SunTrust 2004 Annual Report Download - page 51

MANAGEMENT’S DISCUSSION continued
SUNTRUST 2004 ANNUAL REPORT 49
Noninterest expense in 2003 was $53.7 million, or 6.2%, lower than
the prior year.The primary driver of the expense decrease was lower
allocations of support expense to the lines of business.
FOURTH QUARTER RESULTS
OVERVIEW
SunTrust reported $455.7 million, or $1.26 per diluted share, of net
income for the fourth quarter of 2004 compared with $342.5 mil-
lion, or $1.21 per diluted share, for the fourth quarter of 2003.After
tax merger-related expenses of $18.5 million related to the
Company’s acquisition of NCF on October 1, 2004 were incurred in
the fourth quarter of 2004. Excluding these merger expenses, oper-
ating net income for the fourth quarter of 2004 was $474.2 million
and operating diluted earnings per share was $1.31.
Fully-taxable net interest income increased $223.4 million, or
25.5%, and the net interest margin increased 12 basis points from
the fourth quarter of 2003 to the fourth quarter of 2004. The
increase in net interest income was attributed to the NCF acquisi-
tion, higher balance sheet volumes, the steepening of the yield
curve, and a larger increase in the earning asset yield versus the
increase in liability cost.The addition of NCF contributed approxi-
mately $196.3 million to the increase in net interest income and
nine basis points of the improvement in net interest margin.Total
average earning assets increased $23.7 billion, or 21.0%, from the
fourth quarter of 2003 to the fourth quarter of 2004.
Approximately $21.2 billion of the increase was attributed to the
acquisition of NCF.The Company consolidated Three Pillars, a multi
seller commercial paper conduit, in the third quarter of 2003 to
comply with FIN 46 and deconsolidated Three Pillars in the first
quarter of 2004.The deconsolidation contributed six basis points to
the increase in the net interest margin.
The provision for loan losses for the fourth quarter of 2004 was
$37.1 million, a decrease of $33.2 million,or 47.2%, from the fourth
quarter of 2003. Net charge-offs declined $15.9 million, or 22.8%,
from the fourth quarter of 2003 to the fourth quarter of 2004 due
to improved credit quality and a strengthening economy.
Commercial net charge-offs declined $10.6 million, or 51.3%, from
the fourth quarter of 2004 compared to the fourth quarter of 2003.
Noninterest income was $759.0 million in the fourth quarter of
2004, an increase of $174.9 million, or 29.9%, compared to the
fourth quarter of 2003.The increase was primarily attributable to
the NCF acquisition, which contributed approximately $100.0
million of the increase. Positively impacting noninterest income
were increases in trust and investment management income, com-
bined trading account profits and commissions and investment
banking income, and service charges on deposits.Trust and invest-
ment management income increased $30.9 million, or 23.8%, from
the fourth quarter of 2003 to the fourth quarter of 2004 due prima-
rily to the acquisitions of Seix Investment Advisors, Inc. and NCF
in 2004. Approximately $10.9 million of the increase was related
to the acquisition of NCF and $11.4 million was related to the
acquisition of Seix.
Combined trading account profits and commissions and investment
banking income, SunTrust’s capital market revenue sources,
increased $29.2 million, or 38.2%, from the fourth quarter of 2003
to the fourth quarter of 2004 due to the acquisition of NCF and
strong growth in debt capital markets. Service charges on deposit
accounts increased $31.7 million, or 19.2%, from the fourth quarter
of 2003 to the fourth quarter of 2004 primarily as a result of the
NCF acquisition, which contributed approximately $32.1 million to
the increase.
Noninterest expense in the fourth quarter of 2004 was $1,149.0
million, an increase of $264.2 million, or 29.9%, from the fourth
quarter of 2003. Approximately $184.5 million of the increase was
attributed to the acquisition of NCF. Personnel expense, the largest
component of noninterest expense, grew $96.7 million, or 18.7%,
from the fourth quarter of 2003 to the fourth quarter of 2004.
Approximately $78.7 million of the increase was attributable to the
NCF acquisition. The remainder of the increase was primarily
related to an increase in historical SunTrust headcount and higher
incentive payments.The efficiency ratio for the fourth quarter of
2004 was 61.78% compared to 60.54% for the fourth quarter of
2003. On an operating basis, which excludes merger-related
expenses, the efficiency ratio was 60.25% for the fourth quarter
of 2004.
Provision for income taxes was $201.4 million for the fourth quarter
of 2004 compared to $152.0 million in the same period of 2003.The
provision represents an effective tax rate of 30.6% for the fourth
quarter of 2004, compared to 30.7% for the fourth quarter of 2003.
BUSINESS SEGMENTS
The following analysis details the operating results for each line of
business for the quarters ended December 31, 2004 and 2003.The
prior period has been restated to conform to the current period’s
presentation.The fourth quarter analysis for the NCF segment is on
page 25.The 2004 annual analysis and fourth quarter analysis for
NCF are the same due to the October 1, 2004, acquisition date.
RETAIL
Retail’s total income before taxes for the quarter ended December
31, 2004 was $368.0 million, an increase of $48.4 million, or 15.1%,
compared to the same period in 2003. Higher net interest income,
lower charge-offs, and higher noninterest income contributed to
the increase.
Net interest income increased $43.0 million, or 9.5%. Balance sheet
growth in consumer loans, commercial loans, and deposits drove
the increase in net interest income. Home equity lending showed
the strongest growth in the loan category while demand deposits
showed the strongest growth in the deposit category. Average