Form 10-K
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

 

 

Annual Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the fiscal year ended:

December 31, 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)

 

 

Securities Registered Pursuant to Section 12(b) of the Securities Exchange Act of 1934:

 

Title of each class

 

Name of each exchange

on which registered

Common Stock, $5 par value   New York Stock Exchange

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    YES  þ    NO  ¨

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act    YES  ¨    NO  þ

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by references in Part III of this Form 10-K or any amendment to this Form 10-K.    þ

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

 

Large accelerated filer       þ    Accelerated filer       ¨
Non-accelerated filer       ¨  (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 Act).    YES  ¨        NO  þ

At January 31, 2012, the Corporation had 697,228,764 shares of its Common Stock, $5 par value, outstanding. The aggregate market value of voting stock held by nonaffiliates of the Corporation is approximately $18.6 billion (based on the closing price of such stock as of June 30, 2011).

 

 

 


Table of Contents

BB&T CORPORATION

Cross Reference Index

December 31, 2011

 

       Page No.  
PART I

Item 1

  Business    5

Item 1A

  Risk Factors    19

Item 1B

  Unresolved Staff Comments - (None to be reported.)   

Item 2

  Properties    26

Item 3

  Legal Proceedings (see Note 15. Commitments and Contingencies)    134

Item 4

  Mine Safety Disclosures - (Not applicable.)   
PART II

Item 5

  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities    26

Item 6

  Selected Financial Data    30

Item 7

  Management’s Discussion and Analysis of Financial Condition and Results of Operations    31

Item 7A

  Quantitative and Qualitative Disclosures About Market Risk (see Market Risk Management)    76

Item 8

  Financial Statements and Supplementary Data   
  Consolidated Balance Sheets    88
  Consolidated Statements of Income    89
  Consolidated Statements of Changes in Shareholders’ Equity    90
  Consolidated Statements of Cash Flows    91
  Notes to Consolidated Financial Statements    92
  Report of Independent Registered Public Accounting Firm    87
  Quarterly Financial Summary    85

Item 9

  Changes in and Disagreements With Accountants on Accounting and Financial Disclosure - (None to be reported)   

Item 9A

  Controls and Procedures    86

Item 9B

  Other Information - (None to be reported)   
PART III

Item 10

  Directors, Executive Officers and Corporate Governance    *

Item 11

  Executive Compensation    *

Item 12

  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters    *

Item 13

  Certain Relationships and Related Transactions, and Director Independence    *

Item 14

  Principal Accounting Fees and Services    *
PART IV

Item 15

  Exhibits, Financial Statement Schedules   
  Financial Statements - (see Listing in Item 8 above)   
  Exhibits   
  Financial Statement Schedules - (None required)   

 

2


Table of Contents
  * For information regarding executive officers, refer to “Executive Officers of BB&T” in Part I. The other information required by Item 10 is incorporated herein by reference to the information that appears under the headings “Proposal 1-Election of Directors”, “Corporate Governance Matters” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Registrant’s Proxy Statement for the 2012 Annual Meeting of Shareholders.

The information required by Item 11 is incorporated herein by reference to the information that appears under the headings “Compensation Discussion and Analysis”, “Compensation of Executive Officers”, “Compensation Committee Report on Executive Compensation”, “Compensation Committee Interlocks and Insider Participation”, and “Compensation of Directors” in the Registrant’s Proxy Statement for the 2012 Annual Meeting of Shareholders.

For information regarding the registrant’s securities authorized for issuance under equity compensation plans, refer to “Equity Compensation Plan Information” in Part II.

The other information required by Item 12 is incorporated herein by reference to the information that appears under the headings “Security Ownership” and “Compensation of Executive Officers” in the Registrant’s Proxy Statement for the 2012 Annual Meeting of Shareholders.

The information required by Item 13 is incorporated herein by reference to the information that appears under the headings “Corporate Governance Matters” and “Transactions with Executive Officers and Directors” in the Registrant’s Proxy Statement for the 2012 Annual Meeting of Shareholders.

The information required by Item 14 is incorporated herein by reference to the information that appears under the headings “Fees to Auditors” and “Corporate Governance Matters” in the Registrant’s Proxy Statement for the 2012 Annual Meeting of Shareholders.

 

3


Table of Contents

Forward-Looking Statements

This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, regarding the financial condition, results of operations, business plans and the future performance of BB&T that are based on the beliefs and assumptions of the management of BB&T and the information available to management at the time that these disclosures were prepared. Words such as “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “intends,” “plans,” “projects,” “may,” “will,” “should,” and other similar expressions are intended to identify these forward-looking statements. Such statements are subject to factors that could cause actual results to differ materially from anticipated results. Such factors include, but are not limited to, the following:

 

   

general economic or business conditions, either nationally or regionally, may be less favorable than expected, resulting in, among other things, a deterioration in credit quality and/or a reduced demand for credit or other services;

 

   

disruptions to the credit and financial markets, either nationally or globally, including the impact of a downgrade of U.S. government obligations by one of the credit ratings agencies and the adverse effects of the ongoing sovereign debt crisis in Europe;

 

   

changes in the interest rate environment may reduce net interest margins and/or the volumes and values of loans made or held as well as the value of other financial assets held;

 

   

competitive pressures among depository and other financial institutions may increase significantly;

 

   

legislative, regulatory or accounting changes, including changes resulting from the adoption and implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), may adversely affect the businesses in which BB&T is engaged;

 

   

local, state or federal taxing authorities may take tax positions that are adverse to BB&T;

 

   

reduction in BB&T’s credit ratings;

 

   

adverse changes may occur in the securities markets;

 

   

competitors of BB&T may have greater financial resources and develop products that enable them to compete more successfully than BB&T and may be subject to different regulatory standards than BB&T;

 

   

costs or difficulties related to the integration of the businesses of BB&T and its merger partners may be greater than expected;

 

   

unpredictable natural or other disasters could have an adverse effect on BB&T in that such events could materially disrupt BB&T’s operations or the ability or willingness of BB&T’s customers to access the financial services BB&T offers;

 

   

expected cost savings associated with completed mergers and acquisitions may not be fully realized or realized within the expected time frames; and

 

   

deposit attrition, customer loss and/or revenue loss following completed mergers and acquisitions may be greater than expected.

 

4


Table of Contents

ITEM 1.  BUSINESS

BB&T Corporation (“BB&T”, “the Company”, “the Corporation” or “the Parent Company”), is a financial holding company headquartered in Winston-Salem, North Carolina. BB&T conducts its business operations primarily through its commercial bank subsidiary, Branch Banking and Trust Company (“Branch Bank”), which has offices in North Carolina, Virginia, Florida, Georgia, Maryland, South Carolina, Alabama, West Virginia, Kentucky, Tennessee, Texas, Washington D.C and Indiana. In addition, BB&T’s operations consist of a federally chartered thrift institution, BB&T Financial, FSB (“BB&T FSB”), and several nonbank subsidiaries, which offer financial services products.

Operating Subsidiaries

At December 31, 2011, the principal operating subsidiaries of BB&T included the following:

 

   

Branch Banking and Trust Company, Winston-Salem, North Carolina

 

   

BB&T Financial, FSB, Columbus, Georgia

 

   

Scott & Stringfellow, LLC, Richmond, Virginia

 

   

Clearview Correspondent Services, LLC, Richmond, Virginia

 

   

Regional Acceptance Corporation, Greenville, North Carolina

 

   

American Coastal Insurance Company, Davie, Florida

 

   

Sterling Capital Management, LLC, Charlotte, North Carolina

Branch Bank, BB&T’s largest subsidiary, was chartered in 1872 and is the oldest bank headquartered in North Carolina. Branch Bank provides a wide range of banking and trust services for retail and commercial clients in its geographic markets, including small and mid-size businesses, public agencies, local governments and individuals, through 1,779 offices (as of December 31, 2011) located in North Carolina, Virginia, Florida, Georgia, Maryland, South Carolina, Alabama, West Virginia, Kentucky, Tennessee, Texas, Washington D.C. and Indiana. Branch Bank’s principal operating subsidiaries include:

 

   

BB&T Equipment Finance Corporation, based in Charlotte, North Carolina, which provides loan and lease financing to commercial and small businesses;

 

   

BB&T Investment Services, Inc., a registered broker-dealer located in Charlotte, North Carolina, which offers clients non-deposit investment alternatives, including discount brokerage services, equities, fixed-rate, variable-rate and index annuities, mutual funds, government and municipal bonds, and money market funds;

 

   

BB&T Insurance Services, Inc., headquartered in Raleigh, North Carolina, which offers property and casualty, life, health, employee benefits, commercial general liability, surety, title and other insurance products through its agency network;

 

   

Stanley, Hunt, DuPree & Rhine (a division of Branch Bank) with dual headquarters in Greensboro, North Carolina, and Greenville, South Carolina, which offers flexible benefit plans, and investment advisory, actuarial and benefit consulting services;

 

   

Prime Rate Premium Finance Corporation, Inc., located in Florence, South Carolina, and its subsidiary AFCO Credit Corporation, headquartered in Pittsburgh, Pennsylvania, which provide insurance premium financing to clients in the United States and Canada;

 

   

Grandbridge Real Estate Capital, LLC, based in Charlotte, North Carolina, which specializes in arranging and servicing commercial mortgage loans;

 

   

Lendmark Financial Services, Inc., located in Covington, Georgia, which offers alternative consumer loans to clients unable to meet Branch Bank’s normal credit underwriting guidelines;

 

   

CRC Insurance Services, Inc., based in Birmingham, Alabama, which is a wholesale insurance broker authorized to do business nationwide; and

 

5


Table of Contents
   

McGriff, Seibels & Williams, Inc., based in Birmingham, Alabama, which is authorized to do business nationwide and specializes in providing insurance products on an agency basis to large commercial and energy clients, including many Fortune 500 companies.

BB&T FSB is a federal savings bank. BB&T FSB provides services to clients throughout the United States and was formed to help improve the operating efficiency of certain business activities for subsidiaries which are national in scope. In addition to credit card lending, the following businesses operate as either subsidiaries or divisions of BB&T FSB:

 

   

Sheffield Financial (a division of BB&T FSB), based in Clemmons, North Carolina, which specializes in loans to small commercial lawn care businesses across the country for the purchase of outdoor power equipment and loans to individuals for power sport and leisure equipment; and

 

   

MidAmerica Gift Certificate Company, which specializes in the issuance and sale of retail giftcards through a nationwide network of authorized agents.

Major Nonbank Subsidiaries

BB&T also has a number of nonbank subsidiaries, including:

 

   

Scott & Stringfellow, LLC, which is a registered investment banking and full-service brokerage firm that provides services in retail brokerage, equity and debt underwriting, investment advice, corporate finance and equity research; and facilitates the origination, trading and distribution of fixed-income securities and equity products in both the public and private capital markets. It also has a public finance department that provides investment banking, financial advisory services and debt underwriting services to a variety of regional taxable and tax-exempt issuers. Scott & Stringfellow’s investment banking and corporate and public finance areas conduct business as BB&T Capital Markets;

 

   

Clearview Correspondent Services, LLC is a broker-dealer providing correspondent clearing services to other broker-dealers and entities involved in the securities industry. As a correspondent clearing firm, it provides clearing services to affiliated and unaffiliated broker-dealers;

 

   

Regional Acceptance Corporation, which specializes in indirect financing for consumer purchases of primarily mid-model and late-model used automobiles;

 

   

American Coastal Insurance Company, an admitted Florida specialty insurance company that underwrites property insurance risks for commercial condominium or cooperative associations; and

 

   

Sterling Capital Management, LLC, a registered investment advisor and the advisor to the Sterling Capital Management Funds and Sterling Capital Variable Insurance Funds, provides tailored investment management solutions to meet the specific needs and objectives of individual and institutional clients through a full range of investment strategies, including domestic and international equity, alternative investment products and strategies, and fixed income investing.

Services

BB&T’s subsidiaries offer a variety of services targeted to retail and commercial clients. BB&T’s objective is to offer clients a full array of products to meet all their financial needs.

 

6


Table of Contents

Retail Services:

   Commercial Services:

Automobile lending

  

Asset management

Bankcard lending

  

Association services

Consumer finance

  

Capital markets services

Home equity lending

  

Commercial deposit services

Home mortgage lending

  

Commercial finance

Insurance

  

Commercial middle market lending

Investment brokerage services

  

Commercial mortgage lending

Mobile/online banking

  

Institutional trust services

Payment solutions

  

Insurance

Retail deposit services

  

Insurance premium finance

Sales finance

  

International banking services

Small business lending

  

Leasing

Wealth management/private banking

  

Merchant services

  

Mortgage warehouse lending

  

Payment solutions

  

Real estate lending

  

Supply chain management

  

Venture capital

The following table reflects BB&T’s deposit market share and branch locations by state.

Table 1

BB&T Deposit Market Share and Branch Locations by State

 

    % of
BB&T’s
      Deposits (2)      
  Deposit
Market
Share
      Rank (2)      
  Number
of
       Branches (3)      

North Carolina (1)

    23 %   2nd   365

Virginia

    21       4th   387

Florida

    13       5th   268

Georgia

    11       5th   167

Maryland

    7      7th   129

South Carolina

    7      3rd   116

Alabama

    5      4th   87

West Virginia

    5      1st   78

Kentucky

    4      4th   88

Tennessee

    3      6th   56

Texas

    1      41st   24

Washington, D.C.

    1      7th   12

 

 (1)  Excludes home office deposits.

 (2)  Source: FDIC.gov—data as of June 30, 2011.

 (3)  As of December 31, 2011. Excludes 2 branches in Indiana.

Competition

The financial services industry is highly competitive and dramatic change continues to occur in all aspects of the Company’s business. The ability of nonbank financial entities to provide services previously reserved for commercial banks has intensified competition. BB&T’s subsidiaries compete actively with national, regional and local financial services providers, including banks, thrifts, securities dealers, mortgage bankers, finance companies and insurance companies. Competition among providers of financial products and services continues to increase, with consumers having the opportunity to select from a growing variety of traditional and nontraditional alternatives. The industry continues to consolidate, which affects competition by eliminating some regional and local institutions, while strengthening the franchises of acquirers. In addition, some financial services entities are still experiencing significant challenges as a result

 

7


Table of Contents

of the economic crisis, resulting in bank and thrift failures. For additional information concerning markets, BB&T’s competitive position and business strategies, and recent government interventions see “Market Area” and “General Business Development” below.

Market Area

BB&T’s primary market area for its banking operations consists of North and South Carolina, Virginia, Maryland, Georgia, eastern Tennessee, West Virginia, Kentucky, Florida, Alabama and Washington, D.C. In addition, BB&T has a smaller banking presence in Texas and Indiana. The Colonial acquisition facilitated BB&T’s entry into the Texas market. The markets that BB&T operates in have a diverse employment base and primarily consist of manufacturing, general services, agricultural, wholesale/retail trade, technology, government and financial services. Management strongly believes that BB&T’s community bank approach to providing client service is a competitive advantage that strengthens the Corporation’s ability to effectively provide financial products and services to businesses and individuals in its markets. Furthermore, BB&T believes its current market area will support growth in assets and deposits in the future.

General Business Development

BB&T is a regional financial holding company. BB&T has maintained a long-term focus on a strategy that includes expanding and diversifying the BB&T franchise in terms of revenues, profitability and asset size. This strategy has encompassed both organic growth and acquisitions of complementary banks and financial businesses. During the 1990’s and through the mid-2000’s, BB&T’s growth resulted largely from mergers and acquisitions as the economics of business combinations were compelling. Since that time, BB&T has focused more on organic growth, but is well positioned for strategic opportunities.

Merger and Acquisition Strategy

BB&T’s growth in business, profitability and market share has historically been enhanced by strategic mergers and acquisitions. Management intends to remain disciplined and focused with regard to future merger and acquisition opportunities. BB&T will continue to assess bank and thrift acquisitions subject to market conditions, primarily within BB&T’s existing footprint, and will pursue economically advantageous acquisitions of insurance agencies, specialized lending businesses, and fee income generating financial services businesses. BB&T’s strategy is currently focused on meeting the following three acquisition criteria:

 

   

transactions must be strategically attractive – meaning that any bank acquisition should be in BB&T’s existing footprint to allow for cost savings and economies of scale, or in contiguous states to provide market diversification;

 

   

any credit-related issues would need to be addressed; and

 

   

acquisitions must meet BB&T’s financial criteria – earnings per share should be accretive in Year 1, excluding merger-related charges, but including full run rate synergies; the internal rate of return should exceed 15%, and the transaction should be accretive to tangible book value or have a reasonable earn-back period.

Regulatory Considerations

The following discussion describes elements of an extensive regulatory framework applicable to bank holding companies, financial holding companies and banks and specific information about BB&T and its subsidiaries. Regulation of banks, bank holding companies and financial holding companies is intended primarily for the protection of depositors and the Deposit Insurance Fund (the “DIF”) rather than for the protection of shareholders and creditors. As described in more detail below, comprehensive reform of the legislative and regulatory landscape occurred with the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) in 2010. Implementation of the Dodd-Frank Act, and rulemaking activities, continued in 2011. In addition to banking laws, regulations and regulatory agencies, BB&T and its subsidiaries and affiliates are subject to various other laws, regulations, supervision and examination by other regulatory agencies, all of which directly or indirectly affect the operations and management of BB&T and its ability to make distributions to shareholders.

BB&T and its subsidiaries’ earnings are affected by general economic conditions, management policies, changes in state and federal laws and regulations and actions of various regulatory authorities, including those referred to in this section. Proposals to change the laws and regulations to which BB&T and its subsidiaries are subject are frequently introduced at

 

8


Table of Contents

both the federal and state levels. The likelihood and timing of any such changes and the impact such changes may have on BB&T and its subsidiaries are impossible to determine with any certainty. The description herein summarizes the significant state and federal laws to which BB&T and its subsidiaries currently are subject. To the extent statutory or regulatory provisions are described in this section, such descriptions are qualified in their entirety by reference to the particular statutory or regulatory provisions.

Financial Regulatory Reform

On July 21, 2010, President Obama signed the Dodd-Frank Act into law. The Dodd-Frank Act is extensive, complicated and comprehensive legislation that impacts practically all aspects of a banking organization, representing a significant overhaul of many aspects of the regulation of the financial services industry. The Dodd-Frank Act implements numerous and far-reaching changes that affect financial companies, including banks and bank holding companies such as BB&T, by, among other things:

 

   

Requiring regulation and oversight of large, systemically important financial institutions by establishing an interagency council on systemic risk and implementation of heightened prudential standards and regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve”) for systemically important financial institutions (including nonbank financial companies), as well as the implementation of the Federal Deposit Insurance Corporation (the “FDIC”) resolution procedures for liquidation of large financial companies to avoid market disruption;

 

   

applying the same leverage and risk-based capital requirements that apply to insured depository institutions to most bank holding companies, savings and loan holding companies and systemically important nonbank financial companies;

 

   

limiting the Federal Reserve’s emergency authority to lend to nondepository institutions to facilities with broad-based eligibility, and authorizing the FDIC to establish an emergency financial stabilization fund for solvent depository institutions and their holding companies, subject to the approval of Congress, the Secretary of the United States Department of the Treasury (the “U.S. Treasury”) and the Federal Reserve;

 

   

centralizing responsibility for consumer financial protection by creating a new independent agency, the Consumer Financial Protection Bureau (“CFPB”), with responsibility for implementing, enforcing and examining for compliance with federal consumer financial laws;

 

   

creating regimes for regulation of over-the-counter derivatives and non-admitted property and casualty insurers and reinsurers;

 

   

requiring any interchange transaction fee charged for a debit transaction be “reasonable” and proportional to the cost incurred by the issuer for the transaction, with new regulations that establish such fee standards, eliminate exclusivity arrangements between issuers and networks for debit card transactions and limit restrictions on merchant discounting for use of certain payment forms and minimum or maximum amount thresholds as a condition for acceptance of credit cards;

 

   

transferring the functions of the Office of Thrift Supervision (“OTS”) relating to federal savings associations, including rulemaking authority, to the Comptroller of the Currency (“OCC”);

 

   

implementing regulation of hedge fund and private equity advisers by requiring such advisers to register with the SEC;

 

   

providing for the implementation of certain corporate governance provisions for all public companies concerning executive compensation;

 

   

increasing the FDIC’s deposit insurance limits permanently to $250,000 for non-transaction accounts, providing for unlimited Federal deposit insurance on noninterest bearing demand transaction accounts at all insured depository institutions effective December 31, 2010 through December 31, 2012 and changing the assessment base as well as increasing the reserve ratio for the DIF to ensure the future strength of the DIF; and

 

   

reforming regulation of credit rating agencies.

While the Dodd-Frank Act became law on July 22, 2010, many provisions did not become effective until January 21, 2011 and many of the provisions require additional rulemaking and further studies for implementation. Regulations for many key provisions of the Dodd-Frank Act have not yet been promulgated by the applicable federal regulators. BB&T

 

9


Table of Contents

will continue to evaluate the impact of any new regulations so promulgated, including changes in regulatory costs and fees, modifications to consumer products or disclosures required by the CFPB and the requirements of the enhanced supervision provisions, among others.

Due to BB&T’s size, under current guidelines issued by the Financial Stability Oversight Council (the “Council”) created by the Dodd-Frank Act, BB&T would be designated as “systemically significant” to the financial health of the U.S. economy and, as a result, will be subject to additional regulations by the Council. In general, the Council regulates the systemic risk of the financial system.

