SUNTRUST BANKS INC, 10-Q filed on 5/6/2011
Quarterly Report
Document and Entity Information
3 Months Ended
Mar. 31, 2011
Apr. 27, 2011
Document Type
10-Q 
 
Amendment Flag
FALSE 
 
Document Period End Date
2011-03-31 
 
Document Fiscal Year Focus
2011 
 
Document Fiscal Period Focus
Q1 
 
Trading Symbol
STI 
 
Entity Registrant Name
SUNTRUST BANKS INC 
 
Entity Central Index Key
0000750556 
 
Current Fiscal Year End Date
12/31 
 
Entity Filer Category
Large Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
536,888,834 
Consolidated Statements of Income/(Loss) (USD $)
In Millions, except Per Share data
3 Months Ended
Mar. 31,
2011
2010
Interest Income
 
 
Interest and fees on loans
$ 1,314 
$ 1,317 
Interest and fees on loans held for sale
28 
33 
Interest and dividends on securities available for sale
 
 
Taxable interest
165 
176 
Tax-exempt interest
Dividends
20 1
19 1
Trading account interest
22 
20 
Total interest income
1,554 
1,574 
Interest Expense
 
 
Interest on deposits
169 
233 
Interest on funds purchased and securities sold under agreements to repurchase
Interest on trading liabilities
Interest on other short-term borrowings
Interest on long-term debt
124 
159 
Total interest expense
305 
402 
Net interest income
1,249 
1,172 
Provision for credit losses
447 
862 
Net interest income after provision for credit losses
802 
310 
Noninterest Income
 
 
Service charges on deposit accounts
163 
196 
Other charges and fees
126 
129 
Card fees
100 
87 
Trust and investment management income
135 
122 
Retail investment services
58 
47 
Mortgage production related loss
(1)
(31)
Mortgage servicing related income
72 
70 
Investment banking income
67 
56 
Trading account profits/(losses) and commissions
52 
(7)
Net securities gains
64 2
2
Other noninterest income
47 
28 
Total noninterest income
883 
698 
Noninterest Expense
 
 
Employee compensation
618 
557 
Employee benefits
136 
135 
Outside processing and software
158 
149 
Net occupancy expense
89 
91 
Regulatory assessments
71 
64 
Other real estate expense
69 
46 
Credit and collection services
51 
74 
Equipment expense
44 
41 
Marketing and customer development
38 
34 
Operating losses
27 
14 
Amortization of intangible assets
11 
13 
Net gain on debt extinguishment
(1)
(9)
Other noninterest expense
154 
152 
Total noninterest expense
1,465 
1,361 
Income/(loss) before provision/(benefit) for income taxes
220 
(353)
Provision/(benefit) for income taxes
33 
(194)
Net income/(loss) including income attributable to noncontrolling interest
187 
(159)
Net income attributable to noncontrolling interest
Net income/(loss)
180 
(161)
Net income/(loss) available to common shareholders
38 
(229)
Net income/(loss) per average common share
 
 
Diluted
0.08 3
(0.46)3
Basic
0.08 
(0.46)
Dividends declared per common share
$ 0.01 
$ 0.01 
Average common shares - diluted
504 
498 
Average common shares - basic
500 
495 
Consolidated Statements of Income/(Loss) (Parenthetical) (USD $)
In Millions
3 Months Ended
Mar. 31,
2011
2010
Dividends on common stock of The Coca-Cola Company
$ 14 
$ 13 
Net impairment losses recognized in earnings
Portion of losses recognized in OCI (before taxes)
$ 0 
$ 0 
Consolidated Balance Sheets (USD $)
In Millions, except Share data in Thousands
Mar. 31, 2011
Dec. 31, 2010
Assets
 
 
Cash and due from banks
$ 5,216 
$ 4,296 
Interest-bearing deposits in other banks
20 
24 
Funds sold and securities purchased under agreements to resell
981 
1,058 
Cash and cash equivalents
6,217 
5,378 
Trading assets
6,289 
6,175 
Securities available for sale
26,569 
26,895 
Loans held for sale (loans at fair value: $1,837 as of March 31, 2011; $3,168 as of December 31, 2010)
2,165 1
3,501 1
Loans (loans at fair value: $457 as of March 31, 2011; $492 as of December 31, 2010)
114,932 2
115,975 2
Allowance for loan and lease losses
(2,854)
(2,974)
Net loans
112,078 
113,001 
Premises and equipment
1,575 
1,620 
Goodwill
6,324 
6,323 
Other intangible assets (MSRs at fair value: $1,538 as of March 31, 2011; $1,439 as of December 31, 2010)
1,659 
1,571 
Other real estate owned
534 
596 
Other assets
7,384 
7,814 
Total assets
170,794 
172,874 
Liabilities and Shareholders' Equity
 
 
Noninterest-bearing consumer and commercial deposits
28,521 
27,290 
Interest-bearing consumer and commercial deposits
93,038 
92,735 
Total consumer and commercial deposits
121,559 
120,025 
Brokered deposits (CDs at fair value: $1,181 as of March 31, 2011; $1,213 of December 31, 2010)
2,369 
2,365 
Foreign deposits
57 
654 
Total deposits
123,985 
123,044 
Funds purchased
1,150 
951 
Securities sold under agreements to repurchase
2,113 
2,180 
Other short-term borrowings
2,858 
2,690 
Long-term debt (debt at fair value: $2,854 as of March 31, 2011; $2,837 as of December 31, 2010)
14,663 3
13,648 3
Trading liabilities
2,731 
2,678 
Other liabilities
4,071 
4,553 
Total liabilities
151,571 
149,744 
Preferred stock, no par value
172 
4,942 
Common stock, $1.00 par value
550 
515 
Additional paid in capital
9,324 
8,403 
Retained earnings
8,575 
8,542 
Treasury stock, at cost, and other
(823)
(888)
Accumulated other comprehensive income, net of tax
1,425 
1,616 
Total shareholders' equity
19,223 
23,130 
Total liabilities and shareholders' equity
$ 170,794 
$ 172,874 
Common shares outstanding
536,817 
500,436 
Common shares authorized
750,000 
750,000 
Preferred shares outstanding
50 
Preferred shares authorized
50,000 
50,000 
Treasury shares of common stock
13,104 
14,231 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Millions, except Per Share data
Mar. 31, 2011
Dec. 31, 2010
Loans held for sale, loans at fair value
$ 1,837 
$ 3,168 
Loans, loans at fair value
457 
492 
Other intangible assets, MSRs at fair value
1,538 
1,439 
Brokered deposits, CDs at fair value
1,181 
1,213 
Long-term debt, fair value
2,854 
2,837 
Common stock, par value
Loans held for sale
2,165 1
3,501 1
Loans
114,932 2
115,975 2
Long-term debt
14,663 3
13,648 3
Variable Interest Entity, Primary Beneficiary
 
 
Loans held for sale
324 
316 
Loans
2,750 
2,869 
Long-term debt
$ 754 
$ 764 
Consolidated Statements of Shareholders' Equity (USD $)
In Millions
Preferred Stock
Common Stock
Additional Paid in Capital
Retained Earnings
Treasury Stock
Accumulated Other Comprehensive Income
Year
Beginning Balance at Dec. 31, 2009
$ 4,917 
$ 515 
$ 8,521 
$ 8,563 
$ (1,055)1
$ 1,070 
$ 22,531 
Beginning Balance (in shares) at Dec. 31, 2009
 
499 
 
 
 
 
 
Net income (loss)
 
 
 
(161)
 
 
(161)
Other comprehensive income:
 
 
 
 
 
 
 
Change in unrealized gains (losses) on securities, net of taxes
 
 
 
 
 
39 
39 
Change in unrealized gains (losses) on derivatives, net of taxes
 
 
 
 
 
122 
122 
Change related to employee benefit plans
 
 
 
 
 
75 
75 
Change in noncontrolling interest
 
 
 
 
(2)1
 
(2)
Common stock dividends, $0.01 per share
 
 
 
(5)
 
 
(5)
Series A preferred dividends
 
 
 
(2)
 
 
(2)
U.S. Treasury preferred stock dividends, $1,236 in 2011 and $1250 in 2010 per share
 
 
 
(60)
 
 
(60)
Accretion of discount associated with U.S. Treasury preferred stock
 
 
(6)
 
 
 
Stock compensation expense
 
 
 
 
 
Restricted stock activity (in shares)
 
 
 
 
 
 
Restricted stock activity
 
 
(68)
 
40 1
 
(28)
Amortization of restricted stock compensation
 
 
 
 
12 1
 
12 
Issuance of stock for employee benefit plans and other
 
 
(13)
16 1
 
Fair value election of MSRs
 
 
 
89 
 
 
89 
Ending Balance at Mar. 31, 2010
4,923 
515 
8,446 
8,419 
(989)1
1,306 
22,620 
Ending Balance (in shares) at Mar. 31, 2010
 
500 
 
 
 
 
 
Beginning Balance at Dec. 31, 2010
4,942 
515 
8,403 
8,542 
(888)1
1,616 
23,130 
Beginning Balance (in shares) at Dec. 31, 2010
 
500 
 
 
 
 
 
Net income (loss)
 
 
 
180 
 
 
180 
Other comprehensive income:
 
 
 
 
 
 
 
Change in unrealized gains (losses) on securities, net of taxes
 
 
 
 
 
(69)
(69)
Change in unrealized gains (losses) on derivatives, net of taxes
 
 
 
 
 
(125)
(125)
Change related to employee benefit plans
 
 
 
 
 
Change in noncontrolling interest
 
 
 
 
1
 
Common stock dividends, $0.01 per share
 
 
 
(5)
 
 
(5)
Series A preferred dividends
 
 
 
(2)
 
 
(2)
U.S. Treasury preferred stock dividends, $1,236 in 2011 and $1250 in 2010 per share
 
