BB&T Second Quarter 2005 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:

June 30, 2005


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  [ Ö ]   No  [__]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).  Yes  [ Ö ]   No  [__]

At July 31, 2005, 547,515,168 shares of the registrant's common stock, $5 par value, were outstanding.





BB&T CORPORATION

FORM 10-Q

June 30, 2005


INDEX


Page No.

   
Part I. FINANCIAL INFORMATION  
   
  Item 1. Financial Statements (Unaudited) 2 
   
          Notes to Consolidated Financial Statements 6 
   
  Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 25 
   
          Executive Summary 28 
   
          Analysis of Financial Condition 29 
   
          Analysis of Results of Operations 37 
   
          Market Risk Management 50 
   
          Capital Adequacy and Resources 54 
   
  Item 3. Quantitative and Qualitative Disclosures About Market Risk 56 
   
  Item 4. Controls and Procedures 57 
   
Part II. OTHER INFORMATION  
   
  Item 1. Legal Proceedings 57 
   
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 57 
   
  Item 4. Submission of Matters to a Vote of Security Holders 57 
   
  Item 6. Exhibits 58 
   
SIGNATURES 59 
   
EXHIBIT INDEX 60 
   
CERTIFICATIONS 61 



BB&T Corporation          Page 1          Second Quarter 2005 10-Q




Item 1. Financial Statements

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

  June 30, December 31,
  2005 2004
   
Assets    
     Cash and due from banks     $ 2,030,082   $ 1,782,323  
     Interest-bearing deposits with banks       434,772     1,003,125  
     Federal funds sold, securities purchased under resale agreements                
        and other earning assets       364,038     240,387  
     Trading securities at fair value       675,146     334,256  
     Securities available for sale at fair value       20,123,465     18,838,196  
     Securities held to maturity at amortized cost (fair value $125 at December 31, 2004)       --     125  
     Loans held for sale       700,732     613,476  
     Loans and leases, net of unearned income of $2,514,746 at June 30, 2005 and    
        $2,540,201 at December 31, 2004       71,039,884     67,549,125  
     Allowance for loan and lease losses       (809,318 )   (804,932 )
        Loans and leases, net       70,230,566     66,744,193  
     Premises and equipment, net of accumulated depreciation       1,263,467     1,283,546  
     Goodwill       4,233,719     4,124,241  
     Core deposit and other intangible assets       535,965     513,539  
     Other assets       5,243,372     5,031,234  
              Total assets     $ 105,835,324   $ 100,508,641  
 
Liabilities and Shareholders' Equity    
     Deposits:    
        Noninterest-bearing deposits     $ 13,197,792   $ 12,246,248  
        Savings and interest checking       4,641,866     4,490,214  
        Money rate savings       23,075,292     23,427,797  
        Certificates of deposit and other time deposits       30,915,409     27,535,078  
              Total deposits       71,830,359     67,699,337  
     Federal funds purchased, securities sold under repurchase agreements    
        and short-term borrowed funds       7,137,762     6,687,872  
     Long-term debt       11,955,683     11,419,624  
     Accounts payable and other liabilities       3,821,153     3,827,334  
              Total liabilities       94,744,957     89,634,167  
     Commitments and contingencies (Note 6)    
     Shareholders' equity:    
        Preferred stock, $5 par, 5,000,000 shares authorized, none issued or    
           outstanding at June 30, 2005 or at December 31, 2004       --     --  
        Common stock, $5 par, 1,000,000,000 shares authorized;                
           546,796,870 issued and outstanding at June 30, 2005, and                
           550,406,287 issued and outstanding at December 31, 2004       2,733,984     2,752,032  
        Additional paid-in capital       2,990,484     3,121,716  
        Retained earnings       5,494,527     5,112,034  
        Unvested restricted stock       (17 )   (107 )
        Accumulated other comprehensive loss, net of deferred income                
           taxes of $(77,276) at June 30, 2005, and $(66,662) at December 31, 2004       (128,611 )   (111,201 )
              Total shareholders' equity       11,090,367     10,874,474  
              Total liabilities and shareholders' equity     $ 105,835,324   $ 100,508,641  

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

BB&T Corporation          Page 2          Second Quarter 2005 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 Six Months Ended
  June 30, June 30,
  2005 2004 2005 2004
Interest Income        
         Interest and fees on loans and leases     $ 1,128,331   $ 945,561   $ 2,181,152   $ 1,857,717  
         Interest and dividends on securities       199,167     171,826     385,955     337,610  
         Interest on short-term investments       5,186     2,067     9,069     4,576  
             Total interest income       1,332,684     1,119,454     2,576,176     2,199,903  
Interest Expense    
         Interest on deposits       279,283     172,689     520,582     339,466  
         Interest on federal funds purchased, securities sold under    
             repurchase agreements and short-term borrowed funds       58,546     17,968     101,012     35,363  
         Interest on long-term debt       117,890     89,094     228,434     178,548  
             Total interest expense       455,719     279,751     850,028     553,377  
Net Interest Income       876,965     839,703     1,726,148     1,646,526  
         Provision for credit losses       49,424     63,533     90,469     126,951  
Net Interest Income After Provision for Credit Losses       827,541     776,170     1,635,679     1,519,575  
Noninterest Income    
         Service charges on deposits       139,166     131,445     259,938     254,208  
         Mortgage banking income       12,367     56,656     42,560     61,075  
         Trust revenue       36,722     31,519     67,129     61,504  
         Investment banking and brokerage fees and commissions       81,046     63,624     149,929     140,222  
         Insurance commissions       181,612     164,712     333,902     288,418  
         Bankcard fees and merchant discounts       27,738     25,285     53,174     48,130  
         Other nondeposit fees and commissions       63,820     54,180     118,766     102,969  
         Securities gains (losses), net       (6 )   2     1     (509 )
         Other income       42,454     35,353     76,141     82,246  
             Total noninterest income       584,919     562,776     1,101,540     1,038,263  
Noninterest Expense    
         Personnel expense       450,730     422,987     865,846     843,262  
         Occupancy and equipment expense       148,080     103,428     253,824     203,575  
         Amortization of intangibles       28,611     28,670     56,713     52,726  
         Professional services       22,594     19,348     38,883     38,756  
         Loss on early extinguishment of debt       2,943     --     2,943     --  
         Merger-related and restructuring charges (gains)       (404 )   791     (2,961 )   10,441  
         Other expense       178,734     165,015     346,746     325,856  
             Total noninterest expense       831,288     740,239     1,561,994     1,474,616  
Earnings    
         Income before income taxes       581,172     598,707     1,175,225     1,083,222  
         Provision for income taxes       194,367     198,601     393,036     354,616  
         Net income     $ 386,805   $ 400,106   $ 782,189   $ 728,606  
 
Per Common Share    
         Net income:    
             Basic     $ .71   $ .72   $ 1.43   $ 1.32  
             Diluted     $ .70   $ .72   $ 1.42   $ 1.32  
         Cash dividends paid     $ .35   $ .32   $ .70   $ .64  
 
Weighted Average Shares Outstanding    
             Basic       547,089,165     554,041,770     548,179,529     550,309,127  
             Diluted       551,245,112     557,485,680     552,443,239     554,016,363  

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

BB&T Corporation          Page 3          Second Quarter 2005 10-Q




BB&T CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Six Months Ended June 30, 2005 and 2004
(Unaudited)
(Dollars in thousands)

          Accumulated  
  Shares of   Additional Retained Other Total
  Common Common Paid-In Earnings Comprehensive Shareholders'
  Stock Stock Capital and Other (1) Income (Loss) Equity
Balance, January 1, 2004       541,942,987   $ 2,709,715   $ 2,893,812   $ 4,309,325   $ 21,879   $ 9,934,731  
Add (Deduct):    
     Comprehensive income (loss):    
         Net income       --     --     --     728,606     --     728,606  
             Unrealized holding gains (losses) arising during the period    
                on securities available for sale, net of tax of $(129,284)       --     --     --     --     (239,889 )   (239,889 )
             Reclassification adjustment for losses (gains)                                        
                on securities available for sale included in net                                        
                income, net of tax of $199       --     --     --     --     310     310  
         Change in unrealized gains (losses) on securities, net of tax       --     --     --     --     (239,579 )   (239,579 )
         Change in unrecognized gains (losses) on cash flow hedges,                                        
             net of tax of $(14,165)                               (21,711 )   (21,711 )
         Change in minimum pension liability, net of tax of $(1,625)       --     --     --     --     (3,018 )   (3,018 )
     Total comprehensive income (loss)       --     --     --     728,606     (264,308 )   464,298  
     Common stock issued:    
         In purchase acquisitions       15,547,445     77,737     513,122     --     --     590,859  
         In connection with stock option exercises    
             and other employee benefits, net of cancellations       1,346,333     6,732     17,620     --     --     24,352  
     Redemption of common stock       (3,498,800 )   (17,494 )   (111,138 )   --     --     (128,632 )
     Cash dividends declared on common stock, $.67 per share       --     --     --     (369,584 )   --     (369,584 )
     Other, net       --     --     8,598     91     --     8,689  
Balance, June 30, 2004       555,337,965   $ 2,776,690   $ 3,322,014   $ 4,668,438   $ (242,429 ) $ 10,524,713  
 
Balance, January 1, 2005       550,406,287   $ 2,752,032   $ 3,121,716   $ 5,111,927   $ (111,201 ) $ 10,874,474  
Add (Deduct):    
     Comprehensive income (loss):    
         Net income       --     --     --     782,189     --     782,189  
             Unrealized holding gains (losses) arising during the                                        
                period on securities available for sale, net of tax of                                        
                $ (13,290)       --     --     --     --     (21,924 )   (21,924 )
             Reclassification adjustment for losses (gains)                                        
                on securities available for sale included in net                                        
                income, net of tax of $40       --     --     --     --     (41 )   (41 )
         Change in unrealized gains (losses) on securities, net of tax       --     --     --     --     (21,965 )   (21,965 )
         Change in unrecognized gains (losses) on cash flow hedges,                                        
             net of tax of $4,208       --     --     --     --     6,693     6,693  
         Change in minimum pension liability, net of tax of $(1,572)       --     --     --     --     (2,138 )   (2,138 )
     Total comprehensive income (loss)       --     --     --     782,189     (17,410 )   764,779  
     Common stock issued:    
         In purchase acquisitions       646,489     3,232     22,068     --     --     25,300  
         In connection with stock option exercises                                        
             and other employee benefits, net of cancellations       1,244,094     6,220     23,887     --     --     30,107  
     Redemption of common stock       (5,500,000 )   (27,500 )   (185,855 )   --     --     (213,355 )
     Cash dividends declared on common stock, $.73 per share       --     --     --     (399,696 )   --     (399,696 )
     Other, net       --     --     8,668     90     --     8,758  
Balance, June 30, 2005       546,796,870   $ 2,733,984   $ 2,990,484   $ 5,494,510   $ (128,611 ) $ 11,090,367  


(1) Other includes unvested restricted stock.

