q20910q.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:

June 30, 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 ¨ 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 July 31, 2009, 648,138,236 shares of the Registrant's common stock, $5 par value, were outstanding.


BB&T CORPORATION
FORM 10-Q
June 30, 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 43 
  Executive Summary  49 
  Analysis of Financial Condition  51 
  Analysis of Results of Operations 65 
  Market Risk Management  75 
  Capital Adequacy and Resources  79 
  Segment Results 82 
            Item 3.  Quantitative and Qualitative Disclosures About 83 
  Market Risk   
            Item 4.  Controls and Procedures 83 
Part II. OTHER INFORMATION   
            Item 1.  Legal Proceedings 83 
            Item 1A. Risk Factors  84 
            Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds 84 
            Item 4.  Submission of Matters to a Vote of Security Holders 84 
            Item 6.  Exhibits  86 
SIGNATURES  86 
EXHIBIT INDEX  87 
CERTIFICATIONS  88 

1


Item 1. Financial Statements

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

      June 30,     December 31,  
      2009     2008  
 
Assets               
     Cash and due from banks  $   1,571   $ 1,639  
     Interest-bearing deposits with banks      416     751  
     Federal funds sold and securities purchased under resale agreements               
           or similar arrangements      247     350  
     Segregated cash due from banks      267     379  
     Trading securities at fair value      522     376  
     Securities available for sale at fair value      31,033     32,843  
     Loans held for sale ($3,974 and $1,396 at fair value at June 30, 2009 and      3,982     1,424  
           December 31, 2008, respectively)               
     Loans and leases      96,352     97,245  
     Allowance for loan and lease losses      (2,110 )    (1,574 ) 
           Loans and leases, net of allowance for loan and lease losses      94,242     95,671  
 
     Premises and equipment      1,577     1,580  
     Goodwill      5,491     5,483  
     Core deposit and other intangible assets      497     542  
     Residential mortgage servicing rights at fair value      615     370  
     Other assets      11,938     10,607  
                           Total assets  $   152,398   $ 152,015  
 
Liabilities and Shareholders' Equity               
     Deposits:               
           Noninterest-bearing deposits  $   16,054   $ 13,649  
           Interest checking      3,181     2,576  
           Other client deposits      43,632     39,413  
           Client certificates of deposit      25,472     27,937  
           Other interest-bearing deposits      13,825     15,038  
                           Total deposits      102,164     98,613  
     Federal funds purchased, securities sold under repurchase agreements               
                   and short-term borrowed funds      12,631     10,788  
     Long-term debt      18,110     18,032  
     Accounts payable and other liabilities      4,701     8,501  
                           Total liabilities      137,606     135,934  
     Commitments and contingencies (Note 6)               
     Shareholders' equity:               
           Preferred stock, liquidation preference of $1,000,000 per share    -     3,082  
           Common stock, $5 par      3,240     2,796  
           Additional paid-in capital      4,828     3,510  
           Retained earnings      7,409     7,381  
           Accumulated other comprehensive loss, net of deferred income               
                   taxes of $(441) at June 30, 2009 and $(438) at December 31, 2008      (730 )    (732 ) 
           Noncontrolling interest      45     44  
                           Total shareholders' equity      14,792     16,081  
                           Total liabilities and shareholders' equity  $   152,398   $ 152,015  
 
     Common shares outstanding      648,068     559,248  
     Common shares authorized      1,000,000     1,000,000  
     Preferred shares outstanding    -     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    For the Six Months Ended 
    June 30,   June 30,
    2009     2008    2009     2008 
Interest Income                     
         Interest and fees on loans and leases  $  1,336   $  1,501  $  2,658   $  3,096 
         Interest and dividends on securities    302     283    657     572 
         Interest on short-term investments    2     6    4     17 
               Total interest income    1,640     1,790    3,319     3,685 
 
Interest Expense                     
         Interest on deposits    320     455    666     1,019 
         Interest on federal funds purchased, securities sold under                     
               repurchase agreements and short-term borrowed funds    17     59    40     147 
         Interest on long-term debt    165     208    329     434 
               Total interest expense    502     722    1,035     1,600 
 
Net Interest Income    1,138     1,068    2,284     2,085 
         Provision for credit losses    701     330    1,377     553 
 
Net Interest Income After Provision for Credit Losses    437     738    907     1,532 
Noninterest Income                     
         Insurance income    281     237    533     449 
         Service charges on deposits    168     172    324     326 
         Investment banking and brokerage fees and commissions    92     88    174     174 
         Mortgage banking income    184     57    372     116 
         Checkcard fees    57     53    106     99 
         Other nondeposit fees and commissions    53     47    106     93 
         Trust and investment advisory revenues    33     38    65     78 
         Bankcard fees and merchant discounts    39     39    74     75 
         Income from bank-owned life insurance    25     25    48     38 
         Other income    42     61    53     97 
         Securities gains (losses), net                     
               Realized gains (losses), net    20     10    206     53 
               Other-than-temporary impairments    (78 )    -    (114 )    - 
               Less non-credit portion recognized in other comprehensive income    77     -    77     - 
                     Total securities gains (losses), net    19     10    169     53 
               Total noninterest income    993     827    2,024     1,598 
Noninterest Expense                     
         Personnel expense    623     565    1,223     1,112 
         Occupancy and equipment expense    128     124    257     247 
         Professional services    64     48    117     85 
         Foreclosed property expense    60     17    96     30 
         Regulatory charges    106     4    139     9 
         Loan processing expenses    34     33    63     64 
         Amortization of intangibles    24     25    49     52 
         Merger-related and restructuring charges, net    (1 )    1    11     6 
         Other expenses    143     142    295     289 
               Total noninterest expense    1,181     959    2,250     1,894 
Earnings                     
         Income before income taxes    249     606    681     1,236 
         Provision for income taxes    41     175    155     376 
               Net income    208     431    526     860 
         Noncontrolling interest    4     3    10     4 
         Dividends and accretion on preferred stock    83     -    124     - 
               Net income available to common shareholders  $  121   $  428  $  392   $  856 
 
Earnings Per Common Share                     
               Basic  $  .20   $  .78  $  .67   $  1.57 
               Diluted  $  .20   $  .78  $  .67   $  1.56 
         Cash dividends paid  $  .47   $  .46  $  .94   $  .92 
 
Weighted Average Shares Outstanding                     
               Basic    602,726     546,628    581,382     546,421 
               Diluted    608,797     549,758    586,256     549,344 

