q110q.htm - BB&T

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, 2009

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   
Winston-Salem, North Carolina  27101 
(Address of Principal Executive Offices)  (Zip Code) 

(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 þ NO ¨

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). YES þ NO ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  þ Accelerated filer  ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)   Smaller reporting company  ¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO þ

At April 30, 2009, 560,640,875 shares of the Registrant's common stock, $5 par value, were outstanding.

 


  BB&T CORPORATION   
  FORM 10-Q   
  March 31, 2009   
  INDEX   
    Page No. 
Part I. FINANCIAL INFORMATION   
            Item 1.  Financial Statements (Unaudited)  2 
  Notes to Consolidated Financial Statements (Unaudited)  6 
            Item 2.  Management’s Discussion and Analysis of  
  Financial Condition and Results of Operations 35 
  Executive Summary  40 
  Analysis of Financial Condition 42 
  Analysis of Results of Operations 53 
  Market Risk Management 60 
  Capital Adequacy and Resources 64 
  Segment Results 67 
 
            Item 3. Quantitative and Qualitative Disclosures About  
  Market Risk 68 
           Item 4.  Controls and Procedures 68 
Part II. OTHER INFORMATION   
            Item 1.  Legal Proceedings 68 
            Item 1A. Risk Factors 69 
            Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds 70 
            Item 6. Exhibits  70 
SIGNATURES  71 
EXHIBIT INDEX 72 
CERTIFICATIONS  73 

1


Item 1. Financial Statements

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

    March 31,     December 31,  
    2009     2008  
 
Assets             
     Cash and due from banks  $ 1,188   $ 1,639  
     Interest-bearing deposits with banks    511     751  
     Federal funds sold and securities purchased under resale agreements             
           or similar arrangements    301     350  
     Segregated cash due from banks    283     379  
     Trading securities at fair value    481     376  
     Securities available for sale at fair value    19,008     32,843  
     Loans held for sale ($3,783 and $1,396 at fair value at March 31, 2009 and    3,798     1,424  
           December 31, 2008, respectively)             
     Loans and leases    96,441     97,245  
     Allowance for loan and lease losses    (1,869 )    (1,574 ) 
           Loans and leases, net of allowance for loan and lease losses    94,572     95,671  
 
     Premises and equipment    1,583     1,580  
     Goodwill    5,492     5,483  
     Core deposit and other intangible assets    521     542  
     Residential mortgage servicing rights at fair value    365     370  
     Other assets    15,322     10,607  
                           Total assets  $ 143,425   $ 152,015  
 
Liabilities and Shareholders' Equity             
     Deposits:             
           Noninterest-bearing deposits  $ 14,766   $ 13,649  
           Interest checking    2,401     2,576  
           Other client deposits    40,604     39,413  
           Client certificates of deposit    26,521     27,937  
           Other interest-bearing deposits    6,325     15,038  
                           Total deposits    90,617     98,613  
     Federal funds purchased, securities sold under repurchase agreements             
                   and short-term borrowed funds    13,721     10,788  
     Long-term debt    17,955     18,032  
     Accounts payable and other liabilities    4,950     8,501  
                           Total liabilities    127,243     135,934  
     Commitments and contingencies (Note 6)             
     Shareholders' equity:             
           Preferred stock, liquidation preference of $1,000,000 per share    3,085     3,082  
           Common stock, $5 par    2,803     2,796  
           Additional paid-in capital    3,547     3,510  
           Retained earnings    7,385     7,381  
           Accumulated other comprehensive loss, net of deferred income             
                   taxes of $(409) at March 31, 2009 and $(438) at December 31, 2008    (683 )    (732 ) 
           Noncontrolling interest    45     44  
                           Total shareholders' equity    16,182     16,081  
                           Total liabilities and shareholders' equity  $ 143,425   $ 152,015  
 
     Common shares outstanding    560,563     559,248  
     Common shares authorized    1,000,000     1,000,000  
     Preferred shares outstanding    3     3  
     Preferred shares authorized    5,000     5,000  

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

2


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

    For the Three Months Ended 
    March 31,
    2009    2008 
Interest Income         
         Interest and fees on loans and leases  $ 1,322  $  1,595 
         Interest and dividends on securities    355    289 
         Interest on short-term investments    2    11 
               Total interest income    1,679    1,895 
 
Interest Expense         
         Interest on deposits    346    564 
         Interest on federal funds purchased, securities sold under         
               repurchase agreements and short-term borrowed funds    23    88 
         Interest on long-term debt    164    226 
               Total interest expense    533    878 
 
Net Interest Income    1,146    1,017 
         Provision for credit losses    676    223 
 
Net Interest Income After Provision for Credit Losses    470    794 
Noninterest Income         
         Insurance income    252    212 
         Service charges on deposits    156    154 
         Investment banking and brokerage fees and commissions    82    86 
         Mortgage banking income    188    59 
         Checkcard fees    49    46 
         Other nondeposit fees and commissions    53    46 
         Trust and investment advisory revenues    32    40 
         Bankcard fees and merchant discounts    35    36 
         Income from bank-owned life insurance    23    13 
         Securities gains, net    150    43 
         Other income    11    36 
               Total noninterest income    1,031    771 
Noninterest Expense         
         Personnel expense    600    547 
         Occupancy and equipment expense    129    123 
         Professional services    53    37 
         Foreclosed property expense    36    13 
         Regulatory charges    33    5 
         Loan processing expenses    29    31 
         Amortization of intangibles    25    27 
         Merger-related and restructuring charges, net    12    5 
         Other expenses    152    147 
               Total noninterest expense    1,069    935 
Earnings         
         Income before income taxes    432    630 
         Provision for income taxes    114    201 
               Net income    318    429 
         Noncontrolling interest    6    1 
         Dividends and accretion on preferred stock    41    - 
               Net income available to common shareholders  $ 271  $  428 
 
Earnings Per Common Share         
               Basic  $ .48  $  .78 
               Diluted  $ .48  $  .78 
         Cash dividends paid  $ .47  $  .46 
 
Weighted Average Shares Outstanding         
               Basic    559,801    546,214 
               Diluted    563,566    548,946 

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

3


BB&T CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Three Months Ended March 31, 2009 and 2008
(Unaudited)
(Dollars in millions, except per share data, shares in thousands)

                              Accumulated                
  Shares of           Additional       Other           Total
  Common Preferred  Common Paid-In Retained Comprehensive Noncontrolling   Shareholders'
  Stock Stock Stock Capital Earnings Income (Loss) Interest   Equity
Balance, January 1, 2008    545,955    $   -  $ 2,730  $   3,087  $ 6,919   $   (104 )  $   32   $   12,664  
Add (Deduct):                                                     
   Comprehensive income (loss):                                                     
       Net income  -      -  -    -    428       -       1       429  
           Unrealized holding gains (losses) arising during the period                                                   
               on securities available for sale, net of tax of $22  -      -  -    -  -       37     -       37  
           Reclassification adjustment for losses (gains)                                                   
               on securities available for sale included in net                                                   
               income, net of tax of $(16)     -         -    -      -    -       (27 )      -       (27 ) 
       Change in unrealized gains (losses) on securities, net of tax  -      -  -    -  -       10     -       10  
       Change in unrecognized gains (losses) on cash flow hedges,                                                   
           net of tax of $(4)  -      -  -    -  -       (7 )    -       (7 ) 
       Change in pension and postretirement liability, net of tax.  -      -  -    -  -       (1 )    -       (1 ) 
       Foreign currency translation adjustment     -         -     -      -    -       (1 )      -       (1 ) 
   Total comprehensive income (loss)     -         -    -      -    428       1       1       430  
 
   Common stock issued:                                                     
       In connection with stock option exercises                                                     
           and other employee benefits, net of cancellations    844      -    4      21  -     -     -       25  
   Cash dividends declared on common stock, $.46 per share  -      -  -    -    (252 )    -     -       (252 ) 
   Cumulative effect of adoption of EITF 06-4 and EITF 06-10  -      -  -    -    (8 )    -     -       (8 ) 
   Equity-based compensation expense     -         -    -      16    -       -       -       16  
Balance, March 31, 2008    546,799    $    -  $ 2,734  $   3,124  $ 7,087   $   (103 )  $   33   $   12,875  
 
 
Balance, January 1, 2009    559,248  $   3,082  $ 2,796  $   3,510  $ 7,381   $   (732 )  $   44   $   16,081  
Add (Deduct):                                                     
   Comprehensive income (loss):                                                     
       Net income  -      -  -    -    312     -       6       318  
           Unrealized holding gains (losses) arising during the period                                                   
               on securities available for sale, net of tax of $(39)  -      -  -    -  -       (58 )    -       (58 ) 
           Reclassification adjustment for losses (gains)                                                   
               on securities available for sale included in net                                                   
               income, net of tax of $57      -         -    -      -    -       93       -       93  
 
       Change in unrealized gains (losses) on securities, net of tax  -        -  -    -  -       35       -       35  
 
       Change in unrecognized gains (losses) on cash flow hedges,                                                     
           net of tax of $6  -        -  -    -  -       8     -       8  
 
       Change in pension and postretirement liability, net of tax of $5  -      -  -      -  -       8     -       8  
 
       Foreign currency translation adjustment     -        -    -      -    -       (2 )      -       (2 ) 
 
   Total comprehensive income (loss)     -        -    -      -    312       49       6       367  
 
   Common stock issued:                                                     
       In purchase acquisitions    96      -    1      1  -     -     -       2  
       In connection with stock option exercises                                                   
           and other employee benefits, net of cancellations    44      -  -      -  -     -     -     -  
       In connection with dividend reinvestment plan    1,175      -    6      16  -     -     -       22  
   Cash dividends declared on common stock, $.47 per share  -      -  -      -    (266 )    -     -       (266 ) 
   Cash dividends accrued on preferred stock  -      -  -    -    (39 )    -     -       (39 ) 
   Equity-based compensation expense  -      -  -      19  -     -     -       19  
   Other, net    -        3    -      1    (3 )      -       (5 )      (4 ) 
Balance, March 31, 2009    560,563  $ 3,085  $ 2,803  $    3,547  $ 7,385   $   (683 )  $   45   $   16,182  

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

4


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

    For the Three Months Ended  
             March 31,  
    2009   2008
Cash Flows From Operating Activities:             
     Net income  $ 318   $ 429  
     Adjustments to reconcile net income to net cash used in             
           operating activities:             
                 Provision for credit losses    676     223  
                 Depreciation    54     46  
                 Amortization of intangibles    25     27  
                 Equity-based compensation    19     16  
                 Discount accretion and premium amortization on long-term debt, net    16     27  
                 Gain on sales of securities, net    (150 )    (43 ) 
                 Net (increase) decrease in trading securities    (105 )    400  
                 Net increase in loans held for sale    (2,355 )    (1,027 ) 
                 Net increase in other assets    (4,376 )    (1,118 ) 
                 Net (decrease) increase in accounts payable and other liabilities    (3,562 )    973  
                 Decrease (increase) in segregated cash due from banks    96     (117 ) 
                 Other, net    73     18  
                           Net cash used in operating activities    (9,271 )    (146 ) 
 
Cash Flows From Investing Activities:             
     Proceeds from sales of securities available for sale    12,034     4,238  
     Proceeds from maturities, calls and paydowns of securities available for sale    2,091     1,984  
     Purchases of securities available for sale    (151 )    (7,208 ) 
     Originations and purchases of loans and leases, net of principal collected    633     (1,449 ) 
     Net cash paid in business combinations    (717 )    (39 ) 
     Proceeds from disposals of premises and equipment    2     2  
     Purchases of premises and equipment    (43 )    (55 ) 
     Proceeds from sales of foreclosed property or other real estate held for sale    45     23  
     Other, net     -     33  
                 Net cash provided by (used in) investing activities    13,894     (2,471 ) 
 
Cash Flows From Financing Activities:             
     Net (decrease) increase in deposits    (7,993 )    715  
     Net increase (decrease) in federal funds purchased, securities sold under repurchase agreements             
             and short-term borrowed funds    2,933     (1,024 ) 
     Proceeds from issuance of long-term debt    1     2,646  
     Repayment of long-term debt    (24 )    (29 ) 
     Net proceeds from common stock issued    22     25  
     Cash dividends paid on common stock    (263 )    (251 ) 
     Cash dividends paid on preferred stock    (40 )     -  
     Other, net    1     (1 ) 
                 Net cash (used in) provided by financing activities    (5,363 )    2,081  
 
Net Decrease in Cash and Cash Equivalents    (740 )    (536 ) 
Cash and Cash Equivalents at Beginning of Period    2,740     3,117  
Cash and Cash Equivalents at End of Period  $ 2,000   $ 2,581  
 
 
Supplemental Disclosure of Cash Flow Information:             
 
     Cash paid during the period for:             
           Interest  $ 484   $ 866  
           Income taxes    138     63  
     Noncash investing and financing activities:             
           Transfers of loans to foreclosed property    465     65  

Back to Index

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

5


BB&T Corporation and Subsidiaries   
Notes to Consolidated Financial Statements (Unaudited)  First Quarter 2009 

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”), are a fair statement of BB&T’s financial position at March 31, 2009 and December 31, 2008, and BB&T’s results of operations, changes in shareholders’ equity and cash flows for the three month periods ended March 31, 2009 and 2008. In the opinion of management, all normal recurring adjustments necessary for a fair statement of the consolidated financial position and consolidated results of operations have been made.

