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: June 30, 2011

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 Winston-Salem, North Carolina		27101
(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 July 31, 2011, 697,047,852 shares of the Registrant’s common stock, $5 par value, were outstanding.

 

 

 

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BB&T CORPORATION

FORM 10-Q

June 30, 2011

INDEX

 

				Page No.
Part I. FINANCIAL INFORMATION
Item 1.		Financial Statements (Unaudited)			3
		Notes to Consolidated Financial Statements (Unaudited)			7
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			58
		Executive Summary			63
		Analysis of Financial Condition			64
		Analysis of Results of Operations			85
		Market Risk Management			95
		Capital Adequacy and Resources			98
		Liquidity			101
		Segment Results			102
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			104
Item 4.		Controls and Procedures			104
Part II. OTHER INFORMATION
Item 1.		Legal Proceedings			104
Item 1A.		Risk Factors			104
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			104
Item 6.		Exhibits			105
SIGNATURES					105
EXHIBIT INDEX					106

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BB&T CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

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

 

		June 30, 2011				December 31, 2010
Assets
Cash and due from banks		$	1,199			$	1,127
Interest-bearing deposits with banks			1,337				931
Federal funds sold and securities purchased under resale agreements or similar arrangements			250				327
Segregated cash due from banks			19				309
Trading securities at fair value			564				633
Securities available for sale at fair value ($1,657 and $1,539 covered by FDIC loss share at June 30, 2011 and December 31, 2010, respectively)			19,409				23,169
Securities held to maturity ($8,605 fair value at June 30, 2011)			8,552				—
Loans held for sale ($1,849 and $3,176 at fair value at June 30, 2011 and December 31, 2010, respectively)			1,965				3,697
Loans and leases ($5,504 and $6,194 covered by FDIC loss share at June 30, 2011 and December 31, 2010, respectively)			103,385				103,567
Allowance for loan and lease losses			(2,516	)			(2,708	)
Loans and leases, net of allowance for loan and lease losses			100,869				100,859
FDIC loss share receivable			1,446				1,922
Premises and equipment			1,846				1,840
Goodwill			6,016				6,008
Core deposit and other intangible assets			457				508
Residential mortgage servicing rights at fair value			879				830
Other assets ($390 and $360 of foreclosed property and other assets covered by FDIC loss share at June 30, 2011 and December 31, 2010, respectively)			14,502				14,921
Total assets		$	159,310			$	157,081
Liabilities and Shareholders’ Equity
Deposits:
Noninterest-bearing deposits		$	22,507			$	20,637
Interest-bearing deposits			85,557				86,576
Total deposits			108,064				107,213
Federal funds purchased, securities sold under repurchase agreements and short-term borrowed funds			4,842				5,673
Long-term debt			23,380				21,730
Accounts payable and other liabilities			5,975				5,967
Total liabilities			142,261				140,583
Commitments and contingencies (Note 13)
Shareholders’ equity:
Common stock, $5 par			3,484				3,472
Additional paid-in capital			5,830				5,776
Retained earnings			8,241				7,935
Accumulated other comprehensive loss, net of deferred income taxes			(574	)			(747	)
Noncontrolling interests			68				62
Total shareholders’ equity			17,049				16,498
Total liabilities and shareholders’ equity		$	159,310			$	157,081
Common shares outstanding			696,894				694,381
Common shares authorized			2,000,000				2,000,000
Preferred shares authorized			5,000				5,000

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

 

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BB&T CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

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

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2011				2010				2011				2010
Interest Income
Interest and fees on loans and leases		$	1,523			$	1,525			$	3,043			$	2,965
Interest and dividends on securities			163				291				313				627
Interest on other earning assets			4				3				10				6
Total interest income			1,690				1,819				3,366				3,598
Interest Expense
Interest on deposits			152				241				323				500
Interest on federal funds purchased, securities sold under repurchase agreements and short-term borrowed funds			3				6				7				11
Interest on long-term debt			181				212				397				413
Total interest expense			336				459				727				924
Net Interest Income			1,354				1,360				2,639				2,674
Provision for credit losses			328				650				668				1,225
Net Interest Income After Provision for Credit Losses			1,026				710				1,971				1,449
Noninterest Income
Insurance income			299				287				549				540
Service charges on deposits			145				164				280				328
Mortgage banking income			83				110				178				199
Investment banking and brokerage fees and commissions			90				91				177				170
Checkcard fees			79				70				151				131
Other nondeposit fees and commissions			66				63				133				128
Bankcard fees and merchant discounts			52				45				98				85
Trust and investment advisory revenues			45				39				88				77
Income from bank-owned life insurance			29				31				59				62
FDIC loss share income, net			(81	)			(78	)			(139	)			(73	)
Other income (loss), net			(18	)			(2	)			(71	)			20
Securities gains (losses), net
Realized gains, net			16				224				37				227
Other-than-temporary impairments			(10	)			(37	)			(11	)			(49	)
Non-credit portion recognized in other comprehensive income			(8	)			32				(28	)			38
Total securities gains (losses), net			(2	)			219				(2	)			216
Total noninterest income			787				1,039				1,501				1,883
Noninterest Expense
Personnel expense			683				649				1,377				1,295
Foreclosed property expense			145				240				288				418
Occupancy and equipment expense			152				158				306				296
Professional services			84				86				155				158
Regulatory charges			59				46				120				91
Loan processing expenses			49				47				102				82
Amortization of intangibles			25				32				51				64
Software expense			29				30				55				59
Merger-related and restructuring charges, net			2				38				—				55
Other expenses			167				174				313				323
Total noninterest expense			1,395				1,500				2,767				2,841
Earnings
Income before income taxes			418				249				705				491
Provision for income taxes			91				25				144				73
Net income			327				224				561				418
Noncontrolling interests			20				14				29				20
Net income available to common shareholders		$	307			$	210			$	532			$	398
Earnings Per Common Share
Basic		$	0.44			$	0.30			$	0.76			$	0.58
Diluted		$	0.44			$	0.30			$	0.76			$	0.57
Cash dividends declared		$	0.16			$	0.15			$	0.33			$	0.30
Weighted Average Shares Outstanding
Basic			696,625				692,113				695,971				691,456
Diluted			704,969				701,322				704,583				700,223

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

 

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BB&T CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

Six Months Ended June 30, 2011 and 2010

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

 