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 Six Months Ended June 30, 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  -      -     -    -    856     -       4       860  
           Unrealized holding gains (losses) arising during the period                                                         
               on securities available for sale, net of tax of $(128)  -      -     -    -  -       (213 )    -       (213 ) 
           Reclassification adjustment for losses (gains)                                                         
               on securities available for sale included in net                                                         
               income, net of tax of $(20)      -          -         -      -    -       (33 )          -       (33 ) 
       Change in unrealized gains (losses) on securities, net of tax  -      -     -    -  -       (246 )    -       (246 ) 
       Change in unrecognized gains (losses) on cash flow hedges,                                                         
           net of tax of $14  -      -     -    -  -       13     -       13  
       Change in pension and postretirement liability, net of tax    -          -         -      -    -       (2 )        -       (2 ) 
   Total comprehensive income (loss)    -          -        -      -    856       (235 )      4       625  
 
   Common stock issued:                                                         
       In connection with stock option exercises                                                         
           and other employee benefits, net of cancellations    959      -       5      21  -     -     -       26  
       In connection with dividend reinvestment plan    14              -    -  -     -     -     -  
   Cash dividends declared on common stock, $.93 per share  -      -     -    -    (509 )    -     -       (509 ) 
   Cumulative effect of adoption of EITF 06-4 and EITF 06-10  -      -     -    -    (8 )    -     -       (8 ) 
   Equity-based compensation expense  -      -     -      38  -     -     -       38  
   Other, net     -        -       -      -    -            -           2       2  
Balance, June 30, 2008    546,928    $    -     2,735  $    3,146  $ 7,258     $ (339 )  $    38   $    12,838  
 
 
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  -      -     -    -    516     -       10       526  
           Unrealized holding gains (losses) arising during the period                                                         
               on securities available for sale, net of tax of $(104)  -      -     -    -  -       (165 )    -       (165 ) 
           Reclassification adjustment for losses (gains)                                                         
               on securities available for sale included in net                                                         
               income, net of tax of $64    -         -        -      -    -        105       -        105  
 
       Change in unrealized gains (losses) on securities, net of tax  -      -     -    -  -       (60 )    -       (60 ) 
 
       Change in unrecognized gains (losses) on cash flow hedges,                                                         
           net of tax of $28  -      -     -    -  -       44     -       44  
 
       Change in pension and postretirement liability, net of tax of $11  -      -     -    -  -       17     -       17  
 
       Foreign currency translation adjustment, net of tax of $(2)    -         -       -      -    -        1       -        1  
 
   Total comprehensive income (loss)     -         -       -      -     516        2        10        528  
 
   Common stock issued:                                                         
       In purchase acquisitions    96      -       1      1  -     -     -       2  
       In connection with stock option exercises                                                         
           and other employee benefits, net of cancellations    100      -     -    -  -     -     -     -  
       In connection with dividend reinvestment plan    2,374      -       12      38  -     -     -       50  
       In common stock offering    86,250      -       431      1,242  -     -     -       1,673  
   Redemption of preferred stock  -      (3,134 )    -    -  -     -     -       (3,134 ) 
   Cash dividends declared on common stock, $.62 per share  -      -     -    -    (363 )    -     -       (363 ) 
   Cash dividends accrued on preferred stock  -      -     -    -    (73 )    -     -       (73 ) 
   Equity-based compensation expense  -      -     -      36  -     -     -       36  
   Other, net     -        52       -      1     (52 )      -        (9 )      (8 ) 
Balance, June 30, 2009    648,068    $    -   $    3,240  $    4,828  $ 7,409     $ (730 )  $    45   $    14,792  

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 Six Months Ended  
    June 30,  
    2009     2008  
Cash Flows From Operating Activities:             
     Net income  $  526   $  860  
     Adjustments to reconcile net income to net cash (used in) provided by             
           operating activities:             
                 Provision for credit losses    1,377     553  
                 Depreciation    109     93  
                 Amortization of intangibles    49     52  
                 Equity-based compensation    36     38  
                 Discount accretion and premium amortization on long-term debt, net    33     51  
                 Gain on sales of securities, net    (169 )    (53 ) 
                 Net (increase) decrease in trading securities    (146 )    495  
                 Net increase in loans held for sale    (2,534 )    (687 ) 
                 Net increase in other assets    (1,212 )    (568 ) 
                 Net (decrease) increase in accounts payable and other liabilities    (3,576 )    268  
                 Decrease in segregated cash due from banks    112     12  
                 Other, net    58     (59 ) 
                          Net cash (used in) provided by operating activities    (5,337 )    1,055  
 
Cash Flows From Investing Activities:             
     Proceeds from sales of securities available for sale    13,628     5,236  
     Proceeds from maturities, calls and paydowns of securities available for sale    4,492     3,089  
     Purchases of securities available for sale    (16,350 )    (8,910 ) 
     Originations and purchases of loans and leases, net of principal collected    (117 )    (3,832 ) 
     Net cash paid in business combinations    (700 )    (146 ) 
     Proceeds from disposals of premises and equipment    3     2  
     Purchases of premises and equipment    (82 )    (107 ) 
     Proceeds from sales of foreclosed property or other real estate held for sale    151     61  
     Other, net    -     95  
                 Net cash provided by (used in) investing activities    1,025     (4,512 ) 
 
Cash Flows From Financing Activities:             
     Net increase in deposits    3,565     1,448  
     Net increase in federal funds purchased, securities sold under repurchase agreements             
             and short-term borrowed funds    1,843     170  
     Proceeds from issuance of long-term debt    1,111     3,385  
     Repayment of long-term debt    (684 )    (1,539 ) 
     Net proceeds from common stock issued    1,723     26  
     Retirement of preferred stock    (3,134 )    -  
     Cash dividends paid on common stock    (526 )    (503 ) 
     Cash dividends paid on preferred stock    (93 )    -  
     Other, net    1     (4 ) 
                 Net cash provided by financing activities    3,806     2,983  
 
Net Decrease in Cash and Cash Equivalents    (506 )    (474 ) 
Cash and Cash Equivalents at Beginning of Period    2,740     3,117  
Cash and Cash Equivalents at End of Period  $  2,234   $  2,643  
 
 
Supplemental Disclosure of Cash Flow Information:             
 
     Cash paid during the period for:             
           Interest  $  1,032   $  1,650  
           Income taxes    393     528  
     Noncash investing and financing activities:             
           Transfers of loans to foreclosed property    831     160  

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

Back to Index

5


BB&T Corporation and Subsidiaries   
Notes to Consolidated Financial Statements (Unaudited)  Second 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 fair statements of BB&T’s financial position at June 30, 2009 and December 31, 2008, BB&T’s results of operations for the three and six month periods ended June 30, 2009 and June 30, 2008, and BB&T’s changes in shareholders’ equity and cash flows for the six month periods ended June 30, 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. Management has evaluated the effect subsequent events would have on the consolidated financial statements through the time these consolidated financial statements were filed with the Securities and Exchange Commission on August 10, 2009.

