BB&T 2009 Annual Report Download - page 154

BB&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
NOTE 21. Operating Segments
BB&T’s operations are divided into seven reportable business segments: the Banking Network, Residential
Mortgage Banking, Sales Finance, Specialized Lending, Insurance Services, Financial Services, and Treasury.
These operating segments have been identified based on BB&T’s organizational structure. The segments require
unique technology and marketing strategies and offer different products and services. While BB&T is managed
as an integrated organization, individual executive managers are held accountable for the operations of these
business segments.
BB&T measures and presents information for internal reporting purposes in a variety of different ways. The
internal reporting system presently used by management in the planning and measuring of operating activities,
as well as the system to which most managers are held accountable, is based on organizational structure.
BB&T emphasizes revenue growth by focusing on client service, sales effectiveness and relationship
management. The segment results contained herein are presented based on internal management accounting
policies that were designed to support these strategic objectives. Unlike financial accounting, there is no
comprehensive authoritative body of guidance for management accounting equivalent to generally accepted
accounting principles. The performance of the segments is not comparable with BB&T’s consolidated results or
with similar information presented by any other financial institution. Additionally, because of the
interrelationships of the various segments, the information presented is not indicative of how the segments would
perform if they operated as independent entities.
The management accounting process uses various estimates and allocation methodologies to measure the
performance of the operating segments. To determine financial performance for each segment, BB&T allocates
capital, funding charges and credits, an economic provision for loan and lease losses, certain noninterest expenses
and income tax provisions to each segment, as applicable. Also, to promote revenue growth and provide a basis
for employee incentives, certain revenues of Residential Mortgage Banking, Sales Finance, Specialized Lending,
Insurance Services, Financial Services and other segments are reflected in the individual segment results and
also allocated to the Banking Network. These allocated revenues are reflected in intersegment net referral fees
and eliminated to arrive at consolidated results. Allocation methodologies are subject to periodic adjustment as
the internal management accounting system is revised and business or product lines within the segments change.
Also, because the development and application of these methodologies is a dynamic process, the financial results
presented may be periodically revised.
BB&T’s overall objective is to maximize shareholder value by optimizing return on equity and managing
risk. Allocations of capital and the economic provision for loan and lease losses are designed to address this
objective. Capital is assigned to each segment on an economic basis, using management’s assessment of the
inherent risks associated with the segment. Capital allocations are made to cover the following risk categories:
credit risk, liquidity risk, interest rate risk, option risk, basis risk, market risk and operational risk. Each
segment is evaluated based on a risk-adjusted return on capital. Capital assignments are not equivalent to
regulatory capital guidelines, and the total amount assigned to all segments typically varies from total
consolidated shareholders’ equity.
The economic provision for loan and lease losses is also allocated to the relevant segments based on
management’s assessment of the segments’ risks as described above. Unlike the provision for loan and lease
losses recorded pursuant to generally accepted accounting principles, the economic provision adjusts for the
impact of expected credit losses over the effective lives of the related loans and leases. Any over or under
allocated provision for loan and lease losses is reflected in Parent/Reconciling Items to arrive at consolidated
results.
BB&T allocates expenses to the reportable segments based on various methodologies, including volume and
amount of loans and deposits and the number of full-time equivalent employees. A portion of corporate overhead
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