BB&T 2015 Annual Report Download - page 103

TableofContents
The entire amount of the ACL is available to absorb losses on any loan category or lending-related commitment.
The following provides a description of accounting policies and methodologies related to each of the portfolio segments:
Commercial
The vast majority of loans in the commercial lending portfolio are assigned risk ratings based on an assessment of conditions that affect the borrower’s ability
to meet contractual obligations under the loan agreement. This process includes reviewing borrowers’ financial information, historical payment experience,
credit documentation, public information, and other information specific to each borrower. Risk ratings are reviewed on an annual basis for all credit
relationships with total credit exposure of $1 million or more, or at any point management becomes aware of information affecting the borrowers’ ability to
fulfill their obligations.
Risk Rating Description
Pass Loans not considered to be problem credits
Special Mention Loans that have a potential weakness deserving management’s close attention
Substandard Loans for which a well-defined weakness has been identified that may put full collection of contractual cash flows at
risk
For commercial clients with total credit exposure less than $1 million, BB&T has developed an automated loan review system to identify and proactively
manage accounts with a higher risk of loss. The “score” produced by this automated system is updated monthly.
During 2013, to establish a reserve, BB&T’s policy was to review all commercial lending relationships with outstanding debt of $5 million or more that were
classified as substandard. During the first quarter of 2014, this process was revised such that any obligor with an outstanding nonaccrual balance of $3
million or more is reviewed. While this review is largely focused on the borrower’s ability to repay the loan, BB&T also considers the capacity and
willingness of a loan’s guarantors to support the debt service on the loan as a secondary source of repayment. When a guarantor exhibits the documented
capacity and willingness to support the loan, BB&T may consider extending the loan maturity and/or temporarily deferring principal payments if the
ultimate collection of both principal and interest is not in question. In these cases, BB&T may deem the loan to not be impaired due to the documented
capacity and willingness of the guarantor to repay the loan. Loans are considered impaired when the borrower (or guarantor in certain circumstances) does not
have the cash flow capacity or willingness to service the debt according to contractual terms, or it does not appear reasonable to assume that the borrower will
continue to pay according to the contractual agreement. BB&T establishes a specific reserve for each loan that has been deemed impaired based on the
criteria outlined above. The amount of the reserve is based on the present value of expected cash flows discounted at the loan’s effective interest rate and/or
the value of collateral, net of costs to sell. In addition, beginning with the first quarter of 2014, BB&T reviews any collateral-dependent commercial loan
balances between $1 million and $3 million to establish a specific reserve based on the underlying collateral value, net of costs to sell.
BB&T also has a review process related to TDRs and other commercial impaired loans. In connection with this process, BB&T establishes reserves related to
these loans that are calculated using an expected cash flow approach. These discounted cash flow analyses 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.
BB&T also maintains reserves for collective impairment that reflect an estimate of losses related to non-impaired commercial loans as of the balance sheet
date. Embedded loss estimates for BB&T’s commercial loan portfolio are based on estimated migration rates, which are based on historical experience, and
current risk mix as indicated by the risk grading process described above. Embedded loss estimates may be adjusted to reflect current economic conditions
and current portfolio trends including credit quality, concentrations, aging of the portfolio, and significant policy and underwriting changes.
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Source: BB&T CORP, 10-K, February 25, 2016 Powered by Morningstar® Document Research℠
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