SunTrust 2011 Annual Report Download - page 124
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Please find page 124 of the 2011 SunTrust annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.Notes to Consolidated Financial Statements (Continued)
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characteristics of individual properties. Changes in collateral value affect the ALLL through the risk rating or impaired loan
evaluation process. Charge-offs are recognized when the amount of the loss is quantifiable and timing is known. The charge-off
is measured based on the difference between the loan’s carrying value, including deferred fees, and the estimated net realizable
value of the loan, net of estimated selling costs. When assessing property value for the purpose of determining a charge-off, a
third-party appraisal or an independently derived internal evaluation is generally employed.
For mortgage loans secured by residential property where the Company is proceeding with a foreclosure action, a new valuation
is obtained prior to the loan becoming 180 days past due and, if required, the loan is written down to net realizable value, net of
estimated selling costs. In the event the Company decides not to proceed with a foreclosure action, the full balance of the loan is
charged-off. If a loan remains in the foreclosure process for 12 months past the original charge-off, typically at 180 days past due,
the Company obtains a new valuation annually. Any additional loss based on the new valuation is either charged-off or provided
for through the ALLL. At foreclosure, a new valuation is obtained and the loan is transferred to OREO at the 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 MSA 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. For additional information on the Company's Allowance for Credit Loss
activities, see Note 7, “Allowance for Credit Losses.”
Premises and Equipment
Premises and equipment are carried at cost less accumulated depreciation and amortization. Depreciation is calculated
predominantly 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 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, see Note 8, “Premises and Equipment.”
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, see Note 9, “Goodwill and Other Intangible
Assets.”