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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 2001
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Commission File Number 1-8918
SUNTRUST BANKS, INC.
(Exact name of registrant as specified in its charter)
Georgia 58-1575035
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
303 Peachtree Street, N.E., Atlanta, Georgia 30308
(Address of principal executive offices) (Zip Code)
(404) 588-7711
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes __X__ No _____
At July 31, 2001, 288,611,662 shares of the Registrant's Common Stock, $1.00 par
value were outstanding.
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TABLE OF CONTENTS
PART I FINANCIAL INFORMATION Page
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Income 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 5
Consolidated Statements of Shareholders' Equity 6
Notes to Consolidated Financial Statements 7-14
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15-28
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 28
PART II OTHER INFORMATION
Item 1. Legal Proceedings 29
Item 2. Changes in Securities 29
Item 3. Defaults Upon Senior Securities 29
Item 4. Submission of Matters to a Vote of Security Holders 29
Item 5. Other Information 29
Item 6. Exhibits and Reports on Form 8-K 29
SIGNATURES 29
PART I - FINANCIAL INFORMATION
The following unaudited financial statements have been prepared in accordance
with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, and
accordingly do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
However, in the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the six months ended June 30, 2001 are not
necessarily indicative of the results that may be expected for the full year
2001.
2
Consolidated Statements of Income
---------------------------------
Three Months Six Months
Ended June 30 Ended June 30
---------------------------------- ---------------------------------
(Dollars in thousands except per share data)(Unaudited) 2001 2000 2001 2000
--------------- ---------------- --------------- ---------------
Interest Income
Interest and fees on loans $ 1,270,446 $ 1,367,374 $ 2,668,105 $ 2,673,903
Interest and fees on loans held for sale 51,944 23,703 88,488 48,829
Interest and dividends on securities available for sale
Taxable interest 261,135 224,910 513,806 455,532
Tax-exempt interest 7,332 6,492 14,636 13,327
Dividends (1) 17,033 17,749 34,359 34,772
Interest on funds sold 13,370 24,505 32,303 43,843
Interest on deposits in other banks 771 232 1,206 567
Other interest 12,627 7,084 25,629 12,105
--------------- ---------------- --------------- ---------------
Total interest income 1,634,658 1,672,049 3,378,532 3,282,878
--------------- ---------------- --------------- ---------------
Interest Expense
Interest on deposits 484,866 590,255 1,069,127 1,145,217
Interest on funds purchased 125,884 154,561 280,314 297,394
Interest on other short-term borrowings 15,965 25,673 40,021 44,619
Interest on long-term debt 184,040 132,530 360,310 244,025
--------------- ---------------- --------------- ---------------
Total interest expense 810,755 903,019 1,749,772 1,731,255
--------------- ---------------- --------------- ---------------
Net Interest Income 823,903 769,030 1,628,760 1,551,623
Provision for loan losses 39,615 27,693 106,915 49,985
--------------- ---------------- --------------- ---------------
Net interest income after provision for loan losses 784,288 741,337 1,521,845 1,501,638
--------------- ---------------- --------------- ---------------
Noninterest Income
Trust income 124,785 123,751 249,094 252,351
Service charges on deposit accounts 125,588 112,589 245,611 223,855
Other charges and fees 57,531 50,372 113,070 99,509
Mortgage production related income 52,961 20,474 84,697 39,167
Mortgage servicing related income (2,685) 7,692 4,039 15,414
Credit card and other fees 29,968 24,378 55,556 46,469
Retail investment services 27,260 30,550 52,043 61,348
Investment banking income 19,414 35,321 33,503 54,992
Trading account profits and commissions 24,895 (1,442) 54,589 10,571
Other noninterest income 34,367 38,754 70,684 68,753
Securities gains 27,728 1,531 84,845 8,393
--------------- ---------------- --------------- ---------------
Total noninterest income 521,812 443,970 1,047,731 880,822
--------------- ---------------- --------------- ---------------
Noninterest Expense
Salaries and other compensation 383,145 365,251 759,496 736,336
Employee benefits 48,421 41,411 105,081 98,335
Net occupancy expense 51,769 49,890 101,782 99,950
Equipment expense 44,344 50,667 88,889 102,305
Outside processing and software 45,339 44,388 90,483 85,999
Marketing and customer development 22,955 27,855 45,988 50,157
Merger-related expenses - 18,183 - 31,816
Amortization of intangible assets 20,994 8,777 29,284 17,771
Other noninterest expense 146,871 113,362 285,532 201,430
--------------- ---------------- --------------- ---------------
Total noninterest expense 763,838 719,784 1,506,535 1,424,099
--------------- ---------------- --------------- ---------------
Income before provision for income taxes and
extraordinary loss 542,262 465,523 1,063,041 958,361
Provision for income taxes 177,292 148,054 360,546 321,453
--------------- ---------------- --------------- ---------------
Income before extraordinary loss 364,970 317,469 702,495 636,908
Extraordinary loss, net of taxes 17,824 - 17,824 -
--------------- ---------------- --------------- ---------------
Net Income $ 347,146 $ 317,469 $ 684,671 $ 636,908
=============== ================ =============== ===============
Average common shares - diluted 291,677,416 302,140,506 293,743,462 304,439,570
Average common shares - basic 287,877,855 298,985,834 289,830,572 301,223,533
Net income per average common share - diluted
Income before extraordinary loss $ 1.25 $ 1.05 $ 2.39 $ 2.09
Extraordinary loss, net of taxes 0.06 - 0.06 -
--------------- ---------------- --------------- ---------------
Net income $ 1.19 $ 1.05 $ 2.33 $ 2.09
=============== ================ =============== ===============
Net income per average common share - basic
Income before extraordinary loss $ 1.27 $ 1.06 $ 2.42 $ 2.11
Extraordinary loss, net of taxes 0.06 - 0.06 -
--------------- ---------------- --------------- ---------------
Net income $ 1.21 $ 1.06 $ 2.36 $ 2.11
=============== ================ =============== ===============
(1) Includes dividends on common stock of
The Coca-Cola Company 8,688 8,206 17,376 16,411
See notes to consolidated financial statements
3
Consolidated Balance Sheets
---------------------------
June 30 December 31 June 30
(Dollars in thousands) (Unaudited) 2001 2000 2000
--------------- ----------------- ---------------
Assets
Cash and due from banks $ 3,658,087 $ 4,110,489 $ 2,847,699
Interest-bearing deposits in other banks 98,461 13,835 8,109
Trading account 932,246 1,105,848 875,543
Securities available for sale (1) 18,578,244 18,810,311 17,382,207
Funds sold 928,994 1,267,028 1,613,080
Loans held for sale 3,126,942 1,759,281 1,345,694
Loans 68,938,242 72,239,820 71,450,408
Allowance for loan losses (866,099) (874,547) (874,484)
--------------- ----------------- ---------------
Net loans 68,072,143 71,365,273 70,575,924
Premises and equipment 1,590,308 1,629,071 1,631,331
Intangible assets 849,161 810,860 800,728
Customers' acceptance liability 93,941 184,157 173,964
Other assets 2,894,007 2,604,221 2,703,365
--------------- ----------------- ---------------
Total assets $ 100,822,534 $ 103,660,374 $ 99,957,644
=============== ================= ===============
Liabilities and Shareholders' Equity
Noninterest-bearing deposits $ 13,568,864 $ 15,064,017 $ 13,719,684
Interest-bearing deposits 49,770,813 54,469,320 54,956,751
--------------- ----------------- ---------------
Total deposits 63,339,677 69,533,337 68,676,435
Funds purchased 10,841,435 10,895,944 10,159,988
Other short-term borrowings 1,929,964 1,761,985 1,419,499
Long-term debt 11,393,044 7,895,430 7,200,459
Guaranteed preferred beneficial interests in debentures 1,050,000 1,050,000 1,050,000
Acceptances outstanding 93,941 184,157 173,964
Other liabilities 4,301,318 4,100,313 3,698,345
--------------- ----------------- ---------------
Total liabilities 92,949,379 95,421,166 92,378,690
--------------- ----------------- ---------------
Preferred stock, no par value; 50,000,000 shares authorized; none issued - - -
Common stock, $1.00 par value 294,163 323,163 323,163
Additional paid in capital 1,265,738 1,274,416 1,272,178
Retained earnings 5,019,324 6,312,044 5,873,963
Treasury stock and other (333,912) (1,613,189) (1,357,018)
--------------- ----------------- ---------------
Realized shareholders' equity 6,245,313 6,296,434 6,112,286
Accumulated other comprehensive income 1,627,842 1,942,774 1,466,668
--------------- ----------------- ---------------
Total shareholders' equity 7,873,155 8,239,208 7,578,954
--------------- ----------------- ---------------
Total liabilities and shareholders' equity $ 100,822,534 $ 103,660,374 $ 99,957,644
=============== ================= ===============
Common shares outstanding 288,511,505 296,266,329 301,931,828
Common shares authorized 750,000,000 750,000,000 750,000,000
Treasury shares of common stock 5,651,252 26,896,428 21,230,929
(1) Includes net unrealized gains on securities available for sale $ 2,546,677 $ 3,048,313 $ 2,371,237
See notes to consolidated financial statements
4
Consolidated Statements of Cash Flows
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Six Months Ended June 30
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(Dollars in thousands) (Unaudited) 2001 2000
---------------- ---------------
Cash flows from operating activities:
