BB&T 2013 Annual Report Download - page 97

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The FDIC’s obligation to reimburse Branch Bank for losses with respect to covered assets begins with the first dollar of loss
incurred. The terms of the loss sharing agreement with respect to certain non-agency MBS 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
expires in 2019, and provides for FDIC loss sharing and Branch Bank reimbursement to the FDIC. The loss sharing
agreement applicable to commercial loans and other covered assets expires in the third quarter of 2014; however, Branch
Bank must reimburse the FDIC for realized gains and recoveries through August 2017. At the conclusion of the loss share
period, 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.
The income statement effect of the changes in the FDIC loss share receivable/payable includes the accretion due to
discounting and changes in expected net reimbursements. Decreases in expected net reimbursements, including the amounts
expected to be paid to the FDIC as a result of the aggregate loss calculation, are recognized in income prospectively over the
term of the loss share agreements consistent with the approach taken to recognize increases in cash flows on covered loans.
Increases in expected reimbursements are recognized in income in the same period that the ALLL for the related loans is
recognized.
Premises and Equipment
Premises, equipment, capital leases and leasehold improvements are stated at cost less accumulated depreciation and
amortization. Land is stated at cost. In addition, purchased software and costs of computer software developed for internal
use are capitalized provided certain criteria are met. Depreciation and amortization are computed principally using the
straight-line method over the estimated useful lives of the related assets. Leasehold improvements are amortized on a
straight-line basis over the lesser of the lease terms, including certain renewals that were deemed probable at lease inception,
or the estimated useful lives of the improvements. Capitalized leases are amortized using the same methods as premises and
equipment over the estimated useful lives or lease terms, whichever is less. Obligations under capital leases are amortized
using the interest method to allocate payments between principal reduction and interest expense. Rent expense and rental
income on operating leases is recorded using the straight-line method over the appropriate lease terms.
Short-Term Borrowings
Federal funds purchased represent unsecured borrowings from other banks and generally mature daily. Securities sold under
repurchase agreements are borrowings collateralized primarily by securities of the U.S. government or its agencies and
generally have maturities ranging from 1 day to 36 months. The terms of repurchase agreements may require BB&T to
provide additional collateral if the fair value of the securities underlying the borrowings declines during the term of the
agreement. Master notes are unsecured, non-negotiable obligations of BB&T (variable rate commercial paper) that mature in
270 days or less. Other short-term borrowed funds include unsecured bank notes that mature in less than one year and bank
obligations with a seven day put option that are collateralized by municipal securities. These amounts are reflected as short-
term borrowings on the Consolidated Balance Sheets and are recorded based on the amount of cash received in connection
with the borrowing.
Income Taxes
Deferred income taxes have been provided when different accounting methods have been used in determining income for
income tax purposes and for financial reporting purposes. Deferred tax assets and liabilities are recognized based on future
tax consequences attributable to differences between the financial statement carrying values of assets and liabilities and their
tax bases. In the event of changes in the tax laws, deferred tax assets and liabilities are adjusted in the period of the enactment
of those changes, with the cumulative effects included in the current year’s income tax provision.