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: March 31, 2010

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

(Address of Principal Executive Offices)

  (Zip Code)

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

At April 30, 2010, 692,102,008 shares of the Registrant’s common stock, $5 par value, were outstanding.

 

 

 


Table of Contents

BB&T CORPORATION

FORM 10-Q

March 31, 2010

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    42
   Executive Summary    45
   Analysis of Financial Condition    47
   Analysis of Results of Operations    60
   Market Risk Management    66
   Capital Adequacy and Resources    69
   Segment Results    72

Item 3.

   Quantitative and Qualitative Disclosures About Market Risk    73

Item 4.

   Controls and Procedures    73

Part II. OTHER INFORMATION

  

Item 1.

   Legal Proceedings    73

Item 1A.

   Risk Factors    73

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds    73

Item 6.

   Exhibits    74

SIGNATURES

   74

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)

 

     March 31,
2010
    December 31,
2009
 

Assets

    

Cash and due from banks

   $ 1,265      $ 1,584   

Interest-bearing deposits with banks

     574        667   

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

     399        398   

Segregated cash due from banks

     269        270   

Trading securities at fair value

     651        636   

Securities available for sale at fair value ($1,263 and $1,201 covered by FDIC loss share at March 31, 2010 and December 31, 2009, respectively)

     32,654        33,253   

Loans held for sale at fair value

     2,057        2,551   

Loans and leases ($7,458 and $8,019 covered by FDIC loss share at March 31, 2010 and December 31 , 2009, respectively)

     102,344        103,656   

Allowance for loan and lease losses

     (2,714     (2,600
                

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

     99,630        101,056   
                

FDIC loss share receivable

     2,611        3,062   

Premises and equipment

     1,798        1,583   

Goodwill

     6,055        6,053   

Core deposit and other intangible assets

     601        640   

Residential mortgage servicing rights at fair value

     875        832   

Other assets ($229 and $215 of foreclosed property and other assets covered by FDIC loss share at March 31, 2010 and December 31, 2009, respectively)

     14,261        13,179   
                

Total assets

   $ 163,700      $ 165,764   
                

Liabilities and Shareholders’ Equity

    

Deposits:

    

Noninterest-bearing deposits

   $ 19,022      $ 18,945   

Interest checking

     3,504        3,420   

Other client deposits

     51,897        52,097   

Client certificates of deposit

     29,686        32,298   

Other interest-bearing deposits

     9,614        8,205   
                

Total deposits

     113,723        114,965   
                

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

     7,020        8,106   

Long-term debt

     21,428        21,376   

Accounts payable and other liabilities

     5,001        5,076   
                

Total liabilities

     147,172        149,523   
                

Commitments and contingencies (Note 13)

    

Shareholders’ equity:

    

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

     —          —     

Common stock, $5 par

     3,459        3,449   

Additional paid-in capital

     5,677        5,620   

Retained earnings

     7,624        7,539   

Accumulated other comprehensive loss, net of deferred income taxes of $(183) and $(257) at March 31, 2010 and December 31, 2009, respectively

     (292     (417

Noncontrolling interest

     60        50   
                

Total shareholders’ equity

     16,528        16,241   
                

Total liabilities and shareholders’ equity

   $ 163,700      $ 165,764   
                

Common shares outstanding

     691,869        689,750   

Common shares authorized

     1,000,000        1,000,000   

Preferred shares authorized

     5,000        5,000   

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 INCOME

(Unaudited)

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

 

    For the Three Months Ended
March 31,
 
        2010             2009      

Interest Income

   

Interest and fees on loans and leases

  $ 1,440      $ 1,322   

Interest and dividends on securities

    336        352   

Interest on other earning assets

    3        5   
               

Total interest income

    1,779        1,679   
               

Interest Expense

   

Interest on deposits

    259        346   

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

    5        23   

Interest on long-term debt

    201        164   
               

Total interest expense

    465        533   
               

Net Interest Income

    1,314        1,146   

Provision for credit losses

    575        676   
               

Net Interest Income After Provision for Credit Losses

    739        470   
               

Noninterest Income

   

Insurance income

    253        252   

Service charges on deposits

    164        156   

Mortgage banking income

    89        188   

Investment banking and brokerage fees and commissions

    79        82   

Other nondeposit fees and commissions

    65        53   

Checkcard fees

    61        49   

Bankcard fees and merchant discounts

    40        35   

Trust and investment advisory revenues

    38        32   

Income from bank-owned life insurance

    31        23   

Other income

    27        11   

Securities gains (losses), net

   

Realized gains (losses), net

    3        186   

Other-than-temporary impairments

    (12     (36

Less non-credit portion recognized in other comprehensive income

    6        —     
               

Total securities (losses) gains, net

    (3     150   
               

Total noninterest income

    844        1,031   
               

Noninterest Expense

   

Personnel expense

    646        600   

Foreclosed property expense

    178        36   

Occupancy and equipment expense

    138        129   

Professional services

    72        53   

Regulatory charges

    45        33   

Loan processing expenses

    35        29   

Amortization of intangibles

    32        25   

Merger-related and restructuring charges, net

    17        12   

Other expenses

    178        152   
               

Total noninterest expense

    1,341        1,069   
               

Earnings

   

Income before income taxes

    242        432   

Provision for income taxes

    48        114   
               

Net income

    194        318   
               

Noncontrolling interest

    6        6   

Dividends and accretion on preferred stock

    —          41   
               

Net income available to common shareholders

  $ 188      $ 271   
               

Earnings Per Common Share

   

Basic

  $ .27      $ .48   
               

Diluted

  $ .27      $ .48   
               

Cash dividends declared

  $ .15      $ .47   
               

Weighted Average Shares Outstanding

   

Basic

    690,792        559,801   
               

Diluted

    698,675        563,566   
               

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 Three Months Ended March 31, 2010 and 2009

(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, 2009

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

Add (Deduct):

               

Comprehensive income (loss):

               

Net income

  —       —       —       —       312        —          6        318   

Net change in other comprehensive income (loss)

  —       —       —       —       —          49        —          49   
                                                     

Total comprehensive income (loss) (Note 10)

  —       —       —       —       312        49        6        367   
                                                     

Stock issued:

               

In purchase acquisitions

  96     —       1     1     —          —          —          2   

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

  44     —       —       —       —          —          —          —     

In connection with dividend reinvestment plan

  1,175     —       6     16     —          —          —          22   

Cash dividends declared on common stock, $.47 per share

  —       —       —       —       (266     —          —          (266

Cash dividends accrued on preferred stock

  —       —       —       —       (39     —          —          (39

Equity-based compensation expense

  —       —       —       19     —          —          —          19   

Other, net

  —       3     —       1     (3     —          (5     (4
                                                     

Balance, March 31, 2009

  560,563   $ 3,085   $ 2,803   $ 3,547   $ 7,385      $ (683   $ 45      $ 16,182   
                                                     

Balance, January 1, 2010

  689,750   $ —     $ 3,449   $ 5,620   $ 7,539      $ (417   $ 50        16,241   

Add (Deduct):

               

Comprehensive income (loss):

               

Net income

  —       —       —       —       188        —          6        194   

Net change in other comprehensive income (loss)

  —       —       —       —       —          125        —          125   
                                                     

Total comprehensive income (loss)
(Note 10)

  —       —       —       —       188        125        6        319   
                                                     

Stock issued:

               

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

  1,349     —       7     23     —          —          —          30   

In connection with dividend reinvestment plan

  299     —       1     7     —          —          —          8   

In connection with 401(k) plan

  471     —       2     11     —          —          —          13   

Cash dividends declared on common stock, $.15 per share

  —       —       —       —       (103     —          —          (103

Equity-based compensation expense

  —       —       —       16     —          —          —          16   

Other, net

  —       —       —       —       —          —          4        4   
                                                     

Balance, March 31, 2010

  691,869   $ —     $ 3,459   $ 5,677   $ 7,624      $ (292   $ 60      $ 16,528   
                                                     

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 Three Months Ended
March 31,
 
         2010             2009      

Cash Flows From Operating Activities:

    

Net income

   $ 194      $ 318   

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

    

Provision for credit losses

     575        676   

Depreciation

     65        54   

Amortization of intangibles

     32        25   

Equity-based compensation

     16        19   

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

     9        16   

Loss (gain) on sales of securities, net

     3        (150

Net increase in trading securities

     (15     (105

Net decrease (increase) in loans held for sale

     475        (2,355

Net decrease in FDIC loss share receivable

     406        —     

Net increase in other assets

     (1,155     (4,376

Net decrease in accounts payable and other liabilities

     (66     (3,562

Decrease in segregated cash due from banks

     1        96   

Other, net

     97        73   
                

Net cash provided by (used in) operating activities

     637        (9,271
                

Cash Flows From Investing Activities:

    

Proceeds from sales of securities available for sale

     787        12,034   

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

     1,694        2,091   

Purchases of securities available for sale

     (1,563     (150

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

     456        633   

Net cash paid for divestitures

     (832     —     

Net cash paid in business combinations

     (5     (717

Proceeds from disposals of premises and equipment

     1        2   

Purchases of premises and equipment

     (263     (43

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

     166        45   

Other, net

     12        (1
                

Net cash provided by investing activities

     453        13,894   
                

Cash Flows From Financing Activities:

    

Net decrease in deposits

     (365     (7,993

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

     (1,087     2,933   

Proceeds from issuance of long-term debt

     —          1   

Repayment of long-term debt

     (1     (24

Net proceeds from common stock issued

     51        22   

Cash dividends paid on common stock

     (103     (263

Cash dividends paid on preferred stock

     —          (40

Other, net

     4        1   
                

Net cash used in financing activities

     (1,501     (5,363
                

Net Decrease in Cash and Cash Equivalents

     (411     (740

Cash and Cash Equivalents at Beginning of Period

     2,649        2,740   
                

Cash and Cash Equivalents at End of Period

   $ 2,238      $ 2,000   
                

Supplemental Disclosure of Cash Flow Information:

    

Cash paid during the period for:

    

Interest

   $ 430      $ 484   

Income taxes

     636        138   

Noncash investing and financing activities:

    

Transfers of loans to foreclosed property

     388        465   

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)

  First Quarter 2010

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 March 31, 2010 and December 31, 2009, and BB&T’s results of operations, changes in shareholders’ equity and cash flows for the three month periods ended March 31, 2010 and 2009. In the opinion of management, all normal recurring adjustments necessary for a fair statement of the interim period results have been made.

