BB&T 2009 Annual Report Download - page 42

the Company issued other forms of capital and has retained a higher level of securities. Currently, as a result of
the low interest-rate environment, management is not reinvesting all cash flows from the securities portfolio and
expects the size of the portfolio as a percentage of total assets to decline in the future.
Mortgage-backed securities issued by government-sponsored entities comprised 78.7% of the total
available-for-sale securities portfolio at year-end 2009. The duration of the mortgage-backed securities was 3.37
years at December 31, 2009 compared to 1.60 years at December 31, 2008. As of December 31, 2009, the
available-for-sale securities portfolio also includes $1.2 billion of securities that were acquired from the FDIC as
part of the Colonial transaction. These securities are covered by FDIC loss sharing agreements and include $896
million of non-agency mortgage-backed securities and $305 million of municipal securities. The duration of the
entire available-for-sale portfolio at December 31, 2009 was 4.40 years compared to 2.77 years at December 31,
2008. The duration of the securities portfolio excludes equity securities, auction rate securities, and re-remic non-
agency mortgage-backed securities that were acquired in the Colonial acquisition.
BB&T sold a total of $17.1 billion in available-for-sale securities during 2009, including $2.4 billion of
securities acquired in the Colonial acquisition, which produced net securities gains of $240 million, none of which
related to the sales from the Colonial acquisition. In addition, BB&T recognized in net income $41 million in
charges for other-than-temporary impairment related to certain debt and equity securities. During the first
quarter of 2009, BB&T took advantage of an opportunity to shorten the duration of its securities portfolio and
realize gains in certain mortgage-backed securities issued by U.S. government-sponsored entities. While these
mortgage-backed securities had higher yields, they had a longer duration and government efforts to drive down
mortgage rates increased the risk of early prepayment. The majority of the proceeds from these sales were
reinvested in similar securities with shorter durations early in the second quarter of 2009. During 2008, BB&T
sold approximately $21.0 billion of available-for-sale securities and realized net gains totaling $211 million. In
addition, BB&T recorded $104 million of other-than-temporary impairments related to certain debt and equity
securities. No other-than-temporary impairments were recorded during 2007.
The fair value of the available-for-sale portfolio at year-end 2009 was $363 million lower than the amortized
cost of these securities. At December 31, 2009, BB&T’s available-for-sale portfolio had net unrealized losses, net
of deferred income taxes, of $225 million, which are reported as a component of shareholders’ equity. At
December 31, 2008, the available-for-sale portfolio had net unrealized losses of $517 million, or $324 million, net of
deferred income taxes. The increase in the fair value of the securities available-for-sale portfolio during 2009 was
largely a result of recoveries in the value of non-agency mortgage-backed securities and municipal securities, as
investor concerns about real estate related assets and the overall state of the economy abated to some degree.
Increases in the values of these portfolios were partially offset by declines in the value of government-sponsored
entity securities and mortgage-backed securities issued by government-sponsored entities due to movements in
interest rates and the realization of $240 million of net gains on sales of securities.
On December 31, 2009, BB&T held certain investment securities having continuous unrealized losses for
more than 12 months. As of December 31, 2009, the unrealized losses on these securities totaled $311 million. All
of these losses were in non-agency mortgage-backed and municipal securities. At December 31, 2009, all of the
available-for-sale debt securities in an unrealized loss position, excluding those covered by FDIC loss sharing
agreements, were investment grade with the exception of (a) one auction rate security with a book value of $2
million; (b) two municipal bonds with a book value of $8 million; (c) eleven non-agency mortgage-backed securities
with a book value of $859 million and (d) one non-agency commercial mortgage-backed security with a book value
of $25 million. All of the non-investment grade securities referenced above were initially investment grade and
have been downgraded since purchase. BB&T evaluated all of its debt securities for credit impairment. Based on
its evaluation at December 31, 2009, BB&T determined that certain of the non-investment grade non-agency
mortgage-backed securities had credit losses evident and recognized other-than-temporary impairments related
to these securities. Approximately $1 million of the decline in fair value related to credit losses and was
recognized in net income. BB&T’s evaluation of the other debt securities with continuous unrealized losses
indicated that there were no credit losses evident. Furthermore, BB&T does not intend to sell and determined
that it is more likely than not that the Company will not be required to sell these debt securities before the
anticipated recovery of the amortized cost basis. See the “Summary Analysis Supporting Conclusions” section
included in Note 3 “Securities” in the “Notes to Consolidated Financial Statements” herein for additional
disclosures related to BB&T’s evaluation of securities for other-than-temporary impairment.
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