| Derivative Financial Instruments |
Derivative Financial Instruments
| | | | | | | | | | | | | | | | | | | | | | | | | | | | Derivative Classifications and Hedging Relationships | | | | | | | | | | | | September 30, 2016 | | December 31, 2015 | | | Hedged Item or Transaction | | Notional Amount | | Fair Value | | Notional Amount | | Fair Value | | | | | Gain | | Loss | | | Gain | | Loss | | | | | (Dollars in millions) | Cash flow hedges: | | | | | | | | | | | | | | | Interest rate contracts: | | | | | | | | | | | | | | | Pay fixed swaps | | 3 mo. LIBOR funding | | $ | 7,250 |
| | $ | — |
| | $ | (414 | ) | | $ | 9,300 |
| | $ | — |
| | $ | (214 | ) | | | | | | | | | | | | | | | | Fair value hedges: | | | | |
| | |
| | |
| | |
| | |
| | |
| Interest rate contracts: | | | | |
| | |
| | |
| | |
| | |
| | |
| Receive fixed swaps | | Long-term debt | | 12,099 |
| | 489 |
| | (2 | ) | | 13,092 |
| | 329 |
| | (1 | ) | Option trades | | Long-term debt | | 1,600 |
| | — |
| | (1 | ) | | — |
| | — |
| | — |
| Pay fixed swaps | | Commercial loans | | 268 |
| | — |
| | (5 | ) | | 207 |
| | — |
| | (2 | ) | Pay fixed swaps | | Municipal securities | | 230 |
| | — |
| | (114 | ) | | 244 |
| | — |
| | (94 | ) | Total | | | | 14,197 |
| | 489 |
| | (122 | ) | | 13,543 |
| | 329 |
| | (97 | ) | | | | | | | | | | | | | | | | Not designated as hedges: | | | | |
| | |
| | |
| | |
| | |
| | |
| Client-related and other risk management: | | |
| | |
| | |
| | |
| | |
| | |
| Interest rate contracts: | | | | |
| | |
| | |
| | |
| | |
| | |
| Receive fixed swaps | | | | 9,890 |
| | 502 |
| | — |
| | 8,827 |
| | 337 |
| | (1 | ) | Pay fixed swaps | | | | 10,169 |
| | — |
| | (539 | ) | | 8,984 |
| | 1 |
| | (363 | ) | Other swaps | | | | 1,144 |
| | 4 |
| | (7 | ) | | 1,005 |
| | 3 |
| | (6 | ) | Other | | | | 792 |
| | 1 |
| | (1 | ) | | 601 |
| | 1 |
| | (2 | ) | Forward commitments | | | | 7,956 |
| | 16 |
| | (14 | ) | | 4,403 |
| | 5 |
| | (4 | ) | Foreign exchange contracts | | | | 567 |
| | 3 |
| | (3 | ) | | 513 |
| | 6 |
| | (4 | ) | Total | | | | 30,518 |
| | 526 |
| | (564 | ) | | 24,333 |
| | 353 |
| | (380 | ) | | | | | | | | | | | | | | | | Mortgage banking: | | | | |
| | |
| | |
| | |
| | |
| | |
| Interest rate contracts: | | | | |
| | |
| | |
| | |
| | |
| | |
| Interest rate lock commitments | | 2,821 |
| | 22 |
| | (2 | ) | | 1,828 |
| | 8 |
| | (4 | ) | When issued securities, forward rate agreements and forward commitments | | 5,054 |
| | 5 |
| | (20 | ) | | 2,725 |
| | 9 |
| | (5 | ) | Other | | | | 566 |
| | 6 |
| | — |
| | 677 |
| | 4 |
| | — |
| Total | | | | 8,441 |
| | 33 |
| | (22 | ) | | 5,230 |
| | 21 |
| | (9 | ) | | | | | | | | | | | | | | | | MSRs: | | | | |
| | |
| | |
| | |
| | |
| | |
| Interest rate contracts: | | | | |
| | |
| | |
| | |
| | |
| | |
| Receive fixed swaps | | | | 4,496 |
| | 134 |
| | (1 | ) | | 2,343 |
| | 79 |
| | (7 | ) | Pay fixed swaps | | | | 2,252 |
| | — |
| | (46 | ) | | 2,329 |
| | 4 |
| | (56 | ) | Option trades | | | | 4,080 |
| | 79 |
| | (18 | ) | | 7,765 |
| | 184 |
| | (24 | ) | When issued securities, forward rate agreements and forward commitments | | 3,165 |
| | 6 |
| | — |
| | 2,682 |
| | — |
| | (5 | ) | Other | | | | 149 |
| | — |
| | — |
| | — |
| | — |
| | — |
| Total | | | | 14,142 |
| | 219 |
| | (65 | ) | | 15,119 |
| | 267 |
| | (92 | ) | Total derivatives not designated as hedges | | 53,101 |
| | 778 |
| | (651 | ) | | 44,682 |
