-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GUuDqsUROA7x4bp46GnRHYOd1PxMJtKR62E01fRHCx7H2JgIlEoyTpdS28rhy68D ruTcv1H9MIqVwIQN6h9/YQ== 0000092230-04-000084.txt : 20041108 0000092230-04-000084.hdr.sgml : 20041108 20041108164856 ACCESSION NUMBER: 0000092230-04-000084 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20040930 FILED AS OF DATE: 20041108 DATE AS OF CHANGE: 20041108 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BB&T CORP CENTRAL INDEX KEY: 0000092230 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 560939887 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10853 FILM NUMBER: 041126320 BUSINESS ADDRESS: STREET 1: 200 WEST SECOND STREET CITY: WINSTON-SALEM STATE: NC ZIP: 27101 BUSINESS PHONE: 3367332000 MAIL ADDRESS: STREET 1: 200 WEST SECOND STREET CITY: WINSTON-SALEM STATE: NC ZIP: 27101 FORMER COMPANY: FORMER CONFORMED NAME: SOUTHERN NATIONAL CORP /NC/ DATE OF NAME CHANGE: 19920703 10-Q 1 q30410q.htm BB&T Third Quarter 2004 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-Q


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

For the quarterly period ended:

September 30, 2004


Commission file number: 1-10853


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


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

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


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

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

At October 31, 2004, 552,367,599 shares of the registrant's common stock, $5 par value, were outstanding.



BB&T CORPORATION

FORM 10-Q

September 30, 2004


INDEX


Page No.
   
Part I. FINANCIAL INFORMATION  
   
  Item 1. Financial Statements (Unaudited) 2 
   
          Notes to Consolidated Financial Statements 6 
   
  Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 22 
   
          Executive Summary 24 
   
          Analysis of Financial Condition 25 
   
          Market Risk Management 32 
   
          Capital Adequacy and Resources 36 
   
          Analysis of Results of Operations 38 
   
  Item 3. Quantitative and Qualitative Disclosures About Market Risk 53 
   
  Item 4. Controls and Procedures 53 
   
Part II. OTHER INFORMATION  
   
  Item 1. Legal Proceedings 53 
   
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 53 
   
  Item 6. Exhibits 54 
   
SIGNATURES 55 
   
EXHIBIT INDEX 56 
   
CERTIFICATIONS 58 



BB&T Corporation           Page 1          Third Quarter 2004 10-Q



Item 1. Financial Statements

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

September 30, December 31,
2004 2003
Assets
        Cash and due from banks     $ 1,800,195   $ 2,217,961  
        Interest-bearing deposits with banks    286,414    271,157  
        Federal funds sold and securities purchased under resale agreements or                
               similar arrangements    256,097    332,849  
        Trading securities at fair value    445,571    693,819  
        Securities available for sale at fair value    18,481,720    15,562,954  
        Securities held to maturity at amortized cost (fair value: $125 at September 30, 2004  
               and $60,125 at December 31, 2003)    125    60,122  
        Loans held for sale    577,162    725,459  
        Loans and leases, net of unearned income    66,215,768    61,579,927  
        Allowance for loan and lease losses    (816,588 )  (784,937 )
               Loans and leases, net    65,399,180    60,794,990  
        Premises and equipment, net of accumulated depreciation    1,280,612    1,201,342  
        Goodwill    4,096,066    3,616,526  
        Core deposit and other intangible assets    526,106    401,944  
        Other assets    4,731,149    4,587,490  
                             Total assets   $97,880,397   $90,466,613  
Liabilities and Shareholders' Equity  
        Deposits:  
               Noninterest-bearing deposits   $12,217,201   $11,098,251  
               Savings and interest checking    4,344,138    4,307,069  
               Money rate savings    22,806,829    20,348,969  
               Certificates of deposit and other time deposits    26,385,428    23,595,496  
                             Total deposits    65,753,596    59,349,785  
        Short-term borrowed funds    6,464,704    7,334,900  
        Long-term debt    11,145,504    10,807,700  
        Accounts payable and other liabilities    3,721,712    3,039,497  
                             Total liabilities    87,085,516    80,531,882  
        Shareholders' equity:  
               Preferred stock, $5 par, 5,000,000 shares authorized, none issued or                
                     outstanding at September 30, 2004 or at December 31, 2003    --    --  
               Common stock, $5 par, 1,000,000,000 shares authorized;  
                     552,488,008 issued and outstanding at September 30, 2004, and  
                     541,942,987 issued and outstanding at December 31, 2003    2,762,440    2,709,715  
               Additional paid-in capital    3,213,394    2,893,812  
               Retained earnings    4,888,070    4,309,635  
               Unvested restricted stock    (174 )  (310 )
               Accumulated other comprehensive income (loss), net of deferred income  
                     taxes of $(39,120) at September 30, 2004, and $13,010 at December 31, 2003    (68,849 )  21,879  
                             Total shareholders' equity    10,794,881    9,934,731  
                             Total liabilities and shareholders' equity   $97,880,397   $90,466,613  

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


BB&T Corporation           Page 2          Third Quarter 2004 10-Q



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


For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
Interest Income
           Interest and fees on loans and leases     $ 983,904   $ 920,451   $ 2,841,621   $ 2,609,083  
           Interest and dividends on securities       172,091     176,319     509,701     584,553  
           Interest on short-term investments       2,943     1,798     7,519     5,343  
                Total interest income       1,158,938     1,098,568     3,358,841     3,198,979  
Interest Expense    
           Interest on deposits       181,790     184,168     521,256     584,297  
           Interest on short-term borrowed funds       25,948     14,651     61,311     43,809  
           Interest on long-term debt       95,544     93,291     274,092     368,817  
                Total interest expense       303,282     292,110     856,659     996,923  
Net Interest Income       855,656     806,458     2,502,182     2,202,056  
           Provision for loan and lease losses       57,000     65,000     183,500     189,500  
Net Interest Income After Provision for Loan and Lease Losses       798,656     741,458     2,318,682     2,012,556  
Noninterest Income    
           Service charges on deposits       135,521     121,981     389,729     315,404  
           Mortgage banking income       28,095     98,330     102,740     125,591  
           Trust income       28,862     31,871     90,366     84,128  
           Investment banking and brokerage fees and commissions       59,834     65,805     200,056     178,727  
           Insurance commissions       163,359     103,592     451,777     293,750  
           Bankcard fees and merchant discounts       26,649     23,439     74,779     58,987  
           Other nondeposit fees and commissions       56,125     49,873     159,094     131,367  
           Securities gains (losses), net       6,590     (9,994 )   6,081     133,740  
           Other income       33,828     27,206     116,074     96,426  
                Total noninterest income       538,863     512,103     1,590,696     1,418,120  
Noninterest Expense    
           Personnel expense       411,033     412,350     1,267,865     1,132,548  
           Occupancy and equipment expense       104,469     97,352     308,044     270,704  
           Amortization of intangibles       24,280     20,990     77,006     34,550  
           Professional services       18,226     17,687     56,982     51,299  
           Merger-related and restructuring charges (gains)       (3,059 )   22,820     7,382     38,324  
           Loss on early extinguishment of debt       --     384,898     --     384,898  
           Other expense       161,658     160,869     487,965     459,651  
                Total noninterest expense       716,607     1,116,966     2,205,244     2,371,974  
Earnings    
           Income before income taxes       620,912     136,595     1,704,134     1,058,702  
           Provision for income taxes       208,027     20,704     562,643     298,826  
           Net income     $ 412,885   $ 115,891   $ 1,141,491   $ 759,876  
Per Common Share    
           Net Income:    
                Basic     $ .75   $ .21   $ 2.07   $ 1.53  
                Diluted     $ .74   $ .21   $ 2.05   $ 1.51  
           Cash dividends paid     $ .35   $ .32   $ .99   $ .90  
Weighted Average Shares Outstanding    
                Basic       553,944,042     551,018,984     551,529,609     498,048,765  
                Diluted       558,576,819     555,543,993     555,547,611     502,026,007  

BB&T Corporation           Page 3          Third Quarter 2004 10-Q



BB&T CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
 For the Nine Months Ended September 30, 2004 and 2003
(Unaudited)
(Dollars in thousands)

Accumulated
Shares of Additional Retained Other Total
Common Common Paid-In Earnings Comprehensive Shareholders'
Stock Stock Capital and Other (1) Income (loss) Equity
Balance, December 31, 2002       470,452,260   $ 2,352,261   $ 793,123   $ 3,911,821   $ 330,709   $ 7,387,914  
Add (Deduct):  
      Comprehensive income (loss):  
           Net income    --    --    --    759,876    --    759,876  
                Unrealized holding gains (losses) arising during the period  
                     on securities available for sale, net of tax of $95,502    --    --    --    --    (149,375 )  (149,375 )
                Reclassification adjustment for losses (gains)                                        
                     on securities available for sale included in net                                
                     income, net of tax of $52,159    --    --    --    --    (81,581 )  (81,581 )
           Change in unrealized gains (losses) on securities, net of tax    --    --    --    --    (230,956 )  (230,956 )
           Change in unrecognized gain (loss) on cash flow hedge,                                        
                net of tax of $24,572    --    --    --    --    37,659    37,659  
      Total comprehensive income (loss)    --    --    --    759,876    (193,297 )  566,579  
      Common stock issued:  
           In purchase acquisitions    90,191,640    450,959    2,754,336    --    --    3,205,295  
           In connection with stock option exercises                                        
                and other employee benefits, net of cancellations    1,834,498    9,172    21,884    --    --    31,056  
      Redemption of common stock    (13,591,800 )  (67,959 )  (426,607 )  --    --    (494,566 )
      Cash dividends declared on common stock    --    --    --    (491,522 )  --    (491,522 )
      Other, net    --    --    9,932    144    --    10,076  
Balance, September 30, 2003    548,886,598   $ 2,744,433   $ 3,152,668   $ 4,180,319   $ 137,412   $ 10,214,832  
 
 
 
Balance, December 31, 2003    541,942,987   $ 2,709,715   $ 2,893,812   $ 4,309,325   $ 21,879   $ 9,934,731  
Add (Deduct):  
      Comprehensive income (loss):  
           Net income    --    --    --    1,141,491    --    1,141,491  
                Unrealized holding gains (losses) arising during the  
                     period on securities available for sale, net of tax of  
                       $29,733    --    --    --    --    (55,798 )  (55,798 )
                Reclassification adjustment for losses (gains)                                        
                     on securities available for sale included in net                                        
                     income, net of tax of $2,372    --    --    --    --    (3,709 )  (3,709 )
           Change in unrealized gains (losses) on securities, net of tax    --    --    --    --    (59,507 )  (59,507 )
           Change in unrecognized gain (loss) on cash flow hedge,                                        
                net of tax of $18,400    --    --    --    --    (28,202 )  (28,202 )
           Change in minimum pension liability, net of tax of $1,625    --    --    --    --    (3,019 )  (3,019 )
      Total comprehensive income (loss)    --    --    --    1,141,491    (90,728 )  1,050,763  
      Common stock issued:  
           In purchase acquisitions    15,681,357    78,407    517,284    --    --    595,691  
           In connection with stock option exercises                                        
                and other employee benefits, net of cancellations    2,389,164    11,946    38,877    --    --    50,823  
      Redemption of common stock    (7,525,500 )  (37,628 )  (247,411 )  --    --    (285,039 )
      Cash dividends declared on common stock    --    --    --    (563,056 )  --    (563,056 )
      Other, net    --    --    10,832    136    --    10,968  
Balance, September 30, 2004    552,488,008   $ 2,762,440   $ 3,213,394   $ 4,887,896   $ (68,849 ) $ 10,794,881  

(1)   Other includes unvested restricted stock.

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


BB&T Corporation           Page 4          Third Quarter 2004 10-Q



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

For the Nine Months Ended
September 30,
2004 2003
Cash Flows From Operating Activities:
      Net income     $ 1,141,491   $ 759,876  
      Adjustments to reconcile net income to net cash provided by operating activities:    
                Provision for loan and lease losses       183,500     189,500  
                Depreciation of premises and equipment       120,789     107,677  
                Amortization of intangibles       77,006     34,550  
                Discount accretion and premium amortization on securities, net       39,939     22,746  
                Net decrease (increase) in trading account securities       360,699     (10,573 )
                Gain on sales of securities, net       (6,081 )   (133,740 )
                Gain on sales of loans held for sale, net       (50,337 )   (208,633 )
                Gain on disposals of premises and equipment, net       (1,233 )   (185 )
                Proceeds from sales of loans held for sale       4,206,517     12,411,725  
                Purchases of loans held for sale       (831,753 )   (2,374,351 )
                Origination of loans held for sale, net of principal collected       (3,176,130 )   (8,870,207 )
                Tax benefit from exercise of stock options       10,832     9,932  
                Decrease (increase) in:                
                    Accrued interest receivable       (16,929 )   3,605  
                    Other assets       66,666     (357,226 )
                Increase (decrease) in:                
                    Accrued interest payable       21,059     (58,649 )
                    Accounts payable and other liabilities       414,617     81,753  
                Other, net       (144 )   3,116  
                        Net cash provided by operating activities       2,560,508     1,610,916  
 
Cash Flows From Investing Activities:    
      Proceeds from sales of securities available for sale       1,173,586     13,138,964  
      Proceeds from maturities, calls and paydowns of securities available for sale       3,209,699     4,722,736  
      Purchases of securities available for sale       (5,503,104 )   (13,229,791 )
      Proceeds from maturities, calls and paydowns of securities held to maturity       59,997     4,447  
      Purchases of securities held to maturity       --     (6,000 )
      Leases made to customers       (183,784 )   (81,631 )
      Principal collected on leases       119,129     103,751  
      Loan originations, net of principal collected and excluding acquisitions       (3,961,049 )   (2,251,577 )
      Purchases of loans       (127,064 )   (119,871 )
      Net cash acquired in business combinations accounted for under the purchase method       10,680     920,783  
      Purchases and originations of mortgage servicing rights       (66,900 )   (192,336 )
      Proceeds from disposals of premises and equipment       45,347     27,193  
      Purchases of premises and equipment       (211,486 )   (145,203 )
      Proceeds from sales of foreclosed property       50,567     40,193  
      Proceeds from sales of other real estate held for development or sale       29,492     17,350  
                Net cash provided by (used in) investing activities       (5,354,890 )   2,949,008  
 
Cash Flows From Financing Activities:    
      Net increase in deposits       3,854,568     289,280  
      Net increase (decrease) in short-term borrowed funds       (953,454 )   199,738  
      Proceeds from issuance of long-term debt       2,697,760     3,200,700  
      Repayment of long-term debt       (2,503,921 )   (6,988,096 )
      Net proceeds from common stock issued       50,823     31,056  
      Redemption of common stock       (285,039 )   (494,566 )
      Cash dividends paid on common stock       (545,616 )   (453,191 )
                Net cash provided by (used in) financing activities       2,315,121     (4,215,079 )
 
Net Increase (Decrease) in Cash and Cash Equivalents       (479,261 )   344,845  
Cash and Cash Equivalents at Beginning of Period       2,821,967     2,372,220  
Cash and Cash Equivalents at End of Period     $ 2,342,706   $ 2,717,065  
 
Supplemental Disclosure of Cash Flow Information:    
 
      Cash paid during the period for:    
           Interest     $ 835,600   $ 1,055,572  
           Income taxes       154,190     136,658  
      Noncash investing and financing activities:    
           Transfer of securities available for sale to trading securities       --     532,193  
           Transfer of loans to foreclosed property       60,473     62,712  
           Transfer of fixed assets to other real estate owned       6,199     7,470  
           Transfer of other real estate owned to fixed assets       --     33  
           Securitization of mortgage loans       999,699     --  
           Common stock issued in purchase accounting transactions       595,691     3,205,295  

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

Back to Index

BB&T Corporation           Page 5          Third Quarter 2004 10-Q



BB&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2004
(Unaudited)

A. Basis of Presentation

          In the opinion of management, the accompanying unaudited consolidated balance sheets, the consolidated statements of income, the consolidated statements of changes in shareholders’ equity, and the consolidated statements of cash flows of BB&T Corporation and subsidiaries (referred to herein as “BB&T”, “the Corporation” or “the Company”), present fairly in all material respects BB&T’s financial position at September 30, 2004 and December 31, 2003; BB&T’s results of operations for the three months and nine months ended September 30, 2004 and 2003; and BB&T’s cash flows for the nine months ended September 30, 2004 and 2003. In the opinion of management, all adjustments necessary to fairly present the consolidated financial position and consolidated results of operations have been made. All such adjustments are of a normal, recurring nature.

          The consolidated financial statements and notes thereto are presented in accordance with the instructions for Form 10-Q. The information contained in the footnotes included in BB&T’s 2003 Annual Report on Form 10-K should be referred to in connection with these unaudited interim consolidated financial statements. In certain instances, amounts reported in the 2003 financial statements were reclassified to conform to the 2004 financial statement presentation. Such reclassifications had no material effect on the Company’s reported consolidated financial position or consolidated results of operations.

          The consolidated financial statements of BB&T include the accounts of BB&T Corporation and those subsidiaries that are majority-owned by BB&T or over which BB&T otherwise exercises control. In consolidation, all significant intercompany accounts and transactions have been eliminated. All material wholly owned and majority-owned subsidiaries are consolidated unless control does not rest with BB&T or deconsolidation is required by generally accepted accounting principles. The Company has investments in certain entities for which BB&T does not have a controlling interest. BB&T accounts for these investments using the equity method whereby its ownership interest in the entities’ income or loss is recorded in other noninterest income on the Consolidated Statements of Income. The Company periodically evaluates the carrying value of these investments for impairment.

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 requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan and lease losses, valuation of mortgage servicing rights, valuation of goodwill, other intangible assets, other purchase accounting related adjustments, benefit plan obligations and expenses, and tax assets and liabilities.

BB&T Corporation           Page 6          Third Quarter 2004 10-Q



B. Nature of Operations

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

C. Changes in Accounting Principles and Effects of New Accounting Pronouncements

          In January 2003, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”). This Interpretation provides guidance with respect to the identification of variable interest entities and when the assets, liabilities, noncontrolling interests, and results of operations of a variable interest entity need to be included in a company’s consolidated financial statements. An entity is deemed a variable interest entity, subject to the interpretation, if the equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties, or in cases in which the equity investors lack one or more of the essential characteristics of a controlling financial interest, which include the ability to make decisions about the entity’s activities through voting rights, the obligations to absorb the expected losses of the entity if they occur, or the right to receive the expected residual returns of the entity if they occur. Due to significant implementation issues, the FASB modified the wording of FIN 46 and issued FIN 46R in December of 2003. FIN 46R deferred the effective date for the provisions of FIN 46 to entities other than Special Purpose Entities (“SPEs”) until financial statements issued for periods ending after March 15, 2004. SPEs were subject to the provisions of either FIN 46 or FIN 46R as of December 15, 2003. Management has evaluated BB&T’s investments in variable interest entities and potential variable interest entities or transactions, particularly in limited liability partnerships involved in low-income housing development (“LIHTC investments”) and trust preferred securities structures because these entities or transactions constitute BB&T’s primary FIN 46 and FIN 46R exposure. Under FIN 46, it was determined that BB&T is not the primary beneficiary of the trusts that issued trust preferred securities; thus BB&T’s trust preferred securities were deconsolidated as of September 30, 2003. As a result, other assets and long-term debt each increased by $8.9 million. As of December 31, 2003, BB&T had adopted FIN 46R. The adoption of FIN 46 and FIN 46R did not have a material effect on BB&T’s consolidated financial position or consolidated results of operations beyond the impact on trust preferred securities because it was determined that BB&T is not the primary beneficiary of the LIHTC investments. BB&T’s involvement with variable interest entities at September 30, 2004, is primarily limited to $32.6 million in outstanding balances in LIHTC investments, with an additional $179.8 million in future funding commitments. BB&T has utilized LIHTC investments to invest in areas serving low to moderate-income communities since 1994. Because these investments generate tax credits which minimize the financial impact of a loss of capital, BB&T has chosen to utilize established syndicators to reduce this risk. BB&T’s management will continue to assess various aspects of consolidations and variable interest entity accounting as additional guidance becomes available.