          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 North Carolina chartered commercial 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.

6


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

     Principles of Consolidation

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

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

          BB&T has variable interests in certain entities that were not required to be consolidated, including affordable housing partnership interests, historic tax credit partnerships, other partnership interests and trusts that have issued capital securities. 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 the 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

7


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

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.

          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

8


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

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.

          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 will be 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 was effective for BB&T on April 1, 2009. The additional disclosures required by FSP FAS 157-4 are included in Note 11 to these consolidated financial statements.

          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 was effective for BB&T on April 1, 2009. BB&T did not have any cumulative effect adjustment related to the adoption of FSP FAS 115-2 and FAS 124-2. The additional disclosures required by the standard are included in the consolidated statements of income and in Note 3 to these consolidated financial statements.

9


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

          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 additional disclosures required by FSP FAS 107-1 and APB 28-1 are included in Note 11 to these consolidated financial statements.

          In May 2009, the FASB issued SFAS No. 165, “Subsequent Events,” (“SFAS No. 165”). SFAS No. 165 provides guidance on management’s assessment of subsequent events that occur after the balance sheet date through the date that the financial statements are issued. The guidance contained in SFAS No. 165 is generally consistent with current accounting practice. In addition, SFAS No. 165 requires certain additional disclosures. SFAS No. 165 was effective for periods ending after June 15, 2009 and had no impact on BB&T’s consolidated financial statements.

          In June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets- an amendment of FASB Statement No. 140,” (“SFAS No. 166”). The objective of SFAS No. 166 is to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement in transferred financial assets. SFAS No. 166 is effective for financial asset transfers occurring after December 31, 2009. BB&T is currently evaluating the provisions of SFAS No. 166.

          In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R),” (“SFAS No. 167”). The objective of this Statement is to improve financial reporting by enterprises involved with variable interest entities and to provide more relevant and reliable information to users of financial statements. SFAS No. 167 is effective as of January 1, 2010. BB&T is currently evaluating the provisions of SFAS No. 167.

          In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162,” (“SFAS No. 168”). SFAS No. 168 states that the FASB Accounting Standards Codification TM will become the source of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. SFAS No. 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009.

10


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

NOTE 2. Business Combinations and Intangible Assets

     Acquisitions

          During the first six months of 2009, BB&T acquired certain assets of an 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 six months ended June 30, 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 )    -    -    2    -    -    -    - 
Balance,                                   
June 30, 2009  $ 4,036    $  7   $  93  $  108  $  1,029  $  192  $  26  $ 5,491 

          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 June 30, 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  $  (341 )  $  116  $ 457  $  (325 )  $  132 
     Other (1)    723    (342 )    381    719    (309 )    410 
          Totals  $ 1,180  $  (683 )  $  497  $ 1,176  $  (634 )  $  542 
 
     (1) Other identifiable intangibles are primarily customer relationship intangibles.

11


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

NOTE 3. Securities

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

    June 30, 2009
    Amortized    Gross Unrealized      Fair 
    Cost    Gains  Losses     Value 
    (Dollars in millions)
Securities available for sale:                 
     U.S. government-sponsored entities (GSE)  $  1,374  $ 6  $  1  $ 1,379 
     Mortgage-backed securities issued by GSE    25,763    236    304    25,695 
     States and political subdivisions    2,286    18    170    2,134 
     Non-agency mortgage-backed securities    1,451    -    403    1,048 
     Equity and other securities    776    9    8    777 
         Total securities available for sale  $  31,650  $ 269  $  886  $ 31,033 
 
        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 

          At June 30, 2009 and December 31, 2008, securities with carrying value of approximately $15.0 billion and $16.1 billion were pledged to secure municipal deposits, securities sold under agreements to repurchase, other borrowings, and for other purposes as required or permitted by law.

          BB&T had certain investments in marketable debt securities and mortgage-backed securities issued by Fannie Mae and Freddie Mac that exceeded ten percent of shareholders’ equity at June 30, 2009. The Fannie Mae investments had total amortized cost and market values of $18.4 billion at June 30, 2009, while Freddie Mac investments had total amortized cost and market values of $7.6 billion.

          At June 30, 2009, non-agency mortgage-backed securities primarily consisted of residential mortgage-backed securities. Equity securities include investments in stock issued by the FHLB of Atlanta. At June 30, 2009 and December 31, 2008, BB&T held $480 million and $479 million, respectively, of investments in FHLB stock.

          Proceeds from sales of securities available for sale during the first six months of 2009 and 2008 were $13.6 billion and $5.2 billion, respectively. Gross gains of $206 million were realized in 2009 and $62 million of gross gains and $9 million of gross losses were realized in 2008.

          The amortized cost and estimated fair value of the debt securities portfolio at June 30, 2009, by contractual maturity, are shown in the accompanying table. The expected life of mortgage-backed securities will differ from contractual maturities because borrowers may have

12


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

the right to call or prepay the underlying mortgage loans with or without call or prepayment penalties. For purposes of the maturity table, mortgage-backed securities, which are not due at a single maturity date, have been allocated over maturity groupings based on the weighted average contractual maturities of underlying collateral.

    June 30, 2009
    Available for Sale 
    Amortized   Fair
    Cost   Value
    (Dollars in millions) 
Debt Securities:         
     Due in one year or less  $  206  $  208 
     Due after one year through five years    463    469 
     Due after five years through ten years    2,714    2,744 
     Due after ten years    27,596    26,939 
           Total debt securities    30,979    30,360 
           Total equity securities    671    673 
                Total securities  $  31,650  $  31,033 

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

  June 30, 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)  $ 977  $  1  $  -   $  -  $  977  $  1 
     Mortgage-backed securities issued by GSE    16,821    294    678    10    17,499    304 
     States and political subdivisions    372    29    867    141    1,239    170 
     Non-agency mortgage-backed securities    202    88    846    315    1,048    403 
     Equity and other securities    37    7    44    1    81    8 
           Total temporarily impaired securities  $ 18,409   $  419  $  2,435   $  467  $  20,844  $  886 
 
  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 the first quarter of 2009, BB&T recorded $36 million of other-than-temporary impairments related to certain debt and equity securities. During the second quarter of 2009, the Company also recorded total other-than-temporary impairment of $1 million related to two non-agency mortgage-backed securities, which represents the estimated credit losses evident in these securities. The total unrealized loss related

13


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

to these two non-agency mortgage-backed securities was $78 million, of which $77 million was recognized as a component of other comprehensive income.

