Edgar Filing: BB&T CORP

BB&T First Quarter 2006 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:

March 31, 2006

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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check One):

Large accelerated filer [ Ö ] Accelerated filer [__] Non-accelerated filer [__]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES [ ] NO [Ö]

At April 30, 2006, 535,773,565 shares of the registrant's common stock, $5 par value, were outstanding.

BB&T CORPORATION

FORM 10-Q

March 31, 2006

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	28

Executive Summary	31

Analysis of Financial Condition	32

Analysis of Results of Operations	38

Market Risk Management	47

Capital Adequacy and Resources	52

Item 3. Quantitative and Qualitative Disclosures About Market Risk	54

Item 4. Controls and Procedures	54

Part II. OTHER INFORMATION

Item 1. Legal Proceedings	55

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	55

Item 6. Exhibits	55

SIGNATURES	56

EXHIBIT INDEX	57

CERTIFICATIONS	58

BB&T Corporation Page 1 First Quarter 2006 10-Q

Item 1. Financial Statements

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

	March 31,			December 31,
	2006			2005


Assets
Cash and due from banks	$	1,933,456		$	2,185,571
Interest-bearing deposits with banks		372,336			410,380
Federal funds sold and securities purchased under resale agreements
or similar arrangements		410,119			286,233
Trading securities at fair value		745,169			706,518
Securities available for sale at fair value		19,433,575			19,782,966
Loans held for sale		447,674			628,834
Loans and leases, net of unearned income		75,831,608			74,394,654
Allowance for loan and lease losses		(833,231	)		(825,300	)

Loans and leases, net		74,998,377			73,569,354


Premises and equipment, net of accumulated depreciation		1,267,647			1,286,909
Goodwill		4,300,396			4,255,998
Core deposit and other intangible assets		479,231			487,525
Residential mortgage servicing rights (fair value at March 31, 2006,
and lower of cost or market at December 31, 2005)		462,920			431,213
Other assets		5,182,789			5,138,258


Total assets	$	110,033,689		$	109,169,759




Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing deposits	$	13,413,099		$	13,476,939
Interest checking		1,338,847			1,426,715
Other client deposits		32,074,100			30,959,888
Client certificates of deposit		20,352,627			19,309,667
Other interest-bearing deposits		8,385,456			9,108,590

Total deposits		75,564,129			74,281,799


Federal funds purchased, securities sold under repurchase agreements
and short-term borrowed funds		6,356,330			6,561,719
Long-term debt		13,045,058			13,118,559
Accounts payable and other liabilities		4,098,200			4,078,568


Total liabilities		99,063,717			98,040,645


Commitments and contingencies (Note 6)
Shareholders' equity:

Preferred stock, $5 par, 5,000,000 shares authorized, none issued or
outstanding at March 31, 2006, or at December 31, 2005		—			—
Common stock, $5 par, 1,000,000,000 shares authorized;
535,588,093 issued and outstanding at March 31, 2006, and
543,102,080 issued and outstanding at December 31, 2005		2,677,940			2,715,510
Additional paid-in capital		2,577,204			2,818,703
Retained earnings		6,179,559			5,951,135
Accumulated other comprehensive loss, net of deferred income
taxes of $(269,522) at March 31, 2006, and $(207,319) at December 31, 2005		(464,731	)		(356,234	)


Total shareholders' equity		10,969,972			11,129,114


Total liabilities and shareholders' equity	$	110,033,689		$	109,169,759

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

BB&T Corporation Page 2 First Quarter 2006 10-Q

BB&T CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands, except per share data)

	For the Three Months Ended
	March 31,

	2006			2005

Interest Income
Interest and fees on loans and leases	$	1,333,545		$	1,052,821
Interest and dividends on securities		215,905			186,788
Interest on short-term investments		7,220			3,883

Total interest income		1,556,670			1,243,492


Interest Expense
Interest on deposits		438,420			241,299
Interest on federal funds purchased, securities sold under
repurchase agreements and short-term borrowed funds		65,081			42,466
Interest on long-term debt		155,117			110,544

Total interest expense		658,618			394,309


Net Interest Income		898,052			849,183
Provision for credit losses		47,571			41,045


Net Interest Income After Provision for Credit Losses		850,481			808,138


Noninterest Income
Insurance commissions		176,512			152,290
Service charges on deposits		131,241			120,772
Other nondeposit fees and commissions		72,953			54,946
Investment banking and brokerage fees and commissions		81,311			68,883
Trust income		37,020			30,407
Mortgage banking income		32,295			30,193
Bankcard fees and merchant discounts		28,682			25,436
Securities gains, net		2			7
Other income		48,179			33,687

Total noninterest income		608,195			516,621


Noninterest Expense
Personnel expense		513,999			415,116
Occupancy and equipment expense		107,785			105,744
Amortization of intangibles		25,108			28,102
Professional services		26,182			16,289
Merger-related and restructuring (gains), net		(2,976	)		(2,557	)
Other expenses		149,083			168,012

Total noninterest expense		819,181			730,706


Earnings
Income before income taxes		639,495			594,053
Provision for income taxes		207,982			198,669


Net income	$	431,513		$	395,384





Per Common Share
Net income:
Basic	$	.80		$	.72



Diluted	$	.79		$	.71



Cash dividends paid	$	.38		$	.35




Weighted Average Shares Outstanding
Basic		539,952,669			549,282,008



Diluted		543,435,830			553,654,679

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

BB&T Corporation Page 3 First Quarter 2006 10-Q

BB&T CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Three Months Ended March 31, 2006 and 2005
(Unaudited)
(Dollars in thousands, except per share data)

													Accumulated
	Shares of						Additional						Other			Total
	Common			Common			Paid-In			Retained			Comprehensive			Shareholders'
	Stock			Stock			Capital			Earnings			Income (Loss)			Equity

Balance, January 1, 2005		550,406,287		$	2,752,032		$	3,121,609		$	5,112,034		$	(111,201	)	$	10,874,474
Add (Deduct):
Comprehensive income (loss):
Net income		—			—			—			395,384			—			395,384
Unrealized holding gains (losses) arising during the period
on securities available for sale, net of tax of $(106,680)		—			—			—			—			(183,216	)		(183,216	)
Reclassification adjustment for losses (gains)
on securities available for sale included in net
income, net of tax of $11		—			—			—			—			(18	)		(18	)

Change in unrealized gains (losses) on securities, net of tax		—			—			—			—			(183,234	)		(183,234	)
Change in unrecognized gains (losses) on cash flow hedges,
net of tax of $3,747		—			—			—			—			5,962			5,962
Change in minimum pension liability, net of tax of $(1,572)		—			—			—			—			(2,138	)		(2,138	)

Total comprehensive income (loss)		—			—			—			395,384			(179,410	)		215,974


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		586,046			2,930			10,897			—			—			13,827
Redemption of common stock		(3,000,000	)		(15,000	)		(103,208	)		—			—			(118,208	)
Cash dividends declared on common stock, $.35 per share		—			—			—			(192,280	)		—			(192,280	)
Tax benefit from exercise of equity-based awards		—			—			6,051			—			—			6,051
Other, net		—			—			146			—			—			146

Balance, March 31, 2005		548,638,822		$	2,743,194		$	3,057,563		$	5,315,138		$	(290,611	)	$	10,825,284




Balance, January 1, 2006		543,102,080		$	2,715,510		$	2,818,703		$	5,951,135		$	(356,234	)	$	11,129,114
Add (Deduct):
Comprehensive income (loss):
Net income		—			—			—			431,513			—			431,513
Unrealized holding gains (losses) arising during the
period on securities available for sale, net of tax of $(64,487)		—			—			—			—			(112,191	)		(112,191	)
Reclassification adjustment for losses (gains)
on securities available for sale included in net
income, net of tax of $(1)		—			—			—			—			(1	)		(1	)

Change in unrealized gains (losses) on securities, net of tax		—			—			—			—			(112,192	)		(112,192	)
Change in unrecognized gains (losses) on cash flow hedges,
net of tax of $1,829		—			—			—			—			2,899			2,899

Change in minimum pension liability, net of tax of $456		—			—			—			—			796			796

Total comprehensive income (loss)		—			—			—			431,513			(108,497	)		323,016


Common stock issued:
In purchase acquisitions		189,045			945			7,057			—			—			8,002
In connection with stock option exercises
and other employee benefits, net of cancellations		604,371			3,022			12,972			—			—			15,994
Redemption of common stock		(8,307,403	)		(41,537	)		(292,415	)		—			—			(333,952	)
Cash dividends declared on common stock, $.38 per share		—			—			—			(203,089	)		—			(203,089	)
Tax benefit from exercise of equity-based awards		—			—			4,355			—			—			4,355
Equity-based compensation expense		—			—			26,532			—			—			26,532

Balance, March 31, 2006		535,588,093		$	2,677,940		$	2,577,204		$	6,179,559		$	(464,731	)	$	10,969,972

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

BB&T Corporation Page 4 First Quarter 2006 10-Q

BB&T CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)

	For the Three Months Ended
	March 31,

	2006			2005

Cash Flows From Operating Activities:
Net income	$	431,513		$	395,384
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses		47,571			41,045
Depreciation		43,453			40,000
Amortization of intangibles		25,108			28,102
Amortization of purchase accounting mark-to-market adjustments, net		4,987			6,933
Equity-based compensation		26,532			45
Discount accretion and premium amortization on long-term debt, net		29,918			27,182
Discount accretion and premium amortization on securities, net		8,918			12,195
Net increase in trading account securities		(32,186	)		(144,405	)
Gain on sales of securities, net		(2	)		(7	)
Gain on sales of loans and mortgage loan servicing rights, net		(14,902	)		(20,117	)
Gain on disposals of premises and equipment, net		(29,868	)		(522	)
Proceeds from sales of loans held for sale		1,121,406			1,223,980
Purchases of loans held for sale		(297,044	)		(192,141	)
Origination of loans held for sale, net of principal collected		(628,300	)		(1,029,238	)
Tax benefit from exercise of equity-based awards		—			6,051
Decrease in other assets, net		(142,402	)		(109,158	)
Increase in accounts payable and other liabilities, net		(12,116	)		299,679
Other, net		(6,086	)		3,996