BB&T Corporation           Page 7          Third Quarter 2004 10-Q



          In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” (“SFAS No. 149”). SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” SFAS No. 149 was effective for contracts entered into or modified after June 30, 2003, with certain exceptions, and for hedging relationships designated after June 30, 2003. In addition, the provisions of the Statement, with certain exceptions, were required to be applied prospectively. The initial implementation of the Statement did not have a material effect on BB&T’s consolidated financial position or consolidated results of operations and management does not anticipate any such impact in the future.

          In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” SFAS No. 150 establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 applies specifically to a number of financial instruments that companies have historically presented within their financial statements either as equity or between the liabilities section and the equity section, rather than as liabilities. On November 7, 2003, the FASB issued FASB Staff Position (“FSP”) 150-3, “Effective Date and Transition for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities.” FSP 150-3 defers the effective date of certain provisions of SFAS No. 150, specifically the provisions that apply to mandatorily redeemable noncontrolling interests. This deferral is expected to remain in effect indefinitely until the accounting for these interests is addressed in later guidance. The remaining provisions of SFAS No. 150 were effective for financial instruments entered into or modified after May 31, 2003, and otherwise were effective and adopted by BB&T on July 1, 2003. The implementation of these portions of the Statement did not have a material effect on BB&T’s consolidated financial position or consolidated results of operations.

          In December 2003, the FASB issued SFAS No. 132 (revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits.” This Statement requires additional annual disclosures about the assets, obligations and cash flows of defined benefit pension and postretirement plans, as well as quarterly and annual disclosures with respect to the components of net periodic benefit cost recorded for such plans. The revised disclosures, which are required to be provided on a quarterly basis, are presented herein.

BB&T Corporation           Page 8          Third Quarter 2004 10-Q



          In December 2003, the Accounting Standards Executive Committee (“AcSEC”) of the American Institute of Certified Public Accountants issued Statement of Position (“SOP”) 03-3, “Accounting for Certain Loans or Debt Securities Acquired in a Transfer.” The SOP is effective for loans acquired in fiscal years beginning after December 15, 2004. The SOP addresses accounting for differences between contractual cash flows and cash flows expected to be collected from an investor’s initial investment in loans or debt securities (loans) acquired in a transfer if those differences are attributable, at least in part, to credit quality. It includes loans purchased by BB&T or acquired in business combinations. The SOP does not apply to loans originated by BB&T. BB&T intends to adopt the provisions of SOP 03-3 effective January 1, 2005, and does not expect the initial implementation to have a significant effect on BB&T’s consolidated financial position or consolidated results of operations. Management is currently assessing the long-term effect of the SOP.

          On March 9, 2004, the SEC Staff issued Staff Accounting Bulletin No. 105, “Application of Accounting Principles to Loan Commitments” (“SAB 105”). SAB 105 clarifies existing accounting practices relating to the valuation of issued loan commitments, including interest rate lock commitments (“IRLC”), subject to SFAS No. 149 and Derivative Implementation Group Issue C13, “Scope Exceptions: When a Loan Commitment is included in the Scope of Statement 133.” Furthermore, SAB 105 disallows the inclusion of the values of a servicing component and other internally developed intangible assets in the initial and subsequent IRLC valuation. The provisions of SAB 105 affect only the timing of the recognition of mortgage banking income and were effective for loan commitments entered into after March 31, 2004. BB&T early adopted the provisions of SAB 105 effective January 1, 2004. The initial impact upon adoption was a $2.3 million reduction of mortgage banking income.

          In May 2004, the FASB issued FASB Staff Position (“FSP”) 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (the “Act”). This Staff Position provides guidance on the accounting for the effects of the Act for employers that sponsor postretirement health care plans that provide prescription drug benefits. Under this guidance, a sponsor would recognize the effects of the subsidy, if material, in the measurement of its benefit obligation as early as the third quarter of 2004. Management currently does not anticipate that the effects of the Act will materially affect BB&T’s consolidated financial position or consolidated results of operations.

          In the second quarter of 2004, the Emerging Issues Task Force (“EITF”) released EITF Issue 03-01, “The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments.” The Issue provided guidance for evaluating whether an investment is other-than-temporarily impaired and requires certain disclosures with respect to these investments. On September 30, 2004, the FASB issued FASB Staff Position (“FSP”) EITF Issue 03-1-1, “Effective Date of Paragraph 10-20 of EITF Issue 03-1, “The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments.” This Staff Position delayed certain measurement and recognition provisions of EITF 03-1. On September 30, 2004, BB&T held certain investments having continuous unrealized loss positions for more than 12 months totaling $130.8 million. Substantially all of these investments were in U.S. Treasuries and U.S. government agency obligations, the cash flows of which are guaranteed by the U.S. government or its agencies and, therefore, it is expected that the securities would not be settled at a price less than their amortized cost. Because the decline in market value was caused by interest rate increases and not credit quality, and because BB&T has the ability and intent to hold these investments until a recovery of fair value, which may be maturity, BB&T has not recognized any other-than-temporary impairment in connection with these investments.

BB&T Corporation           Page 9          Third Quarter 2004 10-Q



D. Mergers and Acquisitions

          The following table presents summary information with respect to significant mergers and acquisitions of financial institutions and other significant financial services companies completed by BB&T Corporation during 2003 and thus far during 2004:

Summary of Completed Mergers and Acquisitions

BB&T Common
Total Shares Issued
Date of Total Intangibles Purchase to Complete
Acquisition    Acquired Company Headquarters Assets Recorded Price Transaction
April 14, 2004     Republic Bancshares, Inc.     St. Pertersburg, Fla.   $ 2.9 billion   $ 258.4 million   $ 433.4 million (2)       6.5 million  
February 1, 2004     McGriff, Seibels &                                  
        Williams Inc.     Birmingham, Ala.     226.6 million     396.0 million     350.5 million (1)       8.2 million  
 
 
July 1, 2003     First Virginia Banks, Inc.     Falls Church, Va.   $ 11.3 billion   $ 2.2 billion   $ 3.1 billion       87.0 million  
March 14, 2003     Equitable Bank     Wheaton, Md.     446.9 million     32.4 million     53.8 million       1.5 million  
 

(1)   Includes cash consideration totaling $50.0 million
(2)   Includes cash consideration totaling $171.1 million


          The intangibles related to transactions completed in 2004 in the above table include $180.6 million of other identifiable intangibles, which are being amortized on an accelerated basis over their estimated useful lives. The table above does not include mergers and acquisitions made by any acquired company.

Insurance and Other Non-Bank Acquisitions

          In addition to the financial institutions and other significant financial services companies presented in the table above, BB&T acquired four insurance agencies and two non-bank financial service companies during the nine months ended September 30, 2004. In conjunction with these transactions, BB&T issued approximately 917 thousand shares of common stock and paid approximately $4.1 million in cash, recording approximately $24.8 million in goodwill and $19.0 million in identifiable intangible assets with an average life of 10 years. BB&T acquired six insurance agencies during 2003 which were accounted for as purchases. In conjunction with these transactions, BB&T issued approximately 1.7 million shares of common stock and paid approximately $1.0 million in cash. Approximately $42.3 million in goodwill and $30.9 million of identifiable intangible assets with an average life of 10 years were recorded in conjunction with these transactions.

BB&T Corporation           Page 10          Third Quarter 2004 10-Q



          The acquisitions described above do not exceed the pro forma disclosure thresholds prescribed by SFAS No. 141, "Business Combinations."

          BB&T typically provides an allocation period for all purchase acquisitions to identify and quantify the fair value of the assets acquired and liabilities assumed; therefore, the purchase accounting information presented herein may subsequently be adjusted to reflect changes in allocations of purchase price.

Merger-Related and Restructuring Charges

          In conjunction with the consummation of an acquisition and the completion of other requirements, BB&T typically accrues certain merger-related expenses related to estimated severance costs, costs to terminate lease contracts, costs related to the disposal of duplicate facilities and equipment, costs to terminate data processing contracts and other costs associated with the acquisition. The following table presents an analysis of accrued merger costs. This analysis includes amounts accrued that were reflected as merger-related and restructuring expenses and amounts recorded through purchase accounting adjustments:

Merger Accrual Activity
         
Balance Balance
December 31, Additions in Utilized in September 30,
2003 2004 2004 2004
(Dollars in thousands)
         
Severance and personnel-related charges     $ 27,850   $ 6,090   $ 17,281   $ 16,659  
Occupancy and equipment charges       48,696     4,527     32,392     20,831  
Systems conversions and related charges       20,735     4,207     23,520     1,422  
Other merger-related charges       11,070     3,104     8,915     5,259  
       Total     $ 108,351   $ 17,928   $ 82,108   $ 44,171  


          The accruals utilized during 2004 in the tables above include reversals of $36.1 million of previously recorded merger-related and restructuring accruals principally related to the finalization of estimates for employee terminations, contract cancellations and occupancy costs. The above reversals include $17.8 million of pre-tax adjustments to goodwill that had no effect on BB&T’s consolidated results of operations. The remaining $18.3 million was included as a reduction of merger-related and restructuring charges during 2004 in the Consolidated Statements of Income.


BB&T Corporation           Page 11          Third Quarter 2004 10-Q



E. Calculation of Earnings per Common Share

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

For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2004 2003 2004 2003
(Dollars in thousands, except per share data)
Basic Earnings Per Share:
        Weighted average number of common shares       553,944,042     551,018,984     551,529,609     498,048,765  
                Net income     $ 412,885   $ 115,891   $ 1,141,491   $ 759,876  
        Basic earnings per share     $ .75   $ .21   $ 2.07   $ 1.53  
Diluted Earnings Per Share:    
        Weighted average number of common shares       553,944,042     551,018,984     551,529,609     498,048,765  
        Add:    
                Dilutive effect of outstanding options (as determined by                            
                         application of treasury stock method)       4,632,777     4,525,009     4,018,002     3,977,242  
        Weighted average number of diluted common shares       558,576,819     555,543,993     555,547,611     502,026,007  
                Net income     $ 412,885   $ 115,891   $ 1,141,491   $ 759,876  
        Diluted earnings per share     $ .74   $ .21   $ 2.05   $ 1.51  


          For the quarters ended September 30, 2004 and 2003, respectively, options to purchase an additional 94 thousand shares and 9.9 million shares of common stock were outstanding, but were not included in the computation of diluted earnings per share because their inclusion would have had an antidilutive effect. For the first nine months of 2004 and 2003, respectively, antidilutive options to purchase 412 thousand shares and 10.0 million shares of common stock were outstanding.

F. Segment Disclosures

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

BB&T Corporation           Page 12          Third Quarter 2004 10-Q


          BB&T emphasizes revenue growth by focusing on client service, sales effectiveness and relationship management. The segment results contained herein are presented based on internal management accounting policies that were designed to support these strategic objectives. Unlike financial accounting, there is no comprehensive authoritative body of guidance for management accounting equivalent to generally accepted accounting principles. Therefore, the performance of the segments is not comparable with BB&T’s consolidated results or with similar information presented by any other financial institution. Additionally, because of the interrelationships of the various segments, the information presented is not indicative of how the segments would perform if they operated as independent entities.

          Please refer to BB&T’s Annual Report on Form 10-K for the year ended December 31, 2003, for a description of internal accounting policies and the basis of segmentation, including a description of the segments presented in the accompanying tables.

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









BB&T Corporation           Page 13          Third Quarter 2004 10-Q



BB&T Corporation
Reportable Segments
For the Three Months Ended September 30, 2004 and 2003

Banking Network Mortgage Banking Trust Services Insurance Services Specialized Lending
2004 2003 2004 2003 2004 2003 2004 2003 2004 2003
  (Dollars in thousands)
   
Net interest income (expense)     $ 530,374   $ 499,705   $ 174,620   $ 174,073   $ (501 ) $ (3,848 ) $ 1,257   $ 368   $ 80,391   $ 58,646  
   Net intersegment interest income (expense)       261,075     177,019     (93,609 )   (78,370 )   2,145     10,276     --     --     --     --  
Total net interest income       791,449     676,724     81,011     95,703     1,644     6,428     1,257     368     80,391     58,646  
Provision for loan and lease losses       60,898     57,071     2,228     2,068     --     --     --     --     27,404     20,408  
Noninterest income       214,045     190,604     22,493     95,446     41,532     29,104     161,049     98,964     13,235     13,592  
   Intersegment noninterest income       87,504     130,859     --     --     --     --     --     --     --     --  
Noninterest expense       314,680     373,434     11,521     14,967     24,490     21,074     109,197     69,967     35,022     29,823  
   Allocated corporate expenses       138,259     123,966     4,828     2,906     12,109     2,039     4,798     3,724     4,313     2,256  
Income before income taxes       579,161     443,716     84,927     171,208     6,577     12,419     48,311     25,641     26,887     19,751  
   Income tax provision (benefit)       191,686     135,204     28,112     52,638     2,250     3,750     18,916     10,687     7,943     5,839  
Segment net income (loss)     $ 387,475   $ 308,512   $ 56,815   $ 118,570   $ 4,327   $ 8,669   $ 29,395   $ 14,954   $ 18,944   $ 13,912  
Identifiable segment assets (period end)     $ 51,236,515   $ 54,080,858   $ 12,103,231   $ 11,679,332   $ 102,234   $ 80,035   $ 1,034,391   $ 642,527   $ 2,460,591   $ 2,012,796  
 
         
  Investment Banking and Brokerage Treasury All Other Segments (1) Intersegment Eliminations Total Segments
  2004 2003 2004 2003 2004 2003 2004 2003 2004 2003
 
Net interest income (expense)     $ 2,270   $ 1,957   $ 53,959   $ 42,617   $ 44,178   $ 40,179   $ --   $ --   $ 886,548   $ 813,697  
   Net intersegment interest income (expense)       --     --     2,829     1,107     --     --     (172,440 )   (110,032 )   --     --  
Total net interest income       2,270     1,957     56,788     43,724     44,178     40,179     (172,440 )   (110,032 )   886,548     813,697  
Provision for loan and lease losses       --     --     42     39     10,255     10,587     --     --     100,827     90,173  
Noninterest income       64,979     66,824     23,742     9,307     32,419     32,872     --     --     584,740     536,713  
   Intersegment noninterest income       --     --     --     --     --     --     (87,504 )   (130,859 )   --     --  
Noninterest expense       56,539     56,195     3,772     4,024     17,962     15,204     --     --     573,183     584,688  
   Allocated corporate expenses       3,500     3,383     604     247     3,751     3,433     --     --     183,408     141,954  
Income before income taxes       7,210     9,203     76,112     48,721     44,629     43,827     (259,944 )   (240,891 )   613,870     533,595  
   Income tax provision (benefit)       2,738     3,555     20,275     10,079     15,595     11,041     (85,552 )   (72,407 )   201,963     160,386  
Segment net income (loss)     $ 4,472   $ 5,648   $ 55,837   $ 38,642   $ 29,034   $ 32,786   $ (174,392 ) $ (168,484 ) $ 411,907   $ 373,209  
Identifiable segment assets (period end)     $ 951,513   $ 1,084,749   $ 23,600,906   $ 16,386,171   $ 4,354,605   $ 4,078,667   $ --   $ --   $ 95,843,986   $ 90,045,135  

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


BB&T Corporation           Page 14          Third Quarter 2004 10-Q



BB&T Corporation
Reportable Segments
For the Nine Months Ended September 30, 2004 and 2003

Banking Network Mortgage Banking Trust Services Insurance Services Specialized Lending
2004 2003 2004 2003 2004 2003 2004 2003 2004 2003
  (Dollars in thousands)
   
Net interest income (expense)     $ 1,526,935   $ 1,291,719   $ 533,704   $ 501,023   $ (2,105 ) $ (11,658 ) $ 3,009   $ 1,107   $ 208,844   $ 165,406  
   Net intersegment interest income (expense)       746,958     514,327     (274,804 )   (212,398 )   6,617     33,444     --     --     --     --  
Total net interest income       2,273,893     1,806,046     258,900     288,625     4,512     21,786     3,009     1,107     208,844     165,406  
Provision for loan and lease losses       185,788     165,621     6,664     4,886     --     --     --     --     69,052     62,019  
Noninterest income       608,484     491,976     92,852     124,529     126,404     85,181     439,124     277,068     38,113     37,829  
   Intersegment noninterest income       272,583     368,633     --     --     --     --     --     --     --     --  
Noninterest expense       951,245     934,216     35,013     43,007     74,557     65,590     316,814     205,211     97,178     84,920  
   Allocated corporate expenses       406,856     368,390     14,506     8,773     34,989     6,070     14,368     11,180     11,545     6,744  
Income before income taxes       1,611,071     1,198,428     295,569     356,488     21,370     35,307     110,951     61,784     69,182     49,552  
   Income tax provision (benefit)       530,049     364,259     97,382     110,447     7,182     10,790     43,568     25,009     20,509     15,512  
Segment net income (loss)     $ 1,081,022   $ 834,169   $ 198,187   $ 246,041   $ 14,188   $ 24,517   $ 67,383   $ 36,775   $ 48,673   $ 34,040  
Identifiable segment assets (period end)     $ 51,236,515   $ 54,080,858   $ 12,103,231   $ 11,679,332   $ 102,234   $ 80,035   $ 1,034,391   $ 642,527   $ 2,460,591   $ 2,012,796  
 
         
  Investment Banking and Brokerage Treasury All Other Segments (1) Intersegment Eliminations Total Segments
  2004 2003 2004 2003 2004 2003 2004 2003 2004 2003
 
Net interest income (expense)     $ 5,605   $ 4,981   $ 178,633   $ 125,158   $ 124,389   $ 119,921   $ --   $ --   $ 2,579,014   $ 2,197,657  
   Net intersegment interest income (expense)       --     --     (1,313 )   8,350     --     --     (477,458 )   (343,723 )   --     --  
Total net interest income       5,605     4,981     177,320     133,508     124,389     119,921     (477,458 )   (343,723 )   2,579,014     2,197,657  
Provision for loan and lease losses       --     --     125     116     39,915     28,700     --     --     301,544     261,342  
Noninterest income       207,508     181,371     59,113     188,791     101,809     135,928     --     --     1,673,407     1,522,673  
   Intersegment noninterest income       --     --     --     --     --     --     (272,583 )   (368,633 )   --     --  
Noninterest expense       176,405     155,057     11,889     11,759     49,072     64,935     --     --     1,712,173     1,564,695  
   Allocated corporate expenses       10,507     10,149     973     742     11,520     10,290     --     --     505,264     422,338  
Income before income taxes       26,201     21,146     223,446     309,682     125,691     151,924     (750,041 )   (712,356 )   1,733,440     1,471,955  
   Income tax provision (benefit)       10,105     8,111     58,932     78,441     40,583     43,993     (244,119 )   (214,121 )   564,191     442,441  
Segment net income (loss)     $ 16,096   $ 13,035   $ 164,514   $ 231,241   $ 85,108   $ 107,931   $ (505,922 ) $ (498,235 ) $ 1,169,249   $ 1,029,514  
Identifiable segment assets (period end)     $ 951,513   $ 1,084,749   $ 23,600,906   $ 16,386,171   $ 4,354,605   $ 4,078,667   $ --   $ --   $ 95,843,986   $ 90,045,135  

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


BB&T Corporation           Page 15          Third Quarter 2004 10-Q




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

  For the Three Months Ended For the Nine Months Ended
  September 30, September 30,
  2004 2003 2004 2003
(Dollars in thousands)
Net Interest Income
      Net interest income from segments     $ 886,548   $ 813,697   $ 2,579,014   $ 2,197,657  
      Other net interest income (expense) (1)       71,058     23,330     225,366     202,090  
      Elimination of management accounting practices (2)       (104,237 )   (100,954 )   (301,390 )   (273,758 )
      Other, net (3)       2,287     70,385     (808 )   76,067  
           Consolidated net interest income     $ 855,656   $ 806,458   $ 2,502,182   $ 2,202,056  
Net income    
      Net income from segments     $ 411,907   $ 373,209   $ 1,169,249   $ 1,029,514  
      Other net income (loss) (1)       56,494     (13,545 )   153,526     159,329  
      Elimination of management accounting practices (2)       20,090     33,683     70,505     71,414  
      Other, net (3)       (75,606 )   (277,456 )   (251,789 )   (500,381 )
           Consolidated net income     $ 412,885   $ 115,891   $ 1,141,491   $ 759,876  
 
      September 30, September 30,
      2004 2003
Total Assets    
      Total assets from segments                 $ 95,843,986   $ 90,045,135  
      Other, net (1,3)                   2,036,411     309,996  
           Consolidated total assets                 $ 97,880,397   $ 90,355,131  


(1)  

Other net interest income (expense), other net income (loss) and other, net, include amounts applicable to BB&T's support functions that are not allocated to the reported segments.

