UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the quarterly period ended: September 30, 2012

Commission file number: 1-10853

 

 

BB&T CORPORATION

(Exact name of registrant as specified in its charter)

 

 

 

  

   
North Carolina 56-0939887
(State of Incorporation)

(I.R.S. Employer

Identification No.)

 

   
200 West Second Street 27101

Winston-Salem, North Carolina

(Address of Principal Executive Offices)

(Zip Code)

(336) 733-2000

(Registrant’s Telephone Number, Including Area Code)

 

 

  

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

 

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

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

 

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

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  [ ]   No  [X ]

At October 31, 2012, 699,640,823 shares of the Registrant’s common stock, $5 par value, were outstanding.

 

 

 

 
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Table of Contents
BB&T CORPORATION
FORM 10-Q
September 30, 2012
INDEX
     
    Page No.
PART I  
Item 1. Financial Statements  
  Consolidated Balance Sheets (Unaudited) 3
  Consolidated Statements of Income (Unaudited)
  Consolidated Statements of Comprehensive Income (Unaudited)
  Consolidated Statements of Changes in Shareholders' Equity (Unaudited)
  Consolidated Statements of Cash Flows (Unaudited)
  Notes to Consolidated Financial Statements (Unaudited) 8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 50
Item 3. Quantitative and Qualitative Disclosures About Market Risk (see Market Risk Management) 86
Item 4. Controls and Procedures 86
PART II  
Item 1. Legal Proceedings 86
Item 1A. Risk Factors 86
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 86
Item 3. Defaults Upon Senior Securities - (not applicable.)  
Item 4. Mine Safety Disclosures - (not applicable.)  
Item 5. Other Information - (none to be reported.)  
Item 6. Exhibits 87
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BB&T CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in millions, except per share data, shares in thousands)
                   
          September 30,   December 31,
          2012   2011
Assets          
  Cash and due from banks $ 1,557    $ 1,562 
  Interest-bearing deposits with banks   1,784      2,646 
  Federal funds sold and securities purchased under resale agreements or similar          
    arrangements   162      136 
  Segregated cash due from banks       20 
  Trading securities at fair value   572      534 
  Securities available for sale at fair value ($1,581 and $1,577 covered by FDIC loss          
    share at September 30, 2012 and December 31, 2011, respectively)   24,098      22,313 
  Securities held to maturity (fair value of $13,445 and $14,098 at September 30, 2012          
     and December 31, 2011, respectively)   13,140      14,094 
  Loans held for sale at fair value   3,467      3,736 
  Loans and leases ($3,688 and $4,867 covered by FDIC loss share at September 30,          
    2012 and December 31, 2011, respectively)   114,140      107,469 
  Allowance for loan and lease losses   (2,051)     (2,256)
    Loans and leases, net of allowance for loan and lease losses   112,089      105,213 
                   
  FDIC loss share receivable   656      1,100 
  Premises and equipment   1,940      1,855 
  Goodwill   6,718      6,078 
  Core deposit and other intangible assets   718      444 
  Residential mortgage servicing rights at fair value   563      563 
  Other assets ($327 and $415 of foreclosed property and other assets covered by FDIC          
    loss share at September 30, 2012 and December 31, 2011, respectively)   14,554      14,285 
      Total assets $ 182,021    $ 174,579 
                   
Liabilities and Shareholders’ Equity          
  Deposits:          
    Noninterest-bearing deposits $ 30,810    $ 25,684 
    Interest-bearing deposits   99,208      99,255 
      Total deposits   130,018      124,939 
                   
  Federal funds purchased, securities sold under repurchase agreements and short-term          
    borrowed funds   3,093      3,566 
  Long-term debt   19,221      21,803 
  Accounts payable and other liabilities   9,157      6,791 
      Total liabilities   161,489      157,099 
                   
  Commitments and contingencies (Note 13)          
  Shareholders’ equity:          
    Preferred stock, liquidation preference of $25,000 per share   1,679       — 
    Common stock, $5 par   3,498      3,486 
    Additional paid-in capital   5,950      5,873 
    Retained earnings   9,761      8,772 
    Accumulated other comprehensive loss, net of deferred income taxes   (409)     (713)
    Noncontrolling interests   53      62 
      Total shareholders’ equity   20,532      17,480 
      Total liabilities and shareholders’ equity $ 182,021    $ 174,579 
                   
  Common shares outstanding   699,541      697,143 
  Common shares authorized   2,000,000      2,000,000 
  Preferred shares outstanding   69       — 
  Preferred shares authorized   5,000      5,000 
The accompanying notes are an integral part of these consolidated financial statements.
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BB&T CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in millions, except per share data, shares in thousands)
                                 
            Three Months Ended   Nine Months Ended
              September 30,     September 30,
              2012      2011      2012      2011 
Interest Income                      
  Interest and fees on loans and leases $ 1,492    $ 1,546    $ 4,486    $ 4,589 
  Interest and dividends on securities   221      199      685      512 
  Interest on other earning assets           20      15 
      Total interest income   1,720      1,750      5,191      5,116 
Interest Expense                      
  Interest on deposits   105      150      333      473 
  Interest on federal funds purchased, securities sold under repurchase                      
    agreements and short-term borrowed funds               10 
  Interest on long-term debt   130      181      472      578 
      Total interest expense   237      334      810      1,061 
Net Interest Income   1,483      1,416      4,381      4,055 
  Provision for credit losses   244      250      805      918 
Net Interest Income After Provision for Credit Losses   1,239      1,166      3,576      3,137 
Noninterest Income                      
  Insurance income   333      241      997      790 
  Service charges on deposits   142      141      417      421 
  Mortgage banking income   211      123      609      301 
  Investment banking and brokerage fees and commissions   90      81      267      258 
  Checkcard fees   48      78      136      229 
  Bankcard fees and merchant discounts   62      51      175      149 
  Trust and investment advisory revenues   46      43      137      131 
  Income from bank-owned life insurance   30      33      87      92 
  FDIC loss share income, net   (90)     (104)     (221)     (243)
  Other income   92      42      208      104 
  Securities gains (losses), net                      
      Realized gains (losses), net        ―     (3)     37 
      Other-than-temporary impairments    ―     (7)     (5)     (18)
      Non-credit portion recognized in other comprehensive income   (2)     (32)     (4)     (60)
          Total securities gains (losses), net   (1)     (39)     (12)     (41)
      Total noninterest income   963      690      2,800      2,191 
Noninterest Expense                      
  Personnel expense   797      671      2,302      2,048 
  Foreclosed property expense   54      168      218      456 
  Occupancy and equipment expense   166      151      478      457 
  Loan processing expense   85      55      210      168 
  Regulatory charges   40      46      124      166 
  Professional services   36      56      110      125 
  Software expense   36      30      100      85 
  Amortization of intangibles   31      24      82      75 
  Merger-related and restructuring charges, net   43       ―     57     
  Other expenses   241      216      659      604 
      Total noninterest expense   1,529      1,417      4,340      4,184 
Earnings                      
  Income before income taxes   673      439      2,036      1,144 
  Provision for income taxes   177      68      557      212 
      Net income   496      371      1,479      932 
  Noncontrolling interests           36      34 
  Preferred stock dividends   25       ―     33     
      Net income available to common shareholders $ 469    $ 366    $ 1,410    $ 898 
Earnings Per Common Share                      
      Basic $ 0.67    $ 0.52    $ 2.02    $ 1.29 
      Diluted $ 0.66    $ 0.52    $ 1.99    $ 1.27 
  Cash dividends declared $ 0.20    $ 0.16    $ 0.60    $ 0.49 
                                 
Weighted Average Shares Outstanding                      
      Basic   699,091      697,052      698,454      696,335 
      Diluted   709,875      705,604      708,439      704,910 

 

 

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

 

 

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BB&T CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Dollars in millions)
                               
          Three Months Ended   Nine Months Ended
          September 30,   September 30,
          2012   2011   2012   2011
                               
Net Income $ 496    $ 371    $ 1,479    $ 932 
Other Comprehensive Income, Net of Tax:                      
  Unrealized net holding gains (losses) arising during the period on securities                      
    available for sale   151      291      336      548 
  Reclassification adjustment for (gains) losses on securities available for sale                      
    included in net income       25          26 
  Change in amounts attributable to the FDIC under the loss share agreements   (13)     (29)     (41)     (82)
  Change in unrecognized gains (losses) on cash flow hedges   (10)     (70)     (25)     (112)
  Change in pension and postretirement liability   (1)         21      15 
  Other, net       (5)         (4)
    Total other comprehensive income   132      218      304      391 
    Total comprehensive income $ 628    $ 589    $ 1,783    $ 1,323 
                               
