SunTrust 2011 Annual Report Download - page 202
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Please find page 202 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)
186
Fair Value of Financial Instruments
The carrying amounts and fair values of the Company’s financial instruments at December 31 were as follows:
(Dollars in millions)
Financial assets
Cash and cash equivalents
Trading assets
Securities AFS
LHFS
LHFI
Interest/credit adjustment on LHFI
LHFI, as adjusted for interest/credit risk
Market risk/liquidity adjustment on LHFI
LHFI, fully adjusted
Financial liabilities
Consumer and commercial deposits
Brokered time deposits
Foreign deposits
Short-term borrowings
Long-term debt
Trading liabilities
2011
Carrying
Amount
$4,509
6,279
28,117
2,353
122,495
(2,457)
120,038
—
$120,038
$125,611
2,281
30
11,466
10,908
1,806
Fair
Value
$4,509
6,279
28,117
2,355
122,495
(2,005)
120,490
(4,805)
$115,685
$125,963
2,289
30
11,466
10,515
1,806
(a)
(b)
(b)
(c)
(d)
(d)
(e)
(f)
(f)
(f)
(f)
(b)
2010
Carrying
Amount
$5,378
6,175
26,895
3,501
115,975
(2,974)
113,001
—
$113,001
$120,025
2,365
654
5,821
13,648
2,678
Fair
Value
$5,378
6,175
26,895
3,501
115,975
(3,823)
112,152
(3,962)
$108,190
$120,368
2,381
654
5,815
13,191
2,678
(a)
(b)
(b)
(c)
(d)
(d)
(e)
(f)
(f)
(f)
(f)
(b)
The following methods and assumptions were used by the Company in estimating the fair value of financial instruments:
(a) Cash and cash equivalents are valued at their carrying amounts reported in the balance sheet, which are reasonable
estimates of fair value due to the relatively short period to maturity of the instruments.
(b) Securities AFS, trading assets, and trading liabilities that are classified as level 1 are valued based on quoted market
prices. For those instruments classified as level 2 or 3, refer to the respective valuation discussions within this footnote.
(c) LHFS are generally valued based on observable current market prices or, if quoted market prices are not available, on
quoted market prices of similar instruments. In instances when significant valuation assumptions are not readily observable
in the market, instruments are valued based on the best available data in order to approximate fair value. This data may
be internally-developed and considers risk premiums that a market participant would require under then-current market
conditions. Refer to the LHFS section within this footnote for further discussion of the LHFS carried at fair value.
(d) LHFI fair values are based on a hypothetical exit price, which does not represent the estimated intrinsic value of the loan
if held for investment. The assumptions used are expected to approximate those that a market participant purchasing the
loans would use to value the loans, including a market risk premium and liquidity discount. Estimating the fair value of
the loan portfolio when loan sales and trading markets are illiquid, or for certain loan types, nonexistent, requires significant
judgment. Therefore, the estimated fair value can vary significantly depending on a market participant’s ultimate
considerations and assumptions. The final value yields a market participant’s expected return on investment that is
indicative of the current market conditions, but it does not take into consideration the Company’s estimated value from
continuing to hold these loans or its lack of willingness to transact at these estimated values.
The Company estimated fair value based on estimated future cash flows discounted, initially, at current origination rates
for loans with similar terms and credit quality, which derived an estimated value of 100% and 99% on the loan portfolio’s
net carrying value as of December 31, 2011 and 2010, respectively. The value derived from origination rates likely does
not represent an exit price; therefore, an incremental market risk and liquidity discount was subtracted from the initial
value as of December 31, 2011 and 2010, respectively. The discounted value is a function of a market participant’s required
yield in the current environment and is not a reflection of the expected cumulative losses on the loans. Loan prepayments
are used to adjust future cash flows based on historical experience and prepayment model forecasts. The value of related
accrued interest on loans approximates fair value; however, it is not included in the carrying amount or fair value of loans.
The value of long-term customer relationships is not permitted under current U.S. GAAP to be included in the estimated
fair value.