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

BB&T Corporation          Page 4          Second Quarter 2005 10-Q




BB&T CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)
(Dollars in thousands)

For the Six Months Ended
June 30,
  2005 2004
Cash Flows From Operating Activities:    
     Net income     $ 782,189   $ 728,606  
     Adjustments to reconcile net income to net cash provided by operating activities:    
           Provision for credit losses       90,469     126,951  
           Depreciation       104,670     79,877  
           Amortization of intangibles       56,713     52,726  
           Amortization of purchase accounting mark-to-market adjustments       14,484     14,362  
           Discount accretion and premium amortization on long-term debt, net       55,026     49,968  
           Discount accretion and premium amortization on securities, net       23,094     26,360  
           Net (increase) decrease in trading account securities       (340,890 )   346,884  
           (Gain) loss on sales of securities, net       (1 )   509  
           Gain on sales of loans held for sale, net       (37,074 )   (38,167 )
           Gain on disposals of premises and equipment, net       (207 )   (339 )
           Proceeds from sales of loans held for sale       2,384,603     2,913,470  
           Purchases of loans held for sale       (358,064 )   (611,749 )
           Origination of loans held for sale, net of principal collected       (2,076,721 )   (2,351,855 )
           Tax benefit from exercise of stock options       8,567     8,598  
           Increase in other assets, net       (155,340 )   (60,580 )
           (Decrease) increase in accounts payable and other liabilities, net       (27,255 )   139,214  
           Other, net       6,995     2,398  
                   Net cash provided by operating activities       531,258     1,427,233  
 
Cash Flows From Investing Activities:    
     Proceeds from sales of securities available for sale       680,924     143,700  
     Proceeds from maturities, calls and paydowns of securities available for sale       1,429,674     2,153,750  
     Purchases of securities available for sale       (3,454,119 )   (3,667,689 )
     Proceeds from maturities, calls and paydowns of securities held to maturity       125     59,997  
     Leases made to customers       (129,629 )   (124,073 )
     Principal collected on leases       87,608     72,837  
     Loan originations, net of principal collected       (3,127,155 )   (2,965,591 )
     Purchases of loans       (461,426 )   (84,206 )
     Net cash (paid) acquired in business combinations       (127,051 )   8,689  
     Purchases and originations of mortgage servicing rights       (54,021 )   (52,869 )
     Proceeds from disposals of premises and equipment       11,652     18,633  
     Purchases of premises and equipment       (83,650 )   (133,365 )
     Proceeds from sales of foreclosed property       30,311     37,280  
     Proceeds from sales of other real estate held for development or sale       7,307     10,995  
           Net cash used in investing activities       (5,189,450 )   (4,521,912 )
 
Cash Flows From Financing Activities:    
     Net increase in deposits       4,134,290     4,771,954  
     Net increase (decrease) in federal funds purchased, securities sold under repurchase agreements    
         and short-term borrowed funds       449,890     (1,186,032 )
     Proceeds from issuance of long-term debt       828,359     1,897,000  
     Repayment of long-term debt       (416,320 )   (2,296,816 )
     Net proceeds from common stock issued       30,107     24,352  
     Redemption of common stock       (213,355 )   (128,632 )
     Cash dividends paid on common stock       (384,745 )   (351,127 )
           Net cash provided by financing activities       4,428,226     2,730,699  
 
Net Decrease in Cash and Cash Equivalents       (229,966 )   (363,980 )
Cash and Cash Equivalents at Beginning of Period       3,025,835     2,821,967  
Cash and Cash Equivalents at End of Period     $ 2,795,869   $ 2,457,987  
 
Supplemental Disclosure of Cash Flow Information:    
 
     Cash paid during the period for:    
        Interest     $ 810,572   $ 551,347  
        Income taxes       414,979     55,146  
     Noncash investing and financing activities:    
        Transfer of loans to foreclosed property       23,760     43,758  
        Transfer of fixed assets to other real estate owned       4,085     4,718  
        Common stock issued in purchase accounting transactions       25,300     590,859  

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

Back to Index

BB&T Corporation          Page 5          Second Quarter 2005 10-Q




BB&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2005

(Unaudited)

NOTE 1. Basis of Presentation

   General

          In the opinion of management, the accompanying unaudited consolidated balance sheets, consolidated statements of income, consolidated statements of changes in shareholders’ equity, and consolidated statements of cash flows of BB&T Corporation and subsidiaries (referred to herein as “BB&T”, “the Corporation” or “the Company”), present fairly, in all material respects, BB&T’s financial position at June 30, 2005 and December 31, 2004; BB&T’s results of operations for the three months and six months ended June 30, 2005 and 2004; and BB&T’s cash flows for the six months ended June 30, 2005 and 2004. In the opinion of management, all adjustments necessary to fairly present the consolidated financial position and consolidated results of operations have been made.

          During the second quarter of 2005, BB&T recorded an adjustment to correct the accounting for property and equipment leases to reflect rent expense on leases with escalating payments on a straight-line basis and to depreciate certain leasehold improvements over the appropriate term. The cumulative impact of the adjustment increased occupancy and equipment expense by $44.0 million, increased other income by $1.0 million, and increased goodwill by $5.4 million, resulting in a net pretax impact of $43.0 million, or a net after-tax impact of $26.6 million. This adjustment results in differences in the timing of expense and revenue recognition and had no impact on the Company’s consolidated cash flows. In addition, the adjustment was not material to any prior periods or to BB&T’s consolidated financial position or projected annual consolidated results of operations. All other adjustments during the quarter were of a normal recurring nature.

          These 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 2004 Annual Report on Form 10-K should be referred to in connection with these unaudited interim consolidated financial statements.

   Nature of Operations

          BB&T is a financial holding company headquartered in Winston-Salem, North Carolina. BB&T conducts its operations primarily through its subsidiary banks, which have branches in North Carolina, South Carolina, Virginia, Maryland, Georgia, West Virginia, Tennessee, Kentucky, Florida, Alabama, Indiana and Washington, D.C. BB&T’s subsidiary banks provide a wide range of banking services to individuals and businesses. BB&T’s subsidiary banks offer a variety of loans to businesses and consumers, including mortgage loans. Such loans are made primarily to individuals residing in the market areas described above or to businesses located within BB&T’s geographic footprint. BB&T’s subsidiary banks also market a wide range of deposit services to individuals and businesses. BB&T’s subsidiary banks offer, either directly, or through their subsidiaries, lease financing to businesses and municipal governments; discount brokerage services, annuities and mutual funds; life insurance, property and casualty insurance, health insurance and commercial general liability insurance on an agency basis and through a wholesale insurance brokerage operation; insurance premium financing; permanent financing arrangements for commercial real estate and provides loan servicing for third-party investors; direct consumer finance loans to individuals; and trust services. The direct nonbank subsidiaries of BB&T provide a variety of financial services including automobile lending, equipment financing, factoring, full-service securities brokerage, payroll processing, asset management and capital markets services.

BB&T Corporation          Page 6          Second Quarter 2005 10-Q




   Principles of Consolidation

          The consolidated financial statements of BB&T include the accounts of BB&T Corporation and those subsidiaries that are majority-owned by BB&T or over which BB&T exercises control. In consolidation, all significant intercompany accounts and transactions have been eliminated. The results of operations of companies acquired in transactions accounted for as purchases are included only from the dates of acquisition. All material wholly-owned and majority-owned subsidiaries are consolidated unless accounting principles generally accepted in the United States of America require otherwise.

          BB&T evaluates variable interests in entities for which voting interests are not an effective means of identifying controlling financial interests. Variable interests are those in which the value of the interest changes with the fair value of the net assets of the entity exclusive of variable interests. If the results of the evaluation indicate the existence of a primary beneficiary and the entity does not effectively disperse risks among the parties involved, that primary beneficiary is required to consolidate the entity. Likewise, if the evaluation indicates that the requirements for consolidation are not met and the entity has previously been consolidated, then the entity would be deconsolidated.

          BB&T has variable interests in certain entities including affordable housing partnership interests, historic tax credit partnerships, other partnership interests and trust preferred securities, none of which were required to be consolidated.

          BB&T generally accounts for unconsolidated partnership investments using the equity method of accounting. In addition to affordable housing partnerships, which represent the majority of unconsolidated investments in variable interest entities, BB&T also has investments and future funding commitments to venture capital entities, small business investment companies and other entities. The maximum potential exposure to losses relative to investments in variable interest entities is generally limited to the sum of the outstanding balance, future funding commitments and any related loans to the entity. Loans to these entities are underwritten in substantially the same manner as are other loans and are generally secured.

          BB&T has investments in certain entities for which BB&T does not have controlling interest. For these investments, the Company records its interest using the equity method with its portion of income or loss being recorded in other noninterest income on the Consolidated Statements of Income. BB&T periodically evaluates these investments for impairment.

BB&T Corporation          Page 7          Second Quarter 2005 10-Q




   Reclassifications

          In certain instances, amounts reported in a prior period’s consolidated financial statements have been reclassified to conform to the current presentation. Such reclassifications had no effect on previously reported shareholders’ equity or net income.

   Use of Estimates in the Preparation of Financial Statements

          The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements 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 relate to the determination of the allowance for loan and lease losses and the reserve for unfunded lending commitments, valuation of mortgage servicing rights, valuation of goodwill, intangible assets and other purchase accounting related adjustments, benefit plan obligations and expenses, and tax assets, liabilities and expenses.

   Stock-Based Compensation

          BB&T maintains various stock-based compensation plans. These plans provide for the granting of stock options (incentive and nonqualified), stock appreciation rights, restricted stock, performance units and performance shares to selected BB&T employees and directors. All of BB&T’s stock-based compensation plans, except for plans assumed in connection with the First Virginia Banks, Inc. merger, have been presented to, and approved by, BB&T’s shareholders. BB&T accounts for its stock option plans based on the intrinsic value method set forth in Accounting Principles Board Opinion No. 25 (“APB 25”), “Accounting for Stock Issued to Employees,” and related interpretations. As a result, no compensation cost has been recognized for any of the periods presented, except with respect to restricted stock plans, as disclosed in the accompanying table. The following table presents BB&T’s net income, basic earnings per share and diluted earnings per share as reported, and pro forma net income and pro forma earnings per share assuming compensation cost for BB&T’s stock option plans had been determined based on the fair value at the grant dates for awards under those plans granted after December 31, 1994, consistent with the method prescribed by Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”).




BB&T Corporation          Page 8          Second Quarter 2005 10-Q




  For the Three Months Ended For the Six Months Ended
  June 30, June 30,
  2005 2004 2005 2004
(Dollars in thousands, except per share data)
Net income:        
    Net income as reported     $ 386,805   $ 400,106   $ 782,189   $ 728,606  
       Add: Stock-based compensation expense    
          included in reported net income, net of tax       29     115     56     242  
       Deduct: Total stock-based employee                            
          compensation expense determined under                            
          fair value based method for all awards,                            
          net of tax       (6,225 )   (5,098 )   (10,640 )   (10,855 )
    Pro forma net income     $ 380,609   $ 395,123   $ 771,605   $ 717,993  
Basic EPS:    
    As reported     $ .71   $ .72   $ 1.43   $ 1.32  
    Pro forma       .70     .71     1.41     1.30  
Diluted EPS:    
    As reported       .70     .72     1.42     1.32  
    Pro forma       .69     .71     1.40     1.30  

          The fair value of each option grant was estimated as of the date of grant using the Black-Scholes option-pricing model, with the following weighted-average assumptions used for grants in 2005 and 2004, respectively:

  For the Three Months Ended For the Six Months Ended
  June 30, June 30,
  2005 2004 2005 2004
     
Weighted-average assumptions:    
    Risk-free interest rate       4.1  %   3.9  %   4.1  %   3.5  %
    Dividend yield       3.5     3.0     3.5     3.0  
    Volatility factor       20.0     27.0     20.0     27.0  
    Expected life       6.5  yrs   6.0  yrs   6.5  yrs   6.0  yrs
Fair value of options per share     $ 6.61   $ 8.02   $ 6.51   $ 8.19  

   Changes in Accounting Principles and Effects of New Accounting Pronouncements

          In December 2003, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position 03-3, “Accounting for Certain Loans or Debt Securities Acquired in a Transfer” (“SOP 03-3”). SOP 03-3 addresses accounting for differences between contractual cash flows and cash flows expected to be collected from an investor’s initial investment in loans or debt securities (loans) acquired in a transfer if those differences are attributable, at least in part, to credit quality. It includes loans purchased by BB&T or acquired in business combinations. SOP 03-3 does not apply to loans originated by BB&T. BB&T adopted the provisions of SOP 03-3 effective January 1, 2005. The initial implementation had no effect on BB&T’s consolidated financial position or consolidated results of operations, but affects BB&T’s accounting for impaired loans acquired in business combinations.

