BB&T 2014 Annual Report Download - page 100

Table of Contents
Retail
The majority of the ALLL related to the retail lending portfolio is calculated on a collective basis using delinquency status, which is the primary factor
considered in determining whether a retail loan should be classified as nonaccrual. Embedded loss estimates for BB&T’s retail lending portfolio are based on
estimated migration rates that are developed based on historical experience, and current risk mix as indicated by prevailing delinquency rates. These
estimates may be adjusted to reflect current economic conditions and current portfolio trends. The remaining portion of the ALLL related to the retail lending
portfolio relates to loans that have been deemed impaired based on their classification as a TDR at the balance sheet date. BB&T establishes specific reserves
related to these TDRs using an expected cash flow approach. The ALLL for retail TDRs is based on discounted cash flow analyses that incorporate
adjustments to future cash flows that reflect management’s best estimate of the default risk related to TDRs based on a combination of historical experience
and management judgment.
Acquired Loans
Purchased impaired loans and all loans acquired in an FDIC-assisted transaction are typically aggregated into loan pools based upon common risk
characteristics. The ALLL for each loan pool is based on an analysis that is performed each period to estimate the expected cash flows. To the extent that the
expected cash flows of a loan pool have decreased due to credit deterioration, BB&T establishes an ALLL. For non-FDIC assisted purchased non-impaired
loans, BB&T uses an approach consistent with that described above for originated loans and leases.
Assets Acquired from the FDIC and Related FDIC Loss Share Receivable/Payable
Assets labeled “acquired from FDIC” include certain loans, securities and other assets that were acquired from the FDIC in conjunction with the Colonial
transaction and are subject to one of the loss sharing agreements. The loss sharing agreement applicable to single family residential mortgage loans and
related foreclosed property expires in 2019 and provides for loss and recovery sharing with the FDIC during its term. Assets subject to the single family loss
sharing agreement are referred to as “covered” assets. Effective October 1, 2014, the loss sharing provisions applicable to commercial loans, securities and
other covered assets expired; however, Branch Bank must reimburse the FDIC for realized gains and recoveries through September 2017. Refer to Note 3
“Securities” and Note 4 “Loans and ACL” for additional information. The FDIC loss share receivable includes amounts related to net reimbursements
expected to be received from the FDIC and is included in Other assets on the Consolidated Balance Sheets. The recognized amounts related to expected
future payments to the FDIC, including any amounts resulting from the aggregate loss calculation, are included in Accounts payable and other liabilities.
The FDIC’s obligation to reimburse Branch Bank with respect to loss sharing agreements began with the first dollar of loss incurred by BB&T on the covered
assets. Covered assets, excluding certain non-agency MBS, are subject to a stated threshold of $5 billion that provides for the FDIC to reimburse Branch
Bank for (1) 80% of cumulative net losses incurred up to $5 billion and (2) 95% of net 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 in effect at the time of gain/recovery. Losses and gains on certain non-agency
MBS are to be shared with the FDIC at 95% of such losses/gains. At the conclusion of the 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.
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 acquired loans. Increases in expected reimbursements are recognized in income in the same period that the provision for credit losses for the
related loans is recognized. Subsequent to the recognition of ALLL related to specific assets, any decrease in expected net reimbursement would be
recognized in income in the same period that the provision for loan losses for the related loans is released.
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Source: BB&T CORP, 10-K, February 25, 2015 Powered by Morningstar® Document Research℠
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