 
 
(60)
 
 
(60)
Accretion of discount associated with U.S. Treasury preferred stock
 
 
(6)
 
 
 
Repurchase of preferred stock issued to the U.S. Treasury and associated accelerated accretion
(4,776)
 
 
(74)
 
 
(4,850)
Issuance of common stock (in shares)
 
35 
 
 
 
 
35 
Issuance of common stock
 
35 
981 
 
 
 
1,016 
Stock compensation expense
 
 
 
 
 
Restricted stock activity (in shares)
 
 
 
 
 
 
Restricted stock activity
 
 
(58)
 
43 1
 
(15)
Amortization of restricted stock compensation
 
 
 
 
1
 
Issuance of stock for employee benefit plans and other
 
 
(5)
 
11 1
 
Ending Balance at Mar. 31, 2011
$ 172 
$ 550 
$ 9,324 
$ 8,575 
$ (823)1
$ 1,425 
$ 19,223 
Ending Balance (in shares) at Mar. 31, 2011
 
537 
 
 
 
 
 
Consolidated Statements of Shareholders' Equity (Parenthetical) (USD $)
In Millions, except Per Share data
3 Months Ended
Mar. 31,
2011
2010
Common stock dividends, per share
$ 0.01 
$ 0.01 
Series A preferred stock dividends, per share
1,000 
1,000 
U.S. Treasury preferred stock dividends, per share
1,236 
1,250 
Treasury Stock
 
 
Ending Balance, treasury stock
(881)
(1,030)
Ending Balance, compensation element of restricted stock
(73)
(65)
Ending Balance, noncontrolling interest
$ 131 
$ 106 
Consolidated Statements of Cash Flows (USD $)
In Millions
3 Months Ended
Mar. 31,
2011
2010
Cash Flows from Operating Activities:
 
 
Net income/(loss) including income attributable to noncontrolling interest
$ 187 
$ (159)
Adjustments to reconcile net income/(loss) to net cash provided by operating activities:
 
 
Depreciation, amortization and accretion
186 
198 
Origination of Mortgage Servicing Rights
(88)
(66)
Provisions for credit losses and foreclosed property
490 
904 
Amortization of restricted stock compensation
12 
Stock option compensation
Net gain on debt extinguishment
(1)
(9)
Net securities gains
(64)1
(1)1
Net gain on sale of assets
(16)
(8)
Net decrease in loans held for sale
1,465 
441 
Net increase in other assets
(125)
(860)
Net (decrease)/increase in other liabilities
(141)
872 
Net cash provided by operating activities
1,905 
1,330 
Cash Flows from Investing Activities:
 
 
Proceeds from maturities, calls and paydowns of securities available for sale
1,158 
1,106 
Proceeds from sales of securities available for sale
9,413 
2,726 
Purchases of securities available for sale
(10,100)
(1,570)
Proceeds from maturities, calls and paydowns of trading securities
77 
44 
Proceeds from sales of trading securities
102 
 
Net (increase)/decrease in loans, including purchases of loans
(304)
497 
Proceeds from sales of loans
143 
230 
Capital expenditures
(1)
(48)
Proceeds from the sale of other assets
198 
152 
Net cash provided by investing activities
686 
3,137 
Cash Flows from Financing Activities:
 
 
Net increase/(decrease) in total deposits
941 
(3,113)
Net increase/(decrease) in funds purchased, securities sold under agreements to repurchase, and other short-term borrowings
301 
(1,048)
Proceeds from the issuance of long-term debt
1,039 
 
Repayment of long-term debt
(132)
(926)
Proceeds from the issuance of common stock
1,016 
 
Repurchase of preferred stock
(4,850)
 
Common and preferred dividends paid
(67)
(67)
Net cash used in financing activities
(1,752)
(5,154)
Net increase/(decrease) in cash and cash equivalents
839 
(687)
Cash and cash equivalents at beginning of period
5,378 
6,997 
Cash and cash equivalents at end of period
6,217 
6,310 
Supplemental Disclosures:
 
 
Loans transferred from loans held for sale to loans
Loans transferred from loans to loans held for sale
122 
185 
Loans transferred from loans to other real estate owned
201 
182 
Accretion on preferred stock issued to the U.S. Treasury
80 
Total assets of newly consolidated VIEs at January 1, 2010
 
2,049 
Significant Accounting Policies
Significant Accounting Policies

Note 1 – Significant Accounting Policies

Basis of Presentation

The unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete consolidated financial statements. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair presentation of the results of operations in these financial statements, have been made.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. 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.

These financial statements should be read in conjunction with the Annual Report on Form 10-K for the year ended December 31, 2010. Except for accounting policies that have been modified or recently adopted as described below, there have been no significant changes to the Company’s accounting policies as disclosed in the Annual Report on Form 10-K for the year ended December 31, 2010.

Accounting Policies Recently Adopted and Pending Accounting Pronouncements

In January 2010, the FASB issued ASU 2010-06, an update to ASC 820-10, “Fair Value Measurements.” This update added a new requirement to disclose transfers in and out of level 1 and level 2 of the fair value hierarchy, along with the reasons for the transfers, and requires a gross presentation of purchases and sales of level 3 instruments. Additionally, the update clarifies that entities provide fair value measurement disclosures for each class of assets and liabilities and that entities provide enhanced disclosures around level 2 valuation techniques and inputs. The Company adopted the disclosure requirements for level 1 and level 2 transfers and the expanded fair value measurement and valuation disclosures effective January 1, 2010. The disclosure requirements for level 3 activities were effective for the interim reporting period ending March 31, 2011. The adoption of these disclosure requirements had no impact on the Company’s financial position, results of operations, and EPS.

In July 2010, the FASB issued ASU 2010-20, “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” The update requires companies to provide more disclosures about the credit quality of their financing receivables, which include loans, lease receivables, and other long-term receivables, and the credit allowances held against them. The disclosure requirements that were effective as of December 31, 2010 are included in Note 3, “Loans,” and Note 4, “Allowance for Credit Losses,” to the Consolidated Financial Statements. Disclosures about activity that occurs during a reporting period were effective for the interim reporting period ending March 31, 2011 and are also included in Note 3, “Loans,” and Note 4, “Allowance for Credit Losses,” to the Consolidated Financial Statements. The adoption of the credit quality disclosures did not have an impact on the Company’s financial position, results of operations, and EPS.

In December 2010, the FASB issued ASU 2010-28, “When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts.” The update requires companies to perform a step 2 analysis if the carrying value of a reporting unit is zero or negative and if it is more likely than not that goodwill is impaired. The update is effective for goodwill impairment testing performed during 2011 with any resulting impairment charge recorded through a cumulative effect adjustment to beginning retained earnings. The Company has adopted the standard as of January 1, 2011 and will apply the new guidance to future goodwill impairment testing. The Company does not expect the standard to have a substantive impact on its goodwill impairment evaluation.

In April 2011, the FASB issued ASU 2011-02, “Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring.” The update provides additional guidance to assist creditors in determining whether a restructuring of a receivable meets the criteria to be considered a TDR, both for purposes of recording impairment and disclosing TDRs. A restructuring of a credit arrangement constitutes a TDR if the restructuring constitutes a concession, and the debtor is experiencing financial difficulties. The clarifications for classification apply to all restructurings occurring on or after January 1, 2011. The measurement of impairment for those newly identified TDRs will be applied prospectively beginning in the third quarter of 2011. The related disclosures which were previously deferred will be required for the interim reporting period ending September 30, 2011. The Company is still in the process of evaluating the impact of the standard. However, we do not anticipate adoption to have a significant impact on the Company’s financial position, results of operations, and EPS.

Securities Available for Sale
Securities Available for Sale

Note 2 – Securities Available for Sale

Securities AFS at March 31, 2011 and December 31, 2010 were as follows:

 

     March 31, 2011  
(Dollars in millions)    Amortized
Cost
     Unrealized
Gains
     Unrealized
Losses
     Fair
Value
 

U.S. Treasury securities

     $223         $-         $1         $222   

Federal agency securities

     3,829         13         26         3,816   

U.S. states and political subdivisions

     537         17         3         551   

MBS - agency

     17,679         348         32         17,995   

MBS - private

     355         2         19         338   

CDO securities

     77         -         -         77   

ABS

     710         14         4         720   

Corporate and other debt securities

     55         2         1         56   

Coke common stock

     -         1,990         -         1,990   

Other equity securities1

     803         1         -         804   
                                   

Total securities AFS

     $24,268         $2,387         $86         $26,569   
                                   
     December 31, 2010  
(Dollars in millions)    Amortized
Cost
     Unrealized
Gains
     Unrealized
Losses
     Fair
Value
 

U.S. Treasury securities

     $5,446         $115         $45         $5,516   

Federal agency securities

     1,883         19         7         1,895   

U.S. states and political subdivisions

     565         17         3         579   

MBS - agency

     14,014         372         28         14,358   

MBS - private

     378         3         34         347   

CDO securities

     50         -         -         50   

ABS

     798         15         5         808   

Corporate and other debt securities

     464         19         1         482   

Coke common stock

     -         1,973         -         1,973   

Other equity securities1

     886         1         -         887   
                                   

Total securities AFS

     $24,484         $2,534         $123         $26,895   
                                   

1At March 31, 2011, other equity securities included $298 million in FHLB of Atlanta stock (par value), $391 million in Federal Reserve Bank stock (par value), and $114 million in mutual fund investments (par value). At December 31, 2010, other equity securities included $298 million in FHLB of Atlanta stock (par value), $391 million in Federal Reserve Bank stock (par value), and $197 million in mutual fund investments (par value).

