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SUNTRUST BANKS, INC., 2007 ANNUAL REPORT
SUNTRUST BANKS, INC., 303 PEACHTREE STREET, ATLANTA, GA 30308
WWW.SUNTRUST.COM

Table of contents

  • Page 1
    SUNTRUST BANKS, INC., 2007 ANNUAL REPORT

  • Page 2
    ... 2,507 ATMs are located primarily in Florida, Georgia, Maryland, North Carolina, South Carolina, Tennessee, Virginia, and the District of Columbia. In addition, SunTrust provides customers with a full selection of technology-based banking channels including online, 24-hour customer services centers...

  • Page 3
    ... 2007 Form 10-K that comprises the bulk of this year's annual report includes a detailed discussion of the year's financial performance. To learn about SunTrust products, services, or career opportunities, as well as for additional information of interest to investors, I invite you to visit our Web...

  • Page 4
    ... new accounts and households while reinforcing our long track record of community support. • Investments in our award-winning Treasury & Payments Solutions business boosted our competitive position in commercial products with high client appeal and attractive profit characteristics such as online...

  • Page 5
    ... in Customer Satisfaction among Home Equity Line of Credit/Loan Servicers*" in the J.D. Power and Associates 2007 Home Equity Line of Credit/Loan Servicer Study SM.* Greenwich Associates recognized SunTrust for excellence in small business client satisfaction, and our Private Wealth Management unit...

  • Page 6
    ...Deposits Total shareholders' equity Common shares outstanding (thousands) Market value of investment in common stock of The Coca-Cola Company 1 Total revenue is comprised of net interest income (fully taxable-equivalent, or "FTE") and noninterest income. 2 In this report, SunTrust presents a return...

  • Page 7
    ... Credit and Risk Officer 2 years of service WILLIAM H. ROGERS, JR. Corporate Executive Vice President Wealth and Investment Management, Mortgage, and Corporate and Investment Banking Lines of Business 28 years of service GAY O. ABBOTT Corporate Executive Vice President Commercial Line of Business...

  • Page 8
    ...Bank, North Florida · SunTrust Bank, Ocala · SunTrust Bank, Tallahassee · SunTrust Bank, Pensacola · SunTrust Bank, Gainesville · SunTrust Bank, Panama City South Florida Region · SunTrust Bank, South Florida · SunTrust Bank, Miami KEY CITY Atlanta, GA Atlanta, GA Atlanta, GA Gainesville, GA...

  • Page 9
    ... SunTrust฀Bank,฀Hillsborough฀County SunTrust฀Bank,฀Nature฀Coast SunTrust฀Bank,฀Pinellas฀County Mid-Atlantic฀Group Brooksville,฀FL SunTrust฀Bank,฀South฀Pinellas฀County Central฀Carolina฀Region St.฀Petersburg,฀FL Clearwater,฀FL฀ Richmond,฀VA...

  • Page 10
    ... Investment Co. Memphis, Tennessee Chairman of the Board Owens & Minor, Inc. Richmond, Virginia LARRY L. PRINCE 3 PATRICIA C. FRIST 5 Partner Frist Capital Partners Nashville, Tennessee Chairman of the Executive Committee Genuine Parts Company Atlanta, Georgia 8 SUNTRUST 2007 ANNUAL REPORT

  • Page 11
    ...N.E., Atlanta, Georgia 30308 (Address of principal executive offices) (Zip Code) (404) 588-7711 (Registrant's telephone number, including area code) Securities registered pursuant to section 12(b) of the Act: Title of each class Name of exchange on which provided Common Stock New York Stock Exchange...

  • Page 12
    ... to Consolidated Financial Statements ...Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...Controls and Procedures...Other Information...Directors and Executive Officers of the Registrant...Executive Compensation...Security Ownership of Certain Beneficial Owners...

  • Page 13
    ...mortgage banking, asset management, securities' brokerage, capital market services and credit-related insurance. SunTrust enjoys strong market positions in some of the highest-growth markets in the United States and operates primarily within Florida, Georgia, Maryland, North Carolina, South Carolina...

  • Page 14
    ...Tier 2 capital consists of preferred stock not qualifying as Tier 1 capital, mandatory convertible debt, limited amounts of subordinated debt, other qualifying term debt, the allowance for credit losses up to a certain amount and a portion of the unrealized gain on equity securities. The sum of Tier...

  • Page 15
    ...and may also acquire securities firms and insurance companies, subject in each case to certain conditions. The Company has elected to become a financial holding company under the GLB Act. If any of our banking subsidiaries ceases to be "well capitalized" or "well managed" under applicable regulatory...

  • Page 16
    ... supervisory group assignment). The Company's non-banking subsidiaries are regulated and supervised by various regulatory bodies. For example, SunTrust Robinson Humphrey, Inc. is a broker-dealer and investment adviser registered with the Securities and Exchange Commission ("SEC"), and the Financial...

  • Page 17
    ...SunTrust Banks, Inc., Attention: Investor Relations, P.O. Box 4418, Mail Code GA-ATL-634, Atlanta, Georgia 30302-4418. The Company's Annual Report on Form 10-K is being distributed to shareholders in lieu of a separate annual report containing financial statements of the Company and its consolidated...

  • Page 18
    ... cost of funds for lending and investing and the return earned on those loans and investments, both of which affect the net interest margin. They also can materially decrease the value of financial assets we hold, such as debt securities and mortgage servicing rights ("MSRs"). Its policies also can...

  • Page 19
    ... inexpensive source of funding. Checking and savings account balances and other forms of client deposits could decrease if clients perceive alternative investments, such as the stock market, as providing superior expected returns. When clients move money out of bank deposits in favor of alternative...