In September 2011, the FDIC adopted rules implementing “living will” requirements for systemically significant financial institutions. These requirements impose obligations on systemically significant financial institutions to file, maintain and update plans for an institution’s rapid and orderly resolution in the event of its material financial distress or failure. Both the Federal Reserve and the FDIC must review and approve BB&T’s living will and are authorized to impose restrictions on BB&T’s growth and activities or operations if deemed necessary.

As a bank holding company and a financial holding company under federal law, BB&T is subject to regulation under the Bank Holding Company Act of 1956, as amended, (the “BHCA”) and the examination and reporting requirements of the Federal Reserve. Branch Bank and BB&T FSB are collectively referred to herein as the “Banks.” Branch Bank, a state-chartered commercial bank, is subject to regulation, supervision and examination by the North Carolina Commissioner of Banks. BB&T FSB, a federally chartered thrift institution, is subject to regulation, supervision and examination by the OCC. Each of the Banks also is subject to regulation, supervision and examination by the FDIC.

State and federal law govern the activities in which the Banks engage, the investments they make and the aggregate amount of loans that may be granted to one borrower, although BB&T FSB is entitled to federal preemption of various state laws. Various consumer and compliance laws and regulations also affect the Banks’ operations. The Banks also are affected by the actions of the Federal Reserve as it attempts to control the monetary supply and credit availability in order to influence the economy.

In addition to federal and state banking laws and regulations, BB&T and certain of its subsidiaries and affiliates, including those that engage in securities underwriting, dealing, brokerage, investment advisory and insurance activities, are subject to other federal and state laws and regulations, and supervision and examination by other state and federal regulatory agencies and other regulatory authorities, including the SEC, the Financial Industry Regulatory Authority ( “FINRA”), the NYSE Euronext, Inc. (the “NYSE”), and various state insurance and securities regulators.

Financial Holding Company Regulation

Under current federal law, a bank holding company, such as BB&T, may elect to become a financial holding company, which allows the holding company to offer customers virtually any type of service that is financial in nature or incidental thereto, including banking and activities closely related thereto, securities underwriting, insurance (both underwriting and agency) and merchant banking. In order to become and maintain its status as a financial holding company, a financial holding company and all of its affiliated depository institutions must be well-capitalized, well-managed, and have at least a satisfactory Community Reinvestment Act of 1977 (“CRA”) rating. If the Federal Reserve determines that a financial holding company is not well-capitalized or well-managed, the company has a period of time to come into compliance, but during the period of noncompliance, the Federal Reserve can place any limitations on the financial holding company that it believes to be appropriate. Furthermore, if the Federal Reserve determines that a financial holding company has not maintained a satisfactory CRA rating, the company will not be able to commence any new financial activities or acquire a company that engages in such activities, although the company will still be allowed to engage in activities closely related to banking and make investments in the ordinary course of conducting merchant banking activities. BB&T became a financial holding company on June 14, 2000, and currently satisfies the requirements to maintain its status as a financial holding company.

Most of the financial activities that are permissible for financial holding companies also are permissible for a “financial subsidiary” of one or more of the Banks, except for insurance underwriting, insurance company portfolio investments, real estate investments and development, and merchant banking, which must be conducted in a financial holding company. In order for these financial activities to be engaged in by a financial subsidiary of a bank, federal law requires the parent bank (and its sister-bank affiliates) to be well-capitalized and well-managed; the aggregate consolidated assets of all of

 

10


Table of Contents

that bank’s financial subsidiaries may not exceed the lesser of 45% of its consolidated total assets or $50 billion; the bank must have at least a satisfactory CRA rating; and, if that bank is one of the 100 largest national banks, it must meet certain financial rating or other comparable requirements.

Current federal law also establishes a system of functional regulation under which the Federal Reserve is the umbrella regulator for bank holding companies, but bank holding company affiliates are to be principally regulated by functional regulators such as the FDIC for state nonmember bank affiliates, the OCC for thrifts, the SEC for securities affiliates and state insurance regulators for insurance affiliates. Certain specific activities, including traditional bank trust and fiduciary activities may be conducted in the bank without the bank being deemed a “broker” or a “dealer” in securities for purposes of functional regulation. Although the states generally must regulate bank insurance activities in a nondiscriminatory manner, the states may continue to adopt and enforce rules that specifically regulate bank insurance activities in certain identifiable areas.

The Dodd-Frank Act establishes additional regulation for bank holding companies, which will generally apply to BB&T. The Council is required under the Dodd-Frank Act to monitor emerging risks to financial stability, recommend heightened prudential standards for large, interconnected financial companies and require certain nonbank financial companies to be supervised by the Federal Reserve if their activities are determined to pose a risk to financial stability.

The Dodd-Frank Act also imposes new prudential regulation on depository institutions and their holding companies. The law imposes new, more stringent standards and requirements with respect to (1) bank and nonbank acquisitions and mergers, (2) financial holding companies engaged in “financial activities,” (3) affiliate transactions and (4) proprietary trading, among other provisions.

Office of the Comptroller of the Currency Regulation

As a federally chartered thrift, BB&T FSB is subject to regulation, supervision and examination by the OCC. BB&T FSB was previously subject to regulation, supervision and examination by the OTS, until the OTS became a part of the OCC on July 21, 2011, under the Dodd-Frank Act. Although the Dodd-Frank Act preserves federal thrift charters, the OCC appointed a new Deputy Comptroller who will be responsible for supervising and examining federal savings associations. The Dodd-Frank Act also eliminates the preemption of state consumer protection laws as applied to the operating subsidiaries of federally chartered thrifts, which may cause BB&T FSB to further reconsider its existing organizational structure and operations in the future.

Acquisitions

BB&T complies with numerous laws related to its acquisition activity. Under the BHCA, a bank holding company may not directly or indirectly acquire ownership or control of more than 5% of the voting shares or substantially all of the assets of any bank holding company or bank or merge or consolidate with another bank holding company without the prior approval of the Federal Reserve. Current federal law authorizes interstate acquisitions of banks and bank holding companies without geographic limitation. Furthermore, a bank headquartered in one state is authorized to merge with a bank headquartered in another state, subject to any state requirement that the target bank shall have been in existence and operating for a minimum period of time, not to exceed five years; and subject to certain deposit market-share limitations. After a bank has established branches in a state through an interstate merger transaction, the bank may establish and acquire additional branches at any location in the state where a bank headquartered in that state could have established or acquired branches under applicable federal or state law. These regulatory considerations are applicable to privately negotiated acquisition transactions.

Other Safety and Soundness Regulations

The Federal Reserve has enforcement powers over bank holding companies and their nonbanking subsidiaries. The Federal Reserve has authority to prohibit activities that represent unsafe or unsound practices or constitute violations of law, rule, regulation, administrative order or written agreement with a federal regulator. These powers may be exercised through the issuance of cease and desist orders, civil money penalties or other actions.

There also are a number of obligations and restrictions imposed on bank holding companies and their depository institution subsidiaries by federal law and regulatory policy that are designed to reduce potential loss exposure to the depositors of such depository institutions and to the FDIC insurance fund in the event the depository institution is

 

11


Table of Contents

insolvent or is in danger of becoming insolvent. For example, under requirements of the Federal Reserve with respect to bank holding company operations, a bank holding company is required to serve as a source of financial strength to its subsidiary depository institutions and to commit financial resources to support such institutions in circumstances where it might not do so otherwise. In addition, the “cross-guarantee” provisions of federal law require insured depository institutions under common control to reimburse the FDIC for any loss suffered or reasonably anticipated by the DIF as a result of the insolvency of commonly controlled insured depository institutions or for any assistance provided by the FDIC to commonly controlled insured depository institutions in danger of failure. The FDIC may decline to enforce the cross-guarantee provision if it determines that a waiver is in the best interests of the DIF. The FDIC’s claim for reimbursement under the cross-guarantee provisions is superior to claims of shareholders of the insured depository institution or its holding company but is subordinate to claims of depositors, secured creditors and nonaffiliated holders of subordinated debt of the commonly controlled insured depository institution.

Federal and state banking regulators also have broad enforcement powers over the Banks, including the power to impose fines and other civil and criminal penalties, and to appoint a conservator (with the approval of the Governor in the case of a North Carolina state bank) in order to conserve the assets of any such institution for the benefit of depositors and other creditors. The North Carolina Commissioner of Banks also has the authority to take possession of a North Carolina state bank in certain circumstances, including, among other things, when it appears that such bank has violated its charter or any applicable laws, is conducting its business in an unauthorized or unsafe manner, is in an unsafe or unsound condition to transact its business or has an impairment of its capital stock.

Payment of Dividends; Capital Requirements

BB&T Corporation is a legal entity separate and distinct from the Banks and its subsidiaries. The majority of BB&T’s revenue is from dividends paid to BB&T by Branch Bank. The Banks are subject to laws and regulations that limit the amount of dividends they can pay. In addition, BB&T and the Banks are subject to various regulatory restrictions relating to the payment of dividends, including requirements to maintain capital at or above regulatory minimums, and to remain “well-capitalized” under the prompt corrective action regulations summarized elsewhere in this section. Federal banking regulators have indicated that banking organizations should generally pay dividends only if (1) the organization’s net income available to common shareholders over the past year has been sufficient to fully fund the dividends and (2) the prospective rate of earnings retention appears consistent with the organization’s capital needs, asset quality and overall financial condition. In November 2010, the Federal Reserve released additional guidance re-emphasizing the Federal Reserve’s expectations concerning the processes that firms that participated in the Supervisory Capital Assessment Program (“SCAP”), like BB&T, should have in place to ensure that they hold adequate capital under adverse conditions to maintain ready access to funding. Any request by a bank holding company subject to SCAP, such as BB&T, to increase dividends on common stock, reinstate or increase repurchase programs or make other capital distributions will be evaluated based on the Federal Reserve’s assessment of capital adequacy.

In November 2011, the Federal Reserve issued a final rule requiring bank holding companies with $50 billion or more in total consolidated assets, including BB&T, to submit annual capital plans based on pre-defined stress scenarios and to obtain regulatory approval before making capital distributions, including dividend payments and purchasing capital securities. This review is known as the Comprehensive Capital Analysis and Review (“CCAR”). The regulatory process includes management’s proposals to undertake capital actions in 2012 under various economic scenarios, such as increasing dividend payments or issuing or repurchasing common or preferred securities. BB&T submitted its first such plan in advance of the January 9, 2012 deadline. BB&T’s 2012 capital actions will depend on the results of the CCAR process.

North Carolina law states that, subject to certain capital requirements, the board of directors of a bank chartered under the laws of North Carolina may declare a dividend of as much of that bank’s undivided profits as the directors deem appropriate.

Each of the federal banking agencies, including the Federal Reserve, the FDIC and the OCC, has issued substantially similar risk-based and leverage capital guidelines applicable to banking organizations they supervise, including bank holding companies and banks. Under the risk-based capital requirements, BB&T and the Banks are each generally required to maintain a minimum ratio of total capital to risk-weighted assets (including certain off-balance sheet activities, such as standby letters of credit) of 8%. At least half of the total capital must be composed of common shareholders’ equity excluding the over- or underfunded status of postretirement benefit obligations, unrealized gains or losses on debt

 

12


Table of Contents

securities available for sale, unrealized gains on equity securities available for sale and unrealized gains or losses on cash flow hedges, net of deferred income taxes; plus certain mandatorily redeemable capital securities; less nonqualifying intangible assets net of applicable deferred income taxes and certain nonfinancial equity investments. This is called “Tier 1 capital.” The remainder may consist of qualifying subordinated debt, certain hybrid capital instruments, qualifying preferred stock and a limited amount of the allowance for credit losses. This is called “Tier 2 capital.” Tier 1 capital and Tier 2 capital combined are referred to as total regulatory capital.

The Federal Reserve requires bank holding companies that engage in trading activities to adjust their risk-based capital ratios to take into consideration market risks that may result from movements in market prices of covered trading positions in trading accounts, or from foreign exchange or commodity positions, whether or not in trading accounts, including changes in interest rates, equity prices, foreign exchange rates or commodity prices. Any capital required to be maintained under these provisions may consist of “Tier 3 capital” consisting of forms of short-term subordinated debt.

Each of the federal bank regulatory agencies, including the Federal Reserve, the FDIC and the OCC, also has established minimum leverage capital requirements for banking organizations. These requirements provide that banking organizations that meet certain criteria, including excellent asset quality, high liquidity, low interest rate exposure and good earnings, and that have received the highest regulatory rating must maintain a ratio of Tier 1 capital to total adjusted average assets of at least 3%. Institutions not meeting these criteria, as well as institutions with supervisory, financial or operational weaknesses, are expected to maintain a minimum Tier 1 capital to total adjusted average assets ratio at least 100 basis points above that stated minimum. Holding companies experiencing internal growth or making acquisitions are expected to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on intangible assets. The Federal Reserve also continues to consider a “tangible Tier 1 capital leverage ratio” (deducting all intangibles) and other indicators of capital strength in evaluating proposals for expansion or new activity.

In addition, the Federal Reserve, the FDIC and the OCC all have adopted risk-based capital standards that explicitly identify concentrations of credit risk and the risk arising from non-traditional activities, as well as an institution’s ability to manage these risks, as important factors to be taken into account by each agency in assessing an institution’s overall capital adequacy. The capital guidelines also provide that an institution’s exposure to a decline in the economic value of its capital due to changes in interest rates be considered by the agency as a factor in evaluating a banking organization’s capital adequacy. The agencies also require banks and bank holding companies to adjust their regulatory capital to take into consideration the risk associated with certain recourse obligations, direct credit subsidies, residual interest and other positions in securitized transactions that expose banking organizations to credit risk.

As part of the Dodd-Frank Act, provisions were added that require federal banking agencies to develop capital requirements that address systemically risky activities. The effect of these capital rules will disallow trust preferred securities from counting as Tier 1 capital at the holding company level for entities with greater than $15 billion in assets with a three-year phase-in period beginning on January 1, 2013.

In addition, in 2010, the Group of Governors and Heads of Supervisors of the Basel Committee on Banking Supervision, the oversight body of the Basel Committee, published its “calibrated” capital standards for major banking institutions (“Basel III”). Under these standards, when fully phased in on January 1, 2019, banking institutions will be required to maintain heightened Tier 1 common equity, Tier 1 capital and total capital ratios, as well as maintaining a “capital conservation buffer.” The Tier 1 common equity and Tier 1 capital ratio requirements will be phased in incrementally between January 1, 2013 and January 1, 2015; the deductions from common equity made in calculating Tier 1 common equity (for example, for mortgage servicing assets, deferred tax assets and investments in unconsolidated financial institutions) will be phased in incrementally over a four-year period commencing on January 1, 2014; and the capital conservation buffer will be phased in incrementally between January 1, 2016 and January 1, 2019. The Basel Committee also announced that a “countercyclical buffer” of 0% to 2.5% of common equity or other fully loss-absorbing capital “will be implemented according to national circumstances” as an “extension” of the conservation buffer. The final package of Basel III reforms were approved by the G20 leaders in November 2010 and are subject to individual adoption by member nations, including the United States. If the foregoing revised capital standards are adopted in their current form, BB&T estimates these standards would have a negligible impact on BB&T’s ability to comply with the revised regulatory capital ratios based on BB&T’s current understanding of the revisions to capital qualification.

 

13


Table of Contents

The ratios of Tier 1 capital and total capital to risk-weighted assets, and Tier 1 capital to adjusted average assets of BB&T, Branch Bank and BB&T FSB as of December 31, 2011, are shown in the following table.

Table 2

Capital Adequacy Ratios of BB&T Corporation and Banks

December 31, 2011

 

    Regulatory
Minimums
    Regulatory
Minimums

to be Well-
Capitalized
    BB&T     Branch
Bank
    BB&T
FSB
 

Risk-based capital ratios:

         

Tier 1 capital

                4.0 %                     6.0 %                   12.5 %                   13.4 %                   18.9 %    

Total risk-based capital

                8.0                      10.0                      15.7                      15.6                      20.2       

Tier 1 leverage capital ratio

                3.0                        5.0                        9.0                        9.5                      18.6       

The federal banking agencies, including the Federal Reserve, the FDIC and the OCC, are required to take “prompt corrective action” in respect of depository institutions and their bank holding companies that do not meet minimum capital requirements. The law establishes five capital categories for insured depository institutions for this purpose: “well-capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” To be considered “well-capitalized” under these standards, an institution must maintain a total risk-based capital ratio of 10% or greater; a Tier 1 risk-based capital ratio of 6% or greater; a leverage capital ratio of 5% or greater; and must not be subject to any order or written directive to meet and maintain a specific capital level for any capital measure.

BB&T, Branch Bank and BB&T FSB are all classified as “well-capitalized.” Federal law also requires the bank regulatory agencies to implement systems for “prompt corrective action” for institutions that fail to meet minimum capital requirements within the five capital categories, with progressively more severe restrictions on operations, management and capital distributions according to the category in which an institution is placed. Failure to meet capital requirements also may cause an institution to be directed to raise additional capital. Federal law also mandates that the agencies adopt safety and soundness standards generally relating to operations and management, asset quality and executive compensation, and authorizes administrative action against an institution that fails to meet such standards.

In addition to the “prompt corrective action” directives, failure to meet capital guidelines may subject a banking organization to a variety of other enforcement remedies, including additional substantial restrictions on its operations and activities, termination of deposit insurance by the FDIC and, under certain conditions, the appointment of a conservator or receiver.

Deposit Insurance Assessments

The deposits of the Banks are insured by the DIF of the FDIC up to the limits set forth under applicable law. The FDIC imposes a risk-based deposit premium assessment system, which was amended pursuant to the Federal Deposit Insurance Reform Act of 2005 (the “Reform Act”) and further amended by the Dodd-Frank Act. Under this system, as amended, the assessment rates for an insured depository institution vary according to the level of risk incurred in its activities. Effective April 1, 2011, the FDIC implemented a revised assessment rate calculator, which is based on a number of elements to measure the risk each institution poses to the DIF. The new assessment rate is applied to total average assets less tangible equity, as defined under the Dodd-Frank Act. The assessment rate schedule can change from time to time, at the discretion of the FDIC, subject to certain limits. On November 12, 2009, the FDIC adopted a rule requiring banks to prepay three years’ worth of premiums to replenish the depleted insurance fund. The FDIC has published guidelines under the Reform Act on the adjustment of assessment rates for certain institutions. Under the current system, premiums are assessed quarterly. In addition, insured deposits have been required to pay a pro rata portion of the interest due on the obligations issued by the Financing Corporation (“FICO”) to fund the closing and disposal of failed thrift institutions by the Resolution Trust Corporation.

 

14


Table of Contents

Consumer Protection Laws

In connection with their lending and leasing activities, each of the Banks is subject to a number of federal and state laws designed to protect borrowers and promote lending to various sectors of the economy and population. These laws include the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, and their respective state law counterparts.

The Dodd-Frank Act created a new, independent federal agency, the CFPB, which was granted broad rulemaking, supervisory and enforcement powers under various federal consumer financial protection laws, including the laws referenced above and certain other statutes, effective July 21, 2011. The CFPB has examination and primary enforcement authority with respect to depository institutions with $10 billion or more in assets. Smaller institutions are subject to rules promulgated by the CFPB, but continue to be examined and supervised by federal banking regulators for consumer compliance purposes. The CFPB has authority to prevent unfair, deceptive or abusive practices in connection with the offering of consumer financial products. The Dodd-Frank Act authorizes the CFPB to establish certain minimum standards for the origination of residential mortgages including a determination of the borrower’s ability to repay. In addition, the Dodd-Frank Act will allow borrowers to raise certain defenses to foreclosure if they receive any loan other than a “qualified mortgage” as defined by the CFPB. The Dodd-Frank Act permits states to adopt consumer protection laws and standards that are more stringent than those adopted at the federal level and, in certain circumstances, permits state attorneys general to enforce compliance with both the state and federal laws and regulations.

As required by the Dodd-Frank Act, the Federal Reserve adopted rules effective October 1, 2011, establishing standards for assessing whether the interchange fees that may be charged with respect to electronic debit transactions are “reasonable and proportional” to the costs incurred by issuers for such transactions. Interchange fees, or “swipe” fees, are charges that merchants pay to BB&T and other credit card companies and card-issuing banks for processing electronic payment transactions. Under the final rules, the maximum permissible interchange fee that an issuer may receive for an electronic debit transaction will be the sum of 21 cents per transaction and 5 basis points multiplied by the value of the transaction. An additional 1 cent per transaction fraud prevention adjustment is available to those issuers that comply with certain standards outlined by the Federal Reserve Board.

Federal law currently contains extensive customer privacy protection provisions, including substantial customer privacy protections provided under the Financial Services Modernization Act of 1999 (commonly known as the Gramm-Leach-Bliley Act). Under these provisions, a financial institution must provide to its customers, at the inception of the customer relationship and annually thereafter, the institution’s policies and procedures regarding the handling of customers’ nonpublic personal financial information. These provisions also provide that, except for certain limited exceptions, an institution may not provide such personal information to unaffiliated third parties unless the institution discloses to the customer that such information may be so provided and the customer is given the opportunity to opt out of such disclosure. Federal law makes it a criminal offense, except in limited circumstances, to obtain or attempt to obtain customer information of a financial nature by fraudulent or deceptive means.

The CRA requires the Banks’ primary federal bank regulatory agency, the FDIC for Branch Bank and the OCC for BB&T FSB, to assess the bank’s record in meeting the credit needs of the communities served by each Bank, including low- and moderate-income neighborhoods and persons. Institutions are assigned one of four ratings: “Outstanding,” “Satisfactory,” “Needs to Improve” or “Substantial Noncompliance.” This assessment is reviewed for any bank that applies to merge or consolidate with or acquire the assets or assume the liabilities of an insured depository institution, or to open or relocate a branch office. The CRA record of each subsidiary bank of a financial holding company, such as BB&T, also is assessed by the Federal Reserve in connection with any acquisition or merger application.

