BB&T 2007 Annual Report Download

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended:
December 31, 2007
Commission File Number: 1-10853
BB&T CORPORATION
(Exact name of Registrant as specified in its Charter)
North Carolina 56-0939887
(State of Incorporation) (I.R.S. Employer Identification No.)
200 West Second Street
Winston-Salem, North Carolina 27101
(Address of principal executive offices) (Zip Code)
(336) 733-2000
(Registrant’s telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class Name of each exchange
on which registered
Common Stock, $5 par value New York Stock Exchange
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. YES ÍNO
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. YES NO Í
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 ÍNO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or
information statements incorporated by references in Part III of this Form 10-K or any amendment to this
Form 10-K.
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a
non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the
Exchange Act. (Check One):
Large accelerated filer ÍAccelerated filer Non-accelerated filer
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the
Act). YES NO Í
At January 31, 2008, the Corporation had 546,214,815 shares of its Common Stock, $5 par value, outstanding.
The aggregate market value of voting stock held by nonaffiliates of the Corporation is approximately $22.1 billion
(based on the closing price of such stock as of June 30, 2007.)

Table of contents

  • Page 1
    ... on which registered Common Stock, $5 par value New York Stock Exchange Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES Í NO ' Indicate by check mark if the Registrant is not required to file reports pursuant to Section...

  • Page 2
    ...Item 4 Business ...Risk Factors ...Unresolved Staff Comments None. Properties ...Legal Proceedings ...Submission of Matters to a Vote of Security Holders None. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ...Selected Financial Data...

  • Page 3
    ... S-K refer to "Equity Compensation Plan Information" in Part I hereof. The other information required by Item 12 is incorporated herein by reference to the information that appears under the headings "Security Ownership" in the Registrant's Proxy Statement for the 2008 Annual Meeting of Shareholders...

  • Page 4
    ...a financial holding company headquartered in Winston-Salem, North Carolina. BB&T conducts its business operations primarily through its commercial bank subsidiary, Branch Banking and Trust Company ("Branch Bank"), which has offices in North Carolina, South Carolina, Virginia, Maryland, Georgia, West...

  • Page 5
    ... credit markets began affecting the mortgage industry generally. BB&T's financial results may be adversely affected by changes in real estate values. Decreases in real estate values could adversely affect the value of property used as collateral for loans and investments. If poor economic conditions...

  • Page 6
    ..., limit its access to the capital markets or trigger unfavorable contractual obligations. BB&T's accounting policies and methods are key to how the Company reports its financial condition and results of operations. Application of these policies and methods may require management to make estimates...

  • Page 7
    ... among commercial banks in BB&T's market area. In addition, BB&T competes with other providers of financial services, such as savings and loan associations, credit unions, consumer finance companies, securities firms, insurance companies, commercial finance and leasing companies, the mutual funds...

  • Page 8
    ... related to consumer credit, with a focus on mortgage lending. For example, the North Carolina legislature in 2007 passed a number of bills that impose additional requirements, limitations and liabilities on mortgage loan brokers, originators and servicers. Generally, these enactments cover banks...

  • Page 9
    ... small and mid-size businesses, public agencies, local governments and individuals through 1,492 offices (as of December 31, 2007) located in North Carolina, South Carolina, Virginia, Maryland, Georgia, Kentucky, Florida, West Virginia, Tennessee, Washington D.C., Alabama and Indiana. Branch Bank...

  • Page 10
    ... equity lending sales finance home mortgage lending commercial mortgage lending equipment finance asset management retail and wholesale agency insurance institutional trust services wealth management / private banking investment brokerage services capital markets services commercial finance consumer...

  • Page 11
    ...BB&T Deposit Market Share and Branch Locations by State December 31, 2007 % of BB&T's Deposits (2) Deposit Market Share Rank (2) Number of Branches Virginia North Carolina (1) Georgia Maryland South Carolina Florida Kentucky West Virginia Tennessee Washington, D.C. (1) Excludes home office deposits...

  • Page 12
    ... and business strategies, see "Market Area" and "General Business Development" below. Market Area BB&T's primary market area consists of North and South Carolina, Virginia, Maryland, Georgia, eastern Tennessee, West Virginia, Kentucky, Florida and Washington, D.C. This area's employment base...

  • Page 13
    ... In the long-term, BB&T expects to continue to take advantage of the consolidation in the financial services industry and expand and enhance its franchise through mergers and acquisitions. The consideration paid for these acquisitions may be in the form of cash, debt or BB&T common stock. The amount...

  • Page 14
    ... sales of $200 million or less. In addition, BB&T's Corporate Banking Group provides lending solutions to large corporate clients. Traditionally, lending to small and mid-sized businesses has been among BB&T's strongest market segments. Commercial and small business loans are primarily originated...