Securities AFS that were pledged to secure public deposits, repurchase agreements, trusts, and other funds had a fair value of $4.9 billion and $6.9 billion as of March 31, 2011 and December 31, 2010, respectively. Further, under The Agreements, the Company pledged its shares of Coke common stock, which is hedged with derivative instruments, as discussed in Note 11, “Derivative Financial Instruments” to the Consolidated Financial Statements. The Company has also pledged $889 million of certain trading assets and cash equivalents to secure $867 million of repurchase agreements as of March 31, 2011.

The amortized cost and fair value of investments in debt securities at March 31, 2011 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 millions)    1 Year
or Less
     1-5
Years
     5-10
Years
     After 10
Years
     Total  

Distribution of Maturities:

              

Amortized Cost

              

U.S. Treasury securities

     $2         $221         $-         $-         $223   

Federal agency securities

     62         3,245         484         38         3,829   

U.S. states and political subdivisions

     127         279         48         83         537   

MBS - agency

     338         12,740         1,773         2,828         17,679   

MBS - private

     34         318         3         -         355   

CDO securities

     -         77         -         -         77   

ABS

     203         503         4         -         710   

Corporate and other debt securities

     6         6         17         26         55   
                                            

Total debt securities

     $772         $17,389         $2,329         $2,975         $23,465   
                                            

Fair Value

              

U.S. Treasury securities

     $2         $220         $-         $-         $222   

Federal agency securities

     62         3,230         487         37         3,816   

U.S. states and political subdivisions

     129         292         49         81         551   

MBS - agency

     348         13,001         1,806         2,840         17,995   

MBS - private

     32         303         3         -         338   

CDO securities

     -         77         -         -         77   

ABS

     209         507         4         -         720   

Corporate and other debt securities

     6         6         19         25         56   
                                            

Total debt securities

     $788         $17,636         $2,368         $2,983         $23,775   
                                            

Gross realized gains and losses on sales and OTTI on securities AFS during the periods were as follows:

 

     Three Months Ended March 31  
(Dollars in millions)    2011     2010  

Gross realized gains

     $143        $15   

Gross realized losses

     (78     (13

OTTI

     (1     (1
                

Net securities gains

     $64        $1   
                

Securities in a continuous unrealized loss position at March 31, 2011 and December 31, 2010 were as follows:

     March 31, 2011  
     Less than twelve months      Twelve months or longer      Total  
(Dollars in millions)    Fair
Value
     Unrealized
Losses
     Fair
Value
     Unrealized
Losses
     Fair
Value
     Unrealized
Losses
 

Temporarily impaired securities

                 

U.S. Treasury securities

     $201         $1         $-         $-         $201         $1   

Federal agency securities

     3,402         26         -         -         3,402         26   

U.S. states and political subdivisions

     30         1         36         2         66         3   

MBS - agency

     4,770         32         -         -         4,770         32   

MBS - private

     3         -         24         2         27         2   

CDO securities

     27         -         -         -         27         -   

ABS

     -         -         13         3         13         3   

Corporate and other debt securities

     -         -         3         1         3         1   
                                                     

Total temporarily impaired securities

     8,433         60         76         8         8,509         68   

Other-than-temporarily impaired securities1

                 

MBS - private

     19         -         261         17         280         17   

ABS

     2         -         3         1         5         1   
                                                     

Total other-than-temporarily impaired securities

     21         -         264         18         285         18   
                                                     

Total impaired securities

     $8,454         $60         $340         $26         $8,794         $86   
                                                     
     December 31, 2010  
     Less than twelve months      Twelve months or longer      Total  
(Dollars in millions)    Fair
Value
     Unrealized
Losses
     Fair
Value
     Unrealized
Losses
     Fair
Value
     Unrealized
Losses
 

Temporarily impaired securities

                 

U.S. Treasury securities

     $2,010         $45         $-         $-         $2,010         $45   

Federal agency securities

     1,426         7         -         -         1,426         7   

U.S. states and political subdivisions

     45         1         35         2         80         3   

MBS - agency

     3,497         28         -         -         3,497         28   

MBS - private

     18         -         17         3         35         3   

ABS

     -         -         14         4         14         4   

Corporate and other debt securities

     -         -         3         1         3         1   
                                                     

Total temporarily impaired securities

     6,996         81         69         10         7,065         91   

Other-than-temporarily impaired securities1

                 

MBS - private

     -         -         286         31         286         31   

ABS

     4         1         -         -         4         1   
                                                     

Total other-than-temporarily impaired securities

     4         1         286         31         290         32   
                                                     

Total impaired securities

     $7,000         $82         $355         $41         $7,355         $123   
                                                     

1 Includes OTTI for which credit losses have been recorded in earnings in current or prior periods.

The Company held certain investment securities having unrealized loss positions. As of March 31, 2011, the Company did not intend to sell these securities nor was it more likely than not that the Company would be required to sell these securities before their anticipated recovery or maturity. The Company has reviewed its portfolio for OTTI in accordance with the accounting policies outlined in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

The Company records OTTI through earnings based on the credit impairment estimates generally derived from cash flow analyses. The remaining unrealized loss, due to factors other than credit, is recorded in OCI. The unrealized OTTI loss relating to private MBS as of March 31, 2011 includes purchased and retained interests from securitizations that have been other-than-temporarily impaired in current and prior periods. The unrealized OTTI loss relating to ABS is related to two securities within the portfolio that are home equity issuances and have also been other-than-temporarily impaired in prior periods. Based on the analysis of the underlying cash flows of these securities, there is no expectation of further credit impairment. In addition, the expectation of cash flows for the previously impaired ABS securities has improved such that the amount of expected credit losses was reduced, and the expected increase in cash flows will be accreted into earnings as a yield adjustment over the remaining life of the securities.

The following is a rollforward of credit losses recognized in earnings for the three months ended March 31, 2011 and 2010, related to securities for which some portion of the OTTI loss remains in AOCI:

 

(Dollars in millions)       

Balance, as of January 1, 2010

   $ 22   

Additions/reductions1

     -   
        

Balance, as of March 31, 2010

   $ 22   
        

Balance, as of January 1, 2011

   $ 20   

Additions:

  

OTTI credit losses on previously impaired securities

     1   
        

Balance, as of March 31, 2011

   $ 21   
        

1 During the three months ended March 31, 2010, the Company recognized $1 million of OTTI through earnings on debt securities in which no portion of the OTTI loss was included in OCI at any time during the period. OTTI related to these securities are excluded from these amounts.

   

All securities AFS are reviewed quarterly for OTTI. The securities that gave rise to the credit impairment recognized during the three months ended March 31, 2011 consisted of private MBS with a fair market value of $114 million at March 31, 2011. The securities impacted by credit impairment during the three months ended March 31, 2010, were primarily private MBS with a fair value of less than $1 million as of March 31, 2010. Credit impairment that is determined through the use of cash flow models is estimated using cash flows on security specific collateral and the transaction structure. 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 the Company has reviewed for credit-related OTTI, credit information is available and modeled at the loan level underlying each security, and the Company 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 three months ended March 31, 2011 and 2010, all OTTI recognized in earnings on private MBS have underlying collateral of residential mortgage 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. In addition, the Company has not purchased new private MBS in securities AFS during the three months ended March 31, 2011, and continues to reduce existing exposure primarily through paydowns.

The following table presents a summary of the significant inputs used in determining the measurement of credit losses recognized in earnings for private MBS for the three months ended March, 31, 2011 and 2010:

 

     March 31, 2011     March 31, 2010  

Current default rate

     5 - 7     2 - 6

Prepayment rate

     13 - 19     15 - 22

Loss severity

     39 - 43     37 - 46

 

Loans
Loans

Note 3 - Loans

The composition of the Company’s loan portfolio at March 31, 2011 and December 31, 2010 is shown in the following table:

 

(Dollars in millions)    March 31,
2011
     December 31,
2010
 

Commercial loans:

     

Commercial & industrial1

     $45,080         $44,753   

Commercial real estate

     6,043         6,167   

Commercial construction

     2,109         2,568   
                 

Total commercial loans

     53,232         53,488   

Residential loans:

     

Residential mortgages - guaranteed

     4,516         4,520   

Residential mortgages - nonguaranteed2

     23,443         23,959   

Home equity products

     16,382         16,751   

Residential construction

     1,208         1,291   
                 

Total residential loans

     45,549         46,521   

Consumer loans:

     

Guaranteed student loans

     4,477         4,260   

Other direct

     1,786         1,722   

Indirect

     9,469         9,499   

Credit cards

     419         485   
                 

Total consumer loans

     16,151         15,966   
                 

LHFI

     $114,932         $115,975   
                 

LHFS

     $2,165         $3,501   

1Includes $4 million of loans previously acquired from GB&T and carried at fair value at March 31, 2011 and December 31, 2010, respectively.

2Includes $453 million and $488 million of loans carried at fair value at March 31, 2011 and December 31, 2010, respectively.

During the three months ended March 31, 2011, the Company transferred $122 million in LHFI to LHFS, including $57 million of nonperforming residential mortgages that the Company intends to sell in future periods. The Company recorded an incremental charge-off of $10 million in connection with the transfer of the NPLs; the remaining loans were transferred at carrying value. Additionally, during the three months ended March 31, 2011, the Company sold $141 million in loans that had been held for investment at December 31, 2010 for approximately their carrying value. There were no other material purchases or sales of LHFI during the period.

The Company evaluates the credit quality of its loan portfolio based on internal credit risk ratings using numerous factors, including consumer credit risk scores, rating agency information, LTV ratios, collateral, collection experience, and other internal metrics. For the Commercial portfolio, the Company believes that the most appropriate credit quality indicator is the individual loan’s risk assessment expressed according to regulatory agency classification, Pass or Criticized. Criticized loans typically have a higher probability of default. As a result, Criticized loans are further categorized into accruing and nonaccruing, representing management’s assessment of the collectability of principal and interest. Ratings for individual loans are updated at least annually or more frequently if there is a material change in creditworthiness. For consumer and residential loans, the Company believes that consumer credit risk, as assessed by the FICO scoring method, is a relevant credit quality indicator. FICO scores are obtained at origination as part of the Company’s formal underwriting process, and refreshed FICO scores are obtained by the Company at least quarterly.