BB&T Corporation          Page 9          Second Quarter 2005 10-Q




          In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS No. 153, "Exchanges of Nonmonetary Assets--an amendment of APB Opinion No. 29" ("SFAS No. 153"). SFAS No. 153 requires that exchanges of nonmonetary assets be accounted for at fair value unless the exchange lacks commercial substance. A nonmonetary exchange has commercial substance when the future cash flows of an entity are expected to change significantly as a result of the exchange. SFAS No. 153 also eliminates a provision in APB Opinion No. 29 that exempted nonmonetary exchanges of similar productive assets from fair value accounting. SFAS No. 153 is effective for nonmonetary asset exchanges occurring in periods beginning after June 15, 2005. Management currently does not anticipate that the effects of SFAS No. 153 will materially affect BB&T's consolidated financial position or consolidated results of operations.

          In December 2004, the FASB issued FASB Staff Position (“FSP”) 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004” (the “Jobs Act”). The Jobs Act introduced a special one-time dividends received deduction on the repatriation of certain foreign earnings to a U.S. taxpayer, provided certain criteria are met. Under the provisions of the Jobs Act, a taxpayer would receive a tax deduction of 85% of certain foreign earnings if repatriated during 2005 pursuant to a domestic reinvestment plan. This Staff Position issued disclosure requirements and provided clarification on the accounting for the repatriation provisions of the Jobs Act. BB&T has evaluated and concluded that the potential income tax effects of these provisions are not material to BB&T.

          In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based Payment" ("SFAS No. 123(R)"), which is a revision of SFAS No. 123. SFAS No. 123(R) supersedes APB 25 and amends SFAS No. 95, "Statement of Cash Flows." Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123. However, SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be expensed based on their fair values.

          On April 14, 2005, the Securities and Exchange Commission (“SEC”) adopted a rule that delayed the effective date of SFAS No. 123(R), which required adoption no later than July 1, 2005. The SEC rule allows companies to implement SFAS No. 123(R) at the beginning of their next fiscal year that begins after June 15, 2005. Early adoption will be permitted in periods in which financial statements have not yet been issued. The new SEC rule does not change the accounting required by SFAS No. 123(R). BB&T plans to adopt SFAS No. 123(R) on January 1, 2006, using the modified-prospective method, which requires the recognition of compensation costs beginning with the effective date (a) based on the requirements of SFAS No. 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of SFAS No. 123 for all awards granted to employees prior to the effective date of SFAS No. 123(R) that remain unvested on the effective date.

BB&T Corporation          Page 10          Second Quarter 2005 10-Q




          As permitted by SFAS No. 123, BB&T currently accounts for share-based payments to employees using the intrinsic value method prescribed by APB 25 and, as such, generally recognizes no compensation cost for employee stock options. Accordingly, the adoption of the fair value method in SFAS No. 123(R) will have an impact on BB&T’s result of operations, although it will have no impact on BB&T’s overall financial position. The impact of adoption of SFAS No. 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. Additionally, BB&T’s stock option grants contain a provision that accelerates vesting of options for holders that retire and have met retirement eligibility requirements. Currently, as part of the pro forma disclosures required by SFAS No. 123, BB&T records a pro forma expense for the unrecognized compensation cost in the period that the accelerated vesting occurs. However, upon adoption of SFAS No. 123(R), BB&T will recognize compensation expense based on retirement eligibility dates for all options which contain an accelerated vesting provision. SFAS No. 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. While BB&T cannot estimate what those amounts will be in the future (because they depend on, among other things, when employees exercise stock options), the amount of operating cash flows recognized in prior periods for such tax deductions were $8.6 million for both the first six months of 2005 and 2004.

          In March 2005, the SEC staff issued Staff Accounting Bulletin No. 107 (“SAB 107”) to assist preparers with the implementation of SFAS No. 123(R).  SAB 107 recognizes that considerable judgment will be required by preparers to successfully implement SFAS No. 123(R), (specifically when valuing employee stock options); and that reasonable individuals, acting in good faith, may conclude differently on the fair value of employee stock options. Key topics covered by SAB 107 include: (a) valuation models – SAB 107 reinforces the flexibility allowed by SFAS 123(R) to choose an option-pricing model that meets the standard’s fair value measurement objective; (b) expected volatility – the SAB provides guidance on when it would be appropriate to rely exclusively on either historical or implied volatility in estimating expected volatility; and (c) expected term – the new guidance includes examples and some simplified approaches to determining the expected term under certain circumstances.  BB&T will apply the principles of SAB 107 in conjunction with its adoption of SFAS No. 123(R).

          In March 2005, the FASB issued FASB Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations” (“FIN 47”). This Interpretation clarifies that the term “conditional asset retirement obligation” as used in SFAS No. 143, “Accounting for Asset Retirement Obligations,” refers to a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. According to FIN 47, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation when incurred if the liability’s fair value can be reasonably estimated. The provisions of FIN 47 are effective for fiscal years ending after December 15, 2005. Management currently does not anticipate that the implementation of FIN 47 will materially affect BB&T’s consolidated financial position or consolidated results of operations.

BB&T Corporation          Page 11          Second Quarter 2005 10-Q




          In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections,” (“SFAS No. 154”), which requires retrospective application for reporting a voluntary change in accounting principle, unless it is impracticable to do so. SFAS No. 154 provides guidance for determining whether retrospective application of a change in accounting principle is impracticable and also addresses the reporting of a correction of error by restating previously issued financial statements. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company will adopt SFAS No. 154 as required, and management does not believe the adoption will have a material effect on the Company’s results of operations or financial position.

NOTE 2. Business Combinations

          The following table presents summary information with respect to significant mergers and acquisitions of financial institutions and other significant financial services companies completed by BB&T Corporation during 2004. There have been no significant mergers completed during the first half of 2005.

Summary of Significant Mergers and Acquisitions

            BB&T Common
          Total Shares Issued
Date of     Total Intangibles Purchase to Complete
Acquisition Acquired Company Headquarters Assets Recorded Price Transaction
  April 14, 2004   Republic Bancshares Inc.     St. Petersburg, Fla.     $ 2.9 billion     $ 260.5 million     $ 433.4 million (1)     6.5 million  
  February 1, 2004   McGriff, Seibels &                                  
      Williams, Inc.     Birmingham, Al.       226.6 million     416.8 million     371.3 million (2)     8.2 million  

(1) Includes cash consideration totaling $171.1 million
(2) Includes cash consideration at the time of acquisition and certain contingent consideration payments totaling $70.5 million.

   Insurance and Other Nonbank Acquisitions

          During the first six months of 2005, BB&T acquired three insurance businesses and three nonbank financial services companies, including the acquisition of a 70% ownership interest in Sterling Capital Management LLC, an investment management services company based in Charlotte, North Carolina. In conjunction with these transactions, BB&T issued approximately 638 thousand shares of common stock and paid approximately $130.6 million in cash. BB&T acquired eight insurance agencies and three nonbank financial service companies during 2004. In conjunction with these transactions, BB&T issued approximately 1.4 million shares of common stock and paid approximately $74.2 million in cash. BB&T also acquires client relationships, primarily from insurance companies. Such acquisitions have not been material to BB&T’s financial condition or results of operations.

BB&T Corporation          Page 12          Second Quarter 2005 10-Q




   Merger-Related and Restructuring Activities

          BB&T has incurred certain expenses in connection with business combinations. The following table presents the components of merger-related and restructuring charges included in noninterest expenses. This table includes changes 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 expenses associated with systems conversions, data processing, training, travel and other costs.

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

  For the Three Months For the Six Months
  Ended June 30, Ended June 30,
  2005 2004 2005 2004
         
Severance and personnel-related items     $ (111 ) $ 2,040   $ (1,398 ) $ 7,828  
Occupancy and equipment       (541 )   (7,643 )   (1,754 )   (5,890 )
Systems conversions and related items       --     1,015     3     802  
Marketing and public relations       --     3,089     --     3,711  
Other merger-related items       248     2,290     188     3,990  
      Total     $ (404 ) $ 791   $ (2,961 ) $ 10,441  

          In conjunction with the consummation of an acquisition and completion of other requirements, BB&T typically accrues certain merger-related expenses related to estimated severance costs and other personnel-related 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 table presents a summary of BB&T’s merger accrual activity for 2005.

  Merger Accrual Activity
  (Dollars in thousands)
             
      Merger-related      
  Balance   and     Balance
  January 1, Accrued at restructuring     June 30,
  2005 acquisition charges (gains) Utilized Other, net (1) 2005
             
Severance and personnel-related items     $ 14,658   $ 50   $ (1,398 ) $ (1,866 ) $ --   $ 11,444  
Occupancy and equipment       15,554     170     (1,754 )   (1,347 )   771     13,394  
Systems conversions and related items       --     --     3     (3 )   --     --  
Other merger-related items       4,284     1,324     188     (1,039 )   (9 )   4,748  
     Total     $ 34,496   $ 1,544   $ (2,961 ) $ (4,255 ) $ 762   $ 29,586  


(1) Other, net is primarily composed of adjustments resulting from changes to original estimates of merger-related accruals.


BB&T Corporation          Page 13          Second Quarter 2005 10-Q




NOTE 3. Securities

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

June 30, 2005
        Estimated
  Amortized Gross Unrealized Fair
  Cost Gains Losses Value
  (Dollars in thousands)
Securities available for sale:        
     U.S. Treasuries     $ 120,144   $ 33   $ 1,134   $ 119,043  
     U.S. government entities       11,978,162     5,184     190,245     11,793,101  
     Mortgage-backed securities       6,507,736     23,400     44,483     6,486,653  
     States and political subdivisions       700,336     24,444     1,184     723,596  
     Equity and other securities       991,796     13,656     4,380     1,001,072  
     Total securities available for sale     $ 20,298,174   $ 66,717   $ 241,426   $ 20,123,465  


December 31, 2004
        Estimated
  Amortized Gross Unrealized Fair
  Cost Gains Losses Value
  (Dollars in thousands)
Securities held to maturity:    
     U.S. Treasuries     $ 125   $ --   $ --   $ 125  
     Total securities held to maturity       125     --     --     125  
Securities available for sale:    
     U.S. Treasuries       122,183     1,009     737     122,455  
     U.S. government entities       12,817,387     16,756     194,078     12,640,065  
     Mortgage-backed securities       4,537,855     26,664     34,093     4,530,426  
     States and political subdivisions       754,093     31,241     955     784,379  
     Equity and other securities       746,168     17,761     3,058     760,871  
     Total securities available for sale       18,977,686     93,431     232,921     18,838,196  
     Total     $ 18,977,811   $ 93,431   $ 232,921   $ 18,838,321  

          BB&T evaluates each available for sale security in a loss position for other than temporary impairment. In its evaluation BB&T considers such factors as the length of time and the extent to which the market value has been below cost, the financial condition of the issuer, and BB&T’s ability and intent to hold the security to an expected recovery in market value. BB&T has not recognized any other-than-temporary impairment related to securities.