  • Page 20
    ... lower prices. This can reduce net interest income and noninterest income from fee-based products and services. In addition, the widespread adoption of new technologies could require us to make substantial capital expenditures to modify or adapt existing products and services or develop new products...

  • Page 21
    .... Company Risks Recently declining values of residential real estate may increase our credit losses, which would negatively affect our financial results. We offer a variety of secured loans, including commercial lines of credit, commercial term loans, real estate, construction, home equity, consumer...

  • Page 22
    ... business strategy and provide high quality service may suffer if we are unable to recruit or retain a sufficient number of qualified employees or if the costs of employee compensation or benefits increase substantially. Our accounting policies and methods are critical to how we report our financial...

  • Page 23
    ...reasonably assure that information required to be disclosed by SunTrust in reports we file or submit under the Exchange Act is accumulated and communicated to management, and recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms. We believe that...

  • Page 24
    ... UNRESOLVED STAFF COMMENTS The Company's headquarters is located in Atlanta, Georgia. As of December 31, 2007, SunTrust Bank owned 703 of its 1,682 full-service banking offices and leased the remaining banking offices. (See Note 8, "Premises and Equipment," to the Consolidated Financial Statements...

  • Page 25
    ... OF EQUITY SECURITIES The principal market in which the common stock of the Company is traded is the New York Stock Exchange ("NYSE"). See Item 6 and Table 17 in the MD&A for information on the high and the low closing sales prices of the SunTrust Banks, Inc. common stock ("Common Stock") on...

  • Page 26
    ...-service banking offices ATMs Full-time equivalent employees Tier 1 capital ratio Total capital ratio Tier 1 leverage ratio Total average shareholders' equity to total average assets Tangible equity to tangible assets1 Book value per common share Market price: High Low Close Market capitalization...

  • Page 27
    ... (consolidated). Effective October 1, 2004, National Commerce Financial Corporation ("NCF") merged with SunTrust. The results of operations for NCF were included with our results beginning October 1, 2004. Periods prior to the acquisition date do not reflect the impact of the merger. In Management...

  • Page 28
    ... within Florida, Georgia, Maryland, North Carolina, South Carolina, Tennessee, Virginia, and the District of Columbia. Within the geographic footprint, we operated under five business segments during 2007. These business segments were: Retail, Commercial, Corporate and Investment Banking, Wealth and...

  • Page 29
    ... we managed, (2) Three Pillars Funding, LLC, a multi-seller commercial paper conduit that we sponsor and (3) certain money market funds that we manage. The acquired securities were predominantly AAA or AA-rated at the time originally purchased by these entities. In the fourth quarter of 2007, while...

  • Page 30
    ... length of time compressing the interest spread on earning assets. In addition, the general market environment has constrained customer deposit growth, as customers shifted deposits into alternative investments and/or higher rate deposit products, accentuating the pressure on net interest margin...

  • Page 31
    ...elected to record specific financial assets and financial liabilities at fair value. These instruments include all, or a portion, of the following: debt, available for sale debt securities, adjustable rate residential mortgage portfolio loans, securitization warehouses and trading loans. As a result...

  • Page 32
    ... SFAS No. 133. This population specifically included $3.5 billion of fixed-rate Federal Home Loan Bank ("FHLB") advances and $3.3 billion of publicly-issued debt. We elected to record this debt at fair value in order to align the accounting for the debt with the accounting for the derivative without...

  • Page 33
    ... $5.4 billion of treasury bills classified as trading and $1.8 billion of 30-year fixed rate MBS classified as available for sale. In addition, we reduced wholesale overnight funding by approximately $4 billion. The 30-year fixed-rate MBS were a similar asset type to the securities that remained...

  • Page 34
    ... business restrictions on loans that are held by real estate investment trusts ("REITs"). As part of our overall balance sheet management strategies during the second quarter of 2006, we decided to no longer retain in our portfolio new originations of prime quality, mid-term adjustable rate, highly...

  • Page 35
    ..., 2007 include commercial loans. These warehouses were mark to market as of December 31, 2007 and reflect our best estimate of fair value taking into consideration the markets into which these assets will be securitized and/or sold and the credit quality of the assets held in the warehouse. The size...

  • Page 36
    ... NOW accounts Money market accounts Savings Consumer time Other time Brokered deposits Foreign deposits Funds purchased Securities sold under agreements to repurchase Interest-bearing trading liabilities Other short-term borrowings Long-term debt Total interest expense Net change in net interest...

  • Page 37
    ... deposits: NOW accounts Money market accounts Savings Consumer time Other time Total interest-bearing consumer and commercial deposits Brokered deposits Foreign deposits Total interest-bearing deposits Federal funds purchased Securities sold under agreements to repurchase Interest-bearing trading...

  • Page 38
    ... of 2007. Deposit pricing pressures along with declines in earning asset yields drove the decline, offset somewhat by the benefit of lower wholesale funding costs. We expect to continue to experience slight compression in the first quarter of 2008 as a result of the impact of the trading securities...

  • Page 39
    ... on deposit accounts Trust and investment management income Retail investment services Other charges and fees Card fees Investment banking income Trading account profits/(losses) and commissions Mortgage servicing related income (expense) Net gain on sale/leaseback of premises Mortgage production...

  • Page 40
    ... processing and software Net occupancy expense Equipment expense Marketing and customer development Operating losses over and short Other staff expense Credit and collection services Consulting and legal Amortization of intangible assets Postage and delivery Communications Visa litigation Operating...

  • Page 41
    ... loans as a part of mortgage production income. The impact of this adoption for the full year 2007 was approximately $78 million. Offsetting this increase was a $30.7 million, or 6.5%, decrease in employee benefits due to reduced headcount. The number of employees decreased from 33,599 full-time...

