Fair Value Disclosures

12 Months Ended

Dec. 31, 2013

Fair Value Disclosures

Fair Value Disclosures

NOTE 17. Fair Value Disclosures

Various assets and liabilities are carried at fair value, including prime residential mortgage and commercial mortgage loans originated as LHFS. Accounting standards define fair value as the exchange price that would be received on the measurement date to sell an asset or the price paid to transfer a liability in the principal or most advantageous market available to the entity in an orderly transaction between market participants, with a three level valuation input hierarchy.

The following tables present fair value information for assets and liabilities measured on a recurring basis:

December 31, 2013			Total		Level 1		Level 2		Level 3
			(Dollars in millions)
Assets:
	Trading securities		$	381	$	256	$	125	$	―
	AFS securities:
		U.S. Treasury		595		―		595		―
		MBS issued by GSE		17,929		―		17,929		―
		States and political subdivisions		1,851		―		1,851		―
		Non-agency MBS		291		―		291		―
		Other		45		10		35		―
		Covered		1,393		―		532		861
	LHFS			1,222		―		1,222		―
	Residential MSRs			1,047		―		―		1,047
	Derivative assets:
		Interest rate contracts		862		―		859		3
		Foreign exchange contracts		2		―		2		―
	Private equity and similar investments			291		―		―		291
		Total assets	$	25,909	$	266	$	23,441	$	2,202
Liabilities:
	Derivative liabilities:
		Interest rate contracts	$	967	$	―	$	953	$	14
		Foreign exchange contracts		3		―		3		―
	Short-term borrowings			84		―		84		―
		Total liabilities	$	1,054	$	―	$	1,040	$	14

December 31, 2012			Total		Level 1		Level 2		Level 3
			(Dollars in millions)
Assets:
	Trading securities		$	497	$	302	$	194	$	1
	AFS securities:
		U.S. Treasury		281		―		281		―
		GSE		9		―		9		―
		MBS issued by GSE		20,930		―		20,930		―
		States and political subdivisions		2,011		―		2,011		―
		Non-agency MBS		312		―		312		―
		Other		3		2		1		―
		Covered		1,591		―		597		994
	LHFS			3,761		―		3,761		―
	Residential MSRs			627		―		―		627
	Derivative assets:
		Interest rate contracts		1,446		―		1,391		55
		Foreign exchange contracts		4		―		4		―
	Private equity and similar investments			323		―		―		323
		Total assets	$	31,795	$	304	$	29,491	$	2,000
Liabilities:
	Derivative liabilities:
		Interest rate contracts	$	1,434	$	―	$	1,433	$	1
		Foreign exchange contracts		3		―		3		―
	Short-term borrowings			98		―		98		―
		Total liabilities	$	1,535	$	―	$	1,534	$	1

The following discussion focuses on the valuation techniques and significant inputs for Level 2 and Level 3 assets and liabilities.

A third-party pricing service is generally utilized in determining the fair value of the securities portfolio. Fair value measurements are derived from market-based pricing matrices that were developed using observable inputs that include benchmark yields, benchmark securities, reported trades, offers, bids, issuer spreads and broker quotes. As described by security type below, additional inputs may be used, or some inputs may not be applicable. In the event that market observable data was not available, which would generally occur due to the lack of an active market for a given security, the valuation of the security would be subjective and may involve substantial judgment by management.

Trading securities:Trading securities are composed of various types of debt and equity securities, but the majority consists of debt securities issued by the U.S. Treasury, GSEs, or states and political subdivisions. The valuation techniques used for these investments are more fully discussed below.

U.S. Treasury securities:Treasury securities are valued using quoted prices in active over the counter markets.

GSE securities and MBS issued by GSE:GSE pass-through securities are valued using market-based pricing matrices that are based on observable inputs including benchmark TBA security pricing and yield curves that were estimated based on U.S. Treasury yields and certain floating rate indices. The pricing matrices for these securities may also give consideration to pool-specific data supplied directly by the GSE. GSE CMOs are valued using market-based pricing matrices that are based on observable inputs including offers, bids, reported trades, dealer quotes and market research reports, the characteristics of a specific tranche, market convention prepayment speeds and benchmark yield curves as described above.

States and political subdivisions:These securities are valued using market-based pricing matrices that are based on observable inputs including MSRB reported trades, issuer spreads, material event notices and benchmark yield curves.

Non-agency MBS:Pricing matrices for these securities are based on observable inputs including offers, bids, reported trades, dealer quotes and market research reports, the characteristics of a specific tranche, market convention prepayment speeds and benchmark yield curves as described above.