                               
Income Tax Effect of Items Included in Other Comprehensive Income:
  Unrealized net holding gains (losses) arising during the period on securities                      
    available for sale $ 92    $ 173    $ 204    $ 324 
  Reclassification adjustment for (gains) losses on securities available for sale                      
    included in net income    ―     14          15 
  Change in amounts attributable to the FDIC under the loss share agreements   (7)     (18)     (25)     (49)
  Change in unrecognized gains (losses) on cash flow hedges   (5)     (41)     (15)     (66)
  Change in pension and postretirement liability   (2)         12     
  Other, net              

 

 

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

 
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BB&T CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
Nine Months Ended September 30, 2012 and 2011
(Dollars in millions, shares in thousands)
                                                         
                                          Accumulated            
          Shares of                   Additional         Other         Total
          Common     Preferred     Common   Paid-In   Retained   Comprehensive   Noncontrolling   Shareholders’
          Stock     Stock     Stock   Capital   Earnings   Income (Loss)   Interests   Equity
Balance, January 1, 2011 694,381      $  ―     $ 3,472    $ 5,776    $ 7,935    $ (747)   $ 62    $ 16,498 
Add (Deduct):                                                
  Net income  ―        ―        ―      ―     898       ―     34      932 
  Net change in other comprehensive income (loss)  ―        ―        ―      ―      ―     391       ―     391 
  Stock transactions:                                                
    In purchase acquisitions 26         ―        ―          ―      ―      ―    
    In connection with equity awards 1,918         ―       10      (9)      ―      ―      ―    
    Shares repurchased in connection with equity                                                
      awards (642)        ―       (3)     (15)      ―      ―      ―     (18)
    In connection with dividend reinvestment plan 580         ―           13       ―      ―      ―     16 
    In connection with 401(k) plan 838         ―           19       ―      ―      ―     23 
  Cash dividends declared on common stock  ―        ―        ―      ―     (341)      ―      ―     (341)
  Equity-based compensation expense  ―        ―        ―     73       ―      ―      ―     73 
  Other, net  ―        ―        ―     (2)          ―     (34)     (35)
Balance, September 30, 2011 697,101      $  ―     $ 3,486    $ 5,856    $ 8,493    $ (356)   $ 62    $ 17,541 
                                                         
Balance, January 1, 2012 697,143      $  ―     $ 3,486    $ 5,873    $ 8,772    $ (713)   $ 62    $ 17,480 
                                                         
Add (Deduct):                                                
  Net income  ―        ―        ―      ―     1,443       ―     36      1,479 
  Net change in other comprehensive income (loss)  ―        ―        ―      ―      ―     304       ―     304 
  Stock transactions:                                                
    In purchase acquisitions 28         ―        ―          ―      ―      ―    
    In connection with equity awards 2,936         ―       15      14       ―      ―      ―     29 
    Shares repurchased in connection with equity                                                
      awards (566)        ―       (3)     (14)      ―      ―      ―     (17)
    In connection with preferred stock offering  ―       1,679         ―      ―      ―      ―      ―     1,679 
  Cash dividends declared on common stock  ―        ―        ―      ―     (421)      ―      ―     (421)
  Cash dividends declared on preferred stock  ―        ―        ―      ―     (33)      ―      ―     (33)
  Equity-based compensation expense  ―        ―        ―     79       ―      ―      ―     79 
  Other, net  ―                ―     (3)      ―      ―     (45)     (48)
Balance, September 30, 2012 699,541      $ 1,679      $ 3,498    $ 5,950    $ 9,761    $ (409)   $ 53    $ 20,532 

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

 

 

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BB&T CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in millions)
              Nine Months Ended
              September 30,
              2012   2011
Cash Flows From Operating Activities:          
  Net income $ 1,479    $ 932 
  Adjustments to reconcile net income to net cash from operating activities:          
    Provision for credit losses   805      918 
    Depreciation   207      196 
    Amortization of intangibles   82      75 
    Equity-based compensation   79      73 
    (Gain) loss on securities, net   12      41 
    Net write-downs/losses on foreclosed property   152      337 
    Net change in operating assets and liabilities:          
      Segregated cash due from banks   17      290 
      Loans held for sale   (143)     426 
      FDIC loss share receivable   436      629 
      Other assets   (653)     126 
      Accounts payable and other liabilities   438      263 
    Other, net   (241)     42 
        Net cash from operating activities   2,670      4,348 
                       
Cash Flows From Investing Activities:          
  Proceeds from sales of securities available for sale   249      401 
  Proceeds from maturities, calls and paydowns of securities available for sale   2,959      2,395 
  Purchases of securities available for sale   (4,453)     (11,605)
  Proceeds from maturities, calls and paydowns of securities held to maturity   3,566      730 
  Purchases of securities held to maturity   (1,169)     (523)
  Originations and purchases of loans and leases, net of principal collected   (5,773)     (2,865)
  Net cash received from acquisitions   692       ―
  Purchases of premises and equipment   (117)     (176)
  Proceeds from sales of foreclosed property or other real estate held for sale   677      735 
  Other, net   95      70 
        Net cash from investing activities   (3,274)     (10,838)
                       
Cash Flows From Financing Activities:          
  Net change in deposits   1,618      10,427 
  Net change in federal funds purchased, securities sold under repurchase agreements          
    and short-term borrowed funds   (473)     (1,720)
  Proceeds from issuance of long-term debt   1,828      1,999 
  Repayment of long-term debt   (4,538)     (1,862)
  Net cash from common stock transactions   12      22 
  Net cash from preferred stock transactions   1,679       ―
  Cash dividends paid on common stock   (391)     (334)
  Cash dividends paid on preferred stock   (8)      ―
  Other, net   36      (23)
        Net cash from financing activities   (237)     8,509 
Net Change in Cash and Cash Equivalents   (841)     2,019 
Cash and Cash Equivalents at Beginning of Period   4,344      2,385 
Cash and Cash Equivalents at End of Period $ 3,503    $ 4,404 
                       
Supplemental Disclosure of Cash Flow Information:          
  Cash paid (received) during the period for:          
    Interest $ 839    $ 1,047 
    Income taxes   344      (209)
  Noncash investing and financing activities:          
    Transfers of securities available for sale to securities held to maturity       8,341 
    Transfers of loans to foreclosed property   374      856 
    Purchases of securities held to maturity not yet settled   1,450       ―

 

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

 

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BB&T Corporation and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 1. Basis of Presentation

BB&T Corporation and subsidiaries (“BB&T,” the “Corporation” or the “Company”) is a financial holding company organized under the laws of North Carolina.

General

These consolidated financial statements and notes are presented in accordance with the instructions for Form 10-Q and, therefore, do not include all information and notes necessary for a complete presentation of financial position, results of operations and cash flow activity required in accordance with accounting principles generally accepted in the United States of America (“GAAP”). In the opinion of management, all normal recurring adjustments necessary for a fair statement of the consolidated financial position and consolidated results of operations have been made. The information contained in the financial statements and footnotes included in BB&T’s Annual Report on Form 10-K for the year ended December 31, 2011 should be referred to in connection with these unaudited interim consolidated financial statements.

Reclassifications

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

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change include the determination of the allowance for credit losses, determination of fair value for financial instruments, valuation of goodwill, intangible assets and other purchase accounting related adjustments, benefit plan obligations and expenses, and tax assets, liabilities and expense.

Changes in Accounting Principles and Effects of New Accounting Pronouncements

In May 2011, the FASB issued new guidance impacting Fair Value Measurements and Disclosures. The new guidance creates a uniform framework for applying fair value measurement principles for companies around the world. It eliminates differences between GAAP and International Financial Reporting Standards issued by the International Accounting Standards Board. New disclosures required by the guidance include: quantitative information about the significant unobservable inputs used for Level 3 measurements; a qualitative discussion about the sensitivity of recurring Level 3 measurements to changes in the unobservable inputs disclosed, including the interrelationship between inputs; and a description of the company’s valuation processes. The adoption of this guidance, which occurred effective January 1, 2012, had no impact on BB&T’s consolidated financial position, results of operations or cash flows. The new disclosures required by this guidance are included in Note 14 to these consolidated financial statements.

In June 2011, the FASB issued new guidance impacting Comprehensive Income. The new guidance amends disclosure requirements for the presentation of comprehensive income. The amended guidance eliminates the option to present components of other comprehensive income (“OCI”) as part of the statement of changes in shareholders’ equity. All changes in OCI must be presented either in a single continuous statement of comprehensive income or in two separate but consecutive financial statements. The guidance does not change the items that must be reported in OCI. BB&T adopted this guidance effective January 1, 2012, and has elected to present two separate but consecutive financial statements.

In December 2011, the FASB issued new guidance impacting the presentation of certain items on the Balance Sheet. The new guidance requires an entity to disclose both gross and net information about both instruments and transactions that are eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. This guidance is effective for annual periods beginning on or after January 1, 2013 and interim periods within those annual periods. The adoption of this guidance will not impact BB&T’s consolidated financial position, results of operations or cash flows, but may result in certain additional disclosures.

