NOTE 3. Securities

          The amortized cost and approximate fair values of securities available for sale were as follows:

		June 30, 2009
		Amortized		Gross Unrealized				Fair
		Cost		Gains	Losses			Value
		(Dollars in millions)
Securities available for sale:
U.S. government-sponsored entities (GSE)	$	1,374	$	6	$	1	$	1,379
Mortgage-backed securities issued by GSE		25,763		236		304		25,695
States and political subdivisions		2,286		18		170		2,134
Non-agency mortgage-backed securities		1,451		-		403		1,048
Equity and other securities		776		9		8		777
Total securities available for sale	$	31,650	$	269	$	886	$	31,033
				December 31, 2008
		Amortized		Gross Unrealized				Fair
		Cost		Gains	Losses			Value
		(Dollars in millions)
Securities available for sale:
U.S. government-sponsored entities (GSE)	$	1,320	$	13	$	-	$	1,333
Mortgage-backed securities issued by GSE		27,117		338		25		27,430
States and political subdivisions		2,413		8		344		2,077
Non-agency mortgage-backed securities		1,573		-		475		1,098
Equity and other securities		937		2		34		905
Total securities available for sale	$	33,360	$	361	$	878	$	32,843

          At June 30, 2009 and December 31, 2008, securities with carrying value of approximately $15.0 billion and $16.1 billion were pledged to secure municipal deposits, securities sold under agreements to repurchase, other borrowings, and for other purposes as required or permitted by law.

          BB&T had certain investments in marketable debt securities and mortgage-backed securities issued by Fannie Mae and Freddie Mac that exceeded ten percent of shareholders’ equity at June 30, 2009. The Fannie Mae investments had total amortized cost and market values of $18.4 billion at June 30, 2009, while Freddie Mac investments had total amortized cost and market values of $7.6 billion.

          At June 30, 2009, non-agency mortgage-backed securities primarily consisted of residential mortgage-backed securities. Equity securities include investments in stock issued by the FHLB of Atlanta. At June 30, 2009 and December 31, 2008, BB&T held $480 million and $479 million, respectively, of investments in FHLB stock.

          Proceeds from sales of securities available for sale during the first six months of 2009 and 2008 were $13.6 billion and $5.2 billion, respectively. Gross gains of $206 million were realized in 2009 and $62 million of gross gains and $9 million of gross losses were realized in 2008.

          The amortized cost and estimated fair value of the debt securities portfolio at June 30, 2009, by contractual maturity, are shown in the accompanying table. The expected life of mortgage-backed securities will differ from contractual maturities because borrowers may have the right to call or prepay the underlying mortgage loans with or without call or prepayment penalties. For purposes of the maturity table, mortgage-backed securities, which are not due at a single maturity date, have been allocated over maturity groupings based on the weighted average contractual maturities of underlying collateral.

          The following tables reflect the gross unrealized losses and fair values of BB&T’s investments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at the dates presented.

	June 30, 2009
		Less than 12 months				12 months or more				Total
		Fair	Unrealized			Fair	Unrealized			Fair	Unrealized
		Value	Losses			Value	Losses			Value		Losses
	(Dollars in millions)
Securities:
U.S. government-sponsored entities (GSE)	$	977	$	1	$	-	$	-	$	977	$	1
Mortgage-backed securities issued by GSE		16,821		294		678		10		17,499		304
States and political subdivisions		372		29		867		141		1,239		170
Non-agency mortgage-backed securities		202		88		846		315		1,048		403
Equity and other securities		37		7		44		1		81		8
Total temporarily impaired securities	$	18,409	$	419	$	2,435	$	467	$	20,844	$	886
	December 31, 2008
		Less than 12 months				12 months or more				Total
		Fair	Unrealized			Fair	Unrealized			Fair	Unrealized
		Value	Losses			Value	Losses			Value		Losses
	(Dollars in millions)
Securities:
Mortgage-backed securities issued by GSE	$	4,388	$	24	$	191	$	1	$	4,579	$	25
States and political subdivisions		1,174		174		328		170		1,502		344
Non-agency mortgage-backed securities		629		235		469		240		1,098		475
Equity and other securities		159		33		20		1		179		34
Total temporarily impaired securities	$	6,350	$	466	$	1,008	$	412	$	7,358	$	878

          BB&T periodically evaluates available-for-sale securities for other-than-temporary impairment. Based on its evaluations during the first quarter of 2009, BB&T recorded $36 million of other-than-temporary impairments related to certain debt and equity securities. During the second quarter of 2009, the Company also recorded total other-than-temporary impairment of $1 million related to two non-agency mortgage-backed securities, which represents the estimated credit losses evident in these securities. The total unrealized loss related to these two non-agency mortgage-backed securities was $78 million, of which $77 million was recognized as a component of other comprehensive income.

