SunTrust 2004 Annual Report Download - page 25

MANAGEMENT’S DISCUSSION continued
SUNTRUST 2004 ANNUAL REPORT 23
ment manager for Wealth and Investment Management’s clients
and the STI Classic Funds.
NATIONAL COMMERCE FINANCIAL
The NCF segment represents results of NCF from the October 1,
2004 acquisition date and includes the purchase accounting adjust-
ments and certain merger-related expenses recorded for the acqui-
sition. NCF offers commercial and retail banking, savings and trust
services through its branches located in North Carolina, South
Carolina, Georgia, Tennessee, Mississippi, Arkansas, Virginia, and
West Virginia.The NCF segment includes the assets and liabilities of
the merged entity. The Company expects to fully integrate NCF
among its other lines of business in the first quarter of 2005.
CORPORATE/OTHER
Corporate/Other (Other) includes the investment securities portfo-
lio, long-term debt, capital, derivative instruments, short-term liq-
uidity and funding activities, balance sheet risk management, office
premises, certain support activities not currently allocated to the
aforementioned lines of business and the incremental costs to inte-
grate NCF’s operations (merger expenses).The major components
of Corporate/Other 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; 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 admin-
istration functions; Finance, which includes accounting, budgeting,
planning, tax and treasury. Other functions included in Corporate/
Other are operational risk management, credit risk management,
credit review, audit, internal control, legal and compliance, branch
operations, corporate strategies development, and the executive
management group. Corporate/Other also contains certain ex-
penses that have not been allocated to the primary lines of busi-
ness, eliminations, and the residual offsets derived from
matched-maturity funds transfer pricing, and provision for loan
losses/net charge-offs allocations.
The following analysis details the operating results for each line of
business for the years ended December 31, 2004 and 2003. Prior
periods have been restated to conform to the current period’s pres-
entation. In the discussions, net charge-offs represent the allocated
provision for loan losses for the lines of business.Corporate/Other’s
provision for loan losses represents the difference between consoli-
dated provision for loan losses and the aforementioned allocations.
RESULTS OF OPERATIONS — 2004 VS.2003
RETAIL
Retail’s total income before taxes for the year ended December 31,
2004 was $1,375.3 million, an increase of $114.6 million, or 9.1%,
compared to 2003. Higher net interest income, lower net charge-
offs, and higher noninterest income contributed to the year-over-
year increase.
Net interest income increased $109.0 million, or 6.2%. Balance
sheet growth in consumer loans, commercial loans, and lower cost
deposits drove the increase in net interest income. Home equity
lending experienced the strongest growth in the loan category
while demand deposits grew the most in the deposit category.
Average loans increased $2.8 billion, or 11.9%, and average deposits
increased $2.0 billion, or 3.7%.
With improvements in credit quality, net charge-offs decreased
$32.7 million, or 19.1%. Noninterest income increased $56.6 mil-
lion, or 7.4%.The increase was driven by higher service charges on
deposit accounts and an increase in debit card interchange volume.
Noninterest expense increased $83.7 million, or 7.8%.The higher
expense level is primarily attributable to investments in the Retail
distribution network and technology.
COMMERCIAL
Commercial’s total income before taxes for the year ended
December 31, 2004 was $659.9 million, an increase of $24.7 mil-
lion, or 3.9%, compared to 2003. Improvements in net interest
income overcame increased noninterest expense to generate
this growth.
Net interest income increased $54.1 million, or 8.3%.Average loans
increased $1.2 billion, or 5.9%, while average deposits increased
$1.6 billion, or 15.1%. Loan growth was spread across most of the
commercial loan portfolios.The growth in deposits can be attrib-
uted to increased client liquidity.
Even though net charge-offs increased $5.5 million, or 28.3%,
charge-offs remained at historically low levels and overall credit
quality continues to be strong.
Noninterest income increased $43.9 million, or 15.3%, which was
driven by a $48.6 million increase from Affordable Housing activi-
ties, primarily related to the consolidation of certain Affordable
Housing partnerships as a result of the Company becoming the gen-
eral partner in the third quarter of 2003.Additionally, the Company
earned additional Affordable Housing income tax credits, which are
classified on a before tax equivalent basis as noninterest income in
Commercial.This increase was partially offset by declining income
from service charges on deposit accounts and deposit sweep serv-
ices.The decrease in the income from deposit accounts was antici-