BB&T Third Quarter 2002 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q



Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

For the quarterly period ended:

September 30, 2002


Commission file number: 1-10853


BB&T CORPORATION
(exact name of registrant as specified in its charter)


North Carolina 56-0939887
(State of Incorporation) (I.R.S. Employer Identification No.)
   
200 West Second Street 27101
Winston-Salem, North Carolina (Zip Code)
(Address of Principal Executive Offices)  

(336) 733-2000
(Registrant's Telephone Number, Including Area Code)



               Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  [ X ]   No  [__]


At October 31, 2002, 478,886,149 shares of the registrant's common stock, $5 par value, were outstanding.


This Form 10-Q has 58 pages. The Exhibit Index begins on page 44.




BB&T CORPORATION

FORM 10-Q

September 30, 2002


INDEX


Page No.

   
Part I. FINANCIAL INFORMATION  
   
  Item 1. Financial Statements (Unaudited)
   
          Consolidated Financial Statements
   
          Notes to Consolidated Financial Statements
   
  Item 2. Management's Discussion and Analysis of Financial Condidion and Results of Operations 18 
   
          Analysis of Financial Condition 20 
   
          Market Risk Management 26 
   
          Capital Adequacy and Resources 30 
   
          Analysis of Results of Operations 31 
   
  Item 3. Quantitative and Qualitative Disclosures About Market Risk 26 
   
  Item 4. Controls and Procedures 42 
   
Part II. OTHER INFORMATION  
   
  Item 1. Legal Proceedings 42 
   
  Item 2. Changes in Securities and the Use of Proceeds 43 
   
  Item 6. Exhibits and Reports on Form 8-K 44 
   
SIGNATURES 52 



BB&T Corporation          Page 1          Third Quarter 2002 10-Q




Item 1. Financial Statements

BB&T CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands, except per share data)

September 30, December 31,
2002 2001

Assets            
      Cash and due from banks   $ 1,916,620   $ 1,871,437  
      Interest-bearing deposits with banks    150,591    114,749  
      Federal funds sold and securities purchased under resale agreements or                
          similar arrangements    367,885    246,040  
      Trading securities at fair value    121,525    97,675  
      Securities available for sale at fair value    16,416,181    16,621,684  
      Securities held to maturity (approximate fair values of $51,399 at  
          September 30, 2002, and $40,488 at December 31, 2001)    51,401    40,496  
      Loans held for sale, lower of cost or fair value    1,958,291    1,907,416  
      Loans and leases, net of unearned income    51,106,410    45,535,757  
          Allowance for loan and lease losses    (723,688 )  (644,418 )

              Loans and leases, net    50,382,722    44,891,339  

      Premises and equipment, net of accumulated depreciation    1,057,360    989,611  
      Goodwill    1,698,563    879,903  
      Other assets    4,065,692    3,209,595  

                   Total assets   $ 78,186,831   $ 70,869,945  

Liabilities and Shareholders' Equity  
      Deposits:  
          Noninterest-bearing deposits   $ 7,967,366   $ 6,939,640  
          Savings and interest checking    2,970,575    3,013,702  
          Money rate savings    15,636,969    13,902,088  
          Certificates of deposit and other time deposits    23,236,561    20,877,845  

                   Total deposits    49,811,471    44,733,275  

      Short-term borrowed funds    4,797,992    6,649,100  
      Long-term debt    13,384,826    11,721,076  
      Accounts payable and other liabilities    2,657,725    1,616,285  

                   Total liabilities    70,652,014    64,719,736  

      Shareholders' equity:  
          Preferred stock, $5 par, 5,000,000 shares authorized, none issued and                
              outstanding    --    --  
          Common stock, $5 par, 1,000,000,000 shares authorized;  
              issued and outstanding 480,439,801 at September 30, 2002, and  
              455,682,560 at December 31, 2001    2,402,199    2,278,413  
          Additional paid-in capital    1,108,651    418,565  
          Retained earnings    3,711,088    3,148,501  
          Unvested restricted stock    (545 )  (2,669 )
          Accumulated other comprehensive income, net of income  
              taxes of $196,646 at September 30, 2002, and $201,207 at December 31, 2001    313,424    307,399  

                   Total shareholders' equity    7,534,817    6,150,209  

                   Total liabilities and shareholders' equity   $ 78,186,831   $ 70,869,945  


The accompanying notes are an integral part of these consolidated financial statements.



BB&T Corporation          Page 2          Third Quarter 2002 10-Q




BB&T CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

(Dollars in thousands, except per share data)

For the Three Months Ended For the Nine Months Ended
September 30, September 30,

2002 2001 2002 2001

Interest Income                    
       Interest and fees on loans and leases     $ 881,761   $ 954,377   $ 2,582,257   $ 2,927,646  
       Interest and dividends on securities    243,312    255,620    742,596    770,474  
       Interest on short-term investments    1,922    3,514    5,969    14,957  

           Total interest income    1,126,995    1,213,511    3,330,822    3,713,077  

Interest Expense  
       Interest on deposits    254,248    381,409    772,037    1,250,737  
       Interest on short-term borrowed funds    24,140    55,913    77,053    202,864  
       Interest on long-term debt    146,515    154,498    442,343    457,864  

           Total interest expense    424,903    591,820    1,291,433    1,911,465  

Net Interest Income    702,092    621,691    2,039,389    1,801,612  
       Provision for loan and lease losses    64,000    68,500    179,000    159,318  

Net Interest Income After Provision for Loan and Lease Losses    638,092    553,191    1,860,389    1,642,294  

Noninterest Income  
       Service charges on deposit accounts    104,754    88,305    296,790    255,749  
       Investment banking and brokerage fees and commissions    47,912    43,599    156,844    130,211  
       Mortgage banking income (loss), net    (59,455 )  52,068    35,070    109,742  
       Trust income    27,388    22,931    74,713    71,936  
       Agency insurance commissions    76,502    44,120    214,448    131,122  
       Other insurance commissions    3,899    3,089    11,370    9,478  
       Other nondeposit fees and commissions    54,145    48,598    150,367    140,788  
       Securities gains (losses), net    135,519    2,423    168,592    91,751  
       Other income    31,583    30,849    92,911    73,883  

           Total noninterest income    422,247    335,982    1,201,105    1,014,660  

Noninterest Expense  
       Personnel expense    323,119    281,830    947,634    838,623  
       Occupancy and equipment expense    85,550    79,222    253,689    229,496  
       Amortization of intangibles    7,073    20,031    17,682    56,306  
       Merger-related and restructuring charges    12,694    67,201    28,867    175,248  
       Other noninterest expense    177,625    133,627    483,351    384,578  

           Total noninterest expense    606,061    581,911    1,731,223    1,684,251  

Earnings  
       Income before income taxes and cumulative effect of
           change in accounting principle
     454,278    307,262    1,330,271    972,703  
       Provision for income taxes    126,121    85,296    374,297    277,008  

       Income before cumulative effect of change in accounting principle    328,157    221,966    955,974    695,695  
       Cumulative effect of change in accounting principle    --    --    9,780     --  

       Net income     $ 328,157   $ 221,966   $ 965,754   $ 695,695  

Per Common Share  
       Basic Earnings:  
           Income before cumulative effect of change in accounting principle     $ .69   $ .49   $ 2.02   $ 1.54  
           Cumulative effect of change in accounting principle       --     --     .02     --  

           Net Income     $ .69   $ .49   $ 2.04   $ 1.54  

       Diluted Earnings:  
           Income before cumulative effect of change in accounting principle     $ .68   $ .48   $ 2.00   $ 1.51  
           Cumulative effect of change in accounting principle       --     --     .02     --  

           Net Income     $ .68   $ .48   $ 2.02   $ 1.51  

       Cash dividends paid     $ .29   $ .26   $ .81   $ .72  

Average Shares Outstanding  
           Basic    477,112,074    454,346,907    472,764,083    452,904,319  

           Diluted    482,325,535    460,387,879    478,363,530    459,235,651  


The accompanying notes are an integral part of these consolidated financial statements.



BB&T Corporation          Page 3          Third Quarter 2002 10-Q




BB&T CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

For the Nine Months Ended September 30, 2002 and 2001
(Unaudited)
(Dollars in thousands)

Accumulated
Shares of Additional Retained Other Total
Common Common Paid-In Earnings Comprehensive Shareholders'
Stock Stock Capital and Other* Income Equity

Balance, December 31, 2000       453,307,379   $ 2,266,537   $ 423,404   $ 2,625,571   $ 104,297   $ 5,419,809  
Add (Deduct)  
     Comprehensive income:  
        Net income    --    --    --    695,695    --    695,695  
           Unrealized holding gains (losses) arising during  
              the period    --    --    --    --    363,307    363,307  
           Less: reclassification adjustment, net of tax  
              of $32,113    --    --    --    --    59,638    59,638  

        Net unrealized gains (losses) on securities    --    --    --    --    303,669    303,669  
        Unrecognized loss on cash flow hedge, net of  
           tax of ($11,768)    --    --    --    --    (21,854 )  (21,854 )

     Total comprehensive income    --    --    --    695,695    281,815    977,510  

        Common stock issued    12,120,252    60,602    281,005    --    --    341,607  
        Redemption of common stock    (12,443,300 )  (62,217 )  (391,688 )  --    --    (453,905 )
        Cash dividends declared on common stock    --    --    --    (338,733 )  --    (338,733 )
        Other, net    --    --    20,061    3,479    --    23,540  

Balance, September 30, 2001       452,984,331   $ 2,264,922   $ 332,782   $ 2,986,012   $ 386,112   $ 5,969,828  

Balance, December 31, 2001       455,682,560   $ 2,278,413   $ 418,565   $ 3,145,832   $ 307,399   $ 6,150,209  
Add (Deduct)  
     Comprehensive income:  
        Net income    --    --    --    965,754    --    965,754  
           Unrealized holding gains (losses) arising during  
              the period    --    --    --    --    154,954    154,954  
           Less: reclassification adjustment, net of tax  
              of $59,007    --    --    --    --    109,585    109,585  

        Net unrealized gains (losses) on securities    --    --    --    --    45,369    45,369  
        Unrecognized loss on cash flow hedge, net of  
           tax of ($25,670)    --    --    --    --    (39,344 )  (39,344 )

     Total comprehensive income    --    --    --    965,754    6,025    971,779  

        Common stock issued    35,251,141    176,256    1,021,094    --    --    1,197,350  
        Redemption of common stock    (10,493,900 )  (52,470 )  (344,740 )  --    --    (397,210 )
        Cash dividends declared on common stock    --    --    --    (403,167 )  --    (403,167 )
        Other, net    --    --    13,732    2,124    --    15,856  

Balance, September 30, 2002       480,439,801   $ 2,402,199   $ 1,108,651   $ 3,710,543   $ 313,424   $ 7,534,817  


* Other includes unvested restricted stock.

The accompanying notes are an integral part of these consolidated financial statements.



BB&T Corporation          Page 4          Third Quarter 2002 10-Q




BB&T CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2002 and 2001
(Unaudited)
(Dollars in thousands)

2002 2001

Cash Flows From Operating Activities:            
     Net income   $ 965,754   $ 695,695  
     Adjustments to reconcile net income to net cash provided by (used in)    
        operating activities:  
           Provision for loan and lease losses    179,000    159,318  
           Depreciation of premises and equipment    106,352    86,130  
           Amortization of intangibles    17,682    56,306  
           Accretion of negative goodwill    (9,780 )  (3,799 )
           Amortization of unearned stock compensation    2,124    3,479  
           Discount accretion and premium amortization on securities, net    1,441    (5,426 )
           Net decrease (increase) in trading account securities    (23,850 )  (19,804 )
           Loss (gain) on sales of securities, net    (168,592 )  (91,751 )
           Loss (gain) on sales of loans held for sale    (74,863 )  (50,248 )
           Loss (gain) on disposals of premises and equipment, net    (6,905 )  3,900  
           Proceeds from sales of loans held for sale    6,848,650    5,512,281  
           Purchases of loans held for sale    (1,326,306 )  (1,568,060 )
           Origination of loans held for sale, net of principal collected    (5,498,356 )  (4,692,974 )
           Tax benefit from exercise of stock options    13,732    16,620  
           Decrease (increase) in:                
              Accrued interest receivable    44,324    (721 )
              Other assets    (506,463 )  (484,735 )
           Increase (decrease) in:                
              Accrued interest payable    (1,388 )  (15,900 )
              Accounts payable and other liabilities    513,049    281,091  
           Other, net    27,904    (17,276 )

                  Net cash provided by (used in) operating activities    1,103,509    (135,874 )

Cash Flows From Investing Activities:  
     Proceeds from sales of securities available for sale    3,297,501    1,072,588  
     Proceeds from maturities, calls and paydowns of securities available for sale    3,011,933    1,380,866  
     Purchases of securities available for sale    (5,162,206 )  (2,434,831 )
     Proceeds from maturities, calls and paydowns of securities held to maturity    10    1,100  
     Purchases of securities held to maturity    (10,915 )  (4,640 )
     Leases made to customers    (139,637 )  (96,432 )
     Principal collected on leases    110,001    80,435  
     Loan originations, net of principal collected    (1,250,928 )  (791,299 )
     Purchases of loans    (193,155 )  (173,041 )
     Net cash acquired (paid) in transactions accounted for under the purchase method    765,694    100,050  
     Purchases and originations of mortgage servicing rights    (143,935 )  (160,829 )
     Proceeds from disposals of premises and equipment    27,061    7,755  
     Purchases of premises and equipment    (122,480 )  (134,472 )
     Proceeds from sales of foreclosed property    35,965    36,118  
     Proceeds from sales of other real estate held for development or sale    8,494    5,282  

           Net cash provided by (used in) investing activities      233,403    (1,111,350 )

Cash Flows From Financing Activities:  
     Net increase (decrease) in deposits    821,788    519,190  
     Net increase (decrease) in short-term borrowed funds    (2,581,487 )  (1,386,536 )
     Proceeds from issuance of long-term debt    2,402,327    3,419,067  
     Repayment of long-term debt    (1,046,451 )  (710,079 )
     Net proceeds from common stock issued    49,459    53,546  
     Redemption of common stock    (397,210 )  (453,905 )
     Cash dividends paid on common stock    (382,468 )  (315,235 )

           Net cash provided by (used in) financing activities    (1,134,042 )  1,126,048  

Net Increase (Decrease) in Cash and Cash Equivalents    202,870    (121,176 )
Cash and Cash Equivalents at Beginning of Period    2,232,226    2,106,627  

Cash and Cash Equivalents at End of Period   $ 2,435,096   $ 1,985,451  

Supplemental Disclosure of Cash Flow Information:  
     Cash paid during the period for:  
        Interest   $ 1,287,761   $ 1,843,542  
        Income taxes    171,325    23,402  
     Noncash financing and investing activities:  
        Transfer of securities held to maturity to available for sale    --    587,263  
        Transfer of loans to foreclosed property    41,285    32,117  
        Transfer of other real estate owned to fixed assets    --    143  
        Transfer of fixed assets to other real estate owned    14,778    5,421  
        Securitization of mortgage loans    --    251,269  

The accompanying notes are an integral part of these consolidated financial statements.

Back to Index



BB&T Corporation          Page 5          Third Quarter 2002 10-Q




BB&T CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2002

(Unaudited)

A.  Basis of Presentation

          In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the consolidated balance sheets of BB&T Corporation and subsidiaries (referred to herein as “BB&T”, “the Corporation” or “the Company”) as of September 30, 2002, and December 31, 2001; the consolidated statements of income for the three and nine months ended September 30, 2002 and 2001; the consolidated statements of changes in shareholders’ equity for the nine months ended September 30, 2002 and 2001; and the consolidated statements of cash flows for the nine months ended September 30, 2002 and 2001.

