BB&T 2012 Annual Report Download - page 89

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four-family residential real estate, typically have loan-to-collateral value ratios of 80% or less, and are made to borrowers in
good credit standing. Additionally, BB&T’ s Direct Retail Lending group provides home equity loans that can increase the
loan-to-collateral value to 90% or less for certain borrowers.
Risks associated with the mortgage lending function include interest rate risk, which is mitigated through the sale of a
substantial portion of conforming fixed-rate loans in the secondary mortgage market and an effective MSR hedging process.
Borrower risk is lessened through rigorous underwriting procedures and mortgage insurance. The right to service the loans
and receive servicing income is generally retained when conforming loans are sold. Management believes that the retention
of mortgage servicing is a primary relationship driver in retail banking and a vital part of management’ s strategy to establish
profitable long-term customer relationships and offer high quality client service. BB&T also purchases residential mortgage
loans from correspondent originators. The loans purchased from third-party originators are subject to the same underwriting
and risk-management criteria as loans originated internally.
Other Lending Subsidiaries Portfolio
BB&T’ s other lending subsidiaries portfolio consists of loans originated through six LOBs that provide specialty finance
alternatives to consumers and businesses including: dealer-based financing of equipment for small businesses and consumers,
commercial equipment leasing and finance, direct and indirect consumer finance, insurance premium finance, indirect
nonprime automobile finance, and full-service commercial mortgage banking. BB&T offers these services to bank clients as
well as nonbank clients within and outside BB&T’ s primary geographic market area.
BB&T’ s other lending subsidiaries adhere to the same overall underwriting approach as the commercial and consumer
lending portfolio and also utilize automated credit scoring to assist with underwriting credit risk. The majority of these loans
are relatively homogenous and no single loan is individually significant in terms of its size and potential risk of loss. The
majority of the loans are secured by real estate, automobiles, equipment or unearned insurance premiums. As of
December 31, 2012, included in the other lending subsidiaries portfolio are loans to nonprime borrowers of approximately
$3.6 billion, or 3.0% of the total BB&T loan and lease portfolio. Of these, approximately $262 million are residential real
estate loans.
Covered Loan Portfolio
BB&T has $3.3 billion of loans covered by loss sharing agreements with the FDIC, which are primarily CRE and residential
mortgage loans. Refer to Note 3 “Loans and Leases” in the “Notes to Consolidated Financial Statements” in this report for
additional disclosures related to BB&T’ s covered loans.
Liquidity risk
Liquidity risk is the risk to ongoing operations arising from the inability to accommodate liability maturities, deposit
withdrawals, fund asset growth, or meet contractual obligations when they come due. For additional information concerning
BB&T’ s management of liquidity risk, see the “Liquidity” section of “Management’ s Discussion and Analysis” herein.
Market risk
Market risk is the risk to earnings or capital arising from changes in the market value of portfolios, securities, or other
financial instruments due to changes in the level, volatility, or correlations among financial market rates or prices, including
interest rates, foreign exchange rates, equity prices, or other relevant rates or prices. For additional information concerning
BB&T’ s management of market risk, see the “Market Risk Management” section of “Management’ s Discussion and
Analysis” herein.
Operational risk
Operational risk is the risk to earnings or capital arising from inadequate or failed internal processes, people and systems or
from external events. This definition includes legal risk, which is the risk of loss arising from defective transactions,
litigation or claims made, or the failure to adequately protect company-owned assets.
Reputation risk
Reputation risk is the risk to earnings, capital, enterprise value, the BB&T brand, and public confidence arising from negative
publicity or public opinion, whether real or perceived, regarding BB&T’ s business practices, products and services,
transactions, or other activities undertaken by BB&T, its representatives, or its partners. Reputation risk may impact
BB&T’ s clients, employees, communities or shareholders, and is often a residual risk that arises when other risks are not
managed properly.