		Shares of Common Stock				Common Stock				Additional Paid-In Capital				Retained Earnings				Accumulated Other Comprehensive Income (Loss)				Noncontrolling Interests				Total Shareholders’ Equity
Balance, January 1, 2010			689,750			$	3,449			$	5,620			$	7,539			$	(417	)		$	50			$	16,241
Add (Deduct):
Comprehensive income (loss):
Net income			—				—				—				398				—				20				418
Net change in other comprehensive income (loss)			—				—				—				—				180				—				180
Total comprehensive income (loss) (Note 10)			—				—				—				398				180				20				598
Stock transactions:
In purchase acquisitions			57				—				2				—				—				—				2
In connection with equity awards, net of repurchases			1,596				8				26				—				—				—				34
In connection with dividend reinvestment plan			515				3				13				—				—				—				16
In connection with 401(k) plan			859				4				22				—				—				—				26
Cash dividends declared on common stock, $0.30 per share			—				—				—				(208	)			—				—				(208	)
Equity-based compensation expense			—				—				37				—				—				—				37
Other, net			—				—				—				—				—				(6	)			(6	)
Balance, June 30, 2010			692,777			$	3,464			$	5,720			$	7,729			$	(237	)		$	64			$	16,740
Balance, January 1, 2011			694,381			$	3,472			$	5,776			$	7,935			$	(747	)		$	62			$	16,498
Add (Deduct):
Comprehensive income (loss):
Net income			—				—				—				532				—				29				561
Net change in other comprehensive income (loss)			—				—				—				—				173				—				173
Total comprehensive income (loss) (Note 10)			—				—				—				532				173				29				734
Stock transactions:
In purchase acquisitions			26				—				1				—				—				—				1
In connection with equity awards			1,838				9				(9	)			—				—				—				—
Shares repurchased in connection with equity awards			(617	)			(3	)			(14	)			—				—				—				(17	)
In connection with dividend reinvestment plan			563				3				12				—				—				—				15
In connection with 401(k) plan			703				3				16				—				—				—				19
Cash dividends declared on common stock, $0.33 per share			—				—				—				(226	)			—				—				(226	)
Equity-based compensation expense			—				—				49				—				—				—				49
Other, net			—				—				(1	)			—				—				(23	)			(24	)
Balance, June 30, 2011			696,894			$	3,484			$	5,830			$	8,241			$	(574	)		$	68			$	17,049

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

 

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BB&T CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in millions)

 

		Six Months Ended June 30,
		2011				2010
Cash Flows From Operating Activities:
Net income		$	561			$	418
Adjustments to reconcile net income to net cash from operating activities:
Provision for credit losses			668				1,225
Depreciation			129				130
Amortization of intangibles			51				64
Equity-based compensation			49				37
(Gain) loss on sales of securities, net			2				(216	)
Net write-downs on foreclosed property			208				328
Net change in operating assets and liabilities:
Segregated cash due from banks			290				15
Trading securities			8				49
Loans held for sale			1,294				509
FDIC loss share receivable			427				681
Other assets			214				(1,638	)
Accounts payable and other liabilities			(57	)			514
Other, net			9				(43	)
Net cash from operating activities			3,853				2,073
Cash Flows From Investing Activities:
Proceeds from sales of securities available for sale			330				14,087
Proceeds from maturities, calls and paydowns of securities available for sale			1,728				3,013
Purchases of securities available for sale			(6,250	)			(6,588	)
Proceeds from maturities, calls and paydowns of securities held to maturity			312				—
Purchases of securities held to maturity			(523	)			—
Originations and purchases of loans and leases, net of principal collected			(965	)			(879	)
Net cash paid for divestitures			—				(832	)
Purchases of premises and equipment			(104	)			(326	)
Proceeds from sales of foreclosed property or other real estate held for sale			480				451
Other, net			53				15
Net cash from investing activities			(4,939	)			8,941
Cash Flows From Financing Activities:
Net change in deposits			924				(9,618	)
Net change in federal funds purchased, securities sold under repurchase agreements and short-term borrowed funds			(831	)			(2,027	)
Proceeds from issuance of long-term debt			1,999				500
Repayment of long-term debt			(392	)			(25	)
Net proceeds from common stock issued			17				76
Cash dividends paid on common stock			(223	)			(207	)
Other, net			(7	)			147
Net cash from financing activities			1,487				(11,154	)
Net Change in Cash and Cash Equivalents			401				(140	)
Cash and Cash Equivalents at Beginning of Period			2,385				2,649
Cash and Cash Equivalents at End of Period		$	2,786			$	2,509
Supplemental Disclosure of Cash Flow Information:
Cash paid (received) during the period for:
Interest		$	719			$	927
Income taxes			(236	)			782
Noncash investing and financing activities:
Transfer of securities available for sale to securities held to maturity			8,341				—
Transfers of loans to foreclosed property			641				721
Transfers of loans held for investment to loans held for sale			226				620

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

 

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BB&T Corporation and Subsidiaries Notes to Consolidated Financial Statements (Unaudited)		Second Quarter 2011

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 (“BB&T”, the “Corporation” or the “Company”), are fair statements of BB&T’s financial position at June 30, 2011 and December 31, 2010, BB&T’s results of operations for the three and six months ended June 30, 2011 and 2010, and BB&T’s changes in shareholders’ equity and cash flows for the six months ended June 30, 2011 and 2010. In the opinion of management, all normal recurring adjustments necessary for a fair statement of the consolidated financial position and consolidated results of operations have been made.

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, 2010 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 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

 

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BB&T Corporation and Subsidiaries Notes to Consolidated Financial Statements (Unaudited)		Second Quarter 2011

 

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.

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. Refer to Note 13 for additional disclosures regarding BB&T’s significant variable interest entities.

BB&T accounts for unconsolidated partnership and similar 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

In certain 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 GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change include the determination of the allowance for credit losses, 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 February 2010, the Financial Accounting Standards Board (“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 transfers in and out of Level 1 and Level 2

 

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BB&T Corporation and Subsidiaries Notes to Consolidated Financial Statements (Unaudited)		Second Quarter 2011

 

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 was 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 July 2010, the FASB issued new guidance impacting Receivables. The new guidance requires additional disclosures that will allow users to understand the nature of credit risk inherent in a company’s loan portfolios, how that risk is analyzed and assessed in arriving at the allowance for loan and lease losses, and changes and reasons for those changes in the allowance for loan and lease losses. The new disclosures that relate to information as of the end of the reporting period were required as of December 31, 2010. The disclosures related to activity that occurs during a reporting period were effective for reporting periods beginning on or after December 15, 2010, except for the disclosure requirements relating to troubled debt restructurings, which are effective for reporting periods beginning on or after June 15, 2011.

In April 2011, the FASB issued new guidance impacting Receivables. The new guidance amended existing guidance for assisting a creditor in determining whether a restructuring is a troubled debt restructuring. The amendments clarify the guidance for a creditor’s evaluation of whether it has granted a concession and whether a debtor is experiencing financial difficulties. This guidance is effective for interim and annual reporting periods beginning after June 15, 2011, and will be applied retrospectively to the beginning of the annual period of adoption. The adoption of this guidance is not expected to be material to BB&T’s consolidated financial statements.

