BB&T 2012 Annual Report Download - page 153

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The following tables provide information about certain financial assets measured at fair value on a nonrecurring basis:
December 31,
2012 2011
(Dollars in millions)
Assets that are still held (1):
Impaired loans, excluding covered $ 137 $ 389
Foreclosed real estate, excluding covered 107 536
Years Ended December 31,
2012 2011 2010
(Dollars in millions)
N
egative valuation adjustments recognized (1):
Impaired loans, excluding covered $ 109 $ 348 $ 602
Foreclosed real estate, excluding covered 180 550 496
(1) Classified as level 3 assets.
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, discount rates may be adjusted to address additional
credit risk on lower risk grade instruments. 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.
FDIC loss share receivable: The fair value of the FDIC loss share receivable was estimated using discounted cash flow
analyses, applying a risk free interest rate that is adjusted for the uncertainty in the timing and amount of these cash flows.
The expected cash flows to/from the FDIC related to loans were estimated using the same assumptions that were used in
determining the accounting values for the related loans. The expected cash flows to/from the FDIC related to securities are
based upon the fair value of the related securities and the payment that would be required if the securities were sold for that
amount. The FDIC loss share agreements are not transferrable and, accordingly, there is no market for this receivable.
Deposit liabilities: The fair values for demand deposits, interest-checking accounts, savings accounts and certain money
market accounts are, by definition, equal to the amount payable on demand. Fair values for CDs are estimated using a
discounted cash flow calculation that applies current interest rates to aggregate expected maturities. In addition, nonfinancial
instruments such as core deposit intangibles are not recorded at fair value. BB&T has developed long-term relationships with
its customers through its deposit base and, in the opinion of management, these items add significant value to BB&T.