SunTrust 2010 Annual Report Download - page 114

SUNTRUST BANKS, INC.
Notes to Consolidated Financial Statements (Continued)
new valuation less estimated selling costs; any loan balance in excess of the transfer value is charged-off. Estimated declines
in value of the residential collateral between these formal evaluation events are captured in the ALLL based on changes in
the house price index in the applicable metropolitan statistical area or other market information.
In addition to the ALLL, the Company also estimates probable losses related to unfunded lending commitments, such as
letters of credit and binding unfunded loan commitments. Unfunded lending commitments are analyzed and segregated by
risk similar to funded loans based on the Company’s internal risk rating scale. These risk classifications, in combination with
an analysis of historical loss experience, probability of commitment usage, existing economic conditions, and any other
pertinent information, result in the estimation of the reserve for unfunded lending commitments. The reserve for unfunded
lending commitments is reported on the Consolidated Balance Sheets in other liabilities and through the third quarter of
2009, the provision associated with changes in the unfunded lending commitment reserve was reported in the Consolidated
Statements of Income/(Loss) in noninterest expense. Beginning in the fourth quarter of 2009, the Company began recording
changes in the unfunded lending commitment reserve in the provision for credit losses.
See Note 7, “Allowance for Credit Losses,” to the Consolidated Financial Statements for additional information.
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 and are amortized using the straight-line method of amortization 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 that extend the useful life of
an asset are capitalized and depreciated over the remaining useful life. Premises and equipment are evaluated for impairment
whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. 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.
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