10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the Quarterly Period Ended June 30, 2003

Commission File Number 1-8918

SUNTRUST BANKS, INC.

(Exact name of registrant as specified in its charter)

Georgia	58-1575035
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer 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  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Act.)    Yes  x    No  ¨

At July 31, 2003, 281,485,407 shares of the Registrant’s Common Stock, $1.00 par value, were outstanding.

1

TABLE OF CONTENTS

			Page
PART I FINANCIAL INFORMATION
	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	7-19
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20-47
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	47
	Item 4.	Controls and Procedures	47
PART II OTHER INFORMATION
	Item 1.	Legal Proceedings	47
	Item 2.	Changes in Securities	47
	Item 3.	Defaults Upon Senior Securities	47
	Item 4.	Submission of Matters to a Vote of Security Holders	47-48
	Item 5.	Other Information	48
	Item 6.	Exhibits and Reports on Form 8-K	48
SIGNATURES			48

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 only of normal recurring accruals) considered necessary for a fair statement have been included. Operating results for the three and six months ended June 30, 2003 are not necessarily indicative of the results that may be expected for the full year 2003.

2

Consolidated Statements of Income

(Dollars in thousands except per share data) (Unaudited)	Three Months Ended June 30					Six Months Ended June 30
	2003			2002		2003			2002
Interest Income
Interest and fees on loans	$	899,817		$	1,004,080	$	1,812,088		$	1,994,323
Interest and fees on loans held for sale		108,432			57,427		219,448			124,993
Interest and dividends on securities available for sale
Taxable interest		135,153			195,724		298,233			400,219
Tax-exempt interest		4,668			5,443		9,533			11,054
Dividends1		16,919			15,186		35,141			31,838
Interest on funds sold and securities purchased under agreements to resell		4,376			6,599		8,964			11,851
Interest on deposits in other banks		34			1,491		67			3,002
Other interest		4,641			6,002		8,687			12,261
Total interest income		1,174,040			1,291,952		2,392,161			2,589,541
Interest Expense
Interest on deposits		211,012			283,562		431,169			584,582
Interest on funds purchased and securities sold under agreements to repurchase		29,837			34,123		62,298			69,657
Interest on other short-term borrowings		1,759			3,349		3,876			8,142
Interest on long-term debt		131,919			157,530		272,835			315,666
Total interest expense		374,527			478,564		770,178			978,047
Net Interest Income		799,513			813,388		1,621,983			1,611,494
Provision for loan losses		82,662			111,018		163,465			274,593
Net interest income after provision for loan losses		716,851			702,370		1,458,518			1,336,901
Noninterest Income
Service charges on deposit accounts		157,954			153,791		315,775			299,767
Trust and investment management income		124,215			132,171		245,010			261,258
Retail investment services		41,991			37,331		79,459			68,617
Other charges and fees		82,574			75,557		160,845			145,946
Mortgage production		82,148			2,954		120,952			8,775
Mortgage servicing		(80,122	)		807		(127,146	)		(5,525	)
Investment banking income		57,167			52,779		90,979			97,603
Trading account profits and commissions		29,583			24,233		60,376			49,891
Credit card and other fees		32,376			31,383		61,049			62,610
Other noninterest income		37,668			34,944		63,875			84,091
Securities gains		31,238			55,737		73,277			119,187
Total noninterest income		596,792			601,687		1,144,451			1,192,220
Noninterest Expense
Salaries and other compensation		386,439			394,293		761,446			763,763
Employee benefits		96,160			72,488		194,878			163,243
Net occupancy expense		58,563			55,927		116,285			109,937
Outside processing and software		61,022			53,989		118,076			108,258
Equipment expense		44,546			43,204		88,016			86,952
Marketing and customer development		25,583			18,244		50,462			43,439
Amortization of intangible assets		15,208			17,456		31,925			23,988
Merger-related expenses		—			—		—			15,998
Other noninterest expense		150,207			138,381		294,869			291,283
Total noninterest expense		837,728			793,982		1,655,957			1,606,861
Income before provision for income taxes		475,915			510,075		947,012			922,260
Provision for income taxes		145,556			166,390		288,805			273,694
Net Income	$	330,359		$	343,685	$	658,207		$	648,566
Average common shares—diluted		280,287,081			287,288,121		280,805,512			287,331,454
Average common shares—basic		277,397,029			283,293,239		278,010,748			283,671,819
Net income per average common share—diluted	$	1.17		$	1.20	$	2.34		$	2.26
Net income per average common share—basic		1.19			1.22		2.37			2.29
1 Includes dividends on common stock of The Coca-Cola Company		10,618			9,654		21,237			19,307

See notes to consolidated financial statements

3

Consolidated Balance Sheets

(Dollars in thousands) (Unaudited)	June 30 2003			December 31 2002
Assets
Cash and due from banks	$	4,098,009		$	4,455,776
Interest-bearing deposits in other banks		8,701			10,238
Funds sold and securities purchased under agreements to resell		2,151,606			1,092,281
Trading assets		2,122,225			1,717,774
Securities available for sale1		22,211,036			23,445,182
Loans held for sale		9,037,490			7,747,793
Loans		75,261,756			73,167,935
Allowance for loan losses		(940,889	)		(930,114	)
Net loans		74,320,867			72,237,821
Premises and equipment		1,573,382			1,607,200
Goodwill		1,059,720			963,761
Other intangible assets		616,137			612,158
Customers’ acceptance liability		84,980			45,594
Other assets		3,573,146			3,386,945
Total assets	$	120,857,299		$	117,322,523
Liabilities and Shareholders’ Equity
Noninterest-bearing consumer and commercial deposits	$	19,077,066		$	18,080,496
Interest-bearing consumer and commercial deposits		52,055,755			52,146,314
Total consumer and commercial deposits		71,132,821			70,226,810
Brokered deposits		3,207,876			3,169,826
Foreign deposits		2,934,963			6,309,992
Total deposits		77,275,660			79,706,628
Funds purchased and securities sold under agreements to repurchase		15,089,770			10,402,536
Other short-term borrowings		995,147			1,368,425
Long-term debt		10,339,592			10,229,820
Guaranteed preferred beneficial interests in debentures		1,650,000			1,650,000
Acceptances outstanding		84,980			45,594
Trading liabilities		1,179,121			930,645
Other liabilities		5,064,326			4,219,379
Total liabilities		111,678,596			108,553,027
Preferred stock, no par value; 50,000,000 shares authorized; none issued		—			—
Common stock, $1.00 par value		294,163			294,163
Additional paid in capital		1,288,657			1,276,110
Retained earnings		6,727,923			6,322,217
Treasury stock, at cost, and other		(696,517	)		(632,464	)
Realized shareholders’ equity		7,614,226			7,260,026
Accumulated other comprehensive income		1,564,477			1,509,470
Total shareholders’ equity		9,178,703			8,769,496
Total liabilities and shareholders’ equity	$	120,857,299		$	117,322,523
Common shares outstanding		281,392,725			282,504,571
Common shares authorized		750,000,000			750,000,000
Treasury shares of common stock		12,770,032			11,658,186
1 Includes net unrealized gains on securities available for sale	$	2,474,229		$	2,421,562

See notes to consolidated financial statements

4

Consolidated Statements of Cash Flows

(Dollars in thousands) (Unaudited)	Six Months Ended June 30
	2003			2002
Cash Flows from Operating Activities:
Net income	$	658,207		$	648,566
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion		479,676			238,252
Origination of mortgage servicing rights		(155,373	)		(94,943	)
Provisions for loan losses and foreclosed property		163,781			274,890
Amortization of compensation element of restricted stock		2,709			2,887
Securities gains		(73,277	)		(119,187	)
Net gain on sale of assets		(7,892	)		(5,393	)
Originated loans held for sale		(23,809,704	)		(10,647,073	)
Sales of loans held for sale		22,520,003			11,453,715
Net increase in accrued interest receivable, prepaid expenses, trading and other assets		(702,770	)		(716,506	)
Net increase in accrued interest payable, accrued expenses, trading and other liabilities		1,484,394			73,791
Net cash provided by operating activities		559,754			1,108,999
Cash Flows from Investing Activities:
Proceeds from maturities of securities available for sale		6,063,195			2,316,860
Proceeds from sales of securities available for sale		3,145,453			3,785,701
Purchases of securities available for sale		(7,902,918	)		(5,700,770	)
Net increase in loans		(1,930,972	)		(850,908	)
Proceeds from sale of loans		128,687			377,277
Capital expenditures		(47,926	)		(65,791	)
Proceeds from the sale of other assets		15,459			14,135
Loan recoveries		38,148			32,110
Net cash proceeds (used for) received from acquisitions, net of cash acquired		(34,261	)		1,160,333
Net cash (used in) provided by investing activities		(525,135	)		1,068,947
Cash Flows from Financing Activities:
Net increase (decrease) in consumer and commercial deposits		608,532			(812,828	)
Net (decrease) increase in foreign and brokered deposits		(3,450,959	)		539,757
Net increase (decrease) in funds purchased and other short-term borrowings		4,137,194			(1,311,289	)
Proceeds from the issuance of long-term debt		9,506			551,245
Repayment of long-term debt		(256,266	)		(1,245,844	)
Proceeds from the exercise of stock options and stock compensation expense		8,983			5,465
Proceeds from stock issuance		26,901			23,858
Acquisition of treasury stock		(165,988	)		(86,711	)
Restricted stock activity		—			(1,995	)
Dividends paid		(252,501	)		(245,805	)
Net cash provided by (used in) financing activities		665,402			(2,584,147	)
Net increase (decrease) in cash and cash equivalents		700,021			(406,201	)
Cash and cash equivalents at beginning of year		5,558,295			5,910,044
Cash and cash equivalents at end of period	$	6,258,316		$	5,503,843
Supplemental Disclosure
Interest paid	$	795,983		$	1,005,819
Income taxes paid		81,499			104,150

See notes to consolidated financial statements.

5

Consolidated Statements of Shareholders’ Equity

(Dollars in thousands) (Unaudited)	Common Stock		Additional Paid in Capital			Retained Earnings			Treasury Stock and Other*			Accumulated Other Comprehensive Income			Total
Balance, January 1, 2002	$	294,163	$	1,259,609		$	5,479,951		$	(329,408	)	$	1,655,253		$	8,359,568
Net income		—		—			648,566			—			—			648,566
Other comprehensive income:
Change in unrealized gains (losses) on derivatives, net of taxes		—		—			—			—			552			552
Change in unrealized gains (losses) on securities, net of taxes		—		—			—			—			289,893			289,893
Total comprehensive income		—		—			—			—			—			939,011
Cash dividends declared, $0.86 per share		—		—			(245,805	)		—			—			(245,805	)
Exercise of stock options		—		(4,475	)		—			9,940			—			5,465
Acquisition of treasury stock		—		—			—			(86,711	)		—			(86,711	)
Restricted stock activity		—		(2,633	)		—			638			—			(1,995	)
Amortization of compensation element of restricted stock		—		20,224			—			(17,337	)		—			2,887
Issuance of stock for employee benefit plans		—		4,108			—			19,750			—			23,858
Balance, June 30, 2002	$	294,163	$	1,276,833		$	5,882,712		$	(403,128	)	$	1,945,698		$	8,996,278
Balance, January 1, 2003	$	294,163	$	1,276,110		$	6,322,217		$	(632,464	)	$	1,509,470		$	8,769,496
Net income		—		—			658,207			—			—			658,207
Other comprehensive income:
Change in unrealized gains (losses) on derivatives, net of taxes		—		—			—			—			21,084			21,084
Change in unrealized gains (losses) on securities, net of taxes		—		—			—			—			24,167			24,167
Accumulated other comprehensive income related to retirement plans		—		—			—			—			9,757			9,757
Total comprehensive income													—			713,215
Cash dividends declared, $0.90 per share		—		—			(252,501	)		—			—			(252,501	)
Exercise of stock options and stock compensation expense		—		747			—			8,236			—			8,983
Acquisition of treasury stock		—		—			—			(165,988	)		—			(165,988	)
Acquisition of Lighthouse Financial Services		—		11,745			—			64,144			(1	)		75,888
Restricted stock activity		—		(518	)		—			518			—			—
Amortization of compensation element of restricted stock		—		—			—			2,709			—			2,709
Issuance of stock for employee benefit plans		—		573			—			26,328			—			26,901
Balance, June 30, 2003	$	294,163	$	1,288,657		$	6,727,923		$	(696,517	)	$	1,564,477		$	9,178,703

* Balance at June 30, 2002 includes $369,595 for treasury stock and $33,533 for compensation element of restricted stock. Balance at June 30, 2003 includes $663,666 for treasury stock and $32,851 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. Certain reclassifications have been made to prior year amounts to conform with the current year presentation.

These financial statements should be read in conjunction with the Annual Report on Form 10-K for the year ended December 31, 2002. There have been no significant changes to the Company’s Accounting Policies as disclosed in the Annual Report on Form 10-K for the year ended December 31, 2002.

Note 2—Acquisitions

SunTrust completed the acquisition of the Florida banking franchise of Huntington Bancshares, Inc. (“Huntington-Florida”) on February 15, 2002. During 2002, the Company recorded $39.8 million in after-tax merger related expenses. The Company acquired approximately $4.7 billion in assets and liabilities. The transaction resulted in $528 million of goodwill, $255 million of core deposit intangibles and $13 million of other intangibles, all of which are deductible for tax purposes.

On June 2, 2003, SunTrust announced the completion of it acquisition of Lighthouse Financial Services, Inc. (“Lighthouse”) based in Hilton Head Island, South Carolina. The Company acquired approximately $637 million in assets, $567 million in loans, and $421 million in deposits. In addition, SunTrust paid $131 million in a combination of cash and SunTrust stock. The acquisition did not have a material impact on SunTrust’s financial position or results of operations.

On June 25, 2003, SunTrust announced the signing of a definitive agreement to acquire the Atlanta-based Sun America Mortgage, one of the top mortgage lenders in Metro Atlanta. The acquisition, which closed on July 31, 2003, did not have a material impact on SunTrust’s financial position or results of operations.

7

Notes to Consolidated Financial Statements (Unaudited)—continued

Note 3—Accounting Developments

Accounting Policies Adopted

In May 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections as of April 2002.” This Statement rescinded SFAS No. 4 and 64, “Reporting Gains and Losses from Extinguishment of Debt” and “Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements,” respectively, and restricted the classification of early extinguishment of debt as an extraordinary item to the provisions of Accounting Practice Bulletin (“APB”) Opinion No. 30, “Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.” The Statement also rescinded SFAS No. 44, “Accounting for Intangible Assets of Motor Carriers,” which was no longer necessary because the transition to the provisions of the Motor Carrier Act of 1980 was complete. The Statement also amended SFAS No. 13, “Accounting for Leases,” to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. Finally, the Statement made various technical corrections to existing pronouncements which were not considered substantive.

The provisions of this Statement relating to the rescission of SFAS No. 4 and 64 were effective for fiscal years beginning after May 15, 2002. The provisions relating to amendments of SFAS No. 13 were effective for transactions initiated after May 15, 2002, and all other provisions were effective for financial statements issued after May 15, 2002. Additionally, there was retroactive application for any gain or loss on extinguishment of debt that was classified as extraordinary in a prior period that did not meet the criteria in APB Opinion No. 30, requiring reclassification of this gain or loss. As of January 1, 2003, the Company adopted all provisions of this Statement, and the adoption did not have a material impact on the Company’s financial position or results of operations.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 provided guidance on the recognition and measurement of liabilities for costs associated with exit or disposal activities. SFAS No. 146 was effective for exit or disposal activities initiated after December 31, 2002. The Company adopted this Statement as of January 1, 2003, and it did not have a material impact on the Company’s financial position or results of operations.

In November 2002, the FASB issued FASB Interpretation No. (“FIN”) 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an Interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FIN 34.” FIN 45 details the disclosures that should be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. The Interpretation also requires a company to record a liability for certain guarantees that have been issued. The disclosure provisions were effective for interim or annual periods ending after December 15, 2002. The recognition requirements of the Interpretation were effective for all guarantees issued or modified subsequent to December 31, 2002. The Company adopted the recognition requirements of FIN 45 on January 1, 2003, and they did not have a material impact on the Company’s financial position or results of operations. The required interim disclosures are included in Note 10 to the Consolidated Financial Statements.

