NOTE 2. Securities

The amortized cost, gross unrealized gains and losses and approximate fair values of securities available for sale and held to maturity were as follows:


	June 30, 2011
	Amortized Cost		Gross Unrealized				Fair Value
	Amortized Cost		Gains		Losses		Fair Value
	(Dollars in millions)
Securities available for sale:
U.S. government-sponsored entities ("GSE")	$	76	$	2	$	—	$	78
Mortgage-backed securities issued by GSE		15,254		84		107		15,231
States and political subdivisions		1,904		39		121		1,822
Non-agency mortgage-backed securities		521		—		97		424
Other securities		197		—		—		197
Covered securities		1,262		399		4		1,657

Total securities available for sale	$	19,214	$	524	$	329	$	19,409


	June 30, 2011
	Amortized Cost		Gross Unrealized				Fair Value
	Amortized Cost		Gains		Losses		Fair Value
	(Dollars in millions)
Securities held to maturity:
Mortgage-backed securities issued by GSE	$	7,943	$	53	$	—	$	7,996
States and political subdivisions		36		—		—		36
Other securities		573		1		1		573

Total securities held to maturity	$	8,552	$	54	$	1	$	8,605


	December 31, 2010
	Amortized Cost		Gross Unrealized				Fair Value
	Amortized Cost		Gains		Losses		Fair Value
	(Dollars in millions)
Securities available for sale:
GSE securities	$	102	$	1	$	—	$	103
Mortgage-backed securities issued by GSE		18,663		42		361		18,344
States and political subdivisions		2,051		19		161		1,909
Non-agency mortgage-backed securities		635		—		120		515
Other securities		734		27		2		759
Covered securities		1,234		307		2		1,539

Total securities available for sale	$	23,419	$	396	$	646	$	23,169

During the first quarter of 2011, BB&T reclassified approximately $8.3 billion of securities available for sale to securities held to maturity. Management determined that it has both the positive intent and ability to hold these securities to maturity. The reclassification of these securities was accounted for at fair value. On the date of transfer, the difference between the par value and the fair value of these securities resulted in a premium or discount that, under amortized cost accounting, will be amortized as a yield adjustment to interest income using the interest method. The unrealized holding gains or losses at the date of transfer will continue to be reported as a separate component of shareholders' equity in accumulated other comprehensive income, and will also be amortized over the remaining life of the securities as a yield adjustment to interest income using the interest method. Refer to Note 10 for additional disclosures related to this amount. There were no gains or losses recognized as a result of this transfer.

As of June 30, 2011, the fair value of covered securities included $1.3 billion of non-agency mortgage-backed securities and $310 million of municipal securities. As of December 31, 2010, the fair value of covered securities included $1.2 billion of non-agency mortgage-backed securities and $304 million of municipal securities. All covered securities were acquired from Colonial Bank ("Colonial") and are covered by one of the Federal Deposit Insurance Corporation ("FDIC") loss sharing agreements. BB&T is restricted from selling these securities without prior approval from the FDIC. Refer to BB&T's Annual Report on Form 10-K for the year ended December 31, 2010 for additional information.

At June 30, 2011 and December 31, 2010, securities with carrying values of approximately $15.7 billion and $19.3 billion, respectively, 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 the Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac") that exceeded ten percent of shareholders' equity at June 30, 2011. The Fannie Mae investments had total amortized cost and fair values of $8.4 billion at June 30, 2011, while Freddie Mac investments had total amortized cost and fair values of $10.6 billion.

At June 30, 2011 and December 31, 2010, non-agency mortgage-backed securities primarily consisted of residential mortgage-backed securities.

The gross realized gains and losses and other-than-temporary impairments recognized in income during the three and six months ended June 30, 2011 and 2010 are reflected in the following table:


	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
	(Dollars in millions)
Gross gains	$	17		$	226		$	38		$	231
Gross losses		(1	)		(2	)		(1	)		(4	)

Net realized gains/(losses)		16			224			37			227

Other-than-temporary impairment ("OTTI") recognized on non-agency mortgage-backed securities:
Total OTTI on non-agency mortgage-backed securities		(10	)		(37	)		(11	)		(49	)
Non-credit portion recognized in other comprehensive income (1)		(8	)		32			(28	)		38

Total OTTI on non-agency mortgage-backed securities recognized in net income		(18	)		(5	)		(39	)		(11	)

Net securities gains/(losses)	$	(2	)	$	219		$	(2	)	$	216

(1)	A negative balance is the result of additional credit losses currently recognized in earnings that were previously recognized in other comprehensive income.

The following table reflects activity during the three and six months ended June 30, 2011 and 2010 related to credit losses on other-than-temporarily impaired non-agency mortgage-backed securities where a portion of the unrealized loss was recognized in other comprehensive income:


	Three Months Ended June 30,					Six Months Ended June 30,
	2011			2010		2011			2010
	(Dollars in millions)
Balance at beginning of period	$	51		$	8	$	30		$	2
Credit losses on securities not previously considered other-than-temporarily impaired		—			1		—			2
Credit losses on securities for which OTTI was previously recognized		18			4		39			9
Reductions for securities sold/settled during the period		(6	)		—		(6	)		—

Balance at end of period	$	63		$	13	$	63		$	13

The amortized cost and estimated fair value of the debt securities portfolio at June 30, 2011, 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 included in maturity groupings based on the contractual maturity.


