SunTrust 2011 Annual Report Download - page 201
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Please find page 201 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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Loans Held for Investment
LHFI consist predominantly of nonperforming commercial real estate loans for which specific reserves have been recorded. As
these loans have been classified as nonperforming, cash proceeds from the sale of the underlying collateral is the expected source
of repayment for a majority of these loans. Accordingly, the fair value of these loans is derived from internal estimates of the
underlying collateral incorporating market data when available. Due to the lack of market data for similar assets, these loans are
considered level 3.
OREO
OREO is measured at the lower of cost or its fair value less costs to sell. Level 2 OREO consists primarily of residential homes,
commercial properties, and vacant lots and land for which current property-specific appraisals, broker pricing opinions, or other
market information is available. Level 3 OREO consists of lots and land for which initial valuations are based on property-specific
appraisals or internal valuations. Due to the lower dollar value per property and geographic dispersion of the portfolio, these
properties are re-evaluated using a pooled approach, which applies geographic factors to adjust carrying values for estimated
further declines in value. Land and lots have proven to be the most challenging asset class to accurately value due in part to the
low balance per property composition of the asset class. The pooled discount methodology provides a means to reserve for losses
across a broad band of assets rather than rely on potentially unreliable asset-specific valuations. The pooled discount methodology
is applied to land and lot assets that have valuations older than six months and that have a net carrying value of less than $1 million.
The Company's independent internal valuation group determines the discounts to be applied and the discount percentages are
segregated by state and by asset class (residential or commercial). The discount percentages reflect the general market decline/
increase in a particular state for a particular asset class and are determined by examining various valuation sources, including but
not limited to, recent appraisals or sales prices of similar assets within each state.
Affordable Housing
The Company evaluates its consolidated affordable housing partnership investments for impairment whenever events or changes
in circumstances indicate that the carrying amount of the investment may not be recoverable. An impairment is recorded when
the carrying amount of the partnership exceeds its fair value. Fair value measurements for affordable housing investments are
derived from internal models using market assumptions when available. Significant assumptions utilized in these models include
cash flows, market capitalization rates, and tax credit market pricing. Due to the lack of comparable sales in the marketplace, these
valuations are considered level 3. During the years ended December 31, 2011 and 2010, the Company recognized impairment
charges of $10 million and $15 million, respectively, on its consolidated affordable housing partnership investments.
Other Assets
Other assets consist of private equity investments, structured leasing products, other repossessed assets, and assets under operating
leases where the Company is the lessor.
Investments in private equity partnerships are valued based on the estimated expected remaining cash flows to be received from
these assets discounted at a market rate that is commensurate with their risk profile. Based on the valuation methodology and the
lack of observable inputs, these investments are considered level 3. During the years ended December 31, 2011 and 2010, the
Company recognized impairment charges of $11 million and $5 million, respectively, on its private equity partnership investments.
Structured leasing consists of assets held for sale under third party operating leases. These assets consist primarily of commercial
buildings and are recognized at fair value less cost to sell. These assets are valued based on internal estimates which incorporate
current market data for similar assets when available. Due to the lack of current market data for comparable assets, these assets
are considered level 3. During the year ended December 31, 2011, no impairment was recognized. During the year ended December
31, 2010, the Company recognized impairment charges of $3 million on these assets.
Other repossessed assets consist of repossessed personal property that is measured at fair value less cost to sell. These assets are
considered level 2 as their fair value is determined based on market comparables and broker opinions. During the years ended
December 31, 2011 and 2010, the Company recognized impairment charges of $1 million and $8 million, respectively, on these
assets.
The Company monitors the fair value of assets under operating leases where the Company is the lessor, and recognizes impairment
to the extent the carrying value is not recoverable and the fair value is less than its carrying value. Fair value is determined using
collateral specific pricing digests, external appraisals, and recent sales data from industry equipment dealers. As market data for
similar assets is available and used in the valuation, these assets are considered level 2. During the years ended December 31,
2011 and 2010, the Company recognized impairment charges of $5 million and $12 million, respectively, attributable to the fair
value of various personal property under operating leases.