Automated Overdraft Payment Regulation

The Federal Reserve and FDIC have enacted consumer protection regulations related to automated overdraft payment programs offered by financial institutions. In November 2009, the Federal Reserve amended its Regulation E to prohibit financial institutions, including BB&T, from charging consumers fees for paying overdrafts on automated teller machine and one-time debit card transactions, unless a consumer consents, or opts in, to the overdraft service for those types of transactions. The Regulation E amendments also require financial institutions to provide consumers with a notice that explains the financial institution’s overdraft services, including the fees associated with the service and the consumer’s choices. BB&T completed its implementation of the changes as required by the Regulation E amendments in 2010.

 

15


Table of Contents

In November 2010, the FDIC supplemented the Regulation E amendments by requiring FDIC-supervised institutions to implement additional changes relating to automated overdraft payment programs. The FDIC’s guidance took effect on July 1, 2011, requiring financial institutions to monitor overdraft payment programs for “excessive or chronic” customer use and undertake “meaningful and effective” follow-up action with customers that overdraw their accounts more than six times during a rolling 12-month period. The additional guidance also imposes daily limits on overdraft charges, requires institutions to review and modify check-clearing procedures, prominently distinguish account balances from available overdraft coverage amounts and requires increased board and management oversight regarding overdraft payment programs. Branch Bank completed its implementation of the FDIC’s guidance in advance of the July 1, 2011 compliance date.

USA Patriot Act

The USA Patriot Act of 2001 (the “Patriot Act”) contains anti-money laundering measures affecting insured depository institutions, broker-dealers and certain other financial institutions. The Patriot Act includes the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001 (the “IMLAFA”). The IMLAFA requires such financial institutions to implement policies and procedures to combat money laundering and the financing of terrorism and grants the Secretary broad authority to establish regulations and to impose requirements and restrictions on financial institutions’ operations. In addition, the Patriot Act requires the federal bank regulatory agencies to consider the effectiveness of a financial institution’s anti-money laundering activities when reviewing bank mergers and bank holding company acquisitions. The Treasury Department has issued a number of regulations implementing the Patriot Act, which impose obligations on financial institutions to maintain appropriate policies, procedures and controls to detect, prevent and report money laundering and terrorist financing. The obligations of financial institutions under the Patriot Act have increased, and may continue to increase. The increase in obligations of financial institutions has resulted in increased costs for BB&T, which may continue to rise, and also may subject BB&T to additional liability.

Future Laws, Regulations and Governmental Programs

Various laws, regulations and governmental programs affecting financial institutions and the financial industry are from time to time introduced in Congress or otherwise promulgated by regulatory agencies. Such measures may change the operating environment of BB&T and its subsidiaries in substantial and unpredictable ways. The nature and extent of future legislative, regulatory or other changes affecting financial institutions is very unpredictable at this time.

Other Regulatory Matters

BB&T and its subsidiaries and affiliates are subject to numerous examinations by federal and state banking regulators, as well as the SEC, the FINRA, the NYSE, various taxing authorities and various state insurance and securities regulators. BB&T and its subsidiaries have from time to time received requests for information from regulatory authorities in various states, including state insurance commissions and state attorneys general, securities regulators and other regulatory authorities, concerning their business and accounting practices. Such requests are considered incidental to the normal conduct of business.

Employees

At December 31, 2011, BB&T had approximately 31,800 full-time equivalent employees compared to approximately 31,400 full-time equivalent employees at December 31, 2010.

Web Site Access to BB&T’s Filings with the Securities and Exchange Commission

All of BB&T’s electronic filings with the Securities and Exchange Commission (“SEC”), including the Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to these reports filed or furnished pursuant to Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are made available at no cost on the Corporation’s web site, www.BBT.com, through the Investor Relations link as soon as reasonably practicable after BB&T files such material with, or furnishes it to, the SEC. BB&T’s SEC filings are also available through the SEC’s web site at www.sec.gov.

 

16


Table of Contents

Corporate Governance

Information with respect to BB&T’s Board of Directors, Executive Officers and corporate governance policies and principles is presented on BB&T’s web site, www.BBT.com, and includes:

 

   

Corporate Governance Guidelines

 

   

Corporate Board of Directors

 

   

Committees of the Corporate Board of Directors and Committee Charters

 

   

Codes of Ethics for Directors, Senior Financial Officers and Employees

 

   

Chief Executive Officer and Chief Financial Officer Certifications

 

   

Executive Officers

 

   

Policy and Procedures for Accounting and Legal Complaints, including Whistleblower Procedures

BB&T intends to disclose any substantive amendments or waivers to the Codes of Ethics for Directors or Senior Financial Officers on BB&T’s web site at www.BBT.com/Investor.

NYSE Certification

The annual certification of BB&T’s Chief Executive Officer required to be furnished to the NYSE pursuant to Section 303A.12(a) of the NYSE Listed Company Manual was previously filed with the NYSE on May 23, 2011.

 

17


Table of Contents

Executive Officers of BB&T

 

Executive Officer

  

Recent Work Experience

   Years of Service    Age

Kelly S. King

Chairman and Chief Executive Officer

   Chairman since January 2010. Chief Executive Officer since January 2009. Chief Operating Officer between June 2004 and December 2008.    40    63

Christopher L. Henson

Chief Operating Officer

   Chief Operating Officer since January 2009. Chief Financial Officer between July 2005 and December 2008.    27    50

Daryl N. Bible

Senior Executive Vice President and

Chief Financial Officer

   Chief Financial Officer since January 2009. Assistant Chief Financial Officer between January 2008 and December 2008. Employed by U.S Bancorp for 24 years, serving as Treasurer for the final 10 years.    4    50

Ricky K. Brown

Senior Executive Vice President and

President, Community Banking

   President, Community Banking since July 2004.    35    56

Barbara F. Duck

Senior Executive Vice President and

Enterprise Risk Manager

   Enterprise Risk Manager since July 2009. Electronic Delivery Channels Manager between July 2006 and June 2009.    24    45

Donna C. Goodrich

Senior Executive Vice President and

Deposit Services Manager

   Deposit Services Manager since April 2004.    26    49

Robert E. Greene

Senior Executive Vice President and Administrative Group Manager

   Administrative Group Manager since August 2001. Risk Management Group Manager between July 2006 and June 2009.    39    61

Clarke R. Starnes III

Senior Executive Vice President and

Chief Risk Officer

   Chief Risk Officer since July 2009. Chief Credit Officer between September 2008 and June 2009. Specialized Lending Manager between January 2000 and August 2008.    30    52

Steven B. Wiggs

Senior Executive Vice President and

Chief Marketing Officer and Lending Group Manager

   Chief Marketing Officer since February 2005. Lending Group Manager since July 2009.    33    54

C. Leon Wilson III

Senior Executive Vice President and

Operations Division Manager

   Operations Division Manager since July 1988.    35    56

 

18


Table of Contents

ITEM 1A.  RISK FACTORS

The following discussion sets forth some of the more important risk factors that could materially affect BB&T’s financial condition and operations. Other factors that could affect the Corporation’s financial condition and operations are discussed in the “Forward-looking statements” section above. However, there may be additional risks that are not presently material or known, and factors besides those discussed below, or elsewhere in this or other reports that BB&T filed or furnished with the SEC, that also could adversely affect the Corporation.

Changes in national, regional and local economic conditions and deterioration in the geographic and financial markets in which BB&T operates could lead to higher loan charge-offs and reduce BB&T’s net income and growth.

BB&T’s business is subject to periodic fluctuations based on national, regional and local economic conditions. These fluctuations are not predictable, cannot be controlled, and may have a material adverse impact on BB&T’s operations and financial condition even if other favorable events occur. BB&T’s banking operations are locally oriented and community-based. Accordingly, BB&T expects to continue to be dependent upon local business conditions as well as conditions in the local residential and commercial real estate markets it serves. For example, an increase in unemployment, a decrease in real estate values or increases in interest rates, as well as other factors, could weaken the economies of the communities BB&T serves. Weakness in BB&T’s market area could depress its earnings and consequently its financial condition because:

 

   

customers may not want or need BB&T’s products or services;

 

   

borrowers may not be able or willing to repay their loans;

 

   

the value of the collateral securing loans to borrowers may decline; and

 

   

the quality of BB&T’s loan portfolio may decline.

Any of the latter three scenarios could require BB&T to charge off a higher percentage of loans and/or increase provisions for credit losses, which would reduce BB&T’s net income. For example, while the credit deterioration that BB&T experienced beginning in 2007 and continuing through much of 2010 improved considerably during 2011, the challenges in the residential real estate markets still present credit deterioration risks for BB&T in light of the slow pace of general economic recovery. Any further credit deterioration, combined with flat to declining real estate values, would result in increased loan charge-offs and higher provisions for credit losses, which may negatively impact BB&T’s net income.

In addition, significant declines in the housing market from 2007 through 2010, with falling home prices and increasing foreclosures and unemployment, resulted in significant write-downs of asset values by many financial institutions, including government-sponsored entities and major commercial and investment banks. These write-downs, initially of mortgage-backed securities but spreading to credit default swaps and other derivative securities, caused many financial institutions to seek additional capital, to merge with larger and stronger institutions and, in some cases, to fail. BB&T is part of the financial system and a systemic lack of available credit, a lack of confidence in the financial sector, continued volatility in the financial markets and/or reduced business activity could materially adversely affect BB&T’s business, financial condition and results of operations.

Downgrades of U.S. government securities by one or more of the credit ratings agencies could have a material adverse effect on BB&T’s operations, earnings and financial condition.

The ongoing debate in Congress regarding federal budget deficit concerns, the national debt ceiling and overall weakness in the economy resulted in the downgrade of U.S. government securities by Standard & Poor’s, one of the three major credit rating agencies, in August 2011. The possible future downgrade of the federal government’s credit rating by one or both of the other two major ratings agencies could create uncertainty in the U.S. and global financial markets and cause other events which, directly or indirectly, may adversely affect BB&T’s operations, earnings and financial condition. For example, BB&T securities portfolio consists largely of mortgage backed securities issued by government sponsored entities, such as Freddie Mac and Fannie Mae. Among other things, a downgrade in the U.S. government’s credit rating could adversely impact the value of these securities and may trigger requirements that the Corporation post additional collateral for trades relative to these securities.

 

19


Table of Contents

Weakness in the markets for residential or commercial real estate, including the secondary residential mortgage loan markets, could reduce BB&T’s net income and profitability.

Since 2007, softening residential housing markets, increasing delinquency and default rates, and increasingly volatile and constrained secondary credit markets have been negatively impacting the mortgage industry. BB&T’s financial results have been adversely affected by changes in real estate values, primarily in Georgia, Florida and metro Washington, D.C., with some deterioration in the coastal areas of the Carolinas. Decreases in real estate values have adversely affected the value of property used as collateral for loans and investments in BB&T’s portfolio. For example, the poor economic conditions experienced in 2007 through 2010, coupled with slow economic growth and ongoing concerns regarding economic recovery, have resulted in decreased demand for real estate loans, and BB&T’s net income and profits have suffered as a result.

The declines in home prices in many markets across the U.S., including a number of markets in BB&T’s banking footprint (primarily in Georgia, Florida, and metro Washington, D.C., with some deterioration in the coastal areas of the Carolinas), along with the reduced availability of mortgage credit, also has resulted in increases in delinquencies and losses in BB&T’s portfolio of loans related to residential real estate, including its acquisition, development and construction loan portfolio. Further declines in home prices within BB&T’s banking footprint (including markets that to date have not experienced significant declines) coupled with the continued impact of the economic recession and high unemployment levels could drive losses beyond the levels provided for in BB&T’s allowance for loan losses. In that event, BB&T’s future earnings would be adversely affected.

Significant ongoing disruption in the secondary market for residential mortgage loans has limited the market for and liquidity of most mortgage loans other than conforming Fannie Mae, Freddie Mac and Ginnie Mae loans. The effects of ongoing mortgage market challenges, combined with the ongoing correction in residential real estate market prices and reduced levels of home sales has resulted in price reductions in single family home values, adversely affecting the value of collateral securing mortgage loans held and mortgage loan originations. Continued declines in real estate values and home sales volumes within BB&T’s banking footprint, and financial stress on borrowers as a result of job losses, or other factors, could have further adverse effects on borrowers that result in higher delinquencies and greater charge-offs in future periods, which would adversely affect BB&T’s financial condition and results of operations.

The Colonial loan portfolios are largely covered by shared-loss agreements, however, BB&T is not immune from losses or risks relative to these portfolios.

On August 14, 2009, Branch Bank entered into an agreement with the Federal Deposit Insurance Corporation (“FDIC”) to acquire certain assets and assume substantially all of the deposits and certain liabilities of Colonial Bank, an Alabama state-chartered bank headquartered in Montgomery, Alabama (“Colonial”). As a result, Branch Bank acquired a significant portfolio of loans from Colonial. Although Branch Bank marked down the acquired loan portfolio to estimated fair value, the acquired loans could suffer further deterioration in value resulting in additional charge-offs to this loan portfolio. Fluctuations in national, regional and local economic conditions, including those related to local residential real estate, commercial real estate and construction markets may increase the level of charge-offs on the loan portfolio that was acquired in the acquisition of Colonial and correspondingly reduce BB&T’s net income. These fluctuations are not predictable, cannot be controlled and may have a material adverse impact on BB&T’s operations and financial condition even if other favorable events occur. Although Branch Bank entered into loss sharing agreements with the FDIC, which provide that a significant portion of losses related to specified loan portfolios that were acquired in connection with the acquisition of Colonial will be borne by the FDIC, Branch Bank is not protected from all losses resulting from charge-offs with respect to those specified loan portfolios. Additionally, the loss sharing agreements have limited terms; therefore, any charge-off of related losses that Branch Bank experiences after the term of the loss sharing agreements will not be reimbursed by the FDIC and will negatively impact BB&T’s net income.

The Colonial acquisition has increased Branch Bank’s commercial real estate and construction loan portfolio, which have a greater credit risk than residential mortgage loans.

With the acquisition of the Colonial loan portfolio, the commercial real estate loan and construction loan portfolios have become a larger portion of Branch Bank’s total loan portfolio than it was prior to the Colonial acquisition. This type of lending is generally considered to have more complex credit risks than traditional single-family residential lending, because the principal repayment may be dependent on the successful operation of the related real estate or construction project. Consequently, commercial real estate and construction loans are more sensitive to the current adverse conditions

 

20


Table of Contents

in the real estate market and the general economy. These types of loans are generally less predictable, more difficult to evaluate and monitor, and collateral may be more difficult to dispose of in a soft market. However, with respect to the loans acquired in the Colonial transaction, the negative economic aspects of these risks are mitigated as a result of the FDIC loss sharing agreements.

BB&T’s liquidity could be impaired by an inability to access the capital markets, an unforeseen outflow of cash or a reduction in the credit ratings for BB&T or its subsidiaries.

Liquidity is essential to BB&T’s businesses. The capital and credit markets continue to demonstrate volatility and disruption, despite modest improvements in the general economy during 2011, producing, in some cases downward pressure on stock prices and credit capacity for certain issuers without regard to those issuers’ underlying financial strength. If these levels of market disruption and volatility continue, worsen or abate and then arise at a later date, BB&T’s ability to access capital could be materially impaired. Additionally, other factors outside of BB&T’s control, such as a general market disruption or an operational problem that affects third parties or BB&T could impair BB&T’s ability to access the capital markets or create an unforeseen outflow of cash or deposits. BB&T’s inability to access the capital markets could constrain its ability to make new loans, to meet its existing lending commitments and, ultimately jeopardize its overall liquidity and capitalization.

BB&T’s credit ratings are also important to its liquidity. These rating agencies regularly evaluate BB&T and its subsidiaries, and their ratings are based on a number of factors, including the financial strength of BB&T and its subsidiaries, as well as factors not entirely within BB&T’s control, including conditions affecting the financial services industry generally. In light of the ongoing difficulties in the financial services industry and the housing and financial markets, as well as the soft economic recovery in general, there can be no assurance that BB&T will maintain its current ratings. A reduction in BB&T’s credit ratings could adversely affect BB&T’s liquidity and competitive position, increase its borrowing costs, limit its access to the capital markets or trigger unfavorable contractual obligations.

The soundness of other financial institutions could adversely affect BB&T.

Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships. BB&T has exposure to many different industries and counterparties, and BB&T and certain of its subsidiaries routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds, and other institutional clients. Many of these transactions expose BB&T to credit risk in the event of default of its counterparty or client. In addition, BB&T’s credit risk may be exacerbated when collateral is liquidated at prices not sufficient to recover the full amount of the loan or derivative exposure due BB&T. These types of losses could materially and adversely affect BB&T’s results of operations or financial condition.

Changes in interest rates may have an adverse effect on BB&T’s profitability.

BB&T’s earnings and financial condition are largely dependent on net interest income, which is the difference between interest earned from loans and investments and interest paid on deposits and borrowings. The narrowing of interest rate spreads, meaning the difference between interest rates earned on loans and investments and the interest rates paid on deposits and borrowings, could adversely affect BB&T’s earnings and financial condition. BB&T cannot control or predict with certainty changes in interest rates. Regional and local economic conditions, competitive pressures and the policies of regulatory authorities, including monetary policies of the Federal Reserve Board, affect interest income and interest expense. As discussed in “Market Risk Management – Interest Rate Market Risk (Other than Trading),” BB&T has ongoing policies and procedures designed to manage the risks associated with changes in market interest rates. However, changes in interest rates still may have an adverse effect on BB&T’s profitability. For example, high interest rates could adversely affect BB&T’s mortgage banking business because higher interest rates could cause customers to apply for fewer mortgage refinancings or purchase mortgages. While BB&T actively manages against these risks, if BB&T’s assumptions regarding borrower behavior are wrong or overall economic conditions are significantly worse than planned for, then the Corporation’s risk mitigation techniques may be insufficient to protect against the risk.

Changes in banking laws could have a material adverse effect on BB&T.

BB&T is extensively regulated under federal and state banking laws and regulations that are intended primarily for the protection of depositors, federal deposit insurance funds and the banking system as a whole. In addition, BB&T is subject to changes in federal and state laws as well as changes in banking and credit regulations, and governmental economic and

 

21


Table of Contents

monetary policies. BB&T cannot predict whether any of these changes may adversely and materially affect BB&T. The current regulatory environment for financial institutions entails significant potential increases in compliance requirements and associated costs, including those related to consumer credit, with a focus on mortgage lending. For example, the enactment of the Dodd-Frank Act in 2010 represented a significant overhaul of many aspects of the regulation of the financial services industry, and the implementation of and rulemaking under the Dodd-Frank Act during 2011 and in the future could result in higher compliance costs and otherwise materially adversely affect BB&T’s business, financial condition or results of operations. See “Regulatory Considerations” and the immediately following risk factor for additional information regarding the Dodd-Frank Act and its potential impact upon BB&T and its subsidiaries.

Federal and state banking regulators also possess broad powers to take supervisory actions as they deem appropriate. These supervisory actions may result in higher capital requirements, higher insurance premiums and limitations on BB&T’s activities that could have a material adverse effect on its business and profitability.

The ongoing implementation of the Dodd-Frank Act, and its related rulemaking activities, may result in lower revenues, higher costs and ratings downgrades.

The Dodd-Frank Act, signed into law in July 2010, represents a significant overhaul of many aspects of the regulation of the financial services industry, addressing, among other things, systemic risk, capital adequacy, deposit insurance assessments, consumer financial protection, interchange fees, derivatives, lending limits, and changes among the bank regulatory agencies. During 2011, federal agencies continued implementation of and rulemaking under the Dodd-Frank Act. Many of these provisions remain subject to further study, rulemaking, and the discretion of regulatory bodies, such as the Financial Stability Oversight Council, which will regulate the systemic risk of the financial system. Due to BB&T’s size, the Company will be designated as “systemically significant” to the financial health of the U.S. economy and, as a result, will be subject to additional regulations such as the “living will” requirements relating to the rapid and orderly resolution of systemically significant financial institutions in the event of material financial distress or failure. BB&T cannot predict the additional effects that compliance with the Dodd-Frank Act or any implementing regulations will have on BB&T’s businesses or its ability to pursue future business opportunities. Additional regulations resulting from the Dodd-Frank Act may materially adversely affect BB&T’s business, financial condition or results of operations. See “Regulatory Considerations” for additional information regarding the Dodd-Frank Act and its impact upon BB&T and its subsidiaries.

The provisions of the Dodd Frank Act restricting bank interchange fees, and the rules promulgated thereunder, may further negatively impact BB&T’s revenues and earnings.

Pursuant to the Dodd-Frank Act, the Federal Reserve adopted rules effective October 1, 2011, limiting the interchange fees that may be charged with respect to electronic debit transactions. Interchange fees, or “swipe” fees, are charges that merchants pay to BB&T and other credit card companies and card-issuing banks for processing electronic payment transactions. Since taking effect, these limitations have reduced BB&T’s debit card interchange revenues and have created meaningful compliance costs. Additional limits may further reduce BB&T’s debit card interchange revenues and create additional compliance costs. See “Regulatory Considerations—Consumer Protection Laws” for additional information regarding the limits on interchange fees imposed under the Dodd-Frank Act.

Recently enacted consumer protection regulations related to automated overdraft payment programs could adversely affect BB&T’s business operations, net income and profitability.

The Federal Reserve and FDIC recently enacted consumer protection regulations related to automated overdraft payment programs offered by financial institutions, which are described under the heading “Regulatory Considerations—Automated Overdraft Payment Regulation.” BB&T has implemented changes to its business practices relating to overdraft payment programs in order to comply with these regulations.

