BB&T 2009 Annual Report Download - page 152

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BB&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
reflecting a fair value of $66 million recorded in other assets and instruments in a loss position reflecting a fair
value of $26 million recorded in other liabilities. For a qualifying cash flow hedge, the portion of changes in the
fair value of the derivatives that have been highly effective are recognized in other comprehensive income until
the related cash flows from the hedged item are recognized in earnings. The impact on earnings resulting from
the ineffectiveness of cash flow hedges was $1 million during 2009.
Accumulated other comprehensive income included $54 million in unrecognized after-tax gains on interest
rate swaps, caps and floors hedging variable interest payments on business loans at December 31, 2009. These
amounts included unrecognized after-tax gains on terminated swaps, caps and collars of $29 million at
December 31, 2009. In addition, accumulated other comprehensive income included $50 million in net
unrecognized after-tax gains on interest rate swaps, caps and floors hedging variable interest payments on
funding at December 31, 2009. These amounts included unrecognized after-tax gains on terminated hedges
related to short-term funding of $52 million at December 31, 2009. Also included in accumulated other
comprehensive income at December 31, 2009 are unrecognized after-tax gains of $3 million on terminated interest
rate swaps hedging variable interest payments on long-term debt.
The estimated net amount in accumulated other comprehensive income at December 31, 2009 that is
expected to be reclassified into earnings within the next 12 months is a net after-tax gain of $60 million. The
amount reclassified into earnings from other comprehensive income during 2009 was a net after-tax gain of $49
million.
All of BB&T’s cash flow hedges are hedging exposure to variability in future cash flows for forecasted
transactions related to the payment of variable interest on then existing financial instruments. The maximum
length of time over which BB&T is hedging its exposure to the variability in future cash flows for forecasted
transactions related to variable interest payments on existing financial instruments is 6.6 years.
Fair Value Hedges
At December 31, 2009, BB&T had designated notional values of $4.1 billion of derivatives as fair value hedges
which reflected a net unrealized gain of $101 million, with instruments in a gain position reflecting a fair value of
$194 million recorded in other assets and instruments in a loss position reflecting a fair value of $93 million
recorded in other liabilities. For a qualifying fair value hedge, changes in the value of the derivatives that have
been highly effective as hedges are recognized in current period earnings along with the corresponding changes
in the fair value of the designated hedged item attributable to the risk being hedged. BB&T terminated certain
fair value hedges relating to its long-term debt during 2009. The proceeds received from these terminations
totaled $128 million and were included in cash flows from financing activities. The impact on earnings resulting
from fair value hedge ineffectiveness was a $7 million gain during 2009.
BB&T also held $56.5 billion in notional value of derivatives not designated as hedges at December 31, 2009.
These instruments were in a net gain position with a net estimated fair value of $143 million. Changes in the fair
value of these derivatives are reflected in current period earnings.
Derivatives not designated as a hedge include the notional amount of $8.2 billion that have been entered into
as a risk management instrument for mortgage banking operations at December 31, 2009. For mortgage loans
originated for sale, BB&T is exposed to changes in market rates and conditions subsequent to the interest rate
lock and funding date. BB&T’s risk management strategy related to its interest rate lock commitment derivatives
and loans held for sale includes using mortgage-based derivatives such as forward commitments and options in
order to mitigate market risk.
Derivatives not designated as a hedge include the notional amount of $18.3 billion that have been entered
into as a risk management instrument for mortgage servicing rights at December 31, 2009. For 2009, the $98
million loss on these derivatives is offset by a positive $190 million valuation adjustment related to the mortgage
servicing asset.
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