Derivative Financial Instruments

9 Months Ended

Sep. 30, 2013

Derivative Financial Instruments

Derivative Financial Instruments

NOTE 14.Derivative Financial Instruments

Derivative Classifications and Hedging Relationships
							September 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	$	―	$	(222)	$	6,035	$	―	$	(298)
Fair value hedges:
	Interest rate contracts:
		Receive fixed swaps and option trades				Long-term debt		6,322		156		―		800		182		―
		Pay fixed swaps				Commercial loans		182		―		(4)		187		―		(7)
		Pay fixed swaps				Municipal securities		345		―		(98)		345		―		(153)
				Total				6,849		156		(102)		1,332		182		(160)
Not designated as hedges:
	Client-related and other risk management:
		Interest rate contracts:
			Receive fixed swaps					8,902		431		(20)		9,352		687		―
			Pay fixed swaps					8,789		16		(460)		9,464		―		(717)
			Other swaps					1,487		9		(10)		2,664		21		(23)
			Option trades					453		2		(2)		423		3		(5)
			Futures contracts					92		―		―		109		―		―
			Risk participations					216		―		―		204		―		―
		Foreign exchange contracts						383		2		(4)		534		4		(3)
				Total				20,322		460		(496)		22,750		715		(748)
	Mortgage banking:
		Interest rate contracts:
			Receive fixed swaps					218		1		(5)		114		―		(2)
			Pay fixed swaps					65		―		―		―		―		―
			Interest rate lock commitments					3,087		47		(1)		6,064		55		(1)
			When issued securities, forward rate agreements and forward
				commitments				5,543		18		(122)		8,886		10		(19)
			Option trades					340		11		―		70		6		―
			Futures contracts					8		―		―		31		―		―
				Total				9,261		77		(128)		15,165		71		(22)
	MSRs:
		Interest rate contracts:
			Receive fixed swaps					5,450		45		(114)		5,178		110		(27)
			Pay fixed swaps					4,931		57		(56)		5,389		7		(94)
			Option trades					9,275		194		(38)		14,510		363		(88)
			Futures contracts					―		―		―		30		―		―
			When issued securities, forward rate agreements and forward
				commitments				1,733		7		―		2,406		2		―
				Total				21,389		303		(208)		27,513		482		(209)
					Total nonhedging derivatives			50,972		840		(832)		65,428		1,268		(979)
Total derivatives							$	62,771		996		(1,156)	$	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									(580)		580				(797)		797
	Cash collateral (received) posted									(36)		491				(41)		607
		Net amount							$	380	$	(85)			$	612	$	(33)

Assets and liabilities related to derivatives are presented on a gross basis in the Consolidated Balance Sheets. 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. 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 September 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				$	(13)	$	(31)	Total interest income	$	―	$	2
									Total interest expense		(18)		(19)
										$	(18)	$	(17)
										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	$	(6)	$	(6)
	Interest rate contracts								Total interest expense		34		77
				Total						$	28	$	71
Not designated as hedges:
	Client-related and other risk management:
		Interest rate contracts							Other noninterest income	$	5	$	10
		Foreign exchange contracts							Other noninterest income		(2)		2
	Mortgage banking:
		Interest rate contracts							Mortgage banking income		(199)		(28)
	MSRs:
		Interest rate contracts							Mortgage banking income		(16)		49
			Total							$	(212)	$	33

The Effect of Derivative Instruments on the Consolidated Statements of Income
Nine Months Ended September 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				$	207	$	(83)	Total interest income	$	―	$	10
									Total interest expense		(58)		(53)
										$	(58)	$	(43)
									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	$	(16)	$	(16)
	Interest rate contracts								Total interest expense		93		258
				Total						$	77	$	242
Not Designated as Hedges:
	Client-related and other risk management:
		Interest rate contracts							Other noninterest income	$	19	$	27
		Foreign exchange contracts							Other noninterest income		6		6
	Mortgage Banking:
		Interest rate contracts							Mortgage banking income		(101)		11
	MSRs:
		Interest rate contracts							Mortgage banking income		(149)		148
			Total							$	(225)	$	192

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

			September 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	$	8		$	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		(49)			(37)
	Maximum length of time over which the entity has hedged a portion of its
		variability in future cash flows for forecasted transactions excluding those transactions relating to the payment of variable interest on existing financial instruments.		8	yrs		―	yrs
			Nine Months Ended September 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		67			233

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 ratings.

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.

		September 30,		December 31,
		2013		2012
		(Dollars in millions)
Cash collateral received from dealer counterparties		$	36	$	44
Derivatives in a net gain position secured by that collateral			42		42
Unsecured positions in a net gain with dealer counterparties after collateral postings			6		―
Cash collateral posted to dealer counterparties			411		603
Derivatives in a net loss position secured by that collateral			412		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			81		111
Derivatives in a net loss position secured by that collateral			134		7
Securities pledged to central clearing parties			198		―