(2)  

BB&T's reconciliation of total segment results to consolidated results requires the elimination of the internal management accounting practices. These adjustments include the elimination of the funds transfer pricing credits and charges and the elimination of allocated corporate expenses.

(3)  

Amounts reflect intercompany eliminations to arrive at consolidated results.


G. Stock-Based Compensation

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

BB&T Corporation           Page 16          Third Quarter 2004 10-Q




For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
(Dollars in thousands, except per share data)
Net income:
       Net income as reported     $ 412,885   $ 115,891   $ 1,141,491   $ 759,876  
            Add: Stock-based compensation expense    
                  included in reported net income, net of tax       92     133     334     441  
            Deduct: Total stock-based employee                            
                  compensation expense determined under                            
                   fair value based method for all awards,                          
                  net of tax       (5,267 )   (6,540 )   (19,161 )   (22,485 )
       Pro forma net income     $ 407,710   $ 109,484   $ 1,122,664   $ 737,832  
Basic EPS:    
       As reported     $ .75   $ .21   $ 2.07   $ 1.53  
       Pro forma       .74     .20     2.04     1.48  
Diluted EPS:    
       As reported       .74     .21     2.05     1.51  
       Pro forma       .73     .20     2.02     1.47  

          The fair value of each option grant was estimated as of the date of grant using the Black-Scholes option-pricing model, with the following weighted-average assumptions used for grants in 2004 and 2003, respectively: dividend yield of 3% in 2004 and 2003; expected volatility of 27% in 2004 and 2003; risk free interest rates of 4.0% and 3.5% for the third quarter and first nine months of 2004; risk free interest rates of 3.7% and 3.1% for the third quarter and first nine months of 2003; expected lives of 6.6 years and 6.8 years for the third quarters of 2004 and 2003; and expected lives of 6.0 years for the first nine months of both 2004 and 2003.

H. Off-Balance Sheet Arrangements and Guarantees

          BB&T’s significant off-balance sheet arrangements include certain investments in low-income housing and historic building rehabilitation projects throughout its market area. BB&T enters into such arrangements as a means of supporting local communities, and recognizes tax credits relating to its investments. At September 30, 2004, and December 31, 2003, BB&T’s investments in such projects totaled $32.6 million and $12.7 million, respectively. BB&T typically acts as a limited partner in these investments and does not exert control over the operating or financial policies of the partnerships. BB&T’s subsidiary banks typically provide financing during the construction and development of the properties; however, permanent financing is generally obtained from independent third parties upon completion of a project. Outstanding commitments to fund low-income housing investments totaled $179.8 million and $215.0 million at September 30, 2004 and December 31, 2003, respectively.

BB&T Corporation           Page 17          Third Quarter 2004 10-Q


Guarantees

          Standby letters of credit, which include performance and financial guarantees, are unconditional commitments issued by BB&T to guarantee the performance of customers to third parties. 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 issuing these guarantees is essentially the same as that involved in extending loans to clients and as such, is collateralized when appropriate. As of September 30, 2004, BB&T had issued a total of $1.3 billion in standby letters of credit. BB&T’s estimated liability for such guarantees at September 30, 2004, was $.5 million, which was included in other liabilities.

          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 or threatened litigation. BB&T also issues standard representations, warranties and indemnifications in underwriting agreements, merger and acquisition agreements, loan sales, brokerage activities and other similar arrangements. Counterparties in many of these indemnifications provide similar indemnifications to BB&T. Although these agreements often do not specify limitations, BB&T has not been required to act on the guarantees and does not believe that any payments pursuant to them would materially change the financial condition or results of operations as presented herein.

          Merger and acquisition agreements for businesses other than financial institutions occasionally include additional incentives to the acquired entities to offset the loss of future cash flows previously received through ownership positions. Typically, these incentives are based on the acquired entity’s contribution to BB&T’s earnings compared to agreed-upon amounts. When offered, these incentives are typically issued for terms of three to eight years. In the aggregate, the maximum potential contingent consideration payable under such agreements is $146.4 million over the next five years.









BB&T Corporation           Page 18          Third Quarter 2004 10-Q



I. Goodwill and Other Intangibles

          The changes in the carrying amount of goodwill attributable to each of BB&T’s operating segments for the nine months ended September 30, 2004, and the year ended December 31, 2003, are as follows:

Goodwill Activity by Operating Segment
(Dollars in thousands)
               
          Investment    
  Banking Mortgage Trust Insurance Banking and Specialized  
Network Banking Services Services Brokerage Lending Total
               
Balance, December 31, 2002     $ 1,361,988   $ 7,459   $ 27,330   $ 227,723   $ 70,905   $ 27,974   $ 1,723,379  
            Acquired goodwill, net       1,913,358     --     --     41,529     --     1,739     1,956,626  
            Adjustments to goodwill (1)       (62,829 )   --     --     --     (650 )   --     (63,479 )
Balance, December 31, 2003       3,212,517     7,459     27,330     269,252     70,255     29,713     3,616,526  
            Acquired goodwill, net       213,980     --     4,380     257,845     --     3,694     479,899  
            Adjustments to goodwill (1)       (23,041 )   --     331     20,847     847     657     (359 )
Balance, September 30, 2004     $ 3,403,456   $ 7,459   $ 32,041   $ 547,944   $ 71,102   $ 34,064   $ 4,096,066  

           (1)   Adjustments reflect allocations of purchase price subsequent to the dates of acquisition.

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

Identifiable Intangible Assets
(Dollars in thousands)
             
As of September 30, 2004 As of December 31, 2003
Gross Net Gross Net
Carrying Accumulated Carrying Carrying Accumulated Carrying
Amount Amortization Amount Amount Amortization Amount
             
Identifiable intangible assets:                            
        Core deposit intangibles     $ 364,937   $ (119,629 ) $ 245,308   $ 321,851   $ (77,447 ) $ 244,404  
        Other (1)       345,725     (64,927 )   280,798     187,644     (30,104 )   157,540  
           Totals     $ 710,662   $ (184,556 ) $ 526,106   $ 509,495   $ (107,551 ) $ 401,944  

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

           During the nine months ended September 30, 2004, and 2003, BB&T recorded $77.0 million and $34.6 million, respectively, in amortization expenses associated with identifiable intangible assets.



BB&T Corporation           Page 19          Third Quarter 2004 10-Q



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

Estimated Amortization Expense
of Identifiable Intangible Assets
(Dollars in thousands)
   
For the Year Ending December 31:
2004     $ 104,605  
2005       96,698  
2006       84,885  
2007       73,907  
2008       63,613  

J. Benefit Plans

          BB&T provides various benefit plans to substantially all employees. Employees of acquired entities generally participate in existing BB&T plans soon after consummation of the business combinations. The plans of acquired institutions are typically merged into the BB&T plans upon 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, 2003, for descriptions and disclosures about the various benefit plans offered by BB&T.

          In October 2004, BB&T amended its postretirement benefit plan to eliminate the health care subsidy effective January 1, 2005 for new retirees, and reduce the subsidy paid to existing retirees. The amendment is expected to reduce the projected benefit obligation by approximately $96 million and reduce benefit-related expenses in future periods.

          The following table summarizes the components of net periodic benefit cost recognized for the three-month and nine-month periods ended September 30, 2004, and 2003, respectively:










BB&T Corporation           Page 20          Third Quarter 2004 10-Q



Pension Plans Other Postretirement
Qualified Nonqualified Benefit Plans
For the For the For the
Nine months ended Nine months ended Nine months ended
September 30, September 30, September 30,
2004 2003 2004 2003 2004 2003
(Dollars in thousands)
Service cost     $ 38,094   $ 28,218   $ 2,460   $ 2,663   $ 2,809   $ 1,948  
Interest cost       37,306     28,221     4,369     4,833     5,230     4,287  
Estimated return on plan assets       (53,210 )   (35,388 )   --     --     --     --  
Amortization of unrecognized    
  transition (asset) obligation       --     (1,083 )   45     69     163     165  
Amortization of prior service cost       (3,443 )   (2,889 )   1,320     6     575     575  
Amortization of net (gain) loss       7,292     9,195     1,218     1,569     --     --  
Net periodic benefit cost     $ 26,039   $ 26,274   $ 9,412   $ 9,140   $ 8,777   $ 6,975  
             
Pension Plans Other Postretirement
Qualified Nonqualified Benefit Plans
For the For the For the
Quarter ended Quarter ended Quarter ended
September 30, September 30, September 30,
2004 2003 2004 2003 2004 2003
(Dollars in thousands)
Service cost     $ 11,036   $ 9,406   $ 916   $ 888   $ 824   $ 758  
Interest cost       12,000     11,169     1,489     1,804     1,410     1,736  
Estimated return on plan assets       (19,262 )   (14,004 )   --     --     --     --  
Amortization of unrecognized    
  transition (asset) obligation       --     (361 )   15     23     53     55  
Amortization of prior service cost       (1,147 )   (963 )   (1,146 )   2     191     191  
Amortization of net (gain) loss       (588 )   3,065     544     523     (199 )   --  
Net periodic benefit cost     $ 2,039   $ 8,312   $ 1,818   $ 3,240   $ 2,279   $ 2,740  

          BB&T previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2003, that it did not anticipate making a contribution to the defined benefit pension plans during 2004 and is not required to make any contributions. However, management elected to make a discretionary contribution of $25.0 million in the second quarter of 2004 and plans to make an additional discretionary contribution of $8.3 million during the fourth quarter of 2004.

          BB&T previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2003, that it anticipated contributing $8.1 million to the postretirement benefit plan during 2004. Based on projections at September 30, 2004, the expected 2004 contributions to the plan total $5.3 million.

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BB&T Corporation           Page 21          Third Quarter 2004 10-Q



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

Forward-Looking Statements

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

Critical Accounting Policies

          The accounting and reporting policies of BB&T Corporation and its subsidiaries are in accordance with accounting principles generally accepted in the United States and conform to general practices within the banking industry. BB&T’s financial position and results of operations are affected by management’s application of accounting policies, including estimates, assumptions and judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues and expenses. Different assumptions in the application of these policies could result in material changes in BB&T’s consolidated financial position and/or consolidated results of operations. The more critical accounting and reporting policies include BB&T’s accounting for the allowance for loan and lease losses, valuation of mortgage servicing rights, valuing intangible assets associated with mergers and acquisitions, costs and benefit obligations associated with BB&T’s pension and postretirement benefit plans, and income taxes. Understanding BB&T’s accounting policies is fundamental to understanding BB&T’s consolidated financial position and consolidated results of operations. Accordingly, BB&T’s significant accounting policies are discussed in detail in Note 1 in the “Notes to Consolidated Financial Statements” in BB&T’s 2003 Annual Report on Form 10-K filed with the Securities and Exchange Commission.

BB&T Corporation           Page 22          Third Quarter 2004 10-Q



          The following is a summary of BB&T’s critical accounting policies that are highly dependent on estimates, assumptions and judgments.

          It is the policy of BB&T to maintain an allowance for loan and lease losses that equals management’s best estimate of probable losses that are inherent in the portfolio at the balance sheet date. Estimates of loan and lease losses are determined by analyzing historical loan and lease losses, current trends in delinquencies and charge-offs, plans for problem loan and lease administration, the results of regulatory examinations, and changes in the size, composition and risk assessment of the loan and lease portfolio. Also included in management’s estimates of loan and lease losses are considerations with respect to the impact of economic events, the outcome of which is uncertain. These events may include, but are not limited to, fluctuations in overall interest rates, political conditions, legislation that directly or indirectly affects the banking industry and economic conditions affecting specific geographical areas and industries in which BB&T conducts business.

          BB&T has a mortgage loan-servicing portfolio and related mortgage servicing rights. Mortgage servicing rights represent the present value of the future net servicing fees from servicing mortgage loans acquired or originated by BB&T. The most critical accounting policy associated with mortgage servicing is the methodology used to determine the fair value of mortgage servicing rights, which requires the development of a number of assumptions, including anticipated loan principal amortization and prepayments of principal. The value of mortgage servicing rights is significantly affected by mortgage interest rates available in the marketplace, which influence the speed of mortgage loan prepayments. In general, during periods of declining interest rates, the value of mortgage servicing assets declines due to increasing prepayments attributable to increased mortgage refinance activity. Conversely, during periods of rising interest rates, the value of servicing assets generally increases due to reduced refinance activity. BB&T amortizes mortgage servicing rights over the estimated period that servicing income is expected to be received based on projections of the amount and timing of future cash flows. The amount and timing of servicing asset amortization is adjusted quarterly based on actual results and updated projections.

          BB&T’s growth in business, profitability and market share over the past several years has been enhanced significantly by mergers and acquisitions. For purchase acquisitions, BB&T is required to record the assets acquired, including identified intangible assets and liabilities assumed, at their fair value, which in many instances involves estimates based on third party valuations, such as appraisals or internal valuations based on discounted cash flow analyses or other valuation techniques. The determination of the useful lives of intangible assets is subjective, as is the appropriate amortization period for such intangible assets. These estimates also include the establishment of various accruals and allowances based on planned facilities dispositions and employee severance considerations, among other acquisition-related items. In addition, purchase acquisitions typically result in goodwill, which is subject to periodic impairment tests based on the fair value of net assets acquired compared to the carrying value of goodwill.

BB&T Corporation           Page 23          Third Quarter 2004 10-Q



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

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

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EXECUTIVE SUMMARY

          BB&T’s total assets at September 30, 2004, were $97.9 billion, an increase of $7.4 billion, or 8.2%, from December 31, 2003. The asset categories that experienced the largest increases were securities available for sale and loans and leases, including loans held for sale, which grew $2.9 billion, or 18.8%, and $4.5 billion, or 7.2%, respectively, during the first nine months of 2004.

          Total deposits at September 30, 2004 were $65.8 billion, an increase of $6.4 billion, or 10.8%, from December 31, 2003. Short-term borrowed funds decreased $870.2 million, or 11.9%, and long-term debt increased $337.8 million, or 3.1%, during the first nine months of 2004. Total shareholders’ equity increased $860.2 million, or 8.7%, during the same time frame.

          Consolidated net income for the third quarter of 2004 totaled $412.9 million, an increase of 256.3% compared to the $115.9 million earned during the third quarter of 2003. On a diluted per share basis, earnings for the three months ended September 30, 2004, were $.74, compared to $.21 for the same period in 2003, an increase of 252.4%. BB&T’s results of operations for the third quarter of 2004 produced an annualized return on average assets of 1.69% and an annualized return on average shareholders’ equity of 15.42% compared to prior year ratios of .51% and 4.50%, respectively.

          Consolidated net income for the first nine months of 2004 totaled $1.1 billion, an increase of 50.2% compared to the $759.9 million earned during the same period in 2003. On a diluted per share basis, earnings for the first nine months of 2004 and 2003 were $2.05 and $1.51, respectively, which represents an increase of 35.8%. BB&T’s results of operations for the first nine months of 2004 produced an annualized return on average assets of 1.60% and an annualized return on average shareholders’ equity of 14.53% compared to prior year ratios of 1.21% and 11.97%, respectively. The results for the third quarter and first nine months of 2003 include $248.5 million in after-tax losses resulting from the early extinguishment of debt completed as part of the balance sheet restructuring described in the “Borrowings” section herein.

BB&T Corporation           Page 24          Third Quarter 2004 10-Q



          Results during the third quarter and first nine months of 2004 reflect improvements in several key drivers of BB&T’s profitability. Among these were continued improvement in asset quality and improving expense control as well as higher revenues from noninterest income generating businesses, with the exception of mortgage banking income. Please refer to BB&T’s Annual Report on Form 10-K for the year ended December 31, 2003, for additional information with respect to BB&T’s recent accomplishments and significant challenges. The factors causing the fluctuations in the major balance sheet and income statement categories for the third quarter and first nine months of 2004 are further discussed in the following sections.

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ANALYSIS OF FINANCIAL CONDITION

Loans and Leases

          BB&T emphasizes commercial lending to small and medium-sized businesses, consumer lending and mortgage lending with an overall goal of maximizing the profitability of the loan portfolio while maintaining strong asset quality. For the first nine months of 2004, average total loans were $65.7 billion, an increase of $9.1 billion, or 16.1%, compared to the same period in 2003. During the first nine months of 2004, average commercial loans, including lease receivables, increased $3.0 billion, or 10.2%, compared to the same period in 2003 and composed 49.8% of the loan portfolio compared to 52.4% for the first nine months of 2003. Average consumer loans, which include sales finance, revolving credit and direct retail, totaled $20.4 billion during the third quarter of 2004, an increase of $4.7 billion, or 29.7%, compared to the same period in 2003. During the first nine months of 2004, consumer loans composed 31.0% of average loans compared to 27.8% for the first nine months of 2003. Average mortgage loans totaled $12.6 billion for the first nine months of 2004, which represents an increase of $1.4 billion, or 12.6%, from the 2003 average and composed the remaining 19.2% of the loan and lease portfolio compared to 19.8% for the same period of 2003.

          For the third quarter of 2004, average total loans were $66.9 billion, an increase of $5.4 billion, or 8.7%, compared to the same period in 2003. Average commercial loans and leases for the third quarter of 2004 totaled $33.5 billion, up $2.8 billion, or 9.1%, compared to the same period in 2003 and composed 50.1% of the loan and lease portfolio compared to 50.0% for the third quarter of 2003. Average consumer loans totaled $20.9 billion for the third quarter of 2004, an increase of $1.9 billion, or 10.2%, compared to the same period in 2003 and composed 31.3% of the loan and lease portfolio compared to 30.9% in 2003. Average mortgage loans totaled $12.4 billion for the current quarter, which represents an increase of $638.3 million, or 5.4%, from the 2003 average and composed the remaining 18.6% of the loan and lease portfolio compared to 19.1% for the same period of 2003.

