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Derivative Financial Instruments
 3 Months Ended
Mar. 31, 2019
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. For client swaps, hedges are executed with dealer counterparties to offset market risk.
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 following table presents the notional amount and estimated fair value of derivative instruments:
 
 
 
 
March 31, 2019
 
December 31, 2018
 
 
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

 
$
—

 
$
—

Fair value hedges:
 
 
 
 

 
 

 
 

 
 
 
 
 
 
Interest rate contracts:
 
 
 
 

 
 

 
 

 
 
 
 
 
 
Receive fixed swaps
 
Long-term debt
 
13,029

 
40

 
(54
)
 
12,908

 
5

 
(74
)
Options
 
Long-term debt
 
4,785

 
—

 
(2
)
 
4,785

 
—

 
(2
)
Pay fixed swaps
 
Commercial loans
 
499

 
1

 
—

 
505

 
2

 
—

Pay fixed swaps
 
Municipal securities
 
259

 
—

 
—

 
259

 
—

 
—

Total
 
 
 
18,572

 
41

 
(56
)
 
18,457

 
7

 
(76
)
Not designated as hedges:
 
 
 
 

 
 

 
 

 
 

 
 

 
 

Client-related and other risk management:
 
 

 
 

 
 

 
 

 
 

 
 

Interest rate contracts:
 
 
 
 

 
 

 
 

 
 

 
 

 
 

Receive fixed swaps
 
 
 
12,452

 
228

 
(46
)
 
11,577

 
128

 
(98
)
Pay fixed swaps
 
 
 
11,774

 
9

 
(43
)
 
11,523

 
19

 
(32
)
Other
 
 
 
1,384

 
1

 
(2
)
 
1,143

 
2

 
(3
)
Forward commitments
 
 
 
5,042

 
12

 
(11
)
 
2,883

 
11

 
(13
)
Foreign exchange contracts
 
568

 
3

 
(2
)
 
529

 
5

 
(2
)
Total
 
 
 
31,220

 
253

 
(104
)
 
27,655

 
165

 
(148
)
Mortgage banking:
 
 
 
 

 
 

 
 

 
 

 
 

 
 

Interest rate contracts:
 
 
 
 

 
 

 
 

 
 

 
 

 
 

Interest rate lock commitments
 
1,092

 
10

 
(3
)
 
702

 
12

 
—

When issued securities, forward rate agreements and forward commitments
 
2,314

 
1

 
(15
)
 
1,753

 
2

 
(20
)
Other
 
 
 
198

 
1

 
—

 
271

 
2

 
(1
)
Total
 
 
 
3,604

 
12

 
(18
)
 
2,726

 
16

 
(21
)
MSRs:
 
 
 
 

 
 

 
 

 
 

 
 

 
 

Interest rate contracts:
 
 
 
 

 
 

 
 

 
 

 
 

 
 

Receive fixed swaps
 
 
 
4,629

 
1

 
—

 
4,328

 
—

 
—

Pay fixed swaps
 
 
 
3,822

 
—

 
(1
)
 
3,224

 
—

 
—

Options
 
 
 
2,080

 
25

 
—

 
3,155

 
48

 
(2
)
When issued securities, forward rate agreements and forward commitments
 
2,517

 
6

 
(1
)
 
1,590

 
10

 
—

Other
 
 
 
54

 
—

 
—

 
103

 
—

 
—

Total
 
 
 
13,102

 
32

 
(2
)
 
12,400

 
58

 
(2
)
Total derivatives not designated as hedges
 
47,926

 
297

 
(124
)
 
42,781

 
239

 
(171
)
Total derivatives
 
 
 
$
72,998

 
338

 
(180
)
 
$
67,738

 
246

 
(247
)
Gross amounts not offset in the Consolidated Balance Sheets:
 
 
 

 
 

 
 

 
 

 
 

Amounts subject to master netting arrangements not offset due to policy election
 
 
 
(44
)
 
44

 
 

 
(47
)
 
47

Cash collateral (received) posted
 
 

 
(50
)
 
64

 
 

 
(53
)
 
82

Net amount
 
 
 
 

 
$
244

 
$
(72
)
 
 

 
$
146

 
$
(118
)


The following table presents additional information for fair value hedging relationships:
 
 
March 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
 
$
497

 
$
12

 
$
53

 
$
493

 
$
5

 
$
54

Loans and leases
 
563

 
8

 
(2
)
 