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, 2009 should be referred to in connection with these unaudited interim consolidated financial statements.

The accounting and reporting policies of BB&T and its subsidiaries are in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Additionally, where applicable, the policies conform to the accounting and reporting guidelines prescribed by bank regulatory authorities.

Nature of Operations

BB&T Corporation (“BB&T”, the “Company” or “Parent Company”) is a financial holding company organized under the laws of North Carolina. BB&T conducts operations through its principal bank subsidiary, Branch Banking and Trust Company (“Branch Bank”), BB&T Financial, FSB (“BB&T FSB”), a federally chartered thrift institution, and its nonbank subsidiaries. Branch Bank has offices in North Carolina, South Carolina, Virginia, Maryland, Georgia, West Virginia, Tennessee, Kentucky, Florida, Alabama, Indiana, Texas 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, asset management and capital markets services.

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 GAAP requires otherwise.

BB&T holds investments in certain legal entities that are considered variable interest entities (“VIE’s”). VIE’s are legal entities in which equity investors do not have sufficient equity at risk for the entity to independently finance its activities, or as a group, the holders of the equity investment at risk lack the power through voting or similar rights to direct the activities of the entity that most significantly impact its economic performance, or do not have the obligation to absorb the expected losses of the entity or the right to receive expected residual returns of the entity. Consolidation of a VIE is considered appropriate if a reporting entity holds a controlling financial interest in the VIE.

 

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BB&T Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

  First Quarter 2010

 

BB&T evaluates its investments in VIE’s to determine if a controlling financial interest is held. This evaluation gives appropriate consideration to the design of the entity and the variability that the entity was designed to pass along, the relative power of each of the parties to the VIE, and to BB&T’s relative obligation to absorb losses or receive residual returns of the entity, in relation to such obligations and rights held by other parties to the VIE. 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 13 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

Investments in Federal Home Loan Bank (“FHLB”) stock have been reclassified from securities available for sale to other assets in all periods presented. 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.

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

In June 2009, the FASB issued new guidance impacting Transfers and Servicing. The objective of this guidance 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. This guidance is effective for financial asset transfers occurring after December 31, 2009. The adoption of this guidance was not material to BB&T’s consolidated financial statements.

In June 2009, the FASB issued new guidance impacting Consolidation of variable interest entities. The objective of this guidance 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. This guidance was effective as of January 1, 2010. The adoption of this guidance was not material to BB&T’s consolidated financial statements.

In February 2010, the FASB issued new guidance impacting Fair Value Measurements and Disclosures. The new guidance requires a gross presentation of purchases and sales of Level 3 activities and adds a new requirement to disclose

 

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BB&T Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

  First Quarter 2010

 

transfers in and out of Level 1 and Level 2 measurements. The guidance related to the transfers between Level 1 and Level 2 measurements was effective for BB&T on January 1, 2010. The guidance that requires increased disaggregation of the level 3 activities is effective for BB&T on January 1, 2011. The new disclosures required by this guidance are included in Note 14 to these consolidated financial statements.

In March 2010, the FASB issued new guidance impacting Receivables. The new guidance clarifies that a modification to a loan that is part of a pool of loans that were acquired with deteriorated credit quality should not result in the removal of the loan from the pool. This guidance is effective for any modifications of loans accounted for within a pool in the first interim or annual reporting period ending after July 15, 2010. The adoption of this guidance is not expected to be material to BB&T’s consolidated financial statements.

NOTE 2. Business Combinations

Financial Institution 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”). As further discussed in BB&T’s Annual Report on Form 10-K for the year ended December 31, 2009, BB&T entered into loss sharing agreements with the FDIC related to certain loans, securities and other assets.

Branch Bank did not immediately acquire the real estate, banking facilities, furniture or equipment of Colonial as part of the purchase and assumption agreement. However, under the terms of the agreement, Branch Bank had the option through February 1, 2010 to acquire these assets from the FDIC at their fair market value as of the acquisition date. Prior to the exercise of this option, these banking facilities and equipment were leased from the FDIC on a month-to-month basis. During the first quarter, Branch Bank purchased real estate, banking facilities, furniture and equipment from the FDIC at a cost of approximately $210 million.

Branch Bank also had an option through February 1, 2010 to assume or repudiate certain lease agreements of Colonial. The repudiation or assumption of these lease agreements was finalized prior to the expiration of this option and the process to determine the fair value of assumed lease obligations is still on-going.

On January 15, 2010, BB&T sold certain Nevada branch locations and approximately $850 million in deposits that were acquired from Colonial.

 

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Table of Contents

BB&T Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

  First Quarter 2010

 

NOTE 3. Securities

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

 

     March 31, 2010
     Amortized
Cost
   Gross Unrealized    Fair
Value
        Gains    Losses   
     (Dollars in millions)

Securities available for sale:

           

U.S. government-sponsored entities (GSE)

   $ 1,284    $ 3    $ 36    $ 1,251

Mortgage-backed securities issued by GSE

     26,624      321      93      26,852

States and political subdivisions

     2,145      53      122      2,076

Non-agency mortgage-backed securities

     1,260      —        285      975

Equity and other securities

     215      22      —        237

Covered securities

     1,182      92      11      1,263
                           

Total securities available for sale

   $ 32,710    $ 491    $ 547    $ 32,654
                           
     December 31, 2009
     Amortized
Cost
   Gross Unrealized    Fair
Value
        Gains    Losses   
     (Dollars in millions)

Securities available for sale:

           

U.S. government-sponsored entities (GSE)

   $ 2,090    $ 5    $ 60    $ 2,035

Mortgage-backed securities issued by GSE

     26,649      231      210      26,670

States and political subdivisions

     2,176      56      125      2,107

Non-agency mortgage-backed securities

     1,339      —        317      1,022

Equity and other securities

     196      22      —        218

Covered securities

     1,166      47      12      1,201
                           

Total securities available for sale

   $ 33,616    $ 361    $ 724    $ 33,253
                           

As of March 31, 2010, the fair value of covered securities included $958 million of non-agency mortgage-backed securities and $305 million of municipal securities. As of December 31, 2009, the fair value of covered securities included $896 million of non-agency mortgage-backed securities and $305 million of municipal securities. All covered securities were acquired from Colonial and are covered by one of the FDIC loss share agreements, as further discussed in BB&T’s Annual Report on Form 10-K for the year ended December 31, 2009.

At March 31, 2010 and December 31, 2009, securities with carrying value of approximately $20.4 billion and $20.7 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 the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) that exceeded ten percent of shareholders’ equity at March 31, 2010. The Fannie Mae investments had total amortized cost and fair values of $18.7 billion and $18.8 billion, respectively, at March 31, 2010, while Freddie Mac investments had total amortized cost and fair values of $6.8 billion and $6.9 billion, respectively.

At March 31, 2010 and December 31, 2009, non-agency mortgage-backed securities primarily consisted of residential mortgage-backed securities.

 

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Table of Contents

BB&T Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

  First Quarter 2010

 

The gross realized gains and losses and other than temporary impairments recognized in income during the first three months of 2010 and 2009 are reflected in the following table:

 

     March 31,
2010
    March 31,
2009
 

Gross gains

   $ 5      $ 186   

Gross losses

     (2     —     
                

Net realized gains/(losses)

     3        186   
                

Other than temporary impairment (“OTTI”) recognized in income

     (6     (36
                

Net securities gains/(losses)

   $ (3   $ 150   
                

The amortized cost and estimated fair value of the debt securities portfolio at March 31, 2010, 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 prepay the underlying mortgage loans with or without 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.

 

     March 31, 2010
     Available for Sale
     Amortized
Cost
   Fair
Value
     (Dollars in millions)

Debt Securities:

     

Due in one year or less

   $ 131    $ 132

Due after one year through five years

     78      83

Due after five years through ten years

     2,955      2,992

Due after ten years

     29,324      29,206
             

Total debt securities

     32,488      32,413

Total securities with no stated maturity

     222      241
             

Total securities

   $ 32,710    $ 32,654
             

 

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Table of Contents

BB&T Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

  First Quarter 2010

 

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.