  • Page 42
    ...: Home equity lines Construction Residential mortgages Commercial real estate Consumer: Direct Indirect Credit card Total loans Loans held for sale Table 6 - Funded Exposures by Selected Industries1 As of December 31, 2007 As of December 31, 2006 % of Total % of Total Loans Loans Loans Loans $8,615...

  • Page 43
    ...score of 733. Prime second mortgages were $3.9 billion, or 3%, of total loans as of December 31, 2007 and are comprised of insured purchase money second liens or combo loans with a current weighted average FICO of 721. Home equity loans comprise $3.6 billion, or 3%, of the total loan portfolio as of...

  • Page 44
    ...type, in compliance with FFIEC guidelines. Commercial loans and real estate loans are typically placed on non-accrual when principal or interest is past-due for 90 days or more unless the loan is both secured by collateral having realizable value sufficient to discharge the debt in-full and the loan...

  • Page 45
    ... from the year ended December 31, 2006. The provision for loan losses was $242.1 million more than net charge-offs of $422.8 million during 2007, reflecting the downturn in the residential real estate markets and deteriorating credit conditions of the residential-mortgage and home equity portfolios...

  • Page 46
    ...the footprint. Nonaccrual home equity lines of credit ("HELOC") are classified in residential mortgages and were $135.8 million at December 31, 2007 compared with $36.6 million at December 31, 2006. The increase was driven by HELOCs originated through third-party channels, which accounted for 35% of...

  • Page 47
    ... and loans Total trading assets Trading Assets Trading assets primarily include loans and investment securities that relate to capital markets trading activities by acting as broker/dealer on behalf of our customers, and investment securities that are acquired and actively managed for corporate 35

  • Page 48
    ... The trading securities purchased during 2007 included Treasury Bills, U.S. agency notes, commercial paper, investment grade corporate bonds, and ABS. Approximately $3.0 billion of the trading securities acquired during 2007 were ABS that were purchased from certain affiliated money market funds and...

  • Page 49
    ... the size in order to reduce our use of wholesale funding. A significant part of the portfolio restructuring occurred in the first quarter of 2007 in conjunction with our early adoption of SFAS No. 159. Generally, we elected to reclassify as trading assets those available for sale securities that...

  • Page 50
    ...cost time deposits as well as customers moving balances to alternative investments such as repurchase agreements or money market mutual funds to take advantage of higher interest rates in response to the interest environment that prevailed during 2007. Average brokered and foreign deposits decreased...

  • Page 51
    ... offset by a $147.4 increase in accumulated other comprehensive income due to the transfer of approximately $15.4 billion in available for sale investment securities to trading assets. See "Adoption of Fair Value Accounting Standards" in MD&A and Note 20, "Fair Value," to the Consolidated Financial...

  • Page 52
    ... second half of 2007, our equity was negatively impacted by market valuation pre-tax write-downs of $527.7 million related to securities purchased from Three Pillars and money funds managed by Trusco. During 2007, we repurchased 10,758,059 shares for $853.4 million under a Board authorized program...

  • Page 53
    ...first quarter, effective on January 1, 2007. Examples of this recurring use of fair value include derivative instruments, available for sale and trading securities, loans held for sale accounted for at fair value, long-term debt accounted for at fair value and certain residual interests from Company...

  • Page 54
    ... for certain types of loans and securities, which results in diminished observability of both actual trades and assumptions that would otherwise be available to value these instruments. The distressed market conditions, that began in the third quarter of 2007 and have continued after year-end, have...

  • Page 55
    ... curve based on long term, high quality fixed income debt instruments available as of the measurement date, December 31, 2007. This assumption is updated every year for each plan. The discount rate for each plan is reset annually on the measurement date to reflect current market conditions. If we...

  • Page 56
    ... Manager and support staff. These Risk Managers, while reporting directly to their respective line of business or function, facilitate communications with corporate risk functions and execute the requirements of the enterprise risk management framework and policies. Corporate Risk Management works...

  • Page 57
    ...and foreign exchange derivative products. As credit risk is an essential component of many of the products and services we provide to our clients, the ability to accurately measure and manage credit risk is integral to maintain both the long-run profitability of our lines of business and our capital...

  • Page 58
    ... also exposed to market risk in our trading activities, MSRs, loan warehouse and pipeline, debt carried at fair value and equity holdings of The Coca-Cola Company common stock. The ALCO meets regularly and is responsible for reviewing our open positions and establishing policies to monitor and limit...

  • Page 59
    ... fair value accounting for these interest rate swaps and related underlying debt. Hence, the above profile includes the recognition of the net interest payments from these swaps, while the profile below does not include the net interest payments. Financial Reporting Perspective Rate Change Estimated...

  • Page 60
    ... accounting. The remainder of our actively traded securities, other than corporate treasury trading securities, are designed to support customer requirements through our broker-dealer subsidiary. Product offerings to customers include debt securities, loans traded in the secondary market, equity...

  • Page 61
    ... Bank would fund under the letters of credit. Certain provisions of long-term debt agreements and the lines of credit prevent us from creating liens on, disposing of, or issuing (except to related parties) voting stock of subsidiaries. Further, there are restrictions on mergers, consolidations...

  • Page 62
    ... and/or dedesignated as derivatives that qualify for hedge accounting. The derivatives were designated as cash flow hedges of floating rate debt, certificates of deposit, commercial loans, and tax exempt bonds. The $33.7 million of net gains, net of taxes, recorded in accumulated other comprehensive...

  • Page 63
    ... commercial loans. Forward contracts are designated as fair value hedges of closed mortgage loans which are held for sale. Represents interest rate swaps and options designated as cash flow hedges of floating rate certificates of deposit, Global Bank Notes, FHLB Advances and other variable rate debt...

