SunTrust 2014 Annual Report Download - page 149

Notes to Consolidated Financial Statements, continued
126
Other changes in plan assets and benefit obligations recognized in AOCI during 2014 were as follows:
(Dollars in millions) Pension Benefits Other Postretirement
Benefits
Current year actuarial loss/(gain) $230 ($13)
Amortization of actuarial loss (16) —
Amortization of prior service credit — 6
Total recognized in AOCI, pre-tax $214 ($7)
Total recognized in net periodic benefit and AOCI, pre-tax $159 ($15)
For pension plans, the estimated actuarial loss that will be
amortized from AOCI into net periodic benefit in 2015 is $21
million. For the other postretirement plans, the estimated prior
service credit to be amortized from AOCI into net periodic
benefit in 2015 is $6 million.
NOTE 16 – GUARANTEES
The Company has undertaken certain guarantee obligations in
the ordinary course of business. The issuance of a guarantee
imposes an obligation for the Company to stand ready to perform
and make future payments should certain triggering events occur.
Payments may be in the form of cash, financial instruments, other
assets, shares of stock, or provision of the Company’s services.
The following is a discussion of the guarantees that the Company
has issued at December 31, 2014. The Company has also entered
into certain contracts that are similar to guarantees, but that are
accounted for as derivatives as discussed in Note 17, “Derivative
Financial Instruments.”
Letters of Credit
Letters of credit are conditional commitments issued by the
Company, generally to guarantee the performance of a client to
a third party in borrowing arrangements, such as CP, bond
financing, and similar transactions. The credit risk involved in
issuing letters of credit is essentially the same as that involved
in extending loan facilities to clients and may be reduced by
selling participations to third parties. The Company issues letters
of credit that are classified as financial standby, performance
standby, or commercial letters of credit.
At December 31, 2014 and 2013, the maximum potential
amount of the Company’s obligation for issued financial and
performance standby letters of credit was $3.0 billion and $3.3
billion, respectively. The Company’s outstanding letters of credit
generally have a term of less than one year but may extend longer.
Some standby letters of credit are designed to be drawn upon
and others are drawn upon only under circumstances of dispute
or default in the underlying transaction to which the Company
is not a party. In all cases, the Company is entitled to
reimbursement from the applicant. If a letter of credit is drawn
upon and reimbursement is not provided by the applicant, the
Company may take possession of the collateral securing the line
of credit, where applicable. The Company monitors its credit
exposure under standby letters of credit in the same manner as
it monitors other extensions of credit in accordance with its credit
policies. An internal assessment of the PD and loss severity in
the event of default is performed consistent with the
methodologies used for all commercial borrowers. The
management of credit risk regarding letters of credit leverages
the risk rating process to focus greater visibility on higher risk
and/or higher dollar letters of credit. The allowance for credit
losses associated with letters of credit is a component of the
unfunded commitments reserve recorded in other liabilities in
the Consolidated Balance Sheets and is included in the allowance
for credit losses as disclosed in Note 7, “Allowance for Credit
Losses.” Additionally, unearned fees relating to letters of credit
are recorded in other liabilities. The net carrying amount of
unearned fees was $5 million and $3 million at December 31,
2014 and 2013, respectively.
Loan Sales and Servicing
STM, a consolidated subsidiary of the Company, originates and
purchases residential mortgage loans, a portion of which are sold
to outside investors in the normal course of business, through a
combination of whole loan sales to GSEs, Ginnie Mae, and non-
agency investors. Prior to 2008, the Company also sold loans
through a limited number of Company-sponsored
securitizations. When mortgage loans are sold, representations
and warranties regarding certain attributes of the loans sold are
made to third party purchasers. Subsequent to the sale, if a
material underwriting deficiency or documentation defect is
discovered, STM may be obligated to repurchase the mortgage
loan or to reimburse an investor for losses incurred (make whole
requests) if such deficiency or defect cannot be cured by STM
within the specified period following discovery. Additionally,
defects in the securitization process or breaches of underwriting
and servicing representations and warranties can result in loan
repurchases, as well as adversely affect the valuation of MSRs,
servicing advances, or other mortgage loan-related exposures,
such as OREO. These representations and warranties may extend
through the life of the mortgage loan. STM’s risk of loss under
its representations and warranties is partially driven by borrower
payment performance since investors will perform extensive
reviews of delinquent loans as a means of mitigating losses.
Non-agency loan sales include whole loan sales and loans
sold in private securitization transactions. While representations
and warranties have been made related to these sales, they differ
from those made in connection with loans sold to the GSEs in
that non-agency loans may not be required to meet the same
underwriting standards and non-agency investors may be
required to demonstrate that an alleged breach is material and
caused the investors' loss. For legal claims related to
representations and warranties for which it is probable that a loss