          The consolidated financial statements and notes are presented in accordance with the instructions for Form 10-Q. The information contained in the footnotes included in BB&T’s 2001 Annual Report on Form 10-K, as amended, should be referred to in connection with the reading of these unaudited interim consolidated financial statements. In certain instances, amounts reported in the 2001 financial statements have been reclassified to conform to the 2002 statement presentation. Such reclassifications had no effect on shareholders’ equity or net income.

Use of Estimates

          The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan and lease losses, valuation of capitalized mortgage servicing rights, purchase accounting adjustments, and tax assets or liabilities.

B.  Nature of Operations

          BB&T is a financial holding company headquartered in Winston-Salem, North Carolina. BB&T conducts its business operations primarily through its commercial banking subsidiaries, which do business in North Carolina, South Carolina, Virginia, Maryland, West Virginia, Kentucky, Tennessee, Georgia, Florida, Alabama, Indiana and Washington, D.C. BB&T’s principal banking subsidiaries, Branch Banking and Trust Company (“Branch Bank”), Branch Banking and Trust Company of South Carolina (“BB&T-SC”) and Branch Banking and Trust Company of Virginia (“BB&T-VA”), provide a wide range of banking services to individuals and businesses. At September 30, 2002, BB&T was also the parent company for First South Bank, a subsidiary bank acquired through the purchase of Regional Financial Corp. (“Regional”). This bank is expected to be merged with and into Branch Bank. BB&T’s subsidiary banks offer a variety of loans to businesses and consumers, including an array of mortgage loan products. BB&T’s loans are primarily to individuals residing in the market areas described above or to businesses that are located in this geographic area. BB&T’s banking subsidiaries also market a wide range of deposit services to individuals and businesses. BB&T’s commercial banking units or its subsidiaries offer lease financing to businesses and municipal governments; discount brokerage services and sales of annuities and mutual funds; life insurance, property and casualty insurance, health insurance and commercial general liability insurance on an agency basis; insurance premium financing; arranging permanent financing for commercial real estate and providing loan servicing for third-party investors; direct consumer finance loans to individuals; and asset management. Direct nonbank subsidiaries of BB&T provide a variety of financial services including automobile lending, equipment financing, factoring, full-service securities brokerage and capital markets services.



BB&T Corporation          Page 6          Third Quarter 2002 10-Q




C.  New Accounting Pronouncements

          In June 2001, the FASB issued SFAS No. 141, “Business Combinations,” which supersedes Accounting Principles Board (“APB”) Opinion No. 16, “Business Combinations,” and SFAS No. 38, “Accounting for Preacquisition Contingencies of Purchased Enterprises.” The provisions of the Statement apply to all business combinations initiated after June 30, 2001. SFAS No. 141 requires that all business combinations be accounted for by the purchase method of accounting. This method requires the accounts of an acquired business to be included with the acquirer’s accounts as of the date of acquisition with any excess of purchase price over the fair value of the net assets acquired to be capitalized as goodwill or other intangibles. The Statement requires that the assets of an acquired company be recognized as assets apart from goodwill if they meet specific criteria presented in the Statement. The Statement ends the use of the pooling-of-interests method of accounting for business combinations, which required the restatement of all prior period information for the accounts of the acquired institution. BB&T has historically been a frequent acquirer and has used both the pooling-of-interests and purchase methods of accounting. As a result of the adoption of this statement, BB&T will account for all mergers and acquisitions initiated after June 30, 2001, using the purchase method.

          In June 2001, the FASB issued SFAS No. 142, “Goodwill and Other Intangible Assets,” which supersedes APB Opinion No. 17, “Intangible Assets.” SFAS No. 142 addresses how intangible assets that are acquired individually or with a group of other assets (but not those acquired in a business combination) should be accounted for in financial statements upon their acquisition, and addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. The Statement eliminates the requirement to amortize goodwill and other intangible assets that have indefinite useful lives, instead requiring that the assets be tested at least annually for impairment based on the specific guidance in the Statement. BB&T adopted the provisions of the Statement effective January 1, 2002, as required, and applied the provisions of the Statement to all goodwill and other intangible assets recognized in the financial statements. The impact of adoption was reflected as a cumulative effect of a change in accounting principle in the Consolidated Statements of Income, resulting in the reversal of unamortized negative goodwill as required by paragraph 62 of SFAS No. 141. Following the adoption of SFAS No. 142, BB&T expects the amortization of goodwill and other intangibles to be reduced by approximately $52 million for 2002. SFAS No. 142 also requires a transitional impairment test of all goodwill and other indefinite-lived intangible assets in conjunction with its initial application. The Statement required this test to be performed prior to June 30, 2002, with any resulting impairment loss to be reported as a change in accounting principle. No impairment was recorded based on the results of these tests.



BB&T Corporation          Page 7          Third Quarter 2002 10-Q




          In June 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations,” which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Statement is effective beginning January 1, 2003. Management does not expect the implementation of the Statement to have a material impact on either BB&T’s consolidated financial position or consolidated results of operations.

          In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which supercedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,” and the accounting and reporting provisions of APB Opinion No. 30, “Reporting the Results of Operations–Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.” The Statement establishes a single accounting model for long-lived assets to be disposed of by a sale, and resolves significant implementation issues related to SFAS No. 121. The provisions of the Statement were adopted by BB&T on January 1, 2002. The implementation did not have a material impact on either BB&T’s consolidated financial position or consolidated results of operations.

          In May 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections as of April 2002". This Statement rescinds SFAS No. 4, “Reporting Gains and Losses from Extinguishment of Debt”, and an amendment of that Statement, SFAS No. 64, “Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements.” This Statement also rescinds SFAS No. 44, “Accounting for Intangible Assets of Motor Carriers” and amends SFAS No. 13, “Accounting for Leases”, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. This Statement also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. BB&T will adopt the provisions of this Statement effective January 1, 2003. Management does not anticipate that the implementation of this Statement will have a material impact on either BB&T’s consolidated financial position or consolidated results of operations.

          In August 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”. SFAS No. 146 requires that a liability for a cost that is associated with an exit or disposal activity be recognized when the liability is incurred. This Statement nullifies the guidance of the Emerging Issues Task Force (“EITF”) in EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)". Under EITF Issue No. 94-3, an entity recognized a liability for an exit cost on the date that the entity committed itself to an exit plan. In SFAS No. 146, the Board acknowledges that an entity’s commitment to a plan does not, by itself, create a present obligation to other parties that meets the definition of a liability. SFAS No. 146 also establishes that fair value is the objective for the initial measurement of the liability. SFAS No. 146 will be effective for exit or disposal activities that are initiated after December 31, 2002. BB&T will adopt the provisions of this Statement effective January 1, 2003. Management does not anticipate that the implementation of this Statement will have a materially adverse impact on either BB&T’s consolidated financial position or consolidated results of operations.



BB&T Corporation          Page 8          Third Quarter 2002 10-Q




          In October 2002, the FASB issued SFAS No. 147, “Acquisitions of Certain Financial Institutions, an amendment of FASB Statements No. 72 and 144 and FASB Interpretation No. 9,” which addresses the financial accounting and reporting for the acquisition of all or part of a financial institution. SFAS No. 147 removes acquisitions of financial institutions, except for transactions between two or more mutual enterprises, from the scope of both SFAS No. 72 and Interpretation No. 9 and requires that those transactions be accounted for in accordance with SFAS No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 147 also amends SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” to include in its scope long-term customer-relationship and credit cardholder intangible assets, and requires companies to cease amortization of unidentifiable assets associated with certain branch acquisitions. The provisions of this Statement were effective beginning October 1, 2002. The implementation of this Statement is expected to result in a reversal of $3.7 million of pre-tax goodwill amortization during 2002.

D.  Mergers and Acquisitions

          The following table presents summary information with respect to significant mergers and acquisitions completed by BB&T Corporation during 2001 and thus far during 2002:

Summary of Completed Mergers and Acquisitions
(Dollars in millions)

BB&T Common
Total Shares Issued
Date of Total Accounting Intangibles Purchase to Complete
Acquisition Acquired Company Headquarters Assets Method Recorded Price Transaction

September 13, 2002     Regional Financial Corp.     Tallahassee, Fla.     $ 1.6 billion   Purchase     $ 235.5 million   $ 276.3 million     7.3 million  
  March 20, 2002     Area Bancshares Corporation     Owensboro, Ky.       2.9 billion   Purchase       283.4 million     448.9 million     13.2 million  
   March 8, 2002     MidAmerica Bancorp     Louisville, Ky.       2.0 billion   Purchase       203.3 million     379.8 million (1)     8.2 million  
  January 1, 2002     Cooney, Rikard & Curtin, Inc.     Birmingham, Al.       108.6 million   Purchase       101.9 million     85.6 million     2.5 million  

 December 12, 2001     Community First Banking                                        
             Company     Carrollton, Ga.     $ 548.1 million   Purchase     $ 102.1 million   $ 132.2 million     3.5 million  
  August 9, 2001     F&M National Corporation     Winchester, Va.       4.0 billion   Pooling       N/A     N/A     31.1 million  
   June 27, 2001     Virginia Capital Bancshares, Inc.    Fredericksburg, Va.       532.7 million   Purchase       15.2 million     172.8 million     4.7 million  
   June 7, 2001     Century South Banks, Inc.     Alpharetta, Ga.       1.7 billion   Pooling       N/A     N/A     12.7 million  
   March 2, 2001     FirstSpartan Financial Corp.     Spartanburg, S.C.       591.0 million   Purchase       42.0 million     107.6 million     3.8 million  
  January 8, 2001     FCNB Corp.     Frederick, Md.       1.6 billion   Pooling       N/A     N/A     8.7 million  


N/A - Not applicable or terms not disclosed.

(1) Includes cash totaling $68.2 million to complete this acqisition.



BB&T Corporation          Page 9          Third Quarter 2002 10-Q




          The table above does not include mergers and acquisitions of acquired companies completed prior to their acquisition by BB&T or insurance agency acquisitions, which are summarized below.

          In addition to the transactions summarized in the table above, during the nine months ended September 30, 2002, BB&T acquired five insurance agencies that were accounted for as purchases. In conjunction with these transactions, BB&T issued approximately .9 million shares of common stock and paid $1.4 million in cash, recording approximately $45.3 million in intangible assets. The total purchase price of these five insurance agencies was $35.2 million. BB&T acquired seven insurance agencies during 2001, which were accounted for as purchases. In conjunction with these 2001 transactions, BB&T issued .3 million shares of common stock and recorded $16.5 million in goodwill and other intangible assets. The total purchase price of these seven insurance agencies was $15.7 million.

          BB&T typically provides an allocation period, not to exceed one year, to identify and quantify the fair value of the assets acquired and liabilities assumed in business combinations accounted for as purchases. Management currently does not anticipate any material adjustments to the assigned values of the assets and liabilities of acquired companies.

Pending Mergers and Acquisitions

          On September 27, 2002, BB&T announced plans to acquire Equitable Bank of Wheaton, Maryland. At the time of announcement, Equitable had approximately $477 million in assets and operated 5 full-service banking offices in Montgomery and Prince George’s counties. BB&T will issue one share of its stock in exchange for each share of Equitable. The transaction, which is subject to regulatory and Equitable Bank shareholder approval, is expected to be completed in the first quarter of 2003.

          On October 1, 2002, BB&T acquired Piedmont Brokerage Services LLC, a professional liability specialist based in High Point, N.C. Piedmont Brokerage Services’ specialty lines include liability coverage for directors and officers, errors and omissions policies, and employment practices liability.

E. Calculation of Earnings Per Common Share

          BB&T’s basic and diluted earnings per common share amounts were calculated as follows:



BB&T Corporation          Page 10          Third Quarter 2002 10-Q




BB&T CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE

For the Periods as Indicated

For the Three Months For the Nine Months
Ended September 30, Ended September 30,

2002 2001 2002 2001

(Dollars in thousands, except per share data)
Basic Earnings Per Share:                    
    Weighted average number of common shares outstanding during the period    477,112,074    454,346,907    472,764,083     452,904,319  

         Income before cumulative effect of change in accounting principle   $ 328,157   $ 221,966   $ 955,974   $ 695,695  
         Cumulative effect of change in accounting principle    --    --    9,780    --  

         Net income   $ 328,157   $ 221,966   $ 965,754   $ 695,695  

    Basic earnings per share  
         Income before cumulative effect of change in accounting principle   $ .69   $ .49   $ 2.02   $ 1.54  
         Cumulative effect of change in accounting principle    --    --    .02    --  

         Net income   $ .69   $ .49   $ 2.04   $ 1.54  

Diluted Earnings Per Share:  
    Weighted average number of common shares    477,112,074    454,346,907    472,764,083    452,904,319  
    Add:  
         Dilutive effect of outstanding options (as determined by application of  
             treasury stock method)     5,213,461    6,040,972    5,599,447    6,331,332  

    Weighted average number of common shares, as adjusted    482,325,535    460,387,879    478,363,530     459,235,651  

         Income before cumulative effect of change in accounting principle   $ 328,157   $ 221,966   $ 955,974   $ 695,695  
         Cumulative effect of change in accounting principle    --    --    9,780    --  

         Net income   $ 328,157   $ 221,966   $ 965,754   $ 695,695  

    Diluted earnings per share  
         Income before cumulative effect of change in accounting principle   $ .68   $ .48   $ 2.00   $ 1.51  
         Cumulative effect of change in accounting principle    --    --    .02    --  

         Net income   $ .68   $ .48   $ 2.02   $ 1.51  


F.  Segment Disclosures

          BB&T’s operations are divided into six reportable business segments: the Banking Network, Mortgage Banking, Trust Services, Agency Insurance, Investment Banking and Brokerage, and Treasury. These operating segments have been identified based primarily on BB&T’s existing organizational structure. The segments require unique technology and marketing strategies and offer different products and services. While BB&T is managed as an integrated organization, individual executive managers are held accountable for the operations of the business segments that report to them.

          BB&T’s strategies for revenue growth are focused on developing and expanding client relationships through quality service delivery and an effective sales culture. The segment results presented herein are based on internal management accounting policies that are designed to support these strategic objectives. Unlike financial accounting, there is no comprehensive authoritative body of guidance for management accounting equivalent to generally accepted accounting principles. Therefore, the performance of the individual segments is not comparable with BB&T’s consolidated results or with similar information presented by any other financial institution. Additionally, because of the interrelationships of the various segments, the information presented is not necessarily indicative of the segments’ financial performance if they operated as independent entities.



BB&T Corporation          Page 11          Third Quarter 2002 10-Q




          Please refer to BB&T’s Annual Report on Form 10-K, as amended, for the year ended December 31, 2001, for a description of internal accounting policies and the basis of segmentation, including a description of the segments presented in the accompanying tables. There have been no significant changes from the methods used to develop the segment disclosures contained therein.