8

Notes to Consolidated Financial Statements (Unaudited)—continued

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure.” SFAS No. 148 amended SFAS No. 123, “Accounting for Stock-Based Compensation,” to provide three alternative methods of transition to SFAS No. 123’s fair-value method of accounting for stock-based compensation. The Statement also amended the disclosure provisions of SFAS No. 123 and APB Opinion No. 28, “Interim Financial Reporting,” to require additional disclosures in annual and interim financial statements. The Statement was effective for fiscal years ending after December 15, 2002. The amendment of the disclosure requirements of Opinion No. 28 was effective for interim financial reports beginning after December 15, 2002. Effective January 1, 2002, the Company adopted the fair-value method using the prospective method of transition. The prospective method required the Company to apply the provisions of SFAS No. 123 to new stock awards granted from the beginning of the year of adoption and going forward. Note 5 includes the interim disclosures required by SFAS No. 148.

Recently Issued Accounting Pronouncements

In January 2003, the FASB issued FIN No. 46, “Consolidation of Variable Interest Entities.” FIN No. 46 is an Interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial Statements” and addresses consolidation by business enterprises of variable interest entities (“VIEs”). The Interpretation is based on the concept that an enterprise controlling another entity through interests other than voting interests should consolidate the controlled entity. Business enterprises are required under the provisions of the Interpretation to identify VIEs, based on specified characteristics, and then determine whether they should be consolidated. An enterprise that holds a majority of the variable interests is considered the primary beneficiary which would consolidate the VIE. The primary beneficiary of a VIE is also required to include various disclosures in interim and annual financial statements. Additionally, an enterprise that holds a significant variable interest in a VIE, but that is not the primary beneficiary, is also required to make certain disclosures.

The Interpretation is effective immediately for all enterprises with variable interests in VIEs created after January 31, 2003. A public entity with variable interests in a VIE created before February 1, 2003 is required to apply the provisions of this Interpretation to that entity by the end of the first interim or annual reporting period beginning after June 15, 2003.

The Company identified various VIEs and has assessed whether it holds any variable interests in VIEs which would require consolidation or disclosure. Disclosures related to the Company’s variable interests in VIEs are included in Note 9 to the Consolidated Financial Statements. The adoption of the Interpretation on July 1, 2003 did not have a material impact on the Company’s financial position or results of operations.

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”. SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. The Statement is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The adoption of this Statement is not expected to have a material impact on the Company’s financial position or results of operations.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” SFAS No.150 establishes guidelines on how instruments sharing the characteristics of both liabilities and equity should be classified and measured. Financial instruments falling within the scope of the Statement must be classified as liabilities. Many of these types of instruments were previously classified as equity. SFAS No.150 is effective for financial instruments entered

9

Notes to Consolidated Financial Statements (Unaudited)—continued

into or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of this Statement is not expected to have a material impact on the Company’s financial position or results of operations.

The Sarbanes-Oxley Act of 2002 no longer permits the American Institute of Certified Public Accountants (“AICPA”) to write accounting and auditing standards; however, upon ratification by the FASB, the AICPA is permitted to issue certain Statements of Position (“SOP”) that were in production prior to the issuance of the Sarbanes-Oxley Act. Two of the AICPA’s outstanding proposals will affect the banking industry. The first proposed SOP is “Accounting for Loans or Certain Debt Securities Acquired in a Transfer.” The proposal addresses accounting for differences arising between contractual cash flows and cash flows expected to be collected from an investor’s initial investment in loans or debt securities acquired in a transfer, if those differences relate to credit quality. The proposal also prohibits companies from “carrying over” or creating a valuation allowance in the initial accounting for loans acquired in a transfer. A final SOP is expected to be issued before the end of 2003, with an effective date for loans acquired in fiscal years beginning after December 15, 2004.

In June 2003, the AICPA also issued an exposure draft of a proposed SOP, “Allowance for Credit Losses.” This SOP addresses the recognition and measurement by creditors of the allowance for credit losses related to all loans. The allowance should only consist of amounts recognized and measured under SFAS No. 5, “Accounting for Contingencies,” and SFAS No. 114, “Accounting by Creditors for Impairment of a Loan.” Components of the allowance should be measured using the present value of expected future cash flows. Each component should be estimated and supported by observable data relating to existing conditions, and creditors should not project changes in the observable data that may occur in the future. The provisions of this SOP are tentatively effective for fiscal years beginning after December 15, 2003. SunTrust is in the process of analyzing the impact these SOPs will have on the Company’s financial position and results of operations.

10

Notes to Consolidated Financial Statements (Unaudited)—continued

Note 4—Intangible Assets

Under the provisions of SFAS No. 142, the Company completed its annual review of goodwill as of December 31, 2002, and determined there was no impairment of goodwill as of that date. The Company will review goodwill on an annual basis for impairment and as events occur or circumstances change that would more likely than not reduce fair value of a reporting unit below its carrying amount. The changes in the carrying amount of goodwill by reportable segment for the six months ended June 30, 2002 and 2003 are as follows:

(Dollars in thousands) (Unaudited)	Retail		Commercial		Corporate and Investment Banking		Mortgage			Private Client Services		Corporate/ Other		Total
Balance, January 1, 2002	$	299,984	$	20,781	$	93,442	$	1,859		$	24,431	$	—	$	440,497
Huntington-Florida acquisition		395,412		68,730		—		14,650			44,902		—		523,694
Reallocation		744		—		—		(744	)		—		—		—
Purchase price adjustment		1,303		15		1,070		—			—		—		2,388
Balance, June 30, 2002	$	697,443	$	89,526	$	94,512	$	15,765		$	69,333	$	—	$	966,579
Balance, January 1, 2003	$	687,185	$	96,626	$	94,852	$	15,765		$	69,333	$	—	$	963,761
Purchase price adjustment		4,188		—		—		—			—		—		4,188
Lighthouse acquisition		91,771		—		—		—			—		—		91,771
Balance, June 30, 2003	$	783,144	$	96,626	$	94,852	$	15,765		$	69,333	$	—	$	1,059,720

The changes in the carrying amounts of other intangible assets for the six months ended June 30, 2002 and 2003 are as follows:

(Dollars in thousands) (Unaudited)	Core Deposit Intangible			Mortgage Servicing Rights			Other			Total
Balance, January 1, 2002	$	19,158		$	351,200		$	421		$	370,779
Amortization		(23,319	)		(72,673	)		(669	)		(96,661	)
Servicing rights acquired		—			32,380			—			32,380
Servicing rights originated		—			94,943			—			94,943
Huntington-Florida acquisition		254,959			—			12,600			267,559
Balance, June 30, 2002	$	250,798		$	405,850		$	12,352		$	669,000
Balance, January 1, 2003	$	216,855		$	383,918		$	11,385		$	612,158
Amortization		(30,902	)		(198,859	)		(1,023	)		(230,784	)
Servicing rights acquired		—			56,390			—			56,390
Servicing rights originated		—			155,373			—			155,373
Asset acquisition		—			—			402			402
Lighthouse acquisition		9,400			5,398			7,800			22,598
Balance, June 30, 2003	$	195,353		$	402,220		$	18,564		$	616,137

11

Notes to Consolidated Financial Statements (Unaudited)—continued

The estimated amortization expense for intangible assets, excluding amortization of mortgage servicing rights, for the year 2003 and the subsequent four years is as follows:

(Dollars in thousands) (Unaudited)	Core Deposit Intangible		Other		Total
2003		61,227		2,450		63,677
2004		52,208		2,834		55,042
2005		41,515		2,741		44,256
2006		31,975		2,591		34,566
2007		22,664		2,580		25,244
Thereafter		16,666		6,391		23,057
Total	$	226,255	$	19,587	$	245,842

Note 5—Stock Options

Effective January 1, 2002, the Company adopted the fair-value recognition provision of SFAS No. 123 prospectively to all awards granted after January 1, 2002. The effect on net income and earnings per share if the fair-value based method had been applied to all outstanding awards for the three and six months ended June 30, 2003 and 2002 is as follows:

(Dollars in thousands) (Unaudited)	Three months Ended June 30						Six months Ended June 30
	2003			2002			2003			2002
Net income, as reported	$	330,359		$	343,685		$	658,207		$	648,566
Stock-based employee compensation expense included in reported net income, net of related tax effects		1,365			—			2,487			—
Total stock-based employee compensation expense determined under fair-value-based method for all awards, net of related tax effects		(4,459	)		(5,152	)		(8,814	)		(10,344	)
Net Income, pro forma	$	327,265		$	338,533		$	651,880		$	638,222
Earning per share:
Diluted—as reported	$	1.17		$	1.20		$	2.34		$	2.26
Diluted—pro forma		1.16			1.18			2.32			2.22
Basic—as reported		1.19			1.22			2.37			2.29
Basic—pro forma		1.18			1.20			2.35			2.25

12

Notes to Consolidated Financial Statements (Unaudited)—continued

Note 6—Comprehensive Income

Comprehensive income for the six months ended June 30, 2003 and 2002 is calculated as follows:

	2003			2002
Unrealized gain on available for sale securities, net, recognized in other comprehensive income:
Before income tax	$	37,180		$	445,989
Income tax		(13,013	)		(156,096	)
Net of income tax	$	24,167		$	289,893
Amounts reported in net income:
Gain on sale of securities	$	73,277		$	119,187
Net amortization		93,951			11,289
Reclassification adjustment		167,228			130,476
Income tax		(58,530	)		(45,667	)
Reclassification adjustment, net of tax	$	108,698		$	84,809
Unrealized gain on available for sale securities arising during period, net of tax	$	132,865		$	374,702
Reclassification adjustment, net of tax		(108,698	)		(84,809	)
Net unrealized gain on available for sale securities recognized in other comprehensive income	$	24,167		$	289,893
Unrealized gain on derivative financial instruments, net, recognized in other comprehensive income:
Before income tax	$	32,437		$	849
Income tax		(11,353	)		(297	)
Net of income tax	$	21,084		$	552
Reclassification of losses from other comprehensive income to earnings	$	—		$	3,281
Income tax		—			(1,148	)
Reclassification adjustment, net of tax	$	—		$	2,133
Unrealized gain (loss) on derivative financial instruments arising during period, net of tax	$	21,084		$	(1,581	)
Reclassification adjustment, net of tax		—			2,133
Net unrealized gain on derivative instruments recognized in other comprehensive income	$	21,084		$	552
Accumulated other comprehensive income related to retirement plans:	$	9,757		$	—
Total unrealized gains recognized in other comprehensive income	$	55,008		$	290,445
Net income		658,207			648,566
Total comprehensive income	$	713,215		$	939,011

13

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 earnings per share (“EPS”). Shares of 6.4 million and 2.7 million for the periods ended June 30, 2003 and 2002, 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, 2003 and 2002 is included in the following table:

	Three Months Ended June 30				Six Months Ended June 30
(In thousands, except per share data) (Unaudited)	2003		2002		2003		2002
Diluted
Net income	$	330,359	$	343,685	$	658,207	$	648,566
Average common shares outstanding		277,397		283,293		278,011		283,672
Effect of dilutive securities:
Stock options		854		2,049		778		1,883
Performance restricted stock		2,036		1,946		2,017		1,776
Average diluted common shares		280,287		287,288		280,806		287,331
Earnings per common share—diluted:
Net income	$	1.17	$	1.20	$	2.34	$	2.26
Basic
Net income	$	330,359	$	343,685	$	658,207	$	648,566
Average common shares		277,397		283,293		278,011		283,672
Earnings per common share—basic:
Net income	$	1.19	$	1.22	$	2.37	$	2.29

Note 8—Business Segment Reporting

The Company is currently in the process of making further enhancements to its internal management reporting system that are expected to be implemented throughout 2003 and beyond. Once complete, the items reported for each line of business segment are expected to include: assets, liabilities and attributed economic capital; matched maturity funds transfer priced net interest revenue, net of credit risk premiums; direct noninterest 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 line of business segment. The implementation of these enhancements to the internal management reporting system is expected to materially affect the net income disclosed for each segment with no impact on consolidated amounts. Whenever significant changes to management reporting methodologies take place, the impact of these changes is quantified and prior period information is reclassified. The Company will reflect these reclassified changes immediately in the current period and in year-to-date historical comparisons, and will provide updated historical quarterly schedules in the Annual Report found on Form 10-K.

14

Notes to Consolidated Financial Statements (Unaudited)—continued

The tables below disclose selected financial information for SunTrust’s reportable business segments for the three and six months ended June 30, 2003 and 2002.

(Dollars in thousands)(Unaudited)	Three Months Ended June 30, 2003
	Retail		Commercial		Corporate and Investment Banking		Mortgage		Private Client Services		Corporate/ Other			Consolidated
Average total assets	$	24,681,330	$	23,386,086	$	21,226,623	$	21,605,824	$	2,130,363	$	26,417,816		$	119,448,042
Average total liabilities		52,893,107		10,402,047		7,553,374		1,900,459		1,535,095		36,299,897			110,583,979
Average total equity		—		—		—		—		—		8,864,063			8,864,063
Net interest income (FTE)1		312,043		141,102		65,077		128,711		9,840		153,642			810,415
Provision for loan losses2		37,868		11,628		31,406		1,625		546		(411	)		82,662
Net interest income after provision for loan losses		274,175		129,474		33,671		127,086		9,294		154,053			727,753
Noninterest income		183,440		66,484		153,707		14,112		165,082		13,967			596,792
Noninterest expense		309,890		77,016		91,613		73,552		125,663		159,994			837,728
Total contribution before taxes		147,725		118,942		95,765		67,646		48,713		8,026			486,817
Provision for income taxes3		—		—		—		—		—		156,458			156,458
Net Income	$	147,725	$	118,942	$	95,765	$	67,646	$	48,713	$	(148,432	)	$	330,359
	Three Months Ended June 30, 2002
	Retail		Commercial		Corporate and Investment Banking		Mortgage		Private Client Services		Corporate/ Other			Consolidated
Average total assets	$	22,727,576	$	21,295,565	$	20,960,189	$	17,798,067	$	1,721,115	$	21,989,484		$	106,491,996
Average total liabilities		52,321,862		8,469,894		5,775,094		1,151,914		1,583,425		28,446,644			97,748,833
Average total equity		—		—		—		—		—		8,743,163			8,743,163
Net interest income (FTE)1		382,192		134,626		61,497		87,766		10,283		146,748			823,112
Provision for loan losses2		25,158		10,315		49,402		1,577		577		23,989			111,018
Net interest income after provision for loan losses		357,034		124,311		12,095		86,189		9,706		122,759			712,094
Noninterest income		181,844		56,134		136,551		11,227		168,320		47,611			601,687
Noninterest expense		312,127		73,312		94,317		53,509		123,140		137,577			793,982
Total contribution before taxes		226,751		107,133		54,329		43,907		54,886		32,793			519,799
Provision for income taxes3		—		—		—		—		—		176,114			176,114
Net Income	$	226,751	$	107,133	$	54,329	$	43,907	$	54,886	$	(143,321	)	$	343,685

¹ Net interest income is fully taxable equivalent and is presented on a matched maturity funds transfer price basis for the line of business.

² Provision for loan losses includes a credit risk premium charge for the lines of business.

³ Includes income tax provision and taxable-equivalent income adjustment reversal of $10,902 and $9,724 for the three months ended June 30, 2003 and 2002, respectively.

