BB&T 2010 Annual Report Download - page 155

States and political subdivisions: These are debt securities issued by states and political subdivisions.
BB&T’s valuations are primarily based on a market approach using observable inputs such as benchmark yields,
MSRB reported trades, material event notices and new issue data.
Non-agency mortgage-backed securities: BB&T’s valuation for these debt securities is based on a market
approach using observable inputs such as benchmark yields and securities, TBA prices, reported trades, monthly
payment information and collateral performance.
Equity and other securities: These securities consist primarily of equities, mutual funds and corporate bonds.
These securities are valued based on a review of quoted market prices for identical and similar assets as well as
through the various other inputs discussed previously.
Covered securities: Covered securities are covered by FDIC loss sharing agreements and consist of re-remic
non-agency mortgage-backed securities and municipal securities. The covered state and political subdivision
securities and certain non-agency mortgage-backed securities are valued in a manner similar to the approach
described above for these asset classes. The re-remic non-agency mortgage-backed securities, which are
categorized as Level 3, were valued based on broker dealer quotes that reflected certain unobservable market
inputs.
Loans held for sale: BB&T originates certain mortgage loans to be sold to investors. These loans are carried
at fair value based on BB&T’s election of the Fair Value Option. The fair value is primarily based on quoted
market prices for securities backed by similar types of loans. The changes in fair value of these assets are largely
driven by changes in interest rates subsequent to loan funding and changes in the fair value of servicing
associated with the mortgage loan held for sale.
Residential mortgage servicing rights: BB&T estimates the fair value of residential mortgage servicing
rights (“MSRs”) using an option adjusted spread (“OAS”) valuation model to project MSR cash flows over
multiple interest rate scenarios, which are then discounted at risk-adjusted rates. The OAS model considers
portfolio characteristics, contractually specified servicing fees, prepayment assumptions, delinquency rates, late
charges, other ancillary revenue, costs to service and other economic factors. When available, fair value estimates
and assumptions are compared to observable market data and to recent market activity and actual portfolio
experience.
Derivative assets and liabilities: BB&T uses derivatives to manage various financial risks. The fair values of
derivative financial instruments are determined based on quoted market prices, dealer quotes and internal
pricing models that are primarily sensitive to market observable data. The fair value of interest rate lock
commitments, which are related to mortgage loan commitments, is based on quoted market prices adjusted for
commitments that BB&T does not expect to fund and includes the value attributable to the net servicing fee.
Venture capital and similar investments: BB&T has venture capital and similar investments that are carried
at fair value. In many cases there are no observable market values for these investments and therefore
management must estimate the fair value based on a comparison of the operating performance of the company to
multiples in the marketplace for similar entities. This analysis requires significant judgment and actual values in
a sale could differ materially from those estimated.
Short-term borrowed funds: Short-term borrowed funds represent debt securities sold short. These are
entered into through BB&T’s brokerage subsidiary Scott & Stringfellow, LLC. These trades are executed as a
hedging strategy for the purposes of supporting institutional and retail client trading activities.
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