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, 1997
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, 1997, 213,840,110 shares of the Registrant's Common Stock, $1.00
par value were outstanding.
Page 1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Statement Description Page No.
Consolidated Statements of Income
Three months ended March 31, 1997 and 1996 4
Consolidated Balance Sheets
March 31, 1997, December 31, 1996 and March 5
31, 1996
Consolidated Statements of Cash Flow
Three months ended March 31, 1997 and 1996 6
Consolidated Statements of Shareholders' Equity
Three months ended March 31, 1997 and 1996 7
The above mentioned 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, 1997 are not
necessarily indicative of the results that may be expected for the full year
1997.
Fully diluted per common share data have not been presented because there
were no material differences between such amounts and the per common share
data as presented. Earnings per common share were based on the weighted
average common equivalent shares outstanding for the periods presented.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
MD&A of the Registrant is included on pages 9 through 20.
Page 2
CONSOLIDATED STATEMENTS OF INCOME
Three Months
Ended March 31
(Dollars in thousands except per share data)<F1> 1997 1996
Interest Income
Interest and fees on loans $ 716,152 $ 646,405
Interest and dividends on investment securities
Taxable interest 110,690 103,854
Tax-exempt interest 10,650 12,237
Dividends (1) 9,205 8,089
Interest on funds sold 14,048 8,970
Interest on deposits in other banks 274 261
Other interest 2,064 706
Total interest income 863,083 780,522
Interest Expense
Interest on deposits 276,964 267,880
Interest on funds purchased 77,707 55,884
Interest on other short-term borrowings 18,438 15,264
Interest on long-term debt 27,498 18,296
Total interest expense 400,607 357,324
Net Interest Income 462,476 423,198
Provision for loan losses 26,190 25,028
Net interest income after provision for loan losses 436,286 398,170
Noninterest Income
Trust income 78,370 70,672
Service charges on deposit accounts 59,742 55,705
Other charges and fees 51,139 39,546
Credit card fees 18,805 17,017
Securities gains (losses) 1,391 17,262
Other noninterest income 16,355 13,474
Total noninterest income 225,802 213,676
Noninterest Expense
Salaries and other compensation 202,408 180,830
Employee benefits 32,382 29,424
Net occupancy expense 32,530 33,683
Equipment expense 30,147 27,516
FDIC premiums 9,601 9,743
Marketing and community relations 16,802 15,245
Postage and delivery 11,338 10,019
Other noninterest expense 78,796 94,555
Total noninterest expense 414,004 401,015
Income before income taxes 248,084 210,831
Provision for income taxes 87,028 60,412
Net Income $ 161,056 $ 150,419
Average common equivalent shares 218,226,968 225,388,229
Net income per average common share $ 0.74 $ 0.66
Dividends declared per common share 0.225 0.20
(1) Includes dividends on common stock of
The Coca-Cola Company 6,757 6,033
<FN>
<F1>See notes to consolidated financial statements
Page 3
CONSOLIDATED BALANCE SHEETS
March 31 December 31 March 31
(Dollars in thousands) 1997 1996 1996
Assets
Cash and due from banks $ 2,755,113 $ 3,037,309 $ 2,362,603
Interest-bearing deposits in other banks 58,522 13,461 22,487
Trading account 346,819 80,377 78,305
Investment securities <F1> 10,747,319 10,551,166 10,239,617
Funds sold 1,310,143 1,721,845 529,295
Loans 36,428,048 35,404,171 31,786,084
Reserve for loan losses (734,501) (725,849) (712,447)
Net loans 35,693,547 34,678,322 31,073,637
Premises and equipment 944,314 768,266 735,183
Intangible assets 277,216 277,736 280,011
Customers' acceptance liability 488,917 507,554 371,027
Other assets 1,111,369 832,213 893,234
Total assets $ 53,733,279 $ 52,468,249 $ 46,585,399
Liabilities
Noninterest-bearing deposits $ 8,176,616 $ 8,900,260 $ 7,362,086
Interest-bearing deposits 28,484,693 27,990,129 27,115,258
Total deposits 36,661,309 36,890,389 34,477,344
Funds purchased 6,285,390 6,047,692 3,897,189
Other short-term borrowings 1,765,397 867,961 823,922
Long-term debt 1,721,319 1,565,341 1,103,852
Acceptances outstanding 488,917 507,554 371,027
Other liabilities 1,995,097 1,709,332 1,496,832
Total liabilities 48,917,429 47,588,269 42,170,166
Shareholders' Equity
Preferred stock, no par value; 50,000,000 shares
authorized; none issued - - -
Common stock, $1.00 par value; 350,000,000
shares authorized <F2> 225,608 225,608 243,644
Additional paid in capital 302,749 310,612 321,399
Retained earnings 3,085,532 2,972,900 3,523,040
Treasury stock and other <F3> (465,914) (230,918) (922,469)
Realized shareholders' equity 3,147,975 3,278,202 3,165,614
Unrealized gains (losses) on investment
securities, net of taxes 1,667,875 1,601,778 1,249,619
Total shareholders' equity 4,815,850 4,879,980 4,415,233
Total liabilities and shareholders'equity $ 53,733,279 $ 52,468,249 $ 46,585,399
<FN>
<F1> Includes unrealized gains (losses) on
investment securities $ 2,695,129 $ 2,588,907 $ 2,019,446
<F2> Common shares outstanding 215,889,057 220,469,001 225,256,829
<F3> Treasury shares of common stock 9,719,000 5,139,056 18,387,455
Page 4
CONSOLIDATED STATEMENTS OF CASH FLOW
Three Months
Ended March 31
(In thousands)<F1> 1997 1996
Cash flow from operating activities:
Net income $ 161,056 $ 150,419
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 36,878 31,138
Provision for loan losses 26,190 25,028
Provision for losses on other real estate 536 1,033
Amortization of compensation element of
restricted stock 2,330 2,111
Securities (gains) and losses, net (1,391) (17,262)
(Gains) and losses on sale of equipment, other
