Drip Portfolio Report
SunTrust's Busines Lines
by Dale Wettlaufer (DaleW@fool.com)


Alexandria, VA (July 2, 1998) --SunTrust's breakdown of loans is as follows. It's pretty plain vanilla -- no bridge loans for buyouts and other highly leveraged transactions, as far as I can tell from the company's filings.

(Scroll down for the numbers)

                Q1 1998       Q1 1997 
     
  Commercial     
 Domestic.......$15,165.7.....$12,267.0 
 International......249.6.........268.4 
     
 Real estate     
 Construction.....1,451.8.......1,416.5 
 Residential 
 mortgages.......13,195.2......11,839.2 
 Other............4,820.5.......4,656.1 
  
 Lease financing....783.1.........607.9 
 Credit card........982.7.........904.9 
  
 Other consumer 
 loans............4,615.4.......4,468.0 
   
 Loans..........$41,264.0.....$36,428.0 
     
One-third of the loan portfolio is in residential mortgages, which is a very conservative approach to things. By contrast, Wachovia Corp. (NYSE: WB), which is also a more conservative company, held 17.9% of its loan portfolio in residential mortgages as of the end of last quarter. Another comparison that might be instructive is NationsBank's (NYSE: NB) residential mortgage exposure. That was 21.2% of its loan portfolio at the end of last quarter, and NationsBank is pretty much the model for the racier superregional (or megaregional -- this is a big baby these days) bank.

SunTrust earned a net interest margin of 4.11% last year, which is very respectable given the company's middling ratio of noninterest-bearing deposits to total deposits and its low ratio of non-jumbo CDs (certificates of deposit) to jumbo CDs. Both of these indicate how the company funds it assets. If there is a high ratio of checking account deposits to total deposits, its interest expense will be low, because checking accounts (transaction deposits) pay no interest or a very low rate of interest (in which case they will likely be called something other than a "checking account").

The company's jumbo/non-jumbo CD ratio indicates that it goes out and buys deposits rather than being funded by core deposits, or deposits from customers in its market area. A bank can raise cash by going into the money market through brokers or other institutions (or directly) and bid for money, basically. A jumbo CD is one that is a CD with a face value of $100,000 or above. So, the lower this ratio is, the higher the company's interest expense will be in relation to its competitors, generally speaking. With a lower effective leverage ratio than other banks, though, the company's net interest expense as a percentage of earning assets (which is, by the way, assets minus cash, intangibles, unearned interest income, and plant, property & equipment) will be higher than the industry average.

(AOL readers, please maximize the window for viewing.)

Non-Interest Income

 
 (In millions)              1997    1996  change 
                                            (%) 
 Trust income.............$318.6...$278.3...14.5% 
 Service charges 
 on deposit accounts.......247.8....232.4....6.6 
 Other charges and fees....171.5....135.3...26.8 
 Credit card fees...........73.6.....66.3...11.0 
 Mortgage fees..............45.9.....36.0...27.5 
 Securities gains (losses)...1.5.....14.2..(89.4) 
 Trading account profits, 
 commissions................18.0.....13.3...35.3 
 Other income...............57.3.....42.2...35.8 
   

Total noninterest income.$934.2...$818.0...14.2%

Growth in earning assets and loans is important, because that's where most of the company's income comes from. Investors should pay attention to growth in noninterest income, because that's where income from cross-selling other services to customers comes from. SunTrust's noninterest income has pretty heavy dollops of service charges on deposit accounts and "other charges and fees," which is fee income from bounced checks, for instance. These are all well and good, but one really wants to see increased income from businesses where return on invested capital is high, such as trust and investments. Since the company is devoting so much energy to those business lines, I'd like to delve into that on Monday.

In the meantime, happy Independence Day, America.

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7/2 Close

Stock Close Change CPB $52 1/2 - 1 INTC $73 1/4 - 1 15/16 JNJ $73 11/16 + 7/16
Day Month Year History Drip (1.11%) (0.59%) 3.68% (11.70%) S&P 500 (0.19%) 1.11% 18.14% 20.51% Nasdaq (1.07%) (0.04%) 20.61% 18.83% Last Rec'd Total # Security In At Current 05/29/98 2.269 CPB $54.513 $52.500 06/01/98 9.384 INTC $80.482 $73.250 06/09/98 5.535 JNJ $69.365 $73.688 Last Rec'd Total# Security In At Value Change 05/29/98 2.269 CPB $123.69 $119.12 ($4.57) 06/01/98 9.384 INTC $755.21 $687.34 ($67.87) 06/09/98 5.535 JNJ $383.94 $407.86 $23.93 Base: $1700.00 Cash: $386.07** Total: $1600.40

The Drip Portfolio has been divided into 68.021 shares with an average purchase price of $23.522 per share.

The portfolio began with $500 on July 28, 1997, adds $100 on the 1st of every month, and the goal is to have $150,000 in stock by August of the year 2017.

**Transactions in progress:

6/22/98: Sent $40 to buy more CPB, $35 to buy more JNJ, $25 to buy more INTC.