SunTrust 2011 Annual Report Download - page 127
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Please find page 127 of the 2011 SunTrust annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.Notes to Consolidated Financial Statements (Continued)
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Hedge accounting ceases on transactions that are no longer deemed effective, or for which the derivative has been terminated or
de-designated. For discontinued fair value hedges where the hedged item remains outstanding, the hedged item would cease to
be remeasured at fair value attributable to changes in the hedged risk and any existing basis adjustment would be recognized as
an adjustment to earnings over the remaining life of the hedged item. For discontinued cash flow hedges, the unrealized gains and
losses recorded in AOCI would be reclassified to earnings in the period when the previously designated hedged cash flows occur
unless it was determined that transaction was probable to not occur, whereby any unrealized gains and losses in AOCI would be
immediately reclassified to earnings. For additional information on the Company’s derivative activities, see Note 17, “Derivative
Financial Instruments,” and Note 19, “Fair Value Election and Measurement.”
Stock-Based Compensation
The Company sponsors stock plans under which incentive and nonqualified stock options and restricted stock may be granted
periodically to certain employees. The Company accounts for stock-based compensation under the fair value recognition provisions
whereby the fair value of the award at grant date is expensed over the award’s vesting period. Additionally, the Company estimates
the number of awards for which it is probable that service will be rendered and adjusts compensation cost accordingly. Estimated
forfeitures are subsequently adjusted to reflect actual forfeitures. For additional information on the Company’s stock-based
employee compensation plans, see Note 16, “Employee Benefit Plans.”
Employee Benefits
Employee benefits expense includes the net periodic benefit costs associated with the pension, supplemental retirement, and other
postretirement benefit plans, as well as contributions under the defined contribution plan, the amortization of restricted stock,
stock option awards, and costs of other employee benefits. For additional information on the Company's employee benefit plans,
see Note 16, “Employee Benefit Plans.”
Foreign Currency Transactions
Foreign denominated assets and liabilities resulting from foreign currency transactions are valued using period end foreign exchange
rates and the associated interest income or expense is determined using approximate weighted average exchange rates for the
period. The Company may elect to enter into foreign currency derivatives to mitigate its exposure to changes in foreign exchange
rates. The derivative contracts are accounted for at fair value. Gains and losses resulting from such valuations are included in
noninterest income in the Consolidated Statements of Income/(Loss).
Fair Value
Certain assets and liabilities are measured at fair value on a recurring basis. Examples of these include derivative instruments,
AFS and trading securities, certain LHFI and LHFS, certain issuances of long-term debt, brokered deposits, and MSR assets. Fair
value is used on a non-recurring basis as a measurement basis either when assets are evaluated for impairment, the basis of
accounting is LOCOM or for disclosure purposes. Examples of these non-recurring uses of fair value include certain LHFS and
LHFI, OREO, goodwill, intangible assets, nonmarketable equity securities, certain partnership investments and long-lived assets.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. Depending on the nature of the asset or liability, the Company uses various
valuation techniques and assumptions when estimating fair value.
The Company applied the following fair value hierarchy:
Level 1 – Assets or liabilities for which the identical item is traded on an active exchange, such as publicly-traded instruments
or futures contracts.
Level 2 – Assets and liabilities valued based on observable market data for similar instruments.
Level 3 – Assets or liabilities for which significant valuation assumptions are not readily observable in the market;
instruments valued based on the best available data, some of which is internally developed, and considers risk premiums
that a market participant would require.
To determine the fair value measurement for assets and liabilities required or permitted to be recorded at fair value, the Company
considers the principal or most advantageous market in which it would transact and considers assumptions that market participants
would use when pricing the asset or liability. If available, the Company looks to active and observable markets to price identical
assets or liabilities. If identical assets and liabilities are not traded in active markets, the Company looks to market observable data
for similar assets and liabilities. Nevertheless, the Company uses alternative valuation techniques to derive a fair value measurement
for those assets and liabilities that are either not actively traded in observable markets or for which market observable inputs are