In May 2011, the FASB issued new guidance impacting Fair Value Measurements and Disclosures. The new guidance creates a uniform framework for applying fair value measurement principles for companies around the world. It eliminates differences between GAAP and International Financial Reporting Standards issued by the International Accounting Standards Board. New disclosures required by the guidance include: quantitative information about the significant unobservable inputs used for Level 3 measurements; a qualitative discussion about the sensitivity of recurring Level 3 measurements to changes in the unobservable inputs disclosed, including the interrelationship between inputs; and a description of the company’s valuation processes. This guidance is effective for interim and annual periods beginning after December 15, 2011, and all amendments are applied prospectively with any changes in measurements recognized in income in the period of adoption. BB&T is currently evaluating the impact the standard will have on the consolidated financial statements.

In June 2011, the FASB issued new guidance impacting Comprehensive Income. The new guidance amends disclosure requirements for the presentation of comprehensive income. The amended guidance eliminates the option to present components of other comprehensive income (“OCI”) as part of the statement of changes in shareholders’ equity. All changes in OCI are to be presented either in a single continuous statement of comprehensive income or in two separate but consecutive financial statements. The guidance does not change the items that must be reported in OCI. This guidance is effective for fiscal years and interim reporting periods within those years beginning after December 15, 2011 with early adoption permitted. The adoption of this guidance will not impact BB&T’s consolidated financial position, results of operations or cash flows and will only impact the presentation of OCI in the consolidated financial statements.

 

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BB&T Corporation and Subsidiaries Notes to Consolidated Financial Statements (Unaudited)		Second Quarter 2011

 

NOTE 2. Securities

The amortized cost, gross unrealized gains and losses and approximate fair values of securities available for sale and held to maturity were as follows:

 

		June 30, 2011
		Amortized Cost				Gross Unrealized								Fair Value
						Gains				Losses
		(Dollars in millions)
Securities available for sale:
U.S. government-sponsored entities (“GSE”)		$	76			$	2			$	—			$	78
Mortgage-backed securities issued by GSE			15,254				84				107				15,231
States and political subdivisions			1,904				39				121				1,822
Non-agency mortgage-backed securities			521				—				97				424
Other securities			197				—				—				197
Covered securities			1,262				399				4				1,657
Total securities available for sale		$	19,214			$	524			$	329			$	19,409
		June 30, 2011
		Amortized Cost				Gross Unrealized								Fair Value
						Gains				Losses
		(Dollars in millions)
Securities held to maturity:
Mortgage-backed securities issued by GSE		$	7,943			$	53			$	—			$	7,996
States and political subdivisions			36				—				—				36
Other securities			573				1				1				573
Total securities held to maturity		$	8,552			$	54			$	1			$	8,605
		December 31, 2010
		Amortized Cost				Gross Unrealized								Fair Value
						Gains				Losses
		(Dollars in millions)
Securities available for sale:
GSE securities		$	102			$	1			$	—			$	103
Mortgage-backed securities issued by GSE			18,663				42				361				18,344
States and political subdivisions			2,051				19				161				1,909
Non-agency mortgage-backed securities			635				—				120				515
Other securities			734				27				2				759
Covered securities			1,234				307				2				1,539
Total securities available for sale		$	23,419			$	396			$	646			$	23,169

During the first quarter of 2011, BB&T reclassified approximately $8.3 billion of securities available for sale to securities held to maturity. Management determined that it has both the positive intent and ability to hold these securities to maturity. The reclassification of these securities was accounted for at fair value. On the date of transfer, the difference between the par value and the fair value of these securities resulted in a premium or discount that, under amortized cost accounting, will be amortized as a yield adjustment to interest income using the interest method. The unrealized holding gains or losses at the date of transfer will continue to be reported as a separate component of shareholders’ equity in accumulated other comprehensive income, and will also be amortized over the remaining life of the securities as a yield adjustment to interest income using the interest

 

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BB&T Corporation and Subsidiaries Notes to Consolidated Financial Statements (Unaudited)		Second Quarter 2011

 

method. Refer to Note 10 for additional disclosures related to this amount. There were no gains or losses recognized as a result of this transfer.

As of June 30, 2011, the fair value of covered securities included $1.3 billion of non-agency mortgage-backed securities and $310 million of municipal securities. As of December 31, 2010, the fair value of covered securities included $1.2 billion of non-agency mortgage-backed securities and $304 million of municipal securities. All covered securities were acquired from Colonial Bank (“Colonial”) and are covered by one of the Federal Deposit Insurance Corporation (“FDIC”) loss sharing agreements. BB&T is restricted from selling these securities without prior approval from the FDIC. Refer to BB&T’s Annual Report on Form 10-K for the year ended December 31, 2010 for additional information.

At June 30, 2011 and December 31, 2010, securities with carrying values of approximately $15.7 billion and $19.3 billion, respectively, 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 June 30, 2011. The Fannie Mae investments had total amortized cost and fair values of $8.4 billion at June 30, 2011, while Freddie Mac investments had total amortized cost and fair values of $10.6 billion.

At June 30, 2011 and December 31, 2010, non-agency mortgage-backed securities primarily consisted of residential mortgage-backed securities.

The gross realized gains and losses and other-than-temporary impairments recognized in income during the three and six months ended June 30, 2011 and 2010 are reflected in the following table:

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2011				2010				2011				2010
		(Dollars in millions)
Gross gains		$	17			$	226			$	38			$	231
Gross losses			(1	)			(2	)			(1	)			(4	)
Net realized gains/(losses)			16				224				37				227
Other-than-temporary impairment (“OTTI”) recognized on non-agency mortgage-backed securities:
Total OTTI on non-agency mortgage-backed securities			(10	)			(37	)			(11	)			(49	)
Non-credit portion recognized in other comprehensive income (1)			(8	)			32				(28	)			38
Total OTTI on non-agency mortgage-backed securities recognized in net income			(18	)			(5	)			(39	)			(11	)
Net securities gains/(losses)		$	(2	)		$	219			$	(2	)		$	216

 

(1)	A negative balance is the result of additional credit losses currently recognized in earnings that were previously recognized in other comprehensive income.

