Derivative Financial Instruments

3 Months Ended

Mar. 31, 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
							March 31, 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	$	5,750	$	―	$	(297)	$	5,750	$	―	$	(307)
				Total				5,750		―		(297)		5,750		―		(307)
Net Investment Hedges:
	Foreign exchange contracts							73		―		―		73		1		―
				Total				73		―		―		73		1		―
Fair Value Hedges:
	Interest rate contracts:
		Receive fixed swaps and option trades				Long-term debt		800		138		―		2,556		254		―
		Pay fixed swaps				Commercial loans		127		―		(5)		98		―		(5)
		Pay fixed swaps				Municipal securities		355		―		(134)		355		―		(158)
				Total				1,282		138		(139)		3,009		254		(163)
Not Designated as Hedges:
	Client-related and other risk management:
		Interest rate contracts:
			Receive fixed swaps					9,208		649		―		9,176		703		―
			Pay fixed swaps					9,347		―		(680)		9,255		―		(730)
			Other swaps					2,401		1		(5)		2,450		―		(6)
			Option trades					963		30		(32)		1,004		38		(40)
			Futures contracts					417		―		―		240		―		―
			Risk participations					178		―		―		150		―		―
		Foreign exchange contracts						585		4		(3)		575		6		(8)
				Total				23,099		684		(720)		22,850		747		(784)
	Mortgage Banking:
		Interest rate contracts:
			Receive fixed swaps					―		―		―		50		1		―
			Pay fixed swaps					―		―		―		16		―		―
			Interest rate lock commitments					4,700		32		(2)		4,977		60		(1)
			When issued securities, forward rate agreements and forward
				commitments				5,666		31		(14)		7,125		10		(88)
			Option trades					70		3		―		70		5		―
			Futures contracts					70		―		(2)		65		1		―
				Total				10,506		66		(18)		12,303		77		(89)
	Mortgage Servicing Rights:
		Interest rate contracts:
			Receive fixed swaps					4,886		62		(55)		5,616		154		(1)
			Pay fixed swaps					4,176		19		(48)		4,651		1		(111)
			Option trades					14,220		296		(59)		9,640		273		(51)
			Futures contracts					400		―		―		38		―		―
			When issued securities, forward rate agreements and forward
				commitments				4,667		―		(7)		3,651		18		―
				Total				28,349		377		(169)		23,596		446		(163)
					Total nonhedging derivatives			61,954		1,127		(907)		58,749		1,270		(1,036)
Total Derivatives							$	69,059	$	1,265	$	(1,343)	$	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 Sheet.
(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 March 31, 2012 and 2011
					Effective Portion
					Pre-tax Gain or					Pre-tax (Gain) or 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				$	(8)	$	9	Total interest income	$	(4)	$	(7)
									Total interest expense		13		13
										$	9	$	6
Net Investment Hedges
	Foreign exchange contracts				$	(1)	$	(2)		$	―	$	―
									Effective Portion
										Pre-tax Gain or
									Location of Amounts	(Loss) Recognized
									Recognized	in Income
									in Income	2012		2011
						(Dollars in millions)
Fair Value Hedges
	Interest rate contracts								Total interest expense	$	71	$	44
	Interest rate contracts								Total interest income		(5)		(5)
				Total						$	66	$	39
Not Designated as Hedges
	Client-related and other risk management
		Interest rate contracts							Other noninterest income	$	6	$	(3)
		Foreign exchange contracts							Other noninterest income		2		2
	Mortgage Banking
		Interest rate contracts							Mortgage banking income		57		(60)
	Mortgage Servicing Rights
		Interest rate contracts							Mortgage banking income		(53)		(39)
			Total							$	12	$	(100)

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. These forecasted transactions include interest receipts on commercial loans and interest payments on 3 month LIBOR funding. 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. During the periodsended March 31, 2012 and2011, BB&T amortized approximately ($9) million and ($6) million of unrecognized pre-tax gains (losses) from accumulated other comprehensive income (loss) into net interest income.

At March 31, 2012, BB&T had $253 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 $49 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 months ended March 31, 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, loan and state and political subdivision security assets result in 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 periodsended March 31, 2012and 2011, BB&Tterminated certain fair value hedges primarily related to its long-term debt and received proceeds of $90 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 is 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 periodsended March 31, 2012 and 2011, BB&T recognized pre-tax benefits of $65 million and $29million respectively through reductions of interest expense from previously unwound fair valuehedges.

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 period ended March 31, 2012, BB&T recorded a loss totaling $53 million related to these derivatives which was offset by an increase in the carrying value of mortgage servicing assets totaling $92 million. For the period ended March 31, 2011, BB&T recognized a $39 million loss on these derivatives, which was offset by a positive $40 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 March 31, 2012 and December 31, 2011, accumulated other comprehensive income (loss) reflected unrecognized after-tax losses totaling $12 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 March 31, 2012, BB&T had received cash collateral from dealer counterparties totaling $32 million related to derivatives in a gain position of $34 million and had posted $718 million in cash collateral to dealer counterparties to secure derivatives in a loss position of $733 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 $23 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 $2 million and $3 million, of unsecured positions in a gain with dealer counterparties at March 31, 2012and December 31, 2011, respectively. 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 for the maximum experienced change in value associated with a one day movement in interest rates. As of March 31, 2012, BB&T had posted $106 million in cash collateral, including initial margin, related to the clearing of derivatives in a $12 million net gain 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 net loss position. BB&T had $12 million of unsecured positions in a gain with central clearing parties at March 31, 2012.