Table of Contents

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, 2004
 
Commission File Number 1-8918
 
S UN T RUST B ANKS , I NC .
(Exact name of registrant as specified in its charter)

Georgia	 	58-1575035	
(State or other jurisdiction	 	(I.R.S. Employer	
of incorporation or organization)	 	Identification No.)	

303 Peachtree Street, N.E., Atlanta, Georgia	 	30308	
(Address of principal executive offices)	 	(Zip Code)	
 
(404) 588-7711
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
Yes x     No ¨
 
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, 2004, 282,790,266 shares of the Registrant’s Common Stock, $1.00 par value, were outstanding.

 
1

Table of Contents
 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	  	7-20	
			
Item 2.	 	Management’s Discussion and Analysis of Financial Condition and Results of Operations	  	21-51	
			
Item 3.	 	Quantitative and Qualitative Disclosures About Market Risk	  	52	
			
Item 4.	 	Controls and Procedures	  	52	
		
PART II OTHER INFORMATION	  	 	
			
Item 1.	 	Legal Proceedings	  	52	
			
Item 2.	 	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities	  	53	
			
Item 3.	 	Defaults Upon Senior Securities	  	53	
			
Item 4.	 	Submission of Matters to a Vote of Security Holders	  	53-54	
			
Item 5.	 	Other Information	  	54	
			
Item 6.	 	Exhibits and Reports on Form 8-K	  	54	
		
SIGNATURES	  	55	
 
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 to comply with Regulation S-X have been included. Operating results for the three and six months ended June 30, 2004 are not necessarily indicative of the results that may be expected for the full year 2004.
 
2

Table of Contents
 
 Consolidated Statements of Income

 	  	Three Months Ended
June 30
	  	Six Months Ended
June 30
	
(In thousands except per share data) (Unaudited)	  	2004
	 	 	2003
	  	2004
	 	 	2003
	
Interest Income	  	 	 	 	 	 	 	  	 	 	 	 	 	 	
Interest and fees on loans	  	$	882,496	 	 	$	899,817	  	$	1,763,497	 	 	$	1,812,088	
Interest and fees on loans held for sale	  	 	76,846	 	 	 	108,432	  	 	143,974	 	 	 	219,448	
Interest and dividends on securities available for sale	  	 	 	 	 	 	 	  	 	 	 	 	 	 	
Taxable interest	  	 	195,776	 	 	 	135,153	  	 	391,567	 	 	 	298,233	
Tax-exempt interest	  	 	4,976	 	 	 	4,668	  	 	9,099	 	 	 	9,533	
Dividends 1	  	 	17,901	 	 	 	16,919	  	 	35,038	 	 	 	35,141	
Interest on funds sold and securities purchased under agreements to resell	  	 	4,109	 	 	 	4,376	  	 	7,441	 	 	 	8,964	
Interest on deposits in other banks	  	 	34	 	 	 	34	  	 	66	 	 	 	67	
Other interest	  	 	5,936	 	 	 	4,641	  	 	11,256	 	 	 	8,687	
 	  				 			  				 			
Total interest income	  	 	1,188,074	 	 	 	1,174,040	  	 	2,361,938	 	 	 	2,392,161	
 	  				 			  				 			
Interest Expense	  	 	 	 	 	 	 	  	 	 	 	 	 	 	
Interest on deposits	  	 	157,402	 	 	 	211,012	  	 	318,064	 	 	 	431,169	
Interest on funds purchased and securities sold under agreements to repurchase	  	 	19,949	 	 	 	29,837	  	 	39,725	 	 	 	62,298	
Interest on other short-term borrowings	  	 	3,602	 	 	 	1,759	  	 	14,625	 	 	 	3,876	
Interest on long-term debt	  	 	134,692	 	 	 	131,919	  	 	265,447	 	 	 	272,835	
 	  				 			  				 			
Total interest expense	  	 	315,645	 	 	 	374,527	  	 	637,861	 	 	 	770,178	
 	  				 			  				 			
Net Interest Income	  	 	872,429	 	 	 	799,513	  	 	1,724,077	 	 	 	1,621,983	
Provision for loan losses	  	 	38,751	 	 	 	82,662	  	 	98,139	 	 	 	163,465	
 	  				 			  				 			
Net interest income after provision for loan losses	  	 	833,678	 	 	 	716,851	  	 	1,625,938	 	 	 	1,458,518	
 	  				 			  				 			
Noninterest Income	  	 	 	 	 	 	 	  	 	 	 	 	 	 	
Service charges on deposit accounts	  	 	168,704	 	 	 	157,954	  	 	331,922	 	 	 	315,775	
Trust and investment management income	  	 	140,366	 	 	 	124,215	  	 	276,584	 	 	 	245,010	
Retail investment services	  	 	49,839	 	 	 	41,991	  	 	95,577	 	 	 	79,459	
Other charges and fees	  	 	94,766	 	 	 	82,574	  	 	187,513	 	 	 	160,845	
Investment banking income	  	 	54,330	 	 	 	57,167	  	 	99,143	 	 	 	90,979	
Trading account profits and commissions	  	 	31,034	 	 	 	29,583	  	 	60,424	 	 	 	60,376	
Card fees	  	 	37,721	 	 	 	32,376	  	 	69,415	 	 	 	61,049	
Other noninterest income	  	 	54,953	 	 	 	39,694	  	 	101,294	 	 	 	57,681	
Securities (losses) gains	  	 	(9,048	)	 	 	31,238	  	 	(4,121	)	 	 	73,277	
 	  				 			  				 			
Total noninterest income	  	 	622,665	 	 	 	596,792	  	 	1,217,751	 	 	 	1,144,451	
 	  				 			  				 			
Noninterest Expense	  	 	 	 	 	 	 	  	 	 	 	 	 	 	
Employee compensation	  	 	434,902	 	 	 	386,439	  	 	835,195	 	 	 	761,446	
Employee benefits	  	 	86,020	 	 	 	96,160	  	 	192,523	 	 	 	194,878	
Net occupancy expense	  	 	61,629	 	 	 	58,563	  	 	123,488	 	 	 	116,285	
Outside processing and software	  	 	70,619	 	 	 	61,022	  	 	136,245	 	 	 	118,076	
Equipment expense	  	 	45,740	 	 	 	44,546	  	 	90,825	 	 	 	88,016	
Marketing and customer development	  	 	31,655	 	 	 	25,583	  	 	61,874	 	 	 	50,462	
Amortization of intangible assets	  	 	14,590	 	 	 	15,208	  	 	30,230	 	 	 	31,925	
Other noninterest expense	  	 	183,294	 	 	 	150,207	  	 	347,817	 	 	 	294,869	
 	  				 			  				 			
Total noninterest expense	  	 	928,449	 	 	 	837,728	  	 	1,818,197	 	 	 	1,655,957	
 	  				 			  				 			
Income before provision for income taxes	  	 	527,894	 	 	 	475,915	  	 	1,025,492	 	 	 	947,012	
Provision for income taxes	  	 	163,057	 	 	 	145,556	  	 	302,178	 	 	 	288,805	
 	  				 			  				 			
Net Income	  	$	364,837	 	 	$	330,359	  	$	723,314	 	 	$	658,207	
 	  				 			  				 			
Average common shares - diluted (thousands)	  	 	283,116	 	 	 	280,287	  	 	283,320	 	 	 	280,806	
Average common shares - basic (thousands)	  	 	279,840	 	 	 	277,397	  	 	279,682	 	 	 	278,011	
Net income per average common share - diluted	  	$	1.29	 	 	$	1.17	  	$	2.55	 	 	$	2.34	
Net income per average common share - basic	  	 	1.31	 	 	 	1.19	  	 	2.59	 	 	 	2.37	
1    Includes dividends on common stock of The Coca-Cola Company	  	 	12,066	 	 	 	10,618	  	 	24,133	 	 	 	21,237	
 
See notes to consolidated financial statements
 
3

Table of Contents
 Consolidated Balance Sheets

(Dollars in thousands) (Unaudited)	  	June 30
2004
	 	 	December 31
2003
	 	
Assets	  	 	 	 	 	 	 	 	
Cash and due from banks	  	$	4,068,693	 	 	$	3,931,653	 	
Interest-bearing deposits in other banks	  	 	17,196	 	 	 	16,329	 	
Funds sold and securities purchased under agreements to resell	  	 	1,679,403	 	 	 	1,373,392	 	
Trading assets	  	 	1,807,320	 	 	 	1,853,137	 	
Securities available for sale 1	  	 	25,587,978	 	 	 	25,606,884	 	
Loans held for sale	  	 	5,030,617	 	 	 	5,552,060	 	
Loans	  	 	82,540,230	 	 	 	80,732,321	 	
Allowance for loan losses	  	 	(943,718	)	 	 	(941,922	)	
 	  				 				
Net loans	  	 	81,596,512	 	 	 	79,790,399	 	
Premises and equipment	  	 	1,615,562	 	 	 	1,595,307	 	
Goodwill	  	 	1,164,846	 	 	 	1,077,638	 	
Other intangible assets	  	 	721,428	 	 	 	639,619	 	
Customers’ acceptance liability	  	 	25,849	 	 	 	63,014	 	
Other assets	  	 	4,819,644	 	 	 	3,893,721	 	
 	  				 				
Total assets	  	$	128,135,048	 	 	$	125,393,153	 	
 	  				 				
Liabilities and Shareholders’ Equity	  	 	 	 	 	 	 	 	
Noninterest-bearing consumer and commercial deposits	  	$	20,610,429	 	 	$	21,001,324	 	
Interest-bearing consumer and commercial deposits	  	 	53,244,549	 	 	 	51,923,322	 	
 	  				 				
Total consumer and commercial deposits	  	 	73,854,978	 	 	 	72,924,646	 	
Brokered deposits	  	 	4,050,525	 	 	 	3,184,084	 	
Foreign deposits	  	 	7,623,200	 	 	 	5,080,789	 	
 	  				 				
Total deposits	  	 	85,528,703	 	 	 	81,189,519	 	
Funds purchased and securities sold under agreements to repurchase	  	 	8,099,685	 	 	 	9,505,246	 	
Other short-term borrowings	  	 	1,438,908	 	 	 	4,175,415	 	
Long-term debt	  	 	17,441,487	 	 	 	15,313,922	 	
Acceptances outstanding	  	 	25,849	 	 	 	63,014	 	
Trading liabilities	  	 	1,072,125	 	 	 	1,048,543	 	
Other liabilities	  	 	4,493,624	 	 	 	4,366,328	 	
 	  				 				
Total liabilities	  	 	118,100,381	 	 	 	115,661,987	 	
 	  				 				
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	  	 	1,297,555	 	 	 	1,288,311	 	
Retained earnings	  	 	7,590,411	 	 	 	7,149,118	 	
Treasury stock, at cost, and other	  	 	(625,137	)	 	 	(664,518	)	
Accumulated other comprehensive income	  	 	1,477,675	 	 	 	1,664,092	 	
 	  				 				
Total shareholders’ equity	  	 	10,034,667	 	 	 	9,731,166	 	
 	  				 				
Total liabilities and shareholders’ equity	  	$	128,135,048	 	 	$	125,393,153	 	
 	  				 				
Common shares outstanding	  	 	282,726,614	 	 	 	281,923,057	 	
Common shares authorized	  	 	750,000,000	 	 	 	750,000,000	 	
Treasury shares of common stock	  	 	11,436,143	 	 	 	12,239,700	 	
1    Includes net unrealized gains on securities available for sale	  	$	2,258,984	 	 	$	2,614,512	 	
 
See notes to consolidated financial statements
 
4

Table of Contents
 Consolidated Statements of Cash Flow

 	  	Six months ended June 30
	 	
(Dollars in thousands) (Unaudited)	  	2004
	 	 	2003
	 	
Cash Flows from Operating Activities:	  	 	 	 	 	 	 	 	
Net income	  	$	723,314	 	 	$	658,207	 	
Adjustments to reconcile net income to net cash provided by operating activities:	  	 	 	 	 	 	 	 	
Depreciation, amortization and accretion	  	 	330,141	 	 	 	479,676	 	
Origination of mortgage servicing rights	  	 	(108,317	)	 	 	(211,763	)	
Provisions for loan losses and foreclosed property	  	 	98,676	 	 	 	163,781	 	
Amortization of compensation element of restricted stock	  	 	3,889	 	 	 	2,709	 	
Stock option compensation	  	 	9,371	 	 	 	4,127	 	
Securities losses (gains)	  	 	4,121	 	 	 	(73,277	)	
Net gain on sale of assets	  	 	(3,196	)	 	 	(7,892	)	
Originated loans held for sale, net	  	 	(15,088,185	)	 	 	(23,809,704	)	
Sales of loans held for sale	  	 	15,609,628	 	 	 	22,520,003	 	
Net increase in other assets	  	 	(354,932	)	 	 	(646,380	)	
Net (decrease) increase in other liabilities	  	 	(24,065	)	 	 	1,484,394	 	
 	  				 				
Net cash provided by operating activities	  	 	1,200,445	 	 	 	563,881	 	
 	  				 				
Cash Flows from Investing Activities:	  	 	 	 	 	 	 	 	
Proceeds from maturities of securities available for sale	  	 	2,644,935	 	 	 	6,063,195	 	
Proceeds from sales of securities available for sale	  	 	3,239,896	 	 	 	3,145,453	 	
Purchases of securities available for sale	  	 	(6,688,036	)	 	 	(7,902,918	)	
Loan originations net of principal collected	  	 	(4,759,021	)	 	 	(1,892,824	)	
Proceeds from sale of loans	  	 	200,643	 	 	 	128,687	 	
Capital expenditures	  	 	(108,532	)	 	 	(47,926	)	
Proceeds from the sale of other assets	  	 	19,093	 	 	 	15,459	 	
Other investing activities	  	 	1,990	 	 	 	—  	 	
Net cash used for acquisitions	  	 	(191,649	)	 	 	(34,261	)	
 	  				 				
Net cash used in investing activities	  	 	(5,640,681	)	 	 	(525,135	)	
 	  				 				
Cash Flows from Financing Activities:	  	 	 	 	 	 	 	 	
Net increase in consumer and commercial deposits	  	 	931,556	 	 	 	608,532	 	
Net increase (decrease) in foreign and brokered deposits	  	 	3,408,852	 	 	 	(3,450,959	)	
Net (decrease) increase in funds purchased and other short-term borrowings	  	 	(1,579,037	)	 	 	4,137,194	 	
Proceeds from the issuance of long-term debt	  	 	2,500,157	 	 	 	9,506	 	
Repayment of long-term debt	  	 	(130,718	)	 	 	(256,266	)	
Proceeds from the exercise of stock options	  	 	21,039	 	 	 	4,856	 	
Proceeds from stock issuance	  	 	28,389	 	 	 	26,901	 	
Acquisition of treasury stock	  	 	(14,063	)	 	 	(165,988	)	
Dividends paid	  	 	(282,021	)	 	 	(252,501	)	
 	  				 				
Net cash provided by financing activities	  	 	4,884,154	 	 	 	661,275	 	
 	  				 				
Net increase in cash and cash equivalents	  	 	443,918	 	 	 	700,021	 	
Cash and cash equivalents at beginning of year	  	 	5,321,374	 	 	 	5,558,295	 	
 	  				 				
Cash and cash equivalents at end of period	  	$	5,765,292	 	 	$	6,258,316	 	
 	  				 				
Supplemental Disclosure	  	 	 	 	 	 	 	 	
Interest paid	  	$	644,198	 	 	$	795,983	 	
Income taxes paid	  	 	244,663	 	 	 	82,599	 	
Income taxes refunded	  	 	272	 	 	 	1,100	 	
Non-cash impact of the deconsolidation of Three Pillars	  	 	(2,563,031	)	 	 	—  	 	
 
See notes to Consolidated Financial Statements
 
5

Table of Contents
 Consolidated Statements of Shareholders’ Equity

(Dollars and shares in thousands) (Unaudited)	  	Common
Shares
Outstanding
	 	 	Common
Stock
	  	Additional
Paid in
Capital
	 	 	Retained
Earnings
	 	 	Treasury
Stock and
Other*
	 	 	Accumulated
Other
Comprehensive
Income
	 	 	Total
	 	
Balance, January 1, 2003	  	282,505	 	 	$	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	  	150	 	 	 	—  	  	 	747	 	 	 	—  	 	 	 	8,236	 	 	 	—  	 	 	 	8,983	 	
Acquisition of treasury stock	  	(3,003	)	 	 	—  	  	 	—  	 	 	 	—  	 	 	 	(165,988	)	 	 	—  	 	 	 	(165,988	)	
Acquisition of Lighthouse Financial Services	  	1,152	 	 	 	—  	  	 	11,745	 	 	 	—  	 	 	 	64,144	 	 	 	(1	)	 	 	75,888	 	
Restricted stock activity	  	117	 	 	 	—  	  	 	(518	)	 	 	—  	 	 	 	518	 	 	 	—  	 	 	 	—  	 	
Amortization of compensation element of restricted stock	  	—  	 	 	 	—  	  	 	—  	 	 	 	—  	 	 	 	2,709	 	 	 	—  	 	 	 	2,709	 	
Issuance of stock for employee benefit plans	  	472	 	 	 	—  	  	 	573	 	 	 	—  	 	 	 	26,328	 	 	 	—  	 	 	 	26,901	 	
 	  			 			  				 				 				 				 				
Balance, June 30, 2003	  	281,393	 	 	$	294,163	  	$	1,288,657	 	 	$	6,727,923	 	 	$	(696,517	)	 	$	1,564,477	 	 	$	9,178,703	 	
 	  			 			  				 				 				 				 				
Balance, January 1, 2004	  	281,923	 	 	$	294,163	  	$	1,288,311	 	 	$	7,149,118	 	 	$	(664,518	)	 	$	1,664,092	 	 	$	9,731,166	 	
Net income	  	—  	 	 	 	—  	  	 	—  	 	 	 	723,314	 	 	 	—  	 	 	 	—  	 	 	 	723,314	 	
Other comprehensive income:	  	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Change in unrealized gains (losses) on derivatives, net of taxes	  	—  	 	 	 	—  	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	46,508	 	 	 	46,508	 	
Change in unrealized gains (losses) on securities, net of taxes	  	—  	 	 	 	—  	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(232,677	)	 	 	(232,677	)	
Accumulated other comprehensive income related to retirement plans	  	—  	 	 	 	—  	  	 	—  	 	 	 	—  	 	 	 	—  	 	 	 	(248	)	 	 	(248	)	
 	  	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 				
Total comprehensive income	  	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	536,897	 	
Cash dividends declared, $1.00 per share	  	—  	 	 	 	—  	  	 	—  	 	 	 	(282,021	)	 	 	—  	 	 	 	—  	 	 	 	(282,021	)	
Exercise of stock options and stock compensation expense	  	475	 	 	 	—  	  	 	4,690	 	 	 	—  	 	 	 	25,720	 	 	 	—  	 	 	 	30,410	 	
Acquisition of treasury stock	  	(200	)	 	 	—  	  	 	—  	 	 	 	—  	 	 	 	(14,063	)	 	 	—  	 	 	 	(14,063	)	
Restricted stock activity	  	119	 	 	 	—  	  	 	(831	)	 	 	—  	 	 	 	831	 	 	 	—  	 	 	 	—  	 	
Amortization of compensation element of restricted stock	  	—  	 	 	 	—  	  	 	—  	 	 	 	—  	 	 	 	3,889	 	 	 	—  	 	 	 	3,889	 	
Issuance of stock for employee benefit plans	  	410	 	 	 	—  	  	 	5,385	 	 	 	—  	 	 	 	23,004	 	 	 	—  	 	 	 	28,389	 	
 	  			 			  				 				 				 				 				
Balance, June 30, 2004	  	282,727	 	 	$	294,163	  	$	1,297,555	 	 	$	7,590,411	 	 	$	(625,137	)	 	$	1,477,675	 	 	$	10,034,667	 	

*	Balance at June 30, 2003 includes $663,666 for treasury stock and $32,851 for compensation element of restricted stock.	
 
