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BB&T 10-Q 2007
BB&T First Quarter 2007 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q



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

For the quarterly period ended:

March 31, 2007


Commission file number: 1-10853


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


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

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



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

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

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

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

At April 30, 2007, 542,563,530 shares of the registrant’s common stock, $5 par value, were outstanding.




BB&T CORPORATION

FORM 10-Q

March 31, 2007


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 25 
   
          Analysis of Financial Condition 26 
   
          Analysis of Results of Operations 32 
   
          Market Risk Management 40 
   
          Capital Adequacy and Resources 45 
   
  Item 3. Quantitative and Qualitative Disclosures About Market Risk 48 
   
  Item 4. Controls and Procedures 48 
   
Part II. OTHER INFORMATION  
   
  Item 1. Legal Proceedings 48 
   
  Item 1A. Risk Factors 48 
   
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 49 
   
  Item 6. Exhibits 49 
   
SIGNATURES 49 
   
EXHIBIT INDEX 50 
   
CERTIFICATIONS 51 

BB&T Corporation           Page 1          First Quarter 2007 10-Q



Item 1. Financial Statements

BB&T CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in millions, except per share data)
 
      March 31,     December 31,  
      2007     2006  
 
Assets              
     Cash and due from banks $   1,714   $ 2,024  
     Interest-bearing deposits with banks     413     435  
     Federal funds sold and securities purchased under resale agreements              
           or similar arrangements     267     253  
     Segregated cash due from banks     108     153  
     Trading securities at fair value     906     2,147  
     Securities available for sale at fair value     20,898     20,721  
     Loans held for sale     672     680  
     Loans and leases, net of unearned income     84,648     82,911  
     Allowance for loan and lease losses     (896 )   (888 )
           Loans and leases, net     83,752     82,023  
 
     Premises and equipment, net of accumulated depreciation     1,431     1,410  
     Goodwill     4,860     4,827  
     Core deposit and other intangible assets     479     454  
     Residential mortgage servicing rights at fair value     494     484  
     Other assets     5,700     5,740  
                           Total assets $   121,694   $ 121,351  
 
Liabilities and Shareholders' Equity              
     Deposits:              
           Noninterest-bearing deposits $   13,533   $ 13,393  
           Interest checking     1,288     1,333  
           Other client deposits     34,657     34,062  
           Client certificates of deposit     25,322     24,987  
           Other interest-bearing deposits     5,039     7,196  
                           Total deposits     79,839     80,971  
     Federal funds purchased, securities sold under repurchase agreements              
                   and short-term borrowed funds     6,770     8,087  
     Long-term debt     19,936     15,904  
     Accounts payable and other liabilities     3,499     4,644  
                           Total liabilities     110,044     109,606  
     Commitments and contingencies (Note 6)              
     Shareholders' equity:              
           Preferred stock, $5 par, 5,000,000 shares authorized, none issued or              
                   outstanding at March 31, 2007, or at December 31, 2006     -     -  
           Common stock, $5 par, 1,000,000,000 shares authorized;              
                   542,415,919 issued and outstanding at March 31, 2007, and              
                   541,475,305 issued and outstanding at December 31, 2006     2,712     2,707  
           Additional paid-in capital     2,862     2,801  
           Retained earnings     6,364     6,596  
           Accumulated other comprehensive loss, net of deferred income              
                   taxes of $(179) at March 31, 2007, and $(212) at December 31, 2006     (288 )   (359 )
                           Total shareholders' equity     11,650     11,745  
                           Total liabilities and shareholders' equity $   121,694   $ 121,351  

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

BB&T Corporation           Page 2          First Quarter 2007 10-Q




BB&T CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in millions, except per share data)
 
 
 
  For the Three Months Ended
  March 31,
 
 
     2007      2006  
Interest Income            
         Interest and fees on loans and leases $ 1,613   $ 1,333  
         Interest and dividends on securities   268     216  
         Interest on short-term investments   10     7  
                 Total interest income   1,891     1,556  
 
Interest Expense            
         Interest on deposits   647     439  
         Interest on federal funds purchased, securities sold under            
                 repurchase agreements and short-term borrowed funds   87     65  
         Interest on long-term debt   212     155  
                 Total interest expense   946     659  
 
Net Interest Income   945     897  
         Provision for credit losses   71     47  
 
Net Interest Income After Provision for Credit Losses   874     850  
Noninterest Income            
         Insurance commissions   197     176  
         Service charges on deposits   138     131  
         Investment banking and brokerage fees and commissions   82     81  
         Other nondeposit fees and commissions   43     38  
         Checkcard fees   41     35  
         Trust income   40     37  
         Mortgage banking income   30     32  
         Bankcard fees and merchant discounts   30     29  
         Securities losses, net   (11 )   -  
         Income from bank-owned life insurance   28     22  
         Other income   34     27  
                 Total noninterest income   652     608  
Noninterest Expense            
         Personnel expense   524     514  
         Occupancy and equipment expense   116     108  
         Amortization of intangibles   25     25  
         Professional services   31     26  
         Merger-related and restructuring charges (gains), net   6     (3 )
         Loan processing expenses   26     23  
         Other expenses   155     126  
                 Total noninterest expense   883     819  
Earnings            
         Income before income taxes   643     639  
         Provision for income taxes   222     208  
         Net income $ 421   $ 431  
 
Per Common Share            
         Net income:            
                 Basic $ .78   $ .80  
                 Diluted $ .77   $ .79  
         Cash dividends paid $ .42   $ .38  
 
Weighted Average Shares Outstanding            
                 Basic   541,850,632     539,952,669  
                 Diluted   547,229,662     543,435,830  
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 

BB&T Corporation           Page 3          First Quarter 2007 10-Q




BB&T CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Three Months Ended March 31, 2007 and 2006
(Unaudited)
(Dollars in millions, except per share data)

                              Accumulated        
    Shares of             Additional           Other     Total  
    Common     Common     Paid -In       Retained   Comprehensive     Shareholders'  
    Stock     Stock       Capital       Earnings   Income (Loss)     Equity  
Balance, January 1, 2006   543,102,080   $ 2,715   $   2,819   $   5,951   $   (356 ) $ 11,129  
Add (Deduct):                                          
   Comprehensive income (loss):                                          
         Net income   -   -       -       431       -     431  
               Unrealized holding gains (losses) arising during the period                                          
                   on securities available for sale, net of tax of $(64)   -     -       -       -       (112 )   (112 )
               Reclassification adjustment for losses (gains)                                          
                   on securities available for sale included in net                                          
                   income, net of tax -     -       -          -       -     -  
         Change in unrealized gains (losses) on securities, net of tax   -   -       -       -       (112 )   (112 )
         Change in unrecognized gains (losses) on cash flow hedges,                                          
               net of tax of $2   -     -       -     -       3     3  
         Change in minimum pension liability, net of tax   -     -       -       -       1     1  
   Total comprehensive income (loss)   -     -       -       431       (108 )   323  
 
   Common stock issued:                                          
         In purchase acquisitions   189,045     1       7       -     -     8  
         In connection with stock option exercises                                          
               and other employee benefits, net of cancellations   604,371     3       13       -       -     16  
   Redemption of common stock   (8,307,403 )   (42 )     (292 )   -       -     (334 )
   Cash dividends declared on common stock, $.38 per share   -   -       -       (203 )     -     (203 )
   Other, net   -     -       31       -       -     31  
Balance, March 31, 2006   535,588,093   $ 2,677   $   2,578   $   6,179   $   (464 ) $ 10,970  
 
 
Balance, January 1, 2007   541,475,305   $ 2,707   $   2,801   $   6,596   $   (359 ) $ 11,745  
Add (Deduct):                                          
   Comprehensive income (loss):                                          
         Net income   -     -       -       421       -     421  
               Unrealized holding gains (losses) arising during the period                                          
                   on securities available for sale, net of tax of $28   -     -       -       -       64     64  
               Reclassification adjustment for losses (gains)                                          
                   on securities available for sale included in net                                          
                   income, net of tax of $4   -   -       -       -       7     7  
         Change in unrealized gains (losses) on securities, net of tax   -     -       -       -       71     71  
         Change in unrecognized gains (losses) on cash flow hedges,                                          
               net of tax of $1   -     -       -       -       1     1  
         Change in pension liability, net of tax   -     -       -        -       (1 )   (1 )
   Total comprehensive income (loss)   -     -       -       421       71     492  
 
   Common stock issued:                                          
         In connection with stock option exercises                                          
               and other employee benefits, net of cancellations   940,614     5       20       -       -     25  
   Cash dividends declared on common stock, $.42 per share   -     -       -       (228 )     -     (228 )
   Cumulative effect of adoption of FIN 48   -   -       -       (119 )     -     (119 )
   Cumulative effect of adoption of FSP FAS 13-2   -     -     -       (306 )     -     (306 )
   Other, net   -     -       41       -       -     41  
Balance, March 31, 2007   542,415,919   $ 2,712   $   2,862   $   6,364   $   (288 ) $ 11,650  

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

BB&T Corporation           Page 4          First Quarter 2007 10-Q




BB&T CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in millions)
 
  For the Three Months Ended
   March 31,
  2007   2006
Cash Flows From Operating Activities:            
     Net income $ 421   $ 431  
     Adjustments to reconcile net income to net cash provided            
           by operating activities:            
                 Provision for credit losses   71     47  
                 Depreciation   44     43  
                 Amortization of intangibles   25     25  
                 Equity-based compensation   28     27  
                 Discount accretion and premium amortization on long-term debt, net   31     30  
                 Discount accretion and premium amortization on securities, net      -     9  
                 Net decrease (increase) in trading account securities   1,241     (32 )
                 Loss on sales of securities, net   11              -  
                 Gain on sales of loans and mortgage loan servicing rights, net   (19 )   (15 )
                 Gain on disposals of premises and equipment, net   (3 )   (30 )
                 Proceeds from sales of loans held for sale   1,498     1,097  
                 Originations and purchases of loans held for sale, net of principal collected   (1,566 )   (925 )
                 Decrease (increase) in other assets, net   41     (142 )
                 Decrease in accounts payable and other liabilities, net   (1,152 )   (12 )
                 Decrease in segregated cash due from banks   45     11  
                 Other, net   1              -  
                       Net cash provided by operating activities   717     564  
 
Cash Flows From Investing Activities:            
     Proceeds from sales of securities available for sale   830     9  
     Proceeds from maturities, calls and paydowns of securities available for sale   1,286     382  
     Purchases of securities available for sale   (2,200 )   (205 )
     Leases made to customers   (43 )   (64 )
     Principal collected on leases   52     48  
     Originations and purchases of loans, net of principal collected   (903 )   (1,350 )
     Net cash paid in business combinations   (14 )   (34 )
     Proceeds from disposals of premises and equipment   11     80  
     Purchases of premises and equipment   (66 )   (54 )
     Proceeds from sales of foreclosed property or other real estate held for sale   21     28  
                 Net cash used in investing activities   (1,026 )   (1,160 )
 
Cash Flows From Financing Activities:            
     Net (decrease) increase in deposits   (1,132 )   1,283  
     Net decrease in federal funds purchased, securities sold under repurchase agreements            
           and short-term borrowed funds   (2,686 )   (204 )
     Proceeds from issuance of long-term debt   4,000     3  
     Repayment of long-term debt   (1 )   (120 )
     Net proceeds from common stock issued   25     16  
     Redemption of common stock      -     (334 )
     Cash dividends paid on common stock   (228 )   (207 )
     Excess tax benefit from equity-based awards   13     4  
                 Net cash (used in) provided by financing activities   (9 )   441  
 
Net Decrease in Cash and Cash Equivalents   (318 )   (155 )
Cash and Cash Equivalents at Beginning of Period   2,712     2,797  
Cash and Cash Equivalents at End of Period $ 2,394   $ 2,642  
 
 
Supplemental Disclosure of Cash Flow Information:            
 
     Cash paid during the period for:            
           Interest $ 890   $ 625  
           Income taxes   1,317     83  
     Noncash investing and financing activities:            
           Transfers of loans to foreclosed property   16     12  
           Transfers of fixed assets to other real estate owned   2     2  
           Common stock issued in business combinations      -     8  
 
 
The accompanying notes are an integral part of these consolidated financial statements.

