-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QS969lLSwogakmLZQA4Qq55vWVFImEOVKgFdu7whhVjuwZpiC9EQQoE6Ki1qqIK2 EuaQ+63i2ggVpVajnA9i9A== 0000750556-98-000010.txt : 19981116 0000750556-98-000010.hdr.sgml : 19981116 ACCESSION NUMBER: 0000750556-98-000010 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19981113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUNTRUST BANKS INC CENTRAL INDEX KEY: 0000750556 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 581575035 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 001-08918 FILM NUMBER: 98746481 BUSINESS ADDRESS: STREET 1: 25 PARK PLACE N E CITY: ATLANTA STATE: GA ZIP: 30313 BUSINESS PHONE: 4045887711 MAIL ADDRESS: STREET 1: 25 PARK PLACE N E CITY: ATLANTA STATE: GA ZIP: 30313 10-K/A 1 SUNTRUST BANKS, INC. FORM 10-K/A Form 10-K/A Securities and Exchange Commission Washington, D.C.20549 Annual Report Pursuant to Section 13 or 15(d)of the Securities Exchange Act of 1934 For the Fiscal Year Ended December 31, 1997 Commission file number 1-8918 SunTrust Banks, Inc. Incorporated in the State of Georgia I.R.S. Employer Identification Number 58-1575035 Address: 303 Peachtree Street, N.E., Atlanta, GA 30308 Telephone: (404) 588-7711 Securities Registered Pursuant to Section 12(b) of the Act: Common Stock - $1.00 par value. which is registered on the New York Stock Exchange. As of January 31, 1998, SunTrust had 211,408,881 shares of common stock outstanding. The aggregate market value of SunTrust common stock held by non-affiliates on January 31, 1998 was approximately $13.0 billion. SunTrust (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. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [x] Documents Incorporated By Reference Part III information is incorporated herein by reference, pursuant to Instruction G to Form 10-K, from SunTrust's Proxy Statement for its 1997 Annual Shareholders' Meeting, which was filed with the Commission on February 20, 1998. Certain Part I and Part II information required by Form 10-K is incorporated by reference from the SunTrust Revised Annual Report to Shareholders as indicated below, which is included as an exhibit hereto. FORM 10-K TABLE OF CONTENTS/CROSS-REFERENCE INDEX
Page ---------------------------------- FORM Annual Proxy 10-K Report Statement ---- ------ --------- PART I Item 1. Business -- -- -- Item 2. Properties -- -- Item 3. Legal Proceedings -- -- Item 4. Not Applicable PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters -- -- -- Item 6. Selected Financial Data -- -- -- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -- -- -- Item 7A. Derivatives -- -- -- Item 8. Financial Statements and Supplementary Data -- -- -- Item 9. Not Applicable PART III Item 10. Directors and Executive Officers of the Registrant -- -- 2-6 Item 11. Executive Compensation -- -- 8-20 Item 12. Security Ownership of Certain Beneficial Owners and Management -- -- 2-7 Item 13. Certain Relationships and Related Transactions -- -- 19-20 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 3-4 -- -- SIGNATURES 5-6 -- --
Exhibits, Financial Statement Schedules and Reports on Form 8-K Financial Statements Filed. See "Index to Consolidated Financial Statements" on page 37 of the Annual Report to Shareholders in Exhibit 13. All financial statement schedules are omitted because the data is either not applicable or is discussed in the financial statements or related footnotes. No reports on Form 8-K were filed during the last quarter of 1997. The Company's Articles of Incorporation, By-laws, certain instruments defining the rights of securities holders, including designations of the terms of outstanding indentures, constituent instruments relating to various employee benefit plans, and a statement setting forth the computation of per share earnings and certain other documents are filed as Exhibits to this Report or incorporated by reference herein pursuant to the Securities Exchange Act of 1934. 3. Exhibit Index Exhibit Description 3.1 Amended and Restated Articles of Incorporation of SunTrust Banks, Inc. ("SunTrust") effective as of November 14, 1989, incorporated by reference to Exhibit 3.1 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1989. 3.2 Amended and Restated Bylaws of SunTrust effective as of February 10, 1998, incorporated by reference to Exhibit 3 to Registration Statement No. 333-46093. 4.1 Indenture Agreement between SunTrust and Morgan Guaranty Trust Company of New York, as Trustee, incorporated by reference to Exhibit 4(a) to Registration Statement No. 33-00084. 4.2 Indenture Agreement between SunTrust and Manufacturers Hanover Trust Company, as Trustee, incorporated by reference to Exhibit 4(a) to Registration Statement No. 33-12186. 4.3 Indenture between SunTrust and PNC, N.A., as Trustee, incorporated by reference to Exhibit 4(a) to Registration Statement No. 33-62162. 4.4 Indenture between SunTrust and The First National Bank of Chicago, as Trustee, incorporated by reference to Exhibit 4(b) to Registration Statement No. 33-62162. Executive Compensation Plans and Arrangements: 10.1 SunTrust Banks, Inc. Supplemental Executive Plan, as amended and restated effective February 13, 1990, incorporated by reference to Exhibit 10.1 to Registrant's Annual Report on 10-K for the year ended December 31, 1989. 10.2 SunTrust Banks, Inc. Performance Unit Plan, as amended and restated effective November 8, 1988, incorporated by reference to Exhibit 10.2 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1988. 10.3 SunTrust Banks, Inc. Performance Unit Plan, dated January 4, 1995, incorporated by reference to Exhibit 10.3 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. 10.4 SunTrust Banks, Inc. Management Incentive Plan dated January 4, 1995, incorporated by reference to Exhibit 10.3 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. 10.5 SunTrust Banks, Inc. Management Incentive Plan Deferred Compensation Fund, effective January 1, 1986, incorporated by reference to Exhibit 10.3 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1985. 10.6 SunTrust Banks, Inc. Performance Unit Plan Deferred Compensation Fund, amended and restated as of February 19, 1996, incorporated by reference to Exhibit 5 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1996. 10.7 SunTrust Banks, Inc. Executive Stock Plan, incorporated by reference to Exhibit 10.5 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. 10.8 Amendment to SunTrust Banks, Inc. Executive Stock Plan, effective February 10, 1998. 10.9 SunTrust Banks, Inc. Performance Stock Agreement, effective February 11, 1992, and First Amendment to Performance Stock Agreement effective February 10, 1998. 10.10 SunTrust Banks, Inc. 1995 Executive Stock Plan, incorporated by reference to Exhibit 10.7 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1994. 10.11 Directors Deferred Compensation Plan, incorporated by reference to Exhibit 10.8 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1993. 11 Statement re computation of per share earnings. 12 Ratio of Earnings to Fixed Charges. 13 SunTrust's 1997 Annual Report to Shareholders. 21 SunTrust Subsidiaries. 22 SunTrust's Proxy Statement relating to the 1998 Annual Meeting of Shareholders incorporated by reference to Registrants' Proxy Statement dated February 20, 1998 filed on Form DEF-14A. 23 Consent of Independent Public Accountants. 27 Financial Data Schedule Certain instruments defining rights of holders of long-term debt of SunTrust and its subsidiaries are not filed herewith pursuant to Item 601(b)(4)(iii) of Regulation S-K. At the Commission's request, SunTrust agrees to give the Commission a copy of any instrument with respect to long- term debt of SunTrust and its consolidated subsidiaries and any of its unconsolidated subsidiaries for which financial statements are required to be filed under which the total amount of debt securities authorized does not exceed ten percent of the total assets of SunTrust and its subsidiaries on a consolidated basis. Certain statistical data required by the Securities and Exchange Commission are included on pages 39-68. Signatures Pursuant to the requirements of Section 13 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. SunTrust Banks, Inc. Date: November 12, 1998 By: /s/ William P. O'Halloran Senior Vice President and Controller (signing in the capacity of a duly authorized officer of the registrant) EX-10.8 2 AMENDMENT TO SUNTRUST BANKS, INC. EXECUTIVE STOCK PLAN AMENDMENT TO 1986 EXECUTIVE STOCK PLAN COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS SUNTRUST BANKS, INC. February 10, 1998 The SunTrust Banks, Inc. 1986 Executive Stock Plan (the "Plan"), is hereby amended, effective as of February 10, 1998, as set forth below. Any term which is not defined below shall have the meaning set forth in the Plan. 1. Section 8.1 of the Plan is hereby amended by adding a paragraph at the end thereof as follows: The Committee shall also have the right to insert provisions in any Restricted or Performance Stock Agreement, either at the time such Restricted or Performance Stock Agreement is entered into or subsequent to such time, whereby the Restricted or Performance Stock (or a portion thereof) granted under such Restricted or Performance Stock Agreement may be converted into units, each of which will have a value equal at all times to a share of Stock (each such unit, a "Phantom Stock Unit"). Phantom Stock Units shall be subject to such terms and conditions (including, but not limited to the payment of dividends or the crediting of dividend equivalents in respect of such Phantom Stock Units) not inconsistent with this Plan as the Committee may, in its sole discretion, determine. IN WITNESS WHEREOF, SunTrust Banks, Inc. has caused this Amendment to be executed by a duly authorized officer as of the day and year first above written. SUNTRUST BANKS, INC. By: _______________________________ _______________________________ EX-10.9 3 PERFORMANCE UNIT PLAN DEFERRED COMPENSATION FUND PERFORMANCE STOCK AGREEMENT SunTrust Banks, Inc. ("SunTrust"), a Georgia corporation, pursuant to action of the Compensation Committee ("Committee") of its Board of Directors and in accordance with the SunTrust Banks, Inc. Executive Stock Plan ("Plan") has made the following 5 Performance Stock grants ("Grants") to _______________ ("Grantee") as an incentive for Grantee to promote the interest of SunTrust and its Subsidiaries: Grant 1 ________________ Shares Grant 2 ________________ Shares Grant 3 ________________ Shares Grant 4 ________________ Shares Grant 5 ________________ Shares TOTAL ________________ Shares This Performance Stock Agreement evidences these Grants, and these Grants have been made subject to all the terms and conditions set forth on the reverse side of this Performance Stock Agreement and in the Plan. These Grants have been made as of February 11, 1992 ("Grant Date"). SUNTRUST BANKS, INC. _______________________________ Authorized Officer ACKNOWLEDGMENT Grantee hereby acknowledges the receipt of this Performance Stock Agreement. _______________________________________________ Grantee Date TERMS AND CONDITIONS OF PERFORMANCE STOCK GRANTED ON FEBRUARY 11, 1992 1. Grants. All of the Grants have been made subject to all the terms and conditions set forth in the Plan and in this Performance Stock Agreement. 2. Average Stock Price Conditions. A grant shall be awarded under this Performance Stock Agreement on the first date (which comes before the earlier of the fifth anniversary of the Grant Date or the date the Grantee's employment terminates for any reason whatsoever) that the average closing price for a share of Stock (as accurately reported in The Wall Street Journal or any successor selected by the Committee) over 20 consecutive trading days (on the New York Stock Exchange or any successor exchange on which Stock is traded) equals or exceeds the average stock price condition for such grant as follows: Grants Average Stock Price Condition Grant 1 $ 45.60 Grant 2 53.20 Grant 3 60.80 Grant 4 68.40 Grant 5 76.00 However, if a grant fails to satisfy the related average stock price condition before the earlier of the fifth anniversary of the Grant Date or the date the Grantee's employment terminates for any reason whatsoever, such grant automatically shall be forfeited as of the earlier of such fifth anniversary of the Grant Date or the date his employment terminates. If a grant is awarded to Grantee under this 2, he thereafter shall be eligible to receive the dividends, if any, paid with respect to the Stock subject to such grant and to vote such Stock (to the same extent he would have been entitled to receive such dividends and to vote such Stock if he had purchased such Stock on the date the underlying grant is awarded to him) in accordance with the terms and conditions set forth in the Plan (including any dividend deferral election available under the Plan) respecting dividends and voting until the date he either forfeits his interest in such grant under this Performance Stock Agreement or such shares of Stock are transferred to him under 3 or 4. 3. Service Conditions. (a) All of the Grants have been made subject to a service condition, and Grantee shall satisfy such condition with respect to each grant if he remains in the continuous employ of SunTrust and its Subsidiaries from the Grant Date through the earlier of the date he reaches age 64 or the 15th anniversary of the date such grant is awarded to him under 2 and, if he fails to satisfy such service condition with respect to any such grant, he shall forfeit his interest in such grant unless (1) the Committee waives this service condition at the time his employment actually terminates or (2) the Grantee as employment with SunTrust and its Subsidiaries terminates by reason of his death or his disability (as determined by the Committee using a standard which is no less rigorous than the standard for disability described in Section 22(e)(3) of the Code). (b) Any interest in a grant of Performance Stock which the Grantee does not forfeit under 2 or 3(a) shall be transferred to the Grantee free of any forfeiture conditions under the Plan as soon as practicable after the service condition under 3(a) no longer applies; provided, however, if the Committee at any time before such transfer reasonably determines that the Grantee might have violated any applicable civil or criminal law or did violate the written Code of Conduct or Code of Ethics for officers and employees of SunTrust and its Subsidiaries, the Committee shall have the right to completely forfeit Grantee's interest in the Stock underlying all his Grants of Performance Stock without regard to whether (i) the Grantee has satisfied the service condition set forth in 3(a) before the date the Committee makes such determination or (ii) the Grantee's employment is (or might have been) terminated as a result of such conduct. 4. Change in Control. (a) If the service condition set forth in 3 has not been satisfied by the Grantee on the date there is a change in control (as defined in 4(b)) of SunTrust, 3(a) shall cease to apply to the Grants on the date of such "change in control", and any interest in a grant of Performance Stock which had been awarded to the Grantee under 2 on or before the date of such "change in control" shall be transferred to him as soon as practicable after such date and any interest in a grant of Performance Stock which thereafter is awarded to the Grantee under 2 shall be transferred to him as soon as practicable after the date such grant is awarded to him under 2. (b) The term "change in control" for purposes of this 4 shall mean a change in control of SunTrust of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934 (34 Act) as in effect on February 11, 1992, provided that such a change in control shall be deemed to have occurred at such time as (i) any "person" (as that term is used in Sections 12(d) and 14(d)(2) of the 34 Act), is or becomes the beneficial owner (as defined in Rule 13d-3 under the 34 Act) directly or indirectly, of securities representing 20% or more of the combined voting power for election of directors of the then outstanding securities of SunTrust or any successor of SunTrust; (ii) during any period of two consecutive years or less, individuals who at the beginning of such period constituted the Board cease, for any reason, to constitute at least a majority of the Board, unless the election or nomination for election of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period; (iii) the shareholders of SunTrust approve any merger, consolidation or share exchange as a result of which stock shall be changed, converted or exchanged (other than a merger with a wholly-owned subsidiary of SunTrust) or any liquidation of SunTrust or any sale or other disposition of 50% or more of the assets or business of SunTrust; or (iv) the shareholders of SunTrust approve any merger or consolidation to which SunTrust is a party or a share exchange in which SunTrust shall exchange its shares for shares of another corporation as a result of which the persons who were shareholders of SunTrust immediately prior to the effective date of the merger, consolidation or share exchange shall have beneficial ownership of less than 50% of the combined voting power for election of directors of the surviving corporation following the effective date of such merger, consolidation or share exchange; provided, however, and notwithstanding the occurrence of any of the events described above, that no "change in control" shall be deemed to have occurred under this 4 if, prior to such time as a "change in control" would otherwise be deemed to have occurred, the Board determines otherwise. 5. Withholding. The Committee shall have the right to reduce the number of shares of Stock actually transferred to the Grantee to satisfy the minimum applicable tax withholding requirements, and the Grantee shall have the right (absent any such action by the Committee and subject to satisfying the requirements, if any, under Rule 16b-3) to elect that the minimum applicable tax withholding requirements be satisfied through a reduction in the number of shares of Stock transferred to him. 6. Nontransferable. No rights granted under the Plan or this Performance Stock Agreement shall be transferable by the Grantee other than by will or by the laws of descent and distribution, and the person or persons to whom such rights are so transferred shall be treated as the Grantee under this Performance Stock Agreement. 7. Employment and Termination. Nothing in the Plan or this Performance Stock Agreement or any related material shall give the Grantee the right to continue in employment by SunTrust or by a Subsidiary or adversely affect the right of SunTrust or a Subsidiary to terminate the Grantee as employment with or without cause at any time. 8. Other Laws. SunTrust shall have the right to refuse to issue or transfer any Stock under this Performance Stock Agreement if SunTrust acting in its absolute discretion determines that the issuance or transfer of such Stock might violate any applicable law or regulation. 9. Securities Registration. The Grantee may be requested by SunTrust to hold any shares of Stock transferred to him under this Performance Stock Agreement for personal investment and not for purposes of resale or distribution to the public; and the Grantee shall, if so requested by SunTrust, deliver a certified statement to that effect to SunTrust as a condition to the transfer of such Stock to the Grantee. 10. Miscellaneous. (a) A mere transfer of employment between SunTrust and a Subsidiary shall not be deemed a termination of employment under the Plan or this Performance Stock Agreement. (b) This Performance Stock Agreement shall be subject to all of the provisions, definitions, terms and conditions set forth in the Plan, all of which are incorporated by this reference in this Performance Stock Agreement except that under this agreement the term Performance Stock Agreement under the Plan shall mean Restricted Stock Agreement under the Plan and Performance Stock shall mean Restricted Stock. (c) The Plan and this Performance Stock Agreement shall be governed by the laws of the State of Georgia. (d) The Grantee as entire interest in the Performance Stock underlying the Grants shall (without regard to 2, 3 or 4) be available to satisfy the claims of SunTrust as creditors if SunTrust (on any date before such interests are actually transferred under 3(b) to the Grantee) is generally not paying its debts as such debts become due (other than debts that are the subject of a bona fide dispute) or if an order for relief is entered against SunTrust in a bankruptcy case commenced by or against it under the United States Bankruptcy Code, or if SunTrust is the debtor in any proceeding commenced under any other bankruptcy, reorganization, arrangement, readjustment of debt, dissolution, liquidation or similar debtor relief law in which SunTrust is alleged to be insolvent or otherwise unable to pay its debts as such debts become due, and the Grantee shall forfeit his interest in such Stock and such Grants as of such date. PERFORMANCE STOCK AGREEMENT FIRST AMENDMENT EFFECTIVE FEBRUARY 10, 1998 The terms and conditions set forth in the SunTrust Banks, Inc. Performance Stock Agreement(s) (the "Agreement(s)") entered into with _____________________ under the Executive Stock Plan (the "Plan"), are hereby amended, effective as of February 10, 1998, as set forth below. Performance Stock Granted in 1990 Grant #1 Award _____________ Shares Grant #2 Award _____________ Shares Grant #3 Award _____________ Shares Grant #4 Award _____________ Shares Grant #5 Award _____________ Shares Performance Stock Granted in 1992 Grant #1 Award _____________ Shares Any term which is not defined below shall have the meaning set forth in the Agreement(s). 1. The Agreement(s) is hereby amended by adding a Section 3.A thereto as follows: 3.A Phantom Stock Units. (a) As of February 10, 2000 (the Conversion Date), an aggregate of ________ shares of Performance Stock previously awarded to the Grantee and with respect to which the relevant stock price condition set forth in 2 has been satisfied (such number of shares being set forth above and hereinafter referred to as the "Converted Shares") shall be converted into "Phantom Stock Units" (as described below) at the rate of one Phantom Stock Unit per Converted Share; provided, however, that no such conversion shall occur if, prior to the Conversion Date, (1) the Grantee's employment with SunTrust and its Subsidiaries shall have terminated for any reason or (2) a "Change in Control" (as defined in 4) shall have occurred. (b) The value of each Phantom Stock Unit shall at all times be equal to the value of a share of Stock. As of the Conversion Date, such Phantom Stock Units shall be fully vested and no longer subject to the conditions of 3 hereof. Payment in respect of such Phantom Stock Units shall be made to the Grantee in shares of Stock upon the earlier to occur of (1) the date on which the Grantee would otherwise have satisfied the conditions of 3(a) hereof with respect to the Converted Shares and (2) the date of occurrence of a "Change in Control." (c) Upon the payment of dividends with respect to shares of Stock, the Grantee will be entitled to receive, with respect to each Phantom Stock Unit held by such Grantee, a cash payment equal to the dividend the Grantee would have received had such Phantom Stock Unit been a share of Stock. SUNTRUST BANKS, INC. By: _______________________________ Authorized Officer ACKNOWLEDGMENT I hereby approve the First Amendment to the Performance Stock Agreement(s) set forth under the Executive Stock Plan. __________________________________________________ _______________ Grantee Date EX-11 4 COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11.1 Statement re: Computation of Per Share Earnings (In thousands, except per share data)
Year Ended December 31 1997 1996 1995 1994 1993 1992 Basic Net income $667,253 $641,015 $586,826 $537,994 $473,729 $404,397 Average basic common shares 210,243 220,364 226,665 229,317 235,189 239,196 Earnings per common share - basic $ 3.17 $ 2.91 $ 2.59 $ 2.35 $ 2.01 $ 1.69 Diluted Net income $667,253 $641,015 $586,826 $537,994 $473,729 $404,397 Average common shares outstanding 210,243 220,364 226,665 229,317 235,189 239,196 Incremental shares outstanding 3,237 3,122 2,879 2,761 2,616 2,445 Average diluted common shares 213,480 223,486 229,544 232,078 237,805 241,641 Earnings per common share - diluted $ 3.13 $ 2.87 $ 2.56 $ 2.32 $ 1.99 $ 1.67 Includes the incremental effect of stock options and restricted stock outstanding computed under the treasury stock method.
EX-12 5 RATIO OF EARNINGS TO FIXED CHARGES
Year Ended December 31 1997 1996 1995 1994 1993 1992 Ratio 1 - including deposit interest Earnings: Income before income taxes $1,025,966 $943,200 $860,925 $806,965 $700,662 $575,768 Fixed charges 1,771,603 1,476,392 1,363,702 946,283 804,281 988,111 Total 2,797,569 2,419,592 2,224,627 1,753,248 1,504,943 1,563,879 Fixed charges: Interest on deposits 1,151,157 1,083,035 988,725 704,803 632,307 832,372 Interest on funds purchased 345,116 245,502 239,080 122,055 87,900 87,038 Interest on other short-term borrowings 91,592 48,264 54,843 42,519 21,623 7,027 Interest on long-term debt 168,508 85,031 68,114 63,119 48,839 48,560 Portion of rents representative of the interest factor (1/3) of rental expense 15,230 14,560 12,940 13,787 13,612 13,114 Total $1,771,603 $1,476,392 $1,363,702 $946,283 $804,281 $988,111 Earnings to fixed charges 1.58 x 1.64 x 1.63 x 1.85 x 1.87 x 1.58 x Ratio 2 - excluding deposit interest Earnings: Income before income taxes $1,025,966 $943,200 $860,925 $806,965 $700,662 $575,768 Fixed charges 620,446 393,357 374,977 241,480 171,974 155,739 Total $1,646,412 $1,336,557 $1,235,902 $1,048,445 $872,636 $731,507 Fixed charges: Interest on funds purchased 345,116 245,502 239,080 $122,055 $87,900 $87,038 Interest on other short-term borrowings 91,592 48,264 54,843 42,519 21,623 7,027 Interest on long-term debt 168,508 85,031 68,114 63,119 48,839 48,560 Portion of rents representative of the interest factor (1/3) of rental expense 15,230 14,560 12,940 13,787 13,612 13,114 Total $620,446 $393,357 $374,977 $241,480 $171,974 $155,739 Earnings to fixed charges 2.65 x 3.40 x 3.30 x 4.34 x 5.07 x 4.70 x
EX-13 6 ANNUAL REPORT TO SHAREHOLDERS CORPORATE PROFILE SunTrust Banks, Inc., is a premier financial services company based in the Southeastern United States. The Company provides a wide range of services to meet the financial needs of its growing customer base through approximately 700 full-service banking offices in Florida, Georgia, Tennessee and Alabama. SunTrust's primary businesses include traditional deposit and credit services as well as trust and investment services. Through various subsidiaries the Company provides credit cards, mortgage banking, credit-related insurance, data processing and information services, discount brokerage and investment banking services. As of December 31, 1997, SunTrust had total assets of $58.1 billion, discretionary trust assets of $67.4 billion and a mortgage servicing portfolio of $16.9 billion.
