Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the quarterly period ended: September 30, 2009

Commission file number: 1-10853

 

 

BB&T CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

North Carolina   56-0939887
(State of Incorporation)   (I.R.S. Employer Identification No.)
200 West Second Street   27101
Winston-Salem, North Carolina  

(Zip Code)

(Address of Principal Executive Offices)  

(336) 733-2000

(Registrant’s Telephone Number, Including Area Code)

 

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  þ    NO  ¨

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).    Yes  þ    No  ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  þ   Accelerated filer  ¨
Non-accelerated filer  ¨   Smaller reporting company  ¨
(Do not check if a smaller reporting company)  

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨    NO  þ

At October 31, 2009, 687,617,017 shares of the Registrant’s common stock, $5 par value, were outstanding.

 

 

 


Table of Contents

BB&T CORPORATION

FORM 10-Q

September 30, 2009

INDEX

 

          Page No.
Part I. FINANCIAL INFORMATION   
        Item 1.    Financial Statements (Unaudited)    2
   Notes to Consolidated Financial Statements (Unaudited)    6
        Item 2.   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

   49
   Executive Summary    54
   Analysis of Financial Condition    56
   Analysis of Results of Operations    71
   Market Risk Management    81
   Capital Adequacy and Resources    84
   Segment Results    88
        Item 3.    Quantitative and Qualitative Disclosures About Market Risk    89
        Item 4.    Controls and Procedures    89
Part II. OTHER INFORMATION   
        Item 1.    Legal Proceedings    90
        Item 1A.    Risk Factors    90
        Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds    92
        Item 6.    Exhibits    92
SIGNATURES    93
EXHIBIT INDEX   
CERTIFICATIONS   

 

1


Table of Contents
Item 1. Financial Statements

BB&T CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollars in millions, except per share data, shares in thousands)

 

     September 30,
2009
    December 31,
2008
 

Assets

    

Cash and due from banks

   $ 1,292      $ 1,639   

Interest-bearing deposits with banks

     579        751   

Federal funds sold and securities purchased under resale agreements or similar arrangements

     520        350   

Segregated cash due from banks

     286        379   

Trading securities at fair value

     686        376   

Securities available for sale at fair value ($1,176 covered by FDIC loss share at September 30, 2009)

     34,133        32,843   

Loans held for sale ($3,083 and $1,396 at fair value at September 30, 2009 and December 31, 2008, respectively)

     3,126        1,424   

Loans and leases ($8,305 covered by FDIC loss share at September 30, 2009)

     103,901        97,245   

Allowance for loan and lease losses

     (2,379     (1,574
                

Loans and leases, net of allowance for loan and lease losses

     101,522        95,671   
                

FDIC loss share receivable

     3,336        —     

Premises and equipment

     1,591        1,580   

Goodwill

     6,183        5,483   

Core deposit and other intangible assets

     645        542   

Residential mortgage servicing rights at fair value

     639        370   

Other assets ($182 of foreclosed property and other assets covered by FDIC loss share at September 30, 2009)

     10,790        10,607   
                

Total assets

   $ 165,328      $ 152,015   
                

Liabilities and Shareholders’ Equity

    

Deposits:

    

Noninterest-bearing deposits

   $ 18,673      $ 13,649   

Interest checking

     3,621        2,576   

Other client deposits

     48,878        39,413   

Client certificates of deposit

     32,553        27,937   

Other interest-bearing deposits

     10,785        15,038   
                

Total deposits

     114,510        98,613   
                

Federal funds purchased, securities sold under repurchase agreements and short-term borrowed funds

     8,357        10,788   

Long-term debt

     21,317        18,032   

Accounts payable and other liabilities

     5,002        8,501   
                

Total liabilities

     149,186        135,934   
                

Commitments and contingencies (Note 6)

    

Shareholders’ equity:

    

Preferred stock, liquidation preference of $1,000,000 per share

     —          3,082   

Common stock, $5 par

     3,437        2,796   

Additional paid-in capital

     5,563        3,510   

Retained earnings

     7,458        7,381   

Accumulated other comprehensive loss, net of deferred income taxes of $(223) at September 30, 2009 and $(438) at December 31, 2008

     (364     (732

Noncontrolling interest

     48        44   
                

Total shareholders’ equity

     16,142        16,081   
                

Total liabilities and shareholders’ equity

   $ 165,328      $ 152,015   
                

Common shares outstanding

     687,446        559,248   

Common shares authorized

     1,000,000        1,000,000   

Preferred shares outstanding

     —          3   

Preferred shares authorized

     5,000        5,000   

The accompanying notes are an integral part of these consolidated financial statements.

 

2


Table of Contents

BB&T CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(Dollars in millions, except per share data, shares in thousands)

 

     For the Three
Months Ended
September 30,
    For the Nine
Months Ended
September 30,
 
     2009     2008     2009     2008  

Interest Income

        

Interest and fees on loans and leases

   $ 1,414      $ 1,499      $ 4,072      $ 4,595   

Interest and dividends on securities

     329        287        986        859   

Interest on other earning assets

     2        7        6        24   
                                

Total interest income

     1,745        1,793        5,064        5,478   
                                

Interest Expense

        

Interest on deposits

     311        449        977        1,468   

Interest on federal funds purchased, securities sold under repurchase agreements and short-term borrowed funds

     11        48        51        195   

Interest on long-term debt

     186        208        515        642   
                                

Total interest expense

     508        705        1,543        2,305   
                                

Net Interest Income

     1,237        1,088        3,521        3,173   

Provision for credit losses

     709        364        2,086        917   
                                

Net Interest Income After Provision for Credit Losses

     528        724        1,435        2,256   
                                

Noninterest Income

        

Insurance income

     254        232        787        681   

Service charges on deposits

     180        176        504        502   

Investment banking and brokerage fees and commissions

     89        84        263        258   

Mortgage banking income

     144        83        516        199   

Checkcard fees

     59        52        165        151   

Other nondeposit fees and commissions

     59        47        165        140   

Trust and investment advisory revenues

     36        37        101        115   

Bankcard fees and merchant discounts

     41        38        115        113   

Income from bank-owned life insurance

     24        24        72        62   

Other income

     23        6        76        103   

Securities gains (losses), net

        

Realized gains (losses), net

     34        54        240        107   

Other-than-temporary impairments

     (3     (41     (117     (41

Less non-credit portion recognized in other comprehensive income

     —          —          77        —     
                                

Total securities gains (losses), net

     31        13        200        66   
                                

Total noninterest income

     940        792        2,964        2,390   
                                

Noninterest Expense

        

Personnel expense

     644        552        1,867        1,664   

Occupancy and equipment expense

     149        127        406        374   

Professional services

     68        55        185        140   

Foreclosed property expense

     118        22        214        52   

Regulatory charges

     44        8        183        17   

Loan processing expenses

     38        32        101        96   

Amortization of intangibles

     29        25        78        77   

Merger-related and restructuring charges, net

     18        5        29        11   

Other expenses

     212        179        507        468   
                                

Total noninterest expense

     1,320        1,005        3,570        2,899   
                                

Earnings

        

Income before income taxes

     148        511        829        1,747   

Provision for income taxes

     (9     149        146        525   
                                

Net income

     157        362        683        1,222   
                                

Noncontrolling interest

     5        4        15        8   

Dividends and accretion on preferred stock

     —          —          124        —     
                                

Net income available to common shareholders

   $ 152      $ 358      $ 544      $ 1,214   
                                

Earnings Per Common Share

        

Basic

   $ .23      $ .65      $ .89      $ 2.22   
                                

Diluted

   $ .23      $ .65      $ .88      $ 2.20   
                                

Cash dividends paid

   $ .15      $ .47      $ 1.09      $ 1.39   
                                

Weighted Average Shares Outstanding

        

Basic

     665,408        549,761        609,698        547,543   
                                

Diluted

     672,457        553,544        615,307        551,144   
                                

The accompanying notes are an integral part of these consolidated financial statements.

 

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Table of Contents

BB&T CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

For the Nine Months Ended September 30, 2009 and 2008

(Unaudited)

(Dollars in millions, except per share data, shares in thousands)

 

    Shares of
Common
Stock
    Preferred
Stock
    Common
Stock
  Additional
Paid-In
Capital
    Retained
Earnings
    Accumulated
Other
Comprehensive
Income (Loss)
    Noncontrolling
Interest
    Total
Shareholders’
Equity
 

Balance, January 1, 2008

  545,955      $ —        $ 2,730   $ 3,087      $ 6,919      $ (104   $ 32      $ 12,664   

Add (Deduct):

               

Comprehensive income (loss):

               

Net income

  —          —          —       —          1,214        —          8        1,222   

Net change in other comprehensive income (loss)

  —          —          —       —          —          (357     —          (357
                                                           

Total comprehensive income (loss) (Note 10)

  —          —          —       —          1,214        (357     8        865   
                                                           

Common stock issued:

               

In purchase acquisitions

  1,181        —          6     27        —          —          —          33   

In connection with stock option exercises and other employee benefits, net of cancellations

  1,857        —          9     43        —          —          —          52   

In connection with dividend reinvestment plan

  813          4     19        —          —          —          23   

In connection with private placement to BB&T pension plan

  2,458          12     41        —          —          —          53   

Cash dividends declared on common stock, $1.40 per share

  —          —          —       —          (768     —          —          (768

Cumulative effect of adoption of accounting principle

  —          —          —       —          (8     —          —          (8

Equity-based compensation expense

  —          —          —       61        —          —          —          61   

Other, net

  (5     —          —       —          —          —          5        5   
                                                           

Balance, September 30, 2008

  552,259      $ —        $ 2,761   $ 3,278      $ 7,357      $ (461   $ 45      $ 12,980   
                                                           

Balance, January 1, 2009

  559,248      $ 3,082      $ 2,796   $ 3,510      $ 7,381      $ (732   $ 44      $ 16,081   

Add (Deduct):

               

Comprehensive income (loss):

               

Net income

  —          —          —       —          668        —          15        683   

Net change in other comprehensive income (loss)

  —          —          —       —          —          368        —          368   
                                                           

Total comprehensive income (loss) (Note 10)

  —          —          —       —          668        368        15        1,051   
                                                           

Common stock issued:

               

In purchase acquisitions

  96        —          1     1        —          —          —          2   

In connection with stock option exercises and other employee benefits, net of cancellations

  329        —          2     2        —          —          —          4   

In connection with dividend reinvestment plan

  2,396        —          12     39        —          —          —          51   

In connection with 401(k) plan

  665        —          3     13        —          —          —          16   

In common stock offerings

  124,712        —          623     2,014        —          —          —          2,637   

Redemption of preferred stock and warrant

  —          (3,134     —       (67     —          —          —          (3,201

Cash dividends declared on common stock, $.77 per share

  —          —          —       —          (467     —          —          (467

Cash dividends accrued on preferred stock

  —          —          —       —          (73     —          —          (73

Equity-based compensation expense

  —          —          —       50        —          —          —          50   

Other, net

  —          52        —       1        (51     —          (11     (9
                                                           

Balance, September 30, 2009

  687,446      $ —        $ 3,437   $ 5,563      $ 7,458      $ (364   $ 48      $ 16,142   
                                                           

The accompanying notes are an integral part of these consolidated financial statements.