For the years ended December 31, 2010 and December 31, 2009, Branch Bank’s overdraft and insufficient funds fees represented a significant amount of non-interest fees collected by Branch Bank. Since taking effect on July 1, 2011, the fees received by Branch Bank for automated overdraft payment services have decreased, thereby adversely impacting BB&T’s non-interest income. Complying with these regulations has resulted in increased operational costs for BB&T and Branch Bank, which may continue to rise. In addition, BB&T may be placed at a competitive disadvantage to the extent

 

22


Table of Contents

that its competitors are not subject to the FDIC’s automated overdraft payment program regulations. The actual impact of these regulations in future periods could vary due to a variety of factors, including changes in customer behavior, economic conditions and other factors, which could adversely affect BB&T’s business operations, net income and profitability.

BB&T may be subject to more stringent capital requirements, which could diminish its ability to pay dividends or require BB&T to reduce its operations.

The Dodd-Frank Act requires federal banking agencies to establish more stringent risk-based capital requirements and leverage limits applicable to banks and bank holding companies. Under the legislation, federal banking agencies are required to develop capital requirements that address systemically risky activities. The effect of these capital rules will disallow trust preferred securities from counting as Tier 1 capital at the holding company level for entities with greater than $15 billion in assets, with a three-year phase-in period beginning on January 1, 2013. These requirements, and any other new regulations, including those that may be imposed as a result of the requirements established by the Basel Committee on Banking Supervision, could adversely affect BB&T’s ability to pay dividends, or could require BB&T to reduce business levels or to raise capital, including ways that may adversely affect its results of operations or financial condition. In addition, the costs associated with complying with the more stringent capital requirements, such as the requirement to formulate and submit capital plans based on pre-defined stress scenarios on an annual basis, could have a material adverse effect on BB&T.

BB&T may experience significant competition in its market area, which may reduce its customer base or cause it to lower prices for its products and services in order to maintain market share.

There is intense competition among commercial banks in BB&T’s market area. In addition, BB&T competes with other providers of financial services, such as savings and loan associations, credit unions, consumer finance companies, securities firms, insurance companies, commercial finance and leasing companies, the mutual funds industry, full-service brokerage firms and discount brokerage firms, some of which are subject to less extensive regulations than BB&T is with respect to the products and services they provide. BB&T’s success depends, in part, on its ability to adapt its products and services to evolving industry standards. There is increasing pressure to provide products and services at lower prices. Lower prices can reduce BB&T’s net interest margin and revenues from its fee-based products and services.

In addition, the adoption of new technologies by competitors, including internet banking services, mobile phone applications and advanced ATM functionality could require BB&T to make substantial expenditures to modify or adapt its existing products and services. Also, these and other capital investments in BB&T’s business may not produce expected growth in earnings anticipated at the time of the expenditure. BB&T may not be successful in introducing new products and services, achieving market acceptance of its products and services, anticipating or reacting to consumers’ changing technological preferences or developing and maintaining loyal customers.

Some of BB&T’s larger competitors, including certain national banks that have a significant presence in BB&T’s market area, may have greater capital and resources than BB&T, may have higher lending limits and may offer products and services not offered by BB&T. Although BB&T remains strong, stable and well capitalized, management cannot predict the reaction of customers and other third parties with which BB&T conducts business with respect to the strength of BB&T relative to its competitors, including its larger competitors. Any potential adverse reactions to BB&T’s financial condition or status in the marketplace, as compared to its competitors, could limit BB&T’s ability to attract and retain customers and to compete for new business opportunities. The inability to attract and retain customers or to effectively compete for new business may have a material and adverse effect on BB&T’s financial condition and results of operations.

BB&T also experiences competition from a variety of institutions outside of its market area. Some of these institutions conduct business primarily over the Internet and may thus be able to realize certain cost savings and offer products and services at more favorable rates and with greater convenience to the customer who can pay bills and transfer funds directly without going through a bank. This “disintermediation” could result in the loss of fee income, as well as the loss of customer deposits and income generated from those deposits. In addition, changes in consumer spending and saving habits could adversely affect BB&T’s operations, and the Company may be unable to timely develop competitive new products and services in response to these changes.

 

23


Table of Contents

Unpredictable catastrophic events could have a material adverse effect on BB&T.

The occurrence of catastrophic events such as hurricanes, tropical storms, tornados, and other large scale catastrophes could adversely affect BB&T’s consolidated financial condition or results of operations. BB&T has operations and customers along the Gulf and Atlantic coasts as well as other parts of the southeastern United States, which could be adversely impacted by hurricanes and other severe weather in those regions. Unpredictable natural and other disasters could have an adverse effect on BB&T in that such events could materially disrupt its operations or the ability or willingness of its customers to access the financial services offered by BB&T. BB&T’s property and casualty insurance operations also expose it to claims arising out of catastrophes. The incidence and severity of catastrophes are inherently unpredictable. Although BB&T carries insurance to mitigate its exposure to certain catastrophic events, these events could nevertheless reduce BB&T’s earnings and cause volatility in its financial results for any fiscal quarter or year and have a material adverse effect on BB&T’s financial condition and/or results of operations.

BB&T faces significant operational risks related to its activities, which could expose it to negative publicity, litigation and/or regulatory action.

BB&T is exposed to many types of risks, including operational, reputational, legal and compliance risk, the risk of fraud or theft by employees or outsiders (including identity and information theft), unauthorized transactions by employees or operational errors, including clerical or record-keeping errors or those resulting from faulty or disabled computer or telecommunications systems. Negative public opinion can result from BB&T’s actual or alleged conduct in any number of activities, including lending practices, corporate governance and acquisitions, activities related to asset sales and balance sheet management and from actions taken by government regulators and community organizations in response to those activities. Negative public opinion can adversely affect BB&T’s ability to attract and keep customers and can expose it to litigation and regulatory action.

Because the nature of the financial services business involves a high volume of transactions, certain errors may be repeated or compounded before they are discovered and successfully rectified. BB&T’s necessary dependence upon automated systems to record and process its transaction volume may further increase the risk that technical flaws or employee tampering or manipulation of those systems will result in losses that are difficult to detect. BB&T also may be subject to disruptions of its operating systems arising from events that are wholly or partially beyond its control (for example, computer viruses or electrical or telecommunications outages), which may give rise to disruption of service to customers and to financial loss or liability. BB&T is further exposed to the risk that its external vendors may be unable to fulfill their contractual obligations (or will be subject to the same risk of fraud or operational errors by their respective employees as is BB&T) and to the risk that BB&T’s (or its vendors’) business continuity and data security systems prove to be inadequate.

BB&T relies on other companies to provide certain key components of its business infrastructure.

Third party vendors provide certain key components of BB&T’s business infrastructure such as internet connections, network access and mutual fund distribution. While BB&T has selected these third party vendors carefully, it does not control their operations. Any problems caused by these third parties, including those which result from their failure to provide services for any reason or their poor performance of services, could adversely affect BB&T’s ability to deliver products and services to its customers and otherwise to conduct its business. Replacing these third party vendors could also entail significant delay and expense.

Significant litigation could have a material adverse effect on BB&T.

BB&T faces legal risks in its business, and the volume of claims and amount of damages and penalties claimed in litigation and regulatory proceedings against financial institutions remain high. Substantial legal liability or significant regulatory action against BB&T may have material adverse financial effects or cause significant reputational harm to BB&T, which in turn could seriously harm BB&T’s business prospects.

BB&T faces systems failure risks as well as security risks, including “hacking” and “identity theft.”

The computer systems and network infrastructure BB&T and others use could be vulnerable to unforeseen problems. These problems may arise in both BB&T’s internally developed systems and the systems of its third-party service providers. BB&T’s operations are dependent upon its ability to protect computer equipment against damage from fire,

 

24


Table of Contents

power loss or telecommunication failure. Any damage or failure that causes an interruption in BB&T’s operations could adversely affect its business and financial results. In addition, BB&T’s computer systems and network infrastructure present security risks, and could be susceptible to hacking or identity theft. Hacking and identity theft risks, in particular, could cause serious reputational harm.

Differences in interpretation of tax laws and regulations may adversely impact BB&T’s financial statements.

Local, state or federal tax authorities may interpret tax laws and regulations differently than BB&T and challenge tax positions that BB&T has taken on its tax returns. This may result in differences in the treatment of revenues, deductions or credits, and/or differences in the timing of these items. The differences in treatment may result in the payment of additional taxes, interest or penalties that could have a material adverse effect on BB&T’s performance. For example, as discussed in Note 13 “ Income Taxes” in the “Notes to Consolidated Financial Statements,” in February 2010, BB&T received an IRS statutory notice of deficiency for tax years 2002-2007 asserting a liability for taxes, penalties and interest of approximately $892 million. As a procedural matter, and to limit further exposure to penalties and interest, BB&T paid the disputed tax, penalties and interest in March 2010 and filed a lawsuit seeking a refund in the U.S. Court of Federal Claims. Final resolution of this matter is not expected within the next 12 months.

BB&T may not be able to complete acquisitions, including the acquisition of BankAtlantic.

BB&T must generally satisfy a number of meaningful conditions before it can complete an acquisition of another bank or bank holding company, including federal and/or state regulatory approvals. For example, BB&T is currently seeking approval for its proposed acquisition of BankAtlantic, a wholly owned subsidiary of BankAtlantic Bancorp, Inc. pursuant to a definitive agreement executed in November 2011. In determining whether to approve a proposed bank acquisition, bank regulators will consider, among other factors, the effect of the acquisition on competition, financial condition and future prospects, including current and projected capital ratios and levels, the competence, experience and integrity of management and record of compliance with laws and regulations, the convenience and needs of the communities to be served, including the acquiring institution’s record of compliance under the Community Reinvestment Act, the effectiveness of the acquiring institution in combating money laundering activities and protests from various stakeholders of both BB&T and its acquisition partner. Also, under the Dodd-Frank Act, U.S. regulators must now take systemic risk into account when evaluating whether to approve a potential acquisition transaction involving a large financial institution like BB&T. BB&T cannot be certain when or if, or on what terms and conditions, any required regulatory approvals will be granted. In specific cases, BB&T may be required to sell banks or branches, or take other actions as a condition to receiving regulatory approval. An inability to satisfy other material conditions necessary to consummate an acquisition transaction, such as third-party litigation, a judicial order blocking the transaction or lack of shareholder approval, could also prevent BB&T from completing an announced acquisition.

BB&T may not be able to successfully integrate bank or nonbank mergers and acquisitions.

Difficulties may arise in the integration of the business and operations of bank holding companies, banks and other nonbank entities BB&T acquires and, as a result, BB&T may not be able to achieve the cost savings and synergies that it expects will result from such transactions. Achieving cost savings is dependent on consolidating certain operational and functional areas, eliminating duplicative positions and terminating certain agreements for outside services. Additional operational savings are dependent upon the integration of the acquired or merged entity’s businesses with BB&T or one of BB&T’s subsidiaries, the conversion of core operating systems, data systems and products and the standardization of business practices. Complications or difficulties in the conversion of the core operating systems, data systems and products may result in the loss of customers, damage to BB&T’s reputation within the financial services industry, operational problems, one-time costs currently not anticipated or reduced cost savings resulting from such mergers or acquisitions. Annual cost savings in each such transaction may be materially less than anticipated if the holding company, bank merger or nonbank merger or acquisition is delayed unexpectedly, the integration of operations is delayed beyond what is anticipated or the conversion to a single data system is not accomplished on a timely basis.

Difficulty in integrating an acquired company may cause BB&T not to realize expected revenue increases, cost savings, increases in geographic or product presence and/or other projected benefits from the acquisition. The integration could result in higher than expected deposit attrition, loss of key employees, disruption of BB&T’s businesses or the businesses

 

25


Table of Contents

of the acquired company, or otherwise adversely affect BB&T’s ability to maintain relationships with customers and employees or achieve the anticipated benefits of the acquisition. Also, the negative effect of any divestitures required by regulatory authorities in acquisitions or business combinations may be greater than expected.

ITEM 2.  PROPERTIES

BB&T and its significant subsidiaries occupy headquarter offices that are either owned or operated under long-term leases. BB&T also owns free-standing operations centers, with its primary operations and information technology center located in Wilson, North Carolina. BB&T also owns or leases significant office space used as the Corporation’s headquarters in Winston-Salem, North Carolina. At December 31, 2011, Branch Bank operated 1,779 branch offices in North Carolina, South Carolina, Virginia, Maryland, Georgia, West Virginia, Tennessee, Kentucky, Alabama, Florida, Texas, Indiana and Washington, D.C. BB&T also operates numerous insurance agencies and other businesses that occupy facilities. Office locations are either owned or leased. Management believes that the premises occupied by BB&T and its subsidiaries are well-located and suitably equipped to serve as financial services facilities. See Note 5 “Premises and Equipment” in the “Notes to Consolidated Financial Statements” in this report for additional disclosures related to BB&T’s properties and other fixed assets.

ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

BB&T’s common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “BBT.” BB&T’s common stock was held by approximately 293,000 shareholders at December 31, 2011 compared to approximately 355,000 at December 31, 2010. The accompanying table, “Quarterly Summary of Market Prices and Dividends Declared on Common Stock,” sets forth the quarterly high and low trading prices and closing sales prices for BB&T’s common stock and the dividends declared per share of common stock for each of the last eight quarters.

Table 3

Quarterly Summary of Market Prices and Cash Dividends Declared on Common Stock

 

    2011     2010  
    Sales Prices    

Cash

 

    Sales Prices    

Cash

 

 
     

Dividends

 

     

  Dividends  

 

 
    High     Low     Last     Declared (1)     High     Low     Last     Declared  

Quarter Ended:

               

March 31

  $     29.60      $     25.95      $ 27.45      $ 0.17      $ 32.93      $ 25.40      $ 32.39      $ 0.15   

June 30

    27.81        25.24        26.84        0.16        35.72        26.18        26.31        0.15   

September 30

    27.36        18.92        21.33        0.16        28.69        21.72        24.08        0.15   

December 31

    25.57        19.76        25.17        0.16        27.57        22.15        26.29        0.15   
       

 

 

         

 

 

 

Year

  $ 29.60      $ 18.92      $     25.17      $        0.65      $     35.72      $     21.72      $     26.29      $        0.60   
       

 

 

         

 

 

 

 

 (1)  First quarter of 2011 included a special $0.01 dividend.

Common Stock and Dividends

BB&T’s ability to pay dividends is primarily dependent on earnings from operations, the adequacy of capital and the availability of liquid assets for distribution. BB&T’s ability to generate liquid assets for distribution is dependent on the ability of Branch Bank to pay dividends to the Parent Company. The payment of cash dividends is an integral part of providing a competitive return on shareholders’ investments. The Corporation’s policy is to accomplish this while retaining sufficient capital to support future growth and to meet regulatory requirements. Management has established a guideline that during normal economic conditions the common dividend payout ratio will be between 30% and 50% of basic earnings per share. BB&T’s common dividend payout ratio, computed by dividing dividends declared per common share by basic earnings per common share, was 35.14% in 2011 compared to 50.85% in 2010. BB&T has paid a cash dividend to shareholders every year since 1903. A discussion of dividend restrictions is included in Note 16 “Regulatory Requirements and Other Restrictions” in the “Notes to Consolidated Financial Statements” and in the “Regulatory Considerations” section.

 

26


Table of Contents

Replacement Capital Covenant

As further described below and reflected in the table, BB&T has entered into a transaction involving the issuance of capital securities (“Capital Securities”) by a Delaware statutory trust formed by the Company (the “Trust”). Simultaneously with the closing of this transaction, BB&T entered into a replacement capital covenant (the “Replacement Capital Covenant”) for the benefit of persons that buy, hold or sell a specified series of long-term indebtedness of the Company or its largest depository institution subsidiary (the “Specified Debt”). The Replacement Capital Covenant was amended effective November 18, 2011 and provides that neither BB&T nor any of its subsidiaries (including the Trust) will repay, redeem or purchase any of the Capital Securities and the securities held by the Trust (the “Other Securities”), as applicable, on or before the date specified in the Replacement Capital Covenant, with certain limited exceptions, except to the extent that, prior to the date of that repayment, redemption or purchase, the Company has received proceeds from the sale of qualifying securities that (i) have equity-like characteristics that are the same as, or more equity-like than, the applicable characteristics of the Capital Securities or Other Securities, as applicable, at the time of repayment, redemption or purchase, and (ii) the Company has obtained the prior approval of the Federal Reserve Board, if such approval is then required by the Federal Reserve Board.

The following table identifies the (i) closing date for the transaction, (ii) issuer, (iii) series of Capital Securities issued, (iv) Other Securities, and (v) applicable Specified Debt.

 

Closing      
Date      

 

Issuer

 

Capital Securities

 

Other Securities

 

Specified Debt

6/12/07   BB&T Capital Trust IV and BB&T Corporation   BB&T Capital Trust IV’s $600,000,000 Fixed to Floating Rate Capital Securities   Company’s $600,010,000 Fixed to Floating Rate Junior Subordinated Debentures due 2077   Company’s 6.75% junior subordinated debentures due 2036 underlying the 6.75% capital securities of BB&T Capital Trust II

Share Repurchases

BB&T has periodically repurchased shares of its own common stock. In accordance with North Carolina law, repurchased shares cannot be held as treasury stock, but revert to the status of authorized and unissued shares upon repurchase.

On June 27, 2006, BB&T’s Board of Directors granted authority under a plan (the “2006 Plan”) for the repurchase of up to 50 million shares of BB&T’s common stock as needed for general corporate purposes. The 2006 Plan also authorizes the repurchase of the remaining shares from the previous authorization. The 2006 Plan remains in effect until all the authorized shares are repurchased unless modified by the Board of Directors. No shares were repurchased in connection with the 2006 Plan during 2011, 2010 or 2009.

Table 4

Share Repurchase Activity

 

    Total
Shares
     Repurchased (1)    
    Average
Price Paid
    Per Share (2)    
    Total Shares Purchased
Pursuant to

    Publicly-Announced Plan    
    Maximum Remaining
Number of Shares
    Available  for Repurchase    
Pursuant to

Publicly-Announced Plan
 
    (Shares in thousands)  

October 1-31, 2011

        $             21.79                                          44,139   

November 1-30, 2011

          23.21               44,139   

December 1-31, 2011

          22.91               44,139   
 

 

 

     

 

 

   

Total

                          9        22.39                                           —        44,139   
 

 

 

     

 

 

   

 

(1) Repurchases reflect shares exchanged or surrendered in connection with the exercise of equity-based awards under BB&T’s equity-based compensation plans.
(2) Excludes commissions.

 

27


Table of Contents

Equity Compensation Plan Information

The following table provides information concerning securities to be issued upon the exercise of outstanding equity-based awards, the weighted average price of such awards and the securities remaining available for future issuance as of December 31, 2011.

Table 5

Equity Compensation Plan Information

 

   

Plan Category

  (a)(1)
Number of  securities
to be issued upon
exercise of outstanding

   options,  warrants and rights   
    (b)(1)
Weighted-average
exercise price of
    outstanding options,    
warrants and rights
    (c)(1)(2)
Number of  securities
remaining available
for future issuance
under equity compensation
    plans (excluding securities reflected in (a))    
 
 

Equity compensation plans approved by security holders

    58,767,079        $   26.54       15,178,044     
 

Equity compensation plans not approved by security holders

 

   

 

         —         

 

  

 

   

 

—  

 

  

 

   

 

         —         

 

  

 

   

 

 

     

 

 

 
 

Total

      58,767,079          26.54         15,178,044     
   

 

 

     

 

 

 

 

(1) The table above does not include 80,105 options outstanding at December 31, 2011, at a weighted-average exercise price of $29.54, which are administered under First Virginia option plans that were assumed by BB&T in its acquisition by merger of First Virginia. No future options will be issued under the First Virginia plans.
(2) All awards remaining available for future issuance will be issued under the terms of the BB&T Corporation 2004 Stock Incentive Plan, as amended by the Corporation’s shareholders at the 2009 Annual Meeting of Shareholders.

Performance Graph

Set forth below is a graph comparing the total returns (assuming reinvestment of dividends) of BB&T Common Stock, the S&P 500 Index, and an Industry Peer Group Index. The graph assumes $100 invested on December 31, 2006 in BB&T Common Stock and in each of the indices. In 2011, the financial holding companies in the Industry Peer Group Index (the “Peer Group”) were Comerica Incorporated, Fifth-Third Bancorp, Huntington Bancshares, Incorporated, KeyCorp, M&T Bank Corporation, PNC Financial Services Group, Inc., Regions Financial Corporation, SunTrust Banks, Inc., U.S. Bancorp and Zions Bancorporation. The Peer Group consists of financial and bank holding companies with assets between approximately $50 billion and $350 billion as of December 31, 2011.

 

28


Table of Contents

Comparison of 5 Year Cumulative Total Return*

Among BB&T Corporation, the S&P 500 Index,

and BB&T’s Peer Group

LOGO

 

 

* $100 invested on 12/31/06 in stock or index, including reinvestment of dividends. Fiscal year ending December 31.

