SunTrust 2015 Annual Report Download - page 166

Notes to Consolidated Financial Statements, continued
138
Fair Value Gain/(Loss) for the Year Ended
December 31, 2013 for Items Measured at Fair Value
Pursuant to Election of the FVO
(Dollars in millions)
Trading
Income
Mortgage
Production
Related
Income 1
Mortgage
Servicing
Related
Income
Total Changes
in Fair Values
Included in
Earnings 2
Assets:
Trading loans $13 $— $— $13
LHFS 1 (135) — (134)
LHFI — (10) — (10)
MSRs — 4 50 54
Liabilities:
Brokered time deposits 8 — — 8
Long-term debt 36 — — 36
1 Income related to LHFS does not include income from IRLCs. For the year ended December 31, 2013, income related to MSRs includes income recognized upon the sale of loans
reported at LOCOM.
2 Changes in fair value for the year ended December 31, 2013 exclude accrued interest for the period 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 measured at fair value are recognized 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 estimating fair value measurements for assets and
liabilities measured at fair value on a recurring basis and classified as level 2 or 3.
Trading Assets and Derivative Instruments 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 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 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 at December 31, 2015 and
2014 includes an immaterial amount of 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; therefore, these securities are priced at
par.
MBS – agency
Agency MBS includes pass-through securities and collateralized
mortgage obligations issued by GSEs and U.S. government
agencies, such as Fannie Mae, Freddie Mac, and Ginnie Mae.
Each security contains a guarantee by the issuing GSE or agency.
For agency MBS, 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.
MBS – private
Private MBS includes purchased interests in third party
securitizations, as well as retained interests in Company-
sponsored securitizations of 2006 and 2007 vintage residential
mortgages (including both prime jumbo fixed rate collateral and
floating rate collateral). At the time of purchase or origination,
these securities had high investment grade ratings; however,
through the credit crisis, they experienced deterioration in credit
quality leading to downgrades to non-investment grade levels.
The Company obtains pricing for these securities from an
independent pricing service. The Company evaluates third party
pricing to determine the reasonableness of the information
relative to changes in market data, such as any recent trades,
information received from market participants and analysts, and/
or changes in the underlying collateral performance. The
Company continued to classify private MBS as level 3, as the
Company believes that available third party pricing relies on
significant unobservable assumptions, as evidenced by a
persistently wide bid-ask price range and variability in pricing
from the pricing services, particularly for the vintage and
exposures held by the Company.