10-Q 1 d10q.txt SUNTRUST FORM 10-Q DATED JUNE 30, 2001 ================================================================================ -------------------------------------------------------------------------------- FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended June 30, 2001 -------------------------------------------- Commission File Number 1-8918 SUNTRUST BANKS, INC. (Exact name of registrant as specified in its charter) Georgia 58-1575035 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 303 Peachtree Street, N.E., Atlanta, Georgia 30308 (Address of principal executive offices) (Zip Code) (404) 588-7711 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __X__ No _____ At July 31, 2001, 288,611,662 shares of the Registrant's Common Stock, $1.00 par value were outstanding. -------------------------------------------------------------------------------- ================================================================================ TABLE OF CONTENTS PART I FINANCIAL INFORMATION Page Item 1. Financial Statements (Unaudited) Consolidated Statements of Income 3 Consolidated Balance Sheets 4 Consolidated Statements of Cash Flows 5 Consolidated Statements of Shareholders' Equity 6 Notes to Consolidated Financial Statements 7-14 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 15-28 Item 3. Quantitative and Qualitative Disclosures About Market Risk 28 PART II OTHER INFORMATION Item 1. Legal Proceedings 29 Item 2. Changes in Securities 29 Item 3. Defaults Upon Senior Securities 29 Item 4. Submission of Matters to a Vote of Security Holders 29 Item 5. Other Information 29 Item 6. Exhibits and Reports on Form 8-K 29 SIGNATURES 29 PART I - FINANCIAL INFORMATION The following unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, and accordingly do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. However, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2001 are not necessarily indicative of the results that may be expected for the full year 2001. 2 Consolidated Statements of Income ---------------------------------
Three Months Six Months Ended June 30 Ended June 30 ---------------------------------- --------------------------------- (Dollars in thousands except per share data)(Unaudited) 2001 2000 2001 2000 --------------- ---------------- --------------- --------------- Interest Income Interest and fees on loans $ 1,270,446 $ 1,367,374 $ 2,668,105 $ 2,673,903 Interest and fees on loans held for sale 51,944 23,703 88,488 48,829 Interest and dividends on securities available for sale Taxable interest 261,135 224,910 513,806 455,532 Tax-exempt interest 7,332 6,492 14,636 13,327 Dividends (1) 17,033 17,749 34,359 34,772 Interest on funds sold 13,370 24,505 32,303 43,843 Interest on deposits in other banks 771 232 1,206 567 Other interest 12,627 7,084 25,629 12,105 --------------- ---------------- --------------- --------------- Total interest income 1,634,658 1,672,049 3,378,532 3,282,878 --------------- ---------------- --------------- --------------- Interest Expense Interest on deposits 484,866 590,255 1,069,127 1,145,217 Interest on funds purchased 125,884 154,561 280,314 297,394 Interest on other short-term borrowings 15,965 25,673 40,021 44,619 Interest on long-term debt 184,040 132,530 360,310 244,025 --------------- ---------------- --------------- --------------- Total interest expense 810,755 903,019 1,749,772 1,731,255 --------------- ---------------- --------------- --------------- Net Interest Income 823,903 769,030 1,628,760 1,551,623 Provision for loan losses 39,615 27,693 106,915 49,985 --------------- ---------------- --------------- --------------- Net interest income after provision for loan losses 784,288 741,337 1,521,845 1,501,638 --------------- ---------------- --------------- --------------- Noninterest Income Trust income 124,785 123,751 249,094 252,351 Service charges on deposit accounts 125,588 112,589 245,611 223,855 Other charges and fees 57,531 50,372 113,070 99,509 Mortgage production related income 52,961 20,474 84,697 39,167 Mortgage servicing related income (2,685) 7,692 4,039 15,414 Credit card and other fees 29,968 24,378 55,556 46,469 Retail investment services 27,260 30,550 52,043 61,348 Investment banking income 19,414 35,321 33,503 54,992 Trading account profits and commissions 24,895 (1,442) 54,589 10,571 Other noninterest income 34,367 38,754 70,684 68,753 Securities gains 27,728 1,531 84,845 8,393 --------------- ---------------- --------------- --------------- Total noninterest income 521,812 443,970 1,047,731 880,822 --------------- ---------------- --------------- --------------- Noninterest Expense Salaries and other compensation 383,145 365,251 759,496 736,336 Employee benefits 48,421 41,411 105,081 98,335 Net occupancy expense 51,769 49,890 101,782 99,950 Equipment expense 44,344 50,667 88,889 102,305 Outside processing and software 45,339 44,388 90,483 85,999 Marketing and customer development 22,955 27,855 45,988 50,157 Merger-related expenses - 18,183 - 31,816 Amortization of intangible assets 20,994 8,777 29,284 17,771 Other noninterest expense 146,871 113,362 285,532 201,430 --------------- ---------------- --------------- --------------- Total noninterest expense 763,838 719,784 1,506,535 1,424,099 --------------- ---------------- --------------- --------------- Income before provision for income taxes and extraordinary loss 542,262 465,523 1,063,041 958,361 Provision for income taxes 177,292 148,054 360,546 321,453 --------------- ---------------- --------------- --------------- Income before extraordinary loss 364,970 317,469 702,495 636,908 Extraordinary loss, net of taxes 17,824 - 17,824 - --------------- ---------------- --------------- --------------- Net Income $ 347,146 $ 317,469 $ 684,671 $ 636,908 =============== ================ =============== =============== Average common shares - diluted 291,677,416 302,140,506 293,743,462 304,439,570 Average common shares - basic 287,877,855 298,985,834 289,830,572 301,223,533 Net income per average common share - diluted Income before extraordinary loss $ 1.25 $ 1.05 $ 2.39 $ 2.09 Extraordinary loss, net of taxes 0.06 - 0.06 - --------------- ---------------- --------------- --------------- Net income $ 1.19 $ 1.05 $ 2.33 $ 2.09 =============== ================ =============== =============== Net income per average common share - basic Income before extraordinary loss $ 1.27 $ 1.06 $ 2.42 $ 2.11 Extraordinary loss, net of taxes 0.06 - 0.06 - --------------- ---------------- --------------- --------------- Net income $ 1.21 $ 1.06 $ 2.36 $ 2.11 =============== ================ =============== =============== (1) Includes dividends on common stock of The Coca-Cola Company 8,688 8,206 17,376 16,411 See notes to consolidated financial statements
3 Consolidated Balance Sheets ---------------------------
June 30 December 31 June 30 (Dollars in thousands) (Unaudited) 2001 2000 2000 --------------- ----------------- --------------- Assets Cash and due from banks $ 3,658,087 $ 4,110,489 $ 2,847,699 Interest-bearing deposits in other banks 98,461 13,835 8,109 Trading account 932,246 1,105,848 875,543 Securities available for sale (1) 18,578,244 18,810,311 17,382,207 Funds sold 928,994 1,267,028 1,613,080 Loans held for sale 3,126,942 1,759,281 1,345,694 Loans 68,938,242 72,239,820 71,450,408 Allowance for loan losses (866,099) (874,547) (874,484) --------------- ----------------- --------------- Net loans 68,072,143 71,365,273 70,575,924 Premises and equipment 1,590,308 1,629,071 1,631,331 Intangible assets 849,161 810,860 800,728 Customers' acceptance liability 93,941 184,157 173,964 Other assets 2,894,007 2,604,221 2,703,365 --------------- ----------------- --------------- Total assets $ 100,822,534 $ 103,660,374 $ 99,957,644 =============== ================= =============== Liabilities and Shareholders' Equity Noninterest-bearing deposits $ 13,568,864 $ 15,064,017 $ 13,719,684 Interest-bearing deposits 49,770,813 54,469,320 54,956,751 --------------- ----------------- --------------- Total deposits 63,339,677 69,533,337 68,676,435 Funds purchased 10,841,435 10,895,944 10,159,988 Other short-term borrowings 1,929,964 1,761,985 1,419,499 Long-term debt 11,393,044 7,895,430 7,200,459 Guaranteed preferred beneficial interests in debentures 1,050,000 1,050,000 1,050,000 Acceptances outstanding 93,941 184,157 173,964 Other liabilities 4,301,318 4,100,313 3,698,345 --------------- ----------------- --------------- Total liabilities 92,949,379 95,421,166 92,378,690 --------------- ----------------- --------------- Preferred stock, no par value; 50,000,000 shares authorized; none issued - - - Common stock, $1.00 par value 294,163 323,163 323,163 Additional paid in capital 1,265,738 1,274,416 1,272,178 Retained earnings 5,019,324 6,312,044 5,873,963 Treasury stock and other (333,912) (1,613,189) (1,357,018) --------------- ----------------- --------------- Realized shareholders' equity 6,245,313 6,296,434 6,112,286 Accumulated other comprehensive income 1,627,842 1,942,774 1,466,668 --------------- ----------------- --------------- Total shareholders' equity 7,873,155 8,239,208 7,578,954 --------------- ----------------- --------------- Total liabilities and shareholders' equity $ 100,822,534 $ 103,660,374 $ 99,957,644 =============== ================= =============== Common shares outstanding 288,511,505 296,266,329 301,931,828 Common shares authorized 750,000,000 750,000,000 750,000,000 Treasury shares of common stock 5,651,252 26,896,428 21,230,929 (1) Includes net unrealized gains on securities available for sale $ 2,546,677 $ 3,048,313 $ 2,371,237
See notes to consolidated financial statements 4 Consolidated Statements of Cash Flows -------------------------------------