 

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Table of Contents

BB&T CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in millions)

 

     For the Nine Months Ended
September 30,
 
     2009     2008  

Cash Flows From Operating Activities:

    

Net income

   $ 683      $ 1,222   

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

    

Provision for credit losses

     2,086        917   

Depreciation

     166        146   

Amortization of intangibles

     78        77   

Equity-based compensation

     50        61   

Discount accretion and premium amortization on long-term debt, net

     46        74   

Gain on sales of securities, net

     (200     (66

Net (increase) decrease in trading securities

     (310     461   

Net increase in loans held for sale

     (539     (600

Net decrease (increase) in other assets

     255        (2,289

Net (decrease) increase in accounts payable and other liabilities

     (3,429     513   

Decrease (increase) in segregated cash due from banks

     93        (99

Other, net

     154        17   
                

Net cash (used in) provided by operating activities

     (867     434   
                

Cash Flows From Investing Activities:

    

Proceeds from sales of securities available for sale

     17,060        12,374   

Proceeds from maturities, calls and paydowns of securities available for sale

     6,087        3,774   

Purchases of securities available for sale

     (20,117     (14,827

Originations and purchases of loans and leases, net of principal collected

     44        (5,360

Net cash acquired (paid) in business combinations

     4,478        (159

Proceeds from disposals of premises and equipment

     5        4   

Purchases of premises and equipment

     (128     (152

Proceeds from sales of foreclosed property or other real estate held for sale

     253        106   

Other, net

     —          95   
                

Net cash provided by (used in) investing activities

     7,682        (4,145
                

Cash Flows From Financing Activities:

    

Net (decrease) increase in deposits

     (3,399     1,626   

Net decrease in federal funds purchased, securities sold under repurchase agreements and short-term borrowed funds

     (2,506     (559

Proceeds from issuance of long-term debt

     3,490        4,901   

Repayment of long-term debt

     (3,542     (2,342

Net proceeds from common stock issued

     2,708        128   

Retirement of preferred stock and warrant

     (3,201     —     

Cash dividends paid on common stock

     (624     (760

Cash dividends paid on preferred stock

     (93     —     

Other, net

     3        (8
                

Net cash (used in) provided by financing activities

     (7,164     2,986   
                

Net Decrease in Cash and Cash Equivalents

     (349     (725

Cash and Cash Equivalents at Beginning of Period

     2,740        3,117   
                

Cash and Cash Equivalents at End of Period

   $ 2,391      $ 2,392   
                

Supplemental Disclosure of Cash Flow Information:

    

Cash paid during the period for:

    

Interest

   $ 1,555      $ 2,335   

Income taxes

     416        562   

Noncash investing and financing activities:

    

Transfers of loans to foreclosed property

     1,160        374   

The accompanying notes are an integral part of these consolidated financial statements.

 

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Table of Contents

BB&T Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

Third Quarter 2009

NOTE 1. Basis of Presentation

General

In the opinion of management, the accompanying unaudited Consolidated Balance Sheets, Consolidated Statements of Income, Consolidated Statements of Changes in Shareholders’ Equity, and Consolidated Statements of Cash Flows of BB&T Corporation and subsidiaries (referred to herein as “BB&T”, the “Corporation” or the “Company”), are fair statements of BB&T’s financial position at September 30, 2009 and December 31, 2008, BB&T’s results of operations for the three and nine month periods ended September 30, 2009 and 2008, and BB&T’s changes in shareholders’ equity and cash flows for the nine month periods ended September 30, 2009 and 2008. In the opinion of management, all normal recurring adjustments necessary for a fair statement of the consolidated financial position and consolidated results of operations have been made. Management has evaluated the effect subsequent events would have on the consolidated financial statements through the time these consolidated financial statements were filed with the Securities and Exchange Commission on November 9, 2009.

These consolidated financial statements and notes are presented in accordance with the instructions for Form 10-Q. The information contained in the financial statements and footnotes included in BB&T’s Annual Report on Form 10-K for the year ended December 31, 2008 should be referred to in connection with these unaudited interim consolidated financial statements.

Effective July 1, 2009, the Financial Accounting Standards Board (“FASB”) issued new guidance relating to FASB Codification Topic 105-10: Generally Accepted Accounting Principles (“Topic 105-10”). The FASB CodificationTM is the single source of authoritative nongovernmental generally accepted accounting principles (“GAAP”) in the United States of America. Topic 105-10 is effective for financial statements that cover interim and annual periods ending after September 15, 2009. Other than resolving certain minor inconsistencies in current GAAP, Topic 105-10 is not intended to change GAAP, but rather to make it easier to review and research GAAP applicable to a particular transaction or specific accounting issue.

Nature of Operations

BB&T is a financial holding company headquartered in Winston-Salem, North Carolina. BB&T conducts operations through its North Carolina chartered commercial bank subsidiary, Branch Banking and Trust Company (“Branch Bank”), a federally chartered thrift institution, BB&T Financial, FSB (“BB&T FSB”) and its nonbank subsidiaries. Branch Bank has offices in North Carolina, South Carolina, Virginia, West Virginia, Florida, Kentucky, Georgia, Maryland, Alabama, Tennessee, Texas, Nevada, Indiana and Washington, D.C. Branch Bank provides a wide range of banking services to individuals and businesses, and offers a variety of loans to businesses and consumers. Such loans are made primarily to individuals residing in the market areas described above or to businesses located within BB&T’s geographic footprint. Branch Bank also markets a wide range of deposit services to individuals and businesses. Branch Bank offers, either directly, or through its subsidiaries, lease financing to businesses and municipal governments; factoring; discount brokerage services, annuities and mutual funds; life insurance, property and casualty insurance, health insurance and commercial general liability insurance on an agency basis and through a wholesale insurance brokerage operation; insurance premium financing; permanent financing arrangements for commercial real estate; loan servicing for third-party investors; direct consumer finance loans to individuals; trust and comprehensive wealth advisory services and association services. BB&T FSB and the direct nonbank subsidiaries of BB&T provide a variety of financial services including credit card lending, automobile lending, equipment financing, full-service securities brokerage, payroll processing, asset management and capital markets services.

 

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Table of Contents

BB&T Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)—(Continued)

Third Quarter 2009

 

Principles of Consolidation

The consolidated financial statements of BB&T include the accounts of BB&T Corporation and those subsidiaries that are majority owned by BB&T and over which BB&T exercises control. In consolidation, all significant intercompany accounts and transactions are eliminated. The results of operations of companies or assets acquired are included only from the dates of acquisition. All material wholly owned and majority owned subsidiaries are consolidated unless accounting principles generally accepted in the United States of America require otherwise.

BB&T evaluates variable interests in entities for which voting interests are not an effective means of identifying controlling financial interests. Variable interests are those in which the value of the interest changes with the fair value of the net assets of the entity exclusive of variable interests. If the results of the evaluation indicate the existence of a primary beneficiary and the entity does not effectively disperse risks among the parties involved, that primary beneficiary is required to consolidate the entity. Likewise, if the evaluation indicates that the requirements for consolidation are not met and the entity has previously been consolidated, then the entity would be deconsolidated.

BB&T has variable interests in certain entities that were not required to be consolidated, including affordable housing partnership interests, historic tax credit partnerships, other partnership interests and trusts that have issued capital securities. Please refer to Note 6 for additional disclosures regarding BB&T’s significant variable interest entities.

BB&T accounts for unconsolidated partnership investments using the equity method of accounting. In addition to affordable housing partnerships, which represent the majority of unconsolidated investments in variable interest entities, BB&T also has investments and future funding commitments to venture capital and other entities. The maximum potential exposure to losses relative to investments in variable interest entities is generally limited to the sum of the outstanding balance, future funding commitments and any related loans to the entity. Loans to these entities are underwritten in substantially the same manner as are other loans and are generally secured.

BB&T has investments in certain entities for which BB&T does not have the controlling interest. For these investments, the Company records its interest using the equity method with its portion of income or loss being recorded in other noninterest income in the Consolidated Statements of Income. BB&T periodically evaluates these investments for impairment.

Reclassifications

BB&T adopted new guidance impacting FASB Topic 810-10: Consolidation on January 1, 2009. This guidance requires that a noncontrolling interest in a subsidiary be accounted for as equity in the consolidated balance sheet and that net income include the amounts for both the parent and the noncontrolling interest, with a separate amount presented in the income statement for the noncontrolling interest share of net income. This guidance also expands the disclosure requirements and provides guidance on how to account for changes in the ownership interest of a subsidiary. In accordance with this guidance, BB&T retrospectively applied the presentation and disclosure provisions for all periods presented. The amounts reclassified in connection with the adoption of this guidance were not material to the consolidated financial statements.

In certain other instances, amounts reported in prior periods’ consolidated financial statements have been reclassified to conform to the current presentation. Such reclassifications had no effect on previously reported cash flows, shareholders’ equity or net income.

 

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Notes to Consolidated Financial Statements (Unaudited)—(Continued)

Third Quarter 2009

 

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 allowance for loan and lease losses and the reserve for unfunded lending commitments, 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.

Changes in Accounting Principles and Effects of New Accounting Pronouncements

BB&T adopted new guidance impacting FASB Topic 805: Business Combinations (“Topic 805”) on January 1, 2009. This guidance requires the acquiring entity in a business combination to recognize the full fair value of assets acquired and liabilities assumed in the transaction (whether a full or partial acquisition); establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; requires expensing of most transaction and restructuring costs; and requires the acquirer to disclose to investors and other users all of the information needed to evaluate and understand the nature and financial effect of the business combination. Disclosures required by Topic 805 are included in Note 2 to these consolidated financial statements.

In April 2009, the FASB issued new guidance impacting Topic 805. This guidance addresses application issues raised by preparers, auditors, and members of the legal profession on initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. This guidance was effective for BB&T for business combinations entered into on or after January 1, 2009. This guidance did not have a material impact on BB&T’s consolidated financial statements.

BB&T adopted new guidance impacting FASB Topic 815-10: Derivatives and Hedging on January 1, 2009. This guidance requires that an entity provide enhanced disclosures related to derivative and hedging activities. The additional disclosures required by this guidance are included in Note 13 to these consolidated financial statements.

BB&T adopted new guidance impacting FASB Topic 350-30: Intangibles – Goodwill and Other on January 1, 2009. This amends the factors an entity should consider in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets under GAAP. The adoption of this guidance was not material to the consolidated financial statements.

In December 2008, the FASB issued new guidance impacting FASB Topic 715-20: Compensation Retirement Benefits – Defined Benefit Plans – General. The objectives of this guidance are to provide users of the financial statements with more detailed information related to the major categories of plan assets, the inputs and valuation techniques used to measure the fair value of plan assets and the effect of fair value measurements using significant unobservable inputs (Level 3) on changes in plan assets for the period, as well as how investment allocation decisions are made, including the factors that are pertinent to an understanding of investment policies and strategies. The disclosures about plan assets required by this guidance will be effective for BB&T on December 31, 2009.

In April 2009, the FASB issued new guidance impacting FASB Topic 820: Fair Value Measurements and Disclosures (“Topic 820”). This provides additional guidance for estimating fair value when the volume and

 

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Third Quarter 2009

 

level of activity for the asset or liability have significantly decreased. This also includes guidance on identifying circumstances that indicate a transaction is not orderly and requires additional disclosures of valuation inputs and techniques in interim periods and defines the major security types that are required to be disclosed. This guidance was effective for BB&T on April 1, 2009. The additional disclosures required by this guidance are included in Note 12 to these consolidated financial statements.

In April 2009, the FASB issued new guidance impacting FASB Topic 320-10: Investments – Debt and Equity Securities. This guidance amends GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. This guidance was effective for BB&T on April 1, 2009. BB&T did not have any cumulative effect adjustment related to the adoption of this guidance and the additional disclosures required are included in the Consolidated Statements of Income and in Note 3 to these consolidated financial statements.

In April 2009, the FASB issued new guidance impacting FASB Topic 825-10: Financial Instruments. This guidance amends GAAP to require disclosures about fair value of financial instruments in interim periods, as well as in annual periods. The additional disclosures required by this guidance are included in Note 12 to these consolidated financial statements.

In May 2009, the FASB issued new guidance impacting FASB Topic 855: Subsequent Events. This provides guidance on management’s assessment of subsequent events that occur after the balance sheet date through the date that the financial statements are issued. This guidance is generally consistent with current accounting practice. In addition, it requires certain additional disclosures. This guidance was effective for periods ending after June 15, 2009 and had no impact on BB&T’s consolidated financial statements.