FINANCIAL HIGHLIGHTS Year Ended December 31 (Dollars in millions except per share data) 1997 1996 1995 For the Year Net income $ 667.3 $ 641.0 $ 586.8 Common dividends paid 195.7 183.9 168.7 Per Common Share Net income - diluted 3.13 2.87 2.56 Net income - basic 3.17 2.91 2.59 Dividends paid 0.925 0.825 0.740 Market price: High 75.25 52.50 35.44 Low 44.13 32.00 23.63 Close 71.38 49.25 34.25 Book value 25.06 22.41 19.08 Financial Ratios Return on average assets (ROA) 1.30 % 1.41 % 1.41 % Return on average realized shareholders' equity (ROE) 20.73 19.39 19.10 Net interest margin (taxable-equivalent) 4.11 4.36 4.49 Efficiency ratio 58.8 59.9 59.5 Tier 1 capital ratio 7.19 7.59 7.86 Total capital ratio 12.33 10.99 9.79 Tier 1 leverage ratio 6.59 6.51 6.78 Selected Average Balances Total assets $54,372.0 $47,788.9 $43,106.4 Earning assets 46,996.3 41,831.0 38,401.4 Loans 37,516.2 32,792.5 29,709.3 Deposits 35,915.3 34,241.3 31,808.7 Realized shareholders' equity 3,219.4 3,306.6 3,072.9 Total shareholders' equity 5,079.0 4,664.2 3,925.9 Common shares- diluted (thousands) 213,480 223,486 229,544 Common shares- basic (thousands) 210,243 220,364 226,665 At December 31 Total assets $58,082.7 $52,568.2 $46,531.5 Earning assets 49,743.3 45,182.1 40,530.0 Loans 40,135.5 35,404.2 31,301.4 Allowance for loan losses 651.8 625.8 638.9 Deposits 38,197.5 36,890.4 33,183.2 Realized shareholders' equity 3,211.5 3,339.2 3,147.6 Total shareholders' equity 5,260.4 4,941.0 4,306.2 Common shares outstanding (thousands) 209,909 220,469 225,726 Market value of common stock of The Coca-Cola Company (48,266,496 shares) $ 3,219 $ 2,540 $ 1,792
In this report, for 1993 - 1997, securities available for sale, total assets and total shareholders' equity include the net unrealized securities gain. However, earnings assets exclude this gain as do the calculations of ROA, ROE and the net interest margin because the gain is not included in income. TO FELLOW SHAREHOLDERS The Company and its shareholders, had a great year. For the third consecutive year, the total return on our investment was 47%, including reinvested dividends. While the stock market has rewarded almost everyone during the last ten years, SunTrust has experienced an average annual total return of 26% during that time, more than eight percentage points a year higher than the S&P 500. The stock market has valued our consistently strong earnings record and rich balance sheet. During 1997, banking continued its dramatic consolidation and diversification. Believing that the prices of bank acquisitions were too high, SunTrust spent the year buying back its own stock and growing its business by improving sales efforts and service levels. To achieve this growth, we hired new and experienced personnel, increased training, improved existing products and introduced new ones. Banking has become an industry of constant change. Although SunTrust has not made a major acquisition since 1986, we are comfortable our performance record speaks well for the path we have chosen. Our building for the future has not hampered current performance. Net income in 1997 totaled $667.3 million, or $3.13 per share, a 9.1% increase in earnings per share. Since SunTrust was formed in 1985, earnings per share have improved every year and we have not taken a major hit to earnings in any year. Excellent credit quality and good growth in both loans and noninterest income distinguished the past year. Our performance ratios reflected the solid earnings for 1997. The return on average assets (ROA) was 1.30% and the return on average realized shareholders' equity (ROE) was 20.73%, a record high. Significant improvement in our already outstanding loan portfolio also marked 1997. Loan growth continued to be strong while charge-offs remained low and nonperforming loans fell to their lowest level since 1987. As loan pricing remains very competitive and spreads stay very narrow, minimizing the charge-off level is even more important to providing good returns for our shareholders. Over the last four years our charge-off ratio has been exceptional, less than 0.30% each year. In addition, SunTrust has been one of the few banks which has consistently had a loan loss provision significantly higher than its charge-offs. At year-end our allowance for possible loan losses was nearly six times nonperforming loans, a comforting thought as the U.S. moves through its seventh year of economic expansion. We have been talking about our growth initiatives for several years. The continued strong revenue growth, chronicled in the financial sections of this report, is a clear indication that we are realizing the benefits of these initiatives throughout the Company. We are particularly proud of the growth in noninterest income that has increased by more than 14% per year for the last two years. Consistency is a word often associated with SunTrust. To have a consistent record of strong earnings per share growth, a company needs well-planned capital management and the absence of special charges in addition to strong revenue growth and good expense control. SunTrust has consistently repurchased its own shares, buying back more than eleven million shares in 1997, and increased its cash dividend in line with EPS growth. During this decade, SunTrust has not had any major special charges to distort performance trends. As you are probably aware, Roberto Goizueta, our longtime Director and confidant, died in October. Mr. Goizueta was widely recognized as one of the world's truly great business leaders. His incomparable wisdom, vision and compassion greatly benefited SunTrust. This spring SunTrust will undergo a leadership change. I have been privileged to serve as CEO since April 1990. On March 21, 1998, my sixty-fifth birthday, I will be turning over the reins to L. Phillip Humann, the current President of SunTrust. I will continue to serve on the Board and as Chairman of the Executive Committee. Phil is no stranger to many of you, having spent twenty-eight years in our organization, serving in many capacities, including CEO of our Atlanta companies. As the architect of our growth initiatives, he is ideally suited to lead this Company We appreciate the dedicated and knowledgeable men and women who comprise SunTrust. These employees, aided by competitive products and up-to-date technology, are focused on generating growth internally. Whether serving existing or new customers, SunTrust is prepared to meet the challenges of providing superior products and services. As a team we pledge our best efforts to our customers and our shareholders. Sincerely, James B. Williams L. Phillip Humann Chairman of the Board and President Chief Exutive Officer February 10, 1998 A SOLID FOUNDATION Like a building standing the test of time or a bridge spanning a wide river, a business depends upon its solid foundation to support and sustain it. At SunTrust we have built such a foundation - one that runs deep and wide throughout all the communities we serve, helping to promote and encourage the growth of SunTrust, our clients and our shareholders. Amidst the undercurrents sweeping throughout today's banking industry, this foundation and an adherence to our long-term strategy of serving our client's needs and increasing the value of our shareholders' investments strengthen and enhance our position as one of the premier financial institutions serving the Southeast. The Company's foundation is comprised of several critical elements - people, products and technology. The art of managing these elements to achieve consistent, solid, dependable results and outstanding service to our customers is an ongoing challenge. Our performance figures demonstrate our ability to continue to meet that challenge year after year. SELECTED FINANCIAL DATA
Year Ended December 31 (Dollars in millions except per share data) 1997 1996 1995 1994 1993 1992 Summary of Operations Interest and dividend income $ 3,650.8 $ 3,246.0 $ 3,027.2 $ 2,552.3 $ 2,362.3 $ 2,537.6 Interest expense 1,756.4 1,461.8 1,350.8 932.5 790.7 975.0 Net interest income 1,894.4 1,784.2 1,676.4 1,619.8 1,571.6 1,562.6 Provision for loan losses 117.0 75.9 77.1 112.8 189.1 234.2 Net interest income after provision for loan losses 1,777.4 1,708.3 1,599.3 1,507.0 1,382.5 1,328.4 Noninterest income 934.2 818.0 713.1 699.9 726.5 672.7 Noninterest expense 1,685.6 1,583.1 1,451.5 1,400.0 1,408.4 1,425.3 Income before provision for income taxes 1,026.0 943.2 860.9 806.9 700.6 575.8 Provision for income taxes 358.7 302.2 274.1 269.0 226.9 171.4 Net income $ 667.3 $ 641.0 $ 586.8 $ 537.9 $ 473.7 $ 404.4 Net interest income (taxable-equivalent) $ 1,931.0 $ 1,824.3 $ 1,726.0 $ 1,675.6 $ 1,634.4 $ 1,632.9 Per common share Earnings - diluted $ 3.13 $ 2.87 $ 2.56 $ 2.32 $ 1.99 $ 1.67 Earnings - basic 3.17 2.91 2.59 2.35 2.01 1.69 Dividends paid 0.925 0.825 0.740 0.660 0.580 0.520 Market price: High 75.25 52.50 35.44 25.69 24.81 22.81 Low 44.13 32.00 23.63 21.75 20.69 16.75 Close 71.38 49.25 34.25 23.88 22.50 21.88 Selected Average Balances Total assets $54,372.0 $47,788.9 $43,106.4 $40,495.6 $37,524.9 $35,356.5 Earning assets 46,996.3 41,831.0 38,401.4 36,111.0 34,047.3 32,008.6 Loans 37,516.2 32,792.5 29,709.3 26,412.6 24,162.8 22,489.1 Deposits 35,915.3 34,241.3 31,808.7 30,877.8 29,683.3 28,609.6 Realized shareholders' equity 3,219.4 3,306.6 3,072.9 2,964.0 2,875.1 2,697.9 Total shareholders' equity 5,079.0 4,664.2 3,925.9 3,575.4 2,877.2 2,697.9 At December 31 Total assets $58,082.7 $52,568.2 $46,531.5 $42,734.1 $40,728.4 $37,789.3 Earning assets 49,743.3 45,182.1 40,530.0 38,045.6 35,904.5 34,167.7 Loans 40,135.5 35,404.2 31,301.4 28,548.9 25,292.1 23,493.5 Allowance for loan losses 651.8 625.8 638.9 622.0 561.2 474.2 Deposits 38,197.5 36,890.4 33,183.2 32,218.4 30,485.8 29,883.0 Long-term debt 3,171.8 1,565.3 1,002.4 930.4 630.4 554.0 Realized shareholders' equity 3,211.5 3,339.2 3,147.6 2,898.5 2,845.8 2,769.7 Total shareholders' equity 5,260.4 4,941.0 4,306.2 3,468.6 3,609.6 2,769.7 Ratios and Other Data ROA 1.30 % 1.41 % 1.41 % 1.36 % 1.26 % 1.14 ROE 20.73 19.39 19.10 18.15 16.48 14.99 Net interest margin 4.11 4.36 4.49 4.64 4.80 5.10 Efficiency ratio 58.8 59.9 59.5 58.9 59.7 61.8 Tier 1 capital ratio 7.19 7.59 7.86 7.99 8.88 9.37 Total capital ratio 12.33 10.99 9.79 10.09 10.55 11.35 Tier 1 leverage ratio 6.59 6.51 6.78 6.71 6.82 7.27 Total shareholders' equity to assets 9.06 9.40 9.25 8.12 8.86 7.33 Nonperforming assets to total loans plus other real estate owned 0.37 0.72 0.80 0.96 1.61 2.30 Common dividend payout ratio 29.3 29.8 29.8 30.1 30.6 32.7 Full-service banking offices 699 689 652 658 656 654 ATMs 1,078 917 778 739 738 683 Full-time equivalent employees 21,227 20,863 19,415 19,408 19,532 19,539 Average common shares - diluted (thousands) 213,480 223,486 229,544 232,078 237,805 241,641 Average common shares - basic (thousands) 210,243 220,364 226,665 229,317 235,189 239,196
Financial Review The following analysis reviews important factors affecting the financial condition and results of operations of SunTrust Banks, Inc. (SunTrust or Company) for the periods shown. Suntrust Banks, Inc. has made, and may continue to make, various forward-looking statements with respect to financial and business matters. The Company cautions that these forward- looking statements are subject to numerous assumptions, risks and uncertainties, all of which may change over time. Actual results could differ significantly from forward-looking statements. This review should be read in conjunction with the consolidated financial statements and related notes. In the Financial Review, net interest income and net interest margin are presented on a taxable-equivalent (FTE) basis. Earnings Overview SunTrust's diluted earnings per common share rose 9.1% in 1997 to $3.13, up from $2.87 per common share in 1996. Basic earnings per share in 1997 were $3.17 compared with $2.91 for the previous year. Net income of the Company amounted to $667.3 million, an increase of 4.1% over $641.0 million in 1996. Operating results in 1997 reflected strong loan demand and continued excellent credit quality. Net interest income was $1,931.0 million in 1997, up $106.7 million from 1996. The net interest margin was 25 basis points lower than last year, but the impact of the decline was more than offset by a 12.4% increase in average earning assets. Average loans increased 14.4% and average deposits increased 4.9%. The 1997 loan loss provision of $117.0 million was $26.0 million above 1997 net charge-offs. Noninterest income increased 14.2% with trust fees up 14.5%. Noninterest expense was $1,685.6 million for 1997, 6.5% more than in 1996. Total personnel expense, the single largest component of noninterest expense, was up $81.5 million, or 9.3%, from the 1996 level. Per share earnings were aided by the repurchase during 1997 of approximately 11.3 million shares of the Company's common stock. TABLE 1 - CONTRIBUTIONS TO NET INCOME
Year Ended December 31 1997 1996 (Dollars in millions) Contribution % of Total Contribution % of Total Principal banking subsidiaries' net income : SunTrust Banks of Florida, Inc. $371.5 55.7 % $341.2 53.2 % SunTrust Banks of Georgia, Inc. 281.5 42.2 253.8 39.6 SunTrust Banks of Tennessee, Inc. 110.1 16.5 100.1 15.6 Total prinicpal banking subsidiaries' net income 763.1 114.4 695.1 108.4 Other banks and nonbanking net income (expense): Other banks and nonbank subsidiaries (15.0) (2.3) (10.5) (1.6) Parent Company (80.8) (12.1) (43.6) (6.8) Total other banks and nonbanking net income (expens (95.8) (14.4) (54.1) (8.4) Net income $667.3 100.0 % $641.0 100.0 % Additional information on the performance of banking subsidiaries can be found on pages 32 and 33.
Net Interest Income/Margin Net interest income for 1997 was $1,931.0 million or 5.9% higher than the prior year. Average earning assets were up 12.4% and the net interest margin was 4.11% in 1997 compared to 4.36% in 1996. The average rate on earning assets decreased 1 basis point to 7.85% while the average rate on interest- bearing liabilities increased 20 basis points to 4.50%. Interest income that the Company was unable to recognize on nonperforming loans in 1997 had a negative impact of 1 basis point on the net interest margin as compared to 2 basic points in 1996. Table 5 contains more detailed information concerning average balances, yields earned and rates paid. TABLE 2 - ANALYSIS OF CHANGES IN NET INTEREST INCOME
1997 Compared to 1996 1996 Compared to 1995 Increase (Decrease) Due to Increase (Decrease) Due to (In millions on a taxable-equivalent basis) Volume Rate Net Volume Rate Net Interest Income Loans: Taxable $ 379.4 $ (22.8) $ 356.6 $ 257.7 $ (77.0) $ 180.7 Tax-exempt 3.1 (2.6) 0.5 (1.9) (5.7) (7.6) Securities available for sale: Taxable 5.5 20.4 25.9 16.2 28.0 44.2 Tax-exempt (6.3) (2.3) (8.6) (9.5) (5.3) (14.8) Funds sold 15.8 4.2 20.0 9.7 (3.7) 6.0 Other short-term investments 7.8 (0.9) 6.9 0.8 0.0 0.8 Total interest income 405.3 (4.0) 401.3 273.0 (63.7) 209.3 Interest Expense NOW/Money market accounts 5.7 (5.2) 0.5 24.0 4.7 28.7 Savings deposits (3.6) (3.6) (7.2) 56.1 45.3 101.4 Consumer time deposits (14.5) 0.8 (13.7) (30.8) (8.5) (39.3) Other time deposits 84.4 4.2 88.6 5.9 (2.4) 3.5 Funds purchased 88.6 11.0 99.6 31.5 (25.1) 6.4 Other short-term borrowings 46.5 (3.2) 43.3 (3.4) (3.2) (6.6) Long-term debt 80.9 2.6 83.5 20.8 (3.9) 16.9 Total interest expense 288.0 6.6 294.6 104.1 6.9 111.0 Net change in net interest income $ 117.3 $ (10.6) $ 106.7 $ 168.9 $ (70.6) $ 98.3 Changes in net interest income are attributed to either changes in average balances (volume change) or changes in average rates (rate change) for earning assets and sources of funds on which interest is received or paid. Volume change is calculated as change in volume times the previous rate while rate change is change in rate times the previous volume. The rate/volume change, change in rate times change in volume, is allocated between volume change and rate change at the ratio each component bears to the absolute value of their total. 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.
Provision for Loan Losses The provision for credit losses charged to expense is based upon credit loss experience and an evaluation of losses inherent in the current loan portfolio, including the evaluation of impaired loans as prescribed by under SFAS Nos. 114 and 118, which were adopted by the Company in 1995. The Company increased its provision for loan losses to $117.0 million, which exceeded net charge-offs by $26.0 million. Noninterest Income Noninterest income increased $116.2 million, or 14.2%, with trust income, our largest source of noninterest income, up $40.3 million or 14.5%. Also other charges and fees were up $36.2 million or 26.8%. Service charges on deposit accounts rose $15.4 million or 6.6%. Mortgage fees were up $9.9 million or 27.3%. These increases reflect the Company's ongoing growth initiatives. TABLE 3 - NONINTEREST INCOME
Year Ended December 31 (In millions) 1997 1996 1995 1994 1993 1992 Trust income $318.6 $278.3 $259.7 $250.3 $247.0 $226.1 Service charges on deposit accounts 247.8 232.4 212.6 218.4 225.9 215.6 Other charges and fees 171.5 135.3 106.8 95.2 112.8 98.9 Credit card fees 73.6 66.3 62.6 57.2 57.8 58.8 Mortgage fees 45.9 36.0 25.0 25.9 29.3 22.7 Securities gains (losses) 1.5 14.2 (6.6) (2.7) 2.0 5.1 Trading account profits and commissions 18.0 13.3 10.3 8.0 11.3 8.2 Other income 57.3 42.2 42.7 47.6 40.4 37.3 Total noninterest income $934.2 $818.0 $713.1 $699.9 $726.5 $672.7
Noninterest Expense Noninterest expense increased 6.5% in 1997; however, strong revenue growth kept the efficiency ratio below 60%. Total personnel expense increased 9.3% or $81.5 million due to increased employment and higher incentive pay. Outside processing and software increased 20.3% or $11.5 million. TABLE 4 - NONINTEREST EXPENSE
Year Ended December 31 (In millions) 1997 1996 1995 1994 1993 1992 Salaries $ 690.7 $ 635.0 $ 578.1 $ 550.4 $ 529.1 $ 511.7 Other compensation 153.5 128.5 95.3 96.1 107.4 107.9 Employee benefits 111.4 110.6 105.6 100.7 98.5 92.8 Total personnel expense 955.6 874.1 779.0 747.2 735.0 712.4 Net occupancy expense 126.8 138.2 130.1 126.9 128.4 134.8 Equipment expense 120.7 115.4 105.1 103.3 103.1 102.9 FDIC premiums 5.8 18.1 36.4 66.6 66.2 64.5 Marketing and customer development 68.8 76.4 50.0 57.2 48.0 51.9 Postage and delivery 42.6 40.5 36.4 34.1 32.4 32.5 Operating supplies 37.2 38.0 32.2 29.4 30.5 30.6 Communications 35.3 32.4 27.7 26.1 26.3 25.8 Consulting and legal 28.5 25.5 20.8 22.6 20.2 27.7 Other real estate expense (11.4) (0.4) (9.0) (2.2) 16.7 36.0 Amortization of intangible assets 34.0 26.7 21.4 20.6 19.7 17.0 Outside processing and software 68.4 56.9 42.7 41.8 41.8 41.2 Other expense 173.3 141.3 178.7 126.4 140.1 148.0 Total noninterest expense $1,685.6 $1,583.1 $1,451.5 $1,400.0 $1,408.4 $1,425.3 Efficiency ratio 58.8 % 59.9 % 59.5 % 58.9 % 59.7 % 61.8 %
Provision for Income Taxes The provision for income taxes covers federal and state income taxes. For 1997, the provision was $358.7 million, an increase of $56.5 million or 18.7% from 1996. For additional information see Note 10 of the Notes to Consolidated Financial Statements on pages 49 and 50. TABLE 5A - CONSOLIDATED DAILY AVERAGE BALANCES, INCOME/EXPENSE AND AVERAGE YIELDS EARNED AND RATES PAID
1997 1996 1995 (Dollars in millions; yields on Average Income/ Yields/ Average Income/ Yields/ Average Income/ Yields/ taxable-equivalent basis) Balances Expense Rates Balances Expense Rates Balances Expense Rates ASSETS Loans: Taxable $36,817.1 $2,998.8 8.15 % $32,132.5 $2,642.2 8.22 % $29,028.1 $2,461.5 8.48 % Tax-exempt 699.1 54.7 7.83 660.0 54.2 8.22 681.2 61.8 9.05 Total loans 37,516.2 3,053.5 8.14 32,792.5 2,696.4 8.22 29,709.3 2,523.3 8.49 Securities available for sale: Taxable 7,513.9 502.0 6.68 7,429.0 476.1 6.41 7,167.8 431.9 6.03 Tax-exempt 695.2 59.3 8.53 768.7 67.9 8.83 873.7 82.7 9.47 Total securities available for sale 8,209.1 561.3 6.84 8,197.7 544.0 6.64 8,041.5 514.6 6.40 Funds sold 1,031.1 60.9 5.90 759.0 40.9 5.39 582.4 34.9 5.98 Other short-term investments 239.9 11.7 4.89 81.8 4.8 5.84 68.2 4.0 5.80 Total earning assets 46,996.3 3,687.4 7.85 41,831.0 3,286.1 7.86 38,401.4 3,076.8 8.01 Allowance for loan losses (637.2) (647.1) (642.0) Cash and due from banks 2,273.2 2,240.1 2,114.4 Premises and equipment 934.7 746.3 721.5 Other assets 1,799.7 1,425.2 1,132.1 Unrealized gains on securities available for sale 3,005.3 2,193.4 1,379.0 Total assets $54,372.0 $47,788.9 $43,106.4 LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing deposits: NOW/Money market accounts $10,503.0 $ 286.7 2.73 % $10,296.2 $ 286.2 2.78 % $ 9,425.2 $ 257.5 2.73 % Savings 5,271.1 189.5 3.59 5,374.0 196.7 3.66 3,619.4 95.3 2.63 Consumer time 6,996.9 363.4 5.19 7,282.3 377.1 5.18 7,875.0 416.4 5.29 Other time 5,604.6 311.6 5.56 4,084.9 223.0 5.46 3,978.0 219.5 5.52 Total interest-bearing deposits 28,375.6 1,151.2 4.06 27,037.4 1,083.0 4.01 24,897.6 988.7 3.97 Funds purchased 6,496.1 345.1 5.31 4,821.1 245.5 5.09 4,228.8 239.1 5.65 Other short-term borrowings 1,742.7 91.6 5.26 860.6 48.3 5.61 918.1 54.9 5.97 Long-term debt 2,442.4 168.5 6.90 1,268.7 85.0 6.70 960.3 68.1 7.09 Total interest-bearing liabilities 39,056.8 1,756.4 4.50 33,987.8 1,461.8 4.30 31,004.8 1,350.8 4.36 Noninterest-bearing deposits 7,539.7 7,203.9 6,911.1 Other liabilities 2,696.5 1,933.0 1,264.7 Realized shareholders' equity 3,219.4 3,306.6 3,072.9 Net unrealized gains on securities available for sale 1,859.6 1,357.6 852.9 Total liabilities and shareholders' equity $54,372.0 $47,788.9 $43,106.4 Interest rate spread 3.35 % 3.56 % 3.65 % NET INTEREST INCOME $1,931.0 $1,824.3 $1,726.0 NET INTEREST MARGIN 4.11 % 4.36 % 4.49 % Interest income includes loan fees of $100.0, $95.3, $86.5, $93.5, $88.6 and $80.8 in the six years ended December 31, 1997. Nonaccrual loans are included in average balances and income on such loans, if recognized, is recorded on a cash basis. 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% for 1997, 1996, 1995, 1994 and 1993 and 34% in 1992 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 were $36.6, $40.1, 49.6, $55.8, $62.8, $70.3 in the six years ended December 31, 1997. Stated rate is calculated after reducing interest income by $18.0 in 1992 representing earnings from investment in an employee benefit trust. Interest rate swap transactions used to help balance the Company's interest-sensitivity position increased interest expense by $3.7 and $1.0 in 1997 and 1996 and reduced interest expense by $10.1, 30.6, $43.6 and $36.3 in 1995, 1994,1993 and 1992. Without these swaps, the rate on other time deposits and the net interest margin would have been 5.49% and 4.12% in 1997, 5.43% and 4.36% in 1996, 5.77% and 4.47% in 1995, 4.43% and 4.56% in 1994, 4.04% and 4.67% in 1993 and 5.12% and 4.99% in 1992, respectively.
