SunTrust 2007 Annual Report Download - page 97

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SUNTRUST BANKS, INC.
Notes to Consolidated Financial Statements (Continued)
financial reporting purposes. Such capitalized assets are amortized, using the straight-line method, over the terms of the
leases. Construction and software 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 assigned to reporting units, which are operating segments or one level below an operating segment, as of the
acquisition date. Goodwill is assigned to the Company’s reporting units that are expected to benefit from the synergies of the
business combination.
Goodwill is not amortized and instead is tested for impairment, at least annually, at the reporting unit level. 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 MSRs are acquired through
purchase or loan origination. Purchased MSRs are capitalized at cost. For loans originated and sold where the MSRs have
been retained, the Company records MSRs 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
other intangible assets.
Amortization of MSR’s related to outstanding loans is recorded based on the cash flows as estimated by future net servicing
income, including the write-off of MSRs associated with loans that are paid in full. 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. No
impairment has been recognized, but if present, would be recognized through a valuation allowance with a corresponding
charge recorded in the Consolidated Statement of Income.
Other Real Estate Owned
Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at the lower of the loan
balance or fair value at the date of foreclosure, less estimated costs to sell, establishing a new cost basis. Subsequent to
foreclosure, valuations are periodically performed by management, and the assets are carried at the lower of carrying amount
or fair value, less estimated costs to sell.
Loan Sales and Securitizations
The Company sells and at times may securitize loans and other financial assets. When the Company securitizes assets, it may
hold a portion of the securities issued, including senior interests, subordinated and other residual interests, interest-only
strips, and principal-only strips, all of which are considered interests in the transferred assets that continue to be held by the
Company. Interests in securitized assets that continue to be held by the Company, excluding servicing assets, if any, are
typically classified as either securities available for sale or trading assets and are recorded at their allocated carrying amounts
based on the relative fair value of the assets sold and interests that continue to be held by the Company. These interests are
subsequently carried at fair value, which is based on independent, third-party market prices, market prices for similar assets,
or discounted cash flow analyses. If market prices are not available, fair value is calculated using management’s best
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