Derivative Financial Instruments

6 Months Ended

Jun. 30, 2013

Derivative Financial Instruments

Derivative Financial Instruments

NOTE 14.Derivative Financial Instruments

Derivative Classifications and Hedging Relationships
							June 30, 2013						December 31, 2012
						Hedged Item or	Notional		Fair Value				Notional		Fair Value
						Transaction	Amount		Gain		Loss		Amount		Gain		Loss
							(Dollars in millions)
Cash flow hedges:
	Interest rate contracts:
		Pay fixed swaps				3 mo. LIBOR funding	$	4,950	$	―	$	(229)	$	6,035	$	―	$	(298)
Fair value hedges:
	Interest rate contracts:
		Receive fixed swaps and option trades				Long-term debt		800		96		―		800		182		―
		Pay fixed swaps				Commercial loans		185		―		(4)		187		―		(7)
		Pay fixed swaps				Municipal securities		345		―		(106)		345		―		(153)
				Total				1,330		96		(110)		1,332		182		(160)
Not designated as hedges:
	Client-related and other risk management:
		Interest rate contracts:
			Receive fixed swaps					9,109		448		(21)		9,352		687		―
			Pay fixed swaps					9,060		17		(476)		9,464		―		(717)
			Other swaps					1,668		10		(12)		2,664		21		(23)
			Option trades					455		2		(2)		423		3		(5)
			Futures contracts					45		―		―		109		―		―
			Risk participations					208		―		―		204		―		―
		Foreign exchange contracts						457		4		(2)		534		4		(3)
				Total				21,002		481		(513)		22,750		715		(748)
	Mortgage banking:
		Interest rate contracts:
			Receive fixed swaps					240		―		(8)		114		―		(2)
			Pay fixed swaps					66		1		―		―		―		―
			Interest rate lock commitments					4,927		7		(96)		6,064		55		(1)
			When issued securities, forward rate agreements and forward
				commitments				6,764		291		(54)		8,886		10		(19)
			Option trades					460		12		―		70		6		―
			Futures contracts					6		―		―		31		―		―
				Total				12,463		311		(158)		15,165		71		(22)
	MSRs:
		Interest rate contracts:
			Receive fixed swaps					7,344		41		(228)		5,178		110		(27)
			Pay fixed swaps					5,951		165		(39)		5,389		7		(94)
			Option trades					8,800		221		(44)		14,510		363		(88)
			Futures contracts					―		―		―		30		―		―
			When issued securities, forward rate agreements and forward
				commitments				2,271		―		(15)		2,406		2		―
				Total				24,366		427		(326)		27,513		482		(209)
					Total nonhedging derivatives			57,831		1,219		(997)		65,428		1,268		(979)
Total derivatives							$	64,111		1,315		(1,336)	$	72,795		1,450		(1,437)
Gross amounts not offset in the Consolidated Balance Sheets:
	Amounts subject to master netting arrangements not offset due to policy election									(653)		653				(797)		797
	Cash collateral (received) posted									(68)		549				(41)		607
		Net amount							$	594	$	(134)			$	612	$	(33)

BB&T has elected to present assets and liabilities related to derivatives on a gross basis. Derivatives in a gain position are recorded as Other assets, derivatives in a loss position are recorded as Other liabilities and cash collateral posted is reported as Restricted cash on the Consolidated Balance Sheets. Derivatives with dealer counterparties are governed by the terms of ISDA master netting agreements and Credit Support Annexes. The ISDA Agreement allows counterparties to offset trades in a gain against trades in a loss to determine net exposure and allows for the right of setoff in the event of either a default or an additional termination event. Credit Support Annexes govern the terms of daily collateral posting practices. Collateral practices mitigate the potential loss impact to affected parties by requiring liquid collateral to be posted on a scheduled basis to secure the aggregate net unsecured exposure. In addition to collateral, the right of setoff allows counterparties to offset derivative values transacted with a defaulting party with certain other contractual receivables from or obligations due to the defaulting party in determining the net termination amount. No portion of the change in fair value of the derivatives has been excluded from effectiveness testing. The ineffective portion was immaterial for all periods presented.

The Effect of Derivative Instruments on the Consolidated Statements of Income
Three Months Ended June 30, 2013 and 2012
					Effective Portion
					Pre-tax Gain					Pre-tax Gain (Loss)
					(Loss) Recognized					Reclassified from
					in AOCI				Location of Amounts	AOCI into Income
					2013		2012		Reclassified from AOCI into Income	2013		2012
						(Dollars in millions)
Cash flow hedges:
	Interest rate contracts				$	231	$	(39)	Total interest income	$	―	$	4
									Total interest expense		(19)		(16)
										$	(19)	$	(12)
										Pre-tax Gain
										(Loss) Recognized
									Location of Amounts	in Income
									Recognized in Income	2013		2012
										(Dollars in millions)
Fair value hedges:
	Interest rate contracts								Total interest income	$	(5)	$	(5)
	Interest rate contracts								Total interest expense		29		106
				Total						$	24	$	101
Not designated as hedges:
	Client-related and other risk management:
		Interest rate contracts							Other noninterest income	$	8	$	11
		Foreign exchange contracts							Other noninterest income		5		2
	Mortgage banking:
		Interest rate contracts							Mortgage banking income		125		(18)
	MSRs:
		Interest rate contracts							Mortgage banking income		(87)		152
			Total							$	51	$	147