| | 641 |
| | (481 | ) | Total derivatives | | | | $ | 74,548 |
| | 1,267 |
| | (1,187 | ) | | $ | 67,525 |
| | 970 |
| | (792 | ) | | | | | | | | | | | | | | | | Gross amounts not offset in the Consolidated Balance Sheets: | | |
| | |
| | |
| | |
| | |
| | |
| Amounts subject to master netting arrangements not offset due to policy election | | | | (628 | ) | | 628 |
| | |
| | (391 | ) | | 391 |
| Cash collateral (received) posted | | | | |
| | (174 | ) | | 501 |
| | |
| | (283 | ) | | 368 |
| Net amount | | | | |
| | $ | 465 |
| | $ | (58 | ) | | |
| | $ | 296 |
| | $ | (33 | ) |
The fair values of derivatives in a gain or loss position are presented on a gross basis in other assets or other liabilities, respectively, in the Consolidated Balance Sheets. Cash collateral posted for derivatives in a loss position is reported as restricted cash. Derivatives with dealer counterparties at both the bank and the parent company are governed by the terms of ISDA Master netting agreements and Credit Support Annexes. The ISDA Master agreements allow 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 derivatives designated as hedges 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, 2016 and 2015 | | | | Effective Portion | | Pre-tax Gain | | | | Pre-tax Gain (Loss) | | (Loss) Recognized | | | | Reclassified from | | in AOCI | | Location of Amounts | | AOCI into Income | | 2016 | | 2015 | | Reclassified from AOCI into Income | | 2016 | | 2015 | | (Dollars in millions) | Cash flow hedges: | | | | | | | | | | Interest rate contracts | $ | 38 |
| | $ | (168 | ) | | Total interest expense | | $ | 3 |
| | $ | (21 | ) | | | | | | | | | | | | | | | | | | Pre-tax Gain | | | | | | | | (Loss) Recognized | | | | | | Location of Amounts | | in Income | | | | | | Recognized in Income | | 2016 | | 2015 | | | | | | | | (Dollars in millions) | Fair value hedges: | | | | | | | | | | Interest rate contracts | | | | | Total interest income | | $ | (5 | ) | | $ | (5 | ) | Interest rate contracts | | | | | Total interest expense | | 58 |
| | 69 |
| Total | | | | | | | $ | 53 |
| | $ | 64 |
| | | | | | | | | | | Not designated as hedges: | | | | | | | |
| | |
| Client-related and other risk management: | | | | |
| | |
| Interest rate contracts | | | | | Other noninterest income | | $ | 15 |
| | $ | 3 |
| Foreign exchange contracts | | | | Other noninterest income | | (1 | ) | | 7 |
| Mortgage banking: | | | | | | | |
| | |
| Interest rate contracts | | | | | Mortgage banking income | | 17 |
| | (21 | ) | MSRs: | | | | | | | |
| | |
| Interest rate contracts | | | | | Mortgage banking income | | 3 |
| | 94 |
| Total | | | | | | | $ | 34 |
| | $ | 83 |
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| | | | | | | | | | | | | | | | | | | | The Effect of Derivative Instruments on the Consolidated Statements of Income | Nine Months Ended September 30, 2016 and 2015 | | | | | | Effective Portion | | | Pre-tax Gain | | | | Pre-tax Gain (Loss) | | | (Loss) Recognized | | | | Reclassified from | | | in AOCI | | Location of Amounts | | AOCI into Income | | | 2016 | | 2015 | | Reclassified from AOCI into Income | | 2016 | | 2015 | | | (Dollars in millions) | Cash Flow Hedges: | | | | | | | | | | | Interest rate contracts | | $ | (245 | ) | | $ | (180 | ) | | Total interest expense | | $ | (18 | ) | | $ | (63 | ) | | | |
| | |