 

     March 31, 2010
     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)

   $ 1,136    $ 36    $ —      $ —      $ 1,136    $ 36

Mortgage-backed securities issued by GSE

     13,083      93      15      —        13,098      93

States and political subdivisions

     380      68      269      54      649      122

Non-agency mortgage-backed securities

     —        —        960      285      960      285

Equity and other securities

     15      —        —        —        15      —  

Covered securities

     139      11      —        —        139      11
                                         

Total temporarily impaired securities

   $ 14,753    $ 208    $ 1,244    $ 339    $ 15,997    $ 547
                                         
     December 31, 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)

   $ 1,843    $ 60    $ —      $ —      $ 1,843    $ 60

Mortgage-backed securities issued by GSE

     16,338      210      114      —        16,452      210

States and political subdivisions

     409      65      274      60      683      125

Non-agency mortgage-backed securities

     181      66      825      251      1,006      317

Equity and other securities

     13      —        1      —        14      —  

Covered securities

     94      12      —        —        94      12
                                         

Total temporarily impaired securities

   $ 18,878    $ 413    $ 1,214    $ 311    $ 20,092    $ 724
                                         

BB&T periodically evaluates available-for-sale securities for other-than-temporary impairment. Based on its evaluations during the first quarter of 2010, BB&T recognized $12 million of other-than-temporary impairments which related to non-agency mortgage-backed securities, and of that amount $6 million was recognized in net income and $6 million was recorded in other comprehensive income. Based on its evaluations during the first quarter of 2009, BB&T recorded $36 million of other-than-temporary impairments in net income related to certain debt and equity securities.

On March 31, 2010, BB&T held certain investment securities having continuous unrealized loss positions for more than 12 months. As of March 31, 2010, the unrealized losses on these securities totaled $339 million. All of these losses were in non-agency mortgage-backed and municipal securities. At March 31, 2010, all of the available-for-sale debt securities in an unrealized loss position, excluding those covered by FDIC loss sharing agreements, were investment grade with the exception of (a) one auction rate security with an amortized cost of $2 million; (b) two municipal bonds with an amortized cost of $8 million; (c) twelve non-agency mortgage-backed securities with an amortized cost of $829 million and (d) one non-agency commercial mortgage-backed security with an amortized cost of $25 million. All of the non-investment grade securities referenced above were initially investment grade and have been downgraded since purchase. BB&T evaluated all of its debt securities for credit impairment. Based on its evaluation at March 31, 2010, BB&T determined that certain of the non-investment grade non-agency mortgage-backed securities had credit losses evident and recognized other-than-temporary impairments related to these securities. Approximately $6 million of the decline in fair value related to credit losses and was recognized in net income. BB&T’s evaluation of the other debt 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.

 

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Table of Contents

BB&T Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

  First Quarter 2010

 

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. The remaining amount of unrealized loss is recognized as a component of other comprehensive income.

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.

 

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Table of Contents

BB&T Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

  First Quarter 2010

 

Summary Analysis Supporting Conclusions

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, as the vast majority of potential losses related to covered securities would be reimbursed by the FDIC. The expected underlying collateral losses represent losses on the underlying mortgage pools supporting BB&T’s tranche. The benefits from subordination represent the amount of the expected losses the subordinate security holders are obligated to absorb prior to BB&T incurring a loss.

Non-investment grade securities with significant unrealized losses

As of March 31, 2010

(Dollars in millions)

 

Security

   Amortized
Cost
   Fair Value    Unrealized
Loss
    Moody’s    Credit
Rating
S&P
   Fitch    Expected
Underlying
Collateral
Losses
   Benefit of
Subordination

Securities with other-than-temporary impairment losses (1):

RMBS 1

   $ 59    $ 48    $ (11      CCC    CC    $ 2    $   2

RMBS 2

     122      93      (29      CCC    CCC      5      5

RMBS 3

     58      46      (12   Ba2    CCC    CCC      2      2

RMBS 4

     154      120      (34   Caa1    CC         10      5

RMBS 5

     55      35      (20   Caa2       C      4      3

RMBS 6

     47      36      (11   B3    CC         3      2

Securities without other-than-temporary impairment losses (2):

RMBS 7

     60      19      (41   Caa1    CC    CC      2      2

RMBS 8

     111      74      (37   Caa2    CC         8      8

RMBS 9

     118      71      (47      CCC    CCC      5      5

 

(1) The total amount of other-than-temporary impairment related to these securities in the first quarter of 2010 was $12 million, and of that amount $6 million was recognized in current year income while $6 million was recorded in other comprehensive income.
(2) Additional benefits of subordination are available in excess of the expected underlying collateral losses.

NOTE 4. Loans and Leases

The following table provides a breakdown of BB&T’s loan portfolio as of March 31, 2010 and December 31, 2009:

 

     March 31,
2010
   December 31,
2009
     (Dollars in millions)

Loans and leases, net of unearned income:

     

Commercial loans and leases

   $ 49,304    $ 49,820

Sales finance loans

     6,555      6,290

Revolving credit loans

     1,981      2,016

Direct retail loans

     14,055      14,283

Residential mortgage loans

     15,498      15,435

Specialized lending loans

     7,394      7,670

Other acquired loans

     99      123
             

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

     94,886      95,637

Covered loans

     7,458      8,019
             

Total loans and leases held for investment

     102,344      103,656

Loans held for sale

     2,057      2,551
             

Total loans and leases

   $ 104,401    $ 106,207
             

 

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Table of Contents

BB&T Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

  First Quarter 2010

 

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.

The following table reflects the carrying value of all purchased impaired and nonimpaired loans as of March 31, 2010 and December 31, 2009:

 

     March 31, 2010     December 31, 2009
     Purchased
Impaired
Loans
    Purchased
Nonimpaired
Loans
    Total     Purchased
Impaired
Loans
   Purchased
Nonimpaired
Loans
   Total
     (Dollars in millions)

Residential mortgage loans

   $ 814      $ 777      $ 1,591      $ 826    $ 806    $ 1,632

Commercial real estate loans

     2,583        2,407        4,990        2,732      2,574      5,306

Commercial loans

     84        793        877        94      987      1,081
                                            

Total covered loans

     3,481        3,977        7,458        3,652      4,367      8,019

Other acquired loans

     5        94        99        14      109      123
                                            

Total

     3,486        4,071        7,557        3,666      4,476      8,142
                                            

Allowance for loan losses

     (15     (4     (19     —        —        —  
                                            

Net

   $ 3,471      $ 4,067      $ 7,538      $ 3,666    $ 4,476    $ 8,142
                                            

Changes in the carrying amount and accretable yield for purchased impaired and nonimpaired loans, excluding loans held for sale, were as follows for the period ended March 31, 2010:

 

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

Balance at beginning of period

   $ 889      $ 3,666      $ 1,301      $ 4,476   

Additions

     —          —          —          —     

Accretion

     (83     83        (82     82   

Reclassifications from nonaccretable balance , net

     370        —          93        —     

Payments received, net

     —          (263     —          (487
                                

Balance at end of period

   $ 1,176      $ 3,486      $ 1,312      $ 4,071   
                                

The outstanding unpaid principal balance for all purchased impaired loans as of March 31, 2010 and December 31, 2009 was $5.2 billion and $5.7 billion, respectively. The outstanding unpaid principal balance for all purchased nonimpaired loans as of March 31, 2010 and December 31, 2009 was $6.1 billion and $6.6 billion, respectively.

At March 31, 2010 and December 31, 2009, none of the purchased impaired or purchased nonimpaired 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 loans. The allowance for credit losses related to the purchased loans results from decreased expectations of future cash flows for certain acquired loan pools.

 

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Table of Contents

BB&T Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

  First Quarter 2010

 

The following table sets forth certain information regarding BB&T’s impaired loans, excluding acquired impaired loans, that were evaluated for specific reserves:

 

     March 31,
2010
    December 31,
2009 (1)
 
     (Dollars in millions)  

Total recorded investment—impaired loans

   $ 3,099      $ 2,305   
                

Total recorded investment with no related valuation allowance

     316        611   

Total recorded investment with related valuation allowance

     2,783        1,694   

Allowance for loan and lease losses assigned to impaired loans

     (448     (278
                

Net carrying value—impaired loans

   $ 2,651      $ 2,027   
                

 

(1) Prior period amounts have been revised to reflect the retrospective application of more definitive regulatory guidance.

The following table provides a summary of BB&T’s nonperforming and past due loans at March 31, 2010 and December 31, 2009:

 

     March 31,
2010
   December 31,
2009
     (Dollars in millions)

Nonaccrual loans and leases (1) (2)

   $ 2,894    $ 2,718

Foreclosed real estate

     1,524      1,451

Other foreclosed property

     46      58
             

Total foreclosed property

     1,570      1,509
             

Total nonperforming assets (excluding covered assets) (3)

   $ 4,464    $ 4,227
             

Loans 90 days or more past due and still accruing (excluding covered loans) (4) (5)

   $ 302    $ 319

 

(1) Covered and other acquired loans are considered to be performing due to the application of the accretion method. Covered loans that are contractually past due are noted in footnote (5) below.
(2) Includes nonperforming restructurings totaling $333 million and $248 million at March 31, 2010 and December 31, 2009, respectively.
(3) Excludes foreclosed real estate totaling $181 million and $160 million as of March 31, 2010 and December 31, 2009, respectively, that are covered by FDIC loss sharing agreements.
(4) Excludes mortgage loans guaranteed by GNMA that BB&T does not have the obligation to repurchase.
(5) Excludes loans totaling $1.4 billion past due 90 days or more at both March 31, 2010 and December 31, 2009, respectively, that are covered by FDIC loss sharing agreements.

The following table summarizes loans that continue to accrue interest under the terms of restructurings (“performing restructurings”):

 

     March 31,
2010
   December 31,
2009
     (Dollars in millions)

Performing restructurings: (1)

     

Commercial loans and leases

   $ 969    $ 413

Direct retail loans

     130      132

Revolving credit loans

     58      54

Residential mortgage loans

     557      471

Specialized lending loans

     1      —  
             

Total performing restructurings

     1,715      1,070

Nonperforming restructurings (2)

     333      248
             

Total restructurings (3)(4)

   $ 2,048    $ 1,318
             

 

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Table of Contents

BB&T Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

  First Quarter 2010

 

 

(1) Prior period amounts have been revised to reflect the retrospective application of more definitive regulatory guidance.
(2) Nonperforming restructurings are included in nonaccrual loan disclosures.
(3) All restructurings are considered impaired. The allowance for loan and lease losses attributable to these restructured loans totaled $335 million and $164 million at March 31, 2010 and December 31, 2009, respectively.
(4) Excludes approximately $46 million and $4 million of restructurings accounted for under the accretion method at March 31, 2010 and December 31, 2009, respectively.

