SunTrust 2012 Annual Report Download - page 190

Notes to Consolidated Financial Statements (Continued)
174
Fair Value Gain/(Loss) for the Year Ended
December 31, 2010, for Items Measured at Fair Value
Pursuant to Election of the FVO
(Dollars in millions)
Trading
income
Mortgage
Production
Related
Income/
(Loss) 1
Mortgage
Servicing
Related
Income
Total
Changes in
Fair Values
Included in
Current-
Period
Earnings 2
Assets
Trading loans ($3) $— $— ($3)
LHFS 26 568 — 594
LHFI — 7 — 7
MSRs — 15 (513) (498)
Liabilities
Brokered time deposits (62) — — (62)
Long-term debt (168) — — (168)
1 For the year ended December 31, 2010, income related to LHFS includes $392 million from IRLCs, which includes $274 million related to MSRs recognized
upon the sale of loans reported at fair value. For the year ended December 31, 2010, income related to MSRs includes $15 million of MSRs recognized
upon the sale of loans reported at LOCOM.
2Changes in fair value for the year ended December 31, 2010, exclude accrued interest for the periods then ended. Interest income or interest expense on
trading loans, LHFS, LHFI, brokered time deposits, and long-term debt that have been elected to be carried at fair value are recorded in interest income or
interest expense in the Consolidated Statements of Income.
The following is a discussion of the valuation techniques and inputs used in developing fair value measurements for assets
and liabilities classified as level 2 or 3 that are measured at fair value on a recurring basis, based on the class of asset or liability
as determined by the nature and risks of the instrument.
Trading Assets and Securities Available for Sale
Unless otherwise indicated, trading assets are priced by the trading desk and securities AFS are valued by an independent
third party pricing service.
Federal agency securities
The Company includes in this classification securities issued by federal agencies and GSEs. Agency securities consist
of debt obligations issued by HUD, FHLB, and other agencies or collateralized by loans that are guaranteed by the
SBA and are, therefore, backed by the full faith and credit of the U.S. government. For SBA instruments, the Company
estimated fair value based on pricing from observable trading activity for similar securities or obtained fair values
from a third party pricing service; accordingly, the Company has classified these instruments as level 2.
U.S. states and political subdivisions
The Company’s investments in U.S. states and political subdivisions (collectively “municipals”) include obligations
of county and municipal authorities and agency bonds, which are general obligations of the municipality or are
supported by a specified revenue source. Holdings were geographically dispersed, with no significant concentrations
in any one state or municipality. Additionally, all but an immaterial amount of AFS municipal obligations classified
as level 2 are highly rated or are otherwise collateralized by securities backed by the full faith and credit of the federal
government.
Level 3 AFS municipal securities includes ARS purchased since the auction rate market began failing in February
2008 and have been considered level 3 securities due to the significant decrease in the volume and level of activity
in these markets, which has necessitated the use of significant unobservable inputs into the Company’s valuations.
Municipal ARS are classified as securities AFS. These securities were valued based on comparisons to similar ARS
for which auctions are currently successful and/or to longer term, non-ARS issued by similar municipalities. The
Company also evaluated the relative strength of the municipality and made appropriate downward adjustments in
price based on the credit rating of the municipality as well as the relative financial strength of the insurer on those
bonds. Although auctions for several municipal ARS have been operating successfully, ARS owned by the Company
at December 31, 2012, continued to be classified as level 3 as they are those ARS for which the auctions continued
to fail; accordingly, due to the uncertainty around the success rates for auctions and the absence of any successful
auctions for these identical securities, the Company continued to price the ARS below par.
Level 3 AFS municipal bond securities also include bonds that are only 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. To estimate