In June 2009, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 166, “Accounting for Transfers of Financial Assets – an amendment of FASB Statement No. 140,” (“SFAS No. 166”). The objective of SFAS No. 166 is to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement in transferred financial assets. SFAS No. 166 is effective for financial asset transfers occurring after December 31, 2009. BB&T is currently evaluating the provisions of SFAS No. 166.

In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R),” (“SFAS No. 167”). The objective of this Statement is to improve financial reporting by enterprises involved with variable interest entities and to provide more relevant and reliable information to users of financial statements. SFAS No. 167 is effective as of January 1, 2010. BB&T is currently evaluating the provisions of SFAS No. 167.

In August 2009, the FASB issued new guidance impacting Topic 820. This guidance is intended to reduce ambiguity in financial reporting when measuring the fair value of liabilities. This guidance was effective for the first reporting period (including interim periods) after issuance and had no impact on BB&T’s consolidated financial statements.

In September 2009, the FASB issued new guidance impacting Topic 820. This creates a practical expedient to measure the fair value of an alternative investment that does not have a readily determinable fair value. This guidance also requires certain additional disclosures. This guidance is effective for interim and annual periods ending after December 15, 2009. BB&T is currently evaluating the new guidance.

 

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Third Quarter 2009

 

NOTE 2. Business Combinations

Acquisitions

On August 14, 2009, Branch Bank entered into a purchase and assumption agreement with the Federal Deposit Insurance Corporation (“FDIC”) to acquire certain assets and assume substantially all of the deposits and certain liabilities of Colonial Bank, an Alabama state-chartered bank headquartered in Montgomery, Alabama (“Colonial Bank”).

Colonial Bank operated 357 locations in Florida, Alabama, Georgia, Texas and Nevada. Excluding the effects of purchase accounting adjustments, Branch Bank assumed approximately $19.2 billion of the deposits of Colonial Bank. Additionally, Branch Bank purchased approximately $14.3 billion in loans, $165 million of other real estate owned (“OREO”) and $3.7 billion of investment securities. In connection with the acquisition, Branch Bank also entered into loss sharing agreements with the FDIC. Approximately $14.3 billion of acquired loans and OREO and $1.1 billion of the purchased investment securities are covered by loss sharing agreements between the FDIC and Branch Bank.

Pursuant to the terms of these loss sharing agreements, the FDIC’s obligation to reimburse Branch Bank for losses with respect to certain loans, OREO, certain investment securities and other assets (collectively, “covered assets”), begins with the first dollar of loss incurred. The terms of the loss sharing agreement with respect to certain non-agency mortgage-backed securities totaling $624 million provides that Branch Bank will be reimbursed by the FDIC for 95% of any and all losses. All other covered assets are subject to a stated threshold of $5.0 billion that provides for the FDIC to reimburse Branch Bank for (1) 80% of losses incurred up to $5 billion and (2) 95% of losses in excess of $5 billion. Gains and recoveries on covered assets will offset losses, or be paid to the FDIC, at the applicable loss share percentage at the time of recovery.

The loss sharing agreement applicable to single family residential mortgage loans provides for FDIC loss sharing and Branch Bank reimbursement to the FDIC, in each case as described above, for ten years. The loss sharing agreement applicable to commercial loans and other covered assets provides for FDIC loss sharing for five years and Branch Bank reimbursement to the FDIC for gains and recoveries for a total of eight years, in each case as described above.

The loss sharing agreements are subject to certain servicing procedures as specified in the agreements. The expected reimbursements under the loss sharing agreements were recorded as an indemnification asset at their estimated fair value of $3.3 billion on the acquisition date.

On October 15, 2019, BB&T is required to pay the FDIC 55% of the excess, if any, of (i) $1 billion over (ii) the sum of (A) 25% of the total net amounts paid to BB&T under both of the loss sharing agreements (i.e., BB&T’s payments received from the FDIC for losses, offset by BB&T’s payments made to the FDIC for recoveries) plus (B) 20% of the deemed total cost to BB&T of administering the assets covered under the loss sharing agreements other than shared loss securities. The deemed total cost to BB&T of administering the covered assets is the sum of 2% of the average of the principal amount of shared loss loans and shared loss assets (other than the shared loss securities) based on the beginning and end of year balances for each of the 10 years during which the shared loss agreements are in effect. In addition, any payments made by either party with respect to the securities with a 95% loss share will be excluded from this calculation.

Branch Bank did not immediately acquire the real estate, banking facilities, furniture or equipment of Colonial Bank as part of the purchase and assumption agreement. However, Branch Bank has the option to purchase the real estate and furniture and equipment from the FDIC. The term of this option expires 170 days

 

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Third Quarter 2009

 

after August 14, 2009, unless extended by the FDIC. Acquisition costs of the real estate and furniture and equipment will be based on current appraisals and determined at a later date. Currently all banking facilities and equipment are leased from the FDIC on a month-to-month basis.

Branch Bank has determined that the acquisition of the net assets of Colonial Bank constitutes a business acquisition as defined by Topic 805. Accordingly, the assets acquired and liabilities assumed as of August 14, 2009 are presented at their fair values in the table below as required by that topic. Fair values were determined based on the requirements of Topic 820. In many cases the determination of these fair values required management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature and subject to change. These fair value estimates are considered preliminary, and are subject to change for up to one year after the closing date of the acquisition as additional information relative to closing date fair values becomes available. Branch Bank and the FDIC are engaged in ongoing discussions that may impact which assets and liabilities are ultimately acquired or assumed by Branch Bank and/or the purchase price. In addition, the tax treatment of FDIC assisted acquisitions is complex and subject to interpretations that may result in future adjustments of deferred taxes as of the acquisition date.

Approximately $690 million of goodwill and a $176 million core deposit intangible were recorded in connection with this transaction. The goodwill was assigned to BB&T’s banking network segment. All of the goodwill and core deposit intangible assets recognized are deductible for income tax purposes.

 

     As Recorded
by Colonial
Bank
   Fair Value
Adjustments
    As Recorded
by BB&T
     (Dollars in millions)

Assets:

       

Cash, due from banks and federal funds sold

   $ 185    $ —        $ 185

Interest-bearing deposits in banks and the Federal Reserve

     876      —          876

Investment securities (including $1,145 of covered securities)

     3,723      (1     3,722

Covered loans held for sale

     1,139      —          1,139

Covered loans

     12,954      (4,628     8,326

Non-covered loans

     235      (64     171
                     

Total loans

     14,328      (4,692     9,636

Goodwill

     —        690        690

Core deposit intangible

     —        176        176

Covered other real estate owned

     165      (28     137

Federal Deposit Insurance Corporation loss share indemnification asset

     —        3,346        3,346

Other assets (including $36 of covered assets)

     360      1        361
                     

Total assets acquired

   $ 19,637    $ (508   $ 19,129
                     

Liabilities:

       

Deposits

   $ 19,205    $ 131      $ 19,336

Repurchase agreements

     74      —          74

Advances from Federal Home Loan Bank of Atlanta

     3,341      313        3,654

Accrued expenses and other liabilities

     90      96        186
                     

Total liabilities assumed

   $ 22,710    $ 540      $ 23,250
                     

Due from FDIC for net liabilities assumed

   $ 3,073    $ 1,048      $ 4,121
                     

 

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Third Quarter 2009

 

The following is a description of the methods used to determine the fair values of significant assets and liabilities presented above.

Cash, due from banks and federal funds sold, interest-bearing deposits in banks and the Federal Reserve

The carrying amount of these assets is a reasonable estimate of fair value based on the short-term nature of these assets.

Investment Securities

Fair values for securities are based on quoted market prices, where available. If quoted market prices are not available, fair value estimates are based on observable inputs including quoted market prices for similar instruments, quoted market prices that are not in an active market or other inputs that are observable in the market. In the absence of observable inputs, fair value is estimated based on pricing models and/or discounted cash flow methodologies.

Loans

Fair values for loans were based on a discounted cash flow methodology that considered factors including the type of loan and related collateral, classification status, fixed or variable interest rate, term of loan and whether or not the loan was amortizing, and current discount rates. Loans were grouped together according to similar characteristics and were treated in the aggregate when applying various valuation techniques. The discount rates used for loans are based on current market rates for new originations of comparable loans and include adjustments for liquidity concerns. The discount rate does not include a factor for credit losses as that has been included in the estimated cash flows.

Core deposit intangible

This intangible asset represents the value of the relationships that Colonial Bank had with its deposit customers. The fair value of this intangible asset was estimated based on a discounted cash flow methodology that gave appropriate consideration to expected customer attrition rates, cost of the deposit base, reserve requirements and the net maintenance cost attributable to customer deposits.

Other real estate owned

OREO is presented at the estimated present value that management expects to receive when the property is sold, net of related costs of disposal.

FDIC loss share indemnification asset

This loss sharing asset is measured separately from the related covered asset as it is not contractually embedded in the assets and is not transferable with the assets should Branch Bank choose to dispose of them. Fair value was estimated using projected cash flows related to the loss sharing agreements based on the expected reimbursements for losses and the applicable loss sharing percentages. These expected reimbursements do not include reimbursable amounts related to future covered expenditures. These cash flows were discounted to reflect the uncertainty of the timing and receipt of the loss sharing reimbursement from the FDIC.

 

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Third Quarter 2009

 

Deferred taxes

Deferred taxes totaling approximately $24 million, which are reflected in the other assets line in the table above, relate to a difference between the financial statement and tax basis of the acquired loans and loss share indemnification asset. Deferred taxes are reported based upon the principles in FASB Topic 740: Income Taxes, and are calculated based on the estimated federal and state income tax rates currently in effect for BB&T.

Deposits

The fair values used for the demand and savings deposits that comprise the transaction accounts acquired, by definition equal the amount payable on demand at the acquisition date. The fair values for time deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered to the interest rates embedded on such time deposits.

Advances from Federal Home Loan Bank of Atlanta

The fair values of Federal Home Loan Bank (FHLB) advances were based on pricing supplied by the FHLB.

The operating results of BB&T for the period ended September 30, 2009 include the operating results produced by the acquired assets and assumed liabilities for the period of August 15, 2009 to September 30, 2009 and were not material to the three or nine months ended September 30, 2009. Due primarily to BB&T acquiring only certain assets and liabilities of Colonial Bank, the significant amount of fair value adjustments, and the FDIC loss sharing agreements now in place, historical results of Colonial Bank are not material to BB&T’s results, and thus no pro forma information is presented.

On October 9, 2009, BB&T entered into a definitive agreement to sell certain Nevada branch locations that were acquired from Colonial Bank and approximately $800 million in deposits. The sale is expected to close in the first quarter of 2010, subject to regulatory approval.

Other Acquisitions

During the first nine months of 2009, BB&T acquired certain assets of an insurance premium financing business and two commercial real estate servicing businesses. Approximately $9 million of goodwill and $6 million of identifiable intangibles were recorded in connection with these acquisitions.

 

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Third Quarter 2009

 

NOTE 3. Securities

The amortized cost and approximate fair values of securities available for sale were as follows:

 

     September 30, 2009
     Amortized
Cost
   Gross
Unrealized
   Fair
Value
        Gains    Losses   
     (Dollars in millions)

Securities available for sale:

           

U.S. government-sponsored entities (GSE)

   $ 2,643    $ 24    $ —      $ 2,667

Mortgage-backed securities issued by GSE

     25,880      326      54      26,152

States and political subdivisions

     2,238      99      128      2,209

Non-agency mortgage-backed securities

     1,393      —        332      1,061

Equity and other securities

     849      20      1      868

Covered securities

     1,152      35      11      1,176
                           

Total securities available for sale

   $ 34,155    $ 504    $ 526    $ 34,133
                           
     December 31, 2008
     Amortized
Cost
   Gross
Unrealized
   Fair
Value
        Gains    Losses   
     (Dollars in millions)

Securities available for sale:

           

U.S. government-sponsored entities (GSE)

   $ 1,320    $ 13    $ —      $ 1,333

Mortgage-backed securities issued by GSE

     27,117      338      25      27,430

States and political subdivisions

     2,413      8      344      2,077

Non-agency mortgage-backed securities

     1,573      —        475      1,098

Equity and other securities

     937      2      34      905
                           

Total securities available for sale

   $ 33,360    $ 361    $ 878    $ 32,843
                           

Covered securities include $861 million of non-agency mortgage-backed securities and $315 million of municipal securities acquired as part of the Colonial Bank transaction. All covered securities are covered by one of the FDIC loss share agreements as further discussed in Note 2 to these consolidated financial statements.

