BB&T 2008 Annual Report Download - page 90

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BB&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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.
Securities
At date of purchase, BB&T classifies marketable investment securities as held to maturity, available for sale
or trading. Interest income and dividends on securities are recognized in interest income on an accrual basis.
Premiums and discounts on debt securities are amortized as an adjustment to interest income using the interest
method.
Debt securities acquired with both the intent and ability to hold to maturity are classified as held to maturity
and reported at amortized cost.
Debt securities, which may be sold to meet liquidity needs arising from unanticipated deposit and loan
fluctuations, changes in regulatory capital requirements, or unforeseen changes in market conditions, are
classified as available for sale. Equity securities classified as available for sale are primarily stock issued by the
Federal Home Loan Bank of Atlanta and are carried at cost, which approximates fair value. All other securities
available for sale are reported at estimated fair value, with unrealized gains and losses reported as accumulated
other comprehensive income or loss, net of deferred income taxes, in the shareholders’ equity section of the
Consolidated Balance Sheets. Gains or losses realized from the sale of securities available for sale are determined
by specific identification and are included in noninterest income.
BB&T evaluates each held to maturity and available-for-sale security in a loss position for other-than-
temporary impairment. In its evaluation BB&T considers such factors as the length of time and the extent to
which the market value has been below cost, the financial condition of the issuer, and BB&T’s ability and intent to
hold the security to an expected recovery in market value. Unrealized losses for other-than-temporary
impairment on debt and equity securities are recognized in current period earnings.
Trading account securities, which include both debt and equity securities, are reported at fair value.
Unrealized market value adjustments, fees, and realized gains or losses from trading account activities
(determined by specific identification) are included in noninterest income. Interest income on trading account
securities is included in interest and dividends from securities.
Loans Held for Sale
Effective January 1, 2008, BB&T elected to account for new originations of prime residential mortgage and
commercial mortgage loans held for sale at fair value in accordance with Financial Standards Accounting Board
(“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115,” (“SFAS
No. 159” or the “Fair Value Option”). This option is generally irrevocable. BB&T elected the Fair Value Option
for these portfolios of loans held for sale because they are hedged using derivatives and the historical accounting
practice resulted in volatility in earnings. Under historical accounting practices, BB&T was required to account
for the derivatives at fair value and the loans held for sale at lower of cost or market. This practice resulted in
volatility in reported earnings during a declining interest-rate environment because the decline in the value of
derivatives held were required to be marked down, but the increasing value of the loans held for sale could not be
marked up. Under the Fair Value Option, BB&T recognizes both the loans held for sale and the corresponding
derivatives at the full fair value, which will eliminate the mismatch in reported earnings that was caused by the
prior accounting practices. BB&T has not elected the Fair Value Option for a small portfolio of its loans held for
sale because these loans are not exchanged in an active market and BB&T does not hedge these assets. Fair value
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