 

    Cumulative Total Return  
    12/06     12/07     12/08     12/09     12/10     12/11  

BB&T Corporation

  $       100.00      $       72.87      $       69.72      $       68.40      $       72.45      $       71.09   

S&P 500

    100.00        105.49        66.58        84.20        96.89        98.94   

BB&T’s Peer Group

    100.00        77.80        49.23        45.97        60.23        53.40   

 

29


Table of Contents

ITEM 6.  SELECTED FINANCIAL DATA (1)

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

 

          Five Year

 

Compound

 

  Growth Rate  

 
    As of/ For the Years Ended December 31,    
    2011     2010     2009     2008     2007     2006    

Summary of Operations:

             

Interest income

   $ 6,885       $ 7,115       $ 6,884       $ 7,207       $ 7,894       $ 6,893                           —%     

Interest expense

    1,378        1,795        2,040        2,969        4,014        3,185        (15.4)        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Net interest income

    5,507        5,320        4,844        4,238        3,880        3,708        8.2        

Provision for credit losses

    1,190        2,638        2,811        1,445        448        240        37.7        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Net interest income after provision for credit losses

    4,317        2,682        2,033        2,793        3,432        3,468        4.5        

Noninterest income

    3,113        3,957        3,934        3,197        2,774        2,521        4.3        

Noninterest expense

    5,802        5,670        4,931        3,911        3,624        3,511        10.6        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Income before income taxes

    1,628        969        1,036        2,079        2,582        2,478        (8.1)        

Provision for income taxes

    296        115        159        550        836        945        (20.7)        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Net income

    1,332        854        877        1,529        1,746        1,533        (2.8)        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Noncontrolling interest

    43        38        24        10        12              53.8        

Dividends and accretion on preferred stock

                  124        21        —                NM         
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Net income available to common shareholders

   $ 1,289       $ 816       $ 729       $ 1,498       $ 1,734       $ 1,528        (3.3)        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Per Common Share:

             

Average shares outstanding:

             

Basic

    696,532        692,489        629,583        548,847        547,184        539,140       5.3        

Diluted

    705,168        701,039        635,619        552,498        551,755        543,891       5.3        

Earnings:

             

Basic

   $ 1.85       $ 1.18       $ 1.16       $ 2.73       $ 3.17       $ 2.84        (8.2)        

Diluted

    1.83        1.16        1.15        2.71        3.14        2.81        (8.2)        

Cash dividends declared (2)

    0.65        0.60        0.92        1.87        1.80        1.64        (16.9)        

Book value

    24.98        23.67        23.47        23.16        23.14        21.69        2.9        

Average Balances:

             

Securities, at amortized cost

   $ 29,923       $ 27,610       $ 31,226       $ 23,402       $ 21,731       $ 20,110        8.3        

Loans and leases (3)

    105,962        104,787        102,146        95,195        87,952        79,313        6.0        

Other assets

    27,081        27,261        21,810        18,284        16,737        14,905        12.7        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total assets

   $ 162,966       $ 159,658       $ 155,182       $ 136,881       $ 126,420       $ 114,328        7.3        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Deposits

   $ 112,318       $ 106,773       $ 102,381       $ 88,831       $ 83,501       $ 77,230        7.8        

Long-term debt

    22,257        21,653        19,085        19,839        18,045        14,628        8.8        

Other liabilities

    11,124        14,346        17,478        14,678        12,659        10,939        0.3        

Shareholders’ equity

    17,267        16,886        16,238        13,533        12,215        11,531        8.4        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total liabilities and shareholders’ equity

   $ 162,966       $ 159,658       $ 155,182       $ 136,881       $ 126,420       $ 114,328        7.3        
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   
                5.3        

Period-End Balances:

             

Total assets

   $   174,579       $   157,081       $   165,764       $   152,015       $   132,618       $   121,351        7.5        

Loans and leases (3)

    111,205        107,264        106,207        98,669        91,686        83,591        5.9        

Deposits

    124,939        107,213        114,965        98,613        86,766        80,971        9.1        

Long-term debt

    21,803        21,730        21,376        18,032        18,693        15,904        6.5        

Shareholders’ equity

    17,480        16,498        16,241        16,081        12,664        11,826        8.1        

Selected Ratios:

             

Rate of return on:

             

Average total assets

    0.82      0.54      0.56      1.12      1.38      1.34   

Average common equity

    7.49        4.85        4.93        11.44        14.25        13.35     

Average total equity

    7.71        5.06        5.40        11.30        14.30        13.30     

Dividend payout

    35.14        50.85        79.31        68.50        56.78        57.75     

Average equity to average assets

    10.60        10.58        10.46        9.89        9.66        10.09     

 

(1) Amounts include the impact of the Colonial acquisition which was completed on August 14, 2009.
(2) 2011 included a special $0.01 dividend.
(3) Loans and leases are net of unearned income and include loans held for sale.

 

30


Table of Contents

ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Executive Overview

Significant accomplishments in 2011

In the opinion of BB&T’s management, the Corporation’s most significant accomplishments during 2011 were as follows:

 

   

Credit quality improved significantly – nonperforming assets, excluding covered foreclosed property, declined $1.5 billion, or 38.3%

 

   

Increased cash dividend as a result of improved earnings – maintained one of the highest dividend yields of the 19 stress tested banks

 

   

Total end of period deposits increased 16.5% – mix improved with 24.5% growth in noninterest-bearing deposits

 

   

Total end of period loans increased 3.7% – growth accelerated during the year and diversification improved with less exposure to higher-risk real estate loans

 

   

Strong performance in specialized lending, large corporate banking, wealth management, payment services, direct retail lending and mortgage production

 

   

Continued to enhance risk management structure

Challenges

BB&T’s business has become more dynamic and complex in recent years. Consequently, management has annually evaluated and, as necessary, adjusted the Corporation’s business strategy in the context of the current operating environment. During this process, management considers the current financial condition and performance of the Company and its expectations for future economic activity, both on a national and local market scale. The achievement of BB&T’s key strategic objectives and established long-term financial goals is subject to many uncertainties and challenges. In the opinion of management, the challenges that are most relevant and likely to have a near term impact on performance are presented below:

 

   

Slow growth in the U.S. economy and economic impact from European crisis

 

   

Intense competition within the financial services industry

 

   

Cost and risk associated with the regulatory initiatives

Overview of Significant Events and Financial Results

The year 2011 was an outstanding year for BB&T considering the challenges facing the economy and financial services industry. The Company made significant progress towards emerging from the credit cycle. In addition, loan and deposit growth improved throughout the year, along with an improved diversification mix.

Consolidated net income available to common shareholders for 2011 totaled $1.3 billion, an increase of $473 million, or 58.0%, compared to $816 million earned during 2010. On a diluted per common share basis, earnings for 2011 were $1.83, compared to $1.16 for 2010. BB&T’s results of operations for 2011 produced a return on average assets of 0.82% and a return on average common shareholders’ equity of 7.49% compared to prior year ratios of 0.54% and 4.85%, respectively.

BB&T’s revenues for 2011 were $8.8 billion, on a tax-equivalent basis, which was down 6.9% compared to 2010. This was primarily due to lower noninterest income in the current year. The majority of the decline in noninterest income was due to fewer net securities gains and a decline in FDIC loss share income. Net interest income, on a taxable-equivalent basis, was up 3.6% compared to 2010, due to asset growth and a higher net interest margin. The improvement in the net interest margin reflects higher yields on assets acquired in the Colonial acquisition and lower funding costs.

Credit costs improved significantly during 2011, as nonperforming assets, excluding covered foreclosed property, declined $1.5 billion, or 38.3%, compared to year-end 2010 and the overall quality of the loan portfolio improved. BB&T recorded a $1.2 billion provision for credit losses in 2011 compared to a $2.6 billion provision for credit losses recorded

 

31


Table of Contents

during 2010. Net charge-offs for 2011 totaled $1.7 billion compared to $2.5 billion for 2010. Net charge-offs for 2011 and 2010 included $87 million and $605 million, respectively, related to the nonperforming assets disposition strategy management began in the second quarter of 2010 and completed during the fourth quarter of 2011. In addition, there were $149 million and $90 million of losses in noninterest income related to sales and write-downs on commercial loans held for sale during 2011 and 2010, respectively. Foreclosed property expenses remained elevated in 2011, and totaled $802 million compared to $747 million in 2010. Management recorded additional write-downs during the latter-half of 2011 to accelerate its disposition efforts related to foreclosed property.

BB&T’s total assets at December 31, 2011 were $174.6 billion, an increase of $17.5 billion, or 11.1%, compared to December 31, 2010. The growth in total assets reflects an increase of $13.2 billion in the total securities portfolio and $3.9 billion in total loans and leases. The increase in the securities portfolio was due to strong deposit growth and management’s strategy to comply with the proposed Basel III liquidity guidelines. Growth in total loans and leases accelerated during the year, as improved demand outpaced the runoff portfolios.

Total deposits at December 31, 2011 were $124.9 billion, an increase of $17.7 billion, or 16.5%, from December 31, 2010. The increase in deposits was primarily due to strong growth in noninterest-bearing and interest-bearing balances from high-quality corporate clients, as part of management’s efforts to comply with the proposed Basel III liquidity guidelines. BB&T has continued to improve the deposit mix with noninterest-bearing accounts representing 20.6% of total deposits at December 31, 2011, compared with 19.2% at December 31, 2010.

Total shareholders’ equity increased 6.0% compared to December 31, 2010. BB&T’s common equity increased primarily as a result of retained earnings. The Tier 1 common ratio was 9.7% at December 31, 2011 compared to 9.1% at December 31, 2010. In addition, the Tier 1 risk-based capital and total risk-based capital ratios were 12.5% and 15.7% at December 31, 2011, respectively. BB&T’s risk-based and tangible capital ratios remain well above regulatory standards for well-capitalized banks. As of December 31, 2011, measures of tangible capital were not required by the regulators and, therefore, were considered non-GAAP measures. Refer to the section titled “Capital” herein for a discussion of how BB&T calculates and uses these measures in the evaluation of the Company.

On November 1, 2011, BB&T announced that it had entered into an agreement to acquire Fort Lauderdale, Florida-based BankAtlantic, a wholly-owned subsidiary of BankAtlantic Bancorp. Under the terms of the agreement, BB&T will acquire approximately $2.1 billion in loans and assume approximately $3.3 billion in deposits for an estimated premium of $301 million above the net asset value of BankAtlantic at closing. This represents a 9.05% deposit premium based on September 30, 2011 balances. The acquisition excludes all of BankAtlantic’s nonperforming and other criticized assets identified at September 30, 2011. No BankAtlantic Bancorp obligations are being assumed in the transaction. The premium to be paid by BB&T is subject to adjustment based on actual deposit balances at close, but in no event will it exceed $316 million. Excluding one-time merger costs, BB&T expects the transaction to be accretive to earnings per share in 2012. The transaction was approved by the boards of directors of both companies. Federal and state regulatory approvals will be required.

BB&T also has recently announced the acquisitions of several insurance agencies. Early in 2012, BB&T announced the acquisition of the life and property and casualty insurance operating divisions of Roseland, New Jersey-based Crump Group Inc. for $570 million in cash. Crump is the largest independent wholesale distributor of life insurance and one of the largest providers of wholesale commercial insurance brokerage and specialty programs in the U.S. The transaction, which exceeds BB&T’s minimum acquisition criteria, is expected to add approximately $300 million in annual revenue and approximately $570 million of intangible assets to BB&T Insurance. The transaction, which is subject to regulatory approval, does not include Crump’s retirement services business (Ascensus). During the third and fourth quarters of 2011, BB&T announced the acquisitions of Liberty Benefit Insurance Services (“Liberty”) of San Jose, California, Atlantic Risk Management Corporation (“Atlantic Risk”) of Columbia, Maryland and the Precept Group (“Precept”), with offices in Irvine and San Ramon, California. Liberty is a full-service employee benefits broker that partners with large commercial clients to assist them with managing rising health care costs, changing regulations and complex benefits administration. Atlantic Risk is a commercial property and casualty and employee benefits broker that provides risk management consulting and a full array of business insurance products and services. Precept serves middle-market and large corporate clients, ranging from 50 to 50,000 employees, with benefits consulting, procurement, administration outsourcing, health management, retirement and online enrollment services.

 

32


Table of Contents

Reclassifications

In certain circumstances, reclassifications have been made to prior period information to conform to the 2011 presentation. Such reclassifications had no effect on previously reported shareholders’ equity or net income.

Critical Accounting Policies

The accounting and reporting policies of BB&T Corporation and its subsidiaries are in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and conform to the accounting and reporting guidelines prescribed by bank regulatory authorities. BB&T’s financial position and results of operations are affected by management’s application of accounting policies, including estimates, assumptions and judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues and expenses. Different assumptions in the application of these policies could result in material changes in BB&T’s consolidated financial position and/or consolidated results of operations and related disclosures. The more critical accounting and reporting policies include BB&T’s accounting for the allowance for credit losses, determining fair value of financial instruments, intangible assets and other purchase accounting related adjustments associated with mergers and acquisitions, costs and benefit obligations associated with BB&T’s pension and postretirement benefit plans, and income taxes. Understanding BB&T’s accounting policies is fundamental to understanding BB&T’s consolidated financial position and consolidated results of operations. Accordingly, BB&T’s significant accounting policies and changes in accounting principles and effects of new accounting pronouncements are discussed in detail in Note 1 “Summary of Significant Accounting Policies” in the “Notes to Consolidated Financial Statements.”

The following is a summary of BB&T’s critical accounting policies that are highly dependent on estimates, assumptions and judgments. These critical accounting policies are reviewed with the Audit Committee of BB&T’s Board of Directors on a periodic basis.

Allowance for Credit Losses

It is the policy of BB&T to maintain an allowance for loan and lease losses and a reserve for unfunded lending commitments that represent management’s best estimate of probable credit losses inherent in the portfolio at the balance sheet date. Estimates for loan and lease losses are determined by analyzing historical loan and lease losses, historical loan and lease migration to charge-off experience, current trends in delinquencies and charge-offs, expected cash flows on purchased loans, current assessment of problem loans and leases, the results of regulatory examinations, and changes in the size, composition and risk assessment of the loan and lease portfolio. For restructured loans, default expectations and estimated slower prepayment speeds that are specific to each of the restructured loan populations are incorporated in the determination of the allowance for loan and lease losses. Also included in management’s estimates for loan and lease losses are considerations with respect to the impact of current economic events, the outcomes of which are uncertain. These events may include, but are not limited to, fluctuations in overall interest rates, political conditions, legislation that may directly or indirectly affect the banking industry and economic conditions affecting specific geographical areas and industries in which BB&T conducts business. The methodology used to determine an estimate for the reserve for unfunded lending commitments is inherently similar to the methodology used in calculating the allowance for loans and leases adjusted for factors specific to binding commitments, including the probability of funding and exposure at the time of funding. A detailed discussion of the methodology used in determining the allowance for loan and lease losses and the reserve for unfunded lending commitments is included in Note 1 “Summary of Significant Accounting Policies” in the “Notes to Consolidated Financial Statements.”

Fair Value of Financial Instruments

A significant portion of BB&T’s assets and certain liabilities are financial instruments carried at fair value. This includes securities available for sale, trading securities, derivatives, certain loans held for sale, residential mortgage servicing rights and venture capital investments. At December 31, 2011, the percentage of total assets and total liabilities measured at fair value on a recurring basis was 16.6% and 1.0%, respectively. The vast majority of assets and liabilities carried at fair value are based on either quoted market prices or market prices for similar instruments. At December 31, 2011, 6.5% of assets measured at fair value on a recurring basis were based on significant unobservable inputs. This is 1.1% of BB&T’s total assets. See Note 18 “Fair Value Disclosures” in the “Notes to Consolidated Financial Statements” herein for additional disclosures regarding the fair value of financial instruments.

 

33


Table of Contents

Securities

The fair values for available-for-sale and trading securities are generally based upon observable market prices for similar instruments or quoted market prices. BB&T generally utilizes a third-party pricing service in determining the fair value of its securities portfolio. The pricing service uses observable inputs when available including benchmark yields, reported trades, broker-dealer quotes, issuer spreads, benchmark securities, bids and offers. These values take into account recent market activity as well as other market observable data such as interest rate, spread and prepayment information. Management performs various procedures to evaluate the accuracy of the fair values provided by the third-party service. These procedures include back-testing to compare the price realized on security sales to the daily pricing information received from the third party pricing service, comparison of a sample of pricing information received from the third party pricing service to other third party pricing sources, and review of additional information provided by the third party pricing service for selected securities. When market observable data is not available, which generally occurs due to the lack of liquidity for certain securities, the valuation of the security is subjective and may involve substantial judgment by management. As of December 31, 2011, BB&T had approximately $984 million of available-for-sale securities, which is less than 1% of total assets, valued using unobservable inputs. This total is almost entirely non-agency mortgage-backed securities that are covered by a loss sharing agreement with the FDIC.

BB&T periodically reviews available-for-sale securities with an unrealized loss. An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis. The purpose of the review is to consider the length of time and the extent to which the market value of a security has been below its amortized cost. The primary factors BB&T considers in determining whether an impairment is other-than-temporary are long-term expectations and recent experience regarding principal and interest payments, and BB&T’s intent to sell and whether it is more likely than not that the Company would be required to sell those securities before the anticipated recovery of the amortized cost basis.

Mortgage Servicing Rights

BB&T has a significant mortgage loan servicing portfolio and related mortgage servicing rights (“MSRs”). BB&T has two primary classes of MSRs for which it separately manages the economic risk: residential and commercial. Residential MSRs are primarily carried at fair value with changes in fair value recorded as a component of mortgage banking income 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 MSRs. MSRs do not trade in an active, open market with readily observable prices. While sales of MSRs do occur, the precise terms and conditions typically are not readily available. Accordingly, BB&T estimates the fair value of residential MSRs using an option adjusted spread (“OAS”) valuation model to project MSR cash flows over multiple interest rate scenarios, which are then discounted at risk-adjusted rates. The OAS model considers portfolio characteristics, contractually specified servicing fees, prepayment assumptions, delinquency rates, late charges, other ancillary revenue, costs to service and other economic factors. BB&T reassesses and periodically adjusts the underlying inputs and assumptions in the OAS model to reflect market conditions and assumptions that a market participant would consider in valuing the MSR asset. When available, fair value estimates and assumptions are compared to observable market data and to recent market activity and actual portfolio experience. Due to the nature of the valuation inputs, MSRs are classified within Level 3 of the valuation hierarchy. The value of MSRs is significantly affected by mortgage interest rates available in the marketplace, which influence mortgage loan prepayment speeds. In general, during periods of declining interest rates, the value of MSRs declines due to increasing prepayments attributable to increased mortgage-refinance activity. Conversely, during periods of rising interest rates, the value of MSRs generally increases due to reduced refinance activity. Commercial MSRs are carried at the lower of cost or market and amortized over the estimated period that servicing income is expected to be received based on projections of the amount and timing of estimated future cash flows. The amount and timing of servicing asset amortization is based on actual results and updated projections. In addition, BB&T has approximately $14 million of residential MSRs that are valued at the lower of cost or market. These MSRs are associated with government sponsored programs that have prepayment assumptions that are difficult to model, which make it difficult to hedge the associated risk. Refer to Note 7 “Loan Servicing” in the “Notes to Consolidated Financial Statements” for quantitative disclosures reflecting the effect that changes in management’s assumptions would have on the fair value of MSRs.

Loans Held for Sale

BB&T originates certain mortgage loans to be sold to investors that are carried at fair value. The fair value is primarily based on quoted market prices for securities backed by similar types of loans. Changes in the fair value are recorded as a component of mortgage banking income while mortgage loan origination costs for loans held for sale for which the Corporation elected the Fair Value Option are recognized in noninterest expense when incurred. The changes in fair value of these assets are largely driven by changes in interest rates subsequent to loan funding and changes in the fair value of servicing associated with the mortgage loan held for sale. BB&T uses various derivative instruments to mitigate the economic effect of changes in fair value of the underlying loans.

 

34


Table of Contents

Derivative Assets and Liabilities

BB&T uses derivatives to manage various financial risks. The fair values of derivative financial instruments are determined based on quoted market prices, dealer quotes and internal pricing models that are primarily sensitive to market observable data. BB&T mitigates the credit risk by subjecting counterparties to credit reviews and approvals similar to those used in making loans and other extensions of credit. In addition, certain counterparties are required to provide collateral to BB&T when their unsecured loss positions exceed certain negotiated limits. The fair value of interest rate lock commitments, which are related to mortgage loan commitments, is based on quoted market prices adjusted for commitments that BB&T does not expect to fund and includes the value attributable to the net servicing fee.

Venture Capital and Similar Investments

BB&T has venture capital and similar investments that are carried at fair value. Changes in the fair value of these investments are recorded in other noninterest income each period. In many cases there are no observable market values for these investments and management must estimate the fair value based on a comparison of the operating performance of the company to multiples in the marketplace for similar entities. This analysis requires significant judgment and actual values in a sale could differ materially from those estimated. As of December 31, 2011, BB&T had $261 million of these investments, which is less than 1% of total assets.

Intangible Assets

BB&T’s mergers and acquisitions are accounted for using the acquisition method of accounting. Under the acquisition method, BB&T is required to record the assets acquired, including identified intangible assets, and liabilities assumed at their fair value, which often involves estimates based on third party valuations, such as appraisals, or internal valuations based on discounted cash flow analyses or other valuation techniques, all of which are inherently subjective. The amortization of identified intangible assets is based upon the estimated economic benefits to be received, which is also subjective. Acquisitions typically result in goodwill, which is subject to ongoing periodic impairment tests based on the fair value of net assets acquired compared to their carrying value. Refer to Note 1 in the “Notes to Consolidated Financial Statements” for a description of BB&T’s impairment testing process. While the excess of fair value over carrying value of some reporting units narrowed during the economic downturn, the results of BB&T’s most recent annual goodwill impairment analysis indicated that the fair value of each reporting unit exceeded its respective carrying value by at least 20%, with the exception of one reporting unit, which had allocated goodwill of approximately $3 million. Management considers the sensitivity of the significant assumptions in its impairment analysis including consideration of a 10% change in estimated future cash flows or the discount rate for each reporting unit.