  • Page 15
    ... premium finance, indirect subprime automobile finance, and full-service commercial mortgage banking. BB&T offers these services to bank clients as well as nonbank clients within and outside BB&T's primary geographic market area. The specialized lending portfolio carries a higher overall credit risk...

  • Page 16
    ... on Loan Purpose 2007 December 31, 2006 2005 2004 (Dollars in millions) 2003 Loans and leases, net of unearned income: Commercial loans Leveraged leases Total commercial loans and leases Sales finance Revolving credit Direct retail Total consumer loans Residential mortgage loans Specialized Lending...

  • Page 17
    ... derived from its loan risk ratings; internal observable data related to trends within the loan and lease portfolios, including credit quality, concentrations, aging of the portfolio, growth and acquisitions; volatility adjustments to reflect changes in historical net charge-off rates and changes in...

  • Page 18
    ... and proactively manage accounts with a higher risk of loss. The "score" produced by this automated system is updated monthly. All of the loan portfolios grouped in the retail lending and specialized lending categories typically employ scoring models to segment credits into groups with homogenous...

  • Page 19
    ... BB&T's commercial real estate lending, residential mortgage and consumer home equity portfolios as of December 31, 2007. Table 6 Real Estate Lending Portfolio Credit Quality and Geographic Distribution Commercial Real Estate Loan Portfolio (1) As of / For the Period Ended December 31, 2007 Other...

  • Page 20
    ... Loans by State As of / For the Period Ended December 31, 2007 Nonaccrual as a Gross Charge-Offs Total Mortgages Percentage Percentage of as a Percentage Outstanding (1) of Total Outstandings of Outstandings (Dollars in millions) North Carolina Virginia Florida Maryland South Carolina Georgia West...

  • Page 21
    ... Period Ended December 31, 2007 Total Home Equity Nonaccrual as a Gross Charge-Offs Loans and Lines Percentage of as a Percentage Outstanding Percentage of Total Outstanding of Outstandings (Dollars in millions) North Carolina Virginia South Carolina Georgia West Virginia Maryland Florida Kentucky...

  • Page 22
    ... checking accounts, savings accounts, money rate savings accounts, investor deposit accounts, certificates of deposit and individual retirement accounts. Deposit account terms vary with respect to the minimum balance required, the time period the funds must remain on deposit and service charge...

  • Page 23
    ... or leases significant office space used as the Corporation's headquarters in Winston-Salem, North Carolina. At December 31, 2007, Branch Bank operated 1,492 branch offices in North Carolina, South Carolina, Virginia, Maryland, Georgia, West Virginia, Tennessee, Kentucky, Alabama, Florida, Indiana...

  • Page 24
    ... merger of First Virginia. No future options will be issued under the First Virginia plans. (2) All awards remaining available for future issuance will be issued under the terms of the BB&T Corporation 2004 Stock Incentive Plan, as amended by the Corporation's shareholders at the 2007 Annual Meeting...

  • Page 25
    ... comparing the total returns (assuming reinvestment of dividends) of BB&T Common Stock, the S&P 500 Index, and an Industry Peer Group Index. The graph assumes $100 invested on December 31, 2002 in BB&T Common Stock and in each of the indices. In 2007, the financial holding companies in the Industry...

  • Page 26
    ... related thereto, securities underwriting, insurance (both underwriting and agency) and merchant banking. In order to become and maintain its status as a financial holding company, a financial holding company and all of its affiliated depository institutions must be well-capitalized, well-managed...

  • Page 27
    ... insurance underwriting, insurance company portfolio investments, real estate investments and development, and merchant banking, which must be conducted in a financial holding company. In order for these financial activities to be engaged in by a financial subsidiary of a bank, federal law requires...

  • Page 28
    ...'s net income available to common shareholders over the past year has been sufficient to fully fund the dividends and (2) the prospective rate of earnings retention appears consistent with the organization's capital needs, asset quality and overall financial condition. North Carolina law states that...

  • Page 29
    ... not meeting these criteria, as well as institutions with supervisory, financial or operational weaknesses, are expected to maintain a minimum Tier 1 capital to total adjusted average assets ratio at least 100 basis points above that stated minimum. Holding companies experiencing internal growth...

  • Page 30
    ... determines its assessment rate based on certain specified financial ratios or, if applicable, its long-term debt ratings. As of January 1, 2007, assessments for the DIF could range from 5 to 43 basis points per $100 of assessable deposits, depending on the insured institution's risk category as...

  • Page 31
    ...reviewing bank mergers and bank holding company acquisitions. The U.S. Treasury Department has issued a number of regulations implementing the Patriot Act, which impose obligations on financial institutions to maintain appropriate policies, procedures and controls to detect, prevent and report money...

