SunTrust 2015 Annual Report Download - page 109

Notes to Consolidated Financial Statements, continued
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be required to sell the debt security prior to the recovery of its
amortized cost basis, the debt security is written down to fair
value, and the full amount of any impairment charge is
recognized as a component of noninterest income in the
Consolidated Statements of Income. If the Company does not
intend to sell the debt security and it is more-likely-than-not that
the Company will not be required to sell the debt security prior
to recovery of its amortized cost basis, only the credit component
of any impairment of a debt security is recognized as a component
of noninterest income in the Consolidated Statements of Income,
with the remaining impairment balance recorded in OCI.
The OTTI review for marketable equity securities includes
an analysis of the facts and circumstances of each individual
investment and focuses on the severity of loss, the length of time
the fair value has been below cost, the expectation for that
security's performance, the financial condition and near-term
prospects of the issuer, and management's intent and ability to
hold the security to recovery. A decline in value of an equity
security that is considered to be other-than-temporary is
recognized as a component of noninterest income in the
Consolidated Statements of Income.
Nonmarketable equity securities are accounted for under the
cost or equity method and are included in other assets in the
Consolidated Balance Sheets. The Company reviews
nonmarketable securities accounted for under the cost method
on a quarterly basis, and reduces the asset value when declines
in value are considered to be other-than-temporary. Equity
method investments are recorded at cost, adjusted to reflect the
Company’s portion of income, loss, or dividends of the investee.
Realized income, realized losses, and estimated other-than-
temporary unrealized losses on cost and equity method
investments are recognized in noninterest income in the
Consolidated Statements of Income.
For additional information on the Company’s securities
activities, see Note 4, “Trading Assets and Liabilities and
Derivatives,” and Note 5, “Securities Available for Sale.”
Loans Held for Sale
The Company’s LHFS generally includes certain residential
mortgage loans, commercial loans, consumer indirect loans, and
student loans. Loans are initially classified as LHFS when they
are individually identified as being available for immediate sale
and a formal plan exists to sell them. LHFS are recorded at either
fair value, if elected, or the lower of cost or fair value. Origination
fees and costs for LHFS recorded at LOCOM are capitalized in
the basis of the loan and are included in the calculation of realized
gains and losses upon sale. Origination fees and costs are
recognized in earnings at the time of origination for LHFS that
are elected to be measured at fair value. Fair value is derived
from observable current market prices, when available, and
includes loan servicing value. When observable market prices
are not available, the Company uses judgment and estimates fair
value using internal models, in which the Company uses its best
estimates of assumptions it believes would be used by market
participants in estimating fair value. Adjustments to reflect
unrealized gains and losses resulting from changes in fair value
and realized gains and losses upon ultimate sale of the loans are
classified as noninterest income in the Consolidated Statements
of Income.
The Company may transfer certain loans to LHFS measured
at LOCOM. At the time of transfer, any credit losses subject to
charge-off in accordance with the Company's policy are recorded
as a reduction in the ALLL. Any subsequent losses, including
those related to interest rate or liquidity related valuation
adjustments, are recorded as a component of noninterest income
in the Consolidated Statements of Income. The Company may
also transfer loans from LHFS to LHFI measured at LOCOM,
unless the loan was elected upon origination to be accounted for
at fair value. If a LHFS for which fair value accounting was
elected is transferred to held for investment, it will continue to
be accounted for at fair value in the LHFI portfolio. For additional
information on the Company’s LHFS activities, see Note 6,
“Loans.”
Loans
Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-off are considered
LHFI. The Company’s loan balance is comprised of loans held
in portfolio, including commercial loans, consumer loans, and
residential loans. Interest income on loans, except those
classified as nonaccrual, is accrued based upon the outstanding
principal amounts using the effective yield method.
Commercial loans (C&I, CRE, and commercial
construction) are considered to be past due when payment is not
received from the borrower by the contractually specified due
date. The Company typically classifies commercial loans as
nonaccrual when one of the following events occurs: (i) interest
or principal has been past due 90 days or more, unless the loan
is both well secured and in the process of collection; (ii)
collection of contractual interest or principal is not anticipated;
or (iii) income for the loan is recognized on a cash basis due to
the deterioration in the financial condition of the debtor. When
a loan is placed on nonaccrual, accrued interest is reversed
against interest income. Interest income on commercial
nonaccrual loans, if recognized, is recognized after the principal
has been reduced to zero. If and when commercial borrowers
demonstrate the ability to repay a loan classified as nonaccrual
in accordance with its contractual terms, the loan may be returned
to accrual status upon meeting all regulatory, accounting, and
internal policy requirements.
Consumer loans (guaranteed and private student loans, other
direct, indirect, and credit card) are considered to be past due
when payment is not received from the borrower by the
contractually specified due date. Guaranteed student loans
continue to accrue interest regardless of delinquency status
because collection of principal and interest is reasonably assured.
Other direct and indirect loans are typically placed on nonaccrual
when payments have been past due for 90 days or more except
when the borrower has declared bankruptcy, in which case, they
are moved to nonaccrual status once they become 60 days past
due. When a loan is placed on nonaccrual, accrued interest is
reversed against interest income. Interest income on nonaccrual
loans, if recognized, is recognized on a cash basis. Nonaccrual
consumer loans are typically returned to accrual status once they
are no longer past due.
Residential loans (guaranteed and nonguaranteed
residential mortgages, residential home equity products, and
residential construction) are considered to be past due when a
monthly payment is due and unpaid for one month. Guaranteed