31, 1999. Of the $19.6 billion in residential mortgages at
March 31, 2000, $2.0 billion were home equity loans. In addition, the Company
sold $1.5 billion of its consumer credit card portfolio during the fourth
quarter of 1999. The average loan to deposit ratio was 102.3% in the first
quarter 2000 compared with 107.5% in the same period of 1999.
Income Taxes. The provision for income taxes was $173.4 million in the first
quarter of 2000 compared to $150.1 million in the same period last year. This
represents a 35% effective tax rate in both quarters.
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 6.41% in the first quarter of 1999 to 6.65% in the
first 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. The portfolio size (measured at amortized cost) decreased by $500 million
during the first quarter to $15.3 billion as of March 31, 2000. At March 31,
2000, approximately 3% of the portfolio consisted of U.S. Treasury securities,
13% U.S. government agency securities, 50% mortgage-backed securities, 14%
asset-backed securities, 13% 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 March 31, 2000, the carrying value of the
securities portfolio was $1.9 billion over amortized cost, consisting of a $2.3
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 decreased $546.0 million during the first 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 March 31, 2000 grew $8.4 billion, or 14.5%,over the same period
of 1999. Consumer and commercial deposits grew $465.7 million, or 0.9% while
purchased deposits grew $7.9 billion, or 202.7%. Consumer and commercial
deposits represented 81.4% of average deposits for the first quarter of 2000
compared to 93.6% 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 $29.7
billion for the first quarter of 2000 compared with $24.8 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 34.6% of average
earning assets for the first quarter of 2000 as compared to 30.7% 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.
23
<PAGE>
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.
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 March 31, 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 $ 1,734,783 2 - % - % $ - $ 942 $ (4,303) $ (3,361)
Hedges on Foreign Currency
Forward Contracts 707,646 4 - - - 19,304 (12,814) 6,490
Interest Rate Swaps 2,651,281 46 6.12 6.07 544 39,889 (18,115) 22,318
Interest Rate Caps/Floors 1,707,077 19 6.41 (2) - (3,456) 1,423 - (2,033)
Futures Contracts 270,000 22 - - - 1,167 - 1,167
Options Contracts 1,600,000 3 6.63 (2) - - 30 (10) 20
--------
Total Derivatives $ 24,601
========
</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 decreased net interest income by $0.7 million in the first
quarter of 2000.
<TABLE>
<CAPTION>
Capital Ratios Table 9
(Dollars in millions)
2000 1999
---------- -----------------------------------------------------------------
March 31 December 31 September 30 June 30 March 31
---------- ------------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Tier 1 capital $ 6,484.3 $ 6,579.6 $ 7,065.0 $ 6,973.2 $ 6,773.7
Total capital 9,754.8 9,939.1 10,314.7 10,543.1 10,341.1
Risk-weighted assets 88,973.4 87,866.1 84,458.9 83,192.0 80,838.6
Risk-based ratios:
Tier 1 capital 7.28 % 7.48 % 8.36 % 8.38 % 8.37 %
Total capital 10.96 11.31 12.21 12.67 12.79
Tier 1 leverage ratio 7.00 7.17 7.91 7.86 7.69
Total shareholders' equity to assets 7.40 8.00 8.45 8.79 8.93
</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.
24
<PAGE>
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
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 February 8, 2000, the Board of Directors authorized the purchase of up to 12
million shares of SunTrust common stock. As of April 30, 2000, 5.3 million
shares have been purchased. Management anticipates that additional purchases
will occur over an extended period of time as market conditions permit.
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
The annual meeting of shareholders of the Registrant was held on April
18, 2000. At the meeting, the following individuals were elected
directors of the Registrant: J. Hyatt Brown, Alston D. Correll, David H.
Hughes and G. Gilmer Minor, III. Votes for ranged from 263,457,685 to
263,529,623. A. W. Dahlberg, M. Douglas Ivester, Joseph L. Lanier, Jr.,
Frank E. McCarthy, Summerfield K. Johnston, Jr., Larry L. Prince, R.
Randall Rollins, Frank S. Royal, M.D., Richard G. Tilghman, James B.
Williams and L. Phillip Humann continue as directors of the Registrant.