In October 2012, the FASB issued new guidance on Business Combinations. The new guidance clarifies that when a reporting entity recognizes an indemnification asset as a result of a government-assisted acquisition of a financial institution

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and subsequently a change in the cash flows expected to be collected on the indemnification asset occurs, the reporting entity should account for the change in the measurement of the indemnification asset on the same basis as the change in the assets subject to indemnification. Any amortization of changes in value should be limited to the lesser of the contractual term of the indemnification agreement or the remaining life of the indemnified assets. This guidance is effective for annual periods beginning on or after December 15, 2012 and interim periods within those annual periods. BB&T has previously accounted for its indemnification asset in accordance with this guidance; accordingly, this guidance will have no impact on BB&T’s consolidated financial position, results of operations or cash flows.

NOTE 2. Securities

 

The amortized cost, gross unrealized gains and losses and approximate fair values of securities available for sale and held to maturity were as follows:
                                 
          Amortized   Gross Unrealized   Fair  
  September 30, 2012   Cost   Gains   Losses   Value  
                                 
          (Dollars in millions)  
  Securities available for sale:                          
    U.S. government-sponsored entities (“GSE”)   $ 313    $  —    $  —    $ 313   
    Mortgage-backed securities issued by GSE     19,358      517          19,871   
    States and political subdivisions     1,965      148      100      2,013   
    Non-agency residential mortgage-backed securities     319      11      11      319   
    Other securities          —       —       
    Covered securities     1,169      412       —      1,581   
      Total securities available for sale   $ 23,125    $ 1,088    $ 115    $ 24,098   
                                 
  Securities held to maturity:                          
    GSE securities   $ 2,500    $ 12    $   $ 2,511   
    Mortgage-backed securities issued by GSE     9,902      298          10,199   
    States and political subdivisions     34              34   
    Other securities     704              701   
      Total securities held to maturity   $ 13,140    $ 313    $   $ 13,445   

 

          Amortized   Gross Unrealized   Fair  
  December 31, 2011   Cost   Gains   Losses   Value  
                                 
          (Dollars in millions)  
  Securities available for sale:                          
    GSE securities   $ 305    $   $  —    $ 306   
    Mortgage-backed securities issued by GSE     17,940      199          18,132   
    States and political subdivisions     1,977      91      145      1,923   
    Non-agency residential mortgage-backed securities     423       —      55      368   
    Other securities          —       —       
    Covered securities     1,240      343          1,577   
      Total securities available for sale   $ 21,892    $ 634    $ 213    $ 22,313   
                                 
  Securities held to maturity:                          
    GSE securities   $ 500    $  —    $  —    $ 500   
    Mortgage-backed securities issued by GSE     13,028      32      23      13,037   
    States and political subdivisions     35       —          33   
    Other securities     531              528   
      Total securities held to maturity   $ 14,094    $ 33    $ 29    $ 14,098   

As of September 30, 2012, the fair value of covered securities included $1.3 billion of non-agency residential mortgage-backed securities and $328 million of municipal securities. As of December 31, 2011, the fair value of covered securities included $1.3 billion of non-agency residential mortgage-backed securities and $326 million of municipal securities. All covered securities are subject to loss sharing agreements with the FDIC.

At September 30, 2012 and December 31, 2011, securities with carrying values of approximately $12.9 billion and $15.5 billion, respectively, were pledged to secure municipal deposits, securities sold under agreements to repurchase, other borrowings, and for other purposes as required or permitted by law.

 

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BB&T had certain investments in marketable debt securities and mortgage-backed securities issued by the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) that exceeded ten percent of shareholders’ equity at September 30, 2012. The Fannie Mae investments had total amortized cost and fair value of $10.6 billion and $10.8 billion, respectively. The Freddie Mac investments had total amortized cost and fair value of $8.3 billion.

 

The gross realized gains and losses are reflected in the following table:
                                 
          Three Months Ended   Nine Months Ended  
          September 30,   September 30,  
            2012     2011     2012     2011  
                                 
          (Dollars in millions)  
  Gross gains $   $  ―   $   $ 38   
  Gross losses    ―      ―     (4)     (1)  
  Net realized gains (losses) $   $  ―   $ (3)   $ 37   

The following table reflects changes in credit losses on other-than-temporarily impaired securities, which was primarily non-agency residential mortgage-backed securities, where a portion of the unrealized loss was recognized in other comprehensive income during the three and nine months ended September 30, 2012 and 2011. Other-than-temporary impairment (“OTTI”) of $4 million related to covered securities during the nine months ended September 30, 2012 is not reflected in this table.

 

          Three Months Ended   Nine Months Ended  
          September 30,   September 30,  
            2012     2011     2012     2011  
                                 
          (Dollars in millions)  
  Balance at beginning of period $ 113    $ 63    $ 130    $ 30   
  Credit losses on securities for which OTTI was previously recognized       39          78   
  Reductions for securities sold/settled during the period   (4)     (2)     (24)     (8)  
  Balance at end of period $ 111    $ 100    $ 111    $ 100   

The amortized cost and estimated fair value of the debt securities portfolio at September 30, 2012, by contractual maturity, are shown in the accompanying table. The expected life of mortgage-backed securities will differ from contractual maturities because borrowers may have the right to prepay the underlying mortgage loans with or without prepayment penalties. For purposes of the maturity table, mortgage-backed securities, which are not due at a single maturity date, have been included in maturity groupings based on the contractual maturity.

 

          Available for Sale   Held to Maturity  
          Amortized   Fair   Amortized   Fair  
  September 30, 2012   Cost   Value   Cost   Value  
                                 
          (Dollars in millions)  
  Due in one year or less   $ 144    $ 144    $   $  
  Due after one year through five years     200      204       ―      
  Due after five years through ten years     657      698      1,323      1,326   
  Due after ten years     22,124      23,052      11,816      12,118   
    Total debt securities   $ 23,125    $ 24,098    $ 13,140    $ 13,445   

 

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The following tables reflect the gross unrealized losses and fair values of BB&T’s investments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:
                                               
            Less than 12 months   12 months or more   Total  
            Fair   Unrealized   Fair   Unrealized   Fair   Unrealized  
  September 30, 2012   Value   Losses   Value   Losses   Value   Losses  
                                               
            (Dollars in millions)  
  Securities available for sale:                                      
    Mortgage-backed securities issued by GSE   $ 1,040    $   $ 339    $   $ 1,379    $  
    States and political subdivisions     18       —      513      100      531      100   
    Non-agency residential mortgage-backed securities      —       —      146      11      146      11   
      Total   $ 1,058    $   $ 998    $ 112    $ 2,056    $ 115   
                                               
  Securities held to maturity:                                      
    GSE securities   $ 299    $   $  —    $  —    $ 299    $  
    Mortgage-backed securities issued by GSE     836       —      193          1,029       
    States and political subdivisions     23               —      26       
    Other securities     397          57       —      454       
      Total   $ 1,555    $   $ 253    $   $ 1,808    $  

 

            Less than 12 months   12 months or more   Total  
            Fair   Unrealized   Fair   Unrealized   Fair   Unrealized  
  December 31, 2011   Value   Losses   Value   Losses   Value   Losses  
                                               
            (Dollars in millions)  
  Securities available for sale:                                      
    Mortgage-backed securities issued by GSE   $ 3,098    $   $  —    $  —    $ 3,098    $  
    States and political subdivisions     16          702      142      718      145   
    Non-agency residential mortgage-backed securities      —       —      368      55      368      55   
    Covered securities     29           —       —      29       
      Total   $ 3,143    $ 16    $ 1,070    $ 197    $ 4,213    $ 213   
                                               
  Securities held to maturity:                                      
    Mortgage-backed securities issued by GSE   $ 7,770    $ 23    $  —    $  —    $ 7,770    $ 23   
    States and political subdivisions     33           —       —      33       
    Other securities     207           —       —      207       
      Total   $ 8,010    $ 29    $  —    $  —    $ 8,010    $ 29   

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

Factors considered in determining whether a loss is temporary include:

·The financial condition and near-term prospects of the issuer, including any specific events that may influence the operations of the issuer;
·BB&T’s intent to sell and whether it is more likely than not that the Company will be required to sell these debt securities before the anticipated recovery of the amortized cost basis;
·The length of time and the extent to which the market value has been less than cost;
·Whether the decline in fair value is attributable to specific conditions, such as conditions in an industry or in a geographic area;
·Whether a debt security has been downgraded by a rating agency;
·Whether the financial condition of the issuer has deteriorated;
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·The seniority of the security;
·Whether dividends have been reduced or eliminated, or scheduled interest payments on debt securities have not been made; and
·Any other relevant available information.

To the extent that BB&T does not intend to sell the security and it is more likely than not that BB&T will not be required to sell the security prior to recovery, the credit component of the unrealized loss is recognized in earnings and the non-credit component is recognized in accumulated other comprehensive income. In making this determination, BB&T considers its expected liquidity and capital needs, including its asset/liability management needs, forecasts, strategies and other relevant information.

