BB&T carries various assets and liabilities at fair value based on applicable accounting standards. In addition, BB&T has elected to account for prime residential mortgage and commercial mortgage loans originated as loans held for sale at fair value in accordance with applicable accounting standards (the “Fair Value Option”). Accounting standards define fair value as the exchange price that would be received on the measurement date to sell an asset or the price paid to transfer a liability in the principal or most advantageous market available to the entity in an orderly transaction between market participants. These standards also established a three level fair value hierarchy that describes the inputs that are used to measure assets and liabilities. Level 1 asset and liability fair values are based on quoted prices in active markets for identical assets and liabilities. Level 2 asset and liability fair values are based on observable inputs that include: quoted market prices for similar assets or liabilities; quoted market prices that are not in an active market; or other inputs that are observable in the market and can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 assets and liabilities are financial instruments whose value is calculated by the use of pricing models and/or discounted cash flow methodologies, as well as financial instruments for which the determination of fair value requires significant management judgment or estimation. These methodologies may result in a significant portion of the fair value being derived from unobservable data.

Assets and liabilities measured at fair value on a recurring basis, including financial instruments for which BB&T has elected the Fair Value Option are summarized below:

						Fair Value Measurements for Assets and
						Liabilities Measured on a Recurring Basis
				9/30/2012		Level 1		Level 2		Level 3

						(Dollars in millions)
	Assets:
		Trading securities		$	572	$	209	$	359	$	4
		Securities available for sale:
			GSE securities		313		―		313		―
			Mortgage-backed securities issued by GSE		19,871		―		19,871		―
			States and political subdivisions		2,013		―		2,013		―
			Non-agency residential mortgage-backed securities		319		―		319		―
			Other securities		1		―		1		―
			Covered securities		1,581		―		609		972
		Loans held for sale			3,467		―		3,467		―
		Residential mortgage servicing rights			563		―		―		563
		Derivative assets: (1)
			Interest rate contracts		1,676		―		1,548		128
			Foreign exchange contracts		14		―		14		―
		Private equity and similar investments (1)(2)			311		―		―		311
			Total assets	$	30,701	$	209	$	28,514	$	1,978

	Liabilities:
		Derivative liabilities: (1)
			Interest rate contracts	$	1,728	$	―	$	1,728	$	―
			Foreign exchange contracts		9		―		9		―
		Short-term borrowed funds (3)			179		―		179		―
			Total liabilities	$	1,916	$	―	$	1,916	$	―

						Fair Value Measurements for Assets and
						Liabilities Measured on a Recurring Basis
				12/31/2011		Level 1		Level 2		Level 3

						(Dollars in millions)
	Assets:
		Trading securities		$	534	$	298	$	235	$	1
		Securities available for sale:
			GSE securities		306		―		306		―
			Mortgage-backed securities issued by GSE		18,132		―		18,132		―
			States and political subdivisions		1,923		―		1,923		―
			Non-agency residential mortgage-backed securities		368		―		368		―
			Other securities		7		6		1		―
			Covered securities		1,577		―		593		984
		Loans held for sale			3,736		―		3,736		―
		Residential mortgage servicing rights			563		―		―		563
		Derivative assets: (1)
			Interest rate contracts		1,518		1		1,457		60
			Foreign exchange contracts		7		―		7		―
		Private equity and similar investments (1)(2)			261		―		―		261
			Total assets	$	28,932	$	305	$	26,758	$	1,869

	Liabilities:
		Derivative liabilities: (1)
			Interest rate contracts	$	1,498	$	―	$	1,497	$	1
			Foreign exchange contracts		8		―		8		―
		Short-term borrowed funds (3)			118		―		118		―
			Total liabilities	$	1,624	$	―	$	1,623	$	1


(1)	These amounts are reflected in other assets and other liabilities on the Consolidated Balance Sheets.
(2)	Based on an analysis of the nature and risks of these investments, BB&T has determined that presenting these investments as a single class is appropriate.
(3)	Short-term borrowed funds reflect securities sold short positions.