          The following tables disclose selected financial information for BB&T’s reportable business segments for the periods as indicated:













BB&T Corporation          Page 12          Third Quarter 2002 10-Q




BB&T Corporation
Reportable Segments

For the Three Months Ended September 30, 2002 and 2001

Banking Network Mortgage Banking Trust Services Agency Insurance

2002 2001 2002 2001 2002 2001 2002 2001

(Dollars in thousands)
Net interest income (expense)                                    
  from external customers   $ 405,535   $ 337,916   $ 158,063   $ 155,911   $ (5,235 ) $ (9,015 ) $ 469   $ 180  
  Net intersegment interest income (expense)    180,569    135,896    (69,062 )  (113,168 )  12,328    12,010    --    --  

Net interest income    586,104    473,812    89,001    42,743    7,093    2,995    469    180  

Provision for loan and lease losses    57,356    74,639    841    834    --    --    --    --  
Noninterest income from external customers    213,916    122,641    (59,563 )  46,757    24,237    23,413    75,548    47,253  
  Intersegment noninterest income    88,349    67,066    --    --    --    --    --    --  
Noninterest expense    265,080    267,057    42,078    22,657    17,707    14,657    56,944    33,415  
  Intersegment noninterest expense    154,601    133,339    7,346    6,494    1,958    787    3,197    1,061  

Income before income taxes    411,332    188,484    (20,827 )  59,515    11,665    10,964    15,876    12,957  
  Income tax provision (benefit)    109,696    56,262    (7,127 )  17,487    3,322    2,893    6,301    5,127  

Net income (loss)   $ 301,636   $ 132,222   $ (13,700 ) $ 42,028   $ 8,343   $ 8,071   $ 9,575   $ 7,830  

Identifiable segment assets   $ 48,720,890   $ 37,915,025   $ 9,919,874   $ 9,029,370   $ 75,265   $ 48,530   $ 664,379   $ 125,129  


Investment Banking
and Brokerage Treasury All Other Segments (1) Total Segments

2002 2001 2002 2001 2002 2001 2002 2001

Net interest income (expense)                                    
  from external customers   $ 1,772   $ 2,107   $ 54,852   $ 62,350   $ 92,376   $ 123,318   $ 707,832   $ 672,767  
  Net intersegment interest income (expense)    --    --    2,218    8,677    1,321    --    127,374    43,415  

Net interest income    1,772    2,107    57,070    71,027    93,697    123,318    835,206    716,182  

Provision for loan and lease losses    --    --    35    33    24,978    15,799    83,210    91,305  
Noninterest income from external customers    49,563    45,905    166,023    8,939    47,313    61,411    517,037    356,319  
  Intersegment noninterest income    --    --    --    --    --    --    88,349    67,066  
Noninterest expense    46,530    47,100    3,625    1,890    36,392    26,630    468,356    413,406  
  Intersegment noninterest expense    3,692    433    422    487    6,506    2,926    177,722    145,527  

Income before income taxes    1,113    479    219,011    77,556    73,134    139,374    711,304    489,329  
  Income tax provision (benefit)    539    741    61,080    19,299    17,320    57,465    191,131    159,274  

Net income (loss)   $ 574   $ (262 ) $ 157,931   $ 58,257   $ 55,814   $ 81,909   $ 520,173   $ 330,055  

Identifiable segment assets   $ 931,953   $ 742,244   $ 20,030,487   $ 19,902,048   $ 8,299,086   $ 4,495,500   $ 88,641,934   $ 72,257,846  



(1)    Financial data from segments below the quantitative thresholds requiring disclosure are attributable to nonbank consumer finance and other specialized lending operations, factoring, leasing and other smaller subsidiaries.



BB&T Corporation          Page 13          Third Quarter 2002 10-Q




BB&T Corporation
Reportable Segments

For the Nine Months Ended September 30, 2002 and 2001

Banking Network Mortgage Banking Trust Services Agency Insurance

2002 2001 2002 2001 2002 2001 2002 2001

(Dollars in thousands)
Net interest income (expense)                                    
  from external customers   $ 1,138,766   $ 1,096,904   $ 466,415   $ 455,742   $ (15,284 ) $ (28,022 ) $ 1,110   $ 507  
  Net intersegment interest income (expense)    484,996    450,290    (256,399 )  (344,234 )  35,277    37,270    --    --  

Net interest income    1,623,762    1,547,194    210,016    111,508    19,993    9,248    1,110    507  

Provision for loan and lease losses    160,638    168,892    2,329    2,353    --    --    --    --  
Noninterest income from external customers    495,832    388,512    35,429    94,542    76,577    72,274    208,434    126,762  
  Intersegment noninterest income    225,212    160,643    --    --    --    --    --    --  
Noninterest expense    787,836    819,444    104,143    55,449    56,606    43,772    157,803    93,046  
  Intersegment noninterest expense    431,510    377,046    22,189    19,546    6,384    2,338    9,605    3,175  

Income before income taxes    964,822    730,967    116,784    128,702    33,580    35,412    42,136    31,048  
  Income tax provision (benefit)    268,314    209,421    32,025    37,784    9,916    9,695    16,742    12,294  

Net income (loss)   $ 696,508   $ 521,546   $ 84,759   $ 90,918   $ 23,664   $ 25,717   $ 25,394   $ 18,754  

Identifiable segment assets   $ 48,720,890   $ 37,915,025   $ 9,919,874   $ 9,029,370   $ 75,265   $ 48,530   $ 664,379   $ 125,129  


Investment Banking
and Brokerage Treasury All Other Segments (1) Total Segments
2002 2001 2002 2001 2002 2001 2002 2001
Net interest income (expense)                                    
  from external customers   $ 5,494   $ 6,774   $ 161,216   $ 143,137   $ 267,556   $ 264,864   $ 2,025,273   $ 1,939,906  
  Net intersegment interest income (expense)    --    --    16,825    30,515    --    --    280,699    173,841  

Net interest income    5,494    6,774    178,041    173,652    267,556    264,864    2,305,972    2,113,747  

Provision for loan and lease losses    --    --    106    100    67,385    44,805    230,458    216,150  
Noninterest income from external customers    160,788    135,158    230,917    24,669    127,359    124,915    1,335,336    966,832  
  Intersegment noninterest income    --    --    --    --    --    --    225,212    160,643  
Noninterest expense    144,119    135,947    10,869    5,443    96,381    77,407    1,357,757    1,230,508  
  Intersegment noninterest expense    11,078    1,194    1,269    1,459    18,258    8,626    500,293    413,384  

Income before income taxes    11,085    4,791    396,714    191,319    212,891    258,941    1,778,012    1,381,180  
  Income tax provision (benefit)    4,347    3,228    109,896    46,690    51,976    72,175    493,216    391,287  

Net income (loss)   $ 6,738   $ 1,563   $ 286,818   $ 144,629   $ 160,915   $ 186,766   $ 1,284,796   $ 989,893  

Identifiable segment assets   $ 931,953   $ 742,244   $ 20,030,487   $ 19,902,048   $ 8,299,086   $ 4,495,500   $ 88,641,934   $ 72,257,846  



(1)    Financial data from segments below the quantitative thresholds requiring disclosure are attributable to nonbank consumer finance and other specialized lending operations, factoring, leasing and other smaller subsidiaries.



BB&T Corporation          Page 14          Third Quarter 2002 10-Q




          The following table presents a reconciliation of total segment results to consolidated results:

For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2002 2001 2002 2001

Net Interest Income                    
     Net interest income from segments   $ 835,206   $ 716,182   $ 2,305,972   $ 2,113,747  
     Other net interest income (expense) (1)    (80,766 )  35,141    (324,059 )  104,861  
     Elimination of net intersegment interest income (2)    (52,348 )  (129,632 )  57,476    (416,996 )

         Consolidated net interest income   $ 702,092   $ 621,691   $ 2,039,389   $ 1,801,612  

Net income  
     Net income from segments   $ 520,173   $ 330,055   $ 1,284,796   $ 989,893  
     Other net income (loss) (1)    278,842    177,460    576,548    510,589  
     Elimination of intersegment net income (2)    (470,858 )  (285,549 )  (895,590 )  (804,787 )

         Consolidated net income   $ 328,157   $ 221,966   $ 965,754   $ 695,695  

 
                    September 30,     September 30,  

                    2002     2001
Total Assets  
     Total assets from segments             $ 88,641,934   $ 72,257,846  
     Other assets (1)              28,653,295    12,715,051  
     Elimination of intersegment assets (2)              (39,108,398 )  (14,663,851 )

         Consolidated total assets             $ 78,186,831   $ 70,309,046  



(1) Other net interest income (expense), other net income (loss) and other assets include amounts associated with BB&T’s support functions not allocated to the various reportable segments.
(2) BB&T’s reconciliation of total segment results to consolidated results requires the elimination of internal management accounting practices. These adjustments include the elimination of funds transfer pricing credits and charges and the elimination of intersegment noninterest income and noninterest expense, which are allocated to the various segments using BB&T’s internal accounting methods.



BB&T Corporation          Page 15          Third Quarter 2002 10-Q




G.  Goodwill and Other Intangible Assets

          The changes in the carrying amounts of goodwill attributable to each of BB&T’s operating segments for the twelve months ended December 31, 2001, and the nine months ended September 30, 2002, are as follows:

Goodwill Activity by Operating Segment
(Dollars in thousands)

Investment
Banking Mortgage Trust Agency Banking All Other
Network Banking Services Insurance and Brokerage Segments Total

Balance, January 1, 2001     $ 536,681   $ 1,039   $ 8,691   $ 115,916   $ 70,974   $ 30,576   $ 763,877  
       Acquired goodwill    156,875    764    5,105    15,099    5,063    --    182,906  
       Amortization expense    (48,122 )  (35 )  (691 )  (9,292 )  (5,443 )  (3,297 )  (66,880 )

Balance, December 31, 2001    645,434    1,768    13,105    121,723    70,594    27,279    879,903  

       Acquired goodwill    711,017    6,378    14,883    87,165    311    2,564    822,318  
       Amortization expense (1)    (3,591 )  --    (67 )  --    --    --    (3,658 )

Balance, September 30, 2002   $ 1,352,860   $ 8,146   $ 27,921   $ 208,888   $ 70,905   $ 29,843   $ 1,698,563  


(1)    This amortization expense relates to goodwill recorded under SFAS No. 72.



          The following table presents the gross carrying amounts and accumulated amortization for BB&T’s intangible assets subject to amortization at the dates presented:

Acquired Intangible Assets
(Dollars in thousands)

As of September 30, 2002 As of December 31, 2001
 

Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization

Amortizing intangible assets                    
      Core deposit intangibles   $ 99,893   $ (37,308 ) $ 69,574   $ (31,021 )
      Other    83,690    (7,659 )  18,963    (3,060 )

         Totals   $ 183,583   $ (44,967 ) $ 88,537   $ (34,081 )


          During the quarters ended September 30, 2002 and 2001, BB&T incurred $7.1 million and $20.0 million, respectively, in pretax amortization expenses associated with goodwill, core deposit intangibles and other intangible assets.



BB&T Corporation          Page 16          Third Quarter 2002 10-Q




          The following table presents estimated amortization expense for each of the next five years.

Estimated Amortization Expense
(Dollars in thousands)

For the Year Ended December 31:
2003   $ 24,986
2004    23,617
2005    22,762
2006    17,046
2007    10,974

          The following tables present actual results for the three months and nine months ended September 30, 2002, and adjusted net income and adjusted earnings per share for the three months and nine months ended September 30, 2001, as well as the years ended December 31, 2001, 2000 and 1999, assuming the nonamortization provisions of SFAS No. 142 were effective at the beginning of the periods presented:

For the Three Months Ended For the Nine Months Ended
September 30, September 30, For the Year Ended December 31,

2002 2001 2002 2001 2001 2000 1999

(Dollars in thousands) (Dollars in thousands) (Dollars in thousands)
       
Reported net income     $ 328,157   $ 221,966   $ 965,754   $ 695,695   $ 973,638   $ 698,488   $ 778,725  
    Add back:  
    Goodwill amortization    --    16,284    --    49,779    66,390    60,126    49,766  

    Adjusted net income   $ 328,157   $ 238,250   $ 965,754   $ 745,474   $ 1,040,028   $ 758,614   $ 828,491  

Basic earnings per share:  
    Reported net income   $ 0.69   $ 0.49   $ 2.04   $ 1.54   $ 2.15   $ 1.55   $ 1.74  
    Goodwill amortization    --    0.04    --    0.11    0.15    0.13    0.11  

    Adjusted net income   $ 0.69   $ 0.53   $ 2.04   $ 1.65   $ 2.30   $ 1.68   $ 1.85  

Diluted earnings per share:  
    Reported net income   $ 0.68   $ 0.48   $ 2.02   $ 1.51   $ 2.12   $ 1.53   $ 1.71  
    Goodwill amortization    --    0.04    --    0.11    0.14    0.13    0.11  

    Adjusted net income   $ 0.68   $ 0.52   $ 2.02   $ 1.62   $ 2.26   $ 1.66   $ 1.82  




BB&T Corporation          Page 17          Third Quarter 2002 10-Q




Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

          This report contains forward-looking statements with respect to the financial condition, results of operations and business of BB&T. These forward-looking statements involve risks and uncertainties and are based on the beliefs and assumptions of the management of BB&T, and on the information available to management at the time that these disclosures were prepared. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among others, the following possibilities: (1) competitive pressures among depository and other financial institutions may increase significantly; (2) changes in the interest rate environment may reduce margins; (3) general economic conditions, either nationally or regionally, may be less favorable than expected, resulting in, among other things, a deterioration in credit quality and/or a reduced demand for credit; (4) legislative or regulatory changes, including changes in accounting standards, may adversely affect the businesses in which BB&T is engaged; (5) costs or difficulties related to the integration of the businesses of BB&T and its merger partners may be greater than expected; (6) expected cost savings associated with pending mergers may not be fully realized or realized within the expected time frame; (7) deposit attrition, customer loss or revenue loss following pending mergers or recently completed mergers may be greater than expected; (8) competitors may have greater financial resources and develop products that enable such competitors to compete more successfully than BB&T; and (9) adverse changes may occur in the securities markets.

Critical Accounting Policies

          The accounting and reporting policies of BB&T Corporation and its subsidiaries are in accordance with accounting principles generally accepted in the United States and conform to general practices within the banking industry. BB&T’s financial position and results of operations are affected by management’s application of accounting policies, including judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues, expenses and related disclosures. Different assumptions in the application of these policies could result in material changes in BB&T’s consolidated financial position and/or consolidated results of operations. The more critical accounting and reporting policies include BB&T’s accounting for securities, loans and leases, the allowance for loan and lease losses, valuation of mortgage servicing rights, mergers and acquisitions and income taxes. BB&T’s accounting policies are fundamental to understanding Management’s Discussion and Analysis of Financial Condition and Results of Operations. Accordingly, BB&T’s significant accounting policies are discussed in detail in BB&T’s 2001 Annual Report on Form 10-K, as amended, filed with the Securities and Exchange Commission.

          The following is a summary of BB&T’s more subjective and complex accounting policies.



BB&T Corporation          Page 18          Third Quarter 2002 10-Q




          The allowance for loan and lease losses is established and maintained at levels management deems adequate to cover losses inherent in the portfolio as of the balance sheet date and is based on management’s evaluation of the risks in the loan portfolio and changes in the nature and volume of loan activity. Estimates for loan losses are determined by analyzing historical loan losses, current trends in delinquencies and charge-offs, plans for problem loan administration, the opinions of our regulators, changes in the size and composition of the loan portfolio and peer group information. Also included in management’s estimates for loan losses are considerations with respect to the impact of economic events, the outcome of which is uncertain. These events may include, but are not limited to, fluctuations in overall interest rates, political conditions, legislation that may directly or indirectly affect the banking industry and economic conditions affecting specific geographical areas in which BB&T conducts business.

          BB&T has a significant mortgage loan-servicing portfolio and has capitalized the associated servicing rights. Mortgage servicing rights represent the present value of the future servicing fees arising from the right to service loans in the portfolio. The most critical accounting policy associated with mortgage servicing is the methodology used to determine the fair value of capitalized mortgage servicing rights, which requires the development of a number of estimates, including anticipated principal amortization and prepayments of principal. The value of capitalized mortgage servicing rights is significantly affected by interest rates available in the marketplace, which influence mortgage loan prepayment speeds and the payment performance of the underlying loans. In general, during periods of declining interest rates, the value of mortgage servicing assets declines due to increasing prepayments attributable to increased mortgage refinance activity. Conversely, during periods of rising interest rates, the value of servicing assets generally increases due to reduced refinance activity. BB&T amortizes mortgage servicing rights over the period of estimated net servicing income based on projections of the amount and timing of future cash flows. The amount and timing of servicing asset amortization is adjusted periodically based on actual results and updated projections.