The shareholders also: (i) approved an amendment to the Restated
Articles of Incorporation to increase the number of authorized shares of
common stock from 500 million shares to 750 million shares (254,338,446
shares voted for the approval of the amendment); (ii) reapproved the
performance criteria for the Management Incentive Plan (256,274,406
shares voted for the reapproval); (iii) reapproved the performance
criteria for the Performance Unit Plan (256,079,816 shares voted for the
reapproval); and (iv) approved the 2000 Stock Plan (249,705,970 shares
voted for approval).
The shareholders disapproved a shareholder proposal regarding diversity
on the Board of Directors. 40,325,588 shares voted for the proposal,
178,840,293 shares voted against and 12,522,592 shares abstained.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
Exhibit 3.1 Restated Articles of Incorporation as Amended
B. Reports on Form 8-K
The Registrant filed a Current Report on Form 8-K dated April 26,
2000. The purpose of this report was to file as an exhibit the press
release reporting March 31, 2000 quarterly results.
26
<PAGE>
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 12th day of May, 2000.
SunTrust Banks, Inc.
--------------------
(Registrant)
/s/ W.P. O'Halloran
---------------------
William P. O'Halloran
Senior Vice President and Controller
(Chief Accounting Officer)
27
<PAGE>
Exhibit 3.1
ARTICLES OF AMENDMENT
OF
SUNTRUST BANKS, INC.
1.
The name of the Corporation is SunTrust Banks, Inc. (the "Corporation").
2.
On February 8, 2000 the Board of Directors of the Corporation approved an
amendment to Article 5(a) of the Restated Articles of Incorporation of the
Corporation as follows:
"5(a). The aggregate number of common shares (referred to in these
Articles of Incorporation as "Common Stock") which the Corporation
shall have the authority to issue is 750,000,000 shares with a par
value of $1.00 per share. Each holder of Common Stock shall be
entitled to one vote for each share of such stock held."
3.
The amendment was duly approved by the shareholders of the Corporation on
April 18, 2000 in accordance with the provisions of O.C.G.A. (S) 14-2-1003.
IN WITNESS WHEREOF, the Corporation has caused these Articles of Amendment
to be executed by its duly authorized officer and its corporate seal to be
affixed hereto, as of the 18/th/ day of April, 2000.
SUNTRUST BANKS, INC.
By: /s/ Raymond D. Fortin
-----------------------------
Raymond D. Fortin
Title: Senior Vice President
[SEAL]
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 3,600,689
<INT-BEARING-DEPOSITS> 14,962
<FED-FUNDS-SOLD> 1,021,249
<TRADING-ASSETS> 515,719
<INVESTMENTS-HELD-FOR-SALE> 17,184,884
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 69,736,062<F1>
<ALLOWANCE> 874,034
<TOTAL-ASSETS> 96,040,910
<DEPOSITS> 66,340,228
<SHORT-TERM> 11,483,925
<LIABILITIES-OTHER> 3,439,653
<LONG-TERM> 7,668,392
0
0
<COMMON> 323,163
<OTHER-SE> 6,785,549
<TOTAL-LIABILITIES-AND-EQUITY> 96,040,910
<INTEREST-LOAN> 1,331,655<F2>
<INTEREST-INVEST> 254,480
<INTEREST-OTHER> 24,694
<INTEREST-TOTAL> 1,610,829
<INTEREST-DEPOSIT> 554,962
<INTEREST-EXPENSE> 828,236
<INTEREST-INCOME-NET> 782,593
<LOAN-LOSSES> 22,292
<SECURITIES-GAINS> 6,862
<EXPENSE-OTHER> 704,315
<INCOME-PRETAX> 492,838
<INCOME-PRE-EXTRAORDINARY> 319,439
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 319,439
<EPS-BASIC> 1.04
<EPS-DILUTED> 1.05
<YIELD-ACTUAL> 3.71
<LOANS-NON> 284,880
<LOANS-PAST> 160,059
<LOANS-TROUBLED> 7
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 871,323
<CHARGE-OFFS> 35,309
<RECOVERIES> 15,728
<ALLOWANCE-CLOSE> 874,034
<ALLOWANCE-DOMESTIC> 874,034
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 874,034
<FN>
<F1>Includes loans held for sale of 1,121,702
<F2>Includes interest on loans held for sale of 25,126
</FN>
</TABLE>