          These consolidated financial statements and notes are presented in accordance with the instructions for Form 10-Q. The information contained in the financial statements and footnotes included in BB&T’s Annual Report on Form 10-K for the year ended December 31, 2008 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 operations through its principal bank subsidiary, Branch Banking and Trust Company (“Branch Bank”), a federally chartered thrift institution, BB&T Financial, FSB (“BB&T FSB”) and its nonbank subsidiaries. Branch Bank has offices in North Carolina, South Carolina, Virginia, Maryland, Georgia, West Virginia, Tennessee, Kentucky, Florida, Alabama, Indiana and Washington, D.C. Branch Bank provides a wide range of banking services to individuals and businesses, and offers 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. Branch Bank also markets a wide range of deposit services to individuals and businesses. Branch Bank offers, either directly, or through its 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 and comprehensive wealth advisory services. BB&T FSB and the direct nonbank subsidiaries of BB&T provide a variety of financial services including credit card lending, automobile lending, equipment financing, full-service securities brokerage, payroll processing, asset management and capital markets services.

     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

6


BB&T Corporation and Subsidiaries   
Notes to Consolidated Financial Statements (Unaudited)  First Quarter 2009 

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. Please refer to Note 6 for additional disclosures regarding BB&T’s significant variable interest entities.

          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 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 in the Consolidated Statements of Income. BB&T periodically evaluates these investments for impairment.

     Reclassifications

          In December 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51,” (“SFAS No. 160”). SFAS No. 160 requires that a noncontrolling interest in a subsidiary be accounted for as equity in the consolidated balance sheet and that net income include the amounts for both the parent and the noncontrolling interest, with a separate amount presented in the income statement for the noncontrolling interest share of net income. SFAS No. 160 also expands the disclosure requirements and provides guidance on how to account for changes in the ownership interest of a subsidiary. BB&T adopted the provisions of SFAS No. 160 on January 1, 2009. In accordance with SFAS No. 160, the presentation and disclosure provisions were applied retrospectively for all periods presented. The amounts reclassified in connection with the adoption of SFAS No. 160 were not material to the consolidated financial statements.

7


BB&T Corporation and Subsidiaries   
Notes to Consolidated Financial Statements (Unaudited)  First Quarter 2009 

          In certain other instances, amounts reported in prior periods’ consolidated financial statements have been reclassified to conform to the current presentation. Such reclassifications had no effect on previously reported cash flows, 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 include the determination of the allowance for loan and lease losses and the reserve for unfunded lending commitments, determination of fair value for financial instruments, valuation of goodwill, intangible assets and other purchase accounting related adjustments, benefit plan obligations and expenses, and tax assets, liabilities and expense.

     Changes in Accounting Principles and Effects of New Accounting Pronouncements

          In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations,” (“SFAS No. 141(R)”). SFAS No. 141(R) requires the acquiring entity in a business combination to recognize the full fair value of assets acquired and liabilities assumed in the transaction (whether a full or partial acquisition); establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; requires expensing of most transaction and restructuring costs; and requires the acquirer to disclose to investors and other users all of the information needed to evaluate and understand the nature and financial effect of the business combination. SFAS No. 141(R) was effective for BB&T for business combinations entered into on or after January 1, 2009. BB&T has not entered into any material business combinations since adopting SFAS No. 141(R).

          In April 2009, the FASB issued FASB Staff Position (“FSP”) FAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies,” (“FSP FAS 141(R)-1”). FSP FAS 141(R)-1 amends and clarifies SFAS No. 141(R) to address application issues raised by preparers, auditors, and members of the legal profession on initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. FSP FAS 141(R)-1 was effective for BB&T for business combinations entered into on or after January 1, 2009. BB&T has not entered into any material business combinations since adopting FSP FAS 141(R)-1.

          In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities—an amendment of SFAS No. 133,” (“SFAS No. 161”). SFAS No. 161 requires that an entity provide enhanced disclosures related to derivative and hedging activities. BB&T adopted SFAS No. 161 on January 1, 2009. The additional disclosures required by SFAS No. 161 are included in Note 12 to these consolidated financial statements.

8


BB&T Corporation and Subsidiaries   
Notes to Consolidated Financial Statements (Unaudited)  First Quarter 2009 

          In April 2008, the FASB issued FSP FAS 142-3, “Determination of the Useful Life of Intangible Assets,” (“FSP FAS 142-3”). FSP FAS 142-3 amends the factors an entity should consider in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets under SFAS No. 142, “Goodwill and Other Intangible Assets,” (“SFAS No. 142”). The intent of FSP FAS 142-3 is to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141(R). BB&T adopted FSP FAS 142-3 on January 1, 2009. The adoption of FSP FAS 142-3 was not material to the consolidated financial statements.

          In December 2008, the FASB issued FSP FAS 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets,” (“FSP FAS 132(R)-1”). The objectives of FSP FAS 132(R)-1 are to provide users of the financial statements with more detailed information related to the major categories of plan assets, the inputs and valuation techniques used to measure the fair value of plan assets and the effect of fair value measurements using significant unobservable inputs (Level 3) on changes in plan assets for the period, as well as how investment allocation decisions are made, including the factors that are pertinent to an understanding of investment policies and strategies. The disclosures about plan assets required by FSP FAS 132(R)-1 are effective for BB&T on December 31, 2009.

          In April 2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly,” (“FSP FAS 157-4”). FSP FAS 157-4 provides additional guidance for estimating fair value in accordance with SFAS No. 157, “Fair Value Measurements,” when the volume and level of activity for the asset or liability have significantly decreased. FSP FAS 157-4 also includes guidance on identifying circumstances that indicate a transaction is not orderly. In addition, FSP FAS 157-4 amends SFAS No. 157 to require additional disclosures of valuation inputs and techniques in interim periods and defines the major security types that are required to be disclosed. FSP FAS 157-4 will be effective for BB&T on June 30, 2009. BB&T is currently evaluating the provisions of FSP FAS 157-4.

          In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments,” (“FSP FAS 115-2 and FAS 124-2”). FSP FAS 115-2 and FAS 124-2 amends the other-than-temporary impairment guidance for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. FSP FAS 115-2 and FAS 124-2 will be effective for BB&T on June 30, 2009. BB&T is currently evaluating the provisions of FSP FAS 115-2 and FAS 124-2.

          In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments,” (“FSP FAS 107-1 and APB 28-1”). FSP FAS 107-1 and APB 28-1 amends SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” to require disclosures about fair value of financial instruments in interim periods, as well as in annual periods. The disclosures required by FSP FAS 107-1 and APB 28-1 will be effective for BB&T on June 30, 2009.

9


BB&T Corporation and Subsidiaries   
Notes to Consolidated Financial Statements (Unaudited)  First Quarter 2009 

NOTE 2. Business Combinations and Intangible Assets

     Acquisitions

          During the first three months of 2009, BB&T acquired certain assets of one insurance premium financing business. Approximately $8 million of goodwill and $6 million of identifiable intangibles were recorded in connection with this transaction.

     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, 2009, are as follows:

    Goodwill Activity by Operating Segment
      Residential                           
    Banking  Mortgage    Sales  Specialized  Insurance     Financial    All     
    Network   Banking   Finance   Lending  Services     Services    Other    Total 
    (Dollars in millions)
 
Balance,                                   
January 1, 2009  $ 4,038   $  7  $ 93  $ 98  $ 1,029   $ 192  $ 26  $ 5,483 
 
     Acquisitions    -    -    -    8    -     -    -    8 
     Other                                   
     adjustments    -    -    -    2    (1 )    -    -    1 
Balance,                                   
March 31, 2009  $ 4,038   $  7  $ 93  $ 108  $ 1,028   $ 192  $ 26  $ 5,492 

          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:

    Identifiable Intangible Assets
      As of March 31, 2009        As of December 31, 2008   
       Gross          Net       Gross          Net 
    Carrying  Accumulated   Carrying    Carrying  Accumulated   Carrying 
    Amount  Amortization   Amount    Amount  Amortization   Amount 
    (Dollars in millions)
  Identifiable intangible assets                             
     Core deposit intangibles  $ 457  $ (334 )   $ 123  $ 457   $ (325 )   $ 132 
     Other (1)    723    (325 )    398    719    (309 )    410 
           Totals  $ 1,180  $ (659 )  $ 521  $ 1,176  $ (634 )   $ 542 
  
     (1) Other identifiable intangibles are primarily customer relationship intangibles.           

10


BB&T Corporation and Subsidiaries   
Notes to Consolidated Financial Statements (Unaudited)  First Quarter 2009 

NOTE 3. Securities

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

        March 31, 2009    
    Amortized    Gross Unrealized      Fair 
    Cost    Gains  Losses     Value 
        (Dollars in millions)    
Securities available for sale:                 
     U.S. government-sponsored entities (GSE)  $  960  $ 11  $  -  $ 971 
     Mortgage-backed securities issued by GSE    13,668    298    18    13,948 
     States and political subdivisions    2,416    15    258    2,173 
     Non-agency mortgage-backed securities    1,525    -    492    1,033 
     Equity and other securities    903    2    22    883 
         Total securities available for sale  $  19,472  $ 326  $  790  $ 19,008 
 
        December 31, 2008    
    Amortized    Gross Unrealized      Fair 
    Cost    Gains  Losses     Value 
        (Dollars in millions)    
Securities available for sale:                 
     U.S. government-sponsored entities (GSE)  $  1,320  $ 13  $  -  $ 1,333 
     Mortgage-backed securities issued by GSE    27,117    338    25    27,430 
     States and political subdivisions    2,413    8    344    2,077 
     Non-agency mortgage-backed securities    1,573    -    475    1,098 
     Equity and other securities    937    2    34    905 
         Total securities available for sale  $  33,360  $ 361  $  878  $ 32,843 

          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, 2009        
     Less than 12 months    12 months or more   Total
 
    Fair  Unrealized    Fair  Unrealized     Fair    Unrealized
    Value     Losses    Value     Losses    Value    Losses
            (Dollars in millions)         
Securities:                         
     U.S. government-sponsored entities (GSE)  $ 8   $  -  $  -   $  -  $ 8           $  - 
     Mortgage-backed securities issued by GSE    1,175    3    768    15    1,943    18 
     States and political subdivisions    816    86    476    172    1,292    258 
     Non-agency mortgage-backed securities    206    100    827    392    1,033    492 
     Equity and other securities    165    18    52    4    217    22 
             Total temporarily impaired securities  $ 2,370  $  207  $  2,123   $  583  $ 4,493  $  790 

11


BB&T Corporation and Subsidiaries   
Notes to Consolidated Financial Statements (Unaudited)  First Quarter 2009 

            December 31, 2008        
    Less than 12 months   12 months or more   Total
 
    Fair  Unrealized     Fair  Unrealized     Fair  Unrealized 
    Value     Losses    Value  Losses    Value  Losses
            (Dollars in millions)         
Securities:                         
     Mortgage-backed securities issued by GSE  $ 4,388   $  24  $ 191   $  1  $ 4,579  $  25 
     States and political subdivisions    1,174    174    328    170    1,502    344 
     Non-agency mortgage-backed securities    629    235    469    240    1,098    475 
     Equity and other securities    159    33    20    1    179    34 
          Total temporarily impaired securities  $ 6,350  $  466  $ 1,008  $  412  $ 7,358    $  878 

          BB&T periodically evaluates available-for-sale securities for other-than-temporary impairment. Based on its evaluations during 2009, BB&T recorded $36 million of other-than-temporary impairments related to certain debt and equity securities.

