BB&T 2010 Annual Report Download - page 130

Download and view the complete annual report

Please find page 130 of the 2010 BB&T annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 181

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162
  • 163
  • 164
  • 165
  • 166
  • 167
  • 168
  • 169
  • 170
  • 171
  • 172
  • 173
  • 174
  • 175
  • 176
  • 177
  • 178
  • 179
  • 180
  • 181

Residential mortgage servicing rights are recorded on the Consolidated Balance Sheets at fair value with
changes in fair value recorded as a component of mortgage banking income in the Consolidated Statements of
Income for each period. BB&T uses various derivative instruments to mitigate the income statement effect of
changes in fair value, due to changes in valuation inputs and assumptions, of its residential mortgage servicing
rights. The following is an analysis of the activity in BB&T’s residential mortgage servicing rights for the years
ended December 31, 2010, 2009 and 2008:
Residential
Mortgage Servicing Rights
Years Ended
December 31,
2010 2009 2008
(Dollars in millions)
Carrying value, January 1, $ 832 $ 370 $ 472
Additions 265 398 212
Increase (decrease) in fair value:
Due to changes in valuation inputs or assumptions (138) 190 (220)
Other changes (1) (129) (126) (94)
Carrying value, December 31, $ 830 $ 832 $ 370
(1) Represents the realization of expected net servicing cash flows, expected borrower payments and the
passage of time.
BB&T uses assumptions and estimates in determining the fair value of mortgage servicing rights. These
assumptions include prepayment speeds, servicing costs and Option Adjusted Spread commensurate with the
risks involved and comparable to assumptions used by market participants to value and bid servicing rights
available for sale in the market. At December 31, 2010, the sensitivity of the current fair value of the residential
mortgage servicing rights to immediate 10% and 20% adverse changes in key economic assumptions are included
in the accompanying table.
Residential
Mortgage Servicing Rights
December 31, 2010
(Dollars in millions)
Fair value of residential mortgage servicing rights $ 830
Composition of residential loans serviced for others:
Fixed-rate mortgage loans 99%
Adjustable-rate mortgage loans 1
Total 100%
Weighted average life 5.6 yrs
Prepayment speed 12.7%
Effect on fair value of a 10% increase $ (40)
Effect on fair value of a 20% increase (76)
Weighted average discount rate 10.7%
Effect on fair value of a 10% increase $ (38)
Effect on fair value of a 20% increase (73)
The sensitivity calculations above are hypothetical and should not be considered to be predictive of future
performance. As indicated, changes in fair value based on adverse changes in assumptions generally cannot be
extrapolated because the relationship of the change in assumption to the change in fair value may not be linear.
Also, in this table, the effect of an adverse variation in a particular assumption on the fair value of the mortgage
servicing rights is calculated without changing any other assumption; while in reality, changes in one factor may
result in changes in another (for example, increases in market interest rates may result in lower prepayments),
which may magnify or counteract the effect of the change.
130