The following discussion focuses on the valuation techniques and significant inputs used by BB&T in determining the Level 2 and Level 3 fair values of each significant class of assets and liabilities.

BB&T generally utilizes a third-party pricing service in determining the fair value of its securities portfolio. Fair value measurements are derived from market-based pricing matrices that were developed using observable inputs that include benchmark yields, benchmark securities, reported trades, offers, bids, issuer spreads and broker quotes. As described by security type below, additional inputs may be used, or some inputs may not be applicable. In the event that market observable data was not available, which would generally occur due to the lack of an active market for a given security, the valuation of the security would be subjective and may involve substantial judgment by management.

Specific valuation techniques and inputs used in determining the fair value of each significant class of assets and liabilities follows:

Trading securities: Trading securities are composed of all types of debt and equity securities, but the majority consists of debt securities issued by the U.S. Treasury, U.S. government-sponsored entities, or states and political subdivisions. The valuation techniques used for these investments are more fully discussed below.

GSE securities and Mortgage-backed securities issued by GSE: These are debt securities issued by U.S. government-sponsored entities. GSE pass-through securities are valued using market-based pricing matrices that are based on observable inputs including benchmark TBA security pricing and yield curves that were estimated based on U.S. Treasury yields and certain floating rate indices. The pricing matrices for these securities may also give consideration to pool-specific data supplied directly by the GSE. GSE collateralized mortgage obligations (“CMOs”) are valued using market-based pricing matrices that are based on observable inputs including offers, bids, reported trades, dealer quotes and market research reports, the characteristics of a specific tranche, market convention prepayment speeds and benchmark yield curves as described above.

States and political subdivisions: These securities are valued using market-based pricing matrices that are based on observable inputs including MSRB reported trades, issuer spreads, material event notices and benchmark yield curves.

Non-agency residential mortgage-backed securities: Pricing matrices for these securities are based on observable inputs including offers, bids, reported trades, dealer quotes and market research reports, the characteristics of a specific tranche, market convention prepayment speeds and benchmark yield curves as described above.

Other securities: These securities consist primarily of mutual funds and corporate bonds. These securities are valued based on a review of quoted market prices for assets as well as through the various other inputs discussed previously.

Covered securities: Covered securities are covered by FDIC loss sharing agreements and consist of re-remic non-agency mortgage-backed securities, municipal securities and non-agency mortgage-backed securities. The covered state and political subdivision securities and certain non-agency mortgage-backed securities are valued in a manner similar to the approach described above for these asset classes. The re-remic non-agency mortgage-backed securities, which are categorized as Level 3, were valued based on broker dealer quotes that reflected certain unobservable market inputs. Sensitivity to changes in the fair value of covered securities is significantly offset by changes in BB&T's indemnification asset from the FDIC. Subject to certain restrictions, the terms of the loss sharing agreement associated with these re-remic non-agency mortgage-backed securities provide that Branch Bank will be reimbursed by the FDIC for 95% of any and all losses.

Loans held for sale: BB&T originates certain mortgage loans to be sold to investors. These loans are carried at fair value based on BB&T's election of the Fair Value Option. The fair value is primarily based on quoted market prices for securities backed by similar types of loans. The changes in fair value of these assets are largely driven by changes in interest rates subsequent to loan funding and changes in the fair value of servicing associated with the mortgage loan held for sale.

Residential mortgage servicing rights: BB&T estimates the fair value of residential mortgage servicing rights (“MSRs”) using an option adjusted spread (“OAS”) valuation model to project MSR cash flows over multiple interest rate scenarios, which are then discounted at risk-adjusted rates. The OAS model considers portfolio characteristics, contractually specified servicing fees, prepayment assumptions, delinquency rates, late charges, other ancillary revenue, costs to service and other economic factors. When available, fair value estimates and assumptions are compared to observable market data and to recent market activity and actual portfolio experience.

Derivative assets and liabilities: BB&T uses derivatives to manage various financial risks. The fair values of derivative financial instruments are determined based on quoted market prices, dealer quotes and internal pricing models that are primarily sensitive to market observable data. The fair value of interest rate lock commitments, which are related to mortgage loan commitments and are categorized as Level 3, is based on quoted market prices adjusted for commitments that BB&T does not expect to fund and includes the value attributable to the net servicing fee.