 

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BB&T Corporation and Subsidiaries Notes to Consolidated Financial Statements (Unaudited)		Second Quarter 2011

 

The following table reflects activity during the three and six months ended June 30, 2011 and 2010 related to credit losses on other-than-temporarily impaired non-agency mortgage-backed securities where a portion of the unrealized loss was recognized in other comprehensive income:

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2011				2010				2011				2010
		(Dollars in millions)
Balance at beginning of period		$	51			$	8			$	30			$	2
Credit losses on securities not previously considered other-than-temporarily impaired			—				1				—				2
Credit losses on securities for which OTTI was previously recognized			18				4				39				9
Reductions for securities sold/settled during the period			(6	)			—				(6	)			—
Balance at end of period		$	63			$	13			$	63			$	13

The amortized cost and estimated fair value of the debt securities portfolio at June 30, 2011, by contractual maturity, are shown in the accompanying table. The expected life of mortgage-backed securities will differ from contractual maturities because borrowers may have the right to call or prepay the underlying mortgage loans with or without call or prepayment penalties. For purposes of the maturity table, mortgage-backed securities, which are not due at a single maturity date, have been included in maturity groupings based on the contractual maturity.

 

		June 30, 2011
		Available for Sale								Held to Maturity
		Amortized Cost				Fair Value				Amortized Cost				Fair Value
		(Dollars in millions)
Due in one year or less		$	43			$	43			$	—			$	—
Due after one year through five years			59				63				—				—
Due after five years through ten years			633				650				—				—
Due after ten years			18,284				18,458				8,552				8,605
Total debt securities			19,019				19,214				8,552				8,605
Total securities with no stated maturity			195				195				—				—
Total securities		$	19,214			$	19,409			$	8,552			$	8,605

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:

 

		June 30, 2011
		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 available for sale:
Mortgage-backed securities issued by GSE		$	10,312			$	107			$	—			$	—			$	10,312			$	107
States and political subdivisions			258				7				655				114				913				121
Non-agency mortgage-backed securities			—				—				424				97				424				97
Other securities			1				—				—				—				1				—
Covered securities			49				4				—				—				49				4
Total		$	10,620			$	118			$	1,079			$	211			$	11,699			$	329

 

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BB&T Corporation and Subsidiaries Notes to Consolidated Financial Statements (Unaudited)		Second Quarter 2011

 

		June 30, 2011
		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 held to maturity:
States and political subdivisions		$	32			$	—			$	—			$	—			$	32			$	—
Other securities			59				1				—				—				59				1
Total		$	91			$	1			$	—			$	—			$	91			$	1
		December 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 available for sale:
GSE securities		$	50			$	—			$	—			$	—			$	50			$	—
Mortgage-backed securities issued by GSE			15,438				361				—				—				15,438				361
States and political subdivisions			694				21				735				140				1,429				161
Non-agency mortgage-backed securities			—				—				506				120				506				120
Other securities			535				2				2				—				537				2
Covered securities			79				2				—				—				79				2
Total		$	16,796			$	386			$	1,243			$	260			$	18,039			$	646

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.

 

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BB&T Corporation and Subsidiaries Notes to Consolidated Financial Statements (Unaudited)		Second Quarter 2011

 

If an unrealized loss is considered other-than-temporary, the credit component of the unrealized loss is recognized in earnings and the non-credit component is recognized in accumulated other comprehensive income, to the extent that BB&T does not intend to sell the security and it is more likely than not that BB&T will not be required to sell the security prior to recovery.

BB&T evaluates credit impairment related to mortgage-backed securities using a number of different expected cash flow models. These models reflect differing approaches to estimating the expected future cash flows associated with a given security, with certain models giving greater consideration to long-term macroeconomic factors that are applied to current security default rates, prepayment rates and recovery rates, while other models produce results that are more heavily influenced by current security-level performance. All of these models provide estimates of the expected cash flows on the underlying mortgage pools using security-specific structure information over the expected life of the security. These models estimate cash flows from the underlying mortgage loan pools and distribute those cash flows to the various tranches within the securitization considering the transaction structure, which may include subordination features and/or credit enhancements. Management reviews the results of these cash flow models and assigns probability weightings to each model based on an assessment of the current performance of the underlying securities, prevailing economic conditions and historical payment experience.

During the three and six months ended June 30, 2011, BB&T realized principal losses on certain other-than-temporarily impaired securities totaling approximately $6 million. Based on its consideration of the timing and extent of these losses, combined with prevailing economic conditions, BB&T determined that its cash flow modeling should give greater weighting to current security-level performance and give less weighting to modeling that relies more heavily on long-term economic factors. This change in probability-weighting resulted in the majority of the credit losses on securities for which OTTI had been previously recognized.

On June 30, 2011, BB&T held certain investment securities having continuous unrealized loss positions for more than 12 months. All of these losses were in non-agency mortgage-backed and municipal securities. At June 30, 2011, all of the available-for-sale debt securities in an unrealized loss position for more than 12 months, excluding those covered by FDIC loss sharing agreements, were investment grade with the exception of two municipal bonds with an amortized cost of $8 million and ten non-agency mortgage-backed securities with an amortized cost of $521 million. At June 30, 2011, the total unrealized loss on these non-investment grade securities was $98 million. All of the non-investment grade securities referenced above were initially investment grade and have been downgraded since purchase. Based on its evaluation at June 30, 2011, 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. BB&T’s evaluation of the other debt securities with continuous unrealized losses indicated that there were no credit losses evident. Furthermore, as of the date of the evaluation, BB&T did not intend to sell, and it was more likely than not that the Company would not be required to sell, these debt securities before the 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.

The following table presents non-investment grade securities with significant unrealized losses that are not covered by a loss sharing arrangement and the credit loss component of OTTI recognized to date:

 

		June 30, 2011
		Amortized Cost				Fair Value				Unrealized Loss				Credit Loss Recognized
		(Dollars in millions)
Security
RMBS 1		$	91			$	59			$	(32	)		$	(10	)
RMBS 2			118				100				(18	)			(25	)
RMBS 3			102				88				(14	)			(3	)

 

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BB&T Corporation and Subsidiaries Notes to Consolidated Financial Statements (Unaudited)		Second Quarter 2011

 

NOTE 3. Loans and Leases

The following table provides a breakdown of BB&T’s loan portfolio as of June 30, 2011 and December 31, 2010:

 

		June 30, 2011				December 31, 2010
		(Dollars in millions)
Loans and leases, net of unearned income:
Commercial:
Commercial and industrial		$	34,166			$	34,050
Commercial real estate—other			11,134				11,439
Commercial real estate—residential ADC (1)			2,689				3,397
Direct retail lending			13,679				13,749
Sales finance			7,236				7,050
Revolving credit			2,091				2,127
Residential mortgage			18,372				17,550
Specialized lending			8,464				7,953
Other acquired			50				58
Total loans and leases held for investment (excluding covered loans)			97,881				97,373
Covered			5,504				6,194
Total loans and leases held for investment			103,385				103,567
Loans held for sale			1,965				3,697
Total loans and leases		$	105,350			$	107,264

 

(1)	Commercial real estate—residential ADC represents residential acquisition, development and construction loans.