          On June 30, 2009, BB&T held certain investment securities having continuous unrealized loss positions for more than 12 months. As of June 30, 2009, the unrealized losses on these securities totaled $467 million. Substantially all of these losses were in non-agency mortgage-backed and municipal securities. At June 30, 2009, all of the available-for-sale debt securities were investment grade with the exception of three municipal bonds with a book value of $11 million and ten non-agency mortgage-backed securities, with a book value of $793 million. All of the non-investment grade securities referenced above were initially investment grade and have been downgraded since purchase. BB&T evaluated all of its debt securities for credit impairment. During the second quarter of 2009, BB&T determined that two of the non-agency mortgage-backed securities, with a book value of $228 million, had credit losses evident and recorded other-than-temporary impairment. As of June 30, 2009, BB&T’s evaluation of the other securities with continuous unrealized losses indicated that there were no credit losses evident. Furthermore, BB&T does not intend to sell and it is more likely than not that the Company will not be required to sell these debt securities before the anticipated recovery of the amortized cost basis. See the “Summary Analysis Supporting Conclusions” section below for further details regarding BB&T’s below investment grade securities with significant unrealized losses.

          BB&T conducts periodic reviews to identify and evaluate each investment that has an unrealized loss for other-than-temporary impairment. An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis. Unrealized losses that are determined to be temporary in nature are recorded, net of tax, in accumulated other comprehensive income for available-for-sale securities.

               Factors considered in determining whether a loss is temporary include:

	•	The financial condition and near–term prospects of the issuer, including any  specific events that may influence the operations of the issuer;
	•	BB&T’s intent to sell and whether it is more likely than not that the Company  will be required to sell these debt securities before the anticipated recovery of the amortized cost basis;
	•	The length of the time and the extent to which the market value has been less than  cost;
	•	Whether the decline in fair value is attributable to specific conditions, such as  conditions in an industry or in a geographic area;
	•	Whether a debt security has been downgraded by a rating agency;
	•	Whether the financial condition of the issuer has deteriorated;
	•	The seniority of the security;
	•	Whether dividends have been reduced or eliminated, or scheduled interest  payments on debt securities have not been made; and
	•	Any other relevant available information.

          For certain U.S. mortgage-backed securities (and in particular for non-agency Alt-A, Prime and other mortgage-backed securities that have significant unrealized losses as a percentage of amortized cost), credit impairment is assessed using a cash flow model that estimates the cash flows on the underlying mortgage pools, using security-specific structure information. The model estimates cash flows from the underlying mortgage loan pools and distributes those cash flows to the various branches of securities, considering the transaction structure and any subordination and credit enhancements that exist in each structure. The cash flow model projects the remaining cash flows using a number of assumptions, including default rates, prepayment rates and recovery rates (on foreclosed properties).

          Management reviews the result of the cash flow model, internal credit analysis and other market observable information in its estimation of possible future credit losses. If management does not expect to recover the entire amortized cost basis of a mortgage-backed security, the Company records other-than-temporary impairment equal to the amount of expected credit losses in the mortgage-backed security.

          Where a mortgage-backed security is not deemed to be credit impaired, management performs additional analysis to assess whether it intends to sell and it is more likely than not that the Company will be required to sell these debt securities before anticipated recovery of the amortized cost basis. In making this determination, BB&T considers its expected liquidity and capital needs, including its asset/liability management needs, forecasts, strategies and other relevant information.

Summary Analysis Supporting Conclusions

          In all instances, the senior holders of these securities have excess value through subordination inherent in the structure and the cash flow valuation was higher than amortized cost. The following table presents a detailed analysis of non-investment grade securities with significant unrealized losses. The expected loss represents the remaining current losses plus estimated future losses on the underlying mortgage pools. The subordination coverage of expected losses represents the amount of losses the subordinate security holders are obligated to absorb (original subordination less losses incurred to date) divided by the expected losses.

Non-investment grade securities with significant unrealized losses
As of June 30, 2009
(Dollars in millions)
													Subordination
		Amortized		Fair		Unrealized			Credit Rating		Expected		Coverage of			Cash Flow
Security		Cost		Value		Loss		Moody’s	S&P	Fitch	Loss		Expected Loss			Valuation
RMBS 1	$	66	$	39	$	(27	)		CCC	BB	1.9%		2.0x		$	75
RMBS 2		135		79		(56	)		CCC	BB	1.9%		2.0x			154
RMBS 3		66		21		(45	)	Caa1	B	B	4.7%		1.2x			75
RMBS 4		67		50		(17	)	Ba2	AAA	BBB	1.3%		3.3x			77
RMBS 5		125		101		(24	)	Caa2	B+		11.8%		1.2x			139
RMBS 6		52		34		(18	)	B3	A		6.9%		1.0x			59
RMBS 7 *		168		111		(57	)	Caa1	A		6.9%		1.0x			192
RMBS 8 *		60		40		(20	)	Caa2		CC	8.2%		0.7x			68
* These non-agency mortgage backed securities were deemed other-than-temporarily impaired at June 30, 2009 and a $1 million impairment related to the expected credit losses was recorded.