SunTrust 2015 Annual Report Download - page 173

Notes to Consolidated Financial Statements, continued
145
Non-recurring Fair Value Measurements
The following tables present losses recognized on assets still
held at period end, and measured at fair value on a non-recurring
basis, for the years ended December 31, 2015 and 2014.
Adjustments to fair value generally result from the application
of LOCOM or through write-downs of individual assets. The
tables do not reflect changes in fair value attributable to economic
hedges the Company may have used to mitigate interest rate risk
associated with LHFS and MSRs.
Fair Value Measurements Losses for the
Year Ended
December 31, 2015
(Dollars in millions)
December 31,
2015 Level 1 Level 2 Level 3
LHFS $202 $— $— $202 ($6)
LHFI 48 — — 48 —
OREO 19 — — 19 (4)
Other assets 36 — 29 7 (6)
Fair Value Measurements Losses for the
Year Ended
December 31, 2014
(Dollars in millions)
December 31,
2014 Level 1 Level 2 Level 3
LHFS $1,108 $121 $45 $942 ($6)
LHFI 24 — — 24 —
OREO 29 — 1 28 (6)
Affordable housing 77 — — 77 (21)
Other assets 225 — 216 9 (64)
Discussed below are the valuation techniques and inputs used in developing fair value measurements for assets measured at fair
value on a non-recurring basis and classified as level 1, 2, and/or 3.
Loans Held for Sale
At December 31, 2015, LHFS consisted of commercial loans
that were valued using significant unobservable assumptions
from comparably rated loans. As such, limited observable market
data exists as these loans are not actively traded, and,
accordingly, are classified as level 3.
At December 31, 2014, LHFS classified as level 1 consisted
of commercial and industrial loans for which pricing is readily
available, and level 2 assets consisted primarily of agency and
non-agency residential mortgages, which were measured using
observable collateral valuations, and corporate loans, all of
which are accounted for at LOCOM. Level 3 assets at
December 31, 2014 consisted primarily of indirect auto loans
and tax-exempt municipal leases that incurred fair value
adjustments upon being transferred to LHFS, as the Company
elected to actively market these loans for sale. These loans were
valued consistent with the methodology discussed in the
Recurring Fair Value Measurements section of this footnote.
During 2014, the Company transferred $470 million of C&I
loans to LHFS, as the Company elected to actively market these
loans for sale; $340 million of these loans were tax-exempt
municipal leases included in level 3 and the remainder were
included in level 1. Also during 2014, the Company transferred
$38 million of residential mortgage NPLs to LHFS, which are
included in level 2, as the Company elected to actively market
these loans for sale. These loans were predominantly reported at
amortized cost prior to transferring to LHFS, however, a portion
of the NPLs were carried at fair value. Additionally, during 2014,
the Company transferred approximately $600 million of indirect
auto loans to LHFS, included in level 3, which the Company
elected to actively market for sale.
Loans Held for Investment
At December 31, 2015 and 2014, LHFI consisted primarily of
consumer and residential real estate loans discharged in Chapter
7 bankruptcy that had not been reaffirmed by the borrower, as
well as nonperforming CRE loans for which specific reserves
had been recognized. 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 the estimated fair value of the underlying collateral,
incorporating market data if available. There were no gains or
losses during the years ended December 31, 2015 and 2014, as
the charge-offs related to these loans are a component of the
ALLL. Due to the lack of market data for similar assets, all of
these loans are considered level 3.
OREO
OREO is measured at the lower of cost, or fair value less costs
to sell. OREO classified as level 2 consists primarily of
residential homes, commercial properties, and vacant lots and
land for which binding purchase agreements exist. OREO
classified as level 3 consists primarily of residential homes,
commercial properties, and vacant lots and land for which initial
valuations are based on property-specific appraisals, broker
pricing opinions, or other limited, highly subjective market
information. Updated value estimates are received regularly on
level 3 OREO.
Affordable Housing
The Company evaluates its consolidated affordable housing
properties for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be