SunTrust 2004 Annual Report Download - page 75

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUNTRUST 2004 ANNUAL REPORT 73
Note 1 / ACCOUNTING POLICIES
GENERAL
SunTrust, one of the nation’s largest commercial banking organiza-
tions, is a financial services holding company with its headquarters
in Atlanta, Georgia. SunTrust’s principal banking subsidiaries,
SunTrust Bank and National Bank of Commerce (NBC), offer a full
line of financial services for consumers and businesses through their
branches located primarily in Florida,Georgia, Maryland,Tennessee,
North Carolina, South Carolina, West Virginia, Virginia and the
District of Columbia.Within its geographic footprint, the Company
operates under six business segments.These business segments are:
Retail, Commercial, Corporate and Investment Banking (CIB),
Wealth and Investment Management, Mortgage, NCF, and
Corporate/Other. In addition to traditional deposit, credit and trust
and investment services offered by SunTrust Bank and NBC, other
SunTrust subsidiaries provide mortgage banking, credit-related
insurance, asset management, securities brokerage and capital
market services.
PRINCIPLES OF CONSOLIDATION AND BASIS OF
PRESENTATION
The consolidated financial statements include the accounts of the
Company, its majority-owned subsidiaries, and variable interest
entities (VIEs) where the Company is the primary beneficiary. All
significant intercompany accounts and transactions have been
eliminated. Results of operations of companies purchased are
included from the date of acquisition. Assets and liabilities of pur-
chased companies are stated at estimated fair values at the date of
acquisition. Investments in companies which are not VIEs, that the
Company owns a voting interest of 20 percent to 50 percent and for
which it may have significant influence over operating and financ-
ing decisions are accounted for using the equity method of
accounting. These investments are included in other assets, and
the Company’s proportionate share of income or loss is included
in other income.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
(GAAP) 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. Certain reclassifications have been made to prior year
amounts to conform to the 2004 presentation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and due from banks, inter-
est-bearing bank balances and federal funds sold and securities pur-
chased under resale agreements. Generally, cash and cash
equivalents have maturities of three months or less, and accord-
ingly, the carrying amount of these instruments is deemed to be a
reasonable estimate of fair value.
SECURITIES AND TRADING ACTIVITIES
Securities are classified at the date of commitment or purchase as
trading or as available for sale securities.
Securities available for sale are used as part of the overall asset and
liability management process to optimize income and market per-
formance over an entire interest rate cycle. Interest income and
dividends on securities are recognized in interest income on an
accrual basis. Premiums and discounts on debt securities are amor-
tized as an adjustment to yield over the life of the security.
Securities available for sale are carried at fair 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 securities are determined using
the specific identification method and recognized currently in the
Consolidated Statements of Income. The Company reviews avail-
able for sale securities for impairment on a quarterly basis. The
Company determines whether a decline in fair value below the
amortized cost basis is other than temporary. An available for sale
security that has been other than temporarily impaired is written
down to fair value and the amount of the write down is accounted
for as a realized loss in the Consolidated Statements of Income.
Securities that are bought and held principally for the purpose of
resale in the near future are classified as trading instruments.
Trading account assets and liabilities are carried at market value.
Realized and unrealized gains and losses are determined using the
specific identification method and are recognized currently in the
Consolidated Statements of Income. Included in noninterest
income are realized and unrealized 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 fair
value. Adjustments to reflect market value and realized gains and
losses upon ultimate sale of the loans are classified as other non-
interest 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 con-
tract price at which the mortgage loan will be sold, or if the loan is
not committed for sale, the current market price. Unrealized gains
and losses are recorded as a component of noninterest income.
The Company classifies certain residential mortgage loans and stu-
dent loans as loans held for sale. Loans are transferred to loans held
for sale at the lower of cost or market value. At the time of transfer,
any losses are recorded through the provision for loan losses with
subsequent losses recorded as a component of noninterest expense.
LOANS
The Company’s loan balance is comprised of loans held in portfolio,
including commercial loans, consumer loans, real estate loans and