At September 30, 2009 and December 31, 2008, securities with carrying value of approximately $15.2 billion and $16.1 billion were pledged to secure municipal deposits, securities sold under agreements to repurchase, other borrowings, and for other purposes as required or permitted by law.

BB&T had certain investments in marketable debt securities and mortgage-backed securities issued by Fannie Mae and Freddie Mac that exceeded ten percent of shareholders’ equity at September 30, 2009. The Fannie Mae investments had total amortized cost and fair values of $17.7 billion and $17.9 billion, respectively at September 30, 2009, while Freddie Mac investments had total amortized cost and fair values of $7.0 billion and $7.1 billion, respectively.

At September 30, 2009, non-agency mortgage-backed securities primarily consisted of residential mortgage-backed securities. Equity securities include investments in stock issued by the FHLB of Atlanta. At September 30, 2009 and December 31, 2008, BB&T held $656 million and $479 million, respectively, of investments in FHLB stock.

 

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Third Quarter 2009

 

Proceeds from sales of securities available for sale during the first nine months of 2009 and 2008 were $17.1 billion and $12.4 billion, respectively. Gross gains of $241 million and gross losses of $1 million were realized in 2009 and $136 million of gross gains and $29 million of gross losses were realized in 2008.

The amortized cost and estimated fair value of the debt securities portfolio at September 30, 2009, by contractual maturity, are shown in the accompanying table. The expected life of mortgage-backed securities will differ from contractual maturities because borrowers may have the right to call or prepay the underlying mortgage loans with or without call or prepayment penalties. For purposes of the maturity table, mortgage-backed securities, which are not due at a single maturity date, have been included in maturity groupings based on the contractual maturity.

 

     September 30, 2009
     Available for Sale
     Amortized
Cost
   Fair
Value
     (Dollars in millions)

Debt Securities:

     

Due in one year or less

   $ 617    $ 619

Due after one year through five years

     222      228

Due after five years through ten years

     3,651      3,745

Due after ten years

     28,809      28,666
             

Total debt securities

     33,299      33,258

Total securities with no stated maturity

     856      875
             

Total securities

   $ 34,155    $ 34,133
             

 

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Notes to Consolidated Financial Statements (Unaudited)—(Continued)

Third Quarter 2009

 

The following tables reflect the gross unrealized losses and fair values of BB&T’s investments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at the dates presented.

 

     September 30, 2009
     Less than 12 months    12 months or more    Total
     Fair
Value
   Unrealized
Losses
   Fair
Value
   Unrealized
Losses
   Fair
Value
   Unrealized
Losses
     (Dollars in millions)

Securities:

                 

U.S. government-sponsored entities (GSE)

   $ 1    $ —      $ —      $ —      $ 1    $ —  

Mortgage-backed securities issued by GSE

     9,114      51      611      3      9,725      54

States and political subdivisions

     224      70      289      58      513      128

Non-agency mortgage-backed securities

     185      74      858      258      1,043      332

Equity and other securities

     4      1      1      —        5      1

Covered securities

     565      11      —        —        565      11
                                         

Total temporarily impaired securities

   $ 10,093    $ 207    $ 1,759    $ 319    $ 11,852    $ 526
                                         
     December 31, 2008
     Less than 12 months    12 months or more    Total
     Fair
Value
   Unrealized
Losses
   Fair
Value
   Unrealized
Losses
   Fair
Value
   Unrealized
Losses
     (Dollars in millions)

Securities:

                 

Mortgage-backed securities issued by GSE

   $ 4,388    $ 24    $ 191    $ 1    $ 4,579    $ 25

States and political subdivisions

     1,174      174      328      170      1,502      344

Non-agency mortgage-backed securities

     629      235      469      240      1,098      475

Equity and other securities

     159      33      20      1      179      34
                                         

Total temporarily impaired securities

   $ 6,350    $ 466    $ 1,008    $ 412    $ 7,358    $ 878
                                         

BB&T periodically evaluates available-for-sale securities for other-than-temporary impairment. Based on its evaluations during the first nine months of 2009, BB&T recorded $40 million of other-than-temporary impairments related to certain debt and equity securities. As of September 30, 2009, BB&T had recognized $1 million of other-than-temporary impairments on certain debt securities where a portion of the impairment was recorded in other comprehensive income.

On September 30, 2009, BB&T held certain investment securities having continuous unrealized loss positions for more than 12 months. As of September 30, 2009, the unrealized losses on these securities totaled $319 million. Substantially all of these losses were in non-agency mortgage-backed and municipal securities. At September 30, 2009, all of the available-for-sale debt securities in an unrealized loss position were investment grade with the exception of (a) one auction rate security with a book value of $1 million; (b) two municipal bonds with a book value of $9 million and (c) eleven non-agency mortgage-backed securities with a book value of $890 million. All of the non-investment grade securities referenced above were initially investment grade and

 

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Third Quarter 2009

 

have been downgraded since purchase. BB&T evaluated all of its debt securities for credit impairment. During the third quarter of 2009, BB&T determined that the non-investment grade auction rate security had credit losses evident and recorded other-than-temporary impairment. As of September 30, 2009, BB&T’s evaluation of the other securities with continuous unrealized losses indicated that there were no credit losses evident. Furthermore, BB&T does not intend to sell and it is more likely than not that the Company will not be required to sell these debt securities before the anticipated recovery of the amortized cost basis. See the “Summary Analysis Supporting Conclusions” section below for further details regarding BB&T’s below investment grade securities with significant unrealized losses.

BB&T conducts periodic reviews to identify and evaluate each investment that has an unrealized loss for other-than-temporary impairment. An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis. Unrealized losses that are determined to be temporary in nature are recorded, net of tax, in accumulated other comprehensive income for available-for-sale securities.

Factors considered in determining whether a loss is temporary include:

 

   

The financial condition and near–term prospects of the issuer, including any specific events that may influence the operations of the issuer;

 

   

BB&T’s intent to sell and whether it is more likely than not that the Company will be required to sell these debt securities before the anticipated recovery of the amortized cost basis;

 

   

The length of the time and the extent to which the market value has been less than cost;

 

   

Whether the decline in fair value is attributable to specific conditions, such as conditions in an industry or in a geographic area;

 

   

Whether a debt security has been downgraded by a rating agency;

 

   

Whether the financial condition of the issuer has deteriorated;

 

   

The seniority of the security;

 

   

Whether dividends have been reduced or eliminated, or scheduled interest payments on debt securities have not been made; and

 

   

Any other relevant available information.

For certain U.S. mortgage-backed securities (and in particular for non-agency Alt-A, Prime and other mortgage-backed securities that have significant unrealized losses as a percentage of amortized cost), credit impairment is assessed using a cash flow model that estimates the cash flows on the underlying mortgage pools, using security-specific structure information. The model estimates cash flows from the underlying mortgage loan pools and distributes those cash flows to the various tranches of securities, considering the transaction structure and any subordination and credit enhancements that exist in each structure. The cash flow model projects the remaining cash flows using a number of assumptions, including default rates, prepayment rates and recovery rates (on foreclosed properties).

Management reviews the result of the cash flow model, internal credit analysis and other market observable information in its estimation of possible future credit losses. If management does not expect to recover the entire amortized cost basis of a mortgage-backed security, the Company records other-than-temporary impairment equal to the amount of expected credit losses in the mortgage-backed security.

 

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Notes to Consolidated Financial Statements (Unaudited)—(Continued)

Third Quarter 2009

 

Where a mortgage-backed security is not deemed to be credit impaired, management performs additional analysis to assess whether it intends to sell and it is more likely than not that the Company will be required to sell these debt securities before anticipated recovery of the amortized cost basis. In making this determination, BB&T considers its expected liquidity and capital needs, including its asset/liability management needs, forecasts, strategies and other relevant information.

Summary Analysis Supporting Conclusions

In all instances, the senior holders of these securities have excess value through subordination inherent in the structure and the cash flow valuation was higher than amortized cost. The following table presents a detailed analysis of non-investment grade securities with significant unrealized losses that are not covered by a loss sharing arrangement. The expected loss represents the remaining current losses plus estimated future losses on the underlying mortgage pools. The subordination coverage of expected losses represents the amount of losses the subordinate security holders are obligated to absorb (original subordination less losses incurred to date) divided by the expected losses.

Non-investment grade securities with significant unrealized losses

As of September 30, 2009

(Dollars in millions)

 

Security

  

Amortized
Cost

  

Fair
Value

  

Unrealized
Loss

   

Moody’s

  

Credit
Rating
S&P

  

Fitch

  

Expected
Loss

   

Subordination
Coverage of
Expected Loss

  

Cash
Flow
Valuation

                        

RMBS 1

   $ 64    $ 51    $ (13      CCC    CC    2.60   1.5x    $ 74

RMBS 2

     132      77      (55      CCC    CCC    2.60   1.5x      153

RMBS 3

     64      19      (45   Caa1    CCC    CC    5.30   1.0x      73

RMBS 4

     64      51      (13   Ba2    B    CCC    1.70   2.5x      74

RMBS 5

     119      99      (20   Caa2    CCC       6.00   .9x      135

RMBS 6

     51      38      (13   B3    CCC       7.50   .8x      59

RMBS 7

     165      124      (41   Caa1    CCC       7.50   .8x      191

RMBS 8

     59      38      (21   Caa2       C    8.90   .6x      68

RMBS 9

     123      72      (51      CCC    CCC    3.30   1.9x      143

 

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Notes to Consolidated Financial Statements (Unaudited)—(Continued)

Third Quarter 2009

 

NOTE 4. Loans and Leases

The following table provides a breakdown of BB&T’s loan portfolio as of September 30, 2009 and December 31, 2008:

 

     September 30,
2009
   December 31,
2008
     (Dollars in millions)

Loans and leases, net of unearned income:

     

Commercial loans and leases

   $ 49,591    $ 50,480

Sales finance

     6,493      6,354

Revolving credit

     1,929      1,777

Direct retail

     14,482      15,454

Residential mortgage loans

     15,463      17,091

Specialized lending

     7,497      6,089

Other acquired loans

     141      —  
             

Total loans and leases held for investment (excluding covered loans)

     95,596      97,245

Covered loans

     8,305      —  
             

Total loans and leases held for investment

     103,901      97,245

Loans held for sale

     3,126      1,424
             

Total loans and leases

   $ 107,027    $ 98,669
             

Covered loans represent loans acquired from the FDIC subject to one of the loss sharing agreements. Other acquired loans represent consumer loans acquired from the FDIC that are not subject to one of the loss sharing agreements.

