BB&T 2009 Annual Report Download - page 20

Sales Finance Loan Portfolio
The sales finance category primarily includes secured indirect installment loans to consumers for the
purchase of new and used automobiles, boats and recreational vehicles. Such loans are originated through
approved franchised and independent dealers throughout the BB&T market area. These loans are relatively
homogenous and no single loan is individually significant in terms of its size and potential risk of loss. Sales
finance loans are subject to the same rigorous lending policies and procedures as described above for commercial
loans and are underwritten with note amounts and credit limits that ensure consistency with the Corporation’s
risk philosophy. In addition to its normal underwriting due diligence, BB&T uses application systems and
“scoring systems” to help underwrite and manage the credit risk in its sales finance portfolio. Also included in the
sales finance category are commercial lines, serviced by the Sales Finance Department, to finance dealer
wholesale inventory (“Floor Plan Lines”) for resale to consumers. Floor Plan Lines are underwritten by
commercial loan officers in compliance with the same rigorous lending policies described above for commercial
loans. In addition, Floor Plan Lines are subject to intensive monitoring and oversight to ensure quality and to
mitigate risk from fraud.
Revolving Credit Loan Portfolio
The revolving credit portfolio comprises the outstanding balances on credit cards and BB&T’s checking
account overdraft protection product, Constant Credit. BB&T markets credit cards to its existing banking client
base and does not solicit cardholders through nationwide programs or other forms of mass marketing. Such
balances are generally unsecured and actively managed by BB&T FSB.
Direct Retail Loan Portfolio
The direct retail loan portfolio primarily consists of a wide variety of loan products offered through BB&T’s
banking network. Various types of secured and unsecured loans are marketed to qualifying existing clients and to
other creditworthy candidates in BB&T’s market area. The vast majority of direct retail loans are secured by
first or second liens on residential real estate, and include both closed-end home equity loans and revolving home
equity lines of credit. Direct retail loans are subject to the same rigorous lending policies and procedures as
described above for commercial loans and are underwritten with note amounts and credit limits that ensure
consistency with the Corporation’s risk philosophy.
Mortgage Loan Portfolio
BB&T is a large originator of residential mortgage loans, with originations in 2009 totaling $28.2 billion.
Branch Bank offers various types of fixed- and adjustable-rate loans for the purpose of constructing, purchasing
or refinancing residential properties. BB&T primarily originates conforming mortgage loans and higher quality
jumbo and construction-to-permanent loans for owner-occupied properties. Conforming loans are loans that are
underwritten in accordance with the underwriting standards set forth by the Federal National Mortgage
Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”). They are
generally collateralized by one-to-four-family residential real estate, have loan-to-collateral value ratios of 80% or
less, and are made to borrowers in good credit standing.
Risks associated with the mortgage lending function include interest rate risk, which is mitigated through
the sale of substantially all conforming fixed-rate loans in the secondary mortgage market and an effective
mortgage servicing rights hedge process. Borrower risk is lessened through rigorous underwriting procedures
and mortgage insurance. The right to service the loans and receive servicing income is generally retained when
conforming loans are sold. Management believes that the retention of mortgage servicing is a primary
relationship driver in retail banking and a vital part of management’s strategy to establish profitable long-term
customer relationships and offer high quality client service. BB&T also purchases residential mortgage loans
from correspondent originators. The loans purchased from third-party originators are subject to the same
underwriting and risk-management criteria as loans originated internally.
20