real estate and repossessed assets, net (5,856) (5,112)
Recognition of unearned loan income (58,310) (46,515)
Change in period-end balances of:
Trading account (266,442) 18,308
Interest receivable (3,743) 2,741
Prepaid expenses (22,647) (21,766)
Other assets (254,489) 14,181
Taxes payable 79,310 45,833
Interest payable (9,377) (29,384)
Other accrued expenses 182,456 27,197
Net cash provided by operating activities (133,499) 197,950
Cash flow from investing activities:
Proceeds from maturities of investment securities 326,174 519,494
Proceeds from sales of investment securities 320,484 54,224
Purchase of investment securities (734,382) (962,424)
Net (increase) decrease in loans (979,802) (379,638)
Capital expenditures (204,434) (26,256)
Proceeds from sale of equipment, other real estate
and repossessed assets 2,369 1,128
Net inflow (outflow) from bank acquisitions (1,207)
Other (7,503) (5,921)
Net cash provided(used) by investing activities (1,277,094) (800,600)
Cash flow from financing activities:
Net increase (decrease) in deposits (229,080) 1,215,771
Net increase (decrease) in funds purchased and
other short-term borrowings 1,135,134 (1,660,017)
Proceeds from the issuance of long-term debt 240,798 200,355
Repayment of long-term debt (84,820) (98,872)
Proceeds from the exercise of stock options 2,722 1,989
Payments to acquire treasury stock (254,574) (66,599)
Dividends paid (48,424) (45,151)
Net cash provided by financing activities 761,756 (452,524)
Net decrease in cash and cash equivalents (648,837) (1,055,174)
Cash and cash equivalents at beginning of period 4,772,615 3,969,559
Cash and cash equivalents at end of period $ 4,123,778 $ 2,914,385
Supplemental Disclosure
Interest paid $ 391,230 $ 327,940
Taxes paid 7,286 15,709
<FN>
<F1>See notes to consolidated financial statements.
Page 5
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Unrealized
Additional Treasury Gains (Losses)
Common Paid in Retained Stock and on Securities
(In thousands)<F1> Stock Capital Earnings Other<F2> Net of Taxes Total
Balance, January 1, 1996 $ 130,461 $ 434,724 $ 3,417,801 $ (871,953) $ 1,158,548 $ 4,269,581
Stock dividend 113,183 (113,183) - - - -
Balance, January 1, 1996, adjusted 243,644 321,541 3,417,801 (871,953 1,158,548 4,269,581
Net income - - 150,419 - - 150,419
Cash dividends declared on common
stock, $0.20 per share - - (45,180) - - (45,180)
Proceeds from exercise of stock options - (5,459) - 7,448 - 1,989
Acquisition of treasury stock - - - (66,599) - (66,599)
Issuance of treasury stock for 401(k) - 1,794 - 4,411 - 6,205
Issuance, net of forfeitures, of treasury
stock as restricted stock - 3,523 - 6,338 - 9,861
Issuance of treasury stock for acquisition - - - 5,636 - 5,636
Compensation element of restricted stock - - - (9,861) - (9,861)
Amortization of compensation element
of restricted stock - - - 2,111 - 2,111
Change in unrealized gains (losses)
on securities, net of taxes - - - - 91,071 91,071
Balance, March 31, 1996 $ 243,644 $ 321,399 $ 3,523,040 $ (922,469) $ 1,249,619 $ 4,415,233
Balance, January 1, 1997 $ 225,608 $ 310,612 $ 2,972,900 $ (230,918) $ 1,601,778 $ 4,879,980
Net income - - 161,056 - - 161,056
Cash dividends declared on common
stock, $0.225 per share - - (48,424) - - (48,424)
Proceeds from exercise of stock options - (8,973) - 11,695 - 2,722
Acquisition of treasury stock - - - (254,574) - (254,574)
Issuance of treasury stock for 401(k) - 1,110 - 5,553 - 6,663
Issuance, net of forfeitures, of treasury
stock as restricted stock - - - (1,017) - (1,017)
Issuance of treasury stock for acquisition - - - - - -
Compensation element of restricted stock - - - 1,017 - 1,017
Amortization of compensation element
of restricted stock - - - 2,330 - 2,330
Change in unrealized gains (losses)
on securities, net of taxes - - - - 66,097 66,097
Balance, March 31, 1997 $ 225,608 $ 302,749 $ 3,085,532 $ (465,914) $ 1,667,875 $ 4,815,850
<FN>
<F1>See notes to consolidated financial statements.
<F2>* Balance at March 31, 1997 includes $419,796 for Treasury Stock and $46,118 for Deferred Compensation.
Page 6
Notes to Consolidated Financial Statements
Note 1 - Accounting Policies
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany accounts and transactions have
been eliminated. These financial statements should be read in conjunction
with the Company's annual financial statements and related notes for the year
ended December 31, 1996.
Note 2 - Stock Dividend
On May 21, 1996, the Company paid a stock dividend of one share of SunTrust
common stock for each outstanding share of SunTrust common stock to
shareholders of record on May 1, 1996. The consolidated financial statements
for prior periods have been restated for the effect of this stock dividend.
Note 3 - Recent Accounting Developments
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 (SFAS No. 128), Earnings Per Share.
SFAS No. 128 establishes standards for computing and presenting earnings per
share (EPS) and applies to entities with publicly held common stock. SFAS No.
128 simplifies the standards for computing earnings per share previously
found in APB Opinion No. 15 and makes them comparable to international EPS
standards. It replaces the presentation of primary EPS with a presentation of
basic EPS. It also requires dual presentation of basic and diluted EPS on the
face of the statement of earnings for all entities with complex capital
structures and requires a reconciliation of the numerator and denominator of
the basic EPS computation to the numerator and denominator of the diluted EPS
computation. SFAS No. 128 is effective for financial statements issued for
periods ending after December 15, 1997, earlier application is not permitted.