          BB&T’s growth in business, profitability and market share over the past several years has been enhanced significantly by mergers and acquisitions. BB&T’s acquisitions have historically been accounted for using the pooling-of-interests and purchase business combination methods of accounting. Effective July 1, 2001, BB&T adopted SFAS No. 141, “Business Combinations,” which allows only the use of the purchase method of accounting. For purchase acquisitions, BB&T is required to record the assets acquired and liabilities assumed at their fair value, which in many instances involves estimates based on third party valuations, such as appraisals, or internal valuations based on discounted cash flow analyses or other valuation techniques. These estimates also include the establishment of various reserves based on planned facilities dispositions and employee benefit related considerations, among other acquisition-related items. In addition, purchase acquisitions typically result in goodwill or other intangible assets, which are subject to ongoing periodic impairment tests based on the fair value of net assets acquired compared to the carrying value of goodwill and other intangibles. Furthermore, the determination of which intangible assets have finite lives is subjective, as well as the determination of the amortization period for such intangible assets.

          The determination of BB&T’s overall income tax provision is complex and requires careful analysis. As part of the Company’s overall business strategy, BB&T may enter into business transactions that require management to consider tax laws and regulations that apply to the specific facts and circumstances under consideration. This analysis includes evaluating the amount and timing of the realization of income tax liabilities or benefits. Management closely monitors tax developments as they affect the Company’s overall tax position.

Back to Index



BB&T Corporation          Page 19          Third Quarter 2002 10-Q




ANALYSIS OF FINANCIAL CONDITION

          BB&T's total assets at September 30, 2002, were $78.2 billion, a $7.3 billion, or 10.3%, increase from December 31, 2001. The asset category that produced the majority of the increase was loans and leases, including loans held for sale, which grew $5.6 billion, or 11.8%. Average total loans for the nine months ended September 30, 2002, were $49.9 billion or 7.8% greater than the average for the first nine months of 2001. Additionally, goodwill and other assets increased $818.7 million and $856.1 million, or 93.0% and 26.7%, respectively, from December 31, 2001.

          Total deposits at September 30, 2002, increased $5.1 billion, or 11.4%, from December 31, 2001. Short-term borrowed funds declined $1.9 billion, or 27.8% while long-term debt increased $1.7 billion, or 14.2%, during the first nine months of 2002. Total shareholders’ equity increased $1.4 billion, or 22.5%, during the same time frame.

          The factors causing the fluctuations in the major balance sheet categories are further discussed in the following sections.

Loans and Leases

          Management emphasizes lending to small and medium-sized businesses and consumer lending in order to improve the overall profitability of the loan portfolio. For the first nine months of 2002, average total loans were $49.9 billion, an increase of $3.6 billion, or 7.8%, compared to the same period in 2001. During the first nine months of 2002, average commercial loans and leases totaled $27.7 billion, an increase of $2.6 billion, or 10.4%, compared to the same period in 2001 and composed 55.5% of the loan and lease portfolio compared to 54.2% for the first nine months of 2001. Average mortgage loans totaled $9.1 billion and composed 18.3% of the loan and lease portfolio compared to 19.9% for the first nine months of 2001. Average consumer loans, which include sales finance, revolving credit and direct retail, totaled $13.1 billion, an increase of $1.1 billion, or 8.9%, compared to the same period in 2001. Consumer loans composed the remaining 26.2% of the loan and lease portfolio compared to 25.9% for the first nine months of 2001. To improve the overall yield and profitability of the loan portfolio and to mitigate interest rate risk, BB&T sells most of its fixed-rate mortgage loans in the secondary market or securitizes the loans and transfers them to the securities portfolio. However, due to the continued low interest rate environment and resulting high volumes of mortgage loan originations, the mix of the consolidated loan portfolio in the 2002 period was very similar to that of one year ago.

          For the third quarter of 2002, average total loans were $51.6 billion, an increase of $4.4 billion, or 9.4%, compared to the same period in 2001. Average commercial loans and leases for the third quarter of 2002 totaled $28.5 billion, an increase of $3.0 billion, or 11.9%, compared to the same period in 2001 and composed 55.2% of the loan and lease portfolio compared to 54.0% for the third quarter of 2001. Average mortgage loans totaled $9.5 billion and composed 18.4% of the loan and lease portfolio compared to 20.2% for the third quarter of 2001. Average consumer loans, which include sales finance, revolving credit and direct retail, totaled $13.6 billion, an increase of $1.5 billion, or 11.9%, compared to the same period in 2001 and composed the remaining 26.4% of the loan and lease portfolio compared to 25.8% for the third quarter of 2001.



BB&T Corporation          Page 20          Third Quarter 2002 10-Q




          The growth rates of the average loans described above were affected by securitization programs and by loan portfolios held by companies that were acquired in purchase transactions during the last three months of 2001 and the first nine months of 2002. During the first nine months of 2002, loans totaling $1.2 billion, $1.9 billion and $1.2 billion were acquired through the purchases of Regional, AREA Bancshares Corporation (“AREA”) and MidAmerica Bancorp (“MidAmerica”), respectively. During the last quarter of 2001, loans totaling $368.8 million were acquired through the purchase of Community First Banking Company (“CFBC”). Excluding the effect of purchase accounting transactions completed during 2001 and 2002 and mortgage loan securitizations, the average “internal” loan growth for the three months ended September 30, 2002, was 1.3% compared to the third quarter of 2001. By category, excluding the effects of purchase accounting transactions and loan securitizations, average mortgage loans, including loans held for sale, decreased 6.6%, average commercial loans and leases grew 2.7%, and average consumer loans increased 5.1% in the third quarter of 2002 compared to the same period of 2001.

          The annualized fully taxable equivalent ("FTE") yields on commercial, consumer and mortgage loans for the first nine months of 2002 were 6.24%, 8.59%, and 7.15%, respectively, resulting in an annualized yield on the total loan portfolio of 7.02%. The FTE yields on commercial, consumer and mortgage loans for the first nine months of 2001 were 8.52%, 9.82%, and 7.55%, respectively, resulting in an annualized yield on the total loan portfolio of 8.67%. This reflects a decrease of 165 basis points in the annualized yield on the total loan portfolio during the first nine months of 2002 in comparison to 2001. The decrease in yield resulted from a lower average prime rate during late 2001 and all of 2002, as well as an overall lower interest rate environment. During 2001, the Federal Reserve reduced the intended federal funds rate from 6.50% at the beginning of the year to 1.75% at year-end where it has remained throughout the first nine months of 2002. As a result of the Federal Reserve Board’s actions, the prime rate, which is the basis for pricing many commercial and consumer loans, averaged 4.75% in the third quarter of 2002 compared to 6.57% in the third quarter of 2001. For the first nine months of 2002, the prime rate averaged 4.75%, compared to 7.51% during the first nine months of 2001. The growth in the overall loan portfolio, combined with the decrease in the yield of the portfolio, from 8.22% in the third quarter and 8.67% in the first nine months of 2001 to 6.91% in the third quarter and 7.02% in the first nine months of 2002, resulted in a decrease of 8.0% in FTE interest income from loans and leases in the current quarter and a decrease of 12.0% in FTE interest income from loans and leases during the first nine months of 2002 compared to the 2001 periods.

Securities

          Securities available for sale totaled $16.4 billion at September 30, 2002, a decrease of $205.5 million, or 1.2%, compared with December 31, 2001. Securities available for sale had net unrealized gains, net of deferred income taxes, of $333.5 million at September 30, 2002, compared to net unrealized gains, net of deferred income taxes, of $288.1 million at December 31, 2001. Securities held to maturity totaled $51.4 million, an increase of $10.9 million, or 26.9%, from year-end 2001. Trading securities totaled $121.5 million, an increase of $23.9 million, or 24.4%, compared to the balance at December 31, 2001.



BB&T Corporation          Page 21          Third Quarter 2002 10-Q




          Average total securities for the first nine months amounted to $17.2 billion, up 9.2% from the average during the first nine months of 2001. For the third quarter of 2002, average securities totaled $17.6 billion or 9.7% higher than the average balance for the third quarter of 2001.

          The annualized FTE yield on the average total securities portfolio for the first nine months of 2002 was 6.32%, a decrease of 81 basis points from the yield earned in the first nine months of 2001. This decrease in yield resulted principally from the lower interest rate environment, which resulted in cash flows from the maturity of higher yielding securities, callable bonds and prepayments of mortgage backed securities during 2001 being reinvested at lower interest rates during 2002.

          BB&T sold available for sale securities totaling $2.0 billion in the third quarter and $2.6 billion in the first nine months of 2002, and realized net gains totaling $135.9 million in the third quarter and $169.0 million in the first nine months of 2002. The gains were taken to economically offset increases in the valuation allowance necessary to reduce the carrying value of BB&T’s capitalized mortgage servicing rights.

Other Interest Earning Assets

          Federal funds sold and securities purchased under resale agreements or similar arrangements totaled $367.9 million at September 30, 2002, an increase of $121.8 million, or 49.5%, compared to December 31, 2001. Interest-bearing deposits with banks increased $35.8 million, or 31.2%, compared to December 31, 2001. These categories of earning assets are subject to large daily fluctuations based on the availability of these types of funds. The average yield on other interest-earning assets for the first nine months of 2002 was 1.89%, a decrease from the 4.38% earned during the first nine months of 2001. The decrease in the yield on other interest-earning assets is principally the result of the decline in the average federal funds rate from 4.47% for the first nine months of 2001 to 1.74% for the first nine months of 2002.

Goodwill and Other Assets

          BB&T’s other noninterest-earning assets, excluding premises and equipment and noninterest-bearing cash and due from banks, increased $1.7 billion from December 31, 2001, to September 30, 2002. The increase resulted primarily from goodwill, which increased $818.7 million due primarily to the acquisitions of Regional, AREA, MidAmerica and CRC; investments in bank owned life insurance, which increased $463.2 million; and core deposit and other intangibles, which grew $84.2 million because of the aforementioned acquisitions. These increases were offset by a decrease of $78.2 million in the carrying value of capitalized mortgage servicing rights.



BB&T Corporation          Page 22          Third Quarter 2002 10-Q




Deposits

          Deposits at September 30, 2002 totaled $49.8 billion, an increase of $5.1 billion, or 11.4%, from December 31, 2001. The purchase acquisitions of Regional, AREA and MidAmerica generated $4.3 billion of the increase. Average deposits for the first nine months of 2002 increased $4.5 billion, or 10.3%, compared to the first nine months of 2001. The categories of deposits with the highest average rates of growth in 2002 compared to 2001 were: money rate savings accounts, including investor deposit accounts, which increased $2.2 billion, or 18.1%, and noninterest-bearing deposits, which increased $929.0 million, or 15.3%. The growth realized in these deposit categories was partially offset by a decline of $28.5 million, or .8%, in average savings and interest checking.

          For the third quarter, average deposits increased $6.0 billion, or 13.5%. Average total transaction accounts, which include noninterest-bearing deposits, savings, interest checking and money rate savings, totaled $25.8 billion for the third quarter, an increase of $3.6 billion, or 16.0%, compared to the third quarter of 2001. Average time deposits for the third quarter totaled $24.7 billion, an increase of $2.5 billion, or 11.1%, compared to the third quarter of 2001.

          The growth in average deposits for 2002 includes the effect of deposits acquired in purchase accounting transactions completed during the last three months of 2001 and the first nine months of 2002. The purchases of AREA and MidAmerica in the first quarter of 2002 and Regional in the third quarter of 2002 resulted in the addition of $2.1 billion, $1.1 billion and $1.1 billion in deposits, respectively. During the last three months of 2001, the purchase of CFBC added $428.4 million in deposits. Growth rates for noninterest-bearing deposits are also affected by an official check outsourcing program, which has improved fee income, but reduced the balance of noninterest-bearing deposits. Excluding the effects of purchase accounting transactions and official check outsourcing, average deposits for the nine months ended September 30, 2002, would have increased 2.9% compared to the same time period of 2001. Excluding the effects of purchase accounting, transaction account deposits increased 7.8% compared to the nine months ended September 30, 2001, and certificate accounts and other time deposits would have decreased 1.8%. For the third quarter of 2002, total average deposits, excluding the effects of purchase accounting transactions and official check outsourcing, increased 4.1% compared to the third quarter of 2001.

          The annualized average rate paid on total interest-bearing deposits during the first nine months of 2002 was 2.49%, a decrease of 192 basis points compared to 2001. The decrease in the average rate paid resulted from the lower interest rate environment that has existed during 2002 compared to 2001, which included the previously discussed 273 basis point decrease in the average federal funds rate.

Other Borrowings

          At September 30, 2002, short-term borrowed funds totaled $4.8 billion, a decrease of $1.9 billion, or 27.8%, compared to December 31, 2001. For the third quarter of 2002, average short-term borrowed funds totaled $5.2 billion, a decrease of $1.2 billion, or 18.7%, from the comparable period of 2001. For the nine months ended September 30, 2002, average short-term borrowed funds totaled $5.7 billion, a decrease of $556.9 million, or 9.0%, compared to the first nine months of 2001. The decreases in short-term borrowed funds resulted from a shift in the Company’s funding mix to funds with longer maturities due to the current low interest rate environment. The average annualized rate paid on short-term borrowed funds was 1.82% for the first nine months of 2002, a decrease of 255 basis points from the average rate of 4.37% paid in the comparable period of 2001. This decrease in the cost of short-term borrowed funds resulted from the lower interest rate environment that has existed during 2002 compared to 2001, which included a 273 basis point decrease in the average federal funds rate.



BB&T Corporation          Page 23          Third Quarter 2002 10-Q




          Long-term debt consists primarily of Federal Home Loan Bank advances and other secured borrowings by BB&T’s banking subsidiaries and corporate subordinated debt. Long-term debt has been utilized for a variety of funding needs, including the repurchase of common stock. Long-term debt totaled $13.4 billion at September 30, 2002, an increase of $1.7 billion, or 14.2%, from the balance at December 31, 2001. For the third quarter of 2002, average long-term debt totaled $12.3 billion, an increase of $1.1 billion, or 10.2%, compared to the third quarter of 2001. For the nine months ended September 30, 2002, total average long-term borrowed funds were $11.7 billion, an increase of $852.7 million, or 7.8%, compared to the first nine months of 2001. During the third quarter of 2002, BB&T issued $500 million of subordinated notes and Branch Bank added an additional $1.5 billion of secured borrowings. The average annualized rate paid on long-term borrowed funds was 5.04% for the first nine months of 2002, a decrease of 59 basis points from the average rate of 5.63% paid for the first nine months of 2001.

Asset Quality

          Nonperforming assets, composed of foreclosed real estate, repossessions, nonaccrual loans and restructured loans, totaled $425.3 million at September 30, 2002, compared to $373.6 million at December 31, 2001. However, as a percentage of loan and leases plus foreclosed property, nonperforming assets were .80% at September 30, 2002, up only slightly from .79% at December 31, 2001. Loans 90 days or more past due and still accruing interest totaled $100.1 million at September 30, 2002, compared to $101.8 million at year-end 2001.

          BB&T’s net charge-offs totaled $63.6 million for the third quarter and amounted to .49% of average loans and leases, on an annualized basis, compared to $44.1 million, or .37% of average loans and leases, on an annualized basis, in the corresponding period in 2001. For the nine months ended September 30, 2002, net charge-offs totaled $177.9 million, or .48% of average loans and leases, compared to $122.9 million, or .35% of average loans and leases, in 2001.

          While the slowdown in the economy has resulted in increases in nonperforming assets and net charge-offs, BB&T’s lending strategy, which focuses on relationship-based lending within our markets and smaller individual loan balances, continues to produce superior credit quality in good and bad economic times. BB&T’s relative levels of nonperforming assets and net charge-offs, have remained approximately half that of published industry averages.



