STI 2018 Annual Report

Notes to Consolidated Financial Statements, continued 154 Fair Value Gain/(Loss) for the Year Ended December 31, 2016 for Items Measured at Fair Value Pursuant to Election of the FVO (Dollars in millions) Trading Income Mortgage Related Income 1 Other Noninterest Income Total Changes in Fair Values Included in Earnings 2 Assets: Trading loans $15 $— $— $15 LHFS — 75 — 75 Residential MSRs — (242) — (242) Liabilities: Brokered time deposits 4 — — 4 Long-term debt 27 — — 27 1 Income related to LHFS does not include income from IRLCs. For the year ended December 31, 2016, income related to residential MSRs includes income recognized upon the sale of loans reported at LOCOM. 2 Changes in fair value for the year ended December 31, 2016 exclude accrued interest for the period then ended. Interest income or interest expense on trading loans, LHFS, 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 for assets and liabilities measured at fair value on a recurring basis. Trading Assets and Derivative Instruments and Investment Securities Securities accounted for at fair value include both the trading and AFS portfolios. Unless otherwise indicated, trading assets are priced by the trading desk and investment securities are valued by an independent third party pricing service. The third party pricing service gathers relevant market data and observable inputs, such as, but not limited to, benchmark yields, reported trades, broker/dealer quotes, and issuer spreads. The Company reviews pricing methodologies provided by the pricing service, which may include detailed reviews of the assumptions and inputs for individual securities. The Company’s primary validation of values is through the Company’s price validation function. Securities are classified within the fair value hierarchy after giving consideration to the activity level in the market for the security type and the observability of the inputs used to determine the fair value. For securities where a quoted market price may not be readily available, fair value is based upon quoted market prices for similar securities or using a fair value methodology that incorporates market observable assumptions. U.S. Treasury Securities The Company estimates the fair value of its U.S. Treasury securities based on quoted prices observed in active markets; as such, these investments are classified as level 1. 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, as well as securities collateralized by loans that are guaranteed by the SBA, and thus, are backed by the full faith and credit of the U.S. government. The Company estimates the fair value of federal agency securities based on pricing from observable trading activity for similar securities or froma third party pricing service; accordingly, these instruments are classified 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 are 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. MBS – Agency AgencyMBS 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 estimates fair value based on pricing from observable trading activity for similar securities or from a third party pricing service; accordingly, the Company classified these instruments as level 2. MBS – Non-Agency Non-agency residential 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, they have 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 frommarket participants and analysts, and/ or changes in the underlying collateral performance. At