SUNTRUST BANKS INC, 10-K filed on 2/23/2010
Annual Report
Statement Of Income Interest Based Revenue (USD $)
In Thousands, except Per Share data
Year Ended
Dec. 31,
2009
2008
2007
Interest Income
 
 
 
Interest and fees on loans
$ 5,530,162 
$ 6,933,657 
$ 7,979,281 
Interest and fees on loans held for sale
232,775 
289,920 
668,939 
Interest and dividends on securities available for sale
 
 
 
Taxable interest
716,684 
628,006 
516,289 
Tax-exempt interest
39,730 
44,088 
43,158 
Dividends
73,257 1
103,005 1
122,779 1
Interest on funds sold and securities purchased under agreements to resell
2,204 
25,112 
48,835 
Interest on deposits in other banks
231 
812 
1,305 
Trading account interest
114,704 
302,782 
655,334 
Total interest income
6,709,747 
8,327,382 
10,035,920 
Interest Expense
 
 
 
Interest on deposits
1,439,942 
2,377,473 
3,660,766 
Interest on funds purchased and securities sold under agreements to repurchase
7,827 
130,563 
440,260 
Interest on trading liabilities
20,206 
27,160 
15,586 
Interest on other short-term borrowings
14,678 
55,102 
121,011 
Interest on long-term debt
761,404 
1,117,428 
1,078,753 
Total interest expense
2,244,057 
3,707,726 
5,316,376 
Net interest income
4,465,690 
4,619,656 
4,719,544 
Provision for credit losses
4,063,914 
2,474,215 
664,922 
Net interest income after provision for credit losses
401,776 
2,145,441 
4,054,622 
Noninterest Income
 
 
 
Service charges on deposit accounts
848,354 
904,127 
822,031 
Other charges and fees
522,749 
510,794 
479,074 
Trust and investment management income
486,523 
592,324 
685,034 
Mortgage production related income
376,097 
171,368 
90,983 
Mortgage servicing related income
329,908 
(211,829)
195,436 
Card fees
323,842 
308,374 
280,706 
Investment banking income
271,999 
236,533 
214,885 
Retail investment services
217,803 
289,093 
278,042 
Trading account profits/(losses) and commissions
(40,738)
38,169 
(361,711)
Gain from ownership in Visa
112,102 
86,305 
Net gain on sale of businesses
198,140 
32,340 
Net gain on sale/leaseback of premises
37,039 
118,840 
Other noninterest income
163,620 
239,726 
349,907 
Net securities gains
98,019 2
1,073,300 2
243,117 2
Total noninterest income
3,710,278 
4,473,463 
3,428,684 
Noninterest Expense
 
 
 
Employee compensation
2,257,532 
2,327,228 
2,329,034 
Employee benefits
542,390 
434,036 
441,154 
Amortization/impairment of goodwill/intangible assets
806,834 
121,260 
96,680 
Outside processing and software
579,277 
492,611 
410,945 
Net occupancy expense
356,791 
347,289 
351,238 
Regulatory assessments
302,147 
54,876 
22,425 
Credit and collection services
259,406 
156,445 
112,547 
Other real estate expense
243,727 
104,684 
15,797 
Equipment expense
171,887 
203,209 
206,498 
Marketing and customer development
151,538 
372,235 
195,043 
Operating losses
99,527 
446,178 
134,028 
Mortgage reinsurance
114,905 
179,927 
174 
Net loss on debt extinguishment
39,356 
11,723 
9,800 
Visa litigation
7,000 
(33,469)
76,930 
Other noninterest expense
630,091 
660,791 
818,760 
Total noninterest expense
6,562,408 
5,879,023 
5,221,053 
Income/(loss) before provision/(benefit) for income taxes
(2,450,354)
739,881 
2,262,253 
Provision/(benefit) for income taxes
(898,783)
(67,271)
615,514 
Net income/(loss) including income attributable to noncontrolling interest
(1,551,571)
807,152 
1,646,739 
Net income attributable to noncontrolling interest
12,112 
11,378 
12,724 
Net income/(loss)
(1,563,683)
795,774 
1,634,015 
Net income/(loss) available to common shareholders
(1,733,377)
740,982 
1,592,954 
Net income/(loss) per average common share
 
 
 
Diluted
(3.98)
2.12 
4.52 
Basic
(3.98)
2.12 
4.56 
Dividends declared per common share
0.22 
2.85 
2.92 
Average common shares - diluted
435,328 3
350,183 3
352,688 3
Average common shares - basic
435,328 
348,919 
349,346 
Statement Of Income Interest Based Revenue (Parenthetical) (USD $)
In Thousands
Year Ended
Dec. 31,
2009
2008
2007
Dividends on common stock of The Coca-Cola Company
$ 49,200 
$ 55,920 
$ 60,915 
Net securities gains, other-than-temporary impairment losses
20,000 
Net securities gains, unrealized losses
112,800 
Net securities gains, non-credit related unrealized losses recorded in other comprehensive income, before tax
$ 92,800 
$ 0 
$ 0 
Statement Of Financial Position Unclassified - Deposit Based Operations (USD $)
In Thousands, except Share data
Dec. 31, 2009
Dec. 31, 2008
Assets
 
 
Cash and due from banks
$ 6,456,406 
$ 5,622,789 
Interest-bearing deposits in other banks
24,109 
23,999 
Funds sold and securities purchased under agreements to resell
516,656 
990,614 
Cash and cash equivalents
6,997,171 
6,637,402 
Trading assets
4,979,938 
10,396,269 
Securities available for sale
28,477,042 1
19,696,537 1
Loans held for sale (loans at fair value: $2,923,375 as of December 31, 2009; $2,424,432 as of December 31, 2008)
4,669,823 
4,032,128 
Loans (loans at fair value: $448,720 as of December 31, 2009; $270,342 as of December 31, 2008)
113,674,844 
126,998,443 
Allowance for loan and lease losses
(3,120,000)
(2,350,996)
Net loans
110,554,844 
124,647,447 
Premises and equipment
1,551,794 
1,547,892 
Goodwill
6,319,078 
7,043,503 
Other intangible assets (MSRs at fair value: $935,561 as of December 31, 2009; $0 as of December 31, 2008)
1,711,299 
1,035,427 
Customers' acceptance liability
6,264 
5,294 
Other real estate owned
619,621 
500,481 
Unsettled sales of securities available for sale
6,386,795 
Other assets
8,277,861 
7,208,786 
Total assets
174,164,735 
189,137,961 
Liabilities and Shareholders' Equity
 
 
Noninterest-bearing consumer and commercial deposits
24,244,041 
21,522,021 
Interest-bearing consumer and commercial deposits
92,059,411 
83,753,686 
Total consumer and commercial deposits
116,303,452 
105,275,707 
Brokered deposits (CDs at fair value: $1,260,505 as of December 31, 2009; $587,486 as of December 31, 2008)
4,231,530 
7,667,167 
Foreign deposits
1,328,584 
385,510 
Total deposits
121,863,566 
113,328,384 
Funds purchased
1,432,581 
1,120,079 
Securities sold under agreements to repurchase
1,870,510 
3,193,311 
Other short-term borrowings (debt at fair value: $0 as of December 31, 2009; $399,611 as of December 31, 2008)
2,062,277 
5,166,360 
Long-term debt (debt at fair value: $3,585,892 as of December 31, 2009; $7,155,684 as of December 31, 2008)
17,489,516 
26,812,381 
Acceptances outstanding
6,264 
5,294 
Trading liabilities
2,188,923 
3,240,784 
Unsettled purchases of securities available for sale
8,898,279 
Other liabilities
4,720,243 
4,872,284 
Total liabilities
151,633,880 
166,637,156 
Preferred stock
4,917,312 
5,221,703 
Common stock, $1.00 par value
514,667 
372,799 
Additional paid in capital
8,521,042 
6,904,644 
Retained earnings
8,562,807 
10,388,984 
Treasury stock, at cost, and other
(1,055,136)
(1,368,450)
Accumulated other comprehensive income
1,070,163 
981,125 
Total shareholders' equity
22,530,855 
22,500,805 
Total liabilities and shareholders' equity
174,164,735 
189,137,961 
Common shares outstanding
499,156,858 
354,515,013 
Common shares authorized
750,000,000 
750,000,000 
Preferred shares outstanding
50,225 
53,500 
Preferred shares authorized
50,000,000 
50,000,000 
Treasury shares of common stock
15,509,737 
18,284,356 
Statement Of Financial Position Unclassified - Deposit Based Operations (Parenthetical) (USD $)
In Thousands, except Per Share data
Dec. 31, 2009
Dec. 31, 2008
Loans held for sale, fair value
$ 2,923,375 
$ 2,424,432 
Loans, fair value
448,720 
270,342 
Other intangible assets, MSRs at fair value
935,561 
Brokered deposits, CDs at fair value
1,260,505 
587,486 
Other short-term borrowings, fair value
399,611 
Long-term debt, fair value
3,585,892 
7,155,684 
Common stock, par value
1.00 
1.00 
Securities available for sale, unrealized gains
$ 1,831,948 
$ 1,413,330 
Statement Of Shareholders Equity And Other Comprehensive Income (USD $)
In Thousands
Preferred Stock
Common Stock
Additional Paid in Capital
Retained Earnings
Treasury Stock and Other
Accumulated Other Comprehensive Income
Total
1/1/2007 - 12/31/2007
 
 
 
 
 
 
 
Beginning Balance (in shares)
 
354,903 
 
 
 
 
 
Beginning Balance
500,000 
370,578 
6,627,196 
10,541,152 
(1,032,720)1
925,949 
17,932,155 
Net income (loss)
 
 
 
1,634,015 
 
 
1,634,015 
Other comprehensive income:
 
 
 
 
 
 
 
Change in unrealized gains (losses) on securities, net of tax
 
 
 
 
 
243,986 
243,986 
Change in unrealized gains (losses) on derivatives, net of tax
 
 
 
 
 
139,732 
139,732 
Change related to employee benefit plans
 
 
 
 
 
70,401 
70,401 
Total comprehensive income (loss)
 
 
 
 
 
 
2,088,134 
Change in noncontrolling interest
 
 
 
 
(1,125)1
 
(1,125)
Issuance of common stock for GB&T acquisition (in shares)
 
 
 
 
 
 
 
Issuance of common stock for GB&T acquisition
 
 
 
 
 
 
 
Common stock dividends, $0.22 per share in 2009, $2.85 per share in 2008 and $2.92 per share in 2007
 
 
 
(1,026,594)
 
 
(1,026,594)
Series A preferred stock dividends, $4,056 per share in 2009, $4,451 per share in 2008 and $6,055 per share in 2007
 
 
 
(30,275)
 
 
(30,275)
U.S. Treasury preferred stock dividends, $5,004 per share in 2009 and $471 per share in 2008
 
 
 
 
 
 
 
Issuance of U.S. Treasury preferred stock
 
 
 
 
 
 
 
Accretion of discount associated with U.S. Treasury preferred stock
 
 
 
 
 
 
 
Exercise of stock options and stock compensation expense (in shares)
 
2,794 
 
 
 
 
 
Issuance of common stock in connection with SCAP capital plan (in shares)
 
 
 
 
 
 
 
Issuance of common stock in connection with SCAP capital plan
 
 
 
 
 
 
 
Extinguishment of forward stock purchase contract
 
 
 
 
 
 
 
Repurchase of preferred stock
 
 
 
 
 
 
 
Exercise of stock options and stock compensation expense
 
 
(1,471)
 
211,460 1
 
209,989 
Acquisition of treasury stock (in shares)
 
(10,758)
 
 
 
 
 
Acquisition of treasury stock
 
 
71,267 
 
(924,652)1
 
(853,385)
Restricted stock activity (in shares)
 
682 
 
 
 
 
 
Restricted stock activity
 
 
8,197 
(3,535)
(10,507)1
 
(5,845)
Amortization of restricted stock compensation
 
 
 
 
34,820 1
 
34,820 
Issuance of stock for employee benefit plans (in shares)
 
785 
 
 
 
 
 
Issuance of stock for employee benefit plans and other (in shares)
 
 
 
 
 
 
 
Issuance of stock for employee benefit plans
 
 
2,046 
 
60,594 1
 
62,640 
Issuance of stock for employee benefit plans and other
 
 
 
 
 
 
 
Adoption of fair value election
 
 
 
(388,604)
 
147,374 
(241,230)
Adoption of OTTI guidance
 
 
 
 
 
 
 
Adoption of fair value measurement
 
 
 
(10,943)
 
 
(10,943)
Adoption of uncertain tax position guidance
 
 
 
(41,844)
 
 
(41,844)
Adoption of leveraged lease cash flows guidance
 
 
 
(26,273)
 
 
(26,273)
Pension plan changes and resulting remeasurement
 
 
 
 
 
79,707 
79,707 
Other activity (in shares)
 
 
 
 
 
 
Other activity
 
 
58 
(459)
412 1
 
11 
Ending Balance (in shares)
 
348,411 
 
 
 
 
 
Ending Balance
500,000 
370,578 
6,707,293 
10,646,640 
(1,661,718)1
1,607,149 
18,169,942 
1/1/2008 - 12/31/2008
 
 
 
 
 
 
 
Beginning Balance (in shares)
 
348,411 
 
 
 
 
 
Beginning Balance
500,000 
370,578 
6,707,293 
10,646,640 
(1,661,718)1
1,607,149 
18,169,942 
Net income (loss)
 
 
 
795,774 
 
 
795,774 
Other comprehensive income:
 
 
 
 
 
 
 
Change in unrealized gains (losses) on securities, net of tax
 
 
 
 
 
(806,586)
(806,586)
Change in unrealized gains (losses) on derivatives, net of tax
 
 
 
 
 
688,487 
688,487 
Change related to employee benefit plans
 
 
 
 
 
(507,925)
(507,925)
Total comprehensive income (loss)
 
 
 
 
 
 
169,750 
Change in noncontrolling interest
 
 
 
 
(4,728)1
 
(4,728)
Issuance of common stock for GB&T acquisition (in shares)
 
2,221 
 
 
 
 
 
Issuance of common stock for GB&T acquisition
 
2,221 
152,292 
 
 
 
154,513 
Common stock dividends, $0.22 per share in 2009, $2.85 per share in 2008 and $2.92 per share in 2007
 
 
 
(1,004,146)
 
 
(1,004,146)
Series A preferred stock dividends, $4,056 per share in 2009, $4,451 per share in 2008 and $6,055 per share in 2007
 
 
 
(22,255)
 
 
(22,255)
U.S. Treasury preferred stock dividends, $5,004 per share in 2009 and $471 per share in 2008
 
 
 
(22,847)
 
 
(22,847)
Issuance of U.S. Treasury preferred stock
4,717,971 
 
132,029 
 
 
 
4,850,000 
Accretion of discount associated with U.S. Treasury preferred stock
3,732 
 
 
(3,732)
 
 
Exercise of stock options and stock compensation expense (in shares)
 
495 
 
 
 
 
 
Issuance of common stock in connection with SCAP capital plan (in shares)
 
 
 
 
 
 
 
Issuance of common stock in connection with SCAP capital plan
 
 
 
 
 
 
 
Extinguishment of forward stock purchase contract
 
 
 
 
 
 
 
Repurchase of preferred stock
 
 
 
 
 
 
 
Exercise of stock options and stock compensation expense
 
 
16,160 
 
39,766 1
 
55,926 
Acquisition of treasury stock (in shares)
 
 
 
 
 
 
 
Acquisition of treasury stock
 
 
 
 
 
 
 
Restricted stock activity (in shares)
 
1,693 
 
 
 
 
 
Restricted stock activity
 
 
(46,797)
(450)
46,712 1
 
(535)
Amortization of restricted stock compensation
 
 
 
 
76,656 1
 
76,656 
Issuance of stock for employee benefit plans (in shares)
 
1,695 
 
 
 
 
 
Issuance of stock for employee benefit plans and other (in shares)
 
 
 
 
 
 
 
Issuance of stock for employee benefit plans
 
 
(56,834)
 
134,862 1
 
78,028 
Issuance of stock for employee benefit plans and other
 
 
 
 
 
 
 
Adoption of fair value election
 
 
 
 
 
 
 
Adoption of OTTI guidance
 
 
 
 
 
 
 
Adoption of fair value measurement
 
 
 
 
 
 
 
Adoption of uncertain tax position guidance
 
 
 
 
 
 
 
Adoption of leveraged lease cash flows guidance
 
 
 
 
 
 
 
Pension plan changes and resulting remeasurement
 
 
 
 
 
 
 
Other activity (in shares)
 
 
 
 
 
 
 
Other activity
 
 
501 
 
 
 
501 
Ending Balance (in shares)
 
354,515 
 
 
 
 
 
Ending Balance
5,221,703 
372,799 
6,904,644 
10,388,984 
(1,368,450)1
981,125 
22,500,805 
1/1/2009 - 12/31/2009
 