  	Balance at June 30, 2004 includes $597,162 for treasury stock and $27,975 for compensation element of restricted stock.	
 
See notes to consolidated financial statements
 
6

Table of Contents
 Notes to Consolidated Financial Statements (Unaudited)
 
Note 1 – Principles of Consolidation and Accounting Policies
 
The consolidated financial statements include the accounts of SunTrust Banks, Inc. (“SunTrust” or “Company”) and its majority-owned subsidiaries, and those variable interest entities (VIEs) where the Company is the primary beneficiary. All significant intercompany accounts and transactions have been eliminated. The Company accounts for investments in companies that it owns a voting interest of 20 percent to 50 percent and for which it may have significant influence over operating and financing decisions using the equity method of accounting. These investments are included in other assets and the Company’s proportionate share of income or loss is included in other income.
 
The consolidated interim financial statements of SunTrust are unaudited. Certain reclassifications have been made to prior year amounts to conform to 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, 2003. 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, 2003.
 
Note 2 – Acquisitions
 
On May 9, 2004, SunTrust announced a definitive agreement to acquire National Commerce Financial Corporation (NCF), a Memphis-based financial services organization. The proposed merger will enhance the Company’s current geographic position, as well as expand the Company’s footprint to include new areas within the Southeast, primarily Western Tennessee, North Carolina and South Carolina. The Company will acquire approximately $24 billion in assets and $16 billion in deposits. The consideration will be a combination of cash and stock with the purchase price estimated to be $6.9 billion. NCF shareholders will have the right, subject to proration, to elect to receive cash or SunTrust common stock. The total consideration consists of approximately $1.8 billion in cash and approximately 75.4 million SunTrust shares. The agreement has been approved by both boards of directors and is subject to customary regulatory and shareholder approvals. The merger is expected to close in the fourth quarter of 2004.
 
On May 28, 2004, SunTrust completed the acquisition of Seix Investment Advisors. The Company acquired approximately $17 billion in assets under management. The Company paid $190 million in cash, with the possibility of additional payments to be made in 2007 and 2009, contingent on performance. The additional payments are currently estimated to total approximately $90 million. The acquisition did not have a material impact on SunTrust’s financial position or results of operations.
 
Note 3 – Accounting Developments
 
Accounting Policies Adopted
 
In January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. (FIN) 46, “Consolidation of Variable Interest Entities.” FIN 46 is an Interpretation of Accounting Research Bulletin (ARB) No. 51 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 and would consolidate the VIE. In addition to the primary beneficiary, an enterprise that holds a significant variable interest in a VIE is required to make certain interim and annual
 
7

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Notes to Consolidated Financial Statements (Unaudited)
 
disclosures. As of July 1, 2003, the Company adopted the Interpretation and the disclosures related to certain of the Company’s variable interests in VIEs.
 
On December 24, 2003, the FASB issued a revision of FIN 46 (FIN 46(R)), which replaces the Interpretation issued in January 2003. The revised Interpretation clarifies some of the provisions of FIN 46 and provides additional exemptions for certain entities. Under the provisions of FIN 46(R), SunTrust was permitted to continue the application of FIN 46 until the reporting period ended March 31, 2004, at which time the Company adopted the provisions of FIN 46(R). The adoption of FIN 46(R) did not have a material impact on the Company’s financial position or results of operations. The required disclosures related to the Company’s variable interests in VIEs are included in Note 10 to the Consolidated Financial Statements.
 
In the normal course of business, the Company enters into derivatives, consisting primarily of MBS forward sale contracts, to offset the change in value of its IRLCs related to residential mortgage loans that are intended to be held for sale. Pull-through estimates (the degree to which IRLCs are expected to result in closed residential mortgage loans) are used to determine appropriate levels of MBS forward sale contracts. This risk management technique is employed by the Company to offset changes in value of IRLCs related to residential mortgage loans that are intended to be held for sale.
 
In March 2004, the Securities Exchange Commission (SEC) Staff issued Staff Accounting Bulletin (SAB) No. 105, “Application of Accounting Principles to Loan Commitments,” which addresses the accounting treatment for loan commitments accounted for as derivative instruments. Interest rate lock commitments (IRLCs) represent commitments to extend credit at specified interest rates. The Company accounts for IRLCs associated with mortgages to be held for sale as freestanding derivative financial instruments in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended by SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” and, with the implementation of SAB No. 105, Emerging Issues Task Force (EITF) Issue No. 02-3, “Issues Involved in Accounting for Derivative Contracts Held for Trading purposes and Contracts Involved in Energy Trading and Risk Management Activities.” The SAB references SFAS No. 149 as the primary guidance for IRLC recognition, where IRLCs are classified as derivative financial instruments. Additionally, EITF Issue No. 02-3 provides guidance that the absence of an active exchange or market for derivative financial instruments renders its recorded inception value as zero, with subsequent fair values recorded as assets or liabilities. The estimated fair value of IRLCs is derived from current mortgage-backed security (MBS) prices and no fair value is recorded at inception with subsequent changes in value recorded in earnings. The Company’s issuance of IRLCs relates to residential mortgage loans that are originated or acquired and are primarily intended to be held for sale. Originated IRLCs that are intended for investment fall under SFAS No. 149 paragraph 7(e) and are not treated as derivative financial instruments.
 
SAB No. 105 permits recognition of servicing assets only when the servicing asset has been contractually separated from the underlying loan by sale or securitization of the loan where servicing is retained. Additionally, the SAB prohibits entities from recording internally-developed intangible assets as part of the loan commitment derivative. SAB No. 105 is effective for mortgage loan commitments that are accounted for as derivatives and are entered into after March 31, 2004. The adoption of SAB No. 105 did not have a material impact on the Company’s financial position or results of operations.
 
Recently Issued Accounting Pronouncements
 
In December 2003, the American Institute of Certified Public Accountants (AICPA) issued Statement of Position (SOP) 03-3, “Accounting for Loans or Certain Debt Securities Acquired in a Transfer.” The SOP
 
8

Table of Contents
Notes to Consolidated Financial Statements (Unaudited)
 
addresses accounting for differences 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 a deterioration of credit quality. The SOP also prohibits companies from “carrying over” or creating a valuation allowance in the initial accounting for loans acquired that meet the scope criteria of the SOP. The SOP is effective for loans acquired in fiscal years beginning after December 15, 2004. The adoption of this SOP is not expected to have a material impact on the Company’s financial position or results of operations.
 
In December 2003, the Medicare Prescription Drugs, Improvement and Modernization Act of 2003 (the Medicare Act) was signed into law. The Medicare Act calls for sponsors of retiree health care benefit plans to be reimbursed for a certain percentage of the prescription cost for retirees. SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions,” requires enacted changes in relevant laws to be considered in current period measurements of postretirement benefit costs and Accumulated Postretirement Benefit Obligations (APBO). Therefore, under SFAS No. 106, measures of APBO and net periodic post retirement benefit costs on or after the date of enactment should reflect the effects of the Medicare Act. However, certain accounting issues raised in the Medicare Act resulted in the FASB allowing plan sponsors to elect to defer accounting for the effects of the Medicare Act until further guidance is issued. The Company elected to defer until the FASB issued additional guidance.
 
In May 2004, the FASB issued FASB Staff Position (FSP) No. 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003”, which provides the guidance on how to account for the effects of the new Medicare prescription drug legislation. If the Company determines that the drug benefits being offered to retirees are actuarially equivalent to the drug benefits under the Medicare Act, then the subsidy should be accounted for in the measurement of the APBO and recognized as an actuarial gain over an estimated average working life of the current employee workforce. The FSP also provides guidance for disclosures concerning the effects of the subsidy for employers when the employer has not yet determined actuarial equivalency. The FSP is effective for the first interim period beginning after June 15, 2004 and provides various transition alternatives. The measurement of the APBO or net periodic postretirement benefit cost in the Consolidated Financial Statements does not reflect any amount associated with the subsidy, as the Company plans to adopt the FSP in the quarter ending September 30, 2004. The Company does not expect the adoption of the FSP to have a material impact on the Company’s financial position or results of operations.
 
9

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Notes to Consolidated Financial Statements (Unaudited) – continued
 
Note 4 – Intangible Assets
 
Under the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets,” the Company completed its 2003 annual review of goodwill and determined there was no impairment. 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, 2003 and 2004 are as follows:

(Dollars in thousands) (Unaudited)	  	Retail
	 	 	Commercial
	  	Corporate and
Investment
Banking
	  	Mortgage
	  	Private Client
Services
	  	Corporate/
Other
	  	Total
	
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	  	 	41,830	 	 	 	24,447	  	 	—  	  	 	24,804	  	 	—  	  	 	—  	  	 	91,081	
Other acquisitions	  	 	—  	 	 	 	—  	  	 	—  	  	 	690	  	 	—  	  	 	—  	  	 	690	
 	  				 			  			  			  			  			  			
Balance, June 30, 2003	  	$	733,203	 	 	$	121,073	  	$	94,852	  	$	41,259	  	$	69,333	  	$	—  	  	$	1,059,720	
 	  				 			  			  			  			  			  			
Balance, January 1, 2004	  	$	736,514	 	 	$	123,276	  	$	94,852	  	$	53,663	  	$	69,333	  	$	—  	  	$	1,077,638	
Purchase price adjustment	  	 	449	 	 	 	190	  	 	—  	  	 	2,579	  	 	—  	  	 	—  	  	 	3,218	
Seix Investment Advisors	  	 	—  	 	 	 	—  	  	 	—  	  	 	—  	  	 	83,990	  	 	—  	  	 	83,990	
Reallocation	  	 	(4,975	)	 	 	—  	  	 	—  	  	 	—  	  	 	4,975	  	 	—  	  	 	—  	
 	  				 			  			  			  			  			  			
Balance, June 30, 2004	  	$	731,988	 	 	$	123,466	  	$	94,852	  	$	56,242	  	$	158,298	  	$	—  	  	$	1,164,846	

The changes in the carrying amounts of other intangible assets for the six months ended June 30, 2003 and 2004 are as follows:

(Dollars in thousands) (Unaudited)	  	Core Deposit
Intangible
	 	 	Mortgage
Servicing
Rights
	 	 	Other
	 	 	Total
	 	
Balance, January 1, 2003	  	$	216,855	 	 	$	383,918	 	 	$	11,385	 	 	$	612,158	 	
Amortization	  	 	(30,902	)	 	 	(198,859	)	 	 	(1,023	)	 	 	(230,784	)	
Servicing rights originated	  	 	—  	 	 	 	211,763	 	 	 	—  	 	 	 	211,763	 	
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	 	
 	  				 				 				 				
Balance, January 1, 2004	  	$	165,028	 	 	$	449,293	 	 	$	25,298	 	 	$	639,619	 	
Amortization	  	 	(27,226	)	 	 	(97,339	)	 	 	(3,005	)	 	 	(127,570	)	
Servicing rights originated	  	 	—  	 	 	 	108,317	 	 	 	—  	 	 	 	108,317	 	
Seix acquisition	  	 	—  	 	 	 	—  	 	 	 	99,200	 	 	 	99,200	 	
Other	  	 	—  	 	 	 	—  	 	 	 	1,862	 	 	 	1,862	 	
 	  				 				 				 				
Balance, June 30, 2004	  	$	137,802	 	 	$	460,271	 	 	$	123,355	 	 	$	721,428	 	

10

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Notes to Consolidated Financial Statements (Unaudited) – continued
 
The estimated amortization expense for intangible assets, excluding amortization of mortgage servicing rights, for the year 2004 and the subsequent years is as follows:

(Dollars in thousands)(Unaudited)	  	Core Deposit
Intangible
	  	Other
	  	Total
	
2004	  	$	52,208	  	$	8,858	  	$	61,066	
2005	  	 	41,515	  	 	11,629	  	 	53,144	
2006	  	 	31,975	  	 	11,065	  	 	43,040	
2007	  	 	22,664	  	 	11,054	  	 	33,718	
2008	  	 	13,339	  	 	10,387	  	 	23,726	
Thereafter	  	 	3,327	  	 	73,367	  	 	76,694	
 	  			  			  			
Total	  	$	165,028	  	$	126,360	  	$	291,388	

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, 2004 and 2003 is as follows:

 	  	Three Months Ended
June 30
	 	 	Six Months Ended
June 30
	 	
(Dollars in thousands) (Unaudited)	  	2004
	 	 	2003
	 	 	2004
	 	 	2003
	 	
Net income, as reported	  	$	364,837	 	 	$	330,359	 	 	$	723,314	 	 	$	658,207	 	
Stock-based employee compensation expense included in reported net income, net of related tax effects	  	 	3,245	 	 	 	1,365	 	 	 	5,904	 	 	 	2,487	 	
Total stock-based employee compensation expense determined under fair-value-based method for all awards,	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
net of related tax effects	  	 	(4,742	)	 	 	(4,459	)	 	 	(9,018	)	 	 	(8,814	)	
 	  				 				 				 				
Net income, pro forma	  	$	363,340	 	 	$	327,265	 	 	$	720,200	 	 	$	651,880	 	
 	  				 				 				 				
Earning per share:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted - as reported	  	$	1.29	 	 	$	1.17	 	 	$	2.55	 	 	$	2.34	 	
Diluted - pro forma	  	 	1.28	 	 	 	1.16	 	 	 	2.54	 	 	 	2.32	 	
Basic - as reported	  	 	1.31	 	 	 	1.19	 	 	 	2.59	 	 	 	2.37	 	
Basic - pro forma	  	 	1.30	 	 	 	1.18	 	 	 	2.58	 	 	 	2.35	 	

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Notes to Consolidated Financial Statements (Unaudited) – continued
 
Note 6 – Comprehensive Income
 
Comprehensive income for the six months ended June 30, 2004 and 2003 is calculated as follows:

(Dollars in thousands) (Unaudited)	  	2004
	 	 	2003
	 	
Unrealized (loss) gain on available for sale securities, net, recognized in other comprehensive income:	  	 	 	 	 	 	 	 	
Before income tax	  	$	(357,965	)	 	$	37,180	 	
Income tax	  	 	125,288	 	 	 	(13,013	)	
 	  				 				
Net of income tax	  	$	(232,677	)	 	$	24,167	 	
 	  				 				
Amounts reported in net income:	  	 	 	 	 	 	 	 	
(Loss) gain on sale of securities	  	$	(4,121	)	 	$	73,277	 	
Net amortization	  	 	36,358	 	 	 	93,951	 	
 	  				 				
Reclassification adjustment	  	 	32,237	 	 	 	167,228	 	
Income tax	  	 	(11,283	)	 	 	(58,530	)	
 	  				 				
Reclassification adjustment, net of tax	  	$	20,954	 	 	$	108,698	 	
 	  				 				
Unrealized (loss) gain on available for sale securities arising during period, net of tax	  	$	(211,723	)	 	$	132,865	 	
Reclassification adjustment, net of tax	  	 	(20,954	)	 	 	(108,698	)	
 	  				 				
Net unrealized (loss) gain on available for sale securities recognized in other comprehensive income	  	$	(232,677	)	 	$	24,167	 	
 	  				 				
Unrealized gain on derivative financial instruments, net, recognized in other comprehensive income:	  	 	 	 	 	 	 	 	
Before income tax	  	$	71,551	 	 	$	32,437	 	
Income tax	  	 	(25,043	)	 	 	(11,353	)	
 	  				 				
Net of income tax	  	$	46,508	 	 	$	21,084	 	
 	  				 				
Accumulated other comprehensive income related to retirement plans:	  	$	(248	)	 	$	9,757	 	
 	  				 				
Total unrealized (losses) gains recognized in other comprehensive income	  	$	(186,417	)	 	$	55,008	 	
Net income	  	 	723,314	 	 	 	658,207	 	
 	  				 				
Total comprehensive income	  	$	536,897	 	 	$	713,215	 	

The components of accumulated other comprehensive income at June 30 were as follows:

(Dollars in thousands) (Unaudited)	  	2004
	 	 	2003
	 	
Unrealized gain on available for sale securities	  	$	1,466,667	 	 	$	1,608,257	 	
Unrealized gain (loss) on derivative financial instruments	  	 	29,252	 	 	 	(25,660	)	
Accumulated other comprehensive income related to retirement plans	  	 	(18,244	)	 	 	(18,120	)	
 	  				 				
Total accumulated other comprehensive income	  	$	1,477,675	 	 	$	1,564,477	 	

12

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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 6.7 million and 6.4 million for the periods ended June 30, 2004 and 2003, 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, 2004 and 2003 is included in the following table:

 	  	Three Months Ended
June 30
	  	Six Months Ended
June 30
	
(In thousands, except per share data) (Unaudited)	  	2004
	  	2003
	  	2004
	  	2003
	
Diluted	  	 	 	  	 	 	  	 	 	  	 	 	
Net income	  	$	364,837	  	$	330,359	  	$	723,314	  	$	658,207	
 	  			  			  			  			
Average common shares outstanding	  	 	279,840	  	 	277,397	  	 	279,682	  	 	278,011	
Effect of dilutive securities:	  	 	 	  	 	 	  	 	 	  	 	 	
Stock options	  	 	1,516	  	 	854	  	 	1,867	  	 	778	
Performance restricted stock	  	 	1,760	  	 	2,036	  	 	1,771	  	 	2,017	
 	  			  			  			  			
Average diluted common shares	  	 	283,116	  	 	280,287	  	 	283,320	  	 	280,806	
 	  			  			  			  			
Earnings per common share - diluted	  	$	1.29	  	$	1.17	  	$	2.55	  	$	2.34	
 	  			  			  			  			
Basic	  	 	 	  	 	 	  	 	 	  	 	 	
Net income	  	$	364,837	  	$	330,359	  	$	723,314	  	$	658,207	
 	  			  			  			  			
Average common shares	  	 	279,840	  	 	277,397	  	 	279,682	  	 	278,011	
 	  			  			  			  			
Earnings per common share - basic	  	$	1.31	  	$	1.19	  	$	2.59	  	$	2.37	

Note 8 – Business Segment Reporting
 
The Company uses a line of business management structure to measure business activities. The Company has five functional lines of business: Retail, Commercial, Corporate and Investment Banking (CIB), Mortgage, and Private Client Services (PCS). In addition, the Company reports a Corporate/Other segment which includes the investment securities portfolio, long-term debt, capital, short-term liquidity and funding activities, balance sheet risk management including derivative hedging activities, office premises and certain support activities not currently allocated to the aforementioned lines of business. Any transactions between the separate lines of business not already eliminated in the results of the functional lines of business are also reflected in the Corporate/Other line of business. Finally, the provision for income taxes is also reported in the Corporate/Other line of business segment.
 
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. Clients are serviced through an extensive network of traditional and in-store branches, ATMs, the Internet and the telephone. The Commercial line of business provides clients with a full array of financial solutions including traditional commercial lending, treasury management, financial risk management products and corporate bankcard services.
 
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Notes to Consolidated Financial Statements (Unaudited) – continued
 
This line of business primarily serves business customers between $5 million and $250 million in annual revenues in addition to entities specializing in commercial real estate activities. CIB is comprised of the following businesses: corporate banking, investment banking, capital markets 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. The Mortgage line of business offers residential mortgage products nationally through its retail, broker and correspondent channels. PCS provides a full array of wealth management products and professional services to both individual and institutional clients. PCS’ primary divisions include brokerage, individual wealth management, insurance product sales, and institutional investment management and administration.
 