  • Page 32
    ... for Directors or Senior Financial Officers on our web site at www.BBT.com/Investor. NYSE Certification The annual certification of BB&T's Chief Executive Officer required to be furnished to the NYSE pursuant to Section 303A.12(a) of the NYSE Listed Company Manual was previously filed with the...

  • Page 33
    ...&T's insurance premium finance franchise in the United States, as well as provided entry into Canada. On May 1, 2007, BB&T completed its merger with Coastal Financial Corporation ("Coastal"), a bank holding company headquartered in Myrtle Beach, South Carolina. Coastal had $1.7 billion in assets and...

  • Page 34
    ..."Loan Servicing" in the "Notes to Consolidated Financial Statements" for quantitative disclosures reflecting the effect that changes in management's assumptions would have on the fair value of mortgage servicing rights. Intangible Assets BB&T's growth in business, profitability and market share over...

  • Page 35
    ...as projected cash flow patterns and payment durations, when setting the discount rate. Please refer to Note 14 "Benefit Plans" in the "Notes to Consolidated Financial Statements" for disclosures related to BB&T's benefit plans, including quantitative disclosures reflecting the impact that changes in...

  • Page 36
    ... portion of its funding needs. Long-term debt includes Federal Home Loan Bank ("FHLB") advances, other secured borrowings by Branch Bank, capital securities issued by unconsolidated trusts and senior and subordinated debt issued by the Corporation and Branch Bank. Average long-term debt totaled $18...

  • Page 37
    ... of the acquisition of Coastal, and an increase in municipal securities with states and political subdivisions primarily due to a new funding program in BB&T's Capital Markets Group. During the year ended December 31, 2007, BB&T sold approximately $2.5 billion of available-for-sale securities and...

  • Page 38
    ... to 6.65% in the current year. The yield on other securities increased from 5.82% during 2006 to 6.35% in 2007. Loans and Leases BB&T emphasizes commercial lending to small and medium-sized businesses, consumer lending, mortgage lending and specialized lending with an overall goal of maximizing the...

  • Page 39
    ... residential real estate market, which decreased demand for home equity loan products. Sales finance loans and revolving credit reflected solid growth rates during 2007. BB&T concentrates its efforts on the highest quality borrowers in both of these product markets. Average mortgage loans increased...

  • Page 40
    ... leases and reflected an increase of 11 basis points from the .27% level recorded during 2006. The primary causes for the increase in net charge-offs were higher losses in residential real estate lending and higher default rates at Regional Acceptance, BB&T's sub-prime automobile lender. Management...

  • Page 41
    ... 31, 2007 2006 2005 (Dollars in millions) Nonaccrual loans and leases Commercial loans and leases Direct retail Sales finance Mortgage Specialized lending Total nonaccrual loans and leases Foreclosed real estate Other foreclosed property Total nonperforming assets Nonaccrual loans and leases as...

  • Page 42
    ...table is presented using regulatory classifications. Table 13 Analysis of Allowance for Credit Losses 2007 December 31, 2006 2005 2004 (Dollars in millions) 2003 Balance, beginning of period Charge-offs: Commercial, financial and agricultural Real estate Consumer Lease receivables Total charge-offs...

  • Page 43
    ... as CDs and other products reprice. BB&T also uses various types of short-term borrowings in meeting funding needs. While client deposits remain the primary source for funding loan originations, management uses short-term borrowings as a supplementary funding source for loan growth and other balance...

  • Page 44
    ... BB&T and Branch Bank issued new long-term debt during the second quarter of 2007 that provides additional regulatory capital. In June 2007, BB&T issued $600 million of capital securities through a statutory business trust created under the laws of the State of Delaware, which was formed by BB&T for...

  • Page 45
    ... Board reversed this trend in September 2007 and lowered short-term rates by 100 basis points in the last four months of 2007 and an additional 125 basis points in January 2008. While many of BB&T's liabilities reprice in a short period of time after a change in rates, there is typically a delay of...

  • Page 46
    ... is a significant challenge for financial services companies, like BB&T, who borrow money from clients in the form of deposits and pay short-term rates, and invest in assets with longer-term maturities, which generally produce an interest spread. BB&T's net interest margin in 2006 and 2007 was also...

  • Page 47
    ...' Equity Interest-bearing deposits: Interest-checking Other client deposits Client certificates of deposits Other interest-bearing deposits Total interest-bearing deposits Federal funds purchased, securities sold under repurchase agreements and short-term borrowed funds(1) Long-term debt Total...

  • Page 48
    ... significant contributor to BB&T's financial success. Noninterest income includes service charges on deposit accounts, trust revenue, mortgage banking income, investment banking and brokerage fees and commissions, insurance commissions, gains and losses on securities transactions and commissions and...

