Derivative Financial Instruments

9 Months Ended

Sep. 30, 2012

Derivative Financial Instruments

Derivative Financial Instruments

NOTE 15.Derivative Financial Instruments

The following tables set forth certain information concerning BB&T’s derivative financial instruments and related hedged items as of the periods indicated:
Derivative Classifications and Hedging Relationships
							September 30, 2012						December 31, 2011
						Hedged Item or	Notional		Fair Value				Notional		Fair Value
						Transaction	Amount		Gain (1)		Loss (1)		Amount		Gain (1)		Loss (1)
							(Dollars in millions)
Cash Flow Hedges: (2)
	Interest rate contracts:
		Pay fixed swaps				3 month LIBOR funding	$	6,035	$	―	$	(321)	$	5,750	$	―	$	(307)
				Total				6,035		―		(321)		5,750		―		(307)
Net Investment Hedges:
	Foreign exchange contracts							73		―		(2)		73		1		―
				Total				73		―		(2)		73		1		―
Fair Value Hedges:
	Interest rate contracts:
		Receive fixed swaps and option trades				Long-term debt		800		195		―		2,556		254		―
		Pay fixed swaps				Commercial loans		188		―		(7)		98		―		(5)
		Pay fixed swaps				Municipal securities		345		―		(162)		355		―		(158)
				Total				1,333		195		(169)		3,009		254		(163)
Not Designated as Hedges:
	Client-related and other risk management:
		Interest rate contracts:
			Receive fixed swaps					9,477		741		―		9,176		703		―
			Pay fixed swaps					9,607		―		(771)		9,255		―		(730)
			Other swaps					2,341		1		(2)		2,450		―		(6)
			Option trades					821		27		(28)		1,004		38		(40)
			Futures contracts					135		―		―		240		―		―
			Risk participations					151		―		―		150		―		―
		Foreign exchange contracts						953		14		(8)		575		6		(8)
				Total				23,485		783		(809)		22,850		747		(784)
	Mortgage Banking:
		Interest rate contracts:
			Receive fixed swaps					118		1		―		50		1		―
			Pay fixed swaps					―		―		―		16		―		―
			Interest rate lock commitments					6,380		128		―		4,977		60		(1)
			When issued securities, forward rate agreements and forward
				commitments				8,822		17		(160)		7,125		10		(88)
			Option trades					70		6		―		70		5		―
			Futures contracts					29		―		―		65		1		―
				Total				15,419		152		(160)		12,303		77		(89)
	Mortgage Servicing Rights:
		Interest rate contracts:
			Receive fixed swaps					6,234		142		(5)		5,616		154		(1)
			Pay fixed swaps					5,483		1		(125)		4,651		1		(111)
			Option trades					20,200		408		(146)		9,640		273		(51)
			Futures contracts					―		―		―		38		―		―
			When issued securities, forward rate agreements and forward
				commitments				3,145		9		―		3,651		18		―
				Total				35,062		560		(276)		23,596		446		(163)
					Total nonhedging derivatives			73,966		1,495		(1,245)		58,749		1,270		(1,036)
Total Derivatives							$	81,407	$	1,690	$	(1,737)	$	67,581	$	1,525	$	(1,506)
(1)	Derivatives in a gain position are recorded as Other assets and derivatives in a loss position are recorded as Other liabilities on the Consolidated Balance Sheets.
(2)	Cash flow hedges are hedging the first unhedged forecasted settlements associated with the listed hedged item descriptions.

The Effect of Derivative Instruments on the Consolidated Statements of Income
Three Months Ended September 30, 2012 and 2011
					Effective Portion
					Pre-tax Gain					Pre-tax (Gain) Loss
					(Loss) Recognized				Location of Amounts	Reclassified from
					in AOCI				Reclassified from AOCI	AOCI into Income
					2012		2011		into Income	2012		2011
						(Dollars in millions)
Cash Flow Hedges
	Interest rate contracts				$	(28)	$	(120)	Total interest income	$	(1)	$	(7)
									Total interest expense		14		16
										$	13	$	9
Net Investment Hedges
	Foreign exchange contracts				$	(3)	$	6		$	―	$	―
									Effective Portion
										Pre-tax Gain
									Location of Amounts	(Loss) Recognized
									Recognized	in Income
									in Income	2012		2011
						(Dollars in millions)
Fair Value Hedges
	Interest rate contracts								Total interest expense	$	72	$	85
	Interest rate contracts								Total interest income		(6)		(6)
				Total						$	66	$	79
Not Designated as Hedges
	Client-related and other risk management
		Interest rate contracts							Other noninterest income	$	10	$	6
		Foreign exchange contracts							Other noninterest income		2		1
	Mortgage Banking
		Interest rate contracts							Mortgage banking income		(28)		(21)
	Mortgage Servicing Rights
		Interest rate contracts							Mortgage banking income		49		329
			Total							$	33	$	315