Back to Index

BB&T Corporation           Page 5          First Quarter 2007 10-Q




BB&T CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2007
(Unaudited)

NOTE 1. Basis of Presentation

     General

          In the opinion of management, the accompanying unaudited consolidated balance sheets, consolidated statements of income, consolidated statements of changes in shareholders’ equity, and consolidated statements of cash flows of BB&T Corporation and subsidiaries (referred to herein as “BB&T”, “the Corporation” or “the Company”), present fairly, in all material respects, BB&T’s financial position at March 31, 2007 and December 31, 2006; BB&T’s results of operations for the three months ended March 31, 2007 and 2006; and BB&T’s cash flows for the three months ended March 31, 2007 and 2006. In the opinion of management, all adjustments necessary to fairly present the consolidated financial position and consolidated results of operations have been made. All adjustments during the first three months of 2007 and 2006 were of a normal recurring nature.

          These consolidated financial statements and notes are presented in accordance with the instructions for Form 10-Q. The information contained in the footnotes included in BB&T’s 2006 Annual Report on Form 10-K should be referred to in connection with these unaudited interim consolidated financial statements.

     Nature of Operations

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

BB&T Corporation           Page 6          First Quarter 2007 10-Q




     Principles of Consolidation

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

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

          BB&T is involved in creating a series of secondary marketing trusts, which are qualified special purpose entities, for the purpose of selling interests in municipal securities to third parties at short-term tax-exempt rates. The trusts purchase fixed-rate, longer-term highly rated municipal bonds by issuing puttable floating-rate certificates and inverse floating-rate certificates. BB&T purchases the inverse floating-rate certificates, which are categorized as trading securities on the Consolidated Balance Sheet. BB&T also provides liquidity support to the trusts in order to support the remarketing of the floating-rate certificates.

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

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

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

BB&T Corporation           Page 7          First Quarter 2007 10-Q




     Reclassifications

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

     Use of Estimates in the Preparation of Financial Statements

          The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan and lease losses and the reserve for unfunded lending commitments, valuation of mortgage servicing rights, valuation of goodwill, intangible assets and other purchase accounting related adjustments, benefit plan obligations and expenses, and tax assets, liabilities and expense.

     Changes in Accounting Principles and Effects of New Accounting Pronouncements

          In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position FAS 13-2 “Accounting for a Change or Projected Change in the Timing of Cash Flows Relating to Income Taxes Generated by a Leveraged Lease Transaction”, (“FSP FAS 13-2”), which amends Statement of Financial Accounting Standards (“SFAS”) No. 13, “Accounting for Leases.” FSP FAS 13-2 requires an entity to recalculate the allocation of income for a leveraged lease transaction from the inception of the lease if, during the lease term, the projected timing of the income tax cash flows generated by the transaction is revised, even if the total amount of income tax cash flows is not affected. The provisions of FSP FAS 13-2 were effective for fiscal years beginning after December 15, 2006. BB&T has entered into leveraged lease transactions in prior years that required recalculation because the timing of the income tax cash flows changed. BB&T adopted FSP FAS 13-2 effective January 1, 2007. Upon adoption, BB&T recorded a charge to retained earnings of $306 million as a cumulative effect of a change in accounting principle. This charge to retained earnings only pertains to the timing of income recognition and will be recognized as a component of net income over the remaining lives of the respective leases.

          In July 2006, the FASB issued FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (“FIN 48”), an interpretation of SFAS No. 109 “Accounting for Income Taxes.” FIN 48 provides guidance for the financial statement recognition and measurement of a tax position taken or expected to be taken on a tax return. FIN 48 also requires additional disclosures related to an entity’s accounting for uncertain tax positions. FIN 48 was effective for fiscal years beginning after December 15, 2006. BB&T adopted FIN 48 effective January 1, 2007. Upon adoption, BB&T recorded a charge to retained earnings of $119 million as a cumulative effect of a change in accounting principle. Additional disclosures required by FIN 48 are included in Note 12 to the consolidated financial statements.

BB&T Corporation           Page 8          First Quarter 2007 10-Q




          In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” (“SFAS No. 157”), which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 does not require assets or liabilities to be measured at fair value, but will apply to other accounting pronouncements that require or permit the use of fair value for recognition or disclosure. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the effect that SFAS No. 157 may have on BB&T’s consolidated financial statements.

          In September 2006, the FASB reached a consensus on Emerging Issues Task Force (“EITF”) Issue 06-4, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements,” (“EITF Issue 06-4”). In March 2007, the FASB reached a consensus on EITF Issue 06-10, “Accounting for Collateral Assignment Split-Dollar Life Insurance Arrangements,” (“EITF Issue 06-10”). Both of these standards require a company to recognize an obligation over an employee’s service period based upon the substantive agreement with an employee such as the promise to maintain a life insurance policy or provide a death benefit. These standards are effective for fiscal years beginning after December 15, 2007. Management is currently evaluating the effect that EITF Issue 06-4 and EITF Issue 06-10 may have on BB&T’s consolidated financial statements.

          In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115,” (“SFAS No. 159”), which permits companies to choose to measure many financial instruments and certain other items at fair value. The objective of SFAS No. 159 is to improve financial reporting by providing companies with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the effect that SFAS No. 159 may have on BB&T’s consolidated financial statements.




BB&T Corporation           Page 9          First Quarter 2007 10-Q




NOTE 2. Business Combinations and Intangible Assets

     Acquisitions

          On January 2, 2007, BB&T completed the acquisition of AFCO Credit Corporation and its Canadian affiliate, CAFO, Inc (collectively, “AFCO”). In conjunction with this transaction, BB&T recorded $10 million in goodwill and $50 million in amortizing intangibles, which are related to broker relationships.

     Goodwill and Other Intangible Assets

          The changes in the carrying amount of goodwill attributable to each of BB&T’s operating segments for the three months ended March 31, 2007, is as follows:

    Goodwill Activity by Operating Segment  
        Residential                            
     Banking   Mortgage Sales Specialized   Insurance   Financial   All      
     Network   Banking Finance  Lending   Services   Services   Other   Total  
    (Dollars in millions)  
 
Balance January 1, 2007 $  3,785  $  7 $ 93 $    52 $ 690   $ 174 $ 26 $ 4,827  
     Acquisition   -   -    -      10   -     -   -   10  
     Contingent consideration   -   -     -      -   21        6   -   27  
     Divestiture   -   -       -      -   (8 )   -   -   (8 )
     Other adjustments   4   -     -      -   -     -   -   4  
Balance March 31, 2007 $  3,789  $  7 $ 93 $    62 $ 703   $ 180 $ 26 $ 4,860  

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

                Identifiable Intangible Assets            
  As of March 31, 2007   As of December 31, 2006
   Gross        Net   Gross         Net
   Carrying    Accumulated   Carrying   Carrying   Accumulated     Carrying
   Amount    Amortization   Amount   Amount   Amortization     Amount
                   (Dollars in millions)          
Identifiable intangible assets                          
     Core deposit intangibles $ 413 $ (247 ) $      166 $ 413 $ (235 ) $ 178
     Other (1)   521   (208 )    313   471   (195 )   276
 
Totals $ 934 $ (455 ) $ 479 $  884 $ (430 ) $ 454
 
     (1) Other identifiable intangibles are primarily composed of customer relationship intangibles.              

BB&T Corporation           Page 10          First Quarter 2007 10-Q




NOTE 3. Securities

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

  March 31, 2007
    Amortized   Gross Unrealized   Fair
    Cost   Gains Losses   Value
   (Dollars in millions)
Securities available for sale:                
     U.S. Treasury securities $ 84 $ - $ - $ 84
     U.S. government-sponsored entity securities   9,072   3   222   8,853
     Mortgage-backed securities   8,699   36   115   8,620
     States and political subdivisions   547   7   -   554
     Equity and other securities   2,784   15   12   2,787
 
     Total securities available for sale $ 21,186 $ 61 $ 349 $ 20,898
 
 
  December 31, 2006
    Amortized   Gross Unrealized   Fair
    Cost Gains Losses   Value
    (Dollars in millions)
Securities available for sale:                
     U.S. Treasury securities $ 84 $ - $ 1 $ 83
     U.S. government-sponsored entity securities   9,324   2   290   9,036
     Mortgage-backed securities   8,418   27   148   8,297
     States and political subdivisions   563   9   1   571
     Equity and other securities   2,723   26   15   2,734
 
     Total securities available for sale $ 21,112 $ 64 $ 455 $ 20,721

          On March 31, 2007, BB&T held certain investment securities having continuous unrealized loss positions for more than 12 months. As of March 31, 2007, the unrealized losses on these securities totaled $343 million. Substantially all of these investments were in U.S. government-sponsored entity securities and mortgage-backed securities, which primarily consist of securities issued by the Federal Farm Credit Bureau, the Federal Home Loan Bank System, the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. These agencies are rated AAA and the unrealized losses are the result of increases in market interest rates rather than changes in the underlying credit quality of the issuers. At March 31, 2007, BB&T had the ability and intent to retain these securities for a period of time sufficient to recover all unrealized losses. Accordingly, BB&T has not recognized any other-than-temporary impairment in connection with these securities during 2007.