 
 
 
 
 
 
Beginning Balance (in shares)
 
354,515 
 
 
 
 
 
Beginning Balance
5,221,703 
372,799 
6,904,644 
10,388,984 
(1,368,450)1
981,125 
22,500,805 
Net income (loss)
 
 
 
(1,563,683)
 
 
(1,563,683)
Other comprehensive income:
 
 
 
 
 
 
 
Change in unrealized gains (losses) on securities, net of tax
 
 
 
 
 
280,336 
280,336 
Change in unrealized gains (losses) on derivatives, net of tax
 
 
 
 
 
(434,795)
(434,795)
Change related to employee benefit plans
 
 
 
 
 
251,212 
251,212 
Total comprehensive income (loss)
 
 
 
 
 
 
(1,466,930)
Change in noncontrolling interest
 
 
 
 
(4,500)1
 
(4,500)
Issuance of common stock for GB&T acquisition (in shares)
 
 
 
 
 
 
 
Issuance of common stock for GB&T acquisition
 
 
 
 
 
 
 
Common stock dividends, $0.22 per share in 2009, $2.85 per share in 2008 and $2.92 per share in 2007
 
 
 
(82,619)
 
 
(82,619)
Series A preferred stock dividends, $4,056 per share in 2009, $4,451 per share in 2008 and $6,055 per share in 2007
 
 
 
(14,143)
 
 
(14,143)
U.S. Treasury preferred stock dividends, $5,004 per share in 2009 and $471 per share in 2008
 
 
 
(242,688)
 
 
(242,688)
Issuance of U.S. Treasury preferred stock
 
 
 
 
 
 
 
Accretion of discount associated with U.S. Treasury preferred stock
23,098 
 
 
(23,098)
 
 
Exercise of stock options and stock compensation expense (in shares)
 
 
 
 
 
 
 
Issuance of common stock in connection with SCAP capital plan (in shares)
 
141,868 
 
 
 
 
 
Issuance of common stock in connection with SCAP capital plan
 
141,868 
1,687,867 
 
 
 
1,829,735 
Extinguishment of forward stock purchase contract
 
 
173,653 
 
 
 
173,653 
Repurchase of preferred stock
(327,489)
 
5,047 
94,318 
 
 
(228,124)
Exercise of stock options and stock compensation expense
 
 
11,406 
 
 
 
11,406 
Acquisition of treasury stock (in shares)
 
 
 
 
 
 
 
Acquisition of treasury stock
 
 
 
 
 
 
 
Restricted stock activity (in shares)
 
1,812 
 
 
 
 
 
Restricted stock activity
 
 
(206,305)
 
176,603 1
 
(29,702)
Amortization of restricted stock compensation
 
 
 
 
66,420 1
 
66,420 
Issuance of stock for employee benefit plans (in shares)
 
 
 
 
 
 
 
Issuance of stock for employee benefit plans and other (in shares)
 
962 
 
 
 
 
 
Issuance of stock for employee benefit plans
 
 
 
 
 
 
 
Issuance of stock for employee benefit plans and other
 
 
(55,270)
(1,979)
74,791 1
 
17,542 
Adoption of fair value election
 
 
 
 
 
 
 
Adoption of OTTI guidance
 
 
 
7,715 2
 
(7,715)2
2
Adoption of fair value measurement
 
 
 
 
 
 
 
Adoption of uncertain tax position guidance
 
 
 
 
 
 
 
Adoption of leveraged lease cash flows guidance
 
 
 
 
 
 
 
Pension plan changes and resulting remeasurement
 
 
 
 
 
 
 
Other activity (in shares)
 
 
 
 
 
 
 
Other activity
 
 
 
 
 
 
 
Ending Balance (in shares)
 
499,157 
 
 
 
 
 
Ending Balance
$ 4,917,312 
$ 514,667 
$ 8,521,042 
$ 8,562,807 
$ (1,055,136)1
$ 1,070,163 
$ 22,530,855 
Statement Of Shareholders Equity And Other Comprehensive Income (Parenthetical) (USD $)
In Thousands, except Per Share data
Year Ended
Dec. 31,
2009
2008
2007
Common stock dividends, per share
$ 0.22 
$ 2.85 
$ 2.92 
Series A preferred stock dividends, per share
4,056 
4,451 
6,055 
U.S. Treasury preferred stock dividends, per share
5,004 
471 
 
Treasury Stock and Other
 
 
 
Ending Balance, treasury stock
(1,104,171)1
(1,367,752)1
(1,688,521)1
Ending Balance, compensation element of restricted stock
(59,161)1
(113,394)1
(90,622)1
Ending Balance, noncontrolling interest
$ 108,196 1
$ 112,696 1
$ 117,425 1
Statement Of Cash Flows Indirect Deposit Based Operations (USD $)
In Thousands
Year Ended
Dec. 31,
2009
2008
2007
Cash Flows from Operating Activities:
 
 
 
Net income/(loss) including income attributable to noncontrolling interest
$ (1,551,571)
$ 807,152 
$ 1,646,739 
Adjustments to reconcile net income/(loss) to net cash provided by operating activities:
 
 
 
Net gain on sale of businesses
(198,140)
(32,340)
Visa litigation
7,000 
(33,469)
76,930 
Expense recognized on contribution of common stock of Coke
183,418 
Gain from ownership in Visa
(112,102)
(86,305)
Depreciation, amortization and accretion
966,093 
824,263 
802,342 
Impairment of goodwill/intangibles
751,156 
415,000 
Recovery of MSRs impairment
(199,159)
Origination of MSRs
(681,813)
(485,597)
(639,158)
Provisions for credit losses and foreclosed property
4,270,340 
2,551,574 
683,114 
Deferred income tax benefit
(894,974)
(221,235)
(147,758)
Amortization of restricted stock compensation
66,420 
76,656 
34,820 
Stock option compensation
11,406 
20,185 
24,275 
Excess tax benefits from stock-based compensation
(387)
(4,580)
(11,259)
Net loss on debt extinguishment
39,356 
11,723 
9,800 
Net securities gains
(98,019)1
(1,073,300)1
(243,117)1
Net gain on sale/leaseback of premises
(37,039)
(118,840)
Net gain on sale of assets
(65,648)
(60,311)
(30,569)
Net (increase)/decrease in loans held for sale
(965,249)
4,191,838 
2,479,428 
Contributions to retirement plans
(25,666)
(386,535)
(11,185)
Net (increase)/decrease in other assets
1,522,117 
(2,694,422)
(1,993,001)
Net (decrease)/increase in other liabilities
2,864 
(184,601)
1,200,614 
Net cash provided by operating activities
3,042,164 
3,616,275 
3,730,835 
Cash Flows from Investing Activities:
 
 
 
Proceeds from maturities, calls and paydowns of securities available for sale
3,406,941 
1,292,065 
1,073,340 
Proceeds from sales of securities available for sale
19,487,740 
5,737,627 
1,199,231 
Purchases of securities available for sale
(33,793,498)
(8,170,824)
(7,640,289)
Proceeds from maturities, calls and paydowns of trading securities
148,283 
4,329,198 
11,896,617 
Proceeds from sales of trading securities
2,113,466 
3,046,185 
19,240,250 
Purchases of trading securities
(85,965)
(3,687,561)
(22,717,152)
Net decrease/(increase) in loans
8,609,239 
(5,807,828)
(7,158,570)
Proceeds from sales of loans held for investment
755,855 
881,410 
5,721,662 
Proceeds from sale of MSRs
148,387 
270,215 
Capital expenditures
(212,186)
(221,602)
(186,431)
Net cash and cash equivalents received for sale of businesses
301,604 
Net cash paid and cash equivalents acquired in acquisitions
(6,711)
(23,931)
(32,200)
Proceeds from sale/redemption of Visa shares
112,102 
86,305 
Contingent consideration payouts related to acquisitions
(18,043)
(2,830)
(50,689)
Proceeds from the sale/leaseback of premises
288,851 
764,368 
Proceeds from the sale of other assets
566,451 
318,910 
145,871 
Net cash provided by/(used) in investing activities
1,083,674 
(1,484,034)
2,526,223 
Cash Flows from Financing Activities:
 
 
 
Net increase in consumer and commercial deposits
10,582,750 
1,767,908 
2,100,134 
Net decrease in foreign and brokered deposits
(2,497,023)
(7,917,898)
(8,273,116)
Assumption of deposits, net
448,858 
160,517 
Net decrease in funds purchased, securities sold under agreements to repurchase, and other short-term borrowings
(4,114,382)
(2,796,359)
(1,679,833)
Proceeds from the issuance of long-term debt
574,560 
7,834,388 
5,197,020 
Repayment of long-term debt
(10,034,157)
(4,024,675)
(1,553,412)
Proceeds from the issuance of preferred stock
4,850,000 
Proceeds from the exercise of stock options
25,569 
186,000 
Acquisition of treasury stock
(853,385)
Excess tax benefits from stock-based compensation
387 
4,580 
11,259 
Proceeds from the issuance of common stock
1,829,735 
Repurchase of preferred stock
(228,124)
Common and preferred dividends paid
(328,673)
(1,041,470)
(1,056,869)
Net cash used in financing activities
(3,766,069)
(1,137,440)
(5,922,202)
Net increase in cash and cash equivalents
359,769 
994,801 
334,856 
Cash and cash equivalents at beginning of period
6,637,402 
5,642,601 
5,307,745 
Cash and cash equivalents at end of period
6,997,171 
6,637,402 
5,642,601 
Supplemental Disclosures:
 
 
 
Interest paid
2,366,891 
3,868,034 
5,277,639 
Income taxes paid
44,723 
341,396 
724,351 
Income taxes refunded
(106,020)
(4,275)
(13,859)
Securities transferred from available for sale to trading
15,143,109 
Loans transferred from loans to loans held for sale
124,879 
4,054,246 
Loans transferred from loans held for sale to loans
306,966 
656,134 
837,401 
Loans transferred from loans to other real estate owned
811,659 
754,091 
Issuance of common stock for acquisition of GB&T
154,513 
Noncash gain on contribution of common stock of Coke
183,418 
Unsettled purchases of securities available for sale as of year-end
8,898,279 
Unsettled sales of securities available for sale as of year-end
6,386,795 
Amortization of deferred gain on sale/leaseback of premises
59,044 
55,616 
5,301 
U.S. Treasury preferred dividend accrued but unpaid
10,777 
7,778 
Accretion on U.S. Treasury preferred stock
23,098 
3,732 
Extinguishment of forward stock purchase contract
173,653 
Gain on repurchase of Series A preferred stock
$ 94,318 
$ 0 
$ 0 
Significant Accounting Policies
Significant Accounting Policies

Note 1 – Significant Accounting Policies

General

SunTrust, one of the nation’s largest commercial banking organizations, is a financial services 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 Florida, Georgia, Maryland, North Carolina, South Carolina, Tennessee, Virginia, and the District of Columbia. Within its geographic footprint, the Company operated under four business segments during 2009. These business segments are: Retail & Commercial, Wealth and Investment Management, Corporate and Investment Banking, and Household Lending. 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 markets services.

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of the Company, its majority-owned subsidiaries, and VIEs where the Company is the primary beneficiary. All significant intercompany accounts and transactions have been eliminated. Results of operations of companies purchased are included from the date of acquisition. Results of operations associated with companies or net assets sold are included through the date of disposition. The Company reports any noncontrolling interests in its subsidiaries (i.e. minority interest) in the equity section of the Consolidated Balance Sheets and separately presents the income or loss attributable to the noncontrolling interest of a consolidated subsidiary in its Consolidated Statements of Income/(Loss). Assets and liabilities of purchased companies are stated at estimated fair values at the date of acquisition. Investments in companies which are not VIEs, or where SunTrust is not the primary beneficiary in a VIE, that the Company owns a voting interest of 20% to 50%, and for which it has the ability to exercise significant influence over operating and financing decisions, are accounted for 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 noninterest income in the Consolidated Statements of Income/(Loss).

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could vary from these estimates. Certain reclassifications have been made to prior period amounts to conform to the current period presentation.

The Company evaluated subsequent events through the date its financial statements were issued.

Cash and Cash Equivalents

Cash and cash equivalents include cash and due from banks, interest-bearing deposits in other banks, federal funds sold, and securities purchased under agreements to resell. Cash and cash equivalents have maturities of three months or less, and accordingly, the carrying amount of these instruments is deemed to be a reasonable estimate of fair value.

Securities and Trading Activities

Securities are classified at trade date as trading or available for sale securities. Trading account assets and liabilities are carried at fair value with changes in fair value recognized within noninterest income. Realized and unrealized gains and losses are determined using the specific identification method and are recognized as a component of noninterest income in the Consolidated Statements of Income/(Loss). Securities available for sale are used as part of the overall asset and liability management process to optimize income and market performance over an entire interest rate cycle. Interest income and dividends on securities are recognized in interest income on an accrual basis. Premiums and discounts on debt securities are amortized as an adjustment to yield over the estimated life of the security. Securities available for sale are carried at fair value with unrealized gains and losses, net of any tax effect, included in AOCI as a component of shareholders’ equity.

The Company reviews available for sale securities for impairment on a quarterly basis. A security is considered to be impaired if the fair value of a debt security is less than its amortized cost basis at the measurement date. The Company determines whether a decline in fair value below the amortized cost basis is other-than-temporary. Prior to April 1, 2009, debt securities that the Company had the intent and ability to hold to recovery and for which it was probable that the Company would receive all cash flows were considered not to be other-than-temporarily impaired. Available for sale debt securities which had OTTI were written down to fair value as a realized loss in the Consolidated Statements of Income/(Loss).

 

After April 1, 2009, the Company changed its policy based on an update to the guidance on determining OTTI. Based on the updated guidance, the Company determines whether it has the intent to sell the debt security or whether it is more likely than not it will be required to sell the debt security before the recovery of its amortized cost basis. If either condition is met, the Company will recognize a full impairment and write the debt security down to fair value. For all other debt securities for which the Company does not expect to recover the entire amortized cost basis of the security and do not meet either condition, an OTTI loss is considered to have occurred, and the Company records the credit loss portion of impairment in earnings and the temporary impairment related to all other factors in OCI.

The Company also holds beneficial interests in securitized financial assets (other than those of high credit quality or sufficiently collateralized to ensure the possibility of credit loss is remote). The Company determines whether OTTI exists by evaluating whether there had been an adverse change in the present value of estimated cash flows from the present value of cash flows previously projected. For additional information on the Company’s securities activities, refer to Note 5, “Securities Available for Sale,” to the Consolidated Financial Statements.

Nonmarketable equity securities include venture capital equity and certain mezzanine securities that are not publicly traded as well as equity investments acquired for various purposes. These securities are accounted for under the cost or equity method and are included in other assets. The Company reviews nonmarketable securities accounted for under the cost method on a quarterly basis and reduces the asset value when declines in value are considered to be other-than-temporary. Equity method investments are recorded at cost, adjusted to reflect the Company’s portion of income, loss or dividends of the investee. Realized income, realized losses and estimated other-than-temporary unrealized losses on cost and equity method investments are recognized in noninterest income in the Consolidated Statements of Income/(Loss).

Loans Held for Sale

The Company’s LHFS includes certain residential mortgage loans, commercial loans, and student loans. LHFS are recorded at either the lower of cost or fair value, or fair value if elected. Origination fees and costs for LHFS recorded at the lower of cost or fair value are capitalized in the basis of the loan and are included in the calculation of realized gains and losses upon sale. Origination fees and costs are recognized in earnings at the time of origination for LHFS that are recorded at fair value. Fair value is derived from observable current market prices, when available, and includes loan servicing value. When observable market prices are not available, the Company will use judgment and estimate fair value using internal models, in which the Company uses its best estimates of assumptions it believes would be used by market participants in estimating fair value. Adjustments to reflect unrealized gains and losses resulting from changes in fair value and realized gains and losses upon ultimate sale of the loans are classified as noninterest income in the Consolidated Statements of Income/(Loss).

The Company may transfer certain residential mortgage loans, commercial loans, and student loans to a held for sale classification at the lower of cost or fair value. At the time of transfer, any credit losses are recorded as a reduction in the allowance for loan losses. Subsequent credit losses as well as incremental interest rate or liquidity related valuation adjustments are recorded as a component of noninterest income in the Consolidated Statements of Income/(Loss). The Company may also transfer loans from held for sale to held for investment. At the time of transfer, any difference between the carrying amount of the loan and its outstanding principal balance is recognized as an adjustment to yield using the interest method, unless the loan was elected upon origination to be accounted for at fair value. If a held for sale loan is transferred to held for investment for which fair value accounting was elected, it will continue to be accounted for at fair value in the held for investment portfolio. For additional information on the Company’s LHFS activities, refer to Note 6, “Loans,” to the Consolidated Financial Statements.