BB&T uses cash flow modeling to evaluate non-agency residential mortgage-backed securities in an unrealized loss position for potential credit impairment. These models give consideration to long-term macroeconomic factors applied to current security default rates, prepayment rates and recovery rates and security-level performance. At September 30, 2012, four non-agency residential mortgage-backed securities with an unrealized loss were below investment grade. None of the unrealized losses were significant.

At September 30, 2012, $88 million of unrealized loss on municipal securities was the result of fair value hedge basis adjustments that are a component of amortized cost. Municipal securities in an unrealized loss position are evaluated for credit impairment through a qualitative analysis of issuer performance and the primary source of repayment. The evaluation of municipal securities indicated there were no credit losses evident.

NOTE 3. Loans and Leases

 

The following table provides a breakdown of BB&T’s loan portfolio:
     
          September 30,   December 31,  
          2012   2011  
                     
          (Dollars in millions)  
  Loans and leases, net of unearned income:            
    Commercial:            
      Commercial and industrial $ 38,012    $ 36,415   
      Commercial real estate - other   10,913      10,689   
      Commercial real estate - residential ADC (1)   1,454      2,061   
    Direct retail lending   15,710      14,506   
    Sales finance   7,723      7,401   
    Revolving credit   2,291      2,212   
    Residential mortgage   24,293      20,581   
    Other lending subsidiaries   10,056      8,737   
      Total loans and leases held for investment (excluding covered loans)   110,452      102,602   
    Covered   3,688      4,867   
      Total loans and leases held for investment   114,140      107,469   
    Loans held for sale   3,467      3,736   
      Total loans and leases $ 117,607    $ 111,205   
                     
                     
(1) Commercial real estate - residential ADC represents residential acquisition, development and construction loans.

 

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Changes in the carrying amount and accretable yield for purchased impaired and nonimpaired loans accounted for under the accretion method were as follows:
                                                   
      Nine Months Ended September 30, 2012   Year Ended December 31, 2011
      Purchased Impaired   Purchased Nonimpaired   Purchased Impaired   Purchased Nonimpaired
            Carrying         Carrying         Carrying         Carrying
      Accretable   Amount   Accretable   Amount   Accretable   Amount   Accretable   Amount
      Yield   of Loans   Yield   of Loans   Yield   of Loans   Yield   of Loans
                                                   
      (Dollars in millions)
Balance at beginning of period $ 521    $ 2,124    $ 1,239    $ 2,782    $ 835    $ 2,858    $ 1,611    $ 3,394 
  Accretion   (177)     177      (429)     429      (359)     359      (706)     706 
  Payments received, net    ―     (736)      ―     (1,061)      ―     (1,093)      ―     (1,318)
  Other, net   (107)      ―     (26)      ―     45       ―     334       ―
Balance at end of period $ 237    $ 1,565    $ 784    $ 2,150    $ 521    $ 2,124    $ 1,239    $ 2,782 

The outstanding unpaid principal balance for all purchased impaired loans as of September 30, 2012 and December 31, 2011 was $2.3 billion and $3.3 billion, respectively. The outstanding unpaid principal balance for all purchased nonimpaired loans as of September 30, 2012 and December 31, 2011 was $2.9 billion and $3.9 billion, respectively.

At September 30, 2012 and December 31, 2011, none of the purchased loans were classified as nonperforming assets. Therefore, interest income, through accretion of the difference between the carrying amount of the loans and the expected cash flows, is being recognized on all purchased loans. The allowance for loan losses related to the purchased loans results from decreased expectations of future cash flows due to increased credit losses for certain acquired loan pools.

 

The following table provides a summary of BB&T’s nonperforming assets and loans 90 days or more past due and still accruing:
                   
        September 30,   December 31,  
        2012   2011  
                   
        (Dollars in millions)  
               
  Nonaccrual loans and leases held for investment $ 1,540    $ 1,872   
  Foreclosed real estate (1)   139      536   
  Other foreclosed property   39      42   
      Total nonperforming assets (excluding covered assets) (1) $ 1,718    $ 2,450   
  Loans 90 days or more past due and still accruing (excluding covered loans) (2)(3)(4) $ 152    $ 202   
                   
                   
(1) Excludes foreclosed real estate totaling $289 million and $378 million as of September 30, 2012 and December 31, 2011, respectively, that is covered by FDIC loss sharing agreements.
(2) Excludes mortgage loans guaranteed by GNMA that BB&T does not have the obligation to repurchase totaling $499 million and $426 million as of September 30, 2012 and December 31, 2011, respectively.
(3) Excludes loans 90 days or more past due that are covered by FDIC loss sharing agreements totaling $476 million and $736 million as of September 30, 2012 and December 31, 2011, respectively.
(4) Excludes mortgage loans 90 days or more past due that are government guaranteed totaling $233 million and $206 million as of September 30, 2012 and December 31, 2011, respectively.

 

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The following table provides a summary of loans that continue to accrue interest under restructured terms  ("performing restructurings") and restructured loans that have been placed in nonaccrual status ("nonperforming restructurings''):
                   
        September 30,   December 31,  
        2012   2011  
                   
        (Dollars in millions)  
  Performing restructurings:            
    Commercial:            
      Commercial and industrial $ 66    $ 74   
      Commercial real estate - other   75      117   
      Commercial real estate - residential ADC   25      44   
    Direct retail lending   120      146   
    Sales finance        
    Revolving credit   58      62   
    Residential mortgage (1)(2)   646      608   
    Other lending subsidiaries   77      50   
      Total performing restructurings (1)(2)   1,074      1,109   
  Nonperforming restructurings (3)   225      280   
      Total restructurings (1)(2)(3)(4) $ 1,299    $ 1,389   
                   
                   
(1) Excludes restructured mortgage loans held for investment that are government guaranteed totaling $272 million and $232 million at September 30, 2012 and December 31, 2011, respectively.
(2) Excludes restructured mortgage loans held for sale that are government guaranteed totaling $3 million and $4 million at September 30, 2012 and December 31, 2011, respectively.
(3) Nonperforming restructurings are included in nonaccrual loan disclosures.
(4) All restructurings are considered impaired.  The allowance for loan and lease losses attributable to these restructured loans totaled $254 million and $266 million at September 30, 2012 and December 31, 2011, respectively.
                   
Commitments to lend additional funds to clients with loans whose terms have been modified in restructurings was immaterial at September 30, 2012 and December 31, 2011.
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NOTE 4. Allowance for Credit Losses

 

An analysis of the allowance for credit losses is presented in the following tables:
 
        Beginning   Charge-             Ending  
  Three Months Ended September 30, 2012   Balance   Offs   Recoveries   Provision   Balance  
                                     
        (Dollars in millions)  
  Commercial:                                
    Commercial and industrial   $ 525    $ (84)   $   $ 96    $ 541   
    Commercial real estate - other     305      (40)         (30)     238   
    Commercial real estate - residential ADC     157      (35)         (23)     101   
    Other lending subsidiaries     13      (1)             14   
                                     
  Retail:                                
    Direct retail lending     283      (57)         46      281   
    Revolving credit     90      (20)         24      99   
    Residential mortgage     309      (35)      ―     25      299   
    Sales finance     25      (5)             28   
    Other lending subsidiaries     200      (57)         85      233   
                                     
  Covered     139      (2)      ―      ―     137   
                                     
  Unallocated     80       ―      ―      ―     80   
  Allowance for loan and lease losses     2,126      (336)     31      230      2,051   
  Reserve for unfunded lending commitments     31       ―      ―     14      45   
  Allowance for credit losses   $ 2,157    $ (336)   $ 31    $ 244    $ 2,096   

 

        Beginning   Charge-             Ending  
  Three Months Ended September 30, 2011   Balance   Offs   Recoveries   Provision   Balance  
                                     
        (Dollars in millions)  
  Commercial:                                
    Commercial and industrial   $ 474    $ (102)   $   $ 55    $ 436   
    Commercial real estate - other     462      (64)         26      430   
    Commercial real estate - residential ADC     382      (61)         (2)     328   
    Other lending subsidiaries     13      (2)             13   
                                     
  Retail:                                
    Direct retail lending     233      (74)     10      51      220   
    Revolving credit     103      (23)         21      105   
    Residential mortgage     347      (41)         57      364   
    Sales finance     42      (7)             39   
    Other lending subsidiaries     171      (40)         40      177   
                                     
  Covered     159      (53)      ―         113   
                                     
  Unallocated     130       ―      ―      ―     130   
  Allowance for loan and lease losses     2,516      (467)     48      258      2,355   
  Reserve for unfunded lending commitments     59       ―      ―     (8)     51   
  Allowance for credit losses   $ 2,575    $ (467)   $ 48    $ 250    $ 2,406   

 

 

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        Beginning   Charge-             Ending  
  Nine Months Ended September 30, 2012   Balance   Offs   Recoveries   Provision   Balance  
                                     