The Company continues to augment its internal management reporting system. Future enhancements of 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 allocated 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 allocated expenses. During 2004, certain product-related expenses incurred within production support areas of the Company that had previously been allocated to the line of business segments, are no longer distributed to the line of business segments. These expenses are reported in the Corporate/Other line of business segment and prior periods have been reclassified. This change was made in anticipation of finalizing the methodology for full cost allocations, one of the primary future enhancements to the Company’s internal management reporting system. 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 report 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 and annual schedules in the 2004 Annual Report on Form 10-K.
 
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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, 2004 and 2003.

 	  	Three Months Ended June 30, 2004
	
(Dollars in thousands) (Unaudited)	  	Retail
	  	Commercial
	  	Corporate
and
Investment
Banking
	 	 	Mortgage
	  	Private
Client
Services
	  	Corporate/
Other
	 	 	Consolidated
	
Average total assets	  	$	29,388,058	  	$	24,619,399	  	$	19,123,294	 	 	$	23,288,466	  	$	2,681,897	  	$	28,186,344	 	 	$	127,287,458	
Average total liabilities	  	 	54,641,833	  	 	12,141,039	  	 	7,610,996	 	 	 	1,751,774	  	 	1,854,083	  	 	39,093,532	 	 	 	117,093,257	
Average total equity	  	 	—  	  	 	—  	  	 	—  	 	 	 	—  	  	 	—  	  	 	10,194,201	 	 	 	10,194,201	
 	  			  			  				 			  			  				 			
Net interest income	  	 	444,969	  	 	164,524	  	 	66,501	 	 	 	125,745	  	 	14,125	  	 	56,565	 	 	 	872,429	
Fully taxable-equivalent adjustment (FTE)	  	 	19	  	 	7,344	  	 	3,942	 	 	 	—  	  	 	2	  	 	1,330	 	 	 	12,637	
 	  			  			  				 			  			  				 			
Net interest income (FTE) 1	  	 	444,988	  	 	171,868	  	 	70,443	 	 	 	125,745	  	 	14,127	  	 	57,895	 	 	 	885,066	
Provision for loan losses 2	  	 	33,154	  	 	4,157	  	 	(130	)	 	 	303	  	 	19	  	 	1,248	 	 	 	38,751	
 	  			  			  				 			  			  				 			
Net interest income after provision for loan losses	  	 	411,834	  	 	167,711	  	 	70,573	 	 	 	125,442	  	 	14,108	  	 	56,647	 	 	 	846,315	
Noninterest income	  	 	207,793	  	 	77,182	  	 	153,713	 	 	 	23,838	  	 	192,583	  	 	(32,444	)	 	 	622,665	
Noninterest expense	  	 	291,820	  	 	82,844	  	 	83,029	 	 	 	82,587	  	 	150,482	  	 	237,687	 	 	 	928,449	
 	  			  			  				 			  			  				 			
Total income before taxes	  	 	327,807	  	 	162,049	  	 	141,257	 	 	 	66,693	  	 	56,209	  	 	(213,484	)	 	 	540,531	
Provision for income taxes 3	  	 	—  	  	 	—  	  	 	—  	 	 	 	—  	  	 	—  	  	 	175,694	 	 	 	175,694	
 	  			  			  				 			  			  				 			
Net Income	  	$	327,807	  	$	162,049	  	$	141,257	 	 	$	66,693	  	$	56,209	  	$	(389,178	)	 	$	364,837	

 	  	Three Months Ended June 30, 2003
	
 	  	Retail
	  	Commercial
	  	Corporate and
Investment
Banking
	 	 	Mortgage
	  	Private Client
Services
	  	Corporate/
Other
	 	 	Consolidated
	
Average total assets	  	$	26,182,536	  	$	23,291,717	  	$	21,467,724	 	 	$	21,563,112	  	$	2,246,039	  	$	24,696,914	 	 	$	119,448,042	
Average total liabilities	  	 	52,933,973	  	 	10,342,079	  	 	7,560,087	 	 	 	1,900,459	  	 	1,534,030	  	 	36,313,351	 	 	 	110,583,979	
Average total equity	  	 	—  	  	 	—  	  	 	—  	 	 	 	—  	  	 	—  	  	 	8,864,063	 	 	 	8,864,063	
 	  			  			  				 			  			  				 			
Net interest income	  	 	433,122	  	 	155,985	  	 	66,398	 	 	 	137,443	  	 	12,787	  	 	(6,222	)	 	 	799,513	
Fully taxable-equivalent adjustment (FTE)	  	 	15	  	 	6,374	  	 	3,191	 	 	 	—  	  	 	3	  	 	1,319	 	 	 	10,902	
 	  			  			  				 			  			  				 			
Net interest income (FTE) 1	  	 	433,137	  	 	162,359	  	 	69,589	 	 	 	137,443	  	 	12,790	  	 	(4,903	)	 	 	810,415	
Provision for loan losses 2	  	 	33,717	  	 	2,550	  	 	44,115	 	 	 	540	  	 	291	  	 	1,449	 	 	 	82,662	
 	  			  			  				 			  			  				 			
Net interest income after provision for loan losses	  	 	399,420	  	 	159,809	  	 	25,474	 	 	 	136,903	  	 	12,499	  	 	(6,352	)	 	 	727,753	
Noninterest income	  	 	188,824	  	 	61,721	  	 	154,562	 	 	 	11,256	  	 	165,896	  	 	14,533	 	 	 	596,792	
Noninterest expense	  	 	267,235	  	 	65,547	  	 	74,369	 	 	 	71,579	  	 	125,727	  	 	233,271	 	 	 	837,728	
 	  			  			  				 			  			  				 			
Total income before taxes	  	 	321,009	  	 	155,983	  	 	105,667	 	 	 	76,580	  	 	52,668	  	 	(225,090	)	 	 	486,817	
Provision for income taxes 3	  	 	—  	  	 	—  	  	 	—  	 	 	 	—  	  	 	—  	  	 	156,458	 	 	 	156,458	
 	  			  			  				 			  			  				 			
Net Income	  	$	321,009	  	$	155,983	  	$	105,667	 	 	$	76,580	  	$	52,668	  	$	(381,548	)	 	$	330,359	

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 an allocation to the lines of business reflecting credit losses.	
 
3	Includes income tax provision and taxable-equivalent income adjustment reversal of $12,637 and $10,902 for the three months ended June 30, 2004 and 2003, respectively.	
 
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Notes to Consolidated Financial Statements (Unaudited) – continued

 	  	Six Months Ended June 30, 2004
	
(Dollars in thousands)(Unaudited)	  	Retail
	  	Commercial
	  	Corporate
and
Investment
Banking
	  	Mortgage
	  	Private
Client
Services
	  	Corporate/
Other
	 	 	Consolidated
	
Average total assets	  	$	28,901,076	  	$	24,309,754	  	$	19,840,255	  	$	22,279,338	  	$	2,537,685	  	$	27,702,494	 	 	$	125,570,602	
Average total liabilities	  	 	54,077,544	  	 	11,946,710	  	 	7,979,639	  	 	1,536,212	  	 	1,758,723	  	 	38,254,532	 	 	 	115,553,360	
Average total equity	  	 	—  	  	 	—  	  	 	—  	  	 	—  	  	 	—  	  	 	10,017,242	 	 	 	10,017,242	
 	  			  			  			  			  			  				 			
Net interest income	  	 	888,387	  	 	328,042	  	 	130,956	  	 	242,545	  	 	28,807	  	 	105,340	 	 	 	1,724,077	
Fully taxable-equivalent adjustment (FTE)	  	 	37	  	 	14,593	  	 	7,620	  	 	—  	  	 	4	  	 	2,639	 	 	 	24,893	
 	  			  			  			  			  			  				 			
Net interest income (FTE) 1	  	 	888,424	  	 	342,635	  	 	138,576	  	 	242,545	  	 	28,811	  	 	107,979	 	 	 	1,748,970	
Provision for loan losses 2	  	 	71,917	  	 	11,648	  	 	9,171	  	 	2,740	  	 	32	  	 	2,631	 	 	 	98,139	
 	  			  			  			  			  			  				 			
Net interest income after provision for loan losses	  	 	816,507	  	 	330,987	  	 	129,405	  	 	239,805	  	 	28,779	  	 	105,348	 	 	 	1,650,831	
Noninterest income	  	 	401,558	  	 	160,472	  	 	286,559	  	 	44,078	  	 	377,853	  	 	(52,769	)	 	 	1,217,751	
Noninterest expense	  	 	574,693	  	 	165,206	  	 	158,137	  	 	153,939	  	 	294,805	  	 	471,417	 	 	 	1,818,197	
 	  			  			  			  			  			  				 			
Total income before taxes	  	 	643,372	  	 	326,253	  	 	257,827	  	 	129,944	  	 	111,827	  	 	(418,838	)	 	 	1,050,385	
Provision for income taxes 3	  	 	—  	  	 	—  	  	 	—  	  	 	—  	  	 	—  	  	 	327,071	 	 	 	327,071	
 	  			  			  			  			  			  				 			
Net Income	  	$	643,372	  	$	326,253	  	$	257,827	  	$	129,944	  	$	111,827	  	$	(745,909	)	 	$	723,314	

 	  	Six Months Ended June 30, 2003
	
 	  	Retail
	  	Commercial
	  	Corporate and
Investment
Banking
	  	Mortgage
	  	Private Client
Services
	  	Corporate/
Other
	 	 	Consolidated
	
Average total assets	  	$	25,998,391	  	$	22,837,441	  	$	21,878,360	  	$	21,216,318	  	$	2,143,841	  	$	24,791,001	 	 	$	118,865,352	
Average total liabilities	  	 	52,594,709	  	 	10,240,651	  	 	7,648,728	  	 	1,674,510	  	 	1,492,337	  	 	36,388,887	 	 	 	110,039,822	
Average total equity	  	 	—  	  	 	—  	  	 	—  	  	 	—  	  	 	—  	  	 	8,825,530	 	 	 	8,825,530	
 	  			  			  			  			  			  				 			
Net interest income	  	 	851,886	  	 	306,759	  	 	125,660	  	 	269,666	  	 	24,574	  	 	43,438	 	 	 	1,621,983	
Fully taxable-equivalent adjustment (FTE)	  	 	36	  	 	12,509	  	 	6,250	  	 	—  	  	 	6	  	 	2,644	 	 	 	21,445	
 	  			  			  			  			  			  				 			
Net interest income (FTE) 1	  	 	851,922	  	 	319,268	  	 	131,910	  	 	269,666	  	 	24,580	  	 	46,082	 	 	 	1,643,428	
Provision for loan losses 2	  	 	77,033	  	 	5,221	  	 	77,184	  	 	869	  	 	231	  	 	2,927	 	 	 	163,465	
 	  			  			  			  			  			  				 			
Net interest income after provision for loan losses	  	 	774,889	  	 	314,047	  	 	54,726	  	 	268,797	  	 	24,349	  	 	43,155	 	 	 	1,479,963	
Noninterest income	  	 	373,127	  	 	124,201	  	 	278,479	  	 	11,274	  	 	323,168	  	 	34,202	 	 	 	1,144,451	
Noninterest expense	  	 	532,276	  	 	127,136	  	 	145,820	  	 	138,745	  	 	247,723	  	 	464,257	 	 	 	1,655,957	
 	  			  			  			  			  			  				 			
Total income before taxes	  	 	615,740	  	 	311,112	  	 	187,385	  	 	141,326	  	 	99,794	  	 	(386,900	)	 	 	968,457	
Provision for income taxes 3	  	 	—  	  	 	—  	  	 	—  	  	 	—  	  	 	—  	  	 	310,250	 	 	 	310,250	
 	  			  			  			  			  			  				 			
Net Income	  	$	615,740	  	$	311,112	  	$	187,385	  	$	141,326	  	$	99,794	  	$	(697,150	)	 	$	658,207	

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 an allocation to the lines of business reflecting credit losses.	
 
3	Includes income tax provision and taxable-equivalent income adjustment reversal of $24,893 and $21,445 for the six months ended June 30, 2004 and 2003, respectively.	
 
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Note 9 – Employee Benefits
 
In the first quarter of 2004, SunTrust contributed $30 million related to the 2003 plan year. SunTrust does not expect to make contributions for the 2004 plan year. The expected long-term rate of return on plan assets is 8.5% for 2004.
 
The components of the net periodic benefit cost for the three and six months ended June 30, 2004 were as follows. Expenses for 2003 are not shown because obtaining that information is not practical as this year is the first year interim reporting is required.

 	  	Three months ended June 30, 2004
	 	
(In thousands)(Unaudited)	  	Retirement
Benefits
	 	 	Supplemental
Retirement
Benefits
	  	Other
Postretirement
Benefits
	 	
Service cost	  	$	10,046	 	 	$	426	  	$	716	 	
Interest cost	  	 	16,324	 	 	 	1,279	  	 	2,702	 	
Expected return on plan assets	  	 	(26,191	)	 	 	—  	  	 	(2,188	)	
Amortization of prior service cost	  	 	(97	)	 	 	486	  	 	—  	 	
Recognized net actuarial loss	  	 	7,743	 	 	 	1,109	  	 	1,863	 	
Amortization of initial transition obligation	  	 	—  	 	 	 	—  	  	 	583	 	
 	  				 			  				
Net periodic benefit cost	  	$	7,825	 	 	$	3,300	  	$	3,676	 	

 	  	Six months ended June 30, 2004
	 	
 	  	Retirement
Benefits
	 	 	Supplemental
Retirement
Benefits
	  	Other
Postretirement
Benefits
	 	
Service cost	  	$	22,890	 	 	$	852	  	$	1,432	 	
Interest cost	  	 	37,193	 	 	 	2,558	  	 	5,403	 	
Expected return on plan assets	  	 	(59,675	)	 	 	—  	  	 	(4,376	)	
Amortization of prior service cost	  	 	(221	)	 	 	972	  	 	—  	 	
Recognized net actuarial loss	  	 	17,642	 	 	 	2,218	  	 	3,726	 	
Amortization of initial transition obligation	  	 	—  	 	 	 	—  	  	 	1,166	 	
 	  				 			  				
Net periodic benefit cost	  	$	17,829	 	 	$	6,600	  	$	7,351	 	

Note 10 – Variable Interest Entities and Off-Balance Sheet Arrangements
 
SunTrust assists in providing liquidity to select corporate customers by directing them to a multi-seller commercial paper conduit, Three Pillars Funding LLC (Three Pillars). Three Pillars provides financing for direct purchases of financial assets originated and serviced by SunTrust’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 customers.
 
In January 2003, the FASB issued FIN 46, “Consolidation of Variable Interest Entities,” which addressed the criteria for the consolidation of off-balance sheet entities similar to Three Pillars. Under the provisions of FIN 46, SunTrust consolidated Three Pillars as of July 1, 2003.
 
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Notes to Consolidated Financial Statements (Unaudited) – continued
 
In December 2003, the FASB issued a revision to FIN 46 (FIN 46(R)) which replaced the Interpretation issued in January 2003. FIN 46(R) is effective for reporting periods ending after March 15, 2004. As of March 31, 2004, the Company adopted all the provisions of FIN 46(R), and the adoption did not have a material impact on the Company’s financial position or results of operations.
 
On March 1, 2004, Three Pillars was restructured through the issuance of a subordinated note to a third party. Under the terms of the subordinated note, the holder of the note will absorb the majority of Three Pillars’ expected losses. The subordinated note investor therefore is Three Pillars’ primary beneficiary, and thus the Company is not required to consolidate Three Pillars. Due to the issuance of the subordinated note, the Company deconsolidated Three Pillars effective March 1, 2004. As of June 30, 2004, Three Pillars had assets and liabilities not included on the Consolidated Balance Sheet, of approximately $3.3 billion, consisting of primarily secured loans, marketable asset-backed securities and short-term commercial paper liabilities. As of December 31, 2003, Three Pillars had assets and liabilities of approximately $3.2 billion which were included in the Consolidated Balance Sheet.
 
Activities related to the Three Pillars relationship generated fee revenue for the Company of approximately $5.6 million and $5.7 million for the quarters ended June 30, 2004 and 2003 and $10.5 million and $10.6 million for the six months ended June 30, 2004 and 2003, respectively. These activities include: client referrals and investment recommendations to Three Pillars; the issuing of a letter of credit, which provides partial credit protection to the commercial paper holders; and providing a majority of the temporary liquidity arrangements that would provide funding to Three Pillars in the event it can no longer issue commercial paper or in certain other circumstances.
 
As of June 30, 2004, off-balance sheet liquidity commitments and other credit enhancements made by the Company to Three Pillars totaled $5.2 billion and $482.0 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.
 
As part of its community reinvestment initiatives, the Company invests in multi-family affordable housing properties throughout its footprint as a limited and/or general partner. The Company receives affordable housing federal and state tax credits for these limited partner investments. Partnership assets of approximately $777.0 million and $731.8 million in partnerships where SunTrust is only a limited partner were not included in the Consolidated Balance Sheet at June 30, 2004 and December 31, 2003, respectively. The Company’s maximum exposure to loss for these partnerships at June 30, 2004 was $202.7 million, consisting of the limited partnership investments plus unfunded commitments.
 
SunTrust is the managing general partner of a number of non-registered investment limited partnerships which have been established to provide alternative investment strategies for its customers. In reviewing the partnerships for consolidations, SunTrust determined that these were voting interest entities and accordingly considered the consolidation guidance contained in SOP 78-9, “Accounting for Investments in Real Estate Ventures.” Under the terms of SunTrust’s non-registered investment limited partnerships, the limited partnerships have certain rights, such as those specifically indicated in SOP 78-9 (including the right to remove the general partner, or “kick-out rights”). As such, SunTrust, as the general partner, is precluded from consolidating the limited partnerships under the provisions of SOP 78-9.
 
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Notes to Consolidated Financial Statements (Unaudited) – continued
 
Note 11 - Guarantees
 
The Company has undertaken certain guarantee obligations in the ordinary course of business. In following the provisions of FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees” (FIN 45), 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 for the Company 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 stock, or provisions of the Company’s services. The following is a discussion of the guarantees that the Company has issued as of June 30, 2004, 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, 2004 and December 31, 2003, the maximum potential amount of the Company’s obligation was $10.2 billion and $9.7 billion, respectively, for financial and performance standby letters of credit. The Company has recorded $87.7 million in other liabilities for unearned fees, which approximates fair value, related to these letters of credit as of June 30, 2004. 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 any collateral securing the line of credit.
 
Contingent Consideration
 
The Company has contingent payment obligations related to certain business combination transactions. Payments are calculated using certain post-acquisition performance criteria. At June 30, 2004, the potential liability associated with these arrangements was approximately $143.1 million. As contingent consideration in a business combination is not subject to the recognition and measurement provisions of FIN 45, the Company currently has no amounts recorded for these guarantees at June 30, 2004. If required, these contingent payments would be payable within the next four years.
 
Other
 
In the normal course of business, the Company enters into indemnification agreements and provides standard representations and warranties in connection with numerous transactions. These transactions include those
 
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Notes to Consolidated Financial Statements (Unaudited) – continued
 
arising from underwriting agreements, merger and acquisition agreements, loan sales, contractual commitments, and various other business transactions or arrangements. The extent of the Company’s obligations under these indemnification agreements depends upon the occurrence of future events; therefore, the Company’s potential future liability under these arrangements is not determinable.
 