Six Months Ended June 30 ----------------------------------- (Dollars in thousands) (Unaudited) 2001 2000 ---------------- --------------- Cash flows from operating activities: Net income $ 684,671 $ 636,908 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Extraordinary loss on early extinguishment of debt 17,824 - Depreciation, amortization and accretion 176,226 149,776 Provisions for loan losses and foreclosed property 107,105 50,192 Amortization of compensation element of restricted stock 2,734 4,726 Securities gains (84,845) (8,393) Net gain on sale of assets (5,673) (7,888) Originated loans held for sale (9,502,949) (4,224,468) Sales of loans held for sale 8,135,288 4,410,561 Net increase in accrued interest receivable, prepaid expenses and other assets (336,132) (1,213,778) Net increase in accrued interest payable, accrued expenses and other liabilities 387,709 269,566 --------------- -------------- Net cash (used in) provided by operating activities (418,042) 67,202 --------------- -------------- Cash flows from investing activities: Proceeds from maturities of securities available for sale 1,372,986 1,239,752 Proceeds from sales of securities available for sale 3,253,837 667,038 Purchases of securities available for sale (2,918,327) (1,128,413) Net decrease (increase) in loans 717,739 (5,645,049) Proceeds from sale of loans 609,714 153,719 Capital expenditures (25,232) (70,479) Proceeds from the sale of other assets 13,076 12,766 Loan recoveries 27,365 28,795 --------------- -------------- Net cash provided by (used in) investing activities 3,051,158 (4,741,871) --------------- -------------- Cash flows from financing activities: Net (decrease) increase in deposits (6,193,660) 8,575,906 Net increase (decrease) in funds purchased and other short-term borrowings 113,470 (6,591,440) Proceeds from the issuance of long-term debt 5,325,000 3,113,839 Repayment of long-term debt (1,845,210) (880,726) Proceeds from the exercise of stock options 7,150 7,543 Proceeds from stock issuance 13,844 13,202 Proceeds used in the acquisition of stock (526,230) (389,837) Dividends paid (233,290) (224,296) --------------- -------------- Net cash (used in) provided by financing activities (3,338,926) 3,624,191 --------------- -------------- Net decrease in cash and cash equivalents (705,810) (1,050,478) Cash and cash equivalents at beginning of year 5,391,352 5,519,366 --------------- -------------- Cash and cash equivalents at end of period $ 4,685,542 $ 4,468,888 =============== ============== Supplemental Disclosure Interest paid $ 1,795,287 $ 1,675,409 Income taxes paid 158,633 269,144 Non-cash impact of securitizing loans 1,903,518 - Non-cash impact of STAR Systems Inc. sale 52,919 -
See notes to consolidated financial statements 5 Consolidated Statements of Shareholders' Equity -----------------------------------------------
Accumulated Additional Treasury Other Common Paid in Retained Stock and Comprehensive (Dollars in thousands) (Unaudited) Stock Capital Earnings Other* Income Total -------------------------------------------------------------------------------------- Balance, January 1, 2000 $323,163 $ 1,293,387 $5,461,351 $(1,013,861) $1,562,822 $ 7,626,862 Net income - - 636,908 - - 636,908 Other comprehensive income: Change in unrealized gains (losses) on securities, net of taxes - - - - (96,154) (96,154) --------------- Total comprehensive income 540,754 Cash dividends declared, $0.74 per share - - (224,296) - - (224,296) Exercise of stock options - (16,529) - 24,072 - 7,543 Acquisition of treasury stock - - - (389,837) - (389,837) Restricted stock activity - (594) - 594 - - Amortization of compensation element of restricted stock - - - 4,726 - 4,726 Issuance of stock for employee benefit plans - (4,086) - 17,288 - 13,202 -------------------------------------------------------------------------------------- Balance, June 30, 2000 $323,163 $ 1,272,178 $5,873,963 $(1,357,018) $1,466,668 $ 7,578,954 ====================================================================================== Balance, January 1, 2001 $323,163 $ 1,274,416 $6,312,044 $(1,613,189) $1,942,774 $ 8,239,208 Net income - - 684,671 - - 684,671 Other comprehensive income: Adoption of SFAS No. 133 - - - - (10,560) (10,560) Change in unrealized gains (losses) on derivatives, net of taxes - - - - (16,947) (16,947) Change in unrealized gains (losses) on securities, net of taxes - - - - (287,425) (287,425) --------------- Total comprehensive income 369,739 Cash dividends declared, $0.80 per share - - (233,290) - - (233,290) Exercise of stock options - (9,175) - 16,325 - 7,150 Acquisition of treasury stock - - - (526,230) - (526,230) Retirement of treasury stock (29,000) - (1,744,101) 1,773,101 - - Restricted stock activity - 68 - (68) - - Amortization of compensation element of restricted stock - - - 2,734 - 2,734 Issuance of stock for employee benefit plans - 429 - 13,415 - 13,844 -------------------------------------------------------------------------------------- Balance, June 30, 2001 $294,163 $ 1,265,738 $5,019,324 $ (333,912) $1,627,842 $ 7,873,155 ======================================================================================
* Balance at June 30, 2000 includes $1,306,813 for treasury stock and $50,205 for compensation element of restricted stock. Balance at June 30, 2001 includes $294,711 for treasury stock and $39,201 for compensation element of restricted stock. See notes to consolidated financial statements 6 Notes to Consolidated Financial Statements (Unaudited) ------------------------------------------------------ Note 1 - Accounting Policies The consolidated interim financial statements of SunTrust Banks, Inc. ("SunTrust" or "Company") are unaudited. All significant intercompany accounts and transactions have been eliminated. These financial statements should be read in conjunction with the Annual Report on Form 10-K for the year ended December 31, 2000. Certain reclassifications have been made to prior year amounts to conform with the current year presentation. Note 2 - Acquisitions On March 28, 2001, the Company acquired Asset Management Advisors Holdings, Inc., a Jupiter, Florida based specialized wealth management firm. The acquisition was accounted for as a purchase with $22.0 million of cash tendered as consideration. The acquisition did not have a material effect on the consolidated financial statements. On May 14, 2001, SunTrust announced the signing of an agreement to purchase the institutional business of The Robinson-Humphrey Company, LLC from Citigroup's Salomon Smith Barney unit for approximately $11.9 million in cash. This transaction was completed on July 27, 2001. Also on May 14, 2001, SunTrust announced a proposal to acquire Wachovia Corporation. The proposal was for Wachovia shareholders to exchange each share of their common stock for 1.081 shares of SunTrust common stock. The Wachovia Board of Directors rejected this proposal and continued to endorse a proposed merger of equals which was entered into on April 15, 2001 with First Union Corporation. SunTrust mailed proxy statements to approximately 120,000 Wachovia shareholders to solicit votes against the proposed merger with First Union. On August 3, 2001, preliminary results of the proxy voting indicated Wachovia shareholders approved the merger with First Union. SunTrust subsequently withdrew its acquisition proposal. During the third quarter of 2001, SunTrust will record approximately $30 million of expenses related to the proposed Wachovia merger. As of June 30, 2001, $7.5 million in costs had been recorded on the balance sheet, and primarily consisted of legal and consulting fees. Note 3 - Recent Accounting Developments In July of 2001, the Financial Accounting Standards Board ("FASB") issued Statements of Financial Accounting Standards No. 141, "Business Combinations" (SFAS 141), and No. 142, "Goodwill and Other Intangible Assets" (SFAS 142). SFAS 141 establishes accounting and reporting standards for business combinations. This Statement eliminates the use of the pooling-of-interest method of accounting for business combinations, requiring future business combinations to be accounted for using the purchase method of accounting. The provisions of this Statement apply to all business combinations initiated after June 30, 2001. This Statement also applies to all business combinations accounted for using the purchase method for which the date of acquisition is July 1, 2001, or later. It does not appear the Statement will have a material impact on the Company's financial position or results of operations. SFAS 142 establishes accounting and reporting standards for goodwill and other intangible assets. With the adoption of this Statement, goodwill is no longer subject to amortization over its estimated useful life. Rather, goodwill will be subject to at least an annual assessment for impairment by applying a fair-value based test. SunTrust will adopt SFAS 142 effective January 1, 2002. Goodwill currently carried on the balance sheet will be subject to an initial assessment for impairment to be completed by the second quarter of 2002. Year-to-date June 30, 2001 earnings included net-of-tax amortization of goodwill totaling $22.2 million. SunTrust has not yet evaluated the impact that the adoption of this statement will have on its financial position or results of operations. 7 Notes to Consolidated Financial Statements (Unaudited) - continued ------------------------------------------------------------------ Note 4 - Guaranteed Preferred Beneficial Interests in Debentures SunTrust has established special purpose trusts, which collectively issued $1,050 million in trust preferred securities. The proceeds from these issuances, together with the proceeds of the related issuances of common securities of the trusts, were invested in junior subordinated deferrable interest debentures of SunTrust. The sole assets of these special purpose trusts are the debentures. These debentures rank junior to the senior and subordinated debt of the issuing company. SunTrust owns all of the common securities of the special purpose trusts. The preferred securities issued by the trusts rank senior to the trusts' common securities. The Company's obligations under the debentures, the indentures, the relevant trust agreements and the guarantees, in the aggregate, constitute a full and unconditional guarantee by SunTrust of the obligations of the trusts under the trust preferred securities and rank subordinate and junior in right of payment to all liabilities of the Company. The trust preferred securities may be called prior to maturity at the option of SunTrust. Note 5 - Loan Securitizations During the first quarter of 2001, SunTrust transferred $1,903 million of single family mortgages to securities available for sale in two securitization transactions. These securities are maintained in the Company's available for sale securities portfolio at fair market value based on quoted market prices. There were no additional loan securization transactions during the second quarter of 2001. Note 6 - Comprehensive Income The Company's comprehensive income, which includes certain transactions and other economic events that bypass the income statement, consists of net income, unrealized gains and losses on securities available for sale and the impact of cash flow hedges, net of income taxes. 8 Notes to Consolidated Financial Statements (Unaudited) - continued ------------------------------------------------------------------ Comprehensive income for the six months ended June 30, 2001 and 2000 is calculated as follows: (Dollars in thousands)