        (Dollars in millions)  
  Commercial:                                
    Commercial and industrial   $ 433    $ (239)   $ 12    $ 335    $ 541   
    Commercial real estate - other     334      (164)         59      238   
    Commercial real estate - residential ADC     286      (163)     33      (55)     101   
    Other lending subsidiaries     11      (7)             14   
                                     
  Retail:                                
    Direct retail lending     232      (170)     27      192      281   
    Revolving credit     112      (62)     14      35      99   
    Residential mortgage     365      (107)         39      299   
    Sales finance     38      (19)             28   
    Other lending subsidiaries     186      (158)     18      187      233   
                                     
  Covered     149      (29)      ―     17      137   
                                     
  Unallocated     110       ―      ―     (30)     80   
  Allowance for loan and lease losses     2,256      (1,118)     124      789      2,051   
  Reserve for unfunded lending commitments     29       ―      ―     16      45   
  Allowance for credit losses   $ 2,285    $ (1,118)   $ 124    $ 805    $ 2,096   

 

        Beginning   Charge-             Ending  
  Nine Months Ended September 30, 2011   Balance   Offs   Recoveries   Provision   Balance  
                                     
        (Dollars in millions)  
  Commercial:                                
    Commercial and industrial   $ 621    $ (242)   $ 22    $ 35    $ 436   
    Commercial real estate - other     446      (213)     15      182      430   
    Commercial real estate - residential ADC     469      (210)     20      49      328   
    Other lending subsidiaries     21      (6)         (5)     13   
                                     
  Retail:                                
    Direct retail lending     246      (218)     27      165      220   
    Revolving credit     109      (74)     14      56      105   
    Residential mortgage     298      (224)         287      364   
    Sales finance     47      (24)             39   
    Other lending subsidiaries     177      (131)     17      114      177   
                                     
  Covered     144      (53)      ―     22      113   
                                     
  Unallocated     130       ―      ―      ―     130   
  Allowance for loan and lease losses     2,708      (1,395)     128      914      2,355   
  Reserve for unfunded lending commitments     47       ―      ―         51   
  Allowance for credit losses   $ 2,755    $ (1,395)   $ 128    $ 918    $ 2,406   

 

 

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The following tables provide a breakdown of the allowance for loan and lease losses and the recorded investment in loans based on the method for determining the allowance:
                         
          Allowance for Loan and Lease Losses  
                      Loans        
                      Acquired        
          Individually   Collectively   With        
          Evaluated   Evaluated   Deteriorated        
          for   for   Credit        
  September 30, 2012   Impairment   Impairment   Quality   Total  
                                 
          (Dollars in millions)  
  Commercial:                          
    Commercial and industrial   $ 76    $ 465    $  ―   $ 541   
    Commercial real estate - other     42      196       ―     238   
    Commercial real estate - residential ADC     27      74       ―     101   
    Other lending subsidiaries         13       ―     14   
                                 
  Retail:                          
    Direct retail lending     31      250       ―     281   
    Revolving credit     25      74       ―     99   
    Residential mortgage     121      178       ―     299   
    Sales finance         27       ―     28   
    Other lending subsidiaries     42      191       ―     233   
                                 
  Covered      ―     49      88      137   
                                 
  Unallocated      ―     80       ―     80   
      Total   $ 366    $ 1,597    $ 88    $ 2,051   

 

          Loans and Leases  
                      Loans        
                      Acquired        
          Individually   Collectively   With        
          Evaluated   Evaluated   Deteriorated        
          for   for   Credit        
  September 30, 2012   Impairment   Impairment   Quality   Total  
                                 
          (Dollars in millions)  
  Commercial:                          
    Commercial and industrial   $ 667    $ 37,345    $  ―   $ 38,012   
    Commercial real estate - other     366      10,547       ―     10,913   
    Commercial real estate - residential ADC     233      1,221       ―     1,454   
    Other lending subsidiaries         4,111       ―     4,115   
                                 
  Retail:                          
    Direct retail lending     158      15,551          15,710   
    Revolving credit     58      2,233       ―     2,291   
    Residential mortgage     1,004      23,289       ―     24,293   
    Sales finance     11      7,712       ―     7,723   
    Other lending subsidiaries     84      5,857       ―     5,941   
                                 
  Covered      ―     2,124      1,564      3,688   
      Total   $ 2,585    $ 109,990    $ 1,565    $ 114,140   

 

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          Allowance for Loan and Lease Losses  
                      Loans        
                      Acquired        
          Individually   Collectively   With        
          Evaluated   Evaluated   Deteriorated        
          for   for   Credit        
  December 31, 2011   Impairment   Impairment   Quality   Total  
                                 
          (Dollars in millions)  
  Commercial:                          
    Commercial and industrial   $ 77    $ 356    $  ―   $ 433   
    Commercial real estate - other     69      265       ―     334   
    Commercial real estate - residential ADC     50      236       ―     286   
    Other lending subsidiaries         10       ―     11   
                                 
  Retail:                          
    Direct retail lending     35      197       ―     232   
    Revolving credit     27      85       ―     112   
    Residential mortgage     152      213       ―     365   
    Sales finance         37       ―     38   
    Other lending subsidiaries     20      166       ―     186   
                                 
  Covered      ―     36      113      149   
                                 
  Unallocated      ―     110       ―     110   
      Total   $ 432    $ 1,711    $ 113    $ 2,256   

 

          Loans and Leases  
                      Loans        
                      Acquired        
          Individually   Collectively   With        
          Evaluated   Evaluated   Deteriorated        
          for   for   Credit        
  December 31, 2011   Impairment   Impairment   Quality   Total  
                                 
          (Dollars in millions)  
  Commercial:                          
    Commercial and industrial   $ 656    $ 35,759    $  ―   $ 36,415   
    Commercial real estate - other     511      10,178       ―     10,689   
    Commercial real estate - residential ADC     420      1,641       ―     2,061   
    Other lending subsidiaries         3,621       ―     3,626   
                                 
  Retail:                          
    Direct retail lending     165      14,339          14,506   
    Revolving credit     62      2,150       ―     2,212   
    Residential mortgage     931      19,650       ―     20,581   
    Sales finance     10      7,391       ―     7,401   
    Other lending subsidiaries     49      5,062       ―     5,111   
                                 
  Covered      ―     2,745      2,122      4,867   
      Total   $ 2,809    $ 102,536    $ 2,124    $ 107,469   

BB&T monitors the credit quality of its commercial portfolio segment using internal risk ratings. These risk ratings are based on established regulatory guidance. Loans with a Pass rating represent those not considered as a problem credit. Special mention loans are those that have a potential weakness deserving management’s close attention. Substandard loans are those for which a well-defined weakness has been identified that may put full collection of contractual cash flows at risk. Substandard loans are placed in nonaccrual status when BB&T believes it is no longer probable it will collect all contractual cash flows.

BB&T assigns an internal risk rating at loan origination and reviews the relationship again on an annual basis or at any point management becomes aware of information affecting the borrower’s ability to fulfill their obligations.

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

 

The following tables illustrate the credit quality indicators associated with loans and leases held for investment.  Covered loans are excluded from this analysis because their related allowance is determined by loan pool performance due to the application of the accretion method.
 
                      Commercial        
                Commercial   Real Estate -   Other  
          Commercial   Real Estate -   Residential   Lending  
  September 30, 2012   & Industrial   Other   ADC   Subsidiaries  
                                 
          (Dollars in millions)  
  Commercial:                          
    Pass   $ 35,603    $ 9,450    $ 945    $ 4,078   
    Special mention     201      101      26       
    Substandard - performing     1,611      1,103      279      27   
    Nonperforming     597      259      204       
      Total   $ 38,012    $ 10,913    $ 1,454    $ 4,115   

 

          Direct Retail   Revolving   Residential   Sales   Other Lending  
          Lending   Credit   Mortgage   Finance   Subsidiaries  
                                       
          (Dollars in millions)  
  Retail:                                
    Performing   $ 15,576    $ 2,291    $ 24,027    $ 7,716    $ 5,872   
    Nonperforming     134       ―     266          69   
      Total   $ 15,710    $ 2,291    $ 24,293    $ 7,723    $ 5,941   

 

                      Commercial        
                Commercial   Real Estate -   Other  
          Commercial   Real Estate -   Residential   Lending  
  December 31, 2011   & Industrial   Other   ADC   Subsidiaries  
                                 
          (Dollars in millions)  
  Commercial:                          
    Pass   $ 33,497    $ 8,568    $ 1,085    $ 3,578   
    Special mention     488      234      60       
    Substandard - performing     1,848      1,493      540      35   
    Nonperforming     582      394      376       
      Total   $ 36,415    $ 10,689    $ 2,061    $ 3,626   

 

            Direct Retail   Revolving   Residential   Sales   Other Lending  
            Lending   Credit   Mortgage   Finance   Subsidiaries  
                                         
            (Dollars in millions)  
  Retail:                                
    Performing   $ 14,364    $ 2,212    $ 20,273    $ 7,394    $ 5,056   
    Nonperforming     142       ―     308          55   
      Total   $ 14,506    $ 2,212    $ 20,581    $ 7,401    $ 5,111   

 

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The following tables represent aging analyses of BB&T's past due loans and leases held for investment.  Covered loans have been excluded from this aging analysis because they are covered by FDIC loss sharing agreements, and their related allowance is determined by loan pool performance due to the application of the accretion method.  
   
