SunTrust 2007 Annual Report Download - page 139

Download and view the complete annual report

Please find page 139 of the 2007 SunTrust annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 168

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162
  • 163
  • 164
  • 165
  • 166
  • 167
  • 168

SUNTRUST BANKS, INC.
Notes to Consolidated Financial Statements (Continued)
In conjunction with adopting SFAS No. 159, 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.
As a result of electing to record these financial assets and financial liabilities at fair value pursuant to the provisions of SFAS
No. 159 (fair value option, “FVO”) as of January 1, 2007, the Company recorded the following to opening retained earnings:
(Dollars in thousands)
As of
January 1, 2007
prior to Adoption
Net
Decrease
to Retained Earnings
upon Adoption
As of
January 1, 2007
after Adoption
Securities $15,383,938 ($231,211) $15,152,727
Loans 4,068,101 (71,950) 3,996,151
Long-term debt (6,561,954) (315,685) (6,877,639)
Pre-tax cumulative effect of adopting FVO ($618,846)
Increase in deferred tax asset 230,242
Cumulative effect of adopting FVO ($388,604)
The following is a description of each asset and liability class for which fair value has been elected, including the specific
reasons for electing fair value and the strategies for managing the assets and liabilities on a fair value basis.
Fixed Rate Debt
The debt that the Company elected to carry at fair value was all of its fixed rate debt that had previously been designated in
qualifying fair value hedges using receive fixed/pay floating interest rate swaps, pursuant to the provisions of 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. The Company elected to record this debt at fair value in order to align the accounting for the
debt with the accounting for the derivative without having to account for the debt under hedge accounting, thus avoiding the
complex and time consuming fair value hedge accounting requirements of SFAS No. 133. The reduction to opening retained
earnings from recording the debt at fair value was $197.2 million. This move to fair value introduced potential earnings
volatility due to changes in the Company’s credit spread that were not required to be valued under the SFAS No. 133 hedge
designation. All of the debt, along with the interest rate swaps previously designated as hedges under SFAS No. 133,
continues to remain outstanding.
During the year ended December 31, 2007, the Company consummated two fixed rate debt issuances. On September 10,
2007, the Company issued $500 million of Senior Notes, which carried a fixed coupon rate of 6.00% and had a term of 10
years. The Company did not enter into any hedges on this debt at issuance and, therefore, did not elect to carry the debt at fair
value. On November 5, 2007, the Company issued $500 million of Senior Notes, which carried a fixed coupon rate of 5.25%
and had a term of 5 years. The Company did enter into hedges in connection with this debt issuance and as a result elected to
carry this debt at fair value.
Available for Sale and Trading Securities
The available for sale debt securities that were transferred to trading were substantially all of the debt securities within
specific asset classes, whether the securities were valued at an unrealized loss or unrealized gain. The Company elected to
reclassify approximately $15.4 billion of securities to trading at January 1, 2007, as well as an additional $600 million of
purchases of similar assets that occurred during the first quarter. The reduction to opening retained earnings related to
reclassifying the $15.4 billion of securities to trading was $147.4 million. This net unrealized loss was already reflected in
accumulated other comprehensive income and, therefore, upon reclassification to retained earnings, there was no net impact
to total shareholders’ equity. The Company’s securities portfolio is generally of high credit quality, such that the opening
retained earnings adjustment was not significantly impacted by the credit risk embedded in the assets, but rather due to
interest rates.
127