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, and the related allowance, as of June 30, 2011 and December 31, 2010:

 

		June 30, 2011												December 31, 2010
		Purchased Impaired Loans				Purchased Nonimpaired Loans				Total				Purchased Impaired Loans				Purchased Nonimpaired Loans				Total
		(Dollars in millions)
Residential mortgage		$	700			$	678			$	1,378			$	733			$	713			$	1,446
Commercial real estate			1,728				1,826				3,554				2,031				1,982				4,013
Commercial			89				483				572				91				644				735
Total covered			2,517				2,987				5,504				2,855				3,339				6,194
Other acquired			2				48				50				3				55				58
Total			2,519				3,035				5,554				2,858				3,394				6,252
Allowance for loan losses			(114	)			(45	)			(159	)			(90	)			(54	)			(144	)
Net		$	2,405			$	2,990			$	5,395			$	2,768			$	3,340			$	6,108

 

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BB&T Corporation and Subsidiaries Notes to Consolidated Financial Statements (Unaudited)		Second Quarter 2011

 

Changes in the carrying amount and accretable yield for purchased impaired and nonimpaired loans, excluding loans held for sale, were as follows for the six months ended June 30, 2011 and the year ended December 31, 2010:

 

		June 30, 2011																December 31, 2010
		Purchased Impaired								Purchased Nonimpaired								Purchased Impaired								Purchased Nonimpaired
		Accretable Yield				Carrying Amount of Loans				Accretable Yield				Carrying Amount of Loans				Accretable Yield				Carrying Amount of Loans				Accretable Yield				Carrying Amount of Loans
		(Dollars in millions)
Balance at beginning of period		$	835			$	2,858			$	1,611			$	3,394			$	889			$	3,666			$	1,301			$	4,476
Additions			—				—				—				—				—				—				—				—
Accretion			(187	)			187				(355	)			355				(459	)			459				(483	)			483
Reclassifications from nonaccretable balance, net			135				—				475				—				405				—				793				—
Payments received, net			—				(526	)			—				(714	)			—				(1,267	)			—				(1,565	)
Balance at end of period		$	783			$	2,519			$	1,731			$	3,035			$	835			$	2,858			$	1,611			$	3,394

The outstanding unpaid principal balance for all purchased impaired loans as of June 30, 2011 and December 31, 2010 was $3.2 billion and $3.8 billion, respectively. The outstanding unpaid principal balance for all purchased nonimpaired loans as of June 30, 2011 and December 31, 2010 was $4.3 billion and $5.0 billion, respectively.

At June 30, 2011 and December 31, 2010, none of the purchased 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 loan losses related to the purchased loans results from decreased expectations of future cash flows due to increased credit losses for certain acquired loan pools.

The following table provides a summary of BB&T’s nonperforming loans and loans 90 days or more past due and still accruing as of June 30, 2011 and December 31, 2010:

 

		June 30, 2011				December 31, 2010
		(Dollars in millions)
Nonaccrual loans and leases:
Held for investment (1)		$	2,061			$	2,149
Held for sale			116				521
Total nonaccrual loans and leases (1)			2,177				2,670
Foreclosed real estate (2)			1,147				1,259
Other foreclosed property			29				42
Total foreclosed property (2)			1,176				1,301
Total nonperforming assets (excluding covered assets) (1)(2)		$	3,353			$	3,971
Loans 90 days or more past due and still accruing (excluding covered loans) (3)(4)(5)		$	203			$	295

 

(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 90 days or more and still accruing are noted below.

 

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(2)	Excludes foreclosed real estate totaling $348 million and $313 million as of June 30, 2011 and December 31, 2010, respectively, that is covered by FDIC loss sharing agreements.

(3)	Excludes mortgage loans guaranteed by GNMA that BB&T does not have the obligation to repurchase totaling $389 million and $425 million as of June 30, 2011 and December 31, 2010, respectively.

(4)	Excludes loans past due 90 days or more that are covered by FDIC loss sharing agreements totaling $935 million and $1.1 billion as of June 30, 2011 and December 31, 2010, respectively.

(5)	Excludes mortgage loans past due 90 days or more that are government guaranteed totaling $162 million and $153 million as of June 30, 2011 and December 31, 2010, respectively.

The following table provides a summary of loans that continue to accrue interest under the terms of the restructuring (“performing restructurings”) and restructured loans that have been placed in nonaccrual status (“nonperforming restructurings”) as of June 30, 2011 and December 31, 2010:

 

		June 30, 2011				December 31, 2010
		(Dollars in millions)
Performing restructurings:
Commercial:
Commercial and industrial		$	100			$	205
Commercial real estate—other			153				280
Commercial real estate—residential ADC			105				172
Direct retail lending			143				141
Sales finance			6				5
Revolving credit			62				62
Residential mortgage (1)(2)			570				585
Specialized lending			39				26
Total performing restructurings (1)(2)			1,178				1,476
Nonperforming restructurings (3)(4)			381				479
Total restructurings (1)(2)(3)(4)(5)		$	1,559			$	1,955

 

(1)	Excludes restructured mortgage loans held for investment that are government guaranteed totaling $160 million and $115 million at June 30, 2011 and December 31, 2010, respectively.

(2)	Excludes restructured mortgage loans held for sale that are government guaranteed totaling $24 million and $14 million at June 30, 2011 and December 31, 2010, respectively.

(3)	Nonperforming restructurings are included in nonaccrual loan disclosures.

(4)	Includes approximately $20 million and $110 million of nonperforming restructurings included in loans held for sale at June 30, 2011 and December 31, 2010, respectively.

(5)	All restructurings are considered impaired. The allowance for loan and lease losses attributable to these restructured loans totaled $321 million and $324 million at June 30, 2011 and December 31, 2010, respectively.

BB&T had commitments totaling $28 million and $64 million at June 30, 2011 and December 31, 2010, respectively, to lend additional funds to clients with loans whose terms have been modified in restructurings.

