SunTrust 2011 Annual Report Download - page 186
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Please find page 186 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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investors. As of December 31, 2011, SunTrust Community Capital has completed six sales containing guarantee provisions
stating that SunTrust Community Capital will make payment to the outside investors if the tax credits become ineligible.
SunTrust Community Capital also guarantees that the general partner under the transaction will perform on the delivery of the
credits. The guarantees are expected to expire within a ten year period from inception. As of December 31, 2011, the maximum
potential amount that SunTrust Community Capital could be obligated to pay under these guarantees is $37 million; however,
SunTrust Community Capital can seek recourse against the general partner. Additionally, SunTrust Community Capital can
seek reimbursement from cash flow and residual values of the underlying affordable housing properties provided that the
properties retain value. As of December 31, 2011 and 2010, $5 million and $7 million, respectively, was accrued representing
the remainder of tax credits to be delivered, and were recorded in other liabilities in the Consolidated Balance Sheets.
NOTE 19 - FAIR VALUE ELECTION AND MEASUREMENT
The Company carries certain assets and liabilities at fair value on a recurring basis and appropriately classifies them as level 1, 2,
or 3 within the fair value hierarchy. The Company’s recurring fair value measurements are based on a requirement to carry such
assets and liabilities at fair value or the Company’s election to carry certain financial assets and financial liabilities at fair value.
Assets and liabilities that are required to be carried at fair value on a recurring basis include trading securities, securities AFS, and
derivative financial instruments. Assets and liabilities that the Company has elected to carry at fair value on a recurring basis
include certain LHFI and LHFS, MSRs, certain brokered deposits, and certain issuances of fixed rate debt.
In certain circumstances, fair value enables a company to more accurately align its financial performance with the economic value
of actively traded or hedged assets or liabilities. Fair value also enables a company to mitigate the non-economic earnings volatility
caused from financial assets and financial liabilities being carried at different bases of accounting, as well as to more accurately
portray the active and dynamic management of a company’s balance sheet.
The classification of an instrument as level 3 versus 2 involves judgment and is based on a variety of subjective factors in order
to assess whether a market is inactive, resulting in the application of significant unobservable assumptions to value a financial
instrument. A market is considered inactive if significant decreases in the volume and level of activity for the asset or liability
have been observed. In determining whether a market is inactive, the Company evaluates such factors as the number of recent
transactions in either the primary or secondary markets, whether price quotations are current, the nature of the market participants,
the variability of price quotations, the significance of bid/ask spreads, declines in (or the absence of) new issuances and the
availability of public information. Inactive markets necessitate the use of additional judgment when valuing financial instruments,
such as pricing matrices, cash flow modeling, and the selection of an appropriate discount rate. The assumptions used to estimate
the value of an instrument where the market was inactive are based on the Company’s assessment of the assumptions a market
participant would use to value the instrument in an orderly transaction and include considerations of illiquidity in the current
market environment.
Recurring Fair Value Measurements
The following tables present certain information regarding assets and liabilities measured at fair value on a recurring basis and
the changes in fair value for those specific financial instruments in which fair value has been elected.