BB&T 2010 Annual Report Download - page 162

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The Effect of Derivative Instruments on the Consolidated Statements of Income
Years Ended December 31, 2010 and 2009
Effective Portion Ineffective Portion
Gain or (Loss)
Recognized in OCI
Location of
Amounts Reclassified
from AOCI into
Income
(Gain) or Loss
Reclassified from
AOCI into Income Location of
Amounts Recognized in
Income
Gain or
(Loss)
Recognized
in Income (1)
2010 2009 2010 2009 2010 2009
(Dollars in millions)
Cash Flow Hedges
Interest rate contracts $(224) $146 Total interest income $ (44) $ (86) Other noninterest income $— $ 1
Total interest expense 20 37
$ (24) $ (49)
Net Investment Hedges
Foreign exchange
contracts $ (4) $ (11) $— $— $— $—
Effective Portion Ineffective Portion
Location of Amounts
Recognized in Income
Gain or
(Loss)
Recognized in
Income Location of Amounts
Recognized in Income
Gain or
(Loss)
Recognized in
Income (1)
2010 2009 2010 2009
(Dollars in millions)
Fair Value Hedges
Interest rate contracts Total interest expense $170 $177 Other noninterest income $(2) $7
Interest rate contracts Total interest income (19) (17)
Total $151 $160
Not Designated as Hedges
Client-related and other risk management
Interest rate contracts Other noninterest income $ 5 $ 22
Other derivatives Other noninterest income — (20)
Foreign exchange contracts Other nondeposit fees
and commissions 6 (1)
Mortgage Banking
Interest rate contracts Mortgage banking income (2) 33 23
Mortgage Servicing Rights
Interest rate contracts Mortgage banking income 196 (98)
Total $240 $ (74)
Note: All amounts for Other Comprehensive Income (OCI) and Accumulated Other Comprehensive Income (AOCI) are stated on a pre-tax
basis.
(1) All gains and losses recognized in income relate to the ineffective portion of the change in the fair value of the derivative. No portion of
the change in fair value of the derivative has been excluded from effectiveness testing.
(2) Mortgage banking income includes amounts that were recorded as part of gain on the sale of loans attributable to the valuation impact of
interest rate lock commitments. The impact was $27 million and $13 million in 2010 and 2009, respectively.
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.
Cash Flow Hedges
BB&T’s floating rate business loans, Federal funds purchased, other overnight funding, FHLB advances,
medium-term bank notes and long-term debt expose it to variability in cash flows for interest payments. The risk
management objective for these floating rate assets and liabilities is to hedge the variability in the interest
payments and receipts on future cash flows for forecasted transactions. These forecasted transactions include
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