Other securities:These securities consist primarily of mutual funds and corporate bonds. These securities are valued based on a review of quoted market prices for assets as well as through the various other inputs discussed previously.

Covered securities:Covered securities are covered by FDIC loss sharing agreements and consist of re-remic non-agency MBS, municipal securities and non-agency MBS. Covered state and political subdivision securities and certain non-agency MBS are valued in a manner similar to the approach described above for those asset classes. The re-remic non-agency MBS, which are categorized as Level 3, were valued based on broker dealer quotes that reflected certain unobservable market inputs. Sensitivity to changes in the fair value of covered securities is significantly offset by changes in BB&T's indemnification asset from the FDIC.

LHFS:Certain mortgage loans are originated to be sold to investors, which are carried at fair value. The fair value is primarily based on quoted market prices for securities backed by similar types of loans. The changes in fair value of these assets are largely driven by changes in interest rates subsequent to loan funding and changes in the fair value of servicing associated with the mortgage LHFS.

Residential MSRs:The fair value of residential MSRs is estimated using an OAS valuation model to project MSR cash flows over multiple interest rate scenarios, which are then discounted at risk-adjusted rates. The OAS model considers portfolio characteristics, contractually specified servicing fees, prepayment assumptions, delinquency rates, late charges, other ancillary revenue, costs to service and other economic factors. Fair value estimates and assumptions are compared to industry surveys, recent market activity, actual portfolio experience and, when available, other observable market data.

Derivative assets and liabilities:The fair values of derivatives are determined based on quoted market prices and internal pricing models that are primarily sensitive to market observable data. The fair values of interest rate lock commitments, which are related to mortgage loan commitments and are categorized as Level 3, are based on quoted market prices adjusted for commitments that are not expected to fund and include the value attributable to the net servicing fees.

Private equity and similar investments:Private equity and similar investments are measured at fair value based on the investment's net asset value. In many cases there are no observable market values for these investments and therefore management must estimate the fair value based on a comparison of the operating performance of the company to multiples in the marketplace for similar entities. This analysis requires significant judgment and actual values in a sale could differ materially from those estimated.

Short-term borrowings:Short-term borrowings represent debt securities sold short that are entered into as a hedging strategy for the purposes of supporting institutional and retail client trading activities.

The following tables summarize activity for level 3 assets and liabilities:
												Private
												Equity and
						Covered		Residential		Net		Similar
Year Ended December 31, 2013				Trading		Securities		MSRs		Derivatives		Investments
				(Dollars in millions)
Balance at January 1, 2013				$	1	$	994	$	627	$	54	$	323
	Total realized and unrealized gains (losses):
		Included in earnings:
			Interest income		―		37		―		―		―
			Mortgage banking income		―		―		229		21		―
			Other noninterest income		―		―		―		―		33
		Included in unrealized net holding gains (losses) in OCI			―		(14)		―		―		―
	Purchases				40		―		―		―		58
	Issuances				―		―		336		65		―
	Sales				(41)		―		―		―		(59)
	Settlements				―		(156)		(145)		(151)		(64)
Balance at December 31, 2013				$	―	$	861	$	1,047	$	(11)	$	291
Change in unrealized gains (losses) included in earnings for
	the period, attributable to assets and liabilities still held
	at December 31, 2013			$	―	$	37	$	229	$	(11)	$	22

												Private
												Equity and
						Covered		Residential		Net		Similar
Year Ended December 31, 2012				Trading		Securities		MSRs		Derivatives		Investments
				(Dollars in millions)
Balance at January 1, 2012				$	1	$	984	$	563	$	59	$	261
	Total realized and unrealized gains (losses):
		Included in earnings:
			Interest income		―		48		―		―		―
			Mortgage banking income		―		―		(32)		458		―
			Other noninterest income		―		―		―		―		21
		Included in unrealized net holding gains (losses) in OCI			―		88		―		―		―
	Purchases				4		―		―		―		101
	Issuances				―		―		270		308		―
	Sales				(4)		―		―		―		(59)
	Settlements				―		(126)		(174)		(771)		(1)
Balance at December 31, 2012				$	1	$	994	$	627	$	54	$	323
Change in unrealized gains (losses) included in earnings for
	the period, attributable to assets and liabilities still held
	at December 31, 2012			$	―	$	48	$	(32)	$	54	$	12