Private equity and similar investments: BB&T has private equity and similar investments that are measured at fair value based on the investment's net asset value. In many cases there are no observable market values for these investments and therefore management must estimate the fair value based on a comparison of the operating performance of the company to multiples in the marketplace for similar entities. This analysis requires significant judgment and actual values in a sale could differ materially from those estimated.

Short-term borrowed funds: Short-term borrowed funds represent debt securities sold short. These are entered into through BB&T's brokerage subsidiary Scott & Stringfellow, LLC. These trades are executed as a hedging strategy for the purposes of supporting institutional and retail client trading activities.

The tables below present reconciliations for Level 3 assets and liabilities that are measured at fair value on a recurring basis.

				Fair Value Measurements Using Significant Unobservable Inputs
								Residential Mortgage				Private Equity
						Covered		Servicing		Net		and Similar
Three Months Ended September 30, 2012				Trading		Securities		Rights		Derivatives		Investments

				(Dollars in millions)

Balance at July 1, 2012				$	1	$	982	$	578	$	68	$	301
	Total realized and unrealized gains or losses:
		Included in earnings:
			Interest income		―		13		―		―		―
			Mortgage banking income		―		―		(76)		124		―
			Other noninterest income		―		―		―		―		6
		Included in unrealized net holding gains (losses) in other
			comprehensive income (loss)		―		9		―		―		―
	Purchases				3		―		―		―		12
	Issuances				―		―		61		106		―
	Sales				―		―		―		―		(7)
	Settlements				―		(32)		―		(170)		(1)
Balance at September 30, 2012				$	4	$	972	$	563	$	128	$	311

Change in unrealized gains (losses) included in
	earnings for the period, attributable to assets
	and liabilities still held at September 30, 2012			$	―	$	13	$	(29)	$	128	$	6

				Fair Value Measurements Using Significant Unobservable Inputs
								Residential Mortgage				Private Equity
						Covered		Servicing		Net		and Similar
Three Months Ended September 30, 2011				Trading		Securities		Rights		Derivatives		Investments

				(Dollars in millions)

Balance at July 1, 2011				$	1	$	1,063	$	879	$	3	$	247
	Total realized and unrealized gains or losses:
		Included in earnings:
			Interest income		―		11		―		―		―
			Mortgage banking income		―		―		(345)		54		―
			Other noninterest income		―		―		―		―		19
		Included in unrealized net holding gains (losses) in other
			comprehensive income (loss)		―		53		―		―		―
	Purchases				5		―		―		―		34
	Issuances				―		―		39		46		―
	Sales				(2)		―		―		―		(19)
	Settlements				―		(23)		―		(31)		(5)
Balance at September 30, 2011				$	4	$	1,104	$	573	$	72	$	276

Change in unrealized gains (losses) included in
	earnings for the period, attributable to assets
	and liabilities still held at September 30, 2011			$	―	$	11	$	(299)	$	72	$	18

				Fair Value Measurements Using Significant Unobservable Inputs
								Residential Mortgage				Private Equity
						Covered		Servicing		Net		and Similar
Nine Months Ended September 30, 2012				Trading		Securities		Rights		Derivatives		Investments

				(Dollars in millions)
Balance at January 1, 2012				$	1	$	984	$	563	$	59	$	261
	Total realized and unrealized gains or losses:
		Included in earnings:
			Interest income		―		31		―		―		―
			Mortgage banking income		―		―		(195)		309		―
			Other noninterest income		―		―		―		―		10
		Included in unrealized net holding gains (losses) in other
			comprehensive income (loss)		―		49		―		―		―
	Purchases				3		―		―		―		64
	Issuances				―		―		195		244		―
	Sales				―		―		―		―		(25)
	Settlements				―		(92)		―		(484)		1
Balance at September 30, 2012				$	4	$	972	$	563	$	128	$	311