15

Notes to Consolidated Financial Statements (Unaudited)—continued

(Dollars in thousands)(Unaudited)	Six Months Ended June 30, 2003
	Retail		Commercial		Corporate and Investment Banking			Mortgage		Private Client Services		Corporate/ Other			Consolidated
Average total assets	$	24,466,823	$	22,946,530	$	21,657,793		$	21,173,267	$	2,028,933	$	26,592,006		$	118,865,352
Average total liabilities		52,553,033		10,301,615		7,643,195			1,674,510		1,493,418		36,374,051			110,039,822
Average total equity		—		—		—			—		—		8,825,530			8,825,530
Net interest income (FTE)1		626,945		280,487		124,460			255,071		19,491		336,974			1,643,428
Provision for loan losses2		74,552		22,920		62,327			3,167		914		(415	)		163,465
Net interest income after provision for loan losses		552,393		257,567		62,133			251,904		18,577		337,389			1,479,963
Noninterest income		361,795		135,148		276,956			16,512		322,204		31,836			1,144,451
Noninterest expense		616,859		152,839		180,432			142,209		247,921		315,697			1,655,957
Total contribution before taxes		297,329		239,876		158,657			126,207		92,860		53,528			968,457
Provision for income taxes3		—		—		—			—		—		310,250			310,250
Net Income	$	297,329	$	239,876	$	158,657		$	126,207	$	92,860	$	(256,722	)	$	658,207
	Six Months Ended June 30, 2002
	Retail		Commercial		Corporate and Investment Banking			Mortgage		Private Client Services		Corporate/ Other			Consolidated
Average total assets	$	21,821,514	$	20,777,069	$	21,483,985		$	18,277,464	$	1,714,983	$	21,573,715		$	105,648,730
Average total liabilities		50,941,971		8,312,757		5,887,048			1,164,499		1,563,748		29,213,212			97,083,235
Average total equity		—		—		—			—		—		8,565,495			8,565,495
Net interest income (FTE)1		721,656		264,042		134,470			180,210		20,017		310,368			1,630,763
Provision for loan losses2		48,674		20,154		134,562			3,284		1,223		66,696			274,593
Net interest income after provision for loan losses		672,982		243,888		(92	)		176,926		18,794		243,672			1,356,170
Noninterest income		348,444		117,047		260,302			16,140		326,566		123,721			1,192,220
Noninterest expense		630,412		158,278		203,059			115,053		244,025		256,034			1,606,861
Total contribution before taxes		391,014		202,657		57,151			78,013		101,335		111,359			941,529
Provision for income taxes3		—		—		—			—		—		292,963			292,963
Net Income	$	391,014	$	202,657	$	57,151		$	78,013	$	101,335	$	(181,604	)	$	648,566

¹ Net interest income is fully taxable equivalent and is presented on a matched maturity funds transfer price basis for the line of business.

² Provision for loan losses includes a credit risk premium charge for the lines of business.

³ Includes income tax provision and taxable-equivalent income adjustment reversal of $21,445 and $19,269 for the six months ended June 30, 2003 and 2002, respectively.

16

Notes to Consolidated Financial Statements (Unaudited)—continued

Note 9—Variable Interest Entities and Off-Balance Sheet Arrangements

SunTrust Bank assists in providing liquidity to select corporate customers by directing them to a third-party-owned commercial paper conduit. SunTrust’s conduit relationship is with Three Pillars Funding Corporation (“Three Pillars”). Three Pillars provides financing for or direct purchases of financial assets originated and serviced by SunTrust Bank’s corporate customers. Three Pillars finances this activity by issuing A-1/P-1 rated commercial paper. The result is a favorable funding arrangement for these SunTrust Bank customers.

Three Pillars had assets and liabilities, not included on the Consolidated Balance Sheet, of approximately $2.9 billion and $2.8 billion as of June 30, 2003 and December 31, 2002, respectively, which primarily consisted of secured loans, marketable asset-backed securities and short-term commercial paper liabilities. For the quarters ended June 30, 2003 and 2002, activities related to the Three Pillars relationship generated approximately $5.7 million and $4.2 million in fee revenue for SunTrust Bank. These activities include: client referrals and investment recommendations to Three Pillars; the issuing of a letter of credit, which provides partial credit protection to commercial paper holders; and providing a majority of the liquidity arrangements that would provide funding to Three Pillars in the event that it can no longer issue commercial paper or in certain other circumstances. As of June 30, 2003, the liquidity commitments and other credit enhancement SunTrust Bank had to Three Pillars totaled $4.3 billion and $372.5 million, respectively, which represent the Company’s maximum exposure to potential loss. The Company manages the credit risk associated with these commitments by subjecting them to the Company’s normal credit approval and monitoring processes. In 2003, SunTrust Bank funded approximately $30 million related to the liquidity arrangement with Three Pillars, resulting from a ratings downgrade of an asset backed security. The Company does not anticipate a credit loss as a result of the transaction.

In January 2003, the FASB issued FIN No. 46, “Consolidation of Variable Interest Entities,” which addresses the criteria for the consolidation of entities similar to Three Pillars. SunTrust believes that Three Pillars, as currently structured, would be consolidated. If consolidated, Three Pillars will not have a material impact on the results of operations of the Company and has an estimated 18 basis points and 28 basis points impact on Tier 1 and Total Capital, respectively. The Company is in the process of restructuring Three Pillars where consolidation under FIN 46 would not be required.

As part of its community reinvestment initiatives, the Company invests in multi-family low income housing throughout its footprint as a limited partner and/or general partner in various properties. The Company receives affordable housing federal and state tax credits for these limited partnership investments. As of June 30, 2003, approximately $1.2 billion of assets are included in partnerships that are not included on the Consolidated Balance Sheet and the Company’s maximum potential exposure to these partnerships is $427.7 million, consisting of the limited partnership investments plus unfunded commitments. The partnerships are considered variable interest entities under FIN 46 and therefore each partnership has been evaluated to determine the Company’s level of variable interests. The Company is the primary beneficiary of several partnerships and approximately $351.5 million in assets will be consolidated for the quarter ended September 30, 2003. Some of the Company’s investments represent a significant variable interest in the partnership and these investments will continue to be accounted for under the equity method of accounting.

The Company is a general partner in a number of limited partnerships, which have been formed to provide investment opportunities for certain SunTrust customers. Assets under management, which are not included in the accompanying balance sheet, totaled $3.1 billion as of June 30, 2003. The application of FIN 46 did not require consolidation of these partnerships.

17

Notes to Consolidated Financial Statements (Unaudited)—continued

Note 10—Guarantees

The Company has undertaken certain guarantee obligations in the ordinary course of business. In following the provisions of FIN 45, as addressed in Note 3, the Company must consider guarantees that have any of the following four characteristics (i) contracts that contingently require the guarantor to make payments to a guaranteed party based on changes in an underlying factor that is related to an asset, a liability, or an equity security of the guaranteed party; (ii) contracts that contingently require the guarantor to make payments to a guaranteed party based on another entity’s failure to perform under an obligating agreement; (iii) indemnification agreements that contingently require the indemnifying party to make payments to an indemnified party based on changes in an underlying factor that is related to an asset, a liability, or an equity security of the indemnified party; and (iv) indirect guarantees of the indebtedness of others. The issuance of a guarantee imposes an obligation to stand ready to perform, and should certain triggering events occur, it also imposes an obligation to make future payments. Payments may be in the form of cash, financial instruments, other assets, shares of its stock, or provisions of its services. The following is a discussion of the guarantees that the Company has issued as of June 30, 2003 which have characteristics as specified by FIN 45.

Letters of Credit

Letters of credit 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 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 issues letters of credit that are classified as either financial standby, performance standby or commercial letters of credit. Commercial letters of credit are specifically excluded from the disclosure and recognition requirements of FIN 45.

As of June 30, 2003 and December 31, 2002, the maximum potential amount of the Company’s obligation was $10.7 billion and $9.2 billion, respectively, for financial and performance standby letters of credit. The Company has recorded $91.9 million in other liabilities for unearned fees related to these letters of credit as of June 30, 2003. The Company’s outstanding letters of credit generally have a term of less than one year. If a letter of credit is drawn upon, the Company may seek recourse through the customer’s underlying line of credit. If the customer’s line of credit is also in default, the Company may take possession of the collateral securing the line of credit.

Securitizations

During 2001, the Company transferred a total of $1.9 billion of single family mortgages to securities available for sale in two securitization transactions. The first securitization of $468.4 million was recorded in February 2001. The securitization was guaranteed by Fannie Mae with the Company maintaining one-percent recourse on the losses incurred in the securitized loan portfolio. A second securitization of $1.4 billion was recorded in March 2001. This was a private securitization with SunTrust maintaining full credit risk on the losses incurred in the securitized loan portfolio.

At the time of securitization, a reserve was established on the balance sheet in other liabilities representing management’s estimate of loss on securitized loans. The reserve was established based on management’s evaluation of the size and risk characteristics of the securitized loan portfolio. The reserve is periodically evaluated by management for adequacy, with consideration given to the balance of problem loans, prior loan

18

Notes to Consolidated Financial Statements (Unaudited)—continued

loss experience, current economic conditions, value of collateral and other risk factors. The reserve balance was $1.8 million and $2.3 million as of June 30, 2003 and December 31, 2002, respectively.

Other

Regency Development Associates, Inc. (“RDA”), a SunTrust Community Development Corporation (“CDC”) subsidiary, has issued indemnifications to general partners in low income housing limited partnership investments where CDC is a limited partner. The indemnifications cover potential losses allocated to the general partner as a result of operating losses incurred by the low income housing partnerships. Given the nature of these indemnifications, it is not possible to estimate a maximum potential dollar amount for this liability, as future losses are not expected or estimable. The Company is in the process of reviewing potential alternatives to these indemnification agreements.

A third party investor holds Series B Preferred Stock in STB Real Estate Holdings (Atlanta), Inc. (“STBREH”), a subsidiary of SunTrust. The contract between STBREH and the third party investor contains an automatic exchange clause which, under certain circumstances, requires the Series B preferred shares to be automatically exchanged for guaranteed preferred beneficial interest in debentures of the Company. The guaranteed preferred beneficial interest in debentures are guaranteed to have a liquidation value equal to the sum of the issue price, $350 million, and an approximate yield of 8.5% per annum subject to reduction for any cash or property dividends paid to date. As of June 30, 2003 and December 31, 2002, $394.8 million and $377.5 million were accrued in other liabilities for the principal and interest, respectively. This exchange agreement remains in effect as long as any shares of Series B Preferred Stock are owned by the third party investor, not to exceed 30 years.

SunTrust Securities, Inc. (“STS”) and SunTrust Capital Markets, Inc. (“STCM”), broker-dealer affiliates of SunTrust, use a common third party clearing broker to clear and execute their customers’ securities transactions and to hold customer accounts. Under their respective agreements, STS and STCM agree to indemnify the clearing broker for losses that result from a customer’s failure to fulfill its contractual obligations. As the clearing broker’s rights to charge STS and STCM have no maximum amount, the Company believes that the maximum potential obligation cannot be estimated. However, to mitigate exposure, the affiliate may seek recourse from the customer through cash or securities held in the defaulting customer’s account. For the quarter ended June 30, 2003, STS and STCM experienced minimal net losses as a result of the indemnity. The clearing agreements expire in 2004 for STS and 2005 for STCM.

SunTrust Bank has guarantees associated with credit default swaps, an agreement in which the buyer of protection pays a premium to the seller of the credit default swap for protection against an event of default. Events constituting default under such agreements that would result in the Company making a guaranteed payment to a counterparty may include (i) default of the referenced asset; (ii) bankruptcy of the customer; or (iii) restructuring or reorganization by the customer. The notional amount outstanding at June 30, 2003 and December 31, 2002 was $225.0 million and $175.0 million, respectively. As of June 30, 2003, the notional amounts expire as follows: $70.0 million in 2003, $25.0 million in 2004, $45.0 million in 2005, $20.0 million in 2007, and $65.0 million in 2008. In the event of default under the contract, the Company would make a cash payment to the holder of credit protection and would take delivery of the referenced asset from which the Company may recover a portion of the credit loss.

19

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

SunTrust Banks, Inc., (“SunTrust” or “the Company”) one of the nation’s largest commercial banking organizations, 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, South Carolina, 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, credit-related insurance, asset management, securities brokerage and capital market services.

SunTrust has 1,179 full-service branches, including supermarket branches, and continues to leverage technology to provide customers the convenience of banking on the Internet, through 2,221 automated teller machines and via twenty-four hour telebanking.

The following analysis of the financial performance of SunTrust for the second quarter and first six months of 2003 should be read in conjunction with the financial statements, notes and other information contained in this document and the 2002 Annual Report found on Form 10-K. Certain reclassifications have been made to prior year financial statements and related information to conform them to the 2003 presentation. In Management’s Discussion, net interest income, net interest margin and the efficiency ratio are presented on a fully taxable-equivalent (“FTE”) basis and the ratios are presented on an annualized basis. The FTE basis adjusts for the tax-favored status of income from certain loans and investments. The Company believes this measure to be the preferred industry measurement of net interest income and provides relevant comparison between taxable and non-taxable amounts. Additionally, the Company presents a return on average realized shareholders’ equity, as well as a return on average total shareholders’ equity (“ROE”). The return on average realized shareholders’ equity excludes net unrealized security gains. The Company also presents a return on average assets less net unrealized gains on securities and a return on average total assets (“ROA”). Due to its ownership of approximately 48 million shares of common stock of The Coca-Cola Company resulting in an unrealized net gain of $2.2 billion as of June 30, 2003, the Company believes ROA and ROE excluding net unrealized gains from the Company’s securities portfolio is the more indicative performance measure when being compared to other companies.

The information provided herein may contain estimates of future operating results for SunTrust. These estimates constitute forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995) which involve significant risks and uncertainties. Actual results could differ materially from those contained in or implied by such statements for a variety of reasons including, but not limited to: changes in interest rates, changes in accounting principles, policies, or guidelines, significant changes in the economic scenario, significant changes in legislation or regulatory requirements, changes in business conditions or the banking competitive environment, significant changes in securities markets, and litigation risks. SunTrust does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made.

CRITICAL ACCOUNTING POLICIES

The Company’s accounting policies are integral to understanding the results reported. Accounting policies are described in detail in Note 1 to the Consolidated Financial Statements included in the Annual Report on Form 10-K. The Company’s most complex accounting policies require management’s judgment to ascertain the

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valuation of assets, liabilities, commitments and contingencies. A variety of factors could affect the ultimate value that is obtained either when earning income, recognizing an expense, recovering an asset or relieving a liability. In many instances, the Company uses a discount factor to determine the present value of assets and liabilities. A change in the discount factor could increase or decrease the values of those assets and liabilities. That change could result in either a beneficial or adverse impact on the financial results. The Company has established detailed policies and control procedures that are intended to ensure valuation methods are well controlled and applied consistently from period to period. In addition, the policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate manner. The following is a brief description of the Company’s current accounting policies involving significant management valuation judgments.

Allowance for Loan Losses. The allowance for loan losses represents management’s estimate of losses inherent in the existing loan portfolio. The allowance for loan losses is increased by the provision for loan losses charged to expense and reduced by loans charged off, net of recoveries. The allowance for loan losses is determined based on management’s assessment of several factors: reviews and evaluations of specific loans, changes in the nature and volume of the loan portfolio, current economic conditions and the related impact on segments of the loan portfolio, historical loan loss experiences and the level of classified and nonperforming loans. Loans are considered impaired if, based on current information and events, it is probable that SunTrust will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. The measurement of impaired loans is based on either the fair value of the underlying collateral, the present value of the future cash flows discounted at the historical effective interest rate stipulated in the loan agreement, or the estimated market value of the loan. In measuring the fair value of the collateral, management uses assumptions (e.g., discount rate) and methodologies (e.g., comparison to the recent selling price of similar assets) consistent with those that would be utilized by unrelated third parties. Changes in the financial condition of individual borrowers, economic conditions, historical loss experience, or the condition of the various markets in which collateral may be sold may affect the required level of the allowance for loan losses and the associated provision for loan losses. Should cash flow assumptions or market conditions change, a different amount may be reported for the allowance for loan losses and the associated provision for loan losses.

Estimates of Fair Value. The estimation of fair value is significant to a number of SunTrust’s assets, including trading account assets, loans held for sale, available-for-sale investment securities, mortgage servicing rights (“MSRs”), other real estate owned, other repossessed assets, as well as assets and liabilities associated with derivative financial instruments. These are all recorded at either fair value or at the lower of cost or fair value. Fair values are volatile and may be influenced by a number of factors. Circumstances that could cause estimates of the fair value of certain assets and liabilities to change include a change in prepayment speeds, discount rates, or market interest rates. Fair values for trading account assets, most available-for-sale investment securities and most derivative financial instruments are based on quoted market prices. If quoted market prices are not available, fair values are based on the quoted prices of similar instruments. The fair values of loans held for sale are based on anticipated liquidation values, while the fair values of mortgage servicing rights are based on discounted cash flow analysis utilizing dealer consensus prepayment speeds and market discount rates. The fair values of other real estate owned are typically determined based on appraisals by third parties, less estimated costs to sell. Estimates of fair value are also required in performing an impairment analysis of goodwill. The Company reviews goodwill for impairment at least once annually and whenever events or circumstances indicate the carrying value may not be recoverable. An impairment would be indicated if the carrying value exceeds the fair value of a reporting unit.