2001 2000 ---- ---- Unrealized loss on available for sale securities, net, recognized in other comprehensive income: Before Income Tax $ (442,192) $(156,468) Income Tax (154,767) (60,314) ------------- ------------ Net of Income Tax $ (287,425) $ (96,154) ============= ============ Amounts reported in net income: Gain on sale of securities $ 84,845 $ 8,393 Net (accretion) amortization (8,638) (7,150) ------------- ------------ Reclassification adjustment 76,207 1,243 Income tax expense (26,672) (479) ------------- ------------ Reclassification adjustment, net of tax $ 49,535 $ 764 ============= ============ Unrealized loss on available for sale securities arising during period, net of tax $ (237,890) $ (95,390) Reclassification adjustment, net of tax (49,535) (764) ------------- ------------ Net unrealized loss on available for sale securities recognized in other comprehensive income $ (287,425) $ (96,154) ============= ============ Unrealized loss on derivative financial instruments, net, recognized in other comprehensive income: Before Income Tax $ (42,319) $ - Income Tax 14,812 - ------------- ------------ Net of Income Tax $ (27,507) $ - ============= ============ Cumulative effect of change in accounting principle $ (16,246) $ - Income tax benefit 5,686 - ------------- ------------ Cumulative effect of change in accounting priniciple, net of tax $ (10,560) $ - ============= ============ Reclassification of losses from other comprehensive income to earnings $ 6,073 $ - Income tax expense (2,125) - ------------- ------------ Reclassification adjustment, net of tax $ 3,948 $ - ============= ============ Unrealized loss on derivative financial instruments arising during period, net of tax $ (20,895) $ - Reclassification adjustment, net of tax 3,948 - ------------- ------------ Net unrealized loss on derivative instruments recognized in other comprehensive income $ (16,947) $ - ============= ============ Total unrealized losses recognized in other comprehensive income $ (314,932) $ (96,154) Net income 684,671 636,908 ------------- ------------ Total comprehensive income $ 369,739 $ 540,754 ============= ============
9 Notes to Consolidated Financial Statements (Unaudited) - continued ------------------------------------------------------------------ Note 7 - Earnings Per Share Reconciliation Net income is the same in the calculation of basic and diluted EPS. Shares of 3.7 million and 4.0 million for the periods ended June 30, 2001 and 2000, respectively, were excluded in the computation of diluted EPS because they would have been antidilutive. A reconciliation of the difference between average basic common shares outstanding and average diluted common shares outstanding for the three and six months ended June 30, 2001 and 2000 is included in the following table. Computation of Per Share Earnings (In thousands, except per share data)
Three Months Six Months Ended June 30 Ended June 30 ------------------------------- -------------------------------------- 2001 2000 2001 2000 ------------ --------------- ----------------- ----------------- Diluted ------- Income before extraordinary loss $ 364,970 $ 317,469 $ 702,495 $ 636,908 Extraordinary loss, net of taxes 17,824 - 17,824 - ------------ --------------- ----------------- ----------------- Net income $ 347,146 $ 317,469 $ 684,671 $ 636,908 ------------ --------------- ----------------- ----------------- Average common shares outstanding 287,878 298,986 289,831 301,224 Effect of dilutive securities: Stock options 1,919 1,351 2,028 1,431 Performance restricted stock 1,880 1,804 1,884 1,785 ------------ --------------- ----------------- ----------------- Average diluted common shares 291,677 302,141 293,743 304,440 ------------ --------------- ----------------- ----------------- Earnings per common share - diluted: Income before extraordinary loss $ 1.25 $ 1.05 $ 2.39 $ 2.09 Extraordinary loss 0.06 - 0.06 - ------------ --------------- ----------------- ----------------- Net income $ 1.19 $ 1.05 $ 2.33 $ 2.09 ============ =============== ================= ================= Basic ----- Income before extraordinary loss $ 364,970 $ 317,469 $ 702,495 $ 636,908 Extraordinary loss, net of taxes 17,824 - 17,824 - ------------ --------------- ----------------- ----------------- Net income $ 347,146 $ 317,469 $ 684,671 $ 636,908 ------------ --------------- ----------------- ----------------- Average common shares 287,878 298,986 289,831 301,224 ------------ --------------- ----------------- ----------------- Earnings per common share - basic: Income before extraordinary loss $ 1.27 $ 1.06 $ 2.42 $ 2.11 Extraordinary loss 0.06 - 0.06 - ------------ --------------- ----------------- ----------------- Net income $ 1.21 $ 1.06 $ 2.36 $ 2.11 ============ =============== ================= =================
10 Notes to Consolidated Financial Statements (Unaudited) - continued ------------------------------------------------------------------ Note 8 - Business Segment Reporting The Company's prior business segment disclosures have been aligned with its geographic regions as defined by its former multiple bank charters. During 2000, as a result of the consolidation of its multiple bank charters into a single legal entity, the Company began to redefine its operating model and created a line of business management structure to overlay its former multiple bank management structure. Beginning in January 2001, the Company implemented significant changes to its internal management reporting system to begin to measure and manage certain business activities by line of business. The Lines of Business are defined as follows: Retail Retail includes loans, deposits and other fee based services for retail and small business clients. The Retail Line of Business also includes the branch office and ATM networks of the Company. Commercial Commercial includes loans, deposits and other fee based services for business clients generally with total annual revenues from $5 million to $250 million. Corporate and Investment Banking Corporate and Investment Banking includes loans, deposits and other fee based services for national and large business clients generally with total annual revenues in excess of $250 million. Corporate and Investment Banking also includes the management of corporate leasing, debt and equity capital markets and international banking services. Mortgage Mortgage includes the investment in residential mortgage loans and the production, sale and service of secondary residential mortgage loans. Private Client Services Private Client Services includes personal and institutional trust and investment management services, retail investment services and management of affluent clients' financial resources including loans, deposits and other fee based services. Corporate/Other Corporate/Other includes the investment securities portfolio, long-term debt, capital, derivative instruments, short-term liquidity and funding activities, balance sheet risk management, office premises and certain support activities not currently allocated to the aforementioned Lines of Business. Any transactions between the separate Lines of Business not already eliminated in the results of the Lines of Business are also reflected in the Corporate/Other Line of Business. 11 Notes to Consolidated Financial Statements (Unaudited) - continued ------------------------------------------------------------------ Unlike financial accounting, there is no comprehensive authoritative body of guidance for management accounting practices equivalent to generally accepted accounting principles. Therefore, the disclosure of performance of the business segments is not necessarily comparable with similar information presented by any other financial institution. The Company utilizes a matched maturity funds transfer pricing methodology to transfer the interest rate risk of all assets and liabilities to the Corporate Treasury area which manages the interest rate risk of the Company. Differences in the aggregate amounts of funds charges and credits that are transfer priced are reflected in the Corporate/Other Line of Business segment. A system of internal credit transfers is utilized to recognize supportive business services across Lines of Business. The net results of these credits are reflected in each Line of Business segment. The cost of operating office premises is charged to the Lines of Business by use of an internal cost transfer process. Allocations of certain administrative support expenses and customer transaction processing expenses are also reflected in each Line of Business segment. The offset to these expense allocations, as well as the amount of any unallocated expenses, is reported in the Corporate/Other Line of Business segment. The Company also utilizes an internal credit risk transfer pricing methodology (the "credit risk premium") which creates a current period financial charge against interest income to each Line of Business based on the estimated credit risk-adjusted return on loans and leases. The offset to the aggregate credit risk premium charges is matched against the Company's current provision for loan and lease losses with any difference reported in the Corporate/Other segment. The provision for income taxes is also reported in the Corporate/Other segment. The Company is currently in the process of building and implementing further enhancements to its internal management reporting system which are expected to be implemented over the remaining periods of 2001. Once complete, the activities reported for each Line of Business segment are expected to include: assets, liabilities and attributed economic capital; matched maturity funds transfer priced interest income, net of credit risk premiums; direct non-interest income; Internal credit transfers between Lines of Business for supportive business services; and fully absorbed expenses. The internal management reporting system and the business segment disclosures for each Line of Business do not currently include attributed economic capital, nor fully absorbed expenses. Any amounts not currently reported in each Line of Business segment are reported in the Corporate/Other segment. The implementation of these enhancements to the internal management reporting system is expected to materially affect the net income disclosed for each segment. Due to the significant nature of the changes implemented to the internal management reporting system in 2001, it is not practical to conform prior year financial data for the new business segments nor current year financial data for the prior business segments for reporting. 12 Notes to Consolidated Financial Statements (Unaudited) - continued ------------------------------------------------------------------ The following table discloses selected financial information for SunTrust's new reportable business segments for the six months ended June 30, 2001.