 

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BB&T Corporation and Subsidiaries Notes to Consolidated Financial Statements (Unaudited)		Second Quarter 2011

 

NOTE 4. Allowance for Credit Losses

An analysis of the allowance for credit losses for the three and six months ended June 30, 2011 is presented in the following tables:

 

		Three Months Ended June 30, 2011
		Beginning Balance				Charge- Offs				Recoveries				Provision				Ending Balance
		(Dollars in millions)
Commercial:
Commercial and industrial		$	535			$	(62	)		$	9			$	(8	)		$	474
Commercial real estate—other			497				(81	)			6				40				462
Commercial real estate—residential ADC			421				(78	)			7				32				382
Specialized lending			18				(2	)			1				(4	)			13
Retail:
Direct retail lending			245				(66	)			8				46				233
Revolving credit			105				(24	)			5				17				103
Residential mortgage			328				(129	)			1				147				347
Sales finance			43				(7	)			3				3				42
Specialized lending			175				(41	)			6				31				171
Covered and other acquired			144				—				—				15				159
Unallocated			130				—				—				—				130
Allowance for loan and lease losses			2,641				(490	)			46				319				2,516
Reserve for unfunded lending commitments			50				—				—				9				59
Allowance for credit losses		$	2,691			$	(490	)		$	46			$	328			$	2,575

 

		Six Months Ended June 30, 2011
		Beginning Balance				Charge- Offs				Recoveries				Provision				Ending Balance
		(Dollars in millions)
Commercial:
Commercial and industrial		$	621			$	(140	)		$	13			$	(20	)		$	474
Commercial real estate—other			446				(149	)			9				156				462
Commercial real estate—residential ADC			469				(149	)			11				51				382
Specialized lending			21				(4	)			2				(6	)			13
Retail:
Direct retail lending			246				(144	)			17				114				233
Revolving credit			109				(51	)			10				35				103
Residential mortgage			298				(183	)			2				230				347
Sales finance			47				(17	)			5				7				42
Specialized lending			177				(91	)			11				74				171
Covered and other acquired			144				—				—				15				159
Unallocated			130				—				—				—				130
Allowance for loan and lease losses			2,708				(928	)			80				656				2,516
Reserve for unfunded lending commitments			47				—				—				12				59
Allowance for credit losses		$	2,755			$	(928	)		$	80			$	668			$	2,575

 

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BB&T Corporation and Subsidiaries Notes to Consolidated Financial Statements (Unaudited)		Second Quarter 2011

 

An analysis of the allowance for credit losses for the three and six months ended June 30, 2010 is presented in the following tables:

 

		Three Months Ended June 30, 2010				Six Months Ended June 30, 2010
		(Dollars in millions)
Beginning balance		$	2,759			$	2,672
Provision for credit losses			650				1,225
Loans and leases charged-off			(671	)			(1,180	)
Recoveries of previous charge-offs			29				63
Net loans and leases charged-off			(642	)			(1,117	)
Other changes, net			(14	)			(27	)
Ending balance		$	2,753			$	2,753
Allowance for loan and lease losses		$	2,723			$	2,723
Reserve for unfunded lending commitments			30				30
Allowance for credit losses		$	2,753			$	2,753

The following tables provide a breakdown of the allowance for loan and lease losses and the recorded investment in loans based on the method for determining the allowance as of June 30, 2011 and December 31, 2010:

 

		June 30, 2011
		Allowance for Loan and Lease Losses
		Individually Evaluated for Impairment				Collectively Evaluated for Impairment				Loans Acquired With Deteriorated Credit Quality				Total
		(Dollars in millions)
Commercial:
Commercial and industrial		$	108			$	366			$	—			$	474
Commercial real estate—other			93				369				—				462
Commercial real estate—residential ADC			82				300				—				382
Specialized lending			1				12				—				13
Retail:
Direct retail lending			32				201				—				233
Revolving credit			26				77				—				103
Residential mortgage			148				199				—				347
Sales finance			1				41				—				42
Specialized lending			17				154				—				171
Covered and other acquired			—				45				114				159
Unallocated			—				130				—				130
Total		$	508			$	1,894			$	114			$	2,516

 

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BB&T Corporation and Subsidiaries Notes to Consolidated Financial Statements (Unaudited)		Second Quarter 2011

 

		June 30, 2011
		Loans and Leases
		Individually Evaluated for Impairment				Collectively Evaluated for Impairment				Loans Acquired With Deteriorated Credit Quality				Total
		(Dollars in millions)
Commercial:
Commercial and industrial		$	711			$	33,455			$	—			$	34,166
Commercial real estate—other			620				10,514				—				11,134
Commercial real estate—residential ADC			565				2,124				—				2,689
Specialized lending			6				3,616				—				3,622
Retail:
Direct retail lending			174				13,505				—				13,679
Revolving credit			62				2,029				—				2,091
Residential mortgage			796				17,576				—				18,372
Sales finance			7				7,229				—				7,236
Specialized lending			38				4,804				—				4,842
Covered and other acquired			—				3,035				2,519				5,554
Total		$	2,979			$	97,887			$	2,519			$	103,385

 

		December 31, 2010
		Allowance for Loan and Lease Losses
		Individually Evaluated for Impairment				Collectively Evaluated for Impairment				Loans Acquired With Deteriorated Credit Quality				Total
		(Dollars in millions)
Commercial:
Commercial and industrial		$	96			$	525			$	—			$	621
Commercial real estate—other			63				383				—				446
Commercial real estate—residential ADC			75				394				—				469
Specialized lending			1				20				—				21
Retail:
Direct retail lending			26				220				—				246
Revolving credit			25				84				—				109
Residential mortgage			167				131				—				298
Sales finance			1				46				—				47
Specialized lending			2				175				—				177
Covered and other acquired			—				54				90				144
Unallocated			—				130				—				130
Total		$	456			$	2,162			$	90			$	2,708

 

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BB&T Corporation and Subsidiaries Notes to Consolidated Financial Statements (Unaudited)		Second Quarter 2011

 

		December 31, 2010
		Loans and Leases
		Individually Evaluated for Impairment				Collectively Evaluated for Impairment				Loans Acquired With Deteriorated Credit Quality				Total
		(Dollars in millions)
Commercial:
Commercial and industrial		$	708			$	33,342			$	—			$	34,050
Commercial real estate—other			691				10,748				—				11,439
Commercial real estate—residential ADC			684				2,713				—				3,397
Specialized lending			4				3,399				—				3,403
Retail:
Direct retail lending			177				13,572				—				13,749
Revolving credit			62				2,065				—				2,127
Residential mortgage			803				16,747				—				17,550
Sales finance			5				7,045				—				7,050
Specialized lending			24				4,526				—				4,550
Covered and other acquired			—				3,394				2,858				6,252
Total		$	3,158			$	97,551			$	2,858			$	103,567

BB&T monitors the credit quality of its commercial portfolio segment using internal risk ratings. These ratings have been correlated with bond ratings for similar instruments based on management’s judgment. BB&T assigns an internal risk rating at loan origination and reviews the relationship again on an annual basis or at any point management becomes aware of information affecting the borrower’s ability to fulfill their obligations.

BB&T monitors the credit quality of its retail portfolio segment based primarily on delinquency status, which is the primary factor considered in determining whether a retail loan should be classified as nonaccrual.

