SunTrust 2012 Annual Report Download - page 126

Notes to Consolidated Financial Statements (Continued)
110
Earnings Per Share
Basic EPS is computed by dividing net income/(loss) available to common shareholders by the weighted average number of
common shares outstanding during each period. Diluted EPS is computed by dividing net income/(loss) available to common
shareholders by the weighted average number of common shares outstanding during each period, plus common share
equivalents calculated for stock options and restricted stock outstanding using the treasury stock method. In periods of a net
loss, diluted EPS is calculated in the same manner as basic EPS.
The Company has issued certain restricted stock awards, which are unvested share-based payment awards that contain
nonforfeitable rights to dividends or dividend equivalents. These restricted shares are considered participating securities.
Accordingly, the Company calculated net income/(loss) available to common shareholders pursuant to the two-class method,
whereby net income is allocated between common shareholders and participating securities. In periods of a net loss, no
allocation is made to participating securities as they are not contractually required to fund net losses.
Net income/(loss) available to common shareholders represents net income after preferred stock dividends, accretion of the
discount on preferred stock issuances, gains or losses from any repurchases of preferred stock, and dividends and allocation
of undistributed earnings to the participating securities. For additional information on the Company’s EPS, see Note 12, “Net
Income/(Loss) Per Common Share.”
Securities Sold Under Repurchase Agreements
Securities sold under agreements to repurchase are accounted for as collateralized financing transactions and are recorded at
the amounts at which the securities were sold, plus accrued interest. The fair value of collateral pledged is continually monitored
and additional collateral is pledged or requested to be returned to the Company as deemed appropriate. For additional
information on the collateral pledged to secure repurchase agreements, see Note 4, "Trading Assets and Liabilities," and Note
5, "Securities Available for Sale."
Guarantees
The Company recognizes a liability at the inception of a guarantee, at an amount equal to the estimated fair value of the
obligation. A guarantee is defined as a contract that contingently requires a company to make payment to a guaranteed party
based upon changes in an underlying asset, liability or equity security of the guaranteed party, or upon failure of a third party
to perform under a specified agreement. The Company considers the following arrangements to be guarantees: certain asset
purchase/sale agreements, standby letters of credit and financial guarantees, certain indemnification agreements included
within third party contractual arrangements and certain derivative contracts. For additional information on the Company’s
guarantor obligations, see Note 17, “Reinsurance Arrangements and Guarantees.”
Derivative Financial Instruments and Hedging Activities
The Company records all contracts that satisfy the definition of a derivative at fair value in the Consolidated Balance Sheets.
Accounting for changes in the fair value of a derivative is dependent upon whether or not it has been designated in a formal,
qualifying hedging relationship. The Company offsets all outstanding derivative transactions with a single counterparty as
well as any cash collateral paid to and received from that counterparty for derivative contracts that are subject to ISDA or
other legally enforceable master netting arrangements and meet accounting guidance for offsetting treatment. In many
situations, trading derivatives will be offset with derivatives used for risk management purposes that are recorded in other
assets or other liabilities. As a result, the Company may reclass balances between trading assets or liabilities and other assets
or other liabilities based on the predominant account to ensure total assets and total liabilities are properly stated.
Changes in the fair value of derivatives not designated in a hedging relationship are recorded in noninterest income. This
includes derivatives that the Company enters into in a dealer capacity to facilitate client transactions and as a risk management
tool to economically hedge certain identified market risks, along with certain IRLCs on residential mortgage loans that are a
normal part of the Company’s operations. The Company also evaluates contracts, such as brokered deposits and short-term
debt, to determine whether any embedded derivatives are required to be bifurcated and separately accounted for as freestanding
derivatives. For certain contracts containing embedded derivatives, the Company has elected not to bifurcate the embedded
derivative and instead carry the entire contract at fair value.
Certain derivatives used as risk management tools are also designated as accounting hedges of the Company’s exposure to
changes in interest rates or other identified market risks. The Company prepares written hedge documentation for all derivatives
which are designated as hedges of (1) changes in the fair value of a recognized asset or liability (fair value hedge) attributable
to a specified risk or (2) a forecasted transaction, such as the variability of cash flows to be received or paid related to a