BB&T evaluated purchased loans for impairment in accordance with the provisions of FASB Topic 310-30: Loans and Debt Securities Acquired with Deteriorated Credit Quality (“Topic 310-30”). Purchased loans with evidence of credit deterioration since origination and for which it is probable that all contractually required payments will not be collected are considered impaired. The following table reflects the carrying value of all purchased impaired and nonimpaired loans as of September 30, 2009:

 

     Purchased
Impaired
Loans
   Purchased
Nonimpaired
Loans
   Total
     (Dollars in millions)

Residential mortgage loans

   $ 819    $ 899    $ 1,718

Commercial real estate loans

     2,653      2,780      5,433

Commercial loans

     93      1,061      1,154
                    

Total covered loans

     3,565      4,740      8,305

Other acquired loans

     17      124      141
                    

Total

   $ 3,582    $ 4,864    $ 8,446
                    

As of August 14, 2009, the preliminary estimate of the contractually required payments receivable for all purchased impaired loans acquired in the Colonial Bank transaction, including those covered and not covered under loss sharing agreements with the FDIC, were $8.0 billion, the cash flows expected to be collected were $4.4 billion including interest, and the estimated fair value of the loans was $3.6 billion. These amounts were

 

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Notes to Consolidated Financial Statements (Unaudited)—(Continued)

Third Quarter 2009

 

determined based upon the estimated remaining life of the underlying loans, which includes the effects of estimated prepayments. At September 30, 2009, none of these loans were classified as nonperforming assets. Therefore, interest income, through accretion of the difference between the carrying amount of the loans and the expected cash flows, is being recognized on all purchased impaired loans. There was no allowance for credit losses related to the purchased impaired loans at September 30, 2009. Because of the short time period between the execution of the Purchase and Assumption Agreement and September 30, 2009, certain amounts related to the purchased impaired loans are preliminary estimates. BB&T expects to finalize its analysis of these loans during the fourth quarter of 2009, and, therefore, adjustments to the estimated amounts may occur.

Changes in the carrying amount and accretable yield for purchased impaired and nonimpaired loans were as follows for both the three and nine months ended September 30, 2009:

 

     Purchased Impaired     Purchased Nonimpaired(1)  
     Accretable
Yield
    Carrying
Amount
of Loans
    Accretable
Yield
    Carrying
Amount of
Loans
 
     (Dollars in millions)  

Balance at beginning of period

   $ —        $ —        $ —        $ —     

Additions (2)

     770        3,626        1,090        4,871   

Accretion

     (32     32        (39     39   

Payments received, net

     —          (76     —          (46
                                

Balance at end of period

   $ 738      $ 3,582      $ 1,051      $ 4,864   
                                

 

(1) Excludes loans held for sale.
(2) Represents the fair value of the loans at the date of acquisition.

For the purchased nonimpaired loans, excluding loans held for sale, the preliminary estimate as of the acquisition date of the contractually required payments receivable were $8.5 billion, the contractual cash flows not expected to be collected were $2.5 billion, and the estimated fair value of the loans was $4.9 billion. The difference between the carrying value of the purchased nonimpaired loans and the expected cash flows is being accreted to interest income over the remaining life of the loans. BB&T expects to finalize its analysis of these loans during the fourth quarter of 2009, and, therefore, adjustments to the estimated amounts may occur.

An analysis of the allowance for credit losses for the nine months ended September 30, 2009 and 2008 is presented in the following table:

 

     For the Nine Months
Ended September 30,
 
     2009     2008  
     (Dollars in millions)  

Beginning balance

   $ 1,607      $ 1,015   

Other changes

     70        (2

Provision for credit losses

     2,086        917   

Loans and leases charged-off

     (1,345     (583

Recoveries of previous charge-offs

     60        46   
                

Net loans and leases charged-off

     (1,285     (537
                

Ending balance

   $ 2,478      $ 1,393   
                

Allowance for loan and lease losses

   $ 2,379      $ 1,377   

Reserve for unfunded lending commitments

     99        16   
                

Allowance for credit losses

   $ 2,478      $ 1,393   
                

 

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Notes to Consolidated Financial Statements (Unaudited)—(Continued)

Third Quarter 2009

 

The following table provides a summary of BB&T’s nonperforming and past due loans at September 30, 2009 and December 31, 2008:

 

     September 30,
2009
   December 31,
2008
     (Dollars in millions)

Nonaccrual loans and leases (1)

   $ 2,573    $ 1,413

Foreclosed real estate

     1,326      538

Other foreclosed property

     53      79
             

Total nonperforming assets (excluding covered assets)

     3,952      2,030
             

Covered foreclosed property

     151      —  
             

Total nonperforming assets

   $ 4,103    $ 2,030
             

Loans 90 days or more past due and still accruing (excluding covered loans) (2)(3)

   $ 323    $ 431

 

(1) Covered and other acquired loans are considered to be performing due to the application of the accretion method under Topic 310-30. Covered loans that are contractually past due are noted in footnote 3 below.
(2) Excludes mortgage loans guaranteed by GNMA that BB&T does not have the obligation to repurchase.
(3) Excludes covered loans totaling $945 million as of September 30, 2009.

At September 30, 2009, BB&T had $148 million in loans that were accruing interest under the terms of troubled debt restructurings. This amount consists of $74 million in residential mortgage loans, $51 million in revolving credit loans, $20 million in commercial loans and $3 million in direct retail loans. Loan restructurings generally occur when a borrower is experiencing, or is expected to experience, financial difficulties in the near-term. Consequently, a modification that would otherwise not be considered is granted to the borrower. These loans may continue to accrue interest as long as the borrower complies with the revised terms and conditions and has demonstrated repayment performance with the modified terms.

 

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Notes to Consolidated Financial Statements (Unaudited)—(Continued)

Third Quarter 2009

 

NOTE 5. Long-Term Debt

Long-term debt is summarized as follows:

 

     September 30,
2009
   December 31,
2008
     (Dollars in millions)

Parent Company

     

3.10% Senior Notes Due 2011

   $ 250    $ —  

3.85% Senior Notes Due 2012

     1,000      —  

3.38% Senior Notes Due 2013

     499      —  

5.70% Senior Notes Due 2014

     509      —  

6.85% Senior Notes Due 2019

     538      —  

6.50% Subordinated Notes Due 2011 (1)

     610      648

4.75% Subordinated Notes Due 2012 (1)

     489      497

5.20% Subordinated Notes Due 2015 (1,3)

     932      997

4.90% Subordinated Notes Due 2017 (1,3)

     335      368

5.25% Subordinated Notes Due 2019 (1,3)

     586      600

Branch Bank

     

Floating Rate Senior Notes Due 2009

     —        516

Floating Rate Subordinated Notes Due 2016 (1,8)

     350      350

Floating Rate Subordinated Notes Due 2017 (1,8)

     261      300

4.875% Subordinated Notes Due 2013 (1)

     222      250

5.625% Subordinated Notes Due 2016 (1,3)

     386      399

Federal Home Loan Bank Advances to Branch Bank (4)

     

Varying maturities to 2028

     10,711      9,838

Junior Subordinated Debt to Unconsolidated Trusts (2)

     

5.85% BB&T Capital Trust I Securities Due 2035

     514      514

6.75% BB&T Capital Trust II Securities Due 2036

     598      598

6.82% BB&T Capital Trust IV Securities Due 2077 (5)

     600      600

8.95% BB&T Capital Trust V Securities Due 2068 (6)

     450      450

9.60% BB&T Capital Trust VI Securities Due 2069

     575      —  

Other Securities (7)

     182      182

Other Long-Term Debt

     74      66

Fair value hedge-related basis adjustments

     646      859
             

Total Long-Term Debt

   $ 21,317    $ 18,032
             

 

(1) Subordinated notes that qualify under the risk-based capital guidelines as Tier 2 supplementary capital, subject to certain limitations.
(2) Securities that qualify under the risk-based capital guidelines as Tier 1 capital, subject to certain limitations.
(3) These fixed rate notes were swapped to floating rates based on LIBOR. At September 30, 2009, the effective rates paid on these borrowings ranged from .42% to .98%.
(4) At September 30, 2009, $800 million of these advances were swapped to a floating rate based on LIBOR. The weighted average cost of these advances was 3.36% including the effect of the swapped portion, and the weighted average maturity was 7.2 years.

 

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Notes to Consolidated Financial Statements (Unaudited)—(Continued)

Third Quarter 2009

 

(5) These securities are fixed rate through June 12, 2037 and then switch to a floating rate based on LIBOR.
(6) $360 million of this issuance was swapped to a floating rate based on LIBOR. At September 30, 2009 the effective rate on the swapped portion was 3.67%.
(7) These securities were issued by companies acquired by BB&T. At September 30, 2009, the effective rate paid on these borrowings ranged from 2.00% to 10.07%. These securities have varying maturities through 2035.
(8) These floating-rate securities are based on LIBOR and had an effective rate of .66% as of September 30, 2009.

In July 2009, BB&T Capital Trust VI (“BBTCT VI”) issued $575 million of Capital Securities, with a fixed interest rate of 9.60% through August 1, 2064 and a floating rate, if extended, through August 1, 2069. BBTCT VI, a statutory business trust created under the laws of the State of Delaware, was formed by BB&T for the sole purpose of issuing the Capital Securities and investing the proceeds thereof in Junior Subordinated Debentures issued by BB&T. BB&T has made guarantees which, taken collectively, fully, irrevocably, and unconditionally guarantee, on a subordinated basis, all of BBTCT VI’s obligations under the Trust and Capital Securities. BBTCT VI’s sole asset is the Junior Subordinated Debentures issued by BB&T which have an initial maturity on August 1, 2064 and a final maturity date on August 1, 2069. The Junior Subordinated Debentures are subject to early redemption (i) in whole, but not in part, at any time under certain prescribed limited circumstances or (ii) in whole, or in part, pursuant to the call provisions after August 1, 2014. The Capital Securities of BBTCT VI are subject to mandatory redemption in whole, or in part, upon repayment of the Junior Subordinated Debentures at maturity or their earlier redemption.

NOTE 6. Contractual Obligations, Commitments, Contingent Liabilities, and Off-Balance Sheet Arrangements

BB&T utilizes a variety of financial instruments to meet the financing needs of clients and reduce exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit, standby letters of credit and financial guarantees, and derivatives. BB&T also has commitments to fund certain affordable housing investments and contingent liabilities of certain sold loans.

Standby letters of credit and financial guarantees written are unconditional commitments issued by BB&T to guarantee the performance of a customer to a third party. These guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper issuance, bond financing and similar transactions. The credit risk involved in the issuance of these guarantees is essentially the same as that involved in extending loans to clients and as such, the instruments are collateralized when necessary. As of September 30, 2009 and December 31, 2008, BB&T had issued standby letters of credit totaling $8.0 billion and $5.9 billion, respectively. The carrying amount of the liability for such guarantees was $34 million and $20 million at September 30, 2009 and December 31, 2008, respectively.

A derivative is a financial instrument that derives its cash flows, and therefore its value, by reference to an underlying instrument, index or referenced interest rate. These instruments include interest-rate swaps, swaptions, caps, floors, collars, financial forward and futures contracts, when-issued securities, foreign exchange contracts and options written and purchased. BB&T uses derivatives primarily to manage risk related to securities, business loans, Federal Funds purchased, other overnight funding, long-term debt, mortgage servicing rights, mortgage banking operations and certificates of deposit. BB&T also uses derivatives to facilitate transactions on behalf of its clients. BB&T held a variety of derivative financial instruments with notional values of $69.6 billion and $74.2 billion at September 30, 2009 and December 31, 2008, respectively. These instruments were in a net gain position of $382 million and $626 million at September 30, 2009 and December 31, 2008, respectively.

 

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Notes to Consolidated Financial Statements (Unaudited)—(Continued)

Third Quarter 2009

 

BB&T invests in certain affordable housing and historic building rehabilitation projects throughout its market area as a means of supporting local communities and receives tax credits related to these investments. BB&T typically acts as a limited partner in these investments and does not exert control over the operating or financial policies of the partnerships. Branch Bank typically provides financing during the construction and development of the properties; however, permanent financing is generally obtained from independent third parties upon completion of a project. As of September 30, 2009 and December 31, 2008, BB&T had investments of $1.1 billion and $891 million, respectively, related to these projects, which are included in other assets on the Consolidated Balance Sheets. BB&T’s outstanding commitments to fund affordable housing investments totaled $410 million and $412 million at September 30, 2009 and December 31, 2008, respectively, which are included in other liabilities on the Consolidated Balance Sheets. As of September 30, 2009 and December 31, 2008, BB&T had outstanding loan commitments to these funds of $166 million and $161 million, respectively. Of this amount, $83 million and $81 million had been funded at September 30, 2009 and December 31, 2008, respectively, and were included in loans and leases on the Consolidated Balance Sheets. BB&T’s maximum risk exposure related to these investments totaled $1.2 billion and $1.1 billion at September 30, 2009 and December 31, 2008, respectively.