Net cash provided by operating activities		576,500			589,004


Cash Flows From Investing Activities:
Proceeds from sales of securities available for sale		9,335			563,821
Proceeds from maturities, calls and paydowns of securities available for sale		382,302			684,705
Purchases of securities available for sale		(204,896	)		(2,274,854	)
Proceeds from maturities, calls and paydowns of securities held to maturity		—			125
Leases made to customers		(63,836	)		(65,386	)
Principal collected on leases		48,015			41,583
Loan originations, net of principal collected		(1,205,335	)		(1,057,421	)
Purchases of loans		(144,571	)		(198,786	)
Net cash paid in business combinations		(33,513	)		(11,456	)
Purchases and originations of mortgage servicing rights		(24,396	)		(20,804	)
Proceeds from disposals of premises and equipment		79,635			9,770
Purchases of premises and equipment		(54,470	)		(34,730	)
Proceeds from sales of foreclosed property or other real estate held for sale		28,029			22,954

Net cash used in investing activities		(1,183,701	)		(2,340,479	)


Cash Flows From Financing Activities:
Net increase (decrease) in deposits		1,282,993			(860,929	)
Net (decrease) increase in federal funds purchased, securities sold under repurchase agreements
and short-term borrowed funds		(205,389	)		2,464,227
Proceeds from issuance of long-term debt		3,458			—
Repayment of long-term debt		(120,029	)		(252,465	)
Net proceeds from common stock issued		15,994			13,827
Redemption of common stock		(333,952	)		(118,208	)
Cash dividends paid on common stock		(206,502	)		(192,696	)
Tax benefit from exercise of equity-based awards		4,355			—

Net cash provided by financing activities		440,928			1,053,756


Net Decrease in Cash and Cash Equivalents		(166,273	)		(697,719	)
Cash and Cash Equivalents at Beginning of Period		2,882,184			3,025,835

Cash and Cash Equivalents at End of Period	$	2,715,911		$	2,328,116





Supplemental Disclosure of Cash Flow Information:

Cash paid during the period for:
Interest	$	624,846		$	351,677
Income taxes		82,949			179,136
Noncash investing and financing activities:
Transfers of loans to foreclosed property		12,223			9,420
Transfers of fixed assets to other real estate owned		2,376			2,816
Common stock issued in business combinations		8,002			25,300

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

Back to Index

BB&T Corporation Page 5 First Quarter 2006 10-Q

BB&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2006
(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 March 31, 2006 and December 31, 2005; BB&T’s results of operations for the three months ended March 31, 2006 and 2005; and BB&T’s cash flows for the three months ended March 31, 2006 and 2005. In the opinion of management, all adjustments necessary to fairly present the consolidated financial position and consolidated results of operations have been made. All adjustments during the first three months of 2006 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 2005 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. 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; factoring; 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; 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, full-service securities brokerage, payroll processing, asset management and capital markets services.

BB&T Corporation Page 6 First Quarter 2006 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 and over which BB&T exercises control. In consolidation, all significant intercompany accounts and transactions are eliminated. The results of operations of companies acquired 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 that were not required to be consolidated, including affordable housing partnership interests, historic tax credit partnerships, other partnership interests and trusts that have issued capital securities.

BB&T 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 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.

Reclassifications

In certain instances, amounts reported in 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 expense.

BB&T Corporation Page 7 First Quarter 2006 10-Q

Equity-Based Compensation

BB&T maintains various equity-based compensation plans. These plans provide for the granting of stock options (incentive and nonqualified), stock appreciation rights, restricted stock, restricted stock units, performance units and performance shares to selected BB&T employees and directors. BB&T adopted Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), “Share-Based Payment” (“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 based on (a) the requirements of SFAS No. 123(R) for all share-based awards granted after the effective date and (b) the requirements of SFAS No. 123 , “Accounting for Stock-Based Compensation” (“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. The adoption of SFAS No. 123(R) reduced BB&T’s income before income taxes and net income for the three months ended March 31, 2006, by $26.0 million and $16.1 million, respectively, while basic earnings per share and diluted earnings per share for the same period were reduced by $.03 per share. The adoption of SFAS No. 123(R) also required that excess tax benefits from the exercise of equity-based awards be recorded as a financing cash flow, rather than an operating cash flow. This requirement reduced cash provided by operating activities and increased cash provided by financing activities for the three months ended March 31, 2006, by $4.4 million. Additional disclosures required by SFAS No. 123(R) are included in Note 11 to the consolidated financial statements herein.

As permitted by SFAS No. 123, BB&T accounted for share-based awards granted to employees prior to January 1, 2006 using the intrinsic value method prescribed by Accounting Principles Board Opinion No. 25 (“APB 25”), “Accounting for Stock Issued to Employees,” and related interpretations. Since the option price equaled the market price on the date of the grant for options awarded by BB&T, compensation cost was not recognized for any of the periods presented, except with respect to restricted stock awards and awards that were modified.

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 for periods ended prior to January 1, 2006, 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 SFAS No. 123. BB&T’s equity-based awards generally contain a provision that accelerates vesting of awards for holders who retire and have met all retirement eligibility requirements. Prior to the adoption of SFAS No. 123(R), BB&T reported the expense in the pro forma disclosure based on the vesting cycle in the grant agreement and reported an acceleration of the expense for the unrecognized compensation cost in the period that the accelerated vesting occurred. BB&T will continue to account for awards granted prior to the adoption of SFAS No. 123(R) in this manner, with the exception that the unrecognized compensation cost on the date of adoption will be recognized as personnel expense in future periods. For awards granted after January 1, 2006, BB&T has recognized compensation expense based on retirement eligibility dates for all equity-based compensation awards. Therefore, the information presented in the following table is not comparable to the amounts recognized by BB&T in the first quarter of 2006.

BB&T Corporation Page 8 First Quarter 2006 10-Q

	For the Three
	Months Ended
	March 31, 2005

	(Dollars in thousands,
	except per share data)

Net income:
Net income as reported	$	395,384
Add: Equity-based compensation expense
included in reported net income, net of tax		27
Deduct: Total equity-based employee
compensation expense determined under
fair value based method for all awards,
net of tax		(4,415	)

Pro forma net income	$	390,996




Basic EPS:
As reported	$	.72
Pro forma		.71

Diluted EPS:
As reported		.71
Pro forma		.71

Changes in Accounting Principles and Effects of New AccountingPronouncements

In July 2005, the Financial Accounting Standards Board (“FASB”) issued Proposed FASB Staff Position (“FSP”) FAS 13-a “Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease”, which proposes to amend SFAS No. 13, “Accounting for Leases.” The proposed FSP would require recalculations of leveraged leases for changes that affect the timing of cash flows, even if the total amount of cash flows is not affected. If the FSP is finalized as currently proposed, it would require a one-time non-cash charge to be recorded as a cumulative effect of a change in accounting principle. The amount of the charge related to the previously recognized lease income, if any, would then be recognized as income over the remaining lives of the respective leases. While BB&T has entered into leveraged lease transactions in prior years that may require recalculations, any impact on BB&T’s consolidated financial position or consolidated results of operations cannot currently be predicted with certainty, because the final timing and provisions of the proposal have yet to be determined.

In July 2005, the FASB issued a Proposed Interpretation of SFAS No. 109 “Accounting for Income Taxes” entitled “Accounting for Uncertain Tax Positions”. The proposed Interpretation would clarify the criteria under which tax benefits could be recognized under SFAS No. 109. If the proposed Interpretation is finalized as currently proposed it would require a one-time non-cash charge to be recorded as a cumulative effect of a change in accounting principle. While BB&T is currently evaluating the potential impact of this proposed Interpretation, any impact on BB&T’s consolidated financial position or consolidated results of operations cannot currently be predicted with certainty, because the final timing and provisions of the proposal have yet to be determined.

BB&T Corporation Page 9 First Quarter 2006 10-Q

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments,” (“SFAS No. 155”), which permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation. This Statement amends FASB Statements No. 133, “Accounting for Derivative Instruments and Hedging Activities” and FASB No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”. This Statement is effective for financial instruments acquired or issued after the beginning of the first fiscal year that begins after September 15, 2006. BB&T adopted the provisions of SFAS No. 155 on January 1, 2006. The adoption did not have an impact on BB&T’s consolidated financial position, results of operations or cash flows.

In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets,” (“SFAS No. 156”), which was issued to simplify the accounting for servicing rights and reduce the volatility resulting from the use of different measurement attributes for servicing rights and the related financial instruments used to economically hedge risks associated with those servicing rights. SFAS No. 156 requires separately recognized servicing rights to be initially measured at fair value, and provides the irrevocable option to subsequently account for those servicing rights (by class) at either fair value or under the amortization method previously required under FASB Statement No. 140. BB&T adopted the provisions of SFAS No. 156 effective January 1, 2006. The initial application of the provisions of SFAS No. 156 was immaterial to BB&T’s consolidated financial position, results of operations and cash flows. The disclosures required by SFAS No. 156 are included in Note 12 to the consolidated financial statements herein.

NOTE 2. Business Combinations

Insurance and Other Nonbank Acquisitions

During the first three months of 2006, BB&T acquired two nonbank financial services companies. In conjunction with these transactions, BB&T issued approximately 189 thousand shares of common stock and paid $35.0 million in cash. Approximately $17.4 million in goodwill and $16.8 million of identifiable intangibles were recorded in connection with these transactions, pending final valuations. During 2005, BB&T acquired five insurance businesses and four 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 1.2 million shares of common stock and paid approximately $136.4 million in cash. Including subsequent adjustments, approximately $104.4 million in goodwill and $85.2 million of identifiable intangible assets were recorded in connection with these transactions. 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 10 First Quarter 2006 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 increases to previously recorded merger-related accruals and period expenses for merger-related items that must be expensed as incurred. Items that are required to be expensed as incurred include certain expenses associated with systems conversions, data processing, training, and other costs.