LHFI by credit quality indicator are shown in the tables below. Student loans and residential mortgages that were guaranteed by government agencies and for which there was nominal risk of principal loss have been excluded from the tables.

 

     Commercial & industrial      Commercial real estate      Commercial construction  
(Dollars in millions)    March 31,
2011
     December 31,
2010
     March 31,
2011
     December 31,
2010
     March 31,
2011
     December 31,
2010
 

Credit rating:

                 

Pass

     $42,543         $42,140         $4,192         $4,316         $701         $836   

Criticized accruing

     1,952         2,029         1,416         1,509         565         771   

Criticized nonaccruing

     585         584         435         342         843         961   
                                                     

Total

     $45,080         $44,753         $6,043         $6,167         $2,109         $2,568   
                                                     
     Residential mortgages -
nonguaranteed
     Home equity products      Residential construction  
     March 31,
2011
     December 31,
2010
     March 31,
2011
     December 31,
2010
     March 31,
2011
     December 31,
2010
 

Current FICO score range:

                 

700 and above

     $15,660         $15,920         $11,436         $11,673         $791         $828   

620 - 699

     4,419         4,457         2,855         2,897         241         258   

Below 6201

     3,364         3,582         2,091         2,181         176         205   
                                                     

Total

     $23,443         $23,959         $16,382         $16,751         $1,208         $1,291   
                                                     
     Consumer - other direct2      Consumer - indirect      Consumer - credit cards  
     March 31,
2011
     December 31,
2010
     March 31,
2011
     December 31,
2010
     March 31,
2011
     December 31,
2010
 

Current FICO score range:

                 

700 and above

     $1,028         $973         $6,805         $6,780         $214         $258   

620 - 699

     229         231         1,784         1,799         133         149   

Below 6201

     100         105         880         920         72         78   
                                                     

Total

     $1,357         $1,309         $9,469         $9,499         $419         $485   
                                                     

1For substantially all loans with refreshed FICO scores below 620, the borrower’s FICO score at the time of origination exceeded 620 but has since deteriorated as the loan has seasoned.

2Excludes $429 million and $413 million as of March 31, 2011 and December 31, 2010, respectively, of private-label student loans with third party insurance.

The payment status for the LHFI portfolio at March 31, 2011 and December 31, 2010 is shown in the tables below:

 

     As of March 31, 2011  
(Dollars in millions)    Accruing
Current
     Accruing
30-89 Days
Past Due
     Accruing
90+ Days
Past Due
     Nonaccruing3      Total  

Commercial loans:

              

Commercial & industrial1

     $44,379         $99         $17         $585         $45,080   

Commercial real estate

     5,587         20         1         435         6,043   

Commercial construction

     1,253         10         3         843         2,109   
                                            

Total commercial loans

     51,219         129         21         1,863         53,232   

Residential loans:

              

Residential mortgages - guaranteed

     3,433         136         947         -         4,516   

Residential mortgages - nonguaranteed2

     21,558         381         46         1,458         23,443   

Home equity products

     15,800         239         -         343         16,382   

Residential construction

     892         36         5         275         1,208   
                                            

Total residential loans

     41,683         792         998         2,076         45,549   

Consumer loans:

              

Guaranteed student loans

     3,457         397         623         -         4,477   

Other direct

     1,750         20         5         11         1,786   

Indirect

     9,383         64         1         21         9,469   

Credit cards

     400         9         10         -         419   
                                            

Total consumer loans

     14,990         490         639         32         16,151   
                                            

Total LHFI

     $107,892         $1,411         $1,658         $3,971         $114,932   
                                            

1Includes $4 million in loans carried at fair value at March 31, 2011.

2Includes $453 million in loans carried at fair value at March 31, 2011.

3Total nonaccruing loans past due 90 days or more totaled $3.0 billion at March 31, 2011. Nonaccruing loans past due fewer than 90 days include modified nonaccrual loans reported as TDRs.

 

     As of December 31, 2010  
(Dollars in millions)    Accruing
Current
     Accruing
30-89 Days
Past Due
     Accruing
90+ Days
Past Due
     Nonaccruing3      Total  

Commercial loans:

              

Commercial & industrial1

     $44,046         $111         $12         $584         $44,753   

Commercial real estate

     5,794         27         4         342         6,167   

Commercial construction

     1,595         11         1         961         2,568   
                                            

Total commercial loans

     51,435         149         17         1,887         53,488   

Residential loans:

              

Residential mortgages - guaranteed

     3,469         167         884         -         4,520   

Residential mortgages - nonguaranteed2

     21,916         456         44         1,543         23,959   

Home equity products

     16,162         234         -         355         16,751   

Residential construction

     953         42         6         290         1,291   
                                            

Total residential loans

     42,500         899         934         2,188         46,521   

Consumer loans:

              

Guaranteed student loans

     3,281         383         596         -         4,260   

Other direct

     1,692         15         5         10         1,722   

Indirect

     9,400         74         -         25         9,499   

Credit cards

     460         12         13         -         485   
                                            

Total consumer loans

     14,833         484         614         35         15,966   
                                            

Total LHFI

     $108,768         $1,532         $1,565         $4,110         $115,975   
                                            

1Includes $4 million in loans carried at fair value at December 31, 2010.

2Includes $488 million in loans carried at fair value at December 31, 2010.

3Total nonaccruing loans past due 90 days or more totaled $3.3 billion at December 31, 2010. Nonaccruing loans past due fewer than 90 days include modified nonaccrual loans reported as TDRs.

A loan is considered impaired when it is probable that the Company will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the agreement. Large commercial nonaccrual loans and certain consumer, residential, and commercial loans whose terms have been modified in a TDR are individually evaluated for impairment. Smaller-balance homogeneous loans that are collectively evaluated for impairment are not included in the following tables. Additionally, the tables below exclude student loans and residential mortgages that were guaranteed by government agencies and for which there was nominal risk of principal loss.

 

     As of March 31, 2011  
(Dollars in millions)    Unpaid
Principal
Balance
    Amortized
Cost1
    Related
Allowance
    Average
Amortized
Cost
    Interest
Income
Recognized2
 

Impaired loans with no related allowance recorded:

          

Commercial loans:

          

Commercial & industrial

     $112        $102        $-        $104        $-   

Commercial real estate

     80        64        -        57        -   

Commercial construction

     133        119        -        109        1   
                                        

Total commercial loans

     325        285        -        270        1   

Impaired loans with an allowance recorded:

          

Commercial loans:

          

Commercial & industrial

     195        175        46        172        -   

Commercial real estate

     140        120        33        118        -   

Commercial construction

     454        392        114        390        1   
                                        

Total commercial loans

     789        687        193        680        1   

Residential loans:

          

Residential mortgages - nonguaranteed

     2,803        2,452        310        2,463        22   

Home equity products

     516        486        96        407        5   

Residential construction

     228        196        25        200        2   
                                        

Total residential loans

     3,547        3,134        431        3,070        29   

Consumer loans:

          

Other direct

     12        12        2        10        -   
                                        

Total impaired loans

     $4,673        $4,118        $626        $4,030        $31   
                                        

1Amortized cost reflects charge-offs that have been recognized plus other amounts that have been applied to reduce net book balance.

2Of the total interest income recognized for the three months ended March 31, 2011, cash basis interest income was $6 million.

 

     As of December 31, 2010  
(Dollars in millions)    Unpaid
Principal
Balance
     Amortized
Cost1
     Related
Allowance
 

Impaired loans with no related allowance recorded:

        

Commercial loans:

        

Commercial & industrial

     $86         $67         $-   

Commercial real estate

     110         86         -   

Commercial construction

     67         52         -   
                          

Total commercial loans

     263         205         -   

Impaired loans with an allowance recorded:

        

Commercial loans:

        

Commercial & industrial

     123         96         18   

Commercial real estate

     103         81         19   

Commercial construction

     673         524         138   
                          

Total commercial loans

     899         701         175   

Residential loans:

        

Residential mortgages - nonguaranteed

     2,785         2,467         309   

Home equity products

     503         503         93   

Residential construction

     226         196         26   
                          

Total residential loans

     3,514         3,166         428   

Consumer loans:

        

Other direct

     11         11         2   
                          

Total impaired loans

     $4,687         $4,083         $605   
                          

1Amortized cost reflects charge-offs that have been recognized plus other amounts that have been applied to reduce net book balance.

Included in the impaired loan balances above were $2.5 billion of accruing TDRs at both March 31, 2011 and December 31, 2010, of which 86% and 85% were current, respectively. See Note 1, “Significant Accounting Policies,” to the Consolidated Financial Statements in the Company’s 2010 Annual Report on Form 10-K for further information regarding the Company’s loan impairment policy.

Nonperforming assets at March 31, 2011 and December 31, 2010 are shown in the following table:

 

(Dollars in millions)    March 31,
2011
    December 31,
2010
 

Nonperforming Assets

    

Nonaccrual/NPLs:

    

Commercial loans:

    

Commercial & industrial1

     $585        $584   

Commercial real estate

     435        342   

Commercial construction

     843        961   

Residential loans:

    

Residential mortgages - nonguaranteed2

     1,458        1,543   

Home equity products

     343        355   

Residential construction

     275        290   

Consumer loans:

    

Other direct

     11        10   

Indirect

     21        25   
                

Total nonaccrual/NPLs

     3,971        4,110   

OREO3

     534        596   

Other repossessed assets

     16        52   

Nonperforming LHFS

     47        -   
                

Total nonperforming assets

     $4,568        $4,758   
                

1Includes $4 million of loans carried at fair value at March 31, 2011 and December 31, 2010, respectively.