  • Page 64
    ... purposes, but which are not in designated hedging relationships under SFAS No. 133, are not incorporated in this table. The hedging activity for our mortgage loans held for sale is excluded from this table. With the 2007 adoption of SFAS No. 157 and SFAS No. 159, we no longer have unrealized gains...

  • Page 65
    ... time the customer locks in the rate on the anticipated loan and the time the loan is sold on the secondary market, which is typically 90-150 days. We manage interest rate risk predominantly with interest rate swaps, futures and forward sale agreements, where the changes in value of the forward sale...

  • Page 66
    ... in share price of The Coca-Cola Company common stock at December 31, 2007 would result in a decrease, net of deferred taxes, of approximately $166 million in accumulated other comprehensive income. OFF-BALANCE SHEET ARRANGEMENTS We assist in providing liquidity to select corporate clients by...

  • Page 67
    ...the subordinated note funding account below its required level or if the note is reduced to a size deemed insufficient to support the growth of assets in Three Pillars, we would likely be required to consolidate Three Pillars, if an amendment of the current subordinate note or a new subordinate note...

  • Page 68
    ...subordinated note reserve account, which is the amount outstanding on the subordinated note agreement. During the year ended December 31, 2007, Three Pillars' qualified ABS were funded by our liquidity facility supporting those ABS (for a discussion of the nature of these securities see the "Trading...

  • Page 69
    ... obligations at December 31, 2007, except for pension and postretirement benefit plans, included in Note 16, "Employee Benefit Plans," to the Consolidated Financial Statements. Table 16 - Contractual Commitments As of December 31, 2007 1-3 3-5 After years years 5 years $8,005 2,125 351 2 135...

  • Page 70
    ...-service banking offices ATMs Full-time equivalent employees Tier 1 capital ratio Total capital ratio Tier 1 leverage ratio Total average shareholders' equity to average assets Tangible equity to tangible assets Book value per common share Market Price: High Low Close Market capitalization Average...

  • Page 71
    ... Money market accounts Savings Consumer time Other time Total interest-bearing consumer and commercial deposits Brokered deposits Foreign deposits Total interest-bearing deposits Funds purchased Securities sold under agreements to repurchase Interest-bearing trading liabilities Other short-term...

  • Page 72
    ... The tax benefit was the result of the lower than anticipated fourth quarter earnings. BUSINESS SEGMENTS In 2007, we had five primary lines of business ("LOBs"): Retail, Commercial, Corporate and Investment Banking ("CIB"), Wealth and Investment Management, and Mortgage. In this section, the Company...

  • Page 73
    ... group to offer a full array of loan and deposit products to clients. PWM includes SunTrust Investment Services which operates across the Company's footprint and offers discount/online and full service brokerage services to individual clients. GenSpring provides family office solutions to ultra high...

  • Page 74
    ...operations group; the Corporate Real Estate group, which manages the Company's facilities; Marketing, which handles advertising, product management, customer information functions, and internet banking; BankCard, which handles credit card issuance and merchant discount relationships; SunTrust Online...

  • Page 75
    ...) Retail Commercial Corporate and Investment Banking Mortgage Wealth and Investment Management Corporate Other and Treasury Reconciling Items The following table for our reportable business segments compares average loans and average deposits for the twelve months ended December 31, 2007 to the...

  • Page 76
    ... structured asset sale of corporate loans in the first quarter of 2007, partially offset by growth in corporate banking loans and lease financing assets. Total deposits increased $469.3 million, or 15.1%, driven by an increase in higher cost corporate money market accounts. Deposit related net...

  • Page 77
    ... due to lower production income, partially offset by higher servicing and insurance income. Production income declined $103.9 million due to net valuation losses of $165.4 million in the second half of 2007 on loans held for sale primarily due to market volatility and mortgage spread widening. These...

  • Page 78
    ...$64.3 million on trading assets and long-term corporate debt carried at fair value during 2007. These factors were partially offset by a $116.2 million market valuation write-down on securities consolidated in the third quarter of 2007 in anticipation of closing the Private Fund. Net interest income...

  • Page 79
    ..., while other deposit products, specifically DDA, money market, and savings, declined. Noninterest income improved $313.4 million, or 9.9%, compared to 2005. The increase was driven by strong mortgage production and servicing income and gain on the sale of the Bond Trustee business. Noninterest...

  • Page 80
    ...Corporate and Investment Banking's net income for the year ended December 31, 2006 was $190.2 million, a decrease of $58.3 million, or 23.5%. The decrease was primarily driven by increased provision expense and decline in corporate loan spreads offset in part by strong growth in Debt Capital Markets...

  • Page 81
    ...average securities available for sale, an increase in short-term borrowing costs due to an increase in the size of these borrowings needed to fund earning asset growth, as well as a significant rise in short-term interest rates over the past year. Total assets decreased $2.1 billion, or 6.5%, mainly...

  • Page 82
    ...equity Impact of excluding net realized and unrealized securities gains/losses and The Coca-Cola Company dividend Return on average realized common shareholders' equity2 Total shareholders' equity Goodwill Other intangible assets including mortgage servicing rights ("MSRs") Mortgage servicing rights...

  • Page 83
    ...common shareholders' equity Impact of excluding net realized and unrealized securities gains/losses and The Coca-Cola Company dividend Return on average realized common shareholders' equity2 Total shareholders' equity Goodwill Other intangible assets including mortgage servicing rights ("MSRs") MSRs...

  • Page 84
    ... to the authority and terms of the applicable stock option plan rather than pursuant to publicly announced share repurchase programs. For the year ended December 31, 2007, the following shares of SunTrust common stock were surrendered by participants in SunTrust's employee stock option plans: 12,662...

