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Derivative Financial Instruments
 6 Months Ended
Jun. 30, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments
Derivative Financial Instruments

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 and various LIBOR funding instruments.
 
Changes 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 during the hedge period
 
Changes in value of the hedging instruments are recognized in AOCI until the related cash flows from the hedged item are recognized in earnings.
 
Changes in value of both the hedging instruments and the assets or liabilities being hedged are recognized in the income statement line item associated with the instrument being hedged.
 
Entire change in fair value recognized in current period income.
Treatment if hedge ceases to be highly effective or is terminated
 
Hedge is dedesignated. Changes in value recorded in AOCI before dedesignation are amortized to yield over the period the forecasted hedged transactions impact earnings.
 
If hedged item remains outstanding, the basis adjustment that resulted from hedging is amortized into earnings over the lesser of the designated hedged period or the maturity date of the instrument, and cash flows from terminations are reported in the same category as the cash flows from the hedged item.
 
Not applicable
Treatment if transaction is no longer probable of occurring during forecast period or within a short period thereafter
 
Hedge accounting ceases and any gain or loss in AOCI is reported in earnings immediately.
 
Not applicable
 
Not applicable


Impact of Derivatives on the Consolidated Balance Sheets

The fair values of derivative instruments are presented on a gross basis in other assets or other liabilities in the Consolidated Balance Sheets. Master netting arrangements allow counterparties to offset certain net derivative assets and liabilities with a defaulting party in determining the net termination amount. Collateral practices mitigate the potential loss impact to affected parties by requiring liquid collateral to be posted on a daily basis to secure the aggregate net exposure. Cash collateral is recorded in restricted cash and interest-bearing deposits in the Consolidated Balance Sheet. BB&T utilizes LCH Limited to clear swaps that are required to be cleared under the Dodd-Frank Act. Effective January 16, 2018, LCH Limited rules were modified to treat variation margin payments as settlements of exposure instead of collateral. At June 30, 2018, settlements are applied against the fair value of the related derivative contracts in the table below.

The following table presents the notional amount and estimated fair value of derivative instruments:
 
 
 
 
June 30, 2018
 
December 31, 2017
 
 
Hedged Item or Transaction
 
Notional
Amount
 
Fair Value
 
Notional
Amount
 
Fair Value
(Dollars in millions)
 
 
 
Gain
 
Loss
 
 
Gain
 
Loss
Cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Pay fixed swaps
 
3 mo. LIBOR funding
 
$
6,500

 
$
—

 
$
—

 
$
6,500

 
$
—

 
$
(126
)
Fair value hedges:
 
 
 
 

 
 

 
 

 
 
 
 
 
 
Interest rate contracts:
 
 
 
 

 
 

 
 

 
 
 
 
 
 
Receive fixed swaps
 
Long-term debt
 
13,461

 
—

 
(130
)
 
15,538

 
118

 
(166
)
Options
 
Long-term debt
 
5,337

 
—

 
(1
)
 
6,087

 
—

 
(1
)
Pay fixed swaps
 
Commercial loans
 
549

 
2

 
—

 
416

 
5

 
(1
)
Pay fixed swaps
 
Municipal securities
 
259

 
—

 
—

 
231

 
—

 
(76
)
Total
 
 
 
19,606

 
2

 
(131
)
 
22,272

 
123

 
(244
)
Not designated as hedges:
 
 
 
 

 
 

 
 

 
 

 
 

 
 

Client-related and other risk management:
 
 

 
 

 
 

 
 

 
 

 
 

Interest rate contracts:
 
 
 
 

 
 

 
 

 
 

 
 

 
 

Receive fixed swaps
 
 
 
11,141

 
54

 
(195
)
 
10,880

 
141

 
(61
)
Pay fixed swaps
 
 
 
11,157

 
38

 
(30
)
 
10,962

 
59

 
(155
)
Other
 
 
 
1,656

 
4

 
(4
)
 
1,658

 
4

 
(4
)
Forward commitments
 
 
 
4,356

 
8

 
(7
)
 
3,549

 
3

 
(2
)
Foreign exchange contracts
 
555

 
4

 
(3
)
 
470

 
3

 
(6
)
Total
 
 
 
28,865

 
108

 
(239
)
 