Summary of Merger-Related and Restructuring Charges (Gains)

	For the Three Months Ended March 31,

	2006			2005

	(Dollars in thousands)
Severance and personnel-related items	$	9		$	(1,287	)
Occupancy and equipment		(3,008	)		(1,213	)
Systems conversions and related items		—			3
Other merger-related items		23			(60	)

Total	$	(2,976	)	$	(2,557	)

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 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 costs related to the acquired entity are accrued in accordance with the guidance in EITF 95-3, “Recognition of Liabilities in Connection with a Purchase Business Combination”, and generally recorded as adjustments to the purchase price unless they are required to be expensed as incurred. The costs related to existing BB&T facilities and personnel are recorded in accordance with the guidance in SFAS 146, “Accounting for Costs Associated with Exit or Disposal Activities” and SFAS 112, “Employers’ Accounting for Postemployment Benefits”, as appropriate, and reflected as merger-related and restructuring charges on the Consolidated Statements of Income. The following table presents a summary of BB&T’s merger accrual activity for 2006:


	Merger Accrual Activity

	(Dollars in thousands)

			Merger-related
	Balance		and									Balance
	January 1,		restructuring									March 31,
	2006		charges (gains)			Utilized			Other, net			2006


Severance and personnel-related items	$	6,011	$	9		$	(952	)	$	(76	)	$	4,992
Occupancy and equipment		7,606		(3,008	)		(331	)		—			4,267
Other merger-related items		2,924		23			(310	)		123			2,760

Total	$	16,541	$	(2,976	)	$	(1,593	)	$	47		$	12,019

BB&T Corporation Page 11 First Quarter 2006 10-Q

The following table provides a summary of BB&T’s merger accrual activity, by acquisition, for 2006:

			Merger-related
	Balance		and								Balance
	January 1,		restructuring								March 31,
Acquired Institution	2006		charges (gains)			Utilized			Other, net		2006


	(Dollars in thousands)

Premier Bancshares, Inc.	$	146	$	—		$	—		$	—	$	146
One Valley Bancorp, Inc.		184		(161	)		(23	)		—		—
FCNB Corp.		296		(102	)		(12	)		—		182
FirstSpartan Financial Corp.		58		(19	)		(39	)		—		—
Century South Banks, Inc.		737		—			(31	)		—		706
Virginia Capital Bancshares, Inc.		505		(139	)		(101	)		—		265
F&M National Corporation		1,528		(81	)		(29	)		—		1,418
Community First Banking Company		150		(100	)		—			—		50
Area Bancshares Corporation		417		—			—			—		417
Equitable Bank		1,942		(1,942	)		—			—		—
First Virginia Banks, Inc.		7,221		(483	)		(819	)		—		5,919
Nonbank subsidiairies		3,357		—			(488	)		47		2,916
Other adjustments		—		51			(51	)		—		—

Total	$	16,541	$	(2,976	)	$	(1,593	)	$	47	$	12,019

NOTE 3. Securities

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

	March 31, 2006

							Estimated
	Amortized		Gross Unrealized				Fair

	Cost		Gains		Losses		Value

	(Dollars in thousands)
Securities available for sale:
U.S. Treasury securities	$	126,162	$	—	$	2,111	$	124,051
U.S. government-sponsored entity securities		11,574,823		46		505,195		11,069,674
Mortgage-backed securities		6,507,151		2,264		206,728		6,302,687
States and political subdivisions		629,067		10,200		1,186		638,081
Equity and other securities		1,306,265		16,509		23,692		1,299,082

Total securities available for sale	$	20,143,468	$	29,019	$	738,912	$	19,433,575

BB&T Corporation Page 12 First Quarter 2006 10-Q

	December 31, 2005

							Estimated
	Amortized		Gross Unrealized				Fair

	Cost		Gains		Losses		Value

	(Dollars in thousands)
Securities available for sale:
U.S. Treasury securities	$	113,625	$	1	$	1,721	$	111,905
U.S. government-sponsored entity securities		11,555,055		2,599		403,940		11,153,714
Mortgage-backed securities		6,755,920		5,262		150,124		6,611,058
States and political subdivisions		660,993		14,964		1,255		674,702
Equity and other securities		1,230,587		15,607		14,607		1,231,587

Total securities available for sale	$	20,316,180	$	38,433	$	571,647	$	19,782,966

On March 31, 2006, BB&T held certain investment securities having continuous unrealized loss positions for more than 12 months. As of March 31, 2006, the unrealized loss on these securities totaled $620.1 million. Substantially all of these investments were in U.S. government-sponsored entity securities and mortgage-backed securities, which primarily consist of securities issued by the Federal Farm Credit Bureau, the Federal Home Loan Bank System, the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. These agencies are rated AAA and the unrealized losses are the result of increases in market interest rates rather than the credit quality of the issuers. BB&T has the ability and intent to retain these securities for a period of time sufficient to recover all unrealized losses. Accordingly, BB&T has not recognized other-than-temporary impairment in connection with these securities.

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

	March 31, 2006

	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. Treasury securities	$	33,877	$	933	$	90,174	$	1,178	$	124,051	$	2,111
U.S. government-sponsored entity securities		1,782,894		33,494		9,285,341		471,701		11,068,235		505,195
Mortgage-backed securities		3,035,915		75,547		3,119,268		131,181		6,155,183		206,728
States and political subdivisions		1,752		28		67,900		1,158		69,652		1,186
Equity and other securities		350,365		8,766		355,796		14,926		706,161		23,692


Total temporarily impaired securities	$	5,204,803	$	118,768	$	12,918,479	$	620,144	$	18,123,282	$	738,912

BB&T Corporation Page 13 First Quarter 2006 10-Q

	December 31, 2005

	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. Treasury securities	$	22,353	$	435	$	87,388	$	1,286	$	109,741	$	1,721
U.S. government-sponsored entity securities		1,529,872		22,283		8,962,648		381,657		10,492,520		403,940
Mortgage-backed securities		3,631,731		62,098		2,678,145		88,026		6,309,876		150,124
States and political subdivisions		2,915		33		79,198		1,222		82,113		1,255
Equity and other securities		509,265		7,673		196,592		6,934		705,857		14,607


Total temporarily impaired securities	$	5,696,136	$	92,522	$	12,003,971	$	479,125	$	17,700,107	$	571,647

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 three months ended March 31, 2006 and the year ended December 31, 2005 are as follows:

	Goodwill Activity by Operating Segment


				Residential						Investment
	Banking			Mortgage		Trust		Insurance		Banking and		Specialized		All
	Network			Banking		Services		Services		Brokerage		Lending		Other		Total

	(Dollars in thousands)

Balance, January 1, 2005	$	3,388,881		$	7,459	$	31,341	$	569,114	$	71,149	$	30,585	$	25,712	$	4,124,241
Acquired goodwill, net		—			—		45,276		55,063		1,966		933		—		103,238
Adjustments to goodwill		1,967			—		8,096		15,897		2,031		528		—		28,519

Balance, December 31, 2005		3,390,848			7,459		84,713		640,074		75,146		32,046		25,712		4,255,998
Acquired goodwill, net		—			—		—		—		4,095		13,286		—		17,381
Adjustments to goodwill		(1,595	)		—		2,323		20,456		5,833		—		—		27,017

Balance, March 31, 2006	$	3,389,253		$	7,459	$	87,036	$	660,530	$	85,074	$	45,332	$	25,712	$	4,300,396

The adjustments to goodwill recorded during the first three months of 2006 include $26.3 million of contingent consideration paid subsequent to the dates of acquisition based on the terms of the purchase agreements. The adjustments to goodwill recorded during 2005 include $23.2 million of contingent consideration paid subsequent to the dates of acquisition based on the terms of the purchase agreements and $3.1 million related to the accounting for property and equipment leases of acquired companies.

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 14 First Quarter 2006 10-Q

	Identifiable Intangible Assets


	As of March 31, 2006							As of December 31, 2005

	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	$	(197,348	)	$	167,589	$	364,937	$	(185,799	)	$	179,138
Other (1)		465,607		(153,965	)		311,642		448,793		(140,406	)		308,387

Totals	$	830,544	$	(351,313	)	$	479,231	$	813,730	$	(326,205	)	$	487,525

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

The following table presents estimated amortization expense for the full year 2006 and each of the next four years:

Estimated Amortization Expense
of Identifiable Intangible Assets
(Dollars in thousands)

For the Year Ending December 31:
2006	$	99,792
2007		87,713
2008		73,920
2009		60,120
2010		48,920

BB&T Corporation Page 15 First Quarter 2006 10-Q

Note 5. Long-Term Debt

Long-term debt is summarized as follows:

	March 31,			December 31,
	2006			2005

	(Dollars in thousands)

Parent Company
7.25% Subordinated Notes Due 2007	$	249,554		$	249,465
6.50% Subordinated Notes Due 2011 (1,3)		646,498			646,362
4.75% Subordinated Notes Due 2012 (1,3)		495,431			495,283
5.20% Subordinated Notes Due 2015 (1,3)		996,598			996,531
4.90% Subordinated Notes Due 2017 (1,3)		360,300			359,691
5.25% Subordinated Notes Due 2019 (1,3)		599,764			599,761

Branch Bank

Floating Rate Secured Borrowings Due 2007 (5)		1,500,000			1,500,000
Floating Rate Senior Notes Due 2007		499,903			499,884
Floating Rate Senior Notes Due 2007		499,828			499,801
Floating Rate Senior Notes Due 2007		249,986			249,970
Floating Rate Senior Notes Due 2008		499,854			499,839
4.875% Subordinated Notes Due 2013 (1,3)		249,239			249,211

Federal Home Loan Bank Advances to the Subsidiary Banks (4)
Varying maturities to 2025		5,708,690			5,678,694

Capitalized Leases
Varying maturities to 2028 with interest rates from 4.06% to 15.78%		1,796			1,831

Junior Subordinated Debt to Unconsolidated Trusts (2)		615,874			615,870

Other Long-Term Debt		2,453			2,483

Hedging (Losses) Gains		(130,710	)		(26,117	)



Total Long-Term Debt	$	13,045,058		$	13,118,559

(1)

Subordinated notes that qualify under the risk-based capital guidelines as Tier 2 supplementary capital, subject to certain limitations.

(2)

Securities that qualify under the risk-based capital guidelines as Tier 1 capital, subject to certain limitations. At March 31, 2006, the interest rates paid on these borrowings ranged from 5.85% to 10.07%.