The Effect of Derivative Instruments on the Consolidated Statements of Income
Six Months Ended June 30, 2013 and 2012
					Effective Portion
					Pre-tax Gain					Pre-tax Gain (Loss)
					(Loss) Recognized				Location of Amounts	Reclassified from
					in AOCI				Reclassified from AOCI	AOCI into Income
					2013		2012		into Income	2013		2012
						(Dollars in millions)
Cash Flow Hedges:
	Interest rate contracts				$	220	$	(52)	Total interest income	$	―	$	8
									Total interest expense		(40)		(34)
										$	(40)	$	(26)
									Effective Portion
										Pre-tax Gain
									Location of Amounts	(Loss) Recognized
									Recognized	in Income
									in Income	2013		2012
						(Dollars in millions)
Fair Value Hedges:
	Interest rate contracts								Total interest income	$	(10)	$	(10)
	Interest rate contracts								Total interest expense		59		181
				Total						$	49	$	171
Not Designated as Hedges:
	Client-related and other risk management:
		Interest rate contracts							Other noninterest income	$	14	$	17
		Foreign exchange contracts							Other noninterest income		8		4
	Mortgage Banking:
		Interest rate contracts							Mortgage banking income		98		39
	MSRs:
		Interest rate contracts							Mortgage banking income		(133)		99
			Total							$	(13)	$	159

The following table provides a summary of BB&T's derivative strategies and the related accounting treatment:
	Cash Flow Hedges	Fair Value Hedges	Derivatives Not Designated as Hedges
Risk exposure	Variability in cash flows of interest payments on floating rate business loans, overnight funding, FHLB advances, medium-term bank notes and long-term debt.	Losses in value on fixed rate long-term debt, CDs, FHLB advances, loans and state and political subdivision securities due to changes in interest rates.	Risk associated with an asset or liability, including mortgage banking operations and MSRs, or for client needs. Includes exposure to changes in market rates and conditions subsequent to the interest rate lock and funding date for mortgage loans originated for sale.
Risk management objective	Hedge the variability in the interest payments and receipts on future cash flows for forecasted transactions related to the first unhedged payments and receipts of variable interest.	Convert the fixed rate paid or received to a floating rate, primarily through the use of swaps.	For interest rate lock commitment derivatives and LHFS, use mortgage-based derivatives such as forward commitments and options to mitigate market risk. For MSRs, mitigate the income statement effect of changes in the fair value of the MSRs.
Treatment for portion that is highly effective	Recognized in OCI until the related cash flows from the hedged item are recognized in earnings.	Recognized in current period income along with the corresponding changes in the fair value of the designated hedged item attributable to the risk being hedged.	Entire change in fair value recognized in current period income.
Treatment for portion that is ineffective	Recognized in current period income.	Recognized in current period income.	Not applicable
Treatment if hedge ceases to be highly effective or is terminated	Hedge is dedesignated. Effective changes in value that are recorded in OCI before dedesignation are amortized to yield over the period the forecasted hedged transactions impact earnings.	If hedged item remains outstanding, termination proceeds are included in cash flows from financing activities and effective changes in value are reflected as part of the carrying value of the financial instrument and amortized to earnings over its estimated remaining life.	Not applicable
Treatment if transaction is no longer probable of occurring during forecast period or within a short period thereafter	Hedge accounting is ceased and any gain or loss in OCI is reported in earnings immediately.	Not applicable	Not applicable

			June 30,		December 31,
			2013		2012
			(Dollars in millions)
Cash flow hedges:
	Net amount of unrecognized after-tax losses, including both active and terminated
		hedges, on derivatives classified as cash flow hedges recorded in OCI	$	11	$	173
	Estimated after-tax gain (loss) to be reclassified from OCI into earnings during the
		next 12 months, including active hedges and hedges that were terminated early for which the forecasted transactions are still probable		(46)		(37)
			Six Months Ended June 30,
			2013		2012
			(Dollars in millions)
Cash flow hedges:
	Pre-tax deferred gain from terminated cash flow hedges recorded in OCI		$	198	$	―
Fair value hedges:
	Pre-tax deferred gain from terminated fair value hedges related to long-term debt			―		90
	Pre-tax reduction of interest expense recognized from previously
		unwound fair value debt hedges		44		164

Derivatives Credit Risk – Dealer Counterparties

Credit risk related to derivatives arises when amounts receivable from a counterparty exceed those payable to the same counterparty. BB&T addresses the risk of loss by subjecting dealer counterparties to credit reviews and approvals similar to those used in making loans or other extensions of credit and by requiring collateral. Dealer counterparties operate under agreements to provide cash and/or liquid collateral when unsecured loss positions exceed negotiated limits.

All of BB&T's derivative contracts with dealer counterparties settle on a monthly, quarterly or semiannual basis, with daily movement of collateral between counterparties required within established netting agreements. BB&T only transacts with dealer counterparties that are national market makers with strong credit ratings.

Derivatives Credit Risk – Central Clearing Parties

BB&T also clears certain derivatives through central clearing parties that require initial margin collateral, as well as additional collateral for trades in a net loss position. Initial margin collateral requirements are established by central clearing parties on varying bases, with such amounts generally designed to offset the risk of non-payment. Initial margin is generally calculated by applying the maximum loss experienced in value over a specified time horizon to the portfolio of existing trades.

		June 30,		December 31,
		2013		2012
		(Dollars in millions)
Cash collateral received from dealer counterparties		$	69	$	44
Derivatives in a net gain position secured by that collateral			73		42
Cash collateral posted to dealer counterparties			525		603
Derivatives in a net loss position secured by that collateral			525		610
Additional collateral that would have been posted had BB&T's credit ratings
	dropped below investment grade		2		10
Cash collateral, including initial margin, posted to central clearing parties			26		111
Derivatives in a net loss position secured by that collateral			26		7
Securities pledged as initial margin to central clearing parties			43		―
Unsecured positions in a net gain with dealer counterparties after collateral postings			4		―
Significant unsecured positions in a gain with central clearing parties			228		―