  • Page 49
    ... (Dollars in millions) 2007 v. 2006 2006 v. 2005 Insurance commissions Service charges on deposits Investment banking and brokerage fees and commissions Other nondeposit fees and commissions Check card fees Trust income Bankcard fees and merchant discounts Mortgage banking income Securities losses...

  • Page 50
    ... from money orders and official checks increased $14 million compared to the prior year. Revenue from corporate and personal trust services are based on the types of services provided as well as the overall value of the assets managed, which is affected by stock market conditions. During 2007, trust...

  • Page 51
    ...continue to focus on asset management, mortgage banking, trust, insurance, investment banking and brokerage services, as well as other fee-producing products and services. BB&T plans to continue to pursue acquisitions of additional financial services companies, including insurance agencies and other...

  • Page 52
    ... 31, 2007 2006 2005 (Dollars in millions) % Change 2007 2006 v. v. 2006 2005 Salaries and wages Pension and other employee benefits Total personnel expenses Net occupancy expense on bank premises Furniture and equipment expense Total occupancy and equipment expenses Professional services Loan...

  • Page 53
    .... See Note 2 "Business Combinations" in the "Notes to Consolidated Financial Statements" for a summary of completed mergers and acquisitions during the three year period ended December 31, 2007. Other noninterest expenses, including loan processing expenses and professional services, increased $72...

  • Page 54
    ... related to change-in-control provisions of employment contracts, outplacement services and other benefits associated with employee termination or reversals of previously estimated amounts, which typically occur in corporate support and data processing functions. Occupancy and equipment charges...

  • Page 55
    .... Other accruals are utilized over time based on the sale, closing or disposal of duplicate facilities or equipment or the expiration of lease contracts. Merger accruals are re-evaluated periodically and adjusted as necessary. The remaining accruals at December 31, 2007 are expected to be utilized...

  • Page 56
    ... its cash flows, and therefore its value, by reference to an underlying instrument, index or referenced interest rate. BB&T uses derivatives primarily to manage risk related to securities, business loans, Federal funds purchased, long-term debt, mortgage servicing rights, mortgage banking operations...

  • Page 57
    ...under resale agreements or similar arrangements Loans and leases (2,4) Total interest-earning assets Liabilities Time deposits Other deposits with no stated maturity (3) Federal funds purchased and securities sold under repurchase agreements and short-term borrowed funds (4) Long-term debt (4) Total...

  • Page 58
    ... of long-term debt, which totaled $350 million in 2007. Funds raised through master note agreements with commercial clients are placed in a note receivable at Branch Bank primarily for its use in meeting short-term funding needs and, to a lesser extent, to support the short-term temporary cash needs...

  • Page 59
    ...&T and Branch Bank: Credit Ratings of BB&T Corporation and Branch Bank December 31, 2007 S&P Moody's Fitch DBRS BB&T Corporation Commercial paper Issuer LT/Senior debt Subordinated debt Trust preferred securities Branch Bank Bank financial strength Long term deposits LT/Senior unsecured bank notes...

  • Page 60
    ... December 31, 2007 Total Less than 1 to 3 3 to 5 One Year Years Years (Dollars in millions) After 5 Years Contractual Cash Obligations Long-term debt Operating leases Commitments to fund affordable housing investments Venture capital commitments Time deposits Total contractual cash obligations $18...

  • Page 61
    ...to lend. Related Party Transactions The Corporation may extend credit to certain officers and directors in the ordinary course of business. These loans are made under substantially the same terms as comparable third-party lending arrangements and are in compliance with applicable banking regulations...

  • Page 62
    ...risk factors specified by Federal bank regulatory pronouncements. Tier 1 capital is calculated as common shareholders' equity, excluding the over- or underfunded status of postretirement benefit obligations, unrealized gains or losses on debt securities available for sale, unrealized gains on equity...

  • Page 63
    ...2077 Company's 6.75% junior subordinated debentures due 2036 underlying the 6.75% capital securities of BB&T Capital Trust II Common Stock and Dividends BB&T's ability to pay dividends is primarily dependent on earnings from operations, the adequacy of capital and the availability of liquid assets...

  • Page 64
    ... Paid on Common Stock," sets forth the quarterly high and low trading prices and closing sales prices for BB&T's common stock and the dividends paid per share of common stock for each of the last eight quarters. Table 25 Quarterly Summary of Market Prices and Cash Dividends Paid on Common Stock 2007...

  • Page 65
    ... under BB&T's equity-based compensation plans. (2) Excludes commissions. Segment Results BB&T's operations are divided into seven reportable business segments: the Banking Network, Residential Mortgage Banking, Sales Finance, Specialized Lending, Insurance Services, Financial Services, and Treasury...

