BB&T 2013 Annual Report Download - page 127

127
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 majority of which are to tax
exempt entities. 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.
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.
BB&T 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. Tax credits are subject to recapture by
taxing authorities based on compliance features required to be met at the project level. BB&T’s maximum potential exposure
to losses relative to investments in VIEs is generally limited to the sum of the outstanding balance, future funding
commitments and any related loans to the entity. Loans to these entities are underwritten in substantially the same manner as
are other loans and are generally secured.
BB&T has investments in and future funding commitments to certain private equity and similar investments. BB&T’s risk
exposure relating to such commitments is generally limited to the amount of investments and future funding commitments
made.
A derivative is a financial instrument that derives its cash flows, and therefore its value, by reference to an underlying
instrument, index or interest rate. For additional disclosures related to BB&T’s derivatives refer to Note 18 “Derivative
Financial Instruments.”
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. BB&T also issues standard
representations and warranties related to mortgage loan sales to GSEs. Refer to Note 6 “Loan Servicing” for additional
disclosures related to these exposures.
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 position or results of operations of BB&T.
Legal Proceedings
The nature of BB&T’s business ordinarily results in a certain amount of claims, litigation, investigations and legal and
administrative cases and proceedings, all of which are considered incidental to the normal conduct of business. BB&T
believes it has meritorious defenses to the claims asserted against it in its currently outstanding legal proceedings and, with
respect to such legal proceedings, intends to continue to defend itself vigorously, litigating or settling cases according to
management’s judgment as to what is in the best interests of BB&T and its shareholders.
On at least a quarterly basis, liabilities and contingencies in connection with outstanding legal proceedings are assessed
utilizing the latest information available. For those matters where it is probable that BB&T will incur a loss and the amount
of the loss can be reasonably estimated, a liability is recorded in the consolidated financial statements. These legal reserves
may be increased or decreased to reflect any relevant developments on at least a quarterly basis. For other matters, where a
loss is not probable or the amount of the loss is not estimable, legal reserves are not accrued. While the outcome of legal
proceedings is inherently uncertain, based on information currently available, advice of counsel and available insurance
coverage, management believes that its established legal reserves are adequate and the liabilities arising from legal
proceedings will not have a material adverse effect on the consolidated financial position, consolidated results of operations
or consolidated cash flows. However, in the event of unexpected future developments, it is possible that the ultimate
resolution of these matters, if unfavorable, may be material to the consolidated financial position, consolidated results of
operations or consolidated cash flows of BB&T.