Derivative Financial Instruments

12 Months Ended

Dec. 31, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Impact of Derivatives on the Consolidated Balance Sheets

In the second quarter of 2019, the Company began applying the offsetting provisions for contracts that are covered by legally enforceable master netting agreements. Application of these provisions was not material to the Company's consolidated financial statements. Gross amounts are presented in the December 31, 2018 Consolidated Balance Sheet. The following table presents the gross notional amounts and estimated fair value of derivative instruments employed by the Company:


	December 31, 2019												December 31, 2018
	Notional Amount		Fair Value								Notional Amount		Fair Value
(Dollars in millions)					Assets			Liabilities					Assets		Liabilities



Cash flow hedges:
Interest rate contracts:
Swaps hedging 3 mo. LIBOR funding	$	—	$	—		$	—		$	6,500	$	—	$	—
Fair value hedges:
Interest rate contracts:
Swaps hedging long-term debt	23,701		113			(25)			12,908		5		(74)
Options hedging long-term debt	3,407		—			(2)			4,785		—		(2)
Swaps hedging commercial loans	44		—			—			505		2		—
Swaps hedging municipal securities	—		—			—			259		—		—


Total	27,152		113			(27)			18,457		7		(76)
Not designated as hedges:
Client-related and other risk management:
Interest rate contracts:
Swaps	144,473		1,817			(673)			23,302		148		(132)

Options	25,938		28			(19)			491		1		(1)
Forward commitments	7,907		6			(7)			2,883		11		(13)
Other	1,807		—			—			4		—		—
Equity contracts	38,426		1,988			(2,307)			—		—		—
Credit contracts:
Loans and leases	894		—			(34)			—		—		—
Risk participation agreements	6,696		—			(2)			446		—		—
Total return swaps	2,531		27			(11)			—		—		—
Foreign exchange contracts	12,986		144			(164)			529		5		(2)
Commodity	2,659		67			(65)			—		—		—
Total	244,317		4,077			(3,282)			27,655		165		(148)
Mortgage banking:
Interest rate contracts:
Swaps	535		—			—			143		—		—
Interest rate lock commitments	4,427		34			(2)			702		12		—
When issued securities, forward rate agreements and forward commitments	11,997		10			(18)			1,753		2		(20)
Other	603		2			—			128		2		(1)
Total	17,562		46			(20)			2,726		16		(21)
MSRs:
Interest rate contracts:
Swaps	19,196		—			—			7,552		—		—

Options	1,519		22			(2)			3,155		48		(2)
When issued securities, forward rate agreements and forward commitments	5,560		2			(5)			1,590		10		—
Other	567		—			—			103		—		—
Total	26,842		24			(7)			12,400		58		(2)
Total derivatives not designated as hedges	288,721		4,147			(3,309)			42,781		239		(171)
Total derivatives	$	315,873	4,260			(3,336)			$	67,738	246		(247)
Gross amounts in the Consolidated Balance Sheets:
Amounts subject to master netting arrangements			(1,708)			1,708					(47)		47
Cash collateral (received) posted for amounts subject to master netting arrangements			(499)			1,262					(53)		82

Net amount			$	2,053		$	(366)				$	146	$	(118)

The following table presents the offsetting of derivative instruments including financial instrument collateral related to legally enforceable master netting agreements. U.S. GAAP does not permit netting of such non-cash collateral balances in the consolidated balance sheet:


December 31, 2019 (Dollars in millions)	Gross Amount		Amount Offset		Net Amount Presented in the Consolidated Balance Sheets		Held/Pledged Financial Instruments		Net Amount
Derivative assets:
Derivatives subject to master netting arrangement or similar arrangement	$	3,516	$	(2,003)	$	1,513	$	(17)	$	1,496
Derivatives not subject to master netting arrangement or similar arrangement	138		—		138		(1)		137
Exchange traded derivatives	606		(204)		402		—		402
Total derivative assets	$	4,260	$	(2,207)	$	2,053	$	(18)	$	2,035
Derivative liabilities:
Derivatives subject to master netting arrangement or similar arrangement	$	(2,939)	$	2,761	$	(178)	$	22	$	(156)
Derivatives not subject to master netting arrangement or similar arrangement	(193)		5		(188)		11		(177)
Exchange traded derivatives	(204)		204		—		—		—
Total derivative liabilities	$	(3,336)	$	2,970	$	(366)	$	33	$	(333)

The following table presents the carrying value of hedged items in fair value hedging relationships:


	December 31, 2019										December 31, 2018
			Hedge Basis Adjustment								Hedge Basis Adjustment
(Dollars in millions)	Hedged Asset / Liability Basis		Items Currently Designated		Items No Longer Designated		Hedged Asset / Liability Basis		Items Currently Designated		Items No Longer Designated



AFS securities	$	473	$	—	$	65	$	493	$	5	$	54
Loans and leases	528		3		15		562		—		(3)

Long-term debt	28,557		174		23		15,397		(98)		12

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

Derivatives Designated as Hedging Instruments under GAAP

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. Amounts presented for the year ended December 31, 2017 were not conformed to new hedge accounting guidance that was adopted in 2018.