          On March 31, 2009, BB&T also held certain investment securities having continuous unrealized loss positions for more than 12 months. As of March 31, 2009, the unrealized losses on these securities totaled $583 million. Substantially all of these losses were in non-agency mortgage-backed and municipal securities. At March 31, 2009, all of the available-for-sale debt securities were investment grade with the exception of two municipal bonds with the same issuer with a book value of $10 million and eight non-agency mortgage-backed securities, with a book value of $723 million. All of the non-investment grade securities referenced above were initially investment grade and have been downgraded since purchase. The unrealized losses on securities in a continuous unrealized loss position for more than 12 months are the result of changes in market interest rates and liquidity. BB&T has evaluated all of its debt securities for credit impairment. At March 31, 2009, there were no credit losses evident from these securities. Furthermore, BB&T had the ability and intent to retain these securities for a period of time sufficient to recover all unrealized losses.

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

               Factors considered in determining whether a loss is temporary include:

  The financial condition and near–term prospects of the issuer, including any specific events which may influence the operations of the issuer;
   
  BB&T’s intent and ability to retain the investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value; 
   
  The length of the time and the extent to which the market value has been less than cost;
   
  Whether the decline in fair value is attributable to specific conditions, such as conditions in an industry or in a geographic area; 
   
  Whether a debt security has been downgraded by a rating agency; 

12


BB&T Corporation and Subsidiaries   
Notes to Consolidated Financial Statements (Unaudited)  First Quarter 2009 

  Whether the financial condition of the issuer has deteriorated; 
 
  The seniority of the security; 
 
  Whether dividends have been reduced or eliminated, or scheduled interest payments on debt securities have not been made; and 
   
  Any other relevant available information. 

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

          Management reviews the result of the cash flow model, the internal credit analysis and other market observable information in its estimation of possible future credit losses. If management believes that it is not probable that a mortgage-backed security will recover all principal and interest due, the Company records other-than-temporary impairment equal to the entire decline in fair value of the mortgage-backed security.

          Where a mortgage-backed security is not deemed to be credit impaired, management performs additional analysis to assess whether it has the intent and ability to hold each security for a period of time sufficient for a forecasted recovery of fair value. In making this determination, BB&T considers its expected liquidity and capital needs, including its asset/liability management needs, forecasts, strategies and other relevant information.

13


BB&T Corporation and Subsidiaries   
Notes to Consolidated Financial Statements (Unaudited)  First Quarter 2009 

NOTE 4. Loans and Leases

          The following table provides a breakdown of BB&T’s loan portfolio as of March 31, 2009 and December 31, 2008.

    March 31,  December 31, 
    2009  2008
    (Dollars in millions) 
Loans and leases, net of unearned income:         
     Commercial loans and leases  $  50,392  $  50,480 
     Sales finance    6,275    6,354 
     Revolving credit    1,760    1,777 
     Direct retail    15,000    15,454 
     Residential mortgage loans    16,336    17,091 
     Specialized lending    6,678    6,089 
             Total loans and leases held for investment    96,441    97,245 
     Loans held for sale    3,798    1,424 
           Total loans and leases   $  100,239  $  98,669 

          An analysis of the allowance for credit losses for the three months ended March 31, 2009 and 2008 is presented in the following table:

    For the Three Months Ended
    March 31,
    2009   2008   
    (Dollars in millions)  
 
Beginning Balance  $  1,607   $  1,015  
     Provision for credit losses    676     223  
     Loans and leases charged-off    (405 )    (141 ) 
     Recoveries of previous charge-offs    17     16  
            Net loans and leases charged-off    (388 )    (125 ) 
Ending Balance  $  1,895   $  1,113  
 
Allowance for loan and lease losses  $  1,869   $  1,097  
Reserve for unfunded lending commitments    26     16  
Allowance for credit losses  $  1,895   $  1,113  

14


BB&T Corporation and Subsidiaries   
Notes to Consolidated Financial Statements (Unaudited)  First Quarter 2009 

          The following table provides a summary of BB&T’s nonperforming and past due loans as of March 31, 2009 and December 31, 2008.

    March 31,  December 31, 
    2009  2008
       (Dollars in millions)
 
Nonaccrual loans and leases  $ 1,727   $ 1,413 
 
Foreclosed real estate    958    538 
Other foreclosed property    65    79 
     Total foreclosed property    1,023    617 
Total nonperforming assets  $ 2,750   $ 2,030 
 
Loans 90 days or more past due and still accruing (1)  $ 381   $ 431 

(1) Excludes mortgage loans guaranteed by GNMA that BB&T does not have the obligation to repurchase.

          At March 31, 2009, BB&T had $103 million in loans under the terms of troubled debt restructurings. This amount consists of $42 million in revolving credit loans, $36 million in residential mortgage loans, and $25 million in commercial loans. Loan restructurings generally occur when a borrower is experiencing, or is expected to experience, financial difficulties in the near-term. Consequently, a modification that would otherwise not be considered is granted to the borrower. These loans continue to accrue interest as long as the borrower complies with the revised terms and conditions and has demonstrated repayment performance with the modified terms.

15


BB&T Corporation and Subsidiaries   
Notes to Consolidated Financial Statements (Unaudited)  First Quarter 2009 

NOTE 5. Long-Term Debt

          Long-term debt is summarized as follows:

  March 31, December 31, 
  2009 2008
    (Dollars in millions) 
Parent Company         
       6.50% Subordinated Notes Due 2011 (1,3)  $ 648  $ 648 
       4.75% Subordinated Notes Due 2012 (1,3)    497    497 
       5.20% Subordinated Notes Due 2015 (1,3)    993    997 
       4.90% Subordinated Notes Due 2017 (1,3)    368    368 
       5.25% Subordinated Notes Due 2019 (1,3)    600    600 
 
Branch Bank         
       Floating Rate Senior Notes Due 2009 (8)    516    516 
       Floating Rate Subordinated Notes Due 2016 (1,8)    350    350 
       Floating Rate Subordinated Notes Due 2017 (1,8)    296    300 
       4.875% Subordinated Notes Due 2013 (1,3)    237    250 
       5.625% Subordinated Notes Due 2016 (1,3)    394    399 
 
Federal Home Loan Bank Advances to Branch Bank (4)         
       Varying maturities to 2028    9,851    9,838 
 
Junior Subordinated Debt to Unconsolidated Trusts (2)         
       5.85% BB&T Capital Trust I Securities Due 2035    514    514 
       6.75% BB&T Capital Trust II Securities Due 2036    598    598 
       6.82% BB&T Capital Trust IV Securities Due 2077 (5)    600    600 
       8.95% BB&T Capital Trust V Securities Due 2068 (6)    450    450 
       Other Securities (7)    182    182 
 
Other Long-Term Debt    69    66 
 
Fair value hedge-related basis adjustments    792    859 
 
                 Total Long-Term Debt  $ 17,955  $ 18,032 

(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.
(3) These fixed rate notes were swapped to floating rates based on LIBOR. At March 31, 2009, the effective rates paid on these borrowings ranged from 1.44% to 1.97%.
(4) At March 31, 2009, the weighted average cost of these advances was 3.78% and the weighted average maturity was 6.8 years.
(5) These securities are fixed rate through June 12, 2037 and then switch to a floating rate based on LIBOR.
(6) $360 million of this issuance was swapped to a floating rate based on LIBOR. At March 31, 2009 the effective rate on the swapped portion was 4.69%.
(7) These securities were issued by companies acquired by BB&T. At March 31, 2009, the effective rate paid on these borrowings ranged from 3.70% to 10.07%. These securities have varying maturities through 2035.
(8) These floating-rate securities are based on LIBOR and had an effective rate of 1.48% as of March 31, 2009.

16


BB&T Corporation and Subsidiaries   
Notes to Consolidated Financial Statements (Unaudited)  First Quarter 2009 

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 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, 2009 and December 31, 2008, BB&T had issued standby letters of credit totaling $7.0 billion and $5.9 billion, respectively. The carrying amount of the liability for such guarantees was $22 million and $20 million at March 31, 2009 and December 31, 2008, respectively.

          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, swaptions, caps, floors, collars, financial forward and futures contracts, when-issued securities, foreign exchange contracts and options written and purchased. BB&T uses derivatives primarily to manage risk related to securities, business loans, Federal Funds purchased, other overnight funding, long-term debt, mortgage servicing rights, mortgage banking operations and 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 $75.6 billion and $74.2 billion at March 31, 2009 and December 31, 2008, respectively. These instruments were in a net gain position of $486 million and $626 million at March 31, 2009 and December 31, 2008, 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. Branch Bank typically provides financing during the construction and development of the properties; however, permanent financing is generally obtained from independent third parties upon completion of a project. As of March 31, 2009 and December 31, 2008, BB&T had investments of $907 million and $891 million, respectively, related to these projects, which are included in other assets on the Consolidated Balance Sheets. BB&T’s outstanding commitments to fund affordable housing investments totaled $393 million and $412 million at March 31, 2009 and December 31, 2008, respectively, which are included in other liabilities on the Consolidated Balance Sheets. As of March 31, 2009 and December 31, 2008, BB&T had outstanding loan commitments to these funds of $164 million and $161 million, respectively. Of this amount, $86 million and $81 million had been funded at March 31, 2009 and December 31, 2008, respectively, and were included in loans and leases on the Consolidated Balance Sheets. BB&T’s maximum risk

17


BB&T Corporation and Subsidiaries   
Notes to Consolidated Financial Statements (Unaudited)  First Quarter 2009 

exposure related to these investments totaled $1.1 billion at March 31, 2009 and December 31, 2008, respectively.

          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 representations and 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 does not believe that any payments related to these guarantees would materially change the financial condition or results of operations of BB&T.

          BB&T has sold certain mortgage-related loans that contain recourse provisions. These provisions generally require BB&T to reimburse the investor for a share of any loss that is incurred after the disposal of the property. At March 31, 2009 and December 31, 2008, BB&T had $782 million and $822 million, respectively, of residential mortgage loans sold with recourse. In the event of nonperformance by the borrower, BB&T has maximum recourse exposure of approximately $704 million and $741 million as of March 31, 2009 and December 31, 2008, respectively. In addition, BB&T has $3.6 billion and $3.3 billion in loans serviced for others that were covered by loss sharing agreements at March 31, 2009 and December 31, 2008, respectively. As of March 31, 2009 and December 31, 2008, BB&T’s maximum exposure to loss for these loans is approximately $920 million and $818 million, respectively.

          BB&T has investments and future funding commitments to certain venture capital funds. As of March 31, 2009 and December 31, 2008, respectively, BB&T had investments of $176 million and $168 million, net of noncontrolling interest, related to these ventures and future funding commitments of $213 million and $222 million. BB&T’s risk exposure relating to such commitments is generally limited to the amount of investments and future funding commitments made.

          BB&T has made loan commitments to qualified special purpose entities as a nontransferor lender. As of March 31, 2009 and December 31, 2008, BB&T had loan commitments to these entities totaling $400 million and $405 million, respectively. Of this amount, $282 million and $290 million had been funded at March 31, 2009 and December 31, 2008, respectively, and were included in loans and leases on the Consolidated Balance Sheets.

18


BB&T Corporation and Subsidiaries   
Notes to Consolidated Financial Statements (Unaudited)  First Quarter 2009 

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, 2008 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 BB&T’s pension plans for the three month periods ended March 31, 2009 and 2008, respectively:

    Pension Plans
    Qualified   Nonqualified
    For the    For the
    Three Months Ended Three Months Ended 
    March 31,    March 31,
    2009 2008      2009     2008
          (Dollars in millions)     
 
Service cost  $  19   $  17   $  1  $  1 
Interest cost    19     18     2    2 
Estimated return on plan assets    (36 )    (34 )    -    - 
Amortization and other    14     (1 )    1    1 
Net periodic benefit cost  $  16   $  -   $  4  $  4 

          BB&T makes contributions to the qualified pension plan in amounts between the minimum required for funding standard accounts and the maximum amount deductible for federal income tax purposes. A discretionary contribution of $422 million was made to the qualified pension plan in the first quarter of 2009. Management currently has no plans to make any additional contributions to the qualified pension plan in 2009; however, management may elect to make additional contributions during 2009 if deemed appropriate.