27,519

 
210

 
(228
)
Mortgage banking:
 
 
 
 

 
 

 
 

 
 

 
 

 
 

Interest rate contracts:
 
 
 
 

 
 

 
 

 
 

 
 

 
 

Interest rate lock commitments
 
1,269

 
8

 
(4
)
 
1,308

 
7

 
(3
)
When issued securities, forward rate agreements and forward commitments
 
3,910

 
5

 
(10
)
 
3,124

 
4

 
(3
)
Other
 
 
 
352

 
2

 
—

 
182

 
1

 
—

Total
 
 
 
5,531

 
15

 
(14
)
 
4,614

 
12

 
(6
)
MSRs:
 
 
 
 

 
 

 
 

 
 

 
 

 
 

Interest rate contracts:
 
 
 
 

 
 

 
 

 
 

 
 

 
 

Receive fixed swaps
 
 
 
3,553

 
—

 
—

 
4,498

 
15

 
(86
)
Pay fixed swaps
 
 
 
2,747

 
—

 
—

 
3,418

 
32

 
(13
)
Options
 
 
 
3,565

 
63

 
(10
)
 
4,535

 
50

 
(11
)
When issued securities, forward rate agreements and forward commitments
 
1,060

 
4

 
(1
)
 
1,813

 
1

 
—

Other
 
 
 
—

 
—

 
—

 
3

 
—

 
—

Total
 
 
 
10,925

 
67

 
(11
)
 
14,267

 
98

 
(110
)
Total derivatives not designated as hedges
 
45,321

 
190

 
(264
)
 
46,400

 
320

 
(344
)
Total derivatives
 
 
 
$
71,427

 
192

 
(395
)
 
$
75,172

 
443

 
(714
)
Gross amounts not offset in the Consolidated Balance Sheets:
 
 
 

 
 

 
 

 
 

 
 

Amounts subject to master netting arrangements not offset due to policy election
 
 
 
(67
)
 
67

 
 

 
(297
)
 
297

Cash collateral (received) posted
 
 

 
(59
)
 
120

 
 

 
(20
)
 
344

Net amount
 
 
 
 

 
$
66

 
$
(208
)
 
 

 
$
126

 
$
(73
)

 
The following table presents additional information for fair value hedging relationships:
 
 
June 30, 2018
 
December 31, 2017
 
 
 
 
Hedge Basis Adjustment
 
 
 
Hedge Basis Adjustment
(Dollars in millions)
 
Carrying Amount
 
Items Currently Designated
 
Items No Longer Designated
 
Carrying Amount
 
Items Currently Designated
 
Items No Longer Designated
AFS securities
 
$
490

 
$
1

 
$
57

 
$
533

 
$
64

 
$
10

Loans and leases
 
581

 
(7
)
 
(3
)
 
511

 
(5
)
 
—

Long-term debt
 
16,041

 
(314
)
 
127

 
16,917

 
(49
)
 
140



Impact of Derivatives on the Consolidated Statements of Income and Comprehensive Income

No portion of the change in fair value of derivatives designated as hedges has been excluded from effectiveness testing.
The following table summarizes amounts related to cash flow hedges, which consist of interest rate contracts. Prior amounts and presentation were not conformed to new hedge accounting guidance that was adopted in 2018.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(Dollars in millions)
2018
 
2017
 
2018
 
2017
Pre-tax gain (loss) recognized in OCI:
 
 
 
 
 
 
 
Deposits
$
8

 
 
 
$
29

 
 
Short-term borrowings
2

 
 
 
2

 
 
Long-term debt
21

 
 
 
93

 
 
Total
$
31

 
$
(47
)
 
$
124

 
$
(43
)
Pre-tax gain (loss) reclassified from AOCI into interest expense:
 
 
 
 
 
 
 
Deposits
$
(1
)
 
 
 
(3
)
 
 
Short-term borrowings
—

 
 
 
—

 
 
Long-term debt
(2
)
 
 
 
(11
)
 
 
Total
$
(3
)
 
$
6

 
$
(14
)
 
$
14


The following table summarizes the impact on net interest income related to fair value hedges, which consist of interest rate contracts. Prior period amounts and presentation were not conformed to new hedge accounting guidance that was adopted in 2018.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(Dollars in millions)
2018
 