SUNTRUST BANKS, INC. --------------------------------------------------------------------------------------------------- Six Months Ended June 30, 2001 --------------------------------------------------------------------------------------------------- Corporate and Investment Private Client Retail Commercial Banking Mortgage Services Corporate/Other Consolidated --------------------------------------------------------------------------------------------------- Average total assets $19,984,649 $20,422,530 $22,439,319 $19,443,307 $ 1,376,951 $ 19,542,963 $103,209,719 Average total liabilities 44,988,277 8,544,114 4,421,253 921,474 1,599,767 34,754,111 95,228,996 Average total equity - - - - - 7,980,723 7,980,723 --------------------------------------------------------------------------------------------------- Net interest revenue (1) $ 826,995 $ 278,195 $ 108,557 $ 96,117 $ 23,416 $ 188,565 $ 1,521,845 Noninterest revenue 296,895 119,159 160,699 109,111 290,086 71,781 1,047,731 Noninterest expense 603,898 188,465 147,686 143,849 199,513 223,124 1,506,535 --------------------------------------------------------------------------------------------------- Total contribution before taxes and extraordinary loss 519,992 208,889 121,570 61,379 113,989 37,222 1,063,041 Provision for income taxes - - - - - 360,546 360,546 --------------------------------------------------------------------------------------------------- Income before extraordinary loss 519,992 208,889 121,570 61,379 113,989 (323,324) 702,495 Extraordinary loss, net of tax - - - - - 17,824 17,824 --------------------------------------------------------------------------------------------------- Net Income $ 519,992 $ 208,889 $ 121,570 $ 61,379 $ 113,989 $ (341,148) $ 684,671 =================================================================================================== Total revenue from external customers $ 1,083,276 $ 798,100 $ 802,366 $ 776,764 $ 295,418 $ 811,096 $ 4,567,020 ===================================================================================================
(1) Net interest income is fully taxable equivalent and is presented on a matched maturity funds transfer price basis net of the credit risk premium for the Lines of Business. 13 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW SunTrust Banks, Inc., the nation's ninth-largest commercial banking organization, is a financial holding company with its headquarters in Atlanta, Georgia. SunTrust's principal banking subsidiary, SunTrust Bank, offers a full line of financial services for consumers and businesses through its branches located primarily in Alabama, Florida, Georgia, Maryland, Tennessee, Virginia and the District of Columbia. In addition to traditional deposit, credit and trust and investment services offered by SunTrust Bank, other SunTrust subsidiaries provide mortgage banking, commercial and auto leasing, credit-related insurance, asset management, securities brokerage and investment banking services. SunTrust has 1,120 full-service branches, including supermarket branches, and continues to leverage technology to provide customers the convenience of banking on the Internet, through 1,970 automated teller machines and via twenty-four hour telebanking. The following analysis of the financial performance of SunTrust for the second quarter of 2001 should be read in conjunction with the financial statements, notes and other information contained in this document. SunTrust has made, and may continue to make, various forward-looking statements with respect to financial and business matters. These forward-looking statements are subject to numerous assumptions, risks and uncertainties, all of which may change over time. The actual results that are achieved could differ significantly from the forward-looking statements contained in this document. The results of operations for the six months ended June 30, 2001 are not indicative of the results that may be attained for any other period. In this discussion, net interest income and the net interest margin are presented on a taxable-equivalent basis and the ratios are presented on an annualized basis. EARNINGS ANALYSIS SunTrust reported record operating earnings of $347.1 million and $684.7 million for the second quarter and first six months of 2001, an increase of $29.7 million, or 9.3%, and $47.8 million, or 7.5%, compared to $317.5 million and $636.9 million in the same periods last year. These results included after-tax merger-related charges of $11.8 million, or $.04 per diluted share, and $20.7 million, or $.07 per diluted share, for the second quarter and first six months of 2000, respectively. Diluted earnings per share, adjusted for merger charges, grew 9.2% to $1.19 and 7.9 % to $2.33 from $1.09 and $2.16 in the same periods last year. In the second quarter of 2001, results included two other unusual items. A loss of $17.8 million, net of tax, or $.06 per diluted share, was recorded as an extraordinary loss during the second quarter of 2001 for the Company's early extinguishment of long-term debt in order to lengthen the maturity of its market borrowings. In addition, the Company recorded net of tax securities gains of $17.8 million, or $.06 per diluted share, by repositioning its balance sheet during the second quarter of 2001 and shortening the average life of its investment portfolio. Net interest income increased $55.5 million, or 7.1%, and $78.6 million, or 5.0%, from the second quarter and first six months of 2000 to the second quarter and first six months of 2001. This was primarily due to lower funding costs as the Federal Reserve decreased the fed funds rate a total of 275 basis points since June 30, 2000. Also contributing to the increase was moderate loan demand as average loans, adjusted for securitizations, increased $2.9 billion, or 4.2%, and $4.6 billion, or 6.8% from the second quarter and first six months of 2000 to the second quarter and first six months of 2001, respectively. 14 The loan loss provision increased $11.9 million, or 43.1%, over the second quarter of 2000 and $56.9 million, or 113.9%, over the first six months of 2000. The increase over the prior year's second quarter was primarily due to the second quarter of 2001 sale of three of the Company's corporate nonperforming loans which resulted in losses of $14.6 million. Additional write-downs of other nonperforming loans also contributed to this increase. Total noninterest income, excluding securities gains, increased $51.6 million, or 11.7%, over the prior year's second quarter. Noninterest income included increases of $26.3 million, or 1,826.4%, in trading account profits and commissions, $32.5 million, or 158.7%, in mortgage production related income, $13.0 million, or 11.5%, in services charges on deposit accounts and $7.2 million, or 14.2%, in other charges and fees. Total noninterest expense, excluding merger-related charges, increased $62.2 million, or 8.9%, over the second quarter of 2000. Included in the overall increase was $17.4 million in expenses associated with the Company's sale of the assets and liabilities of SunTrust Credit Corporation and $14.7 million in One Bank initiatives resulting from the continued system integration of customer based systems across the geographic areas served by SunTrust Banks, Inc. 15
Selected Quarterly Financial Data Table 1 (Dollars in millions except per share data) Quarters ------------------------------------------------------------------------------- 2001 2000 ------------------------------ ---------------------------------------------- 2 1 4 3 2 -------------- ------------- ------------- -------------- ------------- Summary of Operations Interest and dividend income $ 1,634.7 $ 1,743.9 $ 1,798.3 $ 1,764.2 $ 1,672.0 Interest expense 810.8 939.0 1,012.9 992.8 903.0 -------------- ------------- ------------- -------------- ------------- Net interest income 823.9 804.9 785.4 771.4 769.0 Provision for loan losses 39.6 67.3 53.5 30.5 27.7 -------------- ------------- ------------- -------------- ------------- Net interest income after provision for loan losses 784.3 737.6 731.9 740.9 741.3 Noninterest income(1) 521.8 525.9 445.6 447.2 444.0 Noninterest expense(2)(3) 763.8 742.7 697.9 706.6 719.8 -------------- ------------- ------------- -------------- ------------- Income before provision for income taxes and extraordinary loss 542.3 520.8 479.6 481.5 465.5 Provision for income taxes 177.3 183.3 149.2 154.7 148.0 -------------- ------------- ------------- -------------- ------------- Income before extraordinary loss 365.0 337.5 330.4 326.8 317.5 Extraordinary loss, net of taxes(4) 17.8 - - - - -------------- ------------- ------------- -------------- ------------- Net income $ 347.2 $ 337.5 $ 330.4 $ 326.8 $ 317.5 ============== ============= ============= ============== ============= Net interest income (taxable-equivalent) $ 834.1 $ 815.2 $ 796.1 $ 781.5 $ 778.7 Per common share Diluted Income before extraordinary loss $ 1.25 $ 1.14 $ 1.11 $ 1.10 $ 1.05 Extraordinary loss, net of taxes 0.06 - - - - -------------- ------------- ------------- -------------- ------------- Net income 1.19 1.14 1.11 1.10 1.05 Basic Income before extraordinary loss 1.27 1.16 1.13 1.11 1.06 Extraordinary loss, net of taxes 0.06 - - - - -------------- ------------- ------------- -------------- ------------- Net income 1.21 1.16 1.13 1.11 1.06 Dividends declared 0.40 0.40 0.37 0.37 0.37 Book value 27.29 26.83 27.81 25.85 25.10 Market price High 66.38 68.07 64.38 54.19 66.00 Low 59.25 57.29 41.63 45.63 45.06 Close 64.78 64.80 63.00 49.88 45.69 Selected Average Balances Total assets $103,194.2 $103,225.4 $101,246.0 $ 99,392.2 $ 97,497.3 Earning assets 92,570.8 92,553.9 90,679.6 89,663.7 88,200.6 Loans 69,900.5 71,654.4 71,774.6 71,506.9 69,830.6 Consumer and commercial deposits 56,343.6 54,538.6 54,099.2 53,641.4 53,942.5 Brokered and foreign deposits 8,017.1 10,870.0 13,082.7 13,516.8 12,923.9 Realized shareholders' equity 6,208.8 6,264.6 6,140.5 6,012.8 5,948.9 Total shareholders' equity 7,873.4 8,089.2 7,844.4 7,487.4 7,195.9 Common shares - diluted (thousands) 291,677 295,832 296,461 298,558 302,141 Common shares - basic (thousands) 287,878 291,805 293,390 295,575 298,986 Financial Ratios Return on average assets 1.38 % 1.36 % 1.33 % 1.34 % 1.34 % Return on average realized shareholders' equity (5) 22.43 21.85 21.40 21.62 21.46 Return on average total shareholders' equity 17.68 16.92 16.75 17.36 17.74 Net interest margin 3.61 3.57 3.49 3.47 3.55