          The following table reflects the gross unrealized losses and fair values of BB&T’s investments at June 30, 2005, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.

BB&T Corporation          Page 14          Second Quarter 2005 10-Q




  Less than 12 months 12 months or more Total
             
  Fair Unrealized Fair Unrealized Fair Unrealized
  Value Losses Value Losses Value Losses
  (Dollars in thousands)
Securities:            
U.S. Treasuries     $ 80,141   $ 902   $ 15,822   $ 232   $ 95,963   $ 1,134  
U.S. government entities       3,439,529     27,147     7,301,616     163,098     10,741,145     190,245  
Mortgage-backed securities       3,054,695     22,984     1,257,573     21,499     4,312,268     44,483  
States and political subdivisions       17,400     183     81,016     1,001     98,416     1,184  
Equity and other securities       318,027     2,715     130,926     1,665     448,953     4,380  
 
      Total temporarily impaired securities     $ 6,909,792   $ 53,931   $ 8,786,953   $ 187,495   $ 15,696,745   $ 241,426  

NOTE 4. Goodwill and Other Intangible Assets

          The changes in the carrying amount of goodwill attributable to each of BB&T’s operating segments for the six months ended June 30, 2005, and the year ended December 31, 2004, are as follows:

  Goodwill Activity by Operating Segment
               
          Investment    
  Banking Mortgage Trust Insurance Banking and Specialized  
  Network Banking Services Services Brokerage Lending Total
  (Dollars in thousands)
               
Balance, December 31, 2003     $ 3,212,517   $ 7,459   $ 27,330   $ 269,252   $ 70,255   $ 29,713   $ 3,616,526  
          Acquired goodwill, net       213,980     --     4,380     278,477     --     7,930     504,767  
          Adjustments to goodwill       (19,616 )   --     (369 )   21,385     894     654     2,948  
Balance, December 31, 2004       3,406,881     7,459     31,341     569,114     71,149     38,297     4,124,241  
          Acquired goodwill, net       --     --     45,276     35,645     1,966     126     83,013  
          Adjustments to goodwill       4,610     --     748     18,517     1,944     646     26,465  
Balance, June 30, 2005     $ 3,411,491   $ 7,459   $ 77,365   $ 623,276   $ 75,059   $ 39,069   $ 4,233,719  

          The adjustments to goodwill recorded during the first six months of 2005 include $22.3 million of contingent consideration paid to acquired companies subsequent to the date of acquisition based on the terms of the purchase agreements and $5.4 million related to the accounting for property and equipment leases of acquired companies. The adjustments to goodwill recorded during 2004 primarily reflect reallocations of purchase price subsequent to the dates of acquisition.

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

BB&T Corporation          Page 15          Second Quarter 2005 10-Q




  Identifiable Intangible Assets
  As of June 30, 2005 As of December 31, 2004
  Gross   Net Gross   Net
  Carrying Accumulated Carrying Carrying Accumulated Carrying
  Amount Amortization Amount Amount Amortization Amount
  (Dollars in thousands)
             
Identifiable intangible assets:            
Core deposit intangibles     $ 364,937   $ (160,449 ) $ 204,488   $ 364,937   $ (134,214 ) $ 230,723  
Other (1)       441,639     (110,162 )   331,477     362,500     (79,684 )   282,816  
   Totals     $ 806,576   $ (270,611 ) $ 535,965   $ 727,437   $ (213,898 ) $ 513,539  

(1) Other amortizing identifiable intangibles are primarily composed of customer relationship intangibles.

          The following table presents estimated amortization expense for the full year 2005 and each of the next four years:

Estimated Amortization Expense
of Identifiable Intangible Assets

(Dollars in thousands)

For the Year Ending December 31:  
     2005     $ 116,684  
     2006       100,145  
     2007       87,162  
     2008       73,127  
     2009       58,546  








BB&T Corporation          Page 16          Second Quarter 2005 10-Q




NOTE 5. Long-Term Debt

          Long-term debt is summarized as follows:

  June 30, December 31,
  2005 2004
  (Dollars in thousands)
Parent Company    
        7.25% Subordinated Notes Due 2007     $ 249,290   $ 249,122  
        6.375% Subordinated Notes Due 2025 (1)       --     351,111  
        6.50% Subordinated Notes Due 2011 (2,4)       646,097     645,841  
        4.75% Subordinated Notes Due 2012 (2,4)       494,992     494,707  
        5.20% Subordinated Notes Due 2015 (2,4)       996,401     996,274  
        4.90% Subordinated Notes Due 2017 (2,4)       358,500     --  
        5.25% Subordinated Notes Due 2019 (2,4)       599,756     599,750  
 
Branch Bank    
        Floating Rate Senior Notes Due 2007 (3.34% at June 30, 2005)       499,845     499,806  
        Floating Rate Secured Borrowings Due 2007 (6)       1,500,000     1,500,000  
        4.875% Subordinated Notes Due 2013 (2,4)       249,155     249,099  
 
Federal Home Loan Bank Advances to the Subsidiary Banks    
        Varying maturities to 2023 with interest rates from 1.00% to 8.50% (5)       6,123,635     5,572,685  
 
Capitalized Leases    
        Varying maturities to 2028 with interest rates from 8.90% to 15.78%       1,998     1,966  
 
Junior Subordinated Debt to Unconsolidated Trusts (3)       101,805     193,558  
 
Other Long-Term Debt       2,655     2,952  
 
Hedging Gains on Long-Term Debt       131,554     62,753  
 
                Total Long-Term Debt     $ 11,955,683   $ 11,419,624  

(1) These subordinated notes were exchanged by BB&T on June 30, 2005.
(2) Subordinated notes that qualify under the risk-based capital guidelines as Tier 2 supplementary capital, subject to certain limitations.
(3) Securities that qualify under the risk-based capital guidelines as Tier 1 capital, subject to certain limitations. At June 30, 2005, the interest rates ranged from 8.90% to 10.07%.
(4) These fixed rate notes were swapped to floating rates based on LIBOR. At June 30, 2005, the effective interest rates ranged from 3.56% to 4.04%.
(5) At June 30, 2005, the weighted average cost of these advances was 5.09% and the weighted average maturity was 10.5 years.
(6) These borrowings are secured primarily by automobile loans and have variable rates based on LIBOR.

BB&T Corporation          Page 17          Second Quarter 2005 10-Q




          On June 30, 2005, BB&T exchanged $350 million of subordinated notes bearing an interest rate of 6.375% for $400 million aggregate principal amount of subordinated global notes maturing in 2017 and bearing an interest rate of 4.90%. This exchange is being accounted for under Emerging Issues Task Force 96-19, “Debtor’s Accounting for a Modification or Exchange of Debt Instruments” (“EITF 96-19”). The transaction gave rise to substantially similar debt under EITF 96-19 and resulted in no immediate gain or loss. The financing costs relating to this exchange will be deferred and amortized over the life of the new $400 million subordinated global notes.

NOTE 6. Contractual Obligations, Commitments, Contingent Liabilities, and Off-Balance Sheet Arrangements

          BB&T’s significant commitments include certain investments in affordable housing and historic building rehabilitation projects throughout its market area. BB&T enters into such arrangements as a means of supporting local communities and recognizes tax credits relating to its investments. At June 30, 2005, BB&T’s investments in such projects totaled $248.3 million, which includes outstanding commitments of $162.9 million. At December 31, 2004, BB&T’s investments in such projects totaled $257.7 million, which includes outstanding commitments of $215.2 million. BB&T typically acts as a limited partner in these investments and does not exert control over the operating or financial policies of the partnerships. BB&T’s subsidiary banks typically provide financing during the construction and development of the properties; however, permanent financing is generally obtained from independent third parties upon completion of a project. BB&T’s risk exposure relating to such commitments is generally limited to the amount of investments made.

          Standby letters of credit and financial guarantees written are unconditional commitments issued by BB&T to guarantee the performance of a customer to a third party. These guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper issuance, bond financing and similar transactions. The credit risk involved in the issuance of these guarantees is essentially the same as that involved in extending loans to clients and as such, the instruments are collateralized when necessary. As of June 30, 2005, BB&T had issued a total of $2.2 billion in standby letters of credit. The carrying amount of the liability for such guarantees was $11.0 million at June 30, 2005.

          In the ordinary course of business, BB&T indemnifies its officers and directors to the fullest extent permitted by law against liabilities arising from litigation. BB&T also issues standard representation warranties in underwriting agreements, merger and acquisition agreements, loan sales, brokerage activities and other similar arrangements. Counterparties in many of these indemnifications provide similar indemnifications to BB&T. Although these agreements often do not specify limitations, BB&T has not been required to act on the guarantees and does not believe that any payments pursuant to them would materially change the financial condition or results of operations of BB&T.

          Merger and acquisition agreements of businesses other than financial institutions occasionally include additional incentives to the acquired entities to offset the loss of future cash flows previously received through ownership positions. Typically, these incentives are based on the acquired entity’s contribution to BB&T’s earnings compared to agreed-upon amounts. When offered, these incentives are typically issued for terms of three to eight years. As certain provisions of these agreements do not specify dollar limitations, it is not possible to quantify the maximum exposure resulting from these agreements.

BB&T Corporation          Page 18          Second Quarter 2005 10-Q




NOTE 7. Benefit Plans

          BB&T provides various benefit plans to substantially all employees, including employees of acquired entities. Employees of acquired entities generally participate in existing BB&T plans after consummation of the business combinations. The plans of acquired institutions are typically merged into the BB&T plans after consummation of the mergers, and, under these circumstances, credit is usually given to these employees for years of service at the acquired institution for vesting and eligibility purposes. Please refer to BB&T’s Annual Report on Form 10-K for the year ended December 31, 2004, for descriptions and disclosures about the various benefit plans offered by BB&T.

The following table summarizes the components of net periodic benefit cost recognized for the three-month and six-month periods ended June 30, 2005 and 2004, respectively:

Pension Plans Other Postretirement
Qualified Nonqualified Benefit Plans
For the For the For the
Three months ended Three months ended Three months ended
June 30, June 30, June 30,
2005 2004 2005 2004 2005 2004
(Dollars in thousands)
             
Service cost     $ 15,931   $ 13,529   $ 971   $ 772   $ --   $ 993  
Interest cost       13,363     12,653     1,528     1,660     348     1,911  
Estimated return on plan assets       (20,097 )   (17,224 )   --     --     --     --  
Amortization of unrecognized    
  transition obligation       --     --     --     15     --     55  
Amortization of prior service cost       (1,147 )   (1,148 )   (7 )   (17 )   (1,300 )   192  
Amortization of net loss       2,633     3,940     570     337     182     100  
Net periodic benefit cost (income)     $ 10,683   $ 11,750   $ 3,062   $ 2,767   $ (770 ) $ 3,251  


Pension Plans Other Postretirement
Qualified Nonqualified Benefit Plans
For the For the For the
Six months ended Six months ended Six months ended
June 30, June 30, June 30,
2005 2004 2005 2004 2005 2004
(Dollars in thousands)
             
Service cost     $ 31,862   $ 27,058   $ 1,943   $ 1,544   $ --   $ 1,985  
Interest cost       26,727     25,306     3,056     2,880     696     3,820  
Estimated return on plan assets       (40,194 )   (33,948 )   --     --     --     --  
Amortization of unrecognized    
  transition obligation       --     --     --     30     --     110  
Amortization of prior service cost       (2,295 )   (2,296 )   (14 )   2,466     (2,600 )   384  
Amortization of net loss       5,266     7,880     1,140     674     364     199  
Net periodic benefit cost (income)     $ 21,366   $ 24,000   $ 6,125   $ 7,594   $ (1,540 ) $ 6,498  

BB&T Corporation          Page 19          Second Quarter 2005 10-Q






          Management elected to make a discretionary contribution of $30.0 million to the qualified pension plan in the first quarter of 2005 and may make additional contributions later in 2005 if management deems it appropriate.

