BB&T 2009 Annual Report Download - page 101

BB&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
the hedged items attributable to the risk being hedged. If the hedge ceases to be highly effective, BB&T
discontinues hedge accounting and recognizes the changes in fair value in current period earnings. If a derivative
that qualifies as a fair value or cash flow hedge is terminated or the designation removed, the realized or then
unrealized gain or loss is recognized into income over the original hedge period (fair value hedge) or period in
which the hedged item affects earnings (cash flow hedge). Immediate recognition in earnings is required upon
sale or extinguishment of the hedged item (fair value hedge) or if it is probable that the hedged cash flows will not
occur (cash flow hedge).
Derivatives used to manage economic risk not designated as hedges primarily represent economic risk
management instruments of mortgage servicing rights and mortgage banking operations, with gains or losses included
in mortgage banking income. In connection with its mortgage banking activities, BB&T enters into loan commitments
to fund residential mortgage loans at specified rates and for specified periods of time. To the extent that BB&T’s
interest rate lock commitments relate to loans that will be held for sale upon funding, they are also accounted for as
derivatives, with gains or losses included in mortgage banking income. Gains and losses on other derivatives used to
manage economic risk are primarily associated with client derivative activity and are included in other income.
Per Share Data
Basic net income per common share is computed by dividing net income available to common shareholders by the
weighted average number of shares of common stock outstanding during the years presented. Diluted net income per
common share is computed by dividing net income available to common shareholders by the weighted average number
of shares of common stock, common stock equivalents and other potentially dilutive securities outstanding.
Goodwill and Other Intangible Assets
Goodwill represents the cost in excess of the fair value of net assets acquired (including identifiable
intangibles) in transactions accounted for as acquisitions. BB&T allocates goodwill to the reporting unit(s) that
receive(s) significant benefits from the acquisition. Goodwill is not amortized over an estimated useful life, but
rather is tested at least annually for impairment. BB&T performs its impairment testing in the fourth quarter of
each year and more frequently if circumstances exist that indicate a possible reduction in the fair value of the
business below its carrying value. BB&T measures impairment using the present value of estimated future cash
flows. The analysis is based upon available information regarding expected future cash flows and discount rates.
Discount rates are based upon the cost of capital specific to the industry in which the reporting unit operates. If
the carrying value of the reporting unit exceeds its fair value, a second analysis is performed to measure the fair
value of all assets and liabilities. If, based on the second analysis, it is determined that the fair value of the assets
and liabilities of the reporting unit is less than the carrying value, BB&T would recognize impairment for the
excess of carrying value over fair value.
Core deposit and other intangible assets include premiums paid for acquisitions of core deposits (“core
deposit intangibles”) and other identifiable intangible assets. Intangible assets other than goodwill, which are
determined to have finite lives, are amortized based upon the estimated economic benefits received.
Loan Securitizations
BB&T enters into loan securitization transactions related to most of its fixed-rate conforming mortgage
loans. In connection with these transactions, loans are converted into mortgage-backed securities issued
primarily by the Federal Home Loan Mortgage Corporation (“Freddie Mac”), the Federal National Mortgage
Association (“Fannie Mae”) and the Government National Mortgage Association (“Ginnie Mae”), and are
subsequently sold to third party investors. BB&T records loan securitizations as a sale when the transferred
loans are legally isolated from its creditors and the other accounting criteria for a sale are met. Gains or losses
recorded on loan securitizations are based in part on the net carrying amount of the loans sold, which is allocated
between the loans sold and retained interests based on their relative fair values at the date of sale. BB&T
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