2017
 
2018
 
2017
AFS securities:
 
 
 
 
 
 


Amounts related to interest settlements
$
(2
)
 
 
 
$
(4
)
 
 
Recognized on derivatives
5

 
 
 
16

 
 
Recognized on hedged items
(5
)
 
 
 
(16
)
 
 
Net income (expense) recognized
(2
)
 
$
(4
)
 
(4
)
 
$
(8
)
Loans and leases:
 
 
 
 
 
 
 
Amounts related to interest settlements
(1
)
 
 
 
(1
)
 
 
Recognized on derivatives
3

 
 
 
6

 
 
Recognized on hedged items
(3
)
 
 
 
(6
)
 
 
Net income (expense) recognized
(1
)
 
(1
)
 
(1
)
 
(1
)
Long-term debt:


 


 


 


Amounts related to interest settlements
(7
)
 
 
 
1

 
 
Recognized on derivatives
(62
)
 
 
 
(243
)
 
 
Recognized on hedged items
75

 
 
 
267

 
 
Net income (expense) recognized
6

 
42

 
25

 
88

Net income (expense) recognized, total
$
3

 
$
37

 
$
20

 
$
79


The following table presents pre-tax gain (loss) recognized in income for derivative instruments not designated as hedges:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(Dollars in millions)
Location
2018
 
2017
 
2018
 
2017
Client-related and other risk management:
 
 

 
 

 
 
 
 
Interest rate contracts
Other noninterest income
$
10

 
$
16

 
$
25

 
$
27

Foreign exchange contracts
Other noninterest income
6

 
(3
)
 
13

 
(5
)
Mortgage banking:
 
 
 
 
 
 

 
 

Interest rate contracts
Mortgage banking income
(8
)
 
10

 
(4
)
 
(5
)
MSRs:
 
 
 
 
 
 

 
 

Interest rate contracts
Mortgage banking income
(23
)
 
23

 
(90
)
 
3

Total
 
$
(15
)
 
$
46

 
$
(56
)
 
$
20



The following table presents information about BB&T's cash flow and fair value hedges:
(Dollars in millions)
 
Jun 30, 2018
 
Dec 31, 2017
Cash flow hedges:
 
 
 
 

Net unrecognized after-tax gain (loss) on active hedges recorded in AOCI
 
$
18

 
$
(96
)
Net unrecognized after-tax gain (loss) on terminated hedges recorded in AOCI (to be recognized in earnings through 2022)
 
(5
)
 
3

Estimated portion of net after-tax gain (loss) on active and terminated hedges to be reclassified from AOCI into earnings during the next 12 months
 
7

 
(25
)
Maximum time period 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
 
4 years

 
5 years

Fair value hedges:
 
 

 
 
Unrecognized pre-tax net gain on terminated hedges (to be recognized as interest primarily through 2025)
 
$
73

 
$
129

Portion of pre-tax net gain on terminated hedges to be recognized as a change in interest during the next 12 months
 
36

 
49


 
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 minimal 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 with strong credit standings.
 
Derivatives Credit Risk – Central Clearing Parties
 
With the exception of the central clearing party used for TBA transactions that does not post variation margin to BB&T, central clearing parties exchange cash on a daily basis to settle changes in exposure. Certain derivatives are cleared through central clearing parties that require initial margin collateral. Initial margin collateral requirements are established 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 following table summarizes collateral positions with counterparties:
(Dollars in millions)
Jun 30, 2018
 
Dec 31, 2017
Dealer Counterparties:
 
 
 
Cash collateral received from dealer counterparties
$
61

 
$
21

Derivatives in a net gain position secured by collateral received
59

 
22

Unsecured positions in a net gain with dealer counterparties after collateral postings
1

 
2

Cash collateral posted to dealer counterparties
113

 
172

Derivatives in a net loss position secured by collateral received
115

 
171

Additional collateral that would have been posted had BB&T's credit ratings dropped below investment grade
2

 
—

Central Clearing Parties:
 
 
 
Cash collateral, including initial margin, posted to central clearing parties
21

 
177

Derivatives in a net loss position
7

 
176

Securities pledged to central clearing parties
120

 
91