(1) Includes securities gains of $27.4 million for the second quarter of 2001 related to the Company's securities portfolio repositioning. (2) Includes enhancements to customer based systems of $14.7 and $7.0 million for the second and first quarters of 2001, respectively, related to the One Bank initiative. (3) Includes merger-related expenses of $2.4 million, $8.3 million, and $18.2 million for the fourth, third, and second quarters of 2000. (4) Represents the loss on the Company's early extinguishment of long-term debt during the second quarter of 2001, net of $9.6 million in taxes. (5) In this report, SunTrust presents a return on average realized shareholders' equity ratio that excludes net unrealized gains. Due to its ownership of 48 million shares of common stock of The Coca-Cola Company, SunTrust believes this measure is more indicative of its return on average shareholders' equity when comparing to other companies. 16 Consolidated Daily Average Balances, Income/Expense and Average Yields Earned and Rates Paid (Dollars in millions; yields on taxable-equivalent basis)
Quarter Ended ----------------------------------------------------------------------------------- June 30, 2001 March 31, 2001 ---------------------------------------- ------------------------------------ Average Income/ Yields/ Average Income/ Yields/ Balances Expense Rates Balances Expense Rates ----------- --------- -------- ---------- --------- ------- Assets Loans:(1) Taxable $ 68,810.9 $ 1,258.7 7.34 % $ 70,552.3 $1,385.0 7.96 % Tax-exempt(2) 1,089.6 19.8 7.28 1,102.1 20.9 7.68 ---------------------------------------- ------------------------------------ Total loans 69,900.5 1,278.5 7.34 71,654.4 1,405.9 7.96 Securities available for sale: Taxable 16,756.8 278.2 6.66 15,920.2 270.0 6.88 Tax-exempt(2) 455.9 9.4 8.27 449.6 9.4 8.44 ---------------------------------------- ------------------------------------ Total securities available for sale 17,212.7 287.6 6.70 16,369.8 279.4 6.92 Funds sold 1,176.4 13.4 4.56 1,361.1 18.9 5.64 Loans held for sale 2,829.8 51.9 7.36 1,988.3 36.5 7.45 Other short-term investments(2) 1,451.4 13.5 3.75 1,180.3 13.6 4.66 ---------------------------------------- ------------------------------------ Total earning assets 92,570.8 1,644.9 7.13 92,553.9 1,754.3 7.69 Allowance for loan losses (868.9) (896.7) Cash and due from banks 3,373.7 3,321.7 Premises and equipment 1,601.4 1,617.1 Other assets 3,955.5 3,761.5 Unrealized gains on securities available for sale 2,561.7 2,867.9 ---------------------------------------- ------------------------------------ Total assets $ 103,194.2 $ 103,225.4 ======================================== ==================================== Liabilities and Shareholders' Equity Interest-bearing deposits: NOW/Money market accounts $ 23,779.9 $ 173.1 2.92 % $ 21,172.9 $ 173.5 3.32 % Savings 6,024.8 46.4 3.09 6,251.4 56.6 3.67 Consumer time 9,217.8 123.3 5.37 9,741.0 135.7 5.65 Other time 3,829.4 52.7 5.52 4,235.1 62.1 5.95 Brokered deposits 2,265.6 26.8 4.74 2,490.3 39.2 6.38 Foreign deposits 5,751.5 62.6 4.37 8,379.7 117.2 5.67 ---------------------------------------- ------------------------------------ Total interest-bearing deposits 50,869.0 484.9 3.82 52,270.4 584.3 4.53 Funds purchased 12,367.6 125.9 4.08 11,834.6 154.4 5.29 Other short-term borrowings 1,367.1 16.0 4.68 1,724.3 24.1 5.66 Long-term debt 12,486.2 184.0 5.91 11,688.5 176.3 6.12 ---------------------------------------- ------------------------------------ Total interest-bearing liabilities 77,089.9 810.8 4.22 77,517.8 939.1 4.91 Noninterest-bearing deposits 13,491.7 13,138.2 Other liabilities 4,739.2 4,480.1 Realized shareholders' equity 6,208.8 6,264.6 Accumulated other comprehensive income 1,664.6 1,824.7 ---------------------------------------- ------------------------------------ Total liabilities and shareholders' equity $ 103,194.2 $ 103,225.4 ======================================== ==================================== Interest rate spread 2.91 % 2.78 % ---------------------------------------- ------------------------------------ Net Interest Income $ 834.1 $ 815.2 ---------------------------------------- ------------------------------------ Net Interest Margin(3) 3.61 % 3.57 % ---------------------------------------- ------------------------------------
(1) Interest income includes loan fees of $35.6, $36.0, and $32.8 million in the quarters ended June 30, March 31, 2001 and June 30, 2000, and $71.5 and 65.3 million in the six months ended June 30, 2001 and 2000. Nonaccrual loans are included in average balances and income on such loans, if recognized, is recorded on a cash basis. (2) Interest income includes the effects of taxable-equivalent adjustments (reduced by the nondeductible portion of interest expense) using a federal income tax rate of 35% and, where applicable, state income taxes, to increase tax-exempt interest income to a taxable-equivalent basis. The net taxable-equivalent adjustment amounts included in the above table aggregated $10.2, 10.4 and $9.6 million in the quarters ended June 30, March 31, 2001 and June 30, 2000 and $20.6 and $19.2 million for the six months ended June 30, 2001 and 2000. 17
Table 2 Quarter Ended Six Months Ended ---------------------------------------- ----------------------------------------------------------------------------------- June 30, 2000 June 30, 2001 June 30, 2000 ---------------------------------------- ---------------------------------------- ---------------------------------------- Average Income/ Yields/ Average Income/ Yields/ Average Income/ Yields/ Balances Expense Rates Balances Expense Rates Balances Expense Rates ----------- --------- ---------- ---------- ---------- ---------- ---------- ---------- --------- $68,789.8 $1,354.7 7.92 % $ 69,676.8 $2,643.6 7.65 % $67,382.8 $2,648.6 7.90 % 1,040.8 19.8 7.65 1,095.8 40.7 7.48 1,047.5 39.4 7.56 ---------------------------------------- ---------------------------------------- ---------------------------------------- 69,830.6 1,374.5 7.92 70,772.6 2,684.3 7.65 68,430.3 2,688.0 7.90 14,483.6 242.7 6.74 16,340.8 548.2 6.76 14,758.1 490.3 6.68 470.0 8.9 7.65 452.8 18.7 8.35 489.2 18.3 7.53 ---------------------------------------- ---------------------------------------- ---------------------------------------- 14,953.6 251.6 6.77 16,793.6 566.9 6.81 15,247.3 508.6 6.71 1,537.5 24.5 6.41 1,268.2 32.3 5.14 1,423.5 43.8 6.19 1,279.7 23.7 7.45 2,411.3 88.5 7.40 1,358.4 48.8 7.23 599.2 7.4 4.95 1,316.6 27.1 4.15 569.6 12.8 4.51 ---------------------------------------- ---------------------------------------- ---------------------------------------- 88,200.6 1,681.7 7.67 92,562.3 3,399.1 7.41 87,029.1 3,302.0 7.63 (873.8) (882.7) (874.3) 3,322.7 3,347.9 3,359.0 1,627.5 1,609.2 1,627.7 3,204.3 3,859.0 3,131.3 2,016.0 2,714.0 2,182.6 ---------------------------------------- ---------------------------------------- ---------------------------------------- $97,497.3 $ 103,209.7 $96,455.4 ======================================== ======================================== ======================================== $20,194.3 $ 155.7 3.10 % $ 22,483.6 $ 346.5 3.11 % $20,296.0 $ 301.8 2.99 % 6,449.1 55.1 3.43 6,137.5 103.0 3.38 6,554.3 108.9 3.34 10,023.1 129.4 5.19 9,478.0 259.0 5.51 9,811.5 246.0 5.04 4,024.7 58.1 5.80 4,031.1 114.8 5.74 3,890.3 107.5 5.56 2,760.9 43.9 6.40 2,377.3 66.0 5.60 2,673.0 82.3 6.20 10,162.9 148.0 5.86 7,058.3 179.8 5.14 9,884.0 298.7 6.08 ---------------------------------------- ---------------------------------------- ---------------------------------------- 53,615.0 590.2 4.43 51,565.8 1,069.1 4.18 53,109.1 1,145.2 4.34 10,268.0 154.6 6.05 12,102.6 280.3 4.67 10,366.6 297.4 5.77 1,546.9 25.7 6.67 1,544.7 40.0 5.22 1,474.5 44.6 6.09 8,070.9 132.5 6.60 12,089.6 360.3 6.01 7,511.9 244.0 6.53 ---------------------------------------- ---------------------------------------- ---------------------------------------- 73,500.8 903.0 4.94 77,302.7 1,749.7 4.56 72,462.1 1,731.2 4.80 13,251.5 13,315.9 13,099.3 3,549.0 4,610.4 3,557.9 5,948.9 6,236.5 5,986.1 1,247.1 1,744.2 1,350.0 ---------------------------------------- ---------------------------------------- ---------------------------------------- $97,497.3 $ 103,209.7 $96,455.4 ======================================== ======================================== ======================================== 2.73 % 2.85 % 2.83 % ---------------------------------------- ---------------------------------------- ---------------------------------------- $ 778.7 $1,649.4 $1,570.8 ---------------------------------------- ---------------------------------------- ---------------------------------------- 3.55 % 3.59 % 3.63 % ---------------------------------------- ---------------------------------------- ----------------------------------------