NOTE 8. Computation of Earnings per Share

          BB&T’s basic and diluted earnings per share amounts for the three and six month periods ended June 30, 2005 and 2004, respectively, were calculated as follows:

  For the Three Months For the Six Months
  Ended June 30, Ended June 30,
  2005 2004 2005 2004
  (Dollars in thousands, except per share data)
Basic Earnings Per Share:        
    Weighted average number of common shares       547,089,165     554,041,770     548,179,529     550,309,127  
        Net income     $ 386,805   $ 400,106   $ 782,189   $ 728,606  
    Basic earnings per share     $ .71   $ .72   $ 1.43   $ 1.32  
Diluted Earnings Per Share:    
    Weighted average number of common shares       547,089,165     554,041,770     548,179,529     550,309,127  
    Add:    
        Effect of dilutive stock options       4,155,947     3,443,910     4,263,710     3,707,236  
    Weighted average number of diluted common shares       551,245,112     557,485,680     552,443,239     554,016,363  
        Net income     $ 386,805   $ 400,106   $ 782,189   $ 728,606  
    Diluted earnings per share     $ .70   $ .72   $ 1.42   $ 1.32  

          For the quarters ended June 30, 2005 and 2004, respectively, antidilutive options to purchase 117 thousand shares and 16.6 million shares of common stock were outstanding. For the first six months of 2005 and 2004, respectively, antidilutive options to purchase 116 thousand shares and 14.4 million shares of common stock were outstanding. Antidilutive options outstanding were not included in the computation of diluted earnings per share.

BB&T Corporation          Page 20          Second Quarter 2005 10-Q




NOTE 9. Comprehensive Income

          The balances in accumulated other comprehensive loss for the periods indicated are shown in the following tables:

Accumulated Other Comprehensive Loss
June 30, 2005
       
  Before-Tax Tax After-Tax
  Amount Benefit Amount
  (Dollars in thousands)
 
Unrealized losses on securities available for sale     $ (174,708 ) $ (65,269 ) $ (109,439 )
Unrealized losses on cash flow hedges       (22,825 )   (8,810 )   (14,015 )
Minimum pension liability       (8,354 )   (3,197 )   (5,157 )
   Total     $ (205,887 ) $ (77,276 ) $ (128,611 )



Accumulated Other Comprehensive Loss
December 31, 2004
       
  Before-Tax Tax After-Tax
  Amount Benefit Amount
  (Dollars in thousands)
 
Unrealized losses on securities available for sale     $ (139,493 ) $ (52,019 ) $ (87,474 )
Unrealized losses on cash flow hedges       (33,726 )   (13,018 )   (20,708 )
Minimum pension liability       (4,644 )   (1,625 )   (3,019 )
   Total     $ (177,863 ) $ (66,662 ) $ (111,201 )

           The following table summarizes total comprehensive income for the three and six-month periods ended June 30, 2005 and 2004, respectively:

  For the Three Months Ended For the Six Months Ended
  June 30, June 30,
  2005 2004 2005 2004
(Dollars in thousands)
Comprehensive income:        
Net income     $ 386,805   $ 400,106   $ 782,189   $ 728,606  
Other comprehensive income:    
    Net unrealized holding gains (losses) on securities       161,269     (373,248 )   (21,965 )   (239,579 )
    Net unrealized gains (losses) on cash flow hedges       731     (20,588 )   6,693     (21,711 )
    Net change in minimum pension liability       --     1     (2,138 )   (3,018 )
       Total comprehensive income     $ 548,805   $ 6,271   $ 764,779   $ 464,298  

BB&T Corporation          Page 21          Second Quarter 2005 10-Q




NOTE 10. Operating Segments

          BB&T’s operations are divided into seven reportable business segments: the Banking Network, Mortgage Banking, Trust Services, Insurance Services, Specialized Lending, Investment Banking and Brokerage, and Treasury. These operating segments have been identified based on BB&T’s management reporting 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 these business segments.

          BB&T emphasizes revenue growth by focusing on client service, sales effectiveness and relationship management. The segment results contained herein are presented based on internal management accounting policies that were 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. The performance of the 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 indicative of how the segments would perform if they operated as independent entities.

          Please refer to BB&T’s Annual Report on Form 10-K for the year ended December 31, 2004, for a description of internal accounting policies and the basis of segmentation, including a description of the segments presented in the accompanying tables.

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







BB&T Corporation          Page 22          Second Quarter 2005 10-Q




BB&T Corporation
Reportable Segments

For the Three Months Ended June 30, 2005 and 2004

  Banking Network Mortgage Banking Trust Services Insurance Services Specialized Lending
  2005 2004 2005 2004 2005 2004 2005 2004 2005 2004
  (Dollars in thousands)
                     
Net interest income (expense)     $ 616,301   $ 512,483   $ 178,559   $ 182,900   $ (725 ) $ (511 ) $ 2,276   $ 933   $ 73,218   $ 66,493  
  Net intersegment interest income (expense)       263,028     265,109     (112,632 )   (94,065 )   1,931     2,271     --     --     --     --  
Total net interest income       879,329     777,592     65,927     88,835     1,206     1,760     2,276     933     73,218     66,493  
Provision for loan and lease losses       59,032     63,475     2,303     2,292     --     --     --     --     24,260     22,150  
Noninterest income       225,841     207,080     14,911     65,191     41,105     34,157     174,877     159,827     18,344     13,624  
  Intersegment noninterest income       105,581     100,047     --     --     --     --     --     --     --     --  
Noninterest expense       331,133     329,476     12,934     11,945     35,573     24,782     138,082     118,262     35,202     30,788  
  Allocated corporate expenses       158,940     138,496     8,888     4,836     4,165     2,026     7,103     4,787     4,216     4,236  
Income before income taxes       661,646     553,272     56,713     134,953     2,573     9,109     31,968     37,711     27,884     22,943  
  Income tax provision (benefit)       223,342     183,859     19,182     44,749     940     3,063     12,500     14,852     9,271     6,869  
Segment net income (loss)     $ 438,304   $ 369,413   $ 37,531   $ 90,204   $ 1,633   $ 6,046   $ 19,468   $ 22,859   $ 18,613   $ 16,074  
Identifiable segment assets (period end)     $ 54,015,364   $ 50,576,349   $ 13,628,857   $ 13,045,280   $ 208,432   $ 96,613   $ 1,996,451   $ 1,639,462   $ 2,898,231   $ 2,301,676  
 
  Investment Banking        
  and Brokerage Treasury All Other Segments (1) Intersegment Eliminations Total Segments
  2005 2004 2005 2004 2005 2004 2005 2004 2005 2004
Net interest income (expense)     $ 2,337   $ 1,760   $ (4,475 ) $ 42,320   $ 45,660   $ 41,088   $ --   $ --   $ 913,151   $ 847,466  
  Net intersegment interest income (expense)       --     --     17,950     6,721     --     --     (170,277 )   (180,036 )   --     --  
Total net interest income       2,337     1,760     13,475     49,041     45,660     41,088     (170,277 )   (180,036 )   913,151     847,466  
Provision for loan and lease losses       --     --     --     --     11,745     14,608     --     --     97,340     102,525  
Noninterest income       86,022     64,488     18,157     15,405     32,886     30,391     --     --     612,143     590,163  
  Intersegment noninterest income       --     --     --     --     --     --     (105,581 )   (100,047 )   --     --  
Noninterest expense       75,243     56,938     1,584     1,092     18,888     16,588     --     --     648,639     589,871  
  Allocated corporate expenses       3,600     3,506     69     1     4,860     3,836     --     --     191,841     161,724  
Income before income taxes       9,516     5,804     29,979     63,353     43,053     36,447     (275,858 )   (280,083 )   587,474     583,509  
  Income tax provision (benefit)       3,739     2,240     4,717     15,736     17,974     12,790     (93,199 )   (92,160 )   198,466     191,998  
Segment net income (loss)     $ 5,777   $ 3,564   $ 25,262   $ 47,617   $ 25,079   $ 23,657   $ (182,659 ) $ (187,923 ) $ 389,008   $ 391,511  
Identifiable segment assets (period end)     $ 1,335,921   $ 951,954   $ 20,298,337   $ 17,570,336   $ 4,409,088   $ 4,328,363   $ --   $ --   $ 98,790,681   $ 90,510,033  


(1) Includes financial data from subsidiaries below the quantitative and qualitative thresholds requiring disclosure.

BB&T Corporation          Page 23          Second Quarter 2005 10-Q




BB&T Corporation
Reportable Segments

For the Six Months Ended June 30, 2005 and 2004

  Banking Network Mortgage Banking Trust Services Insurance Services Specialized Lending
  2005 2004 2005 2004 2005 2004 2005 2004 2005 2004
  (Dollars in thousands)
                     
Net interest income (expense)     $ 1,188,695   $ 996,561   $ 349,472   $ 359,084   $ (1,547 ) $ (1,604 ) $ 3,928   $ 1,752   $ 143,021   $ 128,453  
  Net intersegment interest income (expense)       530,930     485,883     (218,502 )   (181,195 )   3,855     4,472     --     --     --     --  
Total net interest income       1,719,625     1,482,444     130,970     177,889     2,308     2,868     3,928     1,752     143,021     128,453  
Provision for loan and lease losses       117,747     124,890     4,483     4,436     --     --     --     --     47,212     41,648  
Noninterest income       420,630     394,439     50,524     70,359     74,995     65,838     323,718     278,075     32,269     24,878  
  Intersegment noninterest income       189,127     185,079     --     --     --     --     --     --     --     --  
Noninterest expense       638,310     636,565     24,530     23,492     61,323     50,067     266,599     225,128     67,842     62,156  
  Allocated corporate expenses       306,337     268,597     17,784     9,678     7,819     3,846     14,187     9,570     8,895     7,232  
Income before income taxes       1,266,988     1,031,910     134,697     210,642     8,161     14,793     46,860     45,129     51,341     42,295  
  Income tax provision (benefit)       425,708     338,363     45,301     69,270     3,068     4,932     18,412     17,839     16,595     12,566  
Segment net income (loss)     $ 841,280   $ 693,547   $ 89,396   $ 141,372   $ 5,093   $ 9,861   $ 28,448   $ 27,290   $ 34,746   $ 29,729  
Identifiable segment assets (period end)     $ 54,015,364   $ 50,576,349   $ 13,628,857   $ 13,045,280   $ 208,432   $ 96,613   $ 1,996,451   $ 1,639,462   $ 2,898,231   $ 2,301,676  
 