	June 30, 2011
	Available for Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(Dollars in millions)
Due in one year or less	$	43	$	43	$	—	$	—
Due after one year through five years		59		63		—		—
Due after five years through ten years		633		650		—		—
Due after ten years		18,284		18,458		8,552		8,605

Total debt securities		19,019		19,214		8,552		8,605
Total securities with no stated maturity		195		195		—		—

Total securities	$	19,214	$	19,409	$	8,552	$	8,605

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, 2011
	Less than 12 months				12 months or more				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(Dollars in millions)
Securities available for sale:
Mortgage-backed securities issued by GSE	$	10,312	$	107	$	—	$	—	$	10,312	$	107
States and political subdivisions		258		7		655		114		913		121
Non-agency mortgage-backed securities		—		—		424		97		424		97
Other securities		1		—		—		—		1		—
Covered securities		49		4		—		—		49		4

Total	$	10,620	$	118	$	1,079	$	211	$	11,699	$	329

	June 30, 2011
	Less than 12 months				12 months or more				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(Dollars in millions)
Securities held to maturity:
States and political subdivisions	$	32	$	—	$	—	$	—	$	32	$	—
Other securities		59		1		—		—		59		1

Total	$	91	$	1	$	—	$	—	$	91	$	1


	December 31, 2010
	Less than 12 months				12 months or more				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(Dollars in millions)
Securities available for sale:
GSE securities	$	50	$	—	$	—	$	—	$	50	$	—
Mortgage-backed securities issued by GSE		15,438		361		—		—		15,438		361
States and political subdivisions		694		21		735		140		1,429		161
Non-agency mortgage-backed securities		—		—		506		120		506		120
Other securities		535		2		2		—		537		2
Covered securities		79		2		—		—		79		2

Total	$	16,796	$	386	$	1,243	$	260	$	18,039	$	646

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.

If an unrealized loss is considered other-than-temporary, the credit component of the unrealized loss is recognized in earnings and the non-credit component is recognized in accumulated other comprehensive income, to the extent that BB&T does not intend to sell the security and it is more likely than not that BB&T will not be required to sell the security prior to recovery.

BB&T evaluates credit impairment related to mortgage-backed securities using a number of different expected cash flow models. These models reflect differing approaches to estimating the expected future cash flows associated with a given security, with certain models giving greater consideration to long-term macroeconomic factors that are applied to current security default rates, prepayment rates and recovery rates, while other models produce results that are more heavily influenced by current security-level performance. All of these models provide estimates of the expected cash flows on the underlying mortgage pools using security-specific structure information over the expected life of the security. These models estimate cash flows from the underlying mortgage loan pools and distribute those cash flows to the various tranches within the securitization considering the transaction structure, which may include subordination features and/or credit enhancements. Management reviews the results of these cash flow models and assigns probability weightings to each model based on an assessment of the current performance of the underlying securities, prevailing economic conditions and historical payment experience.

During the three and six months ended June 30, 2011, BB&T realized principal losses on certain other-than-temporarily impaired securities totaling approximately $6 million. Based on its consideration of the timing and extent of these losses, combined with prevailing economic conditions, BB&T determined that its cash flow modeling should give greater weighting to current security-level performance and give less weighting to modeling that relies more heavily on long-term economic factors. This change in probability-weighting resulted in the majority of the credit losses on securities for which OTTI had been previously recognized.

On June 30, 2011, BB&T held certain investment securities having continuous unrealized loss positions for more than 12 months. All of these losses were in non-agency mortgage-backed and municipal securities. At June 30, 2011, all of the available-for-sale debt securities in an unrealized loss position for more than 12 months, excluding those covered by FDIC loss sharing agreements, were investment grade with the exception of two municipal bonds with an amortized cost of $8 million and ten non-agency mortgage-backed securities with an amortized cost of $521 million. At June 30, 2011, the total unrealized loss on these non-investment grade securities was $98 million. All of the non-investment grade securities referenced above were initially investment grade and have been downgraded since purchase. Based on its evaluation at June 30, 2011, BB&T determined that certain of the non-investment grade non-agency mortgage-backed securities had credit losses evident and recognized other-than-temporary impairments related to these securities. BB&T's evaluation of the other debt securities with continuous unrealized losses indicated that there were no credit losses evident. Furthermore, as of the date of the evaluation, BB&T did not intend to sell, and it was more likely than not that the Company would not be required to sell, these debt securities before the 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.

The following table presents non-investment grade securities with significant unrealized losses that are not covered by a loss sharing arrangement and the credit loss component of OTTI recognized to date:


	June 30, 2011
	Amortized Cost		Fair Value		Unrealized Loss			Credit Loss Recognized
	(Dollars in millions)
Security
RMBS 1	$	91	$	59	$	(32	)	$	(10	)
RMBS 2		118		100		(18	)		(25	)
RMBS 3		102		88		(14	)		(3	)