	Year Ended December 31,
(Dollars in millions)	2019		2018		2017

Pre-tax gain (loss) recognized in OCI:

Deposits	$	(42)	$	15
Short-term borrowings	2		(3)
Long-term debt	(76)		57
Total	$	(116)	$	69	$	10
Pre-tax gain (loss) reclassified from AOCI into interest expense:

Deposits	$	(1)	$	(1)
Short-term borrowings	(10)		1
Long-term debt	(14)		(12)
Total	$	(25)	$	(12)	$	(15)

The following table summarizes the impact on net interest income related to fair value hedges:





	Year Ended December 31,
(Dollars in millions)	2019		2018		2017

AFS securities:
Amounts related to interest settlements	$	—	$	(5)
Recognized on derivatives	(16)		12
Recognized on hedged items	8		(15)
Net income (expense) recognized	(8)		(8)		$	(16)
Loans and leases:
Amounts related to interest settlements	—		(2)
Recognized on derivatives	(21)		(1)
Recognized on hedged items	19		2
Net income (expense) recognized	(2)		(1)		(3)





Long-term debt:
Amounts related to interest settlements	(56)		(30)
Recognized on derivatives	170		(122)
Recognized on hedged items	(151)		165
Net income (expense) recognized	(37)		13		148
Net income (expense) recognized, total	$	(47)	$	4	$	129

The following table presents information about the Company's cash flow and fair value hedges:


(Dollars in millions)	Dec 31, 2019		Dec 31, 2018

Cash flow hedges:
Net unrecognized after-tax gain (loss) on active hedges recorded in AOCI	$	—	$	(18)
Net unrecognized after-tax gain (loss) on terminated hedges recorded in AOCI (to be recognized in earnings through 2022)	(101)		(13)
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	(37)		4
Maximum time period over which Truist is hedging 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	N/A		4 years
Fair value hedges:
Unrecognized pre-tax net gain (loss) on terminated hedges (to be recognized as interest primarily through 2030)	$	(57)	$	(39)
Portion of pre-tax net gain (loss) on terminated hedges to be recognized as a change in interest during the next 12 months	(6)		15

Derivatives Not Designated as Hedging Instruments under GAAP

The Company also enters into derivatives that are not designated as accounting hedges under GAAP to economically hedge certain risks as well as in a trading capacity with its clients.

The following table presents pre-tax gain (loss) recognized in income for derivative instruments not designated as hedges:





		Year Ended December 31,
(Dollars in millions)	Income Statement Location	2019		2018		2017

Client-related and other risk management:
Interest rate contracts	Investment banking and trading income and other income	$	76	$	40	$	50
Foreign exchange contracts	Investment banking and trading income	(13)		21		1
Equity contracts	Investment banking and trading income and other income	(3)		—		—
Credit contracts	Other income	(25)		—		—

Mortgage banking:
Interest rate contracts	Residential mortgage income	(61)		36		(23)
Interest rate contracts	Commercial real estate related income	(4)		—		1
MSRs:
Interest rate contracts	Residential mortgage income	137		(62)		—
Interest rate contracts	Commercial real estate related income	7		(3)		—
Total		$	114	$	32	$	29

Credit Derivative Instruments

As part of the Company’s corporate investment banking business, the Company enters into contracts that are, in form or substance, written guarantees; specifically, CDS, risk participations and TRS. The Company accounts for these contracts as derivatives.

The Company has entered into TRS contracts on loans. The Company’s TRS business consists of matched trades, such that when the Company pays depreciation on one TRS, it receives the same amount on the matched TRS. To mitigate its credit risk, the Company typically receives initial margin from the counterparty upon entering into the TRS and variation margin if the fair value of the underlying reference assets deteriorates.

Truist has entered into risk participation agreements to share the credit exposure with other financial institutions on client-related interest rate derivative contracts. Under these agreements, the Company has guaranteed payment to a dealer counterparty in the event the dealer experiences a loss on the derivative, such as an interest rate swap, due to a failure to pay by the client, on that derivative. The Company manages its payment risk on its risk participations by monitoring the creditworthiness of the underlying client through the normal credit review process that the Company would have performed had it entered into a derivative directly with the obligors. At December 31, 2019, the remaining terms on these risk participations ranged from less than one year to 10 years. The potential future exposure represents the Company’s maximum estimated exposure to written risk participations, as measured by projecting a maximum value of the guaranteed derivative instruments based on scenario simulations and assuming 100% default by all obligors on the maximum value.

The following table presents additional information related to interest rate derivative risk participation agreements and total return swaps:


(Dollars in millions)	Dec 31, 2019		Dec 31, 2018

Risk participation agreements:


Maximum potential amount of exposure	$	291	$	26
Total return swaps:

Cash collateral held	653		—

The following table summarizes collateral positions with counterparties:


(Dollars in millions)	Dec 31, 2019		Dec 31, 2018

Dealer and other counterparties:
Cash collateral received from counterparties	$	514	$	56
Derivatives in a net gain position secured by collateral received	615		55
Unsecured positions in a net gain with counterparties after collateral postings	101		2
Cash collateral posted to dealer counterparties	1,255		75
Derivatives in a net loss position secured by collateral received	1,300		76
Additional collateral that would have been posted had the Company's credit ratings dropped below investment grade	12		1
Central counterparties clearing:
Cash collateral, including initial margin, posted to central clearing parties	30		17
Derivatives in a net loss position	31		8

Securities pledged to central counterparties clearing	513		124