Bank of America 2010 Annual Report Download - page 163

The Corporation entered into equity total return swaps to hedge a portion
of cash-settled restricted stock units (RSUs) granted to certain employees in
February 2010 as part of their 2009 compensation. These cash-settled RSUs
are accrued as liabilities over the vesting period and adjusted to fair value
based on changes in the share price of the Corporation’s common stock. From
time to time, the Corporation may enter into equity derivatives to minimize the
change in the expense to the Corporation driven by fluctuations in the share
price of the Corporation’s common stock during the vesting period of any
RSUs that may be granted from time to time, if any, subject to similar or other
terms and conditions. Certain of these derivatives are designated as cash
flow hedges of unrecognized non-vested awards with the changes in fair value
of the hedge recorded in accumulated OCI and reclassified into earnings in the
same period as the RSUs affect earnings. The remaining derivatives are
accounted for as economic hedges and changes in fair value are recorded in
personnel expense. For more information on restricted stock units and related
hedges, see Note 20 – Stock-Based Compensation Plans.
Economic Hedges
Derivatives designated as economic hedges, because either they did not
qualify for or were not designated as accounting hedges, are used by the
Corporation to reduce certain risk exposures. The table below presents gains
(losses) on these derivatives for 2010, 2009 and 2008. These gains (losses)
are largely offset by the income or expense that is recorded on the econom-
ically hedged item.
(Dollars in millions) 2010 2009 2008
Price risk on mortgage banking production income
(1, 2)
$9,109 $ 8,898 $ 892
Interest rate risk on mortgage banking servicing income
(1)
3,878 (4,264) 8,052
Credit risk on loans
(3)
(119) (698) 309
Interest rate and foreign currency risk on long-term debt and other foreign exchange transactions
(4)
(2,080) 1,572 (1,316)
Other
(5)
(109) 16 34
Total $10,679 $5,524 $7,971
(1)
Gains (losses) on these derivatives are recorded in mortgage banking income.
(2)
Includes gains on interest rate lock commitments related to the origination of mortgage loans that are held-for-sale, which are considered derivative instruments, of $8.7 billion, $8.4 billion and $1.6 billion for 2010, 2009 and 2008,
respectively.
(3)
Gains (losses) on these derivatives are recorded in other income (loss).
(4)
The majority of the balance is related to the revaluation of economic hedges on foreign currency-denominated debt which is recorded in other income (loss).
(5)
Gains (losses) on these derivatives are recorded in other income (loss), and for 2010, also in personnel expense for hedges of certain RSUs.
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