For the commercial portfolio segment, BB&T’s internal risk ratings were correlated with Moody’s bond ratings by mapping the historical default rates by internal risk grade to those implied in the bond ratings. Investment grade includes all loans mapped to a “Baa” or higher rating. Near investment grade includes all loans mapped to a “Ba” rating. Noninvestment grade includes all loans mapped to a “B” or lower rating. For the retail portfolio segment, nonperforming loans reflect loans in nonaccrual status.

 

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BB&T Corporation and Subsidiaries Notes to Consolidated Financial Statements (Unaudited)		Second Quarter 2011

 

The following tables illustrate the credit quality indicators associated with BB&T’s loans and leases held for investment as of June 30, 2011 and December 31, 2010. Covered and other acquired loans are excluded from this analysis because their related allowance is determined by loan pool performance due to the application of the accretion method.

 

		June 30, 2011
		Commercial
		Commercial & Industrial				Commercial Real Estate -Other				Commercial Real Estate- Residential ADC				Specialized Lending
		(Dollars in millions)
Investment grade		$	8,212			$	783			$	45			$	2,100
Near investment grade			17,095				4,493				385				868
Noninvestment grade—performing			8,248				5,391				1,799				643
Noninvestment grade—nonperforming (1)			611				467				460				11
Total (1)		$	34,166			$	11,134			$	2,689			$	3,622

 

		June 30, 2011
		Retail
		Direct Retail Lending				Revolving Credit				Residential Mortgage				Sales Finance				Specialized Lending
		(Dollars in millions)
Performing		$	13,507			$	2,091			$	18,080			$	7,229			$	4,801
Nonperforming			172				—				292				7				41
Total		$	13,679			$	2,091			$	18,372			$	7,236			$	4,842

 

		December 31, 2010
		Commercial
		Commercial & Industrial				Commercial Real Estate- Other				Commercial Real Estate- Residential ADC				Specialized Lending
		(Dollars in millions)
Investment grade		$	8,358			$	687			$	35			$	2,070
Near investment grade			16,637				4,618				512				756
Noninvestment grade—performing			8,547				5,729				2,337				566
Noninvestment grade—nonperforming (1)			508				405				513				11
Total (1)		$	34,050			$	11,439			$	3,397			$	3,403

 

		December 31, 2010
		Retail
		Direct Retail Lending				Revolving Credit				Residential Mortgage				Sales Finance				Specialized Lending
		(Dollars in millions)
Performing		$	13,558			$	2,127			$	17,084			$	7,044			$	4,501
Nonperforming			191				—				466				6				49
Total		$	13,749			$	2,127			$	17,550			$	7,050			$	4,550

 

(1)	Excludes nonperforming commercial loans held for sale of $116 million and $521 million as of June 30, 2011 and December 31, 2010, respectively.

 

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BB&T Corporation and Subsidiaries Notes to Consolidated Financial Statements (Unaudited)		Second Quarter 2011

 

The following tables represent aging analyses of BB&T’s past due loans and leases held for investment as of June 30, 2011 and December 31, 2010:

 

		June 30, 2011
		Loans and Leases Excluding Covered (1)
		Accruing Loans and Leases
		Current				30-89 Days Past Due				90 Days Or More Past Due				Nonaccrual Loans And Leases (2)				Total Loans And Leases, Excluding Covered Loans
		(Dollars in millions)
Commercial:
Commercial and industrial		$	33,479			$	72			$	4			$	611			$	34,166
Commercial real estate—other			10,628				35				4				467				11,134
Commercial real estate—residential ADC			2,204				25				—				460				2,689
Specialized lending			3,587				17				7				11				3,622
Retail:
Direct retail lending			13,294				154				59				172				13,679
Revolving credit			2,053				22				16				—				2,091
Residential mortgage (3)			17,324				504				252				292				18,372
Sales finance			7,140				68				21				7				7,236
Specialized lending			4,620				181				—				41				4,842
Other acquired			48				—				2				—				50
Total (2)(3)		$	94,377			$	1,078			$	365			$	2,061			$	97,881

 

		December 31, 2010
		Loans and Leases Excluding Covered (1)
		Accruing Loans and Leases
		Current				30-89 Days Past Due				90 Days Or More Past Due				Nonaccrual Loans And Leases (2)				Total Loans And Leases, Excluding Covered Loans
		(Dollars in millions)
Commercial:
Commercial and industrial		$	33,371			$	163			$	8			$	508			$	34,050
Commercial real estate—other			10,962				68				4				405				11,439
Commercial real estate—residential ADC			2,792				84				8				513				3,397
Specialized lending			3,358				29				5				11				3,403
Retail:
Direct retail lending			13,293				189				76				191				13,749
Revolving credit			2,079				28				20				—				2,127
Residential mortgage (3)			16,173				615				296				466				17,550
Sales finance			6,922				95				27				6				7,050
Specialized lending			4,281				219				1				49				4,550
Other acquired			54				1				3				—				58
Total (2)(3)		$	93,285			$	1,491			$	448			$	2,149			$	97,373

 

(1)	Covered loans have been excluded from this aging analysis because they are covered by FDIC loss sharing agreements, and their related allowance is determined by loan pool performance due to the application of the accretion method.

 

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BB&T Corporation and Subsidiaries Notes to Consolidated Financial Statements (Unaudited)		Second Quarter 2011

 

(2)	Excludes nonperforming commercial loans held for sale of $116 million and $521 million as of June 30, 2011 and December 31, 2010, respectively.

(3)	Residential mortgage loans include $78 million and $83 million in government guaranteed loans past due 30-89 days, and $162 million and $153 million in government guaranteed loans past due greater than 90 days as of June 30, 2011 and December 31, 2010, respectively.

The following tables set forth certain information regarding BB&T’s impaired loans, excluding acquired impaired loans and loans held for sale, that were evaluated for specific reserves as of June 30, 2011 and December 31, 2010. The average balance of impaired loans and the interest income recognized while on impaired status are reported for the six months ended June 30, 2011.