Troubled debt restructurings (“restructurings”) can involve loans remaining on nonaccrual, moving to nonaccrual, or continuing on accruing status, depending on the individual facts and circumstances of the borrower. These restructurings have most often occurred within BB&T’s commercial, mortgage and consumer loan portfolios.

In connection with commercial restructurings, the decision to maintain a loan that has been restructured on accrual status is based on a current, well documented credit evaluation of the borrower’s financial condition and prospects for repayment under the modified terms. This evaluation includes consideration of the borrower’s current capacity to pay, which among other things may include a review of the borrower’s current financial statements, an analysis of global cash flow sufficient to pay all debt obligations, and an evaluation of secondary sources of payment from the client and any guarantors. This evaluation also includes an evaluation of the borrower’s current willingness to pay, which may include a review of past payment history, an evaluation of the borrower’s willingness to provide information on a timely basis, and consideration of offers from the borrower to provide additional collateral or guarantor support. The credit evaluation also reflects consideration of the borrower’s future capacity and willingness to pay, which may include evaluation of cash flow projections, consideration of the adequacy of collateral to cover all principal and interest and trends indicating improving profitability, collectability of receivables, etc.

The evaluation of mortgage and consumer loans includes an evaluation of the client’s debt to income ratio, credit report, property value, loan vintage, and certain other client-specific factors that have impacted their ability to make timely principal and interest payments on the loan.

BB&T had commitments totaling $57 million and $18 million at March, 31, 2010 and December 31, 2009, respectively, to lend additional funds to clients with loans whose terms have been modified in restructurings.

NOTE 5. Allowance for Loan and Lease Losses and Reserve for Unfunded Lending Commitments

An analysis of the allowance for credit losses for the three months ended March 31, 2010 and 2009 is presented in the following table:

 

     For the Three Months Ended
March 31,
 
           2010                 2009        
     (Dollars in millions)  

Beginning Balance

   $ 2,672      $ 1,607   

Provision for credit losses

     575        676   

Loans and leases charged-off

     (509     (405

Recoveries of previous charge-offs

     34        17   
                

Net loans and leases charged-off

     (475     (388
                

Other changes, net

     (13     —     
                

Ending Balance

   $ 2,759      $ 1,895   
                

Allowance for loan and lease losses

   $ 2,714        1,869   

Reserve for unfunded lending commitments

     45        26   
                

Allowance for credit losses

   $ 2,759      $ 1,895   
                

 

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Table of Contents

BB&T Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

  First Quarter 2010

 

NOTE 6. Goodwill and Other Intangible Assets

The changes in the carrying amounts of goodwill attributable to each of BB&T’s operating segments for the three months ended March 31, 2010 are reflected in the table below. To date, there have been no goodwill impairments recorded by BB&T.

 

     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, 2010

   $ 4,569      $ 7    $ 93    $ 110      $ 1,056    $ 192    $ 26    $ 6,053   

Contingent consideration

     —          —        —        —          6      —        —        6   

Other adjustments

     (1     —        —        (3     —        —        —        (4
                                                           

Balance, March 31, 2010

   $ 4,568      $ 7    $ 93    $ 107      $ 1,062    $ 192    $ 26    $ 6,055   
                                                           

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 March 31, 2010    As of December 31, 2009
     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

   $ 626    $ (392   $ 234    $ 633    $ (375   $ 258

Other (1)

     755      (388     367      755      (373     382
                                           

Totals

   $ 1,381    $ (780   $ 601    $ 1,388    $ (748   $ 640
                                           

 

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

 

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Table of Contents

BB&T Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

  First Quarter 2010

 

NOTE 7. Loan Servicing

Residential Mortgage Banking Activities

The following table includes a summary of residential mortgage loans managed or securitized and related delinquencies and net charge-offs:

 

     March 31, 2010    December 31, 2009
     (Dollars in millions)

Mortgage Loans Managed or Securitized (1)

   $ 21,093    $ 21,637

Less: Loans Securitized and Transferred to Securities Available for Sale

     58      60

Loans Held for Sale

     2,013      2,524

Covered Mortgage Loans

     1,591      1,632

Mortgage Loans Sold with Recourse

     1,933      1,986
             

Mortgage Loans Held for Investment

   $ 15,498    $ 15,435
             

Mortgage Loans on Nonaccrual Status

   $ 813    $ 767

Mortgage Loans 90 Days Past Due and Still Accruing Interest

     155      158

Mortgage Loan Net Charge-Offs (2)

     76      275

 

(1) Balances exclude loans serviced for others, with no other continuing involvement.
(2) Net charge-offs for March 31, 2010 reflect three months.

The unpaid principal balances of BB&T’s total residential mortgage servicing portfolio were $75.9 billion and $73.6 billion at March 31, 2010 and December 31, 2009, respectively. The unpaid principal balances of residential mortgage loans serviced for others consist primarily of agency conforming fixed-rate mortgage loans and totaled $57.1 billion and $54.5 billion at March 31, 2010 and December 31, 2009, respectively. Mortgage loans serviced for others are not included in loans on the accompanying Consolidated Balance Sheets.

During the three months ended March 31, 2010 and 2009, BB&T sold residential mortgage loans with unpaid principal balances of $4.5 billion and $5.2 billion, respectively, and recognized pretax gains of $38 million and $108 million, respectively, which were recorded in noninterest income as a component of mortgage banking income. BB&T retained the related mortgage servicing rights and receives servicing fees.

At March 31, 2010 and 2009, the approximate weighted average servicing fee was .36% and ..38%, respectively, of the outstanding balance of the residential mortgage loans. The weighted average coupon interest rate on the portfolio of mortgage loans serviced for others was 5.49% and 5.92% at March 31, 2010 and 2009, respectively. BB&T recognized servicing fees of $57 million and $41 million during the first three months of 2010 and 2009, respectively, as a component of mortgage banking income.

At March 31, 2010 and December 31, 2009, BB&T had $1.9 billion and $2.0 billion, respectively, of residential mortgage loans sold with recourse liability. In the event of nonperformance by the borrower, BB&T has maximum recourse exposure of approximately $671 million and $667 million as of March 31, 2010 and December 31, 2009, respectively. At March 31, 2010, BB&T has recorded $6 million of reserves related to these recourse exposures.

The Company also has securitized residential mortgage loans and retained the resulting securities available for sale. As of March 31, 2010, the fair value of the securities available for sale still owned by BB&T was $60 million and the remaining unpaid principal balance of the underlying loans totaled $58 million. Based on the performance of the underlying loans and general liquidity of the securities, the Company’s recovery of the cost basis in the securities has not been significantly impacted by changes in interest rates, prepayment speeds or credit losses.

 

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BB&T Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

  First Quarter 2010

 

Residential mortgage servicing rights are recorded on the Consolidated Balance Sheets at fair value with changes in fair value recorded as a component of mortgage banking income in the Consolidated Statements of Income for each period. BB&T uses various derivative instruments to mitigate the income statement effect of changes in fair value, due to changes in valuation inputs and assumptions, of its residential mortgage servicing rights. The following is an analysis of the activity in BB&T’s residential mortgage servicing rights for the three month periods ended March 31, 2010 and 2009:

 

     Residential Mortgage Servicing Rights
For the Three Months Ended  March 31,
 
           2010                 2009        
     (Dollars in millions)  

Carrying value, January 1,

   $ 832      $ 370   

Additions

     69        73   

Increase (decrease) in fair value:

    

Due to changes in valuation inputs or assumptions

     5        (46

Other changes (1)

     (31     (32
                

Carrying value, March 31,

   $ 875      $ 365   
                

 

(1) Represents the realization of expected net servicing cash flows, expected borrower payments and the passage of time.

BB&T uses assumptions and estimates in determining the fair value of capitalized mortgage servicing rights. These assumptions include prepayment speeds, servicing costs and Option Adjusted Spread (“OAS”) commensurate with the risks involved and comparable to assumptions used by market participants to value and bid servicing rights available for sale in the market. At March 31, 2010, the sensitivity of the current fair value of the residential mortgage servicing rights to immediate 10% and 20% adverse changes in key economic assumptions are included in the accompanying table.

 

     Residential
Mortgage Servicing Rights
March 31, 2010
 
     (Dollars in millions)  

Fair Value of Residential Mortgage Servicing Rights

   $ 875   

Composition of Residential Loans Serviced for Others:

  

Fixed-rate mortgage loans

     99

Adjustable-rate mortgage loans

     1   
        

Total

     100
        

Weighted Average Life

     6.0 yrs   

Prepayment Speed

     11.5

Effect on fair value of a 10% increase

   $ (41

Effect on fair value of a 20% increase

     (77

Weighted Average Discount Rate

     10.0

Effect on fair value of a 10% increase

   $ (38

Effect on fair value of a 20% increase

     (73

The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance. As indicated, changes in fair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in this table, the effect of an adverse variation in a particular assumption on the fair value of the mortgage servicing rights is calculated without changing any other assumption; while in reality, changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments), which may magnify or counteract the effect of the change.

