SunTrust 2009 Annual Report Download - page 106

SUNTRUST BANKS, INC.
Notes to Consolidated Financial Statements (Continued)
intangible assets. Servicing fees are recognized as they are earned and are reported net of amortization expense and any
impairments in mortgage servicing related income in the Consolidated Statements of Income/(Loss). For additional
information on the Company’s servicing fees, refer to Note 11, “Certain Transfers of Financial Assets, Mortgage Servicing
Rights and Variable Interest Entities,” to the Consolidated Financial Statements.
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 the asset’s fair value at the date of foreclosure, less estimated costs to sell, establishing a new cost basis. Any
difference between this initial cost basis and the carrying value of the loan is charged to the ALLL at the date of transfer into
OREO. We estimate market values primarily based on appraisals and other market information. Subsequent changes in value
of the assets are reported as adjustments to the asset’s carrying amount. Subsequent to foreclosure, changes in value along
with gains or losses from the disposition on these assets are reported in noninterest expense in the Consolidated Statements of
Income/(Loss).
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 retained interests in the transferred assets. When the Company
retains securitized interests, the cost basis of the securitized financial assets are allocated between the sold and retained
interests based on their relative fair values; the gain or loss on sale is then calculated based on the difference between
proceeds received, which includes cash proceeds and the fair value of MSRs, if any, and the cost basis allocated to the sold
interests. The interests in securitized assets held by the Company are typically classified as either securities available for sale
or trading assets. 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 estimates of key assumptions, including credit losses, loan repayment speeds and
discount rates commensurate with the risks involved. Unrealized gains and losses on retained interests classified as available
for sale are shown, net of any tax effect, in AOCI as a component of shareholders’ equity. Realized gains and losses on
available for sale or trading securities and unrealized gains and losses on trading securities are recorded in noninterest
income in the Consolidated Statements of Income/(Loss). For additional information on the Company’s securitization
activities, refer to Note 11, “Certain Transfers of Financial Assets, Mortgage Servicing Rights and Variable Interest Entities,”
to the Consolidated Financial Statements.
Income Taxes
The provision/(benefit) for income taxes is based on income and expense reported for financial statement purposes after
adjustment for permanent differences such as tax-exempt income and tax credits. Deferred income tax assets and liabilities
result from temporary differences between assets and liabilities measured for financial reporting purposes and for income tax
return purposes. These assets and liabilities are measured using the enacted tax rates and laws that are currently in effect.
Subsequent changes in the tax laws require adjustment to these assets and liabilities with the cumulative effect included in
income from continuing operations for the period in which the change was enacted. A valuation allowance is recognized for a
deferred tax asset if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred
tax asset will not be realized. In computing the income tax provision/(benefit), the Company evaluates the technical merits of its
income tax positions based on current legislative, judicial and regulatory guidance. The Company classifies interest and
penalties related to its tax positions as a component of income tax expense/(benefit). For additional information on the
Company’s activities related to income taxes, refer to Note 15, “Income Taxes,” to the Consolidated Financial Statements.
Earnings per Share
Basic EPS are computed by dividing net income/(loss) available to common shareholders by the weighted average number of
common shares outstanding during each period. Diluted EPS are computed by dividing net income available to common
shareholders by the weighted average number of common shares outstanding during each period, plus common share
equivalents calculated for stock options and restricted stock outstanding using the treasury stock method. In periods of net
loss, diluted EPS is calculated in the same manner as basic EPS.
The Company has issued certain restricted stock awards, which are unvested share-based payment awards that contain
nonforfeitable rights to dividends or dividend equivalents. These restricted shares are considered participating securities.
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