          On June 30, 2009, BB&T held certain investment securities having continuous unrealized loss positions for more than 12 months. As of June 30, 2009, the unrealized losses on these securities totaled $467 million. Substantially all of these losses were in non-agency mortgage-backed and municipal securities. At June 30, 2009, all of the available-for-sale debt securities were investment grade with the exception of three municipal bonds with a book value of $11 million and ten non-agency mortgage-backed securities, with a book value of $793 million. All of the non-investment grade securities referenced above were initially investment grade and have been downgraded since purchase. BB&T evaluated all of its debt securities for credit impairment. During the second quarter of 2009, BB&T determined that two of the non-agency mortgage-backed securities, with a book value of $228 million, had credit losses evident and recorded other-than-temporary impairment. As of June 30, 2009, BB&T’s evaluation of the other securities with continuous unrealized losses indicated that there were no credit losses evident. Furthermore, BB&T does not intend to sell and it is more likely than not that the Company will not be required to sell these debt securities before the anticipated recovery of the amortized cost basis. See the “Summary Analysis Supporting Conclusions” section below for further details regarding BB&T’s below investment grade securities with significant 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 that may influence the operations of the issuer; 
   
  BB&T’s intent to sell and whether it is more likely than not that the Company will be required to sell these debt securities before the anticipated recovery of the amortized cost basis;
   
  The length of the time and the extent to which the market value has been less than cost; 
   
  Whether the decline in fair value is attributable to specific conditions, such as conditions in an industry or in a geographic area; 
   
  Whether a debt security has been downgraded by a rating agency; 
 
  Whether the financial condition of the issuer has deteriorated; 
 
  The seniority of the security; 
 
  Whether dividends have been reduced or eliminated, or scheduled interest payments on debt securities have not been made; and 
   
  Any other relevant available information. 

14


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

          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, internal credit analysis and other market observable information in its estimation of possible future credit losses. If management does not expect to recover the entire amortized cost basis of a mortgage-backed security, the Company records other-than-temporary impairment equal to the amount of expected credit losses in the mortgage-backed security.

          Where a mortgage-backed security is not deemed to be credit impaired, management performs additional analysis to assess whether it intends to sell and it is more likely than not that the Company will be required to sell these debt securities before anticipated recovery of the amortized cost basis. In making this determination, BB&T considers its expected liquidity and capital needs, including its asset/liability management needs, forecasts, strategies and other relevant information.

Summary Analysis Supporting Conclusions

          In all instances, the senior holders of these securities have excess value through subordination inherent in the structure and the cash flow valuation was higher than amortized cost. The following table presents a detailed analysis of non-investment grade securities with significant unrealized losses. The expected loss represents the remaining current losses plus estimated future losses on the underlying mortgage pools. The subordination coverage of expected losses represents the amount of losses the subordinate security holders are obligated to absorb (original subordination less losses incurred to date) divided by the expected losses.

Non-investment grade securities with significant unrealized losses
As of June 30, 2009
(Dollars in millions)
                          Subordination      
    Amortized    Fair    Unrealized     Credit Rating    Expected   Coverage of     Cash Flow 
Security    Cost    Value    Loss   Moody’s  S&P  Fitch  Loss   Expected Loss     Valuation 
RMBS 1  $  66  $ 39  $ (27 )    CCC  BB  1.9%   2.0x   $  75 
RMBS 2    135    79    (56 )    CCC  BB  1.9%   2.0x     154 
RMBS 3    66    21    (45 )  Caa1  B  B  4.7%   1.2x     75 
RMBS 4    67    50    (17 )  Ba2  AAA  BBB  1.3%   3.3x     77 
RMBS 5    125    101    (24 )  Caa2  B+    11.8%   1.2x     139 
RMBS 6    52    34    (18 )  B3  A    6.9%   1.0x     59 
RMBS 7 *    168    111    (57 )  Caa1  A    6.9%   1.0x     192 
RMBS 8 *    60    40    (20 )  Caa2    CC  8.2%   0.7x   68 

* These non-agency mortgage backed securities were deemed other-than-temporarily impaired at June 30, 2009 and a $1 million impairment related to the expected credit losses was recorded.


15


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

NOTE 4. Loans and Leases

          The following table provides a breakdown of BB&T’s loan portfolio as of June 30, 2009 and December 31, 2008:

    June 30,  December 31,
    2009  2008
    (Dollars in millions) 
Loans and leases, net of unearned income:         
     Commercial loans and leases   $  50,364  $  50,480 
     Sales finance    6,536    6,354 
     Revolving credit    1,843    1,777 
     Direct retail    14,577    15,454 
     Residential mortgage loans    15,639    17,091 
     Specialized lending    7,393    6,089 
             Total loans and leases held for investment    96,352    97,245 
     Loans held for sale    3,982    1,424 
           Total loans and leases  $  100,334  $  98,669 

          An analysis of the allowance for credit losses for the six months ended June 30, 2009 and 2008 is presented in the following table:

    For the Six Months Ended  
    June 30,  
    2009   2008  
    (Dollars in millions)  
 
Beginning Balance   $  1,607   $  1,015  
     Provision for credit losses    1,377     553  
     Loans and leases charged-off    (877 )    (326 ) 
     Recoveries of previous charge-offs    38     31  
           Net loans and leases charged-off    (839 )    (295 ) 
Ending Balance   $  2,145   $  1,273  
 
Allowance for loan and lease losses   $  2,110   $  1,257  
Reserve for unfunded lending commitments    35     16  
Allowance for credit losses   $  2,145   $  1,273  

16


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

          The following table provides a summary of BB&T’s nonperforming and past due loans as of June 30, 2009 and December 31, 2008:

    June 30,  December 31, 
    2009  2008
    (Dollars in millions)
 
Nonaccrual loans and leases  $  2,091   $  1,413 
 
Foreclosed real estate    1,201    538 
Other foreclosed property    48    79 
     Total foreclosed property    1,249    617 
Total nonperforming assets  $  3,340   $  2,030 
 
Loans 90 days or more past due and still accruing (1)  $  329   $  431 

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

          At June 30, 2009, BB&T had $123 million in loans under the terms of troubled debt restructurings. This amount consists of $54 million in residential mortgage loans, $47 million in revolving credit loans, $17 million in commercial loans and $5 million in direct retail 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 may 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.