  Investment Banking        
  and Brokerage Treasury All Other Segments (1) Intersegment Eliminations Total Segments
  2005 2004 2005 2004 2005 2004 2005 2004 2005 2004
Net interest income (expense)     $ 4,511   $ 3,335   $ 2,009   $ 77,307   $ 94,697   $ 80,211   $ --   $ --   $ 1,784,786   $ 1,645,099  
  Net intersegment interest income (expense)       --     --     32,020     12,432     --     --     (348,303 )   (321,592 )   --     --  
Total net interest income       4,511     3,335     34,029     89,739     94,697     80,211     (348,303 )   (321,592 )   1,784,786     1,645,099  
Provision for loan and lease losses       --     --     --     --     16,712     29,660     --     --     186,154     200,634  
Noninterest income       157,251     142,529     30,228     30,020     62,678     69,390     --     --     1,152,293     1,075,528  
  Intersegment noninterest income       --     --     --     --     --     --     (189,127 )   (185,079 )   --     --  
Noninterest expense       138,881     119,866     2,963     2,663     40,421     31,110     --     --     1,240,869     1,151,047  
  Allocated corporate expenses       7,198     7,007     95     2     9,818     7,769     --     --     372,133     313,701  
Income before income taxes       15,683     18,991     61,199     117,094     90,424     81,062     (537,430 )   (506,671 )   1,137,923     1,055,245  
  Income tax provision (benefit)       6,129     7,367     9,827     28,000     37,737     24,988     (180,531 )   (163,274 )   382,246     340,051  
Segment net income (loss)     $ 9,554   $ 11,624   $ 51,372   $ 89,094   $ 52,687   $ 56,074   $ (356,899 ) $ (343,397 ) $ 755,677   $ 715,194  
Identifiable segment assets (period end)     $ 1,335,921   $ 951,954   $ 20,298,337   $ 17,570,336   $ 4,409,088   $ 4,328,363   $ --   $ --   $ 98,790,681   $ 90,510,033  


(1) Includes financial data from subsidiaries below the quantitative and qualitative thresholds requiring disclosure.


BB&T Corporation          Page 24          Second Quarter 2005 10-Q




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

  For the Three Months Ended For the Six Months Ended
June 30, June 30,
  2005 2004 2005 2004
  (Dollars in thousands) (Dollars in thousands)
Net Interest Income        
    Net interest income from segments     $ 913,151   $ 847,466   $ 1,784,786   $ 1,645,099  
    Other net interest income (1)       85,618     92,359     176,509     185,101  
    Elimination of management accounting practices (2)       (118,803 )   (99,332 )   (230,974 )   (197,153 )
    Other, net (3)       (3,001 )   (790 )   (4,173 )   13,479  
       Consolidated net interest income     $ 876,965   $ 839,703   $ 1,726,148   $ 1,646,526  
Net income    
    Net income from segments     $ 389,008   $ 391,511   $ 755,677   $ 715,194  
    Other net income (1)       70,720     70,535     156,473     127,313  
    Elimination of management accounting practices (2)       (17,084 )   (1,510 )   (36,948 )   (29,293 )
    Other, net (3)       (55,839 )   (60,430 )   (93,013 )   (84,608 )
       Consolidated net income     $ 386,805   $ 400,106   $ 782,189   $ 728,606  
 
June 30, June 30,
      2005 2004
      (Dollars in thousands)
Total Assets    
    Total assets from segments                 $ 98,790,681   $ 90,510,033  
    Other, net (1,3)                   7,044,643     6,838,252  
       Consolidated total assets                 $ 105,835,324   $ 97,348,285  


(1)  

Other net interest income, other net income and other, net, include amounts applicable to BB&T's support functions that are not allocated to the reported 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 the funds transfer pricing credits and charges, the elimination of the economic provision for loan and lease losses and the elimination of allocated corporate expenses.


(3)  

Amounts include intercompany eliminations to arrive at consolidated results.


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

Forward-Looking Statements

          This report on Form 10-Q contains forward-looking statements with respect to the financial condition, results of operations and business of BB&T. These forward-looking statements involve certain 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:

BB&T Corporation          Page 25          Second Quarter 2005 10-Q





·

competitive pressures among depository and other financial institutions may increase significantly;


·

changes in the interest rate environment may reduce net interest margins and/or the volumes and values of loans made or held as well as the value of other financial assets held;


·

general economic or business 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 or other services;


·

legislative or regulatory changes, including changes in accounting standards, may adversely affect the businesses in which BB&T is engaged;


·

adverse changes may occur in the securities markets;


·

competitors of BB&T may have greater financial resources and develop products that enable them to compete more successfully than BB&T;


·

costs or difficulties related to the integration of the businesses of BB&T and its merger partners may be greater than expected;


·

expected cost savings associated with completed mergers may not be fully realized or realized within the expected time frames; and


·

deposit attrition, customer loss or revenue loss following completed mergers may be greater than expected.


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 of America 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 estimates, assumptions and judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues and expenses. 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 and related disclosures. The more critical accounting and reporting policies include BB&T’s accounting for the allowance for loan and lease losses and reserve for unfunded lending commitments, valuation of mortgage servicing rights, intangible assets and other purchase accounting related adjustments associated with mergers and acquisitions, costs and benefit obligations associated with BB&T’s pension and postretirement benefit plans, and income taxes. Understanding BB&T’s accounting policies is fundamental to understanding BB&T’s consolidated financial position and consolidated results of operations. Accordingly, BB&T’s significant accounting policies and changes in accounting principles are discussed in detail in Note 1 in the “Notes to Consolidated Financial Statements” in BB&T’s 2004 Annual Report on Form 10-K filed with the Securities and Exchange Commission.

          The following is a summary of BB&T’s critical accounting policies that are highly dependent on estimates, assumptions and judgments. These critical accounting policies are reviewed with the Audit Committee of BB&T’s Corporate Board of Directors on a periodic basis.

BB&T Corporation          Page 26          Second Quarter 2005 10-Q




   Allowance for Loan and Lease Losses and Reserve for Unfunded Lending Commitments

          It is the policy of BB&T to maintain an allowance for loan and lease losses and a reserve for unfunded lending commitments that equals management’s best estimate of probable credit losses that are inherent in the portfolio at the balance sheet date. Estimates for loan and lease losses are determined by analyzing historical loan and lease losses, current trends in delinquencies and charge-offs, plans for problem loan and lease administration, the results of regulatory examinations, and changes in the size, composition and risk assessment of the loan and lease portfolio. Also included in management’s estimates for loan and lease losses are considerations with respect to the impact of current 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 and industries in which BB&T conducts business. The methodology used to determine an estimate for the reserve for unfunded lending commitments is inherently similar to the methodology utilized in calculating the allowance for loans and leases adjusted for factors specific to binding commitments, including the probability of funding and exposure at the time of funding.

   Valuation of Mortgage Servicing Rights

          BB&T has a significant mortgage loan servicing portfolio and related mortgage servicing rights. Mortgage servicing rights represent the present value of the future net servicing fees from servicing mortgage loans acquired or originated by BB&T. The methodology used to determine the fair value of mortgage servicing rights is subjective and requires the development of a number of assumptions, including anticipated prepayments of loan principal. The value of mortgage servicing rights is significantly affected by mortgage interest rates available in the marketplace, which influence mortgage loan prepayment speeds. 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 estimated period that servicing income is expected to be received based on projections of the amount and timing of estimated future cash flows. The amount and timing of servicing asset amortization is updated based on actual results and updated projections.

   Intangible Assets

          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 mergers and acquisitions are accounted for using the purchase method of accounting. Under the purchase method, BB&T is required to record the assets acquired, including identified intangible assets and liabilities assumed at their fair value, which often involves estimates based on third party valuations, such as appraisals, or internal valuations based on discounted cash flow analyses or other valuation techniques, which are inherently subjective. The amortization of identified intangible assets is based upon the estimated economic benefits to be received, which is also subjective. These estimates also include the establishment of various accruals and allowances based on planned facility dispositions and employee severance considerations, among other acquisition-related items. In addition, purchase acquisitions typically result in goodwill, which is subject to ongoing periodic impairment tests based on the fair value of net assets acquired compared to the carrying value of goodwill. The major assumptions used in the impairment testing process include the estimated future cash flows of each business unit and discount rates. Discount rates are unique to each business unit and are based upon the cost of capital specific to the industry in which the business unit operates.

BB&T Corporation          Page 27          Second Quarter 2005 10-Q




   Pension and Postretirement Benefit Obligations

          BB&T offers various pension plans and postretirement benefit plans to employees. The calculation of the obligations and related expenses under these plans requires the use of actuarial valuation methods and assumptions. Actuarial valuations and assumptions used in the determination of future values of plan assets and liabilities are subject to management judgment and may differ significantly if different assumptions are used.

   Income Taxes

          The calculation of BB&T’s income tax provision is complex and requires the use of estimates and judgments. As part of the Company’s analysis and implementation of business strategies, consideration is given to the tax laws and regulations that apply to the specific facts and circumstances for any transaction under evaluation. This analysis includes the amount and timing of the realization of income tax liabilities or benefits. Management closely monitors tax developments in order to evaluate the effect they may have on the Company’s overall tax position and the estimates and judgments utilized in determining the income tax provision and records adjustments as necessary.

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EXECUTIVE SUMMARY

          BB&T's total assets at June 30, 2005, were $105.8 billion, an increase of $5.3 billion, or 5.3%, from December 31, 2004. The asset categories that experienced the largest increases were loans and leases, including loans held for sale, and securities available for sale, which grew $3.6 billion, or 5.2%, and $1.3 billion, or 6.8%, respectively, during the first half of 2005.

          Total deposits at June 30, 2005, were $71.8 billion, an increase of $4.1 billion, or 6.1%, from December 31, 2004. Shorter-term borrowed funds increased $449.9 million, or 6.7%, and long-term debt increased $536.1 million, or 4.7%, during the first six months of 2005. Total shareholders’ equity increased $215.9 million, or 2.0%, during the same time frame.

          Consolidated net income for the second quarter of 2005 totaled $386.8 million, a decrease of 3.3% compared to $400.1 million earned during the second quarter of 2004. Net income for the second quarter of 2005 included a one-time, non-cash adjustment related to property and equipment leases, which totaled $26.6 million after-tax, or $.05 per diluted share. On a diluted per share basis, earnings for the three months ended June 30, 2005, were $.70, compared to $.72 for the same period in 2004, a decrease of 2.8%. BB&T’s results of operations for the second quarter of 2005 produced an annualized return on average assets of 1.50% and an annualized return on average shareholders’ equity of 14.04% compared to prior year ratios of 1.65% and 15.17%, respectively.

BB&T Corporation          Page 28          Second Quarter 2005 10-Q






          Consolidated net income for the first six months of 2005 totaled $782.2 million, an increase of 7.4% compared to $728.6 million earned during the same period in 2004. On a diluted per share basis, earnings for the first six months of 2005 and 2004 were $1.42 and $1.32, respectively, which represents an increase of 7.6%. BB&T’s results of operations for the first six months of 2005 produced an annualized return on average assets of 1.55% and an annualized return on average shareholders’ equity of 14.37% compared to prior year ratios of 1.55% and 14.07%, respectively.

          Results during the second quarter of 2005 reflect further improvements in several key drivers of BB&T’s profitability. Among these were stronger loan growth, particularly in comparison to the first quarter of 2005, continued improvement in asset quality and higher revenues from noninterest income generating businesses. Second quarter revenues from BB&T’s noninterest income generating businesses increased significantly compared to the first quarter of 2005 partially due to seasonal factors, which primarily affected income from insurance commissions and service charges on deposits.

