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MANAGEMENT’S DISCUSSION
SUNTRUST 2004 ANNUAL REPORT 19
This narrative will assist readers in their analysis of the accompany-
ing consolidated financial statements and supplemental financial
information. It should be read in conjunction with the Consolidated
Financial Statements and Notes on pages 66 through 107.
Effective October 1, 2004, National Commerce Financial Corporation
(NCF) merged with SunTrust (“SunTrust” or “Company”).The re-
sults of operations for NCF were included with SunTrust’s results
beginning October 1, 2004. Prior periods do not reflect the impact
of the merger.
In Management’s Discussion, net interest income, net interest mar-
gin and the efficiency ratio are presented on a fully taxable-equiva-
lent (FTE) basis, which is adjusted 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 inter-
est income and provides relevant comparison between taxable and
non-taxable amounts.The Company also presents operating diluted
earnings per share and operating efficiency ratio that exclude
merger charges related to the NCF acquisition. The Company
believes the exclusion of the merger charges, which represent incre-
mental costs to integrate NCF’s operations, is more reflective of
normalized operations.The Company provides reconcilements on
pages 58 through 59 for all non-GAAP measures. Certain reclassifi-
cations have been made to prior year financial statements and
related information to conform them to the 2004 presentation.
SunTrust has made, and may continue to make, various forward-
looking statements with respect to financial and business matters.
The following discussion contains forward-looking statements that
involve inherent risks and uncertainties. Actual results may differ
materially from those contained in these forward-looking state-
ments. For additional information regarding forward-looking state-
ments, see “A Warning About Forward-Looking Information” on page
63 of this Annual Report. In addition, the preparation of the financial
statements, upon which this Management’s Discussion is based,
requires management to make estimates which impact these finan-
cial statements. Included in the Notes to the Consolidated Financial
Statements, which start on page 73, are the most significant
accounting policies used in the preparation of these statements as
required by generally accepted accounting principles (GAAP).These
Notes should be read in conjunction with the reader’s review of
SunTrust’s financial statements and results of operations.
INTRODUCTION
SunTrust operates primarily within Florida, Georgia, Maryland,
North Carolina, South Carolina,Tennessee,Virginia,West Virginia,
and the District of Columbia.The acquisition of NCF on October 1,
2004 strengthened the Company’s existing footprint, as well as
expanded the footprint into new geographic areas, which provide
new opportunities in high-growth markets.
Within the geographic footprint, SunTrust strategically operates
under six business segments.These business segments are: Retail,
Commercial, Corporate and Investment Banking (CIB),Wealth and
Investment Management (formerly known as Private Client
Services), Mortgage and NCF. For a complete description of each
line of business, please see pages 22 through 23.
One of the Company’s top priorities for 2004 was the successful
integration of NCF.The Company’s continuing objective is to make
the integration of the two companies seamless to both clients and
employees.The focus of the integration process is on revenue gen-
eration, client and employee retention and satisfaction, and the
achievement of the financial goals established for the acquisition.
The Company identified approximately 1,800 merger milestones as
a way of monitoring the integration process. As of year-end, the
Company remains on track with over 40% of these milestones hav-
ing been completed. Included in the key accomplishments was the
integration of NCF’s organizational structure, business lines, and
support functions, the creation of an employee-experience team
comprised of both NCF and historical SunTrust employees to
address employee communications, retention, and morale, the
placement of talented NCF managers into positions of authority
and the transition of 3,200 NCF revenue producers to equivalent
positions at SunTrust. One of the main focuses of the integration
has been on NCF client retention, which the Company is able to
track and measure through a four-step program.The four key com-
ponents of the program are: client impact assessment, communica-
tion to clients, retention implementation, and measurement and
monitoring.The Company will continue to monitor client retention
rates throughout 2005 as major system conversions, including
client account and branch conversions, are completed.
The Company currently anticipates pretax expense savings of
approximately $125 million to be recognized by the end of 2006.
Approximately 60% of the cost savings are expected to be realized
in 2005.The savings will be achieved through the consolidation and
elimination of duplicate functions, procurement savings and branch
closings.The merger is also expected to spark additional revenue
generation through synchronized pricing and the introduction of
SunTrust products to NCF clients. The Company estimates total
one-time expenses to be approximately $125 million. Of the
expected one-time expenses, $28.4 million were recorded in 2004,
with the remaining $96.6 million expected to be incurred in 2005.
For the Company, 2004 was an exciting year due not only to the
opportunities created by the acquisition of NCF, but also due to the
strong financial results. Earnings per diluted share increased 9.7%
from 2003 to $5.19. On an operating basis, which excludes merger-
related expenses, earnings per diluted share increased 11.0% from
2003 to $5.25. Net income for the year was $1,572.9 million, an
increase of $240.6 million, or 18.1%, over the prior year. SunTrust
reported positive trends throughout the year, including accelerating
revenue growth generated by solid performance by each of the lines
of business, strong credit quality, and emerging strength in net
interest margin.