2Includes $19 million and $24 million of loans carried at fair value at March 31, 2011 and December 31, 2010, respectively.

3Does not include foreclosed real estate related to serviced loans insured by the FHA or the VA. Insurance proceeds due from the FHA and the VA are recorded as a receivable in other assets until the funds are received and the property is conveyed.

 

At March 31, 2011 and December 31, 2010, the Company had $29 million and $15 million, respectively, in commitments to lend additional funds to debtors owing receivables whose terms have been modified in a TDR.

Concentrations of Credit Risk

The Company does not have a significant concentration of risk to any individual client except for the U.S. government and its agencies. A geographic concentration arises because the Company operates primarily in the Southeastern and Mid-Atlantic regions of the U.S.

The major concentrations of credit risk for the Company arise by collateral type in relation to loans and credit commitments. The only significant concentration that exists is in loans secured by residential real estate. At March 31, 2011, the Company owned $45.5 billion in residential loans, representing 40% of total LHFI, and had $13.4 billion in commitments to extend credit on home equity lines and $9.9 billion in mortgage loan commitments. Of the residential loans owned at March 31, 2011, 10% were government guaranteed. At December 31, 2010, the Company owned $46.5 billion in residential real estate loans, representing 40% of total LHFI, and had $13.6 billion in commitments to extend credit on home equity lines and $9.2 billion in mortgage loan commitments. Of the residential loans owned at December 31, 2010, 10% were government guaranteed.

The Company has originated and retained $16.1 billion and $16.6 billion of certain residential loans at March 31, 2011 and December 31, 2010, respectively, that include potentially higher risk characteristics, such as an interest only feature, a high LTV ratio, or a junior lien position. Of these higher risk loans, $12.7 billion and $13.2 billion were interest only loans at origination, primarily with a ten year interest only period, including those loans that have since been modified.

SunTrust engages in limited international banking activities. The Company’s total cross-border outstanding loans were $395 million and $446 million at March 31, 2011 and December 31, 2010, respectively.

Allowance for Credit Losses
Allowance for Credit Losses

Note 4 - Allowance for Credit Losses

The allowance for credit losses consists of the ALLL and the reserve for unfunded commitments. Activity in the allowance for credit losses is summarized in the table below:

 

     Three Months Ended
March 31
 
(Dollars in millions)    2011     2010  

Balance at beginning of period

     $3,032        $3,235   

Provision for loan losses

     451        877   

Provision/(benefit) for unfunded commitments

     (4     (15

Loan charge-offs

     (615     (862

Loan recoveries

     44        41   
                

Balance at end of period

     $2,908        $3,276   
                

Components:

    

ALLL

     $2,854        $3,176   

Unfunded commitments reserve1

     54        100   
                

Allowance for credit losses

     $2,908        $3,276   
                

1The unfunded commitments reserve is separately recorded in other liabilities in the Consolidated Balance Sheets.

 

Activity in the ALLL by segment is presented in the tables below:

 

     Three Months Ended March 31, 2011  
(Dollars in millions)    Commercial     Residential     Consumer     Total  

Balance at beginning of period

     $1,303        $1,498        $173        $2,974   

Provision for loan losses

     108        322        21        451   

Loan charge-offs

     (185     (385     (45     (615

Loan recoveries

     29        5        10        44   
                                

Balance at end of period

     $1,255        $1,440        $159        $2,854   
                                
     Three Months Ended March 31, 2010  
(Dollars in millions)    Commercial     Residential     Consumer     Total  

Balance at beginning of period

     $1,353        $1,592        $175        $3,120   

Provision for loan losses

     215        601        61        877   

Loan charge-offs

     (192     (608     (62     (862

Loan recoveries

     23        5        13        41   
                                

Balance at end of period

     $1,399        $1,590        $187        $3,176   
                                

As further discussed in the Company’s 2010 Annual Report on Form 10-K, the ALLL is composed of specific allowances for certain nonaccrual loans and TDRs and general allowances grouped into loan pools based on similar characteristics. No allowance is required for loans carried at fair value. Additionally, the Company does not record an allowance for loan products that are guaranteed by government agencies, as there is nominal risk of principal loss. The Company’s LHFI portfolio and related ALLL at March 31, 2011 and December 31, 2010, respectively, is shown in the tables below:

 

     As of March 31, 2011  
     Commercial      Residential      Consumer      Total  
(Dollars in millions)    Carrying
Value
     Associated
ALLL
     Carrying
Value
     Associated
ALLL
     Carrying
Value
     Associated
ALLL
     Carrying
Value
     Associated
ALLL
 

Individually evaluated

     $972         $193         $3,134         $431         $12         $2         $4,118         $626   

Collectively evaluated

     52,256         1,062         41,962         1,009         16,139         157         110,357         2,228   
                                                                       

Total evaluated

     53,228         1,255         45,096         1,440         16,151         159         114,475         2,854   

LHFI at fair value

     4         -         453         -         -         -         457         -   
                                                                       

Total LHFI

     $53,232         $1,255         $45,549         $1,440         $16,151         $159         $114,932         $2,854   
                                                                       
     As of December 31, 2010  
     Commercial      Residential      Consumer      Total  
(Dollars in millions)    Carrying
Value
     Associated
ALLL
     Carrying
Value
     Associated
ALLL
     Carrying
Value
     Associated
ALLL
     Carrying
Value
     Associated
ALLL
 

Individually evaluated

     $906         $175         $3,166         $428         $11         $2         $4,083         $605   

Collectively evaluated

     52,578         1,128         42,867         1,070         15,955         171         111,400         2,369   
                                                                       

Total evaluated

     53,484         1,303         46,033         1,498         15,966         173         115,483         2,974   

LHFI at fair value

     4         -         488         -         -         -         492         -   
                                                                       

Total LHFI

     $53,488         $1,303         $46,521         $1,498         $15,966         $173         $115,975         $2,974   
                                                                       
Goodwill and Other Intangible Assets
Goodwill and Other Intangible Assets

Note 5 – 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. No events have occurred or circumstances changed since the annual testing of the Company’s goodwill on September 30, 2010 that caused interim testing of goodwill during the first quarter of 2011.

 

Changes in the carrying amounts of other intangible assets for three months ended March 31 are as follows:

 

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

Balance, January 1, 2010

     $104        $604        $936        $67        $1,711   

Designated at fair value (transfers from amortized cost)

     -        (604     604        -        -   

Amortization

     (9     -        -        (3     (12

MSRs originated

     -        -        66        -        66   

Changes in fair value

          

Due to fair value election

     -        -        145        -        145   

Due to changes in inputs or assumptions 1

     -        -        (45     -        (45

Other changes in fair value 2

     -        -        (65     -        (65
                                        

Balance, March 31, 2010

     $95        $-        $1,641        $64        $1,800   
                                        

Balance, January 1, 2011

     $67        $-        $1,439        $65        $1,571   

Amortization

     (8     -        -        (3     (11

MSRs originated

     -        -        88        -        88   

Sale of MSRs

     -        -        (7     -        (7

Changes in fair value

          

Due to changes in inputs or assumptions 1

     -        -        70        -        70   

Other changes in fair value 2

     -        -        (52     -        (52
                                        

Balance, March 31, 2011

     $59        $-        $1,538        $62        $1,659   
                                        

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

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

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

Certain Transfers of Financial Assets and related Variable Interest Entities

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 includes owning certain beneficial interests, including senior and subordinate debt instruments as well as equity interests, servicing or collateral manager responsibilities, and guarantee or recourse arrangements. Except as specifically noted herein, the Company is not required to provide additional financial support to any of the entities to which the Company has transferred financial assets, nor has the Company provided any support it was not otherwise obligated to provide. In accordance with the accounting guidance related to transfers of financial assets that became effective on January 1, 2010, upon completion of future transfers of assets that satisfy the conditions to be reported as a sale, the Company will derecognize the transferred assets and recognize at fair value any beneficial interests in the transferred financial assets such as trading assets or securities AFS, as well as servicing rights retained and guarantee liabilities incurred. See Note 12, “Fair Value Election and Measurement,” to the Consolidated Financial Statements, for further discussion of the Company’s fair value methodologies.

When evaluating transfers and other transactions with VIEs for consolidation under the VIE consolidation guidance, the Company first determines if it has a VI in the VIE. A VI is typically in the form of securities representing retained interests in the transferred assets and, at times, servicing rights and collateral manager fees. If the Company has a VI in the entity, it then evaluates whether or not it has both (1) the power to direct the activities that most significantly impact the economic performance of the VIE, and (2) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. If the Company determines that it does not have power over the significant activities of the VIE, an analysis of the economics of the VIE is not necessary. If it is determined that the Company does have power over the significant activities of the VIE, the Company must determine if it also has an obligation to absorb losses and/or the right to receive benefits that could potentially be significant to the VIE.

Below is a summary of transfers of financial assets to VIEs for which the Company has retained some level of continuing involvement.

Residential Mortgage Loans

The Company typically transfers first lien residential mortgage loans in conjunction with Ginnie Mae, Fannie Mae, and Freddie Mac securitization transactions whereby the loans are exchanged for cash or securities that are readily redeemed for cash proceeds and servicing rights. The securities issued through these transactions are guaranteed by the issuer and, as such, under seller/servicer agreements the Company is required to service the loans in accordance with the issuers’ servicing guidelines and standards. The Company sold residential mortgage loans to these entities, which resulted in pre-tax gains of $12 million and $85 million, including servicing rights, for the three months ended March 31, 2011 and 2010, respectively. These gains are included within mortgage production related loss in the Consolidated Statements of Income/(Loss). These gains include the change in value of the loans as a result of changes in interest rates from the time the related IRLCs were issued to the borrowers but do not include the results of hedging activities initiated by the Company to mitigate this market risk. See Note 11, “Derivative Financial Instruments,” to the Consolidated Financial Statements for further discussion of the Company’s hedging activities. As seller, the Company has made certain representations and warranties with respect to the originally transferred loans, including those transferred under Ginnie Mae, Fannie Mae, and Freddie Mac programs, which are discussed in Note 13, “Reinsurance Arrangements and Guarantees,” to the Consolidated Financial Statements.