Third party investors hold Series B Preferred Stock in STB Real Estate Holdings (Atlanta), Inc. (STBREH), a subsidiary of SunTrust. The contract between STBREH and the third party investors 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, 2004 and December 31, 2003, $431.5 and $412.5 million is 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 investors, 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 customers’ account. For the quarter ended June 30, 2004, STS and STCM experienced minimal net losses as a result of the indemnity. The clearing agreements expire at the end of 2004 for STS and 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, 2004 and December 31, 2003 was $475.0 million and $195.0 million, respectively. As of June 30, 2004, the notional amounts expire as follows: $10.0 million in 2004, $35.0 million in 2005, $43.0 million in 2006, $55.0 million in 2007, $100.0 million in 2008, and $232.0 million in 2009. 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.
 
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 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. On May 9, 2004, SunTrust announced a definitive agreement to acquire National Commerce Financial Corporation (NCF), a Memphis-based financial services organization. The proposed merger will enhance the Company’s current geographic position, as well as expand the Company’s footprint to include new areas within the Southeast, primarily Western Tennessee, North Carolina and South Carolina. Within its geographic footprint, the Company operates under six business segments. These business segments are: Retail, Commercial, Corporate and Investment Banking (CIB), Private Client Services (PCS), Mortgage, and Corporate/Other. 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 1,197 full-service branches, including supermarket branches, and continues to leverage technology to provide customers the convenience of banking on the Internet, through 2,235 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 2004 should be read in conjunction with the financial statements, notes and other information contained in this document and the 2003 Annual Report on Form 10-K. Certain reclassifications have been made to prior year financial statements and related information to conform them to the 2004 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.
 
SunTrust presents a return on average realized shareholders’ equity, as well as a return on average assets less net unrealized securities gains. These two ratios reflect primarily adjustments to remove the effects of the Company’s securities portfolio which includes the ownership by the Company of 48.3 million shares of The Coca-Cola Company. The Company uses this information internally to gauge its actual performance in the industry. SunTrust believes that the return on assets less the net unrealized securities gains is more indicative of the Company’s return on assets because it fully reflects the return on assets that are related to the Company’s core businesses, which are primarily customer relationship and customer transaction driven. The Company also believes that the return on average realized equity is more indicative of the Company’s return on equity because the excluded equity relates primarily to a long term holding of a specific security. See Table 1 for a reconcilement of these non-GAAP performance measures.
 
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
 
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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 2003 Annual Report on Form 10-K. The Company’s most complex accounting policies require management’s judgment to ascertain the 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 reducing a liability. In instances where required by accounting principles generally accepted in the United States, 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 reviews and evaluations of larger loans that meet the definition of impairment, and the size and current risk characteristics of pools of homogenous loans within the portfolio.
 
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 and interest according to the contractual terms of the loan agreement. When a loan is deemed impaired, the amount of allowance required is measured by a careful analysis of the most probable source of repayment, including the present value of the loan’s expected future cash flow, the fair value of the underlying collateral less costs of disposition or the loan’s estimated market value. In these measurements, management uses assumptions and methodologies consistent with those that would be used by unrelated third parties.
 
Management estimates losses inherent in pools of loans that have similar characteristics by an evaluation of several factors: historical loan loss experience, current internal risk ratings based on the Company’s two dimensional risk rating system, internal portfolio trends such as increasing or decreasing levels of delinquencies and concentrations and external influences such as changes in economic or industry conditions.
 
Changes in the financial condition of individual borrowers, economic conditions, historical loss experience, or the condition of various markets in which collateral may be sold could 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, an adjustment to the allowance for loan losses could be required. Such adjustments could materially affect net income. For additional discussion of the allowance for loan losses see page 42.
 
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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 (OREO), 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 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 analyses 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 selling costs.
 
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. In determining the fair value of SunTrust’s reporting units, management makes assumptions about the Company’s revenue growth rate and the future weighted average cost of capital.
 
EARNINGS ANALYSIS
 
SunTrust reported earnings of $364.8 million and $723.3 million for the second quarter and first six months of 2004, an increase of $34.5 million, or 10.4%, and $65.1 million, or 9.9%, compared to the same periods of the prior year. Reported diluted earnings per share were $1.29 and $1.17 for the three months ended June 30, 2004 and 2003, respectively, and $2.55 and $2.34 for the six months ended June 30, 2004 and 2003, respectively.
 
Net interest income increased $74.7 million, or 9.2%, from the second quarter of 2003 to the second quarter of 2004 and increased $105.5 million, or 6.4%, from the first six months of 2003 to the first six months of 2004 as the Company benefited from higher earning asset levels and a steepening yield curve. Average earning assets increased $7.1 billion, or 6.6%, and $6.4 billion, or 6.1%, from the second quarter and first six months of 2003 to the second quarter and first six months of 2004. The margin was flat at 3.13% from the first six months of 2003 to the first six months of 2004. The margin increased eight basis points to 3.13% for the second quarter of 2004 compared to the same period of the prior year. The improvement in the margin was partially attributed to a wider spread on incremental asset production and a slowdown in prepayments, both of which were due to the steepening of the yield curve.
 
Provision for loan losses was $38.8 million in the second quarter of 2004, a decrease of $43.9 million, or 53.1%, from the second quarter of 2003. Provision for loan losses for the six months ended June 30, 2004 was $98.1 million, a decrease of $65.3 million, or 40.0%, from the same prior year period. The improvement was attributed to a general improvement in credit quality, specifically in the CIB line of business.
 
Total noninterest income was $622.7 million and $1,217.8 million for the second quarter and first six months of 2004, respectively, an increase of $25.9 million, or 4.3%, and $73.3 million, or 6.4%, from the second quarter and first six months of 2003, respectively. Positively impacting noninterest income were increases in trust and investment management income, other charges and fees, and service charges on deposits. Additionally, other noninterest income increased $15.3 million and $43.6 million in the second quarter and first six months of 2004 compared to the same prior year periods, respectively, primarily due to increases in
 
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combined mortgage production and servicing income and the consolidation of certain affordable housing partnerships. Net security gains/losses declined $40.3 million and $77.4 million compared to the second quarter and first six months of 2003, respectively. Included in the second quarter of 2004 was a $7.5 million loss due to the other than temporary write-down of an asset-backed security.
 
Total noninterest expense increased $90.7 million, or 10.8%, and $162.2 million, or 9.8%, in the second quarter and first six months of 2004 compared to the second quarter and first six months of 2003. Personnel expenses in the second quarter and first six months of 2004 increased $38.3 million and $71.4 million compared to the same periods of the prior year, primarily due to normal merit increases, a higher average headcount, primarily in the Mortgage and Retail lines of business, and increased incentive based payments related to higher business volumes in the PCS, CIB, Commercial and Retail lines of business. Contributing to the increase in other noninterest expense was the consolidation of certain affordable housing partnerships in the third quarter of 2003 and a $9.4 million expense for unfunded loan commitments recorded during the second quarter of 2004.
 
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Selected Quarterly Financial Data	 	 	 	Table 1	

 	  	Three Months Ended
June 30
	 	 	Six Months Ended
June 30
	 	
(Dollars in millions except per share data) (Unaudited)	  	2004
	 	 	2003
	 	 	2004
	 	 	2003
	 	
Summary of Operations	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Interest and dividend income	  	$	1,188.0	 	 	$	1,174.0	 	 	$	2,361.9	 	 	$	2,392.2	 	
Interest expense	  	 	315.6	 	 	 	374.5	 	 	 	637.9	 	 	 	770.2	 	
 	  				 				 				 				
Net interest income	  	 	872.4	 	 	 	799.5	 	 	 	1,724.0	 	 	 	1,622.0	 	
Provision for loan losses	  	 	38.8	 	 	 	82.7	 	 	 	98.1	 	 	 	163.5	 	
 	  				 				 				 				
Net interest income after	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
provision for loan losses	  	 	833.6	 	 	 	716.8	 	 	 	1,625.9	 	 	 	1,458.5	 	
Noninterest income	  	 	622.7	 	 	 	596.8	 	 	 	1,217.8	 	 	 	1,144.5	 	
Noninterest expense	  	 	928.4	 	 	 	837.7	 	 	 	1,818.2	 	 	 	1,656.0	 	
 	  				 				 				 				
Income before provision for	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
income taxes	  	 	527.9	 	 	 	475.9	 	 	 	1,025.5	 	 	 	947.0	 	
Provision for income taxes	  	 	163.1	 	 	 	145.5	 	 	 	302.2	 	 	 	288.8	 	
 	  				 				 				 				
Net income	  	$	364.8	 	 	$	330.4	 	 	$	723.3	 	 	$	658.2	 	
 	  				 				 				 				
Total Revenue	  	$	1,507.8	 	 	$	1,407.2	 	 	$	2,966.8	 	 	$	2,787.9	 	
Net interest income-FTE	  	 	885.1	 	 	 	810.4	 	 	 	1,749.0	 	 	 	1,643.4	 	
Per Common Share	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Diluted	  	$	1.29	 	 	$	1.17	 	 	$	2.55	 	 	$	2.34	 	
Basic	  	 	1.31	 	 	 	1.19	 	 	 	2.59	 	 	 	2.37	 	
Dividends declared	  	 	0.50	 	 	 	0.45	 	 	 	1.00	 	 	 	0.90	 	
Book value	  	 	35.49	 	 	 	32.62	 	 	 	 	 	 	 	 	 	
Market price:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
High	  	 	71.10	 	 	 	61.98	 	 	 	76.65	 	 	 	61.98	 	
Low	  	 	61.27	 	 	 	51.44	 	 	 	61.27	 	 	 	51.44	 	
Close	  	 	64.99	 	 	 	59.34	 	 	 	64.99	 	 	 	59.34	 	
Selected Average Balances	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total assets	  	$	127,287.5	 	 	$	119,448.0	 	 	$	125,570.6	 	 	$	118,865.4	 	
Earning assets	  	 	113,657.1	 	 	 	106,606.4	 	 	 	112,347.7	 	 	 	105,931.5	 	
Loans	  	 	80,936.4	 	 	 	74,311.5	 	 	 	80,420.7	 	 	 	73,684.1	 	
Consumer and commercial deposits	  	 	73,166.1	 	 	 	69,097.1	 	 	 	71,763.5	 	 	 	68,286.4	 	
Brokered and foreign deposits	  	 	10,153.9	 	 	 	10,707.2	 	 	 	10,077.3	 	 	 	10,544.4	 	
Shareholders’ equity	  	 	10,194.2	 	 	 	8,864.1	 	 	 	10,017.2	 	 	 	8,825.5	 	
Common shares - diluted (thousands)	  	 	283,116	 	 	 	280,287	 	 	 	283,320	 	 	 	280,806	 	
Common shares - basic (thousands)	  	 	279,840	 	 	 	277,397	 	 	 	279,682	 	 	 	278,011	 	
Financial Ratios (Annualized)	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Return on average total assets	  	 	1.15	%	 	 	1.11	%	 	 	1.16	%	 	 	1.12	%	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Return on average assets less realized and
unrealized securities gains/losses	  	 	1.20	 	 	 	1.06	 	 	 	1.19	 	 	 	1.06	 	
Return on average total shareholders’ equity	  	 	14.39	 	 	 	14.95	 	 	 	14.52	 	 	 	15.04	 	
Return on average realized shareholders’ equity	  	 	17.77	 	 	 	16.77	 	 	 	17.61	 	 	 	16.71	 	
Net interest margin	  	 	3.13	 	 	 	3.05	 	 	 	3.13	 	 	 	3.13	 	
 
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Selected Quarterly Financial Data

 	  	Three Months Ended
June 30
	 	 	Six Months Ended
June 30
	 	
(Dollars in millions except per share data) (Unaudited)	  	2004
	 	 	2003
	 	 	2004
	 	 	2003
	 	
Reconcilement of Non-GAAP Measures	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	  	$	364.8	 	 	$	330.4	 	 	$	723.3	 	 	$	658.2	 	
Securities losses/(gains), net of tax	  	 	5.9	 	 	 	(20.3	)	 	 	2.7	 	 	 	(47.6	)	
 	  				 				 				 				
Net income excluding securities gains and losses	  	$	370.7	 	 	$	310.1	 	 	$	726.0	 	 	$	610.6	 	
 	  				 				 				 				
Total average assets	  	$	127,287.5	 	 	$	119,448.0	 	 	$	125,570.6	 	 	$	118,865.4	 	
Average net unrealized securities gains	  	 	(2,803.9	)	 	 	(2,293.3	)	 	 	(2,692.1	)	 	 	(2,302.4	)	
 	  				 				 				 				
Average assets less net unrealized securities gains	  	$	124,483.6	 	 	$	117,154.7	 	 	$	122,878.5	 	 	$	116,563.0	 	
 	  				 				 				 				
Total average equity	  	$	10,194.2	 	 	$	8,864.1	 	 	$	10,017.2	 	 	$	8,825.5	 	
Average other comprehensive income	  	 	(1,804.8	)	 	 	(1,450.4	)	 	 	(1,725.3	)	 	 	(1,456.9	)	
 	  				 				 				 				
Total average realized equity	  	$	8,389.4	 	 	$	7,413.7	 	 	$	8,291.9	 	 	$	7,368.6	 	
 	  				 				 				 				
Return on average total assets	  	 	1.15	%	 	 	1.11	%	 	 	1.16	%	 	 	1.12	%	
Impact of excluding net realized and unrealized securities gains/losses	  	 	0.05	 	 	 	(0.05	)	 	 	0.03	 	 	 	(0.06	)	
 	  				 				 				 				
Return on average assets less realized and unrealized securities gains/losses 1	  	 	1.20	%	 	 	1.06	%	 	 	1.19	%	 	 	1.06	%	
 	  				 				 				 				
Return on average total shareholders’ equity	  	 	14.39	%	 	 	14.95	%	 	 	14.52	%	 	 	15.04	%	
Impact of excluding net realized and unrealized securities gains/losses	  	 	3.38	 	 	 	1.82	 	 	 	3.09	 	 	 	1.67	 	
 	  				 				 				 				
Return on average realized shareholders’ equity 2	  	 	17.77	%	 	 	16.77	%	 	 	17.61	%	 	 	16.71	%	
 	  				 				 				 				
Net interest income	  	$	872.4	 	 	$	799.5	 	 	$	1,724.0	 	 	$	1,622.0	 	
FTE Adjustment	  	 	12.7	 	 	 	10.9	 	 	 	25.0	 	 	 	21.4	 	
 	  				 				 				 				
Net interest income - FTE	  	 	885.1	 	 	 	810.4	 	 	 	1,749.0	 	 	 	1,643.4	 	
Noninterest income	  	 	622.7	 	 	 	596.8	 	 	 	1,217.8	 	 	 	1,144.5	 	
 	  				 				 				 				
Total Revenue	  	$	1,507.8	 	 	$	1,407.2	 	 	$	2,966.8	 	 	$	2,787.9	 	

1	Computed by dividing annualized net income, excluding tax effected securities gains and losses, by average assets less net unrealized gains on securities.	
 
2	Computed by dividing annualized net income, excluding tax effected securities gains and losses, by average realized shareholder’s equity.	
 
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Consolidated Daily Average Balances, Income/Expense
and Average Yields Earned and Rates Paid

 	  	Quarter Ended
	 	
 	  	June 30, 2004
	 	 	June 30, 2003
	 	
(Dollars in millions; yields on taxable-equivalent basis) (Unaudited)	  	Average
Balances
	 	 	Income/
Expense
	  	Yields/
Rates
	 	 	Average
Balances
	 	 	Income/
Expense
	  	Yields/
Rates
	 	
Assets	  	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	  	 	 	
Loans: 1	  	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	  	 	 	
Taxable	  	$	78,967.5	 	 	$	871.5	  	4.44 	%	 	$	72,708.3	 	 	$	889.9	  	4.91 	%	
Tax-exempt 2	  	 	1,968.9	 	 	 	22.1	  	4.51	 	 	 	1,603.2	 	 	 	19.2	  	4.80	 	
 	  				 			  			 				 			  			
Total loans	  	 	80,936.4	 	 	 	893.6	  	4.44	 	 	 	74,311.5	 	 	 	909.1	  	4.91	 	
Securities available for sale:	  	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	  	 	 	
Taxable	  	 	22,781.2	 	 	 	213.7	  	3.75	 	 	 	20,276.8	 	 	 	152.1	  	3.00	 	
Tax-exempt 2	  	 	449.7	 	 	 	6.5	  	5.81	 	 	 	381.4	 	 	 	6.2	  	6.53	 	
 	  				 			  			 				 			  			
Total securities available for sale	  	 	23,230.9	 	 	 	220.2	  	3.79	 	 	 	20,658.2	 	 	 	158.3	  	3.07	 	
Funds sold and securities purchased under agreements to resell	  	 	1,562.8	 	 	 	4.1	  	1.04	 	 	 	1,476.2	 	 	 	4.3	  	1.17	 	
Loans held for sale	  	 	6,141.2	 	 	 	76.8	  	5.01	 	 	 	8,255.4	 	 	 	108.4	  	5.25	 	
Interest-bearing deposits	  	 	17.9	 	 	 	—  	  	0.76	 	 	 	10.7	 	 	 	0.1	  	1.27	 	
Trading assets	  	 	1,767.9	 	 	 	6.0	  	1.36	 	 	 	1,894.4	 	 	 	4.7	  	0.99	 	
 	  				 			  			 				 			  			
Total earning assets	  	 	113,657.1	 	 	 	1,200.7	  	4.25	 	 	 	106,606.4	 	 	 	1,184.9	  	4.46	 	
Allowance for loan losses	  	 	(953.7	)	 	 	 	  	 	 	 	 	(952.0	)	 	 	 	  	 	 	
Cash and due from banks	  	 	3,732.5	 	 	 	 	  	 	 	 	 	3,300.5	 	 	 	 	  	 	 	
Premises and equipment	  	 	1,617.4	 	 	 	 	  	 	 	 	 	1,582.1	 	 	 	 	  	 	 	
Other assets	  	 	6,430.3	 	 	 	 	  	 	 	 	 	6,617.6	 	 	 	 	  	 	 	
Unrealized gains on securities available for sale	  	 	2,803.9	 	 	 	 	  	 	 	 	 	2,293.4	 	 	 	 	  	 	 	
 	  				 	 	 	  	 	 	 				 	 	 	  	 	 	
Total assets	  	$	127,287.5	 	 	 	 	  	 	 	 	$	119,448.0	 	 	 	 	  	 	 	
 	  				 	 	 	  	 	 	 				 	 	 	  	 	 	
Liabilities and Shareholders’ Equity	  	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	  	 	 	
Interest-bearing deposits:	  	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	  	 	 	
NOW accounts	  	$	12,811.6	 	 	$	13.4	  	0.42 	%	 	$	11,576.8	 	 	$	13.6	  	0.47 	%	
Money Market accounts	  	 	22,367.4	 	 	 	42.9	  	0.77	 	 	 	22,284.1	 	 	 	57.0	  	1.03	 	
Savings	  	 	6,990.9	 	 	 	12.7	  	0.73	 	 	 	6,253.3	 	 	 	12.7	  	0.82	 	
Consumer time	  	 	6,988.0	 	 	 	34.5	  	1.98	 	 	 	8,039.4	 	 	 	51.7	  	2.58	 	
Other time	  	 	3,416.6	 	 	 	19.7	  	2.32	 	 	 	3,395.4	 	 	 	23.1	  	2.73	 	
 	  				 			  			 				 			  			
Total interest-bearing consumer and commercial deposits	  	 	52,574.5	 	 	 	123.2	  	0.94	 	 	 	51,549.0	 	 	 	158.1	  	1.23	 	
Brokered deposits	  	 	3,668.2	 	 	 	17.1	  	1.84	 	 	 	3,573.5	 	 	 	30.7	  	3.40	 	
Foreign deposits	  	 	6,485.7	 	 	 	17.1	  	1.04	 	 	 	7,133.7	 	 	 	22.2	  	1.23	 	
 	  				 			  			 				 			  			
Total interest-bearing deposits	  	 	62,728.4	 	 	 	157.4	  	1.01	 	 	 	62,256.2	 	 	 	211.0	  	1.36	 	
Funds purchased and securities sold under agreements to repurchase	  	 	10,163.3	 	 	 	19.9	  	0.78	 	 	 	11,694.4	 	 	 	29.8	  	1.01	 	
Other short-term borrowings	  	 	1,004.6	 	 	 	3.6	  	1.44	 	 	 	603.2	 	 	 	1.8	  	1.17	 	
Long-term debt	  	 	16,784.1	 	 	 	134.7	  	3.23	 	 	 	11,860.1	 	 	 	131.9	  	4.46	 	
 	  				 			  			 				 			  			
Total interest-bearing liabilities	  	 	90,680.4	 	 	 	315.6	  	1.40	 	 	 	86,413.9	 	 	 	374.5	  	1.74	 	
Noninterest-bearing deposits	  	 	20,591.6	 	 	 	 	  	 	 	 	 	17,548.1	 	 	 	 	  	 	 	
Other liabilities	  	 	5,821.3	 	 	 	 	  	 	 	 	 	6,621.9	 	 	 	 	  	 	 	
Shareholders’ equity	  	 	10,194.2	 	 	 	 	  	 	 	 	 	8,864.1	 	 	 	 	  	 	 	
 	  				 	 	 	  	 	 	 				 	 	 	  	 	 	
Total liabilities and shareholders’ equity	  	$	127,287.5	 	 	 	 	  	 	 	 	$	119,448.0	 	 	 	 	  	 	 	
 	  				 	 	 	  	 	 	 				 	 	 	  	 	 	
Interest rate spread	  	 	 	 	 	 	 	  	2.85 	%	 	 	 	 	 	 	 	  	2.72 	%	
 	  	 	 	 	 	 	 	  			 	 	 	 	 	 	 	  			
Net Interest Income	  	 	 	 	 	$	885.1	  	 	 	 	 	 	 	 	$	810.4	  	 	 	
 	  	 	 	 	 			  	 	 	 	 	 	 	 			  	 	 	
Net Interest Margin 3 	  	 	 	 	 	 	 	  	3.13 	%	 	 	 	 	 	 	 	  	3.05 	%	

1	Interest income includes loan fees of $29.9 and $30.1 million in the quarters ended June 30, 2004, and June 30, 2003, respectively, and $57.7 and $61.7 million for the six months ended June 30, 2004, and June 30, 2003, 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 using a federal income tax rate of 35% and, where applicable, state income taxes to increase tax-exempt interest income to a taxable-equivalent basis. The net taxable-equivalent adjustment amounts included in the above table aggregated $12.6 and $10.9 million in the quarters ended June 30, 2004, and June 30, 2003, respectively, and $24.9 and $21.4 million for the six months ended June 30, 2004, and June 30, 2003, respectively.	
 