In the ordinary course of business, BB&T indemnifies its officers and directors to the fullest extent permitted by law against liabilities arising from pending litigation. BB&T also issues standard representations and warranties in underwriting agreements, merger and acquisition agreements, loan sales, brokerage activities and other similar arrangements. Counterparties in many of these indemnification arrangements provide similar indemnifications to BB&T. Although these agreements often do not specify limitations, BB&T does not believe that any payments related to these guarantees would materially change the financial condition or results of operations of BB&T.

BB&T has sold certain mortgage-related loans that contain recourse provisions. These provisions generally require BB&T to reimburse the investor for a share of any loss that is incurred after the disposal of the property. At September 30, 2009 and December 31, 2008, BB&T had $2.1 billion and $2.5 billion, respectively, of residential mortgage loans sold with recourse. In the event of nonperformance by the borrower, BB&T has maximum recourse exposure of approximately $669 million and $745 million as of September 30, 2009 and December 31, 2008, respectively. In addition, BB&T has $4.0 billion and $3.3 billion in loans serviced for others that were covered by loss sharing agreements at September 30, 2009 and December 31, 2008, respectively. As of September 30, 2009 and December 31, 2008, BB&T’s maximum exposure to loss for these loans is approximately $1.0 billion and $818 million, respectively. At September 30, 2009, BB&T has recorded $17 million of reserves related to these recourse exposures.

BB&T has investments and future funding commitments to certain venture capital funds. As of September 30, 2009 and December 31, 2008, BB&T had investments, net of noncontrolling interest of $216 million and $168 million, respectively, related to these ventures. As of September 30, 2009 and December 31, 2008, BB&T had future funding commitments of $203 million and $222 million, respectively. BB&T’s risk exposure relating to such commitments is generally limited to the amount of investments and future funding commitments made.

BB&T has made loan commitments to qualified special purpose entities as a nontransferor lender. As of September 30, 2009 and December 31, 2008, BB&T had loan commitments to these entities totaling $276 million and $405 million, respectively. Of this amount, $229 million and $290 million had been funded at September 30, 2009 and December 31, 2008, respectively, and were included in loans and leases on the Consolidated Balance Sheets.

 

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Notes to Consolidated Financial Statements (Unaudited)—(Continued)

Third Quarter 2009

 

NOTE 7. Intangible Assets

As a result of the acquisition of certain assets and liabilities of Colonial from the FDIC, BB&T recorded goodwill and a core deposit intangible asset totaling $690 million and $176 million, respectively, at August 14, 2009. The core deposit intangible asset will be amortized over ten years based upon the total economic benefits received. Estimated amortization expense of the core deposit intangible asset for each of the next five years totals $46 million, $30 million, $24 million, $18 million and $15 million.

The goodwill arising from the Colonial transaction reflects the increased market share and related synergies that are expected to result. The amount of goodwill is the residual difference in the fair value of the net liability assumed and the payment from the FDIC for assuming this net liability.

The changes in the carrying amount of goodwill attributable to each of BB&T’s operating segments for the nine months ended September 30, 2009, are as follows:

 

    Goodwill Activity by Operating Segment  
    Banking
Network
    Residential
Mortgage
Banking
  Sales
Finance
  Specialized
Lending
  Insurance
Services
    Financial
Services
  All
Other
  Total  
    (Dollars in millions)  

Balance, January 1, 2009

  $ 4,038      $ 7   $ 93   $ 98   $ 1,029      $ 192   $ 26   $ 5,483   

Acquisitions

    690        —       —       9     —          —       —       699   

Contingent consideration

    —          —       —       —       2        —       —       2   

Other adjustments

    (2     —       —       2     (1     —       —       (1
                                                     

Balance, September 30, 2009

  $ 4,726      $ 7   $ 93   $ 109   $ 1,030      $ 192   $ 26   $ 6,183   
                                                     

The following table presents the gross carrying amounts and accumulated amortization for BB&T’s identifiable intangible assets subject to amortization at the dates presented:

 

     Identifiable Intangible Assets
     As of September 30, 2009    As of December 31, 2008
     Gross
Carrying
Amount
   Accumulated
Amortization
    Net
Carrying
Amount
   Gross
Carrying
Amount
   Accumulated
Amortization
    Net
Carrying
Amount
     (Dollars in millions)

Identifiable intangible assets

               

Core deposit intangibles

   $ 633    $ (355   $ 278    $ 457    $ (325   $ 132

Other (1)

     724      (357     367      719      (309     410
                                           

Totals

   $ 1,357    $ (712   $ 645    $ 1,176    $ (634   $ 542
                                           

 

(1) Other identifiable intangibles are primarily customer relationship intangibles.

 

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Notes to Consolidated Financial Statements (Unaudited)—(Continued)

Third Quarter 2009

 

NOTE 8. Benefit Plans

BB&T provides various benefit plans to substantially all employees, including employees of acquired entities. Employees of acquired entities generally participate in existing BB&T plans after consummation of the business combinations. The plans of acquired institutions are typically merged into the BB&T plans after consummation of the mergers, and, under these circumstances, credit is usually given to these employees for years of service at the acquired institution for vesting and eligibility purposes. The Colonial transaction, as an asset purchase, was handled differently from typical mergers. The retirement plans of Colonial were not assumed by BB&T, and as such, were not merged into the BB&T plans. Credit for years of service with Colonial, where given, was determined on a plan-by-plan basis with regard to the participation of former Colonial employees in BB&T’s plans. Please refer to BB&T’s Annual Report on Form 10-K for the year ended December 31, 2008 for descriptions and disclosures about the various benefit plans offered by BB&T.

The following table summarizes the components of net periodic benefit cost recognized for BB&T’s pension plans for the three and nine month periods ended September 30, 2009 and 2008, respectively:

 

     Pension Plans
     Qualified     Nonqualified
     For the
Three Months Ended
September 30,
    For the
Three Months Ended
September 30,
       2009         2008         2009        2008  
     (Dollars in millions)

Service cost

   $ 17      $ 16      $ 1    $ 1

Interest cost

     20        18        3      3

Estimated return on plan assets

     (36     (36     —        —  

Amortization and other

     13        (1     —        —  
                             

Net periodic benefit cost

   $ 14      $ (3   $ 4    $ 4
                             
     Pension Plans
     Qualified     Nonqualified
     For the
Nine Months Ended

September 30,
    For the
Nine Months Ended

September 30,
     2009     2008     2009    2008
     (Dollars in millions)

Service cost

   $ 55      $ 51      $ 3    $ 3

Interest cost

     58        54        7      7

Estimated return on plan assets

     (107     (104     —        —  

Amortization and other

     41        (3     1      1
                             

Net periodic benefit cost

   $ 47      $ (2   $ 11    $ 11
                             

BB&T makes contributions to the qualified pension plan in amounts between the minimum required for funding standard accounts and the maximum amount deductible for federal income tax purposes. Discretionary contributions of $50 million and $422 million were made to the qualified pension plan in the third and first quarters of 2009, respectively. A discretionary contribution of $83 million was made to the qualified pension plan in the third quarter of 2008. Management currently has no plans to make any additional contributions to the qualified pension plan in 2009; however, management may elect to make additional contributions during 2009 if deemed appropriate.

 

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Notes to Consolidated Financial Statements (Unaudited)—(Continued)

Third Quarter 2009

 

NOTE 9. Computation of Earnings Per Common Share

BB&T’s basic and diluted earnings per common share amounts for the three and nine month periods ended September 30, 2009 and 2008, respectively, were calculated as follows:

 

     For the Three Months
Ended September 30,
   For the Nine Months
Ended September 30,
     2009    2008    2009    2008
     (Dollars in millions, except per share data,
shares in thousands)

Basic Earnings Per Common Share:

           

Net income available to common shareholders

   $ 152    $ 358    $ 544    $ 1,214
                           

Weighted average number of common shares

     665,408      549,761      609,698      547,543
                           

Basic earnings per common share

   $ .23    $ .65    $ .89    $ 2.22
                           

Diluted Earnings Per Common Share:

           

Net income available to common shareholders

   $ 152    $ 358    $ 544    $ 1,214
                           

Weighted average number of common shares

     665,408      549,761      609,698      547,543

Effect of dilutive outstanding equity-based awards

     7,049      3,783      5,609      3,601
                           

Weighted average number of diluted common shares

     672,457      553,544      615,307      551,144
                           

Diluted earnings per common share

   $ .23    $ .65    $ .88    $ 2.20
                           

For the three months ended September 30, 2009 and 2008, the number of anti-dilutive awards was 37.9 million and 35.1 million shares, respectively. For the nine months ended September 30, 2009 and 2008, the number of anti-dilutive awards was 38.9 million and 32.7 million shares, respectively.

NOTE 10. Comprehensive Income (Loss)

The balances in accumulated other comprehensive loss for the periods indicated are shown in the following tables:

 

    As of September 30, 2009     As of December 31, 2008  
    Pre-Tax
Amount
    Deferred
Tax Expense
(Benefit)
    After-Tax
Amount
    Pre-Tax
Amount
    Deferred
Tax Expense
(Benefit)
    After-Tax
Amount
 
    (Dollars in millions)  

Unrecognized net pension and postretirement costs

  $ (689   $ (261   $ (428   $ (720   $ (273   $ (447

Unrealized net gains on cash flow hedges

    152        58        94        76        28        48   

Unrealized net losses on securities available for sale

    (22     (8     (14     (517     (193     (324

FDIC’s share of unrealized net gains on securities available for sale under the loss share agreements(1)

    (19     (7     (12     —          —          —     

Foreign currency translation adjustment

    (9     (5     (4     (9     —          (9
                                               

Total

  $ (587   $ (223   $ (364   $ (1,170   $ (438   $ (732
                                               

 

(1) Approximately $1.2 billion of securities available for sale are covered by loss sharing agreements with the FDIC as discussed in Note 2 to these consolidated financial statements. The securities covered by the loss share agreements reflected a net unrealized pretax gain of $24 million as of September 30, 2009. The FDIC’s share of this net unrealized pretax gain, upon sale, is $19 million and has been recorded as a reduction in other comprehensive income.

 

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Table of Contents

BB&T Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)—(Continued)

Third Quarter 2009

 

As of September 30, 2009, unrealized net losses on securities available for sale included $61 million of pre-tax losses related to other-than-temporarily impaired securities.

The following tables reflect the components of total comprehensive income for the three and nine month periods ended September 30, 2009 and 2008, respectively.