 

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Table of Contents

BB&T Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

  First Quarter 2010

 

Commercial Mortgage Banking Activities

BB&T also arranges and services commercial real estate mortgages through Grandbridge Real Estate Capital, LLC (“Grandbridge”) the commercial mortgage banking subsidiary of Branch Bank. During the three months ended March 31, 2010 and 2009, Grandbridge originated $268 million and $689 million, respectively, of commercial real estate mortgages, primarily for third party investors. As of March 31, 2010 and December 31, 2009, Grandbridge’s portfolio of commercial real estate mortgages serviced for others totaled $24.2 billion and $24.3 billion, respectively. Commercial real estate mortgage loans serviced for others are not included in loans on the accompanying Consolidated Balance Sheets. Grandbridge had $4.0 billion in loans serviced for others that were covered by recourse provisions at March 31, 2010 and December 31, 2009. As of March 31, 2010 and December 31, 2009, Grandbridge’s maximum exposure to loss for these loans was approximately $1.1 billion. BB&T has recorded $14 million of reserves related to these recourse exposures at March 31, 2010.

Commercial mortgage servicing rights are recorded as other assets on the Consolidated Balance Sheets at lower of cost or market and amortized in proportion to and over the estimated period that net servicing income is expected to be received based on projections of the amount and timing of estimated future net cash flows. The following is an analysis of the activity in BB&T’s commercial mortgage servicing rights for the three months ended March 31, 2010 and 2009:

 

     Commercial Mortgage Servicing  Rights
For the Three Months Ended March 31,
 
           2010                 2009        
     (Dollars in millions)  

Carrying value, January 1,

   $ 101      $ 98   

Additions

     2        7   

Amortization expense

     (4     (4
                

Carrying value, March 31,

   $ 99      $ 101   
                

At March 31, 2010, the sensitivity of the current fair value of the capitalized commercial mortgage servicing rights to adverse changes in key economic assumptions are included in the accompanying table.

 

     Commercial
Mortgage Servicing Rights
March 31, 2010
 
     (Dollars in millions)  

Fair Value of Commercial Mortgage Servicing Rights

   $ 114   

Weighted Average Life

     7.5yrs   

Prepayment Speed

     0.4

Effect on fair value of a 10% increase

   $ (1

Effect on fair value of a 15% increase

     (1

Weighted Average Discount Rate

     12.5

Effect on fair value of a 25% increase

   $ (9

Effect on fair value of a 50% increase

     (17

The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance. As indicated, changes in fair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in this table, the effect of an adverse variation in a particular assumption on the fair value of the mortgage servicing rights is calculated without changing any other assumption; while in reality, changes in one factor may result in changes in another (for example, increases in market interest rates may result in increased value of escrow deposits), which may magnify or counteract the effect of the change.

 

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Table of Contents

BB&T Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

  First Quarter 2010

 

NOTE 8. Long-Term Debt

 

     March 31,
2010
   December 31,
2009
     (Dollars in millions)

Parent Company

     

3.10% Senior Notes Due 2011

   $ 250    $ 250

3.85% Senior Notes Due 2012

     1,000      1,000

3.38% Senior Notes Due 2013

     500      500

5.70% Senior Notes Due 2014

     509      509

6.85% Senior Notes Due 2019

     538      538

6.50% Subordinated Notes Due 2011 (1)

     610      610

4.75% Subordinated Notes Due 2012 (1)

     489      489

5.20% Subordinated Notes Due 2015 (1,3)

     932      932

4.90% Subordinated Notes Due 2017 (1,3)

     337      336

5.25% Subordinated Notes Due 2019 (1,3)

     586      586

Branch Bank

     

Floating Rate Subordinated Notes Due 2016 (1,8)

     350      350

Floating Rate Subordinated Notes Due 2017 (1,8)

     261      261

4.875% Subordinated Notes Due 2013 (1)

     222      222

5.625% Subordinated Notes Due 2016 (1,3)

     386      386

Federal Home Loan Bank Advances to Branch Bank (4)

     

Varying maturities to 2034

     10,549      10,541

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      575

8.10% BB&T Capital Trust VII Securities Due 2069

     350      350

Other (7)

     182      182

Other Long-Term Debt

     100      98

Fair value hedge-related basis adjustments

     540      499
             

Total Long-Term Debt

   $ 21,428    $ 21,376
             

 

(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 March 31, 2010, the effective rates paid on these borrowings ranged from .41% to .85%.
(4) $800 million of these advances were swapped to a floating rate based on LIBOR. At March 31, 2010, the weighted average cost of these advances was 3.21% including the effect of the swapped portion, and the weighted average maturity was 6.9 years.
(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 March 31, 2010 the effective rate on the swapped portion was 3.63%.
(7) These securities were issued by companies acquired by BB&T. At March 31, 2010, the effective rate paid on these borrowings ranged from 1.96% 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 .57% as of March 31, 2010.

 

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Table of Contents

BB&T Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

  First Quarter 2010

 

NOTE 9. Shareholders’ Equity

Common Stock

As of March 31, 2010, the authorized common stock of BB&T consists of one billion shares with a $5 par value. There were 692 million and 690 million common shares issued and outstanding at March 31, 2010 and December 31, 2009, respectively.

On April 27, 2010, BB&T’s shareholders approved an increase in the authorized common shares to two billion.

Preferred Stock

The authorized preferred stock of BB&T consists of five million shares. There were no preferred shares outstanding at March 31, 2010 or December 31, 2009.

Equity-Based 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 March 31, 2010, 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, 2009 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 three months of 2010 and 2009. Substantially all of BB&T’s option awards are granted in February of each year. Therefore, the assumptions noted below are weighted accordingly.

 

     2010     2009  

Assumptions:

    

Risk-free interest rate

     2.0     3.1

Dividend yield

     5.4        6.0   

Volatility factor

     36.0        29.1   

Expected life

     7.2 yrs        7.1 yrs   

Fair value of options per share

   $ 5.60      $ 2.59   

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 three months of 2010 related to stock options awarded by BB&T:

 

     For the Three Months  Ended
March 31, 2010
     Options     Wtd. Avg.
Exercise
Price

Outstanding at beginning of period

   42,535,819      $ 35.40

Granted

   4,652,250        27.75

Exercised

   (1,297,316     27.78

Forfeited or expired

   (177,867     33.53
        

Outstanding at end of period

   45,712,886        34.97
        

Exercisable at end of period

   33,102,756      $ 36.76
        

 

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Table of Contents

BB&T Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

  First Quarter 2010

 

The following table details the activity during the first three months of 2010 related to restricted shares and restricted share units awarded by BB&T:

 

     For the Three Months Ended
March 31, 2010
     Shares/Units     Wtd. Avg.
Grant Date
Fair Value

Nonvested at beginning of period

   10,861,433      $ 19.36

Granted

   2,396,935        23.86

Vested

   (107,484     24.29

Forfeited

   (70,724     19.54
        

Nonvested at end of period

   13,080,160      $ 20.14
        

NOTE 10. Accumulated Other Comprehensive Income (Loss)

The balances in accumulated other comprehensive loss at March 31, 2010 and December 31, 2009 are shown in the following table.

 

    As of March 31, 2010     As of December 31, 2009  
    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

  $ (441   $ (167   $ (274   $ (447   $ (169   $ (278

Unrealized net gains on cash flow hedges

    103        39        64        173        66        107   

Unrealized net losses on securities available for sale

    (56     (21     (35     (363     (138     (225

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

    (74     (28     (46     (30     (11     (19

Foreign currency translation adjustment

    (7     (6     (1     (7     (5     (2
                                               

Total

  $ (475   $ (183   $ (292   $ (674   $ (257   $ (417
                                               

 

(1) Certain securities available for sale are covered by loss sharing agreements with the FDIC. The securities covered by the loss share agreements reflected a net unrealized pretax gain of $81 million and $35 million as of March 31, 2010 and December 31, 2009, respectively. The FDIC’s share of this net unrealized pretax gain, upon sale, was $74 million and $30 million as of March 31, 2010 and December 31, 2009, respectively, and was recorded as a reduction in other comprehensive income.

As of March 31, 2010 and December 31, 2009, unrealized net losses on securities available for sale included $117 million and $114 million, respectively, of pre-tax losses related to other-than-temporarily impaired non-agency mortgage-backed securities where a portion of the loss was recognized in net income.

 

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Table of Contents

BB&T Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

  First Quarter 2010

 

The following tables reflect the components of total comprehensive income for the three months ended March 31, 2010 and 2009.

 

     Three Months Ended March 31,
2010
 
     Pre-Tax     Tax Effect     After-Tax  

Comprehensive income:

      

Net income

   $ 242      $ 48      $ 194   

Other comprehensive income:

      

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

     304        116        188   

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

     3        1        2   

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

     (44     (17     (27

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

     (70     (27     (43

Net change in foreign currency translation adjustment

     —          (1     1   

Net change in pension and postretirement liability

     6        2        4   
                        

Total comprehensive income

   $ 441      $ 122      $ 319   
                        
     Three Months Ended March 31,
2009
 
     Pre-Tax     Tax Effect     After-Tax  

Comprehensive income:

      

Net income

   $ 432      $ 114      $ 318   

Other comprehensive income:

      

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

     203        75        128   

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

     (150     (57     (93

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

     14        6        8   

Net change in foreign currency translation adjustment

     (2     —          (2

Net change in pension and postretirement liability

     13        5        8   
                        

Total comprehensive income

   $ 510      $ 143      $ 367   
                        

NOTE 11. Income Taxes

BB&T’s provision for income taxes was $48 million and $114 million for the three months ended March 31, 2010 and 2009, respectively, representing effective tax rates of 19.8% and 26.4% during those periods. The lower effective tax rate is primarily the result of an increase in tax credits and a relatively equal level of tax-exempt income on a lower level of pre-tax income.

