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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 swaps3 mo. LIBOR funding $ 4,950 $ $ (222) $ 6,035 $ $ (298)
                         
Fair value hedges:                   
 Interest rate contracts:                   
  Receive fixed swaps and option tradesLong-term debt    6,322   156     800   182  
  Pay fixed swapsCommercial loans   182     (4)   187     (7)
  Pay fixed swapsMunicipal 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.   8yrs  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