BB&T 2008 Annual Report Download - page 71

Management regularly monitors the capital position of BB&T on a consolidated basis. In this regard,
management’s overriding policy is to maintain capital at levels that will result in BB&T being classified as “well-
capitalized” for regulatory purposes and to maintain sufficient capital relative to the Corporation’s level of risk.
Secondarily, it is management’s intent to maintain consolidated capital levels that result in regulatory risk-based
capital ratios that are generally comparable with BB&T’s peers of similar size, complexity and risk profile.
Further, management particularly monitors and intends to maintain the following minimum capital ratios:
Tier 1 Capital Ratio 8.50%
Total Capital Ratio 12.00%
Tier 1 Leverage Capital Ratio 7.00%
Tangible Common Equity Ratio 5.50%
Payments of cash dividends to BB&T’s shareholders, which have generally been in the range of 40.0% to
60.0% of earnings, and repurchases of common shares are the methods used to manage any excess capital
generated. In addition, management closely monitors the Parent Company’s double leverage ratio (investments
in subsidiaries as a percentage of shareholders’ equity) with the intention of maintaining the ratio below 125.0%.
The active management of the subsidiaries’ equity capital, as described above, is the process used to manage this
important driver of Parent Company liquidity and is a key element in the management of BB&T’s capital
position.
The capital of the subsidiaries also is regularly monitored to determine if the levels that management
believes are the most beneficial and efficient for their operations are maintained. Management intends to
maintain capital at Branch Bank and BB&T FSB at levels that will result in these subsidiaries being classified as
“well-capitalized” for regulatory purposes. Secondarily, it is management’s intent to maintain Branch Bank’s
capital at levels that result in regulatory risk-based capital ratios that are generally comparable with peers of
similar size, complexity and risk profile. If the capital levels of Branch Bank increase above these guidelines,
excess capital may be transferred to the Parent Company, subject to regulatory and other operating
considerations, in the form of special dividend payments.
While nonrecurring events or management decisions may result in the Corporation temporarily falling below
its minimum guidelines for one or more of these ratios, it is management’s intent through capital planning to
return to these targeted minimums within a reasonable period of time. Such temporary decreases below these
minimums are not considered an infringement of BB&T’s overall capital policy provided the Corporation and
Branch Bank remain “well-capitalized.”
Capital Adequacy and Resources
Bank holding companies and their subsidiaries are subject to regulatory requirements with respect to risk-
based capital adequacy. Capital adequacy is an important indicator of financial stability and performance.
Risk-based capital ratios measure capital as a percentage of a combination of risk-weighted balance sheet
and off-balance sheet risk. The risk-weighted values of both balance sheet and off-balance sheet items are
determined in accordance with risk factors specified by Federal bank regulatory pronouncements.
Tier 1 capital is calculated as common shareholders’ equity, excluding the over- or underfunded status of
postretirement benefit obligations, unrealized gains or losses on debt securities available for sale, unrealized
gains on equity securities available for sale and unrealized gains or losses on cash flow hedges, net of deferred
income taxes; plus certain mandatorily redeemable capital securities, less nonqualifying intangible assets, net of
applicable deferred income taxes, and certain nonfinancial equity investments. Tier 2 capital may consist of
qualifying subordinated debt, certain hybrid capital instruments, qualifying preferred stock and a limited amount
of the allowance for credit losses. Tier 1 capital and Tier 2 capital combined are referred to as total regulatory
capital. Tier 1 capital is required to be at least 4% of risk-weighted assets, and total capital must be at least 8% of
risk-weighted assets, with one half of the minimum consisting of Tier 1 capital.
In addition to the risk-based capital measures described above, regulators have also established minimum
leverage capital requirements for banking organizations. The minimum required Tier 1 leverage ratio ranges
from 3% to 5% depending upon Federal bank regulatory agency evaluations of an organization’s overall safety
and soundness. BB&T’s regulatory capital and ratios are set forth in the following table.
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