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: 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.

 

 

 


Table of Contents

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   


Table of Contents

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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Table of Contents

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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Table of Contents

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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Table of Contents

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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Table of Contents

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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Table of Contents

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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Table of Contents

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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Table of Contents

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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Table of Contents

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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Table of Contents

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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Notes to Consolidated Financial Statements (Unaudited)

   Second Quarter 2011

 

(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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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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Table of Contents

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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Table of Contents

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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Table of Contents

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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Table of Contents

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.

 

22


Table of Contents

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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Table of Contents

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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Table of Contents

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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Table of Contents

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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Table of Contents

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.