The IRS has completed its federal income tax examinations of BB&T through 2006. In connection with the settlement agreement with the IRS regarding its leveraged lease transactions, BB&T is entitled to federal income tax refunds for tax years 1998-2006. During the first quarter of 2010, BB&T received federal tax refunds including interest of approximately $354 million for tax years 1998-2005 and expects to receive additional federal tax refunds of approximately $25 million for tax year 2006 later in 2010. In February 2010, BB&T received an IRS statutory notice of deficiency for tax years 2002-2007 asserting a liability for taxes, penalties and interest of approximately $892 million related to the disallowance of foreign tax credits and other deductions claimed by a deconsolidated subsidiary in connection with a financing transaction. Management has consulted with outside counsel and continues to believe that BB&T’s treatment of this transaction was in compliance with applicable tax laws and regulations. Consequently, BB&T paid the disputed tax, penalties and interest, and it filed a lawsuit seeking a refund in the U.S. Court of Federal Claims in March 2010. Management believes the Company’s current reserves for this matter are adequate, although the final outcome is uncertain. Final resolution of this matter is not expected to occur within the next twelve months. Various years remain subject to examination by state taxing authorities.

 

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BB&T Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

  First Quarter 2010

 

NOTE 12. 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 combination. 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, 2009 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 months ended March 31, 2010 and 2009, respectively:

 

     Pension Plans
     Qualified     Nonqualified
     For the Three Months
Ended March 31,
    For the Three Months
Ended March 31,
       2010         2009         2010        2009  
     (Dollars in millions)

Service cost

   $ 20      $ 19      $ 1    $ 1

Interest cost

     21        19        2      2

Estimated return on plan assets

     (44     (36     —        —  

Amortization and other

     5        14        1      1
                             

Net periodic benefit cost

   $ 2      $ 16      $ 4    $ 4
                             

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 $61 million and $422 million were made to the qualified pension plan in the first quarter of 2010 and 2009, respectively. Management currently has no plans to make any additional contributions to the qualified pension plan in 2010; however, management may elect to make additional contributions during 2010 if deemed appropriate.

NOTE 13. Commitments and Contingencies

BB&T utilizes a variety of financial instruments to meet the financing needs of clients and to reduce exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit, 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.

Commitments to extend, originate or purchase credit are primarily lines of credit to businesses and consumers and have specified rates and maturity dates. Many of these commitments also have adverse change clauses, which allow BB&T to cancel the commitment due to deterioration in the borrowers’ creditworthiness.

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 March 31, 2010 and December 31, 2009, BB&T had issued letters of credit totaling $8.0 billion. The carrying amount of the liability for such guarantees was $30 million and $40 million at March 31, 2010 and December 31, 2009, 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.

 

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BB&T Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

  First Quarter 2010

 

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 $64.6 billion and $66.2 billion at March 31, 2010 and December 31, 2009, respectively. These instruments were in a net gain position of $307 million and $283 million at March 31, 2010 and December 31, 2009, 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 representation 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.

Merger and acquisition agreements of businesses other than financial institutions occasionally include additional incentives to the acquired entities to offset the loss of future cash flows previously received through ownership positions. Typically, these incentives are based on the acquired entity’s contribution to BB&T’s earnings compared to agreed-upon amounts. When offered, these incentives are typically issued for terms of three to five years. As certain provisions of these agreements do not specify dollar limitations, it is not possible to quantify the maximum exposure resulting from these agreements.

As previously discussed, BB&T entered into loss sharing agreements with the FDIC in connection with the Colonial acquisition. The provisions of the agreements may require a payment by BB&T to the FDIC on October 15, 2019. On that date, 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.

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 March 31, 2010 and December 31, 2009, BB&T had investments of $1.1 billion related to these projects, which are included as other assets on the Consolidated Balance Sheets. BB&T’s outstanding commitments to fund affordable housing investments totaled $309 million and $371 million at March 31, 2010 and December 31, 2009, respectively, which are included as other liabilities on the Consolidated Balance Sheets. As of March 31, 2010 and December 31, 2009, BB&T had outstanding loan commitments to these funds of $135 million and $165 million, respectively. Of these amounts, $46 million and $73 million had been funded at March 31, 2010 and December 31, 2009, 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 at March 31, 2010 and December 31, 2009.

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 March 31, 2010 and December 31, 2009, BB&T had $1.9 billion and $2.0 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 $671 million and $667 million as of March 31, 2010 and December 31, 2009, respectively. In addition, BB&T has $4.0 billion in loans serviced for others that were covered by recourse provisions at March 31, 2010 and December 31, 2009. As of March 31, 2010 and December 31, 2009, BB&T’s maximum exposure to loss for these loans is approximately $1.1 billion. BB&T has recorded $20 million and $18 million of reserves related to these recourse exposures at March 31, 2010 and December 31, 2009, respectively.

 

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BB&T Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

  First Quarter 2010

 

BB&T has investments and future funding commitments to certain venture capital funds. As of March 31, 2010 and December 31, 2009, BB&T had investments of $261 million and $281 million related to these ventures, respectively. As of March 31, 2010 and December 31, 2009, BB&T had future funding commitments of $163 million and $183 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 as a nontransferor lender. As of March 31, 2010 and December 31, 2009, BB&T had loan commitments to these entities totaling $209 million and $211 million, respectively. Of these amounts, $150 million and $160 million, respectively, had been funded and were included in loans and leases on the Consolidated Balance Sheets.

NOTE 14. 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 applicable accounting standards (the “Fair Value Option”). Accounting standards have 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. These standards also established a three level fair value hierarchy that describes the inputs that are used to measure assets and liabilities. Level 1 asset and liability fair values are based on quoted prices in active markets for identical assets and liabilities. 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 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.

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

 

     3/31/2010    Fair Value Measurements for Assets and
Liabilities Measured on  a Recurring Basis
          Level 1            Level 2            Level 3    
          (Dollars in Millions)

Assets:

           

Trading securities

   $ 651    $ 241    $ 391    $ 19

Securities available for sale:

           

U.S. government-sponsored entities (GSE)

     1,251      —        1,251      —  

Mortgage-backed securities issued by GSE

     26,852      —        26,852      —  

States and political subdivisions

     2,076      —        1,875      201

Non-agency mortgage-backed securities

     975      —        975      —  

Equity and other securities

     237      183      45      9

Covered securities

     1,263      —        537      726

Loans held for sale

     2,057      —        2,057      —  

Residential mortgage servicing rights

     875      —        —        875

Derivative assets: (2)

           

Interest rate contracts

     959      1      947      11

Foreign exchange contracts

     7      —        7      —  

Venture capital and similar investments (1)(2)

     261      —        —        261
                           

Total assets

   $ 37,464    $ 425    $ 34,937    $ 2,102
                           

Liabilities:

           

Derivative liabilities: (2)

           

Interest rate contracts

   $ 652    $ 6    $ 636    $ 10

Foreign exchange contracts

     7      —        7      —  

Short-term borrowed funds (3)

     319      —        319      —  
                           

Total liabilities

   $ 978    $ 6    $ 962    $ 10
                           

 

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Table of Contents

BB&T Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

  First Quarter 2010

 

          Fair Value Measurements for
Assets and Liabilities Measured
on a Recurring Basis
     12/31/2009    Level 1    Level 2    Level 3
          (Dollars in Millions)

Assets:

           

Trading securities

   $ 636    $ 255    $ 288    $ 93

Securities available for sale:

           

U.S. government-sponsored entities (GSE)

     2,035      —        2,035      —  

Mortgage-backed securities issued by GSE

     26,670      —        26,670      —  

States and political subdivisions

     2,107      —        1,897      210

Non-agency mortgage-backed securities

     1,022      —        1,022      —  

Equity and other securities

     218      166      43      9

Covered securities

     1,201      —        533      668

Loans held for sale

     2,551      —        2,551      —  

Residential mortgage servicing rights

     832      —        —        832

Derivative assets (2)

     983      1      975      7

Venture capital and similar investments (1)(2)

     281      —        —        281
                           

Total assets

   $ 38,536    $ 422    $ 36,014    $ 2,100
                           

Liabilities:

           

Derivative liabilities (2)

   $ 700    $ 5    $ 668    $ 27

Short-term borrowed funds (3)

     295      —        295      —  
                           

Total liabilities

   $ 995    $ 5    $ 963    $ 27
                           

 

(1) Based on its analysis of the nature and risks of these investments, BB&T has determined that presenting them as a single class is appropriate.
(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.

The following discussion focuses on the valuation techniques and significant inputs used by BB&T in determining the Level 2 and Level 3 fair values of each significant class of assets and liabilities.

The fair values for available-for-sale and trading securities are generally based upon quoted market prices or observable market prices for similar instruments. BB&T generally utilizes a third-party pricing service in determining the fair value of its securities portfolio. The pricing service uses observable inputs when available including benchmark yields, reported trades, broker-dealer quotes, issuer spreads, benchmark securities, bids and offers. For certain security types, additional inputs may be used, or some inputs may not be applicable. BB&T performs a review of pricing on actual trades executed in order to validate the fair values provided by this pricing service. BB&T also analyzes available third-party market data for a sample of securities to further validate these fair values. When market observable data is not available, which generally occurs due to the lack of liquidity for certain securities, the valuation of the security is subjective and may involve substantial judgment by management.

Specific valuation techniques and inputs used in determining the fair value of each significant class of assets and liabilities follows:

Trading securities: Trading securities are composed of all types of debt and equity securities, but the majority consists of debt securities issued by the U.S. Treasury, U.S. government-sponsored entities, or states and political subdivisions. The valuation techniques used for these investments are more fully discussed below.

