KeyBank 2014 Annual Report Download - page 179

The following table summarizes the pre-tax net gains (losses) on our fair value hedges for the years ended
December 31, 2014, and December 31, 2013, and where they are recorded on the income statement.
Year ended December 31, 2014
in millions
Income Statement Location of
Net Gains (Losses) on Derivative
Net Gains
(Losses) on
Derivative Hedged Item
Income Statement Location of
Net Gains (Losses) on Hedged Item
Net Gains
(Losses) on
Hedged Item
Interest rate Other income $7Long-term debt Other income $ (5) (a)
Interest rate Interest expense – Long-term debt 117
Total $ 124 $ (5)
Year ended December 31, 2013
in millions
Income Statement Location of
Net Gains (Losses) on Derivative
Net Gains
(Losses) on
Derivative Hedged Item
Income Statement Location of
Net Gains (Losses) on Hedged Item
Net Gains
(Losses) on
Hedged Item
Interest rate Other income $ (222) Long-term debt Other income $ 222 (a)
Interest rate Interest expense – Long-term debt 129
Total $ (93) $ 222
(a) Net gains (losses) on hedged items represent the change in fair value caused by fluctuations in interest rates.
Cash flow hedges. Instruments designated as cash flow hedges are recorded at fair value and included in
“derivative assets” or “derivative liabilities” on the balance sheet. Initially, the effective portion of a gain or loss
on a cash flow hedge is recorded as a component of AOCI on the balance sheet. This amount is subsequently
reclassified into income when the hedged transaction affects earnings (e.g., when we pay variable-rate interest on
debt, receive variable-rate interest on commercial loans, or sell commercial real estate loans). The ineffective
portion of cash flow hedging transactions is included in “other income” on the income statement. During the year
ended December 31, 2014, we did not exclude any portion of these hedging instruments from the assessment of
hedge effectiveness. While there is some immaterial ineffectiveness in our hedging relationships, all of our cash
flow hedges remained “highly effective” as of December 31, 2014.
Considering the interest rates, yield curves, and notional amounts as of December 31, 2014, we would expect to
reclassify an estimated $25 million of net losses on derivative instruments from AOCI to income during the next
12 months for our cash flow hedges. In addition, we expect to reclassify approximately $3 million of net gains
related to terminated cash flow hedges from AOCI to income during the next 12 months. As of December 31,
2014, the maximum length of time over which we hedge forecasted transactions is 14 years.
Net investment hedges. We enter into foreign currency forward contracts to hedge our exposure to changes in
the carrying value of our investments as a result of changes in the related foreign exchange rates. Instruments
designated as net investment hedges are recorded at fair value and included in “derivative assets” or “derivative
liabilities” on the balance sheet. Initially, the effective portion of a gain or loss on a net investment hedge is
recorded as a component of AOCI on the balance sheet when the terms of the derivative match the notional and
currency risk being hedged. The effective portion is subsequently reclassified into income when the hedged
transaction affects earnings (e.g., when we dispose of or liquidate a foreign subsidiary). At December 31, 2014,
AOCI reflected unrecognized after-tax gains totaling $17 million related to cumulative changes in the fair value
of our net investment hedges, which offset the unrecognized after-tax foreign currency losses on net investment
balances. The ineffective portion of net investment hedging transactions is included in “other income” on the
income statement, but there was no net investment hedge ineffectiveness as of December 31, 2014. We did not
exclude any portion of our hedging instruments from the assessment of hedge effectiveness during the year ended
December 31, 2014.
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