  • Page 85
    ... in millions) 1 Year or Less Total Distribution of Maturities: Amortized Cost U.S. Treasury and other U.S. government agencies and corporations States and political subdivisions Asset-backed securities1 Mortgage-backed securities1 Corporate bonds Total debt securities Fair Value U.S. Treasury and...

  • Page 86
    ... After Total 1 Year Years 5 Years $43,090.6 13,776.7 $56,867.3 $16,833.7 9,860.6 $26,694.3 $22,533.4 3,349.0 $25,882.4 $3,723.5 567.1 $4,290.6 (Dollars in millions) Loan Maturity Commercial and commercial real estate1 Real estate - construction Total Interest Rate Sensitivity Selected loans with...

  • Page 87
    ... Public Accounting Firm The Board of Directors and Shareholders of SunTrust Banks, Inc. We have audited the accompanying consolidated balance sheet of SunTrust Banks Inc. and subsidiaries (the Company) as of December 31, 2007, and the related consolidated statements of income, shareholders' equity...

  • Page 88
    ... Public Accounting Firm To the Board of Directors and Shareholders of SunTrust Banks, Inc.: In our opinion, the consolidated balance sheet as of December 31, 2006 and the related consolidated statements of income, shareholders' equity and cash flows for each of two years in the period ended...

  • Page 89
    ... respects, effective internal control over financial reporting as of December 31, 2007, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of SunTrust Banks, Inc. and...

  • Page 90
    ... Service charges on deposit accounts Trust and investment management income Retail investment services Other charges and fees Card fees Investment banking income Trading account profits/(losses) and commissions Mortgage servicing related income Mortgage production related income Net gain on sale...

  • Page 91
    ...2006) Foreign deposits Total deposits Funds purchased Securities sold under agreements to repurchase Other short-term borrowings Long-term debt (debt at fair value: $7,446,980 as of December 31, 2007) Acceptances outstanding Trading liabilities Other liabilities Total liabilities Preferred stock, no...

  • Page 92
    ... of stock options and stock compensation element expense Acquisition of treasury stock Performance and restricted stock activity Amortization of compensation element of performance and restricted stock Issuance of stock for employee benefit plans Other activity Balance, December 31, 2005 Net income...

  • Page 93
    ...in foreign and brokered deposits Net (decrease) increase in funds purchased and other short-term borrowings Proceeds from the issuance of long-term debt Repayment of long-term debt Proceeds from the issuance of preferred stock Proceeds from the exercise of stock options Acquisition of treasury stock...

  • Page 94
    ... company with its headquarters in Atlanta, Georgia. SunTrust's principal banking subsidiary, SunTrust Bank, offers a full line of financial services for consumers and businesses through its branches located primarily in Florida, Georgia, Maryland, North Carolina, South Carolina, Tennessee, Virginia...

  • Page 95
    ... earnings at the time of origination for newly-originated loans held for sale that are recorded at fair value. Fair value is derived from observable current market prices, when available, and includes loan servicing value. When market data is not available, the Company estimates fair value based on...

  • Page 96
    ...the time of origination for newly originated loans that are accounted for at fair value. Allowance for Loan and Lease Losses The Company's allowance for loan and lease losses is the amount considered adequate to absorb probable losses within the portfolio based on management's evaluation of the size...

  • Page 97
    ... rights to service mortgage loans for others whether the MSRs are acquired through purchase or loan origination. Purchased MSRs are capitalized at cost. For loans originated and sold where the MSRs have been retained, the Company records MSRs based on their estimated fair value at the time of sale...

  • Page 98
    ... BANKS, INC. Notes to Consolidated Financial Statements (Continued) estimates of key assumptions, including credit losses, loan repayment speeds and discount rates commensurate with the risks involved. Unrealized gains and losses on retained interests classified as available for sale are shown, net...

  • Page 99
    ... basis of accounting. Examples of these include derivative instruments, available for sale and trading securities, loans held for sale, long-term debt, and certain residual interests from Company-sponsored securitizations. Additionally, fair value is used on a non-recurring basis to evaluate assets...

  • Page 100
    ... BANKS, INC. Notes to Consolidated Financial Statements (Continued) disclosure purposes. Examples of these non-recurring uses of fair value include certain loans held for sale accounted for on a lower of cost or market basis, MSRs, goodwill, and long-lived assets. Fair value is defined as the price...

  • Page 101
    ... substantive agreement with the employee since the postretirement benefit obligation is not effectively settled through the purchase of the endorsement split-dollar life insurance policy. Also, in March 2007, the EITF reached a consensus on EITF Issue No. 06-10, "Accounting for Deferred Compensation...

  • Page 102
    ... in a closed loan ("pull-through rates"). These pull-through rates are based on the Company's historical data, which is a significant unobservable assumption. Prior accounting requirements under the EITF No. 02-03, "Accounting for Contracts involved in Energy Trading and Risk Managements Activities...

  • Page 103
    ..., as long as the parent retains controlling interest, the transaction is considered an equity transaction. SFAS No. 160 is effective for annual periods beginning after December 15, 2008. The Company is currently evaluating the impact that this standard will have on its financial position and results...

  • Page 104
    ... Various member owned interests in GenSpring Family Offices, LLC (formerly "Asset Management Advisors, LLC") 2 Contingent consideration paid to the former owners of Prime Performance , Inc. 3/12/07 ("Prime Performance"), a Company formerly acquired by National Commerce Financial Corporation ("NCF...

  • Page 105
    ... Three Pillars Funding, LLC, a multi-seller commercial paper conduit sponsored by the Company and (iii) certain money market funds managed by Trusco. The acquired securities were predominantly AAA or AA-rated at the time they were originally purchased by these entities. In the fourth quarter of 2007...

