Derivative Financial Instruments

6 Months Ended

Jun. 30, 2014

Derivative Financial Instruments

Derivative Financial Instruments

NOTE 13. Derivative Financial Instruments

Derivative Classifications and Hedging Relationships
							June 30, 2014						December 31, 2013
						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	$	8,150	$	―	$	(186)	$	4,300	$	―	$	(203)
Fair value hedges:
	Interest rate contracts:
		Receive fixed swaps and option trades				Long-term debt		9,052		197		(2)		6,822		102		(3)
		Pay fixed swaps				Commercial loans		179		―		(3)		178		―		(3)
		Pay fixed swaps				Municipal securities		346		―		(108)		345		―		(83)
				Total				9,577		197		(113)		7,345		102		(89)
Not designated as hedges:
	Client-related and other risk management:
		Interest rate contracts:
			Receive fixed swaps					8,140		375		(8)		8,619		370		(37)
			Pay fixed swaps					8,019		6		(401)		8,401		31		(396)
			Other swaps					1,469		6		(8)		1,586		6		(8)
			Other					557		1		(1)		424		2		(2)
		Foreign exchange contracts						444		2		(4)		384		2		(3)
				Total				18,629		390		(422)		19,414		411		(446)
	Mortgage banking:
		Interest rate contracts:
			Interest rate lock commitments					2,593		25		―		1,869		3		(14)
			When issued securities, forward rate agreements and forward
				commitments				3,823		5		(43)		3,100		34		(7)
			Other					967		5		(1)		531		8		(7)
				Total				7,383		35		(44)		5,500		45		(28)
	MSRs:
		Interest rate contracts:
			Receive fixed swaps					2,555		85		(7)		6,139		36		(141)
			Pay fixed swaps					2,611		7		(39)		5,449		89		(29)
			Option trades					8,495		173		(27)		9,415		181		(31)
			When issued securities, forward rate agreements and forward
				commitments				4,104		7		(1)		1,756		―		(3)
				Total				17,765		272		(74)		22,759		306		(204)
					Total derivatives not designated as hedges			43,777		697		(540)		47,673		762		(678)
Total derivatives							$	61,504		894		(839)	$	59,318		864		(970)
Gross amounts not offset in the Consolidated Balance Sheets:
	Amounts subject to master netting arrangements not offset due to policy election									(516)		516				(514)		514
	Cash collateral (received) posted									(66)		277				(44)		386
		Net amount							$	312	$	(46)			$	306	$	(70)

Assets and liabilities related to derivatives are presented on a gross basis in the Consolidated Balance Sheets. The fair value of derivatives in a gain or loss position is included in other assets or liabilities, respectively, on the Consolidated Balance Sheets. Cash collateral posted for derivative instruments in a loss position is reported as restricted cash. Derivatives with dealer counterparties are governed by the terms of ISDA Master netting agreements and Credit Support Annexes. The ISDA Master agreementsallow 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 net derivative values with a defaulting party against 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, 2014 and 2013
					Effective Portion
					Pre-tax Gain					Pre-tax Gain (Loss)
					(Loss) Recognized					Reclassified from
					in AOCI				Location of Amounts	AOCI into Income
					2014		2013		Reclassified from AOCI into Income	2014		2013
						(Dollars in millions)
Cash flow hedges:
	Interest rate contracts				$	(22)	$	231	Total interest income	$	―	$	―
									Total interest expense		(19)		(19)
										$	(19)	$	(19)
										Pre-tax Gain
										(Loss) Recognized
									Location of Amounts	in Income
									Recognized in Income	2014		2013
										(Dollars in millions)
Fair value hedges:
	Interest rate contracts								Total interest income	$	(6)	$	(5)
	Interest rate contracts								Total interest expense		57		29
				Total						$	51	$	24
Not designated as hedges:
	Client-related and other risk management:
		Interest rate contracts							Other noninterest income	$	5	$	8
		Foreign exchange contracts							Other noninterest income		(1)		5
	Mortgage banking:
		Interest rate contracts							Mortgage banking income		(17)		125
	MSRs:
		Interest rate contracts							Mortgage banking income		60		(87)
			Total							$	47	$	51

The Effect of Derivative Instruments on the Consolidated Statements of Income
Six Months Ended June 30, 2014 and 2013
					Effective Portion
					Pre-tax Gain					Pre-tax Gain (Loss)
					(Loss) Recognized				Location of Amounts	Reclassified from
					in AOCI				Reclassified from AOCI	AOCI into Income
					2014		2013		into Income	2014		2013
						(Dollars in millions)
Cash Flow Hedges:
	Interest rate contracts				$	(25)	$	220	Total interest income	$	―	$	―
									Total interest expense		(40)		(40)
										$	(40)	$	(40)
									Effective Portion
										Pre-tax Gain
									Location of Amounts	(Loss) Recognized
									Recognized	in Income
									in Income	2014		2013
						(Dollars in millions)
Fair Value Hedges:
	Interest rate contracts								Total interest income	$	(11)	$	(10)
	Interest rate contracts								Total interest expense		110		59
				Total						$	99	$	49
Not Designated as Hedges:
	Client-related and other risk management:
		Interest rate contracts							Other noninterest income	$	10	$	14
		Foreign exchange contracts							Other noninterest income		3		8
	Mortgage Banking:
		Interest rate contracts							Mortgage banking income		(27)		98
	MSRs:
		Interest rate contracts							Mortgage banking income		105		(133)
			Total							$	91	$	(13)

The following table provides a summary of 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

The following table presents information about BB&T's cash flow and fair value hedges:
				June 30,			December 31,
				2014			2013
				(Dollars in millions)
	Cash flow hedges:
		Net unrecognized after-tax loss on active hedges recorded in OCI		$	(116)		$	(127)
		Net unrecognized after-tax gain on terminated hedges recorded in OCI
			(to be recognized in earnings primarily from 2016 through 2021)		127			129
		Estimated portion of net after-tax loss on active and terminated hedges
			to be reclassified from OCI into earnings during the next 12 months		(52)			(50)
		Maximum length of time over which BB&T has hedged a portion of the variability
			in future cash flows for forecasted transactions excluding those transactions relating to the payment of variable interest on existing instruments		8	yrs		7	yrs
	Fair value hedges:
		Unrecognized pre-tax gain on terminated hedges (to be recognized
			as a reduction of interest expense through 2019)	$	282		$	326
		Portion of pre-tax gain on terminated hedges to be recognized as a reduction
			of interest expense during the next 12 months		87			87

Derivatives Credit Risk – Dealer Counterparties

Credit risk related to derivatives arises when amounts receivable from a counterparty exceed those payable to the same counterparty. The risk of loss is addressed 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.

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 standings.

Derivatives Credit Risk – Central Clearing Parties

Certain derivatives are cleared 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. The central clearing party used for TBA transactions does not post variation margin to the bank.

		June 30,		December 31,
		2014		2013
		(Dollars in millions)
Cash collateral received from dealer counterparties		$	60	$	44
Derivatives in a net gain position secured by that collateral			70		46
Unsecured positions in a net gain with dealer counterparties after collateral postings			10		3
Cash collateral posted to dealer counterparties			267		356
Derivatives in a net loss position secured by that collateral			269		357
Additional collateral that would have been posted had BB&T's credit ratings
	dropped below investment grade		4		4
Cash collateral received from central clearing parties			7		―
Derivatives in a net gain position secured by that collateral			6		26
Cash collateral, including initial margin, posted to central clearing parties			12		43
Derivatives in a net loss position secured by that collateral			38		43
Securities pledged to central clearing parties			141		82