BB&T 2011 Annual Report Download - page 143

The following table details the fair value and unpaid principal balance of loans held for sale at December 31, 2011 and
2010 that were elected to be carried at fair value.
December 31,
2011 2010
Fair
Value
Aggregate
Unpaid
Principal
Balance
Fair Value
Less
Aggregate
Unpaid
Principal
Balance
Fair
Value
Aggregate
Unpaid
Principal
Balance
Fair Value
Less
Aggregate
Unpaid
Principal
Balance
(Dollars in millions)
Loans held for sale reported at fair value:
Total (1)(2) $ 3,736 $ 3,652 $ 84 $ 3,176 $ 3,192 $ (16)
Nonaccrual loans — — — — — —
Loans 90 days or more past due and still
accruing interest — — — 1 1 —
(1) The change in fair value is reflected in mortgage banking income.
(2) December 31, 2010 balance excludes loans held for sale carried at the lower of cost or market.
BB&T may be required, from time to time, to measure certain other financial assets at fair value on a nonrecurring basis.
Assets measured at fair value on a nonrecurring basis for the years ended December 31, 2011 and 2010 that were still held on
the balance sheet at December 31, 2011 and 2010 totaled $925 million and $2.0 billion, respectively. The December 31, 2011
amount consists of $389 million of impaired loans, excluding covered loans, and $536 million of foreclosed real estate,
excluding covered foreclosed real estate, that were classified as Level 3 assets. The December 31, 2010 amount consists of
$705 million of impaired loans, excluding covered loans, and $1.3 billion of foreclosed real estate, excluding covered
foreclosed real estate, that were classified as Level 3 assets. During the years ended December 31, 2011 and 2010, BB&T
recorded $348 million and $602 million, respectively, in negative valuation adjustments of impaired loans and $550 million
and $496 million, respectively, in negative valuation adjustments of foreclosed real estate.
Additionally, accounting standards require the disclosure of the estimated fair value of financial instruments that are not
recorded at fair value. A financial instrument is defined as cash, evidence of an ownership interest in an entity or a contract
that creates a contractual obligation or right to deliver or receive cash or another financial instrument from a second entity.
For the financial instruments that BB&T does not record at fair value, estimates of fair value 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.
Securities held to maturity: The fair values of securities held to maturity are based on a market approach using observable
inputs such as benchmark yields and securities, TBA prices, reported trades, issuer spreads, current bids and offers,
monthly payment information and collateral performance.
Loans receivable: The fair values for loans are estimated using discounted cash flow analyses, applying interest rates
currently being offered for loans with similar terms and credit quality, which are deemed to be indicative of orderly
transactions in the current market. For commercial loans and leases, internal credit risk models are used to adjust discount
rates for risk migration and expected losses. 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.
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