Net income $ 684,671 $ 636,908
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Extraordinary loss on early extinguishment of debt 17,824 -
Depreciation, amortization and accretion 176,226 149,776
Provisions for loan losses and foreclosed property 107,105 50,192
Amortization of compensation element of restricted stock 2,734 4,726
Securities gains (84,845) (8,393)
Net gain on sale of assets (5,673) (7,888)
Originated loans held for sale (9,502,949) (4,224,468)
Sales of loans held for sale 8,135,288 4,410,561
Net increase in accrued interest receivable,
prepaid expenses and other assets (336,132) (1,213,778)
Net increase in accrued interest payable,
accrued expenses and other liabilities 387,709 269,566
--------------- --------------
Net cash (used in) provided by operating activities (418,042) 67,202
--------------- --------------
Cash flows from investing activities:
Proceeds from maturities of securities available for sale 1,372,986 1,239,752
Proceeds from sales of securities available for sale 3,253,837 667,038
Purchases of securities available for sale (2,918,327) (1,128,413)
Net decrease (increase) in loans 717,739 (5,645,049)
Proceeds from sale of loans 609,714 153,719
Capital expenditures (25,232) (70,479)
Proceeds from the sale of other assets 13,076 12,766
Loan recoveries 27,365 28,795
--------------- --------------
Net cash provided by (used in) investing activities 3,051,158 (4,741,871)
--------------- --------------
Cash flows from financing activities:
Net (decrease) increase in deposits (6,193,660) 8,575,906
Net increase (decrease) in funds purchased
and other short-term borrowings 113,470 (6,591,440)
Proceeds from the issuance of long-term debt 5,325,000 3,113,839
Repayment of long-term debt (1,845,210) (880,726)
Proceeds from the exercise of stock options 7,150 7,543
Proceeds from stock issuance 13,844 13,202
Proceeds used in the acquisition of stock (526,230) (389,837)
Dividends paid (233,290) (224,296)
--------------- --------------
Net cash (used in) provided by financing activities (3,338,926) 3,624,191
--------------- --------------
Net decrease in cash and cash equivalents (705,810) (1,050,478)
Cash and cash equivalents at beginning of year 5,391,352 5,519,366
--------------- --------------
Cash and cash equivalents at end of period $ 4,685,542 $ 4,468,888
=============== ==============
Supplemental Disclosure
Interest paid $ 1,795,287 $ 1,675,409
Income taxes paid 158,633 269,144
Non-cash impact of securitizing loans 1,903,518 -
Non-cash impact of STAR Systems Inc. sale 52,919 -
See notes to consolidated financial statements
5
Consolidated Statements of Shareholders' Equity
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Accumulated
Additional Treasury Other
Common Paid in Retained Stock and Comprehensive
(Dollars in thousands) (Unaudited) Stock Capital Earnings Other* Income Total
--------------------------------------------------------------------------------------
Balance, January 1, 2000 $323,163 $ 1,293,387 $5,461,351 $(1,013,861) $1,562,822 $ 7,626,862
Net income - - 636,908 - - 636,908
Other comprehensive income:
Change in unrealized gains (losses) on
securities, net of taxes - - - - (96,154) (96,154)
---------------
Total comprehensive income 540,754
Cash dividends declared, $0.74 per share - - (224,296) - - (224,296)
Exercise of stock options - (16,529) - 24,072 - 7,543
Acquisition of treasury stock - - - (389,837) - (389,837)
Restricted stock activity - (594) - 594 - -
Amortization of compensation element
of restricted stock - - - 4,726 - 4,726
Issuance of stock for employee benefit plans - (4,086) - 17,288 - 13,202
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Balance, June 30, 2000 $323,163 $ 1,272,178 $5,873,963 $(1,357,018) $1,466,668 $ 7,578,954
======================================================================================
Balance, January 1, 2001 $323,163 $ 1,274,416 $6,312,044 $(1,613,189) $1,942,774 $ 8,239,208
Net income - - 684,671 - - 684,671
Other comprehensive income:
Adoption of SFAS No. 133 - - - - (10,560) (10,560)
Change in unrealized gains (losses) on
derivatives, net of taxes - - - - (16,947) (16,947)
Change in unrealized gains (losses) on
securities, net of taxes - - - - (287,425) (287,425)
---------------
Total comprehensive income 369,739
Cash dividends declared, $0.80 per share - - (233,290) - - (233,290)
Exercise of stock options - (9,175) - 16,325 - 7,150
Acquisition of treasury stock - - - (526,230) - (526,230)
Retirement of treasury stock (29,000) - (1,744,101) 1,773,101 - -
Restricted stock activity - 68 - (68) - -
Amortization of compensation element
of restricted stock - - - 2,734 - 2,734
Issuance of stock for employee benefit plans - 429 - 13,415 - 13,844
--------------------------------------------------------------------------------------
Balance, June 30, 2001 $294,163 $ 1,265,738 $5,019,324 $ (333,912) $1,627,842 $ 7,873,155
======================================================================================
* Balance at June 30, 2000 includes $1,306,813 for treasury stock and $50,205
for compensation element of restricted stock.
Balance at June 30, 2001 includes $294,711 for treasury stock and $39,201
for compensation element of restricted stock.
See notes to consolidated financial statements
6
Notes to Consolidated Financial Statements (Unaudited)
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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, 2000. Certain reclassifications have been made to prior year amounts to
conform with the current year presentation.
Note 2 - Acquisitions
On March 28, 2001, the Company acquired Asset Management Advisors Holdings,
Inc., a Jupiter, Florida based specialized wealth management firm. The
acquisition was accounted for as a purchase with $22.0 million of cash tendered
as consideration. The acquisition did not have a material effect on the
consolidated financial statements.
On May 14, 2001, SunTrust announced the signing of an agreement to purchase the
institutional business of The Robinson-Humphrey Company, LLC from Citigroup's
Salomon Smith Barney unit for approximately $11.9 million in cash. This
transaction was completed on July 27, 2001.
Also on May 14, 2001, SunTrust announced a proposal to acquire Wachovia
Corporation. The proposal was for Wachovia shareholders to exchange each share
of their common stock for 1.081 shares of SunTrust common stock. The Wachovia
Board of Directors rejected this proposal and continued to endorse a proposed
merger of equals which was entered into on April 15, 2001 with First Union
Corporation. SunTrust mailed proxy statements to approximately 120,000 Wachovia
shareholders to solicit votes against the proposed merger with First Union. On
August 3, 2001, preliminary results of the proxy voting indicated Wachovia
shareholders approved the merger with First Union. SunTrust subsequently
withdrew its acquisition proposal. During the third quarter of 2001, SunTrust
will record approximately $30 million of expenses related to the proposed
Wachovia merger. As of June 30, 2001, $7.5 million in costs had been recorded on
the balance sheet, and primarily consisted of legal and consulting fees.
Note 3 - Recent Accounting Developments
In July of 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards No. 141, "Business Combinations"
(SFAS 141), and No. 142, "Goodwill and Other Intangible Assets" (SFAS 142). SFAS
141 establishes accounting and reporting standards for business combinations.
This Statement eliminates the use of the pooling-of-interest method of
accounting for business combinations, requiring future business combinations to
be accounted for using the purchase method of accounting. The provisions of this
Statement apply to all business combinations initiated after June 30, 2001. This
Statement also applies to all business combinations accounted for using the
purchase method for which the date of acquisition is July 1, 2001, or later. It
does not appear the Statement will have a material impact on the Company's
financial position or results of operations.
SFAS 142 establishes accounting and reporting standards for goodwill and other
intangible assets. With the adoption of this Statement, goodwill is no longer
subject to amortization over its estimated useful life. Rather, goodwill will be
subject to at least an annual assessment for impairment by applying a fair-value
based test. SunTrust will adopt SFAS 142 effective January 1, 2002. Goodwill
currently carried on the balance sheet will be subject to an initial assessment
for impairment to be completed by the second quarter of 2002. Year-to-date June
30, 2001 earnings included net-of-tax amortization of goodwill totaling $22.2
million. SunTrust has not yet evaluated the impact that the adoption of this
statement will have on its financial position or results of operations.
7
Notes to Consolidated Financial Statements (Unaudited) - continued
------------------------------------------------------------------
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.
Note 5 - Loan Securitizations
During the first quarter of 2001, SunTrust transferred $1,903 million of single
family mortgages to securities available for sale in two securitization
transactions. These securities are maintained in the Company's available for
sale securities portfolio at fair market value based on quoted market prices.
There were no additional loan securization transactions during the second
quarter of 2001.
Note 6 - Comprehensive Income
The Company's comprehensive income, which includes certain transactions and
other economic events that bypass the income statement, consists of net income,
unrealized gains and losses on securities available for sale and the impact of
cash flow hedges, net of income taxes.