BB&T Corporation           Page 25          Third Quarter 2004 10-Q



          During the third quarter of 2004, BB&T securitized $1.0 billion in residential mortgage loans and transferred the related mortgage-backed securities to the available for sale securities portfolio. The securitization was undertaken to rebalance the loan portfolio which had grown significantly as a result of strong mortgage loan originations over the last two years and the retention, rather than sale, of approximately $3.6 billion in fixed-rate mortgage loans as part of the balance sheet restructuring completed during 2003.

          The growth rates of the average loans described above were affected by the $1.0 billion securitization in the third quarter of 2004 and by loan portfolios held by companies that were acquired in purchase transactions during 2004 and 2003. In particular, on July 1, 2003, loans totaling $6.3 billion were acquired through the purchase of First Virginia Banks, Inc. (“First Virginia”). On April 14, 2004, loans totaling $1.7 billion were acquired through the purchase of Republic Bancshares, Inc. (“Republic”).

          The annualized fully taxable equivalent ("FTE") yields on commercial, consumer and mortgage loans for the first nine months of 2004 were 5.31%, 6.77%, and 5.61%, respectively, resulting in an annualized yield on the total loan portfolio of 5.82%. The FTE yields on commercial, consumer and mortgage loans for the first nine months of 2003 were 5.60%, 7.56%, and 6.11%, respectively, resulting in an annualized yield on the total loan portfolio of 6.24%. This reflects a decrease of 42 basis points in the annualized yield on the total loan portfolio during the first nine months of 2004 in comparison to 2003. For the third quarter of 2004, the annualized yield on the total loan portfolio was 5.90%, reflecting a decrease of 12 basis points compared to the third quarter of 2003. The decreases in yields for both the nine months and the third quarter resulted primarily from the runoff of higher-yielding fixed-rate loans and more competition in loan pricing. The impact on interest income from loans and leases from the decrease in the yield on the portfolio was more than offset by the acquisition of First Virginia and strong internal loan growth thus far during 2004 and, as a result, interest income from loans and leases on an FTE basis increased 6.3% and 8.3% in the third quarter and first nine months of 2004, respectively, compared to the same periods of 2003.

Securities

          Securities available for sale totaled $18.5 billion at September 30, 2004, an increase of $2.9 billion, or 18.8%, compared with December 31, 2003. Securities available for sale had net unrealized losses, net of deferred income taxes, of $48.1 million at September 30, 2004, compared to net unrealized gains, net of deferred income taxes, of $11.5 million at December 31, 2003. Average total securities for the first nine months of 2004 amounted to $18.0 billion, an increase of 5.2% compared to the average balance during the first nine months of 2003. Average total securities for the third quarter of 2004 amounted to $18.4 billion, an increase of 5.7% compared to the average balance for the third quarter of 2003. The increase in securities available for sale was the result of a combination of factors including the securitization of approximately $1.0 billion in mortgage loans during the third quarter of 2004 and the investment of funds generated by deposit growth.

          Trading securities totaled $445.6 million, down $248.2 million compared to the balance at December 31, 2003. The decrease in trading securities primarily resulted from management’s decision to liquidate the portion of the trading portfolio being used as an economic risk management strategy in connection with BB&T’s mortgage servicing rights.

BB&T Corporation           Page 26          Third Quarter 2004 10-Q



          The annualized FTE yield on the average securities portfolio for the first nine months of 2004 was 4.08%, a decrease of 87 basis points from the annualized yield earned in the first nine months of 2003. During the third quarter of 2004, the annualized yield on the securities portfolio was 3.96%, a decrease of 32 basis points compared to the third quarter of 2003. These decreases in yield resulted principally from the prolonged low interest rate environment and purchases of lower-yielding securities. As BB&T’s higher-yielding securities matured, sold, or were called, the resulting cash flows were reinvested in lower-yielding securities paying then-current market interest rates.

          On September 30, 2004, BB&T held certain investments having continuous unrealized loss positions for more than 12 months totaling $130.8 million. Substantially all of these investments were in U.S. Treasuries and U.S. government agency obligations, the cash flows of which are guaranteed by the U.S. government or its agencies; therefore, it is expected that the securities would not be settled at a price less than their amortized cost. Because the decline in market value was caused by interest rate increases and not credit quality, and because BB&T has the ability and intent to hold these investments until a recovery of fair value, which may be maturity, BB&T has not recognized any other-than-temporary impairment in connection with these investments.

Other Interest Earning Assets

           Federal funds sold and securities purchased under resale agreements or similar arrangements totaled $256.1 million at September 30, 2004, a decrease of $76.8 million, or 23.1%, compared to December 31, 2003. Interest-bearing deposits with banks increased $15.3 million, or 5.6%, compared to year-end 2003. These categories of earning assets are subject to large daily fluctuations based on the availability of these types of funds. The average yield on other interest-earning assets for the first nine months of 2004 was 1.65%, up 32 basis points compared to the first nine months of 2003. For the third quarter of 2004, the average yield on other interest-earning assets was 2.06%, up from 1.13% in the third quarter last year.

Goodwill and Other Assets

          BB&T’s other noninterest-earning assets, excluding premises and equipment and noninterest-bearing cash and due from banks, increased $747.4 million from December 31, 2003, to September 30, 2004. The increase was due primarily to additional goodwill and other intangibles resulting from the acquisitions of McGriff, Seibels & Williams Inc., (“McGriff”) and Republic, which totaled $396.0 million and $258.4 million, respectively, as well as an increase in the cash surrender value of bank-owned life insurance in the amount of $68.3 million.

          Other noninterest-earning assets also include commercial mortgage servicing rights totaling $13.2 million and residential mortgage servicing rights totaling $327.4 million, net of an allowance for impairment, which totaled $112.9 million at September 30, 2004.

BB&T Corporation           Page 27          Third Quarter 2004 10-Q



Deposits

          Deposits totaled $65.8 billion at September 30, 2004, an increase of $6.4 billion, or 10.8%, from December 31, 2003. Average deposits for the first nine months of 2004 increased $8.8 billion, or 15.8%, to $64.3 billion compared to the first nine months of 2003. The categories of deposits with the highest average rates of growth were money rate savings accounts, including investor deposit accounts, which increased $4.0 billion, or 22.7%, noninterest-bearing deposits, which increased $2.4 billion, or 26.7%, and savings and interest checking accounts, which increased $1.1 billion, or 28.9%.

          For the third quarter of 2004, average deposits increased $3.4 billion, or 5.4%, compared to the third quarter of 2003. The categories of deposits with the highest average rates of growth were average money rate savings accounts, noninterest-bearing deposits, and savings and interest checking accounts, which increased $2.6 billion, $852.7 million, and $316.4 million, respectively, for the third quarter of 2004, representing increases of 13.1%, 7.7%, and 7.0%, respectively, compared to the third quarter of 2003.

          The growth in average deposits during the first nine months of 2004 compared to the corresponding period of 2003 includes the effect of deposits acquired in purchase accounting transactions completed during 2004 and 2003. In particular, the purchase of First Virginia at the beginning of the third quarter of 2003 and the purchase of Republic during the second quarter of 2004 added $9.5 billion and $2.5 billion, respectively, in deposits.

          In addition to the positive growth in client deposits over the last two years, there has been a shift in the overall deposit mix from certificate accounts and other time deposits to lower-cost transaction accounts such as noninterest-bearing deposits and money rate savings accounts. This shift reflects the reduced attractiveness of time deposits and client preferences for more liquid investments in a low interest rate environment, as well as BB&T’s efforts to emphasize growth in noninterest-bearing accounts.

          The annualized average rate paid on total interest-bearing deposits during the first nine months of 2004 was 1.32%, a decrease of 36 basis points compared to 2003. For the third quarter of 2004, the average rate paid on total interest-bearing deposits was 1.36%, a decrease of 8 basis points compared to the third quarter of 2003. These decreases in the average rates paid resulted from the lower interest rate environment that existed during 2004 compared to 2003, and the shift in deposit mix from certificates of deposit and higher-cost time deposits to lower-cost savings and transaction accounts.

Borrowings

          While client deposits remain the primary source for funding loan originations and other balance sheet growth, management uses short-term borrowings as a supplementary funding source. At September 30, 2004, short-term borrowed funds totaled $6.5 billion, a decrease of $870.2 million, or 11.9%, compared to December 31, 2003. The decrease in short-term borrowed funds compared to December 31, 2003, which are mainly composed of federal funds purchased, was primarily a result of healthy deposit growth, which provided sufficient resources for funding loan and other balance sheet growth. For the third quarter of 2004, average short-term borrowed funds were $7.0 billion, an increase of $1.3 billion, or 22.0%, from the comparable period of 2003. For the nine months ended September 30, 2004, average short-term borrowed funds increased $1.9 billion, or 39.6%, compared to the same period in 2003.

BB&T Corporation           Page 28          Third Quarter 2004 10-Q



          The average annualized rate paid on short-term borrowed funds was 1.21% for the first nine months of 2004, an increase of 2 basis points from the average rate of 1.19% paid in the comparable period of 2003. The average rate paid on short-term borrowed funds was 1.47% in the third quarter of 2004, an increase of 48 basis points compared to the rate paid in the third quarter of 2003. These increases in the cost of short-term borrowed funds resulted from recent actions by the Federal Reserve Board, which increased the targeted federal funds rate by 75 basis points in the third quarter of 2004 to 1.75% from its lowest level of 1.00% set in June 2003.

          Long-term debt consists primarily of Federal Home Loan Bank (“FHLB”) advances to BB&T’s banking subsidiaries and corporate subordinated notes. Long-term debt has been utilized for a variety of funding needs, including the repurchase of common stock. Long-term debt totaled $11.1 billion at September 30, 2004, up $337.8 million, or 3.1%, from the balance at December 31, 2003. During the third quarter of 2004, Branch Bank issued $500 million of senior floating rate debt maturing in June 2007 and, on October 27, 2004; BB&T Corporation issued $600 million of subordinated global notes maturing in November 2019. For the third quarter of 2004, average long-term debt totaled $10.8 billion, an increase of $554.4 million, or 5.4%, compared to the third quarter of 2003. For the nine months ended September 30, 2004, average long-term borrowed funds were $10.7 billion, down $1.6 billion, or 13.2%, compared to the first nine months of 2003. The average annualized rate paid on long-term borrowed funds was 3.43% for the first nine months of 2004, a decrease of 53 basis points from the average rate of 3.96% paid during the first nine months of 2003. The average annualized rate paid on long-term debt for the third quarter of 2004 was 3.54%, a decrease of 6 basis points compared to the third quarter of 2003.

          The decrease in the average balance of long-term debt and average annualized interest rate paid compared to the first nine months of 2003 were primarily the result of a balance sheet restructuring completed during the second and third quarters of 2003, which was intended to improve net interest income and the net interest margin. As part of the restructuring, BB&T refinanced $3.0 billion of long-term FHLB advances, thus lowering the current annual interest rate paid on these advances during the next five years, after which the FHLB has an option to increase the interest rate paid on such advances depending on market rates then available. In addition, BB&T prepaid $2.9 billion in long-term FHLB advances as part of the restructuring in 2003 and restructured an additional $1.9 billion in the first quarter of 2004 because of the availability of more cost-effective funding sources.

BB&T Corporation           Page 29          Third Quarter 2004 10-Q



Asset Quality

          Nonperforming assets, composed of foreclosed real estate, repossessions, nonaccrual loans and restructured loans, totaled $389.5 million at September 30, 2004, compared to $447.1 million at December 31, 2003. As a percentage of loans and leases plus foreclosed property, nonperforming assets were .58% at September 30, 2004, down from .72% at December 31, 2003. Loans 90 days or more past due and still accruing interest totaled $99.8 million at September 30, 2004, compared to $116.8 million at year-end 2003.

           BB&T’s net charge-offs totaled $56.6 million for the third quarter and amounted to .34% of average loans and leases, on an annualized basis, compared to $61.8 million, or .40% of average loans and leases, on an annualized basis, in the corresponding period in 2003. For the nine months ended September 30, 2004 and 2003, net charge-offs totaled $171.0 million and $182.7 million, respectively, and represented .35% and .43%, respectively, of average loans and leases on an annualized basis.

          The allowance for loan and lease losses totaled $816.6 million at September 30, 2004, compared to $784.9 million at December 31, 2003, an increase of 4.0%. The allowance amounted to 1.22% of loans and leases outstanding at September 30, 2004, compared to 1.26% at year-end 2003. The allowance for loan and lease losses as a percentage of loans held for investment was 1.23% and 1.27% of loans and leases at September 30, 2004 and December 31, 2003, respectively.

          The above levels of nonperforming assets as a percentage of total assets and quarterly net charge-offs as a percentage of average loans are the lowest combined asset quality indicators experienced by BB&T in more than three years. During the last five quarters, BB&T’s credit quality has steadily improved as demonstrated by the successive quarterly declines in the level of nonperforming assets. In addition, net charge-offs for the third quarter and first nine months of 2004 declined compared to the same periods last year. These positive trends in asset quality are the primary factors that have resulted in a lower allowance for loan and lease losses as a percentage of total loans. In addition, management’s decision to retain, rather than sell, $3.6 billion of fixed rate residential mortgage loans affected the decrease in the allowance as a percentage of loans and leases because mortgage loans normally have lower credit risk and; therefore, require a lower relative allowance in comparison to commercial or consumer loans.

          The provision for loan and lease losses for the third quarter of 2004 was $57.0 million compared to $65.0 million during the same period in 2003. For the nine months ended September 30, 2004, the provision for loan and lease losses totaled $183.5 million compared to $189.5 million in 2003.

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

BB&T Corporation           Page 30          Third Quarter 2004 10-Q



ASSET QUALITY ANALYSIS
 (Dollars in thousands)

For the Three Months Ended
9/30/04 6/30/04 3/31/04 12/31/03 9/30/03
Allowance For Loan & Lease Losses                        
     Beginning balance   $816,330   $790,271   $784,937   $791,527   $719,576  
     Allowance for acquired (sold) loans, net    (170 )  19,284    --    --    68,768  
     Provision for loan and lease losses    57,000    64,000    62,500    58,500    65,000  
        Charge-offs  
           Commercial loans and leases    (23,858 )  (23,740 )  (22,176 )  (38,577 )  (27,194 )
           Direct retail loans    (12,170 )  (11,538 )  (11,295 )  (12,395 )  (10,340 )
           Sales finance loans    (22,225 )  (21,664 )  (22,518 )  (21,856 )  (23,309 )
           Revolving credit loans    (12,383 )  (12,531 )  (14,286 )  (12,279 )  (12,387 )
           Mortgage loans    (1,207 )  (1,916 )  (1,375 )  (1,733 )  (1,523 )
        Total charge-offs    (71,843 )  (71,389 )  (71,650 )  (86,840 )  (74,753 )
        Recoveries  
           Commercial loans and leases    6,210    4,216    6,057    13,703    4,102  
           Direct retail loans    2,090    2,675    2,489    2,442    3,269  
           Sales finance loans    4,317    4,165    3,511    3,279    3,305  
           Revolving credit loans    2,555    2,557    2,178    2,205    2,155  
           Mortgage loans    99    551    249    121    105  
        Total recoveries    15,271    14,164    14,484    21,750    12,936  
     Net charge-offs    (56,572 )  (57,225 )  (57,166 )  (65,090 )  (61,817 )
        Ending balance   $816,588   $816,330   $790,271   $784,937   $791,527  
Nonperforming Assets  
     Nonaccrual loans and leases  
           Commercial loans and leases   $173,303   $199,718   $218,111   $219,558   $226,655  
           Direct retail loans    48,792    50,968    52,426    50,085    47,618  
           Sales finance loans    15,484    13,152    12,062    13,082    14,182  
           Revolving credit loans    374    369    367    342    354  
           Mortgage loans    62,871    61,132    62,756    67,373    66,611  
     Total nonaccrual loans and leases    300,824    325,339    345,722    350,440    355,420  
     Foreclosed real estate    67,329    68,035    74,832    78,964    70,178  
     Other foreclosed property    20,821    18,995    21,247    17,106    20,902  
     Restructured loans    563    566    573    592    613  
        Total nonperforming assets   $389,537   $412,935   $442,374   $447,102   $447,113  
     Loans 90 days or more past due  
        and still accruing  
           Commercial loans and leases   $11,463   $11,180   $18,885   $17,759   $34,965  
           Direct retail loans    22,382    21,015    20,359    25,695    24,019  
           Sales finance loans    20,766    20,732    26,091    27,863    18,379  
           Revolving credit loans    4,797    4,116    4,644    5,601    4,626  
           Mortgage loans    40,397    38,698    33,917    39,840    39,918  
        Total loans 90 days or more past due  
           and still accruing   $99,805   $95,741   $103,896   $116,758   $121,907  
           
           

BB&T Corporation           Page 31          Third Quarter 2004 10-Q



ASSET QUALITY RATIOS
           
For the Three Months Ended
9/30/04 6/30/04 3/31/04 12/31/03 9/30/03
Loans 90 days or more past due and still                                  
     accruing as a percentage of total loans                               
     and leases*    .15  %  .14  %  .16  %  .19  %  .20  %
Nonaccrual and restructured loans and leases  
     as a percentage of total loans and leases*    .45    .49    .54    .56    .58  
Total nonperforming assets as a percentage of:                              
     Total assets    .40    .42    .47    .49    .49  
     Loans and leases plus foreclosed property*    .58    .62    .69    .72    .73  
Net charge-offs as a percentage of                              
     average loans and leases*    .34    .34    .36    .42    .40  
Allowance for loan and lease losses as a                              
     percentage of loans and leases*    1.22    1.22    1.23    1.26    1.29  
Allowance for loan and lease losses as a                              
     percentage of loans and leases                              
     held for investment    1.23    1.23    1.25    1.27    1.32  
Ratio of allowance for loan and lease losses to:  
     Net charge-offs*    3.63  x  3.55  x  3.44  x  3.04  x  3.23  x
     Nonaccrual and restructured loans and leases    2.71    2.50    2.28    2.24    2.22  

*   Includes loans held for sale and is net of unearned income. Applicable ratios are annualized.

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MARKET RISK MANAGEMENT

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

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


BB&T Corporation           Page 32          Third Quarter 2004 10-Q




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

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

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

          The following table shows the effect that the indicated changes in interest rates would have on net interest income as projected for the next 12 months under the “most likely” interest rate scenario incorporated into the Interest Sensitivity Simulation computer model. Key assumptions in the preparation of the table include prepayment speeds of mortgage-related assets, cash flows and maturities of derivative financial instruments, changes in market conditions, loan volumes and pricing, deposit sensitivity, customer preferences, and capital plans. The resulting change in net interest income reflects the level of sensitivity that net interest income has in relation to changing interest rates.

BB&T Corporation           Page 33          Third Quarter 2004 10-Q



Interest Sensitivity Simulation Analysis


Interest Rate Scenario Annualized Hypothetical
      Percentage Change in
Linear Prime Rate Net Interest Income
Change in September 30, September 30,
Prime Rate 2004 2003 2004 2003
  3.00  %   7.75  %   7.00  %   1.79  %   (1.65)  %
 1.50    6.25    5.50    1.30    (1.12 )
  No Change     4.75     4.00     --     --  
 (1.00 )  NA    3.00    NA    (1.16 )
 (1.50 )  3.25    NA    (1.93 )  NA  
 (1.75 )  3.00    NA    (2.35 )  NA  

NA = BB&T's model did not calculate results for these scenarios.

          Management has established parameters for asset/liability management, which prescribe a maximum impact on net interest income of 3% for a 150 basis point parallel change in interest rates over six months from the most likely interest rate scenario, and a maximum of 6% for a 300 basis point change over 12 months. It is management’s ongoing objective to effectively manage the impact of changes in interest rates and minimize the resulting effect on earnings.