BB&T Corporation          Page 24          Third Quarter 2002 10-Q




          The allowance for loan and lease losses was $723.7 million and $644.4 million at September 30, 2002 and December 31, 2001, respectively, or 1.36% of loans and leases at both period ends. Excluding loans held for sale, the allowance for loan and lease losses was 1.42% of loans and leases at both September 30, 2002 and December 31, 2001, respectively. The steady ratio of the allowance as a percentage of loans and leases reflects a similar trend in nonperforming assets, which increased only one basis point as a percentage of loans and leases plus foreclosed property from December 31, 2001 to September 30, 2002.

          The provision for loan and lease losses for the third quarter of 2002 was $64.0 million, compared to $68.5 million in the comparable quarter of 2001. For the nine months, the provision for loan and lease losses totaled $179.0 million compared to $159.3 million in 2001. The increased provision during 2002 was necessary to cover higher net charge-offs and to maintain the allowance at a level considered adequate to absorb losses inherent in the loan portfolio at the balance sheet date.













BB&T Corporation          Page 25          Third Quarter 2002 10-Q




          Asset quality statistics for the last five calendar quarters are presented in the accompanying table.

ASSET QUALITY ANALYSIS
(Dollars in thousands)

For the Three Months Ended

9/30/02 6/30/02 3/31/02 12/31/01 9/30/01

Allowance For Loan & Lease Losses
    Beginning balance     $ 706,446   $ 705,905   $ 644,418   $ 634,552   $ 610,171  
    Allowance for acquired loans, net    16,861    136    61,177    9,047    --  
    Provision for loan and lease losses    64,000    58,500    56,500    65,000    68,500  
    Net charge-offs    (63,619 )  (58,095 )  (56,190 )  (64,181 )  (44,119 )

       Ending balance   $ 723,688   $ 706,446   $ 705,905   $ 644,418   $ 634,552  

Risk Assets  
    Nonaccrual loans and leases   $ 358,823   $ 335,287   $ 354,916   $ 316,607   $ 266,384  
    Foreclosed real estate    46,378    49,009    46,687    39,106    34,601  
    Other foreclosed property    17,712    15,803    20,734    17,858    17,733  
    Restructured loans    2,358    --    --    --    183  

       Total nonperforming assets   $ 425,271   $ 400,099   $ 422,337   $ 373,571   $ 318,901  

    Loans 90 days or more past due  
       and still accruing   $ 100,147   $ 98,143   $ 100,962   $ 101,778   $ 93,968  

Asset Quality Ratios  
Nonaccrual loans and leases as a                                  
    percentage of total loans and leases*       .68  %   .66  %   .71  %   .67  %   .57  %
Total nonperforming assets as a percentage of:  
    Total assets    .54    .52    .56    .53    .45  
    Loans and leases plus foreclosed property*    .80    .79    .84    .79    .68  
Annualized net charge-offs as a percentage of  
    average loans and leases*    .49    .46    .48    .54    .37  
Annualized net charge-offs excluding specialized                                  
    lending as a percentage of average                                  
    loans and leases**    .40    .38    .37    .46    .30  
Allowance for loan and lease losses as a  
    percentage of loans and leases*    1.36    1.40    1.41    1.36    1.35  
Ratio of allowance for loan and lease losses to:    
    Annualized net charge-offs       2.87  x   3.03  x   3.10  x   2.53  x   3.63  x
    Nonaccrual and restructured loans and leases    2.00    2.11    1.99    2.04    2.38  


*  

All items referring to loans and leases include loans held for sale and are net of unearned income.


**  

Excludes net charge-offs and average loans from BB&T's sub-prime automobile lending operations, an insurance premium finance business and direct consumer finance operations.




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Item 3.  Quantitative and Qualitative Disclosures About Market Risk

          The effective management of market risk is essential to achieving BB&T’s strategic financial objectives. As a financial institution, BB&T’s most significant market risk exposure is interest rate risk. The primary objective of interest rate risk management is to minimize the effect that changes in interest rates have on net interest income. This is accomplished through active management of asset and liability portfolios with a focus on the strategic pricing of asset and liability accounts and management of the maturity mixes of assets and liabilities. The goal of these activities is the development of appropriate maturity and repricing opportunities in BB&T’s portfolios of assets and liabilities that will produce consistent net interest income during periods of changing interest rates. BB&T’s Asset / Liability Management Committee (“ALCO”) monitors loan, investment and liability portfolios to ensure comprehensive management of interest rate risk. These portfolios are analyzed for proper fixed-rate and variable-rate mixes under various interest rate scenarios.



BB&T Corporation          Page 26          Third Quarter 2002 10-Q




          The asset/liability management process is designed to achieve relatively stable net interest margins and assure liquidity by coordinating the volumes, maturities or repricing opportunities of earning assets, deposits and borrowed funds. It is the responsibility of the ALCO to determine and achieve the most appropriate volume and mix of earning assets and interest-bearing liabilities, as well as to ensure an adequate level of liquidity and capital, within the context of corporate performance goals. The ALCO also sets policy guidelines and establishes long-term strategies with respect to interest rate risk exposure and liquidity. The ALCO meets regularly to review BB&T’s interest rate risk and liquidity positions in relation to present and prospective market and business conditions, and adopts funding and balance sheet management strategies that are intended to ensure that the potential impact on earnings and liquidity as a result of fluctuations in interest rates is within acceptable standards.

          The majority of assets and liabilities of financial institutions are monetary in nature and differ greatly from most commercial and industrial companies that have significant investments in fixed assets and inventories. Fluctuations in interest rates and actions of the Board of Governors of the Federal Reserve System (“FRB”) to regulate the availability and cost of credit have a greater effect on a financial institution’s profitability than do the effects of higher costs for goods and services. Through its balance sheet management function, BB&T is positioned to respond to changing interest rates and inflationary trends.

          Management uses Interest Sensitivity Simulation Analysis (“Simulation”) to measure the sensitivity of projected earnings to changes in interest rates. Simulation takes into account the current contractual agreements that BB&T has with its customers on deposits, borrowings, loans, investments and any commitments to enter into those transactions. Management monitors BB&T’s interest sensitivity by means of a computer model that incorporates the current volumes, average rates and scheduled maturities and payments of asset and liability portfolios, together with multiple scenarios of projected prepayments, repricing opportunities and anticipated volume growth. Using this information, the model projects earnings based on projected portfolio balances under multiple interest rate scenarios. This level of detail is needed to simulate the effect that changes in interest rates and portfolio balances may have on the earnings of BB&T. This method is subject to the accuracy of the assumptions that underlie the process, however, it provides a better illustration of the sensitivity of earnings to changes in interest rates than other analyses such as static or dynamic gap.



BB&T Corporation          Page 27          Third Quarter 2002 10-Q




          The asset/liability management process requires a number of key assumptions. Management determines the most likely outlook for the economy and interest rates by analyzing external factors, including published economic projections and data, the effects of likely monetary and fiscal policies as well as any enacted or prospective regulatory changes. BB&T’s current and prospective liquidity position, current balance sheet volumes and projected growth, accessibility of funds for short-term needs and capital maintenance are also considered. This data is combined with various interest rate scenarios to provide management with information necessary to analyze interest sensitivity and to aid in the development of strategies to reach performance goals.

          The following table shows the effect that the indicated changes in interest rates would have on net interest income as projected for the next twelve months under the “most likely” interest rate scenario incorporated into the Interest Sensitivity Simulation computer model. Key assumptions in the preparation of the table include prepayment speeds of mortgage-related assets, cash flows and maturities of derivative financial instruments, changes in market condition, loan volumes and pricing, deposit sensitivity, customer preferences and capital plans. The resulting change in net interest income reflects the level of sensitivity that net interest income has in relation to changing interest rates.

Interest Sensitivity Simulation Analysis
September 30, 2002

Interest  
Rate Annualized
Scenario Hypothetical

Percentage
Linear Change in
Change in Prime Net Interest
Prime Rate Rate Income

+3.00  %   7.75  %     1.51  %
+1.50     6.25       0.83  
-1.50     3.25       -2.99  
-3.00     1.75       -3.47  

          Management has established parameters for asset/liability management which prescribe a maximum impact on net interest income, using the most likely interest rate scenario, of 3% for a 150 basis point parallel change in interest rates over six months and 6% for a 300 basis point change over 12 months. It is management’s ongoing objective to effectively manage the impact of changes in interest rates and minimize the resulting effect on earnings as evidenced by the preceding table. At September 30, 2002, the sensitivity of BB&T’s net interest income to changes in interest rates was within the guidelines established by management, as illustrated in the accompanying table.



BB&T Corporation          Page 28          Third Quarter 2002 10-Q




Derivative Financial Instruments

          BB&T utilizes a variety of financial instruments to manage various financial risks. These instruments, commonly referred to as derivatives, primarily consist of interest rate swaps, caps, floors, collars, financial forward and futures 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. BB&T uses derivatives primarily to hedge business loans, forecasted sales of mortgage loans, federal funds purchased, long-term debt and certificates of deposit.

          Credit risk related to derivatives arises when amounts receivable from a counterparty exceed those payable. The risk of loss with any counterparty is limited to a small fraction of the notional amount. BB&T deals only with national market makers with “investment grade” credit ratings in its derivatives activities. BB&T further controls the risk of loss by subjecting counterparties to credit reviews and approvals similar to those used in making loans and other extensions of credit. All of the derivative contracts to which BB&T is a party settle monthly, quarterly or semiannually. Further, BB&T has netting agreements with the dealers with which it does business. Because of these factors, BB&T’s credit risk exposure at September 30, 2002 was not material.

          Derivative contracts are written in amounts referred to as notional amounts. Notional amounts only provide the basis for calculating payments between counterparties and do not represent amounts to be exchanged between parties or a measure of financial risk. On September 30, 2002, BB&T had derivative financial instruments outstanding with notional amounts totaling $9.5 billion. The estimated fair value of open contracts reflected net unrealized gains of $79.4 million at September 30, 2002.

          The following table sets forth certain information concerning BB&T’s derivative financial instruments at September 30, 2002:

Derivative Financial Instruments
September 30, 2002

(Dollars in thousands)

  Average Average  
Notional Receive Pay Estimated
Type Amount Rate Rate Fair Value

Receive fixed swaps     $ 3,083,711     4.06  %   1.83  % $ 121,122  
Pay fixed swaps    307,328    1.89    4.84    (12,322 )
Caps, floors & collars    1,316,050    --    --    12,753  
Foreign exchange contracts    136,486    --    --    (162 )
Forward contracts and futures    3,398,105    --    --    (40,424 )
Interest rate lock commitments    965,052    --    --    --  
Options on contracts purchased    270,000    --    --    (1,587 )

Total     $ 9,476,732               $ 79,380  



Back to Index




BB&T Corporation          Page 29          Third Quarter 2002 10-Q





CAPITAL ADEQUACY AND RESOURCES

          The maintenance of appropriate levels of capital is a management priority and is monitored on an ongoing basis. BB&T’s principal goals related to capital management are to provide an adequate return to shareholders while retaining a sufficient base to support future growth and comply with all regulatory standards.

          Total shareholders’ equity was $7.5 billion at September 30, 2002, and $6.2 billion at December 31, 2001. BB&T’s book value per common share at September 30, 2002 was $15.68 compared to $13.50 at December 31, 2001.

          Financial holding companies and their subsidiaries are subject to regulatory requirements with respect to risk-based capital adequacy. Risk-based capital ratios measure capital as a percentage of balance sheet risk. The risk-weighted values of balance sheet items are determined in accordance with risk factors specified by federal regulatory pronouncements.

          Tier 1 capital (total shareholders’ equity excluding unrealized gains or losses on debt securities available for sale and unrealized gains or losses on cash flow hedges, net of tax effects, plus certain mandatorily redeemable capital securities, less nonqualifying intangible assets) is required to be at least 4% of risk-weighted assets, and total capital (Tier 1 capital, a qualifying portion of the allowance for loan and lease losses and qualifying subordinated debt) must be at least 8% of risk-weighted assets, with one half of the minimum consisting of Tier 1 capital.

          In addition to the risk-based capital measures described above, regulators have also established minimum leverage capital requirements for banking organizations. This is the primary measure of capital adequacy used by BB&T’s management, and is calculated by dividing period-end Tier 1 capital by average tangible assets for the most recent quarter. The minimum required Tier 1 leverage ratio ranges from 3% to 5% depending upon federal bank regulatory agency evaluation of an organization’s overall safety and soundness.

          BB&T’s capital ratios at the end of the last five quarters are presented in the accompanying table:

CAPITAL RATIOS

2002 2001


Third Second First Fourth Third
Quarter Quarter Quarter Quarter Quarter

Risk-based capital ratios:
       Tier 1 capital   9.7  % 9.7  % 9.9  % 9.8  % 9.6  %
       Total capital  13.5   12.8   13.3   13.3   13.2  
Tier 1 leverage ratio  7.3   7.3   7.7   7.2   7.1  


Back to Index




BB&T Corporation          Page 30          Third Quarter 2002 10-Q




ANALYSIS OF RESULTS OF OPERATIONS

          Net income for the third quarter of 2002 totaled $328.2 million, an increase of 47.8% compared to the $222.0 million earned during the comparable quarter of 2001. On a diluted per share basis, earnings for the three months ended September 30, 2002, were $.68, compared to $.48 for the same period in 2001, an increase of 41.7%. BB&T’s operating results for the third quarter of 2002 produced an annualized return on average assets of 1.68% and an annualized return on average shareholders’ equity of 17.66% compared to prior year ratios of 1.27% and 14.92%, respectively.

          Net income for the nine months ended September 30, 2002, totaled $965.8 million, an increase of $270.1 million, or 38.8%, compared to the $695.7 million earned during the comparable period of 2001. On a diluted per share basis, earnings for the nine months ended September 30, 2002, were $2.02 compared to $1.51 for the same period in 2001, an increase of 33.8%. BB&T’s operating results for the first nine months of 2002 produced an annualized return on average assets of 1.72% and an annualized return on average shareholders’ equity of 18.44% compared to prior year ratios of 1.36% and 16.36%, respectively.

          The following table sets forth selected financial ratios for the last five calendar quarters:

Profitability Measures

2002 2001


Third Second First Fourth Third
Quarter Quarter Quarter Quarter Quarter

Return on average assets       1.68  %   1.74  %   1.76  %   1.56  %   1.27  %
Return on average equity       17.66     18.38     19.41     17.93     14.92  
Net interest margin       4.25     4.27     4.26     4.20     4.18  

          BB&T recorded certain merger-related and restructuring costs during both 2002 and 2001. For the third quarter of 2002, BB&T recorded $7.8 million in net after-tax charges primarily associated with the mergers of Regional, AREA and MidAmerica, as well as systems conversion costs related to other mergers. During the third quarter of 2001, BB&T incurred $61.5 million in net after-tax charges primarily associated with the acquisition of F&M National Corporation (“F&M”), and systems conversion costs related to other mergers. Merger-related and restructuring charges typically include, but are not limited to, personnel-related expenses such as staff relocation, severance benefits, early retirement packages and contract settlements; occupancy, furniture and equipment expenses including branch consolidation; and other costs, such as asset write-offs, professional fees, etc.

          For the nine months ended September 30, 2002, BB&T incurred $18.2 million in net after-tax charges primarily associated with the mergers of Regional, AREA, MidAmerica and CFBC, as well as systems conversion costs related to other mergers. For the nine months ended September 30, 2001, BB&T incurred $116.7 million in net after-tax charges primarily associated with the mergers of FCNB Corp. (“FCNB”), Century South Banks, Inc. (“CSBI”) and F&M, and systems conversion costs related to other mergers. Additionally, during the first quarter of 2002, BB&T recorded a $9.8 million gain resulting from the implementation of SFAS No. 141, which required any existing negative goodwill to be recognized as income effective January 1, 2002. This gain is classified separately as a cumulative effect of change in accounting principle.