  • Page 66
    ...stable over time than the provision for loan and lease losses that is recorded in the Consolidated Statements of Income. Noninterest income in the Residential Mortgage Banking segment increased $11 million in 2007 compared to 2006, primarily reflecting higher gains from loan sales, while noninterest...

  • Page 67
    ... the risk-adjusted yields on the loans offered are more attractive than traditional lending products offered by the Banking Network. Average loans for the Specialized Lending segment increased 58.8% during 2007 compared to 2006, including the acquisitions of AFCO and Collateral, which added loans of...

  • Page 68
    ...higher level of tax exempt income earned in 2007. The increase in the provision for income taxes allocated to the Financial Services segment in 2006 compared to 2005 was primarily a result of a change in the effective tax rate used to allocate taxes to the segments. Total identifiable segment assets...

  • Page 69
    ... reflects the deteriorating credit quality of the loan portfolio that has resulted from challenges in the residential real estate markets and a weaker overall economy. The increase in the provision for credit losses also reflects higher net charge-offs in the fourth quarter of 2007, compared to the...

  • Page 70
    ... earning assets 116,029 114,441 111,030 107,606 105,216 103,757 100,028 97,175 Deposits 85,260 84,223 81,959 82,523 79,889 79,123 75,626 74,199 Federal funds purchased, securities sold under repurchase agreements and short-term debt 10,739 9,892 9,000 7,627 7,109 6,720 7,507 6,685 Long-term debt 18...

  • Page 71
    ... change in accounting principle Net income Cash dividends paid per share Book value per share Average Balances Securities, at amortized cost Loans and leases (1) Other assets Total assets Deposits Long-term debt Other liabilities Shareholders' equity Total liabilities and shareholders' equity Period...

  • Page 72
    ... reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Corporation's assets that could have a material impact on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or...

  • Page 73
    ... reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or...

  • Page 74
    ...' Equity Deposits: Noninterest-bearing deposits Interest checking Other client deposits Client certificates of deposit Other interest-bearing deposits Total deposits Federal funds purchased, securities sold under repurchase agreements and short-term borrowed funds Long-term debt Accounts payable...

  • Page 75
    ... agreements and short-term borrowed funds Interest on long-term debt Total interest expense Net Interest Income Provision for credit losses Net Interest Income After Provision for Credit Losses Noninterest Income Insurance commissions Service charges on deposits Investment banking and brokerage...

  • Page 76
    ... Redemption of common stock Cash dividends declared on common stock, $1.49 per share Excess tax benefit from equity-based awards Balance, December 31, 2005 Add (Deduct): Comprehensive income: Net income Unrealized holding gains (losses) arising during the period on securities available for sale, net...

  • Page 77
    ... estate held for sale Other, net Net cash used in investing activities Cash Flows From Financing Activities: Net increase in deposits Net increase (decrease) in federal funds purchased, securities sold under repurchase agreements and short-term borrowed funds Proceeds from issuance of long-term debt...

  • Page 78
    ... is a financial holding company headquartered in Winston-Salem, North Carolina. BB&T conducts its operations primarily through Branch Bank, which has branches in North Carolina, South Carolina, Virginia, Maryland, Georgia, West Virginia, Tennessee, Kentucky, Florida, Alabama, Indiana and Washington...

  • Page 79
    ...the assets and liabilities of acquired companies. To consummate an acquisition, BB&T typically issues common stock and / or pays cash, depending on the terms of the merger agreement. The value of common shares issued in connection with purchase business combinations is determined based on the market...

  • Page 80
    ... from unanticipated deposit and loan fluctuations, changes in regulatory capital requirements, or unforeseen changes in market conditions, are classified as available for sale. Equity securities classified as available for sale are primarily stock issued by the Federal Home Loan Bank of Atlanta...

  • Page 81
    ... foreclosed property. Foreclosed property consists of real estate and other assets acquired as a result of customers' loan defaults. BB&T's policies related to when loans are placed on nonaccrual status conform to guidelines prescribed by bank regulatory authorities. Commercial loans and leases are...

  • Page 82
    ... the probability of funding and exposure at default. While management uses the best information available to establish the allowance for loan and lease losses and the reserve for unfunded lending commitments, future adjustments may be necessary if economic conditions differ substantially from the...

  • Page 83
    ...when-issued securities, foreign exchange contracts and options written and purchased. BB&T uses derivatives primarily to manage economic risk related to securities, business loans, mortgage servicing rights and mortgage banking operations, Federal funds purchased, other time deposits, long-term debt...