BB&T Corporation           Page 11          First Quarter 2007 10-Q




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

     March 31, 2007
    Less than 12 months     12 months or more     Total
 
    Fair Unrealized   Fair Unrealized   Fair   Unrealized
    Value Losses   Value Losses   Value   Losses
    (Dollars in millions)
Securities:                        
     U.S. Treasury securities $ 1 $ - $ 45 $ - $ 46 $ -
     U.S. government-sponsored entity securities   781   2   7,535   220   8,316   222
     Mortgage-backed securities   668   3   5,055   112   5,723   115
     States and political subdivisions   -   -   29   -   29   -
     Equity and other securities   498   1   588   11   1,086   12
 
Total temporarily impaired securities $ 1,948 $ 6 $ 13,252 $ 343 $ 15,200 $ 349
 
 
    December 31, 2006
    Less than 12 months   12 months or more   Total
 
    Fair Unrealized   Fair Unrealized   Fair   Unrealized
    Value Losses   Value Losses   Value   Losses
    (Dollars in millions)
Securities:                        
     U.S. Treasury securities $ 9 $ - $ 42 $ 1 $ 51 $ 1
     U.S. government-sponsored entity securities   475   3   8,324   287   8,799   290
     Mortgage-backed securities   1,153   5   5,241   143   6,394   148
     States and political subdivisions   1   -   39   1   40   1
     Equity and other securities   651   2   601   13   1,252   15
 
Total temporarily impaired securities $ 2,289 $ 10 $ 14,247 $ 445 $ 16,536 $ 455

NOTE 4. Merger-Related and Restructuring Activities

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

Summary of Merger-Related and Restructuring Charges (Gains)
 
 
    For the Three Months  
    Ended March 31,  
 
    2007   2006  
    (Dollars in millions)  
Severance and personnel-related items $                    4 $ -  
Occupancy and equipment                      1   (3 )
Other merger-related items                      1   -  
               Total $                    6 $ (3 )

BB&T Corporation           Page 12          First Quarter 2007 10-Q




          In conjunction with the consummation of an acquisition or restructuring activity and completion of other requirements, BB&T typically accrues certain merger-related and restructuring expenses related to estimated severance and other personnel-related costs, costs to terminate lease contracts, costs related to the disposal of duplicate facilities and equipment, costs to terminate data processing contracts and other costs associated with the acquisition. The costs related to the acquired entity are accrued in accordance with the guidance in EITF 95-3, “Recognition of Liabilities in Connection with a Purchase Business Combination,” and generally recorded as adjustments to the purchase price unless they are required to be expensed as incurred. The costs related to existing BB&T facilities and personnel are recorded in accordance with the guidance in SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” and SFAS No. 112, “Employers’ Accounting for Postemployment Benefits,” as appropriate, and reflected as merger-related and restructuring charges in the Consolidated Statements of Income. The following table presents a summary of BB&T’s merger accrual activity for 2007:

   
  Merger Accrual Activity
  (Dollars in millions)
 
 
           Merger-related              
  Balance      and       Purchase   Balance
  January 1,      restructuring       price   March 31,
  2007       charges   Utilized   adjustments   2007
 
Severance and personnel-related items $ 12   $ 4 $ (3 ) $ - $ 13
Occupancy and equipment   4   1   (2 )   1   4
Other merger-related items   2     1   (1 )   -   2
     Total $ 18   $ 6 $ (6 ) $ 1 $ 19




BB&T Corporation           Page 13          First Quarter 2007 10-Q




NOTE 5. Long-Term Debt

          Long-term debt is summarized as follows:

    March 31,     December 31,  
    2007     2006  
    (Dollars in millions)  
Parent Company            
       7.25% Subordinated Notes Due 2007 $ 250   $ 250  
       6.50% Subordinated Notes Due 2011 (1,3)   647     647  
       4.75% Subordinated Notes Due 2012 (1,3)   496     496  
       5.20% Subordinated Notes Due 2015 (1,3)   997     997  
       4.90% Subordinated Notes Due 2017 (1,3)   363     362  
       5.25% Subordinated Notes Due 2019 (1,3)   600     600  
 
Branch Bank            
       Floating Rate Secured Borrowings Due 2007 (5)   1,500     1,500  
       Fixed Rate Secured Borrowings Due 2010 (6)   4,000                              -  
       Floating Rate Senior Notes Due 2007   1,250     1,250  
       Floating Rate Senior Notes Due 2008   500     500  
       Floating Rate Senior Notes Due 2009   500     500  
       Floating Subordinated Notes Due 2016 (1)   350     350  
       4.875% Subordinated Notes Due 2013 (1,3)   249     249  
       5.625% Subordinated Notes Due 2016 (1)   399     399  
 
Federal Home Loan Bank Advances to Branch Bank (4)            
       Varying maturities to 2027   6,594     6,564  
 
Junior Subordinated Debt to Unconsolidated Trusts (2)            
       5.85% BB&T Capital Trust I Securities Due 2035 (3)   514     514  
       6.75% BB&T Capital Trust II Securities Due 2036   598     598  
       Other Securities (7)   168     168  
 
Other Long-Term Debt   5     5  
 
Hedging Losses   (44 )   (45 )
 
                 Total Long-Term Debt $ 19,936   $ 15,904  

(1)   Subordinated notes that qualify under the risk-based capital guidelines as Tier 2 supplementary capital, subject to certain limitations.
(2)   Securities that qualify under the risk-based capital guidelines as Tier 1 capital, subject to certain limitations.
(3)   These fixed rate notes were swapped to floating rates based on LIBOR. At March 31, 2007, the effective rates paid on these borrowings ranged from 5.53% to 6.05%.
(4)   At March 31, 2007, the weighted average cost of these advances was 5.36% and the weighted average maturity was 9.2 years.
(5)   This borrowing is secured primarily by automobile loans and has a variable rate based on LIBOR.
(6)   This borrowing is secured by automobile and mortgage loans. The fixed rate was swapped to a floating rate based on LIBOR.
(7)   These securities were issued by companies acquired by BB&T. At March 31, 2007, the effective rate paid on these borrowings ranged from 7.09% to 10.07%. These securities have varying maturities through 2035.
 

BB&T Corporation           Page 14          First Quarter 2007 10-Q




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

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

          Standby letters of credit and financial guarantees written are unconditional commitments issued by BB&T to guarantee the performance of a customer to a third party. These guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper issuance, bond financing and similar transactions. The credit risk involved in the issuance of these guarantees is essentially the same as that involved in extending loans to clients and as such, the instruments are collateralized when necessary. As of March 31, 2007, BB&T had issued a total of $2.8 billion in standby letters of credit. The carrying amount of the liability for such guarantees was $5 million at March 31, 2007.

          A derivative is a financial instrument that derives its cash flows, and therefore its value, by reference to an underlying instrument, index or referenced interest rate. These instruments include interest-rate swaps, caps, floors, collars, financial forwards and futures contracts, swaptions, when-issued securities, foreign exchange contracts and options written and purchased. BB&T uses derivatives primarily to manage economic risk related to securities, business loans, mortgage servicing rights and mortgage banking operations, Federal funds purchased, other time deposits, long-term debt and institutional certificates of deposit. BB&T also uses derivatives to facilitate transactions on behalf of its clients. BB&T held a variety of derivative financial instruments with notional values of $40.2 billion and $23.1 billion at March 31, 2007 and December 31, 2006, respectively. These instruments were in a net loss position of $40 million and $45 million at March 31, 2007 and December 31, 2006, respectively.

          BB&T invests in certain affordable housing and historic building rehabilitation projects throughout its market area as a means of supporting local communities and receives tax credits related to these investments. BB&T typically acts as a limited partner in these investments and does not exert control over the operating or financial policies of the partnerships. BB&T’s subsidiary bank typically provides financing during the construction and development of the properties; however, permanent financing is generally obtained from independent third parties upon completion of a project. BB&T’s outstanding commitments to fund affordable housing investments totaled $176 million and $183 million at March 31, 2007 and December 31, 2006, respectively. At March 31, 2007, BB&T’s maximum exposure to loss associated with these investments totaled $357 million.

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

BB&T Corporation           Page 15          First Quarter 2007 10-Q




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

NOTE 7. Benefit Plans

          BB&T provides various benefit plans to substantially all employees, including employees of acquired entities. Employees of acquired entities generally participate in existing BB&T plans after consummation of the business combinations. The plans of acquired institutions are typically merged into the BB&T plans after consummation of the mergers, and, under these circumstances, credit is usually given to these employees for years of service at the acquired institution for vesting and eligibility purposes. Please refer to BB&T’s Annual Report on Form 10-K for the year ended December 31, 2006 for descriptions and disclosures about the various benefit plans offered by BB&T.

          The following tables summarize the components of net periodic benefit cost recognized for BB&T’s pension plans for the three month periods ended March 31, 2007 and 2006, respectively:

     Pension Plans
    Qualified      Nonqualified
     For the        For the
    Three Months Ended     Three Months Ended
    March 31,     March 31,
    2007     2006      2007   2006
    (Dollars in millions)
Service cost $ 19   $ 15   $                      1 $                  1
Interest cost   17     14                          2                    2
Estimated return on plan assets   (29 )   (22 )                  -              -
Amortization and other   -     3                          1              -
   Net periodic benefit cost $ 7   $ 10   $                      4 $                  3

BB&T Corporation           Page 16          First Quarter 2007 10-Q




NOTE 8. Computation of Earnings per Share

          BB&T’s basic and diluted earnings per share amounts for the three month periods ended March 31, 2007 and 2006, respectively, were calculated as follows:

    For the Three Months
    Ended March 31,
    2007   2006
    (Dollars in millions,
    except per share data)
Basic Earnings Per Share:        
       Weighted average number of common shares   541,850,632   539,952,669
                 Net income $ 421 $ 431
       Basic earnings per share $ .78 $ .80
Diluted Earnings Per Share:        
       Weighted average number of common shares   541,850,632   539,952,669
       Add:        
                 Effect of dilutive equity awards   5,379,030   3,483,161
       Weighted average number of diluted common shares   547,229,662   543,435,830
                 Net income $ 421 $ 431
       Diluted earnings per share $ .77 $ .79

          For the three months ended March 31, 2007 and 2006, respectively, the number of antidilutive awards was 4.4 million and 8.6 million shares.

NOTE 9. Comprehensive Income (Loss)

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

Accumulated Other Comprehensive Loss
March 31, 2007
 
        Tax          
  Before-Tax   (Benefit)     After -Tax  
  Amount   Liability       Amount  
    (Dollars in millions)  
 
Unrealized net losses on securities available for sale $ (288 ) $ (110 ) $   (178 )
Unrecognized net pension and postretirement costs   (181 ) (70 )     (111 )
Unrealized net gains on cash flow hedges   2   1       1  
       Total $ (467 ) $ (179 ) $   (288 )

BB&T Corporation           Page 17          First Quarter 2007 10-Q




Accumulated Other Comprehensive Loss
December 31, 2006
 
  Before-Tax   Tax     After-Tax  
    Amount       Benefit       Amount  
  (Dollars in millions)
 
Unrealized net losses on securities available for sale $ (391 )  $ (142 ) $   (249 )
Unrecognized net pension and postretirement costs   (180 )   (70 )     (110 )
       Total $ (571 )    $ (212 ) $   (359 )

NOTE 10. Operating Segments

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

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

          Please refer to BB&T’s Annual Report on Form 10-K for the year ended December 31, 2006, 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 18          First Quarter 2007 10-Q




BB&T Corporation
Reportable Segments
For the Three Months Ended March 31, 2007 and 2006
 
              Residential                                    
    Banking Network   Mortgage Banking     Sales Finance     Specialized Lending     Insurance Services
    2007   2006   2007     2006     2007     2006     2007     2006     2007     2006
    (Dollars in millions)
 
 
Net interest income (expense)   $ 572 $ 592  $ 242   $ 206   $ 87   $ 68   $ 163   $ 106   $ 4   $ 2
 Net funds transfer pricing     255   208   (183 )   (146 )   (58 )   (41 )   (52 )   (24 )   (1 )   -
 
Net interest income     827   800   59     60     29     27     111     82     3     2
 
Economic provision for loan and lease losses     36   35   2     2     5     4     43     31     -     -
Noninterest income     241   223   32     33     -            -     18     16     208     170
 Intersegment net referral fees (expense)     54   54   (22 )   (22 )   (3 )   (3 )            -              -     -     -
Noninterest expense     357   335   15     13     6     6     49     36     154     154
 Allocated corporate expenses     146   132   2     3     2     2     5     5     7     6
 
Income before income taxes     583   575   50     53     13     12     32     26     50     12
 
 Provision for income taxes     211   208   18     19     5     4     12     10     19     5
 
Segment net income   $ 372 $ 367  $ 32   $ 34   $ 8   $ 8   $ 20   $ 16   $ 31   $ 7
 
Identifiable segment assets (period end) $ 56,795 $ 51,728  $ 16,787   $ 15,230   $ 5,585   $ 4,984   $ 5,118   $ 3,152   $ 954   $ 1,001
 
 
 
    Financial Services   Treasury     All Other Segments (1)     Parent/Reconciling Items     Total BB&T Corporation
    2007   2006   2007     2006     2007     2006     2007     2006     2007     2006
  (Dollars in millions)
 