          Accruing Loans and Leases            
                    90 Days Or   Nonaccrual   Total Loans And  
              30-89 Days   More Past   Loans And   Leases, Excluding  
  September 30, 2012   Current   Past Due   Due   Leases   Covered Loans  
                                       
          (Dollars in millions)  
  Commercial:                                
    Commercial and industrial   $ 37,373    $ 41    $   $ 597    $ 38,012   
    Commercial real estate - other     10,645           ―     259      10,913   
    Commercial real estate - residential ADC     1,242           ―     204      1,454   
    Other lending subsidiaries     4,082      25              4,115   
                                       
  Retail:                                
    Direct retail lending     15,399      136      41      134      15,710   
    Revolving credit     2,256      21      14       ―     2,291   
    Residential mortgage (1)     22,627      585      310      266      23,788   
    Sales finance     7,652      53      11          7,723   
    Other lending subsidiaries     5,637      234          69      5,941   
      Total (1)   $ 106,913    $ 1,112    $ 382    $ 1,540    $ 109,947   

 

            Accruing Loans and Leases            
                      90 Days Or   Nonaccrual   Total Loans And  
                30-89 Days   More Past   Loans And   Leases, Excluding  
  December 31, 2011   Current   Past Due   Due   Leases   Covered Loans  
                                         
            (Dollars in millions)  
  Commercial:                                
    Commercial and industrial   $ 35,746    $ 85    $   $ 582    $ 36,415   
    Commercial real estate - other     10,273      22       ―     394      10,689   
    Commercial real estate - residential ADC     1,671      14       ―     376      2,061   
    Other lending subsidiaries     3,589      25              3,626   
                                         
  Retail:                                
    Direct retail lending     14,146      162      56      142      14,506   
    Revolving credit     2,173      22      17       ―     2,212   
    Residential mortgage (1)     19,442      524      307      308      20,581   
    Sales finance     7,301      75      18          7,401   
    Other lending subsidiaries     4,807      248          55      5,111   
      Total (1)   $ 99,148    $ 1,177    $ 405    $ 1,872    $ 102,602   
                                         
                                         
(1) Residential mortgage loans include $84 million and $81 million in government guaranteed loans 30-89 days past due, and $230 million and $203 million in government guaranteed loans 90 days or more past due as of September 30, 2012 and December 31, 2011, respectively.  Residential mortgage loans exclude $6 million and $499 million in loans guaranteed by GNMA that BB&T has the option, but not the obligation, to repurchase, which are past due 30-89 days and 90 days or more, respectively, at September 30, 2012.

 

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The following tables set forth certain information regarding BB&T's impaired loans, excluding acquired impaired loans and loans held for sale, that were evaluated for specific reserves.
               
                  Unpaid         Average   Interest  
            Recorded   Principal   Related   Recorded   Income  
  As Of / For The Nine Months Ended September 30, 2012   Investment   Balance   Allowance   Investment   Recognized  
                                         
            (Dollars in millions)  
  With No Related Allowance Recorded:                                
    Commercial:                                
      Commercial and industrial   $ 127    $ 230    $  ―   $ 119    $  ―  
      Commercial real estate - other     63      110       ―     86       ―  
      Commercial real estate - residential ADC     84      198       ―     113       ―  
                                         
    Retail:                                
      Direct retail lending     19      73       ―     19       
      Residential mortgage (1)     93      158       ―     74       
      Sales finance              ―          ―  
      Other lending subsidiaries              ―          ―  
                                         
  With An Allowance Recorded:                                
    Commercial:                                
      Commercial and industrial     540      563      76      539       
      Commercial real estate - other     303      309      42      322       
      Commercial real estate - residential ADC     149      159      27      196       
      Other lending subsidiaries                      ―  
                                         
    Retail:                                
      Direct retail lending     139      147      31      137       
      Revolving credit     58      57      25      60       
      Residential mortgage (1)     639      654      100      648      21   
      Sales finance     10      10          13       ―  
      Other lending subsidiaries     82      85      42      59       
        Total (1)   $ 2,313    $ 2,764    $ 345    $ 2,395    $ 39   

 

 

 

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                  Unpaid         Average   Interest  
            Recorded   Principal   Related   Recorded   Income  
  As Of / For The Year Ended December 31, 2011   Investment   Balance   Allowance   Investment   Recognized  
            (Dollars in millions)  
             
  With No Related Allowance Recorded:                                
    Commercial:                                
      Commercial and industrial   $ 114    $ 196    $  ―   $ 153    $  ―  
      Commercial real estate - other     102      163       ―     142       ―  
      Commercial real estate - residential ADC     153      289       ―     187       ―  
                                         
    Retail:                                
      Direct retail lending     19      74       ―     23       
      Residential mortgage (1)     46      85       ―     31       
      Sales finance              ―          ―  
      Other lending subsidiaries              ―          ―  
                                         
  With An Allowance Recorded:                                
    Commercial:                                
      Commercial and industrial     542      552      77      482       
      Commercial real estate - other     409      433      69      466       
      Commercial real estate - residential ADC     267      298      50      360       
      Other lending subsidiaries                      ―  
                                         
    Retail:                                
      Direct retail lending     146      153      35      148       
      Revolving credit     62      61      27      62       
      Residential mortgage (1)     653      674      125      627      28   
      Sales finance         10               ―  
      Other lending subsidiaries     47      50      20      35       
        Total (1)   $ 2,577    $ 3,048    $ 405    $ 2,728    $ 59   
                                         
                                         
(1) Residential mortgage loans exclude $272 million and $232 million in government guaranteed loans and related allowance of $21 million and $27 million as of September 30, 2012 and December 31, 2011, respectively.  

 

The following tables provide a summary of the primary reason loan modifications were classified as restructurings and their estimated impact on the allowance for loan and lease losses:
                                                 
              Three Months Ended September 30,  
              2012   2011  
              Types of       Types of      
              Modifications (1)   Impact To   Modifications (1)   Impact To  
              Rate (2)   Structure   Allowance   Rate (2)   Structure   Allowance  
                                                 
              (Dollars in millions)  
  Commercial:                                    
    Commercial and industrial $   $ 12    $  ―   $   $   $  
    Commercial real estate - other       26       ―         22       
    Commercial real estate - residential ADC            ―         14       
    Other lending subsidiaries    ―      ―      ―              ―  
                                                 
  Retail:                                    
    Direct retail lending   15              10           
    Revolving credit        ―         10       ―      
    Residential mortgage   10      18          23           
    Sales finance        ―      ―          ―      ―  
    Other lending subsidiaries   19       ―                  

 

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              Nine Months Ended September 30,  
              2012   2011  
              Types of       Types of      
              Modifications (1)   Impact To   Modifications (1)   Impact To  
              Rate (2)   Structure   Allowance   Rate (2)   Structure   Allowance  
                                                 
              (Dollars in millions)  
  Commercial:                                    
    Commercial and industrial $ 22    $ 51    $  ―   $ 26    $ 36    $  
    Commercial real estate - other   35      40       ―     35      45       
    Commercial real estate - residential ADC   25      24      (2)     23      37       
    Other lending subsidiaries    ―      ―      ―              ―  
                                                 
  Retail:                                    
    Direct retail lending   31      12          42           
    Revolving credit   23       ―         31       ―      
    Residential mortgage   92      64      11      77          10   
    Sales finance        ―      ―              
    Other lending subsidiaries   48          17      30          12   
                                                 
                                                 
(1) Includes modifications made to existing restructurings, as well as new modifications that are considered restructurings.  Balances represent the recorded investment as of the end of the period in which the modification was made.
(2) Includes restructurings made with a below market interest rate that also includes a modification of loan structure.

Charge-offs recorded at the modification date were $12 million and $6 million for the three months ended September 30, 2012 and September 30, 2011, respectively. The forgiveness of principal or interest for restructurings recorded during the three months ended September 30, 2012 and September 30, 2011 was immaterial.

Charge-offs recorded at the modification date were $21 million and $29 million for the nine months ended September 30, 2012 and September 30, 2011, respectively. The forgiveness of principal or interest for restructurings recorded during the nine months ended September 30, 2012 and September 30, 2011 was immaterial.

The following table summarizes the pre-default balance for modifications that experienced a payment default that had been classified as restructurings during the previous 12 months. BB&T defines payment default as movement of the restructuring to nonaccrual status, foreclosure or charge-off, whichever occurs first.