U.S. government-sponsored entities (GSE) and Mortgage-backed securities issued by GSE: These are debt securities issued by government sponsored entities. BB&T’s valuations are based on a market approach using observable inputs such as benchmark yields and securities, TBA prices, reported trades, issuer spreads, monthly payment information and collateral performance.

 

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BB&T Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

  First Quarter 2010

 

States and political subdivisions: These are debt securities issued by states and political subdivisions. BB&T’s valuations are primarily based on a market approach using observable inputs such as benchmark yields, MSRB reported trades, material event notices and new issue data.

Non-agency mortgage-backed securities: BB&T’s valuation for these debt securities is based on a market approach using observable inputs such as benchmark yields and securities, TBA prices, reported trades, monthly payment information and collateral performance.

Equity and other securities: These securities consist primarily of equities, mutual funds and corporate bonds. These securities are valued based on a review of quoted market prices for identical and similar assets as well as through the various other inputs discussed previously.

Covered securities: Covered securities are covered by FDIC loss sharing agreements and consist of re-remic non-agency mortgage-backed securities and municipal securities. These securities were priced primarily through broker-dealer quotes.

Loans held for sale: BB&T originates certain mortgage loans to be sold to investors. These loans are carried at fair value based on BB&T’s election of the Fair Value Option. The fair value is primarily based on quoted market prices for securities backed by similar types of loans. The changes in fair value of these assets are largely driven by changes in interest rates subsequent to loan funding and changes in the fair value of servicing associated with the mortgage loan held for sale.

Residential mortgage servicing rights: BB&T estimates the fair value of residential mortgage servicing rights (“MSRs”) using an option adjusted spread (“OAS”) valuation model to project MSR cash flows over multiple interest rate scenarios, which are then discounted at risk-adjusted rates. The OAS model considers portfolio characteristics, contractually specified servicing fees, prepayment assumptions, delinquency rates, late charges, other ancillary revenue, costs to service and other economic factors. When available, fair value estimates and assumptions are compared to observable market data and to recent market activity and actual portfolio experience.

Derivative assets and liabilities: BB&T uses derivatives to manage various financial risks. The fair values of derivative financial instruments are determined based on quoted market prices, dealer quotes and internal pricing models that are primarily sensitive to market observable data. The fair value of interest rate lock commitments, which are related to mortgage loan commitments, is based on quoted market prices adjusted for commitments that BB&T does not expect to fund and includes the value attributable to the net servicing fee.

Venture capital and similar investments: BB&T has venture capital and similar investments that are carried at fair value. In many cases there are no observable market values for these investments and therefore management must estimate the fair value based on a comparison of the operating performance of the company to multiples in the marketplace for similar entities. This analysis requires significant judgment and actual values in a sale could differ materially from those estimated.

Short-term borrowed funds: Short-term borrowed funds represent debt securities sold short. These are entered into through BB&T’s brokerage subsidiary Scott & Stringfellow, LLC.

 

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BB&T Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

  First Quarter 2010

 

The tables below present reconciliations for the three months ended March 31, 2010 and 2009, 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 Months Ended March 31, 2010

   Trading     States &
Political
Subdivisions
    Equity &
Other
Securities
   Covered
Securities
   Mortgage
Servicing
Rights
    Net
Derivatives
    Venture
Capital and
Similar
Investments
 
     (Dollars in millions)  

Balance at January 1, 2010

   $ 93      $ 210      $ 9    $ 668    $ 832      $ (20   $ 281   

Total realized and unrealized gains or losses:

                

Included in earnings

     —          —          —        16      (26     17        3   

Included in other comprehensive income (loss)

     —          1        —        42      —          —          —     

Purchases, issuances and settlements

     2        (10     —        —        69        4        (23

Transfers into Level 3

     —          —          —        —        —          —          —     

Transfers out of Level 3

     (76     —          —        —        —          —          —     
                                                      

Balance at March 31, 2010

   $ 19      $ 201      $ 9    $ 726    $ 875      $ 1      $ 261   
                                                      

 

     Fair Value Measurements Using Significant Unobservable Inputs  

For the Three Months Ended March 31, 2009

   Trading     Non-agency
mortgage-backed
securities
    Equity &
Other
Securities
   Mortgage
Servicing
Rights
    Net
Derivatives
    Venture
Capital and
Similar
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

     —          —          —        (78     41        (1

Included in other comprehensive income (loss)

     —          (17     —        —          —          —     

Purchases, issuances and settlements

     11        (47     —        73        (23     9   

Transfers in and/or out of Level 3

     (11     —          —        —          —          —     
                                               

Balance at March 31, 2009

   $ 4      $ 1,034      $ 1    $ 365      $ 55      $ 190   
                                               

BB&T’s policy is to recognize transfers in and transfers out of Levels 1, 2 and 3 as of the end of the reporting period. For the three months ended March 31, 2010 and 2009, BB&T transferred $76 million and $11 million, respectively, in trading securities from Level 3 to Level 2 as a result of increased market activity for these securities. There were no significant transfers between Level 1 and Level 2 during the three months ended March 31, 2010.

There were no gains or losses recognized as a result of the transfers of securities between Level 2 and Level 3 in either the three months ended March 31, 2010 or 2009, respectively.

BB&T has investments in venture capital funds and other similar investments that are measured at fair value based on the investment’s net asset value. The significant investment strategies for these ventures are primarily equity and subordinated debt in privately-held middle market companies. The majority of these investments are not redeemable and have varying dates for which the underlying assets are expected to be liquidated by distribution through 2018. As of March 31, 2010, restrictions on the ability to sell the investments include, but are not limited to, consent of majority member or general partner approval for transfer of ownership. There were no investments probable of sale for less than net asset value at March 31, 2010.

 

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BB&T Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

  First Quarter 2010

 

The tables below summarize unrealized and realized gains and losses recorded in earnings for Level 3 assets and liabilities for the three months ended March 31, 2010 and 2009, respectively.

 

     Total Gains and Losses  

For the Three Months Ended March 31, 2010

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

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

          

Interest income

   $ 16    $ —        $ —      $ —     

Mortgage banking income

     —        (26     17      —     

Other noninterest income

     —        —          —        3   
                              

Total

   $ 16    $ (26   $ 17    $ 3   
                              

Net unrealized gains (losses) included in net income relating to assets and liabilities still held at March 31, 2010

   $ 16    $ 5      $ 1    $ (1
                              

 

     Total Gains and Losses  

For the Three Months Ended March 31, 2009

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

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

       

Mortgage banking income

   $ (78   $ 41    $ —     

Other noninterest income

     —          —        (1
                       

Total

   $ (78   $ 41    $ (1
                       

Net unrealized gains (losses) included in net income relating to assets and liabilities still held at March 31, 2009

   $ (46   $ 55    $ (1
                       

For the three months ended March 31, 2010, the net realized and unrealized gains (losses) reported for mortgage servicing rights assets are composed of a positive valuation adjustment of $5 million less the realization of expected net servicing cash flows of $31 million. For the three months ended March 31, 2009, the net realized and unrealized gains (losses) reported for mortgage servicing rights assets are composed of a negative valuation adjustment of $46 million plus the realization of expected net servicing cash flows of $32 million. 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 March 31, 2010 and 2009, the derivative instruments produced losses of $1 million and gains of $74 million, respectively, which offset the valuation adjustments recorded.

 

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BB&T Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

  First Quarter 2010

 

The following table details the fair value and unpaid principal balance of loans held for sale at March 31, 2010 and December 31, 2009 that were elected to be carried at fair value.

 

    March 31, 2010     December 31, 2009  
    Fair
Value
  Aggregate
Unpaid
Principal
Balance
  Fair
Value
Less
Aggregate
Unpaid
Principal
Balance
    Fair
Value
  Aggregate
Unpaid
Principal
Balance
  Fair
Value
Less
Aggregate
Unpaid
Principal
Balance
 
    (Dollars in millions)  

Loans held for sale reported at fair value

           

Total (1)

  $ 2,057   $ 2,047   $ 10      $ 2,551   $ 2,544   $ 7   

Nonaccrual loans

    6     7     (1     5     6     (1

Loans 90 days or more past due and still accruing interest

    1     1     —          2     2     —     

 

(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 periods ended March 31, 2010 and December 31, 2009 that were still held on the balance sheet at March 31, 2010 and December 31, 2009 totaled $2.6 billion and $2.4 billion, respectively. The March 31, 2010 amount consists of $1.1 billion of impaired loans, excluding covered loans, and $1.5 billion of foreclosed real estate, excluding covered foreclosed real estate, that were classified as Level 3 assets. The December 31, 2009 amount consists of $941 million of impaired loans, excluding covered loans, and $1.5 billion of foreclosed real estate, excluding covered foreclosed real estate, that were classified as Level 3 assets. During the three months ended March 31, 2010 and 2009, BB&T recorded $159 million and $79 million, respectively, in losses related to write-downs of impaired loans and $125 million and $16 million, respectively, in losses related to write-downs of foreclosed real estate. These write-downs are generally based on the appraised value of the underlying collateral.

