SunTrust 2009 Annual Report Download - page 64

Overall, the financial impact of the level 3 financial instruments did not have a significant impact on our liquidity or capital.
We acquired $3.5 billion of certain ABS from affiliates during the fourth quarter of 2007 using our existing liquidity
position, and since purchasing the securities, we have received approximately $2.5 billion in cash consideration from
paydowns, settlements, sales, and maturities of these securities. Some fair value assets are pledged for corporate borrowings
or other liquidity purposes. Most of these arrangements provide for advances to be made based on the market value and not
the principal balance of the assets, and therefore whether or not we have elected fair value accounting treatment does not
impact our liquidity. If the fair value of assets posted as collateral declines, we will be required to post more collateral under
our borrowing arrangements which could negatively impact our liquidity position on an overall basis. For purposes of
computing regulatory capital, mark to market adjustments related to our own creditworthiness for debt accounted for at fair
value are excluded from regulatory capital.
INVESTMENT IN COMMON SHARES OF THE COCA-COLA COMPANY
Background
We have owned common shares of Coke since 1919, when one of our predecessor institutions participated in the
underwriting of Coke’s IPO and received common shares of Coke in lieu of underwriting fees. These shares have grown in
value over the past 90 years and have been classified as available for sale securities, with unrealized gains, net of tax,
recorded as a component of shareholders’ equity. Because of the low accounting cost basis of these shares, we have
accumulated significant unrealized gains in shareholders’ equity. As of December 31, 2009, as a result of the transactions
undertaken in 2008 discussed herein, we owned 30 million Coke shares with an accounting cost basis of $69,295 and a fair
market value of approximately $1.7 billion.
We commenced a comprehensive balance sheet review initiative in early 2007 in an effort to improve liquidity and capital
efficiency. As part of this initiative, we began to formally evaluate the capital efficiency of our holdings of Coke common
shares, as we were prohibited from including the market value of our investment in Coke common shares in Tier 1 capital in
accordance with Federal Reserve capital adequacy rules.
Executed Multi-Step Strategy
As we reported in connection with our financial results for the quarter ended June 30, 2007, we sold 4.5 million Coke
common shares, or approximately 9% of our holdings at that time, in an open market sale. At that time, we also announced
publicly that we were evaluating various strategies to address our remaining Coke common shares.
In the second and third quarters of 2008, we completed the following three-part strategy with respect to our remaining
43.6 million common shares of Coke: (i) a market sale of 10 million shares, (ii) a charitable contribution of approximately
3.6 million shares to the SunTrust Foundation and (iii) the execution of The Agreements on 30 million shares. Our primary
objective in executing these transactions was to optimize the benefits we obtained from our long-term holding of this asset,
including the capital treatment by bank regulators.
I. Market Sale
During the second quarter of 2008, we sold 10 million Coke common shares in the market. These sales, which
resulted in an increase of approximately $345.0 million to Tier 1 capital, generated approximately $549.0 million
in net cash proceeds and an after-tax gain of approximately $345.0 million that was recorded in our financial
results for the quarter ended June 30, 2008. This transaction resulted in foregone annual dividend income of
approximately $15.0 million, after-tax, and gave rise to a current tax liability with a marginal rate of just over 37%.
II. Contribution to the SunTrust Foundation
In July 2008, we contributed approximately 3.6 million Coke common shares to the SunTrust Foundation, which
was reflected as a contribution expense of $183.4 million in our financial results for the quarter ended
September 30, 2008. As the gain from this contribution is non-taxable, the only impact to our net income was the
release of the deferred tax liability of approximately $65.8 million (net of valuation allowance). This contribution
increased Tier 1 capital in the third quarter by approximately $65.8 million. This gain and resultant increase to Tier
1 capital were reflected in our third quarter results, as we had not made any commitments or entered into any other
transactions as of June 30, 2008 that would have required us to record this contribution in the second quarter. This
contribution will result in foregone annual dividend income of approximately $5 million, after-tax. We expect this
contribution to act as an endowment for the SunTrust Foundation to make grants to charities operating within our
footprint for years to come and reduce our ongoing charitable contribution expense. This transaction was treated as
a discrete item for income tax provision purposes and significantly lowered the effective tax rate for the third
quarter of 2008.
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