17


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

NOTE 5. Long-Term Debt

                 Long-term debt is summarized as follows:
    June 30,  December 31, 
    2009  2008 
    (Dollars in millions)
Parent Company         
       5.70% Senior Notes Due 2014  $  509  $  - 
       6.85% Senior Notes Due 2019    538    - 
       6.50% Subordinated Notes Due 2011 (1)    609    648 
       4.75% Subordinated Notes Due 2012 (1,3)    489    497 
       5.20% Subordinated Notes Due 2015 (1,3)    932    997 
       4.90% Subordinated Notes Due 2017 (1,3)    335    368 
       5.25% Subordinated Notes Due 2019 (1,3)    586    600 
 
Branch Bank         
       Floating Rate Senior Notes Due 2009 (8)    40    516 
       Floating Rate Subordinated Notes Due 2016 (1,8)    350    350 
       Floating Rate Subordinated Notes Due 2017 (1,8)    261    300 
       4.875% Subordinated Notes Due 2013 (1,3)    222    250 
       5.625% Subordinated Notes Due 2016 (1,3)    386    399 
 
Federal Home Loan Bank Advances to Branch Bank (4)         
       Varying maturities to 2028    9,864    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 2063 (6)    450    450 
       Other Securities (7)    182    182 
 
Other Long-Term Debt    73    66 
 
Fair value hedge-related basis adjustments    572    859 
 
 
                 Total Long-Term Debt  $  18,110  $  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 June 30, 2009, the effective rates paid on these borrowings ranged from .75% to 1.74%. 
(4)  At June 30, 2009, the weighted average cost of these advances was 3.62% and the weighted average maturity was 6.6 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 June 30, 2009 the effective rate on the swapped portion was 4.00%.
(7)  These securities were issued by companies acquired by BB&T. At June 30, 2009, the effective rate paid on these borrowings ranged from 3.02% 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 .96% as of June 30, 2009. 

18


BB&T Corporation and Subsidiaries   
Notes to Consolidated Financial Statements (Unaudited)  Second 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 June 30, 2009 and December 31, 2008, BB&T had issued standby letters of credit totaling $7.6 billion and $5.9 billion, respectively. The carrying amount of the liability for such guarantees was $29 million and $20 million at June 30, 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 $84.6 billion and $74.2 billion at June 30, 2009 and December 31, 2008, respectively. These instruments were in a net gain position of $355 million and $626 million at June 30, 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 June 30, 2009 and December 31, 2008, BB&T had investments of $940 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 $402 million and $412 million at June 30, 2009 and December 31, 2008, respectively, which are included in other liabilities on the Consolidated Balance Sheets. As of June 30, 2009 and December 31, 2008, BB&T had outstanding loan commitments to these funds of $166 million and $161 million, respectively. Of this amount, $92 million and $81 million had been funded at June 30, 2009 and December 31, 2008, respectively, and were included in loans and leases on the Consolidated Balance Sheets. BB&T’s maximum risk exposure related to these investments totaled $1.1 billion at June 30, 2009 and December 31, 2008, respectively.

19


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

          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 June 30, 2009 and December 31, 2008, BB&T had $2.2 billion and $2.5 billion, respectively, of residential mortgage loans sold with recourse. In the event of nonperformance by the borrower, BB&T has maximum recourse exposure of approximately $670 million and $745 million as of June 30, 2009 and December 31, 2008, respectively. In addition, BB&T has $3.9 billion and $3.3 billion in loans serviced for others that were covered by loss sharing agreements at June 30, 2009 and December 31, 2008, respectively. As of June 30, 2009 and December 31, 2008, BB&T’s maximum exposure to loss for these loans is approximately $993 million and $818 million, respectively. At June 30, 2009, BB&T has recorded $15 million of reserves related to these recourse exposures.

          BB&T has investments and future funding commitments to certain venture capital funds. As of June 30, 2009 and December 31, 2008, respectively, BB&T had investments of $186 million and $168 million, net of noncontrolling interest, related to these ventures and future funding commitments of $210 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 June 30, 2009 and December 31, 2008, BB&T had loan commitments to these entities totaling $333 million and $405 million, respectively. Of this amount, $248 million and $290 million had been funded at June 30, 2009 and December 31, 2008, respectively, and were included in loans and leases on the Consolidated Balance Sheets.

20


BB&T Corporation and Subsidiaries   
Notes to Consolidated Financial Statements (Unaudited)  Second 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 and six month periods ended June 30, 2009 and 2008, respectively:

    Pension Plans
    Qualified     Nonqualified
    For the     For the
    Three Months Ended   Three Months Ended
    June 30,     June 30,
    2009   2008      2009      2008 
    (Dollars in millions)
 
Service cost  $  19   $  18   $  1  $  1 
Interest cost    19     18     2    2 
Estimated return on plan assets    (35 )    (34 )    -    - 
Amortization and other    14     (1 )    -    - 
Net periodic benefit cost  $  17   $  1   $  3  $  3 
 
    Pension Plans
    Qualified                 Nonqualified
    For the     For the
    Six Months Ended      Six Months Ended
    June 30,     June 30,
    2009   2008       2009      2008 
    (Dollars in millions)
 
Service cost  $  38   $  35   $  2  $  2 
Interest cost    38     36     4    4 
Estimated return on plan assets    (71 )    (68 )    -    - 
Amortization and other    28     (2 )    1    1 
Net periodic benefit cost  $  33   $  1   $  7  $  7 

21


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

          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.