Loans

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are considered held for investment. The Company’s loan balance is comprised of loans held in portfolio, including commercial loans, consumer loans, real estate loans and lines, credit card receivables, direct financing leases, leveraged leases, and nonaccrual and restructured loans. Interest income on all types of loans is accrued based upon the outstanding principal amounts, except those classified as nonaccrual loans. The Company typically classifies commercial and commercial real estate loans as nonaccrual when one of the following events occurs: (i) interest or principal has been in default 90 days or more, unless the loan is secured by collateral having realizable value sufficient to discharge the debt in full and the loan is in the legal process of collection; (ii) collection of recorded interest or principal is not anticipated; or (iii) income for the loan is recognized on a cash basis due to the deterioration in the financial condition of the debtor. Consumer and residential mortgage loans are typically placed on nonaccrual when payments have been in default for 90 and 120 days or more, respectively.

When a loan is placed on nonaccrual, unpaid interest is reversed against interest income. Interest income on nonaccrual loans, if recognized, is either recorded using the cash basis method of accounting or recognized at the end of the loan after the principal has been reduced to zero, depending on the type of loan. If and when borrowers demonstrate the ability to repay a loan in accordance with the contractual terms of a loan classified as nonaccrual, the loan may be returned to accrual status. See “Allowance for Loan and Lease Losses” section of this Note for further discussion of impaired loans.

TDRs are loans in which the Company has granted a concession to the borrower, which would not otherwise be considered due to the borrower experiencing financial difficulty. If a loan is in nonaccrual status before it is determined to be a TDR, then the loan remains in nonaccrual status. TDR loans in nonaccrual status may be returned to accrual status if there has been at least a six month sustained period of repayment performance by the borrower. When the Company modifies the terms of an existing loan that is not considered a TDR, the Company accounts for the loan modification as a new loan if the terms of the new loan resulting from a loan refinancing or restructuring are at least as favorable to the Company as the terms for comparable loans to other customers with similar risk characteristics who are not undergoing a refinancing or restructuring and the modifications are more than minor.

For loans accounted for at amortized cost, fees and incremental direct costs associated with the loan origination and pricing process, as well as premiums and discounts, are deferred and amortized as level yield adjustments over the respective loan terms. Premiums for purchased credit cards are amortized on a straight-line basis over one year. Fees received for providing loan commitments that result in loans are recognized over the term of the loan as an adjustment of the yield. If a loan is never funded, the commitment fee is recognized into noninterest income at the expiration of the commitment period. Origination fees and costs are recognized in noninterest income and expense at the time of origination for newly originated loans that are accounted for at fair value. For additional information on the Company’s loans activities, refer to Note 6, “Loans,” to the Consolidated Financial Statements.

Allowance for Loan and Lease Losses

The Company’s ALLL is the amount considered adequate to absorb probable losses within the portfolio based on management’s evaluation of the size and current risk characteristics of the loan portfolio. Such evaluation considers numerous factors, including, but not limited to net charge-off trends, internal risk ratings, changes in internal risk ratings, loss forecasts, collateral values, geographic location, borrower FICO scores, delinquency rates, nonperforming and restructured loans, origination channel, product mix, underwriting practices, industry conditions and economic trends.

Specific allowances for loan and lease losses are established for large commercial, corporate, and commercial real estate nonaccrual loans that are evaluated on an individual basis and certain consumer, commercial, corporate, and commercial real estate loans whose terms have been modified in a TDR. The specific allowance established for these loans and leases is based on a thorough analysis of the most probable source of repayment, including the present value of the loan’s expected future cash flows, the loan’s estimated market value, or the estimated fair value of the underlying collateral depending on the most likely source of repayment.

General allowances are established for loans and leases grouped into pools based on similar characteristics. In this process, general allowance factors established are based on an analysis of historical charge-off experience, portfolio trends, regional and national economic conditions, and expected loss given default derived from the Company’s internal risk rating process. Other adjustments may be made to the ALLL after an assessment of internal and external influences on credit quality that are not fully reflected in the historical loss or other risk rating data.

The Company’s charge-off policy meets or is more stringent than regulatory minimums. Losses on unsecured consumer loans are recognized at 90-days past-due compared to the regulatory loss criteria of 120 days. Secured consumer loans, including residential real estate, are typically charged-off between 120 and 180 days, depending on the collateral type, in compliance with the FFIEC guidelines. Accordingly, secured loans may be charged-down to the estimated value of the collateral with previously accrued unpaid interest reversed. Subsequent charge-offs may be required as a result of changes in the market value of collateral or other repayment prospects.

In addition to the ALLL, the Company also estimates probable losses related to unfunded lending commitments, such as letters of credit and binding unfunded loan commitments. Unfunded lending commitments are analyzed and segregated by risk similar to funded loans based on the Company’s internal risk rating scale. These risk classifications, in combination with an analysis of historical loss experience, probability of commitment usage, and any other pertinent information, result in the estimation of the reserve for unfunded lending commitments. The reserve for unfunded lending commitments is reported on the Consolidated Balance Sheets in other liabilities and the provision associated with changes in the unfunded lending commitment reserve is reported in the Consolidated Statements of Income/(Loss) in noninterest expense through the third quarter of 2009. Beginning in the fourth quarter of 2009, the Company began recording changes in the unfunded lending commitment reserve in the provision for credit losses. See Note 7, “Allowance for Credit Losses,” to the Consolidated Financial Statements for further discussion of the change in classification.

 

Premises and Equipment

Premises and equipment are carried at cost less accumulated depreciation and amortization. Depreciation is calculated primarily using the straight-line method over the assets’ estimated useful lives. Leasehold improvements are amortized using the straight-line method over the shorter of the improvements’ estimated useful lives or the lease term, depending on whether the lease meets the transfer of ownership or bargain-purchase option criterion. Certain leases are capitalized as assets for financial reporting purposes. Such capitalized assets are amortized, using the straight-line method, over the assets’ estimated useful lives or the lease terms, depending on the criteria that gave rise to the capitalization of the assets. Construction and software in process primarily includes in-process branch expansion, branch renovation, and software development projects. Upon completion, branch related projects are maintained in premises and equipment while completed software projects are reclassified to other assets. Maintenance and repairs are charged to expense, and improvements are capitalized. For additional information on the Company’s premises and equipment activities, refer to Note 8, “Premises and Equipment,” to the Consolidated Financial Statements.

Goodwill and Other Intangible Assets

Goodwill represents the excess purchase price over the fair value of identifiable net assets of acquired companies. Goodwill is assigned to reporting units, which are operating segments or one level below an operating segment, as of the acquisition date. Goodwill is assigned to the Company’s reporting units that are expected to benefit from the synergies of the business combination.

Goodwill is not amortized and instead is tested for impairment, at least annually, at the reporting unit level. The goodwill impairment test is performed in two steps. The first step is used to identify potential impairment and the second step, if required, measures the amount of impairment by comparing the carrying amount of goodwill to its implied fair value. If the implied fair value of the goodwill exceeds the carrying amount, there is no impairment. If the goodwill assigned to a reporting unit exceeds the implied fair value of the goodwill, an impairment charge is recorded for the excess.

Identified intangible assets that have a designated finite life are amortized over their useful lives and are evaluated for impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be recoverable. For additional information on the Company’s activities related to goodwill and other intangibles, refer to Note 9, “Goodwill and Other Intangible Assets,” to the Consolidated Financial Statements.

MSRs

The Company recognizes as assets the rights to service mortgage loans based on the estimated fair value of the MSRs when loans are sold and the associated servicing rights are retained.

As of December 31, 2009, the Company maintained two classes of MSRs. Beginning January 1, 2009, MSRs related to loans originated and sold after January 1, 2008 are accounted for at fair value. MSRs related to loans sold before January 1, 2008 were accounted for at amortized cost, net of any allowance for impairment losses. Effective January 1, 2010, the Company elected to record the MSRs carried at the LOCOM at fair value. See Note 9, “Goodwill and Other Intangible Assets,” to the Consolidated Financial Statements for further discussion regarding this election. Historically, the Company has not directly hedged its MSRs accounted for at amortized cost, but has managed the economic risk through the Company’s overall asset/liability management process with consideration to the natural counter-cyclicality of servicing and mortgage production. Effective January 1, 2009, when the Company created the class of MSRs accounted for at fair value, the Company began to actively hedge this class of MSRs.

The fair values of MSRs are determined by projecting net servicing cash flows, which are then discounted to estimate the fair value. The fair values of MSRs are impacted by a variety of factors, including prepayment assumptions, discount rates, delinquency rates, contractually specified servicing fees, and underlying portfolio characteristics. The underlying assumptions and estimated values are corroborated by values received from independent third parties.

Amortized MSRs are carried at the LOCOM value. MSRs are amortized over the period of the estimated future net servicing cash flows. The projected future cash flows are derived from the same model and assumptions used to estimate the fair value of MSRs. For purposes of measuring impairment, MSRs accounted for at amortized cost are stratified based on interest rate and type of related loan. When fair value is less than amortized cost for an individual stratum and the impairment is believed to be temporary, the impairment is recorded to a valuation allowance through mortgage servicing income in the Consolidated Statements of Income/(Loss). The carrying value of MSRs is maintained on the Consolidated Balance Sheets in other intangible assets. Servicing fees are recognized as they are earned and are reported net of amortization expense and any impairments in mortgage servicing related income in the Consolidated Statements of Income/(Loss). For additional information on the Company’s servicing fees, refer to Note 11, “Certain Transfers of Financial Assets, Mortgage Servicing Rights and Variable Interest Entities,” to the Consolidated Financial Statements.

Other Real Estate Owned

Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at the lower of the loan balance or the asset’s fair value at the date of foreclosure, less estimated costs to sell, establishing a new cost basis. Any difference between this initial cost basis and the carrying value of the loan is charged to the ALLL at the date of transfer into OREO. We estimate market values primarily based on appraisals and other market information. Subsequent changes in value of the assets are reported as adjustments to the asset’s carrying amount. Subsequent to foreclosure, changes in value along with gains or losses from the disposition on these assets are reported in noninterest expense in the Consolidated Statements of Income/(Loss).

Loan Sales and Securitizations

The Company sells and at times may securitize loans and other financial assets. When the Company securitizes assets, it may hold a portion of the securities issued, including senior interests, subordinated and other residual interests, interest-only strips, and principal-only strips, all of which are considered retained interests in the transferred assets. When the Company retains securitized interests, the cost basis of the securitized financial assets are allocated between the sold and retained interests based on their relative fair values; the gain or loss on sale is then calculated based on the difference between proceeds received, which includes cash proceeds and the fair value of MSRs, if any, and the cost basis allocated to the sold interests. The interests in securitized assets held by the Company are typically classified as either securities available for sale or trading assets. These interests are subsequently carried at fair value, which is based on independent, third-party market prices, market prices for similar assets, or discounted cash flow analyses. If market prices are not available, fair value is calculated using management’s best estimates of key assumptions, including credit losses, loan repayment speeds and discount rates commensurate with the risks involved. Unrealized gains and losses on retained interests classified as available for sale are shown, net of any tax effect, in AOCI as a component of shareholders’ equity. Realized gains and losses on available for sale or trading securities and unrealized gains and losses on trading securities are recorded in noninterest income in the Consolidated Statements of Income/(Loss). For additional information on the Company’s securitization activities, refer to Note 11, “Certain Transfers of Financial Assets, Mortgage Servicing Rights and Variable Interest Entities,” to the Consolidated Financial Statements.

Income Taxes

The provision/(benefit) for income taxes is based on income and expense reported for financial statement purposes after adjustment for permanent differences such as tax-exempt income and tax credits. Deferred income tax assets and liabilities result from temporary differences between assets and liabilities measured for financial reporting purposes and for income tax return purposes. These assets and liabilities are measured using the enacted tax rates and laws that are currently in effect. Subsequent changes in the tax laws require adjustment to these assets and liabilities with the cumulative effect included in income from continuing operations for the period in which the change was enacted. A valuation allowance is recognized for a deferred tax asset if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. In computing the income tax provision/(benefit), the Company evaluates the technical merits of its income tax positions based on current legislative, judicial and regulatory guidance. The Company classifies interest and penalties related to its tax positions as a component of income tax expense/(benefit). For additional information on the Company’s activities related to income taxes, refer to Note 15, “Income Taxes,” to the Consolidated Financial Statements.

Earnings per Share

Basic EPS are computed by dividing net income/(loss) available to common shareholders by the weighted average number of common shares outstanding during each period. Diluted EPS are computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during each period, plus common share equivalents calculated for stock options and restricted stock outstanding using the treasury stock method. In periods of net loss, diluted EPS is calculated in the same manner as basic EPS.

The Company has issued certain restricted stock awards, which are unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents. These restricted shares are considered participating securities. Accordingly, the Company calculated net income available to common shareholders pursuant to the two-class method, whereby net income is allocated between common shareholders and participating securities. In periods of net loss, no allocation is made to participating securities as they are not contractually required to fund net losses.

Net income available to common shareholders represents net income/(loss) after preferred stock dividends, accretion of the discount on preferred stock issuances, income impact of any repurchases of preferred stock, and dividends and allocation of undistributed earnings to the participating securities. For additional information on the Company’s EPS, refer to Note 13, “Earnings Per Share,” to the Consolidated Financial Statements.

Guarantees

The Company recognizes a liability at the inception of a guarantee, in an amount equal to the estimated fair value of the obligation. A guarantee is defined as a contract that contingently requires a company to pay a guaranteed party upon changes in an underlying asset, liability or equity security of the guaranteed party, or upon failure of a third-party to perform under a specified agreement. The Company considers the following arrangements to be guarantees: certain asset purchase agreements, standby letters of credit and financial guarantees, certain indemnification agreements included within third-party contractual arrangements and certain derivative contracts. For additional information on the Company’s guarantor obligations, refer to Note 18, “Reinsurance Arrangements and Guarantees,” to the Consolidated Financial Statements.

Derivative Financial Instruments

The Company records all contracts that satisfy the definition of a derivative, at fair value in the Consolidated Balance Sheets. The Company enters into various derivatives in a dealer capacity to facilitate client transactions and as a risk management tool. Derivatives entered into in a dealer capacity and those that either do not qualify for, or for which the Company has elected not to apply, hedge accounting are accounted for as freestanding derivatives. In addition to freestanding derivative instruments, the Company evaluates contracts such as brokered deposits and short-term debt to determine whether any embedded derivatives exist and whether any of those embedded derivatives are required to be bifurcated and separately accounted for as freestanding. If embedded derivatives are not bifurcated, then the entire contract is valued at fair value. In addition, as a normal part of its operations, the Company enters into certain IRLCs on mortgage loans that are accounted for as freestanding derivatives. Changes in the fair value of freestanding derivatives are recorded in noninterest income.

Where derivatives have been used in client transactions, the Company generally manages the risk associated with these contracts within the framework of its VAR approach that monitors total exposure daily and seeks to manage the exposure on an overall basis. Derivatives are used as a risk management tool to hedge the Company’s exposure to changes in interest rates or other identified market risks. The Company accounts for some of these derivatives as hedging instruments based on hedge accounting provisions. The Company prepares written hedge documentation for all derivatives which are designated as (1) a hedge of the fair value of a recognized asset or liability (fair value hedge) or (2) a hedge of a forecasted transaction, such as, the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge). The written hedge documentation includes identification of, among other items, the risk management objective, hedging instrument, hedged item and methodologies for assessing and measuring hedge effectiveness and ineffectiveness, along with support for management’s assertion that the hedge will be highly effective. Methodologies related to hedge effectiveness and ineffectiveness are consistent between similar types of hedge transactions and have included (i) statistical regression analysis of changes in the cash flows of the actual derivative and a perfectly effective hypothetical derivative, (ii) statistical regression analysis of changes in the fair values of the actual derivative and the hedged item and (iii) comparison of the critical terms of the hedged item and the hedging derivative. For designated hedging relationships, the Company performs retrospective and prospective effectiveness testing using quantitative methods and generally does not assume perfect effectiveness through the matching of critical terms. Changes in the fair value of a derivative that is highly effective and that has been designated and qualifies as a fair value hedge are recorded in current period earnings, along with the changes in the fair value of the hedged item that are attributable to the hedged risk. Changes in the fair value of a derivative that is highly effective and that has been designated and qualifies as a cash flow hedge are initially recorded in AOCI and reclassified to earnings in the same period that the hedged item impacts earnings; and any ineffective portion is recorded in current period earnings. Assessments of hedge effectiveness and measurements of hedge ineffectiveness are performed at least quarterly for ongoing effectiveness. Hedge accounting ceases on transactions that are no longer deemed effective, or for which the derivative has been terminated or de-designated. For discontinued fair value hedges where the hedged item remains outstanding, the hedged item would cease to be remeasured at fair value attributable to changes in the hedged risk and any existing basis adjustment would be recognized as a yield adjustment over the remaining life of the hedged item. For discontinued cash flow hedges where the hedged transaction remains probable to occur as originally designated, the unrealized gains and losses recorded in AOCI would be reclassified to earnings in the period when the previously designated hedged cash flows occur. If the previously designated transaction were no longer probable of occurring, any unrealized gains and losses in AOCI would be immediately reclassified to earnings.

