BB&T 2014 Annual Report Download - page 38

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Table of Contents
The terms of the loss sharing agreement with respect to certain non-agency MBS provided that Branch Bank would be reimbursed by the FDIC for 95% of
any and all losses incurred through the third quarter of 2014. For other assets acquired from the FDIC, the FDIC reimbursement was as follows:
·80% of net losses incurred up to $5 billion
·95% of net losses in excess of $5 billion.
BB&T does not expect cumulative net losses to exceed $5 billion on the respective assets acquired from FDIC. Gains and recoveries on assets acquired from
FDIC, 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, 2014, BB&T projects that in 2019 Branch Bank
would owe the FDIC approximately $177 million under the aggregate loss calculation. As described below, this liability is expensed over time and BB&T
has recognized total expense of approximately $132 million through December 31, 2014.
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:
oThe reduction in the net present value of the loan pool is recognized immediately as provision expense and an increase to the ALLL.
oThe 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:
oIf 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.
oIf 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.
oThe 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.
oThe 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 securities acquired from the FDIC is summarized below:
·Prior to the recognition of OTTI on a security acquired from the FDIC:
oThe purchase discount established at acquisition is accreted into income over the expected life of the underlying securities using a level yield
methodology.
oChanges 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 securities that were not acquired from the
FDIC, 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.
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Source: BB&T CORP, 10-K, February 25, 2015 Powered by Morningstar® Document Research℠
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