8
Notes to Consolidated Financial Statements (Unaudited) - continued
------------------------------------------------------------------
Comprehensive income for the six months ended June 30, 2001 and 2000 is
calculated as follows:
(Dollars in thousands)
2001 2000
---- ----
Unrealized loss on available for sale securities, net,
recognized in other comprehensive income:
Before Income Tax $ (442,192) $(156,468)
Income Tax (154,767) (60,314)
------------- ------------
Net of Income Tax $ (287,425) $ (96,154)
============= ============
Amounts reported in net income:
Gain on sale of securities $ 84,845 $ 8,393
Net (accretion) amortization (8,638) (7,150)
------------- ------------
Reclassification adjustment 76,207 1,243
Income tax expense (26,672) (479)
------------- ------------
Reclassification adjustment, net of tax $ 49,535 $ 764
============= ============
Unrealized loss on available for sale securities
arising during period, net of tax $ (237,890) $ (95,390)
Reclassification adjustment, net of tax (49,535) (764)
------------- ------------
Net unrealized loss on available for sale securities
recognized in other comprehensive income $ (287,425) $ (96,154)
============= ============
Unrealized loss on derivative financial instruments, net,
recognized in other comprehensive income:
Before Income Tax $ (42,319) $ -
Income Tax 14,812 -
------------- ------------
Net of Income Tax $ (27,507) $ -
============= ============
Cumulative effect of change in accounting principle $ (16,246) $ -
Income tax benefit 5,686 -
------------- ------------
Cumulative effect of change in accounting priniciple,
net of tax $ (10,560) $ -
============= ============
Reclassification of losses from other comprehensive
income to earnings $ 6,073 $ -
Income tax expense (2,125) -
------------- ------------
Reclassification adjustment, net of tax $ 3,948 $ -
============= ============
Unrealized loss on derivative financial instruments
arising during period, net of tax $ (20,895) $ -
Reclassification adjustment, net of tax 3,948 -
------------- ------------
Net unrealized loss on derivative instruments
recognized in other comprehensive income $ (16,947) $ -
============= ============
Total unrealized losses recognized in
other comprehensive income $ (314,932) $ (96,154)
Net income 684,671 636,908
------------- ------------
Total comprehensive income $ 369,739 $ 540,754
============= ============
9
Notes to Consolidated Financial Statements (Unaudited) - continued
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Note 7 - Earnings Per Share Reconciliation
Net income is the same in the calculation of basic and diluted EPS. Shares of
3.7 million and 4.0 million for the periods ended June 30, 2001 and 2000,
respectively, were excluded in the computation of diluted EPS because they would
have been antidilutive. A reconciliation of the difference between average basic
common shares outstanding and average diluted common shares outstanding for the
three and six months ended June 30, 2001 and 2000 is included in the following
table.
Computation of Per Share Earnings
(In thousands, except per share data)
Three Months Six Months
Ended June 30 Ended June 30
------------------------------- --------------------------------------
2001 2000 2001 2000
------------ --------------- ----------------- -----------------
Diluted
- -------
Income before extraordinary loss $ 364,970 $ 317,469 $ 702,495 $ 636,908
Extraordinary loss, net of taxes 17,824 - 17,824 -
------------ --------------- ----------------- -----------------
Net income $ 347,146 $ 317,469 $ 684,671 $ 636,908
------------ --------------- ----------------- -----------------
Average common shares outstanding 287,878 298,986 289,831 301,224
Effect of dilutive securities:
Stock options 1,919 1,351 2,028 1,431
Performance restricted stock 1,880 1,804 1,884 1,785
------------ --------------- ----------------- -----------------
Average diluted common shares 291,677 302,141 293,743 304,440
------------ --------------- ----------------- -----------------
Earnings per common share - diluted:
Income before extraordinary loss $ 1.25 $ 1.05 $ 2.39 $ 2.09
Extraordinary loss 0.06 - 0.06 -
------------ --------------- ----------------- -----------------
Net income $ 1.19 $ 1.05 $ 2.33 $ 2.09
============ =============== ================= =================
Basic
- -----
Income before extraordinary loss $ 364,970 $ 317,469 $ 702,495 $ 636,908
Extraordinary loss, net of taxes 17,824 - 17,824 -
------------ --------------- ----------------- -----------------
Net income $ 347,146 $ 317,469 $ 684,671 $ 636,908
------------ --------------- ----------------- -----------------
Average common shares 287,878 298,986 289,831 301,224
------------ --------------- ----------------- -----------------
Earnings per common share - basic:
Income before extraordinary loss $ 1.27 $ 1.06 $ 2.42 $ 2.11
Extraordinary loss 0.06 - 0.06 -
------------ --------------- ----------------- -----------------
Net income $ 1.21 $ 1.06 $ 2.36 $ 2.11
============ =============== ================= =================
10
Notes to Consolidated Financial Statements (Unaudited) - continued
------------------------------------------------------------------
Note 8 - Business Segment Reporting
The Company's prior business segment disclosures have been aligned with its
geographic regions as defined by its former multiple bank charters. During 2000,
as a result of the consolidation of its multiple bank charters into a single
legal entity, the Company began to redefine its operating model and created a
line of business management structure to overlay its former multiple bank
management structure. Beginning in January 2001, the Company implemented
significant changes to its internal management reporting system to begin to
measure and manage certain business activities by line of business. The Lines of
Business are defined as follows:
Retail
Retail includes loans, deposits and other fee based services for retail and
small business clients. The Retail Line of Business also includes the branch
office and ATM networks of the Company.
Commercial
Commercial includes loans, deposits and other fee based services for business
clients generally with total annual revenues from $5 million to $250 million.
Corporate and Investment Banking
Corporate and Investment Banking includes loans, deposits and other fee based
services for national and large business clients generally with total annual
revenues in excess of $250 million. Corporate and Investment Banking also
includes the management of corporate leasing, debt and equity capital markets
and international banking services.
Mortgage
Mortgage includes the investment in residential mortgage loans and the
production, sale and service of secondary residential mortgage loans.
Private Client Services
Private Client Services includes personal and institutional trust and investment
management services, retail investment services and management of affluent
clients' financial resources including loans, deposits and other fee based
services.
Corporate/Other
Corporate/Other includes the investment securities portfolio, long-term debt,
capital, derivative instruments, short-term liquidity and funding activities,
balance sheet risk management, office premises and certain support activities
not currently allocated to the aforementioned Lines of Business. Any
transactions between the separate Lines of Business not already eliminated in
the results of the Lines of Business are also reflected in the Corporate/Other
Line of Business.
11
Notes to Consolidated Financial Statements (Unaudited) - continued
------------------------------------------------------------------
Unlike financial accounting, there is no comprehensive authoritative body of
guidance for management accounting practices equivalent to generally accepted
accounting principles. Therefore, the disclosure of performance of the business
segments is not necessarily comparable with similar information presented by any
other financial institution.
The Company utilizes a matched maturity funds transfer pricing methodology to
transfer the interest rate risk of all assets and liabilities to the Corporate
Treasury area which manages the interest rate risk of the Company. Differences
in the aggregate amounts of funds charges and credits that are transfer priced
are reflected in the Corporate/Other Line of Business segment. A system of
internal credit transfers is utilized to recognize supportive business services
across Lines of Business. The net results of these credits are reflected in each
Line of Business segment. The cost of operating office premises is charged to
the Lines of Business by use of an internal cost transfer process. Allocations
of certain administrative support expenses and customer transaction processing
expenses are also reflected in each Line of Business segment. The offset to
these expense allocations, as well as the amount of any unallocated expenses, is
reported in the Corporate/Other Line of Business segment. The Company also
utilizes an internal credit risk transfer pricing methodology (the "credit risk
premium") which creates a current period financial charge against interest
income to each Line of Business based on the estimated credit risk-adjusted
return on loans and leases. The offset to the aggregate credit risk premium
charges is matched against the Company's current provision for loan and lease
losses with any difference reported in the Corporate/Other segment. The
provision for income taxes is also reported in the Corporate/Other segment.
The Company is currently in the process of building and implementing further
enhancements to its internal management reporting system which are expected to
be implemented over the remaining periods of 2001. Once complete, the activities
reported for each Line of Business segment are expected to include: assets,
liabilities and attributed economic capital; matched maturity funds transfer
priced interest income, net of credit risk premiums; direct non-interest income;
Internal credit transfers between Lines of Business for supportive business
services; and fully absorbed expenses. The internal management reporting system
and the business segment disclosures for each Line of Business do not currently
include attributed economic capital, nor fully absorbed expenses. Any amounts
not currently reported in each Line of Business segment are reported in the
Corporate/Other segment. The implementation of these enhancements to the
internal management reporting system is expected to materially affect the net
income disclosed for each segment.
Due to the significant nature of the changes implemented to the internal
management reporting system in 2001, it is not practical to conform prior year
financial data for the new business segments nor current year financial data for
the prior business segments for reporting.
12
Notes to Consolidated Financial Statements (Unaudited) - continued
------------------------------------------------------------------
The following table discloses selected financial information for SunTrust's new
reportable business segments for the six months ended June 30, 2001.
SUNTRUST BANKS, INC.