The pro forma basic and diluted EPS calculated under SFAS No. 128 were not
materially different from the primary and fully-diluted earnings per share
presented for the periods ended March 31, 1997 and 1996.
Page 7
TABLE 1 - SELECTED QUARTERLY FINANCIAL DATA
(Dollars in millions except per share data)
Quarters
1997 1996
1 4 3 2 1
Summary of Operations
Interest and dividend income $ 863.1 $ 846.5 $ 820.4 $ 798.6 $ 780.5
Interest expense 400.6 384.2 366.0 354.3 357.3
Net interest income 462.5 462.3 454.4 444.3 423.2
Provision for loan losses 26.2 34.7 30.0 26.2 25.0
Net interest income after provision for loan losses 436.3 427.6 424.4 418.1 398.2
Noninterest income 225.8 207.0 197.2 200.1 213.7
Noninterest expense 414.0 399.1 389.6 393.4 401.0
Income before provision for income taxes 248.1 235.5 232.0 224.8 210.9
Provision for income taxes 87.0 77.0 76.4 72.7 60.5
Net income $ 161.1 $ 158.5 $ 155.6 $ 152.1 $ 150.4
Per common share
Net income $ 0.74 $ 0.72 $ 0.70 $ 0.68 $ 0.66
Dividends declared 0.23 0.23 0.20 0.20 0.20
Book value 22.31 22.13 21.43 20.73 19.60
Common stock market price
High 54.75 52.50 41.50 38.00 38.38
Low 46.13 40.88 34.88 33.25 32.00
Close 46.38 49.25 41.00 37.00 35.00
Selected Average Balances
Total assets $51,906.5 $50,061.1 $48,122.6 $47,019.5 $45,641.9
Earning assets 45,054.0 43,763.9 42,179.2 41,241.8 40,114.0
Loans 35,894.2 34,416.9 33,029.6 32,265.2 31,437.9
Total deposits 35,519.5 34,840.7 34,652.8 34,378.8 33,081.9
Realized shareholders' equity 3,229.2 3,334.0 3,281.7 3,232.0 3,206.8
Total shareholders' equity 4,966.6 4,841.3 4,713.7 4,522.2 4,405.3
Common equivalent shares (thousands) 218,227 221,840 222,683 224,061 225,388
Financial Ratios and Other
ROA<F1> 1.33 % 1.32 % 1.35 % 1.36 % 1.38 %
ROE<F1> 20.23 18.91 18.86 18.93 18.87
Net interest margin<F1> 4.25 4.29 4.38 4.43 4.35
Net interest income - taxable-equivalent $ 472.0 $ 472.2 $ 464.2 $ 454.2 $ 433.7
<FN>
<F1>ROA, ROE and net interest margin are calculated excluding unrealized gains
on investment securities because the unrealized gains are not included in
income.
Page 8
The following is an analysis of the financial performance of SunTrust Banks,
Inc. (SunTrust or Company) for the first quarter of 1997 and provides
comments on earlier periods. In this discussion net interest income and net
interest margin are presented on a taxable-equivalent basis. Also all ratios
are presented on an annualized basis.
TABLE 2A - CONSOLIDATED DAILY AVERAGE BALANCES, INCOME/EXPENSE AND AVERAGE
YIELDS EARNED AND RATES PAID
(Dollars in millions; yields on a taxable-equivalent basis)
Quarter Ended
March 31, 1997 December 31, 1996 September 30, 1996
Average Income/ Yields/ Average Income/ Yields/ Average Income/ Yields/
Balances Expense Rates Balances Expense Rates Balances Expense Rates
Assets
Loans<F1>
Taxable $35,193.9 $707.2 8.15 % $33,669.4 $688.4 8.13 % $32,389.3 $666.9 8.19 %
Tax-exempt<F2> 700.3 13.4 7.77 747.5 14.5 7.75 640.3 13.4 8.28
Total loans 35,894.2 720.6 8.14 34,416.9 702.9 8.13 33,029.6 680.3 8.19
Investment securities:
Taxable 7,275.6 119.9 6.68 7,330.4 120.1 6.52 7,648.4 123.1 6.41
Tax-exempt<F2> 731.1 15.7 8.70 733.8 16.0 8.69 747.2 16.5 8.76
Total investment securities 8,006.7 135.6 6.87 8,064.2 136.1 6.71 8,395.6 139.6 6.62
Funds sold 969.4 14.0 5.88 1,177.5 15.9 5.36 670.3 9.1 5.42
Other short-term investments<F2> 183.7 2.4 5.24 105.3 1.5 5.57 83.7 1.2 5.80
Total earning assets 45,054.0 872.6 7.85 43,763.9 856.4 7.78 42,179.2 830.2 7.83
Reserve for loan losses (728.1) (724.8) (723.1)
Cash and due from banks 2,259.8 2,320.1 2,167.9
Premises and equipment 885.4 759.4 750.6
Other assets 1,629.2 1,506.4 1,435.6
Unrealized gains(losses) on
investment securities 2,806.2 2,436.1 2,312.4
Total assets $51,906.5 $50,061.1 $48,122.6
Liabilities and Shareholders' Equity
Interest-bearing deposits:
NOW/Money market accounts $10,489.4 $ 71.0 2.75 % $10,369.1 $ 70.4 2.70 % $10,270.4 $ 69.8 2.70 %
Savings 5,403.2 47.8 3.59 5,437.8 48.9 3.57 5,580.5 49.9 3.56
Consumer time 7,050.2 89.5 5.15 7,062.1 91.3 5.15 7,120.1 91.9 5.13
Other time<F3> 5,142.7 68.7 5.41 4,487.4 60.7 5.39 4,579.7 62.3 5.40
Total interest-bearing deposits 28,085.5 277.0 4.00 27,356.4 271.3 3.95 27,550.7 273.9 3.95
Funds purchased 6,108.1 77.7 5.16 5,788.3 74.3 5.11 4,782.0 60.8 5.06
Other short-term borrowings 1,358.9 18.4 5.50 874.8 12.3 5.58 658.7 9.3 5.63
Long-term debt 1,659.0 27.5 6.72 1,568.4 26.3 6.67 1,333.0 22.0 6.59
Total interest-bearing liabilities 37,211.5 400.6 4.37 35,587.9 384.2 4.30 34,324.4 366.0 4.24
Noninterest-bearing deposits 7,434.0 7,484.3 7,102.1
Other liabilities 2,294.4 2,147.6 1,982.4
Realized shareholders' equity 3,229.2 3,334.0 3,281.7
Net unrealized gains(losses)
on investment securities 1,737.4 1,507.3 1,432.0
Total liabilities and
shareholders' equity $51,906.5 $50,061.1 $48,122.6
Interest rate spread 3.48 % 3.48 % 3.59 %
Net Interest Income $472.0 $472.2 $464.2
Net Interest Margin 4.25 % 4.29 % 4.38 %
Page 9
<FN>
<F1> Interest income includes loan fees of $23.2, $24.7, $24.1, $24.7 and
$21.8 in the quarters ended March 31, 1997, and December 31, September 30,
June 30, and March 31, 1996. Nonaccrual loans are included in average
balances and income on such loans, if recognized, is recorded on a cash
basis.