(3) Derivative instruments used to help balance SunTrust's interest-sensitivity position increased net interest income $0.8 million in the quarter ended June 30, 2000 and increased net interest income $0.1 million in the six months ended June 30, 2000. Without these swaps, the net interest margin would have been 3.55% and 3.63% in the quarter and six months ended June 30, 2000, respectively. 18 Interest Rate Risk. The normal course of business activity exposes SunTrust to interest rate risk. Fluctuations in interest rates may result in changes in the fair market value of the Company's financial instruments, cash flows and net interest income. SunTrust's asset/liability management process manages the Company's interest rate risk position. The objective of this process is the optimization of the Company's financial position, liquidity and net interest income, while limiting the volatility to net interest income from changes in interest rates. SunTrust uses a simulation modeling process to measure interest rate risk and evaluate potential strategies. These simulations incorporate assumptions regarding balance sheet growth and mix, pricing, and the repricing and maturity characteristics of the existing and projected balance sheet. Other interest-rate-related risks such as prepayment, basis and option risk are also considered. Simulation results quantify interest rate risk under various interest rate scenarios. Senior management regularly reviews the overall interest rate risk position and develops and implements strategies to manage the risk. Management estimates the Company's net interest income for the next twelve months would decline 1.0% under a gradual increase in interest rates of 100 basis points, versus the projection under stable rates. Net interest income would increase by 0.4% under a gradual decrease in interest rates of 100 basis points, versus the projection under stable rates. The projections of interest rate risk do not necessarily include certain actions that management may undertake to manage this risk in response to anticipated changes in interest rates. Net Interest Income/Margin. SunTrust's net interest margin was 3.59% for the first six months of 2001, a decrease of 4 basis points from the first six months of 2000. The decrease is primarily attributable to interest expense to fund purchases under the SunTrust stock repurchase program. Compared to the first six months of 2000, the rate on earning assets decreased 22 basis points to 7.41% in the first six months of 2001 and the rate on interest bearing liabilities decreased 24 basis points to 4.56% primarily due to the declining interest rate environment. As part of its on-going balance sheet management, the Company continues to take steps to obtain alternative lower cost funding sources such as developing initiatives to grow retail deposits to maximize net interest income throughout 2001. During the first quarter of 2001, the Company initiated a campaign to attract money market accounts. Average money market accounts have grown from $12.1 billion for the second quarter of 2000 to $15.4 billion for the second quarter of 2001. Additionally, the Company took advantage of the lower interest rate environment by repositioning its balance sheet. The sale of $1.0 billion of investment securities generated a gain of $27.4 million, and a pre-tax loss of $27.4 million was incurred in retiring $1.3 billion of higher cost funding and replacing it with $1.3 billion of new long-term funding at lower rates. This initiative extended the maturity of the debt by 3.0 years and reduced funding cost by 163 basis points while reducing the average life of the investment portfolio. The Company will consider future repositioning opportunities as the interest rate environment permits. Interest income that SunTrust was unable to recognize on nonperforming loans had a negative impact of two basis points on the net interest margin in both the first six months of 2001 and 2000. Noninterest Income. Noninterest income in the second quarter of 2001 increased $77.8 million, or 17.5% from the comparable period last year. The increase is due in part to $27.4 million of securities gains recorded by the Company repositioning the balance sheet. Mortgage production related income increased $32.5 million, or 158.7%, due to the high volume of refinancing activity continuing in the second quarter of 2001 as a result of the lower interest rate environment. Also associated with the high volume of refinancing activity, mortgage servicing related income decreased $10.4 million, or 134.9%, due to accelerated amortization of mortgage servicing rights related to increased prepayments. Service charges on deposits and other charges and fees increased a 19 combined $20.2 million, or 12.4% over the second quarter of 2000. Increased usage of products and services, a more consistent pricing strategy and a lower earnings credit rate resulted in the increase in these income items. Included in credit card and other fees is debit card interchange income of $15.0 million for the second quarter of 2001 compared to $11.8 million in the same period of 2000. Trust income, SunTrust's largest source of noninterest income, increased 0.4% compared to the first quarter of 2001 while declining 1.3% on a year-to-date basis. Fee income was adversely impacted as the market value of discretionary assets declined. Discretionary trust assets as of June 30, 2001 were $91.7 billion compared to $ 91.6 billion at December 31, 2000 and $92.8 billion at June 30, 2000. Offsetting the market value decline in managed assets was quarter-to-date and year-to-date net inflows from net new business. Revenues from new business for the second quarter of 2001 were improved compared to the first quarter of 2001, while remaining constant on a year-to-date basis. Estimated revenues lost from closed business remained constant for the second and first quarters of 2001 while improving on a year-to-date basis. Trading account profits and commissions increased $26.3 million, or 1,826.4%, over the second quarter of 2000 while investment banking income decreased $15.9 million, or 45.0%, over the same period. The changes in these line items are indicative of the continued volatility seen in the equity market, as well as the changing interest rate environment throughout the first six months of 2001. Trading account profits are primarily generated from the sale of derivative products to customers. Other income included net gains on the sale of student loans of $1.3 million and $2.6 million in the second quarter of 2001 and 2000, respectively.
Noninterest Income Table 3 (In millions) Quarters ---------------------------------------------------------------- 2001 2000 ---------------------- --------------------------------------- 2 1 4 3 2 ---------- ----------- ----------- ----------- ----------- Trust income $ 124.8 $ 124.3 $ 121.4 $ 120.2 $ 123.7 Service charges on deposit accounts 125.6 120.0 118.9 116.9 112.6 Other charges and fees 57.5 55.6 55.1 56.3 50.4 Mortgage production related income 53.0 31.7 27.1 23.8 20.5 Mortgage servicing related income (2.7) 6.7 9.5 7.9 7.7 Credit card and other fees 30.0 25.6 24.9 24.2 24.4 Retail investment services 27.3 24.8 22.8 24.0 30.5 Trading account profits and commissions 24.9 29.7 16.3 4.9 (1.4) Investment banking income 19.4 14.1 20.3 36.0 35.3 Other income 34.3 36.3 30.5 33.6 38.8 Securities gains (losses) 27.7 57.1 (1.2) (0.6) 1.5 ---------- ----------- ----------- ----------- ----------- Total noninterest income $ 521.8 $ 525.9 $ 445.6 $ 447.2 $ 444.0 ========== =========== =========== =========== ===========
20 Noninterest Expense. Noninterest expense increased $44.1 million, or 6.1% in the second quarter of 2001 compared to the same period last year. Personnel expenses, consisting of salaries, other compensation and employee benefits, increased $24.9 million, or 6.1% from the earlier period. The majority of this increase was a $24.2 million, or 33.1%, growth in other compensation due to increased incentive payments related to mortgage production. Also contributing to the $44.1 million increase was $14.7 million recorded in the second quarter of 2001 related to the Company's One Bank initiative. The One Bank initiative is for enhancements to customer based systems across its geographic footprint and is expected to yield operating efficiencies in the future. Combined salaries and employee benefits increased $5.8 million and consulting and legal increased $7.5 million due to the One Bank initiative. Amortization of intangible assets increased $12.7 million during the second quarter of 2001 as a result of the write-off of the remaining goodwill associated with SunTrust Credit Corporation, due to the sale of the assets and liabilities of the company. The $33.9 million increase in other expenses compared to the second quarter of 2000 is due in part to servicing income of approximately $3.9 million from MBNA America Bank, N.A. on the sold credit card portfolio recorded as a reduction to other expenses in the second quarter of 2000. Additional expenses of approximately $4.7 million associated with the sale of the assets and liabilities of SunTrust Credit Corporation contributed to the increase in the other expense line item. In the second quarter of 2000, merger-related expenses were primarily related to accelerated depreciation and miscellaneous integration costs. There were no additional merger-related expenses in 2001. The efficiency ratio improved from 58.9% in the second quarter of 2000 to 56.3% in the second quarter of 2001 due to the Company's continued focus on efficiency and cost control projects.