---------------------------------------------------------------------------------------------------
Six Months Ended June 30, 2001
---------------------------------------------------------------------------------------------------
Corporate and
Investment Private Client
Retail Commercial Banking Mortgage Services Corporate/Other Consolidated
---------------------------------------------------------------------------------------------------
Average total assets $19,984,649 $20,422,530 $22,439,319 $19,443,307 $ 1,376,951 $ 19,542,963 $103,209,719
Average total liabilities 44,988,277 8,544,114 4,421,253 921,474 1,599,767 34,754,111 95,228,996
Average total equity - - - - - 7,980,723 7,980,723
---------------------------------------------------------------------------------------------------
Net interest revenue (1) $ 826,995 $ 278,195 $ 108,557 $ 96,117 $ 23,416 $ 188,565 $ 1,521,845
Noninterest revenue 296,895 119,159 160,699 109,111 290,086 71,781 1,047,731
Noninterest expense 603,898 188,465 147,686 143,849 199,513 223,124 1,506,535
---------------------------------------------------------------------------------------------------
Total contribution before
taxes and extraordinary loss 519,992 208,889 121,570 61,379 113,989 37,222 1,063,041
Provision for income taxes - - - - - 360,546 360,546
---------------------------------------------------------------------------------------------------
Income before extraordinary loss 519,992 208,889 121,570 61,379 113,989 (323,324) 702,495
Extraordinary loss, net of tax - - - - - 17,824 17,824
---------------------------------------------------------------------------------------------------
Net Income $ 519,992 $ 208,889 $ 121,570 $ 61,379 $ 113,989 $ (341,148) $ 684,671
===================================================================================================
Total revenue from external
customers $ 1,083,276 $ 798,100 $ 802,366 $ 776,764 $ 295,418 $ 811,096 $ 4,567,020
===================================================================================================
(1) Net interest income is fully taxable equivalent and is presented on a
matched maturity funds transfer price basis net of the credit risk premium
for the Lines of Business.
13
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
SunTrust Banks, Inc., the nation's ninth-largest commercial banking
organization, is a financial holding company with its headquarters in Atlanta,
Georgia. SunTrust's principal banking subsidiary, SunTrust Bank, offers a full
line of financial services for consumers and businesses through its branches
located primarily in Alabama, Florida, Georgia, Maryland, Tennessee, Virginia
and the District of Columbia. In addition to traditional deposit, credit and
trust and investment services offered by SunTrust Bank, other SunTrust
subsidiaries provide mortgage banking, commercial and auto leasing,
credit-related insurance, asset management, securities brokerage and investment
banking services.
SunTrust has 1,120 full-service branches, including supermarket branches, and
continues to leverage technology to provide customers the convenience of banking
on the Internet, through 1,970 automated teller machines and via twenty-four
hour telebanking.
The following analysis of the financial performance of SunTrust for the second
quarter of 2001 should be read in conjunction with the financial statements,
notes and other information contained in this document. SunTrust has made, and
may continue to make, various forward-looking statements with respect to
financial and business matters. These forward-looking statements are subject to
numerous assumptions, risks and uncertainties, all of which may change over
time. The actual results that are achieved could differ significantly from the
forward-looking statements contained in this document.
The results of operations for the six months ended June 30, 2001 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 $347.1 million and $684.7 million
for the second quarter and first six months of 2001, an increase of $29.7
million, or 9.3%, and $47.8 million, or 7.5%, compared to $317.5 million and
$636.9 million in the same periods last year. These results included after-tax
merger-related charges of $11.8 million, or $.04 per diluted share, and $20.7
million, or $.07 per diluted share, for the second quarter and first six months
of 2000, respectively. Diluted earnings per share, adjusted for merger charges,
grew 9.2% to $1.19 and 7.9 % to $2.33 from $1.09 and $2.16 in the same periods
last year.
In the second quarter of 2001, results included two other unusual items. A loss
of $17.8 million, net of tax, or $.06 per diluted share, was recorded as an
extraordinary loss during the second quarter of 2001 for the Company's early
extinguishment of long-term debt in order to lengthen the maturity of its market
borrowings. In addition, the Company recorded net of tax securities gains of
$17.8 million, or $.06 per diluted share, by repositioning its balance sheet
during the second quarter of 2001 and shortening the average life of its
investment portfolio.
Net interest income increased $55.5 million, or 7.1%, and $78.6 million, or
5.0%, from the second quarter and first six months of 2000 to the second quarter
and first six months of 2001. This was primarily due to lower funding costs as
the Federal Reserve decreased the fed funds rate a total of 275 basis points
since June 30, 2000. Also contributing to the increase was moderate loan demand
as average loans, adjusted for securitizations, increased $2.9 billion, or 4.2%,
and $4.6 billion, or 6.8% from the second quarter and first six months of 2000
to the second quarter and first six months of 2001, respectively.
14
The loan loss provision increased $11.9 million, or 43.1%, over the second
quarter of 2000 and $56.9 million, or 113.9%, over the first six months of 2000.
The increase over the prior year's second quarter was primarily due to the
second quarter of 2001 sale of three of the Company's corporate nonperforming
loans which resulted in losses of $14.6 million. Additional write-downs of other
nonperforming loans also contributed to this increase.
Total noninterest income, excluding securities gains, increased $51.6 million,
or 11.7%, over the prior year's second quarter. Noninterest income included
increases of $26.3 million, or 1,826.4%, in trading account profits and
commissions, $32.5 million, or 158.7%, in mortgage production related income,
$13.0 million, or 11.5%, in services charges on deposit accounts and $7.2
million, or 14.2%, in other charges and fees.
Total noninterest expense, excluding merger-related charges, increased $62.2
million, or 8.9%, over the second quarter of 2000. Included in the overall
increase was $17.4 million in expenses associated with the Company's sale of the
assets and liabilities of SunTrust Credit Corporation and $14.7 million in One
Bank initiatives resulting from the continued system integration of customer
based systems across the geographic areas served by SunTrust Banks, Inc.
15
Selected Quarterly Financial Data Table 1
(Dollars in millions except per share data) Quarters
-------------------------------------------------------------------------------
2001 2000
------------------------------ ----------------------------------------------
2 1 4 3 2
-------------- ------------- ------------- -------------- -------------
Summary of Operations
Interest and dividend income $ 1,634.7 $ 1,743.9 $ 1,798.3 $ 1,764.2 $ 1,672.0
Interest expense 810.8 939.0 1,012.9 992.8 903.0
-------------- ------------- ------------- -------------- -------------
Net interest income 823.9 804.9 785.4 771.4 769.0
Provision for loan losses 39.6 67.3 53.5 30.5 27.7
-------------- ------------- ------------- -------------- -------------
Net interest income after
provision for loan losses 784.3 737.6 731.9 740.9 741.3
Noninterest income(1) 521.8 525.9 445.6 447.2 444.0
Noninterest expense(2)(3) 763.8 742.7 697.9 706.6 719.8
-------------- ------------- ------------- -------------- -------------
Income before provision for income
taxes and extraordinary loss 542.3 520.8 479.6 481.5 465.5
Provision for income taxes 177.3 183.3 149.2 154.7 148.0
-------------- ------------- ------------- -------------- -------------
Income before extraordinary loss 365.0 337.5 330.4 326.8 317.5
Extraordinary loss, net of taxes(4) 17.8 - - - -
-------------- ------------- ------------- -------------- -------------
Net income $ 347.2 $ 337.5 $ 330.4 $ 326.8 $ 317.5
============== ============= ============= ============== =============
Net interest income (taxable-equivalent) $ 834.1 $ 815.2 $ 796.1 $ 781.5 $ 778.7
Per common share
Diluted
Income before extraordinary loss $ 1.25 $ 1.14 $ 1.11 $ 1.10 $ 1.05
Extraordinary loss, net of taxes 0.06 - - - -
-------------- ------------- ------------- -------------- -------------
Net income 1.19 1.14 1.11 1.10 1.05
Basic
Income before extraordinary loss 1.27 1.16 1.13 1.11 1.06
Extraordinary loss, net of taxes 0.06 - - - -
-------------- ------------- ------------- -------------- -------------
Net income 1.21 1.16 1.13 1.11 1.06
Dividends declared 0.40 0.40 0.37 0.37 0.37
Book value 27.29 26.83 27.81 25.85 25.10
Market price
High 66.38 68.07 64.38 54.19 66.00
Low 59.25 57.29 41.63 45.63 45.06
Close 64.78 64.80 63.00 49.88 45.69
Selected Average Balances
Total assets $103,194.2 $103,225.4 $101,246.0 $ 99,392.2 $ 97,497.3
Earning assets 92,570.8 92,553.9 90,679.6 89,663.7 88,200.6
Loans 69,900.5 71,654.4 71,774.6 71,506.9 69,830.6
Consumer and commercial deposits 56,343.6 54,538.6 54,099.2 53,641.4 53,942.5
Brokered and foreign deposits 8,017.1 10,870.0 13,082.7 13,516.8 12,923.9
Realized shareholders' equity 6,208.8 6,264.6 6,140.5 6,012.8 5,948.9
Total shareholders' equity 7,873.4 8,089.2 7,844.4 7,487.4 7,195.9
Common shares - diluted (thousands) 291,677 295,832 296,461 298,558 302,141
Common shares - basic (thousands) 287,878 291,805 293,390 295,575 298,986
Financial Ratios
Return on average assets 1.38 % 1.36 % 1.33 % 1.34 % 1.34 %
Return on average realized shareholders' equity (5) 22.43 21.85 21.40 21.62 21.46
Return on average total shareholders' equity 17.68 16.92 16.75 17.36 17.74
Net interest margin 3.61 3.57 3.49 3.47 3.55
(1) Includes securities gains of $27.4 million for the second quarter of 2001
related to the Company's securities portfolio repositioning.
