BB&T 2009 Annual Report Download - page 148

BB&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following is a summary of the notional or contractual amounts and fair values of BB&T’s off-balance
sheet financial instruments as of the periods indicated:
December 31,
2009 2008
Notional/
Contract
Amount Fair Value
Notional/
Contract
Amount Fair Value
(Dollars in millions)
Contractual commitments:
Commitments to extend, originate or purchase credit $36,130 $ 48 $35,144 $ 50
Residential mortgage loans sold with recourse 1,986 6 2,470 3
Other loans sold with recourse 3,989 12 3,259 8
Letters of credit and financial guarantees written 7,999 40 5,895 20
Commitments to fund affordable housing investments 371 357 412 393
Estimates of the fair value of these financial instruments are made at a point in time, based on relevant
market data and information about the financial instrument. Fair values are calculated based on the value of one
trading unit without regard to any premium or discount that may result from concentrations of ownership of a
financial instrument, possible tax ramifications, estimated transaction costs that may result from bulk sales or the
relationship between various financial instruments. No readily available market exists for a significant portion of
BB&T’s financial instruments. Fair value estimates for these instruments are based on current economic
conditions, currency and interest rate risk characteristics, loss experience and other factors. Many of these
estimates involve uncertainties and matters of significant judgment and cannot be determined with precision.
Therefore, the calculated fair value estimates in many instances cannot be substantiated by comparison to
independent markets and, in many cases, may not be realizable in a current sale of the instrument. In addition,
changes in assumptions could significantly affect these fair value estimates. The following methods and
assumptions were used by BB&T in estimating the fair value of these financial instruments.
Cash and cash equivalents and segregated cash due from banks: For these short-term instruments, the
carrying amounts are a reasonable estimate of fair values.
Loans receivable and loans held for sale: The fair values for loans are estimated using discounted cash flow
analyses, using interest rates currently being offered for loans with similar terms and credit quality. The interest
rates being offered by BB&T for new loans with similar terms and credit quality are reflective of credit risk and
liquidity spreads inherent in an orderly transaction in the current market. For commercial loans and leases,
internal credit risk models are used to adjust discount rates for risk migration since inception. For residential
mortgage and other consumer loans, internal prepayment risk models are used to adjust contractual cash flows.
Loans are aggregated into pools of similar terms and credit quality and discounted using a LIBOR based rate.
The carrying amounts of accrued interest approximate fair values.
Deposit liabilities: The fair values for demand deposits, interest-checking accounts, savings accounts and
certain money market accounts are, by definition, equal to the amount payable on demand at the reporting date,
i.e., their carrying amounts. Fair values for certificates of deposit are estimated using a discounted cash flow
calculation that applies current interest rates to aggregate expected maturities. In addition, nonfinancial
instruments such as core deposit intangibles are not recorded at fair value. BB&T has developed long-term
relationships with its customers through its deposit base and in the opinion of management, these items add
significant value to BB&T.
Federal funds purchased, securities sold under repurchase agreements and short-term borrowed funds: The
carrying amounts of Federal funds purchased, borrowings under repurchase agreements and short-term
borrowed funds approximate their fair values.
148