<F2> Interest income includes the effects of taxable-equivalent adjustments
(reduced by the nondeductible portion of interest expense) using a federal
income tax rate of 35%, and, where applicable, state income taxes, to
increase tax-exempt interest income to a taxable-equivalent basis. The net
taxable-equivalent adjustment amounts included in the above table
aggregated $9.5, $9.9, $9.8, $9.9 and $10.5 in the quarters ended March
31, 1997, and December 31, September 30, June 30, and March 31, 1996.
<F3> Interest rate swap transactions used to help balance the Company's
interest-sensitivity position increased interest expense by $0.4 in the
quarter ended March 31, 1997, and $0.1, $0.4, $0.5 and $0.3 in the
quarters ended December 31, September 30, June 30, and March 31, 1996.
Without these swaps, the rate on other time deposits and the net interest
margin would have been 5.38% and 4.25%, 5.40% and 4.28%, 5.35% and 4.37%,
5.39% and 4.42%, and 5.58% and 4.34%, respectively.
Page 10
TABLE 2b - CONSOLIDATED DAILY AVERAGE BALANCES, INCOME/EXPENSE AND AVERAGE
YIELDS EARNED AND RATES PAID
(Dollars in millions; yields on a taxable-equivalent basis)
June 30, 1996 March 31, 1996
Average Income/ Yields/ Average Income/ Yields/
Balances Expense Rates Balances Expense Rates
Assets
Loans<F1>
Taxable $31,645.9 $649.3 8.25 % $30,805.7 $637.4 8.32 %
Tax-exempt<F2> 619.3 13.0 8.42 632.2 13.5 8.57
Total loans 32,265.2 662.3 8.26 31,437.9 650.9 8.33
Investment securities:
Taxable 7,605.0 120.8 6.39 7,131.0 112.1 6.32
Tax-exempt<F2> 783.9 17.4 8.91 810.4 18.0 8.95
Total investment securities 8,388.9 138.2 6.63 7,941.4 130.1 6.59
Funds sold 515.7 6.9 5.39 668.7 9.0 5.40
Other short-term investments<F2> 72.0 1.1 6.14 66.0 1.0 6.00
Total earning assets 41,241.8 808.5 7.88 40,114.0 791.0 7.93
Reserve for loan losses (715.6) (704.9)
Cash and due from banks 2,256.2 2,216.2
Premises and equipment 742.4 732.6
Other assets 1,408.3 1,349.0
Unrealized gains(losses) on
investment securities 2,086.4 1,935.0
Total assets $47,019.5 $45,641.9
Liabilities and Shareholders' Equity
Interest-bearing deposits:
NOW/Money market accounts $10,488.3 $ 73.4 2.82 % $10,056.4 $ 72.6 2.90 %
Savings 5,769.2 53.8 3.75 4,705.7 44.1 3.77
Consumer time 7,231.3 92.5 5.14 7,719.8 101.4 5.28
Other time<F3> 3,705.0 50.3 5.46 3,557.7 49.8 5.63
Total interest-bearing deposits 27,193.8 270.0 3.99 26,039.6 267.9 4.14
Funds purchased 4,352.3 54.5 5.04 4,351.5 55.9 5.17
Other short-term borrowings 848.4 11.4 5.41 1,062.4 15.2 5.78
Long-term debt 1,106.6 18.4 6.68 1,063.0 18.3 6.92
Total interest-bearing liabilities 33,501.1 354.3 4.25 32,516.5 357.3 4.42
Noninterest-bearing deposits 7,185.0 7,042.3
Other liabilities 1,811.2 1,677.8
Realized shareholders' equity 3,232.0 3,206.8
Net unrealized gains(losses)
on investment securities 1,290.2 1,198.5
Total liabilities and
shareholders' equity $47,019.5 $45,641.9
Interest rate spread 3.63 % 3.51 %
Net Interest Income $454.2 $433.7
Net Interest Margin 4.43 % 4.35 %
<FN>
<F1>See note <F1> on table 2A.
<F2>See note <F2> on table 2A.
<F3>See note <F3> on table 2A.
Page 11
Net Interest Income/Margins. The Company's net interest margin of 4.25% for
the first quarter of 1997 was 10 and 4 basis points lower than the first
quarter and fourth quarter of last year, respectively. Interest rate swaps
helped increase last year's net interest margin (see the discussion entitled
"Derivitaves" on page 17).
Interest income which the Company was unable to recognize on nonperforming
loans had a negative impact of 3 basis points on the net interest margin in
the first three months of both 1997 and 1996. Table 2 contains more detailed
information concerning average balances and interest yields earned and rates
paid.