Noninterest Expense Table 4 (In millions) Quarters ----------------------------------------------------------------- 2001 2000 ----------------------- -------------------------------------- 2 1 4 3 2 --------- ---------- ----------- ----------- ---------- Salaries $ 285.8 $ 286.0 $ 282.0 $ 278.5 $ 292.1 Other compensation 97.3 90.3 89.3 82.9 73.1 Employee benefits 48.4 56.7 37.2 39.5 41.4 Net occupancy expense 51.8 50.0 50.7 51.9 49.9 Outside processing and software 45.3 45.1 43.9 42.4 44.4 Equipment expense 44.3 44.5 44.2 47.2 50.7 Marketing and customer development 23.0 23.0 30.7 25.3 27.9 Amortization of intangible assets 21.0 8.3 8.8 8.9 8.8 Consulting and legal 20.6 9.7 13.2 16.4 18.2 Credit and collection services 18.0 13.6 12.4 14.2 16.0 Postage and delivery 15.8 16.2 14.9 15.4 16.3 Communications 14.1 13.3 14.2 15.0 15.4 Operating supplies 11.4 11.3 11.2 11.3 12.6 FDIC premiums 3.9 3.9 2.8 2.8 2.8 Merger-related expenses - - 2.4 8.3 18.2 Other real estate income (3.1) (0.7) (2.3) (0.4) (0.3) Other expense 66.2 71.5 42.3 47.0 32.3 --------- ---------- ----------- ----------- ---------- Total noninterest expense $ 763.8 $ 742.7 $ 697.9 $ 706.6 $ 719.8 ========= ========== =========== =========== ========== Efficiency ratio 56.3 % 55.4 % 56.2 % 57.5 % 58.9 %
21 Provision for Loan Losses. The SunTrust Allowance for Loan Losses Committee meets at least quarterly to affirm the allowance methodology, analyze provision and charge-off trends and assess the adequacy of the allowance. The allowance analysis is based on specifically analyzed loans, historical loss rates and other internal and external factors that affect credit risk. These other factors consider variables such as the interest rate environment, corporate and consumer debt levels, volatility in the financial markets, and known events that affect the economies of the Company's primary market area. These factors are key elements in the assessment of the adequacy of the allowance because of their impact on borrowers' repayment capacity. Provision for loan losses totaled $39.6 million in the second quarter of 2001, compared to $27.7 million in the second quarter of 2000. The increase in provision expense was due primarily to an increase in net charge-offs from $27.2 million in the second quarter of 2000 to $38.8 million in the second quarter of 2001. During the second quarter of 2001, SunTrust continued its practice of proactive problem loan management by selling several nonperforming loans. Through these loan sales, the Company was able to reduce its level of nonperformers in the asbestos-related and agribusiness industries. Write-downs associated with the three largest nonperforming loan sales totaled $14.6 million and were the main cause of higher second quarter 2001 net charge-offs. The second quarter 2001 net charge-off ratio was 0.22%, up from 0.16% for the same period last year. Management's expectation is for slightly higher net charge-offs for the second half of the year. At June 30, 2001, SunTrust's allowance for loan losses totaled $866.1 million, or 1.26% of quarter-end loans and 210.6% of total nonperforming loans. These figures were $874.5 million, 1.22% and 309.6%, respectively at June 30, 2000. The allowance to quarter-end loans ratio increased from the second quarter of 2000 due to lower outstanding loans at the end of the most recent period. As a result of the sale of the assets and liabilities of SunTrust Credit Corporation, the Company transferred $6.7 million in allowance for loan losses related to approximately $390.1 million in loans that were sold. The quarter to quarter decrease in the allowance to nonperforming loan ratio was the result of a 45.5% growth in nonperforming loans. 22
Summary of Loan Loss Experience Table 5 (Dollars in millions) Quarters ------------------------------------------------------------------------------------- 2001 2000 ------------------------------- --------------------------------------------------- 2 1 4 3 2 ------------- -------------- ---------------- -------------- -------------- Allowance for Loan Losses Balances - beginning of quarter $ 872.0 $ 874.5 $ 874.5 $ 874.5 $ 874.0 Allowance from acquisitions and other activity - net (6.7) (3.5) (0.1) - - Provision for loan losses 39.6 67.3 53.5 30.5 27.7 Charge-offs: Commercial (30.5) (56.8) (47.0) (28.7) (23.5) Real estate: Construction 0.5 (0.6) - - (0.1) Residential mortgages (3.6) (2.3) (1.8) (1.6) (2.2) Other 0.2 (1.0) (1.0) (1.2) (0.9) Business credit card (0.4) (0.5) (1.6) (1.7) (0.9) Consumer loans (19.4) (18.2) (15.7) (13.9) (12.6) ------------- -------------- ---------------- -------------- -------------- Total charge-offs (53.2) (79.4) (67.1) (47.1) (40.2) ------------- -------------- ---------------- -------------- -------------- Recoveries: Commercial 7.8 4.6 4.9 8.5 4.6 Real estate: Construction 0.1 0.2 - 0.3 - Residential mortgages 0.5 0.5 1.1 0.9 0.7 Other (0.6) 1.4 1.3 0.6 0.2 Business credit card 0.5 0.4 0.5 0.5 0.6 Consumer loans 6.1 6.0 5.9 5.8 6.9 ------------- -------------- ---------------- -------------- -------------- Total recoveries 14.4 13.1 13.7 16.6 13.0 ------------- -------------- ---------------- -------------- -------------- Net charge-offs (38.8) (66.3) (53.4) (30.5) (27.2) -------------- -------------- ---------------- -------------- -------------- Balance - end of quarter $ 866.1 $ 872.0 $ 874.5 $ 874.5 $ 874.5 ============= ============== ================ ============== ============== Quarter-end loans outstanding $ 68,938.2 $ 70,360.1 $ 72,239.8 $ 72,113.6 $ 71,450.4 Average loans 69,900.5 71,654.4 71,774.6 71,506.9 69,830.6 Allowance to quarter-end loans 1.26 % 1.24 % 1.21 % 1.21 % 1.22 % Allowance to nonperforming loans 210.6 250.1 215.8 229.6 309.6 Net charge-offs to average loans (annualized) 0.22 0.38 0.30 0.17 0.16 Provision to average loans (annualized) 0.23 0.38 0.30 0.17 0.16 Recoveries to total charge-offs 27.1 16.5 20.4 35.2 32.3
23
Nonperforming Assets Table 6 (Dollars in millions) 2001 2000 -------------------- ------------------------------------- June 30 March 31 December 31 September 30 June 30 ------- -------- ----------- ------------ ------- Nonperforming Assets Nonaccrual loans: Commercial $ 292.9 $ 210.5 $ 273.6 $ 270.4 $ 149.1 Real Estate: Construction 2.3 2.1 2.2 2.5 1.8 Residential mortgages 56.6 83.3 81.8 65.1 75.6 Other 38.2 32.8 29.0 23.9 27.4 Consumer loans 21.1 20.0 18.7 19.0 28.6 ------- -------- ----------- ------------ --------- Total nonaccrual loans 411.1 348.7 405.3 380.9 282.5 Restructured loans - - - - - ------- -------- ----------- ------------ --------- Total nonperforming loans 411.1 348.7 405.3 380.9 282.5 Other real estate owned 20.3 20.6 23.0 23.6 23.2 ------- -------- ----------- ------------ --------- Total nonperforming assets $ 431.4 $ 369.3 $ 428.3 $ 404.5 $ 305.7 ======= ======== =========== ============ ========= Ratios: Nonperforming loans to total loans 0.60 % 0.50 % 0.56 % 0.53 % 0.40 % Nonperforming assets to total loans plus other real estate owned 0.63 0.52 0.59 0.56 0.43 Accruing Loans Past Due 90 Days or More $ 211.8 $ 223.7 $ 181.2 $ 150.8 $ 189.4
Nonperforming Assets. Nonperforming assets, which consist of nonaccrual loans, restructured loans and other real estate owned, increased $125.7 million, or 41.1%, from June 30, 2000 to June 30, 2001. Much of the increase can be attributed to the continued economic slowdown that has occurred in a diverse mix of industries, including textiles, agribusiness and transportation, along with companies impacted by asbestos litigation. The economic slowdown has led to an increase in several large corporations declaring bankruptcy this year. The increase in nonperforming loans from the quarter-ended March 31, 2001 is primarily due to the bankruptcies of two borrowers during the second quarter of 2001 totaling $100.9 million, partially offset by the sales of nonperforming loans. Given the continued weakness in the economy, management anticipates modest increases in nonperforming assets during the remainder of the year. Interest income on nonaccrual loans, if recognized, is recorded using the cash basis method of accounting. During the first six months of 2001, this amounted to $9.4 million. Interest income of $12.2 million would have been recorded if all nonaccrual and restructured loans had been accruing interest according to their original contract terms. 24
Loan Portfolio by Types of Loans Table 7 (In millions) 2001 2000 ------------------------------- --------------------------------------------------- June 30 March 31 December 31 September 30 June 30 ------------- -------------- --------------- --------------- --------------- Commercial $ 29,156.1 $ 30,583.3 $ 30,781.1 $ 30,821.6 $ 30,209.5 Real estate: Construction 3,773.5 3,631.0 2,966.1 2,884.3 2,647.2 Residential mortgages 17,536.8 17,706.6 19,953.0 20,557.4 20,295.0 Other 7,761.4 7,693.9 8,121.4 7,960.6 7,851.5 Business credit card 86.2 82.6 76.8 79.3 75.4 Consumer loans 10,624.2 10,662.7 10,341.4 9,810.4 10,371.8 ------------- -------------- --------------- --------------- --------------- Total loans $ 68,938.2 $ 70,360.1 $ 72,239.8 $ 72,113.6 $ 71,450.4 ============= ============== =============== =============== ===============
