BB&T 2009 Annual Report Download - page 137

BB&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
NOTE 15. Commitments and Contingencies
BB&T utilizes a variety of financial instruments to meet the financing needs of clients and to reduce
exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit,
letters of credit and financial guarantees and derivatives. BB&T also has commitments to fund certain affordable
housing investments and contingent liabilities of certain sold loans. The following table presents the contractual
or notional amount of these instruments:
Contract or Notional
Amount at
December 31,
2009 2008
(Dollars in millions)
Financial instruments whose contract amounts represent credit risk:
Commitments to extend, originate or purchase credit $36,130 $35,144
Letters of credit and financial guarantees written 7,999 5,895
Financial instruments whose notional or contract amounts exceed the amount of credit risk:
Derivative financial instruments 66,175 74,177
Commitments to fund affordable housing investments 371 412
Residential mortgage loans sold with recourse 1,986 2,470
Other loans sold with recourse 3,989 3,259
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.
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, 2009, BB&T had issued $8.0 billion
in such guarantees. The carrying amount of the liability for such guarantees was $40 million and $20 million at
December 31, 2009 and 2008, respectively. 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.
A derivative is a financial instrument that derives its cash flows, and therefore its value, by reference to an
underlying instrument, index or referenced interest rate. These instruments include interest-rate swaps,
swaptions, caps, floors, collars, financial forward and futures contracts, when-issued securities, foreign exchange
contracts and options written and purchased. BB&T uses derivatives primarily to manage risk related to
securities, business loans, Federal Funds purchased, other overnight funding, long-term debt, mortgage servicing
rights, mortgage banking operations and certificates of deposit. BB&T also uses derivatives to facilitate
transactions on behalf of its clients. BB&T held a variety of derivative financial instruments with notional values
of $66.2 billion and $74.2 billion at December 31, 2009 and 2008, respectively. These instruments were in a net gain
position of $283 million and $626 million at December 31, 2009 and 2008, respectively.
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 indemnification arrangements 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
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