| | | | | | | | | | | Pre-tax Gain | | | | | | | | | (Loss) Recognized | | | | | | | Location of Amounts | | in Income | | | | | | | Recognized in Income | | 2016 | | 2015 | | | | | | | | | (Dollars in millions) | Fair Value Hedges: | | | | | | | | | | | Interest rate contracts | | | | | | Total interest income | | $ | (13 | ) | | $ | (15 | ) | Interest rate contracts | | | | | | Total interest expense | | 177 |
| | 205 |
| Total | | | | | | | | $ | 164 |
| | $ | 190 |
| | | | | | | | | | | | Not Designated as Hedges: | | | | | | | | |
| | |
| Client-related and other risk management: | | | | |
| | |
| Interest rate contracts | | | | | | Other noninterest income | | $ | 23 |
| | $ | 15 |
| Foreign exchange contracts | | | | Other noninterest income | | 4 |
| | 16 |
| Mortgage Banking: | | | | | | | | | | |
| Interest rate contracts | | | | | | Mortgage banking income | | (2 | ) | | (1 | ) | MSRs: | | | | | | | | |
| | |
| Interest rate contracts | | | | | | Mortgage banking income | | 232 |
| | 56 |
| Total | | | | | | | | $ | 257 |
| | $ | 86 |
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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 for portion that is highly effective | | Recognized in AOCI 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 AOCI 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 AOCI is reported in earnings immediately. | | Not applicable | | Not applicable |
The following table presents information about BB&T's cash flow and fair value hedges: | | | | | | | | | | | | | | September 30, 2016 | | December 31, 2015 | | | (Dollars in millions) | Cash flow hedges: | | | | | |
| | Net unrecognized after-tax loss on active hedges recorded in AOCI | | $ | (260 | ) | | | $ | (134 | ) | | Net unrecognized after-tax gain on terminated hedges recorded in AOCI (to be recognized in earnings through 2022) | | 33 |
| | | 50 |
| | 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 | | 2 |
| | | (7 | ) | | 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 | | 6 |
| yrs | | 7 |
| yrs | | | | | | | | Fair value hedges: | | |
| | | | | Unrecognized pre-tax net gain on terminated hedges (to be recognized as interest primarily through 2019) | | $ | 185 |
| | | $ | 138 |
| | Portion of pre-tax net gain on terminated hedges to be recognized as a change in interest during the next 12 months | | 60 |
| | | 57 |
| |
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 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 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. | | | | | | | | | | September 30, 2016 | | December 31, 2015 | | (Dollars in millions) | Dealer Counterparties: | | | | Cash collateral received from dealer counterparties | $ | 181 |
| | $ | 283 |
| Derivatives in a net gain position secured by that collateral | 174 |
| | 301 |
| Unsecured positions in a net gain with dealer counterparties after collateral postings | — |
| | 18 |
| | | | | Cash collateral posted to dealer counterparties | 242 |
| | 156 |
| Derivatives in a net loss position secured by that collateral | 262 |
| | 161 |
| Additional collateral that would have been posted had BB&T's credit ratings dropped below investment grade | 25 |
| | 6 |
| | | | | Central Clearing Parties: | |
| | | Cash collateral, including initial margin, posted to central clearing parties | 265 |
| | 223 |
| Derivatives in a net loss position secured by that collateral | 276 |
| | 227 |
| Securities pledged to central clearing parties | 142 |
| | 207 |
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