NOTE 8. Computation of Earnings Per Common Share

          BB&T’s basic and diluted earnings per common share amounts for the three and six month periods ended June 30, 2009 and 2008, respectively, were calculated as follows:

    For the Three Months Ended    For the Six Months Ended 
    June 30,   June 30,
    2009    2008    2009    2008 
    (Dollars in millions, except per share data, shares in thousands) 
Basic Earnings Per Common Share:                 
           Net income available to common shareholders  $  121  $  428  $  392  $  856 
     Weighted average number of common shares    602,726    546,628    581,382    546,421 
     Basic earnings per common share  $  .20  $  .78  $  .67  $  1.57 
Diluted Earnings Per Common Share:                 
           Net income available to common shareholders  $  121  $  428  $  392  $  856 
     Weighted average number of common shares    602,726    546,628    581,382    546,421 
           Effect of dilutive outstanding equity-based awards    6,071    3,130    4,874    2,923 
     Weighted average number of diluted common shares    608,797    549,758    586,256    549,344 
     Diluted earnings per common share  $  .20  $  .78  $  .67  $  1.56 

          For the three months ended June 30, 2009 and 2008, the number of anti-dilutive awards was 39.1 million and 33.2 million shares, respectively. For the six months ended June 30, 2009 and 2008, the number of anti-dilutive awards was 39.3 million and 32.4 million shares, respectively. In addition, BB&T had a warrant outstanding for 13.9 million shares as of June 30, 2009 that was anti-dilutive.  On July 22, 2009, the warrant was repurchased.

22


BB&T Corporation and Subsidiaries   
Notes to Consolidated Financial Statements (Unaudited)  Second 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 June 30, 2009  
          Deferred          
  Pre-Tax     Tax Expense     After-Tax  
    Amount     (Benefit)       Amount  
    (Dollars in millions)  
Unrealized net losses on securities available for sale  $ (617 )  $  (233 )   $    (384 ) 
Unrealized net gains on cash flow hedges    148     56       92  
Foreign currency translation adjustment    (10 )    (2 )      (8 ) 
Unrecognized net pension and postretirement costs    (692 )    (262 )      (430 ) 
Total  $ (1,171 )  $  (441 )   $    (730 ) 
 
           As of June 30, 2009, accumulated other comprehensive income included $77 million of unrealized losses related to other-than-temporarily impaired securities.
 
    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 ) 

          The following table reflects the components of total comprehensive income for the three and six month periods ended June 30, 2009 and 2008, respectively.

 
    For the Three Months Ended   For the Six Months Ended  
    June 30,   June 30,  
     2009     2008   2009     2008  
    (Dollars in millions)  
Comprehensive income:                           
     Net income  $    208   $  431   $  526   $  860  
     Other comprehensive income:                           
             Change in unrealized net losses on securities      (95 )    (256 )    (60 )    (246 ) 
             Change in unrealized net gains on cash flow hedges      36     20     44     13  
             Change in pension and postretirement liability      9     (1 )    17     (2 ) 
             Net foreign currency translation adjustment      3     1     1     -  
                     Total comprehensive income  $    161   $  195   $  528   $  625  

23


BB&T Corporation and Subsidiaries   
Notes to Consolidated Financial Statements (Unaudited)  Second 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 June 30, 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 six months of 2009 and 2008. Substantially all of BB&T’s option awards are granted in February of each year. Therefore, the assumptions noted below are weighted accordingly.

    2009      2008   
Assumptions:             
     Risk-free interest rate    3.1   %    3.7   % 
     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    $ 3.43   

          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 six months of 2009 related to stock options awarded by BB&T:

  For the Six Months Ended 
  June 30, 2009
      Wtd. Avg. 
       Exercise 
  Options   Price
 
Outstanding at beginning of period  41,837,504    $  36.55 
Granted  2,832,038     16.89 
Exercised  (19,379 )    18.86 
Forfeited or expired  (1,469,597 )    35.70 
Outstanding at end of period  43,180,566     35.30 
 
Exercisable at end of period  30,269,932    $  36.14 

24


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

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

  For the Six Months Ended 
  June 30, 2009
      Wtd. Avg. 
      Grant Date 
  Shares/Units   Fair Value 
Nonvested at beginning of period  6,259,349   $  29.15 
Granted  5,001,771     7.46 
Vested  (117,811 )    26.38 
Forfeited  (97,351 )    22.08 
Nonvested at end of period  11,045,958     19.42 

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.

25


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

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 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
 
    6/30/2009    Level 1    Level 2      Level 3 
        (Dollars in Millions)
Assets:                   
 Trading securities  $  522  $  213  $  295  $    14 
 Securities available for sale:                   
   U.S. government-sponsored entities (GSE)    1,379    -    1,379      - 
   Mortgage-backed securities issued by GSE    25,695    -    25,695      - 
   States and political subdivisions    2,134    -    2,134      - 
   Non-agency mortgage-backed securities    1,048    -    -      1,048 
   Equity and other securities    777    164    612      1 
 Loans held for sale (1)    3,974    -    3,974      - 
 Residential mortgage servicing rights    615    -    -      615 
 Derivative assets (2)    1,113    2    1,096      15 
 Venture capital investments (2)    201    -    1      200 
   Total assets  $  37,458  $  379  $  35,186  $    1,893 
 
Liabilities:                   
 Derivative liabilities (2)  $   758  $  4  $  739  $    15 
 Short-term borrowed funds (3)     226    -    226      - 
   Total liabilities  $   984  $  4  $  965  $    15 
 
 
 
        Fair Value Measurements for Assets and Liabilities
        Measured on a Recurring Basis
 
    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 

26


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

(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 $8 million and $28 million in loans held for sale that are not accounted for at fair value at June 30, 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.

          The tables below present a reconciliation for the three and six month periods ended June 30, 2009 and 2008, respectively, for Level 3 assets and liabilities that are measured at fair value on a recurring basis. As of June 30, 2009, BB&T also had $1 million of Level 3 other securities outstanding. There was no activity during the three or six month periods ended June 30, 2009 related to these securities.

    Fair Value Measurements Using Significant Unobservable Inputs
    Non-agency                        
    mortgage-         Mortgage        Venture
    backed         servicing  Net   capital
    securities   Trading    rights derivatives   investments
    (Dollars in Millions)
Balance at March 31, 2009  $  1,034   $  4   $  365  $  55   $  190  
 Total realized and unrealized gains or losses:                             
     Included in earnings    -     (1 )    105    64     (1 ) 
     Included in other comprehensive income (loss)    89     -     -    -     -  
 Purchases, issuances and settlements    (75 )    -     145  (119 )    11  
 Transfers in and/or out of Level 3    -     11     -    -     -  
Balance at June 30, 2009  $  1,048   $  14   $  615  $  -   $  200  
 
