BB&T 2007 Annual Report Download - page 113

BB&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Commitments to extend, originate or purchase credit are primarily lines of credit to businesses and
consumers and have specified rates and maturity dates. Many of these commitments also have adverse change
clauses, which allow BB&T to cancel the commitment due to deterioration in the borrowers’ creditworthiness.
Standby letters of credit and financial guarantees written are unconditional commitments issued by BB&T to
guarantee the performance of a customer to a third party. As of December 31, 2007, BB&T had issued $3.4 billion
in such guarantees. These guarantees are primarily issued to support public and private borrowing
arrangements, including commercial paper issuance, bond financing and similar transactions. The credit risk
involved in the issuance of these guarantees is essentially the same as that involved in extending loans to clients
and as such, the instruments are collateralized when 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 fullest extent
permitted by law against liabilities arising from pending litigation. BB&T also issues standard representation and
warranties in underwriting agreements, merger and acquisition agreements, loan sales, brokerage activities and
other similar arrangements. Counterparties in many of these indemnifications provide similar indemnifications to
BB&T. Although these agreements often do not specify limitations, BB&T does not believe that any payments
related to these guarantees would materially change the financial condition or results of operations of BB&T.
Merger and acquisition agreements of businesses other than financial institutions occasionally include
additional incentives to the acquired entities to offset the loss of future cash flows previously received through
ownership positions. Typically, these incentives are based on the acquired entity’s contribution to BB&T’s
earnings compared to agreed-upon amounts. When offered, these incentives are typically issued for terms of
three to five years. As certain provisions of these agreements do not specify dollar limitations, it is not possible to
quantify the maximum exposure resulting from these agreements.
Forward commitments to sell mortgage loans and mortgage-backed securities are contracts for delayed
delivery of securities in which BB&T agrees to make delivery at a specified future date of a specified instrument,
at a specified price or yield. Risks arise from the possible inability of counterparties to meet the terms of their
contracts and from movements in securities’ values and interest rates.
BB&T invests in certain affordable housing and historic building rehabilitation projects throughout its
market area as a means of supporting local communities, and receives tax credits related to these investments.
BB&T typically acts as a limited partner in these investments and does not exert control over the operating or
financial policies of the partnerships. Branch Bank typically provides financing during the construction and
development of the properties; however, permanent financing is generally obtained from independent third
parties upon completion of a project. BB&T’s outstanding commitments to fund affordable housing investments
totaled $444 million and $183 million at December 31, 2007 and 2006, respectively.
BB&T has sold certain mortgage-related loans that contain recourse provisions. These provisions generally
require BB&T to reimburse the investor for a share of any loss that is incurred after the disposal of the property.
At December 31, 2007 and 2006, BB&T had $2.3 billion and $214 million, respectively, of loans sold with recourse.
The majority of the loans were acquired by BB&T during 2007 in connection with an acquisition. Neither BB&T
nor the predecessor has incurred any losses related to these recourse provisions.
BB&T has investments and future funding commitments to certain venture capital funds. As of December 31,
2007, BB&T had investments of $99 million, net of minority interest, related to these ventures and future funding
commitments of $213 million. BB&T’s risk exposure relating to such commitments is generally limited to the
amount of investments and future funding commitments made.
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