  • Page 84
    ... the mortgage servicing on loans sold. Since quoted market prices are not typically available, BB&T estimates the fair value of these retained interests using modeling techniques to determine the net present value of expected future cash flows. Such models incorporate management's best estimates of...

  • Page 85
    ... share-based awards granted to employees prior to January 1, 2006 using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees," and related interpretations. Since the option price equaled the market price on the date...

  • Page 86
    ... January 1, 2008, and elected the fair value option for certain loans held for sale originated after January 1, 2008. The adoption of SFAS No. 159 was not material to the consolidated financial statements. In November 2007, the SEC Staff issued Staff Accounting Bulletin No. 109 ("SAB No. 109...

  • Page 87
    ... 1, 2007, BB&T completed the acquisition of Coastal Financial Corporation ("Coastal"), a $1.7 billion bank holding company headquartered in Myrtle Beach, South Carolina. In conjunction with this transaction, BB&T issued approximately 8.8 million shares of common stock and 574 thousand stock options...

  • Page 88
    ... investment management services company based in Charlotte, North Carolina. Including subsequent adjustments, approximately $115 million in goodwill and $85 million of identifiable intangible assets were recorded in connection with these transactions. Merger and acquisition agreements of businesses...

  • Page 89
    ...as required or permitted by law. BB&T had certain investments in marketable debt securities and mortgage-backed securities issued by Fannie Mae and Freddie Mac that exceeded ten percent of shareholders' equity at December 31, 2007. Those investments each had total amortized cost and market values of...

  • Page 90
    ... of securities issued by the Federal Farm Credit Bureau, the Federal Home Loan Bank System, the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. These agencies are rated AAA and the unrealized losses are the result of increases in market interest rates compared...

  • Page 91
    ... Loans and Leases December 31, 2007 2006 (Dollars in millions) Loans and leases, net of unearned income: Commercial loans Leveraged leases Total commercial loans and leases Sales finance Revolving credit Direct retail Total consumer loans Residential mortgage loans Specialized lending Loans Leases...

  • Page 92
    ... and 2005, respectively. For the Years Ended December 31, 2007 2006 2005 (Dollars in millions) Nonaccrual loans and leases Foreclosed real estate Other foreclosed property Total foreclosed property Total nonperforming assets Loans 90 days or more past due and still accruing $502 143 51 194 $696...

  • Page 93
    ...segments for the years ended December 31, 2007 and 2006 are as follows: Goodwill Activity by Operating Segment Residential Banking Mortgage Sales Specialized Insurance Financial All Network Banking Finance Lending Services Services Other Total (Dollars in millions) Balance, January 1, 2006 Acquired...

  • Page 94
    ...timing of estimated future net cash flows. As of January 1, 2006, 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...

  • Page 95
    ... lower of cost or market method of accounting: Residential Mortgage Servicing Rights For the Year Ended December 31, 2005 (Dollars in millions) Balance, January 1, Amount capitalized Acquired in purchase acquisitions Amortization expense Other than temporary impairment Change in valuation allowance...

  • Page 96
    ... NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) BB&T uses assumptions and estimates in determining the fair value of capitalized mortgage servicing rights. These assumptions include prepayment speeds, net charge-off experience and discount rates commensurate with the risks involved and...

  • Page 97
    ... 6 BB&T also arranges and services commercial real estate mortgages through Grandbridge Real Estate Capital, LLC ("Grandbridge") the commercial mortgage banking subsidiary of Branch Bank. During the years ended December 31, 2007, 2006 and 2005, Grandbridge originated $3.0 billion, $2.9 billion and...

  • Page 98
    ...rate commercial paper) that mature in less than one year. Other short-term borrowed funds consist primarily of unsecured bank notes that mature in less than one year and bank obligations with a maturity of seven days that are collateralized by municipal securities. A summary of selected data related...

  • Page 99
    ... AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) NOTE 10. Long-Term Debt Long-term debt is summarized as follows: December 31, 2007 2006 (Dollars in millions) Parent Company 7.25% Subordinated Notes Due 2007 6.50% Subordinated Notes Due 2011 (1,3) 4.75% Subordinated...

  • Page 100
    ... Debt to Unconsolidated Trusts In August 2005, BB&T Capital Trust I ("BBTCT") issued $500 million of 5.85% Capital Securities. BBTCT, a statutory business trust created under the laws of the State of Delaware, was formed by BB&T for the sole purpose of issuing the Capital Securities and investing...

  • Page 101
    ... Street Banks Statutory Trust I ("MSBT I") issued $5 million of floating rate Capital Securities. MSBT I, a statutory business trust created under the laws of the State of Connecticut, was formed by Main Street Banks, Inc., ("MSBK") for the purpose of issuing the Capital Securities and investing the...