  • Page 106
    ...Asset-backed securities Mortgage-backed securities Corporate bonds Common stock of The Coca-Cola Company Other securities1 Total securities available for sale 1 Includes $792.4 million and $729.4 million at December 31, 2007 and December 31, 2006, respectively, of Federal Home Loan Bank and Federal...

  • Page 107
    ... first quarter of 2007, approximately $16.0 billion in available for sale securities were transferred to trading assets in conjunction with the Company's comprehensive review of its balance sheet management strategies and adoption of SFAS No. 159. Market changes in interest rates and market changes...

  • Page 108
    ... quarter of 2007, the Company transferred $837.4 million in loans held for sale to loans held for investment in response to liquidity issues in the market with respect to these loans. In accordance with SFAS No. 65, "Accounting for Certain Mortgage Banking Activities," the loans were transferred...

  • Page 109
    ...expense for the years ended December 31, 2007, 2006, and 2005 totaled $216.2 million, $209.4 million and $211.9 million, respectively. The Company manages certain community development projects that generate tax credits and help it meet the requirements of the Community Reinvestment Act. The related...

  • Page 110
    ... unit below its carrying value. The changes in the carrying amount of goodwill by reportable segment for the twelve months ended December 31, 2007 and 2006 are as follows: Corporate and Wealth and Corporate Investment Investment Other and Commercial Banking Mortgage Management Treasury (Dollars in...

  • Page 111
    SUNTRUST BANKS, INC. Notes to Consolidated Financial Statements (Continued) The changes in carrying amounts of other intangible assets for the twelve months ended December 31 are as follows: Core Deposit Intangible $324,743 (84,214) 1,085 $241,614 (68,959) $172,655 Mortgage Servicing Rights Other ...

  • Page 112
    ... mortgage loans, student loans, commercial loans, including commercial mortgage loans, as well as debt securities. Interests that continue to be held by the Company ("interests held") in securitized assets, including debt securities, are recorded as securities available for sale or trading...

  • Page 113
    ... investment grade securities. As of December 31, 2006, the Company had interests that continued to be held of $9.6 million classified as securities available for sale and $47.0 million classified as trading assets. For residual interests for which there is no quoted market price, management reviews...

  • Page 114
    ... million, respectively. These amounts are reported in mortgage servicing related income in the Consolidated Statements of Income. Since SunTrust does not discretely hedge its MSRs portfolio, the Company actively manages the size of MSRs and evaluates the market value in relation to holding MSRs. The...

  • Page 115
    SUNTRUST BANKS, INC. Notes to Consolidated Financial Statements (Continued) Note 12 - Long-Term Debt Long term debt at December 31 consisted of the following: (Dollars in thousands) 2007 2006 Parent Company Only Senior Floating rate notes due 2007 based on three month LIBOR + .08% 5.05% notes due...

  • Page 116
    ...several long-term debt agreements prevent the Company from creating liens on, disposing of, or issuing (except to related parties) voting stock of subsidiaries. Further, there are restrictions on mergers, consolidations, certain leases, sales or transfers of assets, minimum shareholders' equity, and...

  • Page 117
    SUNTRUST BANKS, INC. Notes to Consolidated Financial Statements (Continued) Note 14 - Capital The Company is subject to various regulatory capital requirements which involve quantitative measures of the Company's assets. 2007 Amount Ratio $11,425 16,994 2006 Amount Ratio 7.72% 11.11 7.23 7.97 10.85 ...

  • Page 118
    SUNTRUST BANKS, INC. Notes to Consolidated Financial Statements (Continued) On October 24, 2006, the Company repurchased 9,926,589 shares of its common stock under an ASR agreement. The Company paid $875 million (gross of settlement costs) for the repurchased shares. In March 2007, the Company ...

  • Page 119
    ... on available for sale securities, derivatives, and benefit obligations Leasing Employee benefits Mortgage Intangible assets Fixed assets Loans Undistributed dividends Other Gross Deferred Tax Liabilities Net Deferred Tax Liability SunTrust and its subsidiaries file consolidated income tax returns...

  • Page 120
    ... performance in relation to earnings goals established by the Compensation Committee of the Company's Board of Directors. Compensation expense related to the Management Incentive Plan and PUP for the years ended December 31, 2007, 2006 and 2005 totaled $48.5 million, $72.6 million and $57.3 million...

  • Page 121
    ... BANKS, INC. Notes to Consolidated Financial Statements (Continued) issued as restricted stock. Stock options are granted at a price which is no less than the fair market value of a share of SunTrust common stock on the grant date and may be either tax-qualified incentive stock options or non...

  • Page 122
    ... 11,834,728 $43.43 56.49 72.76 $62.63 3.48 4.01 4.20 4.06 The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company's closing stock price on the last trading day of 2007 and the exercise price, multiplied by the number of 110

  • Page 123
    ... SunTrust maintains a funded, noncontributory qualified retirement plan covering employees meeting certain service requirements. The plan provides benefits based on salary and years of service. Effective January 1, 2008, Retirement Plan participants who are Company employees as of December 31, 2007...

  • Page 124
    ... 2008 based on the well funded status as of December 31, 2007. On October 1, 2004, SunTrust acquired NCF. Prior to the acquisition, NCF sponsored a funded qualified retirement plan, an unfunded nonqualified retirement plan for some of its participants, and certain postretirement health benefits...

  • Page 125
    ... discounting each year's payments by the spot rate. This assumption is reviewed by the SunTrust Benefit Plan Committee and updated every year for each plan. A rate of compensation growth is used to determine future benefit obligations for those plans whose benefits vary by pay. Based on 2007 salary...