 

          Three Months Ended September 30,   Nine Months Ended September 30,  
          2012   2011    2012   2011   
                                 
          (Dollars in millions)  
  Commercial:                        
    Commercial and industrial $  ―   $   $   $ 38   
    Commercial real estate - other               79   
    Commercial real estate - residential ADC       11      13      73   
                                 
  Retail:                        
    Direct retail lending               14   
    Revolving credit               11   
    Residential mortgage           30      23   
    Sales finance    ―          ―      
    Other lending subsidiaries                
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NOTE 5. Goodwill and Other Intangible Assets

The changes in the carrying amounts of goodwill attributable to each of BB&T’s operating segments is reflected in the table below. To date, there have been no goodwill impairments recorded by BB&T.

 

          Residential   Dealer                  
      Community   Mortgage   Financial   Specialized   Insurance   Financial      
      Banking   Banking   Services   Lending   Services   Services   Total  
                                               
      (Dollars in millions)  
Balance, January 1, 2012 $ 4,542    $   $ 111    $ 94    $ 1,132    $ 192    $ 6,078   
  Acquisitions   293       ―      ―      ―     346       ―     639   
  Contingent consideration    ―      ―      ―      ―          ―      
  Other adjustments    ―      ―      ―      ―     (1)      ―     (1)  
Balance, September 30, 2012 $ 4,835    $   $ 111    $ 94    $ 1,479    $ 192    $ 6,718   

 

The following table presents the gross carrying amounts and accumulated amortization for BB&T’s identifiable intangible assets subject to amortization:
                                           
        September 30, 2012   December 31, 2011  
        Gross       Net   Gross       Net  
        Carrying   Accumulated   Carrying   Carrying   Accumulated   Carrying  
        Amount   Amortization   Amount   Amount   Amortization   Amount  
                                           
        (Dollars in millions)  
  Identifiable intangible assets:                                    
    Core deposit intangibles $ 688    $ (513)   $ 175    $ 626    $ (484)   $ 142   
    Other (1)   1,081      (538)     543      787      (485)     302   
      Totals $ 1,769    $ (1,051)   $ 718    $ 1,413    $ (969)   $ 444   
                                           
                                           
(1) Other identifiable intangibles are primarily customer relationship intangibles.

During the second quarter of 2012, BB&T acquired the life and property and casualty insurance divisions of Crump Group Inc. The changes in Insurance Services goodwill and other identifiable intangibles were primarily the result of this acquisition, although the final purchase accounting has not been completed.

On July 31, 2012, BB&T completed the acquisition of Fort Lauderdale, Florida-based BankAtlantic. BB&T acquired approximately $1.8 billion in loans and assumed approximately $3.5 billion in deposits. BB&T also assumed the seller’s obligations with respect to outstanding trust preferred securities, with an aggregate principal balance of $285 million. In exchange for the assumption of these liabilities, BB&T received a 95% preferred interest in a newly established LLC, which holds a pool of loans and other net assets. BankAtlantic Bancorp also provided BB&T with an incremental $35 million guarantee to further assure BB&T’s recovery of the $285 million. The LLC’s assets will be monetized over time and once BB&T has recovered $285 million in preference amount from the LLC plus a defined return, BB&T’s interest in the LLC will terminate. The net purchase price received, excluding cash held by BankAtlantic, was $45 million, which consisted of net liabilities assumed less a deposit premium of $316 million. The changes in Community Banking goodwill and core deposit intangibles were primarily the result of this acquisition, although the final purchase accounting has not been completed.

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NOTE 6. Loan Servicing

Residential Mortgage Banking Activities

The following tables summarize residential mortgage banking activities for the periods presented:

 

        September 30,   December 31,  
        2012   2011  
                   
        (Dollars in millions)  
  Mortgage loans managed or securitized (1) $ 29,809    $ 26,559   
  Less: Loans securitized and transferred to securities available for sale        
    Loans held for sale   3,321      3,394   
    Covered mortgage loans   1,106      1,264   
    Mortgage loans sold with recourse   1,085      1,316   
  Mortgage loans held for investment $ 24,293    $ 20,581   
  Mortgage loans on nonaccrual status $ 266    $ 308   
  Mortgage loans 90 days or more past due and still accruing interest (2)   80      104   
  Mortgage loans net charge-offs - year to date   105      264   
  Unpaid principal balance of residential mortgage loans servicing portfolio   99,537      91,640   
  Unpaid principal balance of residential mortgage loans serviced for others   72,343      67,066   
  Maximum recourse exposure from mortgage loans sold with recourse liability   466      522   
  Recorded reserves related to recourse exposure   13       
  Repurchase reserves for mortgage loan sales to GSEs   58      29   
                   
                   
(1) Balances exclude loans serviced for others with no other continuing involvement.
(2) Includes amounts related to residential mortgage loans held for sale and excludes amounts related to government guaranteed loans and covered mortgage loans.  Refer to Loans and Leases Note for additional disclosures related to past due government guaranteed loans.

 

        As of / For the    
        Nine Months Ended September 30,    
        2012     2011    
                       
        (Dollars in millions)    
  Unpaid principal balance of residential mortgage loans sold from the held for                
    sale portfolio $ 18,680      $ 11,961     
  Pre-tax gains recognized on mortgage loans sold and held for sale   380        109     
  Servicing fees recognized from mortgage loans serviced for others   182        179     
  Approximate weighted average servicing fee of the outstanding balance of                
    residential mortgage loans serviced for others   0.32  %     0.34  %  
  Weighted average coupon interest rate on mortgage loans serviced for others   4.71        5.10     

The unpaid principal balances of BB&T’s total residential mortgage loans serviced for others consist primarily of agency conforming fixed-rate mortgage loans. Mortgage loans serviced for others are not included in loans and leases on the accompanying Consolidated Balance Sheets.

During the nine months ended September 30, 2012 and 2011, BB&T sold residential mortgage loans from the held for sale portfolio and recognized pre-tax gains including marking loans held for sale to fair value and the impact of interest rate lock commitments. These gains are recorded in noninterest income as a component of mortgage banking income. BB&T retained the related mortgage servicing rights and receives servicing fees.

At September 30, 2012 and December 31, 2011, BB&T had residential mortgage loans sold with recourse liability. In the event of nonperformance by the borrower, BB&T has recourse exposure for these loans. At both September 30, 2012 and December 31, 2011, BB&T has recorded reserves related to these recourse exposures. Payments made to date have been immaterial.

BB&T also issues standard representations and warranties related to mortgage loan sales to government-sponsored entities. Although these agreements often do not specify limitations, BB&T does not believe that any payments related to these warranties would materially change the financial condition or results of operations of BB&T.

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

 

          Residential Mortgage Servicing Rights  
          Nine Months Ended September 30,  
            2012     2011  
                     
          (Dollars in millions)  
  Carrying value, January 1, $ 563    $ 830   
    Additions   195      165   
    Increase (decrease) in fair value:            
        Due to changes in valuation inputs or assumptions   (67)     (319)  
      Other changes (1)   (128)     (103)  
  Carrying value, September 30, $ 563    $ 573   
                     
                     
(1) Represents the realization of expected net servicing cash flows, expected borrower payments and the passage of time.  

During the nine months ended September 30, 2012, management revised its servicing costs assumptions in the valuation of residential mortgage servicing rights due to the expectation of higher costs that continue to impact the industry. The impact of these changes resulted in a $22 million reduction in the value of the residential mortgage servicing rights. The remainder of the net decrease is primarily due to the impact of an increase in discount rates, which is reflective of the current mortgage servicing rights market.