(3)

These fixed rate notes were swapped to floating rates based on LIBOR. At March 31, 2006, the effective rates paid on these borrowings ranged from 5.02% to 5.51%.

(4)

At March 31, 2006, the weighted average cost of these advances was 5.27% and the weighted average maturity was 9.9 years.

(5)

These borrowings are secured primarily by automobile loans and have variable rates based on LIBOR.

BB&T Corporation Page 16 First Quarter 2006 10-Q

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

BB&T utilizes a variety of financial instruments to meet the financing needs of clients and to reduce exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit, standby letters of credit and financial guarantees, and derivatives. BB&T also has commitments to fund certain affordable housing investments and contingent liabilities of certain sold loans.

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 March 31, 2006, BB&T had issued a total of $2.8 billion in standby letters of credit. The carrying amount of the liability for such guarantees was $5.9 million at March 31, 2006.

A derivative is a financial instrument that derives its cash flows, and therefore its value, by reference to an underlying instrument, index or referenced interest rate. These instruments include interest-rate swaps, caps, floors, collars, financial forwards and futures contracts, swaptions, when-issued securities, foreign exchange contracts and options written and purchased. BB&T uses derivatives primarily to manage economic risk related to securities, business loans, mortgage servicing rights and mortgage banking operations, Federal funds purchased, other time deposits, long-term debt and institutional certificates of deposit. BB&T also uses derivatives to facilitate transactions on behalf of its clients. BB&T held a variety of derivative financial instruments with notional values of $21.1 billion and $23.7 billion, at March 31, 2006 and December 31, 2005, respectively. The fair value of the instruments was $(134.6 million) and $(10.6 million), at March 31, 2006 and December 31, 2005, respectively.

BB&T invests in certain affordable housing and historic building rehabilitation projects throughout its market area as a means of supporting local communities and receives tax credits related to these investments. 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 outstanding commitments to fund affordable housing investments totaled $159.0 million and $172.4 million at March 31, 2006 and December 31, 2005, respectively. At March 31, 2006, BB&T’s maximum exposure to loss associated with these investments totaled $262.7 million.

In the ordinary course of business, BB&T indemnifies its officers and directors to the fullest extent permitted by law against liabilities arising from pending 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 indemnification arrangements 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 the company.

BB&T Corporation Page 17 First Quarter 2006 10-Q

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.

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, 2005 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 periods ended March 31, 2006 and 2005, respectively:

	Pension Plans												Other Postretirement

	Qualified						Nonqualified						Benefit Plans

	For the						For the						For the
	Three Months Ended						Three Months Ended						Three Months Ended
	March 31,						March 31,						March 31,

	2006			2005			2006			2005			2006			2005

	(Dollars in thousands)

Service cost	$	15,304		$	15,931		$	998		$	972		$	—		$	—
Interest cost		14,314			13,364			1,572			1,528			355			348
Estimated return on plan assets		(21,741	)		(20,097	)		—			—			—			—
Amortization of prior service cost		(1,147	)		(1,148	)		(11	)		(7	)		(1,300	)		(1,300	)
Amortization of net loss		3,120			2,633			470			570			309			182


Net periodic benefit cost (income)	$	9,850		$	10,683		$	3,029		$	3,063		$	(636	)	$	(770	)

Management elected to make a discretionary contribution of $80.0 million to the qualified pension plan in the first quarter of 2006, and may make additional contributions in 2006 if determined appropriate.

BB&T Corporation Page 18 First Quarter 2006 10-Q

NOTE 8. Computation of Earnings per Share

BB&T’s basic and diluted earnings per share amounts for the three month periods ended March 31, 2006 and 2005, respectively, were calculated as follows:

	For the Three Months
	Ended March 31,

	2006		2005

	(Dollars in thousands,
	except per share data)
Basic Earnings Per Share:
Weighted average number of common shares		539,952,669		549,282,008



Net income	$	431,513	$	395,384



Basic earnings per share	$	.80	$	.72



Diluted Earnings Per Share:
Weighted average number of common shares		539,952,669		549,282,008

Add:
Effect of dilutive equity awards		3,483,161		4,372,671

Weighted average number of diluted common shares		543,435,830		553,654,679




Net income	$	431,513	$	395,384




Diluted earnings per share	$	.79	$	.71

For the three months ended March 31, 2006 and 2005, respectively, antidilutive options to purchase 121 thousand shares and 108 thousand shares of common stock were outstanding. Antidilutive options outstanding were not included in the computation of diluted earnings per share.

NOTE 9. Comprehensive Income (Loss)

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

Accumulated Other Comprehensive Loss
March 31, 2006

	Before-Tax			Tax			After-Tax
	Amount			Benefit			Amount

	(Dollars in thousands)

Unrealized losses on securities available for sale	$	(709,893	)	$	(260,123	)	$	(449,770	)
Unrealized losses on cash flow hedges		(17,258	)		(6,658	)		(10,600	)
Minimum pension liability		(7,102	)		(2,741	)		(4,361	)

Total	$	(734,253	)	$	(269,522	)	$	(464,731	)

BB&T Corporation Page 19 First Quarter 2006 10-Q

Accumulated Other Comprehensive Loss
December 31, 2005

	Before-Tax			Tax			After-Tax
	Amount			Benefit			Amount
	(Dollars in thousands)

Unrealized losses on securities available for sale	$	(533,213	)	$	(195,635	)	$	(337,578	)
Unrealized losses on cash flow hedges		(21,986	)		(8,487	)		(13,499	)
Minimum pension liability		(8,354	)		(3,197	)		(5,157	)

Total	$	(563,553	)	$	(207,319	)	$	(356,234	)

NOTE 10. Operating Segments

BB&T’s operations are divided into seven reportable business segments: the Banking Network, Residential 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 organizational structure. The segments require unique technology and marketing strategies and offer different products and services. While BB&T is managed as an integrated organization, individual executive managers are held accountable for the operations of 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 are designed to support these strategic objectives. Unlike financial accounting, there is no comprehensive authoritative body of guidance for management accounting equivalent to generally accepted accounting principles. 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, 2005, 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 20 First Quarter 2006 10-Q

BB&T Corporation
Reportable Segments
For the Three Months Ended March 31, 2006 and 2005

					Residential
	Banking Network				Mortgage Banking						Trust Services						Insurance Services				Specialized Lending

	2006		2005		2006			2005			2006			2005			2006		2005		2006		2005

	(Dollars in thousands)

Net interest income (expense)	$	658,701	$	572,394	$	206,412		$	170,913		$	(1,409	)	$	(822	)	$	3,553	$	1,652	$	82,224	$	70,129
Net intersegment interest income (expense)		270,882		267,902		(141,327	)		(105,870	)		2,207			1,924			—		—		—		—


Total net interest income		929,583		840,296		65,085			65,043			798			1,102			3,553		1,652		82,224		70,129


Economic provision for loan and lease losses		56,908		58,715		2,561			2,180			—			—			—		—		31,287		22,952
Noninterest income		228,387		194,789		32,606			35,613			41,674			33,890			170,006		148,841		16,373		10,189
Intersegment noninterest income		94,678		83,546		—			—			—			—			—		—		—		—
Noninterest expense		341,604		307,177		12,525			11,596			36,198			25,750			162,337		128,517		36,307		31,061
Allocated corporate expenses		183,123		147,397		2,726			8,896			5,491			3,654			6,224		7,084		3,963		4,521


Income before income taxes		671,013		605,342		79,879			77,984			783			5,588			4,998		14,892		27,040		21,784

Provision for income taxes		214,648		202,366		26,088			26,119			368			2,128			2,186		5,912		7,614		6,661


Segment net income	$	456,365	$	402,976	$	53,791		$	51,865		$	415		$	3,460		$	2,812	$	8,980	$	19,426	$	15,123




Identifiable segment assets (period end)	$	56,594,733	$	52,639,840	$	15,242,331		$	12,989,447		$	196,599		$	109,584		$	2,020,688	$	1,775,441	$	3,170,296	$	2,518,638

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

	2006		2005		2006			2005		2006			2005			2006			2005			2006		2005

	(Dollars in thousands)

Net interest income (expense)	$	1,333	$	2,174	$	(42,338	)	$	20,235	$	43,146		$	63,222		$	—		$	—		$	951,622	$	899,897
Net intersegment interest income (expense)		—		—		19,095			14,091		(14,299	)		(10,225	)		(136,558	)		(167,822	)		—		—


Total net interest income		1,333		2,174		(23,243	)		34,326		28,847			52,997			(136,558	)		(167,822	)		951,622		899,897


Economic provision for loan and lease losses		—		—		—			—		1,268			5,430			—			—			92,024		89,277
Noninterest income		90,380		71,229		11,935			12,297		24,225			36,182			—			—			615,586		543,030
Intersegment noninterest income		—		—		—			—		—			—			(94,678	)		(83,546	)		—		—
Noninterest expense		77,729		63,638		2,460			1,355		17,726			24,879			—			—			686,886		593,973
Allocated corporate expenses		2,676		3,598		1,386			26		1,968			5,457			—			—			207,557		180,633


Income before income taxes		11,308		6,167		(15,154	)		45,242		32,110			53,413			(231,236	)		(251,368	)		580,741		579,044

Provision for income taxes		4,482		2,390		(2,770	)		9,722		5,938			21,313			(73,533	)		(83,706	)		185,021		192,905


Segment net income	$	6,826	$	3,777	$	(12,384	)	$	35,520	$	26,172		$	32,100		$	(157,703	)	$	(167,662	)	$	395,720	$	386,139




Identifiable segment assets (period end)	$	1,414,225	$	1,047,499	$	20,227,365		$	19,101,109	$	5,435,347		$	5,936,444		$	—		$	—		$	104,301,584	$	96,118,002

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

BB&T Corporation Page 21 First Quarter 2006 10-Q

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

	For the Three Months Ended
	March 31,

	2006			2005

	(Dollars in thousands)
Net Interest Income
Net interest income from segments	$	951,622		$	899,897
Other net interest income (1)		149,120			72,833
Elimination of management accounting practices (2)		(122,805	)		(112,171	)
Other, net (3)		(79,885	)		(11,376	)

Consolidated net interest income	$	898,052		$	849,183




Net income
Net income from segments	$	395,720		$	386,139
Other net income (1)		87,406			72,861
Elimination of management accounting practices (2)		8,216			(19,864	)
Other, net (3)		(59,829	)		(43,752	)

Consolidated net income	$	431,513		$	395,384

	March 31,		March 31,
	2006		2005

	(Dollars in thousands)
Total Assets
Total assets from segments	$	104,301,584	$	96,118,002
Other, net (1,3)		5,732,105		5,897,084

Consolidated total assets	$	110,033,689	$	102,015,086

(1) Other net interest income (expense), other net income (loss) 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 reflect intercompany eliminations to arrive at consolidated results.