The Effect of Derivative Instruments on the Consolidated Statements of Income
Nine Months Ended September 30, 2012 and 2011
					Effective Portion
					Pre-tax Gain					Pre-tax (Gain) Loss
					(Loss) Recognized				Location of Amounts	Reclassified from
					in AOCI				Reclassified from AOCI	AOCI into Income
					2012		2011		into Income	2012		2011
						(Dollars in millions)
Cash Flow Hedges
	Interest rate contracts				$	(72)	$	(201)	Total interest income	$	(9)	$	(20)
									Total interest expense		41		43
										$	32	$	23
Net Investment Hedges
	Foreign exchange contracts				$	(3)	$	3		$	―	$	―
									Effective Portion
										Pre-tax Gain
									Location of Amounts	(Loss) Recognized
									Recognized	in Income
									in Income	2012		2011
						(Dollars in millions)
Fair Value Hedges
	Interest rate contracts								Total interest expense	$	246	$	221
	Interest rate contracts								Total interest income		(16)		(16)
				Total						$	230	$	205
Not Designated as Hedges
	Client-related and other risk management
		Interest rate contracts							Other noninterest income	$	27	$	4
		Foreign exchange contracts							Other noninterest income		6		5
	Mortgage Banking
		Interest rate contracts							Mortgage banking income		11		(83)
	Mortgage Servicing Rights
		Interest rate contracts							Mortgage banking income		148		349
			Total							$	192	$	275

BB&T uses a variety of derivative instruments to manage interest rate and foreign exchange risks. These instruments consist of interest-rate swaps, swaptions, caps, floors, collars, financial forward and futures contracts, when-issued securities, foreign exchange contracts and options written and purchased. A derivative is a financial instrument that derives its cash flows, and therefore its value, by reference to an underlying instrument, index or referenced interest rate. There are five areas of risk management: balance sheet management, mortgage banking operations, mortgage servicing rights, net investment in a foreign subsidiary and client-related and other risk management activities. No portion of the change in fair value of the derivative has been excluded from effectiveness testing. The ineffective portion was immaterial for all periods presented.

Cash Flow Hedges

BB&T's floating rate business loans, overnight funding, FHLB advances, medium-term bank notes and long-term debt expose it to variability in cash flows for interest payments. The risk management objective for these floating rate assets and liabilities is to hedge the variability in the interest payments and receipts on future cash flows for forecasted transactions. All of BB&T's current cash flow hedges are hedging exposure to variability in future cash flows for forecasted transactions related to the payment of variable interest on then existing financial instruments.

For a qualifying cash flow hedge, the portion of changes in the fair value of the derivatives that has been highly effective is recognized in other comprehensive income (loss) until the related cash flows from the hedged item are recognized in earnings. If a derivative designated as a cash flow hedge is terminated or ceases to be highly effective, the gain or loss in other comprehensive income (loss) is amortized to earnings over the period the forecasted hedged transactions impact earnings. If a hedged forecasted transaction is no longer probable of occurring during the forecast period or within a short period thereafter, hedge accounting is ceased and any gain or loss included in other comprehensive income (loss) is reported in earnings immediately. At September 30, 2012, BB&T had $294 million of unrecognized pre-tax losses on derivatives classified as cash flow hedges recorded in other comprehensive income (loss), compared to $254 million of unrecognized pre-tax losses at December 31, 2011.

The estimated amount to be reclassified from other comprehensive income (loss) into earnings during the next 12 months is a loss totaling approximately $61 million. This includes active hedges and gains and losses related to hedges that were terminated early for which the forecasted transactions are still probable. The proceeds from these terminations were included in cash flows from financing activities.

All cash flow hedges were highly effective for the three and nine monthsended September 30, 2012, and the change in fair value attributed to hedge ineffectiveness was not material.

Fair Value Hedges

BB&T's fixed rate long-term debt, certificates of deposit, FHLB advances, loans and state and political subdivision security assets produce exposure to losses in value as interest rates change. The risk management objective for hedging fixed rate assets and liabilities is to convert the fixed rate paid or received to a floating rate. BB&T accomplishes its risk management objective by hedging exposure to changes in fair value of fixed rate financial instruments primarily through the use of swaps. For a qualifying fair value hedge, changes in the value of the derivatives that have been highly effective as hedges are recognized in current period earnings along with the corresponding changes in the fair value of the designated hedged item attributable to the risk being hedged.