Accounting standards require the disclosure of the estimated fair value of all 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 the applicable accounting standards. 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:

 

     March 31, 2010    December 31, 2009
     Carrying
Amount
   Fair Value    Carrying
Amount
   Fair Value
     (Dollars in millions)

Financial assets:

           

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

   $ 99,630    $ 99,329    $ 101,056    $ 100,794

Financial liabilities:

           

Deposits

     113,723      111,602      114,965      112,917

Long-term debt

     21,428      21,142      21,376      21,018

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:

 

     March 31, 2010    December 31, 2009
     Notional/
Contract
Amount
   Fair Value    Notional/
Contract
Amount
   Fair Value
     (Dollars in millions)

Contractual commitments:

           

Commitments to extend, originate or purchase credit

   $ 37,956    $ 48    $ 36,130    $ 48

Residential mortgage loans sold with recourse

     1,932      6      1,986      6

Other loans sold with recourse

     4,018      14      3,989      12

Letters of credit and financial guarantees written

     7,967      30      7,999      40

Commitments to fund affordable housing investments

     309      296      371      357

 

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BB&T Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

  First Quarter 2010

 

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: The fair values for loans are estimated using discounted cash flow analyses, applying interest rates currently being offered for loans with similar terms and credit quality. The interest rates being offered by BB&T for new loans with similar terms and credit quality are reflective of credit risk and liquidity spreads inherent in an orderly transaction in the current market. For commercial loans and leases, internal credit risk models are used to adjust discount rates for risk migration since inception. For residential mortgage and other consumer loans, internal prepayment risk models are used to adjust contractual cash flows. Loans are aggregated into pools of similar terms and credit quality and discounted using a LIBOR based rate. The carrying amounts of accrued interest approximate fair values.

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.

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 15. 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.

 

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Table of Contents

BB&T Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

  First Quarter 2010

 

The following tables set forth certain information concerning BB&T’s derivative financial instruments and related hedged items as of the periods indicated:

Derivative Classifications and Hedging Relationships

 

          March 31, 2010  
    

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

   $ 500    $ 9    $ —     

Pay fixed swaps

  

First forecasted interest payments on 3 month LIBOR funding

     4,650      6      (49

Caps

  

First forecasted interest payments on 3 month LIBOR funding

     200      —        —     
                         

Total

     5,350      15      (49
                         

Derivatives Designated as Net Investment Hedges:

        

Foreign exchange contracts

     73      —        (3
                         

Total

     73      —        (3
                         

Derivatives Designated as Fair Value Hedges:

           

Interest rate contracts:

        

Receive fixed swaps

  

Individual fixed rate long-term debt issuances

     3,429      225      (21

Receive fixed swaps

  

Long-term CD’s

     292      4      —     

Pay fixed swaps

  

Individual fixed rate municipal securities classified as available for sale

     354      —        (54
                         

Total

     4,075      229      (75
                         

Derivatives Not Designated as Hedges:

           

Client-related and other risk management Interest rate contracts

        

Receive fixed swaps

     9,994      427      (19

Pay fixed swaps

     9,726      21      (420

Other swaps

     4,289      2      (2

Option trades

     950      —        —     

Swaptions

     541      25      (24

Futures contracts

     662      —        —     

Collars

     122      4      (5

Foreign exchange contracts

     438      7      (4

Mortgage Banking

           

Interest rate contracts

        

Interest rate lock commitments

     3,081      9      (9

Forward commitments

     4,948      14      (8

Swaptions

     200      8      —     

Option trades

     200      1      —     

TBA/When issued securities

     30      —        —     

Futures contracts

     32      —        —     

Mortgage Servicing Rights

           

Interest rate contracts

        

Receive fixed swaps

     1,527      4      (22

Pay fixed swaps

     1,029      1      (7

Swaptions

     7,705      198      (3

Futures contracts

     4,995      1      (5

When issued securities and Forward rate agreements

     4,591      —        (4
                         

Total

     55,060      722      (532
                         

Total Derivatives

   $ 64,558    $ 966    $ (659
                         

 

(1) Derivatives in a gain position are recorded as Other assets and derivatives in a loss position are recorded as Other liabilities on the Consolidated Balance Sheet.

 

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Table of Contents

BB&T Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

  First Quarter 2010

 

Derivative Classifications and Hedging Relationships

 

          December 31, 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

   $ 1,000    $ 28    $ —     

Pay fixed swaps

  

First forecasted interest payments on 3 month LIBOR funding

     4,300      38      (26

Caps

  

First forecasted interest payments on 3 month LIBOR funding

     200      —        —     
                         

Total

     5,500      66      (26
                         

Derivatives Designated as Net Investment Hedges:

        

Foreign exchange contracts

     73      —        (1
                         

Total

     73      —        (1
                         

Derivatives Designated as Fair Value Hedges:

           

Interest rate contracts:

           

Receive fixed swaps

  

Individual fixed rate long-term debt issuances

     3,429      192      (43

Receive fixed swaps

  

Long-term CD’s

     328      2      —     

Pay fixed swaps

  

Individual fixed rate municipal securities

        
  

classified as available for sale

     354      —        (50
                         

Total

     4,111      194      (93
                         

Derivatives Not Designated as Hedges:

           

Client-related and other risk management

           

Interest rate contracts

        

Receive fixed swaps

     10,004      392      (32

Pay fixed swaps

     10,401      32      (369

Other swaps

     7,014      3      (3

Option trades

     922      —        —     

Swaptions

     538      24      (24

Futures contracts

     611      —        —     

Collars

     123      4      (5

Foreign exchange contracts

     373      7      (6

Mortgage Banking

           

Interest rate contracts

        

Interest rate lock commitments

     2,970      5      (19

Forward commitments

     4,662      48      (5

Swaptions

     200      11      —     

Option trades

     340      1      (5

TBA/When issued securities

     30      —        —     

Futures contracts

     50      —        (1

Mortgage Servicing Rights

           

Interest rate contracts

        

Receive fixed swaps

     1,968      —        (69

Pay fixed swaps

     654      4      —     

Swaptions

     5,575      191      (2

Futures contracts

     4,631      1      (3

When issued securities and Forward rate agreements

     5,425      —        (37
                         

Total

     56,491      723      (580
                         

Total Derivatives

   $ 66,175    $ 983    $ (700
                         

 

(1) Derivatives in a gain position are recorded as Other assets and derivatives in a loss position are recorded as Other liabilities on the Consolidated Balance Sheet.

 

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Table of Contents

BB&T Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

  First Quarter 2010

 

The following tables set forth certain information concerning the effect of BB&T’s derivative financial instruments on the Consolidated Statements of Income for the periods indicated:

The Effect of Derivative Instruments on the Consolidated Statements of Income

for the Three Month Period Ended March 31, 2010

(Dollars in millions)

 

    Effective Portion     Ineffective Portion
    Gain or (Loss)
Recognized in OCI
    Location of Amounts
Reclassified from
AOCI into Income
    (Gain) or Loss
Reclassified from
AOCI into Income
    Location of Amounts
Recognized in Income
  Gain or  (Loss)
Recognized

in Income

Derivatives Designated as Cash Flow Hedges

Interest rate contracts

  $ (59     Total interest income      $ (16   Other noninterest income   $ —  
      Total interest expense        5       
               
      $ (11    
               

Derivatives Designated as Net Investment Hedges

Foreign exchange contracts

  $ (3     $ —          $ —  
    Effective Portion     Ineffective Portion    
    Location of Amounts
Recognized in Income
    Gain or (Loss)
Recognized in Income
    Location of Amounts
Recognized in Income
    Gain or (Loss)
Recognized in Income
   

Derivatives Designated as Fair Value Hedges

         

Interest rate contracts

    Total interest expense      $ 52        Other noninterest income      $    1  

Interest rate contracts

    Total interest income        (5     Other noninterest expense      —    
                 

Total

    $ 47        $    1  
                 

Derivatives Not Designated as Hedges

         

Client-related and other risk management

         

Interest rate contracts

    Other noninterest income      $ (1      

Other derivatives

    Other noninterest income        —           

Foreign exchange contracts

   
 
Other nondeposit fees and
commissions
  
  
    1         

Mortgage Banking

         

Interest rate contracts

    Mortgage banking income        (20      

Mortgage Servicing Rights

         

Interest rate contracts

    Mortgage banking income        (1      
               

Total

    $ (21      
               

 

Note: All amounts for Other Comprehensive Income (OCI) and Accumulated Other Comprehensive Income (AOCI) are stated on a pre-tax basis.

 

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Table of Contents

BB&T Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

  First Quarter 2010

 

The Effect of Derivative Instruments on the Consolidated Statements of Income

for the Three Month Period Ended March 31, 2009

(Dollars in millions)

 

    Effective Portion     Ineffective Portion
    Gain or (Loss)
Recognized in OCI
    Location of Amounts
Reclassified from
AOCI into Income
    (Gain) or Loss
Reclassified from
AOCI into Income
    Location of Amounts
Recognized in Income
  Gain or (Loss)
Recognized
in Income

Derivatives Designated as Cash Flow Hedges

Interest rate contracts

  $ 21        Total interest income      $ (6   Other noninterest income   $ —  
     
 
Total interest
expense
  
  
    (1    
               
      $ (7    
               

Derivatives Designated as Net Investment Hedges

         

Foreign exchange contracts

  $ (2     $ —          $ —  
    Effective Portion     Ineffective Portion    
    Location of Amounts
Recognized in Income
    Gain or (Loss)
Recognized in Income
    Location of Amounts
Recognized in Income
    Gain or (Loss)
Recognized in Income
   

Derivatives Designated as Fair Value Hedges

         

Interest rate contracts

    Total interest expense      $ 38        Other noninterest income      $     5  

Interest rate contracts

    Total interest income        (3    
 
Other noninterest
expense
  
  
  —    
                 

Total

    $ 35        $     5  
                 

Derivatives Not Designated as Hedges

         

Client-related and other risk management

         

Interest rate contracts

    Other noninterest income      $ 11         

Other derivatives

    Other noninterest income        (3      

Foreign exchange contracts

   
 
Other nondeposit fees and
commissions
  
  
    1         

Mortgage Banking

         

Interest rate contracts

    Mortgage banking income        2         

Mortgage Servicing Rights

         

Interest rate contracts

    Mortgage banking income        74         
               

Total

    $ 85