Derivative Financial Instruments

          BB&T utilizes a variety of derivative financial instruments to manage various financial risks. These derivatives primarily consist of interest rate swaps, swaptions, caps, floors, collars, financial forward and futures contracts, when-issued securities and options written and purchased. A derivative is a financial instrument that derives its cash flows, and therefore its value, by reference to an underlying instrument, index or referenced interest rate. BB&T uses derivatives primarily to hedge business loans, federal funds purchased, 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.

          Derivative contracts are written in amounts referred to as notional amounts. Notional amounts only provide the basis for calculating payments between counterparties. Notional amounts do not represent amounts to be exchanged between parties and are therefore not a measure of financial risk. On September 30, 2004, BB&T had derivative financial instruments outstanding with notional amounts totaling $17.3 billion. The estimated net fair value of open contracts was $116.6 million at September 30, 2004.

BB&T Corporation           Page 34          Third Quarter 2004 10-Q



          Credit risk related to derivatives arises when amounts receivable from a counterparty exceed those payable. Because the notional amount of the instruments only serves as a basis for calculating amounts receivable or payable, the risk of loss with any counterparty is limited to a small fraction of the notional amount. BB&T deals with national market makers with strong credit ratings in its derivatives activities. BB&T further controls the risk of loss by subjecting counterparties to credit reviews and approvals similar to those used in making loans and other extensions of credit. In addition, counterparties are required to provide cash collateral to BB&T when their unsecured loss positions exceed certain negotiated limits. All of the derivative contracts to which BB&T is a party settle monthly, quarterly or semiannually. Further, BB&T has netting agreements with the dealers with which it does business. Because of these factors, BB&T’s credit risk exposure related to derivative contracts at September 30, 2004, was not material.

          The following tables set forth certain information concerning BB&T’s derivative financial instruments at September 30, 2004:

Derivative Classifications and Hedging Relationships
September 30, 2004
(Dollars in thousands)

Notional Fair Value
Amount Gain Loss
Derivatives Designated as Cash Flow Hedges:
   Hedging business loans     $ 2,750,000   $ 14,093   $ (4,292 )
   Hedging certificates of deposit and short-term borrowed funds       4,250,000     3,412     (11,047 )
Derivatives Designated as Fair Value Hedges:    
   Hedging business loans       4,492     --     (169 )
   Hedging long-term debt       2,400,000     88,544     --  
Derivatives not designated as hedges       7,941,680     54,650     (28,592 )
     Total     $ 17,346,172   $ 160,699   $ (44,100 )









BB&T Corporation           Page 35          Third Quarter 2004 10-Q



Derivative Financial Instruments
September 30, 2004
(Dollars in thousands)

Average Average Estimated
Notional Receive Pay Fair
Amount Rate Rate Value
Receive fixed swaps     $ 5,913,480     4.57  %   2.11  % $ 111,068  
Pay fixed swaps       767,972     1.73     3.76     (12,880 )
Forward starting pay fixed swaps       3,000,000     --     2.73     (8,473 )
Caps, floors and collars       1,383,254     N/A     N/A     838  
Foreign exchange contracts       222,684     N/A     N/A     536  
Futures contracts       14,400     N/A     N/A     (4 )
Interest rate lock commitments       751,132     N/A     N/A     1,215  
Forward commitments       989,250     N/A     N/A     (3,629 )
Forward starting swaps       175,000     N/A     N/A     7,251  
Swaptions       2,500,000     N/A     N/A     12,093  
When-issued securities       1,080,000     N/A     N/A     2,817  
Options on contracts purchased       149,000     N/A     N/A     307  
TRS Options       400,000     N/A     N/A     5,460  
   Total     $ 17,346,172               $ 116,599  

              N/A - not applicable.

Contractual Obligations, Commitments, Contingent Liabilities, Off-Balance Sheet Arrangements, and Related Party Transactions

          BB&T utilizes a variety of financial instruments to meet the financial needs of its clients and to reduce >exposure to fluctuations in interest rates. These financial instruments include commitments to extend credit, options written, standby letters of credit and financial guarantees, interest rate caps, floors and collars, interest rate swaps, swaptions, when-issued securities, and forward and futures contracts. Please refer to BB&T’s Annual Report on Form 10-K for the year ended December 31, 2003, for discussion with respect to BB&T’s quantitative and qualitative disclosures about its fixed and determinable contractual obligations. Items disclosed in the Annual Report on Form 10-K have not materially changed since that report was filed. A discussion of BB&T’s derivative financial instruments is included in the “Derivative Financial Instruments” section herein.

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CAPITAL ADEQUACY AND RESOURCES

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


BB&T Corporation           Page 36          Third Quarter 2004 10-Q



          Total shareholders’ equity was $10.8 billion at September 30, 2004, compared to $9.9 billion at December 31, 2003, an increase of 8.7%. BB&T’s book value per common share at September 30, 2004 was $19.54 compared to $18.33 at December 31, 2003. BB&T’s tangible shareholders’ equity was $6.2 billion at September 30, 2004, up from $5.9 billion at December 31, 2003. BB&T’s tangible book value per common share at September 30, 2004 was $11.17 compared to $10.92 at December 31, 2003.

          Bank holding companies and their subsidiaries are subject to regulatory requirements with respect to risk-based capital adequacy. Capital adequacy is an important indicator of financial stability and performance. Risk-based capital ratios measure capital as a percentage of a combination of risk-weighted balance sheet and off-balance sheet risk. The risk-weighted values of both balance sheet and off-balance sheet items are determined in accordance with risk factors specified by Federal bank regulatory pronouncements.

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

          In addition to the risk-based capital measures described above, regulators have also established minimum leverage capital requirements for banking organizations. This is the primary measure of capital adequacy used by management and is calculated by dividing period-end Tier 1 capital by average tangible assets for the most recent quarter. The minimum required Tier 1 leverage ratio ranges from 3% to 5% depending upon Federal bank regulatory agency evaluation of an organization’s overall safety and soundness.

          During the third quarter of 2004, BB&T solicited and received the consent from holders of two outstanding issues of subordinated debt to remove certain provisions from the indenture under which the notes were issued that prevented the notes from qualifying as Tier 2 capital. BB&T filed a supplement to the indenture to requalify the notes as Tier 2 capital and included the additional $1.1 billion of debt in the calculation of its total capital ratio. This resulted in the total capital ratio increasing to 14.0% at September 30, 2004 compared to 12.1% at June 30, 2004.

          BB&T’s regulatory capital ratios for the last five calendar quarters are set forth in the following table:

CAPITAL RATIOS

2004 2003
Third Second First Fourth Third
Quarter Quarter Quarter Quarter Quarter
Risk-based capital ratios:
         Tier 1 capital       9.3  %   9.2  %   9.2  %   9.4  %   9.6  %
         Total capital       14.0     12.1     12.3     12.5     13.3  
Tier 1 leverage ratio       7.1     7.0     7.1     7.2     7.2  


BB&T Corporation           Page 37          Third Quarter 2004 10-Q



Share Repurchase Activity

          BB&T has periodically repurchased shares of its own common stock. In accordance with North Carolina law, repurchased shares cannot be held as treasury stock, but revert to the status of authorized and unissued shares upon repurchase.

          On August 26, 2003, BB&T’s Board of Directors granted authority for the repurchase of up to 50 million shares of BB&T’s common stock as needed for general corporate purposes. The plan remains in effect until all the authorized shares are repurchased unless modified by the Board of Directors.

          The following table presents the common stock repurchases made by BB&T during the third quarter of 2004:

Share Repurchase Activity

Maximum Remaining
Number of Shares
Total Average Total Shares Purchased Available for Repurchase
Shares Price Paid Pursuant to Pursuant to
Repurchased (1) Per Share Publicly-Announced Plan Publicly-Announced Plan
July       1,453,429   $ 38.40     1,446,400     41,752,100  
August       1,701,862   $ 38.55     1,697,800     40,054,300  
September       890,761   $ 40.11     882,500     39,171,800  
  Total       4,046,052   $ 38.84     4,026,700     39,171,800  

(1)   Repurchases reflect shares exchanged or surrendered in connection with the exercise of
        stock options under BB&T's stock option plans.

Back to Index

ANALYSIS OF RESULTS OF OPERATIONS

          Consolidated net income for the third quarter of 2004 totaled $412.9 million, an increase of $297.0 million, or 256.3%, compared to the $115.9 million earned during the third quarter of 2003. On a diluted per share basis, earnings for the three months ended September 30, 2004, were $.74, compared to $.21 for the same period in 2003. BB&T’s results of operations for the third quarter of 2004 produced an annualized return on average assets of 1.69% and an annualized return on average shareholders’ equity of 15.42% compared to prior year ratios of .51% and 4.50%, respectively.

          Consolidated net income for the first nine months of 2004 totaled $1.1 billion, an increase of 50.2% compared to the $759.9 million earned during the same period in 2003. On a diluted per share basis, earnings for the first nine months of 2004 and 2003 were $2.05 and $1.51, respectively, which represents an increase of 35.8%. BB&T’s results of operations for the first nine months of 2004 produced an annualized return on average assets of 1.60% and an annualized return on average shareholders’ equity of 14.53% compared to prior year ratios of 1.21% and 11.97%, respectively. The results for the third quarter and first nine months of 2003 include $248.5 million in after-tax losses resulting from the early extinguishment of debt completed as part of a balance sheet restructuring described in the “Borrowings” section herein.


BB&T Corporation           Page 38          Third Quarter 2004 10-Q



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

ANNUALIZED
PROFITABILITY MEASURES

2004 2003
Third Second First Fourth Third
Quarter Quarter Quarter Quarter Quarter
Return on average assets       1.69  %   1.65  %   1.43  %   1.34  %   .51  %
Return on average shareholders' equity       15.42     15.17     12.93     11.98     4.50  
Net interest margin (taxable equivalent)       4.07     4.02     4.09     3.89     4.17  

   Merger-Related and Restructuring Charges

          Mergers and acquisitions have played an important role in the development of BB&T’s franchise. BB&T recorded certain merger-related items and restructuring costs during both 2004 and 2003. During the third quarter of 2004, BB&T recorded $2.0 million in net after-tax gains primarily associated with the sale of duplicate facilities, which were partially offset by charges primarily related to the acquisitions of First Virginia and Republic. During the third quarter of 2003, BB&T incurred $14.8 million in net after-tax charges primarily associated with the acquisition of First Virginia. Merger-related charges and expenses include personnel-related expenses such as staff relocation costs, severance benefits, early retirement packages and contract settlements. They also include furniture, equipment and occupancy costs related to department and branch consolidations as well as costs related to converting the data processing systems of the acquired companies to BB&T’s automation platform. For the nine months ended September 30, 2004 and 2003, BB&T incurred $4.5 million and $24.9 million, respectively, in net after-tax charges primarily associated with the same purchase acquisitions that affected the respective third quarters of 2004 and 2003. The above expenses are reflected in BB&T’s Consolidated Statements of Income as a category of noninterest expenses.

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


BB&T Corporation           Page 39          Third Quarter 2004 10-Q



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

  For the Nine Months Ended September 30,
  2004 2003
     
Severance and personnel-related charges     $ 7,591   $ 11,385  
Occupancy and equipment charges       (9,667 )   9,291  
Systems conversions and related charges       524     5,270  
Marketing and public relations       4,009     7,565  
Asset write-offs, comforming policies                
       and other merger-related charges       4,925     4,813  
Total     $ 7,382   $ 38,324  

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

          Occupancy and equipment charges represent merger-related costs or credits associated with lease terminations, obsolete equipment write-offs, and the sale of duplicate facilities and equipment. Credits may result when obsolete properties or equipment are sold for more than originally estimated. Systems conversions and related charges include expenses necessary to convert and combine the acquired branches and operations of merged companies. Marketing and public relations costs represent direct media advertising related to the acquisitions. The other merger-related charges are comprised of asset and supply inventory write-offs, litigation accruals, costs to conform an acquired institution’s accounting policies to those of BB&T and other similar charges.

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


BB&T Corporation           Page 40          Third Quarter 2004 10-Q



First Virginia Banks, Inc.
(Dollars in thousands)
         
Balance Balance
December 31, Additions in Utilized in September 30,
2003 2004 2004 2004
Severance and personnel-related charges     $ 18,895   $ --   $ 10,404   $ 8,491  
Occupancy and equipment charges       23,689     1,535     18,375     6,849  
Systems conversions and related charges       20,735     8     20,743     --  
Other merger-related charges       2,675     828     3,297     206  
       Total     $ 65,994   $ 2,371   $ 52,819   $ 15,546  

           Merger-related and restructuring accruals related to First Virginia are generally expected to be utilized during 2004, unless they relate to specific contracts or legal obligations that expire in later years or they relate to the disposal of duplicate facilities and equipment, which may take longer to complete.

F&M National Corporation
(Dollars in thousands)
       
Balance Balance
December 31, Utilized in September 30,
2003 2004 2004
       
Severance and personnel-related charges     $ 63   $ 63   $ --  
Occupancy and equipment charges       7,097     5,519     1,578  
Systems conversions and related charges       --     --     --  
Other merger-related charges       987     --     987  
       Total     $ 8,147   $ 5,582   $ 2,565  

          The remaining accruals at September 30, 2004, for F&M National Corporation are related primarily to costs to exit certain leases and to dispose of excess facilities and equipment. These liabilities will be utilized in the future upon termination of the various leases and sale of duplicate property. These accruals are expected to be substantially utilized in 2004 unless they relate to specific contracts expiring in later years.

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





BB&T Corporation           Page 41          Third Quarter 2004 10-Q





  All Other Merger Activity
  (Dollars in thousands)
         
Balance Balance
December 31, Additions in Utilized in September 30,
2003 2004 2004 2004
         
Severance and personnel-related charges     $ 8,892   $ 6,090   $ 6,814   $ 8,168  
Occupancy and equipment charges       17,910     2,992     8,498     12,404  
Systems conversions and related charges       --     4,199     2,777     1,422  
Other merger-related charges       7,408     2,276     5,618     4,066  
       Total     $ 34,210   $ 15,557   $ 23,707   $ 26,060  

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

          Because BB&T often has multiple merger integrations in process, and due to limited resources must schedule in advance significant events in the merger conversion and integration process, BB&T’s merger process and utilization of merger accruals may cover an extended period of time. In general, a major portion of accrued costs are utilized in conjunction with or immediately following the systems conversion, when most of the duplicate positions are eliminated and the terminated employees begin to receive severance payments. Other accruals are utilized over time based on the sale, closing or disposal of duplicate facilities or equipment or the expiration of lease contracts. Merger accruals are re-evaluated periodically and adjusted as necessary. The remaining accruals at September 30, 2004, are expected to be utilized during 2004, unless they relate to specific contracts that expire in later years.

          The accruals utilized during 2004 in the tables above include reversals of $36.1 million of previously recorded merger-related and restructuring accruals principally related to the finalization of estimates for employee terminations, contract cancellations and occupancy costs. The above reversals include $17.8 million of pre-tax adjustments to goodwill that had no effect on BB&T’s consolidated results of operations. The remaining $18.3 million was included as a reduction of merger-related and restructuring charges during 2004 in the Consolidated Statements of Income.

BB&T Corporation           Page 42          Third Quarter 2004 10-Q



Net Interest Income and Net Interest Margin

          Net interest income on an FTE basis was $875.7 million for the third quarter of 2004 compared to $832.9 million for the same period in 2003, an increase of $42.8 million, or 5.1%. For the three months ended September 30, 2004, average earning assets increased $6.3 billion, or 7.9%, compared to the same period of 2003, while average interest-bearing liabilities increased $4.3 billion, or 6.5%, and the net interest margin decreased from 4.17% in the third quarter of 2003 to 4.07% in the current quarter. The decrease in the net interest margin was caused by a combination of several factors. The reinvestment of proceeds from the sales, maturities and prepayments of securities in lower yielding securities, additional interest expense incurred in connection with BB&T’s stock buy-back program and the runoff of higher-yielding fixed rate loans all adversely affected the net interest margin in the third quarter of 2004.

          For the nine months ended September 30, 2004, net interest income on an FTE basis was $2.6 billion compared to $2.3 billion for the same period in 2003, an increase of $276.7 million, or 12.1%. Average earning assets for the first nine months of 2004 increased $10.1 billion, or 13.6%, compared to the same period of 2003, while average interest-bearing liabilities increased $6.7 billion, or 10.5%. The net interest margin for the nine months ended September 30, 2004 was 4.06%, down from 4.12% for the first nine months of 2003. The decrease resulted largely from the same factors that affected the quarterly comparison described above. At the same time, the margin was positively affected by the balance sheet restructuring completed during 2003, which consisted of BB&T refinancing or prepaying approximately $5.9 billion of long-term FHLB advances and retaining an additional $3.6 billion in fixed-rate mortgage loans from originations made during the second half of 2003 and the first quarter of 2004.

          The following tables set forth the major components of net interest income and the related annualized yields and rates for the third quarter and first nine months of 2004 compared to the same periods in 2003, and the variances between the periods caused by changes in interest rates versus changes in volumes.