19


BB&T Corporation and Subsidiaries   
Notes to Consolidated Financial Statements (Unaudited)  First Quarter 2009 

NOTE 8. Computation of Earnings Per Common Share

          BB&T’s basic and diluted earnings per common share amounts for the three month periods ended March 31, 2009 and 2008, respectively, were calculated as follows:

                 For the Three Months Ended 
    March 31,
    2009    2008 
  (Dollars in millions, except per share data, 
  shares in thousands) 
Basic Earnings Per Common Share:         
             Net income available to common shareholders  $  271  $  428 
     Weighted average number of common shares    559,801    546,214 
     Basic earnings per common share  $  .48  $  .78 
Diluted Earnings Per Common Share:         
             Net income available to common shareholders  $  271  $  428 
     Weighted average number of common shares    559,801    546,214 
             Effect of dilutive outstanding equity-based awards    3,765    2,732 
     Weighted average number of diluted common shares    563,566    548,946 
     Diluted earnings per common share  $  .48  $  .78 

           For the three months ended March 31, 2009 and 2008, the number of anti-dilutive awards was 43.4 million and 32.5 million shares, respectively. In addition, BB&T had a warrant outstanding for 13.9 million shares as of March 31, 2009 that was anti-dilutive.

20


BB&T Corporation and Subsidiaries   
Notes to Consolidated Financial Statements (Unaudited)  First Quarter 2009 

NOTE 9. Comprehensive Income (Loss)

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

 
    As of March 31, 2009  
        Deferred          
  Pre-Tax   Tax Expense     After-Tax
    Amount   (Benefit)     Amount
    (Dollars in millions)  
 
Unrealized net losses on securities available for sale  $ (464 )  $  (175 )   $    (289 ) 
Unrealized net gains on cash flow hedges    90     34       56  
Foreign currency translation adjustment    (11 )    -       (11 ) 
Unrecognized net pension and postretirement costs    (707 )    (268 )      (439 ) 
Total  $ (1,092 )  $  (409 )   $    (683 ) 

    As of December 31, 2008  
        Deferred          
  Pre-Tax   Tax Expense     After-Tax
    Amount   (Benefit)     Amount
    (Dollars in millions)  
 
Unrealized net losses on securities available for sale  $ (517 )  $  (193 )   $    (324 ) 
Unrealized net gains on cash flow hedges    76     28       48  
Foreign currency translation adjustment    (9 )    -       (9 ) 
Unrecognized net pension and postretirement costs    (720 )    (273 )      (447 ) 
Total  $ (1,170 )  $  (438 )   $    (732 ) 

21


BB&T Corporation and Subsidiaries   
Notes to Consolidated Financial Statements (Unaudited)  First Quarter 2009 

NOTE 10. Equity-Based Compensation Plans

          BB&T has options, restricted shares of common stock 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, the Non-Employee Directors’ Stock Option Plan, and plans assumed from acquired entities. All plans generally allow for accelerated vesting of awards 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 equity-based compensation plans with the exception of plans assumed from acquired companies. As of March 31, 2009, the 2004 Plan is the only plan that has awards available for future grants. Please refer to BB&T’s Annual Report on Form 10-K for the year ended December 31, 2008 for further disclosures related to equity-based awards issued by BB&T.

          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 weighted average assumptions used for grants awarded during the first three months of 2009 and 2008.

  2009     2008  
Assumptions:       
             Risk-free interest rate    3.1  %  3.6  %
             Dividend yield    6.0    4.5
             Volatility factor    29.1    15.5
             Expected life    7.1  yrs  6.9  yrs
Fair value of options per share  $  2.59    $ 3.45

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

          The following table details the activity during the first three months of 2009 related to stock options awarded by BB&T:

  For the Three Months Ended 
  March 31, 2009
      Wtd. Avg. 
       Exercise 
  Options   Price
 
Outstanding at beginning of period  41,837,504    $ 36.55 
Granted  2,827,578     16.88 
Exercised  (5,523 )    23.57 
Forfeited or expired  (1,085,570 )    36.88 
Outstanding at end of period  43,573,989     35.27 
 
Exercisable at end of period  30,531,153    $ 36.09 

22


BB&T Corporation and Subsidiaries   
Notes to Consolidated Financial Statements (Unaudited)  First Quarter 2009 

          The following table details the activity during the first three months of 2009 related to restricted shares and restricted share units awarded by BB&T:

  For the Three Months Ended 
  March 31, 2009
      Wtd. Avg. 
      Grant Date 
  Shares/Units   Fair Value 
Nonvested at beginning of period  6,259,349   $  29.15 
Granted  4,969,610     7.43 
Vested  (39,020 )    29.39 
Forfeited  (37,137 )    26.45 
Nonvested at end of period  11,152,802     19.48 

NOTE 11. Fair Value Disclosures

          BB&T carries various assets and liabilities at fair value based on applicable accounting standards. In addition, BB&T has elected to account for prime residential mortgage and commercial mortgage loans held for sale at fair value in accordance with SFAS No. 159, “The Fair Value Option for Financial Assets and Liabilities-including an amendment of FASB Statement No. 115,” (the “Fair Value Option”). SFAS No. 157 established a framework for measuring fair value and defines fair value as the exchange price that would be received on the measurement date to sell an asset or the price paid to transfer a liability in the principal or most advantageous market available to the entity in an orderly transaction between market participants. SFAS No. 157 also established a three level fair value hierarchy that describes the inputs that are used to measure assets and liabilities.

Level 1

Level 1 asset and liability fair values are based on quoted prices in active markets for identical assets and liabilities. Level 1 assets and liabilities include certain equity securities and derivative contracts that are traded in an active market.

Level 2

Level 2 asset and liability fair values are based on observable inputs that include: quoted market prices for similar assets or liabilities; quoted market prices that are not in an active market; or other inputs that are observable in the market and can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include fixed income securities and mortgage-backed securities that are held in the Corporation’s trading and available-for-sale portfolios, loans held for sale, certain derivative contracts and short-term borrowings.

Level 3

Level 3 assets and liabilities are financial instruments whose value is calculated by the use of pricing models and/or discounted cash flow methodologies, as well as financial instruments for which the determination of fair value requires significant management

23


BB&T Corporation and Subsidiaries   
Notes to Consolidated Financial Statements (Unaudited)  First Quarter 2009 

judgment or estimation. These methodologies may result in a significant portion of the fair value being derived from unobservable data. Level 3 assets and liabilities include certain trading securities, non-agency mortgage-backed securities, mortgage servicing rights, venture capital investments and certain derivative contracts.

          Assets and liabilities measured at fair value on a recurring basis, including financial instruments for which BB&T has elected the Fair Value Option are summarized below:

        Fair Value Measurements for Assets and Liabilities 
        Measured on a Recurring Basis
        Quoted Prices in      Significant 
        Active Markets for  Significant Other  Unobservable 
        Identical Assets  Observable Inputs  Inputs 
    3/31/2009    (Level 1)  (Level 2) (Level 3)
        (Dollars in Millions)
Assets:                 
 Trading securities   $  481  $  190  $  287  $  4 
 Securities available for sale    19,008    154    17,819    1,035 
 Loans held for sale (1)    3,783    -    3,783    - 
 Residential mortgage servicing rights    365    -    -    365 
 Derivative assets (2)    1,468    3    1,409    56 
 Venture capital investments (2)    191    -    1    190 
   Total assets   $  25,296  $  347  $  23,299  $  1,650 
 
Liabilities:                 
 Derivative liabilities (2)   $  982  $  3  $  978  $  1 
 Short-term borrowed funds (3)    191    -    191    - 
   Total liabilities   $  1,173  $  3  $  1,169  $  1 
 
        Fair Value Measurements for Assets and Liabilities
        Measured on a Recurring Basis
        Quoted Prices in      Significant 
        Active Markets for  Significant Other  Unobservable 
        Identical Assets  Observable Inputs  Inputs 
    12/31/2008    (Level 1)  (Level 2) (Level 3) 
        (Dollars in Millions)
Assets:                 
 Trading securities     $  376  $  204  $  168  $  4 
 Securities available for sale    32,843    170    31,574    1,099 
 Loans held for sale (1)    1,396    -    1,396    - 
 Residential mortgage servicing rights    370    -    -    370 
 Derivative assets (2)    1,723    4    1,681    38 
 Venture capital investments (2)    183    -    1    182 
     Total assets   $  36,891  $  378  $  34,820  $  1,693 
 
Liabilities:                 
 Derivative liabilities (2)   $  1,097  $  11  $  1,085  $  1 
 Short-term borrowed funds (3)    149    -    149    - 
     Total liabilities   $  1,246  $  11  $  1,234  $  1 

(1) Loans held for sale are residential and commercial mortgage loans that were originated subsequent to December 31, 2007 for which the Company elected the fair value option under SFAS No. 159. Loans originated prior to January 1, 2008 and certain other loans held for sale are still accounted for at the lower of cost or market. There were $15 million and $28 million in loans held for sale that are not accounted for at fair value at March 31, 2009 and December 31, 2008, respectively.
(2) These amounts are reflected in other assets and other liabilities on the Consolidated Balance Sheets.
(3) Short-term borrowed funds reflect securities sold short positions.

24


BB&T Corporation and Subsidiaries   
Notes to Consolidated Financial Statements (Unaudited)  First Quarter 2009 

          The tables below present a reconciliation for the three month periods ended March 31, 2009 and 2008, respectively, for all Level 3 assets and liabilities that are measured at fair value on a recurring basis.

 
    Fair Value Measurements Using Significant Unobservable Inputs  
 
              Mortgage         Venture  
              Servicing   Net   Capital  
    AFS Securities    Trading    Rights   Derivatives   Investments  
    (Dollars in Millions)  
Balance at January 1, 2009       $  1,099    $  4   $  370   $  37   $  182  
 Total realized and unrealized gains or losses:                               
     Included in earnings    -     -     (78 )    41     (1 ) 
     Included in other comprehensive income (loss)    (64 )    -     -     -     -  
 Purchases, issuances and settlements    -     11     73     (23 )    9  
 Transfers in and/or out of Level 3    -     (11 )    -     -     -  
Balance at March 31, 2009  $  1,035   $  4   $  365   $  55   $  190  
 
 
    Fair Value Measurements Using Significant Unobservable Inputs  
 
              Mortgage         Venture  
              Servicing   Net   Capital  
    AFS Securities    Trading    Rights   Derivatives   Investments  
    (Dollars in Millions)  
Balance at January 1, 2008  $  9   $  27   $  472    $  2   $  128  
 Total realized and unrealized gains or losses:                               
       Included in earnings    -     (2 )    (107 )    22     (1 ) 
 Purchases, issuances and settlements    5     (14 )    41     (5 )    14  
 Transfers in and/or out of Level 3    -     3     -     -     -  
Balance at March 31, 2008  $  14   $  14   $  406   $  19   $  141  

          The tables below summarize unrealized and realized gains and losses recorded in earnings for Level 3 assets and liabilities for the three month periods ended March 31, 2009 and 2008, respectively.

  Total Gains and Losses
  AFS Securities     Trading Mortgage Net Derivatives    Venture Capital  
          Servicing Rights       Investments  
  (Dollars in Millions)
Classification of gains and losses                         
(realized/unrealized) included in earnings                       
for the period:                         
     Mortgage banking income  $  -  $  -     $  (78 )  $  41   $  -  
     Other noninterest income     -    -    -     -    (1 ) 
           Total  $  -  $  -     $  (78 )  $  41   $  (1 ) 
 
Net unrealized gains (losses) included                         
 in net income relating to assets and liabilities                       
 still held at March 31, 2009  $  -  $  -   $  (46 )  $  56     $  (1 ) 

25


BB&T Corporation and Subsidiaries   
Notes to Consolidated Financial Statements (Unaudited)  First Quarter 2009 

  Total Gains and Losses
            Mortgage         Venture Capital  
  AFS Securities  Trading     Servicing Rights   Net Derivatives    Investments  
  (Dollars in Millions)
Classification of gains and losses                         
(realized/unrealized) included in                         
earnings for the period:                         
       Mortgage banking income  $    $ -      $  (107 )     $  22   $  -  
       Other noninterest income        (2 )    -     -    (1 ) 
             Total  $     $ (2 )     $  (107 )   $  22  $  (1 ) 
 
Net unrealized gains (losses) included                         
 in net income relating to assets and liabilities                       
 still held at March 31, 2008  $     $ -    $  (84 )  $  19  $  (1 ) 

           The realized and unrealized losses reported for mortgage servicing rights assets are composed of a negative valuation adjustment of $46 million and $84 million plus the realization of expected residential mortgage servicing rights cash flows of $32 million and $23 million for the quarters ended March 31, 2009 and 2008, respectively. BB&T uses various derivative financial instruments to mitigate the income statement effect of changes in fair value due to its quarterly valuation. During the three months ended March 31, 2009 and 2008, respectively, the derivative instruments produced gains of $74 million and $82 million, which offset the negative valuation adjustment recorded.