 

The Company has elected not to offset fair value amounts related to collateral arrangements recognized for derivative instruments under master netting arrangements. For additional information on the Company’s derivative activities, refer to Note 17, “Derivative Financial Instruments,” to the Consolidated Financial Statements.

Stock-Based Compensation

The Company sponsors stock plans under which incentive and nonqualified stock options and restricted stock may be granted periodically to certain employees. The Company accounts for stock-based compensation under the fair value recognition provisions whereby the fair value of the award at grant date is expensed over the award’s vesting period. Additionally, the Company estimates the number of awards for which it is probable that service will be rendered and adjusts compensation cost accordingly. Estimated forfeitures are subsequently adjusted to reflect actual forfeitures. The required disclosures related to the Company’s stock-based employee compensation plan are included in Note 16, “Employee Benefit Plans,” to the Consolidated Financial Statements.

Employee Benefits

Employee benefits expense includes the net periodic benefit costs associated with the pension, supplemental retirement, and other postretirement benefit plans, as well as contributions under the defined contribution plan, the amortization of restricted stock, stock option awards, and costs of other employee benefits.

Foreign Currency Transactions

Foreign denominated assets and liabilities resulting from foreign currency transactions are valued using period end foreign exchange rates and the associated interest income or expense is determined using approximate weighted average exchange rates for the period. The Company may elect to enter into foreign currency derivatives to mitigate its exposure to changes in foreign exchange rates. The derivative contracts are accounted for at fair value. Gains and losses resulting from such valuations are included as noninterest income in the Consolidated Statements of Income/(Loss).

Fair Value

Certain assets and liabilities are measured at fair value on a recurring basis. Examples of these include derivative instruments, available for sale and trading securities, certain loans held for investment and LHFS, certain issuances of long-term debt, certain classes of the MSR asset, and certain residual interests from Company-sponsored sales and securitizations. Fair value is used on a non-recurring basis as a measurement basis either when assets are evaluated for impairment, the basis of accounting is the LOCOM or for disclosure purposes. Examples of these non-recurring uses of fair value include certain LHFS and MSRs accounted for at the LOCOM, OREO, goodwill, intangible assets, nonmarketable equity securities, and long-lived assets. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Depending on the nature of the asset or liability, the Company uses various valuation techniques and assumptions when estimating fair value.

The Company applied the following fair value hierarchy:

Level 1 – Assets or liabilities for which the identical item is traded on an active exchange, such as publicly-traded instruments or futures contracts.

Level 2 – Assets and liabilities valued based on observable market data for similar instruments.

Level 3 – Assets or liabilities for which significant valuation assumptions are not readily observable in the market; instruments valued based on the best available data, some of which is internally developed, and considers risk premiums that a market participant would require.

When determining the fair value measurement for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability. When possible, the Company looks to active and observable markets to price identical assets or liabilities. When identical assets and liabilities are not traded in active markets, the Company looks to market observable data for similar assets and liabilities. Nevertheless, the Company uses alternative valuation techniques to derive a fair value measurement for those assets and liabilities that are either not actively traded in observable markets or for which market observable inputs are not available. For additional information on the Company’s valuation of its assets and liabilities held at fair value, refer to Note 20, “Fair Value Election and Measurement,” to the Consolidated Financial Statements.

 

Accounting Policies Recently Adopted and Pending Accounting Pronouncements

In June 2009, the FASB issued an update to ASC 105-10, “Generally Accepted Accounting Principles”. This standard establishes the ASC as the source of authoritative U.S. GAAP recognized by the FASB for nongovernmental entities. The ASC is effective for interim and annual periods ending after September 15, 2009. The ASC is a reorganization of existing U.S. GAAP and does not change existing U.S. GAAP. The Company adopted this standard during the third quarter of 2009. The adoption had no impact on the Company’s financial position, results of operations, and EPS.

In June 2009, the FASB issued ASU 2009-16, an update to ASC 860-10, “Transfers and Servicing,” and ASU 2009-17, an update to ASC 810-10, “Consolidation”. These updates are effective for the first interim reporting period of 2010. The update to ASC 860-10 amends the guidance to eliminate the concept of a QSPE and changes some of the requirements for derecognizing financial assets. The amendments to ASC 810-10 will (a) eliminate the exemption for existing QSPEs from U.S. GAAP, (b) shift the determination of which enterprise should consolidate a VIE to a current control approach, such that an entity that has both the power to make decisions and right to receive benefits or absorb losses that could potentially be significant to the VIE will consolidate a VIE, and (c) change when it is necessary to reassess who should consolidate a VIE.

The Company has analyzed the impacts of these amendments on all QSPEs and VIE structures with which it is involved. Based on this analysis, the Company expects to consolidate its multi-seller conduit, Three Pillars, and a CLO entity. The Company will consolidate these entities because certain subsidiaries of the Company have significant decision-making rights and own VIs that could potentially be significant to these VIEs. The primary balance sheet impacts from consolidating Three Pillars and the CLO on January 1, 2010, will be increases in loans and leases, the related allowance for loan losses, LHFS, long-term debt, and other short-term borrowings. The consolidations of Three Pillars and the CLO will have no impact on the Company’s earnings or cash flows that result from its involvement with these VIEs, but the Company’s Consolidated Statements of Income/(Loss) will generally reflect a reduction in noninterest income and an increase in net interest income and noninterest expense due to the consolidations. For additional information on the Company’s VIE structures, refer to Note 11, “Certain Transfers of Financial Assets, Mortgage Servicing Rights and Variable Interest Entities,” to the Consolidated Financial Statements.

The combined impact of consolidating Three Pillars and the CLO on January 1, 2010 were incremental total assets and total liabilities of approximately $2 billion, respectively, and an insignificant impact on shareholders’ equity. No additional funding requirements with respect to these entities are expected to significantly impact the liquidity position of the Company. Upon adoption, the Company consolidated the assets and liabilities of Three Pillars at their unpaid principal amounts and will subsequently account for these assets and liabilities on an accrual basis. Upon adoption, the Company consolidated the assets and liabilities of the CLO based on their estimated fair values and made an irrevocable election to carry all of the financial assets and financial liabilities of the CLO at fair value. The pro forma impact on certain of the Company’s regulatory capital ratios as a result of consolidating Three Pillars and the CLO is not significant.

The Company does not currently believe that it is the primary beneficiary of any other significant off-balance sheet entities with which it is involved; however, the accounting guidance requires an entity to reassess whether it is the primary beneficiary at least quarterly. The Company does not currently expect to consolidate additional VIEs in future periods.

In January 2010, the FASB voted to finalize an ASU that would defer the amendments to ASC 810-10 for certain investment entities that have the attributes of entities subject to the “Investment Company Guide” and for MMMF that comply with or operate in accordance with requirements that are similar to those included in Rule 2a-7 of the Investment Company Act of 1940. Certain of the Company’s wholly-owned subsidiaries provide investment advisor services for various private placement and publicly registered investment funds. The Company expects that the deferral will apply to all of these funds.

Acquisitions/Dispositions
Acquisitions/Dispositions

Note 2 - Acquisitions/Dispositions

During the three year period ended December 31, 2009, SunTrust consummated the following acquisitions and dispositions:

 

(in millions)    Date        Cash or other
consideration
(paid)/received
         Goodwill          Other
Intangibles
         Gain/
(Loss)
       

Comments

2009                           

Acquisition of assets of Martin Kelly Capital Management

   12/22/09      ($1.9      $0.9         $1.0         $-        Goodwill and intangibles recorded are tax-deductible.

Acquisition of certain assets of CSI Capital Management

   11/30/09      (2.8      1.1         1.7         -        Goodwill and intangibles recorded are tax-deductible.

Acquisition of assets of Epic Advisors, Inc. 2

   4/1/09      (2.0      5.0         0.6         -        Goodwill and intangibles recorded are tax-deductible.
2008                           

Acquisition of assets of Cymric Family Office Services 2

   12/31/08      (2.9      1.4         1.4         -        Goodwill and intangibles recorded are tax-deductible.

Sale of majority interest in ZCI

   10/1/08      7.9         (15.4      0.9         (2.7     Goodwill and intangibles recorded are tax-deductible.

Purchase of remaining interest in ZCI

   9/30/08      (22.6      20.7         -         -        Goodwill recorded is tax-deductible.

Sale of TransPlatinum Service Corp.

   9/2/08      100.0         (10.5      -         81.8       

Sale of First Mercantile Trust Company

   5/30/08      59.1         (11.7      (3.0      29.6       

Acquisition of GB&T 1

   5/1/08      (154.6      143.5         29.5         -        Goodwill and intangibles recorded are non tax-deductible.

Sale of 24.9% interest in Lighthouse Investment Partners

   1/2/08      155.0         -         (6.0      89.4        SunTrust will continue to earn a revenue share based upon client referrals to the funds.
2007                           

Acquisition of Inlign Wealth Management, LLC2

   12/31/07      (13.0      7.3         4.1         -        Goodwill and intangibles recorded are non tax-deductible.

Acquisition of TBK Investments, Inc.2

   8/31/07      (19.2      10.6         6.5         -        Goodwill and intangibles recorded are non tax-deductible.

Lighthouse Partners, LLC, a wholly owned subsidiary of GenSpring Holdings, Inc., which is a wholly owned subsidiary of SunTrust, was merged with and into Lighthouse Investment Partners

   3/30/07      -         (48.5      24.1         32.3        SunTrust received a 24.9% interest in Lighthouse Investment Partners

GenSpring Holdings, Inc. (formerly “AMA Holdings, Inc.”) called minority member owned interests in GenSpring Family Offices, LLC (formerly “Asset Management Advisors, LLC”)

   Various      (12.4      10.2         2.2         -       

1On May 1, 2008, SunTrust acquired GB&T, a North Georgia-based financial institution serving commercial and retail customers, for $154.6 million, including cash paid for fractional shares, via the merger of GB&T with and into SunTrust. In connection therewith, GB&T shareholders received 0.1562 shares of the Company’s common stock for each share of GB&T’s common stock, resulting in the issuance of approximately 2.2 million shares of SunTrust common stock. As a result of the acquisition, SunTrust acquired approximately $1.4 billion of loans, primarily commercial real estate loans, and assumed approximately $1.4 billion of deposit liabilities. SunTrust elected to account for $171.6 million of the acquired loans at fair value. The remaining loans are accounted for at amortized cost and had a carryover reserve for loan and lease losses of $158.7 million. The acquisition was accounted for under the purchase method of accounting with the results of operations for GB&T included in SunTrust’s results beginning May 1, 2008.

2Acquisition by GenSpring Family Offices, LLC a majority owned subsidiary of SunTrust.

Funds Sold and Securities Purchased Under Agreements to Resell
Funds Sold and Securities Purchased Under Agreements to Resell

Note 3 - Funds Sold and Securities Purchased Under Agreements to Resell

Funds sold and securities purchased under agreements to resell at December 31 were as follows:

 

(Dollars in thousands)   2009       2008

Federal funds

  $54,450     $134,000

Resell agreements

  462,206     856,614
         

Total funds sold and securities purchased under agreements to resell

          $516,656             $990,614
         

Securities purchased under agreements to resell are collateralized by U.S. government or agency securities and are carried at the amounts at which securities will be subsequently resold. The Company takes possession of all securities under agreements to resell and performs the appropriate margin evaluation on the acquisition date based on market volatility, as necessary. The Company requires collateral between 100% and 110% of the underlying securities. The total market value of the collateral held was $464.2 million and $866.7 million at December 31, 2009 and 2008, of which $110.1 million and $246.3 million was repledged, respectively.

Trading Assets and Liabilities
Trading Assets and Liabilities

Note 4 - Trading Assets and Liabilities

The fair values of the components of trading assets and liabilities at December 31 were as follows:

 

(Dollars in thousands)   2009       2008

Trading Assets

     

Debt securities:

     

U.S. Treasury and federal agencies

  $1,150,323     $3,127,635

U.S. states and political subdivisions

  58,520     159,135

Corporate debt securities

  464,684     585,809

Commercial paper

  639     399,611

Residential mortgage-backed securities - agency

  94,164     58,565

Residential mortgage-backed securities - private

  13,889     37,970

Collateralized debt obligations

  174,886     261,528

Other debt securities

  25,886     813,176
         

Total debt securities

  1,982,991     5,443,429

Equity securities

  163,053     116,788

Derivative contracts1

  2,610,288     4,701,783

Other

  223,606     134,269
         

Total trading assets

          $4,979,938           $10,396,269
         

Trading Liabilities

     

Debt securities:

     

U.S. Treasury and federal agencies

  $192,893     $440,408

Corporate and other debt securities

  144,142     146,805
         

Total debt securities

  337,035     587,213

Equity securities

  7,841     13,263

Derivative contracts1

  1,844,047     2,640,308
         

Total trading liabilities

  $2,188,923     $3,240,784
         

1Excludes IRLCs and derivative financial instruments entered into by the Household Lending line of business to hedge its interest rate risk. The fair value of these derivatives is included in other assets and liabilities.

See Note 21, “Contingencies,” to the Consolidated Financial Statements for information concerning ARS added to trading assets in 2008 as well as the current position in those assets at December 31, 2009.

Trading instruments are used as part of the Company’s overall balance sheet management strategies and to support client requirements through its broker/dealer subsidiary. The Company utilized trading instruments for balance sheet management purposes and manages the potential market volatility of these instruments with appropriate duration and/or hedging strategies. The size, volume and nature of the trading instruments can vary based on economic and Company specific asset or liability conditions. Product offerings to clients include debt securities, loans traded in the secondary market, equity securities, derivative and foreign exchange contracts, and similar financial instruments. Other trading activities include acting as a market maker in certain debt and equity securities and related derivatives. The Company has policies and procedures to manage market risk associated with these client trading activities, and will assume a limited degree of market risk by managing the size and nature of its exposure.

Securities Available for Sale
Securities Available for Sale

Note 5 - Securities Available for Sale

Securities available for sale at December 31 were as follows:

 

    2009
(Dollars in thousands)   Amortized
Cost
      Unrealized
Gains
      Unrealized
Losses
       Fair
Value

U.S. Treasury and federal agencies

  $7,939,917     $13,423     $39,229      $7,914,111

U.S. states and political subdivisions

  927,887     27,799     10,629      945,057

Residential mortgage-backed securities - agency

  15,704,594     273,207     61,724      15,916,077

Residential mortgage-backed securities - private

  500,651     6,002     99,425      407,228

Other debt securities

  785,728     16,253     4,578      797,403

Common stock of The Coca-Cola Company

  69     1,709,931     -      1,710,000

Other equity securities1

  786,248     918     -      787,166
                      

Total securities available for sale

          $26,645,094             $2,047,533             $215,585              $28,477,042
                      
    2008
(Dollars in thousands)   Amortized
Cost
      Unrealized Gains       Unrealized
Losses
       Fair
Value

U.S. Treasury and federal agencies

  $464,566     $21,889     $302      $486,153

U.S. states and political subdivisions

  1,018,906     24,621     6,098      1,037,429

Residential mortgage-backed securities - agency

  14,424,531     135,803     10,230      14,550,104

Residential mortgage-backed securities - private

  629,174     8,304     115,327      522,151

Other debt securities

  302,800     4,444     13,059      294,185

Common stock of The Coca-Cola Company

  69     1,358,031     -      1,358,100

Other equity securities1

  1,443,161     5,254     -      1,448,415
                      

Total securities available for sale

  $18,283,207     $1,558,346     $145,016      $19,696,537
                      

1Includes $343.3 million and $493.2 million of FHLB of Cincinnati and FHLB of Atlanta stock stated at par value, $360.4 million and $360.9 million of Federal Reserve Bank stock stated at par value and $82.2 million and $588.5 million of mutual fund investments stated at fair value as of December 31, 2009 and December 31, 2008, respectively.

The increase in U.S. Treasury and federal agency securities was due to the net purchase of lower-yielding U.S. Treasury and federal agency securities throughout 2009, which improved the quality and liquidity of the portfolio in anticipation of the repayment of TARP upon regulatory approval.

In 2009, we sold approximately $9.2 billion of agency MBS recognizing a $90.2 million gain on those sales. These sales were associated with repositioning the MBS portfolio into securities we believe have higher relative value.

See Note 21, “Contingencies”, to the Consolidated Financial Statements for information concerning ARS classified as securities available for sale.

Securities available for sale that were pledged to secure public deposits, trusts, and other funds had fair values of $9.0 billion and $6.2 billion as December 31, 2009 and 2008, respectively.

