SunTrust 2006 Annual Report Download - page 61

additional information regarding derivative financial instruments, and Table 13, Risk Management
Derivative Financial Instruments, provides further details with respect to SunTrust’s derivative
positions.
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. The subordinated note investor, therefore, 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 of primarily 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 letters 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, which represent 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
Company’s Consolidated Balance Sheet were approximately $2.2 billion. At December 31, 2006, the
Company’s maximum exposure to loss related to these VIEs was approximately $32.2 million, which
represents the Company’s investment in preference shares. At December 31, 2005, the Company was
considered the primary beneficiary of one of these securitization vehicles and therefore, was required to
consolidate its assets and liabilities. As of December 31, 2005, the assets of the consolidated entity
totaled $317.0 million. The Company’s maximum exposure to loss for this VIE was $38.1 million as of
December 31, 2005. During 2006, the Company sold a majority of the equity in this securitization
vehicle and is no longer considered the primary beneficiary.
As part of its community reinvestment initiatives, the Company invests in multi-family affordable
housing properties throughout its footprint as a limited and/or general partner. The Company receives
affordable housing federal and state tax credits for these limited partner investments. Partnerships assets
of approximately $756.9 million and $803.0 million in partnerships where SunTrust is only a limited
partner were not included in the Consolidated Balance Sheets at December 31, 2006 and 2005,
respectively. The Company’s maximum exposure to loss for these investments totaled $330.6 million
and $357.9 million at December 31, 2006 and 2005, respectively. The Company’s maximum exposure
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