BB&T Corporation          Page 31          Third Quarter 2002 10-Q




Merger-Related and Restructuring Charges

          During the third quarter of 2002, BB&T recorded pre-tax merger-related and restructuring charges of $12.7 million, which are reflected in BB&T’s Consolidated Statements of Income as noninterest expenses. These expenses were recorded in connection with the third quarter acquisition of Regional as well as the third quarter conversions of AREA and MidAmerica. For the first nine months of 2002, BB&T recorded pre-tax merger-related and restructuring charges of $28.9 million, which are reflected in BB&T’s Consolidated Statements of Income as noninterest expenses.

          During the third quarter of 2001, in connection with the acquisitions of CSBI, F&M and Bank First Corporation, the Company recorded pre-tax merger-related and restructuring charges of $67.2 million, which are reflected in BB&T’s Consolidated Statements of Income as noninterest expenses. For the first nine months of 2001, BB&T recorded $175.2 million of pre-tax merger-related and restructuring charges, which are reflected in BB&T’s Consolidated Statements of Income as noninterest expenses.

          The following table presents the components of merger-related and restructuring charges included in noninterest expenses. This table includes increases to previously recorded merger-related accruals and period expenses for merger-related items that must be expensed as incurred. Items that are required to be expensed as incurred include certain systems conversion, data processing, training, travel and other costs.

Summary of Merger-Related and Restructuring Charges
(Dollars in thousands)

For the Nine Months Ended September 30,

2002 2001

Severance and personnel-related costs $ 2,326 $ 41,329  
Occupancy and equipment charges  8,475   47,148  
Marketing and public relations  7,834   11,569  
Systems conversions, asset write-offs, 
    conforming policies and other  10,232   75,202  

Total $ 28,867 $ 175,248  


          Severance and personnel-related costs include severance, employee retention, payments related to change-in-control provisions of employment contracts, outplacement services and other benefits associated with employee termination, which typically occurs in corporate support and data processing functions.



BB&T Corporation          Page 32          Third Quarter 2002 10-Q




          Occupancy and equipment charges represent merger-related costs associated with lease terminations, obsolete equipment write-offs, and the sale of duplicate facilities and equipment. Systems conversions and related charges include expenses necessary to convert and combine the acquired branches and operations of merged companies. Marketing and public relations costs represent direct media advertising relative to the acquisitions and local charitable contributions that are required by the merger agreements. The other merger-related charges are composed of asset and supply inventory write-offs, which are primarily composed of unreconciled differences in an acquired institution’s accounts or unreconciled differences identified during systems conversions, litigation accruals, costs to conform an acquired institution’s accounting policies to those of BB&T and other similar charges.

          In conjunction with the consummation of an acquisition and the completion of other requirements, BB&T typically accrues certain merger-related expenses related to estimated severance costs, costs to terminate lease contracts, costs related to the disposal of duplicate facilities and equipment, costs to terminate data processing contracts and other costs associated with the acquisition. The following tables present a summary of activity with respect to BB&T’s merger and restructuring accruals related to the mergers listed above, with the more significant mergers (One Valley Bancorp, Inc. and F&M National Corporation) presented separately. These tables include costs reflected as expenses, as presented in the table above, and accruals recorded through purchase accounting adjustments.

Summary of Merger-Related and Restructuring Accrual Activity
(Dollars in thousands)

One Valley Bancorp, Inc.

Balance Balance Balance
December 31, Utilized in December 31, Utilized in September 30,
2000 2001 2001 2002 2002

Severance and personnel-related charges     $ 3,719   $ 3,719   $ --   $ --   $ --  
Occupancy and equipment charges    4,737    97    4,640    3,912    728  
Systems conversions and related charges    128    117    11    11    --  
Other merger-related charges    10,009    10,009    --    --    --  

    Total   $ 18,593   $ 13,942   $ 4,651   $ 3,923   $ 728  




BB&T Corporation          Page 33          Third Quarter 2002 10-Q




F&M National Corporation

Balance Balance
Expensed in Utilized in December 31, Expensed in Utilized in September 30,
2001 2001 2001 2002 2002 2002

Severance and personnel-related charges     $ 15,830   $ 4,775   $ 11,055   $ --   $ 10,511   $ 544  
Occupancy and equipment charges    20,455    9,463    10,992    --    275    10,717  
Systems conversions and related charges    5,165    790    4,375    2,800    7,175    --  
Other merger-related charges    11,099    7,989    3,110    --    1,333    1,777  

    Total   $ 52,549   $ 23,017   $ 29,532   $ 2,800   $ 19,294   $ 13,038  


          The remaining accruals at September 30, 2002 for One Valley Bancorp, Inc. and F&M National Corporation, Inc. are related primarily to costs to exit certain leases and to dispose of excess facilities and equipment. These liabilities will be utilized in the future upon termination of the various leases and sale of duplicate property.

          Activity with respect to the merger and restructuring accruals for all other mergers, which are discussed above, is presented in the accompanying table:

All Other Merger Activity

Balance Balance Balance
December 31, Additions in Utilized in December 31, Additions in Utilized in September 30,
2000 2001 2001 2001 2002 2002 2002

Severance and personnel-related charges     $ 9,317   $ 33,956   $ 22,957   $ 20,316   $ 35,726   $ 35,194   $ 20,848  
Occupancy and equipment charges     16,602     18,514    13,685    21,431    30,673    21,081    31,023  
Systems conversions and related charges     3,601     11,935    8,583    6,953    9,453    11,055    5,351  
Other merger-related charges     7,711     16,237    11,948    12,000    18,274    16,611    13,663  

    Total   $ 37,231   $ 80,642   $ 57,173   $ 60,700   $ 94,126   $ 83,941   $ 70,885  


          The liabilities for severance and personnel-related costs relate to severance liabilities that will be paid out based on such factors as expected termination dates, the provisions of employment contracts and the terms of BB&T’s severance plans. The remaining occupancy and equipment accruals relate to costs to exit certain leases and to dispose of excess facilities and equipment. This liability will be utilized upon termination of the various leases and sale of duplicate property. The liabilities associated with systems conversions relate to termination penalties on contracts with information technology service providers. These liabilities will be utilized as the contracts are paid out and expire. The other merger-related liabilities relate to asset and supply inventory write-offs, litigation accruals, accruals to conform the accounting policies of acquired institutions to those of BB&T, and other similar charges.

          Because BB&T often has multiple merger integrations in process, and, due to limited resources, must schedule in advance significant events in the merger conversion and integration process, BB&T’s merger process and utilization of merger accruals may cover an extended period of time. In general, a major portion of accrued costs are utilized in conjunction with or immediately following the systems conversion, when most of the duplicate positions are eliminated and the terminated employees begin to receive severance. Other accruals are utilized over time based on the sale, closing or disposal of duplicate facilities or equipment or the expiration of lease contracts. Merger accruals are re-evaluated regularly and adjusted up or down as necessary. No material adjustments to merger-related accruals were recorded for any of the periods presented.



BB&T Corporation          Page 34          Third Quarter 2002 10-Q




Net Interest Income and Net Interest Margin

          Net interest income on a fully taxable equivalent (“FTE”) basis was $742.7 million for the third quarter of 2002 compared to $667.3 million for the same period in 2001, an increase of $75.4 million, or 11.3%. For the three months ended September 30, 2002, average earning assets increased $6.0 billion, or 9.5%, compared to the same period of 2001, while average interest-bearing liabilities increased by $4.9 billion, or 8.8%, and the net interest margin increased from 4.18% in the third quarter of 2001 to 4.25% in the current quarter. The seven basis point increase in the net interest margin was a result of the average cost of funds decreasing faster than yields earned on interest-earning assets. The average cost of funds in the third quarter of 2002 decreased 143 basis points compared to the third quarter of 2001, while the average yield earned on interest-earning assets decreased 120 basis points, increasing the interest rate spread by 23 basis points.

          For the nine months ended September 30, 2002, net interest income on an FTE basis was $2.2 billion compared to $1.9 billion for the same period in 2001, an increase of $205.6 million, or 10.5%. Average interest earning assets for the nine months ended September 30, 2002, increased $5.0 billion, or 8.1%, while interest-bearing liabilities increased $3.9 billion, or 7.1%, compared to the first nine months of 2001. The net interest margin for the nine months ended September 30, 2002, was 4.26%, up from 4.16% in the first nine months of 2001. The increase resulted principally from the same factors that affected the quarterly comparison described above.

          The following tables set forth the major components of net interest income and the related annualized yields and rates for the third quarter and first nine months of 2002 compared to the same periods in 2001, and the variances between the periods caused by changes in interest rates versus changes in volumes.









BB&T Corporation          Page 35          Third Quarter 2002 10-Q




Net Interest Income and Rate / Volume Analysis
For the Three Months Ended September 30, 2002 and 2001

Average Balances Annualized Yield / Rate Income / Expense Increase Change due to

Fully Taxable Equivalent - (Dollars in thousands) 2002 2001 2002 2001 2002 2001 (Decrease) Rate (6) Volume (6)

Assets                                                      
Securities (1):  
     U.S. Treasury, government and other (5)   $ 16,675,988   $ 14,974,350     6.02  %   6.94  % $ 250,917   $ 259,754   $ (8,837 ) $ (36,849 ) $ 28,012  
     States and political subdivisions       898,930     1,041,310     7.45     7.44     16,750     19,366     (2,616 )   59     (2,675 )

        Total securities (5)    17,574,918    16,015,660    6.09    6.97    267,667    279,120    (11,453 )  (36,790 )  25,337  
Other earning assets (2)    456,474    437,959    1.67    3.18    1,922    3,514    (1,592 )  (1,735 )  143  
Loans and leases, net                                                          
     of unearned income (1)(3)(4)(5)    51,628,276    47,183,864    6.91    8.22    897,969    976,449    (78,480 )  (165,004 )  86,524  

        Total earning assets    69,659,668    63,637,483    6.67    7.87    1,167,558    1,259,083    (91,525 )  (203,529 )  112,004  

        Non-earning assets    7,911,563    5,953,099  

           Total assets   $ 77,571,231   $ 69,590,582  

Liabilities and Shareholders' Equity  
Interest-bearing deposits:  
     Savings and interest-checking   $ 3,350,476   $ 3,313,821    0.77    1.38    6,518    11,566    (5,048 )  (5,175 )  127  
     Money rate savings    15,110,502    12,654,015    1.17    2.24    44,545    71,341    (26,796 )  (38,734 )  11,938  
     Certificates of deposit and other time deposits    24,708,799    22,237,050    3.26    5.33    203,185    298,502    (95,317 )  (125,631 )  30,314  

        Total interest-bearing deposits    43,169,777    38,204,886    2.34    3.96    254,248    381,409    (127,161 )  (169,540 )  42,379  
Short-term borrowed funds    5,245,126    6,451,865    1.83    3.44    24,140    55,913    (31,773 )  (22,713 )  (9,060 )
Long-term debt    12,313,297    11,174,903    4.73    5.49    146,515    154,498    (7,983 )  (22,490 )  14,507  

        Total interest-bearing liabilities    60,728,200    55,831,654    2.78    4.21    424,903    591,820    (166,917 )  (214,743 )  47,826  

        Noninterest-bearing deposits    7,383,310    6,319,783  
        Other liabilities    2,089,417    1,535,842  
        Shareholders' equity    7,370,304    5,903,303  

        Total liabilities and  
           shareholders' equity   $ 77,571,231   $ 69,590,582  

Average interest rate spread                   3.89     3.66
Net yield on earning assets              4.25    4.18   $ 742,655   $ 667,263   $ 75,392   $ 11,214   $ 64,178  

Taxable equivalent adjustment                             $ 40,563   $ 45,572              


(1)    Yields related to securities, loans and leases exempt from income taxes are stated on a taxable equivalent basis assuming tax rates in effect for the periods presented.
(2)    Includes Federal funds sold and securities purchased under resale agreements or similar arrangements.
(3)    Loan fees, which are not material for any of the periods shown, have been included for rate calculation purposes.
(4)    Nonaccrual loans have been included in the average balances. Only the interest collected on such loans has been included as income.
(5)    Includes assets which were held for sale or available for sale at amortized cost and trading securities at estimated fair value.
(6)    Changes in interest income and expense attributable to both changes in interest rates and changes in volumes are allocated proportionately.



BB&T Corporation          Page 36          Third Quarter 2002 10-Q




Net Interest Income and Rate / Volume Analysis
For the Nine Months Ended September 30, 2002 and 2001

Average Balances Annualized Yield / Rate Income / Expense Increase Change due to

Fully Taxable Equivalent - (Dollars in thousands) 2002 2001 2002 2001 2002 2001 (Decrease) Rate (6) Volume (6)

Assets                                        
Securities (1):  
     U.S. Treasury, government and other (5)   $ 16,268,763   $ 14,697,384     6.26  %   7.11  % $ 763,500   $ 783,776   $ (20,276 ) $ (99,064 ) $ 78,788  
     States and political subdivisions    951,924    1,070,435    7.47    7.34    53,330    58,956    (5,626 )  980    (6,606 )

        Total securities (5)    17,220,687    15,767,819    6.32    7.13    816,830    842,732    (25,902 )  (98,084 )  72,182  
Other earning assets (2)    422,283    456,624    1.89    4.38    5,969    14,957    (8,988 )  (7,938 )  (1,050 )
Loans and leases, net                                                          
     of unearned income (1)(3)(4)(5)    49,923,043    46,306,573    7.02    8.67    2,623,786    3,003,315    (379,529 )  (604,819 )  225,290  

        Total earning assets    67,566,013    62,531,016    6.81    8.25    3,446,585    3,861,004    (414,419 )  (710,841 )  296,422  

        Non-earning assets    7,320,021    5,689,700  

           Total assets   $ 74,886,034   $ 68,220,716  

Liabilities and Shareholders' Equity  
Interest-bearing deposits:  
     Savings and interest-checking   $ 3,373,876   $ 3,402,376    0.78    1.60    19,647    40,695    (21,048 )  (20,710 )  (338 )
     Money rate savings    14,488,268    12,264,082    1.15    2.83    124,205    259,191    (134,986 )  (175,460 )  40,474  
     Certificates of deposit and other time deposits    23,673,182    22,274,779    3.55    5.71    628,185    950,851    (322,666 )  (379,146 )  56,480  

        Total interest-bearing deposits    41,535,326    37,941,237    2.49    4.41    772,037    1,250,737    (478,700 )  (575,316 )  96,616  
Short-term borrowed funds    5,652,086    6,209,027    1.82    4.37    77,053    202,864    (125,811 )  (109,029 )  (16,782 )
Long-term debt    11,727,122    10,874,438    5.04    5.63    442,343    457,864    (15,521 )  (49,817 )  34,296  

        Total interest-bearing liabilities    58,914,534    55,024,702    2.93    4.64    1,291,433    1,911,465    (620,032 )  (734,162 )  114,130  

        Noninterest-bearing deposits    7,016,475    6,087,488  
        Other liabilities    1,953,061    1,423,661  
        Shareholders' equity    7,001,964    5,684,865  

        Total liabilities and  
           shareholders' equity   $ 74,886,034   $ 68,220,716  

Average interest rate spread           3.88   3.61  
Net yield on earning assets              4.26    4.16   $ 2,155,152   $ 1,949,539   $ 205,613   $ 23,321   $ 182,292  

Taxable equivalent adjustment                         $ 115,763   $ 147,927                 


(1)    Yields related to securities, loans and leases exempt from income taxes are stated on a taxable equivalent basis assuming tax rates in effect for the periods presented.
(2)    Includes Federal funds sold and securities purchased under resale agreements or similar arrangements.
(3)    Loan fees, which are not material for any of the periods shown, have been included for rate calculation purposes.
(4)    Nonaccrual loans have been included in the average balances. Only the interest collected on such loans has been included as income.
(5)    Includes assets which were held for sale or available for sale at amortized cost and trading securities at estimated fair value.
(6)    Changes in interest income and expense attributable to both changes in interest rates and changes in volumes are allocated proportionately.



