SunTrust 2007 Annual Report Download - page 136

SUNTRUST BANKS, INC.
Notes to Consolidated Financial Statements (Continued)
offering will be used to pay substantially all of the losses incurred. In the event this initial public offering occurs, the
Company expects that the proceeds of the planned initial public offering (both cash consideration and restricted stock) would
more than offset any losses arising out of the Litigation. As a result of the indemnification provision in Section 2.05j of the
Visa By-Laws and/or the indemnification provided through the loss sharing agreement, the Company has recorded $76.9
million in other liabilities on the Consolidated Balance Sheet as of December 31, 2007, $50.0 million of which represents the
fair value of its guarantee obligation to Visa and $26.9 million of which represents a SFAS No. 5 liability associated with
Visa litigation within the scope of the indemnification provided. A high degree of subjectivity was used in estimating the fair
value of the guarantee obligation and the ultimate cost to the Company could be higher or lower than the liability recorded as
of December 31, 2007.
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, 2007 and December 31, 2006, the maximum potential amount of the Company’s obligation was $12.6
billion and $12.9 billion, respectively, for financial and performance standby letters of credit. The Company has recorded
$112.4 million and $104.8 million in other liabilities for unearned fees related to these letters of credit as of December 31,
2007 and December 31, 2006, 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, where applicable.
Loan Sales
SunTrust Mortgage, Inc. (“STM”), a consolidated subsidiary of SunTrust, originates and purchases consumer residential
mortgage loans, a portion of which are sold to outside investors in the normal course of business. When mortgage loans or
MSRs are sold, representations and warranties regarding certain attributes of the loans sold are made to the third party
purchaser. These representations and warranties may extend through the life of the mortgage loan, generally 25 to 30 years.
Subsequent to the sale, if inadvertent underwriting deficiencies or documentation defects are discovered in individual
mortgage loans, STM will be obligated to repurchase the respective mortgage loan, MSRs or absorb the loss if such
deficiencies or defects cannot be cured by STM within the specified period following discovery. STM maintains a liability
for estimated losses on mortgage loans and MSRs that may be repurchased due to breach of general representations and
warranties or purchasers’ rights under early payment default provisions. As of December 31, 2007 and December 31, 2006,
$49.9 million and $13.0 million, respectively were accrued for these repurchases. The increase in the liability primarily
relates to loan and servicing right sales that occurred during 2007, an early payment default event, an increase in repurchase
activity and early payment default events, as well as adjustments based on recent experience to the estimated loss factors
used to calculate the liability.
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 $37.7 million and $82.8 million as of December 31, 2007 and December 31, 2006, 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, 2007. If required, these contingent
payments will be payable within the next five years.
124