Pension and Postretirement Benefit Obligations

BB&T offers various pension plans and postretirement benefit plans to employees. The calculation of the obligations and related expenses under these plans requires the use of actuarial valuation methods and assumptions. Actuarial assumptions used in the determination of future values of plan assets and liabilities are subject to management judgment and may differ significantly if different assumptions are used. The discount rate assumption used to measure the postretirement benefit obligations is set by reference to published high-quality bond indices, as well as certain hypothetical spot-rate yield curves. These yield curves were constructed from the underlying bond price and yield data collected as of the plan’s measurement date and are represented by a series of annualized, individual discount rates with durations ranging from six months to thirty years. Each discount rate in the curve was derived from an equal weighting of the double A or higher bond universe, apportioned into distinct maturity groups. For durations where no bond maturities were available, the discount rates for these maturities were extrapolated based on historical relationships from observable data in similar markets. These indices and hypothetical curves give only an indication of the appropriate discount rate because the cash flows of the bonds comprising the indices and curves do not match the projected benefit payment stream of the plan precisely. For this reason, BB&T also considers the individual characteristics of the plan, such as projected cash flow patterns and payment durations, when setting the discount rate. Management evaluated the sensitivity changes in the expected return on plan assets and the discount rate would have on pension expense for 2012. A decrease of 25 basis points in the discount rate would result in an additional pension expense of approximately $14 million for 2012. Based on the balance of plan assets on December 31, 2011, a decrease of one percent in the expected return on plan assets would result in an increase of approximately $25 million in pension expense for 2012. Refer to Note 14 “Benefit Plans” in the “Notes to Consolidated Financial Statements” for disclosures related to BB&T’s benefit plans.

 

35


Table of Contents

Income Taxes

The calculation of BB&T’s income tax provision is complex and requires the use of estimates and judgments. As part of the Company’s analysis and implementation of business strategies, consideration is given to the tax laws and regulations that apply to the specific facts and circumstances for any tax position under evaluation. For tax positions that are uncertain in nature, management determines whether the tax position is more likely than not to be sustained upon examination. For tax positions that meet this threshold, management then estimates the amount of the tax benefit to recognize in the financial statements. Management closely monitors tax developments in order to evaluate the effect they may have on the Company’s overall tax position and the estimates and judgments used in determining the income tax provision and records adjustments as necessary.

Analysis of Results of Operations

Consolidated net income available to common shareholders totaled $1.3 billion for 2011, which generated basic earnings per common share of $1.85 and diluted earnings per common share of $1.83. Net income available to common shareholders for 2010 and 2009 was $816 million and $729 million, respectively. Basic earnings per common share were $1.18 in 2010 and $1.16 in 2009, while diluted earnings per common share were $1.16 and $1.15 for 2010 and 2009, respectively.

Two important and commonly used measures of bank profitability are return on average assets (net income as a percentage of average total assets) and return on average common shareholders’ equity (net income available to common shareholders as a percentage of average common shareholders’ equity). BB&T’s returns on average assets were 0.82%, 0.54%, and 0.56% for the years ended December 31, 2011, 2010 and 2009, respectively. The returns on average common shareholders’ equity were 7.49%, 4.85%, and 4.93% for the last three years.

Net Interest Income and Net Interest Margin

Net interest income is BB&T’s primary source of revenue. Net interest income is influenced by a number of factors, including the volume, mix and maturity of interest-earning assets and interest-bearing liabilities and the interest rates earned and paid thereon. The difference between rates earned on interest-earning assets and the cost of the supporting funds (with an adjustment made to tax-exempt items to provide comparability with taxable items, i.e., the “FTE” adjustment) is measured by the net interest margin.

For 2011, net interest income on an FTE-adjusted basis totaled $5.7 billion, compared with $5.5 billion in 2010 and $5.0 billion in 2009. Net interest income on an FTE-adjusted basis increased 3.6% in 2011 compared to 2010. The increase in net interest income was driven by lower funding costs, which declined $418 million compared to 2010. The improvement in funding costs reflects a more favorable mix of funding liabilities, benefits from the accelerated amortization of derivatives that were unwound in a gain position and decreases in rates paid on deposits. The improvement in funding costs more than offset lower yields on new loans and securities. In addition, net interest income was higher due to better performance from loans and securities acquired in the Colonial acquisition as cash flow expectations improved from the prior estimates. Net interest income increased 9.9% in 2010 compared to 2009. The increase in net interest income during 2010 resulted primarily from higher interest from the covered loan and securities portfolios, which were outstanding for the full year of 2010 compared to a partial year for 2009. In addition, the covered loan portfolio’s yield increased during 2010 as a result of improved expectations of cash flows from the original estimates. Net interest income for 2010 also benefited from lower funding costs, as management grew noninterest-bearing deposits and was able to reduce higher cost certificates and other interest-bearing liabilities.

The FTE-adjusted net interest margin is the primary measure used in evaluating the gross profit margin from the portfolios of earning assets. The FTE-adjusted net interest margin was 4.06% in 2011, 4.03% in 2010 and 3.66% in 2009. The improvement in the net interest margin in 2011 compared to 2010 primarily reflects the higher yields on covered loans and securities and lower funding costs. During 2010, the average yield on interest earning assets increased 19 basis points compared to the average yield during 2009, while the average cost of funds over the same time period decreased 21 basis points. The improvement in the net interest margin during 2010 was primarily due to the higher yield assets acquired in the Colonial acquisition and lower funding costs.

Management expects the net interest margin to be in the 3.85% to 3.95% range in the first quarter of 2012 due to runoff of the covered loan portfolio, lower investment yields, and an overall lower interest rate environment. Deposit costs are expected to continue to trend lower in 2012, which will benefit net interest income. The runoff of the covered loans will also result in a lower offset to noninterest income from the FDIC loss share asset. Despite the lower net interest margin, management expects net interest income to grow in 2012 due to an increase in earning assets.

 

36


Table of Contents

The FTE yield on the total securities portfolio was 2.67% for the year ended December 31, 2011 compared to 3.89% for the prior year. The decrease in the annualized FTE yield on the average securities portfolio was primarily the result of management’s efforts to deleverage and de-risk the portfolio during 2010. The securities purchased included floating rate and other securities with lower yields. The yield on the securities portfolio benefited from higher yields on covered securities due to the impact of duration adjustments in the prior year.

The average annualized FTE yield for 2011 for the total loan portfolio was 5.87% compared to 5.88% for the prior year. The slight decrease in the FTE yield on the loan portfolio was primarily due to new loan volumes originated at lower rates, partially offset by the acquired loans from the Colonial transaction, which have produced higher yields due to better than expected performance.

The average rate paid on interest-bearing deposits dropped to 0.68% during 2011, from 1.05% in 2010. The average cost for interest-bearing deposits declined during 2011 as a result of the decrease in relatively higher-rate CDs and management’s ability to lower rates on other deposit products.

The rates paid on average short-term borrowings declined from 0.28% in 2010 to 0.27% during 2011. At December 31, 2011, the targeted Federal funds rate was a range of zero percent to 0.25%. The average rate on long-term debt during 2011 was 3.40%, a decrease of 56 basis points compared to the prior year. This reduction was due to new issuances at lower rates and the positive impact of accelerated amortization from certain derivatives that were unwound in a gain position.

The following table provides information related to covered and acquired loans, covered securities and the FDIC loss sharing asset recognized in the Colonial acquisition.

Table 6

Revenue, Net of Provision Impact from Acquired Assets (1)

 

    Years Ended December 31,  
    2011     2010     2009  
    (Dollars in millions)  

Interest income-loans

  $       1,070      $         947      $         238   

Interest income-securities

    168        142        50   
 

 

 

   

 

 

   

 

 

 

Total interest income

    1,238        1,089        288   

Provision for covered loans

    (71)        (144)          

FDIC loss share income, net

    (289)        (116)        14   
 

 

 

   

 

 

   

 

 

 

Net revenue after provision for covered loans

  $ 878      $ 829      $ 302   
 

 

 

   

 

 

   

 

 

 

FDIC loss share income, net:

     

Offset to provision for covered loans

  $ 57      $ 115      $   

Accretion due to credit loss improvement

    (297)        (203)        23   

Accretion for securities

    (49)        (28)        (9)   
 

 

 

   

 

 

   

 

 

 

Total

  $ (289)      $ (116)      $ 14   
 

 

 

   

 

 

   

 

 

 

 

(1) Presents amounts related to covered and acquired loans, covered securities and the FDIC loss sharing asset recognized in the Colonial acquisition. Excludes all amounts related to other assets acquired and liabilities assumed in the acquisition.

Interest income for 2011 on loans and securities acquired in the Colonial acquisition increased $149 million compared to 2010, which was offset by a decrease in FDIC loss share income. The majority of the increase is related to loans and reflects higher expected cash flows based on the quarterly cash flow reassessment process. The yield on covered and other acquired loans for 2011 was 19.28% compared to 13.26% in 2010. At December 31, 2011, the accretable yield balance on these loans was $1.8 billion. Accretable yield represents the excess of future cash flows above the current net carrying amount of loans and will be recognized into income over the remaining life of the covered and acquired loans. The increase in interest income on securities compared to the corresponding periods of the prior year was primarily a result of security duration adjustments in the prior year, which is offset in FDIC loss share income.

During 2011 and 2010, BB&T reclassified $334 million and $793 million, respectively, from the nonaccretable balance to accretable yield for purchased nonimpaired loans. During 2011 and 2010, BB&T reclassified $45 million and $405 million, respectively, from the nonaccretable balance to accretable yield for purchased impaired loans. These reclassifications were

 

37


Table of Contents

primarily the result of increased cash flow estimates resulting from improved loss expectations. These amounts are recognized as prospective yield adjustments and result in increased interest income over the remaining lives of the loan pools.

The provision for covered loans was $71 million in 2011, a decrease of $73 million compared to the 2010. The provision expenses recorded during 2011 and 2010 resulted from the reassessment process, which showed decreases in expected cash flows in certain loan pools that were partially offset by recoveries in other previously impaired loan pools.

FDIC loss share income, net decreased $173 million compared to 2010 primarily due to the impact of cash flow reassessments that generated additional interest income and a reduction of amounts due from the FDIC as a result of decreased loss projections on covered loans.

The following table sets forth the major components of net interest income and the related annualized yields and rates for 2011, 2010 and 2009, as well as the variances between the periods caused by changes in interest rates versus changes in volumes. Changes attributable to the mix of assets and liabilities have been allocated proportionally between the changes due to rate and the changes due to volume.

 

 

38


Table of Contents

Table 7

FTE Net Interest Income and Rate / Volume Analysis

Years Ended December 31, 2011, 2010 and 2009

 

           2011 vs. 2010     2010 vs. 2009  
     Average Balances     Yield/Rate     Income/Expense    

 

Increase

    Change due to    

 

Increase

    Change due to  
     2011     2010     2009     2011     2010     2009     2011     2010     2009     (Decrease)     Rate     Volume     (Decrease)     Rate     Volume  
     (Dollars in millions)  

Assets

                              

Total securities, at amortized cost: (1)(2)

                              

U.S. government-sponsored entities (GSE)

   $ 288      $ 568      $ 1,400            1.52 %            3.67 %            3.86 %      $     $ 21      $ 54      $ (17)      $ (9)      $ (8)      $ (33)      $ (2)      $ (31)   

Mortgage-backed securities issued by GSE

     25,305        22,310        25,419        1.86           3.24           4.14           472        723        1,052        (251)        (338)        87        (329)        (211)        (118)   

States and political subdivisions

     1,895        2,047        2,218        5.72           5.49           5.67           109        112        126        (3)              (8)        (14)        (5)        (9)   

Non-agency mortgage-backed securities

     528        1,174        1,447        6.72           5.87           5.82           35        69        84        (34)              (43)        (15)              (16)   

Other securities

     658        313        302        1.55           2.16           3.90           10              12              (2)              (5)        (5)          

Covered securities

     1,249        1,198        440        13.46           11.84           11.35           168        142        50        26        20              92              90   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total securities

     29,923        27,610        31,226        2.67           3.89           4.41           798        1,074        1,378        (276)        (315)        39        (304)        (220)        (84)   

Other earning assets (3)

     3,207        2,933        2,293        0.62           0.55           0.79           20        17        18                          (1)        (6)         

Loans and leases, net of unearned income: (1)(4)(5)

                              

Commercial loans and leases

     48,061        48,777        50,074        4.09           4.23           4.21           1,968        2,063        2,110        (95)        (65)        (30)        (47)              (55)   

Direct retail lending

     13,800        13,948        14,730        5.11           5.29           5.47           705        737        806        (32)        (24)        (8)        (69)        (27)        (42)   

Sales finance

     7,202        6,766        6,392        4.88           5.87           6.46           352        397        413        (45)        (69)        24        (16)        (39)        23   

Revolving credit

     2,106        2,032        1,855        8.77           8.74           9.51           185        178        176                                (15)        17   

Residential mortgage

     18,782        15,965        15,927        4.80           5.38           5.72           902        859        911        43        (99)        142        (52)        (54)         

Other lending subsidiaries

     8,280        7,778        7,141        11.51           11.46           11.51           953        892        822        61              57        70        (4)        74   

Other acquired

     50        85        52        34.10           16.43           10.81           17        14                    10        (7)                     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

     98,281        95,351        96,171        5.17           5.39           5.45           5,082        5,140        5,244        (58)        (242)        184        (104)        (127)        23   

Covered loans

     5,498        7,059        3,144        19.15           13.22           7.39           1,053        933        232        120        357        (237)        701        272        429   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans and leases held for investment

     103,779        102,410        99,315        5.91           5.93           5.51           6,135        6,073        5,476        62        115        (53)        597        145        452   

Loans held for sale

     2,183        2,377        2,831        3.75           3.80           4.81           82        90        136        (8)        (1)        (7)        (46)        (26)        (20)   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans and leases

     105,962        104,787        102,146        5.87           5.88           5.49           6,217        6,163        5,612        54        114        (60)        551        119        432   

Total earning assets

     139,092        135,330        135,665        5.06           5.36           5.17           7,035        7,254        7,008        (219)        (200)        (19)        246        (107)        353   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Nonearning assets

     23,874        24,328        19,517                           
  

 

 

   

 

 

   

 

 

                         

Total assets

   $      162,966      $      159,658      $      155,182                           
  

 

 

   

 

 

   

 

 

                         

Liabilities and Shareholders’ Equity

                              

Interest-bearing deposits:

                              

Interest-checking

   $ 18,614      $ 16,477      $ 14,688        0.16           0.17           0.22           30        29        33              (2)              (4)        (8)         

Money market and savings

     41,287        34,942        30,097        0.31           0.50           0.76           129        175        228        (46)        (74)        28        (53)        (86)        33   

Certificates and other time deposits

     28,825        33,699        38,083        1.57           2.12           2.61           453        715        994        (262)        (168)        (94)        (279)        (173)        (106)   

Foreign office deposits - interest-bearing

     647        1,913        3,126        (0.37)           (0.11)           0.51           (2)        (2)        16               (2)              (18)        (14)        (4)   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest-bearing deposits

     89,373        87,031        85,994        0.68           1.05           1.48           610        917        1,271        (307)        (246)        (61)        (354)        (281)        (73)   

Federal funds purchased, securities sold under repurchase agreements and short-term borrowed funds (1)

     5,189        9,022        12,491        0.27           0.28           0.50           14        26        63        (12)        (1)        (11)        (37)        (23)        (14)   

Long-term debt

     22,257        21,653        19,085        3.40           3.96           3.73           757        856        711        (99)        (122)        23        145        46        99   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest-bearing liabilities

     116,819        117,706        117,570        1.18           1.53           1.74           1,381        1,799        2,045        (418)        (369)        (49)        (246)        (258)        12   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Noninterest-bearing deposits

     22,945        19,742        16,387                           

Other liabilities

     5,935        5,324        4,987                           

Shareholders’ equity

     17,267        16,886        16,238                           
  

 

 

   

 

 

   

 

 

                         

Total liabilities and shareholders’ equity

   $ 162,966      $ 159,658      $ 155,182                           
  

 

 

   

 

 

   

 

 

                         

Average interest rate spread

           3.88 %        3.83 %        3.43 %                     
        

 

 

   

 

 

   

 

 

                   

Net interest margin/ net interest income

           4.06 %        4.03 %        3.66 %      $   5,654      $   5,455      $   4,963      $         199      $         169      $       30      $         492      $       151      $     341   
        

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Taxable-equivalent adjustment

               $ 147      $ 135      $ 119               
              

 

 

   

 

 

   

 

 

             

 

(1) Yields are stated on a taxable equivalent basis assuming tax rates in effect for the periods presented.
(2) Total securities include securities available for sale and securities held to maturity.
(3) Includes Federal funds sold, securities purchased under resale agreements or similar arrangements, interest-bearing deposits with banks, trading securities, FHLB stock and other earning assets.
(4) Loan fees, which are not material for any of the periods shown, have been included for rate calculation purposes.
(5) Nonaccrual loans have been included in the average balances.

 

39


Table of Contents

Provision for Credit Losses

The provision for credit losses recorded by BB&T in 2011 was $1.2 billion, compared with $2.6 billion in 2010 and $2.8 billion in 2009. The provision for credit losses decreased 54.9% during 2011. Included in the provision for credit losses during 2011 was $71 million related to covered loans. The provision for credit losses recorded for covered loans reflects lower expected cash flows on certain loan pools compared to the original estimates. Approximately 80% of this provision for credit losses is offset through a credit to noninterest income based on the provisions of the FDIC loss sharing agreements. The decrease in the provision for credit losses during 2011 compared to 2010 was primarily due to improving credit trends and outlook, as net charge-offs in 2011 decreased 34.3% compared to the prior year.

Net charge-offs were 1.57% of average loans and leases (or 1.59% excluding covered loans) for 2011 compared to 2.41% of average loans and leases (or 2.59% excluding covered loans) during 2010. Net charge-offs for 2011 included $87 million related to the transfer and sale of residential mortgage loans in the second quarter. This compares to $605 million of net charge-offs recorded in the prior year related to commercial and residential mortgage loans that were transferred to the held for sale portfolio. Excluding these items, net charge-offs were 1.50% and 1.97% of average loans and leases for 2011 and 2010, respectively. The largest decreases in the provision for credit losses for 2011 were in the commercial and residential mortgage portfolios. The decrease in the provision for credit losses during 2010 compared to 2009 was primarily due to the improving economic outlook that began to materialize in the latter part of 2010.

Noninterest Income

Noninterest income is a significant contributor to BB&T’s financial success. Noninterest income includes insurance income, service charges on deposit accounts, mortgage banking income, investment banking and brokerage fees and commissions, trust and investment advisory revenues, gains and losses on securities transactions, and commissions and fees derived from other activities. Management continues to focus on diversifying its sources of revenue to further reduce BB&T’s reliance on traditional spread-based interest income, as fee-based activities are a relatively stable revenue source during periods of changing interest rates.

The following table provides a breakdown of BB&T’s noninterest income:

Table 8

Noninterest Income

 

    Years Ended December 31,     % Change  
      2011
v.
      2010      
    2010
v.
      2009      
 
       
        2011             2010             2009          
    (Dollars in millions)              

Insurance income

  $      1,044      $ 1,041      $ 1,047        0.3 %        (0.6)%   

Service charges on deposits

    563        618        690        (8.9)           (10.4)      

Mortgage banking income

    436        521        658        (16.3)           (20.8)      

Investment banking and brokerage fees and commissions

    333        352        346        (5.4)           1.7      

Checkcard fees

    271        274        227        (1.1)           20.7      

Bankcard fees and merchant discounts

    204        177        156        15.3           13.5      

Trust and investment advisory revenues

    173        159        139        8.8           14.4      

Income from bank-owned life insurance

    122        123        97        (0.8)           26.8      

FDIC loss share income, net

    (289)        (116)        14        149.1           NM      

Securities gains (losses), net

    62        554        199        (88.8)           178.4      

Other income

    194        254        361        (23.6)           (29.6)      
 

 

 

   

 

 

   

 

 

     

Total noninterest income

  $ 3,113      $      3,957      $       3,934        (21.3)           0.6      
 

 

 

   

 

 

   

 

 

     

 

NM—not meaningful

 

 

40


Table of Contents

Noninterest income was $3.1 billion for 2011, down 21.3% compared to 2010. The decline in noninterest revenue was due to fewer securities gains, lower income related to the FDIC loss share receivable, lower service charges on deposit accounts and lower mortgage banking revenues, while bankcard fees and merchant discounts and trust and investment advisory revenues grew compared to the prior year. Noninterest income was up slightly in 2010 compared to 2009. The growth in 2010 primarily was a result of an increase in securities gains and higher revenues from checkcard fees, bankcard fees and merchant discounts, and trust and investment advisory revenues, offset by lower revenues from BB&T’s mortgage banking operations, lower noninterest income from the FDIC loss share receivable, reduced service charges on deposit accounts and lower revenues from other noninterest income sources. The major categories of noninterest income and fluctuations in these amounts are discussed in the following paragraphs. These fluctuations include the impact of acquisitions.

Income from BB&T’s insurance agency/brokerage operations was the largest source of noninterest income. Insurance income was up slightly in 2011, as pricing for premiums remained soft throughout the year. Insurance income was down slightly in 2010. Insurance commissions declined $29 million during 2010 reflecting continued softness in the industry’s pricing for premiums, which was partially offset by an increase of $23 million in insurance income from underwriting activities. The decline in insurance commissions was primarily related to property and casualty insurance.

