SunTrust 2014 Annual Report Download - page 112

Notes to Consolidated Financial Statements, continued
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expected to benefit from the synergies of the business
combination.
Goodwill is tested at the reporting unit level for impairment,
at least annually, or as events and circumstances change that
would more-likely-than-not reduce the fair value of a reporting
unit below its carrying amount. If, after considering all relevant
events and circumstances, the Company determines it is not
more-likely-than-not that the fair value of a reporting unit is less
than its carrying amount, then performing an impairment test is
not necessary. If the Company elects to bypass the qualitative
analysis, or concludes via qualitative analysis that it is more-
likely-than-not that the fair value of a reporting unit is less than
its carrying value, a two-step goodwill impairment test is
performed. In the first step, the fair value of each reporting unit
is compared with its carrying value. If the fair value is greater
than the carrying value, then the reporting unit's goodwill is
considered not to be impaired. If the fair value is less than the
carrying value, then the second step is performed, which
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 carrying amount exceeds the implied fair value
of the goodwill, an impairment charge is recorded for the excess.
Identified intangible assets that have a 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.”
MSRs
The Company recognizes as assets the rights to service mortgage
loans based on the estimated fair value of the MSRs either when
loans are sold and the associated servicing rights are retained or
when servicing rights are purchased from a third party. The
Company has elected to measure 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 MSR’s change in 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, servicing costs and
underlying portfolio characteristics. The underlying
assumptions and estimated values are corroborated by values
received from independent third parties and comparisons to
market transactions. 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. For additional
information on the Company’s servicing rights, 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. Any subsequent changes in value as well as gains
or losses from the disposition on these assets are reported in
noninterest expense in the Consolidated Statements of Income.
For additional information on the Company's activities related
to OREO, see Note 18, “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. 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 measured 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 10, “Certain Transfers of Financial Assets
and Variable Interest Entities.”
Income Taxes
The provision 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. The deferral method of accounting is
used on investments that generate investment tax credits, such
that the investment tax credits are recognized as a reduction to
the related asset. 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 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, 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 the income tax provision. For additional
information on the Company’s activities related to income taxes,
see Note 14, “Income Taxes.”
Earnings Per Share
Basic EPS is computed by dividing net income 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