BB&T 2013 Annual Report Download - page 36

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Reclassifications
In certain circumstances, reclassifications have been made to prior period information to conform to the 2013 presentation.
Such reclassifications had no effect on previously reported shareholders’ equity or net income.
Critical Accounting Policies
The accounting and reporting policies of BB&T are in accordance with GAAP and conform to the accounting and reporting
guidelines prescribed by bank regulatory authorities. The financial position and results of operations are affected by
management’s application of accounting policies, including estimates, assumptions and judgments made to arrive at the
carrying value of assets and liabilities and amounts reported for revenues and expenses. Different assumptions in the
application of these policies could result in material changes in the consolidated financial position and/or consolidated results
of operations and related disclosures. The more critical accounting and reporting policies include those related to the ACL,
determining fair value of financial instruments, intangible assets and other purchase accounting related adjustments
associated with mergers and acquisitions, costs and benefit obligations associated with BB&T’s pension and postretirement
benefit plans and income taxes. Understanding BB&T’s accounting policies is fundamental to understanding the consolidated
financial position and consolidated results of operations. Accordingly, BB&T’s significant accounting policies and changes
in accounting principles and effects of new accounting pronouncements are discussed in detail in Note 1 “Summary of
Significant Accounting Policies” in the “Notes to Consolidated Financial Statements.”
The following is a summary of BB&T’s critical accounting policies that are highly dependent on estimates, assumptions and
judgments. These critical accounting policies are reviewed with the Audit Committee of BB&T’s Board of Directors on a
periodic basis.
ACL
It is the policy of BB&T to maintain an ALLL and a RUFC that represent management’s best estimate of probable credit
losses inherent in the portfolio at the balance sheet date. Estimates for loan and lease losses are determined by analyzing
historical loan and lease losses, historical loan and lease migration to charge-off experience, current trends in delinquencies
and charge-offs, expected cash flows on purchased loans, current assessment of problem loans and leases, the results of
regulatory examinations and changes in the size, composition and risk assessment of the loan and lease portfolio. As part of
this process, BB&T develops a series of loss estimate factors, which are modeled projections of the frequency, timing and
severity of losses. These loss estimate factors are based on historical loss experience, economic and political environmental
considerations and any other data that management believes will provide evidence about the expected collectability of
outstanding loan and lease amounts. The following table summarizes the loss estimate factors used to determine the ALLL.
Loss Estimate Factor Description
Loss Frequency Indicates the likelihood of a borrower defaulting on a loan
Loss Severity Indicates the amount of estimated loss at the time of default
For collectively evaluated loans, the ALLL is determined by multiplying the loan exposure by the loss frequency and loss
severity factors. For individually evaluated loans, the ALLL is determined through review of data specific to the borrower.
For TDRs, default expectations and estimated slower prepayment speeds that are specific to each of the restructured loan
populations are incorporated in the determination of the ALLL. Also included in management’s estimates for loan and lease
losses are considerations with respect to the impact of current economic events, the outcomes of which are uncertain. These
events may include, but are not limited to, fluctuations in overall interest rates, political conditions, legislation that may
directly or indirectly affect the banking industry and economic conditions affecting specific geographical areas and industries
in which BB&T conducts business.
The methodology used to determine an estimate for the RUFC is inherently similar to the methodology used in calculating
the ALLL adjusted for factors specific to binding commitments, including the probability of funding and exposure at the time
of funding. A detailed discussion of the methodology used in determining the ALLL and the RUFC is included in Note 1
“Summary of Significant Accounting Policies” in the “Notes to Consolidated Financial Statements.”
Fair Value of Financial Instruments
The vast majority of assets and liabilities carried at fair value are based on either quoted market prices or market prices for
similar instruments. See Note 17 “Fair Value Disclosures” in the “Notes to Consolidated Financial Statements” herein for
additional disclosures regarding the fair value of financial instruments.