BB&T Corporation          Page 37          Third Quarter 2002 10-Q




Noninterest Income

          Noninterest income for the three months ended September 30, 2002, was $422.2 million compared to $336.0 million for the same period in 2001, an increase of $86.3 million, or 25.7%. Noninterest income increased primarily due to substantial growth in gains from sales of securities available for sale, insurance commissions from BB&T’s agency network, growth in service charges on deposits, and higher investment banking and brokerage fees and commissions. For the nine months ended September 30, 2002, noninterest income was $1.2 billion, an increase of $186.4 million, or 18.4%, compared to the same period in 2001. The increase in noninterest income for the period ended September 30, 2002, resulted primarily from growth in service charges on deposits, growth in insurance commissions from BB&T’s agency network, and higher investment banking and brokerage fees and commissions.

          Service charges on deposits totaled $104.8 million for the third quarter of 2002, an increase of $16.4 million, or 18.6%, compared to the third quarter of 2001. For the first nine months of 2002, service charges on deposits totaled $296.8 million, an increase of $41.0 million, or 16.0%, compared to the first nine months of 2001. The largest contributors to the growth within service charges on deposits in the third quarter of 2002 compared to 2001 were NSF and overdraft charges on personal accounts and account analysis fees on commercial accounts, which contributed $13.1 million and $3.3 million, respectively. The 16.0% increase in service charges on deposits for the first nine months of 2002 was also driven by NSF and overdraft charges, and commercial account analysis fees, which grew $26.0 million and $17.4 million, respectively, over the nine-month period.

          Trust income totaled $27.4 million for the current quarter, an increase of $4.5 million, or 19.4%, compared to the same period a year ago. For the first nine months of 2002, trust income totaled $74.7 million, an increase of $2.8 million, or 3.9%, compared to the same period in 2001. The increase in trust income was due primarily to an increase in the value of trust assets under management, which totaled $20.3 billion at September 30, 2002, up from $14.3 billion at September 30, 2001 as well as similar increases in mutual fund and estate management fees. These increases in trust assets under management and fees resulted from assets and income acquired through purchase acquisitions.

          Investment banking and brokerage fees and commissions totaled $47.9 million during the third quarter of 2002, an increase of $4.3 million, or 9.9%, compared to the third quarter of 2001. For the nine months, investment banking and brokerage fees and commissions totaled $156.8 million, an increase of $26.6 million, or 20.5%, compared to the same period in 2001. The increase in this category of revenue for the third quarter and the nine month period of 2002 resulted primarily from growth in revenues at Scott & Stringfellow, which contributed $3.6 million and $18.9 million of the increase for each period, respectively. In addition, growth in revenues from fixed income underwriting fees and higher trading and retail brokerage fees contributed to the increase.



BB&T Corporation          Page 38          Third Quarter 2002 10-Q




          Agency insurance commissions totaled $76.5 million for the third quarter of 2002, an increase of $32.4 million, or 73.4%, compared to the same three-month period of 2001. For the nine months, agency insurance commissions totaled $214.4 million, an increase of $83.3 million, or 63.5%, compared to the same period in 2001. The purchase of Cooney, Rikard & Curtin, Inc. (“CRC”), a wholesale insurance broker, in January 2002 contributed $25.7 million in revenue growth for the third quarter and $57.7 million for the first nine months of 2002. Also, property and casualty insurance commissions increased $4.6 million and group health insurance commissions increased $1.6 million compared with the third quarter of 2001. The 63.5% increase in agency insurance commissions for the first nine months of 2002 was driven by the same factors that affected quarterly growth.

          BB&T recorded a net loss from mortgage banking activities totaling $59.5 million for the third quarter of 2002, a decrease of $111.5 million, or 214.2%, compared to the same period of 2001. For the current quarter, servicing fee income increased $6.8 million; origination fees on loans sold increased $5.8 million; and gains from loan sales increased $7.3 million compared to the third quarter of 2001. Such increases reflect the continued growth in mortgage originations as a result of the low interest rate environment. However, these increases were offset by a $130.8 million valuation allowance recorded to reduce the carrying value of BB&T’s capitalized mortgage servicing rights as a result of the low interest rate environment and resulting high volume of mortgage refinancing activity. During the third quarter and nine months of 2002, BB&T originated $3.5 billion and $8.6 billion of mortgage loans, respectively, compared to $2.6 billion and $7.1 billion in originations during the same periods of 2001. For the first nine months of 2002, income from mortgage banking activities totaled $35.1 million, a decrease of $74.7 million, or 68.0%, compared to the same period in 2001. The decrease in year-to-date mortgage banking income also resulted from writedowns in the carrying value of BB&T’s capitalized mortgage servicing rights. For the nine months ended September 30, 2002, $156.4 million was added to the valuation allowance reducing mortgage income, compared to additions of $29.1 million to the valuation allowance during the same period of 2001. The reductions in the carrying value of the capitalized mortgage servicing rights as a result of the additions to the valuation allowance were offset by gains from sales of securities available for sale.

          Other nondeposit fees and commissions totaled $54.1 million for the third quarter of 2002, an increase of $5.5 million, or 11.4%, compared to the three months ended September 30, 2001. For the nine months, other nondeposit fees and commissions totaled $150.4 million, an increase of $9.6 million, or 6.8%, compared to the same period in 2001. The principal drivers of the third quarter increase were check card interchange fees and bankcard income, which increased $2.3 million and $2.2 million, respectively. The 6.8% increase in other nondeposit fees and commissions for the nine months of 2002 was primarily driven by the same factors that affected quarterly growth.



BB&T Corporation          Page 39          Third Quarter 2002 10-Q




          Net securities gains totaled $135.5 million for the third quarter of 2002, an increase of $133.1 million compared with the same period one year ago. For the nine months ended September 30, 2002 and 2001, net securities gains totaled $168.6 million and $91.8 million, respectively. BB&T sold available for sale securities totaling $2.0 billion in the third quarter and $2.6 billion in the first nine months of 2002, and realized net gains totaling $135.9 million in the third quarter and $169.0 million in the first nine months of 2002. The gains were taken to economically offset increases in the valuation allowance necessary to reduce the carrying value of BB&T’s capitalized mortgage servicing rights. In the first nine months of 2001, BB&T realized a pretax gain of $82.4 million on an investment in an electronic transaction processing company.

          Other income totaled $31.6 million for the third quarter of 2002, an increase of $.7 million, or 2.4%, compared with the same period one year ago. The more significant components of this increase were income from bank owned life insurance, which increased $7.6 million, a decrease in income from derivatives not designated as hedges of $5.0 million and a decrease in income of $1.0 million from the elimination of the amortization of negative goodwill in 2002. For the nine months ended 2002 and 2001, other income totaled $92.9 million and $73.9 million, respectively, with the increase resulting principally due to income from bank owned life insurance, which increased $18.5 million.

Noninterest Expense

          Noninterest expenses totaled $606.1 million for the third quarter of 2002 compared to $581.9 million for the same period a year ago, an increase of $24.2 million, or 4.2%. Noninterest expense for the third quarter of 2002 includes $12.7 million of pretax merger-related and restructuring expenses principally associated with the mergers of AREA, MidAmerica, and Regional. For the nine months ended September 30, 2002, noninterest expenses totaled $1.7 billion, an increase of $47.0 million, or 2.8%, over the same period one year ago. Noninterest expense for the nine months of 2002 includes $28.9 million of pretax merger-related and restructuring expenses.

          Personnel expense, the largest component of noninterest expense, was $323.1 million for the third quarter of 2002 compared to $281.8 million for the same period in 2001, an increase of $41.3 million, or 14.7%. This increase was primarily caused by the purchase acquisitions of CRC, MidAmerica and AREA, which added costs of $34.9 million. Additionally, pension plan expense increased $4.5 million and employee benefits expense increased $5.0 million. These increases in personnel expense were partially offset by a decrease of $3.2 million in annual incentive compensation expense. For the nine months, personnel expense totaled $947.6 million, an increase of $109.0 million, or 13.0%, compared to 2001. The increase resulted primarily from the same factors that produced the third quarter increase.

          Occupancy and equipment expense for the three months ended September 30, 2002, totaled $85.6 million, an increase of $6.3 million, or 8.0%, compared to 2001. The increase resulted primarily from higher information technology equipment expense of $2.1 million and rent on buildings and premises, which increased $1.8 million. Additionally, maintenance and utility expenses, and other furniture and equipment expenses increased by $1.2 million and $.7 million, respectively. For the nine months, occupancy and equipment expense totaled $253.7 million, an increase of $24.2 million, or 10.5%, compared to 2001. This increase was created by similar growth in the same categories that produced the quarterly increase.



BB&T Corporation          Page 40          Third Quarter 2002 10-Q




          The amortization of goodwill and other intangible assets totaled $7.1 million for the three months ended September 30, 2002, a decrease of $13.0 million, or 64.7%, from the amount incurred in the third quarter of 2001. For the first nine months of 2002, amortization of goodwill and other intangible assets totaled $17.7 million, a decrease of $38.6 million, or 68.6%, compared to 2001. This decrease is due to the adoption of SFAS No. 142, which ended the amortization of goodwill effective January 1, 2002.

          Other noninterest expenses for the third quarter of 2002 totaled $177.6 million, an increase of $44.0 million, or 32.9%, compared to 2001. The principal drivers of the increase were amortization of mortgage servicing rights, data processing software expense, taxes and licenses expense, and professional services expense, which increased $16.2 million, $3.8 million, $5.6 million, and $2.6 million, respectively. For the first nine months of 2002, other noninterest expenses totaled $483.4 million, an increase of $98.8 million, or 25.7%, compared with 2001. This increase was primarily driven by the same categories of expenses that affected the quarterly growth.

Provision for Income Taxes

          The provision for income taxes totaled $126.1 million for the third quarter of 2001, an increase of $40.8 million, or 47.9%, compared to the third quarter of 2001. For the first nine months of 2002, the provision for income taxes totaled $374.3 million, an increase of $97.3 million, or 35.1%, compared to 2001. BB&T’s effective income tax rates were 27.8% for the three months ended September 30, 2002 and 2001, and 28.1% and 28.5% for the nine months of 2002 and 2001, respectively.

          During the last three years, BB&T entered into option contracts which legally transferred part of the responsibility for the future residual management of certain leveraged lease investments including the future remarketing or re-leasing of these assets to a wholly-owned subsidiary in a foreign jurisdiction having a lower income tax rate, thereby lowering the effective income tax rate applicable to these lease investments. These option contracts provide that the foreign subsidiary may purchase the lease investments at expiration of the existing leveraged leases for a fixed price. As a result, a portion of the residual value included in the consolidated leveraged lease analysis should be taxed at a lower tax rate than originally anticipated, resulting in a change in the total net income from the lease. In accordance with SFAS No. 13, “Accounting for Leases”, the net income from the affected leases was recalculated from inception based on the new effective income tax rate. The recalculation had the effect of reducing net interest income by $8.4 million and the income tax provision by $16.5 million for the first nine months of 2002. BB&T intends to permanently reinvest the earnings of this subsidiary and, therefore, in accordance with the provisions of SFAS No. 109, “Accounting for Income Taxes”, deferred income taxes associated with the foreign subsidiary arising from these transactions have not been provided.



BB&T Corporation          Page 41          Third Quarter 2002 10-Q




          BB&T transferred certain securities and real estate secured loans to a wholly owned subsidiary in exchange for additional common equity in the subsidiary. The transaction produced a difference between BB&T’s tax basis in the equity investment in the subsidiary and the assets transferred to the subsidiary, resulting in a net reduction in the income tax provision of $26.0 million for the first nine months of 2002.

          The Internal Revenue Service (“IRS”) is conducting an examination of BB&T’s federal income tax returns for the years ended December 31, 1996, 1997 and 1998. In connection with this examination the IRS has issued Notices of Proposed Adjustment with respect to BB&T’s income tax treatment of certain leveraged lease investments that were entered into during the years under examination. Management believes that BB&T’s treatment of these leveraged leases was appropriate and in compliance with existing tax laws and regulations, and intends to vigorously defend this position. In addition, inasmuch as the proposed adjustments relate primarily to the timing of revenue recognition and amortization expense, deferred taxes have been provided. Management does not expect that BB&T’s consolidated financial position or consolidated results of operations will be materially adversely affected as a result of the IRS examination.



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Item 4.  Controls and Procedures

          Evaluation of disclosure controls and procedures

          Within 90 days prior to the date of this report, the Company’s Chief Executive Officer and the Chief Financial Officer evaluated the effectiveness of the Company’s disclosure controls and procedures in accordance with Rule 13a-14 under the Exchange Act. Based on their evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures enable the Company to record, process, summarize and report in a timely manner the information that the Company is required to disclose in its Exchange Act reports.

          Changes in internal controls

          There were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation referred to above.



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PART II. OTHER INFORMATION

Item 1.   Legal Proceedings

          The nature of the business of BB&T’s banking subsidiaries ordinarily results in a certain amount of litigation. The subsidiaries of BB&T are involved in various legal proceedings, all of which are considered incidental to the normal conduct of business. Management believes that the liabilities arising from these proceedings will not have a materially adverse effect on the consolidated financial position or consolidated results of operations of BB&T.



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BB&T Corporation          Page 42          Third Quarter 2002 10-Q




Item 2.  Changes in Securities and the Use of Proceeds

          The following information is provided in response to Item 2(c) of Form 10-Q and Item 701 of Regulation S-K:

(a)  

On September 13, 2002, we sold 7,265,521 shares of our common stock (the “Shares”).


(b)  

We issued the Shares to Regional Investment Fund, Ltd. (the "Fund"), as the sole shareholder of Regional Financial Corporation ("Regional Financial"), in connection with our acquisition of Regional Financial.


(c)  

We issued the Shares to the Fund in exchange for all of the shares of Regional Financial.


(d)  

We offered and sold the Shares in reliance on Section 4(2) of the Securities Act of 1933. Neither we nor anyone on our behalf engaged in any public solicitation or public advertisement in connection with the offer and sale of the Shares. The Fund is a sophisticated investor with substantial assets. We provided the Fund with access to information sufficient to enable the Fund to make an informed investment decision. The Fund acquired the Shares with an intent not to resell or distribute the Shares except in accordance with an applicable exemption from registration or an effective registration statement under the Securities Act. After the parties entered into a merger agreement on August 23, 2002 and the Fund became irrevocably committed to acquire the Shares, subject to the satisfaction of customary closing conditions, we filed a registration statement on Form S-3 (file no. 333-98675) with respect to Fund’s resale of the Shares. The Commission declared the registration statement effective on September 10, 2002. Upon the closing of our acquisition of Regional Financial on September 13, 2002, the Fund distributed the Shares to its limited partners, and we filed with the Commission a prospectus supplement identifying the Fund’s limited partners as selling shareholders.


(e)  

The Shares are not convertible into or exchangeable or otherwise exercisable for other equity securities.


(f)  

The requirement of Item 701(f) regarding the use of proceeds is not applicable.




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BB&T Corporation          Page 43          Third Quarter 2002 10-Q





Item 6.   Exhibits and Reports on Form 8-K




EXHIBIT INDEX



Exhibit No.   Description   Location
 
2(a)   Agreement and Plan of Reorganization dated as of July 29, 1994 and amended and restated as of October 22, 1994 between the Registrant and BB&T Financial Corporation.   Incorporated herein by reference to Registration No. 33-56437.
 