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EARNINGS ANALYSIS

SunTrust reported earnings of $330.4 million and $658.2 million for the second quarter and first six months of 2003, a decrease of $13.3 million, or 3.9%, and an increase of $9.6 million, or 1.5%, compared to the same periods of the prior year. Reported diluted earnings per share were $1.17 and $1.20 for the three months ended June 30, 2003 and 2002, respectively, and $2.34 and $2.26 for the six months ended June 30, 2003 and 2002, respectively. Net income in the first six months of 2002 was reduced by $39.8 million, or $0.14 per share, for after-tax merger charges associated with the Company’s acquisition of Huntington-Florida.

Net interest income decreased $12.7 million, or 1.5%, from the second quarter of 2002 to the second quarter of 2003 and increased $12.7 million, or 0.8%, from the first six months of 2002 to the first six months of 2003. Higher earning assets levels helped offset the adverse impact of a declining margin. Average earning assets increased $11.9 billion, or 12.5%, from the second quarter of 2002 to the second quarter of 2003 and $12.0 billion, or 12.7%, from the first six months of 2002 to the first six months of 2003. The margin declined 43 basis points to 3.05% for the second quarter of 2003 and 37 basis points to 3.13% for the six months ended June 30, 2003 when compared to the same periods of the prior year as declining rates continued to negatively impact spreads.

Provision for loan losses was $82.7 million in the second quarter of 2003, a decrease of $28.4 million, or 25.5%, from the same period last year. Provision for loan loss for the six months ended June 30, 2003 was $163.5 million, a decrease of $111.1 million, or 40.5%. In the first six months of 2002, the provision included $45.3 million to conform the Huntington-Florida loan portfolio to SunTrust’s credit standards. Also contributing to the decline was a decrease of $66.2 million in net charge-offs from the first six months of 2002 to the first six months of 2003. The decline was due to a $65.3 million decline in commercial net charge-offs. Commercial charge-offs in the first six months of 2002 included $67.4 million related to the bankruptcy of a large corporate energy company and $25.5 million to a troubled apparel manufacturer.

Total noninterest income was $596.8 million and $1,144.5 million for the second quarter and first six months of 2003, respectively, down 0.8% and 4.0% from the second quarter and first six months of 2002, respectively. The decline was partially attributable to a decrease of $80.9 million and $121.6 million in mortgage servicing income for the second quarter and first six months of 2003, respectively, due to increased amortization resulting from accelerated prepayments due to the lower rate environment. Also contributing to the decline was a decrease of $24.5 million and $45.9 million in securities gains in the second quarter and first six months of 2003 from the same periods of the prior year. Partially offsetting these declines was an increase in mortgage production income and strong capital markets revenue.

Total noninterest expense increased $43.7 million, or 5.5%, over the second quarter of 2002 and $49.1 million, or 3.1%, over the first six months of 2002. Personnel expenses in the second quarter and first six months increased $15.8 million, or 3.4%, and $29.3 million, or 3.2%, from prior year periods. The increase was due to incentive and commission payments related to higher business volumes particularly in the mortgage line of business, which experienced record levels of production. Pension expense increased $11.8 million from the second quarter of 2002 to the second quarter of 2003 and $24.0 million from the first six months of 2002 to the first six months of 2003 due to a reduced expected long term rate of return on plan assets and a lower discount rate for measuring pension liabilities. The first six months of 2002 included $16.0 million of merger-related charges for operations and systems integration related to the acquisition of Huntington-Florida. The first six months of 2002 also included One Bank expenses of $26.2 million. The One Bank initiative was completed in the fourth quarter of 2002. Amortization of intangible assets increased $7.9 million, or 33.1%, in the first six months of 2003 compared to the same period of the prior year primarily due to six months of amortization expense for the Huntington-Florida purchase recorded in 2003 compared to four months in 2002.

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Selected Quarterly Financial Data														Table 1
(Dollars in millions except per share data) (Unaudited)	Quarters
	2003						2002
	2			1			4			3			2
Summary of Operations
Interest and dividend income	$	1,174.0		$	1,218.1		$	1,274.9		$	1,270.7		$	1,292.0
Interest expense		374.5			395.6			447.8			465.6			478.6
Net interest income		799.5			822.5			827.1			805.1			813.4
Provision for loan losses		82.7			80.8			96.5			98.7			111.0
Net interest income after provision for loan losses		716.8			741.7			730.6			706.4			702.4
Noninterest income		596.8			547.6			527.7			548.9			601.7
Noninterest expense		837.7			818.2			836.4			776.1			794.0
Income before provision for income taxes		475.9			471.1			421.9			479.2			510.1
Provision for income taxes		145.5			143.3			81.6			136.2			166.4
Net income	$	330.4		$	327.8		$	340.3		$	343.0		$	343.7
Net interest income (taxable-equivalent)	$	810.4		$	833.0		$	837.3		$	815.1		$	823.1
Per Common Share
Diluted	$	1.17		$	1.17		$	1.20		$	1.20		$	1.20
Basic		1.19			1.18			1.21			1.21			1.22
Dividends declared		0.45			0.45			0.43			0.43			0.43
Book value		32.62			31.06			31.04			31.04			31.41
Market price:
High		61.98			59.95			63.25			69.12			70.20
Low		51.44			51.73			51.48			55.90			65.10
Close		59.34			52.65			56.92			61.48			67.72
Selected Average Balances
Total assets	$	119,448.0		$	118,276.2		$	114,827.5		$	107,845.9		$	106,492.0
Earning assets		106,606.4			105,249.0			101,895.5			95,562.2			94,740.5
Loans		74,311.5			73,049.8			72,668.8			71,695.6			70,985.1
Consumer and commercial deposits		69,097.1			67,466.7			67,829.7			66,141.3			65,466.3
Brokered and foreign deposits		10,707.2			10,379.9			7,329.4			4,956.7			5,179.8
Realized shareholders’ equity		7,413.7			7,323.1			7,204.8			7,095.9			6,901.5
Total shareholders’ equity		8,864.1			8,786.6			8,823.3			8,943.3			8,743.1
Common shares—diluted (thousands)		280,287			281,330			283,595			285,991			287,288
Common shares—basic (thousands)		277,397			278,631			280,364			282,310			283,293
Financial Ratios (Annualized)
Return on average total assets		1.11	%		1.12	%		1.18	%		1.26	%		1.29	%
Return on average assets less net unrealized gains on securities		1.13			1.15			1.20			1.30			1.33
Return on average total shareholders’ equity		14.95			15.13			15.30			15.22			15.77
Return on average realized shareholders’ equity		17.87			18.16			18.74			19.18			19.97
Net interest margin		3.05			3.21			3.26			3.38			3.48
Reconcilement of Non-GAAP Measures
Return on average total assets		1.11	%		1.12	%		1.18	%		1.26	%		1.29	%
Impact of excluding net unrealized securities gains		0.02			0.03			0.02			0.04			0.04
Return on average assets less net unrealized gains on securities		1.13			1.15			1.20			1.30			1.33
Return on average total shareholders’ equity		14.95			15.13			15.30			15.22			15.77
Impact of excluding net unrealized securities gains		2.92			3.03			3.44			3.96			4.20
Return on average realized shareholders’ equity		17.87			18.16			18.74			19.18			19.97
Net interest income	$	799.5		$	822.5		$	827.1		$	805.1		$	813.4
FTE Adjustment		10.9			10.5			10.2			10.0			9.7
Net interest income—FTE	$	810.4		$	833.0		$	837.3		$	815.1		$	823.1

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Consolidated Daily Average Balances, Income/Expense

and Average Yields Earned and Rates Paid

(Dollars in millions; yields on taxable-equivalent basis) (Unaudited)

	Quarter Ended
	June 30, 2003							March 31, 2003
	Average Balances			Income/ Expense		Yields/ Rates		Average Balances			Income/ Expense		Yields/ Rates
Assets
Loans:1
Taxable	$	72,708.3		$	889.9	4.91	%	$	71,603.8		$	902.8	5.11	%
Tax-exempt(2)		1,603.2			19.2	4.80			1,446.0			18.5	5.18
Total loans		74,311.5			909.1	4.91			73,049.8			921.3	5.11
Securities available for sale:
Taxable		20,276.8			152.1	3.00			20,554.3			181.3	3.53
Tax-exempt2		381.4			6.2	6.53			390.1			6.4	6.57
Total securities available for sale		20,658.2			158.3	3.07			20,944.4			187.7	3.58
Funds sold and securities purchased under agreements to resell		1,476.2			4.3	1.17			1,472.9			4.5	1.25
Loans held for sale		8,255.4			108.4	5.25			8,044.7			111.0	5.52
Interest-bearing deposits		10.7			0.1	1.27			11.6			0.1	1.15
Trading assets		1,894.4			4.7	0.99			1,725.6			4.1	0.96
Total earning assets		106,606.4			1,184.9	4.46			105,249.0			1,228.7	4.73
Allowance for loan losses		(952.0	)						(942.0	)
Cash and due from banks		3,300.5							3,475.4
Premises and equipment		1,582.1							1,603.4
Other assets		6,617.6							6,578.8
Unrealized gains on securities available for sale		2,293.4							2,311.6
Total assets	$	119,448.0						$	118,276.2
Liabilities and Shareholders’ Equity
Interest-bearing deposits:
NOW accounts	$	11,576.8		$	13.6	0.47	%	$	11,326.5		$	14.9	0.53	%
Money Market accounts		22,284.1			57.0	1.03			21,856.3			60.4	1.12
Savings		6,253.3			12.7	0.82			6,218.6			14.0	0.91
Consumer time		8,039.4			51.7	2.58			8,435.3			61.0	2.93
Other time		3,395.4			23.1	2.73			3,442.3			16.0	1.89
Total interest-bearing consumer and commercial deposits		51,549.0			158.1	1.23			51,279.0			166.3	1.31
Brokered deposits		3,573.5			30.7	3.40			3,914.5			34.0	3.47
Foreign deposits		7,133.7			22.2	1.23			6,465.4			19.9	1.23
Total interest-bearing deposits		62,256.2			211.0	1.36			61,658.9			220.2	1.45
Funds purchased and securities sold under agreements to repurchase		11,694.4			29.8	1.01			12,644.7			32.5	1.03
Other short-term borrowings		603.2			1.8	1.17			747.2			2.1	1.15
Long-term debt		11,860.1			131.9	4.46			11,782.9			140.9	4.85
Total interest-bearing liabilities		86,413.9			374.5	1.74			86,833.7			395.7	1.85
Noninterest-bearing deposits		17,548.1							16,187.8
Other liabilities		6,621.9							6,468.1
Realized shareholders’ equity		7,413.7							7,323.1
Accumulated other comprehensive income		1,450.4							1,463.5
Total liabilities and shareholders’ equity	$	119,448.0						$	118,276.2
Interest rate spread						2.72	%						2.88	%
Net Interest Income				$	810.4						$	833.0
Net Interest Margin3						3.05	%						3.21	%

¹ Interest income includes net loan fees of $30.1, $31.6 and $31.8 million in the quarters ended June 30 and March 31, 2003 and June 30, 2002, respectively, and $61.7 and $61.2 million for the six months ended June 30, 2003 and 2002, respectively. 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 were $10.9, $10.5 and $9.7 million in the quarters ended June 30 and March 31, 2003 and June 30, 2002, respectively, and $21.4 and $19.3 million for the six months ended June 30, 2003 and 2002, respectively.

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																	Table 2
Quarter Ended					Six Months Ended
June 30, 2002					June 30, 2003							June 30, 2002
Average Balances	Income/ Expense		Yields/ Rates		Average Balances			Income/ Expense		Yields/ Rates		Average Balances			Income/ Expense		Yields/ Rates
$69,738.1	$	994.7	5.72	%	$	72,159.1		$	1,792.7	5.01	%	$	69,109.3		$	1,975.1	5.76	%
1,247.0		17.4	5.58			1,525.0			37.7	4.98			1,234.1			35.0	5.71
70,985.1		1,012.1	5.72			73,684.1			1,830.4	5.01			70,343.4			2,010.1	5.76
16,538.3		211.0	5.10			20,414.8			333.4	3.27			16,242.3			432.1	5.32
413.6		7.1	6.91			385.7			12.6	6.55			419.0			14.5	6.93
16,951.9		218.1	5.15			20,800.5			346.0	3.33			16,661.3			446.6	5.36
1,454.7		6.6	1.79			1,474.6			9.0	1.21			1,316.0			11.8	1.79
3,454.7		57.4	6.65			8,150.7			219.4	5.38			3,767.8			125.0	6.63
352.6		1.5	1.70			11.2			0.1	1.21			340.7			3.0	1.78
1,541.5		6.0	1.57			1,810.4			8.7	0.97			1,544.4			12.3	1.61
94,740.5		1,301.7	5.51			105,931.5			2,413.6	4.59			93,973.6			2,608.8	5.60
(934.0)						(947.0	)						(915.8	)
3,196.7						3,387.5							3,278.0
1,623.3						1,592.7							1,618.2
4,987.6						6,598.3							4,959.6
2,877.9						2,302.4							2,735.1
$106,492.0					$	118,865.4						$	105,648.7
$10,181.1	$	18.8	0.74	%	$	11,452.4		$	28.4	0.50	%	$	9,902.1		$	36.9	0.75	%
20,369.5		84.4	1.66			22,071.4			117.4	1.07			19,783.5			168.2	1.71
6,436.8		23.1	1.44			6,236.0			26.7	0.86			6,354.8			46.8	1.49
9,683.0		91.6	3.80			8,236.2			112.7	2.76			9,363.7			183.6	3.95
3,803.6		25.0	2.64			3,418.7			39.1	2.31			3,648.5			55.8	3.08
50,474.0		242.9	1.93			51,414.7			324.3	1.27			49,052.6			491.3	2.02
2,394.8		28.6	4.72			3,743.1			64.7	3.44			2,520.1			69.4	5.47
2,785.0		12.1	1.72			6,801.4			42.2	1.23			2,785.3			23.9	1.71
55,653.8		283.6	2.04			61,959.2			431.2	1.40			54,358.0			584.6	2.17
9,670.5		34.1	1.40			12,166.9			62.3	1.02			9,954.5			69.6	1.39
783.7		3.4	1.71			674.8			3.9	1.16			1,023.2			8.1	1.60
11,889.9		157.5	5.31			11,821.7			272.8	4.65			12,080.4			315.7	5.27
77,997.9		478.6	2.46			86,622.6			770.2	1.79			77,416.1			978.0	2.55
14,992.2						16,871.7							14,795.3
4,758.8						6,545.5							4,871.8
6,901.5						7,368.7							6,816.1
1,841.6						1,456.9							1,749.4
$106,492.0					$	118,865.4						$	105,648.7
			3.05	%						2.80	%						3.05	%
	$	823.1						$	1,643.4						$	1,630.8
			3.48	%						3.13	%						3.50	%

³ Derivative instruments used to help manage SunTrust’s interest-sensitivity position increased net interest income $10.6 million and decreased net interest income $0.6 and $11.7 million in the quarters ended June 30 and March 31, 2003 and June 30, 2002, respectively, and increased net interest income $10.1 million and decreased net interest income $33.0 million for the six months ended June 30, 2003 and 2002, respectively.

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Business Segments. Prior to 2001, the Company’s segment disclosures were 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. In January 2001, the Company began implementing significant changes to its internal management reporting system to measure and manage certain business activities by line of business. For more financial details on business segment disclosures, please see Note 8—Business Segment Reporting in the Notes to the Financial Statements. The lines of business are defined as follows:

Retail

The Retail line of business includes loans, deposits, and other fee based services for consumer and private banking clients, as well as business clients with less than $5 million in sales. Retail serves clients through an extensive network of traditional and in-store branches, ATMs, the Internet (www.SunTrust.com) and the telephone (1-800-SUNTRUST). In addition to serving the retail market, the Retail line of business serves as an entry point for other lines of business. When clients’ needs change and expand, Retail refers clients to the Private Client Services, Mortgage and Commercial lines of business.

