SunTrust 2006 Annual Report Download - page 55

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2005. The decrease in this ratio was due primarily to loan growth funded with wholesale borrowings.
Average customer based core deposits increased $3.8 billion, or 4.1%, compared to 2005. The growth
was exclusively in higher cost certificates of deposit. Increases in rates, improved economic activity and
confidence in the financial markets may lead to disintermediation of deposits, which may need to be
replaced with higher cost borrowings in the future.
Total wholesale funding, including net short-term unsecured borrowings, net secured wholesale
borrowings and long-term debt, totaled $56.1 billion at December 31, 2006 compared to $56.3 billion at
December 31, 2005. The decrease reflects the maturities of long-term debt funding the balance sheet
throughout the year.
Net short-term unsecured borrowings, including wholesale domestic and foreign deposits and fed funds,
totaled $30.8 billion at December 31, 2006 compared to $29.9 billion at December 31, 2005. Growth in
the loan portfolio exceeded the growth in retail deposits, and the shortfall has been funded using short-
term unsecured borrowings. Outstanding loans were $121.5 billion and $114.6 billion at December 31,
2006 and December 31, 2005, respectively.
The Company maintains access to a diversified base of wholesale funding sources. These
non-committed sources include fed funds purchased, securities sold under agreements to repurchase,
negotiable certificates of deposit, offshore deposits, FHLB advances, Global Bank Note issuance and
commercial paper issuance. As of December 31, 2006, SunTrust Bank had $14.4 billion remaining
under its Global Bank Note program. The Global Bank Note program was established to expand funding
and capital sources to include both domestic and international investors. In December 2006, SunTrust
issued €1 billion of global debt in an effort to diversify its investor base. The floating rate debt was
issued at 3 month EURIBOR + 11 basis points and has a maturity of five years. In conjunction with the
debt issuance, SunTrust entered into a €1 billion cross currency swap transaction in order to hedge
currency fluctuation. Liquidity is also available through unpledged securities in the investment portfolio
and capacity to securitize loans, including single-family mortgage loans. The Company’s credit ratings
are important to its access to unsecured wholesale borrowings. Significant changes in these ratings could
change the cost and availability of these sources. The Company manages reliance on short-term
unsecured borrowings as well as total wholesale funding through policies established and reviewed by
ALCO.
The Company has a contingency funding plan that stresses the liquidity needs that may arise from
certain events such as agency rating downgrades, rapid loan growth, or significant deposit runoff. The
plan also provides for continual monitoring of net borrowed funds dependence and available sources of
liquidity. Management believes the Company has the funding capacity to meet the liquidity needs
arising from potential events.
Liquidity for SunTrust Banks, Inc. - Parent Company only (“Parent Company”) is measured comparing
sources of liquidity in unpledged securities and short-term investments relative to its short-term debt. As
of December 31, 2006, the Parent Company had $2.0 billion in such sources compared to short-term
debt of $1.4 billion. The Georgia Department of Banking and Finance limits dividends to 50% of prior
year’s net income, without its prior approval. SunTrust Bank (“the Bank”) has exceeded this limitation
since 2000 and has received the necessary approvals for dividends beyond this amount. Additionally, the
Bank is limited under Federal regulations based on prior two years’ net retained earnings plus the
current year’s net retained earnings. During 2007, the subsidiary bank can pay $1.8 billion, plus the
current year’s earnings without prior approval from the appropriate regulatory agency.
As detailed in Table 14, the Company had $104.7 billion in unused lines of credit at December 31, 2006
that were not recorded on the Company’s balance sheet. Commitments to extend credit are arrangements
42