TABLE 5B - CONSOLIDATED DAILY AVERAGE BALANCES, INCOME/EXPENSE AND AVERAGE YIELDS EARNED AND RATES PAID
1994 1993 1992 (Dollars in millions; yields on Average Income/ Yields/ Average Income/ Yields/ Average Income/ Yields/ taxable-equivalent basis) Balances Expense Rates Balances Expense Rates Balances Expense Rates ASSETS Loans: Taxable $25,678.3 $1,979.6 7.71 % $23,362.8 $1,765.1 7.56 % $21,628.4 $1,821.5 8.42 % Tax-exempt 734.3 60.1 8.18 800.0 62.0 7.75 860.7 69.7 8.10 Total loans 26,412.6 2,039.7 7.72 24,162.8 1,827.1 7.56 22,489.1 1,891.2 8.41 Securities available for sale: Taxable 7,968.4 437.8 5.50 7,844.6 451.2 5.75 7,079.2 515.3 7.28 Tax-exempt 1,035.5 100.7 9.72 1,128.7 115.8 10.26 1,271.3 134.5 10.58 Total securities available for sale 9,003.9 538.5 5.98 8,973.3 567.0 6.32 8,350.5 649.8 7.78 Funds sold 380.9 17.1 4.49 334.4 10.6 3.17 439.9 16.8 3.83 Other short-term investments 313.6 12.8 4.07 576.8 20.4 3.53 729.1 50.1 4.40 Total earning assets 36,111.0 2,608.1 7.22 34,047.3 2,425.1 7.12 32,008.6 2,607.9 8.15 Allowance for loan losses (601.6) (521.9) (421.6) Cash and due from banks 2,228.8 2,200.0 2,007.0 Premises and equipment 713.7 710.1 693.0 Other assets 1,060.1 1,086.0 1,069.5 Unrealized gains on securities available for sale 983.6 3.4 Total assets $40,495.6 $37,524.9 $35,356.5 LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing deposits: NOW/Money market accounts $ 9,798.9 $ 223.7 2.28 % $ 9,655.0 $ 211.8 2.19 % $ 8,900.8 $ 246.2 2.77 % Savings 4,364.5 104.6 2.40 4,515.0 108.8 2.41 4,316.1 130.4 3.02 Consumer time 6,626.2 271.8 4.10 6,799.4 276.8 4.07 7,350.0 382.8 5.21 Other time 3,054.1 104.7 3.43 1,940.6 34.9 1.80 2,132.8 73.0 3.42 Total interest-bearing deposits 23,843.7 704.8 2.96 22,910.0 632.3 2.76 22,699.7 832.4 3.67 Funds purchased 3,050.0 122.1 4.00 3,102.7 87.9 2.83 2,664.5 87.0 3.27 Other short-term borrowings 1,083.2 42.5 3.93 632.0 21.7 3.42 192.6 7.0 3.65 Long-term debt 908.4 63.1 6.95 611.4 48.8 7.99 534.5 48.6 9.09 Total interest-bearing liabilities 28,885.3 932.5 3.23 27,256.1 790.7 2.90 26,091.3 975.0 3.74 Noninterest-bearing deposits 7,034.1 6,773.3 5,909.9 Other liabilities 1,000.8 618.3 657.4 Realized shareholders' equity 2,964.0 2,875.1 2,697.9 Net unrealized gains on securities available for sale 611.4 2.1 - Total liabilities and shareholders' equity $40,495.6 $37,524.9 $35,356.5 Interest rate spread 3.99 % 4.22 % 4.41 % NET INTEREST INCOME $1,675.6 $1,634.4 $1,632.9 NET INTEREST MARGIN 4.64 % 4.80 % 5.10 % See footnote 1 in Table 3A. See footnote 2 in Table 3A. See footnote 3 in Table 3A. See footnote 4 in Table 3A.
TABLE 5C - CONSOLIDATED GROWTH RATE IN AVERAGE BALANCES
Growth Rate in Average Balances Five Year One Year Annualized (Dollars in millions; yields on 1997- 1997- taxable-equivalent basis) 1996 1992 Assets Loans Taxable 14.6 % 11.2 % Tax-exempt 5.9 (4.1) Total loans 14.4 10.8 Securities available for sale: Taxable 1.1 1.2 Tax-exempt (9.6) (11.4) Total securities available for sale 0.1 (0.3) Funds sold 35.9 18.6 Other short-term investments 193.2 (19.9) Total earning assets 12.3 8.0 Allowance for loan losses (1.5) 8.6 Cash and due from banks 1.5 2.5 Premises and equipment 25.2 6.2 Other assets 26.3 11.0 Unrealized gains on securities available for sale - - Total assets 13.8 % 9.0 % Liabilities and Shareholders' Equity Interest-bearing deposits: NOW/Money market accounts 2.0 % 3.4 % Savings (1.9) 4.1 Consumer time (3.9) (1.0) Other time 37.2 21.3 Total interest-bearing deposits 4.9 4.6 Funds purchased 34.7 19.5 Other short-term borrowings 102.5 55.3 Long-term debt 92.5 35.5 Total interest-bearing liabilities 14.9 8.4 Noninterest-bearing deposits 4.7 5.0 Other liabilities 39.5 32.6 Realized shareholders' equity (2.6) 3.6 Net unrealized gains on securities available for sale - - Total liabilities and shareholders' equity 13.8 % 9.0 %
Loans and Allowance for Loan Losses Loan demand was strong in 1997 as average loans increased 14.4% over the prior year. An increased emphasis by our banks produced strong growth in both commercial loans and adjustable-rate residential mortgage loans. The Company's only significant concentration of credit at December 31, 1997 occurred in loans secured by real estate which totaled $19.2 billion. However, this amount is not concentrated in any specific geographic area or type of loan, except for adjustable-rate residential mortgages. At year-end 1997, residential mortgages were $8.1 billion in STI of Florida; $2.9 billion in STI of Georgia; and $1.8 billion in STI of Tennessee. Of the $13.0 billion in residential mortgages, $802.2 million were home equity loans. The average loan-to-deposit ratio increased to 104.5% in 1997 compared with 95.8% in 1996. The Company's allowance for loan losses increased to $651.8 million at December 31, 1997, which was 1.62% of year-end loans and 509% of total nonperforming loans. The comparable ratios at December 31, 1996 were 1.77% and 295%, respectively. The Company maintains a allowance for loan losses to absorb inherent losses in the loan portfolio. SunTrust is committed to the early recognition of possible problems and to a strong, conservative allowance. The allowance consists of three elements; (i) allowances established on specific loans, (ii) allowances based on historical loan loss experience, and (iii) allowances based on general economic conditions and other factors in the Company's individual markets. The specific allowance 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 predetermined classification. The historical loan loss element is determined statistically using a loss migration analysis that examines loss experience and the related internal gradings of loans charged-off. The loss migration analysis is performed quarterly and evaluated relative to the Company's general allowance factors which are updated annually. The general economic conditions elements is determined by management at the individual subsidiary banks and is based on knowledge of specific economic factors in their markets that might affect the collectibility of loans. It inherently involves a higher degree of uncertainty and considers factors unique to the markets in which the Company operates. Generally these other risk factors have not manifested themselves in the Company's historical losses/ experience to the extent they might currently. Consideration of these factors is a component of the allowance for loan losses and has been reflected as unallocated allowance in Table 7. Other risk factors take into consideration such factors as recent loss experience in specific portfolio segments, loan quality trends and loans volumes including concentration, economic, foreign and administrative risk. These other risk factors are reviewed and revised by the bank and holding company management where conditions indicate that the estimates initially applied are different from actual results. The SunTrust charge-off policy is generally consistent with regulatory standards, however, a somewhat more conservative set of policies govern the credit card and unsecured consumer loan portfolios. SunTrust typically places a commercial or real estate loan on nonaccrual when principal or interest is due and has remained unpaid for 90 days or more, unless the loan is secured by collateral having realizable value sufficient to discharge the debt in full, or if the loan is in the legal process of collection. Once a loan has been classified as nonaccrual, it also meets the criteria for an impaired loan. Accordingly, the loans are charged down to the estimated value of the collateral and previously accrued unpaid interest is reversed. Subsequent charge-offs may be required as a result of changes in collateral, market values or repayment prospects. Consistent throughout the industry, confirmation of credit card losses is based on a pre-determined number of days that the credit card loan is past due. SunTrust policy for credit cards requires accounts typically to be charged off approximately 30 to 60 days earlier than regulatory guidelines provide. An account deemed uncollectable and past due 91 to 150 days is prepared for charge-off. The charge-off may occur as early as the 121st day, but at least prior to 181 days past due. With regard to consumer loans, losses on unsecured loans are deemed to be confirmed at 90 days past due, compared to the regulatory loss criteria of 120 days. Secured installment loans are typically charged off at 90 days past due if all sources of repayment have been eliminated, or at the occurence of a loss confirming event (i.e., bankruptcy, repossession). Net loan charge-offs were $91.0 million in 1997, representing 0.24% of average loans. The comparable net charge-off amount for 1996 was $90.2 million or 0.27% of average loans. As shown in Table 8, the largest increase in charge-offs occurred in credit card and other consumer loans while the dollar amount of recoveries remained relatively stable. Recoveries increased to 37.8% of total charge-offs in 1997 compared with 36.5% in 1996. At December 31, 1997, international outstandings, which include loans, acceptances, deposits in other banks, foreign guarantees and accrued interest, totaled $286.4 million, an increase of 4.7% from $273.5 million at December 31, 1996. Most of the balances were temporary investments in Canada and Western Europe and trade financing. TABLE 6 - LOAN PORTFOLIO BY TYPES OF LOANS
(In millions) At December 31 1997 1996 1995 1994 1993 1992 Commercial: Domestic $14,139.9 $11,725.5 $10,222.5 $ 9,279.2 $ 8,190.3 $ 7,933.4 International 247.4 240.6 337.5 273.2 197.8 167.3 Real estate: Construction 1,442.6 1,384.8 1,216.6 1,151.1 1,083.2 1,034.7 Residential mortgages 12,992.9 11,508.2 9,732.8 8,380.5 7,013.8 5,911.6 Other 4,778.7 4,585.8 4,477.7 4,516.3 4,456.8 4,495.5 Lease financing 725.7 607.5 561.2 411.0 328.1 355.4 Credit card 1,041.3 946.8 774.0 690.5 698.2 725.7 Other consumer loans 4,767.0 4,405.0 3,979.1 3,847.1 3,323.9 2,869.9 Total Loans $40,135.5 $35,404.2 $31,301.4 $28,548.9 $25,292.1 $23,493.5
TABLE 7 - ALLOWANCE FOR LOAN LOSSES
At December 31 (Dollars in millions) 1997 1996 1995 1994 1993 1992 Allocation by Loan Type by Loan Type Commercial $142.6 $143.8 $137.7 $138.7 $139.4 $155.2 Real estate 122.7 145.1 167.0 200.6 189.6 164.0 Lease financing 7.5 4.8 5.4 2.8 2.8 2.6 Consumer loans 136.4 107.8 86.2 74.6 88.7 82.5 Unallocated 242.6 224.3 242.6 205.3 140.7 69.9 Total $651.8 $625.8 $638.9 $622.0 $561.2 $474.2 Allocation as a Percent of Total Allowance Commercial 21.9 % 23.0 % 21.6 % 22.3 % 24.8 % 32.7 % Real estate 18.8 23.2 26.1 32.3 33.8 34.7 Lease financing 1.2 0.8 0.8 0.5 0.5 0.5 Consumer loans 20.9 17.2 13.5 12.0 15.8 17.4 Unallocated 37.2 35.8 38.0 32.9 25.1 14.7 Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % Year-end Loan Types as a Percent of Total Loans Commercial 35.8 % 33.8 % 33.7 % 33.5 % 33.1 % 34.3 % Real estate 47.9 49.4 49.3 49.2 49.6 48.5 Lease financing 1.8 1.7 1.8 1.4 1.5 1.5 Consumer loans 14.5 15.1 15.2 15.9 15.8 15.7 Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
TABLE 8 - SUMMARY OF LOAN LOSS EXPERIENCE
Year Ended December 31 (Dollars in millions) 1997 1996 1995 1994 1993 1992 Allowance for Loan Losses Balance - beginning of year $ 625.8 $ 638.9 $ 622.0 $ 561.2 $ 474.2 $ 381.0 Allowance of purchased banks - 1.2 6.3 8.3 8.0 6.4 Provision for loan losses 117.0 75.9 77.1 112.8 189.1 234.2 Charge-offs: Domestic: Commercial (23.5) (36.2) (29.7) (28.1) (47.8) (61.3) Real estate: Construction (2.3) (1.4) (0.4) (0.7) (7.6) (7.3) Residential mortgages (7.2) (6.3) (7.1) (7.3) (10.9) (10.3) Other (7.0) (8.2) (16.3) (20.5) (35.1) (44.5) Lease financing (1.6) (1.2) (0.9) (0.7) (1.0) (3.0) Credit card (50.7) (40.8) (27.7) (26.3) (28.9) (33.6) Other consumer loans (53.9) (47.9) (38.7) (30.1) (31.9) (42.0) International Total charge-offs (146.2) (142.0) (120.8) (113.7) (163.2) (202.0) Recoveries: Domestic: Commercial 16.2 15.6 20.0 18.6 20.9 22.1 Real estate: Construction 1.8 0.4 0.8 0.7 0.5 0.7 Residential mortgages 1.6 1.5 1.5 1.5 1.3 1.1 Other 6.0 7.5 5.5 6.3 5.2 3.0 Lease financing 0.5 0.5 0.5 0.6 1.0 1.1 Credit card 7.8 6.9 7.3 7.3 5.7 6.8 Other consumer loans 21.2 19.4 18.1 18.3 18.4 19.5 International 0.1 - 0.6 0.1 0.1 0.3 Total recoveries 55.2 51.8 54.3 53.4 53.1 54.6 Net charge-offs (91.0) (90.2) (66.5) (60.3) (110.1) (147.4) Balance - end of year $ 651.8 $ 625.8 $ 638.9 $ 622.0 $ 561.2 $ 474.2 Year-end loans outstanding: Domestic $39,875.7 $35,154.8 $30,948.4 $28,260.3 $25,078.0 $23,326.2 International 259.8 249.4 353.0 288.6 214.1 167.3 Total $40,135.5 $35,404.2 $31,301.4 $28,548.9 $25,292.1 $23,493.5 Average loans $37,516.2 $32,792.5 $29,709.3 $26,412.6 $24,162.8 $22,489.1 Ratios Allowance to year-end loans 1.62 % 1.77 % 2.04 % 2.18 % 2.22 % 2.02 % Net charge-offs to average loans 0.24 0.27 0.22 0.23 0.46 0.66 Provision to average loans 0.31 0.23 0.26 0.43 0.78 1.04 Recoveries to total charge-offs 37.8 36.5 44.9 47.0 32.5 27.0
Nonperforming Assets Nonperforming assets were only $150.6 million at year-end 1997, decreasing 41.1% from year-end 1996. At December 31, 1997, the ratio of nonperforming assets to total loans plus other real estate owned was the lowest year-end ratio in the Company's history. Included in nonperforming loans are loans aggregating $16.2 million that are current as to the payment of principal and interest but have been placed in nonperforming status because of uncertainty as to the borrower's ability to make future payments. In management's opinion, all known material potential problem loans are included in Table 9. A loan classified as nonaccrual, except for smaller balance, homogenous loans, also meets the criteria for an impaired loan. The Company considers nonaccrual status to be required with the occurrence of one of the following events: (i) interest or principal has been in default 90 days or more, unless the loan is well secured and in the process of collection;(ii) collection of recorded interest or principal is not anticipated; or (iii) the loan is operating on a cash basis due to the deterioration in the financial condition of the debtor. Consumer real estate loans are generally not subject to the above referenced guidelines and are normally placed on nonaccrual when payments have been in default for 90 days or more. SunTrust measures the impairment of a loan based on the present value of expected future cash flows discounted at the loan's effective interest rate. The exception to this policy is real estate loans, whose impairment is based on the estimated fair value of the collateral. If the present value of expected future cash flows (or the fair value of the collateral) is less than the recorded investments in the loans (i.e., principal; accrued interest; net deferred loan fees or costs; unamortized premium or discount), SunTrust will include this deficiency in evaluating the overall adequacy of the allowance for loan losses. Interest income on nonaccrual loans, if recognized, is recorded on a cash basis. When a loan is placed on nonaccrual, unpaid interest is reversed against interest income if it was accrued in the current year and is charged to allowance for loan losses if it was accrued in prior years. When a nonaccrual loan is returned to accruing status, any unpaid interest is recorded as interest income after all principal has been collected. For the year 1997 the gross amount of interest income that would have been recorded on nonaccrual loans and restructured loans at December 31, 1997, if all such loans had been accruing interest at the original contractual rate, was $12.3 million. Interest payments recorded in 1997 as interest income (excluding reversals of previously accrued interest) for all such nonperforming loans at December 31, 1997, were $9.1 million. TABLE 9 - NONPERFORMING ASSETS AND ACCRUING LOANS PAST DUE 90 DAYS OR MORE
At December 31 (Dollars in millions) 1997 1996 1995 1994 1993 1992 Nonperforming Assets Nonaccrual loans: Commercial $ 20.9 $ 45.6 $ 28.3 $ 27.9 $ 41.3 $ 49.6 Real Estate: Construction 1.8 13.3 4.9 16.0 29.9 45.4 Residential mortgages 49.7 49.6 45.7 45.3 53.1 45.5 Other 41.2 81.0 99.3 82.0 116.8 160.2 Lease financing 3.0 2.3 0.1 0.2 0.1 0.9 Consumer loans 8.8 10.5 11.0 11.6 9.3 18.1 Total nonaccrual loans 125.4 202.3 189.3 183.0 250.5 319.7 Restructured loans 2.7 9.9 2.9 4.6 11.3 4.6 Total nonperforming loans 128.1 212.2 192.2 187.6 261.8 324.3 Other real estate owned 22.5 43.6 58.8 87.7 148.9 220.3 Total nonperforming assets $ 150.6 $ 255.8 $ 251.0 $ 275.3 $ 410.7 $ 544.6 Ratios Nonperforming loans to total loans 0.32 % 0.60 % 0.61 % 0.66 % 1.03 % 1.38 % Nonperforming assets to total loans plus other real estate owned 0.37 0.72 0.80 0.96 1.61 2.30 Allowance to nonperforming loans 508.9 294.9 332.4 331.6 214.4 146.2 Accruing Loans Past Due 90 Days or More $ 40.8 $ 34.2 $ 24.3 $ 19.2 $ 24.4 $ 27.6
Securities available for sale The investment portfolio is managed to maximize yield over an entire interest rate cycle while providing liquidity and minimizing market risk. The portfolio yield improved from an average of 6.64% in 1996 to 6.84% in 1997. On an amortized cost basis, the portfolio increased by $455.0 million from December 31, 1996 to December 31, 1997. Portfolio turnover from sales totaled $637.8 million in 1997, representing approximately 7.8% of the average portfolio size. The average life of the portfolio increased to approximately 4.6 years at year-end 1997. Adjustable-rate securities in the portfolio reduced the duration (the average time until receipt of the present value of the portfolio's cash flow) to 1.8 years. The Company classifies its securities portfolio as "securities available-for-sale" which is consistent with the Company's investment philosophy of maintaining flexibility to manage the securities portfolio. The carrying value of securities available for sale at December 31, 1997, reflected $3.3 billion in unrealized gains, including a $3.2 billion unrealized gain on the Company's investment in common stock of The Coca-Cola Company. The market value of this common stock investment increased $678.7 million during 1997, which was not reflected in net income of SunTrust. TABLE 10 - SECURITIES AVAILABLE FOR SALE
Amortized Fair Unrealized Unrealized (In millions) At December 31 Cost Value Gains Losses U.S. Treasury and other U.S. government agencies and corporations: 1997 $2,875.0 $ 2,896.3 $ 24.7 $ 3.4 1996 3,277.8 3,290.9 24.3 11.2 1995 3,286.7 3,308.4 32.5 10.8 States and political subsidivions: 1997 622.3 642.1 20.0 0.2 1996 749.1 773.2 25.2 1.1 1995 831.2 865.8 36.1 1.5 Mortgage-backed securities: 1997 4,031.5 4,049.9 34.2 15.8 1996 3,750.5 3,748.6 27.0 28.9 1995 3,508.4 3,516.2 26.4 18.6 Trust preferred securities: 1997 663.0 674.4 17.4 6.0 1996 - - - - 1995 - - - - Other securities: 1997 225.5 3,466.6 3,241.4 0.3 1996 184.9 2,738.5 2,555.0 1.4 1995 177.5 1,986.5 1,810.1 1.1 Total securities available for sale 1997 $8,417.3 $11,729.3 $3,337.7 $25.7 1996 7,962.3 10,551.2 2,631.5 42.6 1995 7,803.8 9,676.9 1,905.1 32.0 Includes the Company's investment in 48,266,496 shares of common stock of The Coca-Cola Company.