Loans. Total loans at June 30, 2001 were $68.9 billion, a decrease of $2.6 billion or 3.6% from June 30, 2000. The Company recorded a decline in commercial loans, down 3.5% from June 30, 2000, while recognizing significant loan growth in its real estate construction portfolio, up 42.5% primarily in commercial construction. Residential real estate declined 13.6% from June 30, 2000 due to the Company's securitizations of $2.8 billion in residential mortgages in the fourth quarter of 2000 and first quarter of 2001. Of the $17.5 billion in residential mortgages at June 30, 2001, $2.3 billion were home equity loans, which demonstrated growth of 11.6% over the last twelve months. Income Taxes. The provision for income taxes was $177.3 million and $360.5 million for the second quarter and first six months of 2001 compared to $148.1 million and $321.5 million in the same periods last year, respectively. The effective tax rate was 35% for the six months ended June 30, 2001 and 2000. In addition to the second quarter of 2001 provision, the Company recorded an income tax benefit of $9.6 million related to the early extinguishment of debt. The extraordinary loss on the consolidated financial statements is shown net of this amount. Securities available for sale. The investment portfolio is managed to optimize yield over an entire interest rate cycle while providing liquidity and managing market risk. At June 30, 2001, approximately 2% of the portfolio consisted of U.S. Treasury securities, 12% U.S. government agency securities, 55% mortgage-backed securities, 11% asset-backed securities, 13% corporate bonds, 3% municipal securities and 4% other securities. Most of SunTrust's holdings in mortgage-backed securities are backed by U.S. government or federal agency guarantees thus limiting the credit risk associated with the mortgage loans. During the second quarter of 2001, the Company repositioned the balance sheet resulting in a realized securities gain of $27.4 million. This gain was fully offset by a $27.4 million loss from the early extinguishment of higher cost debt, allowing the Company to reduce future interest expense and lengthen the average maturity of its market borrowings. In conjunction with the balance sheet repositioning during the second quarter of 2001, the Company reduced market risk by shrinking the investment portfolio's size and shortening its average life. The portfolio size decreased by $1.7 billion, on an amortized cost basis, from March 31, 2001 to June 30, 2001 and the average life shortened from 4.8 years to 4.2 years over the same period. The average portfolio yield decreased from 6.92% in the first quarter of 2001 to 6.70% in the second quarter of 2001, primarily from lower reinvestment rates. 25 The carrying value of the securities portfolio, all of which is classified as "Securities available for sale" reflected $2.6 billion in net unrealized gains at June 30, 2001, including a $2.2 billion unrealized gain on SunTrust's investment in common stock of The Coca-Cola Company. The unrealized market gain on the investment portfolio, excluding the Company's investment in the common stock of The Coca-Cola Company, improved by $45.2 million from March 31, 2001 to June 30, 2001. The market value of the common stock of The Coca-Cola Company decreased $7.7 million during the second quarter of 2001, which did not affect the net income of SunTrust, but was included in comprehensive income. Liquidity Management. Liquidity is managed to ensure there is sufficient funding to satisfy demand for credit, deposit withdrawals and attractive investment opportunities. A large, stable core deposit base, strong capital position and excellent credit ratings are the solid foundation for the Company's liquidity position. Funding sources primarily include customer-based core deposits, but also include borrowed funds and cash flows from operations. Customer-based core deposits, the Company's largest and most cost-effective source of funding, accounted for 62% of the funding base on average for the second quarter of 2001 compared to 60% in the first quarter of 2001 and 62% in the second quarter of 2000. Net borrowed funds, which primarily include short-term funds purchased and sold, wholesale domestic and foreign deposits, other short term borrowings and long term debt, were $30.6 billion at June 30, 2001, compared with $34.3 billion at March 31, 2001 and $32.3 billion at June 30, 2000. Cash flows from operations are also a significant source of liquidity. Net cash from operations primarily results from net income adjusted for noncash items such as depreciation and amortization, provision for loan losses, and deferred tax items. Liquidity is strengthened by ready access to a diversified base of wholesale funding sources. These sources include fed funds purchased, securities sold under agreements to repurchase, negotiable certificates of deposit, offshore deposits, Federal Home Loan Bank advances, Global Bank Note issuance, and commercial paper issuance by the Parent Company. Liquidity is also available through unpledged securities in the investment portfolio and the securitization of loans. During the second quarter of 2001, the Company reduced reliance on shorter-term purchased funds by issuing longer-term large CD's. The Company also extended Federal Home Loan Bank advance maturities through the early extinguishment of shorter-term advances and replacing them with longer-term advances. This was done in conjunction with the investment portfolio repositioning that took place in the second quarter of 2001, as described under Securities Available for Sale. The Company has a contingency funding plan that stress tests liquidity needs that may arise from certain events such as rapid loan growth or significant deposit runoff. The plan also provides for continual monitoring of net borrowed funds dependence and available sources of liquidity. Management believes the Company has the funding capacity to meet the liquidity needs arising from potential events. 26 Derivatives. Derivative financial instruments, such as interest rate swaps, options, caps, floors, futures, forward contracts and credit derivatives, are components of the Company's risk management profile. The Company also enters into derivative instruments as a service to banking customers. Where contracts have been created for customers, the Company generally enters into offsetting positions to eliminate the Company's exposure to market risk. The Company monitors its sensitivity to changes in interest rates and may use derivative instruments to hedge this risk. Prior to the adoption of SFAS 133, certain interest rate swaps were classified as hedges and recorded in the margin using the accrual method of accounting. The related market value of the derivative was accounted for off-balance sheet. These interest rate swap accruals increased net interest income by $0.1 million in the first six months of 2000. On January 1, 2001, the Company adopted SFAS 133. Accordingly, all derivatives are recorded in the financial statements at fair value. Certain derivatives are classified as trading assets and liabilities. Additional trading income of $0.1 million and $3.0 million was recorded in the second quarter and first six months of 2001, respectively, to adjust the value of these interest rate swaps to their current market value. The following table shows the derivative instruments entered into by the Company as an end-user.
Derivative Instruments Table 8 (Dollars in thousands) As of June 30, 2001 ---------------------------------------------------------------------------------------- Estimated Fair Value -------------------------------------- Weighted Average Average Notional Maturity Received Average Unrealized Unrealized Balance In Months Rate Pay Rate Gains Losses Net ---------------------------------------------------------------------------------------- Mortgage Lending Commitments Forward Contracts $ 4,375,329 2 - % - % $ 38 $ (21,552) $ (21,514) Interest Rate Lock Commitments 2,408,858 2 - - 3,021 (3,568) (547) Option Contracts 40,000 2 5.00 (1) - 194 - 194 ------------ -------------------------------------- Total Mortgage Related Derivatives 6,824,187 3,253 (25,120) (21,867) Foreign Currency Forward Contracts 1,263,707 7 - - 15,600 (14,505) 1,095 Interest Rate Swaps 4,932,262 30 4.55 5.39 41,231 (52,494) (11,263) Interest Rate Caps/Floors 750,000 15 5.11 (1) - 4,325 - 4,325 Futures Contracts 170,000 15 - - 62 (164) (102) Euro Dollar Options 400,000 15 - - 125 (88) 37 Equity Collar 56,081 21 (2) - - - (3,593) (3,593) Credit Derivatives 54,250 40 - - - - - ------------ ------------ Total Derivatives $14,450,487 $ (31,368) ============ ============
(1) Average option strike price. (2) Option expiration. 27
Capital Ratios Table 9 (Dollars in millions) 2001 2000 ------------------------- --------------------------------------------- June 30 March 31 December 31 September 30 June 30 ---------- ----------- ------------ ------------ ---------- Tier 1 capital $ 6,906.6 $ 6,760.5 $ 6,850.6 $ 6,677.4 $ 6,648.7 Total capital 10,652.0 10,507.1 10,488.9 10,216.1 10,342.7 Risk-weighted assets 97,005.9 98,690.0 96,656.7 95,183.9 95,571.5 Risk-based ratios: Tier 1 capital 7.12 % 6.85 % 7.09 % 7.02 % 6.95 % Total capital 10.98 10.65 10.85 10.73 10.82 Tier 1 leverage ratio 6.90 6.77 6.98 6.92 7.00 Total shareholders' equity to assets 7.81 7.55 7.95 7.64 7.58
Capital Resources. Regulatory agencies measure capital adequacy within a framework that makes capital requirements sensitive to the risk profiles of individual banking companies. The guidelines define capital as either Tier 1 (primarily common shareholders' equity, as defined to include certain debt obligations) or Tier 2 (to include certain other debt obligations and a portion of the allowance for loan losses and since 1998, 45% of the unrealized gains on equity securities). The Company is subject to a minimum Tier 1 capital ratio (Tier 1 capital to risk-weighted assets) of 4%, total capital ratio (Tier 1 plus Tier 2 to risk-weighted assets) of 8% and Tier 1 leverage ratio (Tier 1 to average quarterly assets) of 3%. To be considered a "well capitalized" institution, the Tier 1 capital ratio, the total capital ratio, and the Tier 1 leverage ratio must equal or exceed 6%, 10% and 5%, respectively. SunTrust is committed to remaining well capitalized. The Company raised $100 million of regulatory capital during 2000 through the sale of preferred shares issued by a real estate investment trust subsidiary. In the first quarter of 2001, the Company raised an additional $500 million of regulatory capital through the issuance of subordinated debt under the Global Bank Note program. On February 8, 2000, the Board of Directors authorized the purchase of up to 12 million shares of SunTrust common stock. As of December 31, 2000, 10.1 million shares had been purchased under this authorization. On August 8, 2000, the Board of Directors authorized the purchase of up to 10 million shares of SunTrust common stock (including 1.9 million shares still remaining unpurchased under the authorization to purchase shares of February 8, 2000). As of June 30, 2001, the Company had purchased 8.2 million shares of common stock under the August 8, 2000 authorization. On June 13, 2001, the Board of Directors authorized the purchase of up to 5 million shares of SunTrust common stock. This authorization was in addition to the 1.8 million shares remaining under the August 8, 2000 authorization to purchase shares. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company believes that there have not been any material changes in quantitative and qualitative information about market risk since year-end 2000. 28 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized this 9th day of August, 2001. SunTrust Banks, Inc. -------------------- (Registrant) /s/ William P. O'Halloran ------------------------------------ William P. O'Halloran Senior Vice President and Controller (Chief Accounting Officer) 29