BB&T 2009 Annual Report Download - page 104

BB&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
and certain liabilities of Colonial Bank, an Alabama state-chartered bank headquartered in Montgomery,
Alabama (“Colonial”).
Colonial operated 357 locations in Florida, Alabama, Georgia, Texas and Nevada. Excluding the effects of
purchase accounting adjustments, Branch Bank assumed approximately $19.2 billion of the deposits of Colonial.
Additionally, Branch Bank purchased approximately $14.3 billion in loans, $165 million of other real estate owned
(“OREO”) and $3.7 billion of investment securities. In connection with the acquisition, Branch Bank also entered
into loss sharing agreements with the FDIC. Approximately $14.3 billion of acquired loans and OREO and $1.1
billion of the purchased investment securities are covered by loss sharing agreements between the FDIC and
Branch Bank.
Pursuant to the terms of these loss sharing agreements, the FDIC’s obligation to reimburse Branch Bank for
losses with respect to certain loans, OREO, certain investment securities and other assets (collectively, “covered
assets”), begins with the first dollar of loss incurred. The terms of the loss sharing agreement with respect to
certain non-agency mortgage-backed securities totaling $624 million at August 14, 2009, provides that Branch
Bank will be reimbursed by the FDIC for 95% of any and all losses. All other covered assets are subject to a
stated threshold of $5 billion that provides for the FDIC to reimburse Branch Bank for (1) 80% of losses incurred
up to $5 billion and (2) 95% of losses in excess of $5 billion. Gains and recoveries on covered assets will offset
losses, or be paid to the FDIC, at the applicable loss share percentage at the time of recovery.
The loss sharing agreement applicable to single family residential mortgage loans provides for FDIC loss
sharing and Branch Bank reimbursement to the FDIC, in each case as described above, for ten years. The loss
sharing agreement applicable to commercial loans and other covered assets provides for FDIC loss sharing for
five years and Branch Bank reimbursement to the FDIC for gains and recoveries for a total of eight years, in
each case as described above.
The loss sharing agreements are subject to certain servicing procedures as specified in the agreements. The
expected reimbursements under the loss sharing agreements were recorded as a loss share receivable at their
estimated fair value of $3.1 billion on the acquisition date.
On October 15, 2019, BB&T is required to pay the FDIC 55% of the excess, if any, of (i) $1 billion over (ii) the
sum of (A) 25% of the total net amounts paid to BB&T under both of the loss sharing agreements (i.e., BB&T’s
payments received from the FDIC for losses, offset by BB&T’s payments made to the FDIC for recoveries) plus
(B) 20% of the deemed total cost to BB&T of administering the assets covered under the loss sharing agreements
other than shared loss securities. The deemed total cost to BB&T of administering the covered assets is the sum
of 2% of the average of the principal amount of shared loss loans and shared loss assets (other than the shared loss
securities) based on the beginning and end of year balances for each of the 10 years during which the shared loss
agreements are in effect. In addition, any payments made by either party with respect to the securities with a
95% loss share will be excluded from this calculation.
Branch Bank did not immediately acquire the real estate, banking facilities, furniture or equipment of Colonial
as part of the purchase and assumption agreement. However, under the terms of the agreement, Branch Bank had
the option through February 1, 2010 to acquire these assets from the FDIC at their fair market value as of the
acquisition date. At December 31, 2009, these banking facilities and equipment were leased from the FDIC on a
month-to-month basis. Prior to the expiration of this option, Branch Bank notified the FDIC of its intention to
purchase certain Colonial premises and equipment with an estimated fair market value totaling approximately $200
million. Branch Bank and the FDIC are continuing to evaluate appraisals related to certain of these assets.
Branch Bank also had an option through February 1, 2010 to assume or repudiate certain lease agreements of
Colonial. The repudiation or assumption of these lease agreements was finalized prior to the expiration of this
option and the process to determine the fair value of assumed lease obligations is still on-going. To the extent the
fair value of lease payments are different than the contractual amounts a goodwill adjustment will be required.
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