    Fair Value Measurements Using Significant Unobservable Inputs
    Non-agency                        
    mortgage-         Mortgage        Venture
    backed         servicing  Net   capital
    securities    Trading   rights derivatives   investments
    (Dollars in Millions)
Balance at January 1, 2009  $  1,098   $  4   $  370  $  37   $  182  
 Total realized and unrealized gains or losses:                             
     Included in earnings    -     (1 )    27    105     (2 ) 
     Included in other comprehensive income (loss)    72     -     -    -     -  
 Purchases, issuances and settlements    (122 )    11     218  (142 )    20  
 Transfers in and/or out of Level 3    -     -     -    -     -  
Balance at June 30, 2009  $  1,048   $  14   $  615  $  -   $  200  
 
    Fair Value Measurements Using Significant Unobservable Inputs
 
              Mortgage        Venture
              servicing  Net   capital
    AFS securities    Trading   rights derivatives   investments
    (Dollars in Millions)
Balance at March 31, 2008  $  14   $  14   $  406  $  19   $  141  
 Total realized and unrealized gains or losses:                             
     Included in earnings    -     -     131    4     (8 ) 
     Included in other comprehensive income (loss)    -     -     -    -     -  
 Purchases, issuances and settlements    -     (9 )    74    (17 )    19  
 Transfers in and/or out of Level 3    -     -     -    -     -  
Balance at June 30, 2008   $  14    $  5   $  611  $  6   $  152  

27


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

    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 )    24    26     (9 ) 
     Included in other comprehensive income (loss)    -    -     -    -     -  
 Purchases, issuances and settlements    5    (23 )    115    (22 )    33  
 Transfers in and/or out of Level 3    -    3     -    -     -  
Balance at June 30, 2008  $  14  $ 5   $  611  $  6   $  152  

          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 June 30, 2009 and 2008, respectively.

  Total Gains and Losses
   Non-agency                      
  mortgage-                      
  backed       Mortgage       Venture capital
  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  $  -  $  -   $  105  $  64   $  -  
     Other noninterest income    -    (1 )    -    -     (1 ) 
           Total  $  -  $  (1 )  $  105  $  64   $  (1 ) 
 
Net unrealized gains (losses) included                           
 in net income relating to assets and liabilities                         
 still held at June 30, 2009  $  -  $  -   $  137  $  (56 )  $  (2 ) 
 
 
  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  $  -  $  -    $  131  $  4   $  -  
     Other noninterest income    -    -     -    -     (8 ) 
             Total  $  -  $  -    $  131  $  4   $  (8 ) 
 
Net unrealized gains (losses) included                           
 in net income relating to assets and liabilities                         
 still held at June 30, 2008  $  -  $  -   $  152  $  6   $  (12 ) 

          The realized and unrealized gains reported for mortgage servicing rights assets are composed of a positive valuation adjustment of $137 million and $152 million less the


 

28


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

realization of expected residential mortgage servicing rights cash flows of $32 million and $21 million for the quarters ended June 30, 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 June 30, 2009 and 2008, respectively, the derivative instruments produced losses of $114 million and $158 million, which offset the positive valuation adjustment recorded.

          The tables below summarize unrealized and realized gains and losses recorded in earnings for Level 3 assets and liabilities for the six month periods ended June 30, 2009 and 2008, respectively.

  Total Gains and Losses
   Non-agency                      
  mortgage-                      
  backed       Mortgage       Venture capital
  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  $  -  $  -   $  27  $  105   $  -  
     Other noninterest income    -    (1 )    -    -     (2 ) 
           Total  $  -  $  (1 )  $  27  $  105   $  (2 ) 
 
Net unrealized gains (losses) included                           
 in net income relating to assets and liabilities                         
 still held at June 30, 2009  $  -  $  -   $  91  $  (56 )  $  (3 ) 
 
 
  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  $  -  $  -   $  24  $  26   $  -  
     Other noninterest income    -    (2 )    -    -     (9 ) 
             Total  $  -  $  (2 )  $  24  $  26   $  (9 ) 
 
Net unrealized gains (losses) included                           
 in net income relating to assets and liabilities                         
 still held at June 30, 2008  $  -  $  -   $  68  $  6   $  (12 ) 

          The realized and unrealized gains reported for mortgage servicing rights assets are composed of a positive valuation adjustment of $91 million and $68 million less the realization of expected residential mortgage servicing rights cash flows of $64 million and $44 million for the six months ended June 30, 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 first six months of 2009 and 2008, respectively, the derivative instruments produced losses of $40 million and $76 million, which offset the positive valuation adjustment recorded.

29


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

 

          The following table details the fair value and unpaid principal balance of loans held for sale at June 30, 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 
    June 30, 2009     December 31, 2008
    (Dollars in millions)
Loans held for sale reported at fair value                           
 Total (1)  $ 3,974  $ 3,979  $  (5 )  $ 1,396  $  1,367  $  29 
 Nonaccrual loans    5    6    (1 )    1    1    - 
 Loans 90 days or more past due                           
 and still accruing interest    1    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 June 30, 2009 that were still held on the balance sheet at June 30, 2009 totaled $1.8 billion. This amount consists of $582 million for impaired loans and $1.2 billion for foreclosed real estate that were classified as Level 3 assets. During the second quarter and the first six months of 2009, BB&T recorded $111 million and $189 million, respectively, in losses related to write-downs of the loans and $32 million and $49 million in losses related to write-downs of foreclosed real estate based on the appraised value of the underlying collateral.

          SFAS No. 107, “Disclosures About Fair Value of Financial Instruments,” requires the disclosure of the estimated fair value of financial instruments. A financial instrument is defined as cash, evidence of an ownership interest in an entity or a contract that creates a contractual obligation or right to deliver or receive cash or another financial instrument from a second entity. BB&T has recorded certain assets and liabilities at fair value based on the Fair Value Option or as required by SFAS No. 157. The following is a summary of the carrying amounts and fair values of those financial assets and liabilities that BB&T has not recorded at fair value:

30


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

    June 30, 2009    December 31, 2008 
  Carrying   Fair    Carrying     Fair 
  Amount   Value    Amount     Value 
    (Dollars in millions)
Financial assets:                     
     Cash and cash equivalents  $  2,234   $  2,234  $ 2,740   $  2,740 
     Segregated cash due from banks    267     267    379     379 
     Loans and leases, net of unearned income:                     
           Loans (1)    95,250     95,708    95,958     96,280 
           Leases    1,110     NA    1,315     NA 
           Allowance for loan and lease losses    (2,110 )    NA    (1,574 )    NA 
                   Net loans and leases  $  94,250       $ 95,699      
 