  • Page 102
    ...July 2003, Coastal Financial Capital Trust I ("Coastal I") issued $15 million of floating rate Capital Securities. Coastal I, a statutory business trust created under the laws of the State of Delaware, was formed by Coastal for the purpose of issuing the Capital Securities and investing the proceeds...

  • Page 103
    ..., 2007 2006 2005 Assumptions: Risk-free interest rate Dividend yield Volatility factor Expected life Fair value of options per share 4.7% 4.0 14.0 6.9yrs $5.34 4.6% 3.8 16.0 6.5yrs $5.58 4.1% 3.5 20.0 6.5yrs $6.52 BB&T determines the assumptions used in the Black-Scholes option pricing model as...

  • Page 104
    ... 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. BB&T recorded $70 million and $58 million in equity-based compensation in 2007 and 2006, respectively. In connection...

  • Page 105
    ...the following tables: As of December 31, 2007 Before-Tax Tax After-Tax Amount Benefit Amount (Dollars in millions) Unrealized net losses on securities available for sale Unrecognized net pension and postretirement costs Foreign currency translation adjustment Total 105 $ (45) (127) 3 $(169) $ (17...

  • Page 106
    ... AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) As of December 31, 2006 Before-Tax Tax After-Tax Amount Benefit Amount (Dollars in millions) Unrealized net losses on securities available for sale Unrecognized net pension and postretirement costs Total $(391) (180...

  • Page 107
    ... for loan and lease losses Unrealized loss on securities available for sale Postretirement plans Equity-based compensation Other Total deferred tax assets Deferred tax liabilities: Lease financing Prepaid pension plan expense Loan fees & expenses Identifiable intangible assets Loan servicing rights...

  • Page 108
    ... NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The Internal Revenue Service ("IRS") disallowed certain deductions taken by BB&T on leveraged lease transactions during 1997-2002. In 2004, BB&T filed a lawsuit against the IRS to pursue a refund of amounts assessed by the IRS related to...

  • Page 109
    ... employees are available to finance future benefits. The following are the significant actuarial assumptions that were used to determine net periodic pension costs: December 31, 2007 2006 Actuarial Assumptions Weighted average assumed discount rate Weighted average expected long-term rate of return...

  • Page 110
    ... Pension Plan Pension Plans Years Ended Years Ended December 31, December 31, 2007 2006 2007 2006 (Dollars in millions) Change in Plan Assets Fair value of plan assets, January 1, Actual return on plan assets Employer contributions Benefits paid Fair value of plan assets, December 31, Funded...

  • Page 111
    ... for fixed income securities, and 10% to 30% for alternative investments, which include real estate, hedge funds, private equities and commodities, with any remainder to be held in cash equivalents. The allocation of plan assets for the defined benefit pension plans, by asset category as of December...

  • Page 112
    ... NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The plan assets included 1.033 million shares valued at $32 million and 995 thousand shares valued at $44 million of BB&T common stock at December 31, 2007 and 2006, respectively. Postretirement Benefits Other than Pension BB&T provides...

  • Page 113
    ... necessary. Commercial letters of credit are short-term commitments issued primarily to facilitate trade finance activities for clients and are generally collateralized by the goods being shipped to the client. In the ordinary course of business, BB&T indemnifies its officers and directors to the...

  • Page 114
    ... or policies will materially affect the ability of Branch Bank to pay dividends. At December 31, 2007, subject to restrictions imposed by state law, the Board of Directors of Branch Bank could have declared dividends from its retained earnings up to $3.4 billion; however, to remain well-capitalized...

  • Page 115
    ... benefit of clients. NOTE 17. Parent Company Financial Statements Parent Company Condensed Balance Sheets December 31, 2007 and 2006 2007 2006 (Dollars in millions) Assets Cash and due from banks Interest-bearing bank balances Securities available for sale at fair value Investment in banking...

  • Page 116
    ... AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Parent Company Condensed Income Statements For the Years Ended December 31, 2007, 2006 and 2005 2007 2006 2005 (Dollars in millions) Income Dividends from banking subsidiaries Dividends from other subsidiaries Interest...

  • Page 117
    ... cash used in investing activities Cash Flows From Financing Activities: Net increase in long-term debt Net increase in short-term borrowed funds Net decrease in advances from subsidiaries Net proceeds from common stock issued Redemption of common stock Cash dividends paid on common stock Net cash...

  • Page 118
    ...fair values for demand deposits, interest-checking accounts, savings accounts and certain money market accounts are, by definition, equal to the amount payable on demand at the reporting date, i.e., their carrying amounts. Fair values for certificates of deposit are estimated using a discounted cash...

  • Page 119
    ... assets: Cash and cash equivalents Segregated cash due from banks Trading securities Securities available for sale Derivative assets Loans and leases, net of unearned income: Loans (1) Leases Allowance for loan and lease losses Net loans and leases Financial liabilities: Deposits Federal funds...