          The following table details the fair value and unpaid principal balance of loans held for sale at March 31, 2009 and December 31, 2008, that were elected to be carried at fair value.

          Fair Value less           Fair Value less 
        Aggregate  Aggregate         Aggregate  Aggregate 
        Unpaid  Unpaid         Unpaid  Unpaid 
       Fair    Principal  Principal      Fair    Principal  Principal 
      Value    Balance  Balance     Value    Balance  Balance 
    March 31, 2009     December 31, 2008
    (Dollars in millions)
Loans held for sale reported at fair value                           
 Total (1)  $ 3,783  $ 3,716  $  67   $ 1,396     $  1,367     $  29 
 Nonaccrual loans    2    3    (1 )    1    1    - 
 Loans 90 days or more past due                           
 and still accruing interest    4    5    (1 )    3    3    - 

(1) The change in fair value is reflected in mortgage banking income.

          Also, BB&T may be required, from time to time, to measure certain other financial assets at fair value on a nonrecurring basis. Assets measured at fair value on a nonrecurring basis for the quarter ended March 31, 2009 that were still held on the balance sheet at March 31, 2009 totaled $1.7 billion. This amount consists of $758 million for impaired loans and $958 million for foreclosed real estate that were classified as Level 3 assets. During the first quarter of 2009, BB&T recorded $86 million and $17 million, respectively, in losses related to write-downs of the loans and foreclosed real estate based on the appraised value of the underlying collateral.

26


BB&T Corporation and Subsidiaries   
Notes to Consolidated Financial Statements (Unaudited)  First Quarter 2009 

NOTE 12. Derivative Financial Instruments

          BB&T uses a variety of derivative instruments to manage interest rate and foreign exchange risks. These instruments consist of interest-rate swaps, swaptions, caps, floors, collars, financial forward and futures contracts, when-issued securities, foreign exchange contracts and options written and purchased. A derivative is a financial instrument that derives its cash flows, and therefore its value, by reference to an underlying instrument, index or referenced interest rate. There are five areas of risk management: balance sheet management, mortgage banking operations, mortgage servicing rights, net investment in a foreign subsidiary and client-related and other risk management activities.

          The following tables set forth certain information concerning BB&T’s derivative financial instruments and related hedged items at March 31, 2009:

Derivative Classifications and Hedging Relationships
        March 31, 2009           
  Hedged Item or  Notional      Fair Value   
  Transaction  Amount       Gain (1)          Loss (1)    
      (Dollars in millions)
 
 
Derivatives Designated as Cash Flow Hedges                       
 Interest rate contracts                       
   Receive fixed swaps  First forecasted interest receipts on  $  5,000   $    55   $    -  
   commercial loans                     
   Pay fixed swaps  First forecasted interest payments on    3,350      2       (36 ) 
   overnight funding                     
   Pay fixed swaps  First forecasted interest payments on    3,100      4       (47 ) 
   3 month LIBOR funding                     
   Caps  First forecasted interest payments on    904      -       -  
   3 month LIBOR funding                        
   Total    $  12,354   $      61   $    (83 ) 
 
Derivatives Designated as Net Investment Hedges                     
 Foreign exchange contracts    $  73   $    2   $    -  
 
Derivatives Designated as Fair Value Hedges                       
 Interest rate contracts:                       
   Receive fixed swaps  Individual fixed rate long-term debt  $  4,137   $    522   $    -  
   Receive fixed swaps  Long-term CDs    328      13       -  
   Pay fixed swaps  Individual fixed rate securities    354      -       (123 ) 
   available for sale                        
   Total    $  4,819   $      535    $     (123 ) 
 
Derivatives Not Designated as Hedges                       
Client-related and other risk management                       
 Interest rate contracts                       
     Receive fixed swaps    $  10,134   $    674   $    (1 ) 
     Pay fixed swaps      11,141      2       (608 ) 
     Other swaps      7,639      13       (27 ) 
     Option trades      141      -       -  
     Swaptions      580      36       (36 ) 
     Futures contracts      1,407      -       -  
     Collars      162      7       (7 ) 
 Other derivatives                       
     Swaps      51      16       -  
 Foreign exchange contracts      618      7       (9 ) 
Mortgage Banking                       
 Interest rate contracts                       
   Receive fixed swaps      88      2       -  
   Forward commitments      7,656      4       (73 ) 
   Purchased and sold put options      6,307      56       -  
   Swaptions      75      1       -  

27


BB&T Corporation and Subsidiaries   
Notes to Consolidated Financial Statements (Unaudited)  First Quarter 2009 

   TBA/When issued securities    645    1    -  
Mortgage Servicing Rights               
 Interest rate contracts               
   Receive fixed swaps    724    22    (8 ) 
   Pay fixed swaps    109    -    (2 ) 
   Swaptions    910    14    -  
   Futures contracts    3,200    2    (2 ) 
   When issued securities and Forward rate agreements    6,748    13    (3 ) 
   Total  $ 58,335  $  870  $  (776 ) 
Total Derivatives  $ 75,581  $  1,468  $  (982 ) 

(1) Derivatives in a gain position are recorded as other assets and derivatives in a loss position are recorded as other liabilities on the Consolidated Balance Sheets.

The Effect of Derivative Instruments on the Consolidated Statements of Income
for the Period Ended March 31, 2009
(Dollars in millions)
 
    Effective Portion      
    Gain or (Loss)    Location of Amounts     (Gain) or Loss Reclassified      
    Recognized in OCI  Reclassified from AOCI into Income     from AOCI into Income      
 
Derivatives Designated as Cash Flow Hedges                     
Interest rate contracts  $  21    Total interest income   $  (6 )     
        Total interest expense     (1 )     
            $  (7 )     
Derivatives Designated as Net Investment Hedges                     
Foreign exchange contracts    (2 )              
 
 
    Effective Portion     Ineffective Portion
  Location of Amounts   Gain or (Loss)     Location of Amounts   Gain or (Loss) 
   Recognized in Income    Recognized in Income     Recognized in Income   Recognized in Income 
 
Derivatives Designated as Fair Value Hedges                     
Interest rate contracts  Total interest expense  $  38   Other noninterest income   $  5 
Interest rate contracts  Total interest income    (3 )  Other noninterest expense     - 
   Total      $  35         $  5 
 
 
Derivatives Not Designated as Hedges                     
Client-related and other risk management                     
   Interest rate contracts  Other noninterest income  $  11            
   Credit derivatives  Other noninterest income    (3 )           
   Foreign exchange contracts  Other nondeposit fees    1            
  and commissions                 
Mortgage Banking                     
   Interest rate contracts  Mortgage banking income    2            
Mortgage Servicing Rights                     
   Interest rate contracts  Mortgage banking income    74            
   Total      $  85            
 
Note: All amounts for Other Comprehensive Income (OCI) and Accumulated Other Comprehensive Income (AOCI) are stated on a pre-tax basis.

          The majority of the balance sheet management derivatives are designated as cash flow or fair value hedges. BB&T’s floating rate business loans, Federal funds purchased, other overnight funding, institutional and brokered certificates of deposit, other time deposits, medium-term bank notes and long-term debt expose it to variability in cash flows for interest payments. The risk management objective for these assets and liabilities is to hedge the variability in the interest payments. This objective is met by entering into interest rate swaps and

28


BB&T Corporation and Subsidiaries   
Notes to Consolidated Financial Statements (Unaudited)  First Quarter 2009 

interest rate collars and caps. Interest rate collars and caps fix the interest payments when interest rates on the hedged item exceed predetermined rates.

     Cash Flow Hedges

          At March 31, 2009, BB&T had designated notional values of $12.4 billion of derivatives as cash flow hedges. These cash flow hedges reflected a net unrealized loss of $22 million, with instruments in a gain position reflecting a fair value of $61 million recorded in other assets and instruments in a loss position reflecting a fair value of $83 million recorded in other liabilities. For a qualifying cash flow hedge, the portion of changes in the fair value of the derivatives that have been highly effective are recognized in other comprehensive income until the related cash flows from the hedged item are recognized in earnings. The impact on earnings resulting from the ineffectiveness of cash flow hedges was less than $1 million during the first three months of 2009.

          Accumulated other comprehensive income included $74 million in unrecognized after-tax gains on interest rate swaps, caps and floors hedging variable interest payments on business loans at March 31, 2009. These amounts included unrecognized after-tax gains on terminated swaps, caps and collars of $40 million at March 31, 2009. In addition, accumulated other comprehensive income included $22 million in net unrecognized after-tax losses on interest rate swaps, caps and floors hedging variable interest payments on short-term funding at March 31, 2009. These amounts included unrecognized after-tax gains on terminated hedges of $28 million at March 31, 2009. Also included in accumulated other comprehensive income at March 31, 2009 are unrecognized after-tax gains of $3 million on terminated interest rate swaps hedging variable interest payments on long-term debt.

          The estimated net amount in accumulated other comprehensive income at March 31, 2009 that is expected to be reclassified into earnings within the next 12 months is a net after-tax gain of $32 million. The amount reclassified into earnings from other comprehensive income during the first three months of 2009 was a net after-tax gain of $5 million.

          All of BB&T’s cash flow hedges are hedging exposure to variability in future cash flows for forecasted transactions related to the payment of variable interest on then existing financial instruments. The maximum length of time over which BB&T is hedging its exposure to the variability in future cash flows for forecasted transactions related to variable interest payments on existing financial instruments is 7.1 years.

     Fair Value Hedges

          At March 31, 2009, BB&T had designated notional values of $4.8 billion of derivatives as fair value hedges which reflected a net unrealized gain of $412 million, with instruments in a gain position reflecting a fair value of $535 million recorded in other assets and instruments in a loss position reflecting a fair value of $123 million recorded in other liabilities. For a qualifying fair value hedge, changes in the value of the derivatives that have been highly effective as hedges are recognized in current period earnings along with the corresponding changes in the fair value of the designated hedged item attributable to the risk being hedged. The impact on earnings

29


BB&T Corporation and Subsidiaries   
Notes to Consolidated Financial Statements (Unaudited)  First Quarter 2009 

resulting from fair value hedge ineffectiveness was $5 million during the first three months of 2009.

          BB&T also held $58.3 billion in notional value of derivatives not designated as hedges at March 31, 2009. These instruments were in a net gain position with a net estimated fair value of $94 million. Changes in the fair value of these derivatives are reflected in current period earnings.

          Derivatives not designated as a hedge include the notional amount of $14.8 billion that have been entered into as a risk management instrument for mortgage banking operations at March 31, 2009. For mortgage loans originated for sale, BB&T is exposed to changes in market rates and conditions subsequent to the interest rate lock and funding date. BB&T’s risk management strategy related to its interest rate lock commitment derivatives and loans held for sale includes using mortgage-based derivatives such as forward commitments and options in order to mitigate market risk.

          Derivatives not designated as a hedge include the notional amount of $11.7 billion that have been entered into as a risk management instrument for mortgage servicing rights at March 31, 2009. The $74 million gain related to these derivatives is offset by a negative $46 million quarterly valuation adjustment for residential mortgage servicing rights at March 31, 2009.

          BB&T also held derivatives not designated as hedges with notional amounts totaling $31.8 billion at March 31, 2009 as risk management instruments primarily to facilitate transactions on behalf of its clients, as well as activities related to balance sheet management.

          At March 31, 2009, BB&T had designated notional values of $73 million of derivatives as net investment hedges used to hedge the variability in a foreign currency exchange rate.