BB&T Corporation           Page 43          Third Quarter 2004 10-Q



Net Interest Income and Rate / Volume Analysis
For the Three Months Ended September 30, 2004 and 2003

Average Balances Annualized Yield / Rate Income / Expense Increase Change due to
2004 2003 2004 2003 2004 2003 (Decrease) Rate (6) Volume (6)
(Dollars in thousands)
Assets
Securities (1):
      U.S. Treasury, government and other (5)     $ 17,609,877   $ 16,425,338     3.91  %   4.28  % $ 172,268   $ 175,594   $ (3,326 ) $ (15,921 ) $ 12,595  
      States and political subdivisions    806,875    997,878    6.45    6.28    13,016    15,667    (2,651 )  444    (3,095 )
           Total securities (5)    18,416,752    17,423,216    4.02    4.39    185,284    191,261    (5,977 )  (15,477 )  9,500  
Other earning assets (2)    569,256    633,744    2.06    1.13    2,943    1,798    1,145    1,345    (200 )
Loans and leases, net                                                          
      of unearned income (1)(3)(4)(5)    66,878,307    61,519,643    5.90    6.02    990,783    931,997    58,786    (18,909 )  77,695  
           Total earning assets    85,864,315    79,576,603    5.47    5.62    1,179,010    1,125,056    53,954    (33,041 )  86,995  
           Non-earning assets       11,265,176     11,269,213  
               Total assets   $97,129,491   $90,845,816  
Liabilities and Shareholders' Equity  
Interest-bearing deposits:  
      Savings and interest-checking   $4,813,519   $4,497,102    0.22    0.27    2,618    3,016    (398 )  (596 )  198  
      Money rate savings    22,636,090    20,018,836    0.75    0.65    42,679    32,627    10,052    5,461    4,591  
      Certificates of deposit and other time deposits    25,920,707    26,350,439    2.09    2.23    136,493    148,525    (12,032 )  (9,178 )  (2,854 )
           Total interest-bearing deposits    53,370,316    50,866,377    1.36    1.44    181,790    184,168    (2,378 )  (4,313 )  1,935  
Short-term borrowed funds    7,029,258    5,763,994    1.47    0.99    25,948    14,651    11,297    7,663    3,634  
Long-term debt    10,759,965    10,205,592    3.54    3.60    95,544    93,291    2,253    (1,563 )  3,816  
           Total interest-bearing liabilities    71,159,539    66,835,963    1.70    1.73    303,282    292,110    11,172    1,787    9,385  
           Noninterest-bearing deposits    11,876,112    11,023,396  
           Other liabilities    3,444,972    2,771,315  
           Shareholders' equity    10,648,868    10,215,142  
           Total liabilities and              
               shareholders' equity   $97,129,491   $90,845,816  
Interest rate spread                   3.77   3.89
Net yield on earning assets                   4.07  %   4.17  % $ 875,728   $ 832,946   $ 42,782   $ (34,828 ) $ 77,610  
Taxable equivalent adjustment                             $ 20,072   $ 26,488  

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

BB&T Corporation           Page 44          Third Quarter 2004 10-Q



Net Interest Income and Rate / Volume Analysis
For the Nine Months Ended September 30, 2004 and 2003

Average Balances Annualized Yield / Rate Income / Expense Increase Change due to
2004 2003 2004 2003 2004 2003 (Decrease) Rate (6) Volume (6)
(Dollars in thousands)
Assets
Securities (1):
      U.S. Treasury, government and other (5)     $ 17,153,022   $ 16,209,078     3.96  %   4.84  % $ 509,297   $ 588,273   $ (78,976 ) $ (111,393 ) $ 32,417  
      States and political subdivisions    843,032    889,386    6.50    7.02    41,102    46,800    (5,698 )  (3,353 )  (2,345 )
           Total securities (5)    17,996,054    17,098,464    4.08    4.95    550,399    635,073    (84,674 )  (114,746 )  30,072  
Other earning assets (2)    606,932    534,210    1.65    1.33    7,519    5,343    2,176    1,390    786  
Loans and leases, net                                                          
      of unearned income (1)(3)(4)(5)    65,658,447    56,565,028    5.82    6.24    2,862,202    2,643,228    218,974    (186,122 )  405,096  
           Total earning assets    84,261,433    74,197,702    5.42    5.91    3,420,120    3,283,644    136,476    (299,478 )  435,954  
           Non-earning assets    11,253,898    9,516,151  
               Total assets   $95,515,331   $83,713,853  
Liabilities and Shareholders' Equity  
Interest-bearing deposits:  
      Savings and interest-checking   $4,807,832   $3,729,360    0.21    0.36    7,562    10,097    (2,535 )  (4,898 )  2,363  
      Money rate savings    21,559,799    17,565,056    0.67    0.81    108,113    105,891    2,222    (20,199 )  22,421  
      Certificates of deposit and other time deposits    26,468,662    25,173,205    2.05    2.49    405,581    468,309    (62,728 )  (86,146 )  23,418  
           Total interest-bearing deposits    52,836,293    46,467,621    1.32    1.68    521,256    584,297    (63,041 )  (111,243 )  48,202  
Short-term borrowed funds    6,770,711    4,849,076    1.21    1.19    61,311    43,809    17,502    737    16,765  
Long-term debt    10,683,588    12,308,015    3.43    3.96    274,092    368,817    (94,725 )  (45,548 )  (49,177 )
           Total interest-bearing liabilities    70,290,592    63,624,712    1.63    2.09    856,659    996,923    (140,264 )  (156,054 )  15,790  
           Noninterest-bearing deposits    11,429,899    9,024,764  
           Other liabilities    3,302,425    2,575,119  
           Shareholders' equity    10,492,415    8,489,258  
           Total liabilities and                
               shareholders' equity   $95,515,331   $83,713,853  
Interest rate spread                   3.79     3.82  
Net yield on earning assets                   4.06  %   4.12  % $ 2,563,461   $ 2,286,721   $ 276,740   $ (143,424 ) $ 420,164  
Taxable equivalent adjustment                             $ 61,279   $ 84,665  

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


BB&T Corporation           Page 45          Third Quarter 2004 10-Q



Noninterest Income

          Noninterest income for the three months ended September 30, 2004, was $538.9 million compared to $512.1 million for the same period in 2003, an increase of $26.8 million, or 5.2%. The growth in noninterest income was led by increased revenues from BB&T’s insurance operations as well as growth in income from service charges on deposit accounts and other nondeposit fees and commissions. These increases were partially offset by a significant decline in income from mortgage banking operations in the third quarter of 2004 compared to the third quarter of 2003. The overall growth in noninterest income also reflects the impact of acquisitions.

          For the nine months ended September 30, 2004, noninterest income totaled $1.6 billion, an increase of $172.6 million, or 12.2%, compared to the same period in 2003. The overall growth in noninterest income also reflects the impact of acquisitions.

          Service charges on deposits totaled $135.5 million for the third quarter of 2004, up $13.5 million, or 11.1%, compared to the third quarter of 2003. The primary reasons for the increase were the purchase of Republic, and improved collection of NSF and overdraft charges. For the first nine months of 2004, service charges on deposits totaled $389.7 million, an increase of $74.3 million, or 23.6%, compared to the same period in 2003. The increase resulted from the same factors that affected the third quarter increase, as well as the acquisition of First Virginia.

           Trust income totaled $28.9 million for the current quarter, a decrease of $3.0 million, or 9.4%, compared to the same period a year ago. For the first nine months of 2004, trust income totaled $90.4 million, an increase of $6.2 million, or 7.4%, compared to the same period in 2003. At the beginning of the third quarter of 2003, trust assets under management increased by $2.2 billion because of the acquisition of First Virginia, which was offset by the loss of $2.4 billion in trust assets from the North Carolina state employees’ 401(k) plan, which transferred to a successor trustee at the end of the quarter. The decrease in trust income in the current quarter compared to the same period a year ago was caused primarily by the timing of the resulting fluctuations in the value of trust assets under management during the third quarter of 2003. The timing of these transfers had a positive impact on income for the first nine months of 2004 compared to 2003. In addition, the increase in trust income for the first nine months of 2004 compared to 2003 was due to an increase in mutual fund management fees. Total trust assets under management, including custodial accounts, increased from $25.8 billion at September 30, 2003, to $26.7 billion at September 30, 2004.

          Investment banking and brokerage fees and commissions totaled $59.8 million during the third quarter of 2004, a decrease of $6.0 million, or 9.1%, compared to the third quarter of 2003. The decrease was primarily due to the lower level of bond market activity in the current quarter compared to the same period last year, which reduced the fees earned by Scott & Stringfellow, BB&T’s wholly owned investment banking and brokerage subsidiary, by $9.0 million compared to last year. This decrease was partially offset by higher investment services revenues from BB&T’s newer markets through the increase in the number of investment counselors in those markets. For the first nine months of 2004, investment banking and brokerage fees and commissions totaled $200.1 million, an increase of $21.3 million, or 11.9%, compared to the same period in 2003. The increase in this category of revenue for the first nine months of 2004 resulted primarily from growth in investment banking services fees and commissions in BB&T’s newer markets and the entry into the high yield market by Scott & Stringfellow, which contributed $7.3 million and $15.2 million of the increase, respectively.


BB&T Corporation           Page 46          Third Quarter 2004 10-Q



          Insurance commissions totaled $163.4 million for the third quarter of 2004, an increase of $59.8 million, or 57.7%, compared to the same three-month period of 2003. For the first nine months of 2004, insurance commissions totaled $451.8 million, up $158.0 million, or 53.8%, compared to the same period last year. Revenues from BB&T’s insurance operations were the largest source of noninterest income for both the three-month and nine-month periods ended September 30, 2004. Solid internal growth combined with the expansion of BB&T’s insurance agency network through insurance agency acquisitions, the largest of which was the purchase of McGriff, generated the strong increases in insurance revenues. The acquisition of McGriff contributed approximately $42.1 million in additional insurance revenues in the third quarter of 2004 and $102.1 million for the first nine months of 2004. In addition, higher revenues from BB&T’s wholesale insurance operations contributed $11.1 million and $38.7 million in revenue growth for the current quarter and first nine months of 2004 compared to the same periods in 2003.

          Income from commercial and residential mortgage banking activities totaled $28.1 million for the third quarter of 2004, down $70.2 million, compared to $98.3 million earned for the third quarter of 2003. The significant decrease in net mortgage banking revenues is primarily a function of interest rate volatility, which affects the value of BB&T’s mortgage servicing rights. During the third quarter of 2004, lower mortgage interest rates compared to the second quarter of 2004 resulted in higher prepayment speed assumptions for existing serviced loans which produced a decrease in the value of BB&T’s mortgage servicing rights. The opposite trend was true during the same period of 2003. The higher prepayment speed assumptions during the third quarter of 2004 resulted in a $5.0 million net write-down in the valuation allowance offsetting mortgage servicing rights, which reduced mortgage banking income for the current quarter. The $5.0 million write-down was the net effect of the provision for the impairment of mortgage servicing rights of $40.2 million offset by gains from mortgage banking-related derivatives totaling $35.2 million. In comparison, the lower prepayment speed assumptions during the third quarter of 2003 resulted in BB&T recording a net recapture of $69.8 million in the valuation allowance for mortgage servicing rights, which increased mortgage banking income. The decrease in net mortgage banking income in the third quarter of 2004 compared to 2003, as a result of the changes in the valuation of mortgage servicing rights, was partially offset by a lower amortization expense associated with commercial and residential mortgage servicing rights, which totaled $19.5 million for the third quarter of 2004 compared to $34.8 million in the comparable period last year. During the third quarter of 2004, residential mortgage production revenues, which include earnings from the origination and sale of mortgage loans, were negatively affected by lower mortgage originations compared to the third quarter of 2003. Residential mortgage production revenues for the third quarter of 2004 decreased $11.3 million, or 33.5% compared to the third quarter of 2003, because total residential mortgage originations for the third quarter of 2004 were $2.1 billion compared to $5.9 billion for the third quarter of 2003. Also, residential mortgage servicing fees associated with loans serviced for investors were down 5% from $24.6 million in the third quarter of 2003 to $23.4 million in the current quarter because of a decline in the average portfolio of loans serviced for investors. Commercial mortgage loan revenues for the third quarter of 2004 totaled $6.9 million compared to $4.7 million earned in the third quarter of 2003.

BB&T Corporation           Page 47          Third Quarter 2004 10-Q



          For the first nine months of 2004, income from commercial and residential mortgage banking activities totaled $102.7 million, a decrease of $22.9 million, compared to $125.6 million for the comparable period in 2003. The decrease in net mortgage revenues was primarily caused by the same factors that affected the quarterly growth. During the first nine months of 2004, residential mortgage production revenues, which include earnings from the origination and sale of mortgage loans, were lower by $173.2 million, or 72.3% compared to the first nine months of 2003, because total residential mortgage originations for the first nine months of 2004 decreased to $7.6 billion compared with $17.1 billion for the same period of 2003. This decrease was largely offset by lower amortization expense associated with commercial and residential mortgage servicing rights, which totaled $68.1 million for the first nine months of 2004 compared to $126.7 million in the comparable period last year. In addition, BB&T recorded a $21.1 million net recapture of the valuation allowance for mortgage servicing rights for the first nine months of 2004, compared to a $76.4 million net provision for impairment in 2003.

          Other nondeposit fees and commissions, including bankcard fees and merchant discounts, totaled $82.8 million for the third quarter of 2004, an increase of $9.5 million, or 12.9%, compared to the three months ended September 30, 2003. For the nine months ended September 30, 2004, other nondeposit fees and commissions, including bankcard fees and merchant discounts, totaled $233.9 million, an increase of $43.5 million, or 22.9%, compared to the same period in 2003. The principal drivers of the third quarter increase were check card and debit card interchange fees, ATM fees, and bankcard income, which increased $4.8 million, $905 thousand, and $3.2 million, respectively, compared to the same period in 2003. The 22.9% increase in other nondeposit fees and commissions, including bankcard fees and merchant discounts, for the first nine months of 2004 was also primarily driven by check card and debit card interchange fees and bankcard income, which increased $14.7 million and $15.8 million, respectively, compared to the same period in 2003. In addition, ATM fees, money orders, and safe deposit box fees increased $5.9 million, $3.2 million, and $2.2 million, respectively, over the same time period. Increases for the first nine months of 2004 were a result of the acquisitions of First Virginia and Republic, while the increases for the third quarter were only affected by the Republic acquisition.

          Net securities gains totaled $6.6 million for the third quarter of 2004 compared to net losses of $10.0 million during the same period last year. For the first nine months of 2004, BB&T recorded gains from sales and transfers of securities totaling $6.1 million compared with $133.7 million in net gains realized during the same period one year ago. The net securities gains for the first nine months of 2003 resulted from the sale of securities available for sale, which were taken to economically offset increases in the valuation allowance necessary to reduce the carrying value of BB&T’s mortgage servicing rights. No such sales were taken during 2004. In recent quarters, BB&T has shifted to a risk management strategy related to mortgage servicing rights and mortgage banking entirely dependent on derivatives.

BB&T Corporation           Page 48          Third Quarter 2004 10-Q



          Other income totaled $33.8 million for the third quarter of 2004, an increase of $6.6 million, or 24.3%, compared with the same period one year ago. The primary drivers of the increase were fluctuations in the income from investments in limited partnerships, which was $7.9 million lower in the third quarter of 2003 compared to the third quarter of 2004 and higher revenues from check sales, which increased $1.9 million compared to the third quarter last year. These increases were partially offset by a decline in income from bank-owned life insurance of $2.8 million compared to the third quarter of 2003. For the nine months ended September 30, 2004, other income totaled $116.1 million, an increase of $19.6 million, or 20.4%, compared with the same period last year. The primary drivers of the increase were a fair value adjustment related to miscellaneous investments made by a small business investment company totaling $12.7 million and higher income from investments in limited partnerships, which were up $6.4 million. In addition, other income for the first nine months of 2004 compared to 2003 was higher as the result of revenues from check sales, which increased $5.1 million, primarily due to the acquisition of First Virginia. These increases were partially offset by a decline of $5.5 million in income from bank-owned life insurance.

Noninterest Expense

          Noninterest expenses totaled $716.6 million for the third quarter of 2004 compared to $1.1 billion for the same period a year ago, a decrease of $400.4 million, or 35.8%. For the first nine months of 2004, noninterest expenses totaled $2.2 billion, a decrease of $166.7 million, or 7.0%, compared to the same period a year ago. Noninterest expenses include $3.1 million in net pre-tax merger-related gains for the third quarter of 2004 and $7.4 million of net pre-tax merger-related and restructuring expenses for the first nine months of 2004, principally associated with the acquisitions of First Virginia and Republic. Noninterest expenses for the third quarter and first nine months of 2003 include a loss from the early extinguishment of FHLB advances totaling $384.9 million.

          Early in the fourth quarter, management announced plans to implement cost savings and revenue enhancement initiatives with a goal to produce $175 million in combined annual cost savings and revenue enhancements. Implementation of the initiatives began in the fourth quarter of 2004, and it is expected that approximately 60% of the goal will be realized in 2005 and management anticipates that 100% will be achieved in 2006.

BB&T Corporation           Page 49          Third Quarter 2004 10-Q



          Personnel expense, the largest component of noninterest expense, was $411.0 million for the current quarter, slightly lower than the $412.4 million in expenses for the same period in 2003. Salaries expense increased $16.4 million in the current quarter compared to 2003, primarily as a result of the acquisitions of McGriff and Republic. Incentive compensation decreased $4.8 million, due to significantly lower mortgage loan production in the current quarter. In addition, employee benefit expenses decreased $13.9 million in the current quarter compared to last year, primarily due to a $9.1 million reduction in pension expense as a result of an updated actuarial valuation, and a $5.0 million decrease in funding for health care expenses. For the nine months ended September 30, 2004, personnel expense totaled $1.3 billion, up $135.3 million, or 11.9%, compared to 2003. The increase resulted primarily from additional personnel expenses associated with the First Virginia, McGriff and Republic mergers of $110.4 million. Furthermore, during the first nine months of 2004, incentive compensation expenses and employee benefit expenses increased $8.4 million and $11.7 million, respectively, compared to the same period in 2003.

          Occupancy and equipment expense for the three months ended September 30, 2004, totaled $104.5 million compared to $97.4 million for the third quarter of 2003, representing an increase of $7.1 million, or 7.3%. The increase for the third quarter of 2004 compared to 2003 resulted primarily from the acquisitions of McGriff and Republic, which collectively added approximately $6.1 million in occupancy and equipment expenses. For the first nine months of 2004, occupancy and equipment expense totaled $308.0 million, up $37.3 million, or 13.8%, compared to 2003. The acquisition of First Virginia, as well as the acquisitions that affected the third quarter, resulted in an increase of approximately $22.8 million in occupancy and equipment expenses during the first nine months of 2004. In addition, building maintenance, depreciation and real estate taxes increased $6.0 million, $3.2 million and $2.0 million, respectively, during the first nine months of 2004 compared to 2003.

          The amortization of intangible assets totaled $24.3 million for the current quarter, an increase of $3.3 million from the $21.0 million incurred in the third quarter of 2003. For the nine months ended September 30, 2004, amortization of intangible assets totaled $77.0 million, an increase of $42.5 million compared to the same period last year. The increases were due to the acquisitions of First Virginia, McGriff, and Republic, which contributed the majority of additional amortization expenses during the above periods in 2004 compared to 2003. See Note D to the Consolidated Financial Statements herein for a summary of completed mergers and acquisitions.

BB&T Corporation           Page 50          Third Quarter 2004 10-Q


          Other noninterest expenses, including professional services, totaled $179.9 million for the third quarter of 2004, an increase of $1.3 million, or .7%, compared to the same period of 2003. The slight increase was primarily due to the recent implementation of internal cost control initiatives and the realization of cost efficiencies from the integration of recent mergers, which were largely offset by an increase in other miscellaneous noninterest expenses. For the nine months ended September 30, 2004, other noninterest expenses, including professional services, totaled $544.9 million, an increase of $34.0 million, or 6.7%, compared to the same period in 2003. The increases were the result of higher professional services expense, miscellaneous processing expense and supplies expense, which increased $5.7 million, $4.2 million and $2.4 million, respectively, compared to the first nine months of 2003. In addition, deposit-related expenses, general insurance expenses, and telephone expenses increased $5.4 million, $6.4 million, and $2.5 million, respectively, over the same time period. Other noninterest expenses for the 2004 periods include the impact of the First Virginia, McGriff, and Republic acquisitions.

Provision for Income Taxes

          The provision for income taxes totaled $208.0 million for the third quarter of 2004, an increase of $187.3 million compared to the third quarter of 2003. For the nine months ended September 30, 2004, the provision for income taxes totaled $562.6 million, an increase of $263.8 million compared to the same period of 2003. The increased provision for income taxes was the combined result of higher pretax income and an increase in the effective tax rate. BB&T’s effective income tax rates were 33.5% and 15.2% for the three months ended September 30, 2004 and 2003, respectively, and 33.0% and 28.2% for the first nine months of 2004 and 2003, respectively. The significantly lower effective tax rate for the third quarter of 2003 resulted because the $248.5 million in prepayment penalties associated with the early extinguishment of debt substantially reduced pretax income, which caused BB&T’s tax-exempt income to have a more significant impact on the effective tax rate.

          In the normal course of business, BB&T has extended credit to and invested in the obligations of states and municipalities and their agencies. The income generated from these investments together with certain other transactions that have favorable tax treatment have reduced BB&T’s overall effective tax rate from the statutory rate in 2004 and 2003.

          BB&T continually monitors and evaluates the potential impact of current events and circumstances on the estimates and assumptions used in the analysis of its income tax positions and, accordingly, BB&T’s effective tax rate may fluctuate in the future. On a periodic basis, BB&T evaluates its income tax positions based on tax laws and regulations and financial reporting considerations, and records adjustments as appropriate. This evaluation takes into consideration the status of current Internal Revenue Service (“IRS”) examinations of BB&T’s tax returns, recent positions taken by the IRS on similar transactions, if any, and the overall tax environment in relation to tax-advantaged transactions.