Change in unrealized gains (losses) included in
	earnings for the period, attributable to assets
	and liabilities still held at September 30, 2012			$	―	$	31	$	(67)	$	128	$	13

				Fair Value Measurements Using Significant Unobservable Inputs
						States &						Residential Mortgage				Private Equity
						Political		Other		Covered		Servicing		Net		and Similar
Nine Months Ended September 30, 2011				Trading		Subdivisions		Securities		Securities		Rights		Derivatives		Investments

				(Dollars in millions)
Balance at January 1, 2011				$	11	$	119	$	7	$	954	$	830	$	(25)	$	266
	Total realized and unrealized gains or losses:
		Included in earnings:
			Interest income		―		―		―		37		―		―		―
			Mortgage banking income		―		―		―		―		(422)		80		―
			Other noninterest income		(3)		―		―		―		―		―		34
		Included in unrealized net holding gains
			(losses) in other comprehensive income (loss)		―		(9)		(1)		136		―		―		―
	Purchases				7		―		―		―		―		―		46
	Issuances				―		―		―		―		165		67		―
	Sales				(11)		―		―		―		―		―		(55)
	Settlements				―		(53)		(1)		(23)		―		(50)		(12)
	Transfers into Level 3				―		―		―		―		―		―		1
	Transfers out of Level 3				―		(57)		(5)		―		―		―		(4)
Balance at September 30, 2011				$	4	$	―	$	―	$	1,104	$	573	$	72	$	276

Change in unrealized gains (losses) included in
	earnings for the period, attributable to assets
	and liabilities still held at September 30, 2011			$	―	$	―	$	―	$	37	$	(319)	$	72	$	30

BB&T's policy is to recognize transfers in and transfers out of Levels 1, 2 and 3 as of the end of a reporting period. During the first nine months of 2012, BB&T did not have any material transfer of securities between levels in the fair value hierarchy. During the first nine months of 2011, transfers from Level 3 to Level 2 were the result of increased observable market activity for these securities. There were no gains or losses recognized as a result of the transfers of securities during the nine months ended 2011.

The net realized and unrealized gains (losses) reported for mortgage servicing rights assets includes adjustments decreasing the value $29 million and the realization of expected residential mortgage servicing rights cash flows by $47 million for the three months ended September 30, 2012. For the quarter ended September 30, 2011, the net realized and unrealized gains (losses) reported for mortgage servicing rights assets includes an adjustment decreasing the value $299 million and the realization of expected residential mortgage servicing rights cash flows by $46 million. BB&T uses various derivative financial instruments to mitigate the income statement effect of changes in fair value. During the three months ended September 30, 2012 and 2011, the derivative instruments produced gains of $49 million and $329 million, respectively, which offset the valuation adjustments recorded.

For the nine months ended September 30, 2012 and 2011, the net realized and unrealized gains (losses) reported for mortgage servicing rights assets includes adjustments decreasing the value $67 million and $319 million, respectively, and decreasing the value for the realization of expected residential mortgage servicing rights cash flows by $128 million and $103 million, respectively. The various derivative financial instruments used to mitigate the income statement effect of changes in fair value produced gains of $148 million and $349 million for the nine months ended September 30, 2012 and 2011, respectively, which offset the valuation adjustments recorded. Refer to Note 6 for a sensitivity analysis of the fair values of these servicing rights to an immediate 10% and 20% adverse change in key economic assumptions.

The majority of BB&T's private equity and similar investments are in Small Business Investment Company (“SBIC”) qualified funds. The significant investment strategies for these funds primarily focus on equity and subordinated debt investments in privately-held middle market companies. The majority of these investments are not redeemable and distributions are received as the underlying assets of the funds liquidate. The timing of distributions, which are expected to occur on various dates through 2025, is uncertain and dependent on various events such as recapitalizations, refinance transactions and ownership changes among others. Excluding the investment of future funds, BB&T estimates these investments have a weighted average remaining life of approximately three years; however, the timing and amount of distributions may vary significantly. As of September 30, 2012, restrictions on the ability to sell the investments include, but are not limited to, consent of a majority member or general partner approval for transfer of ownership. BB&T's investments are spread over numerous privately-held middle market companies, and thus the sensitivity to a change in fair value for any single investment is limited. The significant unobservable inputs for these investments are EBITDA multiples that ranged from 3x to 12x, with a weighted average of 7x, at September 30, 2012.