          Credit risk related to derivatives arises when amounts receivable from a counterparty exceed those payable. Because the notional amount of the instruments only serves as a basis for calculating amounts receivable or payable, the risk of loss with any counterparty is limited to a small fraction of the notional amount. BB&T controls the risk of loss by subjecting counterparties to credit reviews and approvals similar to those used in making loans and other extensions of credit. In addition, certain counterparties are required to provide cash collateral to BB&T when their unsecured loss positions exceed certain negotiated limits. These bilateral limits are typically based on current credit ratings and vary with ratings changes. As of March 31, 2009 and December 31, 2008, respectively, BB&T had received cash collateral of approximately $120 million and $165 million. In addition, BB&T had posted collateral of $126 million and $180 million at March 31, 2009 and December 31, 2008, respectively. In the event that BB&T's credit ratings had been downgraded below investment grade, the amount of collateral posted would have increased by $309 million and $225 million as of March 31, 2009 and December 31, 2008, respectively. As of March 31, 2009, BB&T had approximately $34 million of unsecured positions with derivative dealers. All of the derivative contracts to which BB&T is a party settle monthly, quarterly or semiannually. In the case of contracts with derivative dealers, BB&T only transacts with dealers that are national market makers whose credit ratings are strong. Further, BB&T has netting agreements with the dealers with which it does business. Because of these factors, BB&T’s credit risk exposure related to derivatives contracts at March 31, 2009 and December 31, 2008 was not material.

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BB&T Corporation and Subsidiaries   
Notes to Consolidated Financial Statements (Unaudited)  First Quarter 2009 

NOTE 13. Operating Segments

          BB&T’s operations are divided into seven reportable business segments: the Banking Network, Residential Mortgage Banking, Sales Finance, Specialized Lending, Insurance Services, Financial Services 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 were designed to support these strategic objectives. Unlike financial accounting, there is no comprehensive authoritative body of guidance for management accounting equivalent to generally accepted accounting principles. The performance of the segments is not comparable with BB&T’s consolidated results or with similar information presented by any other financial institution. Additionally, because of the interrelationships of the various segments, the information presented is not indicative of how the segments would perform if they operated as independent entities.

          Please refer to BB&T’s Annual Report on Form 10-K for the year ended December 31, 2008 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:

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BB&T Corporation
Reportable Segments
For the Three Months Ended March 31, 2009 and 2008
 
              Residential                                        
    Banking Network   Mortgage Banking     Sales Finance     Specialized Lending     Insurance Services  
      2009     2008    2009     2008     2009     2008     2009     2008     2009    2008  
    (Dollars in millions)  
 
Net interest income (expense)    $  421  $ 533  $ 279   $ 283   $ 100   $ 97   $ 194     $ 173   $ 2    $ 4  
     Net funds transfer pricing (FTP)      432    253    (192 )    (212 )    (69 )    (68 )    (56 )      (54 )    -      (1 ) 
Net interest income (expense) and FTP      853    786    87     71     31     29     138       119     2      3  
Economic provision for loan and lease      214    110    38     18     14     5     98       80     -      -  
Noninterest income      292    287    174     48     -     -     30       31     246      203  
     Intersegment net referral fees (expense)      119    69    (35 )    (25 )    (3 )    (3 )    -       -     -      -  
Noninterest expense      420    374    23     17     6     6     68       58     192      165  
     Allocated corporate expenses      174    174    3     3     3     3     10       9     12      10  
Income (loss) before income taxes      456    484    162     56     5     12     (8 )      3     44      31  
     Provision (benefit) for income taxes      163    173    58     20     2     4     (3 )      1     17      12  
Segment net income (loss)    $  293  $ 311   $ 104   $ 36   $ 3   $ 8   $ (5 )    $ 2   $ 27    $ 19  
Identifiable segment assets (period end)    63,907  $ 61,397  $ 20,465   $ 19,430   $ 6,062   $ 5,805   $ 7,338     $ 5,601   $ 1,131     $ 1,061  
 
 
 
    Financial Services   Treasury     All Other Segments (1)     Parent/Reconciling Items     Total BB&T Corporation  
      2009     2008    2009     2008     2009     2008     2009     2008     2009    2008  
    (Dollars in millions)  
 
Net interest income (expense)    $ 4  $ 13   $ 203   $ 23   $ 37   $ 44   $ (94 )  $ (153 )  $ 1,146  $ 1,017  
     Net funds transfer pricing (FTP)      23    6    (154 )    21     (47 )    (43 )    63       98     -      -  
Net interest income (expense) and FTP      27    19    49     44     (10 )    1     (31 )      (55 )    1,146    1,017  
Economic provision for loan and lease      2    1    -     -     2     1     308       8     676      223  
Noninterest income      151    156    23     60     11     9     104       (23 )    1,031      771  
     Intersegment net referral fees (expense)      8    15    -     -     -     -     (89 )      (56 )    -      -  
Noninterest expense      132    136    1     3     23     16     204       160     1,069      935  
     Allocated corporate expenses      6    21    1     1     1     1     (210 )    (222 )    -      -  
Income (loss) before income taxes      46    32    70     100     (25 )    (8 )    (318 )      (80 )    432      630  
     Provision (benefit) for income taxes      17    11    6     30     (18 )    (8 )    (128 )      (42 )    114      201  
Segment net income (loss)    $ 29  $ 21  $ 64   $ 70   $ (7 )  $ -   $ (190 )    $ (38 )  $ 318    $ 429  
Identifiable segment assets (period end)    $ 2,676  $ 3,062    $ 27,754   $ 27,284   $ 5,022   $ 4,239   $ 9,070      $ 8,538   $ 143,425      $ 136,417  

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

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BB&T Corporation and Subsidiaries   
Notes to Consolidated Financial Statements (Unaudited)  First Quarter 2009 

NOTE 14. 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. 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 in 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 changes in valuation inputs and assumptions, of its residential mortgage servicing rights. The following is an analysis of the activity in BB&T’s residential mortgage servicing rights for the three months ended March 31, 2009 and 2008:

  Residential Mortgage Servicing Rights
  For the Three Months Ended March 31,
  2009   2008
  (Dollars in millions)
 
Carrying value, January 1,  $  370   $  472  
 Additions    73     41  
 Increase (decrease) in fair value:             
   Due to changes in valuation inputs or assumptions    (46 )    (84 ) 
   Other changes (1)    (32 )    (23 ) 
 
Carrying value, March 31,  $  365   $  406  

(1) Represents the realization of expected net servicing cash flows, expected borrower payments and the passage of time.

          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 Option Adjusted Spread (“OAS”) 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, 2009, the weighted average life was 2.5 years, the prepayment speed was 31.6% and the OAS was 3.1%.

          The unpaid principal balances of BB&T’s total residential mortgage servicing portfolio were $62.9 billion and $59.7 billion at March 31, 2009 and December 31, 2008, respectively. The unpaid principal balances of residential mortgage loans serviced for others consist primarily of agency conforming fixed-rate mortgage loans and totaled $42.4 billion and $40.7 billion at March 31, 2009 and December 31, 2008, respectively. Mortgage loans serviced for others are not included in loans on the accompanying Consolidated Balance Sheets. BB&T recognized servicing fees of $41 million and $32 million during the first three months of 2009 and 2008, respectively, as a component of mortgage banking income.

          At March 31, 2009 and 2008, the approximate weighted average servicing fee was .38% and .36%, respectively, of the outstanding balance of the residential mortgage loans. The

33


BB&T Corporation and Subsidiaries   
Notes to Consolidated Financial Statements (Unaudited)  First Quarter 2009 

weighted average coupon interest rate on the portfolio of mortgage loans serviced for others was 5.92% and 6.00% at March 31, 2009 and 2008, respectively.

          BB&T has sold certain mortgage-related loans that contain recourse provisions. These provisions generally require BB&T to reimburse the investor for a share of any loss that is incurred after the disposal of the property. At March 31, 2009 and December 31, 2008, BB&T had $782 million and $822 million, respectively, of residential mortgage loans sold with recourse. In the event of nonperformance by the borrower, BB&T has maximum recourse exposure of approximately $704 million and $741 million as of March 31, 2009 and December 31, 2008, respectively.

          The Company also has securitized residential mortgage loans and retained the resulting securities available for sale. As of March 31, 2009 the fair value of the securities available for sale still owned by BB&T was $515 million and the remaining unpaid principal balance of the underlying loans totaled $494 million. Based on the performance of the underlying loans and general liquidity of the securities, the Company’s recovery of the cost basis in the securities has not been significantly impacted by changes in interest rates, prepayment speeds or credit losses.

          BB&T also arranges and services commercial real estate mortgages through Grandbridge Real Estate Capital, LLC (“Grandbridge”) the commercial mortgage banking subsidiary of Branch Bank. During the three months ended March 31, 2009 and 2008, Grandbridge originated $700 million and $867 million, respectively, of commercial real estate mortgages, all of which were arranged for third party investors and serviced by Grandbridge. As of March 31, 2009 and December 31, 2008, Grandbridge’s portfolio of commercial real estate mortgages serviced for others totaled $24.0 billion and $23.9 billion, respectively. Commercial real estate mortgage loans serviced for others are not included in loans on the accompanying Consolidated Balance Sheets. Grandbridge had $3.6 billion and $3.3 billion in loans serviced for others that were covered by loss sharing agreements at March 31, 2009 and December 31, 2008, respectively. As of March 31, 2009 and December 31, 2008, Grandbridge’s maximum exposure to loss for these loans is approximately $920 million and $818 million, respectively. Mortgage servicing rights related to commercial mortgage loans totaled $101 million and $98 million at March 31, 2009 and December 31, 2008, respectively.

Back to Index

34


BB&T Corporation and Subsidiaries   
Management’s Discussion and Analysis  First Quarter 2009 

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

Forward-Looking Statements

          This Quarterly 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:

  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; 
  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; 
  competitive pressures among depository and other financial institutions may increase significantly;
  legislative or regulatory changes, including changes in accounting standards, may adversely affect the businesses in which BB&T is engaged;
  local, state or federal taxing authorities may take tax positions that are adverse to BB&T; 
  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 and/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 SEC, the Financial Industry Regulatory Authority, 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, 2008 for additional disclosures with respect to laws and regulations affecting the Company’s businesses.

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BB&T Corporation and Subsidiaries   
Management’s Discussion and Analysis  First Quarter 2009 

          As part of the U.S. federal government’s Financial Stability Plan, on February 25, 2009, the U.S. Department of the Treasury (the “U.S. Treasury”) announced preliminary details regarding the Capital Assistance Program (the “CAP”), which, according to the U.S. Treasury, is designed to restore confidence throughout the financial system that the largest U.S. banking institutions will have a sufficient capital cushion for larger than expected potential future losses, should they occur due to a more severe economic environment, and to support lending to creditworthy borrowers. Pursuant to the CAP, the capital needs of major U.S. banking institutions were evaluated to determine whether an additional capital buffer is warranted and, if warranted, the U.S. Treasury committed to make capital available to eligible institutions if they are unable to raise the necessary capital through private sources.

          To implement the CAP, the Board of Governors of the Federal Reserve System, the Federal Reserve Banks, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency commenced a review of the capital needs of the largest U.S. banking institutions. This review is called the Supervisory Capital Assessment Program (the “SCAP”). The SCAP review process involved a forward-looking capital assessment, or “stress test”, of all domestic bank holding companies with assets of more than $100 billion at December 31, 2008, which includes BB&T. The stress test is intended to estimate credit losses, revenues and reserve needs for each of these bank holding companies in 2009 and 2010 under a macroeconomic scenario that reflected a consensus expectation for the depth and duration of the recession and a more adverse scenario that was designed to reflect a recession that was longer and more severe than consensus expectations.

          On May 7, 2009 the Board of Governors of the Federal Reserve System announced the results of the final SCAP assessments for the 19 largest U.S. bank holding companies, including BB&T. The SCAP assessment for BB&T indicated that BB&T did not need to raise additional capital.

          Information related to the SCAP is available on the website of the Federal Reserve Board at www.federalreserve.gov. Information related to the CAP and the terms of the mandatory convertible preferred stock that can be issued to the U.S. Treasury to raise additional capital is available on the U.S. Treasury’s website related to the Financial Stability Plan at www.financialstability.gov.

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 ("GAAP") and conform to the accounting and reporting guidelines prescribed by bank regulatory authorities. 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, determining fair value of financial instruments, intangible assets and other 

36


BB&T Corporation and Subsidiaries   
Management’s Discussion and Analysis  First Quarter 2009 

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 of the “Notes to Consolidated Financial Statements” in BB&T’s Annual Report on Form 10-K for the year ended December 31, 2008.

