SunTrust 2015 Annual Report Download - page 135

Notes to Consolidated Financial Statements, continued
107
Indirect Auto Loans
In June 2015, the Company transferred indirect auto loans to a
securitization entity, which was determined to be a VIE, and
accounted for the transfer as a sale. The Company retained
servicing rights for the transferred loans, but did not retain any
debt or equity interest in the securitization entity. While the
Company has the power to direct the activities that most
significantly impact the economic performance of the VIE
through its servicing rights, it was determined that this entity
should not be consolidated since the Company does not have the
obligation to absorb losses, or the right to receive benefits, that
could potentially be significant to the VIE.
At the time of the transfer, the UPB of the transferred loans
was $1.0 billion and the consideration received was $1.0 billion,
resulting in an immaterial pre-tax loss for the year ended
December 31, 2015, which was recorded in other noninterest
income in the Consolidated Statements of Income. See Note 9,
"Goodwill and Other Intangible Assets," for additional
information regarding the servicing asset recognized in this
transaction.
To the extent that losses on the transferred loans are the result
of a breach of representations and warranties related to either the
initial transfer or the Company's ongoing servicing
responsibilities, the securitization entity has recourse to the
Company whereby the Company may be obligated to either cure
the breach or repurchase the affected loans. The Company’s
maximum exposure to loss related to the loans transferred to the
securitization entity would arise from a breach of representations
and warranties and/or a breach of the Company's servicing
obligations. Potential losses suffered by the securitization entity
that the Company may be liable for are limited to approximately
$1.0 billion, which is the total of the initial UPB of transferred
loans and the carrying value of the servicing asset.
The Company's total managed loans, including the LHFI portfolio and other securitized and unsecuritized loans, are presented in
the following table by portfolio balance and delinquency (accruing loans 90 days or more past due and all nonaccrual loans) at
December 31, 2015 and 2014, as well as the related net charge-offs for the years ended December 31, 2015 and 2014.
Portfolio Balance 1Past Due and Nonaccrual 2Net Charge-offs
December 31,
2015
December 31,
2014
December 31,
2015
December 31,
2014
Year Ended December 31
(Dollars in millions) 2015 2014
LHFI portfolio:
Commercial $75,252 $73,392 $344 $181 $72 $71
Residential 38,928 38,775 729 891 176 279
Consumer 22,262 20,945 580 619 93 95
Total LHFI portfolio 136,442 133,112 1,653 1,691 341 445
Managed securitized loans:
Residential 116,990 110,591 126 3183 312 16
Consumer 807 —1—2—
Total managed securitized loans 117,797 110,591 127 183 14 16
Managed unsecuritized loans 43,973 4,943 597 705 ——
Total managed loans $258,212 $248,646 $2,377 $2,579 $355 $461
1 Excludes $1.8 billion and $3.2 billion of LHFS at December 31, 2015 and 2014, respectively.
2 Excludes $1 million and $39 million of past due LHFS at December 31, 2015 and 2014, respectively.
3 Excludes loans that have completed the foreclosure or short sale process (i.e., involuntary prepayments).
4 Comprised of unsecuritized residential loans the Company originated and sold with servicing rights retained.
Other Variable Interest Entities
In addition to exposure to VIEs arising from transfers of financial
assets, the Company also has involvement with VIEs from other
business activities.
Total Return Swaps
The Company facilitates matched book TRS transactions on
behalf of clients, whereby a VIE purchases reference assets
identified by a client and the Company enters into a TRS with
the VIE, with a mirror-image TRS facing the client. The TRS
contract between the VIE and the Company hedges the
Company’s exposure to the TRS contract with its third party
client. The Company provides senior financing to the VIE, in the
form of demand notes to fund the purchase of the reference assets.
The TRS contracts pass through interest and other cash flows on
the reference assets to the third party clients, along with exposing
those clients to decreases in value on the assets and providing
them with the rights to appreciation on the assets. The terms of
the TRS contracts require the third parties to post initial margin
collateral, in addition to ongoing margin as the fair values of the
underlying assets change.
The Company evaluated the related VIEs for consolidation,
noting that the Company and its third party clients are VI holders.
The Company evaluated the nature of all VIs and other interests
and involvement with the VIEs, in addition to the purpose and
design of the VIEs, relative to the risks they were designed to
create. The VIEs were designed for the benefit of the third parties
and would not exist if the Company did not enter into the TRS
contracts on their behalf. The activities of the VIEs are restricted
to buying and selling the reference assets and the risks/benefits
of any such assets owned by the VIEs are passed to the third
party clients via the TRS contracts. The Company determined
that it is not the primary beneficiary of the VIEs, as the design
of its matched book TRS business results in the Company having