Deposits Average interest-bearing deposits increased 5.0% in 1997 and comprised 79.0%, 79.0% and 78.3% of average total deposits in 1997, 1996 and 1995. Other time deposits had the largest increase at 37.2%. Consumer time deposits decreased 3.9%. TABLE 11 - COMPOSITION OF AVERAGE DEPOSITS
Year Ended December 31 Percent of Total (Dollars in millions) 1997 1996 1995 1997 1996 1995 Noninterest-bearing $ 7,539.7 $ 7,203.9 $ 6,911.1 21.0 % 21.0 % 21.7 % NOW/Money market accounts 10,503.0 10,296.2 9,425.2 29.2 30.1 29.6 Savings 5,271.1 5,374.0 3,619.4 14.7 15.7 11.4 Consumer time 6,996.9 7,282.3 7,875.0 19.5 21.3 24.8 Other time 5,604.6 4,084.9 3,978.0 15.6 11.9 12.5 Total $ 35,915.3 $ 34,241.3 $ 31,808.7 100.0 % 100.0 % 100.0 %
Funds Purchased Average funds purchased increased $1,675.0 million or 34.7% in 1997. Also, average net purchased funds (average funds purchased less average funds sold) increased $1,402.9 million in 1997. Average net purchased funds were 11.6% of earning assets for 1997 compared to 9.7% in 1996. FUNDS PURCHASED
Maximum Outstanding At December 31 Daily Average at Any (Dollars in millions) Balance Rate Balance Rate Month-end 1997 $6,483.1 5.76 % $6,496.1 5.31 % $7,842.1 1996 6,047.7 5.91 4,821.1 5.09 6,409.2 1995 5,483.8 5.08 4,228.8 5.65 5,483.8 Consists of federal funds purchased and securities sold under agreements to repurchase that mature either overnight or at a fixed maturity generally not exceeding three months. Rates on overnight funds reflect current market rates. Rates on fixed maturity borrowings are set at the time of borrowings.
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) or Tier 2 (certain debt instruments and a portion of the allowance for loan losses). The Company and its subsidiary banks are subject to a minimum Tier 1 capital ratio (Tier 1 capital to risk-weighted assets) of 4%, total capital ratio (Tier 1 plus Tier 2 to risk-weighted assets) of 8% and Tier 1 leverage ratio (Tier 1 to average quarterly assets) of 3%. 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. Under regulations proposed in 1997, a portion of the unrealized gains on equity securities are included in the Tier 2 capital calculation. SunTrust is committed to maintaining well capitalized banks. In April 1997, the Board of Directors authorized the Company to repurchase up to 15,000,000 shares of SunTrust common stock. At December 31, 1997, the Company had 13,068,994 shares remaining to be repurchased under this authorization. TABLE 13 - CAPITAL RATIOS
At December 31 (Dollars in millions) 1997 1996 1995 1994 1993 1992 Tier 1 capital: Realized shareholders' equity $ 3,211.5 $ 3,339.2 $ 3,147.6 $ 2,898.5 $ 2,845.8 $ 2,769.7 Trust preferred securities 600.0 Intangible assets other than servicing rights (292.4) (244.1) (252.3) (222.2) (194.0) (174.6) Tier 1 capital 3,519.1 3,095.1 2,895.3 2,676.4 2,651.8 2,595.1 Tier 2 capital: Allowable allowance for loan losses 600.1 510.8 462.2 420.9 378.1 349.8 Allowable long-term debt 950.0 877.1 246.8 281.4 120.4 200.0 Regulatory adjustment 965.6 Tier 2 capital 2,515.7 1,387.9 709.0 702.3 498.5 549.8 Total capital $ 6,034.8 $ 4,483.0 $ 3,604.3 $ 3,378.7 $ 3,150.3 $ 3,144.9 Risk-weighted assets $48,922.3 $40,751.0 $36,797.4 $33,469.3 $29,871.4 $27,684.4 Risk-based ratios: Tier 1 capital 7.19 % 7.59 % 7.86 % 7.99 % 8.88 % 9.37 % Total capital 12.33 10.99 9.79 10.09 10.55 11.35 Tier 1 leverage ratio 6.59 6.51 6.78 6.71 6.82 7.27 Total shareholders' equity to assets 9.06 9.40 9.25 8.12 8.86 7.33
Liquidity Liquidity is managed to ensure there is sufficient cash flow to satisfy demand for credit, deposit withdrawals and attractive investment opportunities. A large, stable core deposit base, strong capital position and excellent credit ratings are the solid foundation for the Company's liquidity position. Liquidity is enhanced by an investment portfolio structured to provide liquidity as needed. It is also strengthened by ready access to regional and national wholesale funding sources including fed funds purchased, securities sold under agreements to repurchase, negotiable certificates of deposit and offshore deposits, as well as an active bank note program, commercial paper issuance by the Parent Company, and Federal Home Loan Bank (FHLB) advances for several subsidiary banks who are FHLB members. TABLE 14 - LOAN MATURITY
(In millions) Remaining Maturities of Selected Loans Within 1-5 After At December 31, 1997 Total 1 Year Years 5 Years Loan Maturity Commercial $ 14,387.3 $ 6,955.8 $ 5,721.8 $ 1,709.7 Real estate - construction 1,442.6 998.1 444.5 Total $ 15,829.9 $ 7,953.9 $ 6,166.3 $ 1,709.7 Interest Rate Sensitivity Selected loans with: Predetermined interest rates $ 1,261.8 $ 277.9 Floating or adjustable interest rates 4,904.5 1,431.8 Total $ 6,166.3 $ 1,709.7
TABLE 15 - MATURITY DISTRIBUTION OF SECURITIES AVAILABLE FOR SALE
At December 31, 1997 Average 1 Year 1-5 5-10 After 10 Maturity (Dollars in millions) or Less Years Years Years Total in Years Distribution of Maturities: Amortized Cost U.S. Treasury and other U.S. government agencies and corporations $ 1,131.1 $ 1,739.3 $ 4.6 $ - $ 2,875.0 1.5 States and political subdivisions 138.4 357.9 117.2 8.8 622.3 2.8 Mortgage-backed securities 567.8 2,593.0 824.1 46.6 4,031.5 3.1 Trust preferred securities - - 30.3 632.7 663.0 29.1 Total debt securities $ 1,837.3 $ 4,690.2 $ 976.2 $ 688.1 $ 8,191.8 4.6 Fair Value U.S. Treasury and other U.S. government agencies and corporations $ 1,130.8 $ 1,760.6 $ 4.9 $ - $ 2,896.3 States and political subdivisions 140.7 366.7 125.3 9.4 642.1 Mortgage-backed securities 561.8 2,610.4 830.7 47.0 4,049.9 Trust preferred securities - - 30.1 644.3 674.4 Total debt securities $ 1,833.3 $ 4,737.7 $ 991.0 $ 700.7 $ 8,262.7 Weighted average yield(FTE): U.S. Treasury and other U.S. government agencies and corporations 5.67 % 6.27 % 7.14 % - % 6.04 % States and political subdivisions 8.84 8.04 8.99 7.83 8.40 Mortgage-backed securities 5.85 6.67 6.28 5.73 6.46 Trust preferred securities - - 6.68 7.17 7.15 Total debt securities 5.97 6.63 6.62 7.08 6.52 Distribution of maturities is based on expected cash flows which may be different from the contractual terms.
TABLE 16 - MATURITY OF CONSUMER TIME AND OTHER TIME DEPOSITS IN AMOUNTS OF $100,000 OR MORE
(In millions) At December 31, 1997 Other Consumer Time Time Deposits Total Months to maturity: 3 or less $1,572.8 $3,041.3 $4,614.1 Over 3 through 6 586.8 586.8 Over 6 through 12 630.1 630.1 Over 12 469.2 469.2 Total $3,258.9 $3,041.3 $6,300.2
Interest Rate and Market 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, cashflows and net interest income. SunTrust's asset / liablilty 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 maintaining a relatively neutral interest rate sensitive position. The gap analysis in Table 17 represents a snapshot of the Company's balance sheet structure as of year-end. It does not reflect the complexities of the Company's interest rate sensitivity. 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. Management then develops and implements appropriate strategies. Senior management regularly reviews the overall interest rate risk position and asset / liability management strategies. The Company's relative interest rate risk neutrality as of December 31, 1997 is evidence of the management's ability to reach their interest rate risk objectives. Management estimates the Company's annual net interest income would decline less than $5 million, or 0.2%, under an instantaneous increase, or decrease, in interest rates of 100 basis points, versus the projection under stable rates. A fair market value analysis of the Company's balance sheet calculated under an instantaneous 100 basis point increase in rates over December 31, 1997 estimates a $225 million decrease in market value. SunTrust estimates a like decrease in rates would increase market value $183 million. These changes in market value represent less than 0.4% of total carrying value of total assets as of year-end. These simulated computations should not be relied upon as indicative of actual future results. Further, the computations do not contemplate certain actions that management may undertake in response to future changes in interest rates. The Company is also subject to risk from changes in equity prices. SunTrust owns 48,266,496 shares of commom stock of The Coca-Cola Company which had a carrying value of $3.2 billion at December 31, 1997. An instantaneous 10% decrease in share price of The Coca-Cola Company would result in a decrease of approximately $205 million in shareholders' equity. The Company's trading portfolio at December 31, 1997 is not significant compared to the remainder of the balance sheet. The increase or decrease in portfolio equity from trading assets caused by hypothetical 10% increase or decrease in interest rates or equity prices would not be material. Nevertheless, the Company closely monitors market risk . TABLE 17 - INTEREST RATE SENSITIVITY ANALYSIS
At December 31, 1997 Repricing Within 0-30 31-90 91-180 181-365 Over 1 (Dollars in millions) Days Days Days Days Year Total EARNING ASSETS Loans $ 13,494.2 $ 5,749.9 $ 2,339.5 $ 3,743.0 $ 14,390.3 $ 39,716.9 Debt securities 1,022.7 845.5 577.0 1,354.8 4,570.2 8,370.2 Interest-bearing deposits 13.4 0.7 - - 1.3 15.4 Funds sold 1,063.6 - - - - 1,063.6 Total earning assets 15,593.9 6,596.1 2,916.5 5,097.8 18,961.8 49,166.1 INTEREST-BEARING LIABILITIES Interest-bearing deposits 20,936.6 1,584.2 2,193.9 2,281.3 2,273.7 29,269.7 Funds purchased 8,101.0 - - - - 8,101.0 Other short-term borrowings 1,307.4 197.0 35.0 450.0 - 1,989.4 Long-term debt 137.6 97.1 4.5 18.8 2,913.8 3,171.8 Total interest-bearing liabilities 30,482.6 1,878.3 2,233.4 2,750.1 5,187.5 42,531.9 Off-balance sheet financial instruments (236.1) 276.8 (341.0) (535.4) 835.7 - Interest-sensitivity gap $(15,124.8) $ 4,994.6 $ 342.1 $ 1,812.3 $ 14,610.0 $ 6,634.2 Cumulative gap $(15,124.8) $(10,130.2) $ (9,788.1) $ (7,975.8) $ 6,634.2 Ratio of cumulative gap to total earning assets 30.8 % 20.6 % 19.9 % 16.2 % 13.5 % Ratio of interest-sensitive assets to interest-sensitive liabilities 51.2 351.2 130.6 185.4 365.5 Cumulative gap at December 31, 1996 $(12,256.7) $ (9,157.7) $ (8,764.8) $ (5,809.2) $ 7,544.2 Cumulative gap at December 31, 1995 (8,215.5) (7,687.5) (7,233.8) (4,597.4) 6,972.4 The repricing dates (which may differ from maturity dates) for various assets and liabilities do not consider external factors that might affect the interest rate sensitivity of assets and liabilities. Excludes overdrafts and nonaccrual loans. Includes trading account. Savings, NOW and money market accounts can be repriced at any time, therefore all such balances have been included in 0-30 days. Consumer time and other time deposit balances are classified according to their remaining maturities.
Derivative Instruments Derivative financial instruments, such as interest rate swaps, options, futures and forward contracts, are components of the Company's risk management profile. The Company also enters into such instruments as a service to corporate banking customers. Where contracts have been created for customers, the Company enters into offsetting positions to eliminate the Company's exposure to interest rate risk. The Company monitors its sensitivity to changes in interest rates and may use interest rate swap contracts to limit the volatility of net interest income. Interest rate swaps increased interest expense by $3.7 million in 1997 and $1.0 in 1996 and decreased interest expense by $10.1 million for 1995. Included in those amounts are $(1.4), $2.3 and $0.5 million representing income from swaps entered into for customers. For interest rate swaps entered into by the Company as an end user, the following table shows the weighted average rate received and weighted average rate paid by maturity and corresponding notional amounts at December 31, 1997. TABLE 18 - INTEREST RATE SWAPS
Average Average Average (Dollars in millions) Notional Fair Maturity Rate Rate At December 31, 1997 Value Value In Months Paid Received Gain position: Receive fixed $ 718.8 $ 36.0 87.1 5.90 % 6.87 % Pay fixed 112.8 2.8 23.5 5.65 5.90 Basis swaps 250.0 0.4 14.8 5.47 5.73 Total gain position 1,081.6 39.2 Loss position: Receive fixed 1,038.0 (3.5) 4.6 5.82 5.32 Pay fixed 589.6 (7.0) 46.2 6.52 5.84 Basis swaps 750.0 (4.3) 33.9 5.47 5.71 Total loss position 2,377.6 (14.8) Total $3,459.2 $ 24.4
Earnings and Balance Sheet Analysis 1996 vs. 1995 Net income was $641.0 million in 1996 compared with $586.8 million in 1995. This increase amounted to $54.2 million or 9.2%. Diluted earnings per common share in 1996 were $2.87, an 12.1% increase over the preceding year. Basic earnings per common share in 1996 were $2.91 compared to $2.59 the previous year. Net interest income, at $1,824.3 million for 1996, was $98.3 million higher than in 1995 primarily because of a 10.8% growth in average assets. The Company's net interest margin declined from 4.49% in 1995 to 4.36% in 1996. The provision for loan losses decreased $1.2 million from $77.1 million to $75.9 million while the allowance for loan losses as a percentage of loans decreased from 2.04% to 1.77%. Net charge-offs were 0.27% of loans in 1996 versus 0.22% in 1995. Nonperforming assets increased $4.8 million from $251.0 million at December 31, 1995 to $255.8 million at December 31, 1996. Noninterest income increased $104.9 million from $713.1 million in 1995 to $818.0 million in 1996. Other charges and fees were up as a result of increased investment banking activity. Noninterest expense was up $131.6 million or 9.1%. Loans at December 31, 1996, were $35.4 billion or 13.1% greater than at year-end 1995. At December 31, 1996, deposits were $36.9 billion, an increase of $3.7 billion, or 11.2%, from 1995 year-end. Fourth Quarter Results Diluted net income per common share for the fourth quarter of 1997 was $0.82, unchanged from the fourth quarter of 1996. Basic net income per common share decreased 1.2% to $0.83 in 1997 from $0.84 in 1996. Net income decreased from $182.9 million in the 1996 fourth quarter to $172.2 million in the 1997 fourth quarter. The 1997 provision for loan losses of $32.6 million was $37.8 million greater than the ($5.3) million in 1996 (see Note 18). Net loan charge-offs for the current period were lower at $27.9 million, $5.7 million lower than in the 1996 fourth quarter. Average earning assets were $49.0 billion in the 1997 fourth quarter, an increase of 11.9% over 1996. This gain, offset somewhat by a 29 basis point decline in the net interest margin, produced an increase of $21.9 million in net interest income on a taxable-equivalent basis. Noninterest income increased by $40.4 million in the 1997 fourth quarter compared to the fourth quarter of 1996. Trust income was up $13.5 million or 19.6%. Service charges on deposit accounts were up $3.1 million or 5.3% over the 1996 fourth quarter. Noninterest expense increased 8.7% from year-ago levels. Personnel expense was up $15.0 million or 6.6%. TABLE 19 - QUARTERLY FINANCIAL DATA
(Dollars in millions) except 1997 1996 per share data 4 3 2 1 4 3 2 1 SUMMARY OF OPERATIONS Interest and dividend income $ 954.4 $ 934.9 $ 898.4 $ 863.1 $ 846.5 $ 820.4 $ 798.6 $ 780.5 Interest expense 469.0 458.1 428.7 400.6 384.2 366.0 354.3 357.3 Net interest income 485.4 476.8 469.7 462.5 462.3 454.4 444.3 423.2 Provision for loan losses 32.6 29.0 29.2 26.2 (5.3) 30.0 26.2 25.0 Net interest income after provision for loan losses 452.8 447.8 440.5 436.3 467.6 424.4 418.1 398.2 Noninterest income 247.4 232.9 228.1 225.8 207.0 197.2 200.1 213.7 Noninterest expense 433.9 424.4 413.3 414.0 399.1 389.6 393.4 401.0 Income before provision for income taxes 266.3 256.3 255.3 248.1 275.5 232.0 224.8 210.9 Provision for income taxes 94.1 87.7 89.9 87.0 92.6 76.4 72.7 60.5 Net income $ 172.2 $ 168.6 $ 165.4 $ 161.1 $ 182.9 $ 155.6 $ 152.1 $ 150.4 Net interest income, (taxable-equivalent) $ 494.1 $ 485.7 $ 479.2 $ 472.0 $ 472.2 $ 464.2 $ 454.2 $ 433.7 PER COMMON SHARE Net income - diluted $ 0.82 $ 0.80 $ 0.77 $ 0.74 $ 0.82 $ 0.70 $ 0.68 $ 0.66 Net income - basic 0.83 0.81 0.78 0.75 0.84 0.71 0.68 0.68 Dividends declared 0.250 0.225 0.225 0.225 0.225 0.200 0.200 0.200 Book value 25.06 23.92 24.50 22.59 22.41 21.60 20.89 19.76 Market Price: High 75.25 70.44 59.00 54.75 52.50 41.50 38.00 38.38 Low 61.13 54.75 44.13 46.13 40.88 34.88 33.25 32.00 Close 71.38 67.94 55.06 46.38 49.25 41.00 37.00 35.00 SELECTED AVERAGE BALANCES Total assets $56,663.4 $55,160.2 $53,598.3 $52,006.5 $50,161.1 $48,182.6 $47,079.5 $45,701.9 Earning assets 48,970.5 47,672.1 46,238.1 45,054.0 43,763.9 42,179.2 41,241.8 40,114.0 Loans 39,230.1 37,898.9 37,000.9 35,894.2 34,416.9 33,029.6 32,265.2 31,437.9 Total deposits 35,940.2 36,115.7 36,078.8 35,519.5 34,840.7 34,652.8 34,378.8 33,081.9 Realized shareholders' equity 3,211.0 3,188.6 3,189.1 3,290.2 3,395.0 3,318.3 3,268.6 3,243.4 Total shareholders' equity 5,067.0 5,151.4 5,068.8 5,027.6 4,902.3 4,750.3 4,558.8 4,441.9 Common shares - diluted (thousands) 210,554 211,671 213,572 218,227 221,840 222,683 224,061 225,388 Common shares - basic (thousands) 207,138 208,391 210,608 214,940 218,353 219,610 221,142 222,381 Ratios (Annualized) ROA 1.27 % 1.29 % 1.31 % 1.33 % 1.52 % 1.35 % 1.36 % 1.38 % ROE 21.69 21.27 20.81 19.85 21.43 18.86 18.93 18.87 Net interest margin 4.00 4.04 4.16 4.25 4.29 4.38 4.43 4.35
TABLE 20 - CONSOLIDATED DAILY AVERAGE BALANCES, INCOME/EXPENSE AND AVERAGE YIELDS EARNED AND RATES PAID
Quarter Ended December 31, 1997 December 31, 1996 (Dollars in millions; yields on Average Income/ Yields/ Average Income/ Yields/ taxable-equivalent basis) Balances Expense Rates Balances Expense Rates Assets Loans: Taxable $38,531.7 $787.5 8.11 % $33,669.4 $688.4 8.13 % Tax-exempt 698.4 13.8 7.83 747.5 14.5 7.75 Total loans 39,230.1 801.3 8.10 34,416.9 702.9 8.13 Securities available for sale: Taxable 7,681.3 129.6 6.69 7,330.4 120.1 6.52 Tax-exempt 653.1 13.8 8.37 733.8 16.0 8.69 Total securities available for sale 8,334.4 143.4 6.82 8,064.2 136.1 6.71 Funds sold 1,166.1 17.0 5.82 1,177.5 15.9 5.36 Other short-term investments 239.9 1.4 2.33 105.3 1.5 5.57 Total earning assets 48,970.5 963.1 7.80 43,763.9 856.4 7.78 Allowance for loan losses (645.1) (624.8) Cash and due from banks 2,395.4 2,320.1 Premises and equipment 958.0 759.4 Other assets 1,985.6 1,506.4 Unrealized gains(losses) on securities available for sale 2,999.0 2,436.1 Total assets $56,663.4 $50,161.1 Liabilities and Shareholders' Equity Interest-bearing deposits: NOW/Money market accounts $10,603.1 $ 72.9 2.73 % $10,369.1 $ 70.4 2.70 % Savings 5,184.4 47.2 3.61 5,437.8 48.9 3.57 Consumer time 6,976.0 92.1 5.24 7,062.1 91.3 5.15 Other time 5,374.8 76.2 5.62 4,487.4 60.7 5.39 Total interest-bearing deposits 28,138.3 288.4 4.07 27,356.4 271.3 3.95 Funds purchased 7,593.4 102.7 5.36 5,788.3 74.3 5.11 Other short-term borrowings 1,935.4 20.6 4.23 874.8 12.3 5.58 Long-term debt 3,073.2 57.3 7.40 1,568.4 26.3 6.67 Total interest-bearing liabilities 40,740.3 469.0 4.57 35,587.9 384.2 4.30 Noninterest-bearing deposits 7,801.9 7,484.3 Other liabilities 3,054.5 2,186.0 Realized shareholders' equity 3,211.0 3,395.0 Net unrealized gains(losses) on securities available for sale 1,856.0 1,507.3 Total liabilities and shareholders' equity $56,663.4 $50,161.1 Interest rate spread 3.23 % 3.48 % Net Interest Income $494.1 $472.2 Net Interest Margin 4.00 % 4.29 % Interest income includes loan fees of $26.2 and $24.7 in the quarters ended December 31, 1997 and 1996. Nonaccrual loans are included in average balances and income on such loans, if recognized, is recorded on a cash basis. Interest income includes the effects of taxable-equivalent adjustments 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 $8.7 and $9.9 in the quarters ended December 31, 1997 and 1996. Interest rate swap transactions used to help balance the Company's interest-sensitivity position increased interest expense by $1.3 in the fourth quarter of 1997 and reduced interest expense by $0.1 in the fourth quarter of 1996. Without these swaps, the rate on Other time deposits and the net interest margin would have been 5.52% and 4.01% in 1997 and 5.40% and 4.29% in 1996.