The amortized cost and fair value of investments in debt securities at December 31, 2009 by estimated average life are shown below. Actual cash flows may differ from estimated average lives and contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

(Dollars in thousands)   1 Year
or Less
      1-5
Years
      5-10
Years
      After 10
Years
      Total

Distribution of Maturities:

                 

Amortized Cost

                 

Residential mortgage-backed securities - agency

  $172,218     $11,396,795     $1,160,850     $2,974,731     $15,704,594

All other debt securities

  494,881     8,702,265     755,996     201,041     10,154,183
                           

Total debt securities

               $667,099             $20,099,060               $1,916,846               $3,175,772             $25,858,777
                           

Fair Value

                 

Residential mortgage-backed securities - agency

  $177,313     $11,592,575     $1,220,845     $2,925,344     $15,916,077

All other debt securities

  499,473     8,683,395     691,947     188,984     10,063,799
                           

Total debt securities

  $676,786     $20,275,970     $1,912,792     $3,114,328     $25,979,876
                           

 

Gross realized gains and losses and OTTI on securities available for sale during the periods were as follows:

 

     Years Ended December 31  
(Dollars in thousands)    2009          2008          2007  

Gross realized gains

   $152,075         $1,158,348         $251,076   

Gross realized losses

   (34,056      (1,297      (7,959

OTTI

   (20,000      (83,751      -   
                        

Net securities gains

               $98,019                 $1,073,300                     $243,117   
                        

Securities with unrealized losses at December 31 were as follows:

 

    2009
    Less than twelve months   Twelve months or longer   Total
(Dollars in thousands)   Fair
Value
      Unrealized
Losses
      Fair
Value
      Unrealized
Losses
      Fair
Value
       Unrealized
Losses

U.S. Treasury and federal agencies

  $6,424,579     $39,224     $263     $5     $6,424,842      $39,229

U.S. states and political subdivisions

  125,524     5,711     64,516     4,918     190,040      10,629

Residential mortgage-backed securities - agency

  5,418,226     61,724     -     -     5,418,226      61,724

Residential mortgage-backed securities - private

  14,668     4,283     327,996     95,142     342,664      99,425

Other debt securities

  30,704     1,207     30,416     3,371     61,120      4,578
                                  

Total securities with unrealized losses

          $12,013,701                   $112,149                   $423,191                   $103,436             $12,436,892                $215,585
                                  
    2008
    Less than twelve months   Twelve months or longer   Total
(Dollars in thousands)   Fair
Value
      Unrealized
Losses
      Fair
Value
      Unrealized
Losses
      Fair
Value
       Unrealized
Losses

U.S. Treasury and federal agencies

  $43,584     $302     $23     $-     $43,607      $302

U.S. states and political subdivisions

  169,693     4,980     14,879     1,118     184,572      6,098

Residential mortgage-backed securities - agency

  3,354,319     10,223     472     7     3,354,791      10,230

Residential mortgage-backed securities - private

  450,653     98,696     40,269     16,631     490,922      115,327

Other debt securities

  143,666     6,901     28,944     6,158     172,610      13,059
                                  

Total securities with unrealized losses

  $4,161,915     $121,102     $84,587     $23,914     $4,246,502      $145,016
                                  

On December 31, 2009, the Company held certain investment securities having unrealized loss positions. The Company does not intend to sell these securities and it is not more likely than not that the Company will be required to sell these securities before their anticipated recovery. The Company has reviewed its portfolio for OTTI in accordance with the accounting policies outlined in Note 1, “Significant Accounting Policies,” to the Consolidated Financial Statements. Market changes in interest rates and credit spreads will result in temporary unrealized losses as the market price of securities fluctuates. The turmoil and illiquidity in the financial markets during 2008 and 2009 have increased market yields on securities as a result of credit spreads widening. This shift in market yields resulted in unrealized losses on certain securities within the Company’s portfolio.

The Company adopted the updated accounting guidance for determining OTTI on securities on April 1, 2009 and in conjunction therewith analyzed the securities for which it had previously recognized OTTI and recognized a cumulative effect adjustment representing the non-credit component of OTTI of $7.7 million, net of tax. The Company had previously recorded the non-credit component as impairment through earnings and therefore this amount was reclassified from retained earnings to AOCI. The beginning balance of $7.6 million, pre-tax, as of the effective date, represents the credit loss component which remained in retained earnings related to the securities for which a cumulative effect adjustment was recorded.

The Company records OTTI through earnings based on the credit impairment estimates derived from the cash flow analyses. The remaining unrealized loss recorded in AOCI is reflective of the current illiquidity and risk premiums reflected in the market. The unrealized loss of $99.4 million in private residential MBS as of December 31, 2009 includes purchased and retained interests from securitizations that are evaluated quarterly for OTTI using cash flow models. The unrealized loss of $61.7 million in agency residential MBS as well as the unrealized loss of $39.2 million in U.S. Treasury and federal agency securities is primarily related to the increase in interest rates near the end of 2009. As of December 31, 2009, approximately 95% of the total securities available for sale portfolio are rated “AAA,” the highest possible rating by nationally recognized rating agencies.

While all securities are reviewed for OTTI, the securities impacted by credit impairment were primarily private residential MBS with a fair value of approximately $310.6 million as of December 31, 2009. For these securities, impairment is determined through the use of cash flow models that estimate cash flows on the underlying mortgages, using security specific collateral and the transaction structure. The cash flow models incorporate the remaining cash flows which are adjusted for future expected credit losses. Future expected credit losses are determined by using various assumptions, the most significant of which include current default rates, prepayment rates, and loss severities. For the majority of the securities that we have reviewed for OTTI, credit information is available and modeled at the loan level detail underlying each security and also considers information such as loan to collateral values, FICO scores, and geographic considerations such as home price appreciation/depreciation. These inputs are updated on a regular basis to ensure the most current credit and other assumptions are utilized in the analysis. If, based on this analysis, the Company does not expect to recover the entire amortized cost basis of the security, the expected cash flows are then discounted at the security’s initial effective interest rate to arrive at a present value amount. OTTI credit losses reflect the difference between the present value of cash flows expected to be collected and the amortized cost basis of these securities. During the year ended December 31, 2009, all but an insignificant amount of credit-related OTTI recognized in earnings on private residential MBS have underlying collateral of loans originated in 2006 and 2007, the majority of which were originated by the Company and therefore have geographic concentrations in the Company’s primary footprint. The following table presents a summary of the significant inputs used in determining the measurement of credit losses recognized in earnings for private residential MBS for the year ended December 31, 2009:

 

    Year Ended
December 31, 2009  

Current default rate

  2 - 17%

Prepayment rate

  6 - 21%

Loss severity

  35 - 52%

For the year ended December 31, 2009, the Company recorded OTTI losses on available for sale securities as follows:

 

    Year Ended December 31
    2009
(Dollars in thousands)   Residential
Mortgage-Backed
Securities - Private
      Corporate
Bonds
      Other
Securities

Total other than temporary impairment losses

  $111,969     $639     $212

Portion of losses recognized in other comprehensive income (before taxes)

  92,820     -     -
               

Net impairment losses recognized in earnings

                      $19,149                              $639                              $212
               

The following is a rollforward of credit losses recognized in earnings for the nine months ended December 31, 2009 related to securities for which some portion of the impairment was recorded in OCI.

 

(Dollars in thousands)   Nine Months
Ended December 31,
20091
 

Balance, as of April 1, 2009, effective date

  $7,646   

Additions:

 

OTTI credit losses on securities not previously impaired

  17,672   

Reductions:

 

Credit impaired securities sold, matured, or written off

  (3,716
     

Balance, as of December 31, 2009

                      $21,602   
     

1During the nine month period from the effective date to December 31, 2009, the Company recognized $2.3 million of OTTI through earnings on debt securities in which no portion of the OTTI loss remained in AOCI at any time during the period. OTTI related to these securities are excluded from these amounts.

During 2008, the Company recorded $83.8 million in OTTI, which included the non-credit component of impairment, within securities gains/(losses), primarily related to $269.4 million in private residential MBS and residual interests in mortgage securitizations in which the default rates and loss severities of the underlying collateral, including subprime and Alt-A loans, increased significantly during the year. Impairment was recorded on securities for which there had been an adverse change in estimated cash flows for purposes of determining fair value. These securities were valued using either third party pricing data, including broker indicative bids, or expected cash flow models. There were no similar charges recorded in 2007.

In June 2008, the Company sold 10 million shares of its holdings in Coke. The sale of these shares generated $548.8 million in net cash proceeds and before-tax gains, and an after-tax gain of approximately $345 million that was recorded in the Company’s financial results. In addition, these sales resulted in an increase of approximately $345 million to Tier 1 capital.

 

In July 2008, the Company contributed 3.6 million shares of its holdings in Coke to a charitable foundation. The contribution resulted in a $183.4 million non-taxable gain that was recorded in the Company’s financial results. In addition, the contribution increased Tier 1 capital by approximately $65.8 million and will reduce ongoing charitable contribution expense.

The Company holds stock in the FHLB of Atlanta and FHLB of Cincinnati totaling $343.3 million and $493.2 million as of December 31, 2009 and December 31, 2008, respectively. The Company accounts for the stock based on the industry guidance in ASC 325-942, which requires the investment be carried at cost and be evaluated for impairment based on the ultimate recoverability of the par value. The Company evaluated its holdings in FHLB stock at December 31, 2009 and believes its holdings in the stock are ultimately recoverable at par. In addition, the Company does not have operational or liquidity needs that would require a redemption of the stock in the foreseeable future and therefore determined that the stock was not other-than-temporarily impaired. In February 2009, the Company repaid all of the FHLB advances outstanding and closed out its exposures on the interest rate swaps. Approximately $150.8 million of FHLB stock was redeemed in conjunction with the repayment of the advances.

Loans
Loans

Note 6 - Loans

The composition of the Company’s loan portfolio at December 31 is shown in the following table:

 

(Dollars in millions)   2009       2008

Commercial

  $32,494.1     $41,039.9

Real estate:

     

Residential mortgages

  30,789.8     32,065.8

Home equity lines

  15,952.5     16,454.4

Construction

  6,646.8     9,864.0

Commercial real estate:

     

Owner occupied

  8,915.4     8,758.1

Investor owned

  6,159.0     6,199.0

Consumer:

     

Direct

  5,117.8     5,139.3

Indirect

  6,531.1     6,507.6

Credit card

  1,068.3     970.3
         

Total loans

  $113,674.8     $126,998.4
         

Total nonaccrual loans at December 31, 2009 and 2008 were $5,402.6 million and $3,940.0 million, respectively. At December 31, 2009, and 2008, accruing loans past due 90 days or more were $1,499.9 million and $1,032.3 million, respectively.

Loans individually evaluated for impairment and restructured loans (accruing and nonaccruing) at December 31, 2009, and 2008 were $3,752.5 million and $1,595.8 million, respectively, and the related ALLL was $538.0 million and $201.8 million, respectively. At December 31, 2009 and 2008, certain impaired loans requiring an allowance for loan losses were $3,485.9 million and $1,522.3 million, respectively. The average recorded investment in loans individually evaluated for impairment and restructured loans for the years ended December 31, 2009, 2008, and 2007 was $2,954.9 million, $1,021.7 million, and $130.4 million, respectively.

During 2009, 2008, and 2007, interest income recognized on nonaccrual loans (excluding consumer and mortgage which are smaller balance pools of homogeneous loans) and accruing restructured loans totaled $63.9 million, $23.1 million, and $8.6 million, respectively. Of the total interest income recognized, cash basis interest income was $11.7 million, $11.2 million, and $8.6 million for 2009, 2008, and 2007, respectively. At December 31, 2009, the Company had an insignificant amount of commitments to lend additional funds to debtors owing receivables whose terms have been modified in a TDR.

During 2009 and 2008, the Company transferred $307.0 million and $656.1 million, respectively, in LHFS to loans held for investment. The loans transferred included loans carried at fair value, which continue to be reported at fair value while classified as held for investment, as well as loans transferred at the LOCOM which had associated write-downs of $9.1 million and $35.4 million during 2009 and 2008, respectively. At December 31, 2009 and 2008, $47.2 billion and $33.6 billion, respectively, of loans were pledged as collateral for borrowings.

Allowance for Credit Losses
Allowance for Credit Losses

Note 7 - Allowance for Credit Losses

Activity in the allowance for credit losses for the year ended December 31 is summarized in the table below:

 

(Dollars in thousands)   2009         2008          2007  

Balance at beginning of year

  $2,378,507        $1,290,205         $1,047,067   

Allowance associated with loans at fair value 1

  -        -         (4,100

Allowance from GB&T acquisition

  -        158,705         -   

Provision for loan losses

  4,006,714        2,474,215         664,922   

Provision for unfunded commitments2

  87,389        19,810         5,155   

Loan charge-offs

  (3,397,313     (1,680,552      (514,348

Loan recoveries

  159,603        116,124         91,509   
                      

Balance at end of year

  $3,234,900        $2,378,507         $1,290,205   
                      

Components:

          

Allowance for loan and lease losses

  $3,120,000        $2,350,996         $1,282,504   

Unfunded commitments reserve3

  114,900        27,511         7,701   
                      

Allowance for credit losses

      $3,234,900            $2,378,507             $1,290,205   
                      

1Amount removed from the allowance for loan and lease losses related to the Company’s election to record $4.1 billion of residential mortgages at fair value.

2Beginning in the fourth quarter of 2009, the Company recorded the provision for unfunded commitments of $57.2 million within the provision for credit losses in the Consolidated Statements of Income/(Loss). Including the provision for unfunded commitments for the fourth quarter of 2009, the provision for credit losses was $4.1 billion for the year ended December 31, 2009. Considering the immateriality of this provision prior to the fourth quarter of 2009, the provision for unfunded commitments remains classified within other noninterest expense in the Consolidated Statements of Income/(Loss).

3The unfunded commitments reserve is separately recorded in other liabilities in the Consolidated Balance Sheets.

Premises and Equipment
Premises and Equipment

Note 8 - Premises and Equipment

Premises and equipment at December 31 were as follows:

 

(Dollars in thousands)    Useful Life       2009        2008

Land

   Indefinite     $340,983      $347,229

Buildings and improvements

   2 - 40 years     974,228      946,962

Leasehold improvements

   1 - 30 years     534,862      509,736

Furniture and equipment

   1 - 20 years     1,311,641      1,376,403

Construction in progress

       170,126      164,968
               
       3,331,840      3,345,298

Less accumulated depreciation and amortization

       1,780,046      1,797,406
               

Total premises and equipment

           $1,551,794          $1,547,892
               

During 2007, the Company completed multiple sale/leaseback transactions, consisting of over 300 of the Company’s branch properties and various individual office buildings. In total, the Company sold and concurrently leased back $545.9 million in land and buildings with associated accumulated depreciation of $285.7 million. Net proceeds were $764.4 million, resulting in a gain, net of transaction costs, of $504.2 million. For the year ended December 31, 2007, the Company recognized $118.8 million of the gain immediately. The remaining $385.4 million in gains were deferred and are being recognized ratably over the expected term of the respective leases, predominantly 10 years, as an offset to net occupancy expense.

During 2008, the Company completed sale/leaseback transactions, consisting of 152 branch properties and various individual office buildings. In total, the Company sold and concurrently leased back $201.9 million in land and buildings with associated accumulated depreciation of $110.3 million. Net proceeds were $288.9 million, resulting in a gross gain, net of transaction costs, of $197.3 million. For the year ended December 31, 2008, the Company recognized $37.0 million of the gain immediately. The remaining $160.3 million in gains were deferred and are being recognized ratably over the expected term of the respective leases, predominantly 10 years, as an offset to net occupancy expense.

The carrying amounts of premises and equipment subject to mortgage indebtedness (included in long-term debt) were not significant at December 31, 2009 and 2008.

 

Various Company facilities are leased under both capital and noncancelable operating leases with initial remaining terms in excess of one year. Minimum payments, by year and in aggregate, as of December 31, 2009 were as follows:

 

(Dollars in thousands)    Operating
Leases
       Capital
Leases

2010

   $208,124      $2,488

2011

   193,246      2,536

2012

   178,568      1,903

2013

   166,661      1,947

2014

   155,571      1,994

Thereafter

   663,627      10,789
           

Total minimum lease payments

   $1,565,797             21,657
         

Amounts representing interest

        6,663
         

Present value of net minimum lease payments

        $14,994
         

Net premises and equipment included $8.4 million and $9.4 million at December 31, 2009 and 2008, respectively, related to capital leases. Aggregate rent expense (principally for offices), including contingent rent expense and sublease income, totaled $171.3 million, $171.3 million, and $137.8 million for 2009, 2008, and 2007, respectively. Depreciation/amortization expense for the years ended December 31, 2009, 2008, and 2007 totaled $181.6 million, $195.8 million, and $216.2 million, respectively.

