BB&T 2013 Annual Report Download - page 41

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The terms of the loss sharing agreement with respect to certain non-agency MBS provide that Branch Bank will be
reimbursed by the FDIC for 95% of any and all losses incurred through the third quarter of 2014. For other covered assets,
the FDIC will reimburse Branch Bank for (1) 80% of net losses incurred up to $5 billion and (2) 95% of net losses in excess
of $5 billion. BB&T does not expect cumulative net losses to exceed $5 billion on the respective covered assets. Gains and
recoveries on covered assets, net of related expenses, will offset losses, or be paid to the FDIC, at the applicable loss share
percentage at the time of recovery. Following the conclusion of the 10 year loss share period in 2019, should actual aggregate
losses, excluding securities, be less than an amount determined in accordance with these agreements, BB&T will pay the
FDIC a portion of the difference. As of December 31, 2013, BB&T projects that in 2019 Branch Bank would owe the FDIC
approximately $147 million under the aggregate loss calculation. As described below, this liability is expensed over time and
BB&T has recognized total expense of approximately $104 million through December 31, 2013.
The fair value of the net reimbursement the Company expected to receive from the FDIC under these agreements was
recorded as the FDIC loss share receivable at the date of acquisition. The fair value of the FDIC loss share receivable/payable
was estimated using a discounted cash flow methodology.
Acquired loans were aggregated into separate pools based upon common risk characteristics. Each pool is considered a unit
of account and the cash flows expected to be collected, credit losses and other relevant information are developed for each
pool. A summary of the accounting treatment related to changes in credit losses on each loan pool and the related FDIC loss
share asset follows.
 If the estimated credit loss on a loan pool is increased:
o The reduction in the net present value of the loan pool is recognized immediately as provision expense and an
increase to the ALLL.
o The FDIC loss share asset is increased by 80% of the adjustment to the ALLL through income.
 If the estimated credit loss on a loan pool is reduced:
o If the loan pool has an allowance, the allowance is first reduced to $0 (and 80% of this reduction decreases the
FDIC loss share asset) through income.
o If the loan pool does not have an allowance (or it is first reduced to $0 and there remains additional expected
cash flows), the excess of expected cash flows is recognized as a yield adjustment over the remaining expected
life of the loan.
o The decrease in expected reimbursement from the FDIC is recognized in income prospectively using a level
yield methodology over the remaining life of the loss share agreements.
o The increase in the amount expected to be paid to the FDIC as a result of the aggregate loss calculation is
recognized prospectively in proportion to expected loan income over the remaining life of the loss share
agreements.
The accounting treatment for covered securities is summarized below:
 Prior to the recognition of OTTI on a covered security:
o The purchase discount established at acquisition is accreted into income over the expected life of the underlying
securities using a level yield methodology.
o Changes to the expected life of the securities are recognized with a cumulative adjustment to the accretion
recognized.
 Subsequent to recognition of OTTI, which is determined using the same methodology that is applied to non-covered
securities, an increase in expected cash flows is recognized as a yield adjustment over the remaining expected life of
the security based on an evaluation of the nature of the increase.
 The income statement effect of the above items is offset by the applicable loss share percentage in FDIC loss share
income, net, which cumulatively resulted in a liability of $190 million as of December 31, 2013.