TABLE 21 - QUARTERLY NONINTEREST INCOME AND EXPENSE
Quarters 1997 1996 (In millions) 4 3 2 1 4 3 2 1 Noninterest Income Trust income $ 82.5 $ 79.0 $ 78.7 $ 78.4 $ 69.0 $ 68.1 $ 70.5 $ 70.7 Service charges on deposit accounts 63.8 62.4 61.9 59.7 60.7 57.9 58.1 55.7 Corporate and institutional investment income 6.4 8.6 4.6 5.0 4.8 3.4 3.3 2.8 Retail investment income 8.4 8.3 8.5 8.0 5.1 6.3 6.2 4.6 Credit card fees 18.9 17.5 18.4 18.8 17.0 15.7 16.6 17.0 Mortgage fees 13.6 12.2 10.9 9.2 8.8 8.7 9.8 8.7 Other charges and fees 28.0 27.2 29.5 29.0 25.9 23.8 25.6 23.5 Securities gains (losses) 0.4 0.1 (0.4) 1.4 (0.4) (0.5) (2.2) 17.3 Trading account profits and commissions 5.2 4.0 4.8 4.0 4.1 3.5 3.1 2.6 Other income 20.2 13.6 11.2 12.3 12.0 10.3 9.1 10.8 Total noninterest income $ 247.4 $ 232.9 $ 228.1 $ 225.8 $ 207.0 $ 197.2 $ 200.1 $ 213.7 Noninterest Expense Salaries $ 178.7 $ 175.2 $ 169.8 $ 167.0 $ 165.6 $ 161.7 $ 156.0 $ 151.7 Other compensation 42.9 39.2 36.0 35.4 34.2 32.9 32.3 29.1 Employee benefits 22.0 27.5 29.5 32.4 28.8 26.0 26.4 29.4 Total personnel expense 243.6 241.9 235.3 234.8 228.6 220.6 214.7 210.2 Net occupancy expense 30.9 30.9 32.5 32.5 35.2 34.9 34.4 33.7 Equipment expense 29.6 30.7 30.3 30.1 30.4 29.5 28.0 27.5 FDIC premiums 1.3 1.3 1.4 1.8 1.4 14.1 1.4 1.2 Marketing and customer development 19.2 15.9 16.9 16.8 23.3 19.2 18.7 15.2 Postage and delivery 10.7 10.1 10.5 11.3 10.3 10.5 9.7 10.0 Operating supplies 9.8 8.7 9.1 9.6 9.5 8.9 9.9 9.7 Other real estate expense (5.8) (3.1) (1.3) (1.2) (1.1) 0.4 (0.5) 0.8 Communications 8.7 8.9 8.6 9.1 8.6 8.3 7.8 7.7 Consulting and legal 9.3 8.1 5.4 5.7 8.5 5.8 6.1 5.1 Amortization of intangible assets 10.0 8.3 8.0 7.7 7.3 6.8 6.5 6.1 Outside processing and software 19.4 18.0 16.1 14.9 18.2 14.2 12.8 11.7 Other expense 47.2 44.7 40.5 40.9 18.9 16.4 43.9 62.1 Total noninterest expense $ 433.9 $ 424.4 $ 413.3 $ 414.0 $ 399.1 $ 389.6 $ 393.4 $ 401.0
TABLE 22 - SUMMARY OF LOAN LOSS EXPERIENCE, NONPERFORMING ASSETS AND ACCRUING LOANS PAST DUE 90 DAYS OR MORE (DOLLARS IN MILLIONS)
Quarters 1997 1996 4 3 2 1 4 3 2 1 ALLOWANCE FOR LOAN LOSSES Balance - Beginning of quarter $ 647.1 $ 639.8 $ 634.5 $ 625.8 $ 664.7 $ 662.6 $ 652.4 $ 638.9 Allowance of purchased bank - - - - - - - 1.2 Provision for loan losses 32.6 29.0 29.2 26.2 (5.3) 30.0 26.2 25.0 Charge-offs (41.5) (37.4) (35.3) (32.0) (45.9) (40.9) (28.6) (26.6) Recoveries 13.6 15.7 11.4 14.5 12.3 13.0 12.6 13.9 Balance - End of quarter $ 651.8 $ 647.1 $ 639.8 $ 634.5 $ 625.8 $ 664.7 $ 662.6 $ 652.4 RATIOS Allowance to loans outstanding - Quarter-end 1.62 % 1.68 % 1.70 % 1.74 % 1.77 % 1.97 % 2.04 % 2.05 % Net loan charge-offs (annualized) to average loans 0.28 0.23 0.26 0.20 0.39 0.34 0.20 0.16 Provison to average loans (annualized) 0.33 0.30 0.32 0.30 (0.06) 0.36 0.33 0.32 NONPERFORMING ASSETS Nonaccrual loans $ 125.4 $ 152.3 $ 161.0 $ 181.0 $ 202.3 $ 184.9 $ 192.0 $ 187.7 Restructured loans 2.7 2.7 11.0 9.9 9.9 2.7 2.8 2.9 Total nonperforming loans 128.1 155.0 172.0 190.9 212.2 187.6 194.8 190.6 Other real estate owned 22.5 35.7 41.9 43.9 43.6 51.9 53.5 58.8 Total nonperforming assets $ 150.6 $ 190.7 $ 213.9 $ 234.8 $ 255.8 $ 239.5 $ 248.3 $ 249.4 RATIOS Nonperforming loans to total loans 0.32 % 0.40 % 0.46 % 0.52 % 0.60 % 0.55 % 0.60 % 0.60 % Nonperforming assets to total loans plus other real estate owned 0.37 0.50 0.57 0.64 0.72 0.71 0.77 0.78 Allowance to nonperforming loans 508.9 417.5 372.0 332.4 294.9 354.3 340.1 342.0 Accruing Loans Past Due 90 Days or More $ 40.8 $ 41.4 $ 25.9 $ 33.9 $ 34.2 $ 28.0 $ 29.9 $ 26.0
Banking Income TABLE 23 - SELECTED FINANCIAL DATA OF PRINCIPAL BANKING SUBSIDIARIES (Dollars in Millions)
SunTrust Banks of SunTrust Banks of SunTrust Banks of Florida, Inc. Georgia, Inc. Tennessee, Inc. 1997 1996 1997 1996 1997 1996 Summary of Operations Net interest income (FTE) $1,007.1 $ 947.4 $ 662.8 $ 603.2 $ 293.6 $ 276.5 Provision for loan losses 32.4 30.3 20.3 26.7 6.1 8.9 Trust income 156.3 142.0 114.5 100.5 38.6 35.5 Other noninterest income 314.0 271.2 206.1 176.0 89.2 77.6 Personnel expense 347.1 324.0 230.9 204.2 111.9 103.8 Other noninterest expense 492.7 449.3 298.2 255.6 125.2 114.4 Net income $ 371.5 $ 341.2 $ 281.5 $ 253.8 $ 110.1 $ 100.1 Selected Average Balances Total assets 25,609 23,058 21,275 17,673 7,577 6,877 Earning assets 24,110 21,583 16,708 14,065 7,284 6,599 Loans 18,194 16,363 13,402 11,218 5,673 4,973 Total deposits 18,409 18,275 11,751 10,485 5,820 5,528 Realized shareholder's equity 2,090 1,978 1,530 1,351 606 565 At December 31 Total assets 27,387 24,783 22,718 20,068 8,142 7,489 Earning assets 25,435 22,885 17,582 15,698 7,783 7,094 Loans 19,549 17,267 14,299 12,287 5,906 5,370 Allowance for loan losses 379 369 201 196 110 114 Total deposits 19,715 19,316 12,251 11,703 6,382 5,837 Realized shareholder's equity 2,172 2,048 1,685 1,404 635 585 Total shareholder's equity 2,190 2,058 3,687 2,982 641 590 Credit Quality Net loan charge-offs 22.3 23.5 15.0 23.0 10.4 9.7 Nonperforming loans 79.3 117.4 36.4 73.6 12.0 20.7 Other real estate owned 10.9 24.4 2.8 5.3 8.6 13.9 Ratios and Other Data ROA 1.45 % 1.48 % 1.54 % 1.64 % 1.45 % 1.46 % ROE 17.77 17.25 18.39 18.79 18.17 17.71 Net interest margin 4.18 4.40 3.97 4.29 4.03 4.20 Efficiency ratio 56.8 56.8 53.8 52.3 56.3 56.0 Total shareholder's equity/assets 8.00 8.30 16.23 14.86 7.88 7.88 Net loan charge-offs to average loans 0.13 0.15 0.11 0.21 0.19 0.20 Nonperforming loans to total loans 0.42 0.70 0.26 0.61 0.21 0.39 Nonperforming assets to total loans plus other real estate owned 0.47 0.84 0.28 0.65 0.36 0.66 Allowance to loans 1.99 2.19 1.43 1.62 1.90 2.17 Allowance to nonperforming loans 478.4 314.5 552.2 266.1 909.6 550.5 Full-service banking offices 368 372 213 201 118 116 ATMs 550 496 359 292 169 129 Charge-offs on credit cards are recorded in SunTrust BankCard, N.A. and are not included in the principal banking subsidiaries. At December 31.
TABLE 24 - FINANCIAL HIGHLIGHTS OF PRINCIPAL BANKING SUBSIDIARIES
Total Assets at Net Income ROA December 31 (Dollars in millions) 1997 1996 1997 1996 1997 1996 SunTrust Banks of Florida, Inc. SunTrust Bank, Central Florida, N.A. $ 96.7 $ 86.6 1.40 % 1.53 % $ 7,803 $ 6,460 SunTrust Bank, East Central Florida 17.8 16.9 1.65 1.58 1,070 1,056 SunTrust Bank, Gulf Coast 22.6 17.9 1.22 0.99 1,907 1,822 SunTrust Bank, Miami, N.A. 43.5 47.4 1.38 1.83 3,523 2,849 SunTrust Bank, Mid-Florida, N.A. 11.6 11.9 1.19 1.21 963 984 SunTrust Bank, Nature Coast 17.9 16.2 1.38 1.31 1,342 1,292 SunTrust Bank, North Central Florida 13.4 12.2 1.54 1.54 907 822 SunTrust Bank, North Florida, N.A. 8.0 9.5 0.76 1.08 1,037 972 SunTrust Bank, South Florida, N.A. 70.6 60.6 1.78 1.57 4,452 4,113 SunTrust Bank, Southwest Florida 18.8 16.6 1.43 1.46 1,359 1,255 SunTrust Bank, Tallahassee, N.A. 5.7 5.0 1.21 1.06 520 445 SunTrust Bank, Tampa Bay 36.3 31.8 1.57 1.57 2,493 2,106 SunTrust Bank, West Florida 9.4 7.9 1.69 1.51 587 565 SunTrust Banks of Georgia, Inc. SunTrust Bank, Atlanta $ 198.0 $ 179.1 1.38 % 1.52 % $17,050 $14,978 SunTrust Bank, Augusta, N.A. 7.9 7.5 1.52 1.58 536 483 SunTrust Bank, Middle Georgia, N.A. 11.5 9.8 1.98 1.65 565 631 SunTrust Bank, Northeast Georgia, N.A. 12.6 10.5 2.03 1.72 661 612 SunTrust Bank, Northwest Georgia, N.A. 6.4 5.7 1.73 1.68 372 376 SunTrust Bank, Savannah, N.A. 10.9 9.6 1.95 1.89 596 519 SunTrust Bank, South Georgia, N.A. 10.6 9.5 1.66 1.59 670 622 SunTrust Bank, Southeast Georgia, N.A. 7.0 6.3 1.48 1.51 526 452 SunTrust Bank, West Georgia, N.A. 6.2 6.6 1.26 1.49 502 476 SunTrust Banks of Tennessee, Inc. SunTrust Bank, Chattanooga, N.A. $ 25.3 $ 21.5 1.79 % 1.57 % $ 1,471 $ 1,399 SunTrust Bank, East Tennessee, N.A. 21.2 20.4 1.24 1.34 1,915 1,600 SunTrust Bank, Nashville, N.A. 54.9 49.5 1.42 1.46 4,264 3,899 SunTrust Bank, South Central Tennessee, N.A. 5.1 4.9 1.52 1.49 341 332 SunTrust Bank, Alabama, N.A. 3.6 3.7 1.04 1.12 353 348
Supervision and Regulation As a bank holding company, the Company is subject to the regulation and supervision of the Board of Governors of the Federal Reserve System (the "Federal Reserve"). The Company's subsidiary banks (the "Subsidiary Banks") are subject to supervision and regulation by applicable state and federal banking agencies, including the Federal Reserve, the Office of the Comptroller of the Currency (the "Comptroller") and the Federal Deposit Insurance Corporation (the "FDIC"). The Subsidiary Banks are also subject to various requirements and restrictions under federal and state law, including requirements to maintain allowances against deposits, restrictions on the types and amounts of loans that may be granted and the interest that may be charged thereon, and limitations on the types of investments that may be made and the types of services that may be offered. Various consumer laws and regulations also affect the operations of the Subsidiary Banks. In addition to the impact of regulation, commercial banks are affected significantly by the actions of the Federal Reserve as it attempts to control the money supply and credit availability in order to influence the economy. Pursuant to the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, bank holding companies from any state may now acquire banks located in any other state, subject to certain conditions, including concentration limits. A bank may establish branches across state lines by merging with a bank in another state, beginning June 1, 1997 (unless applicable state law permitted such interstate mergers at an earlier date or prohibits such interstate mergers entirely), provided certain conditions are met. A bank may also establish a de novo branch in a state in which the bank does not maintain a branch if that state expressly permits such interstate de novo branching and certain other conditions are met. There are a number of obligations and restrictions imposed on bank holding companies and their depository institution subsidiaries by federal law and regulatory policy that are designed to reduce potential loss exposure to the depositors of such depository institutions and to the FDIC insurance fund in the event the depository institution becomes in danger of default or is in default. For example, under a policy of the Federal Reserve with respect to bank holding company operations, a bank holding company is required to serve as a source of financial strength to its subsidiary depository institutions and commit resources to support such institutions in circumstances where it might not do so absent such policy. In addition, the "cross-guarantee" provisions of federal law require insured depository institutions under common control to reimburse the FDIC for any loss suffered or reasonably anticipated as a result of the default of a commonly controlled insured depository institution or for any assistance provided by the FDIC to a commonly controlled insured depository institution in danger of default. The federal banking agencies have broad powers under current federal law to take prompt corrective action to resolve problems of insured depository institutions. The extent of these powers depends upon whether the institutions in question are "well capitalized," "adequately capitalized," "undercapitalized", "significantly undercapitalized" or "critically undercapitalized" as such terms are defined under regulations issued by each of the federal banking agencies. There are various legal and regulatory limits on the extent to which the Company's Subsidiary Banks may pay dividends or otherwise supply funds to the Company. In addition, federal and state regulatory agencies also have the authority to prevent a bank or bank holding company from paying a dividend or engaging in any other activity that, in the opinion of the agency, would constitute an unsafe or unsound practice. There have been a number of legislative and regulatory proposals that would have an impact on the operation of bank holding companies and their banks. It is impossible to predict whether or in what form these proposals may be adopted in the future and, if adopted, what their effect will be on the Company. FDIC regulations require that management report on its responsibility for preparing its institution's financial statements, and establishing and maintaining an internal control structure and procedures for financial reporting and compliance with designated laws and regulations concerning safety and soundness. SunTrust Securities, Inc. is a broker-dealer registered with the Securities and Exchange Commission ("SEC") and is a member of the National Association of Securities Dealers, Inc. Trusco Capital Management, Inc. is registered with the SEC and is an investment adviser pursuant to the Investment Advisers Act of 1940, as amended. SunTrust Equitable Securities Corporation ("SESC") is a broker-dealer registered with the SEC and is a member of the New York Stock Exchange, Inc., and the National Association of Securities Dealers, Inc. SESC engages in investment banking activities, including underwriting and dealing in debt and equity securities, public finance, corporate finance, mergers and acquisitions and other advisory services to corporations, and the sale of securities to corporations, institutions and governmental entities, high net worth individuals and others. SESC also engages in investment advisory activities and is an investment adviser registered with the SEC pursuant to the Investment Advisers Act of 1940, as amended. SESC has an indirect subsidiary, Equitable Asset Management, Inc. which is also an investment adviser registered with the SEC pursuant to the Investment Advisers Act of 1940, as amended. Year 2000 SunTrust recognizes the need to ensure that Year 2000 software failures will not adversely impact its operation. Potential software failures due to processing errors arising from calculations using the Year 2000 date are a known risk. A corporate-wide task force, with representation from all major business units, was established in early 1996 to evaluate and manage the risks, solutions and cost associated with addressing this issue. Under the direction of this group, with direct supervision by executive management, much has already been accomplished. The costs incurred in addressing the Year 2000 problem are being expensed as incurred in compliance with generally accepted accounting principles. None of these costs are expected to impact materially the results of operations in any one period. Managment estimates the total cost of achieving Year 2000 compliance to be approximately $45 million (pre-tax). A significant portion of this cost is not expected to be incremental to SunTrust but instead will constitute a reassignment of existing internal systems technology resources. SunTrust believes that its plans for dealing with the Year 2000 issue will result in timely and adequate modifications of its systems and technology. Ultimately, the potential impact of the Year 2000 issue will depend not only on the corrective measures SunTrust undertakes but also on the way in which the Year 2000 issue is addressed by governmental agencies, businesses and other entities that provide data to, or receive data from, SunTrust, or whose financial condition or operational capability is important to SunTrust as borrowers, suppliers or customers. Community Reinvestment "Build your community and you build your bank" has always been the operating philosophy of SunTrust. In our communities, where you find people working together to build, rebuild or improve their quality of life, SunTrust will be there. Each SunTrust bank is an integral part of the community it serves. Our bankers work side by side with community groups, non-profit organizations, governmental agencies, and individuals to provide decent, safe, affordable housing; opportunities for small businesses; and redevelopment of blighted areas. SunTrust employees can be found hammering nails in Habitat homes, serving on the boards of Community Development Corporations, teaching small- business owners the keys to success, walking for charity, and anywhere there is an activity to improve our communities. Our role as a community leader is a responsibility that every SunTrust bank takes seriously. Each bank has designated a senior executive to oversee our community activities and ensure that we are doing our part. SunTrust provides financial support to community building afforts through our extensive corporate contributions, investments, and lending activities. In 1997, SunTrust approved 4,639 loans for $288 million to provide housing in low- to moderate income areas. We also approved 9,567 loans totaling $432 million for families classified as low- to moderate- income to purchase or rehabilitate their homes. Thirty-two thousand thirty (32,030) small businesses in our communities received $3.1 billion in SunTrust loans. SunTrust continues to seek new and innovative ways to build the communities we serve and to ensure that all qualified applicants receive the loans they need to improve their quality of life. Legal Proceedings The Company and its subsidiaries are parties to numerous claims and lawsuits arising in the course of their normal business activities, some of which involve claims for substantial amounts. Although the ultimate outcome of these suits cannot be ascertained at this time, it is the opinion of management that none of these matters, when resolved, will have a material effect on the Company's consolidated results of operations or financial position. Competition All aspects of the Company's business are highly competitive. The Company faces aggressive competition from other domestic and foreign lending institutions and from numerous other providers of financial services. The ability of nonbanking financial institutions to provide services previously reserved for commercial banks has intensified competition. Because nonbanking financial institutions are not subject to the same regulatory restrictions as banks and bank holding companies, they can often operate with greater flexibility. Properties The Company's headquarters are located in Atlanta, Georgia. As of December 31, 1997, bank subsidiaries of the Company owned 469 of their 699 full- service banking offices, and leased the remaining banking offices. See Note 6 of the Notes to Consolidated Financial Statements. Consolidated Financial Statements Contents Consolidated Statements of Income Consolidated Balance Sheets Consolidated Statements of Shareholders' Equity Consolidated Statements of Cash Flow Notes to Consolidated Financial Statements Report of Independent Public Accountants Management's Statement of Responsibility for Financial Information Financial statements and information in this Annual Report were prepared in conformity with generally accepted accounting principles. Management is responsible for the integrity and objectivity of the financial statements and related information. Accordingly, it maintains an extensive system of internal controls and accounting policies and procedures to provide reasonable assurance of the accountability and safeguarding of Company assets, and of the accuracy of financial information. These procedures include management evaluations of asset quality and the impact of economic events, organizational arrangements that provide an appropriate division of responsibility, and a program of internal audits to evaluate independently the adequacy and application of financial and operating controls and compliance with Company policies and procedures. The Company's independent public accountants, Arthur Andersen LLP, express their opinion as to the fairness of the financial statements presented. Their opinion is based on an audit conducted in accordance with generally accepted auditing standards as described in the second paragraph of their report. The Board of Directors, through its Audit Committee, is responsible for ensuring that both management and the independent public accountants fulfill their respective responsibilities with regard to the financial statements. The Audit Committee, composed entirely of directors who are not officers or employees of the Company, meets periodically with both management and the independent public accountants to ensure that each is carrying out its responsibilities. The independent public accountants have full and free access to the Audit Committee and meet with it, with and without management present, to discuss auditing and financial reporting matters. The Company assessed its internal control system as of December 31, 1997, in relation to criteria for effective internal control over financial reporting described in "Internal Control - Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, the Company believes that, as of December 31, 1997, its system of internal controls over financial reporting met those criteria. L. Philip Humann John W. Spiegel William P. O'Halloran Chairman of the Board Executive Vice Senior Vice President of Directors President and Controller and Chief Executive and Chief Financial Officer Officer Abbreviations Within the consolidated financial statements and the notes thereto, the following references will be used: SunTrust Banks, Inc. - Company or SunTrust SunTrust Banks of Florida, Inc. - STI of Florida SunTrust Banks of Georgia, Inc. - STI of Georgia SunTrust Banks of Tennessee, Inc. - STI of Tennessee SunTrust Banks, Inc. Parent Company - Parent Company Consolidated Statements of Income CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31 (Dollars in thousands except per share data) 1997 1996 1995 INTEREST INCOME Interest and fees on loans $3,036,100 $2,678,566 $2,501,536 Interest and dividends on securities available for sale: Taxable interest 464,210 442,497 403,133 Tax-exempt interest 40,246 46,092 55,611 Dividends(1) 37,778 33,302 28,292 Interest on funds sold 60,861 40,881 34,857 Interest on deposits in other banks 776 1,011 1,053 Other interest 10,768 3,693 2,722 Total interest income 3,650,739 3,246,042 3,027,204 INTEREST EXPENSE Interest on deposits 1,151,157 1,083,035 988,725 Interest on funds purchased 345,116 245,502 239,080 Interest on other short-term borrowings 91,592 48,264 54,843 Interest on long-term debt 168,508 85,031 68,114 Total interest expense 1,756,373 1,461,832 1,350,762 NET INTEREST INCOME 1,894,366 1,784,210 1,676,442 Provision for loan losses - Note 5 117,043 75,916 77,108 Net interest income after provision for loan losses 1,777,323 1,708,294 1,599,334 NONINTEREST INCOME Trust income 318,637 278,294 259,742 Service charges on deposit accounts 247,828 232,426 212,582 Other charges and fees 217,377 171,289 131,826 Credit card fees 73,611 66,309 62,572 Securities gains(losses) - Note 3 1,523 14,168 (6,649) Other noninterest income 75,262 55,503 52,997 Total noninterest income 934,238 817,989 713,070 NONINTEREST EXPENSE Salaries and other compensation - Note 11 844,156 763,461 673,417 Employee benefits - Note 11 111,447 110,588 105,573 Net occupancy expense 126,802 138,186 130,124 Equipment expense 120,675 115,423 105,122 Marketing and customer development 68,802 76,409 49,966 Postage and delivery 42,621 40,515 36,392 Operating supplies 37,225 37,938 32,157 Other noninterest expense 333,867 300,563 318,728 Total noninterest expense 1,685,595 1,583,083 1,451,479 Income before provision for income taxes 1,025,966 943,200 860,925 Provision for income taxes - Note 10 358,713 302,185 274,099 NET INCOME $ 667,253 $ 641,015 $ 586,826 Net income per average common share - diluted $ 3.13 $ 2.87 $ 2.56 Net income per average common share - basic 3.17 2.91 2.59 Dividends paid per common share 0.925 0.825 0.740 Average common shares - diluted 213,479,820 223,486,311 229,543,890 Average common shares - basic 210,242,895 220,363,781 226,665,006 (1) Includes dividends on 48,266,496 shares of common stock of The Coca-Cola Company $ 27,029 $ 24,133 $ 21,237 See notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEETS
