BB&T 2014 Annual Report Download - page 45

Table of Contents
Professional services expense totaled $139 million, a decrease of $50 million compared to the prior year. This decrease was driven by a reduction in legal fees
as well as services associated with regulatory initiatives. Regulatory charges totaled $106 million for 2014, a decline of $37 million compared to 2013,
which primarily reflects a reduction in FDIC insurance due to current and prior year long-term debt issuances and improved credit conditions.
Loan-related expense totaled $342 million for 2014, an increase of $87 million compared to the prior year. This increase includes a $33 million mortgage
loan indemnification reserve adjustment, which represents an increase in estimated losses that may be incurred on FHA-insured mortgage loans that have not
yet defaulted, and a mortgage reserve adjustment of $27 million related to a review of mortgage lending processes.
Outside IT services totaled $115 million during 2014, compared to $89 million for 2013. This increase was due to third-party costs associated with the new
ERP and commercial loan systems.
A loss on early extinguishment of debt of $122 million was recorded during 2014 in connection with the early termination of $1.1 billion of higher cost
FHLB advances. The transaction occurred during the third quarter and had a beneficial impact to net interest income for the remainder of the year.
Other expense was $884 million for 2014, an increase of $73 million, or 9.0%, compared to 2013. During the second quarter of 2014, BB&T was notified that
its FHA-insured loan origination process would be the subject of an audit survey by the HUD-OIG. While there are no findings at this time, in light of
announcements made by other financial institutions related to the outcomes of similar audits and related matters and after further review of the exposure, an
$85 million reserve was established related to BB&T’s FHA-insured loan origination process. The increase in other expense also includes a $17 million
increase in depreciation related to operating leases. These increases were partially offset by a $15 million favorable franchise tax adjustment and a decline in
expense due to the prior year $11 million write-down of owned real estate.
2013 compared to 2012
Personnel expense totaled $3.3 billion in 2013, an increase of $168 million, or 5.4%, compared to 2012. The increase in personnel expense includes an
increase of $128 million in salaries and wages, which reflects increases related to the acquisitions of Crump Insurance and BankAtlantic during 2012 and the
impact of normal salary increases and job class changes. Other personnel expenses increased approximately $40 million, which included an increase of $22
million in post-employment benefits expense that is offset in other income. The remainder of the increase in other personnel expenses was driven by smaller
increases in employment taxes and other fringe benefits.
Occupancy and equipment expense increased $42 million, or 6.5%, compared to 2012, with a portion of this increase attributable to the acquisitions of
Crump Insurance and BankAtlantic acquisitions in the prior year and the remainder attributable to increases in rent and IT-related depreciation and
maintenance.
Professional services expense totaled $189 million, an increase of $33 million compared to the prior year. This increase was largely driven by costs
associated with systems and project-related expenses, partially offset by a decrease in legal fees.
Other expense increased $27 million, or 3.1%, compared to 2012, primarily the result of higher project-related expenses, increased depreciation expense
related to assets used in the equipment finance leasing business and lower of cost or fair value adjustments on certain owned real estate. These increases were
partially offset by a decrease in advertising and marketing expenses, lower insurance-related expenses and the loss on the sale of a leveraged lease that was
recorded in the prior year. Software expense increased $20 million compared to the prior year, which primarily reflects higher maintenance and depreciation
expense.
Foreclosed property expense includes the gain or loss on sale of foreclosed property, valuation adjustments resulting from updated appraisals and the
ongoing expense of maintaining foreclosed properties. Foreclosed property expense decreased $211 million, or 79.3% in 2013, due to fewer losses and write-
downs and lower maintenance costs on foreclosed property. Loan-related expense totaled $255 million, a decrease of $28 million, or 9.9% compared to the
prior year. This decrease was primarily the result of improvements in mortgage repurchase expense and lower costs associated with certain mortgage loan
indemnifications.
Merger-related and restructuring charges were $22 million lower than the prior year, which reflects the impact of merger-related charges associated with the
Crump Insurance and BankAtlantic acquisitions in the prior year, partially offset by restructuring charges associated with optimization activities in
Community Banking that were initiated during the second quarter of 2013. Regulatory charges decreased $16 million in 2013 due to improved credit
quality, which led to lower deposit insurance premiums.
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Source: BB&T CORP, 10-K, February 25, 2015 Powered by Morningstar® Document Research℠
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