STI 2018 Annual Report

66 Unfunded Lending Commitments Table 26 As of Average for the Three Months Ended (Dollars in millions) December 31, 2018 December 31, 2017 December 31, 2018 December 31, 2017 Unused lines of credit: Commercial $63,779 $59,625 $63,590 $59,120 Residential mortgage commitments 1 2,739 3,036 3,258 3,556 Home equity lines 10,338 10,086 10,269 10,101 CRE 2 5,307 4,139 4,921 3,963 Credit card 10,852 10,533 10,726 10,488 Total unused lines of credit $93,015 $87,419 $92,764 $87,228 Letters of credit: Financial standby $2,769 $2,453 $2,905 $2,633 Performance standby 102 125 101 121 Commercial 38 14 38 16 Total letters of credit $2,909 $2,592 $3,044 $2,770 1 Includes residential mortgage IRLCs with notional balances of $992 million and $1.7 billion at December 31, 2018 and 2017, respectively. 2 Includes commercial mortgage IRLCs and other commitments with notional balances of $360 million and $240 million at December 31, 2018 and 2017, respectively. Other Market Risk Other sources of market risk include the risk associated with holding loans, securities designated for sale, and mortgage loan commitments, as well as the risk associated with our investment in servicing rights. We manage the risks associated with mortgage LHFS and our IRLCs on mortgage loans intended for sale. The mortgage LHFS and IRLCs consist of fixed and adjustable rate residential and commercial mortgage loans. The risk associated with mortgage LHFS and IRLCs is the potential change in interest rates between the time the customer locks the rate on the anticipated loan and the time the loan is sold, which is typically 30-150 days. We manage interest rate risk predominantly with interest rate swaps, futures, and forward sale agreements, where the changes in value of the instruments substantially offset the changes in value of mortgage LHFS and IRLCs. IRLCs on mortgage loans intended for sale are classified as derivative instruments and are not designated for hedge accounting purposes. All servicing rights are initially measured at fair value by calculating the present value of future net cash flows that are expected to be received from the associated servicing portfolio. The initial value of servicing rights is highly dependent upon the assumed prepayment speed of the servicing portfolio, which is driven by the level of certain key interest rates, primarily the current 30-year mortgage rate. Future expected net cash flows from servicing a loan in the servicing portfolio would not be realized if the loan pays off earlier than anticipated. Wemeasure our residentialMSRs at fair value on a recurring basis and hedge the risk associated with changes in fair value. Residential MSRs totaled $2.0 billion and $1.7 billion at December 31, 2018 and 2017, respectively, and are managed and monitored as part of a comprehensive risk governance process, which includes established risk limits. We originated residential MSRs with fair values at the time of origination of $336 million and $394 million during 2018 and 2017, respectively.Additionally, we purchased residentialMSRs with a fair value of approximately $89 million during the year ended December 31, 2018. No residential MSRs were purchased during the year ended December 31, 2017. We recognized mark-to-market decreases in the fair value of residential MSRs of $149 million and $248 million during 2018 and 2017, respectively. Changes in fair value include the UPB decay resulting from the realization of monthly net servicing cash flows as well as credit decay resulting from shifts in the delinquency status of the underlying loans. We recognized net losses on residential MSRs, inclusive of fair value changes and related hedges, of $249million and $212million during 2018 and 2017, respectively. Compared to the prior year, the increase in net losses on residential MSRs was primarily driven by a decrease in net hedge performance combined with higher decay in the current period. All other servicing rights, which include commercial mortgage servicing rights, are not measured at fair value on a recurring basis, and therefore, are not subject to the same market risks associated with residential MSRs. We held a total net book value of approximately $68 million and $22 million of non-public equity exposures (direct investments) and other equity-related investments at December 31, 2018 and 2017, respectively. We generally hold these investments as long-term investments. If conditions in the market deteriorate, these long-term investments and other assets could incur impairment charges. OFF-BALANCE SHEET ARRANGEMENTS In the ordinary course of business, we engage in certain activities that are not reflected in our Consolidated Balance Sheets, generally referred to as “off-balance sheet arrangements.” These activities involve transactions with unconsolidated VIEs as well as other arrangements, such as commitments and guarantees, to meet the financing needs of our clients and to support ongoing operations. Additional information regarding these types of activities is included in the “Liquidity Risk Management” section of this MD&A, as well as in Note 12, “Certain Transfers of Financial Assets and Variable Interest Entities,” Note 13, “Borrowings and Contractual Commitments,” and Note 18,