BB&T 2010 Annual Report Download - page 23

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 a substantial portion of conforming fixed-rate loans in the secondary mortgage market and an effective
mortgage servicing rights hedging 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.
Specialized Lending Portfolio
BB&T’s specialized lending portfolio consists of loans originated through six business units that provide
specialty finance alternatives to consumers and businesses including: dealer-based financing of equipment for
small businesses and consumers, commercial equipment leasing and finance, direct and indirect consumer finance,
insurance premium finance, indirect subprime automobile finance, and full-service commercial mortgage banking.
BB&T offers these services to bank clients as well as nonbank clients within and outside BB&T’s primary
geographic market area.
BB&T’s specialized lending subsidiaries adhere to the same overall underwriting approach as the commercial
and consumer lending portfolio and also utilize automated credit scoring to assist with underwriting the credit
risk. The majority of these loans are relatively homogenous and no single loan is individually significant in terms
of its size and potential risk of loss. The majority of the loans are secured by real estate, automobiles, equipment
or unearned insurance premiums. As of December 31, 2010, included in the specialized lending portfolio are loans
to subprime borrowers of approximately $3.1 billion, or 2.9% of the total BB&T loan and lease portfolio. Of these,
approximately $336 million are residential real estate loans and are included in the disclosures in Table 14-2
herein.
Covered Loan Portfolio
In connection with the FDIC-assisted acquisition of Colonial, BB&T acquired approximately $14.1 billion of
loans that are covered by loss sharing agreements. BB&T recorded these loans at $9.6 billion, which represented
their fair value on the acquisition date. The loans covered by loss sharing agreements are primarily commercial
real estate loans and residential mortgage loans. Refer to Note 4 “Loans and Leases” in the “Notes to
Consolidated Financial Statements” in this report for additional disclosures related to BB&T’s covered loans.
23