NOTE 11. Equity-Based Compensation Plans

At March 31, 2006, BB&T had options, restricted shares and restricted share units outstanding from the following equity-based compensation plans: the 2004 Stock Incentive Plan (“2004 Plan”), the 1995 Omnibus Stock Incentive Plan (“Omnibus Plan”), the Non-Employee Directors’ Stock Option Plan (“Directors’ Plan”), and plans assumed from acquired entities, which are described below. All plans generally allow for accelerated vesting of options, restricted shares or restricted share units for holders who retire and have met all retirement eligibility requirements and in connection with certain other events. BB&T’s shareholders have approved all plans that award incentive stock options, non-qualified stock options, shares of restricted stock, performance shares and stock appreciation rights with the exception of plans assumed from acquired companies. As of March 31, 2006, the 2004 Plan is the only plan that has shares available for future grants.

BB&T Corporation Page 22 First Quarter 2006 10-Q

BB&T’s 2004 Plan is intended to assist the Corporation in recruiting and retaining employees, directors and independent contractors and to associate the interests of eligible participants with those of BB&T and its shareholders. At March 31, 2006 there were 6.4 million nonqualified stock options at prices ranging from $38.64 to $42.25 and 2.5 million restricted shares or restricted share units outstanding under the 2004 Plan. The options outstanding under the 2004 Plan generally vest ratably over five years and have a ten-year term. The restricted shares and restricted share units generally vest five years from the date of grant. At March 31, 2006, there were 16.1 million shares remaining available to grant under the 2004 Plan.

BB&T’s Omnibus Plan was intended to allow BB&T to recruit and retain employees with ability and initiative and to associate the employees’ interests with those of BB&T and its shareholders. At March 31, 2006, 8.0 million qualified stock options at prices ranging from $10.73 to $48.01 and 22.9 million non-qualified stock options at prices ranging from $9.52 to $53.10 were outstanding. The stock options generally vest over 3 to 5 years and have a 10-year term.

The Directors’ Plan was intended to provide incentives to non-employee directors to remain on the Board of Directors and share in the profitability of BB&T. In 2005, the Directors’ Plan was amended and no future grants will be awarded in connection with this Plan. At March 31, 2006, options to purchase 616 thousand shares of common stock at prices ranging from $11.04 to $31.80 were outstanding pursuant to the Directors’ Plan.

BB&T also has equity-based plans outstanding as the result of assuming the plans of acquired companies. At March 31, 2006, there were 428 thousand stock options outstanding in connection with these plans, with option prices ranging from $16.53 to $29.54.

BB&T changed its practices regarding equity-based awards in the first quarter of 2006 and began issuing a combination of restricted share units and nonqualified stock options in connection with its incentive plans. Formerly, the Company had issued substantially all of its equity-based awards in the form of stock options.

BB&T measures the fair value of each option award on the date of grant using the Black-Scholes option-pricing model with the following assumptions used for grants awarded in the first three months of 2006 and 2005, respectively:

	For the Three Months
	Ended March 31,

	2006			2005

Assumptions:
Risk-free interest rate		4.6	%		4.1	%
Dividend yield		3.8			3.5
Volatility factor		16.0			20.0
Weighted average expected life		6.5	yrs		6.5	yrs
Fair value of options per share	$	5.58		$	6.51

BB&T Corporation Page 23 First Quarter 2006 10-Q

BB&T determines the assumptions used in the Black-Scholes option pricing model as follows: the risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant; the dividend yield is based on the historical dividend yield of BB&T’s stock, adjusted to reflect the expected dividend yield over the expected life of the option; the volatility factor is based on the historical volatility of BB&T’s stock, adjusted to reflect the ways in which current information indicates that the future is reasonably expected to differ from the past; the weighted-average expected life is based on the historical behavior of employees related to exercises, forfeitures and cancellations.

BB&T measures the fair value of restricted shares based on the price of BB&T’s stock on the grant date and restricted share units based on the price of BB&T’s stock on the grant date less the present value of expected dividends that are foregone during the vesting period.

BB&T recorded $26.5 million and $45 thousand in equity-based compensation during the first quarters of 2006 and 2005, respectively. In connection with this compensation expense, BB&T also recorded $10.2 million and $18 thousand as an income tax benefit during the first quarters of 2006 and 2005, respectively. The total intrinsic value of options exercised during the three months ended March 31, 2006 and 2005 was $9.1 million and $10.0 million, respectively. The total fair value of options vested during the three months ended March 31, 2006 was $27.5 million. As of March 31, 2006, there was $131.0 million of unrecognized compensation costs related to BB&T’s equity-based awards that is expected to be recognized over a weighted-average life of 4.0 years.

The following table details the activity during the first three months of 2006 related to stock options awarded by BB&T:

	For the Three Months Ended
	March 31, 2006

				Wtd. Avg.
				Exercise
	Shares			Price

Outstanding at beginning of period		34,825,984		$	34.32
Granted		4,287,564			39.73
Exercised		(616,379	)		25.72
Forfeited or expired		(216,468	)		35.60

Outstanding at end of period		38,280,701		$	35.06




Exercisable at end of period		21,554,258		$	32.95

BB&T Corporation Page 24 First Quarter 2006 10-Q

The following tables summarize information about BB&T’s stock option awards as of March 31, 2006:

	Options Outstanding							Options Exercisable

			Weighted-							Weighted-
			Average			Weighted-				Average			Weighted-
	Number		Remaining			Average		Number		Remaining			Average
Range of	Outstanding		Contractual			Exercise		Exercisable		Contractual			Exercise
Exercise Prices	3/31/06		Life			Price		3/31/06		Life			Price


$ 0.01 to $ 10.00		16,840		0.8	yrs	$	9.52		16,840		0.8	yrs	$	9.52
10.01 to 15.00		213,396		1.7			12.57		213,396		1.7			12.57
15.01 to 25.00		3,521,686		3.2			22.57		3,521,686		3.2			22.57
25.01 to 35.00		7,707,630		5.7			31.80		5,675,517		5.3			31.46
35.01 to 45.00		26,748,732		7.7			37.80		12,054,402		6.2			36.98
45.01 to 53.10		72,417		2.6			49.05		72,417		2.6			49.05

		38,280,701		6.8	yrs	$	35.06		21,554,258		5.4	yrs	$	32.95




Aggregate intrinsic value	$	161,656,060						$	135,463,656


	Options Expected to Vest

			Weighted-
			Average			Weighted-
	Number		Remaining			Average
Range of	Outstanding		Contractual			Exercise
Exercise Prices	3/31/06		Life			Price


$ 0.01 to $ 10.00		16,840		0.8	yrs	$	9.52
10.01 to 15.00		213,396		1.7			12.57
15.01 to 25.00		3,521,686		3.2			22.57
25.01 to 35.00		7,365,026		5.7			31.76
35.01 to 45.00		24,079,364		7.5			37.71
45.01 to 53.10		72,417		2.6			49.05

		35,268,729		6.7	yrs	$	34.81




Aggregate intrinsic value	$	157,417,501

BB&T Corporation Page 25 First Quarter 2006 10-Q

The following table details the activity during the first three months of 2006 related to restricted shares and restricted share units awarded by BB&T:

	For the Three Months Ended
	March 31, 2006

				Wtd. Avg.
				Grant Date
	Shares			Fair Value

Nonvested at beginning of period		263,001		$	40.27
Granted		2,260,226			31.19
Vested		(1,477	)		19.28
Forfeited		(11,022	)		33.47

Nonvested at end of period		2,510,728		$	32.14

At March 31, 2006, BB&T’s restricted shares and restricted share units had a weighted-average life of 4.8 years. At March 31, 2006, management estimates that 2,052,715 restricted shares or restricted share units will vest over a weighted-average life of 4.8 years.

NOTE 12. Loan Servicing

BB&T has two classes of mortgage servicing rights for which it separately manages the economic risks: residential and commercial. Commercial mortgage servicing rights are recorded as other assets on the Consolidated Balance Sheets at lower of cost or market and amortized in proportion to and over the estimated period that net servicing income is expected to be received based on projections of the amount and timing of estimated future net cash flows. Commercial mortgage servicing rights were $22.4 million and $20.1 million at March 31, 2006 and December 31, 2005, respectively. Residential mortgage servicing rights are recorded on the Consolidated Balance Sheets at fair value with changes in fair value recorded as a component of mortgage banking income on the Consolidated Statements of Income for each period. BB&T uses various derivative instruments to mitigate the income statement effect of changes in fair value, due to change in valuation inputs and assumptions, of its residential mortgage servicing rights. The following is an analysis of BB&T’s residential mortgage servicing rights:

	Residential
	Mortgage Servicing Rights
	For the period ended
	March 31, 2006

	(Dollars in thousands)

Carrying value, January 1,	$	431,213
Additions		21,211
Increase (decrease) in fair value:
Due to change in valuation inputs or assumptions		28,883
Other changes (1)		(18,387	)


Carrying value, March 31,	$	462,920

(1) Represents economic amortization associated with the collection and realization of expected net servicing cash flows, expected borrower payments and the passage of time.

BB&T Corporation Page 26 First Quarter 2006 10-Q

The unpaid principal balances of BB&T’s total residential mortgage servicing portfolio were $41.8 billion and $41.1 billion at March 31, 2006 and December 31, 2005, respectively. The unpaid principal balances of residential mortgage loans serviced for others is comprised primarily of agency conforming fixed-rate mortgage loans and totaled $26.0 billion and $25.8 billion at March 31, 2006 and December 31, 2005, respectively. Mortgage loans serviced for others are not included in loans on the accompanying Consolidated Balance Sheets. BB&T recognized servicing fees of $25.1 million and $23.3 million in the first quarter of 2006 and 2005, respectively, as a component of mortgage banking income.