In a limited number of securitizations, the Company has transferred loans to trusts, which previously qualified as QSPEs, sponsored by the Company. These trusts issue securities which are ultimately supported by the loans in the underlying trusts. 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 received securities are carried at fair value as either trading assets or securities AFS. As of March 31, 2011 and December 31, 2010, the fair value of securities received totaled $186 million and $193 million, respectively. At March 31, 2011, securities with a fair value of $167 million were valued using a third party pricing service. The remaining $19 million in securities consist of subordinate interests from a 2003 securitization of prime fixed and floating rate loans and were valued using a discounted cash flow model that uses historically derived prepayment rates and credit loss assumptions along with estimates of current market discount rates. The Company did not significantly modify the assumptions used to value these retained interests at March 31, 2011 from the assumptions used to value the interests at December 31, 2010. For both periods, analyses of the impact on the fair values of two adverse changes from the key assumptions were performed and the resulting amounts were insignificant for each key assumption and in the aggregate.

The Company evaluated these securitization transactions for consolidation under the VIE consolidation guidance. As servicer of the underlying loans, the Company is generally deemed to have power over the securitization. However, if a single party, such as the issuer or the master servicer, effectively controls the servicing activities or has the unilateral ability to terminate the Company as servicer without cause, then that party is deemed to have power. In almost all of its securitization transactions, the Company does not retain power over the securitization as a result of these rights held by the master servicer; therefore, an analysis of the economics of the securitization is not necessary. In certain transactions, the Company does have power as the servicer; however, the Company does not also have an obligation to absorb losses or the right to receive benefits that could potentially be significant to the securitization. The absorption of losses and the receipt of benefits would generally manifest itself through the retention of senior or subordinated interests. As of January 1, 2010, the Company determined that it was not the primary beneficiary of, and thus did not consolidate, any of these securitization entities. No events occurred during the three months ended March 31, 2011 that would change the Company’s previous conclusion that it is not the primary beneficiary of any of these securitization entities. Total assets as of March 31, 2011 and December 31, 2010 of the unconsolidated trusts in which the Company has a VI are $616 million and $651 million, respectively.

The Company’s maximum exposure to loss related to the unconsolidated VIEs in which it holds a VI is comprised of the loss of value of any interests it retains and any repurchase obligations it incurs as a result of a breach of its representations and warranties.

Separately, the Company has accrued $91 million and $81 million as of March 31, 2011 and December 31, 2010, respectively, for expected losses related to certain of its representations and warranties made in connection with certain transfers of nonconforming loans. The Company did not repurchase a significant amount of these previously transferred loans during the three months ended March 31, 2011 or during the year ended December 31, 2010.

Commercial and Corporate Loans

In 2007, the Company completed a $1.9 billion 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 conjunction with the transfer of the loans, the Company also provided commitments in the form of liquidity facilities to these conduits. In January 2010, the administrator of the conduits drew on these commitments in full, resulting in a funded loan to the conduits that was recorded on the Company’s Consolidated Balance Sheets. During the quarter ended March 31, 2011, the Company exercised its clean up call rights on the structured participation and repurchased the remaining corporate loans. In conjunction with the clean up call, the outstanding amount of the liquidity facilities and the residual interest were paid off. The exercise of the clean up call was not material to the Company’s financial condition, results of operations, or cash flows.

 

The Company has involvement with CLO entities that own commercial leveraged loans and bonds, certain of which were transferred by the Company to the CLOs. In addition to retaining certain securities issued by the CLOs, the Company also acts as collateral manager for these CLOs. The securities retained by the Company and the fees received as collateral manager represent a VI in the CLOs, which are considered to be VIEs.

The Company determined that it was the primary beneficiary of, and thus, would consolidate one of these CLOs as it has both the power to direct the activities that most significantly impact the entity’s economic performance and the obligation to absorb losses and the right to receive benefits from the entity that could potentially be significant to the CLO. In addition to fees received as collateral manager, including eligibility for performance incentive fees, and owning certain preference shares, the Company’s multi-seller conduit, Three Pillars, owns a senior interest in the CLO, resulting in economics that could potentially be significant to the VIE. On January 1, 2010, the Company consolidated $307 million in total assets and $279 million in net liabilities of the CLO entity. The Company elected to consolidate the CLO at fair value and to carry the financial assets and financial liabilities of the CLO at fair value subsequent to adoption. The initial consolidation of the CLO had a negligible impact on the Company’s Consolidated Statements of Shareholders’ Equity. Substantially all of the assets and liabilities of the CLO are loans and issued debt, respectively. The loans are classified within LHFS at fair value and the debt is included within long-term debt at fair value on the Company’s Consolidated Balance Sheets (see Note 12, “Fair Value Election and Measurement,” to the Consolidated Financial Statements for a discussion of the Company’s methodologies for estimating the fair values of these financial instruments). At March 31, 2011, the Company’s Consolidated Balance Sheets reflected $324 million of loans held by the CLO and $289 million of debt issued by the CLO. The Company is not obligated, contractually or otherwise, to provide financial support to this VIE nor has it previously provided support to this VIE. Further, creditors of the VIE have no recourse to the general credit of the Company, as the liabilities of the CLO are paid only to the extent of available cash flows from the CLO’s assets.

For the remaining CLOs, which are also considered to be VIEs, the Company has determined that it is not the primary beneficiary as it does not have an obligation to absorb losses or the right to receive benefits from the entities that could potentially be significant to the VIE. At March 31, 2010, the carrying value of the Company’s investment in the preference shares was zero due to the significant deterioration in the performance of the collateral in those vehicles; however, during the remainder of 2010, the Company observed an improvement in cash flow expectations as well as an overall steady recovery in liquidity and value in the broader CLO market. As a result, the Company was able to liquidate a number of its positions in these CLO preference shares during 2010. Its remaining preference share exposure was valued at $2 million as of March 31, 2011 and December 31, 2010. Upon liquidation of the preference shares, the Company’s only remaining involvement with these VIEs was through its collateral manager role. The Company receives fees for managing the assets of these vehicles; these fees are considered adequate compensation and are commensurate with the level of effort required to provide such services. The fees received by the Company from these entities totaled approximately $3 million for the three months ended March 31, 2011 and 2010. The fees received by the Company from these entities are recorded as trust and investment management income in the Consolidated Statements of Income/(Loss). Senior fees earned by the Company are generally not considered at risk; however, subordinate fees earned by the Company are subject to the availability of cash flows and to the priority of payments. The estimated assets and liabilities of these entities that were not included on the Company’s Consolidated Balance Sheets were both $2.0 billion at March 31, 2011, and $2.1 billion and $2.0 billion, respectively, at December 31, 2010. The Company is not obligated to provide any support to these entities, nor has it previously provided support to these entities. No events occurred during the three months ended March 31, 2011 that would change the Company’s previous conclusion that it is not the primary beneficiary of any of these securitization entities.

Student Loans

In 2006, the Company completed a securitization of government-guaranteed student loans through a transfer of loans to a securitization SPE, which previously qualified as a QSPE, and retained the related residual interest in the SPE. The Company, as master servicer of the loans in the SPE, has agreed to service each loan consistent with the guidelines determined by the applicable government agencies in order to maintain the government guarantee. The Company and the SPE have entered into an agreement to have the loans subserviced by an unrelated third party.

During the year ended December 31, 2010, the Company determined that this securitization of government-guaranteed student loans (the “Student Loan entity”) should be consolidated. Accordingly, the Company consolidated the Student Loan entity at its unpaid principal amount as of September 30, 2010, resulting in incremental total assets and total liabilities of $0.5 billion, respectively, and an immaterial impact on shareholders’ equity. The consolidation of the Student Loan entity had no impact on the Company’s earnings or cash flows that results from its involvement with this VIE. The primary balance sheet impacts from consolidating the Student Loan entity were increases in LHFI, the related ALLL, and long-term debt. In addition, the Company’s ownership of the residual interest in the SPE, previously classified in trading assets, was eliminated upon consolidation and the assets and liabilities of the Student Loan entity are recorded on a cost basis. At March 31, 2011 and December 31, 2010, the Company’s Consolidated Balance Sheets reflected $470 million and $479 million, respectively, of assets held by the Student Loan entity and $465 million and $474 million, respectively, of debt issued by the Student Loan entity.

Payments from the assets in the SPE must first be used to settle the obligations of the SPE, with any remaining payments remitted to the Company as the owner of the residual interest. To the extent that losses occur on the SPE’s assets, the SPE has recourse to the federal government as the guarantor up to a maximum guarantee amount of 97%. Losses in excess of the government guarantee reduce the amount of available cash payable to the owner of the residual interest. To the extent that losses result from a breach of the master servicer’s servicing responsibilities, the SPE has recourse to the Company; the SPE may require the Company to repurchase the loan from the SPE at par value. If the breach was caused by the subservicer, the Company has recourse to seek reimbursement from the subservicer up to the guaranteed amount. The Company’s maximum exposure to loss related to the SPE is represented by the potential losses resulting from a breach of servicing responsibilities. To date, all loss claims filed with the guarantor that have been denied due to servicing errors have either been cured or reimbursement has been provided to the Company by the subservicer. The Company is not obligated to provide any noncontractual support to this entity, nor has it to date provided any such support to this entity.