 

		June 30, 2011
		Recorded Investment				Unpaid Principal Balance				Related Allowance				Average Recorded Investment				Interest Income Recognized
		(Dollars in millions)
With No Related Allowance Recorded:
Commercial:
Commercial and industrial		$	163			$	237			$	—			$	147			$	—
Commercial real estate—other			143				194				—				141				—
Commercial real estate—residential ADC			181				317				—				206				—
Specialized lending			—				—				—				—				—
Retail:
Direct retail lending			24				82				—				27				—
Residential mortgage (1)			25				50				—				27				—
Sales finance			1				1				—				2				—
Specialized lending			2				4				—				6				—
With An Allowance Recorded:
Commercial:
Commercial and industrial			548				581				108				445				2
Commercial real estate—other			477				519				93				438				4
Commercial real estate—residential ADC			384				418				82				317				2
Specialized lending			6				6				1				3				—
Retail:
Direct retail lending			150				159				32				138				4
Revolving credit			62				61				26				61				1
Residential mortgage (1)			611				626				133				594				14
Sales finance			6				7				1				4				—
Specialized lending			36				38				17				22				1
Total (1)		$	2,819			$	3,300			$	493			$	2,578			$	28

 

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BB&T Corporation and Subsidiaries Notes to Consolidated Financial Statements (Unaudited)		Second Quarter 2011

 

		December 31, 2010
		Recorded Investment				Unpaid Principal Balance				Related Allowance
		(Dollars in millions)
With No Related Allowance Recorded:
Commercial:
Commercial and industrial		$	196			$	267			$	—
Commercial real estate—other			175				246				—
Commercial real estate—residential ADC			200				300				—
Retail:
Direct retail lending			22				69				—
Residential mortgage (1)			25				50				—
With An Allowance Recorded:
Commercial:
Commercial and industrial			512				534				96
Commercial real estate—other			516				565				63
Commercial real estate—residential ADC			484				556				75
Specialized lending			4				4				1
Retail:
Direct retail lending			155				161				26
Revolving credit			62				61				25
Residential mortgage (1)			663				690				153
Sales finance			5				5				1
Specialized lending			24				24				2
Total (1)		$	3,043			$	3,532			$	442

 

(1)	Residential mortgage loans exclude $160 million and $115 million in government guaranteed loans and related allowance of $15 million and $14 million as of June 30, 2011 and December 31, 2010, respectively.

NOTE 5. Goodwill and Other Intangible Assets

The changes in the carrying amounts of goodwill attributable to each of BB&T’s operating segments for the six months ended June 30, 2011 are reflected in the table below. To date, there have been no goodwill impairments recorded by BB&T.

 

		Community Banking				Residential Mortgage Banking				Sales Finance				Specialized Lending				Insurance Services				Financial Services				All Other				Total
		(Dollars in millions)
Balance, January 1, 2011		$	4,519			$	7			$	93			$	104			$	1,067			$	192			$	26			$	6,008
Contingent consideration			—				—				—				—				8				—				—				8
Balance, June 30, 2011		$	4,519			$	7			$	93			$	104			$	1,075			$	192			$	26			$	6,016

 

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BB&T Corporation and Subsidiaries Notes to Consolidated Financial Statements (Unaudited)		Second Quarter 2011

 

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:

 

		June 30, 2011												December 31, 2010
		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			$	(462	)		$	164			$	626			$	(438	)		$	188
Other (1)			752				(459	)			293				752				(432	)			320
Totals		$	1,378			$	(921	)		$	457			$	1,378			$	(870	)		$	508

 

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

NOTE 6. 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:

 

		June 30, 2011				December 31, 2010
		(Dollars in millions)
Mortgage loans managed or securitized (1)		$	22,963			$	23,692
Less: Loans securitized and transferred to securities available for sale			4				4
Loans held for sale			1,745				3,068
Covered mortgage loans			1,378				1,446
Mortgage loans sold with recourse			1,464				1,624
Mortgage loans held for investment		$	18,372			$	17,550
Mortgage loans on nonaccrual status (2)		$	292			$	466
Mortgage loans 90 days past due and still accruing interest (2)			90				143
Mortgage loans net charge-offs (3)			181				390

 

(1)	Balances exclude loans serviced for others, with no other continuing involvement.

(2)	Includes amounts related to residential mortgage loans held for sale and excludes amounts related to government guaranteed loans. Refer to Note 3 for additional disclosures related to past due government guaranteed loans.

(3)	Net charge-offs for June 30, 2011 reflect six months.

The unpaid principal balances of BB&T’s total residential mortgage servicing portfolio were $86.8 billion and $83.6 billion at June 30, 2011 and December 31, 2010, respectively. The unpaid principal balances of residential mortgage loans serviced for others consist primarily of agency conforming fixed-rate mortgage loans and totaled $65.9 billion and $61.8 billion at June 30, 2011 and December 31, 2010, respectively. Mortgage loans serviced for others are not included in loans on the accompanying Consolidated Balance Sheets.

During the six months ended June 30, 2011 and 2010, BB&T sold residential mortgage loans from the held for sale portfolio with unpaid principal balances of $8.6 billion and $8.7 billion, respectively, and recognized pre-tax gains of $61 million and $86 million, respectively, including the impact of interest rate lock commitments. These gains are recorded in noninterest income as a component of mortgage banking income. BB&T retained the related mortgage servicing rights and receives servicing fees.

 

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BB&T Corporation and Subsidiaries Notes to Consolidated Financial Statements (Unaudited)		Second Quarter 2011

 

At June 30, 2011 and 2010, the approximate weighted average servicing fee was 0.34% and 0.36%, respectively, of the outstanding balance of the residential mortgage loans serviced for others. The weighted average coupon interest rate on the portfolio of mortgage loans serviced for others was 5.14% and 5.43% at June 30, 2011 and 2010, respectively. BB&T recognized servicing fees of $118 million and $111 million during the first six months of 2011 and 2010, respectively, as a component of mortgage banking income.

At June 30, 2011 and December 31, 2010, BB&T had $1.5 billion and $1.6 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 $557 million and $597 million as of June 30, 2011 and December 31, 2010, respectively. At June 30, 2011 and December 31, 2010, BB&T has recorded $7 million and $6 million, respectively of reserves related to these recourse exposures. Payments made to date have been immaterial.

BB&T also issues standard representations and warranties related to mortgage loan sales to government-sponsored entities. Although these agreements often do not specify limitations, BB&T does not believe that any payments related to these warranties would materially change the financial condition or results of operations of BB&T. BB&T has recorded $20 million and $15 million of reserves related to potential losses resulting from repurchases of loans sold at June 30, 2011 and December 31, 2010, respectively.

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 six months ended June 30, 2011 and 2010:

 

		Residential Mortgage Servicing Rights Six Months Ended June 30,
		2011				2010
		(Dollars in millions)
Carrying value, January 1,		$	830			$	832
Additions			126				122
Increase (decrease) in fair value:
Due to changes in valuation inputs or assumptions			(20	)			(227	)
Other changes (1)			(57	)			(62	)
Carrying value, June 30,		$	879			$	665

 

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

During the second quarter of 2011, management revised its servicing costs assumption in the valuation of residential mortgage servicing rights. The impact of this change was a $10 million reduction in the value of residential mortgage servicing rights.