Goodwill and Other Intangible Assets
Goodwill and Other Intangible Assets

Note 9 – Goodwill and Other Intangible Assets

Goodwill is required to be tested for impairment on an annual basis or as events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. In 2009, the Company’s reporting units were comprised of Retail, Commercial, Commercial Real Estate, Household Lending, Corporate and Investment Banking, Wealth and Investment Management, and Affordable Housing.

Due to the continued recessionary environment and sustained deterioration in the economy during the first quarter of 2009, the Company performed a complete goodwill impairment analysis for all of its reporting units. The estimated fair value of the Retail, Commercial, and Wealth and Investment Management reporting units exceeded their respective carrying values as of March 31, 2009; however, the fair value of the Household Lending, Corporate and Investment Banking, Commercial Real Estate (included in Retail and Commercial segment), and Affordable Housing (included in Retail and Commercial segment) reporting units were less than their respective carrying values. The implied fair value of goodwill of the Corporate and Investment Banking reporting unit exceeded the carrying value of the goodwill, thus no goodwill impairment was recorded for this reporting unit as of March 31, 2009. However, the implied fair value of goodwill applicable to the Household Lending, Commercial Real Estate, and Affordable Housing reporting units was less than the carrying value of the goodwill. As of March 31, 2009, an impairment loss of $751.2 million was recorded, which was the entire amount of goodwill carried by each of those reporting units. $677.4 million of the goodwill impairment charge was non-deductible for tax purposes. The goodwill impairment charge was a direct result of continued deterioration in the real estate markets and macro economic conditions that put downward pressure on the fair value of these businesses. The primary factor contributing to the impairment recognition was further deterioration in the actual and projected financial performance of these reporting units, as evidenced by the increase in net charge-offs and nonperforming loans. The decline in fair value of these reporting units was significantly influenced by the current economic downturn, which resulted in depressed earnings in these businesses and the significant decline in the Company’s market capitalization during the first quarter.

During the second quarter of 2009, the Company performed an updated evaluation of the Corporate and Investment Banking goodwill, which involved estimating the fair value of the reporting unit and the implied fair value of goodwill. The implied fair value of goodwill exceeded the carrying value of goodwill, thus no goodwill impairment was recorded as of June 30, 2009.

The Company completed its 2009 annual impairment review of goodwill as of September 30, 2009. The review utilized discounted cash flow analysis, as well as guideline company and guideline transaction information, where available, to estimate the fair value of each reporting unit. The estimates, specific to each reporting unit, that were incorporated in the valuations included projections of future cash flows, discount rates, and applicable valuation multiples based on the guideline information. The assumptions considered the current market conditions in developing short and long-term growth expectations and discount rates. The estimated fair value of each reporting unit as of September 30, 2009 exceeded its respective carrying value; therefore, the Company determined there was no impairment of goodwill. The improvement in the estimated fair value of the Corporate and Investment Banking reporting unit was due to increased observable market values.

 

The changes in the carrying amount of goodwill by reportable segment for the years ended December 31, 2009 and 2008 are as follows:

 

(Dollars in thousands)   Retail         Commercial         Retail &
Commercial
        Wholesale         Corporate and
Investment

Banking
        Household
Lending
        Mortgage         Wealth and
Investment
Management
        Corporate
Other and
Treasury
        Total  

Balance, January 1, 2008

  $4,893,970        $1,272,483        $-        $-        $147,454        $-        $275,840        $331,746        $-        $6,921,493   

Intersegment transfers

  (4,893,970     (1,272,483     5,780,742        522,667        (147,454     -        -        -        10,498        -   

NCF purchase adjustments

  -        -        (11,782     (119     -        -        (416     1,502        -        (10,815

Sale of First Mercantile Trust Company

  -        -        -        -        -        -        -        (11,734     -        (11,734

Acquisition of GB&T

  -        -        143,030        -        -        -        -        -        -        143,030   

Sale of TransPlatinum Service Corp.

  -        -        -        -        -        -        -        -        (10,498     (10,498

Purchase of remaining interest in ZCI

  -        -        -        -        -        -        -        20,712        -        20,712   

Sale of majority interest in ZCI

  -        -        -        -        -        -        -        (15,433     -        (15,433

Acquisition of Cymric Family Office Service

  -        -        -        -        -        -        -        1,378        -        1,378   

SunAmerica contingent consideration

  -        -        -        -        -        -        2,830        -        -        2,830   

Purchase price adjustments

  -        -        -        -        -        -        -        2,540        -        2,540   
                                                                             

Balance, December 31, 2008

  $-        $-        $5,911,990        $522,548        $-        $-        $278,254        $330,711        $-        $7,043,503   

Intersegment transfers 1

  -        -        125,580        (522,548     223,307        451,915        (278,254     -        -        -   

Goodwill impairment

  -        -        (299,241     -        -        (451,915     -        -        -        (751,156

Seix contingent consideration

  -        -        -        -        -        -        -        12,722        -        12,722   

Acquisition of Epic Advisors, Inc.

  -        -        -        -        -        -        -        5,012        -        5,012   

TBK contingent consideration

  -        -        -        -        -        -        -        2,700        -        2,700   

Inlign contingent consideration

  -        -        -        -        -        -        -        2,621        -        2,621   

Purchase price adjustments

  -        -        474        -        -        -        -        1,206        -        1,680   

Other

  -        -        -        -        -        -        -        1,996        -        1,996   
                                                                             

Balance, December 31, 2009

                    $-                          $-           $5,738,803                          $-            $223,307                          $-                          $-               $356,968                          $-           $6,319,078   
                                                                             

1 Goodwill was reallocated among the reportable segments as a result of the corporate restructuring described in Note 22, “Business Segment Reporting,” to the Consolidated Financial Statements.

The changes in carrying amounts of other intangible assets for the years ended December 31 are as follows:

 

(Dollars in thousands)   Core Deposit
Intangibles
        MSRs
LOCOM
        MSRs Fair
Value
        Other         Total  

Balance, January 1, 2008

      $172,655        $1,049,425        $-        $140,915        $1,362,995   

Amortization

  (56,854     (223,092     -        (19,406     (299,352

MSRs originated

  -        485,597        -        -        485,597   

MSRs impairment reserve

  -        (371,881     -        -        (371,881

MSRs impairment recovery

  -        1,881        -        -        1,881   

Sale of interest in Lighthouse Partners

  -        -        -        (5,992     (5,992

Sale of MSRs

  -        (131,456     -        -        (131,456

Customer intangible impairment charge

  -        -        -        (45,000     (45,000

Purchased credit card relationships 1

  -        -        -        9,898        9,898   

Acquisition of GB&T2

  29,510        -        -        -        29,510   

Sale of First Mercantile Trust

  -        -        -        (3,033     (3,033

Other

  -        -        -        2,260        2,260   
                                     

Balance, December 31, 2008

  $145,311        $810,474        $-        $79,642        $1,035,427   

Designated at fair value (transfers from amortized cost)

  -        (187,804     187,804        -        -   

Amortization

  (41,071     (218,008     -        (14,736     (273,815

MSRs originated

  -        -        681,813        -        681,813   

MSRs impairment recovery

  -        199,159        -        -        199,159   

Changes in fair value

                 

Due to changes in inputs or assumptions 3

  -        -        160,639        -        160,639   

Other changes in fair value 4

  -        -        (94,695     -        (94,695

Other

  -        -        -        2,771        2,771   
                                     

Balance, December 31, 2009

        $104,240              $603,821              $935,561                $67,677            $1,711,299   
                                     

 

1

During the third quarter of 2008, SunTrust purchased a credit card portfolio of loans including the cardholder relationships from another financial institution representing an outstanding balance of $82.4 million at the time of acquisition. A majority of the premium paid was attributed to the cardholder relationships and is being amortized over seven years.

2

During the second quarter of 2008, SunTrust acquired 100% of the outstanding shares of GB&T. As a result of the acquisition, SunTrust assumed $1.4 billion of deposit liabilities and recorded core deposit intangibles that are being amortized over an eight year period.

3

Primarily reflects changes in discount rates and prepayment speed assumptions, due to changes in interest rates.

4

Represents changes due to the collection of expected cash flows, net of accretion, due to passage of time.

 

Intangible assets subject to amortization must be tested for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. The Company experienced a triggering event with respect to certain Wealth and Investment Management customer relationship intangibles during the second quarter of 2008 and performed impairment testing which resulted in an impairment charge of $45.0 million. The fair value of the customer relationship intangibles was determined using the residual income method and was compared to the carrying value to determine the amount of impairment. The impairment charge was recorded in noninterest expense and pertains to the client relationships that were recorded in 2004 in connection with an acquisition. While the overall acquired business was performing satisfactorily, the attrition level of the legacy clients had increased resulting in the impairment of this intangible asset.

See Note 11, “Certain Transfers of Financial Assets, Mortgage Servicing Rights and Variable Interest Entities,” to the Consolidated Financial Statements for discussion of the impairment reserve recorded with respect to MSRs during 2008.

The Company elected to create a second class of MSRs effective January 1, 2009. This new class of MSRs is reported at fair value and is being actively hedged as discussed in Note 17, “Derivative Financial Instruments,” to the Consolidated Financial Statements. The transfer of MSRs from LOCOM to fair value did not have a material effect on the Consolidated Financial Statements since the MSRs were effectively reported at fair value as of December 31, 2008 as a result of impairment losses recognized at the end of 2008. MSRs associated with loans originated or sold prior to 2008 continued to be accounted for at December 31, 2009 at LOCOM and managed through the Company’s overall asset/liability management process. Effective January 1, 2010, the Company elected to designate all remaining MSRs carried at LOCOM at fair value. Upon designating the remaining MSRs at fair value in January 2010, the Company recognized a cumulative effect adjustment increase to retained earnings, net of taxes, of $88.5 million.

The estimated amortization expense for intangible assets, excluding amortization of MSRs, is as follows:

 

(Dollars in thousands)   Core Deposit
Intangibles
      Other        Total

2010

  $33,059     $13,925      $46,984

2011

  26,533     10,780      37,313

2012

  20,016     10,124      30,140

2013

  13,617     8,729      22,346

2014

  7,408     7,810      15,218

Thereafter

  3,607     16,309      19,916
                

Total

            $104,240                 $67,677                $171,917
                
Other Short-Term Borrowings and Contractual Commitments
Other Short-Term Borrowings and Contractual Commitments

Note 10 - Other Short-Term Borrowings and Contractual Commitments

Other short-term borrowings as of December 31 include:

 

    2009        2008
(Dollars in thousands)   Balance        Rates        Balance        Rates    

Master notes

  $1,362,922      .75   %    $1,034,555      .25   %

Dealer collateral

  584,781      various      1,055,606      various  

U.S. Treasury demand notes

  62,100      -      39,200      -  

Term Auction Facility

  -      -      2,500,000      .49  

Short-term promissory notes

  -      -      70,000      1.50  

Other

  52,474      various      466,999      various  
                      

Total other short-term borrowings

          $2,062,277               $5,166,360       
                      

The average balances of other short-term borrowings for the years ended December 31, 2009, 2008, and 2007 were $2.7 billion, $3.1 billion, and $2.5 billion, respectively, while the maximum amounts outstanding at any month-end during the years ended December 31, 2009, 2008, and 2007 were $5.8 billion, $5.2 billion, and $3.8 billion, respectively. As of December 31, 2009, the Company had collateral pledged to the Federal Reserve discount window to support $11.6 billion of available borrowing capacity.

 

In the normal course of business, the Company enters into certain contractual obligations. Such obligations include obligations to make future payments on lease arrangements, contractual commitments for capital expenditures, and service contracts. As of December 31, 2009, the Company had the following in unconditional obligations:

 

(Dollars in millions)   1 year or less       1-3 years       3-5 years       After 5 years       Total

Operating lease obligations

  $208     $372     $322     $664     $1,566

Capital lease obligations 1

  1     3     2     9     15

Purchase obligations 2

  153     239     228     529     1,149
                           

Total

              $362                   $614                   $552               $1,202                $2,730
                           

1Amounts do not include accrued interest.

2 Includes contracts with a minimum annual payment of $5 million.

Certain Transfers of Financial Assets, Mortgage Servicing Rights and Variable Interest Entities
Certain Transfers of Financial Assets, Mortgage Servicing Rights and Variable Interest Entities

Note 11 - Certain Transfers of Financial Assets, Mortgage Servicing Rights and Variable Interest Entities

Certain Transfers of Financial Assets

The Company has transferred residential and commercial mortgage loans, student loans, commercial and corporate loans, and CDO securities in sale or securitization transactions in which the Company has, or had, continuing involvement. All such transfers have been accounted for as sales by the Company. The Company’s continuing involvement in such transfers has been limited to owning certain beneficial interests, such as securitized debt instruments, and certain servicing or collateral manager responsibilities. Except as specifically noted herein, the Company is not required to provide additional financial support to any of these entities, nor has the Company provided any support it was not obligated to provide. Interests that continue to be held by the Company in transferred financial assets, excluding servicing and collateral management rights, are generally recorded as securities available for sale or trading assets at their allocated carrying amounts based on their relative fair values at the time of transfer and are subsequently remeasured at fair value. For such interests, when quoted market prices are not available, fair value is generally estimated based on the present value of expected cash flows, calculated using management’s best estimates of key assumptions, including credit losses, loan prepayment speeds, and discount rates commensurate with the risks involved, based on how management believes market participants would determine such assumptions. See Note 20, “Fair Value Election and Measurement,” to the Consolidated Financial Statements for further discussion of the Company’s fair value methodologies. Servicing rights may give rise to servicing assets, which are either initially recognized at fair value, subsequently amortized, and tested for impairment or elected to be carried at fair value on a recurring basis. Gains or losses upon sale, in addition to servicing fees and collateral management fees, are recorded in noninterest income. Changes in the fair value of interests that continue to be held by the Company that are accounted for as trading assets or securities available for sale are recorded in trading account profits/(losses) and commissions or as a component of AOCI, respectively. In the event any decreases in the fair value of such interests that are recorded as securities available for sale are deemed to be other-than-temporary due to underlying credit impairment, the estimated credit component of such loss is recorded in securities gains/(losses). See Note 1, “Significant Accounting Policies,” to the Consolidated Financial Statements for a discussion of the impacts of amendments to ASC 810-10 on certain of the Company’s involvement with VIEs discussed herein.

Residential Mortgage Loans

The Company typically transfers first lien residential mortgage loans in securitization transactions involving QSPEs sponsored by Ginnie Mae, Fannie Mae, and Freddie Mac. These loans are exchanged for cash or securities that are readily redeemed for cash proceeds and servicing rights, which generate servicing assets for the Company. The servicing assets are recorded initially at fair value. Beginning January 1, 2009, the Company began to carry certain MSRs at fair value along with servicing rights that were originated in 2008 which were transferred to fair value. See “Mortgage Servicing Rights” herein and Note 9, “Goodwill and Other Intangible Assets,” to the Consolidated Financial Statements for further discussion regarding the accounting for servicing rights. In a limited number of securitizations, the Company has transferred loans to QSPEs sponsored by the Company. In these transactions, the Company has received securities representing retained interests in the transferred loans in addition to cash and servicing rights in exchange for the transferred loans. The retained securities are carried at fair value as either trading assets or securities available for sale. Prior to December 31, 2009, the Company accounted for all transfers of residential mortgage loans to QSPEs as sales, and because the transferees were QSPEs, the Company did not consolidate any of these entities. Beginning on January 1, 2010, the Company applied the newly adopted guidance in ASC 860-10 and ASC 810-10 as noted in Note 1, “Significant Accounting Policies,” to the Consolidated Financial Statements. The Company has determined that it does not have both the power to direct the activities that most significantly impact the economic performance of the SPE that purchased these residential mortgage loans nor the obligation to absorb losses or the right to receive benefits that could potentially be significant, and therefore the Company will not be required to consolidate any of these SPEs.

 

As seller, the Company has made certain representations and warranties with respect to the originally transferred loans, including those transferred to Ginnie Mae, Fannie Mae, and Freddie Mac, which are discussed in Note 18, “Reinsurance Arrangements and Guarantees,” to the Consolidated Financial Statements. Additionally, repurchases of loans from QSPEs sponsored by the Company totaled approximately $17 million in 2008, including approximately $13 million of second lien loans that were substituted with new loans. No additional repurchases occurred during the year ended December 31, 2009; however, the Company accrued $36.0 million in the year ended December 31, 2009 for contingent losses related to certain of its representations and warranties made in connection with prior transfers of second lien loans.

Commercial Mortgage Loans

Certain transfers of commercial mortgage loans were executed with third party VIEs, which the Company deemed to be QSPEs and did not consolidate. During 2008, the Company sold all of its retained servicing rights, which were not financial assets subject to the accounting for transfers and servicing of financial assets, in exchange for cash proceeds of approximately $6.6 million. As seller, the Company had made certain representations and warranties with respect to the originally transferred loans and the Company has not incurred any losses with respect to such representations and warranties. The adoption of the provisions of ASC 860-10 and ASC 810-10, on January 1, 2010, did not change the Company’s conclusions that its prior transfers were sales and that it is not the primary beneficiary of those VIEs.