 
Net interest income (expense)   $ 7 $ 3  $ (55 ) $ (29 ) $ 31   $ 41   $ (106 ) $ (92 ) $ 945   $ 897
 Net funds transfer pricing     2   4   (9 )   (12 )   (33 )   (27 )   79     38     -     -
 
Net interest income     9   7   (64 )   (41 )   (2 )   14     (27 )   (54 )   945     897
 
Economic provision for loan and lease losses     -          -            -     1     -            -     (15 )   (26 )   71     47
Noninterest income     125   129   12     21     21     28     (5 )   (12 )   652     608
 Intersegment net referral fees     3   2            -            -     -     2     (32 )   (33 )   -     -
Noninterest expense     118   113   2     3     23     19     159     140     883     819
 Allocated corporate expenses     8   8   1     1     3     2     (174 )   (159 )   -     -
                                                                         
Income (loss) before income taxes     11   17   (55 )   (25 )   (7 )   23     (34 )   (54 )   643     639
 
 Provision for income taxes     4   7   (32 )   (20 )   (7 )   5     (8 )   (30 )   222     208
 
Segment net income (loss)   $ 7 $ 10  $ (23 ) $ (5 ) $ -   $ 18   $ (26 ) $ (24 ) $ 421   $ 431
 
Identifiable segment assets (period end) $ 1,775 $ 1,493  $ 23,254   $ 21,765   $ 3,906   $ 3,815   $ 7,520   $ 6,866   $ 121,694   $ 110,034


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

BB&T Corporation           Page 19          First Quarter 2007 10-Q




NOTE 11. Equity-Based Compensation Plans

          BB&T has options, restricted shares and restricted share units outstanding from the following equity-based compensation plans: the 2004 Stock Incentive Plan (“2004 Plan”), the 1995 Omnibus Stock Incentive Plan, the Non-Employee Directors’ Stock Option Plan, and plans assumed from acquired entities. All plans generally allow for accelerated vesting of awards for holders who retire and have met all retirement eligibility requirements and in connection with certain other events. BB&T’s shareholders have approved all equity-based compensation plans with the exception of plans assumed from acquired companies. As of March 31, 2007, the 2004 Plan is the only plan that has shares available for future grants. Please refer to BB&T’s Annual Report on Form 10-K for the year ended December 31, 2006, for further disclosures related to equity-based awards issued by BB&T.

          BB&T measures the fair value of each option award on the date of grant using the Black-Scholes option-pricing model with the following assumptions used for grants awarded in the first three months of 2007.

Assumptions:      
               Risk-free interest rate   4.7  %
               Dividend yield   4.0  
               Volatility factor   14.0  
               Weighted average expected life   6.9  yrs
Fair value of options per share $ 5.35  

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

          The following table details the activity during the first three months of 2007 related to stock options awarded by BB&T:

  For the Three Months Ended
  March 31, 2007
      Wtd. Avg.
      Exercise
  Shares   Price
 
Outstanding at beginning of period 35,680,477   $ 35.30
Granted 4,782,605     44.15
Exercised (994,421 )   27.74
Forfeited or expired (141,252 )   37.51
Outstanding at end of period 39,327,409   $ 36.56
 
Exercisable at end of period 23,263,208   $ 34.28

BB&T Corporation           Page 20          First Quarter 2007 10-Q




          The following table details the activity during the first three months of 2007 related to restricted shares and restricted share units awarded by BB&T:

  For the Three Months Ended
  March 31, 2007
    Wtd. Avg.
    Grant Date
  Shares Fair Value
Nonvested at beginning of period 2,430,052 $ 32.15
Granted 1,794,220   34.60
Vested (4,053 )   31.19
Forfeited (30,286 )   32.13
Nonvested at end of period 4,189,933 $ 33.20

NOTE 12. Income Taxes

          The provision for income taxes totaled $222 million and $208 million for the first quarter of 2007 and 2006, respectively. BB&T’s effective income tax rates for the first quarters of 2007 and 2006 were 34.5% and 32.6%, respectively. During the first quarter of 2007, BB&T recorded tax reserves of $14 million, primarily as a result of the adoption of FIN 48.

          As of January 1, 2007, BB&T had recorded $181 million of unrecognized federal and state tax benefits, which would have reduced the effective tax rate if recognized. In addition, the Company had $209 million in liabilities for tax-related interest and penalties recorded on its Consolidated Balance Sheets. Of this amount, $191 million was utilized during the first quarter of 2007. BB&T classifies interest and penalties related to income taxes as a component of the provision for income taxes in the Consolidated Statements of Income.

          As previously disclosed, BB&T paid $1.2 billion to the IRS during the first quarter of 2007 including $284 million in pre-tax interest that had been previously accrued. The tax paid relates to differences in the timing of income recognition and deductions for income tax purposes for which deferred taxes had been previously provided.

          Also during the first quarter of 2007 BB&T paid $50 million ($33 million net of federal benefit), including tax of $40 million and interest and penalties of $10 million in conjunction with an agreement with a state taxing authority. The agreement covered tax years through 2005 and also established the future filing methodology for that state taxing authority. These amounts were previously accrued.

          BB&T does not anticipate any other significant changes to its total unrecognized tax benefits within the next 12 months.

          The Internal Revenue Service (“IRS”) has completed its federal tax examinations through 2001 and is currently examining 2002-2005. The IRS has proposed no significant adjustments other than those related to leveraged lease transactions. Various years remain subject to examination by state taxing authorities.


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BB&T Corporation           Page 21          First Quarter 2007 10-Q




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

Forward-Looking Statements

          This report on Form 10-Q contains forward-looking statements with respect to the financial condition, results of operations and businesses of BB&T. These forward-looking statements involve certain risks and uncertainties and are based on the beliefs and assumptions of the management of BB&T and the information available to management at the time that these disclosures were prepared. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among others, the following:

·  

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


·  

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


·  

general economic or business conditions, either nationally or regionally, may be less favorable than expected, resulting in, among other things, a deterioration in credit quality and/or a reduced demand for credit or other services;


·  

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


·  

local, state or federal taxing authorities may take tax positions that are adverse to BB&T;


·  

adverse changes may occur in the securities markets;


·  

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


·  

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


·  

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


·  

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


Regulatory Considerations

          BB&T and its subsidiaries and affiliates are subject to numerous examinations by federal and state banking regulators, as well as the Securities and Exchange Commission, the National Association of Securities Dealers, Inc., and various state insurance and securities regulators. BB&T and its subsidiaries have from time to time received requests for information from regulatory authorities in various states, including state insurance commissions and state attorneys general, securities regulators and other regulatory authorities, concerning their business practices. Such requests are considered incidental to the normal conduct of business. Please refer to BB&T’s Annual Report on Form 10-K for the year ended December 31, 2006 for additional disclosures with respect to laws and regulations affecting the Company’s businesses.

BB&T Corporation           Page 22          First Quarter 2007 10-Q




Critical Accounting Policies

          The accounting and reporting policies of BB&T Corporation and its subsidiaries are in accordance with accounting principles generally accepted in the United States of America and conform to general practices within the banking industry. BB&T’s financial position and results of operations are affected by management’s application of accounting policies, including estimates, assumptions and judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues and expenses. Different assumptions in the application of these policies could result in material changes in BB&T’s consolidated financial position and/or consolidated results of operations and related disclosures. The more critical accounting and reporting policies include BB&T’s accounting for the allowance for loan and lease losses and reserve for unfunded lending commitments, valuation of mortgage servicing rights, intangible assets and other purchase accounting related adjustments associated with mergers and acquisitions, costs and benefit obligations associated with BB&T’s pension and postretirement benefit plans, and income taxes. Understanding BB&T’s accounting policies is fundamental to understanding BB&T’s consolidated financial position and consolidated results of operations. Accordingly, BB&T’s significant accounting policies and changes in accounting principles are discussed in detail in Note 1 of the “Notes to Consolidated Financial Statements” in BB&T’s 2006 Annual Report on Form 10-K filed with the Securities and Exchange Commission.

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

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

          It is the policy of BB&T to maintain an allowance for loan and lease losses and a reserve for unfunded lending commitments that equals management’s best estimate of probable credit losses that are inherent in the portfolio at the balance sheet date. Estimates for loan and lease losses are determined by analyzing historical loan and lease losses, current trends in delinquencies and charge-offs, plans for problem loan and lease administration, the results of regulatory examinations, and changes in the size, composition and risk assessment of the loan and lease portfolio. Also included in management’s estimates for loan and lease losses are considerations with respect to the impact of current economic events, the outcomes of which are uncertain. These events may include, but are not limited to, fluctuations in overall interest rates, political conditions, legislation that may directly or indirectly affect the banking industry and economic conditions affecting specific geographical areas and industries in which BB&T conducts business. The methodology used to determine an estimate for the reserve for unfunded lending commitments is inherently similar to the methodology utilized in calculating the allowance for loans and leases adjusted for factors specific to binding commitments, including the probability of funding and exposure at the time of funding.

BB&T Corporation           Page 23          First Quarter 2007 10-Q




     Valuation of Mortgage Servicing Rights

          BB&T has a significant mortgage loan servicing portfolio and related mortgage servicing rights. Mortgage servicing rights represent the present value of the future net servicing fees from servicing mortgage loans acquired or originated by BB&T. The methodology used to determine the fair value of mortgage servicing rights is subjective and requires the development of a number of assumptions, including anticipated prepayments of loan principal. The value of mortgage servicing rights is significantly affected by mortgage interest rates available in the marketplace, which influence mortgage loan prepayment speeds. In general, during periods of declining interest rates, the value of mortgage servicing assets declines due to increasing prepayments attributable to increased mortgage refinance activity. Conversely, during periods of rising interest rates, the value of servicing assets generally increases due to reduced refinance activity. BB&T has two classes of mortgage servicing rights for which it separately manages the economic risks: residential and commercial. Residential mortgage servicing rights are recorded on the Consolidated Balance Sheets at fair value with changes in fair value recorded as a component of mortgage banking income each period. Commercial mortgage servicing rights are recorded as other assets on the Consolidated Balance Sheets at lower of cost or market and amortized in proportion to, and over the estimated period that, net servicing income is expected to be received based on projections of the amount and timing of estimated future net cash flows. The amount and timing of estimated future net cash flows are updated based on actual results and updated projections.

     Intangible Assets

          BB&T’s growth in business, profitability and market share over the past several years has been enhanced significantly by mergers and acquisitions. BB&T’s mergers and acquisitions are accounted for using the purchase method of accounting. Under the purchase method, BB&T is required to record the assets acquired, including identified intangible assets and liabilities assumed at their fair value, which often involves estimates based on third party valuations, such as appraisals, or internal valuations based on discounted cash flow analyses or other valuation techniques, all of which are inherently subjective. The amortization of identified intangible assets is based upon the estimated economic benefits to be received, which is also subjective. These estimates also include the establishment of various accruals and allowances based on planned facility dispositions and employee severance considerations, among other acquisition-related items. In addition, purchase acquisitions typically result in goodwill, which is subject to ongoing periodic impairment tests based on the fair value of net assets acquired compared to the carrying value of goodwill. The major assumptions used in the impairment testing process include the estimated future cash flows of each business unit and discount rates. Discount rates are unique to each business unit and are based upon the cost of capital specific to the industry in which the business unit operates.