At December 31 (Dollars in thousands) 1997 1996 ASSETS Cash and due from banks $ 2,991,263 $ 3,037,309 Interest-bearing deposits in other banks 15,417 13,461 Trading account 178,434 80,377 Securities available for sale(1) - Note 3 11,729,298 10,551,166 Funds sold 996,583 1,721,845 Loans - Notes 4,12 and 13 40,135,505 35,404,171 Allowance for loan losses - Note 5 (651,830) (625,849) Net loans 39,483,675 34,778,322 Premises and equipment - Note 6 964,169 768,266 Intangible assets 292,370 277,736 Customers' acceptance liability 488,632 507,554 Other assets - Note 11 942,895 832,213 Total assets $58,082,736 $52,568,249 LIABILITIES AND SHAREHOLDERS' EQUITY - NOTES 9 AND 11 Noninterest-bearing deposits $ 8,927,796 $8,900,260 Interest-bearing deposits 29,269,732 27,990,129 Total deposits 38,197,528 36,890,389 Funds purchased 6,483,055 6,047,692 Other short-term borrowings - Note 7 1,989,415 867,961 Long-term debt - Note 8 3,171,832 1,565,341 Acceptances outstanding 488,632 507,554 Other liabilities - Notes 10 and 11 2,491,892 1,748,332 Total liabilities 52,822,354 47,627,269 Commitments and contingencies - Notes 6, 8, 11, 12, and 15 Preferred stock, no par value; 50,000,000 shares authorized; none issued - - Common stock, $1.00 par value; 350,000,000 shares authorized 211,608 225,608 Additional paid in capital 296,751 310,612 Retained earnings 2,812,645 3,033,900 Treasury stock and other (109,503) (230,918) Realized shareholders' equity 3,211,501 3,339,202 Unrealized gains on securities available for sale, net of taxes - Note 3 2,048,881 1,601,778 Total shareholders' equity 5,260,382 4,940,980 Total liabilities and shareholders' equity $58,082,736 $52,568,249 Common shares outstanding 209,909,204 220,469,001 Treasury shares of common stock 1,698,853 5,139,056 (1) Includes unrealized gains on securities available for sale $ 3,311,979 $ 2,588,907 See notes to consolidated financial statements
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Unrealized Additional Treasury Gains on Common Paid in Retained Stock and Securities, (In thousands) Stock Capital Earnings Other(1) Net of Taxes Total Balance, January 1, 1995 $243,644 $325,126 $3,036,235 $(706,499) $ 570,075 $3,468,581 Net income - - 586,826 - - 586,826 Cash dividends paid on common stock, $0.74 per share - - (168,660) - - (168,660) Proceeds from exercise of stock options - (8,332) - 13,146 - 4,814 Acquisition of treasury stock - - - (204,824) - (204,824) Issuance of treasury stock for acquisitions - - - 13,695 - 13,695 Issuance of treasury stock for 401(k) - 1,385 - 9,759 - 11,144 Issuance (net of forfeitures) of treasury stock as restricted stock - 3,362 - 13,518 - 16,880 Compensation element from forfeitures of restricted stock - - - (16,880) - (16,880) Amortization of compensation element of restricted stock - - - 6,132 - 6,132 Change in unrealized gains(losses) on securities, net of taxes - - - - 588,473 588,473 BALANCE, DECEMBER 31, 1995 243,644 321,541 3,454,401 (871,953) 1,158,548 4,306,181 Net income - - 641,015 - - 641,015 Cash dividends paid on common stock, $0.825 per share - - (183,892) - - (183,892) Proceeds from exercise of stock options - (13,733) - 19,198 - 5,465 Acquisition of treasury stock - - - (297,319) - (297,319) Retirement of trasury stock (18,036) - (877,624) 895,660 - - Issuance of treasury stock for acquisitions - - - 5,636 - 5,636 Issuance of treasury stock for 401(k) - 1,831 - 7,848 - 9,679 Issuance (net of forfeitures) of treasury stock as restricted stock - 973 - 18,523 - 19,496 Compensation element from issuance of restricted stock - - - (19,496) - (19,496) Amortization of compensation element of restricted stock - - - 10,985 - 10,985 Change in unrealized gains(losses) on securities, net of taxes - - - - 443,230 443,230 BALANCE, DECEMBER 31, 1996 225,608 310,612 3,033,900 (230,918) 1,601,778 4,940,980 Net income - - 667,253 - - 667,253 Cash dividends paid on common stock, $0.925 per share - - (195,672) - - (195,672) Proceeds from exercise of stock options - (18,696) - 25,343 - 6,647 Acquisition of treasury stock - - - (625,143) - (625,143) Retirement of treasury stock (14,000) - (692,836) 706,836 - - Issuance of treasury stock for 401(k) - 1,491 - 8,527 - 10,018 Issuance (net of forfeitures) of treasury stock as restricted stock - 3,344 - 14,428 - 17,772 Compensation element from issuance of restricted stock - - - (17,772) - (17,772) Amortization of compensation element of restricted stock - - - 9,196 - 9,196 Change in unrealized gains(losses) on securities, net of taxes - - - - 447,103 447,103 BALANCE, DECEMBER 31, 1997 $211,608 $296,751 $2,812,645 $(109,503) $2,048,881 $5,260,382 (1)Balance at December 31, 1997 includes $51,463 for treasury stock and $58,040 for compensation element of restricted stock. See notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOW
Year Ended Ended December 31 (In thousands) 1997 1996 1995 CASH FLOW FROM OPERATING ACTIVITIES Net income $ 667,253 $ 641,015 $ 586,826 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization 153,580 130,555 133,771 Provision for loan losses 117,043 75,916 77,108 Provision for losses on other real estate 3,710 3,524 3,870 Deferred income tax benefit 32,531 (5,068) (19,918) Amortization of compensation element of restricted stock 9,196 10,985 6,132 Securities (gains) losses, net (1,523) (14,168) 6,649 Gains on sale of loans, equipment, other real estate and repossessed assets, net (43,321) (14,738) (13,385) Recognition of unearned loan income (249,792) (217,475) (127,440) Origination of loans for sale (3,946,854) (2,897,590) (822,054) Proceeds from sale of loans 2,351,111 2,646,706 667,216 Change in period-end balances of: Trading account (98,057) 16,236 1,497 Interest receivable (21,725) (4,332) (14,359) Prepaid expenses (48,333) (35,582) (11,545) Other assets (106,039) 82,252 (87,556) Taxes payable 55,324 7,702 19,255 Interest payable 47,323 (11,847) 43,802 Other accrued expenses 376,093 61,918 81,086 Net cash (used in) operating activities (702,480) 476,009 530,955 CASH FLOW FROM INVESTING ACTIVITIES Proceeds from maturities of securities available for sale 1,361,988 1,945,278 1,482,138 Proceeds from sales of securities available for sale 639,307 758,751 1,206,904 Purchases of securities available for sale (2,453,421) (2,837,598) (1,977,136) Net increase in loans (2,929,805) (3,635,956) (2,334,133) Capital expenditures (311,770) (138,061) (133,292) Proceeds from sale of equipment, other real estate and repossessed assets 22,531 7,675 103,248 Net funds received (paid) in acquisitions 122,624 (987) (57,939) Other (39,020) (22,646) (9,480) Net cash (used in) investing activities (3,587,566) (3,923,544) (1,719,690) CASH FLOW FROM FINANCING ACTIVITIES Net increase in deposits 1,171,554 3,628,816 734,135 Net increase (decrease) in funds purchased and other short-term borrowings 1,556,817 534,525 1,129,112 Proceeds from issuance of long-term debt 1,809,319 671,319 160,936 Repayment of long-term debt (202,828) (108,323) (88,986) Proceeds from the exercise of stock options 6,647 5,465 4,814 Payments to acquire treasury stock (625,143) (297,319) (204,824) Dividends paid (195,672) (183,892) (168,660) Net cash provided by financing activities 3,520,694 4,250,591 1,566,527 Net (decrease) increase in cash and cash equivalents (769,352) 803,056 377,792 Cash and cash equivalents at beginning of year 4,772,615 3,969,559 3,591,767 Cash and cash equivalents at end of year $ 4,003,263 $ 4,772,615 $ 3,969,559 SUPPLEMENTAL DISCLOSURE Interest paid $ 1,709,050 $ 1,473,679 $ 1,306,960 Income taxes paid 303,519 294,618 261,997 See notes to consolidated financial statements
Notes to Consolidated Financial Statements Note 1 - Accounting Policies General: The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. Results of operations of companies purchased are included from the dates of acquisition. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could vary from these estimates; however, in the opinion of management, such variances would not be material. Reclassifications: Certain prior year amounts have been restated to conform with the current year financial statement presentation. Purchase Accounting: Following the purchase method of accounting, assets and liabilities of purchased banks are stated at estimated fair values at the date of acquisition. Securities: Securities in the investment portfolio are classified as securities available-for-sale and are carried at market value with unrealized gains and losses, net of any tax effect, added to or deducted from realized shareholders' equity to determine total shareholders' equity. Trading account securities are carried at market value with the gains and losses, determined using the specific identification method, recognized currently in the statement of income. Included in noninterest income are realized and unrealized gains and losses resulting from such market value adjustments and from recording the results of sales of trading account securities. Loans: Interest income on all classifications of loans is accrued based upon the outstanding principal amounts except those classified as nonaccrual loans. Interest accrual is discontinued when it appears that future collection of principal or interest according to the contractual terms may be doubtful. Interest income on nonaccrual loans is recognized on a cash basis, if there is no doubt of future collection of principal. A loan classified as nonaccrual, except for smaller balance homogenous loans, which include consumer, residential and credit card loans, meets the criteria to be considered an impaired loan. The Company considers nonaccrual status to be required with the occurrence of one of the following events: (i) interest or principal has been in default 90 days or more, unless the loan is well secured and in the process of collection; (ii) collection of recorded interest or principal is not anticipated; or (iii) the loan is operating on a cash basis due to the deterioration in the financial condition of the debtor. However, consumer and residential real estate loans are normally placed on nonaccrual when payments have been in default for 90 days or more. SunTrust measures the impairment of a loan based on the present value of expected future cash flows discounted at the loan's effective interest rate. The exception to this policy is real estate loans, whose impairment is based on the estimated fair value of the collateral. If the present value of the expected future cash flows (or the fair value of the collateral) is less than the recorded investements in the loans (i.e., principal, accrued interest; net deferred loan fees or costs; unamortized premium or discount), SunTrust will include this deficiency in evaluating the overall adequacy of the allowance for loan losses. A minimum payment delay is generally defined as a scheduled payment not received and recorded on the specified date, and is considered past due on the next business day. A payment shortfall is defined as a scheduled payment which is received and is insufficient to cover required principal amortization plus accrued interest. For accruing loans when a scheduled payment is not received and recorded on the specified date (a minimum payment delay), it is considered past due on the next business day. If a scheduled payment is received and is insufficient to cover required principal amortization plus accrued interest it is considered a payment shortfall. Fees and incremental direct costs associated with the loan origination and pricing process are deferred and amortized as level yield adjustments over the respective loan terms. Fees received for providing loan commitments and letters of credit facilities that result in loans are deferred and then recognized over the term of the loan as an adjustment of the yield. Fees on commitments and letters of credit that are not expected to be funded are amortized into noninterest income by the straight-line method over the commitment period. Allowance for Loan Losses: The Company's allowance is that amount considered adequate to absorb inherent losses in the portfolio based on management's evaluations of the size and current risk characteristics of the loan portfolio. Such evaluations consider the balance of impaired loans and prior loan loss experience as well as the impact of current economic conditions and other risk factors. Specific provision for loan losses is made for impaired loans based on a comparison of the recorded carrying value in the loan to either the present value of the loan's expected cash flow, the loan's estimated market price or the estimated fair value of the underlying collateral. Prior loss experience 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 knowledge of specific economic factors in their markets that might affect the collectibility of loans. Long-lived Assets: Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation has been calculated primarily using the straight-line method over the assets' estimated useful lives. Certain leases are capitalized as assets for financial reporting purposes. Such capitalized assets are amortized, using the straight-line method, over the terms of the leases. Maintenance and repairs are charged to expense and betterments are capitalized. Intangible assets consist primarily of goodwill and mortgage servicing rights. Goodwill associated with purchased banks is being amortized on the straight-line method over various periods ranging from fifteen to forty years. Mortgage servicing rights, including those purchased as well as originated, are amortized over the estimated period of the related net servicing revenues. Long-lived assets are evaluated regularly for other-than-temporary impairment. If circumstances suggest that their value may be impaired and the write-down would be material, an assessment of recoverability is performed prior to any write-down of the asset. Impairment on intangibles is evaluated at each balance sheet date or whenever events or changes in circumstances indicate that the carrying amount should be assessed. Impairment for mortgage servicing rights is determined based on the fair value of the rights stratified on the basis of interest rate and type of related loan. Impairment, if any, is recognized through a valuation allowance with a corresponding charge recorded in the income statement. Income Taxes: Deferred income tax assets and liabilities result from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years. Earnings per Share: Basic earnings per share are based on the weighted average number of common shares outstanding during each period, excluding outstanding shares that are contingently returnable shares. Diluted ernings per share are based on the weighted average number of common shares outstanding during each period, plus common shares calculated for stock options and performance restricted stock outstanding using the treasury stock method. All share and per share information included in these financial statements have been restated to give effect to the Company's adoption of Statement of Financial Accounting Standards No. 128, "Earnings Per Share." Cash Flow: For purposes of reporting cash flow, cash and cash equivalents include cash and due from banks, interest-bearing deposits in other banks and funds sold (only those items with an original maturity of three months or less.) Derivative Financial Instruments: Derivatives are used to hedge interest rate exposures by modifying the interest rate characteristics of related balance sheet instruments. The specific criteria required for derivatives used as hedges are described below. Derivatives that do not meet these criteria are carried at market value with changes in value recognized currently in earnings. Currently, it is not the Company's policy to hold derivatives that do not qualify as hedges. Derivatives used as hedges must be effective at reducing the risk associated with the exposure being hedged and must be designated as a hedge at the inception of the derivative contract. Derivatives used for hedging purposes may include swaps, forwards, futures, and purchased options. The fair value of derivative contracts are carried off-balance sheet and the unrealized gains and losses on derivative contracts are generally deferred. The interest component associated with derivatives used as hedges or to modify the interest rate characteristics of assets and liabilities is recognized over the life of the contract in net interest income. Upon contract settlement or termination, the cumulative change in the market value of such derivatives is recorded as an adjustment to the carrying value of the underlying asset or liability and recognized in net interest income over the expected remaining life of the related asset or liability. In instances where the underlying instrument is sold, the cumulative change in the value of the associated derivative is recognized immediately in the component of earnings relating to the underlying instrument. Note 2 - Acquisitions During the three year period ended December 31, 1997, the Company has consummated the following acquisitions:
(Dollars in millions) Accounting Assets Date Entity Method Consideration Acquired 2/96 Ponte Vedra Banking Corporation Purchase $7.7 in cash and 170,148 $ 88 (Ponte Vedra, Florida) shares of Company stock 10/95 Stephens Diversified Leasing, Inc. Purchase $35.0 in cash $ 129 (Little Rock, Arkansas) 8/95 Key Biscayne, Bankcorp, Inc. Purchase $29.6 in cash $ 152 (Key Biscayne, Florida) 5/95 Peoples State Bank Purchase $3.0 in cash and 490,198 $ 127 (New Port Richey, Florida) shares of Company stock
On September 26, 1997, the Company signed a definitive agreement to acquire Equitable Securities Corporation, a Nashville, Tennessee-based investment banking, securities brokerage and investment advisory firm. The merger, which was accounted for as a purchase, was completed on January 2, 1998, and the subsidiary was renamed SunTrust Equitable Securities Corporation. Consideration tendered, including contingently returnable shares, aggregated 2.3 million shares of the Company's common stock. Note 3 - Securities Available for Sale Securities available for sale at December 31:
1997 Amortized Fair Unrealized Unrealized (In thousands) Cost Value Gains Losses U.S. Treasury and other U.S. government agencies and corporations $2,875,007 $ 2,896,354 $ 24,717 $ 3,370 States and political subdivisions 622,386 642,092 19,955 249 Mortgage-backed securities 4,031,451 4,049,922 34,291 15,820 Trust preferred securities 662,993 674,346 17,397 6,044 Common stock of The Coca-Cola Company 110 3,218,772 3,218,662 - Other securities 225,372 247,812 22,702 262 Total investment securities $8,417,319 $11,729,298 $ 3,337,724 $25,745
1996 Amortized Fair Unrealized Unrealized (In thousands) Cost Value Gains Losses U.S. Treasury and other U.S. government agencies and corporations $3,277,833 $ 3,290,850 $ 24,306 $11,289 States and political subdivisions 749,077 773,197 25,183 1,063 Mortgage-backed securities 3,750,505 3,748,583 27,043 28,965 Common stock of The Coca-Cola Company 110 2,540,024 2,539,914 - Other securities 184,734 198,512 15,108 1,330 Total investment securities $7,962,259 $10,551,166 $ 2,631,554 $42,647
The amortized cost and fair value of investments in debt securities at December 31, 1997, by contractual maturities are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Amortized Fair (In thousands) Cost Value Due in one year or less $1,269,502 $1,271,523 Due in one year through five years 2,097,194 2,127,316 Due after five years through ten years 152,102 160,265 After ten years 641,588 653,688 Mortgage-backed securities 4,031,451 4,049,922 Total $8,191,837 $8,262,714
Proceeds from the sale of investments in debt securities were $634.9, $736.5 and $1,206.9 million in 1997, 1996 and 1995. Gross realized gains were $0.2, $0.2 and $1.4 million and gross realized losses on such sales were $2.2, $3.2 and $8.0 million in 1997, 1996 and 1995. The fair value of securities available for sale pledged to secure public deposits, trust and other funds were $5.9 and $4.4 billion at December 31, 1997 and 1996. Note 4 - Loans The composition of the Company's loan portfolio at December 31: (In thousands) 1997 1996 Commercial, financial and agricultural: Domestic $14,139,947 $11,725,503 International 247,368 240,595 Real estate: Construction 1,442,607 1,384,796 Residential mortgages 12,992,901 11,508,154 Other 4,778,707 4,585,803 Lease financing 725,705 607,470 Credit card 1,041,308 946,756 Other consumer loans 4,766,962 4,405,094 Loans $40,135,505 $35,404,171
The gross amounts of interest income that would have been recorded in 1997, 1996, and 1995 on nonaccrual and restructured loans at December 31 of each year, if all such loans had been accruing interest at their contractual rates, were $12.3, $19.3, and $20.1 million, while interest income actually recognized totaled $9.1, $9.1, and $11.0 million, respectively. Total nonaccrual and restructured loans at December 31, 1997 and 1996 were $128.1 and $212.2 million, respectively. In the normal course of business, the Company's banking subsidiaries have made loans at prevailing interest rates and terms to directors and executive officers of the Company and its subsidiaries, and to their affiliates. The aggregate dollar amount of these loans, as defined, was $1,421.3 million at December 31, 1997 and $529.2 million at December 31, 1996. During 1997, $2,878.8 million of such loans were made and repayments totaled $2,045.9 million. None of these loans have been restructured, nor were any related party loans charged off during 1997 and 1996. Note 5 - Allowance for Loan Losses Activity in the allowance for loan losses:
(In thousands) 1997 1996 1995 Balance at beginning of year $ 625,849 $ 638,864 $ 622,016 Allowance of purchased banks - 1,243 6,336 Provision charged to operating expense 117,043 75,916 77,108 Loan charge-offs (146,188) (142,016) (120,766) Loan recoveries 55,126 51,842 54,170 Balance at end of year $ 651,830 $ 625,849 $ 638,864
It is the opinion of management that the allowance was adequate at December 31, 1997, based on conditions reasonably known to management; however, the allowance may be increased or decreased in the future based on loan balances outstanding, changes in internally generated credit quality ratings of the loan portfolio, or changes in general economic conditions. Note 6 - Premises and Equipment Premises and equipment at December 31:
(In thousands) Useful Life 1997 1996 Land $ 241,047 $ 212,211 Buildings and improvements 3-55 years 725,978 584,348 Leasehold improvements 5-30 years 149,015 115,651 Furniture and equipment 3-20 years 671,031 642,531 Construction in progress 45,204 36,282 1,832,275 1,591,023 Less accumulated depreciation and amortization 868,106 822,757 Total $ 964,169 $ 768,266