2(b) Plan of Merger as of July 29, 1994 as amended and restated on October 22, 1994 between the Registrant and BB&T Financial Corporation. Incorporated herein by reference to Registration No. 33-56437.
 
2(c) Agreement and Plan of Reorganization dated as of November 1, 1996 between the Registrant and United Carolina Bancshares Corporation, as amended. Incorporated herein by reference to Exhibit 3(a) filed in the Annual Report on Form 10-K, filed March 17, 1997.
 
2(d) Agreement of Plan of Reorganization dated as of October 29, 1997 between the Registrant and Life Bancorp, Inc. Incorporated herein by reference to Registration No. 33-44183.
 
2(e) Agreement and Plan of Reorganization dated as of February 6, 2000 between the Registrant and One Valley Bancorp, Inc. Incorporated herein by reference to Exhibit 99.1 filed in the Current Report on Form 8-K, dated February 9, 2000
 
3(a)(i) Amended and Restated Articles of Incorporation of the Registrant, as amended. Incorporated herein by reference to Exhibit 3(a) filed in the Annual Report on Form 10-K, filed March 17, 1997.




BB&T Corporation          Page 44          Third Quarter 2002 10-Q




 
3(a)(ii) Articles of Amendment of Articles of Incorporation. Incorporated herein by reference to Exhibit 3(a)(ii) filed in the Annual Report on Form 10-K, filed March 18, 1998
 
3(b)(i) Bylaws of the Registrant, as amended. Incorporated herein by reference to Exhibit 3(b) filed in the Annual Report on Form 10-K, filed March 18, 1998
 
3(b)(ii) Incorporated herein by reference to Exhibit 3(b)(ii) filed in the Quarterly Report on Form 10-Q, filed May 13, 2002. Incorporated herein by reference to Exhibit 3(b)(ii) filed in the Quarterly Report on Form 10-Q, filed May 13, 2002.
 
4(a) Articles of Amendment to Amended and Restated Articles of Incorporation of the Registrant related to Junior Participating Preferred Stock. Incorporated herein by reference to Exhibit 3(a) filed in the Annual Report on Form 10-K, filed March 17, 1997.
 
  4(b) Rights Agreement dated as of December 17, 1996 between the Registrant and Branch Banking and Trust Company, Rights Agent. Incorporated herein by reference to Exhibit 1 filed under Form 8-A, filed January 10, 1997.
 
4(c) Subordinated Indenture (including Form of Subordinated Debt Security) between the Registrant and State Street Bank and Trust Company, Trustee, dated as of May 24, 1996. Incorporated herein by reference to Exhibit 4(d) of Registration No. 333-02899.
 
  4(d) Senior Indenture (including Form of Senior Debt Security) between the Registrant and State Street Bank and Trust company, Trustee, dated as of May 24, 1996. Incorporated herein by reference to Exhibit 4(c) of Registration No. 333-02899.
 
10 (a)* Death Benefit Only Plan, Dated April 23, 1990, by and between Branch Banking and Trust Company (as successor to Southern National Bank of North Carolina) and L. Glenn Orr, Jr. Incorporated herein by reference to Registration No. 33-33984.




BB&T Corporation          Page 45          Third Quarter 2002 10-Q




 
10 (b)* BB&T Corporation Non-Employee Directors' Deferred Compensation and Stock Option Plan. Incorporated herein by reference to Exhibit 10(b) of the Annual Report on Form 10-K, filed March 17, 1997.
 
10 (c)* BB&T Corporation 1994 Omnibus Stock Incentive Plan. Incorporated herein by reference to Registration No. 33-57865.
 
10 (d)* Settlement and Non-Compete Agreement, dated February 28, 1995, by and between the Registrant and L. Glenn Orr, Jr. Incorporated herein by reference to Registration No. 33-56437.
 
10 (e)* Settlement Agreement, Waiver and General Release dated September 19, 1994, by and between the Registrant, Branch Banking and Trust Company (as successor to Southern National Bank of North Carolina) and Gary E. Carlton. Incorporated herein by reference to Registration No. 33-56437.
 
10 (f) BB&T Corporation 401(k) Savings Plan (restated effective January 1, 2000, and subsequently amended). Incorporated herein by reference to Exhibit 10(f) filed in the Annual Report on Form 10-K, filed March 16, 2001.
 
10 (g)* BB&T Corporation 1995 Omnibus Stock Incentive Plan. Incorporated herein by reference to Exhibit 10(g) filed in the Annual Report on Form 10-K, filed March 17, 1997.
 
10 (h)* Branch Banking and Trust Company Long-Term Incentive Plan. Incorporated by reference to the identified exhibit under the Quarterly Report on Form 10-Q, filed May 14, 1991.



BB&T Corporation          Page 46          Third Quarter 2002 10-Q




 
10 (i)* Branch Banking and Trust Company Executive Incentive Compensation Plan. Incorporated by reference to the identified exhibit under the Annual Report on Form 10-K, filed February 22, 1985.
 
10 (j)* Southern National Deferred Compensation Plan for Key Executives. Incorporated herein by reference to Exhibit 10(j) filed in the Annual Report on Form 10-K, filed March 17, 1997.
 
10 (k)* BB&T Corporation Target Pension Plan. Incorporated herein by reference to Exhibit 10(k) filed in the Annual Report on Form 10-K, filed March 17, 1997.
 
10 (l)* BB&T Corporation Supplemental Executive Retirement Plan. Incorporated herein by reference to Exhibit 10(l) filed in the Annual Report on Form 10-K, filed March 17, 1997.
 
10 (m)* Settlement and Noncompetition Agreement, dated July 1, 1997, by and between the Registrant and E. Rhone Sasser. Incorporated herein by reference to Exhibit 10(m) filed in the Annual Report on Form 10-K, filed March 18, 1998.
 
10 (n)* BB&T Corporation Supplemental Defined Contribution Plan for Highly Compensated Employees (amended and restated effective November 1, 2001). Incorporated herein by Reference to Exhibit 10 (n) filed in the Annual Report on Form 10-K, filed March 15, 2002.
 
10 (o)* Scott & Stringfellow, Inc. Executive and Employee Retention Plan. Incorporated herein by reference to Registration No. 333-81471.



BB&T Corporation          Page 47          Third Quarter 2002 10-Q




 
10 (p)* BB&T Corporation Non-Qualified Defined Contribution Plan (amended and restated November 1, 2001). Incorporated herein by reference to Exhibit 10 (p) filed in the Annual Report on Form 10-K, filed March 15, 2002.
 
10 (q)* BB&T Corporation Amended and Restated 1996 Short-term Incentive Plan. Incorporated herein by reference to Exhibit 10(q) of the Annual Report on Form 10-K, filed on March 16, 2001.
 
10 (r)* Amendment to 1995 Omnibus Stock Incentive Plan. Incorporated herein by reference to Registration No. 333-36540.
 
10 (s)* Employment Agreement dated February 6, 2000, by and between the Registrant and J. Holmes Morrison. Incorporated herein by reference to Exhibit 10(s) of the Annual Report on Form 10-K, filed on March 16, 2001.
 
 10 (t) BB&T Corporation Pension Plan (restated effective January 1, 2000, and subsequently amended). Incorporated herein by reference to Exhibit 10(t) of the Annual Report on Form 10-K, filed on March 16, 2001.
 
10 (u)* Amendment to BB&T Corporation Nonqualified Defined Contribution Plan. Incorporated herein by reference to Exhibit 10(u) of the Annual Report on Form 10-K, filed on March 16, 2001.
 
10 (v)* BB&T Corporation Non-Employee Directors' Deferred Compensation and Stock Option Plan (amended and restated effective November 1, 2001). Incorporated herein by reference to Exhibit 10 (v) filed in the Annual Report on Form 10-K, filed March 15, 2002.



BB&T Corporation          Page 48          Third Quarter 2002 10-Q




 
10 (w)* Amendment to the BB&T Corporation Supplemental Defined Contribution Plan for Highly Compensated Employees. Incorporated herein by reference to Exhibit 10(w) of the Annual Report on Form 10-K, filed on March 16, 2001.
 
10 (x)* BB&T Corporation Non-Qualified Deferred Compensation Trust (amended and restated effective Incorporated herein by reference to Exhibit November 1, 2001). 10 (x) filed in the Annual Report on Form 10-K, filed March 15, 2002.
 
10 (y)* 2001 Declaration of Amendment to BB&T Corporation Non-Employee Directors' Deferred Compensation and Stock Option Plan Incorporated herein by reference to Exhibit 10 (y) filed in the Annual Report on Form 10-K, filed March 15, 2002.
 
10 (z)* Amended and Restated Employment Agreement by and among the Registrant, Branch Banking and Trust Co. and John A. Allison IV Incorporated by reference to 10 (z) in the Quarterly Report on Form 10-Q filed May 13, 2002.
 
10 (aa)* Amended and Restated Employment Agreement by and among the Registrant, Branch Banking and Trust Co. and W. Kendall Chalk Incorporated by reference to 10 (aa) in the Quarterly Report on Form 10-Q filed May 13, 2002.
 
10 (ab)* Amended and Restated Employment Agreement by and among the Registrant, Branch Banking and Trust Co. and Robert E. Greene Incorporated by reference to 10 (ab) in the Quarterly Report on Form 10-Q filed May 13, 2002.
 
10 (ac)* Amended and Restated Employment Agreement by and among the Registrant, Branch Banking and Trust Co. and Sherry A. Kellett Incorporated by reference to 10 (ac) in the Quarterly Report on Form 10-Q filed May 13, 2002.



BB&T Corporation          Page 49          Third Quarter 2002 10-Q




 
10 (ad)* Amended and Restated Employment Agreement by and among the Registrant, Branch Banking and Trust Co. and Kelly S. King Incorporated by reference to 10 (ad) in the Quarterly Report on Form 10-Q filed May 13, 2002.
 
10 (ae)* Amended and Restated Employment Agreement by and among the Registrant, Branch Banking and Trust Co. and Scott E. Reed Incorporated by reference to the identified exhibit under the Quarterly Report on Form 10-Q filed May 13, 2002.
 
10 (af)* Amended and Restated Employment Agreement by and among the Registrant, Branch Banking and Trust Co. and Henry G. Williamson, Jr. Incorporated by reference to 10 (ae) in the Quarterly Report on Form 10-Q filed May 13, 2002.
 
10 (ag)* Amended and Restated Employment Agreement by and among the Registrant, Branch Banking and Trust Co. and C. Leon Wilson, III Incorporated by reference to 10 (ag) in the Quarterly Report on Form 10-Q filed May 13, 2002.
 
11 Statement re Computation of Earnings Per Share. Filed herewith as Note E.
 
22 Proxy Statement for the 2002 Annual Meeting of Shareholders. Incorporated herein by reference to BB&T's Definitive Proxy Statement filed on Schedule 14A on March 21, 2002.
 
 
99.1 Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Filed herewith.
 
99.2 Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Filed herewith.
 
  * Management compensatory plan or arrangement.


(b)  

Current Reports on Form 8-K during and following the quarter ended September 30, 2002.




BB&T Corporation          Page 50          Third Quarter 2002 10-Q




          On July 11, 2002, BB&T filed a Current Report on Form 8-K under Item 9 to report the results of operations for the second quarter of 2002. On August 13, 2002, BB&T filed a Current Report on Form 8-K under Item 9 to furnish the Statements Under Oath of its Principal Executive Officer and its Principal Financial Officer Regarding Facts and Circumstances Related to Exchange Act Filings. On September 4, 2002, BB&T furnished a Current Report on Form 8-K under Item 9 to furnish presentation materials related to an investor conference held on September 4, 2002. On September 24, 2002, BB&T filed a Current Report on Form 8-K under Item 5 to file the underwriting agreement related to BB&T’s public offering of $500 million subordinated notes. On September 27, 2002, BB&T furnished a Current Report on Form 8-K under Item 9 to announce that BB&T had entered into a definitive agreement to acquire Equitable Bank of Wheaton, Maryland and to furnish certain presentation material related to this transaction. On October 3, 2002, BB&T furnished a Current Report on Form 8-K under Item 9 to announce that BB&T had entered into a definitive agreement to acquire FloridaFirst Bancorp, Inc. of Lakeland, Florida and to file certain presentation material related to this transaction. On October 11, 2002, BB&T filed a Current Report on Form 8-K under Item 9 to report the results of operations for the third quarter of 2002. On October 31, 2002, BB&T filed a Current Report on Form 8-K under Item 5 to announce that the agreement to acquire FloridaFirst Bancorp, Inc. entered into on October 3, 2002 has been terminated.









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BB&T Corporation          Page 51          Second Quarter 2002 10-Q




SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


  BB&T CORPORATION  
  (Registrant) 
   
Date:   November 14, 2002         By:        /s/ Scott E. Reed           
  Scott E. Reed, Senior Executive Vice  
  President and Chief Financial Officer 
   
Date:   November 14, 2002         By:        /s/ Sherry A. Kellett      
  Sherry A. Kellett, Senior Executive Vice  
  President and Controller 
  (Principal Accounting Officer) 









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BB&T Corporation          Page 52          Second Quarter 2002 10-Q




FORM 10-Q CERTIFICATION

I, John A. Allison, certify that:

1.      I have reviewed this quarterly report on Form 10-Q of BB&T Corporation;

2.      Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.      Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of and for the periods presented in this quarterly report;

4.      The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)      designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)      evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c)      presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.      The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

a)      all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b)      any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and




BB&T Corporation          Page 53          Second Quarter 2002 10-Q




6.      The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 14, 2002

          /s/  John A. Allison, IV              
                John A. Allison, IV
  Chairman and Chief Executive Officer















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BB&T Corporation          Page 54          Second Quarter 2002 10-Q




FORM 10-Q CERTIFICATION

I, Scott E. Reed, certify that:

1.      I have reviewed this quarterly report on Form 10-Q of BB&T Corporation;

2.      Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.      Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of and for the periods presented in this quarterly report;

4.      The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)      designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)      evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c)      presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.      The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

a)      all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b)      any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and




BB&T Corporation          Page 55          Second Quarter 2002 10-Q




6.      The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 14, 2002

               /s/   Scott E. Reed              
        Scott E. Reed
          Senior Executive Vice President and
          Chief Financial Officer

















BB&T Corporation          Page 56          Second Quarter 2002 10-Q




Exhibit 99.1


CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002


I, John A. Allison, IV, state and attest that:

(1)  

I am the Chairman and Chief Executive Officer of BB&T Corporation (the "issuer").


(2)  

Accompanying this certification is BB&T Corporation’s Quarterly Report on Form 10-Q for the period ended September 30, 2002, a periodic report (the “periodic report”) filed by the issuer with the Securities and Exchange Commission pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”), which contains financial statements.


(3)  

I hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that


·  

the periodic report containing the financial statements fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act, and


·  

the information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of the issuer for the periods presented.




/s/ John A. Allison, IV



John A. Allison, IV
Chairman and Chief Executive Officer
November 14, 2002




BB&T Corporation          Page 57          Second Quarter 2002 10-Q



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Exhibit 99.2


CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002


I, Scott E. Reed, state and attest that:

(1)  

I am the Chief Financial Officer of BB&T Corporation (the "issuer").


(2)  

Accompanying this certification is BB&T Corporation’s Quarterly Report on Form 10-Q for the period ended September 30, 2002, a periodic report (the “periodic report”) filed by the issuer with the Securities and Exchange Commission pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”), which contains financial statements.


(3)  

I hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that


·  

the periodic report containing the financial statements fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act, and


·  

the information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of the issuer for the periods presented.



/s/ Scott E. Reed


Scott E. Reed
Senior Executive Vice President and
Chief Financial Officer
November 14, 2002




BB&T Corporation          Page 58          Second Quarter 2002 10-Q



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