(2) Includes enhancements to customer based systems of $14.7 and $7.0 million
for the second and first quarters of 2001, respectively, related to the
One Bank initiative.
(3) Includes merger-related expenses of $2.4 million, $8.3 million, and $18.2
million for the fourth, third, and second quarters of 2000.
(4) Represents the loss on the Company's early extinguishment of long-term debt
during the second quarter of 2001, net of $9.6 million in taxes.
(5) In this report, SunTrust presents a return on average realized shareholders'
equity ratio that excludes net unrealized gains. Due to its ownership of
48 million shares of common stock of The Coca-Cola Company, SunTrust
believes this measure is more indicative of its return on average
shareholders' equity when comparing to other companies.
16
Consolidated Daily Average Balances, Income/Expense
and Average Yields Earned and Rates Paid
(Dollars in millions; yields on taxable-equivalent basis)
Quarter Ended
-----------------------------------------------------------------------------------
June 30, 2001 March 31, 2001
---------------------------------------- ------------------------------------
Average Income/ Yields/ Average Income/ Yields/
Balances Expense Rates Balances Expense Rates
----------- --------- -------- ---------- --------- -------
Assets
Loans:(1)
Taxable $ 68,810.9 $ 1,258.7 7.34 % $ 70,552.3 $1,385.0 7.96 %
Tax-exempt(2) 1,089.6 19.8 7.28 1,102.1 20.9 7.68
---------------------------------------- ------------------------------------
Total loans 69,900.5 1,278.5 7.34 71,654.4 1,405.9 7.96
Securities available for sale:
Taxable 16,756.8 278.2 6.66 15,920.2 270.0 6.88
Tax-exempt(2) 455.9 9.4 8.27 449.6 9.4 8.44
---------------------------------------- ------------------------------------
Total securities available for sale 17,212.7 287.6 6.70 16,369.8 279.4 6.92
Funds sold 1,176.4 13.4 4.56 1,361.1 18.9 5.64
Loans held for sale 2,829.8 51.9 7.36 1,988.3 36.5 7.45
Other short-term investments(2) 1,451.4 13.5 3.75 1,180.3 13.6 4.66
---------------------------------------- ------------------------------------
Total earning assets 92,570.8 1,644.9 7.13 92,553.9 1,754.3 7.69
Allowance for loan losses (868.9) (896.7)
Cash and due from banks 3,373.7 3,321.7
Premises and equipment 1,601.4 1,617.1
Other assets 3,955.5 3,761.5
Unrealized gains on securities
available for sale 2,561.7 2,867.9
---------------------------------------- ------------------------------------
Total assets $ 103,194.2 $ 103,225.4
======================================== ====================================
Liabilities and Shareholders' Equity
Interest-bearing deposits:
NOW/Money market accounts $ 23,779.9 $ 173.1 2.92 % $ 21,172.9 $ 173.5 3.32 %
Savings 6,024.8 46.4 3.09 6,251.4 56.6 3.67
Consumer time 9,217.8 123.3 5.37 9,741.0 135.7 5.65
Other time 3,829.4 52.7 5.52 4,235.1 62.1 5.95
Brokered deposits 2,265.6 26.8 4.74 2,490.3 39.2 6.38
Foreign deposits 5,751.5 62.6 4.37 8,379.7 117.2 5.67
---------------------------------------- ------------------------------------
Total interest-bearing deposits 50,869.0 484.9 3.82 52,270.4 584.3 4.53
Funds purchased 12,367.6 125.9 4.08 11,834.6 154.4 5.29
Other short-term borrowings 1,367.1 16.0 4.68 1,724.3 24.1 5.66
Long-term debt 12,486.2 184.0 5.91 11,688.5 176.3 6.12
---------------------------------------- ------------------------------------
Total interest-bearing liabilities 77,089.9 810.8 4.22 77,517.8 939.1 4.91
Noninterest-bearing deposits 13,491.7 13,138.2
Other liabilities 4,739.2 4,480.1
Realized shareholders' equity 6,208.8 6,264.6
Accumulated other comprehensive income 1,664.6 1,824.7
---------------------------------------- ------------------------------------
Total liabilities and shareholders' equity $ 103,194.2 $ 103,225.4
======================================== ====================================
Interest rate spread 2.91 % 2.78 %
---------------------------------------- ------------------------------------
Net Interest Income $ 834.1 $ 815.2
---------------------------------------- ------------------------------------
Net Interest Margin(3) 3.61 % 3.57 %
---------------------------------------- ------------------------------------
(1) Interest income includes loan fees of $35.6, $36.0, and $32.8 million in the
quarters ended June 30, March 31, 2001 and June 30, 2000, and $71.5 and 65.3
million in the six months ended June 30, 2001 and 2000. 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
$10.2, 10.4 and $9.6 million in the quarters ended June 30, March 31, 2001
and June 30, 2000 and $20.6 and $19.2 million for the six months ended June
30, 2001 and 2000.
17
Table 2
Quarter Ended Six Months Ended
---------------------------------------- -----------------------------------------------------------------------------------
June 30, 2000 June 30, 2001 June 30, 2000
---------------------------------------- ---------------------------------------- ----------------------------------------
Average Income/ Yields/ Average Income/ Yields/ Average Income/ Yields/
Balances Expense Rates Balances Expense Rates Balances Expense Rates
----------- --------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
$68,789.8 $1,354.7 7.92 % $ 69,676.8 $2,643.6 7.65 % $67,382.8 $2,648.6 7.90 %
1,040.8 19.8 7.65 1,095.8 40.7 7.48 1,047.5 39.4 7.56
---------------------------------------- ---------------------------------------- ----------------------------------------
69,830.6 1,374.5 7.92 70,772.6 2,684.3 7.65 68,430.3 2,688.0 7.90
14,483.6 242.7 6.74 16,340.8 548.2 6.76 14,758.1 490.3 6.68
470.0 8.9 7.65 452.8 18.7 8.35 489.2 18.3 7.53
---------------------------------------- ---------------------------------------- ----------------------------------------
14,953.6 251.6 6.77 16,793.6 566.9 6.81 15,247.3 508.6 6.71
1,537.5 24.5 6.41 1,268.2 32.3 5.14 1,423.5 43.8 6.19
1,279.7 23.7 7.45 2,411.3 88.5 7.40 1,358.4 48.8 7.23
599.2 7.4 4.95 1,316.6 27.1 4.15 569.6 12.8 4.51
---------------------------------------- ---------------------------------------- ----------------------------------------
88,200.6 1,681.7 7.67 92,562.3 3,399.1 7.41 87,029.1 3,302.0 7.63
(873.8) (882.7) (874.3)
3,322.7 3,347.9 3,359.0
1,627.5 1,609.2 1,627.7
3,204.3 3,859.0 3,131.3
2,016.0 2,714.0 2,182.6
---------------------------------------- ---------------------------------------- ----------------------------------------
$97,497.3 $ 103,209.7 $96,455.4
======================================== ======================================== ========================================
$20,194.3 $ 155.7 3.10 % $ 22,483.6 $ 346.5 3.11 % $20,296.0 $ 301.8 2.99 %
6,449.1 55.1 3.43 6,137.5 103.0 3.38 6,554.3 108.9 3.34
10,023.1 129.4 5.19 9,478.0 259.0 5.51 9,811.5 246.0 5.04
4,024.7 58.1 5.80 4,031.1 114.8 5.74 3,890.3 107.5 5.56
2,760.9 43.9 6.40 2,377.3 66.0 5.60 2,673.0 82.3 6.20
10,162.9 148.0 5.86 7,058.3 179.8 5.14 9,884.0 298.7 6.08
---------------------------------------- ---------------------------------------- ----------------------------------------
53,615.0 590.2 4.43 51,565.8 1,069.1 4.18 53,109.1 1,145.2 4.34
10,268.0 154.6 6.05 12,102.6 280.3 4.67 10,366.6 297.4 5.77
1,546.9 25.7 6.67 1,544.7 40.0 5.22 1,474.5 44.6 6.09
8,070.9 132.5 6.60 12,089.6 360.3 6.01 7,511.9 244.0 6.53
---------------------------------------- ---------------------------------------- ----------------------------------------
73,500.8 903.0 4.94 77,302.7 1,749.7 4.56 72,462.1 1,731.2 4.80
13,251.5 13,315.9 13,099.3
3,549.0 4,610.4 3,557.9
5,948.9 6,236.5 5,986.1
1,247.1 1,744.2 1,350.0
---------------------------------------- ---------------------------------------- ----------------------------------------
$97,497.3 $ 103,209.7 $96,455.4
======================================== ======================================== ========================================
2.73 % 2.85 % 2.83 %
---------------------------------------- ---------------------------------------- ----------------------------------------
$ 778.7 $1,649.4 $1,570.8
---------------------------------------- ---------------------------------------- ----------------------------------------
3.55 % 3.59 % 3.63 %
---------------------------------------- ---------------------------------------- ----------------------------------------
(3) Derivative instruments used to help balance SunTrust's interest-sensitivity
position increased net interest income $0.8 million in the quarter ended
June 30, 2000 and increased net interest income $0.1 million in the six
months ended June 30, 2000. Without these swaps, the net interest margin
would have been 3.55% and 3.63% in the quarter and six months ended June
30, 2000, respectively.