Commercial

The Commercial line of business provides enterprises with a full array of financial solutions including traditional commercial lending, treasury management, financial risk management products and corporate card services. The primary customer segments served by this line of business include “Commercial” ($5 million to $50 million in annual revenues), “Middle Market” ($50 million to $250 million in annual revenues), “Commercial Real Estate” (entities that specialize in Commercial Real Estate activities), and “Government/Not-for-Profit” entities. Also included in this segment are specialty groups that operate both within and outside of the SunTrust footprint such as Affordable Housing (tax credits related to community development) and Premium Assignment Corporation (insurance premium financing).

Corporate and Investment Banking

Corporate and Investment Banking (“CIB”) is comprised of the following businesses: corporate banking, investment banking, capital market businesses, commercial leasing, receivables capital management and merchant banking. The corporate banking strategy is focused on companies with sales in excess of $250 million and is organized along industry specialty and geographic lines, providing along with credit, a full array of traditional bank services, capital markets capabilities, and investment banking. The investment banking strategy is focused on small and mid cap growth companies and is organized along industry specialty lines, raising public and private equity and providing merger and acquisition advisory services. The debt and equity capital markets businesses support both the corporate banking and investment banking relationships as well as the smaller commercial clients who are covered by our Commercial line of business and wealthy individuals who are served by our PCS line of business. Our equity research coverage universe includes companies from all of the client bases mentioned above. Commercial leasing provides equipment leasing and finance primarily to corporate and commercial clients of SunTrust. Receivables Capital Management provides traditional factoring services as well as other value-added receivables management services.

Private Client Services

Private Client Services (“PCS”) provides a full array of wealth management products and professional services to both individual and institutional clients. PCS’ primary segments include brokerage, individual wealth management, and institutional investment management and administration. SunTrust Securities, Inc.

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operates across the Company’s footprint and offers discount/online and full service brokerage services to individual clients. Alexander Key offers full service brokerage services to affluent and wealthy clients who generally do not have a pre-existing relationship with the Company. Alexander Key is currently located in Atlanta, Nashville, Washington D.C., Jacksonville, Orlando, and Richmond with plans to expand into additional high opportunity markets. PCS also offers professional investment management and trust services to clients seeking active management of their financial resources. The ultra high net worth segment of these clients is serviced by Asset Management Advisors (“AMA”). AMA provides “family office” services to high net worth clients. Acting in this capacity, AMA investment professionals utilize sophisticated financial products and wealth management tools to provide a holistic approach to multi-generational wealth management. AMA is currently located in Atlanta, Orlando, West Palm Beach, Washington D.C., and Greenwich, Connecticut. Institutional investment management and administration is comprised of Trusco Capital Management, Inc. (“Trusco”), Retirement Services, Endowment & Foundation Services, Corporate Trust, and Stock Transfer. Retirement Services provides administration and custody services for 401(k) and employee defined benefit plans. Endowment & Foundation Services provides administration and custody services to non-profit organizations, including government agencies, colleges and universities, community charities and foundations, and hospitals. Corporate Trust targets issuers of tax-exempt and corporate debt and asset-based securities, as well as corporations and attorneys requiring escrow and custodial services. Trusco is a registered investment advisor that acts as the investment manager for PCS’ clients and the STI Classic Funds.

Mortgage

The Mortgage line of business originates mortgage loans through retail, broker and correspondent channels. These loans are securitized and sold in the secondary market with servicing rights retained or held in the Company’s residential loan portfolio. The line of business services loans for its own residential mortgage portfolio as well as for others.

Corporate/Other

Corporate/Other (“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. The major components of the Other line of business include Enterprise Information Services, which is the primary data processing and operations group; the Corporate Real Estate group, which manages the Company’s facilities; Marketing, which handles advertising, product management and customer information functions; SunTrust Online, which handles customer phone inquiries and phone sales and manages the internet banking function; Human Resources, which includes the recruiting, training and employee benefit administration functions; Finance, which includes accounting, budgeting, planning, tax and treasury. Other functions included in the Other line of business are credit risk management, credit review, audit, internal control, legal and compliance, branch operations, corporate strategies development and the executive management group. The Other line of business also contains certain expenses that have not been allocated to the primary lines of business, eliminations, and the residual offsets derived from matched-maturity funds transfer pricing and provision for loan losses/credit risk premium allocations.

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The following table for SunTrust’s reportable business segments compares total income before taxes for the three and six months ended June 30, 2003 to the same period last year:

Total Contribution Before Taxes Table 3

(Dollars in thousands) (Unaudited)	Three Months Ended
	June 30, 2003		June 30, 2002
Retail	$	147,725	$	226,751
Commercial		118,942		107,133
Corporate and Investment Banking		95,765		54,329
Mortgage		67,646		43,907
Private Client Services		48,713		54,886
Corporate/Other		8,026		32,793
Total Consolidated FTE Adjusted		486,817		519,799
Less: FTE Adjustments		10,902		9,724
Total Consolidated	$	475,915	$	510,075
	Six Months Ended
	June 30, 2003		June 30, 2002
Retail	$	297,329	$	391,014
Commercial		239,876		202,657
Corporate and Investment Banking		158,657		57,151
Mortgage		126,207		78,013
Private Client Services		92,860		101,335
Corporate/Other		53,528		111,359
Total Consolidated FTE Adjusted		968,457		941,529
Less: FTE Adjustments		21,445		19,269
Total Consolidated	$	947,012	$	922,260

The following table for SunTrust’s reportable business segments compares average loans and average deposits for the three and six months ended June 30, 2003 to the same period last year:

							Table 4
(Dollars in thousands) (Unaudited)	Three Months Ended
	June 30, 2003				June 30, 2002
Lines of Business	Average loans		Average deposits		Average loans		Average deposits
Retail	$	23,032,226	$	52,745,930	$	21,747,548	$	52,109,291
Commercial		21,610,825		10,235,959		19,662,571		8,390,458
Corporate and Investment Banking		15,032,295		2,915,413		16,010,733		2,412,460
Mortgage		12,589,452		1,729,327		12,017,615		825,806
Private Client Services		1,976,603		1,508,692		1,555,596		1,564,374
	Six Months Ended
	June 30, 2003				June 30, 2002
Lines of Business	Average loans		Average deposits		Average loans		Average deposits
Retail	$	22,823,867	$	52,394,214	$	20,886,758	$	50,733,328
Commercial		21,224,321		10,150,925		19,160,763		8,233,457
Corporate and Investment Banking		15,369,070		2,862,776		16,390,846		2,345,479
Mortgage		12,339,495		1,505,225		12,086,939		810,250
Private Client Services		1,870,468		1,464,789		1,547,554		1,539,932

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The following analysis details the operating results for each line of business for the three and six months ended June 30, 2003 and 2002:

Retail

Retail’s contribution before taxes for the six months ended June 30, 2003 was $297.3 million, declining $93.7 million, or 24.0 %, compared to the six months ended June 30, 2002. The second quarter 2003 contribution before taxes declined $79.0 million, or 34.9%. The decrease in contribution before taxes was attributable to a decline in net interest income. Net interest income for deposits declined as the lower interest rate environment depressed funds transfer pricing credit rates on deposits. Deposit margin compression, or the inability to reduce interest rates paid on deposits as much as the drop in the funds transfer pricing credit, also contributed to the decline in net interest revenue. Provision for loan losses increased $25.9 million year to date and $12.7 million compared to the second quarter of 2002.

Lower noninterest expense and higher noninterest income partially offset the impact of lower net interest income. Expense reduction programs succeeded in cutting noninterest expenses by $13.6 million year over year and by $2.2 million quarter over quarter. Year to date fee income increased $13.4 million from 2002 and $1.6 million for the quarter as compared with the same quarter last year.

Balance sheet growth continued with average loan balances growing $1.9 billion, or 9.3%, year over year. Average loan balances grew $1.3 billion, or 5.9%, for quarter over previous year quarter. Average deposit balances increased $1.7 billion, or 3.3%, year over year and $636.6 million, or 1.2%, quarter over previous year quarter. The Lighthouse acquisition did not have a material impact on the balance sheet.

Commercial

The Commercial line of business’ contribution before taxes increased $37.2 million, or 18.4%, between year to date periods ending June 30, 2003 and 2002. The increased contribution before taxes was driven by a combination of increased net interest income on loans, increased noninterest income and lower expenses. The contribution before taxes for the quarter ending June 30, 2003, increased by $11.8 million, or 11.0%, over the same period in 2002.

Net interest income increased by $16.4 million, or 6.2%, during the comparable year to date periods, driven by a $2.1 billion, or 10.8%, increase in loan volumes and improved net interest income on loans. Deposit volumes also rose by $1.9 billion, or 23.3%. Increased loan volumes were largely the result of increased demand while higher deposit volume resulted from increased market liquidity. Net interest income for the quarters ending June 30, 2003 and 2002, increased by $6.5 million, or 4.8%, driven by greater volumes and improved net interest income on loans.

Total noninterest income increased by $18.1 million, or 15.5%, from June 30, 2002 to June 30, 2003. The improvement was generated by greater account service charges, letters of credit fees and merchant income. Higher service charges were a function of greater account volumes at lower earnings credit rates. Improved letter of credit fees and merchant income resulted largely from increased volume. Noninterest income for the second quarter of 2003 increased $10.4 million, or 18.4% compared to the second quarter of 2002.

Total noninterest expense decreased by $5.4 million, or 3.4%, between comparable year to date periods driven by controlled salary expenses and reduced support costs. Expenses grew by $3.7 million, or 5.1%, during quarterly periods ending June 30, 2003 and 2002.

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Corporate and Investment Banking

Corporate and Investment Banking’s contribution before taxes increased $101.5 million, or 177.6%, the first half of 2003 compared to the first half of 2002. The biggest factor in the improvement was a $72.2 million decrease in the provision for loan losses. The remaining $29.3 million increase was due to improvements of $16.7 million in noninterest income and $22.6 million in noninterest expense, partially offset by a decline of $10.0 million in net interest income. Noninterest income increased 6.4% due primarily to capital markets revenue generated as customers continue to restructure their balance sheets, taking advantage of the historic low interest rate environment. Noninterest expense declined 11.1% due to the continued management of these expenses in a challenging operating environment. The net interest income reduction was predominately due to average loan balances declining $1.0 billion, or 6.2%, resulting from continued soft loan demand and refinancings in the public markets. Average deposit balances increased $517.3 million, or 22.1%, benefiting from increased liquidity in the market place.

Corporate and Investment Banking’s contribution before taxes increased $41.4 million, or 76.3%, for the quarter ended June 30, 2003, as compared with the same quarter prior year. Contributing to the increase was a $18.0 million decrease in the provision for loan losses. The remaining $23.4 million increase was predominately due to a $17.2 million, or 12.6%, improvement in noninterest income, relating primarily to increased capital markets revenue.

Private Client Services

Private Client Services line of business’ contribution before taxes decreased $6.2 million, or 11.2%, for the quarter ended June 30, 2003 and $8.5 million, or 8.4%, for the six month period ended June 30, 2003 compared to the same periods in 2002.

Trust and investment management income decreased $8.0 million, or 6.0%, compared to the second quarter of 2002 and $16.2 million, or 6.2% year to date. As of June 30, 2003 and 2002, assets under management were approximately $96 billion and $93 billion, respectively. Average assets under management for the three month periods ended June 30, 2003 and 2002 were approximately $94 billion and $96 billion, respectively, and for the six month periods ended June 30, 2003 and 2002 were approximately $92 billion and $94 billion, respectively, which contributed to the decline in revenue. The revenue decline was also attributable to less non-recurring revenue, primarily related to estate fees, in 2003 compared to 2002. Assets under management include individually managed assets, the STI Classic Funds, institutional assets managed by Trusco Capital Management, and participant-directed retirement accounts. SunTrust’s total assets under advisement were approximately $171.1 billion, which included $22.5 billion in non-managed corporate trust assets, $33.0 billion in non-managed trust assets, and $19.6 billion in retail brokerage assets. The retail brokerage assets include $1.7 billion related to Alexander Key. Assets under management increased 3.0% despite the 1.5% decline in the equity markets due to strong net new business and an appreciation in bond values. Lost business was comparable with prior periods, and new business maintained its momentum.

Retail investment income increased $4.7 million, or 12.5%, compared to the second quarter of 2002 and $10.8 million, or 15.8% year to date. As of June 30, 2003, brokerage assets increased 28.2% compared to June 30, 2002. The increase is primarily due to an increase in broker production, the number of brokers, and increased revenue generated by Alexander Key. Retail investment sales increased 19.6% and 22.8%, respectively compared to the second quarter 2002 and year to date.

Noninterest expense increased $2.5 million, or 2.0%, for the quarter ended June 30, 2003 and $3.9 million, or 1.6%, for the six month period ended June 30, 2003 compared to the same periods in 2002. The increase was primarily due to additional personnel and occupancy expenses associated with PCS’ business related

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investments. PCS continues to invest in the core business, new product capabilities, and new distribution channels, but has been able to partially offset these costs with various efficiency initiatives.

Mortgage

Driven by the historically low interest rates, mortgage loan production reached record levels of $23.6 billion and $13.4 billion for 2003 year to date and second quarter periods, respectively. Production for both periods was more than double that of the comparable 2002 periods. Mortgage line of business average assets increased $2.9 billion and $3.8 billion for year to date and second quarter, respectively, principally due to higher volumes of mortgages held for sale that resulted from higher loan production.

The Mortgage line of business’ contribution before taxes was $126.2 million for the first six months of 2003, up 61.8% over the first half of 2002. For second quarter 2003, the contribution before taxes was $67.6 million, a 54.1% increase over the comparable period in 2002. Net interest income was up $74.9 million for the first half of 2003 compared with 2002 and $40.9 million in second quarter 2003 compared with the same quarter of 2002. The higher net interest income was primarily due to interest on higher volumes of mortgages held for sale. Noninterest income for the 2003 year to date and quarterly periods increased $.4 million and $2.9 million, respectively, compared with the same 2002 periods. Production income increased as a result of record production. However, the higher income was offset by a decline in servicing-related income due to increased mortgage servicing rights amortization expense that resulted from lower interest rates and higher prepayments of loans. Noninterest expense for the second quarter and year to date increased $20.0 million and $27.2 million compared to the same periods of the prior year primarily due to increases in volume-related expenses.

Corporate/Other

The Corporate/Other line of business’ second quarter contribution before taxes decreased from $32.8 million in 2002 to $8.0 million in 2003, a reduction of 75.5%. The six month contribution before taxes declined $57.8 million, or 51.9%, from 2002 to 2003.

Net interest income increased by $6.9 million, or 4.7%, for the second quarter and $26.6 million, or 8.6%, for the six month period ended June 30, 2003 compared to the same periods in 2002. The changes were the result of residual offsets derived from matched maturity funds transfer pricing and a larger investment portfolio. Noninterest income decreased $33.6 million, or 70.7%, in the second quarter of 2003 compared to 2002, and $91.9 million, or 74.3%, during the first six months of 2003 compared to the same period in 2002. These declines were primarily the result of lower security gains and lower merchant servicing income.

Noninterest expense increased $22.4 million, or 16.3%, in the second quarter of 2003 compared to the same quarter in the prior year and $59.7 million, or 23.3%, for the six month period. These increases were primarily caused by increased employee benefit expense for pension and medical insurance and increased advertising expense.

Average total assets increased $4.4 billion, or 20.1%, in the second quarter of 2003 compared to the same quarter in 2002, and $5.0 billion, or 23.3%, in the first six months of 2003 compared to the same period in 2002. The changes were primarily because of an increase in the investment portfolio. Average total liabilities increased by $7.9 billion, or 27.6%, for the quarter and $7.2 billion, or 24.5%, for the six months ended June 30, 2003 compared to the same periods in 2002. The changes were primarily because of growth in foreign interest bearing deposits and Fed Funds purchased.