BB&T Corporation           Page 51          Third Quarter 2004 10-Q


          In the normal course of business, BB&T is subject to examinations from various tax authorities. These examinations may alter the timing or amount of taxable income or deductions or the allocation of income among tax jurisdictions. During 2003, the IRS concluded its examination of BB&T’s federal income tax returns for the years ended December 31, 1996, 1997 and 1998. Following their examination, the IRS issued a Revenue Agent Report assessing taxes and interest in the amount of $59.3 million related to BB&T’s income tax treatment of certain leveraged lease transactions which were entered into during the years under examination. The assessment, which was paid by BB&T during 2003, did not significantly affect BB&T’s consolidated results of operations in 2003 as it related primarily to differences in the timing of recognizing income and deductions for income tax purposes for which deferred taxes had been previously provided. Management continues to believe that BB&T’s treatment of these leveraged leases was appropriate and in compliance with existing tax laws and regulations for the years examined. BB&T filed a refund request for the taxes and interest related to this matter which was denied by the IRS during the second quarter of 2004. Early in the fourth quarter of 2004, BB&T filed a lawsuit in the United States District Court for the Middle District of North Carolina to pursue a refund of $3.3 million in taxes plus interest assessed by the IRS related to one of these leveraged lease transactions entered into during 1997. While management expects that this litigation will not be resolved for two to three years, management believes that there will be no material impact on the results of operations or the financial condition of BB&T, regardless of the outcome of the litigation.


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BB&T Corporation           Page 52          Third Quarter 2004 10-Q




Item 3. Quantitative and Qualitative Disclosures About Market Risk

          Please refer to “Market Risk Management” in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section herein.



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Item 4. Control and Procedures

          Evaluation of Disclosure Controls and Procedures

          As of the end of the period covered by this report, the Company’s Chief Executive Officer and the Chief Financial Officer evaluated the effectiveness of the Company’s disclosure controls and procedures in accordance with Rule 13a-15 under the Exchange Act. Based on their evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures enable the Company to record, process, summarize and report in a timely manner the information that the Company is required to disclose in its Exchange Act reports.

          Changes in Internal Control over Financial Reporting

          There were no changes in the Company’s internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.



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PART II. OTHER INFORMATION


Item 1. Legal Proceedings

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



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

          (c) Please refer to “Share Repurchase Activity” in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section herein.



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BB&T Corporation           Page 53          Third Quarter 2004 10-Q


Item 6. Exhibits

   
3(ii)   Amended and Restated Bylaws of the Registrant, effective August 24, 2004.  
 
4   Second Supplemental Indenture between the Registrant and U.S. Bank National Association, Trustee, dated as of September 24, 2004.  
 
10(a)   Employment Agreement, dated October 29, 2004 by and among the Registrant, Branch Banking and Trust Co. and Christopher L. Henson.  
 
10(b)   Employment Agreement, dated October 29, 2004 by and among the Registrant, Branch Banking and Trust Co. and Ricky K. Brown.  
 
10(c)   2004 Amendments to Amended and Restated Employment Agreement, effective July 1, 2004 by and among the Registrant, Branch Banking and Trust Co. and Kelly S. King.  
 
11   Statement re Computation of Earnings Per Share.  
 
31.1   Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.  
 
31.2   Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.  
 
32.1   Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.  
 
32.2   Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.  




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BB&T Corporation           Page 54          Third Quarter 2004 10-Q


SIGNATURES


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


  BB&T CORPORATION  
           (Registrant)  
   
Date:   November 8, 2004          By:        /s/ Scott E. Reed            
  Scott E. Reed, Senior Executive Vice  
  President and Chief Financial Officer  
   
Date:   November 8, 2004          By:        /s/ Edward D. Vest       
  Edward D. Vest, Senior Vice President  
  and Corporate Controller  
  (Principal Accounting Officer)  





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BB&T Corporation           Page 55          Third Quarter 2004 10-Q

EXHIBIT INDEX

Exhibit No. Description Location
     
3(ii)   Amended and Restated Bylaws of the Registrant, effective August 24, 2004.   Filed herewith.  
     
4   Second Supplemental Indenture between the Registrant and U.S. Bank National Association, Trustee, dated as of September 24, 2004.   Incorporated herein by reference to Exhibit 99.1 of the Current Report on Form 8-K, filed September 27, 2004.  
     
10(a)   Employment Agreement, dated October 29, 2004 by and among the Registrant, Branch Banking and Trust Co. and Christopher L. Henson.   Incorporated herein by reference to Exhibit 99.1 of the Current Report on Form 8-K, filed November 1, 2004.  
       
10(b)   Employment Agreement, dated October 29, 2004 by and among the Registrant, Branch Banking and Trust Co. and Ricky K. Brown.   Incorporated herein by reference to Exhibit 99.2 of the Current Report on Form 8-K, filed November 1, 2004.  
       
10(c)   2004 Amendments to Amended and Restated Employment Agreement, effective July 1, 2004 by and among the Registrant, Branch Banking and Trust and Kelly S. King.   Incorporated herein by reference to Exhibit 99.3 of the Current Report on Form 8-K, filed November 1, 2004.  
     
11   Statement re Computation of Earnings Per Share.   Filed herewith as Note E.  
     
31.1   Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.   Filed herewith.  
       



BB&T Corporation           Page 56          Third Quarter 2004 10-Q



31.2   Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.   Filed herewith.  
       
32.1   Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.   Filed herewith.  
   
32.2   Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.   Filed herewith.  
   

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BB&T Corporation           Page 57          Third Quarter 2004 10-Q

 EX-3.II 2 exhibit3b.htm Exhibit 3(ii)

BB&T CORPORATION








BYLAWS








As Amended and Restated Effective April 28, 2004

with Amendments through August 24, 2004





BB&T CORPORATION

BYLAWS

TABLE OF CONTENTS

Page
ARTICLE 1  - OFFICES    1
Section 1.  Principle Office    1
Section 2.  Registered Offices    1
Section 3.  Other Offices    1
 
ARTICLE II  - MEETINGS OF SHAREHOLDERS    1
Section 1.  Place of Meetings    1
Section 2.  Annual Meetings    1
Section 3.  Substitute Annual Meeting    1
Section 4.  Special Meetings    1
Section 5.  Notice of Meetings    2
Section 6.  Voting Groups    2
Section 7.  Quorum    2
Section 8.  Voting of Shares    3
Section 9.  Proxies    3
Section 10.  Notice of Shareholder Proposals and Nominees for Election as Directors    3
Section 11.  Conduct of Meetings    4
Section 12.  Inspector of Elections    5
Section 13.  Attendance by Electronic Means    5
 
ARTICLE III  - DIRECTORS    5
Section 1.  General Powers    5
Section 2.  Number, Term and Qualifications    5
Section 3.  Election of Directors    6
Section 4.  Removal    6
Section 5.  Vacancies    6
Section 6.  Compensation    6
Section 7.  Executive Committee    6
Section 8.  Audit Committee    6
Section 9.  Other Committees    6
Section 10.  General Committee Matters    7
 
ARTICLE IV  - MEETINGS OF DIRECTORS    7
Section 1.  Regular Meetings    7
Section 2.  Special Meetings    7
Section 3.  Waiver of Notice    7
Section 4.  Quorum    7
Section 5.  Adjournment    7
Section 6.  Manner of Acting    8

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Section 7.  Presumption of Assent    8
Section 8.  Action without Meeting    8
Section 9.  Attendance by Electronic, Telephone or Similar Means    8
 
ARTICLE V  - OFFICERS    8
Section 1.  Title and Number    8
Section 2.  Election and Term    8
Section 3.  Removal    9
Section 4.  Compensation    9
Section 5.  Chairman of the Board; Vice Chairmen    9
Section 6.  Chief Executive Officer    9
Section 7.  Other Officers    9
Section 8.  Bonds    9
 
ARTICLE VI  - CONTRACTS, LOANS AND DEPOSITS    9
Section 1.  Contracts    9
Section 2.  Loans   10
Section 3.  Checks and Drafts   10
Section 4.  Deposits   10
 
ARTICLE VII  - CERTIFICATES FOR SHARES AND THEIR TRANSFER   10
Section 1.  Certificates for Shares and Stock Transfer Records   10
Section 2.  Transfer of Shares   10
Section 3.  Fixing Record Date   11
Section 4.  Lost, Stolen or Destroyed Certificates   11
 
ARTICLE VIII - INDEMNIFICATION OF OFFICERS AND DIRECTORS    11
Section 1.  Right to Indemnification   11
Section 2.  Recovery of Expenses   12
Section 3.  Advancement of Expenses   12
Section 4.  Reliance   12
Section 5.  Amendment   12
Section 6.  No Limitation on Other Rights to Indemnification   12
 
ARTICLE IX  - GENERAL PROVISIONS   13
Section 1.  Dividends   13
Section 2.  Seal   13
Section 3.  Fiscal Year   13
Section 4.  Amendments   13
Section 5.  North Carolina Shareholder Protection Act Inapplicable   13
Section 6.  Definitions   13
 

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BYLAWS OF BB&T CORPORATION

As Amended and Restated Effective April 28, 2004

with Amendments through August 24, 2004


ARTICLE I

Offices

          1.       Principal Office: The principal office of the corporation shall be located at 200 West Second Street, Winston-Salem, North Carolina, or at such other place as the Board of Directors may fix from time to time.

          2.       Registered Office: The corporation shall maintain a registered office or registered offices at such place or places as may be required by applicable law.

          3.       Other Offices: The corporation may have offices at such other places as the Board of Directors may from time to time determine, or as the affairs of the corporation may require.

ARTICLE II

Meetings of Shareholders

          1.       Place of Meetings: All meetings of shareholders shall be held at the principal office of the corporation, or at such other place, either within or without the State of North Carolina, as shall in each case be fixed by the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Secretary or the Board of Directors and designated in the notice of the meeting.

          2.       Annual Meetings: The annual meeting of shareholders shall be held on such date and at such time as may be designated by the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Secretary or the Board of Directors for the purpose of the election of directors and for the transaction of such other business as may properly come before the meeting.

          3.       Substitute Annual Meeting: If the annual meeting shall not be held on the day designated by these bylaws, a substitute annual meeting may be called in accordance with the provisions of this Article relating to special meetings. A meeting so called shall be designated and treated for all purposes as the annual meeting.

          4.       Special Meetings: Special meetings of the shareholders may be called at any time by the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Secretary or the Board of Directors of the corporation.

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          5.       Notice of Meetings:

                    (a)       Written, printed or electronically transmitted notice of a meeting stating the date, time and place of the meeting shall be delivered to each shareholder of record entitled to vote at the meeting not fewer than 10 nor more than 60 days before the date thereof, by or at the direction of the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Secretary or the Board of Directors.

                    (b)       In case of an annual or substitute annual meeting, the notice of meeting need not specifically state the business to be transacted at the meeting, unless a description of the matter is required by the provisions of applicable law. In the case of a special meeting, the notice of meeting shall specifically state the purpose or purposes for which the meeting is called.

                    (c)       When a meeting is adjourned for 120 days or more, notice of the adjourned meeting shall be given as in the case of an original meeting. When a meeting is adjourned for less than 120 days in any one adjournment, it is not necessary to give any notice of the date, time and place of the adjourned meeting other than by announcement at the meeting at which the adjournment is taken.

          6.       Voting Groups: All shares of one or more classes or series that under the articles of incorporation or the North Carolina Business Corporation Act are entitled to vote and be counted together collectively on a matter at a meeting of shareholders constitute a voting group. All shares entitled by the articles of incorporation or the North Carolina Business Corporation Act to vote generally on a matter are for that purpose a single voting group. Classes or series of shares shall not be entitled to vote separately by voting group unless authorized pursuant to the articles of incorporation or specifically required by applicable law.

          7.       Quorum: Shares entitled to vote as a separate voting group may take action on a matter at a meeting only if a quorum of that voting group exists with respect to that matter. Unless otherwise required by the North Carolina Business Corporation Act, the articles of incorporation or a bylaw adopted by the shareholders, a majority of the votes entitled to be cast on a matter by the voting group constitutes a quorum of that voting group for action on that matter. Once a share is represented for any purpose at a meeting, it is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for that adjourned meeting. If there is no quorum at the opening of a meeting of shareholders, such meeting may be adjourned from time to time by the vote of a majority of the votes cast on the motion to adjourn; and at any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the original meeting. The shareholders at a meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum.

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          8.       Voting of Shares:

                    (a)       Subject to any restrictions imposed pursuant to the articles of incorporation or applicable law, each outstanding share having voting rights, regardless of class, shall be entitled to one vote on each matter submitted to a vote at a meeting of shareholders.

                    (b)       If a quorum exists, action on a matter (other than the election of directors) by a voting group is approved if the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless a greater number of affirmative votes is required by the North Carolina Business Corporation Act or by the articles of incorporation or a bylaw adopted by the shareholders. Voting on all matters properly presented at a meeting shall be by voice vote, unless the chairman of the meeting determines otherwise.

          9.       Proxies: Shares may be voted either in person or by one or more proxies authorized by a written appointment of proxy signed by the shareholder or his or her duly authorized attorney-in-fact. In addition, (i) an appointment in the form of an electronic record that bears the shareholder’s electronic signature and that may be directly reproduced in paper form by an automated process shall be deemed a valid appointment form, and (ii) the corporation may permit a shareholder to appoint one or more proxies by any kind of telephonic transmission, even if not accompanied by written communication, under circumstances or together with information from which the corporation can reasonably assume that the appointment was made or authorized by the shareholder. An appointment of proxy is valid for 11 months from the date of its execution, unless a different period is expressly provided in the appointment form.

          10.       Notice of Shareholder Proposals and Nominees for Election as Directors:

                    (a)      No business shall be transacted at a meeting of shareholders, except such business as shall be (i) specified in the notice of meeting given as provided in Section 5 of this Article, (ii) presented by or at the direction of the Board of Directors, or (iii) otherwise brought before the meeting by a shareholder of record entitled to vote at the meeting in compliance with the procedures set forth in this Section 10. In addition to the requirements of any applicable law with respect to any proposal presented by a shareholder for action at a meeting of the shareholders of the corporation (including the requirements of the Securities and Exchange Commission relating to shareholder proposals and director nominees), and subject to the provisions of the North Carolina Business Corporation Act as in effect from time to time, any shareholder desiring to introduce any business before any meeting of the shareholders of the corporation shall be required to deliver to the Secretary written notice containing the information specified herein (i) in the case of an annual meeting, at least 60 days but no more than 90 days in advance of the first anniversary of the notice date of the corporation’s proxy statement for the preceding year’s annual meeting, and (ii) in the case of a special meeting, no later than the tenth day following the notice date for such meeting. In the event that the date of an annual meeting is advanced by more than 30 days or delayed by more than 60 days from the first anniversary date of the preceding year’s annual meeting, notice by a shareholder must be delivered no earlier than the 90th day prior to such annual meeting and no later than the later of the 60th day prior to such annual meeting or the tenth day following the notice date for such meeting. The written notice required herein shall, as to each matter the shareholder proposes to bring before the meeting, contain the following information (in addition to any information required by applicable law): (i) the name and address of the shareholder who intends to present the proposal and the beneficial owner, if any, on whose behalf the proposal is made; (ii) the number of shares of each class of capital stock owned by the shareholder and such beneficial owner; (iii) a description of the business proposed to be introduced to the shareholders; (iv) any material interest, direct or indirect, which the shareholder or beneficial owner may have in the business described in the notice; and (v) a representation that the shareholder is a holder of record of shares of the corporation entitled to vote at the meeting and intends to appear in person or by proxy at the meeting to present the proposal.

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                    (b)       Only persons who are nominated in accordance with the provisions set forth in these bylaws shall be eligible to be elected as directors at a meeting of shareholders. Nominations of persons for election to the Board of Directors may be made at such meeting of shareholders (i) by or at the direction of the Board of Directors (or a properly authorized committee of the Board) or (ii) by any shareholder who is a shareholder of record at the time of giving of notice provided for in this Section 10, who shall be entitled to vote for the election of directors at the meeting and who complies with the notice procedures set forth in this Section 10. Any shareholder desiring to nominate a person for election as a director of the corporation shall deliver to the Secretary a written notice at such time and containing such information as set forth in Section 10(a) of this Article, with such additional information in the notice concerning the nominee for election as a director of the corporation as would be required, pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (or any successor provision thereto), to be disclosed in the proxy materials concerning all persons nominated (by the corporation or otherwise) for election as a director of the corporation, as well as a consent signed by each nominee to serve as a director if elected.

                    (c)       Failure of any shareholder to provide such notice in a timely and proper manner as set forth in this Section 10 shall authorize the presiding officer at the meeting of shareholders before which such business is proposed to be introduced, or at which such nominee is proposed to be considered for election as a director, to rule such proposal or nomination out of order and not proper to be introduced or considered.

          11.       Conduct of Meetings:

                    (a)       Unless determined otherwise by the Board of Directors, the Chief Executive Officer of the corporation shall act as chairman at all meetings of shareholders and the Secretary or an Assistant Secretary of the corporation shall act as secretary at all meetings of shareholders.

                    (b)       The Board of Directors of the corporation may, to the extent not prohibited by applicable law, establish such rules or regulations for the conduct of meetings of shareholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting. Such rules, regulations and procedures, whether adopted by the Board or the chairman of the meeting, may, to the extent not prohibited by applicable law, include, without limitation, the following: (i) establishment of an agenda or order of business for the meeting, (ii) rules and procedures for maintaining order at the meeting and the safety of those present, (iii) rules and procedures for dismissal of business not properly submitted (including but in no way limited to matters described in Section 10 of this Article), (iv) limitations on attendance at or participation in such meeting to shareholders of record of the corporation and their duly authorized and constituted proxies and such other persons as the chairman shall permit, (v) restrictions on entry to the meeting after the time fixed for the commencement thereof, (vi) limitations on the time allotted for questions or comments by participants and (vii) regulation of the opening and closing of the polls for balloting and matters which are to be voted on by ballot. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of shareholders shall not be required to be held in accordance with rules of parliamentary procedure.

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          12.       Inspector of Elections: The Board of Directors may appoint one or more voting inspectors to act at any meeting of shareholders or any adjournment thereof. If the Board does not make such appointment, or if their appointees or any of them fail to appear or act at the meeting of shareholders, the chairman of the meeting may appoint such inspector or inspectors to act at the meeting.

          13.       Attendance by Electronic Means: If and to the extent authorized by the Board, a shareholder or the shareholder’s proxy not physically present at a shareholders meeting may attend the meeting by electronic or other means of remote communication that allows the shareholder or proxy (i) to read or to hear the meeting proceedings substantially concurrently as the proceedings occur, (ii) to be read or to be heard substantially concurrently as the shareholder or proxy communicates, and (iii) to vote on matters to which the shareholders or proxy is entitled to vote.

ARTICLE III

Directors

          1.       General Powers: All corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation shall be managed under the direction of, the Board of Directors, except as otherwise provided by applicable law or in the articles of incorporation.

          2.       Number, Term and Qualification: The Board shall consist of not less than three nor more than 30 members and the number of members shall be fixed and determined from time to time by resolution of the majority of the full board or by resolution of the shareholders at any meeting thereof, but the number of directors shall not be less than three. The Board of Directors shall be divided into three classes, each class to be as nearly equal in number as-possible. At the annual meeting of stockholders in 1984, the directors of one class shall be elected for a term of one year, the directors of the second class shall be elected for a term of two years, and the directors of the third class shall be elected for a term of three years. At each annual meeting of the stockholders after the 1984 annual meeting, the successor of the directors of the class whose terms expire in that year shall be elected to hold office for a term of three years, so that the term of office of one class of directors shall expire each year. Any director, upon reaching age seventy, shall retire as a director effective as of the end of that calendar year without any further action by the shareholders or the Board of Directors. Each director shall hold office until his death, resignation, retirement, removal, disqualification, or his successor is elected and qualified. If the size of the Board of Directors is increased, the new directors elected in the year of the increase shall be elected to serve for terms of one, two or three years such that the three classes shall remain equal or nearly equal. Directors must possess the qualifications required of directors of National Banks as set forth in the laws of the United States and the regulations and rulings of the regulatory authorities supervising such National Banks, except that each director shall own at least one thousand (1,000) shares of BB&T Corporation Common Stock throughout the full term of the director’s service. These “qualifying shares” may be acquired over a period of one year from the date of the initial election of the director.