     Pension and Postretirement Benefit Obligations

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

BB&T Corporation           Page 24          First Quarter 2007 10-Q




     Income Taxes

           The calculation of BB&T’s income tax provision is complex and requires the use of estimates and judgments. As part of the Company’s analysis and implementation of business strategies, consideration is given to the tax laws and regulations that apply to the specific facts and circumstances for any tax position under evaluation. For tax positions that are uncertain in nature, management determines whether the tax position is more likely than not to be sustained upon examination. For tax positions that meet this threshold, management must estimate the amount of the tax benefit to recognize in the financial statements. Management closely monitors tax developments in order to evaluate the effect they may have on the Company’s overall tax position and the estimates and judgments utilized in determining the income tax provision and records adjustments as necessary.

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EXECUTIVE SUMMARY

          BB&T’s total assets at March 31, 2007 were $121.7 billion, an increase of $343 million, or .3%, from December 31, 2006. The asset category that experienced the largest increase was loans and leases, including loans held for sale, which grew $1.7 billion, or 2.1%, during the first three months of 2007.

          Total deposits at March 31, 2007, were $79.8 billion, a decrease of $1.1 billion, or 1.4%, from December 31, 2006. Long-term debt increased $4.0 billion, or 25.4%, and shorter-term borrowings decreased $1.3 billion, or 16.3%, during the first three months of 2007. Total shareholders’ equity decreased $95 million compared to December 31, 2006.

          Consolidated net income for the first quarter of 2007 totaled $421 million, a decrease of 2.3% compared to $431 million earned during the first quarter of 2006. On a diluted per share basis, earnings for the three months ended March 31, 2007 were $.77, compared to $.79 for the same period in 2006, a decrease of 2.5%. BB&T’s results of operations for the first quarter of 2007 produced an annualized return on average assets of 1.41% and an annualized return on average shareholders’ equity of 14.81% compared to prior year ratios of 1.60% and 15.72%, respectively.

          Results during the first quarter of 2007 reflect solid combined loan and deposit growth, growth in noninterest income, and continued excellent asset quality. BB&T’s net interest margin declined nine basis points during the first quarter of 2007 compared to the fourth quarter of 2006 primarily related to leveraged leases. This includes additional funding cost that resulted from a payment to the Internal Revenue Service and changes to the income recognition on leveraged leases that resulted from the adoption of FSP FAS 13-2. Noninterest expense decreased during the first quarter of 2007 compared to the fourth quarter of 2006 generating positive operating leverage.

          On January 2, 2007, BB&T Corporation completed its acquisition of insurance premium finance company AFCO Credit Corporation and its Canadian affiliate, CAFO, Inc (collectively, “AFCO”). The acquisition is expected to significantly strengthen BB&T’s insurance premium finance franchise in the United States, as well as provide entry into Canada – a first for BB&T.

BB&T Corporation           Page 25          First Quarter 2007 10-Q




          On May 1, 2007, BB&T completed its merger with Coastal Financial Corporation (“Coastal”), a bank holding company headquartered in Myrtle Beach, South Carolina. At the time of the announcement in December 2006, Coastal had $1.7 billion in assets and operated 17 branches in the Myrtle Beach area of South Carolina and seven branches in the Wilmington area of North Carolina. Shareholders of Coastal received .385 of a share of BB&T common stock in exchange for each share of Coastal common stock.

          Please refer to BB&T’s Annual Report on Form 10-K for the year ended December 31, 2006 for additional information with respect to BB&T’s recent accomplishments and significant challenges. The factors causing the fluctuations in the major balance sheet and income statement categories for the first quarter of 2007 are further discussed in the following sections.


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ANALYSIS OF FINANCIAL CONDITION

Securities

          Securities available for sale totaled $20.9 billion at March 31, 2007, an increase of $177 million, or .9%, compared with December 31, 2006. Securities available for sale had net unrealized losses, net of deferred income taxes, of $178 million and $249 million at March 31, 2007 and December 31, 2006, respectively. Trading securities totaled $906 million, down $1.2 billion, or 57.8%, compared to the balance at December 31, 2006. The majority of the decline in the trading portfolio was the result of a $1.1 billion purchase of municipal securities executed late in 2006, which matured in the early part of 2007. BB&T’s trading portfolio can fluctuate significantly from period to period based on market conditions, which affect the timing of purchases and sales of securities classified as trading.

          Average total securities for the first quarter of 2007 totaled $21.9 billion, an increase of $917 million, or 4.4%, compared to the average balance during the first quarter of 2006. The increase in securities was the result of a combination of factors, including an increase in funds allocated to the securities portfolio as a result of the acquisitions of Main Street and First Citizens.

          The annualized fully taxable equivalent (“FTE”) yield on the average securities portfolio for the first quarter of 2007 was 5.06%, which represents an increase of 67 basis points compared to the annualized yield earned during the first quarter of 2006. The fluctuations in the annualized FTE yield on the average securities portfolio were primarily the result of changes in the overall composition of the securities portfolio with a higher percentage of higher-yielding mortgage-backed securities and other higher-yielding securities, which primarily consist of privately-issued mortgage-backed securities.

          On March 31, 2007, BB&T held certain investment securities having continuous unrealized loss positions for more than 12 months. As of March 31, 2007, the unrealized losses on these securities totaled $343 million. Substantially all of these investments were in U.S. government-sponsored entity securities and mortgage-backed securities, which primarily consist of securities issued by the Federal Farm Credit Bureau, the Federal Home Loan Bank System, the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. These agencies are rated AAA and the unrealized losses are the result of increases in market interest rates rather than changes in the underlying credit quality of the issuers. At March 31, 2007, BB&T had the ability and intent to retain these securities for a period of time sufficient to recover all unrealized losses. Accordingly, BB&T has not recognized any other-than-temporary impairment in connection with these securities.

BB&T Corporation           Page 26          First Quarter 2007 10-Q




Loans and Leases

          BB&T emphasizes commercial lending to small and medium-sized businesses, consumer lending, mortgage lending and specialized lending with an overall goal of maximizing the profitability of the loan portfolio, maintaining strong asset quality and achieving an equal mix of consumer and commercial loans. For the first quarter of 2007, average total loans were $84.9 billion, an increase of $9.5 billion, or 12.5%, compared to the same period in 2006.

          The following tables present the composition of average loans and leases for the three months ended March 31, 2007 and 2006:

    Table 1  
    Composition of Average Loans and Leases  
 
    For the Three Months Ended  
    March 31, 2007     March 31, 2006  
    Balance % of total     Balance % of total  
      (Dollars in millions)    
 
Commercial loans and leases $ 41,122 48.4  % $ 36,898 49.0  %
Direct retail loans   15,272 18.0     14,498 19.2  
Sales finance loans   5,734 6.8     5,216 6.9  
Revolving credit loans   1,387 1.6     1,317 1.7  
     Consumer loans   22,393 26.4     21,031 27.8  
Mortgage loans   16,481 19.4     14,665 19.4  
Specialized lending loans   4,898 5.8     2,849 3.8  
 
   Total average loans and leases $ 84,894 100.0  % $ 75,443 100.0  %

          The slight fluctuation in the mix of the loan portfolio during the first quarter of 2007 compared to the same period of 2006 was primarily due to increased growth in the specialized lending portfolio, which grew at a faster pace than the consumer portfolio. The slower growth in the consumer portfolio was the result of decreased demand for home equity loans. The growth in loans generated by the specialized lending group was aided by the acquisition of AFCO, which added approximately $1.2 billion in loans, and strong internal loan growth.

          The annualized FTE yields on commercial, consumer, mortgage and specialized lending subsidiary loans for the first three months of 2007 were 7.89%, 7.51%, 5.90%, and 13.62%, respectively, resulting in an annualized yield on the total loan portfolio of 7.73%. This reflects an increase of 54 basis points in the annualized yield on the total loan portfolio during the first three months of 2007 in comparison to the same period in 2006. This increase in the FTE yield on the loan portfolio was primarily the result of the repricing of variable-rate loans and fixed-rate loans with lower yields maturing and being replaced with higher-yielding loans and leases. The prime rate, which is the basis for pricing many commercial and consumer loans, was 8.25% at March 31, 2007, compared to 7.75% at March 31, 2006. The rise in short-term interest rates, however, was not matched by a similar rise in long-term interest rates. Therefore, mortgage rates, which are influenced by long-term interest rates in the marketplace, increased at a slower pace than other categories of loans compared to last year. In addition, the FTE yield on the total loan portfolio was positively affected by a change in the mix of loans, with a higher percentage of higher-yielding specialized lending loans in 2007 compared to 2006.

BB&T Corporation           Page 27          First Quarter 2007 10-Q




Other Interest Earning Assets

          Federal funds sold and securities purchased under resale agreements or similar arrangements totaled $267 million at March 31, 2007, an increase of $14 million, or 5.5%, compared to December 31, 2006. Interest-bearing deposits with banks decreased $22 million, or 5.1%, compared to year-end 2006. These categories of earning assets are subject to large daily fluctuations based on the availability of these types of funds. The average yield on other interest-earning assets was 4.96% for the first quarter of 2007, compared to 3.76% for the same period in 2006. The higher yield was primarily the result of the increase in the Federal funds target rate.

Goodwill and Other Assets

          BB&T’s other noninterest-earning assets, excluding premises and equipment and noninterest-bearing cash and due from banks, increased $28 million from December 31, 2006 to March 31, 2007. The increase was due primarily to an increase in goodwill of $33 million, which resulted from the acquisition of AFCO and certain contingent payments related to prior acquisitions.

Deposits

          Client deposits generated through the BB&T branch network are the largest source of funds used to support asset growth. Deposits totaled $79.8 billion at March 31, 2007, a decrease of $1.1 billion, or 1.4%, from December 31, 2006. Average deposits for the first three months of 2007 increased $8.3 billion, or 11.2%, to $82.5 billion compared to the first three months of 2006. The categories of deposits with the highest average rates of growth were client certificates of deposit, which increased $5.2 billion, or 26.0%, and interest checking, which increased $300 million, or 15.7%. In addition, other client deposits, which include money rate savings accounts, investor deposit accounts, savings accounts, individual retirement accounts and other time deposits, increased $2.7 billion, or 8.8%, for the first three months of 2007 compared to the same period in 2006. The increase in client certificates of deposit was primarily due to a decision by management during 2006 to more aggressively pursue these types of funding sources to provide for strong loan growth and to fuel organic growth initiatives.




BB&T Corporation           Page 28          First Quarter 2007 10-Q




          The following table presents the composition of average deposits for the three months ended March 31, 2007 and 2006:

Table 2  
Composition of Average Deposits  
 
    For the Three Months Ended  
    March 31, 2007     March 31, 2006  
    Balance % of total     Balance % of total  
    (Dollars in millions)  
 
Noninterest-bearing deposits $ 12,946 15.7  % $ 12,852 17.3  %
Interest checking   2,206 2.7     1,906 2.6  
Other client deposits   33,393 40.4     30,687 41.4  
Client certificates of deposit   25,076 30.4     19,897 26.8  
     Total client deposits   73,621 89.2     65,342 88.1  
Other interest-bearing deposits   8,902 10.8     8,857 11.9  
 
     Total average deposits $ 82,523 100.0  % $ 74,199 100.0  %

          The change in deposit mix is primarily due to a shift from lower yielding products, such as noninterest-bearing accounts and money rate savings accounts, to higher yielding certificates of deposit as clients continue to migrate towards these products due to the higher rate environment. This also reflects management’s decision last year to more aggressively pursue retail deposits through BB&T’s branch delivery network, which reduces the Corporation’s reliance on other interest-bearing deposits, which consists of negotiable certificates of deposit and Eurodollar deposits.

