SunTrust 2014 Annual Report Download - page 114

Notes to Consolidated Financial Statements, continued
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unrealized gains and losses in AOCI would be immediately
reclassified to earnings. For additional information on the
Company’s derivative activities, see Note 17, “Derivative
Financial Instruments,” and Note 18, “Fair Value Election and
Measurement.”
Stock-Based Compensation
The Company sponsors stock plans under which incentive and
nonqualified stock options and restricted stock may be granted
periodically to certain employees. The Company measures the
grant date fair value of stock-based compensation awards, which
is expensed over the award's vesting period. Additionally, the
Company estimates the number of awards for which it is probable
that service will be rendered and adjusts compensation cost
accordingly. Estimated forfeitures are subsequently adjusted to
reflect actual forfeitures. For additional information on the
Company’s stock-based employee compensation plans, see Note
15, “Employee Benefit Plans.”
Employee Benefits
Employee benefits expense includes the net periodic benefit
costs associated with the pension, supplemental retirement, and
other postretirement benefit plans, as well as contributions under
the defined contribution plan, the amortization of restricted
stock, stock option awards, and costs of other employee benefits.
For additional information on the Company's employee benefit
plans, see Note 15, “Employee Benefit Plans.”
Foreign Currency Transactions
Foreign denominated assets and liabilities resulting from foreign
currency transactions are valued using period end foreign
exchange rates and the associated interest income or expense is
determined using weighted average exchange rates for the
period. The Company may elect to enter into foreign currency
derivatives to mitigate its exposure to changes in foreign
exchange rates. The derivative contracts are accounted for at fair
value. Gains and losses resulting from such valuations are
included in noninterest income in the Consolidated Statements
of Income.
Fair Value
Fair value is defined as the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date.
Depending on the nature of the asset or liability, the Company
uses various valuation techniques and assumptions when
estimating fair value. The Company prioritizes inputs used in
valuation techniques based on the following fair value hierarchy:
• Level 1 – Assets or liabilities valued using unadjusted
quoted prices in active markets for identical assets or
liabilities that the Company can access at the measurement
date, such as publicly-traded instruments or futures
contracts.
• Level 2 – Assets and liabilities valued based on observable
market data for similar instruments.
• Level 3 – Assets or liabilities for which significant valuation
assumptions are not readily observable in the market;
instruments valued based on the best available data, some
of which may be internally developed, and considers risk
premiums that a market participant would require.
When measuring assets and liabilities at fair value, the
Company considers the principal or most advantageous market
in which it would transact and considers assumptions that market
participants would use when pricing the asset or liability. Assets
and liabilities that are required to be measured 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 measure at fair value on a recurring basis
include MSRs and certain LHFS, LHFI, trading loans, brokered
time deposits, and issuances of fixed rate debt. Other assets and
liabilities are measured at fair value on a non-recurring basis,
such as when assets are evaluated for impairment, the basis of
accounting is LOCOM, or for disclosure purposes. Examples of
these non-recurring uses of fair value include certain LHFS and
LHFI, OREO, certain cost or equity method investments, and
long-lived assets. For additional information on the Company’s
valuation of its assets and liabilities held at fair value, see Note
18, “Fair Value Election and Measurement.”