																Private
						States &										Equity and
						Political		Other		Covered		Residential		Net		Similar
Year Ended December 31, 2011				Trading		Subdivisions		Securities		Securities		MSRs		Derivatives		Investments
				(Dollars in millions)
Balance at January 1, 2011				$	11	$	119	$	7	$	954	$	830	$	(25)	$	266
	Total realized and unrealized gains (losses):
		Included in earnings:
			Interest income		―		―		―		54		―		―		―
			Mortgage banking income		―		―		―		―		(341)		151		―
			Other noninterest income		(3)		―		―		―		―		―		64
		Included in OCI			―		(9)		(1)		24		―		―		―
	Purchases				7		―		―		―		―		―		61
	Issuances				―		―		―		―		225		110		―
	Sales				(14)		―		―		―		―		―		(112)
	Settlements				―		(53)		(1)		(48)		(151)		(177)		(15)
	Transfers into Level 3				―		―		―		―		―		―		1
	Transfers out of Level 3				―		(57)		(5)		―		―		―		(4)
Balance at December 31, 2011				$	1	$	―	$	―	$	984	$	563	$	59	$	261
Change in unrealized gains (losses)
	included in earnings for the period,
	attributable to assets and liabilities
	still held at December 31, 2011			$	―	$	―	$	―	$	54	$	(341)	$	59	$	39

BB&T's policy is to recognize transfers in and transfers out of Levels 1, 2 and 3 as of the end of a reporting period. During the years ended December 31, 2013 and 2012, BB&T did not have any material transfer of securities between levels in the fair value hierarchy. During the year ended December 31, 2011, BB&T transferred certain state and political subdivision securities out of Level 3 as a result of management's decision to reclassify them from AFS to HTM classification, which is not recorded at fair value. There were no gains or losses recognized as a result of this transfer.

BB&T's private equity and similar investments are primarily in SBIC qualified funds, which focus on equity and subordinated debt investments in privately-held middle market companies. These investments generally are not redeemable and distributions are received as the underlying assets of the funds liquidate. The timing of distributions, which are expected to occur on various dates through 2025, is uncertain and dependent on various events such as recapitalizations, refinance transactions and ownership changes among others. Excluding the investment of future funds, BB&T estimates these investments have a weighted average remaining life of approximately three years; however, the timing and amount of distributions may vary significantly. As of December 31, 2013, restrictions on the ability to sell the investments include, but are not limited to, consent of a majority member or general partner approval for transfer of ownership. BB&T's investments are spread over numerous privately-held middle market companies, and thus the sensitivity to a change in fair value for any single investment is limited. The significant unobservable inputs for these investments are EBITDA multiples that ranged from 2x to 10x, with a weighted average of 7x, at December 31, 2013.

The following table details the fair value and UPB of LHFS that were elected to be carried at fair value:
		December 31, 2013						December 31, 2012
		Fair		Aggregate				Fair		Aggregate
		Value		UPB		Difference		Value		UPB		Difference
		(Dollars in millions)
	LHFS reported at fair value	$	1,222	$	1,223	$	(1)	$	3,761	$	3,652	$	109

Excluding government guaranteed, there were no LHFS that were nonaccrual or 90 days or more past dueand still accruing interest.

The following table provides information about certain financial assets measured at fair value on a nonrecurring basis, which are considered to be Level 3 assets (excludes covered):
		As Of / For The Year Ended December 31,
		2013				2012
		Carrying Value		Valuation Adjustments		Carrying Value		Valuation Adjustments
		(Dollars in millions)
	Impaired loans	$	50	$	(41)	$	137	$	(109)
	Foreclosed real estate		71		(6)		107		(147)

Additionally, accounting standards require the disclosure of the estimated fair value of financial instruments that are not recorded at fair value. A financial instrument is defined as cash, evidence of an ownership interest in an entity or a contract that creates a contractual obligation or right to deliver or receive cash or another financial instrument from a second entity. For the financial instruments not recorded at fair value, estimates of fair value are based on relevant market data and information about the instrument and are based on the value of one trading unit without regard to any premium or discount that may result from concentrations of ownership, possible tax ramifications, estimated transaction costs that may result from bulk sales or the relationship between various financial instruments.

No readily available market exists for a significant portion of BB&T's financial instruments. Fair value estimates for these instruments are based on current economic conditions, currency and interest rate risk characteristics, loss experience and other factors. Many of these estimates involve uncertainties and matters of significant judgment and cannot be determined with precision. Therefore, the fair value estimates in many instances cannot be substantiated by comparison to independent markets and, in many cases, may not be realizable in a current sale of the instrument. In addition, changes in assumptions could significantly affect these fair value estimates. The following methods and assumptions were used in estimating the fair value of these financial instruments.