18
Interest Rate Risk. The normal course of business activity exposes SunTrust to
interest rate risk. Fluctuations in interest rates may result in changes in the
fair market value of the Company's financial instruments, cash flows and net
interest income. SunTrust's asset/liability management process manages the
Company's interest rate risk position. The objective of this process is the
optimization of the Company's financial position, liquidity and net interest
income, while limiting the volatility to net interest income from changes in
interest rates.
SunTrust uses a simulation modeling process to measure interest rate risk and
evaluate potential strategies. These simulations incorporate assumptions
regarding balance sheet growth and mix, pricing, and the repricing and maturity
characteristics of the existing and projected balance sheet. Other
interest-rate-related risks such as prepayment, basis and option risk are also
considered. Simulation results quantify interest rate risk under various
interest rate scenarios. Senior management regularly reviews the overall
interest rate risk position and develops and implements strategies to manage the
risk.
Management estimates the Company's net interest income for the next twelve
months would decline 1.0% under a gradual increase in interest rates of 100
basis points, versus the projection under stable rates. Net interest income
would increase by 0.4% 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 3.59% for the
first six months of 2001, a decrease of 4 basis points from the first six months
of 2000. The decrease is primarily attributable to interest expense to fund
purchases under the SunTrust stock repurchase program. Compared to the first six
months of 2000, the rate on earning assets decreased 22 basis points to 7.41% in
the first six months of 2001 and the rate on interest bearing liabilities
decreased 24 basis points to 4.56% primarily due to the declining interest rate
environment.
As part of its on-going balance sheet management, the Company continues to take
steps to obtain alternative lower cost funding sources such as developing
initiatives to grow retail deposits to maximize net interest income throughout
2001. During the first quarter of 2001, the Company initiated a campaign to
attract money market accounts. Average money market accounts have grown from
$12.1 billion for the second quarter of 2000 to $15.4 billion for the second
quarter of 2001. Additionally, the Company took advantage of the lower interest
rate environment by repositioning its balance sheet. The sale of $1.0 billion of
investment securities generated a gain of $27.4 million, and a pre-tax loss of
$27.4 million was incurred in retiring $1.3 billion of higher cost funding and
replacing it with $1.3 billion of new long-term funding at lower rates. This
initiative extended the maturity of the debt by 3.0 years and reduced funding
cost by 163 basis points while reducing the average life of the investment
portfolio. The Company will consider future repositioning opportunities as the
interest rate environment permits.
Interest income that SunTrust was unable to recognize on nonperforming loans had
a negative impact of two basis points on the net interest margin in both the
first six months of 2001 and 2000.
Noninterest Income. Noninterest income in the second quarter of 2001 increased
$77.8 million, or 17.5% from the comparable period last year. The increase is
due in part to $27.4 million of securities gains recorded by the Company
repositioning the balance sheet. Mortgage production related income increased
$32.5 million, or 158.7%, due to the high volume of refinancing activity
continuing in the second quarter of 2001 as a result of the lower interest rate
environment. Also associated with the high volume of refinancing activity,
mortgage servicing related income decreased $10.4 million, or 134.9%, due to
accelerated amortization of mortgage servicing rights related to increased
prepayments. Service charges on deposits and other charges and fees increased a
19
combined $20.2 million, or 12.4% over the second quarter of 2000. Increased
usage of products and services, a more consistent pricing strategy and a lower
earnings credit rate resulted in the increase in these income items. Included in
credit card and other fees is debit card interchange income of $15.0 million for
the second quarter of 2001 compared to $11.8 million in the same period of 2000.
Trust income, SunTrust's largest source of noninterest income, increased 0.4%
compared to the first quarter of 2001 while declining 1.3% on a year-to-date
basis. Fee income was adversely impacted as the market value of discretionary
assets declined. Discretionary trust assets as of June 30, 2001 were $91.7
billion compared to $ 91.6 billion at December 31, 2000 and $92.8 billion at
June 30, 2000. Offsetting the market value decline in managed assets was
quarter-to-date and year-to-date net inflows from net new business. Revenues
from new business for the second quarter of 2001 were improved compared to the
first quarter of 2001, while remaining constant on a year-to-date basis.
Estimated revenues lost from closed business remained constant for the second
and first quarters of 2001 while improving on a year-to-date basis.
Trading account profits and commissions increased $26.3 million, or 1,826.4%,
over the second quarter of 2000 while investment banking income decreased $15.9
million, or 45.0%, over the same period. The changes in these line items are
indicative of the continued volatility seen in the equity market, as well as the
changing interest rate environment throughout the first six months of 2001.
Trading account profits are primarily generated from the sale of derivative
products to customers.
Other income included net gains on the sale of student loans of $1.3 million and
$2.6 million in the second quarter of 2001 and 2000, respectively.
Noninterest Income Table 3
(In millions)
Quarters
----------------------------------------------------------------
2001 2000
---------------------- ---------------------------------------
2 1 4 3 2
---------- ----------- ----------- ----------- -----------
Trust income $ 124.8 $ 124.3 $ 121.4 $ 120.2 $ 123.7
Service charges on deposit accounts 125.6 120.0 118.9 116.9 112.6
Other charges and fees 57.5 55.6 55.1 56.3 50.4
Mortgage production related income 53.0 31.7 27.1 23.8 20.5
Mortgage servicing related income (2.7) 6.7 9.5 7.9 7.7
Credit card and other fees 30.0 25.6 24.9 24.2 24.4
Retail investment services 27.3 24.8 22.8 24.0 30.5
Trading account profits and commissions 24.9 29.7 16.3 4.9 (1.4)
Investment banking income 19.4 14.1 20.3 36.0 35.3
Other income 34.3 36.3 30.5 33.6 38.8
Securities gains (losses) 27.7 57.1 (1.2) (0.6) 1.5
---------- ----------- ----------- ----------- -----------
Total noninterest income $ 521.8 $ 525.9 $ 445.6 $ 447.2 $ 444.0
========== =========== =========== =========== ===========
20
Noninterest Expense. Noninterest expense increased $44.1 million, or 6.1% in the
second quarter of 2001 compared to the same period last year. Personnel
expenses, consisting of salaries, other compensation and employee benefits,
increased $24.9 million, or 6.1% from the earlier period. The majority of this
increase was a $24.2 million, or 33.1%, growth in other compensation due to
increased incentive payments related to mortgage production.
Also contributing to the $44.1 million increase was $14.7 million recorded in
the second quarter of 2001 related to the Company's One Bank initiative. The One
Bank initiative is for enhancements to customer based systems across its
geographic footprint and is expected to yield operating efficiencies in the
future. Combined salaries and employee benefits increased $5.8 million and
consulting and legal increased $7.5 million due to the One Bank initiative.
Amortization of intangible assets increased $12.7 million during the second
quarter of 2001 as a result of the write-off of the remaining goodwill
associated with SunTrust Credit Corporation, due to the sale of the assets and
liabilities of the company.
The $33.9 million increase in other expenses compared to the second quarter of
2000 is due in part to servicing income of approximately $3.9 million from MBNA
America Bank, N.A. on the sold credit card portfolio recorded as a reduction to
other expenses in the second quarter of 2000. Additional expenses of
approximately $4.7 million associated with the sale of the assets and
liabilities of SunTrust Credit Corporation contributed to the increase in the
other expense line item.
In the second quarter of 2000, merger-related expenses were primarily related to
accelerated depreciation and miscellaneous integration costs. There were no
additional merger-related expenses in 2001. The efficiency ratio improved from
58.9% in the second quarter of 2000 to 56.3% in the second quarter of 2001 due
to the Company's continued focus on efficiency and cost control projects.
Noninterest Expense Table 4
(In millions)
Quarters
-----------------------------------------------------------------
2001 2000
----------------------- --------------------------------------
2 1 4 3 2
--------- ---------- ----------- ----------- ----------
Salaries $ 285.8 $ 286.0 $ 282.0 $ 278.5 $ 292.1
Other compensation 97.3 90.3 89.3 82.9 73.1
Employee benefits 48.4 56.7 37.2 39.5 41.4
Net occupancy expense 51.8 50.0 50.7 51.9 49.9
Outside processing and software 45.3 45.1 43.9 42.4 44.4
Equipment expense 44.3 44.5 44.2 47.2 50.7
Marketing and customer development 23.0 23.0 30.7 25.3 27.9
Amortization of intangible assets 21.0 8.3 8.8 8.9 8.8
Consulting and legal 20.6 9.7 13.2 16.4 18.2
Credit and collection services 18.0 13.6 12.4 14.2 16.0
Postage and delivery 15.8 16.2 14.9 15.4 16.3
Communications 14.1 13.3 14.2 15.0 15.4
Operating supplies 11.4 11.3 11.2 11.3 12.6
FDIC premiums 3.9 3.9 2.8 2.8 2.8
Merger-related expenses - - 2.4 8.3 18.2
Other real estate income (3.1) (0.7) (2.3) (0.4) (0.3)
Other expense 66.2 71.5 42.3 47.0 32.3
--------- ---------- ----------- ----------- ----------
Total noninterest expense $ 763.8 $ 742.7 $ 697.9 $ 706.6 $ 719.8
========= ========== =========== =========== ==========
Efficiency ratio 56.3 % 55.4 % 56.2 % 57.5 % 58.9 %
21
Provision for Loan Losses. The SunTrust Allowance for Loan Losses Committee
meets at least quarterly to affirm the allowance methodology, analyze provision
and charge-off trends and assess the adequacy of the allowance. The allowance
analysis is based on specifically analyzed loans, historical loss rates and
other internal and external factors that affect credit risk. These other factors
consider variables such as the interest rate environment, corporate and consumer
debt levels, volatility in the financial markets, and known events that affect
the economies of the Company's primary market area. These factors are key
elements in the assessment of the adequacy of the allowance because of their
impact on borrowers' repayment capacity.