The carrying amounts of premises and equipment subject to mortgage indebtedness (included in long-term debt) was not significant at December 31, 1997 and 1996. Various Company facilities and equipment are also leased under both capital and noncancelable operating leases with initial remaining terms in excess of one year. Minimum payments, by year and in aggregate, as of December 31, 1997 were as follows:
Operating Capital Leases Leases 1998 $ 50,599 $ 4,474 1999 47,187 4,475 2000 37,414 4,220 2001 35,310 4,210 2002 33,074 3,142 Thereafter 115,039 45,747 Total minimum lease payments $318,623 $66,268 Amounts representing interest $39,377 Present value of net minimum lease payments $26,891
Net premises and equipment include $17.9 and $21.4 million at December 31, 1997 and 1996, respectively, related to capital leases. Aggregate rent expense for all operating leases (including contingent rental expense and reduced by sublease rental income, both of which were not significant) amounted to $50.1, $44.9 and $40.4 million for 1997, 1996 and 1995. Note 7 - Other Short-Term Borrowings Other short-term borrowings at December 31:
1997 1996 (In thousands) Balance Rate Balance Rate Commercial paper 765,377 5.57%-5.91% 364,624 5.300% - 6.10% Bank notes 450,000 5.80%-5.83% - - Federal funds purchased maturing in over one day 283,000 5.31%-5.81% 125,000 5.125% - 5.75% Federal reserve borrowings - discount window 160,000 5.00% - - Short-term borrowing facility 140,400 5.65%-6.00% 216,481 5.340% - 6.89% Other 190,638 161,856 Total 1,989,415 867,961
At December 31, 1997, $325.0 million of unused borrowings under unsecured lines of credit from non-affiliated banks were available to the Parent Company to support the outstanding commercial paper and provide for general liquidity needs. The average balance of short-term borrowings for the years ended December 31, 1997, 1996, and 1995, were $1,742.7, $860.6, and $918.1 million, respectively while the maximum amount outstanding at any month-end during the years ended December 31, 1997, 1996 and 1995, were $1,989.4, $1,137.3 and $1,082.4 million, respectively. Note 8 - Long-Term Debt Long-term debt at December 31:
(In thousands) 1997 1996 PARENT COMPANY Payment agreement due 1997 $ - $ 7,500 8.875% notes due 1998 94,500 94,500 Floating rate notes due 1999 200,000 200,000 Payment agreement due 2001 28,753 34,932 7.375% notes due 2002 200,000 200,000 7.50% debentures due 2002 - 10,573 Floating rate notes due 2002 250,000 - 6.125% notes due 2004 200,000 200,000 7.375% notes due 2006 200,000 200,000 6.0% notes due 2026 200,000 200,000 Floating rate preferred securities due 2027 350,000 - 7.9% trust preferred securities due 2027 250,000 - Capital lease obligation 5,239 5,789 Total Parent Company (excluding intercompany) 1,978,492 1,153,294 SUBSIDIARIES 7.25% notes due 2006 250,000 250,000 6.90% notes due 2007 100,000 - Capital lease obligations 21,652 22,574 FHLB advances (1997: 5.62% - 6.61%; 1996: 5.80 - 7.38%) 819,168 136,566 Other 2,520 2,907 Total subsidiaries 1,193,340 412,047 Total long-term debt $3,171,832 $1,565,341
Principal amounts due for the next five years on long-term debt at December 31, 1997 are: 1998 - $164.5 million; 1999 - $254.0 million; 2000 - $69.0 million; 2001 - $18.7 million and 2002 - $1,134.9 million. Restrictive provisions of several long-term debt agreements prevent the Company from creating liens on, disposing of, or issuing (except to related parties) voting stock of subsidiaries. Further, there are restrictions on mergers, consolidations, certain leases, sales or transfers of assets, minimum shareholders' equity, and maximum borrowings by the Company. As of December 31, 1997 the Company was in compliance with all covenants and provisions of long-term debt agreements. In the summary table of long-term debt, $600 million in 1997 qualifies as Tier 1 capital, and $950.0 million in 1997 and $877.1 million in 1996 qualify as Tier 2 capital as currently defined by federal bank regulators. Note 9 - Capital The Company is subject to various regulatory capital requirements which involve quantitative measures of the Company's assets, liabilities, and certain off-balance sheet items. The Company's capital requirements and classification are ultimately subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require that the Company maintain amounts and ratios (set forth in the table on page 48) of Tier 1 and total capital to risk-weighted assets, and of Tier 1 capital to quarterly average total assets. Management believes, as of December 31, 1997, that the Company meets all capital adequacy requirements to which it is subject. A summary of Tier 1 and total capital (actual, required, and to be well capitalized) and the Tier 1 leverage ratio for the Company and its significant subsidiaries as of December 31, 1997 and 1996 is as follows:
(Dollars in thousands) Required Required For Capital To Be Well Actual Adequacy Purposes Well Capitalized Amount Ratio Amount Ratio Amount Ratio As of December 31, 1997: Tier 1 capital: SunTrust Banks, Inc. $ 3,519 7.19 % > $ 1,957 > 4.00 % > $ 2,935 > 6.00 % SunTrust Banks of Florida, Inc. 2,076 10.37 > 801 > 4.00 > 1,201 > 6.00 SunTrust Banks of Georgia, Inc. 1,666 8.00 > 832 > 4.00 > 1,248 > 6.00 SunTrust Banks of Tennessee, Inc. 624 10.04 > 248 > 4.00 > 373 > 6.00 SunTrust Bank, Atlanta 1,286 7.62 > 675 > 4.00 > 1,012 > 6.00 Total capital: SunTrust Banks, Inc. 6,035 12.33 > 3,913 > 8.00 > 4,892 > 10.00 SunTrust Banks of Florida, Inc. 2,428 12.13 > 1,601 > 8.00 > 2,001 > 10.00 SunTrust Banks of Georgia, Inc. 3,083 14.81 > 1,664 > 8.00 > 2,080 > 10.00 SunTrust Banks of Tennessee, Inc. 702 11.29 > 497 > 8.00 > 621 > 10.00 SunTrust Bank, Atlanta 2,178 12.91 > 1,350 > 8.00 > 1,687 > 10.00 Tier 1 leverage: SunTrust Banks, Inc. 6.59 > 3.00 > 5.00 SunTrust Banks of Florida, Inc. 7.83 > 3.00 > 5.00 SunTrust Banks of Georgia, Inc. 8.86 > 3.00 > 5.00 SunTrust Banks of Tennessee, Inc. 8.07 > 3.00 > 5.00 SunTrust Bank, Atlanta 8.75 > 3.00 > 5.00 As of December 31, 1996: Tier 1 capital: SunTrust Banks, Inc. $ 3,095 7.59 % > $ 1,630 > 4.00 % > $ 2,445 > 6.00 % SunTrust Banks of Florida, Inc. 1,943 11.17 > 695 > 4.00 > 1,043 > 6.00 SunTrust Banks of Georgia, Inc. 1,383 8.16 > 677 > 4.00 > 1,016 > 6.00 SunTrust Banks of Tennessee, Inc. 584 9.75 > 240 > 4.00 > 359 > 6.00 SunTrust Bank, Atlanta 1,050 7.66 > 548 > 4.00 > 822 > 6.00 Total capital: SunTrust Banks, Inc. 4,483 10.99 > 3,260 > 8.00 > 4,071 > 10.00 SunTrust Banks of Florida, Inc. 2,162 12.43 > 1,391 > 8.00 > 1,738 > 10.00 SunTrust Banks of Georgia, Inc. 1,848 10.91 > 1,354 > 8.00 > 1,693 > 10.00 SunTrust Banks of Tennessee, Inc. 659 11.00 > 479 > 8.00 > 599 > 10.00 SunTrust Bank, Atlanta 1,429 10.42 > 1,096 > 8.00 > 1,370 > 10.00 Tier 1 leverage: SunTrust Banks, Inc. 6.51 > 3.00 > 5.00 SunTrust Banks of Florida, Inc. 8.23 > 3.00 > 5.00 SunTrust Banks of Georgia, Inc. 8.30 > 3.00 > 5.00 SunTrust Banks of Tennessee, Inc. 8.24 > 3.00 > 5.00 SunTrust Bank, Atlanta 8.17 > 3.00 > 5.00
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. All references to common share and per share information and the weighted average number of common shares reflect the stock dividend. Substantially all the Company's retained earnings are undistributed earnings of its banking subsidiaries, which are restricted by various regulations administered by federal and state bank regulatory authorities. Retained earnings of bank subsidiaries available for payment of cash dividends to STI of Florida, STI of Georgia and STI of Tennessee under these regulations totaled approximately $540.1 million at December 31, 1997. In the calculation of basic and diluted EPS, net income is identical. Below is a reconciliation for the three years ended December 31, 1997, of the difference between average basic common shares outstanding and average diluted common shares outstanding.
(In thousands) 1997 1996 1995 Average common shares - basic 210,243 220,364 226,665 Effect of dilutive securities: Stock options 1,572 1,415 1,505 Performance restricted stock 1,665 1,707 1,374 Average common shares - diluted 213,480 223,486 229,544
Note 10 - Income Taxes The provision for income taxes for the three years ended December 31, 1997 consisted of the following:
(In thousands) 1997 1996 1995 Provision for federal income taxes: Current $312,693 $273,642 $268,718 Deferred (prepaid) 4,774 (10,794) (29,607) Total provision for federal income taxes 317,467 262,848 239,111 Provision for state income taxes: Current 13,489 18,011 11,649 Deferred 27,757 21,326 23,339 Total provision for state income taxes 41,246 39,337 39,337 Total $358,713 $302,185 $274,099
The Company's income, before provision for income taxes, from international operations was not significant. The Company's provisions for income taxes for the three years ended December 31, 1997 differ from the amount computed by applying the statutory federal income tax rate of 35% to income before income taxes. A reconciliation of this difference is as follows:
(In thousands) 1997 1996 1995 Tax provision at federal statutory rate $359,088 $330,120 $301,324 Increase (decrease) resulting from: Tax-exempt interest (25,820) (28,498) (33,017) Disallowed interest deduction 4,107 3,883 3,857 Income tax credits (2,709) (2,455) (1,533) State income taxes, net of federal benefit 26,834 26,152 23,249 Dividend exclusion (6,841) (6,430) (5,517) Favorable tax settlement (2,845) (27,486) (20,177) Other 6,899 6,899 5,915 Provision for income taxes $358,713 $302,185 $274,099
Temporary differences create deferred tax assets and liabilities which are detailed below for December 31, 1997 and 1996:
Deferred Tax Assets (Liabilities) (In thousands) 1997 1996 Loan loss reserve $ 253,026 $ 241,943 Depreciation (3,980) (7,325) Employee benefits (81,794) (72,111) Unrealized gains on investment securities (1,263,098) (987,129) Leasing (98,191) (103,633) Other real estate 17,534 16,169 Other (10,985) (1,783) Total deferred tax liability $(1,109,488) $(835,869)
SunTrust and its subsidiaries file consolidated income tax returns where permissible. Each subsidiary remits current taxes to or receives current refunds from the Parent Company based on what would be required had the subsidiary filed an income tax return as a separate entity. The Company's federal and state income tax returns are subject to review and examination by government authorities. Various such examinations are now in progress covering SunTrust's income tax returns for certain prior years. In the opinion of management, any adjustments which may result from these examinations will not have a material effect on the Company's consolidated financial statements. Note 11 - Employee Benefit Plans SunTrust sponsors various incentive plans for eligible, participating employees. The 401(k) and performance bonus plans are the profit sharing plans which have the broadest participation among employees. The qualified 401(k) plan awards amounts to employees based on pre-tax contributions, which are a percentage of compensation, and on the Company's earnings performance. The Performance Bonus Plan is a nonqualified plan which awards amounts to employees based on compensation and earnings performance. A Management Incentive Plan for key executives provides for annual cash awards, if any, based on compensation and earnings performance. The Performance Unit Plan for key executives provides awards, if any, based on a multi-year earnings performance in relation to earnings goals as established by the Compensation Committee (Committee) of the Company's Board of Directors. The Company also sponsors an Executive Stock Plan (Stock Plan) under which the Committee has the authority to grant stock options and Performance Restricted Stock (Performance Stock) to key employees of the Company. Ten million shares of common stock are reserved for issuance under the plan of which no more than five million shares may be issued as Performance Stock. Options granted are at no less than the fair market value of a share of stock on the grant date and may be either tax-qualified incentive stock options or nonqualified options. The Company does not record expense as a result of the grant or exercise of any of the stock options. With respect to Performance Stock, shares must be granted, awarded and vested before participants take full title. After Performance Stock is granted by the Committee, specified portions are awarded based on increases in the average market value of SunTrust common stock from the initial price specified by the Committee. Awards are distributed on the earliest of: (i) fifteen years after the date shares are awarded to participants; (ii) the participant attaining age 64; (iii) death or disability of a participant; or (iv) a change in control of the Company as defined in the Stock Plan. Dividends are paid on awarded and unvested Performance Stock, and participants may exercise voting privileges on such shares. The compensation element for Performance Stock (which is deferred and shown as a reduction of shareholders' equity) is equal to the fair market value of the shares at the date of award and is amortized to compensation expense over the period from the award date to age 64 or the 15th anniversary of the award date, whichever comes first. Compensation expense related to the incentive plans for the three years ended December 31 were as follows:
(In thousands) 1997 1996 1995 401(k) Plan and Performance Bonus Plan $30,053 $28,737 $30,552 Management Incentive Plan and Performance Unit Plan 17,871 16,500 15,929 Performance Stock 9,196 10,985 6,132
The following table presents information on stock options and Performance Stock:
(Dollars in thousands except per share data) Stock Options Performance Stock Weighted Price Average Deferred Shares Range Exercise Price Shares Compensation Balance, January 1, 1995 3,370,392 $ 8.19 - 24.69 $ 13.78 2,841,200 $ 31,339 Granted 1,167,500 30.25 - 33.19 32.01 578,000 16,879 Exercised/Vested (754,786) 8.19 - 24.69 12.08 (80,400) - Cancelled, expired/Forfeited (7,000) 11.50 - 11.63 11.56 (60,800) (1,134) Amortization of compensation for Performance Stock - (6,132) Balance, December 31, 1995 3,776,106 8.23 - 33.19 19.76 3,278,000 40,952 Granted 583,400 46.63 46.63 543,200 20,835 Exercised/Vested (906,121) 9.50 - 33.19 13.47 (35,200) - Cancelled, expired/Forfeited (9,076) 8.23 - 33.19 16.29 (64,000) (1,338) Amortization of compensation for Performance Stock (10,985) Balance, December 31, 1996 3,444,309 9.50 - 46.63 25.97 3,722,000 49,464 Granted 632,000 65.25 65.25 300,000 19,172 Exercised/Vested (614,270) 9.50 - 33.19 15.26 (738,000) - Cancelled, expired/Forfeited (33,500) 33.19 - 46.63 46.22 (56,000) (1,400) Amortization of compensation for Performance Stock (9,196) Balance, December 31, 1997 3,428,539 $10.50 - 65.25 $ 34.93 3,228,000 $ 58,040
The Company does not recognize compensation cost in accounting for its stock option plans. If the Company had elected to recognize compensation cost for options granted in 1997, 1996 and 1995, based on the fair value of the options granted at the grant date, net income and earnings per share would have been reduced to the pro forma amounts indicated below (in millions except per share amounts): 1997 1996 1995 Net income - as reported $667.3 $616.6 $565.5 Net income - pro forma 665.4 616.0 562.7 Diluted earnings per share - as reported 3.13 2.76 2.47 Diluted earnings per share - pro forma 3.12 2.76 2.46 Basic earnings per share - as reported 3.17 2.80 2.49 Basic earnings per share - pro forma 3.16 2.80 2.48
The weighted average fair values of options granted during 1997, 1996 and 1995 were $15.00, $9.73 and $11.71 per share, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: 1997 1996 1995 Expected dividend yield 1.53% 1.93% 2.40% Expected stock price volatility 11.5% 11.5% 11.5% Risk-free interest rate 6.50% 6.54% 6.24% Expected life of options 5 years 5 years 5 years
At December 31, 1997, options for 2,245,639 shares were exercisable with a weighted average exercise price of $23.54. The weighted average remaining contractual life of all options at December 31, 1997 was 6.9 years. SunTrust maintains a noncontributory qualified retirement plan (Plan) covering all employees meeting certain age and service requirements. The Plan provides benefits based on salary and years of service. The Company funds the Plan with at least the minimum amount required by federal regulations. The Plan assets consist of listed common stocks, U.S. government and agency securities and units of certain trust funds administered by subsidiary banks of the Company. No shares of SunTrust common stock are included in the assets of the Plan. The Plan's net periodic expense is summarized as follows:
Year Ended December 31 (In thousands) 1997 1996 1995 Service cost - benefits earned during the period $ 24,461 $ 23,990 $ 21,286 Interest cost on projected benefit obligations 30,055 27,735 25,364 Actual return on Plan assets (111,870) (54,120) (89,162) Net amortization and deferral 62,463 10,788 47,556 Net periodic retirement Plan expense $ 5,109 $ 8,393 $ 5,044 Actuarial Assumptions: Weighted average discount rate 7.25% 7.75% 7.50% Rate of increase in future compensation levels 4.00% 4.00% 4.00% Long-term weighted average rate of return 9.25% 9.25% 9.25%
The funded status of the Plan at December 31 was as follows:
(In thousands) 1997 1996 Actuarial present value of benefit obligations: Accumulated benefit obligation, including vested benefits of $327,965 in 1997 and $277,255 in 1996 $ (373,633) $ (317,399) Projected benefit obligation for service rendered to date $ (436,406) $ (364,945) Plan assets at fair value 609,502 493,694 Plan assets in excess of projected benefit obligation 173,096 128,749 Unrecognized net loss since transition 34,486 51,220 Unrecognized prior service cost (10,587) (13,887) Unrecognized net asset at transition being amortized over 14 years (13,173) (17,381) Prepaid pension expense included in other assets $ 183,822 $ 148,701
SunTrust also has a nonqualified defined benefit plan that covers key executives of the Company for which cost is accrued but is unfunded. At December 31, 1997 and 1996, the projected benefit obligation for this plan was $17.5 and $14.7 million. Included in other liabilities at December 31, 1997 and 1996, is $15.5 and $12.4 million representing accumulated benefit obligations. The expense of the nonqualified plan was $3.0, $3.1 and $3.5 million in 1997, 1996 and 1995. Although not under contractual obligation, SunTrust provides certain health care and life insurance benefits to current and retired employees. As currently structured, substantially all employees become eligible for benefits upon full-time employment and, at the option of SunTrust, may continue them if they reach retirement age while working for the Company. Certain benefits are prefunded in taxable and tax-exempt trusts. The Retiree Health Plan provides medical benefits for retirees and eligible dependents under indemnity and managed care arrangements with costs shared by SunTrust and the retiree. For employees who retired on or prior to January 1, 1993, it is anticipated that future cost increases will be shared by SunTrust and these retirees through increased deductibles, co-insurance, and retiree contributions. For employees who retired after January 1, 1993, SunTrust's cost sharing will remain fixed at the 1993 level and future cost increases will be paid solely by these retirees. The Retiree Life Plan provides a fixed life insurance amount to eligible current retirees and active employees who reach retirement age while working for the Company. The cost of this benefit is entirely paid for by the Company. The Retiree Health and Life benefits are prefunded in a Voluntary Employees' Beneficiary Association (VEBA). As of December 31, 1997, these Plan assets consist of common trust funds, U.S. government securities, corporate bonds and notes and a cash equivalent cash reserve fund. The Retiree Health and Life Plans' net periodic expense for the three years ended December 31 totaled:
(Dollars in thousands) 1997 1996 1996 Service cost - benefits earned during the period $ 1,584 $ 1,505 $ 1,277 Interest cost on projected benefit obligations 6,352 6,182 5,730 Actual return on plan assets (16,406) (9,192) (16,128) Deferral of asset gain 9,950 3,008 10,688 Amortization of transition obligation 2,892 2,892 2,892 Net cost $ 4,372 $ 4,395 $ 4,459 Actuarial assumptions: Weighted average discount rate 7.25% 7.75% 7.50% Health care cost trend rate: Pre-medicare (for 1997, equal adjustments until leveling out at 5.0% in 2004) 10.25 11.25 12.00 Post-medicare (for 1997, equal adjustments until leveling out at 5.0% in 2006) 9.75 10.50 11.00 Long-term weighted average rate of return 6.50 6.50 6.50
The funded status of the Retiree Health and Life Plan at December 31 was as follows:
(In thousands) 1997 1996 Accumulated postretirement benefit obligation (APBO): Fully eligible active employees $ (9,561) $ (8,818) Other active employees (14,893) (15,499) Retirees (63,828) (57,202) Total APBO (88,282) (81,519) Plan assets at fair value 111,353 105,171 Plan assets in excess of APBO 23,071 23,652 Unrecognized net loss 11,867 12,766 Unrecognized net transition obligation 43,389 46,281 Prepaid postretirement benefit expense included in other assets 78,327 82,699 Incremental effect of 1% increase in the health care trend rate: on total APBO $ (2,250) $ (4,364)
Note 12 - Off-Balance Sheet Financial Instruments In the normal course of business, the Company utilizes various financial instruments to meet the needs of customers and to manage the Company's exposure to interest rate and other market risks. These financial instruments, which consist of derivatives contracts and credit-related arrangements, involve, to varying degrees, elements of credit and market risk in excess of the amount recorded on the balance sheet in accordance with generally accepted accounting principles. Credit risk represents the potential loss that may occur because a party to a transaction fails to perform according to the terms of the contract. Market risk is the possibility that a change in interest or currency exchange rates will cause the value of a financial instrument to decrease or become more costly to settle. The contract/notional amounts of financial instruments, which are not included in the consolidated balance sheet, do not necessarily represent credit or market risk. However, they can be used to measure the extent of involvement in various types of financial instruments. The Company controls the credit risk of its off-balance sheet portfolio by limiting the total amount of arrangements outstanding by individual counterparty; by monitoring the size and maturity structure of the portfolio; by obtaining collateral based on management's credit assessment of the counterparty; and by applying uniform credit standards maintained for all activities with credit risk. Collateral held varies but may include marketable securities, accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties. In addition, the Company enters into master netting agreements which incorporate the right of set-off to provide for the net settlement of covered contracts with the same counterparty in the event of default or other termination of the agreement.