          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 BB&T’s Audit Committee 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 equal 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, historical loan and lease migration to charge-off experience, 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 used 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.

     Fair Value of Financial Instruments

          A significant portion of BB&T’s assets and certain liabilities are financial instruments carried at fair value. This includes securities available for sale, trading securities, derivatives, certain loans held for sale, residential mortgage servicing rights, certain short-term borrowings and venture capital investments. At March 31, 2009, the percentage of total assets and total liabilities measured at fair value was 17.6% and less than 1%, respectively. The vast majority of assets and liabilities carried at fair value are based on either quoted market prices or market prices for similar instruments. At March 31, 2009, 6.5% of assets measured at fair value were based on significant unobservable inputs. This represents 1.2% of BB&T’s total assets. See Note 11 “Fair Value Disclosures” in the “Notes to Consolidated Financial Statements” herein for additional disclosures regarding the fair value of financial instruments.

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BB&T Corporation and Subsidiaries   
Management’s Discussion and Analysis  First Quarter 2009 

     Securities

          The fair values for available-for-sale and trading securities are generally based upon quoted market prices or observable market prices for similar instruments. These values take into account recent market activity as well as other market observable data such as interest rate, spread and prepayment information. When market observable data is not available, which generally occurs due to the lack of liquidity for certain trading securities, the valuation of the security is subjective and may involve substantial judgment. BB&T conducts periodic reviews to identify and evaluate each available-for-sale security that has an unrealized loss for other-than-temporary impairment. An unrealized loss exists when the current fair value of an individual security is less than its amortized cost basis. The primary factors BB&T considers in determining whether an impairment is other-than-temporary are the financial condition and near–term prospects of the issuer, including any specific events which may influence the operations of the issuer and BB&T’s intent and ability to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value. As of March 31, 2009, BB&T had approximately $1.0 billion of available-for-sale and trading securities, which is less than 1% of total assets, valued using unobservable inputs. These securities were primarily non-agency mortgage-backed securities.

     Mortgage Servicing Rights

          BB&T has a significant mortgage loan servicing portfolio and related mortgage servicing rights (“MSRs”). BB&T has two classes of MSRs for which it separately manages the economic risk: residential and commercial. Residential MSRs are carried at fair value with changes in fair value recorded as a component of mortgage banking income each period. BB&T uses various derivative instruments to mitigate the income statement effect of changes in fair value, due to changes in valuation inputs and assumptions, of its residential MSRs. MSRs do not trade in an active, open market with readily observable prices. While sales of MSRs do occur, the precise terms and conditions typically are not readily available. Accordingly, BB&T estimates the fair value of residential MSRs using an option adjusted spread (“OAS”) valuation model to project MSR cash flows over multiple interest rate scenarios, which are then discounted at risk-adjusted rates. The OAS model considers portfolio characteristics, contractually specified servicing fees, prepayment assumptions, delinquency rates, late charges, other ancillary revenue, costs to service and other economic factors. BB&T reassesses and periodically adjusts the underlying inputs and assumptions in the OAS model to reflect market conditions and assumptions that a market participant would consider in valuing the MSR asset. When available, fair value estimates and assumptions are compared to observable market data and to recent market activity and actual portfolio experience. Due to the nature of the valuation inputs, MSRs are classified within level 3 of the valuation hierarchy. The value of MSRs 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 MSRs declines due to increasing prepayments attributable to increased mortgage-refinance activity. Conversely, during periods of rising interest rates, the value of MSRs generally increases due to reduced refinance activity. Commercial MSRs are carried at lower of cost or market and amortized over the estimated period that servicing income is expected to be received based on projections of the

38


BB&T Corporation and Subsidiaries   
Management’s Discussion and Analysis  First Quarter 2009 

amount and timing of estimated future cash flows. The amount and timing of servicing asset amortization is updated based on actual results and updated projections.

     Loans Held for Sale

          BB&T originates certain mortgage loans to be sold to investors. The majority of these loans are carried at fair value upon the election of the Fair Value Option. For these loans, the fair value is primarily based on quoted market prices for securities backed by similar types of loans. Changes in the fair value are recorded as a component of mortgage banking income while mortgage loan origination costs for loans held for sale for which the Corporation elected the Fair Value Option are recognized in noninterest expense when incurred. The changes in fair value of these assets are largely driven by changes in interest rates subsequent to loan funding and changes in the fair value of servicing associated with the mortgage loan held for sale. BB&T uses various derivative instruments to mitigate the income statement effect of changes in fair value of the underlying loans.

     Derivatives

          BB&T uses derivatives to manage various financial risks. The fair values of derivative financial instruments are determined based on quoted market prices, dealer quotes and internal pricing models that are primarily sensitive to market observable data. BB&T mitigates the credit risk by subjecting counterparties to credit reviews and approvals similar to those used in making loans and other extensions of credit. In addition, certain counterparties are required to provide collateral to BB&T when their unsecured loss positions exceed certain negotiated limits. The fair value of interest rate lock commitments, which are related to mortgage loan commitments, is based on quoted market prices adjusted for commitments that BB&T does not expect to fund and includes the value attributable to the net servicing fee.

     Venture Capital Investments

          BB&T has venture capital investments that are carried at fair value. Changes in the fair value of these investments are recorded in other noninterest income each period. In many cases there are no observable market values for these investments and therefore management must estimate the fair value based on a comparison of the operating performance of the company to multiples in the marketplace for similar entities. This analysis requires significant judgment and actual values in a sale could differ materially from those estimated. As of March 31, 2009, BB&T had $191 million of venture capital investments, which is less than 1% of total assets.

     Intangible Assets

          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. Purchase acquisitions typically result in

39


BB&T Corporation and Subsidiaries   
Management’s Discussion and Analysis  First Quarter 2009 

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. As a result of the market disruption and the decline in market capitalization, the excess of the fair value over the carrying value of several reporting units continues to narrow. A continuing period of market disruption, or further market deterioration, may result in impairment of goodwill in the future.

     Pension and Postretirement Benefit Obligations

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

     Income Taxes

          The calculation of BB&T’s income tax provision is complex and requires the use of estimates and judgments. As part of the Company’s analysis and implementation of business strategies, consideration is given to the tax laws and regulations that apply to the specific facts and circumstances for any tax position under evaluation. For tax positions that are uncertain in nature, management determines whether the tax position is more likely than not to be sustained upon examination. For tax positions that meet this threshold, management then estimates the amount of the tax benefit to recognize in the financial statements. 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 used 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, 2009 were $143.4 billion, a decrease of $8.6 billion, or 5.7%, from December 31, 2008. The decline was a result of a decrease of $13.8 billion, or 42.1%, in securities available for sale during the first three months of 2009. The decline in the available-for-sale securities portfolio was partially offset by increases in loans held for sale and other assets of $2.4 billion and $4.7 billion, respectively, compared to the balances at December 31, 2008.

          Total client deposits at March 31, 2009, were $84.3 billion, an increase of $717 million, or .9%, from December 31, 2008. Total deposits, which include wholesale deposits sources, totaled $90.6 billion at March 31, 2009, a decrease of $8.0 billion, or 8.1%, compared to December 31, 2008. The decline in total deposits was partially offset by an increase of $2.9 billion in short-term borrowed funds during the first three months of 2009. Total shareholders’ equity increased $101 million compared to December 31, 2008.

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BB&T Corporation and Subsidiaries   
Management’s Discussion and Analysis  First Quarter 2009 

          Consolidated net income for the first quarter of 2009 totaled $318 million, down $111 million, or 25.9%, compared to $429 million earned during the first quarter of 2008. Consolidated net income available to common shareholders for the first quarter of 2009 totaled $271 million, a decrease of $157 million, or 36.7%, compared to $428 million earned during the first quarter of 2008. On a diluted per common share basis, earnings for the three months ended March 31, 2009 were $.48, compared to $.78 for the same period in 2008, a decrease of 38.5%. BB&T’s results of operations for the first quarter of 2009 produced an annualized return on average assets of .86% and an annualized return on average common shareholders’ equity of 8.29% compared to prior year ratios of 1.29% and 13.30%, respectively.

          Included in the results of operations for the first quarter of 2009 and 2008 were a number of notable items. The first quarter of 2009 included $150 million in securities gains, net of $36 million in other-than-temporary impairment charges, $676 million in provision for credit losses and $12 million for merger-related and restructuring charges. The provision for credit losses exceeded net charge-offs by $288 million. The first quarter of 2008 included $43 million in net securities gains, a $12 million charge resulting from a valuation adjustment for bank-owned life insurance, $223 million in provision for credit losses, $17 million of additional income in connection with the implementation of fair value accounting standards and a $47 million increase in income associated with the initial public offering by Visa Inc., including a $14 million reversal of a previously recorded liability.

          During the first quarter of 2009, BB&T continued to experience challenges in housing-related credits. These challenges resulted in increases in both nonperforming assets and charge-offs during the first quarter. Management noted some improvement in past due loans, but still expects further increases in nonperforming assets going forward. The largest concentration of credit issues are in Georgia, Florida and metro Washington, D.C.

          BB&T’s underlying business continued to perform reasonably well during the first quarter of 2009, including record production from mortgage banking operations and solid growth in commercial lending and low-cost client deposits. In addition, BB&T achieved positive operating leverage and improved efficiency compared to the same quarter last year.

          As of March 31, 2009, BB&T’s Tier 1 leverage and tangible capital ratios were 9.4% and 5.7%, respectively. In addition, BB&T’s Tier 1 risk-based capital and total risk-based capital ratios were 12.1% and 17.1%, respectively. Excluding the U.S. Treasury’s preferred stock investment from capital, BB&T’s Tier 1 risk-based capital ratio was 9.3% and the total risk-based capital ratio was 14.3%. BB&T’s capital levels are well above the regulatory standards for well-capitalized banks. As of March 31, 2009, measures of tangible capital were not prescribed by the regulators and, therefore, were considered non-GAAP measures. Please refer to the section titled “Capital Adequacy and Resources” herein for a discussion of how BB&T calculates and uses these measures in the evaluation of the Company.

          Please refer to BB&T’s Annual Report on Form 10-K for the year ended December 31, 2008, 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 2009 are further discussed in the following sections.

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41


BB&T Corporation and Subsidiaries   
Management’s Discussion and Analysis  First Quarter 2009 


ANALYSIS OF FINANCIAL CONDITION

Securities

          Securities available for sale totaled $19.0 billion at March 31, 2009, a decrease of $13.8 billion, or 42.1%, compared with December 31, 2008. The decline in the securities available for sale portfolio was primarily the result of sales of securities in March that were not reinvested until early in the second quarter of 2009. Trading securities totaled $481 million, up $105 million, or 27.9%, compared to the balance at December 31, 2008. BB&T’s trading portfolio may 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 three months of 2009 totaled $31.4 billion, an increase of $8.0 billion, or 34.2%, compared to the average balance during the first three months of 2008. The growth in average securities primarily reflects the deployment in the fourth quarter of 2008 of the capital invested by the U.S. Treasury.

          BB&T sold a total of $12.0 billion in available-for-sale securities during the three month period ended March 31, 2009, which produced securities gains of $186 million. In addition, BB&T recorded $36 million in charges for other-than-temporary impairment related to certain debt and equity securities. During the first quarter of 2009, BB&T took advantage of an opportunity to shorten the duration of its securities portfolio and realize gains in certain mortgage-backed securities issued by U.S. government-sponsored entities. While these mortgage-backed securities have higher yields, they have a longer duration and government efforts to drive down mortgage rates increased the risk of early prepayment. The majority of the proceeds from these sales were reinvested in similar securities with shorter durations early in the second quarter of 2009.

          The annualized fully taxable equivalent (“FTE”) yield on the average securities portfolio for the first quarter of 2009 was 4.73%, which represents a decrease of 45 basis points compared to the annualized yield earned during the first quarter of 2008. The decrease in the annualized FTE yield on the average securities portfolio was primarily the result of the declining interest rate environment during 2008.