Commercial and Corporate Loans

In 2007, the Company completed a structured sale of corporate loans to multi-seller CP conduits, which are VIEs administered by unrelated third parties, from which it retained a 3% residual interest in the pool of loans transferred, which does not constitute a VI in the third party conduits as it relates to the unparticipated portion of the loans. In the first quarter of 2009, the Company wrote this residual interest and related accrued interest to zero, resulting in a loss of approximately $16.6 million. This write off was the result of the deterioration in the performance of the loan pool to such an extent that the Company expects that it will no longer receive cash flows on the interest until the senior participation interest has been repaid in full. The fair value of the residual at December 31, 2008 was $16.2 million. The Company provides commitments in the form of liquidity facilities to these conduits; the sum of these commitments, which represents the Company’s maximum exposure to loss under the facilities, totaled $322.0 million and $500.7 million at December 31, 2009 and December 31, 2008, respectively. Due to deterioration in the loans that collateralize these facilities, the Company recorded a contingent loss reserve of $16.1 million on the facilities during the year ended December 31, 2009. Subsequent to December 31, 2009, the administrator of the conduits drew on these commitments in full. This event did not modify the estimated contingent loss reserve the Company recorded as of December 31, 2009, nor did it modify the Company’s sale accounting treatment or conclusion that it is not the primary beneficiary of these VIEs. In addition, no events have occurred during 2009 that would call into question either the Company’s sale accounting or the Company’s conclusions that it is not the primary beneficiary of these VIEs.

The Company has had involvement with VIEs that own commercial leveraged loans and bonds, certain of which were transferred by the Company to the VIEs. In addition to retaining certain securities issued by the VIEs, the Company also acts as manager or servicer for these VIEs. At December 31, 2009 and December 31, 2008, the Company’s direct exposure to loss related to these VIEs was approximately $0 and $6.8 million, respectively, which represent the Company’s interests in preference shares of these entities. In the first quarter of 2009, the Company recognized losses of $6.8 million which represented the complete write off of the preference shares in certain of the VIEs due to the continued deterioration in the performance of the collateral in those vehicles. The Company does not expect to receive any significant cash distributions on those preference shares in the foreseeable future. At December 31, 2009 and December 31, 2008, total assets of these entities not included on the Company’s Consolidated Balance Sheets were approximately $2.6 billion and $2.7 billion, respectively. No reconsideration events occurred during 2009 that changed the Company’s conclusion that it is not the primary beneficiary of these entities. Upon adoption of the amendments to ASC 810-10, the Company determined that it was the primary beneficiary of one of these VIEs due to its collateral management activities and VIs held by certain of the Company’s consolidated subsidiaries. As such, as of January 1, 2010, the Company consolidated approximately $300 million of the $2.6 billion of assets that were previously unconsolidated. See Note 1, “Significant Accounting Policies,” to the Consolidated Financial Statements for further discussion of the impact of implementing the amendments to ASC 810-10.

Student Loans

In 2006, the Company completed one securitization of student loans through a transfer of loans to a QSPE and retained the corresponding residual interest in the QSPE trust. The fair value of the residual interest at December 31, 2009 and December 31, 2008 was $18.5 million and $13.4 million, respectively. No events have occurred during 2009 that changed the status of the QSPE or the nature of the transaction, which called into question either the Company’s sale accounting or the QSPE status of the transferee. All the student loans that were securitized are U.S. government guaranteed student loans. As such, the Company has agreed to service each loan consistent with the guidelines determined by the applicable government agencies. Accordingly, the Company believes that it does not have the power to direct activities that most significantly impact the economic performance of the SPE that holds these student loans. Based on the application of the new consolidation guidance adopted on January 1, 2010, the Company has determined that it will not consolidate this SPE.

CDO Securities

The Company has transferred bank trust preferred securities in securitization transactions. The majority of these transfers occurred between 2002 and 2005 with one transaction completed in 2007. The Company retained equity interests in certain of these entities and also holds certain senior interests that were acquired during 2007 and 2008 in conjunction with its acquisition of assets from Three Pillars and the ARS transactions discussed in Note 21, “Contingencies,” to the Consolidated Financial Statements. During 2008, the Company recognized impairment losses, net of distributions received, of $15.9 million related to the ownership of its equity interests in these VIEs and, at December 31, 2008, these equity interests had all been written down to a fair value of zero due to increased losses in the underlying collateral. During 2009, the Company sold its senior interest related to the acquisition of assets from Three Pillars. The Company continues to hold, at December 31, 2009, senior interests related to the ARS purchases. The Company is not obligated to provide any support to these entities and its maximum exposure to loss at December 31, 2009 and December 31, 2008 is limited to (i) the current senior interests held in trading securities with a fair value of $25.5 million and $45.0 million, respectively, and (ii) the remaining senior interests expected to be purchased in conjunction with the ARS issue, which have a total fair value of $1.5 million and $9.7 million, respectively. The total assets of the trust preferred CDO entities in which the Company has remaining exposure to loss was $1.3 billion at December 31, 2009 and $2.0 billion at December 31, 2008. No events occurred during the year ended December 31, 2009 that called into question either the Company’s sale accounting or the Company’s conclusions that it is not the primary beneficiary of these VIEs. The Company determined that it was not the primary beneficiary of any of these VIEs under ASC 810-10, as the Company lacks the power to direct the significant activities of any of the VIEs.

The following tables present certain information related to the Company’s asset transfers in which it has continuing economic involvement for the years ended December 31, 2009, 2008, and 2007.

 

     Year Ended December 31, 2009  
(Dollars in thousands)    Residential
Mortgage Loans
         Commercial
Mortgage Loans
         Commercial and
Corporate Loans
        Student Loans         CDO Securities         Consolidated  

Cash flows on interests held

   $93,674         $-         $1,861       $7,601       $2,799       $105,935   

Servicing or management fees

   4,908         -         11,090       709       -       16,707   
     Year Ended December 31, 2008  
(Dollars in thousands)    Residential
Mortgage Loans
         Commercial
Mortgage Loans
         Commercial and
Corporate Loans
        Student Loans         CDO Securities         Consolidated  

Cash flows on interests held

   $85,848         $-         $24,282       $7,971       $4,134       $122,235   

Servicing or management fees

   5,900         182         14,216       833       -       21,131   
     Year Ended December 31, 2007  
(Dollars in thousands)    Residential
Mortgage Loans
         Commercial
Mortgage Loans
         Commercial and
Corporate Loans
        Student Loans         CDO Securities         Consolidated  

Total proceeds

   $1,892,819         $416,321         $2,186,367       $-       $-       $4,495,507   

Gain/(loss)

   (15,669      (4,041      4,949       -       -       (14,761

Cash flows on interests held

   52,882         -         22,194       -       3,198       78,274   

Servicing or management fees

   3,909         207         10,309       854       389       15,668   

As transferor, the Company typically provides standard representations and warranties in relation to assets transferred. However, other than the loan substitution discussed previously herein, purchases of assets previously transferred in securitization transactions were insignificant across all categories for all periods presented other than those related to Ginnie Mae, Fannie Mae, and Freddie Mac as discussed in Note 18, “Reinsurance Arrangements and Guarantees,” to the Consolidated Financial Statements.

The following tables present key assumptions and inputs, along with the impacts on the fair values of two unfavorable variations from the expected amounts, related to the fair values of the Company’s retained interests, excluding MSRs, which are separately addressed herein. Retained interests in residential mortgage securitization transactions include senior and subordinated securities. To estimate the market value of these securities, consideration was given to dealer indications of market value as well as the results of discounted cash flow models using market assumptions for prepayment rates, credit losses and discount rates due to illiquidity in the market for non-agency residential MBS.

 

     December 31, 2009
(Dollars in millions)    Residential
Mortgage
         Student Loans          CDO Securities          Total

Fair Value

   $216.7         $18.5         $25.5         $260.7

Prepayment Rate

   11.4% - 17      %    5.9      %    0      %   

Decline in fair value from 10% adverse change

   5.4         0.2         -         5.6

Decline in fair value from 20% adverse change

   9.9         0.6         -         10.5

Expected Credit Losses

   0.26% - 21      %    nm         33.7% -38.4      %   

Decline in fair value from 10% adverse change

   2.6         nm         -         2.6

Decline in fair value from 20% adverse change

   4.3         nm         -         4.3

Annual Discount Rate

   5% - 450      %    22.5      %    25.8% - 27.7      %   

Decline in fair value from 10% adverse change

   6.6         0.6         2.7         9.9

Decline in fair value from 20% adverse change

   12.2         1.3         5.1         18.6

Weighted Average Life (in years)

   4.14 - 16.7                     4.92         24.22        

Expected Static Pool Losses

   0.26% - 28.6      %    nm         33.7% - 38.4      %   

“nm”- not meaningful.

At December 31, 2008, the total fair value of retained interests, excluding MSRs, was approximately $367.0 million. The weighted average remaining lives of the Company’s retained interests ranged from approximately 2.5 years to 18 years for interests in residential mortgage loans, commercial and corporate loans, and student loans as of December 31, 2008, with the weighted average remaining life of interests in CDO securities approximating 24 years. To estimate the fair values of these securities, consideration was given to dealer indications of market value, where applicable, as well as the results of discounted cash flow models using key assumptions and inputs for prepayment rates, credit losses, and discount rates. For the majority of the retained interests, the Company has considered the impacts on the fair values of two unfavorable variations from the estimated amounts, related to the fair values of the Company’s retained and residual interests, excluding MSRs. Declines in fair values for the total retained interests due to 10% and 20% adverse changes in the key assumptions and inputs totaled approximately $22.2 million and $45.7 million, respectively, as of December 31, 2008. For certain subordinated retained interests in residential mortgage securitizations, the Company used dealer indicated prices, as the Company believed these price indications more accurately reflected the severe disruption in the market for these securities. As such, the Company has not evaluated any adverse changes in key assumptions of these values. As of December 31, 2008, the fair value of these subordinated interests was $4.4 million based on a weighted average price of 12.3% of par. Expected static pool losses were approximately 5% or less for residential mortgage loans and commercial and corporate loans, as of December 31, 2008. For interests related to securitizations of CDO securities, expected static pool losses ranged from approximately 23% to 31% as of December 31, 2008.

Portfolio balances and delinquency balances based on 90 days or more past due (including accruing and nonaccrual loans) as of December 31, 2009 and December 31, 2008, and net charge-offs related to managed portfolio loans (both those that are owned by the Company and those that have been transferred) for years ended December 31, 2009 and 2008 are as follows:

 

    Principal Balance       Past Due       Net Charge-offs
(Dollars in millions)   2009       2008       2009       2008       2009       2008

Type of loan:

                     

Commercial

  $32,494.1     $41,039.9     $507.8     $340.9     $572.4     $194.6

Residential mortgage and home equity

  46,742.3     48,520.2     4,064.6     2,727.6     1,902.6     950.5

Commercial real estate and construction

  21,721.2     24,821.1     1,901.7     1,492.6     527.2     215.2

Consumer

  11,648.9     11,646.9     428.4     411.1     152.1     172.4

Credit card

  1,068.3     970.3     -     -     83.4     31.6
                                 

Total loan portfolio

  $113,674.8     $126,998.4     $6,902.5     $4,972.2     $3,237.7     $1,564.3

Managed securitized loans

                     

Commercial

  3,460.2     3,766.8     64.5     30.2     27.9     -

Residential mortgage

  1,482.3     1,836.2     122.9     129.5     44.2     24.7

Other

  506.1     565.2     25.1     61.6     0.4     0.3
                                 

Total managed loans

  $119,123.4     $133,166.6         $7,115.0         $5,193.5         $3,310.2         $1,589.3
                                 

 

Residential mortgage loans securitized through Ginnie Mae, Fannie Mae, and Freddie Mac have been excluded from the tables above since the Company does not retain any beneficial interests or other continuing involvement in the loans other than servicing responsibilities on behalf of Ginnie Mae, Fannie Mae, and Freddie Mac, and repurchase contingencies under standard representations and warranties made with respect to the transferred mortgage loans. The total amount of loans serviced by the Company as a result of such securitization transactions totaled $127.8 billion and $106.6 billion at December 31, 2009 and December 31, 2008, respectively. Related servicing fees received by the Company during 2009, 2008, and 2007 were $333.4 million, $293.9 million and $263.2 million, respectively.

Mortgage Servicing Rights

In addition to other interests that continue to be held by the Company in the form of securities, the Company also retains MSRs from certain of its sales or securitizations of residential mortgage loans. MSRs on residential mortgage loans are the only servicing assets capitalized by the Company. The Company maintains two classes of MSRs: MSRs related to loans originated and sold after January 1, 2008, which are reported at fair value and MSRs related to loans sold before January 1, 2008, which are reported at amortized cost, net of any allowance for impairment losses. Any impacts of this activity are reflected in the Company’s Consolidated Statements of Income/(Loss) in mortgage servicing-related income. See Note 9, “Goodwill and Other Intangible Assets”, to the Consolidated Financial Statements for the rollforward of MSRs.

Income earned by the Company on its MSRs is derived primarily from contractually specified mortgage servicing fees and late fees, net of curtailment costs. Such income earned for the years ended December 31, 2009, 2008, and 2007 was $353.7 million, $354.3 million, and $337.7 million, respectively. These amounts are reported in mortgage servicing-related income in the Consolidated Statements of Income/(Loss).

As of December 31, 2009 and December 31, 2008, the total unpaid principal balance of mortgage loans serviced was $178.9 billion and $162.0 billion, respectively. Included in these amounts were $146.7 billion and $130.5 billion as of December 31, 2009 and December 31, 2008, respectively, of loans serviced for third parties. As of December 31, 2009 and December 31, 2008, the Company had established MSRs valuation allowances of $6.7 million and $370.0 million, respectively. No permanent impairment losses were recorded against the allowance, with respect to MSRs carried at amortized cost, during the years ended December 31, 2009 and December 31, 2008.

A summary of the key characteristics, inputs, and economic assumptions used to estimate the fair value of the Company’s MSRs and the sensitivity of the December 31, 2009 and December 31, 2008 fair values to immediate 10% and 20% adverse changes in those assumptions follows.

 

(Dollars in millions)    2009
Fair Value
       2009
Lower of Cost
or Market
       Total
2008
Lower of Cost
or Market

Fair value of retained MSRs

        $935.6      $748.5      $815.6

Prepayment rate assumption (annual)

   10.0%      16.9%      32.8%

Decline in fair value of 10% adverse change

   $30.2      $30.1      $61.2

Decline in fair value of 20% adverse change

   57.9      57.7      113.8

Discount rate (annual)

   10.3%      11.7%      9.3%

Decline in fair value of 10% adverse change

   $39.1      $26.6      $17.9

Decline in fair value of 20% adverse change

   75.2      51.3      35.0

Weighted-average life (in years)

   7.50      4.84      2.50

Weighted-average coupon

   5.24      6.11      6.15

The above sensitivities are hypothetical and should be used with caution. As the amounts indicate, changes in fair value based on variations in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in this table, the effect of a variation in a particular assumption on the fair value of the retained interest is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another, which might magnify or counteract the sensitivities.

Variable Interest Entities

In addition to the Company’s involvement with certain VIEs, which is discussed herein under “Certain Transfers of Financial Assets”, the Company also has involvement with VIEs from other business activities.

 

Three Pillars Funding, LLC

SunTrust assists in providing liquidity to select corporate clients by directing them to a multi-seller CP conduit, Three Pillars. Three Pillars provides financing for direct purchases of financial assets originated and serviced by SunTrust’s corporate clients by issuing highly rated CP.

The Company’s involvement with Three Pillars includes the following activities: services related to the administration of Three Pillars’ activities and client referrals to Three Pillars; the issuing of letters of credit, which provide partial credit protection to the CP holders; and providing liquidity arrangements that would provide funding to Three Pillars in the event it can no longer issue CP or in certain other circumstances. The Company’s activities with Three Pillars generated total fee revenue for the Company, net of direct salary and administrative costs incurred by the Company, of approximately $58.8 million, $48.2 million, and $28.7 million for the years ended December 31, 2009, December 31, 2008, and December 31, 2007, respectively.

Three Pillars has issued a subordinated note to a third party, which matures in March 2015; however, the note holder may declare the note due and payable upon an event of default, which includes any loss drawn on the note funding account that remains unreimbursed for 90 days. The subordinated note holder absorbs the first dollar of loss in the event of nonpayment of any of Three Pillars’ assets. Only the remaining balance of the first loss note, after any incurred losses, would be due. The outstanding and committed amounts of the subordinated note were $20.0 million at December 31, 2009 and December 31, 2008, and no losses had been incurred through December 31, 2009. Subsequent to December 31, 2009, Three Pillars repaid and extinguished the subordinated note.

