STI » Topics » Valuation Techniques

This excerpt taken from the STI 10-Q filed May 8, 2009.

Valuation Techniques

In determining the fair value of our reporting units, we primarily use discounted cash flow analyses, which require assumptions about short and long-term net cash flow growth rates for each reporting unit, as well as discount rates. In addition, we apply guideline company and guideline transaction information, where available, to aid in the valuation of certain reporting units. The guideline information is based on publicly available information. A valuation multiple is selected based on a financial benchmarking analysis that compares the reporting unit’s benchmark result with the guideline information. In addition to these financial considerations, qualitative factors such as asset quality, growth opportunities, and overall risk are considered in the ultimate selection of the multiple used to estimate a value on a minority basis. A control premium of 30% is applied to the minority basis value to arrive at the reporting unit’s estimated fair value on a controlling basis. For the Commercial Real Estate and Affordable Housing reporting units, we utilized the cost approach (also known as the asset approach) to estimate fair value which is based on the fair value of the businesses’ assets and liabilities, including previously unrecognized intangible assets. The cost/asset approach derived fair values that were lower than the values estimated using the discounted cash flow analysis and market based approach; however, due to a market participant’s likely considerations around the long-term growth prospects of the business, we determined that the cost/asset approach was most appropriate. For example, in the first quarter, we have decided to scale back our commercial real estate business given the reduction in current and expected loan demand, and shifted resources from relationship acquisition and management to our special assets division, which focuses on loan workouts.

The values separately derived from each valuation technique (i.e., discounted cash flow, guideline company, guideline transaction, and asset accumulation) are used to develop an overall estimate of a reporting unit’s fair value. In 2008, the discounted cash flow analysis was weighted 60% and the market based approaches were weighted 40% in the final estimated value. In the first quarter of 2009, the discounted cash flow approach was weighted 70% and the market based approaches were weighted 30%. These weightenings were adjusted due to a reduction in relevant market based information resulting in less comparability in the reporting unit’s estimated value using the benchmark result. The selection and weighting of the various fair value techniques may result in a higher or lower fair value. Judgment is applied in determining the selection and weightings that are most representative of fair value.

This excerpt taken from the STI 10-K filed Mar 2, 2009.

Valuation Techniques

In determining the fair value of our reporting units, we primarily use discounted cash flow analyses, which require assumptions about short and long-term net cash flow growth rates for each reporting unit, as well as discount rates. In addition, in 2008, we also applied guideline company and guideline transaction information, where available, to aid in the valuation of certain reporting units. The guideline information was based on publicly available information. A valuation multiple was selected based on a financial benchmarking analysis that compared the reporting unit’s benchmark result with the guideline information. In addition to these financial considerations, qualitative factors such as asset quality, growth opportunities, and overall risk were considered in the ultimate selection of the multiple used to estimate a value on a minority basis. A control premium of 30% was applied to the minority basis value to arrive at the reporting unit’s estimated fair value on a controlling basis. The values separately derived from each valuation technique (i.e., discounted cash flow, guideline company, and guideline transaction) were used to develop an overall estimate of a reporting unit’s fair value. Generally, the discounted cash flow analysis was weighted 60% and the market based approaches were weighted 40% in the final estimated value. The selection and weighting of the various fair value techniques may result in a higher or lower fair value. Judgment is applied in determining the weightings that are most representative of fair value.

 

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EXCERPTS ON THIS PAGE:

10-Q
May 8, 2009
10-K
Mar 2, 2009

"Valuation Techniques" elsewhere:

Unum Group (UNM)
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