 

     For the Three Months Ended  
     September 30, 2009     September 30, 2008  
     Pre-Tax     Tax Effect     After-Tax     Pre-Tax     Tax Effect     After-Tax  
     (Dollars in millions)  

Comprehensive income:

            

Net income

   $ 148      $ (9   $ 157      $ 511      $ 149      $ 362   

Other comprehensive income:

            

Unrealized net holding gains (losses) arising during the period on securities available for sale

     626        237        389        (184     (68     (116

Reclassification adjustment for losses (gains) on securities available for sale included in net income

     (31     (12     (19     (13     (5     (8

Net change in amounts attributable to the FDIC under the loss share

     (19     (7     (12     —          —          —     

Net change in unrecognized gains (losses) on cash flow hedges

     4        2        2        (6     (6     —     

Net change in foreign currency translation adjustment

     1        (3     4        (1     —          (1

Net change in pension and postretirement liability

     3        1        2        4        1        3   
                                                

Total comprehensive income

   $ 732      $ 209      $ 523      $ 311      $ 71      $ 240   
                                                
     For the Nine Months Ended  
     September 30, 2009     September 30, 2008  
     Pre-Tax     Tax Effect     After-Tax     Pre-Tax     Tax Effect     After-Tax  
     (Dollars in millions)  

Comprehensive income:

            

Net income

   $ 829      $ 146      $ 683      $ 1,747      $ 525      $ 1,222   

Other comprehensive income:

            

Unrealized net holding gains (losses) arising during the period on securities available for sale

     695        261        434        (525     (196     (329

Reclassification adjustment for losses (gains) on securities available for sale included in net income

     (200     (76     (124     (66     (25     (41

Net change in amounts attributable to the FDIC under the loss share

     (19     (7     (12     —          —          —     

Net change in unrecognized gains (losses) on cash flow hedges

     76        30        46        21        8        13   

Net change in foreign currency translation adjustment

     —          (5     5        (1     —          (1

Net change in pension and postretirement liability

     31        12        19        2        1        1   
                                                

Total comprehensive income

   $ 1,412      $ 361      $ 1,051      $ 1,178      $ 313      $ 865   
                                                

 

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Table of Contents

BB&T Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)—(Continued)

Third Quarter 2009

 

NOTE 11. Equity-Based Compensation Plans

BB&T has options, restricted shares of common stock and restricted share units outstanding from the following equity-based compensation plans: the 2004 Stock Incentive Plan (“2004 Plan”), the 1995 Omnibus Stock Incentive Plan, the Non-Employee Directors’ Stock Option Plan, and plans assumed from acquired entities. All plans generally allow for accelerated vesting of awards for holders who retire and have met all retirement eligibility requirements and in connection with certain other events. BB&T’s shareholders have approved all equity-based compensation plans with the exception of plans assumed from acquired companies. As of September 30, 2009, the 2004 Plan is the only plan that has awards available for future grants. Please refer to BB&T’s Annual Report on Form 10-K for the year ended December 31, 2008 for further disclosures related to equity-based awards issued by BB&T.

BB&T measures the fair value of each option award on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants awarded during the first nine months of 2009 and 2008. Substantially all of BB&T’s option awards are granted in February of each year. Therefore, the assumptions noted below are weighted accordingly.

 

     2009     2008  

Assumptions:

    

Risk-free interest rate

     3.1     3.7

Dividend yield

     6.0        4.5   

Volatility factor

     29.1        15.5   

Expected life

     7.1 yrs      6.9 yrs 

Fair value of options per share

   $ 2.59      $ 3.43   

BB&T measures the fair value of restricted shares based on the price of BB&T’s common stock on the grant date and the fair value of restricted share units based on the price of BB&T’s common stock on the grant date less the present value of expected dividends that are foregone during the vesting period.

The following table details the activity during the first nine months of 2009 related to stock options awarded by BB&T:

 

     For the Nine Months Ended
September 30, 2009
     Options     Wtd. Avg.
Exercise
Price

Outstanding at beginning of period

   41,837,504      $ 36.55

Granted

   2,832,038        16.89

Exercised

   (218,469     27.60

Forfeited or expired

   (1,587,428     35.47
        

Outstanding at end of period

   42,863,645        35.36
        

Exercisable at end of period

   30,078,604        36.25
        

 

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Table of Contents

BB&T Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)—(Continued)

Third Quarter 2009

 

The following table details the activity during the first nine months of 2009 related to restricted shares and restricted share units awarded by BB&T:

 

     For the Nine Months Ended
September 30, 2009
     Shares/Units     Wtd. Avg.
Grant Date
Fair Value

Nonvested at beginning of period

   6,259,349      $ 29.15

Granted

   5,002,692        7.46

Vested

   (171,325     27.39

Forfeited

   (153,848     21.76
        

Nonvested at end of period

   10,936,868        19.36
        

NOTE 12. Fair Value Disclosures

BB&T carries various assets and liabilities at fair value based on applicable accounting standards. In addition, BB&T has elected to account for prime residential mortgage and commercial mortgage loans held for sale at fair value in accordance with FASB Topic 825: The Fair Value Option for Financial Assets and Liabilities (“Topic 825” or the “Fair Value Option”). Topic 820 established a framework for measuring fair value and defines fair value as the exchange price that would be received on the measurement date to sell an asset or the price paid to transfer a liability in the principal or most advantageous market available to the entity in an orderly transaction between market participants. Topic 820 also established a three level fair value hierarchy that describes the inputs that are used to measure assets and liabilities.

Level 1

Level 1 asset and liability fair values are based on quoted prices in active markets for identical assets and liabilities. Level 1 assets and liabilities include certain equity securities and derivative contracts that are traded in an active market.

Level 2

Level 2 asset and liability fair values are based on observable inputs that include: quoted market prices for similar assets or liabilities; quoted market prices that are not in an active market; or other inputs that are observable in the market and can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include fixed income securities and mortgage-backed securities that are held in the Corporation’s trading and available-for-sale portfolios, loans held for sale, certain derivative contracts and short-term borrowings.

Level 3

Level 3 assets and liabilities are financial instruments whose value is calculated by the use of pricing models and/or discounted cash flow methodologies, as well as financial instruments for which the determination of fair value requires significant management judgment or estimation. These methodologies may result in a significant portion of the fair value being derived from unobservable data. Level 3 assets and liabilities include certain trading securities, obligations of state and political subdivisions, non-agency mortgage-backed securities, covered securities, mortgage servicing rights, venture capital investments and certain derivative contracts.

 

30


Table of Contents

BB&T Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)—(Continued)

Third Quarter 2009

 

Assets and liabilities measured at fair value on a recurring basis, including financial instruments for which BB&T has elected the Fair Value Option in accordance with Topic 825 are summarized below:

 

         Fair Value Measurements for Assets and Liabilities
Measured on a Recurring Basis
     9/30/2009   Level 1    Level 2    Level 3
         (Dollars in Millions)

Assets:

          

Trading securities

   $ 686   $ 233    $ 440    $ 13

Securities available for sale:

          

U.S. government-sponsored entities (GSE)

     2,667     —        2,667      —  

Mortgage-backed securities issued by GSE

     26,152     —        26,152      —  

States and political subdivisions

     2,209     —        1,983      226

Non-agency mortgage-backed securities

     1,061     —        1,061      —  

Equity and other securities

     868     167      692      9

Covered securities

     1,176     —        540      636

Loans held for sale (1)

     3,083     —        3,083      —  

Residential mortgage servicing rights

     639     —        —        639

Derivative assets (2)

     1,128     4      1,097      27

Venture capital investments (2)

     229     —        —        229
                          

Total assets

   $ 39,898   $ 404    $ 37,715    $ 1,779
                          

Liabilities:

          

Derivative liabilities (2)

   $ 746   $ 4    $ 721    $ 21

Short-term borrowed funds (3)

     338     1      337      —  
                          

Total liabilities

   $ 1,084   $ 5    $ 1,058    $ 21
                          
         Fair Value Measurements for Assets and Liabilities
Measured on a Recurring Basis
     12/31/2008   Level 1    Level 2    Level 3
         (Dollars in Millions)

Assets:

          

Trading securities

   $ 376   $ 204    $ 168    $ 4

Securities available for sale

     32,843     170      31,574      1,099

Loans held for sale (1)

     1,396     —        1,396      —  

Residential mortgage servicing rights

     370     —        —        370

Derivative assets (2)

     1,723     4      1,681      38

Venture capital investments (2)

     183     —        1      182
                          

Total assets

   $ 36,891   $ 378    $ 34,820    $ 1,693
                          

Liabilities:

          

Derivative liabilities (2)

   $ 1,097   $ 11    $ 1,085    $ 1

Short-term borrowed funds (3)

     149     —        149      —  
                          

Total liabilities

   $ 1,246   $ 11    $ 1,234    $ 1
                          

 

(1) There were $43 million in commercial loans held for sale accounted for at lower of cost or market at September 30, 2009. There were $28 million in loans held for sale not accounted for at fair value at December 31, 2008.
(2) These amounts are reflected in other assets and other liabilities on the Consolidated Balance Sheets.
(3) Short-term borrowed funds reflect securities sold short positions.

 

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Table of Contents

BB&T Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)—(Continued)

Third Quarter 2009

 

The tables below present a reconciliation for the three and nine month periods ended September 30, 2009 and 2008, respectively, for Level 3 assets and liabilities that are measured at fair value on a recurring basis.

 

    Fair Value Measurements Using Significant Unobservable Inputs  

For the Three Month Period

Ended September 30, 2009

  Trading     States &
Political
Subdivisions
  Non-agency
mortgage-

backed
securities
    Equity &
Other
Securities
    Covered
Securities
  Mortgage
Servicing
Rights
    Net
Derivatives
    Venture
Capital
Investments
 
    (Dollars in Millions)  

Balance at June 30, 2009

  $ 14      $ —     $ 1,048      $ 1      $ —     $ 615      $ —        $ 200   

Total realized and unrealized gains or losses:

               

Included in earnings

    (2     —       —          —          4     (89     33        (4

Included in other comprehensive income (loss)

    —          —       70        —          —       —          —          —     

Purchases, issuances and settlements

    —          —       (57     (1     —       113        (7     3   

Transfers into Level 3 from Colonial acquisition

    —          —       —          —          632     —          (20     —     

Transfers in and/or out of Level 3

    1        226     (1,061     9        —       —          —          30   
                                                           

Balance at September 30, 2009

  $ 13      $ 226   $ —        $ 9      $ 636   $ 639      $ 6      $ 229   
                                                           

 

     Fair Value Measurements Using Significant Unobservable Inputs

For the Three Month Period

Ended September 30, 2008

  

Trading

  

AFS
Securities

   

Mortgage
Servicing
Rights

   

Net
Derivatives

   

Venture Capital
Investments

           
     (Dollars in Millions)

Balance at June 30, 2008

   $ 5    $ 14      $ 611      $ 6      $ 152

Total realized and unrealized gains or losses:

           

Included in earnings

     —        —          (63     26        1

Included in other comprehensive income (loss)

     —        (1     —          —          —  

Purchases, issuances and settlements

     —        —          53        (34     21

Transfers in and/or out of Level 3

     —        35        —          —          —  
                                     

Balance at September 30, 2008

   $ 5    $ 48      $ 601      $ (2   $ 174
                                     

 

32


Table of Contents

BB&T Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)—(Continued)

Third Quarter 2009

 

    Fair Value Measurements Using Significant Unobservable Inputs  

For the Nine Month Period

Ended September 30, 2009

  Trading     States &
Political
Subdivisions
  Non-agency
mortgage-

backed
securities
    Equity &
Other
Securities
    Covered
Securities
  Mortgage
Servicing
Rights
    Net
Derivatives
    Venture
Capital
Investments
 
    (Dollars in Millions)  

Balance at January 1, 2009

  $ 4      $ —     $ 1,098      $ 1      $ —     $ 370      $ 37      $ 182   

Total realized and unrealized gains or losses:

               

Included in earnings

    (3     —       —          —          4     (62     138        (6

Included in other comprehensive income (loss)

    —          —       142        —          —       —          —          —     

Purchases, issuances and settlements

    11        —       (179     (1     —       331        (149     23   

Transfers into Level 3 from Colonial acquisition

    —          —       —          —          632     —          (20     —     

Transfers in and/or out of Level 3

    1        226     (1,061     9        —       —          —          30   
                                                           

Balance at September 30, 2009

  $ 13      $ 226   $ —        $ 9      $ 636   $ 639      $ 6      $ 229   
                                                           

 

     Fair Value Measurements Using Significant Unobservable Inputs  

For the Nine Month Period

Ended September 30, 2008

   Trading     AFS
Securities
    Mortgage
Servicing
Rights
    Net
Derivatives
    Venture Capital
Investments
 
           (Dollars in Millions)        

Balance at January 1, 2008

   $ 27      $ 9      $ 472      $ 2      $ 128   

Total realized and unrealized gains or losses:

          

Included in earnings

     (2     —          (39     52        (8

Included in other comprehensive income (loss)

     —          (1     —          —          —     

Purchases, issuances and settlements

     (23     5        168        (56     54   

Transfers in and/or out of Level 3

     3        35        —          —          —     
                                        

Balance at September 30, 2008

   $ 5      $ 48      $ 601      $ (2   $ 174   
                                        

BB&T transferred approximately $1.1 billion of non-agency mortgage-backed securities from level 3 to level 2 in the third quarter of 2009 as a result of increased market activity for these securities. Conversely, market activity for certain auction rate securities decreased and BB&T transferred these securities from level 2 to level 3. The total amount of auction rate securities that were transferred during the third quarter was $235 million, which was comprised of $226 million included in obligations of state and political subdivisions and $9 million that are included in equity and other securities. BB&T also acquired certain non-agency mortgage-backed securities in the Colonial acquisition that are included in covered securities and were determined to be level 3 due to the lack of observable sales for these securities. There were no gains or losses recognized as a result of the transfers of securities between level 2 and level 3.