The Company has determined that Three Pillars is a VIE, as Three Pillars has not issued sufficient equity at risk. The Company and the holder of the subordinated note are the two significant VI holders in Three Pillars. The Company and this note holder are not related parties or de facto agents of one another. The Company uses a mathematical model that calculates the expected losses and expected residual returns of Three Pillars’ assets and operations, based on a Monte Carlo simulation, and allocates each to the Company and the holder of the subordinated note. The results of this model, which the Company evaluates monthly, have shown that the holder of the subordinated note absorbs the majority of the variability of Three Pillars’ expected losses. The Company believes the subordinated note is sized in an amount sufficient to absorb the expected loss of Three Pillars based on current commitment levels and the forecasted growth in Three Pillars’ assets; as such, the Company has concluded it is not Three Pillars’ primary beneficiary and is not required to consolidate Three Pillars. See Note 1, “Significant Accounting Policies,” to the Consolidated Financial Statements for a discussion of the impacts of the amendments to ASC 810-10 on the Company’s involvement with Three Pillars.

As of December 31, 2009 and December 31, 2008, Three Pillars had assets not included on the Company’s Consolidated Balance Sheets of approximately $1.8 billion and $3.5 billion, respectively, consisting primarily of secured loans. Funding commitments and outstanding receivables extended by Three Pillars to its customers totaled $3.7 billion and $1.7 billion, respectively, as of December 31, 2009, almost all of which renew annually, as compared to $5.9 billion and $3.5 billion, respectively, as of December 31, 2008. The majority of the commitments are backed by trade receivables and commercial loans that have been originated by companies operating across a number of industries which collateralize 50% and 18%, respectively, of the outstanding commitments, as of December 31, 2009, as compared to 47% and 20%, respectively, as of December 31, 2008. Assets supporting those commitments have a weighted average life of 1.25 years and 1.52 years at December 31, 2009 and December 31, 2008, respectively. At December 31, 2009, Three Pillars’ outstanding CP used to fund the assets totaled approximately $1.8 billion, with remaining weighted average lives of 5.9 days and maturities through February 2010.

Each transaction added to Three Pillars is typically structured to a minimum implied A/A2 rating according to established credit and underwriting policies as approved by credit risk management and monitored on a regular basis to ensure compliance with each transaction’s terms and conditions. Typically, transactions contain dynamic credit enhancement features that provide increased credit protection in the event asset performance deteriorates. If asset performance deteriorates beyond predetermined covenant levels, the transaction could become ineligible for continued funding by Three Pillars. This could result in the transaction being amended with the approval of credit risk management, or Three Pillars could terminate the transaction and enforce any rights or remedies available, including amortization of the transaction or liquidation of the collateral. In addition, Three Pillars has the option to fund under the liquidity facility provided by the Bank in connection with the transaction and may be required to fund under the liquidity facility if the transaction remains in breach. In addition, each commitment renewal requires credit risk management approval. The Company is not aware of unfavorable trends related to Three Pillars assets for which the Company expects to suffer material losses. During the years ended December 31, 2009 and 2008, there were no write-downs of Three Pillars’ assets.

 

During the month of September 2008, the illiquid markets put a significant strain on the CP market and, as a result of this temporary disruption, the Company purchased approximately $275.4 million par amount of Three Pillars’ overnight CP, none of which was outstanding at December 31, 2008. Separate from the temporary disruption in the CP markets in September 2008, the Company held outstanding Three Pillars’ CP at December 31, 2008 with a par amount of approximately $400 million, all of which matured on January 9, 2009. None of the Company’s purchases of CP during 2008 altered the Company’s conclusion that it was not the primary beneficiary of Three Pillars.

Three Pillars has historically financed its activities by issuing A-1/P-1 rated CP and had no other form of senior funding outstanding, other than CP, as of December 31, 2009 or December 31, 2008. However, in the second quarter of 2009, Three Pillars CP was downgraded to A-2/P-1 due to the downgrade to A-/A2 of the Bank, which provides liquidity and credit enhancement to Three Pillars. This downgrade was not a reflection of the asset quality of Three Pillars, but did negatively impact its ability to issue CP to third party investors.

Subsequent to the S&P downgrade, the Company successfully completed its capital plan under the “stress test”, which included a successful common equity raise and tender offer for certain of its preferred stock and hybrid debt instruments. Additionally, in June 2009, Three Pillars received an F-1 rating from Fitch and chose to replace S&P’s A-2 rating, which was simultaneously withdrawn. As such, Three Pillars’ CP now carries an F-1/P-1 rating, which has allowed Three Pillars to issue approximately 75%, on average, of its CP to investors other than the Company during the quarter ended December 31, 2009. At December 31, 2009, the Company held no Three Pillars CP. The purchases of CP by the Company did not alter the allocation of variability within Three Pillars in a manner that was not originally considered, nor was it a means for the Company to provide non-contractual support to Three Pillars in order to protect any VI holders from losses. The predominant driver of risk is the credit risk of the underlying assets owned by Three Pillars, and S&P’s downgrade was not in response to any credit deterioration in these assets. Further, the subordinated note holder remained exposed to the majority of variability in expected losses in Three Pillars to the same degree it had prior to any purchases of CP by the Company. The Company’s at-market purchases of CP do not impact the interest rates paid by the clients of Three Pillars, as they are obligated to pay a pass through rate based on the rate at which Three Pillars issues CP. After evaluating all facts and circumstances, the Company concluded that the results of the mathematical model that the Company uses to support its conclusion that it is not the primary beneficiary of Three Pillars had not changed, the design of Three Pillars had not changed, and the purchases of CP by the Company had not given rise to an implicit VI in Three Pillars that would have resulted in the Company becoming the primary beneficiary of Three Pillars.

The Company has off-balance sheet commitments in the form of liquidity facilities and other credit enhancements that it has provided to Three Pillars. These commitments are accounted for as financial guarantees by the Company. The liquidity commitments are revolving facilities that are sized based on the current commitments provided by Three Pillars to its customers. The liquidity facilities are generally used if new CP cannot be issued by Three Pillars to repay maturing CP. However, the liquidity facilities are available in all circumstances, except certain bankruptcy-related events with respect to Three Pillars. Draws on the facilities are subject to the purchase price (or borrowing base) formula that, in many cases, excludes defaulted assets to the extent that they exceed available over-collateralization in the form of non-defaulted assets, and may also provide the liquidity banks with loss protection equal to a portion of the loss protection provided for in the related securitization agreement. Additionally, there are transaction specific covenants and triggers that are tied to the performance of the assets of the relevant seller/servicer that may result in a transaction termination event, which, if continuing, would require funding through the related liquidity facility. Finally, in a termination event of Three Pillars, such as if its tangible net worth falls below $5,000 for a period in excess of 15 days, Three Pillars would be unable to issue CP, which would likely result in funding through the liquidity facilities. Draws under the credit enhancement are also available in all circumstances, but are generally used to the extent required to make payment on any maturing CP if there are insufficient funds from collections of receivables or the use of liquidity facilities. The required amount of credit enhancement at Three Pillars will vary from time to time as new receivable pools are purchased or removed from its asset portfolio, but is generally equal to 10% of the aggregate commitments of Three Pillars.

The total notional amounts of the liquidity facilities and other credit enhancements represent the Company’s maximum exposure to potential loss, which was $3.8 billion and $371.3 million, respectively, as of December 31, 2009, compared to $6.1 billion and $597.5 million, respectively, as of December 31, 2008. The Company did not have any liability recognized on its Consolidated Balance Sheets related to these liquidity facilities and other credit enhancements as of December 31, 2009 or December 31, 2008, as no amounts had been drawn, nor were any draws probable to occur, such that a loss should have been accrued. In addition, no losses were recognized by the Company in connection with these off-balance sheet commitments during the years ended December 31, 2009 or 2008. There are no other contractual arrangements that the Company plans to enter into with Three Pillars to provide it additional support.

 

Total Return Swaps

The Company has had involvement with various VIEs related to its TRS business. The Company decided to temporarily suspend this business in late 2008 and terminated its existing transactions during 2009. Under the TRS business model, the VIEs purchase portfolios of loans at the direction of third parties. These third parties are not related parties to the Company, nor are they and the Company de facto agents of each other. In order for the VIEs to purchase the loans, the Company provides senior financing to these VIEs. At December 31, 2008, the Company had $603.4 million in such financing outstanding, which was classified within trading assets on the Consolidated Balance Sheets and none was outstanding at December 31, 2009. The Company enters into TRS transactions with the VIEs that the Company mirrors with a TRS with the third party who controls the loans owned by the VIE. The TRS transactions pass through all interest and other cash flows on the loans to the third party, along with exposing the third parties to any depreciation on the loans and providing them with the rights to all appreciation on the loans. The terms of the TRS transactions require the third parties to post initial margin, in addition to ongoing margin as the fair values of the underlying loans decrease. Previously, the Company had concluded it was not the primary beneficiary of the VIEs, as the VIEs were designed for the benefit of the third parties. The third parties have implicit VIs in the VIEs via their TRS transactions with the Company, whereby these third parties absorb the majority of the expected losses and are entitled to the majority of the expected residual returns of the VIEs. At December 31, 2008, these VIEs had entered into TRS with the Company that had outstanding notional of $602.1 million and none was outstanding at December 31, 2009. The Company has not provided any support that it was not contractually obligated to for the year ended December 31, 2009 or December 31, 2008. For additional information on the Company’s TRS with these VIEs, see Note 17, “Derivative Financial Instruments” to the Consolidated Financial Statements.

Community Development Investments

As part of its community reinvestment initiatives, the Company invests almost exclusively within its footprint in multi-family affordable housing developments and other community development entities as a limited and/or general partner and/or a debt provider. The Company receives tax credits for its partnership investments. The Company has determined that these partnerships are VIEs when SunTrust does not own 100% of the entity because the holders of the equity investment at risk do not have the direct or indirect ability to make decisions that have a significant impact on the business. Accordingly, the Company’s general partner, limited partner, and/or debt interests are VIs that the Company evaluates for purposes of determining whether the Company is the primary beneficiary. During 2009 and 2008, SunTrust did not provide any financial or other support to its consolidated or unconsolidated investments that it was not previously contractually required to provide. Beginning on January 1, 2010, the Company adopted the amendments to ASC 810-10 and determined that the Company will continue to consolidate those partnerships in which it acts as the general partner or the indemnifying party. In these situations, the Company has both the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and the obligation to absorb losses or the rights to receive benefits that could potentially be significant to the VIE. The Company will continue to not consolidate those partnerships in which it acts solely as the limited partner. As the limited partner the Company does not have the power to direct the activities of the VIE that most significantly impact the entity’s economic performance.

The Company manages certain community development projects that generate tax credits and help it meet the requirements of the CRA. The related interests in these projects are recorded within the other assets line item on the Consolidated Balance Sheets. During 2007, the Company completed a strategic review of these properties and determined that the sale of certain properties was possible, which resulted in the Company recording a $57.7 million impairment charge in other noninterest expense within the Commercial line of business. Total impairment charges recorded within the Commercial line of business in 2009 and 2008 totaled $46.8 million and $19.9 million, respectively.

For some partnerships, SunTrust operates strictly as a general partner or the indemnifying party and, as such, is exposed to a majority of the partnerships’ expected losses. Accordingly, SunTrust consolidates these partnerships on its Consolidated Balance Sheets. As the general partner or indemnifying party, SunTrust typically guarantees the tax credits due to the limited partner and is responsible for funding construction and operating deficits. As of December 31, 2009 and December 31, 2008, total assets, which consist primarily of fixed assets and cash attributable to the consolidated partnerships, were $14.4 million and $20.5 million, respectively, and total liabilities, excluding intercompany liabilities, were $3.2 million and $3.3 million, respectively. Security deposits from the tenants are recorded as liabilities on the Company’s Consolidated Balance Sheets. The Company maintains separate cash accounts to fund these liabilities and these assets are considered restricted. The tenant liabilities and corresponding restricted cash assets were $0.1 million as of December 31, 2009 and December 31, 2008. While the obligations of the general partner or indemnifying entity are generally non-recourse to SunTrust, the Company, as the general partner or the indemnifying entity, may from time to time step in when needed to fund deficits. During 2009 and 2008, SunTrust did not provide any significant amount of funding as the general partner or the indemnifying entity to cover any deficits the partnerships may have generated.

 

For other partnerships, the Company acts only in a limited partnership capacity. The Company has determined that it is not the primary beneficiary of these partnerships because it will not absorb a majority of the expected losses of the partnership. Typically, the general partner or an affiliate of the general partner provide guarantees to the limited partner which protect the Company from losses attributable to operating deficits, construction deficits, and tax credit allocation deficits. The Company accounts for its limited partner interests in accordance with the income tax guidance for investments in affordable housing projects. Partnership assets of approximately $1.1 billion and $1.0 billion in these partnerships were not included in the Consolidated Balance Sheets at December 31, 2009 and December 31, 2008, respectively. These limited partner interests had carrying values of $218.1 million and $188.9 million at December 31, 2009 and December 31, 2008, respectively, and are recorded in other assets on the Company’s Consolidated Balance Sheets. The Company’s maximum exposure to loss for these limited partner investments totaled $468.2 million and $473.2 million at December 31, 2009 and December 31, 2008, respectively. The Company’s maximum exposure to loss would be borne by the loss of the limited partnership equity investments along with $219.4 million and $202.7 million of loans issued by the Company to the limited partnerships at December 31, 2009 and December 31, 2008, respectively. The difference between the maximum exposure to loss and the investment and loan balances is primarily attributable to the unfunded equity commitments. Unfunded equity commitments are amounts that the Company has committed to the partnerships upon the partnerships meeting certain conditions. When these conditions are met, the Company will invest these additional amounts in the partnerships.

When SunTrust owns both the limited partner and general partner or acts as the indemnifying party, the Company consolidates the partnerships and does not consider these partnerships VIEs because, as owner of the partnerships, the Company has the ability to directly and indirectly make decisions that have a significant impact on the business. As of December 31, 2009 and December 31, 2008, total assets, which consist primarily of fixed assets and cash, attributable to the consolidated, non-VIE partnerships were $424.9 million and $493.5 million, respectively, and total liabilities, excluding intercompany liabilities, primarily representing third-party borrowings, were $209.0 million and $327.6 million, respectively.

Registered and Unregistered Funds Advised by RidgeWorth

RidgeWorth, a registered investment advisor and wholly-owned subsidiary of the Company, serves as the investment advisor for various private placement and publicly registered investment funds (collectively the “Funds”). The Company evaluates these Funds to determine if the Funds are voting interest entities or VIEs, as well as monitors the nature of its interests in each Fund to determine if the Company is required to consolidate any of the Funds.

The Company has concluded that some of the Funds are VIEs because the equity investors lack decision making rights. However, the Company has concluded that it is not the primary beneficiary of these funds as the Company does not absorb a majority of the expected losses or expected returns of the funds. As the Company does not directly invest in these funds, its exposure to loss is limited to the investment advisor and other administrative fees it earns. Payment on these fees is received from the individual investor accounts. The total unconsolidated assets of these funds as of December 31, 2009 and December 31, 2008 were $3.3 billion and $3.6 billion, respectively. Beginning on January 1, 2010, the Company adopted the amendments to ASC 810-10 as noted in Note 1, “Significant Accounting Policies.” In January 2010, the FASB voted to finalize an ASU that would defer the amendments to ASC 810-10 for certain investment funds that meet specific criteria. The Company has determined that these Funds meet the criteria for deferral and accordingly will continue to be accounted for under the previous accounting model.

While the Company does not have any contractual obligation to provide monetary support to any of the Funds, the Company did elect to provide support for specific securities on one occasion in 2008 and two occasions in 2007 to three of the funds. In 2008 and 2007, the Company purchased approximately $2.4 billion of securities from these three funds at amortized cost plus accrued interest. The Company took these actions in response to the unprecedented market events to protect investors in these funds from possible losses associated with these securities. Two of the funds were previously considered voting interest entities and in connection with these purchases, the Company re-evaluated its involvement with these funds. As a result of the unprecedented circumstances that caused the Company to intervene, the lack of any contractual obligation to provide any current or future support to the funds, and the size of the financial support ultimately provided, the Company concluded that these two funds were still voting interest entities. The Company concluded that the third fund was a VIE and that, as a result of the purchase of securities, it was the primary beneficiary of this fund as it was likely to absorb a majority of the expected losses of the fund. Accordingly, this fund was consolidated in September 2007 and was subsequently closed in November 2007, which resulted in the termination of the VIE. At December 31, 2009 and December 31, 2008, the Company still owned securities purchased from these three funds of $159.3 million and $246.0 million, respectively.

Long-Term Debt
Long-Term Debt

Note 12 - Long-Term Debt

Long-term debt at December 31 consisted of the following:

 

(Dollars in thousands)    2009        2008

Parent Company Only

       

Senior

       

4.25% notes due 2009

   $0