Refer to Note 14 for additional disclosures related to the assumptions and estimates used in determining the fair value of residential mortgage servicing rights. The sensitivity of the current fair value of the residential mortgage servicing rights to immediate 10% and 20% adverse changes in key economic assumptions is included in the accompanying table:

 

              Residential  
              Mortgage Servicing Rights  
              September 30, 2012  
                       
              (Dollars in millions)  
        Fair value of residential mortgage servicing rights   $ 563     
        Composition of residential loans serviced for others:          
          Fixed-rate mortgage loans     99  %  
          Adjustable-rate mortgage loans        
            Total     100  %  
        Weighted average life     3.9  yrs  
                       
        Prepayment speed     19.6  %  
          Effect on fair value of a 10% increase   $ (35)    
          Effect on fair value of a 20% increase     (66)    
                       
        Weighted average discount rate     10.6  %  
          Effect on fair value of a 10% increase   $ (19)    
          Effect on fair value of a 20% increase     (37)    

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

 

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Commercial Mortgage Banking Activities

BB&T also arranges and services commercial real estate mortgages through Grandbridge Real Estate Capital, LLC (“Grandbridge”) the commercial mortgage banking subsidiary of Branch Bank. The majority of these commercial mortgages were arranged for third party investors. Commercial real estate mortgage loans serviced for others are not included in loans and leases on the accompanying Consolidated Balance Sheets. The following table summarizes commercial mortgage banking activities for the periods presented:

 

          September 30,   December 31,  
          2012   2011  
                     
          (Dollars in millions)  
  Unpaid principal balance of commercial real estate mortgages serviced for others $ 25,982    $ 25,367   
  Commercial real estate mortgages serviced for others covered by recourse provisions   4,847      4,520   
  Maximum recourse exposure from commercial real estate mortgages            
    sold with recourse liability   1,327      1,226   
  Recorded reserves related to recourse exposure   14      15   
  Originated commercial real estate mortgages during the period - year to date   3,342      4,803   

NOTE 7. Deposits

 

A summary of BB&T’s deposits is presented in the accompanying table:
                       
            September 30,   December 31,  
            2012   2011  
                       
            (Dollars in millions)  
  Noninterest-bearing deposits $ 30,810    $ 25,684   
  Interest checking   20,182      20,701   
  Money market and savings   48,099      44,618   
  Certificates and other time deposits   30,927      33,899   
  Foreign office deposits - interest-bearing    ―     37   
    Total deposits $ 130,018    $ 124,939   
                       
  Time deposits $100,000 and greater $ 18,291    $ 19,819   
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NOTE 8. Long-Term Debt

 

Long-term debt comprised the following:            
            September 30,   December 31,  
            2012   2011  
                       
            (Dollars in millions)  
  BB&T Corporation:            
    3.85% Senior Notes Due 2012 $  ―   $ 1,000   
    3.38% Senior Notes Due 2013   500      500   
    5.70% Senior Notes Due 2014   510      510   
    2.05% Senior Notes Due 2014   700      700   
    Floating Rate Senior Notes Due 2014 (1)   300      300   
    3.95% Senior Notes Due 2016   499      499   
    3.20% Senior Notes Due 2016   999      999   
    2.15% Senior Notes Due 2017   748       
    1.60% Senior Notes Due 2017   749       
    6.85% Senior Notes Due 2019   539      538   
    4.75% Subordinated Notes Due 2012 (2)   491      490   
    5.20% Subordinated Notes Due 2015 (2)   933      933   
    4.90% Subordinated Notes Due 2017 (2)   344      342   
    5.25% Subordinated Notes Due 2019 (2)   586      586   
    3.95% Subordinated Notes Due 2022 (2)   298       
                       
  Branch Bank:            
    Floating Rate Subordinated Notes Due 2016 (2)(3)   350      350   
    Floating Rate Subordinated Notes Due 2017 (2)(3)   262      262   
    4.875% Subordinated Notes Due 2013 (2)   222      222   
    5.625% Subordinated Notes Due 2016 (2)   386      386   
                       
  Federal Home Loan Bank Advances to Branch Bank: (4)            
    Varying maturities to 2034   8,993      8,998   
                       
  Junior Subordinated Debt to Unconsolidated Trusts (5)   57      3,271   
                       
  Other Long-Term Debt   125      83   
                       
  Fair value hedge-related basis adjustments   630      834   
      Total Long-Term Debt $ 19,221    $ 21,803   
                       
                       
(1) These floating-rate senior notes are based on LIBOR and had an effective rate of 1.15% at September 30, 2012.
(2) Subordinated notes that qualify under the risk-based capital guidelines as Tier 2 supplementary capital, subject to certain limitations.
(3) These floating-rate securities are based on LIBOR, but the majority of the cash flows have been swapped to a fixed rate.  The effective rate paid on these securities including the effect of the swapped portion was 3.26% at September 30, 2012.
(4) Certain of these advances have been swapped to floating rates from fixed rates and from fixed rates to floating rates.  At September 30, 2012, the weighted average rate paid on these advances including the effect of the swapped portion was 3.58%, and the weighted average maturity was 7.1 years.
(5) Securities that qualify under the risk-based capital guidelines as Tier 1 capital, subject to certain limitations. Once notice of redemption has been given, they no longer qualify as Tier 1 capital.

During the second quarter of 2012, BB&T provided redemption notices to the holders of all its trust preferred securities to exercise certain early redemption provisions based on the terms of the respective trusts. BB&T revised the estimated life used to amortize the remaining debt issuance costs and related discounts or premiums, including fair value hedge adjustments, to end on the redemption date for each of the impacted debt securities. The redemptions, and the related retirement of the junior subordinated debt to unconsolidated trusts, were completed by the end of July 2012.

In connection with the acquisition of BankAtlantic, BB&T assumed $285 million in junior subordinated debt to unconsolidated trusts. BB&T redeemed $228 million of this debt prior to September 30, 2012.

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NOTE 9. Shareholders’ Equity

Preferred Stock

On May 1, 2012, BB&T issued $575 million of Series D Non-Cumulative Perpetual Preferred Stock for net proceeds of $559 million. Dividends on the Series D Preferred Stock, if declared, accrue and are payable quarterly, in arrears, at a rate of 5.85% per annum. On July 31, 2012, BB&T issued $1.2 billion of Series E Non-Cumulative Perpetual Preferred Stock for net proceeds of $1.1 billion. Dividends on the Series E Preferred Stock, if declared, accrue and are payable quarterly, in arrears, at a rate of 5.625% per annum. For both issuances, BB&T issued depositary shares, each of which represents a fractional ownership interest in a share of Company’s preferred stock. The preferred stock has no stated maturity and redemption is solely at the option of the Company in whole, but not in part, upon the occurrence of a regulatory capital treatment event, as defined. In addition, the preferred stock may be redeemed in whole or in part, on any dividend payment date after five years from the date of issuance. Under current rules, any redemption of the preferred stock is subject to prior approval of the Federal Reserve Board. The preferred stock is not subject to any sinking fund or other obligations of the Corporation.

On October 31, 2012, BB&T issued $450 million of the Company’s Series F Non-Cumulative Perpetual Preferred Stock. Dividends on the Series F Preferred Stock, if declared, accrue and are payable quarterly, in arrears, at a rate of 5.20% per annum.

Equity-Based Plans

At September 30, 2012, BB&T has options, restricted shares and restricted share units outstanding from the following equity-based compensation plans: the 2012 Incentive Plan (“2012 Plan”), the 2004 Stock Incentive Plan (“2004 Plan”), the 1995 Omnibus Stock Incentive Plan (“Omnibus Plan”), the Non-Employee Directors’ Stock Option Plan (“Directors’ Plan”), and a plan assumed from an acquired entity. BB&T’s shareholders have approved all equity-based compensation plans with the exception of the plan assumed from an acquired entity. As of September 30, 2012, the 2012 Plan is the only plan that has shares available for future grants. All of BB&T’s equity-based compensation plans allow for accelerated vesting of awards for holders who retire and have met all retirement eligibility requirements and in connection with certain other events.

BB&T measures the fair value of each option award on the date of grant using the Black-Scholes option-pricing model. The following table presents the weighted average assumptions used:

 

        Nine Months Ended September 30,  
        2012   2011  
                       
  Assumptions:                
    Risk-free interest rate   1.5  %     1.7  %  
    Dividend yield   4.4        3.5     
    Volatility factor   33.0        37.2     
    Expected life   7.0  yrs     7.4  yrs  
  Fair value of options per share $ 6.07      $ 7.45     

BB&T determines the assumptions used in the Black-Scholes option pricing model as follows: the risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant; the dividend yield is based on the historical dividend yield of BB&T’s stock, adjusted to reflect the expected dividend yield over the expected life of the option; the volatility factor is based on the historical volatility of BB&T’s stock, adjusted to reflect the ways in which current information indicates that the future is reasonably expected to differ from the past; and the weighted-average expected life is based on the historical behavior of employees related to exercises, forfeitures and cancellations.

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

 

The following table details the activity related to stock options awarded by BB&T:  
   
          Wtd. Avg.  
          Exercise  
      Options   Price  
               
  Outstanding at January 1, 2012 45,384,554    $ 34.42   
    Granted 4,683,073      30.09   
    Exercised (1,208,481)     23.56   
    Forfeited or expired (3,258,133)     36.46   
  Outstanding at September 30, 2012 45,601,013      34.12   
  Exercisable at September 30, 2012 34,274,139      36.05   
  Exercisable and expected to vest at September 30, 2012 44,420,189    $ 34.27   

 

The following table details the activity related to restricted shares and restricted share units awarded by BB&T:
                       
                  Wtd. Avg.  
                  Grant Date  
              Shares/Units   Fair Value  
  Nonvested at January 1, 2012 13,462,630    $ 19.47   
    Granted 2,580,306      25.81   
    Vested (1,652,869)     31.38   
    Forfeited (277,376)     19.16   
  Nonvested at September 30, 2012 14,112,691    $ 19.24   

NOTE 10. Accumulated Other Comprehensive Income (Loss)

 

The balances in accumulated other comprehensive income (loss) are shown in the following table:
 
        September 30, 2012   December 31, 2011