Regions Bank 2009 Annual Report Download - page 136

Prior to January 1, 2009, amounts capitalized for the right to service mortgage loans were amortized as a
component of other non-interest expense over the estimated remaining lives of the loans, considering appropriate
prepayment assumptions. Mortgage servicing rights were recorded at the lower of aggregate cost or estimated
fair value on a stratified basis. For purposes of evaluating impairment, the Company stratified its mortgage
servicing portfolio on the basis of certain risk characteristics, including loan type and interest rate. Impairment
related to mortgage servicing rights was recorded in other non-interest expense. Contractually specified servicing
fees, late fees and other ancillary income related to the servicing of mortgage loans were recorded in mortgage
income.
Effective January 1, 2009, the Company made an election to prospectively change the policy for accounting
for residential mortgage servicing rights from the amortization method to the fair value measurement method.
Under the fair value measurement method, servicing assets are measured at fair value each period with changes
in fair value recorded as a component of mortgage income. Additionally, during the third quarter of 2009,
Regions adopted an option-adjusted spread (OAS) valuation approach. The OAS represents the average spread
over the Libor swap curve that equates the asset’s discounted cash flows to its market price.
The fair value of mortgage servicing rights is calculated using various assumptions including future cash
flows, market discount rates, expected prepayment rates, servicing costs and other factors. A significant change
in prepayments of mortgages in the servicing portfolio could result in significant changes in the valuation
adjustments, thus creating potential volatility in the carrying amount of mortgage servicing rights. See Note 22
for additional discussion regarding determination of fair value.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation and amortization, as applicable.
Depreciation expense is computed using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are amortized using the straight-line method over the estimated useful lives of the
improvements (or the terms of the leases, if shorter). Generally, premises and leasehold improvements are
depreciated or amortized over 10-40 years. Furniture and equipment are generally depreciated or amortized over
3-12 years.
Regions enters into lease transactions for the right to use assets. These leases vary in term and, from time to
time, include incentives and/or rent escalations. Examples of incentives include periods of “free” rent and
leasehold improvement incentives. Regions recognizes incentives and escalations on a straight-line basis over the
lease term as a reduction of or increase to rent expense, as applicable, in net occupancy expense on the
consolidated statements of operations.
INTANGIBLE ASSETS
Intangible assets include goodwill, which is the excess of cost over the fair value of net assets of acquired
businesses, and other identifiable intangibles. Other identifiable intangible assets include the following: (1) core
deposit intangible assets, which are amounts recorded related to the value of acquired indeterminate-maturity
deposits, (2) amounts capitalized related to the value of acquired customer relationships and (3) amounts
recorded related to employment agreements with certain individuals of acquired entities. Core deposit intangibles
and most other identifiable intangibles are amortized on an accelerated basis over their expected useful lives.
The Company’s goodwill is tested for impairment on an annual basis, or more often if events or
circumstances indicate that there may be impairment. Regions assesses the following indicators of goodwill
impairment for each reporting period:
• Recent operating performance,
• Changes in market capitalization,
• Regulatory actions and assessments,
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