          For the first three months of 2007, the annualized average rate paid on total interest-bearing deposits was 3.77%, an increase of 87 basis points compared to the first three months of 2006. The increase in the average rate paid on interest-bearing deposits resulted primarily from the higher interest rate environment that existed during the first three months of 2007 compared to 2006, competition in the pricing of deposit products and a shift in the deposit mix to higher yield products.

Borrowings

          While client deposits remain the primary source for funding loan originations and other balance sheet growth, management uses shorter-term borrowings as a supplementary funding source for loan growth. Shorter-term borrowings utilized by BB&T include federal funds purchased, securities sold under repurchase agreements, master notes, U.S. Treasury tax and loan deposit notes, and short-term bank notes. At March 31, 2007, shorter-term borrowings totaled $6.8 billion, a decrease of $1.3 billion, or 16.3%, compared to December 31, 2006. The decrease in these funds compared to December 31, 2006 was primarily due to an increase in long term funding, which was used to replace a portion of these borrowings.

          The average annualized rate paid on shorter-term borrowed funds was 4.61% for the first three months of 2007, an increase of 66 basis points from the average rate of 3.95% paid during the comparable period of 2006. The higher rates paid on shorter-term borrowed funds were primarily the result of the increases in the Federal funds rate over the same time periods.

BB&T Corporation           Page 29          First Quarter 2007 10-Q




          BB&T also utilizes long-term debt for a variety of funding needs, including the repurchase of common stock and to supplement levels of regulatory capital. Long-term debt consists of FHLB advances to BB&T’s banking subsidiary, corporate subordinated notes, senior and subordinated notes issued by BB&T’s banking subsidiary, junior subordinated debentures issued by BB&T and certain private borrowings by BB&T’s banking subsidiary. Long-term debt totaled $19.9 billion at March 31, 2007, an increase of $4.0 billion from the balance at December 31, 2006. The increase primarily resulted from a $4.0 billion fixed-rate private financing by BB&T’s banking subsidiary that matures in 2010. The fixed interest rate on this borrowing was swapped to a floating rate during the first quarter of 2007.

          The average annualized rate paid on long-term debt for the first quarter of 2007 was 5.32%, an increase of 55 basis points compared to the first quarter of 2006. The increase in the cost of long-term funds resulted because a portion of BB&T’s long-term borrowings were either issued as floating rate instruments or BB&T elected to swap their long-term fixed rates to floating.

Asset Quality

          BB&T’s credit quality remains excellent. Nonperforming assets, which are composed of foreclosed real estate, repossessions, nonaccrual loans and restructured loans, totaled $367 million at March 31, 2007, compared to $349 million at December 31, 2006. As a percentage of loans and leases plus foreclosed property, nonperforming assets were .43% at March 31, 2007 and .42% at December 31, 2006. Loans 90 days or more past due and still accruing interest totaled $103 million at March 31, 2007, compared to $102 million at year-end 2006.

          BB&T’s net charge-offs totaled $61 million for the first quarter of 2007 and amounted to .29% of average loans and leases, on an annualized basis, compared to $48 million, or .26% of average loans and leases, on an annualized basis, in the corresponding period in 2006.

          The allowance for credit losses, which totaled $901 million and $888 million at March 31, 2007 and December 31, 2006, respectively, consists of the allowance for loan and lease losses, which is presented on the Consolidated Balance Sheets, and the reserve for unfunded lending commitments, which is included in other liabilities on the Consolidated Balance Sheets. The allowance for loan and lease losses totaled $896 million at March 31, 2007, compared to $888 million at December 31, 2006. This amounted to 1.05% of loans and leases outstanding at March 31, 2007, compared to 1.06% at year-end 2006.




BB&T Corporation           Page 30          First Quarter 2007 10-Q




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

Table 3 - 1
Asset Quality Analysis
 
    For the Three Months Ended
    3/31/07     12/31/06     9/30/06     6/30/06     3/31/06  
    (Dollars in millions)
Allowance For Credit Losses                              
 Beginning balance $ 888   $ 884   $ 871   $ 833   $ 830  
 Allowance for acquired (sold) loans, net   3     (1 )   6     25     4  
 Provision for credit losses   71     73     62     58     47  
     Charge-offs                              
         Commercial loans and leases   (10 )   (15 )   (10 )   (7 )   (5 )
         Direct retail loans   (12 )   (13 )   (12 )   (12 )   (11 )
         Sales finance loans   (6 )   (5 )   (5 )   (5 )   (6 )
         Revolving credit loans   (12 )   (12 )   (11 )   (11 )   (11 )
         Mortgage loans   (1 )   (2 )   (1 )   (1 )   (2 )
         Specialized lending   (41 )   (36 )   (31 )   (26 )   (27 )
     Total charge-offs   (82 )   (83 )   (70 )   (62 )   (62 )
     Recoveries                              
         Commercial loans and leases   8     3     4     5     3  
         Direct retail loans   4     3     3     3     3  
         Sales finance loans   2     2     2     2     2  
         Revolving credit loans   3     3     3     3     2  
         Mortgage loans   -     -     -     1     -  
         Specialized lending   4     4     3     3     4  
     Total recoveries   21     15     15     17     14  
 Net charge-offs   (61 )   (68 )   (55 )   (45 )   (48 )
     Ending balance $ 901   $ 888   $ 884   $ 871   $ 833  
Nonperforming Assets                              
 Nonaccrual loans and leases                              
         Commercial loans and leases $ 148   $ 129   $ 124   $ 126   $ 110  
         Direct retail loans   43     39     38     39     42  
         Sales finance loans   1     2     2     3     3  
         Mortgage loans   51     53     50     47     50  
         Specialized lending   33     37     31     24     26  
 Total nonaccrual loans and leases   276     260     245     239     231  
 Foreclosed real estate   56     54     55     56     41  
 Other foreclosed property   35     35     30     24     23  
 Restructured loans   -     -     1     -     1  
     Total nonperforming assets $ 367   $ 349   $ 331   $ 319   $ 296  
 Loans 90 days or more past due                              
     and still accruing                              
         Commercial loans and leases $ 18   $ 14   $ 8   $ 19   $ 6  
         Direct retail loans   13     20     17     17     18  
         Sales finance loans   16     17     13     12     18  
         Revolving credit loans   7     6     6     5     4  
         Mortgage loans   39     37     36     32     28  
         Specialized lending   10     8     7     6     5  
     Total loans 90 days or more past due                              
         and still accruing $ 103   $ 102   $ 87   $ 91   $ 79  

BB&T Corporation           Page 31          First Quarter 2007 10-Q




Table 3 - 2
Asset Quality Ratios
 
      For the Three Months Ended      
  3/31/07   12/31/06   9/30/06   6/30/06   3/31/06  
Loans 90 days or more past due and still                    
  accruing as a percentage of total loans                    
  and leases .12  % .12  % .11  % .11  % .10  % 
Nonaccrual and restructured loans and leases                     
  as a percentage of total loans and leases .32   .31   .30   .30   .30  
Total nonperforming assets as a percentage of:                    
  Total assets .30   .29   .28   .27   .27  
  Loans and leases plus foreclosed property .43   .42   .40   .40   .39  
Net charge-offs as a percentage of                    
  average loans and leases .29   .33   .27   .23   .26  
Allowance for loan and lease losses as a                    
  percentage of loans and leases 1.05   1.06   1.08   1.08   1.09  
Allowance for loan and lease losses as a                    
  percentage of loans and leases                    
  held for investment 1.06   1.07   1.09   1.09   1.10  
Ratio of allowance for loan and lease losses to:                    
  Net charge-offs 3.58  x 3.29  x 4.07  x 4.78  x  4.31  x
  Nonaccrual and restructured loans and leases 3.24   3.41   3.59   3.63   3.59  
 
Note: All items referring to loans and leases include loans held for sale and are net of unearned income. Applicable ratios are annualized.    

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ANALYSIS OF RESULTS OF OPERATIONS

          Consolidated net income for the first quarter of 2007 totaled $421 million, a decrease of $10 million, or 2.3%, compared to $431 million earned during the first quarter of 2006. On a diluted per share basis, earnings for the three months ended March 31, 2007 were $.77, a decrease of 2.5% compared to $.79 for the same period in 2006. BB&T’s results of operations for the first quarter of 2007 produced an annualized return on average assets of 1.41% and an annualized return on average shareholders’ equity of 14.81%, compared to prior year ratios of 1.60% and 15.72%, respectively.

          The following table sets forth selected financial ratios for the last five calendar quarters. BB&T’s fourth quarter 2006 results were negatively affected by an additional tax provision of $139 million, and securities losses of $47 million, after-tax, resulting from a securities portfolio restructuring. Please refer to the section titled “Fourth Quarter Results” in BB&T’s Annual Report on Form 10-K for a more detailed discussion of these items.

Table 4
Annualized
Profitability Measures
 
  2007   2006  
  First   Fourth   Third   Second   First  
  Quarter   Quarter   Quarter   Quarter   Quarter  
Return on average assets 1.41  % .84  % 1.42  % 1.53  % 1.60  %
Return on average shareholders' equity 14.81   8.33   14.39   15.34   15.72  
Net interest margin (taxable equivalent) 3.61   3.70   3.68   3.76   3.82  


BB&T Corporation           Page 32          First Quarter 2007 10-Q




Net Interest Income and Net Interest Margin

          Net interest income on an FTE basis was $963 million for the first quarter of 2007 compared to $919 million for the same period in 2006, an increase of $44 million, or 4.8%. For the quarter ended March 31, 2007, average earning assets increased $10.4 billion, or 10.7%, compared to the same period of 2006, while average interest-bearing liabilities increased $12.1 billion, or 15.0%, and the net interest margin decreased from 3.82% in the first quarter of 2006 to 3.61% in the current quarter. The decrease in the net interest margin was caused by a combination of factors. The flattening of the yield curve in recent quarters and management’s decision to more aggressively pursue retail deposits to fund loan growth has resulted in an increase in funding costs that has outpaced the rise in yields on earning assets. In addition, the margin was negatively affected by additional funding costs associated with a payment to the Internal Revenue Service and changes in the income recognition for leveraged leases. Under the provisions of FSP FAS 13-2, which BB&T adopted on January 1, 2007, BB&T was required to recalculate the income recognition for all leveraged leases transactions due to a change in the timing of income tax cash flows.

          The following tables set forth the major components of net interest income and the related annualized yields and rates for the first quarter of 2007 compared to the same period in 2006, and the variances between the periods caused by changes in interest rates versus changes in volumes.




