BB&T 2008 Annual Report Download - page 59

Mortgage banking income increased $160 million, or 139.1% during 2008. BB&T adopted SFAS No. 159, “The
Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement
No. 115,” (“SFAS No. 159” or the “Fair Value Option”) for the majority of loans originated for sale after
January 1, 2008, and implemented the provisions of Staff Accounting Bulletin No. 109 “Written Loan
Commitments Recorded at Fair Value through Earnings” (“SAB 109’). As a result of the adoption of both
standards, mortgage banking income increased approximately $74 million compared to 2007. Of the $74 million
increase relating to the adoption of these accounting standards, approximately $55 million relates to the
elimination of the provisions of SFAS No. 91 “Accounting for Nonrefundable Fees and Costs Associated with
Originating or Acquiring Loans and Initial Direct Costs of Leases—an amendment of FASB Statements No. 13,
60, and 65 and a rescission of FASB Statement No. 17,” (“SFAS No. 91”) on loans accounted for at fair value and
resulted in a corresponding increase in personnel expense. The net change in the valuation of mortgage servicing
rights resulted in a $38 million increase compared to 2007. The $38 million increase was the result of the mortgage
servicing rights hedge outperforming the decline in the value of the asset. The positive hedge performance was
attributable to (i) the strong appreciation of option-based hedge instruments, which occurs during periods of
extreme interest rate volatility, and (ii) the favorable hedge effectiveness against the interest rate basis
movements between mortgages and swap-based hedge instruments. Excluding the impact of these items,
mortgage banking income increased $48 million, or 43.2%, compared to the prior year. The growth in mortgage
banking income includes strong production revenues from both residential and commercial mortgage banking
operations. The growth in commercial mortgage banking revenues was the result of the acquisition of Collateral
Real Estate Capital, LLC (“Collateral”) in the fourth quarter of 2007. BB&T combined the operations of
Collateral with its existing mortgage banking operations and renamed the subsidiary Grandbridge Real Estate
Capital LLC (“Grandbridge”). The acquisition of Collateral significantly expanded the size and product offerings
of BB&T’s commercial mortgage banking activities. Mortgage banking income increased $7 million, or 6.5%,
during 2007. The growth in 2007 included an increase of $4 million, or 11.1%, in commercial mortgage banking
income primarily generated by Grandbridge. The acquisition of Collateral in the fourth quarter of 2007 was the
primary reason for the 125.4% increase in commercial mortgage loans serviced for others at year-end 2007
compared to the prior year-end. BB&T’s residential mortgage banking income also increased $3 million during
2007 compared to 2006. While residential mortgage loan sales increased 42.9% during 2007, gains and other
revenues associated with those sales only increased 2.2% due to increased competition in the marketplace.
BB&T recognized $107 million in net securities gains during 2008 compared to net losses of $3 million and $73
million during 2007 and 2006, respectively. The net securities gains recognized in 2008 included $211 million of
gains from securities sales and $104 million of losses as a result of other-than-temporary impairments. The losses
recognized in 2006 were primarily in connection with an announced restructuring of a portion of the securities
portfolio that was undertaken in the fourth quarter of 2006.
Income from bank owned life insurance (“BOLI”) decreased $17 million, or 16.8%, in 2008 compared to 2007,
primarily due to a valuation adjustment that resulted from a decline in the underlying assets of certain insurance
policies. BOLI income increased $8 million, or 8.6%, in 2007 compared to 2006.
Other income decreased slightly in 2008 compared to 2007. The current year included gains related to BB&T’s
ownership interest and sale of Visa, Inc. stock that amounted to $80 million. In addition, revenues from client
derivative activities were $22 million higher in 2008 compared to 2007. These increases were offset by a number of
factors, including a $50 million decline in the value of various financial assets isolated for the purpose of providing
post-employment benefits. The decline in the value of these assets is neutral to net income as these losses relate
to participant’s accounts and reduce the amount of benefits that will be paid in the future. Earnings from
investments in low income housing partnerships that generate tax benefits declined $39 million and net revenues
from BB&T’s venture capital investments declined $26 million. In addition, the current year’s results were
affected by certain items that were recorded in 2007, including the sale of an insurance operation and losses from
capital markets activities as mentioned below. The 23.9%, or $28 million, decrease in 2007 compared to 2006, was
primarily due to approximately $33 million in losses from capital markets activities during the last half of 2007.
These losses were primarily caused by disruptions in the financial markets that decreased the value of certain
trading securities and derivative contracts. In addition, BB&T sold an insurance operation during 2007, which
produced a gain of $19 million. BB&T also generated $17 million in additional revenues from client derivative
activities. Other income for 2007 also reflects lower revenues from venture capital investments, which decreased
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