Market Risk Management. Market risk refers to potential losses arising from changes in interest rates, foreign exchange rates, equity prices, commodity prices and other relevant market rates or prices. Interest

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rate risk, defined as the exposure of net interest income and Economic Value of Equity (“EVE”) to adverse movements in interest rates, is SunTrust’s primary market risk, and mainly arises from the structure of the balance sheet (non-trading activities). SunTrust is also exposed to market risk in its trading activities, mortgage servicing rights, mortgage warehouse and pipeline, and equity holdings of The Coca-Cola Company common stock. The Asset/Liability Management Committee (“ALCO”) meets regularly and is responsible for reviewing the interest-rate sensitivity position of the Company and establishing policies to monitor and limit exposure to interest rate risk. The policies established by ALCO are reviewed and approved by the Company’s Board of Directors.

Market Risk from Non-Trading Activities

The primary goal of interest rate risk management is to control exposure to interest rate risk, both within policy limits approved by ALCO and the Board and within narrower guidelines established by ALCO. These limits and guidelines reflect SunTrust’s tolerance for interest rate risk over both short-term and long-term horizons.

The major sources of the Company’s non-trading interest rate risk are timing differences in the maturity and repricing characteristics of assets and liabilities, changes in relationships between rate indices (basis risk), changes in the shape of the yield curve, and the potential exercise of explicit or embedded options. SunTrust measures these risks and their impact by identifying and quantifying exposures through use of sophisticated simulation and valuation models, as well as repricing gap analysis.

The primary method that SunTrust uses to quantify and manage interest rate risk is simulation analysis, which is used to model net interest income from assets, liabilities, and derivative positions over a specified time period under various interest rate scenarios and balance sheet structures. This analysis measures the sensitivity of net interest income over a relatively short time horizon (two years). Key assumptions in the simulation analysis (and in the valuation analysis discussed below) relate to the behavior of interest rates and spreads, the changes in product balances and the behavior of loan and deposit customers in different rate environments. Material assumptions include the repricing characteristics and balance fluctuations of indeterminate, or non-contractual, deposits.

As the future path of interest rates cannot be known in advance, management uses simulation analysis to project net interest income under various interest rate scenarios including expected, or “most likely”, as well as deliberately extreme and perhaps unlikely scenarios. The analyses may include rapid ramping of interest rates, gradual ramping of interest rates, spread narrowing and widening, and yield curve twists. Usually, each analysis incorporates what management believes to be the most appropriate assumptions about customer behavior in an interest rate scenario, but in some analyses, assumptions are deliberately changed to test the Company’s exposure to a specified event or set of events. Specific strategies are also analyzed to determine their impact on net interest income levels and sensitivities.

The following table reflects the estimated change in net interest income as a percent of net interest income forecasted under stable rates for the next twelve months due to a gradual change in interest rates (25 bps per quarter). Rates were ramped down 75 basis points in June versus 100 basis points in March (and previous quarters), since the Fed Funds rate declined to 1.00% in late June and for net interest income simulation purposes taking the Fed Funds rate to 0.00% would be a low probability. Estimated changes set forth below are dependent on material assumptions such as those previously discussed.

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Rate Change (Basis Points)	Estimated % Change in Net Interest Income Over 12 Months
	June 30, 2003		March 31, 2003
+100	0.4	%	0.5	%
-75	-0.8	%	—
-100	—		-0.8	%

As indicated, a gradual decrease in interest rates would reduce net interest income, but by an amount that is within the policy limits. A gradual increase would tend to enhance net interest income. Thus, the Company’s interest rate sensitivity position is modestly asset-sensitive. While simulations of more rapid changes in interest rates indicate more adverse changes in net interest income, the Company is still within the policy limits.

SunTrust also performs valuation analysis, which is used for discerning levels of risk present in the balance sheet and derivative positions that might not be taken into account in the net interest income simulation analysis. Whereas net interest income simulation highlights exposures over a relatively short time horizon, valuation analysis incorporates all cash flows over the estimated remaining life of all balance sheet and derivative positions. The valuation of the balance sheet, at a point in time, is defined as the discounted present value of asset cash flows and derivative cash flows minus the discounted value of liability cash flows, the net of which is referred to as the EVE. The sensitivity of EVE to changes in the level of interest rates is a measure of the longer-term repricing risk and options risk embedded in the balance sheet. In contrast to the net interest income simulation, which assumes interest rates will change over a period of time (ramp), EVE uses instantaneous changes in rates (shock). EVE values only the current balance sheet, and does not incorporate the growth assumptions that are used in the net interest income simulation model. As with the net interest income simulation model, assumptions about the timing and variability of balance sheet cash flows are critical in the EVE analysis. Particularly important are the assumptions driving prepayments and the expected changes in balances and pricing of the indeterminate deposit portfolios. As of June 30, 2003, an instantaneous 100 basis point increase in rates is estimated to increase the EVE 6.5% versus the EVE in a stable rate environment. An instantaneous 100 basis point decrease in rates is estimated to decrease the EVE 8.3% versus the EVE in a stable rate environment. These changes are within the established policy limits.

While an instantaneous and severe shift in interest rates is used in this analysis to provide an estimate of exposure under an extremely adverse scenario, management believes that a gradual shift in interest rates would have a much more modest impact. Since EVE measures the discounted present value of cash flows over the estimated lives of instruments, the change in EVE does not directly correlate to the degree that earnings would be impacted over a shorter time horizon (i.e., the current fiscal year). Further, EVE does not take into account factors such as future balance sheet growth, changes in product mix, changes in yield curve relationships, and changing product spreads that could mitigate the adverse impact of changes in interest rates.

The net interest income simulation and valuation analyses (EVE) do not necessarily include certain actions that management may undertake to manage this risk in response to anticipated changes in interest rates.

Trading Activities

Most of the Company’s trading activities are designed to provide capital markets services to customers and not to position the Company’s portfolio for gains from market movements. In order to accommodate customers, an inventory of capital markets instruments is carried and access to market liquidity is maintained

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by making bid-offer prices to other market makers. Trading activities are confined to financial instruments and derivatives. The Company participates in derivatives and foreign exchange trading, as well as underwriting and market making in equity securities as an accommodation to customers. Cash instruments are bought and sold to satisfy customer investment needs. Derivative contracts are initially entered into to meet the customer risk management needs. The Company enters into subsequent transactions to manage the level of risk in accordance with approved limits.

The Company has developed policies and procedures to manage market risk associated with trading, capital markets and foreign exchange activities using a value-at-risk (“VaR”) approach that combines interest rate risk, equity risk, foreign exchange risk, spread risk and volatility risk. For trading portfolios, VaR measures the maximum fair value the Company could lose on a trading position, given a specified confidence level and time horizon. VaR limits and exposures are monitored daily for each significant trading portfolio. The Company’s VaR calculation measures the potential losses in fair value using a 99% confidence level. This equates to 2.33 standard deviations from the mean under a normal distribution. This means that, on average, daily profits and losses are expected to exceed VaR one out of every 100 overnight trading days. The VaR methodology includes holding periods for each position based upon an assessment of relative trading market liquidity. For the Foreign Exchange and Derivatives desks, the Company estimates VaR by applying the Monte Carlo simulation platform as designed by RiskMetrics^™, and for the estimate of the Fixed Income and Equity desks’ VaR, the Company uses Bloomberg^™ analytics. The Company uses internally developed methodology to estimate VaR for the Credit Derivatives and Loan Trading Desks.

The estimated combined period-end Undiversified VaR (Undiversified VaR represents a simple summation of the VaR calculated across each Desk) was $2.5 million at June 30, 2003 and $1.4 million at December 31, 2002. The trading account net asset balance was $943.1 million as of June 30, 2003 and $787.1 million as of December 31, 2002.

Other Market Risk

Other sources of market risk include MSRs and the risk associated with holding mortgage loans prior to selling them (mortgage warehouse) into the secondary market, and commitments to customers to make mortgage loans (mortgage pipeline) that will be sold to the secondary market.

The value of the MSRs asset is dependent upon the assumed prepayment speed of the mortgage portfolio. Future expected net cash flows from servicing a loan in the servicing portfolio would not be realized if the loan pays off earlier than anticipated. MSRs are the discounted present value of future net cash flows that are expected to be received from the servicing portfolio. Accordingly, prepayment risk subjects the MSRs to impairment risk. The Company does not specifically hedge the MSRs asset for the potential impairment risk; it does however employ a balanced business strategy using the natural counter-cyclicality of servicing and production to mitigate impairment risk.

The Company hedges the risks associated with the mortgage warehouse and pipeline. The mortgage warehouse and pipeline consist primarily of fixed and adjustable-rate single family residential real estate loans. The risk associated with the mortgage warehouse and pipeline is the potential change in interest rates between the time the customer locks in the rate on the loan and the time the loan is sold. This period is usually 90-150 days. To hedge this risk, forward sales agreements and option contracts are executed. The Company has set exposure limits on the risk associated with the changes in market value of the mortgage warehouse and pipeline. The limit is based on a percentage of the aggregate mortgage warehouse and pipeline for price movements within two standard deviations.

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The Company is also subject to risk from changes in equity prices that arise from owning The Coca-Cola Company common stock. SunTrust owns 48,266,496 shares of common stock of The Coca-Cola Company, which had a carrying value of $2.2 billion at June 30, 2003. A 10% decrease in share price of The Coca-Cola Company common stock at June 30, 2003 would result in a decrease, net of deferred taxes, of approximately $146 million in accumulated other comprehensive income.

Net Interest Income/Margin. Net interest income for the first six months of 2003 was $1,643.4 million, an increase of $12.7 million or 0.8% from the first six months of 2002 and $810.4 million for the second quarter of 2003, a decrease of $12.7 million or 1.5%, from the prior year. For the six month period, the benefit from higher volumes more than offset the adverse impact of the lower rate environment on net interest income. Comparing the second quarter of 2003 versus the second quarter of 2002, the benefit from higher volumes was outweighed by the impact of the lower rate environment.

The net interest margin declined 37 basis points and 43 basis points, respectively, from 3.50% in the first six months of 2002 to 3.13% in the first six months of 2003 and from 3.48% in the second quarter of 2002 to 3.05% in the second quarter of 2003. The earning asset yield for the first six months and second quarter of 2003 declined 101 basis points and 105 basis points, respectively, from the first six months and second quarter of 2002. For the first six months and second quarter of 2003, loan yields decreased 75 basis points and 81 basis points and securities available for sale yields declined 203 basis points and 208 basis points, respectively, from the comparable prior year periods. In the first six months and second quarter of 2003, the total interest-bearing liability costs declined 76 basis points and 72 basis points, respectively, from the first six months and second quarter of 2002. The larger decrease in earning asset yield versus the decrease in liability cost caused the overall net interest margin to decline on a quarterly and year to date basis.

The decrease in the margin was due to a number of factors. The shift in the Company’s balance sheet structure to a slightly asset-sensitive position in anticipation of rising rates has not produced the expected margin benefit since rates have not materially risen as of June 30, 2003 and the yield curve has flattened throughout the latter part of 2002 and the first six months of 2003. STI prime rate averaged 4.24% for both the first six months and for the second quarter of 2003, a decline of approximately 50 basis points from the comparable prior year period averages. The Federal Reserve Bank Fed Funds rate averaged 1.24% for the first six months and 1.23% for the second quarter of 2003, approximately 51 basis points below the first six months and second quarter 2002 average. The lower rates and flattening of the yield curve in the latter part of 2002 and into the first six months of 2003 created an acceleration of prepayments in the mortgage industry. As prepayments accelerated, higher yielding assets were replaced by lower yielding assets, which reduced the yield on the residential mortgage loan and the mortgage-backed securities portfolios. The repositioning of the investment portfolio during 2001 and 2002 shortened the duration of the portfolio and contributed to the decrease in the portfolio yield. Net free funding sources, comprised of demand deposits, equity and other liabilities, net of other assets, are worth less in a low/declining rate environment, contributing to compression of the net interest margin.

Average earning assets were up 12.7% and 12.5% and average interest-bearing liabilities increased 11.9% and 10.8% for the first six months and second quarter of 2003, respectively, versus the first six months and second quarter of 2002. Average loans rose $3.3 billion, securities available for sale increased $4.1 billion and $3.7 billion, and the mortgage warehouse increased $4.4 billion and $4.8 billion in the first six months and second quarter of 2003, respectively, due to increased refinancing activity.

The Company continues to take steps to obtain alternative lower cost funding sources, such as developing initiatives to grow retail deposits. Campaigns to attract consumer deposits were implemented in 2002 and 2003. The Company believes that deposit growth has also benefited from the volatility in the financial markets. Average money market deposits grew 11.6% and 9.4%, NOW accounts increased 15.7% and 13.7%

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and demand deposits 14.0% and 17.0% in the first six months and second quarter of 2003, respectively, over the first six months and second quarter of 2002.

Interest income that the Company was unable to recognize on nonperforming loans had a negative impact of three basis points in 2003 and 2002. Table 2 contains more detailed information concerning average balances, yields earned and rates paid.

Noninterest Income. Noninterest income decreased $4.9 million, or 0.8%, and $47.8 million, or 4.0%, from the second quarter and first six months of 2002 to the second quarter and first six months of 2003. Negatively impacting noninterest income were decreases in mortgage servicing income, securities gains, and trust and investment management income. Amortization of mortgage servicing rights increased $83.6 million and $126.2 million from the second quarter and first six months of 2002, respectively, to the second quarter and first six months of 2003, respectively, due to accelerated amortization of mortgage servicing rights resulting from increased prepayments in the low interest rate environment. Securities gains declined $24.5 million and $45.9 million from the second quarter and first six months of 2002, respectively, to the second quarter and first six months of 2003, respectively, primarily due to the ongoing management of the Company’s overall interest rate sensitivity position.

Positively impacting noninterest income was a $79.2 million and $112.2 million increase in mortgage production income in the second quarter and first six months of 2003, respectively, compared to the same periods of the prior year. Total mortgage production for the second quarter and first six months of 2003 was $13.4 billion and $23.6 billion compared to $5.7 billion and $11.5 billion for the second quarter and first six months of 2002. Combined trading account profits and commissions and investment banking income, SunTrust’s capital market revenue sources, increased $9.7 million and $3.9 million in the second quarter and first six months of 2003, respectively, compared to the same periods of the prior year due to strong growth in the debt capital markets. Service charges on deposit accounts increased $4.2 million and $16.0 million compared to the second quarter and first six months of 2002 primarily due to increased NSF/stop payment volumes. Other charges and fees increased $7.0 million compared to the second quarter of 2002 and $14.9 million year to date due primarily to an increase in insurance revenues related to mortgage refinancing activities and increased letters of credit fees.

Trust and investment management income decreased $8.0 million, or 6.0%, compared to the second quarter of 2002 and $16.2 million, or 6.2% year to date. As of June 30, 2003 and 2002, assets under management were approximately $96 billion and $93 billion, respectively. Average assets under management for the three month periods ended June 30, 2003 and 2002 were approximately $94 billion and $96 billion, respectively, and for the six month periods ended June 30, 2003 and 2002 were approximately $92 billion and $94 billion, respectively, which contributed to the decline in revenue. The revenue decline was also attributable to less non-recurring revenue, primarily related to estate fees, in 2003 compared to 2002. Assets under management include individually managed assets, the STI Classic Funds, institutional assets managed by Trusco Capital Management, and participant-directed retirement accounts. SunTrust’s total assets under advisement were approximately $171.1 billion, which included $22.5 billion held in non-managed corporate trust assets, $33.0 billion in non-managed trust assets, and $19.6 billion in retail brokerage assets. The retail brokerage accounts include $1.7 billion related to Alexander Key. Assets under management increased 3.0% despite the 1.5% decline in the equity markets due to strong net new business and an appreciation in bond values. Lost business was comparable with prior periods, and new business maintained it momentum.

Retail investment income increased $4.7 million, or 12.5%, compared to the second quarter of 2002 and $10.8 million, or 15.8% year to date. As of June 30, 2003, brokerage assets increased 28.2% compared to June 30, 2002. The increase is primarily due to an increase in broker production, the number of brokers, and increased revenue generated by Alexander Key. Retail investment sales increased 19.6% and 22.8%, respectively, compared to the second quarter 2002 and year to date.