BB&T Corporation           Page 33          First Quarter 2007 10-Q




Table 5
FTE Net Interest Income and Rate / Volume Analysis
For the Three Months Ended March 31, 2007 and 2006
 
    Average Balances   Annualized Yield / Rate     Income / Expense   Increase   Change due to  
    2007   2006 2007   2006     2007   2006   (Decrease)   Rate     Volume  
    (Dollars in millions)
Assets                                          
Securities, at amortized cost (1):                                          
   U.S. Treasury securities $ 85 $ 123 4.47 % 3.11 % $ 1 $ 1 $ -   $ -   $ -  
   U.S. government-sponsored entity securities (6)   9,713   11,941 4.39   3.95     106   118   (12 )   11     (23 )
   Mortgage-backed securities   8,208   6,589 5.09   4.81     105   79   26     6     20  
   States and political subdivisions   547   640 6.85   6.82     9   11   (2 )   -     (2 )
   Other securities   2,377   913 7.03   6.01     42   14   28     3     25  
   Trading securities   942   749 5.89   3.70     14   7   7     5     2  
         Total securities (5)   21,872   20,955 5.06   4.39     277   230   47     25     22  
Other earning assets (2)   840   777 4.96   3.76     10   7   3     2     1  
Loans and leases, net                                          
   of unearned income (1)(3)(4)(5)   84,894   75,443 7.73   7.19     1,622   1,341   281     105     176  
 
         Total earning assets   107,606   97,175 7.17   6.56     1,909   1,578   331     132     199  
 
         Non-earning assets   13,448   11,957                                  
 
Total assets $ 121,054 $ 109,132                                  
 
Liabilities and Shareholders' Equity                                          
Interest-bearing deposits:                                          
   Interest-checking $ 2,206 $ 1,906 2.38   1.38     13   7   6     5     1  
   Other client deposits   33,393   30,687 2.82   2.03     232   153   79     64     15  
   Client certificates of deposit   25,076   19,897 4.60   3.66     284   180   104     52     52  
   Other interest-bearing deposits   8,902   8,857 5.35   4.54     118   99   19     19     -  
 
         Total interest-bearing deposits   69,577   61,347 3.77   2.90     647   439   208     140     68  
Federal funds purchased, securities sold                                          
   under repurchase agreements and                                          
   short-term borrowed funds   7,627   6,685 4.61   3.95     87   65   22     12     10  
Long-term debt   16,086   13,111 5.32   4.77     212   155   57     19     38  
 
         Total interest-bearing liabilities   93,290   81,143 4.11   3.29     946   659   287     171     116  
 
         Noninterest-bearing deposits   12,946   12,852                                  
         Other liabilities   3,296   4,003                                  
         Shareholders' equity   11,522   11,134                                  
 
         Total liabilities and                                          
                  shareholders' equity $ 121,054 $ 109,132                                  
Average interest rate spread         3.06   3.27                            
Net interest margin         3.61  % 3.82  % $ 963 $ 919 $ 44   $ (39 ) $ 83  
 
Taxable equivalent adjustment                 $ 18 $ 21                  

(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, securities purchased under resale agreements or similar arrangements, interest-bearing deposits with banks, and other earning assets.
(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) Includes stock issued by the FHLB of Atlanta.
 

BB&T Corporation           Page 34          First Quarter 2007 10-Q




Provision for Credit Losses

          The provision for credit losses totaled $71 million for the first quarter of 2007, compared to $47 million for the first quarter of 2006. The increase in the provision for credit losses was driven primarily by growth in the lending portfolio compared to last year and an increase in specialized lending loans, which have higher loss rates. Net charge-offs were .29% of average loans and leases for the first quarter of 2007 compared to .26% of average loans and leases for the same period in 2006. The allowance for loan and lease losses was 1.05% of loans and leases outstanding and was 3.24x total nonaccrual and restructured loans and leases at March 31, 2007, compared to 1.09% and 3.59x, respectively, at March 31, 2006.

Noninterest Income

          Noninterest income as a percentage of total revenues has increased in recent years due to BB&T’s emphasis on growing and expanding its fee-based businesses. Fee-based service revenues lessen BB&T’s dependence on traditional spread-based interest income and are a relatively stable revenue source during periods of changing interest rates. Noninterest income for the three months ended March 31, 2007 totaled $652 million, compared to $608 million for the same period in 2006, an increase of $44 million, or 7.2%. The growth in noninterest income was primarily attributable to commissions from BB&T’s insurance operations, other nondeposit fees and commissions, checkcard fees and service charges on deposits. These increases were partially offset by net securities losses of $11 million that were incurred during the three month period in 2007. The overall growth in noninterest income also reflects the impact of acquisitions.

          Insurance commissions, which have become BB&T’s largest source of noninterest income, totaled $197 million for the first quarter of 2007, an increase of $21 million, or 11.9%, compared to the same three-month period of 2006. The increase in insurance revenues for the first three months of 2007 was primarily the result of growth in commissions from the sale of property and casualty coverage.

          Service charges on deposits totaled $138 million for the first quarter of 2007, an increase of $7 million compared to the first quarter of 2006. For the first three months of 2007, higher revenues were primarily attributable to growth in revenues from overdraft fees compared to the same period last year.

          Mortgage banking income totaled $30 million in the first quarter of 2007, a decrease of $2 million, compared to $32 million earned in the first quarter of 2006. The following table provides a breakdown of the various components of mortgage banking income and other statistical information for the first quarters of 2007 and 2006:




BB&T Corporation           Page 35          First Quarter 2007 10-Q




Table 6
Mortgage Banking Income and Related Statistical Information
 
    For the Three Months Ended      
    March 31,      
Mortgage Banking Income   2007     2006   % Change  
  (Dollars in millions)  
 
Residential mortgage production income    $ 13   $ 13    %
 
Residential Mortgage Servicing:                
     Residential mortgage servicing fees   29     25   16.0  
 
     Residential mortgage servicing rights increase in fair value                
         due to change in valuation inputs or assumptions   7     29   NM  
     Mortgage servicing rights derivative losses   (3 )   (25 ) NM  
       Net   4     4   -  
 
     Relization of expected residential mortgage servicing rights cash flows (1)   (23 )   (18 ) 27.8  
         Total residential mortgage servicing income   10     11   (9.1 )
                    Total residential mortgage banking income   23     24   (4.2 )
Commercial mortgage banking income   7     8   (12.5 )
     Total mortgage banking income  $ 30   $ 32   (6.3 )
 
 
    As of / For the Three Months Ended      
    March 31,        
Mortgage Banking Statistical Information   2007     2006   % Change  
    (Dollars in millions)  
 
Residential mortgage originations   $ 2,461   $ 2,309   6.6  %
Residential mortgage loans serviced for others   28,647     26,027   10.1  
Residential mortgage loan sales   1,558     1,107   40.7  
 
Commercial mortgage originations  $ 516   $ 652   (20.9 ) %
Commercial mortgage loans serviced for others   9,316     8,282   12.5  

NM - Not Meaningful
(1) Represents economic amortization associated with the collection and realization of expected net servicing cash flows, expected borrower payments and the passage of time.

          Other nondeposit fees and commissions, including bankcard fees and merchant discounts and checkcard fees, totaled $114 million for the first quarter of 2007, an increase of $12 million, or 11.8%, compared to the first quarter of 2006. The principal driver of the first quarter increase was checkcard fees which increased $6 million, or 17.1%, compared to the same period in 2006.

          Trust income totaled $40 million for the first quarter of 2007, an increase of $3 million, or 8.1%, compared to the first quarter of 2006. Trust revenues are based on the types of services provided as well as the overall market value of assets managed, which is affected by market conditions. The increase in trust income for the first quarter of 2007 was primarily from growth in wealth management income.

          Other income, including income from bank-owned life insurance totaled $62 million for the first quarter of 2007, an increase of $13 million, or 26.5%, compared to the first quarter of 2006. The increase resulted primarily from a $19 million gain on the sale of an insurance operation and an increase of $6 million in income generated from bank-owned life insurance, primarily due to the restructuring of the underlying assets into higher-yielding investments in mid-2006. These increases were offset by a decline of $13 million from a gain on the sale of an investment held by a majority-owned small business investment company that invests in debt and equity securities of qualifying small businesses that was earned in the first quarter of 2006.

BB&T Corporation           Page 36          First Quarter 2007 10-Q




Noninterest Expense

          Noninterest expenses totaled $883 million for the first quarter of 2007, compared to $819 million for the same period a year ago, an increase of $64 million, or 7.8%. Noninterest expenses for the first quarter of 2007 include $6 million in net merger-related and restructuring charges. Noninterest expenses for the first quarter of 2006 include $3 million in net merger-related and restructuring credits.

          Personnel expense, the largest component of noninterest expense, was $524 million for the current quarter compared to $514 million for the same period in 2006, an increase of $10 million, or 1.9%. This increase was primarily attributable to higher salaries and wages, which were partially offset by a decrease in incentive compensation expenses compared to the first quarter last year. Salaries and wages increased as a result of the higher number of full-time equivalent employees in the current quarter compared to last year, due in part to the acquisitions of Main Street, First Citizens, AFCO and other companies since the end of the first quarter of 2006.

          Occupancy and equipment expense for the three months ended March 31, 2007 totaled $116 million, compared to $108 million for the first quarter of 2006, representing an increase of $8 million, or 7.4%. The increase for the first quarter of 2007 was primarily related to additional rent in connection with de novo branches opened since the first quarter of 2006 and acquisitions.

          Other noninterest expenses, including professional services and loan processing expenses, totaled $212 million for the current quarter, an increase of $37 million, or 21.1%, compared to the same period of 2006. The increase was primarily attributable to a $28 million pre-tax gain on the sale of duplicate facilities recorded in the first quarter of 2006.

Merger-Related and Restructuring Activities

          BB&T has been an active acquirer of financial institutions, insurance agencies and other nonbank fee income producing businesses for many years. BB&T recorded certain merger-related items and restructuring costs during both 2007 and 2006. During the first quarter of 2007, BB&T recorded $4 million in net after-tax charges. During the first quarter of 2006, BB&T recorded $2 million in net after-tax gains primarily associated with previously accrued charges for anticipated exit costs related to closed facilities. The above charges and credits are reflected in BB&T’s Consolidated Statements of Income as a category of noninterest expense.

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

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

BB&T Corporation           Page 37          First Quarter 2007 10-Q




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

          In conjunction with the consummation of an acquisition and the completion of other requirements, BB&T typically accrues certain merger-related expenses for estimated severance and other personnel costs, costs to terminate lease contracts, costs related to the disposal of duplicate facilities and equipment, costs to terminate data processing contracts and other costs associated with an acquisition. The following table presents a summary of activity with respect to BB&T’s merger-related and restructuring accruals. This table includes costs reflected as expenses, as presented in the Consolidated Statements of Income, and accruals recorded through purchase accounting adjustments.

  Table 7
  Merger Accrual Activity
  (Dollars in millions)
 
 
          Merger-related              
  Balance     and       Purchase   Balance
  January 1,     restructuring       price   March 31,
  2007        charges   Utilized   adjustments   2007
 
Severance and personnel-related items $ 12   $ 4 $ (3 ) $ - $ 13
Occupancy and equipment   4   1   (2 )   1   4
Other merger-related items   2     1   (1 )   -   2
     Total $ 18   $ 6 $ (6 ) $ 1 $ 19

          The remaining accruals at March 31, 2007 are related primarily to costs associated with severance payments to certain executive officers and costs to exit certain leases and to dispose of excess facilities and equipment. These liabilities will be utilized in the future because they relate to specific contracts or legal obligations that expire in later years, or they relate to the disposal of duplicate facilities and equipment, which may take longer to complete.

          In general, a major portion of accrued costs are utilized in conjunction with or immediately following the systems conversion, when most of the duplicate positions are eliminated and the terminated employees begin to receive severance. Other accruals are utilized over time based on the sale, closing or disposal of duplicate facilities or equipment or the expiration of lease contracts. Merger accruals are re-evaluated periodically and adjusted as necessary. The remaining accruals at March 31, 2007 are expected to be utilized during 2007, unless they relate to specific contracts that expire in later years.

BB&T Corporation           Page 38          First Quarter 2007 10-Q




Provision for Income Taxes

          The provision for income taxes totaled $222 million for the first quarter of 2007, an increase of $14 million compared to the same period of 2006, primarily due to increased tax reserves recorded in the first quarter of 2007 as a result of the adoption of FIN 48. BB&T’s effective income tax rates for the first quarters of 2007 and 2006 were 34.5% and 32.6%, respectively.