During the nine monthsended September 30, 2012and 2011, BB&Tterminated certain fair value hedges related to its long-term debt and municipal securities and received net proceeds of $85 million and $11 million, respectively. When hedged debt/other financial instruments are retired or redeemed, the amounts associated with the hedge are included as a component of the gain or loss on termination. When a hedge has been terminated but the hedged item remains outstanding, the proceeds from the termination of these hedges have been reflected as part of the carrying value of the underlying debt/other financial instrument and are being amortized to earnings over its estimated remaining life. The proceeds from these terminations were included in cash flows from financing activities. During the nine monthsended September 30, 2012 and 2011, BB&T recognized pre-tax benefits of $233 million and $149million, respectively, through reductions of interest expense from previously unwound fair value debthedges.

Derivatives Not Designated As Hedges

Derivatives not designated as a hedge include those that are entered into as either balance sheet risk management instruments or to facilitate client needs. Balance sheet risk management hedges are those hedges that do not qualify to be treated as a cash flow hedge, a fair value hedge or a foreign currency hedge for accounting purposes, but are necessary to economically manage the risk associated with an asset or liability.

This category of hedges includes derivatives that hedge mortgage banking operations and MSRs. For mortgage loans originated for sale, BB&T is exposed to changes in market rates and conditions subsequent to the interest rate lock and funding date. BB&T's risk management strategy related to its interest rate lock commitment derivatives and loans held for sale includes using mortgage-based derivatives such as forward commitments and options in order to mitigate market risk. For MSRs, BB&T uses various derivative instruments to mitigate the income statement effect of changes in the fair value of its MSRs. For the nine monthsended September 30, 2012, BB&T recorded a gaintotaling $148 million related to these derivatives which was offset by anegative$67 million valuation adjustment related to the mortgage servicing asset. For the nine monthsended September 30, 2011, BB&T recognized a $349 million gain on these derivatives, which was offset by a negative$319 million valuation adjustment related to the mortgage servicing asset.

BB&T also held, as risk management instruments, other derivatives not designated as hedges primarily to facilitate transactionson behalf of its clients, as well as activities related to balance sheet management.

Net Investment Hedges

In connection with a long-term investment in a foreign subsidiary, BB&T is exposed to changes in the carrying value of its investment as a result of changes in the related foreign exchange rate. For net investment hedges, changes in value of qualifying hedges are deferred in other comprehensive income (loss) when the terms of the derivative match the notional and currency risk being hedged. At September 30, 2012 and December 31, 2011, accumulated other comprehensive income (loss) reflected unrecognized after-tax losses totaling$13 million and $11 million, respectively, related to cumulative changes in the fair value of BB&T's net investment hedge.

Derivatives Credit Risk – Dealer Counterparties

Credit risk related to derivatives arises when amounts receivable from a counterparty exceed those payable to the same counterparty. BB&T addresses the risk of loss 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.

As of September 30, 2012, BB&T had received cash collateral from dealer counterparties totaling$43 million related to derivatives in a gain position of $40 million and had posted $702 million in cash collateral to dealer counterparties to secure derivatives in a loss position of $705 million. In the event that BB&T's credit ratings had been downgraded below investment grade, the amount of collateral posted to these counterparties would have increased by $7 million. As of December 31, 2011, BB&T had received cash collateral from dealer counterparties totaling $82 million related to derivatives in a gain position of $79 million and had posted $639 million in cash collateral to dealer counterparties to secure derivatives in a loss position of $669 million. In the event that BB&T's credit ratings had been downgraded below investment grade, the amount of collateral posted to these counterparties would have increased by $30 million.

After collateral postings are considered, BB&T had no unsecured positions in a gain with dealer counterparties at September 30, 2012, compared to $3 million atDecember 31, 2011. All of BB&T's 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

BB&T also clears certain derivatives 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. As of September 30, 2012, BB&T had posted $234 million in cash collateral, including initial margin, related to the clearing of derivatives in a $141 million net loss position. As of December 31, 2011, BB&T had posted $145 million in cash collateral, including initial margin, related to the clearing of derivatives in a $60 million netloss position.BB&T had nosignificantunsecured positions in a gain with central clearing parties at September 30, 2012.