BB&T 2014 Annual Report Download - page 84

Table of Contents
Loss Estimate Factor Description
Loss Frequency Indicates the likelihood of a borrower defaulting on a loan
Loss Severity Indicates the amount of estimated loss at the time of default
For collectively evaluated loans, the ALLL is determined by multiplying the loan exposure by the loss frequency and loss severity factors. For individually
evaluated loans, the ALLL is determined through review of data specific to the borrower. For TDRs, default expectations and estimated slower prepayment
speeds that are specific to each of the restructured loan populations are incorporated in the determination of the ALLL. Also included in management’s
estimates for loan and lease losses are considerations with respect to the impact of current economic events, the outcomes of which are uncertain. These
events may include, but are not limited to, fluctuations in overall interest rates, political conditions, legislation that may directly or indirectly affect the
banking industry and economic conditions affecting specific geographical areas and industries in which BB&T conducts business.
The methodology used to determine an estimate for the RUFC is inherently similar to the methodology used in calculating the ALLL adjusted for factors
specific to binding commitments, including the probability of funding and exposure at the time of funding. A detailed discussion of the methodology used in
determining the ALLL and the RUFC is included in Note 1 “Summary of Significant Accounting Policies” in the “Notes to Consolidated Financial
Statements.”
Fair Value of Financial Instruments
The vast majority of assets and liabilities carried at fair value are based on either quoted market prices or market prices for similar instruments. See Note 18
“Fair Value Disclosures” in the “Notes to Consolidated Financial Statements” herein for additional disclosures regarding the fair value of financial
instruments.
Securities
BB&T generally utilizes a third-party pricing service in determining the fair value of its AFS and trading securities. Fair value measurements are derived from
market-based pricing matrices that were developed using observable inputs that include benchmark yields, benchmark securities, reported trades, offers, bids,
issuer spreads and broker quotes. Management performs various procedures to evaluate the accuracy of the fair values provided by the third-party service
provider. These procedures, which are performed independent of the responsible LOB, include comparison of pricing information received from the third
party pricing service to other third party pricing sources, review of additional information provided by the third party pricing service and other third party
sources for selected securities and back-testing to compare the price realized on any security sales to the daily pricing information received from the third
party pricing service. The IPV committee, which provides oversight to BB&T’s enterprise-wide IPV function, is responsible for oversight of the comparison of
pricing information received from the third party pricing service to other third party pricing sources, approving tolerance limits determined by IPV for price
comparison exceptions, reviewing significant changes to pricing and valuation policies and reviewing and approving the pricing decisions made on any
illiquid and hard-to-price securities. When market observable data is not available, which generally occurs due to the lack of liquidity for certain securities,
the valuation of the security is subjective and may involve substantial judgment by management.
BB&T periodically reviews AFS securities with an unrealized loss. An unrealized loss exists when the current fair value of an individual security is less than
its amortized cost basis. The purpose of the review is to consider the length of time and the extent to which the market value of a security has been below its
amortized cost. The primary factors BB&T considers in determining whether an impairment is other-than-temporary are long-term expectations and recent
experience regarding principal and interest payments and BB&T’s intent to sell and whether it is more likely than not that the Company would be required to
sell those securities before the anticipated recovery of the amortized cost basis.
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Source: BB&T CORP, 10-K, February 25, 2015 Powered by Morningstar® Document Research℠
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