Provision for loan losses totaled $39.6 million in the second quarter of 2001,
compared to $27.7 million in the second quarter of 2000. The increase in
provision expense was due primarily to an increase in net charge-offs from $27.2
million in the second quarter of 2000 to $38.8 million in the second quarter of
2001. During the second quarter of 2001, SunTrust continued its practice of
proactive problem loan management by selling several nonperforming loans.
Through these loan sales, the Company was able to reduce its level of
nonperformers in the asbestos-related and agribusiness industries. Write-downs
associated with the three largest nonperforming loan sales totaled $14.6 million
and were the main cause of higher second quarter 2001 net charge-offs. The
second quarter 2001 net charge-off ratio was 0.22%, up from 0.16% for the same
period last year. Management's expectation is for slightly higher net
charge-offs for the second half of the year.
At June 30, 2001, SunTrust's allowance for loan losses totaled $866.1 million,
or 1.26% of quarter-end loans and 210.6% of total nonperforming loans. These
figures were $874.5 million, 1.22% and 309.6%, respectively at June 30, 2000.
The allowance to quarter-end loans ratio increased from the second quarter of
2000 due to lower outstanding loans at the end of the most recent period. As a
result of the sale of the assets and liabilities of SunTrust Credit Corporation,
the Company transferred $6.7 million in allowance for loan losses related to
approximately $390.1 million in loans that were sold. The quarter to quarter
decrease in the allowance to nonperforming loan ratio was the result of a 45.5%
growth in nonperforming loans.
22
Summary of Loan Loss Experience Table 5
(Dollars in millions)
Quarters
-------------------------------------------------------------------------------------
2001 2000
------------------------------- ---------------------------------------------------
2 1 4 3 2
------------- -------------- ---------------- -------------- --------------
Allowance for Loan Losses
Balances - beginning of quarter $ 872.0 $ 874.5 $ 874.5 $ 874.5 $ 874.0
Allowance from acquisitions and
other activity - net (6.7) (3.5) (0.1) - -
Provision for loan losses 39.6 67.3 53.5 30.5 27.7
Charge-offs:
Commercial (30.5) (56.8) (47.0) (28.7) (23.5)
Real estate:
Construction 0.5 (0.6) - - (0.1)
Residential mortgages (3.6) (2.3) (1.8) (1.6) (2.2)
Other 0.2 (1.0) (1.0) (1.2) (0.9)
Business credit card (0.4) (0.5) (1.6) (1.7) (0.9)
Consumer loans (19.4) (18.2) (15.7) (13.9) (12.6)
------------- -------------- ---------------- -------------- --------------
Total charge-offs (53.2) (79.4) (67.1) (47.1) (40.2)
------------- -------------- ---------------- -------------- --------------
Recoveries:
Commercial 7.8 4.6 4.9 8.5 4.6
Real estate:
Construction 0.1 0.2 - 0.3 -
Residential mortgages 0.5 0.5 1.1 0.9 0.7
Other (0.6) 1.4 1.3 0.6 0.2
Business credit card 0.5 0.4 0.5 0.5 0.6
Consumer loans 6.1 6.0 5.9 5.8 6.9
------------- -------------- ---------------- -------------- --------------
Total recoveries 14.4 13.1 13.7 16.6 13.0
------------- -------------- ---------------- -------------- --------------
Net charge-offs (38.8) (66.3) (53.4) (30.5) (27.2)
-------------- -------------- ---------------- -------------- --------------
Balance - end of quarter $ 866.1 $ 872.0 $ 874.5 $ 874.5 $ 874.5
============= ============== ================ ============== ==============
Quarter-end loans outstanding $ 68,938.2 $ 70,360.1 $ 72,239.8 $ 72,113.6 $ 71,450.4
Average loans 69,900.5 71,654.4 71,774.6 71,506.9 69,830.6
Allowance to quarter-end loans 1.26 % 1.24 % 1.21 % 1.21 % 1.22 %
Allowance to nonperforming loans 210.6 250.1 215.8 229.6 309.6
Net charge-offs to average loans
(annualized) 0.22 0.38 0.30 0.17 0.16
Provision to average loans (annualized) 0.23 0.38 0.30 0.17 0.16
Recoveries to total charge-offs 27.1 16.5 20.4 35.2 32.3
23
Nonperforming Assets Table 6
(Dollars in millions)
2001 2000
-------------------- -------------------------------------
June 30 March 31 December 31 September 30 June 30
------- -------- ----------- ------------ -------
Nonperforming Assets
Nonaccrual loans:
Commercial $ 292.9 $ 210.5 $ 273.6 $ 270.4 $ 149.1
Real Estate:
Construction 2.3 2.1 2.2 2.5 1.8
Residential mortgages 56.6 83.3 81.8 65.1 75.6
Other 38.2 32.8 29.0 23.9 27.4
Consumer loans 21.1 20.0 18.7 19.0 28.6
------- -------- ----------- ------------ ---------
Total nonaccrual loans 411.1 348.7 405.3 380.9 282.5
Restructured loans - - - - -
------- -------- ----------- ------------ ---------
Total nonperforming loans 411.1 348.7 405.3 380.9 282.5
Other real estate owned 20.3 20.6 23.0 23.6 23.2
------- -------- ----------- ------------ ---------
Total nonperforming assets $ 431.4 $ 369.3 $ 428.3 $ 404.5 $ 305.7
======= ======== =========== ============ =========
Ratios:
Nonperforming loans to total loans 0.60 % 0.50 % 0.56 % 0.53 % 0.40 %
Nonperforming assets to total loans
plus other real estate owned 0.63 0.52 0.59 0.56 0.43
Accruing Loans Past Due
90 Days or More $ 211.8 $ 223.7 $ 181.2 $ 150.8 $ 189.4
Nonperforming Assets. Nonperforming assets, which consist of nonaccrual loans,
restructured loans and other real estate owned, increased $125.7 million, or
41.1%, from June 30, 2000 to June 30, 2001. Much of the increase can be
attributed to the continued economic slowdown that has occurred in a diverse mix
of industries, including textiles, agribusiness and transportation, along with
companies impacted by asbestos litigation. The economic slowdown has led to an
increase in several large corporations declaring bankruptcy this year. The
increase in nonperforming loans from the quarter-ended March 31, 2001 is
primarily due to the bankruptcies of two borrowers during the second quarter of
2001 totaling $100.9 million, partially offset by the sales of nonperforming
loans. Given the continued weakness in the economy, management anticipates
modest increases in nonperforming assets during the remainder of the year.
Interest income on nonaccrual loans, if recognized, is recorded using the cash
basis method of accounting. During the first six months of 2001, this amounted
to $9.4 million. Interest income of $12.2 million would have been recorded if
all nonaccrual and restructured loans had been accruing interest according to
their original contract terms.
24
Loan Portfolio by Types of Loans Table 7
(In millions)
2001 2000
------------------------------- ---------------------------------------------------
June 30 March 31 December 31 September 30 June 30
------------- -------------- --------------- --------------- ---------------
Commercial $ 29,156.1 $ 30,583.3 $ 30,781.1 $ 30,821.6 $ 30,209.5
Real estate:
Construction 3,773.5 3,631.0 2,966.1 2,884.3 2,647.2
Residential mortgages 17,536.8 17,706.6 19,953.0 20,557.4 20,295.0
Other 7,761.4 7,693.9 8,121.4 7,960.6 7,851.5
Business credit card 86.2 82.6 76.8 79.3 75.4
Consumer loans 10,624.2 10,662.7 10,341.4 9,810.4 10,371.8
------------- -------------- --------------- --------------- ---------------
Total loans $ 68,938.2 $ 70,360.1 $ 72,239.8 $ 72,113.6 $ 71,450.4
============= ============== =============== =============== ===============
Loans. Total loans at June 30, 2001 were $68.9 billion, a decrease of $2.6
billion or 3.6% from June 30, 2000. The Company recorded a decline in commercial
loans, down 3.5% from June 30, 2000, while recognizing significant loan growth
in its real estate construction portfolio, up 42.5% primarily in commercial
construction. Residential real estate declined 13.6% from June 30, 2000 due to
the Company's securitizations of $2.8 billion in residential mortgages in the
fourth quarter of 2000 and first quarter of 2001. Of the $17.5 billion in
residential mortgages at June 30, 2001, $2.3 billion were home equity loans,
which demonstrated growth of 11.6% over the last twelve months.