36

In May 2003, Visa agreed to lower the fees they charge retailers for processing certain debit card transactions. Beginning in August 2003, this lower fee structure will result in a reduction of debit card income recorded by banks. SunTrust expects this agreement will reduce debit card income approximately $1 million per month through the remainder of 2003 compared to the same months in 2002. The Company is continuing to assess the impact on periods beyond 2003.

Noninterest Income													Table 5
(Dollars in millions) (Unaudited)	Quarters
	2003						2002
	2			1			4			3			2
Service charges on deposit accounts	$	158.0		$	157.8		$	156.2		$	157.0		$	153.8
Trust and investment management income		124.2			120.8			119.4			123.9			132.2
Retail investment services		42.0			37.5			33.0			35.1			37.3
Other charges and fees		82.6			78.3			74.3			76.6			75.6
Mortgage production		82.1			38.8			61.3			22.3			3.0
Mortgage servicing		(80.1	)		(47.0	)		(68.1	)		(36.5	)		0.8
Investment banking income		57.2			33.8			39.5			39.8			52.8
Trading account profits and commissions		29.6			30.8			29.7			23.6			24.2
Credit card and other fees		32.4			28.6			29.9			27.4			31.4
Securities gains		31.2			42.0			39.5			45.8			55.7
Other income		37.6			26.2			13.0			33.9			34.9
Total noninterest income	$	596.8		$	547.6		$	527.7		$	548.9		$	601.7

Noninterest Expense. Noninterest expense increased $43.7 million, or 5.5%, and $49.1 million, or 3.1%, in the second quarter and first six months of 2003 compared to the same periods of the prior year. The first six months of 2002 included $16.0 million of merger related charges for operations and systems integration related to the acquisition of Huntington-Florida. The first six months of 2002 also included One Bank expenses of $26.2 million. The One Bank initiative was completed in the fourth quarter of 2002.

Personnel expense increased $15.8 million, or 3.4%, from the second quarter of 2002 to the second quarter of 2003 and $29.3 million, or 3.2%, from the first six months of 2002 to the first six months of 2003. The increase in personnel expense was mainly attributable to incentive and commission payments related to higher business volumes particularly in the mortgage line of business, which experienced record levels of production. Positively impacting personnel expense was reduction in headcount from the second quarter of 2002 to the second quarter of 2003. Headcount declined from 28,664 at June 30, 2002 to 27,336 at June 30, 2003. Pension expense increased $11.8 million from the second quarter of 2002 to the second quarter of 2003 and $24.0 million from the six months ended June 30, 2002 to the six months ended June 30, 2003 due to a reduced expected long term rate of return on plan assets and a lower discount rate for measuring pension liabilities.

Also contributing to the rise in noninterest expense was a $7.3 million, or 40.2%, and $7.0 million, or 16.2%, increase for the second quarter and first six months of 2003, respectively, compared to the same periods of the prior year in marketing and customer development related to increased sales initiatives. Amortization of intangible assets increased $7.9 million, or 33.1%, in the first six months of 2003 compared to the same period of the prior year primarily due to six months of amortization expense for the Huntington-Florida purchase recorded in 2003 compared to four months in 2002. Positively impacting noninterest expense was a decrease of $7.3 million and $17.2 million in the second quarter and first six months of 2003, respectively, in legal and consulting fees mainly attributable to the completion of the One Bank project.

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Noninterest Expense										Table 6
(Dollars in millions) (Unaudited)	Quarters
	2003						2002
	2			1			4			3			2
Salaries	$	261.8		$	272.8		$	270.5		$	276.1		$	297.6
Other compensation		124.6			102.2			114.7			87.1			96.7
Employee benefits		96.2			98.7			71.0			72.2			72.5
Total personnel expense		482.6			473.7			456.2			435.4			466.8
Outside processing and software		61.0			57.1			57.0			59.9			54.0
Net occupancy expense		58.6			57.7			61.7			57.6			55.9
Equipment expense		44.5			43.5			45.1			42.8			43.2
Marketing and customer development		25.6			24.9			20.8			15.7			18.2
Credit and collection services		19.2			16.1			15.9			14.2			16.2
Postage and delivery		17.1			17.5			18.3			17.0			17.5
Other staff expense		15.8			10.6			13.8			12.2			12.1
Communications		15.4			14.9			14.1			16.6			17.5
Amortization of intangible assets		15.2			16.7			17.5			17.5			17.5
Consulting and legal		14.6			12.7			25.0			21.6			21.8
Operating supplies		8.5			9.7			11.2			10.3			12.9
FDIC premiums		4.8			4.1			4.2			4.4			4.6
Other real estate (income) expense		(0.8	)		—			0.3			(0.1	)		(0.4	)
Other expense		55.6			59.0			75.3			51.0			36.2
Total noninterest expense	$	837.7		$	818.2		$	836.4		$	776.1		$	794.0
Efficiency ratio		59.5	%		59.3	%		61.3	%		56.9	%		55.7	%

Provision for Loan Losses and Allowance for Loan Losses. Provision for loan losses totaled $82.7 million in the second quarter of 2003, a decrease of $28.4 million, or 25.5% from the second quarter of 2002. Net charge-offs for the second quarter of 2003 were $82.2 million, a decline of $27.5 million or 25.1% from the same period of the prior year.

Provision for loan losses totaled $163.5 million in the first six months of 2003, a decrease of $111.1 million, or 40.5%, compared to the same period of 2002. Net charge-offs for the six months ended June 30, 2003 were $162.0 million, a decrease of $66.2 million or 29.0% from the six months ended June 30, 2002. The decline was due to a $65.3 million reduction in commercial net charge-offs. Commercial charge-offs in the first six months of 2002 included $67.4 million related to the bankruptcy of a large corporate energy company and $25.5 million to a troubled apparel manufacturer.

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 appropriateness of the allowance. The allowance analysis is based on accounting and regulatory guidance concerning pooled loans and specifically analyzed loans, along with other internal and external factors that affect credit losses. These other factors consider variables such as the economic environment, concentrations of credit exposure and administrative risks. These factors are key elements in the assessment of the appropriateness of the allowance because of their impact on borrowers’ repayment capacity.

At June 30, 2003, SunTrust’s allowance for loan losses totaled $940.9 million, or 1.25% of total loans, compared to $930.1 million, or 1.27% of total loans at December 31, 2002. The allowance as a percentage of total nonperforming loans increased from 182.0% at December 31, 2002 to 194.8% at June 30, 2003. The allowance as a percentage of annualized quarterly net charge-offs increased from 245.0% at December 31, 2002 to 285.5% at June 30, 2003, due to comparatively lower charge-offs in the first six months of 2003.

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Summary of Loan Loss Experience														Table 7
(Dollars in millions) (Unaudited)	Quarters
	2003						2002
	2			1			4			3			2
Allowance for Loan Losses
Balances—beginning of quarter	$	931.1		$	930.1		$	929.3		$	928.9		$	927.6
Allowance from acquisitions and other activity—net		9.3			—			—			—			—
Provision for loan losses		82.7			80.8			96.5			98.7			111.0
Charge-offs:
Commercial		(59.7	)		(50.2	)		(49.8	)		(73.1	)		(81.4	)
Real estate:
Construction		(0.6	)		(0.1	)		(0.1	)		(0.3	)		(0.2	)
Residential mortgages		(4.4	)		(3.9	)		(7.2	)		(3.7	)		(3.4	)
Other		(1.1	)		(0.2	)		(0.4	)		(1.0	)		(7.1	)
Commercial credit card		(0.7	)		(0.6	)		(0.8	)		(0.3	)		(0.4	)
Consumer loans		(33.8	)		(44.9	)		(56.9	)		(36.1	)		(31.8	)
Total charge-offs		(100.3	)		(99.9	)		(115.2	)		(114.5	)		(124.3	)
Recoveries:
Commercial		7.4			9.1			8.1			6.6			5.2
Real estate:
Construction		0.2			0.2			0.3			—			(0.1	)
Residential mortgages		1.1			1.3			0.9			1.1			1.1
Other		0.2			0.3			1.5			1.0			0.3
Commercial credit card		0.1			—			0.2			0.2			0.3
Consumer loans		9.1			9.2			8.5			7.3			7.8
Total recoveries		18.1			20.1			19.5			16.2			14.6
Net charge-offs		(82.2	)		(79.8	)		(95.7	)		(98.3	)		(109.7	)
Balance—end of quarter	$	940.9		$	931.1		$	930.1		$	929.3		$	928.9
Quarter-end loans outstanding	$	75,261.8		$	73,849.8		$	73,167.9		$	72,604.9		$	71,822.3
Average loans		74,311.5			73,049.8			72,668.8			71,695.6			70,985.1
Allowance to quarter-end loans		1.25	%		1.26	%		1.27	%		1.28	%		1.29	%
Allowance to nonperforming loans		194.8			179.0			182.0			167.8			194.0
Net charge-offs to average loans (annualized)		0.44			0.44			0.52			0.54			0.62
Recoveries to total charge-offs		18.0			20.1			16.9			14.2			11.7

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Nonperforming Assets										Table 8
(Dollars in millions) (Unaudited)	2003						2002
	June 30			March 31			December 31			September 30			June 30
Nonperforming Assets
Nonaccrual loans:
Commercial	$	304.6		$	345.1		$	351.3		$	393.0		$	316.4
Real Estate:
Construction		8.4			11.9			10.0			11.1			7.2
Residential mortgages		81.3			82.6			82.5			81.1			72.8
Other		47.6			46.2			38.0			42.6			53.8
Consumer loans		38.7			34.3			29.2			26.0			28.8
Total nonaccrual loans		480.6			520.1			511.0			553.8			479.0
Restructured loans		2.5			—			—			—			—
Total nonperforming loans		483.1			520.1			511.0			553.8			479.0
Other real estate owned (OREO)		20.9			18.0			18.0			15.0			18.2
Other repossessed assets		11.4			10.3			13.0			25.9			21.3
Total nonperforming assets	$	515.4		$	548.4		$	542.0		$	594.7		$	518.5
Ratios:
Nonperforming loans to total loans		0.64	%		0.70	%		0.70	%		0.76	%		0.67	%
Nonperforming assets to total loans plus OREO and other repossessed assets		0.68			0.74			0.74			0.82			0.72
Accruing Loans Past Due 90 Days or More	$	157.1		$	165.3		$	177.9		$	185.8		$	175.8

Nonperforming Assets. Nonperforming assets totaled $515.4 million at June 30, 2003, a decrease of $26.6 million, or 4.9%, from December 31, 2002. The decrease was primarily due to a $27.9 million decline in nonperforming loans and resulted in a decline in the ratio of nonperforming assets to total loans plus other real estate owned (“OREO”) and other repossessed assets from .74% at December 31, 2002 to .68% at June 30, 2003. Nonperforming loans at June 30, 2003 include $480.6 million of nonaccrual loans and $2.5 million of restructured loans, the latter of which represents a select group of consumer workout loans.

Interest income on nonperforming loans, if recognized, is recorded using the cash basis method of accounting. During the first six months of 2003 and 2002, this amounted to $5.6 million and $6.8 million, respectively. Interest income of $19.2 million and $23.8 million would have been recorded if all nonperforming loans had been accruing interest according to their original contract terms in the six months ended June 30 2003 and 2002, respectively.

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Loan Portfolio by Types of Loans										Table 9
(Dollars in millions) (Unaudited)	2003				2002
	June 30		March 31		December 31		September 30		June 30
Commercial	$	28,273.2	$	28,557.2	$	28,693.6	$	28,823.9	$	28,690.0
Real estate:
Construction		4,281.4		4,040.2		4,002.4		3,936.7		3,841.0
Residential mortgages		21,284.6		20,302.4		19,443.4		19,187.5		18,605.3
Other		9,324.6		9,181.4		9,101.8		8,881.4		8,802.2
Commercial credit card		132.1		127.9		111.3		115.6		102.1
Consumer loans		11,965.9		11,640.7		11,815.4		11,659.8		11,781.7
Total loans	$	75,261.8	$	73,849.8	$	73,167.9	$	72,604.9	$	71,822.3

Loans. Total loans at June 30, 2003, were $75.3 billion, an increase of $2.1 billion, or 2.9%, from December 31, 2002 primarily due to an increase in residential mortgages and the acquisition of Lighthouse. The Lighthouse acquisition added $574.9 million of loans to the portfolio as of June 30, 2003, including $339.6 million in residential mortgages and $180.4 million in construction loans. Residential mortgages, which include home equity lines, increased $1.8 billion, or 9.5%, compared to December 31, 2002. This increase was primarily due to a $979.8 million, or 18.9%, increase in home equity lines and a $990.5 million, or 8.0%, increase in retained first mortgages. The Company retains in its loan portfolio predominantly mortgage loans with variable interest rates. The increase in home equity lines was attributable to the Company’s “Giant Truckload” marketing campaign, appreciation in the housing market, and the favorable interest rate environment.

Income Taxes. The provision for income taxes was $146 million and $289 million for the second quarter and first six months of 2003, compared to $166 million and $274 million for the same prior year periods. This represents an approximate 31% effective tax rate for both the second quarter and the first six months of 2003 compared to 33% and 30% for the same prior year periods. The Company expects the year ended 2003 effective tax rate to approximate 31%.

Securities Available for Sale. The investment portfolio is managed as part of the overall asset and liability management process to optimize income and market performance over an entire interest rate cycle while mitigating risk. The average size was $20.7 billion on an amortized cost basis for the second quarter of 2003, approximately the same size as $20.9 billion in the first quarter of 2003 and up from $17.0 billion in the second quarter of 2002. The average life was 2.7 years as of June 30, 2003, relatively unchanged from 2.6 years at March 31, 2003 and slightly shorter than 3.1 years at June 30, 2002. Floating rate securities comprised 20% of the total portfolio at quarter-end, similar to 18% at March 31, 2003 and 22% at June 30, 2002. The average duration of the portfolio, a measure of price sensitivity, was 1.4% at June 30, 2003, close to the 1.3% duration as of March 31, 2003 and the 1.6% duration as of June 30, 2002. The portfolio yield decreased to 3.07% in the second quarter of 2003 from 5.15% in the second quarter of 2002, primarily from reinvesting accelerated prepayments and repricing floating rate securities at lower market rates. The second quarter 2003 yield declined 51 basis points compared to the first quarter of 2003 for similar reasons. The portfolio is well positioned for rising interest rates because of its short average life and the mix of floating rate securities. Net securities gains of $31.2 million and $73.3 million were realized in the second quarter and first six months of 2003, respectively, primarily from selling selected fixed-rate securities to take advantage of market opportunities from historically low interest rates.

The carrying value of the investment portfolio reflected $2.5 billion in net unrealized gains at June 30, 2003, including a $2.2 billion unrealized gain on the Company’s investment in common stock of The Coca-Cola

41

Company. The market value of this common stock investment increased $129.2 million, while the net unrealized gain on the remainder of the portfolio decreased $76.6 million compared to December 31, 2002. These changes in market value did not affect the net income of SunTrust, but were included in other comprehensive income.

Off-Balance Sheet Lending Related Commitments Table 10

(Dollars in Millions) (Unaudited)	At June 30, 2003
Lines of credit
Home equity lines	$	6,238.1
Commercial credit card		494.8
Commercial real estate		2,897.1
Mortgage commitments1		18,890.0
Commercial paper conduit		4,180.7
Commercial		33,064.8
Total lines of credit	$	65,765.5
Letters of credit	$	10,804.1

¹ Includes $10,497.4 million in interest rate locks accounted for as derivatives.

Liquidity Management. Liquidity risk is the risk of being unable to timely meet obligations as they come due at reasonable cost. SunTrust manages this risk by maintaining borrowing resources to fund increases in assets and replace maturing obligations or deposit withdrawals, both in the normal course of business and in times of unusual events. ALCO sets the policies and reviews adherence to these policies.

The Company’s sources of funds include a large, stable deposit base, secured advances from the Federal Home Loan Bank, and access to the capital markets. The Company structures its balance sheet so that illiquid assets, such as loans, are funded through customer deposits, long term debt, other liabilities and capital. The Company utilizes short-term unsecured borrowings to the extent there is adequate pledgeable or marketable securities and other secured borrowing sources.

