BB&T 2015 Annual Report Download - page 23

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Credit Risk
Changes in national, regional and local economic conditions and deterioration in the geographic and financial markets in which BB&T operates could
lead to higher loan charge-offs and reduce BB&T’s net income and growth.
BB&T’s business is subject to periodic fluctuations based on national, regional and local economic conditions, as well as conditions that may be specific to
particular sectors or industries. These fluctuations are not predictable, cannot be controlled, and may have a material adverse impact on BB&T’s operations
and financial condition even if other favorable events occur. BB&T’s banking operations are locally oriented and community-based. Accordingly, BB&T
expects to continue to be dependent upon local business conditions as well as conditions in the local residential and CRE markets it serves. For example, an
increase in unemployment, a decrease in real estate values or increases in interest rates, as well as other factors, could weaken the economies of the
communities BB&T serves. Weakness in BB&T’s market area could depress its earnings and consequently its financial condition because:
·customers may not want or need BB&T’s products or services;
·borrowers may not be able or willing to repay their loans;
·the value of the collateral securing loans to borrowers may decline; and
·the quality of BB&T’s loan portfolio may decline.
Any of the latter three scenarios could require BB&T to charge off a higher percentage of loans and/or increase provisions for credit losses, which would
reduce BB&T’s net income. Credit deterioration, combined with flat to declining real estate values, would result in increased loan charge-offs and higher
provisions for credit losses, which may negatively impact BB&T’s net income. For example, as of December 31, 2015, loan balances related to the oil and gas
industry represented approximately 1% of our total loan portfolio. This amount generally consists of loans for oilfield services, oil and gas exploration and
production, and pipeline transportation of gas and crude oil. Beginning in late 2014, oil prices began declining, which has had an adverse effect on some of
our borrowers in this portfolio and on the value of the collateral securing some of these loans. If such downturn in the oil and gas industry continues, the cash
flows of our customers in this industry could be adversely impacted, which could impair their ability to service any loans outstanding to them and/or reduce
demand for loans. These factors could result in higher delinquencies and greater charge-offs in future periods, which could adversely affect our business,
financial condition or results of operations.
A systemic lack of available credit, a lack of confidence in the financial sector, volatility in the financial markets and/or reduced business activity could
materially adversely affect BB&T’s business, financial condition and results of operations.
Potential downgrades of U.S. government securities by one or more of the credit ratings agencies could have a material adverse effect on BB&T’s
operations, earnings and financial condition.
A possible future downgrade of the sovereign credit ratings of the U.S. government and a decline in the perceived creditworthiness of U.S. government-
related obligations could impact BB&T’s ability to obtain funding that is collateralized by affected instruments, as well as affect the pricing of that funding
when it is available. A downgrade may also adversely affect the market value of such instruments. BB&T cannot predict if, when or how any changes to the
credit ratings or perceived creditworthiness of these organizations will affect economic conditions. Such ratings actions could result in a significant adverse
impact on BB&T. For example, BB&T’s securities portfolio consists largely of MBS issued by GSEs, such as FHLMC and FNMA. Among other things, a
further downgrade in the U.S. government’s credit rating could adversely impact the value of these securities and may trigger requirements that the Company
post additional collateral for trades relative to these securities. A downgrade of the sovereign credit ratings of the U.S. government or the credit ratings of
related institutions, agencies or instruments would significantly exacerbate the other risks to which BB&T is subject and any related adverse effects on the
business, financial condition and results of operations.
The soundness of other financial institutions could adversely affect BB&T.
Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships. BB&T has exposure to many different
industries and counterparties, and BB&T and certain of its subsidiaries routinely execute transactions with counterparties in the financial services industry,
including brokers and dealers, commercial banks, investment banks, mutual and hedge funds and other institutions. Many of these transactions expose
BB&T to credit risk in the event of default of its counterparty. In addition, BB&T’s credit risk may be exacerbated when collateral is liquidated at prices not
sufficient to recover the full amount of the loan or derivative exposure. These types of losses could materially and adversely affect BB&T’s results of
operations or financial condition.
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Source: BB&T CORP, 10-K, February 25, 2016 Powered by Morningstar® Document Research℠
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