During the first quarters of 2006 and 2005, BB&T sold residential mortgage loans with unpaid principal balances of $1.1 billion and $1.2 billion, respectively and recognized pretax gains of $8.0 million and $9.8 million, respectively, which were recorded in noninterest income as a component of mortgage banking income. BB&T retained the related mortgage servicing rights and receives servicing fees. At March 31, 2006 and December 31, 2005, the approximate weighted average servicing fee was .35% of the outstanding balance of residential mortgage loans. The weighted average coupon interest rate on the portfolio of mortgage loans serviced for others was 5.84% and 5.83% at March 31, 2006 and December 31, 2005, respectively.

At March 31, 2006, BB&T had $259.6 million of residential mortgage loans sold with limited recourse liability. In the event of nonperformance by the borrower, BB&T has maximum recourse exposure of approximately $78.3 million on these mortgage loans.

BB&T uses assumptions and estimates in determining the fair value of capitalized mortgage servicing rights. These assumptions include prepayment speeds, net charge-off experience and discount rates commensurate with the risks involved and comparable to assumptions used by market participants to value and bid servicing rights available for sale in the market. At March 31, 2006 the sensitivity of the current fair value of the residential mortgage servicing rights to immediate 10% and 20% adverse changes in key economic assumptions are included in the accompanying table, which excludes commercial mortgage servicing rights.

	Residential
	Mortgage Servicing Rights
	March 31, 2006

	(Dollars in thousands)

Fair Value of Residential Mortgage Servicing Rights	$	462,920




Composition of Residential Loans Serviced for Others:
Fixed-rate mortgage loans		97.7	%
Adjustable-rate mortgage loans		2.3
Total		100.0

Weighted Average Life		8.0	yrs

Prepayment Speed		10.6	%
Effect on fair value of a 10% increase	$	(19,178	)
Effect on fair value of a 20% increase		(36,953	)

Expected Credit Losses		.02	%
Effect on fair value of a 10% increase	$	(352	)
Effect on fair value of a 20% increase		(706	)

Weighted Average Discount Rate		9.76	%
Effect on fair value of a 10% increase	$	(14,723	)
Effect on fair value of a 20% increase		(28,640	)

BB&T Corporation Page 27 First Quarter 2006 10-Q

The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance. As indicated, changes in fair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in this table, the effect of an adverse variation in a particular assumption on the fair value of the mortgage servicing rights is calculated without changing any other assumption; while in reality, changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments and increased credit losses), which might magnify or counteract the effect of the change.

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Item 2. Management’s Discussion and Analysis of Financial Condition 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 businesses 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 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:

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.

Regulatory Considerations

BB&T and its subsidiaries and affiliates are subject to numerous examinations by federal and state banking regulators, as well as the Securities and Exchange Commission, the National Association of Securities Dealers, Inc., and various state insurance and securities regulators. BB&T and its subsidiaries have from time to time received requests for information from regulatory authorities in various states, including state insurance commissions and state attorneys general, securities regulators and other regulatory authorities, concerning their business practices. Such requests are considered incidental to the normal conduct of business. Please refer to BB&T’s Annual Report on Form 10-K for the year ended December 31, 2005 for additional disclosures with respect to laws and regulations affecting the Company’s businesses.

BB&T Corporation Page 28 First Quarter 2006 10-Q

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 2005 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.

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 outcomes of which are 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.

BB&T Corporation Page 29 First Quarter 2006 10-Q

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 has two classes of mortgage servicing rights for which it separately manages the economic risks: residential and commercial. Residential mortgage servicing rights are recorded on the Consolidated Balance Sheets at fair value with changes in fair value recorded as a component of mortgage banking income each period. Commercial mortgage servicing rights are recorded as other assets on the Consolidated Balance Sheets at lower of cost or market and amortized in proportion to and over the estimated period that net servicing income is expected to be received based on projections of the amount and timing of estimated future net cash flows. The amount and timing of estimated future net cash flows 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.

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.

BB&T Corporation Page 30 First Quarter 2006 10-Q

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 March 31, 2006 were $110.0 billion, an increase of $863.9 million, or ..8%, from December 31, 2005. The asset category that experienced the largest increase was loans and leases, including loans held for sale, which grew $1.3 billion, or 1.7%, during the first three months of 2006.

Total deposits at March 31, 2006, were $75.6 billion, an increase of $1.3 billion, or 1.7%, from December 31, 2005. Long-term debt decreased $73.5 million, or .6%, and shorter-term borrowing decreased $205.4 million or 3.1% during the first three months of 2006. Total shareholders’ equity decreased $159.1 million, or 1.4%, from December 31, 2005.

Consolidated net income for the first quarter of 2006 totaled $431.5 million, an increase of 9.1% compared to $395.4 million earned during the first quarter of 2005. On a diluted per share basis, earnings for the three months ended March 31, 2006 were $.79, compared to $.71 for the same period in 2005, an increase of 11.3%. BB&T’s results of operations for the first quarter of 2006 produced an annualized return on average assets of 1.60% and an annualized return on average shareholders’ equity of 15.72% compared to prior year ratios of 1.60% and 14.70%, respectively.

Results during the first quarter of 2006 reflect further improvements in several key drivers of BB&T’s profitability. Among these were strong combined loan and deposit growth, solid performance from noninterest generating businesses and continued excellent asset quality.

In December 2005, BB&T announced plans to acquire Main Street Banks, Inc. (“Main Street”), based in Atlanta, Georgia. In January 2006, BB&T announced plans to acquire First Citizens Bancorp (“First Citizens”), a bank holding company headquartered in Cleveland, Tennessee. Both transactions are subject to shareholder and regulatory approval and are expected to be completed in the second and third quarters of 2006, respectively.

BB&T Corporation Page 31 First Quarter 2006 10-Q

Please refer to BB&T’s Annual Report on Form 10-K for the year ended December 31, 2005, 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 first quarter of 2006 are further discussed in the following sections.

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ANALYSIS OF FINANCIAL CONDITION

Securities

Securities available for sale totaled $19.4 billion at March 31, 2006, a decrease of $349.4 million, or 1.8%, compared with December 31, 2005. Securities available for sale had net unrealized losses, net of deferred income taxes, of $449.8 million and $337.6 million at March 31, 2006 and December 31, 2005, respectively. The decline in the portfolio from December 31, 2005 to March 31, 2006 was a result of management’s decision not to reinvest cash flows generated by the investment portfolio because of the flat yield curve, but to use the cash flows to pay down shorter-term funding sources. Trading securities totaled $745.2 million, up $38.7 million, or 5.5%, compared to the balance at December 31, 2005. 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 classified as trading.

Average total securities for the first quarter of 2006 amounted to $21.0 billion, an increase of $1.3 billion, or 6.9%, compared to the average balance during the first quarter of 2005. The increase in securities was the result of a combination of factors, including the purchase of securities in 2005 to offset variances in projected loan growth and the securitization of approximately $210 million in mortgage loans in the fourth quarter of 2005 that were held in BB&T’s loan portfolio and subsequently transferred to the securities portfolio.

The annualized fully taxable equivalent (“FTE”) yield on the average securities portfolio for the first quarter of 2006 was 4.39%, which represents an increase of 31 basis points compared to the annualized yield earned during the first quarter of 2005. 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 higher percentage of higher-yielding mortgage-backed securities.

On March 31, 2006, BB&T held certain investment securities having continuous unrealized loss positions for more than 12 months. As of March 31, 2006, the unrealized losses on these securities totaled $620.1 million. Substantially all of these investments were in U.S. government-sponsored entity securities and mortgage-backed securities, which primarily consist of securities issued by the Federal Farm Credit Bureau, the Federal Home Loan Bank System, the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. These agencies are rated AAA and the unrealized losses are the result of increases in market interest rates rather than the credit quality of the issuers. BB&T has the ability and intent to retain these securities for a period of time sufficient to recover all unrealized losses. Accordingly, BB&T has not recognized other-than-temporary impairment in connection with these securities.

BB&T Corporation Page 32 First Quarter 2006 10-Q

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, maintaining strong asset quality and achieving an equal mix of consumer and commercial loans. For the first three months of 2006, average total loans were $75.4 billion, an increase of $6.9 billion, or 10.0%, compared to the same period in 2005. During the first three months of 2006, average commercial loans, including lease receivables, increased $3.1 billion, or 9.3%, compared to the same period in 2005 and comprised 48.9% of the loan portfolio compared to 49.2% for the first three months of 2005. Average consumer loans, which include sales finance, revolving credit and direct retail, totaled $21.0 billion during the first three months of 2006, an increase of $1.0 billion, or 5.1%, compared to the same period in 2005. During the first three months of 2006, consumer loans comprised 27.9% of average loans compared to 29.2% for the same period of 2005. Average mortgage loans totaled $14.7 billion for the first three months of 2006, an increase of 17.5% compared to the same period of 2005. Mortgage loans comprised 19.4% of the loan and lease portfolio for the first three months of 2006 compared to 18.2% for the first three months of 2005. Average specialized lending loans totaled $2.8 billion for the first three months of 2006, an increase of $530.9 million, or 22.9%, compared to the same period of 2005. These loans comprised the remaining 3.8% of the loan and lease portfolio for the first three months of 2006 compared to 3.4% for the first three months of 2005.

The slight fluctuation in the mix of the loan portfolio during the first quarter of 2006 compared to the same period of 2005 was primarily due to increased growth in the mortgage portfolio, which grew at a faster pace than the consumer portfolio. The slower growth in the consumer portfolio was the result of decreased demand for home equity loans due to the increase in the prime rate, which is the primary index for most home equity loans. In addition, growth in the sales finance component of the consumer portfolio has slowed due to lower sales of domestic automobiles, which are the primary source of loans for BB&T’s sales finance operations.