3	Derivative instruments used to help balance the Company’s interest-sensitivity position increased net interest income $41.1 and $10.6 million in the quarters ended June 30, 2004, and June 30, 2003, respectively, and $73.4 and $10.1 million for the six months ended June 30, 2004, and June 30, 2003, respectively.	
 
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Table 2

 	  	Six Months Ended
	 	
 	  	June 30, 2004
	 	 	June 30, 2003
	 	
(Dollars in millions; yields on taxable-equivalent basis) (Unaudited)	  	Average
Balances
	 	 	Income/
Expense
	  	Yields/
Rates
	 	 	Average
Balances
	 	 	Income/
Expense
	  	Yields/
Rates
	 	
Assets	  	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	  	 	 	
Loans: 1	  	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	  	 	 	
Taxable	  	$	78,490.4	 	 	$	1,741.3	  	4.46	%	 	$	72,159.1	 	 	$	1,792.7	  	5.01	%	
Tax-exempt 2	  	 	1,930.3	 	 	 	44.0	  	4.58	 	 	 	1,525.0	 	 	 	37.7	  	4.98	 	
 	  				 			  			 				 			  			
Total loans	  	 	80,420.7	 	 	 	1,785.2	  	4.46	 	 	 	73,684.1	 	 	 	1,830.4	  	5.01	 	
Securities available for sale:
 	  	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	  	 	 	
Taxable	  	 	22,621.9	 	 	 	426.6	  	3.77	 	 	 	20,414.8	 	 	 	333.4	  	3.27	 	
Tax-exempt 2	  	 	407.1	 	 	 	12.2	  	5.99	 	 	 	385.7	 	 	 	12.6	  	6.55	 	
 	  				 			  			 				 			  			
Total securities available for sale	  	 	23,029.0	 	 	 	438.8	  	3.81	 	 	 	20,800.5	 	 	 	346.0	  	3.33	 	
Funds sold and securities purchased under agreements to resell	  	 	1,401.7	 	 	 	7.4	  	1.05	 	 	 	1,474.6	 	 	 	9.0	  	1.21	 	
Loans held for sale	  	 	5,728.6	 	 	 	144.0	  	5.03	 	 	 	8,150.7	 	 	 	219.4	  	5.38	 	
Interest-bearing deposits	  	 	16.6	 	 	 	0.1	  	0.80	 	 	 	11.2	 	 	 	0.1	  	1.21	 	
Trading assets	  	 	1,751.1	 	 	 	11.3	  	1.30	 	 	 	1,810.4	 	 	 	8.7	  	0.97	 	
 	  				 			  			 				 			  			
Total earning assets	  	 	112,347.7	 	 	 	2,386.8	  	4.27	 	 	 	105,931.5	 	 	 	2,413.6	  	4.59	 	
Allowance for loan losses	  	 	(953.7	)	 	 	 	  	 	 	 	 	(947.0	)	 	 	 	  	 	 	
Cash and due from banks	  	 	3,551.8	 	 	 	 	  	 	 	 	 	3,387.5	 	 	 	 	  	 	 	
Premises and equipment	  	 	1,614.7	 	 	 	 	  	 	 	 	 	1,592.7	 	 	 	 	  	 	 	
Other assets	  	 	6,318.0	 	 	 	 	  	 	 	 	 	6,598.3	 	 	 	 	  	 	 	
Unrealized gains on securities available for sale	  	 	2,692.1	 	 	 	 	  	 	 	 	 	2,302.4	 	 	 	 	  	 	 	
 	  				 	 	 	  	 	 	 				 	 	 	  	 	 	
Total assets	  	$	125,570.6	 	 	 	 	  	 	 	 	$	118,865.4	 	 	 	 	  	 	 	
 	  				 	 	 	  	 	 	 				 	 	 	  	 	 	
Liabilities and Shareholders’ Equity	  	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	  	 	 	
Interest-bearing deposits:	  	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	  	 	 	
NOW accounts	  	$	12,571.8	 	 	$	25.1	  	0.40	%	 	$	11,452.4	 	 	$	28.4	  	0.50	%	
Money Market accounts	  	 	22,252.1	 	 	 	85.2	  	0.77	 	 	 	22,071.4	 	 	 	117.4	  	1.07	 	
Savings	  	 	6,662.6	 	 	 	22.9	  	0.69	 	 	 	6,236.0	 	 	 	26.7	  	0.86	 	
Consumer time	  	 	7,128.4	 	 	 	72.1	  	2.03	 	 	 	8,236.2	 	 	 	112.7	  	2.76	 	
Other time	  	 	3,404.5	 	 	 	39.6	  	2.34	 	 	 	3,418.7	 	 	 	39.1	  	2.31	 	
 	  				 			  			 				 			  			
Total interest-bearing consumer and commercial deposits	  	 	52,019.4	 	 	 	244.9	  	0.95	 	 	 	51,414.7	 	 	 	324.3	  	1.27	 	
Brokered deposits	  	 	3,785.6	 	 	 	39.6	  	2.07	 	 	 	3,743.1	 	 	 	64.7	  	3.44	 	
Foreign deposits	  	 	6,291.7	 	 	 	33.5	  	1.05	 	 	 	6,801.4	 	 	 	42.2	  	1.23	 	
 	  				 			  			 				 			  			
Total interest-bearing deposits	  	 	62,096.7	 	 	 	318.0	  	1.03	 	 	 	61,959.2	 	 	 	431.2	  	1.40	 	
Funds purchased and securities sold under agreements to repurchase	  	 	10,169.4	 	 	 	39.7	  	0.77	 	 	 	12,166.9	 	 	 	62.3	  	1.02	 	
Other short-term borrowings	  	 	1,871.5	 	 	 	14.6	  	1.57	 	 	 	674.8	 	 	 	3.9	  	1.16	 	
Long term debt	  	 	16,098.5	 	 	 	265.5	  	3.32	 	 	 	11,821.7	 	 	 	272.8	  	4.65	 	
 	  				 			  			 				 			  			
Total interest-bearing liabilities	  	 	90,236.1	 	 	 	637.8	  	1.42	 	 	 	86,622.6	 	 	 	770.2	  	1.79	 	
 
Noninterest-bearing deposits	  	 	19,744.2	 	 	 	 	  	 	 	 	 	16,871.7	 	 	 	 	  	 	 	
Other liabilities	  	 	5,573.1	 	 	 	 	  	 	 	 	 	6,545.6	 	 	 	 	  	 	 	
Shareholders’ equity	  	 	10,017.2	 	 	 	 	  	 	 	 	 	8,825.5	 	 	 	 	  	 	 	
 	  				 	 	 	  	 	 	 				 	 	 	  	 	 	
Total liabilities and shareholders’ equity	  	$	125,570.6	 	 	 	 	  	 	 	 	$	118,865.4	 	 	 	 	  	 	 	
 	  				 	 	 	  	 	 	 				 	 	 	  	 	 	
Interest rate spread	  	 	 	 	 	 	 	  	2.85	%	 	 	 	 	 	 	 	  	2.80	%	
 	  	 	 	 	 	 	 	  			 	 	 	 	 	 	 	  			
Net Interest Income	  	 	 	 	 	$	1,749.0	  	 	 	 	 	 	 	 	$	1,643.4	  	 	 	
 	  	 	 	 	 			  	 	 	 	 	 	 	 			  	 	 	
Net Interest Margin 1 	  	 	 	 	 	 	 	  	3.13	%	 	 	 	 	 	 	 	  	3.13	%	
 	  	 	 	 	 	 	 	  			 	 	 	 	 	 	 	  			
1	Interest income includes loan fees of $29.9 and $30.1 million in the quarters ended June 30, 2004, and June 30, 2003, respectively, and $57.7 and $61.7 million for the six months ended June 30, 2004, and June 30, 2003, 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 using a federal income tax rate of 35% and, where applicable, state income taxes to increase tax-exempt interest income to a taxable-equivalent basis. The net taxable-equivalent adjustment amounts included in the above table aggregated $12.6 and $10.9 million in the quarters ended June 30, 2004, and June 30, 2003, respectively, and $24.9 and $21.4 million for the six months ended June 30, 2004, and June 30, 2003, respectively.	
 
3	Derivative instruments used to help balance the Company’s interest-sensitivity position increased net interest income $41.1 and $10.6 million in the quarters ended June 30, 2004, and June 30, 2003, respectively, and $73.4 and $10.1 million for the six months ended June 30, 2004, and June 30, 2003, respectively.	
 
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Business Segments. Beginning in January 2001, the Company implemented 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 client 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 products and services including traditional commercial lending, treasury management, financial risk management, and corporate bankcard. The primary customer segments served by this line of business include “Commercial” ($5 million to $50 million in annual revenue), “Middle Market” ($50 million to $250 million in annual revenue), “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 markets 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. Commercial leasing provides equipment leasing and finance to various entities. Receivables Capital Management provides traditional factoring services as well as other value added receivables management services.
 
Mortgage
 
The Mortgage line of business offers residential mortgage products nationally through its retail, broker and correspondent channels. These products are sold in the secondary market primarily with servicing rights retained or held as whole loans in the Company’s residential loan portfolio. The line of business services loans for its own residential mortgage portfolio as well as for others. Additionally, the line of business generates revenue through its tax service subsidiary (ValuTree) and its captive reinsurance subsidiary (Cherokee).
 
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Table of Contents
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, insurance product sales, and institutional investment management and administration. SunTrust Securities, Inc. 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., Charlotte, N.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.
 
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 Bankcard, which handles credit card issuance and merchant discount relationships; 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, income taxes, and the residual offsets derived from matched-maturity funds transfer pricing and provision for loan losses.
 
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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, 2004 to the same period last year:

Total Income Before Taxes	  	 	 	 	Table 3	 	
		
 	  	Three Months Ended
	 	
(Dollars in thousands) (Unaudited)	  	June 30, 2004
	 	 	June 30, 2003
	 	
Retail	  	$	327,807	 	 	$	321,009	 	
Commercial	  	 	162,049	 	 	 	155,983	 	
Corporate and Investment Banking	  	 	141,257	 	 	 	105,667	 	
Mortgage	  	 	66,693	 	 	 	76,580	 	
Private Client Services	  	 	56,209	 	 	 	52,668	 	
Corporate/Other	  	 	(213,484	)	 	 	(225,090	)	
		
 	  	Six Months Ended
	 	
 	  	June 30, 2004
	 	 	June 30, 2003
	 	
Retail	  	$	643,372	 	 	$	615,740	 	
Commercial	  	 	326,253	 	 	 	311,112	 	
Corporate and Investment Banking	  	 	257,827	 	 	 	187,385	 	
Mortgage	  	 	129,944	 	 	 	141,326	 	
Private Client Services	  	 	111,827	 	 	 	99,794	 	
Corporate/Other	  	 	(418,838	)	 	 	(386,900	)	
 
The following table for SunTrust’s reportable business segments compares average loans and average deposits for the three and six months ended June 30, 2004 to the same period last year:

 	  	 	  	 	  	 	  	Table 4	
		
 	  	Three Months Ended
	
(Dollars in thousands) (Unaudited)	  	June 30, 2004
	  	June 30, 2003
	
Lines of Business
	  	Average loans
	  	Average deposits
	  	Average loans
	  	Average deposits
	
Retail	  	$	26,121,475	  	$	54,536,433	  	$	23,161,403	  	$	52,791,997	
Commercial	  	 	22,457,943	  	 	11,803,343	  	 	21,354,020	  	 	10,180,936	
Corporate and Investment Banking	  	 	13,076,932	  	 	3,477,631	  	 	15,056,879	  	 	2,915,413	
Mortgage	  	 	16,781,039	  	 	1,595,121	  	 	12,589,452	  	 	1,729,327	
Private Client Services	  	 	2,306,380	  	 	1,783,985	  	 	1,976,602	  	 	1,502,698	
		
 	  	Six Months Ended
	
 	  	June 30, 2004
	  	June 30, 2003
	
Lines of Business
	  	Average loans
	  	Average deposits
	  	Average loans
	  	Average deposits
	
Retail	  	$	25,696,176	  	$	53,959,038	  	$	22,973,261	  	$	52,440,948	
Commercial	  	 	22,172,400	  	 	11,610,204	  	 	20,950,714	  	 	10,095,054	
Corporate and Investment Banking	  	 	13,942,416	  	 	3,233,747	  	 	15,395,967	  	 	2,862,776	
Mortgage	  	 	16,215,552	  	 	1,380,815	  	 	12,339,495	  	 	1,505,225	
Private Client Services	  	 	2,234,423	  	 	1,684,967	  	 	1,870,468	  	 	1,458,787	
 
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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, 2004 and 2003:
 
Retail
 
Retail’s total income before taxes for the six months ended June 30, 2004 was $643.4 million, an increase of $27.6 million, or 4.5%, compared to the six months ended June 30, 2003. Total income before taxes for the quarter ended June 30, 2004 was up $6.8 million, or 2.1%, compared to the same period in 2003. The increase in total income was attributable to improvements in net interest income, lower provision for loan losses, and higher noninterest income. Net interest income grew $36.5 million, or 4.3%, for the six months ended June 30, 2004 and $11.9 million, or 2.7%, for the second quarter of 2004 compared to the same periods in 2003. The growth in both periods was primarily the result of increased loan volumes.
 
Noninterest income increased $28.4 million, or 7.6%, for the six-month period ended June 30, 2004 compared to the same period in 2003, and $19.0 million, or 10.0%, for the second quarter 2004 compared to the second quarter 2003. The growth in both periods was primarily due to higher deposit service charges. Noninterest expense rose $42.4 million, or 8.0%, and $24.6 million, or 9.2%, for the six months and three months ended June 30, 2004 compared to the same periods in 2003, respectively, due to investments in the Retail distribution network and improved technologies.
 
For the six months ended June 30, 2004, average loan balances totaled $25.7 billion, a $2.7 billion, or 11.9%, increase over the same time period in 2003. Average loan balances in the second quarter of 2004 were $3.0 billion higher than the second quarter of 2003, a 12.8% increase. Growth in consumer equity lines and indirect installment lending drove the overall loan portfolio rise.
 
For the six months ended June 30, 2004, average deposit balances totaled $54.0 billion, a $1.5 billion, or 2.9%, increase over the same time period in 2003. Average deposit balances in the second quarter of 2004 were $1.7 billion higher than the second quarter of 2003, a 3.3% increase. Demand deposits, NOW accounts and money market accounts were the primary drivers of the deposit growth. The Lighthouse acquisition, which occurred in June 2003, did not have a significant impact on the balance sheet growth.
 
Commercial
 
The Commercial line of business grew its total income before taxes $6.1 million, or 3.9%, for the three months ended June 30, 2004 and $15.1 million, or 4.9%, for the six month period ended June 30, 2004 compared to the same periods in 2003. The growth in both periods was driven by an increase in net interest income and the consolidation of certain affordable housing partnerships beginning in the third quarter of 2003.
 
Net interest income increased by $9.5 million, or 5.9%, for the three months ended June 30, 2004 and $23.4 million, or 7.3%, for the six-month period ended June 30, 2004 compared to the same periods in 2003. The growth was driven by a $1.2 billion, or 5.8%, rise in average loan balances and a $1.5 billion, or 15.0%, increase in average deposit balances in the six-month period ended June 30, 2004 compared to the same time period in 2003. The rise in average deposit balances was driven by increased customer liquidity.
 
Total noninterest income grew $15.5 million, or 25.0%, during the second quarter 2004 and $36.3 million, or 29.2%, during the first half of 2004 compared to the same periods in 2003. The consolidation of certain affordable housing partnerships comprised $17.9 million and $37.3 million of the growth for the respective three-month and six-month periods. The rise in noninterest income for both periods was offset by a drop in service charges on deposit accounts. Clients have chosen to increase their compensating deposit balances as a substitute for paying service charges to cover the costs of the services they receive.
 
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Total noninterest expense grew $17.3 million, or 26.4%, during the second quarter of 2004 and $38.1 million, or 29.9%, during the first half of 2004 compared to the same periods in 2003. The consolidation of certain affordable housing partnerships comprised $13.2 million and $26.7 million of the growth for the respective three-month and six-month periods, with the remainder of the increase for both periods primarily related to technology investments.
 
Corporate and Investment Banking
 
CIB’s total income before taxes for the six months ended June 30, 2004 was $257.8 million, an increase of $70.4 million, or 37.6%, compared to the six months ended June 30, 2003. The increase was primarily attributable to a $68.0 million decrease in provision for loan losses. The remaining $2.4 million increase in total income before taxes was due to an improvement of $8.1 million, or 2.9%, in noninterest income, an increase of $6.7 million, or 5.1%, in net interest income, offset by a $12.3 million, or 8.4%, increase in noninterest expense. A significant driver of the increase in noninterest income was equity capital markets investment income and institutional trading revenue activity.
 
