SunTrust 2011 Annual Report Download - page 99
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Recent changes to the U.S. Government's Making Homes Affordable Program will likely increase the number of borrowers that
are eligible for mortgage refinance opportunities. We expect that prepayment rates for a portion of the loans in our servicing
portfolio will increase and result in a decline in the value of our MSR asset in future quarters. Program terms, such as seller
representations and warranties, will influence the impact on prepayment rates and those details have yet to be published. See the
"Noninterest Income" section of this MD&A and Note 9 “Goodwill and Other Intangible Assets," to the Consolidated Financial
Statements in this Form 10-K for further discussion of MSR valuation sensitivities.
We also have market risk from capital stock we hold in the FHLB of Atlanta and from capital stock we hold in the Federal Reserve
Bank. In order to be an FHLB member, we are required to purchase capital stock in the FHLB. In exchange, members take advantage
of competitively priced advances as a wholesale funding source and access grants and low-cost loans for affordable housing and
community-development projects, amongst other benefits. As of December 31, 2011, we held a total of $342 million of capital
stock in the FHLB. During 2011, we increased our capital stock holding in the FHLB by $44 million. In order to become a member
of the Federal Reserve System, regulations require that we hold a certain amount of capital stock as either a percentage of the
Bank’s capital or as a percentage of total deposit liabilities. As of December 31, 2011, we held $398 million of Federal Reserve
Bank stock. During 2011, we added $7 million to our position.
For a detailed overview regarding actions taken to address the risk from changes in equity prices associated with our investment
in Coke common stock, see “Investment in Common Shares of the Coca-Cola Company,” in this MD&A. We also hold, as of
December 31, 2011, a total net book value of approximately $192 million of private equity investments that predominantly include
direct investments and limited partnerships. We hold these investments as long-term investments and make additional contributions
based on our contractual commitments but have decided to limit investments into new private equity investments.
Impairment charges could occur if deteriorating conditions in the market persist, including, but not limited to, goodwill and other
intangibles impairment charges and increased charges with respect to OREO.
We also have risk related to holdings of foreign debt, securities, and commitments to lend to foreign countries and corporations,
both funded and unfunded. Specifically, the risk is higher for exposure to countries that are experiencing significant economic,
fiscal, and/or political strains. At December 31, 2011, we identified five countries in Europe that we believe are experiencing
strains such that the likelihood of default is higher than would be anticipated if current economic, fiscal, and political strains were
not present. The countries we identified were Greece, Ireland, Italy, Portugal, and Spain, and were chosen based on the economic
situation experienced in these countries during 2011 and continuing to exist as of December 31, 2011. At December 31, 2011, we
had no outstanding exposure to sovereign debt of these countries. Although, at December 31, 2011, we had direct exposure to
corporations and individuals in these countries of $10 million, that comprised securities held, unfunded commitments to lend, and
a nominal amount of funded loans. Indirect exposure to these countries was $58 million at December 31, 2011 and consisted
primarily of double default risk exposure. The majority of the exposure is the notional amount of letters of credit issued on behalf
of our role as an agent bank under the terms of a syndicated corporate loan agreement, wherein other participant banks in the
syndicate are located in the identified higher risk countries. Overall, gross exposure to these countries is less than 1% of our total
assets as of December 31, 2011.
OFF-BALANCE SHEET ARRANGEMENTS
See discussion of off-balance sheet arrangements in Note 11, “Certain Transfers of Financial Assets and Variable Interest Entities,”
and Note 18, “Reinsurance Arrangements and Guarantees,” to the Consolidated Financial Statements in this Form 10-K.
CONTRACTUAL COMMITMENTS
In the normal course of business, we enter into certain contractual obligations, including obligations to make future payments on
debt and lease arrangements, contractual commitments for capital expenditures, and service contracts. The table below presents
our significant contractual obligations as of December 31, 2011, except for pension and other postretirement benefit plans, which
are included in Note 16, "Employee Benefit Plans," to the Consolidated Financial Statements in this Form 10-K.