          Please refer to BB&T’s Annual Report on Form 10-K for the year ended December 31, 2004, for additional information with respect to BB&T’s recent accomplishments and significant challenges. The factors causing the fluctuations in the major balance sheet and income statement categories for the second quarter and first six months of 2005 are further discussed in the following sections.

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ANALYSIS OF FINANCIAL CONDITION

Securities

          Securities available for sale totaled $20.1 billion at June 30, 2005, an increase of $1.3 billion, or 6.8%, compared with December 31, 2004. Securities available for sale had net unrealized losses, net of deferred income taxes, of $109.4 million and $87.5 million at June 30, 2005 and December 31, 2004, respectively. Trading securities totaled $675.1 million, up $340.9 million compared to the balance at December 31, 2004. BB&T’s trading portfolio can fluctuate significantly from period to period based on market conditions, which affect the timing of purchases and sales of securities.

          Average total securities for the first six months of 2005 amounted to $20.1 billion, an increase of $2.3 billion, or 13.1%, compared to the average balance during the first six months of 2004. Average total securities for the second quarter of 2005 amounted to $20.6 billion, an increase of $2.2 billion, or 12.2%, compared to the average balance for the second quarter of 2004. The increase in securities was the result of a combination of factors including the securitization of approximately $1.0 billion in residential mortgage loans during the third quarter of 2004 and the investment of excess funds generated by deposit growth.

BB&T Corporation          Page 29          Second Quarter 2005 10-Q




         The annualized fully taxable equivalent ("FTE") yield on the average securities portfolio for the second quarter of 2005 was 4.13%, which represents an increase of nine basis points compared to the annualized yield earned during the second quarter of 2004. For the first six months of 2005, the annualized FTE yield was 4.10%, which represents a decrease of one basis point compared to the annualized yield earned during the same period of 2004. The fluctuations in the annualized FTE yield on the average securities portfolio were primarily the result of changes in the overall composition of the securities portfolio with a larger concentration of higher-yielding mortgage-backed securities.

          On June 30, 2005, BB&T held certain investments having continuous unrealized loss positions for more than 12 months totaling $187.5 million. The majority of these investments were in U.S. government sponsored entity securities and it is expected that the securities will not be settled at a price less than their amortized cost. Therefore, BB&T has not recognized any other-than-temporary impairment in connection with these investments.

Loans and Leases

          BB&T emphasizes commercial lending to small and medium-sized businesses, consumer lending and mortgage lending with an overall goal of maximizing the profitability of the loan portfolio while maintaining strong asset quality. For the first six months of 2005, average total loans were $69.5 billion, an increase of $4.4 billion, or 6.8%, compared to the same period in 2004. During the first six months of 2005, average commercial loans, including lease receivables, increased $2.7 billion, or 8.5%, compared to the same period in 2004 and comprised 50.4% of the loan portfolio compared to 49.6% for the first six months of 2004. Average consumer loans, which include sales finance, revolving credit and direct retail, totaled $21.8 billion during the first half of 2005, an increase of $1.7 billion, or 8.4%, compared to the same period in 2004. During the first half of 2005, consumer loans comprised 31.3% of average loans compared to 30.9% for the first six months of 2004. Average mortgage loans increased slightly and totaled $12.7 billion for both the first six months of 2005 and 2004. Mortgage loans comprised the remaining 18.3% of the loan and lease portfolio for the first six months of 2005 compared to 19.5% for the same period of 2004.

          For the second quarter of 2005, average total loans were $70.4 billion, an increase of $3.5 billion, or 5.3%, compared to the same period in 2004. Average commercial loans and leases for the second quarter of 2005 increased $2.4 billion, or 7.1%, compared to the same period in 2004 and comprised 50.4% of the loan portfolio compared to 49.5% for the second quarter of 2004. Average consumer loans totaled $21.9 billion during the second quarter of 2005, an increase of $1.4 billion, or 6.8%, compared to the same period in 2004 and comprised 31.2% of average loans compared to 30.7% for the second quarter of 2004. Average mortgage loans totaled $13.0 billion for the second quarter of 2005, which represents a decrease of $232.8 million, or 1.8%, from the 2004 average and comprised the remaining 18.4% of the loan and lease portfolio for the second quarter of 2005 compared to 19.8% for the same period of 2004.

BB&T Corporation          Page 30          Second Quarter 2005 10-Q




          The slight fluctuations in the mix of the loan portfolio during the second quarter and first six months of 2005 compared to the same periods of 2004 were primarily caused by the securitization of residential mortgage loans. In particular, during the third quarter of 2004, BB&T securitized $1.0 billion in residential mortgage loans and transferred the related mortgage-backed securities to the available-for-sale securities portfolio.

          During the second quarter of 2005, BB&T's average loan portfolio grew 10.6% on an annualized basis compared to the first quarter of 2005 because of a significant increase in loan demand across BB&T’s footprint. The acceleration in loan growth was spread across all major loan categories and was led by average commercial loans, which grew 10.2% on an annualized basis compared to the first quarter. In addition, average consumer loans and mortgage loans grew 6.7% and 18.5%, respectively, on an annualized basis.

          The annualized FTE yields on commercial, consumer and mortgage loans for the first six months of 2005 were 6.20%, 7.16%, and 5.44%, respectively, resulting in an annualized yield on the total loan portfolio of 6.36%. The FTE yields on commercial, consumer and mortgage loans for the first six months of 2004 were 5.26%, 6.71%, and 5.63%, respectively, resulting in an annualized yield on the total loan portfolio of 5.78%. This reflects an increase of 58 basis points in the annualized yield on the total loan portfolio during the first six months of 2005 in comparison to 2004. For the second quarter of 2005, the annualized yield on the total loan portfolio was 6.47%, reflecting an increase of 75 basis points compared to the second quarter of 2004. The primary reason for the increases in yields for both the six months and the second quarter was the higher interest rate environment that existed during the first half of 2005 compared to 2004. Starting in the second half of 2004, the Federal Reserve Board increased the intended Federal funds rate in response to a pick up in economic activity and concerns over inflation. As a result of the Federal Reserve Board’s actions, the prime rate, which is the basis for pricing many commercial and consumer loans, was 6.25% at June 30, 2005 compared to 4.00% at the end of the second quarter of 2004. Therefore, the overall yield of the loan portfolio increased as commercial and consumer loans were repricing at higher rates. The rise in short-term interest rates, however, was not matched by a similar rise in long-term interest rates. Therefore, mortgage rates, which are influenced by long-term interest rates in the marketplace, remained relatively unchanged compared to last year. As a result, older higher-yielding mortgage loans, which matured or refinanced, were replaced with lower-yielding mortgage loans, resulting in a 19 basis point decrease in the overall yield of the mortgage loan portfolio for the first half of 2005 compared to the same period in 2004.

Other Interest Earning Assets

          Federal funds sold, securities purchased under resale agreements and other earning assets totaled $364.0 million at June 30, 2005, an increase of $123.7 million, or 51.4%, compared to December 31, 2004. Interest-bearing deposits with banks decreased $568.4 million, or 56.7%, compared to year-end 2004. 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 was 2.86% for the first six months of 2005 compared to 1.47% for the same period in 2004. For the second quarter of 2005, the average yield on other interest-earning assets was 3.16%, up from 1.50% in the second quarter last year. These higher yields were the result of the increase in the Federal funds target rate as previously discussed.

BB&T Corporation          Page 31          Second Quarter 2005 10-Q




Goodwill and Other Assets

          BB&T’s other noninterest-earning assets, excluding premises and equipment and noninterest-bearing cash and due from banks, increased $344.0 million from December 31, 2004, to June 30, 2005. The increase was due primarily to an increase in goodwill and other intangible assets of $131.9 million, which resulted from several insurance and nonbank acquisitions, net of amortization, as well as increases in the cash surrender value of bank-owned life insurance and the carrying value of derivatives in a gain position of $43.9 million and $86.8 million, respectively.

          Other noninterest-earning assets also include commercial mortgage servicing rights totaling $16.2 million and residential mortgage servicing rights totaling $325.4 million, net of an allowance for impairment, which totaled $117.0 million at June 30, 2005.

Deposits

          Client deposits generated through the BB&T branch network are the largest source of funds used to support asset growth. Deposits totaled $71.8 billion at June 30, 2005, an increase of $4.1 billion, or 6.1%, from December 31, 2004. Average deposits for the first six months of 2005 increased $4.4 billion, or 6.8%, to $68.1 billion compared to the first six months of 2004. The categories of deposits with the highest average rates of growth were noninterest-bearing deposits, which increased $1.3 billion, or 11.6%, and money rate savings accounts, including investor deposit accounts, which increased $2.1 billion, or 9.8%.

          For the second quarter of 2005, average deposits increased $2.9 billion, or 4.5%, compared to the second quarter of 2004. The categories of deposits with the highest average rates of growth were average noninterest-bearing deposits and money rate savings accounts, which both increased $1.1 billion for the second quarter of 2005, representing increases of 9.5% and 5.3%, respectively, compared to the second quarter of 2004.

          In addition to the positive growth in client deposits, there has been a shift in the overall deposit mix as BB&T has emphasized growth in noninterest-bearing accounts. Noninterest-bearing accounts comprised 18.5% of total average deposits for the second quarter of 2005, compared to 17.7% for the second quarter of 2004. This has primarily been a shift from certificates of deposits and other time deposits, which comprised 40.9% of total average deposits for the second quarter of 2005, compared to 41.7% for the same period of 2004. However, more recently there has been a migration from money rate savings accounts to certificates of deposits.

          The annualized average rate paid on total interest-bearing deposits during the first six months of 2005 was 1.89%, an increase of 59 basis points compared to 2004. For the second quarter of 2005, the annualized average rate paid on total interest-bearing deposits was 1.99%, an increase of 71 basis points compared to the second quarter of 2004. These increases in the average rate paid resulted primarily from the higher interest rate environment that existed during 2005 compared to 2004, and competition in the pricing of deposit products.

BB&T Corporation          Page 32          Second Quarter 2005 10-Q





Borrowings

          While client deposits remain the primary source for funding loan originations and other balance sheet growth, management uses shorter-term borrowings as a supplementary funding source for loan growth. Shorter-term borrowings utilized by the Corporation include Federal funds purchased, securities sold under repurchase agreements, master notes, U.S. Treasury tax and loan deposit notes, short-term bank notes, and short-term Federal Home Loan Bank advances. At June 30, 2005, shorter-term borrowings totaled $7.1 billion, an increase of $449.9 million, or 6.7%, compared to December 31, 2004. For the second quarter of 2005, average shorter-term borrowed funds were $8.2 billion, an increase of $1.5 billion, or 23.0%, from the comparable period of 2004. For the six months ended June 30, 2005, average shorter-term borrowed funds increased $1.0 billion, or 15.3%, compared to the same period in 2004. The increase in these funds compared to December 31, 2004, was primarily rate driven due to their lower funding cost when compared with alternative funding sources.

          The average annualized rate paid on short-term borrowed funds was 2.66% for the first six months of 2005, an increase of 159 basis points from the average rate of 1.07% paid in the comparable period of 2004. The average annualized rate paid on shorter-term borrowed funds was 2.86% for the second quarter of 2005, an increase of 178 basis points from the average rate of 1.08% paid in the comparable period of 2004. The higher rates paid on short-term borrowed funds mirror the increases in the Federal funds rate over the same time periods.