Service charges on deposit accounts represent BB&T’s second largest category of noninterest revenue. Service charges declined $55 million, or 8.9%, in 2011. Service charge revenue declined $72 million, or 10.4%, during 2010. The decreases in 2011 and 2010 were largely a result of a decline in overdraft fees as a result of mid-2010 changes to BB&T’s overdraft policies that were partially in response to new regulation. In 2011, management implemented various changes to deposit related products, which generated additional revenue and partially offset the reduction in overdraft fees.

Income from mortgage banking activities includes gains and losses from the sale of mortgage loans, revenue from servicing mortgage loans, valuation adjustments for mortgage servicing rights, mortgage servicing rights-related derivative gains/losses and the amortization or realization of expected mortgage servicing rights cash flows. Mortgage banking income totaled $436 million, $521 million and $658 million during 2011, 2010 and 2009, respectively. The decrease of $85 million in 2011 was primarily due to a decline of $97 million in residential mortgage production revenues due to lower volumes and pricing in 2011 and the decision in the third quarter of 2010 to retain a portion of 10 to 15 year mortgage production. This decline was partially offset by higher servicing revenues as a result of growth in the servicing portfolio and higher revenues from commercial mortgage banking revenues. Included in mortgage banking income for 2011 is a negative valuation adjustment of $341 million related to changes in assumptions for residential mortgage servicing rights that are carried at fair value. This was more than offset by gains of $394 million from derivative financial instruments used to manage the economic risk. Approximately $293 million of the decline in the valuation of the residential mortgage servicing rights was due to increases in the prepayment speed assumption as a result of a decrease in interest rates. During 2011, management also revised its servicing cost assumption based on changes to regulations and industry standards that impact the mortgage servicing industry. The change in the servicing cost assumption resulted in a decline of approximately $30 million in the valuation of the mortgage servicing asset. BB&T was not a party to the consent orders issued to various mortgage servicers in the second quarter of 2011, however certain changes will impact the entire industry and are considered in the Company’s quarterly valuation. Mortgage banking income decreased $137 million, or 20.8%, during 2010, following a record year in 2009. Residential mortgage production income declined $156 million compared with 2009 due to lower gains on sales in the current year, as originations declined and the proportion of loans sold decreased due to a decision in the third quarter of 2010 to retain a portion of 10 to 15 year mortgage production. Residential mortgage servicing income was relatively flat in 2010 compared to 2009, as growth in servicing fees of $36 million from an increase in the size of the loan servicing portfolio was offset by a $35 million unfavorable net change in the valuation for mortgage servicing rights and related economic hedging activities. Commercial mortgage banking income was up $21 million, or 46.7%, in 2010 due to improved market conditions.

Investment banking and brokerage fees and commissions decreased $19 million, or 5.4%, compared to 2010, which increased $6 million, or 1.7%, compared to 2009. The decrease in 2011 was largely driven by lower revenues at BB&T Capital Markets, a division of Scott & Stringfellow, due to weaker market conditions during the year and a record fourth quarter in 2010. The increase in 2010 was largely driven by record fourth quarter performance as market conditions temporarily improved and more equity and fixed income deals were brought to market.

 

41


Table of Contents

Checkcard fees decreased slightly in 2011 compared to 2010, due to the Durbin Amendment to the Dodd-Frank Act, which was implemented on October 1, 2011. The decrease resulting from the implementation was more than offset by higher volumes during the year. The Durbin amendment limited the rate banks could assess for debit card transactions. In 2010, checkcard fees were up $47 million, or 20.7%, on higher volumes.

Bankcard fees and merchant discounts increased $27 million in 2011 and $21 million in 2010 compared to 2009. The increased bankcard fees were the result of higher volumes for both retail and commercial bankcard activities.

Trust and investment advisory revenues are based on the types of services provided as well as the overall value of the assets managed, which is affected by stock market conditions. In 2011, trust and investment advisory revenues increased $14 million, or 8.8%, due to improved market conditions. During 2010, trust and investment advisory revenues increased by $20 million, or 14.4%, compared to 2009, primarily due to fee increases and improved market conditions.

Income from bank-owned life insurance was $122 million for 2011 compared to $123 million in 2010 and $97 million in 2009. The increase in 2010 compared to 2009 was primarily due to new purchases and excess death proceeds.

FDIC loss share income reflects the offset to the provision for covered loans, accretion of the FDIC receivable due to credit loss improvement and accretion related to covered securities. During 2011 and 2010, covered loans experienced better performance than originally anticipated resulting in additional interest income. A significant portion of the increases in interest income for 2011 and 2010 was offset by reductions in noninterest income. For 2011 and 2010, noninterest income was reduced by $297 million and $203 million, respectively, related to improvement in loan performance. These decreases in income were partially offset by increases of $57 million and $115 million, respectively, which reflected approximately 80% of the provision for credit losses recorded on covered loans for 2011 and 2010.

BB&T recognized $62 million in net securities gains during 2011. The net securities gains during 2011 included $174 million of net gains realized from securities sales and $112 million of other-than-temporary impairments. The other-than-temporary impairment charges recognized during 2011 are due to weaker actual and forecasted collateral performance for non-agency mortgage-backed securities. BB&T recognized $554 million in net securities gains during 2010. The net securities gains recognized in 2010 included $585 million of net gains realized from securities sales and $31 million of losses as a result of other-than-temporary impairments. The large increase in securities gains during 2010 reflects the results of the balance sheet deleveraging strategy that was executed during the second quarter of 2010 and the de-risking of the investment portfolio that began during the third quarter of 2010 and was completed in the fourth quarter. Refer to the “Analysis of Financial Condition – Investment Activities” section for a detailed discussion of strategies executed during the years presented.

Other income decreased $60 million in 2011 compared to 2010, primarily due to losses and write-downs on commercial loans that were transferred to the loans held for sale portfolio in 2010 in connection with management’s nonperforming loan disposition strategy. There was a total of $149 million of losses and write-downs recorded in 2011 compared to $90 million in 2010. Other income decreased $107 million in 2010 compared to 2009, primarily due to losses and write-downs on commercial loans that were transferred to the loans held for sale portfolio in connection with management’s nonperforming loan disposition strategy.

Noninterest revenue sources have been negatively impacted by many regulatory initiatives over the past several years, including changes to Regulation E, posting order of client transactions and limits on interchange revenue. Management now estimates that this has negatively impacted revenues by approximately $360 million on an annual run rate basis beginning in 2012. To date, management has implemented or identified changes in products and fees to offset slightly over half of the potential lost revenue and is continuing to evaluate the Company’s product offerings in an effort to eliminate, to the extent possible, the negative financial impacts of these regulatory changes. Management currently expects noninterest income to increase during 2012 compared to 2011.

Noninterest Expense

Noninterest expense totaled $5.8 billion in 2011, $5.7 billion in 2010 and $4.9 billion in 2009. Noninterest expense includes certain merger-related and restructuring charges recorded during the years 2011, 2010 and 2009 as noted in the Table 10 below. These amounts totaled $16 million in 2011, $69 million in 2010, and $38 million in 2009. Additional disclosures related to these merger-related and restructuring charges are presented in “Merger-Related and Restructuring

 

42


Table of Contents

Charges.” The table below shows the components of noninterest expense and the discussion that follows explains the composition of certain categories and the factors that caused them to change in 2011 and 2010. The increase during 2010 was impacted by the acquisition of Colonial, which occurred in August of 2009.

Table 9

Noninterest Expense

 

    Years Ended December 31,     % Change  
      2011
v.
2010
    2010
v.
2009
 
       
    2011     2010     2009      
    (Dollars in millions)              

Personnel expense:

         

Salaries and wages

  $       2,243      $       2,153      $       2,000        4.2 %         7.7 %    

Pension and other employee benefits

    484        463        517        4.5            (10.4)       
 

 

 

   

 

 

   

 

 

     

Total personnel expense

    2,727        2,616        2,517        4.2            3.9       
 

 

 

   

 

 

   

 

 

     

Foreclosed property expense

    802        747        356        7.4            109.8       

Occupancy and equipment expense:

         

Net occupancy expense on bank premises

    394        378        366        4.2            3.3        

Furniture and equipment expense

    222        230        213        (3.5)            8.0        
 

 

 

   

 

 

   

 

 

     

Total occupancy and equipment expense

    616        608        579        1.3            5.0        
 

 

 

   

 

 

   

 

 

     

Loan processing expenses

    227        201        147        12.9            36.7        

Regulatory charges

    212        211        230        0.5            (8.3)       

Professional services

    174        170        130        2.4            30.8        

Software expense

    118        117        94        0.9            24.5        

Amortization of intangibles

    99        122        114            (18.9)            7.0        

Merger-related and restructuring charges, net

    16        69        38        (76.8)            81.6        

Other expenses:

         

Deposit related expense

    57        61        53        (6.6)            15.1       

Operational losses

    17        12        60        41.7                (80.0)       

Miscellaneous expenses

    737        736        613        0.1            20.1        
 

 

 

   

 

 

   

 

 

     

Total other expenses

    811        809        726        0.2            11.4        
 

 

 

   

 

 

   

 

 

     

Total noninterest expense

  $ 5,802      $ 5,670      $ 4,931        2.3            15.0        
 

 

 

   

 

 

   

 

 

     

Total personnel expense is the largest component of noninterest expense and includes salaries and wages, as well as pension and other employee benefit costs. Total personnel expense increased 4.2% during 2011. The increase included an additional $90 million for salaries and wages due to customary salary increases and higher incentive expense resulting from improved performance and production-related businesses. Pension and employee benefits expense was up $21 million, largely due to higher pension expense. Management expects pension expense to be approximately $70 million higher in 2012 due to the change in the discount rate. Total personnel expense increased $99 million, or 3.9%, in 2010. This increase was primarily driven by increases in salaries and wages of $153 million, which includes the impact of acquisitions. This increase was partially offset by a $54 million decrease in pension plan expense. The decrease in pension expense was largely a result of an increase in the value of pension assets during 2009, which resulted in an increase in the estimated return on plan assets and a decrease in the amortization of net actuarial losses for 2010. Additional disclosures relating to BB&T’s benefit plans can be found in Note 14 “Benefit Plans” in the “Notes to Consolidated Financial Statements.”

Foreclosed property expenses include the gain or loss on sale of foreclosed property, valuation adjustments resulting from updated appraisals, and the ongoing expense of maintaining foreclosed properties. Foreclosed property expense increased $55 million in 2011 and $391 million in 2010. The increase in 2011 was largely due to an increase of $78 million for losses and write-downs, partially offset by a decrease of $23 million for maintenance and repair costs. Included in the losses and write-downs for 2011 was a $220 million liquidity valuation adjustment in the fourth quarter related to management’s decision to implement a more aggressive shorter period disposition strategy for foreclosed properties. The increase of $391 million for 2010 was primarily due to higher losses and write-downs and rising maintenance costs, which increased $331 million and $60 million, respectively. The carrying value of BB&T’s inventory of foreclosed property decreased $723 million, or 57.4%, during 2011 and $192 million during 2010. The decline in inventory during 2011

 

43


Table of Contents

reflects management’s more aggressive efforts to liquidate properties and fewer inflows. Management expects foreclosed property will trend lower throughout 2012, with quarterly expense averaging less than $100 million.

Net occupancy and equipment expense increased slightly in 2011 and by $29 million, or 5.0%, in 2010. The increase in 2010 was largely a result of increased rent expense related to the Colonial acquisition.

Loan processing expenses increased $26 million in 2011 compared to 2010 and $54 million during 2010 compared to 2009. The 2011 increase includes a $12 million increase for losses related to repurchase reserves on BB&T’s investor owned servicing portfolio. The 2010 increase includes additional costs related to the Colonial acquisition and a $23 million increase for losses related to repurchase reserves on BB&T’s investor owned servicing portfolio. BB&T had $123 million, $107 million and $33 million of loan repurchases and indemnification payments in 2011, 2010, and 2009, respectively. While these levels have increased the past two years, they remain modest compared to the industry and trended down each quarter during 2011.

Regulatory charges increased slightly in 2011 after a decline of $19 million in 2010. The decline in 2010 was primarily due to a special assessment of $68 million in 2009, which was offset by higher deposit insurance premiums in 2010. In 2011, the FDIC implemented a new methodology for deposit insurance, including changes required by the Dodd-Frank Act. The new methodology changed the assessment base from deposit liabilities to tangible assets and also introduced a new assessment framework to better assess the risk an institution poses to the deposit insurance fund. While BB&T’s asset base grew during 2011, which would have driven higher FDIC premiums, this was largely offset by improvements in credit quality measures.

The remaining noninterest expenses decreased a net $69 million, or 5.4%, compared to 2010, which reflected an increase of $185 million, or 16.8%, compared to 2009. The decrease for 2011 includes lower merger-related and restructuring charges, as 2010 included charges related to the Colonial acquisition and systems conversion. In addition, amortization of intangibles declined by $23 million as intangibles are amortized on an accelerated basis. 2011 includes a $16 million loss from the sale of leveraged leases and an $11 million charge for an increase to the indemnification reserve related to the 2008 sale of Visa stock. These increases were partially offset by $19 million in lower advertising and other marketing expenses. The 2010 increase included the impact of $41 million in gains on the extinguishment of debt that were realized during 2009. In addition, merger-related and restructuring charges and software expense increased $31 million and $23 million, respectively, from the prior year. The increase in merger-related charges was primarily due to costs incurred in connection with the Colonial systems conversion. Advertising and other marketing expenses were also higher by $29 million compared to 2009. These increases were partially offset by a decline of $48 million in operational losses compared to the prior year. The increase for 2010 was also impacted by the Colonial acquisition, which was completed in August of 2009. Refer to Table 9 for additional detail on fluctuations in other categories of noninterest expense.

Merger-Related and Restructuring Charges

BB&T recorded certain merger-related and restructuring charges during the years 2011, 2010 and 2009. These charges are reflected in BB&T’s Consolidated Statements of Income as a category of noninterest expense.

Merger-related and restructuring expenses or credits include: severance and personnel-related costs or credits, which typically occur in corporate support and data processing functions; occupancy and equipment charges or credits, which relate to costs or gains associated with lease terminations, obsolete equipment write-offs, and the sale of duplicate facilities and equipment; and other merger-related and restructuring charges or credits, which include expenses necessary to convert and combine the acquired branches and operations of merged companies, direct media advertising related to the acquisitions, asset and supply inventory write-offs, investment banking advisory fees and other similar charges. During 2011, BB&T recorded $16 million of merger-related and restructuring charges. These amounts were primarily related to management’s expense optimization efforts and the pending acquisition of BankAtlantic. During 2010, BB&T recorded $69 million of merger-related and restructuring charges. These amounts were primarily associated with the acquisition of Colonial and related systems conversions. The 2009 net merger-related and restructuring charges of $38 million were primarily associated with the acquisition of Colonial.

At December 31, 2011 and 2010, there were $20 million and $10 million, respectively, of merger-related and restructuring accruals. Merger-related and restructuring accruals are established when the costs are incurred or once all requirements for a plan to dispose of certain business functions have been approved by management. In general, a major portion of accrued costs are utilized in conjunction with or immediately following the systems conversion, when most of the duplicate

 

44


Table of Contents

positions are eliminated and the terminated employees begin to receive severance. Other accruals are utilized over time based on the sale, closing or disposal of duplicate facilities or equipment or the expiration of lease contracts. Merger and restructuring accruals are re-evaluated periodically and adjusted as necessary. The remaining accruals at December 31, 2011 are generally expected to be utilized during 2012, unless they relate to specific contracts that expire in later years.

The following table presents a summary of activity with respect to BB&T’s merger-related and restructuring accruals.

Table 10

Merger-related and Restructuring Accrual Activity

(Dollars in millions)

 

000000 000000 000000 000000 000000
    Balance
  January 1,  
2010
    Charges
  and credits  
      Utilized         Other,  
net
    Balance
  December 31,  
2010
 

Severance and personnel-related

   $      $ 11       $ (14)       $ (1)       $  

Occupancy and equipment

          28        (25)                

Other

          30        (31)        (3)         
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $             15       $             69       $           (70)       $              (4)       $             10   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

00000000 00000000 00000000 00000000 00000000
    Balance
  January 1,  
2011
    Charges
  and credits  
      Utilized         Other,  
net
    Balance
  December 31,  
2011
 

Severance and personnel-related

   $      $ 11       $ (2)       $       $ 11   

Occupancy and equipment

          (1)        (2)               

Other

                (3)                
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $             10       $             16       $             (7)       $               1       $             20   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Management currently expects lower noninterest expense in 2012 compared to 2011 largely due to lower credit costs and the impact of management’s expense optimization efforts.

Provision for Income Taxes

BB&T’s provision for income taxes totaled $296 million, $115 million and $159 million for 2011, 2010 and 2009, respectively. The increase in the provision for income taxes for 2011 largely reflects higher pre-tax earnings, whereas the decline in the provision for income taxes during 2010 was largely due to lower pre-tax income, higher federal tax credits and higher tax-exempt income. BB&T’s effective tax rates for the years ended 2011, 2010 and 2009 were 18.2%, 11.9% and 15.3%, respectively.

BB&T has extended credit to and invested in the obligations of states and municipalities and their agencies, and has made other investments and loans that produce tax-exempt income. The income generated from these investments, together with certain other transactions that have favorable tax treatment, have reduced BB&T’s overall effective tax rate from the statutory rate in 2011 and 2010.

Management currently expects the effective tax rate will be approximately 25% in 2012.

Refer to Note 13 “Income Taxes” in the “Notes to Consolidated Financial Statements” for a reconciliation of the effective tax rate to the statutory tax rate and a discussion of uncertain tax positions and other tax matters.

Segment Results

BB&T’s operations are divided into six reportable business segments: Community Banking, Residential Mortgage Banking, Dealer Financial Services, Specialized Lending, Insurance Services, and Financial Services. These operating segments have been identified based on BB&T’s organizational structure. See Note 21 “Operating Segments” in the “Notes to Consolidated Financial Statements” herein for additional disclosures related to BB&T’s operating segments, the internal accounting and reporting practices used to manage these segments and financial disclosures for these segments.

 

45


Table of Contents

Fluctuations in noninterest income and noninterest expense incurred directly by the segments are more fully discussed in the “Noninterest Income” and “Noninterest Expense” sections above.

Community Banking

Community Banking has a network of 1,779 banking offices at the end of 2011, a decrease of 3 offices compared to 1,782 banking offices at December 31, 2010. The decrease in offices is the result of closing low volume branches partially offset by de novo branch openings.

Net income attributable to Community Banking increased $457 million to $533 million in 2011. The increase in net income compared to 2010 was primarily due to a lower allocated provision for loan and lease losses. Comparing 2010 to 2009, net income in the Community Banking segment decreased $222 million, or 74.5%, to $76 million primarily due to higher foreclosed property expense.

Net interest income for Community Banking totaled $3.6 billion in 2011 compared to $3.8 billion in 2010. The decline in net interest income was primarily the effect of a lower interest rate environment. The decline in net interest income attributable to low interest rates was partially offset by improvements in the deposit mix, as the result of an increase in noninterest checking balances and a decrease in client certificates of deposits. Net interest income earned in 2010 rose by $234 million, or 6.6%, compared to 2009. The increase in the net interest income in 2010 was primarily due to improvements in the deposit mix.

The allocated provision for loan and lease losses declined $1.2 billion, or 66.2%, to $608 million in 2011, reflecting lower charge-offs in the commercial real estate and residential ADC loan portfolios. The allocated provision for loan and lease losses declined $54 million, or 2.9%, from 2009 to 2010 due to lower loan balances.

Noninterest income in Community Banking decreased $181 million, or 15.1%, to $1.0 billion in 2011, primarily due to higher losses on commercial loans held for sale, lower overdraft fees, and lower checkcard fees. This decline in noninterest income was offset by increases in merchant discounts, deposit account service charges, account analysis fees, and credit card interchange fees. In 2010, noninterest income declined $26 million, or 2.1%, driven primarily by lower overdraft fees, as well as higher losses on commercial nonperforming loans held for sale. Noninterest income allocated from other segments, which is reported as intersegment net referral fees (“referral fees”), declined by $12 million, or 8.2% in 2011, primarily due to lower referrals for residential mortgage lending as originations slowed. Noninterest income allocated from other segments of $146 million in 2010 was $40 million, or 21.5% lower than 2009, driven primarily by lower referrals for residential mortgage lending.

Noninterest expense incurred by Community Banking during 2011 declined $31 million, or 1.3%, to $2.4 billion compared to 2010. The decline was primarily due to lower regulatory charges and personnel expense, partially offset by higher foreclosed property expense. Comparing 2010 to 2009, noninterest expense increased $483 million, or 25.2%. This increase was primarily due to higher foreclosed property expense, other real estate owned expense, and personnel expense. Allocated corporate expense increased $95 million, or 12.3%, to $866 million in 2011, primarily due to increases in loan administration expense, IT services and operations. Comparing 2010 to 2009, allocated corporate expenses increased by $93 million, or 13.7%.

Total identifiable assets for Community Banking decreased $2.3 billion in 2011, or 3.6%, to $60.9 billion, compared to a decrease of $3.1 billion, or 4.6%, in 2010. The loan portfolios declined due to the sale of specific nonperforming commercial loans, the general economic conditions, and lack of strong demand for lending products during 2011 and 2010. Community Banking experienced solid organic deposit growth during 2011, excluding the decline in higher-cost certificates of deposit.