For the six months ended June 30, 2004, average loan balances decreased $1.5 billion compared to the same period in 2003. Included in average loans for the first six months of 2004 was $836.0 million related to Three Pillars. Three Pillars was consolidated effective July 1, 2003 and was restructured and deconsolidated effective March 1, 2004 (for further details on the restructuring see Note 10). The decline in average loans was due primarily to soft corporate loan demand and a reduction in the usage of revolving lines of credit.
 
CIB’s total income before taxes for the quarter ended June 30, 2004 was $141.3 million, an increase of $35.6 million, or 33.7%, compared to the quarter ended June 30, 2003. The increase was primarily attributable to a $44.2 million decrease in provision for loan losses. Net interest income for the quarter ended June 30, 2004 was $70.4 million, up $0.9 million, or 1.2%, compared to the quarter ended June 30, 2003. Noninterest income was $153.7 million, a decrease of $0.8 million when compared to the same period last year.
Noninterest expense for the quarter ended June 30, 2004 increased $8.7 million, or 11.6%, compared to the quarter ended June 30, 2003.
 
For the quarter ended June 30, 2004, average loan balances decreased $2.0 billion, or 13.1%, compared to the same period in 2003. The decline was due primarily to continued soft demand in new corporate borrowings, primarily resulting from a reduction in the usage of revolving lines of credit.
 
Mortgage
 
Total income before taxes for the six months ended June 30, 2004 was $129.9 million, 8.1% below the six months ended June 30, 2003. Second quarter 2004 income of $66.7 million was 12.9% less than the same period of the prior year. Net interest income declined 10.1% and 8.5% for the six-month and three-month period comparisons, respectively. These declines were driven by reduced income from lower mortgage loans held for sale balances, which dropped $2.4 billion, or 33.4%, for the six-month comparison and $2.2 billion, or 29.4%, in the second quarter of 2004 compared with the second quarter of 2003. Loan production for the six months ended June 30, 2004 was $15.3 billion, down 35.3% from same period prior year’s production, and loan production for the second quarter of 2004 was down 34.1% compared to the second quarter of 2003. Partially offsetting the decline in income on mortgage loans held for sale was higher income from residential mortgage balances retained, which increased $3.7 billion, or 31.9%, on a year-to-date basis and $4.0 billion, or 33.6%, compared with the second quarter of 2003.
 
Total noninterest income for the six months ended June 30, 2004 was up $32.8 million over the same period prior year and $12.6 million in the second quarter of 2004 compared to the second quarter of 2003.
 
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Production and loan sales income of $32.3 million and $22.0 million for 2004 six months and second quarter was down $89.4 million and $60.3 million, respectively, from the comparable prior year periods. Declines were driven by lower volumes and tighter margins as a result of rising interest rates. Servicing income was up $119.1 million for the six months ended June 30, 2004 and $72.6 million in second quarter 2004 compared with the same periods in 2003. In both periods, reduced income from lower loan production and loan sales was more than offset by higher servicing income. The higher servicing income resulted principally from lower mortgage servicing rights amortization expense due to slowing prepayment speeds. Additionally, servicing income benefited from higher servicing balances.
 
Noninterest expense for the six months ended June 30, 2004 increased $15.2 million, or 11.0%, over the same period of the prior year and $11.0 million, or 15.4%, in the second quarter of 2004 compared with the comparable period last year. Expenses increased in both periods principally due to personnel expenses related to the Sun America and Lighthouse acquisitions that occurred mid-year 2003.
 
Private Client Services
 
PCS’ total income before taxes increased $3.5 million, or 6.7%, for the quarter ended June 30, 2004 and $12.0 million, or 12.1%, for the six-month period ended June 30, 2004 compared to the same periods in 2003.
 
Noninterest income increased $26.7 million, or 16.1%, for the quarter ended June 30, 2004 and $54.7 million, or 16.9%, for the six-month period ended June 30, 2004 compared to the same periods in 2003. Trust and investment management income increased $16.2 million, or 13.0%, for the quarter ended June 30, 2004 and $31.6 million, or 12.9%, for the six-month period ended June 30, 2004 compared to the same periods in 2003. The growth in trust and investment management income was due to an increase in assets under management as well as an increase in estate settlement and distribution fees. At June 30, 2004 and 2003, assets under management were approximately $116 billion and $96 billion, respectively. Assets under management increased 20.8% due to the acquisition of Seix Investment Advisors, which added approximately $17 billion in managed assets, new business acquisitions and the appreciation in equity markets which were partially offset by a decline in the bond market. Lost business was virtually flat compared to 2003. Average assets under management increased approximately 12% for the three and six month periods ended June 30, 2004 compared to the same periods in 2003. 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 $199 billion, which included $22 billion in non-managed corporate trust assets, $37 billion in non-managed trust assets, and $24 billion in retail brokerage assets.
 
Retail investment income increased $7.9 million, or 19.2%, for the quarter ended June 30, 2004 and $16.0 million, or 20.7%, for the six month period ended June 30, 2004 compared to the same periods in 2003. The increase in retail investment income was primarily due to growth in broker production, the number of brokers, and increased revenue generated from Alexander Key. Retail investment sales, including annuity products, which are typically commission only, increased 28.4% and 30.9% for the three- and six-month periods ended June 30, 2004, respectively, compared to the same periods in 2003.
 
Net interest income increased $1.3 million, or 10.5%, for the quarter ended June 30, 2004 and $4.2 million, or 17.2%, for the six months ended June 30, 2004 compared to the same periods in 2003. The growth in both periods was primarily attributable to the 19.5% increase in average loans year-to-date and 15.5% increase in average deposits year-to-date.
 
Noninterest expense increased $24.8 million, or 19.7%, for the quarter ended June 30, 2004 and $47.1 million, or 19.0%, for the six-month period ended June 30, 2004 compared to the same periods in 2003. The
 
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increase was primarily due to the acquisition of Seix Investment Advisors, increased commissions and incentives from new business activity, additional personnel, and additional expense related to the conversion to a new trust accounting system.
 
Corporate/Other
 
The Corporate/Other line of business’ second quarter total income before taxes improved from a loss of $225.1 million in 2003 to a loss of $213.5 million in 2004. For the six months ended June 30, 2004 compared to the same period in 2003, total income before taxes decreased $31.9 million, or 8.3%.
 
Net interest income increased by $62.8 million for the quarter and $61.9 million for the six-month period ended June 30, 2004 compared to the same periods in 2003. The primary cause for the growth in both periods was an increase in the interest income on the investment portfolio due to higher yields on a larger portfolio.
 
Noninterest income decreased from $14.5 million in the second quarter of 2003 to negative $32.4 million in the same quarter of 2004. For the six months ended June 30, 2004, noninterest income decreased $87.0 million to a negative $52.8 million compared to $34.2 million in the six months ended June 30, 2003. The primary reasons for the declines in both periods were security gains in 2003, security losses in 2004 and higher 2004 credits to the Commercial line of business for tax benefits generated by Community Development Corporation investments.
 
Noninterest expense in the second quarter of 2004 increased $4.4 million, or 1.9%, from the same quarter a year ago. For the first six months of 2004 compared to the same period a year ago, noninterest expense increased $7.2 million, or 1.5%. The primary reason for the growth in both periods was increased occupancy and software expense.
 
Average total assets increased $3.5 billion, or 14.1%, in the second quarter of 2004 compared to the same quarter in 2003 and $2.9 billion, or 11.7%, for the six-month period. The growth was primarily a result of an increase in the investment portfolio. Average total liabilities increased by $2.8 billion, or 7.7%, for the quarter and $1.9 billion, or 5.1%, for the six-month period. This rise was a result of increases in long-term debt as SunTrust took advantage of historically low interest rates to extend maturities.
 
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 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.
 
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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 duration 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 and gradual ramping of interest rates, rate shocks, 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 sensitivity of net interest income to changes in interest rates. The sensitivity is measured as a percentage change in net interest income due to gradual changes in interest rates (25 basis points per quarter) compared to forecasted net interest income under stable rates for the next twelve months. Rates were ramped down only 75 basis points to measure the March 31, 2004 sensitivity due to the absolute low level of rates. The Fed Funds rate declined to 1.00% in late June 2003 and for net interest income simulation purposes taking the Fed Funds rate to 0.00% would be a low probability. Since the Fed increased the Fed Funds rate to 1.25% in June 2004, the sensitivity measure for a decrease in rates has been increased to 100 basis points. Estimated changes set forth below are dependent on material assumptions such as those previously discussed.

 	  	Estimated %
Change in
Net Interest Income
Over 12 Months
	 	
Rate Change
(Basis Points)
	  	June 30,
2004
	 	 	March 31,
2004
	 	
+ 100	  	0.3	%	 	0.2	%	
-100 (-75 for March 31, 2004)	  	-0.7	%	 	-0.6	%	
 
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 significant fluctuations 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,
 
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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 “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, 2004, an instantaneous 100 basis point increase in rates is estimated to decrease EVE 5.1% versus EVE in a stable rate environment. An instantaneous 100 basis point decrease in rates is estimated to increase EVE 3.1% versus 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 support secondary trading with customers. Product offerings to customers include debt securities, including loans traded in the secondary market, equity securities, derivatives and foreign exchange contracts, and similar financial instruments. Other trading activities include participating in underwritings, and acting as a market maker in certain equity securities. Typically, the Company maintains a securities inventory to facilitate customer transactions. However, in certain businesses, such as derivatives, it is more common to execute customer transactions with simultaneous risk-managing transactions with dealers. Also in the normal course of business, the Company assumes a degree of market risk in arbitrage, delta hedging, and other strategies, subject to specified 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.
 
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The estimated combined period-end Undiversified VaR (Undiversified VaR represents a simple summation of the VaR calculated across each Desk) was $4.0 million as of June 30, 2004 and $1.3 million as of December 31, 2003. Trading assets net of trading liabilities were $735.2 million as of June 30, 2004 and $804.6 million as of December 31, 2003.
 
Other Market Risk
 
Other sources of market risk include the risk associated with holding residential mortgage loans prior to selling them into the secondary mortgage market, commitments to customers to make mortgage loans that will be sold to the secondary mortgage market, and the Company’s investment in Mortgage Servicing Rights (MSRs). The Company manages the risks associated with the residential mortgage loans classified as held for sale (the warehouse) and its interest rate lock commitments (IRLCs) on residential loans intended for sale. The warehouse and IRLCs consist primarily of fixed and adjustable-rate single family residential real estate loans. The risk associated with the warehouse and IRLCs is the potential change in interest rates between the time the customer locks in the rate on the anticipated loan and the time the loan is sold on the secondary mortgage market, which is typically 90-150 days. The Company manages interest rate risk predominately with forward sale agreements, where the changes in value of the forward sale agreements substantially offset the changes in value of the warehouse and the IRLCs. Interest rate risk on the warehouse is managed via forward sale agreements in a designated fair value hedging relationship, under SFAS No. 133. IRLCs on residential mortgage loans intended for sale are classified as free standing derivative financial instruments in accordance with SFAS No. 149 and are not designated as SFAS No. 133 hedge accounting relationships.
 
The value of the MSRs asset is dependent upon the assumed prepayment speed of the mortgage servicing portfolio. MSRs are the discounted present value of future net cash flows that are expected to be received from the mortgage servicing portfolio. Future expected net cash flows from servicing a loan in the mortgage servicing portfolio would not be realized if the loan pays off earlier than anticipated. Accordingly, prepayment risk subjects the MSRs to impairment risk. The Company does not specifically hedge the MSRs asset for the potential impairment risk; however, it does employ a balanced business strategy using the natural counter-cyclicality of servicing and production to mitigate impairment risk.
 
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 $2.4 billion at June 30, 2004. A 10% decrease in share price of The Coca-Cola Company common stock at June 30, 2004 would result in a decrease, net of deferred taxes, of approximately $158 million in accumulated other comprehensive income.
 
Net Interest Income/Margin. Net interest income for the first six months of 2004 was $1,749.0 million, an increase of $105.5 million, or 6.4%, from the first six months of 2003. For the second quarter of 2004, net interest income increased $74.7 million, or 9.2%, from the prior year, to $885.1 million. Net interest income benefited from higher earning asset levels and the impact of the steepening yield curve which had the effect of improving yields on assets added during the second quarter.
 
The net interest margin was unchanged at 3.13% for the first six months of 2004, as compared to the first six months of 2003, and increased eight basis points from 3.05% in the second quarter of 2003 to 3.13% in the second quarter of 2004. The Company consolidated Three Pillars, a multi-seller commercial paper conduit to comply with FIN 46 in July 2003, and deconsolidated Three Pillars on March 1, 2004. Three Pillars adversely impacted the net interest margin two basis points for the first six months of 2004. In addition to the consolidation of Three Pillars, SunTrust consolidated its affordable housing partnerships in the third quarter of 2003, which had a negative one basis point impact on net interest margin for the first six months of
 
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2004. The earning asset yield for the first six months and second quarter of 2004 declined 32 basis points and 21 basis points, respectively, from the first six months and second quarter of 2003. For the first six months and second quarter of 2004, loan yields decreased 55 basis points and 47 basis points and securities available for sale yields increased 48 basis points and 72 basis points, respectively, from the comparable prior year periods. In the first six months and second quarter of 2004, the total interest-bearing liability costs declined 37 basis points and 34 basis points, respectively, from the first six months and second quarter of 2003. The larger decrease in liability cost versus the decrease in earning asset yield caused the overall net interest margin to increase on a quarterly and year-to-date basis.
 
The increase in the margin was due to a number of factors. Rates have trended higher and the yield curve has steepened since the Fed reduced the Fed Funds rate in June 2003 to 1.00%. Net interest margin benefited from the steeper yield curve. As the Company added fixed rate assets at higher rates, short-term rates were relatively unchanged, so that liability costs did not increase; effectively, the steeper curve widened the spread on incremental asset production over this period. Another significant contributor to the margin that resulted from the steeper yield curve was the slowdown in prepayments in mortgage-related products. The higher rate environment slowed the loss of higher yielding mortgage-related assets and increased the yields on mortgage-related assets added to the loan and securities portfolios. The slowdown in prepayments also lowered the premium amortization in the investment portfolio, increasing the net interest margin and investment portfolio yield compared to the first six months of 2003 and the second quarter of 2003. STI prime rate averaged 4.00% for the second quarter of 2004, a decline of 24 basis points from the second quarter of 2003. The Federal Reserve Bank Fed Funds rate averaged 1.00% for the second quarter of 2004, 23 basis points below the second quarter 2003 average. Average earning assets were up 6.1% and 6.6% and average interest-bearing liabilities increased 4.2% and 4.9% for the first six months and second quarter of 2004, respectively, versus the first six months and second quarter of 2003. Average loans rose $6.7 billion and $6.6 billion, securities available for sale increased $2.2 billion and $2.6 billion, and loans held for sale decreased $2.4 billion and $2.1 billion in the first six months and second quarter of 2004, respectively. Loans held for sale decreased due to slower mortgage refinancing activity.
 
The Company continues to take steps to obtain alternative lower cost funding sources, such as developing initiatives to grow customer deposits. Campaigns to attract customer deposits were implemented in 2003 and 2004. The Company believes that deposit growth has also benefited from the volatility in the financial markets. Average NOW accounts increased 9.8% and 10.7% and demand deposits grew 17.0% and 17.3% in the first six months and second quarter of 2004, respectively, over the first six months and second quarter of 2003.
 
Interest income that the Company was unable to recognize on nonperforming loans had no impact on the margin as average nonaccrual loans declined $210.1 million, or 40.8%. There was a negative impact of three basis points for the six months ended June 30, 2003. Table 2 contains more detailed information concerning average balances, yields earned and rates paid.
 
Noninterest Income. Noninterest income increased $25.9 million, or 4.3%, from the second quarter of 2003 to the second quarter of 2004 and $73.3 million, or 6.4%, from the first six months of 2003 to the first six months of 2004 due to strong growth in customer-driven fee income. Positively impacting noninterest income were increases in trust and investment management income, other charges and fees and service charges on deposits. Net securities gains/losses declined $40.3 million, or 129.0%, and $77.4 million, or 105.6%, compared to the second quarter and first six months of 2003, respectively. Included in the second quarter of 2004 was a $7.5 million loss due to the other than temporary write-down of an asset-backed security.
 
Other charges and fees increased $12.2 million, or 14.8%, compared to the second quarter of 2003 and $26.7 million, or 16.6%, on a year-to-date basis. The increase was primarily due to increases in insurance
 
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revenues and letter of credit fees. The increase in insurance revenues was due to increased sales volume and the acquisition of an insurance subsidiary of Lighthouse in June 2003. The increase in letter of credit fees was primarily due to increased volume.
 
Service charges on deposit accounts increased $10.8 million, or 6.8%, and $16.1 million, or 5.1%, compared to the second quarter and first six months of 2003, respectively. The increase on both a quarterly and a year to date basis was due to an increase in NSF/stop payment service charges. The increase was driven by increased volumes, increase in pricing and other revenue enhancement initiatives.
 
Trust and investment management income increased $16.2 million, or 13.0%, compared to the second quarter of 2003 and $31.6 million, or 12.9%, compared to the first six months of 2003. The growth in trust and investment management income was due to an increase in assets under management as well as an increase in estate settlement and distribution fees. At June 30, 2004 and 2003, assets under management were approximately $116 billion and $96 billion, respectively. Assets under management increased 10.4% due to the acquisition of Seix Investment Advisors, which added approximately $17 billion in managed assets, new business acquisitions, and the appreciation in equity markets which were partially offset by a decline in the bond markets. Lost business was virtually flat compared to 2003. Average assets under management increased 12% for the three and six month periods ended June 30, 2004 compared to the same periods in 2003. 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 $199 billion, which included $22 billion in non-managed corporate trust assets, $37 billion in non-managed trust assets, and $24 billion in retail brokerage assets.
 
Retail investment income increased $7.8 million, or 18.7%, and $16.1 million, or 20.3%, compared to the second quarter and first six months of 2003. The increase in retail investment income was primarily due to growth in broker production, the number of brokers, and increased revenue generated from Alexander Key. Retail investment sales, including annuity products, which are typically commission only, increased 28.4% and 30.9% for the three and six month periods ended June 30, 2004, respectively, compared to the same periods in 2003.
 
Other noninterest income increased $15.3 million, or 38.4%, and $43.6 million, or 75.6%, compared to the second quarter and first six months of 2003. Combined mortgage production and servicing income increased $10.9 million and $26.6 million compared to the second quarter and first six months of 2003. Mortgage servicing related income increased $71.8 million and $117.7 million compared to the second quarter and first six months of 2003 primarily due to a decline in amortization of mortgage servicing rights related to a decrease in mortgage prepayments. Mortgage production income decreased $60.8 million and $91.1 million compared to the second quarter and first six months of 2003. The decrease was due to a $4.6 billion and $8.3 billion decrease in production volume compared to the second quarter and first six months of 2003 as a result of reduced refinancing activities. Certain affordable housing partnerships, which were consolidated beginning in the third quarter of 2003, resulted in $10.1 million and $21.4 million of noninterest income in the second quarter and first six months of 2004.
 