Noninterest Income. Noninterest income in the first three months of 1997,
adjusted to exclude the effect of securities gains (losses), increased 14.3%
from the comparable period a year ago. Trust income, the Company's largest
source of noninterest income, increased 10.9% over the same period. Other
charges and fees were 23.3% higher in the first quarter of this year compared
to the same period last year. Mortgage fees increased 5.8% over the same
period due to higher volume in our mortgage banking business. Credit card
fees also increased 10.5%.
TABLE 3 - NONINTEREST INCOME
(In millions)
Quarters
1997 1996
1 4 3 2 1
Trust income $ 78.4 $ 69.0 $ 68.1 $ 70.5 $ 70.7
Service charges on deposit accounts 59.7 60.7 57.9 58.1 55.7
Corporate and institutional investment income 5.0 4.8 3.4 3.3 2.8
Retail investment income 8.0 5.1 6.3 6.2 4.6
Credit card fees 18.8 17.0 15.7 16.6 17.0
Mortgage fees 9.2 8.8 8.7 9.8 8.7
Other charges and fees 29.0 25.9 23.8 25.6 23.5
Securities gains (losses) 1.4 (0.4) (0.5) (2.2) 17.3
Trading account profits and commissions 4.0 4.1 3.5 3.1 2.6
Other income 12.3 12.0 10.3 9.1 10.8
Total noninterest income $225.8 $207.0 $197.2 $200.1 $213.7
Page 12
Noninterest Expense. Noninterest expense increased 3.2% in the first quarter
of 1997 compared to the same period last year. Personnel expense, consisting
of salaries, other compensation and employee benefits, increased 11.7% over
the aforementioned period. The increase in other noninterest expense is due
to expenditures made in connection with various projects to stimulate
business growth and development.
TABLE 4 - NONINTEREST EXPENSE
(In millions)
Quarters
1997 1996
1 4 3 2 1
Salaries $167.0 $165.6 $161.7 $156.0 $151.7
Other compensation 35.4 34.2 32.9 32.3 29.1
Employee benefits 32.4 28.8 26.0 26.4 29.4
Net occupancy expense 32.5 35.2 34.9 34.4 33.7
Equipment expense 30.1 30.4 29.5 28.0 27.5
FDIC premiums 1.8 1.4 14.1 1.4 1.2
Marketing and community relations 16.8 23.3 19.2 18.7 15.2
Postage and delivery 11.3 10.3 10.5 9.7 10.0
Operating supplies 9.6 9.4 8.9 9.9 9.7
Other real estate expense (1.2) (1.1) 0.4 (0.5) 0.8
Communications 9.1 8.6 8.3 7.8 7.7
Consulting and legal 5.7 8.5 5.8 6.1 5.1
Amortization of intangible assets 7.7 7.3 6.8 6.5 6.1
Other expense 55.8 37.2 30.6 56.7 73.8
Total noninterest expense $414.0 $399.1 $389.6 $393.4 $401.0
Efficiency ratio 59.3 % 58.8 % 58.9 % 60.1 % 62.0 %
Provision for Loan Losses. The Company raised its provision for loan
losses in the first quarter of 1997 to $26.2 million from $25.0 million in
the same period last year, yet the provision still exceeded net charge-offs
by $8.7 million. Net loan charge-offs were $17.5 million in the first three
months of this year, representing 0.20% of average loans. The comparable net
charge-off amount in 1996 was $12.7 million or 0.16% of average loans.
Consumer loan charge-offs account for almost all 1997 first quarter charge-
offs.
The Company maintains a reserve for loan losses to absorb possible
losses in the loan portfolio. The reserve consists of three elements; (i)
reserves established on specific loans, (ii) reserves based on historical
loan loss experience, and (iii) reserves based on economic conditions in the
Company's individual markets. The specific reserve element is based on a
regular analysis of all loans and commitments over a fixed dollar amount
where the internal credit rating is at or below a pre-determined
classification. The historical loan loss element represents a projection of
future credit problems and is determined statistically using a loss migration
analysis that examines loss experience and the related internal gradings of
loans charged-off. The general economic condition element is determined by
management at the individual subsidiary banks and is based on a subjective
evaluation of specific economic factors in their markets that might affect
the collectibility of loans. SunTrust is committed to the early recognition
of possible problems and to a strong, conservative reserve.
The Company's reserve for loan losses totaled $734.5 million at March
31, 1997, which was 2.02% of quarter-end loans and 384.7% of total
nonperforming loans. These ratios at December 31, 1996 were 2.05% and 342.0%
and at March 31, 1996 were 2.24% and 373.8%.