  • Page 126
    ... 2007 and 2006, there was no SunTrust common stock held in the SunTrust and NCF Retirement Plans. The SunTrust Benefit Plan Committee, which includes several members of senior management, establishes investment policies and strategies and formally monitors the performance of the funds on a quarterly...

  • Page 127
    ...BANKS, INC. Notes to Consolidated Financial Statements (Continued) Equity securities do not include SunTrust common stock for the Other Postretirement Benefit Plans. Funded Status The funded status of the plans, as of December 31, was as follows: Retirement Benefits 2007 2006 Supplemental Retirement...

  • Page 128
    ... not required) during 2008 based on the funded status of the Plan and contribution limitations under the Employee Retirement Income Security Act of 1974 (ERISA). The expected benefit payments for the Supplemental Retirement Plan will be paid directly from SunTrust corporate assets. The 2008 expected...

  • Page 129
    ... asset value that incorporates gains and losses over a period of years. Utilization of market value of assets provides a more realistic economic measure of the plan's funded status and cost. Assumed discount rates and expected returns on plan assets affect the amounts of net periodic benefit cost...

  • Page 130
    ... such net value is a liability to the Company. The net market position with a particular counterparty represents a reasonable measure of credit risk when the net market position is an asset to the Company and there is a legally enforceable master netting agreement, including a legal right of offset...

  • Page 131
    ... resulting from hedge accounting remained to be amortized. See Note 20, "Fair Value," to the Consolidated Financial Statements for more information. The Company maintains a risk management program to manage interest rate risk and pricing risk associated with its mortgage lending activities. The risk...

  • Page 132
    ... include interest rate swaps, equity derivatives, credit default swaps, futures, options, and foreign currency contracts. The Company maintains positions in interest rate swaps for its own trading account as part of its overall interest rate risk management strategy. Foreign exchange derivative...

  • Page 133
    ... renewal requires credit risk management approval. During the year ended December 31, 2007, there were no write-downs and no downgrades of Three Pillars' assets; however, see the following discussion relating to the liquidity commitments for trading losses taken by the Company for securities...

  • Page 134
    ... Fund as part of its actively managed trading portfolio. Due to increased losses within the collateral underlying these securities, market valuation write-downs of approximately $132 million were recorded during 2007. SunTrust is the managing general partner of a number of non-registered investment...

  • Page 135
    ... Inc. common stock to its financial institution members, including the Company, in contemplation of an initial public offering in 2008. In addition, the Company is a defendant, along with Visa U.S.A. Inc. and MasterCard International (the "Card Associations"), as well as several other banks, in one...

  • Page 136
    ... 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, where applicable. Loan Sales SunTrust Mortgage, Inc. ("STM"), a consolidated subsidiary of SunTrust, originates and...

  • Page 137
    .... SunTrust Investments Services, Inc., ("STIS") and SunTrust Robinson Humphrey, Inc. ("STRH"), broker-dealer affiliates of SunTrust, use a common third party clearing broker to clear and execute their customers' securities transactions and to hold customer accounts. Under their respective agreements...

  • Page 138
    ...to extend credit on home equity lines and $28.2 billion in mortgage loan commitments. The Company originates and retains certain residential mortgage loan products that include features such as interest only loans, high loan to value loans and low initial interest rate loans. As of December 31, 2007...

  • Page 139
    ... the Company elected to record specific financial assets and financial liabilities at fair value. These instruments include all, or a portion, of the following: debt, available for sale debt securities, adjustable rate residential mortgage portfolio loans, securitization warehouses and trading loans...

  • Page 140
    ...of trading securities for balance sheet management purposes. In addition, during 2007, the Company entered into $4.6 billion of FHLB letters of credit that it elected to record at fair value and used these letters of credit to satisfy customer collateral and deposit requirements. Mortgage Loans Held...

  • Page 141
    ... servicing value, net of related hedging costs, as part of the fair value of the loan is captured in mortgage production income. In the course of normal business, the Company may elect to transfer certain fair valued mortgage loans held for sale to mortgage loans held for investment. During the year...

  • Page 142
    ...value hierarchy. Other than derivative instruments, the majority of the securities in the Company's trading and available for sale portfolios, along with the publicly-issued debt are priced via independent providers, whether those are pricing services or quotations from market-makers in the specific...

  • Page 143
    ... - 7,446,980 19,603 Assets Trading assets Securities available for sale Loans held for sale Loans Liabilities Brokered deposits Trading liabilities Long-term debt Other liabilities, net 1 2 Changes in fair value for the twelve months ended December 31, 2007 exclude accrued interest for the period...

  • Page 144
    ... quarter the Company transferred $716.0 million of mortgage loans held for sale and $219.4 million of mortgage loans held for investment into Level 3 based on secondary market illiquidity and the resulting reduction of available observable market data for certain non-agency loans requiring increased...

  • Page 145
    SUNTRUST BANKS, INC. Notes to Consolidated Financial Statements (Continued) rates observable in the market, is highly dependent on the ultimate closing of the loans. These "pull-through" rates are based on the Company's historical data and reflect an estimate of the likelihood of a commitment that ...

  • Page 146
    ...,508 2,160,385 Financial assets Cash and cash equivalents Trading assets Securities available for sale Loans held for sale Loans, net Financial liabilities Consumer and commercial deposits Brokered deposits Foreign deposits Short-term borrowings Long-term debt Trading liabilities $5,642,601 $5,307...

  • Page 147
    ... structure to measure business activities. During 2007, the Company had five primary lines of business ("LOBs"): 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...

  • Page 148
    ...subsidiary (Twin Rivers Insurance Company, formerly Cherokee Insurance Company). In addition, the Company reports a Corporate Other and Treasury segment which includes the investment and trading securities portfolio, long-term debt, capital, short-term liquidity and funding activities, balance sheet...