Income Taxes. The provision for income taxes was $177.3 million and $360.5
million for the second quarter and first six months of 2001 compared to $148.1
million and $321.5 million in the same periods last year, respectively. The
effective tax rate was 35% for the six months ended June 30, 2001 and 2000. In
addition to the second quarter of 2001 provision, the Company recorded an income
tax benefit of $9.6 million related to the early extinguishment of debt. The
extraordinary loss on the consolidated financial statements is shown net of this
amount.
Securities available for sale. The investment portfolio is managed to optimize
yield over an entire interest rate cycle while providing liquidity and managing
market risk. At June 30, 2001, approximately 2% of the portfolio consisted of
U.S. Treasury securities, 12% U.S. government agency securities, 55%
mortgage-backed securities, 11% 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 thus limiting the credit risk associated with the mortgage loans.
During the second quarter of 2001, the Company repositioned the balance sheet
resulting in a realized securities gain of $27.4 million. This gain was fully
offset by a $27.4 million loss from the early extinguishment of higher cost
debt, allowing the Company to reduce future interest expense and lengthen the
average maturity of its market borrowings. In conjunction with the balance sheet
repositioning during the second quarter of 2001, the Company reduced market risk
by shrinking the investment portfolio's size and shortening its average life.
The portfolio size decreased by $1.7 billion, on an amortized cost basis, from
March 31, 2001 to June 30, 2001 and the average life shortened from 4.8 years to
4.2 years over the same period. The average portfolio yield decreased from 6.92%
in the first quarter of 2001 to 6.70% in the second quarter of 2001, primarily
from lower reinvestment rates.
25
The carrying value of the securities portfolio, all of which is classified as
"Securities available for sale" reflected $2.6 billion in net unrealized gains
at June 30, 2001, including a $2.2 billion unrealized gain on SunTrust's
investment in common stock of The Coca-Cola Company. The unrealized market gain
on the investment portfolio, excluding the Company's investment in the common
stock of The Coca-Cola Company, improved by $45.2 million from March 31, 2001 to
June 30, 2001. The market value of the common stock of The Coca-Cola Company
decreased $7.7 million during the second quarter of 2001, which did not affect
the net income of SunTrust, but was included in comprehensive income.
Liquidity Management. Liquidity is managed to ensure there is sufficient funding
to satisfy demand for credit, deposit withdrawals and attractive investment
opportunities. A large, stable core deposit base, strong capital position and
excellent credit ratings are the solid foundation for the Company's liquidity
position.
Funding sources primarily include customer-based core deposits, but also include
borrowed funds and cash flows from operations. Customer-based core deposits, the
Company's largest and most cost-effective source of funding, accounted for 62%
of the funding base on average for the second quarter of 2001 compared to 60% in
the first quarter of 2001 and 62% in the second quarter of 2000. Net borrowed
funds, which primarily include short-term funds purchased and sold, wholesale
domestic and foreign deposits, other short term borrowings and long term debt,
were $30.6 billion at June 30, 2001, compared with $34.3 billion at March 31,
2001 and $32.3 billion at June 30, 2000. Cash flows from operations are also a
significant source of liquidity. Net cash from operations primarily results from
net income adjusted for noncash items such as depreciation and amortization,
provision for loan losses, and deferred tax items.
Liquidity is strengthened by ready access to a diversified base of wholesale
funding sources. These sources include fed funds purchased, securities sold
under agreements to repurchase, negotiable certificates of deposit, offshore
deposits, Federal Home Loan Bank advances, Global Bank Note issuance, and
commercial paper issuance by the Parent Company. Liquidity is also available
through unpledged securities in the investment portfolio and the securitization
of loans.
During the second quarter of 2001, the Company reduced reliance on shorter-term
purchased funds by issuing longer-term large CD's. The Company also extended
Federal Home Loan Bank advance maturities through the early extinguishment of
shorter-term advances and replacing them with longer-term advances. This was
done in conjunction with the investment portfolio repositioning that took place
in the second quarter of 2001, as described under Securities Available for Sale.
The Company has a contingency funding plan that stress tests liquidity needs
that may arise from certain events such as rapid loan growth or significant
deposit runoff. The plan also provides for continual monitoring of net borrowed
funds dependence and available sources of liquidity. Management believes the
Company has the funding capacity to meet the liquidity needs arising from
potential events.
26
Derivatives. Derivative financial instruments, such as interest rate swaps,
options, caps, floors, futures, forward contracts and credit derivatives, are
components of the Company's risk management profile. The Company also enters
into derivative instruments as a service to banking customers. Where contracts
have been created for customers, the Company generally enters into offsetting
positions to eliminate the Company's exposure to market risk.
The Company monitors its sensitivity to changes in interest rates and may use
derivative instruments to hedge this risk. Prior to the adoption of SFAS 133,
certain interest rate swaps were classified as hedges and recorded in the margin
using the accrual method of accounting. The related market value of the
derivative was accounted for off-balance sheet. These interest rate swap
accruals increased net interest income by $0.1 million in the first six months
of 2000. On January 1, 2001, the Company adopted SFAS 133. Accordingly, all
derivatives are recorded in the financial statements at fair value.
Certain derivatives are classified as trading assets and liabilities. Additional
trading income of $0.1 million and $3.0 million was recorded in the second
quarter and first six months of 2001, respectively, to adjust the value of these
interest rate swaps to their current market value.
The following table shows the derivative instruments entered into by the Company
as an end-user.
Derivative Instruments Table 8
(Dollars in thousands)
As of June 30, 2001
----------------------------------------------------------------------------------------
Estimated Fair Value
--------------------------------------
Weighted
Average Average
Notional Maturity Received Average Unrealized Unrealized
Balance In Months Rate Pay Rate Gains Losses Net
----------------------------------------------------------------------------------------
Mortgage Lending Commitments
Forward Contracts $ 4,375,329 2 - % - % $ 38 $ (21,552) $ (21,514)
Interest Rate Lock Commitments 2,408,858 2 - - 3,021 (3,568) (547)
Option Contracts 40,000 2 5.00 (1) - 194 - 194
------------ --------------------------------------
Total Mortgage Related Derivatives 6,824,187 3,253 (25,120) (21,867)
Foreign Currency
Forward Contracts 1,263,707 7 - - 15,600 (14,505) 1,095
Interest Rate Swaps 4,932,262 30 4.55 5.39 41,231 (52,494) (11,263)
Interest Rate Caps/Floors 750,000 15 5.11 (1) - 4,325 - 4,325
Futures Contracts 170,000 15 - - 62 (164) (102)
Euro Dollar Options 400,000 15 - - 125 (88) 37
Equity Collar 56,081 21 (2) - - - (3,593) (3,593)
Credit Derivatives 54,250 40 - - - - -
------------ ------------
Total Derivatives $14,450,487 $ (31,368)
============ ============
(1) Average option strike price.
(2) Option expiration.
27
Capital Ratios Table 9
(Dollars in millions)
2001 2000
------------------------- ---------------------------------------------
June 30 March 31 December 31 September 30 June 30
---------- ----------- ------------ ------------ ----------
Tier 1 capital $ 6,906.6 $ 6,760.5 $ 6,850.6 $ 6,677.4 $ 6,648.7
Total capital 10,652.0 10,507.1 10,488.9 10,216.1 10,342.7
Risk-weighted assets 97,005.9 98,690.0 96,656.7 95,183.9 95,571.5
Risk-based ratios:
Tier 1 capital 7.12 % 6.85 % 7.09 % 7.02 % 6.95 %
Total capital 10.98 10.65 10.85 10.73 10.82
Tier 1 leverage ratio 6.90 6.77 6.98 6.92 7.00
Total shareholders' equity to assets 7.81 7.55 7.95 7.64 7.58
Capital Resources. 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 common 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 since 1998, 45% of the unrealized gains on
equity securities). The Company 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.
The Company raised $100 million of regulatory capital during 2000 through the
sale of preferred shares issued by a real estate investment trust subsidiary. In
the first quarter of 2001, the Company raised an additional $500 million of
regulatory capital through the issuance of subordinated debt under the Global
Bank Note program.
On February 8, 2000, the Board of Directors authorized the purchase of up to 12
million shares of SunTrust common stock. As of December 31, 2000, 10.1 million
shares had been purchased under this authorization. On August 8, 2000, the Board
of Directors authorized the purchase of up to 10 million shares of SunTrust
common stock (including 1.9 million shares still remaining unpurchased under the
authorization to purchase shares of February 8, 2000). As of June 30, 2001, the
Company had purchased 8.2 million shares of common stock under the August 8,
2000 authorization.
On June 13, 2001, the Board of Directors authorized the purchase of up to 5
million shares of SunTrust common stock. This authorization was in addition to
the 1.8 million shares remaining under the August 8, 2000 authorization to
purchase shares.
Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company believes that there have not been any material changes in
quantitative and qualitative information about market risk since year-end 2000.
28
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized this 9th day of August, 2001.
SunTrust Banks, Inc.
--------------------
(Registrant)
/s/ William P. O'Halloran
------------------------------------
William P. O'Halloran
Senior Vice President and Controller
(Chief Accounting Officer)
29