BB&T 2009 Annual Report Download - page 149

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BB&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Long-term debt: The fair values of long-term debt are estimated based on quoted market prices for the
instrument if available, or for similar instruments if not available, or by using discounted cash flow analyses,
based on BB&T’s current incremental borrowing rates for similar types of instruments.
Contractual commitments: The fair values of commitments are estimated using the fees charged to enter
into similar agreements, taking into account the remaining terms of the agreements and the present
creditworthiness of the counterparties. For fixed-rate loan commitments, fair values also consider the difference
between current levels of interest rates and the committed rates. The fair values of guarantees and letters of
credit are estimated based on the counterparties’ creditworthiness and average default rates for loan products
with similar risks. The fair values of commitments to fund affordable housing investments are estimated using
the net present value of future commitments.
NOTE 19. Derivative Financial Instruments
BB&T uses a variety of derivative instruments to manage interest rate and foreign exchange risks. These
instruments consist of interest-rate swaps, swaptions, caps, floors, collars, financial forward and futures
contracts, when-issued securities, foreign exchange contracts and options written and purchased. A derivative is
a financial instrument that derives its cash flows, and therefore its value, by reference to an underlying
instrument, index or referenced interest rate. There are five areas of risk management: balance sheet
management, mortgage banking operations, mortgage servicing rights, net investment in a foreign subsidiary
and client-related and other risk management activities.
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