SunTrust 2009 Annual Report Download - page 103

SUNTRUST BANKS, INC.
Notes to Consolidated Financial Statements (Continued)
After April 1, 2009, the Company changed its policy based on an update to the guidance on determining OTTI. Based on the
updated guidance, the Company determines whether it has the intent to sell the debt security or whether it is more likely than
not it will be required to sell the debt security before the recovery of its amortized cost basis. If either condition is met, the
Company will recognize a full impairment and write the debt security down to fair value. For all other debt securities for
which the Company does not expect to recover the entire amortized cost basis of the security and do not meet either
condition, an OTTI loss is considered to have occurred, and the Company records the credit loss portion of impairment in
earnings and the temporary impairment related to all other factors in OCI.
The Company also holds beneficial interests in securitized financial assets (other than those of high credit quality or
sufficiently collateralized to ensure the possibility of credit loss is remote). The Company determines whether OTTI exists by
evaluating whether there had been an adverse change in the present value of estimated cash flows from the present value of
cash flows previously projected. For additional information on the Company’s securities activities, refer to Note 5,
“Securities Available for Sale,” to the Consolidated Financial Statements.
Nonmarketable equity securities include venture capital equity and certain mezzanine securities that are not publicly traded
as well as equity investments acquired for various purposes. These securities are accounted for under the cost or equity
method and are included in other assets. The Company reviews nonmarketable securities accounted for under the cost
method on a quarterly basis and reduces the asset value when declines in value are considered to be other-than-temporary.
Equity method investments are recorded at cost, adjusted to reflect the Company’s portion of income, loss or dividends of the
investee. Realized income, realized losses and estimated other-than-temporary unrealized losses on cost and equity method
investments are recognized in noninterest income in the Consolidated Statements of Income/(Loss).
Loans Held for Sale
The Company’s LHFS includes certain residential mortgage loans, commercial loans, and student loans. LHFS are recorded
at either the lower of cost or fair value, or fair value if elected. Origination fees and costs for LHFS recorded at the lower of
cost or fair value are capitalized in the basis of the loan and are included in the calculation of realized gains and losses upon
sale. Origination fees and costs are recognized in earnings at the time of origination for LHFS that are recorded at fair value.
Fair value is derived from observable current market prices, when available, and includes loan servicing value. When
observable market prices are not available, the Company will use judgment and estimate fair value using internal models, in
which the Company uses its best estimates of assumptions it believes would be used by market participants in estimating fair
value. Adjustments to reflect unrealized gains and losses resulting from changes in fair value and realized gains and losses
upon ultimate sale of the loans are classified as noninterest income in the Consolidated Statements of Income/(Loss).
The Company may transfer certain residential mortgage loans, commercial loans, and student loans to a held for sale
classification at the lower of cost or fair value. At the time of transfer, any credit losses are recorded as a reduction in the
allowance for loan losses. Subsequent credit losses as well as incremental interest rate or liquidity related valuation
adjustments are recorded as a component of noninterest income in the Consolidated Statements of Income/(Loss). The
Company may also transfer loans from held for sale to held for investment. At the time of transfer, any difference between
the carrying amount of the loan and its outstanding principal balance is recognized as an adjustment to yield using the
interest method, unless the loan was elected upon origination to be accounted for at fair value. If a held for sale loan is
transferred to held for investment for which fair value accounting was elected, it will continue to be accounted for at fair
value in the held for investment portfolio. For additional information on the Company’s LHFS activities, refer to Note 6,
“Loans,” to the Consolidated Financial Statements.
Loans
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are considered
held for investment. The Company’s loan balance is comprised of loans held in portfolio, including commercial loans,
consumer loans, real estate loans and lines, credit card receivables, direct financing leases, leveraged leases, and nonaccrual
and restructured loans. Interest income on all types of loans is accrued based upon the outstanding principal amounts, except
those classified as nonaccrual loans. The Company typically classifies commercial and commercial real estate loans as
nonaccrual when one of the following events occurs: (i) interest or principal has been in default 90 days or more, unless the
loan is secured by collateral having realizable value sufficient to discharge the debt in full and the loan is in the legal 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 financial condition of the debtor. Consumer and residential mortgage loans are
typically placed on nonaccrual when payments have been in default for 90 and 120 days or more, respectively.
When a loan is placed on nonaccrual, unpaid interest is reversed against interest income. Interest income on nonaccrual
loans, if recognized, is either recorded using the cash basis method of accounting or recognized at the end of the loan after
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