BB&T 2007 Annual Report Download - page 79

BB&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
other entities. The maximum potential exposure to losses relative to investments in variable interest entities is
generally limited to the sum of the outstanding balance, future funding commitments and any related loans to the
entity. Loans to these entities are underwritten in substantially the same manner as are other loans and are
generally secured.
BB&T has investments in certain entities for which BB&T does not have controlling interest. For these
investments, the Company records its interest using the equity method with its portion of income or loss being
recorded in other noninterest income in the Consolidated Statements of Income. BB&T periodically evaluates
these investments for impairment.
Reclassifications
In certain instances, amounts reported in prior years’ consolidated financial statements have been
reclassified to conform to the current presentation. Such reclassifications had no effect on previously reported
shareholders’ equity or net income.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenues and expenses during the reporting periods. Actual results
could differ from those estimates. Material estimates that are particularly susceptible to significant change relate
to the determination of the allowance for loan and lease losses and the reserve for unfunded lending
commitments, valuation of mortgage servicing rights, valuation of goodwill, intangible assets and other purchase
accounting related adjustments, benefit plan obligations and expenses, and tax assets, liabilities and expense.
Business Combinations
BB&T accounts for all business combinations using the purchase method of accounting. Under this method of
accounting, the accounts of an acquired entity are included with the acquirer’s accounts as of the date of
acquisition with any excess of purchase price over the fair value of the net assets acquired (including identifiable
intangibles) capitalized as goodwill. BB&T typically provides an allocation period not to exceed one year to
finalize the purchase price allocations related to its business combinations. Management currently does not
anticipate material adjustments to the assigned values of the assets and liabilities of acquired companies.
To consummate an acquisition, BB&T typically issues common stock and / or pays cash, depending on the
terms of the merger agreement. The value of common shares issued in connection with purchase business
combinations is determined based on the market price of the securities issued over a reasonable period of time,
not to exceed three days before and three days after the measurement date.
In connection with mergers and acquisitions, BB&T typically issues options to purchase shares of its common
stock in exchange for options outstanding of the acquired entities at the time the merger is completed. To the
extent vested, the options are considered to be part of the purchase price paid. There is no change in the
aggregate intrinsic value of the options issued compared to the intrinsic value of the options held immediately
before the exchange, nor does the ratio of the exercise price per option to the market value per share change.
Cash and Cash Equivalents
Cash and cash equivalents include cash and due from banks, interest-bearing deposits with banks, Federal
funds sold and securities purchased under resale agreements or similar arrangements. Cash and cash equivalents
have maturities of three months or less. Accordingly, the carrying amount of such instruments is considered a
reasonable estimate of fair value.
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