The following table details the fair value and unpaid principal balance of loans held for sale that were elected to be carried at fair value:

September 30, 2012

December 31, 2011

Fair Value

Less

Aggregate

Unpaid

Fair

Principal

Fair

Principal

Value

Balance

Value

Balance

(Dollars in millions)

Loans held for sale reported at fair value:

Total (1)

3,467

3,314

153

3,736

3,652

(1)

The change in fair value is reflected in mortgage banking income. Excluding government guaranteed loans, there were no nonaccrual loans or loans 90 days or more past due and still accruing interest.

BB&T may be required, from time to time, to measure certain other financial assets at fair value on a nonrecurring basis. Assets measured at fair value on a nonrecurring basis for the periods ended September 30, 2012 and December 31, 2011 that were still held on the balance sheet at September 30, 2012 and December 31, 2011 totaled $309 million and $925 million, respectively. The September 30, 2012 amount consists of $170 million of impaired loans, excluding covered loans, and $139 million of foreclosed real estate, excluding covered foreclosed real estate, that were classified as Level 3 assets. The December 31, 2011 amount consists of $389 million of impaired loans, excluding covered loans, and $536 million of foreclosed real estate, excluding covered foreclosed real estate, that were classified as Level 3 assets. During the three months ended September 30, 2012 and 2011, BB&T recorded $27 million and $71 million, respectively, in negative valuation adjustments of impaired loans and $45 million and $103 million, respectively, in negative valuation adjustments of foreclosed real estate. For the nine months ended September 30, 2012 and 2011, BB&T recorded $82 million and $293 million, respectively, in negative valuation adjustments of impaired loans and $181 million and $274 million, respectively, in negative valuation adjustments of foreclosed real estate. The fair value of impaired loans and foreclosed real estate are generally based on appraised value of collateral. Appraisals incorporate measures such as recent sales prices for comparable properties and cost of construction. In addition, the periodic valuations may include additional liquidity discounts based upon the expected retention period. The valuations are impacted by the market price of the class of real estate and the expected retention period. A shorter retention period would result in an additional liquidity discount.

Additionally, accounting standards require the disclosure of the estimated fair value of financial instruments that are not recorded at fair value. A financial instrument is defined as cash, evidence of an ownership interest in an entity or a contract that creates a contractual obligation or right to deliver or receive cash or another financial instrument from a second entity. For the financial instruments that BB&T does not record at fair value, estimates of fair value are made at a point in time, based on relevant market data and information about the financial instrument. Fair values are calculated based on the value of one trading unit without regard to any premium or discount that may result from concentrations of ownership of a financial instrument, possible tax ramifications, estimated transaction costs that may result from bulk sales or the relationship between various financial instruments. No readily available market exists for a significant portion of BB&T's financial instruments. Fair value estimates for these instruments are based on current economic conditions, currency and interest rate risk characteristics, loss experience and other factors. Many of these estimates involve uncertainties and matters of significant judgment and cannot be determined with precision. Therefore, the calculated fair value estimates in many instances cannot be substantiated by comparison to independent markets and, in many cases, may not be realizable in a current sale of the instrument. In addition, changes in assumptions could significantly affect these fair value estimates. The following methods and assumptions were used by BB&T in estimating the fair value of these financial instruments.

Cash and cash equivalents and segregated cash due from banks: For these short-term instruments, the carrying amounts are a reasonable estimate of fair values.

Securities held to maturity: The fair values of securities held to maturity are based on a market approach using observable inputs such as benchmark yields and securities, TBA prices, reported trades, issuer spreads, current bids and offers, monthly payment information and collateral performance.