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 2008 in conjunction with its acquisition of assets from the ARS transactions discussed in Note 14, “Contingencies,” to the Consolidated Financial Statements. The assumptions and inputs considered by the Company in valuing this retained interest include prepayment speeds, credit losses, and the discount rate. Due to the seniority of the interests in the structure, current estimates of credit losses in the underlying collateral could withstand a 20% adverse change without the securities incurring a loss. In addition, while all the underlying collateral is currently eligible for repayment by the obligor, given the nature of the collateral and the current repricing environment, the Company assumed no prepayment would occur before the final maturity, which is approximately 23 years on a weighted average basis. Therefore, the key assumption in valuing these securities was the assumed discount rate, which was estimated to range from 8% to 10% over LIBOR at March 31, 2011 compared to 14% to 16% over LIBOR at December 31, 2010. This significant change in the discount rate was supported by a return to liquidity in the market for similar interests. At March 31, 2011, and December 31, 2010, a 20% adverse change in the assumed discount rate results in declines of approximately $7 million and $5 million, respectively, in the fair value of these securities.

The Company is not obligated to provide any support to these entities and its maximum exposure to loss at March 31, 2011 and December 31, 2010 was limited to the current senior interests held in trading securities, which had a fair value of $42 million as of March 31, 2011 and $25 million as of December 31, 2010. The total assets of the trust preferred CDO entities in which the Company has remaining exposure to loss was $1.3 billion at both March 31, 2011 and December 31, 2010. The Company determined that it was not the primary beneficiary of any of these VIEs under VIE consolidation guidance, as the Company lacks the power to direct the significant activities of any of the VIEs. No events occurred during the three months ended March 31, 2011 that changed either the Company’s sale accounting or the Company’s conclusions that it is not the primary beneficiary of these VIEs.

The following tables present certain information related to the Company’s asset transfers in which it has continuing economic involvement for the three months ended March 31:

 

     Three Months Ended March 31, 2011  
(Dollars in millions)    Residential
Mortgage
Loans
     Commercial
and Corporate
Loans
     Student
Loans
     CDO
Securities
     Total  

Cash flows on interests held

     $15         $-         $-         $1         $16   

Servicing or management fees

     1         3         -         -         4   
     Three Months Ended March 31, 2010  
(Dollars in millions)    Residential
Mortgage
Loans
     Commercial
and Corporate
Loans
     Student
Loans
     CDO
Securities
     Total  

Cash flows on interests held

     $14         $1         $3         $1         $19   

Servicing or management fees

     1         3         -         -         4   

 

 

Portfolio balances and delinquency balances based on accruing loans 90 days or more past due and all nonaccrual loans as of March 31, 2011 and December 31, 2010, and net charge-offs related to managed portfolio loans (both those that are owned by the Company and those that have been transferred) for three months ended March 31, 2011 and 2010 are as follows:

 

     Principal Balance      Past Due      Net Charge-offs  
(Dollars in millions)    March 31
2011
     December 31
2010
     March 31
2011
     December 31
2010
     For the Three Months Ended
March 31
 
               2011      2010  

Type of loan:

                 

Commercial

     $53,232         $53,488         $1,884         $1,904         $156         $169   

Residential

     45,549         46,521         3,074         3,122         380         603   

Consumer

     16,151         15,966         671         649         35         49   
                                                     

Total loan portfolio

     114,932         115,975         5,629         5,675         571         821   

Managed securitized loans

                 

Commercial

     2,032         2,244         54         44         -         -   

Residential

     1,179         1,245         95         96         13         11   
                                                     

Total managed loans

     $118,143         $119,464         $5,778         $5,815         $584         $832   
                                                     

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 $120.3 billion and $119.2 billion at March 31, 2011 and December 31, 2010, respectively. Related servicing fees received by the Company during the three months ended March 31, 2011 and 2010 were $86 million and $92 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.

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 three months ended March 31, 2011 and 2010, was $92 million, and $99 million, respectively. These amounts are reported in mortgage servicing related income in the Consolidated Statements of Income/(Loss).

As of March 31, 2011 and December 31, 2010, the total unpaid principal balance of mortgage loans serviced was $164.5 billion and $167.2 billion, respectively. Included in these amounts were $132.7 billion and $134.1 billion as of March 31, 2011 and December 31, 2010, respectively, of loans serviced for third parties. During the three months ended March 31, 2011, the Company sold MSRs on residential loans with an unpaid principal balance of $1.7 billion. Because MSRs are reported at fair value, the sale did not have a material impact on mortgage servicing related income.

A summary of the key characteristics, inputs, and economic assumptions used to estimate the fair value of the Company’s MSRs as of March 31, 2011 and December 31, 2010, and the sensitivity of the fair values to immediate 10% and 20% adverse changes in those assumptions are as follows:

 

(Dollars in millions)    March 31, 2011     December 31, 2010  

Fair value of retained MSRs

     $1,538        $1,439   

Prepayment rate assumption (annual)

     10     12

Decline in fair value from 10% adverse change

     $60        $50   

Decline in fair value from 20% adverse change

     102        95   

Discount rate (annual)

     12     12

Decline in fair value from 10% adverse change

     $75        $68   

Decline in fair value from 20% adverse change

     143        130   

Weighted-average life (in years)

     6.8        6.2   

Weighted-average coupon

     5.3     5.4

 

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. In addition, the sensitivities above do not include the effect of hedging activity undertaken by the Company to offset changes in the fair value of MSRs. See Note 11, “Derivative Financial Instruments,” for further information regarding these hedging transactions.

Other Variable Interest Entities

In addition to the Company’s involvement with certain VIEs, which is discussed herein under “Certain Transfers of Financial Assets and related Variable Interest Entities,” 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 CP.

The Company has determined that Three Pillars is a VIE as Three Pillars has not issued sufficient equity at risk. Previously, Three Pillars had issued a subordinated note to a third party, which would have absorbed the first dollar of loss in the event of nonpayment of any of Three Pillars’ assets. In January 2010, Three Pillars repaid and extinguished the subordinated note in full. In accordance with the VIE consolidation guidance, the Company has determined that it is the primary beneficiary of Three Pillars, as certain subsidiaries have both the power to direct the significant activities of Three Pillars and own potentially significant VIs, as discussed further herein. The assets and liabilities of Three Pillars were consolidated by the Company at their unpaid principal amounts at January 1, 2010; upon consolidation, the Company recorded an allowance for loan losses on $1.7 billion of secured loans that were consolidated at that time, resulting in a transition adjustment of less than $1 million, which is recorded in the Company’s Consolidated Statements of Shareholders’ Equity.

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 revenue for the Company, net of direct salary and administrative costs, of $16 million and $15 million for the three months ended March 31, 2011 and 2010, respectively.

At March 31, 2011 and December 31, 2010, the Company’s Consolidated Balance Sheets reflected approximately $2.3 billion and $2.4 billion, respectively, of secured loans held by Three Pillars, which are included within commercial loans, and $163 million and $99 million, respectively, of CP issued by Three Pillars, excluding intercompany liabilities, which is included within other short-term borrowings; other assets and liabilities were de minimis to the Company’s Consolidated Balance Sheets. No losses on any of Three Pillars’ assets were incurred during the three months ended March 31, 2011 and 2010.

Funding commitments extended by Three Pillars to its customers, which typically carry initial terms of one to three years and may be repaid or refinanced at any time, totaled $3.8 billion and $4.1 billion at March 31, 2011 and December 31, 2010, respectively. The majority of the commitments are backed by trade receivables and equipment loans/leases that have been originated by companies operating across a number of industries. Trade receivables and equipment loans/leases collateralize 42% and 16%, respectively, of the outstanding commitments, as of March 31, 2011, compared to 48% and 14%, respectively, as of December 31, 2010. Total assets supporting outstanding commitments have a weighted average life of 2.4 years and 2.3 years at March 31, 2011 and December 31, 2010, respectively.

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.

At March 31, 2011, Three Pillars’ outstanding CP used to fund its assets had remaining weighted average lives of 11 days and maturities through May 2, 2011. The assets of Three Pillars generally provide the sources of cash flows for the CP. However, the Company has issued commitments in the form of liquidity facilities and other credit enhancements to support the operations of Three Pillars. Due to the Company’s consolidation of Three Pillars as of January 1, 2010, these commitments are eliminated in consolidation for U.S. GAAP purposes. The liquidity commitments are revolving facilities that are sized based on the current commitments provided by Three Pillars to its customers. The liquidity facilities may generally be 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.

Due to the consolidation of Three Pillars, the Company’s maximum exposure to potential loss was $3.9 billion and $4.2 billion as of March 31, 2011 and December 31, 2010, respectively, which represents the Company’s exposure to the lines of credit that Three Pillars had extended to its clients. The Company did not recognize any liability on its Consolidated Balance Sheets related to the liquidity facilities and other credit enhancements provided to Three Pillars as of March 31, 2011 or December 31, 2010, as no amounts had been drawn, nor were any draws probable to occur, such that a loss should have been accrued.

Total Return Swaps

The Company has had involvement with various VIEs related to its TRS business, which recommenced during 2010 and is ongoing.

Under the matched book TRS business model, the VIEs purchase assets (typically loans) from the market, which are identified by third party clients, that serve as the underlying reference assets for a TRS between the VIE and the Company and a mirror TRS between the Company and its third party clients. The TRS contracts between the VIEs and the Company hedge the Company’s exposure to the TRS contracts with its third party clients. 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 reference assets, the Company provides senior financing, in the form of demand notes, to these VIEs. The TRS contracts pass through interest and other cash flows on the assets owned by the VIEs to the third parties, along with exposing the third parties to depreciation on the assets and providing them with the rights to appreciation on the assets. The terms of the TRS contracts require the third parties to post initial collateral, in addition to ongoing margin as the fair values of the underlying assets change. Although the Company has always caused the VIEs to purchase a reference asset in response to the addition of a reference asset by its third party clients, there is no legal obligation between the Company and its third party clients for the Company to purchase the reference assets or for the Company to cause the VIEs to purchase the assets.

