Regions Bank 2010 Annual Report Download - page 141

value of all of the assets and liabilities of the reporting unit, including unrecognized assets and liabilities. The
related valuation methodologies for certain material financial assets and liabilities are discussed in Note 21.
Other identifiable intangible assets are reviewed at least annually for events or circumstances that could
impact the recoverability of the intangible asset. These events could include loss of core deposits, increased
competition or adverse changes in the economy. To the extent other identifiable intangible assets are deemed
unrecoverable, impairment losses are recorded in other non-interest expense to reduce the carrying amount.
Refer to Note 8 for further discussion of the results of the goodwill and other identifiable intangibles
impairment tests.
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS
Regions accounts for transfers of financial assets as sales when control over the transferred assets is
surrendered. Control is generally considered to have been surrendered when (i) the transferred assets are legally
isolated from the Company or its consolidated affiliates, even in bankruptcy or other receivership, (ii) the
transferee has the right to pledge or exchange the assets with no conditions that constrain the transferee and
provide more than a trivial benefit to the Company, and (iii) the Company does not maintain the obligation or
unilateral ability to reclaim or repurchase the assets. If these sale criterion are met, the transferred assets are
removed from the Company’s balance sheet and a gain or loss on sale is recognized. If not met, the transfer is
recorded as a secured borrowing, and the assets remain on the Company’s balance sheet, the proceeds from the
transaction are recognized as a liability, and gain or loss on sale is deferred until the sale criterion are achieved.
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 21
for additional discussion regarding determination of fair value.
FORECLOSED PROPERTY AND OTHER REAL ESTATE
Other real estate and certain other assets acquired in satisfaction of indebtedness (“foreclosure”) are carried
in other assets at the lower of the recorded investment in the loan or fair value less estimated costs to sell the
property. At or shortly after the date of transfer, when the recorded investment in the loan exceeds the property’s
fair value less costs to sell, write-downs are recorded as charge-offs against the allowance. Subsequent to
transfer, additional write-downs are recorded as other non-interest expense. Gain or loss on the sale of foreclosed
property and other real estate is included in other non-interest expense. See Note 9 for details.
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