          BB&T also utilizes long-term debt for a variety of funding needs, including the repurchase of common stock, and, to a lesser extent, regulatory capital. Long-term debt consists primarily of Federal Home Loan Bank (“FHLB”) advances to BB&T’s banking subsidiaries and corporate subordinated notes. Long-term debt totaled $12.0 billion at June 30, 2005, up $536.1 million, or 4.7%, from the balance at December 31, 2004, primarily due to an increase in the balance of FHLB advances, which are cost-effective long-term funding sources that provide BB&T with flexibility in the management of interest rate risk and liquidity. For the second quarter of 2005, average long-term debt totaled $11.6 billion, an increase of $931.3 million, or 8.7%, compared to the second quarter of 2004. For the six months ended June 30, 2005, average long-term borrowed funds were $11.5 billion, up $850.7 million, or 8.0%, compared to the first six months of 2004. The increase in average long-term debt was primarily caused by the issuance of $500 million of senior floating-rate debt issued by Branch Banking and Trust Company in the third quarter of 2004 and $600 million of subordinated global notes issued by BB&T Corporation in the fourth quarter of 2004.

          During the second quarter of 2005, BB&T redeemed $89.0 million of trust preferred securities. These trust preferred securities were assumed by BB&T through various acquisitions. The average interest rate paid on such securities was approximately 8.5%, which was significantly higher than BB&T’s current borrowing rates. BB&T recorded a $2.9 million loss on early extinguishment of debt in connection with the redemption, which is reflected in BB&T’s Consolidated Statements of Income as a category of noninterest expenses.


BB&T Corporation          Page 33          Second Quarter 2005 10-Q




          On June 30, 2005, BB&T exchanged $350 million of subordinated notes bearing an interest rate of 6.375% for $400 million aggregate principal amount of subordinated global notes maturing in 2017 and bearing an interest rate of 4.90%. This exchange is being accounted for under Emerging Issues Task Force 96-19, “Debtor’s Accounting for a Modification or Exchange of Debt Instruments” (“EITF 96-19”). The transaction gave rise to substantially similar debt under EITF 96-19 and resulted in no immediate gain or loss. The financing costs relating to this exchange will be deferred and amortized over the life of the new $400 million subordinated global notes.

          The average annualized rate paid on long-term debt for the second quarter of 2005 was 4.07%, an increase of 71 basis points compared to the second quarter of 2004. The average annualized rate paid on long-term borrowed funds was 4.00% for the first six months of 2005, an increase of 63 basis points compared to the average rate of 3.37% paid during the first six months of 2004. The increase in the cost of long-term funds resulted from recent increases in short-term rates, which are used to set rates for BB&T’s variable rate borrowings.

          On April 7, 2005 Moody’s Investors Service announced that it had upgraded BB&T’s Issuer rating to Aa3 from A1. Moody’s similarly raised other key ratings of BB&T and its subsidiaries. Moody’s commented on BB&T’s good regional banking franchise, high quality customer service, successful cross sales, very strong core profitability and sound credit culture as the key factors that resulted in the upgrades. On July 26, 2005 Fitch Ratings announced that it had also upgraded all of the key ratings of BB&T, including BB&T’s Individual rating to A/B from B. Fitch cited BB&T’s regional banking franchise, solid operating performance, sound credit fundamentals, diverse revenue stream and ability to cross-sell products as factors contributing to the upgrades. These recent upgrades reflect the strength of BB&T’s franchise and should have a positive effect on future funding costs.

Asset Quality

          Nonperforming assets, composed of foreclosed real estate, repossessions, nonaccrual loans and restructured loans, totaled $308.9 million at June 30, 2005, compared to $358.1 million at December 31, 2004. As a percentage of loans and leases plus foreclosed property, nonperforming assets were .43% at June 30, 2005, down from .52% at December 31, 2004. Loans 90 days or more past due and still accruing interest totaled $79.3 million at June 30, 2005, compared to $100.2 million at year-end 2004.

          BB&T’s net charge-offs totaled $44.6 million for the second quarter and amounted to .25% of average loans and leases, on an annualized basis, compared to $57.2 million, or .34% of average loans and leases, on an annualized basis, in the corresponding period in 2004. For the six months ended June 30, 2005 and 2004, net charge-offs totaled $91.4 million and $114.4 million, respectively, and represented .27% and .35%, respectively, of average loans and leases on an annualized basis.

BB&T Corporation          Page 34          Second Quarter 2005 10-Q





          The allowance for credit losses, which totaled $827.3 million and $828.3 million at June 30, 2005 and December 31, 2004, respectively, consists of the allowance for loan and lease losses, which is presented on the Consolidated Balance Sheets, and the reserve for unfunded lending commitments, which is included in other liabilities on the Consolidated Balance Sheets. The allowance for loan and lease losses totaled $809.3 million at June 30, 2005, compared to $804.9 million at December 31, 2004. The allowance amounted to 1.13% of loans and leases outstanding at June 30, 2005, compared to 1.18% at year-end 2004. The reserve for unfunded lending commitments totaled $18.0 million and $23.4 million at June 30, 2005 and December 31, 2004, respectively.

          The above levels of nonperforming assets as a percentage of total assets and quarterly net charge-offs as a percentage of average loans are the lowest experienced in four years. During the last seven quarters, BB&T’s credit quality has steadily improved as demonstrated by the successive quarterly declines in the level of nonperforming assets. In addition, net charge-offs for the second quarter of 2005 declined compared to both the second and fourth quarters of last year. These positive trends in asset quality are the primary factors that have resulted in a lower allowance for loan and lease losses as a percentage of total loans.

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








BB&T Corporation          Page 35          Second Quarter 2005 10-Q




ASSET QUALITY ANALYSIS
(Dollars in thousands)

For the Three Months Ended
  6/30/05 3/31/05 12/31/04 9/30/04 6/30/04
Allowance For Credit Losses          
    Beginning balance     $ 822,464   $ 828,301   $ 825,665   $ 825,242   $ 799,650  
    Allowance for acquired (sold) loans, net       --     --     1,795     (170 )   19,284  
    Provision for credit losses       49,424     41,045     65,153     57,165     63,533  
       Charge-offs    
          Commercial loans and leases       (17,572 )   (12,892 )   (30,668 )   (23,858 )   (23,740 )
          Direct retail loans       (12,368 )   (11,484 )   (13,149 )   (12,170 )   (11,538 )
          Sales finance loans       (16,792 )   (21,689 )   (23,479 )   (22,225 )   (21,664 )
          Revolving credit loans       (12,552 )   (12,693 )   (13,149 )   (12,383 )   (12,531 )
          Mortgage loans       (1,728 )   (1,476 )   (1,352 )   (1,207 )   (1,916 )
       Total charge-offs       (61,012 )   (60,234 )   (81,797 )   (71,843 )   (71,389 )
       Recoveries    
          Commercial loans and leases       6,626     4,043     7,788     6,210     4,216  
          Direct retail loans       2,714     2,399     2,566     2,090     2,675  
          Sales finance loans       4,333     4,275     4,559     4,317     4,165  
          Revolving credit loans       2,737     2,540     2,489     2,555     2,557  
          Mortgage loans       39     95     83     99     551  
       Total recoveries       16,449     13,352     17,485     15,271     14,164  
    Net charge-offs       (44,563 )   (46,882 )   (64,312 )   (56,572 )   (57,225 )
       Ending balance     $ 827,325   $ 822,464   $ 828,301   $ 825,665   $ 825,242  
Nonperforming Assets    
    Nonaccrual loans and leases    
          Commercial loans and leases     $ 115,367   $ 127,220   $ 143,420   $ 173,303   $ 199,718  
          Direct retail loans       44,672     47,194     46,187     48,792     50,968  
          Sales finance loans       17,237     17,306     14,670     15,484     13,152  
          Revolving credit loans       348     266     349     374     369  
          Mortgage loans       52,130     62,476     64,010     62,871     61,132  
    Total nonaccrual loans and leases       229,754     254,462     268,636     300,824     325,339  
    Foreclosed real estate       62,036     60,147     69,324     67,329     68,035  
    Other foreclosed property       16,550     18,199     19,579     20,821     18,995  
    Restructured loans       531     537     555     563     566  
       Total nonperforming assets     $ 308,871   $ 333,345   $ 358,094   $ 389,537   $ 412,935  
    Loans 90 days or more past due    
       and still accruing    
          Commercial loans and leases     $ 10,821   $ 15,036   $ 9,986   $ 11,463   $ 11,180  
          Direct retail loans       14,718     13,857     19,917     22,382     21,015  
          Sales finance loans       16,398     18,864     21,205     20,766     20,732  
          Revolving credit loans       3,886     4,067     4,837     4,797     4,116  
          Mortgage loans       33,494     31,432     44,225     40,397     38,698  
       Total loans 90 days or more past due    
          and still accruing     $ 79,317   $ 83,256   $ 100,170   $ 99,805   $ 95,741  

BB&T Corporation          Page 36          Second Quarter 2005 10-Q




ASSET QUALITY RATIOS

For the Three Months Ended
  6/30/05 3/31/05 12/31/04 9/30/04 6/30/04
Loans 90 days or more past due and still                                  
    accruing as a percentage of total loans                                  
    and leases       .11  %   .12  %   .15  %   .15  %   .14  %
Nonaccrual and restructured loans and leases    
    as a percentage of total loans and leases       .32     .37     .39     .45     .49  
Total nonperforming assets as a percentage of:                                  
    Total assets       .29     .33     .36     .40     .42  
    Loans and leases plus foreclosed property       .43     .48     .52     .58     .62  
Net charge-offs as a percentage of                                  
    average loans and leases       .25     .28     .38     .34     .34  
Allowance for loan and lease losses as a    
    percentage of loans and leases       1.13     1.16     1.18     1.22     1.22  
Allowance for loan and lease losses as a                                  
    percentage of loans and leases                                  
    held for investment       1.14     1.17     1.19     1.23     1.23  
Ratio of allowance for loan and lease losses to:    
    Net charge-offs       4.53  x   4.22  x   3.15  x   3.63  x   3.55  x
    Nonaccrual and restructured loans and leases       3.51     3.14     2.99     2.71     2.50  


Note: All items referring to loans and leases include loans held for sale and are net of unearned income. Applicable ratios are annualized.

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ANALYSIS OF RESULTS OF OPERATIONS

          Consolidated net income for the second quarter of 2005 totaled $386.8 million, a decrease of $13.3 million, or 3.3%, compared to $400.1 million earned during the second quarter of 2004. Net income for the second quarter of 2005 included a one-time, non-cash adjustment related to property and equipment leases, which totaled $26.6 million after-tax, or $.05 per diluted share. On a diluted per share basis, earnings for the three months ended June 30, 2005 were $.70, compared to $.72 for the same period in 2004. BB&T’s results of operations for the second quarter of 2005 produced an annualized return on average assets of 1.50% and an annualized return on average shareholders’ equity of 14.04% compared to prior year ratios of 1.65% and 15.17%, respectively.

          Consolidated net income for the first six months of 2005 totaled $782.2 million, an increase of 7.4% compared to $728.6 million earned during the same period in 2004. On a diluted per share basis, earnings for the first six months of 2005 and 2004 were $1.42 and $1.32, respectively, which represents an increase of 7.6%. BB&T’s results of operations for the first six months of 2005 produced an annualized return on average assets of 1.55% and an annualized return on average shareholders’ equity of 14.37% compared to prior year ratios of 1.55% and 14.07%, respectively.

BB&T Corporation          Page 37          Second Quarter 2005 10-Q




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

ANNUALIZED
PROFITABILITY MEASURES

  2005