BB&T 2010 Annual Report Download - page 47

part of the Colonial acquisition. These securities are covered by FDIC loss sharing agreements and include $1.2
billion of non-agency mortgage-backed securities and $304 million of municipal securities. The duration of the
entire available-for-sale portfolio at December 31, 2010 was 3.97 years compared to 4.40 years at December 31,
2009. The duration of the securities portfolio excludes equity securities, auction rate securities, and certain
non-agency mortgage-backed securities that were acquired in the Colonial acquisition.
In 2010, management executed two major strategies to strengthen the balance sheet. In the second quarter
of 2010, management executed a deleveraging strategy to better position BB&T’s balance sheet for a rising rate
environment and achieve a better mix of earning assets. In connection with this strategy, management reduced
the balance sheet by approximately $8 billion through the sale of securities. During the third and fourth quarters
of 2010, management executed a strategy to further de-risk the available-for-sale securities portfolio. The
de-risking strategy was aimed at further reducing the duration of the securities portfolio and reducing the risk of
charges to other comprehensive income in a rising rate environment. Also to further protect against the risk of a
rising rate environment, management replaced a portion of the securities sold with floating-rate securities. As of
December 31, 2010, approximately 28% of the available-for-sale securities portfolio was floating rate. In addition,
management sold approximately $400 million of non-agency mortgage-backed securities to reduce the potential
for future credit losses. These strategies were the primary driver in generating net securities gains during 2010.
Primarily in connection with these strategies, BB&T sold a total of $31.3 billion in available-for-sale securities
during 2010, which produced net securities gains of $585 million. In addition, BB&T recognized $31 million in
charges for other-than-temporary impairment related to BB&T’s portfolio of non-agency mortgage-backed
securities.
In 2009, BB&T sold approximately $17.1 billion of available-for-sale securities and realized net gains totaling
$240 million. In addition, BB&T recorded $41 million of other-than-temporary impairments 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.
On December 31, 2010, BB&T held certain investment securities having continuous unrealized loss positions
for more than 12 months. As of December 31, 2010, the unrealized losses on these securities totaled $260 million.
All of these losses were in non-agency mortgage-backed and municipal securities. At December 31, 2010, 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) bonds with an amortized cost of $3 million from one
issuer of auction rate securities; (b) two municipal bonds with an amortized cost of $8 million; and (c) eight
non-agency mortgage-backed securities with an amortized cost of $556 million. At December 31, 2010, the total
unrealized loss on these non-investment grade securities was $116 million. All of the non-investment grade
securities referenced above were initially investment grade and have been downgraded since purchase.
BB&T monitors the credit ratings of all of its debt securities on an ongoing basis. When an investment
security is rated lower than investment grade, the security is evaluated for potential credit impairment. Based on
its evaluation at December 31, 2010, 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. BB&T’s evaluation of the other debt securities with continuous unrealized losses indicated
that there were no credit losses evident. Furthermore, as of the date of the evaluation, BB&T did not intend to
sell, and determined that it was more likely than not that the Company would 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.
47