SunTrust 2006 Annual Report Download - page 134

SUNTRUST BANKS, INC.
Notes to Consolidated Financial Statements (Continued)
Letters of Credit
Letters of credit are conditional commitments issued by the Company generally to guarantee the
performance of a client to a third party in borrowing arrangements, such as commercial paper, bond
financing and similar transactions. The credit risk involved in issuing letters of credit is essentially the
same as that involved in extending loan facilities to clients and may be reduced by selling participations
to third parties. The Company issues letters of credit that are classified as financial standby,
performance standby or commercial letters of credit. Commercial letters of credit are specifically
excluded from the disclosure and recognition requirements of FIN 45.
As of December 31, 2006 and 2005, the maximum potential amount of the Company’s obligation was
$12.9 billion and $13.3 billion, respectively, for financial and performance standby letters of credit. The
Company has recorded $104.8 million and $113.8 million in other liabilities for unearned fees related to
these letters of credit as of December 31, 2006 and 2005, respectively. The Company’s outstanding
letters of credit generally have a term of less than one year but may extend longer than one year. If a
letter of credit is drawn upon, the Company may seek recourse through the client’s underlying line of
credit. If the client’s line of credit is also in default, the Company may take possession of the collateral
securing the line of credit.
Contingent Consideration
The Company has contingent payment obligations related to certain business combination transactions.
Payments are calculated using certain post-acquisition performance criteria. The potential liability
associated with these arrangements was approximately $82.8 million and $163.0 million as of
December 31, 2006 and December 31, 2005, respectively. As contingent consideration in a business
combination is not subject to the recognition and measurement provisions of FIN 45, the Company
currently has no amounts recorded for these guarantees as of December 31, 2006. If required, these
contingent payments would be payable within the next three years.
Other
In the normal course of business, the Company enters into indemnification agreements and provides
standard representations and warranties in connection with numerous transactions. These transactions
include those arising from underwriting agreements, merger and acquisition agreements, loan sales,
contractual commitments, and various other business transactions or arrangements. The extent of the
Company’s obligations under these indemnification agreements depends upon the occurrence of future
events; therefore, the Company’s potential future liability under these arrangements is not determinable.
Third party investors hold Series B Preferred Stock in STB Real Estate Holdings (Atlanta), Inc.
(“STBREH”), a subsidiary of SunTrust. The contract between STBREH and the third party investors
contains an automatic exchange clause which, under certain circumstances, requires the Series B
preferred shares to be automatically exchanged for guaranteed preferred beneficial interest in debentures
of the Company. The guaranteed preferred beneficial interest in debentures is guaranteed to have a
liquidation value equal to the sum of the issue price, $350.0 million, and an approximate yield of
8.5% per annum subject to reduction for any cash or property dividends paid to date. As of
December 31, 2006 and December 31, 2005, $538.7 million and $492.9 million were accrued in other
liabilities for the principal and interest, respectively. This exchange agreement remains in effect as long
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