NOTE 6. Contractual Obligations, Commitments, Contingent Liabilities, and Off-Balance Sheet Arrangements

          BB&T utilizes a variety of financial instruments to meet the financing needs of clients and reduce exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit, standby letters of credit and financial guarantees, and derivatives. BB&T also has commitments to fund certain affordable housing investments and contingent liabilities of certain sold loans.

           Standby letters of credit and financial guarantees written are unconditional commitments issued by BB&T to guarantee the performance of a customer to a third party. These guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper issuance, bond financing and similar transactions. The credit risk involved in the issuance of these guarantees is essentially the same as that involved in extending loans to clients and as such, the instruments are collateralized when necessary. As of June 30, 2009 and December 31, 2008, BB&T had issued standby letters of credit totaling $7.6 billion and $5.9 billion, respectively. The carrying amount of the liability for such guarantees was $29 million and $20 million at June 30, 2009 and December 31, 2008, respectively.

          A derivative is a financial instrument that derives its cash flows, and therefore its value, by reference to an underlying instrument, index or referenced interest rate. These instruments include interest-rate swaps, swaptions, caps, floors, collars, financial forward and futures contracts, when-issued securities, foreign exchange contracts and options written and purchased. BB&T uses derivatives primarily to manage risk related to securities, business loans, Federal Funds purchased, other overnight funding, long-term debt, mortgage servicing rights, mortgage banking operations and certificates of deposit. BB&T also uses derivatives to facilitate transactions on behalf of its clients. BB&T held a variety of derivative financial instruments with notional values of $84.6 billion and $74.2 billion at June 30, 2009 and December 31, 2008, respectively. These instruments were in a net gain position of $355 million and $626 million at June 30, 2009 and December 31, 2008, respectively.

          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 June 30, 2009 and December 31, 2008, BB&T had investments of $940 million and $891 million, respectively, related to these projects, which are included in other assets on the Consolidated Balance Sheets. BB&T’s outstanding commitments to fund affordable housing investments total ed $402 million and $412 million at June 30, 2009 and December 31, 2008, respectively, which are included in other liabilities on the Consolidated Balance Sheets. As of June 30, 2009 and December 31, 2008, BB&T had outstanding loan commitments to these funds of $166 million and $161 million, respectively. Of this amount, $92 million and $81 million had been funded at June 30, 2009 and December 31, 2008, respectively, and were included in loans and leases on the Consolidated Balance Sheets. BB&T’s maximum risk exposure related to these investments totaled $1.1 billion at June 30, 2009 and December 31, 2008, respectively.

          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.

          BB&T has sold certain mortgage-related loans that contain recourse provisions. These provisions generally require BB&T to reimburse the investor for a share of any loss that is incurred after the disposal of the property. At June 30, 2009 and December 31, 2008, BB&T had $2.2 billion and $2.5 billion, respectively, of residential mortgage loans sold with recourse. In the event of nonperformance by the borrower, BB&T has maximum recourse exposure of approximately $670 million and $745 million as of June 30, 2009 and December 31, 2008, respectively. In addition, BB&T has $3.9 billion and $3.3 billion in loans serviced for others that were covered by loss sharing agreements at June 30, 2009 and December 31, 2008, respectively. As of June 30, 2009 and December 31, 2008, BB&T’s maximum exposure to loss for these loans is approximately $993 million and $818 million, respectively. At June 30, 2009, BB&T has recorded $15 million of reserves related to these recourse exposures.

          BB&T has investments and future funding commitments to certain venture capital funds. As of June 30, 2009 and December 31, 2008, respectively, BB&T had investments of $186 million and $168 million, net of noncontrolling interest, related to these ventures and future funding commitments of $210 million and $222 million. BB&T’s risk exposure relating to such commitments is generally limited to the amount of investments and future funding commitments made.

          BB&T has made loan commitments to qualified special purpose entities as a nontransferor lender. As of June 30, 2009 and December 31, 2008, BB&T had loan commitments to these entities totaling $333 million and $405 million, respectively. Of this amount, $248 million and $290 million had been funded at June 30, 2009 and December 31, 2008, respectively, and were included in loans and leases on the Consolidated Balance Sheets.