BB&T 2009 Annual Report Download - page 99

BB&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
lending commitments at the balance sheet date. The Company determines the allowance for loan and lease losses
and the reserve for unfunded lending commitments based on an ongoing evaluation. This evaluation is inherently
subjective because it requires material estimates, including the amounts and timing of cash flows expected to be
received on impaired loans. Those estimates are susceptible to significant change. Changes to the allowance for
loan and lease losses and the reserve for unfunded lending commitments are made by charges to the provision for
credit losses, which is reflected in the Consolidated Statements of Income. Loans or lease balances deemed to be
uncollectible are charged off against the allowance for loan and lease losses. Recoveries of amounts previously
charged-off are credited to the allowance for loan and lease losses.
The allowance for loan and lease losses is the accumulation of various components that are calculated based
on various methodologies. BB&T’s allowance for loan and lease losses consists of (1) a component for individual
loan impairment, and (2) components of collective loan impairment.
BB&T maintains specific reserves for individually impaired loans. A loan is impaired when, based on current
information and events, it is probable that BB&T will be unable to collect all amounts due (interest as well as
principal) according to the contractual terms of the loan agreement. Specific reserves are determined on a loan by
loan basis based on management’s best estimate of BB&T’s exposure, given the current payment status of the
loan, the present value of expected payments and the value of any underlying collateral.
Management’s estimate of reserves established for collective impairment reflect losses inherent in the loan
and lease portfolios as of the balance sheet reporting date. Embedded loss estimates are based on current
migration rates and current risk mix. Embedded loss estimates may be adjusted to reflect current economic
conditions and current portfolio trends including credit quality, concentrations, aging of the portfolio, and
significant policy and underwriting changes.
For loans acquired in a business combination after December 31, 2008, BB&T has generally aggregated the
purchased loans into pools of loans with common risk characteristics. In determining the allowance for loan and
lease losses, BB&T performs analysis each period to estimate the expected cash flows for each of the loan pools.
To the extent that the expected cash flows of a loan pool have decreased since the acquisition date, BB&T
establishes an allowance for loan loss.
The methodology used to determine the reserve for unfunded lending commitments is inherently similar to
that used to determine the collective component of the allowance for loan and lease losses described above,
adjusted for factors specific to binding commitments, including the probability of funding and exposure at default.
While management uses the best information available to establish the allowance for loan and lease losses
and the reserve for unfunded lending commitments, future adjustments may be necessary if economic conditions
differ substantially from the assumptions used in performing the valuations or, if required by regulators, based
upon information available to them at the time of their examinations.
Premises and Equipment
Premises, equipment, capital leases and leasehold improvements are stated at cost less accumulated
depreciation or amortization. Land is stated at cost. In addition, purchased software and costs of computer
software developed for internal use are capitalized provided certain criteria are met. Depreciation and
amortization are computed principally using the straight-line method over the estimated useful lives of the
related assets. Leasehold improvements are amortized on a straight-line basis over the lesser of the lease terms,
including certain renewals that were deemed probable at lease inception, or the estimated useful lives of the
improvements. Capitalized leases are amortized by the same methods as premises and equipment over the
estimated useful lives or lease terms, whichever is less. Obligations under capital leases are amortized using the
interest method to allocate payments between principal reduction and interest expense. Rent expense and rental
income on operating leases is recorded using the straight-line method over the appropriate lease terms.
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