          BB&T has extended credit to, and invested in the obligations of, states and municipalities and their agencies, and has made other investments and loans that produce tax-exempt income. 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 2007 and 2006.

          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 taxing authorities’ examinations of BB&T’s tax returns, recent positions taken by the taxing authorities on similar transactions, if any, and the overall tax environment in relation to tax-advantaged transactions. Accordingly, the results of these examinations may alter the timing or amount of taxable income or deductions or the allocation of income among tax jurisdictions. In this regard, the Internal Revenue Service (“IRS”) disallowed certain deductions taken by BB&T on leveraged lease transactions during 1997-2002. In 2004, BB&T filed a lawsuit against the IRS to pursue a refund of amounts assessed by the IRS related to a leveraged lease transaction entered into during 1997. On January 4, 2007, the United States Middle District Court of North Carolina issued a summary judgment in favor of the IRS related to BB&T’s lawsuit. Based on a review of the summary judgment by BB&T’s counsel, BB&T’s management disagrees with the decision and during the first quarter filed a notice of appeal to the United States Appeals Court for the Fourth Circuit, based in Richmond, Virginia.

          BB&T paid $1.2 billion to the IRS during the first quarter of 2007. This payment represented the total tax and interest due on leveraged lease transactions for all open years. The tax paid relates to differences in the timing of income recognition and deductions for income tax purposes for which deferred taxes had been previously provided.

          Management has consulted with outside counsel and continues to believe that BB&T’s treatment of its leveraged lease transactions was appropriate and in compliance with the tax laws and regulations applicable to the years examined.


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BB&T Corporation           Page 39          First Quarter 2007 10-Q




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; however, market risk also includes product liquidity risk, price risk and volatility risk. The primary objective of interest rate risk management is to minimize any adverse effect that changes in interest rates may 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 Market Risk and Liquidity Committee 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 Market Risk and Liquidity Committee 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 Market Risk and Liquidity Committee also sets policy guidelines and establishes long-term strategies with respect to interest rate risk exposure and liquidity. The Market Risk and Liquidity Committee 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.

          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 the Market Risk and Liquidity Committee, management believes that BB&T is positioned 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 made 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.

BB&T Corporation          Page 40          First Quarter 2007 10-Q




          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 the 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 interest sensitive income as projected for the next twelve 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 interest sensitive income reflects the level of sensitivity that interest sensitive income has in relation to changing interest rates.

Table 8
Interest Sensitivity Simulation Analysis
 
 
    Interest Rate Scenario       Annualized Hypothetical  
              Percentage Change in  
Linear     Prime Rate       Net Interest Income  
Change in     March 31,       March 31,      
Prime Rate     2007   2006   2007   2006  
 
3.00  %   11.25  %   10.75  %   (3.22 ) %   0.70  %
1.50     9.75   9.25   (2.25 )   0.51  
No Change     8.25   7.75   -   -  
(1.50 )   6.75   6.25   1.65   (0.91 )
(3.00 )   5.25   4.75   1.97   (1.69 )

          Management has established parameters for asset/liability management, which prescribe a maximum negative impact on interest sensitive income of 3% for the next 12 months for a linear increase of 150 basis points for six months followed by a flat interest rate scenario for the remaining six month period, and a maximum negative impact of 6% for a linear increase of 300 basis points for 12 months.

BB&T Corporation           Page 41          First Quarter 2007 10-Q




Derivative Financial Instruments

          BB&T utilizes a variety of financial instruments to manage various financial risks. These instruments, commonly referred to as 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 manage risk related to securities, 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 and do not represent amounts to be exchanged between parties, and are not a measure of financial risk. On March 31, 2007, BB&T had derivative financial instruments outstanding with notional amounts totaling $40.2 billion. The estimated net fair value of open contracts was $(40 million) at March 31, 2007. This compares to $23.1 billion in notional derivatives with a fair value of $(45 million) at December 31, 2006. The majority of the increase in notional amounts was due to $8 billion in derivatives related to a private placement secured financing transaction and $7 billion in Eurodollar futures contracts related to hedging float on escrow deposits in BB&T’s mortgage banking operations.

          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 only with derivatives dealers that are 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, certain 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 frequently 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 March 31, 2007 was not material.




BB&T Corporation           Page 42          First Quarter 2007 10-Q




          The following tables set forth certain information concerning BB&T’s derivative financial instruments at March 31, 2007 and December 31, 2006:

Table 9-1
Derivative Classifications and Hedging Relationships
 
    March 31, 2007  
    Notional   Fair Value  
    Amount     Gain     Loss  
    (Dollars in millions)  
Derivatives Designated as Cash Flow Hedges:              
   Hedging business loans $ 2,119  $ 9 $ (18 )
   Hedging medium term bank notes   3,425   14   -  
 
Derivatives Designated as Fair Value Hedges:              
   Hedging long-term debt   7,900   45   (91 )
 
Derivatives not designated as hedges   26,715     61     (60 )
     Total $ 40,159   $ 129   $ (169 )
 
    December 31, 2006  
    Notional   Fair Value  
    Amount     Gain     Loss  
    (Dollars in millions)  
Derivatives Designated as Cash Flow Hedges:              
   Hedging business loans $ 2,119  $ 8 $ (22 )
   Hedging institutional certificates of deposit, other time              
deposits and federal funds purchased   750   -   -  
   Hedging medium term bank notes   1,925   20   -  
 
Derivatives Designated as Fair Value Hedges:              
   Hedging long-term debt   3,900   50   (97 )
 
Derivatives not designated as hedges   14,403     57     (61 )
     Total $ 23,097    $ 135   $ (180 )




BB&T Corporation           Page 43          First Quarter 2007 10-Q




Table 9-2
Derivative Financial Instruments
 
 
    March 31, 2007     December 31, 2006  
      Estimated        Estimated   
   Notional   Fair    Notional   Fair  
    Amount     Value     Amount   Value  
        (Dollars in millions)      
 
Receive fixed swaps $ 10,913 $ (43 ) $ 6,594 $ (57 )
Pay fixed swaps   4,146   (6 )   3,899   4  
Forward starting receive fixed swaps   1,574   10     1,285   5  
Forward starting pay fixed swaps   476   (1 )   544   -  
Other swaps   4,249   (5 )   264   (5 )
Caps, floors and collars   2,369   9     1,619   8  
Foreign exchange contracts   242   -     258   -  
Futures contracts   10,546   -     2,364   1  
Treasury forwards   418   (1 )   -   -  
Interest rate lock commitments   809   -     546   (1 )
Forward commitments   1,398   (1 )   1,217   2  
Swaptions   1,003   1     1,188   3  
When-issued securities and forward rate agreements   1,396   (3 )   2,613   (5 )
Options on contracts purchased and sold   620      -     706      -  
     Total $ 40,159    $ (40 ) $ 23,097   $ (45 )

          BB&T’s receive fixed swaps had weighted average receive rates of 4.91% and 4.93% and weighted average pay rates of 5.32% and 5.33% at March 31, 2007 and December 31, 2006, respectively. In addition, BB&T’s pay fixed swaps had weighted average receive rates of 5.22% and 5.24% and weighted average pay rates of 4.60% and 4.61%, at March 31, 2007 and December 31, 2006, respectively.

Contractual Obligations, Commitments, Contingent Liabilities, Off-Balance SheetArrangements
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 other 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, 2006, 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.

Back to Index

BB&T Corporation           Page 44          First Quarter 2007 10-Q





CAPITAL ADEQUACY AND RESOURCES

          The maintenance of appropriate levels of capital is a management priority and is monitored on a regular basis. BB&T’s principal goals related to the maintenance of capital are to provide adequate capital to support BB&T’s comprehensive risk profile, to preserve a sufficient capital base from which to support future growth, to provide a competitive return to shareholders, to comply with regulatory standards and to achieve optimal credit ratings for BB&T Corporation and its subsidiaries.

          Management regularly monitors the capital position of BB&T Corporation on a consolidated basis. In this regard, management’s overriding policy is to maintain capital at levels that will result in BB&T being classified as “well-capitalized” for regulatory purposes and to maintain sufficient capital relative to the Corporation’s level of risk. Secondarily, it is management’s intent to maintain consolidated capital levels that result in regulatory risk-based capital ratios that are generally comparable with BB&T’s peers of similar size, complexity and risk profile. Further, management particularly monitors and intends to maintain the following minimum capital ratios:

Tier 1 Capital Ratio   8.50 %
Total Capital Ratio  12.00 %
Tier 1 Leverage Capital Ratio  7.00 %
Tangible Capital Ratio  5.50 %

          While nonrecurring events or management decisions may result in the Corporation temporarily falling below its minimum guidelines for one or more of these ratios, it is management’s intent through capital planning to return to these targeted minimums within a reasonable period of time. Such temporary decreases below these minimums will not be considered an infringement of BB&T’s overall capital policy provided the Corporation and the subsidiary bank remains “well-capitalized.”

          Total shareholders’ equity was $11.7 billion at March 31, 2007 and December 31, 2006. BB&T’s book value per common share at March 31, 2007 was $21.48, compared to $21.69 at December 31, 2006. BB&T’s tangible shareholders’ equity was $6.4 billion at March 31, 2007, compared to $6.6 billion at December 31, 2006. BB&T’s tangible book value per common share at March 31, 2007 was $11.89 compared to $12.20 at December 31, 2006.

          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. Please refer to the section titled “Capital” in BB&T’s Annual Report on Form 10-K for the year ended December 31, 2006, for additional information with regards to BB&T’s capital requirements.

BB&T Corporation           Page 45          First Quarter 2007 10-Q




          BB&T’s regulatory capital ratios for the last five calendar quarters are set forth in the following table. The decline in BB&T’s capital ratios as of March 31, 2007 compared to December 31, 2006 was primarily the result of the reduction of $425 million in retained earnings in connection with the adoption of FIN 48 and FSP FAS 13-2.

Table 10
Capital Ratios
 
  2007   2006  
  First   Fourth   Third   Second   First  
  Quarter   Quarter   Quarter   Quarter   Quarter  
Risk-based capital ratios:                    
       Tier 1 capital 8.7  % 9.0  % 9.2  % 9.1  % 9.0  %
       Total capital 13.9   14.3   14.6   13.7   14.0  
Tier 1 leverage ratio 6.9   7.2   7.3   7.3   7.0  
Tangible Equity Ratio 5.5   5.7   5.8   5.5   6.0  

     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 June 27, 2006, BB&T’s Board of Directors granted authority under a new plan (the “2006 Plan”) for the repurchase of up to 50.0 million shares of BB&T’s common stock as needed for general corporate purposes. The 2006 plan also authorizes the repurchase of the remaining 1.1 million shares from the previous authorization. The 2006 plan remains in effect until all the authorized shares are repurchased unless modified by the Board of Directors.

Table 11
Share Repurchase Activity
 
  2007
          Maximum Remaining
          Number of Shares
  Total   Average Total Shares Purchased Available for Repurchase
  Shares   Price Paid Pursuant to Pursuant to
  Repurchased (1)     Per Share (2) Publicly-Announced Plan Publicly-Announced Plan
January 1-31 24,485   $ 43.39 - 51,139,497
February 1-28 7,276   43.35 - 51,139,497
March 1-31 23,291     40.53 - 51,139,497
   Total 55,052  $ 42.17 - 51,139,497

(1)  Repurchases reflect shares exchanged or surrendered in connection with the exercise of equity-based awards under BB&T's equity-based compensation plans.
(2)  Excludes commissions.
 

BB&T Corporation           Page 46          First Quarter 2007 10-Q




SEGMENT RESULTS

          BB&T’s operations are divided into seven reportable bu