 

33


Table of Contents

BB&T Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)—(Continued)

Third Quarter 2009

 

The tables below summarize unrealized and realized gains and losses recorded in earnings for Level 3 assets and liabilities for the three month periods ended September 30, 2009 and 2008, respectively.

 

     Total Gains and Losses  

For the Three Month Period

Ended September 30, 2009

   Trading     Covered
Securities
   Mortgage
Servicing
Rights
    Net
Derivatives
   Venture
Capital
Investments
 
     (Dollars in Millions)  

Classification of gains and losses (realized/unrealized) included in earnings for the period:

            

Interest income

   $ —        $ 4    $ —        $ —      $ —     

Mortgage banking income

     —             (89     33      —     

Other noninterest income

     (2     —        —          —        (4
                                      

Total

   $ (2   $ 4    $ (89   $ 33    $ (4
                                      

Net unrealized gains (losses) included in net income relating to assets and liabilities still held at September 30, 2009

   $ (2   $ 4    $ (59   $ 6    $ 2   
                                      

 

     Total Gains and Losses

For the Three Month Period Ended

September 30, 2008

   Trading    Mortgage
Servicing
Rights
    Net
Derivatives
    Venture
Capital
Investments
     (Dollars in Millions)

Classification of gains and losses (realized/unrealized) included in earnings for the period:

         

Mortgage banking income

   $ —      $ (63   $ 26      $ —  

Other noninterest income

     —        —          —          1
                             

Total

   $ —      $ (63   $ 26      $ 1
                             

Net unrealized gains (losses) included in net income relating to assets and liabilities still held at September 30, 2008

   $ —      $ (41   $ (2   $ 1
                             

The realized and unrealized losses reported for mortgage servicing rights assets are composed of a negative valuation adjustment of $59 million and $41 million and the realization of expected residential mortgage servicing rights cash flows of $30 million and $22 million for the quarters ended September 30, 2009 and 2008, respectively. BB&T uses various derivative financial instruments to mitigate the income statement effect of changes in fair value due to its quarterly valuation. During the three months ended September 30, 2009 and 2008, respectively, the derivative instruments produced gains of $72 million and $65 million, which offset the negative valuation adjustment recorded.

 

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Table of Contents

BB&T Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)—(Continued)

Third Quarter 2009

 

The tables below summarize unrealized and realized gains and losses recorded in earnings for Level 3 assets and liabilities for the nine month periods ended September 30, 2009 and 2008, respectively.

 

     Total Gains and Losses  

For the Nine Month Period

Ended September 30, 2009

   Trading     Covered
Securities
   Mortgage
Servicing
Rights
    Net
Derivatives
   Venture
Capital
Investments
 
     (Dollars in Millions)  

Classification of gains and losses (realized/unrealized) included in earnings for the period:

            

Interest income

   $ —        $ 4    $ —        $ —      $ —     

Mortgage banking income

     —          —        (62     138      —     

Other noninterest income

     (3     —        —          —        (6
                                      

Total

   $ (3   $ 4    $ (62   $ 138    $ (6
                                      

Net unrealized gains (losses) included in net income relating to assets and liabilities still held at September 30, 2009

   $ (3   $ 4    $ 32      $ 6    $ (7
                                      

 

     Total Gains and Losses  

For the Nine Month Period Ended

September 30, 2008

   Trading     Mortgage
Servicing Rights
    Net
Derivatives
    Venture Capital
Investments
 
     (Dollars in Millions)  

Classification of gains and losses (realized/unrealized) included in earnings for the period:

        

Mortgage banking income

   $ —        $ (39   $ 52      $ —     

Other noninterest income

     (2     —          —          (8
                                

Total

   $ (2   $ (39   $ 52      $ (8
                                

Net unrealized gains (losses) included in net income relating to assets and liabilities still held at September 30, 2008

   $ —        $ 27      $ (2   $ (12
                                

The realized and unrealized losses reported for mortgage servicing rights assets are composed of a positive valuation adjustment of $32 million and $27 million less the realization of expected residential mortgage servicing rights cash flows of $94 million and $66 million for the nine months ended September 30, 2009 and 2008, respectively. BB&T uses various derivative financial instruments to mitigate the income statement effect of changes in fair value due to its quarterly valuation. During the first nine months of 2009, the derivative instruments produced gains of $32 million and losses of $11 million for the first nine months of 2008, which offset the valuation adjustments recorded.

 

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BB&T Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)—(Continued)

Third Quarter 2009

 

The following table details the fair value and unpaid principal balance of loans held for sale at September 30, 2009 and December 31, 2008, that were elected to be carried at fair value.

 

     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
     September 30, 2009     December 31, 2008
     (Dollars in millions)     (Dollars in millions)

Loans held for sale reported at fair value

                

Total (1)

   $ 3,083    $ 3,029    $ 54      $ 1,396    $ 1,367    $ 29

Nonaccrual loans

     4      5      (1     1      1      —  

Loans 90 days or more past due and still accruing interest

     1      1      —          3      3      —  

 

(1) The change in fair value is reflected in mortgage banking income.

Also, 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 quarter ended September 30, 2009 that were still held on the balance sheet at September 30, 2009 totaled $2.2 billion. This amount consists of $933 million for impaired loans, excluding covered loans, and $1.3 billion for foreclosed real estate that were classified as Level 3 assets. During the third quarter and the first nine months of 2009, BB&T recorded $101 million and $290 million, respectively, in losses related to write-downs of the loans and $88 million and $137 million in losses related to write-downs of foreclosed real estate based on the appraised value of the underlying collateral.

FASB Topic 825-10-50: Financial Instruments requires the disclosure of the estimated fair value of financial instruments. 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. BB&T has recorded certain assets and liabilities at fair value based on the Fair Value Option or as required by Topic 820. The following is a summary of the carrying amounts and fair values of those financial assets and liabilities that BB&T has not recorded at fair value:

 

     September 30,    December 31,
     2009    2008
     Carrying
Amount
   Fair
Value
   Carrying
Amount
   Fair
Value
     (Dollars in millions)

Financial assets:

           

Cash and cash equivalents

   $ 2,391    $ 2,391    $ 2,740    $ 2,740

Segregated cash due from banks

     286      286      379      379

Loans and leases, net of allowance for loan and lease losses (1)

     101,565      101,300      95,699      96,025

Financial liabilities:

           

Deposits

     114,510      113,205      98,613      98,877

Federal funds purchased, securities sold under repurchase agreements and short-term borrowed funds

     8,357      8,357      10,788      10,788

Long-term debt (2)

     21,311      21,111      18,026      17,873

 

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BB&T Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)—(Continued)

Third Quarter 2009

 

 

(1) Includes $43 million and $28 million of loans held for sale for which the Fair Value Option was not elected at September 30, 2009 and December 31, 2008, respectively.
(2) Excludes $6 million of obligations under capitalized leases at both September 30, 2009 and December 31, 2008.

The following is a summary of the notional or contractual amounts and fair values of BB&T’s off-balance sheet financial instruments as of the periods indicated:

 

     September 30,    December 31,
     2009    2008
     Notional/
Contract

Amount
   Fair
Value
   Notional/
Contract
Amount
   Fair
Value
     (Dollars in millions)

Contractual commitments:

           

Commitments to extend, originate or purchase credit

   $ 34,831    $ 46    $ 35,144    $ 50

Mortgage loans sold with recourse

     2,054      6      2,470      3

Other assets sold with recourse

     4,015      11      3,259      8

Standby and commercial letters of credit and financial guarantees written

     8,015      34      5,895      20

Commitments to fund affordable housing investments

     410      385      412      393

Estimates of the fair value of these financial instruments 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.

Loans receivable and loans held for sale: The fair values for loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms and credit quality. The carrying amounts of accrued interest approximate fair values. The fair values of loans held for sale for which BB&T did not elect the Fair Value Option are based on quoted market prices and the projected value of the net servicing fees.

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 at the reporting date, i.e., their carrying amounts. Fair values for certificates of deposit 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.

 

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Table of Contents

BB&T Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)—(Continued)

Third Quarter 2009

 

Federal funds purchased, securities sold under repurchase agreements and short-term borrowed funds: The carrying amounts of Federal funds purchased, borrowings under repurchase agreements and short-term borrowed funds approximate their fair values.

Long-term debt: The fair values of long-term debt are estimated based on quoted market prices for the instrument if available, or for similar instruments if not available, or by using discounted cash flow analyses, based on BB&T’s current incremental borrowing rates for similar types of instruments.

Contractual commitments: The fair values of commitments are estimated using the fees charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair values also consider the difference between current levels of interest rates and the committed rates. The fair values of guarantees and letters of credit are estimated based on the counterparties’ creditworthiness and average default rates for loan products with similar risks. The fair values of commitments to fund affordable housing investments are estimated using the net present value of future commitments.

NOTE 13. Derivative Financial Instruments

BB&T uses a variety of derivative instruments to manage interest rate and foreign exchange risks. These instruments consist of interest-rate swaps, swaptions, caps, floors, collars, financial forward and futures contracts, when-issued securities, foreign exchange contracts and options written and purchased. A derivative is a financial instrument that derives its cash flows, and therefore its value, by reference to an underlying instrument, index or referenced interest rate. There are five areas of risk management: balance sheet management, mortgage banking operations, mortgage servicing rights, net investment in a foreign subsidiary and client-related and other risk management activities.

The following tables set forth certain information concerning BB&T’s derivative financial instruments and related hedged items at September 30, 2009:

 

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Table of Contents

BB&T Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)—(Continued)

Third Quarter 2009

 

Derivative Classifications and Hedging Relationships

 

        September 30, 2009  
   

Hedged Item or

Transaction

  Notional
Amount
   Fair Value  
       Gain (1)    Loss (1)  
        (Dollars in millions)  

Derivatives Designated as Cash Flow Hedges:

  

Interest rate contracts:

         

Receive fixed swaps

 

First forecasted interest receipts on commercial loans

  $ 2,000    $ 33    $ (3

Pay fixed swaps

 

First forecasted interest payments on 3 month LIBOR funding

    2,600      10      (31

Caps

 

First forecasted interest payments on 3 month LIBOR funding

    442      —        —     
                       

Total

      5,042      43      (34
                       

Derivatives Designated as Net Investment Hedges:

  

                       

Foreign exchange contracts

      73      —        (1
                       

Derivatives Designated as Fair Value Hedges:

  

Interest rate contracts:

         

Receive fixed swaps

 

Individual fixed rate long-term debt issuances

    3,429      288      (3

Receive fixed swaps

 

Long-term CD’s

    328      5      —     

Pay fixed swaps

 

Individual fixed rate municipal securities classified as available for sale

    354      —        (83