At December 31, 1997 At December 31, 1996 Contract or Notional Amount Contract or Notional Amount Credit Credit For Risk For Risk (In millions) End User Customers Amount End User Customers Amount Derivatives contracts: Interest rate contracts: Swaps $ 3,459 $2,765 $ 78 $ 2,255 $1,174 $ 36 Futures and forwards 4 - 20 - Options written 855 - 468 - Options purchased 861 - 471 - Total interest rate contracts 3,459 4,485 78 2,255 2,133 36 Foreign exchange rate contracts 637 - 7 257 3 Commodity and other contracts 15 - 2 9 - Total derivatives contracts $ 4,111 $4,485 87 $ 2,521 $2,133 39 Credit-related arrangements: Commitments to extend credit $23,120 23,120 $19,134 19,134 Standby letters of credit and similar arrangements 3,842 3,842 3,195 3,195 Total credit-related arrangements 26,962 26,962 22,329 22,329 When-issued securities: Commitments to sell $ - - $ 297 - Commitments to purchase - - - - Total credit risk amount $27,049 $22,368
Derivatives The Company enters into various derivatives contracts in managing its own interest rate risk and in a dealer capacity as a service for customers. Where contracts have been created for customers, the Company enters into offsetting positions to eliminate its exposure to interest rate risk. Interest rate swaps are contracts in which a series of interest rate flows, based on a specific notional amount and a fixed and floating interest rate, are exchanged over a prescribed period. Interest rate options, which include caps and floors, are contracts which transfer, modify, or reduce interest rate risk in exchange for the payment of a premium when the contract is issued. The true measure of credit exposure is the replacement cost of contracts which have become favorable to the Company, the mark-to-market exposure amount. The Company monitors its sensitivity to changes in interest rates and uses interest rate swap contracts to limit the volatility of net interest income. At December 31, 1997 and 1996, there were no deferred gains or losses relating to terminated interest rate swap contracts. The Company records substantially all swap income and expense in the interest expense category. Interest rate swaps increased interest expense by $3.7 million in 1997 and $1.0 million in 1996 and decreased interest expense by $10.1 million for 1995. Included in those amounts are ($1.4), $2.3, and $0.5 million representing income from swaps entered into for customers. Futures and forwards are contracts for the delayed delivery of securities or money market instruments in which the seller agrees to deliver on a specified future date, a specified instrument, at a specified price or yield. Futures contracts settle in cash daily; therefore, there is minimal credit risk to the Company. The credit risk inherent in forwards arises from the potential inability of counterparties to meet the terms of their contracts. Both futures and forwards are also subject to the risk of movements in interest rates or the value of the underlying securities or instruments. The Company also enters into transactions involving "when-issued securities". When-issued securities are commitments to purchase or sell securities authorized for issuance but not yet actually issued. Accordingly, they are not recorded on the balance sheet until issued. The credit risk in commitments to purchase is represented by the contract amount since the underlying instrument that the Company is obligated to buy is subject to credit risk. Credit-Related Arrangements In meeting the financing needs of its customers, the Company issues commitments to extend credit, standby and other letters of credit and guarantees. The Company also provides securities lending services. For these instruments, the contractual amount of the financial instrument represents the maximum potential credit risk if the counterparty does not perform according to the terms of the contract. A large majority of these contracts expire without being drawn upon. As a result, total contractual amounts do not represent actual future credit exposure or liquidity requirements. Commitments to extend credit are agreements to lend to a customer who has complied with predetermined contractual conditions. Commitments generally have fixed expiration dates. Standby letters of credit and guarantees are conditional commitments issued by the Company generally to guarantee the performance of a customer to a third party in borrowing arrangements, such as commercial paper, bond financing and similar transactions. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loan facilities to customers and may be reduced by selling participations to third parties. The Company holds collateral to support those standby letters of credit and guarantees for which collateral is deemed necessary. Note 13 - Concentrations of Credit Risk Credit risk represents the maximum accounting loss that would be recognized at the reporting date if counterparties failed completely to perform as contracted and any collateral or security proved to be of no value. Concentrations of credit risk or types of collateral (whether on-or off- balance sheet) arising from financial instruments exist in relation to certain groups of customers. A group concentration arises when a number of counterparties have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. The Company does not have a significant concentration to any individual customer or counterparty except for the U.S. government and its agencies. The major concentrations of credit risk for the Company arise by collateral type in relation to loans and credit commitments. The only significant concentration that exists is in loans secured by residential real estate. At December 31, 1997 the Company had $13.0 billion in loans and an additional $2.3 billion in commitments to extend credit for loans secured by residential real estate. A geographic concentration arises because the Company operates primarily in the Southeastern region of the United States. Note 14 - Fair Values of Financial Instruments The following table presents the carrying amounts and fair values of the Company's financial instruments at December 31, 1997 and 1996:
1997 1996 Carrying Fair Carrying Fair (In thousands) Amount Value Amount Value Financial assets: Cash and short-term investments $ 4,003,263 $4,003,263 $ 4,772,615 $ 4,772,615 Trading account 178,434 178,434 80,377 80,377 Investment securities 11,729,298 11,729,298 10,551,166 10,551,166 Loans 39,483,675 40,835,498 34,778,322 35,870,163 Financial liabilities: Deposits 38,197,528 38,111,528 36,890,389 36,878,671 Short-term borrowings 8,472,470 8,472,470 6,915,653 6,915,653 Long-term debt 3,171,832 3,221,977 1,565,341 1,563,294 Off-balance sheet financial instruments: Interest rate swaps: In a net receivable position 39,210 19,658 In a net payable position (14,841) (11,655) Commitments to extend credit 12,976 9,581 Standby letters of credit 1,885 1,418 Other - 3
The following methods and assumptions were used by the Company in estimating the fair value of financial instruments. Short-term financial instruments are valued at their carrying amounts reported in the balance sheet, which are reasonable estimates of fair value due to the relatively short period to maturity of the instruments. This approach applies to cash and short-term investments, short-term borrowings and certain other liabilities. Securities available for sale and trading account assets are valued at quoted market prices where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments except in the case of certain options and swaps where pricing models are used. Loans are valued on the basis of estimated future receipts of principal and interest, discounted at rates currently being offered for loans with similar terms and credit quality. Loan prepayments are assumed to occur at the same rate as in previous periods when interest rates were at levels similar to current levels. The fair values for certain mortgage loans and credit card loans are based on quoted market prices of similar loans sold in conjunction with securitization transactions, adjusted for differences in loan characteristics. The carrying amount of accrued interest approximates its fair value. Deposit liabilities with no defined maturity such as demand deposits, NOW/money market accounts and savings accounts have a fair value equal to the amount payable on demand at the reporting date, i.e., their carrying amounts. Fair values for certificates of deposit are estimated using a discounted cash flow calculation that applies current interest rates to a schedule of aggregated expected maturities. The intangible value of long-term relationships with depositors is not taken into account in estimating fair values. Fair values for long-term debt are based on quoted market prices for similar instruments or estimated using discounted cash flow analyses and the Company's current incremental borrowing rates for similar types of instruments. Fair values for off-balance-sheet instruments (futures, swaps, forwards, options, guarantees, and lending commitments) are based on quoted market prices, current settlement values, or pricing models or other formulas. Note 15 - Contingencies The Company and its subsidiaries are parties to numerous claims and lawsuits arising in the course of their normal business activities, some of which involve claims for substantial amounts. Although the ultimate outcome of these suits cannot be ascertained at this time, it is the opinion of management that none of these matters, when resolved, will have a material effect on the Company's consolidated results of operations or financial position. Note 16 - SunTrust Banks, Inc. (Parent Company Only) Financial Information Statements of Income
STATEMENTS OF INCOME Year Ended December 31 (In thousands) 1997 1996 1995 OPERATING INCOME From subsidiaries: Dividends - substantially all from banking subsidiaries $396,344 $464,813 $417,255 Service fees 80,044 74,812 46,649 Interest on loans 25,007 17,950 13,218 Other income 4 102 128 Other operating income 36,036 61,945 36,291 Total operating income 537,435 619,622 513,541 OPERATING EXPENSE Interest on short-term borrowings 42,184 21,827 22,727 Interest on long-term debt (F2> 112,121 69,010 56,866 Salaries and employee benefits 38,951 48,236 39,972 Amortization of intangible assets 7,650 7,660 7,660 Service fees to subsidiaries 35,152 17,804 14,130 Other operating expense 40,952 102,176 30,758 Total operating expense 277,010 266,713 172,113 Income before income taxes and equity in undistributed income of subsidiaries 260,425 352,909 341,428 Income tax benefit 48,595 68,349 42,715 Income before equity in undistributed income of subsidiaries 309,020 421,258 384,143 Equity in undistributed income of subsidiaries 358,233 219,757 202,683 NET INCOME $667,253 $641,015 $586,826 Other operating income for 1997 includes $25.8 million in interest income on trust preferred securities purchased during 1997. For 1996, other operating income includes a $16.2 million securities gain on the sale of a long-held minority position in a Florida bank. Interest on long-term debt includes $26.4 million in interest expense from trust preferred securities which were issued in 1997. Other operating expense for 1997 and 1996 contains expenses incurred on behalf of certain banking subsidiaries in connection with the Company's growth initiatives.
Balance Sheets BALANCE SHEETS
December 31 (Dollars in thousands) 1997 1996 ASSETS Cash in subsidiary banks $ 11,739 $ 9,376 Interest-bearing deposits in banks 2,497 1,521 Funds sold 47,415 Investment securities 705,104 23,920 Loans to subsidiaries 617,030 337,503 Investment in capital stock of subsidiaries stated on the basis of the Company's equity in subsidiaries' capital accounts: Banking subsidiaries 6,611,981 5,718,219 Nonbanking and holding company subsidiaries 189,513 77,720 Premises and equipment 20,371 22,561 Intangible assets 107,161 114,812 Other assets - Note 11 427,049 550,848 Total Assets $ 8,739,860 $ 6,856,480 LIABILITIES AND SHAREHOLDERS' EQUITY - NOTES 9 AND 11 Short-term borrowings from: Subsidiaries $ 1,050 $ 83,197 Non-affiliated companies - Note 7 892,527 417,224 Long-term debt - Note 8 2,048,492 1,153,294 Other liabilities - Notes 10 and 11 537,409 261,785 Total Liabilities 3,479,478 1,915,500 Preferred stock, no par value; 50,000,000 shares authorized; none issued Common stock, $1.00 par value; 350,000,000 shares authorized 211,608 225,608 Additional paid in capital 296,751 310,612 Retained earnings 2,812,645 3,033,900 Treasury stock and other (109,503) (230,918) Realized Shareholders' Equity 3,211,501 3,339,202 Unrealized gains on investment securities, net of taxes - Note 3 2,048,881 1,601,778 Total Shareholders' Equity 5,260,382 4,940,980 Total Liabilities and Shareholders' Equity $ 8,739,860 $ 6,856,480 Common shares outstanding 209,909,204 220,469,001 Treasury shares of common stock 1,698,853 5,139,056
Statements of Cash Flow STATEMENTS OF CASH FLOW
Year Ended December 31 (In thousands) 1997 1996 1995 CASH FLOW FROM OPERATING ACTIVITIES: Net income $ 667,253 $ 641,015 $ 586,826 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed income of subsidiaries (358,233) (219,757) (202,683) Depreciation and amortization 12,511 11,610 10,658 Securities gains (3,503) (17,145) - Deferred income tax benefit 33,572 5,068 19,918 Changes in period end balances of: Prepaid expenses (45,049) (32,211) (31,511) Other assets 143,219 (222,108) (34,532) Taxes payable 44,803 (30,774) 26,089 Interest payable 4,828 5,838 (1,079) Other accrued expenses 228,560 20,094 27,410 Net cash provided by operating activities 727,961 161,630 401,096 CASH FLOW FROM INVESTING ACTIVITIES: Proceeds from sales and maturities of investment securities 9,305 23,494 6,000 Purchase of investment securities (667,830) (219) (9) Net change in loans to subsidiaries (279,527) (69,113) (97,255) Net funds received in acquisitions - 5,636 - Capital expenditures (1,347) (8,231) (11,229) Capital contributions to subsidiaries (212,103) (96,822) (90,355) Other, net 109 4,143 15,264 Net cash (used in) investing activities (1,151,393) (141,112) (177,584) CASH FLOW FROM FINANCING ACTIVITIES: Net change in short-term borrowings 393,156 98,211 140,731 Proceeds from issuance of long-term debt 920,000 407,500 42,330 Repayment of long-term debt (24,802) (81,549) (2,723) Proceeds from the exercise of stock options 6,647 5,465 4,814 Payments to acquire treasury stock (625,143) (297,319) (204,824) Dividends paid (195,672) (183,892) (168,660) Net cash provided by (used in) financing activities 474,186 (51,584) (188,332) Net increase (decrease) in cash and cash equivalents 50,754 (31,066) 35,180 Cash and cash equivalents at beginning of year 10,897 41,963 6,783 Cash and cash equivalents at end of year $ 61,651 $ 10,897 $ 41,963 SUPPLEMENTAL DISCLOSURE Income taxes received from subsidiaries $ 394,908 $ 336,898 $ 322,440 Income taxes paid by Parent Company (298,520) (290,450) (253,228) Net income taxes received by Parent Company 96,388 46,448 69,212 Interest paid $ 106,311 $ 84,310 $ 80,077
Note 17 - Subsequent Event On July 20, 1998, SunTrust issued a press release announcing that the Company and Crestar Financial Corporation ("Crestar") had entered into a definitive Agreement and Plan of Merger providing for the merger of a wholly owned subsidiary of SunTrust with and into Crestar. Under terms of the agreement, Crestar shareholders will receive, in a tax-free exchange, 0.96 shares of SunTrust's common stock for each share of Crestar common stock. It is intended that the merger will be accounted for as a pooling-of-interests. The merger is subject to regulatory and shareholder approval of both companies and is expected to be completed during the fourth quarter of 1998. In connection with the announcement, the Board of Directors of SunTrust has rescinded its stock repurchase authorization. For further information, see the Current Report on Form 8-K filed by SunTrust on July 21, 1998. Note 18 - Restatement of Certain Prior Years Financial Statements In connection with the review by the staff of the Securities and Exchange Commission of documents related to SunTrust's acquisition of Crestar Financial Corporation and the staff's comments thereon, SunTrust has lowered its provision for loan losses in 1996, 1995 and 1994 by $40 million, $35 million, and $25 million respectively. The effect of this action was to increase net income in these years by $24.4 million, $21.4 million and $15.3 million respectively. Further, as of December 31, 1997 and 1996, the Allowance for Loan Losses has been decreased by a total of $100 million and shareholder's equity has been increased by a total of $61 million. Report of Independent Public Accountants To the Shareholders of SunTrust Banks, Inc. We have audited the accompanying consolidated balance sheets of SunTrust Banks, Inc. (a Georgia corporation) and subsidiaries as of December 31, 1997 and 1996 and the related consolidated statements of income, shareholders' equity and cash flow for each of the three years in the period ended December 31, 1997, as restated - see Note 18. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the restated consolidated financial statements referred to above present fairly, in all material respects, the financial position of SunTrust Banks, Inc. and subsidiaries as of December 31, 1997 and 1996, and the results of their operations and their cash flow for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Atlanta, Georgia January 30, 1998 (except with respect to the matters discussed in Notes 17 and 18, as to which the date is November 10, 1998). Corporate Headquarters Shareholders of Record SunTrust Banks, Inc. SunTrust has 30,315 shareholders of 303 Peachtree Street, N.E. record as of December 31, 1997. In Atlanta, Georgia 30308 addition, approximately 16,700 (404) 588-7711 SunTrust employees own stock through the Company's 401(k) program. Corporate Mailing Address SunTrust Banks, Inc. Debt ratings P.O. Box 4418 SunTrust Banks, Inc. debt ratings Atlanta, Georgia 30302-4418 are as follows: Senior Long-term debt Notice of Annual Meeting Moody's Investors Service, Inc.: A1 The Annual Meeting of Shareholders Standard & Poor's Corp.: A+ will be held on Tuesday, April 21, Thomson BankWatch: AA 1998, at 9:30 a.m. in Room 10 of Commercial Paper the SunTrust Bank, Atlanta Tower Moody's Investors Service, Inc.:P-1 at 25 Park Place, Atlanta Standard & Poor's Corp.: A-1 Thomson BankWatch: TBW-1 Stock Trading SunTrust Banks, Inc. common stock is Financial Information traded on the New York Stock Those seeking information should Exchange under the symbol "STI". contact: James C. Armstrong Shareholder Services (404) 588-7425 Shareholders who wish to change the or name, address, or ownership of stock, Margaret L. Fisher to report lost certificates, or to (404) 586-6416 consolidate accounts, should contact the Transfer Agent: Internet Information To access information about STI, SunTrust Bank, Atlanta including news releases and product P. O. Box 4625 information, visit the SunTrust home Atlanta, Georgia 30302-4625 page on the World Wide Web. The (404) 588-7815 address is http://www.SunTrust.com (800) 568-3476 Independent Public Accountants Dividend Reinvestment Arthur Andersen & Co. SunTrust offers a Dividend Atlanta, Georgia Reinvestment Plan that provides automatic reinvestment of dividends SunTrust and its subsidiaries are in additional shares of SunTrust Equal Opportunity Employers. common stock. For information, contact: Banks in the SunTrust group are members of the Federal Deposit Stock Transfer Department Insurance Corporation. SunTrust Bank Atlanta P.O. Box 4625 Atlanta, Georgia 30302-4625 (404) 588-7822 (800) 568-3476 EX-21 7 EXHIBIT 21 Subsidiaries of the Registrant as of December 31, 1997. SunTrust Banks, Inc. (27 banks in total) 100% SunTrust Banks of Florida, Inc. 100% SunTrust Bank, Central Florida, National Association 100% STB Management (Central Florida), Inc. 100% STB Real Estate Parent (Central Florida), Inc. 100% STB Real Estate Holdings (Central Florida), Inc. 100% STB Receivables (Central Florida), Inc. 100% SunTrust Annuities, Inc. 100% SunTrust Insurance Services (Florida), Inc. 100% SunTrust Bank, East Central Florida 100% Service of Volusia County, Inc. 100% STB Receivables (East Central Florida), Inc. 100% SunTrust Bank, Gulf Coast 100% STB Management (Gulf Coast), Inc. 100% STB Real Estate Parent (Gulf Coast), Inc. 100% STB Real Estate Holdings (Gulf Coast), Inc. 100% STB Receivables (Gulf Coast), Inc. 100% SunTrust Bank, Miami, National Association 100% Florida Aviation, Inc. 100% Kasalta Miramar, Inc. 100% STB Management (Miami), Inc. 100% STB Receivables (Miami), Inc. 100% SunTrust Bank, Mid-Florida, National Association 100% STB Receivables (Mid-Florida), Inc. 100% SunTrust Bank, Nature Coast 100% STB Real Estate Parent (Nature Coast), Inc. 100% STB Real Estate Holdings (Nature Coast), Inc. 100% STB Receivables (Nature Coast), Inc. 100% SunTrust Bank, North Central Florida 100% STB Receivables (North Central Florida), Inc. 100% SunTrust Bank, North Florida, National Association 100% STB Receivables (North Florida), Inc. 100% SunTrust Bank, South Florida, National Association 100% STB Management (South Florida), Inc. 100% STB Real Estate Parent (South Florida), Inc. 100% STB Real Estate Holdings (South Florida), Inc. 100% STB Receivables (South Florida), Inc. 100% SunTrust Bank, Southwest Florida 100% STB Real Estate Parent (Southwest Florida), Inc. 100% STB Real Estate Holdings (Southwest Florida), Inc. 100% STB Receivables (Southwest Florida), Inc. 100% SunTrust Bank, Tallahassee, National Association 100% STB Receivables (Tallahassee), Inc. 100% SunTrust Bank, Tampa Bay 100% STB Management (Tampa Bay), Inc. 100% STB Receivables (Tampa Bay), Inc. 100% SunTrust Bank, West Florida 100% STB Receivables (West Florida), Inc. 100% SunTrust Banks Trust Company (Cayman) LTD 100% Premium Assignment Corporation 100% SunTrust Banks of Georgia, Inc. 100% SunTrust Bank, Atlanta 100% STB Management (Atlanta), Inc. 100% STB Real Estate Parent (Atlanta), Inc. 100% STB Real Estate Holdings (Atlanta), Inc. 100% STI Credit Corporation 100% SunTrust International Banking Company 100% SunTrust Asia, Limited (inactive) 100% TCB Holdings, Inc. 100% SunTrust Bank, Augusta, National Association 100% SunTrust Bank, Middle Georgia, National Association 100% SunTrust Bank, Northeast Georgia, National Association 100% STB Real Estate Parent (Northeast Georgia), Inc. 100% STB Real Estate Holdings (Northeast Georgia), Inc. 100% SunTrust Insurance Services (Georgia), Inc. 100% SunTrust Bank, Northwest Georgia, National Association 100% SunTrust Bank, Savannah, National Association 100% SunTrust Bank, South Georgia, National Association 100% STB Real Estate Parent (South Georgia), Inc. 100% STB Real Estate Holdings (South Georgia), Inc. 100% SunTrust Bank, Southeast Georgia, National Association 100% SunTrust Bank, West Georgia, National Association 100% SunTrust Personal Loans, Inc. 100% Preferred Surety Holdings, Inc. 100% Preferred Surety Corporation 100% Madison Insurance Company (inactive) 100% SunTrust Banks of Tennessee, Inc. 100% SunTrust Bank, Nashville, National Association 100% Cherokee Insurance Company (inactive) 100% STB Management (Nashville), Inc. 100% SunTrust Leasing of Tennessee, Inc. 100% SunTrust Bank, Alabama, National Association 100% SunTrust Annuities (Alabama), Inc. 100% SunTrust Bank, Chattanooga, National Association 100% STB Management (Chattanooga), Inc. 100% SunTrust of Chattanooga Mortgage Corporation 100% SunTrust Insurance Services (Tennessee), Inc. 100% SunTrust Bank, East Tennessee, National Association 100% Acquisition and Equity Corporation 100% SunTrust Bank, South Central Tennessee, National Association 100% Trust Company of Tennessee (inactive) 100% STI Capital Management, National Association 100% STI Trust & Investment Operations, Inc. 100% SunTrust BankCard, National Association 100% SunTrust Capital I 100% SunTrust Capital II 100% SunTrust Capital Markets, Inc. 100% SunTrust Insurance Company 100% SunTrust International Services, Inc. 100% SunTrust Mortgage, Inc. 100% SunTrust Online, Inc. (inactive) 100% SunTrust Plaza Associates, LLC 100% SunTrust Properties, Inc. 100% SunTrust Securities, Inc. 100% SunTrust Service Corporation* 100% Trusco Capital Management, Inc. * SunTrust Service Corporation is 100% owned by certain subsidiary banks of SunTrust Banks, Inc. None of this nonbank subsidiary's stock is owned by SunTrust Banks, inc. (Parent Company). EX-23 8 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K/A, into the Registrant's previously filed Registration Statement Nos. 33-50756, 33-28250 and 33-58723 on Form S-8 and Registration Statement No. 333-46093 on Form S-3. ARTHUR ANDERSEN LLP Atlanta, Georgia November 12, 1998 EX-27 9 ARTICLE 9 FDS FOR 10K
9 1,000 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 2,991,263 15,417 996,583 178,434 11,729,298 0 0 40,135,505 651,830 58,082,736 38,197,528 8,472,470 3,041,524 3,171,832 211,608 0 0 4,987,774 58,082,736 3,036,100 542,234 72,405 3,650,739 1,151,157 1,756,373 1,894,366 117,043 1,523 1,685,595 1,025,966 667,253 0 0 667,253 3.13 3.17 4.11 125,375 40,781 2,721 0 625,849 146,188 55,126 651,830 0 0 651,830
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