SunTrust 2006 Annual Report Download - page 132

SUNTRUST BANKS, INC.
Notes to Consolidated Financial Statements (Continued)
Commitments to extend credit are agreements to lend to a client who has complied with predetermined
contractual conditions. Commitments generally have fixed expiration dates and are subjected to the
Company’s credit policy standards. As of December 31, 2006 and 2005, the Company had outstanding
commitments to extend credit to its clients totaling $98.5 billion and $89.6 billion, respectively.
When-Issued Securities
The Company enters into transactions involving “when-issued securities.” When-issued securities are
commitments to purchase or sell securities authorized for issuance but not yet actually issued.
Accordingly, they are not recorded on the Consolidated Balance Sheets until issued. Risks arise from the
possible inability of counterparties to meet the terms of their contracts and from movements in securities
values and interest rates. As of December 31, 2006 and 2005, the Company did not have any
commitments to purchase or sell when-issued securities.
Variable Interest Entities and Off-Balance Sheet Arrangements
SunTrust assists in providing liquidity to select corporate clients by directing them to a multi-seller
commercial paper conduit, Three Pillars Funding LLC (“Three Pillars”). Three Pillars provides
financing for direct purchases of financial assets originated and serviced by SunTrust’s corporate clients.
Three Pillars finances this activity by issuing A-1/P-1 rated commercial paper. The result is a favorable
funding arrangement for these clients.
Three Pillars has issued a subordinated note to a third party. The holder of this note absorbs the majority
of Three Pillars’ expected losses. Therefore, the subordinated note investor is Three Pillars’ primary
beneficiary, and thus the Company is not required to consolidate Three Pillars. As of December 31,
2006 and 2005, Three Pillars had assets not included on the Company’s Consolidated Balance Sheets of
approximately $5.4 billion and $4.7 billion, respectively, consisting primarily of secured loans and
marketable asset-backed securities.
Activities related to the Three Pillars relationship generated net fee revenue for the Company of
approximately $31.0 million, $25.2 million, and $24.2 million for the years ended December 31, 2006,
2005, and 2004, respectively. These activities include: client referrals and investment recommendations
to Three Pillars; the issuing of a letter of credit, which provides partial credit protection to the
commercial paper holders; and providing a majority of the temporary liquidity arrangements that would
provide funding to Three Pillars in the event it can no longer issue commercial paper or in certain other
circumstances.
As of December 31, 2006, off-balance sheet liquidity commitments and other credit enhancements made
by the Company to Three Pillars, the sum of which represents the Company’s maximum exposure to
potential loss, totaled $8.0 billion and $697.8 million, respectively, compared to $7.2 billion and $707.1
million, respectively, as of December 31, 2005. The Company manages the credit risk associated with
these commitments by subjecting them to the Company’s normal credit approval and monitoring
processes.
The Company has significant variable interests in certain other securitization vehicles that are VIEs that
are not consolidated because the Company is not the primary beneficiary. In such cases, the Company
does not absorb the majority of the entities’ expected losses nor does it receive a majority of the
expected residual returns. At December 31, 2006 total assets of these entities not included on the
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