Customer-based core deposits, the Company’s largest and most cost-effective source of funding, accounted for 66% of the funding base on average in the second quarter of 2003, compared to 65% in the first quarter of 2003 and 70% in the second quarter of 2002. The decrease compared to 2002 is attributable primarily to growth in the investment portfolio and loans held for sale, which have largely been financed through wholesale funding sources. Increases in rates, economic activity and confidence in the financial markets may lead to disintermediation of deposits, which may need to be replaced with higher cost borrowings.

Net short-term unsecured borrowed funds, including wholesale domestic and international deposits and Fed Funds, totaled $15.1 billion at June 30, 2003 compared to $14.7 billion at December 31, 2002 and $7.9 billion at June 30, 2002. As noted above, the increase is primarily attributable to the growth in the investment portfolio and loans held for sale. Total net wholesale funding, including short-term unsecured borrowings, secured wholesale borrowings and long-term debt, totaled $32.1 billion at June 30, 2003 versus $32.0 billion at December 31, 2002 and $26.8 billion at June 30, 2002. The Company manages reliance on short-term unsecured borrowings as well as total wholesale funding through policy limits reviewed at ALCO.

The Company maintains 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. Liquidity is also available through unpledged securities in the investment portfolio and capacity to securitize

42

loans, including single-family mortgage loans. The Company’s credit ratings are important to its access to unsecured wholesale borrowings. Significant changes in these ratings could change the cost and availability of these sources.

The low rate environment has created heavy refinance activity and the amount of mortgage loans originated by the Company. The Company sells most of these loans into the secondary market and such loans are included in loans held for sale. Delivery of these mortgages into the secondary market has not kept pace with production, leading to unusually large balances in this account. For the first six months of 2003, the Company originated $23.8 billion in loans held for sale compared to $10.6 billion for the first six months of 2002. As of June 30, 2003, the balance of loans held for sale was $9.0 billion compared to $7.7 billion on December 31, 2002. SunTrust has been able to fund this increase in balances in the normal course of business and anticipates being able to do so in the future. As production decreases, the balance of this account should decline as delivery of mortgages surpasses production.

As is common in the financial services industry, SunTrust Bank assists in providing liquidity to select corporate customers by directing them to a third party owned commercial paper conduit. SunTrust’s conduit relationship is with Three Pillars Funding Corporation (“Three Pillars”). Three Pillars provides financing for or direct purchases of financial assets originated and serviced by SunTrust Bank’s corporate customers. Three Pillars finances this activity by issuing A-1/P-1 rated commercial paper. The result is a favorable funding arrangement for these SunTrust Bank customers.

Three Pillars had assets and liabilities, not included on the Consolidated Balance Sheet, of approximately $2.9 billion and $2.8 billion as of June 30, 2003 and December 31, 2002, respectively, which primarily consisted of secured loans, marketable asset-backed securities and short-term commercial paper liabilities. For the quarters ended June 30, 2003 and 2002, activities related to the Three Pillars relationship generated approximately $5.7 million and $4.2 million in fee revenue for SunTrust Bank. These activities include: client referrals and investment recommendations to Three Pillars; the issuing of a letter of credit, which provides partial credit protection to commercial paper holders; and providing a majority of the liquidity arrangements that would provide funding to Three Pillars in the event that it can no longer issue commercial paper or in certain other circumstances. As of June 30, 2003, the liquidity commitments and other credit enhancement SunTrust Bank had to Three Pillars totaled $4.3 billion and $372.5 million, respectively, which represent the Company’s maximum exposure to potential loss. The Company manages the credit risk associated with these commitments by subjecting them to the Company’s normal credit approval and monitoring processes. In April 2003, SunTrust Bank funded approximately $30 million related to the liquidity arrangement with Three Pillars, resulting from a ratings downgrade of an asset backed security. The Company does not anticipate a credit loss as a result of the transaction. As referenced in Note 9 to the financial statements, the Company is in the process of restructuring Three Pillars such that consolidation will not be required under FIN 46, however, consolidation is required under its current structure effective July 1, 2003. Three Pillars will continue to manage liquidity independently and no additional liquidity risk, other than the liquidity arrangements noted above, will be undertaken.

The Company had $36.0 billion in Corporate and Commercial Real Estate Commitments, in addition to the amounts described above for Three Pillars. The Company also had $10.8 billion in Letters of Credit, most of which are Standby Letters of Credit that provide that the Bank fund if certain future events occur. Of this, approximately $5.2 billion support Variable Rate Demand Obligations (“VRDOs”) remarketed by SunTrust and other agents. VRDOs are municipal securities which are remarketed by the agent on a regular basis, usually weekly. In the event that the securities are unable to be remarketed, SunTrust Bank would fund under the letters of credit.

The Company has a contingency funding plan that stress tests liquidity needs that may arise from certain events such as agency rating downgrades, rapid loan growth, or significant deposit runoff. The plan also provides for continual monitoring of net borrowed funds dependence and available sources of liquidity.

43

Management believes the Company has the funding capacity to meet the liquidity needs arising from potential events. In addition to pledgeable securities, SunTrust maintains borrowing capacity through the Federal Reserve Discount Window and the Federal Home Loan Bank of Atlanta secured with loans and marketable securities.

Liquidity is measured and monitored for the bank and holding company. The Company reviews the parent holding company’s net short-term mismatch. This measures the ability of the holding company to meet obligations through the sale or pledging of assets should access to Bank dividends be constrained.

Certain provisions of long-term debt agreements and holding company lines of credit 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, and minimum shareholders’ equity ratios. As of June 30, 2003, the Company was in compliance with all covenants and provisions of these agreements.

Derivatives. Derivative financial instruments are components of the Company’s risk management profile. These instruments include interest rate swaps, options, futures, forward contracts, credit default swaps and equity derivatives. 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 with others 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. On January 1, 2001, the Company adopted SFAS No. 133. Accordingly, all derivatives are recorded in the financial statements at fair value.

44

The following table shows the derivative instruments entered into by the Company as an end-user:

Risk Management Derivative Financial Instruments¹ Table 11

(Dollars in thousands) (Unaudited)	As of June 30, 2003
	Notional Amount		Gross Unrealized6					Equity7			Average Maturity in Yrs
			Gains		Losses
Asset Hedges
Fair value hedges
Interest rate swaps2	$	25,000	$	—	$	(970	)	$	—		1.32
Forward Contracts3		6,186,436		—		(48,392	)		—		0.19
Total asset hedges	$	6,211,436	$	—	$	(49,362	)	$	—		0.19
Liability Hedges
Cash flow hedges
Interest rate swaps4	$	1,595,000	$	—	$	(39,477	)	$	(25,660	)	0.66
Fair value hedges
Interest rate swaps5		3,717,500		222,273		—			—		10.00
Total liability hedges	$	5,312,500	$	222,273	$	(39,477	)	$	(25,660	)	7.20

¹ Represents derivatives which are qualifying hedges under SFAS No. 133.

² Interest rate swaps are designated as fair value hedges of fixed rate loans.

³ Forward contracts are designated as fair value hedges of mortgage loans in the warehouse.

⁴ Represents interest rate swaps designated as cash flow hedges of floating rate certificates of deposit.

⁵ Interest rate swaps designated as fair value hedges of trust preferred securities, subordinated notes, and other fixed rate bank debt.

⁶ Represents the fair value of derivative financial instruments less accrued interest receivable or payable.

⁷ At June 30, 2003, the net unrealized loss on derivatives included in accumulated other comprehensive income, which is a component of stockholders’ equity, was $25.7 million, net of tax, that represents the effective portion of the net gains and losses on derivatives that qualify as cash flow hedges. Gains or losses on hedges of interest rate risk will be classified into interest income or expense as a yield adjustment of the hedged item in the same period that the hedged cash flows impact earnings. As of June 30, 2003, $25.7 million of net losses, net of income taxes, recorded in accumulated other comprehensive income are expected to be reclassified as interest expense or other income during the next twelve months.

Capital Ratios							Table 12
(Dollars in millions) (Unaudited)	2003						2002
	June 30			March 31			December 31			September 30			June 30
Tier 1 capital	$	8,426.4		$	8,203.5		$	8,106.1		$	7,973.0		$	7,797.4
Total capital		12,885.5			12,617.5			12,609.8			12,125.7			12,261.2
Risk-weighted assets		113,194.8			110,903.3			108,501.1			105,441.2			101,123.1
Risk-based ratios:
Tier 1 capital		7.44	%		7.40	%		7.47	%		7.56	%		7.71	%
Total capital		11.38			11.38			11.62			11.50			12.13
Tier 1 leverage ratio		7.27			7.15			7.30			7.69			7.62
Total shareholders’ equity to assets		7.59			7.24			7.47			7.87			8.33

45

Capital Resources. SunTrust’s primary regulator, the Federal Reserve, measures capital adequacy within a framework that makes capital requirements sensitive to the risk profiles of individual banking companies. The guidelines weight assets and off balance sheet risk exposures (risk weighted assets) according to predefined classifications, creating a base from which to compare capital levels. Tier 1 Capital primarily includes realized equity and qualified preferred instruments, less purchase accounting intangibles such as goodwill and core deposit intangibles. Total Capital consists of Tier 1 Capital and Tier 2 Capital, which includes qualifying portions of subordinated debt, allowance for loan loss up to a maximum of 1.25% of risk weighted assets, and 45% of the unrealized gain on equity securities.

The Company and subsidiary banks are subject to a minimum Tier 1 Risk-Based Capital and Total Capital ratios of 4% and 8%, respectively, of risk weighted assets. To be considered “well capitalized” ratios of 6% and 10%, respectively, are needed. Additionally, the Company and the Banks are subject to Tier 1 Leverage ratio requirements, which measures Tier 1 Capital against average assets for the quarter. The minimum and well-capitalized ratios are 3% and 5%, respectively. As of June 30, 2003, SunTrust Banks, Inc. had Tier 1, Total Capital, and Tier 1 Leverage ratios of 7.44, 11.38, and 7.27%, respectively. SunTrust is committed to remaining well capitalized.

The Company raises subordinated debt as part of managing the Total Capital regulatory ratios. SunTrust Bank issued $500 million in subordinated debt in 2002 under its Global Bank Note program. There is $8.5 billion remaining under its Global Bank Note program to issue senior or subordinated debt. SunTrust Banks, Inc. has $1 billion remaining on its current shelf registration for senior or subordinated debt. In 2002, the Company raised $350 million of regulatory capital through the sale of preferred shares issued by a real estate investment trust subsidiary.

SunTrust manages capital through dividends and share repurchases authorized by the Company’s Board of Directors. The Company’s capital needs are assessed based on expected growth and the current economic climate. During the first six months 2003, share repurchases were as follows:

Share Repurchases						Table 13
(Unaudited)	Total number of shares purchased	Average price paid per share		Broker-dealer used to effect purchases	Number of shares purchased as part of publicly announced plans or programs1	Maximum number of shares that may yet be purchased under the plans or programs
January	300,000	$	55.9189	SunTrust Robinson Humphrey	300,000	9,202,796
February	1,243,000		56.0153	SunTrust Robinson Humphrey	1,243,000	7,959,796
March	1,460,000		54.4486	SunTrust Robinson Humphrey	1,460,000	6,499,796
April	—		—	—	—	6,499,796
May	—		—	—	—	6,499,796
June	—		—	—	—	6,499,796
Total	3,003,000	$	55.2440		3,003,000

¹ On November 12, 2002, the Board of Directors authorized to purchase 10 million shares of SunTrust common stock in addition to 2,796 shares which were remaining from a June 13, 2001 authorization. There is no expiration date for this authorization.

In January 2003, the FASB issued FIN No. 46, “Consolidation of Variable Interest Entities,” which addresses the criteria for the consolidation of entities similar to Three Pillars. SunTrust believes that Three Pillars, as

46

currently structured, would be consolidated. If consolidated, Three Pillars will not have a material impact on the results of operations of the Company and has an estimated 18 basis points and 28 basis points impact on Tier 1 and Total Capital, respectively. The Company is in the process of restructuring Three Pillars where consolidation under FIN 46 would not be required.

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations for a discussion of market risk on pages 32-35.

Item 4.

CONTROLS AND PROCEDURES

A review and evaluation was performed by the Company’s management, including the Company’s Chief Executive Officer (the “CEO”) and Chief Financial Officer (the “CFO”), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) or 15(d)-15(e)) as of the end of the period covered by this quarterly report. Based on that review and evaluation, the CEO and CFO have concluded that the Company’s current disclosure controls and procedures, as designed and implemented, were effective. There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect the Company’s internal controls subsequent to the date of their evaluation. There were no significant material weaknesses identified in the course of such review and evaluation and, therefore, no corrective measures were taken by the Company.

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

• Approval of a proposal to elect the following individuals as directors of SunTrust at the April 15, 2003 Annual Meeting of Shareholders:

Directors	For	Withheld
J. Hyatt Brown	237,134,738	3,686,928
Alston D. Correll	237,141,143	3,680,523
Douglas N. Daft	236,618,480	4,203,186
David H. Hughes	237,238,256	3,583,410
G. Gilmer Minor III	237,251,005	3,570,661

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The following directors’ terms of office continued after the meeting and were not up for reelection:

A.W. Dahlberg	Larry L. Prince
Patricia C. Frist	R. Randall Rollins
L. Phillip Humann	Frank S. Royal, M.D.
M. Douglas Ivester	James B. Williams
Summerfield K. Johnston Jr.	Karen Hastie Williams

• Disapproval of a shareholder proposal to adopt a compensation policy that all future stock option grants to senior executives be indexed or linked to an industry peer group stock performance index.

For	Against	Abstain	Broker non-votes
22,254,971	166,253,290	4,744,061	42,569,344

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

• Exhibit 31.1—Certification of Chairman of the Board, President and CEO, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

• Exhibit 31.2—Certification of Chief Financial Officer and Vice Chairman, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

• Exhibit 32.1—Certification of Chief Financial Officer and Vice Chairman, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

• Exhibit 32.2—Certification of Chief Financial Officer and Vice Chairman, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

• The Company filed a Form 8-K on June 2, 2003, to file a news release announcing the merger of Lighthouse Financial Services, Inc. into SunTrust Bank Holding Company, a wholly owned subsidiary of the registrant.

• The Company filed a Form 8-K on July 10, 2003, to file a news release announcing financial results for the second quarter of 2003.

• The Company filed a Form 8-K on July 21, 2003, to file a notice of the resignation of A.W. Dahlberg as a Director of SunTrust Banks, Inc.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized this 12th day of August, 2003.

SunTrust Banks, Inc.

(Registrant)

/S/ Jorge Arrieta

Jorge Arrieta

Senior Vice President and Controller

(Chief Accounting Officer)

48

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

SEC RELEASE NO. 33-8124

I, L. Phillip Humann, Chairman of the Board, President and Chief Executive Officer of the Company, certify that:

(1) I have reviewed this quarterly report on Form 10-Q of SunTrust Banks, Inc.;

(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4) The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(5) The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect

49

the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  August 11, 2003

                                    /s/ L. Phillip Humann

                                    L. Phillip Humann

                                    Chairman of  the Board, President

                                    and Chief Executive Officer

50

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

SEC RELEASE NO. 33-8124

I, John W. Spiegel, Vice-Chairman and Chief Financial Officer of the Company, certify that:

(1) I have reviewed this quarterly report on Form 10-Q of SunTrust Banks, Inc.;

(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4) The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(5) The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

51

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  August 11, 2003

                                    /s/ John W. Spiegel

                                    John W. Spiegel

                                     Vice-Chairman

                                    and Chief Financial Officer

52

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of SunTrust Banks, Inc. (the “Company”) for the quarterly period ended June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, L. Phillip Humann, Chairman of the Board, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

    /S/ L. Phillip Humann

L. Phillip Humann

Chairman of the Board, President

and Chief Executive Officer

Date:  August 11, 2003

53

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of SunTrust Banks, Inc. (the “Company”) for the quarterly period ended June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John W. Spiegel, Vice Chairman of the Board and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(3) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

(4) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

    /S/ John W. Spiegel

John W. Spiegel

Vice Chairman of the Board

and Chief Financial Officer

Date:  August 11, 2003

54