  • Page 149
    ... Twelve Months Ended December 31, 2007 Corporate and Investment Commercial Banking Wealth and Investment Management Corporate Other and Treasury (Dollars in thousands) Retail Mortgage Reconciling Items Consolidated Average total assets Average total liabilities Average total equity Net interest...

  • Page 150
    ... income at December 31 were as follows: (Dollars in thousands) 2007 2006 2005 Unrealized net gain on available for sale securities Unrealized net gain/(loss) on derivative financial instruments Employee benefit plans Total accumulated other comprehensive income 1,693,947 1,302,588 971,817...

  • Page 151
    ...2007 2006 2005 Income From subsidiaries: Dividends - substantially all from SunTrust Bank Interest on loans Trading account profits/(losses) and commissions Other income Total income Expense Interest on short-term borrowings Interest on long-term debt Employee compensation and benefits Service fees...

  • Page 152
    ... from: Subsidiaries Non-affiliated companies Long-term debt (debt at fair value: $1,118,974 at December 31, 2007) Trading liabilities Other liabilities Total liabilities Preferred stock, no par value Common stock, $1.00 par value Additional paid in capital Retained earnings Treasury stock, at cost...

  • Page 153
    ...estate investment trust security Proceeds from the issuance of long-term debt Repayment of long-term debt Proceeds from the issuance of preferred stock Proceeds from the exercise of stock options Acquisition of treasury stock Excess tax benefits from stock option compensation Dividends paid Net cash...

  • Page 154
    ... rules and forms, and such information is accumulated and communicated to management to allow timely decisions regarding required disclosures. Changes in Internal Control over Financial Reporting Management of the Company has evaluated, with the participation of the Company's Chief Executive Officer...

  • Page 155
    SUNTRUST BANKS, INC. Notes to Consolidated Financial Statements (Continued) CEO and CFO Certifications The Company's Chief Executive Officer and Chief Financial Officer have filed with the Securities and Exchange Commission the certifications required by Section 302 of the Sarbanes-Oxley Act of 2002...

  • Page 156
    ... Executive Officers," "Summary Compensation Table," "Grants and Plan-Based Awards," "Option Exercises and Stock Vested," "Outstanding Equity Awards at Fiscal Year-end," "Pension Benefits," "Nonqualified Deferred Compensation," "Potential Payments Upon Termination of Change in Control"), "Director...

  • Page 157
    ... with the issuance of Subordinated Debt Securities, incorporated by reference to Exhibit 4.4 to Registration Statement No. 333-25381. Form of Indenture between SunTrust Bank Holding Company (as successor in interest to Crestar Financial Corporation) and The Chase Manhattan Bank, as Trustee, dated as...

  • Page 158
    ... named therein, dated as of March 27, 1997, incorporated by reference to Exhibit 4.3 of the Registration Statement on Form S-4 of National Commerce Bancorporation (File No. 333- 29251). Assignment and Assumption Agreement between National Commerce Financial Corporation and SunTrust Banks...

  • Page 159
    ... as of September 10, 2007 by and between SunTrust Banks, Inc. and U.S. Bank National Association, as Trustee, incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K filed on September 10, 2007. SunTrust Banks, Inc. Management Incentive Plan, amended and restated as...

  • Page 160
    ... Exhibit 10.40 to Registrant's 2003 Annual Report on Form 10-K (File No. 001-08918) and Exhibit 10.38 to Registrant's 1998 Annual Report on Form 10-K (File No. 001-08918). 2003 Stock Incentive Plan of National Commerce Financial Corporation, and amendment, incorporated by reference to Exhibit 4.3 to...

  • Page 161
    ... 16 2007 National Commerce Financial Corporation Supplemental Executive Retirement Plan, and amendments effective December 31, 2004, January 1, 2005 and November 14, 2006, incorporated by reference to Exhibit 10.3 to National Commerce Financial Corporation's 2001 Annual Report on Form 10- K (File No...

  • Page 162
    ...Description National Commerce Financial Bancorporation Deferred Compensation Plan, effective January 1, 1999, and amendments effective January 1, 2005 and November 14, 2006, incorporated by reference to Exhibit 10.19 to National Commerce Financial Corporation's 1998 Annual Report on Form 10-K (File...

  • Page 163
    ... 10.33 Description National Commerce Financial Corporation Directors' Fees Deferral Plan and First Amendment, effective January 1, 2002, and amendments effective January 1, 2005 and November 14, 2006, incorporated by reference to Exhibit 10.64 to Registrant's 2004 Annual Report on Form 10-K, and...

  • Page 164
    ...of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SUNTRUST BANKS, INC. By: /s/ James M. Wells III James M. Wells III President and Chief Executive Officer Dated: February 19, 2008 POWER OF...

  • Page 165
    ... 2/11/2008 Date 2/11/2008 Date 2/11/2008 Date 2/11/2008 Date 2/11/2008 Date 2/11/2008 Date 2/11/2008 Date 2/11/2008 Date 2/11/2008 Date 2/11/2008 Date 2/11/2008 Date Title Director Director Director Director Director Director Director Director Director Director Director Director 153

  • Page 166
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  • Page 167
    ... groups. CORPORATE MAILING ADDRESS SunTrust Banks, Inc. P.O. Box 4418 Center 645 Atlanta, GA 30302-4418 SHAREHOLDER SERVICES Shareholders who wish to change the name, address, or ownership of stock, to report lost certificates, or to consolidate accounts should contact the Transfer Agent...

  • Page 168
    SUNTRUST BANKS, INC., 303 PEACHTREE STREET, ATLANTA, GA 30308 WWW.SUNTRUST.COM