Residential Mortgage Banking

BB&T’s mortgage originations totaled $23.7 billion in 2011, down $1.2 billion, or 4.8%, compared to 2010. BB&T’s residential mortgage servicing portfolio, which includes both retained loans and loans serviced for third parties, totaled $91.6 billion at year end 2011, an increase of 9.8%, compared to $83.5 billion at December 31, 2010. Residential Mortgage Banking experienced a net loss of $17 million in 2011, compared to a net loss of $77 million in 2010. This improvement in performance was primarily due to a significant decline in the allocated provision for loan and lease losses. Net income in 2009 was $208 million, due to strong growth in loan originations during the year. The decline in net income in 2010 compared to 2009 was primarily due to a significant increase in the allocated provision for loan and lease losses.

 

46


Table of Contents

Net interest income for Residential Mortgage Banking totaled $287 million in 2011, up $27 million, or 10.4%, compared to 2010. Net interest income in 2010 was down $83 million, or 24.2%, compared to 2009. The increase in net interest income in 2011 was primarily due to growth in the loans held for investment, as well as higher spreads to funding costs. The decrease in net interest income in 2010 compared to 2009 was primarily due to a higher charge for funds. Net interest income of $343 million in 2009 was driven by loan portfolio growth, as the result of record mortgage originations, as well as higher spreads to funding costs.

The allocated provision for loan and lease losses was $326 million for 2011, down $227 million, or 41.0%, compared to $553 million in 2010. The decline in provision expense reflects improved credit quality in the loan portfolio. Net charge-offs of $87 million and $141 million were recorded in 2011 and 2010, respectively, resulting from the sale of problem loans in connection with management’s nonperforming loan disposition strategy.

Noninterest income in Residential Mortgage Banking declined $109 million, or 23.9%, to $348 million in 2011. This decrease was due to lower mortgage loan sale volumes and margins than the prior year. Noninterest income was down $150 million, or 24.7%, in 2010 compared to 2009. This decrease was due to lower loan production revenues compared to a record year in 2009. Noninterest expense incurred in 2011 within Residential Mortgage Banking increased $42 million, or 15.9%, to $306 million compared to 2010, reflecting higher foreclosed property expense, as well as an increase in provision expense associated with loan repurchases. Noninterest expense for 2010 was up $7 million, or 2.7%, from 2009 as higher provision expense associated with loan repurchases was offset by lower incentive expense on loan originations.

Total identifiable assets of $25.5 billion for Residential Mortgage Banking increased $3.3 billion, or 14.8%. This followed an increase in identifiable assets of $3.1 billion, or 16.3%, in 2010. Increases in identifiable assets in 2011 and 2010 were due to management’s decision to retain a portion of 10 and 15 year mortgage production.

Dealer Financial Services

Net income from Dealer Financial Services was $204 million in 2011, up from $185 million in 2010. This increase is primarily attributable to growth in average loan balances, as well as higher spreads on funding costs. Comparing 2010 to 2009, net income increased $154 million, primarily due to a lower allocated provision for loan and lease losses.

Net interest income from Dealer Financial Services increased by $61 million, or 11.9%, to $575 million in 2011 compared to 2010. The increase in net interest income was primarily due to growth in the prime auto and marine and recreational vehicle loan portfolios, as well as an improved net interest margin in the Regional Acceptance Corporation’s point-of-sale loan portfolio. During 2010, net interest income increased by $61 million, or 13.5%, to $514 million compared to 2009. This increase was due to growth in the prime marine and recreational vehicle loan portfolio, as well as the acquisition of an indirect automobile loan portfolio in mid-2009.

The allocated provision for loan and lease losses of $125 million was up 34.4% in 2011 after a 66.1% decrease to $93 million in 2010. The increase in 2011 reflects growth in Regional Acceptance Corporation’s delinquent accounts and nonperforming assets, which have risen from recent lows to more historical levels. The 2010 decrease reflects significant improvements in net charge-offs over 2009 levels.

Total identifiable assets for Dealer Financial Services of $9.9 billion increased $456 million, or 4.8%, compared to 2010, reflecting growth in lending activities following a strong prior year increase of $780 million, or 9.0%.

Specialized Lending

Specialized Lending continued to expand during 2011 through strong organic growth. Net income was $238 million for 2011, up $70 million, or 41.7%, compared to 2010. The increase in net income was driven by strong loan production and portfolio growth, as well as continued improvement in credit quality. Net income in 2010 of $168 million was up $105 million, or 166.7%, compared to 2009, primarily due to organic loan growth, coupled with a lower allocated provision for loan and lease losses.

Net interest income totaled $451 million in 2011, an increase of $44 million, or 10.8%, compared to 2010. Comparing 2010 to 2009, net interest income increased $104 million, or 34.3%, to $407 million. The growth in net interest income in 2011 was driven by strong loan growth by Sheffield Financial as the result of expanded dealer relationships, as well as higher net interest margins for Lendmark and Governmental Finance. Net interest income growth in 2010 was primarily

 

47


Table of Contents

driven by growth in loans at Sheffield Financial and Governmental Finance. Average loans for Specialized Lending grew by $1.3 billion, or 11.2%, to $12.8 billion in 2011 compared to 2010. Average loan growth for the segment was $1.4 billion, or 14.4%, in 2010 compared to 2009.

The allocated provision for loan and lease losses totaled $68 million in 2011, a decrease of $42 million, or 38.2%, compared to 2010. Comparing 2010 to 2009, the allocated provision for loan and lease losses decreased $48 million, or 30.4%. The decline in the provision for 2011 was primarily attributable to generally improved credit performance across the lines of business. Due to the overall higher credit risk profiles of some of Specialized Lending’s clients, loss rates are expected to be higher than conventional bank lending. Loss rates are also affected by shifts in the portfolio mix of the underlying subsidiaries.

Noninterest income totaled $210 million in 2011, an increase of $34 million, or 19.3%, compared to 2010. Noninterest income growth in 2011 was driven by Grandbridge Real Estate Capital, which achieved record commercial mortgage loan origination volume for delivery to the secondary market. Comparing 2010 to 2009, noninterest income increased $29 million, or 19.7%. Noninterest expense totaled $265 million in 2011, an increase of $20 million, or 8.2%, compared to 2010.

The increase in noninterest expense was driven by internal growth. Comparing 2010 to 2009, noninterest expense totaled $245 million, an increase of $20 million, or 8.9%.

Total identifiable assets of $16.8 billion for Specialized Lending increased $1.8 billion, or 12.1%, between 2010 and 2011 due primarily to organic growth in the loan portfolios of the underlying businesses. Comparing 2010 to 2009, total identifiable assets increased $2.5 billion, or 20.0%.

Insurance Services

Net income from Insurance Services was $104 million in 2011, essentially flat compared to 2010. Insurance Services continues to be impacted by the weak economy and soft insurance premium pricing, resulting in low commission revenue growth and pressure on brokerage operating margins. Comparing 2010 to 2009, net income declined $7 million, or 6.4%.

Noninterest income produced by Insurance Services totaled $1.0 billion during 2011, 2010, and 2009. Acquisitions completed in 2011 included Precept, a full-service employee benefits consulting and administrative solutions firm with offices in Irvine and San Ramon, California; Liberty Benefit Insurance Services, a full-service employee benefits broker located in San Jose, California; and Atlantic Risk Management Corporation, a commercial property and casualty and employee benefits broker located in Columbia, Maryland.

Noninterest expenses incurred within the Insurance Services segment increased $11 million, or 1.4%, in 2011 compared to 2010. This increase was due to higher operating costs, including increased legal costs compared to 2010. Comparing 2010 to 2009, noninterest expenses increased $20 million, or 2.6%.

Financial Services

Net income from Financial Services increased by $57 million, or 24.4%, to $291 million in 2011. The increase from 2010 was primarily attributable to loan and deposit growth, as well as a lower allocated provision for loan and lease losses. In 2011, Financial Services experienced positive results from Corporate Banking loan and deposit growth. Comparing 2010 to 2009, net income declined $19 million, or 7.5%, to $234 million as the result of a $27 million pre-tax gain on the sale of BB&T’s payroll processing business in 2009.

Net interest income totaled $370 million in 2011, an increase of $56 million, or 17.8%, compared to 2010. Comparing 2010 to 2009, net interest income increased $25 million, or 8.7%. The increase in net interest income during 2011 was attributable to strong organic loan and deposit growth in Corporate Banking, offset by a lower net interest margin. Corporate Banking was also the strongest driver in the overall increase in net interest income for 2010.

The allocated provision for loan and lease losses declined $42 million, or 93.3%, to $3 million in 2011 compared to 2010, reflecting continued excellent credit quality performance. The allocated provision for loan and lease losses increased $12 million, or 36.4%, from 2009 to 2010 primarily due to higher loan balances.

Noninterest income in Financial Services totaled $692 million in 2011, up $35 million, or 5.3%, compared to $657 million earned during 2010. This increase in 2011 is primarily attributable to strong BB&T Capital Partners revenue growth related to maturing investments in its private equity and mezzanine funds. Additionally, Retirement and Institutional

 

48


Table of Contents

Services had strong noninterest income growth in 2011, with assets growing as the result of improved market conditions and business initiatives. Noninterest income declined by $37 million, or 5.3%, between 2009 and 2010. The revenue decrease in 2010 was attributable to losses taken on client derivatives, offsetting normalized growth in the various businesses and the $27 million pre-tax gain on the sale of BB&T’s payroll processing business in the fourth quarter of 2009. Noninterest expense of $583 million incurred by Financial Services increased $49 million, or 9.2%, in 2011, after declining $9 million in the prior year. The increase in noninterest expense in 2011 was the result of continued efforts to expand the sales force in the Wealth Division and Corporate Banking.

Total identifiable assets for Financial Services of $7.5 billion increased $1.5 billion, or 24.7%, between 2010 and 2011 due primarily to organic loan growth in Corporate Banking. Comparing 2010 to 2009, total identifiable assets increased $900 million, or 17.5%.

Analysis of Financial Condition

A review of the Company’s major balance sheet categories is presented below.

Investment Activities

BB&T’s investment activities are governed internally by a written, board-approved policy. The investment policy is carried out by the Corporation’s Market Risk and Liquidity Committee (“MRLC”), which meets regularly to review the economic environment and establish investment strategies. The MRLC also has much broader responsibilities, which are discussed in the “Market Risk Management” section in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein.

Investment strategies are reviewed by the MRLC based on the interest rate environment, balance sheet mix, actual and anticipated loan demand, funding opportunities and the overall interest rate sensitivity of the Corporation. In general, the investment portfolio is managed in a manner appropriate to the attainment of the following goals: (i) to provide a sufficient margin of liquid assets to meet unanticipated deposit and loan fluctuations and overall funds management objectives; (ii) to provide eligible securities to secure public funds, trust deposits as prescribed by law and other borrowings; and (iii) to earn the maximum return on funds invested that is commensurate with meeting the requirements of (i) and (ii).

Branch Bank invests in securities as allowable under bank regulations. These securities may include obligations of the U.S. Treasury, U.S. government agencies, U.S. government-sponsored entities, including mortgage-backed securities, bank eligible obligations of any state or political subdivision, privately-issued mortgage-backed securities, structured notes, bank eligible corporate obligations, including corporate debentures, commercial paper, negotiable certificates of deposit, bankers acceptances, mutual funds and limited types of equity securities. Branch Bank also may deal in securities subject to the provisions of the Gramm-Leach-Bliley Act. Scott & Stringfellow, LLC, BB&T’s full-service brokerage and investment banking subsidiary, engages in the underwriting, trading and sales of equity and debt securities subject to the risk management policies of the Corporation.

 

49


Table of Contents

The following table provides information regarding the composition of BB&T’s available-for-sale and held to maturity securities portfolio for the years presented:

Table 11

Composition of Securities Portfolio

 

    December 31,  
    2011     2010     2009  
    (Dollars in millions)  

Securities available for sale (at fair value):

     

U.S. government-sponsored entities (“GSE”)

   $ 306       $ 103       $ 2,035   

Mortgage-backed securities issued by GSE

    18,132        18,344        26,670   

States and political subdivisions

    1,923        1,909        2,107   

Non-agency mortgage-backed securities

    368        515        1,022   

Other securities

          759        218   

Covered securities

    1,577        1,539        1,201   
 

 

 

   

 

 

   

 

 

 

Total securities available for sale

    22,313        23,169        33,253   

Securities held to maturity (at amortized cost):

     

GSE securities

    500                 

Mortgage-backed securities issued by GSE

    13,028                 

States and political subdivisions

    35                 

Other securities

    531                 
 

 

 

   

 

 

   

 

 

 

Total securities held to maturity

    14,094                 
 

 

 

   

 

 

   

 

 

 

Total securities

   $           36,407       $           23,169       $           33,253   
 

 

 

   

 

 

   

 

 

 

The total securities portfolio increased $13.2 billion, or 57.1%, in 2011. The majority of the growth in the portfolio occurred in the latter half of the year, when management purchased additional securities as part of a strategy to comply with the proposed Basel III liquidity guidelines. Management currently expects the securities portfolio to remain at current levels in 2012.

As of December 31, 2011, approximately 99% of the securities portfolio was backed by government agencies or government sponsored entities and approximately 28% were variable rate securities. The effective duration of the securities portfolio was 3.3 years at December 31, 2011 compared to 4.0 years at the end of 2010. The duration of the securities portfolio excludes equity securities, auction rate securities, and certain non-agency mortgage-backed securities that were acquired in the Colonial acquisition. As of December 31, 2011, the securities portfolio includes $22.3 billion of available-for-sale securities and $14.1 billion of held-to-maturity securities. During the first quarter of 2011, BB&T reclassified approximately $8.3 billion from 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. Management transferred these securities to mitigate possible negative impacts on its regulatory capital under the proposed Basel III capital guidelines. In addition, management purchased additional securities into the held-to-maturity portfolio during the year based on its intent at the date of purchase.

Mortgage-backed securities issued by government-sponsored entities were 85.6% of the total securities portfolio at year-end 2011. As of December 31, 2011, the available-for-sale securities portfolio also includes $1.6 billion of securities that were acquired from the FDIC as part of the Colonial acquisition. These securities are covered by FDIC loss sharing agreements and include $1.3 billion of non-agency mortgage-backed securities and $326 million of municipal securities.

In 2011, primarily in connection with strengthening its liquidity under the proposed Basel III liquidity guidelines, management purchased a total of $13.4 billion of GNMA mortgage-backed securities. Management also sold approximately $4.0 billion of securities during the year, which produced net securities gains of $174 million. In addition, BB&T recognized $112 million in charges for other-than-temporary impairment related to BB&T’s portfolio of non-agency mortgage-backed securities. The other-than-temporary impairment charges were the result of weaker actual and forecasted collateral performance for non-agency mortgage-backed securities.

 

50


Table of Contents

In 2010, management executed two major strategies to strengthen the balance sheet. In the second quarter of 2010, management executed a deleveraging strategy to better position BB&T’s balance sheet for a rising rate environment and achieve a better mix of earning assets. In connection with this strategy, management reduced the balance sheet by approximately $8 billion through the sale of securities. During the third and fourth quarters of 2010, management executed a strategy to further de-risk the available-for-sale securities portfolio. The de-risking strategy was aimed at further reducing the duration of the securities portfolio and reducing the risk of charges to other comprehensive income in a rising rate environment. Also to further protect against the risk of a rising rate environment, management replaced a portion of the securities sold with floating-rate securities. As of December 31, 2010, approximately 28% of the available-for-sale securities portfolio was floating rate. In addition, management sold approximately $400 million of non-agency mortgage-backed securities to reduce the potential for future credit losses. These strategies were the primary driver in generating net securities gains during 2010. Primarily in connection with these strategies, BB&T sold a total of $31.3 billion in available-for-sale securities during 2010, which produced net securities gains of $585 million. In addition, BB&T recognized $31 million in charges for other-than-temporary impairment related to BB&T’s portfolio of non-agency mortgage-backed securities.

Refer to Note 2 “Securities” in the “Notes to Consolidated Financial Statements” herein for additional disclosures related to BB&T’s evaluation of securities for other-than-temporary impairment.

 

51


Table of Contents

The following table presents BB&T’s securities portfolio at December 31, 2011, segregated by major category with ranges of maturities and average yields disclosed.

Table 12

Securities

 

     December 31, 2011  
     Available for Sale     Held to Maturity  
     Fair Value     Weighted
 Average Yield (1) 
     Amortized Cost      Weighted
 Average Yield  (1) 
 
     (Dollars in millions)  

U.S. government-sponsored entities (GSE):

        

Within one year

    $ 176        0.92 %        $        —%    

One to five years

     130        0.26                   —        

Five to ten years

            —            500        2.12       
  

 

 

     

 

 

   

Total

     306        0.64            500        2.12       
  

 

 

     

 

 

   

Mortgage-backed securities issued by GSE: (2)

        

One to five years

           6.20                   —        

Five to ten years

     222        2.79                   —        

After ten years

     17,904        2.31            13,028        2.18       
  

 

 

     

 

 

   

Total

     18,132        2.32            13,028        2.18       
  

 

 

     

 

 

   

Obligations of states and political subdivisions: (3)

        

Within one year

           7.28                   —        

One to five years

     14        6.91                   —        

Five to ten years

     132        6.26                   —        

After ten years

     1,773        6.34            35        5.31       
  

 

 

     

 

 

   

Total

     1,923        6.34            35        5.31       
  

 

 

     

 

 

   

Non-agency mortgage-backed securities: (2)

        

After ten years

     368        5.95                   —        
  

 

 

     

 

 

   

Total

     368        5.95                   —        
  

 

 

     

 

 

   

Other securities:

        

Within one year

           0.56                   —        

After ten years

            —            531        1.61       

No stated maturity

           1.84                   —        
  

 

 

     

 

 

   

Total

           1.56            531        1.61       
  

 

 

     

 

 

   

Covered securities:

        

One to five years

           4.51                   —        

Five to ten years

     299        5.44                   —        

After ten years

     1,276        14.23                   —        
  

 

 

     

 

 

   

Total

     1,577        12.27                   —        
  

 

 

     

 

 

   

Total securities

    $         22,313                    3.27            $         14,094                    2.16        
  

 

 

     

 

 

   

 

(1) Yields on tax-exempt securities are calculated on a taxable-equivalent basis using the statutory federal income tax rate of 35%. Yields for available-for-sale securities are calculated based on the amortized cost of the securities.
(2) 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. 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.
(3) Weighted-average yield excludes the effect of pay-fixed swaps hedging municipal securities.

 

52


Table of Contents

Lending Activities

The primary goal of the BB&T lending function is to help clients achieve their financial goals by providing quality loan products that are fair to the client and profitable to the Corporation. Management believes that this purpose can best be accomplished by building strong, profitable client relationships over time, with BB&T becoming an important contributor to the prosperity and well-being of its clients. In addition to the importance placed on client knowledge and continuous involvement with clients, BB&T’s lending process incorporates the standards of a consistent company-wide credit culture and an in-depth local market knowledge. Furthermore, the Corporation employs strict underwriting criteria governing the degree of assumed risk and the diversity of the loan portfolio in terms of type, industry and geographical concentration. In this context, BB&T strives to meet the credit needs of businesses and consumers in its markets while pursuing a balanced strategy of loan profitability, loan growth and loan quality.

BB&T’s loan portfolio is approximately 50% commercial and 50% retail by design, and is divided into six major categories—commercial, direct retail, sales finance, revolving credit, residential mortgage and other lending subsidiaries. In addition, BB&T has a portfolio of loans that were acquired in the Colonial acquisition that are covered by FDIC loss sharing agreements. BB&T lends to a diverse customer base that is substantially located within the Corporation’s primary market area. At the same time, the loan portfolio is geographically dispersed throughout BB&T’s branch network to mitigate concentration risk arising from local and regional economic downturns. Refer to the “Risk Management” section herein for a discussion of each of the loan portfolios and the credit risk management policies used to manage the portfolios.

The following table summarizes BB&T’s loan portfolio based on the regulatory classification of the portfolio, which focuses on the underlying loan collateral, and differs from internal classifications presented herein that focus on the primary purpose of the loan. Covered loans are included in their respective categories.

Table 13

Composition of Loan and Lease Portfolio

 

    December 31,  
    2011     2010     2009     2008     2007  
    (Dollars in millions)  

Commercial, financial and agricultural loans

   $ 21,452       $ 20,490       $ 19,076       $ 17,489       $ 14,515   

Lease receivables

    1,067        1,158        1,092        1,315        1,651   

Real estate-construction and land development loans

    7,714        10,969        15,353        18,012        19,474   

Real estate-mortgage loans

    60,821        57,418        55,671        48,719        44,687   

Consumer loans

    16,415        13,532        12,464        11,710        10,580   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans and leases held for investment

    107,469        103,567        103,656        97,245        90,907   

Loans held for sale

    3,736        3,697        2,551        1,424        779   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans and leases

   $     111,205       $     107,264       $     106,207       $       98,669       $     91,686   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

53


Table of Contents

The following table is based upon the regulatory classification of loans and reflects the scheduled maturities of commercial, financial and agricultural loans, as well as real estate construction loans:

Table 14

Selected Loan Maturities and Interest Sensitivity

 

        December 31, 2011      
        Commercial,     Real Estate:            
        Financial     Construction            
        and     and Land            
        Agricultural     Development            
        Loans     Loans     Total      
              (Dollars in millions)            
 

Fixed Rate:

       
 

1 year or less (1)

   $ 2,691       $ 272       $ 2,963     
 

1-5 years

    1,931        931        2,862     
 

After 5 years

    3,969        1,134        5,103     
   

 

 

   

 

 

   

 

 

   
 

Total

    8,591        2,337        10,928     
 

Variable Rate:

       
 

1 year or less (1)

    5,730        2,058        7,788     
 

1-5 years

    5,448        2,839        8,287     
 

After 5 years

    1,683        480        2,163     
   

 

 

   

 

 

   

 

 

   
 

Total

    12,861