BB&T 2010 Annual Report Download - page 147

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 representations
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
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.
In connection with the Colonial acquisition, Branch Bank entered into loss sharing agreements with the
FDIC related to certain assets acquired. Pursuant to the terms of these loss sharing agreements, the FDIC’s
obligation to reimburse Branch Bank for losses with respect to certain loans, OREO, certain investment
securities and other assets (collectively, “covered assets”), begins with the first dollar of loss incurred. The terms
of the loss sharing agreement with respect to certain non-agency mortgage-backed securities provides that
Branch Bank will be reimbursed by the FDIC for 95% of any and all losses. All other covered assets are subject
to a stated threshold of $5 billion that provides for the FDIC to reimburse Branch Bank for (1) 80% of losses
incurred up to $5 billion and (2) 95% of losses in excess of $5 billion. Gains and recoveries on covered assets will
offset losses, or be paid to the FDIC, at the applicable loss share percentage at the time of recovery. The loss
sharing agreement applicable to single family residential mortgage loans provides for FDIC loss sharing and
Branch Bank reimbursement to the FDIC, in each case as described above, for ten years. The loss sharing
agreement applicable to commercial loans and other covered assets provides for FDIC loss sharing for five years
and Branch Bank reimbursement to the FDIC for gains and recoveries for a total of eight years, in each case as
described above.
The provisions of the loss sharing agreements may also require a payment by BB&T to the FDIC on
October 15, 2019. On that date, BB&T is required to pay the FDIC 55% of the excess, if any, of (i) $1 billion over
(ii) the sum of (A) 25% of the total net amounts paid to BB&T under both of the loss sharing agreements (i.e.,
BB&T’s payments received from the FDIC for losses, offset by BB&T’s payments made to the FDIC for
recoveries) plus (B) 20% of the deemed total cost to BB&T of administering the assets covered under the loss
sharing agreements other than shared loss securities. The deemed total cost to BB&T of administering the
covered assets is the sum of 2% of the average of the principal amount of shared loss loans and shared loss assets
(other than the shared loss securities) based on the beginning and end of year balances for each of the 10 years
during which the shared loss agreements are in effect. In addition, any payments made by either party with
respect to the securities with a 95% loss share will be excluded from this calculation.
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. As of December 31, 2010 and 2009, BB&T had investments of $1.2 billion and
$1.1 billion, respectively, related to these projects, which are included as other assets on the Consolidated Balance
Sheets. BB&T’s outstanding commitments to fund affordable housing investments totaled $334 million and $371
million at December 31, 2010 and 2009, respectively, which are included as other liabilities on the Consolidated
Balance Sheets. As of December 31, 2010 and 2009, BB&T had outstanding loan commitments to these funds of
$135 million and $165 million, respectively. Of these amounts, $36 million and $73 million had been funded at
December 31, 2010 and 2009, respectively, and were included in loans and leases on the Consolidated Balance
Sheets. BB&T’s maximum risk exposure related to these investments totaled $1.3 billion and $1.2 billion at
December 31, 2010 and 2009, respectively.
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