Page 13
TABLE 5 - SUMMARY OF LOAN LOSS EXPERIENCE
(Dollars in millions)
Quarters
1997 1996
1 4 3 2 1
Reserve for Loan Losses
Balances - beginning of quarter $ 725.8 $ 724.7 $ 722.6 $ 712.4 $ 698.9
Reserve of purchased banks - - - - 1.2
Provision for loan losses 26.2 34.7 30.0 26.2 25.0
Charge-offs:
Commercial (4.8) (14.4) (12.2) (5.2) (4.4)
Real estate:
Construction (0.1) (1.1) (0.2) 0.0 (0.1)
Mortgage, 1-4 family (1.1) (1.5) (2.3) (1.1) (1.4)
Other (1.4) (3.0) (2.8) (1.5) (0.9)
Lease financing (0.3) (0.3) (0.2) (0.4) (0.3)
Credit card (11.6) (11.7) (10.6) (9.5) (9.0)
Other consumer loans (12.7) (13.9) (12.6) (10.9) (10.5)
Total charge-offs (32.0) (45.9) (40.9) (28.6) (26.6)
Recoveries:
Commercial 4.6 3.7 4.6 3.1 4.2
Real estate:
Construction 0.1 0.1 0.1 0.1 0.1
Mortgage, 1-4 family 0.6 0.4 0.3 0.5 0.3
Other 1.3 1.5 1.2 2.1 2.7
Lease financing 0.1 0.1 0.1 0.2 0.1
Credit card 2.4 1.7 1.7 1.7 1.8
Other consumer loans 5.4 4.8 5.0 4.9 4.7
Total recoveries 14.5 12.3 13.0 12.6 13.9
Net charge-offs (17.5) (33.6) (27.9) (16.0) (12.7)
Balance - end of quarter $ 734.5 $ 725.8 $ 724.7 $ 722.6 $ 712.4
Quarter-end loans outstanding:
Domestic $36,148.1 $35,154.8 $33,567.4 $32,124.4 $31,517.2
International 279.9 249.4 256.9 276.8 268.9
Total $36,428.0 $35,404.2 $33,824.3 $32,401.2 $31,786.1
Ratio of reserve to quarter-end loan 2.02 % 2.05 % 2.14 % 2.23 % 2.24 %
Average loans $35,894.2 $34,416.9 $33,029.6 $32,265.2 $31,437.9
Ratio of net charge-offs (annualized)
to average loans 0.20 % 0.39 % 0.34 % 0.20 % 0.16 %
Page 14
TABLE 6 - NONPERFORMING ASSETS
(Dollars in millions)
1997 1996
March 31 December 31 September 30 June 30 March 31
Nonperforming Assets
Nonaccrual loans:
Domestic:
Commercial $ 36.5 $ 45.6 $ 29.1 $ 34.6 $ 36.0
Real Estate:
Construction 13.6 13.3 14.9 3.7 4.7
Mortgage, 1-4 family 59.5 49.6 49.7 49.5 50.6
Other 59.9 81.0 80.1 93.2 86.9
Lease financing 1.3 2.3 0.1 0.2
Consumer loans 10.2 10.5 10.9 10.9 9.3
Total nonaccrual loans 181.0 202.3 184.9 192.0 187.7
Restructured loans 9.9 9.9 2.7 2.8 2.9
Total nonperforming loans 190.9 212.2 187.6 194.8 190.6
Other real estate owned 43.9 43.6 51.9 53.5 58.8
Total Nonperforming Assets $ 234.8 $ 255.8 $ 239.5 $ 248.3 $ 249.4
Ratios:
Nonperforming loans to total loans 0.52 % 0.60 % 0.55 % 0.60 % 0.60 %
Nonperforming assets to total loans
plus other real estate owned 0.64 0.72 0.71 0.77 0.78
Reserve to nonperforming loans $384.68 342.03 386.23 371.01 373.78
Accruing Loans Past Due 90 Days or More $ 33.9 $ 34.2 $ 28.0 $ 29.9 $ 26.0
Nonperforming Assets. Nonperforming assets consist of nonaccrual and
restructured loans and other real estate owned. Nonperforming assets have
decreased $21.0 million since December 31, 1996 and $14.6 million since March
31, 1996. Included in nonperforming loans at March 31, 1997 are loans
aggregating $37.2 million which are current as to the payment of principal
and interest but have been placed in nonperforming status because of
uncertainty over the borrowers' ability to make future payments. In
management's opinion, all known material potential problem loans are included
in Table 6.
Interest income on nonaccrual loans, if recognized, is recorded on a cash
basis. During the first three months of 1997, the gross amount of interest
income that would have been recorded on nonaccrual loans and restructured
loans at March 31, 1997, if all such loans had been accruing interest at the
original contractual rate, was $5.2 million. Interest income recognized in
the three months ended March 31, 1997 on all such nonperforming loans at
March 31, 1997, was $1.7 million.
Page 15
Table 7 - Loan Portfolio by Types of Loans (in millions)
1997 1996
March 31 December 31 September 30 June 30 March 31
Commercial:
Domestic $12,267.0 $11,725.5 $10,985.2 $10,405.4 $10,449.4
International 268.4 240.6 247.7 269.4 270.5
Real estate:
Construction 1,416.5 1,384.8 1,330.2 1,246.4 1,239.3
Mortgage, 1-4 family 11,839.2 11,508.2 11,018.1 10,524.1 10,087.9
Other 4,656.1 4,585.8 4,547.6 4,540.3 4,526.9
Lease financing 607.9 607.5 598.3 569.4 565.2
Credit card 904.9 946.8 857.2 770.6 732.0
Other consumer loans 4,468.0 4,405.0 4,240.0 4,075.6 3,914.9
Loans $36,428.0 $35,404.2 $33,824.3 $32,401.2 $31,786.1
Loans. During the first three months of 1997, average loans increased 14.2%
over the same period a year ago. Since December 31, 1996, the two loan
categories experiencing significant growth were 1-4 family residential
mortgage loans (most of which are variable rate loans) and domestic
commercial loans. The average loan to deposit ratio was 101.1% in the first
quarter of 1997 compared with 95.0% in the same period of 1996.
At March 31, 1997, international outstandings, which include loans,
acceptances, deposits in other banks, foreign guarantees and accrued
interest, net of write-downs totaled $308.5 million, an increase of 12.8%
from $273.5 million at December 31, 1996.
Income Taxes. The provision for income taxes was $87.0 million in the first
quarter of 1997 compared to $60.5 million in the same period last year.
Investment Securities. The investment portfolio continues to be managed to
maximize yield over an entire interest rate cycle while providing liquidity
and minimizing risk. The portfolio yield increased from an average of 6.59%
in the first quarter of 1996 to 6.87% in the first quarter of this year. The
portfolio size (measured at cost) increased slightly to $7.8 billion while
the growth in liabilities was used to fund loan growth. The average life of
the portfolio was approximately 2.5 years at March 31, 1997; however,
adjustable-rate securities in the portfolio reduced the average time to
repricing to 2.1 years. At March 31, 1997, approximately 33.5% of the
portfolio consisted of U.S. Treasury securities, 8.5% U.S. government agency
securities, 49.6% mortgage-backed securities, and 8.4% municipal securities
(calculated as a percent of total par value). All of the Company's holdings
in mortgage-backed securities are backed by U.S. government or federal agency
guarantees limiting the credit risk associated with the mortgage loans. At
March 31, 1997, the carrying value of the securities portfolio was $2.7
billion over its amortized cost, consisting entirely of a $2.7 billion
unrealized gain on the Company's investment in common stock of The Coca-Cola
Company.
