BB&T 2015 Annual Report Download - page 99

TableofContents
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant
change include the determination of the ACL, determination of fair value for financial instruments, valuation of goodwill, intangible assets and other
purchase accounting related adjustments, benefit plan obligations and expenses, and tax assets, liabilities and expense.
Business Combinations
BB&T accounts for business combinations using the acquisition method of accounting. The accounts of an acquired entity are included as of the date of
acquisition, and any excess of purchase price over the fair value of the net assets acquired is capitalized as goodwill.
BB&T typically issues common stock and/or pays cash for an acquisition, depending on the terms of the acquisition agreement. The value of common shares
issued is determined based on the market price of the stock as of the closing of the acquisition.
Cash and Cash Equivalents
Cash and cash equivalents include cash and due from banks, interest-bearing deposits with banks and 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.
Restricted Cash
Restricted cash represents amounts posted as collateral for derivatives in a loss position.
Securities
BB&T classifies marketable investment securities as HTM, AFS or trading. Interest income and dividends on securities are recognized in 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 are classified as HTM where BB&T has both the intent and ability to hold the securities to maturity. These securities are 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 AFS. AFS securities are reported at estimated fair value, with unrealized gains and
losses reported in AOCI, net of deferred income taxes, in the shareholders’ equity section of the Consolidated Balance Sheets. Gains or losses realized from
the sale of AFS securities are determined by specific identification and are included in noninterest income.
Each HTM and AFS security in a loss position is evaluated for OTTI. BB&T considers such factors as the length of time and the extent to which the fair value
has been below amortized cost, long term expectations and recent experience regarding principal and interest payments, BB&T’s intent to sell and whether it
is more likely than not that the Company would be required to sell those securities before the anticipated recovery of the amortized cost basis. The credit
component of an OTTI loss is recognized in earnings and the non-credit component is recognized in AOCI in situations where BB&T does not intend to sell
the security and it is more-likely-than-not that BB&T will not be required to sell the security prior to recovery. Subsequent to recognition of OTTI, an
increase in expected cash flows is recognized as a yield adjustment over the remaining expected life of the security based on an evaluation of the nature of
the increase.
Trading account securities, which include both debt and equity securities, are reported at fair value and included in other assets in the Consolidated Balance
Sheets. Unrealized fair 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 on other earning assets.
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Source: BB&T CORP, 10-K, February 25, 2016 Powered by Morningstar® Document Research℠
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