          Securities available for sale had net unrealized losses of $464 million and $517 million at March 31, 2009 and December 31, 2008, respectively. On March 31, 2009, BB&T also held certain investment securities having continuous unrealized loss positions for more than 12 months. As of March 31, 2009, the unrealized losses on these securities totaled $583 million. Substantially all of these losses were in non-agency mortgage-backed and municipal securities. At March 31, 2009, all of the available-for-sale debt securities were investment grade with the exception of two municipal bonds with the same issuer with a book value of $10 million and eight non-agency mortgage-backed securities with a book value of $723 million. All of the non-investment grade securities referenced above were initially investment grade and have been downgraded since purchase. The unrealized losses on securities in a continuous unrealized loss position for more than 12 months are the result of changes in market interest rates and liquidity. BB&T has evaluated all of its debt securities for credit impairment. At March 31, 2009, there

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BB&T Corporation and Subsidiaries   
Management’s Discussion and Analysis  First Quarter 2009 

were no credit losses evident from these securities. Furthermore, BB&T had the ability and intent to retain these securities for a period of time sufficient to recover all unrealized losses.

          See Note 3 “Securities” in the “Notes to Consolidated Financial Statements” herein for additional disclosures related to BB&T’s evaluation of securities for other-than-temporary impairment.

Loans and Leases

          BB&T emphasizes commercial lending to small and medium-sized businesses, consumer lending, mortgage lending and specialized 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 quarter of 2009, average total loans were $99.7 billion, an increase of $7.0 billion, or 7.6%, compared to the same period in 2008.

          The following table presents the composition of average loans and leases for the three months ended March 31, 2009 and 2008, respectively:

Table 1
Composition of Average Loans and Leases

      For the Three Months Ended     
    March 31, 2009     March 31, 2008  
    Balance  % of total     Balance  % of total  
      (Dollars in millions)     
 
Commercial loans and leases  $  50,630  50.7  %  $  45,549  49.2  % 
Direct retail loans    15,263  15.3     15,639  16.9  
Sales finance loans    6,342  6.4     6,031  6.5  
Revolving credit loans    1,767  1.8     1,602  1.7  
Mortgage loans    16,759  16.8     17,462  18.8  
Specialized lending loans    6,490  6.5     5,212  5.6  
   Total average loans and leases                 
        held for investment    97,251  97.5     91,495  98.7  
Loans held for sale    2,473  2.5     1,223  1.3  
   Total average loans and leases  $  99,724  100.0  %  $  92,718  100.0  % 

          The fluctuations in the mix of the loan portfolio during the first three months of 2009 compared to the same period of 2008 was primarily due to increased growth in the commercial loan and lease portfolio and the specialized lending portfolio, while the mortgage portfolio and direct retail lending portfolio declined. Average loan growth slowed somewhat during the first quarter of 2009, as demand for direct retail loans continues to be weak. The direct retail portfolio is primarily home equity loans and lines to individuals and has been negatively affected by the downturn in the residential real estate markets. Growth in the commercial loan portfolio continues to be relatively strong and the mix continues to shift from commercial real estate lending into commercial and industrial lending, as management has focused efforts on reducing exposure to real estate related loans. Average mortgage loans held for investment declined as the majority of refinancings and new loans have been conforming mortgage loans that are sold in the

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BB&T Corporation and Subsidiaries   
Management’s Discussion and Analysis  First Quarter 2009 

secondary market. Average specialized lending loans grew 24.5% compared to the first quarter of 2008 as a result of the acquisition of assets of an insurance premium finance business on February 2, 2009, which added approximately $715 million in loans, and growth in equipment finance lending. The growth in equipment finance lending was primarily a result of growth in new account relationships.

          The annualized FTE yield on the total loan portfolio for the first three months of 2009 was 5.42%, which reflects a decrease of 153 basis points compared to the same period in 2008. The decrease in the FTE yield on the loan portfolio was primarily the result of the repricing of loans in response to the decreases in the prime lending rate and other indices, as well as a higher level of nonperforming loans in 2009 as compared to 2008. These declines were partially offset by wider loan spreads.

Other Interest-Earning Assets

          Federal funds sold and securities purchased under resale agreements or similar arrangements totaled $301 million at March 31, 2009, a decrease of $49 million, or 14.0%, compared to December 31, 2008. Interest-bearing deposits with banks, including segregated cash, decreased $336 million, or 29.7%, compared to year-end 2008. These categories of earning assets are subject to large daily fluctuations. The average yield on other interest-earning assets was .74% for the first three months of 2009, compared to 3.41% for the same period in 2008, reflecting the decline in the Federal funds target rate during 2008.

Noninterest-Earning Assets

          BB&T’s other noninterest-earning assets, including premises and equipment, goodwill, core deposit and other intangible assets, residential mortgage servicing rights and noninterest-bearing cash and due from banks, increased $4.3 billion from December 31, 2008 to March 31, 2009. The growth in this category included an increase of $4.9 billion for certain short-term receivables. This increase was offset by a decline of $451 million in cash and due from banks compared to December 31, 2008.

Deposits

          Deposits totaled $90.6 billion at March 31, 2009, a decrease of $8.0 billion, or 8.1%, from December 31, 2008. Client deposits generated through the BB&T banking network are the largest source of funds used to support asset growth. Client deposits totaled $84.3 billion at March 31, 2009, an increase of $717 million, or .9%, from December 31, 2008.

          The following table presents the composition of average deposits for the three months ended March 31, 2009 and 2008:

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BB&T Corporation and Subsidiaries   
Management’s Discussion and Analysis  First Quarter 2009 

Table 2
Composition of Average Deposits

      For the Three Months Ended     
    March 31, 2009     March 31, 2008  
    Balance  % of total     Balance  % of total  
      (Dollars in millions)     
 
Noninterest-bearing deposits  $  13,828  14.7  %  $  12,676  14.6  % 
Interest checking    2,461  2.6     2,301  2.7  
Other client deposits    40,701  43.4     34,851  40.2  
Client certificates of deposit    27,143  28.9     27,061  31.3  
   Total client deposits    84,133  89.6     76,889  88.8  
Other interest-bearing deposits    9,801  10.4     9,694  11.2  
   Total average deposits  $  93,934  100.0  %  $  86,583  100.0  % 

          Average deposits for the first three months of 2009 increased $7.4 billion, or 8.5%, to $93.9 billion compared to the first three months of 2008. Average client deposits grew at a faster pace than overall deposits due to strong growth in low-cost client deposits. The categories of deposits with the highest average rates of growth for the first three months of 2009 compared to the same period of 2008 were other client deposits, which includes money rate savings accounts, investor deposit accounts, savings accounts, individual retirement accounts and other time deposits, which increased $5.9 billion, or 16.8%, and noninterest-bearing deposits which increased $1.2 billion, or 9.1%. In addition, interest checking increased $160 million, or 7.0%, for the first three months of 2009 compared to the same period in 2008.

Borrowings

          While client deposits remain the primary source for funding loan originations and other balance sheet growth, management uses short-term borrowings as a supplementary funding source for balance sheet growth. Short-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, borrowings under the treasury auction facility and short-term bank notes. At March 31, 2009, short-term borrowings totaled $13.7 billion, an increase of $2.9 billion, or 27.2%, compared to December 31, 2008. The increase in these borrowings compared to December 31, 2008 was primarily due to a better pricing of these funding sources as compared to wholesale deposit products.

          The average annualized rate paid on short-term borrowed funds was .59% for the first three months of 2009, a decrease of 291 basis points from the average rate of 3.50% paid during the comparable period of 2008. The lower rate paid on short-term borrowed funds during the first three months of 2009 compared to the same period in 2008 was primarily the result of decreases in the Federal funds target rate.

          BB&T also utilizes long-term debt to provide both funding, and to a lesser extent, regulatory capital. Long-term debt consists of Federal Home Loan Bank advances to Branch

45


BB&T Corporation and Subsidiaries   
Management’s Discussion and Analysis  First Quarter 2009 

Bank, corporate subordinated notes, senior and subordinated notes issued by Branch Bank, and junior subordinated debentures issued by BB&T. Long-term debt totaled $18.0 billion at March 31, 2009, a slight decline from the balance at December 31, 2008.

           On April 27, 2009, BB&T issued $800 million of senior unsecured notes. The notes were issued in two tranches, $400 million 5.70% fixed-rate notes due in 2014 and $400 million 6.85% fixed-rate notes due in 2019. The proceeds from the offering will be used for general corporate purposes, which may include, subject to regulatory approval, the partial funding of the repurchase of BB&T’s Fixed Rate Cumulative Perpetual Preferred Stock, Series C, issued to the U.S. Treasury on November 14, 2008 as part of the Troubled Asset Relief Program – Capital Purchase Program.

          The average annualized rate paid on long-term debt for the first quarter of 2009 was 3.81%, a decrease of 92 basis points compared to the first quarter of 2008. The decline in the cost of long-term debt resulted from decreases in the effective rates paid on the portion of BB&T’s long-term debt that was issued as a floating-rate instrument or swapped to a floating rate.

Shareholders’ Equity

          Total shareholders’ equity at March 31, 2009 was $16.2 billion, an increase of $101 million compared to $16.1 billion at December 31, 2008. BB&T’s book value per common share at March 31, 2009 was $23.29, compared to $23.16 at December 31, 2008. BB&T’s tangible shareholders’ equity available to common shareholders was $7.8 billion at March 31, 2009, up slightly compared to December 31, 2008. BB&T’s tangible book value per common share at March 31, 2009 was $14.00 compared to $13.93 at December 31, 2008.  As of March 31, 2009, measures of tangible capital were not prescribed by the regulators and, therefore, were considered non-GAAP measures. Please refer to the section titled “Capital Adequacy and Resources” herein for a discussion of how BB&T calculates and uses these measures in the evaluation of the Company.

Asset Quality

          BB&T continued to experience credit deterioration during the first quarter of 2009, reflecting the ongoing challenges in housing-related credits with the largest concentration of credit issues occurring in Georgia, Florida and metro Washington, D.C.

          Nonperforming assets, which are composed of foreclosed real estate, repossessions, nonaccrual loans and certain restructured loans, totaled $2.8 billion at March 31, 2009, compared to $2.0 billion at December 31, 2008. The increase in nonperforming assets included an increase of $314 million in nonperforming loans and $406 million in foreclosed assets. The majority of the increase in foreclosed assets was related to securing title over projects in the single family residential, acquisition, development, and construction portfolio. As a percentage of loans and leases plus foreclosed property, nonperforming assets were 2.72% at March 31, 2009 and 2.04% at December 31, 2008. Loans 90 days or more past due and still accruing interest totaled $381 million at March 31, 2009, compared to $431 million at year-end 2008.

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BB&T Corporation and Subsidiaries   
Management’s Discussion and Analysis  First Quarter 2009 

          BB&T’s net charge-offs totaled $388 million for the first quarter of 2009 and amounted to 1.58% of average loans and leases, on an annualized basis, compared to $125 million, or .54%, of average loans and leases, on an annualized basis, in the corresponding period in 2008. The increase in net charge-offs was largely driven by challenges in the residential real estate market, which has resulted in increases in losses in the commercial, direct retail and mortgage portfolios.

          The allowance for credit losses, which totaled $1.9 billion and $1.6 billion at March 31, 2009 and December 31, 2008, 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 amounted to 1.94% of loans and leases held for investment at March 31, 2009, compared to 1.62% at year-end 2008. The growth of $288 million in the allowance for credit losses reflects migrations of loans to higher risk grades, with the most significant increases occurring in the single family residential, acquisition, development, and construction loan portfolio.

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

Table 3 - 1
Asset Quality Analysis
 
    For the Three Months Ended  
    3/31/2009   12/31/2008   9/30/2008   6/30/2008     3/31/2008  
    (Dollars in millions)  
Allowance For Credit Losses                               
   Beginning balance  $ 1,607   $  1,393   $  1,273   $  1,113   $ 1,015  
   Allowance for acquired (sold) loans, net    -     -     (2 )    -     -  
   Provision for credit losses    676     528     364     330     223  
       Charge-offs                               
           Commercial loans and leases    (144 )    (123 )    (87 )    (48 )    (18 ) 
           Direct retail loans    (68 )    (49 )    (41 )    (38 )    (28 ) 
           Sales finance loans    (22 )    (18 )    (15 )    (13 )    (13 ) 
           Revolving credit loans    (30 )    (23 )    (20 )    (18 )    (18 ) 
           Mortgage loans    (49 )    (45 )    (33 )    (13 )    (5 ) 
           Specialized lending    (92 )    (76 )    (61 )    (55 )    (59 )