BB&T 2015 Annual Report Download - page 104

TableofContents
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.
PCI
PCI loans (including all loans acquired in an FDIC-assisted transaction) are 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.
Assets Acquired from the FDIC and Related FDIC Loss Share Receivable/Payable
Certain loans, securities and other assets were acquired from the FDIC in connection with the Colonial transaction and are divided between two loss sharing
agreements, the single family loss share agreement and the commercial loss share agreement. The single family loss share agreement expires in 2019. Assets
subject to the single family loss share agreement have loss and recovery sharing with the FDIC and are referred to as “covered” assets.
Effective October 1, 2014, the loss sharing provisions related to the commercial loss share agreement 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.
93
Source: BB&T CORP, 10-K, February 25, 2016 Powered by Morningstar® Document Research℠
The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,
except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.