Financial liabilities:                     
     Deposits  $  102,164     100,474  $ 98,613     98,877 
     Federal funds purchased, securities sold under                     
     repurchase agreements and short-term borrowed funds    12,631     12,631    10,788     10,788 
     Long-term debt    18,104     17,677    18,026     17,873 
     Capitalized leases    6     NA    6     NA 
 
                   (1) Excludes loans held for sale for which the Fair Value Option was elected.             
                   NA - not applicable

          The following is a summary of the notional or contractual amounts and fair values of BB&T's off-balance sheet financial instruments as of the periods indicated:

    June 30, 2009   December 31, 2008
    Notional/        Notional/     
    Contract    Fair    Contract  Fair
    Amount    Value    Amount  Value
    (Dollars in millions)
Contractual commitments:                 
     Commitments to extend, originate or purchase credit  $  33,522  $  45  $ 35,144  $  50 
     Mortgage loans sold with recourse    2,160    4    2,470    3 
     Other assets sold with recourse    3,899    11    3,259    8 
     Standby and commercial letters of credit and financial                 
     guarantees written    7,627    29    5,895    20 
     Commitments to fund affordable housing investments    402    381    412    393 

          Estimates of the fair value of these financial instruments are made at a point in time, based on relevant market data and information about the financial instrument. Fair values are calculated based on the value of one trading unit without regard to any premium or discount that may result from concentrations of ownership of a financial instrument, possible tax ramifications, estimated transaction costs that may result from bulk sales or the relationship between various financial instruments. No readily available market exists for a significant portion of BB&T’s financial instruments. Fair value estimates for these instruments are based on judgments regarding current economic conditions, currency and interest rate risk characteristics, loss experience and other factors. Many of these estimates involve uncertainties and matters of

31


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

significant judgment and cannot be determined with precision. Therefore, the calculated fair value estimates in many instances cannot be substantiated by comparison to independent markets and, in many cases, may not be realizable in a current sale of the instrument. In addition, changes in assumptions could significantly affect these fair value estimates. The following methods and assumptions were used by BB&T in estimating the fair value of these financial instruments.

          Cash and cash equivalents and segregated cash due from banks: For these short-term instruments, the carrying amounts are a reasonable estimate of fair values.

          Loans receivable and loans held for sale: The fair values for loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms and credit quality. The carrying amounts of accrued interest approximate fair values. The fair values of loans held for sale for which BB&T did not elect the Fair Value Option are based on quoted market prices and the projected value of the net servicing fees.

          Deposit liabilities: The fair values for demand deposits, interest-checking accounts, savings accounts and certain money market accounts are, by definition, equal to the amount payable on demand at the reporting date, i.e., their carrying amounts. Fair values for certificates of deposit are estimated using a discounted cash flow calculation that applies current interest rates to aggregate expected maturities.

          Federal funds purchased, securities sold under repurchase agreements and short-term borrowed funds: The carrying amounts of Federal funds purchased, borrowings under repurchase agreements and short-term borrowed funds approximate their fair values.

          Long-term debt: The fair values of long-term debt are estimated based on quoted market prices for the instrument if available, or for similar instruments if not available, or by using discounted cash flow analyses, based on BB&T’s current incremental borrowing rates for similar types of instruments.

          Contractual commitments: The fair values of commitments are estimated using the fees charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair values also consider the difference between current levels of interest rates and the committed rates. The fair values of guarantees and letters of credit are estimated based on the counterparties’ creditworthiness and average default rates for loan products with similar risks. The fair values of commitments to fund affordable housing investments are estimated using the net present value of future commitments.

32


BB&T Corporation and Subsidiaries   
Notes to Consolidated Financial Statements (Unaudited)  Second 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 June 30, 2009:

Derivative Classifications and Hedging Relationships
    June 30, 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    $  32   $    (36 ) 
   commercial loans                     
   Pay fixed swaps  First forecasted interest payments on    3,150      39       (6 ) 
   overnight funding                     
   Pay fixed swaps  First forecasted interest payments on    2,900      48       (31 ) 
   3 month LIBOR funding                     
   Caps  First forecasted interest payments on    442      1       -  
   3 month LIBOR funding                     
   Total    $  11,492    $  120   $    (73 ) 
 
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  $  3,342    $  262   $    (8 ) 
   Receive fixed swaps  Long-term CDs    328      3       -  
   Pay fixed swaps  Individual fixed rate securities    354      -       (69 ) 
   available for sale                     
   Total    $  4,024    $  265   $    (77 ) 
 
Derivatives Not Designated as Hedges                       
Client-related and other risk management                       
 Interest rate contracts                       
     Receive fixed swaps    $  10,969    $  444   $    (30 ) 
     Pay fixed swaps      10,736      29       (391 ) 
     Other swaps      7,713      4       (7 ) 
     Option trades      898      -       -  
     Swaptions      543      27       (26 ) 
     Futures contracts      3,329      1       -  
     Collars      151      5       (5 ) 
 Foreign exchange contracts      466      9       (6 ) 
Mortgage Banking                       
 Interest rate contracts                       
   Receive fixed swaps      76      -       (1 ) 
   Forward commitments      8,253      69       (35 ) 
   Interest rate lock commitments      4,630      14       (15 ) 
   Swaptions      75      2       -  
   TBA/When issued securities      340      3       -  
Mortgage Servicing Rights                       

33


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

Interest rate contracts               
   Receive fixed swaps    1,972    17    (61 ) 
   Pay fixed swaps    641    8    -  
   Swaptions    1,930    85    (2 ) 
   Futures contracts    10,400    1    (4 ) 
   When issued securities and Forward rate agreements    5,938    10    (23 ) 
   Total  $ 69,060  $  728  $  (606 ) 
Total Derivatives  $ 84,649  $  1,113  $  (758 ) 

(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 Six Month Period Ended June 30, 2009
(Dollars in millions)

    Effective Portion   Ineffective Portion
        Location of Amounts   (Gain) or Loss         Gain or (Loss) 
    Gain or (Loss)    Reclassified from   Reclassified from   Location of Amounts  Recognized 
    Recognized in OCI    AOCI into Income   AOCI into Income   Recognized in Income  in Income 
 
Derivatives Designated as Cash Flow Hedges                          
Interest rate contracts  $ 90          Total interest income   $  (15 )  Other noninterest income   $  1 
               Total interest expense      (3 )           
                $  (18 )           
Derivatives Designated as Net Investment Hedges                          
Foreign exchange contracts    (1 )                         
 
 
    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  $  80      Other noninterest income  $        7     
 Interest rate contracts                   Total interest income    (8 )                 
     Total          $  72