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          3.       Election of Directors: Except as provided in Section 5 of this Article, directors are elected by the shareholders by a plurality of the votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present.

          4.       Removal: Directors may be removed from office by the shareholders with or without cause (unless the articles of incorporation provide that directors may be removed only for cause), provided the notice of the shareholders’ meeting at which such action is to be taken states that a purpose of the meeting is removal of the director and the number of votes cast to remove the director exceeds the number of votes cast not to remove the director.

          5.       Vacancies: Except as otherwise provided in the articles of incorporation, a vacancy occurring in the board of directors, including, without limitation, a vacancy resulting from an increase in the number of directors or from the failure by the shareholders to elect the full authorized number of directors, may be filled by a majority of the remaining directors or by the sole director remaining in office. The shareholders may elect a director at any time to fill a vacancy not filled by the directors. A director elected to fill a vacancy shall be elected for the unexpired term of his or her predecessor in office.

          6.       Compensation: The Board of Directors may compensate directors for their services as such and may provide for the payment of expenses incurred by the directors in connection with such services.

          7.       Executive Committee: The Board of Directors shall maintain an Executive Committee composed of not less than three members of the Board, each of whom shall be elected by a majority of the Board. The Executive Committee shall have such powers and duties as may be stated in its charter or prescribed from time to time by the Board, subject to any restrictions imposed by applicable law. Without limiting the foregoing, to the extent permitted by applicable law and authorized by the Board, the Executive Committee shall have and may exercise, during the intervals between the meetings of the Board, all the powers and authority of the Board in the management of the business and affairs of the corporation.

          8.       Audit Committee: The Board of Directors shall maintain an Audit Committee composed of not less than three independent members of the Board, each of whom shall be elected by a majority of the Board. Members of the Audit Committee shall be elected by a majority of the Board. The Audit Committee shall have such powers and duties as may be stated in its charter or prescribed from time to time by the Board, subject to any restrictions imposed by applicable law.

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          9.       Other Committees: The Board of Directors may establish a Compensation Committee, a Corporate Governance/Nominating Committee and such other committees of the Board as the Board shall determine. Each committee shall be composed of not less than three members of the Board, each of whom shall be elected by a majority of the Board. Each such committee shall have such powers and duties as may be stated in such committee’s charter or prescribed from time to time by the Board, subject to any restrictions imposed by applicable law.

          10.       General Committee Matters: Each committee member serves at the pleasure of the Board of Directors. The provisions in these bylaws governing meetings, action without meetings, notice, waiver of notice, quorum and voting requirements of the Board apply to committees of the Board established under this Article.

ARTICLE IV

Meetings of Directors

          1.       Regular Meetings: A regular meeting of the Board of Directors shall be held on the same date, and at the same place, as the annual meeting of shareholders or at such other date, time and place as the Board of Directors shall determine. In addition, the Board of Directors may provide for the date, time and place for the holding of additional regular meetings, either within or without the State of North Carolina, without notice. When any regular meeting of the Board falls upon a holiday, the meeting shall be held on the next banking business day unless the Board shall designate some other day.

          2.       Special Meetings: Special meetings of the Board of Directors may be called by the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer or the Secretary of the corporation, or at the request of three or more directors. Each member of the Board of Directors shall be given notice stating the date, time and place, by letter, electronic delivery or in person, of each special meeting not less than one day before the meeting. Such notice need not specify the purpose for which the meeting is called, unless required by the North Carolina Business Corporation Act, the articles of incorporation or the bylaws.

          3.       Waiver of Notice: A director may waive notice of any meeting before or after the date and time stated in the notice. The waiver must be in writing, signed by the director entitled to the notice, and filed with the minutes or corporate records. In addition, attendance at or participation by a director at a meeting shall constitute a waiver of notice of such meeting, unless the director at the beginning of the meeting (or promptly upon his or her arrival) objects to holding the meeting or transacting business at the meeting and does not later vote for or assent to action taken at the meeting.

          4.       Quorum: Unless the articles of incorporation or bylaws provide otherwise, a majority of the number of directors prescribed by or pursuant to these bylaws shall constitute a quorum for the transaction of business at any meeting of the Board of Directors or, if no number is so prescribed, a majority of directors in office immediately before the meeting shall constitute a quorum.

          5.       Adjournment: Any duly convened regular or special meeting may be adjourned by the directors to a later date or time without further notice.

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          6.       Manner of Acting: Except as otherwise provided in the articles of incorporation or the bylaws, the affirmative vote of a majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors.

          7.       Presumption of Assent: A director who is present at a meeting of the Board of Directors or a committee of the Board of Directors when corporate action is taken is deemed to have assented to the action taken unless (i) he or she objects at the beginning of the meeting (or promptly upon his or her arrival) to holding the meeting or transacting business at the meeting; (ii) his or her dissent or abstention from the action taken is entered in the minutes of the meeting; or (iii) he or she files written notice of his or her dissent or abstention with the presiding officer of the meeting before its adjournment or with the corporation immediately after adjournment of the meeting. The right of dissent or abstention is not available to a director who votes in favor of the action taken.

          8.       Action without Meeting: Action required or permitted to be taken at a Board of Directors meeting may be taken without a meeting if the action is taken by all members of the Board. The action must be evidenced by one or more written consents signed by each director before or after such action, describing the action taken, and included in the minutes or filed with the corporate records. A director’s consent to action taken without meeting may be in electronic form and delivered by electronic means.

          9.       Attendance by Electronic, Telephonic or Similar Means: Unless otherwise provided by the articles of incorporation, the bylaws or the Board, any or all directors may participate in a regular or special meeting by, or conduct the meeting through the use of, any means of communication by which all directors participating may simultaneously hear each other during the meeting. A director participating in a meeting by this means is deemed to be present in person at the meeting.

ARTICLE V

Officers

          1.       Title and Number: The officers of the corporation may consist of a Chairman of the Board, one or more Vice Chairmen, a Chief Executive Officer, a President, a Chief Operating Officer, a Chief Financial Officer, a Chief Administrative Officer, one or more Senior Executive Vice Presidents, one or more Executive Vice Presidents, a Secretary, a Treasurer, a Controller and such Senior Vice Presidents, Vice Presidents, Assistant Secretaries, Assistant Treasurers and other officers as the Board of Directors may from time to time elect or as may otherwise be elected pursuant to this Article. Any two or more offices may be held by the same person, except that no individual may act in more than one capacity where action of two or more officers is required.

          2.       Election and Term: The officers of the corporation shall be elected by the Board of Directors or by a duly designated committee of the Board. Each officer shall hold office until a successor is elected and qualified, or until his or her resignation, retirement, death, removal or disqualification.

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          3.       Removal: The Board of Directors may remove or terminate any officer at any time with or without cause. In addition, any officer other than the Chief Executive Officer may be removed or terminated at any time with or without cause by a duly designated Board committee or by a superior officer; provided, however, that the Chairman or any Vice Chairman may be removed solely by the Board. Removal, resignation or termination of an officer shall be without prejudice to the contract rights, if any, of the person so removed.

          4.       Compensation: The compensation of all officers of the corporation shall be fixed by the Board of Directors or by or under the direction of a duly designated committee of the Board or other officer or officers designated by the Board.

          5.       Chairman of the Board; Vice Chairmen: There shall be a Chairman of the Board of Directors elected by the directors from their members. The Chairman may also be the Chief Executive Officer of the corporation. The Chairman shall preside at all meetings of the Board of Directors and shall perform such other duties as may be incident to the office of Chairman or as may be directed by the Board. There may also be one or more Vice Chairmen of the Board of Directors elected by the directors from their members. Such Vice Chairman or Vice Chairmen shall perform such other duties as may be incident to the office of Vice Chairman or as may be directed by the Board.

          6.       Chief Executive Officer: The Chief Executive Officer shall have full executive powers, shall be the principal executive officer of the corporation, shall have and exercise all powers, duties and authority incident to the office of Chief Executive Officer and shall, subject to the direction and control of the Board, supervise, direct and control the management of the corporation in accordance with these bylaws. The Chief Executive Officer may also serve as Chairman of the Board in accordance with Section 5 of this Article.

          7.       Other Officers: Each other officer shall have such title or titles, perform such duties and exercise such powers as may be incident to his or her office or prescribed by the Board or, with respect to offices other than the Chief Executive Officer, the Chairman and any Vice Chairman of the Board (and except as otherwise determined by the Board), by the Board, a duly designated committee of the Board or the Chief Executive Officer.

          8.       Bonds: The Board of Directors may by resolution require any or all officers, agents and employees of the corporation to give bond to the corporation, with sufficient sureties, conditioned on the faithful performance of the duties of their respective offices or positions, and to comply with such other conditions as may from time to time be required by the Board of Directors.

ARTICLE VI

Contracts, Loans and Deposits

          1.       Contracts: The Board of Directors may authorize such officers as it deems appropriate to enter into any contract or execute and deliver any instrument on behalf of the corporation, and such authority may be general or confined to specific instances. In addition, unless the Board determines otherwise, each officer shall have such authority as may be incident to his or her particular office to enter into contracts and execute and deliver instruments on behalf of the corporation.

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          2.       Loans: No loans shall be contracted on behalf of the corporation and no evidence of indebtedness on behalf of the corporation shall be issued in its name unless authorized by the Board of Directors. Such authority may be general or confined to specific instances.

          3.       Checks and Drafts: All checks, drafts or other orders for the payment of money issued in the name of the corporation shall be signed by such officer or officers or agent or agents of the corporation and in such manner as shall from time to time be determined by the Board of Directors or the Chief Executive Officer.

          4.       Deposits: All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such depositories as may be selected by or under the authority of the Board of Directors.

ARTICLE VII

Certificates for Shares and Their Transfer

          1.       Certificates for Shares and Stock Transfer Records:

                    (a)       The Board of Directors may authorize the issuance of some or all of the shares of the corporation's classes or series without issuing certificates to represent such shares. If shares are represented by certificates, the certificates shall be in such form as required by applicable law and as determined by the Board of Directors. Certificates shall be signed, either manually or in facsimile, by the Chairman of the Board, the Chief Executive Officer, the President or a Senior Executive Vice President and by the Secretary or an Assistant Secretary. All certificates for shares shall be consecutively numbered or otherwise identified and entered into the stock transfer records of the corporation. When shares are represented by certificates, the corporation shall issue and deliver to each shareholder to whom such shares have been issued or transferred, certificates representing the shares owned by such shareholder. When shares are not represented by certificates, then, within a reasonable time after the issuance or transfer of such shares, the corporation shall send the shareholder to whom such shares have been issued or transferred a written statement of the information required by applicable law. Unless otherwise provided by applicable law, the rights and obligations of shareholders are identical whether or not their shares are represented by certificates. The Board of Directors may designate a transfer agent who may countersign each certificate either manually or by use of a facsimile signature.

                    (b)       The corporation shall keep, or cause one or more stock transfer agents to keep, the stock transfer records of the corporation, which shall reflect the name and address of each shareholder of record, the number and class or series of shares issued to each shareholder of record and the date of issue of each such share. The Board of Directors may designate a registrar to register each certificate that is issued either manually or by use of a facsimile signature.

          2.       Transfer of Shares: Transfers of shares shall be made and recorded on the stock transfer records of the corporation only upon surrender of the certificates for the shares sought to be transferred by the record holder thereof or by his or her duly authorized agent, transferee or legal representative. All certificates surrendered for transfer shall be cancelled before new certificates for the transferred shares shall be issued.

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          3.       Fixing Record Date: The Board of Directors may fix a future date as the record date for one or more voting groups in order to determine the shareholders entitled to notice of a shareholders’ meeting, to demand a special meeting, to vote or to take any other action. Such record date may not be more than 70 days before the meeting or action requiring a determination of shareholders. A determination of shareholders entitled to notice of or to vote at a shareholders’ meeting is effective for any adjournment of the meeting unless the Board of Directors fixes a new record date for the adjourned meeting, which it must do if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting. If no record date is fixed by the Board of Directors for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, the close of business on the day before the date the first notice of the meeting is delivered to shareholders shall be the record date for such determination of shareholders. The Board of Directors may fix a date as the record date for determining shareholders entitled to a distribution or share dividend. If no record date is fixed by the Board of Directors for such determination, the record date shall be the date the Board of Directors authorizes the distribution or share dividend.

          4.       Lost, Stolen or Destroyed Certificates: The Board of Directors may authorize the issuance of a new share certificate in place of a certificate claimed to have been lost, stolen or destroyed, upon receipt of a written statement of such fact from the person claiming that the certificate has been lost, stolen or destroyed. When authorizing such issuance of a new certificate, the Board may require the claimant or his or her legal representative to give the corporation a bond in such sum and with such surety or other security as the Board may direct to indemnify the corporation against loss from any claim with respect to the certificate claimed to have been lost, stolen or destroyed; or the Board may, by resolution, authorize the issuance of the new certificate without requiring such a bond.

ARTICLE VIII

Indemnification of Officers and Directors

          1.       Right to Indemnification: Any person who at any time hereafter serves or heretofore has served: (i) as an officer or director of the corporation; (ii) at the request of the corporation as a director, officer, partner, or trustee (or in any position of similar authority, by whatever title known) of any other foreign or domestic corporation, partnership, joint venture, trust or other enterprise; or (iii) as a trustee or administrator under any employee benefit plan, shall have a right to be indemnified by the corporation to the fullest extent permitted by law against:

                    (a)      All liability and expenses, including without limitation costs and expenses of litigation and reasonable attorney’s fees, actually and reasonable incurred by him or her in connection with or as a consequence of any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, including appeals, and whether or not brought by or on behalf the corporation or by or on behalf of any third party, outsider or any other person, seeking to hold him or her liable by reason of or arising out of his or her status or his or her activities in any of the foregoing capacities; and

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                    (b)       Liability incurred by him or her for any judgments, money decrees, fines, penalties or amounts paid in settlement in connection with or as a consequence of any action, suit or proceeding described in (a) above;

provided, however, the corporation shall not indemnify or agree to indemnify any person against any liability or expenses he or she may incur on account of his or her activities which were at the time taken known or believed by him or her to be clearly in conflict with the best interest of the corporation.

          2.       Recovery of Expenses: Any person entitled to indemnification under this Article shall be entitled to recover from the corporation his or her reasonable costs, expenses and attorneys’ fees incurred in connection with enforcing his or her right to indemnification.

          3.       Advancement of Expenses: Expenses incurred by a director or officer of the corporation in defending an action, suit or proceeding described above shall, at the request of such director or officer, and subject to authorization by the Board, be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director or officer to repay such amount, unless it shall ultimately be determined that he or she is entitled to indemnification from the corporation under this Article or otherwise.

          4.       Reliance: Any person who at any time after the adoption of this Article serves or has served in any of the capacities described in Section 1 herein for or on behalf of the corporation shall be deemed to be doing so and to have done so in reliance upon, and as consideration for, the rights provided herein. Such rights shall inure to the benefit of the heirs and legal representatives of any such person and shall not be exclusive of any other rights to which such person may be entitled apart from the provisions of this Article.

          5.       Amendment: Any amendment, alteration, repeal or other change hereof limiting or restricting in any way the rights, fixed or contingent, granted hereunder shall operate prospectively only and shall not prejudice, defeat or impair any rights of any person existing at the time of such amendment, alteration, repeal or other change.

          6.      No Limitation on Other Rights to Indemnification: If this Article or any portion hereof shall be invalidated on any ground by any court or agency of competent jurisdiction, then the corporation shall nevertheless indemnify each person described in Section 1 herein to the full extent permitted by the portion of this Article that is not invalidated and also to the full extent permitted or required by other applicable law.

ARTICLE IX

General Provisions

          1.       Dividends: The Board of Directors may from time to time declare, and the corporation may pay, distributions and share dividends to its shareholders in the manner and upon the terms and conditions provided by applicable law and by the articles of incorporation or the bylaws.

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          2.       Seal: The seal of the corporation shall be in any form approved from time to time or at any time by the Board of Directors.

          3.       Fiscal Year: Unless otherwise ordered by the Board of Directors, the fiscal year of the corporation shall be from January 1 to December 31.

          4.       Amendments: The Board of Directors of the corporation shall have the authority, without the assent or vote of the shareholders, to adopt, make, alter, amend and/or rescind the bylaws or any bylaw of the corporation. The shareholders of the corporation may amend or repeal the corporation’s bylaws even though the bylaws may also be amended or repealed by the Board of Directors.

          5.       North Carolina Shareholder Protection Act Inapplicable: The provisions of Article 9 of Chapter 55 of the General Statutes of North Carolina, known as “The North Carolina Shareholder Protection Act,” shall not be applicable to the corporation.

          6.       Definitions: Unless the context otherwise requires, terms used in these bylaws shall have the meanings assigned to them in the North Carolina Business Corporation Act to the extent defined therein. In addition, without limiting the effect of the foregoing, the term “applicable law” used in these bylaws shall refer to any applicable laws, rules or regulations, including but not limited to the North Carolina Business Corporation Act, applicable federal securities laws, rules and regulations and the rules and regulations of any applicable stock exchange.








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 EX-31.1 3 exhibit311.htm Exhibit 31.1

Exhibit 31.1

CERTIFICATIONS

I, John A. Allison, IV, certify that:

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

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

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

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

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

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 8, 2004

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


BB&T Corporation           Page 58           Third Quarter 2004 10-Q



 EX-31.2 4 exhibit312.htm Exhibit 31.2

Exhibit 31.2

CERTIFICATIONS

I, Scott E. Reed, certify that:

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

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

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

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

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

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 8, 2004

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

BB&T Corporation           Page 59           Third Quarter 2004 10-Q



 EX-32.1 5 exhibit321.htm Exhibit 32.1

Exhibit 32.1

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

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

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

(2)      Accompanying this certification is BB&T Corporation’s Quarterly Report on Form 10-Q for the period ended September 30, 2004, a periodic report (the “periodic report”) filed by the issuer with the Securities and Exchange Commission pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”), which contains financial statements.

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

·  

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

·  

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

/s/ John A. Allison, IV       
John A. Allison, IV
Chairman and Chief Executive Officer
November 8, 2004


A signed original of this written statement required by Section 906 has been provided to BB&T Corporation and will be retained by BB&T Corporation and furnished to the Securities and Exchange Commission or its staff upon request.


BB&T Corporation           Page 60           Third Quarter 2004 10-Q



 EX-32.2 6 exhibit322.htm Exhibit 32.2

Exhibit 32.2

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

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

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

(2)      Accompanying this certification is BB&T Corporation’s Quarterly Report on Form 10-Q for the period ended September 30, 2004, a periodic report (the “periodic report”) filed by the issuer with the Securities and Exchange Commission pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”), which contains financial statements.

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

·  

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

·  

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

/s/ Scott E. Reed       

Scott E. Reed
Senior Executive Vice President and
Chief Financial Officer
November 8, 2004




          A signed original of this written statement required by Section 906 has been provided to BB&T Corporation and will be retained by BB&T Corporation and furnished to the Securities and Exchange Commission or its staff upon request.


BB&T Corporation           Page 61           Third Quarter 2004 10-Q



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