SunTrust 2011 Annual Report Download - page 193
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Please find page 193 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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Securities that are classified as AFS and are in an unrealized loss position are included as part of our quarterly OTTI
evaluation process. See Note 5, “Securities Available for Sale,” for details regarding assumptions used to assess impairment
and impairment amounts recognized through earnings on private MBS during the years ended December 31, 2011, 2010,
and 2009.
CDO/CLO Securities
Level 2 securities AFS consists of a senior interest in a third party CLOs for which independent broker pricing based on
market trades and/or from new issuance of similar assets is readily available. At December 31, 2011, the Company’s
investments in level 3 trading CDOs consisted of senior ARS interests in Company-sponsored securitizations of trust
preferred collateral. In the first quarter of 2011, the Company sold the remaining securities within trading assets that were
received upon the liquidation of one of the Company’s SIV investments, which included $21 million of CDO securities.
Additionally, the Company’s $20 million retained interest in a structured participation of commercial loans was liquidated
in 2011 through the exercise of the Company’s clean up call. For the ARS CDOs classified as level 3 trading assets, the
increase in the value of these interests during the year ended December 31, 2011 was due to a steady recovery in the
broader CDO market during the first half of the year along with an improvement in the underlying collateral for most of
the individual interests. Additionally, the Company purchased CDO ARS securities in July 2011 as a result of the settlement
of an ARS claim. For additional information, see Note 11, "Certain Transfers of Financial Assets and Variable Interest
Entities," and Note 20, "Contingencies." Although market conditions have improved, the auctions continue to fail and
the Company continues to make significant adjustments to valuation assumptions available from observable secondary
market trading of similar term securities; therefore, the Company continued to classify these as level 3 investments.
Asset-backed securities
Level 2 ABS classified as securities AFS are primarily interests collateralized by third party securitizations of 2009
through 2011 vintage auto loans. These ABS are either publicly traded or are 144A privately placed bonds. The Company
utilizes an independent pricing service to obtain fair values for publicly traded securities and similar securities for
estimating the fair value of the privately placed bonds. No significant unobservable assumptions were used in pricing
the auto loan ABS; therefore, the Company classified these bonds as level 2. Additionally, the Company classified $32
million of trading ARS and $72 million of AFS ARS collateralized by government guaranteed student loans as level 2
due to observable market trades and bids for similar senior securities. Student loan ABS held by the Company are generally
collateralized by FFELP student loans, the majority of which benefit from a 97% (or higher) government guarantee of
principal and interest. For valuations of subordinate securities in the same structure, the Company adjusts valuations on
the senior securities based on the likelihood that the issuer will refinance in the near term, a security’s level of subordination
in the structure, and/or the perceived risk of the issuer as determined by credit ratings or total leverage of the trust. These
adjustments may be significant; therefore, the subordinate student loan ARS held as trading assets continue to be classified
as level 3.
Other level 3 AFS ABS includes interests in third party securitizations of auto loans and home equity lines of credit that
are vintage 2003-2004. Third party pricing is generally available to price or validate the pricing on these positions,
however, the Company believes that this third party pricing relied on a significant unobservable assumptions, as evidenced
by a wide bid-ask range and variability in pricing received from the pricing services, and therefore the Company continues
to classify these ABS as level 3.
During the first quarter of 2011, the Company sold the remaining ABS related to the assets acquired in 2007, including
those received in the SIV liquidation that occurred in December 2010. This included $31 million of level 3 trading ABS
collateralized by auto loans and home equity lines of credit.
Corporate and other debt securities
Corporate debt securities are predominantly comprised of senior and subordinate debt obligations of domestic corporations
and are classified as level 2. Other debt securities in level 3 include bonds that are redeemable with the issuer at par and
cannot be traded in the market; as such, no significant observable market data for these instruments is available.
Commercial paper
From time to time, the Company trades third party CP that is generally short-term in nature (less than 30 days) and highly
rated. The Company estimates the fair value of the CP that it trades based on observable pricing from executed trades of
similar instruments.
Equity securities
Level 1 equity securities, both trading and AFS, consist primarily of MMMFs that trade at a $1 net asset value, which is
considered the fair market value of those fund shares.