SunTrust 2010 Annual Report Download - page 176

SUNTRUST BANKS, INC.
Notes to Consolidated Financial Statements (Continued)
During the years ended December 31, 2010, and December 31, 2009, SunTrust repurchased or otherwise settled
mortgages with unpaid principal balances of $665 million and $647 million, respectively, related to investor demands.
As of December 31, 2010 and December 31, 2009, the carrying value of outstanding repurchased mortgage loans,
exclusive of any allowance for loan losses, totaled $153 million and $146 million, respectively, of which $86 million
and $98 million, respectively, were nonperforming.
STM also maintains a liability for contingent losses related to MSR sales, which totaled $6 million and $3 million as of
December 31, 2010 and December 31, 2009, respectively.
Contingent Consideration
The Company has contingent payment obligations related to certain business combination transactions. Payments are
calculated using certain post-acquisition performance criteria. Arrangements entered into prior to January 1, 2009 are not
recorded as liabilities; whereas arrangements entered into subsequent to that date are recorded as liabilities. The potential
obligation associated with these arrangements was $5 million and $13 million as of December 31, 2010 and December 31,
2009, respectively, of which $3 million and $4 million were recorded as a liability representing the fair value of the
contingent payments as of December 31, 2010 and December 31, 2009, respectively. If required, these contingent payments
will be payable at various times over the next three years.
Public Deposits
The Company holds public deposits from various states in which it does business. Individual state laws require banks to
collateralize public deposits, typically as a percentage of their public deposit balance in excess of FDIC insurance and may
also require a cross-guarantee among all banks holding public deposits of the individual state. The amount of collateral
required varies by state and may also vary by institution within each state, depending on the individual state’s risk
assessment of depository institutions. Certain of the states in which the Company holds public deposits use a pooled
collateral method, whereby in the event of default of a bank holding public deposits, the collateral of the defaulting bank is
liquidated to the extent necessary to recover the loss of public deposits of the defaulting bank. To the extent the collateral is
insufficient, the remaining public deposit balances of the defaulting bank are recovered through an assessment, from the
other banks holding public deposits in that state. The maximum potential amount of future payments the Company could be
required to make is dependent on a variety of factors, including the amount of public funds held by banks in the states in
which the Company also holds public deposits and the amount of collateral coverage associated with any defaulting bank.
Individual states appear to be monitoring risk relative to the current economic environment and evaluating collateral
requirements; therefore, the likelihood that the Company would have to perform under this guarantee is dependent on
whether any banks holding public funds default as well as the adequacy of collateral coverage.
Other
In the normal course of business, the Company enters into indemnification agreements and provides standard representations
and warranties in connection with numerous transactions. These transactions include those arising from securitization
activities, underwriting agreements, merger and acquisition agreements, loan sales, contractual commitments, payment
processing sponsorship agreements, and various other business transactions or arrangements. The extent of the Company’s
obligations under these indemnification agreements depends upon the occurrence of future events; therefore, the Company’s
potential future liability under these arrangements is not determinable.
STIS and 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, STIS and STRH agree
to indemnify the clearing broker for losses that result from a customer’s failure to fulfill its contractual obligations. As the
clearing broker’s rights to charge STIS and STRH have no maximum amount, the Company believes that the maximum
potential obligation cannot be estimated. However, to mitigate exposure, the affiliate may seek recourse from the customer
through cash or securities held in the defaulting customers’ account. For the years ended December 31, 2010 and 2009, STIS
and STRH experienced minimal net losses as a result of the indemnity. The clearing agreements expire in May 2015 for both
STIS and STRH.
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