The Company considered the VIE consolidation guidance, which requires an evaluation of the substantive contractual and non-contractual aspects of transactions involving VIEs established subsequent to January 1, 2010. The Company and its third party clients are the only VI holders. As such, the Company evaluated the nature of all VIs and other interests and involvement with the VIEs, in addition to the purpose and design of the VIEs, relative to the risks they were designed to create. The purpose and design of a VIE are key components of a consolidation analysis and any power should be analyzed based on the substance of that power relative to the purpose and design of the VIE. The VIEs were designed for the benefit of the third parties and would not exist if the Company did not enter into the TRS contracts with the third parties. The activities of the VIEs are restricted to buying and selling reference assets with respect to the TRS contracts entered into between the Company and its third party clients and the risks/benefits of any such assets owned by the VIEs are passed to the third party clients via the TRS contracts. The TRS contracts between the Company and its third party clients have a substantive effect on the design of the overall transaction and the VIEs. Based on its evaluation, the Company has determined that it is not the primary beneficiary of the VIEs, as the design of the TRS business results in the Company having no substantive power to direct the significant activities of the VIEs.

At March 31, 2011 and December 31, 2010, the Company had $1.0 billion and $972 million, respectively, in senior financing outstanding to VIEs, which were classified within trading assets on the Consolidated Balance Sheets and carried at fair value. These VIEs had entered into TRS contracts with the Company with outstanding notional amounts of $1.0 billion and $969 million at March 31, 2011 and December 31, 2010, respectively, and the Company had entered into mirror TRS contracts with its third parties with the same outstanding notional amounts. At March 31, 2011, the fair values of these TRS assets and liabilities were $38 million and $36 million, respectively, and at December 31, 2010, the fair values of these TRS assets and liabilities were $34 million and $32 million, respectively, reflecting the pass-through nature of these structures. The notional amounts of the TRS contracts with the VIEs represent the Company’s maximum exposure to loss, although such exposure to loss has been mitigated via the TRS contracts with the third parties. The Company has not provided any support to the VIE that it was not contractually obligated to for the three months ended March 31, 2011 or during the year ended December 31, 2010. For additional information on the Company’s TRS with these VIEs, see Note 11, “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. During 2011 and 2010, the Company did not provide any financial or other support to its consolidated or unconsolidated investments that it was not previously contractually required to provide.

For partnerships where the Company operates strictly as the general partner, the Company consolidates these partnerships on its Consolidated Balance Sheets. As the general partner, the Company typically guarantees the tax credits due to the limited partner and is responsible for funding construction and operating deficits. As of March 31, 2011 and December 31, 2010, total assets, which consist primarily of fixed assets and cash attributable to the consolidated partnerships, were $9 million and $8 million, respectively, and total liabilities, excluding intercompany liabilities, were $1 million. 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 de minimis as of March 31, 2011 and December 31, 2010. While the obligations of the general partner are generally non-recourse to the Company, as the general partner, the Company may from time to time step in when needed to fund deficits. During 2011 and 2010, the Company did not provide any significant amount of funding as the general partner or 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 and accounts for its limited partner interests in accordance with the accounting guidance for investments in affordable housing projects. The general partner or an affiliate of the general partner provides guarantees to the limited partner, which protects the Company from losses attributable to operating deficits, construction deficits and tax credit allocation deficits. Partnership assets of $1.1 billion in these partnerships were not included in the Consolidated Balance Sheets at March 31, 2011 and December 31, 2010. These limited partner interests had carrying values of $201 million and $202 million at March 31, 2011 and December 31, 2010, 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 $462 million and $458 million at March 31, 2011 and December 31, 2010, respectively. The Company’s maximum exposure to loss would be borne by the loss of the limited partnership equity investments along with $228 million and $222 million of loans issued by the Company to the limited partnerships at March 31, 2011 and December 31, 2010, 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 the Company owns both the limited partner and general partner interests or acts as the indemnifying party, the Company consolidates the partnerships and does not consider these partnerships VIEs. As of March 31, 2011 and December 31, 2010, total assets, which consist primarily of fixed assets and cash, attributable to the consolidated, non-VIE partnerships were $387 million and $394 million, respectively, and total liabilities, excluding intercompany liabilities, primarily representing third party borrowings, were $111 million and $123 million, respectively. See Note 12, “Fair Value Election and Measurement,” to the Consolidated Financial Statements for further discussion on the impact of impairment charges on affordable housing partnership investments.

Registered and Unregistered Funds Advised by RidgeWorth

RidgeWorth, a registered investment advisor and majority owned subsidiary of the Company, serves as the investment advisor for various private placement, common and collective funds, and registered mutual funds (collectively the “Funds”). The Company evaluates these Funds to determine if the Funds are VIEs. In February 2010, the FASB issued guidance that defers the application of the existing VIE consolidation guidance for investment funds meeting certain criteria. All of the registered and unregistered Funds advised by RidgeWorth meet the scope exception criteria and thus are not evaluated for consolidation under the guidance. Accordingly, the Company continues to apply the consolidation guidance in effect prior to the issuance of the existing guidance to interests in funds that qualify for the deferral. Further, funds that were determined to be VIEs under the previous accounting guidance and are still considered VIEs under the current accounting guidance are required to comply with the current disclosure requirements.

The Company has concluded that some of the Funds are VIEs. 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 nor expected returns of the funds. The Company’s exposure to loss is limited to the investment advisor and other administrative fees it earns and if applicable, any equity investments. The total unconsolidated assets of these funds as of March 31, 2011 and December 31, 2010 were $1.6 billion and $1.9 billion, respectively.

The Company does not have any contractual obligation to provide monetary support to any of the Funds. The Company did not provide any significant support, contractual or otherwise, to the Funds during the three months ended March 31, 2011 or during the year ended December 31, 2010.

Net Income/(Loss) Per Share
Net Income/(Loss) Per Share

Note 7 – Net Income/(Loss) Per Share

Equivalent shares of 32 million related to common stock options and common stock warrants outstanding as of March 31, 2011 and 2010 were excluded from the computations of diluted income/(loss) per average common share because they would have been anti-dilutive. Further, for EPS calculation purposes, during the three months ended March 31, 2010, the impact of dilutive securities were excluded from the diluted share count because the Company recognized a net loss available to common shareholders and the impact would have been anti-dilutive.

A reconciliation of the difference between average basic common shares outstanding and average diluted common shares outstanding for the three months ended March 31, 2011 and 2010 is included below. Additionally, included below is a reconciliation of net income/(loss) to net income/(loss) available to common shareholders.

 

     Three Months Ended
March 31
 
(In millions, except per share data)            2011                     2010          

Net income/(loss)

     $180        ($161

Series A preferred dividends

     (2     (2

U.S. Treasury preferred dividends and accretion of discount

     (66     (66

Accelerated accretion associated with repurchase of preferred stock issued to the U.S. Treasury

     (74     -   
                

Net income/(loss) available to common shareholders

     $38        ($229
                

Average basic common shares

     500        495   

Effect of dilutive securities:

    

Stock options

     1        1   

Restricted stock

     3        2   
                

Average diluted common shares

     504        498   
                

Net income/(loss) per average common share - diluted

     $0.08        ($0.46
                

Net income/(loss) per average common share - basic

     $0.08        ($0.46
                
Long-Term Debt and Capital
Long-Term Debt and Capital

Note 8 – Long-Term Debt and Capital

In March 2011, the Federal Reserve completed its review of the Company’s capital plan in connection with the CCAR. Upon completion of the review, the Federal Reserve did not object to the Company’s capital plan as originally submitted in December 2010. As a result, the Company completed, during the three months ended March 31, 2011, a $1.0 billion common stock offering and a $1.0 billion senior debt offering. The Company subsequently used the proceeds from these offerings as well as from other available funds to repurchase, on March 30, 2011, $3.5 billion of Fixed Rate Cumulative Preferred Stock, Series C, and $1.4 billion of Fixed Rate Cumulative Preferred Stock, Series D that was issued to the U.S. Treasury under the TARP’s CPP. As a result of the repurchase of Series C and D preferred stock, the Company incurred a one-time non-cash charge to net income/(loss) available to common shareholders of $74 million during the three months ended March 31, 2011, related to accelerating the outstanding discount accretion on the Series C and D preferred stock. The U.S. Treasury continues to hold warrants to purchase 11,891,280 shares of SunTrust common stock at an exercise price of $44.15 per share and 6,008,902 shares of SunTrust common stock at an exercise price of $33.70 per share.

Primarily as a result of the senior debt offering, the Company’s long term debt increased from $13.6 billion at December 31, 2010 to $14.7 billion at March 31, 2011. The $1.0 billion senior notes were issued at 3.60% and are due in 2016. In addition to the senior debt offering during the first quarter of 2011, the Company also repurchased $120 million of its fixed rate senior and junior subordinated notes that were due in 2011 and 2036.

As a result of the common stock offering, the Company’s common equity increased by $1.0 billion, net of issuance costs, and approximately 35 million new common shares were added to the Company’s outstanding common shares. Conversely, Consolidated Shareholders’ Equity decreased by $3.9 billion from December 31, 2010 primarily as a result of the repurchase of the Series C and D preferred stock, offset by the new common share issuance. The Company’s capital ratios as of March 31, 2011 and December 31, 2010 are noted below.

 

         As of March 31, 2011             As of December 31, 2010      
(Dollars in millions)    Amount      Ratio     Amount      Ratio  

SunTrust Banks, Inc.

          

Tier 1 common

     $11,811         9.05     $10,737         8.08

Tier 1 capital

     14,363         11.00        18,156         13.67   

Total capital