The annualized FTE yields on commercial, consumer, mortgage and specialized lending subsidiary loans for the first three months of 2006 were 7.39%, 6.95%, 5.50%, and 15.14%, respectively, resulting in an annualized yield on the total loan portfolio of 7.19%. This reflects an increase of 94 basis points in the annualized yield on the total loan portfolio during the first three months of 2006 in comparison to 2005. The 94 basis point increase was primarily the result of an increase in yield on commercial loans; as variable-rate loans were repriced and fixed-rate loans with lower-yields matured and were replaced with higher-yielding loans and leases. Starting in the second half of 2004, the Federal Reserve Board began to steadily increase the intended Federal funds rate in response to an increase in economic activity and concerns about inflation. As a result, the prime rate, which is the basis for pricing many commercial and consumer loans, increased to 7.75% at March 31, 2006, compared to 5.75% at March 31, 2005. Therefore, as loans gradually reprice at higher rates or mature and are replaced with higher-yielding loans, the annualized yield of the loan portfolio is expected to increase. Evidence of this trend is visible from the changes in the quarterly annualized interest yield, which improved from 6.25% in the first quarter of 2005 to 7.19% during the first quarter of 2006. 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.

BB&T Corporation Page 33 First Quarter 2006 10-Q

Other Interest Earning Assets

Federal funds sold and securities purchased under resale agreements totaled $410.1 million at March 31, 2006, an increase of $123.9 million, or 43.3%, compared to December 31, 2005. Interest-bearing deposits with banks decreased $38.0 million, or 9.3%, compared to year-end 2005. 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 3.76% for the first quarter of 2006, compared to 2.54% for the same period in 2005. These higher yields were the result of the increase in the Federal funds target rate as previously discussed.

Goodwill and Other Assets

BB&T’s other noninterest-earning assets, excluding premises and equipment and noninterest-bearing cash and due from banks, increased $112.3 million from December 31, 2005 to March 31, 2006. Other noninterest-earning assets includes commercial mortgage servicing rights totaling $22.4 million and residential mortgage servicing rights totaling $462.9 million at March 31, 2006. The increase was due primarily to an increase in goodwill of $44.4 million, which resulted from two nonbank acquisitions completed during the first quarter of 2006 and certain contingent payments related to prior acquisitions. In addition, residential mortgage servicing rights increased $31.7 million from December 31, 2005.

Deposits

Client deposits generated through the BB&T branch network are the largest source of funds used to support asset growth. Deposits totaled $75.6 billion at March 31, 2006, an increase of $1.3 billion, or 1.7%, from December 31, 2005. Average deposits for the first quarter of 2006 increased $6.9 billion, or 10.2%, to $74.2 billion compared to the first quarter of 2005. The categories of deposits with the highest average rates of growth were other interest-bearing deposits, which increased 43.2%, client certificates of deposit, which increased $2.5 billion, or 14.1%, and interest checking, which increased $246.9 million, or 14.9%. In addition, noninterest-bearing deposits increased $613.4 million, or 5.0%, and other client deposits, which include money rate savings accounts, investor deposit accounts, savings accounts, individual retirement accounts and other time deposits, increased $890.5 million, or 3.0%, for the first three months of 2006 compared to the same period in 2005.

Average other client deposits comprised 41.4% of average total deposits for the first quarter of 2006, compared to 44.2% for the same period of 2005. Average client certificates of deposit comprised 26.8% of average total deposits for the first quarter of 2006, compared to 25.9% for the same period of 2005. Average noninterest-bearing accounts comprised 17.3% of average total deposits for the first quarter of 2006, compared to 18.2% for the same period of 2005. Average interest checking comprised 2.6% of average total deposits for the first quarter of 2006, compared to 2.5% for the same period of 2005. Average other interest-bearing deposits comprised 11.9% of average total deposits for the first quarter of 2006, compared to 9.2% for the same period of 2005. The change in deposit mix is primarily due to a shift in noninterest-bearing accounts to interest-bearing products as clients began to show a preference for these items due to the higher rate environment. In addition, other interest-bearing deposits, which is composed of negotiable certificates of deposit and Eurodollar deposits, increased on average compared to the first quarter of 2005 as the Company made a decision to utilize this type of funding source to a greater degree during the early part of 2005. However, management has increased its efforts to gather deposits through its retail delivery channel, which has allowed the Corporation to decrease its reliance on other interest-bearing funding sources and the balance at March 31, 2006 decreased $723.1 million, compared to December 31, 2005.

BB&T Corporation Page 34 First Quarter 2006 10-Q

For the first quarter of 2006, the annualized average rate paid on total interest-bearing deposits was 2.90%, an increase of 112 basis points compared to the first quarter of 2005. This increase in the average rate paid resulted primarily from the higher interest rate environment that existed during the first quarter of 2006 compared to 2005, and competition in the pricing of deposit products.

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 BB&T 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 March 31, 2006, shorter-term borrowings totaled $6.4 billion, a decrease of $205.4 million, or 3.1%, compared to December 31, 2005. For the first quarter of 2006, average shorter-term borrowed funds were $6.7 billion, a decrease of $401.0 million compared to the same period of 2005. The decrease in these funds compared to December 31, 2005 was primarily due to the decision to utilize other interest-bearing deposit products rather than federal funds purchased and securities sold under repurchase agreements and the paydown of balances from cash flows generated from the investment portfolio that were not reinvested.

The average annualized rate paid on shorter-term borrowed funds was 3.95% for the first quarter of 2006, an increase of 152 basis points from the average rate of 2.43% paid in the comparable period of 2005. The higher rates paid on shorter-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 $13.0 billion at March 31, 2006, down $73.5 million from the balance at December 31, 2005. The primary reason for the decline was the change in fair value of derivatives used for hedging certain components of the Company’s long-term debt.

The average annualized rate paid on long-term debt for the first quarter of 2006 was 4.77%, an increase of 85 basis points compared to the first quarter of 2005. The increase in the cost of long-term funds resulted because most of BB&T’s long-term borrowings were either issued as floating rate instruments or BB&T elected to swap their long-term fixed rates to floating.

BB&T Corporation Page 35 First Quarter 2006 10-Q

Asset Quality

BB&T’s credit quality has continually improved as demonstrated by successive quarterly declines in the level of nonperforming assets. Nonperforming assets, composed of foreclosed real estate, repossessions, nonaccrual loans and restructured loans, totaled $296.1 million at March 31, 2006, compared to $300.1 million at December 31, 2005. As a percentage of loans and leases plus foreclosed property, nonperforming assets were .39% at March 31, 2006, down from .40% at December 31, 2005. Loans 90 days or more past due and still accruing interest totaled $79.2 million at March 31, 2006, compared to $103.4 million at year-end 2005.

BB&T’s net charge-offs totaled $47.6 million for the first quarter and amounted to .26% of average loans and leases, on an annualized basis, compared to $46.9 million, or .28% of average loans and leases, on an annualized basis, in the corresponding period in 2005.

The allowance for credit losses, which totaled $833.4 million and $829.8 million at March 31, 2006 and December 31, 2005, 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 $833.2 million at March 31, 2006, compared to $825.3 million at December 31, 2005. This amounted to 1.09% of loans and leases outstanding at March 31, 2006, compared to 1.10% at year-end 2005.

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

BB&T Corporation Page 36 First Quarter 2006 10-Q

Table 1
Asset Quality Analysis

	For the Three Months Ended

	3/31/06			12/31/05			9/30/05			6/30/05			3/31/05

	(Dollars in thousands)
Allowance For Credit Losses
Beginning balance	$	829,770		$	830,344		$	827,325		$	822,464		$	828,301
Allowance for acquired (sold) loans, net		3,731			(970	)		—			—			—
Provision for credit losses		47,571			69,329			57,465			49,424			41,045
Charge-offs
Commercial loans and leases		(5,407	)		(20,584	)		(7,440	)		(11,818	)		(9,420	)
Direct retail loans		(10,597	)		(10,293	)		(20,558	)		(8,148	)		(7,449	)
Sales finance loans		(5,610	)		(8,617	)		(6,874	)		(3,881	)		(7,292	)
Revolving credit loans		(11,337	)		(15,994	)		(13,179	)		(12,552	)		(12,693	)
Mortgage loans		(2,095	)		(1,347	)		(1,502	)		(1,728	)		(1,476	)
Specialized lending		(27,226	)		(26,923	)		(23,190	)		(22,885	)		(21,904	)

Total charge-offs		(62,272	)		(83,758	)		(72,743	)		(61,012	)		(60,234	)
Recoveries
Commercial loans and leases		3,203			4,550			4,822			4,291			3,415
Direct retail loans		3,065			2,653			5,214			2,159			1,848
Sales finance loans		1,739			1,866			2,145			2,404			2,468
Revolving credit loans		2,743			2,841			2,740			2,737			2,540
Mortgage loans		144			162			340			39			95
Specialized lending		3,738			2,753			3,036			4,819			2,986

Total recoveries		14,632			14,825			18,297			16,449			13,352

Net charge-offs		(47,640	)		(68,933	)		(54,446	)		(44,563	)		(46,882	)

Ending balance	$	833,432		$	829,770		$	830,344		$	827,325		$	822,464



Nonperforming Assets

Nonaccrual loans and leases
Commercial loans and leases	$	109,838		$	103,804		$	107,121		$	110,662		$	121,613
Direct retail loans		42,156			40,916			39,334			37,640			39,198
Sales finance loans		3,064			4,640			9,864			9,908			9,702
Revolving credit loans		177			233			304			348			266
Mortgage loans		49,643			48,126			48,301			49,163			58,576
Specialized lending		26,508			31,160			25,648			22,033			25,107

Total nonaccrual loans and leases		231,386			228,879			230,572			229,754			254,462

Foreclosed real estate		41,341			48,315			51,504			62,036			60,147
Other foreclosed property		22,895			22,420			21,692			16,550			18,199
Restructured loans		507			515			523			531			537

Total nonperforming assets	$	296,129		$	300,129		$	304,291		$	308,871		$	333,345



Loans 90 days or more past due
and still accruing
Commercial loans and leases	$	5,727		$	10,413		$	5,948		$	6,040		$	9,188
Direct retail loans		17,686			20,814			18,197			14,718			13,857
Sales finance loans		18,347			21,585			16,246			16,015			18,291
Revolving credit loans		4,172			4,713			4,840			3,886			4,067
Mortgage loans		28,251			38,828			33,385			33,494			31,432
Specialized lending		5,050			7,092			5,999			5,164			6,421

