SunTrust 2011 Annual Report Download - page 125
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Please find page 125 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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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. Effective January 1, 2009, MSRs related to loans originated and sold after
January 1, 2008 were accounted for at fair value. Effective January 1, 2010, the Company elected to record MSRs related to loans
originated and sold before January 1, 2008, at fair value. These MSRs were previously carried at LOCOM. The Company now
records all MSRs at fair value. Fair value is determined by projecting net servicing cash flows, which are then discounted to
estimate the fair value. The Company actively hedges its MSRs.The fair values of MSRs are impacted by a variety of factors,
including prepayment assumptions, discount rates, delinquency rates, contractually specified servicing fees, servicing costs and
underlying portfolio characteristics. The underlying assumptions and estimated values are corroborated by values received from
independent third parties. The carrying value of MSRs is reported on the Consolidated Balance Sheets in other intangible assets.
Servicing fees are recognized as they are received and changes in fair value are also reported in mortgage servicing related income
in the Consolidated Statements of Income/(Loss). For additional information on the Company’s servicing fees, see Note 9,
“Goodwill and Other Intangible Assets.”
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’s cost
basis or the asset’s fair value at the date of foreclosure, less estimated selling costs. To the extent fair value, less cost to sell, is less
than the loan’s cost basis, the difference is charged to the ALLL at the date of transfer into OREO. The Company estimates 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). For additional
information on the Company's activities related to OREO, see Note 19, “Fair Value Election and Measurement.”
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. Previously when the Company retained
securitized interests, the cost basis of the securitized financial assets were allocated between the sold and retained portions based
on their relative fair values. The gain or loss on sale was 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 retained interests
were subsequently carried at fair value. Since January 1, 2010, retained securitized interests are recognized and initially measured
at fair value. The interests in securitized assets held by the Company are typically classified as either securities AFS or trading
assets and 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. For
additional information on the Company’s securitization activities, see Note 11, “Certain Transfers of Financial Assets and Variable
Interest Entities.”
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 interest income from lending to tax-exempt entities and tax credits from community reinvestment
activities. Deferred income tax assets and liabilities result from differences between the timing of the recognition of assets and
liabilities 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 the provision/(benefit) for income taxes for the period in which the change is
enacted. A valuation allowance is recognized for a DTA if, based on the weight of available evidence, it is more likely than not
that some portion or all of the DTA 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. Interest and penalties
related to the Company’s tax positions are recognized as a component of income tax provision/(benefit). For additional information
on the Company’s activities related to income taxes, see Note 15, “Income Taxes.”
Earnings Per Share
Basic EPS is computed by dividing net income/(loss) available to common shareholders by the weighted average number of
common shares outstanding during each period. Diluted EPS is computed by dividing net income available to common shareholders