BB&T 2010 Annual Report Download - page 69

Provision for Credit Losses
A provision for credit losses is charged against earnings in order to maintain an allowance for loan and lease
losses and a reserve for unfunded lending commitments that reflects management’s best estimate of probable
losses inherent in the credit portfolios at the balance sheet date. The amount of the provision is based on
continuing assessments of nonperforming and “watch list” loans and associated unfunded credit commitments,
analytical reviews of loss experience in relation to outstanding loans and funded credit commitments, loan charge-
offs, nonperforming asset trends and management’s judgment with respect to current and expected economic
conditions and their impact on the loan portfolio and outstanding unfunded credit commitments. The methodology
used is described in the “Overview and Description of Business” section under the heading “Allowance for Loan
and Lease Losses and Reserve for Unfunded Credit Commitments.” The provision for credit losses recorded by
BB&T in 2010 was $2.6 billion, compared with $2.8 billion in 2009 and $1.4 billion in 2008.
The provision for credit losses decreased 6.2% during 2010 while total loans and leases held for investment
was relatively flat compared to the balance outstanding at the end of 2009. Included in the provision for credit
losses during 2010 was $144 million related to covered loans. The provision for credit losses recorded for covered
loans reflects lower expected cash flows on certain loan pools compared to the original estimates. Approximately
80% of this provision for credit losses is offset through a credit to noninterest income based on the provisions of
the FDIC loss sharing agreements. Net charge-offs were 2.41% of average loans and leases (or 2.59% excluding
covered loans) for 2010 compared to 1.74% of average loans and leases (or 1.79% excluding covered loans) during
2009. The allowance for loan and lease losses was 2.62% of loans and leases held for investment (or 2.63%
excluding covered loans) and was 1.26x total nonaccrual loans and leases held for investment (or 1.19x excluding
covered loans) at year-end 2010, compared to 2.51% (or 2.72% excluding covered loans) and .98x, respectively, at
December 31, 2009. The decrease in the provision for credit losses during 2010 compared to 2009 was primarily
due to the improving economic outlook that began to materialize in the latter part of 2010. The 94.5% increase in
the provision for credit losses during 2009 compared to 2008 was primarily driven by ongoing challenges in
residential real estate markets and the overall economy with the largest concentration of credit issues occurring
in Georgia, Florida, and metro Washington D.C., with some deterioration in the coastal areas of the Carolinas.
Additional disclosures related to BB&T’s real estate lending by product type and geographic distribution can be
found in Table 14 herein.
Noninterest Income
Noninterest income has become, and will continue to be, a significant contributor to BB&T’s financial
success. Noninterest income includes insurance income, service charges on deposit accounts, mortgage banking
income, investment banking and brokerage fees and commissions, trust and investment advisory revenues, gains
and losses on securities transactions, and commissions and fees derived from other activities. Noninterest income
as a percentage of total FTE revenues totaled 42.0% for 2010. Exceeding 40% on this measure has been a
management objective for several years. Management continues to focus on diversifying its sources of revenue to
further reduce BB&T’s reliance on traditional spread-based interest income, as fee-based activities are a
relatively stable revenue source during periods of changing interest rates.
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