BB&T 2009 Annual Report Download - page 96

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BB&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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.
Securities
At the 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 where BB&T has 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 intent to sell and whether it
is more likely than not that the Company will be required to sell the security before the anticipated recovery of the
amortized cost basis. Unrealized losses for other-than-temporary impairment on equity securities are recognized in
current period earnings. For debt securities that are determined to be other-than-temporarily impaired, BB&T
recognizes the expected credit losses 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
BB&T accounts for new originations of prime residential mortgage and commercial mortgage loans held for
sale at fair value. BB&T accounts for derivatives used to economically hedge the loans held for sale at fair value.
BB&T accounts for a small portfolio of its loans held for sale using a lower of cost or market basis because these
loans are not exchanged in an active market and BB&T does not hedge these assets. Fair value for loans held for
sale is primarily based on quoted market prices for securities backed by similar types of loans. Direct loan
origination fees and costs related to loans held for sale and accounted for at fair value are not capitalized and
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