SunTrust 2007 Annual Report Download - page 77

Mortgage
Mortgage’s net income for the twelve months ended December 31, 2007, was $7.9 million, a decrease of $237.8 million, or
96.8%, compared to 2006. The decline resulted primarily from $166 million in net valuation losses in the second half of 2007
on mortgage loans held for sale primarily due to market volatility and mortgage spread widening in conjunction with
increased credit-related losses on mortgage loans. These losses were partially offset by higher mortgage servicing revenue.
Net interest income in 2007 declined $76.0 million, or 12.6%, compared to 2006 principally due to lower income from
portfolio loans and loans held for sale, as well as higher funding costs for MSRs, which was partially offset by higher net
interest income on deposits and investments. Average portfolio loans, principally consumer mortgages and residential
construction loans, declined $0.4 billion, or 1.4%. The volume decline combined with compressed spreads resulted in a
reduction of net interest income from total loans of $53.1 million. Average loans held for sale increased $0.5 billion;
however, compressed spreads more than offset the benefit of higher balances and reduced net interest income by $38.0
million. Funding costs on higher MSRs balances further reduced net interest income by $16.5 million. Net interest income
from deposits increased $17.1 million, while net interest income from investments increased $13.1 million.
Provision for loan losses for 2007 increased $72.4 million driven by higher consumer mortgage and residential construction
net charge-offs.
Total noninterest income declined $13.7 million, or 3.6%, due to lower production income, partially offset by higher
servicing and insurance income. Production income declined $103.9 million due to net valuation losses of $165.4 million in
the second half of 2007 on loans held for sale primarily due to market volatility and mortgage spread widening. These
declines were partially offset by the recognition of origination fees that were deferred prior to the May 2007 fair value
election for certain loans. Loan production of $58.3 billion was up $3.0 billion, or 5.4%, for the year 2007. Servicing income
increased $73.9 million, driven by higher servicing revenues from higher balances, and lower MSRs amortization, partially
offset by lower gains on sales of servicing assets in 2007. At December 31, 2007, total loans serviced were $149.9 billion, an
increase of $19.9 billion, or 15.3%. Revenues from mortgage insurance increased $10.0 million due to new mortgage
origination volume.
Total noninterest expense increased $222.1 million for the year 2007, or 36.9%, over 2006, principally due to increased
operating losses of $84.3 million primarily driven by loan application fraud from customer misstatements of income and/or
assets primarily on Alt-A products originated in prior periods, recognition of loan origination costs that were deferred prior
to the May 2007 election to record certain loans at fair value, and increased credit and growth-related expenses.
Wealth and Investment Management
Wealth and Investment Management’s net income for the year ended December 31, 2007, was $84.9 million, a decrease of
$204.3 million, or 70.6%, compared to the year ended December 31, 2006. The decline was principally driven by a $250.5
million pre-tax mark-to-market loss on SIV securities and a $112.8 million pre-tax gain realized in 2006 on the sale of the
Bond Trustee business, partially offset by a $32.3 million pre-tax gain on sale upon merger of Lighthouse Partners into
Lighthouse Investment Partners and increased retail investment income in 2007.
For the full year 2007, net interest income decreased $22.4 million, or 6.1%, as the continued shift in deposit mix to higher
cost products compressed spreads. Average deposits increased $303.3 million, or 3.2%, as increases in higher-cost NOW
account and time deposits were partially offset by declines in lower-cost demand deposit and money market account
balances. This shift in deposit mix coupled with a decline in spreads driven by deposit competition was the primary driver of
a $17.7 million decline in net interest income on deposits. Average loans declined $170.0 million, or 2.1%, resulting in a $5.3
million decline in net interest income on loans. The decline in loan balances resulted from lower consumer and commercial
loans.
Provision for loan losses increased $4.8 million over 2006 primarily due to higher home equity and consumer mortgage net
charge-offs.
Total noninterest income decreased $288.1 million, or 26.3%, primarily due to a $250.5 million mark-to-market loss on SIV
securities in the fourth quarter of 2007 and a $112.8 million gain realized in 2006 on the sale of the Bond Trustee business.
Partially offsetting these items was a $32.3 million gain on sale upon merger of Lighthouse Partners, as well as strong growth
in retail investment income, which increased $44.0 million, or 19.3%, due to strong annuity sales and higher recurring
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