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Noninterest Income	 	Table 5	

 	  	Three Months Ended
June 30
	  	%
Change
	 	 	Six Months Ended
June 30
	  	%
Change
	 	
(Dollars in millions) (Unaudited)	  	2004
	 	 	2003
	  			 	2004
	 	 	2003
	  			
Service charges on deposit accounts	  	$	168.7	 	 	$	158.0	  	6.8	 	 	$	331.9	 	 	$	315.8	  	5.1	 	
Trust and investment management income	  	 	140.4	 	 	 	124.2	  	13.0	 	 	 	276.6	 	 	 	245.0	  	12.9	 	
Retail investment services	  	 	49.8	 	 	 	42.0	  	18.7	 	 	 	95.6	 	 	 	79.5	  	20.3	 	
Other charges and fees	  	 	94.8	 	 	 	82.6	  	14.8	 	 	 	187.5	 	 	 	160.8	  	16.6	 	
Investment banking income	  	 	54.3	 	 	 	57.2	  	(5.0	)	 	 	99.2	 	 	 	91.0	  	9.0	 	
Trading account profits and commissions	  	 	31.0	 	 	 	29.6	  	4.9	 	 	 	60.4	 	 	 	60.4	  	0.1	 	
Card fees	  	 	37.7	 	 	 	32.4	  	16.5	 	 	 	69.4	 	 	 	61.0	  	13.7	 	
Securities (losses)/gains	  	 	(9.0	)	 	 	31.2	  	(129.0	)	 	 	(4.1	)	 	 	73.3	  	(105.6	)	
Other income	  	 	55.0	 	 	 	39.6	  	38.4	 	 	 	101.3	 	 	 	57.7	  	75.6	 	
 	  				 			  	 	 	 				 			  	 	 	
Total noninterest income	  	$	622.7	 	 	$	596.8	  	4.3	 	 	$	1,217.8	 	 	$	1,144.5	  	6.4	 	

Noninterest Expense. Noninterest expense increased $90.7 million, or 10.8%, and $162.2 million, or 9.8%, in the second quarter and first six months of 2004 compared to the same periods of the prior year. Personnel expense increased $38.3 million, or 7.9%, from the second quarter of 2003 to the second quarter of 2004 and $71.4 million, or 7.5%, from the first six months of 2003 to the first six months of 2004. The increase in personnel expense was primarily attributed to increased salaries and incentives. The increase in salaries was primarily attributed to normal merit increases and a higher average headcount, primarily in the Mortgage and Retail lines of business. Headcount increased from 27,336 at June 30, 2003, to 28,083 at June 30, 2004. The increase in incentives was primarily due to an increase in commission and performance based incentive plans. This increase in incentives was due to stronger business volumes in the PCS, CIB, Commercial and Retail lines of business.
 
Personnel expense was positively impacted by a decline in pension expense of $7.9 million, or 50.3%, and $13.9, or 43.8%, in the second quarter and first six months of 2004 compared to the same periods of the prior year. The decline in pension expense was primarily attributed to a higher than estimated return on plan assets.
 
Noninterest expense was further impacted by a $9.6 million, or 15.7%, and an $18.2 million, or 15.4%, increase in outside processing and software expenses compared to the second quarter and six months ended June 30, 2003. The increase was primarily attributed to costs associated with the implementation of imaging capabilities and to higher processing expenses due to increased business volumes. Marketing and customer development expenses increased $6.1 million, or 23.7%, and $11.4 million, or 22.6%, in the second quarter and first six months of 2004 compared to the same periods in the prior year. The increase in advertising costs was partially attributed to the “Banking that doesn’t interrupt your life” campaign. This campaign is designed to promote the convenience of banking with SunTrust. Consulting and legal fees increased $4.6 million, or 31.4%, and $7.6 million, or 27.9%, in the second quarter and first six months of 2004 compared to the same periods in the prior year. The increase was attributable to higher consulting fees primarily related to revenue enhancement and cost control initiatives.
 
Additionally, the consolidation of certain affordable housing partnerships increased noninterest expense $15.4 million and $30.5 million in the second quarter and six months ended June 30, 2004, respectively. Most of these expenses were recorded in other expense. Also impacting other noninterest expense, was a $9.4 million addition to the reserve for unfunded loan commitments recorded during the second quarter of 2004. The efficiency ratio increased to 61.6% and 61.3% for the second quarter first six months of 2004 compared to 59.5% and 59.4% for the same periods of the prior year.
 
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Noninterest Expense	 	Table 6	

 	  	Three Months
Ended June 30
	 	 	%
Change
	 	 	Six Months
Ended June 30
	 	 	%
Change
	 	
(Dollars in millions) (Unaudited)	  	2004
	 	 	2003
	 	 			 	2004
	 	 	2003
	 	 			
Employee compensation	  	$	434.9	 	 	$	386.4	 	 	12.5	 	 	$	835.2	 	 	$	761.4	 	 	9.7	 	
Employee benefits	  	 	86.0	 	 	 	96.2	 	 	(10.5	)	 	 	192.5	 	 	 	194.9	 	 	(1.2	)	
 	  				 				 	 	 	 				 				 	 	 	
Total personnel expense	  	 	520.9	 	 	 	482.6	 	 	7.9	 	 	 	1,027.7	 	 	 	956.3	 	 	7.5	 	
Net occupancy expense	  	 	61.6	 	 	 	58.6	 	 	5.2	 	 	 	123.5	 	 	 	116.3	 	 	6.2	 	
Outside processing and software	  	 	70.6	 	 	 	61.0	 	 	15.7	 	 	 	136.2	 	 	 	118.1	 	 	15.4	 	
Equipment expense	  	 	45.7	 	 	 	44.5	 	 	2.7	 	 	 	90.8	 	 	 	88.0	 	 	3.2	 	
Marketing and customer development	  	 	31.7	 	 	 	25.6	 	 	23.7	 	 	 	61.9	 	 	 	50.5	 	 	22.6	 	
Consulting and legal	  	 	19.1	 	 	 	14.6	 	 	31.4	 	 	 	34.9	 	 	 	27.3	 	 	27.9	 	
Credit and collection services	  	 	17.1	 	 	 	19.2	 	 	(10.9	)	 	 	30.1	 	 	 	35.3	 	 	(14.8	)	
Communications	  	 	16.2	 	 	 	15.4	 	 	5.5	 	 	 	32.0	 	 	 	30.3	 	 	5.7	 	
Postage and delivery	  	 	16.1	 	 	 	17.1	 	 	(5.8	)	 	 	33.3	 	 	 	34.6	 	 	(3.7	)	
Other staff expense	  	 	16.1	 	 	 	15.8	 	 	1.9	 	 	 	29.7	 	 	 	26.4	 	 	12.3	 	
Amortization of intangible assets	  	 	14.6	 	 	 	15.2	 	 	(4.1	)	 	 	30.2	 	 	 	31.9	 	 	(5.3	)	
Operating supplies	  	 	11.0	 	 	 	8.5	 	 	29.5	 	 	 	21.9	 	 	 	18.1	 	 	20.9	 	
FDIC premiums	  	 	4.7	 	 	 	4.8	 	 	(2.6	)	 	 	8.9	 	 	 	8.9	 	 	0.4	 	
Other real estate income	  	 	(0.4	)	 	 	(0.8	)	 	(42.4	)	 	 	(0.7	)	 	 	(0.7	)	 	0.4	 	
Other expense	  	 	83.4	 	 	 	55.6	 	 	50.0	 	 	 	157.8	 	 	 	114.7	 	 	37.6	 	
 	  				 				 	 	 	 				 				 	 	 	
Total noninterest expense	  	$	928.4	 	 	$	837.7	 	 	10.8	 	 	$	1,818.2	 	 	$	1,656.0	 	 	9.8	 	
 	  				 				 	 	 	 				 				 	 	 	
Efficiency ratio	  	 	61.6	%	 	 	59.5	%	 	 	 	 	 	61.3	%	 	 	59.4	%	 	 	 	
 
Provision for Loan Losses and Allowance for Loan Losses. Provision for loan losses totaled $38.8 million in the second quarter of 2004, a decrease of $43.9 million, or 53.1%, from the second quarter of 2003. Provision for loan losses totaled $98.1 million in the first six months of 2004, a decrease of $65.3 million, or 40.0%, compared to the same period of the prior year. Net charge-offs for the second quarter of 2004 were $37.6 million, a decline of $44.6 million, or 54.3%, from the same period of the prior year. Net charge-offs for the six months ended June 30, 2004 were $96.3 million, a decline of $65.7 million, or 40.5%, from the six months ended June 30, 2003. The decline for the second quarter and first six months of 2004 was primarily due to reductions of $45.4 million and $65.2 million, respectively, in commercial net charge-offs.
 
The SunTrust Allowance for Loan Losses Review Committee affirms the allowance methodology and reviews the analysis of the current condition of the credit portfolios in order to estimate their inherent loss and determine the appropriate level of allowance for the point in time being reviewed. The allowance analysis is based on accounting and regulatory guidance regarding homogenous pools of loans and larger loans to be individually reviewed for impairment.
 
At June 30, 2004, SunTrust’s allowance for loan losses totaled $943.7 million, or 1.14% of total loans, compared to $941.9 million, or 1.17% of total loans at December 31, 2003. The allowance as a percentage of total nonperforming loans increased from 268.1% at December 31, 2003 to 313.4% at June 30, 2004.
 
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Summary of Loan Loss Experience	  	 	 	 	 	 	 	 	 	 	 	 	 	 	Table 7	 	
			
 	  	Three Months Ended
June 30
	 	 	Six Months Ended
June 30
	 	
(Dollars in millions) (Unaudited)	  	2004
	 	 	2003
	 	 	2004
	 	 	2003
	 	
Allowance for Loan Losses	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balances - beginning of period	  	$	942.5	 	 	$	931.1	 	 	$	941.9	 	 	$	930.1	 	
Allowance from acquisitions and other activity - net	  	 	—  	 	 	 	9.3	 	 	 	—  	 	 	 	9.3	 	
Provision for loan losses	  	 	38.8	 	 	 	82.7	 	 	 	98.1	 	 	 	163.5	 	
Charge-offs	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Commercial	  	 	(20.0	)	 	 	(60.4	)	 	 	(53.5	)	 	 	(111.1	)	
Real estate	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Construction	  	 	(0.1	)	 	 	(0.6	)	 	 	(0.8	)	 	 	(0.7	)	
Residential mortgages	  	 	(8.6	)	 	 	(4.4	)	 	 	(19.3	)	 	 	(8.3	)	
Other	  	 	(1.8	)	 	 	(1.1	)	 	 	(3.3	)	 	 	(1.3	)	
Consumer loans	  	 	(36.7	)	 	 	(33.8	)	 	 	(75.1	)	 	 	(78.7	)	
 	  				 				 				 				
Total charge-offs	  	 	(67.2	)	 	 	(100.3	)	 	 	(152.0	)	 	 	(200.1	)	
 	  				 				 				 				
Recoveries	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Commercial	  	 	12.5	 	 	 	7.5	 	 	 	24.1	 	 	 	16.5	 	
Real estate	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Construction	  	 	—  	 	 	 	0.2	 	 	 	—  	 	 	 	0.4	 	
Residential mortgages	  	 	2.2	 	 	 	1.1	 	 	 	4.1	 	 	 	2.4	 	
Other	  	 	0.2	 	 	 	0.2	 	 	 	0.4	 	 	 	0.6	 	
Consumer loans	  	 	14.7	 	 	 	9.1	 	 	 	27.1	 	 	 	18.2	 	
 	  				 				 				 				
Total recoveries	  	 	29.6	 	 	 	18.1	 	 	 	55.7	 	 	 	38.1	 	
 	  				 				 				 				
Net charge-offs	  	 	(37.6	)	 	 	(82.2	)	 	 	(96.3	)	 	 	(162.0	)	
 	  				 				 				 				
Balance - end of period	  	$	943.7	 	 	$	940.9	 	 	$	943.7	 	 	$	940.9	 	
 	  				 				 				 				
Average loans	  	$	80,936.4	 	 	$	74,311.5	 	 	$	80,420.7	 	 	$	73,684.1	 	
Quarter-end loans outstanding	  	 	82,540.2	 	 	 	75,261.8	 	 	 	 	 	 	 	 	 	
Ratios	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net charge-offs to average loans (annualized)	  	 	0.19	%	 	 	0.44	%	 	 	0.24	%	 	 	0.44	%	
Provision to average loans (annualized)	  	 	0.19	 	 	 	0.45	 	 	 	0.25	 	 	 	0.45	 	
Recoveries to total charge-offs	  	 	44.1	 	 	 	18.0	 	 	 	36.6	 	 	 	19.0	 	
Allowance to quarter-end loans	  	 	1.14	 	 	 	1.25	 	 	 	 	 	 	 	 	 	
Allowance to nonperforming loans	  	 	313.4	 	 	 	194.8	 	 	 	 	 	 	 	 	 	
 
Nonperforming Assets. Nonperforming assets totaled $324.4 million at June 30, 2004, a decrease of $53.7 million, or 14.2%, from December 31, 2003. The decrease was attributable to a $50.3 million, or 14.3%, 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 to 0.39% at June 30, 2004 from 0.47% at December 31, 2003. Nonperforming loans at June 30, 2004 included $282.9 million of nonaccrual loans and $18.2 million of restructured loans, the latter of which represents a select group of consumer workout loans.
 
Interest income on nonaccrual loans, if recognized, is recorded using the cash basis method of accounting. During the first six months of 2004 and 2003, this amounted to $11.8 million and $5.6 million, respectively. Included in the first six months of 2004 was $3.2 million of interest collected from two large corporate customer loans which had also been on nonaccrual status in prior periods. For the first six months of 2004
 
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and 2003, interest income of $10.2 million and $19.2 million, respectively, would have been recorded if all such loans had been accruing interest according to their original contract terms.

Nonperforming Assets	 	Table 8	

(Dollars in millions) (Unaudited)	  	2004
June 30
	 	 	2003
December 31
	 	 	%
Change
	 	
Nonperforming Assets	  	 	 	 	 	 	 	 	 	 	 	
Nonaccrual loans:	  	 	 	 	 	 	 	 	 	 	 	
Commercial	  	$	143.1	 	 	$	165.9	 	 	(13.8	)	
Real Estate:	  	 	 	 	 	 	 	 	 	 	 	
Construction	  	 	20.3	 	 	 	4.4	 	 	359.7	 	
Residential mortgages	  	 	63.9	 	 	 	85.4	 	 	(25.1	)	
Other	  	 	37.8	 	 	 	48.6	 	 	(22.3	)	
Consumer loans	  	 	17.8	 	 	 	32.2	 	 	(44.8	)	
 	  				 				 	 	 	
Total nonaccrual loans	  	 	282.9	 	 	 	336.5	 	 	(15.9	)	
Restructured loans	  	 	18.2	 	 	 	14.8	 	 	23.0	 	
 	  				 				 	 	 	
Total nonperforming loans	  	 	301.1	 	 	 	351.3	 	 	(14.3	)	
Other real estate owned (OREO)	  	 	14.2	 	 	 	16.5	 	 	(13.4	)	
Other repossessed assets	  	 	9.1	 	 	 	10.3	 	 	(11.6	)	
 	  				 				 	 	 	
Total nonperforming assets	  	$	324.4	 	 	$	378.1	 	 	(14.2	)	
 	  				 				 	 	 	
Ratios:	  	 	 	 	 	 	 	 	 	 	 	
Nonperforming loans to total loans	  	 	0.36	%	 	 	0.44	%	 	 	 	
Nonperforming assets to total loans plus OREO and other repossessed assets	  	 	0.39	 	 	 	0.47	 	 	 	 	
Accruing Loans Past Due 90 Days or More	  	$	157.1	 	 	$	196.4	 	 	 	 	
 
Loans. Total loans at June 30, 2004, were $82.5 billion, an increase of $1.8 billion, or 2.2 %, from December 31, 2003. Commercial loans decreased $2.5 billion, or 8.1%, compared to December 31, 2003 due to the deconsolidation of Three Pillars in the first quarter of 2004. As of December 31, 2003, commercial loans of $2.8 billion related to Three Pillars were included in the consolidated totals. Residential mortgages increased $2.5 billion, or 14.7%, compared to December 31, 2003. This increase was due to slightly higher rates, thus causing an improvement in adjustable rate mortgage production, which the Company tends to retain in its portfolio. Home equity loans increased $0.9 billion, or 13.5%, compared to December 31, 2003. The increase in home equity loans was attributable to an increase in consumer demand.
 
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Loan Portfolio by Types of Loans	  	 	 	  	 	 	  	Table 9	 	
				
(Dollars in millions) (Unaudited)	  	2004
June 30
	  	2003
December 31
	  	%
Change
	 	
Commercial	  	$	28,183.0	  	$	30,681.9	  	(8.1	)	
Real estate:	  	 	 	  	 	 	  	 	 	
Home equity	  	 	7,905.3	  	 	6,965.3	  	13.5	 	
Construction	  	 	4,874.8	  	 	4,479.8	  	8.8	 	
Residential mortgages	  	 	19,740.8	  	 	17,208.1	  	14.7	 	
Other	  	 	9,352.2	  	 	9,330.1	  	0.2	 	
Commercial credit card	  	 	153.8	  	 	133.0	  	15.6	 	
Consumer loans	  	 	12,330.3	  	 	11,934.1	  	3.3	 	
 	  			  			  	 	 	
Total loans	  	$	82,540.2	  	$	80,732.3	  	2.2	 	

Income Taxes. The provision for income taxes was $163.1 million and $302.2 million for the second quarter and first six months of 2004, compared to $145.6 million and $288.8 million for the same periods of the prior year. This represents a 30.9% and 29.5% effective tax rate for the second quarter and first six months of 2004, compared to 30.6% and 30.5 % for the same prior year periods. The Company expects the 2004 annual effective tax rate to be between 30-31%, which is consistent with the Company’s normalized tax rate for the past several years.
 
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 Company managed the portfolio in the second quarter of 2004 with the goal of improving yield without increasing interest rate risk, consistent with its overall balance sheet strategy of continuing to be slightly asset-sensitive. The portfolio size was $23.3 billion on an amortized cost basis at June 30, 2004, relatively unchanged compared to $23.0 billion at December 31, 2003. The estimated average life was 3.9 years at June 30, 2004 and 4.0 years at December 31, 2003. The average duration of the portfolio was 2.8 at June 30, 2004 and 2.7 at December 31, 2003. Duration is a measure of the estimated price sensitivity of a bond portfolio to an immediate change in interest rates. A duration of 2.8 suggests an expected price change of 2.8% for a one percent change in interest rates, without considering any embedded call or prepayment options. The portfolio yield was 3.74% at June 30, 2004 and 3.66% at December 31, 2003. The current mix of securities as of June 30, 2004 is shown in Table 10, compared with December 31, 2003. Net securities losses of $9.0 million and $4.1 million were realized in the second quarter and first six months of 2004. Included in net security losses for the second quarter of 2004 was a $7.5 million loss due to the other than temporary write-down of an asset-backed security.
 
The carrying value of the investment portfolio, all of which is classified as “securities available for sale,” reflected $2.3 billion in net unrealized gains at June 30, 2004, including a $2.4 billion unrealized gain on the Company’s investment in common stock of The Coca-Cola Company. The market value of this common stock investment decreased $12.9 million, while the net unrealized gain on the remainder of the portfolio decreased $342.6 million compared to December 31, 2003. These changes in market value did not affect the net income of SunTrust, but were included in other comprehensive income.
 
