SunTrust 2003 Annual Report Download - page 62

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
60 SunTrust Banks, Inc. Annual Report 2003
NOTE 1 ACCOUNTING POLICIES
GENERAL
The consolidated financial statements include the accounts of
the Company and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated. Results of
operations of companies purchased are included from the dates
of acquisition. Assets and liabilities of purchased companies are
stated at estimated fair values at the date of acquisition.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclo-
sure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could vary from these
estimates; however, in the opinion of management, such vari-
ances would not be material. Certain reclassifications have been
made to prior year amounts to conform to the 2003 presentation.
SECURITIES
Securities in the investment portfolio are classified as securities
available for sale and are carried at market value with unrealized
gains and losses, net of any tax effect, included in accumulated
other comprehensive income as a component of shareholders’
equity. Realized gains and losses on the securities portfolio are
determined using the specific identification method and recog-
nized currently in the Consolidated Statements of Income.
Trading account securities are carried at market value with
the gains and losses, determined using the specific identification
method and recognized currently in the Consolidated Statements
of Income. Included in noninterest income are realized and unreal-
ized gains and losses resulting from such market value adjustments
of trading account securities and from recording the results of sales.
LOANS HELD FOR SALE
Loans held for sale that are not documented as the hedged item
in a fair value hedge are carried at the lower of aggregate cost or
market value. Adjustments to reflect market value and realized
gains and losses upon ultimate sale of the loans are classified as
other noninterest income.
Loans held for sale that are documented as the hedged item
in a fair value hedge are carried at fair value. Fair value is based
on the contract prices at which the loan will be sold, or if the
loan is not committed for sale, the current market price.
The Company classifies certain residential mortgage loans
and student loans as loans held for sale. Upon transfer to loans
held for sale, any losses are recorded through the allowance for
loan losses with subsequent losses recorded as a component of
noninterest expense.
LOANS
Interest income on all types of loans is accrued based upon the
outstanding principal amounts, except those classified as nonac-
crual loans. Interest accrual is discontinued when it appears that
future collection of principal or interest according to the contrac-
tual terms may be doubtful. Interest income on nonaccrual loans
is recognized on a cash basis if there is no longer doubt of future
collection of principal. Loans classified as nonaccrual, except for
smaller balance homogenous loans, which include consumer and
residential loans, meet the criteria to be considered impaired
loans. The Company classifies a loan as nonaccrual with the
occurrence of one of the following events: (i) interest or principal
has been in default 90 days or more, unless the loan is well-
secured and in the process of collection; (ii) collection of recorded
interest or principal is not anticipated; or (iii) income for the loan
is recognized on a cash basis due to the deterioration in the finan-
cial condition of the debtor. Consumer and residential mortgage
loans are typically placed on nonaccrual when payments have
been in default for 90 and 125 days or more, respectively. (See
Allowance for Loan Losses section of this Note for further discus-
sion of impaired loans.)
Fees and incremental direct costs associated with the loan
origination and pricing process are deferred and amortized as
level yield adjustments over the respective loan terms. Fees
received for providing loan commitments and letter of credit
facilities that result in loans are deferred and then recognized
over the term of the loan as an adjustment of the yield. Fees on
commitments and letters of credit that are not expected to be
funded are amortized into noninterest income using the straight-
line method over the commitment period.
ALLOWANCE FOR LOAN LOSSES
The Company’s allowance for loan losses is that amount consid-
ered adequate to absorb losses in the portfolio based on
management’s evaluations of the size and current risk character-
istics of the loan portfolio. Such evaluations consider the level of
problem loans, prior loan loss experience, as well as the impact
of current economic conditions, portfolio concentrations and
other risk factors. Specific allowances for loan losses are estab-
lished for individual impaired loans as required per SFAS Nos.
114 and 118. The specific allowance established for these loans
is based on a thorough analysis of the most probable source of
repayment, including the present value of the loan’s expected
future cash flow, the loan’s estimated market value or the esti-
mated fair value of the underlying collateral. General allowances
are established for loans that can be grouped into pools based on
similar characteristics as outlined in SFAS No. 5. In this process,
general allowance factors are based on the results of a statistical
loss migration analysis and other analyses of recent and historical
charge-off experience and are typically applied to the portfolio in
terms of loan type and internal credit risk ratings. Economic