Cash and cash equivalents and restricted cash: For these short-term instruments, the carrying amounts are a reasonable estimate of fair values.

HTM securities: The fair values of HTM securities are based on a market approach using observable inputs such as benchmark yields and securities, TBA prices, reported trades, issuer spreads, current bids and offers, monthly payment information and collateral performance.

Loans receivable: The fair values for loans are estimated using discounted cash flow analyses, applying interest rates currently being offered for loans with similar terms and credit quality, which are deemed to be indicative of orderly transactions in the current market. For commercial loans and leases, discount rates may be adjusted to address additional credit risk on lower risk grade instruments. For residential mortgage and other consumer loans, internal prepayment risk models are used to adjust contractual cash flows. Loans are aggregated into pools of similar terms and credit quality and discounted using a LIBOR based rate. The carrying amounts of accrued interest approximate fair values.

FDIC loss share receivable/payable: The fair values of the receivable and payable are estimated using discounted cash flow analyses, applying a risk free interest rate that is adjusted for the uncertainty in the timing and amount of these cash flows. The expected cash flows to/from the FDIC related to loans were estimated using the same assumptions that were used in determining the accounting values for the related loans. The expected cash flows to/from the FDIC related to securities are based upon the fair value of the related securities and the payment that would be required if the securities were sold for that amount. The loss share agreements are not transferrable and, accordingly, there is no market for the receivable or payable.

Deposit liabilities: The fair values for demand deposits, interest-checking accounts, savings accounts and certain money market accounts are, by definition, equal to the amount payable on demand. Fair values for CDs are estimated using a discounted cash flow calculation that applies current interest rates to aggregate expected maturities. In addition, nonfinancial instruments such as core deposit intangibles are not recorded at fair value. BB&T has developed long-term relationships with its customers through its deposit base and, in the opinion of management, these items add significant value to BB&T.

Short-term borrowings: The carrying amounts of Federal funds purchased, borrowings under repurchase agreements and other short-term borrowed funds approximate their fair values.

Long-term debt: The fair values of long-term debt are estimated based on quoted market prices for the instrument if available, or for similar instruments if not available, or by using discounted cash flow analyses, based on current incremental borrowing rates for similar types of instruments.

Contractual commitments: The fair values of commitments are estimated using the fees charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair values also consider the difference between current levels of interest rates and the committed rates. The fair values of guarantees and letters of credit are estimated based on the counterparties' creditworthiness and average default rates for loan products with similar risks. These respective fair value measurements are categorized within Level 3 of the fair value hierarchy.

Financial assets and liabilities not recorded at fair value are summarized below:
			Carrying		Total
	December 31, 2013		Amount		Fair Value		Level 2		Level 3
			(Dollars in millions)
	Financial assets:
		HTM securities	$	18,101	$	17,530	$	17,491	$	39
		Loans and leases, net of ALLL excluding covered loans		112,264		112,261		―		112,261
		Covered loans, net of ALLL		1,921		2,200		―		2,200
		FDIC loss share receivable		843		464		―		464
	Financial liabilities:
		Deposits		127,475		127,810		127,810		―
		FDIC loss share payable		669		652		―		652
		Long-term debt		21,493		22,313		22,313		―

		Carrying		Total
December 31, 2012		Amount		Fair Value		Level 2		Level 3
		(Dollars in millions)
Financial assets:
	HTM securities	$	13,594	$	13,848	$	13,810	$	38
	Loans and leases, net of ALLL excluding covered loans		109,419		109,621		―		109,621
	Covered loans, net of ALLL		3,166		3,661		―		3,661
	FDIC loss share receivable		1,106		751		―		751
Financial liabilities:
	Deposits		133,075		133,377		133,377		―
	FDIC loss share payable		627		602		―		602
	Long-term debt		19,114		20,676		20,676		―

The following is a summary of selected information pertaining to off-balance sheet financial instruments:
		December 31, 2013				December 31, 2012
		Notional/				Notional/
		Contract				Contract
		Amount		Fair Value		Amount		Fair Value
		(Dollars in millions)
	Commitments to extend, originate or purchase credit	$	45,333	$	86	$	41,410	$	74
	Residential mortgage loans sold with recourse		783		13		1,019		12
	Other loans sold with recourse		4,594		9		4,970		13
	Letters of credit and financial guarantees written		4,355		39		5,164		30