Loans receivable: The fair values for loans are estimated using discounted cash flow analyses, applying interest rates currently being offered for loans with similar terms and credit quality, which are deemed to be indicative of orderly transactions in the current market. For commercial loans and leases, internal risk grades are used to adjust discount rates for risk migration and expected losses. For residential mortgage and other consumer loans, internal prepayment risk models are used to adjust contractual cash flows. Loans are aggregated into pools of similar terms and credit quality and discounted using a LIBOR based rate. The carrying amounts of accrued interest approximate fair values.

FDIC loss share receivable: The fair value of the FDIC loss share receivable was estimated using discounted cash flow analyses, applying a risk free interest rate that is adjusted for the uncertainty in the timing and amount of these cash flows. The expected cash flows to/from the FDIC related to loans were estimated using the same assumptions that were used in determining the accounting values for the related loans. The expected cash flows to/from the FDIC related to securities are based upon the fair value of the related securities and the payment that would be required if the securities were sold for that amount. The FDIC loss share agreements are not transferrable and, accordingly, there is no market for this receivable.

Deposit liabilities: The fair values for demand deposits, interest-checking accounts, savings accounts and certain money market accounts are, by definition, equal to the amount payable on demand at the reporting date. Fair values for certificates of deposit are estimated using a discounted cash flow calculation that applies current interest rates to aggregate expected maturities. In addition, nonfinancial instruments such as core deposit intangibles are not recorded at fair value. BB&T has developed long-term relationships with its customers through its deposit base and, in the opinion of management, these items add significant value to BB&T.

Federal funds purchased, securities sold under repurchase agreements and short-term borrowed funds: The carrying amounts of Federal funds purchased, borrowings under repurchase agreements and short-term borrowed funds approximate their fair values.

Long-term debt: The fair values of long-term debt are estimated based on quoted market prices for the instrument if available, or for similar instruments if not available, or by using discounted cash flow analyses, based on BB&T's current incremental borrowing rates for similar types of instruments.

Contractual commitments: The fair values of commitments are estimated using the fees charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair values also consider the difference between current levels of interest rates and the committed rates. The fair values of guarantees and letters of credit are estimated based on the counterparties' creditworthiness and average default rates for loan products with similar risks. These respective fair value measurements would be categorized within Level 3 of the fair value hierarchy.

The following is a summary of the carrying amounts and fair values of those financial assets and liabilities that BB&T has not recorded at fair value:

			Carrying		Total
	September 30, 2012		Amount		Fair Value		Level 2		Level 3

			(Dollars in millions)
	Financial assets:
		Securities held to maturity (1)	$	13,140	$	13,445	$	13,407	$	38
		Loans and leases, excluding covered loans (2)		108,538		108,505		―		108,505
		Covered loans (2)		3,551		4,322		―		4,322
		FDIC loss share receivable		656		331		―		331

	Financial liabilities:
		Deposits		130,018		130,368		130,368		―
		Long-term debt		19,221		20,842		20,842		―

			Carrying
	December 31, 2011		Amount		Fair Value

			(Dollars in millions)
	Financial assets:
		Securities held to maturity (1)	$	14,094	$	14,098
		Loans and leases, excluding covered loans (2)		100,495		100,036
		Covered loans (2)		4,718		5,706
		FDIC loss share receivable		1,100		910

	Financial liabilities:
		Deposits		124,939		125,317
		Long-term debt		21,803		23,001


(1)	The carrying value excludes amounts deferred in other comprehensive income resulting from the transfer of securities available for sale to securities held to maturity.
(2)	The carrying value is net of the allowance for loan and lease losses.

The following is a summary of the notional or contractual amounts and fair values of BB&T’s off-balance sheet financial instruments as of the periods indicated:

			September 30, 2012				December 31, 2011
			Notional/				Notional/
			Contract				Contract
			Amount		Fair Value		Amount		Fair Value

			(Dollars in millions)
	Contractual commitments:
		Commitments to extend, originate or purchase credit	$	44,579	$	82	$	40,249	$	71
		Residential mortgage loans sold with recourse		1,085		12		1,316		6
		Other loans sold with recourse		4,847		14		4,520		15
		Letters of credit and financial guarantees written		5,564		36		6,095		27