BB&T 2009 Annual Report Download - page 5

local business conditions as well as conditions in the local residential and commercial real estate markets it serves.
For example, an increase in unemployment, a decrease in real estate values or increases in interest rates, as well
as other factors, could weaken the economies of the communities BB&T serves. Weakness in BB&T’s market area
could depress the Company’s earnings and consequently its financial condition because:
Šcustomers may not want or need BB&T’s products or services;
Šborrowers may not be able or willing to repay their loans;
Šthe value of the collateral securing loans to borrowers may decline; and
Šthe quality of BB&T’s loan portfolio may decline.
Any of the latter three scenarios could require the Company to charge off a higher percentage of loans and/or
increase provisions for credit losses, which would reduce the Company’s net income. For example, beginning in
2007 and continuing through 2009, BB&T experienced increasing credit deterioration due to ongoing challenges in
the residential real estate markets. This period of credit deterioration combined with flat to declining real estate
values resulted in increasing loan charge-offs and higher provisions for credit losses, which negatively impacted
BB&T’s net income.
In connection with the agreement between the Federal Deposit Insurance Corporation (“FDIC”) and the
Company to acquire certain assets and assume substantially all of the deposits and certain liabilities of Colonial
Bank, an Alabama state-chartered bank headquartered in Montgomery, Alabama (“Colonial”), Branch Bank
acquired a significant portfolio of loans. Although Branch Bank marked down the acquired loan portfolio to
estimated fair value, there is no assurance that the loans acquired will not suffer further deterioration in value
resulting in additional charge-offs to this loan portfolio. Fluctuations in national, regional and local economic
conditions, including those related to local residential real estate, commercial real estate and construction
markets may increase the level of charge-offs on the loan portfolio that was acquired in the acquisition of Colonial
and correspondingly reduce BB&T’s net income. These fluctuations are not predictable, cannot be controlled and
may have a material adverse impact on BB&T’s operations and financial condition even if other favorable events
occur. Although Branch Bank entered into loss sharing agreements with the FDIC, which provide that a
significant portion of losses related to specified loan portfolios that were acquired in connection with the
acquisition of Colonial will be borne by the FDIC, Branch Bank is not protected for all losses resulting from
charge-offs with respect to those specified loan portfolios. Additionally, the loss sharing agreements have limited
terms; therefore, any charge-off of related losses that Branch Bank experiences after the term of the loss sharing
agreements will not be reimbursed by the FDIC and will negatively impact BB&T’s net income. In connection
with the acquisition of Colonial, Branch Bank also acquired certain loan portfolios that are not subject to the loss
sharing agreements. Any charge-offs related to these loan portfolios will be borne by Branch Bank in full and
would also negatively impact BB&T’s net income.
BB&T will be expanding operations into new geographic areas.
Portions of the market areas served by Colonial, including market areas in Alabama, Florida and Texas, are
areas in which BB&T historically conducted limited or no banking activities. In particular, Colonial had
significant operations in Alabama, where BB&T previously had a very limited presence. BB&T must effectively
integrate these new markets to retain and expand the business previously conducted by Colonial. The ability to
compete effectively in the new markets will be dependent on BB&T’s ability to understand the local market and
competitive dynamics and identify and retain certain employees from Colonial who know their markets better
than BB&T does.
Weakness in the markets for residential or commercial real estate, including the secondary residential mortgage
loan markets, could reduce BB&T’s net income and profitability.
Since 2007, softening residential housing markets, increasing delinquency and default rates, and increasingly
volatile and constrained secondary credit markets have been negatively impacting the mortgage industry.
BB&T’s financial results have been adversely affected by changes in real estate values, primarily in Georgia,
Florida and metro Washington, D.C., with some deterioration in the coastal areas of the Carolinas. Decreases in
real estate values have adversely affected the value of property used as collateral for loans and investments in
BB&T’s portfolio. The poor economic conditions experienced in 2007 through 2009 resulted in decreased demand
for real estate loans, and BB&T’s net income and profits have suffered as a result.
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