562

 
—

 
(3
)
Long-term debt
 
15,505

 
18

 
5

 
15,397

 
(98
)
 
12



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.
Three Months Ended March 31,
(Dollars in millions)
2019
 
2018
Pre-tax gain (loss) recognized in OCI:
 
 
 
Deposits
$
(10
)
 
$
21

Short-term borrowings
(10
)
 
—

Long-term debt
(20
)
 
72

Total
$
(40
)
 
$
93

Pre-tax gain (loss) reclassified from AOCI into interest expense:
 
 
 
Deposits
$
2

 
$
(2
)
Short-term borrowings
1

 
—

Long-term debt
2

 
(9
)
Total
$
5

 
$
(11
)

The following table summarizes the impact on net interest income related to fair value hedges, which consist of interest rate contracts.
Three Months Ended March 31,
(Dollars in millions)
2019
 
2018
AFS securities:
 
 
 
Amounts related to interest settlements
$
—

 
$
(2
)
Recognized on derivatives
(7
)
 
11

Recognized on hedged items
5

 
(11
)
Net income (expense) recognized
(2
)
 
(2
)
Loans and leases:
 
 
 
Amounts related to interest settlements
—

 
—

Recognized on derivatives
(8
)
 
3

Recognized on hedged items
8

 
(3
)
Net income (expense) recognized
—

 
—

Long-term debt:


 


Amounts related to interest settlements
(22
)
 
8

Recognized on derivatives
116

 
(181
)
Recognized on hedged items
(108
)
 
192

Net income (expense) recognized
(14
)
 
19

Net income (expense) recognized, total
$
(16
)
 
$
17


The following table presents pre-tax gain (loss) recognized in income for derivative instruments not designated as hedges:
Three Months Ended March 31,
(Dollars in millions)
Location
2019
 
2018
Client-related and other risk management:
 
 

 
 

Interest rate contracts
Other noninterest income
$
10

 
$
15

Foreign exchange contracts
Other noninterest income
2

 
7

Mortgage banking:
 
 
 
 
Interest rate contracts
Mortgage banking income
(3
)
 
4

MSRs:
 
 
 
 
Interest rate contracts
Mortgage banking income
54

 
(67
)
Total
 
$
63

 
$
(41
)


The following table presents information about BB&T's cash flow and fair value hedges:
(Dollars in millions)
 
Mar 31, 2019
 
Dec 31, 2018
Cash flow hedges:
 
 
 
 

Net unrecognized after-tax gain (loss) on active hedges recorded in AOCI
 
$
(49
)
 
$
(18
)
Net unrecognized after-tax gain (loss) on terminated hedges recorded in AOCI (to be recognized in earnings through 2022)
 
(16
)
 
(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
 
(10
)
 
4

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
 
3 years

 
4 years

Fair value hedges:
 
 

 
 
Unrecognized pre-tax net gain (loss) on terminated hedges (to be recognized as interest primarily through 2029)
 
$
(46
)
 
$
(39
)
Portion of pre-tax net gain (loss) on terminated hedges to be recognized as a change in interest during the next 12 months
 
7

 
15


 
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.
 
Derivatives Credit Risk – Risk Participation Agreements
 
BB&T has entered into risk participation agreements to share the credit exposure with other financial institutions on client-related interest rate derivative contracts. The notional amount of interest rate derivative risk participation agreements was $674 million at March 31, 2019 and $446 million at December 31, 2018, reported in Other in the table above. Assuming all underlying third party customers referenced in the interest rate contracts defaulted in a zero LIBOR rate environment, the maximum exposure from these agreements would be $38 million at March 31, 2019 and $26 million at December 31, 2018.

The following table summarizes collateral positions with counterparties:
(Dollars in millions)
Mar 31, 2019
 
Dec 31, 2018
Dealer counterparties:
 
 
 
Cash collateral received from dealer counterparties
$
53

 
$
56

Derivatives in a net gain position secured by collateral received
52

 
55

Unsecured positions in a net gain with dealer counterparties after collateral postings
2

 
2

Cash collateral posted to dealer counterparties
56

 
75

Derivatives in a net loss position secured by collateral received
59

 
76

Additional collateral that would have been posted had BB&T's credit ratings dropped below investment grade
3

 
1

Central clearing parties:
 
 
 
Cash collateral, including initial margin, posted to central clearing parties
14

 
17

Derivatives in a net loss position
22

 
8

Securities pledged to central clearing parties
141

 
124