SunTrust 2013 Annual Report Download - page 130

Notes to Consolidated Financial Statements, continued
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by the weighted average number of common shares outstanding during each period, plus common share equivalents calculated
for stock options, warrants, and restricted stock outstanding using the treasury stock method.
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 available to common shareholders pursuant to the two-class method, whereby
net income is allocated between common shareholders and participating securities.
Net income 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 Per Common Share.”
Securities Sold Under Agreements to Repurchase and Securities Purchased Under Agreements to Resell
Securities sold under agreements to repurchase and securities purchased under agreements to resell are accounted for as
collateralized financing transactions and are recorded at the amounts at which the securities were sold or acquired, plus accrued
interest. The fair value of collateral pledged or received is continually monitored and additional collateral is obtained or
requested to be returned to the Company as deemed appropriate. For additional information on the collateral pledged to secure
repurchase agreements, see Note 3, "Federal Funds Sold and Securities Borrowed or Purchased Under Agreements to Resell,"
Note 4, "Trading Assets and Liabilities and Derivatives," 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, “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.
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
recognized asset or liability (cash flow hedge). The written hedge documentation includes identification of, among other items,
the risk management objective, hedging instrument, hedged item and methodologies for assessing and measuring hedge
effectiveness and ineffectiveness, along with support for management’s assertion that the hedge will be highly effective.
Methodologies related to hedge effectiveness and ineffectiveness are consistent between similar types of hedge transactions
and have included (i) statistical regression analysis of changes in the cash flows of the actual derivative and a perfectly effective
hypothetical derivative, and (ii) statistical regression analysis of changes in the fair values of the actual derivative and the
hedged item.