Page 16
Liquidity Management. Liquidity is managed to ensure there is sufficient
cash flow to satisfy demand for credit, deposit withdrawals and other
attractive market opportunities. A large, stable core deposit base, strong
capital position and excellent credit ratings are the solid foundation for
the Company's liquidity position. It is enhanced by an investment portfolio
structured to provide liquidity as needed, which occurred in several quarters
in 1996 and first quarter 1997 when loan demand exceeded deposit growth.
Liquidity is also strengthened by ready access to regional and national
wholesale funding sources including fed funds purchased, securities sold
under agreements to repurchase, negotiable certificates of deposit and
offshore deposits, as well as an active bank deposit note program, commercial
paper issuance by the Parent Company, and Federal Home Loan Bank (FHLB)
advances for several subsidiary banks who are FHLB members.
Average total deposits for the first three months of 1997 increased 7.4%
over the same period a year ago. Interest-bearing deposits represented 79.1%
of average deposits for the first three months of 1997, compared to 78.7% for
the same period in 1996. In the first quarter of 1997, average net purchased
funds (average funds purchased less average funds sold) increased $1.5
billion over the same period in 1996. Net purchased funds were 11.4% of
average earning assets for the first three months of 1997 as compared to 9.2%
in the same period a year ago.
Derivatives. The Company enters into various derivatives contracts in a
dealer capacity for customers and in managing its own interest rate risk.
Where contracts have been created for customers, the Company enters into
offsetting positions to eliminate its exposure to market risk. The principal
derivative contract used by the Company is the interest rate swap. Interest
rate swaps are contracts in which a series of interest rate flows, based on a
specific notional amount and a fixed and floating interest rate, are
exchanged over a prescribed period. The Company also monitors its sensitivity
to changes in interest rates and uses interest rate swap contracts to limit
the volatility of net interest income. Table 8 details interest rate swaps as
of March 31, 1997 used for managing interest rate sensitivity.
TABLE 8 - INTEREST RATE SWAPS
Average Average Average
(Dollars in millions) Notional Fair Maturity Rate Rate
At March 31, 1997 Value Value In Months Paid Received
Gain position:
Receive fixed $ 215.2 $ 1.5 106.7 5.57 % 7.18 %
Pay fixed 237.3 6.0 77.6 6.13 5.69
Total gain position 452.5 7.5
Loss position:
Receive fixed 1,721.4 (17.8) 29.0 5.90 5.71
Pay fixed 66.2 (0.6) 48.3 6.68 5.59
Total loss position 1,787.6 (18.4)
Total $2,240.1 $(10.9)
The majority of the swaps are designated as hedges on deposits and other
interest-bearing liabilities. During the three months ended March 31, 1997,
hedge swaps decreased net interest income by $0.4, compared with a $0.3
decrease in the corresponding 1996 period.
Page 17
TABLE 9 - CAPITAL RATIOS
(Dollars in millions)
1997 1996
March 31 December 31 September 30 June 30 March 31
Tier 1 capital:
Realized shareholders' equity $ 3,146.9 $ 3,278.2 $ 3,271.5 $ 3,193.7 $ 3,165.6
Intangible assets other than servicing rights (277.2) (244.1) (249.0) (251.3) (255.7)
Total Tier 1 capital 2,869.7 3,034.1 3,022.5 2,942.4 2,909.9
Tier 2 capital:
Allowable reserve for loan losses 526.3 510.8 487.8 470.8 461.8
Allowable long-term debt 858.2 877.1 877.9 557.2 554.2
Total Tier 2 capital 1,384.5 1,387.9 1,365.7 1,028.0 1,016.0
Total capital $ 4,254.2 $ 4,422.0 $ 4,388.2 $ 3,970.4 $ 3,925.9
Risk-weighted assets $41,900.0 $40,651.0 $38,788.8 $37,413.6 $36,694.7
Risk-based ratios:
Tier 1 capital 6.84 % 7.46 % 7.78 % 7.86 % 7.92 %
Total capital 10.15 10.87 11.30 10.60 10.69
Tier 1 leverage ratio 5.89 6.40 6.63 6.58 6.69
Total shareholders' equity to assets 8.96 9.30 9.63 9.64 9.48
Capital Resources. Consistent with the objective of operating a sound
financial organization, SunTrust maintains capital ratios well above
regulatory requirements. The rate of internal capital generation has been
more than adequate to support asset growth. Table 9 presents capital ratios
for the five most recent quarters.
Regulatory agencies measure capital adequacy with a framework that makes
capital requirements sensitive to the risk profiles of individual banking
companies. The guidelines define capital as either Tier 1 (primarily
shareholders' equity excluding unrealized gains and losses on investment
securities) or Tier 2 (certain debt instruments and a portion of the reserve
for loan losses). The Company and its subsidiary banks are subject to a
minimum Tier 1 capital to risk-weighted assets ratio of 4% and total capital
(Tier 1 plus Tier 2) to risk-weighted assets ratio of 8%. The Federal Reserve
Board (Board) has also established an additional capital adequacy guideline
referred to as the Tier 1 leverage ratio which measures the ratio of Tier 1
capital to average quarterly assets.
The Federal Deposit Insurance Corporation Improvement Act of 1991
(FDICIA) requires the establishment of a capital-based supervisory system of
prompt corrective action for all depository institutions. The Board's
implementation of FDICIA defines "well capitalized" institutions as those
whose capital ratios equal or exceed the following minimum ratios: Tier 1
capital ratio of 6%, total risk-based capital ratio of 10%, and a Tier 1
leverage ratio of 5%. At March 31, 1997, the Company's Tier 1 capital, total
risk-based capital and Tier 1 leverage ratios were 6.84%, 10.15% and 5.89%,
respectively.
