SunTrust 2005 Annual Report Download - page 101

SUNTRUST  ANNUAL REPORT 99
NOTE  • Contingencies
On January , , the SEC issued a formal order of investigation
and the SEC Staff issued subpoenas seeking documents related to the
Company’s allowance for loan and lease losses and related matters. The
Company is cooperating, and intends to cooperate with the SEC regard-
ing this matter. In addition, the Company and its subsidiaries are parties to
numerous claims and lawsuits arising in the course of their normal busi-
ness activities, some of which involve claims for substantial amounts.
The Company’s experience has shown that the damages alleged by
plaintiffs or claimants are grossly overstated, often unsubstantiated by
legal theory, and bear no relation to the ultimate award that a court might
grant. In addition, valid legal defenses, such as statutes of limitations, fre-
quently result in judicial findings of no liability by the Company. Because
of these factors, we cannot provide a meaningful estimate of the range of
reasonably possible outcomes of claims in the aggregate or by individual
claim. However, it is the opinion of management that liabilities arising from
these claims in excess of the amounts currently accrued, if any, will not
have a material impact to the Company’s financial condition or results of
operations.
NOTE  • Business Segment Reporting
The Company uses a line of business management structure to measure
business activities. The Company has five primary functional lines of busi-
ness: Retail, Commercial, Corporate and Investment Banking, Wealth and
Investment Management, and Mortgage.
The Retail line of business includes loans, deposits, and other fee-
based services for consumers and business clients with less than  million
in sales (up to  million in sales in larger metropolitan markets). Clients
are serviced through an extensive network of traditional and in-store
branches, ATMs, the Internet and the telephone.
The Commercial line of business provides enterprises with a full array
of financial products and services including traditional commercial lending,
treasury management, financial risk management, and corporate bankcard.
This line of business primarily serves business clients between  million
and  million in annual revenues and clients specializing in commercial
real estate activities.
Corporate and Investment Banking is comprised of the following busi-
nesses: corporate banking, investment banking, capital markets businesses,
commercial leasing, and merchant banking. The corporate banking strat-
egy is focused on companies with revenues in excess of  million and is
organized along industry specialty and geographic lines.
Wealth and Investment Management provides a full array of wealth
management products and professional services to both individual and
institutional clients. Wealth and Investment Management’s primary seg-
ments include Private Wealth Management (brokerage and individual
wealth management) and Institutional Investment Management and
Administration.
The Mortgage line of business offers residential mortgage products
nationally through its retail, broker and correspondent channels. These
products are either sold in the secondary market primarily with servicing
rights retained or held as whole loans in the Company’s residential loan
portfolio. The line of business services loans for its own residential mortgage
portfolio as well as for others. Additionally, the line of business generates
revenue through its tax service subsidiary (ValuTree Real Estate Services,
LLC) and its captive reinsurance subsidiary (Cherokee Insurance Company).
In addition, the Company reports Corporate/Other which includes
the investment securities portfolio, long-term debt, capital, short-term
liquidity and funding activities, balance sheet risk management including
derivative hedging activities, office premises assets, provision for income
tax, and certain support activities not currently allocated to the aforemen-
tioned lines of business. Any internal management reporting transactions
not already eliminated in the results of the functional lines of business are
reflected in Reconciling Items.
The Company continues to augment its internal management report-
ing system. Currently, the lines of business receive match maturity funds
transfer pricing to create net interest income, occupancy expense (inclusive
of the cost to carry the assets), a fully taxable-equivalent (“FTE”) gross-up
on tax exempt loans, and various support costs such as operational support
units, human resources and corporate finance.
Future enhancements to line of business segment profitability report-
ing are expected to include: the attribution of economic capital, expected
loss in lieu of net charge offs, effective tax rates, and the allocation of cer-
tain product-related expenses incurred within production support areas,
and overhead costs. The implementation of these enhancements to the
internal management reporting system is expected to materially affect
the net income disclosed for each segment with no impact on consolidated
amounts. Whenever significant changes to management reporting meth-
odologies take place, the impact of these changes is quantified and prior
period information is reclassified wherever practicable. The Company will
reflect these reclassified changes in the current period, and will provide
updated historical year-to-date, quarterly, and annual schedules.