  • Page 120
    ... as Cash Flow Hedges: Hedging business loans Hedging institutional certificates of deposits and other time deposits Hedging short term funding Hedging medium term bank notes and FHLB advances Derivatives Designated as Fair Value Hedges: Hedging long-term debt Hedging municipal securities Derivatives...

  • Page 121
    .... BB&T's floating rate business loans, Federal funds purchased, institutional certificates of deposit, other time deposits, medium term bank notes and long term debt expose it to variability in cash flows for interest payments. The risk management objective for these assets and liabilities is...

  • Page 122
    ...Residential Mortgage Banking, Sales Finance, Specialized Lending, Insurance Services, Financial Services, and Treasury. These operating segments have been identified based on BB&T's organizational structure. The segments require unique technology and marketing strategies and offer different products...

  • Page 123
    ..., the financial results presented may be periodically revised. BB&T's overall objective is to maximize shareholder value by optimizing return on equity and managing risk. Allocations of capital and the economic provision for loan and lease losses are designed to address this objective. Capital is...

  • Page 124
    ...alternatives to consumers and businesses including: dealer-based financing of equipment for both small businesses and consumers, equipment leasing, direct consumer finance, insurance premium finance, indirect sub-prime automobile finance, and full-service commercial mortgage banking. Bank clients as...

  • Page 125
    ...asset management, employee benefits services, corporate banking and corporate trust services to individuals, corporations, institutions, foundations and government entities. BB&T's Financial Services segment also offers clients investment alternatives, including discount brokerage services, equities...

  • Page 126
    ... 2007 2006 2005 Residential Mortgage Banking 2007 2006 2005 Sales Finance 2007 2006 2005 (Dollars in millions) Specialized Lending 2007 2006 2005 Insurance Services 2007 2006 2005 Net interest income (expense) Net funds transfer pricing Net interest income Economic provision for loan and lease...

  • Page 127
    ... (Registrant) By: / S/ JOHN A. ALLISON IV John A. Allison IV Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated...

  • Page 128
    ...P. HOWE III, M.D. John P. Howe III, M.D. Director / S/ JAMES H. MAYNARD James H. Maynard Director / S/ ALBERT O. MCCAULEY Albert O. McCauley Director / S/ J. HOLMES MORRISON J. Holmes Morrison Director / S/ NIDO R. QUBEIN Nido R. Qubein Director / S/ STEPHEN T. WILLIAMS Stephen T. Williams...

  • Page 129
    ... of the Registrant related to Junior Participating Preferred Stock. Subordinated Indenture (including Form of Subordinated Debt Security) between the Registrant and U.S. Bank National Association (as successor in interest to State Street Bank and Trust Company), as trustee, dated as of May...

  • Page 130
    ...2004 Stock Incentive Plan. Form of Restricted Stock Unit Agreement (Performance Vesting Component) for the BB&T Corporation Amended and Restated 2004 Stock Incentive Plan. BB&T Corporation Amended and Restated 1996 Short-term Incentive Plan. Filed herewith. Filed herewith. 10.6*†Filed herewith...

  • Page 131
    .... Amended and Restated Employment Agreement by and among BB&T Corporation, Branch Banking and Trust Co. and C. Leon Wilson, III. Death Benefit Only Plan, dated April 23, 1990, by and between Branch Banking and Trust Company (as successor to Southern National Bank of North Carolina) and L. Glenn Orr...

  • Page 132
    Exhibit No. Description Location 10.33* Special Pay Agreement, dated January 20, 2003, by and between First Virginia Banks, Inc. and Barry J. Fitzpatrick. Incorporated herein by reference to Exhibit 10(ah) of the Annual Report on Form 10-K, filed March 8, 2004. Incorporated herein by reference ...

  • Page 133
    ... respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in...

  • Page 134
    ...fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 28, 2008 / S/ CHRISTOPHER L. HENSON Christopher L. Henson Senior Executive Vice President and Chief Financial Officer

  • Page 135
    ... I am the Chairman and Chief Executive Officer of BB&T Corporation (the "Issuer"). (2) Accompanying this certification is the Issuer's Annual Report on Form 10-K for the year ended December 31, 2007, (the "Periodic Report") as filed by the Issuer with the Securities and Exchange Commission pursuant...

  • Page 136
    ... am the Senior Executive Vice President and Chief Financial Officer of BB&T Corporation (the "Issuer"). (2) Accompanying this certification is the Issuer's Annual Report on Form 10-K for the year ended December 31, 2007, (the "Periodic Report") as filed by the Issuer with the Securities and Exchange...

  • Page 137
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