In 1995, the Board of Directors authorized the Company to repurchase up to
20,000,000 shares of SunTrust common stock. At March 31, the Company has a
remaining 4,609,018 shares that may be purchased under this authorization.
In April 1996, the Board of Directors authorized the repurchase of up to
another 15,000,000 shares of SunTrust Common stock.
Page 18
Nonbanking Subsidiaries. SunTrust Mortgage, Inc. originates and services
mortgage loans on both residential and income property, principally
throughout Florida, Georgia and Tennessee. SunTrust Mortgage is primarily a
mortgage banker selling to the secondary market and representing
institutional investors. SunTrust Mortgage also assists various SunTrust
banks in their origination of mortgage loans for sale in the secondary market
and for retention in their portfolio. At March 31, 1997, the servicing
portfolio was $14.4 billion, which includes $9.3 billion in loans serviced
for subsidiary banks of SunTrust. SunTrust Insurance Company operates as a
reinsurer for credit life and accident and health insurance sold to loan
customers of SunTrust. SunTrust Securities, Inc. engages in securities
brokerage services and conducts incidental activities such as offering
custodial and cash management services. SunTrust Capital Markets, Inc. serves
as the investment banking arm of SunTrust. It's business activities include
public finance, corporate finance and the sale of investment securities to
corporations, institutions and government entities. Personal Express Loans,
Inc. operates as a consumer finance company. STI Credit Corporation operates
as a leasing subsidiary, primarily for commercial customers. Other nonbank
subsidiaries primarily support the Company's banking operations, providing
data processing and other services.
State Summary. SunTrust Banks, Inc. operates through three principal
subsidiaries, SunTrust Banks of Florida, Inc., SunTrust Banks of Georgia,
Inc. and SunTrust Banks of Tennessee, Inc., all well-established bank holding
companies within their respective states. Data in Table 10 does not include
financial results of SunTrust's Parent Company and certain other bank and non-
bank subsidiaries (including SunTrust BankCard, N.A. which holds all the
credit card balances of the company.) It is also before elimination of
certain intercompany accounts and balances.
Page 19
TABLE 10 - FINANCIAL HIGHLIGHTS - BANKING SUBSIDIARIES
(Dollars in Millions)
SunTrust Banks SunTrust Banks SunTrust Banks
of Florida, Inc. of Georgia, Inc. of Tennessee, Inc.
1997 1996 1997 1996 1997 1996
Summary of Operations<F1>
Net interest income (FTE) $248.3 $228.6 $157.5 $140.3 $72.7 $65.8
Provision for loan losses 9.6 10.4 4.5 5.0 2.3 2.4
Trust income 38.4 35.8 28.5 25.5 9.7 9.2
Other noninterest income 74.2 65.3 47.0 42.8 19.9 18.4
Personnel expense 85.9 78.6 56.1 49.3 27.5 25.0
Other noninterest expense 123.7 109.8 71.0 61.4 29.9 27.6
Net income 87.1 80.0 65.6 60.1 26.3 23.5
Selected Average Balances<F2>
Total assets 24,755 22,680 20,328 16,218 7,421 6,710
Earning assets 23,254 21,095 15,987 13,097 7,152 6,415
Loans 17,567 16,002 12,607 10,458 5,538 4,796
Total deposits 18,446 18,124 11,376 9,625 5,736 5,374
Realized shareholders' equity 2,044 1,934 1,413 1,312 584 552
At March 31
Total assets 25,319 23,285 20,786 16,495 7,456 6,831
Earning assets 23,403 21,650 16,456 13,006 7,137 6,546
Loans 17,690 16,077 13,007 10,578 5,589 4,881
Reserve for loan losses 375 370 198 195 114 117
Total deposits 18,783 19,082 12,070 9,849 5,879 5,582
Realized shareholders' equity 2,092 1,973 1,473 1,341 603 563
Total shareholders' equity 2,087 1,976 3,136 2,578 604 565
Credit Quality
Net loan charge-offs<F1> 3.7 3.0 2.4 2.1 2.1 0.4
Nonperforming loans<F2> 114.5 125.7 54.3 54.2 21.9 10.4
Other real estate owned<F2> 25.7 33.8 4.9 7.8 13.0 17.2
Ratios
ROA<F3> 1.43 % 1.42 % 1.51 % 1.69 % 1.44 % 1.41 %
ROE<F3> 17.29 16.64 18.82 18.44 18.24 17.08
Net interest margin<F3> 4.33 4.35 4.00 4.31 4.12 4.12
Efficiency ratio<F3> 58.05 57.16 54.56 53.02 56.14 56.39
Total shareholders' equity/assets<F2> 8.24 8.48 15.09 15.63 8.10 8.27
Net loan charge-offs to average loans<F3> 0.09 0.08 0.08 0.08 0.15 0.03
Nonperforming loans to total loans<F2> 0.66 0.80 0.42 0.52 0.40 0.22
Nonperforming assets to total loans plus
other real estate owned<F2> 0.81 1.01 0.46 0.60 0.64 0.58
Reserve to loans<F2> 2.18 2.36 1.54 1.87 2.09 2.45
Reserve to nonperforming loans<F2> 327.7 294.3 364.2 359.5 520.6 1,125.7
<FN>
<F1>For the three month period ended March 31.
<F2>At March 31.
<F3>Annualized for the first three months.
Page 20
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Index:
Exhibit Exhibit No. Page No.
Page No.
Statement re: Computation of Per Share Earnings 11 22
(b) SunTrust did not file any reports on Form 8-K during the first quarter of
1997.
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 8th day of May, 1997.
SunTrust Banks, Inc.
(Registrant)
/s/ W.P. O'Halloran
William P. O'Halloran
Senior Vice President and Controller
(Chief Accounting Officer)
Page 21