BB&T 2008 Annual Report Download - page 56

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Provision for Credit Losses
A provision for credit losses is charged against earnings in order to maintain an allowance for loan and lease
losses and a reserve for unfunded lending commitments that reflects management’s best estimate of probable
losses inherent in the credit portfolios at the balance sheet date. The amount of the provision is based on
continuing assessments of nonperforming and “watch list” loans and associated unfunded credit commitments,
analytical reviews of loss experience in relation to outstanding loans and funded credit commitments, loan charge-
offs, nonperforming asset trends and management’s judgment with respect to current and expected economic
conditions and their impact on the loan portfolio and outstanding unfunded credit commitments. The methodology
used is described in the “Overview and Description of Business” section under the heading “Allowance for Loan
and Lease Losses and Reserve for Unfunded Credit Commitments.” The provision for credit losses recorded by
BB&T in 2008 was $1.4 billion, compared with $448 million in 2007 and $240 million in 2006.
The provision for credit losses increased 222.5% during 2008 while total loans and leases held for investment
increased 7.0% compared to the balance outstanding at the end of 2007. Net charge-offs were .89% of average
loans and leases for 2008 compared to .38% of average loans and leases during 2007. The allowance for loan and
lease losses was 1.62% of loans and leases held for investment and was 1.11x total nonaccrual loans and leases at
year-end 2008, compared to 1.10% and 2.00x, respectively, at December 31, 2007. The increase in the provision for
credit losses during 2008 compared to 2007 was largely driven by challenges in residential real estate markets and
the overall economy with the largest concentration of credit issues occurring in Georgia, Florida, and metro
Washington D.C. Additional disclosures related to BB&T’s real estate lending by product type and geographic
distribution can be found in Table 6 herein. The 86.7% increase in the provision for credit losses during 2007
compared to 2006 was primarily the result of these same issues.
Noninterest Income
Noninterest income has become, and will continue to be, a significant contributor to BB&T’s financial
success. Noninterest income includes insurance income, service charges on deposit accounts, mortgage banking
income, investment banking and brokerage fees and commissions, trust and investment advisory revenues, gains
and losses on securities transactions, and commissions and fees derived from other activities. Noninterest income
as a percentage of total revenues has steadily increased in recent years, totaling 41.4% for 2008. Exceeding 40%
on this measure has been a management objective for several years. Management has established a goal for
noninterest income to exceed 45% of total revenues in the next few years to further reduce BB&T’s reliance on
traditional spread-based interest income, as fee-based activities are a relatively stable revenue source during
periods of changing interest rates.
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