SunTrust 2006 Annual Report Download - page 93

SUNTRUST BANKS, INC.
Notes to Consolidated Financial Statements (Continued)
Premises and Equipment
Premises and equipment are carried at cost less accumulated depreciation and amortization.
Depreciation is calculated primarily using the straight-line method over the assets’ estimated useful
lives. Certain leases are capitalized as assets for financial reporting purposes. Such capitalized assets are
amortized, using the straight-line method, over the terms of the leases. Construction in process primarily
includes in process branch expansion, branch renovation, and software development projects. Upon
completion, branch related projects are maintained in premises and equipment while completed software
projects are reclassified to other assets. Maintenance and repairs are charged to expense, and
improvements are capitalized.
Goodwill and Other Intangibles Assets
Goodwill represents the excess of purchase price over the fair value of identifiable net assets of acquired
companies. Goodwill is not amortized and instead is subject to impairment testing on an annual basis, or
more often if events or circumstances indicate that there may be impairment. The goodwill impairment
test is performed in two phases. The first phase is used to identify potential impairment and the second
phase, if required, identifies the amount of impairment by comparing the carrying amount of goodwill to
its implied fair value.
Identified intangible assets that have a finite life are amortized over their useful lives and are evaluated
for impairment whenever events or changes in circumstances indicate the carrying amount of the assets
may not be recoverable.
Mortgage Servicing Rights (“MSRs”)
The Company recognizes as assets the rights to service mortgage loans for others whether the servicing
rights are acquired through purchase or loan origination. Purchased MSRs are capitalized at cost. For
loans originated and sold where the servicing rights have been retained, the Company records servicing
rights based on their estimated fair value at the time of sale of the underlying mortgage loan. Fair value
is determined through a review of valuation assumptions that are supported by market and economic
data collected from various outside sources. The carrying value of MSRs is maintained on the
Consolidated Balance Sheets in intangible assets.
There are two components to the amortization expense that the Company records on MSRs. First, the
Company fully amortizes the remaining balance of all MSR assets for loans paid in full in recognition of
the termination of future cash flow streams. Second, amortization of the MSR assets related to
outstanding loans is recorded based on the cash flows as estimated by future net servicing income. The
projected future cash flows are calculated and updated monthly by applying market-based assumptions.
Impairment for MSRs is determined based on the fair value of the rights, stratified by predominate risk
characteristics according to interest rate and type of related loan. Impairment, if any, is recognized
through a valuation allowance with a corresponding charge recorded in the Consolidated Statements of
Income.
Loan Sales and Securitizations
The Company sells and at times may securitize loans and other financial assets. When the Company
securitizes assets, it may retain a portion of the securities issued, including senior interests, interest-only
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