SunTrust 2009 Annual Report Download - page 105

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. Leasehold improvements are amortized using
the straight-line method over the shorter of the improvements’ estimated useful lives or the lease term, depending on whether
the lease meets the transfer of ownership or bargain-purchase option criterion. Certain leases are capitalized as assets for
financial reporting purposes. Such capitalized assets are amortized, using the straight-line method, over the assets’ estimated
useful lives or the lease terms, depending on the criteria that gave rise to the capitalization of the assets. 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. For additional
information on the Company’s premises and equipment activities, refer to Note 8, “Premises and Equipment,” to the
Consolidated Financial Statements.
Goodwill and Other Intangible Assets
Goodwill represents the excess 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 steps. The first step is used to identify potential impairment and the second step, if
required, measures the amount of impairment by comparing the carrying amount of goodwill to its implied fair value. If the
implied fair value of the goodwill exceeds the carrying amount, there is no impairment. If the goodwill assigned to a
reporting unit exceeds the implied fair value of the goodwill, an impairment charge is recorded for the excess.
Identified intangible assets that have a designated 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.
For additional information on the Company’s activities related to goodwill and other intangibles, refer to Note 9, “Goodwill
and Other Intangible Assets,” to the Consolidated Financial Statements.
MSRs
The Company recognizes as assets the rights to service mortgage loans based on the estimated fair value of the MSRs when
loans are sold and the associated servicing rights are retained.
As of December 31, 2009, the Company maintained two classes of MSRs. Beginning January 1, 2009, MSRs related to loans
originated and sold after January 1, 2008 are accounted for at fair value. MSRs related to loans sold before January 1, 2008
were accounted for at amortized cost, net of any allowance for impairment losses. Effective January 1, 2010, the Company
elected to record the MSRs carried at the LOCOM at fair value. See Note 9, “Goodwill and Other Intangible Assets,” to the
Consolidated Financial Statements for further discussion regarding this election. Historically, the Company has not directly
hedged its MSRs accounted for at amortized cost, but has managed the economic risk through the Company’s overall asset/
liability management process with consideration to the natural counter-cyclicality of servicing and mortgage production.
Effective January 1, 2009, when the Company created the class of MSRs accounted for at fair value, the Company began to
actively hedge this class of MSRs.
The fair values of MSRs are determined by projecting net servicing cash flows, which are then discounted to estimate the fair
value. The fair values of MSRs are impacted by a variety of factors, including prepayment assumptions, discount rates,
delinquency rates, contractually specified servicing fees, and underlying portfolio characteristics. The underlying
assumptions and estimated values are corroborated by values received from independent third parties.
Amortized MSRs are carried at the LOCOM value. MSRs are amortized over the period of the estimated future net servicing
cash flows. The projected future cash flows are derived from the same model and assumptions used to estimate the fair value
of MSRs. For purposes of measuring impairment, MSRs accounted for at amortized cost are stratified based on interest rate
and type of related loan. When fair value is less than amortized cost for an individual stratum and the impairment is believed
to be temporary, the impairment is recorded to a valuation allowance through mortgage servicing income in the Consolidated
Statements of Income/(Loss). The carrying value of MSRs is maintained on the Consolidated Balance Sheets in other
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