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Securities Available for Sale	  	 	Table 10	
			
 	  	At June 30, 2004
	  	At December 31, 2003
	
(Dollars In millions) (Unaudited)	  	Amortized
Cost
	  	Fair Value
	  	Amortized
Cost
	  	Fair Value
	
U.S. Treasury and other U.S. government agencies and corporations	  	$	2,427.4	  	$	2,368.4	  	$	2,286.4	  	$	2,292.5	
States and political subdivisions	  	 	804.5	  	 	814.8	  	 	363.0	  	 	380.5	
Asset-backed securities	  	 	4,358.2	  	 	4,321.9	  	 	5,417.9	  	 	5,428.0	
Mortgage-backed securities	  	 	13,082.3	  	 	12,970.2	  	 	12,181.1	  	 	12,273.5	
Corporate bonds	  	 	1,916.4	  	 	1,910.8	  	 	2,097.2	  	 	2,111.7	
Common stock of The Coca-Cola Company	  	 	0.1	  	 	2,436.6	  	 	0.1	  	 	2,449.5	
Other securities	  	 	740.1	  	 	765.3	  	 	646.7	  	 	671.2	
 	  			  			  			  			
Total securities available for sale	  	$	23,329.0	  	$	25,588.0	  	$	22,992.4	  	$	25,606.9	

				
Unfunded Lending Commitments	  	 	Table 11	
		
(Dollars in Millions) (Unaudited)	  	2004
June 30
	
Unused lines of credit	  	 	 	
Commercial	  	$	32,480.7	
Mortgage commitments	  	 	13,472.0	
Home equity lines	  	 	8,379.3	
Commercial paper conduit	  	 	5,203.1	
Commercial real estate	  	 	3,845.8	
Commercial credit card	  	 	646.9	
 	  			
Total unused lines of credit	  	$	64,027.8	
 	  			
Letters of credit	  	 	 	
Financial standby	  	$	9,886.0	
Performance standby	  	 	281.5	
Commercial	  	 	182.5	
 	  			
Total letters of credit	  	$	10,350.0	

Liquidity Management . Liquidity risk is the risk of being unable to timely meet obligations as they come due at a reasonable funding 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. In addition, the Company enters into off-balance sheet arrangements and commitments which could impact the Company’s liquidity position. The Asset Liability Management Committee (ALCO) of the Company measures this risk, sets policies, and reviews adherence to those 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. Customer-based core deposits, the Company’s largest and most cost-effective source of funding, accounted for 65.8% of the funding base on average for the second quarter of 2004, compared to 66.5% for the same period of 2003, and 64.0% for the fourth quarter of 2003. The decrease from the second quarter of 2003 was
 
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attributable to funding average earning asset growth of $7.1 billion with $4.1 billion in customer deposits, the remainder being funded with wholesale funds. Deposit growth supported 57.7% of the earnings asset growth during this period. The deposit growth reflects successful marketing campaigns and growth from customer uncertainty due to volatility of the financial markets. Increases in rates, improved economic activity and confidence in the financial markets may lead to disintermediation of deposits, which may need to be replaced with higher cost borrowings in the future.
 
Mortgage refinance activity during the last few years has influenced the balance of loans held for sale, which has been funded using short-term unsecured borrowings. Refinance activity slowed in the second quarter of 2004 relative to the second quarter of 2003 with production of $8.8 billion and $13.4 billion, respectively. Production in the fourth quarter of 2003 was $6.3 billion. The balance of loans held for sale was $5.0 billion, $9.0 billion and $5.6 billion at June 30, 2004, June 30, 2003 and December 31, 2003, respectively. Net short-term unsecured borrowings, including wholesale domestic and foreign deposits and fed funds, totaled $13.6 billion, $15.1 billion and $15.9 billion for the same periods, respectively. At December 31, 2003, these borrowings included $3.2 billion of commercial paper related to Three Pillars, which was deconsolidated during the first quarter of 2004.
 
Total net wholesale funding, including short-term unsecured borrowings, secured wholesale borrowings and long-term debt, totaled $37.0 billion at June 30, 2004, compared to $32.1 billion at June 30, 2003 and $35.9 billion at year-end 2003. Long-term debt increased from $12.0 billion at June 30, 2003 to $17.4 billion at June 30, 2004. The increase reflects, in part, the wholesale funding required to offset earning asset growth not supported by deposit growth. The Company manages reliance on short-term unsecured borrowings as well as total wholesale funding through policy established and reviewed by 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. As of June 30, 2004, SunTrust Bank had $14.6 billion remaining under its $20 billion Global Bank Note program. This capacity reflects $1.5 billion of senior debt issued during the first quarter of 2004 and a $10 billion increase to the program, completed on March 31, 2004. The Global Bank Note program was established to expand funding and capital sources to include both domestic and international investors. Liquidity is also available through unpledged securities in the investment portfolio and capacity to securitize loans, including single-family mortgage loans. The Company’s credit ratings are important to its access of unsecured wholesale borrowings. Significant changes in these ratings could change the cost and availability of these sources.
 
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. Management believes the Company has the funding capacity to meet the liquidity needs arising from potential events. Liquidity is measured and monitored for SunTrust Bank and the Company. The Company reviews the net short-term mismatch, which measures the ability of the holding company to meet obligations through the sale or pledging of assets should access to SunTrust Bank dividends be constrained. The Company has $1 billion remaining on its current shelf registration for the issuance of debt.
 
As detailed in Table 11, the Company had $64.0 billion in total commitments to extend credit at June 30, 2004 that were not recorded on the Company’s balance sheet. Commitments to extend credit are arrangements to lend to a customer who has complied with predetermined contractual obligations. The Company also had $10.4 billion in letters of credit, most of which are standby letters of credit that provide that SunTrust Bank fund if certain future events occur. Of this, approximately $6.0 billion support variable rate demand obligations (VRDOs) remarketed by SunTrust and other agents. VRDOs are municipal
 
47

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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.
 
Part of the purchase price of NCF includes a payment of $1.8 billion. The Company issued $800 million in Wholesale CDs on May 17, 2004 and $1 billion of senior debt on August 6, 2004. The Company estimates that the average term of the entire financing will be 3.5 years at an approximate rate of 3.95%.
 
Certain provisions of long-term debt agreements and the 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 June 30, 2004, 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 and credit default swaps. The Company also enters into derivative instruments as a service to banking customers. In the normal course of business, the Company monitors and offsets its market risk exposure with dealers.
 
The Company monitors its sensitivity to changes in interest rates and may use derivative instruments to hedge this risk. All derivatives are recorded in the financial statements at fair value in accordance with SFAS No. 133.
 
Derivative hedging instrument activities are as follows:
 
Table 12

 	  	Notional Values 1
	 	
(Dollars in millions) (Unaudited)	  	Asset Hedges
	 	 	Liability Hedges
	 	 	Total
	 	
Balance, January 1, 2003	  	$	81	 	 	$	4,870	 	 	$	4,951	 	
Additions	  	 	—  	 	 	 	2,758	 	 	 	2,758	 	
Maturities	  	 	(56	)	 	 	(2,315	)	 	 	(2,371	)	
 	  				 				 				
Balance, June 30, 2003	  	$	25	 	 	$	5,313	 	 	$	5,338	 	
 	  				 				 				
Balance, January 1, 2004	  	$	25	 	 	$	9,474	 	 	$	9,499	 	
Additions	  	 	1,521	 	 	 	5,811	 	 	 	7,332	 	
Maturities	  	 	—  	 	 	 	(1,101	)	 	 	(1,101	)	
 	  				 				 				
Balance, June 30, 2004	  	$	1,546	 	 	$	14,184	 	 	$	15,730	 	

1	Excludes the hedging activity for the Company’s mortgage loans in warehouse. At June 30, 2004 and 2003, mortgage notional amounts totaled $3.6 and $6.2 billion, respectively.	
 
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The following table shows the derivative instruments entered into by the Company as an end- user:

Risk Management Derivative Financial Instruments 1 	  	 	 	  	 	 	  	 	 	 	 	 	Table 13	
		
(Dollars in millions)(Unaudited)
	  	As of June 30, 2004
	
	  	Notional
Amount
	  	Gross Unrealized
	 	 	Equity 8
	 	 	Average
Maturity
in Yrs
	
	  		  	Gains 7
	  	Losses 7
	 	 			 		
Asset Hedges	  	 	 	  	 	 	  	 	 	 	 	 	 	 	 	 	
Cash flow hedges	  	 	 	  	 	 	  	 	 	 	 	 	 	 	 	 	
Interest rate swaps 2	  	$	1,500	  	$	—  	  	$	(12	)	 	$	(8	)	 	3.09	
Fair value hedges	  	 	 	  	 	 	  	 	 	 	 	 	 	 	 	 	
Interest rate swaps 3	  	 	46	  	 	1	  	 	—  	 	 	 	—  	 	 	3.68	
Forward Contracts 4	  	 	3,610	  	 	—  	  	 	(30	)	 	 	—  	 	 	0.04	
 	  			  			  				 				 	 	
Total asset hedges	  	$	5,156	  	$	1	  	$	(42	)	 	$	(8	)	 	0.96	
 	  			  			  				 				 	 	
Liability Hedges	  	 	 	  	 	 	  	 	 	 	 	 	 	 	 	 	
Cash flow hedges	  	 	 	  	 	 	  	 	 	 	 	 	 	 	 	 	
Interest rate swaps 5	  	$	7,267	  	$	67	  	$	(9	)	 	$	38	 	 	2.64	
Fair value hedges	  	 	 	  	 	 	  	 	 	 	 	 	 	 	 	 	
Interest rate swaps 6	  	 	6,917	  	 	62	  	 	(282	)	 	 	—  	 	 	8.03	
 	  			  			  				 				 	 	
Total liability hedges	  	$	14,184	  	$	129	  	$	(291	)	 	$	38	 	 	5.26	

1	Includes only derivative financial instruments which are qualifying hedges under SFAS No. 133. All of the Company’s other derivative instruments are classified as trading. All interest rate swaps have resets of three months or less, and are the pay and receive rates in effect at June 30, 2004.	
 
2	Represents interest rate swaps designated as cash flow hedges of commercial loans.	
 
3	Interest rate swaps are designated as fair value hedges of fixed rate loans.	
 
4	Forward contracts are designated as fair value hedges of closed mortgage loans, including both fixed and floating, which are held for sale. Certain other forward contracts which are effective for risk management purposes, but which are not in designated hedging relationships under SFAS No. 149 ,are not incorporated in this table.	
 
5	Represents interest rate swaps designated as cash flow hedges of floating rate certificates of deposit, Global Bank Notes, FHLB Advances and other variable rate debt.	
 
6	Interest rate swaps designated as fair value hedges of trust preferred securities, subordinated notes, FHLB Advances and other fixed rate debt.	
 
7	Represents the fair value of derivative financial instruments less accrued interest receivable or payable.	
 
8	At June 30, 2004, the net unrealized gain on derivatives included in accumulated other comprehensive income, which is a component of stockholders’ equity, was $29.3 million, net of tax, that represents the effective portion of the net gains and losses on derivatives that qualify as cash flow hedges. Derivatives represent a series of projected cash flows. 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. With an upward sloping LIBOR curve, certain interest rate swaps in a net gain position represent projected losses in early periods offset by larger gains in future periods. As of June 30, 2004, $14.4 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.	
 
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 	  	As of December 31, 2003
	
 	  	Notional
Amount
	  	Gross
Unrealized
	 	 	Equity
	 	 	Average
Maturity
in Yrs
	
 	  		  	Gains
	  	Losses
	 	 			 		
Asset Hedges	  	 	 	  	 	 	  	 	 	 	 	 	 	 	 	 	
Fair value hedges	  	 	 	  	 	 	  	 	 	 	 	 	 	 	 	 	
Interest rate swaps	  	$	25	  	$	—  	  	$	(1	)	 	$	—  	 	 	0.82	
Forward Contracts	  	 	3,938	  	 	—  	  	 	(43	)	 	 	—  	 	 	0.07	
 	  			  			  				 				 	 	
Total asset hedges	  	$	3,963	  	$	—  	  	$	(44	)	 	$	—  	 	 	0.07	
 	  			  			  				 				 	 	
Liability Hedges	  	 	 	  	 	 	  	 	 	 	 	 	 	 	 	 	
Cash flow hedges	  	 	 	  	 	 	  	 	 	 	 	 	 	 	 	 	
Interest rate swaps	  	$	3,557	  	$	—  	  	$	(27	)	 	$	(17	)	 	1.38	
Fair value hedges	  	 	 	  	 	 	  	 	 	 	 	 	 	 	 	 	
Interest rate swaps	  	 	5,917	  	 	126	  	 	(51	)	 	 	—  	 	 	8.56	
 	  			  			  				 				 	 	
Total liability hedges	  	$	9,474	  	$	126	  	$	(78	)	 	$	(17	)	 	5.86	

									
Capital Ratios	  	 	Table 14	 	
			
(Dollars in millions) (Unaudited)	  	2004
June 30
	 	 	2003
December 31
	 	
Tier 1 capital	  	$	9,242.0	 	 	$	8,930.0	 	
Total capital	  	 	13,457.7	 	 	 	13,365.9	 	
Risk-weighted assets	  	 	113,256.0	 	 	 	113,711.3	 	
Risk-based ratios:	  	 	 	 	 	 	 	 	
Tier 1 capital	  	 	8.16	%	 	 	7.85	%	
Total capital	  	 	11.88	 	 	 	11.75	 	
Tier 1 leverage ratio	  	 	7.51	 	 	 	7.37	 	
Total average shareholders’ equity to total average assets (year-to-date)	  	 	7.98	 	 	 	7.43	 	
 
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 its 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 its banking subsidiaries 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, 2004, SunTrust Banks, Inc. had Tier 1, Total Capital, and Tier 1 Leverage ratios of 8.16%, 11.88%, and 7.51%, respectively.
 
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The Company notes that capital ratios in the fourth quarter of 2004 may decline due to the effects of the NCF merger; however, SunTrust expects all capital ratios will remain within the well capitalized range.
 
The Company raises subordinated debt as part of managing total capital regulatory ratios. The Company’s debt shelf registrations provide for the issuance of 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. This amount is reflected in other liabilities and totals $431.5 million and $412.5 million, including accrued interest as of June 30, 2004 and December 31, 2003, respectively.
 
The Company anticipates that it will issue approximately 75.4 million shares of SunTrust common stock with an aggregate value of approximately $4.9 billion for the purchase of NCF. The remaining $1.8 billion of the purchase price was funded with cash generated by a combination of $800 million of wholesale CDs issued May 17, 2004 and $1 billion of senior debt issued August 6, 2004. The NCF transaction is expected to close in the fourth quarter of 2004.
 
In December 2003, the Financial Accounting Standards Board issued a revised interpretation of FIN 46, which required deconsolidation of subordinated beneficial interests. As a result, the Company deconsolidated its Trust Preferred Securities in the fourth quarter of 2003. There was no impact to the results of operations and a less than .04% impact to the statement of condition as a result of the deconsolidation. These notes payable to trusts established to issue the preferred securities are included in long-term debt and totaled $1.65 billion at June 30, 2004 and December 31, 2003.
 
SunTrust manages capital through dividends and share repurchases authorized by the Company’s Board of Directors. Management assesses capital needs based on expected growth and the current economic climate. In the first six months of 2004, the Company repurchased 200,000 shares for $14.1 million compared to 3.0 million shares for $165.9 million repurchased in the first six months of 2003. As of June 30, 2004, the Company was authorized to purchase up to an additional 6.0 million shares under current Board resolutions.
 
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 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 35-38. 
 
 Item 4.	CONTROLS AND PROCEDURES	
 
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer, have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective.
 
There have been no changes in the Company’s internal control over financial reporting that occurred during the Company’s most recent completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
PART II - OTHER INFORMATION
 
 ITEM 1.	LEGAL PROCEEDINGS	
 
None
 
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 ITEM 2.	CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES	
 
Issuer Purchases of Equity Securities in 2004:

 	  	Total number
of shares
purchased 1
	  	Average
price
paid
per
share
	  	Number of
shares
purchased
as part of
publicly
announced
plans or
programs
	  	Maximum
number of
shares that
may yet be
purchased
under the
plans or
programs 2
	
January 1-31	  	—  	  	$	—  	  	—  	  	6,227,796	
February 1-29	  	—  	  	 	—  	  	—  	  	6,227,796	
March 1-31	  	200,000	  	 	70.32	  	200,000	  	6,027,796	
April 1-30	  	—  	  	 	—  	  	—  	  	6,027,796	
May 1-31	  	—  	  	 	—  	  	—  	  	6,027,796	
June 1-30	  	—  	  	 	—  	  	—  	  	6,027,796	
 	  		  			  		  	 	
Total	  	200,000	  	$	70.32	  	200,000	  	 	

1	In addition to these repurchases, pursuant to SunTrust’s employee stock option plans, participants may exercise SunTrust stock options by surrendering shares of SunTrust common stock the participants already own as payment of the option exercise price. Shares so surrendered by participants in SunTrust’s employee stock option plans are repurchased pursuant to the terms of the applicable stock option plan and not pursuant to publicly announced share repurchase programs. For the quarter ended June 30, 2004, the following shares of SunTrust common stock were surrendered by participants in SunTrust’s employee stock option plans: April 2004 - no shares; May 2004 - 1,573 shares at an average price per share of $63.34; June 2004 - 2,209 shares at an average price per share of $65.32.	
 
2	On November 12, 2002, the Board of Directors authorized the purchase of 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. The Company has not determined to terminate the program and no programs expired during the period covered by the table.	
 
 ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	
 
None
 
 ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	
 
 	•	Approval of proposal to elect the following individuals as directors of SunTrust at the April 20, 2004 Annual Meeting of Shareholders:	

Directors
	  	For
	  	Withheld
	
J. Hicks Lanier	  	232,982,912	  	7,390,449	
Larry L. Prince	  	235,336,893	  	5,036,468	
Frank S. Royal, M.D.	  	232,682,075	  	7,691,286	
Robert M Beall, II	  	235,388,103	  	4,985,258	
Jeffery C. Crowe	  	235,404,601	  	4,968,760	
 
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 	•	Approval of proposal to ratify the appointment of PricewaterhouseCoopers, LLP as auditors of SunTrust at the April 20, 2004 Annual Meeting of Shareholders:	

For
	 	Against
	 	Abstain
	 	Broker no-Votes
	
235,340,115	 	2,923,166	 	2,110,076	 	4	
 
 	•	Approval of the proposal to adopt the 2004 SunTrust Stock Plan at the April 20, 2004 Annual Meeting of Shareholders:	

For
	 	Against
	 	Abstain
	 	Broker no-Votes
	
172,223,467	 	26,696,778	 	3,045,783	 	38,407,333	
 
 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 Chairman of the Board, President and CEO, 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 May 10, 2004, to announce that SunTrust and National Commerce Financial Corporation had signed a definitive merger agreement.	
 
 	•	The Company filed a Form 8-K on May 20, 2004, to file a copy of the definitive merger agreement between SunTrust and National Commerce Financial Corporation.	
 
 	•	The Company filed a Form 8-K on August 3, 2004, to file certain financial and other information regarding SunTrust and National Commerce Financial Corporation.	
 
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 SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized this 9th day of August, 2004.

SunTrust Banks, Inc.	
(Registrant)	
	
/S/ Jorge Arrieta	
Jorge Arrieta
Senior Vice President and Controller
(Chief Accounting Officer)	
 
55
 
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 the registrant’s ability to record, process, summarize and report financial information; and	
 
56

 	(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 4, 2004

	
/s/ L. Phillip Humann	
L. Phillip Humann
Chairman of the Board, President
and Chief Executive Officer	
 
57
 
EXHIBIT 31.2
 
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
SEC RELEASE NO. 33-8124
 
I, John 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	
 
58

 	(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 4, 2004

	
/s/ John Spiegel	
John Spiegel
Vice-Chairman
and Chief Financial Officer	
 
59
 
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 quarter ended June 30, 2004, 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 4, 2004
 
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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 Annual Report on Form 10-K of SunTrust Banks, Inc. (the “Company”) for the quarter ended June 30, 2004 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:
 
(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.	

	
John W. Spiegel	
John W. Spiegel
Vice Chairman of the Board
and Chief Financial Officer	
 
Date: August 4, 2004
 
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