Total loans 90 days or more past due
and still accruing	$	79,233		$	103,445		$	84,615		$	79,317		$	83,256

BB&T Corporation Page 37 First Quarter 2006 10-Q

Asset Quality Ratios

	For the Three Months Ended

	3/31/06			12/31/05			9/30/05			6/30/05			3/31/05

Loans 90 days or more past due and still
accruing as a percentage of total loans
and leases		.10	%		.14	%		.11	%		.11	%		.12	%
Nonaccrual and restructured loans and leases
as a percentage of total loans and leases		.30			.31			.31			.32			.37
Total nonperforming assets as a percentage of:
Total assets		.27			.27			.28			.29			.33
Loans and leases plus foreclosed property		.39			.40			.41			.43			.48
Net charge-offs as a percentage of
average loans and leases		.26			.37			.30			.25			.28
Allowance for loan and lease losses as a
percentage of loans and leases		1.09			1.10			1.11			1.13			1.16
Allowance for loan and lease losses as a
percentage of loans and leases
held for investment		1.10			1.11			1.12			1.14			1.17
Ratio of allowance for loan and lease losses to:
Net charge-offs		4.31	x		3.02	x		3.79	x		4.53	x		4.22	x
Nonaccrual and restructured loans and leases		3.59			3.60			3.54			3.51			3.14

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

Back to Index

ANALYSIS OF RESULTS OF OPERATIONS

Consolidated net income for the first quarter of 2006 totaled $431.5 million, an increase of $36.1 million, or 9.1%, compared to $395.4 million earned during the first quarter of 2005. On a diluted per share basis, earnings for the three months ended March 31, 2006 were $.79, compared to $.71 for the same period in 2005. BB&T’s results of operations for the first quarter of 2006 produced an annualized return on average assets of 1.60% and an annualized return on average shareholders’ equity of 15.72%, compared to prior year ratios of 1.60% and 14.70%, respectively.

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

Table 2
Annualized
Profitability Measures

	2006			2005

	First			Fourth			Third			Second			First
	Quarter			Quarter			Quarter			Quarter			Quarter

Return on average assets		1.60	%		1.58	%		1.65	%		1.50	%		1.60	%
Return on average shareholders' equity		15.72			15.32			15.69			14.04			14.70
Net interest margin (taxable equivalent)		3.82			3.82			3.88			3.92			3.95

BB&T Corporation Page 38 First Quarter 2006 10-Q

Merger-Related and Restructuring Activities

Mergers and acquisitions have played an important role in the development of BB&T’s franchise. BB&T has been an active acquirer of financial institutions, insurance agencies and other nonbank fee income producing businesses for many years. BB&T recorded certain merger-related items and restructuring costs during both 2006 and 2005. During the first quarter of 2006, BB&T recorded $1.8 million in net after-tax gains primarily associated with the reversal of charges for anticipated exit costs for closed facilities related to recent acquisitions. During the first quarter of 2005, BB&T recorded $1.6 million in net after-tax merger-related credits or gains primarily associated with the reversal of charges for anticipated exit costs for closed facilities and the finalization of severance and other personnel-related liabilities associated with recent acquisitions. The above credits and gains are reflected in BB&T’s Consolidated Statements of Income as a category of noninterest expense.

Merger-related charges and expenses include personnel-related expenses such as staff relocation costs, severance benefits, early retirement packages and contract settlements. They also include furniture, equipment and occupancy costs related to department and branch consolidations as well as costs related to converting the data processing systems of the acquired companies to BB&T’s automation platform. Merger-related charges also include professional fees, advertising and asset write-offs incurred in connection with the mergers.

The following table presents the components of merger-related and restructuring charges (gains) 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.

Table 3-1
Summary of Merger-Related and Restructuring Charges (Gains)

	For the Three Months Ended March 31,

	2006			2005

	(Dollars in thousands)

Severance and personnel-related items	$	9		$	(1,287	)
Occupancy and equipment		(3,008	)		(1,213	)
Systems conversions and related items		—			3
Other merger-related items		23			(60	)

Total	$	(2,976	)	$	(2,557	)

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

BB&T Corporation Page 39 First Quarter 2006 10-Q

Occupancy and equipment charges or credits represent merger-related costs or gains associated with lease terminations, obsolete equipment write-offs and the sale of duplicate facilities and equipment. Credits may result when obsolete properties or equipment are sold for more than originally estimated. Systems conversions and related charges include expenses necessary to convert and combine the acquired branches and operations of merged companies. The other merger-related charges are composed of asset and supply inventory write-offs, litigation accruals and other similar charges.

In conjunction with the consummation of an acquisition and the completion of other requirements, BB&T typically accrues certain merger-related expenses related to estimated severance and other personnel 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 an acquisition. The following tables present a summary of activity with respect to BB&T’s merger and restructuring accruals, with the more significant merger (First Virginia) presented separately. These tables include costs reflected as expenses, as presented in the table above, and accruals recorded through purchase accounting adjustments.

	Table 3-2
	First Virginia Banks, Inc

	(Dollars in thousands)

			Merger-related
	Balance		and								Balance
	January 1,		restructuring								March 31,
	2006		charges (gains)			Utilized			Other, net		2006


Severance and personnel-related items	$	4,504	$	—		$	(538	)	$	—	$	3,966
Occupancy and equipment		2,717		(483	)		(281	)		—		1,953

Total	$	7,221	$	(483	)	$	(819	)	$	—	$	5,919

The remaining accruals at March 31, 2006 for First Virginia are related primarily to costs associated with severance payments to certain executive officers and costs to exit certain leases and to dispose of excess facilities and equipment. These liabilities will be utilized in the future because they relate to specific contracts or legal obligations that expire in later years, or they relate to the disposal of duplicate facilities and equipment, which may take longer to complete.

Activity with respect to the merger and restructuring accruals for all other mergers is presented in the accompanying table:

BB&T Corporation Page 40 First Quarter 2006 10-Q

	Table 3-3
	All Other Mergers

	(Dollars in thousands)

			Merger-related
	Balance		and									Balance
	January 1,		restructuring									March 31,
	2006		charges (gains)			Utilized			Other, net			2006


Severance and personnel-related items	$	1,507	$	9		$	(414	)	$	(76	)	$	1,026
Occupancy and equipment		4,889		(2,525	)		(50	)		—			2,314
Other merger-related items		2,924		23			(310	)		123			2,760

Total	$	9,320	$	(2,493	)	$	(774	)	$	47		$	6,100

The liabilities for severance and personnel-related costs relate to severance liabilities that will be paid out based on such factors as expected termination dates, the provisions of employment contracts and the terms of BB&T’s severance plans. The remaining occupancy and equipment accruals relate to costs to exit certain leases and to dispose of excess facilities and equipment. Such liabilities will be utilized upon termination of the various leases and sale of duplicate property. The other merger-related liabilities relate to litigation and other similar charges.

In general, a major portion of accrued costs are utilized in conjunction with or immediately following the systems conversion, when most of the duplicate positions are eliminated and the terminated employees begin to receive severance. Other accruals are utilized over time based on the sale, closing or disposal of duplicate facilities or equipment or the expiration of lease contracts. Merger accruals are re-evaluated periodically and adjusted as necessary. The remaining accruals at March 31, 2006 are expected to be utilized during 2006, unless they relate to specific contracts that expire in later years.

Net Interest Income and Net Interest Margin

Net interest income on an FTE basis was $919.4 million for the first quarter of 2006 compared to $869.3 million for the same period in 2005, an increase of $50.0 million, or 5.8%. For the three months ended March 31, 2006, average earning assets increased $8.4 billion, or 9.4%, compared to the same period of 2005, while average interest-bearing liabilities increased $7.6 billion, or 10.3%, and the net interest margin decreased from 3.95% in the first quarter of 2005 to 3.82% in the current quarter. The decrease in the net interest margin was caused by a combination of factors. The flattening of the yield curve in recent quarters and more intense price competition for commercial loans and deposits has resulted in an increase in funding costs that has outpaced the rise in yields on earning assets. In addition, the margin was negatively affected by the additional interest expense incurred in connection with BB&T’s stock repurchase program.

The following tables set forth the major components of net interest income and the related annualized yields and rates for the first quarter of 2006 compared to the same period in 2005, and the variances between the periods caused by changes in interest rates versus changes in volumes.

BB&T Corporation Page 41 First Quarter 2006 10-Q

Table 4
FTE Net Interest Income and Rate / Volume Analysis
For the Three Months Ended March 31, 2006 and 2005

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

	2006		2005		2006			2005			2006		2005		(Decrease)			Rate			Volume

	(Dollars in thousands)
Assets
Securities, at amortized cost (1):
U.S. Treasury securities	$	123,236	$	124,921		3.11	%		3.20	%	$	946	$	986	$	(40	)	$	(27	)	$	(13	)
U.S. government-sponsored entity securities (6)		11,941,126		12,878,398		3.95			3.76			117,953		120,921		(2,968	)		5,981			(8,949	)
Mortgage-backed securities		6,588,814		4,893,934		4.81			4.66			79,292		57,049		22,243			1,863			20,380
States and political subdivisions		639,539		732,313		6.82			6.71			10,900		12,286		(1,386	)		171			(1,557	)
Other securities		912,972		569,898		6.01			4.41			13,723		6,277		7,446			2,757			4,689
Trading securities		749,327		407,860		3.70			2.43			6,929		2,475		4,454			1,688			2,766

Total securities (5)		20,955,014		19,607,324		4.39			4.08			229,743		199,994		29,749			12,433			17,316
Other earning assets (2)		777,594		620,364		3.76			2.54			7,220		3,883		3,337			2,189			1,148
Loans and leases, net
of unearned income (1)(3)(4)(5)		75,442,649		68,578,138		7.19			6.25			1,341,049		1,059,777		281,272			169,125			112,147


Total earning assets		97,175,257		88,805,826		6.56			5.75			1,578,012		1,263,654		314,358			183,747			130,611


Non-earning assets		11,956,905		11,673,166


Total assets	$	109,132,162	$	100,478,992

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